This Year, Give Thanks For The Turkey


Can you imagine a Christmas ham on your Thanksgiving dinner table in place of the traditional turkey? My guess is you can’t, but it’s a scenario many economists have been worrying about for months. Many commentators feared that ordinary Americans would be driven to this holiday mix-up by that wonderful tool that helps allocate scarce resources – prices.  Thankfully, the price disruption is not as bad as predicted.

Family at the dinner table at the Thanksgiving day.

The concerns came from a massive outbreak of avian flu this summer. The disease ravaged states that are crucial to the production of our beloved holiday birds, leading to the loss of over 7.5 million turkeys. The outbreak has cost turkey farmers around $500 million. The epidemic also stoked concerns that turkey prices would rise dramatically, accelerating the traditional New Year diets and weight loss plans into November.

At the same time, pork production is skyrocketing and approaching an all-time high. But a strong greenback has been dampening international demand for American pigs, driving ham to its lowest seasonal price in 6 years. This led some onlookers to wonder whether price-conscious families might substitute ham for turkey this year at the Thanksgiving table. Should President Obama pardon a pig this week rather than following tradition and freeing a turkey?

Thankfully, the effect on turkey prices was nowhere near as dramatic as the image of a Thanksgiving Ham suggests. You see, the US produces 228 million turkeys each year, and the sick birds represented around 3 percent of the total. Further, many of the Thanksgiving birds had already been frozen before the disease took hold. In fact, while fresh turkey prices are up about 10 cents per pound, frozen turkey prices are actually slightly cheaper this year.

Frankly, it’s the side dishes that you should worry about this year. They are poised to hurt your pocketbook more than turkey. Prices for sweet potatoes are up 28 percent this year and regular potatoes are eight percent more expensive, while eggs will cost you a dollar extra. And while dessert might add a bit to your waistline, it has the potential to leave your wallet lighter. In one extreme case, a two-pack of a sold-out Walmart sweet potato pie is being offered on ebay for $12,000 after a video review of it went viral.   Walmart had been selling the pie for under $4.

Net net, analysts estimate this year’s meal will cost on average 6 percent more than last year’s.

Prices fluctuate from year to year, and we can’t plan for random events like a flu outbreak. But stepping back and looking at a longer time horizon can help us prepare for the future. For instance, it seems virtually certain that the global middle class is going to be larger – much larger – 15 years from now than it is today. And this expanded universe of consumers will drive a massive increase in demand for food; some experts predict a 35 percent increase by 2030.

This rise will be particularly pronounced for protein. When people get more money, they tend to consume more meat. This increase in demand will ripple through the entire meat value chain, from the grain fed to animals to fertilizers used to support grain yields. These structural forces may lead to a steady rise in your Thanksgiving meal bill for years to come, independent of random yearly events.

Of course, nothing is certain, and a variety of factors could counteract this trend. For example, we could see a dramatic downshift in demand for protein due to health concerns. Just think about the World Health Organization’s recent warning about a link between processed meats and cancer. We could also see a massive increase in food production efficiency thanks to the adoption of alternative protein sources or genetic modification of ones that are already popular.  Scaling back food-for-fuel policies might increase supply while increasing affordability. We should watch these developments closely.


Even the Thanksgiving dinner table is a vivid reminder of the complexity and uncertainty surrounding every aspect of the modern world. As the outlook for protein suggests, a booming middle class may soon be gobbling up turkeys and hams alike. So this year, as always, let’s be thankful that we can take a day to sit with family and enjoy a meal together—and remember those who can’t.



China Starts To Deal With One Child Ripple


Last month, China made the landmark decision of reversing its one-child policy by allowing married couples to have two children, after over 30 years of restrictions. This move was spurred on by the failure of previous attempts to stimulate childbirth and by the increasingly apparent slowdown in the Chinese economy. This policy shift won’t help the current situation, which is driven the bursting of a credit-fueled investment bubble. But one of the supposed benefits of central planning is the ability to look further into the future, and when China’s leadership does, it doesn’t like the outlook. You see, China’s one-child policy created a demographic wave that is starting to crash on the economy.


Let's remember that there are three primary sources of growth in any economy: (1) labor, (2) capital, and (3) productivity.  Labor-driven growth originates from adding more workers to an economy. Capital-driven growth comes from deploying more equipment. And lastly, productivity-driven growth is the result of squeezing more output from existing labor and capital.

Labor in China is unlikely to be a meaningful source of growth for the economy for decades to come. Sometime in the next few years, those leaving the labor pool will exceed those entering it. By 2035, 20 percent of the population is expected to be over 65. Young people entering the workforce—who are almost invariably only-children, due to the one-child policy—are already complaining about the pressures of taking care of aging parents on their own; they’ve been dubbed by the Chinese media “the loneliest generation.” Estimates from the UN and the Population Reference Bureau suggest that the new policy will add 23.4 million extra people to the population by 2050 (Chinese officials are putting the number at 30 million).  Even so, with the dependency ratio on the rise, labor may soon emerge as an economic drag.


What about capital? China is weaning itself off of a debt-fueled investment binge that has mis-allocated capital and created significant excess capacity. Its housing boom has turned to a bust. Might the dearth of home buyers be partially attributable to the one-child policy?  Simple math suggests China needs to spend at least the same amount this year as last to not shrink.  But there are plenty of signs of excess in past allocations; investing more today to stimulate the economy—in the face of overcapacity—can lead to an even harder landing in the future.


As for productivity, surely a factory worker is more productive than a farmer, and the ongoing urbanization can drive growth for many years to come, right? Not really.  While China’s data indicates significant potential for migration-fueled growth, much of this urbanization has already happened.  First, China defines a region as “urban” if it has a population density of 1500 people per square kilometer…but by that definition, Houston (America’s fourth largest city) is rural!  Second, the most likely age band to migrate is 16-24 year-olds, and that age band has shrunk by 25% between 2010 and 2015, another impact of the one-child policy. Third, China’s hukou residency permit system classifies individuals according to where they live, not where they actually are (and we’ve already had lots of migration). Thus, there are those working in actual cities that are deemed rural, or working in factories but are listed as farmers, and there are fewer potential migrants!

So what? My interpretation of these facts implies that China will continue to slow for the foreseeable future, even beyond the hiccups surrounding the transition from investment- to consumption-led growth. The world is underestimating Chinese urbanization, and there is a structural headwind that makes a low single-digit growth rate not just possible, but likely. This has massive implications for asset prices, interest rates, commodity markets, and inflation rates.  It may take a village to raise a child, but one child can create global economic ripples.




The world feels more precarious to me today than it has in a long time; it's feels like a ticking time bomb.  Perhaps it's just me, but everywhere I look, I see significant risks on the economic and political landscape. These thoughts are based on personal experiences over the past three months.

Less than three months ago, for instance, I flew from Singapore to Hong Kong, flying directly over the South China Sea.  At one point I saw the Chinese "islands" that are the source of so much controversy these days.  Just last week, US Secretary of Defense Ash Carter flew onto a US aircraft carrier as it transited through the disputed waters.  The Chinese reaction was swift and blunt: the official China Xinhua News agency called America "an irrelevant party" and noted US attempts to create fanfare in the South China Sea "might backfire."  Uh oh.  Worth watching.

I then spent some time in Canada in August, where everything from housing markets to labor conditions felt very shaky.  Regular readers of my writing will recall my piece entitled "Crazy Canadian Credit Confronts Crude, Eh?" in which I suggested a housing correction might be imminent.  Well, late last month Canada's largest mortgage insurance company warned that 11 of 15 major Canadian centers have overvalued markets and the OECD noted the Canadian housing market is at risk for a "sharp correction."  It seems underway.  Not good.

Last month I had a board meeting in Capetown and had a chance to observe the South African economy first hand.  Its outlook is grim.  Consider the following facts about the labor market: the unemployment rate for those under 24 years of age is a staggering 52%, but if you expand the rate to include the underemployed, the rate jumps to ~65%.  And although it's most severe among the youth, underemployment is over 40% for those between 25 and 34 years old.  Doesn't exactly seem like a recipe for stability.

And just a few days ago, I was in Nashville to give a talk.  What I saw was stunning.  The city is booming.  The Wednesday night restaurant scene was hopping and had a youthful, energetic buzz.  Cranes were everywhere, and the Nashville Business Journal even has a "Crane Watch" website to monitor the over 100 projects underway.  Sure seems like the benefits of quantitative easing have made their way to Music City; what's going to happen when the music stops?

I'll continue to comment on developments I find interesting and noteworthy.  In addition to posting my thoughts every Wednesday on my website, I have also begun posting them to LinkedIn, Facebook, and Twitter.  Listed below are links to my most recent comments.  As always, I'd appreciate feedback!

PS. I've recently migrated my Facebook presence to an "Author Page."  For those of you on Facebook, I'd greatly appreciate any support you may be able to provide by liking it as well as inviting colleagues, friends, and others to do the same. Thanks!


Water Wars Coming?

Water stress is beginning to rear its ugly head; one impact may be armed conflict as nations struggle to secure adequate water for agriculture and other basic needs.  How will this dynamic play out?  What's next?  Click HERE for my note.


Going Green, Collapsing Citrus

The citrus industry in Florida is on the verge of a complete collapse.  Why's that?  Citrus greening disease is spreading rapidly and it can't be stopped. What's next for Florida?  Click HERE for my thoughts.


Cuba Libre!

The largest Caribbean island is on the verge of entering the global economy.  What opportunities might it present?  Are there risks?   Click HERE for my piece.


Antiquated Commercials

In this fun note written on Back to the Future Day, I recount the experience of watching a movie on cable TV with my family.  The frustrations of commercials domineered our experience.  Click HERE for more.


Insatiable Battery Power Demand

The seeming unstoppable demand for portable power, driven by smartphones and tablets, is combining with the surge in all electric vehicles to support a spectacular outlook for the lithium industry.  Might lithium re-power Latin America?  Click HERE to read my note.


Forget Your Plans...

There's a fundamental difference between having a plan and planning.  In this note, I discuss the power of planning and its usefulness while suggesting that plans are less helpful.  Click HERE for my comment.


Water Wars Bubbling


“Water water every where, nor any drop to drink”
(Samuel Taylor Coleridge, “The Rime of the Ancient Mariner”, 1798)


The world is awash in water. 70% of the planet’s surface is covered by water, and significant water is frozen and in gaseous forms as well. Further, the volume of water on planet Earth has remained roughly constant for more than 1 billion years at 344 million cubic miles. By almost any account, water is quite literally everywhere. Yet we constantly hear of impending shortages. Why? To begin, 97.5% of the water on Earth is in oceans—and therefore salty and unfit for human consumption. If all of the planet’s water filled a typical one-gallon milk container, less than a teaspoon of it would be freshwater.

The Earth is constantly recycling the water we use. But we’re stressing the system by not allowing it adequate time to replace the growing amounts we demand.  "Can’t we just make new water?" you might ask.  Well, our galaxy is actually creating new water molecules all the time—enough to fill the oceans of Earth multiple times per hour.  Unfortunately, this is happening far from our planet, and it won’t be efficient—at least for the foreseeable future—to transport it here.  Net net, our heavy use of freshwater certainly appears to be a problem without an easy solution.  And worse, the pressures are building: demand for water is predicted to exceed supply by 40 percent by 2030.

The already scarce supply of the freshwater consumable by plants, animals, and humans is being further limited by climate change, which is changing historical rainfall patterns and increasing the severity of storms.  Meanwhile, demand is driven by agriculture, which accounts for more than 90% of freshwater use each year. The same forces driving demand for food—namely a global population boom and increasing preferences within that population for animal protein—are placing unsustainable pressure on water supplies.

Climate change and food-driven water demand are creating a toxic cocktail that may shock global stability. We are already flirting with severe water shortages on a regular basis. Consider that 1 in 4 large cities are “water stressed,” according to the Nature Conservancy.  Barcelona actually came within days of running out of water in 2008 and was forced to import a tanker of drinking water.  More recently, California, which has been warming for the last 30 years, has been suffering its worst drought in 1,200 years, one study found.  In South Africa, another terrible drought has forced Johannesburg to impose restrictions on water use. By 2025, two-thirds of the world’s population could be living under water stressed conditions.


Water wars are coming. The US National Intelligence Strategy, released in September of last year, highlights an elevated potential for water scarcity to generate instability. Further, a US intelligence community report on Global Water Security released in 2012 clearly warned that “During the next 10 years, many countries important to the United States will experience water problems—shortages, poor water quality, or floods – that will risk instability and state failure, increase regional tensions, and distract them from working with the United States on important US policy objectives.”

Might water wars already be brewing?  Pakistan, one of the most water-stressed countries in the world, has an ongoing dispute with India over access to water, in which radicals have called for “water jihad.”  New Delhi also fears that a new Chinese dam project in Tibet could be used to restrict water supplies downstream in northern India. In March, an Ethiopian dam under construction that could have limited Egyptian and Sudanese access to water nearly generated conflict. In central Asia, there is a similar ongoing disagreement over a Tajikistani dam that could restrict water access in Uzbekistan.   These are but a few of the water tensions bubbling globally.

The sad reality of the situation is that it may soon be time to update the Coleridge quote with which I began this piece to “Water wars everywhere, nor any drop for peace.”


Going Green, Collapsing Citrus, and Blood Avocados


For decades, Florida was the undisputed citrus capital of the world. The state’s groves produced 70% of oranges in the United States as of 2011. These fruits were central to the daily routines of most Americans. At one point, more than 75% of American refrigerators contained orange juice. Florida’s beloved breakfast beverage was marketed as “liquid sunshine” and was to breakfast what fireworks were to Independence Day.


The citrus industry in Florida today is on the verge of complete collapse. A 2005 outbreak of a bacterial disease known by its Chinese name Huanglongbing has spread like wildfire through the sunshine state and now infects almost all citrus groves. Known more commonly as “citrus greening disease,” the bacteria begins in a tree’s roots and slowly chokes off nutrients from reaching the fruit. Leaves wilt, the fruit turns green and sour, and eventually the tree dies. It is transmitted from tree to tree via the Asian citrus psyllid, a small insect that specifically targets citrus.

As a result, this year Florida is expected to produce 66% fewer oranges than it did before the outbreak a decade ago, reaching the lowest level of output since 1964. Since 2007, the industry revenues have declined by $1 billion each year due to the disease.

Most attempts to roll back the disease within an infected tree have failed. Thermotherapy that heats the trees in tents to 100 degrees for several days merely extends the tree’s life by a few years. Scientists are now focusing on the next generation of trees. Efforts include raising genetically modified citrus trees and even the introduction of parasitic Pakistani wasps that target the disease-transmitting psyllid. The State Agriculture Commissioner is seeking millions to help continue to fight the disease.

Given that America’s love affair with orange juice was already waning (concerns over sugar, changing breakfast habits, and lots of competitive offerings) independent of the disease, might Florida’s greening be an opportunity? Consider that while orange juice consumption plunges, avocado consumption is skyrocketing. In the last 15 years, America’s per capita consumption of avocados has risen from 1.1 to almost 6 pounds per year.

Given adequate local water supply, developed infrastructure, and the cooperative climate, could avocados save Florida’s agriculture industry? Granted, Florida’s avocados are not as fatty or creamy as the Mexican Haas variety, but they’re also not generating armed conflict. The US imports more than $1 billion of Haas avocados from Mexico’s Michoacán, a state plagued by gang warfare over the revenues generated by what locals call “oro verde” (green gold). Might Americans’ insatiable appetites for guacamole save the Sunshine State?


Subscribe To My Newsletter