‘The US Senate on Monday approved Janet Yellen as head of the Federal Reserve, making her the first female chief of the US central bank.
‘…Some Republicans who opposed the Fed’s $85bn a month asset purchase programme voted against Ms Yellen, despite the agency last month announcing the beginning of its tapering of the stimulus initiative, cutting it to $75bn for January.
‘It will be up to Ms Yellen, who will take over on February 1, to guide the Fed through what current Fed chair Ben Bernanke has said would likely be a “measured reduction” in the asset buying programme throughout this year. The Fed could change course if there are shifts in the economy.’
– Financial Times
There’s only one way to describe the confirmation that Dr Janet Yellen will be the new chairman of the US Federal Reserve – it’s good news for stocks.
Dr Yellen has been firmly in the camp advocating the Fed’s money printing and bond buying policies.
It seems highly unlikely that she’ll do anything to shock the markets and cause stock prices to fall and bond yields to rise.
But you never know.
Sometimes people do funny things in self-interest.
What does a new government do the minute after it takes over from a previous government? That’s right, it tells everyone that things are much worse than expected…that means all those policy promises from the election are on hold.
What’s the first thing a new CEO does when he or she takes over the top job? They quickly make the market aware that revenue and profits may not be as ‘robust’ as previous guidance, they write-down the value of bad investments made by the previous CEO, and they announce a much-needed corporate restructure.
So, is there any chance that the first few months of Dr Yellen’s tenure could be more, er, troublesome than most expect?
If we look at the chairmanship of Alan Greenspan and Dr Ben S Bernanke, you would be right to worry.
Alan Greenspan took over as Fed chairman on 11 August 1987. Just two months later the Dow Jones Industrial Average experienced what at the time was its biggest points fall in history. It was ‘Black Monday’ and the 1987 stock market crash.
What about Dr Bernanke? Well, he had more breathing room. He took office on 1 February 2006. The stock market hit an all-time high 20 months later, before sliding into what became the 2008 financial meltdown and the near bankruptcy of the entire banking system.
Of course, it’s not all bad news. After the 1987 crash, the Dow Jones Industrial Average climbed 470.9% until Greenspan left office in 2006.
That’s even taking into account the dot-com bust.
Since the market hit rock bottom in 2009, three years into Dr Bernanke’s tenure, the US market has gained 129.7%.
And if you go back to Greenspan’s predecessor – Paul Volcker – he took over on 6 August 1979 and saw the Dow add 206% before handing over the reins…and the responsibility for dealing with the impending crash.
So, new Fed chairman plus the same old story means that stocks must go up, right?
Of course, nothing is that simple. Only a fool would base their investment decisions on arguably casual rather than causal relationships (saying that, we’ve lost count of the number of serious financial commentators who proclaim that people should invest based on which party wins a general election).
The point I’m making with this is that in terms of long-term investment planning, history shows that the confirmation of a new Fed chairman doesn’t have a direct or lasting impact on stock prices.
That’s not to say it doesn’t matter, but markets soon adjust. As with all things involving governments and central banks, it’s important to remember that most of what they say and do is just noise.
It’s also important to remember that despite the fact that the central bankers and governments get all the headlines, the real story is what’s quietly going on behind the scenes.
That brings me to my point. Let me explain the real reason to buy a certain type of stock today…
Take the highlights coming out of the CES (formerly the Consumer Electronics Show) in Las Vegas. As the Financial Times reports:
‘The T-shirt that tracks your heartbeat. The bra that tells you if you are eating too much. The badge-sized camera that takes photos from your lapel every few seconds, all day long. The headset that tracks how quickly you blink to see if you’re tired – then tries to wake you up.
‘People who were already alarmed by the future heralded by Google Glass, with its face-borne camera and screen, could be in for a shock. A wild array of new wearable technology is the talk of this week’s Consumer Electronics Show, as both established companies such as Sony and Samsung, and a multitude of start-ups, propose ever more inventive and surprising ways to augment the human body with sensors and displays.‘
Aside from this technology being extraordinary, reports from the CES fill us with an extra sense of satisfaction.
The FT article reads as though they’re reporting something new…something no one has ever heard of before. That may be true for most FT readers. But it’s not true for Revolutionary Tech Investor readers.
I say this is satisfying because what the FT report describes is exactly the sort of thing tech guru Sam Volkering has described to Revolutionary Tech Investor subscribers since we launched the service in June last year.
Wearable (Sam calls it ‘Immersive’)technologyhas been a major talking point of Sam’s for the past year. It was the subject of the December issue of Revolutionary Tech Investor, and it’s the subject of the soon-to-be-released January issue of Revolutionary Tech Investor.
This technological trend is a perfect example of what I’ve been saying for the past two years. While most folks seem to focus on government debt and interest rates, they’re missing out on big technological change and the opportunity to invest in that change .
Take the CES. It’s one of the biggest trade shows in the world. Last year 152,759 people attended the event. That included 5,586 members of the press, 855 speakers, and 783 analysts.
The attendance numbers and interest in the event are sure to be the same this year. I don’t know for sure because I didn’t go, but I’ll bet the words ‘central’ and ‘banker’ hardly passed anyone’s lips.
They’ve got more important things to talk about.
The latest issue of tech magazine Wired gives more insights into the future of ‘immersive’ tech:
‘In many of the most cutting-edge applications for wearables, the time between intention and action is actually negative: The device knows what users want before they want it. The heart of the [Google] Glass experience is Google Now, the company’s attempt to divine and deliver needed information based on context. Observing your driving patterns, the app gives traffic updates when you’re almost ready to ask for them; scanning your calendar, it displays an alert when it’s time to leave and gives you directions too.’
That’s the real opportunity – tech that intuitively knows what you’re doing or about to do without the need for you to actively interact with any device. It can all happen passively.
Let me give you a simple but highly possible example. For most people the trip between work and home is a regular and predictable event.
So what if your car’s navigation system was part of your immersive technology experience? What if the navigation system could communicate with electronic devices at home to let them know you’re on the way?
Your car trip is always 20-25 minutes long. When you reach a certain distance from home the navigation system contacts your home heating system or air conditioning unit to instruct it to turn on.
When you turn into your street the navigation system contacts the remote garage door and instructs it to open (and when the car is in the garage it automatically closes behind you – unless it’s a Tuesday evening when the computer system knows that’s the night you need to put the rubbish out, so it waits until you’ve put the bin by the side of the road).
Your home computer system has ‘learnt’ that you like to have a hot bath as soon as you get home, so by this point the bath is full and at your desired temperature.
All of this happens intuitively, without you actively interacting with any devices.
This is exactly why I’ve put a lot of focus on investing in the tech sector. And despite the great year for tech stocks in 2013, as the immersive tech trend takes hold in 2014 this year looks set to be even better for well-informed tech investors.
I could go on. But I think you get the point by now. And if you think this is pie-in-the-sky lunacy, I’ll finish up with two quotes that summarise how to think about the future.
The first is from 19th century German philosopher Arthur Schopenhauer:
‘Everyone takes the limits of his own vision for the limits of the world.’
The second is from someone whom some argue is the most famous and thought-provoking philosopher of all time, New York Yankees baseball catcher Yogi Berra:
‘The future isn’t what it used to be.’
Those quotes are self-explanatory. Just because something seems unreal in our mind doesn’t mean it can’t or won’t happen.
for The Daily Reckoning Australia