2018 Is The Year To Make Great Gains In Crypto And Cannabis

|
Includes: APHA, BITCF, BRK.B, BTC-USD, BTCS, COIN, D, DDM, DIA, DOG, DXD, EEH, EPS, EQL, ES, FEX, FWDD, GBTC, HSY, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PEP, PPLC, PPSC, PSQ, QID-OLD, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWL-OLD, RWM, RYARX, RYRSX, SBUS, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU-OLD, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UNP, UPRO, URTY, USSD, USWD, UWM, VFINX, VOO, VTWO, VV
by: Michael Hooper

Summary

2018 is the year to make great gains.

Crypto and cannabis industries set to grow in North America.

Be aware of a new crypto analyst valuation technique giving value to a token's utility.

I'm excited about 2018 after coming off one of my best years in my 24 years of investing. I had a 15.93% return in my brokerage accounts and a 646% return in my crypto investments.

I'm excited about 2018 because gross domestic product is really going up over 3%, which is when the economy experiences job growth. I see lots of jobs developing in the crypto and cannabis markets. Canada’s economy will see a boost if it approves recreational marijuana by July as anticipated by advocates.

U.S. third-quarter GDP was 3.2% growth and second quarter was 3.1%. Fourth-quarter numbers come out January 26th, but I expect GDP in the fourth quarter was in the high 3s and possibly even 4%. Unemployment rate has dropped to record lows, around 4.1%.

President Trump is taking a lot of credit for the growth in the economy, but I think President Obama also put in place policies years ago that are benefiting America now.

Expectations are high in 2018 with Trump’s tax break for corporate America. The stock markets are at all-time highs, and the S&P 500 P/E ratio is 26.7, which is similar to the high P/E ratio of stocks in the late 1990s when the P/E on the S&P 500 was 30 to 35. It's quite likely we could see those kinds of valuations again very soon.

There are so many opportunities in 2018. I see jobs growing in America with legalization of cannabis in most U.S. states and Canada.

California, Colorado, Washington, Massachusetts and Canada have created thousands of jobs in the marijuana industry with the development of medical cannabis shops, hydroponic stores, grow operations, product development and regulatory oversight.

I’m excited about Canada where Prime Minister Justin Trudeau has vowed to legalize marijuana for recreational use by July 2018. This bodes well for the cannabis stocks like Aphria (APHQF), Canopy Growth (TWMJF), Emerald Health Therapeutics (OTCQX:EMHTF) and Beleave (OTCQX:BLEVF). I also like Horizons Marijuana Life Sciences Index ETF (OTC:HMLSF).

Crypto Outlook

Cryptocurrencies will continue to grow around the world despite some governments trying to stop them. The allowance of futures trading of Bitcoin in America sends a signal that it's legal here. There are now 1400 cryptocurrencies; some of them sprang to life, traded and then died. There is a lot of blue sky in these initial coin offerings.

Now there are crypto analysts who use a crypto token valuation model that discounts expected future utility rather than expected future cash flows. So these crypto analysts are giving value on a token based on its utility.

Brad Garlinghouse, CEO of Ripple, acknowledged on CNBC that there has been a lot of hype in the crypto space. He said the value of a token over the long term will be its utility: what problem is it solving?

"At Ripple we use XRP to settle liquidity issues between banks," he said on CNBC. The settlement takes place in three seconds.

Ripple recently announced that MoneyGram (NYSE:MGI) has partnered with Ripple to use XRP in its payment flows.

The crypto analyst thinking here is the higher the utility, the higher the adoption, and the higher the valuation. This sort of tricky valuation technique reminds me of some of the valuation techniques in the 1990s when internet companies were valued on the number of eyeballs that saw their web pages. Those internet companies traded highly in the stock market for a while but eventually the internet model based on eyeballs alone and no cash flows ended in disaster. That is what is going to happen to many of these crypto currencies - some will pop and run for a little bit but eventually they'll go to zero or a couple of pennies.

I think some cryptocurrencies have a future, including Bitcoin, Ethereum Ripple, and Bitcoin Cash. At some point the crypto market may become a trillion dollar market; right now it has a valuation of around $650 billion, and that's a worldwide market.

This is a good year to test new markets and create new business opportunities. I expect many people to leave their traditional jobs to join startups in crypto and cannabis in 2018.

Stocks can go higher

My two largest holdings remain the S&P 500 and Berkshire Hathaway (NYSE:BRK.A) (BRK.B). I also own utilities like Dominion (D) and Eversource (ES), consumer stocks like PepsiCo (PEP) and Hershey (HSY). And I own railroad bonds and stocks like Union Pacific (UNP).

I remember when stocks were high in 1998 and seasoned investors said, “Hey, the market's pretty high. Be cautious.” Yet stocks went even higher in 1999. Today reminds me of that time, except today any stock with blockchain in its name has legs to run.

All of this economic activity in the United States will probably slow down some day but this is the year to make great gains. Don’t get too greedy. Make the most of your opportunities because someday the GDP will crawl its way back to 2% or 1% or even -0.01%. Then it will be tougher to make money.

If you have one year to make great gains in your net worth, 2018 is the year to do it. With the economy growing, valuations will get frothy. We may see a pullback by March and April when people realize they need to pay taxes on all their riches made in 2017. Stocks may get choppy and volatility may increase. Be prepared for a 10% correction. I’m staying fully invested in all of my accounts. The U.S. dollar is not the place to be. Commodities will likely see a bump-up in value.

Stocks are high but momentum for stocks remains strong. Best of luck in 2018. I hope you make a fortune.

Disclosure: I am/we are long PEP, HSY, BLEVF, BRK.B, UNP, D, ES, EMHTF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author owns Bitcoin, Ripple, Ethereum and Bitcoin Cash.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.