Did The Fed. Just Whisper “Fire” In A Crowded Market?

This past Friday saw what many like myself can only describe as a blatant example of just what’s wrong with both the economy – as well as the markets.

At precisely 15 minutes before the closing bell on Wall Street the now Chair of the Federal Reserve, Janet Yellen gave a press conference detailing further insights into upcoming monetary policy. I guess two days worth of FOMC discussions, along with a press conference detailing all that was discussed immediately after, followed by a question and answer session about all those “insights and decisions” wasn’t enough. For the markets remained red for the week while losing all its post FOMC pop which in itself is an ominous sign.

At first blush some might contend, “Well, that’s a good thing they decided to communicate even more. Best to have any and all the information available as soon as possible. After all: more information is always better for the markets – no?”

Yes it is, however, when it exposes just how cozy (as well as frightened) monetary policy setting has moved from the appearance of setting beneficial policies that help ensure a free and open capitalistic system – to one hell-bent on serving a newer more dominant form of crony styled capitalism rampant within our markets. Where winners and losers are decided solely on their ability to manipulate their bottom line earnings “beat” via access to resources made possible only via the Fed.’s current zero bound stance. (i.e., ZIRP) I don’t believe that was their original intent.

If you were one of the few (i.e., not one of the Wall Street “In crowd”) that watched and listened to that presser on Friday. You were left dumbfounded on just how illogical, as well as contradictory nearly every example given was as to what one should now infer about what the Fed. is going to do next – and when.

So convoluted was both the rational as well as examples given I concluded: there was no other intent for this presser other than to signal the “In Crowd” – You better get the heck out of Dodge because we’ve painted ourselves so deep into a corner this is probably the last time you’ll have a chance as to “paint the tape” in any upcoming quarters. For we might actually have to do what we implied (e.g., raise rates) regardless – just to keep up the appearance that we’ll do what we say. Even if so doing means – creating turmoil. So don’t say “we didn’t warn you.” (i.e., We’ve changed the meaning of “data” so many times now even we can’t figure out what it means or, what we should do any longer!)

Certainly total conjecture on my part. However, if you listened to the rational and explanations given about “data” and “the economy” – nothing made sense. Everything was conflicting not only in the examples but also the tenor and tone. Here are a few examples of what I mean: (I’m paraphrasing) “The economy has improved considerably, that’s why we need to continue the extraordinary measures we’ve been implementing.” Huh?

Or better yet: “We see continuing improvement in the labor force and expect even further improvement.” (as they seemingly disregard the only sector that provided all that month over month, year over year boost in honest job formations, e.g., oil related sectors in States which has now dramatically fallen off a cliff with massive layoffs already announced, as well as the possibly of accelerating further as the price of oil drops ever more.)

And last but surely not least, “We see continued growth in upcoming quarters of GDP.” (As long as you don’t pay any attention to the latest Atlanta Fed.’s report that’s downgraded its GDP forecast from just over 2% which by itself was pitiful, to now just 0.2% faster than one can say “everything was is awesome!”)

The timing of this reprise in conjunction with the latest FOMC’s conference just a week ago was quite instructive in my opinion. I mean, think about it: Fifteen minutes before the closing of the markets on the very day of the quarter ending? Isn’t it just funny how the timing of this presser coincided with allowing for the opportunity as to “paint the tape” if needed? Along with the additional 15 minutes of the later closing futures market as to hedge for Monday’s opening? Again, “if needed” as in – just in case what you heard went against your current positions. The serendipity of that coincidence is an amazingly funny thing – no? I firmly believe this presser was nothing more than a contorted effort by the Fed. to signal what many like myself have been anticipating since the ending of QE just a few months ago: They’ve lost control.

I theorize the Fed. was trying to accomplish two things. One: State for the record publicly as many C.Y.A. statements as possible regardless of how contradictory. And two: Warn (i.e., signal “The In Crowd”) that because they’ve painted themselves into such a tight corner that messaging and more is now a useless exercise. The only way they’re going to be able to adjust going forward or, further intervene within the markets is: If and when a calamity is upon us. Or better said – If, and when the markets fall apart. And “when” just might be a whole lot closer to reality – than “if.”

All one has to do is be willing to look at the “true” data with eyes open and a rational open mind to see what’s taking place. Everything (and I do mean everything) as to what the Fed. said should be taking place via their intervention 6 years ago not only is not. Rather: it’s coming unglued, as well as beginning to run off the rails. Nearly every report released since the ending of QE that was previously always indicating “awesomeness” is now indicating borderline if not outright pathetic-ness.

We are entering out first (yes 1st!) earnings period since QE was halted just a few months ago and what are we beginning to see and hear? All those projections and assurances made by the so-called “smart crowd” that “this time is different” are suddenly changing their tune to “Well you know we’ve had so much improvement surely a pause is warranted.” Sure it is. And they call us “idiots.”

The unemployment rate is and has been an absolute joke having more in common with fairy-tales than anything factual. GDP has gone from poor to worse. And remember when you were told that 5% GDP print wasn’t an outlier but “indicative of the recovery” by the so-called “smart crowd?” How’s that meme working out?

The Dollar is still screaming higher making imports cheaper, and our exports non-competitive. Remember we were told by this very same crowd “we were going to export our way to prosperity soon?” I know, I can barely type as I chuckle also.

Reduction in oil prices were going to put “more money in consumers pockets to spend helping to boost the economy.” Problem is all that “free” healthcare now costs far more than the potential “gas savings.” But hey, don’t complain. For without having to now spend more on healthcare – retail spending would be far, far worse. And this is just a handful of the boatloads of fundamentally flawed data reports we were besieged with by the so-called “smart crowd” ad nauseam as to continue their narrative of “everything is awesome!”

However for the rest of us that have questioned such reports over the years  we’ve been branded as: uninformed – data deniers. Personally I just might go out and get a t-shirt made stating just that. On the front I’ll have: “I’m a data denier – and proud of it!” And on the back it’ll read: “I believe in critical thinking – That’s why you wont see me on CNBC™.”

It’s not just here in the U.S. where the once burgeoning commodity sectors like oil and gas, as well as others such as steel, and more are now getting bludgeoned. The entire shale industry for one is beginning to buckle under the weight of falling prices. Canada is now beginning too feel the effects. And these ripples are far from over – they’re just beginning. Remember oil and such helped insulate Canada from a downturn in housing such as we had here. By the most recent reports that all seems to have now changed. And the implications for our friends to the north could be dramatic.

How about China? That once rejoiced “savior” of the economic world is itself having a harder, and harder time trying to dismiss (as well as cover up) clearly visible signs of economic weakness. Here’s where I’d also like to bring attention to one economic fact squarely staring the world down with implications just as far-reaching as the latest oil carnage. And: with possibility the same effect to the repricing of everything everywhere. This ominous scenario alone seems lost across the financial media.

How can one not derive the implications on the market forces associated with the decision of the Saudi’s to continue pumping at record levels and at lower prices as to help preserve their market share with the added benefit of simultaneously crushing as many as possible competitors: and not see that pretty soon China is going to do, in effect – the very same thing with everything it exports? Once it begins just like with oil – It will crush pricing power (on everything from trinkets to commodities) globally in my opinion.

This is the world the Fed. has wrought with leaving the punchbowl out far too long after everyone at the party was clearly inebriated. Instead of wisely pulling the bowl back and away (at the least in 2012 or there about) while everyone was passed out. They decided it would not only be better to remain – but continued refilling it as the one’s with an affinity for risk gulped more and more down their gullet acquiring shares in any sector they thought provided yield.

And if you’re in Asia? Sectors be damned! It’s a straight Kamikaze spree into the Nikkei™ or better yet, Shanghai Composite™. There you don’t discern. You just buy, buy, buy in way that would make Cramer envious. All while using multiples of margin never before seen in the history of that market. What could possibly go wrong? And I haven’t even mentioned Greece, or The EU.

Again this is what I believe the Fed. has finally come to terms with. The realization that control is no longer an option. It’s been a mirage that’s held up far longer than originally anticipated. The monster has now grown far too big and dangerous while possibly exposing to their dismay – the only way they might have a shot of regaining some stability for future control is to let it fall apart: as they stand by and watch hoping to “thread the needle” for further intervention just in time. Along with trying to have some C.Y.A. assurance to the “In Crowd” that “Hey – we tried to warn you!” if it indeed does exactly that.

At issue is, even if I’m only partly correct. What should scare the heck out of any critical thinking person is: With everything we’ve witnessed over the last 6 years, along with what is now transpiring which is scarier?

A Fed. that may be signalling they’ve lost control? Or, a Fed. that still believes “Don’t worry – we’ve got this!”

© 2015 Mark St.Cyr

New Episode: Insight Uprise™ Audio Series

The newest episode in my audio series Insight Uprise™. Like other projects I’ve done this is in the “No holds barred, quick hitting and to the point” genre. Topics and subject matter will vary.

It’s intended to be straight to the point in both subject matter, as well as delivery, unlike anyone else.

Love it of hate it one thing will be certain: They’ll be no mistaking me – and someone else.

This Episodes Topic: Searching For Productivity

Available_on_iTunes_Badge_US-UK_110x40_0824

© 2015 Mark St.Cyr in association with StreetCry Media. All Rights Reserved.

Can’t see the audio player? Click here.

A Thought For Today’s Entrepreneur

The only way to be a better boss is to understand: that you are the avatar.

What you do and the way you conduct yourself will be both imitated as well as amplified down your line of subordinates.

If you want your people to be on time; you must be on time. If you want people to go the extra mile; they must see you visibly displaying the same behaviors.

If you say “you trust their judgement” than give them the authority to act on it independently without needing “supervisor approval” first.

It sounds so intuitive, so simple, yet it’s precisely the small things such as these that make all the difference in building a better more dominant brand and/or company far more often – than not.

© 2015 Mark St.Cyr

The Fed’s Trapped In The Corner With An Empty Bucket

It seems before the paint was even dry as to how they’ll proceed after ending QE, a decision was made to apply yet another coat in an attempt to cover any previous “blotches.” The issue that seems lost is: This was their first opportunity to move out from the proverbial “painted themselves into a corner” dilemma, and use any remaining “paint” that could have covered their tracks to instead: go about and lay-down a second coat backing themselves back into the very same corner only this time an even tighter one!

This in-turn provided the markets with the obligatory narrative as well as fuel to then “paint the tape” in a feeding frenzy of HFT induced stop running and price setting action during what’s known in the industry as “Quadruple Witching.” (i.e., when the indexes and more settle prices on a quarterly time period.)

This period of price settlements has always been known for its volatility. However, the price movements within the currency markets alongside were far from ordinary: They were both spectacular – as well as frightening. But don’t look to hear about any of that from the “everything is awesome” financial media channels. All you’ll see there is “Look its a bird. It’s a plane. No Its…Everything is awesome again!” as the markets rallied higher in unison.

In a previous article I opined:

“The Fed. as of today has pulled the plug on QE, and implied it’s time to raise interest rates. All at a time the global economy is showing just how addicted it truly was to the Fed.’s QE policy of “free” money along with near zero interest rates leaving the Fed. with the difficult choice of exactly which policy are they to enact. For both will have dramatically different results.

One is to go back on all they’ve said, admitting they got everything wrong via the signaling that not only will interest rates not be raised; but in addition the possibility for more QE is at the ready, sending critics of the Fed. spiraling into a concerted effort demanding both an audit as well as hearings. Or…

They stick to their guns, signal the intent to raise rates sending the global economy and markets into a tail spin of unraveling carry trades, currency wars and quite possibly a full-blown currency based Armageddon.”

Once again as proved by this latest FOMC decision as well as the following press conference, just when it seemed they would (and needed) to do one or the other: They did a little of both! Again, just when you think the Federal Reserve’s messaging couldn’t get any more muddled, they show beyond all doubt: Oh yes it can!

Not only did they signal they weren’t going to raise interest rates any time soon, they went out of their way to placate the market signalling “patience doesn’t mean impatient” and since they’re now “data dependent” you can rest assured by the latest signalling via the Atlanta Fed. the “data” currently signals: Hike up your glasses and have more punch because the probability of us hiking rates has the chance from zero to none!

And with that some of the most important market segments for both stability as well as liquidity came unglued and swung in price movements showing just how precarious as well as dangerous they’ve truly become. (As well as adulterated I might add)

Following the decision the markets raced higher negating the previous declines to once again inch within spitting distance of never before seen in the history of the market highs. All the while simultaneously the bond markets ran in unison; just as hard, just as fast. This is a warning sign to any veteran trader.

It’s one thing for the perceived “risk off” or “safety trade” of bonds to display some strength during an equity market rally. Especially when that rally is held against a backdrop of deteriorating macro data. There’s always some divergent correlation for, or against, present within the markets regardless. However, to have both markets move (i.e., both meaning all; as in, across the board in both equities as well as long dated and short-term bonds) where everything rose in lockstep? That’s unsettling to say the least in my opinion. And the divergence in common sense price action didn’t stop there.

The U.S. Dollar. That little sheet of paper aka “The worlds reserve currency” (WRC) moved in ways that made one think they were watching a biotech stock that just received FDA approval to then minutes later have it pulled. It was absolutely breathtaking. The dark side of that move also showed just how unstable this market is becoming.

Currencies move in what’s known as “pips” (e.g., 1/100 of 1%) but for simplicity’s sake let’s just say they bounce around up and down in moves of pennies. When they move violently up or down in the equivalent of say dimes and quarters – people take notice. A violent sustained move (i.e., within the course of a full trading day) of just 1 dollar – you’ve got not only traders, but global corporations, as well sovereigns watching with explicit eyes for there is not only the wealth of companies on the line, rather, there may very well be “the wealth of nations.”

So how does one think someone with billions upon billions (if not out right trillions) of monetary exposure felt as they watched the world’s reserve currency swing back and forth gyrating in multiples of dollars? Not in weeks, months, or even days – but hours! All I can say is: Welcome to HFT meets USD. Just remember to buckle up and hold on for dear life – and account balances. This ride is going to be jaw-dropping!

The swings in the currency markets are only now being sorted out as currency traders come to grips with what took place this week. There are reports detailing in graphic display such as this from Zero Hedge™ “Dollar Flash Crashes…” where the Dollar in the most liquid market on the planet is now showing signs it’s no more stable or less prone to manipulation than any penny stock. Don’t look for any solace in that other once perceived equivalent of “liquid” markets U.S. Treasuries either. It seems they too have fallen into the same debacle.

This latest round of index settlements along with the Fed.’s newest mumbled attempt of explicitly straddling the fine line of yes, no, and maybe has shined a spotlight directly on glaring issues for anyone willing to look. Problem is – no one wants too! And it’s not just the Fed. For what happened in the world’s most heavily traded as well as capitalized stock known as Apple®, what took place on Friday’s close should be ringing alarm-bells throughout the S.E.C.

Within the closing minutes shares were pummeled to then only accelerate to once unimaginable selling volume within the remaining seconds of the trading day. The world’s most valuable company had nearly $10,000,000,000.00 (that’s 10 billion!) of its market cap erased in what can only be described as some form of goal seek-ed price peg. (You can view the details as laid out by Nanex™ and reported via ZH  here “The Farce That Is…”

Like those “winners” in the closing moments of the day that became “losers” in nanoseconds we’ll just have to wait and see if this type of activity is not only going to be tolerated, but rather promoted as “good for the markets.” Because as we that question are always quick to be reminded: HFT is “providing necessary liquidity for the benefit of investors everywhere.” Unless you’re the one on the other side of that HFT “liquidity” trade. Then you just provide the liquidity for HFT profit.

It’s one thing to be on the losing side of a trade where everything you thought to be correct based on acumen or assumptions goes against you regardless of how well you thought the odds in your favor. That’s trading. However, when you also have clients money (as in the cumulative world of Hedge Funds, Pensioners, Personal or managed 401K proceeds , et al) on the line – and quicker than you can pop the champagne bottle in a celebration of advice and job well done; the most predatory and parasitic creature to ever gain control over the markets comes in and swipes those perceived profits not only your account but possibly the accounts of “widows and orphans” into theirs in mere nanoseconds? That’s not “trading” or “investing”, or anything else remotely resembling the two. That’s thievery in my book. Plain and simple.

The issue is not only is all this currently being allowed to run unencumbered within the premise of “legal.” But if you dare bring up allegations? You’re met with “you just don’t understand.” Well maybe I don’t. But I do know this: It may be legal – but that doesn’t make it right. And all of the negative aspects associated with it are just beginning to gather more steam. And the consequences could be unimaginable going forward.

How well does one think this is going to go over in the minds of sovereign nations as they sit back over this weekend and contemplate the same happening in the FX market where they have billions upon billions of dollars at risk? Does one think any nation, or let alone group is going to tolerate such “volatility?” Not on your life. And for proof all one needs to watch is the growing onslaught of announcements now coming on a near daily basis as one country after another announces it’s joining China’s formation of an A.I.I.B. (Asian Infrastructure Investment Bank)

The Dollar’s stunning movements along with the reverberations wrought across the currency pairs globally, together with the muddled messaging emanating from the Fed. is going to have everyone (and I do mean everyone) weighing the “new currency market player” vs the now perceived, as well as demonstrated “risks” in staying beholden to the current WRC. And just like in retail I believe currency markets share a very important attribute: Once you allow the customer to perceive, let alone conclude, there’s an alternative to you – the damage to market share may already be inevitable as well as irreversible.

If you want an analogy to weigh the impact of such things and how fast they can turn, all one needs to remember was how just a few years ago there really  was no alternative to: a Blackberry®. Today, Blackberry’s are refereed to as: “What that?” That’s how fast any market can turn. Think I’m off base? How about this one that’s more market centric.

In the same time period as the above example there were these places called “pits” where “traders” would partake and bid prices of buy’s and sell’s in an open forum of publicly witnessed honest price discovery. Today, they’ve all but been replaced by HFT electronic algorithmic trading vehicles where experience in actual trading is eschewed in preference to math and coding prowess. Don’t let this last example go by without really understanding the implication held going forward.

In a way I think it’s fitting to close this article with a few statements given by the recently retired head of the Dallas Fed. Richard Fisher where he expressed his concerns about the markets and more in a recent interview with CNBC™ veteran Rick Santelli.

In it he expressed two points which I feel shows just how precarious as well as outright dangerous the markets have become. In response to questions posed by Santelli two points in my view were both salient if not downright prophetic. The first: “Well, what worries me is how totally lazy investors have gotten, totally dependent on the Federal Reserve and I find this to be a precarious situation.” The second: “Are we vulnerable in my opinion to a significant equity market correction? I believe we are.”

I couldn’t agree more and I’ll add my own last point to his. Not only has the Fed. painted themselves into an even tighter corner – they’ve left no clear path as to now kick the empty can.

What transpires from here is still anyone’s guess. For we truly are in uncharted territory. Again!

© 2015 Mark St.Cyr

When Presenting To Different Businesses

I was queried for my thoughts on presenting your business to diverse segments. Here was my response.

“In today’s eclectic sales channels many find themselves needing to present sales or opportunities to a myriad of differing buyers. Many times one tries to tailor a presentation to speak “their” language. Don’t. Speak your own. However, you do need to know what criteria or measures speak too them.

Using just the investor-class as an example. They want to hear about: The future. Or, expected returns. If you were to only stress points on how you came from the past, to where you are presently, rather than; where you are currently, to where you’re going – you’ll lose their interest.

Where you were, and the progress you made earlier to get here – is great supporting data. Nonetheless, “supporting” is the key word. For their interest is from where they now stand – to some point in the future. That’s where they’re looking.

Speaking “their” language (i.e., using industry jargon and the like) as to explain your past performance will work to focus attention on exactly that: The past. Focus on being yourself and painting pictures of the future using the past as supporting: and you’ll capture their attention and more importantly: their business.

Even though facts can remain the same for the past, present, or future. Articulating a vision of how to get them from any point A to B is what you don’t want getting lost in translation.”

© 2015 Mark St.Cyr

Indeed This Time Is Different: Because It’s Far Worse

Suddenly the narrative that “everything is awesome” is showing to not be as “awesome” as it was first proclaimed. Merely a few months have passed since the ending of QE and praises of awesomeness everywhere are morphing into questions more akin to “Oh no: not again!” And with that we are now watching those who pushed, pulled, and levitated that narrative scramble desperately to push another narrative back onto the stage that worked so many times before: “Every sell off over the last 6 years has shown to be a profitable buying opportunity.” i.e., Just buy the dip (JBTFD). Yet it would seem these dips; are far different.

Just for context, over the past week, if you were one of the few remaining “home-gamers” still watching CNBC™, you would have been delighted to see once again their host Jim Cramer go through great pains to explain why he discounts the idea that we’re in a bubble to once again like ringing a bell (he uses buzzers and gongs I believe) the indexes sell off in dramatic fashion bringing back memories of Bear Sterns. As of today any gains for the year have been quelled. But not too worry, for he also contends you should have “dry powder” at the ready. i.e., Be ready to “JBTFD.”

My thoughts? “Investing” isn’t going to be so easy this time. Why? Let me be so bold to use the same meme touted by the likes of those who sold it: Because, it truly is – different this time. Without QE, not only is there no one buying. What’s far, far, far, (did I say far?) worse is: There’s no one to sell too!

Effectively through the interventionist policies over the last 6 years via the QE program what the Fed. has accomplished, whether intentionally, or merely complicit in the results were: to systematically exterminate the dreaded “Short sellers.” Today everybody is currently on one side of the market. And that side is: long.

The dreaded “Bears” that would even out the markets taking positions on the other side are all about gone. Every empirical statistics, every indicator measured whether it be Investor Intelligence™ data and the like shows, historically – they’ve never been so lopsided. Ever! But that’s only the beginning.

During this month another note worthy point in history is celebrating its first anniversary; the release and uproar to Michael Lewis’ Flash Boys: A Wall Street Revolt (March, 2014 W.Norton & Company)

Here was when the public at large first heard about what a lot of us have been trying to both articulate, as well as warn about. Here for the first time on the media’s big stage the parasitic nature plaguing the financial markets via high frequency trading (HFT) was brought under lights. It sent many of these firms scurrying for cover.

It was shown in great detail if you did try to mount a defense of why they (HFT) were “good for the markets” you would only dig a deeper hole to bury both your reputation, as well as dignity. This was demonstrated with the shameful, as well as lie exposing public display of the then CEO of BATS™ during a televised skirmish with Brad Katsuyama of Flash Boy’s fame. Showing everyone just how broken the integrity of the markets had become. Both functionally, as well as ethically. He vacated his position in disgrace weeks later, but the HFT parasitic machine has since only grown ever larger. So much so the only thing left for this beast to feed upon might in turn be – its brethren.

Now it being reported one HFT firm is suing another for “Egregious Manipulation.” You just can’t make this stuff up. Nonetheless what you can “up” is the level and lengths to which one HFT firm will pursue to have the advantage to front run “provide liquidity” quicker than its competitors because; they’re upping their game with the advent of lasers in an all out arms race to see just who will be faster to the “average investors” blood supply. Why? Easy…

Lasers are faster than microwaves. And when the game is to “view” the other fellows hand before they can blink: You win! Because trading is not about fair play – it’s about winning. Just ask a company like Virtu™. A HFT firm that’s had only 1 (no that’s not a typo) losing trading day in 1485 (neither is that one) trading days and counting. Who knew legitimate, ethical trading could be so “awesome!” I ‘ll bet dollars to doughnuts Bernie Madoff muses: “My 12% returns set off alarm bells and here I sit? WTF!”

But the HFT story along with the Fed. have created another unintended consequence that might prove far greater than the “riding the tiger” analogy invokes. What they’ve created may have more in common with a laboratory monster that becomes uncontrollable, precisely at the wrong time turning on its masters. For the once vast legion of (human) veteran traders who spent their lives on the floors of the exchanges and in the “pits” are all but gone.

What was once possibly the greatest “buffer” as to understand and take positions for, or against irrational selling or buying behavior has disappeared. Much of it stems with the advent of HFT fueled by QE money. But there have also been other issues right alongside running in concert that forced many human traders out of the markets. Not only was there the sheer onslaught of mechanized stop running prevalent that human traders needed to be concerned with. They could also wake to find the company that held their resources for those positions goes “poof” in the night. e.g. The MF Global™ debacle under then CEO Jon Corzine. Is it any wonder why volumes are so anemic?

Within that group of displaced traders (in my opinion) is the one set you’ll need more than anyone in a bull-run going bad: Shorts who need to buy as to cover their positions.

After 6 years of this incessant rewarding to JBTFD with free money supplied by the Federal Reserve fueled with the ever parasitic nature of HFT, the vast majority of this once prominent group; has been all but annihilated. Today, no longer are there “people” to help slow or quell a sell off. Only machines.

What I also find both fascinating as well as frightening is the sheer fact that HFT and all it entails is both manned as well as programmed by math aficionados – not veteran traders. It has been a well-known fact if you are a “veteran trader” looking for work – you need not apply. If you’re a math Ph.D with no trading experience (or even right out of school) the HFT world is your oyster.

Let me ask you this dear reader: Just how well do you think all this HFT and program trading is going to perform when it’s been both formulated, as well as only tested, in a “bull” market environment that was fueled with “free” money? Along with the people creating these programs and orders for execution quite possibly – have never witnessed a true sell off. Ever! Welcome to the pinnacle of “the rise of the machines.”

Remember that immortal line from Trading Places (June, 1983 Paramount Pictures) when the Duke’s were losing their fortune “Turn those machines back on!”  Will we need to do the exact opposite when the machines suddenly sell into an empty “pit” of buyers when as its been documented by NANEX™ liquidity vanishes? So much for “providing liquidity” when that liquidity is their own fortunes bleeding from the screens. Plugs will be argued (if not begged) too be pulled.

And that’s just the start of why “this time it’s different.” Monetary policy on a global scale is now becoming unhinged and the carry trades associated within the currency markets are just beginning to show their distress.

Today the Euro is not falling – its plunging. Plunging in a way that is reminiscent of a monetary policy that is coming unglued. The so-called “smart crowd” all professed how the weakening of a currency helps, not hurts a country for both its exports as well as its competitiveness on other fronts. So how can all this “good” be so bad you ask? Easy, when it does exactly what it was expressed it shouldn’t do. Plunge – in what has all the appearance of an uncontrollable rout. You’ll know it’s fully off the rails if we here reports supermodel Gisele Bündchen no longer wants to be paid in Euros. But I digress.

China’s economy is showing contraction. Central Banks around the globe have cut and are still cutting interest rates. 24 to date, and that number is expected to grow because everywhere there was supposed to be growth – is contracting, if not out right falling off a cliff. e.g. Look to Australia as just the latest example.

Mario Draghi’s latest “bazooka event” is shaping up to be a total disaster of unforeseen consequences. The where, what, and how all that buying spree of “whatever it takes” is now showing far more concerns than the irrational exuberance everyone envisioned when they had to guess what a true “Full Monty” was going to reveal. Now that it’s been shown, it seems it’s not going to perform as well as anticipated. Well imagine that. Who’da thunk it?

The list goes on, and on. But (and it’s a very, very big but) just when you think it couldn’t get any more narrative busting than the above portends, you have the Federal Reserve’s FOMC meeting this coming week. Here is where everything (and I do mean everything) can come unglued, unravelled, _____________. (fill in your own favorite descriptor)

This meeting is probably more important than any meeting since former chairman Bernanke’s famous (some of us still view it as infamous) Jackson Hole speech of 2010 where he announced the implementation of QE2 and implied QE4ever. And the markets haven’t looked back (or down) ever since. However this time “it’s different.”

The Fed. as of today has pulled the plug on QE, and implied it’s time to raise interest rates. All at a time the global economy is showing just how addicted it truly was to the Fed.’s QE policy of “free” money along with near zero interest rates leaving the Fed. with the difficult choice of exactly which policy are they to enact. For both will have dramatically different results.

One is to go back on all they’ve said, admitting they got everything wrong via the signaling that not only will interest rates not be raised; but in addition the possibility for more QE is at the ready, sending critics of the Fed. spiraling into a concerted effort demanding both an audit as well as hearings. Or…

They stick to their guns, signal the intent to raise rates sending the global economy and markets into a tail spin of unraveling carry trades, currency wars and quite possibly a full-blown currency based Armageddon.

Who knows what will transpire. But one thing is certain: This time is – truly different.

© 2015 Mark St.Cyr

Understanding True Faith In Yourself

It’s the ability to understand what you know (as well as what you don’t) and have the fortitude to move on those insights. Whatever those “moves” might be.

Many times you’ll find you’re alone. At other times it will seem like many will take shots. While at other times it’ll seem like – everyone is taking shots.

That’s OK: as long as you understand your reasoning. i.e., The why’s that apply as to why you may be right, as well as wrong. Along with your willingness to bear both the consequences, as well as the slings and arrows if – that’s what your data or research tells you. Fortified alongside with your own viewpoints of interpretation.

It’s not easy. But those of us that make a career in this realm understand it. And I, unlike most, try to make this point understandable too you, so that you can put (what I feel) a very important tool into your own wheelhouse.

Far too often people will misjudge themselves based on the erroneous “insights” of a so-called “smart-crowd.”

You’re smarter than you think you are. Only issue most times is – you don’t, or won’t believe it.

© 2015 Mark St.Cyr

Adventures In Stupidity: Mailing Lists

Today everyone wants “the list.” That list is usually something provided by some service as a mailing list of potential customers based on some criteria making it worth a certain price. You can buy them everywhere.

If you belong to some social network you can rest assured your name is not only on their list, but its on multiple lists they sift out and sell to the highest bidder. The issue here is – you get what you pay for, which brings me around to todays topic.

It’s one thing to be on a list from some national conglomerate or large regional retailer and receive some form of promotional material that in essence means, I might have to travel or venture a considerable distance to benefit. e.g., Coupons to an outlet store that may reside in a neighboring state and alike. We all get these and pretty much can figure out how we got on their list. However…

Over the last few weeks I have received direct mail from a few vendors offering me not only discounts but other benefits I can not possibly use. Like what you may ask? Well…

I have received specials from a local eye center to “drop in” for my free eye exam, an offer from a dentist to “drop in” for a free check up for new patients, a “special promotional price” if I sign up today and have what they’re installing installed, and even a “put this on your fridge so you know where to go in case of an emergency” from an urgent care center. All pretty innocuous: until you realize all of them, repeat – all of them – are from 3 states over, and 300 miles aways. I would bleed out before I was able to get stitches at the “urgent care” facility alone!

For what ever the reason what these companies have in common is they all must be buying the same list and it’s obvious not one of them knows what constitutes a “good list” because my name should have been removed solely on my address alone. Buying and utilizing a list that didn’t filter my address out in the first place shows prima facie they were more concerned with volume pricing rather than value.

When it comes to marketing, especially in economic times such as these remember: Quality when it comes to prospective customers beats quantity hands down every time. And if you want more proof on this idea just consider the following…

If you’ve been in business for any length of time longer than a week and someone tries to tell you “The world is their customer. and everyone in it is a potential customer. And all they have to do is let them know they’re open for business and people will flock” All they need is to borrow the money from you needed to reach them. Chances are (and I’d wager dollars to doughnuts) you’d stop listening after they said “the world.”

Yet, when you buy a list that has the ability to contain people who can’t use your services for obvious reasons; you’ve expressed pretty much the same. If you’ve paid a penny: you’ve paid too much, and wasted a whole lot more on time that could have been better well spent getting referrals from your existing customers.

You’ll gain far more business asking and courting referrals from existing customers – than wishing, hoping, paying, then praying via a fairy-tale mailing list any day.

© 2015 Mark St.Cyr

An Inflection Point For Keynesian Parlor Tricks

Suddenly everywhere you look, one after another, a story is making its way into the main stream press (albeit a trickle but that’s a tidal wave in comparison) that we may be, in fact; experiencing a “bubble” in stock prices. All I can say is the line made famous by Jim Nabors as Gomer Pyle, “Well surprise – surrrr-prise!” But there’s a whole lot more going on here and it too is bubbling up more and more for all to see.

The once magic trick performed by the Federal Reserve via QE is turning from a one time grand spectacle of illusion used to levitate the markets; and is quickly being laid bare and exposed for its street corner value of tricks. That fact is becoming unavoidable. Even those who still believe in unicorns and rainbows (cue CNBC™) are finding it harder and harder to hold onto the magic. Anyone with just a smidgen of common sense knows what’s being presented as “a miracle of economic intervention” has been nothing more than a grand escapade only made possible through the use of monetary smoke and mirrors.

Everyone now knows how the tricks are being done. And those who continue espousing that this market is based on “fundamentals” as well as “fairly priced” (cue the media’s next in-rotation “everything is awesome” fund manager) are being hard pressed to control the snickering if not out right fits of laughter by others as they continue trying to make their case. e.g., “This past earnings season was a bona-fide beat!”

In reality we all know its only been possible through the use of extraordinary record stock buy backs made possible by a ZIRP, along with such an adulteration of GAAP via Non-GAAP: it’s a wonder why they even need calculators any more. These numbers (in my opinion) have more in common with illusion and magical thinking than anything based in reality – so why even bother. Be honest, just go for it, and declare, “We’re making all this shit up!” because: it just isn’t fooling anyone anymore.

Now the real issue from here for both the Fed. as well as Keynesians everywhere will be in trying to maintain some form, as in: “illusion of control” going forward. Surely there’s more magical thinking and sleight of hand needed now more than ever to keep up this grand deceptive appearance or “wealth effect” we were all told we’d be experiencing by now. After all, unemployment just hit 5.5% and the markets are at record levels. “Where’s the pony?”

Who needs an economy based on fundamental monetary principles when you can report economic numbers like this? Unless you’re one of the over 92 million souls unable to find work. The Keynesian answer to this? You just apply today’s version of Keynesian economic math and principles to any statistic that gets in the way of the illusion. Then “poof” just like magic, another irritating issue to the “everything is awesome” narrative is gone. No cape required for that one.

Yet the Fed. Board of magic seemed to have an issue with the illusion of “control” as it faltered a bit on Friday. Having more in common with an assistant dropping the magician’s hat: and the rabbit falling out comatose in front of all the children seated in the front rows.

Earlier during the week it seemed as if the next stage of theater was set for the captive audience. The “audience” that is demanding ever “Moar” stimulus as to continue the illusion seemed to get just what they demanded when with a wave of the wand “patient” magically morphed into “data dependent” right before our eyes. And the timing seemed so serendipitous. (that is if you believe in magic) For right on cue the Atlanta Federal Reserve released a report showing GDP expectations on par with what’s left behind in a magician’s hat after a round of pulling pigeons. It was nasty to say the least.

Personally I found the timing of this switch in verbiage having more in common with a street corner game of 3-card Monty than anything resembling meaningful economic policy. I mean; wasn’t it just “uncanny” how all of a sudden, out of nowhere, just when you thought the Fed. was facing the need to act (e.g. raise interest rates sooner rather than later per the “patient” meme) GDP expectations mystically went from “everything is awesome” to dismal with the Atlanta Fed. posting expectations of 1.2%! Thereby signalling the need of later (probably much later) rather than sooner interest rate adjustment to match the new “data dependent” meme. Once again I found myself thinking, “Well surprise, surrrprise!” What a coincidence of timing. It’s like – magic!

Just like a Vegas show at precisely the right moment the magician comes out and diverts attention just enough to make you think you didn’t see (or read, or hear) what you just saw. Within the same week its announced you’re “data dependent” and suddenly before you can blink an eye all that great data; is now terrible if not down right frightful. But, don’t be scared, it’s only necessary to help with the act. For remember, it’s all just good clean magic. However, this trick has gotten old – and doesn’t fool anyone any longer.

Just what we’ll get from here as in “the next trick” is anyone’s guess. But simple sleight of hand parlor tricks such as “free money” for stock buy backs have now but all been used up. For proof just look at the now swollen debt balance sheets of these miracle earnings beat corporations. And with the sudden emergence of Fed. forecasts proclaiming a crumbling in GDP expectations when everyone in the “everything is awesome” camp has been touting Shangri-La was just around the next earning corner, their going to have a harder, and harder time convincing themselves the fallacy will come true. Let alone share holders. But magic is all about belief right?

Suddenly on Friday it seems there’s a real issue for efficacy with the tools of magic used for the Keynesian sleight of hand. The “data” now exposes – and is ruining the illusion, rather than helping to facilitate the tricks. Instead of making a rabbit appear or disappear from a hat; the stage is suddenly getting overrun with not only rabbits, but pigeons and more. And they’re dropping their mess everywhere simultaneously. You can see the equivalent by looking at any chart showing current economic output.

Friday’s jobs report was: a true spectacle to behold. Smashing expectations for both an increase in jobs as well as a sizable decrease in the unemployment rate. So much so it’s now reached its nearest point of the Fed.’s statistical “full employment” since the crisis began. (don’t laugh just remember it’s a magic show) And with that the markets seemed to take that “good news” as frighteningly terrible – and sold off never looking back in a near 300 point sustained sell off. How can this much good be so bad for the markets you say? Easy.

A posted monthly Jobs Report showing the unemployment rate at 5.5% trumps a forecast for a possible dismal GDP report out of one branch or Fed. bank. The unemployment rate holds the magicians feet far closer to the stage lights having to raise interest rates sooner, rather than later. And it become obvious to the audience (i.e., Wall Street) this magic act may in fact becoming – old hat. And one could hear the chant for “More tomatoes!” growing louder, and louder as the trading screens were getting lambasted with more, and more red as the day wore on.

Friday saw a sell-off in the markets that for all intents and purposes was unlike many we’ve seen over the past few years. In a world where previous market data had been corrupted to mean “bad was good, and worse was better.” Good data is now more inline – with catastrophic. And any bad data mixed in might mean: even worse. Why?

Well the magicians have declared that not only will QE not be resumed (at least as of today) but the messaging for the raising of interest rates now has more in common with the Tower of Babel than it does with anything resembling a clarification of intent from the Ivory towers of the Federal Reserve. The messaging is more muddled than ever.

Without QE the markets have shown they are struggling. However this time what’s worse is: they’re all struggling at record heights. And now with the threat of interest rates rising back onto the table with such a stunning Jobs report, just when the Fed. showed they would use what ever bag of tricks or sleeve movements to push the issue back out of plain sight. (e.g. patient is replaced by data dependent) the curtain was lifted, the lights came on, and the assistant (the BLS) tripped handing the magician the knife blade first. And the once captive audience to the magical display of illusion began panicking and throwing a tantrum. (as in a near 300 point sell off after their latest communique)

Just how far has the ability to mesmerize the markets with Keynesian styled parlor tricks gone of the rails? In my opinion it’s beginning to have more in common both in results, as well as frequency: as an oil tanked laden train. The issue here is: this one is coming down from the top of the mountains, loaded to the gills with bubbled cargo, coupled together with a line of rail cars filled with financial derivatives at near infinitum – with no engineer, no brakeman, and no more track. I bet even Casey Jones is looking down thinking “Dang!”

The metrics showing how well the economy is doing have plummeted. The U.S. Dollar which by all accounts for the Fed.’s interventionist policies should at the very least be lower (much lower) and is screaming higher to heights not seen in decades. Bonds are being pushed higher and higher causing the very thing the Fed. wants desperately to raise by its own volition i.e., interest rates – ever lower. And now with other central banks around the globe unleashing their own QE or threatening (as in China) everything, and I do mean everything that wasn’t supposed to happen – is happening – both in frequency, as well as velocity. All of which is diametrically adverse as to what the Fed. has signaled shouldn’t happen. Funny thing that “omnipotence” illusion, no?

One now has to wonder exactly what will we see next coming from the Fed. as well as Keynesians everywhere. Will there be a sudden emergence of monetary policy onto the world stage in the form of a David Copperfield? Or are we going to get the newest extended version of a Sorcerers Apprentice?

By the looks of the pigeon stains accumulating it might be more of the latter than the former. But just remember, close your eyes and repeat after me: “It’s only magic. What could possibly go wrong?”

© 2015 Mark St.Cyr

What A Few Kids Can Teach Most Adults

Today there’s more than enough print and video depicting exactly what is wrong with kids today. To a large extent I not only can agree with much of it, I myself have added my own commentary in the past. However, I would like to make this caveat known: It’s not that I blame kids. For as we all must remember – we all were once one.

It’s in the understanding that what has been built around them in today’s world which (in my opinion) won’t allow kids to express, as well as learn what’s needed for adulthood (especially when it comes to business and work) through trial and error. Precisely at the time where the stakes are far from catastrophic but rather, where one learns the innate understanding of picking oneself up off the floor, dusting yourself off, and getting in there and trying again. This is where and when it gets understood, fortified, and internalized.

I was reminded of all of this during the final episode of my current favorite television series MasterChef™ Junior. (Broadcast on FOX™ in the US) The contestants range from 8 to 13 years and the premise of the show is a competition that dwindles down from as many as 20 or so, to a final crowned champion decided by and critiqued throughout the entire season by judges: Gordon Ramsay, Graham Elliot, Joe Bastianich. Each masters with a reputation of no-nonsense styled culinary and restaurateur accolades.

What struck me from the very beginning and what I found breathtakingly refreshing is something I myself have done over the years, as well as a few others (Don Imus is another in this group) i.e., Not talking to kids like their “kids.” Rather, talking or critiquing, then asking questions in a grown up respectful manner where “kids” have to account for what they’re doing, why they’re doing it, and so forth.

Kids aren’t stupid, nor are they “babies” unless you treat them as such. Kids more often than not will rise (as well as fall) to the levels you treat them as. Of course this is all within reason, but I’ll assume you’re adult enough to get the gist.

During this cooking competition these kids are not only preparing dishes from scratch and competing against one an other, but they are quizzed both during the process as well as asked not only to explain technically what they’ve created, but also why they did, what they did, and more by the likes of Ramsay (notorious for stern verbal outbursts) and the others, And not in some watered down “Oh, try to explain what you did Honey-pie.”

No, these kids are put on the spot and asked in an adult fashion to both explain, then stand and be critiqued (truly critiqued) on their creations by 3 of the top people of that industry. If it’s bad – they’re told point-blank. If it’s good, they’re told the same. No sugar-coating. Then the kids must return to do it all over again as in – compete. Even if they were just told their previous dish was “horrible” but, they were lucky enough to stay on because one of the other kids creations was worse.

Remember: These are kids aged 8 to 13! I know adults in their 40’s that would crumble faster and harder if they were at the receiving end of a lot less by inquisitors with far less stature. Yet; these kids suck it up, try to do better, and compete head to head once again. It was truly refreshing to watch for someone like myself. Especially someone in my business where I see “self-esteem” (as in the lack of it) is many times the number one reason people become or stay immobilized.

Once again for I can’t make this point enough: These kids are treated with respect for both their abilities as well as their intellect. When one of these judges asked questions they asked pointed, direct, and with an assumptive posture that these kids not only would, but could answer. And these kids did. I felt myself cheering inside each time one of them defended or explained their reasoning’s. I heard more straight talk presented with heartfelt confidence from these adolescent chefs than I usually hear from many budding entrepreneurs.

What I also took away from watching was I knew deep down personally that the judges themselves were also just as proud of these kids as I was. You could just sense it in both the demeanor as well as their own posture when addressing these kids. And how couldn’t they be? For these kids are the coming generation that will replace what is now “the old guard.”

Like it or not, we are all going to move into the graveyard and be replaced. What kids like these showed is we don’t give many kids enough room to rise to challenges. It’s not them that are holding their likes back, but many of the rules and more put in place as to not let them express it. I wrote an article before expressing this very sentiment titled: “The Problem With Kids Today – They’re 26!” I still hold the premise of that article today.

I believe then as I do now; kids will rise to the level of far more challenges than we’ll acknowledge if: (and it’s a big one) we allow them to rise rather than deflating their passion via some sugar-coated “OH honey don’t try so hard you’re only 10.” Nothing will kill a spirit for excitement or competition faster. Especially when that 10-year-old is demonstrating (honestly) that they are clearly intent on trying. As in: truly wants to engage in a healthy respect.

Say what you want about other completion shows such as American Idol™ and the others. For my money, this was the best show of its kind to come along in a long, long, time. For there’s a lot to see as well as learn for everyone.

© 2015 Mark St.Cyr

Follow

Get every new post delivered to your Inbox.

Join 82 other followers