“So whatever happened to the pot portfolio?”
The headlines this morning include Alaska becoming the third state where recreational marijuana is now legal. Several provisions of a referendum passed last fall are kicking in today.
And once again, someone in the office posed the “pot portfolio” question to your editor. It comes up every few months. It’s awkward. It’s annoying. Because there never was such a thing. How people got the idea there was I don’t know.
To be sure, there are stocks that profit from the spread of marijuana legalization. Or they try to. As investments, they’re one step above a lottery ticket. Sure, a stock like Medbox (MDBX) can soar from $4 to $100. Then it crashes back to $4. This morning, it’s barely above $2.
The alleged “pot portfolio” was, in fact, the opposite — a “war on weed” portfolio.
Days after voters in Colorado and Washington state voted to legalize recreational pot in November 2012, we issued a dispatch for readers of Apogee Advisory — a newsletter I worked on with our executive publisher Addison Wiggin, the forerunner to Rickards’ Strategic Intelligence.
Our premise: There were too many vested interests who wanted ganja to remain prohibido. They would get their way… and profit accordingly.
Of course, police unions led the way opposing legalization. But the “second biggest opponent on Capitol Hill is Big Pharma,” said Howard Wooldridge. He’s an ex-cop who co-founded LEAP — Law Enforcement Against Prohibition. Marijuana can take the place of “everything from Advil to Vicodin and other expensive pills,” he told Republic Report.
Another leading opponent — alcohol companies. When California voters turned down a recreational pot referendum in 2010, a major funder of the “no” campaign was the California Beer & Beverage Distributors.
And then there’s the private-prison operator Corrections Corp. of America — which confusingly trades under the ticker symbol CXW.
Its 2012 annual report stated up front that “The demand for our facilities and services could be adversely affected by the relaxation of [drug] enforcement efforts.”
As it happened, the feds decided in August 2013 to leave Colorado and Washington alone — although it continues to prosecute medical marijuana patients in Washington.
The “war on weed” portfolio has been a mixed performer. Endo Pharmaceuticals — a maker of a half-dozen oxycodone-based painkillers — has soared from $25 in November 2012 past $85 recently. Alas, we also suggested a publicly traded liquor distributor (there aren’t many) that wound up in bankruptcy court thanks to a lawsuit.
And CXW? Despite the “relaxation of enforcement efforts,” it’s marched from $34 up to $40, converting along the way to a real estate investment trust (REIT) sporting a handsome yield of 5.1%.
“There are now 2.3 million Americans behind bars and another 4.6 million under alternative forms of correctional supervision,” says our income specialist Zach Scheidt. “That’s a 500% increase over the past 30 years.”
Zach recently recommended CXW for readers of Lifetime Income Report.
“Over the course of the Clinton, Bush and Obama administrations,” he explains, “the number of privately operated facilities in the country has increased by an astounding 1,600%.
“Even with the arrival of new facilities, many state and federal prisons still operate above capacity. This means additional growth is needed to keep up with demand. That’s good news for CXW, the dominant player in the industry.”
[A note on ethics: Please bear in mind we are merely examining the investment merits of CXW. If you don’t like the thought of investing in a company whose profit stream relies on the United States imprisoning a bigger percentage of its population than any other country on Earth, we understand, and that’s your prerogative.
But as we’ve pointed out in The Daily Reckoning and elsewhere, there’s almost no sector of the stock market these days where you don’t find Big Business colluding with Big Government…]
“CXW is sitting pretty with its dominant competitive position, strong earnings and stable stream of revenue,” Zach goes on.
But to meet his stringent requirements, it must also stand up to the three-point test we told you about when we introduced you to Zach a few weeks ago. Here’s his quick take on all three…
1. Protect your capital: “Corrections Corp. is working to build its business and open new facilities,” says Zach. “Growing earnings and strong dividend payments should make the stock more attractive to investors, giving them an incentive to buy and minimizing risk that the stock will trade lower.”
2. Room for growth: “Only 10% of the $80 billion U.S. corrections market is privatized. That means 90% of prisons are still managed by federal, state and local governments. This 90% represents a tremendous growth opportunity for CXW as the trend toward private prison management continues apace.”
3. Sustainable dividend: “As a REIT, the company is required by law to distribute 90% of its earnings to you as a shareholder. CXW looks poised to increase its dividend in the future as new facilities come online and start generating revenue.”
Indeed, it raised the dividend by 6% last week. How many people in the workforce are getting a 6% pay raise these days? Zach says CXW is a buy…
[Edible sneaker update: As you might recall, Zach made a bet with his readers 20 days ago — if they don’t collect $1,000 in income during February by following his recommendations, he’ll eat both of his running shoes.
Here’s the latest score card on his “Ultimate Retirement Loophole” strategy, with eight payouts to date…
That’s $3,659… and the month isn’t over yet.
The strategy is ridiculously simple to implement — so simple we put it on video to prove it to you.
Please note the strategy isn’t for everyone. But once you see the video, you’ll know within 90 seconds whether it’s suitable for you. Give it a look right here.]
Major stock indexes are nearly ruler-flat this morning. As we write, the S&P 500 is off two points, at 2,114.
Gold has recovered the $1,200 level, at $1,204. Crude has barely budged, at $49.20. The yield on a 10-year Treasury is back below 2%.
As we mentioned in real-time yesterday, Fed chief Janet Yellen’s congressional testimony sent the major stock indexes to all-time highs. It also took some wind out of the dollar’s sails. “This talk and feeling that the rate hike is being delayed really sent the dollar to the woodshed,” says EverBank’s Chuck Butler, “and then this selling of the dollar continued throughout the overnight and morning sessions.”
Yellen “sounded like, well, like someone that just doesn’t have a clear picture of what they want,” Chuck goes on.
Here’s what Yellen said in her insufferable Brooklyn accent: “It is important to emphasize that a modification of the forward guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings. Instead, the modification should be understood as reflecting the committee’s judgment that conditions have improved to the point where it will soon be the case that a change in the target range could be warranted at any meeting.”
And here’s Chuck’s translation: “You all are thinking that we’ll hike rates in June. But I’m here to tell you that we won’t be tied to any particular meeting, and we reserve the right to change when we feel it’s necessary.”
We’ll take Chuck’s translation a step further: “We’re making it up as we go along.”
Of course, if she’d put it that way, the Dow would have tanked hundreds of points yesterday, instead of rising 106.
Ms. Yellen has come a long way since she “stumbled” at her first press conference less than a year ago — addressing the same question — and the Dow instantly slid more than 100 points. She’s a quick study. Really, it’s impressive for someone 68 years old, an age at which many people have already mentally checked out. It gives your editor confidence he can still achieve big things later in life…
“I recently read Mao: The Real Story by Pantsov and Levine,” a reader writes after we suggested yesterday Chinese leaders might be gaining a better grasp on capitalism than American leaders.
“I was struck by several things, among them how utterly practical were the perspectives of Stalin and Mao. The context within which they operated was widespread poverty, general ignorance and control by gangsters or, occasionally, warlords who conscripted soldiers to die in their campaigns.
“At times, you would be hard-pressed to determine what ideology they were pushing. Mao switched from a vision of anarchy to being a communist, all the while being a nationalist opposed to, especially, Japanese dominance, and rose to prominence by being able to marshal support among peasants he basically detested.
“Stalin used the Chinese partly as a buffer against the Japanese. Without Stalin, Mao probably would have been a victim of internal squabbles, but showed his resentment against the old boss by taking it out on Khrushchev.
“Mao and most of his peers were woefully ignorant of market forces (and unintended consequences), but the idea that today’s leaders would have trouble understanding basic economics as promoted by Rothbard is a bit odd.
“Apparently, there are more trained engineers than Long March veterans in their ranks, and they probably all buy into some vision of China re-emerging as a world power. Anything that can help bring that about would seem to be on the table, as long as they can still exert some control over forces that hide in the shadows.
“Note that I’m not predicting the spread of Enlightenment ideas on consent of the governed or personal liberty or the proper role of government — just some understanding of market forces and how to take them into account.”
The 5: Understood. Good food for thought.
Five years ago today in The 5, our fearless leader Addison Wiggin shared an interesting tidbit gleaned a private message board — posted by someone who’d lived in China for 12 years.
“What people fail to grasp,” this individual wrote, “is this place is much more capitalist than the States now:
- No capital gains tax
- No property tax
- No local or state taxes
- A reasonable 35% tax rate for the highest earners
- Corporate tax rates of 0% for three years and 15% per year after that.
“Also, most importantly, it’s not a casino economy like the States. China will sell 30% more vehicles this year than in the U.S, and 93% of those vehicles will be purchased cash upfront.
“For a home loan, you need 30% down. As a private business, to get a loan, you have to put up the assets of the company, i.e., plant and equipment. There are no leverage games here.
“It’s a one-party state, but at least it is focused on its own people. We have a two-party system that has sold us down the river. All the Asian Tiger economies needed a strong central government to launch themselves out of poverty. Not a good system for our culture, but it works for them.
“High-speed train systems going on line, 50 new airports in that last five years — you must see this place to believe it.”
And that was five years ago…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “The math is pretty simple,” says IRS commissioner John Koskinen. “There are fewer audits because we have fewer auditors.”
Indeed, the IRS audited fewer than 1% of all individual returns filed last year. That’s the lowest rate since 2004.
No, that’s not an invitation to play it fast and loose with the tax code. But it is assurance that you stand less chance of being harassed to “show your work” when you take advantage of credits and deductions to which you’re legally entitled.
We have more than 97 credits and deductions, tips and tricks laid out in the special report Vanishing Point: How to Disappear From the IRS This Tax Season and Save a Boatload of Money in the Process. They could be worth as much as $18,000 this year alone. Access here.
