There probably isn’t an over used phrase thrown across the media landscape than, “It’s different this time.”
One can’t look at the financial markets, the political stage, and more without shaking ones head. Nothing seems to make sense. Yet if one wants to lazily answer, “It’s different this time.” Things become crystal clear.
Water now seems to run uphill. The definition of words no longer mean what they once did. (we’re still marveling on what is – is) Free society means the loss of only a few freedoms per year, as opposed to everything at once. Work is a bad thing however, if someone else goes to work and pay for your things – then that’s good. You can keep your plan if you like your plan – but if we don’t like it – well – you can’t. The Federal Reserve would never monetize the debt – however if you’re a preferred dealer in the QE (quantitative easing) program – they’ll do it for you. I could go on but for brevity’s sake, I’ll stop there. I believe you get the drift.
These precarious times leave many scratching their heads. It has been (and continues to be) extremely difficult to rationalize exactly what one personally, or business and investing wise should, or should not be doing.
When everything one has both learned through experience or looked back through history for clues now seems irrelevant, or worse – indifferent. It truly makes one question one’s sanity as you wrestle daily with the over whelming feeling that you just may be – the only sane person in the asylum. And that is not a comforting resolution to one’s conclusions. For it begs the rebuttal: Then who’s truly the crazy one?
I was asked the other day why I continue to make arguments for caution where some people at times are having a field day with the equivalent of kicking me in the shins as the financial markets rise higher, and higher, to ever higher heights? It’s a good question and I thought I’d extrapolate more on what or why I’m seeing blatant warning signs others can’t or, refuse to.
Let me express why my observations cause this with the following line: When everyone is on the band wagon – except the band. You had better take notice.
First, let me give some background as to why I have standing to make such arguments.
In addition to my business acumen, I cut my teeth and actually traded my own money (not some form of 401K account – a true margin account) in the futures markets and more both before, during, and after the financial market meltdown of 2009. A period where; if you momentarily dared to turn away from your screens to just shred a document, your positions could be up six figures (as in making money) or down the same. (as in lost)
So turbulent and crazy this period of time was, many had to shake their heads to snap out of their contemplations of; “Hmmmm?” after seeing a Depends® commercial roll across the TV. And every single one almost to a person of the so-called “smart crowd” paraded across the financial media landscape not only didn’t see it coming – they were patently dumb struck on why it was happening, and what one should do about it. (People think these commercials are placed because of age demographics. After 2009, I started to question that argument. It now seemed to speak to a far greater group. But I digress.)
During that time, I have traded with open positions when the markets has been “Lock limit down.” For those not familiar with the term it basically means the markets are halted or shut down as to try to stop the panic.
I have been in situations (and know of many other veteran traders) where positions were unable to be closed as to stop the bleeding – as one watched the account balances disappear, or worse – go negative. Not to mention the frustration when the inability to get hold of brokers to alter or close positions when platforms freeze, while account balances swing wildly out of control.
There are people who’ll line up to tell me about how they currently have this or that hedged. How X will take care of Y and so forth. All sounds good, the rationale appears sound, but experience will tell you, a backup plan for the markets is insufficient and foolhardy at best. You need a backup plan – to your backup plan – with an additional backup plan. Along with the ability and faith you can execute it in a panic situation. Period. And that’s just for starters.
You haven’t truly traded volatile markets till you’ve stood and stared doe-eyed watching the money in your account as it spirals downward out of control with seemingly no way to stop it. There are ways, but very few know, never mind could execute in the moment. I would venture to say based on people I’ve spoken or listened to, 4 out of 5 are ill-equipped for any real shock to the markets. Especially at where they are currently. However it’s exactly this crowd that is the most vocal using the guise of “The Fed’s got their back.” as if bad things now can’t happen. So why worry? Because – (you guessed it) “It’s different this time.”
I know and try to relate first hand stories of veteran market traders worth millions wiped out in near moments and far, far more. (Never-mind by their own hand or trades just ask a victim of the MF Global™ scandal) Yet, I continually falls on deaf ears as one talks to people who just believe the markets are, “ducky.”
Many (if not most) either just started handling their self-directed 401K accounts (which is the way to do it in my opinion) over the last few years. To them the tone and tenor of anything market related falls into the category of, “Everything of the past is old news.” “The Fed’s got their back,” and more. I’m usually left to myself just shaking my head.
Personally, I have read more books on technical analysis, market psychology, option studies, probability studies, volatility strategies by all the best known authors, along with even more brilliant yet, less heralded ones. I have put money to work via investment advisers, as well as real-time trading strategy/execution services. Yet, if I question someones thinking or thoughts on the markets? I get a look like, “Yeah sure. What do you know. Can’t you see? It’s different this time!” And once again, the conversation just about ends there.
I’m begging to feel that in some strange way they may have a point. But – it’s for all the wrong reasons. And here’s why…
A few things (although very big) have changed over the past 5 years since the great market collapse. These are in no specific order of importance.
First: The advent of government involvement within the financial markets is unprecedented in its history. It can not be understated the influx of Trillions of dollars via the Federal Reserves QE programs, and the levered effects that influence has brought to bear. We don’t have a shred of true market forces that warrant such levels. (Please save the emails. You’ll do better with CNBC® than me.)
Who cares if war, or anything else pops up on the horizon which not that long ago (say before QE?) at the very least would cause the markets to take at the very least – a defensive position. (Remember Greece?) Nope, not in the least.
As one nation after another with its cities on fire, citizens battling in the streets, cries of defaulting on sovereign debt, export/import disruptions, and more. Since the intervention of the QE programs; as long as the spigot remains open – the world and its crises are mere footnotes.
Just look at what is taking place today in the Ukraine. Quite possibly the greatest global uncertainty wrench into the gears of the world at large. Russia puts boots on the ground, test fires an ICBM to heighten threats. North Korea test fires more missiles during this same period. At the same time our largest holder of debt and largest trading partner China publicly sides with Russia’s invasion calculations, not to mention their newest economic figures have been awful (and they are notorious in fudging them as to make them better than they truly are) and the markets reaction? Not only higher, but Investor Intelligence™ surveys show that traders are the least caring of a market hiccup in over 15 years!
That’s the equivalent of more unicorn and rainbow thinkers in the market today than the dot-com bubble! Absolutely mind-boggling in my view.
Back all this into an algo-filled, machine dominated, high frequency trading environment and you can make the rational argument that the once ,”free” financial markets. Are now truly different this time.
For if the machines only care about the numbers – will act on those numbers – and you only supply the numbers the way the machines care about. Well, you do in theory have control, right?
Well yes but (and it’s a very big but) till you don’t. Then what?
And that’s where my arguments still fall. Again, far too many whether they be entrepreneurs, traders, business executives, and more are not calculating, “what ifs?” That is a recipe for disaster in my view.
To show how far we’ve come from reality all one needs to do is to look at how or what the media will or will not cover. Remember, Black Monday? That was back in 1987 when the markets crashed. Over, and over, and over this was reported on anniversary after anniversary. Now? For all intents and purposes, it passes quieter than two ships passing in the night.
I bring this point to the forefront for the sole purpose of pointing out there was an anniversary this week. It was the 5th anniversary of the financial markets collapse. The worst since the era that brought about The Great Depression. And if I didn’t bring it to your attention now, many of you probably didn’t even know it. The near mention of this event had more in line with the Harry Potter character of “You know who” as in “He that shall not be named.” The 2009 financial collapse now seems to be of the same ilk.
Again, as to push the point I made earlier on things that leave people scratching their heads. Black Monday (a far less eventful matter as compared with the final declines of 2009) was headlined, spoke of, theorized, along with a great whaling and the gnashing of teeth – every anniversary. And what about this one? The silence was deafening.
Here’s the rub – we all know the unemployment #’s are worthless. We know they’re currently manipulated to the point of absurdity. We know that GDP (gross domestic product) trade deficits, and much, much more are now running inline with as much controversy as to their validity as those we get from the Chinese government. Accounting standards and the reporting of earnings are once again venturing on comedic.
(As in an a company lost money according to general accounting, but based on Non-general? The place is rolling in dough!”)
Fact or fiction seems to no longer matter anymore. It’s now blatantly obvious: spin a tale no matter how large for if it sticks – it’s now considered fact. And if they don’t believe the first lie – just readjust or recalculate the formulations to provide something they will believe. It’s becoming near maddening.
So I guess it truly is, “different this time.”
Just what happens when it’s realized that puddle on the floor isn’t from unicorn tears but from someone who didn’t see a Depends commercial is now anyone’s guess.
© 2014 Mark St.Cyr
(Addendum: The typo for “Black Monday” occurring in 1989 has been corrected to 1987)