Those who wish to cling to the happy worldview may wish to consider some numerical data: Between Adam and Eve and the present author’s birth, then again from that momentous date until his 40th birthday, the same number of people were added to the world’s population — zero to 3 billion, then 3 billion to 6 billion … in just 40 years. At the beginning of that same period there were several million lions living in the wild — there are now an estimated 50,000 — sharing a rapidly shrinking habitat with at most a few dozen rhinoceri. Most commercially valuable fish stocks are now classed as endangered or critically endangered, while the phytoplankton content of the world’s oceans has fallen by an unimaginable 40%. Coincidentally, some 40% of the coral reefs are dead — with most of the remainder endangered. Nine of the hottest years in recorded history have occurred over the past decade. We could continue, but to what purpose? Those who would deny the obvious for ideological reasons — whether Young Earth creationists, or those who believe infinite growth is possible within the confines of a finite geophysical system — will remain impervious to rational argumentation, believing what they wish without reference to inconvenient realities; for the others:

While increasing wealth does indeed lead to a dramatic decline in birth rates, an increase in material wellbeing in the impoverished countries of Africa and Asia is impossible without population control. The highly successful industrialization of China was rendered possible largely by the draconian limitation of Chinese birth rates, allowing resources to be invested rather than spent on a burgeoning population; compare and contrast with India which has seen its population triple since independence (1947), currently growing by 1.58–1.70% per annum, with a 2.72/female fertility rate and 65% of the population aged 35 or younger. The obvious impossibility of properly providing for this booming mass of humanity is illustrated by the fact that despite impressive headline GDP growth, something between 21% and 24% of the Indian population lives beneath the (desperately low) official poverty line — US$1.25/day.

But for a better look at what awaits us one needs to consider the Arab Crescent — where the bounteous news flow is now largely driven by the consequences of uncontrolled demographics. Egypt provides an excellent example: during Pharaonic times the great Egyptian civilization comprised an estimated 4 million people; a couple of millennia later, by 1955 that population had increased to ~24 million; since then, it has more than tripled to some 86 million. Although the rate of growth has decreased from 2.54% to 1.80% (source: CIA Factbook), the absolute number of people being added each year has nearly tripled. Poverty is thus widespread, infrastructure desperately inadequate, and each year another wave of frustrated young males, frequently well-educated, aware of what is going on in the rest of the world, and with no hope of formal employment, marriage or formation of a family, provide more tinder for social explosions. This situation is mirrored throughout the Arab Crescent — thus the Arab Spring — as well as the explosion in fundamentalist religious beliefs, which tend to attribute to foreign conspiracies the economic consequences of the failure of their own societies to self-regulate. This is not specific to the Arab world; a bit further south in Sub-Saharan Africa, the situation is even worse. Nigeria awaits us (its population has almost quadrupled since 1950, and is expected to exceed America’s by 2050).

Out of courtesy to our readers and in keeping with the cheerful New Year’s spirit we would be delighted to end this first section on an upbeat note — some reassuring clap-trap about new technology, or Chinese exceptionalism, or the Great Earth Spirit that will surely save us. We shall instead leave a few blank lines for the reader to insert his own faith-based engines of salvation; we struggle … but since the Gloom, Boom and Doom Report is a financial publication we move on to the question of how to trade it.

HOW TO TRADE IT — WHILE AWAITING THE ASTEROID

(Drafted in late December 2015. The markets could have had the courtesy of waiting until we published to tank…)

Predictions are hazardous — especially as regards the future

Given the difficulty of hedging against a direct asteroid hit we shall leave the long-term projections to the futurologists. Our current event horizon is 18 months at best, and for brevity we will here stick to the markets we know best — Eastern European, Latam and Asian emerging fixed income — where a combination of high carry and extremely inefficient and illiquid markets affords some compelling opportunities to those instinctively distrustful of what they read in the WSJ/FT/ The Economist.

We were skeptical of global equity markets in 2015 — and were at least half-right. The emergings tanked; on average the G7 have gone precisely nowhere; we would expect considerably worse in 2016, and are keeping our fingers well clear of the machinery. Likewise, long dollar/short commodities must be the most crowded trade in the galaxy; caveat emptor — a lot of good news is discounted in the dollar rate, and if we are correct and the US economy is set to turn down, there may be a rush for the exits. We would be equally wary of any trade predicated on the expectation of a Chinese hard landing — we are always entertained by talk of a “crisis” in China as it somehow attempts to get by with ~7% GDP growth; would that Europe/US had that problem! There has clearly been a fundamental shift in the type of Chinese growth — away from basic materials towards technology and services, and the demand for minerals is unlikely to regain its previous trajectory; that said, we suspect that the magnitude of some of the price declines is more a function of speculative positioning than of supply/demand — and at some point it will have to reverse. Again, we are not getting in front of this trade.