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Get Big or Get Out

Aug 17, 2016


DOUZILLY, France - Nothing much to report from the markets.

Earnings down for five straight quarters. Stocks up for five straight quarters.

What is going on?

Do stock market investors know something the rest of us don't?

Or are stock prices being manipulated higher by central bank policies...especially ultra-low and negative lending rates?

NIRP (negative-interest-rate policy) encourages yield-seeking investors to move money out of supposedly 'risk free' assets - government bonds - and into riskier stocks.

Stocks, for example...which now in many cases carry higher yields than bonds.

But the manipulation only works as long as stock prices don't fall, which they could do at any time.

Stay tuned...

Going Big

Today, we meant to write about politics.

The US presidential race has captured imaginations all over the world.

Every get-together here in France seems to bring the inevitable question: 'What's going on in the US? Is Donald Trump really as crazy as he seems?'

We have developed a response, designed to change the subject:

'Crazy? Oh...he's much crazier than he seems. But at least he's not Hillary. Both candidates are horrible. But that's the way it works. You don't get the candidates you want; you get the ones you deserve.'

But why do Americans deserve such bad candidates for the top job?

More on that tomorrow. Today, more miscellanea:

Dear readers responded to our recent remarks on farming with shrewd insights and personal experiences.

One reminded us that nothing much has changed, at least since Earl Butz made the comment above four decades ago. The family farm has been disappearing for at least half a century, maybe longer.

Poor Mr Butz is remembered today for having made a racist joke that cost him his job...and later serving a month in jail for tax evasion. But he was right about farming: You had to get big or get out.

Here in France - at least in this area - the process has taken longer.

Large farms dominated the countryside until the 1960s and 1970s. Then inheritances and taxes carved them into smaller units.

With lavish subsidies and new equipment, family farmers earned a decent living for decades. But now, the smaller farms - of between 100 and 300 acres - no longer make financial sense.

'It's not just that young people don't want to become farmers,' explained a neighbour.

'I tell my children not to go into farming. Even if you rent the land, you still need about $1 million worth of equipment...more if you're into cattle. So you've always got a big loan to someone.

'And if you have a bad year or go broke. That's why the banks don't want to lend to farmers anymore. So you often owe the money to your family.

'But it's crazy to carry that kind of debt...and all you get for it is the chance to earn a living. It's not like starting a business where you might actually make some money.'

The Back-to-Earth Life

'Do those French farms represent an investment opportunity yet?' asks a dear reader.

We put the question to our farmer neighbour.

'This land is poor. We get about 110 quintaux per hectare planted in wheat. And the land is selling for, say, $10,000 a hectare. After all your costs, it doesn't work.'

We did some calculations. A quintal (the singular of quintaux) of wheat is 3.7 bushels. So, that's about 400 bushels of wheat per hectare (about 2.5 acres).

At $4 a bushel, that's gross revenue of $1,600. That seems like a decent annual income for an investment of $10,000. Hmm... Either the operating costs are higher than we think...or we did the math wrong.

More investigation required...

Another reader was thinking like a consumer, rather than a producer.

Appalled by the industrial methods of raising cattle and the high chemical use of modern agriculture, he had a suggestion: If you want good food, grow it yourself.

Here at Ouzilly, we have a vegetable garden. Tomatoes, lettuce, string beans, zucchini, potatoes, onions, raspberries, cucumbers - we get it all from our own garden.

The garden at Ouzilly
The garden at Ouzilly

We also eat wild game, when we can get it - typically boar or small deer.

Yes, we like being as self-sufficient as to take care of ourselves.

Whenever possible, we do it ourselves.

Ah...the simple, wholesome, back-to-the-earth life! The feel of the rich soil beneath your feet...the fresh air in your lungs...the sun at your back...and a hoe in your hands... Real labour for real food! Real work for real wealth!

Yes, dear reader, you don't need much to live well. You just have to embrace the simple life...with its honest toil for honest rewards.

People say they don't have time for a garden...they say it's 'too much work'...or they 'don't know what to do'.

But it's remarkably easy to produce good, real food, directly from your own garden. Just tell your gardener what you want him to plant. See how simple it is?

Then, just watch the string beans appear on the table...

That's what we do.

 The Crony Socialism of Narendra Modi
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Times Have Changed

While in miscellanea mode, we happily report that our youngest son has finally gotten his driver's license.

So if you are on the roads of South Florida out!

Times have changed.

We got our first driver's license in 1964, right after we turned 16. By then, we had been driving tractors and farm trucks for years.

The driving test was a breeze. We knew cars. We liked them. We had spent hours working under the hood of a 1937 Plymouth, preparing for the moment when we got our license and could go out on the road.

And back then, getting a driver's license was an important ritual of growing up; it meant that we were able to come and go as we pleased...get jobs in the summer...go on dates...and join the adult world.

Now it is different.

Our youngest son is already 22 years old. Raised mostly in the city, he saw no need to get a driver's license. He has no interest in automobiles. And he had no desire to drive one.

He got his driver's license reluctantly and only out of necessity - so he could get around.

We worried that he wouldn't pass the test.

'How did it go?' we asked.

'No problem. They liked me. I was the only one who spoke English.'

BILL BONNER Founder, Agora Inc

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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