‘Headline Risk’ In Real-Time

I just received a note from a colleague with the following message: “Looks like your call for caution via the election results in LA is voided.”

Here’s what I wrote back…

“Can you explain what economic measures caused the ‘markets’ to reassess the possible implications that overshadow China’s poo-pooing any resolution to trade negotiations?”

His response: “No, was there?”

My response: “Trump Says Discussed “Negative Rates” In Unscheduled Monday Meeting With Chair Powell”

“Soon as the headline hit – the ‘market’ rocketed off the lows from a weakening open to new, never before seen in human history highs. Again!

Welcome to ‘Headline risk’ in real-time. The issue now is if it gets ‘poo-pooed’ as I say, by anyone at the Fed – things can change on a dime. Literally.

Just contemplate where we are right now, this time in history: Negative Rates in the U.S. are now not only a ‘discussed’ issue at the highest levels in the United States, but worse (depending on your viewpoint) propels ‘markets’ even higher.

You still think we’re not in a central bank infused bubble? If you do…

I still have that ocean-front property available in KY you can have super cheap.”

© 2019 Mark St.Cyr

Louisiana May Bode Ominous Results For Markets and Trade

In Louisiana there was a very high stakes governor race that concluded with the incumbent Democrat prevailing. The issue I’m going to bring to light has nothing to do with any “Left vs Right” argument or ideology. What I want to argue are the implications that this latest gubernatorial election has in respect to the capital markets, along with any possible trade dealings going forward. In other words: Baton Rouge may have just tilted the presumed world off its current axis.

Again, to be clear, this has nothing to do with what side of the aisle one stands, whether or not one likes the current president etc., etc. What I am speaking directly to are possible implications and consequences that now need to be calculated, for those possible consequences directly impact everything. And by that I mean just that: everything.

As we sit here today the major indexes of the U.S. stock market are residing at levels never before seen in the history of said markets. It all sounds fantastic until one delves a bit deeper into the details (which the mainstream business/financial media will not).

Everyday it seems hard to evade another talking head or buzzer-banger tout how well the markets are performing. “We’re up some 20% for the year!” is just one.

Is it correct?

Factually, yes. However, that’s because, at around this same time last year, the markets were spiraling toward the abyss shaving off some 20% from that years prior high.

How did the markets arrest and subsequently reverse from such a swift plunge? Hint: The Federal Reserve signaled, then implemented, a complete and utter reversal of all prior proclamations. i.e., They went from raising rates, to cutting rates. From shrinking their balance sheet to, once again, growing it. The result?

Using the S&P 500™ as the example, the markets currently stand only 180 points higher than they were in October of last year. That’s a bit under 6% (e.g. 3120 vs 2940). Hardly does this equate for the sheer sycophantic palpitations expressed by nearly every next-in-rotation fund-manger paraded across the financial/business press. But it is, what it is.

The issue that all the above relates to, is that it’s needed as a backdrop to help understand just where we are and where things might be heading in the business economy going forward. Because what got us here, (i.e., as in stock market highs) may not be able to keep it there. For Louisiana truly changes the dynamic for both interpretation, as well as positioning. Here’s why:

The Louisiana gubernatorial race was made out to be some form of signal marker for the national election due in Nov. 2020. Both sides of the aisle vociferously argued to both their constituents, as well as the general public as a whole, that their side needed this win to “set the tone” (as well as ramp up expectations) going into 2020. Even the President threw all his political weight into it trying to make it more of a “national” race of implications.

The problem is, it did just that. And now the results are going to be positioned for where they may matter a whole lot more than just in “The South.” i.e., The global stock markets. For this now has global implications.

Currently two of the three front-runners of the Democratic Party (Warren, Sanders) are both arguing and articulating how they will bring about communism and socialism to the United States. As crazy (or terrifying for those still sane) as that may sound, what’s even more nuts about such an absurdity, is they are being received with standing ovations and calls to action from a growing number of followers. Meaning: if one of them wins – then what? Hint: Money and stock markets will show it, well in advance.

Louisiana may push that move into the now.

Again, regardless of whether or not this recent election solidifies the prospect for one party or the other is not relevant to what’s at hand. This is about what has to be calculated and positioned for, now.

The present summation when looking at the latest results are that the Democrats are still able to win mighty contested (and funded) high office. They now have two in a very public “win” column. This solidifies the much anticipated pre-signaling for money and markets. i.e., That the President is vulnerable, very vulnerable – and that means a candidate running on “Free everything to everybody via taxing the rich into oblivion!” now has a more than 50/50 shot at winning.

Louisiana just made that calculation far more important.

Does this mean the President is doomed? Far from it, and that’s not what I’m arguing here.

The Louisiana election may be just what these type of races always are: local. And the President could go on and win in a Reaganesque styled landslide. But (and it’s a very big but) that’s not how money (especially stock market money and wealth) and businesses work. They have to plan on the possibility of the now. And that “now” is the possibility of a Warren or Sanders presidency.

To repeat, it’s now moved from a possibility calculation – to a plausibility one. And that single move and calculation has implications for everything. Again, emphasis on everything.

One of the current myths still held closely by much of the general public is that “long term investors” is a term that signifies “long” as something dealing in years if not a decade or more.

Buying for the “long term” or “investing” once meant meant one bought and held for years. That is no longer the case, for today most indexes are nothing more than trading vehicles rife with speculation where the term “long” now equates to weeks or months. And no, that is not an overstatement. Four months is now the “long term” average. The reason? Rhymes with “Central Banks.”

Currently the entirety of the “markets” (yes, it’s now so bad that markets needs to be in quotes) are nothing but one big front-running exercise powered by central bank largess. Without it? Hint: Pull out your year-end statement of your 401K or IRA balance ending 2018 for clues.

The reason this is important for context, is that the latest 180 point surge into “black-sky” territory is that term “central bank largess.” Because over the last couple of months the Federal Reserve has pumped over a quarter of $Trillion (e.g., $250,000,000,000,000.00 plus) in repo-operations and what they will not call “QE4” (even though it is).

Remember: it was just this time last year this same central bank was arguing why rate increases were a good thing, along with why reducing their balance sheet would be the equivalent of “watching paint dry” so much so that the term “on autopilot” was used as a descriptor for the process. All the while reminding everyone that there wasn’t the possibility of another financial crisis “in our lifetimes.” Even though it’s been Crisis-R-U.S. ever since.

Again, if you think that’s hyperbole? May I ask you to reread the paragraph above containing all those zeroes.

So now that there’s two very distinct representations (LA and KY governorship outcomes) for the plausibility of a socialist and/or communist bent winning the presidential election (whether it’s far fetched or not). Money and markets will begin to move toward the channels that it believes offers the best protection.

The issue with that is what that “protection” may mean, as in, out of the markets and straight into cash.

If this happens (and the faster it does, the worse it bodes) the markets could see itself in a sudden panic mode, where all that “fast-money” suddenly runs for the exits.

The other issue is that the Fed has already thrown more money at once into the markets than at any time. Yes, even during the entirety of the Financial Crisis.

Again: currently over $250 Billion in as little as two months. And they still don’t know if this will be enough. It all started at $60 Billion and was told/sold as “nothing to see here, please move along.” Now it’s $60B a month, every month. a $75B one or two day insurance marker, has become a daily “at least” $125B made available every night or the repo-market collapses, and it’s already proved to be not enough being oversubscribed to the tune of $137B.

Why do I say “still don’t know?” Because the end of year tax selling; repositioning; profit taking et cetera, et cetera still has to prove itself out. That happens at any time from now till end of year. And the issue here is the Fed is already “All in” as they say. What happens if that has to now go to “11!” or higher? Hint: November 2018 could become the front and center representation for Christmas past.

Does this mean the above is a certainty? Of course not, no one knows. However, with that said…

The Louisiana outcome changed two very critical calculations going forward. The first:

How does the markets react to the newly revealed political calculus?

Yet the other may have even far greater impending ramifications for the immediate future. And that is:

How does China see it?

Because if they (China) now calculate the winning edge is to no longer negotiate and a more winning position is to just sit back and wait it out for the possibility of a more friendly administration. The implications for a global upheaval of supply lines are not only huge, but quite possibly, immediately so.

Both of these scenarios have to calculated and positioned for now and going forward. The idea that money and markets will wait and see until Nov. of 2020 if wishful thinking at best.

Louisiana just solidified that imperative. And that has implications for all of us. Like them or not.

© 2019 Mark St.Cyr

The Rich Are Discovering ‘Torches & Pitchforks’ Insurance Premiums Have Outpaced Their Stock Gains

You would be hard pressed to avoid a headline implying the 1% are getting richer by the day. Everyday the “markets” bounce higher – the headlines are more frequent.

However, another headline has suddenly been making its way around the social circles and that is “The Rich ain’t paying their fair-share!”

In days of yore (circa 2007) the latter was barely even a whisper. Why? Because during the subsequent build up everyone (a relative term) seemed to be getting “rich” at the same time. The Dot-com bubble had come and gone basically squashing most early start-ups and techno instant millionaires.

Yet, for those that did not partake in that tech-bubble (which was the vast majority) they were mightily rewarded with their own millionaire-making, cash dispensing ATM called: a house. This led to what we now refer to as “The Real Estate Boom.” You know, the one that also resulted in the bust of 2008/09, but that’s for another article.

As the Dot-Com debacle imploded, what it showed writ large, was that the only reason why many of these once “brainchild of business ideas” were allowed to ascend to the once coveted arena known as “going public” was for their ability to obfuscate rather than prove they had a business model that worked, producing products or ideas that others would pay for to begin with. And, were producing net, repeat, net profits that paid the bills. The public markets (aka “Capital Markets”) were merely the next and necessary step to add true scale.

That’s what transpired then, and particularly, today.

What we are now experiencing has been the idea manifested during the Dot-Com crisis on steroids, where “businesses” (yes, quotes required) have been nothing more than a idea to hype, backed by accounting, lending, regulatory and reporting standards so blatantly reduced the term “lax” would imply burdensome.

Then, these same “businesses” would access the public markets and swindle as much ill-gotten loot before the authorities figured it all out. That is – if they would/could at all. Emphasis on the latter, if what we’re watching currently holds.

The difference today from the prior, is that we had that “Boom” in the middle of what is known as the “Home-ATM.”

This, in-part, reduced the glaring stares usually associated with stock market booms and busts. The reason? Everyone was looking in their own mirrors knowing (though many didn’t want to admit it) that they pretty much did the same thing in-kind. i.e., They could be held to the same rank and rancor as those on Wall Street. Remember, NINJA Loans?

But a funny thing happened on the way to “clearing market pricing and overvaluations” in 2009. That “thing” was called “quantitative easing” (QE) aka money printing, where suddenly the “Rich” were not only made whole, but ascended to their highly coveted realm of “Dirty Stinkin’ Rich!”

This was not lost on many. Again, emphasis on, many.

Not only has the vast majority of those that never partook in any of these “minting millionaires” excursions noticed. So too has that other “majority” that lost their houses and more during the early days of what we now call “The Great Financial Crisis” (GFC). The issue?

Many of these same banks, bankers and Wall Street tycoons have now become not just insanely rich, but some were not afraid to tell you so. e.g., Jamie Dimon’s ” That’s why I’m richer than you” comment in 2013 as just one example.

People notice things like this, but that’s not all who notice: politicians do also.

This is where things are beginning to really heat up. Why? Because many of these most recent “eat the rich” stylized chanting are coming from the very same party or politicians many of these now “insanely rich club” have supported, whether implicitly or explicitly.

Remember when “Ol’ Uncle Warren” (Warren Buffett) used to be on CNBC™ seemingly daily and profess just how little he paid in taxes? Remember how he used to proclaim the reference that his secretary paid more?

Remember when he would explain why Berkshire Hathaway™ was simultaneously not paying $1 Billion in back taxes? OK that was a trick question, but the IRS was not joking and I believe is still an ongoing dispute. But again, have you noticed he hasn’t been doing that anymore? Why?

Hint: Bernie Sanders, Elizabeth Warren and whole host of participating “comrades” just itching to make their vision come true. i.e., Don’t worry, we’ll make the idea of not paying enough just that, a wonderful long past idea. Because you’ll pay and pay dearly. Trust them, for if elected, they”ll “help you” in not only getting your mind right, but your bank balances also. Voluntarily or not.

Ray Dalio has been on what I deem a non-stop media blitz, plowing over people in ways that would make Jerome Bettis envious to get in front of any microphone, camera or keyboard to profess how “the system” or capitalism is broken, not working or the world has “gone mad.” Hint: Look in a mirror Ray. Just sayin’.

You even had the holder of one of the most coveted office positions known to Wall Street, Lloyd Blankfein former CEO of Goldman Sachs™ sheepishly admit in an interview with Poppy Harlow that he doesn’t want to pay more taxes, but (and it’s a very big but) would – if – the trade off was that people would spare his gates from the presence of “torches and rakes.”

The unmistakable undertone of all this and more? Their once “dogs in the fight” are now beginning to turn and are looking to bite not just the hands, but a whole lot more of those that used to feed them. The reasoning is simple:

There are now far more (and growing) onlookers watching piles and piles of “steaks” being amassed behind those once seemingly un-penetrable gates, while they’re constantly being told the ever rising, increasing crumbs chaffed off the “markets” into their 401K’s or IRA’s should be looked upon as manna from heaven. i.e., A few Grand for you, a few BILLION for them. And if you have savings or bonds? Be happy it’s not negative, yet.

As much as the above begins to illustrate just how things are beginning to morph to the displeasure of many in the “richer than you club.” Nowhere was it more evident than that which was addressed to another of this once: Look I’m with you ‘comrades,’ just don’t come after me, remember I’m actively paying my fair share of insurance premiums: Bill Gates.

(Note: I know I’m being harsh here, and I believe Gates deserves every penny of his wealth. What I’m speaking to is his over-the-top obsession to show “Hey I’m more charitable than anyone! So you need to be more like me!!” stance across the public stages and airways.)

It would appear Mr. Gates and his all too public gifting away his $Billions, along with another all too public (all my opinion) convincing and elaborating Mr. Buffett to do the same, seems to not quite be enough for the current front-runners in the presidential election.

It appears that Mr. Gates is more than happy to pay $20 Billion in taxes, but $100 Billion as proposed via Ms. Warren? That’s an amount even a willing Billionaire finds a bit too much.

But that’s when the interesting point to all this truly becomes fascinating. Why?

Because just like all communistic or socialistic ideas become once they seem to be on the upswing, the once gently proposing or insinuating of such ideas no longer seems so gentle in that proposing or insinuating – they’ve now become fashionable and down right practical (i.e., meaning they may have the backing via votes to just do it.) by those once doing the proposing and insinuating.

Don’t think so? Fair enough, then may I turn your attention to the reply given to Mr. Gates via Ms. Warren that should run chills down the spine of every person that still believes in the Constitution and the type of government it is suppose to uphold. Ready? To wit:

I’m always happy to meet with people, even if we have different views. @BillGates, if we get the chance, I’d love to explain exactly how much you’d pay under my wealth tax. (I promise it’s not $100 billion.)

Twitter™ statement by Elisabeth Warren

All you need to do is reread the above and replace “@ Bill Gates” with “comrade” and not only does the implied price that’s it’s going to be much more than $20, but the last line in parenthesis takes on a whole new meaning. Why?

Because over the last decade many of the richest among us have openly prostrated themselves across the media stating how and why if only they were forced to pay more, they would.

This was once the wink-and-nod (as in demanded) insurance premium dolled out to help ensure protection from any civil unrest. That has all now changed as made evident to Mr. Gates via Ms. Warren.

However, this is not an isolated insinuation, in my humble opinion. For it would appear the entirety of her party (at least those of front runner status) have not only echoed those words, but are now echoing one who said it best years ago. To wit:

“I am altering the deal. Pray I don’t alter it any further.”

~Darth Vader

Looks like those once affordable premiums have definitely moved into premium inflation mode, yes?

© 2019 Mark St.Cyr