Category: Economic World News

By Brad Tank, Chief Investment Officer – Fixed Income

Both the global economy and the U.S. Congress could be set for a new equilibrium in 2019.

A month ago, I was in Bali at the Annual Meeting of the International Monetary Fund (IMF) with our Chief Executive Officer George Walker, a big contingent of our emerging markets debt team, and a number of other senior colleagues. We value this event for insights into economic and development issues, of course, but also as a time to catch up with clients and partners from around the world all in one place. For me, it was also an opportunity to hit the road throughout Asia and really get my finger on the pulse there.

What I heard was enough to prepare me for the wave of selling that was to hit financial markets later in October. Sentiment in Asia was much darker than in Europe, and certainly darker than it is in the U.S. The IMF had revised its growth forecasts down immediately before its meetings, and it was a big theme of discussion there. In that part of the world, they have an acute sense of the global economic slowdown and the impact of the U.S.-China trade dispute.

Markets woke up to that in October. But there is a case to be made that this realization is good news for investors – evident, perhaps, in the steady rebound we’ve enjoyed so far in November. Moreover, the results of last week’s U.S. midterm elections arguably consolidated that good news.

New Equilibrium

The overwhelming impression I got in Asia is that investors think that Europe went into a slowdown this year, Asia is right behind it, and the U.S. will follow in 2019. On the face of it, that sounds like bad news.

Similarly, the analysts we heard do not expect the U.S.-China trade dispute to be a “NATFA 2.0”- a lot of bluster quickly followed by an outbreak of handshakes – simply because the issues involved are too large and complex. This impasse could take time to work out.

But the thing is, once those realities are discounted in market prices as they were in October, they become much less scary.

Yes, global growth is slowing – but it was faster and more synchronized in 2017 than at any time since the financial crisis. Yes, the U.S. is likely to join that slowdown in 2019 – but that could help to bring things back into synchronicity, curb U.S. inflation, let steam out of the dollar and allow the Federal Reserve to pause its rate hikes. Yes, tariffs are causing some harm – but it appears limited, and there are signs that the tide of the trade war may be turning.

All of that should make it easier for the business cycle to extend into 2020, and for markets to maintain their new equilibrium.

Divided

Investors appear to have concluded that the U.S. midterm election results support this scenario. Certainly, the Democratic Party taking back control of the House of Representatives did not derail the November bounce in equities and emerging market assets.

The stimulative impacts of last year’s corporate tax cuts have mostly worked their way through the system now, and a divided Congress makes a further inflationary shot in the arm highly unlikely. There is scope for some bipartisan agreement on infrastructure spending, but conservative fiscal hawks in the Senate are likely to keep a lid on those ambitions. The modest scale of Democratic gains and the continuing Republican majority in the Senate mean the White House still controls regulatory appointments and does not face a rollback of the changes it has already made. Markets have historically liked divided government, and if it also takes a little steam out of U.S. inflation, that is all for the good.

Congress generally has less scope to constrain the White House on trade, but in any case there is little reason or appetite for the House majority to block the new U.S.-Mexico-Canada Agreement, and with election season out of the way there may be more space for nuance in U.S.-China relations. The mood music has already improved markedly over recent days. It now seems possible that further tariffs could be taken off the table and piecemeal agreement might be reached on certain agricultural and manufactured goods.

I agree with Joe Amato that volatility is back and here to stay, for good reason. There are clear tail risks out there. The probability of President Trump being subject to multiple investigations, and potentially impeachment, is now higher. U.S. inflation and the strength of the dollar still bear watching. The freefall of the renminbi, despite China furiously selling its foreign exchange reserves, is cause for concern. There have been signs of exuberance in U.S. CCC rated bonds and leveraged loans.

Overall, however, the global economy may move back into more of a balance in 2019 – just as the branches of the U.S. legislature did last Tuesday.

In Case You Missed It

• ISM Non-Manufacturing Index: -1.3 to 60.3 in October
• Eurozone Purchasing Managers’ Index: -1.0 to 53.1 in October
• FOMC Meeting: The FOMC made no changes to its policy stance
• U.S. Producer Price Index: +0.6% in October month-over-month and +2.9% year-over-year

What to Watch For

• Tuesday, 11/13:
  • Japan 3Q 2018 GDP (first estimate)
• Wednesday, 11/14:
  • U.S. Consumer Price Index
  • Eurozone 3Q 2018 GDP (second estimate)
• Thursday, 11/15:
• Friday, 11/16:
  • Eurozone Consumer Price Index

– Andrew White, Investment Strategy Group

Statistics on the Current State of the Market – as of November 9, 2018

Market Index	WTD	MTD	YTD
Equity
S&P 500 Index	2.2%	2.7%	5.7%
Russell 1000 Index	2.0%	2.6%	5.3%
Russell 1000 Growth Index	1.7%	2.2%	8.9%
Russell 1000 Value Index	2.3%	2.9%	1.4%
Russell 2000 Index	0.1%	2.6%	1.9%
MSCI World Index	1.4%	2.1%	0.2%
MSCI EAFE Index	0.2%	1.5%	-7.5%
MSCI Emerging Markets Index	-2.0%	2.1%	-13.6%
STOXX Europe 600	1.3%	2.4%	-7.9%
FTSE 100 Index	0.2%	-0.2%	-4.1%
TOPIX	0.9%	1.6%	-6.1%
CSI 300 Index	-3.7%	0.4%	-19.7%
Fixed Income & Currency
Citigroup 2-Year Treasury Index	0.0%	-0.0%	0.3%
Citigroup 10-Year Treasury Index	0.2%	-0.2%	-4.5%
Bloomberg Barclays Municipal Bond Index	0.2%	-0.1%	-1.1%
Bloomberg Barclays US Aggregate Bond Index	0.3%	-0.0%	-2.4%
Bloomberg Barclays Global Aggregate Index	-0.0%	-0.0%	-3.5%
S&P/LSTA U.S. Leveraged Loan 100 Index	0.1%	0.2%	4.0%
ICE BofA Merrill Lynch U.S. High Yield Index	0.1%	0.3%	1.1%
ICE BofA Merrill Lynch Global High Yield Index	0.1%	0.4%	-0.8%
JP Morgan EMBI Global Diversified Index	-0.0%	0.3%	-4.8%
JP Morgan GBI-EM Global Diversified Index	-0.1%	1.4%	-8.7%
U.S. Dollar per British Pounds	0.5%	2.0%	-3.7%
U.S. Dollar per Euro	-0.2%	0.2%	-5.5%
U.S. Dollar per Japanese Yen	-0.5%	-0.8%	-0.9%
Real & Alternative Assets
Alerian MLP Index	2.7%	2.9%	0.2%
FTSE EPRA/NAREIT North America Index	3.8%	3.0%	3.0%
FTSE EPRA/NAREIT Global Index	2.1%	2.8%	-2.1%
Bloomberg Commodity Index	-1.1%	-0.3%	-4.4%
Gold (NYM $/ozt) Continuous Future	-2.0%	-0.5%	-7.7%
Crude Oil (NYM $/bbl) Continuous Future	-4.7%	-7.8%	-0.4%

Source: FactSet, Neuberger Berman.

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WASHINGTON (AP) – Facing closely contested election races in Florida and Arizona, President Donald Trump is spreading misleading rhetoric regarding voting fraud.

He says votes are suspiciously appearing “out of the wilderness” in Arizona after Election Day to boost the Democratic candidate in the Senate race. It’s actually typical for the state to take additional days after an election to finish tabulating mail-in votes.

Trump also suggests that heavily Democratic counties in Florida may be improperly seeking to inflate the Democratic vote in the state’s Senate and governor races. There’s no evidence of that. The Florida state agencies charged with investigating potential fraud say no credible allegations exist.

Meanwhile, on the economy, Trump asserted that U.S. growth under his watch has been unprecedented. In fact, it was surpassed just four years ago during the Obama administration. He also minimized the trade threat from China and claims a U.S. steel industry renaissance that isn’t really happening.

A look at his claims, also covering health care and veterans:

FLORIDA ELECTIONS

TRUMP: “You mean they are just now finding votes in Florida and Georgia – but the Election was on Tuesday? Let’s blame the Russians and demand an immediate apology from President Putin!” – tweet Friday.

TRUMP: “Trying to STEAL two big elections in Florida! We are watching closely!” – tweet Saturday.

THE FACTS: He’s making baseless charges of “stealing” elections in Florida’s Senate and governor races, which headed for recounts due to razor-thin leads held by Republicans Rick Scott and Ron DeSantis, respectively.

It’s not uncommon for vote tallies to change in the days after the election as local officials process mailed and provisional ballots. In Florida, both Scott and DeSantis saw their leads dwindle in recent days as the Democratic strongholds of Palm Beach and Broward counties continued to count votes. That vote count concluded Saturday, leading to the Florida secretary of state’s order for recounts after the unofficial results in both races fell within the margin that by law triggers a review.

In the past two elections, in 2016 and 2014, Florida counted more than 99 percent of the vote on Election Day and in the early hours of the next day. In Broward, election officials updated vote totals for days after Election Day.

In alleging potential fraud, Scott, as outgoing governor, had said Thursday night that he was asking the Florida Department of Law Enforcement to investigate elections offices in Palm Beach and Broward. However, the agency said Friday there were no credible allegations of fraud and therefore, no investigation is active.

Scott’s campaign also filed a lawsuit asking that the Broward County supervisor of elections be ordered to turn over several records detailing the counting and collection of ballots cast. A judge Friday sided with Scott and ordered Broward’s election supervisor to release that voter information; the ruling did not address allegations of fraud.

The state’s election division, which Scott runs, said Saturday that its observers in Broward had seen “no evidence of criminal activity.”

Voting fraud in Florida and nationwide, in fact, is extremely rare. Trump often asserts that voter fraud is a significant issue, but has not provided evidence of consequential fraud.

After the 2016 election, Trump convened a commission to investigate potential voting fraud, after alleging repeatedly and without evidence that fraud cost him the popular vote. Trump won the Electoral College. But he disbanded the panel in January, blaming the decision on more than a dozen states that refused to comply with the commission’s demand for reams of personal voter data.

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ARIZONA SENATE RACE

TRUMP: “Now in Arizona, all of a sudden, out of the wilderness, they find a lot of votes, and she’s – the other candidate is just winning by a hair.” – remarks to reporters Friday.

TRUMP: “Just out – in Arizona, SIGNATURES DON’T MATCH. Electoral corruption – Call for a new Election? We must protect our Democracy!” – tweet Friday.

THE FACTS: There is no evidence of anything unusual going on in the vote-counting in Arizona. Trump made the charges of “electoral corruption” and votes appearing “out of the wilderness” as Republican pessimism grew about Rep. Martha McSally’s prospects in the Senate race. However, Arizona normally takes more than a week to count its ballots, and no elected Republican officials in the state have cried foul. It’s possible that Democrat Kyrsten Sinema’s opponent, McSally, could jump back into the lead in the coming days. That wouldn’t be suspicious, either.

The vote count tends to take longer in Arizona because residents like to vote early, by mail, and a mailed-in ballot requires more work for elections officials.

State law requires the envelope to be sealed and signed, and for elections officials to match each signature to the one on file with the voter’s registration before even opening the envelope. In this election, that’s about 1.7 million individual signatures that had to be confirmed, one by one. A total of about 2.4 million votes were cast in Arizona.

The work piles up in the final days before the election as ballots flood in. Voters can also drop off sealed mail ballots on Election Day, adding to the pile. The state’s Republican secretary of state, Michele Reagan, added another reason: election security. To ensure against voter fraud, mail ballots dropped off Election Day – which totaled 320,000 – are double-checked with votes cast at the polls to confirm no one voted twice.

The GOP had filed a lawsuit seeking to stop Maricopa and Pima counties from contacting voters after Election Day about problems with the signatures on their mail ballots. But they, Democrats and the state’s counties settled the complaint Friday to essentially allow the rest of the state to follow the more lenient Maricopa and Pima standards. Those standards are what Trump seemed to complain about in his “signatures don’t match” tweet.

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MIDTERM ELECTIONS

TRUMP, on the message taken from Tuesday’s elections: “I think the results that I’ve learned, and maybe confirm, I think people like me. I think people like the job I’m doing, frankly. Because if you look at every place I went to do a rally … and it was very hard to do it with people in Congress because there are just too many … but I did it with the Senate. I did it with (Kentucky Rep.) Andy Barr, as you know. And he won.” – news conference Wednesday.

THE FACTS: Trump is wrong to suggest that congressional candidates won in every state where he held a rally on their behalf.

Two Republicans who closely embraced Trump in their Senate races – Montana’s state auditor, Matt Rosendale, and West Virginia’s attorney general, Patrick Morrisey – lost to Democratic Sens. Jon Tester and Joe Manchin, respectively. Trump had visited Montana four times and West Virginia three times to rally voters. Also losing Tuesday were Republican Sen. Dean Heller of Nevada, defeated by Democratic Rep. Jacky Rosen, and Leah Vukmir, a GOP state lawmaker in Wisconsin who lost her Senate race to Democratic Sen. Tammy Baldwin. Trump campaigned for Heller in Nevada on Oct. 20 and for Vukmir in Wisconsin on Oct. 24.

In the House, Republican Rep. Jason Lewis lost his race in Minnesota to Democrat Angie Craig, whom he had defeated by 2 percentage points in 2016. Trump campaigned in Minnesota on Oct. 4 after Lewis invited Trump to appear for him.

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TRUMP: “Fifty-five is the largest number of Republican senators in the last 100 years.” – news conference Wednesday.

THE FACTS: His party didn’t win 55 Senate seats Tuesday. Republicans held 55 seats in the Senate in 2005-2006, as well as 1997-2000, according to the Senate historian’s office.

After Tuesday’s elections, Republicans will hold a 51-46 edge, with races in Florida and Arizona too close to call. A special election in Mississippi has advanced to a runoff election on Nov. 27 between Republican Sen. Cindy Hyde-Smith and Democrat Mike Espy. That means 54 Republican seats if those three races all break the GOP’s way.

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ECONOMY

TRUMP: “America is booming like never before. … In terms of GDP, we’re doing unbelievably.” – news conference Wednesday.

TRUMP, on his telephone conversation Tuesday night with House Democratic leader Nancy Pelosi: “We didn’t talk about impeaching. We didn’t talk about – what do you do? Do you impeach somebody because he created the greatest economic success in the history of our country?”

THE FACTS: The economy is healthy, but it’s not unbelievable or unprecedented. It’s also not clear what he means in claiming the nation’s “greatest economic success” ever.

The economy expanded at a 4.2 percent annual rate in the April-June quarter, then by 3.5 percent in the July-September quarter. Those are the best two quarters in just four years. Growth reached 5.1 percent in the second quarter of 2014, followed by 4.9 percent in the third quarter.

The economy has boomed much more dramatically in the past. In the late 1990s, growth topped 4 percent for four straight years. It reached 7.2 percent in 1984. The unemployment rate is now at an impressive 50-year low of 3.7 percent. But it remained below 4 percent for nearly four years in the late 1960s.

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TRUMP: “And our steel industry is back. Our aluminum industry is starting to do really well. These are industries that were dead. Our miners are working again.” – news conference Wednesday.

THE FACTS: He’s exaggerating.

The steel industry has added jobs at a faster rate than the economy as a whole since Trump’s inauguration, though all the gains occurred before the administration imposed tariffs on steel imports in March. Still, the rebound has hardly restored steel to its former glory.

The United States has added 5,500 steel jobs since Trump entered the White House for a total of 86,500. Before the Great Recession, there were about 100,000 steel jobs. Aluminum factories have added 2,600 jobs since the inauguration for a total of 60,100. These are minor changes in an economy with almost 150 million jobs.

Meanwhile, not many miners are working again. Coal mining jobs have increased just 1,900 to 52,600 since Trump’s inauguration. That’s also a lot lower than the roughly 70,000 coal mining jobs that existed as recently as 2014.

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TRUMP: “China got rid of their ‘China ’25’ because I found it very insulting. I said that to them. I said, ‘China ’25’ is very insulting, because ‘China ’25’ means, in 2025, they’re going to take over, economically, the world. I said, ‘That’s not happening.'” – news conference Wednesday.

THE FACTS: There’s no evidence China has abandoned its economic plan. Trump is referring to China’s “Made in China 2025” plan, under which that country’s government aims to develop world-leading companies in robotics, semiconductors, electric vehicles and other advanced technologies. It’s a sore point between the two nations because the United States and other countries argue that China is using unfair tactics to achieve those aims, such as forcing U.S. companies to share technology and providing government subsidies.

Chinese officials have played down the plan in recent months because of the international criticism. But there’s little sign they have “gotten rid of” the plan. Because China sees the plan as a key step in the development of its economy, many observers worry they are unlikely to scale it back, which suggests U.S.-China trade fights aren’t going away anytime soon.

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VETERANS

TRUMP: “I’ve done more for the vets than any President has done, certainly in many, many decades, with Choice and with other things, as you know. …If you look at Choice – Choice alone – I mean, just take a look at what we’ve done with Choice.” – news conference Wednesday.

THE FACTS: He’s taking premature credit for improvements that will take years to see full effect in regards to the Veterans Choice program.

Trump signed legislation in June to expand the private-sector Choice program, which was first approved in 2014 during the Obama administration in the wake of a scandal at the Phoenix VA medical center in which some veterans died while waiting months for appointments. The current Choice program allows veterans to see doctors outside the VA system if they must wait more than 30 days for an appointment or drive more than 40 miles to a VA facility.

How much Choice will be expanded, however, will depend on yet-to-be-completed regulations that will determine eligibility for veterans as well as available money for the program. The Department of Veterans Affairs has yet to resolve long-term financing due to congressional budget caps that could put funding for VA or other domestic programs at risk of shortfalls next year.

Also important to the program’s success is an overhaul of the VA’s electronic medical records to allow seamless sharing of medical records with private physicians, a process expected to take up to 10 years. VA Secretary Robert Wilkie has said full implementation of the expanded Choice program is “years” away.

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HEALTH CARE

TRUMP, on keeping health premiums down and covering people with preexisting medical conditions: “What we’re doing, if you look at the Department of Labor also – (Health and Human Services) Secretary (Alex) Azar, what they’ve done. They’ve come up with some incredible health care plans, which is causing great competition and driving the prices right down.” – news conference Wednesday.

THE FACTS: He’s glossing over the limitations of his administration’s new health care options, which offer lower premiums than comprehensive plans such as the Affordable Care Act but also cover less. The availability of Trump’s short-term health plans also is not going to “drive down” prices of the Obama-era overhaul or comprehensive plans, but may increase premiums for robust coverage if fewer healthy people take it as a result.

Strictly speaking, the short-term and association health plans are not new. The Trump administration has broadened their potential reach, although some states may push back with restrictions.

Short-term plans don’t have to take people with medical conditions or provide benefits such as coverage for maternity, mental health, prescription drugs and substance abuse treatment. Association health plans do have to accept people with pre-existing medical conditions, but they don’t have to cover the full menu of 10 “essential” kinds of benefits required by Obamacare.

Gary Claxton of the nonpartisan Kaiser Family Foundation says short-term plans may turn out to be more costly than Trump administration officials suggest. The plans now cover up to 90 days, but if insurers expand them to offer up to 36 months’ coverage, the companies will be taking on more risk.

“You’ll have to pay more up front because there’s a longer time during which you could get sick,” Claxton said.

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Associated Press writers Nicholas Riccardi, Calvin Woodward, Alan Fram and Ricardo Alonso-Zaldivar contributed to this report.

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Well, investors, did you enjoy ‘Shocktober’? Yes, it was a brutal last month in the stock market, as investors fretted about mid-term elections, earnings and interest rates. For a while, it certainly looked like 2008 all over again, with tech stocks posting their worst month in nearly a decade. Pundits called for the “end of the bull” and of course all the doomsayers with wringing their hands with glee. We heard from many investors who were shifting to cash, “until the market settles down” or ”corrects dramatically.”

But, as usual, fear took over from reality. Even with some big corporate earnings misses, markets eventually calmed down. The main drivers of the stock market — interest rates and earnings — are still positive for the market. Takeovers continue and dividends keep increasing. While October certainly was no fun, for seasoned (i.e. old) investors like us it was just another month.

Here are five reasons why investors might not want to worry so much about events in October.

Market valuations are now very reasonable

According to FactSet, the forward 12-month price to earnings (P/E) ratio for the S&P 500 is now 15.6. This P/E ratio is below the five-year average (16.4) but above the 10-year average (14.5). With very strong economic conditions, good corporate earnings growth and lots of dividend increases and acquisitions, we would not view a 15 P/E as at all excessive. There has been lots of chatter about the ‘overvalued’ stock market, but it simply is just not the case. Put another way, just because a bull market has run a long time does not automatically mean it needs to stop.

Economic conditions are more than just ‘not bad’ — they are great

Unlike in 2008, we do not have a seize-up of credit markets. Employment is at a record. Commodity prices are not surging. Corporate earnings are solid. Things, simply put, are just not bad at all. Generally, the market reacts to the economy. The sharp sell-off in October simply made little sense if you look at economic strength, particularly in the U.S.

Investors were really not that scared

While we will never ignore market signals, we simply were not that worried in October because we were closely watching the VIX, or volatility index. It never breached 30. In 2008, it hit 80. Even in February — this year’s other “panic” — it hit 37. In 2011, it hit 48. Thus, in terms of real panic for investors, October really wasn’t even close to other panics, which of course, all proved to be opportune buying times (as panic usually is).

Money still came into the market

We like Vanguard ETFs, as the company has been a big driver of getting investors’ fees down. We like also to watch Vanguard’s fund flows, as it has a huge individual retail investor base. Once again (as it has for more than a decade) Vanguard reported net fund inflows in October. It is always hard to get a bear market rolling if money continues to pour into the market.

Buffett is still buying

Warren Buffett bought back close to US$1 billion in shares in his Berkshire Hathaway holding company in August, and the company finally made a dent in its giant cash hoard (still US$243 billion!). We haven’t seen his October buying numbers, but, as in 2008, when Mr. Buffett came in with US$5 billion to support Goldman Sachs while the financial world was imploding, he likes to buy when others are selling, and his timing is far more right than wrong. Investors could do worse than following his lead.

Even with October’s swoon, all U.S. indices are now up on the year, recovering nicely. Looks like it could be time for a Santa Claus rally.

Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors

Bite into a Honeycrisp apple and you understand why consumers are willing to pay so much for a piece of fruit: the crunch.

That’s no accident. In the pre-Honeycrisp era, apples had just two textures: “soft and mealy (that nobody liked), and then we had the good apples, the hard, crisp and dense,” said David Bedford, one of the original breeders of the Honeycrisp.

Unlike the vast majority of modern commercial produce, the Honeycrisp apple wasn’t bred to grow, store or ship well. It was bred for taste: crisp, with balanced sweetness and acidity. Though it succeeded beyond anyone’s wildest dreams, along the way it became a nightmare for some producers, forcing small Northeastern growers to compete with their massive, climatically advantaged counterparts on the West Coast.

The Honeycrisp wasn’t an immediate success. The original tree, known officially as MN1711, was discarded in 1977 over concerns about its winter hardiness. But Bedford, who joined the team in 1979, found four small clones that had miraculously escaped the garbage and decided to see if they’d yield fruit. “In 1983,” Bedford wrote in an email, “those small trees bore a few amazing fruit and the rest is history.”

The Honeycrisp variety is now so popular, consumers will spend three times the cost of other apples to experience it.

Production of Honeycrisps has doubled over the last four years, making it the fifth most-grown variety, according to Mark Seetin, director of regulatory and industry affairs at the U.S. Apple Association. But not everyone is a fan. Those who produce Honeycrisps often have the most cutting words for it.

“The first challenge is controlling its vigor,” said Brenda Briggs of Rice Fruit Co., which has been selling apples out of Adams County, Pennsylvania, for more than 100 years. Growers, she explains, have to train the trees so that their branches don’t get too tall too fast, with leaves that block the sunlight from the apples below.

The fruit is also vulnerable to bitter pit — small, sunken brown spots that sully an otherwise perfect orb. The flaw is a result of the trees’ inability to properly take up calcium from the soil. Growers are forced to spray their orchards with foliar calcium to boost their intake, but it’s not always enough.

Size can also be an issue. “The fruit tends to grow very big,” said Mark Nicholson of New York’s Red Jacket Orchards, whose business includes about 400 acres dedicated to apples. “That’s good, but at a certain point the consumer doesn’t want to buy an apple the size of a grapefruit.”

The thin skin that makes those first bites so juicy is also very delicate and easily sunburned. Birds love Honeycrisps more than other apples, forcing growers to buy and install netting to keep them away.

It requires growers to do a lot more work

Mark Nicholson of New York’s Red Jacket Orchards

Even if a producer manages to grow a decent crop of Honeycrisps, harvesting and storage come with additional hurdles. The variety is so delicate that the stems have to be clipped off so the apples don’t tear each other. And while other apples can go right from tree to cold storage, Honeycrisps must first spend 5-10 days being “tempered” at a mild temperature before they can be refrigerated.

“It requires growers to do a lot more work,” Nicholson said. In the end, only 55 per cent to 60 per cent of the fruit makes it to retail, Seetin said.

It also means that even though Honeycrisps cost more than double the price of Red and Golden Delicious apples — at a national average of US$2.19 a pound for the month of October — producers aren’t raking it in. “There’s a higher investment and production cost in places that are not Minnesota,” where the Honeycrisp was originally bred, said Karina Gallardo, an agricultural economist at Washington State University.

So why do farmers put up with the hassle? They simply don’t have a choice.

The demand for this one apple exceeds supply — it’s all consumers, and therefore supermarkets, want. So growers are planting with almost reckless abandon, pulling out old varieties, like the tired Red Delicious, and putting in Honeycrisp trees — even in places where they don’t grow well.

For the massive West Coast orchards, this isn’t much of a problem. But on the East Coast, which has smaller orchards and wet weather that makes organic growing impossible, the challenge is more acute. “There’s a lot of concentration of apple growing in the one place (Washington), and that makes it easier for those growers to supply big retailers,” said Susan Futrell, author of “Good Apples: Behind Every Bite” and director of marketing at Red Tomato, a Massachusetts-based nonprofit distributor for a network of over forty wholesale growers. “Decisions about what varieties to carry are getting made by fewer and fewer people and further away from where people are buying the apples.”

Even for such retailers as Whole Foods Market and FreshDirect, both of which have robust local programs, sourcing from the West Coast to sell in the East is inevitable if they want to carry the organic version of their most popular apple.

Meanwhile, everyone is nervously waiting for the day when the supply-demand equilibrium brings sticker prices down far enough that growing the Honeycrisp no longer makes economic sense.

But it’s not likely to happen soon, said Eric Rama, head of agricultural research at MetLife Inc. Even though production is increasing at a rapid pace, demand for premium apples isn’t waning. Retail prices, though slightly lower than last year’s, have stayed at appealing heights for farmers and probably won’t sink in the foreseeable future, he said.

Still, the industry is on the lookout for the next Honeycrisp. Something just as delicious, but less troublesome to cultivate.

Broetje Orchards in Prescott, Washington, is devoting 10 per cent of its 7,000 acres to the non-browning Opal, Paul Esvelt, the orchard’s post harvest manager, told Bloomberg at a New York City event to promote the fruit. That’s the same amount of space the grower sets aside for the Honeycrisp. Esvelt expects 3 per cent growth for the Opal next year, while Honeycrisp acreage will remain stagnant.

Washington State University plans to introduce the Cosmic Crisp as early as next year, said Gallardo. Tangy, sweet and — as the name implies — crispy, the apple could account for 5 per cent to 10 per cent of the state’s production.

Josh Morgenthau of Fishkill Farms in New York, meanwhile, would like to see more credit given to the Esopus Spitzenburg, a New York original known for its spicy profile and, some say, a particular favourite of Thomas Jefferson’s.

Despite the extra work, growers will keep planting, picking and selling the Honeycrisp, as long as the core economics makes sense.

“If they aren’t making money,” said Bedford, “I’d be the first to tell them to pull it out.”

Bloomberg.com

CALGARY – TransCanada Corp. said it remains committed to its long-delayed, often-challenged $10-billion Keystone XL pipeline Friday even after a U.S. federal judge blocked the project.

United States District Court Judge Brian Morris issued an injunction Thursday preventing either Calgary-based TransCanada or the U.S. federal government “from engaging in any activity in furtherance of the construction or operation” of the Keystone XL pipeline.

Morris’ ruling said the U.S. State Department’s analysis “fell short of a ‘hard look’” at potential spills, likely impact on Native American cultural resources, cumulative emissions from Keystone XL and other oilsands pipelines and how a change in oil prices would affect the viability of the pipeline.

Analysts say the decision could cause a delay of up to one year for Keystone XL, which was first proposed 10 years ago.

Former TransCanada executive Dennis McConaghy, who has written a book on the Keystone XL pipeline saga, said the Calgary-based pipeline giant had successfully re-contracted all the available space on the pipeline, which should sufficiently satisfy the court of the viability of the pipeline.

Noting that former U.S. president Barack Obama had appointed Morris to the court, McConaghy said opponents of the pipeline had “shopped (the case) as best they could to find a pliant federal court judge who had some nexus to the project.”

Obama rejected Keystone XL before leaving office.

McConaghy said that, most likely, “TransCanada has been working steadily through the night with the Trump administration to decide what they’re going to tactically do.”

U.S. President Donald Trump, who approved a revived Keystone XL through an executive order in 2017, blasted the decision Friday. “It was a political decision made by a judge. I think it’s a disgrace,” he told reporters at the White House.

TransCanada did not indicate how it would proceed on Friday but the ruling is a blow to the company’s plans to begin construction early next year. TransCanada had been staging pipes and clearing vegetation along the route in Canada and the U.S.

“We have received the judge’s ruling and continue to review it. We remain committed to building this important energy infrastructure project,” the company said in an emailed statement.

It was a political decision made by a judge. I think it’s a disgrace

U.S. President Donald Trump

Legal experts believe TransCanada has three avenues for the project. The State Department could try to address the deficiencies the judge indicated in the ruling, appeal the decision to a higher court, or Congress could try to pass a law enabling the project’s construction.

Each of those options have problems of their own, said Fred Jauss, a Washington, D.C.-based partner with Dorsey & Whitney LLP.

“The most likely outcome is they’ll take a two-track approach here and they will file an appeal up to the (San Francisco-based) Ninth Circuit, which has not been friendly ground for the Trump administration,” Jauss said. “Simultaneously, the State Department will start work on a revised environmental analysis.”

He said it could take several months before the State Department is able to issue a new environmental impact statement, putting a timeline for a decision “well into 2019.”

Alternatively, Republicans could try to pass a law through both houses of Congress to rubber stamp the project, but they’d need to do it before the House of Representatives switches to Democratic control in the New Year.

“They’ve only got just about two months to be able to get something through – that’s a very low probability, but it is a possibility,” Jauss said.

Trump could also either file an appeal or direct the State Department to conduct a new study, said Zachary Rogers, analyst at Wood Mackenzie.

“We see the potential delay of this project being between eight months and a year – and that could push the (in-service date for the) line back to the middle half of 2022,” Rogers said.

“This really underscored the painful year that Western Canadian producers are having and it’s really a function of the lack of infrastructure,” Rogers said of the ruling, which exacerbates Canada’s pipeline pinch that has led to record-setting US$50-per barrel discounts for Canadian crude.

The ruling in Montana against Keystone XL is “eerily similar” to the Federal Court of Appeals ruling against the Trans Mountain pipeline, according to Chris Bloomer, Canadian Energy Pipelines Association president and CEO.

“These things are turning on what seem to be pretty narrow issues and they’re pretty similar on both sides of the border. We characterize it as yet another wake up call as to how fragile and how vulnerable Canada is to not having infrastructure built to move its energy to market,” Bloomer said.

TransCanada would likely provide more information on how it will deal with Thursday’s court ruling at its investor day presentation next week, according to Chris Cox, analyst at Raymond James.

“An important dynamic here is whether the company remains committed to pursuing the project in light of ongoing regulatory delays, especially as we believe there is a strong desire to substantially complete the project before the next U.S. presidential election,” Cox said.

Tom Goldtooth, executive director of the Indigenous Environmental Network, which was one of the plaintiffs asking for the injunction, said his group felt vindicated by the ruling.

“Trump’s approval of this pipeline was illegal, violated environmental laws and was based upon fake facts.”

Canadian oil stocks traded lower on Friday following the decision and as oil prices entered bear market territory, with shares in the country’s five largest oil producers falling between one to three per cent, and TransCanada shares slipping 1.42 per cent to $51.46.

• Email: gmorgan@nationalpost.com | Twitter: geoffreymorgan