On the Retreat of Multinational Companies; What Not to Add to White Rice, Potatoes, or Pasta!

From: aditya rana
Date: Sat, Feb 11, 2017 at 1:50 PM
Subject: On the Retreat of Multinational Companies; What Not to Add to White Rice, Potatoes, or Pasta!


The performance of global markets so far this year stands in stark contrast to the situation least year, with the MSCI world index posting a rise of 4.2% (compared to -6% at January-end last year), led by emerging markets (+7.9%) with the US (+3.9%), Japan (+4.4%) and Europe (2.4%) all putting in decent numbers. The standout performers continue to be Argentina (+27%) and Brazil (+14.4%), with Asia led by China (+9.4%) and India (+9%) – all MSCI returns in US$s.

Turning to the longer term outlook, a key theme put forward by this letter over the years is the rise of local EM companies, at the expense of the global multinationals. In 2006, the consulting firm BCG had issued a fascinating report on the rise of EM companies, identifying 193 “challengers” which would compete with the established multinationals going forward. In July 2016, they issued an update on this theme (summarised in the July 2, 2016 newsletter) and demonstrated the success of these challengers in terms of market share, revenue growth and significant stock market outperformance. They also identified 1,500 fast growing “new champions” which are now expect to take the lead in the coming years. It was therefore interesting to see that The Economist has picked-up on (and broadened it to all global versus local firms) theme in their latest issue with a report titled “The Retreat of the Global Company”. To summarise:

-Multinationals (with 30% of their sales outside their home region) have dominated the global economy since the late-eighties – by directing the flow of goods, services and capital – theycontrol supply chains accounting for over 50% of world trade, represent 40% of the value of the developed world’s stock market, and own most of the world’s intellectual property, while accounting for only 2% of the world’s jobs.

-With their desire to internationalising their customers, production, capital and management, these companies drove the stupendous 85% rise in the global stock of cross-border investment since 1990 (see chart 1 below).

-In 2006, the head of IBM proclaimed the arrival of the ”globally integrated enterprise” run as a unitary organisation (rather than a federation) “ integrating production and value delivery worldwide”. However, an increasing body of evidence shows that this era is now ending– in 2016 multinational cross-border investment fell by 10-15% , and the share of trade accounted by cross-border supply chains has stagnated since 2007. In addition, the proportion of sales made by DM firms outside their home region has fallen, with profits declining and the flow of new investment as a % of GDP shrinking (see chart 2 below).

-To understand this paradigm shift we have to analyse the three constituencies which have driven the previous era: 1) investors, 2) “headquarter countries” where the multinationals are domiciled, and 3) “host countries” which received the investments.

-Investors saw a huge potential beginning in the early nineties as China, India and the Soviet Union opened up and Europe liberalised itself into a single market allowing multinational firm to exploit the growing market and improve efficiency by accessing management, capital, brands and technology from the DM world and cheap labour and raw materials (with lighter rules on pollution) from the EM world.

-However, this growth phase has now ended, with the profits of the top 700-odd multinational firms from the DM world dropping by 25% over the last five years. The strength of the dollar explains only about a third of the fall. Meanwhile, the profits of domestic firms has risen by 2%.

-The return on equity (ROE) of the top 700 multinationals has also dropped from a peak of 18% a decade ago to 11% today. For the biggest three countries hosting multinationals – the US, UK and the Netherlands, the ROE on foreign investments has also shrunk by 4-8% (see chart 3 below). Multinationals based in the EM world have also fared poorly, with a worldwide ROE of 8%, with many high profile cross-border acquisitions floundering (e.g. Lenovo purchase of IBM’s PC business).

– About half the decline in profits of multinationals has been due to the slump in commodity prices (affecting oil, mining and related firms) and another 10% is due to banks. Profits at trading and shipping firms which have benefited from globalisation has fallen dramatically (50% from their peak in some cases).

-The decline in profits extends beyond these core industries, with half of all big multinationals seeing their ROE fall over the past three years, and 40% failing to make an ROE of over the benchmark value adding rate of 10%. In six of the ten sectors multinationals have lower ROEs than their local counterparts (see chart 4 below). Even stalwarts like GE and P&G have seen their profits decline by 25% from their peak. The only industry to buck the trend has been technology, where foreign profits comprise 46% of total foreign earnings of the top 50 US multinationals, up from 17% a decade ago.

-The underlying factor behind this shift is that the advantages of scale and arbitrage have disappeared – global firms have big overheads, complex supply chains tie up inventory and sprawling firms are hard to run. Some of the traditional arbitrage opportunities have declined with rising wages in China and limited scope for further tax arbitrage. Lastly, the free flow of information implies that competitors in local markets can catch-up quickly.

-Firms with a domestic focus are winning market share from multinationals – examples include local banks in Brazil, domestic mobile operators in India, shale firms in the US and local dumpling brands in China. This has resulted in the multinationals’ share of global profits declining from a peak of 35% a decade ago to 30% today.

-The second factor behind this paradigm shift has been that the headquarter countries, which previously viewed them to be champions of growth and efficiency, now see them as agents of inequality. Between 2009 and 2013, only 5% of the net jobs added in the US were created by the multinationals. In addition, the profits of their intellectual property accrued to a wealthy shareholder elite. As a result the framework aiding the growth of the these firms is eroding – global accounting, antitrust, money-laundering and bank capital rules are being localised into US and European camps, takeover of western firms now have strings attached to safeguard local jobs, trade deals like TPP and TTIP which protected intellectual property are floundering and global tribunals previously used to bypass local courts are now under attack.

-With the shifting political landscape in the DM world tightening rules in favour of domestic workers (with higher wages) , higher taxes for overseas production, closing of tax loopholes and implementing border taxes – multinational profits in the DM world are likely to decline further. For example, if US firms shifted a quarter of their jobs back, and paid the same tax rate abroad as at home, their profits will fall by another 12%. This excludes the cost of building a plant in the US.

-By contrast, the “host countries” which receive investment by the multinationals remain relatively enthusiastic. China, where by 2010, 30% of industrial output and 50% of exports was produced by subsidiaries or JVs, remains attractive. Examples include Argentina, Mexico and India which are trying to attract more multinational firms and their supply chains. However, the trend here is also changing with China leading the way by pushing for “indigenous innovation” – i.e. more local sourcing of products, transfer of intellectual property and making strategic industries like the internet out of bounds for foreign investment. Fears exist that other EM countries will follow the lead of China.

-Additionally, host countries are increasingly uncomfortable with the shift in business of the multinationals towards intangible services. For the top 50 US firms, 65% of foreign profits now comes from industries reliant on intellectual property such as technology, drug patents and finance compared to 35% a decade ago. In addition, there is diminished appetite amongst multinationals to relocate manufacturing production to the EM world like they did in China – in 2000 every billion dollars of foreign investment created 7,000 jobs and $600m of annual exports- it is now 3,000 jobs and $300m of exports.

-US technology firms are now facing local resistance – in 2016 Uber sold its Chinese operations to a local rival after a fractious battle. In December, India’s two biggest digital champions Ola and Flipkart, argued that the government should protect them against foreign companies like Uber and Amazon which would build monopolies, create few jobs and remit their profits back home.

-The future of global business is likely to still have some areas of growth: 1) a smaller top tier of multinationals which localise production, supply chains and management (i.e. GE, Emerson, Siemens); 2) a small sliver of global digital and intellectual-property firms like Google, Netflix, drug companies and other firms which use franchising deals with local firms as a cheap way to maintain a global footprint. However, given that they create few jobs, involve oligopolies and do not benefit from the protection of global trade rules (which apply to manufacturing) they will be vulnerable to nationalist pressures; 3) the most interesting area- small firms using e-commerce to buy and sell on a global scale. Up to 10% of the 30m or so US firms already do this to some extent– Paypal says its cross-border transactions are at $80BN a year and growing rapidly.

-The changing nature of global business will have important implications – investors, who have a third or more of their equity investments in multinationals could face an era of even lower returns, countries which rely on income from foreign investments, or capital flows from new ones, could suffer – the collapse in profits of UK multinationals is the main reason behind the deterioration in the UK’s balance of payments. Of the 15 countries with current-account deficits of over 2.5% of GDP in 2015, 11 depended on new multinational investments to bridge a third of the gap. The result will be a more fragmented and parochial form of capitalism – less efficient but with wider and more sustainable political support.

Fascinating report which ties well into the theme of investing in small-cap companies in the EM as well as the DM world. As BCG had argued persuasively in their report, the 1,500 “new challengers” from the EM world is likely to be the main growth engine of the global business scene in the coming years. Stay invested in this sector of the EM (and DM) world through mid-cap/small cap funds and ETFs.

What Not to Add to White Rice, Potatoes, or Pasta:

-An interesting note from Dr. Greger on the adverse effects of adding meat to refined grains like white rice and pasta.

Michael Greger M.D., February 2nd, 2017


-Rice currently feeds almost half the human population, making it the single most important staple food in the world, but a meta-analysis of seven cohort studies following 350,000 people for up to 20 years found that higher consumption of white rice was associated with a significantly increased risk of type 2 diabetes, especially in Asian populations. They estimated each serving per day of white rice was associated with an 11% increase in risk of diabetes. This could explain why China has almost the same diabetes rates as we do.

-Diabetes rates in China are at about 10%; we’re at about 11%, despite seven times less obesity in China. Japan has eight times less obesity than we do, yet may have a higher incidence of newly diagnosed diabetes cases than we do—nine per a thousand compared to our eight. They’re skinnier and still may have more diabetes. Maybe it’s because of all the white rice they eat.

-Eating whole fruit is associated with lower risk of diabetes, whereas eating fruit processed into juice may not just be neutral, but actually increases diabetes risk. In the same way, eating whole grains, like whole wheat bread or brown rice is associated with lower risk of diabetes, whereas eating white rice, a processed grain, may not just be neutral, but actually increase diabetes risk.

-White rice consumption does not appear to be associated with increased risk of heart attack or stroke, though, which is a relief after an earlier study in China suggested a connection with stroke. But do we want to eat a food that’s just neutral regarding some of our leading causes of death, when we can eat whole foods that are associated with lower risk of diabetes, heart attack, stroke, and weight gain?

-If the modern diabetes epidemic in China and Japan has been linked to white rice consumption, how can we reconcile that with low diabetes rates just a few decades ago when they ate even more rice? If you look at the Cornell-Oxford-China Project, rural plant-based diets centred around rice were associated with relatively low risk of the so-called diseases of affluence, which includes diabetes. Maybe Asians just genetically don’t get the same blood sugar spike when they eat white rice? This is not the case; if anything people of Chinese ethnicity get higher blood sugar spikes.

-The rise in these diseases of affluence in China over the last half century has been blamed in part on the tripling of the consumption of animal source foods. The upsurge in diabetes has been most dramatic, and it’s mostly just happened over the last decade. That crazy 9.7% diabetes prevalence figure that rivals ours is new—they appeared to have one of the lowest diabetes rates in the world in the year 2000.

-So what happened to their diets in the last 20 years or so? Oil consumption went up 20%, pork consumption went up 40%, and rice consumption dropped about 30%. As diabetes rates were skyrocketing, rice consumption was going down, so maybe it’s the animal products and junk food that are the problem. Yes, brown rice is better than white rice, but to stop the mounting Asian epidemic, maybe we should focus on removing the cause—the toxic Western diet. That would be consistent with data showing animal protein and fat consumption associated with increased diabetes risk.

-But that doesn’t explain why the biggest recent studies in Japan and China associate white rice intake with diabetes. One possibility is that animal protein is making the rice worse. If you feed people mashed white potatoes, a high glycemic food like white rice, you can see in my video If White Rice is Linked to Diabetes, What About China? the level of insulin your pancreas has to pump out to keep your blood sugars in check. But what if you added some tuna fish? Tuna doesn’t have any carbs, sugar, or starch so it shouldn’t make a difference. Or maybe it would even lower the mashed potato spike by lowering the glycemic load of the whole meal? Instead you get twice the insulin spike. This also happens with white flour spaghetti versus white flour spaghetti with meat. The addition of animal protein makes the pancreas work twice as hard.

-You can do it with straight sugar water too. If you do a glucose challenge test to test for diabetes, where you drink a certain amount of sugar and add some meat, you get a much bigger spike than without meat. And the more meat you add, the worse it gets. Just adding a little meat to carbs doesn’t seem to do much, but once you get up to around a third of a chicken breast’s worth, you can elicit a significantly increased surge of insulin. This may help explain why those eating plant-based have such low diabetes rates, because animal protein can markedly potentiate the insulin secretion triggered by carbohydrate ingestion.

-The protein exacerbation of the effect of refined carbs could help explain the remarkable results achieved by Dr. Kempner with a don’t-try-this-at-home diet composed of mostly white rice and sugar. See my video, Kempner Rice Diet: Whipping Us Into Shape.

Here’s to adding mainly plant based foods to your grains – even if you cannot do without refined grains!



On the Great Rotation from Bonds to Stocks; China’s RMB Policy; Is it OK to Eat Butter?

From: aditya rana
Date: Sat, Jan 21, 2017 at 1:04 PM
Subject: On the Great Rotation from Bonds to Stocks; China’s RMB Policy; Is it OK to Eat Butter?


Global markets have continued their upward move this year, with the MSCI World index rising 2%, led by emerging markets (+3.5%) with Argentina (+18%) and Brazil (+9.0%) leading the charge. Is this momentum likely to continue as the year unfolds? Jeffrey Saut from the financial advisory firm Raymond James, and a 40-year veteran observer of markets, made some interesting observations in a recent note. To summarise:

-Market focus recently has been on the “Great Rotation” from bonds to stocks, following 30+ years of falling interest rates we are now reaching an inflection point which would herald an era of rising interest rates. The impact of this phenomena on markets is being widely debated, with one side arguing that it will unleash a massive flow of funds from bonds to stocks, while the other side holding the view that it will not have as big an effect on portfolio allocations as expected.

-The media has pitched the rate outlook as a battle between two bond gurus – Bill Gross and Jeffrey Gundlach. However, they are basically saying the same thing except for a minor difference in the key inflection points for rates – with Gross viewing it to be a 2.6% level on the 10-year Treasury and Gundlach at 3.0% (with a high certainty of it being breached this year).

-It is very likely that last July marked the bottom for rates, with the 10-year US Treasury breaching below its 2012 low, but subsequently rising by 125 basis points (a 100% move in percentage terms) by the end of 2016. While the long term trajectory does appear to be upward, the path is likely to be uncertain (just like the downward path over the last three decades was not straight down). While a simple long term chart of rates does show the downward trend being breached (see first chart below), a logarithmic (to account for the “base effect”) chart implies that a 3.5% level would need to be breached before a trend reversal is clear (see second chart below). These levels (2.6%, 3%, 3.5%) are likely to be strong resistance levels and rate could be range bound for the rest of 2017, until growth and inflation expectations pick up enough to cause rates to move much higher.

-The impact of rising rates on the stock market has sharply divided market opinion – on one end Charles Swab believing that the shift from bonds to equities over the past few months has added $3 trillion to equity values and educed bonds values by $2 trillion, and this shift has years to run. Meanwhile on the other end, Goldman believes that allocations of institutional investors to bonds are already at 30 year lows and there is limited room for further shifts due to mandate restrictions.

-The likely scenario is likely to lie somewhere in between these views. Rates are likely to remain low for the next several years making stocks relatively more attractive – and if earnings growth do pick-up (as they expect) during the course of the year leading to higher stock prices, retail investors are then likely to be enticed to chase prices upwards. At the same time, a big rotation from bonds to stocks is unlikely for the reason mentioned earlier. Ultimately earnings and economic growth will continue to be the main drivers for the stock and bond markets going forward.

-Markets are likely to have an upward bias this year, albeit with higher volatility given the policy uncertainty in the US and its impact on China and Europe. However, global economic activity is showing clear signs of stabilizing as evidenced from the chart below from Fulcrum below which track economic activity on a monthly basis. So stay long global equities in a diversified manner (with more weightage to EM) and use market pullbacks as buying opportunities.

-An ongoing concern about China is RMB depreciation and currency outflows. As the first chart below illustrates, the RMB has actually stabilized versus a basket of trade-weighted currencies since summer, and the depreciation versus the US$ is more about dollar strength than RMB weakness.

-FX outflows (reported as Yuan outflows – i.e. outflows arising from domestic conversion of Yuan into foreign currency) have also dropped to a trickle ($900mm) in December after a record outflow in September 2016 and a total of $310 billion for the year. It is likely that the Chinese government will continue to impose more capital restrictions if outflows accelerate again.

Is it OK to eat Butter?

Recent news in the media have highlighted a study demonstrating that butter (and other dairy products) are healthy foods. Dr. David Katz, Director of the Yale University Prevention Centre and founder of the True Health Initiative, looks at this in more detail to clear the air on the media hype.


-A PLoS ONE study examined data from several studies examining links between butter consumption and cardiometabolic outcomes.

-The researchers concluded that there were “relatively small or neutral overall associations of butter with mortality, [cardiovascular disease], and diabetes,” and that the “findings do not support a need for major emphasis in dietary guidelines on either increasing or decreasing butter consumption, in comparison to other better established dietary priorities; while also highlighting the need for additional investigation of health and metabolic effects of butter and dairy fat.”

-Of course, a study on butter was bound to make headlines. Some included “A Little Butter Won’t Kill You” (NBC News), “The Case for Eating Butter Just Got Stronger” (TIME), and “Butter Not Bad for Health … But What You Spread It On Might Be” (The Telegraph).

-We talked to Dr. Frank Hu, MD, PhD, THI member and professor of nutrition and epidemiology, as well as professor of medicine, at Harvard University, about how the headlines compared with what the review really found:

-“Most of the media headlines, I think, have exaggerated the findings, and some of the headlines were even particularly sensational and misleading. For example, TIME magazine had the headline “The case for eating butter just got stronger.” And I don’t know where that headline comes from, because the authors of the study in the paper said that their overall results did NOT support that butter is beneficial for health. [The researchers] said the results suggest that butter should neither be demonized, nor considered bad, as a route to good health. But the headlines are sensational and, to a large degree, exaggerated the main findings.”

-Dr. Hu also noted that it’s important to look at the healthfulness of butter in context with other foods. If you’re comparing the healthfulness of butter with the typical, unhealthy American diet — loaded with refined grains, soda, and red meat — then no, butter is not going to be a lot worse for you than this mixture of dietary components. “However, I think from a public health point of view, we don’t want to give an impression that we should settle on unhealthy dietary patterns,” Dr. Hu says. “We should strive for healthy dietary patterns, and then compare butter to something else in that healthy dietary pattern.”

-Previous research has shown, for instance, that “when you compare butter to stick margarine, which is loaded with trans fat, then butter is better,” he says. “But if you compare butter to liquid vegetable oils, like olive oil, and soft margarine, which contains canola oil or soybean oil, then butter is much worse. So the concept for a replacement food, or a replacement nutrient, is critically important when we convey the nutrition information to the general public.”

-While Dr. Hu noted that his eating habits would not change based on results from one study, he says that he does consume butter occasionally, mostly for flavor. Usually, though, he uses olive oil and canola oil for cooking or salads, and nut butter for a spread.

-“A small amount of butter is fine, it’s OK,” Dr. Hu says. “But it’s not desirable to include butter as a main source of dietary fat. We should use healthy fats, such as olive oil, soybean oil, canola oil, nuts, seeds, and seafood as main sources of dietary fat, instead of saturated fat. So again, the type of fat is very important.”

-At the same time, though, we should strive to reduce our consumption of unhealthy carbohydrates, such as refined starches and added sugars. That’s why “we shouldn’t just say the message is ‘if you eat unhealthy carbohydrates, you can also eat butter,’” he says.

Here’s to sticking with the tried and tested formula for a healthy diet and ignoring dietary fads – eat whole foods, mostly plants and a bit less!

-I will be travelling over the next two weekends for the Chinese New Year holidays (so the next newsletter will be sent on February 11) and would like to wish my readers a very happy, healthy and prosperous Year of the Rooster!



Free Valuation Webinar Title: Practitioner Insights: Assessing the Competitive Edge, Date: Friday, January 27, 2017 Time: 08:00 AM Eastern Standard Time

The survivorship of public companies has been declining over the last ten years. Fast paced technology and globalization, two faces of the same coin, have increased the demand for a competitive strategy that can keep companies from fading away. Is there a scientific approach to identify companies with a significant return on capital that is well above their cost of capital? Along with modeling insights, this seminar will offer practitioner insights into screening for competitively superior companies. Join a live webinar session from leading practitioners to learn about current and best practices in valuation. This is the second in a series of over ten webinars. This seminar will offer insights into screening for companies that have a superior competitive advantage. Practitioners will not only provide an analytic framework but they will also discuss examples of companies from India and the region that have cultivated a sound competitive edge.

For registration and details, check the link here:


On the Outlook for Global Assets; Are Carbs Really That Bad for You?; The Internet Addiction!

From: aditya rana
Date: Sat, Jan 7, 2017 at 1:53 PM
Subject: On the Outlook for Global Assets; Are Carbs Really That Bad for You?; The Internet Addiction!


The World MSCI US$ stock index has continued with its upward momentum from last year, rising 1.9% during the first week of the year, after an impressive 5% rally over the last three months. The US market led the major markets with an impressive 7.5% 3-month return, with Europe at 4.5%, Japan at 1.0%, while EM markets have lagged at -2%. The best performer over the last three months has been Russia which has posted a bewildering 19.7% return, with Turkey (-17%), Mexico (-14.5%) and Brazil (-7%) bringing up the rear. Is this trend likely to continue for the rest of the year? Rather unlikely, as argued by the $165Bn asset manager/advisor Research Affiliates. To summarise:

-The conventional wisdom is that the expected Fed rate hike in December will lead to a stronger dollar and weaker EM currencies. This rationale follows from the 1994 “tequila” crisis, when the Fed hiked rates aggressively leading to higher borrowing costs on Mexico’s short term dollar debt and a subsequent collapse in the Peso.

-The current circumstances relating to EM are very different, with many EM countries having developed deep local bond markets over the last two decades, and with governments financing mostly in their domestic markets, the relationship between US interest rates and EM FX has been dramatically altered.

-Since the 1994 tequila crisis, modest rises in US rates have typically been followed by stronger growth, declining volatility and rising EM FX rates resulting in higher total returns for EM currencies (see chart below).

-Looking at an event study of US interest rate cycles, the case for a positive relationship between rates and EM FX is further bolstered, with the US dollar consistently depreciating against a basket of eight EM currencies, following the first Fed rate hike, with an average depreciation of 4.5% (see chart below).

-Another reason supporting EM currencies is valuation, with EM FX continuing to trade at discounts to the dollar not seen since the Asian currency crisis and the Russian debt default of the late 1990s.

-Even if EM currencies just move back halfway to historical norms, the FX movement alone will provide an excess 0.75% return in addition to the 2% real yield offered by the EM index compared with 0% real yield provided by the developed FX index.

-Moving to the US election risk, contradictory statements by the president-elect and lack of policy specifics, have led to choppy markets in the EM world, and this volatility is likely to persist until his policies are better defined.

-Trump will face a major uphill task in effecting major changes, unless they fit with the priorities of a Republican Congress. Will they fund a 2,000 mile wall, finding and deporting 11 million refugees or a global trade war? Unlikely. However, they will welcome deregulation, lower corporate tax rates, and infrastructure spending. This should lead to a stronger dollar, higher rates and inflation – this view has already largely priced into markets.

-A buoyant private sector could simultaneously be good for the US economy and bad for the stock market. Over the past few years, low private investment has been hoarded in the US stock market (via buybacks). Going forward, US stocks will have to compete with a buoyant private sector , offering competitive returns with new business ventures and higher bond yields. Capital for these ventures will also have to be funded by the stock and bond markets. Lastly, fast-retiring baby boomers will be converting saved capital into goods and services for consumption. This is likely to lead to a normalisation of Shiller P/E ratios in the coming years.

-With a better US economic outlook, and rising US rates, investors will be forced to diversify into cheaper markets, including internationals tocks (Europe, Australasia and the Far East), and EM stocks, bonds and currencies.

-What about trade wars? Surprisingly few people have read Trump’s 1987 book – “The Art of the Deal”. While the negotiating tactics in the book are questionable, it does help to better understand the president-elect. In the book, he advocates taking an extreme position in order to encourage the other party to move towards what you want. Once they have moved as far as you think is plausible, you surprise them by agreeing. It is therefore important to focus more on what he does than what he says. The consensus view is that he will be awful for EM – however, if US growth improves and mutually beneficial trade agreements are agreed upon – Trump could turn out to be surprisingly good for EM.

-Therefore the recent strength in the dollar, and weaker EM assets, offers a great rebalancing opportunity- in the opposite direction to the consensus view.

A compelling argument to remain weighted in EM stocks, bonds and currencies as well as on-US developed world stocks, and use the current reversal to actually rebalance into more of the same.

Are carbs really that bad for you?

One of my favourite writers on nutrition, Dr. David Katz, Director of the Yale University Prevention Research Centre , founded the “True Health Initiative” with the its “ mission to create a culture free of preventable chronic disease by demonstrating and disseminating the global consensus on the fundamental, evidence-based truths of lifestyle as medicine. Together we can build a movement around the fundamentals of healthy living, preventing as much as 80 percent of chronic disease and premature death.”. They produce a monthly newsletter with the objective of clearing the air on the nonsense prevalent in much of the media on many popular dietary fads. I found the following article interesting with it focus on dispelling the “carbs are bad” myth!

And how do we reconcile “Are carbs really that bad for you?”with the “eat whole grains” health advice?
http://www.truehealthinitiative.org/ Dec 3, 2016.

The Study Conclusion

-A study in the British Medical Journal showed an association between consuming whole grains and a lower risk of premature death from cancer, diabetes, coronary heart disease, infectious disease, and respiratory disease. Meanwhile, another study in the journal Circulation found that people in the study who ate the most whole grains had a lower risk of premature death from all causes, as well as specifically from cardiovascular disease.

-A Look at the Media Coverage

Headlines proclaimed the life-extending benefits of whole grains: “Eating 3 Servings Of Whole Grains Reduces Risk Of Early Death By 20%” (Medical Daily), “Whole Grains Help People Live Longer, Study Shows” (NBC News), “Eat Whole Grains, Live Longer?” (New York Times), and “Could Eating More Whole Grains Help You Live Longer?” (HealthDay). We talked to Christopher Gardner, PhD, THI member and professor of medicine at the Stanford Prevention Research Center, to get his take. He said:

“Health experts have long known that whole grains are good sources of fiber, B-vitamins, and many minerals including iron, magnesium, phosphorous, zinc, copper, manganese, and selenium. These studies are not telling us anything that we didn’t already suspect, though they affirm that whole grains can be important contributors to healthy diets. However, these studies come at a time where this is a broader anti-carb, anti-grain, anti-wheat, anti-gluten craze that has been taken to an extreme. The low-carbohydrate Atkins diet, the trendy high protein Paleo diet, and countless stories and popular books from MDs add to the confusion, such as Wheat Belly, Grain Brain, or Eat Fat Get Thin.”

How YOU Would Apply the Findings to YOUR Own Life

-Gardner said that the findings confirmed what he’s always known and personally practiced. He eats steel cut oatmeal for breakfast about twice a week, for instance, as well as grain-based salads including wheat berries, farro, or quinoa. He doesn’t eat a lot of bread, but when he does, he consumes whole wheat bread with nut butter (like almond butter) or topped with avocado and tomatoes from his backyard or the farmers’ market. “The findings did not change my eating practices, they simply reinforced my ongoing food choices and eating behaviors,” he says. “On most days I incorporate whole grains one to two times a day.”

Preacher’s Practice

-“There is a lot of noise when it comes to wheat, grain, and carbohydrates with regard to health,” Gardner says. “Carbs and grains often get a bad rap.” But when people say they “don’t eat carbs,” they usually don’t realize that most of the major food groups actually contain carbohydrates. In fact, there are only two that do not contain carbohydrates: meat —which includes beef, pork, poultry, and fish — and eggs. In fact, vegetables, nuts, beans/peas/legumes, fruits, dairy, grains, and snacks/sweets/desserts all contain carbs. “Anyone going to extremes to cut or eliminate carbs from their diet would be on a path to wiping out most of the variety and much of the pleasure of the bounty of food our blue-green jewel provides,” Gardner says. “Rather than vilifying all carbs, grains, wheat and gluten, it would make much more sense to think of a carbohydrate continuum and consciously draw an informed line in that continuum. It’s also important to realize where refined and whole-grain flour based products such as breads fit into this continuum relative to the whole intact grains (i.e., unmilled, unground).”

-“Anyone going to extremes to cut or eliminate carbs from their diet would be on a path to wiping out most of the variety and much of the pleasure of the bounty of food our blue-green jewel provides.”=As Gardner says, “if you are one of the approximately one in 140 Americans with celiac disease, an autoimmune disease whose prevalence was recently reported to be either stable or in decline, you should avoid gluten in the diet (the only known treatment for celiac disease).” He explains that gluten is found in wheat and wheat-containing products (and rye and barley, to a lesser extent).

-Meanwhile, “for the carb category that includes sugar-sweetened beverages, candies, pastries, chips, cookies, cakes, and desserts (i.e., added sugars and refined white flour),” the truth is that this group has “little to no nutritional value,” he says. “These are celebratory and or pleasurable food items to be enjoyed on occasion. Hopefully your repertoire for celebration and pleasure goes beyond snack foods and desserts and you can enjoy these responsibly, which means only occasionally, and get much of the joy in your life elsewhere.”

-But what about wheat flour? Americans eat a lot of it: According to the USDA, Americans eat about 150 pounds of grains per year in one form or another, and approximately 145 of those 150 pounds are from wheat, mostly consumed in the form of bread or snack foods made from processed (white) wheat flour. “For longer lasting shelf life and greater cost efficiency, the oils in the germ of the wheat kernel have been removed, as has many of the nutrients and much of the fiber to make the white flour. Cost efficient, yes. But metabolically, there are many health professionals who simply consider this a rapid glucose delivery system, and for the many and growing number of diabetics and pre-diabetics the rapid delivery of glucose to the blood stream is not something desirable,” Gardner explains. “Every credible health professional recommends replacing white-flour containing products with healthier options. Switching to whole wheat flour will bring back the nutrients and the fiber.”

-But there’s something to know about the wheat in the form of flour: Whether white or whole, it “delivers glucose quickly to the bloodstream because there is so little digestive work to do – it has been ground and pulverized into a powder that looks nothing like the original kernel of wheat from whence it came,” Gardner explains. “If you really want to eat wheat in its ‘whole grain’ state, try something like a wheat berry salad.” He advises. Other whole grains —many of which are gluten free — include amaranth, barley, buckwheat, bulgur, corn, einkorn, farro, freekeh, kamut, kañiwa, millet, oats, quinoa, rice, rye, sorghum, spelt, teff, triticale, and wild rice.

-“Vilifying carbs, grains or the gluten in wheat is fraught with nutritional dangers for most Americans. It flies in the face of thousands of years of eating pleasures from diverse culinary practices,” Gardner says. “The actual carbohydrate-containing foods we eat exist across a carbohydrate continuum of pros and cons, which can differ from one individual to another. Before maligning and writing off entire food groups or food types simply because of the current anti-carb, anti-grain, anti-wheat or anti-gluten craze consider the many places along the continuum the line can be drawn for including vs. avoiding; choose responsibly — enjoy the greatest range of deliciousness possible, paired with health promotion and disease prevention.”

The Internet Addiction:

A fascinating 15 minutes talk by the author and consultant Simon Sinek on the issues facing millennials (those born after 1984) in the workplace in the context of the increasingly prevalent internet addiction. Do share with your kids, but it applies (in varying degrees) to adults as well!


Here’s to eating balanced diet comprising whole grains, vegetables, fruits, legumes and nuts!

I will be travelling next week so the next newsletter will be sent on January 21.

Wishing my readers a very happy, prosperous and healthy 2017!



On Better Global Growth Prospects for 2017: The Natural Human Diet!

From: aditya rana
Date: Sat, Dec 10, 2016 at 2:04 PM
Subject: On Better Global Growth Prospects for 2017: The Natural Human Diet!


Being the final note for 2016, it would be desirable to end the year on a cheerful note regarding the global economy. Gavyn Davies, Chairman of the Fulcrum Asset management, provides that in his monthly assessment of global economic activity. To summarise:

-The world faced formidable economic challenges going into 2016 – to highlight a few: a shaky China with talks of a sharp renminbi devaluation, deflation risks in Japan and Europe, the Fed “normalising” interest rates despite weakening global growth and the oil shock and its negative impact on capital spending in the energy sector.

-Forecasts of a global recession in 2016 abounded, with economic activity slipping to just about 2% in Q1 2016 compared to a trend growth rate of 4%. The rising risk of deflation dominated the economic landscape. However, the year saw a remarkable rebound in global economic activity which is currently estimated to be at 4.4% (see graph below), the highest level since 2011 – before the euro crisis and the China slow-down engulfed the world.

-The uptick in global economic activity has been accompanied with a sharp rise in inflation in most major economies, driven by higher oil prices as well as expectation of higher fiscal spending after the election of Donald Trump.

-In recent years, global economic activity as not been synchronised between the different regions. However, this year the rebound has occurred both in the developed markets as well as emerging markets (see chart below).

-While the surge in activity has been most pronounced in the US, Europe, Japan and China are all growing at above trend rates, for the first time in several years.

-Looking at the contributions of the major economies to world growth on a PPP basis – China alone is contributing almost half of total growth, with the other EMs adding another quarter and the DMs the final quarter – with half of that stemming from the US.

-Looking at the change in the contributions to global growth since the low of March 2016, it is clear that the biggest change has come from the EMs – with China contributing 0.77% out of a total of 2.16%. Other EMs (especially Brazil and Russia) have contributed 0.90% , with the DMs adding 0.48%.

-There are reasons to be optimistic that this uptick in economic activity will persist into 2017 with major fiscal policy easing in China and improvement in Russia and Brazil, together with fiscal easing and still accommodative monetary policies in DMs. The risks continue to be tighter credit control in China, a stronger dollar and capital outflows from EMs, and a shock to confidence arising from a shift towards populism in European elections next year.

It does seem that 2017 will usher in better economic prospects than the previous year, with the primary risk factors being a stronger dollar and an unfavourable outcome in the French and German elections. Stay long in a diversified manner, with a continued tilt towards EMs with their superior growth prospects.

The Natural Human Diet:

-Another great note from Dr. Greger on plant based diets being the most natural diets for humans.


Michael Greger, Nov 15, 2016

-Our epidemics of dietary disease have prompted a great deal of research into what humans are meant to eat for optimal health. In 1985, an influential article was published proposing that our chronic diseases stem from a disconnect between what our bodies ate while evolving during the Stone Age (about 2 million years ago) and what we’re stuffing our face with today. The proposal advocated for a return towards a hunter-gatherer type diet of lean meat, fruits, vegetables, and nuts.

-It’s reasonable to assume our nutritional requirements were established in the prehistoric past. However, the question of which prehistoric past we should emulate remains. Why just the last 2 million? We’ve been evolving for about 20 million years since our last common great ape ancestor, during which our nutrient requirements and digestive physiology were set down. Therefore our hunter-gatherer days at the tail end probably had little effect. What were we eating for the first 90% of our evolution? What the rest of the great apes ended up eating—95 percent or more plants.

-This may explain why we’re so susceptible to heart disease. For most of human evolution, cholesterol may have been virtually absent from the diet. No bacon, butter, or trans fats; and massive amounts of fibre, which pulls cholesterol from the body. This could have been a problem since our body needs a certain amount of cholesterol, but our bodies evolved not only to make cholesterol, but also to preserve it and recycle it.

-If we think of the human body as a cholesterol-conserving machine, then plop it into the modern world of bacon, eggs, cheese, chicken, pork, and pastry, it’s no wonder artery-clogging heart disease is our #1 cause of death. What used to be adaptive for 90% of our evolution—holding on to cholesterol at all costs since we weren’t getting much in our diet—is today maladaptive, a liability leading to the clogging of our arteries. Our bodies just can’t handle it.

-As the editor-in-chief of the American Journal of Cardiology noted 25 years ago, no matter how much fat and cholesterol carnivores eat, they do not develop atherosclerosis. We can feed a dog 500 eggs worth of cholesterol and they just wag their tail; a dog’s body is used to eating and getting rid of excess cholesterol. Conversely, within months a fraction of that cholesterol can start clogging the arteries of animals adapted to eating a more plant-based diet.

-Even if our bodies were designed by natural selection to eat mostly fruit, greens and seeds for 90% of our evolution, why didn’t we better adapt to meat-eating in the last 10%, during the Paleolithic? We’ve had nearly 2 million years to get used to all that extra saturated fat and cholesterol. If a lifetime of eating like that clogs up nearly everyone’s arteries, why didn’t the genes of those who got heart attacks die off and get replaced by those that could live to a ripe old age with clean arteries regardless of what they ate? Because most didn’t survive into old age.

-Most prehistoric peoples didn’t live long enough to get heart attacks. When the average life expectancy is 25 years old, then the genes that get passed along are those that can live to reproductive age by any means necessary, and that means not dying of starvation. The more calories in food, the better. Eating lots of bone marrow and brains, human or otherwise, would have a selective advantage. If we only have to live long enough to get our kids to puberty to pass along our genes, then we don’t have to evolve any protections against the ravages of chronic disease.

-To find a population nearly free of chronic disease in old age, we don’t have to go back a million years. In the 20th century, networks of missionary hospitals in rural Africa found coronary artery disease virtually absent, and not just heart disease, but high blood pressure, stroke, diabetes, common cancers, and more. In a sense, these populations in rural China and Africa were eating the type of diet we’ve been eating for 90% of the last 20 million years, a diet almost exclusively of plant foods.

-How do we know it was their diet and not something else? In the 25 year update to their original paleo paper, the authors tried to clarify that they did not then and do not now propose that people adopt a particular diet just based on what our ancient ancestors ate. Dietary recommendations must be put to the test. That’s why the pioneering research from Pritikin, Ornish, and Esselstyn is so important, showing that plant-based diets can not only stop heart disease but have been proven to reverse it in the majority of patients. Indeed, it’s the only diet that ever has.

-Wishing my readers happy holidays and best wishes for a happy, prosperous and healthy 2017! The newsletter will recommence on January 7,2017.



On Why Stay With Emerging Markets?; Dietary Recommendations by the Academy of Nutrition!

From: aditya rana
Date: Sat, Dec 3, 2016 at 2:17 PM
Subject: On Why Stay With Emerging Markets?; Dietary Recommendations by the Academy of Nutrition!


Emerging Markets equity and debt funds have witnessed significant outflows in the aftermath of the US elections, with the US equity market being the main beneficiary. Does this makes sense from a longer term perspective? Rob Arnott and Chris Brightman, CEO and CIO, respectively, of the $165BN fund manager/advisor Research Affiliates (RA), provide their perspective on this topic in their latest monthly update. To summarise:

-RA have a 66 2/3% weighting to international equity markets, and are looking to incrementally increase their exposure to international equities given the meaningful valuation differentials with the US market.

-Over the last three years, the S&P 500 index has delivered real returns of 10.2% per annum, versus non-US DM equities and EM equities returns of 0% and -1.2%, respectively.

-US equities are now priced at a Shiller P/E ratio (i.e., price relative to 10-year earnings) of over 26x, a top decile ranking, matching the peak level just prior to the 2008 financial crisis. While the US economy is the healthiest DM economy in the world, it certainly does not justify a top decline ranking.

-By contrast, non-US DM equities are priced at a Shiller P/E of 14x, which is over 45% cheaper than the US market. EM equities are even cheaper (despite a 16% return YTD Sept), being at a Shiller P/E below 12x, which is a bottom decile ranking. EM equities could double in price tomorrow and still be cheaper than the US market.

-While this value differential is expected to reduce over time (rather than immediately), EM and non-US DM equities also offer higher dividend yields and dividend growth potential in the interim. Currently, DM and EM equities offer expected annual returns of 5.6% and 6.9%, respectively, over the next five to seven years, versus 0.9% for the US market.

-RA 10-year asset class return forecasts have shown a high correlation with subsequent actual returns, with the correlation increasing over time. Over short periods, the actual market returns show a wide dispersion range, but this noise of price changes reduces over time giving way to the structural drivers of long term returns – income yield and income growth.

-For example, the current yield on the Barclays US Aggregate Bond Index has had a 92% correlation with its subsequent 10-year return as exhibited in the graph below.

-The same relationship between yield and return exists in the equity market, with data going back nearly a century. Cyclically adjust earnings yield (i.e., 10-year real earnings per share divided by current price) provides a 75% forecast of subsequent 10-year real returns of the US equity market.

-This relationship arises because cyclically adjusted earnings yield tends to mean revert over time. When the market’s earnings yield was far above the historical average – i.e., the 10-12% yield in the ‘30s-‘40s , and in the ‘70s-‘80s, the subsequent annualized real returns were 15-20%. In contrast, when the earnings yield were 2-3% in the late ‘20s and late ‘90s, the subsequent real returns were zero. Today’s earnings yield of 3.8% (well below the long term average of 6%) implies a 10-year real return of about 1%.

-While the yields on US equities and bonds are depressed by central bank policies, other asset classes provide relatively higher yields. For example the “Third Pillar Assets” to include inflation hedging assets (TIPS, REITS, commodities) , credit (high yield, bank loans) and EM (equities, US$ and local currency bonds), provide an expected excess return of 2-3% over the traditional 60(equity)/40(debt) US asset mix (see chart below).

-Looking over the last twenty years, for periods when the Third Pillar Assets were forecast to provide excess returns of 2-3% over the 60/40 US portfolio, the range of the sequent excess return quartiles narrowed considerably over time and (see exhibit below) with the median return differential in ten years being almost exactly equal to the original forecast.

-Today’s depressed yields for US stocks and bonds, implying a real near-zero return, require investors to look at cheaper and higher yielding assets offering the potential to achieve substantially higher returns.

Excellent summary of the argument to favour higher yielding international assets (EM and non-US DM equities and high yield bonds) over US assets, for patient investors willing to look through the short-term noise and focus on the medium to longer term (5 to 10 years and beyond).

The Academy of Nutrition and Dietetics Publishes Stance on Vegan and Vegetarian Diets:

-Futher corroboration for the benefits of Vegetarian & Vegan diets:

PRCM, Dec 2,2016:


Vegetarian and vegan diets are healthful, may prevent and treat chronic diseases, and are better for the environment, according to the Academy of Nutrition and Dietetics, the world’s largest organization of nutrition professionals. Researchers updated the 2009 position paper on vegetarian diets and concluded that not only are vegetarian and vegan diets appropriate for all stages of the life cycle (pregnancy, infancy, childhood, etc.), but they also help reduce the risk for heart disease, high blood pressure, type 2 diabetes, stroke, obesity, and some types of cancer. The updated position paper presents a section on environmental issues which concludes plant-based diets are more sustainable and less damaging to the environment.

The evidence supporting eating more plants, grains and fruits continues to mount!



Person of the year by Navneet Munot, CIO SBI MF

From: Navneet Munot
Date: Fri, Dec 30, 2016 at 6:01 PM
Subject: Person of the year

Attached is my article “Person of the year”. Hope you find it interesting.

Wish you and your loved ones a great 2017!



Navneet Munot, CFA

Chief Investment Officer

SBI Funds Management Private Limited
(A Joint Venture between State Bank of India & Amundi Asset Management)
9th Floor, Crescenzo,

G Block, Bandra Kurla Complex

Mumbai 400 051

Person of the year 2016.pdf