Sorry for the delay, but we’ve got a good excuse.
We caught up with Revolutionary Tech Investor technology analyst Sam Volkering by Skype from his home in London.
We wanted to find out the latest details on what he’s been up to and discuss some of the latest themes in Revolutionary Tech Investor – digital money and cyber security.
Both are fascinating subjects, and surprisingly investable. As you can imagine, when it comes to digital money the biggest issue is providing a secure currency to protect it from counterfeiters.
Of course, counterfeiting the currency is something the US Federal Reserve excels at, and based on the expected nominee for the role of Fed chairman, the Fed’s counterfeiting (money printing) looks set to ramp up even further next year…
You may have seen the news overnight that Dr Janet Yellen appears set to become the US Federal Reserve’s next chairman.
This was just the boost stocks were looking for. Why? Because Dr Yellen is a known advocate of money printing…and that means good news for stocks. Simple.
In a March speech, Dr Yellen said:
‘The purpose of the new asset purchase program is to foster a stronger economic recovery, or, put differently, to help the economy attain “escape velocity.” By lower longer-term interest rates, these asset purchases are expected to spur spending, particularly on interest-sensitive purchases such as homes, cars, and other consumer durables.‘
We like that term, ‘escape velocity‘. It makes us think of a rocket trying to burst free of the Earth’s gravity. In order to do so, it takes a lot of fuel. In order to deliver a satellite weighing 10 tonnes into space the European Space Agency’s Ariane 5 rocket needs to burn 370 tonnes of fuel.
It manages to do that within 12 minutes of take-off! If the Fed wants to achieve the same kind of ‘escape velocity‘ to lift the economy out of the doldrums it will need to expend a similar amount of ‘monetary fuel’.
Investing is All in the Mind
Of course, let’s be realistic about this. There’s no guarantee the Fed’s money printing program will ever work. In fact, we’re convinced it won’t work. But that doesn’t mean stocks won’t rise on the perception that it will work.
It’s all about investor psychology. And as you’d expect, Dr Yellen perfectly understands the importance of investor psychology. Take this from the same March speech:
‘Research on the effects of such asset purchases suggests that what matters for the reaction of longer-term interest rates to a purchase program is the extent to which the program leads market participants to change their expectations concerning the entire path of the Federal Reserve’s holdings of longer-term securities.‘
You see. It’s not just about whether the program actually works; it’s about whether traders and investors think it will work. If they think it will work then they’ll keep buying stocks. If they don’t then they won’t.
This is something we’ve tried to explain in Money Morning in recent months. It’s why we’ve continued to buy stocks and advise you to buy stocks in the face of fierce criticism.
But we’ll continue to stick to our guns on this. Stocks never rise or fall in a straight line. You’ll always get periods of volatility. Stocks rise, stocks fall. That’s what they do.
So while we won’t tell you to ignore the panic-merchants in the mainstream who have gotten their knickers in a twist over a 3% fall, we do advise you to keep things in context.
Because, as we continue to see it, there’s no way Dr Yellen will veer off the current course of expanding the money supply and buying government bonds in order to try and boost the economy.
Don’t Let a Crisis Stop You Making Money
All that said, after the past six years you know not to take anything for granted.
And when people gain high office and new powers, sometimes the power goes to their head. They can get the urge to do and say things that they previously wouldn’t.
Power does strange things. So does the desire to create a legacy.
Could it be possible that after years of talking up the virtue of printing money and buying government bonds that Dr Yellen will suddenly do a 180 degree turn and say things can’t go on this way?
We doubt it. But it’s possible. If you’re in the habit of looking for ‘Black Swan’ events, this is one you should put at the top of your list…just on the off chance.
But all up, we don’t see things changing much. Central banks and governments will continue their experiment to try and engineer steadily rising asset prices. They don’t want the market to bust, but they don’t necessarily want an irrational boom either.
Their goal is to engineer the market that will eventually remove all risk from asset prices. Their dream asset price chart is one that moves from the bottom left to the top right in a steady and predictable fashion.
But until they achieve that goal asset prices will stay volatile, and that will give you the chance to buy stocks at a discount on short-term pull backs.
The market is down again this morning. Do we care? No, it just means investors are worried about something. The good news is that we know what’s worrying them – the US debt ceiling, budget deadlock and the potential for the US government to default on its debt.
The even better news is that we know that no US politician will do anything that would result in the US defaulting on its debt. That means they’ll reach a resolution and by the New Year stocks will be higher than they are today.
We know today’s Money Morning will see our mailbag bursting at the seams again with irate people telling us we don’t understand the impending disaster. We do understand it, but that doesn’t mean we shouldn’t try to exploit the chance to make money from these volatile markets while we’re waiting for it to happen.
Cheers,
Kris+
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