Plus, will Canada up its military spending? March 17, 2025 Sign Up | View online IN THIS ISSUE 8 min read 🦫 Bye, Bay ✈️ Fast flights ⚔️ Defence drama The Hudson's Bay Company, which predates Canada as a nation, may be going out of business. We explain what went wrong below. | Getty Images THE WEEK IN MARKETS Hedge funds head for the exits One trip on a roller coaster can be fun, but what if you can’t get off? After last week’s wild ride for global markets — another early-week plunge, another midweek rally — it has now been a solid month of motion sickness for traders. By now, we think we know the culprits: tariff confusion, AI skepticism, the Trump 2.0 carnival. But there may be one more big factor: “smart money.” Specifically hedge funds. Over the past two weeks, they’ve done an unprecedented amount of de-risking (aka selling stuff, usually to fix a mistake). Goldman Sachs’s VIP Hedge Fund Index, which tracks top hedge funds’ favourite stocks, is down 8% more than the S&P 500 so far this year. It seems a lot of big funds made the same bad bets on Big Tech, and now they’re all unwinding their positions at once “like a herd of elephants trying to squeeze through the emergency exit,” as one investor put it. The sell-off has been painful, but, on the bright side, it’s nice to know the so-called smart money gets it wrong sometimes too. THE WEEK IN ONE NUMBER 16 Number of days it took for the S&P 500 to drop from a record high into a correction (which is typically defined as a decline of at least 10%). The reversal was the fifth fastest correction in S&P history. WHAT HAPPENED LAST WEEK IMPORTANT Bloomberg’s got the receipts on Trump’s tariffs. For those of us who’ve long since lost track of Trump’s daily threats, retreats, and actual policy decisions, Bloomberg has come to the rescue. Here’s the upshot: Trump has slapped 25% tariffs on steel and aluminum, 25% on Canadian goods not included under CUSMA, and 10% on energy and potash, but his auto tariffs are on hold (for now). Canada has responded with $60 billion worth of retaliatory tariffs on U.S. goods ranging from computers to cast-iron pans. Wait — aren’t tariffs bad for an economy? Experts agree that tariffs typically backfire, so why is Canada implementing them too? Is it just national pride, or is there an actual strategy here? Economist Peter Spiro laid out the logic in a Toronto Star op-ed: that by making U.S. products more expensive, Canadian goods get a competitive edge, and the boost in sales generates tax revenue that can be used to stimulate our economy (like the $6 billion in relief Ottawa just announced for tariff-impacted businesses). Sure, if this trade war drags on, our GDP could suffer permanent damage. But sometimes drawing a line for its own sake feels good. INTERESTING The Bay might not survive to see its 356th birthday. It turns out that a company founded in the fur-trader era has adapted poorly to e-commerce. Hudson’s Bay Company’s sales plunged from $14.5 billion to $5.5 billion between 2016 and 2019. Then, predictably, a bargain-hunting U.S. private-equity firm circled, bought it up, and then turned out to be more interested in the Bay’s valuable real estate than the stores built on top of it. Now, HBC can’t pay its debts and must restructure to avoid bankruptcy. In other words, HBC once again foolishly sold off primo real estate — the last time it did that was over 150 years ago, and that land eventually became Canada. Supersonic flight’s comeback clears a major barrier. We’ve gotten a little obsessed with Boom, an aviation startup with the onomatopoeic name, which recently broke the sound barrier during a test flight and plans to resurrect supersonic commercial flight by 2029. Can it pull it off? The Concorde’s final trip was in 2003 — a flight from New York to London that took less than four hours. But supersonic travel vanished because it’s super-duper expensive (flying at Mach 1 speed burns far more fuel than standard air travel). Boom will also need to develop a jet without going broke. According to Construction Physics, the ubiquitous Boeing 777 wound up costing US$30 billion to develop (adjusted for inflation), far surpassing the US$5 billion expected expense. And the 777 definitely wasn’t trying to fly faster than the speed of sound. —Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🤖 Exhaustive study finds AI search tools are about 40% accurate. Quick Google search reveals it’s actually 100%. Source 🛣️ Amazon rainforest cut back to build a road for a climate summit. Too bad everyone will be flying in on private jets. Source 🦋 Eastern monarch butterfly population has doubled in the past year. Your move, western monarch butterflies. Source 🚗 Volkswagen reintroducing physical controls for important in-cabin functions. Just when you finally learned the password for the windshield wipers! Source CRASH & BURN TO THE MOON 🍪 Lawsuit alleges Girl Scout cookies contain heavy metals. Trump rethinking this whole tariff thing now that it might affect Thin Mints. Source 🎶 Regina Folk Festival shutting down over financial struggles. Bob Dylan offers to go electric there too if it’ll help. Source 🥖 Tim Hortons is now serving garlic bread, just like your Canadian grandma used to defrost. Source 👅 KISS’ Gene Simmons is charging $17K to be his assistant for a day. More if you want to wash his codpiece. Source WHO CARES THE BIG IMPORTANT STORY DEFENCE Is Canada about to spend big on its military? Maybe! We’ve covered tariffs a lot in this space in recent weeks, so today we’re digging into another new American policy that stands to affect the world economy: scaled-back U.S. military aid. Putting the ethical and political issues aside (we’re just a finance newsletter, after all), this high-stakes game of “not it” has already had huge effects on at least one foreign market. Earlier this month, after the U.S. signalled it might spend less money to safeguard Europe as it shifts focus to China, Germany announced that it was upping its defence budget perhaps by as much as a third, which sent the DAX (an index of 40 big German stocks) soaring. With other EU countries signalling similar moves, is it safe to assume Canada, which has historically spent relatively little on defence, will follow suit? A solid maybe! Our newly minted Prime Minister Mark Carney has made national defence a priority. We asked David Perry, a defence expert and the president of the Canadian Global Affairs Institute, to break down just how much Canada might fork out and why, and how these potential changes could shake up the economy and your portfolio. What has made Canada secure for so long, and why might that be changing? “Being bordered by the U.S. and surrounded by three oceans has provided us with a lot of safety,” Perry says. But that natural fortress is crumbling, especially in the Arctic, where global warming is melting the ice that has long kept away other nations, like Russia. (Canada’s new Arctic strategy mentions the word “defence” 64 times.) Add to the mix Trump’s isolationism and threats to Canadian sovereignty, and the need for a larger military becomes even clearer. NATO member countries are supposed to devote 2% of their GDP to defence annually, which Canada hasn’t done since the 1980s. (We’re at 1.3% now.) Carney has pledged to hit the NATO target by 2030, two years ahead of Justin Trudeau’s 2032 timeline. Is a stronger military good for the economy? Yes, says Perry, who estimates that every dollar spent on Canadian defence generates around $2 in economic activity. That’s because the money doesn’t just pay for military equipment; it goes to companies and people, who then spend it on other things, creating a cycle of economic growth. Government data backs this up, showing that current defence spending either directly or indirectly contributes over $9.6 billion to GDP and creates 81,200 jobs. So more defence spending could boost both. Where will the increased spending go? So many places! A recent assessment found that nearly half of Canada’s military equipment — from submarines to jet fighters — was “unavailable and unserviceable.” Yikes. “The digital infrastructure of the military is [also] antiquated,” Perry adds. Case in point: the Canadian military didn’t even fully adopt the cutting-edge tech called Microsoft 365 until just a few years ago. The federal government has set aside more than $73 billion over the next 20 years to get Canada’s military up to speed. Not all of that money will stay in Canada, but recent stats show that 55% of total defence spending went to domestic suppliers, including aerospace manufacturing companies in Quebec and shipbuilders in Nova Scotia. Do we have the money for this? Ah, the $81.9 billion question. That’s how much government watchdog groups estimate Canada will actually need to increase funding by over the next five years to reach just 1.76% of GDP; that fortune is nearly double what we now spend on defence. One potential blocker is that Canada already has a lot of debt, which we’re trying to reduce, not tack another 15%+ onto every year. Plus there’s that brewing trade-war thing threatening to complicate matters: “Tariffs from the U.S. will blow many economic assumptions out of the water,” Perry says. “We don’t know how big the government budget will be in the future.” What might all this spending mean for the TSX? Here’s one clue: European defence stocks have been among the biggest winners so far this year, beating out tech and AI darlings, thanks to all the government cash flowing into defence. (Share prices of Germany’s Rheinmetall and Italy’s Leonardo have soared by 134% and 82%, respectively, this year.) Canadian defence contractors and suppliers could be next in line. After all, where the money flows, markets tend to follow. —Owen Guo OTHER VERY GOOD READS 🏦 Who Is Mark Carney? From the archives, a profile of the then-Bank of Canada governor. | The Globe and Mail 🦵 A Knee Replacement at the Mall Private health care creeps into Canada. | The Walrus 🦫 The Dam, the Myth, the Legend The beaver celebrates 50 years as Canada’s national symbol. | Canadian Geographic THE WISDOM OF SOCIAL We’re ashamed to admit that we cannot, in fact, live off the grid. 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), Dan Xin Huang (news editor), (Ambrose Martos (fact checker), Ciara Rickard (copy editor), Clare Douglas (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (lifecycle marketing manager), Eva Grace Clement Cruz (editorial producer), Matthew Karasz (markets editor), Jared Sullivan (senior editor), Peter Martin (senior editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 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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