Nassim Taleb, author of The Black Swan, has been predicting the collapse of the global financial system for 12 years. You would guess that he should have revelled in the recent events that brought the world to its knees, but he predicts that worst is still to come. At the Discovery Leadership Summit last week, he compared the 1st world war to the great depression. The first world war was referred to as the GREAT war. No one could imagine that the world would be consumed in a war of such scale again. It wasn’t long before an even greater and more horrific war broke out. Like the Great War, now called the First World War, the Great Depression will be referred to as the first depression. It will be followed by a greater depression brought about by the collapse of the global financial system.
Johann Rupert, who spoke in the afternoon, was equally pessimistic about the state of the world economy. Rupert is also convinced that the worst of the financial crises is still to come and that the bad debt has only been moved from private to the public domain.
When asked about where they would invest if they wanted to retain their investments they were of similar mind. Taleb casually suggested FARMLAND, as well as selected commodities. It’s nice to know that in the case of financial meltdown, great minds still would put their money into Property, even if it is for the purpose of agriculture.
So let’s digest the farmland investment. Buying a farm as a business is not viable unless you are in the business of farming and understand the risks associated with it. Most farmers will tell you that it is a lifestyle, a labour of love, and not really a means of generating wealth. So at best you will earn is a nominal rent for your farmland and have a tenant that maintains and protects it. Your yield will be low, really low. And what about capital growth? Farmland has not performed well, especially in South Africa, so you had better hope that the financial meltdown is catastrophic and the intrinsic value of the farm land is highly sought after as food supplies become a scarce and reach a premium value. Also you had better hope that lawlessness does not prevail and your asset is not invaded by those seeking food and shelter.
I still believe that even in meltdown conditions, shelter will be a primary human need, and people will barter whatever they can earn for food, clothing and shelter. And shelter may not be the 5 bedroom house on the beach, but a small apartment in a secure complex, in a good area. Sure the rent will not match what is currently generated it will still be in the priority basket for those who have some means. Interest rates will be low, and the banks will have bigger problems than repossessing properties with arrears.
Thanks Taleb, but if we are talking about property, I still bet on entry level residential apartments as a “safe as houses”.
In fact the day after the summit I signed for 5 units in a complex advertised recently on this newsletter.