A Jaw-Dropping Statistic About the World's Central Banks
More good news on trade (for now)... Why we aren't holding our breath for a deal... A jaw-dropping statistic about the world's central banks... Japan is putting the U.S. and Europe to shame... Another potential tailwind for 'pot stocks'...
Here we go again...
When it comes to the ongoing "trade war" between the U.S. and China, contradictory rhetoric is nothing new. One week, we'll hear the two countries are moving closer to a deal. The next, President Donald Trump is threatening to impose a new round of tariffs.
But until this month, we hadn't heard conflicting reports on the same day. Prior to last week's midterm elections, we heard a report that White House officials were drafting terms of a deal... a firm rebuttal from another official that in fact, no progress was being made toward a deal... and then a statement from the president himself that a deal was possible... all within a few hours.
As we mentioned at the time, given both countries' hard stance on trade to date, there was little reason to believe a sudden breakthrough was imminent.
We were right. There was no deal... And in hindsight, the timing of those announcements suggests they may have been little more than thinly veiled attempts to boost the U.S. stock market ahead of the elections.
Why do we bring this up?
Because yesterday, stocks suffered their worst decline since October. And within hours – coincidentally, of course – we heard yet another report of progress. As the Wall Street Journal reported last night...
Treasury Secretary Steven Mnuchin has resumed discussions with his Chinese counterpart, Vice Premier Liu He, about a deal that would ease trade tension, ahead of a meeting of the leaders of China and the U.S. set for the end of the month.
The two spoke by telephone on Friday, said people briefed on the conversation, as the U.S. demands that China put forward a concrete offer before negotiations on a trade deal can take place. Chinese officials are resisting and say they want to talk first before making a formal proposal. They worry that once they make a formal offer they will lose leverage, say officials in both countries.
The Friday conversation didn't lead to any breakthrough in those issues but the renewed discussions indicate the two sides are trying to reach an accommodation, the officials say.
As we've said from the beginning, we would welcome an end to this skirmish. A trade war has no winners. But we're not holding our breath just yet.
If you thought the Federal Reserve was bad...
Regular readers know that the world's major central banks – the Fed, the European Central Bank ("ECB"), and the Bank of Japan ("BoJ") – have flooded the world with trillions of dollars of "easy money" over the past decade.
The following chart – which we originally published a little more than a year ago in the September 21,
Of course, since then, some things have changed...
The Fed began unwinding its quantitative-easing program last October. It has reduced its balance sheet by roughly $400 billion since
Likewise, the ECB has now stopped its quantitative-easing program and has announced its own plans to begin unwinding next year.
Today, only the BoJ continues to 'print' more money...
And print it has. In fact, it has just achieved a feat we've never seen from any other developed country before. As news
Japan's central bank has become the first among G7 nations to own assets collectively worth more than the country's entire economy, following a half-decade spending spree designed to accelerate weak price growth...
The 553.6 trillion yen ($4.87 trillion) of assets the Bank of Japan holds are worth more than five times the world's most valuable company Apple and 25 times the market capitalization of Japan's most valuable company Toyota Motor.
They're also bigger than the combined GDPs of five emerging markets – Turkey, Argentina, South Africa, India, and Indonesia.
Yes, you read that correctly...
Today, the BoJ's balance sheet – which holds roughly half of all outstanding Japanese government debt and massive amounts of Japanese stocks – has ballooned to more than the total productive capacity of the entire Japanese economy.
To put this in perspective, the Federal Reserve's balance sheet reached approximately $4.4 trillion at its peak. Yet, to surpass U.S. GDP, it would
Let that sink in for a moment...
This is truly unprecedented. It makes the stimulus efforts of the Fed and ECB look downright tame in comparison. And again, the BoJ continues to print even more today.
We don't know exactly how this will all end, but we can guarantee it won't end well.
Finally, as we noted in Thursday's Digest, 'pot stocks' have been back in the spotlight after last week's midterm elections...
Michigan voters approved the use of recreational marijuana, while voters in Missouri and Utah voted to legalize it for medicinal purposes.
The day after the midterms, President Trump asked U.S. Attorney General Jeff Sessions – an outspoken opponent to the legalization of cannabis – to step down from his position.
But that's not the only reason to think the trend toward broader legalization in the U.S. could continue...
For the past five years, Texas Republican Pete Sessions (no relation) has served as the chairman of the U.S. House of Representatives' influential Rules Committee. And he, too, was a strong opponent of legalization. As the Boston Globe noted in an article last week...
Since becoming chairman of the committee in 2013, and despite strong public support for reforming marijuana laws, he has stopped dozens of cannabis-related amendments and bills from reaching the House floor – including at least 34 since January 2017, according to one analysis.
Among the bills blocked by Sessions were proposals that would have allowed state-legal marijuana firms to access banking services, bolstered protections against federal prosecution for medical marijuana patients and workers, and prevented the VA from discriminating against veterans who consume cannabis for medical reasons.
All of that is about to come to an end, though...
Not only did Sessions lose his House seat to Democrat Colin Allred in a hotly contested race, but as the Democrats took the House of Representatives back, Massachusetts Democrat Jim McGovern will oversee the Rules Committee going forward. More from the Globe...
"Unlike my predecessor, I'm not going to block amendments for marijuana," [McGovern] said. "Citizens are passing ballot initiatives, legislatures are passing laws, and we need to respect that. Federal laws and statutes are way behind."
According to McGovern, this isn't just about his support for marijuana reform. It's part of a bigger effort to make the House more democratic. He blasted Sessions for rarely allowing amendments to be made "in order," essentially allowing GOP legislative leaders to decide behind closed doors which measures are considered by the full House.
In the interview, McGovern said he would work with individual states to legalize cannabis without government interference, help cannabis businesses gain access to legitimate banking services, and supported military veterans' ability to receive medical marijuana in states where it's currently legal. He continued...
"This just seems like common-sense stuff," McGovern said. "Especially on the issue of medical marijuana – people who are opposed to that are just on the wrong side of public opinion, overwhelmingly. It'd be nice if, every once in a while, Congress acted in a way that people wanted. I know that may seem like a radical idea, but come on."
Longtime readers know we have little use for politicians of any stripe...
But we have to admit he makes a great point.
As we discussed back in March, marijuana is quietly becoming a legitimate commodity... and one that is rapidly gaining support across the U.S. and around the world.
Already, more than half the states in the U.S. allow some sort of legal marijuana use. And for the first time ever, an overwhelming majority of Americans now support marijuana legalization.
Like it or not, it's now likely just a matter of time before marijuana is legalized on the federal level.
New 52-week highs (as of 11/12/18): Coca-Cola (KO) and Procter & Gamble (PG).
In today's mailbag, a Stansberry Alliance member comes to our "rescue"... and another reader wants to know how to "hedge." What can we do for you? Let us know at feedback@stansberryresearch.com.
"Just a quick note that you guys are doing a great job. As an Alliance Member, it is hard to read everything you produce. As a member, I (not you) must try and delineate what information applies to me, my goals, my strategies, and my risk tolerance. I (not you) must decide what ideas and suggestions fit my investment style and are appropriate.
"Your team is amazingly prolific and I always learn a lot. Even concepts and ideas I read today, but do not use, adds to my investment acumen and may or may not be suitable in the months, years or decades ahead, but that is up to me (Not You) to decide. Please keep up the great work and don't let the whiners take you away from the great job you do." – Paid-up Stansberry Alliance member Brian C.
"You guys keep saying 'Stay long, but stay 'hedged.'' I am a new Alliance member, and maybe just I haven't found it yet, but I don't recall reading anywhere about HOW to make my portfolio 'hedged'. Can you explain this, or at least point me to the articles where this is explained? Thank you." – Paid-up Stansberry Alliance member Patrick G.
Brill comment: As we mentioned in the mailbag last week, "hedging" typically refers to short positions (or long put options) meant to help offset potential losses in the stocks you already own.
You can find a brief primer on short-selling in the Stansberry Research Education Center right here. And if you're looking for potential hedging opportunities, be sure to check out previous recommendations in Stansberry's Investment Advisory and Stansberry's Big Trade.
Regards,
Justin Brill
Baltimore, Maryland
November 13, 2018