Juggling Dynamite

The ability and willingness to borrow to buy has always been a major driver of asset prices–up and down. But as we have highlighted over the past couple of years, it is hard to grasp the crazy extremes that borrowing has run to this particular cycle. See Margin calls bite investors, and banks.

Between 2013 and June 2015, credit rose 35%. NYSE margin debt alone reached a record $505 billion. Brokers aggressively pushed loans onto customers who borrowed against portfolios to buy not just more securities, but also art, cars, boats, real estate, school tuition and living expenses (!).  The buying helped drive prices higher even as downside risks went exponential in the process.

As graphed below, in June the inevitable reversal began with margin debt falling 6.3% to the end of August (latest data) as risk markets contracted.  September brought a further 2.64% decline in the S&P 500 and steeper losses in emerging market, small cap indices and high yield debt. This means that the upcoming October reports will no doubt show even further margin compression to the end of September.

Margin reversals of this magnitude (in red) were precursors to both the 2001 and 2008 bear markets (S&P in blue) as shown below.  Falling prices force more asset sales to reduce credit balances in a self-deflating cycle of both.  History suggests that the extreme magnitude of the debt use this cycle, will have a magnified effect on price declines as well.

“The traditional food industry is ripe for disruption.”  –The Economist

The challenge is to feed billions of people healthy food while conserving our natural resources. And the solution is plants.

Redwood City, Ca.-based company Impossible Foods has developed a new generation of sustainable meats and cheeses made entirely from plants.  Founded by biochemists who have developed numerous nut milk products over the years, the ‘impossible burger’ has the same look and texture of real meat without the saturated fats and harmful health effects (or commoditizing of animals). With a taste that amazes even ardent carnivores.

The company recently raised a second round of financing for $108 million from a group of investors that included Viking Global Investors and earlier backers Khosla Ventures; Microsoft co-founder Bill Gates; and Horizons Ventures, which invests on behalf of Hong Kong business magnate Li Ka-shing.  See:  Impossible foods raises a whopping $108 million for its plant-based burgers.

“Our mission is to give people the enjoyment of food that comes from animals without the health and environmental drawbacks.

We look at animal products at the molecular level, then select specific proteins and nutrients from greens, seeds, and grains to recreate the wonderfully complex experience of meat and dairy products. For thousands of years we’ve relied on animals to transform plants into meat, milk, cheese and eggs. Impossible Foods has found a better way to make the foods you love, directly from plants.”

Just as we don’t need to destroy our biosphere to consume efficient energy for our machines, we also don’t need carbon and water-intensive animal farming to consume ‘meat’ for our bodies.  Guilt free and delicious. This is the future and it tastes good!

Danielle was a guest with Jim Goddard on This Week in Money on the weekend, you can listen to an audio clip of the segment here by advancing the play bar to 8:10.  Danielle was the second interview in the show.