It was a rough week for the luxury conglomerate October 16, 2023 Sign Up | View Online IN THIS ISSUE 8 min read 👔 LinkedIn’s hot 🍾 LVMH is not 🛢️ Plus, Pioneer got bought OK, we don’t know if Zendaya is on LinkedIn, but Gen Z is apparently really into that social network, so maybe! And that face she’s making? That’s the face we make when we see all the corporate humblebrags on there. | HBO THE WEEK IN MARKETS Dimon warns of danger After taking a ride on the “down and to the right” express recently, the markets sat out last week. The TSX, S&P, and Nasdaq were all basically flat. But we did get a clue about what the future might hold when JPMorgan Chase, the world’s biggest bank (and prime bellwether for the direction of the global economy), announced earnings. CEO Jamie Dimon said this was the “most dangerous time the world has seen in decades” — referring not only to the wars in Ukraine and the Middle East but also to high interest rates, the spectre of rising debt payments for civilians and businesses, and the risk of spending slowdowns and loan defaults. But he also said none of that is a problem yet — profits were up more than 20% over last year. That’s the story of 2023: plenty of storm forecasts, but so far only smooth sailing. THE WEEK IN ONE NUMBER 18% That’s how much less money women earn than men. Through decades of research, Claudia Goldin, who won the Nobel Prize in economics last week, was the first to prove what causes the gender wage gap. WHAT HAPPENED LAST WEEK IMPORTANT Oil is gushing again.ExxonMobil announced that it will purchase shale giant Pioneer Natural Resources for US$60 billion, making it North America’s largest oil producer. The new mega-driller will pump out an estimated 800,000 barrels of oil a day, surpassing Suncor’s 740,000. Some research firms have speculated that the oil industry’s crazy-profitable days are numbered, but Exxon’s Pioneer purchase suggests that it doesn’t think so. Right now oil producers have more money than they know what to do with, which has led not only to big acquisitions but also to hefty dividends and stock buybacks. Great, another mortgage problem to stress about.In Ontario, the share of mortgages issued by private lenders has grown by nearly 40% over the past decade, and private lenders now account for one in 10 mortgages across Canada. Private mortgages are easier to qualify for than traditional ones, hence their popularity, but financial regulators have warned that private mortgages often come with heftier fees and higher interest rates than borrowers are prepared for. For example, interest payments and fees on a $500,000 private mortgage could in theory climb to as high as $105,000 in a single year. And that’s not including payments on the principal. INTERESTING Bernard Arnault loses billions. Probably doesn’t care.The world’s second-richest man didn’t have the best week of his life. First, Paris authorities announced that they’re investigating him for suspected money laundering regarding the sale of 14 properties. Then his high-end conglomerate, LVMH (Louis Vuitton, etc.), announced that sales grew only 9% as opposed to 17% last quarter, which led to a US$245 billion luxury-stock selloff and cast doubt on the brand’s claim that wealthy folks aren’t fazed by rising prices. But one week of losses is likely no big deal to Arnault, who’s focused on building a family dynasty. All the cool kids are on LinkedIn now?Posts on the career site have risen by 41% in the past two years, and the growth is reportedly being driven by … Gen Z? According toThe Cut, in this weird moment of social-media churn, teens are flocking to the platform because it’s a “zero-irony zone.” LinkedIn has nearly caught up to Twitter X in terms of monthly active users (424 million to X’s 556 million), and 10% of them are members of The Youth™. Maybe they love the cringe CEO posts? —Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🥖 Major grocery chains won’t confirm the price reductions the government asked them to make. The government wants to see a manager. Source 📣 Threads says it won’t amplify news. Wants to stay your trusted source for random posts from people you don't know. Source ☕ Starbucks developing coffee beans that can withstand climate change. Now just need to make whole world out of coffee beans. Source 🧸 The new documentary about Mr. Dressup will make people forget all about that clown Mr. Rogers. Source CRASH & BURN TO THE MOON ✈️ Brink’s sues Air Canada over $23 million in missing gold and cash. If only there were some sort of armoured truck. Source 🕜 CBC Radio stopped broadcasting long-dash time signal, so if you need to know when 1 p.m. is, use a sundial. Source 🚢 New Canadian research ship now costs $1.28 billion, but the flames they painted along the sides will look amazing. Source ✒️ She must’ve really liked it up there: 104-year-old woman dies just days after becoming oldest person ever to skydive. Source WHO CARES WHAT’S UP THIS WEEK Tesla reports earnings (Wednesday).The EV maker already said it delivered around 435,000 cars in Q3, which is a 26% increase over this time last year. The catch is that Tesla has slashed the price of its cars to stay competitive with Chinese competitors, like Nio, which thanks to government subsidies sells EVs at a loss of US$35,000 per car. The fifth anniversary of Cannabis legalization (Tuesday). To celebrate, StatCan will release a report on Monday looking at how the industry’s grown since then. DON'T BE A TLDR HOG 🐷 Like TLDR? The first five million people to click this link can share it with a friend for free. (You can share it with enemies too but only if you’re ready for them to love you.) THE BIG IMPORTANT STORY MONEY & THE WORLD The Bond Market Fell, Hard. An Explainer for Normal Humans The bond market has been performing worse in recent weeks than pretty much anyone thought imaginable. Take your pick of headlines: it’s a meltdown that rivals the bursting of the dot-com bubble. Or it’s the worst bond collapse in 150 years. Or maybe it’s the worst U.S. bond selloff since 1787. (You did not want to be in fixed income in the late 1780s.) Canadian and U.S. government bonds of all flavours have slid by about 15% over the last three years. Here’s the percentage decline since Dec. 31, 2020: Now, you might have a question. What is the bond market, and why should I care that it’s making those lines go down? Let’s get into it. First, what are bonds again? Bonds are essentially IOUs. When you buy a bond, you’re giving governments or companies or whoever the issuer is a loan in exchange for regular interest payments, aka coupon payments. Then, at the end of a predetermined amount of time (when the bond “matures”), the bond issuer gives you back all the money you initially lent out. Before a bond matures, you can also sell it to whoever will take it for whatever amount they’ll pay. When people talk about a bond’s price, they’re talking about what you could sell one of these already-issued, not-mature bonds for. And those prices are what’s falling right now. Why does that matter?Because if you have your money in a managed fund, or are managing your own money in accordance with the conventional wisdom about portfolio diversification, you probably own bonds becausethey’re supposed to be stable. Bonds and their reliable lil’ interest payments generally don’t return eye-popping amounts — over the past 70-odd years, bonds on the whole have made about half as much as stocks. But bonds’ interest payments are fixed, and bond prices are typically much less volatile than stock prices. So they’re purchased as hedges against stock downturns. So why are bondsnotboring now? Demand for boring, safe-ish long-term bonds has been strong for the past few decades — so strong that bond issuers haven’t had to offer big interest payments, or yields; at times, yields have been south of 1%. But over the past few years, inflation and interest rates have gone way up, and because of rising rates, investors can now earn a much better return by sticking their cash in a zero-risk savings account or short-term GIC. This is bad for bond prices. Why? Let’s say you own a $1,000 bond that was issued a couple of years ago. You’ll get paid back the bond’s face value, of $1,000, in eight years, and until then, you’ll earn an annual yield of 1%, or $10. But at this moment, anyone with money in their pocket can earn almost 6%, or $60, on a $1,000 GIC, and they have to lock their money up for only one year. So who’s going to pay $1,000 for your crummy old 1% bond? No one, that’s who! So the price of your bond on the open market goes way down. (Sorry, bond.) Why are people worried? Falling bond prices can pose a problem for small- and midsize banks, which tend to hold a lot of bonds, believing they’re pretty safe. But when prices fall, they can become insolvent — Silicon Valley Bank lost something like US$21 billion from falling bond values. Meanwhile, anyone issuing a new long-termbond now has to offer a high rate of interest on it, which makes it harder for businesses and governments to borrow money, which slows down the economy. Also, there’s the basic problem that if you’re trying to sell parts of your portfolio for retirement or to make a major purchase, the bond portion of your holdings is worth less right now. Should I dump all my bonds and/or never buy a new bond again?We don’t give investment advice, but if there’s a recession anytime soon, the stock market would likely lose value and bond prices would probably recover, since investors have historically fled to bonds for safety when stocks fall. If there’s not a recession and you’ve got time to wait, you can just hang onto your bond until it reaches maturity and still get paid back its full original value, so you’re not out anything, really. As for buying bonds, 10-year government bonds are now offering 4% yields, which is lower than cash rates but you can lock in that yield for a decade and who knows what will happen to cash rates over that time. So there’s that to consider. —Ben Mathis-Lilley OTHER VERY GOOD READS 🛠️ Bad Builder Inside Toronto’s epidemic of renovation fraud |Toronto Life 🍤 The Crimes Behind the Seafood You Eat* The maritime expansion comes at a grave human cost |The New Yorker 👶 I Wanted to Raise My Kids Middle Class The problem was that we weren’t middle class anymore. |Wealthsimple Magazine *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER Let’s just say Ozempic has been good for Eli Lilly’s business … and not great for many others’. 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), 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 Wealthsimple charges a foreign exchange fee for USD trades equal to the daily corporate rate x 1.5%. See fee schedule for details. Managed accounts are offered by Wealthsimple Inc., a registered portfolio manager in each province and territory of Canada. 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