Last Thursday afternoon, I rushed into that print shop on West Pender for an important pickup. As fate would have it, the lineup was long. And there was something vaguely familiar about the guy in front of me.
100-Mile Investor: Shoeshine! What are you doing here?
Shoeshine: Hello, Mr. Hundred. I was just copying some documents for the bank. I am preparing an unsolicited bid to buy BC Place stadium.
100-Mile: Buy BC Place stadium? Are you going to run a sports team out of there?
Shoeshine: Not at all. This is a profit-seeking venture. I am going to use the stadium to store wheat.
100-Mile: Store wheat? Have you been drinking your shoe polish again?
Shoeshine: Au contraire, Mr. Hundred. As you well know, grains are among the most undervalued assets an investor can own these days. Try comparing wheat prices against equities, bonds or other commodities over the past 30 years and you will see it clearly. Moreover, demand is growing sharply in the emerging markets while the global supply picture is rather uncertain.
100-Mile: Hmm, those are interesting market dynamics. What’s the upside?
Shoeshine: If prices merely revert to their inflation-adjusted 40-year average, wheat bought at $7 per bushel could trade well into the $20s.
100-Mile: OK, I see why you might want to store some wheat. But, why BC Place Stadium?
Shoeshine: It’s big. I reckon I could store 75 million bushels there, worth about half-a-billion dollars at current prices. And the most recent comparable stadium transaction was last November’s sale of the Detroit Silverdome for $583,000. Even if I paid 10 times that amount, the stadium purchase would be only 1% of the total wheat-plus-stadium investment.
100-Mile: Detroit Silverdome? But this is Vancouver!
Shoeshine: I know. Buying a Vancouver stadium is different than buying the Silverdome. Detroit has very bad summer humidity. If I bought BC Place, I would save considerably on climate control. That’s all worked into my offer price.
100-Mile: But Shoeshine, why don’t you just buy exchange-traded funds like the Dow Jones-UBS Grains ETN (NYSE: JJG)?
Shoeshine: That fund runs into difficulty when the commodity is in contango.
100-Mile: Contango? Is that some kind of dance?
Shoeshine: No, it just means that the forward price curve of a commodity is upward-sloping. If you own a fund like JJG that rolls over commodity futures, every time a contract expires the fund takes a hit by re-buying the same volume at a higher price.
100-Mile: Is there any other reason to own the physical commodity instead of contracts?
Shoeshine: Well, it also reduces counterparty risk. That’s why precious-metals investors typically pay a premium to net asset value to own a physical holder like Central Fund of Canada (TSX: CEF-A).
100-Mile: With all due respect, Shoeshine, what you’re doing isn’t investing. Investing is owning businesses or real estate. What you’re proposing is better characterized as hoarding.
Shoeshine: Call it what you will, Mr. Hundred. But from my point of view, investing is merely the act of owning assets. I care not whether I own capital assets or consumable assets. I am just on the lookout for undervaluation.
100-Mile: OK, that makes sense to me. Come to think of it, I have come across a scheme like this before. Have you ever read a story about a fellow named Joseph?
Shoeshine: Yes, but that story got mixed up over the years. He wasn’t a prophet; he was a commodities analyst, blessed with a deep-pocketed backer. So, Mr. Hundred, can I count on you to put up some money?
100-Mile: I don’t know. If someone was going to sell me BC Place for a few million, I might want to consider turning it into a hotel/condo development.
Shoeshine: Mr. Hundred, I’m afraid you are hopelessly behind the times. We must turn our timeshares into plough-shares! Join me and ride the great bull market in agricultural commodities.