#97 - Why CAD/USD is Surging, $SHOP & Stripe Join Forces, and CAC Trends Over the Last 75 Years of Advertising

  
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In this week's episode of Reformed Millennials, Broc and Joel talk about the surge in the Canadian Dollar relative to the USD, The Loonie Tunes Squad of SHOP, FB and Stripe, and 75 years of Advertising changes.

Listen on AppleSpotify, or Google Podcasts.

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


📈📊Market Update💵📉

According to Bank of America's latest Global Fund Manager survey 2% of investors expect a bear market in the next 6 months.

It's funny what one of the best years in stock market history can do to sentiment.

For you newcomers to this stock market stuff, when all the bears have gone away to hibernate, after getting steamrolled in embarrassing fashion, the market has a habit of creating new ones, usually through price action.

I don't see why this time would be different.

USD/CAD:

The classic double top developing in the USD/CAD cross. The price is literally hanging out pennies above the breakdown level of about 1.20 as we write this.

A decisive close below this level would set a near-term target at 1.14 along with a longer-term objective of 1.07.

More importantly, a breakdown below this crucial level and a valid execution of this massive bearish reversal formation would support the risk-on and reflationary themes that we’ve been pounding the table on since last year. And certain commodity-centric currencies like the CAD and Aussie Dollar are excellent barometers for risk appetite and thus give us some great signals about the health of other asset classes.


💸Reformed Millennials - Post of The Week

RM Favorite - Restoration Hardware Posts Insane Q1 Earnings

RH is AAPL of furniture, change my mind.

Since late 2019 I've been a really big fan of the turnaround story that is Restoration Hardware. The founder figured out a way to make high-margin furniture into a lifestyle brand. They've converted their flagship stores into experiences by incorporating garden cafes and restaurants flush with RH furniture and home decor...

They've mixed Breakfast At Tiffanys with Steve Jobs Apple store.

If you were wanting to play the re-opening and homeownership growth trend, this was the stock to do it with.

LAST NIGHT THEY POSTED THEIR Q1 EARNINGS AND IT WAS IMPRESSIVE, TO SAY THE LEAST.

With 21.8% adjusted operating margins in fiscal 2020, RH has eclipsed the operating margins of LVMH, and now has a clear line of sight to 25%-plus adjusted operating margin over the next several years... GOD DAYUM.

  • For the fiscal 2021 first quarter ended May 1, RH posted revenue of $860.8 million, up 78% from $482.9 million a year ago.

  • Net income totaled $130.656 million, or $4.19 a share, in the latest quarter, swinging from a loss of $3.212 million, or 17 cents a share

  • Adjusted profit registered $4.89 a share, up from $1.27 a year earlier and above the analyst estimate of $4.03 a share

“Based on current business trends, we are raising our outlook for revenue growth in fiscal 2021 to a range of 25% to 30% versus our prior outlook of 15% to 20%,”

“We now expect adjusted operating margin in the range of 23.5% to 24.3%, an increase of 170 to 250 basis points versus our prior outlook.”

CLOSING REMARKS ON GLOBAL EXPANSION:

We believe that RH has the potential to become a $20 to $25 billion global brand in its current form, and possibly larger if aspects of our ecosystem become meaningful revenue streams. Our view is the competitive environment globally is more fragmented and primed for disruption than the North American market, and there is no direct competitor of scale that possesses the product, operational platform, and brand of RH.

Our global expansion begins in the Spring of 2022 with the opening of RH England, The Gallery at Aynhoe Park, a 73 acre historic estate designed in 1615 by Sir John Soane, arguably one of the most respected and celebrated architects of his time. RH England will feature The Aynhoe Architectural Library, The Aynhoe Organic Gardens, The RH Restaurant & Orangery, and The RH Champagne & Caviar Cellar among other unique experiences.

Pending reopening plans for France, our goal is to open RH Paris, The Gallery on the Champs-Élysées in the Fall of 2022. Customers will arrive through magnificent 18 foot gates and walk down a decomposed granite path lined with majestic hedges that lead to a garden courtyard where you encounter 18 foot brass doors that open to a six floor atrium connected by traversing brass staircases and a glass elevator. RH Paris will include a restaurant overlooking the gardens inspired by the Grand Palais, a sparkling Champagne and Caviar Bar on the top floor, and a romantic rooftop garden where you can sip an RH Bellini while enjoying views of the Eiffel Tower.

In total we have secured five locations in Europe including London, Munich and Dusseldorf, and are in final lease negotiations for an additional five locations which will open over the next two to three years.


Financial assets as a % of net worth

While you might think this is far-fetched, the basic forces of supply and demand are also one of the best predictors of future stock market returns.

In particular, when average investor allocation to stocks is high, returns for the next 10 years are low, and when average investor allocation to stocks is low, returns for the next 10 years are high.  Using survey data from the American Association of Individual Investors, we can see the negative relationship between average investor allocation to equities (“AvgEquityShare”) and future returns clearly:


75 Years of Advertising! - Ben Evans

Great Piece from the Essay:

It’s very common for people - especially newspaper people - to look at the newspaper and internet series in these charts and conclude that all the money went from newspapers to the internet. There’s also a tendency to try to calculate Google and Facebook’s share of that ‘internet’ line. This can get you onto shaky ground quite quickly. As that change in share of GDP (and my phase ‘suspiciously flat’) should suggest, what’s actually happened is that the market has been both reallocated and repriced, a lot of money left the data that’s being captured here, and a lot of other money came in.

So: if you talk to people at both Google and Facebook and in the agency world, you’ll hear that a lot of the money spent on Google and Facebook is money that was never spent on traditional advertising - it’s coming from SMEs and local businesses that might have spent in classified at most but probably wouldn’t have done even that. $60bn of consumer spending went through Shopify last year - it’s safe to assume those vendors spent money on advertising, but how many of them would have bought an ad in a local newspaper? This has also come at much lower prices: Facebook in particular has been massively deflationary to online advertising: it offers vast quantities of relevant advertising inventory at much lower prices and much lower entry costs than you’d have needed in print, let alone TV.

One of the most interesting charts I’ve seen on this theme comes from Google Trends. Like all Google Trends data it needs to be taken with a large pinch of salt, but this one is pretty instructive. I’d suggest this shows the internet moving up the ‘funnel’ - it moves from utility price comparison to recommendation and authority. That might be a rather more profound conflict with traditional forms of media that those raw ad sales.


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