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Check out learning corner for Joel’s favorite company deep dive of the week.

Market update/forecast
Canada is done raising rates
Dave Portnoy’s new watch brand
How Call of Duty parent company makes money
Sovereignty Act thoughts
LinkedIn Jobs report
Meghan and Harry Netflix Show
Recommendations and Predictions

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

📈📊Market Update💵📉

US equities retreated on Friday amid concerns about monetary policy tightening and its impact on the economy and corporate earnings. Large caps bested small caps: S&P 500 (-0.73%) vs. Russell 2000 (-1.19%).
Energy (-2.33%) and health care (-1.28%) underperformed the broader market indices, while communication services (+0.02%) and real estate (-0.20%) outperformed. Chevron (-3.19%) and Amgen (-2.42%) weighed on the Dow (-0.90%); Disney (+0.90%) and Verizon (+0.81%) were the index's best performers.
The Nasdaq lost 0.70%, while tech dropped 0.61%. The "FAAMG" stocks mostly fell: Meta (+0.49%), Amazon (-1.39%), Apple (-0.34%), Microsoft (-0.80%), Alphabet (-0.94%).
The VIX edged up 2.42% to 22.83. The 30-year and 10-year Treasury yields increased to 3.568% and 3.586% respectively, while the 2-year yield rose to 4.342%.

Last Week:

Markets are grappling with the possibility that long-term real and nominal interest rates are going to be structurally higher post-pandemic. Current 10-year rates in both the US and Canada are above rates that prevailed for most of the last decade.

In the near term, inflation expectations will play the starring role. Breakeven inflation rates suggest markets believe both the Fed and Bank of Canada will bring inflation back within target over the medium term.

So now we need to think about how this effects the consumer and the earnings of companies.

Many analysts expect the S&P500 to ultimately bottom at around 3,250 in this prolonged bear market. Estimating that earnings should ultimately trough at around $185 (~ minus 20%), but multiples and earnings rarely bottom together as the Fed will be cutting way before EPS bottom…

Alf at the Macro Compass has a fantastic piece on whether a recession is already priced into equities or not. Here

Next Week:

This is the last big week for equities in 2022. As the the Fed’s rate decision hits the tape. The market has put the odds at 90+% for a 50bp hike.

Whats going to be most important will be the following commentary from Chair Powell and his team.

Surprises drive asset prices, and right now everything from the VIX to S&P 500 valuations to stable 2-year yields say there are no nasty surprises in the offing.

US corporate bond spreads over Treasuries tell a similar story. At current levels, IG and HY spreads are back down to levels last seen in May/June, the last time markets thought they had everything figured out.

The Cleveland Fed Inflation Nowcast is predicting Tuesday’s CPI report will show lower than expected headline inflation and inline core annual inflation.

Wall Street analysts’ 2023 S&P 500 earnings estimates are likely too high. There are 2 somewhat unrelated reasons for this. 1) Analysts expect the 3 sectors with the largest negative 2022 earnings comps (Cons Disc, Comm Services, Financials) to improve their net margins next year. 2) Outside these sectors, most analysts are not modeling a margin-contracting recession.

The S&P 500 should be doing better than it has over the last week because 2-year Treasury yields have been stable. Recession worries are ticking slightly higher, and there is a lot riding on the week’s FOMC meeting and Chair Powell press conference.

The power of surprise and Earnings. Investors should be looking at the potential 2023 earnings surprises, for good or bad, related to US Big Tech names versus other super cap stocks. To assess the difference, look at the highest and lowest estimate for each name for next year, rather than the consensus. The wider the range, we reason, the greater the uncertainty about 2023 earnings.

Here is the size of the range for each Big Tech stock’s 2023 EPS estimates along with the high/low estimates that bookend this spread in expectations:

Apple: 22 percent ($6.01 to $7.36/share)
Microsoft: 20 pct ($10.42 to $12.48/share)
Alphabet/Google: 58 pct ($3.81 to $6.00/share)
Amazon: 712 pct ($0.34 to $2.76/share)
Tesla: 95 pct ($4.08 to $7.97/share)
Nvidia: 55 pct ($3.35 to $5.20/share)
Meta/Facebook: 144 pct ($4.96 to $12.11/share)

Average: 158 percent
Average ex-Amazon: 66 pct

Now, here is the same data for the 7 largest non-Tech names in the S&P 500:

Berkshire Hathaway: 4 percent ($15.00 to $15.59/share)
UnitedHealth: 3 pct ($24.62 to $25.39/share)
Johnson & Johnson: 17 pct ($9.49 to $11.10/share)
Exxon Mobil: 60 pct ($8.75 to $13.98/share)
JP Morgan Chase: 23 pct ($11.81 to $14.51/share)
Procter & Gamble: 9 pct ($6.03 to $6.59/share)
Home Depot: 17 pct ($15.10 to $17.62/share)

Average: 19 percent
Average ex-Exxon: 12 pct

Takeaway: uncertainty related to future Big Tech earnings is orders of magnitude (6 – 8x) higher than for major non-Tech companies in the S&P 500. Yes, these are the same companies that still command premium valuation multiples (excluding META, of course). And perhaps they will continue to hold those premiums even with this higher level of uncertainty … The point here is that the potential for surprise (good or bad) is much higher for Big Tech than similarly valued non-Tech companies. Much higher indeed.

Learning Corner: MEG Deep Dive (new weekly)

In this corner I am going to be posting the best company deep dive from the week.

The first one is from an anonymous twitter account: WTI Realist

What it covers:

Looking at MEG’s inability to easily grow through the drill bit
Why the post-payout royalty hasn’t been digested by the equity markets
Considering their multiple, and NAV, and where it should be
Reviewing their capital return and buyback program
Briefly cover WCS and their positioning in the market
Closing it out by counter-arguing everything I’ve discussed, AKA the positives

💸Reformed Millennials - Post of The Week

Alberta Sovereignty Act - Some Info

Wiki - The Bill seeks to protect Alberta from federal laws and policies that the Alberta legislature deems to be unconstitutional or harmful to Albertans or the province's economic prosperity, in areas such as natural resources, gun control, COVID-19 public health, education, and agriculture.
National Post top 5 important things to know about the Sovereignty Act
Is it Constitutional? from the PolticalOption
Everything you need to know from the far rights position - (true north)
Everything you need to know from the lefts position - (the guardian)
More from the Edmonton Journal

Joel’s personal opinion - this bill isn't important. Alberta doesn’t need it, and it divides us further. I think that Danielle Smith is pushing forward with something that is very likely going to cost her party the election come May.

An interesting thing to consider: 32% of Canadians voted for Justin Trudeau, 32% of Albertans want #Bill1 - I would be willing to make an argument that neither side should take such dramatic moves as this sovereignty act when there is so little of a mandate and public desire for any action.

If the feds wanted to scale back the political fire I would suggest pulling bills #C11, #C18, #C21 these are deeply controversial measures that will have a dramatic impact on many people's lives and they only serve very narrow special interest groups.

The same is true for this idiotic Bill 1 (Sovereignty Act).

Tweet Thread: Mark Leonard On Entrepreneurship

Jay Vasantharajah @jayvasdigital

On his early career: He worked for a VC firm called Ventures West. They didn’t do too well, mostly because the VC industry in Canada sucked at the time. He got his true start (Constellation) later in his career( late 30s).

🎙Podcast & YouTube Recommendations🎙

Twitter Files: Was it right wrong or otherwise? - All-In Podcast

Dave Portnoy’s Watch Brand - Theo and Harris Review
- Terrible approach. 10% to brick by brick
- decided to do a watch because after his 5mm first sale of shares he wanted to buy a gold Rolex but felt like it was a frivolous purchase
- what would I have done? He should have done a combo release with a brand watch like nixon or fossil in the same way that Swatch did a watch with Omega. The price point is a huge miss too. Your competition at 2500 is realllllly tough. Tudor, used Omega, Tag Huer etc.

Love and Lizards | The Tim Dillon Show

RM thoughts - Meghan Markle caught between two worlds. Ran a fantastic scheme to the tune of $100mm from Netflix. Couldn’t leave unless it was a scandal. So she does the Oprah interview, says that the imperial dynasty of England is racially insensitive. (shocker)

“She thought it was a joke that she had to curtsy to the QUEEN OF ENGLAND!”

🔮Best Links of The Week🔮

How Mr. Beast built his $1.5 Billion Youtube Empire -Jimmy Donaldson (aka MrBeast) is the most followed person on YouTube. He’s turned that massive audience into a massive consumer business. And is raising money for his empire at a $1.5B valuation.- Trung Fan
"US basketball star Brittney Griner was freed in a prisoner swap with Russia on Thursday, a diplomatic breakthrough in Moscow’s more than nine-month war with Ukraine. Griner was released in exchange for Viktor Bout, an imprisoned Russian arms dealer who was serving a 25-year sentence in the US." Source: FT - Link
"Lululemon’s third quarter profit and sales topped Wall Street’s expectations. However, the company offered softer-than-expected guidance for the holiday quarter. CEO Calvin McDonald acknowledged a “challenging” environment for sales." Source: CNBC - Link
"The Federal Trade Commission Thursday sued Microsoft to block its planned $75 billion acquisition of Activision Blizzard taking one of its biggest shots under the Biden administration at halting a merger of technology giants. The lawsuit sets the stage for a court challenge over the deal as Microsoft agreed as part of negotiations with the “Call of Duty” publisher to defend the acquisition against a government lawsuit." Source: WSJ - Link

Reformed Millennials

#173 - Canada Is Done Raising Interest Rates…