​Investing in Agricultural Land Part III

Good day everyone. Today, I will delve more into the concept of trust, as both an asset management and tax mitigation vehicle.

Tax mitigation is a crucial issue that in many cases can make or break an otherwise strong investment portfolio, especially now with governments around the world borrowing record amounts of money.

A wise man once said: “There is no such thing as a free lunch”. We will all do well to remember this, as people are gladly spending the so called “corona virus relief” because whatever the government gives, it will always take it back from us, our children and grandchildren.

I was asked whether I disagreed with the governments putting so much money into the system to help people at this time, my answer is that wrong fiscal and monetary choices has led us to this point, where most people, even in the so called ‘rich north’ , do not have enough savings to cover their outgoings even for one month.

This is partly to do with people’s irresponsibility, but it is also due to the fact that wages in real terms have stagnated for at least the last 40 years and has barely kept up with the cost of living. This has resulted in many people living from credit cards and short term loans from predatory lenders, which traps them and their families in never ending debt cycles.

This is the same for governments and companies. We have seen that many large companies could not survive for one month without government support, despite reporting large profits year after year for the last decade since the last financial crisis.

We have to become much more fiscally conservative as a society to be better able to manage unforeseen challenges like COVID 19. Therefore, I am advising my clients, both small and large, to pay more attention to tax mitigation, because taxes will rise dramatically whatever the governing philosophy of the reigning governments around the world.

This is especially true in the US, where there is a false narrative being peddled in political circles that one or more of the parties is for lower taxes. That is a mathematical impossibility as the alternative will be that the dollar will lose its global reserve status if it does not balance its books quickly.

There will be no V shaped recovery, we are seeing the Trump administration working with the FED to keep the economy afloat and recession at bay until the US election is over, as no US President has ever been re-elected during a recession. If he returns as the President (which I believe he will), he will have to govern in practical prose and not the poetry of election campaigns.

Many investment portfolios needs to be quickly rebalanced, especially now when we see three key themes playing out in the markets.

Firstly, unlikelihood of a V shaped recovery. Recovery will be prolonged and take between 3-5 years.

Secondly, large investors are taking profit with the market now in weaker hands, this is what we are seeing from the mass sell offs in various markets.

Thirdly, the markets are now seriously discounting the possibility of the Biden victory in November, as they see higher taxes under a Biden administration.

I have already said, that this is a false narrative, as taxes will rise dramatically under either candidate’s government and not just in the US but also in the UK, the EU and across the key economies of Asia.

A nasty side effect to higher taxes, especially corporate tax and capital gains tax, is that it will result in a dramatic fall in the prices of public market securities especially stocks, but more of this later.

This is why investment vehicles like trusts are very useful, this is something I will speak about in detail in this blog, especially in relation to farmland and real assets.

Private Equity
One of the main reasons that I am advocating, for investors to invest in farmland and other real assets. I see that many investors, including clients of ours, have an unhealthy fixation with public market securities.

I see that private equity will be the asset class that will have the greatest growth this decade closely followed by commodities, as demand for food dramatically increase.

Private equity, or more precisely, private capital investments into real assets will grow to fill the gap left by governments, as they cut spending dramatically and increase taxes to balance their books. We will see large swathes of sectors like healthcare, education, correctional facilities and the criminal justice apparatus which includes policing as well as infrastructure completely taken over by the private sector.

We will also see a wave of privatizations, particularly in Europe within the EU, especially in countries like France and Italy. In the UK, we will see the prized National Health Service (NHS) fall into private hands.

As government financial capacity dwindles, so will their ability to administer large parts of the economy and we will see recovery funded by private capital to sustain and revive Main Street.

The public markets will gradually fall into disfavour until it fundamentally changes its approach. We are already seeing this happen with newer exchanges like Long Term Stock Exchange (LTSE) and others. Currently, the information asymmetry gap between owners (shareholders) and the managers of publicly listed companies is very large and within this opaque system, the opportunities for abuse and conflicts of interest is very large.

Companies took many poor capital allocation decisions, such as engaging in massive share buybacks with borrowed money in an environment that is much more conducive to borrowing to invest, and when COVID 19 occurred, it emerged that they had no money to survive, let alone take advantage of opportunities created by the pandemic.

These excesses are tolerated by most institutional investors, because they are engaged in an incestuous relationship with these listed companies and regulators. This relationship has given birth to a financial system that breaks every principle of money, such as the mispricing of risk with negative interest that punishes the financially prudent and rewards irresponsible spending.

It is a system that rewards the few at the expense of many, with many pension funds practically insolvent with huge unfunded liabilities and the pensions of hundreds of millions of people around the world in major risk.

It has almost become a new form of feudalism with the peasants being the global population working for the lords of the manor, but the problem with this is, that our world will find ways to balance itself, as the gap between the rich and the poor continues to grow.

Some of the negative ways we will see this rebalancing manifest, will be higher global crime rates and civil disobedience, as disregard for authority grows and social unrest and the breakdown in the social fabric with addictions like alcohol, drug abuse and various forms of immoral behaviour - growing.

This is happening as more people feel that the system is rigged against them and that they do not have a stake anymore in legitimate and respectable society.

This has nothing to do with colour of one’s skin. Poverty and the destruction of the global middle class is an issue currently affecting people of all races, colours and nationalities; issues like childhood hunger and malnutrition is becoming as prevalent in London as it is in Lahore or Lagos.

It is not an issue of racism, it is ultimately about control of people, their minds and ability to become and contribute meaningfully to society, as the system is designed to only to produce masses of wage slaves that only do as they are told.

The media portrays these issues as being issues of  race or the colour of one’s skin, which is a false narrative designed to divide people and distract them from the main issues, such as a broken financial system, broken social contracts between citizens and governments, broken relationships between large companies and their broader stakeholders, broken education systems, a broken global food supply chain, a fast disappearing global middle class, a global epidemic of fatherlessness and broken homes with divorce at all-time highs in every part of the world. These are million times worse than any pandemic, especially now we are living in a world full of information but very little wisdom.

These are the real challenges facing our world and while these are bigger than finance, those of us who consider ourselves financiers or finance professionals, have a duty to really examine the choices we make, as to how we allocate assets of clients to ensure that they really achieve positive outcomes.

We need to ask ourselves if this was my pension, how would I want it managed. We are not to buy assets because it fits into our institution’s strategic and capital requirements, but because it will have a positive impact on our client’s financial future. Managing money is not just a job but a high calling, because money managers look after the future of people, generations and nations. It is a grave responsibility that is owed to clients and also to the broader stakeholders in society.

Conclusion
Unfortunately, space does not permit me to discuss trusts and agricultural strategies as planned, which I will do tomorrow.

As I speak to family members, friends, government officials and colleagues, it is becoming more apparent to me that many do not understand the reason why things are the way they currently appear. Friends of mine that are traders, speak about technical analysis – support and resistance, dojis and so on, while the economists speak of velocity of money and real interest rates.

The financial markets is not a summary of the world. The global sentiment cannot be captured in a candlestick or an economic equation of the shifts in global supply and demand.

In Plato’s “Theory of Forms”, he spoke about a physical realm which we see and a spiritual realm which we do not see. The physical realm, is always changing and temporary, but the spiritual realm, the realm of the forms, of ideals, principles - are unchanging and permanent.

In the Bible, St Paul also expressed similar sentiments in his letter to the Hebrews, where he said:
“By faith we understand the universe to have been formed by the word of God, so that the things being seen have not been made from the things being visible”.
Financial markets and economic theory signals today, is a physical representation of forms or an unseen realm that is selfish, self-serving and wicked that shows all of the basest instincts of human beings. As financiers, we must change this, but this can only be changed in the spiritual realm, the realm of ideas, moral laws and principles.
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When we do this, money can truly become a force for good in our world today.