As the Trade War escalates, the United States and China find themselves moving further apart. Having taken a toll on global economies and financial markets, at Samra Wealth Management we are doubling-down on our August recommendation, highlighted by The Samra Report, “When to Take Your Gains Off the Table”. With fixed-income yields approaching all-time lows, investors have flocked towards alternative assets, specifically, real estate. Leading to artificially inflated prices. At Samra Wealth Management, we promote a sector-rotational strategy, however, the tactical portion of a client’s portfolio is managed to seek out areas of opportunity. This month’s issue of The Samra Report highlights areas of opportunity, and cautions investors on areas of excessive risk.
Novice investors are typically guilty of using recent price declines, or percentage declines as signals to buy. Over the past month investors may have been tempted to buy an index tracking the Argentinian market, which dropped 48% in U.S. dollar terms, due to a change in regime. However, these investors would be wise to examine the country on a fundamental basis, analyzing the economic health and future of Argentina. With credit default swaps pricing in a 75% chance that Argentina will suspend debt payments in the next five years, the Argentine narrative echoes similarities seen prior to the U.S. Financial Crisis. However, according to Bloomberg journalist Matthew A. Winkler, there are “Two Homegrown Companies Defying Argentina’s Gloom”. The key to investing in distressed economies such as Argentina, is to understand that investors have the capacity to invest on a currency hedged basis, differentiate between sectors, and target companies in Argentina that have no exposure to the Argentine economy, and in some cases although physically located in Argentina may be listed on an exchange outside of its borders.
The November 2017 issue of The Samra Report, “Should You Invest in Bitcoin?” Recommended against the purchase of Bitcoin for new investors, which although appreciated to over $19,000 in December 2017, is currently hovering around $10,000. However, much has changed since 2017, including the price of Bitcoin. With Wall Street’s largest firms sounding the alarm of an increased risk of recession within the next 18 months, it is our belief a recession would cause investors to further lose faith in the U.S. Government, weakening the greenback, and creating a play for cryptocurrency. As mentioned in our November 2017 edition of The Samra Report, we believe cryptocurrency is the evolutionary next step for fiat currency, however, although Bitcoin may have been the first to market, in its current form it is highly unlikely Bitcoin will ever replace fiat currency. Our guidance towards bitcoin recommends clients invest directly in bitcoin, and not through a pooled investment vehicle, up to 2% of their investable portfolio. These investors should understand the risk of loss and be able to stomach the rollercoaster volatility. As an alternative, we recommend this allocation alternatively be placed in Facebook (FB) Stock, a company with over 2 Billion active daily users, hoping to launch the next generation cryptocurrency initiative, Libra. Although the U.S. House Financial Services Committee is skeptical, Libra aims to align with U.S. Tax Regulations, monetary and fraud laws, suggesting Libra could unseat Bitcoin as the highest capitalized cryptocurrency.
The global legal marijuana market size is expected to reach $66.3 billion by the end of 2025, from $11.9 billion in 2018. Although not federally legal, investors looking for exposure to cannabis are investing in companies such as Canopy Growth Corporation (CGC). At Samra Wealth Management, we will not provide guidance on stocks or pooled investment vehicles focused on cannabis. Alternatively, for investors seeking exposure into cannabis, we recommend the following:
Tabacco companies, that currently possess the infrastructure and logistics would be the ideal choice, as upon legalization of cannabis these companies would be the first to move their product to market, with established brands and relationships to the retail segment.
Private investment opportunities in CBD, derived from Federally legalized hemp, under the Farm Bill. Given the risk and reward trade-off, we recommend employing the help of an established accounting firm.
Ancillary Service organizations, providing farming and irrigation equipment, storage, testing and specialized logistics support.
As the social stigma towards cannabis turns towards medical and industrial applications, at Samra Wealth Management, we recommend investments towards this area, however, caution investors with the following factors:
Quality of CBD is not currently regulated
Perfect competition allows low barriers to entry, potentially compromising quality.
References
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Grandviewresearch.com. (2019). Legal Marijuana Market Size, Growth & Analysis | Industry Report, 2025. [online] Available at: https://www.grandviewresearch.com/industry-analysis/legal-marijuana-market [Accessed 28 Aug. 2019].
https://www.cfraresearch.com. (2019). QUANTITATIVE STOCK REPORT: Canopy Growth Corporation.
Irwin, N. (2019). How the Recession of 2020 Could Happen. [online] Nytimes.com. Available at: https://www.nytimes.com/2019/08/17/upshot/how-the-recession-of-2020-could-happen.html [Accessed 28 Aug. 2019].
Maki, S. and Oyamada, A. (2019). Fears of Argentina Default Loom Large as Traders Dump Everything. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2019-08-12/markets-set-to-sell-off-in-argentina-after-macri-loses-primary [Accessed 28 Aug. 2019].
Samra, I. (2019). Should You Invest In Bitcoin. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/should-you-invest-in-bitcoin [Accessed 28 Aug. 2019].
Samra, I. (2019). When To Take Your Gains Off the Table. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/when-to-take-your-gains-off-the-table [Accessed 28 Aug. 2019].
Swanson, A. (2019). As Trump Escalates Trade War, U.S. and China Move Further Apart With No End in Sight. [online] Nytimes.com. Available at: https://www.nytimes.com/2019/09/01/world/asia/trump-trade-war-china.html [Accessed 1 Sep. 2019].
Williams, R. (2019). Congress Holds a Skeptical Eye Against Facebook’s Libra, Scrutiny Continues. [online] CryptoNewsZ. Available at: https://www.cryptonewsz.com/congress-holds-a-skeptical-eye-against-facebooks-libra-scrutiny-continues/38945/ [Accessed 28 Aug. 2019].
Winkler, M. (2019). Two Home Grown Companies are Defying Argentina's Gloom. [online] Bloomberg.com. Available at: https://www.bloomberg.com/opinion/articles/2019-08-21/two-homegrown-companies-defy-argentina-s-gloom [Accessed 28 Aug. 2019].
*Amended September 10, 2019
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.