Settling in at home after wandering the country a little, provides an opportunity to reflect on my observations, discussions and tenor of the people I engaged with. I thoroughly enjoyed the visits and sometimes lively discussions and following are a sampling of these. There is but one potential action item for my portfolio review – which is less than normal for these adventures.
Case Study Revisited
As I alluded to a few weeks ago, one of the reasons for this trip was to get a better read on human nature – notably in rural America (as a follow up to one last year). An actual subject was used (a retired CPA) whose financial institution of choice was closing smaller accounts to focus on high wealth individuals (of which he is not). Therefore his savings will be moved elsewhere, the current distribution being low yield checking and moderate yield CD.
Considering his risk-off nature a three pronged strategy was proposed with three equal weight components: Higher yield CD, High yield checking and three equally weighted blue chip stocks (KMB, CLX and WEC). Theory being the dividend yield on the stocks allow his remaining holdings to keep pace with inflation while providing a no-fee monthly income stream (Staggered dividend pay months – KMB (Jan,Apr,Jul,Oct), CLX (Feb,May,Aug,Nov), WEC (Mar,Jun,Sep,Dec)).
His choice? No stocks, but yes on the CD and Checking account options as they are FDIC insured which offsets inflation degradation by ensuring capital preservation. My only response (to myself) was: No risk translates to negative real returns.
My travels took me through a swath of farm country (Oklahoma, Kansas and Missouri) where I found the results from a recent Pew study hit the mark. However, once engaged the views presented were both adamant and heartfelt. My initial sense was that I was hearing the views of Sinclair or Fox with no offsetting dash of CNN or MSNBC thrown into the mix.
Regarding tariffs, the prevailing view is that agriculture is the front line in a trade war with a high belief that any personal pain will be mitigated by presidential decree. The issue (to me) with this narrow view is that the broader picture is missed. Even if ‘make whole’ payments are made to farmers, rising PPI and CPI indices eliminate most of the gains and will likely result in higher prices for the population at large. In fact, steel mill products increased 4.3% last month which is historically not an omen of better days to come.
The picture becomes even foggier as we overlay the Administrations’ own data and forecast over the President’s rhetoric and promises.
Drop in Farm Income Forecasted
Depending on the measure used, President Trump’s team is forecasting a drop in 2018 farm income of 5-8%. This is before any tariff impacts are determined. Yet this segment remains pretty much united behind his management. To be honest, I doubt I’d be a steadfast supporter of anyone who proposed reducing my salary while using me as a pawn to achieve an uncertain end in a trade war – especially with allies.
There we are. To our President I would suggest a refresher course on the benefits of a robust export market to absorb our surplus ag production. For me – I considered investing in farmland in the 1980’s but missed the window. The next few years may present another opportunity if the presidential negotiating skills aren’t as robust as advertised.
My one takeaway from this journey? It’s time to review the loan performance of the rural banks in my portfolio – starting with the lead bank on a syndicate extending credit to farm REITs.