Plus: only two mentions of Elon! November 7, 2022 Made in Canada IN THIS ISSUE Estimated read time: 5 mins 🍯 Powell stops sugarcoating 🛌 Airbnb’s big quarter 🐶 Puppy pictures! WHAT HAPPENED LAST WEEK Stock photography goes FOMO: the share price of Getty Images, proprietor of cute puppy pics and other stock photos, jumped 40% last Monday | Getty Images THE WEEK IN MARKETS Hey, surprise! Most stocks got clobbered this week. On Wednesday, the U.S. Fed Chairman raised interest rates 0.75%. Then he gathered everyone around the old press conference and told us scary stories about how frightful the future might be (more rate hikes!). Predictably, markets didn't like it. The S&P ended the week down 3%, the Nasdaq 5%. The TSX had a bad stretch midweek but managed to come out up 1% thanks to a late-week rally in energy stocks. If this all sounds familiar, it’s because it’s been Groundhog Day off and on for eight months. Investors don't like surprises. And week after week investors have been shocked, shocked! , that inflation (and the interest rates central banks use to fight it) won't stop being a problem. And now we’re in the same spot we seemingly always are — waiting for a better kind of surprise. THE WEEK IN ONE NUMBER $38.4M Amount Twitter would make annually in USD if all its verified users paid US$8/month to retain their blue checks — equivalent to a mere 0.8% boost in revenue. IMPORTANT Halloween’s long gone, but Jerome Powell still tried to scare the sh*t out of us. As we mentioned the Fed raised rates by 0.75%, then Powell got really dark. “The path [to a soft landing] has narrowed,” the Fed chair said. “Our job is price stability ... and that’s what we’re going to do.” Translation: these high rates are sticking around, because he is very serious in his belief that inflation will be worse for people than an economic downturn. In fall’s most anticipated moment, Ottawa announced its annual economic outlook! On Thursday, the federal government shared its reprioritized budget, and the biggest news was that higher tax revenue gave the treasury a $40-billion boost. That allows them to send more cash to students, clean-energy projects, and low-income workers. Plus, for the first time since the pandemic hit, Canada is on track to balanced books. Airbnb said it’s raking in money, and investors blew a giant raspberry. Unlike most of big tech, the company that wants you to believe a five-bedroom house needs only one tiny frying pan announced its highest-ever quarterly revenue (US$2.9B) and profits ($1.2B). Like big tech, however, its stock fell — by 13%. Why? Despite the boom from all this pent-up travel demand, Airbnb faces the same fourth-quarter consumer-belt-tightening that forced Amazon and others to lower expectations. INTERESTING The newest memestock roller-coaster is ... Getty Images. One of the internet’s biggest providers of stock photography (including the puppy, above) hit momentary stock relevancy with a nearly 40% jump last Monday — and brought us fond memories of this. And the newest crypto player is ... JPMorgan? In a first for both crypto and traditional banks, the financial services behemoth executed a trade on the blockchain, exchanging yen for Singapore dollars on the Polygon blockchain. It’s a sign that institutional investors are still bullish on the technology, and, although crypto purists probably hate it, the implicit endorsement of big banks could be a boost for adoption. A moment of self-promotion David Sedaris is relieved his dad is dead. (That’s what he says.) “He never asked you what you thought or felt, rather he told you,” the humourist and author writes. And a lot of their problems revolved around money. Read the original essay he wrote for Wealthsimple here. Warning: it’s pretty adult. THE FOMO INDEX by Stacey Woods IMPORTANT 🐦 Blue checks will go for the low, low price of US$8 a month in Twitter’s new cheques for checks program. Source 🇰🇵 U.S., S. Korea wouldn’t let poor Kim Jong-un join in any warplane games, so he launched 23 missiles last Wednesday. Source 😘 Repeated rejection paying off: Match.com’s parent company beat expectations as more users buy features like extra matches. Source 🏒 No, that’s not a price tag. The Arizona Coyotes’ new helmet sponsor is Goodwill. Source CRASH & BURN TO THE MOON 🐭 Keep your ears on, Mouseketeers. Shanghai Disney closes for COVID outbreak and doesn’t let people out until they test negative. Source 💰 Chinese lottery winner keeping $30 million secret from wife & child so they “don’t get lazy.” Might forgive their debt, though. Source 👎 New poll shows 47% of Canadians have never felt worse about money but have never felt more seen by pollsters. Source 🧦 Dobby will have to punish himself most grievously! Sock tributes on Harry Potter character’s memorial are harming Welsh beach. Source WHO CARES WHAT’S UP THIS WEEK Rogers reports its quarterly earnings (Wednesday). Big day for Canada’s telecom overlords as earnings season comes to a close. U.S. inflation numbers for October come out (Thursday). If things get worse, expect Powell’s dark streak to get ... darker. “Wakanda Forever” premieres (Friday). It can’t be as good as “Black Panther,” but we’re still going to see it. THE BIG IMPORTANT STORY THE FUTURE Is It Better to Pay Down Your Mortgage or to Invest? As you surely know by now, interest rates have skyrocketed: the average five-year mortgage rate is now 4.7% , up from 2.1% a year ago. That plus a bear market has changed the math for people lucky enough to be wondering what to do with any extra money. In normalish times, for instance, the decision between paying down low-interest debt and investing is sort of a no-brainer: invest. But vertiginous interest rates and markets that seem extra dicey make the question a lot less simple. So we devised a framework that will not only help people make that decision wisely but also help just about everyone understand how to make investing decisions in weird times. (And a first consideration before our first consideration: if you don’t have an emergency fund, especially when a recession might be on the horizon, that comes before either investing or putting equity into your home.) First, a caveat: since a recession might be en route, you definitely need an emergency fund. OK, moving on... Consideration #1: Your Mortgage Rate. Mortgages, like meth, have a guaranteed negative return. Paying 5% interest on your home loan is effectively a 5% loss. So paying down your debt is like earning a 5% return. The catch is that if you do that, you’re tying up money you could use to invest, so you want to compare your mortgage rate to your potential returns. Which leads us to ... Consideration #2: Your Investment Expectations. Paying down your mortgage has no risk. Investing does, but you could also earn a lot more than 5%, big downturns be damned. The S&P 500 has gained on average about 10% annually since the late 1950s. The TSX is in the same ballpark. It makes sense to invest instead of pay down your mortgage only if you believe you’ll make more than the cost of your mortgage. Consideration #3: Your Investment Horizon. The longer you have till you need your money, the better your chances of surviving market downturns. Why? It’s all about reducing the chances of a negative outcome. Check out this investment-horizon chart:* Consideration #4: Your Tax-Sheltered Savings Accounts. If you have contribution room left in a TFSA or an RRSP, you might want to fill it up. These savings accounts give you a break on taxes. With a non-tax-sheltered account, you get taxed twice: on your earnings and then on your returns. Not so with a TFSA or an RRSP, since they reduce the tax you pay either when you deposit your money or when you withdraw it. Consideration #5: Your Taste for Risk. If your heart skips at the thought of going swimming 29 minutes after eating, putting extra money in the market may not be for you. But if you are open to risk with the possibility of higher rewards, the market has historically been a strong place to be, which we explain here. Read a more detailed version of this story here if you’re still scratching your head. *How we made that chart up there: we took a Wealthsimple Growth Portfolio made up of 80% stocks and 20% bonds and other fixed-income investments. We assumed fees of 0.6%, no capital gains tax, and, based on historical performance, gross annual returns of 6.6%. And then we ran it all through a simulation. SHARE TLDR WITH FRIENDS 🤝 Put this link in your group chats, in your Slack threads, on a tattoo on your back — whatever works for you! OTHER VERY GOOD READS 📉 How to Be Smart When the Market’s Down Do not panic, unless you like losing money | Wealthsimple 🏠 The Risks of Rent-to-Own What could possibly go wrong? | Fast Company 🛢️ Can Bitcoin Breathe Life into Alberta Oil? MAGA Energy says it's green. The county disagrees | The Narwhal THE WISDOM OF TWITTER Come for the memes, stay for the boiled-egg discourse. 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), Sara Black McCulloch (fact checker), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Full disclosure: contributors to this newsletter own stock in JPMorgan. Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Replies to this email address are not monitored. Have questions? 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