Michael Burry Buys Agricultural Land & Gold

Michael Burry, the hedge fund manager made famous in Michael Lewis' book The Big Short, was recently interviewed by Bloomberg on a myriad of topics. Burry, a value investor by nature, bet against subprime right before its peak. Given his prescient call, many other investors are eager to find out what his next big play is. Well, his next investment seems to be land.

In particular, Burry believes, "that agricultural land, productive agricultural land with water on site, will be very valuable in the future. And I've put a good amount of money into that. So I'm investing in alternative investments as well as stocks." This stance plants him in the same camp as legendary investor Jim Rogers. The former Quantum Fund co-manager has been a vocal bull on agriculture claiming that people should trade in their Lamborghini's for tractors.

Given his past bet against the housing market, it was interesting to hear Burry's thoughts on real estate this time around. He thinks it's an "artificial market" and that Fannie Mae and Freddie Mac are essentially withholding properties from sale and not forcing foreclosures. He feels it would be best if the government exited the mortgage market. On the topic of investing in real estate, he says:

"I think there is some value in real estate. You have to buy it right. It's not in general, that's the problem. I think that there are an awful lot of people out there looking to buy these distressed properties out there and so you need to find special situations. That is how i've invested from the beginning. I'm looking for these special situations, these unique ideas and that's true in real estate too ... In my situation I'd rather go long on housing itself, real estate itself. Depending on how you structure it, in the real market, in the physical market, you can get some pretty good deals and I've done some of that too."

Finally, Burry has also caught the gold bug and likes the precious metal as well. Embedded below are two videos from Burry's interview (email readers will need to come to the site to watch them):

Video 1 on Accountability



Video 2 on Investing



To learn about Burry's fascinating past, check out his story in the book The Big Short. For more on his past wager, head to his primer on credit default swaps & the subprime mortgage short which he penned back in 2006.

Hedge Fund Passport Capital: Agriculture Fund Investor Letter

Below is the latest investor letter out of John Burbank's hedge fund firm Passport Capital. We'll be taking a look at James Cunningham and Ejnar Knudsen's Agriculture Fund. Since inception on March 1st, 2009, the fund is up 10.3%. They run a concentrated portfolio and some of their largest positions include Imperial Sugar (12% of the fund's NAV), Pilgrim's Pride (5%), CF Industries (10%), and Makhteshim-Agan Industries (8%).

They ended 2009 with $63 million in assets under management (AUM). Passport Capital's agriculture fund takes a long bias and focus on fundamentally attractive businesses in the agriculture space. In the letter you'll find their commentary on the fund's specifics and their take on the various trends in the agriculture industry. In the past, we've posted up Passport Capital's case for agriculture, a definite must-read presentation if you're interested in investment in this sector. And many well known investors insist you should be. Jim Rogers has long been bullish on agriculture for the long-term and market strategist Don Coxe likes the sector as well.

Embedded below is hedge fund Passport Capital's Agriculture Fund investor letter:




You can directly download the .pdf here.

For more investment research from hedge fund Passport Capital, head to their case for owning physical gold (versus various other proxies for the metal). For more hedge fund investor letters, head to our coverage of Perry Partners' letter, Maverick Capital's letter, and many more.

The Case For Agriculture From Hedge Fund Passport Capital

John Burbank's hedge fund firm Passport Capital has put out numerous interesting research pieces in the past and we've tried to detail some of their intriguing investment plays, such as their curve steepener. This time around though, they have taken an in-depth look at the agricultural sector as an attractive investment going forward. Their bullishness on the sector is noted through their newly opened Agriculture fund that debuted in March of this year and has seen solid performance. Additionally, they have large agricultural stakes in their portfolio, as some of their top holdings include the likes of Potash (POT) and Mosaic (MOS). Their research piece is entitled, "The Case For Agriculture" as they provide a compelling case from how you go from dirt to the dinner table. The overall meme of investing in agriculture is by no means new and is largely contingent on global growth, expanding populations, and increased consumption of product. That said, Passport expands on these arguments below in their exclusive look.

The hedge fund's specific view is that "growing global demand for agricultural commodities and food products with constrained supplies, processing capacities, and distribution channels provides an attractive investment opportunity." While they cite the typical arguments of global population increase and increased demand for crops, they also delve into the cycles as illustrated below:

(click to enlarge)

As you can see above, they've laid out the secular trends with cyclical influences to lay out four stages in the global food cycle. There are two extremes in which you see supply destruction and/or demand stimulation where prices obviously are most likely to rise and then you see demand destruction and/or supply stimulation where crop prices are most likely to fall. They also highlight the fact that demand for food has not historically declined as significantly as demand for other goods during times of economic constraint. After all, people have to eat to survive.

As middle class workers around the world begin to accumulate wealth, they are able to enjoy a more protein rich diet that they were previously not used to. Passport identified this trend and has also noticed demand for agricultural products is rising. They cite those two reasons as major growth drivers and also note the fact that agricultural demand has outpaced production, thus limiting inventories and raising prices.

Overall, they believe a unique opportunity has arisen due to tight credit conditions and reduced asset values. They are particularly focused on fertilizer producers, sugar producers, as well as companies that produce proteins through various dairy or meat products. They think the agricultural industry is set for a shift and is in the early part of a metamorphosis. We've already touched on the rising demand for agricultural products, but they believe this is set to rise even further as the global population is predicted to "increase by more than one-third, to a staggering 9 billion people by 2054."

(click to enlarge)

If you're looking for a solid long-term trend to play, this could very well be a nice place to look. Don't forget that there are also a few other strong proponents of the agricultural sector in addition to Passport. Ex-Quantum Fund manager and noteworthy investor Jim Rogers has been bullish on agriculture for a while now. Additionally, market Strategist Don Coxe also likes the sector. While we saw the stocks of fertilizer producers and various ag companies run rampantly higher preceding the crisis, they too were hit in the equities downturn. While they have rallied back with the rest of the market, it will be interesting to see if they can outperform over the long-term as this investment idea is focused on capturing the trend shift. Passport has compiled an excellent presentation on the sector and you can access their excellent in-depth look below.


CLICK HERE to view & download Passport Capital's presentation entitled, "The Case For Agriculture."




For more on John Burbank's hedge fund Passport Capital, make sure you also check out their curve steepener play, an overall bet on inflation. Additionally, you can check out our post covering Passport's portfolio to see what other ideas they're playing.

Summary of Jim Rogers' Recent Portfolio

Jim Rogers has been in the media a lot over the past couple weeks and we wanted to provide a summary of these thoughts. He is a noted investor and founder of the highly successful yet now defunct Quantum Fund (with George Soros). Rogers has been out providing his opinion on various topics and giving us a deeper glance at some of his portfolio plays. We've compiled a list of some of his major positions below. Firstly, we'll examine some of the plays he's revealed just over this past week.

The rally we've been seeing in equity markets is a bear market rally that can last anywhere from days to months, according to Rogers. He sees the economy as getting worse before it gets better, citing more bankruptcies to come. It might be 'a bottom,' but its not 'the bottom,' Rogers said. He's very bearish on a macro level and thinks it could take 7 to 8 years to really clean out the system. He's noted that all the bailouts have added to the risks of an economic depression. His displeasure with the US government is no secret, as he thinks they are 'throwing money' at the wrong things.

In terms of the US financials, Rogers has covered his Citigroup (C), which was a short that had paid him off handsomely. He has also mentioned that he has covered most of his short positions in stocks. But, he is now short JP Morgan Chase (JPM), as he sees negative 'off balance sheet' exposure, along with derivatives exposure, and large exposure to the credit card business. Rogers has noted something that we here at MarketFolly have been talking about for some time: credit cards as the next credit crunch. And, head of JPMorgan Jamie Dimon even acknowledges this as well. Rogers has chosen to short JPM for a myriad of reasons, but credit cards are certainly one of them. Even the 'good house' in the 'bad neighborhood' can't escape. While he has that short position in the financial space, he has no positions in the insurers. He notes that sure, financial institutions can rally back from their lows, but that they still aren't financially sound. He thinks that financials won't be an attractive investment for years to come. Additionally, while not a financial, he mentioned he was short IBM (IBM), presumably due to their large financial services exposure.

Rogers has again re-voiced his concern with government debt, which has recently expanded five-fold. He was previously short the long-dated treasuries, but had to cover back in the fourth quarter. He has been patiently evaluating for a time to re-enter this position for the longer trend he forecasts. In the midterm, he won't fight the government though, as e expects them to buy treasuries in an effort to stem borrowing costs. Governments around the world are printing a ton of money and borrowing insane amounts. Rogers cites this as the reason for his desire to short the bonds eventually. We agree with Rogers on this point, and are willing to have extreme patience before entering this trade in size. It undoubtedly will take much longer to play out than many realize, especially when the Federal Reserve is still active and busy. We laid out our basic rationale for shorting treasuries down the road as well. Again, as Rogers emphasizes, patience is key.

Additionally, he has been waiting to establish a short position in the US dollar. He has been long the Dollar, which he says is rallying artificially, and is looking for this unwind to continue before he unloads the rest of his Dollar position, as he believes the US is trying to devalue its currency. He also currently owns some Japanese Yen and has elaborated on currencies recently. Considering his distaste for some of these paper currencies, he has a small gold position. But, he prefers silver and agriculture to gold.

We already know that he is bullish on commodities, and very bullish on agriculture. He has re-hashed this view numerous times. He might be early, but he has always claimed that he is not a market timer. He feels this trend will eventually arrive and he is poised to benefit from it. Raw materials and commodities are the only sectors with improving fundamentals according to Rogers. He expects low inventories and tons of shortages in the longer term (10-20 years). You have to keep in mind that Rogers is not a market timer and instead positions himself for broad, longer-term trends. He favors the commodities themselves over commodity resource stocks. And, he has even gone out and bought physical farmland. He has active investments in Agcapita Farmland Investment Partnerships (in Canada) and Agrifirma Brazil. As we noted in our hedge fund portfolio tracking series, Rogers' ex-Quantum Fund buddy George Soros has also bought a ton of Potash. So, they definitely share a bullish stance on agriculture. Lastly, its also worth noting that respected investment strategist Don Coxe is also an ag bull.

Overall, Rogers has a bearish macro view and expects bear market rallies, as they are just part of the cycle. And, while certain toxic companies like the financials may rally, he notes that they still have big problems ahead of them. He isn't a market timer and expects rampant inflation as well as bull markets in agriculture and commodities. He has placed bets to the tune of these forecasts and will continue to monitor the investment landscape for broad macro trends he can capitalize on in the future. If you enjoyed this post, please consider getting our free updates via email or for free via RSS reader. We cover gurus like Jim Rogers as well as other prominent hedge fund managers on a daily basis.

Lastly, if you've missed them, you can also see Rogers thoughts on the topics of:

• China, inflation, & the recession
• Agriculture
• Commodities
• The British Pound
• Other Currencies
• Long-term US bonds
  

Sources: Bloomberg, (again), CNBC, and various other media appearances

Jim Rogers Buys Farmland

In a recent interview with CNBC, Jim Rogers has taken his bullish stance on agriculture to the next level: He is buying Canadian and Brazilian farmland. He says,

"I am buying greenfield land in Brazil and existing farms in Canada and starting to farm it. The funds are clearing the land, fertilizing it, irrigating it and hiring farmers and some day will probably sell the land but that is a remote prospect."

We've known about Rogers' bullishness on agriculture for some time. But, this bet takes it up a notch. By purchasing the land itself, Rogers is securing a stream of future production in a world he argues will be pressed for food production in the future as demand rises. And, for what it's worth, Don Coxe agrees with Rogers.

Other notable agriculture bulls include Rogers' ex-Quantum fund partner George Soros. As we noted in our hedge fund portfolio tracking series, Soros has bought a ton of Potash. Rogers, though, has certainly taken it to the next level and has placed his bet on the next big real estate boom. For more thoughts from Rogers, check out his stance on currencies as well.

Here are Rogers' thoughts on video:

Don Coxe's Latest Thoughts: Bullish on Agriculture & Food

Investment Strategist Don Coxe is recently out with his thoughts about the markets. His insight can be summed up as such:

Bullish on: Agriculture, China, India, & Inflation (i.e. he expects it)

Next great investment: Food

Basically, he harps on the 'emerging markets' adage, but notes that China and India's standard of living is rising. And, his theory is that once they taste such a lifestyle, they won't want to return to old ways and the culture will shift to consuming more food. Overall, increasing population and increased ways of living require more food, healthier food, etc. (Hence, his bullishness towards food and agriculture). If you agree with Coxe, you can use the ETF: DBA (agriculture) to play the inflationary commodity and food thesis longer-term.

And, in terms of agriculture specifically, Potash (POT) is a solid play due to its dominant market share on the nutrient. Even as demand for the nutrient has decreased (slowed global growth), prices haven't fallen off a cliff like oil. So, when demand does kick back up, these producers should have some form of pricing power once they work off supply build up. We've seen numerous hedge funds pick up POT lately, including George Soros. Check out our in-depth look at Potash for more analysis and info.

Keep in mind though, that such plays could take a long while to unfold. If you conclude that inflation is in the future, then Coxe's thoughts could be right on the money. For what it's worth, Jim Rogers and George Soros are both bullish on agriculture as well. Our stop was triggered on our Potash position way back at $160 as per our post, and we have yet to revisit the name which now trades around $80, or 6x earnings. While the story is still attractive fundamentally long-term, signs of improving technicals (chart) would be needed. Or, perhaps some return of global economic activity and a hint of inflation would do. Regardless, the funds have been buying recently, as noted in our hedge fund portfolio tracking series.

We'd agree with Coxe in that inflationary pressures are set to show up at some point. And as such, we advocated shorting long-dated treasuries (see our rationale). The question is, when does inflation hit? One could be waiting for a while. And, there is the slight possibility that it could also just never show up (stranger things have happened). Obviously, if such inflation does occur, it will show up in commodities first and Coxe makes a good point there. In short, Coxe seems to agree with Rogers and Soros on a number of issues and it will be interesting to see things play out.

You can read Coxe's thoughts here.

Jim Rogers' Latest Thoughts

CommodityBullMarket has done an excellent job of jotting down notes from Jim Rogers' recent interview with the FT. Here are some important points they highlighted:

"Part 1 - Global recession will be long and deep.

• He has not yet exited his US dollar positions, as he believes the current rally is an artificial one driven by short covering.
• It could go longer and higher than anyone expects.
• Reiterated his opinion that the US dollar is a flawed and maybe doomed currency.
  
• We're going to have the worst recession since World War II
• Likely we'll see exchange controls at some point in the US
  

Part 2 - Market correction is good for commodities.

• The way to make money now is to buy the things where the fundamentals have been unimpaired.
• Not only are the fundamentals of commodities unimpaired, but they have been strengthened, as supply is going to take a serious hit across the board as a result of tight credit markets.
• "Farmers can't get loans for fertilizer now."
• In the 30's, commodities hit bottom first because there was no supply. The same thing happened in the 1970's - again because there was no supply.
  

Part 3 - China economic story still intact.

• "Selling China in 2008 would be like selling America in 1908. You might have looked good in the short term...but who cares?"
• He bought more Chinese shares in Oct/Nov of this year.
• Also believes the fundamentals of China will come out of this recession unimpaired.

Part 4 - Inflation is coming - you'd better own real assets.

• We're following the mistakes of Japan by bailing everyone out.
• This is the first time in world history that every government in the world is printing money.
• It will lead to much, much higher prices.
• Don't sell your gold, cotton, or sugar, because prices will be much, much higher in a few years.
• We are not experiencing deflation - this is forced liquidation. We're fighting the wrong battle by fighting deflation."

Thanks again to CommodityBullMarket for the great summary of his interview. And, if you want to check out the full interview, head to the FT. Lastly, we wrote about how Rogers dislikes bonds here, and about how he is bullish on agriculture here.