Checking in on Our Favorite 'Boom and Bust' Sector
Checking in on our favorite 'boom and bust' sector... Never forget the most important 'law' of resource investing... This commodity has never been more hated... On the edge of a 92% rally... 'The No. 1 way to profit from the legal marijuana boom'...
Longtime Digest readers know we keep a close eye on the resource sector...
This is because commodities can be a valuable part of a proper asset allocation plan. Bought at the right time and in the right way, they can be a great way to diversify some of your money outside of the traditional asset classes most folks are familiar with (like stocks, bonds, and real estate).
But before you consider investing even $1 of your hard-earning savings, you need to know the most important "law" of the resource sector...
Commodities are cyclical. They can go through spectacular "booms" that are inevitably followed by massive "busts," and vice versa.
The reasons aren't complicated, but they're critical to
Like most free markets, supply and demand drive individual resource markets...
Whenever supply and demand get "out of whack," the market reacts and corrects the imbalance.
In simple terms, if the supply of a particular commodity becomes scarce relative to demand, prices will rise. Higher prices will attract new capital to the market in search of a profit and encourage existing producers to produce even more. Supply will rise, prices will fall, and the market will reach an equilibrium again.
It works the other way as well... If supply rises compared with
In most markets, producers are making these adjustments constantly...
Supply and demand rarely get too far out of whack, and prices are relatively stable.
But the resource markets are different. When supply and demand become imbalanced, it often takes much longer for these markets to react.
Why? Because as our friend and resource expert Rick Rule likes to say, resource markets tend to be both "capital- and time-intensive." In other words, it typically takes a lot of time and money to build a mine... drill a well... or start a productive farming operation. And once a producer has spent years and millions (or even billions) of dollars to begin producing, it is often hesitant to slow or stop when prices start falling.
This allows the supply and demand imbalances in resource markets to grow much larger and persist far longer than they otherwise would. And it leads to huge price swings with extreme highs and lows you don't see in most other markets.
This also means commodities are often 'uncorrelated' to stocks and other assets...
And it can be particularly valuable when most traditional assets like stocks and bonds are historically
History is full of examples where commodities have boomed while stocks have fallen or gone sideways. Likewise, in recent years we've seen many commodities fall during one of the broadest bull markets in history.
In fact,
In short, when you buy a commodity at the right time – following one of these massive
Our colleague Steve Sjuggerud recently shared one such opportunity with his subscribers...
Prices have fallen more than 60% in a brutal, multiyear bear market. But Steve and senior analyst Brett Eversole believe the next boom is about to begin. As they explained in last week's True Wealth Systems Review of Market Extremes...
Boom and bust cycles... Investors tend to see them as black swans... or once-in-a-generation events.
But they're commonplace in the commodities markets. And today, we've spotted a commodity that could be at the bottom of a bust cycle... and on the verge of a major boom.
You see, this commodity is now more hated than at any point in history. Everyone expects it to continue lower. And that makes the bet on higher prices a contrarian bet... which we love to see.
So... what is this commodity?
Gold? Copper? Oil?
Nope. It's a market you've probably never considered buying. More from Steve and Brett...
We're talking about coffee.
Coffee is dead to investors. It's more hated than ever before, based on one of our favorite measures – the Commitment of Traders (COT) report.
The COT report gives us weekly insights into what futures traders are doing with their money. And based on history, if futures traders are all making the same bet, the opposite is likely to occur.
Today, futures traders are betting on lower coffee prices. They haven't been this bearish at any previous point in history. Take a look...
As they explained, coffee isn't merely dirt-cheap today...
It also has never been more hated than it is right now.
In fact, they note sentiment has only gotten close to this bearish two other times in history. Both occurred in the past five years. And both led to huge returns...
In 2015, coffee hit a similar extreme. Investors were sure the price could only head one direction... down. But instead, it soared 45% in just 10 months.
Amazingly, just a year before, there was a similar setup. In 2014, investors were once again betting on the demise of coffee. It didn't work out [either]...
In less than a year, the price per pound of coffee soared 92%. A shocking occurrence for the masses betting on lower prices. And it all happened in just 11 months.
Steve and Brett believe similar gains are likely in the next 12 months or less.
To be clear, they have not officially recommended buying coffee at this time...
As longtime readers know, Steve prefers to buy assets that are not only cheap and hated, but also in an uptrend. And as you can see in the following chart, coffee – as represented by the iPath Bloomberg Coffee Subindex Total Return ETN (JO) – has not yet started a new uptrend...
If you're looking for a way to diversify your portfolio outside the "Melt Up," coffee is worth a look. History suggests it could nearly double over the next several months no matter what happens to stocks.
Coffee isn't the only 'boom' we're tracking in the resource markets today...
There is another that is already underway... and that offers dramatically higher upside potential.
However, we hesitate to discuss it.
You see, simply mentioning this "commodity" in the past has triggered a flood of complaints in the mailbag... and led to waves of cancellations the following day.
Of course, we're referring to marijuana... or more specifically, legalized marijuana.
We know marijuana use remains a contentious issue for many readers...
But like it or not, marijuana is a commodity... and one that is rapidly gaining support across the U.S. and around the world.
Today, nine states and Washington, D.C. have legalized recreational marijuana use. Another 21 states have approved it for medical use. All told, more than half the states in the U.S. allow for some sort of legal marijuana use.
As is often the case, these changes have coincided with a dramatic shift in public opinion...
As you can see in the following chart, a survey from polling and analytics firm Gallup found that 64% of Americans currently favor legalizing marijuana use...
This is up from just 12% in 1969 and
In short, we've likely reached a "tipping point," where it's simply a matter of time before legal marijuana is available in all 50 states.
We're seeing a similar trend in countries around the world...
Several major countries – including Australia, Germany, Italy, Greece, and Mexico – have already legalized medical marijuana.
Canada has gone even further... It expects to fully legalize recreational marijuana
This is where you'll find most of the publicly traded marijuana stocks today... And many have already had incredible runs in the past year. The three largest producers by market cap in Canada – Canopy Growth (WEED.TO), Aurora Cannabis (ACB.TO), and Aphria (APH.TO) – are up hundreds of percent in the last six months alone. And many smaller, more speculative stocks have soared multiples more.
Of course, one big problem remains...
Marijuana remains illegal under federal law in the United States and many other countries.
This means many American companies risk being shut down by the government at any time.
And while we expect the trend toward legalization to continue, we expect significant regulatory battles ahead. We have no way of knowing in advance exactly how it will shake out... or who the biggest winners and losers are likely to be.
So despite the obvious opportunities in this market... and despite the big gains by early investors to date... we've stayed on the sidelines so far.
But what if there was a way to invest in this trend without exposing yourself to these risks?
What if there was a way to profit from this boom without having to choose the winners and losers in advance?
Commodity Supercycles editor Bill Shaw believes he has found exactly that...
It's a real business with real profits
Bill says it's the single best way to profit from the legal marijuana boom today.
It wouldn't be fair to Bill's paid subscribers to share all the details here, but you can get instant access to this recommendation with a 100% risk-free subscription to Commodity Supercycles. Click here for the details.
New 52-week highs (as of 3/9/18): Apple (AAPL), AMETEK (AME), Amazon (AMZN), CBRE Group (CBG), First Trust Nasdaq Cybersecurity Fund (CIBR), CME Group (CME), Cisco (CSCO), Grubhub (GRUB), Intel (INTC), MercadoLibre (MELI), MarketAxess (MKTX), Monsanto (MON), Microsoft (MSFT), Match Group (MTCH), ProShares Ultra Technology Fund (ROM), and ProShares Ultra Semiconductors Fund (USD).
In the mailbag, several subscribers respond to Porter's "best recommendation of all time." What did you think? Let us know at feedback@stansberryresearch.com.
"Thank you, Porter, for the excellent information on American Express. I always had the feeling it was too expensive a stock for me. Now I know better. I do appreciate your informative e-mails." – Paid-up subscriber Lynette Kelly
"Hello, one of the best, have been AMEX
"Porter: Great info about a great company – I was one of the original cardholders back in 1958." – Paid-up subscriber Bud Kuball
"Porter, to support your AXP thesis... I have owned the stock since 1982. You forgot to mention the AMP
"Somebody slap Porter. He is GIVING AWAY [Stansberry's Investment Advisory] and Stansberry Data for only $750 for life!?!?!?!??! The service is EASILY worth 10x that. Heck... just the Insurance Value monitor is worth 10x. I deeply regret selling my American Express. I was up 40% on Porter's recommendation but I sold the position completely during a rebalance. Just goes to show Porter's learning me is a
"I would have never considered the stock Porter is hinting at in the Friday Digest because, on the surface, the business looks like nothing special. But it's exactly the type of company Buffett SHOULD be buying now. Maybe I'll beat Warren to it for once. Horse, meet water. I'll drink!
Regards,
Justin Brill
Baltimore, Maryland
March 12, 2018