Plus: Why they’re wasting so much milk in Quebec July 11, 2022 Made in Canada IN THIS ISSUE 🇬🇧 The U.K.’s great resignation 💳 Buy now, pay maybe 📈 Another rate hike coming? Estimated read time: 6 minutes WHAT HAPPENED LAST WEEK Bill Murray, the new king of NFTs? | Ernesto S. Ruscio/Getty Images for RFF The week in markets 🪩 🚘 🧗 🏋🏿 🌾 🕳️ Who doesn’t love a relief rally? The big news was in assets that are speculative assets like high growth/unprofitable companies and crypto: ARKK, Ethereum, and Bitcoin were up more than 11%. Famously unprofitable companies like Shopify, Uber, and Doordash were up significantly this week — but they’ve still got a ways to climb before they approach anything near 2021 values. The broader market was up, but less: 2% for the S&P and 1% for TSX. Even bond yields jumped, thanks mostly to surprisingly strong employment numbers. The one weak spot? After a long run, both commodities and commodity producers fell in a hole. IMPORTANT Gas prices are falling. Filling your tank is already 10% cheaper than it was last month. It usually takes a little time for savings to trickle down from the oil market to gas stations, so with global crude oil prices continuing to fall (U.S. oil dropped below $100 per barrel for the first time since May), that should mean even lower prices are on the way. Investors expect inflation to fall too. Bond market pricing suggests investors expect inflation to drop back into the 2-3% range within the next two years. It’s not a slam dunk — they’ve certainly been wrong before — but there are some good signs: central banks have taken big steps to fight rising prices, and we’re already seeing things like freight rates and steel and copper prices go down, while retail inventories have been piling up. Unemployment numbers? Also somehow falling. Although some sectors cut jobs, overall joblessness in Canada fell to an all-time low of 4.9%, while the U.S. stayed surprisingly strong at 3.6%. If people weren’t already confident that there are more rate hikes to come, this news nearly guarantees it. INTERESTING The buy-now-pay-later (BNPL) industry is in big trouble. For a while, companies like Klarna and Affirm were booming, and it was good for everyone. Consumers got an easier and less expensive alternative to credit cards, and stores got a way to increase revenue. But the chance of a recession has been enough to bring Klarna’s valuation down from $46.5 billion USD to $6.5 billion, as investors worry that borrowers won’t actually be able to pay later, leaving companies on the hook for billions. GameStop is back in the news. The meme-stock poster child’s stock jumped 15% after it announced a split, then fell nearly 7% after the CFO was fired and employees were told job cuts were coming. Even with former chewy.com founder Ryan Cohen running things, the shift away from brick and mortar has not been easy — or focused. But it’s still not as wild as the reinvention that’s being tried at Radio Shack (NSFW!). THE FOMO INDEX IMPORTANT 💸 Some U.S. states give out inflation-relief cheques, which hopefully cover inflation caused by inflation-relief cheques. Source 🌐 Telco giant Rogers has massive outage. Kids, this is what the '90s were like. Source 🏡 Bank of England considers 50-year mortgages. Humanity flattered anyone thinks it’ll still be here. Source ✈️ Ottawa finally sorts its passport crunch so people can camp out for real instead of on passport office sidewalks. Source CRASH & BURN TO THE MOON 🏚️ Toronto city-planning department can’t recruit because even planners can’t afford to live there. Source 🥛 Two million litres of milk dumped after Quebec dairy plant strike. Locals demand cookies. Source 🇬🇧 U.K. Prime Minister Boris Johnson resigns, thanks England for chance to break so much stuff in just three years. Source 👶 Elon Musk quietly fathered twins with an employee last year. Mars isn’t going to populate itself! Source WHO CARES TLDR is better with friends! 👯 Share this link in the group chat, Slack thread, or print it out and mail it to anyone who wants to sign up. WHAT’S UP THIS WEEK WEDNESDAY July 13 Another rate hike is likely on the way. When Tiff et al. meet for the fourth time this year, many people expect them to follow the Fed’s lead and bump the base interest rate up by 0.75% — bringing it to 2.25%. Good for fighting inflation but likely the last straw for a lot of people hoping to afford a new mortgage. FRIDAY July 15 Bill Murray is launching NFTs. The actor’s new collection, which benefits Chive Charities, features some of his greatest stories, like meeting JFK and the time Hunter S. Thompson saved his life. Even people who hate NFTs can’t hate this. At least, that’s our opinion. THE BIG IMPORTANT STORY PERFECT STORMS Bonds should go up when stocks go down. Here’s why they haven’t Stocks and bonds are supposed to be the perfect team. When one goes up, the other goes down. They’re the Mulder and Scully of finance. (Bonds are obviously the more cautious Scully.) That’s why investment professionals use bonds to diversify portfolios. But for the first time in 30 years (nearly 50 years in U.S. markets), stocks and bonds both dropped by 10% in the same period. Lucky us! 😢 So, why is this happening? And will it continue? How bonds are supposed to work Bonds are basically loans. When you buy one, you’re loaning money with the promise of getting it back later, plus interest. They offer smaller possible returns than stocks, but they’re also less inherently risky. Bond prices also tend to go up when stock prices are down. Because when people are feeling pessimistic about the stock market, they tend to move their money into the safe (well, safer) haven of bonds. And vice versa. That’s also why bonds are a key part of conservative portfolios. Why that isn’t happening The difference this time is that skyrocketing inflation meant that central banks raised rates quickly. And that caused stocks and bonds to both fall. For stocks, it’s a matter of belt tightening: everybody’s spending less, so companies produce and sell less, and their stocks go down. As for bonds, they become less attractive when interest rates spike because investors think they might get better rates in products like savings accounts – which means bonds go down in value. Is this the new reality? Maybe for a little while, but probably not forever. Governments have raised interest rates to try to quell inflation — bad for bonds. But investors have already locked in those losses. As long as inflation eventually abates, bonds are likely to perform well and return to their normal relationship with stocks. If the 1980s are any guide, this transition could happen much quicker than we expect. — Sarah Rieger OTHER VERY GOOD READS 🏦 The Alchemy of Deposits Behold the terrible majesty of the humble bank deposit |Bits About Money 🚗 Huge Prices and Wait Times Could Doom the Electric Car Will the electric-car market collapse? |Vanity Fair 🇺🇸 Why Success in Canada Means Moving to America Is leaving the only way to win? |The Walrus THE WISDOM OF TWITTER When it comes to being passive aggressive, parents still win: THOUGHTS ON TODAY’S ISSUE? 🤑 Love it 🙂 Good 🙁 So so This week’s newsletter contributors: Brennan Doherty (writer), Stacey Woods (writer), Devin Gordon (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Sara Black McCulloch (fact checker), Ciara Rickard (copy editor), Peter Martin (senior editor) and Kat Angus (managing editor). Full disclosure: contributors to this newsletter own Ether. 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