“Attract what you expect, reflect what you desire, become what you respect, mirror what you admire.”
“Intelligent individuals learn from every thing and every one; average people, from their experiences. The stupid already have all the answers."
“I will persist until I succeed. I was not delivered into this world into defeat, nor does failure course my veins. I am not a sheep waiting to be prodded by my shepherd. I am a lion, and I refuse to talk, walk, and to sleep with the sheep. I will persist until I succeed.”
- Og Mandino
A. The Booming 20’s
As my friend Peter Fletcher reminded me, in 1918 we had the Spanish flu pandemic, it led to huge societal changes, but eventually led to the roaring 1920’s.
Could we be on the cusp on the Booming 2020’s?
Conventional wisdom always extrapolates recent experience and the most decorated generals always prepare for the last war. Whenever deep transformations happen, whether in economics or politics or even in scientific concepts, there is a natural reluctance to believe that a big change has really occurred.
We are understandably attached to the world we know and the strongest resistance to new ideas is often among those with most experience and expertise. This is the way in most professions, it was either Max Planck or Neils Bohr who said: science progresses one funeral at a time !
And this is why trend-following usually works in financial markets. Even when an asset has been rising or falling for a long period, many investors continue to believe that it should still be valued at yesterday’s price—and until these skeptics are all won over, the trend goes on.
Could we be seeing a regime change in markets?
Could it be that the Covid crisis plays the same historic role as the elections of Margaret Thatcher and Ronald Reagan 12 years after the riots and assassinations of 1968 marked the end of the Keynesian “golden age”.
Or the election of Franklin Roosevelt and breaking of the British gold standard 15 years after the Russian Revolution.
Could Covid mark the point when the reforms necessitated by the 2008 crisis—quantitative easing, unlimited fiscal deficits, re-distributional and environmental politics, and China’s emergence as the dominant engine of global growth—start coalescing into a recognisable new policy program?
Here is the (potentially) new regime:
1. Long term investments driven by Keynesian economic management
We are seeing the rise of increased spending & investments globally, in Europe greater integration and in China more technological self-reliance. This expansionary fiscal spending may lead to a structurally stronger world.
2. The scale and speed of monetary & fiscal stimulus have never been seen before
The most important difference between today and the post-2008 environment is fiscal.
After the initial spending splurge in 2008 and 2009, most governments shifted their spending behaviours and embraced belt tightening. Fast forward to today and, regardless of where one looks, there are promises of more government spending, financed by more central bank printing. The days of fiscal austerity are clearly over.
3. Investor belief in macroeconomic policy
Investors now believe that Keynesian policies will restore the world economy to something like normality before the end of 2021. These expectations may prove right or wrong. But investors are now unlikely to change their minds about the success of the Keynesian experiment unless and until they see solid evidence that it is failing.
By definition this cannot happen until economic and financial data for 2021 appears a year or so from now.
In the meantime, another wave of Covid will only make governments and central banks even more determined in their Keynesian convictions, and this could even be treated by equity investors as bullish news.
As I told a friend recently:
“Good news is good news and bad news is also good news”.
B. Why We Eat (Too Much)
Finished reading bariatric surgeon Dr. Andrew Jenkinson’s book on Why We Eat Too Much.
Here are the main ideas from the +300 page book:
1. You Have A Weight Set Point - our bodies have a weight set point where our bodies want to be. This set point is largely (around 75%) determined by our genes, but also by external factors that can be altered. For most of us, our bodies are quite effective in ensuring that we do not diverge too much from our set points. They do this through adjusting our feelings of hunger / satiety and our basal metabolic rate (the energy used up by our basic bodily functions, excluding any physical movement) which accounts for 70% of our calorie use.
Your basal metabolic rate is very dynamic and can vary hugely between people. The variation in metabolic rate is a major factor used by the body to maintain its preferred weight set-point.
The “success” of our subconscious systems that pull us back to our weight set points can be seen in the fact that, despite a massive increase in the number of calories we now ingest, average weight gain in the population is only 1lb per year. Today’s increased calorific intake suggests that it should be more like 50lbs a year.
The chart on p. 14 of Andrew’s book shows that the obesity rate – while rising consistently – has not kept pace with the increase in calories. This is because our internal systems adjust our metabolisms to keep us on track towards our set points.
For those who repeatedly diet, the body senses deprivation and begins to respond by storing excess fat to try to get back to the set point. In this way, the set point gradually ratchets up over time, making dieting ultimately counterproductive.
2. The Role Of Hormones - one of the most significant areas of exploration in the dietary area has been around the role played by hormones: ghrelin (an appetite accelerator), peptide-YY and GLP-1 (the satiety hormones that tell our brains that we do not need to eat more), insulin and leptin (which is secreted from fat cells and controls our long-term energy stores rather than our day-to-day appetite).
In the extremely obese, leptin intolerance develops: though people have plenty of leptin in their systems, their brains do not respond to the stimulus. This is partly a result of these people’s increased insulin, which crowds out the signals in the hypothalamus (itself inflamed by obesity which is a pro-inflammatory condition).
Dieting plays havoc with people’s hormones so that those that supress hunger (increase satiety) are reduced and those that increase hunger are elevated.
3. The Role Of Food - one of the main changes we have seen in the past decades has been a switch from traditional food to “canteen food”: increased vegetable oils, increased grains and increased processed foods (my kids love this stuff!).
The biggest change in food came in the 1980s following the publication in the US of that country’s first dietary goals (1977). This publication was deeply influenced by the various food lobbies and began the demonization of saturated fat (and its corollary, an increase in sugars from refined carbohydrates). It argued for:
increased carbohydrate consumption to 55-60% of energy intake;
decreased fat consumption from 40-30% of energy intake;
decreased saturated fat to 10%;
decreased cholesterol consumption to 300mg/day; and
decreased salt and sugar.
The turning of the tide against saturated fat has been a huge problem.
Research and clinical practice shows that saturated fats (olive oil, butter, coconut oil) are in fact far healthier than unsaturated fats (which are typically produced through extremely chemical processes that create damaging trans-fats).
Snacking is also very bad for our weight set point, as is sugar (raised insulin levels are closely associated with weight gain).
4. Essential Fatty Acids - One of the biggest changes in our diets is the shift in the balance between omega-3 and omega-6 fatty acids (these are substances that we cannot make ourselves, therefore need to get through foods). The ratio used to be around 1:1 to 1:4. It is now more like 1:20, even up to 1:50 in some places.
Research shows that a deficiency of omega-3 can be a cause of obesity (and several other nasty conditions) as it alters the composition of the brain cell membrane. Seek foods that are high in omega-3 (leafy vegetables and the products of animals that feed on leaves.
I personally supplement with fish oil and flaxseed.
5. What Can We Do - constant dieting is counter-productive, but we can reduce our weight set point gradually, over time, through paying attention to:
improve rest / sleep
exercise to lower cortisol
The composition of fats we eat (the omega 3:6 ratio)
avoid vegetable oils and foods cooked in or processed with them
avoid sugar and refined carbs (such as wheat)
don’t snack between meals
choose foods with low glycemic loads
exercise to lower insulin
Sleep is very important as is de-stressing (mindfulness can help).
Muscle tone can help lower both cortisol and insulin.
Intermittent fasting (16 hours off and 8 hours when you eat) is heathy because it reduces food intake and because it lowers your average insulin levels and so reduces your weight set point.
C. A Few Things Worth Checking Out
1. We discussed Epic Games last week and this week there was a lot of news around their fight (alongside Spotify) with Apple and it’s 30% take rate in the iTunes Store. How long will the Apple tax continue?
2. Both the UK and the USA have given official statistics on how e-commerce and retail have changed during lockdown. The headline numbers are pretty dramatic. The UK went from 20% e-commerce penetration to over 30% in two months, and the USA from 17% to 22%.
Ben Evans had a quick discussion on how much of it will stick.
This change in behaviour is what a lot of e-commerce stocks are trying to price. Many businesses are seeing YoY revenue grow of 60-90%.
3. Brian Armstrong, the founder of Coinbase was on Invest Like The Best discussing The Future of Crypto.
He thinks that the current financial system remains a barrier to innovation. Every country having their own currency is the equivalent of each having their own private internet.
The three things that crypto has to execute on to reach that next inflection point of adoption:
- Scalability – need more throughput of transactions for a lot of use cases.
- Usability – currently feels like the land of the techno-savvy.
- Security/Privacy – mainstream options (BTC/ETH) are all still only pseudo-anonymous.
4. A little tweet storm on Jordan Peterson. I know some of you aren’t fans.
5. This made me smile