Faith…in Weed

  • Surge
  • Slump
  • Tiny stocks
  • Relax

You learn something new every day. Especially when you live the kind of sheltered life your editor does.

For instance, today we discovered the number ‘420’ had significance to a certain percentage of the world’s population.

If you know what we’re referring to before we even get to the explanation, we only have this to say to you: Pothead

Apparently, ‘420’ is a discreet ‘call sign’ among cannabis (marijuana) users. We have no idea why that specific number is significant.

And we have neither the energy, nor the interest, to use our internet search engine to find out.

Nevertheless, if you’re in the mood for a joint, today may be the ultimate day to light up. It is, after all, 20 April (4/20 in the US date format). And if you really want to get into the spirit, lighting up at 4:20pm will ensure that you’re ‘in’ with the pot crowd.

But as with anything, there are those who insist on taking things, arguably, one step too far. From the Huffington Post:

The International Church of Cannabis will open its doors to the public, on April 20.

That’s 4/20, to be specific.

In a promotional video, one congregational leader Briley Hale says: “Our church is the spiritual home for adults everywhere who ritually take the sacred flower to find inspiration and meaning.”

We’re not sure we have anything else to add. Except…

Markets

Overnight, the Dow Jones Industrial Average fell 118.79 points, or 0.58%.

The S&P 500 fell 4.02 points, for a 0.17% drop.

In Europe, the Euro Stoxx 50 index gained 11.21 points, or 0.33%. Meanwhile, the FTSE 100 fell 0.46%, and Germany’s DAX index gained 0.13%.

In Asian markets, Japan’s Nikkei 225 index is up 54.73 points, or 0.3%. China’s CSI 300 is up 0.32%.

In Australia, the S&P/ASX 200 is up 12.29 points, or 0.21%.

On the commodities markets, West Texas Intermediate crude oil is US$50.56 per barrel. Brent crude is US$53.09 per barrel.

Gold is trading for US$1,279.09 (AU$1,703.61) per troy ounce. Silver is US$18.15 (AU$24.18) per troy ounce.

The Aussie dollar is worth 75.07 US cents.

Surge

Growth in the cannabis (marijuana, pot, weed, devil’s lettuce) industry continues.

Not just in the US. Or Canada. Or Australia. Now Argentina is getting in on the act.

As Bloomberg reports, ‘Argentina Publishes Regulatory Framework for Medicinal Cannabis’.

According to the report, the ‘…law calls for [the] creation of [a] program to study and investigate use of marijuana for medicinal purposes.

Colleague Sam Volkering has been all over the cannabis story. He’s tipped a handful of highly-speculative stocks that he believes stand the best chance of benefiting from worldwide decriminalisation of marijuana use.

As you can probably expect, given the speculative nature of these stocks, the stock prices move around all over the place.

In fact, Sam has drawn a good deal of criticism from folks who say the stock prices have gone up too much…above his recommended buy-up-to price.

Sam’s too humble to say this, so I’ll say it for him: Sorry for picking stocks that go up!

But seriously, of the four stocks he’s picked in the cannabis sector, two are above the buy-up-to price by a distance, one is hovering around the buy-up-to price, and a fourth is handily below the buy-up-to price.

Sam believes this is one of the hottest stock market sectors in the world today. I agree. This sector is hot.

If you want to understand more about why people are buying into this sector, and which stocks Sam says cannabis speculators should buy now, go here.

Slump

As we admitted last week, we’ve taken our eye off the ball recently when it comes to the iron ore price.

That was clearly a mistake.

After soaring above US$90 per tonne in February, it has been an almost uninterrupted slide since then, as the following chart shows:



chart image

Source: Bloomberg
Click to enlarge


The iron ore price has slumped 32%.

There has been a similar-sized fall for the ‘third force’ in Aussie iron ore mining, Fortescue Metals Group Ltd [ASX:FMG]. It’s down 27% since February.

BHP Billiton Ltd [ASX:BHP] is down 15%, as is Rio Tinto Ltd [ASX:RIO].

The question for iron ore producers is where will the price go next? Bloomberg reports:

Iron ore prices are resetting to a new range of $60-to-$70 a ton, according to one of India’s top steelmakers, as the heady rally of earlier in the year proves unsustainable.

“I think $60–$70 is probably the long-term normal,” T.V. Narendran, managing director at Tata Steel Ltd., said in an interview in Mumbai on Wednesday. Prices will fluctuate around these levels with a cap at $80, he said, describing the market as “very speculative” and prone to distortions due to a lack of liquidity.

We always pause when we hear someone say the price will ‘fluctuate around these levels’, especially after a big correction. Our inclination is to think that fluctuation ‘around these levels’ is only one of three possibilities.

The second possibility is that the price could rebound much higher. Joy for iron ore miners.

The third possibility is that the price will continue to sink…who’s to say the price won’t fall to US$40 or less?

But it’s not just the iron ore price in focus. The oil price looks as though it could be heading for trouble too.

Bloomberg again:

A surge in U.S. production and gasoline stockpiles is giving oil bulls reason to pause following the longest price rally in two months.

After crude posted its third weekly gain on optimism OPEC will extend output curbs to ease a global glut, it’s closed down every day this week. Prices slid the most since March 8 on Wednesday, following data that showed U.S. production gained to the highest level since August 2015 and gasoline stockpiles rose for the first time since February.

For clues about the direction of the oil price, we often like to check out the Baker Hughes Rig Count indices.

The following chart shows two sets of ‘rig counts’. By rig counts, we mean active rigs in areas monitored by drilling services company Baker Hughes.



chart image

Source: Bloomberg
Click to enlarge


The orange line represents the number of active rigs in the US. The white line represents the number of active rigs in Canada.

The green line represents the West Texas Intermediate crude oil price.

You can see for yourself that the Canadian rig count number is far more volatile than the US equivalent.

We won’t pretend to know for sure why this is, but our guess is that it’s partly due to the higher production costs of Canadian oil, specifically from Canadian oil sands.

According to the Canadian Energy Research Institute, the breakeven prices for Canadian oil-sands production range from US$43.31 per barrel to US$70.08 per barrel.

By contrast, according to Rystad Energy, breakeven prices for the key shale areas in the US range from US$29 to US$39 per barrel.

When you look at the chart again, it’s clear there’s a correlation between the oil price and the rig count. It makes sense. As the oil price goes up, more oil reserves come online. But as more reserves come online, it creates increased supply, which, without an increase in demand, can cause a supply glut, and therefore lead to falling prices.

According to the reports, an oil supply glut exists now. What will that mean? If the past is anything to go by, you can expect the glut to expand, as oil companies rush to produce as much oil as they can before the price falls.

Not to mention the prospect of slower than expected economic growth in the US, hence lower inflation expectations, and a lower probability of the US Federal Reserve raising interest rates.

The oil price has performed well since dropping to a 14-year low in early 2016. The price rebounded on prospects of a strong economic recovery.

But with the Fed seemingly determined to raise interest rates and cut back its bond-buying program, it’s hard to see exactly how the ‘fake growth’ can continue.

If we had to place a bet, we’d put our money on even lower iron ore and oil prices. That won’t be good news for most of the Aussie market’s big oil and iron ore players.

Tiny stocks

‘Tiny stocks’ are moving. Check it out:



chart image

Source: CMC Markets Stockbroking
Click to enlarge


Tiny stock Queensland Mining Corporation Ltd [ASX:QMN] is up 140%.

Even so, its shares still only trade for 6 cents each.

Black Mountain Resources Ltd [ASX:BMZ] is up 44.4%.

Yet its stock is valued at only 5.2 cents per share.

And Invion Ltd [ASX:IVX] is up 33.3%.

Its shares trade for a paltry 0.4 cents per share.

This is what can happen with ‘tiny stocks’. Not all of them, mind you. ‘Tiny stocks’ are risky (boy, are they risky).

But they can be incredibly lucrative…if you bag the right stock at the right time…and then hold on for the potential gains.

So, how do you do that? Colleague Sam Volkering and I explain all in a special ‘tiny stock’ investment summit. You’ve got to watch it. It starts tomorrow.

For details, go here.

Relax

Your editor’s normal late Friday afternoon schedule, starting around 4.30pm, involves watching YouTube videos.

That’s right. We admit it.

It’s our way of winding down at the end of the week. We have a fairly restrictive diet of videos to watch. Depending on our mood, we’ll search for one of ‘Jacob Rees-Mogg’, ‘Brexit’, ‘Nigel Farage’, ‘Donald Trump’, or ‘Sean Spicer’.

Then, before you know it, an hour has passed, and we’re fully relaxed.

Starting tomorrow, we may add a new search term, ‘Diamond and Silk’. You can find out why here.

Cheers,
Kris