Tailpieces

Food: Plant-based substitutes are going to completely replace animal-based products in food within the next 15 years predicts Patrick Brown, founder and chief executive of Impossible Foods.

Farming is blamed for creating 630 million tons of carbon dioxide in North America every year, or 8 per cent of total emissions. In the US two-fifths of agricultural emissions come from animals; two-thirds are emitted by ruminants – cows, buffaloes, sheep – that have bacteria used to ferment food and allow them to digest foodstuffs such as grasses that humans can’t.

Livestock have been getting a bad rap as a cause of atmospheric pollution due to mistakes in research some years ago. In fact, according to the US Environmental Protection Agency, animal agriculture worldwide accounts for less than 4 per cent of greenhouse gases.

Oil: JP Morgan’s lead petroleum shares analyst, Christian Malek, predicts rising prices of “the next oil supercycle” will happen because the long-term hit to supply will be bigger than the fall in demand.

About a million barrels a day have already been wiped out by old fields being shut down that won’t be brought back into production by recovering prices; another four million of supply will be lost from delayed or deferred investment in new projects and expansions. A supply gap could open from around 2022.

Even when the switch to electric cars starts to have a significant impact on demand – which most analysts expect to happen in the 2030s – “a supply gap for what remains of the world’s most important commodity should raise prices, and perhaps to a substantial degree.”

High-profit lines: It’s understandable why there is such an abundance of politically-correct investment products that are “sustainable,” “green” or environment “friendly.” There’s plenty of demand for them, and an avalanche of promotional hysteria to boost that demand.

The one thing that you’re rarely told is that selling these investments is a highly profitable business. Managers are able to charge much higher fees for them than for standard funds.

Last year Forbes gave as an example the 0.55 per cent charged for a Vanguard fund managed according to politically-correct ESG principles – four times as much as the 0.14 per cent levied for its equivalent non-ESG fund.

Long-term outlook: Investors should prepare for a new era of inflation, but this one won’t be good for equities says Russell Napier, the independent market strategist.

Reflation “is likely, in due course, to force an aggressive form of financial repression… forcing savings institutions such as life insurers and mutual funds to buy government debt at yields below the rate of inflation… The mandated purchasing of bonds will eventually force savings institutions to dump other assets, including equities.”

In this “new age of repression” investors should hold as much gold, and as little government debt, as they feel comfortable with.

Inflation: Everyone knows that they have to pay more for food, healthcare or other necessities. But there is one exception to generally-rising prices, says strategist Michael E Lewitt – where technological improvements produce digital deflation. Products that employ technology, such as Apple’s, provide significantly enhanced features for declining prices.

Those who benefit are the 1 per cent of the population who earn the most. “Lower-income Americans can’t afford expensive iPhones, computers, autos and the like.” It’s other products and services, the ones they need, whose prices continue to rise.

Why Wall Street is so highly rated: US stocks trade at a Shiller price/earnings ratio of 30.1 compared to 16.5 for developed Europe, 18.1 for Japan. Why? It’s because America has so many technology stocks. The techs, because of their relatively high earnings growth rates and low cost of capital command far higher valuations than traditional large companies such as banks. The trailing PE ratio of the tech sector is 35 compared to financials’ 16.6.

There are highly-rated tech stocks outside the US, such as Europe’s SAP (software) and Square (digital payments), but there are fewer of them.

The South China Sea: The Philippines is wary of taking sides in the mounting dispute over ownership of the maritime region, its islands and its resources.

The US has become more confrontational, conducting naval drills in its waters. China has warned countries with rival territorial claims, and their allies such as America, not to allow their navies to exercise in contested waters.

However Filipino president Rodrigo Duterte has said he is unable to assert his country’s claims as “China has the arms; we do not.” He has ordered his admirals not to participate in naval drills that anger China.

Gold: Interesting to see that Warren Buffett, one of those best-known for pouring scorn on the metal as a barbarous relic, has reversed direction and started to buy it, using his Berkshire Hathaway to take a new stake of about half-a-billion dollars in the shares of Barrick Gold.

One consequence of the new institutional interest is that Christopher Wood of Jefferies has raised his peak price target for the current secular market to $5,500 an ounce from around $2,000 now. The methodology he’s been using since 2001 is to measure gold relative to American disposable income per capita.

Home-buying boom: “Nothing motivates people to trade up for extra space like being stuck at home with their families, day in and day out,” reports the FT. “Americans with enough cash and a stable job are taking up ultra-cheap mortgages to buy bigger properties; city-dwellers are decamping for the leafy suburbs.”

Sales of new homes are growing at the fastest rate in 14 years. Prices, up 4.3 per cent over 12 months to June, hit a new high. Shares of the nation’s four largest homebuilders has also reached new peaks.

Motor industry: Electric cars will remain significantly more expensive for European manufacturers to produce than combustion engine models for at least a decade, according to research by consultancy Oliver Wyman.

The cost of making a compact emissions-free vehicle will fall by more than a fifth by 2030, to €16,000. Equivalent petrol or diesel models will be 9 per cent more expensive, even though the cost of batteries, the key component of electric cars, is expected to almost halve.

Intangible assets: They explain why technology firms such as Amazon, Alphabet (Google) and Facebook are rated so highly by investors while their absence explains why even the most important legacy firms are ignored.

Justina Lee of Bloomberg says outdated accounting rules work to the disadvantage of value investing because they treat intangible investments such as research as expenses (liabilities) rather than capital (assets).

Big Tech stocks: They have been leading Wall Street to new record highs because they seem to offer everyone something says Mohamed El-Erian, Allianz’s chief economic adviser. “They promise growth based on the shift from physical to virtual activities in the pandemic, but also downside protection because they have massive cash holdings, low debt and positive cash-flow generation.”

Pocketing loot: American companies are awarding their top executives multi-million dollar “retention” bonuses just before declaring bankruptcy. The list includes high-profile collapses such as JC Penney, Hertz and Neiman Marcus. Creditors are furious – the payments are rewards for failure.

East Asia: China is quietly reorienting itself towards the ASEAN countries plus Japan (yes, Japan!) and South Korea, where trade already today accounts for about 15% of all China’s trade and is expected to double in the next five years.

Japanese equities: State support for the stock market is massive. The central bank now holds almost 80 per cent of all exchange-traded funds.