Thursday, June 30, 2022

This week's interesting finds

This week in charts

U.S. savings back down

Japanese quantitative easing

Netflix Disrupted Entertainment With Binge Viewing. Now Can It Avoid Disruption Itself?

This company that became an outlier when it ditched the conventions of television has become the outlier of the streaming world by sticking to the Netflix way. Bingeing alone doesn’t explain the company’s success over the past decade, but it was the singular phenomenon that distinguished Netflix and revolutionized Hollywood, as streaming television replaced the movie business and music industry as the defining cultural force of our time.

So what happens when the disrupters get disrupted? How do successful companies respond when the conditions of their early success change—and can they? To binge, or not to binge?

These are the fundamental questions facing Netflix as one of the biggest winners in the pandemic economy has become the year’s biggest loser in the ailing S&P 500. The answers might just force this proudly iconoclastic company to swallow its pride.

U.S. corn-based ethanol worse for the climate than gasoline, study finds

“Corn ethanol is not a climate-friendly fuel,” said Dr. Tyler Lark, assistant scientist at University of Wisconsin-Madison Center for Sustainability and the Global Environment and lead author of the study.

The research, which was funded in part by the National Wildlife Federation and U.S. Department of Energy, found that ethanol is likely at least 24% more carbon-intensive than gasoline due to emissions resulting from land use changes to grow corn, along with processing and combustion.

Geoff Cooper, president and CEO of the Renewable Fuels Association, the ethanol trade lobby, called the study "completely fictional and erroneous," arguing the authors used "worst-case assumptions [and] cherry-picked data."

Under the U.S. Renewable Fuel Standard (RFS), a law enacted in 2005, the nation's oil refiners are required to mix some 15 billion gallons of corn-based ethanol into the nation's gasoline annually. The policy was intended to reduce emissions, support farmers, and cut U.S. dependence on energy imports. 

Soaring Global Coal Use Is Obliterating Emission Reductions Achieved in the U.S. Since 2005 

“The surging use of coal around the world shows, once again, that the Iron Law of Electricity remains in force. That law says that people, businesses, and governments will do whatever they have to do to get the electricity they need. The Iron Law matters because the electricity sector is the largest emitter of carbon dioxide emissions. And politicians from China to the Czech Republic are going to do everything they can, including “burning anything” they can find, to avoid blackouts. 

The punchline here is clear: Although the U.S. has been leading the world in cutting its greenhouse gas emissions – in fact, no other country even comes close in terms of absolute reductions -- other countries are not following suit. Furthermore, I’m not arguing that we should quit trying to reduce our emissions. What I am saying is that we must be realistic about the scale and cost of our emissions-reduction efforts and the extent to which those efforts are making a difference in the global scheme. 

I’ll end by repeating the same point I have been making for more than 12 years: renewable energy cannot, will not, be able to meet soaring global energy demand. If the countries of the world are serious about reducing coal use and the emissions that come from burning that carbon-heavy fuel, they need to get serious about N2N: natural gas to nuclear. Both sources are low-carbon, relatively low-cost, scalable, and deployable.”

More on energy

This week’s fun finds

Summer 2022 reading and listening lists – “Trying to forget about inflation” edition

If you’re looking for something to read by the water (whether at a cottage or the public pool because of gas prices), the Investment team book club has some suggestions for you. The two books contain commentary letters that are perfect bite-sized reads in between refills of iced tea or your favourite cold beverage. Although they’re a trip back in time that covers the first 15 years of the millennium, the lessons are timeless.

Don’t turn D-I-Y into D-I-Why?!?

So 12345 isn’t a good password?


Friday, June 24, 2022

This week's interesting finds

What hit our inboxes this week

What helps us sleep at night – part 7

When investors are particularly pessimistic about what the market may do (or is doing), we’re often asked how we sleep at night. Over the years, we’ve put together some things we think about as we try to get some shut eye. Here’s our version of a cup of chamomile tea. 

In the seventh version of the What helps us sleep at night series, Tye, Jeff, George and Claire discuss five businesses held in EdgePoint Global Portfolio and why we believe they are well-positioned to help us ignore the current short-term volatility. 

Europe Still Imports Huge Volumes of Russian Diesel as War Rages

So far this month, the continent has received close to 14 million barrels of diesel-type fuel from countries that used to be part of the Soviet Union, according to Vortexa Ltd. data compiled by Bloomberg. That’s a relatively limited drop-off from pre-war levels earlier this year and the vast majority, if not all, of that fuel originated in Russia.

That may come as a surprise to some, given how many European leaders and oil companies have criticized Russia’s invasion of Ukraine. Less than a week after President Emmanuel Macron and Chancellor Olaf Scholz visited Kyiv in a show of support for Volodymyr Zelenskiy, the data show the biggest buyer of the Russian fuel is France, closely followed by Germany.

How Singapore Got Its Manufacturing Mojo Back

Singapore has aggressively wooed highly automated factories with tax breaks, research partnerships, subsidized worker training and grants to local manufacturers to upgrade operations to better support multinational companies, among other enticements.

There’s a caveat: Singapore’s success has come by automating away many jobs. It has more factory robots per employee than any country other than South Korea, according to the International Federation of Robotics.

The Rich World’s Climate Hypocrisy

The developed world’s response to the global energy crisis has put its hypocritical attitude toward fossil fuels on display. Wealthy countries admonish developing ones to use renewable energy. Last month the Group of Seven went so far as to announce they would no longer fund fossil-fuel development abroad. Meanwhile, Europe and the U.S. are begging Arab nations to expand oil production. Germany is reopening coal power plants, and Spain and Italy are spending big on African gas production. So many European countries have asked Botswana to mine more coal that the nation will more than double its exports.

Britain, Germany push G7 for halt to biofuel mandates to tame food prices

Officials from some G7 countries, including Germany and Britain, will push for temporary waivers on biofuels mandates to combat soaring food prices when leaders from the group of wealthy nations meet on Sunday, three people familiar with the matter told Reuters.

It’s not clear whether there’s broad-based support to temporarily waive biofuel mandates across the G7 members which include Canada, France, Germany, Italy, Japan, Britain and the world’s largest biofuel producer, the United States. Surging oil and gas prices have also increased the demand for energy sourced from crops.

Goldman Sachs Facing SEC Probe of ESG Funds in Asset Management

The Wall Street Journal reported earlier on the investigation of Goldman Sachs. The SEC hasn’t yet put rules in place covering ESG requirements, so the probe may focus on whether Goldman’s disclosures to clients didn’t accurately describe its investment practices, the Journal reported.

The SEC has been warning money managers not to mislead investors about the standards and methods they use for classifying funds as ESG. Behind the scenes, the agency’s staff has been pressing financial firms to show that they’re making good on their promises.

In last year’s first half, the agency set up a task force of enforcement lawyers whose focus includes ESG disclosures. Around the same time, the regulator released a report showing many funds describing themselves as ESG weren’t doing enough to ensure that their marketing rang true.

Timeless Lessons From the 2020-2022 Cycle

Speculation is as old as the hills. Every modern technological innovation has one thing in common — they cause people to lose their minds thinking about how the world is going to change going forward and thus, a financial asset bubble is formed.

Everything is cyclical. Nothing fails quite like success in the stock market and this environment is a perfect example of that. Nothing works always and forever.

Be careful who you take financial advice from. You cannot blindly follow someone’s financial advice simply because they have name recognition or a lot of followers. Do your own homework before taking anyone’s financial advice.

Successful investment plans need to survive down markets too. Every successful investment plan requires some combination of balance, durability and common sense to survive in the long run. And that long run includes both good markets and bad.

Investing is hard. If the markets felt too easy in the latter half of 2020 it’s because they were. Investing can be mind-numbingly simple if you want it to be but it’s never going to be easy.

Why is China’s inflation rate low compared to the US, Europe and Britain?

Chinese officials and academics have attributed the divergence to Western stimulus measures, notably the unprecedented money printing used to save economies battered by the coronavirus pandemic.

Authorities have not disclosed the weighting of China’s CPI basket, which was changed in 2021. However, Huang Wentao, an analyst with China Securities Co, estimated the weighting for food increased to 18.4 per cent, versus 7.8 per cent in the US. For clothing, China’s weight is 6.2 per cent versus 2.8 per cent in the US, according to Huang. Rent accounted for 16.2 per cent, about half the US weighting at 32 per cent, while transport was 10.1 per cent in China, lower than 15.1 per cent in the US, he said.

In addition, the US economy relies heavily on imports of consumer products, whereas China’s massive industrial capability means it has more room to deal with the price hikes for global commodities. Retail sales continued to contract by 6.7 per cent in May, but the pace was slower than the steep fall of 11.1 per cent in April. Pork prices have played a big role in consumer inflation cycles, with an estimated weight of 2.4 per cent in the CPI basket. Prices for pork, the staple meat on Chinese tables, fell 37 per cent from a year earlier in the first five months of 2022.

This week’s fun finds

100 pennies = $4.99

Walmart rubbing it in

The importance of the percentage sign

Exposure vs. mastery

In the world of Zen, Tao and the martial arts, there is a phrase, “Beginner’s Mind.”  The beginner is humble, curious, completely open, trusting, willing, and without criticism.  The beginner tries, fails, then tries again… endlessly.

Somewhere, in that endless repetitive trying, failing and making small progress, something we might call “Mastery” begins to appear…

Not even perhaps, to the practitioner, but to those who witness the evolution.

That is why “Mastery” is never announced by the student, but recognized and awarded by the teacher.

Friday, June 17, 2022

This week's interesting finds

This week in charts

Consumer spending

A shortage of workers?

Inflation – Canada vs. the world

Canadian housing affordability 


Microsoft Poised to Sit Out TV’s Upfront Market

The technology giant has been telling TV networks and media buyers that it intends to bypass TV’s annual haggle for commercial inventory, according to four executives familiar with recent discussions. The company behind such products and services as Windows, LinkedIn, the Halo video games and Surface tablets instead favors taking its chances in what is known as TV’s “scatter” market, the purchase of ad time bought closer to run date.

Microsoft seems to feel that it needs to be cautious in trying to sell consumers expensive hardware and other tech goods at a time when the stock market is churning, according to two of these executives, and when people may be fretting about loosening their purse strings. Each year, as part of the upfront, U.S. TV networks try to sell the bulk of their commercial inventory in advance, and advertisers who do so can lock in prices in case they rise later in the year.

Microsoft spent around $294.8 million on TV advertising in 2021, according to Kantar, a tracker of ad spending. Of that amount, the bulk — around $164.2 million — went to broadcast TV, with another nearly $128 million earmarked for cable TV. Microsoft spent around $2.7 million on Spanish-language TV in 2021, according to Kantar. One media buyer suggested any decision by Microsoft to bump spending would likely affect TV’s sports-advertising market, where the tech giant is a regular customer.

This week’s fun finds

If the world was made up of 100 people, what would the breakdown be?

A Stanford Psychologist Says He’s Cracked the Code of One-Hit Wonders

Berg compiled a data set of more than 3 million songs released from 1959 to 2010 and pulled out the biggest hits. He used an algorithm developed by the company EchoNest to measure the songs’ sonic features, including key, tempo, and danceability. This allowed him to quantify how similar a given hit is to the contemporary popular-music landscape (which he calls “novelty”), and the musical diversity of an artist’s body of work (“variety”).

“Novelty is a double-edged sword,” Berg told me. “Being very different from the mainstream is really, really bad for your likelihood of initially making a hit when you’re not well known. But once you have a hit, novelty suddenly becomes a huge asset that is likely to sustain your success.” Mass audiences are drawn to what’s familiar, but they become loyal to what’s consistently distinct.

Friday, June 10, 2022

This week's interesting finds

This week in charts

A tale of two pandemics

Inflation’s room to grow

Highflying Tiger Global Humbled by Unraveling of Giant Tech Bet

Tiger Global Management rode the tech boom like no other investment firm. It was funding more startups than any other U.S. investor when the market peaked last year, and had tens of billions of dollars from pensions, endowments and rich clients riding on some of Silicon Valley’s hottest stocks.

Fueling Tiger’s rise was a double-barreled business: A stock-picking arm put money mostly into public companies, while its venture-capital funds invested in startups throughout the world. Both bet bigger on tech as the market crested, leaving the firm exposed on both fronts.

At the end of April, the rout had wiped out roughly two-thirds of the gains Tiger had made in those stock funds since its founding, estimates money manager LCH Investments.

Tiger, led by 46-year-old founder Charles “Chase” Coleman, stood out in the frenzy. Its venture-capital business in March raised a $12.7 billion fund, one of the industry’s largest ever. Tiger overall invested in 361 deals in 2021, up from 16 deals for all of 2017, more than any other U.S. manager, according to research firm PitchBook Data Inc. It often outflanked longstanding venture firms by moving faster and agreeing to more generous terms with startups—sometimes offering money to companies hours after meeting, some startup founders say.

The holes in holistic ESG indices

ESG investing has, of course, taken Wall Street by storm. Well over $2tn has been invested in funds offered by a host of firms purporting to promote the environment, social good and enlightened governance.

Many ESG funds are narrowly targeted. There are funds comprised of low-carbon stocks, funds that exclude tobacco, funds adhering to Catholic values and to Sharia law. They telegraph their mission plainly just as do traditional ones specializing in high-tech stocks or banking.

But this is not where the ESG industry is headed. The action now is in so-called holistic indices that attempt to assess corporations’ every attitude or behavior and boil it down to a single metric. Call it the goodness standard.

One issue with holistic indices is the sheer number of categories. S&P Global’s Corporate Sustainability Assessment, a road map of what it assesses, runs to 253 pages, little of it reading like an Ian McEwan. “We just implemented [a new screen] in the last two months,” Reid Steadman, global head of ESG and innovation, noted. “Views of sustainability are evolving.”

The challenge is magnified by the incoherence of weighing so many disparate qualitative factors against each other. There is simply no objective way to balance an exemplary record on labor relations or gender pay equity against a high carbon footprint (the trees don’t care).

A further problem is the subjective nature of assessments. S&P determined that nuclear power was not “renewable”; some would disagree. It pays attention to human rights but did not exclude Apple, which counts China as a major supplier. It considers not just corporate deeds but reputations.

‘Liquidity is terrible’: poor trading conditions fuel Wall Street tumult

Liquidity across US markets is now at its worst level since the early days of the pandemic in 2020, according to investors and big US banks who say money managers are struggling to execute trades without affecting prices.

Relatively small deals worth just $50mn could knock the price or prompt a rally in exchange traded funds and index futures contracts that typically trade hands without causing major ripples, said Michael Edwards, deputy chief investment officer of hedge fund Weiss Multi-Strategy Advisers.

This week’s fun finds

By the numbers – population

EdgePointer of the month – June 2022

Our recent website refresh inspired us to update our internal partner bios to reflect who they are today. First up is one of our longest-tenured EdgePointers (and our unofficial Chief Cultural Officer), Sandro.


Sandro is responsible for client administration support for our private client group (PCG).  He ensures a smooth on-boarding process for new clients.

If there's anything that could make Sandro speechless, we haven't found it yet. Our cultural Renaissance man can converse about cinema, shows, music, books and sports. When the " Sandman" isn't at his desk, he can be found at stadiums, concert halls or taking part in wide-ranging discussions in the lunchroom. Words can be cheap (no matter how many Sandro uses). Fortunately for the rest of us, he often leads by example by doing things like organizing group outings during the Toronto International Film Festival or hitting lead off for our softball team. He's been a part of EdgePoint since almost the beginning and met several of the early partners working alongside them at the "old shop". Sandro is proof that our culture is something that develops over time not overnight, and we're thankful that he keeps spreading it to both our internal and external partners.

For those who haven’t had the chance to hear his latest recommendations, here are some of his past favourites (in no particular order) direct from the Sandman himself:

Revolver (The Beatles): I was a late comer to understanding the greatness of the Beatles but once I did, they blew me away. Such creativity – musically and lyrically!

London Calling (The Clash): Love their attitude and the way they combined reggae, ska and punk into their own style. “Train in Vain” not originally listed on the sleeve might be my favourite song of all time.

OK Computer (Radiohead): I listened to this album endlessly in the late 90s on my drives up to my sister’s cottage. Every song on the record is amazing. “Let Down” and “No Surprises” are my personal favourites.

Is This It? (The Strokes): Every song is under four minutes of pure rock heaven. They reinvented the sights and sounds of music in NYC before the streets were cleaned up by Mayor Rudy G.

Sandro's other unofficial jobs include tour guide, political junkie and, unsurprisingly, movie critic. He earned his BA in Political Science from York University.

Friday, June 3, 2022

This week's interesting finds

This week in charts 

Giving up gains   

Retail investor flows   

Alberta’s growth is back   

Organic lithium-ion batteries one step closer to becoming reality

A recent discovery by researchers at Japan’s Tohoku University and the University of California, Los Angeles has moved the needle one step closer to realizing metal-free, high-energy, and inexpensive batteries by using a small organic molecule, croconic acid. 

In a paper published in Advanced Science, the researchers explain that unlike conventional lithium-ion batteries, which are highly dependent on materials such as cobalt and lithium, organic batteries exploit naturally abundant elements such as carbon, hydrogen, nitrogen, and oxygen. 

In addition, organic batteries have greater theoretical capacities than conventional lithium-ion batteries because their use of organic materials renders them lightweight. 

Most reported organic batteries to date, however, possess a relatively low (1-3V) working voltage. This means that increasing organic batteries’ voltage will lead to higher energy density batteries. 

Knowing this, the Tohoku University and UCLA groups set up to study croconic acid and found that when used as a lithium-ion battery cathode material, it maintains a strong working voltage of around 4 V.   

Why Nordstrom Steamed Ahead as Old Navy Sank

Goodbye, sweatpants; hello, dress pants. 

A clear signal from apparel retailers reporting results lately is that customers are finally starting to dress like adults again. But, just as with the customers they attract, there are haves and have-nots: Brands with higher price tags are feeling much less of a pinch from inflation than affordable ones. 

Among Gap’s portfolio of brands, Banana Republic, which sells dressier, work-relevant clothes, saw sales in the quarter ended April 30 grow 24% compared with a year earlier while sales for more value-, comfort-focused Old Navy declined 19%, compounded by self-inflicted inventory woes. Sales of women’s suiting, dresses and skirts at Banana Republic grew 62%, while men’s suit sales nearly doubled. Urban Outfitters saw its pricier brands, Anthropologie and Free People, fare far better last quarter than its namesake brand, which caters to younger buyers. 

A similar dynamic played out among department stores. Macy’s saw sales at its luxury department-store chain Bloomingdale’s rise 27% last quarter compared with 10% at its namesake chain. Macy’s Chief Executive Officer Jeffrey Gennette said on an earnings call on Thursday that luxury sales were a “standout” for the business, noting that shopping among high-income consumers has so far remained less affected by inflation. Nordstrom, another luxury department-store chain, saw sales in its quarter ended April 30 surge nearly 19% or almost twice the gain analysts polled by FactSet had expected. 

It isn’t entirely surprising that higher earning consumers—who were more likely to have worked remotely during the pandemic—are now shopping for clothes that go along with their travel, socializing and back-to-office plans. With hybrid working arrangements likely to become the norm for office workers, returnees might splurge on fewer but fancier items.   

This week’s fun finds 

Physicists just rewrote a foundational rule for nuclear fusion reactors that could unleash twice the power

Future fusion reactions inside tokamaks could produce much more energy than previously thought, thanks to groundbreaking new research that found a foundational law for such reactors was wrong. 

The research, led by physicists from the Swiss Plasma Center at École Polytechnique Fédérale de Lausanne (EFPL), has determined that the maximum hydrogen fuel density is about twice the “Greenwald Limit” – an estimate derived from experiments more than 30 years ago. 

The discovery that fusion reactors can actually work with hydrogen plasma densities that are much higher than the Greenwald Limit they are built for will influence the operation of the massive ITER tokamak being built in southern France, and greatly affect the designs of ITER's successors, called the Demonstration power plant (DEMO) fusion reactors, said physicist Paolo Ricci at the Swiss Plasma Center. 

Future fusion 

Donut-shaped tokamaks are the one of the most promising designs for nuclear fusion reactors that could one day be used to generate electricity for power grids. 

Scientists have worked for more than 50 years to make controlled fusion a reality; unlike nuclear fission, which makes energy from smashing apart very large atomic nuclei, nuclear fusion could generate even more energy by joining very small nuclei together. 

The fusion process creates much less radioactive waste than fission, and the neutron-rich hydrogen it uses for its fuel is comparatively easy to obtain. 

The same process powers stars like the sun, which is why controlled fusion is likened to a “star in a jar;” but because the very high pressure at the heart of a star isn’t feasible on Earth, fusion reactions down here require temperatures hotter than the sun to operate. 

Several fusion power projects are now at an advanced stage, and some researchers think the first tokamak to generate electricity for the grid could be working by 2030, Live Science previously reported. 

How to know what you really want

Claire, a smart, ambitious student at Tulane University in Louisiana, was on track to have her pick of law schools, but she decided she’d like to get some real-world experience – and have some fun – in New Orleans first. She landed a job as a paralegal, spending her days researching expert witnesses to defend Big Pharma cases, and that’s when the crisis came. Claire had always loved cooking and learning about humanity through cuisine. She was like a female Anthony Bourdain trapped inside an overworked paralegal, and it was slowly making her life miserable. 

She began to entertain thoughts of leaving the law firm and working in a kitchen or a coffee shop until she could figure out how to make a career out of her lifelong interest in food. But doubts haunted her. What would other people think? Maybe she’s not that driven. Maybe she’s not that smart, after all. Maybe she’s lazy. What other people expected her to want to do – and her ability to meet those expectations – began to determine her self-worth. 

Many people face dilemmas like Claire’s. Each of us is occasionally overwhelmed by a multitude of competing desires: pursue job offer A or B? Start a new relationship or stay single? Sign up to run a marathon, or enjoy not getting up early to train? But life is full of marathons, and they don’t necessarily involve running. It’s good to know which desires to pursue and which ones to leave behind – to know which marathons are worth running. 

Desire is a social process – it is mimetic When it comes to understanding the mystery of desire, one contemporary thinker stands above all others: the French social theorist René Girard, a historian-turned-polymath who came to the United States shortly after the Second World War and taught at numerous US universities, including Johns Hopkins and Stanford. By the time he died in 2015, he had been named to the Académie Française and was considered one of the greatest minds of the 20th century. 

Girard realized one peculiar feature of desire: ‘We would like our desires to come from our deepest selves, our personal depths,’ he said, ‘but if it did, it would not be desire. Desire is always for something we feel we lack.’ Girard noted that desire is not, as we often imagine it, something that we ourselves fully control. It is not something that we can generate or manufacture on our own. It is largely the product of a social process.