Veripath Q4 2021 Investor Letter

Veripath Q4 2021 Investor Letter

• 1.
  VERIPATH FARMLAND FUNDS Veripath Q42021 Newsletter
• 2.
  COPYRIGHT2022 2  VERIPATH PARTNERS only. Ultimately,gravity asserts itself even in the fi- nancial markets. Central banks can control exchange rates (inflation/purchasing power of the currency) or interest rates. Indefinite control of both is impossible. INFLATION/NEGATIVE REAL RATE INCENTIVE #1 – Sovereign Balance Sheets are in Poor Condition. Stripped of all the elaborate economic jargon, once sovereign debt levels become excessive (or more cynically merely servicing the interest on the debt becomes unmanageable) and access to the private capital markets begins to evaporate, the options fall into four basic categories in some semblance of increasing political palatability: • De jure default – formal debt default and restruc- turing • Reduce government costs – reduce entitlements • Increase government revenue – increase taxes • De facto default – via inflation It goes without saying that inflation (with some sec- ond order efforts to raise taxes) is invariably chosen as the most expedient plan of action as its causes can usually be obfuscated for some period (often protract- ed) while lenders/taxpayers suffer the consequences immediately. The other options come with undesir- able political consequences at the ballot box and so are usually never even seriously considered. SHOW ME THE INCENTIVE AND I’LL SHOW YOU THE OUTCOME – Investing in a World of Financial Repression, Negative Real Rates, Valuation “Challenges” and Inflationary Forces After seeming to slumber for over 30 years, inflation is waking up and as this is a year-end update forgive us if we inject some philosophical observations about these matters on top of the more prosaic and techni- cal musings such letters inspire. We want to start with a question. Do G7 governments have an incentive to attempt to keep inflation higher for longer and real rates lower for longer? Negative real rates across a broad spectrum of credit assets are a graphic sign that we inhabit a world of financial repression orchestrated by central banks at the formal/informal behest of sovereign borrowers. In a normally functioning market, lenders do not provide capital to borrowers for negative yields – i.e., they do not pay for the privilege of lending. It goes without saying we are not in a normally functioning market. There is a silver lining to negative real rates. For the borrower, negative real rates erode the value of the out- standing obligations over time. In effect, protracted periods of negative real rates help the borrower de-le- ver. In addition, inflationary monetary policy (monetis- ing fiscal deficits without recourse to borrowing from the capital markets) is a source of funding that takes capital from savers/taxpayers/lenders/pension plans and redistributes it to government. Think of inflation as a reverse redistribution program for government. The largest borrowers on the planet are sovereign governments which, if they have the desire, can for a period impose such financing conditions on the mar- ket. The caveat is that this is possible for a finite period “At first inflation stimulated production because of the divergence between the internal and external values of the mark, but later it exercised an increasingly disadvantageous influence, disorganizing and limiting production…. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into poverty.” – The Economics of Inflation – A Study of Currency Depreciation in Post War Germany “When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear.” ― Thomas Sowell
• 3.
  COPYRIGHT2022 3  VERIPATH PARTNERS Even withthe unprecedented magnitude of the surge highlighted above, this accelerated pace of debt accu- mulation appears to be set to continue for the foresee- able future: These increases come on top of already historically unprecedented G7 sovereign and private debt levels. Canada, to its shame, is one of the worst offenders. 29 26 23 20 17 14 11 8 5 2 2007 2009 2011 2013 2015 2017 2019 2021 Change in B/S $2.4 trillion 7% of GDP $13 trillion 30% of GDP Dec-22 $29.6 trillion Chart 2: G4 Central Bank Balance Sheets – Projection (USD Trillion) Source: Haver Analytics, IMF, Morgan Stanley forecasts Debt as Govt debt as Private debt % of GDP % of GDP as % of GDP Japan 444.7 237.1 207.6 Canada 356.1 89.9 266.2 France 351.4 98.4 253 US 318.7 106.9 211.8 UK 310.8 86.8 224 Italy 301.6 135.5 166.2 South Korea 283.7 37.9 245 China 258.4 50.6 207.8 Australia 236.9 41.4 195.5 Germany 215.8 61.7 154.1 Russia 211.4 14.6 196.8 Turkey 200.1 30.2 170 Mexico 170.1 35.4 134.7 Brazil 157.5 87 70.5 South Africa 128.5 56.7 71.8 India 122.9 68.1 54.8 Argentina 108.4 86.1 22.3 Indonesia 70.3 30.1 40.2 Average 235.96 75.24 160.72 Chart 3: Debt to GDP (%) Source: Icecap Asset Management, IIF Chart 1: 1970 – 2020 Global Debt Levels (2020 represented the largest increase in 50 years) Sources: IMF Global Debt Database and IMF analysis (note – the estimated ratios of global debt to GDP are weighted by each country’s GDP in US dollars) 250 200 150 100 50 0 1970 1980 1990 2000 2010 2020 Total Debt Public Debt Household Debt (HH) Nonfinancial Corporate Debt (NFC) Global financial crisis COVID-19 pandemic Private Debt 2020 Public: 99% 2020 HH: 58% 2020 NFC: 98% 2007: 195% 2009: 215% 2019: 227% 2020: 256% “I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.” ― Friedrich von Hayek Source: Bloomberg, Crescat Capital Chart 4: Central Bank Balance Sheets Assets to Nominal GDP (YoY Growth) 450% 350% 250% 150% 50% -50% 2005 2010 2015 2020 +456% Bank of Canada Reserve Bank of Australia Federal Reserve Bank of Japan Swiss National Bank European Central Bank
• 4.
  COPYRIGHT2022 4  VERIPATH PARTNERS Chart 5:Government of Canada Debt held by Bank of Canada Source: Bloomberg 450 400 350 300 250 200 150 100 50 0 2000 2005 2010 2015 2020 BoC Holding of GoC Debt (LHS) CAD 396bn As % of Total Gov. Debt (RHS) 33.2% 35% 30% 25% 20% 15% 10% 5% 0% “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” ― Murray Rothbard Canadians are now in an economy where the Bank of Canada is the marginal buyer of all Government of Canada debt via the printing press – i.e. Canada is now a direct monetisation economy with no observ- able inclination to stop on the part of the government. …However, so is the US… …and so is the EU… I believe the monetisation of these ongoing massive fiscal deficits will prove to be highly inflationary. In fact, using previous CPI calculation methodologies (which do not use dubious hedonic adjustments, own- er equivalent rents etc.) inflation is well over 10% and climbing. Chart 7: ECB Funding of EU Deficits (>100%) Source: ECB 1000 800 600 400 200 0 -200 -400 2020 2021 2022est. Net bond issuance (EUR bn) After ECB QE purchases (EUR bn) Chart 8: US Inflation (Using CPI calculation methodology which was employed prior to 1990) Source: Shadowstats Official CPI-U Experimental C-CPI SGS Alt. 1990-Based 10 8 6 4 2 0 -2 2006 2011 2016 2021 Chart 6: Federal Reserve Funding of US Deficit Sources: Haver, IIF 5,000 4,000 3,000 2,000 1,000 0 2004 2008 2012 2016 2020 Q3 ‘21 QE1: $300 bn QE2: $600 bn QE3: $790 bn QT Fed Money market funds Mutual funds Banks Foreign Pension funds State & local government GSEs Dealers Households Other Total Issuance of US Treasuries vs demand by sector, in $ bn 4- quarter moving average
• 5.
  COPYRIGHT2022 5  VERIPATH PARTNERS Chart 9:US inflation (Using CPI calculation methodology which was employed prior to 1980 Source: Shadowstats SGS Alternate CPI, 1980-Based CPI-U 15 10 5 0 -5 1981 1986 1991 1996 2001 2006 2001 2016 2021 Chart 10: Inflation vs. Money Supply Growth (Dec 2019 – oct 2021) Source: Bloomberg 40% change in M2 35% 30% 25% 20% 15% 10% 5% 0% -2% 0% 2% 4% 6% 8% Japan Switzerland R2 =0.83 Canada US UK “Socialism in general has a record of failure so blatant that only an intellectual could ignore or evade it.” ― Thomas Sowell “If socialists understood economics, they wouldn’t be socialist.” ― Friedrich von Hayek The Canadian government, and to be fair many others, is arguing it has no policy “tools” to deal with inflation as it’s a global phenomenon driven by supply chain disruptions (which certainly is a contributor) and a base line comparison issue from the COVD drop and bounce back (also certainly a contributor) but even some simple analysis shows this is disingenuous at its core. The primary cause is the fatal combination of massive increases in fiscal deficits funded via money supply growth (the printing press). Deutsche Bank’s research shows that real yields con- sistently move deeply negative when sovereign debt suddenly spikes. In addition, Deutsche Bank’s research shows that CPI invariably spikes when sovereign debt spikes – in fact in each of the previous debt events spot inflation reached 20% or higher. To the average person inflation is a pernicious and de- structive force but to heavily indebted sovereign bor- rowers, negative real rates driven by high inflation are a marvellous opportunity to reverse the overspending Chart 11: Smoothed 10yr Real Yields (using 5yr rolling overage of CPI) and the Debt-to-GDP Ratio) Source: Deutsche Bank SmoothRY (LHS) Debt/GDP (RHS) 15 10 5 0 -5 -10 -15 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020 120 100 80 60 40 20 0 Chart 12: US CPI Inflation and the Debt-to-GDP Source: Deutsche Bank CPI (LHS) Debt/GDP (RHS) 30 20 10 0 -10 -20 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020 120 100 80 60 40 20 0
• 6.
  COPYRIGHT2022 6  VERIPATH PARTNERS In practice,there is virtually no place to escape this financial repression – long term, short term, real or nominal. Short-term real rates are negative: Long-term real rates are negative: Chart 13: Global Central Bank Policy Rates Source: Compound, CharlieBilello Country Rate Central Bank Rate (Today) CPI YoY Real Central Bank Rate Last Move Last Move Date Switzerland Target Rate -0.75% 0.9% -1.7% Cut Jan-15 Denmark Deposit Rate -0.60% 1.8% -2.4% Hike Mar-20 Eurozone Deposit Rate -0.50% 3.0% -3.5% Cut Sep-19 Japan Policy Rate Bal -0.10% -0.3% 0.2% Cut Jan-16 Norway Deposit Rate 0.00% 3.4% -3.4% Cut May-20 Sweden Repo Rate 0.00% 2.1% -2.1% Hike Dec-19 Poland Repo Rate 0.10% 5.5% -5.4% Cut May-20 Australia Cash Rate 0.10% 3.8% -3.7% Cut Nov-20 UK Bank Rate 0.10% 3.2% -3.1% Cut Mar-20 US Fed Funds 0.13% 5.3% -5.2% Cut Mar-20 New Zealand Cash Rate 0.25% 3.3% -3.1% Cut Mar-20 Canada Overnight 0.25% 4.1% -3.9% Cut Mar-20 Thailand Policy Rate 0.50% 0.0% 0.5% Cut May-20 South Korea Repo Rate 0.75% 2.6% -1.9% Hike Aug-21 Czech Republic Repo Rate 0.75% 4.1% -3.4% Hike Aug-21 Hong Kong Base Rate 0.86% 1.6% -0.7% Cut Mar-20 Peru Policy Rate 1.00% 5.0% -4.0% Hike Sep-21 Saudi Arabia Reverse Repo 1.00% 0.3% 0.7% Cut Mar-20 Taiwan Discount Rate 1.13% 2.4% -1.2% Cut Mar-20 Chile Base Rate 1.50% 4.8% -3.3% Hike Aug-21 Colombia Repo Rate 1.75% 4.4% -2.7% Cut Sep-20 Malaysia Policy Rate 1.75% 2.2% -0.5% Cut Jul-20 Philippines Key Policy Rate 2.00% 4.9% -2.9% Cut Nov-20 South Africa Repo Rate 3.50% 4.9% -1.4% Cut Jul-20 Indonesia Repo Rate 3.50% 1.6% 1.9% Cut Feb-21 China Loan Prime Rate 3.85% 0.8% 3.1% Cut Apr-20 India Repo Rate 4.00% 5.3% -1.3% Cut May-20 Mexico Overnight Rate 4.50% 5.6% -1.1% Hike Aug-21 Brazil Target Rate 6.25% 9.7% -3.4% Hike Sep-21 Russia Key Policy Rare 6.75% 6.7% 0.1% Hike Sep-21 Turkey Repo Rate 19.00% 19.3% -0.3% Hike Mar-21 Argentina Benchmark Rate 38.00% 51.4% -13.4% Hike Nov-20 Chart 14: Real Fed Funds Rate Source: Deutsche Bank (using 3m T-Bill yield before July 1954) 25 20 15 10 5 0 -5 -10 -15 -20 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 2021 “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” ― Thomas Sowell mistakes of the past and discretely de-lever their bal- ance sheets. Negative real and even negative nominal rates are endemic across the global credit markets. Chart 15: US 10-Year Real Yield (10-year nominal yield minus CPI YoY (%)) Source: Bloomberg, Crescat Capital 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 1970 1980 1990 2000 2010 2020 -5.3338
• 7.
  COPYRIGHT2022 7  VERIPATH PARTNERS will meanan extension and perhaps even an increase in the unfriendly nature of conditions for the holders of cash and bonds. Sovereign borrowers have little choice (as they perceive their choices) and in fact are obviously incentivised to do so. INFLATION/NEGATIVE REAL RATE INCENTIVE #2 – Persistent Sovereign Fiscal Deficits and Historically High Asset Valuations Are Unlikely to Support Higher Nominal or Real Rates. G7 fiscal and monetary policy is the most accommo- dative since the 1950s – both the short and long end of the nominal and the real yield curves are low or negative. According to Jim Reid of Deutsche Bank, real yields have been lower during other periods of rapid debt accumulation, “However, that was with 20% inflation.” Central banks have been actively suppressing nominal yields to support the massive supply of sovereign debt issuance. In doing so, they have created a pervasive negative real yield environment. Combined with debt levels that are at historically high levels, global mone- Junk-bond real rates are negative: Even nominal bond rates are negative in parts of the market: The global credit markets, rather than providing risk free return are providing return free risk and given their tenuous balance sheets, sovereign borrowers are cer- tain to attempt to extend these favorable borrowing conditions via their fiscal and monetary powers. This Chart 16: Junk Bonds Real Yield – US corporate High Yield (Yield to worst minus CPI YoY (%)) Source: Bloomberg, Crescat Capital 10 15 10 5 0 -1.9919 1990 2000 2010 2020 Chart 17: Negative Nominal Yielding Bonds (market total ($ trillions)) Source: FT 20 15 10 5 0 2010 2012 2014 2016 2018 2019 2020 2021 Chart 18: 200-Year History of US Real Interest Rates (10-year real interest rate = treasury yield – CPI YoY %)) Sources: Bank of America Global Investment Strategy, Global Financial Data 20% 10% 0% -10% -20% 1789 1809 1829 1849 1869 1889 1909 1929 1949 1969 1989 2009 Oct 21 1812-15 War of 1812 1850-51 Oversupply crisis Panic of 1907 1914-18 WWI 1973-74 Oil crisis/OPEC oil embargo 1939-45 WWII 1973-79 Long Depression 1861-65 US Civil War 1837-43 Panic of 1837 Panic of 1796-97 “How did you go bankrupt?” Two ways. Gradually, then suddenly.” ― Ernest Hemingway
• 8.
  COPYRIGHT2022 8  VERIPATH PARTNERS tary authoritiesseem to be arriving at their Hobson’s choice moment. • Choice 1 – Stop financial repression = fiscal defi- cits may not be fundable and asset valuations may drop. • Choice 2 – Continue financial repression = infla- tion rises but sovereigns de-lever. Remembering that incentives drive outcomes – what path do you think will be followed? Just how tenuous is the G7 sovereign funding posi- tion? The G7 has effectively never been this indebted and at such low nominal as well as real interest rates. In the past two years the United States has borrowed approximately $6 trillion. Despite such a large in- crease in debt, the federal government’s net interest payments have remained below 2% of GDP – a trend that has persisted since 2001 on the back of low inter- est rates. However, according to the Congressional Budget Of- fice (CBO) if short-term rates rose to 2.4% in 2031 and long-term rates to 3.5%, interest costs for the federal government would double – from 1.5% of GDP in 2021 to 2.7% of GDP in 2031. Looking out over the next 30 “The life of the inflation in its ripening stage was a paradox which had its own unmistakable characteristics. One was the great wealth, at least of those favored by the boom. Many great fortunes sprang up overnight… Side by side with the wealth were the pockets of poverty. Greater numbers of people remained on the outside of the easy money, looking in but not able to enter. The crime rate soared.” ― Jens Parsson – Dying of Money “Blessed are the young for they shall inherit the national debt.” ― Herbert Hoover Chart 19: Net Interest Costs (% of GDP) Sources: Peter G Peterson Foundation, CBO 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2000 2005 2010 2015 2020 years, the total of US net interest payments is project- ed to be more than $60 trillion. According to the CBO’s long-term outlook, by 2051, interest payments will take up nearly half of all US federal revenues and measure close to 9% of GDP. This is a pattern repeated throughout the G7. Such trajectories are not sustainable. Turning the page to asset prices, just how tenuous are they? Bond yields are at historic nominal and real lows which needs no further explanation. At the same time, equity valuations by many metrics are also at histori- cally elevated levels. Chart 20: Net Interest Cost (projected to 2050 as a percent of federal revenue) Source: Peter G Peterson Foundation, CBO, (excluding any federal funding of 2050 Net Zero targets) 50% 40% 30% 20% 10% 0% 1970 1980 1990 2000 2010 2020 2030 2040 2050 8% 8% 10% 17%18%17% 11% 8% 9% 7% 10% 7% 12% 21% 27% 35% 45%
• 9.
  COPYRIGHT2022 9  VERIPATH PARTNERS Valuation Metric Currentpercentile ranking (relative to history) S&P 500 forward P/E | S&P 500 trailing P/E | S&P 500 5-year normalized P/E | S&P 500 price/book value ratio | S&P 500 price/cash flow | S&P 500 dividend yield | Shiller’s CAPE (cyclically-adjusted P/E | Rule of 20 | Equity risk premium (10-year Treasury yield) | Equity risk premium (Baa corporate bond yield) | Fed Model | Tobin’s Q | Market cap/GDP | Chart 21: S&P 500 Valuation Metric Current Percentile Relative to History Source: Charles Schwab, Leuthold Group Chart 24: Total Enterprise Value of Firms with EBIT less than Interest Expense: (“Zombie” companies as coined by Seth Klarman are companies which cannot pay interest without cheap debt) Source: Kallash Concepts 6 ($Trillion) 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015 2020 45 40 35 30 25 20 15 10 5 0 1880 1900 1920 1940 1960 1980 2000 2020 38.69 Source: Robert Schiller Chart 22: Schiller CAPE Chart 23: S&P Forward P/E Ratios and Subsequent 10- year Returns (total annualised returns in percent) Source: IBES, Refinitiv Datastream, S&P. JP Morgan Asset Management, FT 30 25 20 15 10 5 0 -5 -10 -15 -20 8x 11x 14x 17x 20x 23x Current level “The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation” ― Vladimir Lenin Schiller CAPE is one of the metrics with the most extreme reading. Something to bear in mind as its predictive utility has been quite good. INFLATION/NEGATIVE REAL RATE INCENTIVE #3 – Use Inflation to Fund 2050 Net Zero? Below you will find some selected excerpts from the recent, influential report of Bank of America – ““Tran- swarming” World”. The report is a detailed analysis of the expected costs to reach 2050 Net Zero – along with a light-hearted real time translation tool. The syn- opsis of the report is that the 2050 Net Zero targets will require a minimum (emphasis mine) of $150 tril- lion in capital – approximately 2 times current global
• 10.
  COPYRIGHT2022 10  VERIPATH PARTNERS GDP. Ourexpectation is this estimate will prove highly optimistic given the complex and unprecedented na- ture of the undertaking. Q: What is the economic impact of net zero? A: Elevated net zero funding could be inflationary, but the impact looks manageable at 1% to 3% per annum depending on central bank monetization rates, partic- ularly if government spending is targeted and contrib- utes to accelerate the rate of global GDP growth. The IEA also has a productive outlook for their net zero scenario, where the change in the annual growth rate of GDP accelerates by somewhere between 0.3% and 0.5% on a sustained basis over the next 10 years as a result of a shift to a green economy. (Emphasis mine) Translation – This is an explicit recognition that Net Zero 2050 is expected to be funded in a highly infla- tionary manner. While Bank of America forecasts that 2050 Net Zero expenditures will generate up to 0.5% nominal GDP growth, if funded by 50% moneti- zation (which is reasonable given the direct taxation challenge), they are also expected to generate approx- imately 2% annual inflation for the next decade (i.e. in addition to the already elevated inflation rates that are unfolding). Net Zero targets will therefore create modest GDP growth but material inflation growth over the next decade – i.e. they are forecast to reduce real GDP which intuitively makes sense as it will involve Chart 25: Increase in Inflation Relative to Baseline Assuming Various Levels of Cost Monetization Source: Bank of America, Haver, assumes $500billion of spending in 2021 increasing by $500 billion every year until reaching $5 trillion in 2030 for perpetuity (emphasis mine) 4% 3% 2% 1% 0% 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 $1tn (20%) $2.5tn (50%) $5tn (100%) the stranding and early retirement of US$ trillions in legacy capital. Q: How much will it cost? A: The energy transition to a net zero greenhouse gas (GHG) economy by 2050 will be a very expensive exer- cise, (emphasis mine) estimated by the IEA at $150tn of total investment, over a period of 30 years. At $5tn p.a, the IEA see it costing as much as the entire US tax base every year for 30 years. BNEF has a higher estimate that the total investment needed for energy supply and infrastructure could be as high as $173tn through 2050, or up to $5.8tn annually, which is nearly three times the amount invested on an annual basis today. Translation – This cannot be funded by from tax reve- nues, certainly not without a taxpayer revolt. Inflation is the most expedient way forward. Q: Who will pay for it and how? A: A combination of corporate bond issuance, com- mercial bank balance sheet capacity, government debt, and carbon taxes will likely be required to achieve full decarbonization. It will be very challenging to boost funding resources to the $5tn a year required to get to net zero emissions, …Decarbonisation bill of $5tn a year is equivalent to 25% of current global tax revenues ($20tn); assuming that global tax revenue grows at the 10y average over the next 30 years and a progressive spending path, the decarbonization bill would amount to 15% of global tax revenues by 2030, meaning ac- commodating climate action finance likely required far beyond fiscal budgets. Translation – The taxpayer will pay for all of it, through the redistribution effects of inflation and taxes. “The problem isn’t that Johnny can’t read. The problem isn’t even that Johnny can’t think. The problem is that Johnny doesn’t know what thinking is; he confuses it with feeling.” ― Thomas Sowell
• 11.
  COPYRIGHT2022 11  VERIPATH PARTNERS INFLATION ANDTHE AGRICULTURAL SECTOR How might current and forecasted real rate/inflation conditions effect the agriculture sector? Inflation tends to manifest quickly in the agriculture complex. The two major transmission mechanisms being 1) fuel and fertilizer input pricing combined with the 2) the inelastic demand curve for food. Following the recent run-ups in agriculture commod- ity prices, the long-term price trend in the agriculture space seems to indicate sustained upward pressure is possible and that agriculture commodity prices may have entered a cyclical bull market. This would make sense given demand growth and inflation expecta- tions. Rotation out of long duration, inflation sensitive assets may provide an additional impetus to agriculture com- modity returns. While commodity prices have moved materially in the last 24 months, commodities are still historically undervalued in relation to other asset classes such as public equities: To conclude this update, we believe a reasonable working hypothesis is that the economic incentives for sovereign borrowers to attempt to continue finan- cial repression via negative real rates and inflation will trump the need for sound economic policies for the foreseeable future. Despite the destructive outcome this is bound to unleash, if history is a guide, when government finds this is the last option, there is typically no hesitation to attempt to use it. In practice, if you think of inflation as a source of funding when all others have been exhausted, then you will clearly see the path forward. So, while central banks and governments may make superficial, highly publicized attempts to appear to be dealing with the problem, these will at most be made with a view to keep the repression to a politically tolerable level to extend the benefits for as long as possible. Expect there to be an attempt to boil the frog slowly in the inflationary water so to speak. Chart 26: Agricultural Commodity Price Trend – $DBA ETF Source: Bloomberg, Crescat Capital 40 30 20.1074 2007 2009 2011 2013 2015 2017 2019 2021 2023 Chart 27: Commodities to Equity Ratio: S&P GSCI Index / S&P 500 Index Source: Bloomberg, Crescat Capital 10 8 6 4 2 0 1970 1980 1990 2000 2010 2020 .568 1972 Nifty Fifty Stock Bubble Tech Bust ? Oil Embargo & Inflationary Bust Gulf War & S&L Crisis 2008 Peak Oil & Global Financial Crisis “An age of loose money not only destroys savings; it corrodes character.” ― Theodore Dalrymple “There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” ― Soren Kirkegaard
• 12.
  #300, 4954 RichardRd SW, Calgary, AB T3E 6L1 www.veripathpartners.com About Veripath VeripathisaCanadianalternativeinvestmentfirm.Members of Veripath’s management team have been investing in farmland since 2007. Veripath is focused on risk first and invests in a way that seeks to reduce operational, weather, geographic and business-related risks while capturing the pure return from land appreciation for its investors. Our goal is to partner with farmers for the long-term using innovative lease arrangements and/or land-unit swaps to give certainty to farming operations. DISCLAIMER This document is for information only and is not intended to provide the basis of any credit or other evaluation, and does not constitute, nor should it be construed as, an offer to sell or a solicitation to buy securities of Veripath, Veripath Farmland LP, Veripath Farmland (UR) LP or any other entity, nor shall any part of this document form the basis of, or be relied on in connection with, any contract or investment decision in relation to any securities. Past performance does not guarantee future results. This document contains statistical data, market research and industry forecasts that were obtained from government or other industry publications and reports. While Veripath believes this data to be reliable, market and industry data is subject to varia- tions and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. Veripath has not independently verified the accuracy or completeness of such data contained herein. This document may provide addresses of, or contain hyperlinks to, third party websites. Veripath has not reviewed and takes no responsibility whatsoever for the contents thereof. Each such address or hyperlink is provided solely for the reader’s convenience and the information and the contents thereof are in no way incorporated into this document. Readers who choose to access such third party websites or follow such hyperlinks do so entirely at their own risk Forward-Looking Information: This document includes forward-looking information and forward-looking statements (collectively, “forward-looking information”) with respect to Veripath. Forward-looking information is provided for the purpose of providing information about the current expectations and plans of management of Veripath relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. All statements other than statements of historical fact may be forward-looking information. More particularly and without limitation, this document contains forward-looking information relating to Veripath’s investment objectives and strategies and its expectations with respect to the benefits of investing in farmland. Forward-looking information is based upon a number of assumptions and involves a number of known and unknown risks and uncertainties, many of which are beyond Veripath’s control, which would cause actual results or events to differ materially from those that are disclosed in or implied by such forward-looking information. Although management believes that expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on forward-looking information since no assurance can be given that such information will prove to be accurate. Veripath does not undertake any obligation to update publicly any forward-looking information other than as required by applicable securities laws. Our reports, including this paper, express our opinions which have been based, in part, upon generally available public information and research as well as upon inferences and deductions made through our due diligence, research and analytical process. The information contained in this paper includes information from, or data derived from, public third-party sources including industry publications, reports and research papers. Although this third-party information and data is believed to be reliable, neither Veripath Farmland Partners nor its agents (collectively “Veripath”) have independently verified the accuracy, currency or completeness of any of the information and data contained in this paper which is derived from such third party sources and, therefore, there is no assurance or guarantee as to the accuracy or completeness of such included information and data. Veripath and its agents hereby disclaim any liability whatsoever in respect of any third-party information or data, and the results derived from our utilization of that data in our analysis. While we have a good-faith belief in the accuracy of what we write, all such information is presented “as is,” without warranty of any kind, whether express or implied. The use made of the information and conclusions set forth in this paper is solely at the risk of the user of this information. This paper is intended only as general information presented for the convenience of the reader and should not in any way be construed as investment or other advice whatsoever. Veripath is not registered as an investment dealer or advisor in any jurisdiction and this report does not represent investment advice of any kind. The reader should seek the advice of relevant professionals (including a registered investment professional) before making any investment decisions. Veripath Farmland LP and Veripath Farmland (UR) LP have retained Qwest Investment Fund Management Ltd. to provide certain of its services, includ- ing oversight and approval of net asset value (NAV) calculations, subscription and redemption processes, as well as access to Fundserv Inc.’s platform. The opinions and views expressed in this paper are subject to change or modification without notice, and Veripath does not undertake to update or supplement this or any other of its reports or papers as a result of a change in opinion stated herein or otherwise.