- An industry that attracted more capital in the first quarter this year than all of last year
- How cannabis could arrest spiraling health care costs
- “Is that all there is?” Oil traders’ tantrum after OPEC announcement
- How the Fed added a few bucks to the gold price yesterday
- After “quantitative easing,” here comes “quantitative tightening”
- Arizona’s breakthrough gold law… sorting through conflicting advice from newsletter editors… insider insight into the power grid’s vulnerability… and more!
“More millions were invested in cannabis startups in the first quarter of this year than in all of 2016,” says our Ray Blanco on the science-and-wealth beat.
Ray is poring over his notes from the spring Marijuana Business Conference & Expo, held last week in Washington, D.C. It’s the biggest and oldest event of its kind.
The speed with which cannabis is going mainstream? Breathtaking, says Ray.
“Investors and entrepreneurs I’ve been talking to and networking with are coming straight from Wall Street and Fortune 500 companies.
“These aren’t cannabis chronic user types. I don’t want to stereotype, but these folks aren’t in that mold. These are really sharp and successful people who are starting to swarm into the industry because the opportunity for profits is so clear and present.
“At one time, years ago, I was quite skeptical about cannabis as something useful for anything other than feeling good,” Ray confides. “But the scientific evidence for the health benefits of cannabis just keeps piling up.
“We aren’t talking about studies used on mice in the lab. And we aren’t talking about anecdotal evidence. We’re talking about blinded, controlled human clinical trials — the gold standard for biotechnology and pharmaceutical research.”
And Ray goes one step further: “It’s starting to become apparent that cannabis or its derivatives could make a huge dent in our nation’s health care situation.”
Health care costs are a topic we care passionately about. If you’ve been reading us for longer than a few months, you know that medical spending now consumes more than a quarter of the federal budget. And it’s on a trajectory to consume half the budget in less than 20 more years — except it won’t, because Uncle Sam’s shaky finances can’t possibly shoulder that burden.
And the breaking point is approaching even faster now because of demographics. The oldest baby boomers turn 71 this year.
“Health care in the last decades of life can be incredibly expensive,” Ray reminds us. “It isn’t going to help the already difficult financial position the country is in.
“But some of the compounds in cannabis appear to work very well on some of the diseases of aging,” Ray goes on.
“The body’s endocannabinoid system regulates the immune system and the inflammatory environment in our tissues. Cannabis compounds act on that system and modify its behavior.
“Inflammation, in some form or another, is one of the major causes of many age-related diseases. It’s sometimes referred to as ‘inflammaging.’ Cannabis is a possible solution. Evidence is mounting. It could put off billions in unnecessary spending for avoidable age-related health problems.
“And the boomers could end up enjoying longer, healthier, happier life spans, too.”
[Ed. note: After years of skepticism, we became believers in the long-term investing potential of cannabis around this time last year.
But never did we believe it possible to seize on the extreme moves of “penny pot stocks” with well-timed short-term trades… until Ray showed us some eye-popping charts. Now he’s out to turn readers like you into “monthly marijuana millionaires.” Follow this link and let him show you how it’s possible.]
To the markets, which are “selling the news” from OPEC’s twice-a-year meeting in Vienna.
One of the worst-kept secrets in the world this month is that the OPEC countries and Russia were planning a nine-month extension of the oil production cuts they first agreed to last November. Thus a barrel of West Texas Intermediate jumped from $45.55 at the start of May to $51.36 yesterday.
But true to the adage “Buy the rumor, sell the news,” crude is selling off hard now that the May meeting came and went this morning. At last check it’s down more than 3% at $49.70. Evidently, many traders were hoping for a 12-month extension instead of nine.
Naturally, energy shares are taking a hit today, but that’s not dragging down the rest of the stock market.
Indeed, the S&P 500 is in record territory at last check — 2,412. Ditto the Nasdaq, which is pushing 6,200.
At $1,257, gold is backing off some modest gains yesterday that came with the release of minutes from the Federal Reserve’s most recent meeting three weeks ago.
The Fed struck a modestly “dovish” tone — giving a nod to weak economic numbers of late. That was enough to give gold a $10 pop.
At the risk of repeating ourselves, Fed “minutes” aren’t like the minutes of your local sewer board. They’re not an objective record of who said what. They’re a summary that’s finely calibrated to elicit a certain market reaction.
So in this instance, the Fed tried to have it both ways — acknowledging economic weakness, but also saying that weakness is “transitory” and as long as the economic numbers strengthen again over the next three weeks, it’s full speed ahead for another interest rate increase in June — on top of the ones in March and last December.
It’s also in June that the Fed will start laying the stage for “quantitative tightening.”
The Fed gave us the opposite, quantitative easing, from 2008–2014. It was the Fed’s way of keeping monetary policy extra loose after having lowered interest rates to near zero. Basically, the Fed printed money.
“The Fed does this by buying bonds from the big banks,” Jim Rickards explains. “The banks deliver the bonds to the Fed, and the Fed pays for them with money from thin air.”
There were three rounds of quantitative easing, or QE, which had the effect of blowing up the Fed’s balance sheet to nearly $4.5 trillion.
The Fed would like to get back to something approximating “normal” — which to the mind of a typical Fed pooh-bah means shrinking the balance sheet to about $2 trillion.
How would they accomplish that? “They could just sell the bonds,” says Jim, “but that would destroy the bond market. Instead, the Fed will let the old bonds mature and not buy new ones. That way the money just disappears and the balance sheet shrinks.”
By some estimate, a $500 billion reduction in the Fed balance sheet has the same tightening impact as a 1% increase in the fed funds rate. At present, the fed funds rate is 1%, and the Fed is looking to raise it to 1.25% next month.
“What happens,” Jim muses, “if the Fed tightens too much too soon in a weak economy and causes a recession before they can normalize?”
The question hasn’t even crossed the Fed’s mind at this point… but it’s something we’re thinking about. A lot.
Much more about “quantitative tightening” over the next three weeks here during the run-up to the June Fed meeting.
U.S. Gold and Silver Eagles are now legal tender in Arizona.
Actually, they’re legal tender in every state — as we pointed out earlier this week, a one-ounce Gold Eagle has a face value of $50 — but under a bill just signed into law by Gov. Doug Ducey, legal tender is defined as “a medium of exchange, including specie, that is authorized by the United States Constitution or Congress for the payment of debts, public charges, taxes and dues.” Ducey vetoed two previous versions of the bill, as did his predecessor, Jan Brewer.
The practical effect of this law? No more state capital gains taxes on the sale of gold and silver bullion.
Casual research indicates Arizona is only the second state to pass such a measure. Utah did so in 2011. We quoted its sponsor at the time: “This allows the people of Utah to protect their assets against what we’re seeing in inflation and the devaluation of the dollar.”
“Do your various editors speak to one another?” begins today’s mailbag.
“Yesterday you painted a very dismal scene for China in the near future. In a Jim Rickards issue of Strategic Intelligence this week (I am a lifetime member of several of your newsletter publishers), Jim Rickards also painted a similar gloomy forecast for China and even intimated that it could happen as soon as this October.”
The reader goes on to contrast Jim’s view with that of a recent video conference — bullish on China. As it happens, the event was conducted not by us, but by one of our competitors.
For the record: Several firms, aside from Agora Financial, exist under the very large and decentralized umbrella of the Agora companies. We share a few back-office functions like payroll and IT, but for all intents and purposes we are competitors. Friendly competitors, but competitors nonetheless.
Still, we empathize with the reader when he says, “I understand that each editor is entitled to their own opinions and research, and all of these gentlemen have good track records, but you make the current situation very confusing for us investors.”
We freely acknowledge that’s an issue — even within our own shop. We did our best to address the matter in a rare single-topic episode of The 5 2½ years ago. You might want to look it over for guidance about how to make sense of these inevitably clashing opinions.
“I am replying to your ‘skeptic’ who doesn’t see the power grid as an issue,” a reader writes.
“A number of years ago I worked for a Western utility company. I was in human resources, and we ran a one-year training program for newly graduated engineers. There were monthly meetings they had to attend, and I did also. These meetings covered a great deal of technical information about the generation and transmission of energy as well as tours of the various types of generating stations.
“Bottom line, the western grid is interconnected — for instance, if a substation should go down, it can also have the effect of stopping generation if there is no way to reroute the power, and that can and has happened. It takes longer to bring the power back on once the plant has been shut.
“As a result of deregulation, the maintenance schedules on the plants and on the transmission lines decreased, so the potential for more problems exists now more than in the past. Money was used to diversify into other areas.”
“The reason for the 2003 Northeast blackout was not a computer ‘glitch,’” writes another. “The system was designed to trip upon overloads.
“What happened was that two power plants were told to reduce output, one a lot more than the other. Their excess power was being sent down a specific line and was getting overloaded. Normally, power from these two plants did not contribute that much to that line. They didn’t cut back. The one that was to cut back more had corporate orders to produce as much as possible. They did that instead of cut back.
“That was the straw that tripped the overload limit. When that circuit breaker tripped, the excess power for these two plants went elsewhere, as did all the power produced that went into that line. And ‘elsewhere’ was overloaded.”
The 5: Right, but what was the original catalyst?
We’ll fess up to oversimplifying with “computer glitch.” It started with overloaded transmission lines brushing against tree branches in Ohio. That should have tripped an alarm in the control room at the utility FirstEnergy, but thanks to a software bug it didn’t. If it had, workers would have redistributed power so the problem wouldn’t snowball.
Sorta like the proverb about “For want of a nail…”
The 5 Min. Forecast
P.S. Just one aspect of a widespread and lasting power outage to ponder, courtesy of Ted Koppel…
“Fuel is beginning to run out. Operating gas stations have no way of determining when their supply of gasoline and diesel will be replenished, and gas stations without backup generators are unable to operate their pumps. Those with generators are running out of fuel and shutting down.”
And then there’s food, water, all the necessities of life…
We urge you to get a copy of Ted Koppel’s book Lights Out! Our Laissez Faire unit is all but giving them away, along with a package of special reports to help you prepare for such a crisis as best you can. You might not be living in style, but you’ll at least be around for whenever the grid comes back up. Access here.