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Making sense of the markets this week: August 24

August 21, 2020 Dale Roberts
Making sense of the markets this week: August 24

Mr. Buffett often opens up to the press about his purchases and rationale, and I can’t wait to read the scoop on who, exactly, bought Barrick, and why. 

And for the record, I hold iShares XGD and gold ETFs with direct gold exposure. My wife holds Berkshire Hathaway shares (BRK.B). 

“Boring” Walmart grows its e-commerce business by 97% during COVID

Earnings season is still underway, with many retail giants reporting second-quarter results—including Walmart. The retail behemoth is known as a “recession-proof” stock. Certainly, that phrase needs to be in quotation marks, as no stock is truly recession-proof. But when we hit troubling times, consumers will obviously look for lower priced items. 

As per the above link, that was the case in the financial crisis and recession of 2007–2009, when Walmart’s revenues and earnings saw a healthy boost:

  • 2007 adjusted earnings-per-share of $3.16
  • 2008 adjusted earnings-per-share of $3.42 (8.2% increase)
  • 2009 adjusted earnings-per-share of $3.66 (7% increase)
  • 2010 adjusted earnings-per-share of $4.07 (11% increase)

Now, Walmart and its investors (I’m one of them) are having their way in the pandemic period as well, with the company benefiting from the surge in online shopping. Walmart saw a 97% increase in online sales for the quarter, over 2019 sales, and same-store sales for Walmart’s traditional retail outlets increased 9.7%. Shoppers are making fewer trips to stores, but spending 27% more when they do visit.

Here’s some more reading of tea leaves from Walmart, and this one may be troubling. Walmart noted a correlation between spending and stimulus cheques in the U.S.—and now those COVID-related government benefits are set to fall in the U.S. and Canada. Connecting the dots, perhaps the Walmarts of the world are about to see some shoppers and revenues disappear. 

Canadian real estate says “what pandemic?”

Real estate is a big driver of the Canadian economy. In fact, real estate and its spin-off effects have powered the economic engine in Canada for a few years now. (And you thought it was oil and gas, ha.) According to Better Dwelling, in the third quarter of 2019 real estate was responsible for more than half of Canada’s GDP growth. 

In July 2020, Canadian housing markets set multiple records, despite the fact that we are in the middle of a financially challenging pandemic. And the growth occurred in every major Canadian real estate market. From the Canadian Real Estate Association (CREA): 

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