Asset No. 1: Protection Against Inflation – or Worse

We're talking about farmland. The chart above shows the total returns of U.S. farmland versus the total returns of gold and silver.

The returns from farmland come from the National Council of Real Estate Investment Fiduciaries.

Historically, there have been two main reasons why investors want to own farmland…

The first is that the land appreciates in value. Over the past five decades, American farmland has increased in value by about 6% a year. There were only five years during that period where farmland value decreased in value.

It's an incredibly sturdy investment.

The other half comes from the "rent" you can get by farming your land – or hiring someone else to do it for you. Add these components together, and it's easy to see why the overall returns of farmland have outpaced gold, stocks, and just about any other asset we could name.

In fact, some call farmland "gold with yield" because you book steady income from rents while you wait for the value to grow. I can think of no better asset to own during any kind of financial crisis.

Why does farmland do so well?

When food prices go up, farmland prices go up. There's no shortage of mouths to feed – on this side of the globe or the other.

And as an added benefit, farmland returns have little correlation to the returns on stocks and bonds. Farmland didn't fall in a single quarter during the financial meltdown.

If you believe, as I do, that inflation will only get worse, then you'll want to look closely at an investment in farmland.

Consider the following...

If you had invested your money in the stock market at the beginning of the 1970s, you would have made about 77% – including dividends – over the course of the entire decade. Adjusted for inflation, you would have LOST more than a tenth of your money.

But during the same time, Iowa farmland was up 390%... And that's JUST the appreciation in land value. It doesn't include the income from farming the land.

Now imagine what farmland might do today. A number of factors can push farmland prices higher...

Just to name a few: A tightening supply of farmland, rising demand for crops, and commodity prices can send farm prices higher. In short, we expect farmland to be a fantastic investment in the next decade.

Of course, farmland has another great benefit as well...

It can actually save your family during a serious crisis.

Barton Biggs, in his excellent book, Wealth, War and Wisdom, reports farmland was the one thing that saved families in occupied France, Poland, Holland, Germany, and Italy.

An unostentatious farm, not a great estate, is probably best. Brick-and-mortar real estate can be expropriated or bombed, but the underlying land is always there. Your land can't be plundered or shipped off to somewhere else.

During World War II in most of the occupied countries, if you had a self-sufficient farm, you could hunker down on it and, with luck, wait out the disaster. At the very least, you were supplied with food in a starving country.

A working farm protected both your wealth and your life. As my good friend (and multimillionaire investor) Doug Casey likes to say, in a time of crisis, "The best thing you can do is buy a really good farm."

We began writing about farmland as a "crisis asset" in 2010. Since then, market prices have confirmed our thesis. Iowa State University's annual survey of land values reports Iowa land prices have increased 10-fold since 1986.

Most people don't realize how important the black earth of Iowa and its neighboring states was to the formation of the American empire. It's impossible to overstate it. To this day, the farmland of Middle America is a key component of America's geopolitical dominance.

This giant chunk of land is crisscrossed by an extensive network of navigable waterways. This allows America to produce stupendous amounts of food... and to efficiently transport that food (via ships) to markets.

There is simply no other region on Earth that can produce such huge amounts of food and ship it at such a low cost. Farming this region allowed America to develop a massive, well-fed population. It allowed capital to flow into railroads, factories, and cities. It allowed the buildout of the most powerful military on Earth.

So what's the best way to capitalize on the booming farmland trend?

Well, just like I prefer owning real, hold-in-your-hand gold and silver rather than owning precious metals stocks... I suggest you seriously consider a private land deal. Quite literally, you should investigate buying a plot of farmland.

But if your only option is the stock market, my favorite option to get exposure is a real estate investment trust ("REIT") called Farmland Partners (FPI).

Farmland Partners is a U.S.-based REIT that owns around 157,000 acres of farmland across 16 states and grows 26 different crops. Most of the crop value produced by Farmland Partners comes from primary crops such as corn, wheat, and soybeans. The rest comes from more specialty crops like almonds, citrus, and blueberries.

The diversified portfolio of crops gives investors exposure to the increasing global demand for food in a time when high-quality farmland is scarce.

The company's main source of revenue, however, is from rental income. As a REIT, Farmland Partners must pay out a minimum of 90% of its taxable income as dividends to shareholders each year.

Farming crops can, at times, carry lots of risk. There's always a chance that the seasons are too wet or dry for crops to properly grow. Natural disasters such as wildfires, hurricanes, or tornados could destroy entire fields. So, rather than farming the entire 157,000 acres itself, FPI leases out a majority of the properties on a fixed-rent basis. This way, the lease is not tied to a specific farmer's performance. This helps to insulate FPI's results from years when crop yields are low.

The remaining leases are on variable terms that depend largely on yearly production rates – giving FPI downside protection, while also enabling it to participate in the upside of plentiful years.

FPI has increased its rental revenues and net income during every single year of operation. We expect this trend to continue as the demand for high-production farmland increases, especially given the easy monetary and fiscal policy that our federal government and central bankers are signaling.

Runaway inflation is the headline risk that is on every investor's mind. With vaccine rollouts gaining steam and as we approach the end of the pandemic, we expect extreme pent-up demand to shake up the price level of everyday goods such as food. All around the world, people have been locked up, limiting overall spending and consumption. As we return to some semblance of normalcy, supply chains are unlikely going to be able to keep up with the bounce back in mass consumption.

Prices of simple goods, property values, and rental incomes will all increase in a highly inflationary environment. We've seen that over the past few months already... And land has historically been a great hedge against rising price levels.

Right now, FPI shares are trading at around 1.2 times book value. We're not going to add all of our farmland stocks (and those from the next secret asset) to our model portfolio. Use these as you see fit to reduce your risk.

Today, Farmland Partners pays a yield of 1.7%. Since FPI trades at 1.2 times book value, we consider that a fair price - just not deep value. We'll monitor this for a particularly attractive time to enter, but it's an investment that always makes good sense.

Asset No. 2: A Safe Way to Build Wealth

This asset may not be as immediately necessary as the food we eat. But its value is unimpeachable. And if we see a crisis of some sort, factories shut down and businesses go bust... but this asset sits there, still growing, and retains its value.

This time, we're talking about timberland.

Timber has been one of the longest-running, safest ways to build wealth. History says it will return around 12% to 14% per year...

Part of that comes from simple inflation. As prices in general go up, so does the price of lumber.

Another source of returns is the appreciation of the underlying land.

Investment in timber underwent a pretty large boom after the "Yale Model" for institutions investing in "alternative" assets got popular around the turn of this century. Timberland went from an asset run by, well, timbermen, to one with lots of Wall Street money.

But that timber fever has cooled. More timber assets are being sold by institutions and bought by timber REITs. You should consider this when looking at recent high returns in the chart above, as they reflect this trend. We'll take our expectations down a notch... though timberland still appears poised to beat stocks.

Finally, the best growth comes from the growing trees themselves. Timber sells by the ton, so if you leave a tree for a year or two, it'll get bigger and you can sell it for even more.

Here's the basic framework:

A pine with a six-inch diameter trunk can be used for pulpwood to make paper. Let's say that's worth about $9 per ton. If you check in next year, that tree will be maybe 2% heavier, so you've made a return. (Of course, growth rates vary widely by species, geography, and weather.)

But wait a few years and it will grow large enough to hold a few boards – rather than just paper pulp. This is called "chip and saw" lumber, and it's worth about $17 per ton. If you let it go for a decade or so and it gets to be 14 inches in diameter, it's considered sawtimber. That sells for $26 per ton.

No, money doesn't grow on trees... But it's close to the truth.

This means, unlike other hard assets, timber is a "flow" and not a "stock."

Timberland is not like an oil well. Cutting doesn't deplete the resource – you can just plant more smaller trees and the resource grows back.

And perhaps better than anything is that you don't need to cut.

If timber prices are low, you simply sit on your asset. You may not earn income that year, but as the trees grow, you're still building wealth.

Those benefits – like the extreme stability of this asset – accrue best to direct owners of timberland. But unless you plan on buying your own timberland, most folks will be much better served by investing in timber through a REIT.

Timber REITs are subject to the swings of the market. While the forest sits unperturbed, the REIT that owns it will see its price rise and fall. But the REITs do carry some of the safety from the forest to the market.

A One-Click Timberland Investment

In particular, we're focusing on Rayonier (RYN), a timberland REIT.

This REIT owns 2.6 million acres of timber in the American South and Pacific Northwest and New Zealand.

Rayonier started as a single pulp and paper mill in Shelton, Washington in 1926, originally working under the name Rainier for the nearby famous mountain. After some expansion, Rainier worked with DuPont to develop a wood fiber that could be used to make the fabric rayon. The pulp (the raw, wood-based material used to make paper and other products) was named "rayonier" and the company changed its name soon after.

By 1938, Rayonier added land ownership to its mill business. It purchased 800,000 acres of timberland in Florida and Georgia. Rayonier also spent 1968 to 1994 as part of the ITT conglomerate, before spinning out to trade on its own again.

In 2014, Rayonier spun off its fibers business as its own entity, Rayonier Advanced Materials (RYAM).

Now, it's heavily focused on timberland management and harvesting.

It cares for and harvests its timber forests at a "sustainable yield" of 11 million tons per year. That's worth $373 million in annual earnings before interest, taxes, depreciation, and amortization ("EBITDA") per year. Roughly two-thirds of that total comes from harvesting and selling timber, and the rest comes mostly from real estate transactions.

As a REIT, Rayonier pays the bulk of its income out as distributions to shareholders in return for paying no income tax. That currently amounts to a yield of 2.8% for investors.

The dividends have kept flowing for Rayonier – it has paid them since 1994. Its dividend has been steady since it spun off RYAM (some dividends went with the new company), growing from $1 per year to $1.08.

Investments like REITs typically borrow to buy assets, rent them for less than the cost of capital, and pass on income to shareholders. It's important to watch just how much borrowing is going on. After all, an over-levered balance sheet can mean trouble when the economy slows.

Rayonier has $1.4 billion in debt against $432 million in cash (REITs typically don't hold much cash). That's a manageable leverage ratio of 2.4 times EBITDA.

We can see the safety that timber affords in an analysis of Rayonier's risk.

"Beta" measures an investment's relation to the rest of the market. A beta of 1 means it moves about the same as the benchmark S&P 500 Index. A beta of 1.5 means that if the market rises (or falls) 1%, the asset has historically risen (or fallen) 1.5%. A beta of 0.8 means it would have risen (or fallen) 0.8%.

If you look up the simple beta of Rayonier, you'll see it's about 1. But that's a one-year daily beta. We don't care so much about daily moves, and we would like to see what happens in bear markets.

When we compute a 20-year monthly beta, Rayonier checks in at 0.8. That means it's more conservative than the broader market.

We Need the Trees

We've been bullish on the housing market for several years now... and it has been ripping higher recently.

The simplest, broadest explanation of this is that we need enough homes to accommodate a growing population. At the same time, the slowdown in homebuilding after the 2008 financial crisis took too long to ramp back up.

As a result, the housing market still has a lot of catching up to do.

Additionally, huge swaths of houses built in the 1970s and 1980s need overhauls. And the boom in the mid-2000s means all those homes are approaching the 15-year-old mark, meaning we'll see a flurry of new furnaces, roofs, and other replacements that come in around the decade mark.

Even so, the broader number of home sales is down. But that's due to lack of supply – not demand. People aren't listing (or building) enough homes to satisfy buyers. Prices are up and inventory is low.

One area where these trends are clear is in lumber. We still make our buildings out of wood. Whether you're framing a condo building, putting up a McMansion, or just upgrading a bathroom, you need lumber. And as you'll see all over the news, the price of lumber has absolutely exploded.

As a timber owner, rather than a lumber producer, these huge price increases don't drop straight to Rayonier's bottom line. The supply crunch today is happening at the sawmills.

But it's certainly a long-term positive to see higher lumber prices.

So while the lumber boom is a nice reason to get into Rayonier today, we've got bigger, longer-term trends that suggest it will be a good holding for a long time.

Protection From the Big Bogeyman

It's simple logic that hard assets like timber should protect you from inflation. If an asset has a true intrinsic value, that value will rise as the value of a dollar falls.

Empirically, Rayonier itself has traded since 1995, a long enough time that it allows us to test how it stands up to inflation. On a monthly basis, it tends to rise during periods of inflation...

And we find that relationship in a scatter plot as well, when we plot Rayonier's one-month logarithmic returns against the year-over-year Consumer Price Index ("CPI").

The chart shows a correlation of 0.12 – a high number in the finance world. For comparison, gold is widely considered a hedge against inflation, but it has less correlation at 0.07.

Of course, inflation typically stays in a range within a few percent, while stocks can move much more. A hedge with a timber REIT isn't perfect, but it will protect us in the long term.

This Crisis Will Tear Our Nation Apart

While there are many similarities between the inflation unfolding today and what happened in America in the 1970s, the inflationary script for the next few years in America will look quite different than it has in the past.

We are on a dangerous path in America. Our government has set us on the road to currency devaluation and a new era of inflation.

Some assets are going to suffer, big time. Others will skyrocket in value. The wealth gap will get wider than ever before. But you can potentially grow and protect your wealth in the years to come.

And today, you can be among the few who understand exactly what's happening in our financial system – and the critical steps you must take.

Sadly, this crisis is all going to tear our country apart over the next few years...

On one side will be those who understand what's happening, who take the necessary steps. These folks will continue to get richer and richer.

On the other side... well... unfortunately, that's most Americans... who won't understand what's going on... and will cling to a collapsing currency and get trapped by the Lockdown, while falling further and further behind.

For yourself, and your family, get the facts. Learn how to take advantage of this trend so you are not left behind.

Consider this your final wake-up call...

Billionaires including Warren Buffett, Stanley Druckenmiller, Paul Tudor-Jones, Bill Ackman, and more have stated publicly that Americans aren't paying enough attention to this development.

That's why I've gone public with what I believe is the most important and useful analysis on this situation in the financial world today. You can access my report by clicking right here.

There's no doubt we are in for huge changes to our financial system in the next few years.

If you are counting on IRAs, 401(k)s, insurance policies, annuities, pension plans, stocks, or bonds, this information is critical.

I've posted my brand-new, full analysis, including my FOUR recommended steps, on my website...

You can access it free of charge today – click here to view.