#132 - Canadian Home Buyers are INSANE, Lessons from Peter Zeihan & Russia, Plus Peloton's New Plan to Give Away Bikes
In this week's episode of Reformed Millennials, Broc and Joel discuss the Canadian Mortgage/Housing problem, Putins End Game, and the Sovereign Individual.
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Most stocks are in a bear market. There has been no follow-through on earnings breakouts this season.
Most upside gaps are either faded immediately or lead to exactly one day of upside action before they get slammed.
On the other side, there has been plenty of follow-through on earnings breakdowns – see PYPL, FB, and SHOP for an example.
Nothing goes straight down or up. Occasionally, bear markets have viscous short-term rallies just so they can scare the shorts out of their positions and trick new longs in.
When the bear lays out honey, it is usually a trap.
The tiny low-volume bounces just create better risk/reward short opportunities. The bounce we saw in the first half of February was followed by more selling. In fact, many cloud and Internet stocks have started another leg lower.
To top it off, there is a war lingering in the air. I don’t know how much of it has already been discounted but markets tend to overshoot. Scared people tend to panic and panic leads to liquidations and forced selling. No wonder buyers are with one foot out the door and have to conviction. And this won’t change until the indexes make a higher high which currently means 460 for SPY. In rising markets, it pays to hold longer. During corrective, choppy markets is important to be nimble and take profits quickly on both long and short positions because they tend to disappear quickly. If you cannot adjust to this new reality, it is better just to stay on the sidelines and wait out the storm.
The main indexes seem headed for a test of their January lows.
This means 420 for the S&P 500 (SPY), 334 for the Nasdaq 100 (QQQ), 190 for Russell 2000 (IWM).
They don’t have to get there in a straight line.
There could be another bounce along the way.
💸Reformed Millennials - Post of The Week
WHILE CANADIANS COMPLAIN UNABATED ABOUT THEIR FREEDOM OR “LACK THERE OF”, SOMETHING THAT ACTUALLY MATTERS IS GOING ON EAST OF US.
Attached is a great run down from Peter Ziehan on Russia, NATO and Ukrainian tensions. Additionally, he explains why this is happening and where the real US involvement will start.
Worth the 5 mins: (my favorite part copied below)
The Kremlin has been threatening Kiev for a decade now. My caution to today’s Russia watchers has been that there was little occurring which suggested this season’s round of Russian angst and anger was in any way unique.
Until today. Putin’s speech does more than merely suggest that Russia is ready to go.
Sanctions - real or imagined, in-place or threatened - will not shift Putin’s stance. For Russia, control of Ukraine isn’t simply seen as a birthright, but as an issue of national survival. The Russian population suffers so completely from drug abuse, alcoholism, malnutrition, and disease that it is the world’s fastest collapsing demography (although recent statistical updates suggest China is challenging Russia for the top spot). Patrolling Russia’s current borders is laughably beyond the capacity of Russia’s current population. But forward-positioning what troops remain in those gateways? That just might work. So, the Russians will try.
About the only would-be sanction which might - might - earn a blink from the Kremlin would be if the Europeans all swore off Russian oil and natural gas. That export line-item is far and away the Russian government’s largest money-maker, accounting for a hefty majority of income. But in doing so the Europeans would be cutting off their primary energy provider, condemning themselves to the dark and cold. And so that specific threat hasn’t happened. I’d be impressed - and shocked - if it did.
I’d be equally shocked if the fall of Ukraine were the end of the story. Ukraine is not a NATO ally. The West will not send regular troops to support Ukraine. That makes Ukraine - with its 45-million-strong population - the easy target. What assistance arrives will be designed to snarl the Russians in as painful and bloody of an occupation as possible. The real show - the real war - comes after. The two most important gateways to the Russian heartland remain: the Baltic Sea coast and the portion of the Polish gap that lies in, well, Poland. Unlike Ukraine, the countries in question here - Poland, Lithuania, Latvia and Estonia - are members of the NATO alliance. And of the European Union as well.
The Baltic beaches and the plains of Poland are where the future of Russia and the West, of the European Union and NATO, will ultimately be decided. It is there that Russia will succeed or die. This is far worse than it sounds. Russia’s population is in free-fall. A Russian occupation of Ukraine completed to Russia’s satisfaction will still absorb most of what’s left of Russia’s conventional military capabilities, leaving only the decidedly unconventional available for the next conflict.
Russia won’t fight its Twilight War with soldiers.
Subscribe to stratechery for the full story:
Back in 2004 a lot of the pieces that were necessary to run an e-commerce site existed, albeit in rudimentary and hard-to-use forms. One could, with a bit of trouble, open a merchant account and accept credit cards; 3PL warehouses could hold inventory; UPS and Fedex could deliver your goods. And, of course, you could run really cheap ads on Google. What was missing was software to tie all of those pieces together, which is exactly what Lütke built for Snowdevil, his snowboard shop, and in 2006 opened up to other merchants; the software’s name was called Shopify:
This idea of Shopify as the hub for an e-commerce shop is one that has persisted to this day, but over the ensuing years Shopify has added on platform components as well; a platform looks like this:
The first platform was the Shopify App Store, launched in 2009, where developers could access the Shopify API and create new plugins to deliver specific functionality that merchants might need. For example, if you want to offer a product on a subscription basis you might install Recharge Subscriptions; if you want help managing your shipments you might install ShipStation. Shopify itself delivers additional functionality through the Shopify App Store, like its Facebook Channel plugin, which lets you easily sync your products to Facebook to easily manage your advertising.
A year later Shopify launched the Shopify Theme Store, where merchants could buy a professional theme to make their site their own; now the hub looked like this:
At the same time Shopify also vertically integrated to incorporate features it once left to partners; the most important of these integrations was Shopify Payments, which launched in 2013 and was rebranded as Shop Pay in 2020. Yes, you could still use a clunky merchant account, but it was far easier to simply use the built-in Shop Pay functionality. Shop Pay was also critical in that it was the first part of the Shopify stack to build a consumer brand: users presented with a myriad of payment options know that if they click the purple Shop Pay button all of their payment and delivery information will be pre-populated, making it possible to buy with just one additional tap.
Even with this toehold in the consumer space, though, Shopify has remained a company that is focused first-and-foremost on its merchants and its mission to “help people achieve independence by making it easier to start, run, and grow a business.” That independence doesn’t just mean one-person entrepreneurs either: good-size brands like Gymshark, Rebecca Minkoff, KKW Beauty, Kylie Cosmetics, and FIGS leverage Shopify to build brands that are independent of Amazon in particular.
Canadian Housing and Mortgage Trends:
Emergencies Act from Mel Caouette:
Protests across the country have settled following the federal government invoking the Emergencies Act last Tuesday.
The public order emergency grants the Government the authority to apply the following temporary measures:
Regulating and prohibiting public assemblies, including blockades, other than lawful advocacy, protest or dissent
Regulating the use of specified property, including goods to be used with respect to a blockade
Designating and securing places where blockades are to be prohibited (e.g. borders, approaches to borders, other critical infrastructure)
Directing specified persons to render essential services to relieve impacts of blockades on Canada’s economy
Authorizing or directing specified financial institutions to render essential services to relieve the impact of blockades, including by regulating and prohibiting the use of property to fund or support the blockades
Measures with respect to authorizing the Royal Canadian Mounted Police to enforce municipal and provincial laws by means of incorporation by reference
The imposition of fines or imprisonment for contravening on any of the measures declared under this public order emergency
Developments from last night...
Prime Minister Trudeau argued Monday that the Emergencies Act measures must remain even though demonstrators have left Ottawa because of the threat they could return.
The Conservatives asked the government to confirm whether the vote was a confidence measure, but since Trudeau was absent from the House, Liberal House Leader Mark Holland refused to answer the question and call the debate.
Despite the fact that there were two Liberal MPs critical of the government invoking the Emergencies Act (Nathaniel Erskine-Smith and Joel Lightbound) they voted to extend the powers due to the confidence vote and threat of an election.
The motion to confirm the declaration of emergency powers passed 185-151 last night with the NDP voting in favour alongside the Liberal government and the Conservatives and Bloc Quebecois against.
The vote to approve the measures will keep them in place until mid-March at the latest.
The Senate also has to vote on this matter.
At any point, the Senate, House of Commons or government could pull support and the extraordinary powers stemming from the emergencies law would be revoked.
The Sports Gambling Gold Rush Is Absolutely Off the Charts
Online Gambling peaked last year... Even though sports betting is up 80% YoY.
Draft kings and Penn National Gaming are both down 59% and 61% since March 2021...
Investing is hard.
🌊 Canadian Companies To Peruse 🌊
Runalloy.com - The operating system for ecommerce
🔮Best Links of The Week🔮
How to interpret provincial budgets - Pocket Lobbyist
Facebook's Impenetrable Flywheel - from YMCN
Russia Turns Asia Markets Red Overnight - China Last Night
The PLTR plunge - from Toggle Daily Market Brief
Covid Rotation continues: Shopify - from Ben Evans
Shopify handled over $175bn of GMV in 2021, making it roughly 45% the size of Amazon Marketplace (tell me again how it’s possible to compete with Amazon’s ‘monopoly’). It’s an $82bn company - but the results missed estimates and the stock is down over 60% from the peak last November (of course, so are a lot of other things). I don’t do valuations, but there’s a huge amount of leverage here - will all the different projects to improve the take rate and the margin and build a network effect actually work, or is this in the end a low-margin commodity SaaS provider? (There's some suggestion a slowdown is linked to Apple's advertising crackdown making it harder for Shopify's SME customers to advertise, but it's hard to see that in the numbers.) Also this quarter, the company announced a $1bn investment in physical delivery infrastructure, which for a bear may be both too much (goodbye software margins) and not enough (Amazon spent $75bn on fulfilment in 2021).