Plus: Under-discussed effects of the housing crisis. August 12, 2024 Sign Up | View online IN THIS ISSUE 8 min read 🤯 Market madness 🛍️ Shopify success 🏚️ Housing headache The nihilists in The Big Lebowski don’t believe in anything, hence they just sort of lounge around. Housing nihilists, on the other hand, don’t believe in home ownership. We explain below. | Polygram Filmed Entertainment THE WEEK IN MARKETS The 2024 Panic: A Special Report Most weeks in this space, we recap the previous seven days in markets in one tidy paragraph. But because so much happened last week, we figured that wasn’t going to cut it. Let’s get to it: What happened? Three weeks ago, U.S. stocks began to retreat, mostly because investors worried that the tech sector had gotten overvalued. The fall wasn’t nothing, but it also wasn’t major: from July 15 to July 31, the S&P 500 gave up about 2.5%, while the tech-heavy Nasdaq retreated by about 7%. Then on Monday, August 5 — boom — U.S. stocks suffered their worst day in two years! The S&P 500 fell by 3%. The Nasdaq sank by 3.5%. (The TSX, closed for Civic Holiday on Monday, fell by 1% on Tuesday.) The VIX, the so-called fear index which measures investor anxiety, hit levels not seen since the pandemic in March 2020. Yikes. But then markets bounced back. On Thursday, the S&P notched its biggest single-day jump since November 2022, after U.S. weekly jobless claims fell more than expected — a sign that the end wasn’t, in fact, nighish. On Friday, stocks climbed further, helping the S&P 500 finish about where it started and leaving the Nasdaq down only about 0.5% on the week. Talk about whiplash. What the heck caused the downturn? A few factors likely contributed: [1] Some fresh U.S. jobs data showed an uptick in unemployment. Which hinted that the seemingly unstoppable U.S. economy might be, well, stoppable and that a recession might be en route. [2] Japan’s central bank hiked interest rates. And it almost never does that. Japanese stocks, in response, rocketed down 12.4% on Monday morning, which spooked investors worldwide. [3] Something called the Japanese yen “carry trade” blew up. Basically, investors borrowed a lot of cheap, low-interest yen to buy assets, like stocks or higher-yielding U.S. treasuries. But then they suddenly had to sell their assets to cover their loans when Japan’s central bank raised rates. [4] Escalating tensions in the Middle East probably didn’t help anything. Bloomberg Opinion’s Matt Levine summed up the whole situation well: for months and months, markets were calm, and investors bet on that calmness continuing. Their investments did well, so they borrowed cash to buy even more assets. Then risks popped up, and many investors unwound their trades. But then stocks recovered as other investors rushed to buy the dip. So who was right? The panickers or the dip buyers? Now, as ever, it’s hard to know in real time who made the right call! Drawdowns like last week’s are a regular feature of investing; stocks have fallen by more than 5% at least once a year for the past 40 years. Sometimes slides lead to big, painful downturns. Other times they don’t. We’ll be keeping an eye on whether consumer spending and corporate profits start to weaken to get a sense of where markets might be headed next. Until then, there’s no telling what lies ahead. So what should you do about all this uncertainty? Diversifying your portfolio tends to blunt losses during downturns. So consider spreading out your investments if your portfolio is concentrated. Beyond that, you’d probably be wise to sit tight if you’ve got a long investment horizon. Boring but true! As we mentioned last week, over the past eight decades stocks have risen by 149% during bull markets and fallen only 32% during bear markets. And studies show that individual investors who panic-sell during downturns tend to lose more money than ones who stay invested, because they tend to delay reinvesting and miss the market recovery. In other words, unless you need your money immediately, you should likely just ignore market turmoil, invest diligently, and wait out the downturn, however long that takes. WHAT ALSO HAPPENED LAST WEEK Ottawa wants to stop “abuse and misuse” of the temporary foreign worker program. Federal officials are irked that companies are hiring a growing number of low-wage temporary foreign workers (TFWs) instead of locals, especially since the unemployment rate sits at 6.4%. The government might go as far as to reject all low-wage TFW applications. Shopify defies the AI doubters. Shares in the e-commerce giant rose by nearly 20% last Wednesday after it reported that its AI-enabled tools helped to attract more customers and make more money. —Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🚆 Air Canada bids for high-speed rail project. Confident they can slow it down. Source 🐦 Elon Musk sues advertisers for boycotting X. Might also sue himself for buying Twitter. Source 🧑‍⚖️ U.S. judge rules Google is illegally monopolizing online searches. If you don’t know what that means, Google it. Source 🐭 Disney+ turns a profit for the first time. Looks like their “Forgot You Still Subscribe to That” strategy is working. Source CRASH & BURN TO THE MOON 🍊 Make Conspiracy Theories Canadian Again: Trump suggests that Justin Trudeau’s real father is Fidel Castro. Source 🐕 Dolce & Gabbana launches perfume for dogs with notes of musk and sandalwood even though notes of dog butt tested better. Source 💎 Mercury might have a nine-mile-thick layer of diamonds under its surface. Mars says its lab-grown ones are just as good. Source ⛳ Live groundhog that crawled into stuffed-animal claw machine has been removed. That means six more weeks of mini golf. Source WHO CARES THIS WEEK ON THE PODCAST THE BIG IMPORTANT STORY Q&A How a Generation of Canadians Became “Housing Nihilists” Here’s something you don’t need this newsletter to tell you: it’s a very rough time to try to buy a house in Canada, especially if you don’t already own one. The journalist Michelle Cyca knows this perhaps better than anybody. Last year, she published a much-talked-about story in Maclean’s titled “The End of Home Ownership.” The piece is full of wild facts — like how the benchmark property price across Canada more than doubled between 2015 and 2022, peaking at $861,000. We recently spoke with Cyca, who is a senior editor at The Narwhal, to discuss the overlooked and under-discussed effects the housing crisis is having on our lives. You can listen to the full Q&A on the TLDR podcast, but here’s an edited excerpt: One thing that’s so satisfying about your Maclean’s story is that you took a feeling many people have — that housing is impossibly out of reach — and you examined the data and found that, no, it’s actually not just in your head; things are out of control. It’s true. In 1976, my mom, at age 26, bought a house in Vancouver for $56,000. That’s about $279,000 in 2022 dollars. But the value of that house is now over $2 million. So the home went from costing about three times Vancouver’s median annual household income to now costing, like, 24 times. You use the phrase “housing nihilism” in your story. What do you mean by that? Housing nihilism is when you no longer believe you’ll ever have stable housing; surveys show that more than half of Canadians in their 20s to 40s have either given up hope of owning a home or strongly doubt they ever will own. And they’re angry, because home ownership increasingly has nothing to do with how hard you’ve worked. It’s more about if you were born into wealth or not. So does housing nihilism affect people’s financial lives? It has created this YOLO mentality — like, I’m never going to buy a house, so who cares if I spend $2,000 on a trip to Mexico? People have resigned themselves to renting forever. But that’s a precarious way to live, and it can make you feel hopeless. I also write about how the number of children in Vancouver and Toronto has declined because families can’t afford to live there and how more Canadians are having only one child. In time, both of these things could add stress to the labour market, especially as our population ages. There are other economic consequences too, I assume. Yeah. Another one is that we have basically walled off our cities from outsiders. And that’s a problem because young people from, say, Winnipeg will probably never have access to certain high-paying jobs that you can often only find in places like Toronto because they simply can’t afford to move there. That will compound economic disparity. And high real-estate prices in cities are affecting the housing market everywhere, right? That’s true. Young people in particular have been moving out to snap up affordable housing. But relocating comes with its own problems. I talked with a couple who got priced out of Vancouver and moved to Nova Scotia. They had to rebuild their careers and find a new child-care arrangement. Which is hard enough. But Nova Scotia has been inundated with newcomers. As a result, in many small communities, there are shortages of daycares, schools, and doctors. And Nova Scotia isn’t even cheap anymore, thanks to the influx of people. The couple’s story is emblematic of how the strategy of moving somewhere more affordable falls apart when everybody else does the same thing. What’s all this going to look like in 10 years? We’re seeing federal investments in housing; and provinces, municipalities, and First Nations are doing different things. But the housing crisis will continue for a long time. As jobs stay remote, a lot of people will continue moving from big cities. I think the few cities in Canada that are still affordable won’t stay that way long. Read more: We Can Fix the Housing Crisis! (Maybe! If We Follow These Steps!) OTHER VERY GOOD READS 📖 An Intoxicating 500-Year-Old Mystery* The Voynich Manuscript has long baffled scholars — and attracted cranks. | The Atlantic 🏡 Canada’s Most Affordable Places to Live Ten cities where a house still costs less than $700K. | Macleans ⛅ The World Is on Fire. Yet Life Is Getting Better? How human existence is actually improving. | Wealthsimple Magazine *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. POSTS OF WISDOM Don’t be a four-monitor guy… 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 (lifecycle marketing manager), 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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