Saturday, February 16, 2013
The effects of the "Bernanke Asset Bubble" are showing up on the farm...
The Mount Ayr Record-News, Ringgold County, Iowa's paper of record, reports that farmland values in the county climbed 19% last year, according to the annual survey of land values performed by Iowa State University.
The survey also notes how the state's farmland values showed an average increase of 23.7%. This big 2012 increase comes on the heels of 2011's astounding 32.5% increase over 2010 levels.
These numbers highlight the developing mad dash for the world's "trophy assets."
Regular readers are familiar with the concept of trophy assets. They're a cornerstone of our company's approach to long-term investment.
Trophy assets are the world's most valuable assets. These are the types of assets that wars are fought over. We're talking about assets like the Grasberg Mine in Indonesia, the world's most productive copper and gold mine... gigantic casinos on the Las Vegas Strip... prime Manhattan retail space... and Texas' giant oilfields.
When you can acquire the world's elite assets for bargain prices, they are "one decision" financial moves. You buy them... and never sell. You sit back and collect huge rents and capital gains. You can pass these assets on to your children (if you can stand them).
Most people don't realize how important the black earth of Iowa and its neighboring states was to the formation of the American empire. To this day, the farmland of Middle America is a key component of America's dominance. On the geopolitical stage, it's 1,000 times more important than Las Vegas casinos.
Iowa sits at the heart of the world's largest contiguous piece of highly productive farmland. This giant chunk of land is crisscrossed by an extensive network of navigable waterways. This allows America to produce tremendous amounts of food... and to efficiently transport that food.
No other region on Earth can produce such huge amounts of food and ship it at such low costs. Farming this region allowed America to develop a massive, well-fed population. It allowed capital to flow into railroads, factories, and cities. It allowed the build-out of the most powerful military on Earth. (For an excellent, detailed discussion of this, read this piece from global intelligence company Stratfor).
Thus, the farmland of Middle America is a "trophy asset" on par with the oilfields of Saudi Arabia.
The state of Iowa is a trophy inside a trophy. It's the top corn, soybean, and pork producer in the U.S. It's a major producer of beef.
Ringgold County, Iowa (birthplace of your editor, Brian Hunt) is not much of a trophy by Iowa standards.
It ranks near the bottom of Iowa's 99 counties in land values. The land there isn't as rich and flat as the rest of the state. Farmland in Ringgold County is changing hands for "only" $4,124 an acre. Still, money is flocking to the area. The current price of farmland is about twice what it was in 2007. And it's an increase of about 300% from 2003 levels.
For "prime" Iowa farmland, we head to O'Brien County, which boasts the highest average land values in the state. It is the most productive farmland in the world. Tall corn practically leaps out of the ground there. O'Brien County is a "trophy inside a trophy inside a trophy."
Average prices in O'Brien Country reached $12,862 an acre in 2012. It was a 35.2% increase over 2011 values. As Iowa State University economist Mike Duffy notes...
The 2012 land value survey covers one of the most remarkable years in Iowa land value history... This is the highest state value recorded by the survey, and the first time county averages have reached levels over $10,000.
The amazing increases in farmland values reflect several things. For one, crop prices are rising. Like Texas "booms" and "busts" with oil prices, Iowa booms and busts with crop prices. Corn prices have more than tripled since 2006. Soybeans have more than doubled in the same time period.
Just as important, there is a global rush out of paper currencies and into hard assets... especially assets like Iowa's dirt. It's no coincidence that gold and silver have registered similar price increases as Iowa farmland since 2007.
The earners and savers of the world simply don't believe governments can borrow and spend their way to prosperity. They don't believe handouts and bailouts are the answer to every problem we face. They don't believe you can dole out free houses, free food, and free health care without having to eventually pay a very painful bill... and without devaluing our paper currency. Thus, the earners and savers of the world are avoiding paper currency... and are flocking to assets like Iowa farmland, gold, and elite, blue-chip stocks.
We've been warning about this for many years. If you haven't taken our advice to buy "real money" like gold or elite, blue-chip companies, it's not too late. But it will be soon...
Speaking of elite, blue-chip stocks... there are several important new highs to note from our coverage universe.
Cisco, the "World Dominator" of Internet plumbing, and a holding in Dan Ferris' Extreme Value letter, just struck a new 52-week high.
Ferris recommendation and "World Dominator" of medical syringes and needles Becton-Dickinson is producing big gains. Shares just struck a new high... and have returned 18% over the past year.
Fellow Ferris recommendations are hitting new 52-week highs: "World Dominator" and medical-device company Medtronic... "World Dominator" of payroll processing Automatic Data Processing... and "World Dominator" of consumer products Procter & Gamble.
In other words, there's a run going on for the world's best businesses...
With the extraordinary wealth-growing power of blue-chip stocks in mind, we encourage you to follow Frank Curzio's latest research on elite, small-cap, dividend-paying companies. Like the "dominators" we just mentioned, these small-cap stocks also have great brand names... they also have competitive moats... they also have stable cash flows... and they also have long histories of uninterrupted dividend growth.
But as Frank noted in the February 6 DailyWealth, these companies...
... just happen to be much smaller than giants like Coke and McDonald's. Some aren't even 1/100th of the size of Coke. And while some of these elite firms provide brand-name products and services you might use every month, most people have never heard of them. Their small size makes them fly under the radar of many institutional investors. Many pension funds, mutual funds, and hedge funds are just too big to buy these small-cap dividend-payers.
Thus, investors who know about these stocks face a lot less "buying competition" when they're looking to pick up shares at a good price.
For example, there is a list of over 100 small-cap, dividend-paying stocks that Wall Street has largely ignored. These small caps have a lot in common with companies like Coke and McDonald's. They are safe companies. All the names on this list have been raising their dividends annually for more than 10 years. Most have been around for more than 25 years.
Like many large-cap, dividend-paying stocks, these companies generate tons of cash flow. They have competitive advantages in their respective industries. They also have solid management teams.
Take Leggett & Platt (LEG), for example. Without this company, everyone would have severe back problems. That's because it invented bedsprings more than 125 years ago.
Today, LEG employs over 18,000 people who work in 18 countries. The company is one of the largest manufacturers of mattress bedsprings, bed frames, and pocketed coils in the world. It also produces tons of steel each year, used to make specialty wire found in chairs, racks (you can find in almost every retail store), and fitting rooms.
Turning to the financials, LEG trades at 14 times earnings, a big discount to most dividend-paying stocks. LEG is also expected to grow its earnings by 12% annually over the next two years. That's more than 50% faster than the average S&P 500 company. LEG pays a 4% dividend. That's almost double the rate of the average S&P 500 company. It's also been raising its annual dividend for 40 years. That's longer than Pepsi, McDonald's, and AT&T.
LEG is just one example of the many excellent small-cap dividend-payers out there you can confidently hold a long-term position in.
Keep in mind: These stocks aren't going to soar 100% overnight... but they can form the "core" of a safe retirement account. They'll allow you to put the power of compounding to work for you, while still giving you plenty of upside. And because of their small size, we have less "buying competition," which means we can often buy them for bargain prices.
Frank devoted the December issue of Small Stock Specialist to the idea of compounding wealth with the world's best small dividend-payers. A number of these companies are trading at bargain levels right now. This means you can safely buy them now... and eventually collect huge yields as the companies grow. You can access this issue with a 100% risk-free trial subscription to Small Stock Specialist. Learn how to come onboard here (without watching a long video).
Date Range:2/7/2013 to 2/14/2013
Date Range:2/7/2013 to 2/14/2013