Will pot stocks go up in smoke?

Today, medical marijuana is legal in 33 states, while recreational marijuana is legal in ten states, plus the District of Columbia. Although there has been progress, little of the recent enthusiasm and hype over pot stocks will come to naught unless the Federal government does a major about face and legalizes the substance. What are the chances of that? Billions of dollars’ worth of investment, stock market gains, and federal, state, and local taxes are at stake. Predicting the outcome of such a change in Federal legislation is, for now, like betting all your chips on red or black in a roulette game. Nonetheless, a growing number of retail investors want to “get in” on pot stocks. The calls and emails I get today are reminiscent of two years ago. Back then it was all about Bitcoin or some other crypto currency. As Bitcoin climbed (from a few hundred dollars to $20,000), the interest and demand to “get in” was almost hysterical. As you might imagine, most of those calls were made as Bitcoin hit new highs. Fast-forward to today and, while no one has called about a cryptocurrency in over a year with Bitcoin now around $4,000, pot stocks are all the rage. And like Bitcoin, few callers know anything about the marijuana industry. “What do I need to know? “said one client (an ancient hippie like me). “You put it your mouth, inhale, and bingo. You are high.” But smoking it is a lot different than investing in it. There is now a bewildering array of investment vehicles (and more coming every day) that confronts the up...

Turmoil in Turkey

Turkey, a country that represents about 1% of the world’s gross domestic product, has suddenly become a cause of concern for investors worldwide. Both developed and emerging financial markets have plunged over the last week as that country’s currency plummeted. Fear that this tiny country’s problems could somehow spark a global financial contagion has everyone on edge. Those fears are unfounded. There will be no “contagion.” What is happening in Turkey is truly a “Tempest in a Teapot” that bears little resemblance to the crisis in Greece several years ago. Yet, over the last week, Turkey’s currency, the Lira, fell to record lows, interest rates skyrocketed, and their stock market cratered. Turkey’s problems are nothing new. It is a classic case of a country that borrows abroad (in U.S. dollars) to leverage their economy’s growth rate, which make the voters happy—until it doesn’t. Investors have erroneously compared Turkey’s woes to the Greek crisis of a few years ago. But there are big differences. Turkey’s economy is about 1% of global GDP, the 17th largest in the world. The country is not a full member of the European Union, nor does it use the Euro as its national currency. In addition, European banks have relatively little exposure to Turkish debt. Unlike Greece, where all the above were real fear factors, Turkey is more of a “corporate debt problem.” It has been companies, and not the government, that have gone on a borrowing spree. And foreign investors, searching for better returns that can be had in safer, more developed markets, were glad to loan Turkish companies’ money for a double-digit return....

The incredible shrinking stock market

There was a time, back in the late Nineties, that publicly-traded stocks were the envy of all companies, great and small. But times have changed, and since then the number of public companies have fallen by 50%. You might have missed that trend, however. That’s because the market capitalization of equities has been increasing for a decade. This year the market cap of the U.S. stock market hit a record $32.2 trillion. Globally, the World Bank estimates stock market capitalization is above $80 trillion. The largest contributor to this trend has been the large increases in stock prices. Bottom line: investors are simply bidding up the prices of existing stocks in an incredibly shrinking market. The peak year for publicly-traded companies was 1996, when there were over 8,000 companies listed. Since then the number has gradually decreased until today, where only 4,336 companies remain in the public sphere. The same trend has been identified in developed markets around the world. European and Canadian stock market trends mirror our own with listed companies falling by anywhere from 20 to 60% overseas. There are several reasons why listing your company on an exchange has lost much of its luster. Most companies complain of an increasingly complex and expensive mountain of governmental and industrial rules and regulations they are required to obey. Despite the Trump Administration’s effort to reduce this onerous burden, few companies are planning to reduce their law departments any time soon. Then there is the media and an increasingly active shareholder base. Every move, every action by management is scrutinized, analyzed and sometimes reported inaccurately by the financial media....

Trump’s trade war

Over the weekend, the G-7 group of nations met to denounce the recent actions of the United States. This coming Friday, these same leaders convene in Quebec. President Trump will attend and seems determined to face them down. Ever since the Trump Administration announced plans to raise tariffs on imported steel and aluminum by 25% and 10% respectively, our allies have been livid. Some are referring to the upcoming meeting as the G-6, plus the United States. You’ve got to hand it to the president, he doesn’t back off, but given the circumstances, maybe he should. I doubt that anyone in this country believes the present trade agreements we have signed throughout the years are even remotely fair. They should be renegotiated, but there are different ways of going about it. Unfortunately, Trump used a rather “trumped-up” excuse for his actions by claiming “national security” as justification for the tariffs. Given that the tariffs will be levied principally against America’s strongest allies, is it any wonder that the G-7’s response was what it was? They rightfully believe that the Trump Administration’s blatant attempt to circumvent the World Trade Organization (WTO) is illegal. As an example, Canadian Prime Minister, Justin Trudeau, responded to the claim by saying that “Canadians have served alongside Americans in two world wars and in Korea. From the beaches of Normandy to the mountains of Afghanistan, we have fought and died together.” “Canada,” he claims, “has treated our Agricultural business and farmers very poorly for a very long period of time.” How that squares with national security is anyone’s guess. My point is why confuse the...

Is it time to hedge your bets?

Over the last few weeks, the threat of rising inflation has triggered a great deal of concern among investors. Given that inflation has been at a low level for a number of years, their concern may be justified. Many market pundits were surprised by the wage data in the non-farm payroll report for December, which was released two weeks ago, Friday. In that report, wages jumped far more than most expected coming in at a 2.9% annualized growth rate. Given that our central bank monitors wages as one of their key indicators to gauge future inflation, that number sent the bond and stock markets into a tizzy. Again this week, investors received another inflationary surprise when the most recent Consumer Price Index (CPI) jumped 0.5% in January. The gains were broad-based in everything from energy to apparel. This news was not taken too well in the bond market where the U.S. Ten-year Treasury bond rose to above 2.9%, the highest level it has been in several years. Many economists believe that a further rise to 3% is inevitable. Yet, none of these numbers spell doom for the economy or even the stock market. From a historical perspective, both inflation and interest rates are still at incredibly low levels. But the markets tend to look ahead. What, they ask, will the rate of inflation be by the end of this year or next year? Here, things get a bit dicey. You see these recent inflation numbers do not reflect the impact of the $1.5 trillion tax cut, nor the increase in the nation’s deficit. Neither do they include this week’s...

How to handle a pullback

The stock market is in turmoil. Several hundred point swings in the Dow and other averages has investors on edge. The indexes are suffering 1-2% point swings per day. How are you dealing with it? Over the last several months, I have written several columns preparing you for this day. I thought it might be useful to give readers a refresher course on coping. Here are some useful tips on avoiding that worst of all reactions—selling on the lows. Number one: do not check your portfolio. The more often you do, the greater the probability that you will panic and sell. Every time you check your investments in a freefall decline like this one, you will feel terrible. The only way you can stop the pain (you will say to yourself) is to sell. Don’t do it. You see, we humans are really not built for investing. Our primal instinct when we face danger is to run. That fear and flee response has been saving our butts ever since the first sabre-tooth tiger chased us out of our caves. But putting some distance between you and that predator doesn’t work very well when it comes to investing. We are more comfortable thinking in the short term. No never mind that stocks may come back next month or next quarter, most of us can’t take our eyes or our minds off what happened today and what may happen tomorrow. How many of you remember the back-to-back declines we had in the first quarter of 2016? Not many, I would wager. For some, this is an opportunity. Given that many of...