#187 - Canada Has a Growth Problem, Notes On The New Canadian Budget , and the WWE Merges With UFC
Great primer for changes in Canadian economic policy and personal/corp tax.
WWE Merges with UFC
Canada and its growth problem
Important Items from the 2023 Canadian Budget
Rogers <> Shaw Merger
2023 Masters predictions
Recommendations and Predictions
The market is feeling really tricky right now.
Futures are pointing to a Fed pause and potentially outright cut while inflation implodes on a YoY basis.
US and Canadian consumer has rolled over since the SVB/Credit Suisse saga per cc data. First real deceleration since Covid. And commodities breaking out might ruin all of the positives in point 1 above.
Tech companies sounded good at Microsoft Secure, but this was before SVB + CS collapse and it’s been a different consuming world since then.
Even though technology companies have all found religion on cost-cutting, margins and Stock Based Compensation, it wont likely be enough to crush the fears present in the market.
All of these dynamics are complicated by the fact that Large Language Models are the most important technology development since the iPhone at a minimum and are going to have a massive impact on the world.
To quote FireFox, they are going to “change the structure of our world.”
LLMs reshuffle the board for megacap tech as they are both an existential threat and opportunity for each company. Everyone was in their own swim lane for the last 10 years - and now there seems to be only one.
Execution will be everything.
Datatrek Has a Great recap of Q1 in their Sunday update: I’ve cleaned up and summarized it for easier digestion.
Q1 performance review for various equity indices as well as major currencies / commodities. The data is price return-only and equity index returns are based on the relevant MSCI index unless otherwise noted.
#1: Comparing US and non-US equity returns for Q1 2023:
S&P 500: +5.5 percent
S&P 500 (equal weight): +2.4 pct
NASDAQ Composite: +16.8 pct
Russell 2000: +2.3 pct
S&P Mid Cap 400: +3.5 pct
S&P Small Cap 600: +2.2 pct
All-Country ex-US: +7.2 percent
Europe: +10.3 pct
Japan: +7.8 pct
Emerging Markets: +4.1 pct
Comment: Non-US stocks broadly beat US equities in Q1, although their results are somewhat spotty. Europe and Japan were clear out-performers, even with currency appreciation. The NASDAQ Comp did better than every other index on the list, and by a wide margin. US Tech stock outperformance was Q1’s key global equity investment theme.
#2: Non – US single country equity indices:
United Kingdom: +5.2 percent
France: +14.1 pct
Switzerland: +8.1 pct
Germany: +15.1 pct
Netherlands: +13.1 pct
China: +5.0 percent
Taiwan: +12.9 pct
India: -5.7 pct
South Korea: +8.4 pct
Brazil: -2.1 pct
Comment: France, Germany and Taiwan were the standout performers in Q1, but for very stock-specific reasons. French equities got an outsized boost from LVMH, up 24.2 percent YTD on China’s reopening, worth almost a quarter (3.2 points) of their total Q1 performance. German equities saw a similar sized bump from SAP (+21.3 pct YTD) and Infineon (+31.1 pct YTD), which added 2.3 and 1.3 points to MSCI Germany’s Q1 performance. Taiwan Semi was up 24.9 percent in dollar terms in Q1, adding 5.6 points to MSCI Taiwan (43 pct of total YTD returns).
#3: US Large Cap sector returns (ranked high to low):
Technology: +21.4 percent
Communication Services: +20.8 pct
Consumer Discretionary: +15.8 pct
Materials: +3.8 pct
Industrials: +3.0 pct
Real Estate: +1.2 pct
Consumer Staples: +0.2 pct
Utilities: -4.0 pct
Health Care: -4.7 pct
Energy: -5.3 pct
Financials: -6.0 pct
Comment: All the S&P 500’s positive 5.5 percent YTD return – and then some – comes from 3 sectors, and specifically 7 names, in that trio:
Apple (+26.9 percent YTD): 1.8 points of total S&P YTD returns
Microsoft (+20.2 pct): 1.2 points
Nvidia (+90.1 pct): 1.4 points
In Communication Services:
Alphabet/Google (+17.2 percent YTD): 0.6 points
Meta/Facebook (+76.1 pct): 0.8 points
In Consumer Discretionary:
Amazon (+23.0 percent YTD): 0.6 points
Tesla (+68.4 pct YTD): 0.9 points
The total contribution of these stocks to the S&P’s YTD performance is 7.3 percentage points, or 133 percent of the index’s gains year to date. US Big Tech got very oversold at the end of last year and has been making up for lost time in 2023. Excluding their performance, the S&P 500 is actually down 1.8 percent on the year.
#6: Growth versus Value in US Large/Small Caps:
S&P 500 Growth: +9.2 percent
S&P 500 Value: +4.6 pct
Russell 2000 Growth: +5.7 percent
Russell 2000 Value: -1.2 pct
Comment: Growth trumped Value in both US large and small caps in Q1. This was largely due to the Tech sector/Big Tech outperformance, as well as the hit taken by the Financials sector in March.
Takeaway: Q1 was a welcomed reprieve from last year’s difficult stock and bond markets, but much of the YTD gains are concentrated in a handful of names or based on a view of future Fed policy that the central bank itself explicitly rejects. April has a long history of being one of the kindest months for US equities, so recent trends may well continue.
Not Financial Advice.
2023 Key Budget Items From MNP: (bold my favs)
Employee Ownership Trusts!
Automatic Tax Filing
RDSP and RESP plan changes
Bill C-208 intergenerational transfers
Tax on share buybacks
Budget 2023 introduces a number of business tax incentives to encourage the use of clean energy:
Clean Electricity Investment Tax Credit
A 15 percent refundable tax credit for investments in specific electricity generating activities and equipment for the transmission of electricity between provinces. Both new projects and refurbishment of existing projects will be eligible. The credit will be available for projects that begin after March 28, 2023 (Budget Day) and will cease to be available after 2034.
Clean Technology Manufacturing Credit
A 30 percent refundable tax credit for the cost of investments in new machinery and equipment used to manufacture or process key clean technologies and extract, process, or recycle key critical minerals. The credit would apply to property that is acquired and becomes available for use on or after January 1, 2024. The credit will be phased out starting in 2032 and will be fully eliminated in 2034.
Clean Hydrogen Investment Tax Credit
A refundable tax credit of between 15 percent and 40 percent of eligible project costs that produce clean hydrogen and a 15 percent tax credit for certain equipment.
Clean Technology Investment Tax Credit
Eligibility for the existing 30 percent credit is expanded to include geothermal systems eligible for capital cost allowance under Classes 43.1 and 43.2. In addition, the phase-out will begin in 2034 (previously 2032) and will not be available thereafter.
Carbon Capture, Utilization and Storage Investment Tax Credit (CCUS)
The existing credit is enhanced to apply to additional equipment; further legislation detailing the credit and certain labour requirements will be released later.
Reduced rates for zero-emission technology manufacturers
The reduced tax rates of 4.5 percent and 7.5 percent for zero-emission technology manufacturers will be extended by three years to 2034, with phase-out beginning in 2032. In addition, eligibility will also be expanded to include manufacturing of nuclear energy equipment, and processing and recycling of nuclear fuels and heavy water for taxation years beginning after 2023.
Lithium from brines
Budget 2023 proposes to allow producers of lithium from brines to issue flow-through shares, and to expand the eligibility of the Critical Mineral Exploration Tax Credit to lithium from brines.
💸Reformed Millennials - Post of The Week
Everyone's Most Hated Billionaire Wrote An Essay About Ai:
"I’d been meeting with the team from OpenAI since 2016..."
CHATGPT AND AI ARE AS REVOLUTIONARY AS:
the personal computer
and the mobile phone
So in the spirit of Ai - I asked GPT4 to succinctly break down the essay into its most important points.
Get ready for a personal AI that knows everything about you, and works seamlessly across all devices.
AI copilots will be everywhere. The main way of using a computer is natural language, not pointing and clicking.
"Soon the pre-AI period will seem as distant as the days when using a computer meant typing at a C:> prompt rather than tapping on a screen."
AI company agents will absorb knowledge from across the company and sit alongside regular employees.
AI IN HEALTH:
AI will rapidly accelerate medical breakthroughs.
AIs will provide triage and health advice in poor countries. Give advice about how to deal with health problems, & decide whether they need to seek treatment
AI IN EDUCATION:
Personalized AI tutors will tailor content based on your interests, goals & learning styles.
AI will only ever enhance (not replace) the teacher-student dynamic in the classroom.
Education will adapt to the rise of tools like ChatGPT.
"I know a lot of teachers are worried that students are using GPT to write their essays.
Educators are already discussing ways to adapt to the new technology, and I suspect those conversations will continue for quite some time."
RISKS & PROBLEMS:
Will AIs develop their own goals that deviate from human goals?
"Then there’s the possibility that AIs will run out of control. Could AI decide that humans are a threat, conclude that its interests are different from ours, or stop caring about us?"
People can use AI for bad as much as they will for good. Governments need to get involved.
We've already seen examples of AI models making up fake information.
FUTURE PRINCIPLES :
"We should try to balance fears about the downsides of AI—which are understandable and valid—with its ability to improve people’s lives."
Government and philanthropy need to play a role to reduce inequity in AI.
"Finally, we should keep in mind that we’re only at the beginning of what AI can accomplish. Whatever limitations it has today will be gone before we know it."
🎙Podcast & YouTube Recommendations🎙
Invest Like The Best - Forever Episodes with The Founders Podcast Host David Senra
This podcast got me AMPED UP. What a FANTASTIC listen
The Chat GPT Report - Goes over the MidJourney V5 update and the recent AI halt letter posted in Times Magazine
🔮Best Links of The Week🔮
Dementia prevention - Start early and prevent by delay, not elimination. - Wired Magazine
Sam Altman interviewed - The Contradictions of Sam Altman, AI Crusader - WSJ
The Potentially Large Effects of Artificial Intelligence on Economic Growth - Goldman Sachs
Rogers-Shaw deal approved by Canada's industry minister - BNN Bloomberg
"ByteDance, the Chinese owner of TikTok, generated more than $80 billion in annual revenue last year, up more than 30% from roughly $60 billion in 2021. The 2022 result... is significant because most technology companies with that kind of revenue experienced a marked slowdown in growth last year. It also means ByteDance revenue is on par with that of Tencent, an iconic Chinese social media company that owns WeChat. And it shows a substantial majority of ByteDance’s revenue growth came from its core advertising business in mainland China, where it operates Douyin, an app similar to TikTok that has hundreds of millions of daily active users." - The Information
"The world has been learning an awful lot about artificial intelligence lately, thanks to the arrival of eerily human-like chatbots. Less noticed, but just as important: Researchers are learning a great deal about us – with the help of AI. AI is helping scientists decode how neurons in our brains communicate, and explore the nature of cognition. This new research could one day lead to humans connecting with computers merely by thinking–as opposed to typing or voice commands. But there is a long way to go before such visions become reality." - WSJ
"Canada’s natural resources minister has warned the US against waging a “carbon subsidy war” with its allies, saying the Biden administration’s $369bn clean energy package creates an “unlevel playing field” in global trade." - FT
"OPEC+ announced a surprise oil production cut of more than 1 million barrels a day, abandoning previous assurances that it would hold supply steady and posing a new risk for the global economy. It’s a significant reduction for a market where — despite the recent price fluctuations — supply was looking tight for the latter part of the year. Oil futures weren’t trading when the cut was announced on Sunday, but the inevitable price reaction could add to inflationary pressures across the world, forcing central banks to keep interest rates higher for longer and crimping economic growth." - Bloomberg
👉 For specific investment questions or advice contact Joel @ Gold Investment Management.