Owning Land

IN THE NAME OF ALLAH – THE SOURCE OF MERCY – THE MOST MERCIFUL

THE CASE OF OWNING AGRICULTURAL / FARMING LAND 

If you believe as we do that government issued currency is going to collapse and the entire financial and monetary system will soon go through a massive change, then owning agricultural / farmland producing property may be one of the best ways to survive and prosper during this period.

Here are some of the main reasons for that belief:

It Can’t Be Repatriated

As the countries around the world continues to devolve the insolvent and bankrupt overly-indebted governments will continue to feed off of the assets of their own citizens at a rising pace, just ask any Cypriot. This is far from just conjecture as it has happened continually throughout modern history.

In 1933, the US government confiscated the gold of its citizens and did not even allow them to own non-jewellery gold until again until the 1970's. More recently, France has increased its top income tax rates to 75% and even tried to move them to 100% as they skirted with going “full commie”. Never go “full commie”. 

There have also been a rash of pension fund seizures throughout the West. In 2009, Ireland seized €4 billion from its Pension Reserve fund. In 2010 Hungary told its citizens to remit their private pension funds to the government. Later in 2010 the French parliament took €33 billion from their national reserve pension fund and in 2011 $80 million in private retirement funds were transferred to the state’s pension scheme in Bulgaria. And, in September of this year the Polish government confiscated the bulk of the assets of the country’s private pension funds.

Think it won’t happen in the Sri Lanka. In fact, it already has. Every Rupee of Social Security funds have already been taken and spent by the government with an IOU left in its place. And parliament has had initial talks about expropriation, nationalising private property / businesses and raising loans through appropriation bill. 

People Need To Eat

While we expect public debt to wreak havoc throughout the world and cause an economic depression that will be written about in future, there are a few things that people will still need to survive at the most basic level: energy and food. In that sense, agriculture is depression proof… even for the type of super-depression we are expecting. To add to the bullish case for agriculture is pure demographics. The world population has gone up nearly 7 times in the last century. That is a lot of new mouths to feed, literally. 

An Escape Hatch

We expect life in Sri Lanka and many other indebted countries to be nasty and brutish during this collapse. Farmland the world over is outpacing other real estate properties. For instance, in the United Kingdom, farmland is outpacing the price of prime central London property for the first time in 16 years. Predictions that the average price of an acre could soon hit a new record soon. And that is in the decaying United Kingdom. But, all over the world, there is not much arable land on the market. People simply aren't selling. Owners hold onto arable land as a long-term investment, like precious metals.

During crisis, arable farmland does better than industrial, commercial and residential properties, as was seen during the 1973 oil crisis and during the 1990 Gulf War and now during the Global Economic Crisis. Arable farmland is a great hedge against inflationary side effects of quantitative easing. Because the world is in a period of increasing demand for crops due to changing lifestyles in emerging markets, each acre of arable farmland needs to become more efficient. With emerging economies moving towards a high meat diet, increasing livestock demand, and bio-fuels diverting crops from food use to energy crops, it doesn't take a degree in calculus to see why arable farmland is attractive. Every day there are more than 200,000 new mouths to feed. Farmland in many parts of the world has seen low volatility compared to other asset classes, like listed equities, and it has experienced approximately 1/4 the volatility of the S&P 500 over the last 20 years. It has a strong linkage to emerging market growth with potential for high cash flow. Farmland generates higher returns due this low volatility.

Investors in public equities must accept nominal real returns below 2% over long periods with increasing volatility. Farmland generates higher absolute returns with lower price volatility, meaning farmland offers superior risk adjusted returns over public equities. And, quite typically by a large margin.

The correlation of farmland to traditional retail investments, like equities and bonds and commercial real estate, is quite low. It is important for investors to structure diverse portfolios, and farmland allows the retail investor to do this.

Farmland investment is ideally suited for Sri Lanka. The consumption of energy and agricultural commodities goes up as GDP/capita growth increases, especially early on in the process. Traditional investment advisers will warn you of political risk in “emerging markets”, but we see it quite the opposite as any farm owner will tell you. 

If you own arable land, you can lease it out to farmers for example. Then, instead of operating a farm, you can get 100% upfront payments. Thus, by cash renting, arable farmland investors enjoy positive cash-flow without having to operate a farm at all.

To put it simply, farmland is not at risk of becoming a "bubble" like so many economists believe it to be. Some fear this might be the case because investors have piled into the space, but this isn't reflection of some sort tulip mania, but rather a reflection of a run from the printed money supply. Farmland can be used as a hedge against hyperinflation.

Not only with arable farmland do you get property, but you get a tangible asset with the capacity to provide a return from the crops or in the form of rent. For the first time in decades, the price of farmland is rising faster than residential property. Last year, according to experts, the cost of prime arable land increased by 10.7 percent in Sri Lanka.

Therefore, we suggest that people unfamiliar with the business and culture look to invest in farmland properties that are already operating and open to foreign investment.

Business Plus Life Lessons

2012′s coming to a close. It was a hard year for people behaving as victims.

Smart work is a force multiplier. Don’t participate in recessions. Exercising for 20 minutes first thing in the morning is a game-changer. If you’re not innovating daily, you’re on the path to obsolescence. If you want an A-Level company, you can’t afford to hire B-Level players. Procrastination is an escape mechanism for people scared to do their best work. Give your customers 10X the value they expect and they’ll tell everyone they know about you. Don’t do it if you’re not having fun. If you’re not scared a lot you’re not growing very much. Invest the time to create great social media content and your base will go global + viral. There’s never been a better time to be a social entrepreneur. It’s never been easier to be of service to a large amount of people (and few things are as rewarding). When no one else believes in your vision, you absolutely must stay true to your vision. (Have the guts to stay in the game far longer than makes any sense). The quickest way to build a superb business is to quickly develop the leadership potential of every teammate. A job is only a job if you choose to see your work as a job. All work is a noble sport. (The reality is all work is a chance to express your genius–and to inspire the world). People are craving transparency+authenticity and community. Give it to them.Creativity comes in seasons. There’s a time to harvest your ideas. And there’s a time to let the field sit fallow. Sometimes the most productive thing you can do is relax (When you relax, your brain shifts into alpha state–the time when million-dirham ideas present themselves). Change is hard at the beginning, messy in the middle and gorgeous at the end. (And without change, there is no progress). Someone’s going to win in your space. Why not you?10X the size of your dreams because if you don’t, you’ll wish you did. Pursue excellence versus chasing perfection. Celebrate small wins and you’ll unleash a huge amount of momentum and positive energy. Learn for an hour a day, no matter what. That’s not a waste of work time. It’s a brilliant use of your work time because you’re paid to know more than anyone who has ever done your job. Why go for good at what you do when you can stand for iconic? Transform your fitness and you’ll transform your business. Delete victimspeak from your languaging.  No more "I can’t" and "It’s not possible" and "It’s so hard." More "I will" and "This is awesome" and "What’s the opportunity here?" If you inspire one person each day, you’re day hasn’t been a waste.  It’s been a blessing. Living in the past is disrespecting your future. Build an amazing career but enjoy your lifestyle along the way. What’s the point of becoming a business legend but a failed human being. Look people in the eyes when you talk to them. Smile at people when you see them. Say "please" to respect them. And "thank you" to appreciate them. Don’t be on time–Be early. The person who tries to do everything achieves nothing. Focus. Focus. Focus. Spend the first 90 minutes of your work day on real work versus fake work. Spend time in silence each day. You’ll never do work if you’re overstimulated by technology. Goal-setting is mission-critical. (Review your Big 5, quarterly goals and daily goals constantly). Your daily behaviour broadcasts your truest beliefs. To have the results only 5% of business people have, have the guts to do what only 5% of business people are willing to do. World-class begins when you think you’ve done a great job but know you can do a better job. Remember that your greatest gift is so much stronger than your deepest fear.Everyone’s in Human Resources. And we are all paid to develop the talents of the people we work with.Mediocrity is a mindset. Avoid the mental viruses of negative people. Be the most honest person you know. It generally takes 30 years to build a fantastic reputation. And 30 seconds to lose it by a single silly move. Become a lion–not a sheep.People are always willing to pay for the best. The more devoted you become to serving others, the more your career begins to build itself.Problems come to test your commitment to your goals, hopes and dreams. As you become more successful, get more hungry.Join Traffic University. Use every possible moment in the car to upgrade your skills, polish your gifts and elevate your mindset.Use your life to make the world a better place.

I hope these ideas have helped you.

Economics101

IN THE NAME OF ALLAH, THE SOURCE OF MERCY, THE MOST MERCIFUL.

ECONOMICS ON AN ISLAND

Most everything can be broken down to its most basic components in order to simplify things. When faced with a large question always try to break it down. Let's do that with economics to show how simple it is and why central banking is a central tenet of communism and is an abomination that makes no sense in a free market.

Let's say that you and four other people live on an island. As far as you can tell there are no other humans on Earth. Each of the people on the island do things which help the collective although they have selfish reasons for doing so (ie. they want something in return).

Perhaps you fish. Another gathers coconuts. And another is good at building and repairing thatch huts and collecting rainwater for drinking. Amongst yourselves you trade. You offer some fish for coconuts, water and a nice maintained hut. The others offer their services in trade for your fish.

In comes the fourth person - a clean shaved man with no particular skills who thinks he is better than everyone else. He produces nothing but tells you that he has come up with a better system using "money" where you don't have to wait until the man who gets coconuts wants fish before you can get coconuts. Instead you can trade money... perhaps a piece of paper that the fourth person has inscribed with pictures and denominations on it.

So far it doesn't sound too bad. But here is where he becomes a "central banker". First, he pulls out a spear and tells you that you must, under all circumstances use his money and no other money. Then, during times when the fishing is poor or there is a drought he tells you that he can help everyone out by "stimulating" the economy of the island by drawing up more money.

If things got really tough he could double or triple the amount of money on the island. At first, everyone thinks they are richer, so they buy more fish or water or housing than they otherwise could afford. This ends up using up more resources than would otherwise be prudent. Soon the money has circulated and now coconuts just cost twice or three times more than before in currency units. The same for fish... the same for water and housing.

How has this central banking scheme "helped"? It hasn't. It actually ended up destroying scarce resources as it fooled the participants in the economy for a period of time into thinking they were more wealthy than they really were.

That is all there is to central banking. Of course, what then happens is the entire island gets corrupted and people begin to look to get favours from the central banker to get the newly created money first. And, then, if the printing of money begins to get out of control and the central banker stops printing money in order to salvage the "value" of the money before hyperinflating it into worthlessness, because of the fact he uses violence to enforce its use, all of a sudden there will not be enough money in the system to transact basic transactions and people will not be able to survive. There will be either war (over the resources) or starvation as the denizens of the island find themselves unable to acquire the currency they are forced to use to survive. Either that or the banker will take control of your future productivity in exchange for some easily printed cash today effectively putting you into slavery just to survive.

The only thing missing on the island at this point is someone to start a fascist media conglomerate who, in cahoots with the central bank, put out a magazine cover showing the one non-productive member of the island as being the hero.

Gold vs. Inflation

IN THE NAME OF ALLAH – THE SOURCE OF MERCY – THE MOST MERCIFUL

Those who work the hardest and are paid the least, suffer the most from the constant erosion of money's value. Since money has an ever declining value, a financially wise person must constantly seek ways to create and produce more and more value.

Under a Gold standard, the amount of credit that an economy can be support is determined by the economies tangible assets. Since every credit instrument is ultimately on some claim on some tangible asset but government bonds are not backed by tangible wealth only by the governments promise by payout by future tax revenues and cannot be easily absolved by the financial markets. A large volume of new government bonds can be sold to the public only progressively higher interest rates, thus governments deficit spending under a gold standard is severely limited. The abandonment of Gold standard made it possible for the welfare states to use the banking system as a means to unlimited credit. They are created papers in the form of government bonds which threw a complex series of steps the bank accept in place of tangible assets and treat as if they were actual deposits. This is just on a ledger in the federal reserve as the equivalent as formerly Gold. The holder of a government bond or a bank deposit created by paper believes he has a valid claim on a real asset. The Law of supply and demand says as the supply of money of claims increases relative to the supply of tangible assets in the economy the prices must eventually rise. Thus earning saved by the productive members of the society lose value in terms of goods, so if you are saving money you are losing money in the system. 

The example of monetary inflation (creating new money out of nothing). Monetary inflation is institutionalised counterfeiting, which means it is a form of theft. Although it is (or at least should be) intuitively obvious that the economy could never, under any circumstances whatsoever, benefit from an increase in the amount of theft, it is unlikely that someone without a grounding in Austrian economics would be capable of understanding or explaining, in practical terms, exactly why this is so. After all, during a financial crisis it can seem as if a shortage of money is a large part of the problem and that 'greasing the wheels' with more money is just what's needed to get us through the rough patch.

To fully appreciate why monetary inflation is always a practical problem rather than just an ethical problem, you have to understand the relationship between money-supply changes and the boom-bust cycle ("Austrian Business Cycle Theory"). More specifically, you have to understand that the most important adverse effect of monetary inflation is not the reduction in the purchasing power of money that it eventually leads to, but the distortion it causes in relative prices. These relative price distortions lead to widespread mal-investment and the large-scale destruction of wealth. Think of how much wealth was ultimately destroyed by the monetary-inflation-fuelled boom in US residential real estate. The reduction in the dollar's purchasing power is trivial in comparison.

There will eventually be a complete collapse of the global monetary system, but I don't have a strong opinion as to how we will get from here to there (other than generally via the rapid creation of money out of nothing) or when we will get there. Anyone who does have a strong opinion (i.e. an exact date) on the timing and the specific details is, I think, kidding themselves. Rather than trying to figure out how to figure, it is better to pay close attention to what's happening in real time and adjust your positioning accordingly. It's not like the collapse could happen next week. At least, the US$ is not going to collapse next week or even within the next 12 months (although the euro might). Some things are bound to happen well before the US$ collapses, chief among them being a huge rise in the T-Bond yield. We are not, for example, going to see the US$ collapse with the T-Bond yield at 3%, or even with the T-Bond yield at 8%. Before the US$ collapses we will see the T-Bond yield move well into double digits.

My only other piece of general advice is to not bet the ranch on a single extreme outcome. For example, don't bet everything on the idea that the US is going to experience hyperinflation in the near future. The US will eventually experience hyperinflation, but the probability of it doing so within the next two years is close to zero. As far as this year is concerned there's more chance that the US will experience genuine deflation (a decline in the supply of money) than hyperinflation, but both of these extreme outcomes have very low probabilities when taking a short or intermediate-term view.

2012 GIH Message

Dear valued clients and well wishers of GIH,

It’s that time of the year when we reflect the past and greet the New Year with the anticipation of a prosperous year ahead.  

Whilst we need to take lessons with what has transpired behind us during the course of last year, we cannot or for that matter could not have changed the event and proceedings that have taken place. What we could only do now is to thank Allah (SWT) for helping and guiding us through the past year, a year which has endured a lot of violence and economic issues which have hit every corner of the earth.

A number of challenges and opportunities lie ahead when looking at the year ahead of us and we need to identify key trends and other signs to the future. The growing threat to the global economy which has been a thorn in our flesh since 2008, the political changes taking place within the Middle East and the shift of economic powerhouse from West to East.

Here are some of the key challenges we see could shape 2012 and beyond:

·        A new global financial crisis could be in the making and unleash its fury as early as 2012, a year when bond rollovers in the US, Asia and Europe worth a combined $7.6 trillion are due.

·        The Euro zone sovereign debt crisis has entered a critical new phase with France’s prized AAA rating nder threat of being downgraded by Fitch and the spectre of more sovereign downgrades looking imminent.

·         Although some green shoots of economic recovery has taken place in 2011 in the US, the same has yet to e transpired into sustainable trees. Should the Euro zone crisis keep dragging and a uniform solution to the Euro could not be put forth, it could impact the US and the global economy as a whole.

·      In the Middle East, apart from the Arab spring which is still continuing in parts of Syria, Bahrain, and Yemen could spread further into Saudi Arabia. Should the demand for oil slows down and we see a substantial impact to oil prices, then some of the reforms announced by the Saudi government could not materialize and could prove costly to the Saudi regime.

·      Prospects of China and India economies growing has been fading with growth estimates for 2012 been revised downwards. It would be interesting to see how China will try and spur growth inside its own country.

While the above challenges are pertinent and to be taken note of, we don’t see “all gloom and doom” for 2012. We believe with every challenge lies opportunities and we are hopeful that the 7 billion plus global citizens will continue to consume and proceed with their livelihoods.

GIH Focus in 2012:

As was the case in 2011, GIH would continue to focus on Sri Lanka and tap into the retail, construction, hospitality, logistics and consumable based opportunities which we feel are key growth areas expected in line with the projected GDP 8.0% for 2012. We at GIH are confident that there would be plenty of opportunities within the sectors outlines above to invest during the year.

We hope and pray that Allah (SWT) will bless the year ahead for all of us and give us good health, strengthen our belief and commitments towards the betterment of mankind.

With Warm Wishes,

Team GIH

DISCLAIMER - This document is issued by GIH - Sri Lanka, solely for the purpose of information to its staff and customers. All efforts have been taken to ensure facts and figures presented herein are as accurate and error free as possible. Data subject to change without notice. All Rights Reserved. GIH - Sri Lanka. 2012.