Finding Safe Haven

Navigating Opportunity & Arbitrage in a Recessionary Economy

Author

Moshe Modeira
August 15, 2024

Commerce & Capital is a weekly ode to universal truths, first principles thinking, leading with integrity, learning with humility & executing with confidence.

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Hey Friends

In the ever-dynamic landscape of wealth management, a significant shift is taking place. Many of my investor and financial advisor friends are talking about finding safe haven assets — as everyone attempts to navigate the economic uncertainties of 2024.

Safe haven assets, by definition, are anchor investments that can stabilize a portfolio when other holdings experience significant downturns.

Traditionally, gold has been the quintessential safe haven, serving as a store of value for centuries. Its enduring appeal lies in its ability to maintain worth during economic turmoil, often seeing price increases when other assets falter.

The concept of safe haven assets has since expanded beyond just precious metals. U.S. government bonds, defensive stocks in sectors like energy, utilities and consumer staples, and certain currencies such as the Swiss franc, Japanese Yen and U.S. Dollar have all earned reputations as reliable safe havens. More recently, Bitcoin has entered this arena, gaining traction among many investors as the benchmark digital store of value.

The growing emphasis on safe haven assets is reflected in changing allocation recommendations. Pre-COVID, it was typical for money managers to suggest holding around 30% of assets in gold and other precious metals. Now, in 2024's recessionary economy, I’ve heard some advisors recommending allocations of up to 60% in safe haven assets.

Why this shift? The reasons are multifaceted. This dramatic increase underscores the heightened perception of risk in today's financial markets. Persistent inflation concerns, geopolitical tensions, and the lingering economic impacts of the COVID-19 pandemic have all contributed to a sense of uncertainty. Investors are seeking not just to preserve wealth but to find stability in an increasingly volatile marketplace.

The appeal of safe haven assets lies in their low or negative correlations with other asset classes. During the 2008 financial crisis, for instance, gold prices rose from around $836 per ounce at the end of 2007 to nearly $1,600 per ounce by the end of 2011. Similarly, during the COVID-19 pandemic-induced market crash in March 2020, sectors considered safe havens, such as consumer staples and healthcare, outperformed the broader market.

It's crucial to understand that safe haven assets are not without their own risks and limitations. While they offer stability during downturns, they typically provide lower returns during periods of economic growth. The trade-off between safety and potential returns is a key consideration for investors.

For entrepreneurs and investors navigating these waters, the key is balance. While the increased focus on safe haven assets is warranted, it shouldn't come at the expense of growth opportunities. A diversified portfolio that includes a mix of safe haven assets, growth stocks, and other investments tailored to individual risk tolerance and financial goals remains the prudent approach.

There is clearly rising chatter about safe haven assets. They will play an increasingly important role in wealth management strategies moving forward. Whether it's through allocations to gold, bitcoin, government bonds, defensive stocks — or a combination of these — investors are recognizing the need to buttress their portfolios against potential market shocks.

In this frothy environment, staying informed and adaptable is crucial. In a world marked by rapid change and a period of acute uncertainty, the search for financial stability has taken on new urgency. The definition of what constitutes a safe haven may continue to evolve, and savvy investors will need to stay attuned to these changes. As always, it’s paramount to take self-directed responsibility as an entrepreneur and investor to educate yourself in financial literacy, conducting thorough market research and consulting with your financial advisory team before making investment decisions.

Onwards,

Moshe Modeira

Editor-in-Chief

Commerce & Capital

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Market Alpha: Navigating Choppy Waters

Inflation's Stubborn Persistence: The latest Consumer Price Index (CPI) data has sent ripples through the financial markets, landing below 3% in August for the first time in three years. While this marks a decrease from July's 3.2%, it's clear that inflation isn't receding as quickly as many had hoped. Core CPI, which excludes volatile food and energy prices, remained unchanged at 4.3% year-over-year.

CPI and Core CPI Year-over-Year Change

🔑 Key Insight: The Federal Reserve's target of 2% inflation remains elusive. This persistent inflation could lead to a more hawkish stance from the Fed, potentially delaying rate cuts and keeping pressure on growth stocks and real estate.

Market Reaction and Sector Shifts: The S&P 500 experienced a slight dip following the CPI report but is mounting a measurable rebound, showcasing the market's resilience. However, beneath the surface, we're seeing significant sector rotations. Energy stocks have surged, with the Energy Select Sector SPDR Fund (XLE) up over 4% in the past week, while technology stocks, particularly semiconductors, have faced headwinds.

Sector Performance (Past Week)

🔑 Key Insight: The sector rotation suggests a shift towards value and cyclical stocks. Consider rebalancing portfolios to capitalize on this trend while maintaining exposure to quality growth stocks for the long term.

Geopolitical Tensions and Commodity Markets: The Ukraine War has taken a new turn with reports of Ukrainian forces making bold, aggressive new incursions into Russian territory. This escalation has sent ripples through commodity markets, particularly impacting oil and wheat prices. Brent crude oil has surged past $90 per barrel, reaching its highest level since November 2023.

Brent Crude Oil Price (Last 6 Months)

🔑 Key Insight: The geopolitical instability is likely to keep commodity prices elevated in the near term. Consider increasing exposure to energy and agricultural commodities as a hedge against further escalations.

Tech Sector Upheaval: The Department of Justice's consideration of breaking up Google following its monopoly ruling is sending existential shockwaves through the tech industry. Events such as this, coupled with Elon Musk's ongoing legal battle with OpenAI, are reshaping the landscape of Big Tech. Meanwhile — the AI race is heating up, with Google unveiling its Pixel 9 phones with advanced AI features, potentially challenging Apple's category dominance.

🔑 Key Insight: The tech sector is facing unprecedented regulatory scrutiny and competitive pressures. While this may create short-term volatility, it could also spur innovation and create opportunities in emerging tech subsectors. Keep an eye on smaller, agile tech companies that could benefit from a more level playing field.

Labor Market Dynamics: The United Auto Workers (UAW) union has filed labor charges against both Donald Trump and Elon Musk, alleging worker intimidation. This comes amidst broader shifts in the global labor market, with companies like Starbucks making significant leadership changes in a bid to address worker concerns and boost performance.

🔑 Key Insight: Labor issues and people management are becoming increasingly central discussions germane to corporate strategy and performance. Companies that can effectively navigate these challenges will gain a competitive edge. Consider focusing on companies with strong labor relations and a track record of continually adapting to workforce demands.

Alpha Recap: This week's market landscape is characterized by persistent inflation, sector rotations, geopolitical tensions, tech industry upheaval and evolving labor dynamics. Investors should remain vigilant and adaptable, considering:

  1. Adjusting portfolio allocations to balance between value and growth stocks.

  2. Increasing exposure to energy and commodity-related assets as a hedge against geopolitical instability.

  3. Exploring opportunities in emerging tech subsectors that could benefit from Big Tech's regulatory challenges.

  4. Focusing on companies with strong labor relations and adaptive management strategies.

Remember, in times of market uncertainty, a diversified portfolio and a long-term perspective remain your best friends. Stay informed, stay nimble, but avoid making rash decisions based on short-term market movements. It’s important to always give yourself the room for agility — to be ready to move, parry and pivot depending on what is being thrown your way at any moment.

Commerce & Capital: Children's Megabrands

Case Study: 4 Children’s Entertainment Juggernauts

I don’t have kids of my own yet — but I’m at the point in my life where I am obligated to attend a lot of birthday parties / various children’s celebrations for family and friends’ little ones. After finding myself recently accosted once again by the now ubiquitous Peppa Pig brand — balloons, accessories toys, apparel, even food bearing the likeness of the famous pink cartoon pig — I said to myself dammit! I need to know! Who owns this?! Who did this?!? Who is making bank every time this brand is sold, with new customers literally being born every second?? 😆 

In recent years, the children's entertainment complex has witnessed the emergence of "megabrands" — franchises that have transcended their original medium to become global phenomena, with a presence in media, collectibles and toys, apparel, accessories and even food & beverages.

Many millennials and even some Gen-Z are now parents, and with that comes inevitable exposure to children’s consumer products. The last 60 years has seen the rise of animated series (what I like to call Story Products) that morph into including consumer goods and physical collectibles universes — notably The Flintstones, The Jetsons, Cabbage Patch Kids, California Raisins, Teenage Mutant Ninja Turtles, The Simpsons, SpongeBob SquarePants and My Little Pony to name but just a few. Most of these franchises are still for the most part alive and well, selling on nostalgia and making money selling a vast array of licensed products to new generations of parents and children.

Today we examine four modern children’s brands that are absolutely dominating: Peppa Pig, Bluey, Paw Patrol and Grizzly and the Lemmings.

Peppa Pig

Peppa Pig is an absolute juggernaut that has become arguably the most recognizable children’s entertainment brand in the world today. It’s now officially been a generation of Peppa dominance — the globally recognized British preschool animated series was created in 2004 by Astley Baker Davies, a trio consisting of three animators — Neville Astley, Mark Baker and Phil Davies. The longtime friends and collaborators met while studying at Middlesex Polytechnic in the 1980s. Their creative partnership led to the development of the Peppa Pig cartoon, which has since become a cultural phenomenon airing in over 180 countries and translated into 40 languages.

Originally broadcast on Channel 5 and Nick Jr. in the UK, the franchise was originally owned by Entertainment One (eOne); Hasbro purchased eOne in 2019 for $3.8 billion. The Hasbro acquisition was a significant event for the founders. Astley, Baker and Davies each made life-changing amounts of money from the sale of the rights to Peppa Pig.

The show's immense popularity spawned a vast merchandise empire, theme park attractions, and a feature film. In 2020, Peppa Pig generated over $1.35 billion in retail sales worldwide, underscoring its status as a preschool entertainment powerhouse. The success of Peppa Pig not only demonstrates the significant financial potential of well-crafted children's content in the global market but also highlights how the creative vision of three friends can evolve into a worldwide phenomenon, dramatically altering their personal fortunes in the process.

Brand Expansion

The Peppa Pig brand has expanded far beyond the television series. It now includes:

  • Toys and games

  • Books

  • Clothing and accessories

  • Theme parks (Peppa Pig World in the UK, with other Peppa Pig-themed experiences in Michigan, California, Florida and Italy)

  • Stage shows and live performances

  • Video games

  • a YouTube channel with over 36 million subscribers

Learnings

Peppa Pig's journey from a simple animated series to a multi-billion dollar global franchise underscores the power of creating enduring, adaptable IP that can be globally scaled and merchandised across multiple platforms and product categories. For entrepreneurs, this success story highlights the importance of focusing on quality content creation, understanding your target audience, and building a brand that can transcend cultural and linguistic barriers. For investors, it illustrates the potential for outsized returns in the children's entertainment sector, particularly when backing properties with strong international appeal and diverse revenue streams beyond just TV broadcasting. The ability to dynamically leverage a story product across various mediums — from television to theme parks, from books to digital platforms — creates a powerful, self-reinforcing ecosystem that can drive sustained growth and profitability for decades

Bluey

Bluey, an Australian animated television series created by Joe Brumm, has rapidly become a global sensation since its debut in 2018. The show follows the adventures of Bluey, an anthropomorphic six-year-old Blue Heeler puppy, her family, and friends in Brisbane, Australia. Produced by Ludo Studio for the Australian Broadcasting Corporation and BBC Studios, Bluey has garnered critical acclaim for its authentic portrayal of modern family life, imaginative play, and subtle emotional depth that resonates with both children and adults.

The series originated from Brumm's experiences as a parent and his desire to create content that reflected real family dynamics. Bluey's distinctive animation style, characterized by its vibrant colors and expressive character designs, is complemented by its uniquely Australian voice acting and cultural references. The show has won numerous awards, including an International Emmy Kids Award and a Logie Award for Most Outstanding Children's Program. This is an insanely detailed breakdown of the show I found by someone named Film Crit Hulk, with yes indeed one of the most clickbait-y titles of all time :)

Bluey's success extends beyond television, with a growing merchandise line, books, and a stage show. While specific financial figures are not publicly disclosed, the franchise has become a significant revenue generator for BBC Studios and the ABC. As of 2023, Bluey airs in over 60 countries, including on Disney platforms in many international markets. The show's impact on an array of parenting discussions and its portrayal of engaged fatherhood have also been subjects of media attention, cementing Bluey's place not just as entertainment, but as a cultural phenomenon influencing conversations about family life and children's media worldwide.

Brand Expansion

The Bluey brand has seen rapid growth, with expansions including:

  • Books

  • Toys and games

  • Clothing and accessories

  • Stage shows

  • Educational resources

Learnings

Bluey's rapid rise to global prominence illustrates the untapped potential in creating children's content that is both culturally specific and universally relatable. For entrepreneurs and investors, the key takeaway is the value of authenticity in storytelling and character development. For instance, the show's ability to resonate universally while maintaining its distinct Australian identity challenged the once-held notion that content must be culturally neutral to succeed internationally. By focusing on genuine, relatable experiences and emotions — creators can craft content that resonates deeply across a diverse set of audiences. This approach not only leads to critical acclaim but also opens up numerous opportunities for brand expansion and merchandising, potentially resulting in a highly lucrative and massively influential global franchise.

PAW Patrol

PAW Patrol has emerged as one of the most successful children's franchises of the past decade, captivating young audiences worldwide with its blend of adventure and positive messaging. The animated series, created by Keith Chapman, debuted in 2013 on Nickelodeon in the United States and TVOKids in Canada. Chapman, known for his previous success with Bob the Builder, partnered with Spin Master, a Canadian toy and entertainment company, to bring PAW Patrol to life.

The show follows Ryder, a young boy who leads a team of rescue dogs, each with unique skills and vehicles, as they protect their community of Adventure Bay. PAW Patrol's success was swift and substantial, quickly becoming one of Nickelodeon's top-rated preschool series and spawning a gargantuan merchandising empire.

Spin Master's involvement as both producer and primary toy licensee proved to be a masterstroke in maximizing the franchise's potential. By 2019, PAW Patrol had generated over $1 billion in retail sales for Spin Master. The franchise's success has been a major driver of Spin Master's growth, with the company's market capitalization increasing from around $220 million at its IPO in 2015 to over $4 billion by 2021.

The show's popularity led to its expansion into various markets, now airing in more than 160 countries and dubbed in over 30 languages. In 2021, PAW Patrol: The Movie was released, grossing over $140 million worldwide despite also being available for streaming, demonstrating the brand's strong appeal even in challenging market conditions.

Brand Expansion

The PAW Patrol brand has expanded significantly beyond the television series, including:

  • A vast array of toys, including action figures, vehicles, and playsets

  • Clothing and accessories

  • Books and magazines

  • Video games and mobile apps

  • Live stage shows and theme park attractions

  • A feature film with a sequel in development

  • Extensive licensing deals across various product categories

Learnings 

PAW Patrol's success illustrates the power of strategic partnerships between content creators and toy manufacturers in the children's entertainment industry. The synergy between compelling content and immediate product availability created a self-reinforcing cycle of popularity and profitability. For entrepreneurs and investors, PAW Patrol demonstrates the potential of developing properties with built-in merchandising appeal from the outset. It also highlights the importance of creating characters and scenarios that can be easily translated into diverse product lines and experiences. The franchise's ability to maintain relevance and growth over nearly a decade underscores the value of continual innovation within a successful formula, adapting to changing audience preferences while maintaining core brand elements. This case study emphasizes that in children's entertainment, the right combination of engaging content, strategic partnerships, and comprehensive brand management can lead to extraordinary and sustained financial success.

Grizzy & the Lemmings

Grizzy & the Lemmings is a popular animated television series (my personal favourite of the four!) created by Antoine Rodelet and Josselin Charier. Produced by Hari Productions in France, the show premiered in 2016 and has since become a global hit, airing in over 180 countries. The series features Grizzy, a large grizzly bear, who constantly finds himself in comical conflicts with a group of mischievous lemmings in a forest ranger's house in the Canadian wilderness.

The show's unique selling point is its lack of dialogue, relying instead on slapstick humor and visual gags to tell its stories. This approach has made it easily accessible to audiences across different languages and cultures, contributing to its widespread appeal. The animation style blends 3D computer graphics with traditional cartoon sensibilities, creating a visually distinctive and engaging world.

While specific viewership numbers aren't publicly available, Grizzy and the Lemmings has become one of the most-watched animated series globally, particularly on platforms like Boomerang and Cartoon Network. Its success has led to multiple seasons, with the show continually renewed due to its popularity.

The franchise has expanded beyond TV, with merchandise, mobile games and a growing online presence. Although exact financial figures are not disclosed, the show's global reach suggests it has become a significant revenue generator for its production company and distributors.

Grizzy and the Lemmings stands out in the children's entertainment landscape for its universal humor and ability to entertain across age groups, demonstrating the enduring appeal of well-crafted, dialogue-free cartoon comedy in the global market.

Brand Expansion

While still in its early stages, the Grizzy and the Lemmings brand is expanding into:

  • Toys and plush

  • Books

  • Apparel

Learnings

Grizzy & the Lemmings' success offers valuable insights for entrepreneurs and investors in the children's entertainment industry. The show's reliance on visual storytelling and slapstick humor, eschewing dialogue entirely, demonstrates the power of universal content that transcends language barriers. This approach not only reduces localization costs but also facilitates rapid global expansion, as evidenced by the show's presence in over 180 countries. For content creators, the series underscores the enduring appeal of classic cartoon comedy when executed with modern production values. The blend of 3D animation with traditional cartoon aesthetics shows how technological advancements can be leveraged to create visually distinctive content that stands out in a crowded market.

While the brand's expansion into merchandise and mobile games is still in its early stages, this gradual approach to brand extension can be seen as a cautious strategy, potentially allowing for more targeted and successful product launches based on proven audience engagement. Grizzy & the Lemmings demonstrates that in the children's entertainment sector, innovative approaches to storytelling, coupled with strategic distribution and a measured approach to brand expansion can lead to significant brand success.

CTA: Future of the Industry

What are your thoughts on this massive industry that never sleeps? Let us know in the comments section or send us a message! 📢 🧸 🚀 

Key factors driving growth for children’s entertainment megabrands?

  1. Addictive characters and storylines that resonate with children and parents alike

  2. Aggressive multi-platform content distribution (television, streaming, social video)

  3. Extensive merchandising and licensing opportunities

  4. Global appeal and localization efforts

As these brands continue to grow and new franchises emerge, the children's entertainment industry is poised for sustained growth and profitability. The challenge for content creators and rights holders will be to maintain the quality and authenticity that made these brands successful — while continually capitalizing on commercial opportunities.

🌍 Social Media

Vivek Levels With Mark Cuban on ESG, DEI, and Kamala — Vivek Ramaswamy: Excuse my French, but I’m frustrated by the acrid toxicity of the political landscape over the last twelve years since the Obama - Romney election season — it was so fucking refreshing to see a liberal and a conservative sit down and have a civil conversation with one another. Vivek Ramaswamy and Mark Cuban discuss a range of topics, including market volatility, Cuban's past trading successes, and their differing views on climate change and diversity, equity, and inclusion (DEI) initiatives in businesses. While Cuban continues his passionate and obstinate defence of all things DEI, Ramaswamy expresses concerns about potential conflicts with meritocracy and first principles thinking. The discussion touches on how DEI relates to a company's mission and return on equity goals, with Ramaswamy criticizing blanket DEI policies across different industries and Cuban arguing that effective CEOs tailor DEI to their specific business needs. Despite their disagreements on implementation, both seem to agree that diversity of thought and expanding talent pools can benefit businesses when aligned with company goals.

The Problem With Society is: Most men don't own anything, so they don’t give a F*ck — Wisdom Warriors: Kristian Bell from Wisdom Warriors makes an argument that deeply resonated with me — that the root of many societal issues, including men abandoning families and communities, stems from a lack of ownership. The YouTuber contends that when men feel a sense of ownership in their land, family, and community, they're more likely to accept responsibilities and become engaged citizens. Drawing parallels between business ownership and societal participation, Kristian suggests that giving men a stake in their surroundings motivates them to contribute positively. Using the analogy of renting versus owning property, Kristian emphasizes the importance of long-term thinking in leadership and resource management. He advocates for creating communities where men can thrive by balancing traditional values with forward-thinking approaches, asserting that a sense of ownership in various life aspects inspires men to overcome personal limitations and live for larger purposes.

It really was a watershed moment for me and a lot of people this past week when the internet was flooded with these faux images of TEDx speakers at a conference. I was completely fooled for the first time in the almost two year onslaught of generative AI imaging. I couldn’t tell that these were not real people. So now, here we are civilization. What comes next?

📚 Book Shelf

Jewish Wisdom for Business Success by Levi Brackman and Sam Jaffe. Jewish Wisdom for Business Success offers a unique perspective on achieving professional and personal success. By examining ancient Jewish texts, the authors uncover timeless principles applicable to modern business. The book delves into the importance of intellect, strategic planning, and strong leadership, drawing parallels between biblical figures and contemporary business leaders. It also provides practical guidance on negotiation, conflict resolution, and building resilience grounded in Jewish wisdom. Ultimately, the book suggests that incorporating spiritual values into business can enhance both professional and personal fulfillment.

The Asset Economy by Lisa Adkins, Melinda Cooper and Martijn Konings. Adkins, Cooper and Konings argues that wealth inequality, particularly through asset ownership like real estate, has become the primary driver of economic disparities in modern capitalism. The authors emphasize how inherited wealth and parental support increasingly determine economic prospects, challenging traditional notions of meritocracy. They highlight the central role of the housing market in shaping economic outcomes and creating new class divisions. The book explores how this shift disproportionately affects younger generations, making wealth accumulation more difficult. By examining the financialization of daily life and critiquing relevant policies, the authors prompt a reconsideration of conventional ideas about social mobility and economic inequality.

The Complete Story of Civilization by Will Durant. An extraordinary, monumental work that I’m only now making my way through. The book offers a comprehensive overview of human history and the arch of cultural development. The 11-volume series traces the journey of civilization from pre-history to the Napoleonic era. Durant's deliberately accessible narrative weaves together political, economic, social, and cultural threads to create an almost comedically ambitious account of the story of human achievement.

📰 Article Of The Week

Ontario’s ‘unofficial estimate’ of homeless population is 234,000: documents — The Trillium: Too many people that I know and love are discussing this topic with dispassion and apathy. New numbers are showing that we have an acute crisis on our hands, and it will require new thinking. In our beloved Toronto, a crisis is unfolding. There is a growing epidemic of homelessness. Over the past four years, this issue has exploded, fueled by a perfect storm of economic pressures. Inflation has sent housing costs soaring while wages stagnate. Mass immigration strains an already tight market. Social tensions simmer as inequality widens, and crime rates have ticked upward. The faces of the homeless are diverse: families priced out of homes, seniors on fixed incomes, youth without support. As tents multiply in city parks, the need for decisive, comprehensive solutions grows increasingly urgent.

See y’all next week! Would love to hear your thoughts — leave your comments below.

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