The Canadian Investor - Elon Musk Changes his Mind and is Credit Suisse in Trouble?

Episode Date: October 6, 2022

In this episode, we talk about Elon Musk going ahead with the Twitter acquisition. We also discuss the recent news surrounding the European Investment Bank, Credit Suisse and if it is really on the verge of collapse. We then have a look at why Nike’s stock was down double digit after its recent earnings release and discuss more news and earnings! Tickers of stocks discussed: TWTR, CS, BB.TO, NKE, LULU Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. 2021 Global Systemically Important Banks See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Today is October 4th, 2022. My name is Brayden Dennis, as always joined by the magnificent Simon Belanger. Buddy, welcome to the fourth quarter. We made it and a couple green days for us here too as well. So

how are you feeling? I'm feeling good. Yeah, no green days. It's funny how the brain works. Last year we were just used to seeing green after green after green and this year it feels like it was the opposite and then you see green again when you're used to seeing red every time, every day. It looks weird, but definitely good to see. We could use it. It's been a tough first three quarters historically for almost all asset classes across the board. So it's a strange event when you have all three asset classes going down like they have. The 60-40 portfolio has been terrible. And so hopefully on to better things. Now, selfishly, long-term investors, I hope we just get more time to buy depressed assets. Remember March 2020,

you blinked and it was over, right? You had basically March, April, I guess, to buy stocks on sale and that was it. Like it was – you snapped your fingers and it was over. Yeah. Yeah. And I mean I've been buying. People that joined TCI.com would have seen that I've been adding quite a bit. Obviously, we're not doing a paywall.

So I added to Brookfield Asset Management last – well, actually last week and then the same thing for Google. So believe it or not, I'm up on my Google position. Hey, you buy something and it went up. Wow. What a concept that is. Samo, did we just hear like hot off the press, like right before we started recording this about the Twitter acquisition actually going through? Yeah. So I think rumors or I was starting to see some stuff on Twitter. Right now it's close to four, but around noon there was kind of chatter going around that Elon was most likely going to go ahead with the acquisition like he had proposed at $44 billion

or $54.20, yes, per share. So it was actually confirmed now it's basically everywhere. The Twitter stock was halted, I think, until it was going to be clarified. I was already up on like 15% or something like that on the news, if not more. And basically, he's going to go ahead with the deal as long as he gets the debt financing, which was one of the original conditions. And one of the other conditions is that Twitter drops all legal action that was set to begin shortly against Elon Musk. I'm not a lawyer or anything like that, but I mean, it was sent by his lawyer to Twitter's lawyers. So it really sounds like it'll happen because Twitter shareholders had voted for the deal recently. So unless there's issue with the financing, it sounds like

the meme king himself will be the new owner of Twitter. Yeah. At 54.20, of course, he had to pick that price, the meme king himself. The guy's in hot water on Twitter again, of course. He loves stirring the pot and you know what? He just loves to be divisive and he wants to own the platform that he is so divisive on. I just saw here, speaking of Twitter, now this is something that I saw and of course, everything I read on the internet is true, of course, but apparently the average car payment, I don't know if this is some Stats Canada stuff you pull up. I feel like you know your way around Stats Canada pretty well.

The average car payment in Canada is $741 Canadian dollars. The average car loan is that like very long 72 months period. That's crazy. Six years. Isn't that insane? Like I know it offers it because we were looking, we bought a used car last year. So one of the like, you know, I think on auto trader gives you like, you can always look at financing, but we weren't going to use it. And I was kind of curious, just playing with the different kind of months. And I think I remember

seeing that option up to six years. I mean, it just feels like you pay off the car and the car starts breaking down. That six years to financing. Like, I'm looking this up right now. Like, is this true? So, okay. So, look it up. Understand car loans. The average is between 36 and 72 months.

Okay, very useful. Very useful information. I've always thought 48 was like the most common. That's what came to mind too. I always thought four years was kind of standard there, but I guess, you know, when that it's cheap, especially for new cars, I think you were seeing these promotions last year and the year before when interest rates were low, like 0% interest was pretty common. Obviously for used cars, it's always a bit higher, but it's got to

be interesting, actually, just we weren't planning on this, but how auto manufacturers will be doing with these higher interest rates and people feeling the pinch. Like I know they had a, you know, they had trouble just being able to get the cars out. They were really behind on deliveries. But now it's kind of a big shift, right? I wouldn't be surprised to see car manufacturer, you know, maybe there's a bit of a lag, but a year from now, seeing them struggle because demand is just low. I wouldn't be surprised to see that. Yeah, well, let's follow Magna International's next few quarters being one of the largest

auto part makers in the world and a Canadian company as well. Dude, wow. Magna has almost 3.5% dividend yield, which seems kind of crazy to me. That's very nice for income investors. We'll move past this, but really quick, $741 for a car payment seems like this. It just proves to me, never underestimate people's willingness to spend ridiculous amounts of money on things to impress people. Like this just seems so much. It's like the old adage. It's like, you know, the $20,000 drives you to work. The $50,000 or the $100,000 car keeps you at work.

Yeah. It's like, you're going to be working forever just to pay this thing off. So you know what? I think people will dial back some of this craziness when they're spending, hopefully. I think overall, personal finance is a very important topic. Yeah, I don't think they'll have a choice. With higher rates, I don't think they'll have a choice. Speaking of not having a choice, can you give me the Credit Suisse high level here? Yes. I'm just a listener right now because I need a lesson on this.

Yeah. So there was some rumbling on the weekend. And I mean, there still is that Credit Suisse is in trouble. So essentially, Credit Suisse is a pretty large bank. So on Friday, Credit Suisse CEO Ulrich Korner told staff in a memo that the investment bank has a strong capital base and liquidity position. That was on rumors that they were not doing well. As a side note here, this is the bank that took huge losses because if you remember that hedge fund Archegos that went belly under that was making leverage crazy leverage bill huang yeah yeah exactly and i think kids is just i'm going off

memory but they took a 5.5 billion loss because of it so it was already yeah there was already some things not going too well here they're also doing a strategic review. That's what the CEO announced, and it won't be completed until October 27. He urged staff to stay focused and not get distracted by all the information that's going on. Now, the stock of Crédit Suisse, ticker CS, has been really crushed this year. It's down 60% since the start of the year. Making matters worse, Credit Default Swaps or CDS are rising sharply. Now, some people may not be familiar with Credit Default Swaps and I'll say CDS here. Essentially, CDS are derivative products. It provides insurance against a company defaulting on its debt. So if the company default on its debt, the seller of the CDS has to reimburse

the holder of the CDS. So for those of you who are interested in learning a bit more about that in an entertaining way, Big Short, the movie, they actually talk about CDS during the great financial crisis because that's one of the instruments

that Michael Burry, I think, was using, if I remember correctly. Now, hopefully, Credit Suisse is fine because if they are not, it could create some major issues. So another thing that people may not be aware, Credit Suisse is one of 30 worldwide banks considered global systemically important banks. The short is GSIB. These banks have – It just rolls right off the tongue, doesn't it? Oh, yeah is GSIB. These banks have- It just rolls right off the tongue, doesn't it? Oh, yeah. GSIB. Actually, I learned about that like four or five years ago, just in my regular

job with pension. And essentially, these banks have higher capital requirements to ensure that they don't collapse. Because if they do, there's a high risk of contagion in the world. Contagion. Exactly, for the worldwide banking system. Now, this list was put in effect after the great financial crisis in 2011 to ensure that some of the collapses that had ripple effects won't happen again. The list is updated every year. There are five tiers of G-SIB banks. The top tier, there is no one in there. After that, the second highest tier is, I believe it's JP Morgan, the only bank that's there. And amongst all the banks, there are two Canadian banks that are considered G Sibb. They are in the lowest tier. So there's Royal Bank and TD Bank.

And I'll post a note for those of you who are interested in learning more or for the full list. Of course, there's some US banks, there's a Chinese bank, I believe there's an Australian, British bank, French bank. So they're basically some of the largest financial institution in the world. If people, the ones who are old enough or have seen the movie like The Big Short, or know a bit about the great financial crisis, you know, you'll remember that the fall of Lehman Brothers, for example, started kind of a domino effect. And basically, these G-SIP banks with those higher capital requirements, it's there because they want to avoid that. The rumblings from this has definitely caught a lot of headlines. And I had no idea why you were talking. I was just looking. I didn't realize Credit Suisse is down from the peak of the financial, like before pre-financial crisis, down almost 94%. And I was like, okay, well, it lost a lot recently. And then from the very peak of its stock price pre-financial crisis, so it never recovered. Now, if you bought most decent quality

banks at the bottom of the value of after the financial crisis, you made a good amount of money. If you bought the lowest point on its dip after the financial crisis, credit sui stock, you're down 78% from there, from that point. Like it doubled in half right after, and it has just been a dog to own since then. I did not realize that it was only 11 billion in market cap. Yeah, I mean, it's still, I mean, an important bank. But, you know, to tell you how bad things are for them, they have, I think, close to $700 million in litigation reserves right now because some of their shareholders are suing them because they were saying that they were basically telling them that they were doing certain types of investment that were less risky that they were actually doing. So there's a bunch of things. The one thing that

I'll say is, you know, their capital ratios are way higher than a Lehman Brothers, for example, before their collapse. So the capital ratios nowadays, you know, back then it was pretty close to, you know, you'd see banks with very low capital ratios. You know, what's the CET ratio? That's the term I was looking for. You know, you'd see them below 5%. And now, you know, it's typically above 10%. And I believe CEDS is still above 10%.

So Canadian banks are like, I'm pretty sure they touched like almost 14% in 2020. Yeah, they've been a bit down now. But yeah, they're above, I think they're all above 10%. But just to give people an idea that, you know, banking in general was way riskier before the great financial crisis. Yeah, good point. Okay, well, thanks for walking us through that. It's not a name I follow particularly well. I just, you know, I follow some of these investment banks, but my goodness, I didn't realize that it is almost a 10 billion in market cap company. I would have expected five or six times that just offhand if someone asked me. The contagion risk is they have a lot of assets

under management. I don't know the exact number, but it's in the hundreds of billions. So that's where the contagion risk, I think, lies. Should I bet on a turnaround here? What's going on here? I would not. There's been worse gambles, I guess. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online

broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com.

Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Speaking of investment banking and how that is related, IPOs in 2022,

IPOs in 2022. The investment banks love their very lucrative IPOs and there were a ton of them in 2021. That should have been the most obvious sign of the top. I pulled a bunch of graphics here for you on the doc, Simone. Look at the outlier 2021 was with over 1,000 IPOs for the year. I mean, even if you think about it, though, even 2020 was out of the norm because there was nothing happening basically up until end of April. You're right. There was like no IPOs until like mid through the third quarter almost. Yeah. Tons of them got postponed, shut down, delayed. And then

the numbers is not the 2021, but when you put it in context, like probably the back half of 2020, it's probably on par with like, you know, that run rate is probably the same. That's it. Yeah. Yeah. So for a case, yes, you had over double the amount of IPOs in 2020 from 2019. 2019, you had 232 IPOs. 2020, you had more than doubled that at 480. And then in 2021, you had more than doubled that number at over 1,000, at 1,035. In 2022, there has just been a measly 163. Now that is lower than average on this historical data, but it's not like 08 or 09 with like hardly any listings. It was like 62 listings in 08.

So it's not like super, super low, but what a drop off from the heated up IPO market in 2020 and 2021. Now, there were still a lot in January, February. If you back out January and February, which had a combined 66, this number in 2022 has been very low. Single digit IPOs in July in terms of number, just a handful more in June. And then it's been picking up a little bit. But you can correlate this to just the market sentiment. Look at the IPO activity just drop off a cliff in this summer of 2022. Yeah. Yeah, I know. It's been crazy. Yeah. But hey, I guess, yeah, you said it. I mean,

at the end of the day, I guess it's a good indicator of where the market was at last year. Yeah, that's right. Now, there are some seasonality behaviors to IPOs. Traditionally, it drops off historically during the summer, but not by much. If I'm reading this data correctly, maybe that was just 2021. Yeah, there's some seasonality to that. Anyway, so you can see just it affects these businesses that are in investment banking. It's a huge segment for them. And so, yeah, this really relates to the market sentiment. And if you are a long-term investor, you got to just love poor market sentiment.

It's the time you actually make money. Yeah. And it's not only, you know, IPOs for investment banks. It's also like companies who issue bonds, right? They have to go through these investment banks. And last year, you had record low rates. So, the smart companies, you know. So the smart companies either issued debt or refinanced their existing debt, whatever it is. So obviously, you add that as well.

It's going to be a rough quarter. I don't know how Goldman Sachs is doing. That's the one that always comes to mind. But I feel like- Yeah, Morgan Stanley. Morgan Stanley. Goldman Sachs are actually not doing as bad as I thought they would, but it'll be interesting with the Canadian banks. I think Royal Bank has the biggest investment banking division in Canada. So, it'll be interesting to see how they do in the next quarter that and the credit loss provisions. Yeah. All right, so let's get into some specific company news here, some earnings. Let's get into it. Starting. Yeah, it's picking up.

Slowly, slowly. Over the next six, seven weeks, it's going to be pretty busy, I guess. Yeah, we've been lucky, though. There's actually been news to talk about. So I guess with the markets and all the macro going on. Now, the earnings is Nike came out with its earning release. Now, Nike's stock was down almost 13% on Friday after the release. Lululemon, also in the same space, took a hit on Friday being down 7%. And I'll elaborate a bit more on that towards the

end here. Now, revenues were up 4% to $12.7 billion. It's pretty good for a company as mature as Nike. Direct sales were up 8%. Now, where it starts getting pretty rough is gross margins decreased 220 basis points to 44.3%. And one thing I'll say with Nike, I'm just going on memory, but I'm pretty sure they actually put that in their earnings release, that it went down. So you can see, you know, it's a more reputable company. They're not trying to necessarily hide the bad news like some of the companies we've talked about recently. Now, selling general and administrative expenses or SG&A, they were up 10% to $3.9 billion. Operating margins were down 400 basis points from 17.3% to 13.3%. Now you're seeing the cost pressures here mount up. Earnings per share down 20% to 93 cent. Inventory levels were up 44% to 9.7 billion. Now to put things into context, if we look at

pre-pandemic levels, these inventory levels are 67% higher compared to the same period in 2019. levels are 67% higher compared to the same period in 2019. And while sales have only gone up 19% during that same time span. So you can see that discrepancy between the two. I'm not saying it should be kind of a one for one here, but you know, it's a pretty wide gap. Nike management added their margins were down because they had liquidated excess inventory through markdowns. On the good side, they returned $1.5 billion to shareholders during the quarter in the form of $1 billion in buybacks and the rest in dividends. Now, coming back to Lululemon. If people remember the earnings that we talked about Lululemon probably a month or so ago, they made an effort to increase their inventory levels for the upcoming quarters to meet demand. Now, I think that's why the stock was down sharply because investors are fearing that Lululemon will experience the same thing as Nike here. Now, for me, I'm keeping an eye on Lulu

because the valuation is starting to become very attractive considering the growth. Even if it does slow down a bit due to macro headwinds, Lululemon still has better margins than Nike by far. For example, Lulu's last quarter, they had 50% gross margins compared to 44% for Nike. Plus, Nike has way more foreign exchange exposure than Lululemon, which could definitely play with their results if the US dollar keeps being very strong. Nike had 43% of its revenues in North America, and the rest is worldwide. Lululemon, on the other hand, has 82% in North America. Granted, they are trying to expand their worldwide operations, so it could impact them. But my point being here is that they may face similar headwinds, but it'll be interesting

to see in their next quarter. But for me, I think it may create some opportunity because even when Lululemon liquidates stuff, I think they keep some pretty good margins. I buy their stuff that's on sale and it's not cheap. I'll tell you that. Yeah, you're like, oh, look at this. It's in the clearance rack. It's only a $90 t-shirt. This is wonderful. Where do I throw down my credit card? Usually hoodies. I would say hoodies will be in the $90. I would say on sale, if it's new,

it's like $130. I know it sounds like a lot, but I love their stuff because it's really durable. I'd rather pay a bit more and have it last a long time. Look at the graph I just posted there, which is Nike's footwear revenue on a TTM basis. They had objectively their best quarter of sales and on a trailing 12 months. This looks pretty clean up to the right with this segment. Same with the Converse segment. It's a little more volatile depending on which segment you look at and which geography you look at. But overall, I mean, this business is doing very well. What is the market's reaction on this?

It was pretty bad, wasn't it? Oh yeah, it was. I think it was down like 15, 13% on Friday. It could have been lower. It finished almost 16% down. No, I think it would have been. Yeah, 13, 13. I think it may have been down a bit more like intraday,

but still it got smashed pretty hard. Yeah. This is crazy to me. I mean, I think it, let me just look here. I guess like, oh wow. It's come down so much off the ice. Oh yeah. Holy smokes. Dude, I just like, I don't look at price action that much. So when we're recording the podcast, I'm doing that. I'm like, whoa, like Credit Suisse is getting smashed. Like, whoa, Nike. It's down half from its height, basically. Yeah, down half. Now, if you look, I'm on stratosphere.io, I'm on Nike and I'm looking

at all the KPIs, like their converse revenue, their equipment revenue, their footwear revenue, apparel revenue. Everything's at equal with all-time highs from last quarter, or the long-term TTM, like the trailing 12-month story looks fantastic. So again, focus on what really matters. Focus on the business fundamentals. The stock price, I don't think is necessarily relevant to the performance of the business as of late when I look at the actual fundamentals. This is just a lot of multiple compression. Down 50% is some serious multiple compression given that the stock's still at 24 times earnings. It's a lot more expensive

than Google, for instance. Right. And so it deserves the compression, I think. Yeah, I think it was a combination of the stock being pretty highly priced on a valuation basis and investors being caught off guard with the liquidation and the excess inventory. I think it's probably a combination of both. I agree. Yeah. You have one more note here that at home fitness. Yeah. Yeah. Speaking have one more note here, the at-home fitness. Yeah. Yeah. Speaking of Lululemon, so they have launched an at-home fitness platform. I'll be honest, this one's a bit of a head scratcher for me, but they launched a membership, which will be called Lululemon Studio. And it will require the owner to have a mirror. If those remember, mirror is something

that Lululemon purchased, I think it was last year. You mean the thing that they keep writing off? Yeah, I think they paid, it was half a billion, I think, $500 million for it and had very little revenues last year, I believe, when everyone wanted a Peloton or work out at home during the pandemic and the lockdown. Now, with this announcement, they also slashed the price of Mirror by almost half. So I guess they really want to encourage people to get it. And the membership will include discounted classes at Lululemon Studio Partners,

unlimited classes to Lululemon in-person classes, and 10% off purchases up to $5,000 a year. I guess, I mean, it almost feels like, you know, a last ditch effort for the mirror because I remember the CEO some quarters back basically said that, you know, they still believed in it, but they would also not like, you know, if they realize at some point it's just not working, they won't sink, you know, endless funds into it. So I think it's kind of a last effort to see if they may be able to create a nice little business segment here. I mean, we'll see. I mean, I don't think it really impacts Lululemon really as a whole all that much, but yeah, that's kind of a big shrug for me. It is same, same as what Mirror is. When I look at this, it's like them kind of relaunching

a program around trying to revive mirror. Even though when you go in the stores, they're definitely trying to get it in your face, I've noticed. But man, I don't know about the home fitness market. How durable is it? People are so... The churn on this stuff is so bad. Yeah. Everyone knows that the treadmill that becomes a clothes rack, everyone knows about that story. I just don't know how durable it is. I don't know how people were bidding up Peloton last year. That seemed just insane to me.

Yeah. I think what's probably going to happen is you'll have a small portion of people that work out quite a bit that will switch to at-home fitness just because it works the best with their schedule. But I think you'll get most people probably coming back to their pre-pandemic habits. Like personally, I've mostly switched to at-home stuff, but I don't have any subscriptions. I do kind of, you know, body weight workouts. And if I'm not doing that, I'm going mountain biking. So I like it because it's efficient from a time perspective

believe me i'm a believer in the home workout yeah like i'm recording right now in my office slash workout slash whatever else and i have dumbbells in here i have you know everything i do the the yoga mat lifts like here and follow along. YouTube videos are just programs I write myself. But I do that because I'm cheap, man. It's convenient and I'm cheap. I'm so cheap to buy a gym membership. So I'm just not a good person to monetize.

And I think that the whole segment is a crappy segment to monetize. There's a reason these cheap people like you and I are working out at home, pay $100 a month for a gym. So it's going to end up being more of a niche. I think there is a place for it, but you can't have like a massive business just based on that. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want.

And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some

extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Speaking of, we have a theme here.

We're talking about athletic apparel and big investment banks. That is the theme for today. And big investment banks across the board have slashed price targets for the S&P 500 for the remainder of the year. Now, this is going to be a really quick segment because I'm just addressing the question, is this important? Because this is the kind of bear fear type headline that every news media will love to throw in your face. It's like, oh, some reputable investment bank with these people who are really, really smart are saying that the entire market we believe is going to head lower for the rest of the year. And so that is a great place to find clicks.

So you'll see it all over the place. Estimates are essentially projecting interest rates and their fancy little model, which again, is impossible to correctly predict and reliably predict year after year. First of all, they're talking about 2022 price targets. It's the fourth quarter. We are now in Q4. quarter. We are now in Q4. So it's a few months of relevance and projecting price targets. It's just not important. It's just so irrelevant for anyone to spend time on taking this seriously, in my opinion. I'll keep this really short. Does this affect what I'm doing? No. Is it actionable? 1 million percent, no. So that's my quick take here on the banks slashing their S&P 500 price targets. I just don't care. Yeah. Yeah. And it's so hard to try and predict. I would say the hardest thing to predict right now is for companies that have a lot of business outside the U.S. but are listed in the U.S. because they get impacted by foreign exchange.

Currency changes. And, you know, it could go one way or the other. Obviously, if I had to bet, I probably think it'll, you know, the U.S. dollar will stay relatively strong. But the currencies are moving so much that those companies will be impacted, whether it's positive or negative, one way or the other, the most. So the ones that have more business domestically should have less impact. In my mind, obviously, there's all the inflation going on. There's a bunch of other things, all that to say there's so many different moving parts right now that trying to even do price targets is a bit reckless.

Yeah, I wholeheartedly agree. All right, let's move on to an absolute darling of Canadian history. I was just thinking, do you know what this company, what their market cap peaked at? I want to look this up out of curiosity. I think they're trading 2.5 billion market cap, if I remember correctly, when I checked on their Canadian listed. No, I know what the peak of their- Oh, peak market cap. I think it must have been like 40, 50 billion, if not more. I'm going to look it up. Go ahead. Okay. So the company, I don't even think I said the name. So it's BlackBerry. The absolute darling. People probably guessed it. So BlackBerry came out with their earnings. I mean, I'm grateful for them because they have a weird reporting

schedule and there's clearly not that many businesses that are reporting right now. I mean, there are a lot of miners reporting, but we're not, you know, all that interested in those typically. I didn't listen to the call, but looking at their earnings release, they are definitely trying to highlight the segments that are doing better. But the reality is this business seems to just be getting less and less revenues year after year. It seems like it's been in turnaround mode for like a decade now. Revenues were down 4%. Gross margins went down 100 basis points. Operating expenses stayed pretty stable. I guess that's good. They had a net loss of $0.09 per share versus net loss of $0.25 per share last year. But that's simply a result of non-cash items. Now, for the first six

months of fiscal year 2023, they were free cash flow negative for $49 million. It would have been $66 million, trust me, I looked it up in their financial statement, if they had not sold their corporate aircraft for $17 million. Because the capex, I'm like, oh, they're not, you know, they're adding that in. Like, what is it? And then they had a footnote, they sold their corporate aircraft. So I guess that's good, but it just goes to show it would have been even worse on a free cash flow basis. So if you remove the sale of that corporate aircraft, they lost three times more cash in the first six months this year compared to last year. So it's not improving.

And, you know, every time I look at them, it just feels like it's a slow death spiral here. Somehow they're still trading at four times sales for a slower growth. road. And I know John Chen said, I think in an interview, he's a CEO, that they would actually does not see any weakness coming up for auto manufacturers. I don't know. I kind of tune out now anything that he says, because he's been like trying to turn this around for 10 years. I literally do not know how he's still CEO of this business. I get that he did the transition from handheld devices to a software company, but at some point, bring someone else in. I just don't get it. Yeah. I don't get it either. And every time we talk about this company, we don't get it. And he's still at the helm. It's not that he's obviously a very smart person.

Yeah. He turned around businesses before that. Yeah. He turned around businesses before that. Yeah. So it's like watching a head coach of a sports team who's like, you're like, how did this guy get another job? Like, you know, like he got fired by the previous team.

Cause he, you know, his record was like four and 28 and like, and then, and then he gets another job coaching some other NFL team. And then he has another, like another four losing seasons, gets hired as offensive coordinator at some other job.

And you're like, who trusts this person? Track record for six. We've tried. We've tried it. It's not working. That's exactly how I feel here. Yeah, I mean, it must be that prem watza really believes in him or something because fairfax financial has like i think they have convertible

debt with them something like that i don't i'm just kind of going on head i know like they mentioned watza quite a bit in their financial release so i really don't know it's just yeah it kind of baffles my mind just you, you know, bring someone fresh in. What's the worst that can happen? I'll just keep getting this bad. The peak of BlackBerry's market cap was $78.4 billion in May of 2008. Then that was like, that was not when we had $ one trillion dollar companies either like 78 was amongst some of the largest one of the biggest tech companies in the world yeah because nowadays almost feels

like 78 is like oh okay it's not that big but yeah it's still big but it's a very large tech company but it's not you know it's not in the mega cap, a couple hundred billion Adobe type market cap. Wow, that is mind-blowing. And we did a semi-ish deep dive into the company because we got so many questions about it. It's like, is this a turnaround story? A lot of listeners wanted to know. And so you and I just spoke about it. And we left the conversation with, despite being such an unloved stock, it is so expensive. Because it was trading at like six and a half times sales for no growth and brutal margins for a tech company. for a tech company. How do I justify buying that over comparable multiples in tech with growth and better margins and not declining structural business? I wasn't expecting to leave that

conversation with, wow, this is an overvalued stock because that's not what you'd expect for something in terminal decline like that. You'd expect some really cheap multiple on it. And somehow it's not really. Yeah, I think it's people thinking because I think their IoT, so Internet of Things segment is growing nicely, but it's such a small thing and it's not offsetting the decline in revenue overall. So I know they tried to highlight that

in their earnings release, but at the end of the day, it just feels like a lot of hope. That's what it is, right? It's a bet on maybe they will turn it around or if they turn it around, this segment will be huge in the future. But it's been that for five years. Well, I truly do, when we talk about these Canadian companies, hope they turn it around.

This one, I just won't hold my breath for a second. Let's round out today's show with the last topic here, which I don't know if you saw this, but the United Nations wrote some piece calling on the Fed and other central banks to stop interest rate increases. I guess it was at their conference on trade and development. Go on, macro Braden. increases i guess it was at their conference on trade and development go on macro braden yeah macro braden here we go puff my chest out said a drive to by major central banks this was them they said a drive by major central bank branks what's a brank bank to raise rates in response to inflation, a quote, imprudent gamble, end quote, that could backfire. Here's a quote from one of the highest of the highs at the UN in this group said,

we have the tools to calm inflation and support all vulnerable groups. This is a matter of policy choices and political will, but the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession. Here's Macrobrado putting that into TLDR. Basically, they're saying, please reconsider your plans. We don't want shit to hit the fan. saying, please reconsider your plans. We don't want shit to hit the fan. Now, I don't make interest rate and central bank predictions because in my view for long-term investors, it's mostly a fool's errand. What the Fed will do is just TBD. People have their predictions, as I've mentioned before, with their fancy models. Most central banks have basically said,

not in response to this UN thing, but just in general, when they've spoken, is, I hear what you're saying. We're trying to weigh everything, but curbing inflation is our number one priority, like ending the conversation there. And I have to say, I do this little bit of digging on the back and forth between these people. And I couldn't think of a job I want less than being the Fed chair. I literally couldn't think of a worse job in the whole world. It is thankless and just terrible. You couldn't pay me an unlimited sum of money to do that job. Yeah, because honestly, okay, the Fed does not care. I was going to use another term, but does not care. It doesn't give what the United Nations

says on that. They will look at the US interests and that will do. They will consider allies, but that's going to be a second kind of priority. They really don't care. And their priority, it's pretty simple, is to bring the job numbers down. Because in their view, the high employment numbers that we're currently seeing basically gives a lot of power to employees, to people looking for a job, to ask for raises. And then that creates, you know, kind of this never ending loop of inflation. That's how they view it. I think it's a lot more complicating than that. But for them, if they see those job numbers come down and unemployment go up, that'll be a signal in their view that their action is good. But again, I think there's a lot of people clamming a bit like the UN is saying that they might overdo it

and then you will have to fight a pretty bad recession. So we'll see. I think inflation is, I'm not even sure the Fed understands inflation quite well. I think a lot of people have a decent grasp on it, but I don't think anyone really fully understands all the causes. The, you know, raising interest rates and quantitative tightening are really the only two tools the Fed has. And those might not be the appropriate tools right now to curb inflation. I don't think anyone knows. This goes back to it's a job. You won't pay me enough money to ever accept.

Screw that, dude. Because there's two outcomes, right? Either inflation, people hate them because inflation stays high, or a lot of people hate them. Inflation gets down, but a lot of people hate them because they lost their job. It's basically one or two outcomes. It's the worst. It is the worst thing ever. Let's wrap it up there.

Thanks so much for listening to the podcast today i am feeling quite optimistic i just launched upon i didn't really do anything last month and you did so much oh yeah it took me like two hours to write everything for join tci join tci.com is the patreon to support the show and we disclose our portfolios to the exact percentage points. We try not to gatekeep any information. We talk about what we're doing in our portfolios here on the podcast because it's entertaining and people want to know. But if you want to see it in a nice, beautiful table and support the show, that is at jointtci.com. And on the weekend, I went to go do my little piece. and we have a little document that we put together

and I was like dude I didn't do anything and that's totally okay and I wrote about how it's okay like I felt this pressure to to do something for the Patreon subscribers but I most months I just don't really do that much and thank thank goodness, you're like, all right, here we go. I got all this stuff that is close, which was good. So that's at join tci.com. This month, I'm going to be a little more active because I have some positions I really like, and I have some cash to throw at them. And I think that valuations have just been so much better. Through three quarters of pain, I'm just like very – like I can underwrite some pretty good returns from here. Yeah, yeah. And that's why I did a lot of move last month. I deployed a lot of capital. And

next month, I'll be adding the funds I have with my pension as a percentage as well, because I think it's important for people to know because it is essentially a locked in RSP. It's a lot. It's a pension. It's a registered pension plan. But, you know, if ever I leave my employer, it'll be transferred to locked in RSP and they're all index funds. So I think what we'll do, we'll probably just do two kind of snapshot, one with my returns as if, you know know i didn't add the pension and then add in the pension then going forward people will see because i do have a lot of exposure to index funds through that yeah i think you and i were talking offline i was like i think that should be included because the percentages may look like you're so like you're further one way on the

spectrum than the risk spectrum then you actually are. Yeah, exactly. Because my pension, like just like that, it's about the pension itself of all my investments is like a third. So it's a pretty big chunk. Yeah. When I left my government job, I just cashed it all out and put it into consolation. And you say I'm concentrated. Yeah. Yeah. Yeah. Here you go. This is your last day.

Cash out your pension. I'm like, okay, thanks. Right all into consolation software. I'll let Mark Leonard handle this sum of money. Thank you very much. And thank you all very much for listening to the podcast. We are hitting some pretty good numbers, man. The podcast is hitting some good numbers.

We're doing well. Nick and Dan are doing well on the Real Estate Podcast. So if you're in Canada and you want to listen to some more content from us on the real estate side, Daniel Foch and Nick Hill host our podcast called the Canadian Real Estate Investor. And last little piece of admin thing here is stratosphere.io. We are building a huge upgrade to the infrastructure. So it's way faster. So when you search something up, it'll just be a little less clunky and feel really nice. So I'm going to keep you guys updated on how that works. And the pricing will be going up in November-ish timeframe when we launch that. We're changing the pricing a little bit. So if

you want to get that plan locked in at a lower price and take TCI for 15% off that plan, I think that that's a good idea. So you can do that at stratosphere.io, use code TCI when you purchase a plan. Thank you. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.