Fiscal rethink poses risk to market foundations

Calls for spending splurge could seriously disrupt equity valuations

Michael Mackenzie

 FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo
The Federal Reserve building in Washington. Central banks in the US and the eurozone are expanding their balance sheets © Reuters

As investors chase equities and drive share prices higher, another important market development should not escape notice: Government bond yields have bounced from their lows of August and their role as a driver of broader market sentiment remains paramount.

Much of the current enthusiasm for equities reflects expectations of a rebound in economic activity, nurtured in part by the stimulus that was provided by the sharp decline in sovereign bond yields during the summer — the flipside of rising debt prices.

Now as central banks in the US and Eurozone expand their balance sheets, thereby adding another chapter to quantitative easing, equities and credit remain buoyant, and strategists figure there is room for further gains in 2020 for risk assets.

These outlooks usually come with the reassurance that long-dated yields for Japan, Germany and the US will not experience a large and sustained rise.

For equity markets, slumbering so-called “risk free” 10-year bond yields over the past decade help explain why there is a substantially lower risk premium attached to owning shares and credit.

Once US Treasury yields fall towards record lows, equities look far more compelling on a comparative basis.

Whenever market turmoil erupts, bond yields fall farther and their appreciation in price terms helps investment portfolios offset declines in their share market holdings.

This is where the virtuous, or vicious circle is created, depending on your view: the chance of a slide in equities fades when ever yields decline.

The bullish mood dims only if bond yields rise significantly from here, as it would eventually make fixed income more attractive to own in comparison to equities, thereby hitting the valuation argument that currently favours shares.

Many investors look at the coming decade as representing more of the same in terms of sluggish economic growth and modest inflation pressures. But thanks to low sovereign yields, this preserves the buoyancy of equities.

Such thinking rests heavily on the failure of aggressive monetary policy actions of central banks since the financial crisis to counter the robust trends of ageing demographics and the price crushing prowess of technological innovation to generate stronger growth and higher inflation.

A notable consequence of low yields has been a borrowing binge by governments and companies.

Ever rising debt levels also limit a sharp rise in yields as they start throttling an economy and financial markets that are overly reliant upon high levels of borrowing.

Investors may feel comfortable about the long-term trends for inflation and growth, but populist politicians have been quick to spot the chance to gorge on cheap borrowing. G

iven the state of the global financial system, which has delivered few rewards for average wage earners while generating strong asset-market gains, this is perhaps inevitable.

That is why some reckon the status quo faces a challenge, with big implications for the current financial market complacency.

Analysts at Bank of America Merrill Lynch raise the risk of “diminishing returns from increasingly activist central banks and their use of monetary policies to reflate the economy’’.

When combined with a greater push towards fiscal stimulus and inflation targeting, a likely outcome according to BOFA is one of much higher interest rate volatility that breaks the “decade-long bullish combination of minimum rates and maximum profits” and signals a big peak for asset prices.
Notably, central bankers are calling loudly for greater fiscal spending, as their lack of monetary ammunition leaves them ill equipped to combat the next significant downturn.

This week, that message was sent by Jay Powell when the Fed chair spoke before a Congressional committee in Washington.

There are plenty of questions as to the potency of fiscal spending in the future and whether it does ultimately boost productivity and growth rates for the broader economy.

Markets will eventually prosper from a boost to long-term growth and productivity.

One risk cropping up in conversations with bond investors of late is of central banks coming under political pressure and monetising government spending in the years ahead.

Another consideration among central bankers is whether to accept higher levels of inflation, to make up for missing their 2 per cent targets down the years.

As Morgan Stanley argue: “Such an overshoot of inflation could pose problems for rates and, in turn, the valuation of stocks and the US dollar — making real assets attractive.’’

Little wonder that institutional investors are pushing into alternative real assets that includes building exposure to gold and other commodities.

Equities and bonds have spent a considerable and rewarding period swinging back and forth within a narrow range defined by monetary policy.

Contemplating a far greater pendulum shift should warrant the consideration of investors entering a new decade.

Interview with Robert Kagan

Permanence of Liberal Democracy 'Is an Illusion'

Interview Conducted by René Pfister

Prominent U.S. conservative Robert Kagan warns that it is time for Europe to "grow up." In an interview, he talks about Trump's stance on foreign policy, the crumbling liberal democratic consensus and the precarious future of Germany and the EU.

U.S. President Donald Trump
U.S. President Donald Trump

DER SPIEGEL: Mr. Kagan, U.S. President Donald Trump's decision to withdraw troops from northern Syria had grave consequences: He opened the gate for a Turkish invasion into northern Syria, strengthened the influence of Russia and Iran and undermined the confidence of in the reliability of the United States. Do you think Trump knew what he was doing when he made his decision?

Kagan: I don't think he really was very concerned about what the consequences would be. Trump is operating on the assumption that the American people will be supportive of the idea of getting out of Syria regardless of the consequences. And he's probably right. At least I didn't hear a big public outcry.

DER SPIEGEL: Some influential Republican senators have sharply criticized Trump. Mitch McConnell, the Senate majority leader, even wrote in an op-ed for the Washington Post that Trump had led the U.S. into a "strategic nightmare."

Kagan: Trump has responded to this by leaving a few American soldiers in eastern Syria. But by and large, the president does not believe that the Republican leadership holds any sway over Republican voters. Trump ran against the Republican Party in 2016, and he won. That's why he considers people like Mitch McConnell to be paper tigers.

DER SPIEGEL: Yet it is now in the hands of the Republican party to end Trump's presidency prematurely. Republican senators must only vote with the Democrats for an impeachment. Do you think such an outcome is out of the question?

Kagan: Not completely. But if they do, the reason certainly won't be Trump's foreign policy. The Republicans will turn away from the president if they get the impression that in his insanity, he is dragging the party into the abyss. But we're not there yet.

DER SPIEGEL: The withdrawal from northern Syria was only one part of a larger promise by Trump to end the "endless wars" of his predecessors. Can Europeans fill the gap left by the U.S. in the Middle East?

Kagan: Maybe I missed something. But so far, I cannot see that Europeans are pushing to send soldiers to Syria.

DER SPIEGEL: German Defense Minister Annegret Kramp-Karrenbauer has proposed securing a protection zone in northern Syria with European troops.

Kagan: As much as I wish the Europeans were involved, I have great skepticism that they are truly capable of replacing the Americans. It starts with military logistics and materials, but it's also about more fundamental issues. Are the Europeans really ready to pay the moral price of becoming a military interventionist? Because that means killing people and also enduring innocent civilians dying because mistakes are made in every war. The Germans developed into a peaceful, civilian people after World War II. I do not think they want to bear this burden.

DER SPIEGEL: Is Trump right when he insists that the Europeans finally have to stand on their own two feet 70 years after the end of World War II?

Kagan: Trump is only saying what every American president has said since John F. Kennedy, which is we want a greater burden sharing on the part of Europe. But I think that where Donald Trump is wrong, and where he's different from other presidents, is that he wants to leave Europe by itself right now.

DER SPIEGEL: Why is he wrong?

Kagan: Over the course of decades, we told Germany: "We don't want you to be a normal nation. We want you to focus on peaceful growth, on your social well-being. We don't want you to spend 5 percent of your GDP on the military." So, for the United States to say: "We do want you to be a military power," well, I think that's a big gamble.

The American role in the world was a critical part of establishing a peaceful Europe after World War II. The United States established the international trading regime, which has been important to European economic success.

This regime is really in question, and also the fate of democracy as a common European ideology. One of the most important elements of the European project after World War II has been the suppression and control of nationalism. And we now see nationalism returning.

DER SPIEGEL: Trump is certainly not the only one who is responsible for this development.

Kagan: For a long time, we have been used to thinking that liberal democracy is the permanent condition of humanity. But that is an illusion. Liberal democracy always creates antibodies. The U.S. has played a key role in establishing the European democratic process, but for several years now, it has been pulling back from that role. Ever since the end of the Cold War, the American public has been increasingly questioning why they have to play this large role in the world. Why do we have troops in Europe?

Why are the Europeans not taking care of themselves? After the Iraq War and the 2008 financial crisis, the discussion reached the tipping point. With Barack Obama and Donald Trump, we have had two presidents who considered it their job to pull America back from this role. Certainly, Trump is the more extreme version of that.

DER SPIEGEL: In a recent essay, you wrote that the German question will return if the U.S. is no longer willing to continue its engagement in Europe. Do you really think there is a danger of Germany once again becoming a threat to its neighbors?

Kagan: Up to the end of World War II, Germany always had the problem that it's too big for Europe. A key element of the European peace after World War II was the American security guarantee, which reassured all of Germany's neighbors that whatever else was going to happen, Germany would not become a danger again.

That allowed Germany to have this great economic success without unnerving and frightening its neighbors. Once Germany was unified, it became the largest economy in Europe, the largest territory in Europe and the largest population in Europe. With that, of course, comes the potential of being the largest military in Europe. So it's not about the German character or anything.


Kagan: There are certain objective conditions that bring back the German question. You can already see the jealousies of other countries about Germany's dominance of the European economy and the resentment that that creates. If you pull the American engagement out of the equation, here's the scenario that I worry about: The neighbors of Germany could become sort of unmoored from NATO and maybe even from the EU.

They will begin to look at Germany nervously and begin to undertake economic policies that are designed to break free of German hegemony. That will, in turn, create resentments in Germany. How long before you have a perfectly respectable German position that says: "Wait a second. We've got to start looking out for ourselves. Everybody else around us is looking out for themselves. Who is looking out for us?"

DER SPIEGEL: So in your view, the Europeans are eternal teenagers who start fighting as soon as America turns away.

Kagan: Grow up! That's fine! But I think you really have to be an unwavering optimist to believe that Europe will stay stable and peaceful without the support of the United States. You can't compare the EU of the late 1990s to the EU of today. There is the United Kingdom's departure from Europe. In the eastern parts of Europe, the once democratic governments of the Czech Republic, Hungary, Poland and Slovakia have entered various stages of decent into illiberalism. And France is only one election away from a nationalist electoral victory.

DER SPIEGEL:Do you think it's possible that Trump will pull the U.S. out of NATO if he is reelected?

Kagan: I don't rule it out. But you know what? In a way, that's not the important question. Whether the United States formally pulls out of NATO or not, does anyone think we're as committed to NATO today as we were four years ago? The Poles are very funny to me because they believe that NATO could go away, but the U.S. commitment to Poland will survive. They think they can count on Donald Trump.

DER SPIEGEL: According to polls, a majority of American voters believe the country should prioritize its domestic political problems. That also seems to be a message that the Democratic presidential candidates have understood.

Kagan: As far as foreign policy is concerned, I cannot see much of a difference between Trump, Elizabeth Warren and Bernie Sanders. All three want the applause for saying that we are bringing our soldiers back home from the Middle East. I think Joe Biden probably has a different view just because he's a relic of an earlier era of American foreign policy. However, the American people are malleable on foreign policy, and if they have a president who says: "We need to work with our allies. We need to be a reliable partner," I don't know that they would necessarily reject it. Ever since the end of the 19th century when the United States emerged as a great power, our foreign policy has been like a sine wave, oscillating between periods of high involvement and periods of retrenchment. My concern now is that it will take us 20 years to come back to understanding our role, and by then, the world could be in terrible shape.

DER SPIEGEL: Given the chaos that the U.S. has produced over the last 15 years in the Middle East, many Europeans argue that the world would be safer place if the next president were to focus his or her attentions on fixing things like the health care system in the U.S.

Kagan: Look, I would be happy if the United States could avoid tragedies like the wars in Iraq or Vietnam. And we should do our best to learn from the past. But there is no doctrine other than pure isolation and inaction that can prevent such tragedies. For the United States, the choice is between the liberal world order, with all the moral and material costs that entails, or letting it collapse and courting the catastrophes that must inevitably follow.

DER SPIEGEL: What would the U.S. and the world look like after eight years of a Donald Trump presidency?

Kagan:I think so far, happily, the American system has proved resilient enough to resist the worst of what he's done. Right now, we are experiencing a fundamental conflict between liberalism and anti-liberalism, not only in the United States, but all over the globe. And for the moment, the anti-liberal forces are in the ascendency. You can see it in a hundred different places around the world: India's dealings with Pakistan, between Japan and Korea, in Israel.

When the order begins to collapse, every country and every leader makes decisions based on what they're seeing. All the disincentives that used to exist to a certain kind of behavior are melting away.

Four more years of Trump is four more years of the liberal world order coming down.

Washington’s Chinese Tech Conundrum

By: Phillip Orchard

In early November, the budding U.S.-China “tech cold war” took a rather surreal turn.

The U.S. government announced a national security review on the threat posed not by Chinese telecommunications giants like Huawei or Chinese artificial intelligence firms developing battlefield applications for the People’s Liberation Army, but rather by TikTok, a wildly popular Chinese social media platform best known for 15-second clips of Gen Zers (those born between 1996 and 2010) doing very Gen Z things

Last week, U.S. Senate Minority Leader Chuck Schumer pressed the secretary of the Army to refrain from using TikTok as a recruiting tool.

The supposed threat has to do with data.

With some 500 million users, including 80 million in the United States, TikTok is collecting a ton of data.

TikTok is owned by ByteDance, a private Chinese firm, and it’s not even available inside China.

But since even private firms in China have little choice but to cooperate with the Communist Party of China’s demands, Beijing could ostensibly use the app to, say, monitor the movements of intelligence targets. Such concerns are not wholly invalid.  After all, even U.S.-based tech giants are under mounting scrutiny over the oceans of user data they can hoard.      This illustrates a fundamental feature of U.S.-China competition: Given the blurring lines between commercial and military or intelligence technologies, it’s not hard to come up with reasons why just about any emerging Chinese technology could threaten U.S. interests.

Chinese 5G infrastructure, for example, could ostensibly be weaponized to divert sensitive data to Beijing or wreak havoc on U.S. military logistics and communications lines just as the PLA makes its move on Taiwan.    

Chinese-made train cars could be rigged to paralyze major U.S. cities.

Chinese-made smart refrigerators could be programmed to become sentient en masse and stage an ice boxer rebellion. (Theoretically, at least.)

As a result, Washington is scrambling to develop a coherent approach to managing an array of threats that’s extremely unclear in both scope and severity.

Just as problematic, Washington’s ability to mitigate such threats without doing more harm than good to U.S. interests is similarly murky. Bottom line:

The U.S. will struggle to strike an ideal balance, but the broader geopolitical competition will push the U.S. to err on the side of mitigating worst-case scenarios – however real or imagined.

Three Uncertainties

Over the next few months, using new powers granted by the Export Control Reform Act of 2018, the U.S. Commerce Department is expected to clarify what Chinese “emerging and foundational technologies” it truly considers problematic.

It will also continue laying the groundwork for concrete measures to address them, including export controls, import bans, restrictions on investment and research and development collaboration, and so forth.

This task is complicated by three sources of uncertainty.

The first question, of course, is just how much any particular Chinese technology – or even U.S. technologies manufactured in China – can realistically harm U.S. national security.

Some are fairly obvious; the U.S. has ample interest in keeping Chinese nationals from swiping research from U.S. biotech labs, for instance, or in depriving Chinese weapons-makers of cutting-edge U.S. semiconductors and software.

Undeniably, Chinese advances in quantum computing, artificial intelligence, robotics, aeronautics, space and so on have the potential to diminish the U.S. military’s conventional edge over the PLA.

But with most other Chinese tech and advanced manufacturing firms in the U.S. crosshairs, the threat is largely theoretical at this point.

Even concerns about 5G hinge largely on a range of assumptions about how quickly and widely the technology will be adopted, what sorts of applications it spawns, and the difficulty developing sufficient cybersecurity measures such as encryption.

There’s also a tendency to overrate China’s innovative capacity.

Beijing is helping Chinese firms narrow the gap with the U.S. in R&D spending, sure, but the innovation record of Chinese firms (particularly bloated state-owned enterprises) has been mixed, at best.

The U.S. and its high-tech allies in Northeast Asia and Europe have a decadeslong lead in most sectors, and China cannot close the gap through forced technology transfers or cyberespionage alone.

Made in China 2015: Industry Aims

The second question is whether the U.S. really has the tools to address potential threats.

U.S. tools can be lumped into two categories: defensive and offensive.    

Implementing most defensive measures would be relatively straightforward.    

The U.S. could, for example, simply prohibit members of its military, intelligence community, and other sensitive departments from using data-hoarding Chinese apps like TikTok – or just ban such apps from the U.S. altogether.

Already, it’s effectively banned Chinese telecommunications equipment from U.S. networks.

It’s also likely to do more to encourage the development (and widespread adoption) of more sophisticated encryption and cybersecurity practices.

But defensive measures won’t cover everything.

All telecommunications networks, with or without Chinese tech, will be inherently vulnerable to Chinese cyber operations.    

Moreover, U.S. interests aren’t confined to U.S. shores.

Thus, the U.S. is also toying with offensive measures effectively aimed at taking down potentially problematic Chinese firms altogether.

This is the point of the on-again, off-again controls on exports of U.S. components and software to Huawei, which relies overwhelmingly on U.S. semiconductors, software and chip design – as well as the diplomatic offensive aimed at keeping Huawei equipment out of places the U.S. relies on for military logistics.

When the U.S. briefly slapped an export ban on Huawei’s state-owned rival, ZTE, in May 2018, it nearly brought the firm to its knees.

However, there are several reasons to doubt the effectiveness of offensive measures like export controls.

For one, it only really works if a Chinese firm is truly dependent on U.S. technology, market access or funding.

And the U.S. has near-total dominance over only a small number of sectors, such as semiconductors.

For another, as demonstrated this summer when several U.S. suppliers announced that they had exploited loopholes in the soft ban on sales to Huawei, private multinational firms would have overwhelming incentives to find ways to continue selling to China – even if it requires moving operations overseas.

Finally, it’s unclear how long Chinese dependence on U.S. firms will actually last.

A core reason why Chinese firms like Huawei and ZTE have struggled to make the leap in sectors like semiconductors is that it just always made more sense to keep buying from the U.S. and focus their resources on what they’re actually good at (or on serving Beijing’s political and diplomatic goals).

Cut off from critical suppliers, such firms would come under enormous pressure to develop suitable replacements – while Beijing ensures that they don’t wither and die in the meantime.

It may sound trite, but necessity really is the mother of innovation.

More Harm Than Good?

This highlights the third source of uncertainty: Can the U.S. go after Chinese firms without doing more harm than good to U.S. interests in the process?

The reality is: Most proposed U.S. measures would carry major potential risks and costs – to U.S. consumers, to U.S. diplomatic relationships, or to the health and innovative capacity of the U.S. firms that Washington would ostensibly be trying to protect.

It’s estimated, for example, that between 10 percent and 30 percent of the revenues of leading U.S. firms like Intel, Advanced Micro Devices and Qualcomm come from China.

Every semiconductor they can’t sell to Huawei is less revenue for them to sink into R&D.

As mentioned, there’s also the thorny fact that the U.S. has a monopoly on only a handful of technologies.

So, there’d be little point in banning sales to China in industries where tech is already widely available.

Indeed, U.S. export controls on globally available satellite technologies in the 1990s were deemed counterproductive.

Meanwhile, Silicon Valley startups would suffer from the loss of Chinese investment.

A core U.S. strength, moreover, is its ability to attract the best and brightest from other countries, so a U.S. crackdown on Chinese immigrants, students and research collaboration wouldn’t be cost free.

Already, the threat of additional U.S. tariffs, along with potential bans on federal procurement of ITC equipment with components made in China, has forced U.S. electronics makers with manufacturing operations in China to spend billions rerouting complicated supply chains elsewhere.

Chinese retaliation would be inevitable, whether in the form of reciprocal sanctions, nationalist consumer boycotts, harassment of U.S. firms in China or the ever-looming ban on rare earths exports.

Finally, there could be costs to the U.S. diplomatic and alliance structure.

With 5G, for example, the U.S. has effectively threatened to curtail intelligence and military cooperation with countries that use Huawei telecommunications equipment.

For most countries, caving to the U.S. would be breathtakingly expensive and delay their 5G rollout by several years. (Many use Huawei for 4G, meaning they’d need to rip out old infrastructure in addition to taking on the vast buildout required for 5G – and do so with more expensive suppliers.)

The underlying problem for the U.S. is that preparing for potential tech threats means estimating the power of technological applications that often don’t even yet exist – and tech innovation moves fast.

When faced with an unclear emerging threat, the U.S. tends to ignore the problem before overcorrecting to overwhelm it with blunt power.

Ideally, the solution for the U.S. would be a “small yard, high fence” approach that preserves national security without undermining its own ability to innovate and compete in global markets – and without upending its invaluable global alliance structure.

But the threat environment is simply too murky, too dynamic and too laden with potential for unintended consequences for the U.S. realistically to be able to strike an optimal balance anytime soon.

The problem for China, meanwhile, is that it can do little to allay U.S. fears of worst-case scenarios.

Chinese firms can promise to refuse state demands for cooperation, but it’d be naive to put much faith in that.

They can open up their source code to foreign inspectors, but source code can quickly change.

China certainly can’t abandon its attempt to scramble up the manufacturing value chain or turn the PLA into a high-tech fighting force.

So, the issue cannot be separated from the broader suspicions and colliding interests that will define U.S.-China relations for decades to come.

To the U.S., in other words, it’s perfectly rational to consider depriving a potential adversary of capabilities that might prove dangerous – however blunt and potentially destructive.

And given the trajectory of Chinese firms and the possibility that U.S. leverage may soon evaporate, Washington will be tempted to strike fast and ask questions later. 

Cannabis Extracts Will Propel Industry's Rise

by Nick Giambruno

Longtime readers will remember the first time I put cannabis investing on your radar.

That was over two years ago.

At the time, there were only a couple dozen publicly traded cannabis companies.

Today, there are over 300.

New ones seem to be popping up each week.

Others are merely adding "cannabis" or cannabis-related words to their company names to tap into the green gold rush.

It’s reminiscent of previous manias in crypto, uranium, and junior gold miners.

The truth is, most publicly traded cannabis companies are junk with abysmal financials.

It brings to mind Doug Casey’s saying: "When the wind blows, even a turkey can fly."

Just about anyone can grow a marijuana plant on his back porch, from a practical standpoint.

The barrier to entry to producing dried cannabis is low.

It is called "weed" for a reason after all.

Gone are the days when you could invest in companies that only cultivated the plant – or otherwise didn’t have a competitive advantage – and make easy profits.

The legal cannabis trend is no longer in its infancy.

Legal Cannabis – Where Are We Today?

I view the situation as a speculator, one who takes advantage of distortions – often politically caused – in the market.

And when you consider the effects of the near 80-year cannabis prohibition, it’s clear there are enormous distortions in the market. They are only just beginning to unwind.

Imagine what all the various industries that cannabis touches would look like had they developed in a free market – absent a long-term prohibition – and then think about where we are today.

For example, prohibition has needlessly stunted the research and study of cannabis’ obvious medicinal properties.

I have little doubt research will unlock those in the months and years ahead.
But it’s not just medical.

According to a study the US Congress commissioned, there are around 25,000 hemp-based products – clothing, food and beverages, cosmetics, paper, fibers, and so forth.

Remember, as large as the market for these 25,000 products is, hemp itself is just one aspect of the cannabis market (remember, hemp and marijuana are from the same plant species).

And the US federal government legalized hemp not even nine months ago.

Big Alcohol, Big Tobacco, and soft drink companies are just starting to get involved with cannabis and are developing entirely new categories of products.

It’s hard to wrap your mind around just how significant the total market potential of legal cannabis is.

It’s unprecedented.

I’ve compared it before to the repeal of alcohol prohibition in 1933. But let me remind you, alcohol use was primarily just a recreational market.

Legal cannabis will disrupt the alcohol, tobacco, and pharmaceutical industries, among others.

Together, we’re talking about a multiyear megatrend that could disrupt $5 trillion in global markets:

However, we are no longer in the earliest days of this exciting trend.

The wind is blowing, and there are some turkeys flying.

But there are still big profits to be made with the right companies in the right niches.

And right now, that’s oils and extracts.

Thousands of Possibilities

There are over 113 chemical compounds in the cannabis plant.

We only know a little bit about two of these, and just those two (THC and CBD) show enormous medical potential.

That says nothing about the other therapeutic, recreational, and additional commercial value they may have.

THC (tetrahydrocannabinol) is the psychoactive component that gets users high and has medicinal properties. CBD (cannabidiol) has medicinal and therapeutic properties and no intoxicating effects.

Today, we are just scratching the surface of the incredible medicinal properties of THC and CBD.

Each of the 113 cannabinoids – and each combination – interacts with the human body in a different way to produce a different effect.

Selecting specific cannabinoids – and combinations of them – is crucial to studying how they can be used to treat diseases or have therapeutic, recreational, or other commercial value.

That’s why cannabis extracts are so crucial.

They’re what allow us to isolate and study each of these 113 chemical compounds, and the thousands of combinations of them.

Below is a chart of the medicinal potential and applications of some of the more common cannabinoids:

I have no doubt there will be significant breakthroughs in the months and years ahead as THC, CBD, and especially the other 111 cannabinoids are thoroughly researched.

Just think of how big the cannabis boom has been so far, and that’s only with our minimal knowledge of just THC and CBD.

The true potential of all 113 cannabinoids – and the thousands of combinations of them – is truly mind-boggling.

That’s the opportunity today. It’s the cutting edge of the cannabis industry and the key to the next wave of profits.

In sum, it will be years before the massive distortions that 80 years of prohibition has caused will be worked out, and the various markets mature to their full potential.

And readers of my Crisis Investing advisory have already had the chance to book gains of 220%… 248%… and 533%…

But there are still big profits to be made in this space… if you know where to look.

Editor's Note: Legal cannabis is one of the few issues politicians on both sides of the aisle can agree on in this highly-charged environment.

With the 2020 election season is kicking into gear, Trump has a crucial card to play. A move towards legalization could swing the election in his favor.