Category: Opinion

Billionaire Eddie Lampert’s Bizarre Ideas Behind Sears’ Grand Closing

Eddie Lampert was in a position to revolutionize the US retail sector. A little over a decade ago, he was worth a touch more than Amazon’s Jeff Bezos, at nearly $4 billion. Now he’s still at the helm of Sears, which filed for bankruptcy protection on Monday of this week.

Some market commentators have speculated that an eroding middle class is to blame for Sears’ troubles, but Eddie Lampert is a far more probable culprit.

The modern Sears was created in 2005 when Eddie Lampert merged it with another American retail icon, Kmart. His move to sell off a bunch of real estate assets that Kmart controlled helped Mr. Lampert to gain billionaire status a few times over–and attracted a lot of attention from major players on Wall St.

In the wake of his inspired Kmart deal, Eddie Lampert was actually able to take over Sears. Kmart’s shares were riding high in 2005, and Eddie made his move.

It would be the beginning of a long slow grind downward, which Eddie Lampert’s ideas were almost wholly responsible for. The big problem is that he had no clue how to actually run a retail business, or sink money into staying competitive.

Dear Eddie Lampert, There’s a New Technology Called “the Internet”

At their cores, the business model that a company like Amazon and a company like Sears use aren’t wildly different. Both companies sell a whole bunch of consumer stuff to the public. The big divergence between how the two companies operate is how people buy from the retailer.

Amazon allows shoppers to use a website to make their purchases, while Sears used big stores that were expensive to operate, and required much higher levels of staffing. It should be clear by now that Mr. Lampert’s decision to shun spending on developing a web presence was probably one of the worst ideas in US retail, ever.

Instead of using Sears’ deep pockets and extensive network of stores to create a hybrid business model that embraced online shopping, Eddie Lampert decided to cut spending on keeping up the appearance of Sears’ stores. He also subdivided Sears Holdings into 30 different “silos,” and then made the leaders compete for dwindling resources within the company.

The ideas that Eddie brought to the table were certainly innovative, much in the same way that a massage given with chainsaws would be. The end result is also the same. Now the corporate entity that Eddie Lampert has been slowly bleeding for more than a decade is a total wreck.

People Don’t Want to Shop in Ruins

While Eddie was turning his back on online retail, his strategy to cut costs via removing remodeling budgets from Sears’ annual spending ensured that his company couldn’t compete with other big-box retailers like Walmart and Target. The idea that one can just abandon a store’s aesthetic upkeep, and leave its employees to attract clients based on their efforts is totally absurd.

Image from Shutterstock

Apparently, Eddie Lampert was known for running Sears from one of his two multi-million dollar mansions, which would explain why he was almost totally disconnected from what Sears’ locations were turning into. Not that Target or Walmart are exactly a treat for the senses, but they aren’t slowing degrading from a decade ago either.

Perhaps the most difficult thing to understand in all of this is how Eddie Lampert is still in charge of anything. He clearly has no idea how to keep a business competitive. In fact, he doesn’t seem to understand that retail stores need to be kept up to attract customers. Now Sears is a mockery, and if they emerge from bankruptcy one wonders what kind of market they could hope to serve.

As for Eddie Lampert, he still has some nice houses and a massive yacht that’s named after an Ayn Rand novel. The bumbling (barely) billionaire is still trying to make deals to sell off Sears’ assets, some of which were blocked due to the fact that he was behind the company trying to buy the assets from Sears.

With so much money gone, and so many terrible ideas, Mr. Lampert may be getting out of his mansions a bit more, and spending his days in litigation. It should be a nice change for him.

Featured image from Reuters.

October 18, 2018
Will Donald Trump Default on His $22-Trillion-Dollar Debt in 2019?

President Donald Trump has had a history of credit defaults throughout his career. But could he be about to oversee the biggest one in history? Trump is sat on $22 trillion of debt with no outward signs that he has any control over it.

The budget deficit is now at 3.9% of GDP and well above the 3.2% 40-year average. Although the $779 million deficit for the last fiscal year was below the Federal budget of $833 billion, it’s still huge by any standard.

US Debt Ceiling

The US debt ceiling is defined as the maximum borrowings permitted by the Federal government and is currently set at $20.7 trillion. As of Monday, October 15, the debt ceiling stood at $21.7 trillion.

So how has Donald Trump managed to exceed the limit by $1,000 million? In February 2018 he suspended the debt ceiling which is basically a political fudge.

It’s considered more acceptable to suspend the debt ceiling than increasing it or slashing the Federal budget to stay within the ceiling. Debt ceiling suspension isn’t a new phenomenon, though. Congress regularly shies away from accepting the inevitable.

The Economy Is Booming so Why Is Debt Increasing?

Almost all the data coming out shows the US economy is booming, so why is the national debt increasing? Donald Trump’s tax cuts have had a significant impact on Federal receipts. If you couple this with spending more than you receive, the debt must increase.

Nations with debts that many consider unsustainable would normally see interest rates on government bonds rise sharply. Also, foreign exchange markets would look to switch to a more stable currency.

With a GDP of $20 trillion, the US is still considered an economic powerhouse. It is responsible for a third of the world’s production. At present, the US dollar is considered a very strong currency. A downgrade by one of the credit rating agencies could quickly change that.

Can the US trade its way out of debt? Not according to analyst “Sovereign Man” who worked out:

“a financial model which shows that, even with absurd assumptions (7%+ GDP growth for years at a time, low interest rates, etc.), it is simply not feasible for the US government to ‘grow’ its way out of the debt.”

Global Implications of a US Credit Default

8.1% of Federal revenues currently go towards servicing the enormous debt and this figure is set to rise to over 20% before the end of the next decade.

Interest rates have started to increase from historically low rates and are expected to reach 4.3% by 2024. Another problem facing the US is the relatively short maturity dates on treasury bonds compared with the EU and Asia.

Donald Trump has previously gone on record as saying his corporate bankruptcies were strategic defaults to reduce debts. If he defaults on the $22 trillion US debt, there will be far-reaching consequences for the country and the global economy.

Countries like China, Japan, and Brazil, would be worst affected as they hold more of the US debt than other nations. The impact would be far-reaching with global debt already at record levels.

Some financial pundits would argue that a US debt default is very unlikely, but even they have to acknowledge the worrying signs are there.

Featured image from Shutterstock.

October 18, 2018
Beyond Data Breaches Facebook’s Problems Run Deep

Facebook (FB.NASDAQ) was a great idea. So was MySpace for that matter. Apparently, people love to catalog their lives online, and Facebook has given them the perfect platform to do just that. Mark Zuckerberg’s dorm room project made him one of the richest people in the world. But the juggernaut that has been Facebook stock may be on the edge of collapse.

For everything that Facebook is, it isn’t a vital technology. They don’t produce anything tangible and rely heavily on advertising revenue to power their burgeoning infrastructure. Herein lies one of their biggest problems. In order to continue to demand big payouts from advertisers, Facebook has to maintain a loyal stable of global users.

Facebook Is Losing Face

The last year has been rough for Facebook’s public image. Cambridge Analytica was a wake-up call for anyone who understands how powerful social media can be in the political sphere, and a recent data breach cost 29 million Facebook users extensive amounts of highly sensitive personal information.

Let’s call all that Facebook’s ‘real’ problem. Betrayal, manipulation and being careless with important information isn’t going to win anyone any friends. But for Facebook, their issues only start with a questionable business model.

Mark Zuckerberg by Anthony Quintano

The other problem that could seriously affect Facebook from a financial point of view is their slowing revenue growth, potentially overvalued equity, and increasing reliance on niche platforms to drive growth. Right now FB is trading at around 23 times earnings, which has led many to speculate that it’s the buy of the century.

Picking up shares in other major tech companies could cost you a lot more. Twitter is trading at almost 100 times earnings, and Amazon stock is hovering just below 140 times earning at the time of writing. With other high-growth tech names trading at such high valuations, why is Facebook selling at such relatively low levels?

A Scary Scenario

The narrative that’s banging around the financial markets is that while FB isn’t the incredible growth story it once was, it’s still worth buying on a long-term basis. Numerous articles have been run over the last few weeks suggesting that FB makes sense to buy at current levels. But this is a seriously dangerous position.

Changes in the tech world are fast, and FB has entered a period of slowing revenue growth. Some estimates suggest that over the next few years Instagram will drive revenue higher, while FB’s core earnings stagnate. That may be the case, however, FB is facing bigger problems.

When more than 29 million Facebook users recently lost their data to hackers, the level of data collection that Facebook engages in was a surprise to many. Mark Zuckerberg has built up a data collection platform that would have been a wet dream for the East German secret police. For more than a decade, people from all over the world fell over each other to offer up their most personal data.

Today people are waking up to the reality that Mark Zuckerberg isn’t some cool young guy who wants to connect people. Instead, he is sucking up any information he can get his hands on, and selling it to the highest bidder.

People have only had a few months to digest the fact that their location, communications, and basically anything else Facebook can get in its servers is being stored for future use.

The realization of Facebook’s business model by the public could be a big negative for a company that relies on user trust to generate revenue.

The Technicals Look Tempting, Like the Sirens of Circe

Facebook stock had an interesting summer. Their Q2 revenue miss caused a major sell-off (probably bot-driven), and then the stock seemed to snap higher. Now it has fallen back to the lows that it saw in March, and it is probably going to drop like a brick from here.

Facebook Daily Chart

The charts actually make FB stock look like a buy, which could sucker people into a major spanking. Both the daily and weekly RSI and MACD indicators are at oversold levels, which could mean that FB is on the edge of a major collapse.

Facebook monthly chart

Pay attention to that massive gap lower in July, and look at the volume that drove FB lower. That kind of selling is normal during a top, which is probably in for Facebook shares.

Stay Away From Zuk’s Mess

The existential crisis described above is just one of many problems that Facebook has to deal with. The tech company is also facing a massive fine within the EU and this dynamic could also punish a company that could be operating in violation of a multitude of foreign laws.

To what degree Facebook will be able to muddle through all of these issues is anyone’s guess. The company may fold, or see its operations severely curtailed over the next few years. From an investment standpoint, FB shares should be considered off-limits and could make a good short position for risk lovers.

Featured image from Shutterstock.

October 16, 2018
Bloomberg Suggests You Are Not Worthy With Wealth Below $25 Million

A recent article by Bloomberg states that many banks and fund managers will turn you away if you’re a pauper with less than $25 million. It doesn’t mean that investment advice is only available for the super-rich, but you should expect an inferior service if the “big boys” don’t want to review your portfolio.

Co-Founder & Managing Partner at TwinFocus in Boston Paul Karger expects a $250,000 minimum fee from his clients. So, turning up with half a million dollars would be slashed in half before you even left the office. Note that the figure of $25 million quoted by Bloomberg is not based on net worth, rather:

“Twenty-five million dollars in investable wealth. The kind of money you could afford to see dip into the red for a quarter or three, maybe even a year or two, without breaking a sweat. With $25 million, maybe, just maybe, you’re starting to be rich.”

Time Effect of Money

As highlighted in the article, the figure of $25 million was around $3 million 25 years ago. We all know that money erodes in value over time and you might be thinking that $25 million is just keeping up with inflation.

No, using the CPI figures available from multpl suggests $3 million would now be around $5.2 million. This perhaps highlights that bankers and fund managers are overcome with gluttony or conversely they “could” be working on lower margins, you decide.

As a child, more than four decades ago, the word millionaire conjured up great wealth, akin to the references to billionaires today. Numbers were always my forte even from a very young age, so it wasn’t that I didn’t understand the “value” of a million dollars.

As the decades passed and I achieved the million-dollar net worth status, I came to realize how insignificant it was. The intervening decades between childhood and my first million had seen the relative value dimish, but it was much more than this.

Property prices had gone through the roof over the years and even though the average US property sells for $200,000 we all know that popular locations command much higher prices.

Many cities across the globe have properties starting from a million dollars, and at the extreme, Knightsbridge in London it could cost you more than $200 million. Millionaires are as common as Trump haters these days and times have moved on.

Millionaire Pad in Knightsbridge by Rob Deutscher

Set Yourself Higher Targets

After many years plodding along in business, I set myself a target of $1.5 million net worth within the next two years and achieved it six months ahead of schedule. Maybe I should have been a little more adventurous and gone for $10 million or perhaps $25 million so bankers and fund managers, per Bloomberg, would take me seriously.

Although I have always considered myself a hard worker, like many, the idea of retiring early has always appealed to me. However, it appears that to retire early, we need to aim for a net worth of at least $5 million if we want to retire before we’re 60. So, that’s another goal you might want to set.

Billionaire status is likely to remain a constant term of reference for the super rich even for decades to come, especially if the forecast global slump comes to pass.

As a child, my mother would often say “who do you think I am, Rothschild?” when I pushed her for the latest tech device. Do parents of today refer to Zuckerberg, Bezos, and Bloomberg or do families in the West simply go out and buy whatever their offspring desires?

I doubt that Zuckerberg set himself a target of being worth more than a billion dollars as a child but for sure children of today will be dreaming of wealth in the order of tens of millions of dollars. Dreams of millionaire status are very much dated back in the 1970’s.

Featured image from Shutterstock.

October 15, 2018
Want to Retire Early? You’ll Need at Least $5 Million to Do It

Financial advisor, motivational speaker, and American author Suze Orman says if you want to retire early, you’ll need at least $5 million to do it. Speaking on the Afford Anything podcast last month, Orman dropped a not-very-motivational bomb on those buying into the FIRE movement (financial independence, retire early).

Is Suze Orman Completely Nuts?

The podcast spurned a fiery storm on social channels across the web, with many accusing the best-selling author of having lost her mind. And also being wealthy and completely out of touch with young millennials and their realistic goals. But after the sh**storm calmed down, it seems that Suze Orman’s gigantic sum may not be so far off after all.

Personal finance blogger the Financial Samurai set about crunching Orman’s numbers and found that, if you want to retire before 60, $5 million indeed sounds about right.

Moreover, the club of those who retire early in the United States is a pretty small one. Just 18% of all Americans retire before 61. Why? Because most of them can’t amass a $5 million dollar nest egg.

Retire Early But Not Before 40

According to the Financial Samurai writer, 40 is the absolute youngest he would recommend any person to retire since it places an exorbitant burden on your investments.

It’s all well and good saving up a $1 million for your retirement but according to his calculations, some $40,000 a year simply isn’t enough to live on in most parts of the country. Moreover, you never know what unexpected costs will arise in terms of your health or family.

Retiring at 50 with some $3 million saved up will bring you closer to a more comfortable lifestyle–although, you’ll still have to be fairly frugal. Especially if you have kids or elderly parents to look after. He says:

“At this age, you might as well keep on working until you’re 60 to eliminate the risk of financial shortfalls.”

Check out this graph used to illustrate his findings:

Not-So-Motivational After All

It seems that far from being mentally unstable, Suze Orman actually really knows what she’s talking about. FinancialSamurai concludes that $5 million in after-tax income leaves you with some $200,000 a year to live on in passive income. And that’s about right if you have a family, live in an urban area or one of the US’ more expensive places like New York or San Fransisco. It’s also not perhaps the conclusions FIRE followers wanted to hear and may keep them working longer.

“There needs to be another downturn to vigorously stress test the FIRE movement… My guess is we’ll see a lot of FIRE folks end up going back to work after a decimation of their finances.”

Featured image Susie Orman photos.

October 15, 2018
Gang Violence Behind Hamptons’ Billionaire Safe Room Spending Spree

It looks like the haves (as opposed to the have-nots) found a new accessory for their multi-million dollar vacation homes. The Hamptons has been a destination for the well-to-do for generations. Today, the harsh reality of international gangs, such as the MS-13, is prompting Hamptons homeowners to add luxury safe rooms to their enormous mansions.

MS-13 is a terribly violent gang that has its roots in the Central American nation of El Salvador. In case you have joined most of the world in tuning out President Trump whenever possible, he believes that MS-13 is one of the biggest criminal threats that the US faces at the moment. The gang also seems to be active in many major US cities.

Last year, MS-13 was tied in with a quadruple homicide in Central Islip, which is just an hour away from the Hamptons by car. Hamptons residents probably figure that if MS-13 members can make it from El Salvador to Central Islip, driving for one more hour isn’t going to stop them from causing mayhem in one of the most expensive destinations in the USA.

The Hamptons Needs Cheap Labor Too!

Most people who own a $15 million USD+ mansion in the Hamptons don’t maintain their own polo fields. It’s no secret that the vast majority of landscaping work in the USA is done by people who come from south of the border.

Some people in the Hamptons may fear that their garden staff is actually an MS-13 recon unit, who keep their machetes sharp for a nighttime assault on a billionaire and their family.

Fears of a Tarantinoesque (think Kill Bill meets Reservoir Dogs in the Hamptons) horror show ‘En Vivo’ are probably behind the trend in super-lux Hamptons panic rooms.

According to The New York Post (NYP), John Catsimatidis, who owns Gristedes Foods and Red Apple Group is sleeping with a Walther PPK/S underneath his pillow. He owns a house in East Quogue, and apparently, his wife Margo, “…prefers a shotgun.”

Small arms are probably only going to enrage a crack MS-13 hit squad, so many others in the Hamptons are spending hundreds of thousands of dollars on panic rooms that are stocked with high-end booze, and military-grade munitions. What could possibly go wrong?

Sort of a Status Symbol

There’s nothing like having your billionaire friends over and sharing a glass of wildly expensive scotch in a brand new panic room. Decades of wildly unfair (‘free trade’) trade policy may have created a vacuum for impoverished Central Americans in the USA. And now people like Chris Cosban, a Long Island-based construction consultant that has installed numerous safe rooms in the Hamptons, are making sure that billionaires are able to sleep soundly (as they enjoy the fruits of globalism).

Mr. Cosban told the NYP that:

“The big thing [with rich homeowners] in the Hamptons is that if somebody has it, they [all] want it,” and added that, “They like to brag about it.”

The head of Sage Intelligence Group was also willing to expand on how his clients use their luxury safe rooms. Herman Weisberg told the NYP that many have safe rooms are designed to accommodate a home theater or act as a weapons vault. Some even use them as wine cellars, which would certainly make riding out an MS-13 raid a lot easier.

Featured image from Shutterstock.

October 11, 2018
HODL Crypto, Sell Shares, Buy Gold

The cryptocurrency markets are bearish, share prices are down across the globe, some experts and indicators say it’s time to buy gold again.

In fact, as an international share sell-off continues, investors may have already started to move their money to gold. Both prices and trading volume for the precious metal are showing an uptick in the early hours of today, October 11, 2018.

Investment firm Incrementum published a chartbook summary this week of their “In Gold we Trust” Report 2018. It summarizes, in charts and bullets, how monetary policy, financial infrastructure, and the performance of other markets affects and could affect the performance of the gold markets.

Incrementum’s chartbook is a must-read and useful if you are currently HODLing onto your cryptocurrency investments waiting for the light and avoiding traditional stock markets.

The Conclusion – If There’s a Recession Buy Gold

The charts show that a number of factors in recent years, including the relationship between gold and global trade, share performance, emerging country reserves, and levels of debt could be signaling that a healthy run for gold values is imminent.

Not least, the possibility of a global downturn, or even a full-on recession, means it could be time to look at stocks of the precious metal instead.

Recent IMF reports of plateauing global growth and concerns over fiscal policy uncertainty and the impact of rising interest rates support Incrementum’s suggestion that a recession might be ahead. At least it could be if governments don’t get a grip on their monetary policies. It’s not just trading issues that are causing problems, confidence in Europe and the UK is falling due to the unresolved “Brexit” scenario.

Incrementum makes it clear:

“How does the gold price perform in recessions? Short answer: Very well!”

There are two key reasons for this, investors look for safer bets in times of financial concern and crises and these investors will avoid “monetary and fiscal stimulus,” and buy gold to protect against inflation:

“Gold is the classical safe haven asset.”

Gold and Crypto Are Friends

Incrementum is also very positive about cryptocurrencies, Bitcoin as “digital gold,” and blockchain technologies which may fundamentally change global monetary order.

“Gold and cryptocurrencies are friends, not foes. In fact, a collaborative approach would play to the strengths of both.”

Underlying gold transactions with blockchain and the emergence of gold-based cryptocurrencies would work towards this collaboration.

Any investment is, of course, a risk and much analysis is needed to decide what avenue is the right choice for an individual. Traditional stock markets are taking a beating and confidence is falling in the big technology companies and their shares. Cryptocurrency markets are waiting for their next big market signals, institutional interest, and regulatory decisions.

Meanwhile, a new gold rush might be on the way…

October 11, 2018
Bail on Apple Shares While You Can

Anything with a half eaten Apple printed on it seems expensive, especially the company itself. The iPhone XS starts at around $1,000 USD and goes up from there. Most people think of computers when they think of Apple. Yet from a business perspective, the company has been a smartphone powerhouse.

At least that has been the case until this year.

Here’s the problem: smartphones are carrying the company’s profits. There is a tremendous amount of competition in the smartphone market. Earlier this year Huawei overtook Apple as the world’s second-largest seller of smartphones, but the stock market just keeps bidding Apple shares higher (apart from the stock selloffs yesterday that saw all major tech companies take a sudden downward turn and Apple (AAPL) down almost 3.5%).

Long Way Down

Apple is valued at more than $1 trillion USD. Their trailing price to earnings ratio has climbed to around 20 over the last few months. A price to earnings ratio of 20 isn’t abnormally high, but it isn’t exactly at value levels either.

Other massive technology companies, like Amazon (whose price to earnings ratio is north of 140), are trading at stupefying levels. Apple’s valuation isn’t nearly as high, but they are highly vulnerable to a substantial drop in earnings. They rely on the Western world to support a business model that may not be able to adapt to the next phase of global growth.

Taken together, these two factors make Apple unattractive as a stock.

Big technology players around the world are highly leveraged to continued consumer growth and a stable financial system. Apple’s presence in the Chinese market has been suffering. Right now Chinese tech heavyweights are expanding into their own nation and other growing markets across Asia.

Apple has depended on Chinese consumers for more than a decade, now they seem to be coming up short. This isn’t great for a business that is highly leveraged to global consumer spending and is able to maintain their valuations because of an accommodative central bank policy.

Wall St. Loves Apple (Which Isn’t Great)

Another reason to avoid Apple shares relates to their relentless rise in value over the last decade. Major investors have made a lot of money on AAPL. The overall economic picture has been looking less stable all year, so sticking with a stock that has lots of profit locked up may be difficult for some investors.

Tech mega caps like Google have risen to earnings multiples around 50, which seems optimistic with Syria heating up again, and an uncertain interest rate situation in the USA. If there is any sort of problem in the global markets, tech heavyweights might be first on the chopping block.

The recent uncertainty in government debt been hard on global markets, imagine what would happen if there was an even larger negative surprise!

Expensive Money is Bad for Growth, and Consumer Spending

Interest rates are still at ultra-low levels around the world. Last week a decent jobs print in the US sent the 10-year yield to levels that haven’t been seen for years. There has also been a string of hawkish statements coming out of the US FED, which could mean a tighter monetary policy in the world’s largest economy.

Apple relies on a consumer that has easy access to high levels of disposable income. In a world where their competition is expanding rapidly, Apple’s business model looks increasingly questionable. Despite the recent higher-than-expected jobs print in the US, the vast majority of US consumers have less money to buy toys than they did a few years ago.

Apple Isn’t a Compelling Story Anymore

A short glance at a weekly chart for AAPL will show that the MACD indicator is at elevated levels, and the RSI is approaching overbought territory. This chart isn’t a slam-dunk short, but it should give anyone who is holding AAPL second thoughts. AAPL shares have been on a winning streak for more than a decade, and there are sure to be some fat profits waiting to be locked-in.

AAPL chart

It is possible that APPL shares will continue to increase in price for a short time, but when the next round of selling comes to the markets, it would be wise to either be out of your position or at the very least sell some calls to offset your potential mark-to-market losses.

Over a longer-term, Apple may be in for a rough ride.

Apple’s core computing business hasn’t generated enough profit to justify their valuation in a long time. As a smartphone manufacturer, they aren’t in a great position. The company sells an expensive product that has a hard time competing outside of the US.

Apple was able to expand in China for many years, but today companies like Huawei and Xiaomi are displacing Apple. The last 20 years have been amazing for Apple, but nothing lasts forever.

Featured image from Shutterstock.

October 11, 2018
If Bitcoin Is a Bubble, Pot Stocks Will Blow Up in Smoke

In case you haven’t noticed, there are plenty of people making money trading pot stocks right now. Getting high on marijuana? Yes. In some cases, positively flying. Just look at the Tilray (TLRY) cannabis company, whose shares increased by over 1,160% since its IPO to reach a market cap bigger than Twitter.

Of course, they’re currently freefalling after their epic high.

So what’s the deal with this quasi-legal industry that brings back memories of sitting in the principal’s office after school? Is it possible that the mother of all come-downs is about to catch up with pot stocks? If Bitcoin is a bubble, pot stocks are going up in smoke. Here’s why.

Cannabis Is Getting Legal

Cannabis is being increasingly legalized across North America. In fact, Canada is on the brink of becoming the first industrialized country ever to legalize recreational marijuana. Instead of a clandestine handshake in the back of a nightclub, you’ll actually be able to buy weed straight over the counter. Although, where’s the fun in that?

In the US, though, there are still some mixed feelings towards the drug. But since lawmakers started opening up to the idea of medicinal cannabis and even recreational pot, talk of marijuana IPOs and pot stocks has been gripping the wider public.

Currently, there are 10 states, including Washington, D.C., that have legalized recreational marijuana, with 29 more legalizing medicinal cannabis. The industry that used to be brandished as criminal is now a seething hotbed of M&As, deals, and IPOs. And investments this year have already surpassed the $5 billion mark.

Beyond Tilray’s mindbending IPO, Aurora Cannabis (TSE: ACB) pulled off the largest marijuana acquisition in history with a $2.5 billion buyout of Ontario’s MedReleaf. And the North American Marijuana Index that measures the largest cannabis industry players has almost tripled in value, up some 650% since February 2016.

No way dude. Cannabis is finally having its moment in the spotlight. But it’s a classic case of smoke and mirrors.

Hype, Hype, and More Hype

As Canada prepares to reshape the cannabis industry forever, marijuana companies of all stripes are finding their way to the mainstream. The marketing term they weren’t allowed to use is now the buzzword du jour.

From recreational-style products to life sciences, medical, and even hemp clothing and beauty products, with less than 10 days to go, the hype is reaching fever pitch.

There’s a decent amount of FOMO in pot stocks right now. So it’s a great idea to invest if you love buying at an all-time high and watching your stock promptly dwindle. Sound good? Check out the hottest pot stocks right now if you’re looking to win (then lose) a fortune.

Tilray Stock Freefalling

1. Canopy Growth (NYSE: CGC)

Already one of Canada’s major medical cannabis producers, Canopy Growth is well-placed to ride the transition to recreational users as well. Thanks to a vast production capacity, millions of square feet of space to grow on, and even some facilities outside of the country, this is set to be one of the largest producers around.

The company has also been busy establishing its distribution network. With supply agreements all over the country, Canopy now has legal POS for all their crop. Even better than that? In an attempt to straddle the mainstream further, they’ll be launching cannabis-infused beverages with partner Constellation Brands soon. Of course, regulation of these won’t be finalized until 2019, but you have to love the idea of getting high drinking a soda.

2. Aphria (TSE: APH)

Alongside Canopy, Aphria’s production capacity is not to be sniffed at either. In fact, they’re looking at producing some 225,000 kilos a year by 2019, overshadowing Tilray and becoming the third largest grower in terms of capacity. They’ve also been astute when it comes to networking, having lined up agreements across Canada’s provinces.

The company further signed a deal with Emblem Cannabis to supply 175,000 kilograms of cannabis over a five-year period beginning in 2019. Oh, and Coca-Cola is reportedly looking for a cannabis partner to make marijuana beverages as well.

Whether Aphria will sign the line with the FMCG giant or not is TBD. But there are plenty of beverage companies in the works that would allow Aphria to further deepen their foothold in the recreational space. And the speculation does wonders for their stock.

3. Aurora Cannabis (TSE: ACB)

Making history through its Medreleaf M&A, Aurora Cannabis has been acquiring cannabis producers left, right, and center. This means it has some pretty deep roots in this burgeoning industry that leave it well-positioned to be one of its biggest players.

With a current capacity of 150,000 kilograms by the end of this year, we should soon see this leap to around half a million kilos thanks to all this company’s buyouts.

There are also plans in the works to list their stock outside of Canada on a major U.S. stock exchange, giving the company greater exposure to US investors. Who may or may not be interested after the pot stocks go puff.

Invest in Pot Stocks?

There are plenty of reasons to invest in pot stocks right now. Firstly, because everyone else is doing it. Secondly, because, if you like taking baths, the mother of bubbles is about to burst. And finally, because no one is really sure how high demand for the legalized product will be. It could be explosive leading to shortages in supply(!!). Or, we might just find that people were pretty happy with their neighborhood provider after all.

Analysis from ArcView Market Research and BDS Analytics estimates that the Canadian recreational marijuana market will reach around $2.1 billion next year, with around another $600 million for medical cannabis. These are some bullish projections, to say the least, indicating that share prices could indeed continue to rise. Or, on second thoughts, probably contributing to their high prices currently.

Over-hype, escalating FOMO, and unconfirmed levels of demand… Remember the Bitcoin “bubble“? Pot stocks are headed for a similar fate, get on board now if you don’t want to miss out.

Featured Image from Shutterstock.

October 8, 2018
Is Elon Musk Losing Control of His High-Tech Empire?

Everyone seemed to love Tesla. For years Wall St. couldn’t get enough of a company that still hasn’t made a profit. Super smart billionaire playboy Elon Musk has been one of the most interesting people in business for a long time generating headlines on a daily basis. Over the last few months, however, things seem to have taken a wild turn for Mr. Musk and the companies he’s built.

There has always been criticism hurled toward Elon Musk. As the chairman and CEO of an independent electric car company, some amount of naysaying from the public should probably be expected. Many doubted Musk’s vision for the future of transportation. However, when it came to money, there always seemed to be another investor waiting in the wings.

Elon Musk presided over Tesla’s (NASDAQ: TSLA) run from under $20 USD a share to nearly $400 USD last year. At its peak, Tesla was valued at more than $60 billion USD. Not too shabby for a company that has burned money since day one. Elon Musk may have felt like he was untouchable, but that’s probably changing.

Smokin’ Dope With Rogan

Pretty much everybody knows that Joe Rogan likes to get high. He also drinks whiskey with Alex Jones. Getting high and wasted with goofballs seems to have been a successful business model for Joe Rogan. But Elon Musk may have strayed into dangerous territory when he decided to smoke contraband on camera.

To be clear, cannabis is legal to smoke in California, where Joe Rogan creates the magic that is his podcast. At the federal level, though, cannabis is still extremely illegal in the USA, which puts Elon Musk into something of a bind. Not only is Musk the chairman and CEO of a multi-billion dollar company, but he also holds a security clearance from the US Air Force for his role in Space X.

Who Says Pot Doesn’t Give You a Hangover?

Let’s hope that the buds that Joe Rogan passed Elon Musk were top quality because he’s paying dearly for that big hit of reefer. In the wake of his smoke session, TSLA shares dropped by more than 10%. Tesla also lost their Chief Accounting Officer (CAO), and Chief People Officer (CPO).

Ex-Tesla CAO David Morton had been at Tesla for less than a month before he took off in early September. CNBC reported that David Morton felt like Tesla just didn’t listen to him. He had worked at Seagate Technology for two decades prior to his interlude at Tesla, which makes the departure look all the more dramatic.

Longtime Tesla bull and Nomura analyst Romit Shah downgraded TSLA to “Neutral” after Mr. Musk got high. He went on saying:

“Mr. Musk’s behavior is well documented and likely contributed to the onslaught of executive departures in recent months.”

While there seem to be only two high-level staff departures that are directly related to Elon Musk’s lighting up, there have been at least 13 others that have left since the beginning of 2018. Many of them don’t list another position in their LinkedIn, which could mean just about anything.

Nine Words for $40 million USD Seems Like a Bad Deal!

The consequences from Elon Musk’s move to smoke dope are hard to put in monetary terms, but his decision to tweet that Tesla was going private for $420 USD a share is some of the most expensive writing in recent memory.

The Securities and Exchange Commission (SEC) recently came to an agreement with Mr. Musk over the illegal tweet. In the end, it cost him $20 million USD, and the position of chairman at Tesla. The company had to pony up another $20 million USD, which puts the cost of that tweet at $40 million USD.

As more details about the apparently non-existent offer to take Tesla private have emerged, Elon Musk’s oversights look much worse. In fact, he’s freely admitted that the figure of $420 USD was inspired by the number’s significance in the drug culture and that there is no written evidence of any plan to take Tesla private.

The Air Force Isn’t Amused

The US armed forces are pretty clear about their policy on drug use. Beefed-up podcasters in California can get away with dancing around federal drug law. CEO’s of space exploration companies that hold a federal security clearance are in a totally different league.

Elon Musk may not have understood the kind of position he had before he decided to make illegal tweets, and get high on camera. Now that the US Air Force is investigating his actions, he may be waking up to the fact that his role as a leading innovator and industrialist means living with a lot less freedom than freewheeling podcasters.

For the moment Elon Musk is still the CEO of Tesla, and there has been no formal action taken against him by the US Air Force. One hopes that he has learned a lot over the last few months. If he had any questions about where his limits are, now he has a much better idea of which lines even he should avoid crossing.

Featured image from Shutterstock.

October 8, 2018