Happy Jobs Day! Ed’s Daily Notes for January 10th   Leave a comment

Will work for food

U.S. Employment report at 8:30 am EST today. My view is the markets will view any non-farm payroll results outside of the consensus range (according to Bloomberg, the estimated range is from 120k to 225k more jobs) as a positive. In other words, if the jobs come in below the estimated range, that is good for the “more QE” crowd, whereas a stronger than expected number is good for the “economy is improving” crowd. A number inside the range could leave both crowds unsatisfied, although it is also possible the markets will just be happy to get the report out of the way.

Most of the recent jobs reports have been mildly positive, so I wouldn’t be surprised by a non-farm payroll number above the 225k top of the range. Stay tuned…

Bloomberg: Pot Shares Rally 21% to 1,700% as Speculators See Green

Bruce Perlowin, the chief executive officer of Hemp Inc. (HEMP) who has seen his stock soar 205 percent to 8 cents in the last three days, says investors are suddenly bidding up marijuana companies because they want to find “the next Microsoft.” Robert Frichtel, his Advanced Cannabis Solutions Inc. up 144 percent after posting $455 in sales last quarter, said “euphoria” is driving gains that in some cases top 1,700 percent.

“The demand for marijuana is insatiable,” said Perlowin, a once-jailed smuggler who filed last month to sell 12 million shares of the Las Vegas-based company even as its market value holds at 99.97 percent below the world’s biggest software maker. “You have a feeding frenzy for the birth of a new industry.”

Yes, we are seeing the beginning of a marijuana gold rush in the stock markets. However, the article above contains some very excellent advice for investors:

Bruce Campbell, a fund manager with StoneCastle Investment Management Inc., said investors should buy a basket of marijuana companies instead of trying to pick a winner out of a group of small, thinly-traded stocks.

“You want to do it with a basket, knowing a couple of them will blow up and do really well, with the rest somewhere in the middle,” Campbell said on the phone from Kelowna, British Columbia. He helps manage about C$100 million ($92.4 million) with the firm. “Your basket will probably give you some good returns over the next five to 10 years.”

I can sit here and poke holes in specific marijuana stocks all day long. But there will be a few that will undoubtedly prove me wrong over the long-term, and those few will probably end up being huge gainers.

If you are going to pursue this strategy, here is what I would suggest to keep it reasonably risk-free:

First, look for revenues. If they can’t sell anything now, that’s a bad sign. You can always add more stocks later as they show they can make sales.

Second, the exception to the first rule comes in medical marijuana stocks, but those stocks will take much longer to show any kind of returns. If you are building the portfolio around the idea of recreational marijuana legalization, you might even want to avoid the medical marijuana stocks. Personally, I still think GW Pharmaceuticals (GWPH) is the “best in class” of the medical marijuana stocks, and can easily be held as a regular stock in any portfolio.

Third, the article mentions there will be some shady characters in this business. I would avoid companies with executives who have been involved in previously failed penny stocks. On the other hand, I wouldn’t necessarily avoid executives with marijuana convictions, assuming that is their only conviction. At least they know the business. Just consider how many booze-runners became legitimate businessmen after Prohibition was repealed (JFK’s father Joe comes to mind).

Fourth, don’t weight individual stocks too heavily. Try to keep your positions as evenly weighted as possible. Remember, just because you like a stock doesn’t mean you’re right. The overwhelming majority of marijuana stocks are questionable at best.

Fox News: ‘Where’s the beef?’ ad turning 30 this week

Today is the 30th anniversary of one of the most important tv commercials ever made, which added a new cliche into the English language:


Posted January 10, 2014 by edmcgon in Economy, Market Analysis, News

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