Vigilante justice

Good afternoon, everyone. Last night I (sort of accidentally) attended an in-person book club. It was nice to hear the opinions of random strangers IRL rather than just on the internet, for a change.

In today’s letter:

— Taylor Scollon

G7 bond yields are surging. Bond investors seem to have finally decided that the one-two punch of inflation driven by the Iran war and ballooning government debts is a real problem. Yields on U.S., Japanese, and European bonds, in particular, have risen sharply, which is rippling through to what you and I pay to borrow money. A growing chorus of analysts is now warning that yields could stay high even after the Strait of Hormuz is reopened because a) it will take time for energy supply to return to pre-war levels, b) there’s zero pressure to reduce government deficits right now, and c) the AI boom is proving to be inflationary, at least in the short term. All factors driving rates up. Canada’s debt situation is relatively manageable and inflation has not jumped as much as other G7 countries, but our rates are influenced by what investors can get buying U.S. bonds, in particular.

The salad days of cheap phones and televisions and “smart” everything may be numbered. In a new analysis on Substack, David Oks argues that the world’s big three memory makers (Samsung, SK Hynix, Micron) are reallocating capacity from commodity memory used in phones and laptops toward high-bandwidth memory (HBM) for AI data centres, which is already causing prices for phone and laptop memory to spike dramatically. Budget smartphone buyers in Africa and South Asia will feel the pinch first, and are being priced out of phone ownership entirely, but the same crunch is now moving up the chain to Samsung, Dell, and even Apple, meaning rich-world consumers will soon feel it too.

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Around half of couples say they’ve made financial trade-offs to have kids. 57% reduced or paused investing to pay for child care costs and 35% reduced contributions to retirement savings, according to the Wealthsimple survey. We’re surprised these numbers aren’t higher, to be honest, given that the average Canadian two-parent family spends around $17,000 per year raising a kid — and how many people have a spare $17,000 per year kicking around? Interesting sidenote: despite the costs of raising kids, new research points to smartphones – and the decline in couple formations they seem to have caused – as the main reason for falling fertility rates.

SpaceX says its business has the largest total addressable market, or TAM, “in human history.” The company, which just filed to go public, says its TAM is US$28.5 trillion, around a quarter of the world’s entire economic activity. That figure, which is supposed to be a good-faith projection of how much the company could make were every one of its potential customers to buy from it, is mostly accounted for by SpaceX’s AI business, which it says could eventually be US$26.5 trillion. For a company called “SpaceX,” its space business represents a surprisingly small share of its TAM — just US$370 billion. 

The Big Six are expected to report strong profits this week. There may be plenty of uncertainty in the economy, but the Big Six are doing just fine, a fact that should be reinforced as they all report earnings this week. They’ll need to clear a high bar to see a pop in their share prices, though, since they’re already turning in a stellar performance of late. The main index tracking the country’s banks is up more than 50% in the past year, driven by the strength of the resource sector, increased trading activity, a resilient domestic consumer, and a general business-friendly vibes emanating from Ottawa.