The Week in Review
Still Moving in the Right Direction
For the most part, the major North American stock exchanges posted gains this past week, building on the momentum from the strong performances last week. The only outlier was the Toronto Stock Exchange, which lost 0.86%.
Leading the gains for the week was the Nasdaq 100, up 2.85%, followed by the S&P500, up 1.31% and the Dow Jones Industrial average, up a modest 0.65% on the week.
In this episode of Pulse we'll explore what we can probably expect from Canadian interest rates over the next couple of years. Also, how rich are the rich? We'll look at the latest numbers out from StatsCan and yes, the wealth disparity between the rich and the poor is widening.
Also, there is growing pressure on the Liberals to establish Open Banking here in Canada, so we'll talk about that. Tesla is a target of union action in Europe, and as usual, we'll review the week's top Winners and Losers.
Get Used to It
As Justin Bieber once said, "Get Used to It".
Somewhere in the back of our minds we'd love to think that once the interest rate tsunami we've been riding for the past 18 months turns, we'll see interest rates back where we saw them before this massive tightening cycle began on March 2, 2022. Don't shoot the messenger, but that’s wishful thinking. At a speech in Vancouver this past week, Bank of Canada senior deputy governor Carolyn Rogers said that as a country we need to get ready to withstand the impact of higher interest rates for a longer period of time than most of us would like.
For those who have been investing for 15 years or longer, we’ll remember the times when interest rates where they are today were known as normal. Prior to the Great Financial Crisis back in 2008/09, rates of 4%+ were routine. Today though, after having lived through around fifteen years of rates at close to zero percent, what used to be 'normal' now feels abnormal. As in abnormally high, to be specific.
But interest rates today are not high by historical standards.
There are huge numbers of younger investors who only know interest rates at close to zero, so what we’re going through now seems like a wnghole new ball game. Reality is, it's critical that we learn how to manage in the environment we currently find ourselves in. Credit is no longer available at clearance-rate prices, so we'd better get used to it.
Without a doubt, at some point we'll see interest rates will come down from current levels and the pressure will ease, however barring something catastrophic economically, it’s unlikely we’re going to see rates back under one percent anytime soon.
The biggest effect that most Canadians will see is the impact on the cost of housing. There's almost $900 billion worth of mortgages coming due over the next three years and payment shocks will become the norm. As Rogers said last week, virtually all remaining mortgage holders will go through the renewal cycle and probably face significantly higher payments.
At the end of the day, the real challenge here is to adapt to the circumstances we find ourselves in today and accept that this is the environment we'll be operating in for a long time.
Canada Pension Plan contributions are going up again in January.
In a recent video, I said this is a shift of wealth from Baby Boomers to Millennials. Many disagreed.
Tell Me Something New
Statistics Canada released a new data analysis on Friday, looking at tax filings from 2021. The shocking takeaway (and yes, that's sarcasm for the record) is that the rich keep getting richer and the poor keep getting poorer.
According to the study, in 2021 the top 1% of tax filers saw income rise by 9.4%, while the bottom half actually saw income decline around $1,400. That puts the average total income of the top 1% at $579,100 and the bottom 50% at $21,100.
Not to be outdone, the top 0.1% saw average total income go up by 17.4%, (now coming in at $2,086,100) while the creme de la creme, the top 0.01%, saw average total income increases of 25.7%. I’m guessing there aren't a ton of us in this category, but if you are, congratulations on the $7.7+ million you earned for the year.
The report also noted that in the continuation of a trend, the number of women who fall into the high-income category increased again. Of the total group, 26.1% of the top 1% were women. Women also saw an increase in representation in the top 0.1% category with a 19.2% showing.
Ok, so now we all feel jealous, envious and maybe even a little bitter? Well, before we get too carried away, the report also said that the richest of our population also pays a distortion amount of taxes. According to the data, one percent of tax filers pay 22.5% of all income tax in Canada.
Get used to the term Open Banking, as you’ll be hearing a lot more of it in the coming months.
Way back in the 2018 Federal budget, we heard the first promise to review open banking. The text read:
"At its core, open banking is about empowering consumers to share their financial data between their financial institution and other third party providers through secure data sharing platforms. This in turn enables financial service providers to offer more tailored products and services, on a more competitive and innovative basis. Open banking also has the potential to provide consumers with greater transparency on the products and services offered by financial institutions, thus allowing them to make more informed decisions, and makes it easier for consumers to move and manage their money.
Recognizing these potential benefits, the Government proposes to undertake a review of the merits of open banking in order to assess whether open banking would deliver positive results for Canadians with the highest regard for consumer privacy, data security and financial stability."
Sounds pretty good, right? Raise your hand if you want more control over your financial data and better ways to make more informed decisions. I thought so.
Fast forward to August 2021 and the Liberals promised they would launch an open banking system by January of 2023. Well, here we are in November, and we're still waiting.
Now the Conservatives have introduced a private member's bill that calls the Liberals out and mounts pressure to make this actually happen. The goal is to force Finance Minister Chrystia Freeland to release a plan and move the country to the next level of empowering consumers with control over their financial circumstances.
Conservative Leader Pierre Poilievre said: "They had a lot of time to study this, they have an army of policy analysts over at Finance Canada. They can do it if they put their minds to it.”
With a maximum of two years left before the next Canadian federal election, we'll see if this nudge by the opposition might just be what it takes to get this done.
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As I reported in this pulse newsletter last weekend, hot on the heels of finalizing negotiations with the big three Detroit auto makers, the United Auto Workers has its sites set on expanding the fight against more auto companies. Last week, we talked about the possible face off against workers at Tesla, Toyota, and Honda.
Now, a new report out of Sweden says there's growing pressure for Tesla to agree to a collective bargaining agreement in that country.
On October 27, metal workers walked out at seven workshops across the country, and other trade unions have joined in solidarity. Dockworkers at Swedish ports have stopped the delivery of Tesla vehicles as a way to pressure the company to cave in to the demands of the union workers. If there isn’t agreement with Tesla by Tuesday, 109 companies that belong to the painters union will stop handling and painting Tesla cars.
Elon Musk has never been a big fan of the big unions and it will be interesting to see how this plays out. At the time of this newsletter, Tesla had not commented on these ongoing dispute, and continues to be non-unionized globally.
Weekly Winners & Losers
One again we had a handful of companies leading the way in gains over the past week, starting with a cloud security platform company out of New York.
The Top Gainers were:
Datadog (DDOG), up 26.34%
Nuvei Corporation (NVEI), up 20.91%
TransDigm Group (TDG), up 12.52%
Extra Space Storage (EXR), up 11.35%
Stantec Inc. (STN), up 8.72%
Broadcom (AVGO), up 8.48%
Booking Holdings (BKNG), up 7.54%
NVIDIA (NVDA), up 7.40%
Here's a look at the top losers for the week.
Notable Big Losers were:
The Trade Desk (TTD), down 19.06%
Lucid Group (LCID), down 17.75%
Illumina Inc. (ILMN), down 15.87%
Warner Bros Discovery (WBD), down 13.93%
Pan American Silver (PAAS), down 13.17%
General Motors (GM), down 9.81%
In Other News this Week
📳 Rogers is making 'substantive progress' with its integration with its newly acquired Shaw assets according to CEO Tony Staffieri. The company saw strong wireless gains as reported in its earnings release.
🍷 Generally speaking, the spirits business is a license to print money, but shares of global beverage giant Diageo plunged around 14% on Friday after it warned of some trouble spots that will impact profits.
🗣️ I've never surfed Omegle, but I know a lot of people have spent countless hours chatting randomly with others from around the world. Well, chat no more. After 14 years of connecting teens with way too much time on their hands, the platform is shutting down.