New Article on the Dangers of QE and Hedging Against Inflation

Risk of High Inflation

We are quite pleased to note that we recently wrote an article published on the Market Oracle website in the UK.  The full article is here.  In the piece, we wrote about the dangers of QE and inflationary risks emanating from the QE policy, as well as how individuals can use "Real Asset" investments such as forestry and farmland to hedge against the risk of inflation.  Its worth noting that inflation in the UK has remained above 3pc for 28 months straight, and was recently at 3.7pc in the US.  Whilst central bankers have been worrying about the risks of deflation, it seems inevitable that some of the new money created by QE will eventually leak into the real economy and pose inflationary risks.  Perhaps the central bankers might at some point turn their attention to this danger?

Liam Halligan on the Dangers of Quantitative Easing ("QE")

Since its implementation by the BOE at the height of the financial crisis, QE has been a controversial policy to say the least. We at GreenWorld have always felt that QE has the potential to cause inflation - if not now, then down the road.  For those who share the same worry, there was a fantastic column by the Telegraph's Liam Halligan on the dangers of QE.  Mr. Halligan writes:

"Future inflation, not disinflation, is the problem the UK faces. For now, most of the QE “proceeds” are sitting on the balance sheets of banks pretending to be solvent...What happens to inflation when that massive increase in base money is leant out? What happens when the mask slips and the markets focus on “currency debasement”, which then pushes up imports prices as sterling falls?" 

Mr. Halligan is spot-on, the danger is indeed real.  If you are at all interested in this subject, do read the entire article here.  Once you read it, ask yourself, what type of investments would you want to protect against any inflation created by QE, whether in the UK or elsewhere?  As we noted in our previous post, the best kind of inflation hedge investments, are so-called "hard assets" that will rise in value along with inflation.  If you are interested in a hard asset that pays good current income, hedges against inflation and also has tremendous value, consider farmland investments.  We recently wrote an article on Technorati on how farmland investing is now increasingly accessible for individual retail investors. We would welcome the opportunity to discuss the following farmland investment options with you further - feel free to contact us at info@greenworldbvi.com.

Farmland investment in Europe

Farmland investment in Australia

Farmland investment in Africa

The Alternative Investor

Do You Need to Hedge Against Inflation with Your Investments? Consider "Hard Asset" Investments

There are two schools of thought on this question of inflation. Some believe that because economies are still weak, that there is no risk of inflation in the immediate future. The other view point is that because central banks have created so much new money through QE (Quantitative Easing) that some kind of inflation hedge is necessary in case inflation suddenly accelerates.

We ate Green World do not claim to be experts on broader macro-economics, but whatever your viewpoint on the risk of inflation one must admit that it is at least a distinct possibility. If you agree, then one good option is to invest in so-called "hard assets" or "real assets". These are assets that are not financial instruments like stocks and bonds, but assets that cannot be printed or created by central banks. Whilst many people look to Gold for this, Gold pays no income and has no inherent economic value. We prefer hard assets that pay regular income and also have an inherent economic value such as farmland investments or timber investments. On farmland investment, we believe that we are currently in an agricultural "supercycle" of a growing population and dwindling arable farmland which will make ag commodity prices continue to rise.

For farmland, it is well worth it to consider Australian farmland investments. Australian farmland is some of the cheapest in the developed world, it pays high current income and there is a ready made customer for its production in China. For those partial to forestry, bamboo investments pay very high current income and the market for bamboo markets is expected to double in size by 2015.

Either one of these options will give you both high current income as well as an excellent inflation hedge. Feel free to contact us at info@greenworldbvi.com for more information.

New Carbon Credit Investment in Australia

We just published this article on Technorati describing the new Australian carbon law and the resulting opportunity it has opened up for investors in carbon credit investments.

Farmland Investments for Retail Investors

Large investors around the world – from pension funds to hedge funds and sovereign wealth funds – are all increasingly focused on investment in farmland. This article is about one reason individual investors should also consider agricultural investments.

One of the major reasons for our bullishness on agriculture investments is the availability of quality farmland. As the graph below from the UN Food and Agriculture Organization (FAO) clearly demonstrates, the amount of arable farmland has already shrunk and will continue to do so.

To take a more specific example of this trend. China currently contains 20pc of the world’s population, but only 7pc of its arable farmland. Unfortunately for the Chinese, China has already been losing arable farmland at an alarming rate. According to this article from the English language China Daily, the amount of arable land available for farmland investment in China has fallen sharply:

“Acute shortages of reserve farmland and water resources are now the main restraints for the country to ensure its food security, Zhang Ping, minister of the National Development and Reform Commission, said on Thursday while making a report to the top legislature.

“The cultivable land in the country sharply decreased from 130.04 million hectares in 1996 to 121.72 million hectares in 2008 due to rapid urbanization and natural disasters, figures from the National Bureau of Statistics show.

“Also, the current per capita cultivated farmland is about 0.092 hectares, which is only about 40 percent of the global average. Less than 4.7 million hectares in the country can be considered reserve farmland," Zhang told the legislature.

According to a report from agricultural consultancy Colvin and Co., the Chinese government estimates they need to maintain 120 million hectares for crop production until 2020 in order to be self-sufficient in grain production. Bank of America estimates that China’s arable land has already fallen below the 120 million hectare threshold and could decrease to 117 million hectares by 2015. They further note that due to pollution and development new opportunities for farm land investment by Chinese state-owned agriculture investment companies is diminishing rapidly.

Already, China is becoming a net importer of food. China will import some 1.7 million tons of corn this year, 5.8 million tons next year and as much as 15 million tons in 2014-2015.

The point here is not to overwhelm the reader with facts and figures about China, but to have investors think about the big picture. With US$3.1 trillion of reserves, when China wants or needs something, it goes out and buys it. Food and farmland investing are no exception. China has already been hungrily eyeing farmland investments in a variety of countries and regions, including Australia, Argentina, Russia, Brazil, Ukraine and more.

How to play the Chinese agricultural trend? The best way to do this is simply to make a farm land investment directly. Whilst it is true that historically the farmland asset class has been limited to institutional investors only, new opportunities have recently emerged for individuals to make direct farmland investments as well.

There are now farmland investment options for retail investors with investment minimums starting as low as £1,950 per acre (approximately $3,100) for quality farmland investment in Africa, making it easily accessible by individuals and a great way to diversify. There are also direct farmland investments for retail investors in Europe and elsewhere. All of these target yearly income payments of between 9-15%, whilst also allowing investors to share in the upside of any capital gains as well.

There are, of course, risks with any investment. However, if individual investors perform the proper and due-diligence and invest in the right structure with the right people and institution, farmland investment can be both safe and profitable and could make a wonderful addition to individuals’ portfolios.

Inflation Hedge Investments

As the western economies continue to stagnate to stagnate, the UK's central bank has just unveiled plans to launch another round of “Quantitative Easing” of about US$ 80 billion. We at Green World believe that Quantitative Easing (“QE”) is simply a polite term for “printing money”. The US FED is actively contemplating QE3 asd well. In practice, much of this will simply end up causing inflation through price increases in staples such as energy and food. Legendary investor Mark Faber believes massive inflation is in the future. We at Green World therefore strongly advocate that you consider adding inflation hedge investments to your portfolio. Inflation investments will not protect you in day-to-day life, but at least allow your finances to be hedged.