Man in a suit wearing a mask behind a screen

Weekly Market Comment September 18 2020

If you’ve ever wondered how the top 1% got there

The Fed said it predicts no interest rate increases through 2023 and suggested they may do more to support the economy.  It’s good because of the old adage, “don’t fight the Fed”,” which suggests monetary policy is accommodative to investors. But it could be interpreted as bad because the economy – at least segments of it - can’t be doing great if the Fed feels the need to be so accommodating. But as often is the case, one day the stock market sees Fed moves as bullish (Wednesday) while on another day it’s bearish (as we saw on Thursday and Friday, with stocks down over 1% each day).

It is sometimes claimed that “stocks are owned by everybody.” While that is certainly true when it comes to our clients, it’s not true when looking at the broader economy. This chart illustrates the point starkly:

Snowplow governing

“It’s all going to take money on a scale we haven’t seen before.” Was that Elon Musk telling shareholders about his company’s unprecedented investment into its Gigafactories? Or perhaps it was the head of a pharmaceutical company discussing the costs required to fast-track a coronavirus vaccine to market in record time?

No, those words were uttered by Prime Minister Justin Trudeau who is “asking Canadians to embark on an entirely different direction as a government.” What’s clearer than ever is his new finance minister is going to table an aggressive spending plan when the budget gets released in the fall, which is to say the debt burden – and possibly taxes – will continue their upward march. As the CBC pointed out, gone will be the Liberal goal of keeping the deficit in check and maintaining the lowest debt-to-GDP ratio among G8 countries.

More spending stands to put negative pressure on the Canadian dollar (all else being equal) and our country’s credit rating, which in turn would push up yields on Canadian government bonds (all else being equal).

All of these signals are worrying the heads of Canada’s banks, as they recently warned the Trudeau government that “it doesn’t have carte blanche to run massive budget deficits, even though there’s some room for additional spending in the next couple of years,” as Bloomberg put it. The banks are urging the government to not throw away its debt target plans which in turn helps keep budget spending in check.

“There’s no specific line in the sand for how high the government’s debt-to-GDP ratio can go, but the sky is not the limit,” is how a CIBC economist put it. “Governments shouldn’t unnecessarily test the limits.”

Which reminds us of our attitudes toward clients using margin debt in their Raymond James accounts. We are not fans and advise against it. Why would we feel otherwise when it comes to government using ever-growing leverage?

There is nothing artificial about artificial intelligence

The age of computers monitoring the world is upon us. Computer chipmaker NVIDIA, now the reigning champion and superior to Intel, announced it would buy Arm Limited for a breathtaking $40 billion. Arm is an artificial intelligence-focused semiconductor and software company owned by the struggling Softbank.

“A.I. is the most powerful technology force of our time and has launched a new wave of computing,” said NVIDIA’s CEO. “In the years ahead, trillions of computers running AI will create a new internet-of-things that is thousands of times larger than today’s internet-of-people. Our combination will create a company fabulously positioned for the age of AI.”

Speaking of internet-of-things becoming mainstream, check out this little FedEx tracker.

And speaking of trackers, Apple announced a new service called Fitness+ (“plus”) that uses the metrics tracked by their Apple Watch (which was recently upgraded). The subscription will consist of fitness programs featuring an array of video workouts from strength training to dance to yoga. Most of the programs will require nothing but an Apple monitor (iPad, iPhone or Apple TV) and good ol’ fashioned sweat. Covid-era lockdowns have made going to the gym downright hazardous and the market has shifted to virtual workouts at home. The Apple Watch can monitor heart rate, blood oxygen levels, ECG which will coincide nicely with this new service.

By the way, Apple’s services-based revenue is now up to 22% of total revenues. Services are monthly pay, reoccurring and predictable. All the company is missing is a covid cure and a more reasonable stock market valuation.

Cancer fighting heroes

Our Legacy holding in the Burnaby-based, New York Stock Exchange listed biotechnology drug researcher Zymeworks had nice pop over 40% late. The share jump was a result of strong news in the antibody drug conjugates space, where Gilead announced its intention to buy Immunomedics for $21 billion (more than double the $42 share price IMMU was trading at). Also, Seattle Genetics announced a $1 billion investment from Merck.

Yesterday, Zymeworks announced a collaboration with ImmunoPrecise which has an antibody to fight Covid-19. Zymeworks’s technology allows antibodies to be turned from monospecific (the way they occur naturally) to bispecific and even multispecific , which essentially means their drug can attack to a virus or cancer cell in more than one spot. Zymeworks’ ability to enable drugs to do this is why they have nine other partnerships with a who’s who of big pharma, have collected over $200 million in milestone payments from them (with many multiples more expected to come), and have over $500 million in the bank (almost $10 per share worth in cash).

Notable links:


Musings Beyond The Markets

The New York Times put together some fascinating analysis of how and why the Beirut’s port exploded in dramatic fashion. The circumstances are as embarrassing and pathetic as they were avoidable. The slow-motion visuals are stunning:

In the six years since the 2,750 tons of ammonium nitrate had arrived in Beirut’s port and been offloaded into Hangar 12, repeated warnings had ricocheted throughout the Lebanese government, between the port and customs authorities, three ministries, the commander of the Lebanese Army, at least two powerful judges and, weeks before the blast, the prime minister and president.

No one took action to secure the chemicals, more than 1,000 times the amount used to bomb a federal building in Oklahoma City in 1995.

The disaster-in-waiting was the result of years of neglect and bureaucratic buck-passing by a dysfunctional government that subjugated public safety to the more pressing business of bribery and graft.

Perhaps nowhere is that system more pronounced than at the port, a lucrative prize carved into overlapping fiefs by Lebanon’s political parties, who see it as little more than a source of self-enrichment, contracts and jobs to dole out to loyalists, and as a clearinghouse for illicit goods.


Word of the Week

iridescent (adj.) – producing a display of rainbow-like colours. “Your acts of kindness are iridescent wings of divine love, which linger and continue to uplift others long after your sharing.” - Rumi

I took this photo in central London a decade ago. I always make a point of looking at it when I visit the city, always wondering how many lives (including my own) got saved by what happened in that room. Note the plaque on the bottom left: