#111 - The Money Carousel Rotates, a Trudeau Minority, September IPOs to Watch and Canadian Tech Fundraising News

  
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In this week's episode of Reformed Millennials, Broc and Joel talk China, Crypto and Evergrande. The bad news is piling up but Joel does his best to help those concerned navigate this market. HINT HINT - watch the price of WTI and Nutrien.

Near the end, they dive into Canadian start-ups and 2 businesses that young Millennials should consider working for if they’re interested in supercharging their careers.

Listen on AppleSpotify, or Google Podcasts.

If you aren’t in the Reformed Millennials Facebook Group join us for daily updates, discussions, and deep dives into the investable trends Millennials should be paying attention to.

👉 For specific investment questions or advice contact Joel @ Gold Investment Management.


📈📊Market Update💵📉

Evergrande has $19B in international debt.

$19B.

The US Treasury buys 120B in bonds every month.

Quick thought puke on Evergrande, the market, and the Liberal Minority Win

TL;DR EVERGRANDE TAKE:
  1. China will make an example of them, but won't put their system at risk

  2. No one systemically important in US or EU is materially exposed to China HY. HFs lose money? Yeah. So what?

  3. We buy from China, they don't buy from us. Chinese slowdown NBD

Tweet Threads to Catch Up:

Thoughts on Markets that I share on this weeks podcast:

Have you noticed the divergence between the Dow Jones Industrial Average, which had been making new all-time highs as recently as last month, and the Dow Jones Transportation Average, which is making new 6-month lows?

Here's the Dow Jones Industrial Average, which we want to be cautious of below 34,500:

Some stocks have been going up. Most stocks have not.

You can see the average NASDAQ stock is down 27% off its highs.

The median stock is down 20%. (from all-star charts)

SO THE QUESTION IS NOT, "WILL WE SEE A STOCK MARKET CORRECTION?"
THE CORRECT QUESTION IS, "HOW MUCH LONGER WILL THIS CORRECTION LAST?"

And I think the answer could lie in the chart of Crude Oil. As a reliable gauge of risk appetite in recent years, I think a breakout above 76 in Oil could be a heads up that risk is on, and buying stocks is a good idea again: (image 4)

Right now Crude Oil is rangebound, but as soon as that range breaks and we're above those 2018 highs, Energy is a place most short-term investors will want to be.

It will also give us some direction regarding the overall market risk appetite.

Congrats to the Liberals on their win last night. More of the same can be expected for the next few years.

Prediction:

this is Justin's last kick at the can and he won't seek re-election. I expect the up-and-coming women to take over the Liberal party from here on out.

Think Chrystia Freeland


💸Reformed Millennials - Post of The Week

What to expect from Canada's 44th Parliament.

from NBF (National Bank of Canada Financial Markets)

This is one fractured country, politically speaking – Western Canada remains alienated, resembling something of a political wasteland for the governing Liberals. Elsewhere, the Liberal stronghold in Atlantic Canada bent but did not break. Ontario and BC highlighted major urban-rural divides, while Quebec remains something of a special case (owning to solid Bloc support).

Despite a Liberal plurality, Canada’s 44th parliament should prove workable – After all, it’s nearly identical to what we had in the last parliament. That is, a Liberal minority drawing support, as needed, from one or more of the smaller opposition parties… typically the NDP.

The first test? The response to an upcoming Liberal Throne Speech. It’s not clear what exactly the NDP will demand in exchange for their support of key Liberal motions – Look for Jagmeet Singh to spell out his key priorities as we set up for a fresh parliament.

There’s no shortage of potential NDP ‘asks’, judging from the expansive list of new investments in the party’s platform. We already know what the Bloc wants. Among other things, it’s a firm commitment to immediately and substantially increase the Canada Health Transfer, permanently raising the federal share of total health costs to 35%. BQ leader Blanchet earlier indicated he won’t support a Liberal Throne Speech without such a commitment. He could be waiting a while, as there’s no such specific CHT promise in the Liberal platform.

Canada’s aggressive climate plans are retained – Recall that the Liberals had earlier passed legislation setting Canada on a path to net-zero emissions by 2050. A steadily increasing carbon tax was seen as a necessary vehicle for getting there (e.g., C$170 per tonne by 2030). The Conservatives had alternative targets and tools in mind, vowing to cap the price on carbon at C$50/tonne. But that’s now moot, since the NDP largely endorse the Liberal climate plan.

NBF’s ESG specialist, Amber Brown, has plenty to say on Canada’s climate strategy. Interested readers are encouraged to follow up. Federal fiscal policy has pivoted to the left, although that was apparent before the vote – The Liberal platform outlined ~C$95 billion in new investments/risk adjustments over five years, only partially offset by C$25 billion in net new revenue. The Liberal platform thus adds C$70 billion to the federal debt over the coming five years vs. the PBO’s pre-election baseline assessment. In essence, the Liberals have opted to spend all the extra fiscal room created by stronger-than-expected nominal GDP growth… and then some. And that’s on top of some serious spending pledges already outlined in Budget 2021, to say nothing of the monumental stimulus delivered in 2020-21 as the pandemic hit. Meanwhile, the NDP—who presumably hold the balance of power—went all-in with their platform, outlining some C$215 billion in new initiatives over five years, while simultaneously arguing for a series of major tax increases (C$166 billion over five years, geared mostly to the wealthy, high-income earners and businesses). So prepare for a larger federal government, with Ottawa potentially wading deeper into certain areas of provincial jurisdiction. Banks and insurers were already put on a notice that a re-elected Liberal government would tax excess profits, so stay tuned there.

It should follow that deficit elimination is not a stated priority for Justin or Jagmeet – Neither the Liberals nor the NDP have promised to balance the budget. Rather, Trudeau’s instruction to his Deputy PM and Finance Minister (Chrystia Freeland, who was easily re-elected) is simply to maintain Canada’s debt advantage vs. our G7 peer set. That’s not a particularly tall order, given the relatively strong balance sheet Canada’s general government sector entered the pandemic with. The feds no doubt likewise take comfort from today’s modest interest bite, public debt charges currently consuming just 6 cents of the revenue dollar.

More fiscal stimulus could, at the margin, prolong Canada’s above-trend inflation, keeping the BoC on its path to eventual policy normalization – Given abundant disposable income, excess savings, tight housing markets and apparent labour shortages, layering in additional government spending could add to underlying inflation pressure… or at least delay a hoped-for cooling. To us, Canada’s inflation outlook argues for continued removal of extreme monetary accommodation. That means another step down in QE in October, a final QE tweak in/around the start of the new year and policy rate hikes commencing next summer. The vote does little to fundamentally alter our view, as we had largely discounted this type of electoral outcome and the resulting fiscal impulse.

Even with new Liberal investments and the odd NDP-targeted initiative, GoC bond issuance will still slow – There may be no target for balancing the budget, but the Liberal platform aims for smaller deficits and thus lower net financing needs starting in 2022-23. While it’s possible that securing NDP support will require extra red ink (ceteris paribus), we see Canada moving further away from peak issuance. Bond supply and BoC QE may not be explicitly choreographed/coordinated, but it’s worth noting that net supply should be easing up not too long after the BoC enters the reinvestment phase for its bond purchase program.

Like the Liberals, the GoC bond term out is likely to survive – We never sensed that a term out of GoC debt was political. Rather, it appeared as a strategic shift in response to lower yields and flatter curves. We’ve likewise argued that Ottawa shouldn’t try to time the market, but should instead focus on a transparent, understandable, and ideally consistent approach to issuance… one that prioritizes market functioning. Rather that reversing itself, we expect the GoC bond term out to remain largely in place for now. We’ll look for a degree of confirmation in the Fall Economic Statement, which is likewise a platform to usher in the first of fresh Liberal promises. Of course, an eventual reduction in the deficit and commensurate drop in net supply would mean fewer bonds all across the curve, including in the long end. So we’re not exactly banking on a technical/supply induced selloff in 30-year Canada yields vs. U.S. Treasuries, seeing inflation expectations better cemented in north of the border to boot.

A status quo vote doesn’t leave a whole lot for markets to react to– Ho-hum… that may seem like the natural reaction to this vote. After all, it failed to surprise relative to pre-vote projections and essentially retains the prior seat distribution. Sure, there were promises made on the campaign trail, the Liberals and NDP both favouring significant new spending alongside some potential new taxes, but investors had presumably discounted platform details.

Saying that, we argued yesterday that the election appeared to be holding the loonie back by a least one cent (more based on certain specifications). And it’s worth noting that the Canadian dollar got a bit of a lift Tuesday morning, although to be fair, risk sentiment appeared to be recovering some ground after an anxious Monday.

The rates market has largely taken the vote in stride. Ditto for Canadian equities, where the TSX has so far managed to buck the prior tendency towards underperformance vs. the S&P 500 in/around federal elections. As for provincial credit, more federal money for health care is a help, even if the oft-asked-for CHT boost may not be forthcoming.

Summing up… It’s time to put this unnecessary election behind us and get back to the business of governing in Canada.

Job one:

Keeping Canadians safe and securing the recovery. After that, how about some serious strategic thinking on how to secure Canada’s long-term competitiveness and prosperity, whilst encouraging a transition to a lower-carbon regime, easing the burden on affected sectors/regions, and ensuring that all levels of government remain fiscally sustainable over the long term. As has been demonstrated, you don’t necessarily require a majority to move forward on these and other critical issues. We get it, governing with a minority is more complicated than running roughshod over opposition MPs when in a majority position. But Canadians have delivered a minority mandate… twice inside of two years. No need to ask a third time, at least until we demonstrate that parliament cannot function.


🌊 Canadian Companies To Peruse🌊


🌊 Best Links of The Week🔮

  • WSJ’s Facebook series - Someone at Facebook gave the WSJ a selection of internal research documents - a catalogue of all the ways that Facebook has lots of harmful content, knows about it, and isn't on top of it. We all know this, though - what's less clear is how much these documents give a complete picture, how far the problems are down to Facebook's incentives and metrics rather than just, well, people, and how far the answer is more moderation and more work, or a different model entirely.

  • China to break up Alipay? - This just keeps rolling - IANACA (I am not a China Analyst) but there does seem to be a fairly solid argument that Alipay had become a huge unregulated shadow consumer banking and credit business and that you don’t have to be the CCP to raise an eyebrow or three at that.

  • In 40 tweets Gurwinder will explain 40 concepts you should know. Strap in. Here we go.

  • Crater Lake, and Semiconductors - from Peter Zeihan