Canada Makes The First Move

Canada’s central bank has made the first move in cutting rates June 7, 2024 | Peel #726 In this issue of the Peel: - 🇨🇦 Canada’s central bank has made the first move in cutting rates - 🙀 Our legendary retail trader is going live on YouTube - 🤖 California just introduced a new game-changing bill Market Snapshot 📸 Banana Bits 🍌 - Get ready for today’s [jobs report]() - The ECB joins Canada (discussed below) in [cutting interest rates]( - Q1 labor costs came in low, meaning that inflation is probably chilling but that we’re also [probably poorer]() - Gold funds saw net inflows for the [first time in a year](=) Specialize to Succeed: Pick Your Finance Path = Dive into the diverse world of finance with a clear direction - your own. WSO Academy's tracks let you specialize in the area you're passionate about. From Investment Banking to Hedge Funds, each path is a gateway to mastery in your chosen sector. Enjoy tailored content, expert mentorship, and specific skill development that aligns with your ambitions. Pick your path and embark on a journey of specialization, where success is not just a destination, but a personalized journey. Your specialized finance career starts here! [Click here to join the WSO Academy Waitlist. Limited slots only.](=) Macro Monkey Says 🐒 First Mover Disadvantage Whether it’s booting the British Empire, fostering economic growth, or forcibly removing indigenous populations, Canada often finds itself playing second fiddle to the U.S. However, the U.S.’s younger and much fatter brother has just claimed the gold medal in at least one significant area. The Bank of Canada has bestowed upon its country a gold medal in the race to be the first of the G7 central banks to cut interest rates this cycle. Turns out this whole “higher for longer” vibe isn’t polite enough for Canadians… eh? Other central banks may shortly follow suit, so let’s get into it. What Happened? On Wednesday, the Bank of Canada ushered in a new paradigm among G7 economies as the first to officially conduct a 25bp interest rate cut. That means the Canadian equivalent of the federal funds rate was lowered by 0.25%. [Source]() Now, that doesn’t sound—nor look—like much. But as we frequently explain, it’s not necessarily the level of interest rates that carry paramount importance, but the direction. Interest rates are constantly in flux. For businesses and consumers, making economic decisions based on the current level is useless. The question we ask ourselves is simply, “Are interest rates going higher or lower?” Recent history is a prime example of this psychology. In 2021, a 4-5% mortgage rate seemed wildly expensive. But today, with prevailing rates dancing around the 7% mark, paying 4-5% would be a dream come true for most consumers. Despite the troubles of the Canadian housing market, which makes its U.S. equivalent look like we’re still in 2006, Canadian central bank officials made clear that this decision was driven by their growing confidence in inflation’s direction, heading back towards 2%. [Source]( Canadian inflation never got as high as in the United States, peaking at 8.1% in June 2022. However, Canada’s economy is more sensitive to underlying interest rate moves, given its relatively higher personal and corporate debt burden. As a result, the BoC had to act more proactively than its southern neighbor. Inflation forecasts in Canada also slightly differ from those in the U.S., with the BoC expecting to reach the Holy Grail of a 2% annualized inflation rate in 2025. According to the Fed’s latest projections, the U.S. won’t follow suit until 2026. As the 10th largest economy in the world, Canada’s interest rate moves play a sizable role on the global stage, especially given its position as a massive exporter of raw materials like crude oil, processed oil, gold, aluminum, and medications. Cutting rates will lower the Canadian dollar relative to other countries holding rates steady, all else equal. So, while the cuts might make exports more competitive in markets like the U.S., central bank officials are cognizant of concerns about import costs. Bank of Canada governor Tiff Macklem—which for some reason sounds like the most Canadian/hockey player name I’ve ever heard—even went as far as to say, “There are limits to how far we can diverge from the United States, but we’re not close to those limits.” [Source]() Even with rates remaining at multidecade highs after this week’s cut, the Canadian Dollar (real original, guys) has mostly continued to shed value relative to its U.S. counterpart. American central bank officials have been much less keen to signal a shift to a rate-cutting environment, relying on the phrase “higher for longer” more than Nike relies on “Just Do It.” The Takeaway? U.S. Fed Chair Jerome Powell has it easy. For him, the interest rate decision is limited to considering a potential move’s impact on American inflation and unemployment, period, full stop. But other countries have to consider how their own interest rate policy will impact their currency’s position in foreign exchange markets, particularly against that of the world’s biggest importer, the United States. Canada’s debt-loaded and housing-driven economy pushed them to the brink before anyone else, but we’ll see how long others can hold out. Sweden, Switzerland, Hungary, and others have cut already too, but other G7 countries should take note. Germany, France, and Italy might be in a dead heat to see who can claim silver, but as the Fed has made clear for most of this year, don’t expect the U.S. to cut anytime soon. The slowing growth seen in the U.S. will push that date up marginally, but according to futures markets, consensus expectations are for the first cut to arrive in September. Stay tuned. What's Ripe 🤩 GameStop (GME) 📈47.5% - Wow, this guy actually might become a billionaire before the month is over. Keith Gill, a.k.a. “Roaring Kitty” or “DeepF*ckinValue,” is going live once again. - Via his “Roaring Kitty” YouTube account with 735k subs, Gill announced he is going live on Friday at 12pm ET, presumably to discuss his “GME YOLO.” - Obviously, that meant retail traders around the Earth had to pump GME to the moon. At a close of $46.55, GME is only $23.45 away from minting a billionaire. Robinhood (HOOD) 📈6.4% - Continuing their trend of stealing from the poor to give to the rich, Robinhood shares are ripping on a fresh acquisition. - The degen brokerage firm is acquiring Luxembourg-based Bitstamp, the world's longest-running digital asset exchange, for $200mn. - With over 50 international operating licenses, the purchase is meant to help grow Robinhood’s digital asset and international business. - But, just last month, Robinhood received a [Wells Notice]() exactly for its digital asset segment. So glad to see that they decided to poke the bear even harder. What's Rotten 🤮 Five Below (FIVE) 📉10.6% - Like Bud Light or the Colt .45, another iconic American product appears to be losing favor, and Five Below is feeling the most pain. RIP to Squishmallows. - This discount retailer posted weak quarterly results with same-store sales falling 2.3% annually. Yet, sales still grew 11.8% overall on 61 new store openings. - The company cited lower demand for higher-ticket products like Squishmallows as the primary driver, but the real reason is literally one word: inflation. Nio (NIO) 📉6.8% - It’s a bad day to be an EV, a worse day to be an EV company, and the worst day to be an EV company shareholder. Nio slipped on gross earnings results. - A leading Chinese producer, Nio, posted a deeper loss due to weaker revenue than expected. But, analysts are already saying it might be a buying opportunity. - 2 months into Q2, Nio has already delivered 20.5% more cars than in Q1. In total, the firm expects 55k to ship this quarter, implying an 83.3% jump. Thought Banana 🤔 California Regulates AI In the late 1840s, a rush of risk-taking pioneers journeyed to the westernmost point of the United States in search of riches in the form of gold. Roughly 150 years later, the rush shifted, becoming more focused on riches in the form of venture capital funding and dotcom-era stock prices. From the gold rush to the internet boom, California has always been defined by risk and innovation. Today, the state is showing exactly how it earned that reputation by pushing first-of-its-kind legislation through the bureaucracy that the state has become. California is trying to regulate AI. Let’s see how it’s going. What Happened? California SB 1047, or the “Safe and Secure Innovation for Frontier Artificial Intelligence Model Act,” as it’s conveniently called, is the first wide-reaching legislation meant to wrangle the potential of artificial intelligence models in the United States. The bill has just passed through all requirements in the state’s First Chamber review and is now heading for Round 2 in the Second Chamber before potentially enacting into law. Given that most state legislatures—and the Federal government—ostensibly prefer to copy & paste their legislation rather than create something original, it’s likely worthwhile to understand how the most innovative state in the U.S. is approaching the subject. [Source](=) Needless to say, in the current political climate of the U.S., the bill has aroused quite a lot of ire already. Essentially, bill 1047 does the following: - Requires developers to “provide reasonable assurance that the covered model does not have a hazardous capability, as defined, and will not come close to possessing a hazardous capability” - Mandates the implementation of robust cybersecurity protections to prevent unauthorized access to the model - Creates the Frontier Model Division, a state regulatory body designed to ensure compliance and enforce penalties for violations of this bill - Holds frontier AI model developers liable for harms caused by their model Although seemingly innocuous, everybody in the state with two thumbs and a Twitter account appears to be losing their minds over this. On one side, many fear that if left unregulated for too long, AI systems will go full terminator. The idea seems to be that any regulation prioritizing safety is worthwhile simply due to the potential downside effects. Risk mitigation, along with the establishment of safety protocols, regulatory bodies, and liability for developers, proponents of the bill expect AI development to slow down to a more reasonable rate—one that the average human can actually keep up with. Then, there’s the other side. One of the biggest complaints centers on the definition of “hazardous capabilities.” Detractors of the bill say the loose definition could be weaponized for political purposes and used to the detriment of developers and users. However, loose definitions in bills like this are also the point. Establishing generalities resting on the basis of the term “reasonable” is as American as shooting a Big Mac with a 12-gauge, so on its face, the term alone doesn’t seem overly errant. Detractors of this legislation do have more legitimate complaints, however, especially in how broad-based and quickly thrown together the bill is. The idea is that this bill will push innovation and accompanying economic growth outside of the California state lines to other states with less impactful or no legislation at all. [Source]( However, what’s certainly not up for debate is the fact that AI development is here to stay and will likely only continue to grow exponentially from here. The Takeaway? My general thought process is that rules should only be established when the possibility of the subject of said rule going wrong is more detrimental than the possibility of that rule going wrong. For example, the worst-case scenario of something like free speech is becoming offended, while the worst-case scenario without a law ensuring free speech is 1984, loosely speaking. Legal and technical experts agree that some kind of legislation is needed for AI. An agency-based model seems ideal given the development of dynamic, constantly changing models and applications, but this legislation could be a step too far. Ideally, a government would establish legislation that permits an AI regulatory agency to establish its own rules with the assistance of technical and legal experts in a nonpartisan way. But in the U.S., wishing for that is like wishing for Biden to finish a sentence on his own or for Trump not to grab women by the p*ssy. Eventually, this will get figured out. So, f*ck it, let’s ask ChatGPT what it would do to best regulate itself. Honestly, doesn’t sound too bad: The Big Question: How will AI regulations develop in the U.S. and beyond? Will partisanship create barriers to effective legislation? What risks do we face if we don’t act quickly enough… or act too quickly? Banana Brain Teaser 💡 Previous 🗓 A three-digit code for certain locks uses the digits 0, 1, 2, 3, 4, 5, 6, 7, 8, and 9 according to the following constraints. The first digit cannot be 0 or 1, the second digit must be 0 or 1, and the second and third digits cannot cannot be 0 in the same code. How many different codes are possible? Answer: 152 Today 🕐 Jackie has two solutions that are 2 percent sulfuric acid and 12 percent sulfuric acid by volume, respectively. If these solutions are mixed in appropriate quantities to produce 60 liters of a solution that is 5 percent sulfuric acid, approximately how many liters of the 2 percent solution will be required? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “A few things I am not. I am not a cat. I am not an institutional investor, nor am I a hedge fund” — Keith Gill How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh]() 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA]() // [ACADEMY]( // [COURSES]() // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States