This week's interesting finds

Second quarter commentaries are now live! 

This quarter, Sydney Van Vierzen talks about the importance of investing in businesses and not hype, while Steven Lo discusses the importance of aligning targets with the reason behind them.

This week in charts

Copper

Average family size

Savings

Private equity fundraising trends

Rail freight carloads

S&P 500 performance

Concentrated equity market 

Small caps vs. large caps

Currency returns

Active vs passive

Nvidia market cap as a % of GDP

Copper miners predict industry overhaul as end users rush to secure supply

Executives at leading mining groups see increasing signs of a shift to direct deals with cable manufacturers and other big buyers to secure supply of the “metal of electrification” at an affordable price.

The debate raging within the industry is whether miners need to consolidate into “supermajors” or become more open to partnering to build complex multibillion-dollar projects — both moves that have precedent in the oil industry.

For renewable energy project developers and EV makers, volatile commodity prices can mean the difference between success and catastrophe.

Substitution and reduction of copper use is also likely to occur if prices remain elevated. China is replacing it with aluminium in long-distance power wiring. US aluminium producer Alcoa’s chief executive William Oplinger sees 1mn tonnes of extra demand coming from substitution. As for demand destruction, Anglo’s Gait says that in plumbing, which accounts for 9 per cent of copper consumption, it “is the easiest material to remove”.

But ultimately, most analysts and executives agree that the predicted shortfall for copper has been years in the making because of under-investment in discovering and developing projects that take about 15 years to reach first production.

As AI Helps Veteran Workers Do Their Jobs, Who Will Train the Young Employees?

Whenever people talk about the dangers AI holds for the workforce, they usually have one thing in mind: technology stealing jobs. But artificial intelligence poses a much more subtle threat than that—one that will have consequences for business unless we address it.

Simply put, the way we’re handling AI is keeping young workers from learning skills.

As learning opportunities like these are lost throughout more industries, the results could be profound for both individual workers and the economy. We are sacrificing skill building and human bonds of mentoring on the altar of productivity. No matter our role, tenure, occupation or industry, if we can’t collaborate with someone who knows more, we’re not going to learn effectively, and we won’t be able to keep up. And our organizations will struggle where they might otherwise race ahead—because workers won’t have the deep knowledge they need to innovate and step into senior roles.

Solving the problem is vital, but how should we do it? My collaborator and I found evidence of one approach that can work.

Remember, the problem right now is that senior workers are learning new technologies, such as robotic surgery, that make junior workers unnecessary. In our research, though, we found cases where junior and senior workers teamed up to learn about new technologies together.

By working closely with seniors in this way, the juniors didn’t just learn about the new technologies, they ended up collaborating with seniors on other aspects of the job. Since the older and younger workers were figuring out how the tech worked, they also needed to figure out how to integrate it into vital day-to-day tasks. So, the novices got to see firsthand how those jobs were done while performing actual work.

It will not only help close the skills gap, it will give old and new workers a new sense of purpose on the job—through strengthened relationships. Research shows very clearly that we get motivation for our work when it builds trust and respect with those who share our values. Progressing to more competence therefore involves questions of the heart, like, “Have I earned this expert’s trust and respect?” or “Does this novice look up to me?”

This week’s fun finds

When Wid first arrived in Canada from France this year, the first comfort food he ate was tacos at a Mexican restaurant. Fast forward to today and he’s sharing those comforting tacos with the rest of his Partners at EdgePoint. When asked if he was happy with how his moai turned out, he genuinely responded, “I’m only happy if you’re all happy”.

People are obsessed with this weird pizza box. The company behind it won’t discuss it

 “What’s the ... deal with this pizza box? Who designed it? Where can I see more of their work? Do they have these boxes everywhere? Are there other pizza boxes that even come close to being this weird?”

Chefs and restaurateurs laid out a variety of theories about the box’s conception, even suggesting that artificial intelligence was involved. But Cohen nixed that notion: “AI can’t mess this up that bad.”

This week's interesting finds

This week in charts

Defense expenditure

Bubbles

Air freight demand vs supply

S&P 500 stock concentration

Large cap growth stocks

MSCI EAFE & MSCI USA performance

Global valuations

Semiconductors

Private equity firms slash use of risky debt tactic to fund payouts

Private equity firms have sharply curtailed their use of a controversial debt financing manoeuvre to return cash to investors, after institutions raised concerns about how some groups have embraced new forms of leverage to compensate for a lack of deals.

Buyout firms have increasingly added an additional layer of leverage on top of their typical deal-linked borrowing, taking on debt secured against their fund investments, with some firms relying on those funds to pay dividends to investors.

NAV loans, which are collateralised by the individual investments in a fund and can equal as much as 20 per cent of the fund’s overall value, have enabled firms to extract cash from their portfolios without having to sell assets in difficult markets.

Toronto Condo Developers See Lowest New Unit Sales in 27 Years

Sales of newly built condos in Canada’s largest city fell 57% from last year, to just 3,159 transactions in the first half of this year, consultancy Urbanation said in a Report Thursday. That’s the fewest in the first half of a year since 1997, helping unsold inventory rise to a record.

While the Bank of Canada cut rates in June for the first time in four years, the quarter-point decrease may not be enough to relieve pressure on a housing market that has grown unaffordable for many Canadians. With inflation easing and the unemployment rate rising, the central bank is widely expected to continue reducing borrowing costs — including at its rate decision next week.

The lower mortgage rates those cuts would bring may be the best hope for making new condos more affordable to buyers.

This week’s fun finds

The Fried Chicken Sandwich Wars Are More Cutthroat Than Ever Before

For a chain that offers endless combos of mostly anything as long as it can fit in the confines of a bowl, a bulging fried chicken sandwich smothered in a special sauce was an “interesting direction,” concedes Tracy Kim, Dig’s chief executive officer. It works well for high school kids, she says. More important, the chain, which has nearly three dozen locations in the Northeast, was responding to what customers wanted. “We got a lot of requests, especially through catering, for a handheld offering,” Kim says. 

Dig could have spun out any number of holdable foods—a Havarti and roasted turkey on olive ciabatta, an artichoke pesto flatbread or a barbacoa taco with purple slaw—all would have been perfectly on-brand. Instead, it made a hard pivot to a fast-food favorite. Even though Dig’s version is antibiotic-free and baked instead of fried, this seemed to indicate something else was going on. The Fried Chicken Sandwich Wars were back, if they ever ended at all. 

Hawaiian shirt Monday

From left to right: Miguel, Jack, Mikhail and Juan of the Investment Analytics and ESG team 

A perfect example of how great partners inspire one another, even in fashion.

This week's interesting finds

This week in charts 

S&P 500 stock correlations to the market

Top 10 weights in the S&P 500 Index

Tech stocks

Equipment & supplies

Negative real bond returns

World stock markets

Industry weights

60/40

Correlations

U.S. Large caps

Distressed Property Buyers Seek Out ‘Exceptional Bargains’

Distressed investors see one of the best opportunities in a generation to buy troubled US real estate assets as the commercial property crash continues to roil the market.

Private equity firms are already positioning to take advantage. About 64% of the $400 billion of dry powder that the industry has set aside for property investment is targeted at North America, the highest share in two decades, according to data compiled by Preqin.

The fear elsewhere is that a strong US bias will mean other parts of the world won’t draw the same demand, delaying the work out of troubled loans and properties there.

Shrinking Pool

While the US looks attractive to private equity buyers, the overall pool of PE capital for CRE has shrunk. That will throw up some problems for credit investors, for example.

The amount of money set aside for real estate debt strategies globally by the firms shrank by 26% to $56.1 billion through May from the end of 2021, Preqin data show. That could, for example, limit buyer interest in non-performing CRE loans from Korea to China as loans sour.

Investors shun riskier junk bonds as bankruptcy filings jump

Investors are selling out of the riskiest US junk bonds in favour of higher-quality debt, amid a surge in bankruptcy filings and concerns over how the weakest corners of corporate America will survive a prolonged period of high interest rates.

The move highlights how traders are growing increasingly concerned about weaker companies potentially losing access to funding and defaulting on their debt as borrowing costs stay high, and are instead opting to buy the debt of stronger companies for the yields on offer.

Analysts and investors said higher-grade borrowers typically have more flexibility to handle interest rates at their current 23-year highs, while lower-quality names are more vulnerable. 

This week’s fun finds

The Legacy of the Unforgettable ‘Beverly Hills Cop’ Theme Song

One of the most infectious earworms in movie history is back:

Doo, dah, doo-ba-dee doo-dah…

The zigzag synthesizer tune was the hit sound of “Beverly Hills Cop” and a signature Eddie Murphy character in 1984. Then it became a fixture in pop culture—quoted, sampled and remixed repeatedly over the decades, including in a mid-aughts ringtone craze. Now those bouncing, burbling ditties can be heard again in a new “Beverly Hills Cop” sequel, released July 3 by Netflix, and in a theme song performed by Lil Nas X.

The man who wrote and performed the original hooks was a pioneer of synthesizer music in film scores and helped define the sound of the ‘80s. He earned millions of dollars in royalties from “Axel F,” the theme song named for the character Murphy made famous. These days, composer Harold Faltermeyer is content if people just know that he, too, played a role in making “Beverly Hills Cop” memorable.

Stampede Pancake Breakfast - a Calgary tradition

Investment Team intern Shayan caused a "stampede" in the office with his moai. In honour of his hometown's tradition, he organized a pancake breakfast for the Toronto office so that those of us who couldn't make our way to Calgary could enjoy.

This week's interesting finds

This week in charts 

Inventory 

S&P 500 performance 

Momentum

U.S. equities

U.S. small caps

Mortgage renewals

Emerging markets vs. developed markets

IPOs

Government debt

Green Deal fatigue? How the European Parliament elections could affect EU climate policies.

The European Union (EU) likes to present itself as a decarbonization pioneer. Its ambition to make Europe the first climate neutral continent by 2050 has been translated into bold measures that challenge the economic and social status quo. The European Green Deal, as the cornerstone climate project of the past European Commission approved in January 2020, set in motion key energy and environmental legislations and established strategies for different sectors. 

But now, climate-skeptic voices and opposition to climate efforts are gaining political weight, as shown by recent trends in the European Parliament election results earlier this month. While Europeans still see climate change as a major challenge, discontent with financial developments and concerns about defense and security rank even higher in their priorities, according to the latest Eurobarometer polling. 

The risk of a replay of the lost decade in US stocks

No economic model would have predicted stocks would be at all-time highs and credit spreads would be very narrow after the Federal Reserve raised its benchmark interest rate by 5.25 percentage points since early 2022. Yet, that is exactly what has happened.

The Fed seems ready to declare victory in its fight against inflation, but the outperformance of highly speculative investments suggests that even such a sharp increase in interest rates hasn’t been a big enough mop to soak up the excess liquidity sloshing around the financial markets.

There is evidence that speculation could again be curtailing the Fed’s inflation-fighting power, but the central bank seems blind to this. Investors shouldn’t be.

This week’s fun finds

What Competitive Eating Does to the Body

Some may see the annual Coney Island, N.Y., contest as an act of defiance, capturing the holiday spirit. When the British taxed our sugar, we fought for independence. When modern-day doctors tell us to eat fewer carbs that turn quickly into blood sugar, we devour as much as possible on ESPN—and walk away seemingly unscathed. 

But this gastric rebellion could damage the body, during competition and over the long haul.