Red Or Black?

There’s an old adage among veteran stock traders that goes something like his, “If I told you the news before it were made public – it’s still a 50/50 bet you would guess the market’s reaction correctly.” That was when the markets had some resemblance of normalcy.

Today, normalcy has been replaced with sheer lunacy as to the speculation and interpretations for where these markets go from here. And the dangerous nature of just how cutting a blow to one’s financial future was laid bare in the story that went viral showing some wannabe “trader” wiping out his (and subsequently his wife’s and more) retirement savings. Then, opening up some form of a donation (begging) page to help him cover his now 6 figure margin call to his online broker because he was now broke. His story will far from be the last – for the clues are everywhere.

One of the main points I’ve tried to point out since I first began articulating my thoughts about these “markets” is the inherent dangers contained within where even veterans have found themselves on the wrong side of “would never happen.”

There’s no better example of this than the MF Global™ debacle just a few years ago. Where veteran traders went home at the end of the day with money in their account only to arrive the next morning to find “it’s gone.” The resulting chaos put many a veteran floor trader out of work, out of money, and for some – out of options. The lingering taste of distrust this one-act caused should not be lost. For it’s one thing when a client gets screwed – it’s quite another when you screw your own. This is today’s Wall Street.

JBTFD (just buy the dip) Bulls were once again rewarded this past week with: the best weekly rally for the S&P 500™ in all of 2015, rising some 3.3%.

Reread that last sentence two or three times with only one slight change. As you do add this short sentence: As terrorism struck throughout Paris killing over 130 innocents with open gunfire, explosives, and hostage execution at a restaurant, soccer match, and concert.

And let me point out for those thinking “Well that was Europe not the U.S.” So too did Europe’s market push higher in the wake. Again, why the need for any market concerns to heinous events when the central bankers of today have made it clear they’ll do “whatever it takes.”

The initial knee jerk reaction where the markets spiked down on initial reports were met with a horns over hooves buying frenzy. Why? Well, as callous as it may sound the only thing that truly mattered to the markets was this weeks options expiry cycle close. This is the last chance to closeout the books, and/or re-position on a high note before two very important issues: Year end, and, the Fed’s perceived imminent rate hike.

Market breath (volume and other qualitative analysis) showed the buying of 2015’s “best weekly rally” was anemic at best, and dangerous at worst. There’s no better example as to demonstrate this than what has today come to garner the Wall St. moniker known as “FANG.” (e.g., Facebook™, Amazon™, Netflix™, Google™)

David Stockman recently published an in-depth breakdown of this latest moniker-ed phenom that’s worth reading as to comprehend just how precarious things truly are. I’ll also add; once Wall St. assigns monikers? That’s when you should become very nervous indeed. Remember when the “BRICS” (e.g., Brazil, Russia, India, China, South Africa) were going to save the global economy?  Now one wonders if they’ll be able to save their own. How’s Brazil doing for one? But I digress.

So now here we are going into an abbreviated holiday session in the U.S. following an expiry fueled rally. “What could possibly go wrong?” After all, with what we’ve seen transpire within the capital markets over these past few weeks; is the need for concern just more “Chicken Little” cackling? After all: The next in-rotation market Bull, as well as economist to be paraded out across the financial media will stampede over you in getting to the camera, microphone, or keyboard first to spout just how “resilient” these markets have become. And to prove their point (as always) they’ll just point to the current levels as if that tells the whole (or only) story.

Once again I would like to remind many who are currently following the “financial advice” laid out in many of today’s “best sellers” that caution and safety is paramount above all else. The consequences of assumptions are far too grave.

JBTFD has worked of late with a near offensive accuracy. (i.e., terrorism supplies a dip) However, the next dip (if there is one) might just not react in the same fashion. Why? Well, the Fed. has now mused in more ways than humanly possible to decipher that they will indeed hike rates at December’s meeting. Unless they don’t. And don’t forget negative interest rates are still a consideration.

Confused? Don’t be. They could always launch more QE if needed, since they’ve stopped it, stating the markets no longer need it. Sorry, that doesn’t clarify does it? Oh well, that’s what goes for “clarity” by today’s Fed. standards. Think I’m off base? Here, see for yourself. Below is a few lines from the Fed’s vice-chair Stanley Fischer speaking at a recent event in San Francisco:

While we continue to scrutinize incoming data, and no final decisions have been made, we have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to “just do it.”

Fed meetings are now ‘getting interesting’ as possible rate hike discussed.

In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates.


Let’s put a little perspective on that first line: “avoid surprising” is used in a passage that holds both “no final decisions” because of continued “incoming data?” Which is exactly what determined the last surprise. (e.g., no rate hike.) All while we’re supposed to infer “emerging markets,” many of which are collapsing due to currency fluctuations are telling the Fed. to “just do it.?” Really?

Second: Fed. meetings are “getting interesting?” Is that the term to fit what must have taken place at September’s policy decision of inaction over action? I think that phrase is an interesting choice from my perspective. Especially since that decision was predicated on the “international developments” of a near China market meltdown precipitated by a reaction of “emerging market” upheaval in margin fueled carry trades funded in relation to today’s zero bound policy. Interesting indeed is all I’ll say.

Third: As “other major central banks” will begin to move away from near-zero policies? This, as Mario Draghi announces near simultaneously another round of “what ever it takes?” You can’t make this nonsensical double speak up. The only thing more preposterous would be if the Fed. Chair herself had recently reiterated that “negative interest rates” were indeed a tool currently contemplated. Oh wait, I forgot, she did just that at her latest testimony before congress. As the late (great) Gilda Radner would say, “Never mind.”

So with all this in mind what happens next is anyone’s guess. For I’ll contend not only does Wall Street not know – neither does the Fed. itself. For what happens to all this surety of assumptions (yep, that’s how farcical it’s become) if the markets now re-position just like they did in August and sell off their exposure to the increased carry cost exposure they most certainly will have. After all, 25 basis points sounds so minuscule. Unless, you see it as what it really has the potential for in today’s search for yield (any yield no matter how small) market.

In a margin levered carry trade – a 25 basis point increase could result in a 25% loss of profit, or increased cost. That “minuscule” 25 carries a lot of obligation cost or profit with it. So much so – it could blow up trades that would have trading desks begging to have the problems the a fore-mentioned “day trader” experienced. Small numbers have big impacts, and create inconceivable profits almost nowhere else as they do on Wall Street. After all, HFT (high frequency trading) make Billions upon Billions – a fraction of a cent at a time.

From my perspective there’s only one conclusion: a guess. Red or Black for those still foolish to play. For that’s what today’s markets have become. Nothing more than a wagered guess as to which way the market will go. Welcome once again to the casino. And as they like to say: “Everybody, please…Place your bets!” What you won’t hear at a casino yet have to contemplate today on Wall Street is – the hope they’ll be someone their to buy your chips when you want to cash out.

For that also is – a gamble.

© 2015 Mark St.Cyr

“It’s Different This Time” or “Same As It Ever Was”

Over the past few years when it’s come to any criticism of business models, valuations, or other concerns encompassing the social media space, along with other dubious “hacking” inspired businesses emanating from Silicon Valley. The immediate rebuttal posed fell along the lines of first being looked as “you just don’t get it” (or just crawled out from under some rock) followed with, “It’s different this time.”

If one posed any real push back as to move nebulous assertions out from the sky and back into more true ledger accounting? Those “looks” turned into outright disdain, and disgust followed with ridicule as the assertions of “It’s different…” and “You just…” morphed into closing statements as to implicitly cement the questioning door closed. For to go any further, it was a waste of their time and/or breath. After all, why try to prove you’re right when today’s version of the teenage “Because! Just because!” works just as handily.

Over the past few years that defense has worked splendidly. Only problem? Just like with teenagers; there comes a time it no longer works. This is where the once go-to responses begin to work against – not for. Welcome to same as it ever was. Or, one could say, “Welcome back to reality.” Where nebulous business plans no longer attract attention never-mind – cold hard cash.

As a matter of fact, what has been recently embraced as some entrepreneurial birthright in Silicon Valley (i.e., VC funding at the whim) seems to be going the way of “Because…” itself.

You’re not hearing precise reasoning or explanations for it (although the reasons are as clear as day: No QE.) However, what you are beginning to now see are the inevitable storm clouds moving from the horizon, and making landfall. All one needs to do is get their heads out-of-the-clouds and start reading the writing on the walls right in front of them. For the messages they portend are writ large – if one wants to see. Here are a few that have caught my attention…

A few weeks ago I was watching a Bloomberg™ morning show where the guest was one of social media’s well-known aficionados. (I’m not being coy by not naming, it really doesn’t matter) During the discussion there were a few things that struck me. One was the on air tension. It seemed the more the questioning – the more antagonist or dismissive the retorts became. Another was in response to a question about Twitter™. The response? “Do people even use Twitter any longer?” For he implied he’d already moved from there to another platform. Which in many ways validates what I’ve stated for years and have been publicly scorned for: “When the price is free – loyalty is as enduring as a Unicorn’s balance sheet is real.”

Another point to ponder is this: Let’s put aside anything IPO for a moment and look directly at the VC funding meme. Remember (for it wasn’t all that long ago) when those in the VC world were being touted as some form of Superheros to the rescue? As a matter of fact one prominent website to this very topic sported a drawing depicting many as just that with capes, costumes, and more.

It seems that maybe there’s just a few too many seeking their birthright VC money in today’s market environment.

Just 12 months ago VC firms and others would be hosting “come one – come all” stylized events or meetings as to vet the latest group to be showered with some form of initial funding. The game (as I had written about previously) had morphed into more of a numbers game funded via the hot money provided by the Fed’s ongoing QE policy. i.e., Throw money at all of them, for the IPO’ing of just one will make all sins disappear. However, that meme is showing signs it to is going the way of “its different this time.”

Today you don’t need to look deep (for it’s everywhere if you want to see.) All you need to do is look. There are articles sporting titles along the lines of “Why you shouldn’t seek VC money” and more. And not from obscure names. Some are from the very people who only months ago were depicting as VC superheros. Quite a shift and peculiar timing one might infer, no?

So what about “everything social?” After all, social media is the “be all – end all” platform in which all dreams are made (and cashed out.) Again, after all, everyone still instinctively points to Facebook™ as the continuation of promised milk and honey. “Just look at their stock price!” is shouted. Another is “Just look at mobile: they’re killing it!” “You don’t understand: it’s different this time!” Sure it is. All I’ll point to for a contrasting argument is AOL™.

Facebook currently sports a market cap larger than GE™, Johnson & Johnson™, Walmart™, and a host of others. These are not trivial companies by any stretch. However, there is one very distinct difference that should not be lost. They sell products and buy ads. Facebook primarily sells only ads (and all your data but that’s for a different discussion.) In the last bubble AOL also fell into this same paragon of ad-based business models. It was unique, email was “the hottest thing.” Banner ads (remember those) was the next be all, end all to advertising. Till – it wasn’t.

AOL-Time Warner™ stood with a market cap of some $350 BILLION dollars in 2000. It was for all intents and purposes “the king” of ad sales in the every growing, and developing, tech based medium. Then, the bubble burst (i.e., the recession took hold) and ad sales literally dried up crushing AOL and anyone else supported purely on an “ad” model.

Yet, let’s not forget about the one thing that takes place right before such a hatchet bears down on ad revenues that many just don’t contemplate. For AOL did have real ad sales as does Facebook. And right before the bottom fell out AOL was also (much like Facebook is today) being pushed ever higher in valuation.

That “thing” is this: Right before the axe falls – the preceding volume of ad buying becomes more concentrated. Any and all peripheral ad money gets bundled and focused into one medium more than the others in what could be classified as a “Hail Mary” seasonal cycle buy. This is how I look at Facebook’s latest earnings report. The meme of “they’re just killing it/firing on all cylinders” hearkens to my ears just what happened before the implosion of “everything dot-com.”

I am still of the belief the “everything social” is not “it’s different this time” but more of “the same as it ever was.”

The latest retail sales report wasn’t bad – it was horrible. Once again missing expectations. But there’s a much bigger problem. More and more retailers are reporting abysmal earnings reports. Macy’™, Nordstrom™, Walmart™ and others are reporting nothing more than anyone with a shred of common sense knows intuitively as summed up so succinctly by retail maven Howard Davidowitz when speaking on the challenges of retail malls: “…what’s going on is the customers don’t have the fucking money. That’s it. This isn’t rocket science.”

Current ad spending by retailers as of this writing I believe fits into the same description echoed by Mr. Davidowitz: It’s not rocket science.

Facebook and a few others are going to be the go-to recipients of any and all “Hail Mary” ad buys for this coming earnings quarter and holiday season. Just like with what has taken place with previous assigned “Holy Grail” inspired ad platforms.

If retail sales for this shopping season mirror anything close to what this past report portends? Again, just look to AOL post 2000 for hints. Ad revenue went from robust to abysmal in the blink of an eye.

In 2001 AOL was still considered “the hottest, biggest, bad ass of everything ad/internet generating revenue.” By 2002 it’s $2.3 BILLION in ad revenue would be cut in half. Then just a year later it would fall even further to nearly cutting itself by another third if not half once again. Till finally AOL became “Who?”

For comparison: Facebook is now just about the same size in market cap as AOL was in 2000. The parallels are striking if one dares to look back with any quantitative as well as qualitative analysis eschewing any “it’s different this time” reasoning.

For further clues I’ll only point just a few more…

First: Isn’t it just a little odd or, at the least something that makes you go Hmmmmm when none other than one of the most prominent cheerleaders of everything VC and/or social Marc Andreessen sells 73% of his Facebook stock in the last two weeks?

If that doesn’t inspire a change in thinking maybe the following will. For if there’s anything to be gained for insight such as the much touted “front page article” to mark a bubble. How about the very week Facebook hit its peak share price the following was reported with great fanfare. To wit: President Obama announces launch of his very own Facebook page.

Remember, government has been shown to be with near Swiss watch precision – the last to arrive to the party.

Oh, and one last point just for a little more context. Remember I said at the beginning of this article to put aside anything IPO for the moment? I was scorned and ridiculed by many (especially those within The Valley itself) when I penned an article titled, “Crying Towels: Silicon Valley’s Next Big Investment Op” Yet, a funny thing has shown itself on its way to “Unicorn paradise.”

The much-anticipated IPO of Square™ was announced. The issue? The price is some $2 BILLION less (i.e., at a 30% discount) to its latest private funding round for valuation. That while simultaneously the other company Mr. Dorsey is heading up as CEO (Twitter) once again falls below its IPO price. So now, with all that said, the only question one needs to ask and answer is this:

It’s different this time? Or: same as it ever was?

We’re going to find out much sooner than later. That I’m sure of.

© 2015 Mark St.Cyr

Profiting At The Bottom Line™

This month’s focus: “That’s Just The Way It Is”

Every business has an “Achilles’s Heel” to customer satisfaction within a segment of your service structure that for all intents and purposes falls into a category of “That’s just the way it is.” An example would be: Customers hate to be put on-hold no matter the time length. There’s really not that much you can do to lessen it other than reducing the time. Besides – it’s the same everywhere. That’s just the way it is.

So a reduction from 20 minutes on-hold to 15 is seen as some vast improvement of 25%. A reduction to 9 is championed as “Less than half the wait of the competition!” All the while, for the customer – it’s still 9 minutes too long. However, what if you could turn the longer wait time into a benefit rather than a detraction? Inside, or outside the box thinking is a hindering process for this matter. Here is where “There is no box” thinking comes into play.

Case Study: Recently I had the joy of receiving my first Jury Duty summons. Like the vast preponderates of you, I too looked at the envelope and thought. “Oh dang!”  For there within its tri-folded envelope contained the two lines everyone dreads. First: How long you’ll need to serve or, be available. Second: Under threat of arrest, prosecution, and/or jail if you fail to show. There’s no way of getting around it, this letter falls into that special category of the select few most pray they’ll never receive. Then – you do. So how can something that’s viewed with such disdain ever be overcome? After all, the “customer experience” horror stories are legend. One would think if there was a better way it would have already been done. So the “inside/outside” the box thinking tries to make changes around the edges such as lessen the time needed or, make the request appear more friendly etc., etc. And when “customers” are still of the same mindset? The reaction to it is the old standby “That’s just the way it is.”

However, when you decide “there is no box.” Significant changes that improve the experience can be had. Even within something as mundane or depressing as jury duty.

During my tenure (which was two weeks) I can clearly state unequivocally all my assumptions, as well as presumptions were laid to waste after my first day. The Jury Commissioner along with help from others (i.e., Judges, and other department officials) made it clear they took our time serious. And there was only one way to prove it: They had to deliver. Either that or; there would be more than 60 people who were not afraid to remind them of their failure – daily. And to both my, as well as every other person I spoke with over those two weeks, the feeling was unanimous. The experience went from a dreaded civic duty – to a positive experience in fulfilling that duty. In can not be overemphasize how monumental of a shift this is. The only comparison would be if one were to now look forward to receiving a letter from a revenue agency.

This was done by an assortment of innovative ideas such as varying check in times. Early releases when circumstances afforded. An an assortment of impromptu speeches or, learning talks by various judges, as well as other public officials and more explaining different aspects of the “system.” Tours were given of the underbelly of the court system. Discussions were held to expand understandings or, point out and answer misconceptions. And yet, a whole lot more.

Down time (or waiting periods) were supplied with a high-speed wi-fi set up so one could do tasks, work, or check email securely. Movies were shown on a big screen. One was allowed to visit other in-session courtrooms as to see how differing courts operated. It was a civic lesson worthy of college credits. And what it did was one thing that almost every other jurisdiction in the country has not been able to match – this county’s jury pool system has the lowest number of failure to respond rates in the nation with a rate somewhere under 2% where most others are not only double digits; some are well over 50%.

Remember, this is an experience that is seen by many as one of “the worst” of possible outcomes that was transformed into a venerable two-week civic sabbatical which was seen in the end by those attending as both “eye opening” as well as “actually enjoyable.” Again, this isn’t inside/outside the box thinking that produces such transformations as this. This comes from people willing to improve things with an eye towards – there is no box.

If this can be done to the “jury box.” What excuse does it leave for other venues such as “We appreciate your time. The next representative will be with you in 2,145 minutes. Thanks for calling!” After all, if that’s less than half of your nearest competitor. Is your thinking still of the mindset: “That’s just the way it is?”

Imagine if you were the one who thought: “But it doesn’t have to be!” And actually made it so.

Do you think you or your customers could profit from that? I bet you both would. Or, Is that just the way it is?

© 2015 Mark St.Cyr

Profiting At The Bottom Line™ is a monthly memo, which is pithy, powerful, and to the point. It focuses on innovative techniques and or ideas that you can put to work immediately in your daily or business life.

Why Tony Robbins Is Still Asking The Wrong Questions

One year ago this month I wrote an article bearing the same title less the “still.” I’ll premise this one as I did then with the following: This is not a hit piece, nor an effort to arbitrarily take swipes. Or worse; some feeble attempt at click-bating. I’ve been a true fan since he first hit the motivational stage decades ago. However, that doesn’t stop me from pointing out issues where I see a compelling reason to do so. So with that said I’ll get on with it…

Over the last few weeks the financial markets have been on a tear. And not just any tear. The month of October saw gains that were not just spectacular: It now sports the position as the 4th grandest Oct. rally in the history of the markets.

It sure does sound “grand” if you don’t look at what it took to make it so. i.e., A collapse of an also historic nature that preceded it by mere weeks. Suddenly the praise of “grand” looses its largesse when reminded of why it took place to begin with. Yet, not to worry. The financial media will never remind or, alert you to such facts because – “everything is awesome!” once again.

Then on Thursday I was alerted that Tony (I’m using the personal only for ease) was out making the rounds on the financial/business shows. So, I tuned in to see. And what was the bulk of the conversation or questioning about? Fees. In other words, by using different instruments, brokers, et al, you could significantly reduce your brokerage fees by doing many things yourself in different ways such as investing in ETFs and other instruments. One example he used was from his own company’s experience where he reduced his outlays by some $5 million dollars. Sounds great at first blush. However, there’s two things overshadowing this enlightenment in my opinion.

First: The answers to the questions Tony realized are far from groundbreaking. They’ve been around for some time. Yet, it’s the second part that has the most troubling aspect in my view, and that problem is this: Although fees are a very important aspect of financial planning at any level. Where prudence in reducing them should always be sought with vigor. In markets such as these, just one year since Tony’s book “Money Master The Game: 7 Simple Steps to Financial Freedom,” (2014 Simon & Schuster) The most probing questions that should remain front-of-mind, everyday, with no respite should be focused squarely to: The surety for the return of one’s money. Then the proverbial “on.” Period. Confusing that sequence today is a recipe for financial disaster waiting to happen in my view.

Safety today is paramount. I am ever-the-more resolute of the opinion: Everything else is playing around the edges. And as I watched or listened – I heard nothing addressing the preponderance of possible systemic failures or upheavals. Let alone how one might safeguard themselves from one.

Oh wait, yes there was one: “diversification.” All I’ll point to on that note, is what I pointed to last time – 2008. For diversification in the markets was, for all intents and purposes; a meaningless exercise during the panic. Why? Lest I remind you during the panic how everything was going down the drain simultaneously?

If you listen to many a next in rotation fund manager or, economist 2008 is now considered ancient history. Even if it was only 7 years ago, took a government sponsored bailout, three quantitative easing interventions, along with other programs such as “Operation Twist” and more costing TRILLIONS of dollars to circumvent and still remains the benefactor of extreme monetary policy actions via the Federal Reserve and other central banks. That part of history they would like you to both forget as well as never be reminded of. (It’s bad for business.) However, let’s take a trip down “memory lane” with some pictures aka charts shall we?

In June of this year I wrote another article titled “F.T.W.S.I.J.D.G.I.G.T.” This title is a catch-all category for articles I’ve written where I was originally bashed for arguing such thoughts only to be proven out either correct or, far more on point than those of my detractors. In this article I argued many of the same points I’m arguing currently, and to help bolster my argument I posted this chart:

The S&P from Nov.'14 - thru to today.

November 2014 thru June of 2015

In that article I argued since the ending of QE, along with the release of Tony’s book, the markets had done something they hadn’t done since QE originally began. i.e., Gone nowhere.

Not only that; the markets had also experienced out-of-the-blue shocks consisting of selloffs answered with just as breathtaking rallies perpetuated only by central bank jawboning stick saves. “#3” on that chart represented the first of rollovers that took place causing ever more Fed officials to publicly mouth soothing tones following the initial, much larger, and more pronounced “looking into the abyss” moment that was only saved by St. Louis Fed. President James Bullard when he expressed maybe “more QE” was possible. This is now collectively referred to as “The Bullard Bottom.”

In the near 7 months represented on that chart the index stood only a mere 40 points higher. Not withstanding, something else was also “out of character” for a market which had been on fire for years prior: It was gyrating wildly.

The old “put a ruler down and draw a line upwards” was now absent. Again, something I stated would be the result (and worse) once QE’s lingering effects finally wore off. For as I’ve stated all these years “Without the Fed. – there is no market.”

That was then, so what about now? To wit:


The S&P as of today

This is the same chart as the previous. Only I added a little more time (Sept-Oct of ’14) for context, as well as a few more notations.

First, as you can clearly see, is the initial market selloff that transpired when the markets began adjusting to the fact that QE was indeed ending. (i.e, Oct/Nov) The reaction was both ugly as well as rapid to which it only reversed once a senior Fed. official publicly stated maybe “more QE” was possible. e.g. “The Bullard Bottom.”

The initial reaction takes you right to the point (#1) where Tony’s book came out a few weeks later. However, as I noted on that chart using “#3,” there, and nearly every other subsequent selloff was met by one Fed. official after another in concert with other central bankers jawboning the possibility of “more intervention” in one form or another till finally; the market just acted in faith that “The Fed. had its back” and the gyrations were less and less pronounced. Until…

In August China’s stock market along with its currency market began fluctuating wildly. So wildly it caused out right panic within their own markets that spurred a contagion effect into the markets as a whole.

Some will point (which I am of this thought) this was primarily a result of not only issues distinct to China, but rather, issues that were being exacerbated by the realization that the Fed. was indeed going to raise interest rates in September. The resulting chaos of such a hike to the emerging market currencies during a margin fueled bubble popping of the Chinese/Asian stock markets had the look and feel of taking down or, at the least, causing a global rout in the financial markets.

On August 24th the U.S. experienced a 1000 point plunge in the overnight markets. This plunge caused a never before seen in history halting of all three major future’s indexes before the opening bell. By the closing bell the markets would recover some, yet, still less than half closing down a whopping 588 points at the final bell. Although the damage was severe, what was the catalyst for it not being the full 1000? Or worse?

Many point to the now infamous “Note from Tim Cook” CNBC™ host Jim Cramer produced and read on air stating: China was better than anyone thinks based on iPhone® figures. This followed with more Fed. speakers hitting the airwaves and print with soothing tones of “We’re here at the ready” seemed to quell the ever-growing onslaught of panic. But it was not to last very long.

Again, as one can see on that chart the markets once again began to roll over. This is where the “panic” once again became palpable. Then, to the astonishment of many – the Fed. blinked and did not raise interest rates at their September meeting. Even though it was the most telegraphed, as well as anticipated in recent memory.

And with that it signaled to the markets that the Fed. was indeed painted into a corner and BTFD (bought the dip) with both hands, feet, and truck that could carry a stock ticker. The result? Another short covering fueled rally worthy of the record books. However, once again – there’s a problem. Or, should I say “question” that needs to be addressed. And this question has far greater implications than anything resembling a “fee.”

Now, one year later (almost to the day) the markets are right where they were previously – with one exception. All the things such as “wild gyrations, panic selloffs” and more that were supposedly vanquished with the Fed’s intervention as expressed by the financial media et al. Have not only reappeared: they’ve shown to be far more frequent, as well as volatile, and extreme as those not seen since the original crisis in ’08. Funny how this has only occurred since the ending of QE, no? Coincidence maybe? Hardly. And I personally believe it’s far from over.

As both myself and a few others have reiterated more times than I can remember: “This market is all about Fed. liquidity.” And if you want to see warning signs – just look to markets that are the most liquid in the world. For if they show signs of stress – you know there’s potential for really big trouble to fester.

So just what did a “fantastic jobs report” do to the most liquid capital market in the world known as “Bonds?” It caused a halt. But remember “the Fed’s got your back.” No need to question why here. Best leave those questions for other areas such as “what’s the cheapest ETF I should invest in?”

Or how about a few other questions that really should be front-of-mind knowing now what one didn’t expect to see ever again. i.e., Historic panic out-of-the-blue selloffs.

How does one go about contemplating “fee structures” or “diversification” in an environment that is far more precarious, and far more onerous than the market of just months ago let alone a year? Are these the correct “questions” for times such as this? After all…

The conditions that were stated to be the catalyst for China’s original markets issue was “margin debt leveraging.” This issue was supposedly being wound down, and ring-fenced as to not interject itself again causing a remake of such events. But a funny thing happened over all these few weeks since that late August rout. Margin debt has been reported to be back on the rise – and with a vengeance, with Asian markets vaulting once again to ever higher levels. Yet, this is only one of the factors that is once again back on the table for questioning.

Back in Aug. another of the very prominent reasons for market turmoil in China was the impending “Fed. rate hike.” Even the Economist™ pointed out this issue in their article, “The causes and consequences of China’s market crash.”

“…Emerging markets have also been squeezed by the Fed, which has been preparing the world economy to expect the first interest rate rise in nearly a decade in September. Tighter monetary conditions in America have led to reduced capital flows to big emerging economies, to a rising dollar, and to more difficult conditions for firms and governments with dollar-denominated loans to repay.

The global economy is right in the middle of a significant transition, in other words, as rich economies try to normalise policy while China tries to rebalance. That transition is proving a difficult one for policymakers to manage, and markets are wobbling under the strain.”

So another very important question (which no one’s asking) that needs to be asked and addressed today is: With the Fed. all but signalling come heck or high-water – they’re raising in December. Do the global markets once again stand at the same ledge they did in early August?

And if that is indeed so, the question that is self-evident is this: Are you now better equipped both psychologically, as well as strategically and tactically adroit to handle such gyrations? Or, have you focused on “fees” and “diversification” as expounded via today’s financial books with a tendency to just BTFD because it’s worked so well in the past regardless of forethought or angst?

If it’s the latter, the real question becomes more of one resembling Clint Eastwood’s now immortal “Do you feel lucky?” For that’s really all you’ll have if the stuff truly does hit the fan once again. Because this time – The Fed. doesn’t want to get in the way of it either. At least that’s what they’re saying or implying. But right now it’s anyone’s guess. Besides, once again…

“Everything is awesome!” And there’s no need to question that. Right?

© 2015 Mark St.Cyr

A Market Worthy Of The Line : “Do You Feel Lucky?”

The now immortal line spoken by Clint Eastwood as “Dirty Harry” (1971 Warner Bros.) has never fit as a descriptor these financial markets more so than it does today. For if you believe you’re investing as opposed to gambling? These markets are now poised to show everyone the difference.

From an economic standpoint; not only has the current October surge in market prices been an absolute absurdity. Rather, just look to where the market as a whole has propelled itself right back to: within spitting distance of taking out the never before seen in the history of mankind highs. And why shouldn’t it be up here? After all, the economy is absolutely booming right? Right?

So one has to wonder exactly how does an economy in which its latest GDP report prints a blazing 1.5% warrant such a valuation? I know, trick question – it doesn’t. However, if one tuned into many (if not all) of the current financial media outlets this question or, reasoning was never addressed in any shape manner or, form.

As a matter of fact, there was praise by many of the next in rotation economists for how it was derived at in the first place, citing the “inventory” figures as a good news catalyst. Only an economist can find “good news” in a GDP print so pathetic it continues to warrant a continuation of extreme monetary policy by this very group.

Oh, and by the way, it was also this same so-called “smart crowd” who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let’s not forget – 1.5% GDP is now formulated with “double seasonally adjusted accounting.” i.e., If the print isn’t what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter.

What does it say when accounting standards have evolved into a discipline more suited for a massage parlor than anything resembling a house of academic standards – and 1.5% was the best print available? What one should infer from that data point alone is well worth contemplating by anyone truly serious about business or, their wealth. For that little number speaks volumes if one truly cares to dig deeper.

Looking at the markets “its hard to argue with price” is the old saw. And that price is, as iterated earlier, extremely high.

That’s just fantastic if you’re an “investor” with the tendencies of a river boat gambler. However, if you’re someone trying to distinguish the subtleties of when to invest precious resource capital into cap-ex projects for the prospects of future growth, or whether or not to expend that capital in hedging strategies to help smooth out input costs – you’re out-a-luck. You have just as good of a chance in flipping a coin for your macro business decisions. For hedging is now “What Fed. official will say what today?” Heaven help you if it’s the opposite of what they said the previous day. Like the title implied, “Do you feel lucky?” doesn’t seem that out of line.

So now here we are, back to levels that should be accompanied with a booming business cycle, yet, there isn’t one. This while all the rest of the corresponding data that should be giving the markets even more of a sure footing has been anemic at best. Consumer spending, housing, et al. All have shown to be going in the exact wrong direction we were told by the so-called “smart-crowd” would be showing otherwise by this time. Remember when people like myself were called “data-deniers” or, (the one I cherish most) “Idiots” for questioning all that supposed data? I’ll just let “the data” speak for itself.

All this once again brings us right back to today’s market strategy of “Do you feel lucky.” Because, “data” today whether good, bad, or adulterated means only one thing: what it means to a Fed. FOMC voting member. For it’s nothing more complicated than that.

“Piece-of-cake” should be the first thing that comes to mind. After all, with a Fed. such as this one with its expressed mission statements for clarity of forward guidance, coupled with its propensity to hit a microphone, TV camera, op-ed, and more harder, quicker, and with more authority than a reality TV star as to make sure the markets have no question to what might be forth coming. One should have no qualms or concerns. However, that’s simply not the case.

The Federal Reserve has delineated more confusing forward guidance than any in previous memory; coupled with more dueling press appearances of “good cop – bad cop” styled opposing viewpoints, all while simultaneously questioning, changing, and reinterpreting what weight should be given to any previously implied data points. This makes what the definition of “is” is, look as obvious as the nose on Pinocchio’s face. Not withstanding how many times they’ve not only moved the goalposts – but rather, switched both fields and games in mid play. e.g., Remember “international developments” and that other new-found interest (no pun intended) via their Dot Plot negative interest rates?

Just what do you think they’ll do next? All the so-called “smart crowd” is putting their money (well, actually yours) on the premise that they indeed feel lucky with what the Fed. will do next. After all; current CME™ Fed. Fund futures are now predicting a little better than 50/50 for a December hike (actually 53.5 as of this writing.) So, coin-toss odds are indeed the investing strategy of this millennium. Feel lucky? Wall Street does. Yet, why shouldn’t they? It’s only your money on the gaming table.

However, let’s get back to that “coin-toss” analogy. For the implications are far more duplicitous than any next in rotation fund manager or, economist will dare let on. Let alone state publicly.

Back in August the markets were beginning to show signs that it was taking the Fed. at its word (sounds just silly today no?) and began selling off in earnest at precisely these same levels today. Remember, there was no catalyst per sé. Just the impending realization that the “inevitable” hike was in play. Then came the real catalyst: China.

Overnight on Aug. 24th the Chinese markets realizing that they too would be at the mercy of the Fed’s rate hike also began selling off. However that selloff turned into spectacular fashion dragging U.S. markets the following morning into historic market moving precedents. e.g., The major index future markets halting and more. For let’s not forget: Fed. Fund rates today, like it or not, affects the global markets in ways far more consequentially than any time previous. Period.

Only after some immediate jawboning and more by officials did the markets seem to calm. Yet, within a little more than a week, they began to roll over once again. Not until the Fed. decided inaction was the action of the day did the markets not only stabilize. They propelled upwards in a near linear non-stop rocket ride boosted ever higher with every worsening data point released that the Fed. was not only painted into a corner of inaction, but handcuffed, bound, and blindfolded.

This October has resulted in being one of the greatest October’s ever for gains, in the history, of the markets. (#4 actually.) If your coin-flip of the Fed’s Sept. meeting implied there would be no rate hike – that bet just paid out in spades.

Forget investing acumen, it no longer matters (as I’ve reiterated for many years) you had gains for October matched only 3 other times in the history of the markets. So now is the real question for today’s investing maven: Do you still feel it? Lucky that is.

Now you have a Fed. with obvious “egg on its face.” And if there’s one thing an intellectual inclined thinker has a problem with is when they are made to look foolish publicly. Regardless whether by their own hands or not.

And if one is honest, the old saying of “Hell hath no fury like a woman scorned.” is only intensified when put into the context of indeed that someone just might be the very one being ridiculed by the markets themselves. A market by the way in which she has probably more power to inflict pain, turmoil, and wrath that Zeus himself would envy. Remember; It’s not their money – it’s Wall Streets. Or, need I remind you: yours.

Now I’m not saying the Fed. would do something such as intentionally hurtful or, out of spite. However, what I am saying is this: All the reasoning’s for not hiking in September seems to have been shown in ways conducive to the Fed’s own criteria as to have been a mistake. In other words, the China or “international developments” assertion along with the market bouncing back in historic fashion along with hovering within historic highs describes a market (via Fed. interpretations) with enough resilience to withstand a rate hike of such minimal increments.

Again, all this has been framed in a media context that “they should have moved.” And by media, I’m not saying just main-stream, but rather, those that the Fed. itself considers worthy such as the ones populated by their academic brethren.

October was a short squeeze of short squeezes. However, if indeed the Fed. is to actually move in December as many now imply is nothing more than a coin toss – what will the markets do from here? For if the Fed. is serious this time and doesn’t want to be the butt end of even more ridicule, it needs to signal ever more with even far more certitude: it’s going to raise come heck or high-water.

It can’t do both this time (i.e., more of the same mixed messaging) and save any remaining semblance it still believes it has of “credibility” if in fact it doesn’t move off the zero-bound in Dec. That luxury is no-longer applicable. They wasted it via their Sept. decision.

Now that the month end “paint-the-tape” market mayhem has closed the big bet is now: Will the markets take their cash winning off the table and go home? Or, will the “river-boat” style investor stay and let it ride calling the Fed’s bluff into a December showdown?

There’s not that much time to think or position. All cards are right now on the table, the stakes have never been higher, and the odds tell us it’s nothing more than a coin-flip odds based decision. Welcome to your investing casino. Where investing prowess, as well as a nations economic stability is punctuated with one’s ability for calling the right side of the coin.

Who’d a thunk it? Economics that required no math. How far we have come. Now all one needs to know is: Do you feel lucky? For along with no math – luck is now the “investing” acumen of the times. Until it runs out that is.

© 2015 Mark St.Cyr

JBTFD Bravado Hails From A Hill Made Of Bull

Nothing gores a story-line for caution or, warnings with Halloween inspired visions of blood and mutilation quite like those put to the horns of the once again, saved via central bank intervention chatter, of non-other than its triumphantly rewarded JBTFD (just by the dip) Bull crowd.

It’s hard to argue caution or, cite reasons for warnings, when you’re in the midst of face-ripping rallies that once again happen day after day. As I implied, it’s hard to talk over the hoof beats currently dancing on what appears to be solid ground. However, that solid ground is precariously close, as within one misstep, of tripping over one’s hoof – and falling off the financial cliff.

Yes, the markets once again rewarded the JBTFD crowd. But (and it’s a very big but) not because it’s a market. This is what takes place in a casino. Confusing financial market expertise and casino gambling is the mistake today’s “bull” crowd keeps making. And just like most gamblers – the odds turn out of your favor just when you believed you had “the” sure-fire system to beat them.

There is an easy generalization that helps one figure out exactly which side of the coin they’re on (i.e., gambler vs expertise)

Gamblers employ systems which they must live and breathe by in order for them to work at their implied rate of efficiency. i.e., If a system states you must bet (or not) if X happens, then, there is no thinking – you bet. Expertise uses intuitive decision-making skills in real-time. A bet or, no-bet can be made indifferent to, or of, a system. I’m well aware of it being a basic or very general example . Yet, it’s a good rule of thumb and reference point for this discussion.

Over the past few weeks the financial markets have been on an absolute rocket ride once again. Triple digit gains have been the headlines and cheers from the financial media. As one peruses many financial sites, blogs, radio and television shows; the name calling of not only Bears, rather, anyone in total who questions this market is being verbally stampeded over. The sheer beating of hoofs, chests, and snorts has been outright deafening.

We are now back to “The Fed’s got your back – so JBTFD” lunacy. And the “Holy Grail” that’s used as proof positive? “Just look at the rally we’re now experiencing off those lows! This market is on fire, solid, new highs coming, get on board!” And a whole lot more. However, there’s a problem the “bull” crowd keep failing to mention…

We’re going up only because we’re coming off a bottom caused by a panic selling so intense, as well as out-of-the-blue in nature, it caused for the very first time in history a halting of all three of the major indexes. This was on August 24th. A mere few weeks ago.

The markets at this time only held for reasons of more jawboning made by central bankers both in the U.S. as well as others. Then, only a week thereabouts later; the markets once again rolled over and were threatening breaking those lows with the possibility of an outright free-fall to even lower lows.

Were it not for the inaction/action of the Federal Reserve as to not follow through on its most anticipated, telegraphed, and expected rate hike in recent memory. The markets were (once again) on the precipice of; an all out rout. Since then it’s been a star-spangled, rip-roaring, rocket-ship ride. And the JBTFD crowd is once again basking in a pool filled with self-congratulatory “expertise” for buying the dip once again.

The issue here is that sooner, rather than later, (for August showed just how fast, hard, and out-of-the-blue reality can strike) it will be revealed in spades just how much one has relied on gambling systems as opposed to financial expertise. Here’s an example.

If the Fed. didn’t (or doesn’t) step in staying on the sidelines – JBTFD doesn’t work because there is no market – only the Fed. And it’s precisely here that lies the conundrum in the JBTFD system. If the Fed. no longer steps in, or worse – steps aside: which “dip” point or “bottom” can be disregarded (as in not bought) in a system? For if the system is to JBTFD – then buying the dip it must do. Period.

Remember, in a system – if X says to do Y for a payout worth Z – there’s no thinking allowed. You execute. And here is where JBTFD “genius” morphs into JBTFD disasters rapidly. It’s inherent in the system. It’s a part of it. You can’t over-ride it or, it’s not a system – it’s just guessing in an elaborate muse. Nothing more. Anyone playing this game that’s been rewarded time after time should pay real close attention to that last line. For it will show its fundamental flaw sooner or later, usually at the worst of all possible times.

Now to the other side of the argument where the bull crowd heralds, “Oh those poor stupid bears (or shorts etc.) Someday their ‘sky is falling’ cries may come true. Till then I’m just going to keep on buying dips horns over hooves till it stops working.” The sheer gloating and more has been overwhelming to say the least. However, let’s put a few things out on the table as to bring back some perspective to all this bull-moo shall we?

One would think that little incident in August never happened. And exactly how did that happen by the way? Oh that’s right China. Suddenly the economy that was to lead the world out of the doldrums spun violently and looked for a brief period it would take down the entire global markets if someone, somewhere, didn’t intervene. And once again it was the Fed. that was first to the front lines to soothe or stem fears. And it only quelled those fears when it punted its rate hike decision.

Since then the markets have once again “flipped the switch” where bad news is good news, and pathetic is down right stellar! And the data reports of the economy as a whole have not disappointed – they’ve been abysmal. So now every weak-point of the economy is seen as “It’s a great time to back up the truck and buy horns over hooves” JBTFD bull argument. That’s not expertise – that’s downright financial suicide.

Lashing one’s yoke to a bandwagon made possible only via the hints, double-speak, whispers, or implied maybe’s announced by Ivory Tower academics as to how the economy is, or how it will do, will turn that Bull riding JBTFD bandwagon into a self-propelled cart pulled over a cliff by a train of JBTFD bulls turned into beasts of burden as far as the eye can see. All of their own doing.

Let’s not lose sight of the fact the current earnings season has been abysmal. Companies that are the backbone stalwarts to show just how well or not the general economy is performing are reporting atrocious earnings as well as outlooks. Caterpillar™ is just one however there have been others as well as more to come.

Sure we’ve had some big tech surprises such as Google™ and Amazon™ however, when it comes to Amazon – retail, it’s core business is not what propelled its earnings or profits. It was its web service sector. Amazon deserves credit for its newest business line. However, what should not be lost on anyone is when it comes to retail – it’s still a laggard for profitability. And retail is where you can judge more of an economy’s overall health. And so far all I’ll say is it’s a good thing that switch has been flipped because retail sales are falling off a cliff. Just look to Walmart™ for even more evidence of this point.

So let’s get back to the inherent flaw contained within the JBTFD “expertise” trading prowess of today’s bull crowd.

Today I contend (still) there is no market without direct Fed. or other central bankers intervention. Regardless of how mighty others might imply their jawboning or bazookas might be. The Fed. currently wields the big gun. Without the Fed. most monetary interventions would be like using a pee shooter against a battleship. They’re ill-suited and not yet up for such a task.

So with that said: With a Fed. currently standing with “egg on its face” for not raising against a backdrop of a politburo such as China’s now heralding GDP figures near triple that of the U.S., ECB and other European leaders jawboning more, and more about how “they” will do what ever it takes. Along with a stock market once again within spitting distance of never before seen in the history of mankind new highs. Who or what’s to say the next time which for all intents and purposes displays a “no-brainer” intervention step by the Fed. just as Bulls once again load up the truck and JBTFD – the Fed. stands pat. Or, worse – does exactly the opposite of what the market expects and has been rewarded doing these last 5 plus years?

Which dip after the first violation does the “expertise” or system of the JBTFD crowd buy then? And if that one fails – which after that? Remember – if it’s a system: you execute. However, as I’ve alluded to many times, that system knows and has been tested using only one side of an equation: QE intervention. Good luck with that when the other side forces its way back into the math.

For those that may doubt the premise of just how flawed and how quickly a system that appeared so fruitful, so dependable, such a money-making machine, can be laid to waste in minutes rather than days, weeks, or months I’ll leave you with the following date as a reminder of just how quickly things can turn: May 6, 2010 otherwise known as “The Flash Crash.”

I tried finding a link to that audio however it seems most have been taken down. I’m assuming it’s since been copyrighted into exclusivity for its prominence in the movie “Floored.” I personally haven’t watched that movie, I was actually trading and listening in real-time during that crash event. And I will tell you this – it’s worth renting or watching just for those few minutes of breathless commentary by Ben Lichtenstein during that period to remind oneself just how fast systems can go the way of insolvency in the blink of an eye.

If one had been applying a JBTFD strategy anywhere during that trading day prior. By the time it would have worked, most, if not all – would be wiped out. As many were. Which is precisely why there’s only a QE market today.

A fundamental based market, constructed by market expertise, business acumen, and careful analysis has not been present ever since. What we have today is nothing more than a liquidity driven casino for JBTFD gambling systems. Sooner or later luck will run out. It’s inherent in the such a system.

And my expertise will only allow me to say two things: Good luck with that – and – you’re gonna to need it.

© 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: Business Hours


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

Can’t see the audio player? Click here.

A Perilous Possibility: Weaponizing The Fed.

The world sits at a very precarious point once again in time. There is a very real possibility, as well as an ever-increasing chance one wrong unintended or misunderstood event could trigger an all out war of global proportions. Yes, I said it, and I don’t take it lightly. Nor do I say it cavalierly. As a matter of fact my blood ran cold just typing it. For the matter at hand, the players involved, the possibilities of doing just the slightest of wrong moves whether intentional or not. At precisely the wrong time; has the inherent risk of triggering world events in ways and at magnitudes not seen since (dare I say) WW2. And if you think that’s hyperbole – you’ve just not been paying attention.

Currently as we sit events that were expressed by the main stream outlets as having no chance of ever happening (implying they weren’t worth contemplating) are not only happening – they’re turning out to be far more dangerous in both their escalation, as well as speed. The only thing rivaling my level for concern are the reasons being touted via both official, as well as media interpretations on why or, what is to be expected. The current double speak, plausible denials, moving of heavy armaments, ships, troop deployments, kinetic engagement, finger wagging from not one, but more than several world military powers has been breathtaking. All this over the course of just two or three weeks. The risks in my opinion for misstep with global ramifications haven’t been this parlous in decades.

One of the real reasons for my concern stems from the players involved. I’m far more concerned and have a greater sense of foreboding when it appears the “intellectual” set are the one’s playing against adversaries or circumstances they themselves only understand through textbooks or debate. i.e., A relative example could be the proverbial college professor that teaches business theory and application yet, has never been outside the walls of academia.

Back in April of 2014 the situation in Ukraine was all the media channels cared about. They touted how X, Y, and Z would be the obvious resolution. (X,Y, and Z represented everything breaking decisively, as well as matter of factually in the U.S.’s favor)  The problem was, anyone with any understanding of what one “thinks” should take place because they “believe” that it should be so; as opposed to actually looking at the situation, the players, the posture, and verifiable resolve through previous actions; it was clear to see the outcome was going to be far different from what the “intellectual” crowd proposed as well as believed.

During that period I wrote an article titled “Why Intellectual Leadership Can Get You Killed” in that article I made one of the following arguments:

“The intellectual prowess of the so-called “smart crowd” can not only be dwarfed by the truly ruthless leader, but can put both themselves as well as their company or followers in grave peril. For intellectuals think out processes far too much. Then do nothing.

They’ll over think why someone would do X, Y, or Z. They put themselves into shoes that don’t fit, then spend more time contemplating if their opponents should be wearing leather vs rubber soles. All the while their opponent laughs running circles around them barefoot.”

That first line could be used to describe the Fed.’s past inaction on rate hikes. For if you listen to the arguments made by the members themselves – over intellectualized the consequences is exactly what describes their reasoning and resulting decision. And the second? You could say the same for just how Ukraine ended. My premise was utterly mocked during this period – today it fits far closer to the ending results than even I dared think. Which is also the basis for my concern today.

Currently the once advocated U.S. involvement in Syria is not only turning into an all out political humiliation, but what might be worse is it’s not coming at the hands of just a perceived or noted adversary. It’s also coming at the hands of another military power that for all intent and purposes is being held up as “a regime we can work with” as they work in concert against U.S. stated warnings to the contrary. I wish this all we had to worry about, but as usual, it’s not.

Since our involvement in Syria (however it was achieved) one of the stated reasons why was for the goal of extinguishing terrorist threats seated there that could eventually turn up here. So far the progress has been seen, as well as reported, to be less than inspiring. Then suddenly not only is the U.S. brushed aside. It was basically told – move aside; and stay aside – while we show how it’s done. Moves like this, by these powers, on this level of stage and engagement are done precisely to test “intellectual” resolve against forceful resolve. A calculus not played for checkers or chess, but for far more dangerous games with onerous consequences.

Add to this the simultaneous display of “Watch this!” alarm bells as Iran launched its newest long-range missile in an apparent thumbing-its-nose enticed provocation to any one caring to watch. All while the U.S. (and supposedly other U.N. bodies) are negotiating a weapons treaty. Forget about “the ink not even dry.” It’s not even fully signed.

Concurrently as all this is playing out, it’s been announced the U.S. is indeed going to send warships to challenge China in an outright confrontation styled game of “who blinks first” to contest their proclamation that both the territory around and of the Spratly Islands is irrefutably theirs.

Who on this earth believes this is the time to do such a provocation? I’ll tell you who: the intellectual set. That’s who. For the belief of “we can handle this” by debating and game playing override what begs clear, common sense, level-headed, outright caution. And that’s a problem on so many levels from my perspective.

The warning signs of danger are flashing everywhere, but they seem to be falling not only deaf ears, but those that might be blind to the speed one misstep could turn every contingency plan – to absolute useless trash. These are the times I believe Mike Tyson summed up best, “Every one’s got a plan – till they get punched in the face.” I’m of the opinion we’re now walking round chin out, and chip shouldered. The problem is someone just might take the shot. And who, where, or why might not be exactly what the intellectual set ever contemplated. And that’s a very big concern.

Then there’s what I stated in title of this article: The Fed. And here’s where things begin to rattle my cage even more. With the current global marketplace intertwined as tightly and as correlated to what happens with the U.S. Dollar as well as outright policy changes or stances by the Fed. The question begs to be answered or asked: Would or could the powers that be look to the Fed. and state (or demand) “Raise rates, drop rates, ___________ (fill in the blank) now!?”

I think it would be crazy not to contemplate the possibilities of such a move out-of-the-blue, unannounced with what is transpiring currently. That’s why I intentionally used the word “weaponize.” For it’s one thing for the Fed. to try to dance the line of the body politic when decisions are being made. It changes into something far different if, or when – they are instructed to do something. Not asked, or advised.

Currently it is more than fair to say the current language, as well as position of where they (the Fed.) believe policy should be heading is all over the board. Again, that’s to say the least. However, all this has to be wrapped up in the assumption the powers that be at the Fed. are making the choices whether one thinks they’re correct or wrong is a side argument.

Wall Street, as well as the global markets are working from the assumption they need to game play what the Fed. and its players are stating. And I’m not saying that’s incorrect – it’s the possibility of that changing overnight by means of some outside dictate which may be demanded that’s the real reason for concern. For it changes everything where the resulting chaos of the markets could make ’08 look like a “good day” compared to what might transpire following such an intervention.

Some will say or argue, “That wouldn’t happen for it would hurt us probably just as much as anyone else. That’s just crazy talk.” And there is a point to that argument. However, I will pose this rebuttal: If that were true; then why do people die in wars and infrastructure destroyed in epic proportions when both sides know exactly that – and do it anyway? This is precisely the way intellectual arguments are at first proposed, then result in consequences the proposers of that intellectual strategy get blindsided. Many times with appalling repercussions. Hence lies the reasoning for my concerns.

Even if we take out all of the above, another overarching possibility that could throw the markets (whether from a misstep or, by design) into an outright tailspin of epic proportions and consequences overnight, fueled by a sudden carry trade unwind within the forex markets which could (if not would) simultaneously crush global equities. All of which could transpire via a HFT fueled algorithmic ignited frenzy brought on by an intentional media headline like: WAR! Think that’s crazy talk? Just look back to August for clues.

With the way the current global markets are now predisposed to HFT – If one wanted to put a hurt on a presumed or proposed adversaries economy; why wait for sanctions to be reimposed or, tightened or, a number of other financial weapons that need to be brought for a vote or, announced or, whatever: when it could be done today through various other means with only a nod-of-the-head.

This is the place we currently find ourselves. And if you own a business, regardless of size, you need to have contingency plans in at least a cursory overview understanding on actions to implement either for yourself, or with your people; for all hard plans usually go out the window the moment they’re needed. But understanding and contingency discussions ahead of time help quell panic during business disruptions.

Circumstances can change rapidly as to what may or, may not be available in as much as operations funding, supply lines, currency exposure, and more. This holds true not only for the global entity, but also for small businesses. You need to be actively thinking “what if” scenarios if your serious about business during times like these. Others won’t understand and that’s fine – they aren’t in business: you are. It comes with the position.

These are the circumstances of the day, and those circumstances have changed with the very real possibility that what was once taken as “We believe we have an idea of what the Fed. may do for the rest of the year.” Is now only part of the equation. With the current military changes, positioning, as well as rhetoric coming from global leaders around the world; what the Fed. may or, may not do or, signal – might be out of their decision-making process altogether. As implausible as this may sound today: It’s a risk that any prudent business person must now consider. Again, regardless of how far-fetched it might appear at first glance.

I’m completely aware all the above will be argued away by many as “crazy talk” and that’s fine. However, seeing around corners or, trying to anticipate circumstances that have real chances for disruption on one’s business is a crucial requirement of any prudent entrepreneur, CEO, or solo-practitioner. There is no alternative – it falls on you. With that said I’ll ask you to ponder one last point.

Back in May of 2014 I wrote an article titled “Will History Record The Ending Of QE As An Archduke Moment?” In that article I proposed why one needed to take prudent steps as to help prepare one’s business to possible global changing consequences that could come from nowhere with blinding speed. Where the consequences could have both local, as well as, global concerns. Again, like many before this was brushed out-of-hand, mocked, and shouted down as some form of “crazy talk” from some kind of “alarmist” or “Chicken Little.”

Today? Since QE did in fact end, not only have the markets around the world sputtered and set off alarms bells; it’s now being widely reported via main stream media channels Russia and the U.S. are now engaging in a proxy war in Syria. Along with Iran who not only is also engaged in direct opposition to the U.S., but is also launching newly developed missiles in open defiance of U.S. concerns. All this while not only is the U.S. sending warships to challenge China’s claims around the Spratly Islands, it’s also been announced we are reversing policy in Afghanistan and staying with troops for who knows how long. And I didn’t even mention NATO jets or bases in other countries saber-rattling against Russian flyby’s. Or the Saudi’s who are also voicing troubling warnings towards Russia.

This has all taken place in the course of two to three weeks. Not months, not years. And it’s seems to be getting worse – not better.

If you started to at least begin taking precautions when I first warned, you would at the least have some form of contingency plan or idea of what preparations you may take if such events did ever take place. Those events have now moved from “possibly” to a razors edge of “highly plausible” if not outright likely.

Bombs are dropped when no one expects. That’s a fact of war. And to not think that somewhere within the bowels of some “think tank” the “intellectual argument” isn’t being made or, considered which involves using the Fed. or a monetary equivalent to act as a first-strike capability weapon is ludicrous. When it comes to the world stage where global entities are out-rightly challenging one and other for supremacy, hegemony, or even respect – all considerations – and I do mean all will be on the table.

The time for contemplating “what if’s” has passed. The time to prepare for “there’s a greater chance than not” is now the prudent policy. Your business now depends far too greatly like it or not to a Fed. policy move. The problem is – the Fed. could be the contingency that drops the first one. And there will be no announcement, no speech, no meeting, no nothing as to preempt its happening. All one can do is plan for the worst – hope for the best. But to ignore the possibility of either could be business suicide. Plain, and simple.

© 2015 Mark St.Cyr


 Another installment for the (For those who say I just don’t get it…get this) files…

The other day I wrote an article titled, “Crying Towels: Silicon Valley’s Next Big Investment Op”. In that article I made some pretty bold calls and stated my reasons for them both clearly, as well as bluntly. I didn’t pick such a topic because I want to make friends or some pathetic attempt at click-bait. After all, if I wanted to make friends, the last thing one would do in today’s world of “everything social” is make the case against it. And anyone with headline expertise would see at first glance – my headlines are pretty pathetic if click-bait was what I was after.

Then on Thursday afternoon I was sent a note from a reader that stated I was getting the butt-end of sarcasm (as was Zero Hedge™) from a well-known Silicon Valley aficionado Paul Kedrosky via his Twitter™ feed. Some of the comments were “But the author uses bold and bold italics. It must be true.” Along with others such as, “and he has BEEN A CEO.” I guess the caps meant being retired is a bad thing? And in regards to ZH there were shots like “I only read it for the pictures.” and so on. I would imagine the hilarity of this Twit-storm was had by all. And I have no problem with that. If you’re going to play at this level it comes with the territory. However, let’s look at a few facts and “pictures” to see if there’s anything funny contained within shall we?

One of the main points in my article was contained in this sentence:

“The once emblematic IPO cash-out that lured many is beginning to morph into the loss of IPO dreams that resemble wash-out with every passing earnings cycle.”

Well, if a picture says a thousand words – then maybe a chart can show losses of Billions, to wit:


The chart above shows how some of the once “it’s different this time” much-anticipated IPO’s of 2014 have performed as of today. I drew a trend-line in the general area of where the IPO opened and to where it is as of this writing. Not only is the trajectory of that line going in the wrong direction. What’s far worse is everything above it represents loss, as in – “Hey I’m rich let’s buy a ___________!” To: “Oh crap how quick can I list this __________ on Craig’s List™ or Ebay™?”

How about a few more…

2015-10-16-TOS_CHARTS 2

Although Yahoo™ isn’t a recent IPO I thought it was fitting for it went hand in hand (as I’ve stated many times) on the success of its stake and sale of Alibaba™. I don’t know the other companies, I just included them for they are recently IPO, tech based, disrupt-er style in appearance and emblematic of the genre in total that is “The Valley” from my perspective. Maybe the day of launch brought out the champagne bottles, but as you look closely, once again, not only is that trend-line going in the worst of directions – everything above it are what’s known in Wall Street parlance as “Bag holders.” Plain, and simple.

And last but not least, this “photo album” couldn’t be complete without what I stated in that article as “the canary in the coal mine” for Silicon Valley as a whole: Twitter itself. Along with another IPO favorite that came out in the same time frame Pandora™. Again, all heralded as proof positive at the time, “This time it’s different!” To wit:

2015-10-16-TOS_CHARTS 3

I threw in two bonus charts. The lower left is itself the ETF for social media as a whole. I adjusted the chart to fit the same time-frames as the others for a more proper context. And what does the market think of “everything social?” Once again, that trend-line is not going in the right direction for anything that warrants “the hottest sector in all of Silicon Valley.” But wait…there’s more! As in one last chart that sums up pretty much what I’ve been trying to point out these last few years.

The chart in the lower right above is the ETF that represents the Biotech sector. I again fitted the time frame for context. As you can clearly see this sector was like the entire market itself on a rocket-ship ride to Alpha Centauri – until the propulsion system began misfiring. The reason? Fuel shortage as in QE not only being shut off, but none other than Fed. Chair Janet Yellen openly remarked she felt this sector was more or less overheated. The resulting market based “fundamental pricing” ensued with near immediacy. Fundamental as in “The jig is up!”

As eye-opening as the above charts may appear at first glance, they don’t tell the full story; for there’s more to it which also helps give even more context.

I derived the above names not because I knew all these companies. I did like any of you would do and did a quick Google™ query of IPO’s for 2014. And one of the results topping the list was none other than Jim Cramer’s The Street™. A favorite of many budding IPO dreamers.

The title of the article was: “14 IPO’s You Wish You Bought in 2014 And Made A Killing On.” I said to myself, fair enough, let’s take a look for it’s better to know I’m off the mark or, clearly have no idea of what I’m taking about if this article shows me otherwise. It would save me a lot of embarrassment as well as give more credence to the so-called “smart-crowd” in their reasoning of “It’s different this time.” Guess what I found by looking and reading that article? In February (when the article was written) you were looking like an investing genius. e.g., “Hey where’s the champagne to fill this pool because I’m swimming in it?!”

The problem? The sampling of names and charts above are from that article. And all I can say is by looking at the remaining contained within that 14 (which happened to be heavily weighted in Biotech – need I say more?) you aren’t exactly looking for champagne. So the question begs for you to be the judge: Break out more champagne? Or break out “crying towels?”

I’ll only add; it’s far from over in my opinion. As a matter of fact, I’ll contend as I implied in my article – it’s just getting started.

To get a little more insight as to extrapolate what may be coming on the horizon let’s use the “picture” below which is of the ETF: SPY aka known as the most liquid proxy ETF for the S&P 500™. I’m using this as opposed to the traditional index because in today’s market it’s all about how liquid products are behaving as opposed to what can transpire in others.

Screen Shot 2015-10-15 at 3.08.52 PM

As you can see there are two very important features in this chart I’ve highlighted. First: It begins in the left hand corner precisely when the then Fed. Chair Ben Bernanke announced there was no reason to fear (because we were once again rolling over after the previous QE ran out) that QE was now going to be around for a long, long time. And as you can see, the markets never looked back. JBTFD (just buy the dip) became Wall Street parlance ever since and is still wildly accepted as faith.

But then a funny thing happened. To the dismay of Wall Street The Fed. actually had the audacity to follow through on their commitment to end outright QE in Oct/Nov. and guess what happened? That’s right, markets began rolling over into a near free-fall causing alarm-bells to be answered across the Federal Reserve. As a matter of fact the selling did not cease till one Fed. official publicly stated (I’m paraphrasing) “Maybe more QE was an option.” And the markets rocketed back to finish the year once again, at all time new highs on the residual float and year-end annual “paint the tape for bonuses” finishing with a bang. This event is now commonly known as “The Bullard Bottom.”

But once again here lies “that problem” inherent in almost any chart you look at across nearly any index, as well as any “high flyer” that was the direct beneficiary of QE money policy looking for a home.

For most of 2015 – the markets go basically no where unlike their rocket-propelled trajectory when QE was the fuel that lifted all ships. What’s worse is, not only do they go nowhere, but for the first time in years (precisely when there is no longer any QE to make the push ever higher) out of no where – they free fall into sheer panic mode of historic (yes historic) proportions only to be halted coincidentally at the exact same level as “The Bullard Bottom.”

What ensued after was some faith as to JBTFD in an oversold bounce fashion. Then, once again, a problem ensued unlike any seen when QE (or the Fed. put) was ensconced. The markets (here’s that repeating term) once again rolled over and challenged breaking into out right free-fall. What stopped them from continuing? Great economic news? Unrealized GDP growth? Great data points from surveys and more? Far from it.

The reason for the “stick-save” once again was due only by a Federal Reserve punt on rate hikes. i.e., Free money carry trades can continue in earnest. And with all the hoopla and calls of “New highs here we come again!” being boasted across the financial media how far have we risen?

That arrow on the right marks the spot as of this writing. Funny how this years price action in stocks isn’t the same as all the years prior without that little quantity known as QE. And an even bigger issue is the fact; we may only be here because of the knock-on effects during an OPEX closing. For the fuel to rally has been provided only by a massive short squeeze, not based or caused by fundamentals (for every single new data point has been outright pathetic, and disheartening) rather something more akin to panic buying for earnings positioning during an oversold bounce period coinciding during an expiry period. This usually causes major panic buying or selling when they line up accordingly. And I’m of the opinion – this is all this latest “Happy days are here again” rally represents.

So the problem facing the markets from my perspective currently are two-fold. First: If the recent surge in stocks is only a short squeeze of mega proportions (which I’m of the belief that it is) because of an OPEX event. Then the subsequent weeks are quite possibly going to get very, very volatile indeed. Combine this with the never-ceasing uncertainty on just who says what, and when, or why by a Fed. official. All this in concert with an absolute pathetic start to this current earnings reporting period.

As many do, I could have waited till (or if) the markets began free-falling to then write an article like this. This way I would be able to parse my words and implications after the facts with much more brevity. However, that’s not the way to do things in my opinion nor, is it the way one should conduct themselves at this level. I would rather state why I’m saying what I’m saying, and either defend or, bolster the reasons for them as the market is rocketing back up into the “Never been higher in the history of mankind” zone once again. This way I can’t be accused of “cherry-picking” or blatantly trying to cover a flip-flop like some because the winds now appear to be going against their steadfast “informed” argument.

I’ll leave that to you dear reader while posing the following question: Looking at what I argued and presented above which do you think may be the better investment in the not to distant future? Cases of champagne for the steadfast JBTFD crowd that’s currently taking place as of this writing? Or “crying towels” for the same group? And remember…

I didn’t even mention the most overarching disrupt-er of all: China. Or should I say “International developments?”

© 2015 Mark St.Cyr

Crying Towels: Silicon Valley’s Next Big Investment Op.

Nothing focuses the mind more than either the lure of riches or, the loss of them. And there has been no other group caught up more in the lure for riches than: the disruption class.

Disrupting is what it’s been all about over these last few years. However, there’s another disruption on the technological horizon heading right towards Silicon Valley itself, and that brewing storm is – disruption of the disrupt-ers.

The once emblematic IPO cash-out that lured many is beginning to morph into the loss of IPO dreams that resemble wash-out with every passing earnings cycle. For a glimpse into the event horizon that is the future. All one needs to do is look no further than what myself and a few others have dubbed the “canary in a coal mine” of all that’s Silicon Valley: Twitter™.

Nothing against Twitter per sé. What I take issue with is its valuation vs its ability to produce net profits. And that goes not just for Twitter, but everything “social” in general.

I’ve stated from the get-go Twitter is a great, innovative platform. But worth Billions, upon Billions of dollars? Sorry, far from it. One of my assertions has always been; would you pay for it if they charged you? What if charging you meant you could type more than 140 characters? Would that be enough to entice? Usually the answer from my own unscientific (as well as gut) research came back with a resounding no. And here lies the problem that’s symptomatic of many others that will once again come to light and be amplified this earnings cycle. More so than the last in my opinion.

Twitter is (again, in my opinion) a real-time microcosm of what’s about to hit the whole Valley. i.e., A real shite storm, and here’s my reasoning…

There are two issues that are very different for both a company as well as the narrative of a whole industry supported by the wings of such a “canary.” And both of these go a little more than unrealized by those not familiar with them. For it hits right at the heart of how a meme or, a presumptive “It’s different here” attitude takes hold when true business principles, disciplines and more get lost on those desperate to not see their world view crushed. But business in its purest form has a way of doing just that – crushing naive or wishful assumptions.

First I must draw attention to the fact Twitter as well as many around Silicon Valley celebrated the news that Jack Dorsey was to be named as the new CEO. Personally I have no axe to grind with Mr. Dorsey. He seems like a brilliant innovator with great vision. What I do take issue here is; not only is he now CEO at Twitter, but also, at Square™. Another, at face value, brilliant start-up with great further potential. Which is also where lies the problem. Mr. Dorsey is now slave to two masters – and when it comes to business, especially at the levels and headwinds facing the whole disrupting based technology driven platforms – it’s credulous to think one can do both.

I say this because I know first hand just what it takes to be a CEO, for I’ve been one. The other is, I earned my reputation as a turnaround executive because I’ve personally done it more than once, at differing companies, and at sizable valuation levels so it’s not as if I don’t know what I’m talking about.

The only reason any company with potential for either real growth, let alone possible explosive styled growth (which in the Valley is the only metric that still matters) would pick (if not outright beg) an executive that can only devote 50% of their resources to run a once high-flying song bird which desperately needs direction – reeks desperation.

No one else in all the world let alone Silicon Valley was up to the task? A multi-BILLION dollar publicly traded enterprise on the forefront of all that Silicon Valley represents can’t attract any other CEO talent who could devote 100% of their abilities? This makes absolutely no sense what so ever unless: the board, as well as many investors are panic-stricken on just how bad things are behind the scenes and figured; the best they could do was to bring (or convince) a person such as Mr. Dorsey back on as CEO, spin the narrative as much as humanly possible, and pray Wall Street buys it. Literally.

Second: How does Square do the same to that circle where it itself is getting ready to IPO? I can not imagine for the life of me any serious business person, of any stature, that would postulate it would be a good idea to let its CEO devote 50% of their resources away from their now chosen organization at such a critical juncture. Not only that – to then reach back and devote the remaining 50% and try to mend the broken wings on a clearly fumbling entity. Unless – the decisions were all driven by intermingled investors between the two. In other words: This is all about saving stock (or IPO) values or, cashing out valuations. Not about saving or revitalizing a company. Or, for that matter – what Square will or might be after its IPO debut. Something here just isn’t right.

Mr. Dorsey might be a genius and some have used the “Jobs” reference. However, I will stress from a business standpoint – no board worth its weight garnered by true business acumen would even allow Jobs himself to run as CEO two companies at the same time. Period.

The only one’s that would suggest such a plausibility would be on the “investor” side. Again, it’s all opinion and conjecture on my part, but it comes from business experience – not some theoretical book or exercise. I believe it’s the investor class in Silicon Valley that’s showing signs of being completely paranoid and about to go spastic with the possibilities portending them losing their enormous paper wealth created only via “free money” pushed via QE.

Once QE ended, everything changed for Silicon Valley yet, they refused to see it being blinded by “it’s different this time” thinking and belief. Again, I believe Twitter is that microcosm that needs to be watched far more closely for insights into all that’s Silicon Valley than many now are contemplating.

So far Twitter’s share price can’t seem to get back off the ground unless there’s some rumor about either it being a take-over target or, something else. And with that comes something else that shows just how much things are no longer “different this time.” i.e., Lower valuations for longer in public companies mean only one thing: who’s getting fired or laid off first? And that’s what seems to have happened to social media’s best representation of a “canary.”

This is the type of stuff only heard in tales of yesteryear. (I.e., the last dot-com crash) I mean, technological (i.e., coders) staff being let go? The very people responsible for the product and all its innovation, not to say; for the innovation that will be needed to turn around such an entity? Those are the people to go first? 8% of its workforce? You hear announcements like this from legacy companies not – “the hottest space in all of Silicon Valley.”

And this brings on a whole host of other meme shattering, break out the “crying towels” type arguments. For if it can happen there – guess where else it’s going to begin happening? Is ________________ next? Just fill in your current favorite high-flying Non-GAAP social darling on that line – for it’s going to happen at all of them very soon in my opinion. Much sooner than many now even think or ever thought possible.

“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.

There’s nothing wrong with lumping it out with the hope of future pay offs. I did similar things when I was young. It’s a risk reward thing and I champion those willing to take the chance.

However, you know what changes everything? When the meme of “Gonna stay here till I cash-in and then I’ll buy me a McMansion!” turns into the underlying realization that quite possibly – you’re going to end up living in a shipping container! Possibly forever if things don’t change.

Suddenly Mom and Dad’s basement looks like paradise, and the thought of leaving “The Valley” becomes more, and more front of mind with every passing IPO failure or failure to launch. Don’t let this point be lost on you. For it’s a tell-tale sign things are changing deep within when it can be noticed shipping container apartments or, communal type living begins to lose its appeal among this set. For when reality bites – it bites hard.

Now might be the perfect time to take a position in any solid company with the ability to manufacture quality “crying towels” and get them quickly to market. After all: Unicorn tears we’ve all been told are far different from most others. And sales of a good quality product might be more in demand than anyone ever though possible very soon.

© 2015 Mark St.Cyr