Welcome to your November issue of the Global Intelligence Wire.
This is the monthly digest exclusively for Global Intelligence Lifetime Circle members, in which I cut through the media chatter and highlight five underreported news stories from recent weeks.
First up this month…I want to let you know that I’m currently putting the finishing touches on the November issue of the Global Intelligence Letter. This issue has been slightly delayed, so apologies for that. However, I never want to send you an issue until I am fully satisfied with my research and recommendations. I am currently dotting the i’s and crossing the t’s on your November issue, which is based around a massive economic lie, a lie that will soon begin to unravel and send the price of a key commodity higher. The November issue will explain that lie and outline how we can turn it to our advantage. You’ll have that issue in your inbox soon.
But for today, let’s talk about real estate…though from a different perspective.
Farmland Values Hit Record Highs
You’ve probably seen the stories or heard the newscasts about the plunge in home prices around the country and the destruction of billions of dollars in homeowner equity—a direct result of the Federal Reserve 1) being wrong about “transitory” inflation and 2) aggressively trying to make up for being wrong by hiking interest rates at a crazy pace.
Well, over in the farm belt it’s a different story.
Farmland values have hit record highs. This is not something unexpected for us here at Global Intelligence. We moved into a Farmland Partners Real Estate Investment Trust just over a year ago because we saw a new commodity super-cycle underway, and because we expected food prices to rise as not-even-remotely-transitory inflation took hold.
And here we are.
The downside is that farmland prices are up so much that farmers are being priced out of the market as private equity funds and other institutional investors and farm-focused corporations like Farmland Partners snap up land.
I expect we’re going to see this trend continue for some time. Inflation is not abating in any significant way and the commodity super-cycle continues apace. This trend toward higher farmland prices has legs. Which, ultimately, is good for our investment in Farmland.
Speaking of inflation…
It Will Take Years for Inflation to Return to Normal: Treasury Secretary
At a recent G-20 summit in Bali, Indonesia, the Grande Dame of the Treasury, Janet Yellen, conceded that she expects inflation to go down to more normal levels “over the next couple of years.”
I find it both sad, funny, frustrating, and telling that Treasury and Fed officials have changed their tune so diametrically. As I’ve noted ad nauseam for at least the last 18 months, inflation was baked into our cake a long time ago and it was never going to be a transitory affair.
J. Powell at the Fed and J. Yellen at the Treasury—the J&J Comedy Hour—stuck to that “transitory” line of reasoning all throughout 2021, even when it was widely apparent that this was a big fib.
Now they’re on the “Inflation Is Real” train.
The question is, will they recognize that they are attacking it all the wrong way?
Raising interest rates to the moon might have been a logical approach in the 1970s, but the 2020s present an entirely different environment. Government, corporate, and consumer debts in America are not only at historic levels, they’re excessive. So, higher interest rates crush the economy in ways that are very different than the 1970s.
There are better approaches. For one, allow consumers to address inflation in their own lives by changing their personal spending patterns. When they alter how they spend—buying a cheaper car rather than an egregiously expensive SUV, for instance—they change the production dynamics for carmakers, which changes carmaker demand for components, which filters all the way through to raw materials.
It also means consumers aren’t shifting more and more money into debt-servicing, which would have prevented the housing market from collapsing as dramatically as it has, thereby preserving home equity instead of destroying it for the second time in a dozen years.
I would say “live and learn,” but we’re talking about the Federal Reserve and the Treasury, and history has demonstrated time and again that learning is not something either bureaucracy is capable of.
Moving on to energy…
Renewables Can’t Keep Up With Growing Energy Demand
I’ve been working on a thesis in recent months that oil prices are going to surge to levels that will shock the world. Think: $250 per barrel or higher.
The reason for this is the rush by Western governments to appease the overly loud environmentalists who have captured the ear of certain government officials in pushing an all-green agenda.
To be clear, there’s nothing at all wrong with green energy. It is the future. However, there is a lot wrong with the approach the U.S. and European governments are taking.
They’re going all-in instantly on green energy, and basically legislating the death of fossil fuels much too quickly. The world has more than a century of fossil-fuel infrastructure in place, and there is simply no logical or feasible way to replace it all in the span of a few years, or even a decade, as too many Western governments are pushing for.
And now along comes a story highlighting the fact that while renewable energy is growing, overall energy demand globally is growing faster. That leads us into an untenable position—demand far outstripping the capacity of green energy to meet its needs. Yet we have fossil fuel companies radically scaling back their fossil fuel endeavors—such as drilling for new oil reserves—because of fears that the government will penalize them.
Basically, we will soon end up in a position where there is not enough energy to meet global demand, and not enough new oil reserves to tap into to meet that demand. Oil prices will spike.
Next up, a down dollar…
The Dollar Suffers Its Biggest One-Day Drop in 15 Years
Earlier this month, the U.S. dollar had its worst day in more than 15 years. The Bloomberg Dollar Spot Index fell 2% in a single day, a fairly meaty one-day move for a currency. The culprit: October’s inflation reading was not as bad as expected…which, in turn, had investors betting that the Federal Reserve would finally step back from its over-eager effort to hike interest rates.
This highlights exactly what I have been talking about in recent months: The very moment that the Fed relents in its rate-hike cycle, the U.S. dollar is burnt toast. It will sink sharply against major world currencies.
Right now, the greenback looks like a mighty bear because it is up so strongly against the euro, yen, pound, and a host of other global currency heavyweights. But the reality is that the dollar is simply wearing a cheap, ill-fitting Superman costume and pretending it’s the strongest currency in the universe.
Reality check: The dollar is up only because the Fed has raised rates so dramatically relative to the rest of the world’s major central banks. That has given investors temporary reason to own the buck.
But what goes up, always comes down. The dollar’s worst day in more than 15 years is 100% a sign of what’s to come. Now is a great time to begin thinning your dollar exposure and building exposure to Swiss francs, Norwegian krone, the euro, and the Singapore dollar.
Finally, let’s eat…
Demand for Fast Food Is Rising…Just as We Anticipated
A primary thesis I’ve held for well over a year now—and which I first wrote about in the August 2021 issue of the Global Intelligence Letter—is that consumers would change their eating patterns as inflation and talk of recession heated up.
The idea is that consumers would downscale their supermarket spending, which would be a boon to low-end supermarket chains…and at the same time they’d increase their spending on eating out, particularly at fast-food joints, because those meals are so cheap and convenient for people who are working multiple jobs, or are doing all they can with their income to make sure there is enough paycheck to cover the month.
And that is exactly what’s happening, according to Popmenu, a tech company focused on digital marketing and ordering technology for the restaurant industry.
In an October news release, Popmenu found that 58% of U.S. consumers are dining out more often in 2022. Two of the statistics that stood out to me are these:
- 50% of consumers reported that they eat fast food two or more times per week, on average.
- 27% of consumers are eating fast food more often this year because of rising food costs.
This tells me our thesis is right. It helps explain why Slate Grocery, an operator of shopping centers anchored by low-end supermarkets, is up nearly 20% for us while the S&P 500 is down more than 10% in the same period (a gargantuan gap of nearly 30 percentage points).
And it’s why I am confident Pizza Pizza Royalty Corp, the Canadian fast-food chain we own, will do well, despite being down about 2% at the moment. The company recently reported that same-store sales were up a huge 16% in the first nine months of the year.
Same-store sales is a key metric in food and retailing to measure sales at stores that have been open at least one year (this provides a better, apples-to-apples comparison between stores that opened at different times), and 16% is a huge number in the food industry. The company also increased its monthly dividend payout by 3.7%…giving us a very nice yield of 6.4%.
And that brings us to the end of this month’s Wire. If you have any feedback or any topics you’d like me to address in a future issue, you can reach me through the contact form on the Global Intelligence website. Thanks for reading and for being a Global Intelligence subscriber.
