Plus: why airplanes and AI aren’t so different. April 17, 2023 Sign Up | Made in Canada IN THIS ISSUE Estimated read time: 7 min 🍄 Mario’s millions 🏦 Tiff’s tough call 🧠 AI’s advances Mario stopped Bowser from conquering the world. His latest feat? Helping save the movie theatre industry. Read more below. | Nintendo, Illumination Entertainment/Universal Pictures THE WEEK IN MARKETS It was a lovely week for spring fever, if you happened to be a stock. The S&P and TSX were both up 2% on the week (now +8% and +6% YTD respectively). The Nasdaq also pushed higher and is now up 17% on the year. Why all the good feelings? Three big reasons. First: 5%. That’s where March U.S. inflation came in on Wednesday, the lowest in over a year. Second: Thursday’s U.S. spending and jobs numbers were also good, which investors seemed to take as fresh evidence that the vaunted “soft landing” is still possible. Third (and maybe most important) were big banks this week: JPMorgan Chase, Citi, and Wells Fargo released solid earnings, suggesting the mid-March banking strains were more ”idiosyncratic than systemic” (hat tip to the perfectly wonky Brent Donnelly). Does spring fever continue this week? More earnings reports are coming, and Canada’s own inflation numbers (more on both, below) will decide. SMART CHART Since late last year, the U.S.’s inflation rate has trended downward fast. Let’s hope Canada’s inflation rate, which peaked at 8% in June 2022, continues to follow a similar trajectory. New data is out Tuesday, and economists expect the rate to drop to as low as 4%. WHAT HAPPENED LAST WEEK IMPORTANT Central banks have some decisions to make. As we mentioned up top, last week we learned not only that the U.S. consumer-price index dipped to 5%, but also that supplier prices dropped and more workers got laid off. (Sorry, y’all.) That all suggests rate hikes are cooling off the economy. The surprise? The Federal Reserve isn’t ready to declare mission accomplished, George W.-style, on inflation yet, and hinted that at least one more rate hike is on the table. The Bank of Canada took a different tack, announcing that it would pause its rate hikes for a second consecutive month. But the BoC’s Tiff Macklem did pinky-promise that the inflation fight ain’t over. We’ll see if that fresh inflation data out Tuesday will help him decide whether another rate hike is in order. All eyes on earnings. Next week, some major companies — Lockheed Martin, Netflix, Tesla, Procter & Gamble — will kick off earnings season in earnest, and the outlook isn’t rosy. Earnings for Q1 of 2023 are expected to fall by almost 7%, which would be the worst showing since the Covid outbreak caused profits to plunge nearly 33% in Q2 of 2020. (This chart is wild.) This time, higher interest rates and tightening credit standards are expected to hurt the bottom line. Some bigwigs, like Michael Wilson, Morgan Stanley’s chief investment officer, have remained resolutely gloomy. But the majority of investors are already so pessimistic on stocks that even bad earnings that are just a smidge less bad than expected could have them buying stocks again and push up the market. Pop some popcorn. INTERESTING Did Russia hack Canada’s natural gas network? And if so, how bad is that? A leak of U.S. cybersecurity documents includes claims that pro-Russian groups gained access to Canada’s natural-gas-distribution network, which is the fifth largest in the world. The hackers claim they’re able to disable alarms, increase valve pressure, and force an emergency shutdown of an unspecified gas-distribution centre. It’s unclear whether they’re lying, but let’s hope they are, since 38% of our energy comes from natural gas, and the energy sector makes up 10% of Canada’s economy and employs some 265,000 people. Apple and Tesla go different ways on China. China’s threats to invade Taiwan have led many Western companies to “diversify” their manufacturing bases — that is, open factories elsewhere. Apple, the world’s seventh-largest company by revenue, has already announced it will open plants in India and Vietnam. But China’s sabre rattling hasn’t unnerved everyone. Tesla, which already has a factory in Shanghai, announced last week that it will build a second facility there to produce “megapacks,” aka ginormous batteries. It’s interesting to see how seriously different companies are taking the U.S. v. China face-off; Warren Buffett said last week that the possibility of war factored into his decision to dump a US$ 4 billion stake in Taiwanese chipmaker TSMC. Time will tell which strategy pays off. Mario and Luigi save the princess the movie-theatre industry. Everyone already knew Mario was a juggernaut. As of last September, some 650 million Super Mario games had been sold worldwide, making the plumber the best-selling video game character in history. Mario’s latest boss-level feat? Convincing investors to buy movie-theatre stocks, following The Super Mario Bros. Movie’s record-setting $505 million five-day opening weekend. There are still doubts as to whether movie theatres will ever be back back, but Super Mario and Avatar: The Way of Water, which grossed $3B, mark a strong start to 2023 for the theatre industry, following three crummy years. Nintendo stock has benefited too, rising 9% over the past month. FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🕵️ U.S. National Guardsman shares classified docs with his gamer friends and gets fragged like a noob by the FBI. Source 🫙 Tupperware might be going out of business, so be sure to save your Tupperware in some Tupperware. Source 💉 Moderna thinks it’ll have vaccines for cancer, all kinds of other things by 2030. Vaccines for anti-vaxxers might take longer. Source 📺 British reality show gives contestants the ultimate challenge: use B.C.’s transport system. Source CRASH & BURN TO THE MOON 🍫 Woman who reintroduced Rum & Butter bars is stuck with 133,000 expiring reminders of why it was discontinued. Source 🎨 They really should fill that in: Edmonton’s controversial Talus Dome public-art piece doubles as a human trap. Source 👔 J.P. Morgan insists its managing directors come back to office Monday through Friday like some kind of bankers. Source 🤖 NYPD re-debuts crime-fighting robot dogs after lukewarm reception, because if you have crime-fighting robodogs, you really should use them. Source WHO CARES WHAT’S UP THIS WEEK Canada’s March inflation data drops (Tuesday). Let’s pray those rate pauses were warranted. U.S. banks release Q1 earnings (Tuesday–Thursday). Those bank earnings we mentioned up top? They were a warm-up. On Tuesday, we’ll get Bank of America and Goldman Sachs and a slew of regional banks. Wednesday: Morgan Stanley, U.S. Bancorp, Citizens Financial, Zions Bancorp. Thursday: American Express, Keycorp, Truist. SHARE TLDR WITH YOUR FRIENDS 🤝 Put this link in your group chats, your Slack threads, tattoo it on your back — whatever works for you! THE BIG IMPORTANT STORY TECH Will AI Eat All Our Jobs? Maybe! And It’s Probably OK. We try to be objective here at TDLR (partly because we’re legally bound to be!), but one opinion we’re open about is that tech analyst Benedict Evans writes one of the best newsletters on tech and media. What makes it so consistently good is that Evans, a former partner at mega-VC firm Andreessen Horowitz, has a deep understanding of tech from working inside the industry and is deft at parsing hype from potentially huge developments. He was early to call B.S. on the metaverse, and he did so in a super-straightforward way, asking simply “Do we really want to climb into a computer?” TLDR’s Sarah Rieger recently spoke with Evans about what artificial intelligence — the tech world’s latest obsession, as we covered last month — could do to the markets ($GOOG, $META, etc.) and also how it might change our working lives and maybe our live-lives. On a scale from, say, the LaserDisc to the internet, how much could AI change our lives? I think in Silicon Valley the range of opinion is that this is an iPhone moment, or maybe even a web moment. The middle case is that AI is more like the invention of graphical user interfaces [or GUIs, like Microsoft Windows]. I don’t think it’s clear yet which it is. OK, so GUIs were a big deal, since they opened the door to personal computing. Right now, though, popular AI tools mostly seem like parlour tricks — like having an AI model make a picture of my cat on the Starship Enterprise. Well, if you look at the rise of machine learning in 2013 [which laid the groundwork for what people now call AI], the parlour trick was Oh, it can identify a photo of a cat. That’s cute. But it was a much bigger deal than that, because what you were actually seeing was: image recognition now works. And then machine learning got better at translation, natural language processing, and pattern recognition. In other words, cute parlour tricks can have massive applications. People looked at the Wright brothers’ airplane and said, “Oh, it only goes 100 metres and carries one person. It’s a toy. Big deal.” They were wrong, of course. But on the other hand, just because one stupid-looking thing, like the airplane, works doesn’t mean all stupid-looking things will work. You have to think: what’s the path for this new technology to get better? How worried should workers be about AI automating them out of a job? Over the past 75 years, wave after wave of jobs has disappeared as a result of new technologies, yet we have not had a net loss in employment. Often, in white-collar work anyway, when you make something easier and more efficient, like data analysis, more people end up doing that job, not less. It’s relatively easy to see which jobs today AI could automate [legal assistance or customer support, say]. Right now, it’s just harder to see what new jobs AI might create. Do you expect AI to upend the dominance of the tech giants, like Alphabet or Meta? I don’t think anyone knows. It’s kind of like someone invented a steam engine and right now it’s only being used to raise and lower the flag on the king’s palace gate. We have had this theoretical breakthrough, and we’re working out all the implications. That’s why hundreds of companies or projects have popped up in the space over the past couple of months: to build around this technology. OTHER VERY GOOD READS 👔 These Consultants Are Trying To Get You Back in the Office Spoiler: it’s not going great | The New York Times 🔍 The Case of the Fake Sherlock* A “genius criminal profiler” turns out to be genius fraudster | Intelligencer 🎰 The Gambler Who Beat Roulette* How a winning strategy took down the house | Bloomberg *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER We back, baby. READER FEEDBACK Last week, we wrote about Canada’s housing crisis, and readers had a lot to say, like the one person who wrote, “I want a house.” Same, buddy. Same. But the article also drew some criticism. So, in the spirit of transparency or whatnot, we thought we’d share a sampling, both positive and negative: “The expert you interviewed said someone should study why young people aren’t entering the trades. That’s a dumb idea, because the answer is obvious: younger people tend to be more progressive, and trades aren’t exactly famous for that. Also, I was surprised that you didn’t address the fact that so many businesses and investors are buying vacant units like they’re stocks or something. We need an exorbitant vacancy tax to stop this practice and lower housing prices.” “Thank you for this article. I spend most of my paycheque on rent, which means no car and a long bus ride every day. If co-ops or affordable (<$1,200) rentals got built in my city, it would change my life.” “Not sure how TLDR can rejoice over the elimination of single-family homes. Dense housing is truly horrific, especially if you have disrespectful neighbours. People need yards and space for their sanity.” Letters were edited for clarity. THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Brennan Doherty (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Sara Black McCulloch (fact checker), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Contributors to this newsletter own stock in Google, J.P. Morgan, and Procter & Gamble. 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. PRIVACY POLICY UNSUBSCRIBE TLDR is offered by Wealthsimple Media Inc. and is for informational purposes only. Any views expressed are those of the individual author and/or of Wealthsimple Media Inc., not of Wealthsimple Financial Corp or any of its other subsidiaries or affiliates. 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