There’s an estimated $16 trillion in negative-yielding bonds NOMINALLY floating around the world. That’s not counting the $30 trillion in REAL negative-yielding interest rates. Of course, that’s the nominal yield minus inflation, which turns out to be a negative number.
There’s just a great deal of inflated fluff surrounding investors, and it’s taking more speculating to be able to get any sort of real ROI on our money nowadays.
Take the negative interest rates, for example. Who in their right mind would lend money to have less money at a future date in time…
For one, it’s not for the traditional reason of having your money work for you in a more normal and less speculative way. Instead, it’s a gamble on interest rates going even lower. The simplest reason to own a negative-yielding bond is because the owner thinks that further interest rate cuts will drive the value of the bond higher, thereby more than offsetting the cost of owning that negative-yielding bond.
It’s not unreasonable to think that’s possible, but the fact is that we’ve taken a very straightforward investment and turned it into a Vegas casino-type vehicle for valued safekeeping of individual wealth.
Another reason is because the owner feels so bearish on the stock market and/or they feel that fiat currencies will collapse so badly that they’ll take a small loss from a negative-yielding bond in comparison to how much everything else will deteriorate (and perhaps they don’t fully appreciate the enduring value of precious metals…).
Now, for sophisticated traders, they might be in negative-yielding bonds for profitable cross-currency hedging or arbitrage instrument.
Again, for sophisticated traders, there is a possibility of trading bonds and “rolling down the yield curve” for a profit. “For example, a trader might buy a negative-yielding 3-year bond and sell it after a year. Since debt prices move in the opposite direction of yields, the value of the 3-year bond should be higher than, say, a 2-year bond, all else being equal. So long as the interest rates for shorter-term bonds are more negative than their longer-dated counterparts, the price for the long-term bond should generally rise as it moves closer to maturity,” said Michael Chang, a rates strategist at Société Générale.
But in general, it’s an impossibility that creates massive distortions in our global financial system that has now become addicted to ultra-low interest rates. Even Trump now barks at the Fed when they move towards policies that tighten.
I say all of that to simply point out that the search for yield is getting more and more speculative in traditional markets and we are out elsewhere in the markets capturing equity and yield.
As of lately, it has been a bloodbath for the cannabis stocks. It’s a sector that’s gotten too far out in front of its skis, and it’s now time to retake another look at them.
While the government-controlled media is baffled by the stock market volatility we saw (and predicted, by the way) this summer, they’re missing a prime opportunity because cannabis stocks have been hit particularly hard since April.
Take Canopy Growth Corp. (TSX: WEED, NYSE: CGC) as an example: it’s a huge Canadian cannabis cultivation company – the largest medical marijuana producer in the nation – and a good proxy for the direction of the pot stock sector as a whole. In May of 2018, the cannabis industry got a major confidence boost when Canopy stock graduated to the New York Stock Exchange – and the share price, as you would expect, took off.
A couple of months later, in August of last year, Corona beer maker Constellation Brands Inc. announced an additional $4 billion investment in Canopy, effectively raising its stake in the company from 9.9% to 38%. At the end of that trading day, Canopy Growth shares were up 30.42%.
Because of this, we came to the risk-on part of the cycle: good news was the catalyst, to be sure, but hype and euphoria would soon follow, with Canopy shares (Canadian version) reaching CAD$67 by September 2018 after having traded at less than CAD$10 just a year earlier:
The entire cannabis stock sector looked like this: a cyclical roller coaster with peaks and troughs coming faster than most stock market sectors. If you followed my signals throughout this wild time, you could have easily doubled your money multiple times.
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You see, there’s an art and a science to market timing – and knowing when to exit is just as important as knowing when to accumulate shares. WEED stock became richly valued (expensive) three separate times at the CAD$65 resistance level, and while I’m convinced that Canopy shares will break through that level at some point, it just makes sense to take profits when the hype phase is peaking.
Here’s where things became attractive and why I’m now actively buying shares of Canopy.
When the executive board at Canopy Growth Corp. fired their CEO, Bruce Linton, on July 3, the pot stock party was over and a long, dreary summer commenced. Since other pot stocks tend to follow Canopy’s lead, the entire cannabis sector deflated like a punctured tire for the remainder of the summer:
You can pick just about any famous name in the pot stock domain and it will be down substantially from its pre-summer peak. Does that mean that all marijuana stocks are doomed? No; it’s just part of the cycle: pot stocks got ahead of themselves, and it’s a normal and expected backfilling as beginner investors get flushed out of their positions.
You don’t have to be one of those beginners; you can choose to trade along with the smart money, which buys solid companies when the valuations are down and takes profits when they’re peaking. In other words, you can ride the cycle instead of getting run over by it.
Cannabis stocks will turn around, and the good news is I don’t think it’s going to be a long, drawn out bear market like we saw in precious metals. This is an industry of early-stage growth and growing earnings.
Because of that, I think it’s time to start accumulating shares in the dominator of the cannabis space while it is down. When sectors get beat down, there is no need to speculate – you can simply buy the best at massively discounted prices.
I’ll be a buyer of Canopy Growth while CAD shares trade for under CAD$38…
I have my eyes on the precious metal space, too. With a rising gold price, we are talking about valuations increasing by 5, 10, 100, or even 1,000 times in the space with small moves in the underlying price of the metals.
We’ve waited for this, and the fact is that the negative interest rate environment is what makes everything we are doing that much more lucrative, in my honest opinion.
There are lots of ways to capture serious equity going forward here in this very volatile atmosphere.
Chief Editor, CrushTheStreet.com
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