Chairman’s Letter Q3 2022

The post-COVID 19 financial troubles were predictable.




October 1, 2022

There is a new war being waged that has not been waged in most investors’ lives. It comes as a shock to many, but the warning signs were there. For the past 14 years governments around the world have directed that money be thrown at every problem that the global community could conjure. In 2019, $15 trillion of government debt had a NEGATIVE interest rate. You had to pay the government to take your money. Those not silly enough to do that did what any sane person would do, borrow money, and buy stuff. Canadians, especially, excelled at borrowing and spending, becoming the most indebted population in the world when considering their income level. 

Then the world stopped with Covid-19. The global economy stopped. Vaccines aside, the solution was the same playbook above but on steroids. The U.S. Government put $4.3 Trillion into anyone who had a bank account.  In addition, the Central Bank bought $120 billion of bonds from investors every month, injecting ever more money into the banking system. Money was everywhere. IT WAS FREE. It was glorious, and a new generation of investors went mad. The price of everything went up. Everyone got rich. 

A strange thing happened on the way to Nirvana. Soon there was no need to work because riches could be made betting on the next crypto “currency”, or bankrupt movie theater while at the same time, “sticking it to the Man” who presumably was an old white guy with a top hat. 

The world had been “democratized”. Suddenly, there was more money than those willing to supply whatever money could buy. 

Capitalist or communist, the logic of supply and demand is constant. If there is more money (demand) than resources (supply) then prices go up. The ‘order’ of things starts getting complicated. Prices start going up faster than income. People become cranky. Businesses become cranky as their costs rise more rapidly than their revenue. Not everyone can be rich! That’s not how the game Monopoly works.

It’s time to put the genie back into the bottle. Game over. Time out! Those over the age of 60 know how this rodeo goes. Raise interest rates, take back all the money the banks are holding on behalf of those who think it’s free and easy, toss a few million out of work so employers can get their costs in line, and teach politicians to stop running the economy by bailing everyone out. 

We have reached that time, and it is terrifying for many who grew up on 2% interest rates and forever-rising asset prices. 

The good news is that we have likely, or are very soon to have, raised the costs of being foolish with money to the point where something breaks. For those under the age of 60, this is how you “fix” things. We hit the reset button, things go back to cautious optimism, and investing goes back to focusing on what a business is worth based on what it EARNS.

That’s ok! The companies in your portfolio all make money and over the past few years have seen those revenues and profits grow. These companies will continue to grow and flourish, because they make delightful products and services, serving billions of transactions every year. They care not about the problems of the world, they just do what they must, with what they have and carry on like they did during the pandemic and during the great financial crisis of 2008-2009. Like good companies always do.

But first, we may witness some additional fireworks. Something usually breaks. But fear not, for that is the event you want! There is a soft but growing debate about how much pain to inflict upon the economy. How long to make little, truant Johnny stand in the corner with his nose against the wall? Johnny will soon start to riot or cry, and you can bet some politician will rise to the occasion, and ride to the rescue. Already, bad news is seen as good news. Why? Because, as Ronald Regan said:  the “Most terrifying words are I’m from the government and I’m here to help.” This is surely just around the corner.  

Not all government help is bad, it’s a matter of degrees. Clearly, printing money and giving it away is problematic. That phase is clearly over, and now the ‘powers that be’ are taking away the punch bowl from the party. Soon enough, the hangover leads to violent visits to the washroom. This is the stage we are in now. We are witnessing a purging of excess. It’s not pleasant and, unlike a singular experience in the privacy of our house, it’s global in nature, so it is not a one-night affair. But fear not, soon enough the calls for the next round of stimulant will be administered. 

Huxley’s “Brave New World” has been a prescient forecaster of the future. He perhaps inspired Elon Musk toward space travel. Perhaps, and somewhat tongue in cheek, he inspired Musk as he wrote of a drug that crossed between Valium and Ecstasy, and a chewing gum that had attributes like Viagra; things that Musk likely employs as he populates the world with ‘Muskets’ with plans to populate his growing brood on Mars. I digress…The Government, Musk or some new political messiah will storm the gates of the Money Changers and their temples and decree that money must be made plentiful again. 

Huxley rebutted Orwell and his prediction of society moving toward totalitarianism extremes. He argued that was not necessary, in part because the totalitarian rulers in Huxley’s book do this not by oppressing their citizens, but by giving them exactly what they want or what they think they want — which is basically sex, drugs, and rock ’n’ roll — and lulling them into complacency. Sounds like sound insight; cheap free money will be on our plates soon enough again, do not doubt the profits of boom. It is a cycle, and it repeats.