The new stimulus plan was recently confirmed and one question that needs to be asked is where is this money coming from? Based on the plan itself and recent actions of the treasury, it seems we are going be funding this through more good old American debt. This plan is something that has seemed to work in the past as the marriage between the US and major foreign debt holders, like China, has been able to keep the train running. With large surpluses, countries like China have long been willing to hold US debt. Through buying our debt, countries like China were able to help prop up the US economy, therefore supporting the very nation that consumes the vast amount of their exports. This relationship seemed like a win-win situation.

Well, we have now hit a turning point. The domestic economy is not the only one that is struggling, this recession is global. The most pressing question is will other countries continue to finance us by buying our debt? We believe this old relationship will likely become strained, particularly as other economies begin to realize the pain from the broader financial fallout and aren’t willing to supplement the US. An argument can be made that things will only get worse for all, if foreign countries don’t continue to purchase American debt, but if they can’t afford it, they can’t buy it.

So if demand for treasuries falls, who will be there to buy them? Mr. Bernanke and his printing presses come to mind. The result of those printing presses getting turned on: growing inflation.

So how does Farmland fit into the equation of rising inflation?

Historically, Farmland pricing has maintained a high correlation to inflation, oftentimes outperforming during high inflationary periods. Agricultural land also affords investors the chance to diversify away from stocks and bonds, as Farmland is not highly correlated with these more volatile asset classes. In our view, this type of “safe” investment will become more and more popular as values are supported by a true physical asset. Farmland will always maintain a value.

We believe the current environment of big volatility and even bigger losses gives rise to a new investing path, Farmland. This path not only offers protection from what could end up being severely elevated inflation levels, but is supported by long term trends, driven by supply and demand.

The commodity bull market is also likely going to be reenergized given rising prices. As commodity prices continue to climb, supported not only by an inflationary environment but broader global demand, the land supporting those commodities will further appreciate. A simple comparison of commodity prices in the inflation era of the 1970’s to current levels tells the story of potentially how high grain and feed prices can go.

Gold is the typical asset to run to during high inflation periods, which is evidenced by the fact that prices recently surpassed $1,000 per troy ounce. Farmland is a lot like gold, acting like a hedge against inflation. But Farmland offers something that gold does not; intermittent cash flows. Farmland not only offers protection from inflation, it also pays you to own it.

- GDH