On Henry’s World View; Sugar is the Culprit Myth; The Story Behind the Short Film!

From: aditya rana
Date: Sat, Nov 5, 2016 at 2:04 PM
Subject: On Henry’s World View; Sugar is the Culprit Myth; The Story Behind the Short Film!


The iconoclastic hedge fund manager, Hugh Hendry who runs Eclectica, is always an interesting and thought provoking read (or listen) with his well researched big picture macro views. He recently gave a one hour interview covering a vast range of topics (including the dollar, Japan, Europe, China, impact of QE) which makes for fascinating listening. To summarise the key points:


-He is long the US$ as are most managers whom he respects – the dollar index had risen dramatically from 80 to 104 (from the Jackson Hole summit in 2014 until early last year), but has stalled since then as the US economy absorbed the tightening impact of the rise. The economy is now out of the woods and the dollar is likely (at some point) to breach the 104 level and move towards 110 (but not much beyond that due to the negative impact on the economy).

-Europe continues to struggle and the key market indicator to monitor is the spread between ten year Italian government bonds and Bunds which is currently at 130 basis points. He spread was at 30 bps prior to the crisis, and at the height of the Euro crisis in 2012 it had increased to 600bps (see graph below). He estimates that a 100 bps shift in the spread implies about a 10% change in the probability of a break-up of the Euro. The current spread implies about a 13% probability of that event which is too low and is a good short (but with an onerous negative carry).

-The political risks in Europe are likely to increase significantly over the next year, starting with the Italian Referendum in December and elections in Germany, France and the Netherlands next year. The potential change in the landscape is the risk that northern European countries start questioning the benefits of staying in Europe, rather than during the crisis period when it was the issue of the peripheral countries having the capacity to meet the conditions to stay in Europe.

-He is more benign on Japan than other managers as he views the recent policy move by the BOJ to manage the yield curve (i.e. not let 10 year JGBs yields go above zero) as significant. Japan is not like Europe as it is a homogenous entity and has full flexibility to use fiscal policy to supplement monetary policy which provides support for its economy. Lastly, if problems in Europe escalate again it will lead to capital repatriation to Japan and a stronger yen.

-Regarding his views on developed world equities, he was overly bearish in the aftermath of the global financial crisis but changed his view a few years ago as he has a self-imposed 2 year “stop-loss” rule for beliefs. He views Bernanke to be a courageous man in implementing unconventional monetary policies, and as a result the world avoided a depression and the U.S. is currently enjoying one of its longest post-war economic expansions. While the level of growth has been low, what is remarkable is that it is the first post-war expansions without the private household sector taking on more debt which makes it a quality and sustainable expansion.

-Regarding the big picture view on the impact of QE, he views the broad market as being divided between debtors (corporates, households) who have the ideas but need to borrow money to fund them and creditors (i.e. the rich) who have the money (but not the ideas). Over the last few decades, rates have been too high which has resulted in a massive transfer of wealth from debtors to creditors. This has been reflected in the S&P 500 index underperforming 10 year US treasury bonds (on a risk adjusted basis) by a massive 80% over this period (despite all the significant emergence of leading new era technology companies and the growth miracle of China). QE has changed this phenomenon by pushing yields to zero and thereby stopping this transfer of wealth, and the S&P 500 index has underperformed US treasuries (on a risk adjusted basis) since 2014.

-Regarding US treasuries, he views the 10 year US bond trading in a range of 1.35% to 2.0% for the next several years. The 1.34% level reached in the summer of this year is likely to be the low as it was a level at which U.S. rates had “converged” to the zero rates in Europe and Japan. This is because, for foreign financial institutional buyers of US treasuries who hedge the currency exposure back to their home currency, the net yield was zero after hedging costs.

-He is positive on the world economy (besides Europe) but finds it odd that the developed world governments have not taken advantage of negative real yields to borrow more to fund much needed infrastructure and services. The political resistance to this is hampering growth in the developed world.

-On China, the hard landing club of managers should adhere to his 2 year “stop-loss” rule for beliefs and it is clear that China is not having a hard landing and they have ample capacity to socialise the bank debt problem (like Japan did in the ‘90s). China has also been successful in transforming their economy from an export focussed growth economy to a domestic oriented consumption economy. This has been achieved by transferring more wealth to households in the form of rising real wages. China is not vulnerable to a 1990s Asian currency type event – it is a “grown-up” economy at par with the U.S. and other developed countries and its problems are internal and are being dealt with (he puts a 4-6% floor of growth levels_.

Fascinating and a thought provoking interview (as always!), and I largely agree with most of his points except for his negative view on Europe (and he is coming close to exercising his two year “stop-loss” rule!). What most non-European (i.e. primarily Anglo-Saxon) commentators have consistently underestimated over the last few years is the political resolve in Europe to keep the union intact. The main risk is a slide into a depression type situation but that is very unlikely given the sea change in ECB’s policy actions since 2015. The benefits accruing from remaining in Europe continue to be significant (why else would the U.K. be so keen to retain a privileged access to the common market?).

On the Sugar is the Culprit Myth.

From one of my favourite health/diet myth busters – Dr. David Katz, Director, Yale University Prevention Centre.

HuffPost 10/14/2016:

-Sugar seems to be everywhere these days, and I don’t just mean in the copiously over-sweetened standard American diet (“SAD”). I mean in the news about diet, too.

-Partly, this is as it should be, as one of the principal liabilities of a dreadfully junk-laden and hypocrisy-laden diet, literally engineered to subjugate the health of the many to the profit of the few, gets the attention it deserves. Partly, though, it is the result of a well orchestrated, well funded effort by those with ties to the beef industry, and/or interest in sticking butter in your coffee, to divert your attention from the harms to people and planet alike of all those bacon-cheeseburgers, through the time-dishonoured expediency of a scapegoat.

1) Sickly sweet.

-I don’t know how to put it much more bluntly than I already did above: excess added sugar is one of the principal liabilities of the prevailing American (and, increasingly, “modern global”) diet, noteworthy for its many liabilities. From my perspective, there are three salient harms of excess added sugar in the diet: (1) excess sugar itself is metabolically harmful, via its effects on insulin release and fat deposition; (2) sugar contributes to the excess calories propagating obesity, and without any redeeming nutrient value; and (3) sugar is used expressly to make foods, even foods not overtly sweet, hyperpalatable- and thus contributes disproportionately to overeating in general.

2) Sum of parts.

-It’s the total dose of added sugar in our diets that matters much more than which kind of sugar it is. The many aliases of sugar in the food supply are confusing, and problematic. We have taught children, and their parents, how to defend themselves against this deception for nearly 15 years in our well-studied, freely available food label literacy program, Nutrition Detectives®.

3) What’s in a name?

-Per the above, I think the many aliases used to indicate added sugar in processed foods are confusing, and thus harmful. There are dozens of alternatives, all of which are really just “added sugar.”

-My view, now as ever, is that the right approach is to list “total added sugar” and situate that in the ingredient list wherever that cumulative dose belongs- and then, in parentheses, spell out the kinds of sugar in order of abundance.

4) Hyperbole about harms, and the harms of hyperbole.

-Some have claimed, famously, that sugar is “poison” and fructose is “toxic.” These contentions are, simply, untrue. Sugar includes the lactose in breast milk, and the glucose that floats constantly, and essentially, in our bloodstreams; it is absurd to declare the composition of mother’s milk and our own blood intrinsically “poisoned.” Rather, the dose makes the poison. As for fructose, it occurs naturally in all fruits and many vegetables. If it is “toxic,” by extension, apples and berries are toxin delivery systems.

(5) Exaggerated focus on fructose invites the “sideways to sucrose” phenomenon.

-There are really two issues here. The first is that if “fructose” is vilified, the public in general will not necessarily know that fructose is nearly as abundant in table sugar (sucrose) as it is in HFCS. The food industry is thus invited to put big banner ads on the front of products that say something like ― “now without high-FRUCTOSE corn syrup” with the emphasis on fructose ― and thus derive a halo effect, under which a host of ills can be concealed. This has certainly happened. We can file this one under: “Tell them what they’ve won, Johnny!” Log Cabin original syrup, now FREE of HFCS, has just plain “corn syrup” as the first ingredient, sugar as the third, and maple…nowhere on the list!

-The second is that if fructose is “the” villain, it implies that everything else is exonerated. Again, since the public tends not to know that table sugar is half fructose, it allows for replacing HFCS with sugar- and pretending that’s anything other than a lateral move. It is not. But Pepsico, among others, has tried to get credit for just such an exercise in going nowhere.

(6) If fructose is evil, can apples be far behind?

-Another of my anxieties about excessively vilifying fructose is that it would invite people to extend the indictment to the premier delivery vehicle for this nutrient, fruit. There is no justification for this, as fruit intake is not only good for health in general, but specifically associated with protection against the very harms of excess sugar intake, notably diabetes. But, sadly, this prediction has also come true. I have received innumerable emails over the years since fructose first became “toxic” asking me if it’s OK to eat whole fruits; and this matter has caused such widespread confusion that the New York Times felt obligated to address it. What a sad waste of time we can’t spare, though, to need to convince people that whole fruits are… still good for them!

(7) The “sugar did it” proviso.

The third liability of hyperbolizing the harms of sugar, or fructose, is that it lets all of the other bad actors off the hook. Yes, excess sugar is bad- but that does nothing to exonerate trans fat, processed meats, food chemicals, salt, refined starches, or for that matter, butter. But that’s exactly the case currently being made, or feigned, by the agents of meat, butter, and cheese. They are exploiting the hyperbole about the toxicity of sugar to imply that sugar is solely responsible for the sorry state of our diet – which is, in a word, baloney. Baloney also contributes to the sorry state of our diets ― both when it does (yes, it sometimes does), and when it doesn’t contain added sugar.

8) Are artificial sweeteners better?

I really don’t know, because nobody knows for sure. The literature on this topic is mixed with some studies showing benefit from cutting out sugar and calories through the medium of no-calorie, “artificial” sweeteners. Other studies, however, suggest that the currently prevailing sugar substitutes may do significant damage of their own. Whether or how this pertains to the newer entries such as stevia, or monk fruit extract, is still a work in progress.

-What I can say is that I avoid artificial sweeteners personally for three reasons. First, the precautionary principle, which argues that it’s safer to assume harms until they are disproven than it is to assume harmlessness until it is confirmed. Second, when sugar is “put in its place” and one’s diet is made up overwhelmingly of unprocessed foods, there is neither need, nor place, for artificial sweeteners. And third, I think there is a better way to reduce sugar intake, which I call “taste bud rehab.” By trading up choices and eliminating stealth sugar first, and more overt sugar after, you can cut your intake of sugar and calories; avoid any actual or potential harms of chemical additives; and rehabilitate/sensitize your palate into the bargain, so you actually come to prefer more wholesome, less copiously sweetened food.

-The bottom line is that despite the long line of claimants that has queued up under the “I discovered the harms of excess sugar last Thursday, so buy my book” sign- the reality is that advice to limit sugar has been not just present, but prominent, in the Dietary Guidelines for Americans since the first, in 1980.

The Story Behind the Short film:

To follow-up on last week’s post on the 4 minute short film (second link below) made by a 20 year old Egyptian student based on an incident in Mahatma Gandhi’s life, a friend send me the link below on the actual incident and the lessons one could draw from it:



Here’s to reducing total added sugar in your diet by eating whole foods, but as importantly reducing the intake of animal and processed foods in favour of plants!




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