We will begin to compare tradable assets which, based on previous blogs, we consider recommended in the current climate.

But firstly, what do we define as the current and future climate?

1. Frequently volatile in the short-term
2. Record government deficits threatening the most “secure” of investment products
3. Poor equity performance
4. A forecast for a high inflationary environment post QE alongside continually weakening currencies.

As a result we believe that inflation hedging investments in tradable assets are the way with which we can best preserve our wealth.

Two excellent choices therefore are gold and wine. Should you only be able to invest in one or the other, which should you choose? Below is an objective comparison and at the very least, some food for thought when considering these asset classes:

• Quick income - neither are income producers unless they are bought in bulk and sold off individually (whilst also timing the market precisely) so they must be held for a period of time (typically 12 months minimum, 2-5 years usually)

• Recent performance – From November 2008-9, Gold was up 50%. The Lafite Rothschild 2008 made 45% gains in 9 months.

• Ongoing returns – the difference between gold and wine is that wine is essentially a number of products with differing shelflives and maturing ages, whereas gold is only the one product. For example, the Lafite 2008 might make 50% gains in total. You may then sell and buy a different vintage, the Mouton 1996, which also experiences 50% gains. Gold, after one 50% rise, is unlikely to continue growing at 50% per annum, as would any singular product/share/stock, etc. Therefore it will struggle to stick with those ambitious growth forecasts in the long term.

• Supply – Gold’s supply is well documented as dwindling which is likely to keep prices high, at least in the short-term and whilst markets remain volatile. It is why you see so many “cash for gold” adverts in the UK. Vintage wine supply is more unpredictable although a vintage generally decreases in availability as it gets older and gets consumed! What happens with wine is as one vintage ends, another begins, giving the investor ongoing opportunities. A good broker is an essential tool when understanding supply and the knock-on effect of when to exit the market.

• Demand – both products are likely to experience high levels of demand, at least in the short-term. Gold is the inflation hedge, and wine because its price point is perfectly poised to retain consumption from all levels of the investor spectrum. At £8,000 per case approx., the entry level investor can afford it, and so can the multi-millionaire. The rich may not be buying £20m yachts at the moment, but high quality vintage wine still represents a tiny % of disposable income. It is also worth noting that wine (along with make-up), are 2 of the best performing products in any recession. When the population feels down, they tend to cheer themselves up with alcohol.Demand for both has also had a big shake up geographically. Traditional old money is being added to in huge volumes by new money as well as emerging nation demand from high population countries such as Brazil, China and India.

• Durability/Storage – both products can come with storage and ultimately protection. Wine bottles can break, and therefore gold may be considered more durable. However, the strength of storage, plus insurance, means you are now well covered in this unlikely eventuality.

• Your economic viewpoint – Should you believe the world is going to recover, it is likely that gold has reached it peak and will not provide further returns, if not future losses. If you believe the opposite to be true, gold could, as some forecast, treble in value. Vintage wine is less likely to be disturbed by economic cycles, but one must conclude that the less demand, the more volatile the pricing could be there.

Although both products are strong investment contenders in a volatile, downturning market, gold relies on certain economic conditions to rise in value whereas wine does not. In a market that continues to go down, in particular coupled with a weakening currency and inflation, gold would continue to rise in value. However, wine would also rise as a fellow tradable asset (as has been seen with the rises in vintage value in the last 2 years).

Ultimately wine has a more subtle manoeuvrability compared to gold in that wine is not one product, it is several products, born at different times, with natural price peaks based on its age rather than its dependency on the economic cycle.

Therefore, if you can, it is wise to diversify into both asset classes. Both are strong products, but if you cannot, your economic viewpoint will be crucial as will your investment performance requirements. If you strongly believe the economy is yet to sink to the bottom (and has a long way to go as well), gold is your best bet. If you are looking for more flexibility within varying market conditions, wine is a much better prospect.

A very good question if you don’t know…and you’re unlikely to as this is not a well known sector. However, as we like to do at Discover and Invest, we can prove to investors that this route offers a high level of secured income backed by some surprising macro-economic fundamentals. It is also a sector we know well and can fully manage for you. Allow me to explain….

The investment concept exists because of the need of many farmers for short-term funds. This is down to either expanding or restructuring their businesses, particularly in light of many new EU directives which require new and costly upgrades. Farmers, as is widely known, are cashflow poor but are extremely asset rich, an asset which can be used to generate an income. This asset is of course their farmland.

What many investors are unaware of is how robust farmland prices actually are. Documented evidence shows that since records began in 1945, UK farmland prices have remained steady in each of the recorded recessions and in many places have barely dropped at all in the last 2 years. Therefore it is important for investors to understand that UK farmland is not affected by economic cycles in the same way as residential or commercial property does. Evidence from a number of independent sources is available in our packs.

So why are farmland values so robust? It is a question of supply and demand. In the UK , farmland for sale is a rare occasion and an exceptional opportunity for a neighbouring farmer to expand his business. In 1945, 1m acres per year were recorded as transacted. The numbers since then have steadily decreased to only 100,00 acres, a huge 90% drop in supply. This has been in the main because farmers have moved from tenants to actually owning their own land. Farms are passed down the generations and in order to succeed, the farmer needs to expand not contract. Therefore a chronic lack of available-for-sale supply coupled with a farmer’s ongoing expansion requirements ensure that values remain robust, regardless of lifestyle buyers. What this means to investors is that farmland, as part of a farm, is a robust product when protecting capital that also produces an ongoing income.

With the lack of funding available from banks, farmers are prepared to enter into leaseback style agreements for their farmland with private investors for an agreed timeframe of typically 2,5 or 10 years. The investor buys a portion of the farmland (usually not the property) at between 50-70% of today’s market value and rents it back to the farmer at around 8% per annum; a very competitive rate in today’s marketplace. Typically the farmer will also pay for the buying costs. The farmer pays his “rent” and then buys the farmland back from investor at the end of the agreed period for the same % discount based on the then market value. Therefore this offers the investor a superb capital gain opportunity and allows the farmer to improve his business profitability in the short-term.

Strong leaseback deals will utilise an agricultural project management team, (as we do), to ensure that a new business plan is in place and so that the farmer is monitored on a quarterly basis for the investor. This ensures a smooth, hands-off and full managed product that so many investors fear they will not otherwise receive. The product is also SIPP/SAAS compliant.

With regards risks, with such a strong initial equity position, you would need UK farmland to fall by more than 30% in order for your capital to be at risk; something which has not happened since records began, nor is it likely when taking into account global demand for food and the fact that we still have not found ways of making food without the use of farmland!

So in difficult economic times, it is possible to find deliverable, high income, secured products. If you wish to find out more, please register or email enquires@discoverandinvest.com

2010; a new year, a new start. But in some ways, we have been here before.

This is not the first time we have experienced a recession, and as tends to happen, governments spend their way out of them. New infrastructure projects, more public sector jobs, and that now oh so familiar phrase, Quantitative Easing, or QE. In other words, the government is flooding the markets with money to stimulate action.

Although deflation has been an equally used buzzword in 2009, as the lack of demand has in some instances had a downward effect on pricing, the smart discussions revolve around inflation, the natural consequence of “too much money chasing too few goods”. Inflation, that by-gone concept of the 1970s! In fact inflation is all around us, with a particularly constant pressure on currency over the years. How many remember when a chocolate bar was 10p?

Although there is a split between forecasters, significant evidence points toward a higher inflationary period and an increasingly weak Sterling/Dollar fuelled by unprecedented government debt. Current house price rises, driven by a lack of available supply are likely to be short-lived rather than upward demand (as sellers wait for prices to go back to “break even” levels) , as the resultant supply increase will outpace demand does increase through higher interest rates. The stock market is having one of its roughest periods on record. Therefore, where can investors look for not only safety, but also results?

In volatile times coupled with vulnerable and weakening currency values, tradable hard assets become investments of choice. The likes of gold, silver, farmland, wine and stamps have proven to retain value in tough times as the measurement and value of cash becomes uncertain. Regardless of the measurement of exchange, or currency, these products show value and become excellent locations to park and secure wealth whilst the world begins anew.

Throughout January and indeed 2010, we will explore inflation hedges in more depth, with the next blog giving investors a comparison of the available options. There are some cracking opportunities even in these times, so I look forward to welcoming you back for another instalment in the next few days.

Since the commodities boom of 2007, investors have increasingly come to realise the underlying benefits of investing in farms. An often misunderstood sector largely due to an unbalanced media view point, this article hopes to redress the balance and inform

In the current climate and to help educate, below are the top 10 reasons to invest in UK Farms:

No over-supply, robust local demand

It has been said many times regarding land, and it is as true today as it ever was, they are not making anymore of it. On top of this, less and less parcels each year are coming onto the market to be sold. According to Reed Business Information’s The Farmland Market Report, there is a huge dearth of land for sale and the volume of sales has been on a steep decline since in 1950. 1 million acres were traded then compared with around 100,000 in 2008; only 10% of the previous high. This is mainly down to the fact that there are many more landowners now than 60 years ago and most do not look to sell unless absolutely essential.

As a result oversupply issues that have hit the commercial and residential property markets are highly unlikely to effect the farmland market. In fact, evidence from experts shows that farm prices remain stable in this and previous recessions and are going up slightly compared to residential property.

As for demand, levels remain strong from local farmers, who are always interested in local businesses as they tend to be “once in a lifetime” opportunities to buy. The only drop has been from lifestyle buyers, who make up a much smaller percentage of the overall market.

Excellent defensive investment against inflation

It is widely regarded that higher inflationary times are around the corner given the extraordinary levels of global government spending combined with the rare sight of extremely low interest rates at the base of a recession. The value of currency has always been eroded by inflation and the next few years may see this increase. There is much talk of a global currency in the future if fiat currencies continue to decline in value. Therefore, the smart investors are looking for tradable assets which can retain their value in more volatile times. UK Farms, and in particular the primeland that they sit on, present such an opportunity to investors.

Tax/pension benefits

Depending on the type of vehicle used, a number of tax reliefs are available to investors, such as Inheritance Tax relief. It is also worth noting that in many cases, farmed land qualifies for SIPP and SASS, the popular UK pension schemes.

The UK presents an extremely secure environment

Due to the UK’s property and land laws, the country is considered one of the safest environments to invest in globally. Although returns may be higher in emerging markets, those investments quite often carry a very high degree of risk.

Undervalued due to weak Sterling

Not only is the UK secure, but its prime farmland can be considered undervalued. The first of these reasons is down to the currency movements. Sterling has declined sharply over the last 18 months, which effectively means the country has a “30% off” sale sign over it. International investors who buy now will have the benefit of profiting from any reverse currency movements as the economy improves.

Buy at 70%, re-mortgage at 100% of the valuation

The second reason for the argument of value is that farms can be picked up in the UK at around 70% of their valued price. This presents not only a capital gain opportunity but also presents a liquidity opportunity. Banks will lend at 100% of the valuation which means an equity release is entirely possible.

8-15% yields achievable

Depending on the project, 8% yields are achievable in the UK; with leaseback deals buying at 60% LTV, the yields are as much as 15.9% based on a project available right now. Compared to the options available in the UK ie. Bank deposits 1%, volatile stock market, property yields dropping below 5%, income is a particularly pleasant current upside for investors.

Buyback option can provide extra investor security

One facet of investment that is always of concern is the exit strategy. If a lease agreement is in place, investors can have extra security that the tenant farmer will buy the farm back at an agreed price level 2,5 or 10 years into the future. If they cannot, this would trigger an event of default, which raises the next benefit of farm investments.

Strong evidence shows farms sell quickly

Again, mainly due to the lack of supply in the marketplace, farms and farmland usually takes 3 months to sell from agent instruction. If you are investing through the right companies, there should be an all-in-one solution available in terms of managing and selling the farm, either by choice or in event of default.

Investment period as little as 18 months

If the farm has been purchased and leased back to the farmer, the investment period can be as short as 18 months. Therefore tie up of capital is the same period unless you are able ot release equity and also allows for potential capital gain opportunities.

Therefore there is a lot to like about farming and agriculture from an investment point of view, particularly in today’s market.

‘Lafite prices climb as investors pile into wine’. Telegraph, 1st August 2009

Great news to tell you about, wine investing is the place to be! Our clients received information regarding the outstanding yield curve for the ‘1982’ vintage with strong evidence and support for the nearest equivalent ‘1996’ and ‘2003’vintages to potentially emulate performance. As of the last two months the ‘96’ has seen a hike of 11.76% which now means it is up 19% since March, the ‘03’ likewise by 4.7%……We conclude that both these wines as well as some select counterparts are trading at higher prices and are now entering a period of likely significant growth based on the same supply and demand characteristics previously outlined.

The wine investment market has rallied since the beginning of the year as the industry index for the top 100 wines moved by 1.5% per month; however the star performer amongst these wines has clearly been Chateau Lafite Rothschild. Several vintages have provided strong, tax free returns this year and more significantly, two of the vintages strongly recommended to Discover & Invest clients have performed as we had predicted.

Therefore a strong argument for the increase in further value remains and is also being echoed by the financial press, as demonstrated by the recent Daily Telegraph article below:

‘Lafite prices climb as investors pile into wine’. Telegraph, 1st August 2009

The graph below gives some perspective on the Lafites, particularly over the last year or so of turbulence. The relatively low price point for this luxury item compared with cars or yachts means its basement point is quite high. In other words, demand remains robust because buyers at both ends of the wealth spectrum are able to buy and continue to speculate.

The UK has been greeted on its return to work today with the news that mortgage approvals rose 4% in the month from January to February this year.  Good news most will say.  However, the question that remains is is the UK market beginning its recovery, or is this simply a blip in an otherwise continuing downward spiral?

A number of property indicators in 2009 have suggested some form of recovery is under way.  From my own network of contacts in the property industry, January and February were certainly upbeat months.  So who is buying?  It seems it is a combination of first time buyers and property investors keen to take advantage of what they see as value in the market. There is certainly an increased level of demand from first time buyers who, having previously not been able to get on the ladder and have saved in the meantime, and now in position to take advantage of lower prices.

Many property investors, who will abide by the “buy low, sell high” philosophy, see an opportunity to buy up stock previously out of their reach.  Due to the increased numbers of repossessions, the Below Market Value (BMV) industry has certainly exploded in the last 3 months, with investors looking to buy at anywhere between 20% and 30% below market value on second hand property, and as much as 60% below market value for unsold developer stock.  These factors, combined with a stabilising in mortgage rates and products has led to increased enquiries, sales, and therefore the improvement in nationwide data released by various bodies.

In addition to this, lower interest rates have meant homeowners, specifically on tracker mortgages, have in some cases more than halved their monthly outgoings.  The government can therefore argue that lowering rates has put more money back in some people’s pockets.  However, it has been well documented that rate cuts have not, in the main, been passed on, so the financial easing has not affected the whole homeowner market.

So where are we?  Well general economic data would suggest the bottom has not quite arrived.  Job cuts are still being made and mainstream lending does not appear to have improved much.  Coupled with the facts that repossessions are still rising and general transactions between homeowners are still low would suggest that there is a blip in the market.  However, supply and demand are still fundamental when looking at the property market.  As prices fall, demand generally increases, and there is no doubt that demand has increased in 2009.  One could take a further view that if property prices continue to fall, the demand will continue to increase from both increased levels of first time buyers and investors looking for even better deals.  Therefore, it is my opinion that the property market will find a natural recovery point in the not too distant future.

It would seem that as the sun comes out, the days are longer and the weather takes a turn for the better, good news seems to be emerging from one of the nations leading Building Societies, with figures showing house prices and mortgage lending rising in March, compared to the previous month.

Nationwide have reported that in February 2009, the average house price was around £147,746, but the March figure has just emerged at £150,946, which is just under a 1% increase, at 0.9%.

I think it’s fair to say this is quite an unexpected rise, but does this really indicate we are heading into calmer storms and leaving the hurricane recession behind us? According to Nationwide, it is very early days, as they described the change as a “surprise bounce” and warned against concluding the market had turned.

Commenting on the figures Fionnuala Earley, Nationwide’s Chief Economist, said:

“Spring brought a surprise bounce to house prices in March. The price of a typical house increased for the first time since October 2007, rising by 0.9% during the month and reducing the annual rate of fall from -17.6% to -15.7%. This brings the price of a typical house to £150,946. The moderation in the annual rate of fall is somewhat distorted by conditions last year and so it would be unwise to draw strong conclusions from the significant slowdown in the annual rate of fall. Equally, while the rise in prices in March is welcome, it is far too soon to see this as evidence that the trough of the market has been reached.

The Bank of England has already taken strong measures to ease the tensions in economic and financial markets by cutting rates and commencing quantitative easing. However it will take time for these to work through into the housing market before we can expect a sustained recovery in house prices.”

To add to the good news about house prices, Nationwide also revealed to the country that Mortgage Approvals were the highest since May 2008, with February seeing mortgage approvals rise to 37,900, nearly its highest level for a year.

The more houses that are sold and purchased, the more money is pumped back into the economy, so these two pieces of news are not only a great joy to hear, but also tiny bits of gold dust that we need to start collecting in the years ahead.

So, in a year of mass redundancies, economic doom and gloom and of course the lack of any money to spend on the nice things, we say thank you Nationwide and may you bring us more good news next month, the month after and the following months that come.

You see, we like good news, it just feels better.

As soon as I finish this blog, it will take its place in history. Admittedly, it won’t be up there with world wars, births of monarchs and world cup winning football teams, but it will indeed have its own place in history.

A funny subject for an investment related blog? Probably, but as an investor, history plays a massive part in the way we invest, but is it always an accurate version of what really happened. Yesterday will almost always define how we approach tomorrow.

Let’s roll back to a week last Wednesday. I tend to play a few arrows with a good mate down my local pub (this really is going somewhere, I promise). It was one of those nights where every dart I threw was a winner and for once I walked away the darts champion of the 7th of January 2009, for my local pub and our game anyway. All said and done, I won, that is history, it is there for both me and my friend to reminisce to the grandkids about if we achieve nothing else as life moves forward.

This is not a rant I promise, but as we prepare for another massive match tomorrow, we had a quick chat about times and venues, then nothing more than a passing comment was motioned into the conversation, he said I won 3 – 1, whereas I think I won 3 – 0. He is sure, I am sure, there was no cheering audience or passing local to back either of our opinions up. The fact I won is there, we both agree, but as to the score, we both have different opinions. So this one piece of history is covered in doubt, possibly controversy, and although history dictates that I won the game, the score is still up for debate, even though it happened only 6 days ago.

Moving back to the investment topic, as we all sit down and plan and prepare for our investments for the next few years, how will we look back at the history of our previous investments?

Some will say its been a terrible year with house prices crashing, but the houses they owned all had tenants and the rent covered the mortgage, so does the history of 2008 define a bad year because of the house price drop, or does it indicate a good year as all the houses had tenants and we are not out of pocket in the physical sense, only in the paper value of what the houses might be worth today. If the reverse was true and they had no tenants for 6 months but their house price rose by 5%, would this indicate a good year or bad year, with a big loss of physical money, but a rise on the value of their houses?

This is where history, although it does indeed happen, can be taken and interpreted in many different ways. England winning the football world cup in 1966 did indeed happen, but for some people it was the greatest game they ever saw, for others in the crowd that day it was an immense disappointment.

Even though history may indeed make 2008 look like a terrible year for investors, we must as investors and individuals look back and look at it from a balanced point of view. If we are still standing and investing, it couldn’t have been that bad, could it?

Aside from a certain former banking executive and his pension, the main discussion this week has seen many people in the industry and financial world talking about whether they would or they wouldn’t.

The answer came to light about an hour ago. They did.

The Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 0.5 percentage points to 0.5%, and to undertake a programme of asset purchases of £75 billion financed by the issuance of central bank reserves. Never before have we seen a rate this low which was also accompanied with the news that the BOE would be pumping more money in to the country to help increase spending.

The statement from the Bank Of England website read:

“At its March meeting, the Committee noted that the February Inflation Report had implied a substantial risk of undershooting the 2% CPI inflation target in the medium term and that a further easing in monetary policy was likely to be needed.  Data released since the finalisation of the Report had not materially altered that prospect.  Accordingly, the Committee concluded that a further easing in the stance of monetary policy was warranted.  But the Committee also noted that a very low level of Bank Rate could have counter-productive effects on the operation of some financial markets and on the lending capacity of the banking system.  On balance, the Committee decided to reduce Bank Rate by 0.5 percentage points, to 0.5%.

The Committee judged that this reduction in Bank Rate would by itself still leave a substantial risk of undershooting the 2% CPI inflation target in the medium term.  Accordingly, the Committee also resolved to undertake further monetary actions, with the aim of boosting the supply of money and credit and thus raising the rate of growth of nominal spending to a level consistent with meeting the inflation target in the medium term.”

Like a boxing match, you will have two corners today, one of which will be dancing around the ring with their hands in the air, and the other who is sat on the stool with a feeling of a sharp kick in the stomach. If you have a tracker mortgage, today’s news will leave you feeling pleased, if not ecstatic, but if you rely on or have savings accounts, things are not looking so rosy.

So, when you go down the pub tonight, the people smiling have a mortgage, the people with half a pint, a gloomy look and possibly the hint of a tear in their eye have simply been doing what we have always been told to do, saving their money in a bank or savings account.

Selling properties, especially investment properties and buy to let properties used to be quite easy. Sorry to all the sales people out there, but it did.

Having previously worked for a property investment company, I know that it was plausible to push through 4 – 5 deals a week, very rarely without any lending problems and mortgage approvals tended to be easier than finding a Manchester United fan in London. Those were the glory days of lending and up until a year ago the level of lending was at a record high and the amount of buy-to-let mortgages that were being approved was staggering, also accompanied by some of the best rates investors had ever seen.

Some would say this is the reason we are in the midst of a recession and struggling, but that is another blog, one of which we have covered and will cover elsewhere.

Recently, I brought a couple of stunning BMV deals to the table, as we felt that after a year in which we would not touch property, we now had a couple of deals that really did make sense to the investor. This was due to better discounts, newer and an increased amount of decent mortgage rates and just the general feeling that property had hit its lowest level and was now starting to recover, according to reports from leading lenders and banking institutions.

We sold Penn Lane within a couple of days and currently have offers on the further two properties that we have on our books, but we kept hitting a common discussion with some of our investors – “would love to buy it, I am just too old, I wont get the mortgage”.

As with anything, previous misconceptions had started to creep back in to investors minds. Some of our investors tried to get a mortgage just as things were starting to look really bad and were hit with many reasons why they would not be approved, one of them being age which is in fact in relation to risk. This had then been indented into their investment strategy and they were probably now missing out on deals that they really wanted to get involved with.

We work with one mortgage broker and a quick call to them to inform them of this supposed age issue and we were met with they reply that this indeed was not really the case anymore, and in fact we could offer mortgages to people in their late 50’s and beyond. Chris then went back to the investor, forms went in, and he is now waiting to complete on the deal next week, which is a bonus not only for us, but also for the investor that a year ago was simply not able to go through with these deals any more.

In April last year mortgage lenders got edgy, they were panicking, they knew trouble was ahead and they were refusing mortgages for many reasons. In fact, I can not mention the name, but I knew of one mortgage that would not go through this time last year because the property had decking!!

With mortgage lending now recovering, new criteria are in coming into play and some old reasons to refuse are falling away.

Are you too old for a mortgage on an investment property? Ask us, you might just be surprised.