Two Trends You Can Bank On

US stocks were up overnight. Of the major indexes, the NASDAQ led the way, up 2.4%. Gold and oil were


Perhaps the most notable announcement was McDonald’s [NYSE:MCD], reporting a 30% decline in net income over the last quarter. It can’t be from a lack of hamburger sales in general. New Zealand beef is being shipped over to the US in record numbers. What gives?

The company attributes its current problems to a complicated menu. Its younger customers are also deserting the brand in general, heading to places with fresher ingredients, and faster service and payment options.

But perhaps McDonalds is fighting a losing battle anyway. Certainly, the food market in Australia and the US has shifted toward organic and whole foods. Few would perceive the McDonald’s brand as ‘homespun and healthful’, which is how The New York Times described what big food companies are going after.

This looks like the dominant trend in the food industry for the foreseeable future. You only have to go to your local bookstore (if there’s one left near you) to see shelves of cookbooks and diet advice on living gluten free, low-carb, paleo, sugar-free, vegetarian or organic.

Tim Dohrmann over at Australian Small-Cap Investigator has been doing some interesting research into this sector. Here’s a chart he shared with subscribers in a recent issue:

Organic Food and Beverage Sales in Australia

Source: Australian Organic Market Report, 2012

According to Tim, from 2000 to 2012 the Aussie organic market enjoyed a compound annual growth rate of 16%. That’s history now. The interesting thing is it’s projected to continue expanding at 10% per year. And organic sales only make up around 1% of total domestic food sales. That is to say, it’s a growth industry.

It’s not just the domestic market either. It’s well known that food safety is a particularly sensitive area in China. McDonald’s learned that the hard way. Earlier in the year, it was revealed that one of its meat suppliers was under a government investigation. Chinese consumers do not trust the supply chain network and safety standards across the entire food industry. And judging by the reports, they have every reason to think that way.

That’s creating enormous opportunities for countries perceived as ‘food safe’ like Australia and New Zealand. Tim’s found a company that stands to benefit from this trend. That’s based on the business case, of course. I wonder too, if over time, companies in this space might find a tailwind in the rise of investment funds looking for ‘ethical’ or non-fossil fuel investments. It’s an idea to think about…

Australian food tastes might be changing, but some things are not — the real estate market for one. Deputy Governor of the Reserve Bank of Australia Philip Lowe gave a speech yesterday.

In it, he revealed his frustrations that low interest rates are not translating into strong ‘real’ investment that generates growth. Instead, they’re mostly driving up the price of existing assets — mainly property.

But why act surprised, anyway? Look at this quote I recently came across in Michael Hudson’s book, The Bubble and Beyond:

Why don’t economists call a spade a spade and come right out and start their analytic description of modern economies with a profile of where most wealth is accumulated, and the fact that it consists more of land-price gains than in manufacturing?

That particular quote is taken from a paper Hudson presented in the year 2000 — almost fifteen years ago. Absolutely nothing has changed.

You only need to read the recent Credit Suisse report on Global Wealth released last week to see the truth of it too. It says that Australians are ‘the richest’ people in the world on a per capita basis. The catch is you’re only in the club if you own property.

According to the report (emphasis mine):

‘Interestingly, the composition of household wealth in Australia is heavily skewed towards real assets, which averaged USD 319,700 and form 60% of gross household assets. This average level of real assets is the second highest in the world after Norway. In part, it reflects a large endowment of land and natural resources relative to population, but it is also a result of high urban real estate prices.

Indeed, the Australian Financial Review ran a story yesterday about how a group of residents in St Leonards, Sydney, might be able to cash in on a possible rezoning of their land for high-density development. We’re talking millions. The key point is St Leonards is on a major transport hub and 10 minutes from the city.

Net result: landholders take the gain. And as land value goes higher, the ripples flow from there. On Saturday, you’ll see how the stock market is pricing this in. Stay tuned.

Callum Newman+
For Markets and Money

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Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

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