gold currency mortgage rate university endowments

Maryland Lands Have Two Different Owners
japan fixed asset land prices reit ground rent

Princeton Endowment Posts a 14.7% Return

If you lost your savings, is now a good time to invest with gold high and mortgage rates low and Japan pumping up land prices? We trim, blend, and append five 2010 articles from: (1) USA Today, Nov 9, on gold by John Waggoner; (2) AP, Nov 11, on rates by Janna Herron; (3) New York Times, Oct 15, on Princeton by Geraldine Fabrikant; (4) Bloomberg, Nov 3, on Japan by Mayumi Otsuma; and (5) Baltimore Sun, Nov 1, on Maryland by Jamie Smith.

by J. Waggoner, by J. Herron, by G. Fabrikant, by M. Otsuma, and by J. Smith

Gold closed at an all-time high of $1,403.20 an ounce on the New York Mercantile Exchange, up $5.50. Its gains powered other metals, too. Silver set a 30-year high as it rose 68 cents to $27.43 an ounce. Platinum gained $2.20, to $1,771.10.

Gold and other precious metals rise when investors lose faith in paper currency. Much of gold's gains stemmed from unease about government debt in Europe, particularly Ireland.

But gold investors fear that all that new money -- $600 billion more from the US Federal Reserve -- will create inflation and drive down the value of the dollar vs. other currencies.

While the dollar has fallen vs. the euro, it's still a long way from its record low against the pan-European currency. It took $1.39 to buy a euro on Monday, vs. $1.59 in July 2008.

Many countries try to increase their exports by lowering the value of their currency. Measured in their currency, gold would cost more. The US, China, and Japan are trying to keep their currencies low and exports high.

JJS: When government prints excess new money, trying to reverse the recession, that inflates prices of most things, gold, too. Gold's price should keep up with inflation but might not exceed it. Fewer people will seek a "safe haven" as the bottom of the business cycle ends and growth returns. A bigger gain, for those who can wait a decade, might be had from land. Bankers sure do want you to buy it.

Rates on fixed mortgages dropped to their lowest levels in decades after the Federal Reserve unveiled its plan to buy $600 billion in Treasury bonds. The extra demand means Treasurys will produce lower yields for investors. Mortgage rates tend to track those yields.

The average rate for 30-year fixed loans fell to 4.17% from 4.24% last week. That's the lowest on records dating back to 1971.

The average rate on 15-year fixed loans fell to 3.57% from 3.63%. That's the lowest since the survey began in 1991.

JJS: Some have somehow done well with land all along.

At a time when many of the nationís largest endowments have generated returns below 12%, Princeton Universityís (4th largest in 2009) returned 14.7% last year, bringing its total to $14.4 billion. Columbia University earned 17% on its current $6.5 billion endowment. Princetonís average annualized return over 10 years is 7.9%, which puts it in the top percentile among the 428 institutions. Among large universities, it is second only to Yale, which continues to lead with an average return of 8.9%.

Returns were strong even though Princeton, like Yale, started fiscal 2010 with 56.5% of its assets in illiquid assets. Land and timber, for example, as well as private equity, have all suffered in the recent downturn. Princetonís did not disclose its asset allocation at the end of the year.

Princeton received 50% of its budget last year from its endowment. The school provides financial aid to 60% of its students. In 2009 January, the school sold $1 billion in bonds to raise cash, rather than liquidate assets at depressed prices.

JJS: While everybody else was losing their shirt, the Ivy League did not only avoid losses but enjoyed gains. Why couldnít they let us other members of their society in on their secrets?

The fact that academia is a huge land speculator might explain why economics is not a science, or at least why academic economists can not predict recessions, leaving ordinary folk vulnerable to losing their savings.

Meanwhile, since US land is at its bottom, and Japan is trying to push the price of its land up, universities and others might now decide to grab more of such assets.

Japanese REIT prices have climbed since the BOJ announced its asset fund; analysts say the program may help curb a two-decade slide in Japanís land prices, now half what they were at their peak in the late 1980s.

The planned buys ďare an endorsement of the securities and encourage investors to participate in the market,Ē said Hide Ichii, a Tokyo-based analyst at CBRE Global Real Estate Securities, which manages over $2.5 billion of property stocks and real-estate investment trusts. ďA surge in REIT prices will spark real-estate transactions and can eventually help shore up land prices.Ē

JJS: Used to be, you could invest in land alone, even if its building had a different owner!

It's looking like Maryland has about 85,000 ground rents, figures the state Department of Assessments and Taxation.

If a property has ground rent, that means the land is owned separately from the house on it.

Three years ago, the state estimated that there were about 115,000 ground rents in Maryland. Some of the residents renting the land beneath their homes eliminated their ground rent by buying it out.

But other ground rents did disappear. Some people with one ground rent apiece knew they had to register and procrastinated -- until it was too late. Others didn't know they had to register.

Charles J. Muskin, whose grandfather's estate included about 300 ground rents, only registered two-thirds of them. (He said he'd been trying to sell -- to no avail -- and was left with too little time to collect the required information for them all.) Muskin said he frequently hears from people who owned small numbers of ground rents and didn't know registration was required.

Muskin sued over the requirement, contending that it was an unconstitutional taking of property. A Baltimore judge ruled in favor of the state last week, saying the registration rule didn't violate the constitution because it does not "retroactively create or eliminate property rights, but instead, prospectively conditions the continued ownership of ground rents on compliance with the requirement of registration."

JJS: If an individual can recover the rent for land owned by another, then society could, too. Its agent, government, could levy a tax on land, charge a fee on land use or land titles, or establish land dues. By recovering rent for land and for all natural resources, government could afford to eliminate taxes on the things we do produce. This geonomic policy would make speculating in land unattractive and investing in real production more attractive, so the business cycle would be flattened -- and peopleís savings would be safe.


Editor Jeffery J. Smith runs the Forum on Geonomics.

Also see:

World's rich got richer, so how about a break?

Guess which tax gets singled out?

The world's next great economic crash

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