You may or may not be familiar with the sharia law governing finance and speculation. Under the Islamic code, interest and speculation is forbidden, but followers may share risk through equity participation in physically based assets. The whole concept is actually fascinating as trillions of dollars in Bonds have been devised to synthetically create interest bearing vehicles with some underlying physical component. A quick perusal of negative nominal yields in a number of major sovereign  government bond markets would make it appear like the whole world is currently living under sharia law. As we have mentioned before, it is curious that  one of the criticisms of some particular hard assets is that they throw off little, or no, cash flow/interest. We have a hard time reconciling those kinds of comments with rates that give investors the privilege of taking on sovereign credit risk for a fee. If we are operating under sharia law, in terms of rates of interest, we would prefer to stick to the letter of the law and participate in the ownership of physical/hard assets.

As we look out across the investment opportunities available to investors today, the phrase ” In the land of the blind, the one eyed man is king” keeps rattling around in my head. However, the version that keeps coming back to me again and again is ” In the land of no return, those asset classes with even the slightest hint of return are king”. Whether it is royalty trusts, farmland, MLP’s, or whatever, assets and asset classes whose traditional return profile have hardly made investors giddy have now become the go to investment. Granted, some of these asset classes do possess the benefits of secular shifts (Farmland, pipelines, etc.) but it is clear to us that the reach for yield has morphed into a reach for yield at any price. It  seems like any asset whose income stream can be monetized (and leveraged) is being driven to nosebleed levels.So, what is the proactive investor to do? In our opinion, there has never been a better time to avoid the low level perspective and take the 30,000 foot view. Massive amounts of Central Bank created liquidity will have consequences for currencies and real asset prices. BUY STUFF.

The Economist recently discussed the sudden massive influx of Hong Kong Dollar buying in response to the Russian Crisis. Russian oligarchs, ostensibly in response to the recent sanctions, were fleeing to the safety of what they consider to be a politically friendly environment. This influx caused a great deal of frenzied U.S.Dollar buying in order to retain the HK dollar/US Dollar peg. In addition, it also was reported that the strong bid to high end London real estate appears to have severely diminished, most likely due to a diminished Russian appetite for safe haven buying. What is interesting about these flows of capital is that the search for safe haven assets is now dictated by the “safety” of the political environment, and not necessarily by the perceived riskiness of the asset itself (stocks/bonds). Much like those seeking political asylum for purposes of exercising their basic freedoms, capital seems to be seeking out its own level of freedom. Clearly this kind of thinking bodes well for hard assets, particularly those with a higher degree of liquidity. Hard Assets Are Apolitical. BUY STUFF

We were quite amused at recent comments by Fed Governor Lockhart regarding a shift in Fed policy  occurring when ” They can see the whites of their eyes”. This comment would be funny if not for the fact that markets have gone “all in”  on the accuracy of Fed policy. Not only has Fed policy exacerbated the amplitudes of what used to be called the normal business cycle, they have sought to rewrite history by emphasizing their forecasting acumen when clearly none exists. The prize for the appearance of  perceptiveness has to go to Mario Draghi, who is able to  make similar bold predictions within the context of a Central Bank policy that simply has to make promises to successfully achieve their policy goals (whatever it takes… ad infinitum).  I know that we are walking a fine line here when we rehash the same point over and over, but history and markets ( in our opinion) will ultimately prove that such professed tea reading skills are completely without merit.

I often make the statement that I would like the words ” He was early” emblazoned on my tombstone. From Farmland in the late 90’s to the drillers and the refiners in the early 2000’s we seem to be both blessed with  foresight while at the same time cursed with an inability to frame that foresight within a reasonable time period. In short, it seems like we are always playing the waiting game, which as we all know, sometimes feels less than comfortable. Being early often feels like being wrong, and one has to continually revisit the underlying investment thesis to make sure that being early is not simply a refusal to admit ones mistakes. We have to admit that the environment over the past several years has simply not validated our thesis with respect to hard assets vis- a- vis financial assets. The question is: Are we wrong or Are We Early? Clearly the answer to this question will ultimately unveil itself, but in the interim we take comfort in the fact that fiat currencies rarely reign supreme over extended periods of time, particularly those that are expressly being devalued via Central Bank actions. The antidote to falling currencies is to hold stuff.Continue to Buy Stuff.