SCS: What's Happening on November 10, 2021
Everyone is a genius in a bull market. Young People are now managing their own money and loving the lack of people in their way to do it. Also, Jay Lutz hopes for a mining supercycle.
A friend of mine once told me she went to her local bank branch to set up a self-directed account so she could begin trading stocks. The bank manager looked at her and said “You? Do you think you can manage your own money? Do you know how hard that is? You should talk to one of our financial advisors.”
She then politely found her way out of the conversation, went to her car, and called her dad crying. She told me the teller made her feel small. It was as if she didn’t have the right to trade stocks.
According to data from the Federal Reserve around 70% of households with a net worth above $500k are using a mostly self-directed strategy. Which is up from 35% in 2010.
What’s changed in the last ten years? Robo advisors.
My friend now trades on a phone app called WealthSimple. This app allowed her to register in under a minute and the best part was that she didn’t have to talk to a human to set up her account.
To give some context about myself, I’m a 38-year-old living in the Toronto area. The majority of my friends are reaching their prime earnings year. Some are doctors, engineers, executives, plant managers, or accountants. Do you know how many times someone in my circle has mentioned their stockbroker at Canaccord, Hampton, Eight Capital or Mackie? Zero times.
The odd friend might have a financial advisor down at their local bank branch, but none of them have a guy or girl actively pushing equities on them. Most of them manage their own money through a self-directed account.
Take Michael Martocci, a 26 rear old startup founder profiled earlier this week in the Wall Street Journal. Michael says he ignores golf invitations from a Goldman Sachs advisor because “It’s easy to manage $500,000, $1 million yourself.” According to Michael, he spends less than an hour a week monitoring his investments.
In the same article Travis Chambers, a 33-year-old, who claims to have made $9M selling part of his advertising agency interviewed multiple financial advisors in an attempt to get some help. In the end, he refused to hire any of them due to a lack of offerings in crypto and real estate.
I’m not sure why he would be expecting an advisor to have a series of crypto offerings. If any financial advisors are offering crypto products, then they are probably doing so without a license. It’s kind of like interviewing a gourmet chef and then declining to hire them for not being an accountant.
I digress.
Both of these young wealthy individuals are looking at the assets classes that have seen massive returns over the last 2 years and are thinking, “that’s where the money is, that’s where I want to invest.” In financial textbooks, we call this recency bias. ‘
Most of us who have been around for a few cycles know that speculative capital flows eventually dry out. But as for young people managing their own money on an easy-to-use app, that disruption is here to stay.
Macro: The Macro Themes Surrounding Equities
U.S. consumer prices jump 6.2% in October, the biggest inflation surge in more than 30 years (CNBC) (TDD)
China's Evergrande Group officially defaults (Dail Sabah)
How African refugees used bitcoin to build their own grassroots economy (TC)
Large-Cap News We Can’t Ignore
Twitter sets up crypto team to explore decentralized apps (FT)
Bumble Missed on Earnings, Saw a 23.5% y/y increase on revenue (GNW)
Rivian dazzles in IPO debut but other electric vehicle stocks are in reverse (SA)
Nvidia so far ahead in virtual it's not even close, Rosenblatt says; hikes target to $400 (SA)
Cassava Sciences raises cashflow guidance after payment for Alzheimer’s study (SA)
Coinbase Sent Plummeting After Disappointing Third Quarter Earnings (TDD)
Small Cap News
If you’re following Canadian mining, you should really read this piece: New Found Gold Assays: NFG? (TDD)
Cypress Development Begins Testing Extraction Of Lithium From Clay (TDD)
DeFi Technologies Files Form 40-F with the SEC in Anticipation of Nasdaq Listing (NW)
Kontrol Technologies Surpasses 400 Customer Buildings (BW)
Canadian Small Caps With Jay Lutz
Inflation is the hot topic of the day following the latest consumer price index figures that came out of the US government today. The CPI index printed 6.2% inflation on a year-over-year basis for the end of October 2021, meaning that collectively, we as consumers are paying a heck of a lot more for items than we were a year ago.
Contained within the deeper data, is a number of nuggets that may prove useful for investors. For instance, while food was on average up 5.3% year-over-year, energy on average was up an eye-popping 30.0% - with fuel oil being up 59.1%, the leader of inflation for the period.
Under the category of energy, commodities were up 49.5% from twelve months ago, while energy services were up only 11.2%. For those of us that follow markets, the rise in commodities is of little surprise. Commodities less food and energy commodities meanwhile as a whole were up 8.2% year-over-year.
For Canadians, while it’s bad news for our pocketbooks, it’s good news for our investment portfolios. At the current juncture, a commodity supercycle is precisely what we need to supercharge our capital markets following the endless tumble of flash-in-the-pan sectors such as psychedelics, cannabis, bloated tech roll-ups, and blockchain over the last several years. With our markets dominated by resource-focused entities, this is our best-case scenario.
The trouble, as always, is seeing the inflation in commodities that matter for our markets. Gold, despite being up on the day by 1.37% at the time of writing, is still down from where it closed 2020 out, at $1,897. Silver isn’t fairing much better, having closed out 2020 at $26.33, while it’s currently up 2.86% today to $24.97. As much as precious metals bugs want to scream manipulation - to be fair I expected both to be much higher by this point as well - the simple fact is the price is the price.
And thus, Canadian markets are sitting here hoping for inflation to hit where it really matters most to us - in the price of these two metals which historically have represented hard money.