Juggling Dynamite

Fed Chair Yellen and her colleagues are fantasizing about ‘running the economy hot’.  As if central banks at zero rates, had that kind of power.

The trouble is that a secular downturn in global demand–caused by debt hangover, years of malinvestment in non-productive assets, aging demographics and low yields–are thwarting hopes and dreams of inflation topping 2%+. This is not the good old days, when plain old cutting rates spurred more consumption. Today low yields are having the opposite effect–causing people to spend less and save more.

The bond sell off in the past month, has created another buying opportunity for the highest quality North American credits (ie., government issues 1-10 years). The same cannot be said for corporate debt, where credit risk is likely to spike as the economy and sales weaken further, and an increasing number of over-levered, unprepared companies struggle to stay in the black.  At least governments can increase taxes when times get tough, companies don’t have that option.

Here is a big picture look at the US 10 year Treasury yield since 2005.  With the falling trend since 2007 still in tact (purple line) the back up from all time lows since July is no break out.  If the 1.80-2.0 range proves resistance, the lower for longer thesis will be confirmed once more.  The Bank of Canada is struggling with monetary impotence as well, see: Poloz poised to mark down recovery, stand pat on rates.

Steven Major, global head of fixed income research at HSBC, and David Bloom, global head of FX strategy at HSBC, discuss their view of lower Treasury yields in 2017. Here is a direct video link.

Before arguing in favor of either leading Presidential candidate, thinking people should watch this new documentary available on Netflix from the director of Selma.  Both Trump and the Clintons appear in this story as status quo actors.  A flawed system needs fresh thinking, reform and ethical leadership, if America is to fulfill its promise and dreams.

The title of Ava DuVernay’s extraordinary and galvanizing documentary 13TH refers to the 13th Amendment to the Constitution, which reads “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States.” The progression from that second qualifying clause to the horrors of mass criminalization and the sprawling American prison industry is laid out by DuVernay with bracing lucidity. With a potent mixture of archival footage and testimony from a dazzling array of activists, politicians, historians, and formerly incarcerated women and men, DuVernay creates a work of grand historical synthesis.  Here is a link to the trailer.

Some 15% of planet-warming emissions come from the keeping and eating of cows, chickens, pigs and other animals – more than the emissions from the entire transport sector. Not only do livestock emit methane, but land clearing and fertilizers for animal feed release large quantities of carbon.

Today China has about 19% of the world’s population and consumes 28% of global meat including half of the pork. The average American and Australian consumes twice as much meat per person in comparison.

This year the Chinese government has outlined a plan to reduce its citizens’ meat consumption by 50%, in an effort to slow runaway global warming, obesity and diabetes. See: China’s plan to cut meat consumption by 50% cheered.

New dietary guidelines drawn up by China’s health ministry recommend that the nation’s 1.3 billion population should consume between 40g to 75g of meat per person each day. The measures, released once every 10 years, are designed to improve public health but could also provide a significant cut to greenhouse gas emissions.

According to a new report by WildAid, the predicted increase in China’s meat consumption would add an extra 233m tonnes of greenhouse gases to the atmosphere each year, as well as put increased strain on the country’s water supply, which is already blighted by polluted and denuded rivers and groundwater.

The report warns that unchecked Chinese meat consumption will also degrade its arable land and worsen the country’s problems with obesity and diabetes. An estimated 100 million Chinese people have diabetes, more than any other country.

Research released by the thinktank Chatham House in 2014 forecast that China alone is expected to eat 20m tonnes more of meat and dairy a year by 2020 and warned that “dietary change is essential” if global warming is to not exceed the 2C limit eventually imposed at the climate accord in Paris last year.

A separate report by scientists at the Oxford Martin School this year found that the widespread adoption of vegetarianism around the world could bring down greenhouse gas emissions by nearly two-thirds.