The Mailbag: Recession, Energy, Marijuana…and More
Think of Mind Over Markets as a tribal village…on a global scale.
During the tumultuous 1960s, the influential futurist Marshall McLuhan predicted that technology would transform human society into what he termed a “global village” of instantaneous communication that transcended national boundaries.
McLuhan died in 1980. If you haven’t seen it, check out McLuhan’s famous and quite hilarious cameo in Woody Allen’s 1977 film Annie Hall, in which McLuhan (playing himself) mocks a pompous college professor.
McLuhan was one of the greatest philosophers of the 20th century and he anticipated the contradictions of this century’s online world. The Internet is the high-tech product of centralized industry and yet it conveys the decentralized, interactive characteristics of a pre-industrial tribe.
Let’s see what the members of our tribe have to say.
Hard times ahead?
“The 22-month average lag (before a recession occurs after an inverted yield curve) has been cited often recently, but readers would do well to note that the lag has been as little as five months. Don’t be complacent.” — John L.
Excellent point. Also, the yield curve first inverted back in December, so we’ve already used up 10 months.
Many analysts are calling for a recession (or even a bear market) to hit within the next 12-18 months. We’re also likely to suffer a stock market correction before the end of 2019.
A recession occurs when there’s a period of falling economic activity spread across the economy, lasting more than a few months. A bear market occurs when stocks are down 20% from their all-time high. Since 1950, the U.S. has witnessed 10 recessions and 9 bear markets. Nearly all of the recessions have overlapped with the bear markets.
Correction triggers abound. Even if the Sino-American trade war is somehow resolved soon (and don’t bet on it), additional signs of economic weakness will sow further volatility and sell-offs.
But you don’t have to sit on the bench. You can stay in the investment game, by following our advice.
You can recession-proof your portfolio, and also reap growth and income, by rotating to defensive plays such as utilities and real estate. Those two sectors have been on a tear so far this year.
As of the market’s close on Thursday, the benchmark exchange-traded funds (ETFs) Utility Select Sector SPDR (XLU) and Real Estate Select Sector SPDR Fund (XLRE) have racked up total returns year-to-date of 24.9% and 29%, respectively, compared to 19.9% for the SPDR S&P 500 ETF (SPY).
The market-beating returns of XLU and XLRE are all the more remarkable, because they’re considered safer defensive plays. Of course, it also means that these two sectors are getting pricey. But you can still find values.
Perhaps an even more appealing defensive sector right now is health care, which has struggled so far this year but is poised to outperform as an “essential services” play during hard economic times.
The volatile energy sector…
“I’m a very conservative investor, as I should be at age 91. But I got excited some months ago and bought a stock in the fracking oil business, leaving me with a paper loss of several thousand dollars. I’m wondering what options I have. Do you have any?” — Robert L.
Securities law prevents me from giving you personalized advice, but this article should help you:
It’s hard to say when beaten-down shale producers will bounce back. Production has been booming in North America, especially in the prolific Permian Basin in the southwestern United States. However, that’s been a double-edged sword. This output has offset OPEC production cuts, which in turn has put downward pressure on oil and gas prices.
The recent slump in energy prices is weighing on the U.S. shale industry, with top executives predicting another round of bankruptcies in the sector.
The September 14 attacks against Saudi Arabia’s oil infrastructure is another wild card. The Saudis have largely repaired the damage and disrupted oil production is back online, but following the attacks the Saudis made deep withdrawals from stockpiles.
As the following chart shows, the per-barrel prices of U.S. benchmark West Texas Intermediate (WTI) and international benchmark Brent North Sea crude have greatly vacillated over the past 12 months (data from the U.S. Energy Information Administration, as of Thursday’s market close).
The energy patch is likely to remain volatile over the next few months, as supply continues to outstrip demand. However, many quality energy stocks are now trading at a discount, which makes them appealing in a stock market where value is getting harder to find.
Rising global energy demand combined with production restraint from producers should eventually provide a sustainable tailwind for oil prices, lifting the shares of beleaguered energy companies. But first, you’ll have to endure some short-term pain.
“I’ve been reading a lot of stories about marijuana investing. So much of this coverage seems like hype and exaggeration! Is the cannabis industry really such a hot area for investors? I trust your judgment. I want to make money but I’m close to retirement and I can’t afford to make any mistakes. Great column, by the way. Love reading you every day.” — Matt S.
The legalization and subsequent commercialization of marijuana is an unstoppable trend and a once-in-a-generation chance to get onto the ground floor of an industry that’s becoming a juggernaut.
The marijuana industry got a big boost on Wednesday, when the House of Representatives passed a standalone marijuana banking reform bill, an historic first. The House advanced a bill that would protect banks that service the cannabis industry from being penalized by federal regulators.
Called the Secure And Fair Enforcement (SAFE) Banking Act, the legislation seeks to expedite the provision of financial services to cannabis companies by removing the fear of potential federal action against lenders.
Many banks are reluctant to lend to marijuana businesses because of uncertainty over the industry’s legal status. The bill now moves to the Senate, where chances of passage are good. President Trump has not indicated whether he would sign it.
The right pot stock could turbocharge your portfolio. But you need to be selective and avoid risky penny stocks and fly-by-night players.
If you’re looking to reap market-crushing gains in a short amount of time, I suggest that you tap into our exclusive cannabis trading event. We’ll show you how to make life-changing amounts of money, within a highly lucrative (but largely unknown) niche of the marijuana market.
My colleagues put together a special workshop dedicated to marijuana investing. Click here for full access to our event.
John Persinos is the managing editor of Investing Daily. You can reach him at: firstname.lastname@example.org