Hello, welcome to Making Sense with Ed Butowsky. Each week we take three interesting headlines that might have been missed by the mainstream media and try to discuss what exactly that means to you and your investments.
The first story today has to do with South Africa. Support for the African National Congress, ANC has dropped below 50% for the first time since apartheid ended in 1994. The ANC, which is South Africa’s ruling party, has historically enjoyed broad support. However the results from South Africa’s most recent election show that the ANC support is decreasing while support for the opposition political parties are increasing. The ANC is a socialist political party. With that said the South African market does not appear to be worried. South Africa’s blue chip stock index which is composed of the top 40 firms listed in the Johannesburg Stock Exchange just recorded a new all-time high yesterday. Despite the market rallying there are reasons to be concerned South Africa’s unemployment rate currently stands at 34%. To put this in perspective the great depression peaked unemployment at 25%. South Africa’s GDP also makes up over 10% of the continent’s GDP. Given this South Africa could be seen as a bellwether for the continent as a whole. Additionally with inflation at 5% the South African Central Bank is expected to raise interest rates soon. Given this it might be time for emerging market investors to pare back their South African exposure.
Digital gold. Throughout history gold has been seen as a hedge against inflation. With inflation currently at 30-year highs one would expect gold investors to be making money hand over fist, however gold has dramatically underperformed as a hedge. In fact, if you had invested in 2011 and held to today you’ll be down about 5%on your investment. Although gold was a good inflation hedge at one time, it no longer is the big question is why? The most likely answer is that Bitcoin, yes I said Bitcoin, might be replacing gold. While this may seem confusing it makes a lot of sense once you dig into the details. Throughout history gold has been seen as a store of value because it is scarce. Like gold, Bitcoin supply is also fixed. However Bitcoin is even more scarce than gold. Only 65% of all the gold has been mined whereas 89% of all the Bitcoin has been mined this scarcity has driven billions of dollars into bitcoin which many see as a digital gold. Given Bitcoin’s scarcity one could expect further inflows that would have otherwise gone into gold to be redirected into Bitcoin. For investors with precious metal exposure it might be time to consider pulling out and diversifying into digital assets.
This headline I’m sure many of you missed but cannabis ETFs see a massive inflow of capital. The cannabis sector has just had back-to-back weekly gains after nine consecutive weekly declines. The reason for this recent gain is likely the pending introduction of the state’s reform act by Republican representative Nancy Mace, a bill that would legalize cannabis federally. Another factor driving these gains might be the better than expected earnings from some of the biggest cannabis operators. However what is even more interesting is that these gains were coupled with massive increases in trading volume. The advisor shares pure U.S cannabis, the symbol is MSOS, saw its trading volume increase by 39% over the last week. This volume is almost three times higher than the volume it saw during the first two weeks of the year. Cannabis stocks have had a rough couple of years with most of them down over 50% from their 2019 highs. The substantial decline was primarily a result of the cannabis bubble popping after investors got too excited about the sector. With that said, big price declines can sometimes be a buying opportunity, although I leave it to each of you to decide where you stand on social issues such as marijuana from a market’s perspective there appears to be a secular trend towards legalizing marijuana nationally. Given this trend long-term investors might be able to take advantage of this by gaining exposure to the cannabis industry. Again I’m not suggesting that you go and invest in cannabis but it is interesting to see that it’s starting to come back from a major decline.
This has been Ed Butowsky with Making Sense. If you want a complimentary portfolio evaluation please visit www.edbutowsky.com or www.chapwoodinvestments.com, We do a very good job analyzing existing holdings and telling you if what you have is what you need.