Nick Holmes' Blog
5 Aug 2011
The Fields are paved with Gold
A couple of weeks ago I visited a Berry Bros & Rudd bonded warehouse in Basingstoke. A relatively conspicuous building that may as well have had apples in it. Instead it had 2.5 million bottles of wine, a single pallet of which can set you back £1million.
If we go back a few years that warehouse would have been far emptier and the wine in it worth 40% of the value today.
Were I allowed to visit the vaults of the Bank of England I would find billions of pounds worth of gold, not owned by the UK I hasten to add but stored in the UK. Interestingly gold and wine have roughly tracked each other since May 2006 and today an ounce of gold is worth 2.5x that in May 2006.
Now let us look at land values. In the South East in May 2006 I could pick up an acre for £3,000. And today, well £7,500 should just about do it. Guess what 2.5x.
Lastly let us look at rents. Today people are paying £200 an acre yet in May 2006 you could get the same for £80. Guess what - 2.5x.
I will make a bet with any reader of the MFU that in another few years at least 2 of these will have crashed. Let me ask you something, what is the real market for gold compared to the other three above? One you can drink, the other two you can grow food on and gold you can……..
As human beings we are flawed. We think we are clever, we think we can read markets. But let me tell you something – we can’t.
Markets are as imperfect as humans. We cannot control the weather and a whole host of other factors that will affect our markets. Therefore we cannot predict them. For example we assume that populations will continue to grow and more importantly they will continue to be able to pay for food. Supply and demand.
If you put this all together good things happen and bad things happen and this all boils down to one thing, history repeats itself. The good and the bad balance out over time … unless of course you are stupid enough to pay heed to the British media in which case it is all bad. Supply and demand is self regulating.
If you ask me in 5 years time inflation will have taken 40-50% off the real value of everything today. Inflation will NOT go down. The question is what will keep up, what will stagnate and what will burst?
I am only human and therefore can only rely on history and tell you what definitely won’t keep up. This is debt and cash.
The point is that we are all doing what we do best, creating bubbles. Don’t get carried away with rents at £200 an acre or Chateau Lafite at £20,000 a case.
You’d be far better worrying about structuring any debt or cash you have to ensure you can cope with interest rates at 5%.
