On the Trump Rally; Animal Protein Versus Plant Protein!

From: aditya rana
Date: Sat, Feb 25, 2017 at 1:08 PM
Subject: On the Trump Rally; Animal Protein Versus Plant Protein!


The election of Donald Trump as president of the US has certainly kindled the market spirits – with the S&P 500 index up nearly 10% from its November lows, strong fourth-quarter corporate earnings and a surge in multiple business and investor sentiment surveys. While a “sugar-high” is certainly possible in the first year or two of the presidency, it is also important to keep a focus on the medium to longer term horizon, which does not bode well for the US economy, and by implication its stock market which is already trading at inflated levels. John Ross, senior fellow at Renmin University wrote an interesting piece on the longer-term outlook for the US economy. To summarise:

-The US is likely to experience a short-term acceleration of growth, following a 2016 growth rate which was significantly below its long-term trend. However, the long-term growth rate is unlikely to move higher without fundamental changes to the economy which are unlikely under the Trump presidency.

-Looking at the long-term trend in the growth rate of the US economy, by using a 20-year moving average to smooth out fluctuations due to the business cycle, the data clearly shows a slowing economy over 50 years (see chart below) , with successively lower peaks – 4.9% in 1969, 4.1% in 1978 , 3.5% in 2003 to a current level of 2.3%.

-Looking at the short-term fluctuations in US growth versus its long-term average (see chart below), as of the 3rd quarter 2016 the latest growth rate of the US economy was only 1.7% which was significantly below its long term trend. This makes it likely that growth will bounce back in 2017/2018 leading to the illusion that “Trump is improving the economy”.

-Analysing the reasons underlying the long-term slowdown of the US economy, at the basic fundamental level it has to do with the rate of capital accumulation in the economy – when the rate of capital accumulation is high the economy grows rapidly, when the rate of capital accumulation is low the economy slows down.

-Net capital accumulation is equivalent to net savings in an economy, and looking at the US savings/capital accumulation rate since 1929 (see chart below):

-During the beginning phase of the Great Depression (1929-1933), US capital accumulation was negative with an associated significant economic slowdown. Subsequently, US savings/captal accumulation rose during WW II and finally peaked in 1965 with an associated economic boom.

-After 1965, US saving/capital accumulation has been falling steadily until it became negative again during the Great Recession of 2008-2009. This long term trend explains the declining long-term trend in US growth.

-It is threfore clear, that Trump would have to increase the rate of capital accumulation to accelerate the long-term growth trend of the US economy, and without such a sharp rise in the rate of capital accumulation, the US economy is very unlikely to sustain a higher than the long-term average growth rate.

-However, an economy’s savings rate comprises the sum of household savings, corporate savings and government savings – and government savings in the US and most other economies are negative due to budget deficits. In addition, Trump has announced plans to introduce tax cuts and increased military spending, which will only increase the budget deficit further thereby reducing the savings rate in the economy as a whole.

-In the short-term the US could offset the low savings rate by borrowing from overseas which could boost economic growth temporarily. But historical experience shows that it’s domestic capital creation which is key to produce long term economic growth. So going forward, the key variable to monitor for the US economy is whether capital accumulation/savings is rising or falling.

Update based on latest US GDP data:

-The latest data shows that US GDP growth fell from 2.6% in 2015 to only 1.6% in 2016 – a decline of almost 40%. In addition, US per capita GDP growth fell fom 1.9% in 2015 to 0.9% in 2016 – a fall of just over 50%!

-This poor performance of the US economy is all the more stark when compared to the EU and China – the US was the slowest growing (1.6%), versus the EU (1.9%-projected as the latest data is not out) and China (6.7%).

-Of course the Western media played up the risks of a “hard landing” in China and “strong recovery” in the US. Yes- the Chinese economy did slow from 6.9% to 6.7% from 2015 to 2016, but the US underwent a major slowdown.

As argued in last week’s newsletter, EM countries like China offer significantly better long-term economic and stock markets prospects than developed markets like the the US. The 2010-2014 economic and stock market slowdown in EM is clearly over, and EM markets are currently in the early phase of a cyclical upturn. As the attached graph from Blackrock illustrates, EM, Japan and European corporate earnings are enojoying a robust rebound, outperforming the US by a wide margin.

-Looking ahead on a longer term basis, as Templeton points out – EM currently represent 10% of the world’s stock market-capitalization but global investors have much lower amounts allocated to EM – creating the potential for more upside as allocations rise to appropriate levels. In addition, EM represent 50% of the world’s GDP when measured in nominal terms and nearly 60% using PPP, and account for 80% of world growth which will result in a higher EM percentage of world stock-market capitalization in the future.

-Investors are also largely unaware of the strcutural changes going on in the EM world – over the last three decades emerging markets have fuelled their growth through exports – with commodities being a major component. However, commodity stocks have declined from 50% of the MSCI index in 2008 to 15% today. In addition, the index is increasingly geared towards the high growth IT and consumer sectors – which have each risen from 7% of the index in 2008 to 24% for IT and 17% for consumer stocks today. EM are no longer mainly a commodity play.

Animal protein versus Plant Protein:

-An interesting study conducted by the Massachusetts General Hospital showing a higher mortality rate from the intake of higher animal protein and a lower mortality rate from the intake of plant proteins.

Massachusetts General Hospital, August 1, 2016

-The largest study to examine the effects of different sources of dietary protein found that a high intake of proteins from animal sources — particularly processed and unprocessed red meats — was associated with a higher mortality rate, while a high intake of protein from plant sources was associated with a lower risk of death. Results from the study — which analyzed data from two long-term epidemiologic studies — appears in the August 1 issue of JAMA Internal Medicine.

-"Overall, our findings support the importance of the sources of dietary protein for long-term health outcomes. While previous studies have primarily focused on the overall amount of protein intake — which is important — from a broad dietary perspective, the particular foods that people consume to get protein are equally important. Our findings also have public health implications and can help refine current dietary recommendations about protein intake, in light of the fact that it is not only the amount of protein but the specific food sources that is critical for long-term health,” said the lead researcher of the study.

-While several studies have suggesting that substituting proteins for carbohydrates in the diet has several health benefits — including weight management, reducing blood pressure and other cardiovascular risk factors — the authors note, few studies have examined the specific sources of protein. Those that have were relatively small and based on one-time assessment of participants’ diets. The current study analyzes data from the Nurses’ Health Study (NHS) and the Health Professionals Follow-up Study (HPFS), which have compiled comprehensive health data on more than 170,000 participants since the 1980s.

-The researchers analyzed more than 30 years of data for NHS participants and 26 years of data for HPFS participants, totaling more than 3.5 million person-years. During those time periods more than 36,000 deaths were documented among study participants — almost 9,000 from cardiovascular disease, around 13,000 from cancer and about 14,000 from other causes. After adjustment for lifestyle and other dietary risk factors, a high consumption of protein from animal sources — any types of meat, eggs or dairy — was weakly associated with an increased rate of death, while high consumption of protein from plant sources — breads, cereals, pasta, beans, nuts and legumes — was associated with a lower mortality rate.

-More careful analysis revealed that the association of animal protein intake with an elevated mortality risk only applied to participants with at least one factor associated with an unhealthy lifestyle — being either obese or underweight, heavy alcohol consumption, a history of smoking, or physical inactivity. In fact, the association disappeared in participants with a healthy lifestyle. Analysis based on specific sources of protein indicated that the animal-protein-associated mortality risk applied primarily to processed and unprocessed red meats, which include both beef and pork products, and not to protein from fish or poultry.

-"While we expected we might find the associations to be weaker in the healthy lifestyle group, we did not expect them to completely disappear. But when we looked deeper into the data, we found that — at similar levels of animal protein intake — those in the unhealthy lifestyle group consumed more red meats, eggs and high-fat dairy, while the healthy lifestyle group consumed more fish and poultry. So we suspect the different sources of animal protein between the two groups may contribute to the stronger results in the unhealthy lifestyle group," said the lead reseracher.

-He adds, "Our findings suggest that people should consider eating more plant proteins than animal proteins, and when they do choose among sources of animal protein, fish and chicken are probably better choices. Future studies should examine the mechanisms underlying the different effects of plant and animal proteins — along with different sources of animal proteins — on overall health."

Here’s to replacing animal proteins with plant proteins in your diet!




Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: