The Corn Belt
There are very few foods I like better than steamed corn on the cob, with lots of butter and salt. In fact, I can easily make a meal out of two or three ears and be very happy with that. Kim understands this and knows that when the summer season rolls around, I am always in search of my next corn dinner. So, today I am on my way to Des Moines, Iowa, where I am scheduled to spend three days being available for expert testimony. Downtown Des Moines is like any city in the United States, it has lots of midsized buildings, many of which look way too vacant for comfort. I’m watching the commercial real estate space like a hawk these days, thinking that the remote working trend, even though it has mitigated somewhat since its peak during COVID, has accelerated the trend away from the office that was slowly underway before COVID. These urban centers across America were very much the focus of commercial progress in America and they grew in the 20th Century as industrial business grew with the shift of AMerican commerce from agriculture to manufacturing. That must have been a particularly traumatic transition in a place like Iowa, where everywhere outside of town looks from the airplane I flew in on as one piece of farmland after another. I doubt anyone in Iowa is unaware of the extent to which Iowa is all about growing agricultural goods. Admittedly, there is other commercial activity in Iowa besides agriculture, with agriculture representing 11.1% of the state’s GDP, where the average for the U.S. is for agriculture to represent 5.4% of GDP. Iowa is the biggest state producer of hogs, soybeans and …… corn. Iowa is one of the three most agriculturally-focused states in the union, and corn is a very big part of it.
The purpose of my visit to Iowa is to represent two Iowa families that live in a small town in Northeast Iowa, right in the middle of the corn belt. The families are headed by men who were high school friends years ago and chose to stay in their little town and find ways to make a living. One got into the torque converted business that had to do with all manner of mechanized equipment used to support farming that corn that was all around. His ideas about torque converters were unique enough to allow him to file several patents on his improvement inventions. He got good enough at this specialty of torque converters that his business started to gain traction (pun intended) farther afield than in just the surrounding Iowa countryside. The other man didn’t have the same mechanical abilities as the first and he went into the junk business. Everywhere in America, things get old and junk accumulates and has to be handled in one way or another. Lots of that junk is made of the metal that formed the fabrication initiatives of the past century and is slow in degradation to the point where it must either get recycled in some way or needs to get stored in some sort of junkyard. That man saw a business opportunity in gathering that metal junk, which was generally constituting a nuisance to the people that owned it, and figuring out how to maximize its value by sorting it out and either recycling it as scrap or compressing it and storing it. These two men prospered in their respective businesses and continued to live in their little town.
The two men began doing well enough with their businesses that they started to accumulate more money than they could reasonably spend to live comfortably in their home town. They were the prototypical Millionaire Next Door as characterized by by Stanley & Danko in their 1996 book by that name. In that book, the authors describe and characterize Prodigious Accumulators of Wealth (PAWs) as the people across America who live in middle and working class neighborhoods, but have a habit of saving far more than they spend of their income and thereby accumulate significant wealth. The thing about accumulated wealth is that it has to go somewhere to keeps its value safe and secure. In the olden days, that might have been under the proverbial mattress or in a tin can hidden in the back yard. Then, at the start of the last century, people started keeping their money in the local bank on the presumption that is was safer and more accessible. After a brief hiccup during the bank holiday of the Emergency Banking Act of 1930, people have felt safe with their money in the bank with the help of things like federal FDIC insurance. We all grew up with a passbook savings account that reflected our accumulating wealth and the meager interest that it was allowed to accrue. That all started to change in the 1960’s with people investing in what were called go-go stocks and then in the 1970’s with the introduction of money market mutual funds that could earn more income than passbook savings accounts.
During those years of the 60s and 70s, the American population starting hearing more and more about investing. The country was flourishing and wealth was accumulating in the accounts of people like our two friends in the wilds of Iowa. There is a saying in the investment world that investments are not bought, they are sold. What that means is that the investment community realized somewhere along the way that there was “gold in them thar hills” as they say and that middle America was ripe for picking. Now, this may sound predatory, but it can also be viewed as a helpful movement to give Americans greater access to investment products and services that would accumulate wealth better than those dusty old passbook accounts. The problem is always in life there are good aspects of progress and bad, just like there are good investment representatives and bad ones. The other reality about wealth accumulation is that the power of compounding is so impactful that wealth that remains untouched just keeps growing and growing. So, the stage is now set for a great American Corn Belt story.
One of the things that has been happening in Iowa for a few years is the production of ethanol. The first ethanol plant was built in Iowa in 1937, but it wasn’t until the oil shocks of the 1970s that ethanol production started to ramp up to substitute for the rising price of gasoline. Iowa is now the nation’s leader in ethanol production, why? Because Iowa is a leader in growing corn, which is the main ingredient for ethanol production. In fact, these two Iowa farm boys in our story became very aware of the ethanol opportunity in Iowa and while they were not chemical engineers, they made investments in ethanol plants that ended up adding significantly to their wealth. So much so that they began to get noticed by the major investment shops that look for high net worth clients to advise and manage funds for.
I spent my career managing high net worth wealth management businesses and investment management businesses. One of the things you learn right off the bat is that some investors are very knowledgeable and savvy about investments and some are focused on their underlying businesses and treat their investment management like they would their passbook savings account. That is what gives rise to the requirement established by the regulatory community (the SEC, FINRA, etc.) that every sale of an investment to an individual be assessed for its suitability for that investor. The concept is very simple, don’t sell investment products or strategies to investors who don’t understand them sufficiently for them to be suitable for those investors.
I don’t really need to get into details in this story for you to understand where this is going. People work hard, they save their money prudently, they accumulate wealth, they invest in what they know and can touch and feel, and then eventually someone comes and sells them something that sounds good, but which they don’t really understand. The salesman gets paid for the sale, the firm makes money for selling the product or service and the investor makes or lose money on something they know virtually nothing about. This process is all papered according to law, but that’s all “boilerplate” and brushed over by the salesman and the firm and largely ignored by the investor. Therein lie the seeds of a great American tragedy. It is said on Wall Street that bulls make money and bears make money, but pigs gets slaughtered. But what about that pig? Maybe its just a friendly country pig that likes eating corn and has no idea that its being fattened for the slaughter. But the world wants to think that these pigs are part of nature and that we have to be farm-strong and just accept that pigs get slaughtered. Well, I’m in Iowa this week to explain to a court why the pigs deserve better in the Corn Belt.