Deep Dive
Shownotes Transcript
Hello, and welcome to the TLJR podcast. It's a show about the culture, gossip, and business of money. And this week, is there a new ruler in the empire of pain? My name is Devin Friedman. I am here with my co-host, Matt Keres, is the director of product for Wealthsimple, and now a betrothed man, Matthew. Give us a rundown of the wedding for those of us who are not able to make it. The best part of the wedding was...
stomping on the glass and, you know, running out of the synagogue. That was very fun. They also, like, snuck us into the venue. So we went in the back through the kitchen and, like, the photographer's chasing us. And it felt like that scene in Goodfellas where he's walking into the club through the kitchen and there's, like, the coats. That was great. Very handheld camera. Yeah. One of our listeners sent in a comment a couple of weeks ago that got me a little scared.
about how much of a waste of money weddings were. And I don't know, it seemed pretty awesome. Like it was much better than I ever could have imagined. - Sarah Rieger is the business and markets correspondent for the TLDR newsletter. Sarah, did you get married this weekend?
I didn't. And I'm not even sure why you're talking to me. I just want to hear more about Matthew's wedding. My favorite part of my wedding was getting all the gossip that people didn't tell me the day after. Like, which people they're hooked up. Who is fighting. I want to hear about all the wedding weirdness. Like, did you know that your cousin, like, hooked up with some rando on a couch next to your mother-in-law? Like, that is... Concerning. Is that true? Didn't happen at my wedding. But I've heard it happening at others'.
We have quite a show for you. We're going to talk about financial scams, a new kind of financial—you think you've heard of all the financial scams, but you know what? People are out there working hard and making new ones. We're going to talk about the future of painkillers. Will we turn the page on opioids into a pain-free future that doesn't result in horrible outcomes?
We're going to talk about monopolies in general and specifically airline monopolies. The road to airline monopolies always begins with a single question.
Sarah, who's making or losing money that's interesting to you right now? Well, one of the most well-known investors in Canada says people have been losing money because they invested in investments that were recommended by a scammer who was impersonating him. Okay, this is good. I like scammers. I like impersonators. I don't like people losing money, but can you tell us a little bit? Who is this person? Yeah.
And what happened? So David Rosenberg, he's kind of famous for being one of like the biggest bears on Wall Street or Bay Street. So he's often a voice you'll see providing that kind of more tempered, I guess, perspective on the market. So I think a lot of people trust his financial takes. How come he's never been on the podcast? I did actually reach out to him for the segment. I didn't hear back in time for recording, but would have loved to chat with him about this.
This is an open invitation to David to come on the show. We would love to have you. Matt, do you know about David Rosenberg? Yeah, I followed some of his stuff. The main thing that I remember from him was that he made a great call a couple of years ago that the economy was not going to go into a recession. Yeah, I shouldn't say he's always bearish. I feel like he is very kind of like logical. He takes his time with his takes. Okay.
Okay, Sarah, so what happened? So what David told the Glob and Mail is that back in April, a buddy of his messaged him and was like, hey, Dave, how do I invest in this Wolfpack program? And David was like,
what. David is head of an economic consulting firm called Rosenberg Research, and Rosenberg Research does not offer any investments under the name Wolfpack program. Shocking. I know. Shocking. But then he started hearing from dozens of other people who had put money into this Wolf
The Wolfpack just sounds predatory. Yeah, quite the name, hey? I kind of want to know how convincing they were in impersonating him and how they did it. So what happened is there were these Facebook ads running that had David's face on them, and they said they'd offer quality stock picks.
So if you clicked on them, you would get added to this WhatsApp group that included someone pretending to be David. And that fake David would recommend stock trades, like mostly kind of obscure penny stocks. And it seems like what happened was basically a pump and dump scheme. Like these investors would buy into the stocks, inflating the price, and then the person pretending to be David would probably sell off their share and crash it. And some of these duped investors told the Globe that they lost hundreds of thousands of dollars. Wow.
Wow. I was going to ask, like, what's in it for someone to give bad stock tips pretending to be someone else? And the answer is, if you are dealing in penny stocks, which are stocks that, you know, a little bit of money can move the price of, then you can have bought it beforehand, pump it up.
sell it while it's still high, and then have the bottom fall out. Yeah, exactly. And that does seem like what was happening here. Matthew, have you heard of these sorts of schemes? Well, pump and dumps have been around for a while. I mean...
This is what, you know, Jordan Bell for the Wolf of Wall Street was eventually convicted for. Basically calling people up, selling them worthless penny stocks. It's just using a different technology to pump. Yeah. And for me, too, it's easy to see why people would fall for this one, right? Because, like, they're not asking for your money. They're just being like, hey, I have a good tip for you. They're often advising you to trade through reputable platforms like, I don't know, Wealthsimple or your bank. And the issue is, you know, it might feel safe because you're
You're not sending money directly to this person, but they're advising you to potentially trade bad assets. And that doesn't mean like your bank is the problem here, but it means that you should be really cautious about what you're buying. So what happens if you lose hundreds of thousands of dollars?
By following real stock tips from a fake David Rosenberg. Like the big issue with this, and one of the reasons actually that Rosenberg says he went public with it, you know, other than to shore up his reputation and be like, hey, this guy on Facebook is not me, is for these stamps to be investigated, people really need to come forward and report them. And as of the time that this story went public last week, nobody had made reports to Toronto's financial crimes unit other than Rosenberg.
And I've investigated stamps like this one before, and it can also be really hard to get your money back, like even if you do report. You know, it's good to know. Who are you going to get your money back from? That's the thing. The people who bought your stock on the way down. There's no like secret account that this money went to. I guess you could figure out who the scammer was and sue them.
But often that's such a hard to follow trail, right? These cameras can be operating in other countries. So there's like multiple jurisdictions involved. It can be complicated. I really tried to figure out who this person was. I was able to find the phone number of the person who had originally purchased these ads. That person is in Vietnam. I've tried calling them, but yeah, I, unfortunately they're not responding to my messages or calls right now. They have received them. That's so surprising. I know I'm, I'm really shocked. Um,
But the other thing I was able to find is there are actually a lot of other stams being run in David's name. There are more than 28 accounts on X, formerly Twitter, mirroring his profile. I guess this is also a story of the loss of identity, especially on Twitter. The blue checkmark once meant that we know this is the real person. And now it means, what, they bought a checkmark? Yeah.
Yeah, exactly. So many of the accounts are so similar, like just like one letter off, but have all of the identical posts up, same photos. You could see how someone could maybe fall for this. You know, like not to get all philosophical, but it does speak to the way people invest now. There's like a FOMO out there. You know, there's a perception that
Lots of people are getting rich for really dumb reasons. And if you're not doing it, then you're dumb. Yeah, I don't think that's new. Finance has always been inherently social. There's always been this thing where people only talk to you about their winners. Take our friend John Cassidy's book. The first chapter is about, you know, 18th century trading companies in India. Like they would sell stock and, you know, some of them could buy their stock. And it was because they'd actually like...
had great ships that are on their way back and they're full of stuff. Or there were people that were just making the shit up. So what do you do to make sure this doesn't happen to you? I guess my first thing would be like, don't buy stocks because some Facebook business
group told you to? Yeah, I think that's basically it, right? If you're seeing a big financial figure, celebrity podcast host posting about investments online, do some due diligence. Yeah, I would hope that the way I would save myself from that would be to think, why would someone like this be giving stock tips on Facebook? Yeah. Right? You should always ask yourself the economist question. It's like, if there's really a $100 bill here, why hasn't somebody else picked it up already?
Something just came across my desk, John. It is perhaps the best thing I've seen in the last six months. If you have 60 seconds, I'd like to share the idea with you. Got a minute? All right, Matthew, you are up. Who is making or losing money that's interesting to you right now? So a company named Vertex Pharmaceuticals has been making a lot of money and seems poised to make a whole lot more now that it's gotten approval for a new type of painkiller.
It's kind of amazing. I usually try to stay very far away from any like medical news or anything like that, mostly because I'm really squeamish. But this new painkiller that this company has developed is like widely being touted as a safer replacement for opioids. And so the New Yorker had a big story on it. It's been, you know, the centerpiece of a lot of like analyst reports. I love medical breakthrough stories.
Because it reminds us that, like, business is not all financial fraud or earnings reports. It actually can represent human progress. And by the way, if it's just like, hey, this might happen someday, I'm cool with that. I love those stories. No, no, it's real. The drug is called Jurnavax. And basically what this company has developed is a whole new way of treating pain.
You know, the most effective painkiller and the most widely used kind of painkillers are opioids, which work by blocking pain signals from reaching your brain. So your body's still sending those signals, but you're sort of numb to them. And that's part of the reason why a lot of people report with opioids, they feel like some euphoria. That's like a side effect of the numbness. What this does is instead of like blocking the pain receptors, it stops the signals from being sent in the first place. And as a result...
dulls pain, but doesn't actually show any like addictive traits. So I think it's worth noting that as bad as opioids turned out to be, there was a time people were extremely excited about the introduction of opioids because pain is a real problem.
There was nothing really to treat it. Yeah. So like, you know, doctors used to have this struggle where somebody would go and get, you know, a tummy tuck or bunion surgery, both of which are notoriously painful and need to go home and recover. And they had two options to get them Tylenol or like opioids. Now they have this third option, which is apparently as effective as the opioids without the addictive potential. There's one other thing we should note, like
Much of the pain meds right now are being prescribed for, like, long-term chronic pain, whether that's back pain or nerve damage. So far, this drug has not been proved effective at that. So it's not a full-on replacement for opioids yet, but it is the only bet we've ever had for a full-on replacement. What's the company behind this? What's their story? So the company is called Vertex Pharmaceuticals. I actually had never heard of it before this. I don't know if any of you have heard of it. No? Yeah, so...
It's apparently founded in 1989. So it's like a relative upstart in the pharma game. But it's like one of the world's most valuable companies. It's around 150, you know, 160 most valuable company in the world. It's comparable in size to Pfizer.
which is pretty wild. It's always so shocking to me how many big companies there can be that you've just never heard of. I sort of hate to even ask this question because I'd rather just focus on how cool it is that we're fixing a pretty big problem or could be on the verge of fixing a pretty big problem. But how good is this for the fortunes of this particular pharmaceutical company? It's been...
Pretty damn good. Obviously, this company produces a number of different drugs, but over the last five years, this drug has become more and more a reality and investors have woken up to it. The market cap for this company has rose by about,
$30 billion USD. Estimates suggest that even just this form of the drug, not like other versions that could be used for chronic pain, but even just this version could be worth about $2.5 billion a year for the company. Is that a big or a small number, Matthew? Pretty big number. It's actually so big that it's caused a lot of consternation. Like, does this company charge too much for its drugs? What's it priced at?
It's priced at like $500 or $1,000 a month, depending on how much you take. 5x what opioids cost. You know, opioids are now generic, though. And at the beginning, they were priced that highly. And I was, you know, reading up and seeing some of the pushback that people were giving to this company last night. And it got me thinking, like, is the company actually overcharging for this? Like, is it how much should you get for finding the opioid replacement? Yeah.
Yeah. On one hand, it's like criminal to charge people to not be addicted to drugs. On the other hand, there should be some incentive and some reward for going out and spending money and succeeding and finding something to make people better. I agree. It seems like the opioid replacements would be like a holy grail.
So I was like thinking to myself, like, what do you have to believe you can earn in order to want to go and try to develop a new drug like this? So the best estimates that I could find for how much it costs to develop a drug like this, including all the direct costs, but also like you have to borrow a lot of money for like about 10 years in order to get one of these drugs is about $2.5 billion USD per
But to know that you have to put that in just for a shot at getting one of these drugs, how much do you have to think you can make if the drug is a hit to make that a good investment? I'm going to have to say that you are going to have to make $500 million a year. Yeah, that's the problem. You're off by orders of magnitude. Even if you assumed the drug was going to work 10% of the time, then over the lifetime of that drug, you'd have to make back $25 billion a year.
And you only get exclusivity for like, I don't know, max 10 years. So, you know, you need to make two and a half billion dollars in profit per year. So given that...
you know that only one out of every X number of drugs is going to be profitable. The ones that are profitable have to be incredibly profitable to make the whole system work. I feel like the other thing with the opioid issue is just, like, the cost has been billions of dollars, right, of...
healthcare spending trying to curb the impacts of this like on all levels of government in Canada. So you think it like it would be really valuable to invest in something to like mitigate this harm for people. Yeah. This whole conversation just makes me think that I hope by the time that this drug is released in Canada that our universal pharmacare expansion has continued. Yeah.
Yeah, it was. They passed a law in the U.S. that tried to make this kind of drug more accessible to people. That seems like the best approach to me, too, which is like it's such a public ill to have people so reliant on opioids. Like now that there's an alternative, at least in some cases, it seems like a great use of government funds to make it affordable. Are Sarah and Matt agreeing right now? Yeah, we are. Are we agreeing? You guys actually agree a lot more than I pretend that you do. But it's more fun if I act like you guys are always fighting. Yeah.
What just happened here was a fucking miracle. For our last segment today, we talked to two friends of the podcast. Vas Bednar and Denise Hearn are academics. Their specialty is monopolies. They wrote the book, The Big Fix, How Companies Capture Markets and Harm Canadians. But Sarah, as we were getting the cut of this conversation together for the episode, we had some sort of relevant news happen.
Yeah, so the Competition Bureau dropped this big 117-page report into Canada's airline industry and the lack of competition. It basically found that, at least like this is how I would describe it, is that Canada's airlines are basically monopolies at this point, not even duopolies, because WestJet has really cornered the market on Western Canada and Air Canada on Eastern Canada. It's like the five families. It's like the Gambinos, you get the Bronx.
And other families whose names I don't know, you can take Manhattan or whatever. So it's not, it doesn't sound like friendly competition, but dividing the spoils. Exactly. And I don't think it was a surprise to anyone that airline prices are high and competition is not great in that industry. But it also made some recommendations for what government should do about that. And I think one of those recommendations in particular people have found to be
kind of spicy, kind of ripe for debate. Well, we are not going to tell you yet. We're going to dangle that incredibly gossipy, what did the Competition Bureau recommend to the airlines question. And we'll get to that after we listen to a little bit of our conversation with Vas and Denise. Vas and Denise, welcome to the TLDR podcast. Thanks for having us. Yeah, thank you for having us. So let me ask you this. People know that there are monopolies or oligopolies
People understand that Canada has a competition problem. Why should we all care? Where do we see this in our everyday lives? Absolutely everywhere. Probably hundreds of times a day. Yeah, price, choice, quality, the ability to repair something, to have it last longer, products that are designed to fail so that you have to replace them. A lack of competition also stops more companies from getting started and
doesn't encourage people to take risks. Exactly. Essentially, we live in what we call kayfabe capitalism, which is breaking the fourth wall in professional wrestling. So corporations are great at pretending like they're competing with one another, but actually they're just on the same team. So it's like, ooh, am I picking WestJet or Air Canada? Which airline side am I on? Yes, exactly. It's like, you know, ultimately the game's kind of rigged, the rules are fixed in their favor, and you...
think you're making choices, but ultimately it's kind of, it's just like a fake. WestJet and Air Canada are not actually in a fight to the death. They're just pretending and then going home and enjoying their spoils. Exactly. I mean, people have been talking about this for a long time. One of the reasons why some of these problems exist is that we had an above-average consumer
kind of use of antitrust exemptions. We weren't actually using our competition law to go after the big guys and force them to be a little bit more innovative and competitive with one another. One of our kind of not-so-favorite facts about Canada is that we've never successfully blocked a merger through the Competition Bureau. There's all kinds of mega-mergers that you just never have gone through in the first place.
I think the thing that always gets me when talking about, you know, how many mergers have gone through in Canada historically is just how in so many ways our policy was like designed to let that happen. You know, we wanted these giant companies. We wanted to be like, oh, we can take on the U.S., like, yeah.
Has that actually happened? Not really. But we were like, this seems like a good idea in the 80s or whatever. Explain the philosophy behind trying to have big companies in Canada, behind having that be a priority. The logic of the late 80s
mid to late 80s suggested that in order to compete globally through this new, you know, amazing force of globalization and increased trade, we actually needed to pick winners or nurture certain companies so that they could get big enough to kind of go to that next order of competition, right, and compete globally.
Give me an example of a merger that maybe should have been blocked or a, you know, a failure of Canadians to foster competition when they should have. Yeah. I mean, we open our book talking about the Roger Shaw merger, which there was like a ton, obviously, of public outcry about because we already have such high cell phone rates in Canada. And what we found interesting is you
Usually what happens is when companies want to merge, they go to the regulators and they say, hey, we want to merge with our competitor. We know there's going to be fewer of us in the marketplace, but don't worry, don't worry. We're going to have all these new efficiency gains from merging with one another, and we're going to pass those efficiencies on to customers.
through lower prices. Okay. Now, in what percentage of instances do you think following a merger, companies actually lower prices? Well, someone's actually done the math. In the U.S., they looked at thousands of mergers and actually in cases where you had six or fewer competitors in one industry, they
prices rose 95% of the time following the merger. So in less than 5% of cases, you actually get lower prices after a merger essentially. And that was also what happened with Roger's shot. You saw them starting to do some price rises, but also customer complaints went up a huge amount.
We had at the time a very, very weak competition law, which had big loopholes in it. And following the merger, there were a series of legislative changes which really closed those loopholes. So hopefully we can block some mergers in the future. Obviously, you guys are experts on lack of competition in Canada, the reasons behind it, the effects of it. But why...
Draw a line between that and where we find ourselves right now. Why are we less able to meet the moment that we find ourselves in because of that than we would be?
had we had more competition? You know, part of the reason why we're failing to meet the moment is because essentially markets have kind of resorted to a lazy form of growth, right? Where you don't actually have companies that are incentivized to compete with one another, to innovate, to try to one-up each other with the best products and services. They're just either gobbling each other up, trying to moat IP and just create endless sort of economic rents from the stuff that they already have.
You know, we've been needing, honestly, a kick in the butt for a long time, and we've been talking and talking and talking about things that we want to do and not really having the fodder or whatever it is, the political will or whatever else to do it. And this feels like our moment to really see what is possible.
What I also like is that I feel like this moment is sort of cutting away the easy narratives like, oh, markets just self-regulate. It's like, actually, no, we're all into industrial policy now. We all need the government to actually step up and spend.
in a major way. We also need regulations out of there that are hampering the ability to build businesses at speed and scale. At the same time, maybe we have some dominant incumbents in Canada that have rested on their laurels for way too long that we also need to be taking a close look at. It does feel like this is a big moment to try and re-envision what as Canadians we want for our economic future and what's possible to build with the immense resources that we have in our country. ♪
So in some ways, Sarah, the Competition Bureau, you know, their report would make Vass and Denise happy. They are acknowledging that there's a problem and that we might want to have a different solution and that perhaps we should take some risks when trying to break up the monopolies and increase competition in Canada. But I guess the risks that they're suggesting are maybe not exactly what people imagined.
Yeah, so I will say the report made a lot of suggestions like reducing fees at airports, you know, possibly by subsidizing them, maybe even leveling the playing field for airport access for smaller companies. But the big suggestion that I think people are fired up about is the idea that airfares would be cheaper if Canada allowed foreign airline ownership.
and also for foreign airlines to operate domestic routes. Are they saying we recommend that foreign airlines come and operate inside Canada only, or are they recommending...
hey, it might be okay for foreign companies to come and start a Canadian airline. They're recommending two things. So one is increasing the state that foreign owners are allowed to take in Canadian airlines up to 49%. They're also suggesting that there can be 100% foreign-owned airlines in Canada. So that would be starting a company within Canada that only flies domestic routes but is owned by a foreign entity.
Right. So Delta could come in and start an airline and call it something else, but it might really just be Delta. Yeah, exactly. And like, I can think of situations where, you know, allowing an American company, say, to do that, like would make it cheaper, right? You think of someone with a lot of capital and maybe owns a few planes already who wants to undercut with
with better routes and services. But I think of situations where American companies have expanded in Canada and undercut local competition in a way that has led to closures. I think of Target or Greyhound. This company expands across Canada, shuts down local businesses, and then when it pulls out, because I find a lot of companies eventually realize that
It's pretty hard to make profits in a country this geographically spread out. They leave a lack of services. Right. They kill the competition and they leave and there's nothing. Is the point of this at all just to sort of light a fire under the
Canadian companies to shape up because there's, you know, like things can get dicey for them? Or, you know, does this thing have teeth? I think it's a mix of things. So a lot of what at least I see the Competition Bureau is doing is to kind of put companies on notice. So I do think part of it was to kind of be like, hey, we are watching what's happening with pricing, West January Canada. So...
you know, watch yourselves. But I think another part of it too was to get the government thinking about ways to protect air travel for Canadians. Right now, it's so exorbitantly expensive to fly across Canada, especially to smaller rural northern routes. I just look even like myself, like I was looking to plan a trip this fall and I really want to spend my money inside Canada. But if it costs me twice as much to fly to say,
So where do you want to go in this fall? I really would like to go to PEI. I've never been. Me neither.
We'll plan a trip once airfares drop, maybe. TLDR editorial summit. Eat lots of potatoes. I think that's what they do there. Come for the mussels, stay for the potatoes. Amazing.
Okay, Sarah Rieger, tell them what we learned. We learned that if you see Devin posting on Facebook telling you to join his investment group, maybe don't follow his advice. We learned that a company is working to solve the opioid epidemic, but they are charging a lot for that cure. And we learned that the fix to Canada's expensive airfare problem could be letting in American companies, but at what cost?
Okay, that is it for this week. We are going to take next week off for Canada Day, but we'll be back after that and we hope to see you. The show is sponsored by Wealthsimple. It is made by me, Devin Friedman, Matt Keres, Sarah Rieger, with Matilde Erfolino, Lea Fetter, and Jared Sullivan. Help from Eva Cruz and Juanita Leon. Research and fact-checking by Brenna Doherty. Theme music by Andy Huckvale and engineering by Emma Munger. Special thanks this week to Vas Bednar and Denise Hearn.
The TLDR podcast is offered by Wealthsimple Media Incorporated and is for informational purposes only. The content in the TLDR podcast is not investment advice, a recommendation to buy or sell assets or securities, and does not represent the views of Wealthsimple Financial Corporation or any of its other subsidiaries or affiliates. Wealthsimple Media Incorporated does not endorse any third-party views referencing this content. More information at wealthsimple.com slash TLDR.