KeyStone’s Stock Talk Show, Episode 178

Back from the Big Smoke, the center of the Canadian Universe, Hogtown, the city of many nicknames, or as Brennan, a huge Drake fan refers to it, the six. For most of our listeners who are likely still unaware of what city I am referring to – myself and Aaron just return from Toronto where we spoke to audiences at the MoneyShow – the first time in person for 3 years – we get into our talk and highlights of the event including my take on the folly of macro forecasts. We have a big stock debate for this week as the Killer B’s (Brennan & Brett) square off in a no hold’s barred battle. In the crosshairs this week is a company founded in Brennan’s current stomping grounds, a city previously thought to be made-up, yes, Saskatoon, Saskatchewan. The company, Vecima Networks Inc. (VCM:TSX), develops hardware and software solutions for broadband access, content delivery, and telematics. The coinflip chose Brennan for the Bear case, and Brett as the Bull. Aaron will sit in as judge, jury, and executioner. In light of recent interest rate hikes and the continued likelihood of more on the horizon, Aaron takes a brief look at the fixed income market – bonds, GICs and T-bills in a preview of some work he will be presenting at our Fall 2022 upcoming seminars. So, let’s get to the show!

Welcome, my cohosts, Aaron and the killer B’s, Brennan and Brett!

Article from Bloomberg:

Congress Stock-Trade Tracking Funds NANC and KRUZ Are On Way

NANC & KRUZ will comb disclosures from both political parties.

Congressional trading has become an online ‘fixation,’ on Reddit and Twitter.

Essentially, a pair of exchange-traded funds that would mirror the personal portfolios of members of Congress may be coming soon – the fund would construct a portfolio of between 500 and 600 holdings (according to filings).

The Unusual Whales Subversive Democratic Trading ETF (ticker NANC) and the Unusual Whales Subversive Republican Trading ETF (KRUZ) 

Financial industry – you’ve done it again.

Let’s not try to create great investment vehicles or strategies based on tools that historically achieve success or with a testable novel concept that should work.  You know, placing clients in investments you genuinely believe will create wealth for them long-term!

Hell no, that sounds boring. Instead, let’s slap together a headline grabbing marketing vehicle that is half baked and based on the hope that congress are basically all corrupt and/or great investors – while one could argue for the first, the second is not true (ironically, the same investors that will flock to an ETF like this are the same ones calling congress morons on a daily basis – but apparently assume they are all legendary investors).  And even if this holds true, do any of you truly believe that congress holds, all the power and levers to ultimately make any stock they choose hugely successful…Yes, congresses decision are the only factor one should use in their investment models, not the quality of the company’s management team, its f-ing products or services, the company’s valuations, growth or prospects for growth, interest rates etc, etc.

These are crap vehicles designed to grab headlines and draw investors to the fund companies – in fact, they should do the opposite.

The disclosures state the fund will have between 500 and 600 holdings – with that many stocks the fund will basically track the index – you can have a well diversified portfolio with 20-25 stocks!

To top it off – They are charging a 1% fee for an exercise which needs little research and zero original though and could basically be run by an average hamster.

In fact, I predict, over the long-term, a hamster invested in the S&P 500 will beat these ETFs..due to the fee!

Content for MoneyShow summary – Futility of Macro Forecasts.

I was reading one of Howard Mark’s’ memos on the flight home from a Money Show in Toronto. I found the subject matter, which basically amounts to the futility of macro forecasts, spoke to me. We had both just attended financial conference at which economists and investors made a multitude of economic and specific market related macro forecasts. It was one of the first in person events I had attended in quiet some time and many talks opened by highlighting the abnormalities experienced over the past 2 plus years.

At one of the presentations, I attended the host spoke about how crazy the economic environment had been since the start of 2020. We experienced a totally unpredictable global pandemic, unprecedented government handouts and resulting debt increases, a massive spike in inflation, rapid rate increases, the rise and volatility of Digital assets, and the War in Ukraine.

Throwing his hands to the heavens he stated that even the “All Mighty” would have had a hard time predicting all theses basically unpredictable events. And the panelists as well as the crowd all had a laugh…what I assume could only be a combined chuckle designed to let everyone off the hook for their macro forecasts and subsequent investments based off those forecasts that these events not only rendered useless but helped turn them into steaming dog turds in their portfolios.

But then the chuckling died down and the presenters blissfully moved forward with a whole new set of bold macro forecasts. Immediately, the audience raised their iPhones to snap up each bold prediction about everything from where inflation will be is we the next year to the direction of the housing market, the price of gold, bitcoin and the where the US dollar will be in 2023.

The same people whose models were proven wrong we’re back at it – working hard (in some cases hardly working) – to provide the audience with a new set of macro predictions. And the same crowd which had used their flawed macro forecasts to dismal results was eagerly lapping up the new macro forecasts and laughing away the last several years.

As I looked around the room – I found myself wondering how it appeared most were missing the utter insanity of this. They say, the definition of insanity is repeating the same mistakes over and over. (Check on the quote) – I am reminded of Homer Simpson touching the hot stove over and over).

Without learning from our mistakes, recognizing what does not work from a probability perspective, we are doomed to continually make the same mistakes.

But this is the engine of the financial industry at work. Macro forecasts provide the illusion of knowledge and control. And, if spoken with conviction by talented, intelligent professionals are calming and more importantly saleable.

If these macro forecasters went on stage and in most cases truthfully said, I don’t have a reliable or actionable way of accurately predicting where inflation, interest rates or the price of gold will be the next month, in one year and 5 years you are less likely to buy their fund, EFT or trading program. Investors are just as guilty for buying into the illusion of macro forecasts. These saleable lies the industry feeds investors which most find comfort in. And the cycle continues.

I would submit that the fact that the list of events (pandemic, government response, fast rate hikes etc.) was so extensive – does this not show the completely follow of macro forecasts? The fact they can be derailed so simply by unpredictable events which are quite frequent should render them useless.

In his Memo, Marks made another great example.

And I will quote or paraphrase from him here. In the Fall of 2016 – there were two massive consensus macro forecasts 1) Hillary Clinton would win the election 2) if somehow Trump was elected the markets would tank.

Trump won and the markets sored..should this not help convince investors or the complete lack of value in macro forecasts.

Next week, I will summarize Mark’s argument on the Futility of Macro Forecasts.



Vecima Networks (VCM:TSX) – $17.75

Vecima provides technology solutions that empower network service providers and content

providers to connect people and enterprises to information and entertainment worldwide. It

offers products for the cable and broadcast industries, which provides video and broadband

access to service providers, content creators, and broadcasters. The company operates through

three segments: Video and Broadband Solutions, Content Delivery and Storage, and


Against Case:

1) Vecima’s financial momentum appears to be positive with revenue up 60%

Y-o-Y, but the company’s historical growth has been a bit spotty. With a

CAGR of just 5% from 2015-to-2021.

2) And earnings have also jumped in and out of profitability – where over the

last 12 quarters the company had a Median Net Income margin of just 2.5%.

3) With these slim margins, the company trades at pricey multiples of over 60

times earnings and 16.5 times Adj. EBITDA.

4) We used to love the company’s cash rich balance sheet where from 2015 to

2020 it held over $2.00 in net cash per share – but this beautiful net cash

position recently slipped into a net debt position of $0.26 per share.

5) Plus, its payout ratio for the first 9 months of the year is 73%, which is up

from around 40% in 2017 and 2018 when we had a BUY rating on the stock.

Vecima is a quality business, but with its high valuations, and spotty profitability. I

think the stock remains as a HOLD.

For Case:

Vecima has strong revenue growth of 60% year-over-year, and strong net income growth of 36%. Even stronger adjusted EBITDA growth of 314%.

This is on the back of its Entra family of products whose sales grew by 142%, due to the rising switch to distributed access architecture or DAA across the globe. As well, the Balance sheet is strong with $55 million in working capital, and only $4.5 million in net debt while being able to maintain a consistent dividend since 2014.

Vecima technology enables upload speeds up to 6.2 Gigabytes per second, which I’m sure Brennan would love as he takes 2 hours to upload his recording after we’re done.  Both US and Canadian governments have financially supported the industry with 20.4 Billion and 2.75 billion in funding to support the expansion of internet access, which requires the products Vecima makes to succeed.

You may say competitors will be able to compete, but Vecima has a backlog of research to support its products, with $350 million in R&D over the past 7 years. The great products have resulted in 45 customers ordering from 6 continents up from 33 in the prior year.


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