We ask because gold is hot right now. April 22, 2024 Sign Up | View online IN THIS ISSUE 8 min read 🧾 Budget breakdown 💸 Deficit drama ⛏️ Gold grab Turns out Mr. T wasn’t just a butt-kicking, fool-pitying style icon — he might have also been a savvy commodities investor. Read the Big Important Story below. THE WEEK IN MARKETS Investors Get a Gut Check After months of bulls on parade, markets experienced a mild panic attack last week: the TSX fell 1%; the S&P 500: -5%; the NASDAQ: -6%. The red tide was swept in by rising geopolitical risks and anxiety about the path of interest rates (including fears that the U.S. Fed’s next move may be up, not down). One way to gauge how freaked out investors are is the Chicago Board Options Exchange’s Volatility Index — aka “the VIX” if you’re a pro, or “the fear index” if you’re a normie. The VIX uses options pricing to measure how much change investors think the S&P 500 will experience over the next 30 days — i.e., how “risky” they think it is. The VIX rose 10% last week. Which is a lot! Then again, it started from a historically low level, and it still suggests investors expect markets to be far less tumultuous than they were during much of the last four years. Either way, last week was a reminder that, no matter how go-go things get, investing is still risky business. WHAT HAPPENED LAST WEEK This week, we’re devoting our story roundup to the year’s single most exciting news in Canadian fiscal policy: the federal budget! Below, we break down who stands to make out well, and not so well, from the fed’s $53 billion proposed spending plan. THE BUDGET WINNERS! 🤪 Homebuyers! And renters! The big real-estate news is that the government plans to spend $8.5 billion — a whopping 16% of the total budget — on boosting the housing supply. How? It’ll convert underused or vacant federal offices into homes, redevelop National Defence lands, and build apartments on top of dozens of post offices (!). The government is crossing its fingers that this will result in two million additional new homes, on top of the 1.87 million already in progress. All these additional units could bring some price relief, as we reported recently. Economists warn, though, that it could be a minute before more houses actually hit the market. Students! Some commentators have called this year’s spending plan the “Gen-Z budget,” and it’s no wonder with $1.1 billion going toward interest-free student loans. The government will also auto-enroll kids in RESPs, to ensure Canada Learning Bond payments are automatically deposited into accounts for eligible low-income families. The environment! And small businesses! After five drama-filled years of carbon pricing, the government, as part of the budget, plans to retroactively dole out $2.5 billion to 600,000 small and medium-sized businesses through a new carbon rebate. The budget also earmarks a 10% tax credit for businesses that build EV factories, plus $800 million in funding over five years for a new Canada Greener Homes program, which will provide energy retrofits for low- to median-income homeowners and renters. THE BUDGET LOSERS 😞 People with disabilities: More than 1.6 million Canadians with disabilities live below the poverty line, and many of them were disappointed to learn that recipients of a new Canada Disability Benefit will get $200 a month. That’s at least $800 a month short of what many need to escape poverty. Compounding the disappointment, the benefit comes with strict qualifications and no protections against provincial clawbacks — and it won’t kick in until 2025. Tech dudes and the 0.1%: Some of the hottest budget takes have concerned a tax hike on investment profits (aka capital gains) for wealthy Canadians. Beginning on June 25, the government will collect taxes on 67% — up from 50% — of capital gains from anyone who makes north of $250,000 from (certain) investments in a year. The increase will affect 40,000 individuals and some corporations. Tech CEOs, including Shopify’s Tobias Lütke, lamented/complained that the tax hike could drive entrepreneurs out of Canada. But others, like Well.ca founder Ali Asaria, supported the proposed tax increase; it’s expected to bring in as much revenue as a 1% GST hike, which means more funding for stuff like the housing initiatives we mentioned above. Debt hawks: The national debt stands at $1.2 trillion, up from $685 billion in 2019, and the government’s proposed budget is expected to add $39.8 billion to the total this fiscal year. —Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🦞 Red Lobster considering bankruptcy after losing millions on Endless Shrimp. Wishing they’d gone with their original idea, Finite Shrimp. Source 📦 Police investigating after someone sent gravy to Ontario legislature. Will start by rechecking the bag for fries and cheese curds. Source 🍕 Timmies launches the pizza no one was waiting for. In their defence, it contains no coffee. Source 🧙 Study finds playing D&D is good for mental health. It makes your parents’ basement seem cheerier, for one thing. Source CRASH & BURN TO THE MOON 🛻 Cybertruck deliveries halted after customers cite issue with the accelerator pedal. When you press it and drive somewhere, everyone laughs. Source 😭 Parents are crying over the season finale of Bluey. Kids wish they would just take their ketamine. Source 📺 Netflix gains millions of “new” subscribers since password crackdown. Now everyone can binge Suits with a clear conscience. Source 📰 Funny writer of Today in Tabs newsletter gets a NYT profile. Funny writer of FOMO Index must’ve missed their call. Source WHO CARES THE BIG IMPORTANT STORY COMMODITIES Anxious Investors Are Scooping Up Gold. Is That a Good Idea? Gold, as we briefly mentioned last week, has gone crazy. Since mid-February, the price has risen by more than 20%. Which is interesting, because typically demand for gold falls whenever interest rates are high, as they are right now, because of competition from higher-yielding investments. Yet central banks, young Chinese consumers, Russians, and — of all people — Costco customers are all rushing to buy gold. Here’s why: Gold, the Basics: Gold’s primary appeal is that you can touch it and store it under your mattress and it will almost certainly retain some value, unlike stocks or bonds, which can go to zero if companies fail. And, unlike cash, which governments can print more of on a whim, the global gold supply grows at a reallllly slow pace. All that makes gold a relatively safe long-term investment. That’s not to say its value doesn’t slide, because, oh boy, it can, but, given that humans have coveted the stuff for some five thousand years and counting, the odds are high that somebody somewhere will be willing to buy gold for as long as people walk the earth. #1 Reason for Buying Gold: Inflation Investors tend to buy gold whenever inflation is running hot, as it is now, because they think it will be a better store of value than cash — that is, they believe each dollar they hold will buy them less stuff in the future while gold will retain its value. Doomsday preppers and goldbugs (people who think unchecked government spending will cause hyperinflation that renders paper money nearly worthless) follow this line of thinking to the extreme and buy gold because they believe it will be one of the few things left to buy stuff with when society (or just fiat currency) collapses. Traditional investors, for their part, typically don’t have more than 5% to 10% of their portfolios in gold, if they own any. John Bogle, the founder of Vanguard, definitely didn’t. #2 Reason for Buying Gold: Angst and Uncertainty Conflict and unrest globally have also fuelled the gold-buying spree. That’s because gold’s value has little to do with economic growth or the state of the world, which makes it an attractive asset in precarious times. Chinese investors have been buying gold as their country’s economy wobbles and their investment options dwindle. The Chinese government, meanwhile, has been buying mountains of gold, but the root of its anxieties are different; it doesn’t want to risk its assets being frozen if the U.S. and its allies decide to sanction it one day, as they did Russian entities following the invasion of Ukraine. And gold is tough to effectively sanction. So, is hoarding gold, like some sort of cave dragon, the right move for you? Ask yourself these two basic questions (which are also questions you should ask anytime you invest): [1] What’s your view of the future? Do you think society will deteriorate to the point where we’ll all soon be living some version of The Road? If yes, gold could express that view. But if you’re more optimistic, your portfolio should reflect that and contain mostly stocks, bonds, GICs, etc. There’s also a middleground: you might decide to buy gold as a hedge not because you think a Bad Terrible Thing will happen but because it could happen. And then if it does, you can sell your still-valuable gold to buy the dip in stocks or bonds. [2] How well will gold (or whatever you’re investing in) perform relative to other assets? Let’s go back to our Road scenario: if you’re convinced that the end is nigh-ish, how confident are you that gold will outperform, say, 50-pound bags of rice? Those could be pretty valuable in the end times! You could diversify and buy both, of course, but you should allocate the largest share of your portfolio to whatever asset you think will deliver the best results under possible future market conditions. You should apply the same principle to whatever (probably less doomy) view you have about the future. Unfortunately, we can’t tell you what the future holds, only how to think about the future. So, you’ll have to decide for yourself whether stashing gold bars in a bunker — or, less radically, in your portfolio via a gold ETF — is a sound decision. —Ben Mathis-Lilley OTHER VERY GOOD READS 🎓 The Perilous Lives of International Students How young people from abroad fall victim to criminal schemes | Toronto Life 🚢 The Cloud Under the Sea How a secretive network of ships fixes subsea cables | The Verge 💰 A Six-Step Financial Plan for Every Human Or at least every Canadian | Wealthsimple Magazine THE WISDOM OF X Somehow we failed to include the correct tweet last week, so we’re making up for it by including the MIA tweet and a new one. Sorry about that! OK, the Tim Hortons pizza surely can’t be that bad, but still… “Will you bring snacks?” is actually the first question we ask prospective hires at TLDR. THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Ben Mathis-Lilley (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Clare Douglas (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (senior lifecycle specialist), Matthew Karasz (markets editor) Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. VIEW IN BROWSER PRIVACY POLICY UNSUBSCRIBE Pro plan is not available in French or for residents of Québec. 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