Don Coxe is an investment strategist. But unlike most investment strategists that flaunt degrees in mathematics or quantum physics, Coxe is a curious historian. At 73, his curiosity has yet to wane, and his quarterly newsletter Basic Points has followed him from his old employer BMO to his new investment advisory business.
He makes investment a fun pursuit, not only of numbers, but of knowledge. In his own word, he studies history to “compare popular views about economics, finance, geopolitics with evidence of what has happened in various eras.” And making money is merely a financially rewarding byproduct of that pursuit.
In his March edition of Basic Points, Coxe drew my attention to a few points rarely discussed by investment advisors and analysts in the mainstream. Let’s see what they are.
Lack of sunspot activities and possible crop failures
Most of us are aware that the earth has been warming up in the last couple of centuries. The rise of environmentalism makes sure of that, and Gore’s Inconvenient Truth enforces that belief. As humans, we are no doubt responsible for the unprecedented level of pollution and degradation to our natural habitats. But the feverish pitch of the environmentalists has become dogmatic in recent years, and any dissent over either methodology or the validity of data that supports their belief is deemed treasonous.
As much as environmental awareness is a more than commendable cause, the sensationalism and the selectivity over the type of news and data that make it to the front page has been astounding. Bloopers are swept into the background, and wildly pessimistic and sensationalistic pieces inject more fear and exaggerated claims into mainstream conversations. We are all for a better living environment, but no end justifies the means if facts and truths are misrepresented in the process. The public will turn their backs on the cause, no matter how noble it may be.
But back to the issue on hand for now. With all of that hoopla, you would think that a cooling earth would bring a sigh of relief to the world. But no. According to climatologists, the patterns of the sunspots have been: ten years of sunspot activity, a year of rest, and then a new cycle. The last cycle ended in 2006, and there was little activity in 2007. The troubling thing is that they didn’t appear in 2008, or in 2009 so far. This means that we are experiencing the longest sunspot drought in more than two centuries. Scientists are expecting the sun to resume maximum activity anytime now. But then again, they have been holding their breath with little avail for the past year.
So what does this mean for investors? Coxe thinks if sunspot inactivity continues, we are headed for another year of crop failures and agricultural disaster. He suggests we “watch the websites that update the sunspot story. If the spots don’t return by mid-June, then there might well be great rallies in the grains. Buy the fertilizer, seed and farm equipment stocks.”
And as the unapologetic historian, he leaves us with a requisite tale.
Scotland suffered six straight crop failures during the 1690s because of late Springs and early frosts. Some historians believe this was the major reason why the Scots gave up their dreams of independence and joined England. There were skating parties on the Thames each winter. Polar ice caps expanded dramatically.
I have written before on the importance of demographics and the role it played in the ongoing US property bubble. Demographics also played a part in preventing the much anticipated Japanese economic recovery from taking place in the last decade, as well as stopping the Europeans short from writing a large stimulus check.
Don Coxe’s analysis further affirms my belief that many OECD countries face similar challenges to Japan in the coming years. In his opinion, rising standard of living and property prices took place on the back of a population boom. When this came to a sudden halt in the 70s, residential real estate is a reliable long-term asset class no more.
When the overwhelming majority of families in the OECD collectively and simultaneously chose to cease reproducing themselves in the early 1970s, and stuck to that resolution, they repealed the most basic of long-term investment concepts. Demographers and social scientists can debate the reasons behind this momentous behaviour shift – or even whether it is a good thing. We merely note the obvious, that financial prognosticators have no: people changed 35 years ago – apparently permanently – and the world changed – apparently permanently.
What began during the early 1970s was an OECD-wide collapse in the fertility rate from roughly 2.4-2.5 babies per female to 1.4 babies. Since 2.1 is required to maintain population levels, the three decades of fertility below 1.6 have, slowly but inexorably, transformed population profiles – and the housing markets.
He also goes on to spell out the corruption that went on at Fannie and Freddie that could not have existed without full backing and co-operation of the government, particularly the Democrats. Bottom line? Political leadership is as much to blame as the corporate fat cats they have been hanging out to dry the past year.
The government’s relentless pursuit of property ownership expansion ignored the basic supply and demand equation in the market place. None of the reckless lenders in the housing market noticed the reason for debasing lending criteria to expand the supply of qualified homebuyers was the dwindling number of qualified homebuyers.
While the Congress was busy enabling lenders to sign unaffordable mortgages over to poor Latinos and African-Americans, it heavy-handedly restricted the supply of working-visas and green cards to more productive, better-educated, willing and able receivers of properties. The result? The people that could have purchased and sustained a rising housing market were denied access, where those that could not afford to service the mortgages were burdened with incomprehensibly termed debts.