Insights: Will innovation save us from Ottawa?

Ad blocking detected

Thank you for visiting CanadianInsider.com. We have detected you cannot see ads being served on our site due to blocking. Unfortunately, due to the high cost of data, we cannot serve the requested page without the accompanied ads.

If you have installed ad-blocking software, please disable it (sometimes a complete uninstall is necessary). Private browsing Firefox users should be able to disable tracking protection while visiting our website. Visit Mozilla support for more information. If you do not believe you have any ad-blocking software on your browser, you may want to try another browser, computer or internet service provider. Alternatively, you may consider the following if you want an ad-free experience.

Canadian Insider Club
$299/ year*
Daily Morning INK newsletter
+3 months archive
Canadian Market INK weekly newsletter
+3 months archive
30 publication downloads per month from the PDF store
Top 20 Gold, Top 30 Energy, Top 40 Stock downloads from the PDF store
All benefits of basic registration
No 3rd party display ads
JOIN THE CLUB

* Price is subject to applicable taxes.

Paid subscriptions and memberships are auto-renewing unless cancelled (easily done via the Account Settings Membership Status page after logging in). Once cancelled, a subscription or membership will terminate at the end of the current term.

February 28th, 2021

If you are a consumer or a small business owner, make no mistake. The Bank of Canada is not on your side. On February 10th, Timothy Lane went all-in on preserving Canada's existing payment system. Remarkably, he admits in his speech that the Bank of Canada has no clue what Canadians want:

We don’t yet know whether many Canadians will actually want to use a stablecoin or any other kind of digital currency when they have alternatives available—cash, debit, credit and electronic transfer

Mr. Lane needs to spend more time on Main Street to understand how small businesses are scalped daily by the current payments system. In case it has not dawned on the academics and bureaucrats who work in the central bank and their distracted political overseers, wealth transfers to vested interests come out of the pockets of both small businesses and their customers.

However, we suspect that senior policymakers at the central bank are well aware of what they are trying to do which is preserve the status quo in the name of stability.

And we wonder why we have a productivity problem in this country?

Canada needs to risk failing more. We have become a country of overly cautious actors who no longer strive to own the podium, but simply hope to watch as other countries rise to the top. The conservatism does not stop with the Bank of Canada. The Liberal government is going all-in on helping big business preserve their market power over Canadians, offering Mastercard (MA) $49 million at Davos last year to help secure its payment oligopoly.

Fortunately, there is hope, but it will not be found in Ottawa. Our core investment theme #3, "Preparing for a monetary system change with exposure to cryptocurrency opportunities," is in full swing. On February 24th, VersaBank (VB) revealed how it plans to issue VCAD, the first North American stable coin issued and backed by commercial bank deposits. VCAD is the stable coin that Mr. Lane suggests Canadians may not want.

If all goes to plan, the coin will be available on participating exchanges within a few months. The VCAD design builds on VB's experience in creating digital deposits that form the foundation of its existing virtual banking operations.

VCAD takes digital deposits one step further by essentially making them transferable in a digital currency exchange. VB will be issuing VCAD to its financial intermediaries in exchange for electronic deposits and receipts. The financial intermediaries can source the digital cash by selling VCAD on the exchanges.

Creating a VCAD stablecoin

The beauty in this design for VB is what we assume will be a zero interest rate associated with the deposit, at least in its simplest form.

VersaBank is a disrupter, and it is helping to reshape the financial system. We have been covering the stock with a positive outlook for a few years now in our morning reports. Since we first mentioned it on April 21, 2017, the stock is up 332%. That is well ahead of the average return of the big banks. The BMO Equal Weight Banks ETF (ZEB) is up 14% over the same period. Below is the history of our morning report coverage.

It is probably not a coincidence that VersaBank stock entered a period of consolidation in early 2018 as the Federal Reserve embarked on its tightening program. With monetary conditions once again loose and the market starting to understand the bank's business model, it has been able to break out. We will have to see how the stock handles March. As Forexlive.com noted, March, on average, has been a weak month for bitcoin. If short-term investors view the stock as a bitcoin proxy, VB could face some headwinds over the next couple of weeks.

In fact, the broad market has been struggling the past week or so. That has turned out to be in sync with the timetable we suggested at the start of the year in "All-time highs, but for how long?" As the Treasury works through its borrowing needs this month, markets will likely continue to experience some headwinds. Meanwhile, the US Congress is working quickly to pass a US$1.9 trillion spending package which could help to offset the funding drag. It all adds up to some continued turbulence ahead.

We will view any pullbacks in our core theme #3 stocks as a buying opportunity.

INK Stock Pockets

The financial system is undergoing changes and the ETF world is no different. Horizons is closing the Horizons Cdn Insider Index ETF (HII) this month. Ironically, the ETF has been the top-performing fund in its class so far in 2021 according to Morningstar. But that's the way the ETF business works. The HII has been a money loser for us, so while we will miss it as a vehicle to help manage our own funds, its impending closure has allowed us to come up with some new ideas. That has led us to launch INK Stock Pockets which are distributed in-house.

Stock pockets are an investable list of between 25 and 35 names that draws on the same methodology as the INK Canadian Insider Index, but with more frequent monitoring and application of INK screens. INK Pockets are designed to allow investment advisors to incorporate the stock names into portfolio sleeves. Alternatively, they can be treated as standalone sleeves. We are providing three stock pockets for INK Pocket subscribers. The lead pocket is the INK Canadian VIP Pocket that has been launched with the 25 top-ranked stocks in the INK CIN Index. We also provide INK Canadian VIP Dividend and INK US VIP pockets. For more information on this new service, please message Ted in INK Chat directly.

Disclosure: One or more INK employees hold VersaBank.


Top 3 Gainers Last Week

Company NameStock Symbol1 Week %
MEG EnergyMEG11.7
OvintivOVV8.8
StelcoSTLC8.1

Top 3 Losers Last Week

Company NameStock Symbol1 Week %
Dye & DurhamDND-13.2
Jaguar MiningJAG-13.2
HEXOHEXO-13.0

Returns are as of the last trading day of the previous week.

Featured Broadcast

Insider of the Week

David Taylor, CEO of VersaBank (VB)

Canada's virtual bank broke new ground in late February with an announcement that it intends to launch the VCAD stable coin. If the cryptocurrency project succeeds, it has the opportunity to shake up the payments landscape in Canada by bringing in much needed competition.

INK Canadian Insider Index

1 Year Total Return Performance


Historical Performance

Annualized Total Return as of February 26, 2021 04:49 pm
1 Year 29.00%
3 Years 6.38%
5 Years 10.70%
10 Years 7.81%


To learn more about the Index please visit
https://index.inkresearch.com

5 Year Total Return Performance


To start receiving a PDF version of this newsletter by email select it in your alert settings. If you do not have an account, join us here.

Comment On!

140
Upload limit is up to 1mb only
To post messages to your Socail Media account, you must first give authorization from the websites. Select the platform you wish to connect your account to CanadianInsider.com (via Easy Blurb).