The Gold of Pot
- Recalling the darkest days of junior gold miners…
- … when many companies reinvented themselves as pot stocks!
- Now gold is back… and you can exploit a new wave of takeovers
- New Brexit fallout: We update our pension warning of last month
- The “Great Destruction” that never came — and a windfall that did
- For new and old readers alike… a bit about who we are and how we got here
[Before we start the clock today: We want to extend a warm welcome to readers of the former Wall Street Daily Insider. The good folks at Wall Street Daily are joining the fold here at Agora Financial, so you’re now receiving The 5 Min. Forecast starting today.
Our daily recipe goes something like this: Take our entire team’s best ideas… mix in some not-so-common takes on the day’s financial headlines… throw in a dash of “quirk” from the business world… and add a generous helping of reader feedback. Leaven the whole thing with the mockery Wall Street and Washington so richly deserve. Bake for 5 Mins.
The 5, as it’s affectionately known, has published nearly every trading day for more than nine years, so we like to think we’re doing something right. Welcome aboard!]
“As a publicly traded company, we always need a story that’s good enough to raise money on,” Jennifer Boyle told The New Yorker two years ago.
Ms. Boyle’s “good enough” story helps to spotlight two of our big themes this summer. On the surface, you’d think they had nothing to do with each other — the resurgence of gold and the business of legal marijuana coming into its own.
But not so for Ms. Boyle. At the time, she was CEO of Satori Resources — one of the legions of tiny “junior” gold miners traded on the Toronto Venture Exchange. Most of them aren’t even miners in the sense that they have current gold production. The bulk have only land rights and feasibility studies. Some have only a wing and a prayer. (“A gold mine is a hole in the ground with a liar standing on top of it,” is the line attributed to Mark Twain.)
And yet… a well-chosen junior gold play can be insanely lucrative. Readers of Rickards’ Gold Speculator, launched only two months ago, have already bagged a 123% gain on Lara Resources.
In the summer of 2014, however, junior gold companies were down and out. Gold prices had tumbled nearly 30% from their peak in September 2011. Gold miners were hit much harder, and the juniors hardest of all — as a group, down 70%. Invest in a gold prospector? Might as well light a match to your hard-earned paper dollars.
And so Satori Resources was one of several junior miners that sought to branch out into… medical marijuana.
Pot for medical purposes was legalized across Canada in 2014. “If you can latch onto something you can probably raise money on, i.e., medical marijuana, then why not?” said Boyle. “Because otherwise, your assets are in danger of being bought for next to nothing.”
Satori adopted the snicker-worthy ticker symbol BUD — not to be confused with Budweiser maker Anheuser-Busch’s use of the same ticker on the New York Stock Exchange.
Judging by the company’s chart since then, we’re hard-pressed to say its foray into cannabis has been a success…
We see no mention of medical marijuana on the company’s website this morning. Then again, its latest corporate presentation posted on the site is from November 2012 — heh.
Its latest press release, dated June 17, describes the firm only as a “mineral exploration and development company whose primary property is the Tartan Lake Gold Mine Project (100% interest), located in the prolific Flin Flon greenstone belt, Manitoba.”
All that said, we won’t second-guess Ms. Boyle’s strategy here. She had a point two years ago about the risk of her firm’s assets “being bought for next to nothing.” Many juniors aspire to have their assets bought out by a big fish like Barrick Gold or Goldcorp… but they’d prefer it not happen at a rock-bottom price.
That’s one of many reasons Jim Rickards says now is a special time to pile into a handful of carefully selected juniors — a rare window that comes along once every 10 years or so.
Simply put, merger and acquisition activity is picking up… and the prices paid are hardly “next to nothing.” Three days after we launched Rickards’ Gold Speculator in May, one of the 17 original picks was bought out. Goldcorp snapped up tiny Kaminak Gold — good for a quick 37% gain. Well played by our Byron King. Byron’s our resident geologist who visits mine sites and talks with management teams — a skill set that complements Jim’s “big picture” approach to gold and the markets.
For the next several days, Byron will join us with insights about junior gold takeovers.
Start with Goldcorp’s buyout of Kaminak: “After four tough years,” says Byron, “Goldcorp is clearly looking for technically strong, geologically attractive advanced-stage exploration or development projects with significant ounces.” It helps that Kaminak’s project is located in Canada’s Yukon Territory. So there’s no risk of a kleptocratic government deciding to up and nationalize the mine one morning.
That’s not a one-off deal: More takeovers are on the way.
“This kind of small-stake investment by larger players covers several bases,” Byron explains. “A large company’s investment in a smaller play buys into potential stock market gains, at the same time offering exposure to underlying assets and technical insight. It’s critical to gain that technical insight, even if the fickle market doesn’t come through.”
Ultralow interest rates help, too. The big fish can borrow cheaply right now… and that’s unlikely to change. (More about rates shortly in today’s episode of The 5.)
But the biggest catalyst is simply a rising gold price — from the lows near $1,050 late last year to more than $1,350 now: “Precious metal mining valuations typically look terrible in the aftermath of major secular lows, such as we just experienced,” says Byron. “As gold-silver prices shift from bear to bull mode, profits should rise, and I mean surprisingly fast.”
[Ed. note: Jim Rickards is so confident in his long-term $10,000 gold forecast — and Byron’s junior gold picks — that he’s doubling down.
He’s showing you the way to claim double your fair share of gold coins he’s reserved just for Agora Financial readers like you.
Jim and Byron issue their next pick on Thursday… so you’ll want to check out Jim’s offer right away. And no, there’s no long video to watch. You’re welcome.]
So maybe the major U.S. stock indexes will end the day in record territory.
The S&P 500 is there right now as we write, at 2,139. The Dow industrials stand at 18,257 — about 55 points below the record close in May of last year. Curiously, bank stocks are leading the way — despite no prospect of rising interest rates that might goose their profits.
“Investors have seemed to put the Brexit trauma behind them,” says our trend following guru Michael Covel. “It’s clear that market sentiment has improved.”
Meanwhile, Tesla Motors, spotlighted here last week after a run of bad luck, is up 4% on nothing other than the following tweet from CEO Elon Musk…
Somehow, we doubt David Stockman at Bubble Finance Trader or Rick Pearson at Catalyst Trader are rethinking their put options on TSLA.
The safe-haven plays of the last 2½ weeks since the “Brexit” vote are in retreat, but not by much. A 10-year Treasury note yields 1.42%. An ounce of gold fetches $1,357.
As if pension funds weren’t suffering already, the Brexit aftermath is making matters worse.
“A post-Brexit scramble for safer bonds pulled yields lower and upended global markets just as many public pension funds wrapped up their fiscal year on June 30,” says this morning’s Wall Street Journal, “eating into any annual gains and widening already-large deficits.” Many plans are set to report their worst numbers since the Panic of 2008.
Sounds like a good time to repeat the warning our income specialist Zach Scheidt shared here a month ago: “If pensions run out of money, taxpayers foot the bill. You may not have a teacher retirement program, a state employee pension or some other U.S. pension plan to collect from. But if these pensions run out of money, you can bet that you’ll be the one paying for it in the form of taxes.”
Back to legal marijuana (we hadn’t forgotten about it), and a milestone: People in Washington state have consumed more than $1 billion of weed since recreational pot became legal there two years ago.
“So far, the great destruction of our society has not occurred,” writes Jake Ellison at the Seattle Post-Intelligencer, “or if it is ongoing, it’s slow and sneaky. What has happened, however, is that more than $250 million has been generated in excise tax to the state.”
Note well: Recreational pot is on the ballot this fall in California — home to one in eight Americans.
But before that, we have every expectation the federal government will set off an earthquake — reversing nearly 50 years of pot policy. And our Ray Blanco has identified the two plays the thinks will benefit most. If you haven’t seen him make the case, you should check it out before the feds make their move — perhaps only three weeks from now.
“You guys,” a reader wrote on Friday as the major U.S. stock indexes were racing higher, “have been fighting the uptrend since the 2009 lows. What else is new?”
The 5: Well, since we have many new readers to welcome today… perhaps we should explain a little about where we’re coming from.
Agora Financial founder Addison Wiggin launched this daily e-letter in April 2007. The earliest throes of the financial crisis were already underway, HSBC having “written down” securities backed by subprime mortgages in February.
By that time, Addison had established his bona fides as a member of what Time magazine cheekily called “The Armageddon Gang.” He’d written two books with Bill Bonner — Financial Reckoning Day and Empire of Debt — plus one of his own, The Demise of the Dollar.
During the teeth of the crisis in 2008, some of our readers were collecting gains of 462% in a matter of weeks, based on our team’s analysis.
But we’re nimble enough not to be one-trick ponies. One of the most powerful themes we tracked here in The 5 over the years was something we called “a Tale of Two Americas.” Addison described it thus on Jan. 24, 2012 — “the contrast between the overwhelming rot penetrating governments and the financial system on the one hand… and the staggering entrepreneurial potential that can overcome the rot on the other.”
That is, none of the problems that led to the Panic of 2008 had been fixed. But the innovation going on in America’s biotech labs, in Silicon Valley, in the shale energy patch, was undeniable. You couldn’t afford to pass up the opportunities. Our editors guided readers to gains of 266% on a firm with a treatment for ovarian cancer… 225% playing options on a shale oil producer… even a clean 1,000% playing Tesla on the long side.
Now? Shale energy is on its heels. The thrill in Silicon Valley is limited to a handful of names. You’ll go broke in a hurry using the “dartboard” approach to biotech.
Yes, the S&P might set a record close today. The question is will it break out from here? The U.S. stock market’s been range-bound since the spring of 2014. Corporate profits peaked two years ago. The Federal Reserve keeps threatening to raise interest rates but then has to pull back when the economic numbers aren’t up to snuff.
These are dicey times — with stocks near all-time highs, bond yields near all-time lows and gold at its highest in two years. Something’s gotta give.
One more thing: Our editors will have points of disagreement. We don’t enforce an orthodoxy around here that everyone must stick to.
We instead demand our editors give us their best research backed up by the best evidence. Their conclusions won’t always square up with each other. As just one example, Zach Scheidt is more sanguine on the state of the U.S. consumer than David Stockman.
As we welcome the research team from Wall Street Daily into the fold, led by small-cap guru Louis Basenese, the cacophony might only grow!
But we’re OK with that; we place a greater value on authenticity than dogma. If you’ve been reading us for a while, you already know that. If you’re just joining us today, we hope you find our approach refreshing… rewarding… and, most of all, profitable.
The 5 Min. Forecast
P.S. “Jim,” a reader addresses Jim Rickards, “it has been a long ‘dry spell’ since we received your first gold stock buy recommendations. Are you and Byron ever going to come back to us with more recommendations — before gold reaches $5,000–10,000 an ounce?”
As it happens, Jim and Byron have a new pick coming this Thursday. Current readers of Rickards’ Gold Speculator, watch your inbox. And if you’re not a current reader, Jim is going out of his way to make it worth your while to join up.