As the dizzying pace of stock market volatility continues shock turns to the question, what is the right course of action. To make successful decisions starts with the answer to a bigger question. What is causing the upheaval?
Recently we put electronic ink to virtual paper in an article making the case for a strong dollar. Our rational was based on the new Federal Reserve leadership raising interest rates in multiple increments this year. The reason for this prediction is that the long term trend of disinflation is over and the Fed’s target of a 2% inflation rate is being exceeded. That calls for an end to ultra low cost money.
The Tale Of The 10-Year Note
Investor anticipation of multiple rate hikes started showing last September when the 10-Year Treasury Note was selling for at a record low yield of 2.06% before raising to 2.85% early this month. That is one of the highest yields in a decade. The 10-Year Note is a good benchmark of where investors anticipate future inflation.
A Vulnerable Stock Market
While this is going on, the stock market is sitting near record high valuations. According to the Wall Street Journal, the Dow Industrials stood at 26 times trailing earnings up from year earlier levels of 20.
These numbers are not hidden in some secret data bank. They are easily available even forming the basis of several cautionary warnings from Wall Street sources. The key to market volatility is the uncertainty over the future rate of inflation. This forms the backbone of our vision for Ethereum and its cryptocurrency Ether.
Inflation Is Ethereum Best Friend
There is good reason for the Fed to change its policy from Quantitative Easing following the 2008 financial crisis to inflation control. Even though the price index is still in the acceptable range of 2%+, pressures are mounting. Unemployment is ultra low, labor markets tight, oil prices have risen almost 50% since last summer, healthcare costs remain out of control while housing is in short supply with prices raising over 5% annually.
These are not good signs in spite of a US economy chugging along in the longest economic expansion in modern history. There is more uncertainty today given the elevated stock market values and that is why investor fears drove the VIX fear index from 12 to over 50 in two short trading days this week.
Technology The Savor
Students of the economy are quick to give full credit to the benefits of technology in bringing down inflation from the lofty levels of the 1980’s to where we are today. They are absolutely correct. The benefits of today’s emerging technology is what will play a key role in the period ahead. Investors will be drawn to technology that solve problems of tight labor, energy costs, healthcare and housing. Such companies will be valued ever more highly.
Blockchain Technology Serves A Broad Audience
If bitcoin is a transactional currency, Ethereum is a practical software platform with a vast range of applications. One of the big criticisms of Ethereum is not that its open sourced blockchain platform is special, but that too many people want a piece of the action.
In 2017, the world exploded with over $3.9 billion in Initial Coin Offerings. Almost 80% used the Ethereum platform. True, some offerings came from bad actors casting aspersions on the the process of capital raising. One the other hand the surge of applications provided all the necessary proof that Ethereum and its Smart Contracts were here to stay.
The Ethereum Moat
With enough skilled developers, anybody can build a blockchain, but can anybody replicate Ethereum? The answer is, of course, yes….. but. What is the probability? There is a shortage of skilled developers that is one reason the lead to the formation of the Enterprise Ethereum Alliance in February 2017. There are 300 members today with a few heavy weight corporations like Microsoft and JP Morgan Chase.
The Ethereum platform has been tested by a group of major Wall Street trading firms producing savings in the billions. That is a pretty awesome endorsement for the technology.
When a list of today’s emerging technology like Artificial Intelligence, Self Driving vehicles, or the Internet of Things, each could individually act to buffer future inflation. However, blockchain technology has a role in all of these and right now Ethereum is in a pretty good spot.