Americans are hoarding cash at an unprecedented rate.
The chart below shows the national personal savings rate. Basically, it measures money saved by US citizens as a percentage of disposable income.
It’s clear that savings have rocketed to an all-time high in under a year to 33.6% — double the previous record back in the 1970s!
For the first time in history, Americans are stashing away over one-third of their disposable income.
Where do you think that money will go once it’s released?
Battening Down The Hatches
Personal savings typically spike during a recession. At the risk of losing their jobs, people want a large cash cushion to weather the storm.
We haven’t seen people prepare for the worst at this magnitude before. Covid shut down the world economy, placing enormous pressure on traditional 60/40 portfolios. The 60/40 strategy might have looked good in the 1980’s, when 10-year Treasury bonds were yielding 14%. But that’s far from the case now.
Couple that with regular stimulus checks, and one can’t help but wonder, where will all that cash go as America re-opens?
You’re aware by now that retail has dumped a great deal of its stimulus into risky assets. Markets are already heavily leveraged, which may signal a significant downside when the red day finally arrives. People will get burned, but for now, stimulus money continues to keep the casino going at full-throttle.
The U.S. government approved a $1.9 trillion COVID stimulus bill a few weeks ago. It wasn’t the first, and despite how enormous these stimulus packages already are, we likely haven’t seen the last.
Americans are wary of the market
It’s interesting that Americans are keeping more of their cash in their pockets. But it’s also interesting to think that they’re NOT putting that money into the stock market.
Perhaps it’s because they believe that it’s only a matter of time until the other shoe drops. And considering the massive amounts of QE policies and the Fed’s swollen balance sheet, it would certainly seem like the market faces some natural correction.
With a huge amount of financial assets owned by the Federal Reserve, it would seem that the stability of the stock market is somewhat (perhaps entirely) artificial. That might be why Americans are choosing to keep their cash hidden away and out of markets.
Perhaps they’re concerned about inflation. Although it would seem counter-intuitive to be holding cash during an inflationary period, many Americans have observed their government pouring trillions in stimulus money into the economy.
Consider this – the bailout package that saved the economy in 2008 was around $900 billion. To date, the US government has spent $5.3 trillion in its efforts to keep the financial system in good shape.
Inflation seems inevitable, which may explain why so many Americans are choosing to keep their wealth in liquid form. Are they searching around for something more stable?
So What’s The Answer?
Knowing what you do now, where would you put your money today? Hopefully not GameStop (GME), which shot up 700% in less than a week after a group of Redditors decided billion-dollar hedge funds were a little too pessimistic.
If you’re thinking precious metals, that’s not the worst idea with all things considered. But there’s a caveat to that. BlackRock recently said that gold is “failing” as a hedge against equities.
With even gold delivering a lackluster performance as a hedge against volatility, investors are left with even fewer places to park their assets.
We’re living in financial Neverland where dead companies can 7x, and central bank interest rates are going negative. In a market that turns bull one day and bear the next, you don’t want to be reactive.
You may think to hedge your portfolio with a basket of commodities, like an ETF, as these will likely benefit significantly from the global economy returning to normal. Still, we invite you to consider a different approach.
Farmland: The Ultimate Hedge
If you’re like many Americans, you may be flush with cash and not sure where to put it. You might also be rightfully concerned about losing some of the value of that wealth to inflation.
Gold is gold, needless to say, and it will continue to be an effective store of wealth. But even precious metals have become highly financialized, with paper gold and silver outstripping physical in terms of overall value. How can you own something real, something that won’t be hit by inflation, and something that will generate income over the long term?
Farmland may very well be the only asset class that can boast this trifecta of benefits. Historically, farmland performed well in market downturns, suffering virtually no damage during the 2008 crisis.
US farmland, that is. But farmland in the US, while certainly still a good way to gain exposure, has ground to a halt in terms of appreciation and income. In fact, average farmland values in the US actually decreased between 2019 and 2020, according to the USDA.
There are several reasons for this. One is due to simple supply and demand. The US produces large amounts of grains – corn, wheat, soy – and these crops are seeing increased competition globally, especially from emerging markets. Places like Russia and Brazil have upped their grain production hugely in recent years, clamping down on US farm yields.
US farmland is also highly financialized. Institutional players like pensions funds, family offices, university endowments – even government agencies and non-profit foundations are getting in on the action. With institutional capital crowding the space, there aren’t many entry points for the private investor.
So US farmland, while not a bad way to go, doesn’t seem to have the boom potential we see in other markets.
So Where To Go?
There are a plethora of factors to consider when making a decision on farmland investments, and location is foremost among them. For an in-depth look at how to approach farmland as an asset class, take a look at Farmland 101, our guide on the topic.
To give a short answer, farmland in Latin America, specifically Colombia, offers a one-two punch of value for the long-term.
Owning farmland in a place like Colombia hedges you against inflation, thanks to farmland’s historically low correlation with macro-market swings.
On top of that, you’ll benefit from the appreciation of land value in a rapidly developing market, where a recovery in tourism and a spike in global demand for commodities will likely have a noticeable effect.
Traditionally difficult-to-manage and illiquid, markets like rural Colombian farmland have only recently become much more accessible to small-scale foreign investment. The options available to US investors are only becoming more diverse with each passing year.
Land Ownership Titles (LOTs) aren’t anything like farmland investments of the past. LOTs allow investors to buy individual parcels of productive farmland that have built-in solutions for management and commercialization. To learn more, sign up for this week’s webinar.
Position yourself—a tidal wave of new money is flooding into the economy
So where are you going to put your extra money?
You can buy stocks or bonds and continue playing an increasingly risky game.
Or you can buy a piece of productive agricultural land in an overlooked gem of a region and take advantage of truly non-correlated returns.
Will you hedge your bets with an income-producing asset that appreciates over time, even in the face of inflation? The choice is up to you.