• Investing replay



    The sharpest minds in investing discuss the most important market and economic developments and their investing implications.
    Watch the free replay.

NEWSWIRE: 7/15/19

  • The Hong Kong protests have exposed a generational divide, with younger protesters pitted against older, pro-government supporters. The differences run deeper than just the extradition bill, with Millennials’ frustration with housing prices and wages boiling over amid a battle over the country’s identity. (CNN)
    • NH: One thing is for certain: By the year 2047 at the very latest (28 years from now), absent a political cataclysm, Hong Kong will be fully absorbed into the People's Republic of China. That fact has been known ever since the UK signed the deal to cede Hong Kong to the PRC back in 1997. But how Hong Kongers feel about this fact has changed decisively since 1997, and that shift has given rise to a large generational rift.
    • Back around 2000, after some initial trepidation, most Hong Kongers were pleased with the deal. They were glad to see an end to colonial rule by the Brits. And they saw mainland China as a destitute brother they would help guide into affluence and democracy. Back in 1997, Hong Kong's per-capita GDP was 35 times higher than China's. China was desperately dependent on Hong Kong's financial community for market expertise and for western capital. And everyone regarded China's gradual evolution into a liberal democracy as inevitable. Hong Kong would not only thrive with China. It would lead China.
    • This enthusiasm peaked around the time of the Beijing Olympics in 2008. The world watched in wonder. The western economies seemed battered. And Hong Kongers basked in China's reflected glory. (See charts on confidence and identity below, published by the Hong Kong Public Opinion Research Institute.)
    • Ever since, these expectations have turned sour. Economically, China didn't just grow, but grew faster than anyone anticipated. Today, Hong Kong is only three times more affluent--and China's booming metropolises now rival or exceed Hong Kong in magnificence. China is no longer as dependent on Hong Kong's financial markets. The PRC is grooming Shanghai as an alternative financial hub. Politically, Xi is pushing China towards authoritarianism and already, in defiance of "one country, two systems," is reaching into Hong Kong to crush dissent and free speech. The western democracies, meanwhile, have surprised Hong Kongers by basically accepting China's regional projection of power. And the UK, far from worrying about the fate of its old colony, now obsequiously courts the favor of the PRC. The future seems clear: China, not Hong Kong, will do all the leading.
    • Older Hong Kongers are heavily conflicted. Most are distraught over Xi's reneging on self-rule, but they still cling to the hope that, by compromising with the PRC, they will "win China over." They're stuck in the old dream. Besides, having bought into Hong Kong's growing merger with China (quite literally in terms of real estate sold to mainland tycoons), their net worth is threatened by civic disorder.
    • Young Hong Kongers haven't any such illusions. They see clearly that China's popular leadership shows no sign of changing course. This difference in perspective is deepened by a large and growing economic divide in Hong Kong between the affluent old and the struggling young--who routinely live with their parents in their 30s and give up on having children. (The TFR of native-born Hong Kongers is probably under 1.0.) Unlike their parents at the same age, Millennial Hong Kongers see little hope of upward generational mobility--and see themselves disrespected by affluent mainland tourists who often regard Hong Kong's activists as spoiled brats who need to be disciplined.
    • It's not that older Hong Kongers support the PRC. Rather, they still see themselves as "greater Chinese" who can influence the PRC. Many of their "New Democracy" leaders have tried politely and legally to defend Hong Kong's democracy and civil liberties. Yet every time they fail, the protest movement inevitably moves toward younger and more radical leadership. Their biggest (and quite legitimate) fear is that the PRC will use some radical act of violence as an excuse to bring in troops, suppress all dissent, and prematurely extinguish any democracy in Hong Kong. Young Hong Kongers are today much more likely to call themselves "Hong Kongers" and not "Chinese" at all.
    • Is there any hope that the activism of the young can succeed? I return to my opening remark: Absent a political cataclysm, no. Would a Trump-led western coalition raise any serious or lasting objections to forcible action by China? Unlikely, unless China's entire political system unexpectedly buckles. And the growing trade war between China and America seems to be weakening, not strengthening, any desire in China to "give in" to western sensibilities. It's hard to envision a good outcome. Young leaders agree that it's easy "to lose all hope."
    • A more lasting consequence of the Young Hong Kongers' activism is how it's turning young Taiwanese away from any hope that a "one country, two systems" solution would ever work for them. (See my podcast on 6/15/19.) This may already have critical political consequences for Taiwan's 2020 election.

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart2

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart3

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart4

  • Latin American economies are falling behind, with the gap between the region’s average income per person and that of the U.S. widening since the 1950s. The countries that have bucked the trend, like Peru, Chile, and Costa Rica, have relied on commodity and service exports to achieve growth. (The Economist)
    • NH: In terms of economic improvement over the last century, Latin America ranks last among all regions of the world. Relative to U.S. GDP-per-capita, most of the world has done a lot of "catching up" since 1900 or 1950. Even sub-Saharan Africa, while remaining very poor, has at least not gone dramatically backwards. Latin America has. (See Economist chart below.)
    • The long-term developmental puzzle is why Latin America has fallen so far behind the United States. Back in the late 19th century, during the great migration of Europeans to the New World, many came to Latin America--figuring that the prospects for Venezuela or Argentina were every bit as good as for the United States. In 1900, GDP per capita in Argentina was 81% of the U.S. level. But by 1950, it had fallen to 58%. And by 2016, to only 35%.
    • A more recent developmental puzzle is why Latin America has done so much worse than Southeast Asia since 1950. In the aftermath of World War II, East Asian GDP was about half of Latin America's. Even by the early 1960s, South Korea was still a nation of uneducated peasant farmers--with living standards at less than one-third of Venezuela's. Today, the Four Tigers are two or three times more affluent than Venezuela. Even some countries that developed strongly before 1950 have since fallen backward: Venezuela, for example, fell from two-thirds of the U.S. level in 1950 to only one-third by 2016 (and this was before its dramatic further impoverishment under Nicolás Maduro).
    • Most Latin American economies sped up temporarily during the 2000-10 commodities boom. In the post-GFC 2010s, things were supposed to get even better. (Remember the B in BRICs?) Instead, Latin America seems to have suffered another "lost decade," just as it did in the 1980s.
    • What went wrong? Just about everything. In general, we can say that most Latin American societies have failed to provide the well-known preconditions for economic growth: political stability; the rule of law; a business-friendly tax and regulatory climate; a high rate of national saving; and prudent public financing. Other broader causes include a weak civic culture (high corruption indexes, especially in Mexico and Venezuela); the world's highest rates of violent crime; and high levels of inequality in income, wealth, and education.
    • The Economist points to recent studies shedding further light on Latin America's plight. A McKinsey Institute study identifies two "missing middles": A relatively small middle class, and hence weak demand for mainstream standardized goods. And relatively few medium-size companies. Latin America tends to have a large informal (family and proprietor) sector and a few massive corporations well plugged-in the political system--and not much in-between. More specifically, researchers Augusto de la Torre and Alain Ize conclude that those Latin American economies that have done best have tended to expand their shares of world export markets: Peru, Chile, and Uruguay in commodities; and Costa Rica, the Dominican Republic, and Panama in services. The problem is, the largest Latin American economies have poorly in exports and have at times actively promoted "import substitution."
    • At the broadest cultural level, a good overview of these issues is available in Falling Behind: Explaining the Development Gap Between Latin America and the United States, edited by Francis Fukuyama. Or just go to Fukuyama's original 1996 classic, Trust: The Social Virtues and the Creation of Prosperity.

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart5

  • A new WSJ article examines rising labor force participation among those age 55 and older, which is helping to offset the drag on growth of aging populations. From the U.S. to Japan to Germany, older workers are giving advanced economies a much-needed boost, in part because retirement rules have been tightened. (The Wall Street Journal)
    • NH: This is absolutely right. Throughout the high-income world, the rising labor force participation (LFP) of older workers has helped to mitigate the rapid deceleration in the growth rate of the "prime" working-age population (age 25 to 55).
    • In America, for example, older workers have been responsible for just about all of the net employment expansion over the last recovery. From 2007 to 2018, the number of prime-age employees has grown by a mere 300,000--that is, by +0.3%. Meanwhile, the number of total employees has grown by over 10 million--that is, by +7.3%. In Europe, as the article points out, many more of these economies would have experienced outright recession without the benefit of these older workers.
    • In Europe (see chart below), the big story has been the dramatic rise in the LFP of workers age 55-64 since 2000. In many of these countries, generous early retirement and unemployment benefit formulas once allowed workers in their late 50s to quit work with few or no income penalties. Policy reforms in the early 2000s drastically tightened these rules, resulting in a lot more employment. In Italy, the LFP of this age group nearly doubled, from 29% in 2000 to 56% today. In France, it has jumped from 37% to 56%. In Germany, from 43% to 74% (now higher than in the United States).
    • A broader generational story is the tendency of workers born since the mid-1930s and especially since the mid-1940s (Boomers) to opt for later retirement rather than earlier retirement. In America, the turnaround toward higher LFP began for the 55-64 age bracket in the mid-1980s and for the 65+ age bracket in the mid-1990s. As we have explored elsewhere, the drivers behind this trend include both choice (Boomers deriving more satisfaction from their work) and necessity (Boomers having less savings and fewer safety nets). See "The Booming Senior Workforce," "Boomers Stuck in Low-Quality Jobs," and "Why are Senior Flipping Burgers."
    • Yet older workers may not come to the rescue of aging demographics for much longer. In many European countries, populist leaders are promising to roll back the stricter retirement rules that boosted employment. Furthermore, the large demographic "Boom" that has swelled the number of 50- and 60-something workers over the past twenty years is starting to age further into their late-70s. At that age, employment rates are so low that the overall LFP of the elderly are nearly certain to peak and start declining again. 

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart6

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart7

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart8

  • A new piece examines the “ticking time bomb” of youth basketball: Players are being felled by wear-and-tear injuries at younger and younger ages. The rise in injuries has been propelled by the trend toward specialization, which has made players more skillful but without the commensurate ability to recover. (ESPN)
    • NH: There's always been a problem with the Millennials' relationship with sports--and it may be reaching the breaking point (so to speak) with Homelanders. The problem is two-fold.
    • First, due to their increasingly protective and scheduled upbringing, the great majority of kids are engaging in less casual physical activity--just being outside, running, biking, swimming, and playing informal sports. Apparently, there's no point anymore in wasting time doing anything you don't "excel" at. The result is declining physical fitness and rising overall rates of obesity.
    • Second, a small minority of kids are going in the opposite direction. They are relentlessly specializing at ever-earlier ages in sports which (their parents hope) will earn them scholarship money or admission to a professional sports career. A vast industry of club sports leagues, training camps, and coaches for hire keep these hopes well stoked. But these kids, it turns out, are also suffering--from exhaustion, depression, and a growing epidemic of overuse injuries.
    • This long two-part feature story (the second installment is here) is entertaining and well worth reading.
    • Contrary to the impressions of many Xer parents, the great NBA athletes they admire--the Magic Johnsons, the Michael Jordans, the Kobe Bryants--did not work themselves to the bone the way today's aspiring athletes are doing. They played a lot of different sports in their youth ("cross-training" we now call it), they took a lot of time off and often specialized in basketball only shortly before going pro. Today's young trainees, by contrast, fixate on excelling at the narrow metrics that coaches want--in the case of basketball, it's vertical jump, speed, strength, and shooting accuracy. And at these things, they're better than ever. What they don't have are flexibility and ruggedness. And what's more, their young bodies are overworked to the point of bone, tendon, and soft-tissue failure.
    • The statistics that now alarm the NBA (and have been flagged by NBA Commissioner Adam Silver) are staggering. A steadily rising number of rookie stars are getting injured in their first year--many never to play again. Orthopedic surgeons are beginning to see ACL injuries in pre-teen kids. In sports ranging from football to tennis, overuse injury rates are rising and the incidence is directly correlated with the intensity of training schedule. As the author points out, kids starting to train hard at age 7 can be expected to play the equivalent of 12 NBA seasons in formal game time before they even reach the NBA. Their bodies are often worn out by their rookie year.
    • If you ask today's kids, many will tell you they would love a world in which they could play a sport just to have fun, as part of a well-rounded life. Unfortunately, that's not the world they have entered.
  • With tentpoles Friends and The Office both leaving Netflix, we’re entering a new era of entertainment in which legacy media companies try to beat Netflix at its own game. With Disney, Comcast, WarnerMedia, and NBCUniversal all launching their own streaming services, it’s never been clearer that content is king. (CNBC)
    • NH: The old media giants may be slow, but they're not stupid. After watching the success of Netflix, they're all deciding to migrate their content back into their own web store and try to monetize it the same way. The only odd one out here is CBS-Viacom duo, which can't seem to decide what they're going to do.
    • We will soon see what kind of additional price and subscriber pressure this puts on Netflix. Two open questions. Will any or all of these 5 streaming services agree to be bundled into a single price by an aggregator? And will they (like Hulu) create additional ad-supported down-market versions to maximize revenue?
  • U.S. newsroom employment fell 25% between 2008 and 2018, driven primarily by job losses at newspapers (down 47%). Out of newspapers, radio, broadcast TV, cable, and digital-native news publishers, only digital publishers saw significant job growth over this period. (Pew Research Center)
    • NH: The decline in newspaper journalism over the last decade has been catastrophic. The national discussion about biased or untrustworthy or "drive-by" news journalism has been dominated by the impact of rising political partisanship. But there's something else going on as well: a massive attrition in the number of professional researchers and writers who do serious reporting. As I've pointed out elsewhere (see "Danger Ahead for Google and Facebook?"), the rise of Google and Facebook are clearly driving this attrition since these "platforms" are siphoning off most of the ad revenue that would otherwise go to institutions that do the actual work of producing content.
    • Meanwhile, Pew notes, the decline in newspaper personnel has been partly compensated by a rise in "digital-native" employees. We're talking about websites like Buzzfeed, Huffpost, and Jezebel. Hmm... are we still talking about "news" at all?

Hong Kong Protests Pit Young Against Old. Newswire. - July15 chart9

  • A staggering 96% of Millennials (ages 23 to 38) say burnout affects them every day, with the top causes being work and finances. The survey portrays a generation on edge, with most Millennials saying they’re tired from working multiple side hustles and that they feel pressured to work overtime and have the “perfect” job. (Yellowbrick)
    • NH: Curiously, the survey did not report burnout rates by gender. But it is well known that Millennial burnout is predominantly a female problem. (See "Would Better Jobs Solve Millennial Burnout?") As the survey points out, burnout is primarily driven by work (72% of respondents) and finances (46%). No other driver comes close. The flipside of female burnout is the exceptional rise in the employment rates of young women since the GFC. See "Millennial Women Are Fueling the LFP Recovery."
  • People who live in countries that spend more on advertising are less happy, according to a new study of Europeans across 27 countries. A doubling of ad spending is associated with a life satisfaction drop of about 3%, which researchers attribute to people lusting after aspirational goods they want but can’t afford. (The Economist)
    • NH: The Economist is reporting on an academic study (available here) that has certain limitations. Ad spending (as a share of GDP) doesn't vary much over time in most economies. And it's hard to disentangle both ad spending and life satisfaction from the business cycle.
  • Here’s a quick history lesson: The fight over adding a citizenship question to the 2020 Census is reminiscent of a similar clash over the 1920 Census. Today’s conflict reflects many of the same century-old tensions over immigration, a changing nation, and the rural-urban divide. (NPR)
    • NH: There are some similarities. Along with booming capitalism, the 1920s were a decade of deafening culture wars, heartland populism, and a backlash against immigration. In 1917 and 1924, Congress shut the immigration window and initiated a 50-year decline in the net immigration rate. Meanwhile, Congress simply refused to reapportion congressional districts according to the 1920 Census until 1929, when the next Census was already underway. Why? The GOP knew it would take districts away from hard-pressed rural areas and give them to immigrant-glutted cities. Sure, Congress was not exactly obeying the U.S. Constitution. But apparently, no one had standing to take this issue to the Supreme Court.
  • Fresh off his new book tour, David Brooks asks in a new op-ed: “Will Gen Z Save the World?” Brooks admires what other commentators have pilloried as overzealous “wokeness” and praises the teens and young adults he met on the road for devoting themselves to passion projects and railing against injustice. (The New York Times)
    • NH: Every youth generation feels overwhelmed by the world it is inheriting and wants to do something to change it. That's just a phase-of-life phenomenon. But what each generation is feeling about the world, and how it wants to change it, changes dramatically from one generation to the next. Most striking about the young teens Brooks interviews is how many of them use nuanced language of emotional sensitivity and nuance (very unlike young Xers) and define their struggles in terms of interior spiritual concerns (very unlike young Millennials). "Everything seems personalized and miniaturized," reports Brooks. There you have it: Meet the Homelanders.


Welcome to #FarmLife. With prices falling and a trade war raging, farmers haven’t had it easy. While larger farms have been able to get by with the help of government subsidies, small farms are increasingly turning to another source of income: Airbnb. Agritourism at small and medium farms is booming, with city dwellers eager for a chance to disconnect aligning with farmers eager to turn their land into a semi-passive form of income. Last year, there were 57,000 rural listings on the site. Nearly a million guests stayed at a farm property on Airbnb in the year leading up to February 2019, earning hosts more than $81 million. Culturally, there’s never been a better moment for farmers to open their doors: In addition to guests at both ends of the age spectrum, there’s plenty of interest from people looking for a place to hold their farm-to-table cooking classes, yoga classes, and mindfulness retreats.