#129 - The Tide Has Gone Out On Tech Stocks, Spotify Doesn't Care If You Don't Like Joe Rogan and Apple Makes More Money than Canada
In this week's episode of Reformed Millennials, Broc and Joel discuss the Canceling of Joe Rogan, what happens to stocks when rates rise, their favourite Canadian startup of the week and how companies are utilizing audience to improve their margins and grow revenues.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
There hasn’t been a fraction of as many highly compelling and extraordinarily interesting investing opportunities as there are now in the history of humankind. This includes both the public and private markets. We’re living in very special era of investing and business. Anyone who is intellectually curious and open-minded will find lots of things that captivate them and lots of business opportunities to align with that curiosity. However, be aware cycles do exist. Many of the younger generation haven’t seen or experienced cycles before, and there’s a form of education that comes with that experience unlike any other. We haven’t had inflation in decades, and we have to come to grips with it. There are real implications. Many are too young to appreciate inflation, and it’s come upon us quite suddenly. It could have significant effects about how we view the macro economy and is particularly pernicious to those living on fixed incomes.
The Federal Reserve has raised their short-term benchmark interest rate — the Fed Funds rate — around 100 times since 1970.
That’s actually more than the 85 or so times they’ve lowered interest rates in that time.
The bulk of those rate increases took place between 1970 and 1984 when the Paul Volcker-led Federal Reserve was furiously raising rates to slow runaway inflation.
In early-1971, short-term rates were less than 4%.
By 1981 they had skyrocketed to 20%. The Fed was not messing around. Rates were still close to 12% by 1984 and didn’t fall below 5% until 1991.
There’s a reason the Fed spent much of this time tightening monetary policy. Inflation average more than 7% a year from 1970 to 1984.
The average total return in these periods was 23%.
Stocks crashed almost 50% in 1973-74.
The market surged into 1981 but fell 27% in a brutal bear market that extended into 1982 (which included the aforementioned recession induced by the Fed).
The 1985-1988 period includes the biggest one day crash of all-time in October 1987, which saw the market fall 34% in a week.
The surprise rate hike in 1994 spooked the bond market as much as the stock market. The S&P 500 had a quick 8.5% correction in the early part of 1994 because of it but the aggregate U.S. bond market (-6.4%) and junk bonds (-7.7%) sold off nearly as much.
The Fed Funds rate remained elevated for much of the 1990s but was lowered following the Russian debt crisis of 1998. Rates were then raised again in the second half of 1999 through the first half of 2000 into the bursting of the dot-com bubble.
For a long long long long time we have been in a multiple expansion world.
Combined with all the money printing and the market cap weighting of popular indexes, the big companies got all the capital inflows from investors.
The big got bigger.
The web 2 ‘centralized’ era gave us the tech planets of Google, Apple, Amazon, Microsoft and Facebook – all ~trillion dollar companies.
As supply piled into the market via IPO’s and SPAC’s, it was hard not to worry that supply would be the ultimate killer of the boom.
Now the FED is battling inflation and hinting they will pull that supply back at the same time as wounded ‘newbie’ investors see their beloved stocks and crypto gains crash.
As for the endless demand from new investors onboarded into this brave new trading and investing world by digital COVID tailwinds…they seem worn out. It is not enough they are needed to buy their parents bad stocks and bonds, all weekend long they get hammered with Sports Betting apps and the promises of 30 and 56 to 1 parlays as well as their favourite athletes pitching crypto trading and investing apps.
This a LOT for markets to digest on the macro and the micro side of things, the demand side and the supply side.
Degross your portfolio. Because for the companies without FCF and significant business moats, this coming rate hike cycle is going to hurt BAD.
💸Reformed Millennials - Post of The Week
My personal opinion:
It’s clear that the BOC thinks that inflation is transitory. Acknowledging wage inflation and full employment while expressing concern about overreacting to a CPI number that they deem to be artificially high.
They see covid as an endemic and nearing an end and don't want to raise rates too quickly for fear of upsetting a strong economy.
My best guess is that BOC will follow the US fed from here on out. Trailing by a few weeks.
HIGHLIGHTS FROM THE ATTACHED PRESS RELEASE:
Overall, the Bank projects global GDP growth to moderate from 6¾ % in 2021 to about 3½ % in 2022 and 2023.
In Canada, GDP growth in the second half of 2021 now looks to have been even stronger than expected. The economy entered 2022 with considerable momentum, and a broad set of measures are now indicating that economic slack is absorbed. With strong employment growth, the labour market has tightened significantly.
The Omicron variant is weighing on activity in the first quarter. While its economic impact will depend on how quickly this wave passes, it is expected to be less severe than previous waves. Economic growth is then expected to bounce back and remain robust over the projection horizon, led by consumer spending on services, and supported by strength in exports and business investment. After GDP growth of 4½ % in 2021, the Bank expects Canada’s economy to grow by 4% in 2022 and about 3½ % in 2023.
CPI inflation remains well above the target range and core measures of inflation have edged up since October. Persistent supply constraints are feeding through to a broader range of goods prices and, combined with higher food and energy prices, are expected to keep CPI inflation close to 5% in the first half of 2022. As supply shortages diminish, inflation is expected to decline reasonably quickly to about 3% by the end of this year and then gradually ease towards the target over the projection period.
Apple Q1 EPS $2.10 vs. $1.89 Est.;
Q1 Revs. $123.95B vs. $118.66B Est.
Apple $AAPL CEO Tim Cook "We have a different model, We try to announce things when they're ready or close to ready and try to maintain an element of surprise"
When I think about $AAPL services you to also consider AMZN:
$AAPL reportedly close to announcing service that will turn iPhones into payment terminals without any additional hardware.
So, why aren’t we on Level 5 yet? What caused the Great Stagnation? What flatlined the Henry Adams Curve? Why don’t we have nanotech manufacturing and nuclear-powered everything? And where is my flying car?
Hall sets out to tackle the title question: why don’t we have flying cars yet? And indeed, several chapters in the book are devoted to deep dives on the history, engineering, and economics of flying cars. But to fully answer the question, Hall must go much broader and deeper, because he quickly concludes that the barriers to flying cars are not technological or economic—they are cultural and political. To explain the flying car gap is to explain the Great Stagnation itself.
THE ROOTS OF STAGNATION:
The Burden of Regulation
The way forward?
There are many writers with optimistic visions of the future. However, the goals I most often hear are all the negation of negatives: cure cancer, eliminate poverty, stop climate change.
This is good, but it is not enough. We should not only cure disease and let everyone live to what is now considered old age—we should cure aging itself and extend human lifespan indefinitely. We should not seek to merely sustain current per-capita energy usage—we should get back on the Henry Adams Curve and increase it. We should not only seek to avoid worsening the climate—we should seek to actively control and optimize it for human ends. We should not merely get the whole world up to Level 4—we should be striving for Level 5.
The State Of Canadian Politics - Trucker Rally ++
It’s been a busy week in Canadian politics, but the news cycle has (understandably) been dominated by the trucker convoy/protests in Ottawa and across the country.
We're absolutely fighting for the soul of this country, but, just like everything else we confront as a society in 2022: it's never about what it's about.
Part of my goal this weekend was to try and identify what the trucker protests were really about. What is the motivating factor behind a movement that has raised at least $7 million in the past week? It's not nothing, and thinking so is naïve and irresponsible.
My favourite passage from an overall phenomenal recap piece found in her newsletter that you can sign up to here.
Being seen and heard by elected officials? Ah, now we are getting somewhere. From my perspective, the protests this weekend have to do with the lack of connectedness and affinity people feel to the institutions that make decisions that affect their lives. People feel powerless, discouraged, and unheard, maybe. This is a problem, a real problem, whether you agree with the people who feel this way or not.
But here's the thing: governments don't exist to reinforce our own world views or legitimize how we feel about every issue. Governments exist (or should exist) to create the conditions under which as many people as possible are able to freely pursue their version of the "good life."
If citizens (however few relative to the rest of the country) are saying they are being encumbered in doing so, then political leaders have a duty to engage them. To hear them. To seek to understand where they are coming from.
I must emphasize: if you're disrespecting fallen heroes at the National War Memorial, waving Confederate flags, drawing swastikas on the Canadian flag, stealing food from homeless shelters because you don't want to wear a mask, blocking major transportation routes and/or any of the other vile and inexplicable acts we saw from protestors this weekend: you're far from being a lover of liberty; you're a bigger threat to freedom in this country than any government policy could ever hope to be.
However, for those legitimately protesting, "freedom" isn't a coherent policy solution that addresses the very real concerns that we face collectively as a society.
So, if we are to have a pragmatic discussion about what the parts of the trucker rally that were not hateful and vile were really about...that's where we ought to start.
Not with the disjointed evidence some are touting to legitimize their need to be heard by their government, or by focusing too narrowly on the hateful agendas that many were weaving into this weekend's events, however disgusting and unforgivable the behaviour of those individuals might be.
And if, as it sometimes appears, there is no solution or compromise to be found...if the wave of populism too intense...if the hate in people's hearts too great...if political ambition outweighs political responsibility...if there really is no reasoning with "these people"...
When they go low, let's go high; shall we?
🌊 Canadian Companies To Peruse 🌊
Renorun.com - Building Materials, Exactly When You Need Them
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🔮Best Links of The Week🔮
💰 VC-Backed DAO Startups Are Racing to Define What DAOs Actually Are - Techcrunch
💉 Pfizer Starts Submitting Data for FDA Emergency Approval of Vaccine for Kids Under 5 - CNBC
🙅♀️ 5 Musicians Boycotting Spotify Over Joe Rogan Controversy - Axios
🎮 How Xbox Could Finally Win a Console War Without Even Selling Consoles - Mashable