Plus: Big oil and Trudeau agree on something? November 14, 2022 Made in Canada IN THIS ISSUE Estimated read time: 6 min 🐦 How Twitter is taking down Tesla 📞 How Rogers is raking in cash 💸 How SBF lost it all WHAT HAPPENED LAST WEEK Turns out, Sam Bankman-Fried, poster child of responsible crypto, wasn’t so responsible. Read below about how he crashed his crypto exchange, FTX. | Ting Shen/Bloomberg via Getty Images THE WEEK IN MARKETS It was a tale of two markets. Or, if that’s not Dickensian enough for you, it was the best of times (for stocks) and the worst of times (for crypto). The good news: fresh U.S. inflation numbers Thursday came in lower than expected (see below for more), and the markets threw a big ol’ party (the more speculative markets partied the hardest): TSX up 3%, S&P 5.5%, Nasdaq 9%, and ARK Innovation fund more than 14%. Meanwhile, crypto fell down the stairs, into a manhole, and then a piano crashed on its head. The collapse of crypto exchange FTX (read more below!) sowed fear among investors who fretted about the value of their coins and whether the places they stored them would vanish from the Earth (or abscond to Dubai). Bitcoin and ether ended the week down about 20%. Note: this is the first time this year that crypto and other markets moved in meaningfully different directions — good news for investors concerned that trouble in DeFi might spread elsewhere. THE WEEK IN ONE NUMBER 2% That’s how much used-car prices in the U.S. rose last month YoY, compared with a 45% YoY pandemic peak, a good sign that inflation is falling throughout North America. IMPORTANT Inflation fell from 8.2% to 7.7% and markets went up ... as much as 9%!? Why? For a couple of reasons: 1. Expectations. Investors were braced for bad things (after the year we’ve had, it’s basically muscle memory) — and when that many people are holding their breath, an exhalation is pretty powerful. 2. The data was also legit good news. Price pressures weakened meaningfully on things like clothes, furniture, and even milk, which is the first solid sign that inflation maybe, just maybe, is responding to all these rate hikes. Fingers crossed these numbers hint at a global trend. Ottawa ❤️ hydrogen ... and big oil does too? Ottawa agreed to chip in $300 million to help build a $1.6-billion hydrogen plant outside of Edmonton. The hydrogen will come from natural gas — so it may not be a total shift away from planet-destroying fossil fuels but it is something. INTERESTING One of the biggest casualties of Musk’s Twitter purchase is actually Tesla ($TSLA). While we were all watching the various Twitter fireworks last week, Tesla shed 6%, dropping to -51% YTD. And get this: the lion's share of that drop, 37%, has happened since mid-September, when it was clear the Twitter deal was finally going through. The major culprit? Musk. He’s been unloading a ton of stock to fund his reign as Chief Twit (he sold another US$4 billion last week, for a total of $36 billion this year). And that volume of selling can do a lot to push down a stock price. It’s good to be an oligopoly (if you're the oligopoly). Even after handing out $150 million in credits to the 10 million Canadians subjected to this summer’s outage, Rogers Communications still beat quarterly revenue estimates and added 221,000 new customers. (And it might get even better — for Rogers, probably not us ☹️ — if the Shaw merger goes through.) THE FOMO INDEX by Stacey Woods IMPORTANT 😬 They’re laying off 11,000 people and increasing “desk sharing,” but otherwise, all’s well at Meta. Source 🐦 “No, sir, I don’t think it’s the shade of blue that’s the problem.” Twitter pauses troubled blue-check program. Source 🛥️ Seized oligarch superyachts cost taxpayers millions to maintain and don’t even offer to put up anyone’s relatives. Source 🛏️ Airbnb now shows your total price up front but not the number of passive-aggressive notes the host will leave you. Source CRASH & BURN TO THE MOON 🚲 Disgraced Peloton founder now selling rugs that are not expected to roll up and break your ankles or anything. Source 💃 All werking together: Justin Trudeau to appear on new season of Canada’s Drag Race. Source 🏒 Losing teams = winning content for Ryan Reynolds, who now wants to buy the Ottawa Senators. Source 🥣 Some containers of Tim Hortons chicken soup base found to contain insects. Some also found to contain chicken. Source WHO CARES FROM OUR SPONSOR Auto-Deposits are Foolproof 💰 We know, because we write about it all the time: trying to time the market doesn't work. The good news is that the smartest way to invest is also the easiest: automate it. Turn on auto-deposits and take the guesswork (and dumb decisions) out of the equation. Set up auto-deposits WHAT’S UP THIS WEEK Canada’s October inflation numbers come out (Wednesday). With last week’s news out of America, it’s hard not to be a little excited. FIFA World Cup 2022 kicks off in Qatar (Sunday). Your chance to support Team Canada’s first WC appearance in 36 years — if you’re not boycotting, that is. THE BIG IMPORTANT STORY CRYPTO How to Understand the FTX Collapse in Five Simple Terms Last week FTX, the world’s third-largest crypto exchange, collapsed with a speed and completeness that shocked the financial world. Maybe you don’t use FTX, but you might know its founder, Sam Bankman-Fried, the shorts-loving crypto celebrity who had become the poster child of responsible crypto — the kind of Good Guy of Crypto who testified before the U.S. Congress to argue in favour of crypto regulation and was showered with hundreds of millions of dollars of investment by fancy blue-chip firms like BlackRock and Sequoia. But the narrative changed quickly this month as rumours spread that his empire stood on shaky ground. Then last week brought a reckoning. Bankman-Fried resigned. His net worth went from US$16 billion to basically $0. And the whole crypto world shuddered, with concerns rising over the viability of the crypto financial system overall. Indeed, economist Noah Smith argued that the FTX crisis shows crypto may never truly go mainstream. Former U.S. Treasury Secretary Larry Summers compared the whole thing to Enron. It’s a complicated story. But you only need to know five terms to understand how it all happened and what it means. SBF: Aka Sam Bankman-Fried (@SBF_FTX), who founded FTX in 2019. The exchange quickly attracted a million worldwide users, and at one point boasted a US$32 billion valuation. SBF became a legitimizing face of crypto, and a major political donor (giving the second-largest donation to Joe Biden’s 2020 presidential run). Fortune magazine wondered whether he was the next Warren Buffett. CZ: Aka Changpeng Zhao (@cz_binance), the cofounder of Binance, the world’s largest crypto exchange and the antagonist to SBF’s protagonist. Binance was an early investor in FTX, and CZ and SBF seemed to be pals — at least until FTX took off and SBF pushed for regulations that stood to hurt Binance. Alameda Research: A hedge fund that SBF founded in 2017, before starting FTX. Alameda suffered big losses this summer, but it was still thought to be wildly successful. That changed on November 2nd, when Coindesk revealed that Alameda had a whopping US$8 billion of liabilities, mostly from bad loans, and that at least half of its US$14.6 billion in assets were FTX native coins — that is, a huge proportion of the capital that was keeping the fund afloat was ... coins that SBF created out of thin air. CZ pounced on this opportunity: with SBF’s credibility already in question, he announced, on November 7th, that Binance would sell all its FTX native coins, worth US$2 billion — a vote of no confidence in the exchange. This crashed the price of FTX’s native token and led to a run on the exchange, with clients fearing their coins weren’t safe, and it also effectively wiped out Alameda. Insolvency: Turns out, SBF secretly loaned US$10 billion worth of FTX client assets (of its $16 billion total) to his troubled hedge fund, which it invested in stuff that basically went to zero. That left the hedge fund with little collateral beyond FTX native currency — aka money SBF printed himself. FTX, caught holding the bag, couldn’t repay its clients the money it low-key lent to Alameda. On November 8th, the Machiavellian CZ, having in part engineered this moment, announced he would swoop in and buy/rescue FTX, but he backed out the next day. FTX, with no lifeline left, declared bankruptcy on Friday. On Saturday, the Financial Times reported that FTX’s international operation held a mere USD$900 million in easily sellable assets against US$9 billion in liabilities. Not good. Contagion: A domino effect when one company’s inability to pay its debts causes other companies to follow suit. That’s what happened during the 2008 financial meltdown, and the worry is whether something similar could happen in crypto. Thursday night, crypto lender BlockFi announced it couldn’t “operate business as usual,” owing to FTX’s collapse, and crypto brokerage Genesis needed a US$140 million infusion. (Most crypto exchanges say they’re unaffected.) In any case, the contagion seems to be contained within crypto, with no major ripples evident in traditional financial markets. As for SBF? The U.S. government is reportedly investigating FTX, and regulators in the Bahamas, FTX’s HQ, have frozen its funds. Over the weekend, there were reports that SBF and his crew “are under supervision” in the Bahamas, for fear they might try to flee to Dubai. Oh, and FTX maybe also got “hacked” on top of everything else. We have a strong hunch this story ain’t over. Michael “Moneyball” Lewis is all over it. — Sarah Rieger & Jared Sullivan 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! FOLLOW US If you love TLDR (or even just like it a little) and you haven’t fled Twitter yet, follow @Wealthsimple for money news, bad jokes, and non-boring financial insight. OTHER VERY GOOD READS 💸 How I Made and Lost $1 Million During the Pandemic Here one day, gone the next | The Guardian ✊ How Quebec Workers Won Anti-Scab Legislation Can the rest of Canada do the same? | Briarpatch 👩🏻‍💻 I Said Yes to Every PR Pitch For a Day If only I knew what I’d done | Slate THE WISDOM OF TWITTER FTX: the world’s most labour-efficient wealth vaporizer. 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). 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. 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