Fundamental Value and Human Optimism

Fundamental Value and Human Optimism

The only positive economic indicator is blind human optimism and investors sense trouble ahead. This has triggered a search for value in a marketplace weary of government intervention and manipulated financial statistics.

In a world where our central bank allows money center banks to borrow funds at the fed window at a floating rate, currently .16 of one percent, and invest long term into government ten year treasuries at two percent, in a sense borrowing short term and investing in long term fixed assets, they have spoiled and rewarded inefficient big banks which by being “too big to fail” in the minds of our central bank policies are “guaranteed to fail”. Our American leaders have created a casino capitalism which has overvalued stocks, bonds and urban real estate.

Given this premise, where should prudent companies invest? We at North Development have found a fundamental value or durability in companies like Renew Biomass and other rural companies that grow and manufacture foundational crops such as miscanthus fiber products in pet food or absorbency agricultural products that dry out chemicals. Whether putting more fiber into a pet or human diet, or drying out nutritional products for customers we see our current endeavors as holding fundamental value.

We have also invested in rural real estate. We own property on the Mississippi River where Consolidated Grain and Barge just completed a new fifteen million dollar grain export facility which brings state of the art export capabilities to the Mid-South farm belt. We own an 80,000 square foot retail center in southeast Ohio on the Utica Shale. Not only is this area rural, but farmers have extensive income from the oil sector. Understand we do not anticipate runaway growth in these investments like there was in real estate in Chicago in the 1990’s or the stock market in 1999, but we believe there is backbone and stability in these investments in the coming decade.

Ninety-five percent of Americans living today only understand the word inflation and the concept that assets generally go up. I believe the next ten years will introduce Americans to the word deflation, which has not been observed since the 1930’s.

The owners of Renew Biomass are finding that miscanthus fiber or non-wood cellulose fiber has the same qualities as the standard southern pine tree cellulose fiber, but can be sold profitably for fifty percent less than cellulose powder. Maintaining value and reducing cost will be the painful reality of future business. The owners of Renew Biomass know they can deliver this deflationary value to the American people.


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