This week's interesting finds

Tracey, partner since 2017 (Toronto, Ontario)

This week in charts

Freight

Air traffic

U.S. Federal spending on seniors

Emissions by country

Crypto-mining energy consumption

Opinion: Alarming drop in mining derails drive for Net Zero

The 38th edition of the World Mining Data report, published annually by the Austrian government, finds that mining production is not meeting the hopes of governments working to increase their own domestic and friendly sources of minerals. Rather, production has roughly plateaued, with the sector yet to match the peak production of 18 billion metric tons achieved in 2019. Far from growing our outputs, we’re struggling to maintain them.

Even more troubling: more than a third of global mining production remains controlled by our two biggest geopolitical adversaries. China is still responsible for over a quarter of the total and Russia another 9.2 per cent on top of that. China is the world’s largest producer of 29 different commodities and dominates the processing and refining of many others.

In Canada, meantime, we are punching below our weight, ranking only eighth in world production, well behind our peers, the U.S. (second) and Australia (fourth). We do lead the pack in new exploration spending but our actual production of critical minerals is falling, despite renewed attention from the federal government and bilateral agreements with most of our closest allies to increase supply.

Natural Resources Canada released its annual mining production results in mid-April, confirming that in 2022 we produced fewer critical minerals — the copper, cobalt, nickel, zinc, uranium and platinum-group metals that are essential to the energy transition — than in 2019. Output of gold, which is a hedge against inflation and economic uncertainty, did increase, as did output of silver, iron and potash, a key ingredient in fertilizer. But they won’t help us hit our climate goals, and output of metals that would won’t be taking off any time soon, according to the Prospectors and Developers Association of Canada.

Governments are aware of and concerned with the problem. At the latest G7 climate and energy meeting in Japan, where critical minerals were at the forefront of discussions, Canadian Minister of Environment and Climate Change Steven Guilbeault assured reporters, “We can become a reliable provider of these resources or products for our international allies.” The key word, of course, is “become.” Because the latest data show that, despite what may be the best of intentions, Canada is not yet filling any of the supply gaps the world is suffering in reliable and affordable critical minerals. Just last month, our only rare-earths mine suspended production due to high costs and low commodity prices. High capital costs, supply chain woes, labour shortages and regulatory burdens are not uniquely Canadian problems. But they are still problems.

A Record Number of Canadians Are Trying to Restructure Their Debts

Consumer proposals, or alternative arrangements to settle debts with creditors, rose 36% from a year earlier, according to data released Wednesday by the Office of the Superintendent of Bankruptcy Canada. That brings the monthly total to 9,337, the most since at least 2011.

Total insolvencies, which also include bankruptcies, jumped to 11,768, the highest since the end of 2019. While that’s in part a rebound from near historically low levels, the jump may add to evidence that restrictive borrowing costs are starting to weigh on Canadian households as debt payments eat up a greater proportion of incomes.

“There are some very concerning trends in the data,” Charles St-Arnaud, chief economist with Alberta Central Credit Union, said by email. “It is clear that we are seeing a rise in households struggling and needing to renegotiate the terms of their loans.”

This week’s fun finds

To celebrate his retirement, Pho treated the Toronto office to lunch from one of our favourite Portuguese restaurants. It’s never fun saying goodbye to someone who’s been an internal partner for 14 years, but we’re happy for him as he starts his post-EdgePoint life. We hope he comes to visit us (especially if he comes bearing grilled chicken).

Taco Bell’s Innovation Kitchen, the Front Line in the Stunt-Food Wars

Taco Bell’s food-innovation staff, which includes sixty developers, focusses on big questions: How do you make a Cheez-It snack cracker big enough to be a tostada? What are the ideal Cheez-It dimensions to guarantee that the tostada won’t crack inconveniently when bitten into? Or consider the Doritos Locos Taco: What safeguards can be implemented to prevent the orange Doritos dust from staining a consumer’s hands or clothing? Can fourteen Flamin’ Hot Fritos corn chips be added to the middle of a burrito and retain their crunch? Can a taco shell be made out of a waffle, or a folded slab of chicken Milanese? These are all problems of architecture and scalability; fast food is assembly, not cooking.

After passing through several doors that were unlocked via a coded keypad, I sat with Rene Pisciotti, the executive chef, who is known as the Taco Whisperer; Liz Matthews, the global chief food-innovation officer; and Heather Mottershaw, the vice-president of pipeline innovation and product development. (She invented the Waffle Taco.) I was handed a plastic cup of Baja Blast soda—tropical Mountain Dew in a proprietary shade of turquoise—and a plate of hard-shell tacos. Pisciotti, a burly man with gelled hair who used to work for Barilla, the Italian food company, averted his eyes in a practiced way as I took a bite, sending an avalanche of shredded lettuce and cheese onto the floor. He then summoned several assistants, who streamed in to hand each of us a sample of a new product: a burrito with melted cheese on top. He wanted to show me an example of how his team solved a problem.

The innovation team at Taco Bell shares this zeal. Its work is intricate, the lab as much think tank as mad-scientist lair. Frito-Lay, which supplies the chain with taco shells, runs a research complex outside of Dallas that’s staffed by hundreds of chemists, psychologists, and technicians, who perform millions of dollars’ worth of research a year examining the crunch, mouthfeel, and aroma of each of its snack products. A forty-thousand-dollar steel device that mimics a chewing mouth tests such factors as the perfect breaking point of a chip. (People apparently like a chip that snaps with about four pounds of pressure per square inch.)

As menu items are developed, various iterations are tested at the Taco Bell Sensory Panel, at the company’s headquarters. Professional testers, trained by Taco Bell, along with members of the company’s broader workforce, sit in carrels at a long counter while researchers on the other side of a window slide trays of samples to them. Each tester has a silver button to push when ready for another dish. Pisciotti studies their faces in real time on a monitor and scribbles notes. “I have a camera on people—it’s not creepy, I promise,” he said. Sometimes testers pick an item up and immediately drop it. “And I’m, like, O.K., we have a temperature problem here,” he said. “We don’t want to hurt consumers.” Other times, “people just have a ho-hum look on their face.” The best scenario is when a tester eats an entire portion before saying anything.

Failure is a big part of the job. “There’s more items that don’t make it than ones that do,” Mottershaw said. “And there are things that are before their time.” Hypotheses are tested; experiments rarely pan out. The Crispy Melt Taco, introduced in 2021, “started out blue, because we made it with blue corn,” she said. “We called it Midnight Melt and Forbidden Taco, to try to give it a reason for having a blue shell. But people were confused—like, Is it made for nighttime? Is this old? What’s forbidden? What happened to it?” Pisciotti said, “The masses don’t know that blue corn is a thing—they don’t shop at Trader Joe’s.” (Other items that haven’t made the grade: the Croissant Taco, Crispy Cheese Curd Loaded Fries, Seafood Salad.) “We introduce things to the masses,” he added.

The Untold Story of the Boldest Supply-Chain Hack Ever

It was late 2019, and [Steven] Adair, the president of the security firm Volexity, was investigating a digital security breach at an American think tank. The intrusion was nothing special. Adair figured he and his team would rout the attackers quickly and be done with the case—until they noticed something strange. A second group of hackers was active in the think tank’s network. They were going after email, making copies and sending them to an outside server. These intruders were much more skilled, and they were returning to the network several times a week to siphon correspondence from specific executives, policy wonks, and IT staff.

Adair and his colleagues dubbed the second gang of thieves “Dark Halo” and booted them from the network. But soon they were back. As it turned out, the hackers had planted a backdoor on the network three years earlier—malicious code that opened a secret portal, allowing them to enter or communicate with infected machines. Now, for the first time, they were using it. “We shut down one door, and they quickly went to the other,” Adair says.

Around the time Adair’s team was kicking Dark Halo out of the think tank’s network, the US Department of Justice was also wrestling with an intrusion—one involving a server running a trial version of the same SolarWinds software. According to sources with knowledge of the incident, the DOJ discovered suspicious traffic passing from the server to the internet in late May, so they asked one of the foremost security and digital forensics firms in the world—Mandiant—to help them investigate. They also engaged Microsoft, though it’s not clear why. (A Justice Department spokesperson confirmed that this incident and investigation took place but declined to say whether Mandiant and Microsoft were involved. Neither company chose to comment on the investigation.)

In fact, the Justice Department and Volexity had stumbled onto one of the most sophisticated cyberespionage campaigns of the decade. The perpetrators had indeed hacked SolarWinds’ software. Using techniques that investigators had never seen before, the hackers gained access to thousands of the company’s customers. Among the infected were at least eight other federal agencies, including the US Department of Defense, Department of Homeland Security, and the Treasury Department, as well as top tech and security firms, including Intel, Cisco, and Palo Alto Networks—though none of them knew it yet. Even Microsoft and Mandiant were on the victims list.

This week's interesting finds

Pho, partner since 2009, (Shibuya Crossing – Tokyo, Japan)  

This week in charts 

Car manufacturing 

Energy 

The Building Boom Is Prolonging Market Pain

Construction spending and employment have risen to new records this year, boosted by government outlays for infrastructure, a domestic manufacturing renaissance and a wave of apartment building that got off to a slow start during the pandemic when prices for building materials, such as lumber, were sky high. 

Construction companies with jobs ranging from airport overhauls to bathroom renovations say they have enough work booked to maintain payrolls—for years in some cases. Even home builders, who slowed down last year when rates began to rise, are ramping up into spring. 

The persistent strength in a sector that is usually among the first to suffer job loss when borrowing costs rise is undermining investor hopes that the Fed’s aggressive interest-rate increases would quickly slow inflation and rejuvenate the stock market. 

It also threatens to upend bets in the market that recession and lower rates are on the horizon. Investors are trading government bonds as if rate cuts will come within the next year and buying technology stocks, bitcoin and other speculative assets that surged when borrowing costs were near zero. 

The issue for investors is that the longer it takes for construction activity and employment to decline, the longer it will be before the central bank can cut rates. 

There are signs of slowdown, to be sure. Apartment construction is expected to decline once the latest batch of buildings is finished. Problems at regional banks are drying up financing for some projects.

This week’s fun finds 

How Music Affects Your Brain 

As a translational researcher at Johns Hopkins School of Medicine, studying how the arts help us to heal, learn and flourish, I’ve read thousands of studies that offer foundational findings about how music and sound impact many parts of our brains and bodies. This day, I was comforted once again by the power of music to support my mental wellbeing. The simple act of listening to a favorite song can alter your mood, triggering long-ago memories. And when we remember to use this knowledge for prevention, wellness practices and interventions, it can significantly enhance your daily life. 

At its core, we feel music—and now we are closer than ever to understanding why. One reason music has such an immediate impact on us is due to the way it is processed rapidly in the limbic system, the part of the brain which helps us experience emotions. 

Over the last 20 years advances in technology including functional magnetic resonance imaging (fMRI), and positron emission tomography (PET) have enabled us to see what is inside our heads and study the extraordinary ways the arts and aesthetics impact us, offering mind expanding gateways to whole health. Music is the most studied art forms, and researchers are now beginning to understand some of the ways they alters a complex physiological network of interconnected systems in the brain including the prefrontal frontal, visual cortex, the amygdala, hippocampus, auditory and sensory cortex, to name a few. 

Turns out that not only listening to music, but making it, also has significant benefits. For example, mothers sing to their babies to help relieve symptoms of postpartum depression and enhance bonding by reducing cortisol, a major stress hormone. And people with dementia are singing too, accessing autobiographical musical memories encoded in multiple brain regions that have not been damaged by the disease. The result is a radical presence with family and friends, if only for a short time.   

French bulldogs are taking over America 

Frenchies are odd little creatures. Colette, a Parisian author born in the 19th century, compared hers to a frog that had been sat upon. Over time they have been bred to have increasingly stocky frames, bat ears and squishy noses—which, though chic, is also cruel and life-threatening (a recent British study of 18 breeds kept as pets found French bulldogs to have the shortest life expectancy; in New Zealand vets reckon the dogs are “too compromised to continue breeding” them). 

Yet they remain attractive to owners, partly because of their small size. In countries with a high concentration of urban dwellers, tiny dogs that can trot around bijou apartments are appealing. Behaviour also plays a part. Frenchies have a reputation for being friendly towards humans and dogs. But that does not make them unique. A recent study found that many popular types of dog are equally or more friendly, on average. 

Bilingualism May Stave Off Dementia, Study Suggests 

Studying hundreds of older patients, researchers in Germany found that those who reported using two languages daily from a young age scored higher on tests of learning, memory, language and self-control than patients who spoke only one language. 

In recent years, scientists have gained a greater understanding of bilingualism and the aging brain, though not all their findings have aligned. Some have found that if people who have fluency in two languages develop dementia, they’ll develop it at a later age than people who speak one language. But other research has shown no clear benefit from bilingualism. 

Neuroscientists hypothesize that because bilingual people switch fluidly between two languages, they may be able to deploy similar strategies in other skills — such as multitasking, managing emotions and self-control — that help delay dementia later on. 

Volunteers who reported using a second language daily between age 13 and 30 or between age 30 and 65 had higher scores on language, memory, focus, attention, and decision-making abilities compared with those who were not bilingual at those ages. 

Investigating bilingualism at different life stages is a unique approach, said Boon Lead Tee, a neurologist at the University of California, San Francisco, who was not involved in the research. With the impressively large sample size, she said, the authors of the study can probably generate other novel results, such as whether the age at which a person acquired each language affected their cognition in later life.

This week's interesting finds

Adam Z., partner since 2021 (Toronto, Ontario)   

This week in charts   

Housing 

ESG 

Downtowns

Fire Sale: $300 Million San Francisco Office Tower, Mostly Empty. Open to Offers. 

One building, a 22-story glass and stone tower at 350 California Street, was worth around $300 million in 2019, according to office broker estimates. 

That building now is for sale, with bids due soon. They are expected to come in at about $60 million, commercial real-estate brokers say. That’s an 80% decline in value in just four years. 

This is how dire things have become in San Francisco, an extreme form of a challenge nationwide. Nearly every large U.S. city is struggling, to some degree, with reduced office-worker turnout since the pandemic spurred remote work. 

No market was hit harder than San Francisco, for reasons including its high costs, reliance on a tech industry quick to embrace hybrid work, and quality-of-life issues such as crime and homelessness.

Many of the city’s most prominent corporate tenants, from Salesforce Inc. to Facebook parent Meta Platforms Inc., are flooding the office market with space for sublet rather than waiting for their leases to expire. The lack of office workers is rippling throughout the financial district, leading restaurants, retailers and other small businesses to lay off employees or close. 

In February, San Francisco Mayor London Breed rolled out her plan to revitalize the downtown office market, the latest U.S. city to announce steps to recover from the office-worker exodus. Her proposal includes a mix of tax incentives. 

Any financial solution to the city’s problems is made harder because property owners are among the city’s biggest taxpayers and now are earning considerably less income. The San Francisco controller’s office forecasts up to $1 billion in lost property taxes for local agencies from commercial buildings alone through 2028. Retail sales have fallen steeply in San Francisco. 

Ms. Breed asked city department heads to prepare for cuts of up to 13% over the next two years to cope with a projected budget shortfall over that time of $780 million, or 6% of the total general-fund revenue, amid overall economic risks. 

Average asking office rent was $75.25 a square foot in the first quarter of this year, compared with $88.40 the first quarter of 2020, according to CBRE. Meanwhile, tenants are getting sublease space for as low as $25 a square foot. That is just enough to pay the electricity, heat and other costs to operate a building, said Elizabeth Hart, president of North American leasing for commercial property services firm Newmark Group Inc. 

This week’s fun finds 

The King in the Endgame 

The World Chess Championship is currently happening in Kazakhstan, but the world chess champion, Magnus Carlsen, isn’t participating. He has chosen to abdicate his throne, surrendering the title he first won in 2013 without defending it for a fifth time. Instead, the match—a best of 14 games (plus tiebreaks, if needed)—is between Russian grandmaster Ian Nepomniachtchi, who faced Carlsen for the title in 2021 and is the second-ranked player in the world, and Chinese grandmaster Ding Liren, the world’s third-ranked player. When asked before the start of the match who he thought would prevail, Carlsen replied, “I don’t care.” 

For the last 10 years, Carlsen has stood head and shoulders above the world’s best chess players. The 32-year-old Norwegian currently holds chess’s top Elo rating, 2853, more than 50 points higher than either of the current competitors for the world championship. He achieved the rank of grandmaster at the age of 13 and at 19 was the youngest player to reach the no. 1 ranking. He has won five world championship titles, four World Rapid Chess Championships, and six World Blitz Chess Championships. His peak Elo rating of 2882, achieved twice in 2014 and 2019, is the highest in chess history. Magnus Carlsen is without rival, living or otherwise. 

And during all of this, where is Magnus Carlsen? He doesn’t appear to be coming to Kazakhstan after all. Instead, he’s in Los Angeles, at the Hustler Casino, playing $100 to $200 no-limit poker against TikTokers and YouTubers. Like a lot of elite games players, Carlsen is a bit of a polymath, and he has a proclivity for gambling on games of skill. He excels at poker, has crushed fantasy sports, has a sponsorship with the sports betting site Unibet, and hosts a podcast with sports bettor Magnus Barstad. It’s yet another reason to forgo the intense yearlong preparation for a World Chess Championship defense. Perhaps Magnus simply has other things he’d rather be doing. After all, playing chess has already made him incredibly wealthy. He’s already reached the highest pinnacle of the game and etched his name in the history books. There might be something to be said for remaining king of the hill for as long as one possibly can, but that doesn’t appeal to Carlsen. “Four championships to five, it didn’t mean anything to me,” he said about his last title defense. ”It was nothing. I was satisfied with the job that I’d done. I was happy not to have lost the match, but that was it.”   

John Oliver Tells Us Why No One Should Trust Jim Cramer 

Last Week Tonight host John Oliver with a reminder of why no one should take financial advice from Jim Cramer following a segment on cryptocurrency and the risk it poses to our financial sector.

(2 min video)

This week's interesting finds

First quarter commentaries are now live! 

This quarter, George Droulias talks about the importance of having “non-obvious” insights, while Frank Mullen discusses how he believes EdgePoint's fixed income approach answers a lot of the questions investors have about the current market environment. 

Alexandra, partner since 2018 (Toronto, Ontario)   

This week in charts 

Investment options   

Mortgages 

Canadian savings 

Toronto housing   

Immigration is back in the US

In the US, immigration accounted for about half of the growth in the working age population between 1995 and 2014 according to Pew Research. Unfortunately, between Donald Trump’s “build a wall” jingoism and the Covid pandemic, there was then a sharp drop in immigrant workers. Over the course of four years, according to a February paper from the San Francisco Federal Reserve, the Trump administration took 472 executive actions aimed at reducing immigration, from increasing immigration enforcement to freezing refugee admissions to moving away from family immigration. Between 2016 and 2019, the number of new permanent residents dropped 13 per cent and the number of student F1 visas declined 23 per cent. 

Covid didn’t help. Many laid-off workers lost visas or simply preferred to ride out the pandemic in their own countries. The two trends together fuelled a strong tightening in the labour markets, according to the San Francisco paper. The authors found that the drop in immigration from 2017 onwards resulted in a 5.5 percentage point increase in the vacancy to unemployment ratio in the US. 

But happily, the recent uptick has resulted in a 6 percentage point reduction to that ratio. More than 900,000 immigrants became US citizens during 2022 — the third highest level on record and the most in any fiscal year since 2008, according to Pew. The largest numbers came from Mexico, India, the Philippines and Cuba, and the highest growth in flows were from Cuba, Jamaica, the Philippines, India and Vietnam. 

That’s great news not just for inflation, but for growth, labour force mobility and entrepreneurship. Immigrants are more likely to be self-employed and start new businesses than native born Americans. They are the heart of the ever-evolving American dream. In my own home town in Indiana, there are Spanish groceries, restaurants, nightclubs and dual language service providers to cater to a community of former migrant farm workers. A couple of generations on, they are increasingly middle-class and represent much of the entrepreneurial zeal in the area. 

Indeed, the Dallas Fed’s research points to the fact that the future of American growth exceptionalism (relative to Europe and other rich countries) may be largely down to the future of immigration. Dallas Fed economists did a long-run projection that included the growth contributions of immigrants and their children. They found that if immigration to the US were to continue at 2016 trend levels until 2060, the labour force would grow 0.45 per cent, eventually creating a 193mn person workforce — given that growth is basically people plus productivity, a larger workforce is key. Conversely, a 30 per cent decline in immigration would mean 180mn workers, and a 50 per cent cut would mean 173mn workers. 

That means millions fewer people to pay taxes, fund entitlements and start new businesses. While immigrants represent 13.6 per cent of the US population, they start a quarter of new businesses. Indeed, a study by the American Immigration Council last year found that 43.8 per cent of the Fortune 500 companies were started by immigrants or their children. Anti-immigration, business-friendly conservatives in particular should think carefully about that figure.   

Frozen food beating fresh as shoppers seek savings 

Frozen food is outperforming fresh in supermarkets at the moment, data from research firm Kantar suggests. 

Frozen chicken, ready meals, pizzas and chips are the most popular items. 

"Frozen food tends to be much cheaper, and there's less waste, so you can see why it's selling well in the cost of living crisis," said retail analyst Ged Futter. 

Overall, frozen food volumes have held steady, even though overall shoppers are buying less. In the 12 weeks to mid-March, total grocery volumes fell by 4% while the volume of frozen goods bought was unchanged, the data shows. 

Mum-of-two Kate Hall from Bromley set up a website, The Full Freezer, to advise people how to save money and reduce waste by using their freezer properly. 

She said she's had much more engagement in the last six months, as living costs soared. 

"People are getting over their fear of frozen food, and that's a good thing," she said. 

"There's much less food waste if you use your freezer effectively, and that's something people are really conscious of right now."   

This week’s fun finds 

Rare Canadian “Supercar” For Sale: The Enterra Vipre 

Exactly how a group of waiters came up with the idea of starting their own car company may be lost to history, but we do know that in the early-to-mid 1980s the waitstaff at the Keg Restaurant on Vancouver’s Granville Island hatched a plan to launch their own custom car brand and call it Cymbria.

Rather than building a car from scratch as Bricklin has done a decade earlier before collapsing into bankruptcy the team at Cymbria decided too instead base their car on a preexisting production sports car to save time and money. 

The car they chose was arguably the hottest American sports car of the time, the Pontiac Fiero, an affordable mid-engined car with a lightweight fiberglass body. Cymbria developed their own custom bolt-on fiberglass body for the car, then they developed a more luxurious interior, they doubled the sticker price, and put their car on the market. 

The first prototype was built in 1984 as the Cymbria Vipre, however the poor fitment of the fiberglass body panels and overall build quality left a lot to be desired. The moulds had to be completely redone, by the time they were ready it was 1986. The car was relaunched, now as the Enterra Vipre, with a price of over $30,000 USD – the equivalent to $71,277 USD in 2023 and roughly double the cost of a standard V6 Fiero. 

Despite the fact that the car was being sold through selected Pontiac dealerships in the USA it was a complete flop. The lack of brandname awareness for Enterra coupled with the high price and the fact that the car had slightly worse performance than the stock V6 Fiero (due to to the larger/heavier body) resulted in dismal sales. 

Fewer than 40 were sold, though it’s believed that 6-8 cars remained in the factory in partially-built condition when bankruptcy proceedings began. It’s not known what happened to them or how many of the production versions of the car have survived to the modern day. 

The car you see here is an original surviving 1986 Enterra Vipre, it’s based on the high-specification Pontiac Fiero SE and it’s powered by the 2.8 liter V6 sending power to the rear wheels via a 5-speed manual transmission. 

It’s now being offered for sale out of Totem Lake, Washington on Bring a Trailer, and you can visit the listing here to read more or register to bid. 

Cube-shaped creature with 24 eyes discovered hiding in pond in Hong Kong, study says 

The researchers found the creature hiding in the “brackish water” of shrimp ponds at Mai Po Nature Reserve, according to a study published March 20 in the journal Zoological Studies. They returned three summers in a row and kept finding more of these creatures. 

The scientists analyzed the animals and discovered a new species of box jellyfish, the study said. 

Box jellyfish are named for their “cube-shaped” bodies, researchers said. This group of jellyfish contains “some of the most venomous marine animals in the world.” 

The new species, Tripedalia maipoensis, has a see-through body with a slight whitish tinge, photos show. The jellyfish, measuring less than an inch long, has three tentacles extending from each corner of its body, the study said. 

The jellyfish has 24 eyes arranged in sets of six, researchers said. On each side, the creature has two larger eyes — the upper and lower lens eyes — surrounded by four smaller eyes known as the pit and slit eyes. 

Two of these eyes are used for seeing images while the other four are used to detect light, according to an April 18 news release from Hong Kong Baptist University. 

Tripedalia maipoensis is the first box jellyfish species to be discovered in Chinese waters, the release said.

This week's interesting finds

Joel, partner since 2014 (Toronto, Ontario)   

This week in charts 

Consumer debt 

Electric vehicles

 

Salaries 

Construction 

US-Saudi Oil Pact Breaking Down as Russia Grabs Upper Hand 

The Saudi-Russia oil alliance has the potential to cause all kinds of trouble for the US economy — and even for President Joe Biden’s re-election campaign. This month’s OPEC+ decision to cut crude output, for the second time since Biden flew to Saudi Arabia last summer seeking an increase, may be just the start. 

In a world of shifting geopolitical alliances, Saudi Arabia is breaking away from Washington’s orbit. The Saudis set oil production levels in coordination with Russia. When they wanted to ease tensions with regional rival Iran, they turned to China to broker a deal — with the US left out of the loop. Western influence over the oil cartel, in other words, is at its lowest point in decades. 

Meanwhile, the threat of competition from US shale fields, a deterrent to price hikes in the past, has receded. And while there’s a global effort to reduce fossil-fuel use — and higher prices will accelerate that effort — the dash to drill in the last year shows that the zero-carbon economy remains more long-term aspiration than short-term driver. 

Add all of this up, and while some analysts say demand hurdles mean the recent bump in prices could prove fleeting, most anticipate prices above $80 a barrel over the coming years — well above the $58-a-barrel average price between 2015 and 2021. 

For the global economy writ large, lower oil supply and higher prices is bad news. The major exporters are the big winners, of course. For importers, like most European countries, more expensive energy is a double blow — dragging on growth even as inflation rises. 

The US falls somewhere in between. As a major producer, it benefits when prices rise. But those gains — unlike the pain of higher pump prices — aren’t widely shared. 

Bloomberg Economics’ SHOK model predicts that for every $5 increase in oil prices, US inflation will rise by 0.2 percentage point — not a dramatic change, but at a time when the Federal Reserve is struggling to bring prices under control, not a welcome one either. 

Bloomberg’s economic scenario modeling tool — SHOK — suggests that supply cuts pushing oil to about $120 per barrel in 2024 would keep US inflation at nearly 4% by the end of 2024 compared with a baseline forecast of 2.7%. And conventional wisdom says that high pump prices hurt incumbent politicians at the ballot box. 

B.C. To Legalize All Secondary Suites, Introduce Flipping Tax, Hike Density On Single-Family Lots

B.C. will overhaul municipal zoning rules to allow so-called “missing middle” housing, such as townhomes and multiplex homes on single family lots, as well as introduce a flipping tax and legalize all secondary suites as part of Premier David Eby’s refreshed housing plan announced on Monday.

However, the plan lacked details on how the province plans to overrule B.C. municipalities to allow higher density on single family lots. Those details will come this fall when the NDP introduces legislation that will allow three to four units on a traditional single-family detached lot and even higher density permitted in areas close to transit hubs. 

The debate over missing-middle housing has been divisive in many communities, with proponents calling for creative solutions that will make owning a home more attainable. Opponents, meanwhile, cite parking concerns or fears that higher density will strip the character from neighbourhoods.

The government will also legalize all secondary suites in B.C., taking the choice away from municipalities. In some B.C. communities, secondary suites are still illegal, a policy which Eby says chokes the supply of affordable rentals. 

British Columbians who buy a home just to flip it for a profit will be hit with a flipping tax that will be introduced later this year. The plan did not include details about the tax but Eby’s housing platform, released before he became premier, called for a tax against those who hold a residential property for two years or less, with the tax rate edging higher the shorter the owner holds the property. 

The government will also work with municipalities to strengthen enforcement of short-term rentals to ensure people aren’t operating them under the radar and without paying the required taxes. 

Eby promised to build 6,000 more affordable homes through the Community Housing Fund. Some B.C. mayors have complained that shovel-ready affordable housing projects are languishing because of a lack of funding from B.C. Housing. 

I drove from Toronto to Montreal in an EV and faced a mutiny halfway

“It’s pretty slow to travel this distance in this car, because you won’t charge above 80 per cent. I just don’t get it,” my wife said. 

Before I could defend myself – getting a full charge is not good for battery health, slows things down even more at public fast-chargers, and demonstrates poor etiquette if anyone is waiting – my daughter piped in with a couple of pointed questions from the back seat. 

“Can we go?” she said. “What are we waiting for?” 

“We’re charging,” my wife told her. 

Those few lines defined our 550-kilometre drive to Montreal, which took – I’m embarrassed to admit this – nearly eight hours. Yes, one way. 

I’ve often driven distances of about 300 km in our Hyundai Ioniq 5, an all-electric vehicle I purchased a little over a year ago. But most of those trips were in the warm summer months, when batteries are more efficient and I can drive for a relatively long time before needing a quick recharge. 

In the cold, and driving on winter tires at speeds of about 100 kilometres an hour, the range of our car was noticeably lower. Though our car can travel nearly 400 km on a single charge under ideal conditions, I faced a reduced range below 300 km.

Despite its disappointments, I hope Montreal was not our last road trip because it had a number of good points. 

We saved at least $150 in gas charges during the round trip because charging was mostly free during a brief revamp by the Ivy Charging Network. We also prevented about 120 litres of fuel from billowing into the atmosphere. 

Plenty of roadside charging stations in Montreal meant that we could charge – and park – for just $1 an hour while we visited neighbourhoods in the city.   

This week’s fun finds 

Now live on the Cymbria site, the 2022 annual report! 
You can find insights on how Cymbria navigated the last year and updates on our largest holding, EdgePoint Wealth Management.

How Much Should You Tip In Each Country?

All mixed up – How the shuffle button came to define modern-day media consumption.

“Our art tells a story and our stories should be listened to as we intended,” Adele tweeted shortly after the release of her album 30, a release so massive that almost no one could escape its story even if they would like to. In 2020, Spotify began to automatically shuffle albums for all listeners instead of playing them in assigned order. But Adele’s wish proved to be Spotify’s command, and the company removed its auto-shuffle function, but for premium users only. What had once been a feature was now a bug, one you had to pay to override. 

Shuffle or random playback, to use the more precise term that predates the contemporary “shuffle button,” has its roots in a core element of computing: automating randomness, a feat that is technically impossible. The only true randomness, where there’s “an equal chance of X or Y happening at the quantum level” as Andrew Lison, an assistant professor of media studies at the University at Buffalo, puts it, is found in things like atomic decay — natural phenomena that cannot (at this point, at least) be fully replicated by a computer. You would need to incorporate quantum physics for the shuffle button to be truly random. 

The introduction of the idea that media consumption could be both personal and passive had massive ripple effects. In the wake of the Napster era and its promises of a massive, totally unique music library, Pandora effectively invented the idea of individualized radio, promising the ultimate “shuffle” experience with technology that has since been used to great effect by streaming services intent on keeping people listening. Spotify, Apple Music, and their ilk offer both the promise of that Napster-scale range with Pandora’s ease. You could find anything, they suggest, but why not click this button and we’ll find it for you? 

As a result, increasingly precise and invasive algorithms have crept in under the comparatively innocuous umbrella of “randomness,” feeding us not just songs without context but information of every possible variety that is both novel and tells us what we’d like to hear — usually in service of getting us to buy something. Our social media timelines and YouTube feeds and video streaming services all employ the conceit, if not the science, of shuffle and randomness to keep us looking and listening, consuming without going through the work of figuring out what to consume. 

“It’s fundamentally premised on the idea that there’s no end,” says Lison. “Even though obviously there is, there’s not an end that any of us will ever reach.” With all this choice, agency and, more importantly, having the time to choose in the first place is a luxury. 

When it first integrated the play and shuffle button, Spotify was moving in concert with what its metrics undoubtedly showed — that 35 years or so after the introduction of the shuffle button, people had grown to prefer listening that way. For their purposes, playing an album on shuffle made the shift from the album itself to the algorithmically determined songs that Spotify plays immediately after it more seamless (and harder to notice). The true(ish) randomness and the algorithmically driven faux-randomness became one, further eliding the boundaries between the randomness you choose and the “randomness” you don’t.   

Why the Ozone Hole Is on Track to Be Healed by Mid-Century 

Ozone is a molecule made up of three oxygen atoms. (The oxygen we breathe is made up of just two.) There’s not much ozone floating around in the layer of atmosphere that we breathe — a good thing, since it’s actually a lung irritant and linked with respiratory disease. 

But there’s a lot of it in the stratosphere (comparatively speaking, at least; it’s still only a tiny fraction of the overall air). It’s that layer of ozone that absorbs ultraviolet (UV) radiation, especially the specific wavelengths called UV-B. 

UV-B radiation is what causes sunburns, and in high concentrations it causes more problems than that. It can lead to many kinds of cancer by damaging our DNA; most plants and animals also suffer when growing in a high-UV-radiation environment. 

In the 1970s, researchers noticed that the ozone layer had started thinning, especially around the poles. (With the ozone layer constituting only about three in a million atoms in the stratosphere in the first place, “hole” is technically a misnomer — the “ozone hole” was really just an area where ozone levels had dropped by more than 30 percent in a decade.) 

By the time the thinning of the ozone layer was measured, researchers Mario Molina and Sherry Rowland had already established the probable cause: CFCs. 

The problem was that CFCs break down in the upper atmosphere. And the chlorine in CFCs was actually reactive, binding with ozone to make oxygen and chlorine monoxide. 

The Montreal Protocol on Substances that Deplete the Ozone Layer was agreed upon and opened for signature in 1987. It went into force in 1989. Countries gradually began phasing out CFCs. Andersen’s team, Nicholson says, “systematically identified hundreds of solutions for phasing out CFCs from hundreds of industry sectors,” making it possible to shift manufacturing processes worldwide to chemicals that weren’t ozone-depleting. 

And keeping the ozone intact buys us time in the fight against climate change. Yes, HFCs are a potent greenhouse gas. But CFCs contributed to global warming as well: They were powerful greenhouse gases in their own right, and by destroying the ozone layer, they contributed to warming by allowing more energy to reach the planet’s surface. One study found that ozone-depleting chemicals drove half of Arctic warming in the 20th century. 

With that said, HFCs are still a big climate problem. In recent years, governments have been working to extend the hugely successful Montreal Protocol to phase them out too. It’s fair to say that, in some ways, the global fight against the ozone crisis was a complicated story, one that continues to be written.

This week's interesting finds

Liz, partner since 2017 (Saskatoon, Saskatchewan)

This week in charts

Financials

Household debt

Oil 

Canada top choice for oil-importing countries in part due to quality, aligned values 

A new Ipsos poll shows that not only is Canada the number one choice for countries that import oil, the top ranking is in part due to alignment of shared values. 

“People do prefer to get their oil from countries such as Canada, Norway, the United States, that have strong records of democracy and environmental safety. 

“When we’re seeing a lot of conflict in areas that have traditionally produced oil, such as Russia, and concerns around countries such as China, the poll demonstrates that globally the world is looking to Canada and other countries like us to produce the and supply the oil that they need.” 

Canada ranked number one, with Norway and the U.S. in second and third, respectively. 

The fact that Canada ranks highest amongst all these countries, when it only sells to the U.S., and makes up just four per cent of global oil production, says a lot about Canada’s reputation, said Richard Masson, executive fellow at the University of Calgary and chair of the World Petroleum Council in Canada. 

He added that Canada’s high regulatory standards and comprehensive law lets “people understand that there’s no shortcuts taken here that would result in environmental harm.” 

And despite the federal government’s plan for zero emissions by 2050, Masson said it is possible for Canada to stay on top of the energy production leaderboard, despite the decrease in need for oil and gas. One thing that needs to be answered, he said, is whether Canada wants to be one of the world’s preferred suppliers or will let others fill that role.   

This week’s fun finds 

Inside the Very Real (and Very Complicated) World of Luxury Water Collectors

The water sommelier movement—yes, that’s the term—has been growing in the US and around the world for years now. In fact, some argue that the seltzer boom has opened a door for a mineral water renaissance. These water sommeliers taste bottled waters as if they’re fine wines, expounding upon the waters terroir and “virginality,” or a water’s level of protection from its surroundings. They help to design bespoke water menus for restaurants; they judge contests in which bottled waters compete on taste, texture, and mouthfeel; and they collect bottles of tasteless water from icebergs that cost as much as $300 (more on that later). Some of them have even led Zac Efron and Anna Kendrick through a lengthy water-tasting class. Swishing, swirling, and slurping are par for the course in the fine water universe. It all sounded, quite frankly, ridiculous to me. Which meant, of course, that I had to learn every single thing about it. 

Fine water, as I quickly learned it’s called, is an industry that spans the globe. Sparkling, seltzer, and mineral water sales reached $3.5 billion in sales between 2019 and 2020 in the US alone. Water sommeliers are trained in programs around the world—from the Associazione Degustatori Acque Minerali in Italy to the Doemens Academy in Germany to Japan’s Aqua Sommelier Association. In the US the Fine Water Academy has seen a steady increase in attendance of approximately 10% to 12% per year since its founding in 2018, with a notable spike in 2020. Currently, the self-directed course that lasts about two months has 50 students in attendance. Program websites describe rigorous training, the curricula detailing hours of water tastings, final exams, and, in the case of the Doemens, many, many “hydration breaks”—short recesses to sip on your favorite water. 

It may start as a hobby, but becoming a water sommelier is serious work. Both Epperson and Barrak-Barber described the intensity of the training programs they attended at the Fine Water Academy and Doemens Academy, respectively. For Epperson, a 16-week, self-directed course priced at $2,200. For Barrak-Barber, a two-week intensive, which cost $2,500 not including lodging and travel costs to Germany. The class required 10 to 12 hours of study a day, she said. “Rigorous training, and a lot of tears preparing for the final exams,” Barrak-Barber said. “It was way more intense than I thought it was going to be.” 

These courses give students foundational lessons in water tasting: Does the water feel oily or clean on your tongue? What flavors do the blend of minerals in the water, or total dissolved solids (TDS), leave on your palate? Students also learn and are tested on how to pair waters with food—a very mineral-forward water can bring out the saltiness of a steak, for instance, but its strong flavor would overpower most fish dishes. They learn the proper procedure for presenting and pouring water out of bottles tableside—make sure the label is facing out, hold a glass by its stem so that the heat from your hands won't warm the water, and never, ever use ice cubes because their impurities would pollute the taste of the water. “It’s a lot like wine,” Barrak-Barber said.   

Can a billionaire die without anyone noticing? 

The US Treasury’s daily reports of government financial transactions turned up a surprising data point on Feb. 28, 2023: The deposit of $7 billion in the category of “estate and gift” taxes. It was the highest collection of that kind of tax since at least 2005. It’s possible that more than one enormous tax bill happened to be processed on that day, but that would still be remarkable. 

A Treasury spokesperson says this was not a reporting error, and a spokesperson for the Internal Revenue Service says it is unlikely this would be caused by processing a backlog of returns in one day. Privacy rules prevent government officials from discussing the specifics of any tax return. 

Based on the tax rate, that $7 billion payment implies an estate or gift of some $17.5 billion. However, the Tax Policy Center, a think tank in Washington, D.C, has estimated that estates typically pay a 17% effective tax rate after exemptions and other forms of avoidance. Even if only 50% of the estate was taxable, that’s a potential value of $35 billion. Even the lowest estimate would make the estate’s owner one of the 100 richest people in the world, according to Bloomberg News. 

Gabriel Zucman, an economist at the University of Berkeley whose work has focused on tax policy and the ultra-wealthy, says there are a few plausible hypotheses: “A very rich person who was missed by Forbes, a large gift, a delayed payment by some billionaire who died several years [ago] (perhaps a result of enforcement efforts).” The gift tax can also be triggered by divorces involving spouses without American citizenship, but payments within a year of a divorce are generally excluded. 

Forbes’ 2021 list does note the death of Sheldon Adelson in Jan. 2021; the casino tycoon’s fortune was estimated at $35 billion. That’s about the right magnitude, but unless ProPublica is sitting on the answer in its collection of leaked IRS data, we may never know. 

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