Plus: Why Air Canada stock is stuck on the tarmac November 6, 2023 Sign Up | View Online IN THIS ISSUE 7 min read 🍿 Dalio drama 😅 Recession (not really) 💉 Ozempic, overrated? “Listen, everyone, no need to panic. This airline isn’t going down; just its shares.” That’s sort of what’s happening with Air Canada right now. We explain below. | Universal Pictures THE WEEK IN MARKETS Rate Relief Game on! That was the vibe among pro traders last week. Why? Two very good things happened. First, central bankers, including Fed Chair Jay Powell and BoC Governor Tiff Macklem, hinted, in their quasi-secret-code way, that they may at last be done raising economy-crushing interest rates, which calmed the folks who’ve been fretting that rates might keep crawling up. The second good thing: fresh economic data suggested the economy may be slowing enough to cool inflation (nice) without the slowdown snowballing into a real-deal recession. All this news buoyed the markets: the TSX had its best week since April 2020, jumping 5.8%, and the S&P 500 did about as well. Will stocks stay on their up-and-to-the-right trajectory? It mostly depends on — what else? — inflation not inflating too much. THE WEEK IN ONE NUMBER 17% The jump in Shopify’s stock price last Wednesday after the company reported US$1.7 billion in quarterly revenue. That’s about three-and-a-half times what it made in the same quarter in 2019, before the pandemic fuelled an e-commerce boom. WHAT HAPPENED LAST WEEK IMPORTANT Wait, are we in a recession? Technically, yes? Maybe? Up top we said the economy seems to be cooling the perfect amount to get inflation down without a nasty recession. Well, you might have seen some headlines last week declaring that Canada’s GDP has slightly declined for two consecutive quarters, which fits the textbook definition of “recession.” But so far it’s more like a recession on paper — the kind that economic wonks talk about but regular folks don’t really notice because key metrics, like unemployment, remain fairly low. That could change if interest rates don’t come down next year, as investors hope, but right now we aren’t anywhere close to an ’08-style downturn. Canada’s “welcome” sign is feeling more half-hearted. Immigration isn’t primarily responsible for Canada’s housing crisis — far bigger culprits include restrictive zoning and shortages of labour and supplies. But voters don’t see it that way, which helps to explain why last week Ottawa announced, for the first time in a decade, it won’t raise its annual immigration target. Instead, it’ll hold the cap at 485,000 next year (perhaps at the risk of exacerbating labour shortages). INTERESTING Air Canada’s stock is stuck on the runway. Last week, the carrier reported its highest earnings in years ($1.3 billion in Q3), but its shares are way down, trading in the same range as they were during the lockdown days of 2020. Blame interest rates: if rates don’t fall soonish, the thinking goes, people might feel pinched and put off their vacations, stalling the airline’s recovery. The company is surely hoping that investors are right about getting some rate relief from the BoC in the near future. NYT took a shot at the world’s biggest hedge fund. A new book about Bridgewater, the richest and strangest hedge fund, caused a lot of buzz after The New York Times published an excerpt alleging that the fund’s investing formula usually just came down to “what [founder Ray Dalio] wanted, Mr. Dalio got,” and thus isn’t as systematic as it advertises. The excerpt (Bridgewater disputed its veracity) offered a rare glimpse into the US$150-billion über-fund, which is famously secretive despite Dalio’s commitment to “radical transparency.” For instance, employees are encouraged to openly criticize each other, a practice Dalio likens to hyenas eating gazelles. No surprise, Amazon Studios already bought the rights for the book. —Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🤖 Only about half of Canadians can tell real content from AI. They also wish the Pope would stop pitching them timeshares. Source ✈️ The only thing they couldn’t delay: Swoop Airlines makes its last flight ever. Source 🐦 Twitter/X now worth less than half what Elon paid for it, but at least more than twice as many people hate it. Source 📲 EU users can soon pay to not see ads on Facebook, Instagram. Not seeing Facebook, Instagram at all still free. Source CRASH & BURN TO THE MOON 💩 HBO head used fake accounts to troll critics. Shouldn’t have used @NotCaseyBloys’ Mom as his handle. Source 👻 Forty percent of Canadians believe in ghosts. Probably some crossover with the ones who can’t spot AI. Source 🐀 Toronto named “rattiest city” for second year in a row. Toronto would like to thank the McDonald’s at Queen & Spadina. Source 🌚 The moon is actually 40 million years older than we thought. It should get a job already. Source WHO CARES WHAT’S UP THIS WEEK Earnings season rolls on. A grab bag of Canadian giants will tell us how they did last quarter. Among them: TC Energy (Weds.), Indigo (Tues.), Canadian Tire (Thurs.), Cineplex (Thurs.), and SNC-Lavalin (Fri.). 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 BRAVE NEW WORLD DEPT. Why Investors Are Obsessed With Ozempic (and What That Teaches Us About Markets) At the moment, a relatively small number of people (and virtually no celebrities, if you take their word for it) are taking one of the much-talked-about GLP-1 drugs, like Ozempic, that were developed to treat diabetes but also contribute to significant weight loss. But that hasn’t stopped the drugs from upending entire industries. This year, the Denmark-based Novo Nordisk, which makes Ozempic and the higher-dosage Wegovy, overtook $LVMH to become the most valuable company in Europe by market capitalization. Meanwhile, U.S.-based Eli Lilly is now the world’s most valuable health-care company thanks to Mounjaro, its Ozempic competitor. Last week, both corporations reported that their quarterly earnings rose about 30% year-over-year. But this performance only partially explains inventors’ recent interest in the two companies, whose stocks have both roughly doubled in value since 2022. Here’s what’s going on and what it tells us about the stock market. Stocks are about The Future! It might seem silly that Novo or Eli Lilly is more valuable than, say, Pfizer, which generated more revenue last year than the other two companies put together. But it’s not an unprecedented phenomenon: in 2021, Tesla’s market cap exceeded that of 10 other carmakers combined. This sort of thing happens because when you hold a stock, you’re promised a slice of a company’s future profits — the past doesn’t matter. And right now investors are betting that Novo and Eli Lilly will make a lot of money, with the market for their new weight-loss drugs projected to reach US$100 billion by 2030. That’s because studies keep suggesting that, beyond helping folks lose weight, Ozempic-style drugs might reduce users’ risks of heart attacks, strokes, and kidney disease. If that’s true, Novo and Eli Lilly could certainly live up to investors’ high expectations: after Pfizer introduced Lipitor in the ’90s, it made more than US$9 billion from the drug, every year, for nearly a decade. Stock valuations are also about Destruction! Innovation creates value for the people doing the innovating and destroys value in whatever market is getting blown up, like when Netflix cratered Blockbuster. This dynamic is why share prices are falling for companies that make sleep-apnea devices or knee-and-hip implants, since they’ll presumably earn less money if there are fewer overweight people thanks to Ozempic, et al. Analysts have gone as far as to warn that fast-food companies might take a hit as people’s eating habits change. But risk is everywhere! All the time! Investing in innovative companies carries substantial risk, because you never know if the New Thing will live up to expectations. (See the Atkins Diet, or crypto.) One potential problem for Novo and Eli Lilly is that GLP-1s and similar drugs currently cost up to $500 a month in Canada, putting them out of reach of many people. Another potential snag is that GLP-1s have to be injected, and they’ve been known to sometimes cause nausea, vomiting, and uncontrollable diarrhea. Not fun! And there’s always a chance, however distant, that a drug could be yanked from shelves for causing dangerous, unforeseen side effects. And, as far as fast-food companies go, do you really think people can resist McDonald’s? What’s the lesson here? It’s that professional investors are making educated guesses about how big a market might become, who’s best positioned to take the lion’s share of the profit, and what effects an innovation could have on the economy. And even after doing tons of research, sometimes investors still get it wrong! Which is why people invest in industry-specific ETFs, to get exposure to a promising innovation without concentrating their bets on a single company, because who knows how things will pan out. —Ben Mathis-Lilley OTHER VERY GOOD READS 🌱 What Economic Reconciliation Looks Like Indigenous people have been left out of Canada's economy for too long. | Rob Magazine 🤐 The Secretive Industry Devouring the U.S. Economy* Is private equity making the market invisible? | The Atlantic 🥮 The Snack-Cake Economy How a novelist learned about money in prison. | Wealthsimple Magazine *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER TFW the idea of more housing is more appealing than actual housing. THOUGHTS ON TODAY’S ISSUE? 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