Chris: Doug, regular readers know that you think gold stocks are primed for a rally.
What other sectors do you like today? Anything readers should be keeping an eye on?
Doug: Well, I’m a technophile. I really believe that Moore’s Law has been around for about 200,000 years. We passed the “elbow” of the acceleration with the Industrial Revolution 200 years ago; its progress is going hyperbolic, approaching vertical, at this point. So, being a technophile, you’d think that I would like technology companies. I’ve got to say I missed the boat on big ones like Amazon, and Microsoft, and the like. But there are going to be plenty more of these things that could put in the same kind of performance that those companies did.
That’s the good news. The bad news is that I don’t really want to get involved with them right now when we’re on the cusp of an economic, financial, and maybe social and political collapse. Maybe I’m wrong about those things – I certainly hope I am because I like good times more than bad times. They’re really a lot more fun.
I don’t see that there’s any hurry to get involved in tech stocks. You should be watching new high-tech companies, but now isn’t the time to buy them. Why? Because we’re in a giant stock market bubble. And within the stock market bubble we’re in a high-tech stock bubble. And it’s being driven by ultra-low interest rates, and massive money creation by central banks – particularly the Fed.
I’m interested in tech, I watch tech stocks, and I’m looking for an opportunity. But I have zero desire to put any money in there now. People have forgotten the maxim “High tech – big wreck.”
Chris: What are your thoughts on cannabis stocks?
Doug: There are 113 unique compounds in the cannabis plant. Several of them could be real breakthroughs. Right now it’s just THC and CBD. I’ve used CBD after a strenuous workout, and found it really is a very helpful painkiller, among other favorable properties. That business is going to continue growing. That’s the good news.
The bad news is there are hundreds of public marijuana companies. And who knows how many thousands of private ones. There’s going to be a giant glut of every kind of cannabis product. The space just isn’t big enough for all of them. Most of them are going to go bankrupt.
Most all of them are promotions. It’s similar to what happens in the junior mining space after a run-up in the metals. New companies are floated mostly to capture the money of excited newbie “investors,” who heard – typically a year too late – about all the money that was made. It always happens this way. The public gets involved at, or even after, the top.
It’s always happened this way in tech and mining stocks in particular, because these areas are full of microcap startups with great stories. Nobody in the public has a clue about the businesses in question, however. They just look at the huge gains made by early investors, and their greed buttons are pushed.
We had – let me emphasize that’s past tense – a huge bubble in cannabis stocks. The bubble actually broke over a year ago. I think the bubble’s going to keep deflating.
I owned a big position in a cannabis high-flyer, and I sold out for about 80-1 on my money. But I had to sit on it as a pre-public company for over four years. I still own some pre-public pot companies that were too slow to take advantage of the bubble. If I break even I’ll be ecstatic.
On the other hand, as I said before, there’s huge potential in cannabis. The bear market will come to an end, and the survivors will become big companies, competitive with those in both the liquor and pharma industries. I rely on my friend and colleague Nick Giambruno to stay on top of it. Which he does.
Chris: What about cryptocurrencies?
Doug: Bitcoin serves a useful purpose as a transfer mechanism, so you can send money anywhere quickly and cheaply. And avoid foreign exchange regulations, which plague about 75% of the world’s population. I was introduced to it in 2012, but was a slow adopter. I finally took the plunge in August of 2017 – very late, which is not like me – but I dumped most in January of 2018. So it was a good pass.
I’ve become convinced it’s going to become used and popular with the average guy. As the dollar and other fiat currencies implode, millions of people will pile into bitcoin and gold.
But I’m really interested in the second and third generation cryptos. I was introduced to them by Marco Wutzer, who writes our Disruptive Profits newsletter. He’s very, very knowledgeable about these things, has been in them for years, and is absolutely “the man.” He makes a case, which is reasonable, that some of these second and third generation cryptos could go up not just 10 but 100 times, possibly 1,000 times. It could be a repeat of what happened in bitcoin. I think it’s entirely credible so I’m involved in them.
But they’re just like junior mining companies. Many are promotions or frauds. That said, the risk/reward equation greatly favors getting into them now.
Chris: Anything else?
Doug: Agricultural commodities are very, very cheap right now. Everything… cattle, hogs, coffee, sugar, cotton, orange juice, wheat, soybeans, corn. They’re all selling at or below the cost of production. I’m especially long hogs, and short hog puts – but that’s a whole conversation in itself.
There are two ways you can take advantage of the situation. There are dozens of ETFs [exchange-traded funds] that buy and own, mostly artificially through the futures markets, different agricultural commodities. That’s what most people should look at.
Personally, I’m in the futures market itself, which I don’t recommend for most people because the leverage in them can easily get out of control. Plus, newbies tend to over-trade, second-guess themselves, and get whipsawed. Between that, the bid-ask spreads and the commissions – but mainly their own psychology – most blow themselves up.
Those are the two ways you can play the game. Or you can go out and buy some farm land. But I’m not too crazy about that idea because farming is about the worst business in the world after mining. That said this is a very good time to get involved. Because commodities are all selling at or below cost of production and farmers are not making any money.
I haven’t even mentioned mining stocks, which are by far my biggest position in the markets. That’s worth a whole conversation by itself. Let me just say they – like commodities – are at historic lows. Dave Forest, who’s a professional field geologist, writes International Speculator and covers the whole waterfront. I expect we’ll make a killing here over the next couple of years.
Chris: Thanks, Doug. Lots of good stuff.
Doug: You’re welcome.
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