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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Another Flight Delayed

As if things couldn't get worse for Boeing, they announced yesterday an issue with their 787 Jetliner, which will lead to further delivery delays of the plane.

Boeing's Big Picture: More delays getting planes to customers is bad news for Boeing, they're already facing mounting cancellations as the Corona Virus devastates the travel sector. Meanwhile, the plane manufacturer is still struggling to get clearance to return their 737 Max to the skies after two deadly plane crashes grounded the fleet worldwide in 2019.

The Sky High Big Picture: The entire travel industry is on tenterhooks, it's unlikely any sort of stability will return before a vaccine. Hopefully for Boeing they'll be able to stabilize the Max by then.

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Apple's Epic Clapback

Ok, this headline might be an overstatement, but Apple is now counter suing Epic Games, the creator of Fortnite, further complicating what might become an Epic legal battle.

Flashback: Epic started the battle with Apple in an August lawsuit, after launching their own in-app payment system, in order to circumvent Apple's payment system which takes a 30% cut of transactions.

Apple's Claim: Apple is asking the court for damages related to the loss of revenue cause by Fortnite's in-app payment, as well as damages related to reputation harm after Fortnite launched a public relations campaign against the tech giant.

What's Next: Apple says it would readmit Fortnite to the App Store if it removed its direct payment system, but Epic is refusing, saying doing so would be "to collude with Apple to maintain their monopoly over in-app payments on iOS."

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Big Trouble in Big China

Two new fronts have opened up in the economic war being waged between China and the West. Disney's new live action remake of Mulan is facing a boycott while the U.S. government may imminently be banning cotton grown in China's Xingjiang region.

The controversy surrounding Mulan dates back several months to when the film's star Liu Yifei, said she backed the police in their brutal crackdown against Hong Kong's independence movement. The statement led to backers of a free Hong Kong to call for the film to be boycotted.

The anger towards the film was stoked again recently when viewers pointed out that the film thanked several governments in China's Xingjiang region, where parts of the movie was filmed, who are known to be part of the repression of Uighurs.

Fallout... The pressure is on Disney to save face now that they're being called out by members of the US House, and prominent Hong Kong Independence activist Joshua Wong.

The Trump Administration is very close to putting an import ban in place on cotton grown in the Xianjiang region, again due to the Chinese governments repression of the Uighur population, and the possible use of Uighur slave labour in the production of the cotton.

Fallout...The ban would have major repercussions for China and many western countries who rely on Chinese supply chains for manufacturing. Experts warn that this would lead to brands scrambling to relocate their manufacturing to other Asian countries, which although are competitive on price, do not have the same quality.

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Highs Go Low

Aurora Cannabis, once a darling of Canada's cannabis boom, has announced a write down of a whopping $1.8 billion in impairment charges, this includes $140 million in inventory charges and a $90-million asset write down. The announcement from the Edmonton based company is just the latest in bad news for the sector that has seen thousands of layoffs and other losses, starting before and continuing through covid.

Ok, but what's an impairment charge? It's back to school, so let's take a quick trip to Peak University. An impairment charge is an accounting term to refer to a drastic reduction in the recoverable value of an asset. Simply put, it's a way of bringing the value of an inflated asset back down to the reality of fair market value. Impairment charges are common when bubble markets hit hard times.

Getting High Again...Aurora is hoping to get back in the green (in more ways than one) they've started by appointing Miguel Martin as their new CEO, and have embarked on cost cutting measures which include the cancellation of a multi-year research and marketing deal with the Ultimate Fighting Championship. A cancellation that will cost them $30m.

Market Impact: The company's stock (TSE:ACB) closed at $9.92, down 10.79% since open.

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Back to School

Yesterday, more kids in Canada started the most uncertain back to school of their academic careers. Schools in Durham Region became the first in the GTA to welcome students back, with many schools staggering in-person attendance. A Toronto Star report described the first day of school as quiet, saying "In fact it was hard to believe there was any school at all."

How's it going so far?

  • Ottawa Public Health Officials told 193 staff and students to stay home Tuesday after linking them to a handful of cases.
  • Ontario teacher unions are making the case to the province's labour board that school reopenings are dangerous and violate workplace safety laws.
  • Teachers in Mississauga staged a brief walkout over unsatisfactory PPE.

How are schools adjusting?

Some of the measures school boards are taking include:

  • Mandatory non-medical masks for all staff and students, teachers will receive face shields.
  • Closing of libraries and cafeterias.
  • Staggering school start and end times, recess, and requiring students only socialize within their class bubble.
  • Schools in higher risk areas will have class sizes reduced.

Bottom Line...
Case numbers have been ticking up across the country in the past few weeks, it's likely that the return to class rooms will accelerate this trend. Wear a mask and buckle up for a long winter.

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Market Updates

  • Stocks: The NASDAQ slipped 6% in recent days due to investor skepticism in the latest tech stock boom
  • COVID: Ottawa reverses course and extends small-business rent relief as the Government considers reforming it
  • Climate: Extreme wildfires continue to ravage California, threatening major power supplies

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Peak Picks

  • Advancements in Core Technologies: As Trump increases rhetoric around an 'economic decoupling', China's President Xi Jinping is pursuing the same strategy in his country but with a different approach.
  • Death and Propaganda: A beautiful long form piece in the New Yorker about how a Chinese-American family became Chinese propaganda.
  • All In: Poker is one of the few sports that can be played entirely online – here are how some of the biggest players are adjusting.
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