Marijuana Stocks Could be Scams, Warns SEC Watchdogs

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Marijuana stocks have federal regulators screaming. And it’s time to listen up.

Marijuana stocks are bad news, we’ve pointed out again and again. Of course, that doesn’t mean we’re bearish on the legalized pot industry… but the pitfalls of marijuana stocks for individual investors are far different than the business of growing, selling or even buying pot where it is legal.

Sometimes shares in a great company are still a sell because of, say, valuation. And sometimes shares in a dumpster fire are a buy because, for example, a turnaround plan is working.

Likewise, there is a difference between the potential of a new industry and the companies seeking to exploit it.

Medical marijuana looks to have a bright future, for instance, and if marijuana is ever legalized on the federal level, there will be marijuana stocks that will benefit. But they won’t be the scores of over-the-counter stocks investors are piling into today.

There seems to be a misguided belief that these marijuana stocks have to go up simply because they’re associated with marijuana. Personal computers were a huge deal back in the day, but not every PC stock was a home run.

True, the first-mover advantage can be a powerful leg up for a young company, but not when the companies in question are so sketchy they could easily be scams.

The Securities and Exchange Commission is getting more complaints from investors in marijuana stocks. Indeed, they suspended trading on five marijuana stocks already, punishing shares.

From questions regarding the accuracy of publicly-available information about these companies' operations to potential illegal activity, these marijuana stocks have incurred the wrath of federal regulators for good reason:

GrowLife (PHOT) FusionPharm (FSPM) CannaBusiness Group (CBGI) Advanced Cannabis Solutions (CANN) Petrotech Oil and Gas (PTOG) Marijuana Stocks Asking for Trouble

But it doesn’t end there. Investors should run away from all OTC marijuana stocks, including Medical Marijuana (MJNA), Cannabis Science (CBIS), CannaVest (CANV), MediSwipe (MWIP) and GreenGro Technologies (GRNH). As the SEC warns:

Fraudsters often exploit the latest innovation, technology, product, or growth industry – in this case, marijuana – to lure investors with the promise of high returns.  Also, for marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company's management, products, services, and finances.  When publicly-available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.

The bottom line is that these are OTC stocks with little or no publicly available, audited information. OTC stocks are also a playground for pump-and-dump con artists. Why would you take the risk of having your entire position stolen by a criminal?

The marijuana industry may very well be big business one day, and there will be plenty of legitimate, listed marijuana stocks to play when that happens. But that day is still a far way off.

Besides, even if they’re on the up-and-up, the marijuana stocks that are popular right now have terrible financials. Not one of them has the revenue, profit or outlook to justify crazy-high market capitalizations we are seeing among marijuana stocks right now.

Most of these penny stocks have never made a penny in profits. They are dodgy as hell; The SEC and FINRA are warning investors away for a reason. What more do you need?

Legalized marijuana will be a boon one day, but we’re not there yet. Penny stocks in and of themselves are far too risky to buy in almost every case. Chances are, you’re throwing your money away.

I don’t own any marijuana stocks — long or short — and I never will. When it comes to marijuana stocks, just say no. This won’t end well.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

12 Reasons Why New Zealand's Economic Bubble Will End In Disaster

New Zealand's economy has been hailed as one of world's top safe-haven economies in recent years after it emerged from Global Financial Crisis relatively unscathed. Unfortunately, my research has found that many of today's so-called safe-havens (such as Singapore) are experiencing economic bubbles that are strikingly similar to those that led to the financial crisis in the first place.

Though I will be writing a lengthy report about New Zealand's economic bubble in the near future, I wanted to use this column to outline key points that are helpful for those who are looking for a concise explanation of this bubble.

View from Mission Bay, Auckland, New Zealand (Photo credit: Jaafar Alnasser Photography)

Here are the reasons why I believe that New Zealand's economy is heading for a crisis:

1) Interest rates have been at all-time lows for almost a half-decade

Ultra-low interest rate environments are notorious for fueling credit and housing bubbles, which is how the U.S. housing and credit bubble inflated last decade. New Zealand's interest rates have been at record lows for nearly five years, which is more than enough time for economic bubbles and related imbalances to form.

Here is the chart of New Zealand's benchmark interest rate:

Source: TradingEconomics.com

New Zealand's three-month interbank rate, base lending rate, and 10 year government bond yield are also at or near all-time lows. Like many countries that are experiencing bubbles in recent years, New Zealand's low interest rates are a byproduct of global "hot money" flows from the United States and Japan, which have both had zero interest rates and quantitative easing programs to boost their economies after the Global Financial Crisis.

Low interest rates in the U.S. and Japan encouraged capital to flow into higher yielding investments in countries such as New Zealand, which led to reduced bond yields and an 85 increase in the value of the New Zealand dollar against the U.S. dollar since 2009. To combat the export-harming currency appreciation and bolster the economy during the financial crisis, New Zealand's central bank reduced its short-term interest rates to all-time lows.

2) Property prices have doubled since 2004

Following the pattern of many nations outside of the hard-hit U.S., peripheral Europe, and Japan, New Zealand's housing prices have doubled in the past decade, forming a property bubble:

Source: Global Property Guide

3) New Zealand has the world's third most overvalued property market

The doubling of New Zealand's housing prices in the past decade far surpassed household income and rent growth, making the country's property market the third most overvalued in the world. New Zealand's home price-to-rent ratio is 77 percent above its historic average and its home price-to-income ratio is 26 percent above its historic average.

J.M. Smucker Company Misses Q3 Estimates; Cuts Outlook; Shares Fall (SJM)

Shares of The J.M. Smucker Company (SJM) fell over 5% on Friday morning after the company missed estimates and lowered its outlook for 2014.

SJM’s Earnings in Brief

SJM posted third quarter earnings of $166.7 million or $1.59 per share, up from $154.2 million, or $1.42 per share a year, ago. Excluding special items related to special projects, earnings were $1.66 per share, missing analysts’ view of $1.68 per share. Revenue dipped to 1.47 billion from $1.56 billion last year. Analysts expected to see revenue of $1.53 billion. Looking forward, SJM has cut its outlook for 2014 from an earnings estimate between $5.72 and $5.82 to a new range of $5.55 to $5.60. The company’s updated guidance falls well below analysts estimates of $5.78 per share.

CEO Commentary

CEO of SJM, Richard Smucker commented: “While we expect our fourth quarter earnings to be down compared to a strong quarter last year, we want to reiterate that our business fundamentals remain sound and our prospects for ongoing earnings growth continue.”

SJM’s Dividend

SJM declared its last 58 cent quarterly dividend on January 24. The dividend will be paid on March 3 to shareholders of record on February 14.

Stock Performance 

J.M. Smucker shares were down $5.19, or 5.46%, during pre-market trading Friday. The stock is down 8% YTD.

Herbalife Stock's Volatile on Buybacks and New Ackman Claims

Once again, Herbalife's(HLF) stock is bouncing around at the mercy of competing winds.

In yet another sign that Herbalife’s fate is only somewhat controlled by its management team, the nutritional supplement maker’s stock went on wild ride Monday. Herbalife opened up more than 4%, but then quickly gave back those gains. By mid afternoon, the stock dipped more than 1% before ultimately closing up more than 7%.

That rollercoaster ride came as investors weighed the company’s announcement that it would buy back $1.5 billion in stock, more than double its previous $653 million authorization, against news from outsiders who have been pushing and pulling on Herbalife’s stock price.

The first bit came from Herbalife bull William Stiritz, the CEO of Post Holdings(POST).

The market has viewed Post as a potential buyer of Herbalife, after Post’s CEO William Stiritz personally purchased a 6.7% stake in Herbalife. Last week one of Wall Street’s most bullish analysts on Herbalife joined Post Holdings as an adviser, raising even more questions about whether the cereal company might bid for Herbalife.

Yet Monday morning, Post announced a deal to buy Nestlé’s PowerBar sports nutrition unit. The price tag wasn’t disclosed, but there’s a concern that gobbling up this company could leave Post Holdings with less bandwidth to finance a bid for Herbalife, which has roughly five times the market cap of Post Holdings.

Should Post choose to bid, there could be a host of corporate governance questions for Mr. Stiritz to answer, i.e. whether he can or should personally profit from a buyout financed by the publicly-traded company he runs. But that’s a question for another day.

Later on Monday Herbalife’s loudest detractor Pershing Square’s Bill Ackman came out swinging yet again. He has been relatively quiet on the company of late. Yet his hedge fund Pershing Square released what they called an in-depth study on “deceptive practices and recruitment systems” of one of Herbalife’s top sellers in Canada.

Mr. Ackman promised that Pershing Square will continue to release details of deceptive practices executed by other top Herbalife sellers, including at least one member of the company’s board of directors.

While Mr. Ackman has been promising bombshells that could take down Herbalife for more than a year, these revelations and the fear of more to come only pushed the stock down a bit. Herbalife’s shares have more than doubled from the fall after Mr. Ackman first predicted that the company’s stock would fall to zero and publicly acknowledged a billion dollar bet against Herbalife’s stock.

Gold futures score a weekly gain of 2%

SAN FRANCISCO (MarketWatch) — Gold futures closed higher on Friday for the second consecutive session, scoring a weekly gain of nearly 2% as prices continued their rebound from last year's loss to finish at their highest level in nearly three weeks.

Following the prior session's surge, gold for February delivery (GCG4)  tacked on $13.40, or 1.1%, to settle at $1,238.60 an ounce on the Comex division of the New York Mercantile Exchange — their highest settlement since Dec. 16, FactSet data, tracking the most-active contracts, show. Futures prices, closed at $1,214 last Friday.

"While bargain hunting and short-covering may have been the initial catalyst for the pop off support [levels], we are now seeing more conviction buying premised on the third failure to sustain losses below $1,200," said Peter Grant, chief market analyst at precious-metals dealer USAGOLD.

"A theme among clients I've spoken to this week has been skepticism about the sustainability of the stock market rally," he said. "They're taking money off the table in equities and using it to bolster their gold holdings."

Silver prices gained along with gold Friday. March silver (SIH4) added 8 cents, or 0.4%, to $20.21 an ounce after an early slip below the $20 mark. Prices for the white metal had jumped almost 4% on Thursday and saw a gain of 0.8% for the week.

AFP/Getty Images

So far for gold, support is holding at $1,140 an ounce, said Adam Koos, president of Libertas Wealth Management Group.

"In the short term, we might be seeing the beginning of a bottoming process, but it's very early yet, he said.

On Thursday, gold futures soared by nearly $23 an ounce on reports of physical buyers looking for bargains. China, in particular, was believed to be behind the piqued appetite. The Lunar New Year falls at the end of the month, and that usually means a strong period of gold buying.

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"Since gold took such a beating last year, there are likely a lot of investors who took the opportunity in one of their rare positions with losses on the books to realize those losses for tax purposes," said Koos. Gold futures prices dropped 28% in 2013.

"Since the IRS Wash Sale Rule limits the repurchasing of securities for the purpose of tax loss harvesting to 31 days, there's a chance that we might start to see a bid come back into GLD mid-month, but we'll know for sure whether this hypothesis is remotely correct by month's end," he said, referring to the gold-backed exchange-traded fund, the SPDR Gold Trust (GLD) .

For now, Koos said he's "watching the show from the sidelines and waiting for more of a consolidation to occur with some upward momentum prior to adding a position" in gold.

But Julian Jessop of Capital Economics can be counted in the gold bug camp . "We see plenty of scope for gold to bounce back in 2014," he said in a recent note.

"Indeed, the poor performance in 2013 has left the precious metal looking attractive again compared to other assets, including equities. The bursting of the bitcoin bubble may even make gold look more appealing to Chinese investors," Jessop said.

Elsewhere in metals trading Friday, platinum for April delivery (PLJ4)  closed up $9.60, or 0.7%, to $1,414.20 an ounce — up about 2.6% from a week ago, while March palladium (PAH4)  rose 95 cents, or 0.1%, to $731.20 an ounce, for a 2.7% climb on the week.

High-grade copper for March delivery (HGH4) , however, fell nearly 3 cents, or 0.8%, to $3.355 a pound, set to extend Thursday's 0.4% session decline. For the week, prices lost 1%.

Other must-read MarketWatch stories:

It may soon be time to go for gold

Why you shouldn't worry about stocks' rough start to 2014

Caution: #shark approaching

Is The Best Buy Stock Run Over?

The shares of Best Buy Co. Inc. (NYSE: BBY) are up almost 250% this year. The company’s management has staged a turnaround, at least partially. But the progress is not great enough for Best Buy to have its current market capitalization of $14 billion. After all, its earnings from continuing operations last quarter were only $44 million. Even if that number soars, it likely will not be enough to justify the $14 billion valuation.

The theory behind the increased value of Best Buy is that its revenue is no longer shrinking, and it may recover this holiday season. In its most recently reported quarter, Best Buy had revenue of $9.4 billion, about flat with last year’s same quarter. Same-store sales for the period rose only 0.3%. The number only looks good because in the year-ago quarter same-store sales were off 5.1%.

Part of the enthusiasm about Best Buy is the strategic plan of new CEO Hubert Joly: drop prices below the competition and offer better in-store services. The problem with the first part of the program is that the move is likely to lower margins. The problem with the second is that consumers are used to shopping for consumer electronics at Amazon.com Inc. (NASDAQ: AMZN), where there is no service. The lack of service at Amazon is replaced by the convenience of shopping from home and the ability to browse a seemingly infinite number of consumer electronics products across a nearly limitless number of prices. A physical store has no means to match that.

So, the new wisdom about the high valuation of Best Buy is that it has beaten, or at least matched, Amazon in the prices and service aspects of consumer electronic sales. Yet, there is scant evidence of that. It will not be until holiday sales numbers are turned in by the two companies that Best Buy can be considered a winner, even on the most modest level. And “modest” is the problem. Even a small improvement in Best Buy’s revenue says nothing other than Amazon is not trampling it with quite the same force as a year or two ago. That does not mean the beating ever entirely ended.

Best Buy’s turnaround is nothing more than marching in place, which is not enough to cement a better future.

BlackRock’s Fink: There are ‘bubble-like markets again’

Laurence D. Fink Bloomberg News

BlackRock Inc. Chief Executive Officer Laurence D. Fink, whose company is the world’s largest money manager with $4.1 trillion in assets, said Federal Reserve policy is contributing to “bubble-like markets.”

“It’s imperative that the Fed begins to taper,” Fink said today at a panel discussion in Chicago, referring to the central bank’s $85 billion in monthly bond purchases. “We’ve seen real bubble-like markets again. We’ve had a huge increase in the equity market. We’ve seen corporate-debt spreads narrow dramatically.”

The Fed in September decided against reducing the bond purchases as economic growth remained muted. Following a partial U.S. government shutdown this month, policy makers will probably delay slowing the stimulus until March, according to a Bloomberg survey of economists conducted Oct. 17-18.

The Standard & Poor’s 500 Index has gained 24 percent this year, after advancing 13 percent in 2012. The extra yield investors demand to hold high-risk, high-yield bonds has dropped to 444 basis points from this year’s high of 534 in June, according to the Bank of America Merrill Lynch U.S. High Yield Index. That spread reached 440 basis points on Oct. 24, the narrowest since May 28.

“We have issues of an overzealous market again,” Fink said at the event, which was sponsored by the Paulson Institute

Cal-Maine Foods Earnings Fall; Meets Estimates (CALM)

On Monday, Cal-Maine Foods Inc (CALM) reported lower first quarter profits as its production costs increased.

The Jackson, MS-based company reported first quarter net income of $8.8 million, or 36 cents per share, down from $9.4 million, or 39 cents per share a year ago. On average, analysts expected to see earnings of 36 cents per share.

Total revenue for the quarter rose 17% to $319.5 million from $272.9 million last year.

CALM reported that its feed costs rose 7% during the quarter, but the company is expecting these costs to fall for the rest of FY2014.

Cal-Maine has also declared its next dividend payment of 6.8 cents. This dividend will be paid on November 14 to shareholders of record on October 30.

Cal-Maine Foods shares were mostly flat during pre-market trading Monday. The stock is up 22% YTD.

Less-Than-Shiny Gold Miners

NEW YORK (TheStreet) -- The precious metals rumor mill is in high gear once again. The contradictions are almost tantalizing.

The pantheon of gold gurus has a lot to say about this alluring symbol of wealth. On Friday the 13th (just that date alone can make some skittish) Goldman Sachs' (GS) head of commodities research Jeffrey Currie said in a TV interview that gold is about ready to dip further as the U.S. Federal Reserve withdraws stimulus and economic data improve.

The investment bank suggests there's risk gold bullion may even fall below $1,000 an ounce. Does Currie know something we don't, or is he a part of the 66% of analysts who believe the Fed will start taking its foot off the bond-buying pedal sooner than later?

The debt-ceiling, the Syrian drama and other tempests in a teapot may support gold prices in the short term, Currie said in the interview, but he strongly suggested gold will resume its decline into next year. He went on to say the firm's price target on gold for 2014 is $1,050, and during the ensuing correction the commodity may overshoot to the downside. "While we agree with the mid-cycle price somewhere around $1,200, we believe that at least near term it can overshoot to the downside, which is why we have $1,050" as a target, Currie said. "It clearly could trade below $1,000." [Read: Behind the Ethanol Scandal ] So how will investors respond to this melancholic prediction? If they read reports like the one written by Research Specialist Peter Krauth at Money Morning, they may beg to differ. Krauth wrote on Monday that "gold is set to surge." He claims one of the best indicators of the direction of gold's price is the Commodity Futures Trading Commission's Commitment of Traders (COT) report for gold. His premise suggests that the commodity traders tend to move in tandem and that these speculators "...are almost always wrong at extremes." "According to recent COT reports, speculators are so bearish on the gold price, their short positions are 70% higher than they have ever been throughout this 12-year secular gold bull market," Krauth explained.

His reasoning is based on the massive leverage that many futures contracts are traded on "up to 16 to 1 -- just a 6.4% rally in the gold price would obliterate all the capital of those fully leveraged contracts," Krauth postulates.

Just a small percentage rise in the gold price may lead to a massive short covering, "...which would feed on itself, pushing gold still higher and faster. Short covering rallies can lead to violent upside surges," he adds.

It's not hard to agree with his feeling that at the present time the negativity about gold hasn't been this great since gold's bull market began in 2001.

"After the extreme bearish sentiment of 2008, gold rallied 70% in a little over one year" Krauth reminded readers. The View from a Contrary Perspective There are only two things that get less respect than gold. Junk food and gold stocks are not high on any investor's food chain at the moment, and I'm not sure junk food isn't more venerated. [Read: Our 401(k)s Show We're Not Taking Investor Confidence Seriously ] Take the world's largest gold producer Barrick Gold (ABX). Shares of Barrick closed on Monday at $18.14, in spite of an analysis published by Two Fish Management valuing the company's stock above $44 a share. Barrick estimates its gold production this year will be 7.2 million ounces, over two million more ounces than the next biggest miner, Newmont Mining (NEM). There are a number of chinks in its armor. Its net debt is around $13 billion versus Newmont's $5 billion. Plus, Barrick has earned a sour reputation for its capital expenditures and shaky leadership. Let's take a look at both of these two famous gold producers, starting with a 1-year chart of ABX. The chart also includes its trailing twelve month (TTM) EBITDA earnings. ABX data by YCharts Barrick's earnings and sales growth depends on the price of gold staying afloat. In a recent interview CEO Jamie Sokalsky proclaimed, "This company has a more disciplined capital-allocation framework and is focused on cost control, portfolio optimization return on investment and free cash flow."

Newmont's one-year price chart with its TTM EBITDA earnings looks like the trajectory of a belly-flop dive off a high diving board. NEM data by YCharts

Many wonder if the gold miners can rejuvenate confidence among disenchanted investors. If Goldman Sach is correct about the direction of the price of the golden metal, that may be the final nail in the coffin.

If you decide to begin accumulating shares of ABX or NEM, it would be important to have a disciplined exit strategy that you can count on if shares head the wrong direction. [Read: When to Fix Up Your Home Before a Sale ]

If the precious metals sector can feign death one more time, it may be the buying opportunity of a lifetime. Watch Barrick as the harbinger of the group. For those of us who are long the stock, let's hope a well-respected activist investor starts accumulating shares. At the time of publication the author the author is long ABX and NEM. Follow @m8a2r1 This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com. Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries. In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the �herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns. Follow @m8a2r1

At the Close: U.S. Stocks Edge Higher; CME Group Surges; Miners Fall

In a day that saw U.S. markets go from gains, to losses, and back again, stocks finished higher as investors decided that disappointing economic data was, in fact, good news, or something like that.

REUTERS

The Dow Jones Industrial Average (DJIA) gained 0.2% to 15,451, while the Standard & Poor's 500 (SPX) rose 0.3% to 1694.16 and the Nasdaq Composite (COMP) finished up  0.4% at 3,684.44.

This morning, investors decided to take a more bearish stance towards data that showed retail sales gain 0.2% in July, less than the 0.3% forecast by economists. As the day moved on, the focus turned to other aspects of the report–the upward revision in June’s number and the 0.5% gain in retail sales sans car purchases–and stocks rose.

I don’t want to make too much of the data, however. Clearly it was a Rorschach test of sorts, to see what you want to see. And really, investors are trying to gauge whether the Ben Bernanke and his buds at the Federal Reserve think the economy is strong enough to end its bond buying–and what it means for stocks if it does.

Hence, investors shouldn’t make too much of the day’s action–or lack thereof. The gap between the day’s high and low was just 0.8 percentage point, and the CBOE Volatility Index slid another 3.9% to 12.31, a sign that price swings in stocks are muted at best.

But even with markets trading in a range since July, there was plenty of action in individual stocks, even as earnings season nears an end. CME Group (CME), for instance, gained 4% to $74.44, its biggest move two months, after the exchange operator said trading volume in its Brent crude oil futures contracts climbed above 100,000 for the first time on Aug. 8. CME is trying to woo traders away from IntercontinentalExchange’s (ICE) dominant futures contract. Xerox (XRX), meanwhile, finished up 3.4% at $10.49 after Citigroup upgraded its stock to Buy from Neutral and the company announced that it would acquire a Canadian company.

Newmont Mining (NEM) fell 2.7% to $30.08, as gold fell 0.9% to $1322 an ounce. Blame that tapering speculation again. Alcoa (AA) fell 1.3% to $8.15–probably for the same reason–making it the Dow Jones Industrial’s biggest loser.

Still, the S&P 500 has been locked in a tight range for the last month, with just 2% separating the high and the low during that period. Don’t expect much excitement until investors get more clarity on the strength of the US. economy and the Fed’s tapering.