Month: November 2015

December 16th: A Date For Monetary Infamy

Depending on how one looks at it September 17th seems both as far in the rear-view mirror as a distant memory, and yet, almost as if it were just yesterday. I believe part of the reason is the fact no one has been able to stop thinking about it in one form or another. For those of you who don’t await with bated breath for the world’s equivalent of monetary dictates, September 17th was the date The Federal Reserve punted on raising interest rates stating reasons that still have many scratching their heads.

However, as of today, by all indications put forth via a myriad of so-called “in-the-know” types. This time they’re really, really, really, no fingers crossed, and Scouts honor going to “just do it.” Unless you listen to Fed. officials themselves. For if you have, “just doing it” may indeed turn out to be: can’t bring themselves to do just about anything except to wait on doing – it. Welcome to monetary policy 21st century style. Where the meaning of “it” can be just as tricky to identify as what “is,” is.

Maybe you think I’m just trying to make a play-on-words type argument. Let me assure you I’m not, for I’m not that good. You can’t make this stuff up. This monetary gibberish writes itself (actually it’s spoken by Fed. officials first) which is why it’s both so laughable, as well as dangerous at the same time.

Remember “forward guidance?” This was for the expressed purpose as to help give markets, as well as any other monetary policy affected entities some form of clarity into what one could expect emanating via future policy decisions. That “clarity” has now evolved into: clarity of confusion. And all I’ll just point to as the latest in a longer run for proof that Sept. 17th announcement. For this was the most debated, signaled, professed, anticipated rate hike in decades – and – it didn’t happen. I mean, what’s left to say?

So now, here we are in the lull just as we were before that Sept. meeting, And what is happening this time? Well, don’t look now, but there indeed looks to be trouble brewing on the global stage (or should I say “international developments”) that could turn out to be just as big of a headache to the Fed’s reasoning’s on whether or not to “just do it.” Just one of those issues is – once again: China.

It seems, just like last time, as we get within weeks of the Fed’s impending rate hike China’s stock market is once again displaying the same characteristic behavior as it did last time with virulent selloffs of the 5% variety. Lest I remind anyone this was exactly the same type of behavior witnessed that many believe was instrumental to the Fed’s not moving decision.

Here was what everyone inferred by the newly inserted descriptor “international developments” to be code words for a possible China stock-market meltdown if they did “just do it.” So – they didn’t. But don’t worry, they’re really gonna this time – unless they don’t. One needs to remember “international developments” is still an “on-the-table” viable excuse. Or, should I say: “Viable input as to not adjust?” Sounds more Fed. like, yes?

As I implied earlier this is just one, and I need to remind you (for it really is an important point) this “one” was all it took to get the Fed. to sit on its hands. Now, this time, there are several others just as onerous, and formidable to up-heaving the entire global markets. Another of these “one’s” is directly affected instantaneously via any implementation (or lack there of) Fed. policy: The $Dollar, along with all of its intertwined carry trades.

Since October the Dollar has been doing exactly the opposite of what the Fed. wants. It’s been strengthening. In other words, the Dollar is now ever higher threatening to take out highs not seen in years resulting in the exact opposite of the Fed’s stated objectives for interventionist actions. i.e., If you want and are targeting 2% inflation – the last thing you want or need is a stronger dollar. Again, what’s one to say about this monetary debacle or quandary? Ooopsy?

Then there’s the latest round of economic data points which have since been released. GDP? Horrible. Consumer spending? Pathetic. Cap-ex investment? Deplorable. Corporate earnings? Depends. If you count the ones that beat via lowering their expectation bar to ant-height; they were still pretty dismal. However, via Non-GAAP? “They were killing it!” So pick your own poison.

Yet, that’s neither here nor there. All that mattered (via the main stream media) was the latest “jobs” report. And that was “spectacular!” With near statistical full employment (5.0) and creating some 271,000 new jobs. Does sound great. As long as you don’t count the ever-increasing 94 million not in the work force. i.e., without jobs. Good news such as this has been bandied across the financial media as proof positive The Fed. not only can move, but must move. All I’ll say is: Unless they don’t.

Now this next “jobs” report due Friday is said to be “the most important report” possibly in history pertaining to the setting of monetary policy. Fair enough. And if it’s 300K with a 4.9 print as China’s markets once again free-fall and bleed contagion into both U.S. and global markets? Does anyone believe they’ll raise sending the Dollar to the stratosphere crushing U.S. competitiveness and earnings delivering the U.S. economy straight into the teeth of what could start a deflationary spiral? Well yes if you’re an Ivy League economist, for if you’re wrong just remember the old standby: make another prediction. But I digress.

How about the other side of that argument? If it’s sub 100K do they stand pat? Crushing their credibility further to a jubilant Wall Street consortium of JBTFD (just buy the dip) algo-fueled HFT’s? Do you see clarity in what they may or may not do? I sure can’t. And I’ll ruminate openly: neither does the Fed. Never mind what the so-called “smart crowd” thinks.

And how about another “one” to consider? Say like that other little indecent taking place in the middle east with the likes of Russia and others? (as I said earlier, there are more than just “one” reason this time about) How are Emerging Market economies such as theirs which are far more susceptible (i.e., rise or fall) with currency fluctuations going to view the Fed. raising rates which may in-turn send the Dollar stratospheric crushing these already teetering economies?

If China’s market is indeed once again flailing as it did previous; having The Fed. raise rates regardless may be seen in my view as an act of monetary aggression. I wrote about this very subject a few weeks back and was jeered by many in the economic circles. Yet, as we stand today – it’s anything but a laughing matter. And as the title implied, it is a “Perilous Possibility” which needs to be contemplated.

The Dollar is about to do the exact opposite of nearly all other global currencies. This alone begins compiling complicating arguments of nearly every stated Fed. intention. Within the for-ex markets alone it will further crush carry trades. And, in many ways, put already desperate commodity dependent economies (such as Russia and others) into an immediate for-ex fueled world of pain.

This would be happening simultaneously as every other central bank is falling all over themselves to get to a microphone, camera, or printing press first to announce they’re cutting or printing ever further. Even if it means turning their bank notes into toilet paper. After all, “what ever it takes” may mean just that.

In this environment the Fed. is going to raise? I’m not so sure. And I’ll repeat: I don’t think the Fed. knows either. Regardless of any upcoming “jobs” report.

Again, I must reiterate: Is it possible that the raising of rates in this climate alone, even if it were the “right thing to do” for the U.S. (i.e., The Fed. raises regardless of turbulence or data points) might be viewed by others (both sabre rattling as well as military engaged countries) as I argued earlier as proof of the Fed. being “weaponized?”

Whether it’s true or not will be a moot point. It’s how things are viewed in the eyes of others. Or, more importantly: how things may be spun to their own populace. That’s a very important point to ponder.

I’ll argue those looking for a “boogeyman” will be served a near perfect straw-man setup on a silver platter. After all the reasoning will fall around something resembling: “Why do it other than to bring on such things?” It will be made to order.

Again, let’s not forget: every other central bank is now openly printing like crazy. And here the Fed. is going to raise? Think about that very carefully, for the implications to triggering outright war in other ways more so than just currency should not go without consideration. For if you think it’s preposterous – you’re just not paying enough attention to what’s really taking place currently and globally.

Then of course there’s the other side: The Fed. once again chooses inaction – for action. Then what is one to contemplate?

If there’s one thing I do know it’s this: We wont get anything resembling clarity. However, clarity for the HFT, algo-programmed, headlined fueled, front running JBTFD parasitic trading houses? Count on it. Like an Arms dealer – they’ll win either way regardless.

© 2015 Mark St.Cyr

Audio Repost from Mark’s “Prose Series”

Since many readers and followers of Mark’s blog are primarily business people we thought this insight regarding “traffic” as opposed to “sales” from 2012 would be appropriate during this Thanksgiving interlude. With the holiday season now in full swing it’s important to remember why you’re in business in the first place.
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Red Or Black?

There’s an old adage among veteran stock traders that goes something like his, “If I told you the news before it were made public – it’s still a 50/50 bet you would guess the market’s reaction correctly.” That was when the markets had some resemblance of normalcy.

Today, normalcy has been replaced with sheer lunacy as to the speculation and interpretations for where these markets go from here. And the dangerous nature of just how cutting a blow to one’s financial future was laid bare in the story that went viral showing some wannabe “trader” wiping out his (and subsequently his wife’s and more) retirement savings. Then, opening up some form of a donation (begging) page to help him cover his now 6 figure margin call to his online broker because he was now broke. His story will far from be the last – for the clues are everywhere.

One of the main points I’ve tried to point out since I first began articulating my thoughts about these “markets” is the inherent dangers contained within where even veterans have found themselves on the wrong side of “would never happen.”

There’s no better example of this than the MF Global™ debacle just a few years ago. Where veteran traders went home at the end of the day with money in their account only to arrive the next morning to find “it’s gone.” The resulting chaos put many a veteran floor trader out of work, out of money, and for some – out of options. The lingering taste of distrust this one-act caused should not be lost. For it’s one thing when a client gets screwed – it’s quite another when you screw your own. This is today’s Wall Street.

JBTFD (just buy the dip) Bulls were once again rewarded this past week with: the best weekly rally for the S&P 500™ in all of 2015, rising some 3.3%.

Reread that last sentence two or three times with only one slight change. As you do add this short sentence: As terrorism struck throughout Paris killing over 130 innocents with open gunfire, explosives, and hostage execution at a restaurant, soccer match, and concert.

And let me point out for those thinking “Well that was Europe not the U.S.” So too did Europe’s market push higher in the wake. Again, why the need for any market concerns to heinous events when the central bankers of today have made it clear they’ll do “whatever it takes.”

The initial knee jerk reaction where the markets spiked down on initial reports were met with a horns over hooves buying frenzy. Why? Well, as callous as it may sound the only thing that truly mattered to the markets was this weeks options expiry cycle close. This is the last chance to closeout the books, and/or re-position on a high note before two very important issues: Year end, and, the Fed’s perceived imminent rate hike.

Market breath (volume and other qualitative analysis) showed the buying of 2015’s “best weekly rally” was anemic at best, and dangerous at worst. There’s no better example as to demonstrate this than what has today come to garner the Wall St. moniker known as “FANG.” (e.g., Facebook™, Amazon™, Netflix™, Google™)

David Stockman recently published an in-depth breakdown of this latest moniker-ed phenom that’s worth reading as to comprehend just how precarious things truly are. I’ll also add; once Wall St. assigns monikers? That’s when you should become very nervous indeed. Remember when the “BRICS” (e.g., Brazil, Russia, India, China, South Africa) were going to save the global economy?  Now one wonders if they’ll be able to save their own. How’s Brazil doing for one? But I digress.

So now here we are going into an abbreviated holiday session in the U.S. following an expiry fueled rally. “What could possibly go wrong?” After all, with what we’ve seen transpire within the capital markets over these past few weeks; is the need for concern just more “Chicken Little” cackling? After all: The next in-rotation market Bull, as well as economist to be paraded out across the financial media will stampede over you in getting to the camera, microphone, or keyboard first to spout just how “resilient” these markets have become. And to prove their point (as always) they’ll just point to the current levels as if that tells the whole (or only) story.

Once again I would like to remind many who are currently following the “financial advice” laid out in many of today’s “best sellers” that caution and safety is paramount above all else. The consequences of assumptions are far too grave.

JBTFD has worked of late with a near offensive accuracy. (i.e., terrorism supplies a dip) However, the next dip (if there is one) might just not react in the same fashion. Why? Well, the Fed. has now mused in more ways than humanly possible to decipher that they will indeed hike rates at December’s meeting. Unless they don’t. And don’t forget negative interest rates are still a consideration.

Confused? Don’t be. They could always launch more QE if needed, since they’ve stopped it, stating the markets no longer need it. Sorry, that doesn’t clarify does it? Oh well, that’s what goes for “clarity” by today’s Fed. standards. Think I’m off base? Here, see for yourself. Below is a few lines from the Fed’s vice-chair Stanley Fischer speaking at a recent event in San Francisco:

While we continue to scrutinize incoming data, and no final decisions have been made, we have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to “just do it.”

Fed meetings are now ‘getting interesting’ as possible rate hike discussed.

In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates.

Huh?

Let’s put a little perspective on that first line: “avoid surprising” is used in a passage that holds both “no final decisions” because of continued “incoming data?” Which is exactly what determined the last surprise. (e.g., no rate hike.) All while we’re supposed to infer “emerging markets,” many of which are collapsing due to currency fluctuations are telling the Fed. to “just do it.?” Really?

Second: Fed. meetings are “getting interesting?” Is that the term to fit what must have taken place at September’s policy decision of inaction over action? I think that phrase is an interesting choice from my perspective. Especially since that decision was predicated on the “international developments” of a near China market meltdown precipitated by a reaction of “emerging market” upheaval in margin fueled carry trades funded in relation to today’s zero bound policy. Interesting indeed is all I’ll say.

Third: As “other major central banks” will begin to move away from near-zero policies? This, as Mario Draghi announces near simultaneously another round of “what ever it takes?” You can’t make this nonsensical double speak up. The only thing more preposterous would be if the Fed. Chair herself had recently reiterated that “negative interest rates” were indeed a tool currently contemplated. Oh wait, I forgot, she did just that at her latest testimony before congress. As the late (great) Gilda Radner would say, “Never mind.”

So with all this in mind what happens next is anyone’s guess. For I’ll contend not only does Wall Street not know – neither does the Fed. itself. For what happens to all this surety of assumptions (yep, that’s how farcical it’s become) if the markets now re-position just like they did in August and sell off their exposure to the increased carry cost exposure they most certainly will have. After all, 25 basis points sounds so minuscule. Unless, you see it as what it really has the potential for in today’s search for yield (any yield no matter how small) market.

In a margin levered carry trade – a 25 basis point increase could result in a 25% loss of profit, or increased cost. That “minuscule” 25 carries a lot of obligation cost or profit with it. So much so – it could blow up trades that would have trading desks begging to have the problems the a fore-mentioned “day trader” experienced. Small numbers have big impacts, and create inconceivable profits almost nowhere else as they do on Wall Street. After all, HFT (high frequency trading) make Billions upon Billions – a fraction of a cent at a time.

From my perspective there’s only one conclusion: a guess. Red or Black for those still foolish to play. For that’s what today’s markets have become. Nothing more than a wagered guess as to which way the market will go. Welcome once again to the casino. And as they like to say: “Everybody, please…Place your bets!” What you won’t hear at a casino yet have to contemplate today on Wall Street is – the hope they’ll be someone their to buy your chips when you want to cash out.

For that also is – a gamble.

© 2015 Mark St.Cyr

“It’s Different This Time” or “Same As It Ever Was”

Over the past few years when it’s come to any criticism of business models, valuations, or other concerns encompassing the social media space, along with other dubious “hacking” inspired businesses emanating from Silicon Valley. The immediate rebuttal posed fell along the lines of first being looked as “you just don’t get it” (or just crawled out from under some rock) followed with, “It’s different this time.”

If one posed any real push back as to move nebulous assertions out from the sky and back into more true ledger accounting? Those “looks” turned into outright disdain, and disgust followed with ridicule as the assertions of “It’s different…” and “You just…” morphed into closing statements as to implicitly cement the questioning door closed. For to go any further, it was a waste of their time and/or breath. After all, why try to prove you’re right when today’s version of the teenage “Because! Just because!” works just as handily.

Over the past few years that defense has worked splendidly. Only problem? Just like with teenagers; there comes a time it no longer works. This is where the once go-to responses begin to work against – not for. Welcome to same as it ever was. Or, one could say, “Welcome back to reality.” Where nebulous business plans no longer attract attention never-mind – cold hard cash.

As a matter of fact, what has been recently embraced as some entrepreneurial birthright in Silicon Valley (i.e., VC funding at the whim) seems to be going the way of “Because…” itself.

You’re not hearing precise reasoning or explanations for it (although the reasons are as clear as day: No QE.) However, what you are beginning to now see are the inevitable storm clouds moving from the horizon, and making landfall. All one needs to do is get their heads out-of-the-clouds and start reading the writing on the walls right in front of them. For the messages they portend are writ large – if one wants to see. Here are a few that have caught my attention…

A few weeks ago I was watching a Bloomberg™ morning show where the guest was one of social media’s well-known aficionados. (I’m not being coy by not naming, it really doesn’t matter) During the discussion there were a few things that struck me. One was the on air tension. It seemed the more the questioning – the more antagonist or dismissive the retorts became. Another was in response to a question about Twitter™. The response? “Do people even use Twitter any longer?” For he implied he’d already moved from there to another platform. Which in many ways validates what I’ve stated for years and have been publicly scorned for: “When the price is free – loyalty is as enduring as a Unicorn’s balance sheet is real.”

Another point to ponder is this: Let’s put aside anything IPO for a moment and look directly at the VC funding meme. Remember (for it wasn’t all that long ago) when those in the VC world were being touted as some form of Superheros to the rescue? As a matter of fact one prominent website to this very topic sported a drawing depicting many as just that with capes, costumes, and more.

It seems that maybe there’s just a few too many seeking their birthright VC money in today’s market environment.

Just 12 months ago VC firms and others would be hosting “come one – come all” stylized events or meetings as to vet the latest group to be showered with some form of initial funding. The game (as I had written about previously) had morphed into more of a numbers game funded via the hot money provided by the Fed’s ongoing QE policy. i.e., Throw money at all of them, for the IPO’ing of just one will make all sins disappear. However, that meme is showing signs it to is going the way of “its different this time.”

Today you don’t need to look deep (for it’s everywhere if you want to see.) All you need to do is look. There are articles sporting titles along the lines of “Why you shouldn’t seek VC money” and more. And not from obscure names. Some are from the very people who only months ago were depicting as VC superheros. Quite a shift and peculiar timing one might infer, no?

So what about “everything social?” After all, social media is the “be all – end all” platform in which all dreams are made (and cashed out.) Again, after all, everyone still instinctively points to Facebook™ as the continuation of promised milk and honey. “Just look at their stock price!” is shouted. Another is “Just look at mobile: they’re killing it!” “You don’t understand: it’s different this time!” Sure it is. All I’ll point to for a contrasting argument is AOL™.

Facebook currently sports a market cap larger than GE™, Johnson & Johnson™, Walmart™, and a host of others. These are not trivial companies by any stretch. However, there is one very distinct difference that should not be lost. They sell products and buy ads. Facebook primarily sells only ads (and all your data but that’s for a different discussion.) In the last bubble AOL also fell into this same paragon of ad-based business models. It was unique, email was “the hottest thing.” Banner ads (remember those) was the next be all, end all to advertising. Till – it wasn’t.

AOL-Time Warner™ stood with a market cap of some $350 BILLION dollars in 2000. It was for all intents and purposes “the king” of ad sales in the every growing, and developing, tech based medium. Then, the bubble burst (i.e., the recession took hold) and ad sales literally dried up crushing AOL and anyone else supported purely on an “ad” model.

Yet, let’s not forget about the one thing that takes place right before such a hatchet bears down on ad revenues that many just don’t contemplate. For AOL did have real ad sales as does Facebook. And right before the bottom fell out AOL was also (much like Facebook is today) being pushed ever higher in valuation.

That “thing” is this: Right before the axe falls – the preceding volume of ad buying becomes more concentrated. Any and all peripheral ad money gets bundled and focused into one medium more than the others in what could be classified as a “Hail Mary” seasonal cycle buy. This is how I look at Facebook’s latest earnings report. The meme of “they’re just killing it/firing on all cylinders” hearkens to my ears just what happened before the implosion of “everything dot-com.”

I am still of the belief the “everything social” is not “it’s different this time” but more of “the same as it ever was.”

The latest retail sales report wasn’t bad – it was horrible. Once again missing expectations. But there’s a much bigger problem. More and more retailers are reporting abysmal earnings reports. Macy’™, Nordstrom™, Walmart™ and others are reporting nothing more than anyone with a shred of common sense knows intuitively as summed up so succinctly by retail maven Howard Davidowitz when speaking on the challenges of retail malls: “…what’s going on is the customers don’t have the fucking money. That’s it. This isn’t rocket science.”

Current ad spending by retailers as of this writing I believe fits into the same description echoed by Mr. Davidowitz: It’s not rocket science.

Facebook and a few others are going to be the go-to recipients of any and all “Hail Mary” ad buys for this coming earnings quarter and holiday season. Just like with what has taken place with previous assigned “Holy Grail” inspired ad platforms.

If retail sales for this shopping season mirror anything close to what this past report portends? Again, just look to AOL post 2000 for hints. Ad revenue went from robust to abysmal in the blink of an eye.

In 2001 AOL was still considered “the hottest, biggest, bad ass of everything ad/internet generating revenue.” By 2002 it’s $2.3 BILLION in ad revenue would be cut in half. Then just a year later it would fall even further to nearly cutting itself by another third if not half once again. Till finally AOL became “Who?”

For comparison: Facebook is now just about the same size in market cap as AOL was in 2000. The parallels are striking if one dares to look back with any quantitative as well as qualitative analysis eschewing any “it’s different this time” reasoning.

For further clues I’ll only point just a few more…

First: Isn’t it just a little odd or, at the least something that makes you go Hmmmmm when none other than one of the most prominent cheerleaders of everything VC and/or social Marc Andreessen sells 73% of his Facebook stock in the last two weeks?

If that doesn’t inspire a change in thinking maybe the following will. For if there’s anything to be gained for insight such as the much touted “front page article” to mark a bubble. How about the very week Facebook hit its peak share price the following was reported with great fanfare. To wit: President Obama announces launch of his very own Facebook page.

Remember, government has been shown to be with near Swiss watch precision – the last to arrive to the party.

Oh, and one last point just for a little more context. Remember I said at the beginning of this article to put aside anything IPO for the moment? I was scorned and ridiculed by many (especially those within The Valley itself) when I penned an article titled, “Crying Towels: Silicon Valley’s Next Big Investment Op” Yet, a funny thing has shown itself on its way to “Unicorn paradise.”

The much-anticipated IPO of Square™ was announced. The issue? The price is some $2 BILLION less (i.e., at a 30% discount) to its latest private funding round for valuation. That while simultaneously the other company Mr. Dorsey is heading up as CEO (Twitter) once again falls below its IPO price. So now, with all that said, the only question one needs to ask and answer is this:

It’s different this time? Or: same as it ever was?

We’re going to find out much sooner than later. That I’m sure of.

© 2015 Mark St.Cyr

Profiting At The Bottom Line™

This month’s focus: “That’s Just The Way It Is”

Every business has an “Achilles’s Heel” to customer satisfaction within a segment of your service structure that for all intents and purposes falls into a category of “That’s just the way it is.” An example would be: Customers hate to be put on-hold no matter the time length. There’s really not that much you can do to lessen it other than reducing the time. Besides – it’s the same everywhere. That’s just the way it is.

So a reduction from 20 minutes on-hold to 15 is seen as some vast improvement of 25%. A reduction to 9 is championed as “Less than half the wait of the competition!” All the while, for the customer – it’s still 9 minutes too long. However, what if you could turn the longer wait time into a benefit rather than a detraction? Inside, or outside the box thinking is a hindering process for this matter. Here is where “There is no box” thinking comes into play.

Case Study: Recently I had the joy of receiving my first Jury Duty summons. Like the vast preponderates of you, I too looked at the envelope and thought. “Oh dang!”  For there within its tri-folded envelope contained the two lines everyone dreads. First: How long you’ll need to serve or, be available. Second: Under threat of arrest, prosecution, and/or jail if you fail to show. There’s no way of getting around it, this letter falls into that special category of the select few most pray they’ll never receive. Then – you do. So how can something that’s viewed with such disdain ever be overcome? After all, the “customer experience” horror stories are legend. One would think if there was a better way it would have already been done. So the “inside/outside” the box thinking tries to make changes around the edges such as lessen the time needed or, make the request appear more friendly etc., etc. And when “customers” are still of the same mindset? The reaction to it is the old standby “That’s just the way it is.”

However, when you decide “there is no box.” Significant changes that improve the experience can be had. Even within something as mundane or depressing as jury duty.

During my tenure (which was two weeks) I can clearly state unequivocally all my assumptions, as well as presumptions were laid to waste after my first day. The Jury Commissioner along with help from others (i.e., Judges, and other department officials) made it clear they took our time serious. And there was only one way to prove it: They had to deliver. Either that or; there would be more than 60 people who were not afraid to remind them of their failure – daily. And to both my, as well as every other person I spoke with over those two weeks, the feeling was unanimous. The experience went from a dreaded civic duty – to a positive experience in fulfilling that duty. In can not be overemphasize how monumental of a shift this is. The only comparison would be if one were to now look forward to receiving a letter from a revenue agency.

This was done by an assortment of innovative ideas such as varying check in times. Early releases when circumstances afforded. An an assortment of impromptu speeches or, learning talks by various judges, as well as other public officials and more explaining different aspects of the “system.” Tours were given of the underbelly of the court system. Discussions were held to expand understandings or, point out and answer misconceptions. And yet, a whole lot more.

Down time (or waiting periods) were supplied with a high-speed wi-fi set up so one could do tasks, work, or check email securely. Movies were shown on a big screen. One was allowed to visit other in-session courtrooms as to see how differing courts operated. It was a civic lesson worthy of college credits. And what it did was one thing that almost every other jurisdiction in the country has not been able to match – this county’s jury pool system has the lowest number of failure to respond rates in the nation with a rate somewhere under 2% where most others are not only double digits; some are well over 50%.

Remember, this is an experience that is seen by many as one of “the worst” of possible outcomes that was transformed into a venerable two-week civic sabbatical which was seen in the end by those attending as both “eye opening” as well as “actually enjoyable.” Again, this isn’t inside/outside the box thinking that produces such transformations as this. This comes from people willing to improve things with an eye towards – there is no box.

If this can be done to the “jury box.” What excuse does it leave for other venues such as “We appreciate your time. The next representative will be with you in 2,145 minutes. Thanks for calling!” After all, if that’s less than half of your nearest competitor. Is your thinking still of the mindset: “That’s just the way it is?”

Imagine if you were the one who thought: “But it doesn’t have to be!” And actually made it so.

Do you think you or your customers could profit from that? I bet you both would. Or, Is that just the way it is?

© 2015 Mark St.Cyr

Profiting At The Bottom Line™ is a monthly memo, which is pithy, powerful, and to the point. It focuses on innovative techniques and or ideas that you can put to work immediately in your daily or business life.

Why Tony Robbins Is Still Asking The Wrong Questions

One year ago this month I wrote an article bearing the same title less the “still.” I’ll premise this one as I did then with the following: This is not a hit piece, nor an effort to arbitrarily take swipes. Or worse; some feeble attempt at click-bating. I’ve been a true fan since he first hit the motivational stage decades ago. However, that doesn’t stop me from pointing out issues where I see a compelling reason to do so. So with that said I’ll get on with it…

Over the last few weeks the financial markets have been on a tear. And not just any tear. The month of October saw gains that were not just spectacular: It now sports the position as the 4th grandest Oct. rally in the history of the markets.

It sure does sound “grand” if you don’t look at what it took to make it so. i.e., A collapse of an also historic nature that preceded it by mere weeks. Suddenly the praise of “grand” looses its largesse when reminded of why it took place to begin with. Yet, not to worry. The financial media will never remind or, alert you to such facts because – “everything is awesome!” once again.

Then on Thursday I was alerted that Tony (I’m using the personal only for ease) was out making the rounds on the financial/business shows. So, I tuned in to see. And what was the bulk of the conversation or questioning about? Fees. In other words, by using different instruments, brokers, et al, you could significantly reduce your brokerage fees by doing many things yourself in different ways such as investing in ETFs and other instruments. One example he used was from his own company’s experience where he reduced his outlays by some $5 million dollars. Sounds great at first blush. However, there’s two things overshadowing this enlightenment in my opinion.

First: The answers to the questions Tony realized are far from groundbreaking. They’ve been around for some time. Yet, it’s the second part that has the most troubling aspect in my view, and that problem is this: Although fees are a very important aspect of financial planning at any level. Where prudence in reducing them should always be sought with vigor. In markets such as these, just one year since Tony’s book “Money Master The Game: 7 Simple Steps to Financial Freedom,” (2014 Simon & Schuster) The most probing questions that should remain front-of-mind, everyday, with no respite should be focused squarely to: The surety for the return of one’s money. Then the proverbial “on.” Period. Confusing that sequence today is a recipe for financial disaster waiting to happen in my view.

Safety today is paramount. I am ever-the-more resolute of the opinion: Everything else is playing around the edges. And as I watched or listened – I heard nothing addressing the preponderance of possible systemic failures or upheavals. Let alone how one might safeguard themselves from one.

Oh wait, yes there was one: “diversification.” All I’ll point to on that note, is what I pointed to last time – 2008. For diversification in the markets was, for all intents and purposes; a meaningless exercise during the panic. Why? Lest I remind you during the panic how everything was going down the drain simultaneously?

If you listen to many a next in rotation fund manager or, economist 2008 is now considered ancient history. Even if it was only 7 years ago, took a government sponsored bailout, three quantitative easing interventions, along with other programs such as “Operation Twist” and more costing TRILLIONS of dollars to circumvent and still remains the benefactor of extreme monetary policy actions via the Federal Reserve and other central banks. That part of history they would like you to both forget as well as never be reminded of. (It’s bad for business.) However, let’s take a trip down “memory lane” with some pictures aka charts shall we?

In June of this year I wrote another article titled “F.T.W.S.I.J.D.G.I.G.T.” This title is a catch-all category for articles I’ve written where I was originally bashed for arguing such thoughts only to be proven out either correct or, far more on point than those of my detractors. In this article I argued many of the same points I’m arguing currently, and to help bolster my argument I posted this chart:

The S&P from Nov.'14 - thru to today.

November 2014 thru June of 2015

In that article I argued since the ending of QE, along with the release of Tony’s book, the markets had done something they hadn’t done since QE originally began. i.e., Gone nowhere.

Not only that; the markets had also experienced out-of-the-blue shocks consisting of selloffs answered with just as breathtaking rallies perpetuated only by central bank jawboning stick saves. “#3” on that chart represented the first of rollovers that took place causing ever more Fed officials to publicly mouth soothing tones following the initial, much larger, and more pronounced “looking into the abyss” moment that was only saved by St. Louis Fed. President James Bullard when he expressed maybe “more QE” was possible. This is now collectively referred to as “The Bullard Bottom.”

In the near 7 months represented on that chart the index stood only a mere 40 points higher. Not withstanding, something else was also “out of character” for a market which had been on fire for years prior: It was gyrating wildly.

The old “put a ruler down and draw a line upwards” was now absent. Again, something I stated would be the result (and worse) once QE’s lingering effects finally wore off. For as I’ve stated all these years “Without the Fed. – there is no market.”

That was then, so what about now? To wit:

2015-11-07-TOS_CHARTS

The S&P as of today

This is the same chart as the previous. Only I added a little more time (Sept-Oct of ’14) for context, as well as a few more notations.

First, as you can clearly see, is the initial market selloff that transpired when the markets began adjusting to the fact that QE was indeed ending. (i.e, Oct/Nov) The reaction was both ugly as well as rapid to which it only reversed once a senior Fed. official publicly stated maybe “more QE” was possible. e.g. “The Bullard Bottom.”

The initial reaction takes you right to the point (#1) where Tony’s book came out a few weeks later. However, as I noted on that chart using “#3,” there, and nearly every other subsequent selloff was met by one Fed. official after another in concert with other central bankers jawboning the possibility of “more intervention” in one form or another till finally; the market just acted in faith that “The Fed. had its back” and the gyrations were less and less pronounced. Until…

In August China’s stock market along with its currency market began fluctuating wildly. So wildly it caused out right panic within their own markets that spurred a contagion effect into the markets as a whole.

Some will point (which I am of this thought) this was primarily a result of not only issues distinct to China, but rather, issues that were being exacerbated by the realization that the Fed. was indeed going to raise interest rates in September. The resulting chaos of such a hike to the emerging market currencies during a margin fueled bubble popping of the Chinese/Asian stock markets had the look and feel of taking down or, at the least, causing a global rout in the financial markets.

On August 24th the U.S. experienced a 1000 point plunge in the overnight markets. This plunge caused a never before seen in history halting of all three major future’s indexes before the opening bell. By the closing bell the markets would recover some, yet, still less than half closing down a whopping 588 points at the final bell. Although the damage was severe, what was the catalyst for it not being the full 1000? Or worse?

Many point to the now infamous “Note from Tim Cook” CNBC™ host Jim Cramer produced and read on air stating: China was better than anyone thinks based on iPhone® figures. This followed with more Fed. speakers hitting the airwaves and print with soothing tones of “We’re here at the ready” seemed to quell the ever-growing onslaught of panic. But it was not to last very long.

Again, as one can see on that chart the markets once again began to roll over. This is where the “panic” once again became palpable. Then, to the astonishment of many – the Fed. blinked and did not raise interest rates at their September meeting. Even though it was the most telegraphed, as well as anticipated in recent memory.

And with that it signaled to the markets that the Fed. was indeed painted into a corner and BTFD (bought the dip) with both hands, feet, and truck that could carry a stock ticker. The result? Another short covering fueled rally worthy of the record books. However, once again – there’s a problem. Or, should I say “question” that needs to be addressed. And this question has far greater implications than anything resembling a “fee.”

Now, one year later (almost to the day) the markets are right where they were previously – with one exception. All the things such as “wild gyrations, panic selloffs” and more that were supposedly vanquished with the Fed’s intervention as expressed by the financial media et al. Have not only reappeared: they’ve shown to be far more frequent, as well as volatile, and extreme as those not seen since the original crisis in ’08. Funny how this has only occurred since the ending of QE, no? Coincidence maybe? Hardly. And I personally believe it’s far from over.

As both myself and a few others have reiterated more times than I can remember: “This market is all about Fed. liquidity.” And if you want to see warning signs – just look to markets that are the most liquid in the world. For if they show signs of stress – you know there’s potential for really big trouble to fester.

So just what did a “fantastic jobs report” do to the most liquid capital market in the world known as “Bonds?” It caused a halt. But remember “the Fed’s got your back.” No need to question why here. Best leave those questions for other areas such as “what’s the cheapest ETF I should invest in?”

Or how about a few other questions that really should be front-of-mind knowing now what one didn’t expect to see ever again. i.e., Historic panic out-of-the-blue selloffs.

How does one go about contemplating “fee structures” or “diversification” in an environment that is far more precarious, and far more onerous than the market of just months ago let alone a year? Are these the correct “questions” for times such as this? After all…

The conditions that were stated to be the catalyst for China’s original markets issue was “margin debt leveraging.” This issue was supposedly being wound down, and ring-fenced as to not interject itself again causing a remake of such events. But a funny thing happened over all these few weeks since that late August rout. Margin debt has been reported to be back on the rise – and with a vengeance, with Asian markets vaulting once again to ever higher levels. Yet, this is only one of the factors that is once again back on the table for questioning.

Back in Aug. another of the very prominent reasons for market turmoil in China was the impending “Fed. rate hike.” Even the Economist™ pointed out this issue in their article, “The causes and consequences of China’s market crash.”

“…Emerging markets have also been squeezed by the Fed, which has been preparing the world economy to expect the first interest rate rise in nearly a decade in September. Tighter monetary conditions in America have led to reduced capital flows to big emerging economies, to a rising dollar, and to more difficult conditions for firms and governments with dollar-denominated loans to repay.

The global economy is right in the middle of a significant transition, in other words, as rich economies try to normalise policy while China tries to rebalance. That transition is proving a difficult one for policymakers to manage, and markets are wobbling under the strain.”

So another very important question (which no one’s asking) that needs to be asked and addressed today is: With the Fed. all but signalling come heck or high-water – they’re raising in December. Do the global markets once again stand at the same ledge they did in early August?

And if that is indeed so, the question that is self-evident is this: Are you now better equipped both psychologically, as well as strategically and tactically adroit to handle such gyrations? Or, have you focused on “fees” and “diversification” as expounded via today’s financial books with a tendency to just BTFD because it’s worked so well in the past regardless of forethought or angst?

If it’s the latter, the real question becomes more of one resembling Clint Eastwood’s now immortal “Do you feel lucky?” For that’s really all you’ll have if the stuff truly does hit the fan once again. Because this time – The Fed. doesn’t want to get in the way of it either. At least that’s what they’re saying or implying. But right now it’s anyone’s guess. Besides, once again…

“Everything is awesome!” And there’s no need to question that. Right?

© 2015 Mark St.Cyr

A Market Worthy Of The Line : “Do You Feel Lucky?”

The now immortal line spoken by Clint Eastwood as “Dirty Harry” (1971 Warner Bros.) has never fit as a descriptor these financial markets more so than it does today. For if you believe you’re investing as opposed to gambling? These markets are now poised to show everyone the difference.

From an economic standpoint; not only has the current October surge in market prices been an absolute absurdity. Rather, just look to where the market as a whole has propelled itself right back to: within spitting distance of taking out the never before seen in the history of mankind highs. And why shouldn’t it be up here? After all, the economy is absolutely booming right? Right?

So one has to wonder exactly how does an economy in which its latest GDP report prints a blazing 1.5% warrant such a valuation? I know, trick question – it doesn’t. However, if one tuned into many (if not all) of the current financial media outlets this question or, reasoning was never addressed in any shape manner or, form.

As a matter of fact, there was praise by many of the next in rotation economists for how it was derived at in the first place, citing the “inventory” figures as a good news catalyst. Only an economist can find “good news” in a GDP print so pathetic it continues to warrant a continuation of extreme monetary policy by this very group.

Oh, and by the way, it was also this same so-called “smart crowd” who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let’s not forget – 1.5% GDP is now formulated with “double seasonally adjusted accounting.” i.e., If the print isn’t what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter.

What does it say when accounting standards have evolved into a discipline more suited for a massage parlor than anything resembling a house of academic standards – and 1.5% was the best print available? What one should infer from that data point alone is well worth contemplating by anyone truly serious about business or, their wealth. For that little number speaks volumes if one truly cares to dig deeper.

Looking at the markets “its hard to argue with price” is the old saw. And that price is, as iterated earlier, extremely high.

That’s just fantastic if you’re an “investor” with the tendencies of a river boat gambler. However, if you’re someone trying to distinguish the subtleties of when to invest precious resource capital into cap-ex projects for the prospects of future growth, or whether or not to expend that capital in hedging strategies to help smooth out input costs – you’re out-a-luck. You have just as good of a chance in flipping a coin for your macro business decisions. For hedging is now “What Fed. official will say what today?” Heaven help you if it’s the opposite of what they said the previous day. Like the title implied, “Do you feel lucky?” doesn’t seem that out of line.

So now here we are, back to levels that should be accompanied with a booming business cycle, yet, there isn’t one. This while all the rest of the corresponding data that should be giving the markets even more of a sure footing has been anemic at best. Consumer spending, housing, et al. All have shown to be going in the exact wrong direction we were told by the so-called “smart-crowd” would be showing otherwise by this time. Remember when people like myself were called “data-deniers” or, (the one I cherish most) “Idiots” for questioning all that supposed data? I’ll just let “the data” speak for itself.

All this once again brings us right back to today’s market strategy of “Do you feel lucky.” Because, “data” today whether good, bad, or adulterated means only one thing: what it means to a Fed. FOMC voting member. For it’s nothing more complicated than that.

“Piece-of-cake” should be the first thing that comes to mind. After all, with a Fed. such as this one with its expressed mission statements for clarity of forward guidance, coupled with its propensity to hit a microphone, TV camera, op-ed, and more harder, quicker, and with more authority than a reality TV star as to make sure the markets have no question to what might be forth coming. One should have no qualms or concerns. However, that’s simply not the case.

The Federal Reserve has delineated more confusing forward guidance than any in previous memory; coupled with more dueling press appearances of “good cop – bad cop” styled opposing viewpoints, all while simultaneously questioning, changing, and reinterpreting what weight should be given to any previously implied data points. This makes what the definition of “is” is, look as obvious as the nose on Pinocchio’s face. Not withstanding how many times they’ve not only moved the goalposts – but rather, switched both fields and games in mid play. e.g., Remember “international developments” and that other new-found interest (no pun intended) via their Dot Plot negative interest rates?

Just what do you think they’ll do next? All the so-called “smart crowd” is putting their money (well, actually yours) on the premise that they indeed feel lucky with what the Fed. will do next. After all; current CME™ Fed. Fund futures are now predicting a little better than 50/50 for a December hike (actually 53.5 as of this writing.) So, coin-toss odds are indeed the investing strategy of this millennium. Feel lucky? Wall Street does. Yet, why shouldn’t they? It’s only your money on the gaming table.

However, let’s get back to that “coin-toss” analogy. For the implications are far more duplicitous than any next in rotation fund manager or, economist will dare let on. Let alone state publicly.

Back in August the markets were beginning to show signs that it was taking the Fed. at its word (sounds just silly today no?) and began selling off in earnest at precisely these same levels today. Remember, there was no catalyst per sé. Just the impending realization that the “inevitable” hike was in play. Then came the real catalyst: China.

Overnight on Aug. 24th the Chinese markets realizing that they too would be at the mercy of the Fed’s rate hike also began selling off. However that selloff turned into spectacular fashion dragging U.S. markets the following morning into historic market moving precedents. e.g., The major index future markets halting and more. For let’s not forget: Fed. Fund rates today, like it or not, affects the global markets in ways far more consequentially than any time previous. Period.

Only after some immediate jawboning and more by officials did the markets seem to calm. Yet, within a little more than a week, they began to roll over once again. Not until the Fed. decided inaction was the action of the day did the markets not only stabilize. They propelled upwards in a near linear non-stop rocket ride boosted ever higher with every worsening data point released that the Fed. was not only painted into a corner of inaction, but handcuffed, bound, and blindfolded.

This October has resulted in being one of the greatest October’s ever for gains, in the history, of the markets. (#4 actually.) If your coin-flip of the Fed’s Sept. meeting implied there would be no rate hike – that bet just paid out in spades.

Forget investing acumen, it no longer matters (as I’ve reiterated for many years) you had gains for October matched only 3 other times in the history of the markets. So now is the real question for today’s investing maven: Do you still feel it? Lucky that is.

Now you have a Fed. with obvious “egg on its face.” And if there’s one thing an intellectual inclined thinker has a problem with is when they are made to look foolish publicly. Regardless whether by their own hands or not.

And if one is honest, the old saying of “Hell hath no fury like a woman scorned.” is only intensified when put into the context of indeed that someone just might be the very one being ridiculed by the markets themselves. A market by the way in which she has probably more power to inflict pain, turmoil, and wrath that Zeus himself would envy. Remember; It’s not their money – it’s Wall Streets. Or, need I remind you: yours.

Now I’m not saying the Fed. would do something such as intentionally hurtful or, out of spite. However, what I am saying is this: All the reasoning’s for not hiking in September seems to have been shown in ways conducive to the Fed’s own criteria as to have been a mistake. In other words, the China or “international developments” assertion along with the market bouncing back in historic fashion along with hovering within historic highs describes a market (via Fed. interpretations) with enough resilience to withstand a rate hike of such minimal increments.

Again, all this has been framed in a media context that “they should have moved.” And by media, I’m not saying just main-stream, but rather, those that the Fed. itself considers worthy such as the ones populated by their academic brethren.

October was a short squeeze of short squeezes. However, if indeed the Fed. is to actually move in December as many now imply is nothing more than a coin toss – what will the markets do from here? For if the Fed. is serious this time and doesn’t want to be the butt end of even more ridicule, it needs to signal ever more with even far more certitude: it’s going to raise come heck or high-water.

It can’t do both this time (i.e., more of the same mixed messaging) and save any remaining semblance it still believes it has of “credibility” if in fact it doesn’t move off the zero-bound in Dec. That luxury is no-longer applicable. They wasted it via their Sept. decision.

Now that the month end “paint-the-tape” market mayhem has closed the big bet is now: Will the markets take their cash winning off the table and go home? Or, will the “river-boat” style investor stay and let it ride calling the Fed’s bluff into a December showdown?

There’s not that much time to think or position. All cards are right now on the table, the stakes have never been higher, and the odds tell us it’s nothing more than a coin-flip odds based decision. Welcome to your investing casino. Where investing prowess, as well as a nations economic stability is punctuated with one’s ability for calling the right side of the coin.

Who’d a thunk it? Economics that required no math. How far we have come. Now all one needs to know is: Do you feel lucky? For along with no math – luck is now the “investing” acumen of the times. Until it runs out that is.

© 2015 Mark St.Cyr