The Coming Credibility Hammer

There are a lot of credibility “nails” that will either be hammered home or pulled out all together in the coming days, weeks, and months. They run the gambit on this financial house of cards that has been built over the years and currently, there are just too many shingles that have come loose along with siding, cracked foundations, and a host of others. Where credibility not only contends with the structure itself, but also with the so-called “smart crowd” of analysts, advisers, fund managers, media outlets and more. If the coming storm that now appears credible, where it’s made even the staunchest revelers of the status quo appear nervous. Forget about what may, or may not, be showing signs of de-lamination; for things may be about to come completely unglued as well as unhinged.

The Federal Reserve’s Open Market Committee will end a two-day meeting today. What they say as well as don’t say will be parsed over with bated breath and heated keyboards as soon as the it ends with no presser as to parse or mince the details any further. All that one will have is what they currently believe the meaning of the Fed’s version of “is” is. That or Jon Hinsenrath’s now famous near instantaneous rebuttal to what they “really mean” if the market goes in a direction other than the Fed. intended.

The Fed. lost its credibility a long time ago and long time readers are well versed. Anyone with real business acumen or understanding of free market capitalism with all it entails knows the Fed. has remained far too accommodating, and for far too long where much higher consequences are going to be paid in the future, so there’s no reason to drone on. The only issue today is when those prices are to be paid – not if.

Whether or not they should have intervened at all during the original crisis is still a debatable question with valid arguments on both sides. Remaining and expanding that intervention some 7 years is not. The only credible question that now remains is: Just how much of a price will be paid, and can it be afforded? When that bill comes due is still an unknown. Yet rest assured – it will come.

However, the credibility of the media at large along with its subsets such as “the financial media” are also going to face what I feel is an enormous credibility hammer. To give you an illustration of what I’m trying to express I ask you dear reader to answer the following: Who has more credibility? A person, media outlet, investment firm et al that has tried to hammer the point that these markets were not to be trusted as they continued a near vertical assent up nearly 300% from the low? Or, one that has continually scorned the first and told you to grab this party with both hands and enjoy the ride – as the wheels now begin falling off the bandwagon? All while you finally notice even the band itself (i.e., the real economy) was never on the wagon to begin with. Just you, your 401K fund, and what is now coming into view – a cliff at the end of the road/horizon.

This is the situation I believe many are going to find themselves in. All one needs for proof is to open their eyes and look out on that horizon. It’s all they’re coming into clearer view on a near daily basis. Where once the horizon shielded it over its edge is no longer the case. The only way not to see it today – is to look away. Yet, ignoring it doesn’t mean it’s not so: which is precisely what both Wall Street along with its revelers want you to not only think – but believe. This is a perilous diversion with grave consequences in my opinion.

I saw no greater example of this than just Tuesday of this week I was watching a segment on Bloomberg Surveillance™ when I had what is now commonplace for me, that “Wait…what?” moment.

In a discussion about earning and more the conversation turned on the questioning of metrics. The guest Tony Dwyer made his usual argument on why he believes this is such a bull market and so forth. However, it was the defense he gave for his reasoning when he received a little push back from one of the hosts (Vonnie Quinn) in her assertion that it’s easy to beat a bad number in regards to “earnings beats” and the fundamental fact is earnings have not been all that better than tepid, in which she’s dead on.

It was the seemingly perplexed retort that shook me. Mr. Dwyer responded with: “They haven’t been the entire cycle and we’ve had a 300% gain. Look, I’m trying to understand how we keep coming on every quarter, that the earnings are terrible, revenue growth is terrible, this is going to be bad – and we’re up 300%” He added as to reaffirm he still believes double-digit gains just 6 months out from here.

I don’t know Mr. Dwyer and that’s a bold call. However, what I do know is this. Yes, technically he is indeed correct. Yet again, for those who don’t understand how the “markets” have worked over these last 7 years, along with those who have only heard the revelry calls of many a fund managers “And we’re going higher!” It is precisely these within the near future that will get clobbered once the full effect of what has fundamentally propelled these markets that 300% which are now stalling, and sputtering without it.

These markets have demonstrated to be nothing more than HFT fueled short covering, stop hunting, panic rallies out of nowhere to make up for the preceding sell off the day before. And with no fundamentals (i.e., true economic fundamentals not fudged data points) to propel a market above its last high let alone double digits. Along with the only “fundamental” reason in the first place for its rise being the $4+ TRILLION in QE that made it possible has since ended. Going double digits higher from here (let alone in 6 months) seems more like fantasy to my ears than reality. And if it doesn’t and ends up actually reversing? The credibility of anyone who has remotely sounded like the above in my opinion will be not only sanctioned – but shunned. If you want an example of what could develop one needs look no further than China’s current stock market calamity.

In China people were experiencing not only double-digit performance in the year, some experienced triple! And in less than 90 days it all has fallen apart with people not only losing some of their investment. Some have lost all, and some even more because of the leverage. They too were advised or heard across the media as to “buy in” to a “sure thing.” After all, who would have thought there was an issue in China when all you’ve heard from the media channels and more is “China will lead the world out of this malaise.” Yet, now it looks like it may actually drag it all down passing malaise – into outright catastrophe.

People will shun their brokers and advisers going forward (and some will for generations) that argued the reasons to “buy, buy, buy” as will the media that gave their readers nothing more than specious headlines as to soothe concerns rather than pragmatic insights they could have used to help protect themselves. It will be the clarity that comes from years of disillusionment that will have impact on everything going forward. Banks, the media, brokers, advisers, stocks ________(fill in the blank) all of it will change.

This is where as I’ve professed many times in responding to how far these “markets” have risen and why: “I may have been wrong – but it’s been for all the right reasons. And I would rather keep my credibility and argue my reasons why, than take the obvious easy route and buy into what I know to be wrong.” Keeping one’s credibility is hard enough, trying to restore it after you’ve lost it is quite another. I think many like myself are about to gain a whole lot more credibility sooner rather than later which the so-called “smart crowd” stated we didn’t have in the first place – as they lose most if not all of theirs.

Who knows what is yet to come. Or, whether I’m right or wrong in the end is meaningless. However, just the very act that you are reading this is de facto proof at least you took it upon yourself to search either this article or others like it as to shape your own decisions rather than to just believe hook, line, sinker or with cowbells, or buzzers by the so-called “smart crowd” that things were just hunky-dory, and pay no attention to the nay sayers of this wonderful bull market we’re currently enjoying in equities.

Credibility maters, it will matter even more in the near future when there seems none to be had form those who may have lost – or sold theirs.

© 2015 Mark St.Cyr

When Blind Faith In Memes And Taglines Turn Dangerous

Over the last five-plus years in regard to today’s financial markets, the most revered memes that are recited in unison whether it’s in the form of a silent prayer or, it’s done in a near backwoods revival fashion from the televised financial shows “pulpit” in a “Can I get an …. !!!” stylized homily are: “It’s different this time!” followed with “The Fed’s got your back.”

However, what they mean today may find those that put all their “faith” into such dogma finding that faith severely tested. For as of today July, 26, 2015 It truly is – different this time. And what else is different is: the Fed. may indeed have one’s back. Only problem this time is – that back may no longer be “yours.”

(Note: I’ve used the “you” and “yours” for ease of writing the conversation. It’s to be taken in the air quotes manner I’m trying to express. i.e., the general or population at large.)

Let’s view the “It’s different this time!” first as to show just how much it no longer may imply what so many have taken for granted since the initial collapse of the markets.

What’s different this time? Nothing less than the only thing which has both propelled as well as sustained the financial “markets” in an anemic (if not outright pathetic) economic recovery since the crash of ’08: Quantitative Easing aka QE. The difference? It was discontinued at the end of 2014. (Technically there is still a part or parts of it remaining such as the re-investment portions and/or other residuals from the program, but for all intents and purposes the direct inflow of near a TRILLION dollars annually (i.e., $80+ BILLION per month) ended in mid November 2014.)

Although it was only mere months ago (which to many feels like forever) some of those “differences” now seem too obvious to ignore even to the staunchest beholders of the faithful. Today, not only have the markets barely risen – some have turned negative for the year. e.g., The Dow™.

What’s been unnerving for many of the “true believers” is the fact of just how desperate the televangelist styled, next in rotation fund manager has been to accentuate the positive to hide behind the negatives. Many have been shouting, “The market is up over 1% today! Buy, buy, buy!” only to be followed either the next day or within a week “This 2% sell off shouldn’t cause any worry. This too shall pass.” Which it does, only to be followed by the same: again, and again, and again, and again. So much so many are wondering if what they’re watching is live or prerecorded reruns because the markets have gone virtually no where for nearly 8 months except for some unnerving gyrations within a range-bound level.

This is indeed different this time. Nearly 8 months with headlines and the near chanting in unison of “Best rally in years” and so forth and all that one has received for their faith as to “buy and hold for the long-term” is a negative Dow? How can this be? Easy: Welcome to what a house of cards market acts like when there’s not only a foul wind blowing, but also the shifting sands as the now infamous tide of liquidity continually vanishes much like the tide leaves the beaches baron before the first tsunami of havoc reaches the shore.

Suddenly everyone that was proclaiming “It’s a great time to be in stocks” are hedging their words as well as bets with warnings resembling “There are no free markets any longer, ” The markets are manipulated,” We see a bubble bursting of epic proportions on the horizon,” I’m afraid the markets will fall and not get back up this time,” and a whole lot more.

And these aren’t warnings coming from some poor lowly _____________(fill in the blank) analyst that’s usually brought on in a 1 to 100 ratio to provide the illusion today’s financial media shows both sides. No, warnings like these are coming from the heads of some of the largest hedge funds or activists on the planet. Many I would remind you dear reader professed, that people like myself “Have no idea what they’re talking about.” Now suddenly with no more QE – what we said to be true is unexpectedly a revelation in which they now concur and are professing the warnings to the world. Yes, it truly is – different this time.

Only this month many seemed confused as Apple™ went down and the market went up. Or Amazon™ went up and the markets went down. What is at the heart of this blasphemy one could hear across the ether? Easy. Welcome to High Frequency Trading (HFT) meets an anemic market starved of its former life blood (i.e., QE liquidity.) Where it now basically plays only in the largest single names of a particular index.

If the headline is interpreted as bad for the algo’s – Sell is the action. If the headline is interpreted as good – Buy is the action. All that matters is if there’s enough liquidity within the stocks buy and sell orders which they can front run to feed their parasitic coffers. What determines bad or good to the machines no one knows but for the programmers. However, what doesn’t matter is the stock, or company – just the liquidity that may surround it at any given time.

In other words the multitude of stocks within an index (say the S&P 500™ or DJIA™ to name just two) are basically meaningless to move or steady an index. Today, many an index is moved in its entirety solely by one single entity within it (Apple is  prime example of this).

They only thing that matters now to the HFT players is: are there still enough people buying or have orders in any single stock that will need to be filled so that the machines can then front run them in a headline fueled, algorithmic, buy and sell stop hunt program as to skim their micro-cent payoff? Because one needs to remember – it takes a lot (an awful lot) of trades to make those fractions of a cent trades add up to the Billions of dollars in profits they’ve come accustomed to over the last six or seven years. And there has been no higher high hit in one of the major averages than one hit just this month as to show just how few players are left. Which only means there’s less and less “hosts” for these machines to feed on. So much for the “adding liquidity” argument in my opinion.

We’re currently in a market so good nobody wants to participate in it. Now that’s “different this time” no?

Yet let’s not forget that other meme recited with reverence and spiritual fervor: “The Fed’s got your back.” Well, maybe they do. However, is that “back” still yours?

Personally I find it near inconceivable that many don’t understand The Federal Reserve by its own actions has shown it cares not for anyone, or anything, except for its adherence to its models and/or assumptions. Whether or not “your” money at risk and could be wiped out with a single monetary policy decision near overnight is near lost on the great majority of today’s “investor” class.

I say this because of the glaring example that’s in front of everyone yet shunned and turned away from as if ignoring it means it never happened. e.g., “You” were a person who was prudent and saved your money for retirement in cash (or equivalent) savings and what has been brought to bear on your portfolio on this side of the financial market.

If this has been you, you know all too well: Not only have your interest bearing accounts been ravaged. You’ve also been penalized, scorned, and nearly shunned to some internment camp for the diseased. And if you think there’s no difference in size or that the “safe” side of investment spectrum is smaller as opposed the “risk” side. Lest I remind you the bond markets themselves let alone combined with the money markets dwarf the stock market. Yes, they’re even bigger than Apple for those wondering.

And the Fed. via its interventionism to save “the backs” of those in the stock market shoved a figurative pike into the backs of those that were both prudent risk takers as well as outright savers. And continued to twist the handle year, after year, after year, after year giving a whole different meaning to many a once “prudent portfolio” as they continue their current version of Operation Twist. (and yes – that is a real program as well as name instituted by the Fed.)

Today, Government bonds pay near zero. Savings on cash – even less. Have too much in savings and you may be told by one of the current “Too Big To Fail” banks to either get your money out of their bank and into stocks. Or, find another bank altogether. That is – if you can find one that won’t penalize you even more.

However, there seems to be an inevitable change coming on the wind. For that wind has been developing from the mouths of both the Fed. itself, as well as many of their closest watchers as well as confidants. i.e., “They’re going to raise rates and they’re not too concerned about an initial market tantrum.”

Yep, looks like the only “back” the Fed. is (and ever was) concerned with is the back they hope may display has “the spine” to actually follow through on what everyone knows should have started years ago. e.g., Getting off the Zero Bound. Even if that hike is minuscule (say 25 basis points) and is sooner rather than later (e.g., September as opposed to December) having some form of credibility (even if it’s only to their own inner circle) is far more relevant and more important to both the Fed, and the other Ivory Towers than it is to your portfolio. Regardless if you mean to retire today, tomorrow, or next year.

The only question a true believer of these latest memes should be contemplating is: Does this mean my portfolio passes into Limbo? Or will it now join the “savers” who’ve were banished to Purgatory these last years? Or, worse – another 2008/09 roller-coaster ride named “Hell on Earth?”

They may have shown they’ve had “your back” at every twist, turn, or gyrations of the markets over these last few years. However, one needs to remember “twists and turns” to save one’s “risk” portfolio has come at the pain and suffering from the opposing twists and turns in the backs of participants in what was once deemed “safe.” A market one needs to be reminded that’s far larger than the one “your” at risk portfolio may be currently vested in. And just look at how little sympathy was given to the holders of that market (e.g. bond holders and savers) again, which dwarfs the one “you” may be in.

You think they’ll care whether or not “your” index remains at these heights based on what has transpired in the other? Maybe one should contemplate that last line along with its implications a few more times and truly (and I do mean truly) think hard. But the contemplation shouldn’t stop there.

With Europe still well within the quagmire brought forward via the Greece tragedy, with political unrest smoldering in response to a bailout that not only is hard to swallow, but rather, is leaving a bad taste in the mouths of any political or monetary leader trying to defend it. The Euro Zone appears just one flare up removed from a full political as well as monetary wildfire. Anyone with a modicum of common sense can see the coming uproar that is near certain in regards to the current repayment structures being held by Italy, Spain, Portugal, Ireland, ___________(fill in the blank.)

The political infighting as well as revelations by the administrating monetary bodies as to the ability to pay, sustainability of the level of debt without forgiveness etc., etc. will not be lost on those who are in many ways beholden to the same types of structures as Greece was. Not only that, but far more important – seen just how their sovereignty was all but thrown away.

There are far too many countries, with far too many political activists, as well as leaders within those very countries that will not allow their nation to face the same consequences Greece has. They are only quiet as of this writing in my opinion because the dust has yet to settle. Yet, once it does the lessons learned will be shown by the next in line “debtor” when they inevitably will raise their voice and say: “Ah, yeah, that original deal we made…Yeah, that no longer works for us. We want to renegotiate the terms or we’re out – and we’re not bluffing.” And the Greece debacle will look like checkers as to the game of chess that will start in earnest sending the Euro Zone along with its markets into turmoil. As I said at the beginning: It sure is different this time.

But not too worry: “The Fed’s got your back” right? Because like all those other memes that meant so much to many a stock market next in rotation fund manager has said and “you” believed…

“China’s growth will help propel the markets out of this malaise.” “Greece doesn’t matter, it’s an isolated event.” “Earnings will be robust this quarter.” “HFT provides liquidity and honest price discovery” and a whole lot more.

But the one tag line that wasn’t a meme yet too me sums up what this market is about to go through with the wailing and gnashing of teeth looking for repentance for being so foolish in believing not only what promises they hoped to be true. Rather, what promises they prayed to be true. Only to find not only were they not, but the repentance for believing may be far greater than anyone ever contemplated, That line? (I’m paraphrasing)

“For $19 all your information on the Ashley Madison® website will be permanently deleted.”

If you’re a holder of any stocks and believed in either the memes or tag lines stated in any of the above. My suggestion would be for at least the next few months to not only sleep with one eye open, but making sure both your back as well as front has as much protection as humanly possible.

© 2015 Mark St.Cyr

Adventures In Stupidity: Self Starting Videos

Some things sound like such the great idea when first contemplated. Some take on the aire of “genius” when first contemplated, discussed, and reviewed within the beige colored walls and veneered covered conference tables of many a marketing and advertising executive meeting. Where the roll out of what will at first be described as “sensational” will in the end result in what will be labeled “a plague” by end users. Today, in my opinion, that plague is: the self-starting video ad/infomercial/news story/or whatever.

Over the last year using only my own research that’s based on my own interactions with websites where this latest phenom has inserted itself within the websites of news purveyors, shopping portals, and nearly everything else under the sun. I have found myself not only no longer visiting these sites in as much frequency as I once did. I’ve also found myself many a time near instantaneously deleting the bookmark I’ve had to the site as to near insure I just won’t casually go there again. Why? Because every time I have, regardless of how much I try, there will be some new or strategically placed video that will start either immediately, or, will start may seconds later just when I’ve let my guard down and began reading or searching within their site to either consume their wares or read their offerings.

Suddenly either my speakers (or worse my headphones!!!) will blare with either music or talk that either nearly deafened me, scares me enough to spew my coffee, or both. I can’t tell you how many times I have literally shouted obscenities in such voracity, as well as furor it would make many a belligerent sailor blush.

First off; one of the great truths that still seems lost on today’s marketing web savvy is the fact that audio levels from one user to another will never be at the same starting point. Computers, phones, tablets et al many times are used to watch video, but what they are not more often than not is video dedicated only e.g., they’re not televisions. Yes, they can act like TV’s as they can like radios, but what they’re used for more often than not is – reading, or typing. If you’re over the age of consent that is.

When I’m sitting and watching my TV I have a built-in expectation that when I switch a channel the video is going to be running in real-time. I also have an expectation of where the volume level is for I have set it appropriately as I’ve been watching. The audio and the video goes hand in hand in the television scenario. And anyone reading this should comprehend the obvious as to what I’m implying. So let’s use this equivalent base and apply it using how today’s self-starting videos would work in your living room based on how they’re working on the web.

You turn on your TV and after watching a recent action thriller you decide you’re feeling a little inquisitive and want to view some old-time silent movies from the past as to see how the use of cinematography was used to make up for no sound. You turn on the set and turn to a channel that supposedly states they’re the “best” or have “the most” silent films in their archives. This channel has done all it can in first impressions for you to tune in with enough superlatives and marketing jargon anyone can muster to make you take the chance and “click here!” And you do.

The movie begins however, about 3 minutes in it begins to flutter (or buffer as the old saying goes). Then once it begins again suddenly you are hit with what sounds like the theme from Star Wars® set to 11 reverberating throughout your living room. In a panic you scramble for the remote but in this frenzy it now seems to not be where you first grabbed. Now it’s either fallen off the couch or chair from your excitement when you jumped, or it’s fallen between the cushions. All while it sounds like you personally invited John Williams complete with orchestra to set up in your domicile for a live performance.

Could it be any worse? Yep, if you’re like me and are accustomed to wearing headphones most times – it sure is. For not only will my ears be near bleeding, so to will my teeth as I look for where I impulsively launched the headphones from off my ears into the great beyond as to try to save my ears from permanent damage. I’ll be lucky if the only damage from this will be the headphones themselves. Rather than the phones, television, plaster, or combination there of because the launching and ricochet effect comes into play more often than not.

If this happened once it would be too many. But if this scenario happened near 25% if not more of the time? No matter what you were watching? Would you tolerate it? I would venture to say you wouldn’t. Yet, this is exactly what is happening today across the web as many sites (and many of these are world known branded names) are placing on their sites in a desperate grab for any and all possible income. Minute or minuscule as it may be.

It’s ruining many an interaction (and for many this is both their first impression as well as interaction with the site instilling an almost certain death knell for a second chance) and near immediately ensuring not only does one have a bad impression after it happens, that “impression” may actually move one to ensure they’ll never have that “impressed” on them again. Which is the exact opposite of what one should be trying to achieve.

Here’s why this one ranks high in my “”stupidity” list…

You know the people in charge are doing one of two things: Either never shopping their own websites where all the above would happen to them and they don’t know about it which in its own right is an inexcusable matter. Or, they know these effects because if one peruses the web in near any manner they’ve been on the receiving end and they know the feeling. Yet, they let it stand on their own because they are desperate for any income regardless of the effect it may have on their brand and customers which again – is inexcusable.

All I know on this subject is my of my own experiences. And as of right now I consider this form of “advertising” to be the dumbest and least thought through since New Coke® or the old adage about a new dog food campaign. It sounded and looked good in the marketing department. But in the end: people wouldn’t drink it, nor the dogs eat it. And if they’re to keep pushing this garbage out as “advertising” what it won’t be known for is “genius” but what it truly represents: stupidity.

© 2015 Mark St.Cyr

When New Headquarters Turn Into Real Headaches

There’s probably no other time in a company’s history that invokes so many emotions than when it moves into a brand new, sparkling, mega-sized, purpose-built facility with their name adorning the facade for everyone to see. Even if one is traveling past at highway speeds, rest assured, the emblazoned trademark will have been designed as to make sure everyone knows just who resides there. For many it’s the celebratory achievement of a lifetime. For others it’s the first in what may turn out to be a string of expansions. All are to be celebrated as achievements in the life of a business. However, just because you finally reached this pinnacle doesn’t mean you can’t be knocked down (or in some cases knocked out) before the plaster is dry.

People look to the many new building projects happening currently in Silicon Valley (e.g., The new Apple™ or Facebook™ headquarters et al) as a form of proof positive that these companies are here to stay. The size and scope of their facades are in some way representing the size and scope of their invulnerability to near term business calamities or upheavals. In other words the building in the eyes of many represents security much like what a fort or castle represented in days of yore. Yes, in some ways size and scale does indeed matter. And in other ways the subliminal message it projects of having the funds available to acquire such a presence is in itself important. However, what it doesn’t do is what most think it does: Protect a business, from going out of business, faster than any other business.

A business with thousands of employees that just built a brand new mega park or “campus” can go bankrupt and be out of business within months of moving into their new digs just as fast as a solo-preneur can renting a store front in a downtown location. In the world of business: there are no guarantees. The only thing that is guaranteed is: just when you think “you’ve made it!” and thought bad things (regardless of size) can’t or shouldn’t happen based on the size of your new projected business image – is precisely when it will. New digs are just another step along the path of a businesses life. It protects one from nothing. When the facade of the building allows one to present a facade of hubris to one’s business – chances are: that’s exactly when reality will strike. Let me give you an example…

When I was still living in the Northeast I worked and traveled to Boston daily. This was in and around early 2000. At the time there was a considerable office construction project taking shape on the interstate I traveled known as Rte. 93. This was an office complex directly adjacent to the highway and was no small office park that one would equivocate with the term “park.” This was what has now come to be known as “a campus” with hundreds upon hundreds of thousands of square feet of office space. Parking spaces for thousands of cars and more. As I said, “this was no small office park.”

You knew the size and scope (along with the associated costs) when I watched construction crews one week descend upon the highway itself and begin construction. To add a little clarity; one needs to remember this is taking place during and on the same road just 15 miles North outside of Boston, home of “The Big Dig”. Touching, let alone putting a pick and shovel into a federally designated interstate in Massachusetts is not something for the faint of heart (or checkbook). Yet, here was this grand park being built where not only was the building construction sizable. They needed to design and build their own on and off ramps where none existed previously from the interstate. This part of the project alone with all its red tape and construction hurdles (not to mention costs) demonstrated who ever was developing and footing the bill for this project meant business. Real business. So with anticipation I like many other commuters watched the daily progress. (Along with the occasional halt in my own progress caused by many a traffic jam.)

Then one day I drove past and noticed they put the company name on the facade of one of the buildings. The name was Genuity™. (aka Genuity Inc.) Personally at the time I had no idea of who or what they did. However as I continually drove past I wondered just how many people would be employed there (it turned out to be thousands). I did a little research back then only out of curiosity and found they were hiring like crazy looking for all types of personnel from managers, support staff, V.P.’s of this, that, and the other thing and a myriad of others. As I drove past I pondered about people coming from other parts of the country possibly uprooting their kids from schools and more, and what it takes to make that decision based on all the inherent disruptions. (When you’re commuting to Boston everyday. trust me, you get many opportunities to do a lot of thinking because what you aren’t doing is what commuting implies. i.e., moving! And yes, for those wondering I commuted to, and through “The Big Dig” daily. Matter of fact I was one of the first to go through it when it finally opened.)

People talk today as if Silicon Valley is, and was, the only place on the planet where technology as well as innovative companies start or started. I would like those of that ilk to remember the Boston area had its own high tech catch phrase such as “America’s Technology Highway” (aka Rte.128/U.S.Rte. 95). Within a 50 mile radius of Boston you had firms such as Wang™, and DEC™, and a host of others. All with new buildings (more like towers) that garnered enough real estate and blacktop to make one think “Silicon who?”  So for some to think “well unless you’re in Silicon Valley – you just don’t get technology.” I would say: “Au contraire!” So much so we here just might see what many there refuse to even consider. Let alone see. i.e., It can all come to a screeching halt faster than one can contemplate kale vs arugula for their corporate catered lunch.

As soon as it seemed the Genuity Campus opened it was learned it was closing being put up for lease as well as for sale. In the blink of an eye of what was deemed “won’t happen” did happen. Suddenly a deal that was thought to be as solid as the foundations built for the new campus complex crumbled. Here’s 2 short paragraphs from an article  “Genuity Faces Bankruptcy As Verizon Ignores an Option” by Seth Schiesel and Simon Romero NYT™ 7/26/02 (funny how this date is also today’s) that shows just how fast things can change:

“Yesterday’s announcement sent Genuity’s stock plummeting by 89 percent to close at 29 cents, pushed Genuity into default on $3 billion in loans and raised the possibility that the company might have to file for bankruptcy protection within months. If that happens, Genuity would take its place alongside WorldCom’s UUNet division and PSINet as former highflying Internet ”backbone” companies operating under bankruptcy protection.”

“But Genuity said yesterday that it had no idea that Verizon was planning to drop its option when Genuity called on the banks Monday. ”This is absolutely coincidental from our standpoint,” Susan Kraus, a Genuity spokeswoman, said yesterday. ”We had absolutely no knowledge of what Verizon was going to do.””

After laying off half its workforce in one fee swoop it was reported (although the sources were unnamed) that after the bankruptcy sale if what was left of the then company (they were subsequently purchased by Level 3 Communications™) would even continue to lease any space in their once heralded newly constructed headquarters.

This was just another in a string of such revelations that took place in the technology space in New England. For a little more insight on more of these types of “building debacles” that seemed so right at the time but ended up going wrong here’s another article from early 2005 from the Boston Business Journal™ highlighting a few (of the many) others that had transpired after the last tech bubble.

I write this for I found it interesting that many of the reporters as well as the reporting of the tech world are heralding the coming of age with all the new highly publicized construction projects within Silicon Valley. “Unicorn” moniker-ed start-ups as well as large new headquarters seem to once again becoming all the rage as to justify no need to worry – “for this time it’s different.” Maybe it is, and maybe it isn’t. But just like a lot of things in both life and business: History may not repeat – but it sure does rhyme.

I remember when DEC™ (Digital Equipment Corp.) and Wang Laboratories™ were seen as near invincible growing leaps and bounds across the business landscape. I remember watching the construction of Wang’s towers go up one after another, after another as they seemed to build another one monthly. I remember all the “good” these types of companies did for their employees as well as the communities. (Wang for one rebuilt “The Music Hall” in Boston into the now critically acclaimed “Wang Center”) Rte 128/U.S.Rte. 95 seemed haloed ground to technologies comeuppance. It seemed as if nothing could derail the expansions. Till it did. And just like the expansion dwindled – the construction stopped all together. Sometimes as in one of the articles above reports: before it even got started.

Shiny new facades are a great notch in the belt for many a business. But that’s as far as it goes. It’s an accomplishment, nothing more. It protects one from the perils of business that are around every corner in no more of a fashion than a styrofoam wall will stop the cannon fire of a competitors onslaught. It’s just a place to conduct business from. It’s not what constructs the business. Never get the two mixed up or what may transpire next is the shiny new facade is what marks the tumbling of a whole charade. For when the looks of one’s business are transmuted into the success for one’s business. Many of us have read this book before.

And they all end at Chapter 11.

© 2015 Mark St.Cyr

How The Fed And Wall Street Are Eating Their Seed Corn

When it comes to the stock market these days the overriding theme you hear from the financial media is “You’ve got to get in.” Another is, “Buy on the dips and average in.” Or, “You can’t profit if you aren’t in it” and more. So many more it would fill its own multi-volume set. However, there was some truth to many of those quips just a few years ago. Today, the amount of hidden reality to the actual destruction of one’s wealth is far more factual than any will let on. Let alone reveal.

I hear and speak to a lot of entrepreneurs who are absolutely mystified by not only the rise in the markets since the financial crisis in 2008. Rather, what many just can’t wrap their heads around is: “If the markets are a reflection of the economy. Then how in the world did we get up here?”  That line of thought I rendered down to be the overwhelming theme when discussing the current state of business affairs throughout the economy. This confusion is coming from a group of people who at one time would seek out Wall Street aficionados for insight or expertise. Today, they tend more to distrust what they hear. For what they lack in stock market expertise   – they make up in spades with an acutely precise B.S. meter honed by years of business acumen. And many confirm today; it’s off the charts far more than they can ever remember. So much so, as to avoid stepping in any of it – they just avoid it all together.

At one time entrepreneurs were not only sought out by Wall Street, rather, entrepreneurs did the same in kind. Before the advent of 401K plans and more it was entrepreneurs with the sale of their business, or profits from something else that fueled many a brokerage firms bottom line. And in many cases that relationship did well for both sides. There was true expertise needed to help one navigate the pitfalls of exactly how and where one was to put their money to work (usually a substantial amount such as after a business sale etc.) in relative safety as to finance the remainder of one’s years. Today, not only in much of that expertise gone – so too is the safety.

There’s probably no better example of this than what transpires at any bank branch today (those that are left that is). Opening a checking or savings account? You used to be incentivized to do so. But what this initial transaction is really designed for today is more along the lines of “a soft opening” to ask…”So, do you have a 401K account elsewhere?” Then the sales pitch is on by some seemingly just out of grad school quota seeking “financial adviser” with an array of pamphlets, jargon, and sales phrases anyone with any financial sense can see through. “Index this… diversify that…dividend paying yields ” and on and on. Along with whatever might be the latest tagline from the financial shows.

This is the true face of Wall St. today. As much as Wall St. would like to think of itself as it was in the glory days of a Gordon Gekko – that image is long gone. Today, what most people see is nothing more than some recent college grad trying desperately to say anything that might convince one to switch 401K accounts as to possibly make this months quota. For if not they too will have to join the hordes of recently dislocated tellers they once worked with. And the numbers show this to be true because not only is the vast majority not switching – they aren’t even staying, let alone “getting in.”

Let’s use a few scenarios that are emblematic to the challenges facing the likes of both the recently cashed out entrepreneur as well as a recent retiree of any sorts. I’ll use the dollar amount of $3,000,000.00 ($3MM). To some this may seem high, to others it’s not all that great. However, for many entrepreneurs it’s an amount easily understood as well as feasible. I also use if because it’s a representative amount even Julian Robertson of Tiger Management™ has used to describe the dilemma many entrepreneurs find themselves in with navigating today’s financial morass.

(The following of course is over simplified, I mean it as such. However, the questions, answers, as well as premise can not be over stated as to their importance.)

The “buy and hold” strategy. Sounds great, makes perfect sense – unless you can’t hold. Retirement for many means just that: no more working to generate income. Income is now derived via their stock holdings. If one doesn’t sell (e.g., their stocks) – there’s no money to eat. Better to “stay and hold” in one’s business and take their chances rather than try to “cash out” and place their livelihoods (i.e., money) in someone else’s hands. Especially what constitutes as today’s “investment adviser.”

“Buy stocks that pay out dividends!” Again, sounds great and seems to solve the problem of the above. Problem is, in a stock rout, what’s the first thing companies cut? Dividends. You had just better hope and pray the companies that do cut – aren’t the ones you were sold. Or, you’re now cut out. But not too worry, they say skipping a meal or two here and there is healthy. And that’s what you’ll need to remember when there’s no food on the table because – there’s no “dividend” in the mailbox. I’ll also add: it’s probably safe to assume in another financial rout, the “financial adviser” that sold you those “dividend” plays is no longer employed themselves. So calling them for further “advice” might be more challenging than it is frustrating.

“Buy the dips!” Sure, there’s only one problem. If there is a “dip” doesn’t that mean the markets lost value? So if one didn’t sell at the heights where is the money to buy on the dip? And if one is selling on the high to fund retirement as to eat and pay bills: That money is now gone. There is no money to now “buy the f’n dip!”

“A stock market correction of 20% to 30% is a gift to buy great companies that are now on sale!” No. A 20% to 30% market correction is a loss of $600,000.00 to just shy of  $1,000,000.00 of ones net worth. More than likely a “net worth” that was to be “worth” food to eat, and pay living expenses.

“If you’re nervous about the markets just be diversified.” This line means squat. Diversified as in what? Other markets? Other vehicles? Lot of good that did during the financial crisis of ’08 when everything was going down and coming apart together. And if one believes the markets to be more stable today, and better fortified to withstand another such calamity, even one only half as extreme – I have some beautiful oceanfront property here in Kentucky I’d love to sell you. Cheap!

Don’t like the “markets?” Don’t worry – you can be safe in bonds. Only problem? Today they pay next to nothing. The bigger problem? Tomorrow they may charge you. All while having to be willing to accept: if you want out sooner than later – it’s gonna cost you a plenty if that sooner is at the wrong time. But don’t worry. It’s not like you need to eat or pay bills anytime sooner or later, right?

Want to keep your money as safe as possible? “Keep it in liquid instruments such as C.D.’s or savings accounts here at our bank.” Unless of course it’s over $100K. Then depending on the bank not only might you have to pay for the privilege, if they deem you have too much they might ask you to take your money elsewhere. Why? Easy. Your “cash” is now a hindrance that needs to be protected as well as accounted for. And that’s not what a “bank” is in business for any longer. Silly you for thinking “bank” today means anything what “bank” meant in the past.

“Don’t like banks? Put you’re money in a money market!” Right. Only problem there is after the financial meltdown of 2008 where it was shown a great deal of distress was caused by funds needing to keep 1 for 1 notional values in their cash accounts, it’s now been deemed that pesky thing of trying to preserve someones cash balance was just too hard. So a new rule was implemented where this pesky detail is no longer relevant. Now if your “cash” value in a money market account resembles an equation of cents on the dollar rather than a dollar for a dollar – oh well; it is 2015 after all. And the times – they have a changed. I’ll bet you didn’t even get a toaster when you opened that six or seven figured account. So there should be no need to whine about not having any bread to cook in it. After all it’s no longer even clear when you may gain or regain access to it (if there’s anything left) in another market rout. For any doubts on this just look to the bottom of your latest statement. it’s written right there in black and white. (Just have your 10X magnifying glass at the ready is all I’ll say.)

I could go on and on, yet I believe, you get the point. Ask just one of the above scenarios to what constitutes a “Wall St. maven” today and I’ll bet dollars to doughnuts you’ll hear more back peddling or more evasive, jargon laced, mumbo-jumbo – it will have you questioning humanity itself let alone just financially.

What both Wall Street in general as well as the Federal Reserve has wrought is a market so adulterated, so anemic, and so mistrusted the euphemistic “money on the sidelines” has more in common with nursery rhymes than it does with anything reality based. There is no money on the sidelines. Nobody wants “in” to this market. Anyone with half a brain and a modicum of common sense wants out – and the outflow numbers show it still to be true.

“Buying the right index, diversification, and thinking like a billionaire” is not only nonsensical in today’s marketplace. It can cause one a whole lot of pain when one is unable to fully comprehend as well as separate euphemisms for real world panic and dismay.  All one needs to do is look east to see just how well that type of thinking is doing in China today. For “bubbles” no matter the culture when it comes to one’s money “pop” the same way: First panic – then distrust – then the repeating of another euphemism that sometimes lasts for generations: Never trust a bank or the markets. Never, ever, ever!

© 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: Testing Decision Mettle

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

Can’t see the audio player? Click here.

Why The NYSE Debacle Mattered

On Thursday this past week there were a few attempts at crisis management that should go into textbooks (as well as history books) everywhere in years to come as: Crisis Management 101.a – Lessons in Ineptitude.

The responses as to settle the angst in an ever-growing skeptical, as well as frightened investing class was not only inane as demonstrated by the responses (or better yet; lack there of) given at the NYSE™ by way of “answering” as to why it halted its operation for nearly 4 hours. Was only outdone by what many view as the near insane when one views the steps taken in China to “calm” their markets. Those steps?

Not only did China halt trading in as many as half (reports vary from around 30% to as high as 50%+ depending on the index) of all listed companies trading on their indexes. It’s been reported not only has selling one’s shares been publicly demonized – you can now be arrested with the threat of imprisonment. Add to this, it’s also been reported: if you sold previously this year – you have to buy it all back. Now! Or: see previous sentence. However, “you” is still subjective at this moment. Exactly who at this time is not entirely clear. (i.e., personal, broker, company, etc., etc. Maybe all?) We’ll have to wait and see. Or – till they come to their door. Literally.

Wednesday the Asian markets were once again in free-fall. Japan’s fell breaking the all important psychological level of 20,000. Both China’s large and small caps fell even harder. This after the government stated unequivocally; it would take extraordinary measures to combat the selling frenzy. And – It didn’t work. Only until it launched into the measures I outlined above did the markets in Asia seem to hold from going over the precipice in its entirety. Will it hold? Who knows. Yet, the one thing we do know is: it’s only holding because in effect for all intents and purposes not only is it illegal, it’s backed with the very real threat of imprisonment – to sell.

Is that how one instills confidence? It instills something – however the term isn’t anything resembling “confidence.”

Let’s put some of this into perspective: Think just how unsettling it’s been for the retail “investing” class here in the U.S. of late as they’ve been watching their 401K balances gyrating near daily in ways reminiscent of 2008. Then Monday, they awake to headlines across the media that Greece did the exact opposite of what they were told would happen by the so-called “smart crowd.” Then just as abrupt the implications were front and center to the markets as fear began gripping them not only Monday. But Tuesday, and Wednesday. Suddenly – Greece mattered, and contagion once again swept across the minds of many. Then, adding on to this, we had China along with the other parts of Asia rocked with significant selling pressure during the same period culminating in the likes not seen since? That’s right, 2008.

Headlines ripped across both the financial as well as the main stream media. “Greece …” this. “Euro Zone breakup …” that. “Contagion inevitable …” here. “China collapse …” there, and more. This relentless assault of breaking news across the media had many that have basically tuned out the markets since (did you guess first?) 2008 are suddenly  thinking: “Wait…what?” For these headlines, as well as their implications, are as familiar a warning sign that spark not only memories, rather: the near instantaneous reaction as to get out. Kind of like what happens when you decide to go back on a date with a past romance thinking “It wasn’t that bad, maybe I over-reacted.” Only to realize less than a few hours into it, not only was it as bad – it was worse than you remembered. But I digress.

Then comes Thursday. As all the headlines from China, Asia, and Europe filter through to the morning press. Out-of-the-blue as if the previous wasn’t enough to worry about. This already tentative group is hit with a headline that brings chills to anyone who remembers September 11. “All United Airline flights in U.S. Are Grounded.”

All at once what everyone’s been told “didn’t matter” mattered. And a scramble was on for more information. Such a scramble it melted down the servers at Zero Hedge™ first, then the Wall Street Journal™. (notice not the Economist™, or the Financial Times™, or Bloomberg™, or CNBC™, or the Huffington Post™, or the New York Times™, etc., etc. Draw your own conclusions is all I’ll say. And if you think I’m trying to make a case where there isn’t one. Fox Business™ channel had its highest viewership ever Thursday. I don’t know about the others – they don’t say. Which tells its own story in my view. But to say that all off the sudden “people became anxious and wanted to know more;” would be an understatement.)

As both the media as well as the investing public are trying to come to grips for the implications of what has transpired overnight and into the morning. At around 11:30am EST, the emblematic symbol of capitalism for the U.S.,The New York Stock Exchange™ halts not some – but all trading! (I believe there were a few ancillary programs that were unaffected) And not for 5 or 10 minutes. Rather: for nearly 4 hours! And the response as to why? __________________ (insert crickets here.)

Sure there was some hand-wringing boiler plate “Well it’s probably this. But definitely not that.” canned P.R. mumbo-jumbo. However, once again, for all intents and purposes it was the equivalent of saying nothing. It’s been reported not only did the lowly few traders remaining at the exchange questions fall on deaf ears. So too were some of the actual media covering the outage going unrecognized in queries to any questions. Not just P.R. speak. Actual – would not talk speak.

This calamity of errors on the part of the NYSE™ was not only an example of an out-and-out total breakdown of both crisis management and leadership. It was also a stunning glimpse into just how forgotten the financial crisis of 2008, as well as September 11 is from Wall Street itself. Never mind the public at large. The sheer ignorance as to not inherently understand, nor contemplate the significance of the NYSE as to its symbolic nature to the nation at large by those that are in charge of it today is not only incomprehensible to me. It should be a required case study example in “DUH!” to anyone in seeking management.

Financial mavens understand ever since computers took over the trading floors, what were once the bastions of physical traders – is no more. However, the public at large has no clue. Talk “Wall Street” and the most iconic of images that comes up first and foremost in one’s mind is: The NYSE. And how did the management of the NYSE treat this symbolic edifice in the face of what could only be described as turbulence not seen since the Great financial crash of 2008? No, not like the face of capitalism it’s represented for over 200 years. No, the face that was put forward was – the interface that it’s become. Because now: it’s nothing more than a nice TV set to report from, or maybe rent out for parties. At least that’s the impression one was left with going into the weekend. That’s how bad of an image crisis it now finds itself in.

The traders that still do business there? (as few as there are) Even they complained about not being able to get answers to their questions.  I found that highly credible because what they seem to have forgotten is – they are no longer relevant. Today only High Frequency Trading matters (i.e., the machines) And the NYSE acted in a way that solidified that premise. All the while turning an outlandishly tone-deaf ear to their place in symbolism for the nation at large.

What a complete and total disaster was portrayed by the NYSE in my opinion. So much so I found myself with my head-in-hand more times than I can count. If the president of the exchange had put just half as much time into his choice of words as he apparently does into the fit and finish of his suit – he could have avoided all of this and calmed an already nervous public. It was apparent appearance mattered to him. It just seems not as much to the institutional symbolism of the entity he presides over was what I came away with.

When it comes to crisis management I know what I’m talking about. It’s one of the disciplines I made my reputation in. And anyone with half a brain knows the way this was handled and the choice of words was not only lacking, but the response in general was vacuous. I mean, really: Say nothing? (i.e., P.R. double speak) Avoid speaking all together to select media outlets? Leave people to speculate and wonder on their own? All while following a collapse in Asia, turmoil in Europe, and the grounding of airplanes? Absolutely unacceptable in my book for anyone leading a company of any size. Let alone – The NYSE!

All that was needed to be said was something along these lines:

“We’ve found we have an issue resulting from a software upgrade we just performed. We’re not entirely sure exactly what is causing it. However, at this time what we are  confident of, that it is; in fact; a glitch contained to our systems. With what has transpired overnight in both Europe, as well as Asia, we decided it was prudent and incumbent upon us here at the NYSE to halt our systems and address it as to fix these issues in their entirety. Rather, than the possibility of limping along as we correct them throughout the day. The systems inherent within the financial markets of the U.S. are robust and trading is designed to work around us as we address our issues. Let me remind everyone: this is why we spend so much in technological advances throughout all the exchanges. If any one, and even more of the exchanges has an issue in this ever complex environment – trading in the markets can continue as you can see. As soon as we know more, we’ll let you know. Until then, as anyone can see, the markets are working as designed.”

I wrote the above line directly as I typed taking me no longer to think of it, as it did to type it. It’s not rocket science. That line could have been set on auto-response, and it would have put to rest a lot of the anxiety transpiring within the public at large. Yet, what was the response? Total lack of comprehension for the importance of not only the symbolic importance demanded for a response, but also in the timing, as well as delivery with what else was happening simultaneously. The incomprehensibility still stuns me as I write this.

Not only did the NYSE leadership fail in this regard, it allowed itself to be kicked to the side of irrelevancy by its own hand as well as foot. So much so it will be a wonder if it ever regains any of its former prestige other than its historic facade for the cameras and tour buses.

As a panicked public tuned in trying to find relevant information – there were all the news outlets displaying just how irrelevant the NYSE was. All one heard as you flipped channels, or stations was “Look, there’s really no one even there!” “Hey, is that a bowling alley now?” “Look, they came back on-line and it still looks like a bowling alley!” And on, and on. The media had a field day with its version of “calming the public” by showing just how many ways (or segments they could fill) the markets functioned without the NYSE. All because that’s what the leadership at the NYSE gave them to work with. In other words, they gave them nothing but some P.R. mumbo-jumbo that even a three-year-old would question. So, left to their own devices (and air time to fill) the media did just that – filled it. With how irrelevant they were.

What a total debacle as well as pathetic self-inflicted P.R. disaster the leadership at the NYSE displayed in my view.

Who would have thought, less than 7 years after what is now cemented in the minds of any remaining investment public, that the Great Financial Crisis that nearly took down not only the markets, but almost the entire system as a whole. Along with all of the angst and still unanswered questions that remain to this day. The one place that forgot how important its symbolic place was in the minds of the general public at large was none other than the NYSE itself. Again – just stunning in my opinion.

I mean, honestly. By all appearances from what we all witnessed. It seems someone (or group of someone’s) had so much faith in the system – they felt it wasn’t necessary to have a simple one paragraph coherent message at the ready?  I mean – just in case of another emergency? After what we went through just a few years ago?

The only thing that could be worse for all of us is if they have just as much faith in central banks. For we all know how that’s beginning to shape out now. The Fed. may indeed still have one’s back. But so too did China. Only thing is there…

Not only do they have one’s back – but one’s number. And that number could possibly be one’s new inmate ID. Then again, Greece is solved, right?

© 2015 Mark St.Cyr

Suddenly The “Experts” Are Dumbfounded

Over the course of the last few years one thing that has been prevalent more to my eye than nearly any other time I can recall is just how many so-called “experts” have lined up whether to be “next guest” on TV or radio. Or, they’ve taken to the pages of print, screens, or books to proclaim how their prognostications “were surely sound.” And as proof they were quick to point to the financial markets. The rationale? They must be correct in all their assumptions for – “Just look at these markets!” Well suddenly when one looks at these markets – it’s not for the reasons the “experts” wanted. Now it’s: “What in the world is going on in these markets!?”

As I write this, every market in-which one was told were trading at all time highs based on “fundamentals” isn’t just faltering. Some are in outright panic mode. China’s markets are in outright free fall. So far every attempt to stem the losses has been met with even more selling pressure. So much so, hundreds of some of their largest companies have been halted (i.e., can’t be sold) for fear of complete collapse. The PBoC as well as other proxies within their markets have pledged 10’s of BILLIONS of yuan (worth 10’s of billions U.S. for comparison) and it worked for less than 24 hours. So far the market losses are in the TRILLONS of share holder cumulative value. And as the market prepares to open once again, the fear is the worst is yet to come. Every market opening as of Monday has turned from “excitement” as the market went ever higher to – just a hold your breath and pray. Not in Years, and really, not even months – but weeks.

Greece has done the exact opposite of what all the “experts” said it would do. Now that other part of the equation that was supposedly “ring fenced in” or “priced in” seems to be anything but. Today alone the U.S. markets are showing just how vulnerable they are. Every so-called “dip” is once again being bought. However, not for the reasons of just a few months ago. Today, those dips are being bought purely out of what is known in the field as “headline risk.” This risk isn’t what it was a few years ago. Today, “headline risk” is fueled by the parasitic scourge of the markets now known as High Frequency Trading (HFT.) With these machines set to read any headline (good or bad) then launch their arsenal of front running, algorithmic stop hunt seek and destroy programs – you get a market as was shown today. A perfect headline of “Looks like we have a maybe!” and the swing from the lows to highs was so predictable it was laughable. (funny how we’re getting these as Europe’s markets close, then 30 minutes before ours do…no?)

This isn’t anything resembling “efficient markets.” This is what a pure adulterated markets look like. And it’s only the beginning in my estimation.

None of what is currently transpiring in the markets was supposed to be there. The so-called “smart crowd” said people like myself were “idiots” for questing their reasoning’s. I have only one question I guess: How’s all that “fundamental” “fairly priced” __________(fill in the blank) holding up when looking at the price action of just Monday and Tuesday?

I’ve had a few conversations over the last few days and some have been quite interesting. One of the main questions (because the topics discussed were being very highly debated as were the conversations a little heated) how was it that I have not only “stuck to my guns” as far as my premise (that premise being that most financial “experts” were full-of-it) in the face of so many telling me both privately and publicly that “I was wrong.” And it was pointed out to me (more than once) many of those “experts” are some of the biggest names in finance.

I had an answer, however the answer I gave was not as poetic as the one given by Richard Feynman that I have framed hanging in my office. I’ve pretty much made my career of doing what the so-called “experts” normally state “can’t be done.” By doing – exactly that. My career stands as my testament. However, for those who ever doubt themselves, or sometimes feel they shouldn’t voice their opinion on certain subjects when deep down they know they have a valid argument, but feel hindered to express it because someone else doing the “expressing” is considered a so-called “expert” therefore who are you to question them. I’ll leave you with Mr. Feynman’s quote on “Experts.”

“There are myths and pseudo-science all over the place. I might be quite wrong, maybe they do know all this… but I don’t think I’m wrong, you see I have the advantage of having found out how difficult it is to really know something. How careful you have to be about checking the experiments, how easy it is to make mistakes and fool yourself. I know what it means to know something. And therefore, I see how they get their information and I can’t believe that they know it. They haven’t done the work necessary. I have a great suspicion that they don’t know and that they’re intimidating people.” – Richard Feynman

(For those maybe not familiar with Dr. Feynman, just one of the historical points and contributions he’s made to science and physics, he was the man who diagnosed it was the O-rings that caused the Space Shuttle Challenger’s disaster.)

As I’ve stated so many times before, there are two types of “experts.” One who has done what they profess which gives them both the perspective, along with the ability, to express what they believe will help others. Or – like the many out there – who’ve only: read someone’s book, about what they read in someone else’s book, and now wrote a book, so that you can now buy their book – to read – what they’ve read.

© 2015 Mark St.Cyr

The Central Bankers Dilemma: The Pendulum’s Back Swing

Today, July 5th, a referendum is to be voted on in Greece as to whether they should vote “Yes” for the austerity measures demanded by the bankers of the Euro Zone (EZ.) Or, vote “No” against such demands. Where a “no” vote will in effect all but ensure an exit from it (whether voluntarily or not.) How this vote will come down no one knows. For when a populous is scared, many times they’ll vote blindly for what they perceive in the present as the lesser of two evils, and let longer term consequences be damned.

On the other hand, when a populous is both scared and mad – what was at first thought to be implausible (i.e., against what many outsiders may perceive as in their best interest) within the confines and privacy of the voting booth. Anger, as well as a disgust for the present can over-rule. Where it’s the consequences of the moment that will be damned. Where an overwhelming affinity for the possible future suddenly reins supreme. Whether realistic or not.

It is this latter point that catches most (i.e., outsiders looking in) flat-footed. Especially those that tend to think everything is based only in numbers, models, or rationality, and it’s ultimately controllable. This form of thinking implies: If you control the numbers, and can interpret the models – you can control the rationale, as well as an outcome.

Not only is line of thinking rampant throughout academia. It is followed with a near religious zeal. However, there’s the inherent problem: Yes you can – till you can’t. And that’s where the most critical issue fails within Ivory Tower thinking. For they don’t ever contemplate, or anticipate the “till you can’t” part. For them it shouldn’t exist. Therefore – it mustn’t.

Yet, anyone with just a modicum of business acumen knows all too well: More often than not what you’re convinced won’t happen; is exactly what will. Usually – at the most inopportune of times.

Here is where we find many of the Central Bankers today. Suddenly their implied omnipotence is being turned on its head from “omnipotent” to “oppressive.” From “rescuer” of an economy to “destroyer.” And the distaste as well as grumblings against this Central authority is growing. Why? As I stated before: Central Banks are now perceived as “the body politic.” No-matter how much they rail against the inclusion. And the vitriol (as well as the impending implications) are just getting started in my opinion.

Over the last week the IMF dropped what was for all intents and purposes a bombshell of a revelation. It stated (I’m paraphrasing) that Greece was indeed in need of a debt reduction (i.e., write-offs) just as much as it was in need of restructuring of those said debts. Otherwise, it would all be for naught because Greece would never be able to surmount them.

This singular point has been at the heart of all Greece’s arguments. However, what has been argued back to Greece by the Troika has been nothing less than “Tough – deal with it. That’s your problem – not ours.” Well, it seems that’s not so much the case anymore. Regardless of which way the vote goes, it is the Troika itself that may find the problems are just beginning. And those problems are theirs.

In a previous post I drew an analogy from the Iron Man 2 movie. The premise was: If one can make the gods bleed, no matter how small, people will not only will lose faith, but will turn on them. It seems Greece did in fact strike the first in what might be a mortal blow. Not so much with the degree of the initial cut, but with the ever-growing infectious nature to follow.  Even if Greece votes “yes” this Sunday – the damage has already been done to the EZ as well as the central banks within. While quite possibly to Central Banks everywhere.

The revelation that the IMF concurred in secret with what Greece was proclaiming all along; while demanding the opposite; siding with the more austerity demands by their fellow members; as not only the people suffered but as the politicians themselves (i.e., ridiculed or voted out) will not be lost on Italy, Spain, Portugal, ____________ (fill in the blank.)

Yet, as damaging as it is to have one of the three parts (e.g., Troika) acknowledging what Greece has been insisting was needed all along via a leaked document. To now have it leaked that all three were of the same conclusion yet: wouldn’t budge or acknowledge it? This is quite another, and will be used by any and all as an excuse (whether rightly or wrongly) to demand new terms. Or worse, like Greece – just refuse to pay until the bargaining table is reopened.

Suddenly it’s not the borrowers that have a problem. Rather; it’s the other way around. And it’s only been days since these revelations. Yet, there’s now “blood” in this ever-growing pool. And that’s a problem no “bazooka” or “printing press” may be able to overcome. However, this is just Europe…

In China the financial markets are tumbling faster than any other time in history since 2007. What many forget (and what the main stream financial media will not speak of) is that right before the financial crisis took hold here in the U.S., It was none other than China’s Shanghai Composite Index that was the harbinger of what lay ahead as it tumbled from that meteoric rise in ’07 to within a year – it would go on to lose some two-thirds of its value.

Right before the crash the Chinese markets were assumed “unstoppable” (sound familiar?) as they went parabolic to near vertical assent when viewed on a chart. Then: they fell in spectacular fashion entering “bear market” statistical valuations in mere weeks (i.e., losing 20%.) This had never been seen since. That is – until now.

Suddenly there are reports of extraordinary measures being allocated behind the scenes by China’s central banking authorities. The problem? So far, by all accounts – it ain’t working. The index continues to fall. Many of the components (I would like to say businesses however, there are far too many reports these “businesses” are in name only) that make up these composites are opening up daily to “limit down” selling pressures with no relief in sight.

So much so it has been reported the only way for this rout to be reeled in is for the PBoC to directly “buy the market” in one form or another. Yet, the rout is so wide-spread, and so fierce (imagine 10’s of millions of first time traders all heading for the one and only exit door – all at the same time) that it is being openly questioned if the PBoC itself has the monetary firepower to overcome it. And just for perspective, China’s market isn’t some backwards market in size or scope those in the “general public” might think of when they first hear. For those not familiar: China’s market is number 2 in the world, right behind the U.S. And last time such a thing happened the contagion effects were here seemingly overnight – and the great financial meltdown of the U.S. markets were upon us.

Is “this time it’s different?” Who knows, but one thing is for sure: The general public today is still enamored with the main stream media’s push that what ever “bad” happens in the world or markets: “The Fed. has their back,” or “The ECB” or “China’s growth will solve our malaise” or ______________(fill in the blank.)

Today one thing is more certain than any other time before. With the Federal Reserve’s unwillingness to allow the markets to stand on their own feet, and not be so dependent on their interventionism with QE for years, and Zero interest rates for the same – the tool box may in fact be empty – at the most inopportune time.

So here we are, once again, waiting or watching for what could possibly be the start of another contagion effect to ripple through the markets that has the potential of resembling 2008, or worse.  And the only thing to stand in its way will be the faith and/or belief in their omnipotence. For it seems – that’s all they have left. All while we watch the same crumble in the eyes of others across the waters as their Central Banks are being perceived daily more as villains or worse – inept.

I’ve stated many times in what I’ve coined “the pendulum rule.” It’s not the first swing that can ruin you. It’s when you get up thinking you’ve dodged a one time fatal blow and act as if it can’t happen again. You don’t prepare. You don’t harden your resources. You act as if it were a one time only thing. And just when you’re at your most vulnerable – the back swing is what takes you out.

It would seem the pendulum is indeed still swinging. What transpires from here once again – is anyone’s guess.

© 2015 Mark St.Cyr