SCS: What's Happening on November 8, 2021
Tiff Macklem really likes the Eagles and Peter Frampton. Also says interest rates hike likely to happen in Q2 or Q3 of 2022. Calls RE boom FOMO. Jay Lutz thinks the MSO stock move is unwarranted.
Over the weekend Evan Soloman sat down with Bank of Canada chairman Tiff Macklem in a 60 minutes style interview. At a high level here were the takeaways:
BoC fought deflation for years and even fought it in the early parts of the pandemic. Now they are fighting high inflation. When pressed about what keeps Tiff up at night, he says “high inflation.”
He wants to assure Canadians the BoC can get inflation under control. Says they have the tools.
Refers to inflation as “transitory, but not short-lived.”
Says the problem with housing is supply. Also, FOMO - you stupid Millennials and Zoomers.
Says interest rate hikes are likely to start in Q2 or Q3 of next year (2022). Sure.
When asked if Trudeau’s spending is causing inflation, he responded by saying the only thing they care about is achieving inflation; will use whatever tools are necessary.
Says Bitcoin is not a currency. More of an investment.
Tiff Macklem’s pump-up song? Something by Peter Frampton. Great reporting Evan!
For any 35-year-old in Canada who can’t afford a home thanks to a 25-year housing bull market, it should infuriate you to hear our central bank governor stress how for years deflation is the main issue. But don’t worry, if inflation rises too much, they have the tools to fix it. Thanks Tiff!
The real story isn’t as easily defined as deflation or inflation. And as much as I hate to quote him, Michael Saylor said something this weekend that bears repeating.
Inflation means different things to different people. For my generation, millennials, it’s meant listening to the central bank tell us there is an inflation rate of around 1.5% every year. Meanwhile, young people in Southern Ontario, the most populated region of Canada, have watched housing prices increase almost 9% annually for the last 15 years.
It’s stagflation we worry about. As job prospects decline we see shelter more and more challenging to obtain.
Stagflation is a concern as high inflation coupled with high unemployment creates a scenario where central banks find themselves dammed if they do, dammed if they don’t. Raise rates or taper, and stunt economic growth, causing even higher unemployment. Lower rates or ease, and accelerate economic growth, causing higher inflation.
The truth is, Canada is dependent on the real estate sector. Cheaper rates make servicing debt cheaper for both real estate owners and the government. Easing makes it easier for politicians to get their pet projects or kickbacks executed. It’s a no-brainer solution for Tiff. They won’t raise rates materially unless they are forced to do so kicking and screaming.
As the Bank of Canada continues to tell us how they have been fighting this boogieman called deflation for decades, we now are in a scenario where the Canadian real estate sector is too big to fail. And it’s at the cost of a generation that both lacks voting power and sophistication to really understand what drives Tiff and Co.
The system is now built for cheap rates, easing, and crony capitalism.
Stagflation doesn’t affect boomers the way it does millennials and zoomers. They generally don’t work and are more than happy to trade in 4% inflation for 15% annual housing gains. Of course, it can only last so long until the majority of property purchases are by multi-home owners speculating the party will never end. Parlayed with the inaction of self-proclaimed Frampton fanboy, Tiff Macklem, creating a wealth divide that will inevitably force the government’s hand similar to what is happening in China today with the three red line policy.
I digress.
After hockey on Sunday mornings, I typically take my son out for ice cream. At the shop we go to, he can choose between two sections. There is a section with fruit and a section with candy. What do you think he picks? Always bet on inflation, it’s like a giant tray of gummy bears put in front of a 4-year-old.
Macro: The Macro Themes Surrounding Equities
Worried pot shops have taken over Toronto streets? You may be right — and it may be about to get worse (TheStar)
Consumers set for big holiday spending, Morgan Stanley says: At the Open (SA)
Germany’s Economy, Once Europe’s Engine, Is Holding It Back (WSJ)
Large-Cap News We Can’t Ignore
Tesla Insiders Sold $137 Million In Stock Last Week, In Advance Of Musk’s Stock Sale Poll (TDD)
Rogers To Not Appeal Court Decision In Board Case (TDD)
Chinese tutoring firms TAL, New Oriental surge on report of resumption of after-school tutoring (SA)
Voyager Digital integrates Voyager token into Coinify's crypto payment platform (SA)
Facebook’s ‘meta-existential’ pivot for survival (TC)
Walmart is using fully driverless trucks to ramp up its online grocery business (CNBC)
Small Cap News
Aurora Cannabis Acquires Undisclosed Stake In Dutch Cannabis Firm, Zero Details Provided (TDD)
Coursera Reports Solid Earnings, But Guidance Cut By A Competitor Casts A Negative Light On Sector (TDD)
Field Roast and JUST Egg Partner to Develop Plant-Based Breakfast Sandwich Debuting Exclusively at Whole Foods Market (BNW)
Canadian Small Caps With Jay Lutz
The cannabis sector is the hot topic again today after draft legislation was brought forth last week by a no-name GOP member of the House whom no one had heard of a week ago.
Have we been here before?
While much of Fintwit is rejoicing over the fact that MSOS is finally showing a bit of green, many others are shrugging off the news as if nothing has happened. Take, for instance, Cowen & Co, whom put out a report titled, “Cannabis Policy: House GOP Legalization Bill Doesn’t Change Senate Math.”
As the title suggests, despite the bill being crafted - it hasn’t yet been tabled - by a member of the GOP, it doesn’t change the simple math that the bill does not yet have the votes to get legalization passed. In fact, as per Marijuana Moment, Mace was the sole Republican to support a cannabis research bill last week - demonstrating she is out of line on the cannabis issue relative to those in her own party.
And then there is reality.
Earlier this year, cannabis names soared to new highs with the advent of the Dems taking control of the government in the US. The theory at the time was that cannabis would magically be legalized immediately because government is never inefficient and gets things done quickly.
How did that work out for investors?
After hitting new highs of $55.91 in the first half of February, MSOS, the cannabis ETF used to gauge sector sentiment, fell to as low as $25.70 just three sessions ago before the draft legislation was made public. Coincidentally, it was a new 52 week low for the ETF, whom has an all-time low of $20.45.
With the legislation yet to even be formally tabled, followed by the unending modifications as it gets through both the House and Senate, we’re still a long ways off from formal legalization, if this is even the bill that gets it done - there’s many that have attempted the same.
I’ll remain on the sidelines until something worth watching actually materializes.
Things to be watching out for:
This week we got AMC Theatres, Smile Direct Club, Village Farms, Palantir, DoorDash, Beyond Meat, Hut8, and Sundial all putting out earnings. Here is a list from Earnings Whispers:
MEMEs of the Day:
Remember the Elon MEME:
Well, this cute couple sure does: