Update: Police have identified and apprehended the sick-licker, but will not name her because she turns out to be a minor. Before they realized she was a teenager, police warned they had planned to arrest her on a charge of second-degree felony tampering, which carries a maximum sentence of 20 years in jail. But…
“Because she is a juvenile offender, her identity is protected under section 58.104 of the Texas Family Code,” Lufkin Police Department spokesperson Jessie Pebsworth said.
“The case will be turned over to the Texas Juvenile Justice Department.”
So it appears a hefty fine and jail time are off the cards? Maybe a hug? Or blame it on race-pressure and income inequality forcing her to do it? Consequence-free America rules once again.
* * *
In a video that went viral widely across social media – for all the wrong reasons – a young woman in Texas walked into her local Walmart, opened a container of ice cream, licked it, and then put it back in the freezer.
But now the sick joke could be on the woman, instead: she faces up to 20 years in prison as a result of her actions, according to KSTP ABC.
The ice cream company saw the video and immediately issued a statement saying that the licked ice cream was never sold.
The company stated:
“Our staff recognized the location in the video, and we inspected the freezer case. Based on security footage, the location and the inspection of the carton, we believe we may have recovered the half gallon that was tampered with. Out of an abundance of caution, we have also removed all Tin Roof half gallons from that location.
They continued: “Food tampering is not a joke, and we will not tolerate tampering with our products.”
The company then notified the police upon figuring out which store was involved, and now authorities believe they’ve identified the woman based on surveillance footage. They intend on arresting her on felony second degree tampering with a consumer product charges. It’s a charge that can carry up to 20 years.
The department also said it is consulting with the FDA about possible Federal charges.
via ZeroHedge News https://ift.tt/2FV1C9W Tyler Durden
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
~ Charles Mackay (1841)
Like me, you may often feel gobsmacked when looking at the world around you.
How did things get so screwed up?
The simple summary is: the world has gone mad.
It’s not the first time.
History is peppered with periods when the minds of men (and women) deviated far from the common good. The Inquisition, the Salem witch trials, the rise of the Third Reich, Stalin’s Great Purge, McCarthy’s Red Scares — to name just a few.
Like it or not, we are now living during a similar era of self-destructive mass delusion. When the majority is pursuing — even cheering on — behaviors that undermine its well-being. Except this time, the stakes are higher than ever; our species’ very existence is at risk.
Bizarro Economics
Evidence that the economy is sliding into recession continues to mount.
Yet the major stock indices hit all-time highs earlier this week. And every one of the 38 assets in the broad-based asset basket tracked by Deutsche Bank was up for the month of June — something that has never happened in the 150 years prior to 2019.
It has become all-too clear that markets today are no longer driven by business fundamentals. Only central bank-provided liquidity matters. As long as the flood of cheap credit continues to flow (via rock-bottom/negative interest rates and purchase programs), keeping cash-destroying companies alive and enabling record share buybacks, all boats will rise.
So this week, the world found itself waiting for the release of the latest jobs report. And here’s how perverted things have become: investors were praying for disappointing data. They WANTED to see more warning signs of the recession threat.
Why?
Because a worsening macro outlook will make it easier for Federal Reserve Chair Jerome Powell to deliver on the future interest rate cuts investors are counting on. And rate cuts should boost stock prices higher (as well as the prices of nearly all other assets, too).
In a sane world, when signs of an approaching recession are visible, stocks and other risk assets should be nowhere near all-time highs. And should recessionary warnings mount, stocks should start diving, as recession = lower earnings + higher interest rates = lower valuations.
But in today’s bizarro world, investors pray for bad data.
One day — likely soon — investors will get exactly what they’re asking for. And when the next recession arrives in force, and zero/negative interest rates fail to stem the tide of layoffs, bankruptcies and defaults, they’ll realize too late that the trade-off of artificially high asset prices today for an eviscerated economy tomorrow was a fool’s bargain.
Bizarro Energy Policy
Like it or not, our economy and our way of life remains incredibly dependent on fossil fuels.
Given that, reason would dictate we should treat our remaining — and finite — fossil energy deposits as national treasures, to be put to the best and highest possible use, and conserved as much as possible.
But in today’s bizarro world, we instead rush as fast as we can to extract and burn as much as we can. At an economic loss.
But those volumes won’t last. As we’ve carefully explained in our Crash Course video chapter on Shale Oil, these shale basins are a short-lived bonanza given their extreme exponential decay (85% of a shale well’s lifetime output is extracted by year 3) and the fact that the most-promising plays have already been drilled. What’s left is increasingly just dregs.
But making today’s frenzied efforts to drain our shale basins even more regrettable is that we’re doing it unprofitably. We’re rushing to export our arguably most valuable national treasure and losing money in the process.
How does this serve us?
A ‘’Gusher Of Red Ink’’ For U.S. Shale
Yet another downturn could not come at a worse time for U.S. shale drillers, who have struggled to turn a profit. Time and again, shale executives have promised that profitability is right around the corner. Years of budget-busting drilling has succeeded in bringing a tidal wave of oil online, but a corresponding wave of profits has never materialized.
Heading into 2019, the industry promised to stake out a renewed focus on capital discipline and shareholder returns. But that vow is now in danger of becoming yet another in a long line of unmet goals.
“Another quarter, another gusher of red ink,” the Institute for Energy Economics and Financial Analysis, along with the Sightline Institute, wrote in a joint report on the first quarter earnings of the shale industry.
The report studied 29 North American shale companies and found a combined $2.5 billion in negative free cash flow in the first quarter. That was a deterioration from the $2.1 billion in negative cash flow from the fourth quarter of 2018. “This dismal cash flow performance came despite a 16 percent quarter-over-quarter decline in capital expenditures,” the report’s authors concluded.
They argue that the consistent failure for the sector as a whole to generate positive free cash flow amounts to an indictment of the entire business model. Sure, a few companies here and there are profitable, but more broadly the industry is falling short. The “sector as a whole consistently fails to produce enough cash to satisfy its voracious appetite for capital,” the report said. The 29 companies surveyed by IEEFA and Sightline Institute burned through a combined $184 billion more than they generated between 2010 and 2019, “hemorrhaging cash every single year.”
Rystad Energy put it somewhat differently, although came to the same general conclusion. “Nine in ten US shale oil companies are burning cash,” the Norwegian consultancy said late last month. Rystad studied 40 U.S. shale companies and found that only four had positive cash flow in the first quarter. In fact, the numbers were particularly bad in the first three months of this year, with the companies posting a combined $4.7 billion in negative cash flow. “That is the lowest [cash flow from operating activities] we have seen since the fourth quarter of 2017,” Rystad’s Alisa Lukash said in a statement.
More than 170 U.S. shale companies have declared bankruptcy since 2015, affecting nearly $100 billion in debt, according to Haynes and Boone. There have been an estimated 8 bankruptcies already this year, with some $3 billion in debt restructured.
“Frackers’ persistent inability to produce positive cash flows should be of grave concern to investors,” authors from IEEFA and the Sightline Institute wrote. “Until fracking companies can demonstrate that they can produce cash as well as hydrocarbons, cautious investors would be wise to view the fracking sector as a speculative enterprise with a weak outlook and an unproven business model.”
Bizarro Environmental Destruction
And if the above weren’t bad enough, when we look at what we’re doing to the natural systems we depend on to simply exist, the data is downright horrifying.
A full listing of recent depressing scientific findings would read encyclopedic. So I’ll just stick to the big picture: species extinction is happening at the highest rate ever, short of a massive meteor slamming into the planet.
The world’s plants are disappearing 500x faster than they should. The global animal population has decreased by 60% since 1970. The UN now predicts a million more species will go extinct within the next few decades.
But in today’s bizarro world, there’s a perverted incentive to sacrifice biological capital for financial capital.
The scarcer the tuna become, the higher the price the fisherman will get for his catch at market. As long as commercial demand is kept artificially boosted by central banks, the economic incentive to bulldoze the next hectare of rainforest will continue to overpower the argument to conserve it.
Whoever hooks the last tuna in the oceans will get one hell of a price for it. But tell me, what will the 8+ billion humans left on earth eat then?
Your Positive Action For The Day
If you’re a regular reader of PeakProsperity.com, little of the above comes as a surprise to you.
You’re likely very well aware of our stance that developing a more resilient way of life, of living within our financial/energetic/ecologic budgets, both as individuals and as a society, is our path out of the tremendous hole we are currently creating for ourselves.
But many haven’t. And most folks out there remain unaware of the bizarro behavior driving society’s future prospects — and the planet’s — into the abyss.
So, we here at Peak Prosperity have taken our best effort at creating a ‘comprehensive yet concise’ article designed for sharing with the friends, colleagues and family in your life whose eyes aren’t yet open to the brewing predicaments mentioned above.
Our intent is to awaken new minds to the challenges we face and instill a sense of urgency to act, but provide a ‘call to greatness’ inspiration vs a huddle-in-fear response. And, most important, our goal is to encourage folks to take at least one immediate act that will increase their personal level of resilience.
We’re circulating this article widely through all of our website/syndication/social media channels. Our ask of you today is to share it amongst any audiences you think it could benefit.
Will we awaken the majority of the masses overnight? No. But every transformative movement began with a motivated group who possessed a revolutionary way of thinking, and successfully carried that light into the world.
Help us carry the light today. Today’s bizarro world sorely needs it.
via ZeroHedge News https://ift.tt/2xArCCZ Tyler Durden
President Trump on Friday said that his administration would begin rounding up illegal immigrants for mass deportation “fairly soon,” after the operation was postponed last month due to someone leaking the date.
“I don’t call them raids. I say they came in illegally and we’re bringing them out legally. They’ll be starting fairly soon. We’re removing people that have come in, all of these people over the years that have come in illegally, we are removing them and bringing them back to their country,” Trump told reporters at the White House.
President Trump: “Well, I don’t call them raids. I say they came in illegally and we’re bringing them out legally. These are people where we have the papers, we’ve gone through the court system. They’ll be starting fairly soon.” pic.twitter.com/cJ6A2d3EAL
U.S. Immigration and Customs Enforcement (ICE) last month said operations would target recently-arrived undocumented migrants in a bid to discourage a surge of Central American families at the southwest border.
ICE said in a statement its focus was arresting people with criminal histories but any immigrant found in violation of U.S. laws was subject to arrest. –Reuters
The new sweep comes after migrant apprehensions on the southwest border hit a 13-year high in May, only to dramatically drop in June after Mexico deployed their National Guard stem the flow of mostly Central American migrants into the United States.
According to documents published this week by migrant rights groups, ICE has previously made more so-called “collateral” arrests of non-criminal migrants (aside from residency) than the criminals they were targeting. The rights groups say that the US government’s ‘generalized threat’ against illegals is harmful to the US economy, as it forces adults to miss work and children to skip school if they feel they may be at risk of arrest.
“We have to be ready, not just when Trump announces it, because there are arrests every day,” said New Mexico migrant rights organizer Elsa Lopez, who works for Somos Un Pueblo Unido. The organization helps migrants enter the United States; advising them on their civil rights, and connecting them to a phone network that will send alerts if ICE agents are in their neighborhood.
A rising number of migrants are coming from outside Central America, including India, Cuba and African countries. The Del Rio, Texas, Border Patrol sector on Friday reported the arrest of over 1,000 Haitians since June 10. –Reuters
Between the Mexican national guard and the looming threat of being tossed in a detention facility while awaiting deportation, we wonder how many migrants have recently decided against the already-dangerous trek into the United States?
via ZeroHedge News https://ift.tt/2Xrcbru Tyler Durden
The European slump had been a combination of several transitory factors. At least that’s what they had kept saying. ECB officials and staff Economists didn’t use that specific word, so far that’s the exclusive domain of the Federal Reserve. Regardless of semantics, the message was clear: the 2018 economy ended on a sour note but that was nothing to be worried about, soon to be forgotten.
In January 2019, various private Economists pitched in. One working for JP Morgan, Greg Fuzesi, estimated that the low level of water in the Rhine and other waterways was responsible for taking 0.7 percentage points away from 2018 German GDP.
The implication was clear – in theory. Dissipating also “temporary shocks in the auto and pharmaceutical industries” along with a little more rain and Germany would be right back at its familiar place as the engine of Europe’s accelerating, inflationary breakout.
Except:
Fuzesi notes that not all of Germany’s weakness can be explained by such one-off events, and the cause of the rest is a “puzzle.”
To end 2018 on such a worrisome note, German factory orders in December had been 4% less than they were in December 2017. It was the largest decline since 2012 – the last time all of Europe, Germany included, had been subjected to an official recession declaration. A quick turnaround wasn’t just desirable.
If not rainfall and emissions tests, then Germany and therefore all of Europe would be in for some serious trouble. Hopefully, then, not the “puzzle.”
According to estimates released today, the German factory sector is still shrinking. Updating data through the month of May 2019, DeStatis believes new orders in that month were nearly 9% lessthan they were in May 2018. Rather than get any better, factory orders are accelerating on the downside.
May’s decline was the largest since September 2009. Given that the contraction in them began last August, with the downturn starting last January, nearly a year and a half ago, the words “temporary” or “transitory” just don’t apply.
Nor does the word “puzzle.”
From June 2011 to November 2012, factory orders slid for sixteen months, falling by a total of around 9.5%. Going back to the very start of 2018, factory orders are lower (seasonally adjusted) for now seventeen months and counting. The overall decline so far reaching more than 11% in total. Already worse than what was an outright recession before.
Seven years ago, Economists wouldn’t have cited a puzzle for the European economy’s shocking recession. They did claim it was “unexpected”, of course, but once it happened they all pinned the thing on Greece (and Club Med, or PIIGS). There isn’t an obvious Greek problem today, thus either rainfall or a puzzle.
If, however, 2011-12 had less to do with southern sovereign debt, and was instead due to much the same thing as what Europe (and the rest of the world) is confronting today, then we are left to first worry about how this time is already much worse than that time – with bond yields and curves telling us there’s still a lot more of this to come.
A slow-motion train wreck is still a train wreck. Whether it ever gets categorized as a “recession” by officials is immaterial.
All throughout last year, it should be noted, the US jobs report remained elevated at least compared with 2017’s. These were characterized as representing a strong American labor market for the world economy to latch onto. At the very least, the US system would be left immune to “overseas turmoil.”
And yet, the global economy throughout 2018 continued to grow weaker as did, as we see now, the US economy and labor market.
In other words, Germany’s manufacturing problems were forward looking in a way the US payroll figures absolutely were not. This year, it is the latter which are moving in the former’s direction rather than the other way around. The Germany factory estimates have been telling us which way this thing is going, the US labor data confirming it that way later on (including the numbers today).
Though still a puzzle for them as to why, even the Economists are finally giving up on transitory; not that they have any choice in the matter.
German factory orders slumped in May in the latest sign that global trade uncertainty is turning Europe’s temporary slowdown into a more serious downturn…
ING said the report “wraps up a week to forget,” and JPMorgan now predicts that Germany may have contracted in the second quarter. If that happens, it would be the third time in a year that Europe’s largest economy posted no growth at all.
For now, the American payroll report is being talked about as if it offsets or contradicts this clear German gloom. Given recent history, however, it is much more likely that no one will remember the June payroll numbers.
Things are pointing down, and both data points (Germany’s factories and the US jobs market) actually are in agreement. The only difference, what last year was called “decoupling”, is timing. The Germans are leading the way, and unfortunately that suggests a very real probability Euro$ #4 is nastier than either #3 or, in Europe even, #2.
Rather than rainfall or a trade truce, being able to solve the puzzle is the only thing which could prevent those comparisons. And time is running out; not just in Germany, but everywhere.
via ZeroHedge News https://ift.tt/2YBJ9Xx Tyler Durden
Just as glimmers of hope were starting to emerge that Turkey may finally crawl its way out of the deep hole it dug for itself last summer… and Erdogan happens.
* * *
The world sure can be an ironic place: just one week after the Bank of International Settlements highlighted Turkey as the case study of all the bad things and political costs resulting from political meddling and intervention in a central bank’s affairs when BIS General Manager Agustin Carstens said “you see the government undermining the autonomy of the central bank and at the same time you see the negative consequences,” adding that looking at Turkey, other countries can “see what happens when the government tinkers with the autonomy”, president Erdogan had just one message: “hold my bear.”
That’s right: two weeks after Erdogan appeared to finally throw in the towel on aggressively authoritarian practices when he conceded the loss of the Istanbul election revote to his ruling party’s primary challenger in a surprisingly subdued reaction, the “executive president” reminded everyone just why Turkey remains a consummate basket case, when on Saturday morning, Erdogan unexpectedly fired Murat Cetinkaya as central bank governor, after he reportedly refused an informal request to resign, according to Bloomberg which also correctly notes that the decision to terminate the centrist central banker risks a furious market backlash just as foreign money started returning to Turkey and central bankers were expected to start interest-rate cuts.
Murat Cetinkaya
To single-handedly fire the central bank head – and remind the world just who is Turkey’s boss – Erdogan used the powers gained from last year’s general election, which transformed the political system into an executive presidency, effectively making Erdogan into an “unchecked”, quasi-dictator. And, as a reminder, the first batch of presidential decrees issued under the new rules last July included a change that allowed Erdogan to name central bank governors – an appointment that previously required the support of the cabinet.
The rising tensions between the now ousted central banker, whose four-year term was due to end in 2020, and the government hit a breaking point after a monetary authority meeting on June 12, when he kept borrowing costs unchanged over Erdogan’s long-running demands for a rate cut, according to Bloomberg sources. The now terminated governor was appointed in April 2016, and was often criticized for acting too slowly to tighten monetary policy during a currency rout in August. He then showed resolve in the face of market turmoil, increasing the benchmark interest rate by 625 basis points in September and holding it ever since; however by doing so he infuriated Erdogan which ultimately cost him his job.
In addition to sparking Erdogan’s anger, Cetinkaya also came under fire by the international community for his lack of transparency over recent volatility in the bank’s reserves, prompting concerns that the central bank was using its assets to prop up the lira before municipal elections earlier this year.
He also sparked outrage in late March when in order to crush lira shorts, he sent the overnight lira swap rate as huigh as 1,400%, a move Turkey borrowed from the PBOC, and in the process crippled foreign investors’ faith in the country.
Cetinkaya’s replacement is said to be the bank’s Deputy Governor Murat Uysal, according to a presidential decree in Saturday’s Official Gazette, and while his policy style is unknown something tells us he will be glad to cut rates all the way back to zero even if it means a collapse in what had recently become the world’s favorite carry currency due to its shockingly high 24% rate.
The “shock ouster”, as Bloomberg called it, is set to reignite investors’ concern about the central bank’s independence, and may derail a ridiculous rally in the lira that started at the beginning of May, driven largely by Mrs Watanabe, whose penchant for chasing momentum is about to blow up in her face again.
Cetinkaya’s termination also came just a few days after Turkey’s real rate – a number which is even more manipulated than Turkey’s “official” reserve data, or any economic data out of China, printed at 8.3%, which while the highest in the world was below expectations, giving policy makers room to start an easing cycle.
And with the next policy decision is scheduled for July 25, FX investors can shift their obsession from the Fed, which is no longer set to cut by 50bps just a few days later, but to Turkey, where the only question is how many percent will Uysal cut the repo rate by to make sure he isn’t fire just weeks after he was appointed.
“By abruptly dismissing Cetinkaya, Erdogan reminded everyone who is in charge of monetary policy,” said Rabobank’s Piotr Matys, a longtime skeptic that Turkey has any chance of normalization as long as Erdogan is in charge. “The decision is set to undermine credibility of the central bank, which may start unwinding the emergency rate hike announced in September much faster than previously anticipated.”
To be sure, the move is set to reverse the Lira’s recent appreciation, and will likely result in a plunge when trading resumes late on Sunday that could see the TRY plummet back under 6.00 vs the USD.
Bloomberg’s mideast economist Ziad Daoud, wrote that “If Erdogan’s aim was to get lower interest rates, then the decision to replace the governor could backfire. Now there’s an additional credibility constraint, with financial markets certain to scrutinize the motivation and magnitude of any easing. Investors will question whether it was really warranted by economic data, or if it was delivered under pressure from the government.”
Just like Trump, Erdogan has frequently criticized the central bank for keeping borrowing costs elevated, and just last month, he complained that while the U.S. Federal Reserve is moving closer to lowering interest rates, “the policy rate in my country is 24%, this is unacceptable.”
Of course, Trump may beg to differ.
Then there is also the question of just what is the true level of CBRT’s net reserves, and whether the central bank used up most of its reserve “dry powder” to prevent the lira from crashing below 6.00, with the currency now set for a far worse collapse with the central bank now unable to do anything to prevent a plunge to new record lows.
Furthermore, in cracking down on the central bank, many are asking if this sets the stage for Trump to pursue a similar course of action with the Federal Reserve, whose head Trump has repeatedly lashed out against in recent weeks; in fact just on Friday, Trump said the Fed is “our most difficult problem” and that the Fed doesn’t have a clue
….As well as we are doing from the day after the great Election, when the Market shot right up, it could have been even better – massive additional wealth would have been created, & used very well. Our most difficult problem is not our competitors, it is the Federal Reserve!
Amusingly, the new head of the CBRT, Uysal, deputy governor since June 2016, said he would continue to implement monetary policy independently, in line with his mandate and authority. Spoiler alert: he won’t.
And now we patiently wait until Trump gets wind of what just happened in Turkey, and tweets his praise for Erdogan’s show of power over the central bank, or – just to show the world that he has more executive power than the Turkish president – goes for the kill and informs Powell – via Twitter – that his serves are no longer necessary, and he will be replaced by Neel Kaskhari.
via ZeroHedge News https://ift.tt/2JwqCWl Tyler Durden
“We’re moving from a world that was constantly globalizing to one breaking up into three different empires, each with their own currency, reference bond market, supply chains. There are massive investment implications.”
–LOUIS GAVE
INTRODUCTION
As is often the case in the current news environment, the endless headlines surrounding the relations between the United States and China overshadow the substance of underlying policy and provide little added value to the public. While this may make for good political theatre, it leaves many struggling to grasp what has been developing not just over the past year, but quietly for the past decade. In this week’s EVA, Evergreen Gavekal partner Louis Gave offers thought-provoking insights on the complex “trade war” being staged by the two countries. Louis – and the venerable Charles Gave, with his 50 years of investment experience – argue there are far bigger implications for the ongoing battle than just the balance of imports and exports. The following examines the events that have led us to this point, as well as the options that may be exhausted going forward.
Of perhaps even greater value to our loyal readers, they shed light on the consequences of the structural changes occurring in global trade and how that shapes portfolio management decisions. What was very recently a world dominated by the narrative of globalization, allowing for many investment opportunities—especially in technology—we have since seen that storyline experience massive decoupling. As Bob Dylan said, “the times, they are a-changin’”—yet the Gaves wonder why investors have failed to change their investments with the times. Whether it be due to a lack of awareness regarding the two nations’ agendas, or uncertainty of how these changes impact the broader economy, or simply a complacency born of a decade-long bull market, investors are at risk of getting caught flat-footed by a reversal of one of the main drivers of the global economy since the end of WWII.
The wisdom in this piece gives much-needed clarity to those looking beyond the noise of the daily news cycle, and who are instead seeking to comprehend the power struggle between the world’s two behemoths from a big-picture perspective. Do enjoy.
Over Christmas, Charles and I hunkered down to write our latest book Clash Of Empires: Currencies and Power in a Multipolar World. In recent months, we have both met with many clients and discussed its core thesis that globalization is ending and the world is breaking into three separate economic zones with their own (i) trade and reserve currency, (ii) bond market of reference and, perhaps most importantly, (iii) dedicated supply chains. In short, 15 years after we described a new era of globalization in Our Brave New World that period may be drawing to a close. As such, recent discussions with clients have typically gone something like this:
Charles/Louis: “Do you believe that globalization was one of the most important macro trends of the past couple of decades?”
Most clients: “Absolutely.”
Charles/Louis: “Do you believe that globalization is coming to an end?”
Most clients: “It sure looks that way.”
Charles/Louis: “What are you doing about this in your portfolio?”
Most clients: “So far, nothing.”
The aim of this paper is to tackle the quandary thus highlighted.
The New Cold War
Given the back-and-forth between China and the US over the past year (trade wars, Huawei, threats to Hong Kong’s special status) President Xi Jinping has likely concluded that “just because you’re paranoid it doesn’t mean they aren’t after you”. Even if Xi and President Donald Trump exit their G20 meetings singing Kumbaya, China is likely to keep planning for a long, drawn-out cold war with the US. Given the bipartisan, anti-China rhetoric emanating from Washington DC, Beijing has to conclude that its key relationship has changed.
The Nixonian policy of “bringing in China from the Cold” has now run its course. From Beijing’s perspective, the US’s new China policy seems to be containment – technologically, economically and geographically.
Thus, even while hoping for the best, any forward-thinking Chinese leader must now plan for the worst. This means dealing with China’s most glaring weaknesses of which there are three; namely, its dependence on overseas supplies of (i) technology/semiconductors, (ii) energy and (iii) US dollars.
Technology/Semiconductor dependence
The first job of any empire is to control key axes of communications (all roads lead to Rome, and all that). In this regard, the US was as likely to yield a key part of the world’s critical telecom infrastructure to Chinese corporates as it was to give up control of the world’s sea-lanes. After all, the valuable “goods” of tomorrow are more likely to be digital information passing through telecom switches than actual goods being moved on a ship.
Thus, when Australia and New Zealand a year ago announced that they would ban Huawei from building their 5G networks, it was possible to find a positive take on the headline: as two key US allies in the Pacific reject Chinese technology, the US security establishment might relax about the unfolding Chinese telecom breakthroughs. Unfortunately, perfidious Albion’s decision to embrace Huawei changed the dynamic. It’s almost as if Britain announced: “we will use Huawei” and the US security establishment replied, in one voice, “The hell you will. We’re shutting it down.”
China’s vulnerability stems from semiconductors being its biggest import item (about US$260bn a year against energy’s US$170bn) and that US semiproducers hold most of the world’s important patents. This is a theme that colleagues Dan Wang and Matt Forney at Gavekal-Fathom China have spent the past couple of years writing about. And suffice to say that the US deciding to “weaponize” semiconductor exports leaves Chinese policymakers with the following choices.
Fold and accept that Huawei, along with any other Chinese tech company, will have to accept being also-rans.
Pour money and human resources into reducing the technological gap with the US in semiconductors.
This second choice brings us to a remark made by an old friend Ajay Kapur (strategist at BofAML) that only countries that spend lots of money on their defence sectors have a thriving tech sector. Of course, spending heavily on weapons does not automatically trigger technological progress (if so, Saudi Arabia would have its own Silicon Valley). But it does seem to be a necessary, although not sufficient, condition for breakthroughs.
All about the military
Back in the days when France and Britain had proper military budgets, France invented the Minitel, while Alcatel and Marconi were telecom giants. Today, most tech breakthroughs seem to come from the US (which spends more on defense than the next ten countries combined), Israel (a big military spender as a share of GDP), South Korea, and perhaps even Taiwan. Thus, the first consequence of the unfolding “tech war” may be that China cranks up its military budgets, including large sums going into military “research”.
This doesn’t mean that China will “crack the semi code”. But it will throw both money and people at the problem. Twenty years ago, China produced less than a million university graduates a year, with roughly half in the sciences. Today, the ratio remains the same, but this summer more than eight million university students will graduate in China. It now has more graduate students than it had undergrads a generation ago. Now, scientific breakthroughs are not a numbers’ game, but numbers do help!
For US tech firms, this looks like the worst of both worlds: on the one hand, the US government is telling them to kiss goodbye the fast-growing Chinese market. On the other hand, China’s government is likely to heavily support new competitors challenging the US producers. Such competitors do not have to worry about making money, or even achieving positive returns on invested capital as the reason for being is first and foremost national security.
Recent weeks have seen a number of US tech firms announce that their sales outlook is darkening. Unsurprisingly, it seems that uncertain CEOs are choosing to sit on their hands until visibility improves—a development that may put the impressive outperformance of tech stocks under pressure.
Looking past current tensions, US tech stocks are threatened by the US-China standoff becoming a full-scale cold war. First, this would devastate supply chains, with major consequences for productivity and profitability. The second, and more alarming prospect, is that the breakdown in relations worsens to an extent that China’s policymakers conclude they have no interest in respecting intellectual property rights. After all, if we move into a world where Chinese exports into the US, and other developed world countries, become constrained, China may decide to forgo those markets. It could instead focus on reverse-engineering Western products like jet engines and medical devices with a view to selling them into emerging markets.
Such a possibility brings me back to themes outlined in Our Brave New World. Back in 2005, we argued that in a “globalizing” world, intellectual property would become ever more valuable. But, of course, for such a construct to sustain value, governments would have to agree to protect it.
Over the past decade, financial markets have aggressively re-rated sectors like tech and healthcare which are rich in intellectual property just as “asset-heavy” sectors like energy and materials have underperformed (see chart overleaf). And just as the valuation gaps between the “IP heavy” MSCI Growth index, and the “asset heavy” MSCI Value index continues to widen, the US has decided to turn tech into the battlefield of the China-US cold war.
Charles’s family hails from Alsace, the French region that witnessed the 1870 Franco-Prussian war and epic battles in both WW1 and WW2. More than any region, Alsace was the battleground on which Franco-German rivalries played out for 75 years. And as anyone from Alsace will tell you, being the battleground is no prize. Once battles are over, one is left with ruins and, if lucky, one’s eyes to cry with. And this brings me to the US decision to make tech the battlefield on which the unfolding cold war will be fought.
This decision has been driven by the US holding a big comparative advantage in technology. But by picking this battlefield, could the US be replicating the French mistake at Dien Bien Phu? Back in 1954, the French were convinced they held superior troops, superior equipment and superior officers to the guerrilla-driven Vietminh (very unlike the French to feel superior). All they needed was to force the Vietminh into a proper, open battle and the Indochina war would come to an end. France picked its battlefield, the battle took place, and the war in Indochina did end—at least for the French, though not with the outcome the French general staff had expected.
Picking tech as a battlefield – a weaker dollar?
Amazingly for an economy in its 10th year of expansion, with record-low unemployment and record high asset prices, the US budget deficit rose by 39% in the first eight months of this fiscal year. It’s likely that for 2019, the deficit will be south of 5% of GDP. And despite the energy sector registering big productivity gains that have put the US on the cusp of being a net energy exporter, the US current account balance remains in the red. As a result, the US “twin deficits” remain south of 5% of GDP, a level which, for most countries usually means a weaker currency—unless one can attract foreign capital in a constant manner to plug those massive deficits.
Historically, the US has been good at attracting foreign capital. By promising to treat foreigners on a par with Americans, by maintaining an independent judiciary and defending property rights, it has been a safe-haven destination for at least a century. Indeed, it remains, the ultimate “risk-free” destination, unless you happen to be Iranian or Venezuelan.
The US’s haven status got a boost from European policymakers’ decision to impose the euro on a perfectly well functioning set of heterogeneous markets. It was also helped by so much wealth creation in recent decades coming from countries like China, Russia, Brazil and Mexico, where elites have sought to diversify their wealth away from domestic markets and currencies. In short, the US could run massive twin deficits and the dollar would remain the choice destination for asset allocators.
The changing rates environment
Having said that, there were probably still two factors which did help the US dollar stay strong in the face of large twin deficits: positive interest rate differentials, and the outperformance of tech.
The first is obvious enough. With Europe and Japan embracing negative interest rate policies, pension funds, insurance companies and even private savers have been forced to look abroad when seeking even a modicum of positive carry. Fortunately for them, such carry could still be found by investing in long-dated US government bonds and hedging the currency risk. In fact, up until recently, buying treasuries and hedging the US dollar risk typically delivered at least 100bp more in carry than the outright ownership of German bunds, French OATs or Japanese government bonds.
But as we write, this is no longer the case. As a result, European and Japanese yield-seeking institutions are left with a couple of obvious options:
Look elsewhere for positive carry, probably in more risky markets.
Remove currency hedges from treasury holdings and run the dollar risk.
There is no more free lunch as European and Japanese institutions must now choose between greater signature risk or currency risk. Anecdotal evidence points to them going for the latter. After all, the general view has been that the US dollar could only rise, thanks in part to Fed hawkishness and the US’s strong economic growth. However, as US economic data starts to soften, as the Fed gets more dovish, and as the fiscal deficit shows no sign of abating, “long-US dollar” positions may become harder to justify. It should be noted that the DXY has not held new highs despite bad news-flow for the euro (Italian crisis, yellow vests, Deutsche Bank, the tariff threat to German autos), the pound sterling (Brexit), commodity currencies and even the yen.
Beyond interest rate differentials, the second main reason foreigners likely deployed capital in the US over recent years is that the US had a sector that almost everyone else lacked, namely, technology. After all, a European investor looking at Procter & Gamble could just as easily buy Unilever. Total or BP can compete for capital with Exxon or Chevron. BMW or Daimler with Ford or GM. But who in the developed world’s equity markets can compete with the lure of Google, Facebook, Apple, Microsoft or Amazon? Perhaps the utter domination of US tech has not only triggered the massive outperformance of US equity markets, but has also helped keep the dollar high in spite of the US’s sustained twin deficits.
It could be argued that as money keeps pouring into US funds running venture capital and private-equity strategies as well as exchange-traded funds, then there is good reason for the dollar to stay strong. Yet as investors adjust to the technology sector being the new battleground of the unfolding cold war, a possibility that will hurt tech valuations, will foreigners keep pouring money into US tech? Take Saudi Arabia’s Mohammad Bin Salman Al Saud as an example: having taken a bath on Uber and a cold shower on Tesla, will the Saudi crown prince now decide that art investing makes more sense?
The second Chinese weakness – oil
Looking through the list of China’s key imports, oil is the next item that follows semiconductors. And a few weeks ago, with John Bolton and Mike Pompeo advocating regime change in Venezuela and Iran, it must have looked—at least from China’s perspective—like the US was trying to engineer a spike in the oil price. After all, what better way to create a balance of payments problem in China? First, block Chinese exports to the US, thereby triggering a collapse in China’s dollar earnings. Second, cause a surge in China’s import costs through a higher oil price.
Until a few years ago, such a move would have been too costly for the US to contemplate. However, as it becomes self-sufficient in energy, a high oil price no longer means sending vast sums to Mexico, Venezuela, Canada or elsewhere. Instead, it means that money flows from the (blue States) North East and California down to (red states) Texas, Oklahoma, Louisiana, North Dakota and Alaska.
Fortunately, Trump remembered that he was not elected to see US soldiers bogged down in more foreign theaters and reined in Bolton, Pompeo and other hawks in his administration. But, as far as China is concerned, the energy threat remains real and will push China to seek better long term solutions. These will likely include:
Continued push towards greater electrification of China’s buses and cars.
More investments in domestic energy production and optimization of the grid. This will include wind, solar, nuclear, hydro and clean coal.
Signing as many long term energy supply deals as possible.
This brings us to the recent love-in between Presidents Vladimir Putin and Xi Jinping, the 13th official pow-pow between the two heads of state in the past six years. This saw Xi declare that Putin was his “best friend”. And as he did, you could almost see Putin thinking “I am very happy to be your best friend. Here is my friendship bill!”. In short, the more that US-China tensions rack up, the more important Russia becomes to China. This may help explain why, so far this year, the Russian ruble is the world’s best performing currency.
The Russian bond market is among the world’s best performing markets, with 10-year yields having dropped some 110bp (in spite of a lackluster oil price). At the same time, the Russian equity market has outperformed all others with a 27% year-to-date rise in US dollar terms.
The third Chinese weakness – US dollar dependency
Following Trump’s May 5 tweet storm announcing that a trade pact with China was no longer an option, the renminbi promptly fell by -1.5%. Consensus opinion was that without a trade deal, Chinese growth would suffer. From there, Chinese policymakers would have little choice but to throw more stimulus into their economy, which would amount to adding more bad debt to an already large pile. Such an outcome would hardly be a positive development for the currency.
However, Chinese officials then came out and warned speculators that the renminbi would not be allowed to weaken much, if at all. This gave markets the sense that a line of sorts was being drawn, either at the RMB7 to the dollar level, or, at the very least, at the 92 level for the renminbi’s CEFTS basket.
These warnings were given more heft when Xi traveled to the site of the launch of the Long March and promised China some tough times ahead. It wasn’t quite a Churchillian promise of “blood, sweat and tears”, but nor did it give great comfort to those hoping for another wave of stimulus. Clearly, the Chinese equity market is more into gentle strolls then long marches!
This begs the question of why President Xi would make such a show of refusing the “easy path” of greater monetary stimulus, and possible currency devaluation. One obvious answer is that devaluing the renminbi could cause even more problems. First, it would anger Trump and likely make a compromise even harder to reach. Second, it may spur capital outflows. But perhaps most importantly, it would set back China’s long term goal of de-dollarizing Asian trade, and her own commodity imports.
Indeed, on the basis that China is run by control-freaks, why did it spend the past decade gradually liberalizing the country’s exchange rate and fixed income markets and so cede control of two most important prices in any economy? The answer is obvious enough: following the 2008 crisis, China’s leaders understood that depending on the US dollar for trade finance left it at the behest of American banks to keep providing the financing.
This was an uncomfortable situation back in 2009. But what is it like in 2019? Will the past year or so have re-enforced or lessened Xi’s desire to reduce China’s dependency on the US dollar? To ask the question is to answer it. And of course, to de-dollarize her trade, China needs to ensure that the renminbi remains a “strong currency”. Otherwise, the renminbi will be seen as an EM currency like any and China would remain an economic vassal of the US.
Conclusion
Assuming that the US-China standoff is not merely a trade war but the start of a new cold war then the shift in the US-China relationship will cast a long shadow over financial markets. As reviewed above, the new cold war could end up being:
Bearish for US technology stocks
Bearish for the US dollar
Bullish for Russia
Bearish for Chinese growth
Bullish for renminbi bonds
In short, for a world that may be going through a dramatic shift, one wants to be long the assets that no-one today owns, like Chinese and Russian bonds, and underweight those that everyone and their dogs are overweight like the US dollar and US technology stocks.
via ZeroHedge News https://ift.tt/2YEULZU Tyler Durden
Theresa May’s binary choice strategy, her deal or Remain, failed spectacularly. There’s a new binary choice option now…
Spectacular Failures
Theresa May never really wanted to leave the EU. And her despised customs union deal was not really leaving. Rather, it was a permanent trap.
No one took May seriously. The EU played her for the fool she was. And the UK MPs never seriously believed no deal was ever an option.
Remainers voted against her deal expecting to stop Brexit completely. They too failed spectacularly.
No Way to Stop Brexit
MPs have no realistic way of stopping Brexit. The EU can penalize the UK but in the process hurt itself even more.
That is the only choice on the table.
Latest Polls Good for Johnson
In the three most recent polls, the Tories topped Labour. The latest poll has the Tories in a 6 point lead. In the two most recent polls, Labour is in 4th place.
The Ipos MORI poll has the Brexit Party at 12%. That is woefully misleading as explained below.
While YouGov has the Tories and the Brexit party neck and neck, on 24% and 23% respectively, Ipsos Mori shows Tory supporters outnumbering Nigel Farage’s party by more than two to one (26% to 12%).
Which is right? There is no simple answer. The big difference between the two companies is that Ipsos-Mori conducted its survey by phone, and asked respondents how they would vote, without including the Brexit party in the initial list they gave respondents. YouGov conducted its survey online and presented respondents with a list of parties including the Brexit party. By reminding people about Nigel Farage’s party in the main voting question, YouGov seems to have doubled its support.
What If Brexit Delivered?
A second You-Gov poll addresses the critical question: How would you vote if Brexit was delivered. That’s the lead chart.
“Fighting an election once Brexit has happened would offer a huge advantage for Johnson: Farage’s fox would have been shot. Of the 5 million Tories that YouGov reckons have defected to the Brexit party since 2010, getting on for 4 million would return home.”
Eurointelligence
The big problem in interpreting UK polls is that the current four-way split reflects uncertainty about the positions of both the Tories and Labour on Brexit. Once positions crystallize during an election campaign, the numbers could change significantly. And, in a first-past-the-pole electoral system, even a small change in the parties’ vote shares could have a dramatic effect on seat allocation.
A Times/YouGov poll out yesterday put Labour at 18% behind the Tories, the Brexit Party and the LibDems – in that order. The Tories are recovering their position as Boris Johnson is on course to become the party’s next leader. We think it is possible that he might call immediate elections. This would give him a chance to campaign on Brexit delivery by October – deal or no deal.
The reason we think early elections are possible is that the alternative options might prove to be even more risky. But clearly, Johnson will only call elections if he believes he can win an outright majority. For the moment, the polls still say this is not going to happen. Getting a firm pro-Brexit majority would probably require some accommodation with the Brexit Party – difficult for both sides.
Newsnight reports that Remainers are plotting legislation in September to rule out no deal. This sounds like a half-baked initiative. What the report made very apparent is that the pro-Remain Tories are pulling back from the threat to support an outright no-confidence motion in the parliament. There was talk about a conditional no-confidence vote – which has no legal meaning.
We do not doubt that a majority in the UK parliament is opposed to a no-deal Brexit. But we are not sure that this majority can assert itself in an effective way because of asymmetric political effects. Many people would end their political careers if they went ahead with this. And Jeremy Corbyn would then most likely become prime minister.
I think Eurointelligence has two points wrong.
Johnson’s best strategy is to ensure Brexit, then welcome back Brexit Party members as opposed to calling elections before October 31.
If by some miracle MPs hold a successful motion of no confidence before Brexit can be delivered (mathematically it seems remote if not impossible due to calendar day scheduling), then the winner could easily be Farage, not Corbyn.
New Binary Choice
Leave with a good deal.
Leave with no deal.
Johnson will not seek a delay. Nor will he present Theresa May’s pathetic deal. There will not be Brexit revocation.
The new binary choice is not even a decision for UK MPs. The new binary choice is between Johnson and the EU.
If after Johnson delivers Brexit, Corbyn calls for another referendum, then Corbyn would be replaced as party leader or Labour would get destroyed in the next election.
The key to understanding what’s going to happen is in the polls. A lot can happen in the next month, but the MPs are essentially out of the process unless they hold a motion of no confidence that succeeds the first day parliament is in session, and even then, the required number of days may be short.
MPs cannot stop a determined PM from delivering Brexit. It’s too late.
A former Norweigian cabinet member was sentenced to five years in prison for exploiting his position to sexually abuse three asylum seekers for six years, according to the BBC.
Svein Ludvigsen, 72, was found guilty of abusing the three men while he was the regional governor of Troms, a county north of the Arctic Circle, between 2011 and 2017. The men say that they believed they would either be deported or be granted permanent residency depending on how they reacted to his demands for sexual favors.
The men, now aged 25, 26 and 34, told the court that they first met Ludvigsen when he was Troms governor and that he offered them housing and jobs in exchange for sexual favours.
The abuse took place in Ludvigsen’s home and country house, in hotel rooms and in his office, they said. –BBC
One of the victims was just 17 at the time, while another reportedly has a “mild intellectual disability.”
The charge describes how Ludvigsen should have approached a slightly mentally retarded man in his home at an institution that was subject to the county governor’s supervision, and that he should “have led him to believe he had the power and authority to give and deprive him of his citizenship”. –NRK.no (translated)
Ludvigsen, who maintains his innocence and has vowed to appeal, admitted to having sex with one of the men – however he said that it was consensual, and that he did not have sex with the other two men. He also admitted that he lied to the police when questioned.
Ludvigsen, who was arrested in January, 2018, was ordered to pay damages to the men of approximately $87,000 US. The conservative politician was the minister of fisheries from 2001 to 2005, and was the goveror of Troms from 2006 to 2014 when he retired from politics, according to the BBC.
via ZeroHedge News https://ift.tt/2NCyISz Tyler Durden
Earlier this week the Institute for Justice (I.J.) filed a lawsuit in federal court in Mississippi seeking to overturn that state’s unconstitutional new restrictions on the use of certain common terms to identify a variety of plant-based foods.
Mississippi’s law dictates that a “plant-based…food product shall not be labeled as meat or a meat food product.” While Mississippi claims the law is intended to clear up consumer confusion, it does nothing of the sort. “It doesn’t matter if the product also states on the label that it’s 100% vegan, plant-based or meatless,” Bloomberg News reports.
If it’s not intended to clear up confusion, then what’s the point of this labeling mandate? Simple protectionism. The law, which was passed in March but took effect this week, is intended to protect makers of meat products (e.g., hamburgers) from competition from plant-based alternatives (e.g., veggie burgers) by barring the latter, for example, from using the term “burger” to refer to their veggie burgers.
The list of people who are confused by, say, this hey-it’s-vegan! burger, is so short as to be nonexistent. That’s because, as you may have noticed, vegan food packaging is, like vegans, not exactly quiet about its vegan bona fides.
“Context matters,” Justin Pearson, the I.J. attorney who filed the lawsuit, told me this week. “Under the First Amendment, businesses should be able to use almost any word they want, as long as consumers understand what they are saying. People know that vegan burgers do not come from cows. That is why they are called ‘vegan.'”
The Mississippi law is one of several similarly awful ones around the country. I condemned a comparable Arkansas law in a column earlier this year, noting that “the only reason government cares a lick about this issue is that they are beholden to powerful agricultural interests that want to use the government to stifle competition from small-but-growing rivals.” Last year I also blasted a similar Missouri bill.
“These laws are anti-competitive and anti-consumer, not to mention unconstitutional,” says Michele Simon, a lawyer and executive director of the Plant Based Foods Association (PBFA), a membership group that’s one of the plaintiffs in the case, in an email to me this week. “That is why PBFA has teamed up with our member Upton’s Naturals and the Institute for Justice to sue Mississippi, not only to stop the law there, but to send a message around the nation that these efforts will be challenged.“
Mississippi lawmakers would probably chafe at someone calling their new law a fine example of the nanny state. After all, several years ago, as I detailed cheerily, state lawmakers adopted what they dubbed an “anti-Bloomberg bill.” That law forbade local governments from enacting local restrictions on food, including taxes on fast food or soda.
But Mississippi lawmakers are also the same people who adopted protectionist statewide restrictions on catfish marketing in 2015, which I noted at the time served no purpose but one: “If this sounds suspiciously like a protectionist measure, that’s because it is.”
What’s more, though Mississippi lawmakers and regulators have positioned themselves as defenders of meat, their actions suggest otherwise—at least when it comes to meat from animals raised by small, local farmers in the state. As I detail in my recent book Biting the Hands that Feed Us: How Fewer, Smarter Laws Would Make Our Food System More Sustainable, overbearing and unnecessary Mississippi food-safety rules mean that few if any small farmers in the state can sell steaks and other meat products at farmers markets there.
If left to its own devices—freed from the vice-like grip of Mississippi lawmakers and regulators—there’s ample evidence the marketplace can sort all this out.
Last month, for example, fast food giant Arby’s, which loudly proclaims itself to be home of “the meats,” announced that it had created what may be the first meat-based plants. Their first offering? The “marrot,” which is basically turkey that’s been shaped and colored to look like a carrot.
“[W]e said, ‘If they can make meat out of vegetables, why can’t we make vegetables out of meat?'” Arby’s chief marketing officer Jim Taylor toldFast Company last week. Taylor says Arby’s has applied for a trademark for the term “megetables,” a portmanteau of “meats” and “vegetables.”
Arby’s also declared it would never, ever sell plant-based meat substitutes such as the meh Impossible Burger, which has gained a following at Burger King and other competitors. Why? Its customers want said meats.
While the marrot and megetables are just a marketing concept as yet, I must declare my love for what Arby’s is doing: using the marketplace to innovate, differentiate, and reinforce its brand. That’s exactly what PBFA members and other plant-based food producers are doing, too. They should be able to continue doing that without suing to protect their First Amendment rights.
“Anyone who cares about the free market should find the Mississippi law and others like it very troubling,” says the PBFA’s Simon. “Our members are competing fair and square in the marketplace.”
They are. And hopefully, the court will allow that competition to continue.
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Earlier this week the Institute for Justice (I.J.) filed a lawsuit in federal court in Mississippi seeking to overturn that state’s unconstitutional new restrictions on the use of certain common terms to identify a variety of plant-based foods.
Mississippi’s law dictates that a “plant-based…food product shall not be labeled as meat or a meat food product.” While Mississippi claims the law is intended to clear up consumer confusion, it does nothing of the sort. “It doesn’t matter if the product also states on the label that it’s 100% vegan, plant-based or meatless,” Bloomberg News reports.
If it’s not intended to clear up confusion, then what’s the point of this labeling mandate? Simple protectionism. The law, which was passed in March but took effect this week, is intended to protect makers of meat products (e.g., hamburgers) from competition from plant-based alternatives (e.g., veggie burgers) by barring the latter, for example, from using the term “burger” to refer to their veggie burgers.
The list of people who are confused by, say, this hey-it’s-vegan! burger, is so short as to be nonexistent. That’s because, as you may have noticed, vegan food packaging is, like vegans, not exactly quiet about its vegan bona fides.
“Context matters,” Justin Pearson, the I.J. attorney who filed the lawsuit, told me this week. “Under the First Amendment, businesses should be able to use almost any word they want, as long as consumers understand what they are saying. People know that vegan burgers do not come from cows. That is why they are called ‘vegan.'”
The Mississippi law is one of several similarly awful ones around the country. I condemned a comparable Arkansas law in a column earlier this year, noting that “the only reason government cares a lick about this issue is that they are beholden to powerful agricultural interests that want to use the government to stifle competition from small-but-growing rivals.” Last year I also blasted a similar Missouri bill.
“These laws are anti-competitive and anti-consumer, not to mention unconstitutional,” says Michele Simon, a lawyer and executive director of the Plant Based Foods Association (PBFA), a membership group that’s one of the plaintiffs in the case, in an email to me this week. “That is why PBFA has teamed up with our member Upton’s Naturals and the Institute for Justice to sue Mississippi, not only to stop the law there, but to send a message around the nation that these efforts will be challenged.“
Mississippi lawmakers would probably chafe at someone calling their new law a fine example of the nanny state. After all, several years ago, as I detailed cheerily, state lawmakers adopted what they dubbed an “anti-Bloomberg bill.” That law forbade local governments from enacting local restrictions on food, including taxes on fast food or soda.
But Mississippi lawmakers are also the same people who adopted protectionist statewide restrictions on catfish marketing in 2015, which I noted at the time served no purpose but one: “If this sounds suspiciously like a protectionist measure, that’s because it is.”
What’s more, though Mississippi lawmakers and regulators have positioned themselves as defenders of meat, their actions suggest otherwise—at least when it comes to meat from animals raised by small, local farmers in the state. As I detail in my recent book Biting the Hands that Feed Us: How Fewer, Smarter Laws Would Make Our Food System More Sustainable, overbearing and unnecessary Mississippi food-safety rules mean that few if any small farmers in the state can sell steaks and other meat products at farmers markets there.
If left to its own devices—freed from the vice-like grip of Mississippi lawmakers and regulators—there’s ample evidence the marketplace can sort all this out.
Last month, for example, fast food giant Arby’s, which loudly proclaims itself to be home of “the meats,” announced that it had created what may be the first meat-based plants. Their first offering? The “marrot,” which is basically turkey that’s been shaped and colored to look like a carrot.
“[W]e said, ‘If they can make meat out of vegetables, why can’t we make vegetables out of meat?'” Arby’s chief marketing officer Jim Taylor toldFast Company last week. Taylor says Arby’s has applied for a trademark for the term “megetables,” a portmanteau of “meats” and “vegetables.”
Arby’s also declared it would never, ever sell plant-based meat substitutes such as the meh Impossible Burger, which has gained a following at Burger King and other competitors. Why? Its customers want said meats.
While the marrot and megetables are just a marketing concept as yet, I must declare my love for what Arby’s is doing: using the marketplace to innovate, differentiate, and reinforce its brand. That’s exactly what PBFA members and other plant-based food producers are doing, too. They should be able to continue doing that without suing to protect their First Amendment rights.
“Anyone who cares about the free market should find the Mississippi law and others like it very troubling,” says the PBFA’s Simon. “Our members are competing fair and square in the marketplace.”
They are. And hopefully, the court will allow that competition to continue.
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