This is a fabulous post from a blog entitled, Musings on the Markets. It starts with:
Debt is a hot button issue, viewed as destructive to businesses by some at one end of the spectrum and an easy value creator by some at the other. The truth, as is usually the case, falls in the middle. In this post, I will look not only at how debt loads vary across companies, regions and industries, but also at how they have changed over the last year. That is because last year should have been a consequential one for financial leverage, especially for US companies, since the corporate tax rate was reduced from close to 40% to approximately 25%. I will also put leases under the microscope, converting lease commitments to debt, as I have been doing for close to two decades, and look at the effect on profit margins and returns, offering a precursor to changes in 2019, when both IFRS and GAAP will finally do the right thing, and start treating leases as debt.
The piece is thought provoking. For example:
Thus, if you want to argue as some have that the Fed (which is blamed for almost everything that happens under the sun), low interest rates and stock buybacks have led US companies to become over levered, you will undoubtedly point to book debt ratios to make your case. In contrast, if you have a more sanguine view of financial leverage in the US, you will point to market debt ratios and perhaps to the earnings and cash flow ratios that I will report in the next section. On this debate, at least, I think that those who use book value ratios to make their case hold a weak hand, since book values, at least in the US and for almost every sector other than financial, have lost relevance as measures of anything, other than accounting ineptitude.
The article also looks at international levels of indebtedness by country and industry - a better treatment than many I have seen to date.
I have subscribed to this blog for a few years ... one of the best in my opinion.
Political Reality Meets Economic Reality
Another tour de force by Howard Marks - a very thoughtful piece about the many facets of tariffs and thoughts about public attitudes towards the capitalist system.
I think that he has ignored some of the reasons why an increasing segment of the public is developing a jaundiced view of the capitalist system:
- the unbridled greed and self-serving attitudes of the uber rich viz. the inability/disinclination of Trump's inner circle to do anything that might benefit anyone other than the members of his club
- government bailouts of institutions which engaged in reckless risk taking at tax payer expense and the outcomes of that malfeasance which led many to lose their jobs and homes
- the hollowing out of manufacturing and globalization
- a sense that life expectations for many offspring may not match those of their parents.
- a tendency for government to enact ever more measures to regulate the behaviour of its citizens - there should be a "regulation neutral" regime whereby the enactment of a new regulation would mean the repeal of one on the books (one can argue about "equivalency") - it's unbelievably hard to launch a new enterprise as red tape is increasing diverting the precious energies of entrepreneurs away from the vital task of getting new products and services to the market
- a tendency for some media (most notably The Canadian Broadcast Corporation) to celebrate grievance and failure as opposed to "success" - the thing which makes our caring society possible
- that many "crusaders for good" do not have skin in the game and that they are encouraged by some to make ever more demands without suffering any consequences - they willingly transfer costs to others who are less able to resist e.g. most egregious example is the banning of trade in seal fur and the devastating impact it had on Inuit communities
Marks makes a plea for a more nuanced and comprehensive discussion. Perhaps the polarization which characterizes much of politics these days will diminish ... my hope.
System of Rice Intensification - SRI
A recent article in The Guardian caught my attention recently:
The miracle method for sustainable rice that scientists dismissed
An excerpt
Governments and global bodies must act too, says tropical agronomist Erika Styger, director of climate-resilient farming systems at Cornell University who led a three-year World Bank study of 50,000 farmers using SRI methods in 13 west African countries. This saw a 56% rise in yields in irrigated areas, an 86% increase in rain-fed areas and an average 41% increase in income.
It led me to investigate further by visiting the SRI International Network and Resources Center
The results of this approach are astounding. Here is an overview:
The System of Rice Intensification, or SRI -- le Système de Riziculture Intensive in French and la Sistema Intensivo de Cultivo Arrocero (SICA) in Spanish -- is a climate-smart and agroecological methodology to increase the productivity of irrigated rice (and, more recently, other crops) by changing the management of plants, soil, water and nutrients. Using the SRI methodology, yields are increased by 20-50% or more, while reducing inputs: seed by 90%, irrigation water by 30-50%, chemical fertilizer by 20-100%, and usually reduced need for pesticides. For the farmer, SRI brings greater returns to labor, land and capital.
WHAT ARE THE UNDERLYING PRINCIPLES OR SRI?
SRI methodology is based on four main, interacting principles:
Establishing plants early and quickly, to favor healthy and vigorous root and vegetative plant growth.
Maintaining low plant density to allow optimal development of each individual plant and to minimize competitions between plants for nutrients, water and sunlight.
Enriching soils with organic matter to improve nutrient and water holding capacity, increase microbial life in the soil, and to provide a good substrate for roots to grow and develop,
Reducing and controlling the application of water, providing only as much water as necessary for optimal plant development and to favor aerobic soil conditions.
Based on these principles, farmers adapt SRI practices to their climate zone, and to their agroecological and socioeconomic conditions. Most common adaptations respond to soil conditions, water control, changing weather patterns, access to organic inputs, the decision to practice fully organic agriculture or not, access to labor, mechanization, and other socioeconomic factors.
In addition to irrigated rice, the SRI principles have been applied to rainfed rice and to other crops, such as wheat, sugarcane, teff, finger millet, mustard, and pulses all of which show increased productivity over current conventional planting practices. When SRI principles are applied to other crops, we refer to it as the System of Crop Intensification or SCI (see SCI section of the website for details.)
The basis of the system is described as follows:
Climate of opinion is very important for promotion and sustainability of any innovation in agriculture. ‘Modern agriculture’ has proceeded from the paradigm of the Green Revolution, which specifies that productivity improvements will be best achieved by making genetic improvements in crops, and then making appropriate increases in the application of external inputs.
SRI operates from a different paradigm, positing that existing genetic potentials can produce more agronomic output and economic returns by modifying growing environments,
specifically improving soil health, root growth and performance, and inducing greater abundance, diversity and activity of soil biota. Getting these differences in paradigms understood, providing scientific evidence and explanations for their acceptance, reducing
reliance on the preceding paradigm and gaining adherence to the newer one, are all part of the process for creating ‘favourable conditions’ for SRI spread, with both short-term and
long-term impact.
http://www.europarl.europa.eu/RegData/etudes/etudes/stoa/2009/424734/DG-IPOL-STOA_ET(2009)424734_EN(PAR05).pdf
Strangely, there is almost no information about the use of this method in North America and Europe. Wonder why?
- The present approach to agriculture generally insists on uniformity and the input of massive amounts of energy, water and chemicals to create standard growing conditions. In contrast to the one size fits all approach, SRI demands a more nuanced methodology which appears to reduce the amount of these inputs with the attendant reduction in commercial inputs such as fertilizer.
- SRI is highly labour intensive. Would the trade-off between increased yields but increased labour costs be applicable in most of "western" agriculture? Is there a role for artificial intelligence and mechanization to make SRI more viable, especially with high value crops?
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