We sometimes wonder if other investors and analysts live on the same planet as us.
We wonder if they really know what’s going on with the markets.
We wonder if they understand the ultimate game plan.
Heck, we wonder if most so-called investment pros even have a brain.
Because the way they’ve behaved over the past two weeks suggests they’re short in the ‘grey matter’ department.
And what we read yesterday evening pretty much confirmed our thoughts…
It still amazes us that so many investors and analysts believe the US Federal Reserve is about to cut back on its bond-buying program.
We can’t for a minute think of anything the Fed has done to cause anyone to think they would do that.
And yet every now and then the market goes into a frenzy. It worries the Fed is about to pull the pin on stimulus, and so stocks fall.
Listen. We’ll say it again for anyone who doesn’t quite believe us yet: interest rates aren’t going up and the Fed will keep buying bonds…forever if necessary.
If you don’t believe us, perhaps you’ll accept the words of Federal Reserve chairman nominee Dr Janet L Yellen. According to Bloomberg News, she said in a statement:
‘A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.‘
By the way, when Dr Yellen talks about returning to a ‘more normal approach‘, you shouldn’t think that means the Fed will go back to playing a minor role in global finance.
Now that the Fed is nice and settled in the world economy’s driving seat, there’s nothing anyone can do to push it back into the backseat.
So get used to it.
And we mean that.
It will switch from fear to optimism and back again…and then back the other way again for years to come.
Even the talk about the Fed tapering its bond program next March is, in our view, naïve.
All that will happen is investors will frighten themselves out of the market, as they have done over the past few weeks. And that’s a shame, because in that period we’ve seen some of our favourite stocks go mental.
Investors who panicked and sold their stocks two weeks ago, or refused to buy two weeks ago, have missed out on a 71.3% gain from one of our favourite 3D printing stocks.
They’ve missed out on a 90.4% gain on our favourite regenerative biotech stock.
And they’ve missed out on a 29.8% gain on a stock which technology analyst Sam Volkering earmarked for Revolutionary Tech Investor subscribers just last week.
And now having seen those gains, many investors will worry that they’ve missed out on all the gains. After all, as Rick Rule reminds folks, the best time to buy stocks is when prices are low.
It’s a simple message, but it’s one investors often forget.
Well, if you’re worried that you’ve completely missed out on gains, don’t. Despite selected stocks doing well in recent weeks, as you can tell from the index levels, it has by no means been a rally across the board.
There are still a heck of a lot of stocks trading at beaten-down prices.
That tells you something important. There’s no question that when the market is this volatile, it’s a stock pickers’ market rather than an index investors’ market.
So, if it’s a stock pickers market, which stocks should you pick?
The great thing about this rally is that it isn’t just one sector doing all the work. As we noted above, we’re seeing gains in various industries: 3D printing, biotech, cybersecurity, personalised medicine and…resources.
In fact, our bet is that resource stocks could be one of the best hunting grounds for investors in 2014. With money printing set to continue, and at least the illusion of recovery in the US market, you’ll see a higher demand for commodities.
Not to mention the continued growth of China’s economy and the opportunities there for resource and non-resource stocks (a theme we covered in the just-released November issue of Australian Small-Cap Investigator).
Although it may seem unlikely given the heavy falls by most resource stocks, the market and investor sentiment can quickly turn. We’ve seen that over the past 18 months with a range of sectors.
We’ve seen it with dividend stocks, technology stocks, and biotechnology stocks.
And it won’t be long before you see it with resource stocks. As we say, don’t expect a broad-based rally (at least not to begin with). When the market turns it’s usually the most risk-hungry investors who jump in first looking for the cream-of-the-crop stocks.
As these stocks rise, other investors will gain confidence and start looking for the next tier of stocks to go up. And so on. That’s how stock rallies begin. Of course, stock rallies don’t last forever…and we all know how they end.
But we’re not worried about the end of the next resource stock boom yet, for the simple reason that the boom has barely started. Keep an eye on resource stocks in 2014.
Cheers,
Kris+
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