Why used-car owners are feeling flush August 14, 2023 Sign Up | View Online IN THIS ISSUE 8 min read 👶 Babies! 🚘 Beaters! 🇺🇸 Biden! “Sweetie, one day you’ll grow up and become a productive contributor to Canada’s GDP,” says this housewife, or so we assume. Read below about how Canada’s low fertility rate stands to affect our economic future. | Getty Images THE WEEK IN MARKETS The MIA rally? Still MIA In last week’s issue, we talked about what we called “the mystery of the missing rally.” This week? The rally is still MIA. Despite stronger-than-expected earnings, the S&P 500 ended south 0.6%, while the Nasdaq fell 2.3%. (The TSX, the outlier, finished the week up 1.25%.) Why didn’t strong earnings drive up stocks? Trader/writer Brent Donnelly theorized in a smart piece that the optimism that fueled the summer rally has cooled, and it’s become less clear when AI will deliver big profits; some investors are probably worried they overbought U.S. tech stocks. Altogether that and the uncertainty about how dead inflation really is (more on this below) means that it may take more than run-of-the-mill good news to juice markets in the near term. WHAT HAPPENED LAST WEEK IMPORTANT U.S. inflation stayed low. Fresh U.S. data last week showed that prices rose by 3.2% in July year-over-year, compared with June’s 3% YoY increase. That’s the first uptick in a year, but that’s still low, so all good for now! The concern is what comes next. There’s little consensus among economists and analysts about how stubborn inflation is going to be, or how long economy-crushing interest rates will have to stay high as a result. There’s some worry that the economy’s soft landing might resemble something out of “Dukes of Hazzard” if rates stay up. The average new car costs how much? $66,288! That’s a new record for Canada. Prices are up 21% from last year and 47% compared to 2019, according to data out last week, and folks’ monthly car payments now average nearly $800. You could rent an entire pied-à-terre in Saskatoon for that. Even more staggering: used-car prices are up nearly 110% (average cost: $39,645) from pre-pandemic levels. Why? The pandemic essentially halted car production, while people, flush with stimulus money, still very much wanted to buy new rides. For buyers, the encouraging news is that used-car prices have flattened a bit, so there’s a chance supply is beginning to meet demand. INTERESTING Biden puts Chinese semiconductors into a full nelson. In a bid to safeguard Western security interests, the U.S. president signed an order banning VCs and private-equity firms from investing in some Chinese AI, quantum-computing, and semiconductor companies. It remains to be seen whether other G7 countries, including Canada, will follow the U.S.’s lead. Investors aren’t waiting around for government orders. Foreign direct investment in China has already dropped 87% from last year, and China is the only major market in the world that’s down so far in 2023. The guy who runs Goldman Sachs, David Solomon, is a bit of a jerk. At least according to two detail-rich hit pieces about him published Friday, one by New York magazine and one by The New York Times. (Here are screenshots for non-subscribers.) The thing is, Wall Street will tolerate jerks, so long as they make everyone rich, and Solomon isn’t delivering, which is his biggest problem. The weight-loss wars get serious. Shares in the drugmakers behind Mounjaro (Eli Lilly) and Ozempic (Novo Nordisk) — readers pointed out that we mixed up the parent companies in our previous newsletter, thanks for keeping us honest! — hit record highs last week, thanks to strong sales and promising clinical trials. These types of trendy diabetes-turned-weight-loss drugs are expected to create a US$60 billion/year market, and whichever company dominates it could hinge on who develops a pill form of their drug first. (Mounjaro and Ozempic are both injectables.) On that front, Eli Lilly might be ahead. FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🧑‍💻 Zoom calls employees back to the office because the best place to work on making remote work work is work. Source 🇦🇺 Australian government hires consultant to consult about its other consultants, who probably should’ve consulted themselves before consulting for Australia. Source 📦 Brown is the new green: UPS jobs in demand now that U.S. drivers can make up to US$170K a year. Source 🧓 Didn’t you see the support hose on the doorknob? New home-sharing apps match students with seniors who have empty rooms. Source CRASH & BURN TO THE MOON 🩺 Elon Musk says he might need surgery before he can fight Zuckerberg. Wants that yellow streak down his back removed. Source 🍷 California winemaker ordered to remove bottles of wine fermenting in ocean. Will have to add notes of fish another way. Source 🐻 Hank the Tank, bear responsible for 21 home invasions, finally captured. In talks to be the new spokesbear for Ring. Source ✈️ Bear cub breaks free from cage in plane’s cargo hold in Dubai. Hank the Tank uninvolved but impressed. Source WHO CARES WHAT’S UP THIS WEEK More earnings. We get a picture of how much people are retail therapy-ing (Walmart), renovating (Home Depot), and road-tripping (Suncor). Canada inflation numbers are out (Tuesday). We’ll learn if we can still afford groceries or not. DON'T BE A TLDR HOG 🐷 Like TLDR? The first five million people to click this link can share it with a friend for free. (You can share it with enemies too but only if you’re ready for them to love you.) THE BIG IMPORTANT STORY MACRO Women Are Having Fewer Babies. Economists Are Anxious Over the past few months, there’s been a lot of chatter about a big, slow-moving trend with potentially profound consequences: declining fertility rates. The Economist recently claimed, rather ominously, that a “baby bust hangs over the future of the world economy.” That’s because the world’s 15 largest countries by GDP now all have fertility rates below the so-called replacement rate of 2.1 babies per woman, a number that keeps the population stable; consequently, the UN speculates that the global population will peak by 2086. Canadian women, for their part, are having only 1.45 children on average. So, is this really a problem? And if so, what are the potential implications? First, some context: Canada’s fertility rate has been falling since the Baby Boom, which isn’t surprising or bad. Women tend to have fewer children as they gain greater economic mobility and have more control over their reproductive decisions. Still, there’s no denying that… …Babies are good for the economy. That’s because little Dick and Jane grow up to become young workers whose zeal for innovation supercharges growth and productivity, especially in manufacturing. Also, young workers pay taxes that support older folks on government assistance. An aging population, in contrast, can result in a less dynamic economy and declining living standards. The classic examples are Japan and Italy, where wages have been basically flat over the past 30 years as fertility rates have fallen. These days, China tops economists’ concerns. Its fertility rate has collapsed from six to seven babies per woman in the ’60s to 1.18 children today. That’s a big deal, because a shrinking population could leave the global manufacturing dynamo short-staffed and result in higher labour costs and more expensive goods. What about Canada? Canadian women have indicated that they would like to have more children — two, preferably — but that financial pressures prevent them. To make having children a less financially ruinous proposition, Ottawa introduced the Canada Child Benefit, along with affordable daycare. But it’s hard to say how effective these new programs will be at boosting births. Germany’s fertility rate rose from 1.36 in 2007 to 1.46 today after it introduced robust child-support programs, while Singapore’s fell from 1.60 in 2000 to 1.05 after it took similar steps. Immigration offers a surer path to population growth. Which is partly why, from 2016 to 2021, Canada welcomed 1.3 million permanent immigrants, boosting the population at nearly twice the rate of other G7 nations. Last year, Ottawa went further, inviting a record 432,000 immigrants to settle here permanently, and it wants to let in even more folks, which is probably wise. A paper published this month found that Canada’s economic output could slide over the next decade if the population ages quickly. So, should you freak out? No. Some people argue that declining birth rates will actually benefit the world, both ecologically and in terms of living standards. So there’s that. More to the point, as with any huge macro trend, like climate change, it’s impossible to know how any one person will be affected. If you decide not to save for retirement for a month, that will almost certainly shape your future more than the national fertility rate. Then there’s the fact that Canada is already a low-fertility country and has been for a while. The big question is how other countries’ low birth rates will affect us. Will the cost of goods go up if factories struggle to hire? Will there be fewer young tech whizzes and less life-improving innovation? No one knows! Which is why this is an interesting and perplexing issue that’s worth following. —Claire Porter Robbins OTHER VERY GOOD READS 🏚️ There Is No Housing Crisis Supply alone won’t fix a problem some people don’t want to fix | The Walrus ⏳ Jon Hamm Would Like to Buy a Time Machine Revisit a classic story about the Mad Man | Wealthsimple Magazine 🌐 The Secret Life of the Cables That Run the Internet It is just a series of tubes! | CNET THE WISDOM OF TWITTER Millennials kill yet another industry... 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), Nikki Holmes (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (senior Lifecycle specialist), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). 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