What the 'Pot Stock' Mania Could Mean for the Market
Still skeptical of the Apple Watch?... 'Wearable tech' is already changing the life insurance industry... What the 'pot stock' mania could mean for stocks... 'History doesn't repeat itself, but it often rhymes'...
Last week, our colleague Dave Lashmet detailed how the Apple Watch could potentially save your life...
Judging by the mailbag responses we've received (see below), many of our readers remain skeptical of the health benefits of "wearable tech."
But that's definitely not the case with one of North America's oldest and largest insurance companies. As news service Reuters reported yesterday...
John Hancock... will stop underwriting traditional life insurance and instead sell only interactive policies that track fitness and health data through wearable devices and smartphones, the company said on Wednesday.
The move by the 156-year-old insurer, owned by Canada's Manulife Financial, marks a major shift for the company, which unveiled its first interactive life insurance policy in 2015. It is now applying the model across all of its life coverage.
Yes, you read that correctly...
A leading life insurance company is so convinced these devices will improve the health and longevity of its policyholders – resulting in fewer claims – that it will soon stop selling traditional insurance policies altogether.
As our colleague Scott Garliss noted on the Stansberry NewsWire this morning, this is a big deal...
If insurers can get you to be more conscious of your daily exercise and weight by wearing a fitness device... And if they can identify problems more quickly because of the constant data... everyone wins. You live longer, and they walk away with more margin.
So the next step is for health insurers to dip into this realm... Making devices like the Apple Watch a bigger part of their businesses will make them more efficient at what they do. Ultimately, it could lead to doctors writing prescriptions for these devices.
Yesterday, we discussed the recent boom in marijuana stocks...
In short, for the second time in less than a year, it appears a full-blown speculative mania is now underway.
Just like bitcoin and other cryptocurrencies last fall, "pot stocks" are now skyrocketing as the general public has suddenly become enamored with these explosive new assets.
We also reminded you that manias don't end well for most of those involved.
Parabolic rallies are typically followed by huge declines of 50%... 80%... or more. That's exactly what's happened to bitcoin and other "cryptos" over the past several months. And we expect pot stocks will eventually suffer a similar fate.
But we failed to mention one other potential parallel between these two booms...
As our colleagues Ben Morris and Drew McConnell pointed out in this morning's edition of DailyWealth Trader, the crypto "bust" likely played a role in February's stock market panic as well...
On January 5, after bitcoin had fallen and bounced, it put in a "lower high"... the first piece of a downtrend. And on January 16, the downtrend was official when it made a "lower low." The "main event" of the speculative mania in cryptocurrencies was over.
As you can see in the chart below, from its December 18 peak, bitcoin has fallen 66%...
Many of the other "alternative tokens" – like ethereum, ripple, and stellar – fell more than 80% from their peaks.
Just after the peak in bitcoin – and while a lot of alternative tokens were still on the rise – the benchmark S&P 500 Index soared. It jumped 7.5% from December 29 through January 26...
But just as the sharp rally in stocks followed the rally in cryptos, so did the sharp drop... Starting on January 29, the S&P 500 fell 10.2% in less than two weeks. It was the first "correction" (a 10%-plus drop) since August 2015.
In other words, the speculative fervor of the crypto mania eventually spilled over into the stock market, with a similar – if less severe – result. If the pot stock mania continues, it's possible we could see a similar outcome this time around...
Today, U.S. stocks are breaking out to new highs. They're not yet soaring like they did in January. But pay attention...
If the broad stock market makes a big move higher now – just as pot stocks are going parabolic (or maybe plummeting by the time you read this) – we wouldn't be surprised to see that volatility carry over into the rest of the market.
Remember, history doesn't repeat itself... But it often rhymes.
The action in Tilray and other pot stocks represents a concentrated form of sentiment that exists throughout the market... And they likely won't scream higher and plunge in isolation. Trade accordingly.
New 52-week highs (as of 9/19/18): American Express (AXP), Berkshire Hathaway (BRK-B), Nutrien (NTR), and Viper Energy Partners (VNOM).
In today's mailbag: Clearly not everyone is a fan of the new Apple Watch... and two readers weigh in on the "pot stock" mania. What do you think? Let us know at feedback@stansberryresearch.com.
"All – I won't buy [an Apple Watch]. Why? Well, let me count the ways... GPS is only as good as the person's programing in the maps. I cannot count the times, when the one on my phone, or the one on the dash of my motorhome, or the one built into my jeep has taken me to a dead-end street telling me to take a right. The maps database in the units is as buggy as my back yard in summer. REMEMBER, they are tools, i.e., like a screwdriver, wrench, etc., and only as good as the person who programed them.
"Apple as a company, yes, I have missed out on the great stock opportunity, let me count the ways... 1. After the San Bernardino, CA shooting, the government asked apple to open up the phone for them to see if there were more suspects, they refused. 2. They build all their products overseas, and just reap the profits of the cheap labor putting Americans at risk since they love the profits, but won't build stuff here putting Americans to work. Yes, they employ folks at their stores, and engineering departments, [but they should] build the products here, putting to work the Americans who made you what you are today. Nuff said." – Paid-up subscriber Monty B.
"I just bought a new flip phone. I keep my numbers on a paper pad and will never use texting. If it is important it is important enough to make a call. I also use paper maps for driving and flying. They never go blank. I tried using a GPS but it quit, never giving me a warning that it happened. I will never risk it again. Where I live there are several cars of tourists that try to follow a GPS 'road' that is a dirt sand trap. They frequently die of exposure in the heat. Yes, I have owned an I phone but threw it away after about six months. I can now buy a flip phone better than the Razor. BTW, you can have your driverless cars and pilotless aircraft, too. Neither will last very long, and I know the guys that are inventing it for Boeing." – Paid-up Stansberry Alliance member Carl H.
"When your brain shrinks down to the size of a mandarin orange because you rely on tech to solve all your problems and get you to places instead of still being able to read a map and tell time by a clock with hands on it and dial your phone for you and keep track of your every living breathing system, and my brain is still solving its own problems of life, still recalls all the important phone numbers instead of relying on my contact list, doesn't need spell checker to spell, that I actually know how to cook a decent balanced meal that is not the size made for two people on one plate, that my legs still carry me around without joint replacements even when hiking at my mt cabin at 7,000 ft, then at age 75, and that I can carry on a decent conversation looking someone in the eye instead of using my thumbs, I will have the advantage of being the laggard that still relies on a flip phone, albeit one that could be used as a smart phone with apps for all of the above but which I choose NOT to. I will have the advantage over all of you." – Paid-up subscriber Sharon W.
"Hi: I found your article on cannabis and specifically the growth of companies in Canada quite interesting. You are right in that there are too many players in game and there are going to be cuts.
"However, there have been some interesting side developments with respect to the cannabis industry in Canada. Most notably, you can be banned for life from entering the USA. Apparently there have already been a number of individuals who work in the industry here in Canada who have been banned from entry in the states. Not only people that work directly for the industry face a ban, but individuals like Jay Evans, CEO of Keirton Inc. (apparently they sell processing equipment to the cannabis industry) & Sam Znaimer, (a venture capitalist with investments in US marijuana companies) have been permanently restricted from entry to the USA. I am not an advocate of the use of marijuana, but facing bans for selling stuff to the industry or owning stocks in it. A bit tough on the risk vs reward scale." – Paid-up subscriber D.M.
"You're absolutely right about pot stocks. It's the bubble of 2018, but is it of any surprise? Does anyone remember prohibition? Bet there was a tulip chart pattern there on those ne'er beer companies.
"But I ask the bigger question does women's suffrage movement remind you of #metoo movement in some ways? How about the explosion of debt due to a world at war or the incredible bull market that was debt fueled during 1920s. Maybe the conflicts of today are not all out wars, but there seems to be a bit of conflict in most regions of the world, military economically, or socially today.
"I can agree with Porter and much of his longer-term big picture thinking. If this past history is rhyming well to the beat of today or vice versa, what's next? Well... does crash depression devaluation of currency greater strife and war, if my basic history is correct, ring a bell.
"It's a melt up alright just like then and now but don't go shorting just yet... Thanks for the education to know how to play with bubbles. I will never cancel my subscription! Even if I don't agree with every thought or opinion..." – Paid-up subscriber Eric A.
Regards,
Justin Brill Baltimore, Maryland September 20, 2018