The stock market may be failing, yet these are booming What you could be doing right now amidst the market turmoil $1.4 million…right into the shredder
By Selva Freigedo in Albert Park US stocks are in a rout. The Dow and the NASDAQ are both down around 4% since this time last week. Their fall has pushed down world stock markets, and this includes Canada. The S&P Toronto Stock Exchange is also down almost 3% since last week. Yet among all the red, there are still some green shoots. I am talking about cannabis stocks. These were mostly unaffected by the stock market’s collapse. On the contrary, some of the largest cannabis companies even saw large gains. Canopy Growth Corp [TSE:WEED] is up 16.8% since this time last week, Aurora Cannabis [TSE:ACB] increased by 13% and Aphria Inc [TSE:APH] saw their stock grow by about 14%. They are all on a high as Canada is looking to start their marijuana sales tomorrow. Canada is the second country in the world to legalise cannabis. The first was the small country of Uruguay, which started marijuana sales back in July 2017. Today, there are three ways Uruguayans can access cannabis. They can either grow it themselves, join a club or buy it at a pharmacy. A year on, how has the ‘experiment’ worked for the small South American country so far? ..............................Advertisement..............................
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It is still too early to tell, yet Uruguay has definitely seen some challenges. The biggest one has come from the banking industry. In particular, the US banking industry. You see, many Uruguayan banks route their transactions through US banks, which means Uruguayan banks can get sanctioned — and pharmacies may see their bank accounts closed — because of the US Patriot’s act. As Brookings explained in the report ‘Uruguay’s Cannabis Law: Pioneering a New Paradigm’: ‘These large American banks, which have shied away from serving even U.S. domestic markets with recreational or medical cannabis, cited the USA PATRIOT Act as a basis for their claim and demand to shutter the accounts. Under Section 320 of the law, banks cannot serve accounts that commit an offense that “involves the manufacture, importation, sale, or distribution of a controlled substance (as that term is defined for purposes of the Controlled Substances Act)...” and that includes cannabis. ‘While some argued that the operations within Uruguay and serviced by Uruguayan banks should be outside the reach of that law, they are not. Section 319 of the USA PATRIOT Act extends the reach of the law to foreign (non-U.S.) banks with “an interbank account in the United States with a covered financial institution.”’ While medical marijuana is legal in 30 states and recreational in nine states, under federal law it is still classified as a Schedule 1 drug, along with heroin and LSD. US laws have affected legalisation in Uruguay. With Canada following on their steps, they could run into similar problems. Yet Canada is not a small, far away country legalising, but US’s large neighbour. And the fact that Canada is joining the cannabis recreational club, and that even more US states are looking at the issue of legalisation in the coming midterm election, could mean we start to see some changes when it comes to marijuana. As Brookings continued: ‘Canadian Prime Minister Justin Trudeau sees cannabis legalization as a positive part of his agenda, and he could encourage Canadian financial institutions to work with Uruguay as a signal of support both for an ally and for a common area of groundbreaking policy reform. What’s more, Canadian financial institutions’ willingness to work with Uruguay would raise the same hypothetical legal concerns among American financial regulators that Canada’s own system of cannabis banking would raise. ‘So long as they had interbank accounts in the United States, Canadian banks working with Canadian cannabis companies would fall under the same American legal jurisdiction as Canadian banks working with both Canadian and Uruguayan cannabis companies. ‘However, it is less likely that American banks would threaten large Canadian banks or follow through on those threats. This situation may provide Uruguay with its most promising opportunity to grant its cannabis-related businesses access to stable, safe banking.’ Which could pave the way for more countries to legalise. We are already seeing some signs of change. Back in July, one of the largest US senate committees said that having marijuana classified as a Schedule I drug limited the amount of scientific research that could be conducted. As they wrote: ‘At a time when we need as much information as possible about these drugs, we should be lowering regulatory and other barriers to conducting this research.’ As we wrote before, legalising marijuana could help with the opioid epidemic. And last week, Canopy Growth completed the first legal export of cannabis into the US for medical research. Let me repeat that, they legally exported into the US a drug that is illegal at the federal level. There is no doubt that things are changing. The world is watching Canada...and we could see even more countries legalising cannabis. That’s why there has never been a better time to invest in it. We saw some spectacular gains last week from the cannabis sector. And there could be even more to come. Yet, according to research from our own Sam Volkering, only a small group of cannabis firms will see the bulk of the gains. To read why, click here. Best, Selva Freigedo, Editor, Markets & Money ..............................Advertisement..............................
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What You Could be Doing Right Now amidst the Market Turmoil By Terence Duffy in Melbourne, Australia The stock market saw a sharp move down last week. And it brought out all the bears, with their sweeping statements. The analysts put the sharp down move to fears over rising rates. But the data last week brought in weaker than expected inflation figures. That won’t stoke the fire on rates at least. I think it’s too early to start making sweeping statements about the US economy. US manufacturing, as measured by the Institute for Supply Management, shows US industry is still expanding. In fact, it’s more than just expanding, it’s around 14-year highs. I’m not pushing a barrow with this. When it comes to markets, it’s prudent to lock in gains and take your stop losses during a market correction. I have opinions about where the market may go from here, but I don’t trade them. I move with the market. During a stock market correction, it’s easy to let profits turn into a loss. In the back of the mind, there’s this feeling that if I get out, the stock might bounce back. Well, if that happens, just get back in. Your stops might have been taken in the recent correction. But it’s okay to lock in profit, or take partial gains. It prudent to exercise some caution at such times. We trade markets in real time. It’s not so easy. And taking your stops is what keeps you safe in the market. But do remember, markets correct from time to time to consolidate prior gains. It’s normal market behaviour. And a correction like this, is a time to be watching the market. Look for some direction in the charts. And focusing on the charts rather than the news, will give you the truth of the situation. As I’ve said all year, to get a better perspective of where markets are right now, bring up a relevant monthly chart. You could bring up the monthly chart of the Nasdaq Composite for example. It just gives you the broader picture. And you’ll find, it’s not breaking prior support or trading anywhere near the moving average. Yes, exercise some caution. We are getting to the late stages of this bull run. But I don’t believe it’s the time for panic or sweeping statements, which these corrections bring out. When the stock market is in a correction phase like this, it can be scary. But here’s what you could be doing right now. This is the ideal time to build up the watch list. And observe which stocks are holding up the best, amongst all the selling. Do a relative strength test. That is, compare the share price of a particular stock over the last month, to the relevant index. See how an Aussie stock compares to the XJO over the past month. Or how a US a stock is tracking compared to the S&P 500 index for instance. Or, how a US tech stock is travelling the last month compared to the Nasdaq Composite index. This is exactly what I’m doing at the moment anyway. It’s a wonderful time to build up the watch list. So if markets do go higher, then you’re going to be ready. We’ve seen, this last week, that markets can turn sharply. And that works to the upside as well. Markets can move quickly up. You might have been stopped out on some positions during this correction. But this is not the time to be taking your eyes off the ball. Keep focused on the market and continue to build up the watch list. Despite all the experts talking about a market crash, markets could still go higher from here. So build up the watch list, then watch the market for some evidence that it has reconfirmed it’s uptrend, in the weeks ahead. The market had an up day on Friday, but one day tells you little. Watch for the major indices to hold a level for a week or so, then for a big move up on volume. But that’s not enough to say the market is looking beyond recent concerns. Watch further for the market to bring in a higher low after that. If it does that, then the market is telling you that it’s likely to be going higher in the short term at least. And it can make for some good entries. Getting in on the start of the move should it eventuate. And this is a key factor. When you get your buying right, you untangle yourself from many of those tricky holding or selling decisions. But here’s the thing. Buying stocks when everyone is telling you the market is going to crash, is psychologically hard to do. Which is why I say the market is more than just charts and trend lines. You have to get past your own psychology and mindset first. Always go with the charts, to what they’re telling you. Forget about all the analysts with their indicators flashing red. Or, the bears calling a market crash. And be ready to act with a strategy whichever way the market turns. If you want to know a little more about how you can use the charts to improve your trading decisions, then go here. Terence Duffy, Chartist, Phil Anderson’s Time Trader ..............................Advertisement..............................
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$1.4 Million…Right into the Shredder By Bill Bonner in Hamilton, Bermuda ‘Where the remote Bermudas ride In th’ ocean’s bosom unespy’d, From a small boat, that row’d along, The list’ning winds receiv’d this song. ‘What should we do but sing his praise That led us through the wat’ry maze Unto an isle so long unknown, And yet far kinder than our own? […] ‘Thus sung they in the English boat An holy and a cheerful note, And all the way, to guide their chime, With falling oars they kept the time.’ ‘Bermudas’, Andrew Marvell The English came here by accident, shipwrecked in the 17th century. We came on purpose…to attend an investment conference. More on that as the week moves along. In the meantime… Weak bounce Friday’s bounce in US stocks proved disappointing. The market opened with a flood of orders…and sold off the rest of the day. The old-timers would say it felt like a bear market. After such a big drop on Wednesday and Thursday (Wednesday’s fall was the third-steepest one-day drop of the year), a bounce was almost inevitable. But a weak bounce, they say, indicates a lack of conviction and usually presages more selling. So what do we have here? A bear market in bonds seems to have begun in July 2016. It was then that the yield on the 10-year note hit a low of 1.37%. Since then, yields are up. Bond prices are down. Is it now time for equities, too? From the Financial Times: ‘…with headwinds growing in the US and risks spreading globally, the record-breaking nine-year bull market is surely entering its twilight period.’ But for illumination and entertainment, let us turn away from the stock market. Instead, we’ll look at the art market. Something remarkable happened at a Sotheby’s auction earlier this month. There, too, some dubious values were shredded — literally. Anonymous provocateur In the art world, as in the world of cryptocurrencies, an anonymous provocateur has made a lot of people rich. ‘Satoshi’ gave the world bitcoin. ‘Banksy’ gave the world his distinctive form of vandalism. Banksy, whoever he is, began making his mark — a playful, clever parody of art and politics — in Bristol, England in the 1990s. He stencilled simple images in black on the side of public buildings. In 2000 or so, we noticed the damage in London, where he continued his trade. His fame grew, and a lively commerce in his works developed. They were very easily reproduced. But, just as Satoshi created a limit on bitcoin, Banksy invented a way to limit the supply of his art. He created an agency — called Pest Control — to certify, by no means reliably, when the work was authentic. A prankster and polished ironicist, he fed the art market’s desire to feel trendy and self-referential. When the money goes, everything goes…and anything goes. Money is supposed to stand in for real resources — especially time. When fake money takes over, you don’t know what anything is worth. And when the real return on the money you save is zero — or less — almost anything might be a good alternative. So if sane investors could buy bonds at negative interest rates — implying that they were willing to wait until hell freezes over to make any money — why shouldn’t compos mentis art lovers spend fake money on fake art? Banksy mocked the silliness of it in 2014, when Sotheby’s auctioned off a gilded frame alleged to be by the artist himself. In it, he had stencilled, ‘I can’t believe you morons actually buy this sh*t.’ Rotating out The same might be said for hundreds of stocks and bonds — especially those in the tech sector. As in the dot-com bubble of 1999, many of these stocks are selling far beyond any reasonable expectation of compensatory earnings. Like squirrelly works of art, people just buy them because it makes them feel cool…and they think they might go up in value. And the odds were good. The Fed is still lending at or near the rate of consumer price inflation…and the European Central Bank and the Bank of Japan are still offering money at negative nominal rates. With so much free money gushing into lightweight art and hollow stocks…what else could they do but float? But eventually, the joke isn’t funny anymore — not when the fake money disappears. On Friday, commentators talked about money ‘rotating from stocks to bonds’…as if it were just crossing the street. But fake money doesn’t just move next door. It leaves town…and never comes back. A guy buys a share for $50 one day. The next day, he can’t find anyone willing to take it for more than $40. The $10 difference didn’t rotate anywhere. It vanished. And so, too, a whole market can be pumped up with fake money…and then deflated, like a punctured tire. The money never existed, except as electronic air. Then, when enough people touch the ‘sell’ key…it’s gone. Love is in the bin That seems to be what Banksy was trying to say, in his own mischievous way, recently. Sotheby’s put one of his works on auction — a reproduction of his famous Girl With Balloon stencil — in a suspiciously heavy frame. At auction, it was sold for $1.4 million. But when the hammer came down, an alarm went off and a shredder that had been built into the frame was activated. As the crowd gasped, the ‘art’ was cut to pieces. We don’t know how the buyer felt about this. Sotheby’s — the market maker — must have immediately called its insurers. Now in shreds, was it worth anything at all? But the buyer wouldn’t have bid for it at all if she had no desire to be in on the joke. And in the ensuing media limelight, the prestige and status value of the work may have actually gone up. The ‘Banksy’ in question was a knock-off by an anonymous artist of a rendering by another (perhaps the same?) anonymous jester. Who knows? The new owner took it in good grace when the artist renamed it Love Is in the Bin. Now, the piece is internationally known…with a provenance recorded on video. For the first time ever, a mystery artist, remotely controlling a paper shredder, produced an original work right in front of the eyes of the startled crowd. The buyer might have gotten a good bargain after all. Maybe the result is worth even more than she paid for it. But we doubt investors will do so well. They won’t feel so cool when they lose money. And once shredded by the bear market, their stocks and bonds won’t be worth a damn. Regards, Bill Bonner ..............................Advertisement..............................
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From the Archives... Inflation Watch: Rate Hike Looming? By Selva Freigedo | October 15, 2018 The Spanish Digital Currency Wars By Selva Freigedo | October 12, 2018 House Prices Continuing To Fall As Foreign Investment Declines By Selva Freigedo | October 11, 2018 Where To Invest Right Now: Crypto or Cannabis? By Selva Freigedo | October 10, 2018 How the ‘Trump of the Tropics’ is about to Shake up Global Politics By Selva Freigedo | October 9, 2018 |