International Investments From a Bird’s Eye Vue – The Rich get Richer & The Poor?


International investments can be International investments in Ecuador, international investments in Asia, International investments in Eastern Europe or international investments in heartlands of America.

Monday’s message looked at the plight of small American farmers from the view of several small American farmers and saw how international investors will impact this plight.

See www.garyscott.com/international_investments/international_investments_100.html

We can all sympathize with this plight…but farming is caught in the web of another great American fact.

The Middle Class of the US is under great stress.

A November 1, 2006 USA Today article by John Waggoner entitled “Low inflation rate? – some consumers beg to differ”.

“Sure, you can get a lot of computer these days for your dollar. And auto prices have scarcely budged. But the cost of several big- ticket middle-class basics — housing, health care premiums, energy, college tuition — have vastly outstripped the overall inflation rate in the past two decades. Those rising prices, combined with flat wages, mean that the typical middle-class life — a house, college for the kids, a secure retirement — is fading for many.

In economics, expectations can turn into reality. When consumers expect price inflation, they begin to accept it. That, in turn, often leads to more inflation. Normally, wages rise, too, resulting in a wage-price spiral. The only real cure is a sharp recession, as the USA saw in 1981. With wages flat, however, consumers are going into debt instead, to keep pace with inflation.

This means that the vast number of consumers will shop where food prices are lowest. They’ll seek low price versus quality. (We’ll see this fact tomorrow when we look at how Wal Mart is aiming at the organic food market.)

Low price requires mass production and the agri-system will probably continue to focus on mass production, big farms, big tools, lots of chemicals and such. After all, low price low quality unhealthfuly food is good for business. It’s sort of addictive and guarantees consumers for the medical-pharmaceutical-insurance industry. (By the way MDs are under pressure too as you see below.)

Gobbling up prime farm land for residential space is not smart…but my guess is the system will do it anyhow.

I feel there is great potential in Small Town USA. Take a Bird’s Eye Vue for just a second and see three huge forces headed for collision.

#1: A bursting population (100 million more people needing 70 million new homes in the next 34 years) that is consuming larger amounts of land per person.

#2: A boom of retiring baby boomers when retirement income runs short.

#3: Internet workers who want to get away from the crowded cities.

Throw these three together and blend in a catalyst…the pooring-down of the middle class.

This means that farmland in the heart lands will probably rise higher as more and more poorer middle class seek a place to live.

This will change Small Town USA. This will be bad for the nation’s health. This will be a step in the wrong direction.

All things wrong.

Since every cloud has a silver lining, how do small farmers adjust?

First, they can recognize that does not mean that wealth is going away.

This year’s holiday sales show this fact. Low end retailers like Wal Mart and Target see sales slumping, up only in the 3% range compared to a year ago. But upper end stores like Saks (up 9.2%) and Nordstrom;s (up 10.7%) are booming.

Another (November 3rd by Mindy Fetterman) USA Today article entitled “Retail sales show mostly rich shop till they drop” says: Higher priced gas prices have cut sharply into the spending power of lower-income Americans while job and income growth have been enjoyed mainly by higher-income Americans”.

We watched this happen in Naples years ago as property taxes, insurance and cost of living rose. Old timers in the area, especially the retired had to sell up and leave. These people have to have some place to go. Many leave and move abroad. We have a huge growing influx of neighbors in Ecuador coming from the US.

Many will stay in America and the heartlands will offer them a place to go.

This creates good news and bad for American consumers and the small American farmer.

First, let’s look at some of the bad news which is that the loss of buying power in the middle class is forcing the big retailers to go after the higher end markets. This creates a crunch where quality and the financial bottom line clash.

A reader sent me an article from Business Week which shines light on this fact.

The article is entitled “The Organic Myth. Pastoral ideals are getting trampled as organic food goes mass market” and says:

“Next time you’re in the supermarket, stop and take a look at Stonyfield Farm yogurt. With its contented cow and green fields, the yellow container evokes a bucolic existence, telegraphing what we’ve come to expect from organic food: pure, pesticide-free, locally produced ingredients grown on a small family farm.

“So it may come as a surprise that Stonyfield’s organic farm is long gone. Its main facility is a state-of-the-art industrial plant just off the airport strip in Londonderry, N.H., where it handles milk from other farms. And consider this: Sometime soon a portion of the milk used to make that organic yogurt may be taken from a chemical-free cow in New Zealand, powdered, and then shipped to the U.S.

“Now companies from Wal-Mart (WMT) to General Mills (GIS) to Kellogg (K) are wading into the organic game, attracted by fat margins that old-fashioned food purveyors can only dream of. What was once a cottage industry of family farms has become Big Business, with all that that implies, including pressure from Wall Street to scale up and boost profits. Hirshberg himself is under the gun because he has sold an 85% stake in Stonyfield to the French food giant Groupe Danone. To retain management control, he has to keep Stonyfield growing at double-digit rates. Yet faced with a supply crunch, he has drastically cut the percentage of organic products in his line. He also has scaled back annual sales growth, from almost 40% to 20%. ‘They’re all mad at me,’ he says.”

You can read the entire article at: www.businessweek.com

Another note from a reader shows how this may not help Small Town USA at all. He wrote:

“Dear Gary, Again, it was a great pleasure to see you and Merri in beautiful Ashe County. I was interested in your comments of today on Wal-Mart. According to a very recent WSJ article there is a Wal-Mart within 25 miles of 95%+ of all the households in the USA. Just a couple of days ago there was an article in Bloomberg saying that Wal-Mart had saturated the USA and was trying to form a joint venture w/ Mittel to expand into India.

“As I recently drove around Jefferson and West Jefferson I noticed one shopping center in Jefferson that was completely “dark” (i.e. vacant). In addition, the shopping center w/ the Food Lion in it (next to the Best Western where Dave and I stayed) had so few cars in it that I expect that center will also go ‘dark’ within 12 months or so.

“So the citizens of Ashe County got a brand new Super Wal-Mart. But within a couple of years of opening, I am not sure that it will have created any net new jobs – there might even be a net loss. Yes, prices are lower, but then you have to drive further. So unless one buys a lot, has one really saved anything given the cost of gas, the wear and tear on one’s vehicle, the value of one’s time, etc. Also, given Wal-Mart’s procurement system, is there anything sold in the store that is locally produced (even pumpkins or Christmas trees)? Your bird’s eye commentator from CA.

Warm regards,”

Another reader shared this thought:

“I don’t think (consumers) have any idea just how industrialized it’s becoming (mainstream organics),” said journalism professor and author Michael Pollan in a recent interview with the St. Paul Pioneer Press. Pollan’s book, “The Omnivore’s Dilemma” has been a national bestseller. “There are some real downsides to organic farming scaling up to this extent,” Pollan added during the interview. He and others worry that the expansion of “Big Organic” will lower food quality, weaken standards and hurt small family farms.” http://www.wispolitics.com/index.iml?Article=73044

The bad news is that a lot of people may suffer from inflation in the years ahead. This can affect the quality of our goods as well as the quantity that can be consumed.

Fortunately every cloud does have a silver lining which you can see in tomorrow’s message.

Until then, may all that is good for you become inflated!

Gary

P.S. One reason, beyond the great weather, that so many are joining us in Ecuador is the great value for a high quality of life. Here is what one reader shared.

“Dear Gary and Merri, I just returned from visiting Ecuador, including Cotacachi and El Meson for the third time this year. When I learned earlier this year that I could purchase your one month Hometel stay, and split the nights over multiple trips since I can’t stay a full month at a time, it makes it easy to plan a visit and know I’m getting the best value. A tip for some of your visitors … my friend and I saved almost $200 each on airfare this trip flying on COPA out of Orlando via Panama City and were able to avoid Miami International altogether. The agent, Vista South America (305-266-3029), in Miami, you previously have recommended set this up for us. And finally, while I was at El Meson in June, one of the rooms was being completely renovated. This trip I was able to try out that completed room for a few nights when it was available, and it was absolutely sumptuous! The decor and new bathrooms are elegant and the original wood floors sanded and polished are simply beautiful. It was night and day … and you will indeed have one most unique establishment when the renovations are complete, combining old world charm and grace with new world luxury. (and the newly beefed up hot water system was a real pleasure, too !!) Thanks so much,

One reason readers like Ecuador is because they can enjoy wonderful architectural features and views like this Barro Viejo construction at very low lost.

Won’t you join us at one our courses below this autumn and winter. See Barro Viejo homes while there.
November 10-12, Fri.-Sun. Mar. 16 -18, Fri.-Sun. International Business and Investing Made EZ. See http://www.garyascott.com/catalog/IBEZec/
Dec. 9 – 15, Fri.-Thurs. Condensed Super Thinking + Spanish. See http://www.garyascott.com/catalog/sp/
Jan. 5 – 7, Fri.-Sun. Investing Beyond Logic, Vedic Astrology. See http://www.garyascott.com/catalog/va/
Jan. 8 – 10, Mon.-Wed. Ayurvedic Cleanse. See http://www.garyascott.com/catalog/vedcl/
Jan 13-14, Sat.-Sun. How to be a Wedding Photographer. See http://www.garyascott.com/catalog/wp/
Jan. 22 – 26, Mon.- Fri. Self-Fulfilled: How to Be a Writer & Publisher. See http://www.garyascott.com/catalog/pc/
Feb. 20 – 25, Tues.-Sun. Import-Export Course. See http://www.garyascott.com/catalog/impex/
Mar. 16 -18, Fri.-Sun. International Business and Investing Made EZ. See www.garyascott.com/catalog/IBEZec/
Mar. 19 – 21, Mon.-Wed. Andes Extension & Real Estate Tour. See www.garyascott.com/catalog/andeanext/


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