#150 - TikTok Doesn’t Run Culture, Canadian HELOC Rules Change and Oil Collapses
#150 - TikTok Doesn’t Run Culture, Canadian HELOC Rules Change and Oil Collapses
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In this week's episode of Reformed Millennials, Joel and Cam talk the cultural relevance of TikTok, Canadian fiscal/monetary tightening and the collapse of commodities.
- The everything recession
- Canadian Housing Crisis Looms large
- Who to blame for oil prices?
- TikTok is just a platform. But it’s damn good.
- Jokic gets 256mm and why pro players need to take to equity instead of sponsorship cash
The links at the bottom of the newsletter are fantastic this week.
It’s a long-term game. Stay the course.Listen on Apple, Spotify, or Google Podcasts.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
📈📊Market Update💵📉
Hello July.
Good riddance to the first half of 2022.
It was the worst first half of the year for the S&P since 1970.
If we judge by the most constructive charts currently, we can say that the market is pricing a potential recession at some point this year.
Look at what is setting up near the 52-week highs list:
consumer staples like General Mills (GIS), Dollar General (DG), Post Holdings (POST), Campbel Soup (CPB);
auto parts chain Autozone (AZO); online education Stride (LRN); health insurance Humana (HUM);
big pharma Merk (MRK) and Eli Lilly (LLY), etc.
These are not the type of stocks that lead at the beginning of a sustainable bull run.
Biotech is another group showing relative strength over the last few weeks. XBI topped in February of 2021 and it fell 65% in the following 15 months. You have to go all the way to 2000-2002 to see so much destruction in so little time in a sector. The most recent drop overshadows even the Great Recession of 2007-2008. Over the past few weeks, XBI went up above its 20 and 50 dma and successfully bounced off them. It’s a bear market rally but those can be furious.
Chinese stocks have been in the doghouse for a long time. The Chinese Tech ETF – KWEB topped in February of 2021 and then it fell 80% in the following 13 months. KWEB seemed to have bottomed in March of 2022 (as of right now) and since then it has made several higher lows, slowly establishing itself above its rising 20 and 50-day moving averages. KWEB is still below its 200-day moving average and the recent push higher can be considered just a bear market rally. And yet, quite a few Chinese ADRs have been acting constructively as of late: breaking out, bouncing off their rising 20-day moving averages.
In the meantime, Micron missed earnings and gave a huge cut in guidance bringing down the entire semiconductor index with it. SMH closed at new 52-week lows on Friday – another sign that the market is currently more worried about a recession than inflation and supply chain constraints.
The market is not always correct but it’s rarely a good idea to argue with it.
MACRO: charts curtesy of all star charts
The Euro represents almost 60% of the US Dollar Index.
So if the Euro is collapsing to new 20-year lows relative to Dollars, that Index is going higher.
And this is not a situation where it's just the Euro weakness that's driving things.
Both Japanese Yen and British Pounds continue to remain weak.
I think it will be very difficult for investors to make money from the long side of stocks or crypto this summer if the US Dollar is breaking out to new highs.
A weak Euro breaking down here isn't helping the case for a bottom in stocks.
A move lower in Euro would most likely mean a strong leg lower for stocks and crypto.
If you're a stock market investor, either in the U.S. or around the world, I think what's happening in the US Dollar needs to be front and center.
I say this because during this entire consolidation since 2016, we've seen a very strong negative correlation with stocks.
Look at that first Dollar peak in late 2016 - stocks ripped from there. Then look at the next peak in 2020 - stocks ripped from there again.
But during this period, when the Dollar wasn't weak, and was strong, like the past year or so, stocks have been under pressure.
So I've said it before and I'll say it again. I think we're going to need to see a weak Dollar if we stand to make any sort of real money from the long side this summer.
If this is a real breakout in the US Dollar and it's about to make a run towards 120, I don't believe stocks will do well in that environment.
Correlations are constantly changing. And this one just might soon. But it hasn't.
So we're watching the Dollar here for color on the next direction for stocks.
💸Reformed Millennials - Post of The Week
This article from Untying The Gordian Knot should help those trying to figure out where we are in the economic cycle and when might be a good time to start entering semis.
“Dr. Copper has the moniker of the global economy's health as the essential metal used in almost every fixed asset investment (FAI) and manufacturing. It remains vital, although I think Nickel is now equally important in our modern-day lives as it is used in alloying, coatings, and batteries. Iron ore is significant for China's FAI and much more critical than copper in its growth.
US Tech sector is 9.3% of the economy and ~ 27-28% of the S&P 500. If one sector is economically essential and broader stock market returns, it is the technology and, more specifically, the Semiconductor sub-sector.
Semis has the advantage of having economic data tied to it as well as stocks and indices. What happens in Semis happens in the economy and translates to stock performance almost immediately.”
🇨🇦 Important Canadian News From the Week 🇨🇦
Canadian HELOC rules set to change.
The change will make it so that once the loan's value exceeds 65 per cent of the home, the loan "will operate more like a traditional mortgage where the borrower makes principal and interest payments until the [loan gets back below] 65 per cent," an official told CBC News at a technical briefing.
The new rules won't be in force until late 2023, but OSFI says that as things stand now, data from the Bank of Canada suggests there's $200 billion worth of HELOC that is currently outside of that 65 per cent threshold. That's out of $1.8 trillion of total housing debt.
🐦 Twitter Thread of The Week 🐦
My notes from the thread:
Gary Gensler steadfast in opposition to certain policy decisions that Bitcoin enthusiasts have been pushing for.
Until the Tether issue is dealt with, Bitcoin exchanges around the world firm up KYC/AML, and the crypto universe submits to regulatory authority, Gensler will never approve a spot Bitcoin ETF
🔮Best Links of The Week🔮
Wealth vs. Getting Wealthier - by Morgan Housel
In Defense of Dollar Cost Averaging - Nick Maggiulli
Risk Capital and Markets: A Temporary Retreat or Long Term Pull Back? - Musing on Markets (Aswath Damodaran)