This crisis is a boon for cannabis stocks
Thursday, 11 October 2018
By Bernd Struben
- Roll another one…
- The hidden dangers in the government’s encryption laws
Only a week after I touted the benefits of investing some of your wealth outside of Australia, global markets took a nasty tumble.
Not that Aussie stocks are faring much better. At time of writing, the ASX 200 is down 2.42%.
Over in the US, the tech-focused Nasdaq led the way down, falling 4.08%.
The share price of Amazon.com, Inc. [NASDAQ:AMZN] dropped 6.15%. That brings the stock’s losses to 9.95% since this time last week, cutting its market cap to US$856.11 billion (AU$1.21 trillion).
As you check your portfolio to tally your own losses, spare a thought for poor Jeff Bezos. The Amazon founder lost US$9.1 billion overnight. Now he’ll have to muddle by with a meagre US$145.2 billion.
You can see in the chart below that Bezos wasn’t the only billionaire to take a hit. Though he does lead the pack.
Source: Bloomberg Billionaires Index
Click to enlarge
In a potentially ominous sign, the stock losses are coming at the same time as a major selloff in bonds. As bond yields have been rising, prices have been falling.
Why should this concern you?
As Bloomberg reports:
‘Bonds and equities are doing something they don’t usually do — fall in unison — with the latest move driving their normal inverse correlation to the weakest levels of the past two decades. The relationship has come completely apart only three times in that period, and each episode was followed by an equity market slump, including the last one, in 2014.’
Does this mean it’s time to run for the exit and unload all your stocks?
Maybe. But this doesn’t look like the big one…yet.
As in 2014, investors who stay in the market should more than recoup their losses from the current downturn.
You may have read that the IMF just downgraded its forecasts for global growth in the year ahead. But its forecast for the US remains very bullish.
The IMF estimates Trump’s tax cuts and lavish government spending will spur US growth by an extra 0.8% this year. In 2019, US government stimulus is predicted to add a further 1.2% to growth in the world’s largest economy.
Unless you’re a day trader and happy to jump in and out of stocks, I wouldn’t recommend taking any drastic action. When animal spirits turn back around and drive markets to new highs, you don’t want to be sitting on the sidelines.
Now to the markets. Brace yourself…
Overnight the Dow Jones Industrial Average closed down 831.83 points, or 3.15%.
The S&P 500 fell 04.66 points, or 3.29%.
In Europe, the Euro Stoxx 50 index finished down 54.89 points, or 1.69%. Meanwhile, the FTSE 100 lost 1.27%, and Germany’s DAX closed down 264.72 points, or 2.21%.
In Asian markets, Japan’s Nikkei 225 is down 976.96 points, or 4.16%. China’s CSI 300 is down 4.00%.
In Australia, the S&P/ASX 200 is down 146.20 points, or 2.42%.
On the commodities markets, West Texas Intermediate crude oil is US$72.63 per barrel. Brent crude is US$82.53 per barrel.
That’s a 3% overnight fall in the price of WTI. And as I’ve been writing since April, booming global oil supplies should see prices fall another 15–20% from here.
Sure, there will be some wobbles with sanctions set to really begin biting into Iran’s exports next month. And oil rich Venezuela is, for the moment, still a basket case.
But Russia and the Saudis are ramping up production. And the US Energy Information Administration (EIA) just upped its forecast for US oil production in 2018 to 10.74 million barrels per day (bpd).
That would beat the US production record of 9.6 million bpd set in 1970. And it will easily surpass last year’s almost record 9.4 million bpd.
And all signs point to even more US oil coming out of the ground next year.
From The Australian Financial Review [AFR]:
‘Production is expected to average 11.03 million bpd in the third quarter of this year. If the forecast is accurate, it will be the first quarter on record with US production above 11 million bpd.
‘The agency also expected production in 2019 to grow more quickly than previously forecast, rising 1.02 million bpd to 11.76 million bpd…
‘The agency slightly cut its forecasts for demand growth in 2018 and 2019.’
Record levels of US oil production…and a slight cut in predicted demand growth. That doesn’t make a compelling case for the oil bulls, in my book.
Turning to gold, the yellow metal is trading for US$1,194.41 (AU$1,691.08) per troy ounce. Silver is US$14.31 (AU$20.26) per troy ounce.
One bitcoin is worth US$6,509.24.
The Aussie dollar is worth 70.63 US cents.
Roll another one…
By this time next week marijuana will be legal for medicinal and recreational use across Canada. Regardless of how the wider market performs, the cannabis industry, and the best listed stocks tied in with it, should surge.
If you’ve been following along with Port Phillip Insider, or our free e-letters Money Morning and Markets & Money, you’ll know all the editors here are really excited about this.
No. Not because we’re planning a conference in Ottawa. Though I may bring that up to publisher Kris Sayce. We’re excited because we are witnessing the birth of a brand new legal industry.
Until now only criminals were able to tap into this market. A market Deloitte predicts could hit US$22.6 billion in Canada alone.
It’s a rare event indeed when you have the chance to get in on this kind of opportunity on the ground floor.
Even retailing giant Walmart is looking at getting in on the action.
From the AFR:
‘Walmart Canadian unit said on Tuesday (Wednesday AEST) it is exploring the possibility of selling cannabis-based products, but has no immediate plans to get into the business.
‘The company’s shares rose nearly 3 per cent to $US97.48 in afternoon trading. Walmart is the first major retailer to show an interest in being a part of Canada’s burgeoning marijuana industry, as other big US companies, mainly in the alcohol and beverage industries, begin to consider entering the market for cannabis-infused products…
‘The news comes as Canada is on the verge of becoming the first major economy to legalise recreational marijuana on Oct. 17, and shares in cannabis producers have rallied in anticipation.
‘New Cannabis Ventures’ global cannabis stock index has risen about 87 per cent over the past year.’
With over 37 million people — and some 32 million adults — the demand for legal cannabis could well exceed the supply.
But as Sam Volkering explained to his readers yesterday, that will only be good news for companies involved in Canada’s pot market. Here’s an excerpt:
‘Canada actually doesn’t have enough cannabis. After all the build-up, all the time to prepare, Canada is expected to have a cannabis crisis. However this crisis is a boon for cannabis stocks. You see, Canada might run out of legal cannabis.
‘The C D Howe Institute, a prominent Canadian research group, says demand in year one of legalisation will sit at 610.6 tonnes. In contrast, supply by the end of the year will only top 146.13 tonnes. Canada needs more than four times the amount of cannabis!
‘While this is unfortunate for consumers, it’s great news for producers. Inventory should be flying off the shelves this time next week…’
Sam’s been atop the pot stock story since day one.
Australia has only just begun its own journey by legalising medicinal cannabis. But a few Aussie firms have direct links to the Canadian weed market. And that could see demand for their product and service rocket.
Of these, Sam’s narrowed it down to one small-cap Australian stock. A company he’s convinced is best placed to take advantage of Canada’s sweeping legalisation. In fact, he believes this stock could shoot up by 495%.
But for the best chance of making a fivefold return on your investment, you’ll want to take a position before 17 October.
Remember to send any editorial correspondence to firstname.lastname@example.org. If we publish your letter, we’ll only use your first name.
Finally, here’s the latest in an ever more Orwellian Australia from The Australian Tribune:
‘The Hidden Dangers in the Government’s Encryption Laws’
‘The government’s push to be able to potentially read every message you send is gaining steam.
‘In arguing for the proposed laws that will force tech giants to hand over encrypted information to law enforcement, Home Affairs Minister Peter Dutton used the same tired fear techniques you’d expect in debate class 101.
‘Namely, only those who support…’
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