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September 2008 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

Texas Real Estate Economist's Take On Proposed Bailout

Sep 29, 2008

Mike Walsten

LandOwner subscribers are familiar with Dr. Mark Dotzour, chief economist for the Real Estate Center at Texas A&M University. Here is his perspective on the proposed $700 billion bailout:

“It's a sad day in America when the federal government (the American taxpayer) has to bail out homeowners who purchased homes they couldn't possibly afford. It's sad because of the vast majority of Americans who live within their means and pay their mortgages on time are now being asked to pay for other people's mistakes.

“It's a sad day in America when we have to spend billions to bail out financial institutions that made loans to those people, then sold those loans to pension funds and endowment associations that had no idea of the risk they were taking when they bought the ‘complex and sophisticated’ bonds. ‘Complex and sophisticated’ is just a euphemism for ‘I have no earthly idea what I'm buying.’

“Now for the pragmatism. If we don't bail out the banks, the American economy grinds to a halt. Many U.S. businesses are financed with short-term notes that mature in 90 to 180 days. This is called commercial paper. What happens when your 90-day note matures, and nobody will refinance it? Just ask Fannie and Freddie, who had $225 billion in short-term notes mature and nobody would refinance them. Hasta la vista.

"The commercial paper market is virtually frozen, and many businesses are in the same boat as Frannie was. The smartest people working in the global financial system say that this $700 billion is a good first step, that it might help to thaw the frozen credit markets but that the devil is in the details. Some say it might take another $500 billion later. The fact is that there is a market for these bad loans. It's about 22 cents on the dollar. The problem is that nobody wants to sell for that price as long as the taxpayers will pay a higher price. So the federal government will buy these assets for a higher price, and it’s possible that they can sell them later and make a profit. It's possible that the net cost to the taxpayer will be very little. The bottom line is that we are in uncharted waters, and this $700 billion plan is the best plan that seems to have some hope of temporarily solving the problem.

“The long-term problem is still on the table, and that is the simple fact that the U.S. government can't keep spending more money than it has. Even governments can go bankrupt. The long-term solution for the U.S. government and every American household is to live within their means. Who is going to want to invest in mortgage bonds in the future if the federal government can freeze the interest rates below what was promised? Who is going to want to invest in mortgage bonds if the government can cram down the principal on the bonds you bought? Until the federal government can restore some confidence in the global investment community that if you buy a mortgage bond you have a reasonable certainty of getting your principal and the promised interest, the problems will linger.

“The bailout is inevitable and has to happen. Expect more to come. These are just bandages on a gaping wound. Hopefully lessons will be learned, and we will begin to address the illness and not just put on more bandages.”
 

If you'd like to see a sample copy of the LandOwner Newsletter, just send me an email or call 800-772-0023. I'd be happy to email a copy to you. Better yet, subscribe and save $20 off the annual subscription price of $119. Just call 800-772-0023 and mention you saw the offer in this column.


 

Economist Calls For "Significant" Cut In Interest Rates

Sep 23, 2008

Mike Walsten

LandOwner subscribers are familiar with Dr. Vincent Malanga, president, LaSalle Economics, Inc., and long-time LandOwner economic consultant. He's been calling for the Federal Reserve to cut interest rates for quite some time, warning of major problems in the mortage-backed securities markets and voicing concerns over potential deflation. In the fallout of the federal government's move to shore up financial institutions, Malanga tells us he expects the Fed will act soon to cut interest rates.

"Financial markets are again in panic mode," he writes, "and the Fed has made several adjustments to its lending facilities. Moreover, a Resolution Trust-like facility seems to be under serious discussion, something we urged nearly one year ago. The central issue is the value of mortgage-backed securities, which of course would be easy to determine were housing activity and prices to stabilize. Some tentative signs of stabilty have been cropping up, but stability will likely be threatened by a deterioration of real economic activity.

"The facts are that the credit system is broken, households are overloaded with debt, household savings are depleted, and labor markets are clearly weakening. Moreover, economic activity around the world is weakening, raising the specter of a slowing of U.S. exports," he states.

"A significant rate cut by the Fed in coordination with other Central Banks would be an effective supplement to actions being taken by the Fed and Treasury," he continues. "It would signal that economic growth is the main focus of policy. A rate cut would get mortgage rates down further, making housing more affordable. By shoveling money into the banking system, a rate cut would enhance profits, it would hopefully encourage risk taking and thus narrow credit spreads. We think the economy requires quantitative easing to the tune of at least one hundred basis points and the sooner we get there the better. In reality, we'll settle for fifty basis points by year end," he concludes.

If you'd like to see a sample copy of the LandOwner Newsletter, just send me an email or call 800-772-0023. I'd be happy to email a copy to you. Better yet, subscribe and save $20 off the annual subscription price of $119. Just call 800-772-0023 and mention you saw the offer in this column.


 

Iowa Land Values Up Nearly 7% In Six Months

Sep 16, 2008

Mike Walsten

The value of an acre Iowa cropland rose 6.6% for the six month period ending September 1. That's according to the most recent survey conducted by the Iowa Chapter of the REALTORS Land Institute (RLI). Combining this increase with the 11% gain reported in March 2008 indicates that on average the value of Iowa cropland has risen by 17.6% statewide for the year ending September 1.

All nine Iowa crop reporting districts showed an increase. The districts varied from a 2.7% gain in the East Central Iowa Crop District to an 8.7% jump in the Southwest district. That's for the six-month period ending September 1. The RLI indicated the factors contributing to the increase in farmland values include: continued overall strength in corn and soybean prices, demand created by past expansion of ethanol plants, limited amount of land offered for sale, good crop yields and positive attitudes about agriculture. Other factors include favorable long-term interest rates and stronger cash rents. Concerns that could affect farmland values in the future, cited by RLI, include potential for more land coming on the market, increased fuel and fertilizer costs, and decreasing returns in the livestock industry.

I carry the details of this report in my LandOwner Newsletter. If you'd like to see a sample copy of the newsletter, just send me an email or call 800-772-0023. I'd be happy to email a copy to you. Better yet, subscribe and save $20 off the annual subscription price of $119. Just call 800-772-0023 and mention you saw the offer in this column.


 

 

 

Midwest Land Values Rise 15%; Texas Up 12% to 18%

Sep 10, 2008

Mike Walsten

Two recent surveys by key federal reserve banks give us a snapshot of the strength in land values at mid-year. The surveys are conduced quarterly by the Federal Reserve Banks of Chicago and Dallas. The Chicago survey of agriculural bankers covers that regional fed's service area, which includes all of Iowa and Wisconsin, lower Michigan and the northern two-thirds of Illinois and Indiana. That survey found the value of good quality cropland rose 15% across the district for the year ending June 30. Illinois led the increase, posting an annual surge of 17%. Indiana followed with a 16% annual gain. Iowa notched a 15% increase. Michigan and Wisconsin posted 14% and 13% rises, respectively. The survey also found 37% of respondents expected values would rise during the current third quarter while only 2% thought values would decline.

The Dallas survey covers ag bankers in that bank's service area, which includes all of Texas, northern Louisiana and southern New Mexico. The bankers indicated the value of dryland cropland jumped 18% for the period ending June 30. Irrigated cropland rose 12.5% and ranchland increased 11.8%. Survey respondents indicated demand was moderating and 73% reported they expected land values will be flat during the third quarter.

I carry the details of these report in my LandOwner Newsletter. If you'd like to see a sample copy of the newsletter, just send me an email or call 800-772-0023. I'd be happy to email a copy to you. Better yet, subscribe and save $20 off the annual subscription price of $119. Just call 800-772-0023 and mention you saw the offer in this column.


 

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