- Medical marijuana and the flexible federal clock
- Feds’ timetable slides, but signs abound of a decision before year-end
- Managers of government pensions can’t hide behind “the 8% illusion” anymore
- Rickards on the latest instance of “corruption and conflicts” in high places
- Goldman and the New York Fed, thick as “thieves”
- Mickey D’s disappoints… new homes move like hot cakes… readers share pension concerns… and more!
On the one hand, it looks like “Federal Standard Time” in action.
We introduced this term last week when discussing the widespread expectation that the Drug Enforcement Administration would take marijuana off its Schedule I blacklist this summer. Doing so would open the door for the $5 million medical marijuana industry to grow like a weed — as it were — into a $100 billion industry.
But we allowed for the possibility that “Federal Standard Time” would slide the timetable into the autumn or even year-end.
Before we go any further, a quick refresher about how we got where we are: Last year, several U.S. senators wrote the DEA a letter, asking the agency to reclassify marijuana.
Under its present Schedule I status, the feds insist pot has zero medicinal value and is indeed more dangerous than cocaine or crystal meth.
The DEA responded and said a decision would come “in the first half of 2016.”
You don’t have to look at a calendar to know the first half has come and gone. At the very end of the first quarter, the senators wrote another letter — pointedly asking the DEA to “take immediate action to remove ‘cannabis’ and ‘tetrahydrocannabinols’ from Schedule I.”
Meanwhile, Denver’s alternative weekly newspaper Westword put the question directly to the DEA’s public affairs division: When will a decision come down?
The reply: The agency is “not bound by any date”… but is nonetheless on track to make a decision before year-end.
Federal Standard Time.
The reply didn’t exactly dash hopes… but for many people, it was a disappointment in light of an article back on June 18 in another alt-weekly, California’s Santa Monica Observer, claiming the DEA would reschedule pot on Aug. 1.
Here at The 5, we never cited the article. It was poorly sourced, attributing the pending decision to an anonymous “DEA lawyer.” From where we sit, the whole thing just felt too hinky.
Lest you think a 2016 decision will slide into 2017 and forestall the profit opportunities in medical marijuana, we direct your attention to another development.
In a notice published at the Federal Register last week, acting DEA Administrator Chuck Rosenberg declared that next year, licensed cultivators should produce 1,041 pounds of cannabis.
The purpose? To meet the “estimated medical, scientific, research and industrial needs of the United States.”
Now… We’re compelled to note that this authorization for 1,041 pounds next year is rather lower than the 1,451 pounds authorized this year.
Some observers of the industry believe this signals the DEA will opt to leave marijuana on Schedule I — after all, there’d be less “medical, scientific, research and industrial” need, right?
On the other hand… “There is a possibility that the notice alluding to a diminishing production quota has absolutely nothing to do with the DEA’s coming rescheduling announcement,” says an article at the website of High Times, the magazine that’s chronicled all things cannabis since 1974.
The quota won’t be made final until Aug. 22 — after a public comment period. And the DEA’s been known to revise its figures down to the wire. This year’s total of 1,451 pounds was revised from an original quota of only 440 pounds.
And then there are the seven other reasons our Ray Blanco says the DEA will reclassify marijuana sooner rather than later — even allowing for Federal Standard Time. If you haven’t seen them yet, he makes a compelling case. We urge you to check it out at this link.
The major U.S. stock indexes are slumping for a second straight day.
At last check, the S&P 500 is down about a quarter-percent. The Dow is down more, close to a half-percent — dragged down by McDonald’s, which issued its quarterly numbers before the open. Revenue is down. Same-store sales are up, but they missed “analyst expectations.” MCD is down more than 4% as we write.
Gold is up a skootch at $1,318. Crude is losing more ground after yesterday’s losses, a barrel of West Texas Intermediate now below $43.
The big economic number of the day is new-home sales — up 3.5% from May–June and up 25.4% year over year. Guess those ultralow interest rates are good for something…
Only a day after our latest warning about state and municipal pensions comes an alarming front-page story in The Wall Street Journal.
For the last 16 years, Wilshire Trust Universe Comparison Service has measured pension plans’ investment returns. Its data go back decades.
The 20-year annualized returns for public pension funds have sunk to 7.47% — the lowest on record. That compares with 12.3% in 2001.
Way back in 2010, we referred to “the 8% illusion” under which the managers of these pension funds operate. Sure, their annual returns in recent years fell short of that 8% mark… but they were fond of pointing out 8% was the long-term average, so there was nothing to worry about.
Heh… Now there is.
Scary thought: These 20-year returns still include most of the dot-com boom. So the figures likely have nowhere to go but down as pensions continue to wrestle with the aforementioned ultralow interest rates.
Preview of coming attractions: Fully 10% of Connecticut’s state budget is now devoted to paying down unfunded pension liabilities.
The looming trial of International Monetary Fund chief Christine Lagarde “adds uncertainty in an already uncertain world,” says Jim Rickards.
“As managing director of the IMF, she is arguably the most powerful banker in the world. The IMF does not bail out companies or banks — they bail out entire countries. Their loans are not in the billions of dollars but the tens of billions. The IMF uses its lending resources to exert enormous political influence.”
Back in December, we told you about a legal case hanging over her head. It’s wickedly complex, but it comes down to this: She’s accused of doing a $438 million favor, while French economy minister, for a supporter of France’s president at the time, Nicolas Sarkozy. Last week, she lost an appeal and was ordered to stand trial.
“The charges include possible jail time or a suspended jail sentence,” Jim tells us. “Observers don’t expect Lagarde to actually spend time in jail (but who knows?). Still, the fact that this is happening at all is a sad testament to the corruption and conflicts that exist at the highest levels of the monetary system.”
Speaking of which, there’s Goldman Sachs’ “theft” of secrets from the Federal Reserve.
The New York Times tells us the Fed is preparing an “enforcement action” against the vampire squid. Seems someone at the New York Fed, who used to work at Goldman, leaked confidential regulatory documents to a Goldman executive (who’s since departed the firm.)
Whatever. The establishment media insists on characterizing this incident as a “theft” of secrets. “Theft” implies the goods were obtained without permission. Instead there was a mole inside the New York Fed — who was prosecuted, yes, but he got off earlier this year with a $2,000 fine and 200 hours of community service.
Besides, Goldman and the New York Fed are thick as, well, thieves. Quickly traipsing through The 5’s voluminous archives, we’re reminded that…
- In 2010, emails revealed that when Timothy Geithner ran the New York Fed, he withheld documents about the secret $182 billion taxpayer rescue of AIG’s creditors — including Goldman Sachs
- In 2013, the New York Fed fired a bank examiner named Carmen Segarra for daring to suggest Goldman’s conflict-of-interest policy fell short of the Fed’s already abysmal standards. (She sued, unsuccessfully)
- And the piece de resistance: Current New York Fed chief Bill Dudley is a former Goldman partner.
“Concerning government pensions, you do realize that the baby boomers are retiring?” a reader writes after yesterday’s episode. “That is why there is a large strain on public retirement pension plans now.
“By the way, I am a California state worker. One of the people in my work area is retiring soon and has worked for the state for 33 years. Several people in my section have worked for the state for over 25 years. Why do they work for the state so long? The retirement formula for most California state workers is 2% at 55 years. So if I retired at age 55 after working 20 years, I would get 40% of my salary.
“I personally don’t like putting all my eggs in one basket, so to speak. That is why I invest. By the way, I pay taxes too.”
The 5: Wait a minute — the baby boom generation is retiring? That’s the biggest generation in history! OMG!
But seriously… it’s not as if these pension managers and the politicos who oversee them couldn’t see it coming long ago, right? Don’t they have aides who can run basic exponential functions in their spreadsheets?
That said, it’s a lot easier for a state government to raid pension funds for day-to-day operations than to raise taxes or issue bonds. Party now, pay later and all that…
“An unnamed person I know personally just retired as a schoolteacher,” writes one of our regulars from the pension basket case of Illinois.
“Early retirement at 56. Was just a regular teacher, nothing special. Making $7,000 a month. Seriously. It’s public record. This, of course, working only nine months a year, with Christmas, spring break and who knows what else they have off during the year. If that person is fortunate enough to live another 50 years, well… you do the math. Oh, yeah, and they get to bank their sick days and get money for that, too.
“I, for one, am moving anywhere I won’t have to pay for everybody else to sit on their overweight derrieres. Can any say ‘Galt’s Gulch’?
“This year, I worked Christmas Day, New Year’s Day and virtually every weekend, and get zero paid vacation. Sick days? You’re on your own, buddy. All I get is little tiny five-minute ADHD breaks during the day to write stuff like this, then back at it…”
Turning to the trouble in private-sector pensions, a reader writes: “One problem they’re having is that the ‘safest’ investments, government bonds, are paying such low interest due to the Fed’s idiotic attempts to raise inflation rates.
“This drives pension funds into chancier investments trying to make up for the deficit in what they need to pay retirees. For a short period, it wouldn’t make all that much difference, but over decades, it adds up to trouble. It is hurting the whole economy in ways that are only now beginning to be evident. With other central banks outdoing even the Fed (negative interest, anyone?), the entire world economy looks like it may be spinning down the tube.”
The 5: As we’ve documented in the past, this has already been happening with the government pensions — many of whose managers plowed money into hedge funds in recent years, only to get burned and retreat. Oy…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Almost forgot: One of the stocks our Ray Blanco says would benefit big-time from the feds reclassifying marijuana popped 21% last Friday.
There was no obvious catalyst.
“The spike,” says Ray, “may be due to some new investor buying a large stake or a hedge fund closing out a short position. This causes a shift in the price… drawing the attention of traders who then amplify it… especially on the day before a weekend, when holding might be a risk to someone on the short side of a trade.
“I believe the medical marijuana story is gaining momentum, and investors are waking up to the outsized potential.”
Ray says shares are still a buy. Ditto for the other name he says will benefit from the medical marijuana story. For access, look here.
