Large Cap Global Portfolio Return of 7.9% for the Quarter Ended 09/30/2017.

The model portfolio account closed out the 3rd quarter of 2017 with an NAV of $196.29 per share. This represents a return of 7.9% for the third quarter.

For the first nine months of 2017, the global account produced a net (after all fees and expenses) return of 31%. On January 1st, 2017, the portfolio was valued at $149.76 per share. Full details can be found within the paid subscriber content portal.

In the past quarter, this author had noted currency tailwinds that offered potential to enhance large cap international companies top and bottom lines. In the views of this investor, the first full quarter of those currency tailwinds may be more evident to the public in the coming month. S&P 500 companies begin to report for the September quarter within the next 30 days. It is also the view of this author that most investment firms have failed to update their models to reflect the tailwinds; fiscal estimates for certain key businesses, within many indexes, look woefully out of date. Finally, despite the volume of heated political rhetoric arising from the United States, the pace of global economic growth continues unabated. Certain EU member nations are demonstrating late cycle economic charges, as are most Asian tigers.

On a different note, a largely unnoted potential BENEFIT of climate change is the probability of a vast increase in global arable land. When combined with enhanced crop production, based upon higher Co2 levels (increases in Co2 levels have been scientifically demonstrated to improve plant growth), the result could be decades of record surplus food and commodity crop production. Why these points remain largely unknown, to both the public at large and investors more specifically, is a puzzle. Nonetheless, if one is looking for a notable, global, secular trend, this would certainly appear to qualify.

One recent, high profile, peer reviewed paper, suggests the potential for significant increases in arable land in the key breadbasket regions of the northern hemisphere as a result of changing climatic conditions

“As can be observed from the two images, arable land is likely to increase at the higher latitudes of the northern and southern hemisphere, including Canada, Russia, northern China, southern Argentina, and the northern US. As shown in table 1, Africa, Europe, India, and South America may expect varying levels of reduction, −1 to−18%,−11 to−17%, −2 to−4%, and−1 to −21% respectively, while Russia, China, and the US may benefit from climate change with increases in arable land of 37 to 67%, 22 to 36% and 4 to 17%, respectively.”

A study by Ramankutty et al suggests a total potential global expansion of arable land in the range of 6.6 million square kilometers. To place that into some perspective, Canada is roughly 9.9 million square km in size, and only 451,000 square km is considered to be arable land. Total arable land on the planet is presently estimated to be about 15 million square kilometers. Taken at face value, the Ramankutty study suggests a potential increase, in global arable land, of as much as 44%, in the coming years.

This author trusts that providing links to the appropriate papers, which contain the pertinent data (should one choose to read it), will do little to prevent apoplectic fits, likely to ensue, from certain parties. Reading statistics, even when coming from trustworthy and esteemed sources, which does not comport with one’s confirmation bias, tends to bring on such reactions.

Rhetorical fury aside, it is self evident that abundant global food supplies have muted any food price inflationary pressures. At such a late stage in an economic cycle, the benign inflation environment represents a novel departure from past cycles and represents a challenge, as well as, an opportunity for conventional economic modelling. Investment implications for a world producing persistent large crop surpluses for coming generations are, frankly, staggering.

Those who forecast correctly, as always, are typically well rewarded for their efforts.

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