Most global indexes remain higher in 2021 than 2020 - albeit with unfamiliar leadership: American value stocks. Historically speaking, value stocks have fared well over the past century, but have been trounced by growth stocks over the last 13 years. However, this year has been different.
While growth stocks are only slightly higher on the year, U.S. value stocks, which include financials, health care, industrials, and consumer staples, are up 14% in 2021. A decade-plus of underperformance has made value companies historically cheap. Additionally, as the world emerges from the pandemic, consumers will increasingly spend on goods produced by traditional value companies, and less time and money through technology companies like Amazon and Facebook.
Historically, when value stocks begin to outperform, the trend lasts at least three to four years, but often over a decade. The recent $1.9-trillion pandemic package the Biden administration passed should further benefit profits of traditional value companies.
On the home front, our national index trades 7% higher on the year, due to recent robust economic numbers, as well as having a larger percentage of our economy comprising traditional value sectors, such as banking and commodities.
Speaking of which, Canadian energy companies continue to be this year’s market darlings, already up an impressive 24%. However, although they are slightly higher this month, they have fallen 10% since last week when fears of a third wave worsened and some European countries moved to protect against this possibility. Having said that, after such a strong run, a pull-back is healthy. Moving forward, the success of the energy sector will likely be heavily dependent on the pandemic abating.
On Interest Rates and Inflation
Interest rates and inflation are intricately linked, and both will play a meaningful role in the months and years ahead. As central banks continue to print unprecedented amounts of money, governments spend in kind to stimulate the economy, and vaccine rollouts ramp up, investors are left with an important question: will this lead to increased or even dramatic inflation? 
Why should you care? When left unabated, rising inflation can spiral out of control, which leads to a host of other problems. With this in mind, the main tool to control the cost of living is to increase interest rates. But higher rates also slow economic growth: When the cost of borrowing increases, companies will borrow less to invest in their businesses and consumers lower their borrowing for items, such as computers, cars, and, of course, homes - which have, in part, soared in value due to record low interest rates.
Back to my original point...with investors expecting inflation to increase, they are increasingly concerned that interest rates will rise sooner than the previous expectation of 2023. This has caused the 10-year U.S. Treasury bond yield to spike from under 1% at the beginning of the year to more than 1.7% last week - a 70-% increase! Given the inverse relationship between interest rates and fixed income, most bonds are in negative territory this year, with the Canadian bond index almost 6% lower.
We will continue to track all of the above stories closely in the coming months.

If you’re looking for more timely information on the markets, you can find them on the research section of my website, or on my Twitter, Facebook, and LinkedIn feeds.

We are beginning a multi-part series for business owners that should interest anyone who is either incorporated or thinking about doing so.

Also, with the end of tax season just over a month away, we recently wrote a new blog on some considerations for filing your taxes this year, given the COVID-19 provisions provided by the federal government.
My Life and Work by Henry Ford: Perhaps it’s the arrogance of living in modern times, but I was surprised at how relevant of this autobiography has remained. Henry Ford ran his company with a scientific rigour from which many today could learn.
He also regularly increased worker pay and lowered the price of cars - two actions I found surprising because they were done without demand. He also advocated the hiring of workers with disabilities, finding they often out-produced those without when given the chance. My Life and Work is dense in parts, but if you own or run a business, you’ll find it contains a treasure trove of inspiration and wisdom.
Memoirs and Misinformation by Jim Carrey & Dana Vachon: I don’t quite know how to describe this book. That is, other than to say it’s a fever dream! It’s weird, but well-written, or at least the wordplay is well-crafted. It’s not for everyone. Perhaps, it’s barely for anyone. But strangely, I’m glad I read it.

How Google's New Career Certificates Could Disrupt the College Degree by Justin Bariso: Though the title is slightly hyperbolic, the new Google certificate programs may help the education industry evolve, while providing students with better value for their time and money.

Falsification: How to Destroy Incorrect Ideas by Farnam Street: There are two primary tools to determine if something is true: verifying it is correct or falsifying that it isn’t. At first they may sound like distinctions without a difference. That isn’t so. The act of repeatedly verifying something can be heavily subject to confirmation bias. One hundred thousand examples of a white swan, with no exception, strongly implies that “all swans are white,” as was once believed. However, it only required the first sighting of a black swan in Australia to override all prior knowledge and “proof” of this previously assumed fact. This article delves further into this topic.
Lowest Canadian Population Growth Rate in Over a Century by Stephanie Liu: Due to the pandemic, Canada saw its population grow by the smallest margin in more than 100 years.
All Together Now by Lauren Michele Jackson: Great article on Dolly Parton. If you’d like to learn more about Dolly, the documentary mentioned below is quite good.
Medicine is Made for Men by Alexandra D. Lahav: Thought-provoking review of two books that examine how much of today’s medicine is based on studies of men and how this may adversely affect women.
On Shame by Ava: Shame is one of those important topics no one wants to talk about. But this young writer explores it with wisdom, insight, and vulnerability that does it justice.
Two Worlds: So Much Prosperity, So Much Skepticism by Morgan Housel: “A hard thing to wrap your head around in economics is the idea that two opposite things can be true at once. Consumers are in the best shape they’ve been in, ever. A huge portion of consumers think that’s bogus because they’re in the worst shape they’ve been in, ever. Both are true. Two different worlds.” Another brilliant article by Morgan Housel!
Why is Gold Valuable? by Nick Magguilli: Once in a while I’m asked why gold actually has value. In the future, I may just quote this article - or better yet, send it to people to read. Great summary of why gold is an important investment vehicle.
A Sense of Where You Are by John McPhee: Classic New Yorker article by legendary writer John McPhee. This 1965 feature focuses on Bill Bradley, who, at 21, was the world’s best amateur basketball player. If the name sounds familiar, he also played 742 games in the NBA, served three (six-year) terms as a U.S. senator, and lost to Al Gore in his 2000 bid to be the Democratic presidential nominee.
Why This Rate Driven Sell-off is Hitting Tech Stocks the Hardest by Bob Pisani: If you’ve been puzzled as to why tech stocks have struggled this year, the answer is rising interest rate expectations - this article explains how this works.
2020 in Review by Howard Marks: Howard Marks’ latest memo is mislabeled. Yes, it discusses 2020 in some depth, but it also, in his clear and concise style, explains where the economy and markets currently are and what to make of it. Great read! 
Dolly Parton: Here I Am: The more I learn about Dolly Parton, the more I’m impressed. Wonderful documentary on her life and music.
Game of Thrones by HBO: Yes, yes, I know, 2019 just called to find out what took so long. Well, Tanya and I started watching GoT a few years ago and inexplicably stopped around season four. Just as inexplicably, we began again in February and only took a month to finish the last four seasons. What a ride! One of the few times I can say the TV series or movie improved on the books.
Comedians in Cars Getting Coffee with Carl Reiner & Mel Brooks, Don Rickles and Steve Martin by Jerry Seinfeld: Great conversations amongst comedy legends. The episode with Carl Reiner and Mel Brooks not only warmed my heart, it also had me in stitches.
Mark Zuckerberg Talks to Patrick Collison and Tyler Cowen About Accelerating Progress: In 2019, Patrick Collison (co-founder of Stipe) and Professor Tyler Cowen wrote one of my favourite articles of that year. It focused on why we need a new science of progress. This interview with Mark Zuckerberg delves further into this while discussing his thoughts on the topic.
Building Ages in the Netherlands by Parallel: Wonderful visualization of architecture in the Netherlands. 
Drive to Survive (Season 3) by Netflix: Tanya and I are huge Formula 1 fans. We not only watch every race, but also every qualification session. Given that, we anxiously waited for Season 3 of Drive to Survive, summarizing the 2020 season, to drop last Friday. It took us four days to binge the 10 episodes. It was worth the wait. And best of all, the 2021 season starts this weekend!!

Audrey Hepburn: Death of an Icon by Mobituaries: Short but wonderfully informative biography on a Hollywood legend.

BJ Fogg: Create Lasting Change by The Knowledge Project: Behaviour scientist BJ Fogg discusses decision-making, motivation trends, the role of emotion in sense of self, and more.

Hardcore History Adendum with Tom Hanks: Fun conversation with Hardcore History’s Dan Carlin as he discusses Hanks’ 2020 movie Greyhound, while exploring numerous historical tangents.

Tech Phoenixes by Grant’s Current Yield Podcast: Interesting perspectives on the current and historical state of the tech sector.

“If you live as a scientist, optimise for truth. But if you find yourself a practitioner, optimise for usefulness. And don't do one where you need the other.”
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"All of man's problems arise because he can't sit in a room with himself for 20 minutes."
- Pascal

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Matthew Lekushoff

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