Time to Change Strategy
By John Mauldin
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No Solutions
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John Mauldin
Chairman, Mauldin Economics |
Time to Change Strategy
By John Mauldin
John Mauldin
Chairman, Mauldin Economics |
Redesigning life
The promise and perils of synthetic biology
To understand them well, look to the past
FOR THE past four billion years or so the only way for life on Earth to produce a sequence of DNA—a gene—was by copying a sequence it already had to hand. Sometimes the gene would be damaged or scrambled, the copying imperfect or undertaken repeatedly. From that raw material arose the glories of natural selection. But beneath it all, gene begat gene.
That is no longer true. Now genes can be written from scratch and edited repeatedly, like text in a word processor. The ability to engineer living things which this provides represents a fundamental change in the way humans interact with the planet’s life. It permits the manufacture of all manner of things which used to be hard, even impossible, to make: pharmaceuticals, fuels, fabrics, foods and fragrances can all be built molecule by molecule.
What cells do and what they can become is engineerable, too. Immune cells can be told to follow doctors’ orders; stem cells better coaxed to turn into new tissues; fertilised eggs programmed to grow into creatures quite unlike their parents.
The earliest stages of such “synthetic biology” are already changing many industrial processes, transforming medicine and beginning to reach into the consumer world (see Technology Quarterly). Progress may be slow, but with the help of new tools and a big dollop of machine learning, biological manufacturing could eventually yield truly cornucopian technologies.
Buildings may be grown from synthetic wood or coral. Mammoths produced from engineered elephant cells may yet stride across Siberia.
The scale of the potential changes seems hard to imagine. But look back through history, and humanity’s relations with the living world have seen three great transformations: the exploitation of fossil fuels, the globalisation of the world’s ecosystems after the European conquest of the Americas, and the domestication of crops and animals at the dawn of agriculture. All brought prosperity and progress, but with damaging side-effects. Synthetic biology promises similar transformation. To harness the promise and minimise the peril, it pays to learn the lessons of the past.
The new biology calls all in doubt
Start with the most recent of these previous shifts. Fossil fuels have enabled humans to drive remarkable economic expansion in the present using biological productivity from ages past, stored away in coal and oil. But much wilderness has been lost, and carbon atoms which last saw the atmosphere hundreds of millions of years ago have strengthened the planet’s greenhouse effect to a degree that may prove catastrophic. Here, synthetic biology can do good.
It is already being used to replace some products made from petrochemicals; in time it could replace some fuels, too. This week Burger King introduced into some of its restaurants a beefless Whopper that gets its meatiness from an engineered plant protein; such innovations could greatly ease a shift to less environmentally taxing diets. They could also be used to do more with less. Plants and their soil microbes could produce their own fertilisers and pesticides, ruminants less greenhouse gas—though to ensure that synthetic biology yields such laudable environmental goals will take public policy as well as the cues of the market.
The second example of biological change sweeping the world is the Columbian exchange, in which the 16th century’s newly global network of trade shuffled together the creatures of the New World and the Old. Horses, cattle and cotton were introduced to the Americas; maize, potatoes, chilli and tobacco to Europe, Africa and Asia. The ecosystems in which humans live became globalised as never before, providing more productive agriculture all round, richer diets for many. But there were also disastrous consequences. Measles, smallpox and other pathogens ran through the New World like a forest fire, claiming tens of millions of lives. The Europeans weaponised this catastrophe, conquering lands depleted and disordered by disease.
Synthetic biology could create such weapons by design: pathogens designed to weaken, to incapacitate or to kill, and perhaps also to limit themselves to particular types of target. There is real cause for concern here—but not for immediate alarm. For such weaponisation would, like the rest of cutting-edge synthetic biology, take highly skilled teams with significant resources. And armies already have lots of ways to flatten cities and kill people in large numbers. When it comes to mass destruction, a disease is a poor substitute for a nuke. What’s more, today’s synthetic-biology community lives up to ideals of openness and public service better than many older fields. Maintained and nurtured, that culture should serve as a powerful immune system against rogue elements.
The earliest biological transformation—domestication—produced what was hitherto the biggest change in how humans lived their lives. Haphazardly, then purposefully, humans bred cereals to be more bountiful, livestock to be more docile, dogs more obedient and cats more companionable (the last a partial success, at best). This allowed new densities of settlement and new forms of social organisation: the market, the city, the state. Humans domesticated themselves as well as their crops and animals, creating space for the drudgery of subsistence agriculture and oppressive political hierarchies.
Synthetic biology will have a similar cascading effect, transforming humans’ relationships with each other and, potentially, their own biological nature. The ability to reprogram the embryo is, rightly, the site of most of today’s ethical concerns. In future, they may extend further; what should one make of people with the upper-body strength of gorillas, or minds impervious to sorrow? How humans may choose to change themselves biologically is hard to say; that some choices will be controversial is not.
Which leads to the main way in which this transformation differs from the three that came before. Their significance was discovered only in retrospect. This time, there will be foresight.
It will not be perfect: there will certainly be unanticipated effects. But synthetic biology will be driven by the pursuit of goals, both anticipated and desired. It will challenge the human capacity for wisdom and foresight. It might defeat it. But carefully nurtured, it might also help expand it.
China stimulus efforts show signs of stabilising economy
Concerns remain that recovery is fragile with trade war and weak credit supply curbing growth
Don Weinland and Sherry Fei Ju in Beijing
A section of the Hong Kong-Zhuhai-Macau bridge, one of the key infrastructure projects in southern China © Bloomberg
Beijing had a clear message to local authorities at the end of last year: hurry up and build.
The flurry of government debt issuance and a boom in infrastructure projects that followed in early 2019 have started to deliver a boost to the economy, lifting sentiment after months of gloomy economic data.
But it is unclear how far the uplift will carry through this year. The flow of credit to businesses in China remains weak and demand for exports feeble even as a trade war with the US inches closer to resolution.
Some economists worry that positive signals from March are a seasonal fluke, and that China’s frothy stock market will eventually experience a deep correction as economic growth slows to a three-decade low.
In its strongest reading since June, China’s official manufacturing purchasing managers’ index on Sunday marked a return to growth: it rose to 50.5 in March from 49.2 in February, outpacing even the highest expectations for the index.
A PMI reading above 50 signals expansion while a reading below 50 indicates contraction.
The survey results offer an early peek at the activity at the heart of the economy — such as factory output and demand for raw materials — but are considered less robust indicators compared with industrial profits, which a week earlier notched the fastest rate of decline in almost a decade.
The leading source of fresh growth for March was manufacturing production, a sign that government spending on infrastructure projects was having a noticeable impact on the economy, according to Robin Xing, chief China economist at Morgan Stanley.
“This is a policy-driven rebound,” he said. “It’s better than in previous easing cycles because it’s not relying on shadow banking. They are more focused on fiscal policy easing.”
The impact has been felt in infrastructure spending, with the number of power plants under construction increasing according to Global Energy Monitor, a non-governmental organisation that tracks fossil-fuel use.
Approvals for local debt issuance usually come after the week-long lunar new year holiday that lands between late January and late February. But this year, facing a serious economic slowdown, regulators front-loaded those approvals to expedite the building of infrastructure.
In the first two months of the year, gross local bond issuance hit Rmb782.1bn ($116.5bn), up from just Rmb28.5bn for the first two months of last year. Several other new fiscal policies are coming down the line, Mr Xing said. A value added tax relief programme came into effect on Monday, with the potential to deliver Rmb2tn in tax cuts this year.
The fiscal spur represents a change in approach for China.
Policymakers have often attacked economic problems with a flood of credit and a command to banks to lend more, often leading to a spurt of growth but high leverage for companies. Regulators this year are still pushing for more lending but they have not fully opened the credit taps and are focused on helping smaller companies borrow.
“The previous one-size-fits-all deleveraging has now become structural deleveraging and stable leveraging,” said Zhao Xijun, head of the Financial and Securities Institute at Renmin University of China.
Some economists worry the credit supply could still be growing too slowly to support a continued turnround in other areas of the economy. Total social financing, China’s broadest measure of credit growth, increased by just 10.6 per cent year on year in February, down from 13.3 per cent a year ago.
Conditions in March for small and medium-sized companies improved from a month earlier but were still contracting, according to the PMI data. Conditions worsened for large enterprises last month.
“We’re a bit cautious about calling this the bottom [for credit growth],” said Julian Evans-Pritchard, senior China economist at Capital Economics. “This still points to a further slowdown.”
But challenges to growth remain beyond China’s borders.
While Beijing and Washington are closer to an agreement in their trade war the PMI survey has showed export demand remains weak.
“I don’t think there is any clear sign of external demand stabilising yet,” said Charles Yuan, a China economist at CICC, the Beijing-based investment bank. “The market was expecting a temporary trade resolution at the end of March but we didn’t get that.”
Many economists, including Mr Yuan, have warned that the lunar new year gave March a seasonal boost. By landing in early February, the holiday pushed some economic activity into the third month of the year.
China’s stock market has traditionally been sensitive to signs of an economic slowdown. However, a barrage of gloomy data in January and February did not discourage investors from moving into equities. Chinese stocks have rallied during that time and climbed to their highest level in a year on Monday following the positive PMI news.
Part of the rally has been driven by margin lending, where large shareholders pledge stock for loans and often reinvest. The government is likely to crack down on the activity in the hope of bringing back healthy investment to the market, said Chi Lo, senior strategist for greater China at BNP Paribas Asset Management.
“Froth has come back to the market and that has caught Beijing’s eye because they want to keep it stable,” said Mr Lo. “A lot of investors are waiting for that correction to get back into the market.”
Additional reporting by Lucy Hornby in Beijing
The market in most cases will cheer us for doing more. It will never be enough for the market.
We simply had a lot of people on the same side of the same trades with the same view-and it was working fine; stability breeds instability however, and all it takes sometimes is a modest tweak to a narrative which then "tilts" excess positioning / leverage into a correction with occasional "cleanses".
We didn't think the Fed was contemplating a cut, but we acknowledge that markets did, and markets have had to unwind some of this expectation over the last few trading hours. Interesting to consider: you can't have it both ways. The reason why the Fed is not factoring in a cut is because it thinks growth remains "moderate or perhaps modest" - also consistent with the absolute levels of the ISM Manufacturing Index (if not the second derivative inflection).
While China is doing an impressive job at stimulating (note the jump in Total Social Financing), export dataflow for other EM economies remains disappointing (South Korea and Taiwan exports are still very weak). China's stimulus may be less effective this time around (vis-à-vis '15/'16) given the rebalancing of the Chinese economy more towards domestic consumption and away from investment. EM has been a winner in 2019 amid central banks' dovish pivot. YTD inflows into global EM debt funds have amounted to an impressive $25bn (close to surpassing the pace of inflows in '17). But US Dollar strength may be a harbinger of a rise in EM FX volatility. Chart 6 shows that the ratio of EM FX vol to G7 FX vol has risen again since the end of March.
Country correlations near all-time lows indicate there is little risk of a systemic EM crisis, e.g. driven by the strong USD. Record low correlations indicate that recent EM troubles are more of a collection of country-specific developments (e.g. Turkey, Brazil, Argentina, etc.) rather than a systemic EM crisis in the making.
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