Is This the End?

Posted On Nov 22, 2016 By Dave Gonigam

  • Will Trump crack down on states that legalize marijuana?
  • A company that’s booked $10 million in sales despite a federal raid
  • The third political shock of 2016: What’s next after Brexit and Trump?
  • Trumpflation hits the housing market… a corny lesson for employers… third-party voters spoil for a fight with The 5 (!)… and more!

“Especially under the new attorney general, what is to keep the Feds from seizing marijuana plantations and processing facilities?” a reader writes. “Even in states where they have been legalized? After all, such things are still illegal under federal law.”

That’s a fair question in light of our enthusiasm for “penny pot stocks” around here. It’d be quite the buzzkill if the feds sent a squad of jackbooted thugs to kick down the doors of a weed business operating within the parameters of state law, right?

While voters in eight more states approved ballot measures easing cannabis laws this month… the president-elect’s choice for attorney general, Sen. Jeff Sessions, is an unreconstructed drug warrior. Only last spring he expressed nostalgia for the days of Nancy Reagan and “Just Say No.”

So we’ll take the reader’s question head-on this morning.

As a reminder, we were longtime skeptics of marijuana’s investment potential. We felt there were too many vested interests — police unions, private prison companies, the alcohol industry, Big Pharma — who had a stake in keeping pot illegal. It was only a few months ago that we detected a shift in the political winds and came around to the idea that it would be safe to invest in a handful of thoroughly vetted pot stocks.

Our conclusion: Those political winds are too strong for the prohibitionist forces in a Trump administration to withstand.

For one thing, Team Trump’s most vociferous opponent of legal marijuana got muscled aside days after the election. When he was still running for president in the primaries, New Jersey Gov. Chris Christie really did talk about dispatching the feds to states where voters had legalized pot. “If you’re getting high in Colorado today, enjoy it,” he said. “As of January 2017, I will enforce the federal laws.”

But Christie was dumped as head of the transition team less than 72 hours after Trump delivered his victory speech.

Another thing: Even under Obama now, the feds take anything but a hands-off approach to cannabis businesses operating within the bounds of state law.

While many state laws have been easing up on marijuana, cities and counties within those states haven’t always followed in lock step. Back in June, we documented how the feds joined up with local cops in Santa Rosa, California, to raid four business properties and homes.

Yesterday’s New York Times had a follow-up story on that raid, zeroing in on the case of a business called CannaCraft. “The officers broke down doors and, according to the company, seized around $500,000 in cash, 22 machines worth $3 million and $1.5 million worth of cannabis products.”

The DA chose not to press charges against founder Dennis Hunter… but lawmen have yet to return the goods they seized.

Even so, CannaCraft is still up and running and has booked $10 million in sales this year. Not bad…

Assuming Jeff Sessions is the next attorney general, here’s our marijuana forecast — or, maybe more accurately, our informed conjecture.

Sessions has only so much time and energy. He’ll have to pick his battles with the “blue states”… and he’s more likely to pick a fight over immigration than over marijuana.

“Sessions has opposed nearly every immigration bill that has come before the Senate the past two decades that has included a path to citizenship for immigrants in the country illegally,” says The Washington Post.

The Washington Times suggests one of his first priorities as attorney general would be to prosecute the “sanctuary cities” where local police don’t enforce federal immigration law. (Funny how quickly conservatives ditch their professed love for federalism when the states start doing things conservatives don’t like.)

Immigration was one of Trump’s signature issues. On the flip side, Trump’s on record as saying marijuana is an issue best decided at the state level.

Bottom line: We’ll be on alert for a renewed federal crackdown on weed under Trump… but we think it’s a low-probability event. Low enough that you can buy “penny pot stocks” with confidence — as long as you choose carefully from the hundreds available. Ray Blanco has whittled down nearly 400 names to just four that have the most potential to deliver maximum gains starting only weeks from now. Click here for access.

To the markets, where every major U.S. stock index is climbing higher into record territory. The Dow crested 19,000 this morning, before pulling back a bit. Small caps are looking strongest of all, the Russell 2000 up nearly half a percent.

The dollar firmed and gold weakened the moment the government released October existing-home sales — which are the strongest since February 2007. The dollar index is up to 101.2; gold’s been knocked back to $1,208. Treasury yields are easing a bit, the 10-year at 2.32%.

Talk about short-term noise: How long will home sales soar in light of now-soaring interest rates? We’ll share an illuminating email from a reader shortly…

After Brexit and Trump, here comes the next shock to the system.

“In both cases, the polls and pundits got it wrong,” Jim Rickards reminds us. “Elites expected the U.K. would remain in the EU (it voted to ‘leave’) and that Hillary Clinton would be president.

“Now comes another key vote with major market implications. On Dec. 4, Italy will vote on a package of constitutional reforms.”

We won’t numb you with the details; suffice it to say they’d concentrate more power in the central government relative to the provinces, and in the executive relative to the other branches of government. In other words, the usual power-elite playbook.

“The particular reforms are less important than the populist backlash against the proposal,” Jim goes on.

“If Italians vote ‘no’ in the referendum, Italian Prime Minister Matteo Renzi will resign and a new government will have to be formed after elections. This could lead to a period of political chaos, with implications for the EU and the euro.

“Right now polls show the ‘no’ vote ahead. Of course, polls were wrong about Brexit and the U.S. election, so they may be wrong again. But there is good reason to believe that ‘no’ will prevail.

“What is significant about Italian polls is not just that ‘no’ is in the lead, but also that the vote is trending toward ‘no.’ Such trends dominate any statistical margin of error in predicting outcomes.

“Even though elites may see this Italian result coming more clearly than Brexit and Trump, that does not mean they are prepared for the consequences. Get ready for another political shock and the market volatility that comes with it.”

Memo to employers: Be careful firing transport employees if they still have your goods in their possession.

B & T Livingston Trucking learned this the hard way when it fired a driver named Darren Walp via text message. “Pack your stuff ASAP and you can leave,” said the message — according to a police report.

At the time, Walp was hauling a load of corn through Nebraska. Police say he then opened the back doors of the truck and sped off — spilling nearly 1,000 bushels of corn across a quarter-mile stretch of Highway 8 near Odell.

Scene of the crime [Gage Co. Sheriff’s Office photo]

That was back in August. Police tracked down Walp last week and charged him with felony criminal mischief and depositing materials on a roadway or ditch.

“Your analysis of turnout and votes for president vs. marijuana is misleading,” a reader writes after yesterday’s episode. “It does not take into account all the turnout and votes for the other parties and write-ins.”

“What about the votes for the independent candidates?” says another. “On Ballotpedia — with the numbers a bit out of date — they show slightly fewer voters for Trump and Clinton in California, but also 582,000 for Johnson and Stein combined.

“You’re going a bit overboard; the gap between voters for president and voters on Prop 64 is probably less than 100,000. Not as much of an issue as you portray it.”

The 5: Sheesh, is everyone spoiling for a fight these days? Your favorite source of financial infotainment is not dissing third parties.

We thought we were being clear: “Either they voted third-party, or they left the presidential part of their ballots blank.” It’s still roughly 700,000 people who voted on Prop 64 but rejected the choice of Clinton or Trump.

For cryin’ out loud, we’re happy the third-party totals were so high this year. Combine that with the fact turnout nationwide was no better than 2012 and you have a powerful repudiation of the two-party system — and a less-than-ringing “mandate” for the winner.

“As someone who watches house prices closely,” a reader writes, “I have already noticed the effect of a quarter-percentage point increase in mortgage rates because of presumed Trumpflation.”

We’ll interrupt the reader long enough to share a chart showing it’s even more than that…

“Prices are starting to drop,” our reader goes on. “They have to because they are so high now that a measly 1/4 point pushes some people out of a mortgage. If a person needs to sell their home, they are going to have to drop the price to get those buyers back in the mortgage game. So for now, the first snowflake on housing has fallen. The question is will it turn into an avalanche?

“Typically, when rates start rising, people on the sidelines start panicking and try to jump before they rise further. I don’t see that happening. Not even with refis, so that is certainly not a good sign for housing.

“Deflation, on the other hand, also is bad for housing, as people don’t buy because they expect prices to continue to fall. This too could be the snowflake that crashes housing a second time, as sellers that need to sell end up in a price-cutting war. One only needs to save a few dozen homes in Zillow or Realtor.com as favorites to see the price trend. All through the first half of 2016 and prior, I received daily updates of price increases. Never any decreases. Now I only get notices of price reductions.

“One more thing no one seems to be paying any attention to with regard to housing and properties in general. The stronger dollar has made U.S. real estate significantly more expensive for foreign buyers. Especially for those from China and the EU. Who is going to buy the stupidly overpriced 3/2 shacks here in California or the Chinese?

“Now is probably a really bad time to be an investor in any REITs. I think I’ll just sit back and watch as housing bleeds out regardless of inflation or deflation.”

“FYI,” a reader writes with another follow-up from yesterday, “mismanagement of Afghan funds pales compared with the $6.5 trillion in Pentagon spending that can’t be accounted for.

“The big media outlets failed to mention that while they were reporting morning, noon and night on the vitally important Ryan Lochte story.”

The 5: Not us. We had it on Aug. 15. Defense Finance and Accounting Services couldn’t track down the documentation for $6.5 trillion in “year-end adjustments to Army general fund transactions and data.”

We also had the context: We surmised that figure went back to 1996, when Congress set the first of many blown deadlines for the Pentagon to be audit-ready. Include all branches of the service, and the total was $8.5 trillion as of late 2013.

The most recently set deadline is Sept. 30, 2017. But because Congress attached no “or else” consequences to that deadline, there’s no reason to believe this one will be met, either…

Best regards,

Dave Gonigam
The 5 Min. Forecast

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