Bubble Confirmed: From Sock Puppets To Action Heroes

There are times when not only truth is stranger than fiction, but also, when serendipity coincides with moments that are branded into the pages of history where they become the allegory of the times. Sometimes its hard to judge or pick just one. Reason being they’ll seemingly come one right after another instead of that just one, almost surreal, moment. I believe we are in one of those “one right after another” moments – punctuated with “the surreal.”

There’s no better illustration of these than the dreaded “front page magazine cover” proclaiming not only that the good times are here. But rather, the far more important underlying premise: they’re here to stay and will only get better! All the while insinuating – to worry about anything is a fool’s errand. i.e., “everything is awesome!”

Time™ has had the unfortunate honor of running more than one of these “everything is awesome” cover stories just before it fell apart. For who can forget their now famous/infamous story regarding housing in 2005 titled “Home $weet Home.” Or, how about their earlier example that ran in February of 1999 depicting Rubin, Greenspan & Summers as: “The Committee to Save the World.”  We all know what happened next in both instances. Awesomeness was not what followed.

They are far from the only one. Barron’s™ has had its share. Although they might not have marked the exact date either “the meme,” or premise of the cover story usually told you all you needed to know. That maybe – just maybe: things were getting a little too far ahead of itself for its own good. And, one would be prudent to see these as warning signs of the times. Just for a reminder here’s the example from March 24, 2008 Barron’s, “Are You Ready for Dow 20,000?” Need I remind anyone what happen next?

So once again here we are in 2015 entering our first earnings quarter without the benefit of QE and the “everything is awesome” meme is deteriorating faster than an Atlanta GDP report and it’s none other than Barron’s that just might once again mark a memorable point in history with their latest cover story piece dedicated to not only a bank, but the banker himself. The story is titled “JPMorgan Rising.” The cover depicts CEO Jamie Dimon with the title “Back On Top.”

Personally, I couldn’t shake the eery feeling that a celebratory cover depicting both a bank as well as its CEO that was saved via taxpayer funds and was one of the central players in the financial meltdown that nearly dragged the entire monetary system down with it just a few years ago. Could once again be the focal point as they are once again vaulted to “back on top” status – to possibly – mark a top.

Surely it’s different this time in history than last. For what made banks iconic as well as worthy of praise in the old days is not what makes them this today. For in days of yore banks once loaned money to reliable worthy souls and businesses, and paid meaningful interest rates on depositors funds. Today you’re nickle and dimed into oblivion with once unimaginable fees which for some also include paying for (wait for it…) the privilege to deposit! All the while your trades and more might be front-run, sold, traded against, who knows what. That and building an earnings report that has the appearance of so much financial engineering it leaves most Non-GAAP devotees enviously wishing: How can we access that loan loss reserve thingy? Brilliant!

Yet, this cover coincides at the exact time the very bank of these bankers (e.g., The Federal Reserve) is possibly whispering to those very entities “Better get the heck outta Dodge because this thing is coming unglued!”

I can’t help but muse how that cover and story will be seen 12 months from now? After all, if what we’ve seen coming out of the banking sector as to how the latest crop of CDS, ABS, MBS, High Yield, carry trades, currency risks, and more that’s been added to their balance sheets in the wake of a Fed. no longer providing the QE to sustain the previous growth. Or worse – might actually (gasp) raise rates sending carry risk and turmoil throughout the entire sector. It might very well be the “next” in a long line of cover story marking points in history.

Who knows what will happen tomorrow. And the old sage of “History doesn’t repeat itself, but it sure does rhyme” is well worth heeding. But when you start seeing history not only rhyme: but take to the stage sporting its own vocal harmonizer and backup dance crew? As I alluded earlier: exercising prudence – might be an understatement.

Which brings me to today’s possibly next installment into the annuls of historic “bubble marking” memes. With a depiction so telling it can be used on its own as an example to explain just how – a picture says a thousand words. And where should it come from? None other than the one place synonymous, along with being the poster child of marking bubbles and manias: Silicon Valley.

Currently Silicon Valley is still believing they are breathing rarefied air, when in fact – they’ve been inhaling their own exhaust.

This is a place that now believes multi-billion dollar valuations are so yesterday. After all we’re talking about “The Valley” where unicorns and rainbows adorn the stationary for Non-GAAP earnings reports. So today the goal of every new or old start-up (whether you can show an actual net profit or not ) is to espouse valuations of tens of billions! Of course that’s regardless if you lose or have a cash burn rate faster than a HFT laser signal can front-run a competitors microwave signal to the exchanges. For in the valley of silicon  “everything is still awesome!”

So just when you thought you’ve seen it all. Where you wonder if there ever could be a moment in time which could rival the current iconic poster-child of the earlier tech boom bubble like the sock puppet mascot of Pets dot com. Comes not only one to rival, but quite possibly to surpass it.

Remember my earlier reference that you should really pay attention and heed when you see the rhyming dancers take to the stage? Well this time it takes a cartoon caricature to what can only be described as “another level” indeed. To wit: VC’s as – Cartoon Super Heroes. Below is a screenshot that comes from the public website CB Insights™.

Photo credit CB Insights™

Photo credit CB Insights™

 

Now let me make this clear so there’s no misunderstanding. This is not a shot, or call out, of the people depicted. I don’t know them and it’s not about them. After all they might not have even been consulted for this drawing. (and if they weren’t I feel for them) That’s neither here nor there. What I’m directly speaking too is “The meme.”

In other words: it’s all about the get in – get funded – get out fairy tale mentality that’s overly prevalent in Valley land. Where it now seems all you need to do is call up your friendly “Super Hero” of choice and Bammo! Get ready for your own personal venture capital roller coaster ride to the land of billions!

I truly feel this just might be as, if not more so, of an iconic “bubble top” marker than the now infamous sock puppet than anyone in the tech world dares to imagine.

Currently the markets are showing great stress in coming to grips with the reality that QE indeed has ended. All the “fast money” associated with those trillions of dollars made possible by the Fed. has come to an end. (at least as of this writing) The story that was previously acceptable in most VC funding rounds of “someday we’ll actually turn a net profit” will now not only be shunned, but will be replaced with, “Excuse me, but the only story line I want to hear is – Where’s my money?!” And “super-hero” is not what is going to come to mind.

If the stresses now rearing their head within the markets continue I’ll make a prediction.

What you’ll not find more of going forward is VC’s strewn across the skies dawning capes and spandex searching through an ever-expanding universe of start-ups to fund. No. What you’ll find is a lot of the once so-called “wonder companies” that were previously funded desperately seeking additional funding of any type possible. Not to expand, or to buy the next greatest “eye balls for dollars model” to compliment their existing “now desperately seeking eyeballs for dollars” model.

What they’ll be in is a frenzy seeking funding – for their very own survival. Because Non-GAAP “We’re killing it!” earnings reports won’t do the most important thing in a recessionary downturn alongside the reality of no more “free” money.

And what’s the most important thing?

The ability to generate actual net profits garnered from servicing satisfied customers that actually purchased what you made available for sale at margins that in turn pays: the help, rent, and other bills – consistently. Period.

© 2015 Mark St.Cyr