About Those Fundamentals…

Suddenly the “markets” appear to be roiling. Personally, I had to turn off my TV earlier from enduring most of the mainstream media’s endless next-in-rotation fund manager cadre hypothesis being spewed across my screens. The rationale and explanations were, from my perspective, beyond ridiculous, making little to no sense what so ever.

Here’s an idea currently devoid in today’s so-called “smart-crowd.” Ready?

“The only reason these “markets” have assailed this most recent wall-of-worry (i.e., since the Nov. election) and held on to its cliff edge is there’s still some chance (albeit deteriorating ever further) that a tax deal, and Obamacare reform, is still a possibility.

Again, this is the only proposition holding the implications for what the Fed. has already wrought at bay.(e.g., raised multiple times into further deteriorating data) For once the “market” has to accept that the agenda that enabled the “Trump trade” is not only DOA, but indeed dead and buried? Everything changes on that alone. And I do mean everything.”

Simple as that. And as a reminder of just how high of a climb that wall-of-worry was/is? To wit:

But not too worry we’re told, for “The Fed’s got your back”, right? And we’re told they’re the “smart of the smart.” Lest I remind anyone that as I’ve said on too numerous of occasions to list…

“Once the “hopium” trade is presumed gone – then the multiplier effect will come into play with what the Fed. has already embarked on, let alone, what it plans for the future.”

Hint: The future is catching up with the past, today.

© 2017 Mark St.Cyr

FOMC September Meeting aka Something Wicked This Way Comes

In just a little over 30 days the Federal Reserve will once again meet to ponder the rationale to either hike rates once again, or stand pat. But that’s only part of what I believe will overhang the “markets” much like the Sword-of-Damocles in the coming weeks.

What will certainly be included in that consideration will be whether, or not, to begin the process of shrinking the balance sheet with an officially marked: time, date, and amount, combined with the unfolding schedule. And last, but certainly not least, a final consideration (that will surely make for quite the informative vote tally) that must be considered will be – if – they dare do both as in a hike, as well as announce the reduction schedule in unison.

As of this writing the current odds for just a hike are about as close to nil as one can get. The odds for stating they’ll begin the reduction process is even less. The most being considered (let alone – positioned for) by the “market” is a return to more jawboning of the obtuse kind that would make a Rorschach test envious. i.e., Be ready to buy any and all dips. Rinse, repeat.

Yet, when it comes to Fed. watching, and its rational. What has been far more fascinating to observe as the phenom now known as “BTFD” (buy the f’n dip) is what can only be described as what I’m now coining the “FIJT” (e.g., faith in Janet trade – rhymes with fidget.) I’m not trying to be funny or just looking to coin phrases. It came to me as I was watched the “markets” price action during the latest global events. e.g., N. Korea.

It has been both an amazing, as well as surreal experience to watch these “markets” pay absolutely no consideration to the aspects for the possibility that a true hot war, complete with nuclear warheads engulfing not just the Korean peninsula, but the entire globe with WWIII implications – and the “market” treated it with less an impelling reaction than a Kardashian escapade. i.e., “Yeah…whatever.”

So oblivious and non-concerned have these “markets” become even ZeroHedge™ minted two of their own monikers to express just how insane everything now appeared. e.g., “Buy the F’n Fire and Fury Dip”, and “Buy the F’n All Out Nuclear War Dip’ers.”

Personally, I couldn’t stop laughing when I first read those, but after the laughing subsided the reality began again in earnest, for the issue is that these lines now describe the sheer disconnect (and sheer insanity) to anything once thought of as markets.

As far as these “markets” are now concerned (and positioned for) the only person that can derail (or threaten) them is not some foreign dictator threatening all out nuclear war with the West. No, the only thing which can bring these “markets” to its knees – is a “diminutive woman” sitting as Chair of the Federal Reserve named Janet, playing Atlas. For with the sweep of her pen, and later resulting press conference, can singlehandedly unleash an all out “nuclear” war causing a global financial meltdown the world has never seen.

The above is not hyperbole. The odds for a misstep via the Fed. is the only thing that keeps these “markets” awake at night. Not threats from N. Korea, China, Russia, stunted earnings, imploding retail sales, deteriorating data, political strife, the list goes on, and on.

If you think that’s an exaggeration? Let me make the following statement: If you think the latest “hiccup” in the “market” was anything significant? Hint: Before the Fed. and their subsequent fellow central banker interventions? That was considered normal, daily, price action. Today? It nearly calls for “Special Reporting” coverage. That’s how prosaic these “markets” have now become over the last decade.

The only reason these “markets” have assailed this most recent wall-of-worry (i.e., since the Nov. election) and held on to its cliff edge is there’s still some chance (albeit deteriorating ever further) that a tax deal, and Obamacare reform, is still a possibility.

Again, this is the only proposition holding the implications for what the Fed. has already wrought at bay.(e.g., raised multiple times into further deteriorating data) For once the “market” has to accept that the agenda that enabled the “Trump trade” is not only DOA, but indeed dead and buried? Everything changes on that alone. And I do mean everything.

But that’s the least of the problems. And, I do mean least. For this is where the Fed. now has their own finger-on-the-button as to unleash financial armageddon the likes the world has never seen. And one doesn’t need to be a Nostradamus devotee to figure out the time and date. It’s scheduled for September 19 – 20. That’s the next meeting for the FOMC, and the stakes could not be higher.

Should the Fed. raise at the September meeting alone with all things being equal (let’s just say the threat of war is averted successfully) and there is still no legislation passed or resolved to be passed with a set date? I am of the opinion “markets” and I mean all markets (e.g., currency trades, emerging markets, et cetera) will roil and buckle in a manner not seen since the August 2015 meltdown originating out of China.

Why? Because currently – no one believes (let alone positioned) they will. I believe that is a grave mistake in the making. Yet, as I’ve implied – I think it gets worse. Much worse, and here’s why…

As scary as the advent of a rate hike that is presumed for all intents and purposes to not be forthcoming. To then have it thrust into the “markets” disrupting all the carry trades, and their correlated arbitrage and hedging vehicles? The immediate disruption will be quick and revealing.

But if (and it is a big if) the Fed. also includes balance sheet criteria for implementation concurrently? We go from a market pricing “Reset” button – to a global financial “Armageddon” launch in the blink of an eye. And no one, and I mean just that: no one is prepared for it. Period.

I am of the reasoning that if the Fed. does in fact raise rates once again at the September meeting, against the current data and economic malaise, in conjunction with the ever unfolding political strife over the Trump agenda, but also, the debt ceiling, and more? I believe they’ll also find the fortitude for reasoning (as convoluted as it surely will be) why they also will include clear balance sheet rhetoric.

It is this (i.e., the combing of the two) I feel can/will be the catalyst that will truly spook the “markets”, possibly into an all out unstoppable rout. And it is clearly a possibility, using the Fed’s own words and past signaling.

I give the odds of raising alone at about 70/30 for. Doing both at about 50/50. Right now the “market” puts odds of anything other than standing pat at about ZERO. Or, as expressed by that great statesman of financial prowess, Alfred E. Neuman

“What, me worry?”

© 2017 Mark St.Cyr

F.T.W.S.I.J.D.G.I.G.T.

(For those who say I just don’t get it…get this!)

From the article “Theranos: Unicorn Valley’s Madoff Moment” June, 2016. To wit:

“To refresh one’s memory: it was in December of 2008 when Bernie Madoff admitted and subsequently arrested for what is considered the largest financial fraud in history. The main reason for his coming clean? A change of heart? Far from it. It was only for the reason he could no longer hide his pie-in-the-sky metrics (along with payouts) against a backdrop of such financial chaos and reality.

It wasn’t that he could no longer fabricate those metrics any longer. (i.e., for they were all made up to begin with) It was primarily for the fact that even he knew discovery was now inevitable. Why? It was becoming evidently clear for anyone with a modicum of business or financial sense (no matter how much they didn’t want too) that something was wrong. And he knew it. The time scale for discovery had moved from “maybe someday” to “any day now.” He just relinquished first.

Theranos™, in my opinion, has many of the same overtones for what transpired during, as well as, in the aftermath of the Madoff scandal. And the residual implications are not only yet to be seen. The consequences that are about to reverberate are going to bring forth reckonings many believed would never come. At least that is – before they could IPO, cash out and avoid it themselves. But if 2016 is any clue? Avoiding might no longer be an option.”

From the article, “Is This Uber’s “Theranos Moment?” June, 2017, again, to wit:

“Now to be fair Theranos™ was/is caught up in what has been deemed as fraud for their product offering, Uber is not. However, why I use the “moment” appraisal is this: Once it was shown that the whole “so worth it” valuation metric was no longer above reproach? The jumping-of-ship for those closest happened so fast even rats took notice.

Ms. Holmes publicly declared any, and all, accusations as false before finally having to recant in the form of pulling, or re-verifying prior testing results. But as she was doing that publicly, quietly many either working for, or involved in management were reported to be heading towards any and all exits. Then, precisely one year ago this week (yes, it’s the anniversary) Forbes™ revised, and declared Ms. Holmes net worth had gone from $4.5 BILLION – To Nothing. And just like that it was over almost as fast as it had began.”

Now on to today via The New York Times™: “Uber Investor Sues Travis Kalanick for Fraud”

“Benchmark, a Silicon Valley venture capital firm that is one of Uber’s largest shareholders, filed suit against Mr. Kalanick on Thursday in Delaware Chancery Court, accusing the former chief executive of fraud, breach of contract and breach of fiduciary duty.”

I would imagine the clock has already begun for the appearance of a Forbes™ revision article as to restate Mr. Kalanick’s current net worth. After all – Uber itself is already being shopped at around a 40% discount to current valuations. Who knows just how much more of a “discount” is going to be needed to just entice further would be suitors, let alone, actually cut a deal. For those looking for clues. Hint: See Ms. Holmes.

But what do I know.

© 2017 Mark St.Cyr

 

Footnote: These “FTWSIJDGIGT” articles came into being when many of the topics I had opined on over the years were being openly criticized for “having no clue”. Yet, over the years these insights came back around showing maybe I knew a little bit more than some were giving me credit for. It was my way of tongue-in-cheek as to not use the old “I told you so” analogy. I’m saying this purely for the benefit of those who may be new or reading here for the first time (and there are a great many of you and thank you too all). I never wanted or want to seem like I’m doing the “Nah, nah, nah, nah, nah” type of response to my detractors. I’d rather let the chips fall – good or bad – and let readers decide the credibility of either side. Occasionally however, there are, and have been times they do need to be pointed out which is why these now have taken on a life of their own. (i.e., something of significance per se that may have a direct impact on one’s business etc., etc.) And readers, colleagues, and others have requested their continuance.

A F.W.I.W. Observation

I must say I was bemused this A.M. when I received a note from a colleague asking me for my “thoughts” on the current stock price of many in the “FAANG” category, and in particular Facebook™. I used the term “bemused” for the explicit reason that I hadn’t heard from this person in quite some time. Of course that “time” was when this cadre of stocks appeared to have been unstoppable. However, with the recent “re-entry” phase being implemented with no retro rockets” being fired in earnest, my bemusement morphed into more along the lines of amusement when I began looking at a chart and noticed the current price action.

Here’s what I told them in my usual “for what it’s worth” response. I figured I’d share it for anyone else who might find any value in it, for what you do with it is totally up to you. And as always: Nobody knows the future. And those that say they do? Don’t just walk, but run, and run quickly.

Here’s what I said in a nut shell, and annotated it on the referenced chart. To wit:

(Chart Source)

The above “F.W.I.W. observation” chart was current as to when I annotated this A.M. It is based on an hourly bar chart.

© 2017 Mark St.Cyr

Dear Silicon Valley: Better Ready Those “Crying Towels” – You’re Going To Need Them

“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.”

I penned the above back in October of 2015 in an article titled “‘Crying Towels’: Silicon Valley’s Next Big Investment Op'”

The reason for the above was in direct response to what I saw as not only a ridiculous premise that the return of Jack Dorsey to Twitter™ while simultaneously still holding the same position at Square™ was in anyway “a good thing.” but I also made the argument that in fact (as I saw it) this had all the appearances of desperation. Here’s how I put it then…

“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.”

Yet, the chorus of defenders via both the media, as well as what I deem the “aficionado set” held this up as some form of brilliance. And anyone questioning this “brilliance” was deemed to either “not just get tech” or worse – derided for not sharing in their own self-absorbed “brilliance.”

How’s that all working out? Here’s a hint, or as they like to say in “The Valley”, a picture. To wit:

With results like that, is it any wonder why one would read articles like this? Again, to wit:

“Twitter co-founder Evan Williams to sell 30% of his stock”

Now to be fair Mr. William’s states (and it was in April) this is not based on a “company context” but rather a “personal” and “actually pains” him to be selling at this point. Fair enough, but no matter the reasoning – the optics are quite stunning.

I have long since argued that Twitter was a microcosm for the entire “it’s different this time” model, and the one to watch as to try to glean clues into the health of tech. And it has not disappointed. For since then not only have former unicorns come and gone before ever making it to the green IPO pastures, but many who did have been left hobbled and tainted leaving soured tastes in many an investors mouth. Not counting the thinning of their account balances. For clues see: Twilio™, Snap™, Blue Apron™ just to name a few.

So with the above said, just like late-night TV: “But wait…there’s more!” And it’s a very important point that encapsulates just how “different” this time is shaping up to be. And it comes, once again, via Twitter.

Remember when the only metric that mattered to the “ads for eyeballs” model was Daily Active Users (DAU)? Well guess what? It’s now so “different this time” Twitter had to answer to the SEC back in June why it no longer reported this once important metric.

“The absolute number of DAUs is less important than the percentage change in DAUs because the key factor is whether engagement is increasing or decreasing on a relative basis.  Percentage change in DAUs is a performance indicator that is currently used by the Company’s management to evaluate the health of the platform, and the Company believes that sharing that metric with investors enables them to see the Company through the eyes of management. The Company also focuses investors on percentage change rather than absolute DAU numbers to avoid confusion when comparing the Company with other companies that disclose information regarding DAUs, but use different definitions of DAUs that may include different segments of their respective user bases.  For example, Facebook discloses total DAU, but includes in that number users who only log into its separate messaging mobile application without breaking out how many DAUs come just from that application. Accordingly, investors would not be able to compare performance between the Company and this other company.”

So let me get this straight – What I’m supposed to believe is that professional analysts (even the inept ones) can’t tell the difference, or understand, the relative meaning if given absolute numbers in comparison to what they mean as expressed via a percentage? Right, and I have some wonderful ocean front property in Kentucky one can have at a fantastic bargain, call me.

How about trying this one, for it might be more believable, ready?

“If we don’t use numbers that sound bigger than they really are? The headline reading, algorithmic, front-running, parasitical HFT bots will crush our stock!” At least I would be sympathetic to that argument, rather than laughing in hysterics at the one given.

But the reason for this is what’s important. i.e., “It’s different this time” metrics are now systemically needing to be either shunned or destroyed by their very creators and purveyors. And that brings us to that other metric which is also not only about to be shunned, but rather – eviscerated. e.g., Unicorn valuations.

Back in April I made this observation about Uber™ and argued the following. To wit:

“When a company’s head “PR” person quits smack dab in the middle of what can only be recounted as one of the most disastrous yearly beginnings in Uber’s short history (i.e., scandals, senior management leaving, CEO melt down caught on video with a driver, and more) and that company just so happens to be the most valuable start-up (e.g. a unicorn said to be worth some $68 BILLION), while also claiming the title of “disruptor of the disrupters”, and, is a cash burn machine with no concrete date for IPO? It’s the equivalent of a harnessed team of (e.g., all of The Valley’s) unicorns running smack dab, and full stride – into a concrete abutment. The resulting carnage will be legend.”

And here is that argument about a “down round.”

“In my opinion: They are all teetering on the edge of extinction if (or when) Uber has to do the near unconscionable act and hit the button and launch – a down round.

This I’m quite confident (just like when I stated most IPO’s were dead already but just didn’t know it a year ago) if it happens will force many in the current “unicorn stable” to tell their current investors: “After careful consideration it seems making a true net profit is once again a business fundamental which they can no longer circumvent, and will now liquidate in an effort to conserve any (if there is) possible cash or value.” Rather than face the executioner’s V.C.’s newly found funding wrath.”

Now, just this past Friday, the following was reported via The Information™. To wit:

Softbank™ rumored in talks to purchase Uber between $40 and $45 Billion.

Regardless of how one wants to report the above. $40 is a whole lot less than $70 in absolute numbers. And in percentages? Well, let’s just say it’s much closer to 1/2 than what it claims to be worth.

I’ll just leave the following for contemplation on the above revelations:

“…and I saw a pale unicorn approaching, and on its back rode a sock puppet, and its name was _________(fill in the blank.)”

© 2017 Mark St.Cyr

Further Signs Of: It’s All Falling Apart, Right On Schedule

“It’s not easy being green…” -as sung by Kermit the Frog of Sesame Street®

I have repeated (as in sung) the above line to myself, for what feels as many times as Kermit has sung it himself over the last few years. The reason? I have dared question the “It’s different this time” hypothesis in all its manifestations, and against all its defenders. It would have been much easier to do the opposite and just “go along to get along.” But I’m just not built that way.

Notwithstanding, I’ve also built a career based on just that, and been proved more right than not in the end. However, this one, has gone on far longer than people much smarter than I even dared think. But again, no one ever contemplated (let alone believed) central banks would print money ex nihilo to be used to purchase stocks, corporate bonds, government debt, and more and not only get away with it, but be sanctioned and applauded for doing so.

It’s been an adventure in sheer surreality, as well as sheer stupidity, all at the same time. But, as they say, the consequences for doing just that (i.e., QE and all its iterations) are appearing to show in an ever growing list of realities. That is, for those willing to look.

My argument, position, or hypothesis when it comes to not just the tech space, but also “markets” and more has been the following:

“I may currently be wrong, but I’m wrong for the right reasons. And once this monetary experiment of perverting both business fundamentals, as well as monetary ends? Watch how fast all that “wrong” turns right with a vengeance.”

I am here to state: That time is now – and it’s accelerating. And the current rise into historic “market” highs is a warning sign of the trouble brewing beneath – not an all-clear signal as it was in days of old.

Why? Because the rise is based purely on “hopium” and nothing fundamental. Hint: There’s a reason why the Hindenburg and its explosive gas-filled levitation is used for analogous purposes as to describe today’s “markets.”

I’ll use only a few of the latest examples, but they are all that’s needed to anyone who’s paying attention, for on their own they make quite a statement on the forthcoming consequences and calamity that’s continuing to unfold.

Remember when, as in, just this past March, how all the “great financial advisers” were shouting “great advice” to “get rich in real-estate” in Toronto? Here’s what I said in response to that “great opportunity.” To wit:

This is the moment in time where generic, over simplified advice, that sounds so good (and too good) shouted too an adoring crowd  – should be taken as the siren, and clarion call to those who are diligent in preserving their wealth to buckle up, buckle down, and prepare in earnest. For once this show is over? “Over” is going to be something many of those attending these types of seminars are going to pray for – as in “Please make it stop!”

Here’s how that’s currently unfolding as of this month (e.g., August) some 6 months later. To wit:

“Toronto Housing Market Implodes: Prices Plunge Most On Record”

I have a feeling that last line (e.g., “Please make it stop!”) is going to be stated to many a bill collector in the coming future of those who attended, and went out and applied all that “great advice.” And it’s not going to be isolated to Toronto. Why? Because this roadshow for “getting rich prowess” moved onto Chicago, and continuing onto others.

Here’s what happened to real estate after they left Chicago. again, to wit:

“Chicago Population Shrinks Most Of Any U.S. City”

The real issue is not all those would-be-buyers that should be there for all those new “great new deals” are vanishing in droves. No, what is surely a new-found revelation (and I’ll wager wasn’t expressed) of these newly minted “get rich quick attendees”, is just how much, and how fast, all those newly acquired taxes which they are now liable for are both due, and rising!

Yet not too worry, for as I implied, this show is moving onto others, and in particular, coming to California before year-end. Just in time (in my opinion) for the “it’s different this time” apocalypse to unfold there in earnest. For “unfolding” it is…

Remember when questioning the sheer audacity of not only claims for the “ads for eyeballs” value, but the valuations themselves for the companies that were to provide those platforms? (e.g., Unicorns) Well suddenly the “unquestionable” is being questioned – and the answers are leaving many of those past defenders speechless. I’m also of the opinion many and their proclaimed “net worth” is going to meet similar results. i.e., Valued less. Much less.

Recently I penned an article hypothesizing the following…

“What is getting everyone’s attention in “the Valley” is something I’ve been stating for years, only this time, it’s the sheer size of the claim, in one jump, that’s causing consternation within its once undoubting, ever-faithful, cheerleading pews.

Remember: Only in “The Valley” is it reported on, and accepted as an article of faith, along with a straight face; that a VC can turn a few $Million into a $Billion all based upon a standard of accounting equivalent to: “Because that’s what they say it is.”

Try saying that at your local bank if you’re trying to re-fi or buy a house. See how far you get. Yet, in “the Valley?” You may get “that loan” based on that “$Billion” stated on your balance sheet. Which is precisely why I bring this up.”

This was in response to the sudden questioning by many in “The Valley” as to how one unicorn (WeWork™) could leapfrog higher into the #3 position of all current unicorns using a metric for valuation that made even the “The Valley” faithful blush.

Well, it seems that “blush” is now turning into “egg” – and it’s running down not only a lot of faces, but it’s about to run everywhere. For what I’ve been touting for years (and raked over the coals, for just as long) seems to have been not only looked upon in a far more exacting detail, but the findings are truly eye-opening, for that once all-concealing “curtain” has really been thrown open. And what it shows ain’t pretty. To wit:

“Fake Unicorns: Study Finds Average 49% Valuation Overstatement; Over Half Lose “Unicorn” Status When Corrected”

Gornall and Strebulaev obtained the needed valuation and financial structure information on 116 unicorns out of a universe of 200. So this is a sample big enough to make reasonable inferences, particularly given how dramatic the findings are.1 From the abstract:

Using data from legal filings, we show that the average highly-valued venture capital-backed company reports a valuation 49% above its fair value, with common shares overvalued by 59%. In our sample of unicorns – companies with reported valuation above $1 billion – almost one half (53 out of 116) lose their unicorn status when their valuation is recalculated and 13 companies are overvalued by more than 100%.

It’s studies and revelations as the above that can’t be ignored by those paying attention. These are the moments in time where hypothesis for whether something was real – or fake – begin exposing themselves for not only all to see, but where eyes can no longer be averted. i.e., It’s where the magical thinking ends – and the reality of the moment begins.

And “unicorn” is, has, and always been a “story” to be sold to the naive. Just like “get rich quick.” The two go hand-in-hand, both in story belief, as well as ending consequences for those who believed just a little too much, for a little too long.

Why the above is also cautionary in its implications is when it’s paired with something that should be going in the exact opposite direction than where it is. I’m speaking directly to the lifeblood of the “true believers” of everything “The Valley” has now come to represent: Start-ups and their once dreams of IPO riches.

They’re not expanding – they’re literally dying on the IPO vine. All by way of their once all-seeing benefactors – Venture Capital.

Here’s a little to think about via Pitchbook™. To wit:

“PE doubles down on VC-backed startups”

Acquisitions continue to be the most common exit route (for VC-backed companies), but through May, over 20% of 2017 (such) exits have been buyouts by PE firms, a large proportion compared to past years, which have observed that percentage generally hover between 10% and 12%.

One may read the above and think “So what?” And it’s a fair point. But when you start adding things together such as the following is where things begin to take on more ominous signaling when applying in context. Again, from another Pitchbook article, to wit:”

“VC investment-to-exit ratio in the US at record high”

Opting to raise more funds rather than prioritizing an exit seems to be an increasingly popular route for startups.

Any idea why that might be? Here’s an “idea” I’ve put forth many times to the howls-and-screams by way of the mainstream business/financial media. Again, from the aforementioned article:

Do you think unicorns crossing the $BILLION dollar valuation mark at a clip of 1 per week currently – in this environment, with what you’ve currently witnessed to those who’ve made it out of the stable, only to have its valuation slaughtered much more in line with a glue factory rather than a land of milk and honey: what would be making the argument (or giving the rationale) for one to invest $Millions when the most recent IPO’s are shedding $Billions a a frightful pace?

Again, as I’ve stated many times prior (again to the howls-and screams) “Why IPO and show everyone you aren’t worth the “unicorn” (i.e., money or value) you claim you are – when you can just remain private and claim whatever you want – and everyone believes it?”

The problem now is everybody’s beginning to not only question, but rather, the “seeing” is now turning the once “faithful” into an ever-growing chorus of non-beleivers. Or said differently “It’s different this time” heretics.

To my eye VC exiting via way of Private Equity firms (and rising!) is not a show of strength, quite the opposite.

I am a firm believer PE deals (and their frequency) are one of the final signs one should be on the lookout for that signals “the end.” In other words, PE deals are notoriously late to the party acquisition makers, taking on massive amounts of debt and more inflating anything, and everything, as to enrich shareholders at the top of the chain – right before it all falls apart in wave after wave of bankruptcies and more.

Again, for I believe it needs repeating: Why would you stay private and cash out for limited dollars when the reason for the investment in the first place was for the unlimited riches in an IPO?

Think about that very carefully and see if your conclusions don’t come to the same. Regardless of what the next-in-rotation fund-manger cabal wants one to “believe.”

Add too all the above what is now an undeniable fact that most, if not all, of the empowering market “Trump-trade” has been stymied into DOA status, if not outright dead and buried, along with: the inevitable debt ceiling showdown which is sure to occur in succession.

The only thing which will make matters worse is, if (and I am of the opinion it is not “if” but when) the Fed. declares at its next meeting it is (once again) raising rates, or worse, announces balance sheet reduction begins in earnest immediately. The only thing which could possibly be worse is if they do both. And that is a very plausible possibility in my opinion.

Personally, I think the odds of such are at about 50/50. The “markets” think those odds are closer to nil. And I don’t mean one or the other, or even both. The “markets” are right now as expressed via volatility trades that none of the above will occur. I believe that to be lunacy. Yet, so far, that’s been the correct way to gamble. But “gamble” it is. Which is why the term “casino” now fits so perfectly. Because these “markets” have little resemblance to what was once thought to be what “investing” once meant.

But hey, I guess there is hope on the horizon, because once that real estate wealth to riches show reaches California? All those living in “shipping containers” or “a wooden box in someones’ living-room” and more waiting for the dream of IPO riches to arrive can move up into the real estate business and cash in big time. That is…

As long as their credit cards aren’t already maxed out. Because “getting rich quick” doesn’t live on charity.

© 2017 Mark St.Cyr

Why Trump Claiming Ownership Of “Markets” May Not Be As Crazy At It Seems

I want to pose something which I know currently flies in the face of what many (and of those many, many I respect immensely) are currently cautioning the President against. i.e., Claiming credit for the current rise and new lifetime highs in the “markets.”

As of this writing the Dow™ is within spitting distance of (once again) topping the previous never-before-seen-in-human-history-all-time-high, setting the new benchmark at 22,000. (By the time I publish it may be a fate accompli)

Many are calling for caution when it comes to the President taking credit implying this seemingly great “win” could end up being nothing more than a “boat anchor” around his reputation should the “markets” falter, turning a once worthy accolade into the proverbial “kiss of death” signaling the scapegoating to begin in earnest.

Not only is there a lot of merit in that argument, I would also agree with it wholeheartedly if not for just one thing. The President himself, and his long history of how he frames both arguments for accolades, as well as eschews (as in publicly lambaste) those who question his perceived accomplishments.

All one has to do is look at his past performances on both TV, and in public, and it’s there. Again, the clues are everywhere, and he’s been doing it for decades. i.e., I believe this is nothing new. It’s only new to the current political mayhem.

Why I bring this up is in respect to one of the President’s most recent tweets. To wit:

I would like to bring your attention to the one thing in which he is absolutely both defining, as well as being correct with. And it is this: “Was 18,000 only 6 months ago on Election Day. Mainstream media seldom mentions!”

At first blush this appears to be a “Well…Duh!” type statement. However, if you think about how one would use the above as to frame that “Duh” observation into a sword-and-shield for defense against the possible torch-and-pitchfork bearing hordes should the “markets” falter? Defining the message, terms, all while taking credit in a believable construct – isn’t as crazy as it first appears. Especially if you can not only evade the “horde”, but possibly redirect their anger away from you – and onto another. i.e., Welcome to Machiavelli 101.

I don’t know if I’m right or wrong. And there’s always the chance he’ll over-reach, or claim credit (even if justified) at the wrong time. Only time will tell as the events unfold. As always, we shall see. Or, as the “tweets” arrive.

I am still of the opinion this “framing” (if that’s what it turns out to be) is being put into the public arena for use as a foil against the Fed. (along with congress) when the effects of their current policy moves begin to exert themselves when the “hopium” trade that has been incessant since the election (precisely what Trump is claiming credit for) evaporates, when it’s self-evident every piece of legislation that propelled the “hopium” trade is understood not just to be DOA, but dead and buried.

I made the case as to why the Scaramucci appointment should give the Fed. concern for it might be covertly signaling exactly how that argument might be framed and used, because of Mr. Scaramucci’s background. Just because he is now been replaced doesn’t change how I still believe Mr. Trump might fight the supposed accusations (e.g., get the blame) should the “markets” begin tumbling. It’ll just now be with different players, but that premise remains.

Just as reminder let me repost the chart I used. To wit:

To reiterate: The past 6 months rise in the “markets” has been on nothing more than a “hopium” trade of what was presumed to be a slam-dunk of Obamacare repeal, meaningful tax relief, and infrastructure spending.

And – for this point needs to be pounded into that discussion: All in direct contrast, and opposition, to the resulting effects that would normally be taking place with the Fed. embarking on a tightening schedule, along with balance sheet reduction, into ever deteriorating data for a supposedly “data dependent” body. i.e., The case can be made the only reason why we’re here is – The Trump Bump. Period.

When it comes to that second line in the President’s tweet: Is he wrong about the “media seldom mentions”? Hint: Think back to all those former “record highs” represented at the top edge of the highlighted box in the above chart. How many times over those two years did the media incessantly state (especially the mainstream media cabal of business/financial “news” shows) “Another Record High!” Now look at the moniker’d “Trump Bump” progression. Nearly every week, if not day, and the reaction? _________ (insert crickets here.)

Congress, along with the Fed. (in my opinion) are the ones who should be worrying if this market indeed begins to falter. Unlike the President – I don’t believe they have the argument to stand on that he has. I also believe many are unwittingly claiming credit  for “stopping” things which have far more potential to blow-up in their own faces than they are calculating.

And the most explosive tool at the President’s disposal is one they believe is unassailable. e.g., Their own words.

As always – we shall see. Or, as the “tweets” tell us.

© 2017 Mark St.Cyr

Just When You Think There’s A Method To The Madness

Via The New York Times™. To wit:

“Trump removes Anthony Scaramucci From Communications Director Role”

Now you know why I try my damnedest not to comment on the political.

However, with that said, as a business person you just can’t sit idly by and wait. You have to try and “read the tea leaves” the best one can, and try to interpret what may, or may not, be coming down the pike, and how it might effect your business. It’s part of the “game” as they say.

The issue now facing not only the administration along with congress itself is this point…

If this jostling of positions continues, while at the same time, congress remains both deadlocked on getting any prominent relief for taxes and more passed? Things are going to turn ugly – very fast – and very soon. And I don’t mean political infighting. I’m speaking directly to the business sector.

Congress sitting on their thumbs is one thing – business sitting on its hands is quite another.

© 2017 Mark St.Cyr

The Final Sign Of The Impending Silicon Valley Apocalypse Arrives

Calls on the impending doom for when “the end” will be upon us has been going on as long as the “beginning” itself. In other words – the moment it all started – someone began calling for it all to end. It’s the human condition. You’ll find it everywhere, it’s not solely restricted to the varying religions.

Yet, when it comes to business, there are signs that should be heeded when they appear, that should cause one to sit up, and take notice. Today, one has appeared; and the ramifications of what it portends may indeed mimic what many take as “the sign” that the apocalypse is truly upon us.

This final sign isn’t “a rider on a pale horse” signalling the end of times for humanity. No, but the similarities are quite striking, for the way I would describe this revelation is this: a venture capitalist riding a bloated, sickly unicorn, thus signaling the impending end of “it’s different this times” has surely arrived – once again. And the resulting devastation (once again) Will. Be. Legend.

I have written too many times to list my views when it comes to the entire “Valley” or “tech” mindset, and how it behaves in respect to business fundamentals and more. i.e., Basically, it doesn’t respect business fundamentals at all.

It behaves and acts as if it’s its own religion or cult. i.e., “You gotta believe! And when in doubt? Seek the good-book of Non-GAAP, and have all those misgivings put to rest. For remember the code: Get funded – get listed – get out. Then bathe and repeat. For remember – you are coders! So go forth and code; so that you may reap the rewards that surely await you in the lush green “Benjamin” lined valley known as Wall Street.”

Yes, all tongue-in-cheek, but is it really that far off? For those who think so, let me give you one last example of this “devotion to the Valley model” and you decide. Ready? Today, in Silicon Valley – LinkedIn™ – is still considered a stunning success. (excuse me while I finish laughing)

For those of you that bought into that “success” right before its stock value plummeted; prompting Microsoft™ to buy it (i.e., throwing stock-optioned employees a life savings lifeline) before it fell even further to where competitors may have been able to afford it? “Success” is not the first word that comes to your mind, 401K, or bank balance.

But in “The Valley” world – “remember the code” – is all I’ll say to that.

So back to where I started, and why the above needed to be stated for context, and it is this…

Suddenly, even Silicon Valley itself is beginning to question the once unquestionable. e.g., The valuation of its remaining unicorns.

To my eye, or acumen, this is very similar to that moment where suddenly a boss, a team leader, a company, ________ (fill in the blank) does that one thing, and everyone around them looks at each other and thinks “Wait…What?” Then begins questioning everything prior.

We’ve all been there, or had that moment. Silicon Valley I believe just had its own.

Over the month of July questions are beginning to be asked about not only the rate of unicorns being minted, but also the totaling amount that its current “top ten” stable mates are valued at. Here’s some data as reported via Pitchbook™. To wit:

First: VC backed companies are crossing the $BILLION dollar threshold at a pace of about 1 per week.

However, it was this second point that seems to bringing with it the questioning of where everything may be going, again, to wit:

“WeWork’s latest round, a massive $760 million funding reported earlier this week, has increased the valuation of the co-working space provider by about $4 billion.”

What is getting everyone’s attention in “the Valley” is something I’ve been stating for years, only this time, it’s the sheer size of the claim, in one jump, that’s causing consternation within its once undoubting, ever-faithful, cheerleading pews.

Remember: Only in “The Valley” is it reported on, and accepted as an article of faith, along with a straight face; that a VC can turn a few $Million into a $Billion all based upon a standard of accounting equivalent to: “Because that’s what they say it is.”

Try saying that at your local bank if you’re trying to re-fi or buy a house. See how far you get. Yet, in “the Valley?” You may get “that loan” based on that “$Billion” stated on your balance sheet. Which is precisely why I bring this up.

Again, it isn’t the “accepted” math that was/is in question, (e.g., The alchemic miracle of accounting allowing $millions to now be claimed as $Billions) but rather, it was the size of this jump (e.g., $4 Billion) that the math allowed for, leapfrogging this company into the #3 position of all unicorns with a valuation of now $21BILLION.

Now, suddenly, eye brows are being raised. (To be clear: I’m not taking shots at those reporting these latest stories. I’m talking directly to the entire complex concerning Wall Street, main-stream business/financial media, along with the entire “Valley” apparatus at large.)

The issue in my opinion is – it’s too late. For this “unicorn’s” ability to prance into third place wasn’t ever going to be some sign of salvation for “The Valley” model. It’s quite the opposite. In my opinion: It’s the “fourth” equine maneuvering into position in the ever evolving “tech” apocalypse.

If one wants to draw similarities via the “Four Horsemen” (which I am) Twilio™ was the first sign, Snapchat™ the second, Uber™, its third, and WeWork™, I’ll dare say, just maybe the fourth. And the “scythe” is about to be put forth cutting down far more than just valuations as it unfolds. Look to the ancient scrolls of the dot-com era for clues.

Let me add this one construct as to why I believe the crossing or “investing” by VC’s into the unicorn club is not showing a sign of “strength” or “faith” in the current “tech” sector, but rather, resembles a last-ditch effort of desperation to keep that other article-of-faith alive because if that goes – so too does all their presumed wealth. e.g., Their own statements of net-worth.

Let me propose the following on you, and see what answers you come up with on your own. Ready?

If you had extraordinary gains currently sitting in an index fund (Oh, let’s use NASDAQ™ as a hypothetical shall we?) and you were a VC, or you just decided that’s what you want to now be: Would you not take some gains off the table in that fund, and put a few $million into some start-up that allows you to now declare you’re worth a $Billion or $BILLIONS?

Think about that very carefully, and come to your own conclusions. Never mind what I think.

Now with that as a backdrop let me ask you this…

Do you think unicorns crossing the $BILLION dollar valuation mark at a clip of 1 per week currently – in this environment, with what you’ve currently witnessed to those who’ve made it out of the stable, only to have its valuation slaughtered much more in line with a glue factory rather than a land of milk and honey: what would be making the argument (or giving the rationale) for one to invest $Millions when the most recent IPO’s are shedding $Billions a a frightful pace?

Again, think about it very carefully. What would you do? And why would you put that money at risk? Hint: The accounting alchemy of the Unicorn-verse.

And that brings me right back as to why I believe this latest “bump” in valuation and funding has caught even the once unquestioning faithful off-guard. And it’s this…

If you are a VC, or early holder in the likes of Uber™, or Theranos™, or Snap™ et al. And your personal holdings, or “valuation” seems to be taking a hit in the eyes of, Oh, I don’t know, let’s say: Your bank or brokerage account? And maybe you just so happen to have taken loans, or were awarded special financing deals that were only available per all that reported net worth “value.” How would you make up for that discrepancy?

Hint: Like the legend of turning water into wine  – one appears to still be able (but it’s losing it’s once unquestionable status) to turn $Millions into $Billions via the unicorn legend, at a pace of about 1 per week.

But when you go for a quadrupling? That’s a 4-horse one should never have tried to ride, even in front of the faithful. Because even the “faithful” know or have heard of the prior apocalypse of legend. e.g., The dot-com era.

It’s all right there in the ancient scrolls. I think it even states: “And one of the riders was a sock puppet…” But that’s just from memory. But, we’re always told “it’s different this time”, right?

Well, it surely appears as such, for remember when using “The Four Horsemen” was evangelized as a good thing – until suddenly – they weren’t? For those who like to read the ancient scrolls of the dot-com era. Here’s a sample.

And for those who think making it out of the unicorn stables, and then running their valuations up at a full gallop past all those non-beleivers to the unqustionable land of $100’s of Billions in market cap affords some form of absolution from reprisal? Here’s a reminder, as well as warning. To wit:

But I’m told by the “faithful” Facebook™ and Twitter™ are different. As I always say…

We shall see.

© 2017 Mark St.Cyr

Did The Complex Answer Just Arrive Via Twitter?

Earlier during the week I wrote an article titled: “Simple Question With Complex Implications.”

In it I argued there was one simple question concerning the entire “ads for eyeballs” complex. That question was this…

“If there’s demand for something, and it’s effectual: Why are prices falling?

Advertising is not something that follows the “commodity” pricing model. Worthless advertising does, but not effectual.”

That was in direct response to the 300% comparative loss of value per click on Google™ from the same time the year prior. e.g., -7% in 2016 to -23% today. Yes, that’s a loss of triple the amount just a year prior. But the total number “clicked” actually rose over 50% boosting the total revenue higher.

I used the “300%” figure to bring attention to that discrepancy for a reason, because most people I spoke with glossed right over that point and only heard (or read) “revenue increase.” The issue with doing that is – if you don’t understand the how, and why that make up the numbers, it’s easy to fool yourself ( or allow yourself to be fooled) into believing it represents one thing, when it actually, could mean quite another.

If you think I’m only trying to play “fast and loose” with the numbers myself, I would like to have you think of it this way using the following…

If the report was an increase of net profits from 7% to 23%. Do you think the next-in-rotation fund manager cadre would say “That’s a 16 percentage point increase in net profits!” Or, do you think you would hear something along the lines of: “That’s triple the amount expected! My friends that’s a three-fold increase or, if you will, some 300% gain in profit per click from the year prior. There’s no stopping this money train, get aboard now!!!”

See my point? i.e., 7 X 3 = 21, that’s “triple”, and/or “300%” is also another way of expressing triple. When it comes to marketing – it’s all about how you want to spin it without outright lying. That’s why you need to know what, and why, certain expressions are being used. Especially when it comes to anything concerning Wall Street, for it’s also – what you don’t hear – that should also cause you to look closer. And it’s exactly for that reason I used it myself. Because it caused the reaction I hoped it did when I said it. i.e. “Wait…What?”

With that said, here’s why knowing what the “numbers” being reported may, or may not, represent is paramount as I stated in the article. To wit:

“So here’s why this is important: It is currently an accepted meme that both Google, as well as Facebook, are garnering most of the mobile ad dollars via the game of attrition. In other words, as advertisers pull their ads or campaigns from differing venues that have shown to be ineffectual, they are either moving some of those dollars there, or back to older venues such as TV or radio. And in some cases neither, in an effort to stop the hemorrhaging of throwing anything everywhere with little to nothing to show for it – except big ad bills.”

Because now we move on to both yesterday after the close of the “markets” report by Facebook™, and today’s before the opening bell reporting of Twitter™, and see if any of what I argued using the Google construct fits.

I went out for my usual daily run yesterday afternoon as Facebook reported. When I returned I was besieged by notes and calls from friends and colleagues asking me (more like ribbing me) about what I thought of the “amazing beat!” And if I wanted to “rethink” my position when it comes to social-media (and Facebook in particular) with such obviously “crushing it” type numbers.

My answer as usual was “No.” However, I did have to agree the report was impressive no matter how one looked at it currently. And that’s the key word “currently.” Because after I began looking deeper into it, and once Twitter announced this morning? My original “no” went to “11” as in “H#ll no!” Here’s why…

This morning Twitter delivered disastrous numbers for anyone still “believing” in the dream of Jack Dorsey’s turnaround strategy and execution. (Imagine that, I wonder who could have seen that coming?)

Yet, what caught my eye were two things I have been arguing for quite some time in response to ad revenue for Twitter rising going into the end of the year. (e.g. Q2 – Q4 2016.) The most common explanation was that Twitter was getting better and revenues were going the right way because of better execution and more. I doubted that reasoning entirely, in fact, I said on numerous occasions:

“I believe all this buying in social is a consolidation process where advertisers are going to concentrate and throw everything they’ve got in one last pitched effort going into the holiday shopping season.”

Guess what? Not only have ad revenues reversed since the holidays – they’ve now undercut YoY comparison by some 14%. But that’s not all – their actual user base in the U.S. has now begun to shrink. That’s not a good sign for the entire social complex in my opinion. Let alone, for any “turnaround” hopes.

So if we weigh the above with what Facebook reported is there anything to extrapolate? I believe there is, and it comes from Recode™. To wit:

“Facebook has been warning investors for the past year that its revenue growth would slow “meaningfully” in 2017 because it has finally run out of places to put ads in News Feed.

So far, that slowdown hasn’t really happened. At least not meaningfully, though year-over-year revenue growth has declined each of the past four quarters.”

Yes, you read that correctly, YoY revenue growth has actually declined, and declined sequentially. That’s a metric that’s going in the wrong direction when what’s seen as “all the competition” is collapsing simultaneously. At least when it comes to their share of the “ad pie” that is.

Now piggyback the above with what I’ve iterated ad nauseam e.g., “I argue we’re currently in a consolidation process, which is exactly what I would expect if we are indeed in the latter stages – before it all falls apart.”

I am of the opinion Twitter’s latest report, along with Google’s are proving that argument out. Not to mention the IPO disaster still unfolding.

So where do we go from here? Well, nobody really knows. However, here lies the issue today – and is this:

What happens to Facebook the moment advertisers no longer consolidate, and just decide to just stop throwing money into what is increasingly appearing to be nothing more than some black-hole or drain, with little to no results to show for it – except the bill?

After all, it was only one reporting quarter ago that the CFO of Facebook himself stated as to warn he expected a “meaningfully” slowdown in ad growth “particularly pronounced as we get into the second half of 2017.”

Was this quarter just the result of being the final of last-ditch efforts to throw the remaining ad budget against the “wall” and see if anything sticks? And if it is?

See Google, Twitter, and all the others current price action “pictures” for clues.

© 2017 Mark St.Cyr