Agriculture Takes Center Stage for Prominent Investors Jim Rogers and Michael Burry

Thursday, September 16th, 2010

Here on the Wall Stree Cheat Sheet we have been paying much attention to the developing enthusiasm in the agriculture sector. In a Bloomberg interview aired this morning, Michael Burry, one of the stars of Michael Lewis’ The Big Short, labeled agriculture as one of his top trades.  Burry is a noted value investor who earned strong returns as the Tech Bubble collapsed, and even more out-sized returns on his short bet against the housing market in the time preceding the subprime collapse.  Burry provided this insight into his latest trade:

“I believe that agriculture land — productive agricultural land with water on site — will be very valuable in the future….I’ve put a good amount of money into that.”

This weekend on his personal blog, Jim Rogers wrote a quick little note about how “Asia will drive agriculture commodities higher“:

There’s 3 billion people in Asia and most of them have not had a very good standard of living in the past 200 years. That is changing and changing very rapidly. They are going to eat more, they are going to wear more clothes.

[aa]And here, “US Farm Income Up 24% in 2010,” Rogers is quoted:

“It’s going to be the 29 year old farmers who have the Lamborghinis.” It is either time to get a tractor or set up a Lamborghini dealership in Iowa.”  [aa]

These are two investors with outstanding track-records fully on board the agriculture trade.  The world population is growing at 1.17% per year. The simple underlying logic for owning agriculture companies is that a growing world population will require more food to sustain itself over time. At a 1.17% growth rate starting with a total population of 6.79 billion (according to the 2009 United Nations estimate), we will add nearly 80 million people to the planet this year.

Even with significant growth in total arable land around the world, we cannot keep up with the birth rate. According to the Food and Agriculture Organization in 1961 the world had 0.42 hectares of arable land per person. Yet, by 2002 this number had fallen to 0.23 hectares per person. In order to continue producing enough food for our growing population, we have increased the productivity of our lands. Fertilizer is one essential component in maximizing our productivity.

Why the major interest in the sector now? Well this map provides a great visual for that story:

(click to enlarge)

Tags: Agriculture Commodities, Agriculture Companies, Agriculture Land, Agriculture Sector, Agriculture Trade, Arable Land, Birth Rate, Burry, Center Stage, Jim Rogers, Lamborghini Dealership, Lamborghinis, Michael Lewis, Old Farmers, Personal Blog, Productive Agricultural Land, Top Trades, Total Population, Value Investor, World Population
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Michael Burry (subject of The Big Short): Long Gold, Agriculture, Farms, and Some Housing

Tuesday, September 7th, 2010

Michael Burry, who needs no introduction, was on Bloomberg TV earlier discussing his latest investment allocation, which no longer focuses on shorting real estate via the cheapest possible instrument, and instead is going long cash assets in the form of farmable land (oddly enough, not multi apartment commercial real estate), small tech, and, yes, gold. “I believe that agriculture land — productive agricultural land with water on site — will be very valuable in the future. I’ve put a good amount of money into that.” Burry laments the surge in cross-asset correlations, which makes all hedging strategies virtually impossible, and is a primary reason for why so many rational investors have decided to depart from the market: “I’m interested in finding investments that aren’t just simply going to float up and down with the market. The incredible correlation that we’re experiencing — we’ve been experiencing for a number of years — is problematic.” Lastly, Burry agrees with the Paulson-Greenspan view on gold, but not any of the other Paulson “Recovery” themes we presented in extreme detail over the weekend: “Paulson’s big in gold, and that’s something that is interesting to me given how I see the world playing out, but other than gold I haven’t really bought into any of the other theses.” (And no, you still can’t eat it, dammit).

Full interview:

And a second interview in which he discusses why no one is accepting blame for the financial crisis;

Key quotes:

On who is to blame for the financial crisis:

“My number one concern is that there has been a complete utter total abdication of personal responsibility though out our entire society. I don’t think anyone anywhere is taking blame themselves for what they did to contribute to the crisis. And again I think it gets back to that blame game. It is the most damaging thing we can do as a country is to blame a narrow set and not look within ourselves for what each of us did or didn’t do to the basic wrong that led to this mess.” “From the borrower to the average broker all the way to the federal reserve through Congress, the President, several Presidents, I think that this has been coming for awhile and there has been a lessening of the credit standards over a period of time that ultimately led to the kind of blow off top that we have.”

On the current housing market:

“It’s an artificial market. There are a tremendous number of homes where the home homeowner, I think it’s between 2.5 to 3 million homes, where the home homeowner are more than 9 months past due and are not giving notices that they are past due and they’re just living there for free. I actually know one that has been there for a few years without having to pay anything. I think that Fannie and Freddie are basically being used as special purpose vehicles by our government to support the housing market. The private mortgage market is practically nonexistent; 96-97% of mortgages are flowing through Fannie and Freddie now. I think Fannie and Freddie are exercising a tremendous amount of power over the market by withholding properties from sale and not forcing foreclosure, the foreclosure process. I think that it would be best for the government just completely got out of the mortgage market and let the housing, because home prices are a function of income the leverage applied.

On what he is investing in agriculture, real estate and gold:

“I believe that agricultural land, productive agricultural land with water on site, will be very valuable in the future. And I’ve put a good amount of money into that. So I’m investing in alternative investments as well as stocks.”

“I think there is some value in real estate. You have to buy it right. It’s not in general, that’s the problem. I think that there are an awful lot of people out there looking to buy these distressed properties out there and so you need to find special situations. That is how I’ve invested from the beginning. I’m looking for these special situations, these unique ideas and that’s true in real estate too.”

“In my situation I’d rather go long on housing itself, real estate itself. Depending on how you structure it, in the real market, in the physical market, you can get some pretty good deals and I’ve done some of that too.”

“Paulson is big in gold and that is something is interesting to me and given how I see the world playing out. Other than that, I’m just saying, other than gold I haven’t really bought into the other

On the danger of having more power for the Federal Reserve:

“Well, I don’t feel that the economic theories and policies that got us into this mess are the same policies and theories that will get us out of this mess. And more to the point, I don’t — I’m 100 percent sure that the policies and theories that got us into this mess won’t prevent the next mess from happening.

And that’s probably my biggest frustration with the whole process. I don’t think that — I think with all the blame on Wall Street and all the focus on Wall Street — the increase — the perp walks for Wall Street — these things, in a lot of ways, are non — are not very productive. I think it’s not very productive to blame a narrow set of individuals or a narrow set of institutions.

Nobody is taking time to blame anything that anybody in Congress did or the Fed did or the other businesses, you know, how the banks acted, how the mortgage brokers acted, how people acted, how borrowers acted. There’s — there’s a lot of blame to go around. And I think this blame game being oriented entirely toward Wall Street is — is not overall helpful.

On Goldman Sachs shutting down its proprietary trading business:

“I think that brokers should not trade for their own account in securities — and securities that are also available to their clients. I just don’t think that should be done. I think broking should be pretty boring — safe, boring, low return business. And I think the same is true for banks. They should be very safe, solid, indestructible businesses. And so there are — some of these seemingly Draconian measures, I think, do need to be taken.”

Tags: Abdication, Agriculture Farms, Agriculture Land, Amount Of Money, Blame Game, Burry, Cash Assets, Commercial Real Estate, Correlations, Extreme Detail, Financial Crisis, Gold, Greenspan, Hedging Strategies, Investment Allocation, One Concern, Paulson, Personal Responsibility, Productive Agricultural Land, Rational Investors, Recovery Themes
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