Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

A "Digitalized" Stock Profit Play Mr. Spock Would Love

Companies / Tech Stocks Apr 13, 2015 - 02:44 PM GMT

By: Money_Morning

Companies

Michael E. Lewitt writes: Recently, the world mourned the death of beloved actor Leonard Nimoy. Mr. Nimoy, of course, was renowned for his portrayal of the iconic character Mr. Spock on the 1966 television series "Star Trek."

One of the most memorable "Star Trek" inventions was the transporter beam that effortlessly moved people and other solid objects through space in an instant.


Indeed, "Beam me up, Scotty" became part of the pop culture lexicon during the height of the show's popularity and remains there today.

Today's investors expecting central bankers to solve the world's economic problems might just as well believe that Janet Yellen is capable of beaming them straight into the Marriner S. Eccles Federal Reserve Board Building in Washington, D.C., which houses the main offices of the Board of Governors of the Federal Reserve System.

The world is suffering from a solvency problem – there is too much debt that can't be serviced or repaid.

It shouldn't take a Vulcan with the cool logic and super-intelligence of Spock to understand the massive threat (and lucrative opportunity) the situation poses for the global economy and our money.

In fact, it's quite logical…

Three-Dimensional Economic Checkmate

In the face of crushing global debt central banks are employing policies designed to deal with a liquidity crisis – lowering interest rates – rather than policies designed to deal with a solvency crisis.

As a result, their policies are doomed to fail.

In fact, they are not only failing to generate the types of growth that could create the income necessary to pay the interest on this debt and ultimately repay it, they are actually increasing debt levels while contributing to epic levels of wealth inequality to boot!

Central banks that purport to be promoting financial stability are actually undermining it – with the able assistance of regulators who have drained liquidity from the world's most important markets. Investors who fail to recognize these facts are going to lose a lot of money because markets are going to figure them out sooner or later and sell off hard.

Another enduring image of Mr. Spock was watching him play three-dimensional chess, a game that demonstrated both his superior intellect and his ability to see the complexities of the universe in ways far beyond the limited abilities of mere humans.

Rather than think in only two dimensions, Spock was able to think in three (or even more). This is something that investors must be able to do in a "digitalized" world, particularly when currencies start to move as dramatically as they have since last summer.

As a citizen of the twenty-third century, Spock was able to envision a digital world that we are only beginning to experience. Today, we inhabit a world in which we are just beginning to explore the consequences of being able to deconstruct every conceivable kind of data into different combinations of ones and zeroes that can then be reconfigured and transmitted around the world in the blink of an eye.

As investors, we are seeing this phenomenon played out around the world, and it gives us opportunities to take big gains in the "digitalized" economy…

Two Profit Plays for the "Digitalization of Finance"

An example of using seemingly limitless data in support of a new technology is found in Israeli cybersecurity company CyActive, which was just acquired by PayPal Inc., itself a subsidiary of eBay Inc. (Nasdaq: EBAY).

CyActive's specific area of expertise is predicting malware before it hits a network based on the premise that malware behaves like a virus; it mutates as it spreads. So CyActive uses evolutionary biology algorithms to track malware behavior.

Algorithms are a common digital language that can be applied across biological and non-biological systems. The possibilities of the common digital language of mathematics are truly as limitless as the space explored by Spock and his shipmates on the Enterprise.

The digitalization concept goes beyond technology, however.

In the financial world, every stock, bond, loan, currency, commodity, or derivative can be broken down into its constituent digital parts. Financial technology exposes the fundamental truth that all financial instruments are different expressions of the same underlying economic reality.

Global currency moves are another example where we see the "digitalization" theme playing out in real time.

Currencies and interest rates are just different versions of the same underlying phenomenon – the cost of money. And while economists have taught us to think about the difference between "real" and "nominal" returns primarily in terms of inflation effects, it is also necessary to broaden that understanding to include currency effects in periods of currency volatility like today.

The dollar has surged by more than 20% against the euro since last July. When the currencies in which their investments are denominated experience historic levels of volatility, a new dimension enters the investment landscape.

An unstable currency regime creates a highly unstable investment environment. With interest rates at or near zero and traditional inflation measures suppressed, currencies have picked up the mantle from interest rates for the transmission of real returns on capital.

"Real" returns are intended to measure the return on capital in constant currencies which today means adjusting them more for changes in the value of fiat currencies than inflation.

Investors are pouring money into European stocks, which have outperformed U.S. stocks in the first quarter by a mile before currency adjustments.

While the S&P 500 was up +1.3% in the first quarter as of the end of trading on March 30, European stocks were up a rip-roaring 18% before taking into account the roughly 10% decline in the euro over that same period. That still leaves a handsome 8% return net of currency losses for the quarter but demonstrates the impact of currency volatility on real returns.

Investors who were thinking in three dimensions and hedged their currency risks did much better. The Wisdom Tree Europe Hedged Equity ETF (NYSE Arca: HEDJ) was up 19.9% over that same period, demonstrating the importance of paying attention to currency effects.

On a fundamental basis, investors should be cautious about chasing European stocks in a European economy whose major attraction is a weak currency. Sooner or later, economic reality will trump the false promise of a monetary policy that is doomed to fail.

For the moment, however, the elixir of currency debauchment is pushing stocks higher for those wise enough to view the world like Spock.

We may have lost a great deal in the passing of Mr. Nimoy, but we can all learn to "live long and prosper" by understanding the opportunities presented in this new world of "digitalization."

Source :http://moneymorning.com/2015/04/13/a-digitalized-profit-play-mr-spock-would-love-2/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules