Plus: why cruises are so cheap January 15, 2024 Sign Up | View online IN THIS ISSUE 8 min read 🛬 Plane problems 🚢 Cruise crowds 🏠 Rent winnings We can only imagine, but we assume this is how the pilots of a Boeing 737-9 MAX probably felt after a deactivated emergency exit door blew out of their plane earlier this month. Read more below. | Paramount Pictures THE WEEK IN MARKETS A Question of Value The rally continues! The TSX finished last week up +0.4%. The S&P 500: +1.6%; the Nasdaq: +2.8%. These gains pushed U.S. markets to all-time highs. And whenever that happens, people ask: Are stocks overvalued? And is there about to be a painful reversal? We don’t prognosticate, but here’s what the data shows: though S&P stocks have hit new highs, corporate earnings have risen too, so the value of each share (what you pay v. the earnings you receive) is roughly the same as it has been over the past five years. And stocks are far less expensive, relative to earnings, than they were in frothy 2021. Just look at Visa: its stock is at an all-time high, yet its shares are priced only 32x its earnings, up from 30x in Jan. 2023 but down from 47x in June 2021. We’ll find out if the trend continues as more companies report their quarterly results (see below) in the coming weeks. THE WEEK IN ONE NUMBER 5.26M The estimated number of vehicles made in China and sold overseas last year. China recently surpassed Japan to become the world’s largest auto exporter, and Canadian automakers are not thrilled. WHAT HAPPENED LAST WEEK IMPORTANT The SEC does that I’m watching you motion to Bitcoin. After being all but forced by court order, U.S. securities chair Gary Gensler announced Wednesday that, okay, fine, the SEC will at last permit investment firms to sell funds that track the price of Bitcoin. But he grouchily added that the SEC still views $BTC as “primarily a speculative, volatile asset that’s also used for illicit activity.” Canadians have had access to Bitcoin funds for years. But the U.S. approval kicked off a flurry of trading, with US$4.6 billion in ETF shares exchanging hands on day 1. But the initial excitement petered out, and the price of $BTC dropped about -10% by the end of the week. Boeing invents a new euphemism for “oops.” Why did a deactivated emergency-exit door of a Boeing 737-9 MAX plane blow out mid-flight? “Quality escape,” according to CEO Dave Calhoun — like a wardrobe malfunction, we guess, but way scarier. Non-profit news site The American Prospect described it differently, writing that Boeing’s product has deteriorated thanks to “financialization, outsourcing, and cost-cutting.” Either way, shareholders did not like it. Boeing stock is down by nearly 50% from its pre-pandemic peak, while shares in rival Airbus are at an all-time high, and Airbus’s profits have steadily outpaced Boeing’s since the 737 MAX began to have problems a few years ago. INTERESTING New taxes for TO? Mayor Olivia Chow’s new budget proposes a 10.5%–16.5% property-tax hike, which some might call political suicide. But the city is facing a $1.8 billion budget shortfall, and even a 10.5% hike still leaves Toronto short of the funds it needs to provide shelter beds for the thousands of refugees the federal government has welcomed into the country. The feds’ immigration policy might be “the right moral thing,” wrote Matt Gurney for TVO, but “it has not had to pick up much of the fiscal tab for that generosity.” Instead, the responsibility has largely fallen on overextended municipals — which is why city leaders are suggesting calling the additional tax a “federal impacts levy.” That’ll show ’em. Partying on giant floating petri dishes is BACK. Thirty-six million people are expected to set sail on cruise ships this year, up from about 30 million in The Last Normal Year, thanks to budget-minded vacationers rushing to spend five days in the Caribbean for a mere $350, or thereabouts. How do cruise lines turn a profit while offering such affordable trips? Volume. Royal Caribbean’s new ship, Icon of the Seas, is as big as five Titanics and has seven swimming pools for its 5,610 guests. The renewed interest in cruising is showing up in Royal Caribbean’s stock price, which is up 89% over the past year. If you want to know more about the economies of scale (or the less-awesome economy of underpaying workers), check out The Wall Street Journal’s excellent in-depth story. TLDR PODCAST We whiffed! Last week, we asked you to send us money-related questions that we could answer on the TLDR podcast, but our email wasn’t working. Sorry! It’s fixed now, though, so if you’ve got a question about getting out of debt or the $10,000 you just inherited (RIP, Nana), record a voice memo and send your question to TLDRpodcast@wealthsimple.com. You can listen to this week’s episode on Apple Podcasts, Spotify, or Google Podcasts. –Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT ❄️ B.C. ski resorts suffering from lack of snow but will surely rebound just as soon as dirtboarding takes off. Source ⚠️ Health Canada recalls 41,000 faulty massage guns. 41,000 Canadians now forced to develop other relationships, interests. Source 🚀 NASA’s Kennedy Space Center is having a rave next month. There’ll be tons of MDMA: Moms, Dads, Minivans, and Algebra! Source 🪐 New images reveal Uranus, Neptune both greenish blue. Obviously didn’t check with each other before coming to the solar system. Source CRASH & BURN TO THE MOON 🏌️ After 27 years, Nike and Tiger Woods are breaking up. He was sending other corporations pictures of his front nine. Source 🍸 Woman with tenuous grasp on commas, decimal points accidentally orders $3,218 cocktail in London bar. Source 🫎 Parks Canada warns against letting moose lick your car for salt. You can buy them a margarita, but that’s it. Source 👑 Man found guilty of trying to sell walking stick he claimed was Queen Elizabeth’s. Don’t even ask about the stuffed corgi. Source WHO CARES WHAT’S UP THIS WEEK StatCan releases the latest inflation numbers (Tuesday). Last month’s inflation rate held steady at 3.1%. We’ll see if we follow the U.S.’s path in having that number tick up a bit. 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 REAL ESTATE Should You Buy or Rent? A Quick Formula to See You know the story by now: Canada has long had a housing shortage, but a one-two punch of sky-high demand and painfully high interest rates has made homes wildly unaffordable. Which is upsetting for many folks because, as your parents probably told you, owning a home is one of the most reliable ways to build wealth. Or is it? One question that’s been overlooked amid the housing-crisis brouhaha is whether buying a house is still the best move financially. It’s a tricky question, because there are a million things to consider when weighing whether to rent or buy (which we’ll get into). So we won't pretend there’s a magical way to make the right call. Still, there is a calculation that can point you in the right direction, and it’s called the price-to-rent ratio. The Price-to-Rent Ratio To get a ballpark guess whether renting or buying will build you more wealth long term, take the purchase price of a home and divide it by the annual cost of renting a similar place. If the result is 17ish or lower, you’re likely better off buying. If the number lands at or near 20, it could go either way. And if the ratio far exceeds 23, you should probably keep cutting your landlord a check each month. Why does this work? Because you’re essentially measuring whether a home for sale is overpriced relative to a comparable rental unit and, in a roundabout way, whether renting or buying will let you invest (and likely grow your money) more. Give me an example! In the fall, the average Canadian home cost $650,000, while the typical rental unit went for $2,178 a month, or $26,136 a year. That’s a ratio of about 25, which suggests the scales tilted slightly toward renting (if you assume the home appreciates a pretty conservative 3.3% annually). Now let’s say that in January rent rises to $2,800 a month (or $33,600 a year). In that case, the ratio, at 19, tilts toward buying, provided you can still buy a comparable place for $650,000. One big caveat: Renting comes out ahead only if you take all the money you save by not buying a home — including the money you would’ve spent on a down payment — and invest every penny of it in a diversified portfolio. None of the price-to-rent stuff matters if you spend your cash to lease a Cybertruck, which you use to drive yourself to lavish sushi dinners every night. But wait! That’s not the only catch! Even if you diligently invest, myriad factors could influence whether you’ll build more wealth renting or buying — like interest rates, home repairs, etc. For instance, in the example above, if a $650K home appreciates 4% to 5% annually (or more), as opposed to the assumed 3.3%, buying might come out ahead. (See the table below.) Such variables are why it’s wise to spend some time with a few different rent-vs.-buy calculators, to game out different scenarios. THE UPSHOT: We know this might be an annoying way to end this article, but it’s ultimately a judgment call whether to rent or buy. The price-to-rent ratio can give you a rough idea which way to go, but it can’t tell you with 100% confidence what will grow your wealth more, nor can any other formula. This uncertainty is why it’s smart to diversify, to safeguard your finances from risk. And that’s important no matter what you decide to do. OTHER VERY GOOD READS 🍄 Hazy Mushroom Laws Create a “Shroom Boom” in Canadian Cities* An opportunity for sellers and a challenge for police | Bloomberg 🕷️ The Perfect Web Page How the internet reshaped itself around Google’s algorithms | The Verge 🤑 33 Questions About RRSPs, TFSAs, FHSAs, and more Understand everything about registered accounts | Wealthsimple *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER X Don’t worry, inflation. We here at TLDR still care about you… 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), Nikki Holmes (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (senior lifecycle specialist), 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. VIEW IN BROWSER PRIVACY POLICY UNSUBSCRIBE Crypto is offered by Wealthsimple Investments Inc. (WSII), a member of the Canadian Investment Regulatory Organization (CIRO). Crypto assets purchased and held in an account with Wealthsimple Crypto are not protected by the Canadian Investor Protection Fund, the Canadian Deposit Insurance Corporation or any other investor protection insurance scheme. You can learn more about the risks of crypto assets in our Crypto Product Risk Disclosure. You can find more information about WSII in our Relationship Disclosure. Any coins showcased are for illustration purposes only and are not recommendations or investment advice. 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. The content in TLDR is not investment advice, a recommendation to buy or sell assets or securities, nor any other kind of professional advice. TLDR is not a research report and should not serve as the basis for making investment decisions. Wealthsimple Media Inc. does not endorse any third-party views referenced in this content. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only. Always research before investing. © 2024 Wealthsimple Media Inc.