This week's interesting finds

EdgePoint Investment team book club

How does our Investment team come up with their insights? For starters, they like to read…a lot. In the past we’ve shared their favourite reads, and now we’re taking it to the next level. Introducing the Investment team book club, a roundtable discussion of books that each member must read. We hope they will lead to spirited conversations about themes important to any investment professional. This first curated list of books conjures lessons from the past and peeks into the future.

This week in charts

Last time CPI was at this level, the Fed Fund’s Rate was 15% (Feb. 1982)

Cost of energy and economic growth

A Pandemic Baby Bump Shines a Spotlight on the Nordic Welfare Model

Finland’s government has been working arduously to stem the country’s rapid population decline. Since the 2019 elections, a cabinet run by a millennial woman has produced eight offspring, with two more on the way. Regular Finns have joined in the baby making: The number of live births jumped 6.7% last year, the most in nearly five decades.

Other nations on Europe’s northern rim have experienced their own pandemic baby bumps, making the region of 28 million people an outlier among advanced economies, several of which have seen fertility rates drop to historic lows.

“The pandemic definitely had an impact on our decision to try for a second child”, says Heini Korpela, 38, who oversees influencer marketing at Otavamedia Oy in Helsinki and gave birth to a baby girl in June. “We’d spent so much time at home that it did not feel like a big deal to stay home with another baby. 

For Tryggvi Sigurdsson, a 36-year-old engineer from Reykjavik who became a father for the third time last June, one upside of the COVID-19 crisis is that there was more familial support for new parents. “Everyone spending a lot of time at home, including grandparents for instance, so people might be more available to babysit,” he says.

Trouble lies ahead for the Canadian housing market

The Canadian residential real estate market may have ended 2021 with its 12th consecutive annual increase in prices, with a year-over-year gain of 17.9 per cent, but there is a good chance that trend may be broken in 2022.

Indeed, as the Bank of Canada grapples with inflation at a 30-year high of 4.8 per cent year-over-year, interest rates are set to rise over the coming quarters; the market is currently priced for nearly seven rate hikes through the end of the year. This will likely serve to quell the investor-led housing frenzy that has gripped the nation throughout the pandemic.

So, with a record share of mortgage debt hitched to variable rates, the housing market (and the broader economy) could be in for trouble should this extended honeymoon period come to an end.

After the Fact

Exercising does two things: It makes you hungry and makes you proud. So let’s say after every workout you eat a huge dinner with extra dessert. You know that’s not ideal, but you just accomplished something hard, so it feels justified.

After a year of this you haven’t lost any weight, which was your goal. You can’t figure it out. You’re exercising every day. You’re so frustrated.

You can’t measure the benefit of exercise just by tracking how much you work out. It’s the gap between your workout and avoiding offsetting its benefits after the fact that makes all the difference.

And isn’t building wealth the same?

The typical American family is earning more than ever before. But for many it probably doesn’t feel like that – at least as much as it should – because all of the income gains and then some have been offset with higher spending.

I get why it happens. Spending more when your income rises is as tempting as eating more after you exercise. It feels earned and justified. People’s lifestyle expectations are driven by their peers, so when everyone spends more you feel entitled to do the same.

But all wealth relies on the ability to receive an extra dollar and say, “I could spend this, and spending feels great, but I’m not going to.” It’s the same as turning down a big meal after working out, and it’s just as hard. All great things are hard.

This week's interesting finds

Charlie Munger Expects Index Funds to Change the World—and Not in a Good Way 

Mr. Munger, the billionaire vice chairman of Berkshire Hathaway Inc Warren Buffett’s business partner, said the rise of index funds like those run by Mr. Fink’s BlackRock Inc. has resulted in an “enormous transfer” of the power to sway corporate decision making. That shift will “change the world,” he said, and not for the better.

“We have a new bunch of emperors, and they’re the people who vote the shares in the index funds,” Mr. Munger, 98 years old, said at the annual meeting of Daily Journal Corp. , a publishing company he has chaired since the 1970s. “I think the world of Larry Fink, but I’m not sure I want him to be my emperor.”

The surging popularity of index funds has made their managers the biggest investors in most large stocks. The firms, including BlackRock, have sought to wield that power in ways that have at times made corporate executives uncomfortable. Investment managers have had more sway over important company decisions, including takeovers, the fates of executives and plans for long-term sustainability.

Facing Texas pushback, BlackRock says it backs fossil fuels 

At the risk of being dropped from Texas pension funds, BlackRock Inc has ramped up its message that the world's largest asset manager is a friend of the oil and gas industries. As a large and long-term investor in fossil fuel companies, "we want to see these companies succeed and prosper," BlackRock executives wrote in a letter that a spokesman confirmed was sent at the start of the year to officials, trade groups and others in energy-rich Texas.

Although the message is consistent with its other statements, the emphasis is new after years in which BlackRock has stressed its efforts to take climate change and other environmental, social and governance (ESG) issues into account in its investment and proxy voting decisions. 

In Texas, new legislation requires the state's comptroller, Glenn Hegar, to draw up a list of financial companies that boycott fossil fuels. Those firms could then be barred from state pension funds like the $197 billion Teacher Retirement System of Texas, which has about $2.5 billion with BlackRock.   

Immigration 

Canada, a country that relies heavily on immigration to grow its labor force, has set an ambitious plan to bring in more than 1.3 million newcomers over the next three years to support its post-pandemic growth. 

Trudeau’s government aims to add more than 431,000 permanent residents this year, 447,000 in 2023 and 451,000 in 2024, according to the 2022-24 Immigration Levels Plan released on Monday. Figures for this year and 2023 have been revised higher from earlier targets of 411,000 and 421,000, respectively. 

Immigration had been one of the main drivers of Canada’s economy, and accounts for almost all of the nation’s employment growth. Last year, Canada welcomed more than 405,000 newcomers, the largest single-year increase in its history.  

The $22 Billion Wager: DraftKings and Others Are Reaching for a Piece of the Sports-Gambling Prize.

Bookmakers have always been busy on Super Bowl Sunday, but this year will be a bonanza like never before. Bettors are on track to wager $7.6 billion on the game, up 78% from last year, and it’s not because the office pool is getting bigger. 

Legal sports gambling has now spread to 30 states and Washington, D.C.—home to more than 130 million. In the four years that it has been legal, both the amount of money bet on sports and the amount counted as revenue by gambling companies have risen nearly 1,000%, to $57 billion and $4.3 billion, respectively, according to the American Gaming Association, or AGA. 

Gambling companies spent $725 million on television ads in 2021, three times as much as on cereal ads, according to Nielsen. Such levels of spending, in addition to giveaways to bettors, mean that these companies could report losses for years, until consolidation winnows the field and a few winners emerge. DraftKings has said that online sports betting could be a $22 billion to $36 billion market when it matures, up from around $4 billion today.

An Interesting Take

As fiduciaries, we are charged with attempting to protect and grow your capital. Inside Edge is a small collection of things the Investment team comes across on a weekly basis that could have investment implications. The links below deal with politics, however are not meant as political statements. They are included because the actions and policies they address could have material investment implications. These implications could range from the flow of deposits out of the banking system to the demand for precious metals to the weakness of a currency relative to immigration patterns into a country - all things that could impact the investment environment. As fiduciaries we are paying attention to these government actions and trying to think through what they can mean for the future.

- "Just Watch Me"

- Justin Trudeau's Ceausescu Moment

This week's interesting finds

This week in charts 

Top contributors to U.S. Consumer Price Index (CPI) YoY%   

Half of the attached subscribers due to release of “Hamilton” and “Wonder Woman 1984”are gone just six months later 

Streaming-video services get a surge of subscribers when they launch a hotly anticipated show or movie. But many of these new customers unsubscribe within a few months, according to new data, a challenge even for the industry’s deep-pocketed giants. 

The data, which subscriber-measurement company Antenna provided to The Wall Street Journal, illustrate the extent to which the streaming wars require all players to consistently churn out popular and often expensive programming to keep fickle subscribers satisfied. 

“You constantly need new content,” said Michael Nathanson, an analyst for Moffett Nathanson. Streaming services not only have to build vast libraries of old shows and movies, he said, they also “need a couple big, nice theatrical movies every quarter to make it feel like it’s really valuable.” 

Coffee Reserves Plunge to Lowest in More Than Two Decades 

The era of expensive coffee is not going to end any time soon, judging from dwindling amounts held in reserves. 

Stockpiles of high-end arabica beans, a favorite of artisan coffee shops and chains like Starbucks Corp., totaled 1.078 million bags or about 143 million pounds, according to data released Monday by ICE Futures U.S. exchange. That’s the lowest level for inventories monitored by the New York exchange since February 2000. 

Coffee reserves certified by ICE have been falling since September due to soaring shipping costs and unfavorable weather that clipped production in Brazil, the world’s largest grower and exporter. 

Shrinking inventories are a concern because countries tap them when they aren’t getting enough product from overseas. It’s a sign that demand is outstripping supplies, and a condition for rising prices. Coffee prices have already been touching multiyear highs at a time when food inflation is gripping the globe.   

Canadian energy could become a hot commodity

Canadian pure gasoline will quickly be labelled with its nation of origin, very similar to that “Grown in California” sticker on an orange from the native grocery retailer, says Mark Fitzgerald, outgoing chief govt officer of Petronas Energy Canada Ltd. 

His feedback underscore a shift within the Canadian energy panorama, wherein extra corporations at the moment are eager to deal with the environmental, social and governance (ESG) measures that more and more affect world buyers and customers. Suncor Energy Inc. CEO Mark Little, for instance, stated not too long ago that ESG discussions have modified the dialog round oil to some extent, as a result of buyers and customers are not targeted solely on the worth of a barrel of crude. 

In the case of pure gasoline, Mr. Fitzgerald stated the commodity will probably be differentiated sooner or later based mostly not solely on the greenhouse gasoline emissions that come from its manufacturing, however the nation of origin’s environmental protections, respect for Indigenous rights, social insurance policies and poverty discount measures. 

And on that scorecard, he stated, Canada can nudge forward of opponents.   

Money advice

This week's interesting finds

This week in charts 

Luxury watch prices   

Canadians choose variable mortgage rates 

Food shortages 

According to this farming insider, dramatically increased costs for fertilizer will make it impossible for many farmers to profitably plant corn this year. 

Things like fertilizer and liquid nitrogen have tripled and quadrupled in price. Yes, commodity prices are up, but that certainly wont cover the new increased input costs. Corn for example, typically takes about 600 pounds of fertilizer per acre, plus 50 gallons of liquid nitrogen. Times that by many acres and that’s a lot of money. Soybeans take much less. Problem is, there is apparently a soybean seed shortage because others have this plan as well. 

Corn is one of the foundational pillars of our food supply. If you go to the grocery store and start reading through the ingredients of various products, you will quickly discover that corn is in just about everything in one form or another. 

Of course, fertilizer prices are not just going through the roof in the United States. In South America, high fertilizer prices are going to dramatically affect coffee production. Christina Ribeiro do Valle, who comes from a long line of coffee growers in Brazil, is this year paying three times what she paid last year for the fertilizer she needs. Coupled with a recent drought that hit her crop hard, it means Ms. do Valle, 75, will produce a fraction of her Ribeiro do Valle brand of coffee, some of which is exported.   

Consumers Are Pivoting Spending to Services Like Dining and Travel  

Americans responded to the pandemic with a dramatic shift in spending to goods from services. That now appears to be reversing and should gather steam as the Omicron wave of Covid-19 ebbs, economists say. 

Consumers shopped more online in the pandemic, and changed what they bought. Unable to eat out or travel, and with both school and work going remote, they splurged more on things for the home such as furniture and computers. Several rounds of federal stimulus amplified that spending spree. 

Goods—including nondurable goods such as food and clothing, and durable goods such as cars and appliances—averaged 31% of total personal consumption in the two years before the pandemic. That soared to 36% in March and April 2021, shortly before Covid-19 vaccines became widely available. The share has been dropping since, to 34% in December. Consumer spending on goods fell that month for the second month in a row, according to the Commerce Department, while spending on services increased slightly. 

James Knightley, chief international economist at ING, said consumers are starting this year with “a combination of general fatigue of buying physical things and Omicron reducing the ability to spend on services.”