Will big tech keep the ride going? July 24, 2023 Sign Up | View online IN THIS ISSUE 8 min read ⛏️ Gold rush 📦 Manufacturing’s flush 🌾 Prairie’s going to dust Most of the folks who got rich from the California Gold Rush were not poor saps like this guy but merchants hocking pickaxes and shovels. Something not dissimilar is happening in artificial intelligence. Read more below. | Getty Images THE WEEK IN MARKETS The Bull Market Faces Its Biggest Test A big question has been hanging over pro investors this summer: will corporate earnings keep the bull market going, or disappoint and break up the party? There’s some reason for caution: it can be hard to make money when interest rates are at a painful 5% and growth is slowing. So far, though, companies have mostly posted very strong quarterly earnings (with some noted exceptions; see below). The S&P 500 rose by 1% last week in response, while the TSX shot up by 2%. This week will be another big test: most of the U.S. tech giants will report, as will some big consumer brands (McDonald’s, Ford, etc.) and Canada’s largest energy and railway firms. Adding to the drama, the U.S. Fed will announce whether it’s raising interest rates again. Tune in next week to see whether the bulls are still feeling, well, bullish. THE WEEK IN ONE NUMBER $4,000 That’s the amount Montreal TikTok phenom Fedha Sinon, aka PinkyDoll, told the New York Times she can earn per stream. PinkyDoll, who pretends to be a video-game character for cash, has been all over the internet saying baffling things like “you got me feeling like a cowgirl” and “ice cream, so good.” WHAT HAPPENED LAST WEEK IMPORTANT Inflation has (mostly) been defeated! StatsCan reported that Canada’s headline inflation rate in June fell to 2.8%, the lowest in more than two years. Inflation has been steadily falling for months, so this wasn’t a huge shock. But this data is noteworthy because, per Bloomberg, pro investors now suspect that U.S. and Canadian central bankers will hike interest rates only once more this year, since inflation is within spitting distance of their 2% target rate. That’ll be a welcome reprieve for, well, everyone. Little douse on the prairie. OK, we told you exactly one blurb up that inflation is cooling off. The thing is, food (+9% over last year) is not following that trend, and severe drought could drive up food prices further. Three quarters of Canada’s farmland is now abnormally dry, while more than five million acres in east-central Alberta have been declared agricultural disaster areas. INTERESTING The AI gold rush loses some shine. So you know how people mostly got rich during the California Gold Rush selling jeans and pickaxes to prospectors, not digging up nuggets? TSMC, which makes microchips, and ASML, which makes chip-making machines, are in a similar enviable position with AI. The trouble is that the AI goldrush might be running headlong into a global economic slowdown. Last week, stock in both TSMC and ASML fell after the companies expressed concern about slowing demand. The AI prospectors — Microsoft, Apple, et al. — had a fine week, stock-price-wise, but we’ll see if that changes after they report earnings this week and next. Tesla earnings go up, its stock price goes … down? Last week, Musk Motor Co. reported an all-time high for quarterly revenue, at US$24.93 billion. Which would have been good news had Tesla not discounted its cars to stay competitive and boost growth. As a result, Tesla is making only 9.6 cents in profit for every dollar in sales. That’s not great for investors, because Tesla’s US$935 billion valuation only makes sense if it can triple its revenue and grow its margins. Musk’s bold strategy is making investors a little anxious. $TSLA fell 13% Friday. More Musk news: He’s apparently rebranding Twitter as X and scrapping the bird logo, according to reports out Sunday. Some unsolicited advice: if a self-proclaimed “Crypto King” scams you out of $740K, call a lawyer, not your buddy to help you kidnap and assault the guy and force him to film an apology video. Last week, an Ontario man was charged with doing just that to a 24-year-old fraudster who is accused of stealing $40 million from investors. FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 💸 GTA rents rising faster than realtors can come up with names like “micro condo” to make it sound less awful. Source 🧵 So is it dead yet? “Twitter killer” Threads is a frayed knot as usage drops by half in first week. Source 🤝 Olivia Chow & Doug Ford team up to demand help for refugees in shocking cooperation/concern combo rarely seen in politics. Source 🌮 Taco Bell succeeds in wrestling phrase “Taco Tuesday” away from rival chain. “Still wide open,” says Thursday. Source CRASH & BURN TO THE MOON 🚘 Two Americans drove 9 hours to Canada to load up on ketchup chips. (Don’t tell them about the free health care.) Source 🚨 Keep your dope smoke away from our tax dodgers! Gigi Hadid arrested for bringing weed to the Cayman Islands. Source 🔎 Police investigate new lead in Tupac murder case, even though his hologram hasn’t been fully cleared. Source 🐕 Nearly 500 Golden Retrievers gather In Scotland for cute photo. Less-cute gathering of vacuum cleaners and lint rollers to follow. Source WHO CARES WHAT’S UP THIS WEEK Tech’s big earnings week (beginning Tuesday). We’ll hear from four-sevenths of the Magnificent Seven: Microsoft, Alphabet, Amazon, and Meta. Canada faces Ireland at the FIFA Women’s World Cup (Wednesday). Christine Sinclair missed her shot to be the first player in history to score at six World Cups on Friday, but we bet it won’t take long for her to add to her (ridiculously impressive) tally of 190 international goals. 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 INDUSTRY There’s a North American Factory Boom. Is Canada Missing Out? We write about AI and EVs and other fun two-letter things a lot in this newsletter, but one of the year’s biggest business stories might seem a lot drier on the surface: reshoring. What’s that mean? Basically countries and companies, like Apple, are trying to move critical manufacturing industries back from overseas, and, in the process, they’re reshaping the global economy by shifting their supply chains. Which is a big deal for a country like Canada and for workers like you and me. What’s driving reshoring? Remember all those pandemic shipping SNAFUs? Well, those hiccups made companies realize the risks inherent in having far-flung factories handle almost all their production needs. That kicked off a wave of reshoring, a trend that picked up momentum when China, the world’s manufacturing dynamo, decided to stop being so buddy-buddy with the West and began bullying foreign companies. Apple and Nvidia were, and remain, particularly anxious about their supply chains, which is why they urged their go-to chipmaker, TSMC, which is based in Taiwan, to make more stuff in North America. Here’s how it’s going so far: U.S.: Last summer, the U.S. began offering oversized subsidies and tax breaks to companies to build domestic semiconductor and EV factories. It’s hoping to gain a strategic advantage in both areas, for the economic benefits and to avoid being beholden to other countries (i.e., China). In less than a year, factory construction more than doubled (!), jumping to a 60-year high of US$166 billion as of May. (Many of these new factories aren’t operating yet, but the number of manufacturing jobs has already begun to climb.) Mexico: Walid Hejazi, an expert on economic policy at the University of Toronto, explained to us that Mexico might be reshoring’s biggest beneficiary. Why? Two reasons: labour costs are 20%–35% lower than in the U.S., and U.S. tariffs on Mexican imports are low. Which explains why Tesla and even some Chinese companies are building factories there. Direct foreign investment in Mexico hit US$18.6 billion in the first quarter of 2023 — usually it’s about US$17 billion annually on average. No surprise, Mexico recently surpassed China as America’s top trading partner. (Canada is a close third). Canada: Hejazi told us, “This phenomenon, reshoring, isn’t really happening in Canada.” To be sure, factory building is expected to grow nearly 13% this year, to $27 billion, and large investments in EV-battery plants should lift that number higher in the coming years. But Ottawa has basically signalled that it plans to sit out the factory boom. And, according to Hejazi, this is not a terrible idea, in part because Canada would likely struggle to compete with the U.S.’s subsidies anyway. What does all this mean for Canada? Reshoring is important. But so is friendshoring — i.e., moving factories to a closely allied country. And that’s where Canada is in a fortunate position. Hejazi explained that, since our pals in the U.S. and Mexico are ramping up production, the pressure for us to reshore is reduced. That allows Canada to focus on developing a few key manufacturing industries, like EV batteries, while devoting the rest of its efforts to inventing new stuff. Because here’s the O. Henry twist to the story: as beneficial as manufacturing is, Canada probably needs tech and knowledge industries even more. Canada ranks at the bottom among 29 developed nations in projected long-term economic growth, and, according to StatCan, innovation jobs will likely be key to reversing that trend. To make that happen, says Hejazi, we need to adopt more policies — to welcome even more tech workers, say — that will attract foreign investment and bolster homegrown startups. “We need to capture the jobs of the future,” Hejazi added. —Sarah Rieger OTHER VERY GOOD READS 👾 How the Star of The O.C. Became a Crypto Expert* And why the FBI turned to Ben McKenzie for help | Rolling Stone 🇭🇹 Haiti Held Hostage* Can the embattled island nation save itself? | The New Yorker 📈 Why Do We Think Stock Markets Will Go Up Over Time, Anyway? Why smart risks usually pay off in the long run. | Wealthsimple Magazine *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER We’re sorry if reading TLDR can feel like this sometimes… 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), 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 Microsoft, Alphabet, and Amazon. 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. 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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