There's Energy in these Markets - Your Money April 14th 2022

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It’s been a short, but rocky week with inflation headlines the top story, only to be usurped by Wall Street’s fascination with Elon Musk as he sets his sights on Twitter. You may recall last week, he announced a surprise 9% stake in the company causing management and the board to ponder the fate of their company. An olive branch was delivered via an invitation to join the board of directors, but that got snubbed on Sunday and now Mr. Musk is making an unsolicited bid for the entire company. All cash no less. That puts Twitter’s management in the hot seat. Turn down the offer and Mr. Musk could not only walk but sell his block at the same time. The possible price collapse could then cause a feeding frenzy of class action litigators all vying to soak up massive fees for lawsuits against Twitter’s board. However, Given the $54.20 offer price tag and the last traded price of $45 today, tells me that Wall Street does not think the bid will be successful. Mr. Musk has a long history of shooting from the hip and then changing his mind mid stride. Of course, when you are worth $200 odd billion dollars, you are no longer living in the real world. A 0.1% change in his net worth is about $100 million. That is a 1 followed by eight zeros folks, a sum most people could never spend in a lifetime (hedge fund managers are exempted from that observation.)

Ok so what else happened this week? The latest inflation stats scored a near knock out punch to high growth, no earnings companies again this week and while that should be good news for banks going forward, the last 90 days were not kind to them. Haphazard markets, the Russian invasion and skyrocketing covid cases in China caused rising bond yields to gut the earnings from the big banks. Recall six months ago, stock markets went into convulsions when the US 10-year bond yields hit 1.75%. Today they hit 2.82% but the Dow is still above 34,000.

Sadly the war rages on in Ukraine. We are not holding our breath for a quick resolution given the escalating atrocities perpetrated by Russian soldiers on Ukrainian civilians. We cannot imagine the pain and suffering, but our hearts go out to them. We have created an easy link on the Ocean Wealth web page to donate through the Canadian Red Cross in support of Ukraine.

I hate to talk about the silver lining, but our Federal Government has found itself with a lot more cash thanks to taxes collected on our energy exports. They are still running a massive deficit, but now feel flush enough to sprinkle some of it here in BC hoping to curry favor with disenfranchised voters. Given the 7% carbon tax I almost had to pay for my new efficient natural gas hot water heater left me in no mood for gratitude, especially when I had to stop and fill up my gas tank. Maybe our fearless leader should have consulted more with Mr. Tiff Macklem over at the Bank of Canada. Yes he is supposed to operate independent of Government policy, but fiscal stimulus might only add fuel to the roaring inflation fire in Canada so instead of one ½ point increase from the Bank of Canada this year, we may see more as the year progresses.

Turning to next week, while most people will be at home recovering from a Ham or Turkey hangover, stock markets will be open on Monday. Analysts will of course spend the weekend loosening up their fingers and keyboards in advance of first quarter earnings from 276 companies including Tesla, Netflix, AT&T, Verizon, PG, IBM and American Express.

In Canada we note Rogers reports next week along with inflation by StatsCan. Throw in retail sales and housing starts and you have a decent week. We note this week the TSX outperformed our US counterparts as our new high list stretches longer and longer. The list is dominated by energy and mining companies, but we note other names like BCE, Rogers, Nutrien, Emera and Artis Real Estate. Go Canada go.

Happy trading and stay safe. Covid is still out there.

Cheers Steve.

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Steve Bokor

Steve Bokor

Portfolio Manager