Plus: yield farming, rate hikes, and a global cooking-oil shortage May 02, 2022 Made in Canada IN THIS ISSUE 🎢 Riding the market rollercoaster 👶🏽 A crypto app for kids 💀 What a dead, cigar-chomping economist taught us about inflation WHAT HAPPENED LAST WEEK Bill Hwang, head of Archegos Capital, is charged with racketeering conspiracy and securities fraud. IMPORTANT Stocks are having a bad time. All the major indices finished the week down, bringing the S&P 500 -13% YTD, the Nasdaq -22%, and the TSX -2% (better but still a loss). What’s curious is that earnings have been surprisingly strong; 80% of S&P 500 companies have beaten Q1 earnings expectations so far. And yet, even companies raking in cash (like Microsoft and Apple) are trading down, which speaks to how bearish investors are feeling, thanks in part to interest-rate hikes. (More below.) Turns out, there’s a global cooking-oil shortage. And it’s about to get worse. Canada produces something like 60% of the world’s supply of canola oil, but production is expected to drop by 7% this year because of drought. Adding to the shortage, Indonesia, the world’s largest palm-oil producer, announced a ban on exports, and Ukraine, the world’s top producer of sunflower oil... well, you know what’s going on there. INTERESTING Sam Bankman-Fried, CEO of crypto exchange FTX, said the quiet part out loud on the “Odd Lots” podcast, describing crypto “yield farming” as a box you put coins in that grows more valuable to early depositors only by attracting enthusiastic later depositors. That sure sounded Ponzi-shaped to FinTwit. I suppose you could lose US$20 billion in two days legitimately? If that’s what indeed happened to hedge-fund guy Bill Hwang when his Archegos Capital hugely and quickly collapsed last year, he’ll have to convince a federal court in Manhattan. Prosecutors charged him with racketeering conspiracy and securities fraud last week. Should grade-school kids get into NFTs? One would assume the answers would range from “no” to “absolutely not.” And yet Zigazoo, a new social-media app backed by celebrity investors including Jimmy Kimmel and Serena Williams, boldly asks: what if yes? The app “encourages users” — aka small children — “to amass followers, rack up likes and generally become Zigazoo-famous,” writes a low-key horrified Amanda Hess in the NYT. THE FOMO INDEX IMPORTANT 🤦🏽‍♀️ Facebook isn't sure what it does with your data or where it even goes, says leaked internal doc. Source 😡 Toronto Star reveals salad chain Freshii pays its Central America-based “virtual cashiers” $3.75/hour. Source ⚠️ Canada considers stiffer fines and funding for tech security to help prevent industrial espionage. Source 💪 Mattea Roach, 23, is the highest-earning Canadian Jeopardy! champion in history. Source CRASH & BURN 🤑 TO THE MOON 🧙‍♂️ Twelve gay seconds in the new Doctor Strange movie is too strange for Saudi Arabia, who wants it cut. Source 📉 The ARK Innovation Fund down about 60% for the year? YOLO, says Cathie Wood. Source 🚗 Ford vies for EV supremacy as the first all-electric F-150 rolls off the assembly line. Source 🏆 TikTok is first non-Meta app to rack up 3.5 billion all-time downloads. Source WHO CARES WHAT’S UP THIS WEEK TUESDAY May 3 The U.S. Federal Reserve, in the week’s most consequential gathering of rich old guys, will meet Tuesday and Wednesday and likely announce a half-point interest-rate hike to help wrestle down inflation. The central bank has been a bit hesitant to take big swings to bring down prices, but comments by Fed chair Jerome Powell suggest that’s changing — and quick. We explain why below. THURSDAY May 5 Major Canadian oil-and-gas companies are expected to release quarterly earnings, starting with Canadian Natural Resources and Pembina on Thursday, and followed by Enbridge on Friday. Strong quarterly results from TC Energy and Cenovus late last week gave investors a preview of what to expect — some major cash flows thanks to soaring fuel prices resulting, in part, from the war in Ukraine. THE BIG IMPORTANT STORY Inflation What a dead economist has to do with rate hikes Paul Volcker had a tough job. In 1979, when the six-foot-seven, cigar-chomping economist took the reins of the U.S. central bank, inflation was more than 11% in the States and nearly 13% in Canada. Yikes! Volcker responded with a bold policy: jack up interest rates and keep jacking them up until inflation falls. BoC governor Gerald Bouey followed Volcker’s lead, raising rates above the 20% mark in ’81. In doing so, the central banks made money way more expensive to borrow, which slowed spending and, in time, lowered inflation. So why are we telling you this now? Because, well, we’re in a not-dissimilar situation, inflation-wise. The U.S. inflation rate sits at 8.5%; Canada at 6.7%. And at this week’s meeting, Chair Jay “Mr. Money Printer Go Brrr” Powell, will almost certainly raise rates a bunch to karate chop inflation; Powell recently name-checked Volcker as justification for doing so. And that may be why the market’s been so brutal lately: as central banks raised rates in the ‘80s, they triggered a recession, driving unemployment to 11% in ‘82. So investors want inflation to fall, but they also want to avoid a recession, which Powell himself admitted will be a “challenging task”. Which, to editorialize a bit, is an understatement. Because: 1) China’s lockdowns are causing more supply-chain problems and 2) “inflation psychology” might be taking hold, meaning inflation could get increasingly tricky to control. What’s next? Well, if inflation doesn’t fall posthaste, central bankers may be forced to make Volcker-like rate hikes. But! That would almost certainly be the right call; Turkey’s economic crisis is proving what can happen if inflation runs wild. The trade-off is that some real economic pain might lie ahead, for North America and the rest of the world. Buckle up, but also don’t panic — panicking is almost always a terrible idea. — J.R. Sullivan TOTALLY NONESSENTAL GOOD READS ☀️ Which Characters from The O.C. Would Be Into Crypto? Besides Seth Cohen, obvs | Vulture 🪖 What Impact Did Canada’s Military Have on Ukrainian Resistance? It’s more than you think | The Walrus ⛽ Netflix’s Big Wake-Up Call: The Power Clash Behind the Crash Dish on the streaming giant’s crisis | Hollywood Reporter THE WISDOM OF TWITTER Two words: toilet wine. THOUGHTS ON TODAY’S ISSUE? 🤑 Love it 🙂 Good 🙁 So so This week’s newsletter contributors: Jared Lindzon (news writer), Devin Gordon (writer), Sarah Rieger (news writer), Rusty Foster (editor), J.R. Sullivan (senior editor), and Kat Angus (managing editor). Full disclosure: contributors to this newsletter own stock in Amazon and Microsoft. 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 TLDR is offered by Wealthsimple Media Inc. and is for informational purposes only. 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