Timber!

The second article in the Wall Street Journal's series "Awash in cash: Cheap money, growing risks" provides a fascinating look at an odd dimension of speculative capital.

"U.S. Timberland Gets Pricey As Big Money Seeks Shelter" by E. S. Browning (11/4/05) looks at pension funds, endowments and real estate investment trusts buying up timberland in the never-ending quest for higher returns. On the other side of the transaction, lumber and paper companies, under pressure from shareholders to improve bottom lines, are converting forest land to cash. "The result is an enormous land transfer now under way." Mirroring the general process of industrial capital yielding to speculative capital, the industrial owners of the land are transferring title to pools of speculative capital. Per the article, some $30 billion of timberland is owned by financial investors (six times what it was in 1994). Just as speculative capital has no direct connection to actual production processes, the new owners of the timberland are far removed from trees and lumber.

The numbers are amazing: in one sale, a Boston money-management firm bought more than 5% of the state of Maine. Harvard University has 10 percent of its massive endowment portfolio of $26 billion assigned to timber investments; it is the second largest owner of forest land in New Zealand.

Why timber?

With bond yields puny and stocks flat year-to-date, timber offers a shot at stable returns in the high single digits, mostly from long-term growth in the value of the land and its trees. Low interest rates make it cheap for an investor to borrow cash to magnify a bet on timber.

As a hard asset, timber also has appeal as a haven from possible worsening inflation that might undermine financial assets. And it has diversification value: Its market performance historically is largely uncorrelated with those of stocks and bonds -- when they zig, timberland may do nothing or may even zag.

Timber investment itself is not without risk. As more money flows into timber, prices are climbing and yields are falling. Also, as with any commodity, timber has its vulnerabilities -- demand might slacken, or the cost of borrowing to purchase land might rise, hurting returns.

Since speculative capital in general, and in this particular case, remote timber ownership, is abstracted from the transformation of use values, the connection between speculative capital and land, community, worker, environment is tenuous at best. In the case of identifiable owners like Harvard or Yale, the point of resistance is identifiable and confrontable. In the case of hedge funds and real estate trusts, the owners dissolve into the faceless sea of capital. Fund managers can authorize clear-cutting forests or building sub-developments to maximize short term returns. This is not to suggest that industrial capital has any more sympathy for the communities it exploits; only that the terms and terrain of confrontation and resistance change with the forms of capital. Capital becomes, as Marx wrote, a general, a social power.


jd