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Uncategorized

Charts: Berkshire vs Tesla, Canadian Housing

Fact 1: Over the past 12 months alone, Tesla’s market capitalization grew by more than a full Berkshire Hathaway! Growth’s outperformance is well known and documented, but the speed of this outperformance is jaw-dropping.

Fact 2: Residential investment as a proportion of GDP in Canada skyrocketed during the pandemic and remains at extraordinary levels. The Canadian economy is significantly exposed to a downturn in the housing market.

Fact 3: Housing prices in the US have mainly risen in line with disposable incomes (first chart). In Canada, however, the gap between housing prices and incomes started widening significantly at the turn of the century (second chart). Today the gap is at extreme levels.

Categories
Investing

Vacant Homes and the Bank of Mom & Dad

Fact 1: According to the OECD, there are millions of vacant homes around the world. Houses sit empty while prices appreciate aggressively and are in dangerous bubble territory in some places, like Toronto.

Fact 2: As a proportion of the housing stock, Japan has the highest rate of vacant homes. In North America, over 11% of homes in the US and 8% in Canada are vacant. That’s 15.6 million and 1.3 million empty homes respectively. While there’s some debate over the method used to obtain these estimates, if even remotely accurate they signify that a lack of housing stock isn’t necessarily the primary driver behind rising real estate prices. It appears like speculators are hoarding homes like people hoarded toilet paper in March 2020.

Fact 3: So how does anyone afford to buy a house in cities experiencing intense real estate price appreciation? Many get help from the bank of mom and dad. In Toronto, for example, about 25% of first time home buyers receive an average of $175,000 from their parents. Similarly, in Vancouver (second chart) 23% of first time home buyers receive an average of $210,000 from their parents.

While the parental instinct to support their children is understandable, home ownership is increasingly becoming dependent on familial wealth, exacerbating societal wealth inequality.

Categories
Investing

Bottoms, Bulls and BlackRock

Fact 1: Corporate insiders have historically had a knack for buying near market bottoms.

Fact 2: Investor bullishness has declined during 2021. However, sentiment has recently recovered.

Fact 3: Over the past decade, small cap tech stocks have underperformed small cap cyclicals. Technology leadership has clearly been limited to big cap indices.

Fact 4: A sign of a liquidity trap, deposits have grown massively since the start of the pandemic, hitting $4.5 trillion. Of course, this additional savings hasn’t accrued to everyone, as many people continue to live paycheck to paycheck.

Fact 5: The post-shutdown experience was supposed to be one of massive economic recovery. Instead, Q3 GDP estimates have been trending down since the summer, with current estimates as low as <1%. Meanwhile inflation is spiking. Stagflation anyone?

Fact 6: During the pandemic, BlackRock’s AUM has quietly reached almost $10 trillion.

Categories
Investing

5 Facts Every Investor Must See

The world right now is overrun by opinions and people talking their book. What we as investors, decision makers, concerned citizens need instead are facts. Facts to form our own opinions.

To help you do this, I share facts in visual form: charts. My hope is to provide you with quick, digestible hits to provoke further thought so you can form your own opinions.

Charts and graphs are the most efficient and effective way to convey large amounts of information. Consider a simple 10yr chart of monthly stock prices, for example. That simple line enables you to absorb 240 intersecting data points (time and price), plus information on volatility and trends (implying the 10yr performance of company earnings).

All this from a 2 second look at a chart.


Fact 1: Cryptocurrencies consume the same amount of electricity as Sweden.

Fact 2: Loan loss provisions at banks are being released, providing a tailwind to earnings.

Fact 3: Electricity is being rationed across China, due to fuel shortages.

Fact 4: China’s dollar junk bond yields kiss 20%, suggesting serious market stress.

Fact 5: Ongoing supply chain shortages are due to a combination of strong demand and weak supply.

Categories
Wealth Work

Equity performance and inflation

Right now there are over 10 million job openings in the United States. Meanwhile, 4.3 million Americans quit their jobs in August. It has been a long time since labor has had so much power.

Many of these job openings and quits are hitting small businesses especially hard. Competition for skilled, unskilled and semi-skilled labor is fierce.

When the quantity demanded is high but the quantity supplied is low, prices rises. And that’s what we’re seeing in the market. Small businesses are raising worker compensation to compete for labor.

Wage inflation is now the most commonly-reported type of inflation affecting US businesses, closely followed by higher raw materials and transportation costs.

If these inflationary trends persist, it is reasonable to expect interest rates to rise. The 10yr US Treasury bond yield has risen to 1.544%, and many expect the rise to continue.

The Fed continues to buy $120b of bonds each month, so there is quite a bit of runway before they must raise short term rates, but what would happen if they did? The following chart looks at equity market returns during previous tightening cycles. Although, this time could be different as inflation today has much different characteristics than during previous cycles.

What if someone invests today and the market subsequently crashes?

The following table looks at how someone would have performed if they invested right at the market peak before major market crashes. On a long-enough time horizon, the markets have historically been quite forgiving.

Categories
Uncategorized

The Biggest Asset Class in the World

Chinese real estate is the biggest asset class in the world. It isn’t a stretch, therefore, to argue that the success or failure of China’s property market influences the global economy. One only has to look at the ripples caused by Evergande’s recent instability to see this.

Both in absolute dollar terms and as a proportion of domestic GDP, China’s real estate sector dwarfs that of the US, even at its mid-2000s peak. Remember what happened to the US and global economy when US real estate went bust during the 2000s? This is why global markets react so violently to any hint of trouble in China.

The Chinese economy and property sector have been weakening for a while now. Data surprises in China have been negative since around June. Negative surprises are now occurring more frequently in the US and EU too.

Why do surprises (both positive and negative) matter? Economic expectations are baked into asset prices, so if a new data point defies expectations the market must adjust up or down to accommodate this new information.

Well, at least your portfolio is diversified across stocks and bonds to reduce shocks created by a Chinese real estate bust, or any other source. Right? Maybe not.

The chart below shows correlation between bond yields and stocks has declined dramatically recently. This means that when stock prices decline so do bond prices.

Categories
Climate Change

Major Drop in 2021 Canadian Field Crop Production

In Canada, October 11th was Thanksgiving, traditionally a celebration of the harvest. This year, that harvest is experiencing significant stress putting continued upward pressure on food prices.

Ongoing widespread drought conditions combined with a summer ‘heat dome’ in Western Canada have slashed projected harvests.

According to Statistics Canada:

An assessment of Normalized Difference Vegetation Index (NDVI) curves, which are a measure of plant health, indicated that in almost all parts of the Prairies, crops reached peak health well ahead of normal. In some instances, peak NDVI occurred up to four weeks earlier, before decreasing rapidly as a lack of moisture and high temperatures took a toll on plant health.

This is the first time since 1987, when Statistics Canada began monitoring crop conditions using coarse resolution satellite images, that NDVI curves have peaked so early in the growing season. The CCAP also indicates that dry conditions have impacted almost all of Western Canada. By comparison, other notable droughts such as in 2002—while difficult for many—were less widespread than this year’s.

These conditions are leading to double-digit declines in principal field crop production. Nationally, wheat production is projected to decrease 34.8% year over year to 22.9 million tonnes in 2021. Similarly, canola production is expected to fall 24.3% to 14.7 million tonnes.

The chart below illustrates year over year production declines for all principal field crops in Canada. Given widespread production declines, it seems reasonable to argue that food prices will continue to experience upward pressure.

Categories
Geopolitics

The Last Days in Vietnam

Categories
Climate Change

The latest IPCC report explained in 7.5 minutes

Read the Summary for Policymakers: https://www.ipcc.ch/report/ar6/wg1/#SPM

Read the full report: https://www.ipcc.ch/report/ar6/wg1/#F…

Read the IPCC’s FAQ: https://www.ipcc.ch/report/ar6/wg1/#FAQ

Categories
Life Work

Do you Live to Work?

Are you really free? If you’re like most middle-aged people, you’re probably living a life to serve the system.

Everyone starts with 24 hours:

  • 8 hours for sleep
  • 1 hour for showering, breakfast, etc. in the morning
  • 1 hour commute
  • 8-9 hours at work
  • 1 hour commute
  • 1 hour meal prep, eating, cleaning
  • 1 hour of exercise
  • 1 hour kids homework

What does that leave you? 1-2 hours of ‘freedom’. Yeah, your best hours to invest in yourself can begin after you’ve fully drained all your mental and physical energy.

Do you have hopes and dreams? Save them for between the hours of 10:00pm and 11:00pm.

You’ll notice I’m leaving out laundry, groceries, repairing the back stairs, mowing the lawn, dry-cleaning, picking up pencil crayons for your kid’s art project, and so on. That’s where your weekends go. And if you’re like many people, those obligatory social gatherings – after work drinks, in-law’s birthday party – might as well be minor forms of work too.

The time each of us have to actually do what we want is minimal. If you’re like me, you have to find enjoyment in the daily chores.

The funny thing is, most jobs don’t require 8-9 hours. How much of your day is wasted? This has become especially apparent when we started working from home. This new setup is amazing! I can get my work and daily errands done much faster than before.

But the system doesn’t like it. The system wants us indebted with minimal free time. This keeps us dependent on our employers for money. Moreover, with little spare time we blindly purchase short-lived dopamine hits – retail therapy, objects of desire – benefiting our employers. The house always wins.

Yeah, that’s it…your pusher wants you to happily return every penny he provides you so you’re totally dependent. It keeps you coming back for more, despite hating every minute of it.

Ever have a boss suggest you buy a bigger house or upgrade to a new car? Perhaps after they just gave you a raise? They certainly don’t want you using that extra money to pay down your debts to achieve financial freedom. If they’re to shape your behaviour they need you financially subservient. Highly mortgaged people with families to care for make the best indentured servants employees.

God forbid you smoke a little ganga when not on the clock and your employer tests. That stuff stays in your system for a while – doesn’t matter how good you are at your job. Even your free time is co-opted by the system.

In the end, you’re just an anonymous cog in a machine. Those people at work that call each other family will fall off the face of the earth as soon as they retire/quit/fired/die. Although turnover is a pain in the ass, in the long run everyone is replaceable. We’re all just worker drones.

So don’t give your life to work. Because work will happily take it. Break free by striving to become debt free while owning income-producing assets. Only then can you live life on your terms.