Why All The Yawning Over The Yuan?

When it comes to China all the main stream media will ever cover is something in regards to a “hot topic of the day” brought about by either a political discourse, or some celebratory exhibition being observed within its boundaries. When it comes to trade, or business topics, they’ve pretty much abandoned them in total, leaving that realm for the “business/financial” outlets.

So it’s no wonder that when it comes to trade, or monetary issues most haven’t a clue. However, one would think when it came to the #1 financial headline generator that had the ability to send markets plunging reminiscent of a “Black Monday” causing global financial panic worldwide, and triggering (the first time in history) a tripping of all three circuit breakers on the U.S.’s major futures markets, while simultaneously causing the Federal Reserve for the first time in its history to openly state “international developments” as a root cause and catalyst to postpone a monetary decision that is supposedly U.S. centric only. The business/financial media would be all over it. Yet? (insert crickets here)

What is that #1 generator you might ask? Hint: The Yuan.

Except for places like Zero Hedge™ and a few others. When it comes to anything about China’s latest currency devaluation (whether by design or not) one would think there was a media blackout on the subject. I find that strange only for this reason: If you remember the day you woke up in August of last year thinking “Here we go again!” Where some markets had plunged over 1000 points bringing back all the fears of 2007/08. The root cause of that was: the Yuan, and its sudden devaluation.

Only after what seemed (and jawboned) like stabilization (and a note to Jim Cramer from Tim Cook on China implying “nothing to see here, move along” added in for extra measure) did the markets bounce back off the lows to then resume their monetary policy captured antics.

So with that all said for context, the question must be asked: Were you aware that the Yuan tumbled to lows not seen in 6 years? Remember – in August of 2015 the Yuan went to a level that sent markets roiling globally. We’re now well under (or above depending how you measure) that level, and falling further.

Do you think with what you now know that that should be a front-page headline across at least one major financial/business main stream media publication? I know I do.

Or, is that now sooooo 2015? I’m sorry, but this is not something trivial. And if you’re in business, or of the entrepreneurial mindset – not paying attention to this matter is not an option. This is where out-of-the-blue type scenarios with tremendous repercussions such as what happened in August of last year originate, then germinate. If you want proof – just think back to that August so many would like to forget.

Now some will think “Maybe there’s no concern because the politburo has it under control?” It’s a fair response, but there’s a problem inherent with the answer, or answers.

First: If the Chinese are doing it in a “controlled” type manner, it reeks of “currency manipulation” tactics for others (think U.S. presidential politics as of today) to latch onto and build support, as well as strengthen a case for retaliation. i.e., placing tariffs, etc, etc.

If you think about it from the Chinese perspective: that would mean you were openly, and intentionally goading as to fuel some version of a trade, or currency war. When you come at it using that thought process; it just doesn’t make sense. Both from a tactical standpoint, as well as political. Hence lies what maybe even a more troubling scenario. e.g., They’ve lost control.

The only other reason more troubling than the first – is the second. For it is here where things become quite precarious, as I’ve stated many times: “The currency markets are where you must keep your eyes and ears affixed. It’s where the real games are played and won.” And losing control of one’s currency has implications for all others, both warranted, as well as unintended. And it seems this latter scenario might be more on point than the former.

In just a little more than a month ago HIBOR (Honk Kong’s overnight CNH funding rates) exploded to their highest levels since the beginning of the year. The reasoning behind this speculated by many was in direct relation to the oncoming of holidays where liquidity can become scarce. It’s a valid point. However, there was another reason just as compelling with far more onerous tones which many failed to connect the dots to. Here’s how Zero Hedge explained it. To wit:

“However, the most likely explanation is that in order to force Yuan shorts to capitulate as 6.70 remains just barely within reach, the PBOC is simply continuing to squeeze the yuan shorts and raising the cost of shorting yuan, as explained last week. Ultimately, the PBoC weakened its yuan fix by 169 pips to 6.6895 versus yesterday’s 6.6726, even as many were expecting the USDCNY to finally breach the 6.70 resistance level, the defense of which may have explained today’s aggressive spike in HIBOR tightening.”

Less than a week later the above was proved out correct when the afore-mentioned HIBOR surge took place. And once again, this is where that “second” answer I alluded to possibly being more of the issue that the “first” brings with it the real concern.

It would appear that China has been actively pursuing a currency strategy to keep sellers (i.e., shorts) at bay by any means available – no matter how dramatic. They have introduced measures which have exploded HIBOR nearly 200% in overnight trading scare tactics as to either punish, or decimate any bearish bets against anyone currently holding, and better yet, even thinking about placing on the Yuan.

The “magical” level implied by the politburo, which they seemed to be telegraphing in no uncertain terms, was at or about 6.70 (USD/CNH.) They’ve held this level, or manipulated aggressive tactical repercussions to ensure a stability at this level since that fateful exhibition in last August when it was evident control was slipping at best, lost at worst.

Since then they’ve shown blatant disregard as to hide their involvement if it meant holding that level through their inclusion into the SDR (Special Drawing Rights basket of currencies,) as well as ahead, during, and following a G-20 meeting. Holding that 6.70 line-in-the-sand has been assumed to be paramount. Until now….

As of this writing the current level is 6.775 and rising. At first glance that number might not look like much. But in currency markets, (especially where leverage is used in multiples that can bankrupt nations let alone “traders” in one fell swoop) it’s very concerning. For it’s far above what China has demonstrated as “acceptable” and could cause retaliatory measures (again out-of-the-blue) by the politburo that have rippling effects throughout the entire currency spectrum.

Which brings us back to those two troubling questions and answers: Are we on, or about, to see a massive currency move by China as to defend its currency against the shorts? Or, has China lost control and we are on the verge of a massive devaluation with impending monetary and trade ramifications to be felt throughout the global markets?

There is a “third” option, but I’m sorry to say – it’s worse that either the above. And that is, much like I’ve stated previous about “weaponizing the Fed” could cause intended distresses via the monetary channel.

China may have decided to strike first, not by intervening, rather, by something more innocuous, but just as devastating: By standing on the sidelines.

I’m afraid we shall find out – much soon than later.

© 2016 Mark St.Cyr


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

Over the years I’ve made arguments that Twitter™ was a “canary in the coal mine” for not only everything social, but also “the Valley” in general, for this I have also been publicly taken to task by so many it’s been hard to keep track, the most funny too me in retrospect, is one that actually took place on Twitter!

That public twit-storm was in response to my daring to publicly make the case that a CEO, no matter who, running 2 companies simultaneously was folly at best, and delusional at worse. But hey – who was I to question for remember: “it’s different this time.”

So, with that said, as many of you know, I’ve also made the argument that IPO’s and all that they entail (i.e., unicorn and rainbow dreams) since the ending of QE was also over. That claim (once again) landed me among the “Doesn’t have a clue” or, “Just doesn’t get it” assaults with many (once again) in either the “Silicon Valley” aficionado set, or the main stream business/financial media. With the major point (as well as example) as to dispel anything I have said previous, while supposedly giving credence as to why the IPO market was not only back, but why it was going to be back “better than before!” Rested on the shoulders of 2016’s version of another I dubbed another  “canary in a coal mine” debut: Twilio™.

So how’s that all working out? Especially with the “markets” still hovering at never before seen in human history highs? Well, as they like to say in “The Valley;” let’s look at some pictures, shall we? To wit:


On the Left is Twitter – To its right is Twilio, both are from their IPO debut to approximately the same time following. Notice anything similar?

I’ll just make this one statement, especially if you were one of those “lucky” enough to “get in while the getting was good.” Does “it’s different this time” bring on any solace or feelings of “crushing it?” Or. should I rephrase that with: feelings of “getting crushed” feel more appropriate?

So what else has transpired as of late that might help frame these “pictures” for a better perspective, especially since there’s been suitable time for the “genius” that was to have a part-time CEO. That – and QE no longer there for “the wind beneath their wings?” Once again, to wit:

Twitter as of 10/20/16 before the close of the day.

Twitter as of 10/20/16 before the close of the day.

Maybe, you might be wondering, “What caused that last drop?” Especially if you were one of the one’s that believed “This thing is going to be sold, and I’m going to get another chance to “crush it!” Only to find out – as I stated in a previous article – once the public “thanks, but no thanks” becomes public? You’re more likely to get crushed. Hence, welcome back to “You are here” way down there. i.e., welcome to the reality of “Price Reduced!”

Now let’s move on to another topic where I also (it’s a recurring theme, but it comes with the territory) made an observation when it comes to falling ratings in both ESPN™, and as of late: the NFL™.

Everyone (and I do mean everyone) has put the reason on “cutting the cord” or “de-bundling” or what ever term you want to use as a reason for the falling ratings. I argued (and surprise, surprise, basically alone) I believed something else was going on. And in particular I pointed to the insertion of politics into the game, as well as broadcasting, was more than likely the true reason for the falling ratings. Once again, my assertions were met with “doesn’t have a clue” type responses. Fair enough, but there seems to be a problem with that defense….

In a survey of over 1000 identified NFL fans: 29% claimed they were watching fewer games. The number 1 reason why? The political protesting.

But, as they like to say in the media – “What do I know.”

© 2016 Mark St.Cyr

(The FTWSIJDGIGT section came into being when things I was being criticized for “having no clue” over the years, came back around showing maybe I knew a little bit more than some were giving me credit for. It was my way of a tongue-in-cheek as to not use the old “I told you so” analogy. I only say this 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 to seem like I was 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 you, the readers, decide the credibility of either side. However, occasionally, there are times they do need to be pointed out. i.e., something of significance per se that may have a direct impact on one’s business or thought processes, etc., etc, hence these posts.)

Tinfoil: It’s Getting Harder To Leave Home Without It

It used to be when someone mentioned the term “tinfoil cap wearing,” “conspiracy theorist,” “lunatic fringe,” etc, etc. It was usually in reference to a subset of individuals or groups that resided in some dark corners or basements believing “mind control” went far beyond just propaganda. i.e., It was actually the government (or aliens!) sending out undetectable frequencies directly into the minds of the masses. And, the only protection was: tinfoil. With it’s best use fashioned and adorned as a cap. It’s been a running joke (as it should be) longer than most can remember.

Yet, with all that said, it’s getting harder to be out amongst the public as an informed person and not feel as if there isn’t something to all the “lunacy.” For if you speak to nearly anyone these days be it family, friends, coworkers, or the occasional overheard conversations of strangers. You can’t help wondering: how can so many be so clueless? Or worse: how is it they can argue some form of righteous stance about this, or that, all the while they are “knee-deep” themselves in the same (if not worse) muck they say is being slung from the other side?

It’s moved so far beyond ridiculous I’m now starting to believe there is something in the water. However, is it in the tap or, is it in the bottled? For the people able to afford bottled, as opposed to plain tap, seem to have some of the more “crazy” arguments I’ve heard in quite some time. And that’s saying something. It’s the only thing that explains it.

(Note: “informed” would include you dear reader, for the mere act of you reading this, whether you agree or disagree, proves ipso facto that you are searching out information as to draw your own conclusions. And to that – I tip my hat too you.)

So now that you’ve read this far, let’s both don a silvery chapeau and contemplate what might be one of the scariest propositions (if found true) that could change everything (and I do mean everything) as we know it. e.g., “WWIII”

(C’mon, what’s a good conspiracy theory without an apocalyptic conclusion as part of the deal? For if you’re going to go there – just go there is all I’ll say, yes?)

In the U.S. we are currently in the final stages (within 30 days) of the election process where we’ll vote for the next president. And in you were an alien just landed from some distant galaxy you would be hard pressed to not assume Vladimir Putin wasn’t running on the ballot in third-party status. For he’s been mentioned and garnered more free electoral press as it pertains to the campaign than the actual third-party candidate has received – including ad buys. Hence, this is where things get down right loony.

Say what you want about “Russian hackers” infiltrating private email servers and the like. Proving that it’s actually state sponsored, which state (i.e., Russia, China, N.Korea, etc.) is quite another. For it can also be just the garden variety hack (i.e., basement dwelling protesters) or, it could be the sophisticated type, i.e., Anonymous, etc. It’s a guessing game based on circumstantial evidence sprinkled with very suspect actual at best.

However, you know what can’t be denied and is pure evidence based for all the world to see, on purpose?

Military troop movements, missile deployments, a calling home to all diplomats and their children, multi-national communist allied war gaming (e.g. Russian and Chinese navy) on the open sea, all while instructing the Russian population to take part in “live nuclear bombing drills” for the first time since the cold war ended.

That’s what’s been taking place (and a whole lot more) over the last 30 days in the real world. Have you heard, read, or seen anything about it in the main-stream media?

Sorry, trick question. Of course not. Have you heard about the Kardashian’s latest escapades? Again, trick question – you can’t turn on a TV, radio, or go to the grocery store without seeing another version of the same headline. They’re everywhere.

Yet, here is the real question: Can you think of another time when something even resembling the above as it pertains to war, or even the drums of it wouldn’t be the only thing reported this close to an election previously? The silence is so deafening it boggles the mind. For along with this “radio silence” comes forth that other silence – nobody’s taking about it because: nobody knows.

As for proof? As I iterated earlier: just ask someone about it, then watch for the blank stare.

So, as I like to do, let’s not think “outside-the-box” and limit ourselves. Let’s delve more into what I like to call “there is no box” hypothesizing. Where we can let our conspiracy theorist inner person loose and argue assertions and plausibilities without constraints. For remember: facts sometimes prove out that far more lunacy exists in the real world – than the fictional. It’s in the inability to contemplate or, to ” the-getting-there” that blindside most from ever seeing the possibilities that exist. So let’s proceed. And don’t forget your hat….

What if the U.S. drops the “nuclear” option in December? No, not some ICBM. But rather: Raises interest rates.

And not by .25 basis points, but rather, say 50. e.g., 1/2 of 1%.

I know, this is crazy talk (but that’s why we have the tinfoil, no?) But let’s play this through taking the “crazy” view as a possibility. Can it make sense of what we already deem as “crazy?” Sometimes, yes, sometimes no. But you’ll never know unless you try.

Back in May of this year I penned an article titled: “Was The Fed Just Given The Launch Codes?” In it I made some observations as it pertained to “the elites” or “Ivory Tower” type thinking. It was a follow-up from a previous in October where I hypothesized another perilous possibility: “Weaponizing The Fed.

With all that was happening at that time, along with what has happened since, it’s getting harder to push these ideas away, more than it is to embrace the possibilities. And that, in-and-of itself, is causing me more concern with each passing day. Especially when combined with the realities taking place in real-time today.

So what type of “conspiracy” laden scenario can I hypothesize using what we know to be factual, and, what we can conceptualize happening based on what has happened previous? Warning: it might be time to check for any possible tears, or cracks in your metallic helmet, and repair or reapply as much “tinfoil” as one feels appropriate. With that said, let’s continue.

Have you noticed as of late that the more “serious” the Fed. is intoning hawkish tones – the more its Chair Janet Yellen is suggesting monetary lunacy? e.g., “Yellen Says Fed Buying Stocks Is “A Good Thing To Think About

Square this circle if you can: In the U.S. even the idea of negative rates alone is almost too much to handle or contemplate based on capitalistic principles and fundamentals. The backlash and furor alone in just the discussion all but holds it at bay. The finger-pointing at the Fed. currently, along with their trying to defend against “too easy for too long” critics has pushed many Fed. members (even those considered to be doves) to intone hawkish language whenever possible in public as of late to keep the pitchforks and torches at bay.

And yet – the Fed. Chair is publicly affirming (remember: this is only 2 weeks ago) that the idea of openly, and directly buying stocks is something that should be contemplated? Something here just doesn’t add up. Even when using Princeton math. Unless…

What if we were to hypothesize that for whatever the reason, December would be the ultimate time to send the financial world into a tailspin for a desired (“desired” by globalists, or elitists that is) outcome? Many (“many” being common sensical thinkers) would never entertain the idea because of the election in Nov. However, what if there was precedent of, and for, navigating turmoil and instituting the unthinkable precisely at that time? Hint: The interval between the actual election and the swearing-in. e.g., Nov. – Jan.)

One of the most curious things I remember about the financial crisis was the way, then, outgoing president Bush was seemingly instantaneously replaced with the then “president-elect” Obama.

Never before to my recollection had I ever seen a “president-elect” giving speeches or press conferences (especially in times of crisis when there was a live sitting president) equipped with podiums, lecterns, and more in precisely the same configuration, backdrops, and all including presidential seal. You would have thought Obama took over in Nov. rather than January if you didn’t look closely to read the term “president-elect” in the same space reserved for “president” on the presidential seal. Nobody seems to remember that but me when I ask. Yet, if you look back to press clippings from that time, or videos with today’s eye – you can’t miss it.

So now let’s really get into the weeds: What if “elites” or whatever term you want to use for people who think they know what is best for the rest of society, rather, than leaving that up to society itself, and have concluded no matter who wins the election, this whole charade of market stability is about ready to collapse upon itself like a house of cards at any time?

And any time is weeks, or months, not years. What would one do? Wait, and try to deal with the fallout in real-time? Or, bring it down of your own volition and have it fall in some type of controlled demolition experiment of one’s choosing?

I think when it comes to “elites” they believe they can control anything if they are the one’s that initiate it. So, I would go with the latter. And if so, what does that look like? Well, consider this….

Let’s say the candidate of choice for the “elites” wins. How could you employ the triggers with near immediacy that would devastate, or wreak the most havoc on an adversary lest dropping real ordinance? Hint: A release via the monetary equivalent by raising interest rates causing a market meltdown, but in-particular, causing a capital outflow of inordinate proportions out of your adversary, seeking refuge in not only the $dollar, but $dollar denominated securities, and more.

That is – while the $dollar is, still remains/considered “safe haven” status. It doesn’t sound all that crazy when put in those terms does it?

During the most assuredly ensuing period of absolute financial turmoil you (once again e.g. Paulson and Bernanke-esque) convince both the congress, as well as the business community that “Radical action is needed now! Or we all go down in flames.” All the while the current president (much like Bush) steps off to the sidelines where the new (much like Obama did) “president-elect” calls for much of the same, echoing the most assuredly chants of fire and brimstone if “Decisive action is implemented immediately!” No matter how radical or unnerving it may be to commonsense at the time.

You could have a scenario where the wind (as little as there would be except for the bloviating of politicians) of capital flight would be in the desired direction of your choosing, along with the ability to once again push through laws, or just allow for further take over, or more intervention by the Fed. or others in ways never dreamed possible before in a capitalistic society.

All the ground work has already been plowed. Both in some precedents, as well as open rhetoric of the possibilities of going where no modern society has gone before with its capital markets. (Think current Fed. communications)

As for your adversaries? You’d be doing this before they had real-time to test newly formed alliances of monetary trading or swaps in crisis mode. And during a crisis? Money seeks known safety first – not speculative. And the U.S. $dollar, along with its equity markets, as perverted as they are, are still the cleanest shirt in a dirty laundry.

The absolute havoc, devastation, financial destruction, and a whole lot more is almost near unconscionable to even contemplate. Yet, what you have to always remember is this: Elites, or those controlling the power, never think about the destruction happening to them. They always think in terms of “It won’t be us who has to live with our decisions. That’s for others to deal with.”

And if there is any doubt you may have to that last thought. Let me remind you of another story you may not have heard about, and the resulting aftermath when “elites” think “good ideas” that the people must live with and beside – not them.

Welcome to Paris “Scenes From The Apocalypse” circa this month.

A lot of people there once thought “They would never allow that to happen!” Maybe they would like to re-think that again, no?

No tinfoil required.

© 2016 Mark St.Cyr

Twitter Shows The Coming Value Of Social Media – With Its Own

Remember way back in the glory days when the combination of “everything social” and “IPO” meant near instant stardom and riches? For those who might be having a little trouble remembering; it was way back in days past just a little under 24 months ago. Yes, that’s months, not years.

Yet, as far as the many still clinging to IPO cash-outs, or stock option redemption in lieu of salary? It’s bordering on an eternity. And, believe it or not, that waiting game may have just been extended. The reason?

Look no further than the once hailed songbird of both “social,” and in a larger context, much of what being a tech firm in “Silicon Valley” encapsulated: Twitter™

Twitter has truly morphed into the literal “canary in the coalmine” of what I believe portends in the not so distant future for much of “The Valley” and “social media” in general. i.e., Laying on their backs, in the bottom of their cages, with nothing more than rumors and innuendo of either an offer to buy, or worse, an offer to just look. The latter having the worst of consequences once the “Thanks, but no thanks!” formality becomes public.

It would seem, in my opinion, Twitter™ received the equivalent of both in the very same week. Can anyone say (or should I say tweet?) Ouch!

As I stated earlier: “way back” was just under 24 months ago. And what truly took place as to hinder, or tarnish the implied “genius” status of founders, or the brilliance of the “it’s different this time” defense as it pertained to actual fundamental business metrics was The Fed’s ending of QE (quantitative easing.)

And with that has come the realization (albeit very slowly) that “unicorn and rainbow” thinking belongs where it should – in fairy-tales and folklore.

Want proof? Just look back to the ancient texts circa 1990-2000 in the “dot-com mania and crash section” via your search engine of choice. And for those of you old enough to had been “invested” back then? Just remember to have a tissue at the ready is all I’ll say.

For those not familiar, or those painfully trying to forget, the condensed version is this…

First there were cracks in the meme (think “it’s different this time”) then, one by one, once heralded IPO high flyers (think Twitter, LinkedIn™, etc.) began losing value from their peaks. At first it was slowly, then suddenly, and all at once, where they never regained their former lofty valuations. Till finally, the revenue models (think “eyeballs for ads”) along with their assumptions (think “billions upon billions of potential customers!”) were completely destroyed, taking even the largest of players down only a few years later of what was seen at that time as “unimaginable” with the demise of the then king of “new media” AOL™, yesterday’s equivalent of Facebook™ today.

But not too worry, after all, it’s different this time, yes?

Although I’m not as old as Methuselah (if you don’t ask the kids) I penned an article way back when in Sept. of 2014 titled “The Shot Heard Round The Valley World.”  right before the official ending of QE. And in it I made the following argument. To wit:

“But, one shouldn’t read into this as “confirmation” the risk appetite story is not only alive but growing. For that is all about to change.

Once the Fed shuts down the section of QE that has been pumping Billions upon Billions of dollars every month – it’s over for a great many of today’s Wall Street darlings.

Think of it this way: Who is going to fund your next round when they no longer have access to the Fed.’s piggy bank? Let alone pump more money into older start-ups that just haven’t produced any real money (as in net profit,) but have produced nothing more than great new employee digs or benefits?

Tack along side this the culture shock in what will seem near instantaneous with the shunning that will take place of any business resembling the, 3 employee, menial customer base, Zero if not negative profit margin businesses formed with the implicit intent as to be bought up or “acquired” for Billion dollar pay days.

These will be the first to go. That formulation is going way of the now infamous Pets dot-com sock puppet. This will be the first true shock to Silicon Valley culture that hasn’t been seen in many years. And it will be far from the only one.”

Along with this assertion:

“And that won’t be the only monumental shift coming. Maybe, one at an even faster pace: The meaning of IPO.

IPO is not going to have the same term of endearment it now has. I believe it will turn into the last and most dreaded three-letter acronym no one ever imagined in Silicon Valley.

The IPO screams of joy will turn into wails of terror when those VC “angels” meet at many “treps” desk and state – they’re IPO-ing.

No, not getting one set up for the big pay-day. No IPO will mean: “I’m pulling out.” i.e., “Have a nice day. Where’s the rest of my money?”

The once renowned purchases of “Billion dollar babies” will prove out not to be worth two cents in this environment.

Valuations will get crushed and people will be shocked at just how fast a company touted across the financial channels and other media as “fantastic buys” are flogged and fleeced when Wall Street comes back for their “investment.”

If the story or the numbers aren’t there – neither will these once darlings of Wall Street. Regardless of size or stature.”

You saw the ensuing cracks begin during the initial months of 2015 as the IPO market began drying up faster than a puddle in the Sahara as once Wall Street IPO darling stock prices went from “high flyer” to “dropped like a lead balloon” status – and never, repeat, never ascended within earshot of those once “totally worth it!” valuations.

Twitter is just the latest, LinkedIn showed just how much “hype” there was to all these valuation metrics. For without a Microsoft™ buy-out? It appeared when it came to getting more LinkedIn shares? There were more people looking to Link-out.

But not too worry! 2016 was said to be “The year for a rebirth of the IPO market.” That was said during the closing months of 2015. It’s now mid October 2016. How’s that all working out? (insert crickets here)

However, many will state this is all a bunch of “hyperbole” or “uninformed assertions” or better yet, as is portrayed among the main stream financial media crowd as “the doom and gloom-ers looking only to be proved wrong again, i.e., “For just look at these markets!” I leave you with 2 words that were near unconscionable over the last few years.

Two very small words that have monumental implications and should bring panic to anyone in tech, “Silicon Valley,” or still holding dreams of cashing out large on the basis of an IPO built on the “Eyeballs for ads” model. And it’s right there in Palo Alto, California for all to see. That is – if one dares look.

Those two words?

Price Reduced!

And no, that’s not in reference to a Silicon Valley darling such as a start-up. No, those two words belong to that other seemingly invincible meme which was seen as far more stable than the IPO’s that afforded them.

Real estate.

© 2016 Mark St.Cyr

R*: Welcome To The Rock Star Of Central Banking Lunacy

I know more than a few of you reading this looked at the above headline and thought, “Huh? What the heck is R*?” And if you did, chances are, you’re one of the few remaining people with your heads down working tirelessly as to keep whatever en-devour you may be pursuing to stay afloat (i.e., your business, your job, etc.) For you don’t have time to think about esoteric monetary principles or theories now being debated, hypothesized, and pondered in the wood-paneled rooms reserved for Ivory Towered academics, policy wonks, Nobel Laureates, and central banks the world over.

However, with that said, make no mistake; as of today the entire global monetary system is riding upon those two seemingly unimposing characters: R*.

So what is R*?

Basically it is defined as : the neutral rate of interest. Also known as “the natural” or better yet, “The Goldilocks rate of interest.”

If reading the term “Goldilocks” and “interest rates” in the same sentence just made your blood chill? Congratulations – you’re normal. Yet, in the hallowed halls of economic policy wonks? Yes, that is a real moniker. And to prove that point here’s an excerpt from a recent FT article. To wit:

“A crucial part of the debate is a term which had previously been confined to economic textbooks – the neutral rate of interest, also known as “r-star”. It can be best described as the “Goldilocks” rate of interest – consistent with stable economic growth that does not cause inflation to overheat. Not too hot and not too cold.”

Now don’t get me wrong, I’m not taking shots at the Financial Times™ for trying to explain to the casual reader what R* means. What I am pointing out is this: Suddenly this once obscure term now needs explaining in the first place.

Media outlets such as the FT and others speak to a very specific crowd. i.e., (Ph.D economists, policy wonks, central bankers, et al.) And that crowd knows precisely what R* is and what it means. What I find interesting is just how often this once little known text-book equation and theory has now been referred to by not only The Fed, and in particular: Janet Yellen – but the entire global monetary spokespersons, along with the media and sycophantic think tanks that follow them.

This once obscure economic equation has now practically jumped into every current conversation today as it pertains to monetary policy. Suddenly, it’s everywhere. Nearly every conversation over the past few months whether it be television, radio, or print pertaining to monetary policy can no longer go more than a few minutes without delving into “the neutral/natural rate.” e.g.: R* Even next-in-rotation fund managers have gotten in on the R* jargon bandwagon. And to my thinking – it rings the alarm-bells louder and louder with every increased mentioned. And here’s why: (Remember: This is meant to be an exercise as to grasp the concept of what’s taking place as a result. Not a working explanation of the theory.)

The way I explain R* is this: Think of R* as the “adjustable-rate” or “interest only” mortgage payments on the global economy. Yes, precisely like those wonderful mortgage vehicles that blew up housing and the entire financial system along with it in ’07/’08.

In other words: R• is the working equivalent that’s facilitating corporations to borrow and borrow as to buy back shares, conduct M&A, and more by acquiring ever more debt at low-interest rates while their top and bottom lines continue to deteriorate.

If that sounds a lot like another vehicle (e.g., Liar Loans) from that same period which allowed and facilitated people to buy bigger and bigger, or more houses right before the financial crisis? That’s because in principle – there’s no real difference. i.e., Financially engineer your books to state whatever it is you need (think Non-GAAP) then borrow money against it as to either put on an addition (think M&A) or to just increase your curb appeal raising the perceived value (think buy backs.) Rinse, repeat. Not that dissimilar, are they?

(On a side note: I’m not even adding in the other more concerning fact of enabling governments the equivalent of a blank checkbook, forget about just a check.)

However, if you understand just how eerily similar the above is – here comes the part in which it becomes inherently frightening. Ready?

What was the working thesis during that period, as well as the repeated response when any concern was raised? Hint: “You can always refinance.”

How’d that all work out?

If you remember (or were unfortunate as to take one) adjustable rate mortgages and-the-like were speciously sold, or advised, to people as to not only buy homes or refinance, but also afford homes far beyond their means. Again, to reiterate the presumed working thesis: If the time came when interest rates moved higher or some other measure? They could always just refinance into some other vehicle. i.e., a fixed rate product, etc., etc. And if push came to shove: Just sell for either a profit, or wash.

The problem as we all now know is “refinance” became an empty promise – right before the guarantee of foreclosure, bankruptcy, or both.

Yes R* assumptions for stability and control-ability can turn into WTF* moments of panicked reality in the blink of an eye. All it takes is one (and just one at that) hiccup and the whole theoretical construct comes crashing down along with all those seeming stable lofty values and assumptions when suddenly – no one trusts who’s solvent, if anyone, regardless.

Whether you’re listening to the Fed. or any other central bank today the immediate response along with their working assumptions hinges around the same presumptive arguments that revolved right before the last crisis. i.e., “We have more tools.” “We’ll do whatever it takes.” “Sometimes you just have to believe.” etc., etc.

This is today’s equivalent by both Central bankers, and their gaggle, intoning words of “surety” much like the mortgage brokers, banks, real estate agents, media and more right before the crisis. i.e., “Relax, you can always refinance.”

In the days leading up to the first wave of the financial crisis in 2007 it all seemingly began with what appeared like only “a hiccup” in the ever burgeoning mortgage and real estate market. For then, out-of-the-blue, New Century Financial™, one of the largest subprime lenders went into a death spiral. Approximately 3 to 4 months later it would be gone.

After that? Again seemingly out-of-the-blue, only 3 to 4 months later, what was also regarded as “one of the largest if not largest” subprime lenders Ameriquest Mortgage™ would be gone. This was near inconceivable when less than 2 years prior (’05/’06) it appeared they were sponsoring everything from stadiums, NASCAR™, Super Bowl™, and even the Rolling Stones.

It was hard for anyone to imagine just how violent, as well as devastating this would all turn, again, just barely 24 months after 2005. Especially those who controlled interest rates and monetary policy. e.g., The Fed. (in particular) and central bankers globally.

If anyone cares to remember, during the initial crisis the Fed. then headed up by Chairman Ben Bernanke raised interest rates because? He felt (along with whomever voted along to enact it) that the housing crisis was both contained, and believed, for whatever the reasoning, that during that initial period of panic was precisely the right time to raise.

Question: How’d that all work out? Answer: Don’t worry – they now say they’ll know what to do should something like that ever happen again. Feel better?

Now there are two very important factors I would like to remind you of dear reader that I believe is very germane to this whole argument, and they are these:

First: Before the ensuing financial crisis the Fed. had kept interest rates low as to help ward off the lingering effects remaining in the economy from the dot-com crash just a few years prior. Many educated interest rate and monetary policy adept people and pundits (think James Grant, Bill Gross, et al) were sounding alarm bells that the Fed. was just enabling another asset bubble. e.g., The dot-com bubble being the first, then the subsequent housing bubble.

Second: It was during this period of time (i.e. 2005, you know, right before everything came off the rails) that a little known to the public-at-large Fed. member Janet Yellen, then the Vice Chair was articulating what was then an obscure theoretical model to what is now on the lips and tongues of nearly anyone concerning today’s monetary policy effects: e.g., Neutral monetary policy, or R*

And Third: Not to make anyone nervous, but one of the largest banks in the world with contagion risk  via derivatives (think subprime products for banks) in the 10’s of TRILLIONS of $dollars looks to be entering a phase which many have dubbed “a death spiral.” e.g. Deutsche Bank™. Yet, just to add to the already frightening similarities of the last crisis, now it appears Commerzbank AG™ is raising alarm-bells in unison. The reason for these distresses? Current central bank policies and financial repression. Imagine that.

Make no mistake: On the global scale Deutsche Bank and its portfolio of derivative exposures alone has the ability to cause financial contagion across the global monetary system in ways similar to the initial days of the financial crisis. i.e., Who has exposure to what, along with the resulting freezing up of banks dealing with other banks as the fears feast upon themselves.

But not to worry, after all, we’re told over, and over again when it comes to things like this – “They’ve got this all under control.”f And if that doesn’t make you feel better – take a line of resilience from that real “rock star” of calm and composure. Alfred E. Neuman….

“What, me worry?”

© 2016 Mark St.Cyr

How To Kill A Brand: Just Add The Political Football

There was a time when tuning into a sporting event meant just that: a sporting event. However, now? Sporting events have turned into nothing more than political platforms, sporting better venues, camera coverage, and sideline commentary. Oh yes, and a little sporting activity once known as “the game” as to fill in any remaining dead air.

Today, nationally broadcast sporting events have become nothing more than events to be hijacked by the political topic of the day. But maybe “hijacked” is not the correct word. For I’m of the opinion in many such instances – they are either encouraged, are by design, or both. Depending on which political football is to be thrown onto the field of play.

And let’s make no pretense: when it comes to this “game?” There will be no place for civility, good sportsmanship, fair play, or the observance of rules, etc., etc.

No, once this “football” lands on the field of play – the only rules are – there are no rules, nor any boundaries where one can not venture. Along with no respect for your fellow players whatsoever.

The waged war of verbally thrown antics (and more) against one team vs the other would make a day in the Roman Colosseum look tame. For as you watch these now politicized sporting events, whether large or small, it is hard to miss the voracity of this take no prisoners blood-sport that has evolved; both in the media booths, and on the fields.

If this gamesmanship were focused upon the actual sporting event, and for talent which it is supposed to represent, rather, than the “political football” cause-of-the-day by not only the media, but by the actual players themselves? They might not be losing millions, upon millions, upon millions of viewers monthly.

I make this case for it would appear viewers who just want to sit back and escape the sheer never-ending onslaught of politics now permeating every venue of society as to solely watch, root, and pray for a championship are no longer the customers of sports. At least that is how it feels to someone like myself (and I’m far from alone) who just wants to watch a game.

No, it would seem “sports” has decided the only customers that matters are: You on the Red team? Or, Blue Team? (e.g., Republican or Democrat) Or, are you for, or against, the grievance of the day?

If you tuned it to see that game? Well grab you favorite beverage, snack and get ready to engage! For it will be hurled at you from not only the broadcast booth or sidelines. But from the actual playing field itself. Enjoy! And just as a reminder: If you need to make an additional “beer run” or have to make an unanticipated run for the lavatory? Not too worry – what do you think the actual game is for?

Harsh? Yes. Far from reality? Not by much in my opinion.

This is what far too many sporting venues along with their subsequent broadcasts have become. And – it’s absolutely destroying their brands.

I don’t believe that’s hyperbole, I feel there is now empirical proof to back up that assertion. Yet, it would appear the ones currently oblivious to such conclusions are: the sports media, franchises, sponsors, and advertisers themselves. However, that’s not that hard to understand. For if you look at politics in general – the ones most clueless about brand integrity are – the entire political class. And sports now seem to be emulating them with a vengeance.

So, is it any wonder when such franchises like ESPN™ and The NFL™(just to name a few) begin emulating the political, they begin turning people off? Not only that – seem oblivious as to the reasons why their numbers are falling?

Compare any Bob Iger or Roger Goodell statements as to explain the continuing falling viewership numbers of either ESPN™ or, The NFL. I wouldn’t fault you for wondering if they were explaining business metrics or, the latest presidential poll numbers. The lines have become so blurred I don’t think instant replay could add any clarity.

As I mentioned earlier, I believe there is now empirical proof that it is the politicization of sports that is turning fans away in droves. And it’s gaining momentum. Let me explain:

Back in September of 2015 I penned an article titled “ESPN: Cutting The Cord Or Political Turn Off?” It was in response to what was then the topic du jour “cutting the cord” as to explain the falling viewership numbers at ESPN. I proposed a different argument, to wit:

“ESPN (like a few notable others such as NBC™) has seemingly transformed at near hyper-speed from sports reporting – to political sports reporting. The political edge now rampant throughout the shows, games, interviews, et al is overbearing, overburdening, and overdone.

Here’s what I know from my own experience: It has become near impossible to turn on something that was originally created for pure entertainment value without now being bombarded with how the “political football” issue of the day is being addressed by the commentators, sideline crews, as well as players and coaches. e.g., I tuned in to watch a football game – not a game about how today’s “political football” is handled and won. i.e., gun control, domestic violence, civil unrest, global warming, etc., etc., on, and on.

Important issues all. However, is there no respite today as to maybe catch a breather and just enjoy a sporting event and its minutia without having today’s “political football” and all its baggage forced down my throat by sports casters, players, and more? It would be one thing if these shows mentioned these topics when appropriate. But now? One would think they were watching a Sunday morning news show rather than a sports channel. Everyday 24/7.”

In response to my allegations (to be clear, these were made from my own viewpoint and perspective using myself as the example only) I heard from many in both the media, as well as colleagues that, “I was off base,” or “I just didn’t get it,” and more. Yet, it would seem based on this years ratings revelations I might have been far more on-the-mark than even I realized at first. As for proof? The current ongoing debacle in falling and diminishing viewership of the NFL.

In the U.S. the NFL is the most watched venue, bar none. It has been on a rise without pause for well over a decade if not longer. Till – this year.

Can you think of anything which has garnered the headlines of the sports media or, for that matter, media in general? Hint: It has nothing to do with sports.

Today’s topic is all about a backup quarterback (Colin Kaepernick) being paid millions, upon millions of dollars to sit on the bench. All while he makes public his political views by kneeling and becoming a first round, first choice, go-to player of the political.

Think I’m off base? Well, now it’s all about his views on the presidential race. But that was last week, next week I’m sure he’ll move on to something more sports orientated. Just kidding – that’s wishful thinking. He’s a now a political star. It would appear football is now secondary.

And with that said, the numbers are proving out that millions of once reliable consumers of the NFL are turning away in droves. In their views it would seem this “political football” is no longer worth the price of admission. Even if it is on basic cable.

Every game, of every week (as has been reported) this season has lost ratings. Season openers, Monday night, Sunday’s, Thursday’s. all of them have lost rating share. You want to argue that’s some “cutting the cord” phenom taking place? You could have held that viewpoint last year. But this year? Sorry, that would be more like a politician burying their heads in the sand. Oh, wait. Sorry, we are talking “political football” now so, why would the leadership at these outlets appear any different.

Parents don’t want to have to explain to their young children why players are doing X when they barely understand the rules of the actual game to begin with. And fans of the game don’t need to watch or hear players and broadcasters make political statements while admonishing any of those fans for having either a differing opinion or, just not up to speed on the political topic of this game day. Personally, I’m sick of it. Regardless of the cause. And as the rating continually show – I’m far from the only one.

I didn’t watch a single NFL game last year for the first time that I could remember. I was all set as to resume this year, then, the kneeling started. And with it I decided to take a seat elsewhere. As I’ve iterated previously. it would appear I am far from alone. And the numbers are chronicling it.

The problem is: once you allow politics into a venue where the arguments (whether good or bad) were basically shunned and the emphasis was placed squarely on the venue (e.g., actual game) at hand. The resulting hoopla of political frenzy and additional coverage at first appears to be some sort of “win – win” for both the ratings and subsequent ad revenues charged.

But it’s a “sugar-rush.” An ephemeral boost that doesn’t last, but actually destroys a brand in the end. The only brands (or outlets for that matter) which can play that game are the ones that are designed to play it. i.e., news media, talk shows, etc. But nobody’s watching those like they used to either. For they’ve turned reporting “the news” into today’s sporting event and many have destroyed their brands and franchises along with it.

The sports world is doing precisely the same by way of reversing the medium. But make no mistake, the results are the same, and again, the numbers seem to be accurately keeping that score.

You would think the “sports” media along with franchises such as the NFL and others would be cognizant of all that. But alas, it would seem they’re far too busy making excuses for their falling numbers, just like – you know – politicians.

© 2016 Mark St.Cyr

In Response To An Inquiry On Wells Fargo

I received a few inquiries today on my thoughts about the current debacle unfolding at Wells Fargo™ and in-particular, their now embattled CEO John Stumpf. I thought I’d share them with you for you never know if they’ll be run or not. And I know some of you just like to know. So here was my reply:

Question: What is your current thought pertaining to Mr. Stumpf and his appearance today before congress?

Me: His appearance today will probably be seen as much worse than his first, if that’s even possible. The reason for that is two-fold. First: He did himself absolutely no favors in his first appearance for it seemed all he did was try to hide behind some form of Human Resource inspired gobbledygook. It was both painful, as well as pathetic to watch.

A CEO, any CEO in my opinion, that does not have the moral footing as to come out and denounce such revelations both vociferously, as well as, having (or at least insinuating) the moral standing as to denounce these revelations with forceful, and believable righteous indignation, does nothing more than show themselves to have been nothing other than a “Don’t ask question, if it’s not hurting the bottom line” facilitator.

If he takes to the congress today resembling or stating anything like that as he did last week? Regardless of how much they have said will now be clawed back from him and others? The congress will be looking for not only his head but probably quite more.

The panel will be far more prepared to go after him for they know there’s “blood in the water.” The problem for Mr. Stumpf is: it is his – not some underling’s further down the chain of command. It’s quite possible like many times in history where one’s name can suddenly become a moniker. For the offense is so large it not only marks that single event, but marks where others (“others” being further banking allegations or investigations toward others) may follow. e..g., A Minsky Moment. The Madoff Moment, and now, quite possibly The Stumpf Moment, but we shall see.

Question: Are you saying you think this is the beginning of something larger?

Me: Precisely.

As much as I don’t like the idea of private businesses being called before politicians in an open forum where allegations and more can be thrown about resembling kangaroo court antics. The banks as well as their CEO’s have pretty much brought this all upon themselves with the bailouts and more resulting in the 2008 financial crisis. In effect the banks pretty much abdicated their “private” entity when they decided as to accept more congressional intervention or oversight since. And for one of the largest banks to be caught red-handed in a scandal such as this? All I can say is: How foolish can you be? Oh wait they answered that, didn’t they?

Question: Thanks for your responses.

Me: You’re welcome.

© 2016 Mark St.Cyr


Facebook: Rhyming AOL With An Auto-Tuner

For the last 7 years or so one thing has been certain: don’t you dare compare anything “tech” today to back then. What is “back then?’ Hint: the dot-com crash.

Why? Because: “It’s different this time!” Well, my answer to that remains the same: “Sure it is.”

I have been making that case to the screams and howls of many of today’s Silicon Valley aficionados. And for a prominent example, I’ve used none other than the most idolized company of tech today to compare it against the same of the 90’s e.g., Facebook™ and AOL™.

In doing so I have received more vitriolic disdain than if I had tried to openly explain the value of religion at an atheist convention. The only comparison that may top both is trying to explain Business-101 to Ph.D economists. But I digress.

In trying to make the case using true business metrics, as opposed to unicorn and rainbows, fundamental business metrics, and principles, have always fell short for only one reason: The stock price.

When a company has nothing more fundamental than a burn-rate, as opposed to a fundamental such as making net profits? The rising value of the stock price (regardless of its multiple) is nothing more than the fundamental business phenom known as – the greater fool theory. Period.

Yet, the argument of “It’s different this time!” tries to hide behind that theory (a fool’s theory by the way) as the reason why companies that generate less than no profit – are worth 10’s of $BILLIONS in market cap. That’s not – it’s different this time – genius. That’s – same as it ever was – stupidity. Plain and simple. Where some of the reasoning argued could make even P.T. Barnum blush.

So why do I say Facebook (FB) and AOL of the past are rhyming and so in-tune today? Well, let’s just look at the most recent scandal revelation coming out of FB today. e.g., Overestimated a key video metric for two years.

Now some are stating this latest oopsy is immaterial since FB is said to charge after 10 seconds. So, as the thinking goes, no one paid for something they shouldn’t. Well, that’s how it’s being argued by both FB and those marketers that rely on getting companies to part with their ad dollars via their services and FB’s. But to an advertiser? I’m sorry, but that revelation is far from no big deal. And here’s why:

First: Why was the distinction of not counting from the first moment till after 3 seconds made in the first place if not to skew a metric in a more favorable light? i.e., against other competitors metrics, etc.

One thing you haven’t heard, at least to my knowledge, is this: Advertisers (you know, the ones who actually pay) were made aware they didn’t count the first 3, that they start their compiling at 4.

I’m sorry, but if they didn’t disclose that in their metrics and hid behind skewed numbers instead? That’s a problem. And a very big one at that. Why?

FB seems to not just be having an out-of-the-blue oopsy moment. No, it seems revelation, after revelation of improper practices are coming to light faster, and what some might infer as more scandalous than the next. Need a reminder?

Remember how FB claimed for the longest time its “trending” news stories were all algorithm based? (i.e., no human intervention.) Only to admit “oopsy” yes there was. Yet, the “You should still trust us” excuse came in the form of some “because no one is/was suppressing anything” only to find out that, once again, oopsy – there actually might have been some. But not too worry, it was just a little, nothing material, nothing to see here, move along, thanks for signing in and stopping by.

That whole scandal/revelation still has much further to go as to where it may, or, may not end. For much like the “3 second video” disclosure – advertisers were paying for something using metrics supplied by FB and possibly receiving something different. e.g., The ongoing Steven Crowder vs Facebook Inc. lawsuit.

Add just the above with another revelation (one, in my opinion, is truly breathtaking) which came in the form of not a scandal per se. But rather, it came in the form of the largest ad buyer in the world stating publicly that one of the cornerstones of FB’s ad business (i.e., the ability because of its vast data gathering to target specific customers, in my opinion its raison d’être)  was – yeah, not worth it.

So that’s just some of what is transpiring today, so “Where are the comparisons to AOL?” you’re asking. Fair enough.

If you watched any followup of FB earnings reports by the mainstream financial media one of the things you’ll hear is something along these lines, “They really get mobile, and they’re the biggest player in that space and making money to-boot!” They’re fair points, but just like in the 90’s – all “ad” spaces were new. Mobile is just this period’s comparison to desktops, as banner ads were to actual newspaper ads.

Here’s a report done by CNNMoney™ on AOL way back in August of 1998 (you know, just previous to it all coming apart) titled “AOL – We’ve Got Profits!” As one reads it, it’s striking just how much it rhymes with FB today. Especially when you read things like this:

“Entering our new fiscal year, we’re not only the biggest in the industry, but the most profitable. Fiscal 1998 was more than a great operational year for us, but it will serve as a strong foundation for years of profitable growth,”

Sound familiar? How about another?

From the same article:

“If we continue to grow membership, advertising and commerce, we believe we will continue to show very strong growth in profits.
“The overall driver will be turning this into a mass medium. The question is who’s going to get those customers.
“We’re not going to get complacent, but we’ve created a service that’s fun and easy to use. Those factors and the general shift in spending to new media positions AOL as the best brand in the industry.”

Uncanny, no?

Now a lot of people are going to say “Yeah, but you’re just “cherry-picking” as to try to make a point.” And that is a fair argument. However, FB and its entire business model, stock valuation, and many others I have been stating (and pointing out) are far too similar to AOL of the past and is a real-time barometer of what I believe portends to the entire “social” genre of today. i.e., It’s just one hiccup away from entire meme of “it’s different this time” going the same way of the dot-com bubble of the 90’s. Because, in my opinion, FB is showing it’s contracting a very, very, bad case of fundamental business indigestion with each new scandal revelation.

As to show how the “indigestion” becomes manifest into business “ulcers.” Here’s a story from the NY Times™ just a few years later (’02) titled : “AOL Falls 15% as Analysts Express Concern Over Ads” And here’s just a few quotes. To wit:

“The call today was psychologically driven, rather than quantitative,” said Richard Greenfield, an analyst at Goldman, Sachs, which removed the stock from its recommended list and rated it as market perform.

“It was based on the belief there were too many issues that had piled up about the AOL division including its growth strategy, its current lack of management and the S.E.C. probe,”

And here is one I feel is probably the most ominous for those who understand such things. Once again, to wit:

“Regardless of whether it accounted for them properly in the past, AOL made some new disclosures yesterday that showed its online ad business might be far worse than previously understood. Until the end of 2000, America Online would boast each quarter about its advertising backlog, or the value of signed contracts to advertise in the future.

AOL had made a specialty of signing multiyear, multimillion-dollar advertising deals, especially with dot-com start-ups hoping to go public.”

Do you remember who was one of the largest contributing ad buyers in FB latest earning call? Hint: Ads for app installs. i.e., Start-ups. Today’s version of yesterday’s dot-coms. And guess what today’s “app installers” have with yesterday’s “dot-coms? Hint: Entities created on spectacular, speculative cash-burn. (Cue onerous Halloween music here)

Here’s a line from an article to put it into context from Fortune™ in July of this year. To wit:

“Some investors believe that Facebook may see a drop in ad spending as the funding for tech startups pulls back. Startups are big customers of Facebook’s popular app-install ads.”

The more things change, the more they stay the same, no?

Then, in just under a year later – it was just about all over. One of the main drivers for the stock falling ever further? Here’s a transcript of an online discussion on this subject via The Washington Post™. Of all that is asked and answered this one line hit me with such rhyming, it is where the auto-tuner reference came to mid. Once again, to wit:

“Arlington, Va.: What’s behind the huge drop in ad spending at AOL?

David A. Vise: AOL aggressively made unconventional ad deals, many with .coms that have since gone broke when th bubble burst. The drop reflects the run-off of those deal and AOL’s inability to replace those ads, even though overall spending nationwide on online ads is growing, boosting ads @ Google, Yahoo and others.”

Yep, nothing to see here folk, just keep on signing on, and buying, in while humming a happy tune that rhymes with something like “The Swissy’s got my back, Yeah, Swissy’s has got my back, Oh the Swissy’s….”

Yup, It sure is different this time.

© 2016 Mark St.Cyr

Yellen To Wall St: It’s Christmas In September So Buy, Buy, Buy!

So, here we are, the first day of Fall and just like the leaves slowly losing their luster before they wither all together and die, so too is the economy as The Federal Reserve – once again – chose inaction for action. All the hawkish implied statements, all the “They’re really, really, really, gonna do it in September!” has come and gone – once again – upon the furious wings of doves. I’m sorry, but this has now become so ridiculous – it’s bordering on maddening.

If one listened to the presser immediately following the rate decision given by Ms. Yellen, one couldn’t help but be dumbstruck as to think that they really might think we believe, or are considering, their prognostications are based in reality. The only true reality is, I almost couldn’t stop laughing as I typed it. And I know I’m far from alone.

First off starting with the press conference. One of the things I’ve had to hone over the years is the ability to read people, in real-time, whether it was for sales negotiations, contracts, hiring, etc. It’s an essential part of the business toolbox much like the need for a well honed bull#### meter. And the more I watched many of the exchanges, along with contemplating the reasoning of the answers, the more my meters kept pegging to 11. I’ll highlight just two for examples.

The first came oddly enough in the very first question posed in the Q&A by CNBC™ reporter Steve Liesman. The question was nothing out of the ordinary especially given the current circumstances (i.e., questioning Fed. credibility as they once again kicked the can.) However, what did seem rather odd was Ms. Yellen’s response. Not the content of that response, rather – the way in which she delivered it.

Her answer seemed in no way to be extemporaneous. It had all the hallmarks of an “in-advance, prepared question and response.” Here’s my reasoning (remember, “reasoning” for I have absolutely no proof):

First: It’s well-known that Mr. Liesman is an ardent supporter of the Fed. along with a seemingly favored (i.e., they know they’ll be treated with kid gloves) interviewer by the Fed. itself. Second: The question was the most obvious question, and the one that needs to be addressed first as to get it off the table (i.e., I’ve already answered that so let’s move on.) Yet, it’s the third part that solidifies the reason why my meter went to 11, and it was this: Ms. Yellen seemed to be reading the answer verbatim from a prepared statement.

Don’t take my word for it, watch it for yourself. Personally I was dumbstruck by the exchange, and especially by one who should understand “communication” and how the cottage industry of detailing and parsing the Fed’s wording, demeanor, and more is now viewed in today’s Fed. centered world. Or, did she do precisely what is demanded in today’s HFT centered market?

Under normal circumstances it would be far more important for any leader (i.e., Chair, CEO, etc) to have answered such a question directly, forcefully, and extemporaneously. Again, especially given that the Fed. had done nothing but send “hawkish” signals prior. Yet, the Chair delivered what can only be interpreted as “prepared remarks and wording” to what is posed as an open question live Q&A.

You would not do that if your intended recipients were carbon based. It just doesn’t come off as credible. However: that’s precisely what you would do if your intended audience (or the audience that strikes fear into your committee) is silicon-based e.g., the parasitic, algorithmic, headline reading, laser enabled, High Frequency Trading (HFT) outfits. Here – wording, and precise wording at that, is paramount.

The next iteration of this form of exchange came a few questions later from none other than who is now known as “The Fed. whisperer” John Hilsenrath of the WSJ™.

Again, here was a question much like Mr. Liesman’s: a must ask, and, the way in which it would be answered, again, has real implications. i.e., “Will you raise before end of year, and is November now off and December the real focus?” The response? No need to type it all again. Just insert from the first question and response here, in every detail.

Now I will say there are times Ms. Yellen does answer other questions where at times seems to be glancing at either notes, or a prepared “call back into mind” response note which are tricks of the speaking trade. That’s not what I’m calling attention to here.

What I am highlighting is the stunning coincidence that the two most probable important questions of that presser were one: asked by the two reporters, to many which are viewed as the most accommodating Fed. reporters currently, and secondly, those questions seem to be the only ones in the entire meeting that were answered as if reading from prepared text, with absolutely no follow-up questioning as to clarify or pull any more information forward. None. Yet, that last part isn’t that hard to understand. For they’ve all seen what happens when one does precisely that.

If my assumptions are correct, than the implications for not only the “markets” but for the economy as a whole are truly frightening. Why?

Easy: It would prove as I stated many times earlier: “Wall Street now knows it can manipulate Fed. decisions with deadly efficiency.”

Want proof? See Wall Street’s efficiency in real-time by looking at any recent index chart and the “markets” response to a well-known dove imitating hawkish calls (e.g. Mr. Rosengren) then to what was considered the last voice of the Fed. before their media “black out” time before the September meeting delivered by Ms. Brainard as she intoned why the Fed. should refrain from raising rates.

If that isn’t enough “coincidence” to make a point I offer up the time since as the “market” appeared to be in limbo (if you look at the two days prior to the announcement it would not be unreasonable for the average person to look and ask “Were the markets closed Monday and Tuesday?”

And here we are today, less than 24hrs later when the Fed. basically made the same announcement as it did the previous year: “It’s Christmas in September. You’re welcome.” We are now (once again) poised to make never before seen in history highs across the “markets.” (The Nasdaq™ already did that within minutes after the decision. Remember: nothing to see here, move along. Thanks for stopping by and buy, buy, buying.)

So to bring all the above into more context let me illustrate why this is all now become far more frightful in my opinion….

If one watched the above presser (and if you haven’t, you should, don’t just take my word for it) you’ll notice when Ms. Yellen is asked what is probably the most important question after the above two, she answers it far more directly when the question is posed, as to the allegation, that the Fed’s decisions to keep interest rates low are politically motivated. It’s here that helps solidify my contention of opinion.

Her response needs no notes, is directly addressed in demeanor, and some might argue quite curt.

Why do I make this observation? Well, here is where carbon based (e.g., humans) recipients of the messaging is paramount. If you hadn’t noticed the difference previously, now that I described it, it’s far too obvious to now miss. It’s conjecture yes, I admit that. Yet, my assertions are made via years in business and needing to read these things in real-time. Your conclusions are your own, as they should be.

So, with that said, it was the answers she gave to that last question that left me both slack-jawed, as well as foreboding.

In response the Chair defended and pushed back against the political insinuations. Yet, it is hard to square a few circles in the logic or reasoning given in her answers. To wit:

  1. If the November meeting should be considered “live” how much of a stretch of the implausible does it take to believe the Fed. would indeed raise rates (regardless of how small) one week before a presidential election?
  2. If the results delivered a Trump victory, does the Fed. truly believe they could raise then without shattering all credibility as to the “politically aloof” contention the Fed. emphatically tries to bolster? The ramifications from the electorate, never mind the elected, could inspire “torches and pitchforks” type movements.
  3.  If the results delivered a Clinton victory, does the Fed. believe they could raise without inspiring the “torches and pitchforks” scenario not coming from the electorate – but being led in procession by the elected? (For clues look to the former senator’s senior senator from N.Y. Charles Schumer when he indignantly advised the former Chair Ben Bernanke when he expressed maybe more help from the political class was what was needed more than more monetary policy. i.e., “Get back to work Mr. Chairman.”)
  4. If someone thinks Wall Street hasn’t parsed and concluded the answers to the above – there’s a bridge in Brooklyn they’d be happy to sell you options on. Just ask them.

I’m now firmly in the camp that not only will the Fed. not raise this year – they may not raise again for years. For they are not only “painted into a corner” via their own misdoings – they are chained there by Wall Street. They’ve missed the window (which myself and a few others have stated was years ago) and now that window is boarded shut in the very way the Fed. itself should have done to its own Discount Window years ago. Again: Now they’re stuck. And the only monetary policy tool available is to make Christmas a recurring holiday at every FOMC meeting going forward.

As I stated long ago, once you began hearing the Fed. refer to “the neutral rate” or the “natural rate” as a go-to defensive response to monetary policy, that was the clue that they’ve lost control and are just punting and praying. Period. But the result of all that can kicking is an ever-growing tulip-mania beholden Wall Street, and a financial repressed economy that’s having a harder and harder time of concealing crony-capitalism manifestations both large and small. (See Wells Fargo™ for the latest, but surely not the last. Remember the cockroach theory is all I’ll say to that one.)

But hey – It’s Christmas after all, right? Just ask Wall Street and look at these “markets!” Who are we to question anything different, at least, that’s what the mainstream financial media tells us. And they should know, right?

© 2016 Mark St.Cyr

Wells Fargo: Who Says Crime Doesn’t Pay

Unless you’re one of the few people still watching CNN™,  you may have missed what can only be one of the most scandalous in-house criminal activities to be uncovered at a bank. And not just any bank. It happened at none other than Wells Fargo™, which, up until the scandal was revealed, was the number one bank (as measured via its market cap) in the U.S. The scandal? Here are just a few highlights as reported. To wit:

“On Thursday, federal regulators said Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts — without their customers knowing it — since 2011.
The phony accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money.
“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a statement.”

And to use CNN’s own words to describe it: “The scope of the scandal is shocking.”

How shocking you may ask? Fair enough, here’s a little more from their reporting…

“The way it worked was that employees moved funds from customers’ existing accounts into newly-created ones without their knowledge or consent, regulators say. The CFPB described this practice as “widespread.” Customers were being charged for insufficient funds or overdraft fees — because there wasn’t enough money in their original accounts.
Additionally, Wells Fargo employees also submitted applications for 565,443 credit card accounts without their customers’ knowledge or consent. Roughly 14,000 of those accounts incurred over $400,000 in fees, including annual fees, interest charges and overdraft-protection fees.”

As scandalous as all the above is, what is far more insidious, is the damage it inflicts (once again) upon the very fabric of free market capitalism, trust in laws, and last but not least: trust and belief in actual contrition. i.e., “No we’ve really changed, really!”

As I implied, that “trust” has just been obliterated by the very people and institutions that created the last crisis in the first place. e.g., Banks, bankers, boards, and the very CEOs that run them.

Yes, I said it: i.e., Not some intimate object such as “bank.” But the very people who work there; from low-level staff, all the way up to the top as made evident in this latest banking scandal.

Again, as egregious as these revelations may be. What has been far worse (in my opinion) is the way the bank (Wells Fargo) handled this whole sordid affair both during, as well as after the fact.

As reported by the WSJ™, CEO John Stumpf defended his firm with this gem of damage control retort. To wit:

“There was no incentive to do bad things,” Mr. Stumpf said in an interview with The Wall Street Journal. He called the conduct that led to last week’s settlement with federal and local authorities “not acceptable,” adding that the bank doesn’t “want one dime of income that’s not earned properly.”

Here’s a tip for Mr. Stumpf, (after all, it is what I do) if that’s the best you could come up with at that time, not only should your PR team be fired along with the 5300 others you’ve dispatched. But so should you. Immediately.

Not only did you not show a minuscule of righteous indignation – you seemed to bend-over-backwards as to defend the payment of (wait for it…) $125,000,000.00 as a parting gift to Carrie Tolstedt, who has been reported to have been the executive in charge of the unit where all this fraud took place. You know, the division where “sandbagging” customers continued long enough to have created its own internal moniker. Absolutely disgusting and shameful. Period.

It has been said that Ms. Tolstedt’s timing to exit was a result of “personal decision to retire after 27 years” with the bank. Geez, I wonder why. Yep, nothing to see here, move along. Just pathetic.

When asked about clawing it back? (Insert non-committal, illogical, double speak here) But if you need to hear what Mr. Stumpf thought about her back in July:

“Tolstedt’s team is a leader in building and deepening customer loyalty and team member engagement across the business, which today serves more than 20 million retail checking households and 3 million small business owners, and employs 94,000 team members.”

It would appear “sandbagging” pays, no?

I suppose everyone was rewarded, even those at the top by the “added shareholder value” produced by such a “team player.” Everyone that is – except the poor customers who trusted one of the largest banks in the U.S. to be watchful stewards of their money, and personal identities. No, it would appear they were preyed upon like minnows thrown into a shark pool. Glad we have all that Dodd-Frank type stuff enacted so people could once again “trust” the banks and their bankers. But I digress.

If the CEO (e.g., Mr. Stumpf) would have hit the news wires first in some form of scathing rebuke of not only the people involved, but the audacity that the people at the very top of this scandal (which, in my analysis, directly implicates him either by willful ignorance or just plain incompetence) could walk away veritably unscathed with $millions to-boot? There might, and I say “might” have been a chance for credibility of deniability. But now it looks far more like implicit, willful, ignorance more than anything else. i.e., “Hey, her numbers are good – don’t ask questions. By the way, have you seen our latest stock price?!”

Because of this, it is my sentiment, that both Wells Fargo, as well as its CEO, have added their images to be poster-child’s in the growing list of what crony capitalism produces.

What the CEO (i.e., a true CEO with an ethical backbone) should have done was to come out swing with something along the lines of the following:

“This scandal is not only repugnant, it is unconscionable that some of the employees, some that I personally trusted and regarded highly, have been found to have violated our customers trust, along with our own, with criminal activity.
I have recommended to the board, and our legal team, to do everything in our power to claw-back every single dime possible that we have paid out seemingly under false pretenses, whether they were in the form of salary or bonuses. And, I want every possible criminal charge brought forth against them that may be applicable. Yes, even those which may result with the need of time being served. Let me be clear: against everyone responsible.
This is a blatant urination upon the sacred trust that is supposed to be upheld when a customer, regardless of how large or small, deposits funds or opens credit terms at any bank. Not just Well Fargo. This is unacceptable and it must not go unpunished. And I won’t rest with anything less than the full repercussions that the law can provide.”

Did you hear, read, or see anything resembling 10% of what I just stated? Hint: Nope.

Read the above quotes I referenced earlier as a reminder. Makes you want to run out and open an account and dispense with any of that troubling, filthy vehicle known as cash that far too many so-called “smart crowd” intellectuals are touting you should do. Doesn’t it? i.e., Don’t trust cash – trust the bank. Only criminals care about cash.

The only problem that now appears with that logic? It seems those criminals are within the banks just waiting for one to “hand it over.”  That’s a reality which is now becoming downright frightening. Just imagine what Jesse James would think about all this. It’s down right laughable if it wasn’t so infuriating.

And, by-the-way, if you’re concerned about such things: you’re insulted or portrayed as some type of “alarmist” (or worse – you must be a criminal) if you dare argue against the idea of a cashless society and the inherent problems contained within the theory.

Take the latest insult to intellect as proposed by Ken Rogoff, a chaired economics professor at Harvard, and a former chief economist at the International Monetary Fund.

In his case against cash, Mr Rogoff likes to build his case for a “cashless society” around all the boogeymen an Ivory Tower can muster. James Grant of Grant’s Interest Rate Observer™ wrote a cogent, scathing rebuke of Mr. Rogoff’s thesis. Here is just one line, yet, notice how perfectly it fits into this whole story. (The entire article is a must read) To wit:

“Terrorists traffic in cash, Mr. Rogoff observes. So do drug dealers and tax cheats. Good, compliant citizens rarely touch the $100 bills that constitute a sizable portion of the suspiciously immense volume of greenbacks outstanding—$4,200 per capita. Get rid of them is the author’s message.”

That’s right. Mr. Rogoff want’s you to deposit that filthy cash into a bank as to keep it out of the hands of criminals. The issue?

Well as of today it seems if you followed his advice and deposited at, oh let’s say, Wells Fargo? What you did in actuality was to hand it over to some greedy, dirty, disgusting criminal within where it was used to fuel criminal activity and self gain for themselves.

What’s the take away from all this? Hint: If there’s going to be criminal activity (as far as academia is concerned) might as well have it inside the bank rather than outside. After all: Criminals hate competing with each other. Whether in digitized currency or actual.

To people like Mr. Rogoff it would seem when it comes to criminality – banks are exempt. I wonder how Mr. Rogoff would feel if it was his “cash” that was suddenly misappropriated when it came time for him to use his ATM card only to find “insufficient funds” displayed when he knew he made a deposit days prior? I would wager he’d want his account closed – and paid in cash – as opposed to a “check” or “balance transfer” if he just found out “the bank” had been playing criminally with his hard-earned money. Bet on it.

Now Mr. Rogoff and his ilk could care less what a person like myself has to say about their ideas. After all, we’re nothing but a bunch on illiterate, economically challenged plebes that need to be herded into doing what “they” believe is “best for us.” Whether it’s in our best interest – or not.

So to that I would like to remind this Ivory Tower set of exactly what transpires when the banking system that issues all those digitized ones and zeros goes into free fall because of the reckless nature of those within that system created. e.g., The Great Financial Crisis of 2008. You know, the one that’s not even 10 years past and is requiring central banks around the world to continue “spinning plates” that would make a circus performer blush as to keep it all from crashing.

In, or about, 2008 during the heat of the crisis with the markets gyrating widely, none other than Mohamed El-Erian then at Pimco™ (someone I have great respect for) said in a televised interview on one of the financial shows I was watching (I’m paraphrasing): “My wife called me and asked me what she should do. I told her to go the nearest ATM and withdraw as much money as possible. For we both had no idea of just how bad things were going to get.”

I just wonder how well Mr. Rogoff’s argument about “cashless” would have stood had he needed to argue that position to Mr. El-Erian during that period? i.e., “Hey Mohamed, tell her not too worry, cash is for criminals and low life’s. She or you don’t need no stinkin’ cash! Have faith, faith in the system, faith in the banks!”

I don’t know what the response might have been, but I bet it could be summed up today in two words: Wells Fargo.

Yeah, I guess those other two words you were thinking of (e.g., FU) might be more appropriate. For I was thinking the same. Yet, on the other hand; don’t they mean the same thing as of today?

© 2016 Mark St.Cyr