Coming Soon: A Second Wave

Israel made waves yesterday becoming the first developed country to impose a second lockdown amidst a surge in COVID-19 cases.

The shutdown is intended to last through the Jewish holidays, which is receiving criticism from religious leaders.

Why? Israel has one of the highest per-capita infection rates in the world and their hospitals are at risk of overcapacity with flu season just around the corner.

How long will this last? The shutdown is intended to last through the Jewish holidays in the Fall, which is already being criticized by local religious leaders.

How did the second wave happen? A rapid reopening of institutions and schools fueled a surge in COVID cases.

Zoom out: Experts are starting to warn that a second wave is imminent and Israel's new lockdown may be the first sign of what we can expect in the not too distant future.
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Softbank Going Private?

It's been a wild year for Softbank. After taking serious losses from their bad, multi-billion dollar bet on WeWork, the Japanese firm continues to take a beating.

Who is Softbank: Led by notorious Japanese Masayoshi Son, Softbank is one of the biggest investors in the world.

On top of their huge holdings in 'traditional' businesses like T-Mobile and Alibaba, Softbank manages a sexy $100 billion Vision Fund that takes positions in some of the hottest tech companies, including WeWork, Uber, Wag (the dog walking service), and Oyo (an Indian hotel disruptor).

What happened to Softbank? In 2016, the Vision Fund was on top of the investing world. Two of their biggest positions, Uber and WeWork, were rapidly growing and seemingly couldn't be stopped. That all changed in 2019...

A leadership scandal at WeWork and poor public offering by Uber forced the firm to report huge loses, only made worse by COVID-19.

And that takes us to today, the Japanese conglomerate is now looking to buy all their public stock and take the company private.

How do they plan to do this? The firm is nearing a big sale of their asset Arm Holdings, a UK chipset manufacturer, to Nvidia which would generate a new $40 billion return to the fund. The proceeds from this transaction could go towards buying out public market shareholders.

Zoom out: Going private would be a huge move. Softbank is the second most valued Japanese company in the world and taking it private would have significant ramifications to the Nikkei, the Japanese stock market.

But taking the company private would give Masayoshi Son more control over the company and greater flexibility to conduct a turnaround without being handcuffed by stock price fluctuations and the concerns of public market shareholders.

While experts think that taking Softbank private is a tough sell, the Arm Holdings/Nvidia deal would position the company well for such a move.

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Huawei Headache

The Huawei 5G conundrum continues. As America continues to apply pressure, it looks increasingly likely that the Government of Canada will outright ban the use of Huawei equipment for Canada's 5G infrastructure.

What's the problem? A ban by the Federal Government would force Canadian telcos to use more expensive European equipment for their 5G rollout.

To make matters worse, most of the telcos already use Huawei technology for their 4G networks. Experts say it's hard to integrate a new provider's hardware with gear from another's, which means that the telcos will have to spend hundreds of millions of dollars to replace their legacy equipment.

Show me the money: Now the telcos are arguing that the Feds should transfer over a billion dollars to manage the transition to the new European equipment.

But not so fast... critics point out that the telcos are huge and highly profitable companies and they decided to install Huawei hardware knowing full well the potential national security implications.

Also in the midst of a global pandemic is paying a billion dollars to Telus, Rogers and Bell the best use of our tax dollars (especially when our phone bills are already outrageously expensive)?

Next steps: The telcos are going to regroup and pursue a legal strategy, but experts argue that their case is weak since the feds are making the decision on national security grounds.
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We have a winner!

Ladies and gentlemen, we have a winner. The Wall Street Journal is reporting that US IT behemoth Oracle has been selected as the winning bid for the super popular video app, TikTok.

Some context: President Trump forced TikTok to sell it's US operations due to security concerns over the app's Chinese parent company Bytedance. The Trump Administration is concerned that Bytedance could give access to American's data to the Chinese government, putting US national security at risk.

The auction house: This decision sparked a frenzied bidding war between Microsoft/Walmart and Oracle. But buying a super popular Chinese-owned social app was never going to be that easy.

Yesterday, the South China Morning Post reported that TikTok was unwilling to sell it's algorithm as part of the deal.

So what? The algorithm is what makes TikTok great! Without it, TikTok's just another video sharing app and could be easily replicated.

But why won't they sell the algorithm? Before TikTok, Bytedance spent years refining their algorithm through an app called Toutiao, which is the most visited news page in China. Bytedance's algorithm is it's secret sauce and what makes the app so addictive. It's ability to feed you content that you're likely to love is what keeps you scrolling.

Oracle's going to buy just the technology without the algorithm? Seemingly so. Oracle must see value in the millions of users already addicted to the platform and they have confidence that they can build their own similar algorithm.

However, there's whispers of increasing resistance among Chinese officials to any sale to a US entity. So while we have a winner, don't expect this to be over anytime soon...
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Peak Picks

  • The Spice Must Flow: If you didn't catch it yesterday, we can't stop watching the new trailer for the Dune movie (created by Canada's very ow Denis Villeneuve!). This one's scheduled for release in December. Fingers crossed it doesn't get pushed back!
  • We Come In Peace: The Guardian generated an essay arguing that AI is safe for people — written by the GPT-3 AI language generator. And it's pretty good, which maybe disproves the point?
  • Ikea' E-Commerce Nightmare: While Ikea says its e-commerce sales have jumped during the pandemic, the company's systems have struggled to keep up. It's turned into a nightmare for customers.

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The Federal government announced $221m in new funding to support Black-owned business and Black entrepreneurs with loans of up to $250,000.

Alberta has ordered hundreds of students to stay at home for two weeks after potentially being exposed to Covid at school.

AstraZeneca suspended a Covid vaccine trial after one participant developed serious illness. It's not yet known whether the illness is a side effect of the drug or a coincidence.

Used car sales are through the roof, rising 22% from last year as more people seek to avoid public transit during the pandemic.
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Slack On The Ropes

Shares of Slack Technologies, the owner of popular messaging app Slack, nosedived up nearly 20% after the company missed earnings targets (though it's worth noting Slack's shares are up 30% so far this year).

Why it tanked: Slack missed its earning goal because it depends on small- and medium-sized businesses that have been hammered by the pandemic.

The good news: Slack is working to break into large corporations, and it seems to be working. Billings for customers with $100,000+ in annual recurring revenue grew by 37%.

The Canada connection: Slack's founder Stewart Butterfield is a Canadian boy from Lund, British Columbia.
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What Went Wrong With Mulan?

It was supposed to be a slam dunk. A $200m remake of a beloved animated movie released direct to Disney+ when people are at home with not much better to do than stream entertainment. 

But it hasn't played out that way. Disney's new Mulan release has been beset by serious issues: 

  • Ticket pre-sales in China (where Disney is banking on big box office numbers) have been dismal and the movie is being panned by critics. The movie has a rating of 4.7 out of 10 on the most popular film review site in China, making it one of the lowest rated Disney movies on the site.
  • Disney is being slammed by Western critics for filming in Xinjiang, where China's Uighur population is repressed by the state. Calls to boycott the movie are growing on social media.
  • American politicians have accused Disney of being "addicted to China", and some analysts speculate they could be hauled before Congress over this latest debacle. 
All this is a far cry from what Disney had planned for the movie, which was expected to net $1bn in revenue for the company.

The big picture: The issues around Mulan illustrate the growing difficulties with doing business in China in a climate of increased tension between the emerging superpower and Western governments. 
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Build, Baby, Build

Construction of new homes in Canada is the highest its been in a decade. Housing "starts" grew to 262,396 units in August, up 6.9% from July. The last time starts were this high was September 2007 — at the onset of the Great Recession.

What's driving growth: New construction in Toronto and Vancouver — particularly in the condo market — makes up a big portion of new construction.

Zoom out: So far housing prices have continued to climb to record highs in cities because of strong demand, low inventory, and cheap mortgages. But as new housing construction continues to grow, so will supply. That could depress prices in the coming years as these construction projects finish.

What's next: There are red flags ahead for the housing market, including an upcoming expiration of over 500,000 emergency mortgage deferrals and majorities of those who lost income during the pandemic reporting that they will have some difficulty making payments.
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Steady As She Goes

The Bank of Canada spoke, and when they talk we pay attention, so here are the highlights: 

  • Interest rates will stay at historic lows for years to come or until the 2% inflation target is "sustainably achieved."
  • The Bank will continue buying government bonds at the current pace and maintain its monetary policy through the recovery phase of the pandemic.
  • In a change from July, the Bank indicated it may ease off the quantitative easing a bit and removed language about being prepared to offer more stimulus. 
Why it matters:

The Bank is a key (maybe the key) player in the economic recovery ahead because they are best positioned make cheap credit available and keep financial markets stable.

What the Bank is doing: 
  • Buying large amounts of government bonds which keeps the bond market liquid and allows governments to ramp up deficit spending needed to fund emergency programs. 
  • Growing their balance sheet by buying other assets like treasury bills and mortgage bonds to mitigate risk to the rest of the financial sector. 
  • Provide credit to individual banks and financial institutions to support their lending to businesses and households. 
Basically, the Bank 1) keeps the financial system running smoothly by making liquid markets and 2) facilitating investment in the economy by keeping credit cheap.

What's next: Bank Governor Tiff Macklem is scheduled to hold a full news conference today where more details may be revealed.
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