Why Farmland Is A Better Hedge Than Gold

A lot of investors are worried about inflation in the future, which helped Gold prices rally recently as investors sought a hedge against the dollar. However, consider farmland values which outpaced inflation by 2% from 1941 to 2002 and unlike gold has intrinsic value in its ability to produce food. See the following from Daily Wealth to learn more about investing in farmland.

In the past few years, there's been an explosion of investor interest in "hedges."

Investors want to own foreign real estate for a hedge against a big depression in the United States. They want to own gold for a hedge against a dollar crisis. They want to own oil for a hedge against inflation.

But consider this "hedge factor"...

Between 1941 and 2002, average farmland values outpaced the growth of inflation by 2%.

In fact, some call farmland as good as gold with yield – because you clock in steady income from rents while you wait for the value to grow. I can think of no better asset to own during any kind of financial crisis.

In some ways, farmland is even better than gold or silver. At least farmland is an intrinsically useful thing. It provides a tangible yield in the form of good things from the earth. We all have to eat. As consumers trim their sails, they'll give up a lot before they give up their calorie intake.

Governments, particularly in times of crisis – like now – have a tendency to flood the system with money in an attempt to "goose" the economy. Mostly, such efforts have succeeded in destroying the value of the currency in question.

Anyway, if you believe that we will continue to feel the bane of inflation, then farmland's performance in the 1970s will give you some comfort... While you lost half of your money in the S&P 500, your farmland kept its value nicely. Again, I think that's rooted in the fact that farmland is intrinsically useful. It produces useful and needed things.

Now imagine what farmland might do in today's climate, in which you have not only the likely prospect of inflation, but also a tightening supply of farmland and rising demand for crops. You have biofuels eating up more of our grain supply. I imagine you'll do quite a bit better than in the 1970s.

Farmland treated British investors great just last year. As British housing prices collapsed in 2008, British farmland value rose by 21%. Over the last five years, Brit farmland rose a total 135%. Forget commercial property. That's not a bad ROI in my book.

And there's one more way to look at it: This hedge can outperform gold. In Britain, the farmer outpaced the gold owner. Expanding land values rode up 115% since 1983, versus gold at 81%. You can be sure institutional investors are already placing their long-term bets. Almost half the farmland bought there last year was snapped up by banks and funds.

The obvious investment conclusion: If you're worried about the dollar, the economy, or any other problem, buy farmland today. This is hard to do directly through the stock market... so I encourage you to consider a private deal. You can play agriculture through companies that manufacture irrigation equipment, produce fertilizer, or operate grain-handling facilities.

Check these investments out soon. I think we're in for broad farmland/agriculture rally that should be good for hundreds of percent returns. As you can see from farmland's past results, it's a great hedge in all kinds of environments.

This post has been republished from Steve Sjuggerud's blog, Daily Wealth.

Deflation Risk Averted But Could Massive Inflation Be Around The Corner?

By creating nearly $4 trillion in new money and credit, representing the largest increase by the American federal government since the country's Civil War, the monetary system has been repaired and deflation is no longer an imminent risk. But a lack of political will and continued annual deficits in excess of $1 trillion through 2016, along with significant pressures in the economy, could likely lead to broad inflation over the next two years, with gold and strategic assets offering potential shelter from the expected storm. Porter Stansberry from Daily Wealth discusses this below.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.
– Ludwig von Mises

For most of 2009, I've had a friendly disagreement with several colleagues who believe a big deflation will be the end result of the 2008 financial crisis.

I knew they were wrong. I knew inflation would become a problem sooner, rather than later. And in the past several months, I've been proven right.

The mortgage and banking collapse of 2007-2009 saw total collateral values collapse between $5 trillion and $10 trillion. The response from our politicians and central bankers was massive: the largest creation of new money in credit since the Civil War.

The Federal Reserve created roughly $2 trillion in additional credit and loaned it against all kinds of dubious collateral, things like Bear Stearns' mortgage book. (There's a handy and simple guide to estimating the Fed's credit quality. The more acronyms in the lending programs, the worse it gets.)

The Federal government responded with a record annual deficit of at least $1.8 trillion. In the second half of 2008, the outstanding federal debt grew by roughly a 40% annualized pace (24% for the entire year). Thus, in only a few months' time, the roots – the money and credit – underlying our economy expanded at a record pace.

In the second half of last year and the first quarter of 2009, the main question in the world's financial markets was: Can the world's government print enough money, fast enough, to forestall a deflationary collapse?

I knew it was no contest. There is no way for an economy to outrun a printing press. The Fed has the power to create an unlimited amount of money or credit and the power to inject that money into the economy in any way it sees fit.

Let's look at the numbers. Let's assume the total collateral damage of the banking crisis turns out to be $5 trillion. Yes, that's a huge hit – roughly half the output of our economy each year. It's the equivalent of sending every American household a bill for $50,000 – due immediately. However, in less than a year, the Feds have already created nearly $4 trillion in new money and credit. The hole in the system has already been plugged. It only took a few months.

The fight between inflation and deflation is over. Deflation was knocked out in the first round.

The big risk is what happens next. Having turned on the presses to save the day, who will have the political clout and the desire to shut them off? Barack Obama's budget calls for annual deficits in excess of $1 trillion for the next eight years. Thus, by the end of this year, not only will all of the damage from the mortgage collapse ($5 trillion) be replaced by new money and credit, there will be significant inflationary pressures in the economy.

The good news in our economy this year, so soon after such a major collapse, means we will certainly have a massive inflation during 2010 and 2011. There's no such thing as a free ride. Bailing out the banks will carry a heavy price for anyone who doesn't have the resources or the knowledge to escape the dollar.

How can you "escape"? First off, make sure you own plenty of gold bullion. I also recommend owning assets that will run higher in an inflationary environment, like vital transportation and energy assets. Also, own some good farmland. Food and land prices will go higher.

Yes, the news is grim... but if you own gold and strategic assets, you'll survive and prosper in the coming inflation.

This article has been republished from Daily Wealth, a contrarian investment analysis and advice site.