Socialism, brought to you by people with $3000 watches (and no pitchforks)!

If you thought socialism might be brought about by large, angry crowds with pitchforks, hellbent on redistributing your unearned wealth, you’re out of sync. There’s a much more acute danger of the majority of the world going socialist (well ok, state capitalist – it’s more flexible as it gives more leeway for crony shenanigans) by way of central monetary and fiscal authorities buying up an ever larger chunk of global assets.

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Years of permanently 0%-ish low-risk real returns

Possible long term vs probable short term

My base case for the long term outcome of the giant ZIRP/NIRP experiment being conducted on all of us (to bring about growth and moderate inflation), is that NIRP will not succeed, but will eventually lead to helicopter money that will do the trick (and overshoot on the “moderate inflation” part enough to make a lot of central bankers whisperyell “I told you so!” behind closed doors).

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Why investing in infrastructure (and the land beneath it) is a good idea

Right off the bat: I’m a firm believer and committed investor in vital infrastructure. Railroads, ports, pipelines, wireless towers, gas stations, airports, roads, electricity transmission lines and stations, you name it. For clarity – while the land that carries it, is not technically infrastructure itself, usually they’re bound together by decades-long leases (or short term leases that give more power to the landowner) that effectively make the ground underneath a senior tranche in the asset. More on that below. The majority of my portfolio is invested in land with infrastructure, but my appetite is insatiable.

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Opportunity in illiquid investments

All types of assets in the same asset class are not created equal. Although in general, markets tend to be more or less efficient (at least if you can wait by the river long enough), there are peculiarities in the efficiency. One of the most prominent of these peculiarities is the liquidity premium.

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In commercial real estate, buying below market is essential

During my intermittent career in commercial real estate investing, i’ve found that entry yield is important, but lease rates and the price level relative to market value are occasionally even more so. Especially important in sale and leaseback (SLB) deals. The pitfall is, that frequently the deal being offered is not so much a real estate deal as a structured financing deal with inadequate collateral.

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A bit about my investment preferences

A little bit insight into what kind of asset classes i like and don’t like. Things to keep in mind:

  • Safety of cash flows is paramount.
  • Capital preservation is more important than capital growth.
  • This is not other people’s money so messing up and moving on isn’t really an option. You have to get more right than wrong, constantly.
  • My investment horizon is years to decades. The longer, the better. Liquidity for capital deployed is relatively unimportant, but money management is not.
  • Something that doesn’t provide a relatively predictable cashflow while maintaining it’s value, is not really a possible investment instrument. At best, it’s a hedging instrument. At worst, it’s a zero sum game with me as the lemur in a room with 700-pound gorillas who are smarter than me.
  • I operate in – and exclusively invest in – safe regions, where bureaucratic, tribal and warlord relations don’t affect property rights.

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The greatest power and wealth transfer in history

The mark

The most feared, most powerful person on the planet is feared by politicians and central bankers alike. She’s not a billionaire, she’s not a celebrity. She’s a retiree. Baby boomer. And also part of the (still) richest generation and the (still) most powerful voting block. And you know what she REALLY doesn’t like? Nominal losses. Everything else is more or less bearable, but nominal losses on income and assets are unacceptable to her. She is the reason why central bankers are engaging in unbelievable gymnastics to conjure up inflation instead of letting bad public and private debts go into default and bad investments go bankrupt. It’s the only way to avoid nominal losses on pension investments and assets.

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The greatest malinvestment boom, ever

The economy needs low interest rates to recover

So, at some point after the crash of 2008-2009 both business and consumer confidence are dismal, investment and consumption are awful. There’s a decent debt overhang in the west, public and private. So naturally, growth is subpar. We need growth to float more boats, both literally and figuratively. To get it, we need investment and consumption. If the private sector doesn’t want to invest and consume, the public sector (both governments and central banks) can in theory incentivize it. Usually, it’s in the form of fiscal (budgetary measures like easing the tax burden) or monetary (central bank policy measures like lowering interest rates) easing. However, since most OECD governments are heavily indebted already and political undercurrents all but preclude lowering taxes in any significant manner, the burden of getting the economy moving again lies squarely with the true masters of the universe – the central bankers. So they do what they think might get people to consume and businesses to invest again. Interest rates go down and – as conventional wisdom would have it – the wheels of the economy should start moving again. But they don’t. Or they do, but it’s clearly not what everyone is hoping for.

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