Posted by: Martin | June 7, 2011

A safe store of value?

Land in Abidjan

I’m thinking that in 5-10 years time I’m probably going to regret that I didn’t buy more land in Abidjan.  A strong case can be made for it as an investment (but that’s for a future post), but it’s not bad as a store of value as well.   It actually feels safer to have money placed in land in Abidjan (given that the title is secured)  than in a lot of other places. That’s linked to me having pretty pessimistic macroeconomic views.

Very briefly, I think:

  • China is going to have a real estate crash – impossible to say when, but I think it will happen. This will reduce the demand (and prices) for various natural resources and cause stock markets to go down world wide.
  • Most of the countries in western world (plus Japan) have structural budget deficits, that seem difficult to close for political reasons.  Instead they are borrowing and/or printing money to cover budget shortfalls which isn’t sustainable and will end in disaster if it goes on for too long.
  • The banking sector (especially in Europe) is still over-leveraged and a second financial crisis might well happen.

With all this, it’s hard to find a safe store of value.  Even having US Dollars or Euros on a bank account doesn’t feel entirely safe – not because the bank will default, but because both the EUR and the USD could lose value dramatically.

Where am I gonna put my money?

Here’s Jim Rogers on BBC Hardtalk voicing the problem of where to put one’s money:  [He is more positive on China than I am though]

There’s going to be huge downsides, there’s serious problems. Where am I gonna put my money? US? the UK? They’re bankrupt. Why would I take my money out of a place that is having a dip [China] and put it into a bankrupt country?

With land in Abidjan the price is to a great degree determined by local conditions and local demands. With asset values in the developed world and the most developed emerging markets becoming more and more correlated, Africa is still an exception where things can go up while the rest of the world goes down.  Nile Capital has just released a report entitled “Africa investing: The benefits of a diverse continent” that elaborates on this point.

Also land prices in Abidjan are clearly not in a bubble – rather still in a political crisis dip, which provides a margin of safety. And land is a pretty good inflation hedge (except in the most dramatic stages of hyperinflation). 
The problems are that it’s not very liquid and that you don’t have a very strong rule of law to back up your ownership rights.

Safer places to put your money, compared to land in Abidjan, that I can think of include:

  • Currencies backed by countries that have low debt, a strong fiscal position and strong rule of law:  Norwegian crown, Swiss franc, and maybe Singapore dollar, Chilean Peso and Canadian dollar.
  • Gold mining stocks of companies with strong balance sheets and maybe gold itself although it has gone up a lot.
  • Stocks of well managed companies with strong balance sheets producing stuff that are close to the base of the Maslow’s hierarchy (eg agriculture). These should be well positioned in a crisis scenario.
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