Plus: The first (rate) cut is the deepest June 10, 2024 Sign Up | View online IN THIS ISSUE 8 min read 📺 Cash for CanCon 💸 Short sellers short-circuit 🍁 Loonie losses The stock rally has left some — OK, a lot of — bears on their back feet. Read more below. | Hanna-Barbera THE WEEK IN MARKETS Cuts Two Ways For sickos like us who spend our days refreshing the Bloomberg and WSJ homepages, it was one heckuvan action-packed week. Early on, there was another $GME frenzy, the NYSE briefly broke (as in, it just stopped working), and the long-awaited interest-rate cuts actually started in Canada and the EU. Americans may have thought they were next, but on Friday, fresh U.S. labour-market data pointed to lingering inflation pressures and deflated those hopes. Despite the seemingly bad news for rate cuts, U.S. stocks — and in particular, U.S. tech stocks — had a strong week, pushing the S&P 500 (+12.7% on the year) and Nasdaq (+16% YTD) to fresh all-time highs. The tech-light TSX trailed again, but is still up a not-too-shabby 5.5% since January. Will tech earnings stay strong enough to justify these stock prices? Will a hot job market dissuade the U.S. Fed from slashing rates soon? We’ll see! THE WEEK IN ONE NUMBER 4.75% The Bank of Canada’s benchmark interest rate after its first cut in four years. For homeowners who owe, say, $450,000 on a 6% variable-rate loan, the cut could save them almost $800 a year. WHAT HAPPENED LAST WEEK IMPORTANT Canada’s CanCon strategy: strong-arm the streamers. The CRTC outlined a plan that will require foreign streamers (Netflix, Disney+, etc.) to set aside 5% of their domestic revenue — an estimated $200 million a year — to help fund local media. The feds have been trying for a while to get big tech to fund Canadian media to ensure that it doesn’t disappear. Last year’s Online News Act resulted in Google agreeing to pay $100 million a year to Canadian news publishers, while Meta refused to follow suit and shut off news on its platforms to avoid paying. Streamers probably won’t be able to pull a similar move; if they don’t pay, they’ll (presumably) have to GTFO of Canada, and they likely won’t want to go that far. (Streamers haven’t jumped ship from France, Denmark, or Spain, which have enacted similar content rules.) Critics of the plan argue that the streamers will just pass along the cost to subscribers instead. TD’s troubles deepen. Investors filed a proposed class-action lawsuit against the bank following a U.S. investigation into whether some of its employees laundered drug money. A judge hasn’t given the lawsuit the A-OK to proceed, but if one does, the plaintiffs intend to seek $6.75 billion in damages. INTERESTING Pity the poor, poor short sellers. Not everybody loves a bull market. Short sellers — that is, the speculators who hunt for companies to bet against — are short-circuiting. According to Bloomberg, short positions on S&P 500 stocks have sunk to a two-decade low, because being a bear in this bull market has proved to be a reliable way to lose money. The number of short-selling hedge funds has also dropped by nearly 75% over the past 15 years. But try not to get too drunk with schadenfreude. Short sellers, as much as some people loathe them, provide a valuable service to markets in that they subject companies to sometimes-much-needed scrutiny — like when Jim Chanos famously bet on Enron’s downfall. Roaring Kitty keeps roaring. Last month, as we reported, Keith Gill, aka Roaring Kitty, reignited 2021’s meme-stock madness by posting tweets that suggested he was buying GameStop again. This week, he stoked that blaze by first sharing screenshots showing massive stock and option positions in the company, then by hosting a livestream (attended by an eye-popping 600,000 viewers) — his first time back on YouTube in three years. $GME’s stock briefly rose to US$65, before falling 40% as the, uh, pretty bizarre production wrapped. —Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🎵 Spotify will raise prices for the second time in a year. Wants to stay competitive in an ever-evolving artist-exploiting marketplace. Source 🗞️ The Epoch Times is embroiled in a money-laundering scheme, not just its usual fact-laundering scheme. Source 🇲🇽 Mexico elects its first female president. U.S. renews promise to keep that sort of thing from crossing the border. Source 🥤 Dr Pepper ties Pepsi for America’s #2 soda. Might one day be first choice for when there’s no Coke at restaurant. Source CRASH & BURN TO THE MOON 🎟️ Ticketmaster hacked. Group responsible will likely try to sell users’ information if they ever finish wading through all the complaints. Source 🚗 Toyota will discontinue Olympic sponsorship because it doesn’t like how money was spent. Toyotathon athletes, for example, were virtually ignored. Source 🙊 X will now officially allow adult content. Could really help clean up its image. Source 📸 Instagram is testing unskippable ads. Unskippable ads expected to ace it. Source WHO CARES THIS WEEK ON THE PODCAST THE BIG IMPORTANT STORY FX The Loonie Is Weak Against the Greenback. How Bad Is That for Canadians? Have you ordered anything from the States recently? Well, if you have, you likely had a psychically painful experience when you converted USD to CAD and realized that the $15 jar of Sichuan Chili Crisp in your basket cost $20.66 CAD (and that was before duties got tacked on). Since May 2021, the loonie has weakened by 13% against the U.S. dollar. A greenback was worth 1.21 loonies back then; now it’s worth 1.37 loonies. That’s a big deal, even for Canadians who don’t shop for spicy condiments on the internet. More than 50% of our imports come from the U.S., and those imports cost more when the loonie is weak. So what’s going on? And will the USD-to-CAD pain stop anytime soon? Why is CAD doing bad? We’re going to throw an M. Night Shyamalan twist at you right up top: CAD isn’t doing that bad, relatively speaking. The issue is that the greenback is just extremely strong. Since May 2021, the U.S. dollar has strengthened by almost 16% against a basket of other major currencies, reaching muscular highs it hasn’t hit since the 1980s. So the loonie, down 13%, is actually holding its own. Why is USD so swole? Demand is always high for the U.S. dollar since it’s the world’s reserve, or default, currency. Roughly half of all global trade is invoiced in USD. But demand spiked over the past few years as the U.S. stock markets outperformed all the rest and investors everywhere wanted a piece of the action. Since March 2020, the S&P 500 has soared by 132% and the tech-heavy Nasdaq has climbed by 150%. And that’s to say nothing of individual gainers like Nvidia, which is up about 2,000% since the outbreak of COVID. Stocks globally have gained a more modest 64% over the same period if you exclude U.S. companies. The U.S. overperformance explains why foreign holdings of American stocks are at an all-time high. What does this have to do with a strong U.S. dollar? All the foreign money flowing into U.S. assets first has to be converted into USD, which spikes demand for the currency. What does a weaker currency typically mean for a country? On the most basic level, everything you buy from abroad is more expensive — Sichuan Chili Crisp, cars, iPhones, whatever. Travelling abroad also costs more. And all the above is unpleasant for consumers. Longer term, a weak currency can spur foreign companies to set up shop in your country, since workers are less expensive than talent elsewhere. That’s one reason China kept its currency weak for decades. The loonie would probably have to weaken significantly to spur a major Canadian hiring boom (and that weakening would have lots of bad effects), but there’s already some evidence of Swedish, Australian, and Singaporean companies hiring remote Canadian workers over pricier U.S. ones. So what happens next? And is there anything Canadians can do about it? Predicting the future is always tough. USD could strengthen further against CAD if the Canadian economy continues to weaken faster than the U.S.’s or if U.S. tech stocks attract more and more investment. On the flip side, the U.S. dollar could weaken if the tech rally gets overextended and reverses or if the U.S. economy slows down, and there are signs of that happening. But investors always have a way to hedge against one economy or currency doing better or worse, and that’s by diversifying, aka holding a varied basket of assets. Most Canadians have home-country bias, meaning their portfolios are overly weighted toward Canadian assets. The average Canadian has an equity portfolio that’s composed of 52% Canadian stocks, which is a lot considering that Canada makes up only 3% of the global equity market. And if you look at the typical Canadian’s entire portfolio — so, stocks plus cash, bonds, real estate, etc. — 90% of it tends to be tied to Canada. Which is very concentrated! Vanguard suggests that Canadians should hold 30% domestic stocks and 70% foreign stocks; having foreign bonds and cash ain’t a bad idea, either. And investing in foreign assets, like American ones, will require you to — and you can probably guess where this sentence is going — convert your loonies into greenbacks. —Claire Porter Robbins OTHER VERY GOOD READS 👔 Do Corporate Wellness Programs Even Do Anything? Evidence of their efficacy is inconclusive at best. | Canadian Business 🔎 How Antonietta Disappeared* Unravelling the mystery of a Toronto woman’s final years. | Toronto Star 🌩️ After a Disaster, How Much Is It Worth to Rebuild? Experts weigh the cost of reconstructing wrecked towns. | The Narwhal *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. POSTS OF WISDOM We’re not saying Keith Gill did or didn’t manipulate markets, as some people have speculated — just that a lot of pro traders sure seem to do something similar every day on TV. 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. 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