The “Pot Com” Boom

Posted On Jan 16, 2019 By Dave Gonigam

  • Trump’s AG pick gives a huge green light to legal pot
  • Ray Blanco on the coming — and needed — pot stock shakeout
  • The market clears earnings season’s first (biggest?) hurdle
  • A chart that blows away conventional wisdom about oil
  • The Pentagon is SO bloated and inefficient…
  • Reader asks, “What the hell happened to The 5?”

Wait a minute — the “Cole memo” is alive and well again?

A year ago, Attorney General Jeff Sessions made a big honkin’ deal out of rescinding the Cole memo. This document was drawn up in 2013 by an Obama Justice Department official. It declared that even though cannabis remains illegal on the federal level, the feds would take a mostly hands-off approach to the states that legalize and regulate the herb.

At the time, we figured Sessions’ move was all for show, not for go. A few months later, it was evident we were right. The feds had yet to pursue a single case against a pot business that was abiding by state law.

Enter Sessions’ prospective replacement, William Barr.

Barr’s Senate confirmation hearings got underway yesterday in Washington. Most of the babble surrounded the oh-so-hyped Mueller investigation and whether Barr would interfere with it. (He said he wouldn’t.)

But there was just enough time to tackle the cannabis question. He said while he disagrees with state legalization measures, “I’m not going to go after companies that have relied on the Cole memorandum.”

Say what?

“My approach to this would be not to upset settled expectations and the reliance interests that have arisen as a result of the Cole memoranda,” he went on. “Investments have been made, so I don’t think it’s appropriate to upset those interests.”

Given Barr’s considerable law-and-order cred, that’s a remarkable statement.

As you might be aware, this wouldn’t be Barr’s first stint as attorney general. He held the post for about 18 months at the end of Bush 41’s term in the early ’90s.

And he was a hardcore tough-on-crime guy. While in office, he issued a white paper with the title The Case for More Incarceration. The fact the United States imprisons a bigger percentage of its population than any other country on the planet? He had a thing or two to do with that.

But Barr sees the same reality Sessions saw: The feds don’t have nearly enough resources to pursue penny-ante pot cases. Sessions acknowledged this reality when he said in 2017, “We’re not able to go into a state and pick up the work that the police and sheriffs have been doing for decades.”

Barr also knows how to do political math, we imagine, Republicans hold a 53-47 majority in the new Senate. If four Republicans peel off, it’s over for Barr. Colorado’s Cory Gardner — representing one of the states that was first to legalize recreational pot — says a tough-on-pot stance would be a deal breaker.

That sound you hear in the distance? It’s the owners of cannabusinesses breathing that proverbial sigh of relief.

Meanwhile, a wicked shakeout is about to happen in the pot stock space… and our pot stock authority Ray Blanco says that’s a good thing.

“In the past few years,” Ray explains, “cannabis has been a relatively hot area. Any company that launched in late 2016 and said that they were going to grow legal weed found no shortage of funding — whether or not their business plan was real or practical.

“Now in 2019, the irony is that the businesses are probably more real than ever (thanks to the regulatory doors opening around the world), but capital is more scarce thanks to a market that’s got investors spooked.

“Odds are we’ll see some of the pot stocks with flimsier financials fail this year. And that’s a healthy thing for the industry.”

Healthy? Hang with us here…

In this sense, you can think of the cannabis boom as a mini-version of the dot-com boom 20 years ago. Again, this is a good thing.

So says Peter Boockvar, chief investment officer at Bleakley Advisory Group. He’s one of our favorite “mainstream” financial pundits. For years he’s been telling anyone who will listen that stocks and other assets have been inflated by the manipulations of central bankers. Despite this heresy from the cult of modern finance, CNBC still gives him a regular platform — heh.

When it comes to pot stocks, “Yes, valuations have disconnected,” he said this week during the excellent Hidden Forces podcast hosted by our acquaintance Demetri Kofinas.

“But they disconnected in the late 1990s as well when it came to the internet. There wasn’t anybody questioning the internet, the technology and whether it was going to explode in size and breadth. It was a question of: Can these companies make money servicing that industry and survive?

“So a lot of the [pot] companies today are servicing a wildly fast-growing industry where there’s legitimate demand, and a lot of these are legitimate businesses but have valuations trading on hope in terms of how big these companies can get.”

It never made sense to buy pot stocks randomly. But here in early 2019, the “dartboard” approach is positively dangerous. At the same time, being extra choosy can still reap huge rewards.

Ray likes Boockvar’s analogy to the dot-com era: “It’s normal to see leaders take the reins as an industry matures,” he says. “Amazon.com survived the dot-com bubble — Pets.com (and scores more) didn’t.”

Who will emerge from the coming shakeout even stronger? It so happens Ray’s put together a shopping list. All it takes is $50 for an entry-level subscription and $50 to invest, and you can get started — as he shows you right here.

On day two of earnings season, the major U.S. stock indexes are set to notch another day of gains.

They’re all in the green, with the Dow up strongest — about a half-percent at 24,182. Two more big banks reported earnings before the opening bell. Traders like the numbers from Bank of America and even more from Goldman Sachs. At last check BAC is up more than 7% and GS nearly 8%.

Even the negative reaction to JPMorgan Chase’s earnings miss yesterday didn’t last long. Checking our screens, JPM trades at $102.75 — up meaningfully from the $100.92 at Monday’s close.

As we said Monday… as financial stocks go, so goes the rest of the market. Not always, but often enough. The market just dodged a bullet, likely clearing the way for a smooth ride the next six weeks. (Shutdown? What shutdown?)

Gold might be poised to make another run at $1,300, with the bid up to $1,294. The currency markets have had some excitement the last 24 hours with the failure of the latest “Brexit” vote in Great Britain. The pound is trading at $1.286 — which is actually higher than at this time a month ago.

Go figure — the conventional explanation for oil’s big price drop late last year was wrong.

West Texas Intermediate trades at $52.03 this morning — up big from the lows three weeks ago but still down by nearly a third from the peak at $76 in early October.

Conventional wisdom explains it like this: Donald Trump walked away from the Iran nuclear deal in May, promising to impose sanctions on Iranian oil exports in November. But just before November came, he issued waivers on those sanctions for all the major buyers of Iranian oil, including the biggest one — China. All that Iranian oil that was supposed to come off the market? It stayed on the market.

Yeah, not according to this chart…

chart

Iran’s oil exports are down 60% from when Trump first made his announcement.

So then why did oil prices drop so dramatically in the fourth quarter of last year?

Credit goes to those ever-innovative U.S. shale producers, theorizes the Financial Times: “The industry demonstrated in 2018 that it had an outstanding capacity for expansion when supported by higher prices.”

True. And while the salmon-colored rag didn’t say so… it’s not the first time. When oil made its much more dramatic drop in 2014–15 from $110 a barrel, conventional wisdom said it was curtains for the shale producers.

Yes, there was a vicious shakeout… but the shale players kept innovating, developing new technology — and figuring out how to make a profit at substantially lower prices. Seems to be happening again.

Hmmm… Those waivers on Iranian oil purchases expire at the end of April. If oil prices stay in the low $50s, they probably won’t be extended…

Your government in action: The Pentagon is so bloated and inefficient… it can’t even spend all the money Congress gives it.

Or so we learned after the first-ever comprehensive audit of the Pentagon.

The feds assigned 1,200 auditors to the task, evaluating everything from weapons systems to personnel to property — and couldn’t figure out which end was up. In November, the auditors declared the Defense Department failed the audit; the discrepancies could take years to resolve.

Now, after reviewing the auditors’ report, the Pentagon’s inspector general has discovered the agency passed up the opportunity to spend $28 billion over the last five years.

See, the way Washington budgeting works is like this: If an agency doesn’t spend all the money allocated by Congress within a certain time frame, it can’t be spent once that time frame expires.

That’s why you sometimes see headlines about a last-minute spending spree by one federal agency or another. Use it or lose it.

But the Pentagon can’t even pull that off.

Bloomberg had a long story about this a few days ago. Missing was anything that said what happens to this money when it doesn’t get spent. Is it returned to the Treasury? Does it offset the budget deficit, if only a little?

Because we know it doesn’t get returned to taxpayers…

“What the hell happened to The 5 Min. Forecast?” a reader inquires.

“It used to be useful snippets of trading/finance/current issues. Now it’s yet another of your endless and repetitive promo emails. Is your marketing department ‘on something’? They appear to have lost all touch with reality.

“Give it a break. Either send useful content in a respectful ratio to sales material or just don’t bother. I’ll just be unsubscribing from more and more of your emails (and paid-for services). Sad. You used to be good.”

“I know you have said you need to promote to make money,”another writes, “but on a typical day, I get about 40 emails from you or associated organizations. This is getting truly ridiculous.

“I have always received promotions from you, but it has really multiplied the last year or more. I am sure I am not the only one being overwhelmed.

“I double dog dare you to publish this letter, although the contents won’t be a surprise to your readers.”

The 5: I’ll respond as soon as I can get my tongue unstuck from this telephone pole.

Seriously, though, we’re keenly aware of the issue. I promise you we’re not doing it on purpose. Believe it or not, it just sort of “happened.”

Without getting too deep in the back-office weeds… Agora Financial’s considerable expansion in the last two years resulted in a profusion of new e-letters in addition to our old standbys like this one.

Often as not, we’d “sweep” existing readers onto these new e-letters, as a free reader benefit. But with each e-letter comes the usual complement of promotional emails. Yes, some of those promotional “sends” wind up being identical to the ones you get from another e-letter.

And if you wind up responding to one of those promos, subscribing to a paid publication that comes with still another e-letter as a free bonus, one you’d not gotten before, well, that’s still more promos in your inbox!

Rest assured we’re having many discussions about this topic. It came up only yesterday as I spoke with our executive director, Joe Schriefer. If we had an organizational chart, which we don’t, Joe would be No. 2 right under our fearless leader,Addison Wiggin. So it’s on the radar at the highest levels of the company.

Sorry if I don’t have a satisfactory answer for you, at least not today. But I didn’t want to blow you off, either…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. The headlines are coming rapid-fire. On Google News just today I’ve found…

“4 Medical Marijuana Stores Open in Ohio”

Dayton Daily News

“Cuomo Unveils Plan to Legalize Recreational Marijuana Use”

— Albany, New York,Times Union

“Legal Sales of Medical Marijuana to Start Wednesday on Big Isle”

Honolulu Star-Advertiser

And Ray Blanco — we don’t call him America’s No. 1 Pot Stock Expert for nothing — says the time to pounce on the right names is within the next three weeks. Check out his up-to-the-minute research at this link.


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