Portland, Oregon is expanding in just about every way you can imagine.
Sales are up. Home prices are up. Unemployment is down. And thousands of Americans are coming to this Northwest town and calling it home.
As you may know, I am involved (along with James Dale Davidson) in the medical marijuana business. Most dispensaries, grow operations and processors are hiring in Oregon. And most businesses are waiting with anticipation until recreational sales are fully opened up later next year.
We’ve already seen a small taste of what’s to come. In October, the state allowed anyone 21 or over to walk into a medical dispensary and buy dried marijuana flower or cuttings.
Many dispensaries reported that sales jumped anywhere from 5 to 10 times over, and remain strong.
Down south a bit, in California, lawmakers just passed a bill to regulate their medical marijuana system. I believe they expect full-on legalization within the next two years. If so, that would mean California is following in the same steps as Oregon (regulating the medical industry in anticipation of retail).
Once California allows sales to anyone old enough to drink alcohol, the entire West Coast, from California to Alaska, will have legalized recreational marijuana.
That’s huge, and it puts us a step closer to the Feds becoming more open to the situation.
That said, in Ohio, retail marijuana failed to gain voter approval. I suspect supporters were turned off when they realized that the proposal would create a marijuana monopoly.
There’s no doubt that we’ll eventually see the question of recreational marijuana appear on more ballots across the country, which will help fuel the rise of a multibillion-dollar industry.
This is all, of course, just one aspect of the U.S. economy. And while marijuana is a rapidly growing business, it’s simply not big enough to save the U.S. economy.
From Bloomberg Business:
This U.S. earnings season is on track to be the worst since 2009 as profits from oil & gas and commodity-related companies plummet.
So far, about three-quarters of the S&P 500 have reported results, with profits down 3.1 percent on a share-weighted basis, data compiled by Bloomberg shows. This would be the biggest quarterly drop in earnings since the third quarter 2009, and the second straight quarter of profit declines. Earnings growth turned negative for the first time in six years in the second quarter this year.
If anyone thinks the problems of oil and gas companies weren’t going to affect the U.S. economy, think again. The commodity sector is now skewing overall earnings to the downside.
Of course, someone might tell you that so far, more than 70% of companies beat expectations this quarter. But that’s only because companies know how to set expectations that can be easily surpassed.
If I tell you next month that I’m going to lose $100 million, but I only lose $99 million instead, I’ve beat expectations.
But I’ve still lost $99 million, and there’s nothing great about that.
So when it comes to earnings, beating expectations means nothing. What matters more is how revenue is performing. And so far this quarter, revenues are down.
Yes, you’ll find pockets of growth (like in the telecom sector), but gone are the days of universal growth.
And this is happening right at the time when Fed Chair Janet Yellen is hinting that interest rates could definitely go up in December.
She’s clearly trying to prime the market for an interest-rate hike. And I think it comes either in December or early next year.
We’ll see how the markets react to that when it happens.
In the meantime, you can check out the portfolio here.
We have a small bit of news for our global aircraft company Aircastle Limited (NYSE: AYR). The company recently announced earnings that came in under expectations, thanks to the bankruptcy of one of its partners, Malaysian Airline System.
Excluding the bankruptcy, Aircastle is doing just fine. So we’re not going to close out this position. We expect higher share prices down the line.
All of our other holdings look just fine.
We’ll talk again next week.
Charles Del Valle
Editor, Strategic Investment