This week's interesting finds

Third quarter commentaries are now live! 

This quarter, Jeff Hyrich discusses a disturbing trend he’s seeing more frequently among investors today, while Tracey Chen talks about a common investor mistake – overcomplicating the process of managing risk.

This week in charts

U.S. equity market concentration

Market concentration and 10-year returns

Distribution of 10-year returns

Yield gaps

Underinvestment in U.S. manufacturing

Re-shoring

Construction spending

Labour force participation

Early retirement

Labour force growth

Fed cuts

Payment-in-kind (PIK)

Corporate debts mount as credit funds let borrowers defer payments

A growing list of cash-strapped companies have turned to their lenders at private credit funds for relief in recent months, seeking to conserve capital by delaying payments on their debt.

The rate at which companies are opting to increase their principal balance instead of paying cash, known as “payment-in-kind” or PIK, edged higher during the second quarter, according to a recent report from rating agency Moody’s. These types of loans have a catch: while they provide temporary relief, they often come with a higher interest rate on a mounting debt load as the deferred payments pile up.

The publicly traded private credit funds that the rating agency keeps tabs on reported the highest levels of PIK income since it began tracking the data in 2020 — though the income is paper profit and it is not clear how much of the gains will actually be realised.

The growth in these types of loans is one signal of stress in corporate America even as the broader economy expands, particularly for businesses that were leveraged to the hilt by their private equity owners and are now struggling with those interest burdens.

While the Federal Reserve’s move to cut interest rates in September is the first step in alleviating pressure on borrowers, rates are expected to remain far higher than the rock-bottom level they hit in the immediate aftermath of the Covid-19 pandemic, when private equity firms went on a debt-fuelled buyout binge.

The shift to PIK borrowing is just one risk being borne by the burgeoning private credit industry, where asset managers lend directly to businesses.

This week’s fun finds

What to Look for (and Avoid) When Selecting a Pumpkin

Whether you're a practical person who fishes their pumpkins out of a big crate at the grocery store or the sentimental type who values a stroll through a pumpkin patch, the general principles of picking out a good pumpkin are the same. Depending on what you want to use your pumpkins for—carving or eating—you may want to look for slightly different things. Here's your guide to pumpkin picking.

This week's interesting finds

This week in charts

Global equity market

Equity index valuations

Entry price dictates returns

Cross-border fund flows

Sector fund flows

Yields

Cash allocation

Hyperscalers

Retail foot traffic

Research and Development

Our Big Mac index shows how burger prices differ across borders

Since 1986 The Economist has produced the Big Mac index as a light-hearted gauge of whether currencies are at their “correct” level. The famous burger is a good test of currency valuations because of its global uniformity and ubiquity. The same properties make it a useful way of comparing international salaries: how many Big Macs, in principle, can a typical worker afford with their wages? 

The more conventional way of comparing incomes is to convert wages in different countries into a common currency. But that is misleading because exchange rates are volatile. Moreover, one American dollar goes a lot farther in, say, the Philippines than it does in America itself. The Big Mac helps to solve this problem as a ready-made illustration of purchasing power: it represents a bundle of goods (or, rather, a bun of goods) that is identical everywhere, and so it serves as a yardstick of the real cost of things from country to country. 

For the Big Mac wage analysis (the MacWage, for short), we started with full-time, pre-tax earnings in 2023 as reported by the OECD, a club of 38 mostly rich countries. We then made a simple adjustment, dividing wages by the price of a Big Mac—all in local currencies. That gave us the number of burgers that the average full-time worker can buy annually.

This week’s fun finds

Art and Science Set Sail in Schmidt Ocean Institute’s Artist-at-Sea Program

“There are many ways to tell a story or to document and share research and discoveries,” says artist Ellie Hannon, one of 54 artists who has embarked on a unique residency organized by the Schmidt Ocean Institute (previously). From slip-cast porcelain and painting to 3D printing and virtual reality, the storytelling possibilities are endless in the Artist-at-Sea program, which invites artists to work alongside scientists on weeks-long expeditions into some of the least-explored areas of our oceans.

Interacting with researchers from around the world provides artists the opportunity to reimagine scientific inquiry as a range of art forms and share discoveries and technologies through an approachable medium. Schmidt Ocean Institute then adds one piece from each artist to its collection, exhibiting the work globally in a continued effort to advance knowledge about the marine world.

This week's interesting finds

This week in charts

U.S. search advertising revenue

Net Ad revenue

Fund flows to China

Exports from Canada to China

Working-age population

Capital expenditure

U.S. 10yr Treasury

Discretionary spending per household

Spreads

Automotive industries

Google’s Grip on Search Slips as TikTok and AI Startup Mount Challenge

For years, the tech giant has seemed invincible in this corner of the ad market, which is the foundation of its business. Now, rivals are beginning to eat into its lead, and new offerings—fueled by the rise of artificial intelligence and social video—threaten to reshape the landscape. 

TikTok, the wildly popular short-form video platform, has recently started allowing brands to target ads based on users’ search queries—a direct challenge to Google’s core business.

Perplexity, an AI search startup backed by Jeff Bezos, plans to introduce ads later this month under its AI-generated answers. Until now, it has made revenue mostly from a $20-a-month subscription offering that grants access to more-powerful AI technology.

Google’s share of the U.S. search ad market is expected to drop below 50% next year for the first time in over a decade, according to the research firm eMarketer.

Amazon is expected to have 22.3% of the market this year, with 17.6% growth, compared with Google’s 50.5% share and its 7.6% growth.

Google remains in an enviable position: far ahead of the pack in the search market, with plenty of resources to counter moves by its rivals. Still, advertisers are eager for more competition.

The increased competition, coupled with legal pressures on Google, makes it a particularly tense time for the Alphabet -owned ad giant. This past summer, Google lost an antitrust case over its dominance in the U.S. search-engine marketplace after a federal judge said it acted illegally to maintain a monopoly in the sector. Google plans to appeal the ruling.

OSC Launches Trading Simulation Tool for Retail Investors

The Get Smarter About Trading simulator provides retail investors with a chance to participate in a simulated stock market and practice online trading. 

It exposes users to gamification techniques to show them what could be influencing their investing behaviour, according to Leslie Byberg, Executive Vice President, Strategic Regulation at the OSC.

As digital trading platforms have grown in popularity, regulators around the globe are alert to the usage of digital engagement practices (DEPs) within these platforms, according to the OSC.

In addition, the OSC has released a new report that studied the impact of gamification on investors.

The report, Gamification Revisited: New Experimental Findings in Retail Investing, looks at whether promoting certain assets on digital investing platforms presents a risk to investors.

The research found two types of promotion had a significant impact on participants’ trading behaviours; those who saw promoted stocks featured on a social feed traded 12% more in those stocks, and those who had the option to copy the trades of a “high performing” user traded 18% more in the promoted stocks.

The findings suggest that these social engagement techniques can influence investor behaviours by encouraging trading in specific assets. 

The new report builds on the work of an earlier OSC research report Digital Engagement Practices in Retail Investing: Gamification and Other Behavioural Techniques.

The experiment found participants rewarded with points for buying and selling stocks made 39% more trades and those who saw a list of top traded stocks were 14% more likely to buy and sell those stocks. More frequent trading generally has a negative impact on investor returns.

This report also contains several recommendations for how regulators and authorities in Canada and abroad might respond to the ongoing use of digital engagement practices by online investing platforms. 

This week’s fun finds

Thankful for sharing a meal with our coworkers (and the trust our partners place with us every day). Happy Thanksgiving everyone!

Wherefore Turkey? How poultry made its way onto the holiday menu.

They were fresh, affordable, and big enough to feed a crowd. Americans have long preferred large poultry for celebrations because the birds could be slaughtered without a huge economic sacrifice. Cows were more useful alive than dead, and commercial beef wasn’t widely available until the late 19th century. Chicken was more highly regarded than it is today, but rooster meat was tough, and hens were valuable as long as they laid eggs. Venison would have been another option, especially during the 17th and 18th centuries, though it would have required you to hunt for your Thanksgiving meal. 

Among the big birds, turkey was ideal for a fall feast. Turkeys born in the spring would spend about seven months eating insects and worms on the farm, growing to about 10 pounds by Thanksgiving. They were cheaper than geese, which were more difficult to raise, and cheaper by the pound than chickens. Cost was an important factor for holiday shoppers, because people weren’t necessarily preparing just one meal; Thanksgiving was the time to bake meat and other types of pies that could last through the winter.

This week's interesting finds

This week in charts

Top export destinations of Chinese cars

Unemployment

Mortgage rates

China Exposure

Growth vs. value 

Global market capitalization

S&P 500 sector composition

Global valuations

Hedge fund performance

USD vs. global currencies

EU to Impose Tariffs Up to 45% on Chinese Electric Vehicles

The European Union voted on Friday to impose tariffs as high as 45% on electric vehicles from China, threatening a broader trade conflict with Beijing which has already vowed to protect its companies.

Shares in European automakers rose after the vote. 

The European Commission, the bloc’s executive arm, can now proceed with implementing the duties, which would last for five years. Ten member states voted in favor of the measure, while Germany and four others voted against and 12 abstained, according to people familiar with the results.

The decision by the EU comes after an investigation found that China unfairly subsidized its industry. Beijing denies that claim and has threatened its own tariffs on European dairy, brandy, pork and automobile sectors.

The bloc is actively trying to reduce its dependencies on China, with former European Central Bank President Mario Draghi warning last month that “China’s state-sponsored competition” was a threat to the EU that could leave it vulnerable to coercion. The EU, which did €739 billion ($815 billion) in trade with China last year, was split on whether to move forward with the duties.

The EU and China will continue negotiations to find an alternative to the tariffs. The two sides are exploring whether an agreement can be reached on a mechanism to control prices and volumes of exports in place of the duties.

 China’s commerce ministry acknowledged the EU’s political will to continue negotiations while warning that the tariffs will “shake and hinder” the confidence of Chinese companies investing in Europe. 

Chinese EV makers will have to decide whether to absorb the tariffs or raise prices, at a time when slowing demand at home is squeezing their profit margins. The prospect of duties has prompted some Chinese automakers to consider investing in factories in Europe, which might help them dodge tariffs.

The additional tariffs already have slowed Chinese carmakers’ momentum in Europe, with their sales plunging 48% in August to an 18-month low. The region is a desirable destination for the nation’s manufacturers because EVs sell in relatively high numbers and at much more robust prices than other export markets.

The share of electric cars sold in the EU that were made in China climbed from around 3% to more than 20% in the past three years. Chinese brands accounted for around 8% of that market share, as international companies that export from China including Tesla Inc. taking up the rest.

This week’s fun finds

EdgePoint’s volleyball team hit the court yesterday with their first game of the season. Despite falling short to clinch the “w”, the team collaborated seamlessly and demonstrated immense skill and resilience on the court. The game was action packed with excellent serves, blocks and even some dives. 

Purple place: Mets unveil the new Grimace seat at Citi Field

The kid-friendly McDonald’s character made another appearance at the ballpark Monday, when the New York Mets unveiled a commemorative purple seat in section 302 to honor “his special connection to Mets fans.”

Wearing his pear-shaped purple costume and a baseball glove on backwards, Grimace threw out a funny-looking first pitch — as best he could with those furry fingers and short arms — before New York beat the Miami Marlins at Citi Field on June 12.

That victory began a seven-game winning streak, and Grimace the Mets’ good-luck charm soon went viral, taking on a life of its own online.

New York is 53-31 since June 12, the best record in the majors during that span. The Mets were tied with rival Atlanta for the last National League playoff spot as they opened their final homestand of the season Monday night against Washington.