Farm that rice paddy
Rice futures hedge harvest price
Flood the field on time
Rice futures hedge harvest price
Flood the field on time
Showing posts with label agriculture. Show all posts
Showing posts with label agriculture. Show all posts
Monday, August 24, 2015
Sourcing The ROI Of Rice Production
I picked up some literature from the International Rice Research Institute that got me thinking about agribusiness. Rice is a popular crop worldwide. The dried grains maintain edibility for decades. Farmers in developing countries need decent prices for this staple crop, and their customers need a high-nutrient diet. Analysts need good data sources for rice production.
The most obvious data sources cover the basics. Oryza lists rice price quotes for multiple qualities and grain types, useful for importers and exporters who traffic in specific lines and must account for logistics. NASDAQ's quote only lists one price for CBOT rough rice, which is probably sufficient for US-based producers but insufficient for analysts tracking global rice production. The UN's FAO reports regular prices for multiple foodstuffs, including the world rice price. IFPRI's Food Security Portal defines the world rice price as "the monthly average of weekly prices for White Broken Rice, Thai A1 Super, and FOB Bangkok." Now we're getting to a broad, singular metric. Aggregate market data is available in the FAO Rice Market Monitor (RMM), FAO Rice Price Update, and USDA Farm Service Agency "Rice Reports" (check the website's Food Grains Analysis section).
A quick perusal of Google search results related to rice farming reveals the ability to flood a field as a crucial input. Cold weather can prevent timely flooding. No farmer wants a frozen rice paddy. I don't recall seeing any rice fields whenever I visited Wisconsin, but that cold state does have plenty of cranberry bogs. I expect California's continuing drought to seriously harm water-intensive crops like rice. The microeconomics of farm management is beyond the scope of my blog.
There is no pure-play tradeable security covering only the rice subsector of agribusiness. Commodity ETFs and agribusiness sector ETFs have only limited rice exposure. Adventurous rice investors may look to CME Group's Rough Rice Futures for contract exposure. Rough rice futures can be a hedge for farmers, traders and others who are directly exposed to US rice production and NASDAQ's price quote, but these futures do not necessarily correspond to FAO's world rice price. Arbitrage is only possible when the same commodity has a different price in two markets. The US rice price and the world rice price are not the same thing, just as the WTI oil price is not the Brent price. Perhaps the rice price spread between the US and the world can tell us as much about production and distribution costs as the WTI-Brent crude spread.
I have noted that other commercial data services exist to track the rice business, but they mostly repeat the free data anyone can get from the USDA and FAO. The analyst community needs more than price knowledge to track the rice ROI. Weather, logistics, soil quality, and regulation all matter. Energy utilization also matters; fertilizer needs ammonia and natural gas, and pesticides need petroleum. The very divergent prices for rice make farming a challenge. I am glad to be an analyst, and not a rice farmer.
Full disclosure: No exposure to rice-related financial instruments at this time. The author does frequently eat rice, and has a few bags of the stuff at home.
The most obvious data sources cover the basics. Oryza lists rice price quotes for multiple qualities and grain types, useful for importers and exporters who traffic in specific lines and must account for logistics. NASDAQ's quote only lists one price for CBOT rough rice, which is probably sufficient for US-based producers but insufficient for analysts tracking global rice production. The UN's FAO reports regular prices for multiple foodstuffs, including the world rice price. IFPRI's Food Security Portal defines the world rice price as "the monthly average of weekly prices for White Broken Rice, Thai A1 Super, and FOB Bangkok." Now we're getting to a broad, singular metric. Aggregate market data is available in the FAO Rice Market Monitor (RMM), FAO Rice Price Update, and USDA Farm Service Agency "Rice Reports" (check the website's Food Grains Analysis section).
A quick perusal of Google search results related to rice farming reveals the ability to flood a field as a crucial input. Cold weather can prevent timely flooding. No farmer wants a frozen rice paddy. I don't recall seeing any rice fields whenever I visited Wisconsin, but that cold state does have plenty of cranberry bogs. I expect California's continuing drought to seriously harm water-intensive crops like rice. The microeconomics of farm management is beyond the scope of my blog.
There is no pure-play tradeable security covering only the rice subsector of agribusiness. Commodity ETFs and agribusiness sector ETFs have only limited rice exposure. Adventurous rice investors may look to CME Group's Rough Rice Futures for contract exposure. Rough rice futures can be a hedge for farmers, traders and others who are directly exposed to US rice production and NASDAQ's price quote, but these futures do not necessarily correspond to FAO's world rice price. Arbitrage is only possible when the same commodity has a different price in two markets. The US rice price and the world rice price are not the same thing, just as the WTI oil price is not the Brent price. Perhaps the rice price spread between the US and the world can tell us as much about production and distribution costs as the WTI-Brent crude spread.
I have noted that other commercial data services exist to track the rice business, but they mostly repeat the free data anyone can get from the USDA and FAO. The analyst community needs more than price knowledge to track the rice ROI. Weather, logistics, soil quality, and regulation all matter. Energy utilization also matters; fertilizer needs ammonia and natural gas, and pesticides need petroleum. The very divergent prices for rice make farming a challenge. I am glad to be an analyst, and not a rice farmer.
Full disclosure: No exposure to rice-related financial instruments at this time. The author does frequently eat rice, and has a few bags of the stuff at home.
Monday, January 26, 2015
The Haiku of Finance for 01/26/15
Potato crop yield
Enhance harvest with data
A lot more French fries
Enhance harvest with data
A lot more French fries
Sunday, May 25, 2014
The Limerick of Finance for 05/25/14
Beef prices are rising quite fast
It's now an expensive repast
We could hit Peak Meat
With little to eat
The beef-heavy diet won't last
It's now an expensive repast
We could hit Peak Meat
With little to eat
The beef-heavy diet won't last
Monday, February 24, 2014
Financial Disruption Opportunities In Meatonomics
The Commonwealth Club presented one of its awesome Climate One shows today on meat. The author of Meatonomics and the head of the California Cattlemen's Association discussed the meat industry's effects on our climate. The science behind the contribution of livestock to global warming has been contentious ever since the UN FAO's 2006 report "Livestock's Long Shadow." The existence of a baseline of methane production from livestock is more important to the public than the amount of production. This invites regulation, which in turn opens the possibility of entrepreneurial disruption.
The livestock industry has tried to criminalize whistleblowing exposures of its dirtier practices by lobbying for ag-gag laws. When these laws succeed, our democracy is poorer for the lack of informed consent in what we consume. The Pew Commission on Industrial Farm Animal Production notes that the concentration of food processing in the hands of a few large companies creates unique food supply stresses that are a departure from much of American history. This evolution of the livestock industry invites entrepreneurial disruption from food producers who transparently display their livestock processing.
Organically raised meat is fashionable in places like the San Francisco Bay Area. This says little about its advantages in profitability or even sustainability. Like anything else dependent on cold chain logistics, the financial viability of organically raised meat may vary by geography and the cost of energy. The American Grassfed Association won't want to hear the Meatonomics evidence that grassfed cattle contribute measurably more methane to the atmosphere than cattle that are corn-fed in commercial breeding programs. This implies that innovations to capture methane and other greenhouse gases from cattle production, and convert them into energy that brings ranches close to net-zero energy use, will find a ready market in the organic sector. The rural land experts at the American Society of Farm Managers and Rural Appraisers (ASFMRA) have a large body of knowledge for types of land suited for agricultural production. Food entrepreneurs don't have to reinvent the wheel. The USDA-funded Agricultural Marketing Resource Center describes grants and data available to agribusiness entrepreneurs. Anyone going whole hog (pun intended) into organic production should do their market research first.
Sometimes Uncle Sam helps out agricultural innovation in small ways. The USDA's NRCS maintains an Environmental Quality Incentives Program (EQIP) that provides grants for producers' conservation projects. A truly free market approach would eliminate federal crop insurance, price support programs, and insurance for floodplain habitation. Those reforms would be much more appropriate targets for the livestock industry's lobbying than more ag-gag laws. One area that probably will not see reform is the existence of commodity checkoff programs that fund sector-wide promotions. Entrepreneurial producers of sustainable foods may as well use checkoffs to their advantage while they exist.
Meatonomics may not succeed in convincing Americans to reduce meat consumption, but cattle ranchers are amenable to arguments for more sustainable production. This allows room for ag-tech entrepreneurs. Understanding where to begin means knowing USDA's AWIC farm animal standards. Launching disruption means mastering USDA's AFSIC organic production practices. It takes more than a fortnight to connect the market data from the Economic Research Service and the National Agricultural Statistics Service but farmers and the American Farm Bureau Federation do it all the time. Food technology startups are the new darlings in the VC sector's eyes. They can attract funding if they disrupt the unsustainable practices of industrial farm animal production.
The livestock industry has tried to criminalize whistleblowing exposures of its dirtier practices by lobbying for ag-gag laws. When these laws succeed, our democracy is poorer for the lack of informed consent in what we consume. The Pew Commission on Industrial Farm Animal Production notes that the concentration of food processing in the hands of a few large companies creates unique food supply stresses that are a departure from much of American history. This evolution of the livestock industry invites entrepreneurial disruption from food producers who transparently display their livestock processing.
Organically raised meat is fashionable in places like the San Francisco Bay Area. This says little about its advantages in profitability or even sustainability. Like anything else dependent on cold chain logistics, the financial viability of organically raised meat may vary by geography and the cost of energy. The American Grassfed Association won't want to hear the Meatonomics evidence that grassfed cattle contribute measurably more methane to the atmosphere than cattle that are corn-fed in commercial breeding programs. This implies that innovations to capture methane and other greenhouse gases from cattle production, and convert them into energy that brings ranches close to net-zero energy use, will find a ready market in the organic sector. The rural land experts at the American Society of Farm Managers and Rural Appraisers (ASFMRA) have a large body of knowledge for types of land suited for agricultural production. Food entrepreneurs don't have to reinvent the wheel. The USDA-funded Agricultural Marketing Resource Center describes grants and data available to agribusiness entrepreneurs. Anyone going whole hog (pun intended) into organic production should do their market research first.
Sometimes Uncle Sam helps out agricultural innovation in small ways. The USDA's NRCS maintains an Environmental Quality Incentives Program (EQIP) that provides grants for producers' conservation projects. A truly free market approach would eliminate federal crop insurance, price support programs, and insurance for floodplain habitation. Those reforms would be much more appropriate targets for the livestock industry's lobbying than more ag-gag laws. One area that probably will not see reform is the existence of commodity checkoff programs that fund sector-wide promotions. Entrepreneurial producers of sustainable foods may as well use checkoffs to their advantage while they exist.
Meatonomics may not succeed in convincing Americans to reduce meat consumption, but cattle ranchers are amenable to arguments for more sustainable production. This allows room for ag-tech entrepreneurs. Understanding where to begin means knowing USDA's AWIC farm animal standards. Launching disruption means mastering USDA's AFSIC organic production practices. It takes more than a fortnight to connect the market data from the Economic Research Service and the National Agricultural Statistics Service but farmers and the American Farm Bureau Federation do it all the time. Food technology startups are the new darlings in the VC sector's eyes. They can attract funding if they disrupt the unsustainable practices of industrial farm animal production.
Monday, February 17, 2014
Profiting From Drought
The California drought is real. The US Drought Monitor presently shows an alarming concentration of red in the Golden State. The US cattle herd count is at its lowest since 1951 and drought-impacted ranchers will probably overwhelm the USDA Farm Service Agency with disaster requests under the Livestock Forage Disaster Program (LFP) and other forms of disaster assistance. The US Drought Portal is going to stay busy for a while. Exogenous shocks that make markets unstable provide opportunities for entrepreneurs to solve problems. The shock from drought can force transformations in agribusiness.
The USDA Agricultural Research Service (ARS) operates an Office of Technology Transfer. Entrepreneurs should start there and cherry-pick (pun intended) innovations from the USDA National Agricultural Library that apply directly to agriculture. The USDA Agricultural Technology Innovation Partnership (ATIP) is an umbrella initiative to share the government's technical knowledge with multiple private sector partners.
Resources for tech startups in the food sector are rapidly proliferating. Kitchen incubators are all over the place, like La Cocina in San Francisco. I like niche incubators because their focus attracts industry-specific expertise. Incubators serving the broader tech sector have become victims of their own success. Attracting applicants from mobile, social media, and gaming means the most popular incubators have quickly lost focus. Maintain the niche focus means food incubators have the luxury of dealing only with food technologies.
Large enterprises can also jump on the drought mitigation bandwagon. California's drought may lead to significant shortages of popular fruits and vegetables, so agribusiness from the rest of the country now has the opportunity of a lifetime to capture market share. Activists will have to rethink their opposition to genetically modified crops if drought resistant crops can prevent food shortages in North America. Desalination is a long-term pipe dream (again, pun intended) for solving California's water problems but it will consume billions of dollars in capital. Water utility stocks may finally get their time to shine.
None of these options will go anywhere without backing from investors. The persistence of drought from climate change means a persistent need for market-based solutions. Investors focusing in the water-energy-food security nexus will find tons of opportunities to make a buck. They may also find a ton of risk if they focus exclusively on backwardation in the commodity futures markets. Profiting from drought is a moral good if it drives capital into technological innovations that enhance human quality of life during resource scarcity.
The USDA Agricultural Research Service (ARS) operates an Office of Technology Transfer. Entrepreneurs should start there and cherry-pick (pun intended) innovations from the USDA National Agricultural Library that apply directly to agriculture. The USDA Agricultural Technology Innovation Partnership (ATIP) is an umbrella initiative to share the government's technical knowledge with multiple private sector partners.
Resources for tech startups in the food sector are rapidly proliferating. Kitchen incubators are all over the place, like La Cocina in San Francisco. I like niche incubators because their focus attracts industry-specific expertise. Incubators serving the broader tech sector have become victims of their own success. Attracting applicants from mobile, social media, and gaming means the most popular incubators have quickly lost focus. Maintain the niche focus means food incubators have the luxury of dealing only with food technologies.
Large enterprises can also jump on the drought mitigation bandwagon. California's drought may lead to significant shortages of popular fruits and vegetables, so agribusiness from the rest of the country now has the opportunity of a lifetime to capture market share. Activists will have to rethink their opposition to genetically modified crops if drought resistant crops can prevent food shortages in North America. Desalination is a long-term pipe dream (again, pun intended) for solving California's water problems but it will consume billions of dollars in capital. Water utility stocks may finally get their time to shine.
None of these options will go anywhere without backing from investors. The persistence of drought from climate change means a persistent need for market-based solutions. Investors focusing in the water-energy-food security nexus will find tons of opportunities to make a buck. They may also find a ton of risk if they focus exclusively on backwardation in the commodity futures markets. Profiting from drought is a moral good if it drives capital into technological innovations that enhance human quality of life during resource scarcity.
Saturday, August 24, 2013
Estate Taxes Have Little Effect On Family Farms
About a week ago at a business event I heard someone make the claim that estate heirs must often sell a family-owned farm to pay the estate taxes owed after the primary owner dies. I wondered about the facts behind this claim. Let's go get those facts.
The Congressional Budget Office study titled "Effects of the Federal Estate Tax on Farms and Small Businesses" (published July 1, 2005) determined that only a small percentage of estates with family farms have liquid assets insufficient to pay estate taxes. Estates can value farms at a lower "current use" valuation provided they remain in operation for another 15 years. Many family farms do not even meet the minimum valuation threshold that would subject them to estate taxes. These qualifications exist to protect small family farms from liquidation if estate taxes place them in jeopardy.
The Land Trust Alliance has done leading-edge work on tax matters affecting farmland. Families can use land trusts to shelter portions of inherited land from estate taxes. There are plenty of legal ways to pass farms intergenerationally through estates without getting people all worked up with scare stories about liquidation to pay taxes. Check out IRS rules on small businesses and estate taxes for more details.
Remember that estates are considered as a whole and farmland is just one asset of your dead relative's wealth. Stop listening to baloney stories from scare-mongers who want to prompt you into unnecessary action. Don't let some slick sales jerk frighten Grandma or Grandpa into an early grave with a hard sell on some scam transaction. Throw that jerk off your farm.
Rainbow Grocery Cooperative Is Full Of SF's Fruits And Nuts
I shopped at Rainbow Grocery Cooperative in San Francisco once, years ago, because it was the only place in San Francisco where I could find a bottle of mead. Once I became aware of what this place represents, the revelation shall keep me away forever.
Rainbow Grocery Cooperative is the type of place the rest of America throws in San Francisco's face as an example of our collective stupidity. The business model of a worker-owned co-op only makes sense if it delivers value to the customer. The product selection and layout of this grocery store deliver no such value. Much of the health fare (organic this, granola that) is overpriced compared to Whole Foods, with less variety. Many of the cheese and wine selections are overpriced compared to Andronico's. I compare prices everywhere I shop and just about everything at Rainbow is probably a better deal somewhere else.
The row upon row of craft-cult dietary supplements make me laugh. Organic items are supposed to be healthy in and of themselves. A balanced diet needs no supplements but cognitively challenged San Franciscans believe they need every special little grain of whatnot they can cram into their gullets. It's part of The City's superiority complex. Sprinkle that organic flax seed onto your quinoa and couscous, and wash it down with an acai-pomegranate-aloe smoothie. Do it, people, or you'll be standing in the corner at the next cocktail party. Some peasant raised those things on a certified conflict-free farm just for your special little stomach.
Shoppers need to know that some Rainbow Grocery supporters are openly sympathetic to Palestinian "liberation" organizations. Feel free to search the web for more info on Hamas, the Muslim Brotherhood, and other like-minded groups. If you love Loony Left causes and other forms of mental illness, then you'll find a home here with other malcontents and ne'er-do-wells on the fringes of our society. If you envy capitalist success, then Rainbow Grocery Cooperative is for you. It's definitely not for me.
Rainbow Grocery Cooperative is the type of place the rest of America throws in San Francisco's face as an example of our collective stupidity. The business model of a worker-owned co-op only makes sense if it delivers value to the customer. The product selection and layout of this grocery store deliver no such value. Much of the health fare (organic this, granola that) is overpriced compared to Whole Foods, with less variety. Many of the cheese and wine selections are overpriced compared to Andronico's. I compare prices everywhere I shop and just about everything at Rainbow is probably a better deal somewhere else.
The row upon row of craft-cult dietary supplements make me laugh. Organic items are supposed to be healthy in and of themselves. A balanced diet needs no supplements but cognitively challenged San Franciscans believe they need every special little grain of whatnot they can cram into their gullets. It's part of The City's superiority complex. Sprinkle that organic flax seed onto your quinoa and couscous, and wash it down with an acai-pomegranate-aloe smoothie. Do it, people, or you'll be standing in the corner at the next cocktail party. Some peasant raised those things on a certified conflict-free farm just for your special little stomach.
Shoppers need to know that some Rainbow Grocery supporters are openly sympathetic to Palestinian "liberation" organizations. Feel free to search the web for more info on Hamas, the Muslim Brotherhood, and other like-minded groups. If you love Loony Left causes and other forms of mental illness, then you'll find a home here with other malcontents and ne'er-do-wells on the fringes of our society. If you envy capitalist success, then Rainbow Grocery Cooperative is for you. It's definitely not for me.
Thursday, December 27, 2012
The Haiku of Finance for 12/27/12
Hail future farmers
World diet will demand more
Millions to be made
World diet will demand more
Millions to be made
Sunday, October 14, 2012
The Limerick of Finance for 10/14/12
Ben denies the Fed hurts currencies
He vows to continue to ease
The dollar gets weak
Food shortages peak
Raising prices in many countries
He vows to continue to ease
The dollar gets weak
Food shortages peak
Raising prices in many countries
Friday, August 10, 2012
Friday, April 20, 2012
Stevia First (STVF) Needs To Make Money First
The Chuck Hughes Microcap Report sent me a teaser for Stevia First (STVF). The name rang a bell, so I checked my archives to see if I'd blogged about this one before. It turns out that I had written about a similarly-named company back in December 2011. I don't repeat myself but sometimes I rhyme. This one's different, but with similar enough prospects.
Stevia First started as something called Legend Mining. The very last thing Legend Mining did before changing its name to Stevia First was lease an office from their CEO's wife, according to their Oct. 11, 2011 8-K. I shouldn't have to tell you that they achieved zero success as a mining company, but their 2011 annual report tells you so anyway. They're not achieving any success selling stevia sweetener either; they've had no revenue since changing their corporate mission, they've depleted their cash, and they've increased their liabilities.
The management team of Stevia First looks kind of familiar. They are the living connections between OncoSec Medical (which I analyzed last month), Inovio Pharmaceuticals, and Stevia First. None of these firms are making any money. I would like to hear this crew explain how they will succeed across the entire spectrum of their endeavors. I won't hold my breath.
Interestingly enough, Chuck Hughes also pumps the similarly-named stock I checked out last December. He can have it, along with all the stevia he can swallow.
Full disclosure: No positions at all in STVF or any other companies mentioned, thankfully.
Stevia First started as something called Legend Mining. The very last thing Legend Mining did before changing its name to Stevia First was lease an office from their CEO's wife, according to their Oct. 11, 2011 8-K. I shouldn't have to tell you that they achieved zero success as a mining company, but their 2011 annual report tells you so anyway. They're not achieving any success selling stevia sweetener either; they've had no revenue since changing their corporate mission, they've depleted their cash, and they've increased their liabilities.
The management team of Stevia First looks kind of familiar. They are the living connections between OncoSec Medical (which I analyzed last month), Inovio Pharmaceuticals, and Stevia First. None of these firms are making any money. I would like to hear this crew explain how they will succeed across the entire spectrum of their endeavors. I won't hold my breath.
Interestingly enough, Chuck Hughes also pumps the similarly-named stock I checked out last December. He can have it, along with all the stevia he can swallow.
Full disclosure: No positions at all in STVF or any other companies mentioned, thankfully.
Friday, December 02, 2011
Stevia (STEV) Sweetner Does Not Deliver Sweet Financials
Here's a more recent pitch from my bursting mailbag of touts and teasers. Shawn Ambrosino's M3 Profit Accelerator sent me an "Urgent Buy Alert" for a company called Stevia Corp (STEV). This wasn't just any old buy alert, but apparently a very urgent one indeed. Let's see if the urgency is justified.
Stevia makes artificial sweeteners. How nice of them. There's a YouTube video of a news report on the sweetener's FDA approval process. I'm less interested in the science behind this new substance than this particular company's approach to making money off the stuff.
Here we go again with the fundamentals. Yahoo Finance shows us the reality behind the touting. Three straight years of negative income, retained earnings, and free cash flow. Need I say more? I will add that the video mentioned competing sweeteners from large players like Cargill. There is no reason for Coca-Cola, Pepsi, or other soft drink makers to source their sweeteners from a tiny company like Stevia Corp. when they can be assured of a much larger supply from Cargill et al.
There may be some stevia (small "s" for the plant) sweeteners in my soft drinks but there won't be any STEV in my portfolio. They just haven't made any money.
Full disclosure: No position in any company mentioned, especially STEV.
Stevia makes artificial sweeteners. How nice of them. There's a YouTube video of a news report on the sweetener's FDA approval process. I'm less interested in the science behind this new substance than this particular company's approach to making money off the stuff.
Here we go again with the fundamentals. Yahoo Finance shows us the reality behind the touting. Three straight years of negative income, retained earnings, and free cash flow. Need I say more? I will add that the video mentioned competing sweeteners from large players like Cargill. There is no reason for Coca-Cola, Pepsi, or other soft drink makers to source their sweeteners from a tiny company like Stevia Corp. when they can be assured of a much larger supply from Cargill et al.
There may be some stevia (small "s" for the plant) sweeteners in my soft drinks but there won't be any STEV in my portfolio. They just haven't made any money.
Full disclosure: No position in any company mentioned, especially STEV.
Saturday, July 16, 2011
Wednesday, July 13, 2011
Critiquing Some "Sovereign Investing" Concepts
A fellow private investor asked me today for my assessment of the following portfolio ideas for a hyperinflating economy:
- Physical gold and silver
- Agricultural commodities
- Cash-rich large-cap stocks
Those ideas were mentioned in today's edition of "The Sovereign Investor" email from Eric Roseman. Here's my critique. Physical gold and silver don't come in small denominations. They will be quickly depleted in a barter economy. Try dividing a gold brick into spare change at the grocery store and you'll see what I mean. Gold and silver have to produce some kind of yield - like dividends from mining stocks - to be practically useful.
Foodstuffs make excellent stockpiles of hard assets for hard times. I have many shelves full of canned goods and will keep adding to my pile. I would have to take a serious look at agriculture-related stocks' fundamentals (five year ROE, etc.) to complete this part of the portfolio.
Cash-rich large cap stocks can be deceptive; it all depends on what the balance sheet is hiding. GE was cash-rich in 2008 but took TARP money to avoid a bailout. Investors would have to sift through a cash-rich company's financials to figure out just how quickly that cash would be depleted if hyperinflation pushed up raw material costs faster than the firm can raise prices.
It's not bad advice in general because it covers several asset classes that are mostly non-correlated. The key is to translate these things into forms that are fungible and allow investors to pay for their daily existence without depleting their portfolios. John T. Reed's book on hyperinflation is a much better guide to assembling a portfolio.
Full disclosure: Long GDX with covered calls.
- Physical gold and silver
- Agricultural commodities
- Cash-rich large-cap stocks
Those ideas were mentioned in today's edition of "The Sovereign Investor" email from Eric Roseman. Here's my critique. Physical gold and silver don't come in small denominations. They will be quickly depleted in a barter economy. Try dividing a gold brick into spare change at the grocery store and you'll see what I mean. Gold and silver have to produce some kind of yield - like dividends from mining stocks - to be practically useful.
Foodstuffs make excellent stockpiles of hard assets for hard times. I have many shelves full of canned goods and will keep adding to my pile. I would have to take a serious look at agriculture-related stocks' fundamentals (five year ROE, etc.) to complete this part of the portfolio.
Cash-rich large cap stocks can be deceptive; it all depends on what the balance sheet is hiding. GE was cash-rich in 2008 but took TARP money to avoid a bailout. Investors would have to sift through a cash-rich company's financials to figure out just how quickly that cash would be depleted if hyperinflation pushed up raw material costs faster than the firm can raise prices.
It's not bad advice in general because it covers several asset classes that are mostly non-correlated. The key is to translate these things into forms that are fungible and allow investors to pay for their daily existence without depleting their portfolios. John T. Reed's book on hyperinflation is a much better guide to assembling a portfolio.
Full disclosure: Long GDX with covered calls.
Friday, August 13, 2010
Don't Fight Slides Of Dollar Or Equities
If investing is about fundamentals, then currency investing is about betting on a country's overall health. The U.S. dollar's slide is a sign that the rest of the world is discounting U.S. assets. The next shoe to drop: U.S. equity markets should soon follow the dollar down. The increasingly jobless recovery is a forewarning for those who choose to listen. We're not as bad as Greece yet but we'll get there soon enough.
Any good news for America lately? Well, a weaker dollar will help exports. The Russian drought isn't the only reason U.S. grain exports are rising; a cheap dollar makes them more competitive.
Any good news for America lately? Well, a weaker dollar will help exports. The Russian drought isn't the only reason U.S. grain exports are rising; a cheap dollar makes them more competitive.
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