Plus: lemons are now against the law October 30, 2023 Sign Up | View Online IN THIS ISSUE 7 min read 🎱 Ackman makes a prediction 🍋 Quebec makes lemonade 🎶 Spotify makes a profit Sixty-three years after Volkswagen popularized the concept of lemons — dud cars that don’t belong on the road — Quebec is trying to ban them, along with any tech that’s not meant to last. See below for more. | Volkswagen THE WEEK IN MARKETS The Three Spookiest Words in Finance It’s Halloweentime, but the thing unnerving pro investors is not witches or werewolves, but one simple phrase: “higher for longer.” You might think investors found these words written in blood on their bathroom mirrors, because their reaction to the prospect that interest rates won’t fall as quickly as they’d hoped has been... slightly terrifying. What’s freaking them out? Visions of lower consumer spending, lower corporate profitability, and lower asset valuations. It’s all caused folks to dump bonds at historic levels (more on that below) and has sent Canadian and U.S. stocks down about 10% since August. Obviously, none of this has been terrific news for individual investors: in 2022, 60/40 portfolios — the classic mix of stocks offset by ostensibly safer bonds — suffered their biggest losses since the ’30s. With 60/40s on track for another underperforming year, some folks might be tempted to panic and sprint away from markets as if they were being chased by Leatherface. Is that a good call? Or will folks who stay in the market (which has historically been the way to go) come out ahead? You know the line by now: time will tell. WHAT HAPPENED LAST WEEK IMPORTANT This week on The BoC and the Beautiful! (Yes, we’re committing to this central-bank-as-soap-opera bit.) What’s the latest drama? Central bankers are getting anxious. Interest rates are hurting stocks and bonds — and everyday Canadians! But inflation isn’t here to make friends — it’s staying high. Which leaves Tiff Macklem torn. In an interview last week, he wouldn’t comment on when the BoC would cut rates, but he said he knows high mortgage rates are really painful for people! Will unpleasantly high rates drive the economy into a recession? Will inflation cool before that happens? Is Tiff’s secret evil twin really dead? Tune in next week! A historic settlement for Indigenous children. A federal court ruled that the government must pay $23 billion, the largest settlement of its kind, to 300,000 children and their families to rectify chronic underfunding of Indigenous welfare services. The settlement also requires the feds to set aside $20 billion for on-reserve foster care and First Nations family services. INTERESTING Quebec bans lemons. And by that we mean defective cars. The new legislation allows buyers of duds to apply to have the vehicle sale cancelled or to receive a partial refund after three unsuccessful repair attempts. The law also bans companies from marketing appliances or electronics designed with planned obsolescence. Is it dumb to hope that home printers will one day be less terrible? Microsoft edges ahead in the cloud war. Amid a slew of so-so tech earnings, Microsoft was a rare bright spot last week. The House of Gates beat earnings expectations by almost 13%, posting US$56.5 billion in quarterly revenue, thanks largely to its OpenAI-powered cloud-computing service, Azure. Investors piled into Microsoft stock, since it seems to be pulling ahead of rivals Amazon and Google in cloud computing and artificial intelligence, aka The Future, maybe. Turns out Spotify only makes pennies off Spotify too. The streaming giant’s US$69 million Q3 profit, announced Tuesday, may sound like a fortune, especially compared to the checks that Spotify cuts to musicians. But it was Spotify’s first profitable quarter in 18 months and resulted largely from layoffs and cost-cutting. (The company has never turned an annual profit.) Given that Spotify has eaten the entire music industry, this is a “loser-take-all outcome,” as NYMag put it. After the company tried (and failed) to corner the podcast market, it’s now pushing into AI-read audiobooks, to the horror of authors. —Sarah Rieger FROM OUR SPONSOR Data collected as of October 26, 2023. Average includes all posted-rates of chequing accounts from Canadian financial institutions as listed under Schedule I under the Bank Act. Excludes limited-time and promotional offers and products that do not offer cheques. THE FOMO INDEX by Stacey Woods IMPORTANT 🍽️ Higher food prices are hurting restaurants so much that it’s becoming impossible to mark up a wedge salad 20 times. Source 💸 Canadian tech workers make 46% less than U.S. ones, but Allbirds are cheaper here, so it evens out. Source 👼 Forty-two U.S. attorneys general sue Meta, saying they hook kids. Zuckerberg thinking he’ll go back to rating Harvard coeds. Source 🥕 Ottawa calls grocers back to Parliament to talk about food prices. Grocers were hoping the government would just use self-checkout. Source CRASH & BURN TO THE MOON 🚗 California revokes GM’s permits to test driverless cars, at least until they can invent walking-less pedestrians. Source 🐶 World’s longest-lived dog, Bobi, dies at 31. Just needed to see how this Tupac thing ended. Source 🥊 Ontario proposes legislation to get people out of timeshares and gym memberships. You’re stuck with the Shake Weights, though. Source 💝 New Tinder feature, “Tinder Matchmaker,” gives friends the tools they need to directly meddle in your life. Source WHO CARES WHAT’S UP THIS WEEK Earnings season continues, with Canadian giants like Air Canada (Mon.), Shopify (Thurs.), and Telus (Fri.) reporting this week. 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 One Trader Saw Something Few Others Did, and He Made a Bundle Last Week Something interesting happened last week that made a hedge fund several million dollars and grabbed headlines in all the Important Financial Newspapers™. What happened? Well, back in August, a guy made a giant bet that bond prices would fall, and last week, he cashed out, proving just how right that bet was. We’ll explain more below (including why you should care). But for this story to make sense, you first need to know about the guy in question, whose name is Bill Ackman. Let’s dive in: Bill Ackman is a boyish-looking billionaire who runs the hedge fund Pershing Square Capital Management. He’s an activist investor, meaning that he uses his fund’s US$18.5 billion treasure chest to amass stakes in public companies, then he pushes for profit-improving changes. He’s admired for his trading savvy but also loathed for doing things like lobbying lawmakers to crack down on a company he’d bet against. Heads also tend to roll whenever Ackman shows up: Canadian Pacific Railroad cut about 23% of its workforce after Pershing Square seized control of it in 2012. Ackman branched out into bonds. Back in August, Ackman announced that he had shorted, or bet against, 30-year U.S. government bonds. This was noteworthy because (1) bonds aren’t really Ackman’s thing, and (2) Wall Street saw no reason to bet big against bonds. Inflation was falling fast! Central banks would cut interest rates soon, surely! And both those things would help bond prices. But Ackman was right. Inflation proved to be not fully dead, and, for that reason, investors started betting that interest rates would stay higher for longer than they expected. And that, for complicated reasons we explained recently, made holding bonds less attractive. As a result, over the past three months, the price of long-term U.S. government bonds has fallen by about 10%, which is a big move for bonds! Then Ackman stuck the landing. Everyone sort of forgot about Ackman’s bet until last Monday, when he tweeted that he was unwinding his short against U.S. 30-year government bonds, explaining, “The economy is slowing faster than recent data suggests.” This made Ackman look very smart, since he tweeted this right as bond prices were beginning to stabilize. Fintwit gave Ackman a round of golf claps for “top ticking” the trade — that is, cashing out at the perfect moment. Pershing Square reportedly earned US$200 million on the three-month bet, which, to editorialize a bit, is not bad. So why does all this matter? The drop in bond prices that Ackman predicted has all sorts of possible implications. Many individual investors have been making similar bets to Ackman by stuffing money into GICs and high-interest-savings accounts, believing that rates will stay high and stocks and bonds will continue to fizzle. But Ackman, by unwinding his short, essentially took the position that this sort of trade doesn’t make sense anymore. “There is too much risk in the world to remain short bonds at current long-term rates,” he tweeted. People who agree with this sentiment will probably consider buying government bonds or stocks. Our read? Now, as always, it’s really hard to predict where markets are going with any certainty! That’s why most pro investors and academics advise staying invested in stocks during turbulence to avoid missing a recovery. We’re not all as prescient as Bill Ackman, after all. —Jared Sullivan OTHER VERY GOOD READS 🥕 Is It Time to Revolutionize the Way We Buy Food? This might be the most opportune time to embrace grocery co-ops. | Corporate Knights 🔧 The Best Inventions of 2023 Innovations that’ll (maybe) change the way we live. | Time 🩲 David Sedaris: “My Finances, in Brief” We asked the humour author to write about money. | Wealthsimple Magazine THE WISDOM OF TWITTER We’re going to pound Grand Slams until we come up with our own trillion-dollar idea. 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), Tyler Hamilton (LifeCycle manager), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Disclosures: Contributors to this newsletter own shares in Google and Microsoft. Correction: In the previous edition of TLDR, we mistakenly reported that Nvidia’s earnings were coming up alongside other big tech earnings last week. Nvidia actually reports its next earnings on November 21. We regret the error. 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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