MARKET WATCH

Just when the markets seemed to be settling, volatility reared its ugly head last week. As a result, most every global market currently trades significantly lower (-4% to -8%) on the month. The main culprit seems to have been comments by Federal Reserve Chairman Jerome Powell, where he indicated a half point interest rate hike “will be on the table” for the next meeting early May.
 
It’s instances like these that can puzzle the casual observer and, quite frankly, advisors with decades of experience. Why? Well, it’s no mystery that inflation is running hot everywhere. It’s also not a secret that central banks increase interest rates to curtail inflation. So, when inflation is abnormally high, a correspondingly abnormal rate increase – of 0.50% for example – is a distinct possibility. Especially when other countries, let’s call one of them Canada, recently did so and is leaning heavily on doing so again in June (see article below).
 
So, if everyone knows a thing, and someone in a position of power simply acknowledges that thing, why the big deal? Welcome to the world of market psychology, where circus mirrors are passed off as reflections of reality and everything is fine until it ain’t.
 
Yes, fine, I’m exaggerating a touch. There are more serious issues at hand than we’ve seen for some time. These include: the war in Ukraine, stumbling tech stocks, global supply chain disruptions, surging debt levels and, of course, COVID and resulting Chinese lockdowns that have shut down much of the country. So markets have been on edge, and Powell’s comments provided a reason to release some of the pressure that’s been building. Now the real question is, was this simply a tremor or the beginning of something more serious?
 
For perspective of where things currently stand, most global markets are more than 10% lower on the year. But given the trends I’ve discussed in past letters – which remain intact – there are a few exceptions. Commodities, especially Canadian energy stocks (46% higher this year), continue to perform well. Investment dollars keep moving from growth (sexy) companies to value (boring) companies. And Canada, having a number of boring commodity-based companies, while in negative territory, has outperformed much of the world by about 10% in 2022.
 
In other words, we’re weathering the storm and well-positioned given the current economic and market direction.

As always, feel free to reach out if you have any questions, and 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.
FINANCIAL THINGS

Canada's inflation rate jumps to new 31-year high of 6.7% by Pete Evans: Inflation has reached a three-decade high. The question is where do things go from here?

As inflation Ticks Ever Higher, Macklem Won't Rule Out Super-Sized Rate Hike by Pete Evans: With inflation running so hot, it’s possible the next Bank of Canada rate hike on June 1 could be for 0.75%... or more… 

New Home Savings Account a “Substantial” Measure For New Buyers by Daniel Calabretta: The creation of a new home savings account for first-time buyers was recently announced. Here are the details.

Canso April Newsletter: Canso believes, as it has for some time, that interest rates will be increasing, perhaps by a lot. The charts on page 11 and 12 are scary, but well worth a look.
BOOKS
 
Fragile Things by Neil Gaiman: This is the second book of short stories by Neil Gaiman that I’ve read. I found the first half lacking, but enjoyed the second.
ARTICLES

Why the Past 10 Years of American Life Have Been Uniquely Stupid by Jonathan Haidt: This article has been trending lately, and for good reason. Well-reasoned and argued. Highly recommended!

Heresy by Paul Graham: Paul Graham shines a light on how censorious society has become of late and why that may be a problem. “A heresy is an opinion whose expression is treated like a crime – one that makes some people feel not merely that you're mistaken, but that you should be punished. Indeed, their desire to see you punished is often stronger than it would be if you'd committed an actual crime…There are always some heresies – some opinions you'd be punished for expressing. But there are a lot more now than there were a few decades ago, and even those who are happy about this would have to agree that it's so.”
 
What a World by Morgan Housel: Some anecdotes to make you think.

From Millionaires to Muslims, Small Subgroups of the Population Seem Much Larger to Many Americans by Taylor Orth: It’s really surprising how often most of us overestimate, sometimes dramatically, the size of societal subgroups.

The Multidisciplinary Approach to Thinking by Peter Kaufman: Really good talk (transcript and audio) by Peter Kaufman on how the multidisciplinary approach can improve your life.
BEHIND THE PAYWALL

Apologies, but I recently treated myself to a New Yorker subscription. As a result, I’ve spent a lot of my time catching up on articles I’ve been wanting to read for some time.
 
How Stories Deceive by Maria Konnikova: It’s amazing how many people you can fool if you have the right story and commit to it. Almost too unbelievable to be real.
 
The Old Man in the Piazza by Salomon Rushdie: Wonderful short story about language, truth, and change.
 
Gibbon’s Left Testicle by Louis Menand: Despite the…uhmm…interesting title, a thought-provoking article on a new book by Richard Cohen, Making History, which explores the role historians – given their biases, personalities, and proclivities – play in how history is told, remembered, and, of course, its impact on society, past and present.
 
Happy-Go-Lucky by David Sedaris: I like humorist David Sedaris. Not because he’s funny, although he is. But because he’s willing to open up his life, show you the drama, and not sugar-coat his thoughts and actions. This story is about his 98-year-old father and how age has changed him.
PODCASTS, VIDEOS, TWEETS AND CHARTS

Charts From Ray Dalio’s Book The Changing World Order: I haven’t read the book yet, but the charts from Ray Dalio’s recent book are fascinating. The one on page 4, which provides the relative strength of empires, illustrates the geopolitical past, while implying the direction of the future. 
 
Space Launch to Low Earth Orbit: How Much Does It Cost? It’s incredible how low-orbit launches have declined in cost. As an FYI, the circle in the bottom right is Space X, which has changed the face of space.
 
Humanity Today and Humanity Past by Tim Urban: “About 1-in-13 people who have ever lived are alive today. A.D. makes up only about 1% of human history but about half of all people have lived during it. We live in an insane anomaly.”
 
India's Water Revolution #1: Solving the Crisis in 45 days: I thought this initiative to solve the water crisis in India was pretty clever.
 
Smartless with guest Michael Lewis: Author Michael Lewis talks about writing, where he gets his ideas, and, sadly, on grieving.
 
Which is Faster (Brachistochrone Curve) by C4D4U: This is fun.
 
Countries grouped by their Biggest Trading Partners (1960 - 2020) by Visual Capitalist: Global trade has evolved considerably since 1960, especially in regard to trading orbits and the countries at the center of them.
 
SELECTED INSIGHTS

“No road is long if you have good company.”
– Turkish Proverb
 
“The same people with the same intelligence have wildly different potential under different circumstances.” 
– Morgan Housel
 
“Every current event has parents, grandparents, great grandparents, siblings, and cousins. Ignoring that family tree can muddy your understanding of events, giving a false impression of why things happened, how long they might last, and whether they might happen again.”
– Morgan Housel
 
“When I look back on my life nowadays, which I sometimes do, what strikes me most forcibly about it is that what seemed at the time most significant and seductive, seems now most futile and absurd.”
– Stephen Covey
Matthew Lekushoff
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matthew.lekushoff@raymondjames.ca
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