Weekly Market Comment Oct 2 2020

Unmasking reality

The recovery from the coronavirus economic crash has been showing signs of slowing, as the U.S. economy added an estimated 661,000 jobs in September. In normal times, it would represent an extraordinary number, but these are not normal times. September’s estimate is the third monthly decline since June and the U.S. unemployment remains elevated at 7.9%, still a far cry from full employment. The fact that that one of most famous people on earth has now contracted the virus despite living in a highly secure bubble is a reminder that the disease remains a clear and present danger.  Our thoughts are with the President and First Lady along with anyone else dealing with (or dealt with) Covid.  This pandemic does not discriminate and it is important that we all take proper precautions particularly now that fall has arrived along with what most likely is a second wave of this nasty virus.

In terms of ramifications for the upcoming US election, TD Bank points out that both England’s Boris Johnson and Brazil’s Bolsonaro saw jumps in their approval ratings. Some Republican campaign plans will have to get cancelled or re-worked while the next debate in two weeks may get delayed. But be weary of jumping to political or market conclusions.

What do Aspirin and CBD have in common?

Many remain unaware of the significance of synthetically growing CBD (and other cannabinoids) and fail to grasp the likelihood that it will eventually crowd out the business of extraction.

Nor does everyone understand the tech is already here. OGI just announced its first commercial sale of synthetically grown CBD. It’s important to note that extracted CBD and synthetically grown CBD are molecularly identical and highly interchangeable. The difference? Synthetic promises far bigger scale at lower costs.

As an example of biosynthesis, the Aspirin you take is no longer extracted from the bark of a willow tree. If it did, we’d have to grow willow tree farms and sell the pills for multi-dollars per pill.

Shale fail

Oil stocks have dramatically underperformed these past few years but none have fared worse than shale producers. They’ve spent more money drilling holes than they have earned selling their production. This week, one of the giants of the shale revolution, Oasis Petroleum, filed for bankruptcy. Once a 17 stock, it now trades at 21 cents. As the shale ETF below illustrates, the sector has fallen approximately 70% since 2017.



We’ve maintained a dramatically underweight position in this sector, keeping our exposure mostly at pipelines (which could not be busier, in part because of the sheer difficulty of building more lines). Contrast that to the TSX Composite, which still maintains a 10% weight. It was 17% at the start of the year, illustrating how badly the sector has shrunk in importance.

Noteworthy links:

 

Word of the Week

fungible (adj.) – able to replace or be replaced by another identical item, mutually interchangeable. “Derivative cannabis products—Cannabis 2.0, e.g. edibles, vapes, topicals, beverages, concentrates—

comprise an escalating share of the global cannabis market, and the pure cannabinoids produced by fermentation are extremely fungible with plant-derived cannabinoids.”