A question i never expected to ask you

Wednesday, 2 January 2019
Melbourne, Australia
By Bernd Struben

  • Just say no…to sin taxes
  • ‘Trump’s Syria Withdrawal Signals Wind Down of “Endless Wars”’

Welcome to your first 2019 edition of Port Phillip Insider.

I hope you had — or are still having — a relaxing and enjoyable holiday break.

I also hope you enjoyed the special back issues of Global Investor you received while the Port Phillip Publishing office was closed.

Brought to you by our Melbourne based international analyst, Selva Freigedo, Global Investor provides valuable insights into both Aussie and global financial markets. Insights you won’t find anywhere else.

If you haven’t already, you can find all the details here.

With that said, I’ll kick off the new year by asking a question I never expected to ask in an investment newsletter.

But then I never expected the global push to legalise marijuana to gain any real traction in my lifetime either.

Yet gain traction it has.

I showed you the photo below shortly before Christmas. If you’re not familiar, that leaf next to the image of a smouldering cigarette is a pot leaf. And the sign sits in Canada’s international Vancouver airport.

An unexpected but welcome sign for many travellers, no doubt. So long as you don’t see your pilot lingering nearby…



chart image

Source: Will Willitts, AFR
Click to enlarge


Canada isn’t the first nation to fully legalise the recreational use of cannabis. That honour goes to Uruguay, which legalised it back in 2013. But Canada is…erm…blazing the trail for other major nations to follow.

In the US it’s a state by state process. Michigan, with a population of 10 million people, became the latest state to legalise recreational pot in November.

Over in our neck of the woods, New Zealand, with 4.8 million people, has announced it will hold a referendum on legalising recreational use in 2020.

Our in-house pot-stock investing expert Sam Volkering says the Kiwi market alone could be worth AU$1.18 billion by 2028.

Of course, that’s just a fraction of the billions of dollars up for grabs in the legal (recreational and medicinal) global marijuana markets.

According to Zion Market Research the market could be worth US$62.9 billion (AU$89.2 billion) by 2024.

Which brings us back to the question I never expected to ask in an investment newsletter.

Drum roll please…

Do you believe Australia should follow Canada’s lead and fully legalise, regulate and tax marijuana?

Don’t just answer in your head!

Send your reply to letters@portphillipinsider.com.au. And please include your reasons why. If we get enough replies, I’ll publish them here next week.

In the meantime — and regardless of your answer above — you can discover all the ‘dos and don’ts’ of investing in pot stocks in Sam Volkering’s new report, ‘The Black Book of Cannabis’.

Just click here.

Now a look at the markets…

Markets

On Monday, the final day of 2018, the Dow Jones Industrial Average closed up 265.06 points, or 1.15%.

The S&P 500 gained 21.11 points, or 0.85%.

In Europe the Euro Stoxx 50 index finished up 14.89 points, or 0.50%. Meanwhile, the FTSE 100 lost 0.09%, and Germany’s DAX closed up 177.45 points, or 1.71% on Friday 28 December.

In Asian markets, Japan’s Nikkei 225 is closed for the holidays. China’s CSI 300 is down 1.20%.

In Australia, the S&P/ASX 200 is down 69.80 points, or 1.24%.

On the commodities markets, West Texas Intermediate crude oil is US$45.90 per barrel. Brent crude is US$53.80 per barrel.

That puts WTI down 2.8% and Brent down 6.1% since I last wrote to you on 20 December. And it sure is a long way from the US$100 plus a barrel the oil bulls were betting on for much of 2018.

If you were following along with Port Phillip Insider last year, you’ll know I said that forecast was nonsense. With a virtual tsunami of oil set to hit the markets — driven by the US, Russia, and Saudi Arabia — I forecast WTI would fall below US$60 per barrel by the US-midterm elections in November.

And fall they did.

You may have noticed the welcome reprieve at the servo over the holidays. Driving a thirsty V8 with a decidedly heavy foot, I reckon OPEC’s failure to drive crude prices higher has put an extra $100 in my pocket already.

(Now where to invest it?)

Perhaps stung by their overly bullish estimates last year, most analysts are now scaling back their price forecasts for the year ahead.

From The Australian:

Analysts have turned bearish on 2019, according to a Reuters poll.

A survey of 32 economists and analysts forecast an average Brent price of $US69.13 next year, more than $US5 below analyst projections a month ago, and compared with an average real price of $US71.76 in 2018.

Now Bloomberg didn’t bother to survey this particular economist. But if they had I’d say crude prices are likely to nudge up from here.

US$50 per barrel is broadly considered a breakeven level for many US producers. Some can turn a profit at lower prices, others need somewhat higher prices. But with an eye on that figure, I’d look for WTI to trade in the mid-US$50 range with Brent likely to peak around US$65.

And if prices do ease higher over the coming months, that should prove good news for the share prices of quality oil stocks. A sector to keep your eye on.

Turning to gold, the yellow metal is trading for US$1,281.26 (AU$1,817.91) per troy ounce. Silver is US$15.46 (AU$21.94) per troy ounce.

One bitcoin is worth US$3,806.55.

The Aussie dollar is worth 70.48 US cents.

Just say no…to sin taxes

With the holidays still in mind, here’s another question.

Over the past week did you consume any salty snacks or sugary treats or drinks? How about alcohol?

If you’re like me, the answer is a resounding yes to all three.

While we may overdo things a bit during the festive season, moderation is key to a healthy life. Too much of anything — including water, which can cause swelling of the brain — should be avoided.

But the operative word here is ‘should’. Meaning, at the end of the day, the decision on how much sugar, salt, or alcohol you consume is yours and yours alone. As are your exercise choices.

Of course, that’s not how the Nanny Staters view it.

And like horror movie villains that refuse to die, the health police are once again spruiking sin taxes on sugar and booze. Oh, and salt may be next.

First salt, from The Sydney Morning Herald:

Diets high in salt might be causing the body to chew into its own bones, leaving them riddled with holes like Swiss cheese, Melbourne researchers fear.

If the research holds up – it remains in the early stages – addressing Australia’s salt addiction would become a major priority. We consume almost twice the recommended amount of salt a day.’

As far as I’m aware, no Australian pollies have proposed a sin tax on salt…yet. But take note of this line from the article above, ‘addressing Australia’s salt addiction would become a major priority’.

Since we can’t be trusted to get our snouts out of the crisps bag on our own, slapping a hefty sin tax on ‘addictive’ salty snacks would be the logical solution.

Then there’s the ever-looming sugar tax. Just when you thought it was DOA, it’s back. Also from The Sydney Morning Herald:

The Select Committee into the Obesity Epidemic, comprising senators from all major parties and chaired by Greens leader Richard Di Natale, has tabled a far-reaching report with 22 recommendations.

In a move that will likely delight health groups and enrage the food and beverage industries, it has recommended the government slap a tax on sugar-sweetened beverages (SSB), saying this would reduce sugar consumption, improve public health and push manufacturers to reformulate their products.

“The World Health Organisation has recommended governments tax sugary drinks and, at present, over 30 jurisdictions across the world have introduced a SSB tax as part of their effort and commitment toward preventing and controlling the rise of obesity,” the report said.’

The move would indeed enrage the food and beverage industries.

But it would also anger most anyone who enjoys a cold coke (not reformulated please) or other sugar laced drink on a hot day. And the very people that the health police are trying to help — the often lower income folks downing too much soda pop — would be the most adversely affected.

I’d also like to ask the Select Committee this…If the committees from the 30 jurisdictions across the world who introduced a sugar tax all jumped off a cliff, would they follow?

Having ticked salt and sugar off the list, we move on to alcohol. A substance already subject to Draconian sin taxes Down Under.

But, apparently, not enough to satisfy the Nanny State. These people are just looking out for your best interests, after all.

From The Australian Financial Review:

Taxing all alcohol at the rate of 84¢ per standard drink is the most cost-effective way of reducing obesity in Australia, according to a new analysis of policy options in the fight against obesity.

The analysis – the first to rank obesity policies on value for money – was released on Wednesday by Deakin University in Melbourne.

While an alcohol tax could have a positive impact on broader issues including injury prevention, road accidents and the justice system, this is the first economic model to show it could have a significant positive effect on population weight.’

Whether you’re fit and trim or carrying around some extra kilos, does the answer to Australians’ weight and health problems really rest in government hands?

Or does it come down to personal responsibility and choice?

No prizes for guessing my take.

In the end, all the proposals to raise sin taxes simply represent another massive wealth transfer. They’ll take more money from you and hand it over to the government.

Then the mind-bendingly inefficient bureaucracy will whittle your dollar down…and down…until some small fraction is delivered to its intended target.

Higher taxes, dear reader, are never the best answer.

Finally, here’s the latest in international politics from The Australian Tribune:

‘Trump’s Syria Withdrawal Signals Wind Down of “Endless Wars”’

For those whose wealth and careers depend on the multi-trillion-dollar defence and espionage industries, US President Donald Trump’s decision to pull the US out of Syria signals a worrying trend. And these “Deep State” forces wasted little time and effort disparaging Trump for his bold decision. 

Trump says his decision to pull American troops out of Syria should not have surprised anyone because…

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd