Stock Markets At Record Highs And Everybody’s Miserable. So, It’s Different This Time?

Want a few “It’s different this time” reflections? Consider these…

Remember when an IPO in Silicon Valley was seen as a birth right?

Remember when a “beat” in earnings meant something?

Remember when “user growth” trumped an earnings beat?

Remember when “a rising tide lifted all boats” actually did?

Remember when “it’s different this time” was used to explain why profits didn’t matter?

Remember when being on an “A list” meant more to a CEO’s reputation in Silicon Valley than making a profit?

Remember when Hedge Funds made money?

Remember the term “gated” was only heard during extreme panic?

Remember when an M&A announcement meant growth or opportunity?

Remember when the term “a captured market” didn’t insinuate central bank interventionism?

Remember when tuning into a financial program during a market rise was informative?

Remember when even insinuating the idea of a central bank purchasing stocks was laughable?

Remember when a jobs number under 5% meant there were actually jobs?

Remember when “investors” would openly defend a CEO running two companies simultaneously as a “brilliant” idea?

Remember when “cash on the sidelines” was an idiotic premise if markets were at record heights?

Remember when people holding Ph.Ds in economics sounded as if they actually knew what they were talking about?

Remember when Negative Interest Rate Policies were regarded as economic insanity?

Remember when $25 BILLION in net profits and no user growth trumped 250 million users and a $1BILLION cash burn?

Remember when central banks weren’t buying the debt of your competition allowing them to endlessly compete with you?

Remember when you had to keep an up to date calendar to track all the new tech IPOs?

Remember when just saying the term “IPO” signaled you were on the “in” crowd at all the Silicon Valley hangouts?

Remember when VC’s didn’t care about profits?

Remember when VC’s had the say when an IPO should take place?

Remember when “cash burn” wasn’t regarded as an extinction event?

Remember when raising VC money was easy?

Remember when not caring what the original terms or “the fine print” was when raising cash?

Remember when “eye balls for ads” was the only business plan needed?

Remember when trying to name a central banker was difficult?

Remember when “printing money” was seen as a ludicrous economic policy?

Remember when looking at failed economic experiments like Japan didn’t invoke thoughts of  “What we need here is that – on 11!”

Remember when people talked up the economy and stock market – not made excuses for it being at record heights?

Remember when the global economy didn’t hinge on the dictates of one solitary un-elected official?

Remember when a list such as this would be laughable with a jobs number at statistically full, a record-breaking stock market?

The sad issue this list will get longer, not shorter, because all too many people have forgotten…

That’s how it is in a Keynesian economy.

© 2016 Mark St.Cyr

Mission Accomplished or Houston, We’ve Got A Problem?

Over the past week I had quite a few calls from friends and others asking for my appraisal on the recent market mania. Unlike past episodes where I would only receive this volume during some out-of-the-blue selloff like those which have happened over the last two years. There was a distinctly different tone to these. It seemed there was far more questioning of the underlying, rather than anything resembling the confirmation new lifetime highs should have had with arresting any doubts.

No, I can honestly say – this time was different.

It wasn’t all that long ago (actually Feb. of 2016) where it once again became obvious (once again) “bad news is good news, and terrible news is terrific!” as to hold The Fed. from raising rates, which in-turn allowed the algorithmic HFT bots to feast and gorge on any and all shorted stocks or standing closing positions.

It was here (“here” as in trying to explain) more often than not, these explanations fell on deaf ears. In other words: the more the market recovered, the less inclined they were to remember the reasoning for it.

Don’t let that last line be lost on you. I’m of the opinion it’s far more important today than anytime previous. For it was precisely that perceived difference in tone (“difference” being wanting further details) I inferred which underscored my belief as I iterated earlier, “this time was different.”

Let’s walk down memory-lane as to give all of this a little more context.

After the initial stages of the crushing market fall which took place from late 2007, finally bottoming in early ’09 (aka The Great Financial Crisis) the markets gyrated wildly throughout 2010 after the initial rise from the abyss.

It was right here after the initial bounce (an oversold bounce which everyone both fundamentally understood, as well as welcomed) the markets began to once again show its frailty.

During this period then Fed. chairman Ben Bernanke made his now infamous Jackson Hole speech, where we got our first glimpse as to the resolve that the Fed. would abandon all economic prudence, and embark on a theoretical model of interventionism as to change the financial markets from a place of capital formation, into the greatest Keynesian experiment ever. Here are a few excerpts as reported by Bloomberg™ at the time as to help frame the picture. Remember, this is August of 2010. To wit:

Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery and that more securities purchases may be warranted if growth slows.

The Federal Open Market Committee “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,”

Risks to the approach include a lack of “very precise knowledge” of the effects of the purchases and the chance that expanding the Fed’s balance sheet further “could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time,” Bernanke said.

Again, just for context: At the time of that speech and report, there were another 2 main points which today highlight just how clueless Fed. forecasting truly is. Ready?

The Federal Open Market Committee on Aug. 10 put its exit strategy on hold and decided to purchase Treasury securities to keep the central bank’s portfolio from shrinking as its mortgage bonds mature. The committee set a floor of $2.05 trillion for their holdings of securities.

And here’s the gem…

“Although mortgage prepayment rates are difficult to predict, under the assumption that mortgage rates remain near current levels, we estimated that an additional $400 billion or so of MBS and agency debt currently in the Fed’s portfolio could be repaid by the end of 2011,” the Fed chairman said.

Square any of that with what you now know, and rationalize why not only did none of it happen, but the $2.05 trillion reference has now well more than doubled. e.g., $4+ trillion. And as for that “repayment” you know “just for context” as it pertains to the MBS  portion. it currently sits (per the referenced report) at $1.74+ trillion. Or $1,743,541,000,000.00 to be precise. You know “just for context.”

Here was where, and when, the world got its first real glimpse of “The Courage To Print.” And print he did, over, and over, and over again. e.g., As seen by the chart below when the initial crisis was unfolding to where it stood in August of 2010 when he was making the above remarks. Then all the new and evolving iterations of QE, Twist, etc., etc. To where it now stands today. And the “markets” in sympathy (as in fueled) never looked back. Ever!

It was also where that term “bad is good and terrible is terrific” made its way into the lexicon. For every time there was anything that could affect the markets negatively, the Fed. either insured implicitly or covertly that it was at the ready to combat whatever ill there was. Which also gave rise to another moniker known as “The Fed. Put.” Want the above in picture form, you know, “for context?” To wit:

Federal Reserve Balance Sheet from 2007 to today.

Federal Reserve Balance Sheet from 2007 to today. Chart Source: Federal Reserve

This went on nearly unquestioned (and those of us that did question were quickly labeled or denounced as “tin hatted” and other such styled pejoratives) till mid 2013 when the markets not only regained their once lifetime highs, but smashed through them on convoluted reasoning and what can only be called adulterated data. i.e., reports with spin cycles that would make a washing machine envious, and earnings reports so brazenly massaged they make Bernie Madoff appear amateurish.

It was here (i.e., mid 2013) when people (and few at that) began to openly question the narrative of exactly how can the markets rise higher than previous when the metrics fueling that rise (e.g., real estate, GDP, etc., etc.) had never returned to the previous levels, let alone, provided the other metrics to push higher into “never, ever” heights.

And if you dared argued the correlation in the rise of the “markets” and the Fed’s ever-expanding balance sheet? Pejoratives were nice in contrast to what they now called one. For the sake of civility and class – I won’t type any of them here. Even if they would be perfect, you know “for context.” On a side note, I was more amused that Ph.D holders even knew such words or low-brow phrases. But I digress.

Here is where the term “”market”” was now needed to express the dynamics. For it was now apparent (apparent to those who wanted a real explanation) as to prove the markets were anything other than a goal-seeked representation of Fed. Interventionism. For how could we surpass the previous highs when (for good or ill) the metrics as they were once understood to achieved those highs were now non present? And worse: were in actuality regressing at a frightening rate.

GDP has now been so weak; for so long; and expectations revised lower, so many times; it’s possible past positive prints will be revised to negative in upcoming reviews. That is, if they ever do “review.” And that is a big “if” today as opposed to past look backs.

Once we broke the prior heights (circa 2013) there was still no underlying fundamental reason to even remain there, let alone go ever the higher. Except: QE was still in full force. QE wouldn’t end for nearly another 18 months till Oct/Nov 2014. And with that ending – so too did the rise in the “markets.” Coincidence? Hint: hardly.

So now here we are. And precisely where is “here” this time? Once again – at never before seen in human history highs, with cattle-calls to go even higher, making the rationality many once took as a-given (i.e., things must be getting better even though they didn’t feel it themselves) and turning that rationalizing into a “Wait…What?” moment.

In my view what’s driving this now foreboding sense of “maybe it really is all smoke and mirrors” is the once welcomed phenom of the markets vaulting ever higher.

It is precisely this which is now causing reasons to be suspect, not accepting. Especially after two years of going nowhere at best – and with more than a few perilous falls, saved only by ever the more central bank intervention whether it be putting off raising interest rates (again, and again…) or the near immediate erasure of any market shocking events after more coordinated central banker jawboning. This type of action of late reinforces the unsettling question: If everything is so good…why are they still meddling?

All the above has been transpiring long enough (now some two years) where a greater number of observers have had enough time to comprehend for themselves (via their own activities and experience within the economy) that things are far, far, from a situation that would support the idea, let alone the actuality, of the markets once again rising into the stratosphere.

It no longer makes sense even to those who want to believe. And it’s getting harder and harder for them not to question, never-mind, keep-the-faith.

Again, and I can’t stress this point enough, the only thing which is changing in their narrative or viewpoint is that they are now beginning to understand or at-the-least contemplate that the markets have indeed changed into something now deemed “markets.” And even though they once assumed the markets rising as always being a good thing. They can’t help as to shake this eerie feeling that maybe indeed – It no longer represents anything they once understood.

It appears to me that the initial knee-jerk reaction from anything resembling “should I get back in?” seems to be morphing and moving more towards “should I get back out?”

And that is the antithesis of what central bankers want and need. Confidence is not growing – it’s waning. And the rate of that waning is going to do nothing but accelerate, in my opinion.

What was once viewed by central bankers as a necessary function to maintain stability (e.g., their interventions pushing the markets ever upward) will be the exact catalyst for perpetuating a growing sense of disbelief by the very people they believed would pick up the baton as the market once again makes new highs. i.e., the general public via the wealth effect.

If I’m only half right it has perilous implications for the “markets.” Especially at these nose bleed heights.

I’ll paraphrase one call I received from a colleague that sums up all of the above. The conversation went somewhat as follows. I’ll mind you that this person is someone who took great pleasure in trying to get a rise out of me when the caution I called for was erased with a face ripping rally just days later perpetuated by an endless string of short squeezes of historical (yes “historical” is the correct word) proportions erasing, and then some, previous downdrafts. And as always, I leave it up to you as to draw your own conclusions. To wit:

Them: So…what happened in the markets today?

Me: You know precisely what happened. Look, I don’t have time to be poked, I’m not in the mood. I have a few deadlines on some projects that are driving me nuts. So: what’s up?

Them: No, really: WTF is happening? I mean sure I think it’s fun sometimes to poke fun on all that BTFD shenanigans you talk about. You know I get it, but now? Something just doesn’t feel right. I know of too many companies that are cutting back. And I know they’re not alone. The crap that’s going on abroad. The Fed. not raising interest rates again and such. And we’re breaking out to new highs again? On what?

Me: You tell me…

Them: I can’t. And that’s the point. I’m now starting to think this is all beginning to feel a little nuts.

Me: Beginning? OK, forget anything that I’ve told you previous. All I’m going to say is this, Bernanke was in Japan last week and the reports are they are going to unleash never before seen “helicopter” styled intervention on his recommendation in the worlds most used carry trade currency. Remember what followed last time Japan announced they were unleashing never before seen experimental policy in Japan? (e.g., ZIRP) Now – what do think?

Them: (silence)

I’m of the opinion they are far from alone in questioning the markets recently anointed heights. And that’s a very, very, big problem that the central bankers never anticipated. Let alone contemplated. All I can say is – we shall see. And all too soon at that.

© 2016 Mark St.Cyr

Just Keep On Dancing?

If there was ever any doubt that the “markets” are nothing more than a HFT (high frequency trading) cesspool of central bank funded front-running; today is that day when all doubt has been erased.

Whether or not one accepts that fact is a choice they have to make for themselves. Only you can decide how long you want to “dance,” as there seems to still be music playing in the casino ballroom.

Why all the dancing and music references? Well, it’s only because I, unlike most, remember 2007 with a little more clarity. To many ’07 is ancient history. To many others – the scars are still clearly visible.

Those scars which now far too many want to brush off as “temporary discomforts” came just after the so-called smart crowd wanted to profess just how solid everything was. Questioning real estate, CDO’s, CDS’. MBS’ _______(fill in the blank) and such was for the “ill-informed” or, for those who “just don’t get it.”

Tuning into CNBC™ at this time was an abject lesson in “It doesn’t get any better than this!” TV. It was boom-time (again.) And just the mere questioning as to how much longer that “boom” could go on was met with scorn, ridicule, and a whole lot more. For those with short memories (or were still in school circa 2000) the tech boom collapse was still fresh in many a business persons mind, not to mention many a 401K balance report..

As the markets went higher and higher in what seemed out of frustration as to answering all the nay-sayers questioning the run, Chuck Prince, the then CEO of Citigroup™, spoke the now infamous line as reported in the FT™. To Wit:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing”

Yes ladies and gentlemen, that now immortal line was uttered July 9, 2007 And here we are, once again, almost to the day some 9 years later. And we are “dancing” again.

Actually, “dancing” probably no longer fits the description. Maybe calling this a “rave party” is more accurate. For these party goers aren’t dancing ecstatically based on some simple monetary libation. No, these party goers are jacked up on monetary stimulants far more powerful than any bodily ingested chemical reaction could ever deliver. We are now entirely enveloped in the monetary equivalent of central banker “ecstasy.” A monetary stimulant so powerful it would make Timothy Leary envious.

Just to put things into some context, here’s the S&P 500™ as shown via the SPX shortly after today’s open. (click on image to enlarge) To Wit:

Screen Shot 2016-07-12 at 10.58.28 AM

S&P 500™ July 12, 2016 via the SPX shortly after the opening bell

I put a few annotations (just for context.) As you can see the peak on the left is the top of the “Dot-Com bubble” and its resulting aftermath. Then, up we go again into the next bubble phase now known as the “real estate bubble.” And right there at the top is where Chuck Prince made his most notable remarks. What follows is what is now known as “The Great Financial Crisis.” So what happened next? Great job creation? Great GDP prints month after month, year after year? Wage growth? Nope. All of it has been nothing more than the ability to front run central bank money printing of trillions, upon trillions, upon trillions of dollars. That has been the only “fundamental” catalyst. Period.

And today? Right there at the tip-pity top is where we currently are. Again, (just for context) we have never, ever, ever, been so high. We’re so high even “Ravers” are saying “Wow man!”

So why are we here? One word “Ben-zai-nomics” What is that you say? Well (just for context) remember how and why we went up here in the first place? Hint: Then Fed. Chairman Ben Bernanke deployed monetary maneuvers in the war against free markets which were once only a thought experiment to be contained within the hallowed halls of academia. Then, (much like Oppenheimer,) Mr. Bernanke unleashed the theoretical to the real world and QE was both created, unleashed, and deployed creating the equivalent of a monetary nuclear reaction to which the markets (and the world for that matter) had never seen. And much like that monetary dooms day weapon – we thought we seen the last of it. Until last night that is.

We now know none other than Mr. Bernanke has been at it once again. No, not here in the U.S., but in Japan. It would seem to be the case that Mr. Print, then Print some more has convinced the finance powers that be, in Japan, to deploy the equivalent of “helicopter money.” The result? Hint: Top of the chart, right hand corner, “You are here.”

What happens next is anyone’s guess. However, since it’s all guess’ and opinions now seem to be near worthless as compared to central bank largess. I’d like to offer up my own 2-cents.

If I’ve said it once, I’ve said it a thousand times, but for those who may need to hear it again here it is: China.

Does anyone think for a moment that China is going to sit back and say “Oh look, Japan is devaluing and deploying helicopter styled money-making their goods and services cheaper and more affordable. Good for them.”

Want a little more “context?” China was just told “Yeah that whole South Sea thing you say is yours? Sorry… no.” And they are far from saying “Oh well, that’s the way it goes I guess.” In actuality – they are far from happy, rejecting the entire process and outcome stating “China will never accept any claim or action based on those awards,” Chinese President Xi Jinping said.

Think China is going to take into consideration any turmoil a further devaluing of their currency is going to have on the west? You know, as to not want to upset the “apple cart?” Especially after what has transpired Monday and Tuesday? Give that a thought through, and a long one at that.

If China decides tomorrow, or in the very near future to send its own message in just one short blast of Yuan devaluation of any magnitude? The music stops. And you can quote me on that.

Just on a side note – didn’t the band play on during the Titanic disaster? Sorry, just thinking out loud.

© 2016 Mark St.Cyr

Chasing Fools Gold aka Central Banker Alchemy

Remember the story of “The Philosopher’s stone?” In a nut shell it was an alchemical substance capable of turning worthless metals into gold. Today, much like those of yore, central bankers across the globe are engaging in that never-ending quest for the ability to turn the worthless – into the precious.

And to the ill-informed it seems they have indeed achieved it. That is, as long as you wrap it in the same cloth as found in “The Emperor’s New Clothes.” For if not – the naked truth becomes appalling clear. And it ain’t pretty.

Case in point: Brexit? What Brexit? To those not actively involved in European politics, or the needing to understand the fallout – It’s like it never happened.

However, if you want to take absurdity “up to 11” I propose you’ll hear something along these lines in the coming days from some next in rotation fund manager, economist, or Ivory Tower alchemist at large.. Ready?

“Brexit showed the market was just waiting for a market clearing catalyst to vault higher. With earnings season set to begin, the Fed. now on hold indefinitely for 2016, the ECB at the ready with its own “whatever it takes,” employment growth continuing and at near statistical full employment, stocks appear reasonably priced to extend their gains well above current levels.” Rinse, repeat.

That said, here’s what I’m more than sure you won’t hear: Brexit triggers an upheaval to the entire European Union dynamic where its certainty in remaining solvent, let alone standing past 2016 is now an open question. Further details for possible upheavals and contagion effects are currently unknown. Caution and solvency should be of the first order.

No, it’ll be more along the lines of the former with additives such as: “Employment numbers in the U.S. printed 280K plus smashing the expected 175K consensus. This proves we’re on the right track, and see – May was an outlier. Blah, blah, blah…”

Again, just for perspective: June’s 287K print is being touted “as proof” that May’s print of 38K was indeed “the outlier.”

Fair enough, however, with that 38K now being revised down by some 2/3rds to just 11K. Wouldn’t that mean the “outlier” was just proved to be even worse?

Think that last point through: 38K is revised down by so much it is within a statistic rounding error of a negative print. Now, a month later, where one is to believe the BLS (which very few do) has had a better look, as well as received more plausible and calculable statistics, has concluded the “outlier” is not to even remain the same or revised higher. No, it’s lower, and not by just a few thousand. More than two-thirds of the entire figure was jettisoned. Again, 38K (now 11K) is the “outlier?” What type of sorcery is this?

Only in the so-called “smart crowd” of statistical magicians can such a claim be made with a serious face. To anyone else – it’s laughable. However, the fool’s arguments don’t stop there. In fact – they just begin.

I was left both confounded and slack-jawed more often than not over the last week as I listened too, or read one after another financial pundit explain their thesis as to why all this bad is now good. And all of it, and I do mean, all – of – it revolves around one base case: “Gold.”

Oh no, not the gold you’re thinking of. Heaven forbid, that gold is only for “kooks” and others of that mind-set we’re told. No, the “gold” they are touting which needs to accepted and held closest to one’s heart is: equities. i.e., stocks. After all, central bankers have once again proved they have “the stone.” And as proof? Just look at equities as today’s acid test is the clarion call.

Many an index is once again at never before seen in human history highs. The obvious conclusion implied? Central bankers have the alchemy secret. So just buy, buy, buy!

And when a BTFD (buy the f’n dip) moment such as what happened once Brexit was voted on? (i.e., when there’s a legitimate concern uneasiness may morph into a complete upheaval) Buy even more! For it’s just another opportunity of a lifetime laid out on a silver platter.

At least, that’s how it’s all being peddled across the financial media, once again implying: it would be you that’s foolish not to buy their “gold.”

I listened as one “expert” tried laying out the alchemic process now being employed by central banks. He went into great detail as to how using “this test tube” and “this combination” of economic ingredients have been administered by central banks. The real issue I took with this whole chemistry lesson of current monetary policy was how naive the conclusions were. The issue for me was this…

Central bankers are concluding much of the same as this person was as evidenced by their very actions. Or, stated differently: They are convinced with every monetary “test tube” experiment that they have successfully done it – this time. Then, once the smoke clears and the fumes dissipate – so too does the illusion of any economic miracle, and all that remains is a bright shiny looking substance – which is worthless. And after each experiment the pile of worthless economic mirages vanishes much like how they were created: in a puff of smoke.

Again, this scenario being explained as to express current central bank thinking using “test tubes” as the analogy was quite telling. Forgive me for I can’t recall his name although I did conclude by how many times I heard him referred to as “Dr.” that he must be of the “in crowd.”

Here the presenter went into detail about how central banks have used an array of monetary “test tubes” containing certain economic ingredients or components, then, adding specific monetary additives, the results were in line with what the text books concluded should happen. The real issue at hand as expressed was this, “it wasn’t working beyond the walls of the test labs.” And here is precisely where (in my opinion) the rubber-hits-the-road as to prove my point in why central bankers have more results resembling a sorcerer’s apprentice than anyone in possession of a “philosopher’s stone.”

Let me illustrate using a few examples. Yes, they are extremely over-simplistic and generic, but that doesn’t mean they aren’t relevant.

The whole problem for central bankers is they view the economy (e.g., a free market capitalistic one to be precise) as something which can be dissected, as in, separated and putting its essential components into “test tubes” for both observation and manipulation. Then, reforming the amalgamation into whatever performance quantity they desire. These “test tube” manipulations, granted, do have a high rate of observable success to their manipulations in isolation. However, it’s when the whole concoction is mixed together is where expected results morph into uncontrollable monsters. Here’s an example…

Lowering interest rates stimulates an economy. (i.e., test tube 1) Higher stock prices generate “a wealth effect.” (i.e., test tube 2) The first one for the sake of simplicity let’s say uses monetary “ammonia” as its catalyst. And let’s use “bleach” for the second. Both can be isolated, both can be manipulated, and both can have a fantastic end use when it applies to the overall purpose of cleaning (i.e., the economy.) But remember that “in isolation” detail I expressed?

As some of you already understand, this is where the combination of the two (bleach and ammonia) combines to make a very toxic, and in many cases deadly mixture depending on just how large the quantity. That is – if you come into contact with it. And there lies another rub.

If you were to observe this combination only from afar and how it was performing that “cleaning” only through its resulting application via robots (i.e., HFT, algorithmic, headline reading, front running parasitic trading bots) the conclusion would be it’s doing just a bang up job of removing any past stains (i.e., crash of ’08 and such) the combination has worked spectacularly and the sum is more effective than the parts in isolation. That is: as long as you remain both afar, as well as one step removed.

Anyone who would venture in where such a brew was being unleashed would find themselves in grave peril. This is the equivalent representation of today’s capital markets: Not only does nothing make sense – everything has become engulfed in a toxic cloud of monetary witches brew. So toxic, so disorienting, so deadly to anyone who enters (i.e., try being a pension fund, insurance company, saver _______fill in the blank) your only recourse is to not breathe, or better yet, not go near the place at all.

However, if one only sees or views the “markets” remotely. Say only via a “cleaning report” i.e., ________(place your report of choice here) while pontificating on those results from afar via cameras, microphones, keyboards, etc., etc. All while those whom supply those devices do nothing more but comment on just how well of a “cleaning” process is taking place via reports that are more sanitized of bad news than a redacted pentagon paper. Then yes, things are going just splendid and steady is the course. Or, should I say, steady as the formulation.

Just don’t ask anyone to touch the thing let alone enter into the same room because they won’t, and aren’t. And the week after week of record outflows prove it to be the case.

Add the following to this latest alchemic mixture…

A referendum breaking up of the European Union (e.g., Brexit) has just taken place. So far the fallout in just the real estate sector in the course of a week has caused 8 (and counting) funds to gate investors from accessing their funds. (i.e., Want your money back? Hurry up and wait behind the gate) GDP figures across the globe are continuing to collapse. Negative interest rates are now being applied to trillions upon trillions of government debt worldwide. China is devaluing at a record pace, the more Japan tries to devalue, the stronger its currency gets. The list of concerns goes on and on like; Italian banks; Spanish banks; German banks; etc., etc.

Here in the U.S. more people are on government assistance than ever before, civil unrest as is being witnessed will inevitably dampen or curtail future retail sales aggregates. Without Non-GAAP reporting being employed ever the more creatively this earnings season is now being looked upon as “cross your fingers and pray the bars are low enough” reporting season, as opposed to “more should surprise to the upside.” And this list of potential deadly GDP affecting ingredients itself is growing ever the longer by the day.

And what is the result of such ingredients one might ask?

Unemployment reports statistically near full. The U.S. stock market is once again printing record highs. One of the largest political upheavals in modern-day history (Brexit and the disintegration of the E.U. as known) when viewed via the stock markets is not only non-existent as for relative price action, it’s now arguable to have been a catalyst for ever higher market prices. Central banker alchemy at it’s finest. Solid “gold.”

However, if you would like to perform some “acid test” as to check for its purity before buying more? Sorry – you just have to take their word for it. Just like China’s GDP projections, which, by-the-way; makes western alchemy look like child’s play.

© 2016 Mark St.Cyr

A FWIW Followup On Theranos

I make this note only for the reason that it puts a punctuation mark with precision on the whole Theranos™ saga much better than I could ever hope to. For those who may have missed it, I outlined my feelings on what I’ve labeled “Silicon Valley Snake Oil” the other day. I used one of Theranos’ investors in an interview to make my point. During this video he brushes off the very notion of anything being wrong with Ms. Holmes as CEO as if one was being nonsensical. Fair enough. Just explain this. To Wit:

“Theranos Founder, Elizabeth Holmes, Barred From Running Lab for Two Years”

All righty then, is all I have to say too that, I guess. Of course, I leave what you have to say or think up to you.

© 2016 Mark St.Cyr

MYTR Audio: Brexit Proves It’s All A Central Bank Illusion

This is a new feature that will be part of upcoming exclusive content offered by Mark. It’s a work in progress, and a little raw, but we wanted to get it out there. Content such as this will only be available to subscribers to the blog, more details coming very soon. It’s a read through by Mark of his latest article and (as usual) there’s no edits or retakes hence the “raw” reference.

V.V. -StreetCry Media

 

Studio 1

Can’t see the media player? Click (here)

 

© 2016 Mark St.Cyr in association with StreetCry Media Partners. All Rights Reserved

Brexit Proved It’s All A Central Bank Funded Mirage

I keep hearing that the “Chicken Little’s” are once again being proved wrong. We keep being shown chart, after chart, after chart, after chart how the market recovers from perilous sell-offs. This is expressed as “proof” the “market” doesn’t want to go down, and has legs to vault ever higher.

Cause for concern is being dismissed by the hordes of next in rotation fund managers, economists, Ivory Tower academics, or Nobel Laureates as they themselves stampede to any available cameras, microphones, or keyboards that will quote them as saying “See…all that worrying is for naught. And expressing anything other is strictly for the gloom and doom crowd.” Which they then will triumphantly state: “Which has been wrong over, and over, and over again.”

My response is this: Then why is nobody buying it? (e.g., the market) Figuratively, as well as literally.

If one looks at any credible volume report, the participation rate as to those “buying” into these rallies, which by the way, are the result of a previous fall instilling (once again) a near death experience. It rivals that of a BLS report. i.e., great headlines – just don’t look at how many people are actually “participating.”

I have another question: Why can’t the markets proceed any higher than when QE ended in Oct/Nov of 2014? You know, if this is truly: a fundamentally based bull market that is.

Or, is it that – its fundamentally full of bull? I believe it’s a big-ole-pile of the latter, and little to none of the former.

Put a different way: Explain why does it take more central banker intervention, or the promise thereof, to stop these falls? If it were all “fundamentally” based on market principles, again, why is there a need or call for even more monetary interventionism? (i.e., negative interest rates, “helicopter” styled moves, etc., etc.)

Regardless of what is touted (or worse actually taught) as reasoning by this crowd. One fact remains: without the central banks it all falls apart, precisely for the reason that there is no fundamental reason for the markets to be at these heights to begin with. Period.

It’s all an illusion, and it gets proven more as fact every time there’s a hiccup. So much so that now if hiccups aren’t dealt with in immediate triage in the form of some ready to be administered monetary antibiotic. A little discomfort is primed to turn into a terminal failure.

Let’s all remember a few details that are quite conveniently forgotten by far too many…

In 2010 then Fed. chairman Ben Bernanke unleashed a policy of monetary intervention which only a few years previous would have been hailed as ludicrous by this same crowd now calling for more of the same. That intervention is now in the history books called quantitative easing (QE) and its raison d’être was for moving the capital markets.

Just imagine bringing up this issue, let alone proposing it circa 2006. i.e., The Federal Reserve along with other central banks around the globe should (and would) purchase government debt and other such vehicles in an ever evolving aggregate of instruments they deemed proper, at any time. I’m of the opinion (and with good reasoning) you would’ve had this same cohort of economists, academics, et all who are still vociferously calling for more, more, and more – laughing and deeming even the notion as preposterous. However, that is not where we find ourselves today. All that previous hilarity has now become accepted monetary policy

If one is to be truthful, looking at these same charts which are flagrantly used and pointed to in “mission accomplished” type fashion as to show the efficacy of monetary intervention, then I’ll agree; there is only one conclusion, and it’s called: perversion.

In 2010 thru 2014 with the introduction, as well as the reinstatement of further intervention (e.g., QE 2, 3, Twist, et al) the markets went on a rocket-ship ride straight up with nearly a correction. Ever! Then once QE was officially halted (but the tailwinds of “reinvestments” remained) the “market” has done nothing but stutter at best – and more than once – given way to panic-stricken sell-offs. It seems the “market” can rise no higher without further accommodation, nor remain there either.

There’s no fundamental market at work currently. Nor has there been since circa 2010. Only central bank adulteration. Period. Anyone arguing the opposite in my opinion: is naive at best, or, a charlatan at worst. The latest case in point: Brexit.

Once the Brexit vote crossed the wires the “markets” expressed its uneasiness with the results. Whether or not one agrees with the outcome is irrelevant to this discussion. What is relevant is the exacting reversal, along with its speed which is simply jaw dropping.

Remember when the ECB rolled out its latest propaganda how it was waiting in the wings to show just how “in control” it really was with its trading operations nerve center expose? Could one envision such a piece in, let’s say, 2006? Never-mind stating not only would it be a reality, it would be touted as both necessary, as well as a prudent piece of current monetary policy. Last week showed you just how lifeless these “markets” truly are. There’s just no there – there. Only the central banks.

Once again in dramatic fashion the “markets” seemingly caught wrong-footed spiraled downward. And (once again) the futures markets here in the U.S. had a limit down event needing the circuit breakers to (once again) halt the momentum.

Say what you want about the severity or forcefulness of the initial reaction. One can argue till they’re blue-in-the-face on whether it was warranted. However, what can’t escape the light of scrutiny is just how perfectly, as well as the expediency to such a move was entirely erased. Not in months, nor weeks, but within days. Yes, one of the largest political upheavals in modern history that not only has the potential of changing everything, but rather, does change everything for the entire monetary makeup that is currently held – is completely erased near to the penny as if it never even took place? In my best English accent all I can say is – bollocks!

Markets just don’t work that way. Investing just doesn’t work that way. And sooner, rather than later, true price discovery will make its way back into these markets. And when it does, based on current fundamentals – it’s not going to be pretty at all.

Currently (once again) it would seem that central bank intervention has saved the day. Yet, to what extent and at what expense? It’s now grown beyond ridiculous to anyone with a modicum of business acumen. There’s just no way you’re going to get a sane business person to take chances needed as to help spur an economy in these conditions. The more these shenanigans play out – the more they’ll hunker down. The exact opposite of what the economy needs.

It doesn’t take too much brain power to conclude there has to be an end point to all this bizarro world of monetary intervention. At some point in the not so distant future these hiccups will in-fact turn from a momentary discomfort to an outright panic with terminal implications. Like credit card luxury living – everything appears just “fly” till one day just one late payment sends the whole ruse tumbling into oblivion. Today’s central bank policies aren’t all that much different.

All it will take is just one time, or one player to upset this apple cart of illusion which is desperately being maintained, and it all unravels. And as I’ve iterated many times previous I believe that player is China.

As central banks keep intervening mightily within the capital markets as I have stated before: to think China will idly stand by and just “suck up” the consequences of those actions is a fools game. And as proof I would like to point out that as the central banks were busily propping up the markets before, during, and after the Brexit vote. China (once again) devalued the Yuan in a move not seen, and reminiscent in size and scope of August last year. You know, when everything was seeming to come off the rails – once again.

It would seem central banks from the ECB to the Fed. want to perpetuate the illusion that their approach is what’s going to be the only acceptable means of the day, tying every other nation up into monetary knots resulting in them needing to acquiesce.

There’s a very big problem with this type of thinking, and intellectuals, as well as today’s academics fall prey and never see the alternatives until it’s too late.

Remember the tale of “The Gordian Knot?” If not (no pun intended) all you have to understand about the story is this: When push came to shove, someone decided rather than play by the imposed rules, they made their own. Current monetary policy being implemented in the fashion that it currently is I believe will end up in results much of the same.

This is where the powers-that-be feel, appear, and act as if anointed while dictating terms as to why things are, and will remain, as they state they should – till someone walks in and cleaves the notion of it all with their own solution. Literally.

It’s only been a week with full-on central bank behind the scenes action to quell (and erase) the Brexit initial impact.

The effect of the Yuan is still yet to be felt, let alone, evaluated. While another more poignant question remains: Have we seen the last? Or: is this just the beginning of their devaluing?

Make no mistake, China’s next move will be far from any Illusion. And the severity of that reality just might be far more reality than the current illusion of “fundamentals” can handle. And you don’t need to look at any chart to understand that fundamental reality.

© 2016 Mark St.Cyr

Silicon Valley Snake Oil

Years ago when I first began calling out what I deemed as “snake oil,” it was mainly concentrated to what is now referred to as “the self improvement/motivation industry.” Although I believe in (as well as instruct) in self improvement, as well as motivation (motivation being an internal discipline rather than an external) I have not been shy to criticize both the industry, as well as some of the players or constructs they employ.

I was one of the first to openly state the whole Left brain – Right brain mumbo jumbo was for the brain dead. All I’ll say is this; it didn’t win me any friends within the industry.

However, we now know that whole idea of “I’m a one-sided brain extraordinaire!” has been dismissed as rubbish by the scientific community via the scientific method. It’s not a “consensus” opinion. It’s a scientific fact as opposed to the pseudoscience which has perpetuated it.

Yet, that still hasn’t stopped Human Resource departments across the globe from buying some “New and Improved” version as to force down gullets in meeting rooms everywhere as they increase the effectiveness of this dribble with slide after slide in a death by PowerPoint® venue washed down with stale pastry and watered down coffee. But I digress.

So why do I bring this point up? Well, I was just sent a recent interview conducted by Bloomberg™ with one of the investors of Theranos™and it fit squarely into something else I’ve been calling out these many years: What’s behind many a “unicorn” is nothing more than a piecing together of anything which might appear believable as to hope and pray Wall Street buys it – literally.

Many of the shenanigans I’ve written or spoken about has been the literal calling out of what I see as pure – unadulterated – bulls##t.

Yes, it’s only my opinion for I have no inside information and have to make my assessments from afar just like anyone else. (anyone that is who will actually look) Yet, that said, I have a honed and practiced bulls##t meter that’s second to none. And it’s being proved out as time moves forward that many of the calls I made, about what I saw as “wait…what?” moments, were indeed worthy of pausing, as to make sure what I heard, read, or saw jived with what was being witnessed, sometimes to the absolute contrary.

I would like to take you back to just one instance as an example that wasn’t all that long ago to put more context around what I have forthcoming.

Remember when the whole Jack Dorsey controversy came up with him being CEO of both Twitter™ as well as Square™ along with the timing? That timing being Twitter on the bottom of the birdcage in stock value, and Square about to IPO hoping to soar. During that period I made the following observation. To Wit:

“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.”

Here is where not only did I seem to get under a few peoples skin, but touched some very raw nerves. For suddenly as I predicted what was all “rainbows and unicorns” was morphing into “storm clouds and old grey mares.” Not to mention calling into question their observations or business acumen as having more of a charlatan-esque type approach, rather than anything bordering on objective.

And, once again: I wasn’t winning any friends.

As a matter of fact, such statements more often than not placed yours truly at the butt-end of some very “highbrow” twit-storms for stating such. So be it, for being proven correct in the end is always worth it. (“correct” being; hows all that, and all the other IPO’s working out? What? Too soon?)

So now with the above for context here is the link to the afore mentioned interview: DFJ’s Draper: There’s Nothing Wrong With Theranos.

This interview is just under 2 minutes. And it is and encyclopedia’s worth of insight for those who really want to understand what’s behind many a old-grey-mare unicorn still hoping for IPO paradise, rather, than the glue factory of M&A. That is, if the cash burn doesn’t force bankruptcy court vulture-ism first.

I implore you to watch, don’t take my word or opinion on anything. Watch, listen, and see if what you know to be true such as: their own admissions of farming out much of their testing to other vendors using generally known and accepted procedures because of their own reliability issues in their asserted breakthrough procedures, not withstanding, how its figurehead Ms. Holmes presented all those breakthroughs.

Tell me you don’t feel the need to take a shower after watching. Personally, I felt I might need to be pressure washed. I am still aghast. Welcome to “next in rotation fund manager” interviewing at its finest is all I’ll say.

If you wanted a more clear example of why people have not only left this “market” along with many of the business/financial media outlets, the above interview just about says it all.  (to be fair it’s only a sampling of the whole, but it says all that needs to be in my opinion)

You can replace every-time he said “Theranos” with “current monetary policy” and “Ms. Holmes” with “Chair Yellen” and the narrative and storytelling would be about the same. Along with the push-back, or lack there of. Welcome to Bizzaro world. However, there are some signs that people have caught on to all this and are searching out different avenues as to try and understand precisely what the heck is going on, rather than be spoon fed “Bad is now good, and terrible is terrific!” And I’m very proud to say I can use myself as one of the examples: To Wit:

Here are two naked search results about 24 hours after another rather large Theranos “moment” was making headlines.

Me as top story Google Theranos Screen Shot 2016-06-07 at 6.51.44 AMMe as top Theranos Google Screen Shot 2016-06-07 at 10.34.02 AM

 

 

 

 

 

 

 

As you can see, using a naked query, that is yours truly at the top. You don’t get there because you paid. You get there because the search algo’s are reacting to real “eye balls” as much as other criteria. And for those stating “Oh, that was just a fluke you’re trying to milk!” I would say “Fair enough.” However, to the right is another doing the same some hours later and, as one can see, some of the results had changed to show it wasn’t just a fluke.

I’ll also add, this is far from the first time I’ve demonstrated things such as this. I keep track of such things. If it were just a fluke I’d be pretty foolish to tout them. I only do it for the “Well who are you to say XYorZ?” crowd. So with that all said…

I don’t do “fire-walks,” nor am I some paid  “financial analyst” you’ll see on the remaining business networks. And you won’t see me in “The Economist™, NY Times™, Barrons™, or other mainstream financial/business media. Where I’ll also add – and proud of it.

No, I’m nobody ‘cept for a guy who can’t spell cat without spell checker – but has a bulls##t meter along with some business acumen that’s second to none, which seems to make news others want to read; rather than like a few others making news for “fire-walking” and “investing.” Albeit they both seem to now be feeling a lot of unwelcome “heat” themselves. But, I guess that’s showbiz – I mean – “investing” today.

Just remember and repeat 3 times while clicking your “execute order” button: “I BTFD because the Fed’s got my back.”

© 2016 Mark St.Cyr

The Road Less Traveled Might Become A Hastily Beaten Path

Over the weekend I heard from people I haven’t heard from in quite some time asking me for my thoughts on Brexit, and what it may portend for our own markets in the near future. As readers who’ve been with me for a while have come to know – I pull out the following chart. And with that, here is what I shared for those who might want to know.

Here is the current market as expressed via the SPX as of the close on Friday. To Wit:

 The S^P 500™ (via the SPX) as of the close on 6/24/16

The S&P 500™ (via the SPX) as of the close on 6/24/16

(a closer view of the chart above)

(a closer view of the chart above)

As we can see we came down in one fell swoop and closed precisely on the bottom edge of those levels I marked as “#11 It’s all about….” and – it still is.  When I was asked “Why is that level so important?” I replied, “It’ll take far too long to explain, just know I drew those lines months ago, all you need to know is the market’s reaction to them. The market is now showing you their importance, regardless of how important I claimed them to be.”

The phone went silent.

If we break free from this level with conviction and close well below it (as I iterated in previous discussions) I believe the next stop is to that #12 area I marked in grey and it will come in short order.

When I first placed it the potential for a Fed. rate hike in June was still on the table (albeit loosely.) That has now come and gone and the Fed. relented as to choose inaction, for action, once again. However, where I wrote “Where real concern should …….” I believe still stands. I’ve also just moved it more to the right as to line up with where we are, but the area is still the same.

I’m going to make one change and that’s from “Real Concern” to “Out right panic” should that level be hit in a waterfall styled event.

This is where I believe you’ll hear every central banker and who knows who scrambling to say “what ever it takes” and more. However, I think what ever happens at this level (if it is reached) will only prove out to be a respite before another real test of the now moniker’d “Bullard Bottom” is not only tested, but may in fact, not hold as the case previous. Why do I say such? Easy…

Mr. Bullard has come out and basically thrown in the towel for Fed. credibility. He went from being thought of as “a fair-weathered hawk” to an out right capitulating uber dove. I now think most (if not all) Fed. pressers or announcements during any turmoil will only slow or pause the momentum ever so slightly as the headline reading HFT algo’s react – but it will only be temporary. Then the momentum will once again resume. And it might get down right scary at times.

Whether or not any of this takes place is unknown. It’s all a best guess. However, as those of you who’ve been following the above chart since I began annotating it nearly two years ago know: the lines have been drawn well in advance – not after he fact, along with the commentary, and have been quite prescient. Whether or not it continues is, like I said, “anyone’s guess.”

But hopefully some of you now have a little more information you can use as to make your own decisions whether it be about business or other matters.

Which is the whole point of this blog to begin with.

© 2016 Mark St.Cyr