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

‘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.

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.

Figures released this morning show UK GDP contracted 1.5% in the final quarter of 2008. This takes annual growth to -1.9%; a figure largely in line with market expectations. Wall Street gained over 3% yesterday, the largest gain in a month, after comments from Head of the Federal Reserve Ben Bernanke quelled investor fears over the state of the US banking sector.

Pound Sterling - UK markets

The Pound is up 0.6% on the Dollar this morning, trading at 1.45 on the back of increased risk appetite after Wall Street gains yesterday. The Pound is also up against the Euro, Yen and Australian Dollar, trading at 1.13, 141 and 2.22 respectively.

UK GDP figures out this morning show the economy contracted by -1.5% in the fourth quarter of 2008. However despite this, the Pound has strengthened as a result of positive market sentiment in the US. Minutes from a meeting of EU officials yesterday showed concern over the ‘financial stability’ of the British economy following the rapid demise of the Pound late last year. The Pound has fallen 23% against the Euro as a major trading partner, this weakness is a concern for the Eurozone. Exceptionally high volatility over recent months is also undermining financial stability. UK statistics yesterday showed mortgage approvals down 40% on this time last year and unemployment continues to rise. However the CBI Distributive Trades survey was less negative than expected and the retail sales index rose from -47 last month to -25 this month due to more positive sales figures. The Bank of England MPC meets next Thursday and market expectations are for a further 0.5% rate reduction. Reductions beyond 1% are regarded as less significant and quantitative easing is likely to be the path of the government over the coming months. There is no further data in the UK today.

US Dollar - US Markets

Mixed results for the Dollar overnight as increased risk appetite led to a redistribution of investor funds. The Dollar weakened against the Euro and Pound to trade at 0.77 and 0.68 but retained gains against some of its Asian and European currency partners.

Head of the Federal Reserve Ben Bernanke quelled fears over the state of the US banking system yesterday in a speech noting that nationalisation of major banks would not be necessary. Bernanke stressed the role of government as supervisor rather than shareholder and Wall Street posted its largest daily gains in a month. President Obama also addressed the nation, detailing aspects of an ambitious government plan which includes both stimulating and greening US industry, cutting taxes and halving the US budget deficit within the next five years. Despite the inevitable criticism for the over ambitious nature of the plan, stock and equity markets gained confidence, improving global risk appetite. Also yesterday the Washington Post survey showed US consumer confidence plunged 10 points to a record low in February, on the same day as the German IFO revealed the same results in the Eurozone. US Home sales figures are out later today.

Euro – European Markets

The Euro has gained against the Dollar to trade at 1.28 and is up against the Yen as well as its European currency partners.

Stocks in Europe and Asia advanced following news from the US that the government would not have to nationalise major banks. Shares in Deutsche Bank and PNB Paribas, Germany and France’s largest banks both surged more than 7%. German GDP figures released this morning show the economy contracted -2.1% in the fourth quarter of 2008, reflecting the rapid deterioration of the European economy. This takes annual growth to 1.6% a figure that was largely in line with market expectations. The ECB has strongly hinted at a further interest rate reduction in March. The German consumer price index and unemployment figures are out tomorrow.

Other Currencies - Highlights

The Australian and New Zealand Dollars rallied overnight, following comments from Ben Bernanke which served to strengthen risk appetite internationally. The Australasian currencies continue to shadow US equities which remain the primary determinant of market sentiment.

Japanese exports have plunged 45.7% in January, taking them to the lowest figure in 10 years as a result of reduced demand from Japan’s major trading partners. The decline was fuelled by a 53% drop in exports to the US, 47% to the Eurozone and similar steep declines to China and other Asian economies. The Canadian Dollar is up to 1.24 against the US while the Swiss Franc is down on the Dollar, a further symptom of increased appetite for risk.

Retail sales figures in the UK are up 1.1% in January despite the grim economic climate. Labour’s School Secretary Ed Balls has claimed the recession is the worst in 100 years and balance of trade figures out this morning reflect reduced domestic consumption and export demand. Global equities remain neutral pending the announcement of the Federal Reserve rescue package.

Pound Sterling - UK markets

The Pound is trading at 1.47 against the Dollar this morning having weakened ahead of UK trade statistics. Sterling has also advanced to 1.14 on the Euro and is up against the South African Rand and Swedish Kronor this morning.

UK balance of trade figures have come in at -£3.60 billion reflecting a downturn in consumer expenditure and contraction in the UK’s two biggest export markets, the US and Eurozone. The British Retailers Consortium has shown retail sales have risen 1.1% in January in like-for-like sales from this time last year. The rise was driven by a surge in food sales yet sales of all other goods have fallen and it remains to be seen whether these figures are a “blip” in the radar or indicative of a more positive trend. Ed Balls has predicted the recession could be the worst in 100 years as “seismic events” continue to shift the financial landscape. RBS and HBOS former chief executives are to face the Treasury Select Committee over their role in the current financial crisis and bonuses have also come under the political spotlight as it has emerged RBS are to pay up to £1 billion to bank staff. We can expect some volatility for Sterling with the UK unemployment rate and Bank of England Quarterly Inflation Report due tomorrow.

US Dollar - US Markets

The Dollar is gaining against the Pound and Euro this morning as details of the rescue package are to be released in Washington today. The Dollar is also up against its major European and Asian currency partners.

Treasure Secretary Timothy Geithner is to speak in Washington today, unveiling aspects of the Federal plan to revive credit markets and remove toxic assets from bank balance sheets. Global equities have been neutral overnight in anticipation of the announcement and currency exchange rates are still taking their cues from trends in financial markets. A positive reception to the plan could fuel a global surge in risk appetite. President Obama has also announced that the Government would be seeking a credit expansion should the initial $900 billion plan fail. This is an acknowledgement of the criticism from many high profile economists that the plan is insufficient to stimulate credit markets. Timothy Geithner is to speak at 11 am in Washington today and the Washington Post Consumer Confidence Survey is out in the US.

Euro – European Markets

The Euro has fallen overnight to 1.29 versus the Dollar and 0.84 against the Pound amid reports that Russian banks have asked the government to act as an intermediary with foreign creditors. The Euro is also down against the Yen and its other Asian currency partners as global markets remain neutral pending further news from Washington.

Concerns around the health of the Russian economy are putting pressure on the Euro as European banks are those most exposed to credit losses in Russia. Reports from Russia suggest banks are in trouble with foreign creditors and have asked for government intervention. This comes after the Russian Central Bank raised the repo rate for the second time in a week in an attempt to halt the decline of the Ruble and the Yen has risen for the fourth consecutive day against the Euro. Switzerland’s largest bank UBS has reported a 19.7 billion Swiss Franc loss in write downs for its investment arm in 2008. The bank is to cut a further 2000 jobs and focus on ‘core domestic’ business for the time being. Swiss CPI also fell 0.8% in January, taking annual inflation rates to 0.1% and prompting further speculation that deflation could be a problem in the Eurozone. German Consumer Price Inflation figures are out tomorrow.

Other Currencies - Highlights

The Australian and Kiwi Dollars have declined against the Pound overnight and gained on the Euro as the Aussie and Kiwi remain vulnerable to wider market movements. The South African economy is being hit by declining metal prices as the global recession reduces commodity demand. Mining accounts for 7% of the South African economy and 24,000 jobs are on the line. The Australian unemployment rate and business confidence figures are due on Thursday.

The Pound remains under pressure this morning, trading just off recent lows against its major currency partners. Barclay’s shares have risen nearly 40% in response to claims from the Chairman and Chief Executive the bank is operating in good financial health and the Federal Reserve is due to make an interest rate decision later in the week.

Pound Sterling - UK markets

Sterling remains under pressure internationally, trading just above recent lows against the Dollar and Euro. The Pound is up against the Asian currencies, having gained 0.11% on the Yen this morning.

The announcement of fourth quarter GDP figures on Friday sent the Pound to its lowest level since 1985 versus the US Dollar. With the economy having contracted -1.5% already, Sterling remains under pressure as a second series of tax cuts and emergency capital injections are looking likely for the UK. The exception appears to be Barclay’s, which despite announcing £8 billion write downs last year, has gained 40% in share prices this morning. This comes after the chief executive and chairman penned an open letter reassuring customers of their profitability. Steelmaker Corus has announced 3500 jobs cuts, more than 2000 of which could be in the UK as the credit crunch continues to force redundancies in the manufacturing sector. Mortgage approvals in the UK have increased to 22 100 in December following 17 773 in November. There is no further data in the UK today.

US Dollar - US Markets

The Dollar has weakened against the Pound and Euro this morning to 0.73 and 0.77 respectively, whilst strengthening against the Yen and Australasian currencies.

This week Congress will debate the delivery of an $800 billion rescue package from President Obama and his team of advisors. The plan is expected to cost 5% of GDP and create 4 million jobs in the US. House prices have fallen an average of 10% across the country and new home sales figures are due this afternoon. The Federal Reserve is due to make an interest rate decision this week with the base rate currently sitting at 0.25%.

Euro – European Markets

The Euro remains under pressure, a result of deepening economic downturn and the expectations of further interest rate cuts from the ECB. This morning however, risk aversion and market focus on the UK has seen the Euro make gains on the Pound, Dollar and Asia Pacific currencies.

Friday’s PMI figures showed the Eurozone economy continued to contract in January 2009, notably in the manufacturing and services sector. Phillips, Europe’s largest electronics producer is to cut 6000 jobs after a downturn in sales figures as a result of the credit crunch. The Euro has suffered record lows against the Yen recently and Credit Suisse has predicted the Swiss franc will gain 2.6% this quarter on the Euro. Figures in Poland show retail sales rose by 5.6% in December and unemployment has risen to 9.5%. There is no major data from the Eurozone today with German IFO business climate and Eurozone current account released tomorrow.

Other Currencies - Highlights

The Bank of Japan announced a deterioration of economic conditions in its meeting last week, with expectation of worse to come. Foreign trade data declined in quarter 4 of 2008 and the Bank has forecast a -2.6% contraction for the Japanese economy in 2009. Yet despite this, the Yen has continued to strengthen, reaching record highs against the Euro last week and sitting just under all time highs against the US Dollar. The strength of the Yen is exacerbating impacts of the downturn for exporters and creating a growing disparity between the economic situation in Japan and the value of the currency internationally. Retail sales and industrial production figures for Japan are due later in the week.

It appears that the first chunk of money RBS received wasn’t quite enough. As predicted by many, another bailout has been announced, and it is also being predicted that it will not be the last.

We surely have to start questioning the government’s role in this episode. Having part-nationalised the bank, the government have representatives at board level, in theory to steer the bank to safety and to get it lending again. So far it appears neither has happened.

What also seems to be the case is the lack of transparency where the level of debt is concerned. Do we really not know the total level of debt that RBS owes? Why is that? Gordon Brown today has said he is “angry” with RBS for the debt but how is it he did not find out about this at the last bailout?

Whilst this chaos continues apace, the taxpayer is continuing to foot the bill. Some say this is essential to the economy as we cannot have the banks failing, which we can’t. However, it does have the taxpayer over a barrel. The biggest problem is the huge sums involved. What does billions of Pounds mean in reality for the taxpayer? We aren’t going to know for a year or two that’s for sure. The effect on the economy then , in terms of inflation and increased public debt, could be worse than the problems we face today.

It is difficult to know where this will all end. With light regulation, private sector firms deemed too big to go out of business are safe in the knowledge that the taxpayer pot is available to save them. The biggest case to answer is the lack of transparency however, not just here but also in the US. Our elected representatives are taking measures on our behalf that is not only costing an astronomical and unprecedented amount of money, but that also concerns our savings. In light of the seriousness of this episode, we as citizens have a right to know how the funds are being spent and what the true state of the balance sheets of these companies really are.

It seems listening to Radio 4 at lunchtime is where I get some of my better ideas for blog posts these days.  Today of course was no different.

I nearly fell off my chair when I heard the news that the person to be the new “Minister for Banks”, otherwise known as the newly created Trade Promotion and Investment Minister, is….. a banker!

Has it occurred to anyone that when the banks decide that they require another bailout, (and many are sure there will be another one), the taxpayer, who is funding this, does not seem to have anyone acting on their behalf?  That a position in government to discuss banking solutions is not filled by a public servant, elected by the majority, but by a banker?  Ultimately, that the decision to use more taxpayer money will be taken by someone representing the banks??

On a positive note, Mervyn Davies’ bank, Standard Chartered, has kept its reputation through the crisis, so hopefully some decent advice can be passed on.  However, the idea was to keep a tight ship before the crisis happened, not after.  Ultimately, it will be interesting to see if lending does improve and on what basis.  It is still my strong belief that the levels of personal debt needs to be debated and tackled before we see any significant improvement.

The US unemployment rate released on Friday has reached a 16 year high of 7.2% with 524 000 jobs lost in December. The Pound has maintained its recent strength against the Euro as markets focus on the ECB interest rate decision due on Thursday.

Pound Sterling - UK Markets

The Pound continues to enjoy its recent bounce against the Euro, trading at 1.11 this morning although it has slipped back to 1.49 against a stronger US Dollar.

Despite negative data released on Friday, the Pound remained strong over the weekend. Industrial production fell by 2.3% in November, taking the yearly decline to 6.9% and it is now estimated the UK economy has contracted 1.5% in the fourth quarter. Sterling has reached its highest level in nearly a month against the Euro after nearing parity last week and has risen 7.1% on a trade weighted index. Support for the Pound is coming from distinctly negative sentiment in the Eurozone and market focus on the pending ECB interest rate decision. There is no data released in the UK today with retail sales and trade balance figures out tomorrow.

Euro - European Markets

The Euro has lost ground over the last week, trading at 1.33 versus the US Dollar this morning and 0.89 against the Pound.

The Euro has declined on speculation that the ECB will reduce interest rates when it meets on Thursday. The IMF’s Managing Director Dominique Strauss-Kahn warned yesterday that Europe is “underestimating” the needs of its economy and the Euro sunk to a one month low against the Yen. While the ECB initially shunned the rapid reductions favoured by the Federal Reserve and Bank of England, contraction in the European economy is forcing the ECB into revising its interest rate policies. The current interest rate is 2.5% and a 0.5% cut is expected. ECB President Trichet is to give a speech today.

US Dollar - US Markets

The Dollar is stronger across the board internationally, gaining on its major currency partners as unemployment figures dampen expectations of a quick recovery from the economic crisis. The Dollar is trading at 0.66 versus the Pound, 0.74 against the Euro and has gained over 1% against the Australian, New Zealand and South African currencies.

US unemployment figures released on Friday were distinctly negative as expected, showing a 524 000 rise in unemployment in December. This takes the official unemployment rate to 7.2% and shows over 1.5 million jobs have been lost over the last 3 months. Effects on the US Dollar were mitigated by heightened risk aversion internationally and the economic outlook is expected to stay negative until mid 2009 by when fiscal policy and lower interest rates may provide some relief. There is a series of US Data out this week including the crucial combination of industrial production, retail sales and consumer sentiment. Obama’s inauguration next week could provide a source of strength for the Dollar and balance of trade figures are out tomorrow.

Other Currencies - Highlights

The Australian and Kiwi Dollars both lost ground against Sterling over the weekend despite negative industrial production data from the UK. This can be seen as a market correction following the overselling of Sterling towards the end of 2008. The Bank of Canada Business Outlook survey is due tomorrow.

The question everyone seems to be asking at the moment is what will happen during this recession? Although many things will tend to be changing, there are certain key things that usually happens during a recession and these are listed below –

• Houses Prices Fall – One of the most noticeable effects of a recession is that house prices begin to fall. This is mainly because people are not buying or selling, which forces the prices down. Some sources indicate that house prices have fallen by about 20% during this current recession, with many fearing a larger drop before we get out of it. But, one thing to remember is over the history of time, house prices have continually risen, so this is just a blip in the long term graph of house prices.

• Job Losses – Another key effect of a recession is that unemployment will rise. Due to poor sales, reduced production and short term forecast negativity, employers will seek to cut costs by reducing their workforce.

• Reduced Lending – During stable and profitable times, lending is high, especially mortgage lending. During a recession lending noticeably decreases, with many struggling to obtain loans, credit cards and mortgage lending.

• Reduced Spending – People tend to save more money during a recession, thus decreasing the spending on material possessions and also the necessities in life. Consumers will tend to look for lower prices on everyday products, and put off purchasing anything that is not vital.

• Interest Rates Fall – Generally, during a recession the interests rates will fall and be lowered by the Bank Of England. This is mainly to encourage spending and to try to stimulate the economy to reveres or reduce the effects of the recession on the country. Some predict we may see interest rates drop to their lowest rate in 200 or so years, an amazing 1%.

• Businesses Close – If people are not buying and the employer has done everything they can to continue but without success, they will enter administration with the usual effect being to close down. This of course leads to fewer jobs, higher unemployment and decreased spending, a somewhat vicious circle.

• Lower Prices – Shops and manufacturers will tend to drop the prices of their products to increase the spending and therefore increasing their sales. Generally, most things will become cheaper, although electricity and gas prices do not seem to follow this trend.

There are of course other things that could happen during a recession. Some people will say that crime will rise, due to the negativity sweeping the country and the hard times many people will face. Although this is not statistically proven, it is a logical effect of a continuing credit crunch as people struggle to make day to day living affordable.