Market Commentary

Weekly Market Comment

“How do I define concussion? It’s an alteration of mental status brought on by a biomechanical force that may or may not include unconsciousness. Often there is no unconsciousness. In the spectrum of concussion, amnesia is worse than confusion, unconsciousness is worse than amnesia.” – Dr. James Kelly, neurologist

The TSX Composite dropped 0.4% while the S&P 500 was flat.

It’s impossible to consistently predict when and where the next market correction will occur but forgetting that they do occur is a mistake. It’s why we have been slowly fortifying safety measures within our Legacy portfolios, all of which are beating the TSX and are holding their own against the S&P 500 (from a CAD perspective) but we’ve also been approximately 12-15% in cash on average of late. We are not taking the market’s calm for granted.

Do you remember when Greece dominated the financial headlines and fears of contagion were high? This week, they issued their first bond in three years while their 2019 bonds have moved from 90 euros (per 100 euro face value) to 102.60 recently. An issue of new bonds was met with high demand this week. It’s a positive sign, but their troubles remain real. The issuance represented only 1% of their outstanding debt and it’s still “junk” status. But don’t expect a lot of Greece headlines for a few years at least. Dominating headline news has a strong tendency to grab everyone’s attention and scare them, only to fade away again.

Jeff Bezos became, for at least the moment, the world’s richest man this week. Amazon.com is credited with taking down traditional retail sales. But online sales are still only 8.5% of total retail sales (granted, from 0% two decades ago), of which Amazon represents 1.5% of. Changing consumer trends is the bigger story here, as Americans spend some $350 billion on phones and related goods and services,  up from zero just a few decades ago. That’s money that won’t be going to traditional brick and mortar goods. We saw profits from the delivery company UPS get a shot in the arm thanks to online sales. Their revenues were up 8% in the current quarter.

Fortunately for Canada, plans for the controversial “border adjustments” (a rhetorically soothing way to say “import tax”) were dropped this week, as all sorts of importers (including the Koch brothers) lobbied against it. It’s one less thing for the market to worry about.

But not all government intervention is bad. Today, the Trump-appointed head of the FDA announced plans to get tough on nicotine levels in tobacco. An obviously way to reduce healthcare costs is to cut down on illness in the first place. While details are still being weighed, a government mandated reduction to nicotine levels would be “one of the most sweeping federal efforts to reduce smoking since Congress required cigarette packages to carry health warnings in 1965,” as Bloomberg put it. Today, Altria saw 10% of its market cap go up in smoke.

Another great way to get a health boost is to not drink soda drinks (it’s essentially heavily processed candy in a bottle). Coke, not wanting to be seen as unhealthy, is dropping its Coke Zero product and switching to a slightly different formulation called “Coke Zero Sugar”. The new formulation tastes a little closer to regular Coke and has a similar red-coloured bottle. It’s great that they are dropping sugar but by saying “zero sugar” so prominently on the label, the company may be reminding drinkers of regular Coke that they are consuming 340 grams of sugar per 355ml can. Someone should tell this kid to slow down his intake!

Musings Beyond The Markets

A startling new study by a neuropathologist named Dr. McKee has found that out of 111 brains of from deceased N.F.L. players, 110 were found to have chronic traumatic encephalopathy (C.T.E.). It’s a degenerative brain disease caused by blows to the head. Usually, in the case of NFL players and other sports professionals such as in boxing and hockey, it is the result of repeated blows to the head. But Iraq war veterans are also known to suffer from its effects, believed to involve shock-waves from explosions which rattle soldiers’ brains.

C.T.E.’s symptoms include confusion, memory loss, depression, and dementia. Physically, the brain develops gaps internally, empty spaces where brain tissue used to exist.

Below is a cross-section of brain from Ronnie Caveness, a linebacker for the Houston Oilers and Kansas City Chiefs who used to play with Dallas Cowboys owner Jerry Jones.

To this day, Jones has denied that football can cause C.T.E. The N.F.L. has played down C.T.E. as a direct problem linked to football the same way Big Tobacco used to deny the relationship between cigarettes and cancer.

To be clear, this study has a huge amount of selection bias. The brains that were studied were specifically sent in because those former players were known to have suffered symptoms of C.T.E. before they died. In no way does it imply that the vast majority of N.F.L. players develop the disease. What it does prove is that their real-life struggles had a physiological cause.


(New York Times)

Word of the Week

encephalopathy (n.) – a disease in which the functioning of the brain is affected by some agent or condition (such as viral infection or toxins in the blood).

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