foxex: The Cannabis Patch is on Fire, Again

Insight after the bell

By Caleb Silver, Editor in Chief

Four for Thursday:

The Cannabis Patch is on Fire, Again
Tariff Troubles
Insiders are Selling… Cause for Concern?
Chart of the Day: Happy 20th Google.com

# 1 Bro… Who's blowing the cannabis bubbles?

Pot stocks are flying again… it must be a Thursday. We kid, but the cannabis craze is alive and well, and kind of bubbly. But today's high-flyer, GW Pharmaceuticals, is actually up on good news related to the DEA's reclassification of Epidiolex, its cannabidiol-based drug to treat seizures stemming from epilepsy. This should pave the way for a commercial launch of the treatment and a huge stake in the ground for cannabis-based medicine and the companies in the sector. This is the actual promise of the cannabis industry, and the U.S. is way behind other countries like Canada, Israel and the UK in terms of development.

Why it Matters: It's hard to separate the promise of cannabis-based medicine from the mania for cannabis stocks, but you have to. The whole cannabis patch is on fire today because of the GWPH news, but that is what happens in a bubble. Most of these companies aren't profitable, never will be and shouldn't be the foundation of your portfolio. We are not suggesting you don't invest, but treat cannabis stocks and ETFs like any other asset class in a developing industry, and don't get caught up in the hype.

A word about the hype… This shouldn't come as a surprise, but like crypto a year ago, cannabis stock trading is being driven by young millennial men who trade in and out of stocks with great frequency. This is according to data from TD Ameritrade, which tracks such things. That is why we see these incredible daily swings in stocks like Tilray, Canopy Growth, and the like. Wild swings in individual stocks are not a safe place for long-term investors to hang out. #StaySmart

What's Next: The more regulators are open to allowing cannabis-based medicines to be used as treatments for conditions related to epilepsy and other neurological issues, the better, for everyone. Many of these treatments show a lot of promise and can actually help people who need it. That's the future of the cannabis industry investors should look at, rather than the latest dispensary selling cannabis cupcakes down the block.

Top Marijuana Stocks to Watch

#2 Tariff trouble

Ford Motor Company's CEO said that the company would potentially see a $1 billion hit in profit due to the imposition of tariffs on steel and aluminum in the ongoing U.S.-China trade war. That's a huge hit for a company that saw a net income of $7.6 billion in 2017. This revelation comes just a few days after the $200 billion tariffs that U.S. imposed on China kicked in and trade talks between the two nations fell through.

We've had a few rounds of duties and counter-duties being levied from both sides, but tariffs on steel is where it all began. The first salvo in this trade war was fired when U.S. steelmakers complained against Chinese-originated Vietnamese steel imports in December 2017, and the Trump administration imposed a 25% duty in a response to that.

Why it Matters: The U.S. is the largest importer of steel in the world, though China is not among the top 10 nations originating this steel, says the Department of Commerce. Due to the tariffs, even though the volume of steel imports has declined 9% in the first two quarters of the year, the value of those imports jumped 8%.

Many large corporations are caught in the crossfire as trade tensions between the U.S. and China escalate. Automakers have been hit hard, while construction and manufacturing companies like Caterpillar and General Electric have estimated the impact is between $100-$200 million and $300-$400 million respectively.

What's Next: As companies begin to struggle under the increased burden of either more expensive imports or the cost of readjusting their supply chains, their margins will become thinner. Shareholders might take a hit in the short term, but over the longer term it will be the consumers who suffer as the costs get passed on to them through price increases. Price hikes would likely be felt across many different sectors from autos to home renovation. CNBC reported that 40% of earnings calls for Q2 2018 mentioned the word 'tariffs', with the earnings season around the corner that is a trend that could continue.

What are Tariffs and How do They Affect You

US Autos Hit Most By US, China Tariffs: AmCham

#3 Why are insiders selling at the fastest pace in a decade?

This one got our attention… TrimTabs data shows corporate insiders sold almost $6 billion of their own stock in September, the most in a decade. This is happening at the same time that companies are buying back record amounts of their own shares. With the backdrop of a lot of companies starting to pull down their earnings forecasts for Q4, it makes you wonder if some insiders sense the slowing of the gravy train. Or...maybe they just need some cash?

Why it Matters: Insiders sell for a variety of reasons. Many executives have scheduled plans to sell their shares on a quarterly or annual basis for tax and estate planning, diversification needs or similar matters. It gets our attention when CEOs like Jeff Bezos and Mark Zuckerberg sell shares, but they have billions of dollars' worth, so liquidating a few hundred million is child's play for them. Sometimes, however, rampant insider selling in a particular company or sector can be seen as a sign of no confidence. The fact that companies are buying back shares like they are going out of style makes this rash of insider selling peculiar. Companies buy back shares when they think their stock is undervalued, they don't have a better use for the cash, or they are trying to boost their earnings per share by reducing the amount of shares outstanding. It's a strange disconnect, and one we will continue watching.

What's Next: A pronounced increase in insider selling is worth paying attention to for normal investors like us. If it increases among companies that are reining in quarterly forecasts or eliminating businesses, it's a sign of no confidence. To be sure, insiders can't trade based on inside information - no one can. But if the selling follows the release of bad news, there may be a hole in the boat and you don't want to be in it.

Read more:

Insider Selling isn't Always a Bad Sign

Chart of the Day: Happy Anniversary, Google!

Twenty years ago, a little company in Mountain View, California launched a search engine to help index the world wide web. Seemed like a good idea at the time, right? Today, that company, now known as Alphabet, basically runs the internet and many things that run through it. You don't have an online business, blog or bazaar unless Google lets the world know that you do by surfacing your results and pointing to you. Trust, us… we know these things. As the story goes, there was a lot of debate between founders Sergey Brin and Larry Page as to how to design Google's homepage to make it easy for users to search for things.

They settled on a pretty simple design that looked like this:

Funny how simple things tend to stick. It's even more simple now, and search is now audio enabled in case you don't feel like typing.

20 years later and that little company in Mountain View has a market cap north of $830 billion, and is into just about every business imaginable. They have troves of consumer and investor data and are getting to the point where they know what we will be searching for before we even know it. We're not going to go Aldous Huxley on you here, but given who we are, we thought we'd show a Google Trends chart of user interest in stock vs. bond since 2004, which is as far back as Google Trends will show. It looks like this:

If you glance at the actual chart for stocks and bonds in the country over the past 20 years, let's say represented by SPDR S&P 500 ETF and the iShares Core US Aggregate Bond ETF, it looks kinda like this:

Funny how that works! Google knows who we are, what we want, and where we are going. What it does with that information (our information) is the challenge of the 21st century when our data is currency.

Happy Anniversary, Google!

Other headlines:

U.S. SEC Sues Tesla CEO Musk, Alleges Fraud Over Tweets

Facebook Seen Rising 9% Short Term As Profits Fall

Oracle's Stock May Drop by 9% on Bearish Outlook

The Economy Is Flashing Warning Signs To Investors

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