Pot Stocks Fuel “the New Vice Economy”
You know my attention is always on new-world stocks, those that will replace the old.
And now I am seeing a shift from what I call “the old vice economy” to what I’ve dubbed “the new vice economy.”
Alcohol and cigarettes will continue to decline as legal marijuana takes its place firmly at the center of the new vice economy, or “newvice-conomy.”
Pot stocks have taken a beating this year, but I’m seeing signs of a bottom. Watch today’s Market Talk to see why.
We also discuss:
- What it means now that the U.S.-China trade war is moving closer to a conclusion.
- How five major car companies are embracing blockchain and crypto as part of a new car identification system and digital wallet.
- The top five cities that are on track to become the next Silicon Valley.
- Why a biotech company is about to make a massive impact in the world of spinal implants.
You can watch this week’s Market Talk below:
October 14, 2019
Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined by Paul Mampilly. Each week we look forward to sharing our viewpoints and giving insight into what’s on our radar. Today’s outlook is for the week of October 14, 2019. For this week’s update I’ll being by sharing with you what I’m watching and then we’ll hear from Paul.
Today I’ll cover three major topics. The first will be my take on recent and upcoming U.S. economic releases. Then my innovation story of the week with our Good News Roundup. I’ll end with an update on the Disruptification Index performance. Let’s begin.
Last week’s University of Michigan consumer sentiment preliminary October report beat estimates. It rose to a three-month high. The index came in at 96 versus a survey estimate of 92.
What the report showed is that there are more Americans anticipating household income growth to outpace inflation over the next two years. 29% of the Americans surveyed expect to see a rise in real income growth. This is the biggest share on record since 1978.
For this week, the important release to watch is the September retail sales number. This number will help us gauge if U.S. consumers continue to help spur the economic growth over the upcoming quarters.
In the meantime, U.S.-China trade talks continue to progress. China at this point does want some further talks before sealing the deal on the phase one agreement announced Friday by President Trump.
Where this week’s economic releases are concerned, there will be five major releases. On Tuesday, October’s Empire Manufacturing reading will post at 8:30 a.m. On Wednesday, retail sales advance month-over-month for September will post at 8:30 a.m.
On Thursday, September housing starts will post at 8:30 a.m. and industrial production month-over-month for September will post at 9:15 a.m. On Friday, the September leading index print will post at 10 a.m.
For my innovation story of the week, Daily Bitcoin News and the Nikkei Asian Review are reporting that five major automakers — BMW, General Motors, Ford, Renault and Honda — will soon be testing a block chain car identification and payment system next month in the U.S.
The report states that automakers envision themselves in their self-paying cars and digital IDs in the future. The partnership “aims to test the vehicle ID system developed under the Mobility Open Block Chain Initiative founded in 2018.”
“As part of the project, cars are assigned digital IDs linked to ownership, service history and a digital wallet allowing the vehicles to automatically pay fees without specialized hardware. The alliance envisions the system being applied to connected electric vehicles as well. So tolls, maintenance and rest stop purchases can all be recorded and paid automatically when a car is plugged in to charge its battery.”
On this same topic, CryptoNews is reporting that “automakers are becoming increasingly interested in all things block chain and crypto related. Mercedes Benz’s owner Daimler is currently exploring the idea of fitting vehicles with a digital wallet for cryptocurrencies.”
“Jaguar Land Rover have a partnership in place with the operator of IoT themed cryptocurrency Iota. The project could eventually see drivers rewarded in crypto for allowing their cars to be automatically reporting their road conditions and information through the network.”
Now to our Good News Roundup stories. Good News Roundup story number one: HousingWire and the National Reverse Mortgage Lenders Association is reporting that senior housing wealth has reached record highs. “Senior housing wealth hit an all-time record in the second quarter, now posting $7.2 trillion. Homeowners 62 years and older also saw their housing wealth increase 0.5% or $32 billion in the second quarter.”
Good News Roundup story number two: Also from HousingWire, Redfin and LinkedIn revealed the top five cities forming the new top emerging technology hubs in the U.S. We all know San Francisco, California and Silicon Valley are home to some of the most preeminent tech industry leaders like Amazon and Google, but Redfin is reporting that due to high living costs some industry tech workers are relocating to more affordable areas.
“Smaller inland cities are becoming increasingly attractive to young, educated people looking to build a career and live comfortably.” The top five new tech hub cities are Charlotte, North Carolina; Buffalo, New York; Grand Rapids, Michigan; Colorado Springs, Colorado; and Columbus, Ohio.
Good News Roundup story number three: A Noblesville, Indiana based spinal implant and instrument manufacturing company called Nexxt Spine is making news. The company is “looking to expand after their spinal devices started changing lives around the world.”
Fox is reporting that “Nexxt Spine began 3D printing titanium spinal devices two years ago. Their products replace injured discs in patients’ spines and promote natural healing. New bone growth in and around the titanium implants fusing the bones together and the high tech devices work in a similar way to a procedure Peyton Manning had on his spine. They’re saying the surgery extended his illustrious career.”
At Nexxt Spine, the majority of the engineers are from Purdue University and they have “a few more products in the pipeline and clearing the FDA right now. They are expecting these products to hit the market soon.”
Turning to our Disruptification Index, as I mentioned last week the Bloomberg technical function to calculate the performance has a malfunction. We’re currently working on it diligently. In the meantime, we are tracking the index manually and based on our best estimates it’s up 23% year-to-date.
That’s it from me.
Thanks Amber. That’s interesting. I was surprised to hear about Buffalo, New York. I was thinking of Pittsburgh or somewhere else. I’ll have to check out my people from Buffalo.
This week in the IPO world we are looking to get a sense of where this correction is going to end. I think we’re coming in for a bottom, at least in the short term. As you might know, WeWork was supposed to come and do a large, well-publicized IPO and that was pulled for various reasons that we’ve gone over.
A lot to do with WeWork’s management and corporate structure that the market pushed back on and their valuation that was way too high. That got pulled and it spooked the market. These companies coming public have significant revenues and some of them have significant growth. Most of them are not yet profitable.
But they have a plan. The ones we participate in have a plan to get to profitability over the next few years. Now the markets have been granting less of a grace period for them to get to profitability. This means they have traded down. The market is applying lower valuations to these companies, both the recent issues and future issues.
That is one of the sources of the correction, as well as SoftBank which is a big holder of WeWork and a lot of these other companies. The market was selling in anticipation of SoftBank having to sell more of their stock in their existing holdings than was anticipated previously.
That’s caused a correction and you can see that in this chart of WeWork 2025 bonds that were issued at 7.8% and have since traded down to about 12.5% yield. When bonds trade down, the same coupon is trading for less money so the percentage return is going to be higher. We think that’s probably bottomed.
News this weekend that is relevant to that is from Reuters that claims SoftBank has lined up financing to take control of WeWork from the founder. That’s a positive because that takes SoftBank’s distress of the table and investors are less worried about future selling from SoftBank. I think you are going to see these bonds start to trade back up based off this news as people are less worried about the position of SoftBank and the IPO market in general.
SoftBank is the biggest fish in the market. They are the whale of the IPO market. We are going to look for that and see the IPO index that traded off and underperformed is going to start to reverse that and maybe close some of the performance gap with the rest of the market.
Paul, what are you thinking about that?
Paul Mampilly: I was just listening to what you were saying and for some time I have been telling you, especially for innovation companies, the public markets and the private markets have been in very different places. I feel like what’s gone on with WeWork is going to be a good thing for your service [IPO Speculator].
Companies are going to come at a much more reasonable value and they are probably going to bring fewer shares to the market too. The demand and supply, valuation, valuability —
The companies in the venture capital were not leaving enough on the table. The market is saying “You’re having us assume too much of the risk for not enough reward. Now you’re going to give us a better deal.”
Paul: That’s right. I feel like this is a good deal for IPO investors and a bad deal for a lot of private investors who have counted on very high elevated valuations. That includes SoftBank that has dominated the private space with their $100 billion Vision Fund. Some people say it has bid up private market values to unsustainable levels. WeWork seems to be a confirmation of that from what we can see.
Moving to some of the things that are in the news, you’ll see that our bad news media is at it again. There are actual real signs of a real deal coming out of China. What is on the front page of MarketWatch? They’re telling you that it’s nothing and for you to ignore. I can tell you if you follow me on Twitter, you will see macro news out of China that it’s struggling.
They had the worst industrial production in 20 years. Of course we’re hearing none of that. In other words, they need a deal sooner rather than later which makes sense if you think about the news coming in.
I want to cover a sector that since Ian has started doing his own thing on Fridays — you guys should check that out — he does a phenomenal job covering things like Bitcoin, Tesla and pot stocks. I want to cover pot stocks today because there has been an implosion in pot stocks.
Pot stocks have been crushed. I looked it up right before getting on and pot stocks are down nearly 60% this year. I am using the most prominent ETF which is the ETFMG Alternative Harvest Pot ETF. It’s down almost 60% but that doesn’t really do justice to how much these have gone down.
Some of these have declined by 80%. In my experience, 80% is the moment where either the market is done, a dud a fake and it’s going away or the true believers are going to come in and buy because they believe in the market. They come in and buy and start acting as the strong hands.
I believe we are close to that moment for pot stocks. This is a moment for me to throw in our shameless plug of the week. If you’d like some unbelievable pot stocks, yes they are down, but we believe in what I am calling the new vice economy. The old vice economy is slowly fading away.
That’s alcohol and cigarettes. There’s a new vice economy and pot is at the center of it. It’s going to take the big share of it. If you’re interested in two stocks in the portfolio that are down, but we still believe they are going to make it. Ian, who manages the $10 Million Portfolio with me, he’s looking at new pot stocks.
Everything we see in terms of growth, product and the huge event of full legalization is still ahead. We’re still optimistic on pot. We still think it can grow from here. If you’re interested in that, click on the strong hands. That will send you to a page where you will get all the links on our $10 Million Portfolio service.
In addition to pot it has graphene stocks, new energy battery stocks and so much more. This is an incredible service. It gets you in on the ground floor of some incredible innovations. Check into it.
Finally, I want to mention that just like what Amber was talking about, last week I told folks about what is going on in our economy and markets. There is a shift going on. For many years now we have seen what I will call software tech really lead the markets and the economy.
However, what is happening is that all that activity that has been on the coasts is moving to the center of the country.
I believe the new, big trade is industrials. I told folks about it last week. In other words, the Internet of Things, artificial intelligence and block chain, these things are going to be embedded everywhere. Into machines all around us, into doors, roads, bridges — everything you can think of. That is going to happen through the industrial economy.
It makes total sense to what Amber is talking about. People are seeing that, they can see they are making something valuable, they can see their company is growing. They feel confident, which is why they believe their income is going to go up.
This week I am going to tell you the other place that you should be buying into that is also driven by this. Check into my Bold Profits Daily tomorrow where I’ll tell you the other place where you have to be in to benefit from it. That’s all I have for this week. Back to you, Amber.
Amber: Thank you Paul. Great ideas and insights. We look forward to your article tomorrow in Bold Profits, Paul. Thank you to our viewers for tuning in. If you like this channel, please subscribe, share, thumbs up and tell us what you think about what we talked about today. Until next week, everyone, take care.
Before I sign off, I want to thank all of you for voting on the cover for my brand-new book — Profits Unlimited: A Wall Street Insider Reveals the Secret to Life-Changing Wealth.
Over the weekend, we got over 2,700 votes on your favorite cover.
We’ll reveal the winning cover as soon as the book is officially announced, so keep an eye out!
And stay tuned for tomorrow’s Bold Profits Daily, where I’ll reveal the next big stock in the newvice-conomy.
Editor, Profits Unlimited
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