Countdown To the Bud Bonanza

Posted On Oct 27, 2016 By Dave Gonigam

  • From $7 billion to $22 billion in four years… and it starts in 12 days
  • A dramatic shift in public opinion that spotlights the next profit bonanza
  • Deutsche Bank turned a profit? Hold on…
  • Another signal for the infrastructure spending spree of 2017
  • China, the dollar and a “double peg”… a happy Rickards reader… a not-so-happy subscriber to our newest trading service… and more!

“This is the vote heard round the world,” Troy Dayton tells The New York Times.

No, he’s not talking about the stupid presidential vote, and thank goodness for that. Today we don’t have to write about it, and you don’t have to read about it.

Instead, we’re talking about the ballot measures in nine states either establishing or expanding legal marijuana. The biggest is a referendum legalizing recreational weed in California — which as the Times helpfully points out “has an economy the size of a large industrial country’s”.

“What we’ve seen before,” says Mr. Dayton, “has been tiny compared to what we are going to see in California.”

Dayton runs Arcview Group — which hooks up cannabis companies with deep-pocket private investors. His firm is admittedly biased, but its research projects that if the California measure passes… the market for legal marijuana will more than triple in the next four years, from $7 billion a year to $22 billion.

Six years ago, California voters sent legalized recreational pot down to defeat — a solid 53.5% majority voting “no.” This year, the likely result is passage by a 3-2 margin.

Ballotpedia has crunched the numbers from eight polls. The average shows “yes” in the lead with 59.2% support. Not one of those polls was even close. Put that in your pipe and smoke it. (Not that we advocate any illegal activity around here, heh…)

On Monday, we showed a graph of how nationwide opinion on legal marijuana has completely flipped in just the last 10 years. That came from Pew Research.

Additional data out yesterday from the Public Religion Research Institute find the public was evenly divided only two years ago… while the numbers now lean 63-36 in favor of legalization.

Again, there’s some sort of marijuana measure on the ballot in nine states. Jacob Sullum at Reason summarizes: “A look at the latest initiative-specific polling suggests that marijuana will be legalized for recreational use in California, Maine and Massachusetts, while Florida will become the first Southern state to recognize marijuana as a medicine.

“General legalization looks iffier in Arizona and Nevada, while medical marijuana initiatives seem headed for defeat in Arkansas and Montana. A lack of recent polling makes the outcome in North Dakota harder to predict.”

“If even just half of those states vote the way we expect them to, early investors could still have a lot to gain,” said Ray Blanco in this space on Monday.

“Buy the right companies now, before the election, and you stand to make six figures or more.”

He’s not exaggerating. Marijuana referenda can change the fortunes of little-known companies… and make their investors a fortune of their own. And it doesn’t even take an election: Colorado passed its recreational-pot referendum in November 2012. It took effect in January 2014. Immediately, a host of tiny stocks began to shoot up — like Abattis Bioceuticals Corp., up 9,108% in three months.

But for maximum potential gains, Ray suggests you not wait. The California vote is, to use that overused phrase, a game-changer. “If we’re successful, it’s the beginning of the end of the war on marijuana,” says former San Francisco Mayor and current California Lt. Gov. Gavin Newsom. “If California moves, it will put more pressure on Mexico and Latin America writ large to reignite a debate on legalization there.”

Ray has vetted dozens of companies to identify the ones with the most explosive potential. You can explore the fruits of his research at this link. As before, there’s no long video to watch.

It’s a “meh” day in the markets. None of the major U.S. stock indexes has moved more than a quarter percent; the Dow rests just below 18,200. Gold has added a couple of bucks, the bid now $1,269.

The action, such as it is, is in bonds. The yield on a 10-year Treasury note is up to 1.85% — a five-month high.

The lone economic number of note is durable goods orders — down 0.1% in September, but the August number was revised up.

Traders’ attention is again focused mostly on earnings: Tesla Motors turned a profit, while the Street was expecting another loss. The struggling Twitter delivered a “beat” and pleased the Street even more by announcing it would slash 9% of its workforce. Alas, the economic bellwether UPS could only meet analyst estimates, not beat them.

And then there’s the surprise profit at Deutsche Bank — Germany’s giant dead bank walking. Alas, there’s less than meets the eye.

The surface story: DB turned in a third-quarter profit of $303.1 million; analysts were expecting a loss more than twice that size.

The rest of the story, courtesy of our senior macro analyst Dan Amoss: “Operating costs, adjusted for legal reserves, are not shrinking fast enough to calm investor fears. Adjusted operating costs of 5.9 billion euros in the third quarter are still enormous, and prevent the bank from earning a decent profit.

“DB has already laid off an army of employees over the past decade and still can’t make much of a dent in its cost structure.”

The helicopters are whirring a little more loudly this morning — even compared with our last foray into “helicopter money” on Tuesday.

For months, Jim Rickards has been expecting a big spending package in the next president’s first 100 days — probably to fund “infrastructure” like highways and sewer lines. Tuesday, we described bipartisan support for such a notion — funded by corporate income-tax reform that would give big companies the incentive to bring home profits currently parked overseas, away from the tax man.

Now comes a front-page Wall Street Journal story informing us that state and local governments have trimmed their public-works spending by 11% since the middle of last year. Little wonder since state tax revenue fell 2.1% year over year during the second quarter. “The recent drop reflected mixed stock market returns and slowing growth in sales tax collection and paycheck withholding,” says the Journal.

Stories like this don’t get media play unless there’s a move afoot in Washington to make certain things happen. The shape of “stimulus” 2017 style is becoming clear: infrastructure spending, funded by helicopter money, the helicopters fueled in part by a corporate tax holiday. As Jim is wont to say, the powers that be are bound and determined to get inflation one way or another…

“China will continue its slow but steady devaluation against the U.S. dollar,” says Jim Rickards — picking up where EverBank’s Chuck Butler left off yesterday.

Jim says the natural inclination of Chinese leaders is to devalue the renminbi to help their struggling economy. “However, China is mindful of possible disruption in U.S. markets, which actually occurred in August 2015 and January 2016, partly as a result of prior Chinese devaluations.”

The solution? “China has set up a ‘double peg.’ They consider a peg to the U.S. dollar and a separate peg to an index of 13 major trading partners called the China Foreign Exchange Trade System Index, or CFETS. As long as the dollar is weak, China will peg to the dollar. Once the dollar grows stronger, China switches the peg to CFETS and depreciates against the dollar.

“China uses this ‘double peg’ to claim they are not currency manipulations (since they are always ‘pegged’), but it’s fairly transparent that by switching pegs, China can devalue against the U.S. dollar when the dollar rises against the yen or euro.”

Jim expects that to continue for at least the next few months. Combined with the Federal Reserve raising interest rates in December, we’re in for a repeat of the 11% U.S. stock market correction that ended 2015 and began 2016. “Get ready,” he says, “for a replay of the December 2015 debacle.”

“I have been with Jim Rickards now since just before June,” a reader writes. “He had us alerted before the Brits left the EU — wasn’t absolutely sure, but let’s be prepared.

“I, for one, prepared and invested mostly in gold stocks and gold options — with only a small investment of around $10,500 — but when the time came, this investment went up over 600%. Not bad for a greenhorn.

“Only regret is that being such a greenhorn, I didn’t take off enough before the investments went back down to almost where they had started from. Still, I have 176% in approximately four months. Not too shabby, huh? Thank you, James!”

The 5: Jim sees the stars aligning for a similar profit opportunity ahead of the U.S. presidential election. He’s formulating a way to play it as we speak. Watch this space over the next 12 days…

“The war on cash will not be complete until inefficient government agencies are modernized,” a reader writes.

“Yesterday, I went to the Washington State Liquor and Cannabis Board (yes, that is what we call it in Washington) to get a liquor permit for a nonprofit banquet I am co-chairing. After filling out a two-page form, I was advised the fee was $64.

“They would only take cash or a check… no plastic cards. And they wrote out the receipt in a three-carbon copy book. Still in the dark ages.”

“Unlike your correspondent in yesterday’s 5, I did get my credit card out and signed up for the three-month trial of Vertical Trade Alert,” a reader writes.

“After the multiple sales pitches from Agora that encouraged me to sign up, repeated in substance in The 5, I expected to see excellent results to date disclosed. Imagine my surprise when I clicked on the portfolio tab to see eight closed positions, all losers. The open positions were somewhat better and might yet turn around.

“However, I’ve got to say that had these results been disclosed, or even hinted at, in the sales literature, I would not have signed up. Is it too cynical to suggest that’s why you didn’t disclose them? How can pitch this service and not disclose these results? What happened to full disclosure of all material facts? Or have I misinterpreted the information on the website?”

The 5: The losing trades come from a time when Michael Covel was still refining the system to identify these vertical trades. We’d not yet launched Vertical Trade Alert to the general public; those recommendations went out to a group of beta testers among our existing subscriber base. As time went by, Michael fine-tuned the strategy to weed out the losers and amp up the winners.

In other words, the losing trades don’t reflect the approach Michael now uses to make his recommendations. We like to get the bugs out of the system before launching a new service to the general public — especially one as unique as Vertical Trade Alert.

I suppose if we wanted to, we could have buried the beta-test results where you wouldn’t see them… but we feel that full disclosure is a better thing.

Thanks for your inquiry. We hope you profit soon from Michael’s fast-moving recommendations…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. When the window of opportunity opens, vertical trades are nearly unstoppable.

“It doesn’t matter,” says Michael Covel, “if the company has a lot of debt. It doesn’t matter if the stock is expensive. And it doesn’t matter if analysts have a sell rating on the company.

“It’s as simple as this: When this market anomaly hits a company, shares must go up.”

Just what is this anomaly? And how can you seize on it for big and fast gains? Michael explains, right here.


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