Month: December 2015

2015 Year End Updates, Announcements, Along With Some Other Thoughts

As the year comes to a close, as usual, I like to do some general “house keeping” on all things related to not only this blog but other projects I may be working on, and/or the direction/directions I’m taking. This year will be no different, although some of those directions will be different, in a few different ways as I’ll explain. (Say that sentence 10 times fast!)

First, a few overall metrics I’m both proud of, as well as gratefully humbled by.

The term “beyond my wildest expectations” is the only one that seems to fit when I’m asked by family or friends “How’s that blog thing of yours doing?” However, let’s be truthful: your family and friends always seem genuinely interested in what you do – but really could care less. It’s just the way of the world.

So with that said. How is this “blog thing” doing? Well, if I said it has grown it would be an understatement. Traffic to the site had exponential growth this year along with the same being said for new subscribers. However, two facts on subscribers really took my breath away. One: the amount of new subscribers was as inspiring as it was surprising. Yet, the second was even more: It appears very few if any older subscribers (older being of at least a year) left or “unsubscribed” as the term goes. (There’s always churn regardless, just how many or why is what you need or want to pay attention to in my opinion)

With as many differing thoughts on subject matter and topics as I espouse here, not losing readers is just (if not more so) as humbling as it is in gaining. And while I’ve said this a hundred times over the years, I can’t say it often enough:

I am grateful, as well as humbled, for every one of you. And this goes for not only readers and subscribers, but also every news source, media outlet, other writers that have quoted me, bloggers who have re-posted or referenced me, and the countless others across the globe. And yes, even my detractors. Again – thank you to all.

Another milestone is the amount of people who vary from around the world that routinely visit. I remember when I released my first book via the site Christmas 2012 and documented the response on a mirror lens I had on Squidoo™ at that time, and was taken aback when it was being downloaded in over 20 countries within first 48 hours. When approximately a year or so later traffic to the site broke readers from 50 different countries I was further amazed. When it broke 100 a few years later I thought surely that was a peak. Yet, this year, this blog marked an all time high with visits from readers in 156 different countries. Think about that – 156. That’s basically the entire known world. And what’s more astounding? They continue to visit routinely.

On any given day the blog is visited on average from 10 differing countries. And the make up of those countries also changes daily depending of the subject matter. On average every 30 days: over 100 countries sporting a diverse group of readers ebbs and flows.

Some might say: “So what. In today’s world of social media doesn’t everyone?” To which I normally reply, “Well actually no – most don’t. And, remember – I don’t use it.” This is where most I’ve spoken with when the topic of “social” comes up become like dear-in-the-headlights because, they are of the mindset – that’s not possible without it.

Remember: I have been one of the lone voices stating, “The only people making money in social media – are those selling you social media.”

That statement has landed me at the butt-end of many an argument, as well as many a discussion from a stage when ever the topic of business practices were on the table. However, the only way to prove my point – was to show that point in actual practice. I have written many times and explained previously such as here and here. And my thoughts currently have not changed.

Yet, as I always have to reiterate: That doesn’t mean I think social or sharing doesn’t have its value. It’s knowing what that value is too you and putting it into its proper place that makes all the difference. For I myself have sharing buttons – I just don’t have any accounts. That may change in the future, but as of this writing, it still holds. Same goes for comments. e.g., I’ve never hosted them. (this again is where I can silence an auditorium)

So, in staying with this theme here are a few announcements, as well as rationals, that you may find useful in your own endeavors because, once again – I’m doing things that everyone else will say, “That’s just nuts! Nobody is doing that.” Which is precisely why I’m doing it.

Not that I’m sort of martyr. It’s just that I believe this is the way. And if you’re going to be or, want to be a thought leader on the big stage; you don’t do it from standing pat and pointing for people too “Go there!” You say “Look, I’m going here – follow me!

What you do is up to you however, I’ll just add one small detail: I have a track record of being correct and ahead of pack. And I’ve done this by doing near the exact opposite of those that proclaim they’re “experts” on such things. Again, what works for you is entirely up too you. Just don’t kid yourself with vanity metrics as opposed to metrics you need to put food on the table with or, pay the mortgage. If you’re running a business – run a business. Know, accept, and be responsible for outcomes. Excuses are for hobbies – not business. Knowing the difference between the two and acting accordingly makes all the difference in one’s chosen career, as well as bank balance. Again: Think about it. For there’s never been a time in recent memory this fact is going to be more relevant beginning in 2016. Trust me on this. So, on to the announcements and rationales.

First: I will be deleting, as well as removing, all audio and video content from outside sources. e.g, iTunes® and others. All recorded material as far as audio, podcasts, video, etc., etc. will only be found here or, a deemed affiliate. So let me answer the obvious – why?

I decided years ago there’s really no reason to give away content for free that doesn’t seem to add or provide any quid pro quo benefit. e.g., social media sites and more. I’ve also found the same goes for the podcast genre. It works for some, however for myself, I’m increasingly finding it more of a wasted effort having my material elsewhere. Sure a few years ago one wanted (as well as needed) to make sure their material could be easily listened to, or downloaded, and places such as iTunes or others were perfect for just that. However, in today’s day and age it’s really no longer necessary and moving away from it I believe will be the prudent move going forward. For example:

I can host all my material (e.g., intellectual property) on my own site and allow downloading (or not) both easily and with less complications such as frivolous DRM take-downs on YouTube™, or others like when Apple™ took down whole podcasts because some had inadvertently pictured an actual apple in their promo picture. Or worse – when users find out their uploaded content can be made available for sale without their consent or compensation. (Remember the Instagram™ debacle for one?) And a whole lot more. (On an aside note – it’s also why I host my site on WordPress™. For they have taken the frivolous DRM take-down shakedown chaos seriously, and have made it a plank in their platform to stand on in defense for their users. Personally I applaud them and is an important reason why I remain a client.)

Also – why would I want to send people elsewhere, where I have less control over my own products or intellectual property, when I don’t have to?

I believe this is an important point many should consider or reevaluate pertaining to their own intellectual property. Again: are you running a business – or a hobby?  It’s an important point, don’t let it be lost on you. Times have changed. Platforms and other things are much more resilient than just 3 or 5 years ago. In most cases – things work today across most platforms and devices in ways that are light-years ahead from just a few years ago. Ask yourself: Are you using them out of habit – or necessity?

So, with that all said: I’m changing things with mine. However, please feel free to download anything you like while it’s still available.

I know there are a lot of you right now thinking “That’s nuts!” Especially if I were to add that thousands have downloaded and most people in these stores don’t even get 10, which is the number or stat I last saw reported. (on an aside I believe it was also reported more than 1/2 to 2/3rds never attract 1 download) Again, with that said, I believe hosting all my own material, on my own site (or, as I stated earlier; on an approved affiliate) is the way or direction one should take today. And like always, if I’m going to say others should – then I’ll do it myself i.e., leading by example.

And for those who may be new to my work I’ll just add this for some insight on why I may be saying, or doing what I’m doing now. Because I know at first blush it sounds the exact opposite of what anyone else would say or do. However, I do have a track-record of being ahead more often than not. Below is just one example. But its a relative one.

I was one of the first (if not 1 of only 3) along with Seth Godin, and Guy Kawasaki who had an app in the App store dedicated solely to one’s writings. This was at a time when most were not only wondering “What’s an app?” but also many of the so-called “smart crowd” were professing apps were a passing thing and stand alone software programs were going to dominate for the foreseeable future (circa 2010.) My app ran for years till I decided it was no longer necessary (for it would have taken a complete rebuild to meet new security requirements in iOS9®) and I found the cost as well as the “necessity” of having it no longer equitable. (even though it still runs on my own iPad® in the newest iOS without a hitch. How’s that for durability!) So it’s not like I haven’t thought things through.

I mention only for the idea that maybe this might help spur, or make one reconsider any plans you may be contemplating. Just a thought. For remember: I don’t use anything the people telling (or selling) say that I (or you) must. The results? Using verifiable, accepted standards, and practices, not some pie-in-the-sky metrics – mine usually dwarf those of all the others using everything I’m not. So with that said, to quote Jobs, “Think different.”

Second: This site itself is changing. Again, just as I expressed changes in content elsewhere, so too is content going to change on this site. The blog has grown so much, and become so diverse with readers, it’s now time to start and compartmentalize a few things for the benefit of everyone. Here are a few key points:

The blog itself is going to have 2 distinct sections.

One for general readers, and one for “Exclusive Content” made available only to paid members and/or email subscribers (or followers.)

Segmenting and why:

As I iterated earlier the blog has grown, and subscribers have grown. But it’s now grown far beyond my original expectations with many of my articles now appearing on other news sites and blogs. Yet, as proud as I am about not losing older subscribers we’ve also experienced another phenom with the exact opposite effect. We’ve had just as impressive a number that have signed on as new subscribers – then – unsubscribed within 1 or 2 subsequent posts.

I wrote about this last year and expressed what we believed was the underlying cause. The reason (we believe) many came or, were redirected here from the myriad of other news sites or blogs that may have picked up or used a topic I wrote about. (and again let me say thank you too all) The new readers seemed to have liked the viewpoint (why else subscribe being the reasoning) and decided it was worth while to read more when published. Then, because of the nature of the blog being what some have deemed “eclectic,” they next received not any insight of news per sé. Rather, maybe a motivational insight followed by an executive insight then thought “What’s this crap?” or “I don’t care about any of this stuff!” and poof – unsubscribed. Or, vice versa.

So with this newly formed understanding becoming a little clearer over this past year, the segmenting seems an obvious conclusion. After all, in the end, it really is about giving people as little – as well as – as much as they want – when they want it, no? It will roll out over the coming weeks and be “a work in progress” as we work out some kinks.

That being said: If you subscribe or follow (or currently are one) you’ll see the change in the way the emails will come. I believe it will be easier for those who want to read this, but not that, yet, don’t want to miss anything greater flexibility in choosing what’s of interest. Again – this part will all be for Free.

OK, now to the 800lb. gorilla: “Purchases? What do you mean – purchases? Don’t tell me this thing is going behind a paywall?!”

Well no – and yes. So let me explain: Many posts over the years have been directed primarily at entrepreneurs, business managers, executives, and more. The ideas behind these writings were for the sole purpose of helping many struggling with quantifying their efforts between profitability or, insolvency, and a whole lot more. I have been pleased by the responses from readers that have told me things such as, “That idea alone helped me increase our margins by 20%!” and “I was just about ready to venture into this project when I read your article and it made me rethink – why am I really doing this? I decided to go a different way and it was one of the best decisions I made in years. Thanks! for that insight!” And there are many more along these lines where I’m grateful I could help shed some light.

However, what I’ve also found, as well as had demonstrated is the old adage “free advice” falls on deaf ears no matter how good it may be. Most times, unless there’s some form of “buy in” it may as well go unsaid.

I’m not the only one thinking this way. Seth Godin has also expressed a similar view recently when he announced he was raising the price on some of his offerings purely for the “buy in” effect. If you are serious about offering ideas that you feel need to be facilitated, then you need people committed to that idea. And “buy in” is one of the ways to help facilitate just that.  So, with that said, much of my business insights (e.g., “Profiting At The Bottom Line™” and others) will now take different forms and be available only within segregated offerings. Some will be repackaged, some will be re-written, some may stay just the way they are only now will have a price tag associated with them. Many will be removed from the archives and more. There will be more updates coming as the year goes on so, as they say on TV, “Stay Tuned!”

And remember: People who make the effort to subscribe (or follow) for free via the email links, too me – are more than just casual readers and should be rewarded accordingly. Therefore all subscribers (both free as well as paying) will be notified of any discounts available to purchase other products or services that will be made available on an ongoing basis if they so wish to take advantage of these. Again: these will be made only to subscribers (or followers) whether free or paying. It’s my way of showing appreciation. And remember: We won’t share your email with anyone. Period.

Onto another monkey: The book! When is this book “The Business Of I” coming out? It’s been over a year! What, do you have writers block or something?! Don’t know how to use a keyboard? C’mon already!”

Yes, those are some actual comments I’ve received, and they are legitimate in some ways. But no so much in others. And here’s why.

Although I control and own all my own material as well as intellectual property. I also produce it. In other words – I am beholden to no outside forces as to how, why, or where my property will be released. Nor do I have any imposed “meet the deadline or your advance gets pulled” hanging over my head. It’s good in some ways, bad in others. But overall it’s for one purpose: If I don’t like the direction, or even the finished product itself; I can (and have) changed in midstream or, in finality junked it all together. Which I have done on more than one occasion. Plus we built a new studio and I’m working out some of kinks there also. More on this subject as the year unfolds.

Normally I have no issues when it comes to “shipping” products (shipping meaning creating something and actually sending it out into the world when it’s good enough rather than waiting or tinkering around the edges forever where it stays in limbo indefinitely) for I usually ship far earlier and often than most. However, the more I worked on it – the more it became obvious it was more than just a book. It was evolving into more of a program, or course, seminar, and such. The more I tried to make it fit into a book form, the more it took on the outward appearance of being as thick as War and Peace. So, I’ve once again (to StreetCry’s call for my head!) decided to scrap the “book first” original concept and offer it in other ways or mediums first. Again, more details on this later as 2016 rolls out I promise.

I fully expect 2016 to be a banner year for those who didn’t buy into the “everything is awesome” nonsense and have been fortifying as well as vigilantly observant for opportunities to be exploited that maybe once in a lifetime opportunities in the upcoming future. Again; to those who are prepared. I fully expect 2016 will shake what many now conceived as “impossible” or “implausible” scenarios to its core exposing many where they will find themselves totally caught off guard, and no idea of what to do next. It’s sad, but true.

However, that doesn’t mean it has to be you. And just the very fact that you are reading this makes it manifest that you have decided to be one of the few that won’t be caught off guard.

Whether you agree with me or not is in some way inconsequential. What’s more important is you have demonstrated by your own action in reading this – that you – are in fact – looking for answers or clues. Again: so that you – can navigate your own vessel in what might be the next watershed event. And for that I salute you, and am proud to stand with you. For remember:

There are greater and more lasting riches made in times of uncertainty by those who are certain to not fall prey to calamities – than all the riches made then lost when everyone thought getting rich was easy.

Here’s looking to a prosperous 2016.

© 2015 Mark St.Cyr

2015: The Year That Exposed The “Experts” And Left The “Smart-Crowd” Dumbfounded

It wasn’t supposed to be this way. We were all told by the “experts” and the so-called “smart crowd” ad nauseam the economy and markets of 2015 were “ready for lift off.” Proclamations that GDP and other economic metrics were indeed going to be the unquestionable catalyst to help propel not only the markets themselves ever higher, but also, prove all the nay-sayers as well as data-deniers wrong. The problem? It was the exact opposite.

2015 exposed the sole overarching fundamental principle the “experts” refused to calculate into their qualitative analysis. That fundamental? Without the continuing interventionism of the Federal Reserve – there is no market. Period. i.e., The capital markets today are to a world-class marketplace for capital formation – as a Potemkin village is to any world-class capitol city. Welcome to today’s financial markets brought courtesy of the Fed.

As the year began the markets continued their accent to increasingly higher and higher historic levels (yes, historic.) It seemed near weekly another headline of “Historic Highs!” were proclaimed across the financial media as the markets zigzagged up and down yet, in effect, actually going nowhere. Here every selloff was met with an ever more forceful BTFD (buy the dip) recovering a prior days triple digit selloff with some stop running, HFT fueled, triple digit rally rewarding the Bulls (as well as the delivering the subsequent headlines) that the markets were indeed “on fire!” For surely it was insinuated; one would be a fool to be on the sidelines and miss out on all these “fundamental” based gains. Another problem? “Fundamental” was no longer anything real. It was only in the eyes of the beholder. And those beholders were and are “the experts.”

Nowhere was this meme more prevalent, or on display, as the example I used earlier in the year in an article titled, “The Coming Credibility Hammer.” In that piece I quoted an exchange I watched on Bloomberg™ in response to an assertion that it was easy to beat tepid earnings estimates. The guest Tony Dwyer responded with the following push-back:

“They haven’t been the entire cycle and we’ve had a 300% gain. Look, I’m trying to understand how we keep coming on every quarter, that the earnings are terrible, revenue growth is terrible, this is going to be bad – and we’re up 300%” He added as to reaffirm he still believes double-digit gains just 6 months out from here.

Just to make it clear; I have no issue with Mr. Dwyer or anyone else. All I’m doing is pointing out glaring examples on the mindset that appeared not only prevalent, but also unquestioned within the rarefied air many still believed they were breathing on Wall Street. What many failed to consider was maybe, just maybe; the opinions of where and how these markets were not only going, or for that matter stayed at these levels, while additionally arguing against any premise as to question the how and why of these ever higher prints; was not actually breathing rarefied air, but had more in common with – inhaling one’s own exhaust. Let me demonstrate this using a more recent example.

Over the past 5 years since the inception and implementation of the Fed’s QE (quantitative easing) programs the markets have done two things that have been extraordinary. One: They have gone up in a near linear fashion. And Two: That progression appeared unshakable if not unbreakable. It seemed no matter what took place in the world, or any economic uncertainties, the markets met it with a rally! So stable was this progression skyward a selloff of 5% (something quite ordinary as well as expected in normal markets) was all but nonexistent. And when there was a selloff for any reason – it was met with a buying frenzy that erased not only the loss but usually propelled the indexes even higher the following day. Selloffs now took on the tagline of Servpro™ “Like it never even happened”®

So ridiculous had the markets acted to what would cause normal concerns one meme encapsulated the lunacy: “Bad news is now good news, and horrible is terrific!”

This was now the only term that could explain just what the heck was going on within the capital markets. For nothing made sense any longer. Now, the only way one could make sense of the markets was to look at just how bad the economy was, and calculate the probabilities that it would force the Fed. to relinquish any thoughts of backing off the stimulus. All other economic principles or calculations were now laid bare. They didn’t matter. The only calculation that mattered was: QE = Investing genius. Buy, Buy, Buy!

Nowhere was this more prominent than what became manifest with another one of Barrons™ now infamous “experts” market calls “Stick With The Bull.”

The issue? Well, as of today if the S&P 500™ were to falter or just tread water for the remaining week of 2015 (a shortened holiday session in fact) all, let me repeat, all as in 10 out of the 10 “experts” polled would be de facto wrong. The average close of the polled is 2209. And if not for the vapid market action that has been taking place since the Fed. actually went ahead and “just did it” (e.g., raised rates) Even the most conservative remain in jeopardy.

It is still quite possible that another out-of-the-blue, HFT fueled, algo-based, headline initiated, stop running mania could indeed be released into this worse than paper-thin market and make all these “experts” correct. (And one should never, ever, underestimate the lengths Wall Street will go to save a year-end bonus) But is that a call of expertise? Or; is it a saved by the cowbell call?  That’s an important call you need to make. Remember, none of these experts seemed to had ever contemplated just how ailing these fragile “markets” were in the first place. And after all, if your price target is off – just state it again for 2016. Now that’s analysis you can use, and will pay handsomely (as well as dearly) for, no?

Does anyone remember this past August? (I know I do) If you were to poll many of the so-called “smart crowd” I would wager dollars to doughnuts the response would be to dismiss or, echo that of what many now imply for the Fed’s latest move: “One and done.” You would think a market rout of historic proportions so vehement, and so cascading, that it caused a historic first time ever halting of the three major indexes would be front-of-mind. Nope, just a blip. After all “Just look at the resiliency of these markets” is the usual response. However, there seems to be just a tiny bit more of a quiver in the voice when it’s expressed today, as compared to the all-out snorting one would hear at the beginning of the year. Funny how no QE suddenly brings about a diminished Bull forecast. Or should I say: just plain bull?

Again, who knows where we go from here. After all it seems pretty clear the “experts” don’t have a clue either. Yet, if you want a glimpse of just how ardent this bull—- narrative is going to be spun, it was on full parade this past week.

As I was watching a segment on Bloomberg’s <GO>™ the 22nd of this month. There was an intense discussion forming around the bull narrative and how or why it may not be as fundamentally sound as many imply that it is. During this discussion Barry Ritholtz interjected why he takes umbrage when it comes to “bubble calling.” He goes on to state and imply (I’m paraphrasing): “Those who have called bubble of late have been wrong.” Fair enough. However, the reasoning? I’ll let you be the judge.

He then goes on to explain why those who lived through the last few bubbles yet missed recognizing them while they were happening – are the ones who should be discounted for their possible recognition that we may be in one once again. (No really. I’m not making that up.)

The logic was absolutely breathtaking as I sat and listened. Let me illustrate this absurdity with this analogy for it really does sum it up:

In order to not get burned by the hot stove, what you need to do is not take any advice from people with scars on their hands because, to them, now every stove is hot. And whatever you do, don’t ever bring up the fact that our houses have burned down more than once – for we don’t agree with the fire department’s findings that it was caused by an unattended, speculation fueled stove with visible cracks, leaking supply lines, and no preventive maintenance reviews in years. Remember: we’re the experts in stoves – not the fire dept.

Think I’m kidding? Here’s another as he went on to explain what a “bubble” is as opposed to what it is not. Ready? (I’m paraphrasing – but not by much)

“There is a huge difference between a bubble which is a collective crowd delusion. And parts of the art market that might have got overheated because of a few billionaires competing – that’s not the same as all of the stocks in the U.S. running amok.”

Does not the first line of that statement tell you all you need to know? Do you think that maybe, just maybe, the “collective crowd delusion” might be held by the very one’s stating we’re delusional? And what by-golly fueled the “art market?” You just can’t make this stuff up. Yet, it doesn’t end there, there’s more.

As I iterated if one wanted to see precisely how this “bull” market narrative was going to be conditionally spun the narrative was on full display coming once again from Mr. Ritholtz.

In response to James Bianco (President of Bianco Research™) where Mr. Bianco went on to illustrate why this time it’s different (for the bull narrative that is) he stressed that for the first time in 80 years: Cash beat Asset allocation. Again, for the 1st time in 80 years. The “push back” to this argument was again stunning, as it was revealing. Mr. Ritholtz tried to make the case of… (again I’m paraphrasing)

“Aren’t we due for just a digestion of gains and catching up to valuations? You’re not going to go up every year and blah, blah, blah.(I found it quite illustrative that his “longer view” analysis was 5 years. Funny how that view just so happens to coincide with QE, no? But I digress.)

To which Mr. Bianco responded, “Yes, stocks can correct, but everything is correcting right now, and it’s the reduction of stimulus.”

Remember, Mr. Bianco’s point about “Cash” vs “asset allocation” is a data point derived from over 80 years of backward looking research and this is – a first. Funny how suddenly all these historically bad data points seem to be propagating with more frequency, as well as intensity since the ending of QE. But we’re the one’s called “data-deniers” or “idiots” by people like Mr. Ritholtz. So there’s another really important question that needs to be asked of oneself as we approach 2016 and beyond.

Exactly who is the idiot? Those who question these so-called “experts” or “smart crowd?” Or, the so-called “experts” and “smart-crowd” themselves? You know, the ones that like to tell us “It’s different this time” along with “Everything is awesome!”

For 2016 that answer has never been more important to answer for yourself, honestly. Because, what is glaringly obvious: The “experts” won’t. After all, they think we’re all idiots. Just ask them.

© 2015 Mark St.Cyr

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

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

As we’re about to enter both the year-end as well as final holidays I thought it would be fitting to delve into a topic where the act of “throwing stones” by my detractors begins to mingle with the holidays. No, not where they take on a more festive mood and try to be more conciliatory. No, this is where “being in the season” means putting down their stones – then picking up and hurling chunks of coal instead. Yes, the holiday spirit is certainly upon them. And why shouldn’t it be? After all: why worry about business when there’s an office party to attend! For no one throws a party like a Silicon Valley tech player. Whether they’re profitable or not. For the holiday meme is: Who cares about profitability. We’re “killing it” via Non-GAAP! Where’s the champagne?!

Yet, don’t look now, but I believe there’s a few signs that many of these party goers will suddenly realize like: true business fundamentals actually does apply to them, and not just others. Many of the warning signs that have been in place for quite a while are going to accelerate far quicker than many within the “Valley” ever thought possible.

One of the main reasons for this is when anyone dared read them or bring them to light (such as yours truly) the rush to hit a microphone, TV camera, or keyboard as to dissuade others from seeing them was only matched in fury as well as speed by the next in-rotation-fund-manager to proclaim “everything is awesome!”

Back on November 30th of 2014 I penned an article titled, “The Increasing Cracks In The Silicon Valley Mirror” In that article I made the following point:

“Again, at first glance I found it quite interesting that today, when the markets are hitting upward prints of nearly 1% per week that the median financing round would fall 40%.

I can’t stress this point enough: The markets are rising, and investment in median financing rounds are falling by double-digit percentages?

Sorry to repeat ad nauseam but (and it’s a very big but), all that’s changed in this period of time is QE has stopped.

Is this causation or correlation? That’s the call. For my money – it’s causation. However only time will tell for if one thing is clear, I never dreamed we could get up this high based on QE, but here we are. Although too not pay attention to these possible cracks would be ludicrous. Especially when paired with the timing of their appearance.”

Remember, this is a year ago when we were still on the upswing in stock valuations. The “everything is awesome” along with the “It’s different this time” tropes were all but screamed at anyone who dared challenge the premise. And the chanting as well as disparaging innuendos at those of us that did only grew in tenor and voracity as the year went on.

Again, as the year went on and markets climbed ever higher the memes themselves continued not only in more lockstep, they also seemed to codify the premise that if one wasn’t “in” the Valley – you had no clue about it. And if you tried to express why “they” didn’t get it using true fundamental business metrics or acumen such as; net profits that could be verified as building a sustainable business using 1+1=2 math or accounting methods? It was you who were the charlatan along with whose reasoning’s and babel should be avoided at all costs.

I’ve been expressing my opinions about “The Valley” for many years however, this year, now that there was no longer any QE (quantitative easing) all those “cracks” are morphing into chasms. And they’re getting wider by the day. Yet, once again I must point out – they were there to be seen all along. The problem? No one cared (or dared) to see them for what they were. And now they are growing at an ever-increasing rapid pace, as well as increasingly more being formed.

If you think I’m trying to just throw about some hyperbole as to describe just how self-absorbed as well as how “Silicon Valley” viewed itself, let me share an another article I penned this past April as the markets continued their assent. From the article, “Bubble Confirmed: From Sock Puppets To Action Heroes” To wit:

“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.”

Again, if you think I’m just trying to overstate – here’s the photo that caught my attention originally posted at CB Insights™:

Photo credit CB Insights™

Photo credit CB Insights™

A lot has happened since then. The tech space went on to post even higher highs taking out the once thought “never again in out lifetime” highs of the dot-com era. And with that assent came ever more stone throwing at anyone (again such as yours truly) who dared question “The Valley” its models, valuations, business premises, and a whole lot more. Which of course I continued (as well as continue) to do throughout this past year. But (and it’s a very big but) as the year rolled on the ever-increasing effects of no QE became more, and more apparent. However; everyone only wanted to point out that the vehicle was still rolling along quite nicely thank you. Nothing to see here, please move along.

The problem was (as myself and a few others were trying to point out) the vehicle was doing nothing more than the equivalent of a car which continued to roll down hill powered only by the vapors left in the tank, along with the initially fueled momentum. As far as “gas” goes – the QE refueling stations were closed. And sooner, rather than later, they had better hope their unicorns can also double as a beast-of-burden. For if not the carts many hitched-their-wagons to are going to not only find themselves in a ditch with no way out, but rather, they may actually get swallowed up by this ever-growing sinkhole of reckless funding.

As the year progressed a few things began to change. First: All that IPO magic and unicorn pixie-dust began to lose its sorcery as one after another “It’s different this time” narrative was broken as investors increasingly began paying more attention by looking at their charts and income statements. The meme seemed to be losing its luster. As well as outright cash value.

No where was this more obvious to me than the highly touted announcement that Jack Dorsey would not only return to Twitter™ as CEO, but simultaneously run Square™ as the same. All while simultaneously bringing Square public with its IPO.

In an article I penned at the time titled “Crying Towels Silicon Valleys Next Big Investment Op” I stated the following:

“There are two issues that are very different for both a company as well as the narrative of a whole industry supported by the wings of such a “canary.” And both of these go a little more than unrealized by those not familiar with them. For it hits right at the heart of how a meme or, a presumptive “It’s different here” attitude takes hold when true business principles, disciplines and more get lost on those desperate to not see their world view crushed. But business in its purest form has a way of doing just that – crushing naive or wishful assumptions.”

It seemed this observation touched a nerve too far when a reader alerted me that I was being lambasted by many of Silicon Valley’s aficionados. One in particular took place on Twitter itself by Paul Kedrosky via his Twitter™ feed.

Some of the comments were “But the author uses bold and bold italics. It must be true.” Along with others such as, “and he has BEEN A CEO.” I guess the caps meant being retired is a bad thing? And in regards to ZH there were shots like “I only read it for the pictures.” and so on. I would imagine the hilarity of this Twit-storm was had by all. And I have no problem with that. If you’re going to play at this level it comes with the territory. However, let’s look at a few facts and “pictures” to see if there’s anything funny contained within shall we?

The problem? The “pictures” were anything but pretty. Here’s just a couple:

2015-10-16-TOS_CHARTSAnother problem? Unlike wine these charts or “pictures” haven’t gathered any improvement with age. As a matter of fact the term “turning to vinegar” might become more of an appropriate analogy. However, surely both Twitter as well as Square must have made amends for such a calamity. After all Silicon Valley aficionados imply it is they that get it – not us mere business people. Right? Well lets look at today’s family album picture that’s adorning Silicon Valley’s latest Christmas card shall we?

Here’s Square as of this writing:

2015-12-23-TOS_CHARTS

There’s so much interest in this stock it seemed to have given investors a heart attack looking at how this “Red Hot Property” has flat-lined since its IPO debut.

Then there’s Twitter:

2015-12-23-TOS_CHARTS 2

Wait – Did his stock fall into a coal mine or something? By the looks of it this once “Canary” seems to have lost its songbird tune. Or maybe it’s just me.

And since we’re showing off “pictures” I thought I’d just throw in just one of the original members of the family album I posted back in October. After all, “My how they must have grown by now.” To wit:

2015-12-23-TOS_CHARTS 3

Seems that GoPro™ is going the wrong way since I first posted their chart.

GoPro has gone from near $30 when I first penned that article to only a few months later is sporting an $18 handle. That narrative of “from 30 to 18” might work if your selling face cream. Not so much if your selling investment advice. Again, but what do I know. For I’m not a “Valley” aficionado.

And if one thinks “just wait – It’ll turn around” I offer the latest  installment for backup into the FTWSIJDGIGT files. Again – to wit:

“Foursquare Is Now Twosquare: Latest Tech Bubble Casualty Has Valuation Slashed By 60%”

As we get ready to close this year out I would just like to state that nearly every warning sign that has shown its hand over the last few years which has been either ignored or, explained away – is now coming back full circle as to “back hand” any and all that thought “it’s different this time” or “everything is awesome” when clearly it was not.

I’ll just finish with this. Many over the past year have also pointed to Marc Andreessen’s quote in his Twitter bio from Martin The Martian (one of my personal all time favorite cartoon characters I’ll add) “Where’s the kaboom? There was supposed to be an earth-shattering kaboom!” When talking about another bubble bursting.

Well, there was. It happened over a year ago in November when QE did indeed end. The problem for nearly all of Silicon Valley was: They decided to explain away the noise as nonsense. The real issue now is: they can’t explain away both the continuous after shocks, as well as, the compounding destruction happening within the investing world.

And what’s really worth repeating? It’s not subsiding – it’s only just begun. But again, what do I know. I’m not a “Valley” guy – just a businessman.

© 2015 Mark St.Cyr

The Fed. Has Delivered Far More Than Just A Lump Of Coal This Time

If one meme has been constant these subsequent years since the great financial melt down of 2008 it’s been: BTFD (buy the dip) Not just some dips – but every dip. And why not? The Federal Reserve had all but assured Wall Street that since its first intervention into the markets and the resulting “risk on” behavior it produced resembling a Pavlovian experiment, it would indeed reincarnate the procedure every-time there seemed to be even the slightest hiccup in the markets. “Emergency monetary policy measures” would indeed be left in place for “an extended period.”

Wall Street didn’t need any secret decoder ring to read the hidden message that laid within. i.e., “The Fed’s got your back so buy, buy, buy!” And they did horns-over-hooves tripling the values of many of the major indexes sending them to never before seen in the history of mankind highs. Even the dot-com era highs were taken out. And all of it, and I do mean – all of it – on fairy-tale reporting of economic measurements. Need an example? 5% unemployment rate signals people are getting jobs. However, don’t pay any attention to the 94 million (and growing) that can’t and – are out of the workforce. All while the food stamp program and other government assistance program roles have swelled to historic levels. Because, other than that: “Everything is awesome!”

The problem with all of this is that it’s now becoming apparent to everyone. The amount of mal-investment along with just how intertwined all the subsequent carry trades and more is becoming frightfully obvious and can no longer be hidden from view. The real problem now facing the Fed. which I believe they themselves did not fully comprehend was the extent in which all of this was: so blatantly obvious. Again: to anyone who truly wanted to look.

Without the Fed’s interventionism – there is (and was) no market. And now with the raising of rates; no one will be able to miss or avoid that fact any longer. No matter how hard they try.

Another of the problems for the Fed. began to express itself when they seemingly became comfortable with this new paradigm and even appeared to relish this new-found fame and power as they took to any (and just about every) media source whenever needed and delivered either sedative policies or, soothing tones with near immediacy as to help quell any and all market fears. Over these ensuing years the frequency of appearance by Fed. speakers across the media has only been rivaled by the grueling tour of some where-are-they-now rock-band. I have a feeling they’re not going to relish this new limelight as they did the old.

This past Wednesday they unwittingly threw back their own curtain and implied, “See, we fixed it. Nothing to see here. The economy is just fine. So – we’re raising rates” to what appeared to be thunderous applause. However, what that motion truly revealed was not some blank or empty space. No, what they unknowingly revealed was a caged monster whose door just came unhinged. The resulting consequences began to bear its teeth Thursday and Friday. Yet, figuratively, that monster is still within the theater. The ensuing days is probably when this beast actually hits the streets, as in Wall Street. Then, all bets are off on exactly what mayhem we’ll see as a result. However, what we do know is this: It ain’t gonna be a present anyone wanted under their tree.

Suddenly we’re finding out (much like cockroaches) when you see one nasty issue – there’s many more just hidden from view. No where is this analogy more fitting then what is currently taking place in the High Yield space. e.g., junk bonds. First there were signs of stress just weeks ago. Then almost overnight (literally) many woke to the news that their “investments” were suddenly gated. Gated as in: Want your money? Sorry, maybe later, if not much later along with maybe not worth that much at all. Thanks for investing!

These are only the first warning shots being fired as to just how precarious, as well as onerous, this debt monster that the Fed. has unleashed might be along with the resulting chaos. For the tentacles of this beast combined with its destructive power is going to give the Kracken a run for its money in my estimation. What we’re not talking about is some monetary policy that can now be moved around with the frequency of some elf on a shelf. That’s fantasy land. This bane tale is currently becoming all too real.

I am now quite convinced that all of this was not only absolutely lost within the halls of the Eccles building rather, what might be even worse is that it seems it may have not even had been contemplated or, thought to be unfathomable by its very creators. I feel I can say this soundly by what I observed during the subsequent press conference given by the Fed. Chair Ms. Yellen on Wednesday.

What absolutely left me slack-jawed was her tone, tenor, and facial expressions during her opening remarks. Usually when one is delivering statements about monetary policy and other matters they tend to take on a tone of mundane, somber, expressionless, drawn out reading from prepared texts. It’s not like you’re going to see entertainment (well, maybe comedy come to think of it but I digress.) These are more or less information dispensing venues. Read the text. Answer any questions. Thanks, see you in a few months. This one was far, far different in what it revealed to my eye.

Ms. Yellen seemed to be almost giddy in her demeanor when delivering the news that the Fed. would indeed raise rates. It appeared as if the act of raising rates was some type of banner announcement where “Mission Accomplished” should be brought up in bright lights and champagne bottles uncorked. I implore anyone who thinks I’m exaggerating to find that conference in any search engine and watch for themselves with a more discerning eye. It truly was uncharacteristic by any Fed. Chair that I can recall. Yes these indications are subtle. Yet, to a trained or informed eye – they are there nonetheless. Noticing subtle variations such as these are required if one is serious about understanding Negotiations 101.

It may sound like something inconsequential however, what I would argue is it shows just how clueless the Fed. truly might have been. The only thing worse is it may show that they truly did believe their own press. e.g., That the economy really was as good as they said (or thought) it was. If that’s the case – then we really are in trouble. Big time!

This act of raising rates was not some seminal event as to mark the economy’s return to health. If one is truthful (although most continue to kid themselves) the Fed. raising rates on Wednesday was more or less an act of desperation as to “get off of zero.” Hopefully, without causing too much stress so that if and when the economy does show signs of stuttering (which it clearly is) the Fed. would then have some dry powder in reserve as to cut once again. Hopefully (once again) instilling the same Pavlovian reaction they’ve come to expect. That’s a far, far, far (did I say far?) cry from doing it because the economy is getting a clean bill of health. Or, “Mission Accomplished” sign off from extreme monetary measures.

Again, I must implore anyone: watch her opening remarks again and you’ll see it clearly. But you shouldn’t just stop there. What you should do is also watch the Q&A. For this too was also quite revealing.

When asked about the possible effects upcoming on bond yields and more some of the questions seemed to just confound the Fed. Chair appearing to catch her off guard like a deer in the headlights. So striking were some of the moments of silence even Tom Keene of Bloomberg™ commented during his show how he was taken aback. I believe the word he used was “stunning.” I have to agree with him. However, I myself was even more stunned on the non-answering answering composition of Fed. speak Ms. Yellen retorted at length. I mean, just how many ways can one use “transitory?” After a while I wished hearing transitory itself had been more transitory.

If we are in fact witnessing the first stages of a blatant, as well as avoidable policy error by the Fed. the resulting mayhem will be far worse than anyone ever expected. And I use the word “avoidable” precisely for that reason. For it has been clear to anyone without a Ph.D in economics; who has just a modicum of common sense; and acquired their education at the school of hard knocks; that this economy was not only far worse off than any of the reporting stated but – was being made that way with the consistent heavy hand of intervention being carried out by the Fed. itself. And this fact is coming to light brighter, and more plainly visible with each passing day. All to what I feel will be the Fed’s horror. Yet, it will be us that has to navigate the real life nightmare filled with debt leviathans and carry trade tentacles rivaling the Kracken for tenacity as well as fury.

This will probably go down as the first time Wall Street will have ever wished the Fed. had indeed left only a lump of coal in their bonus stockings rather, than the surprise they might wake to this holiday year-end. If you want to see a clue about just how much of a bloodbath is still possible in the once highly touted arena of fixed income – just look at Jefferies™.

It’s now self-evident: Winter is not coming…It’s all ready here.

And the Fed. is expecting you to be happy with their latest present. For by all indications expressed they thought long, hard, and decided this was exactly the right gift, at the right time. Just don’t look for any gift return receipt. The exchange window for returns to BTFD once again are currently closed. That’s an option I’m confident they also did not contemplate fully. For I’m sure they felt they knew exactly what they were doing – and the “markets” would be thrilled.

Ho, Ho, Ho?

© 2015 Mark St.Cyr

Rate Hike Anticipation and Angst And What To Really Watch For

Currently the entire global financial system is waiting for the resulting votes from the Federal Reserve’s FOMC meeting. It is anticipated that the Board will indeed raise rates for the first time in nearly a decade. The angst is clearly palpable; except for nearly all the next in rotation fund managers I’ve seen paraded across financial media this morning. From what I listened to this morning, as long as it’s your money at risk “there’s nothing to worry about” because their money (as in their year-end bonus and or fees collected) is all but assured. After all, “Just look at the market’s reaction going into this hike. It’s a vote of confidence from the markets. And if the markets are confident, so too should you.” (i.e., Please don’t panic or sell. We need your commissions or we’ll starve.) This has basically been the tenor and tone this A.M.

I received some inquiries from friends and others the other day on just what I would be looking or listening for when the announcement is made, and the subsequent press conference. I thought I’d post those thoughts here for readers who may want to know also. For this meeting has far more implications to both business as well as personal finances than probably any since those held during the tempest days during the financial crisis. Here’s what I said…

What ever the market is doing, as well as done these last few days should be ignored. By ignored I mean: as trying to figure out how the markets “feel” or “think” about the upcoming announcement. None of it is relative. It’s all superfluous in regards to a hike or not. It has everything to do about what’s known as “OPEX.” e.g., options expiry into a year-end closing cycle. This is what is currently moving the markets around. And the ability to move this market up or down today (and I do mean today) is the fact there’s basically no one in the markets trading other than those who have positions on that need to either protect that position, or close it out. The volumes show it. Everyone is basically either out of the market, or sitting on the sidelines awaiting the news. Let me give you an example.

I have read on many a trading site that they have actually either, 1) closed their books as of last Friday and decided to take the rest of the year off. Or, 2) Completely have gone to cash and will not enter any new position till probably next Monday, if then. With the stated possibility they too might also just end the year as of last Friday.

I must remind you that these are sites that are owned by well honed traders. Traders that traded before, as well as during the financial crisis and since. Yet, this time? They have gone to the sidelines (some for the first time ever in their trading careers) for they have no idea what may or may not transpire. That should tell you something in just how manipulated as well as adulterated these markets have now become. Yes, they could be getting exceedingly wealthy if things went the way they believe they could. However, they could also get wiped out for reasons they just could not anticipate. And this time – they’re taking no chances. (these are traders with 7 and 8+ figures worth of capital at risk at any given time, so it’s not like they’re some lowly self-directed retirement fund operators)

When the markets are this thin – prices can move around like a paper cup in the wind. Up moves of 1%+ or down are the norm as strike prices get pinned and exercised. No matter what the Fed. announces may or may not have any effect which way the market will move at first blush. They could raise and we plummet. They could hold and we plummet. They can be hawkish and state dovish tones at the press conference and we plummet. Or, with all the same statements – we could rocket to new highs. It all depends on what, and where, the markets want to clear out their year-end expiry’s at. Yet, that will happen quickly. And won’t last for more than maybe 24hrs or so. The real tell on just how affected the markets are comes on Thursday and Friday in my view. And here’s what really matters. Remember these 2 things.  (IOER) Interest On Excess Reserves, and (RRP) Reverse Repo Rates. (For an explanation of exactly how these are supposed to function here’s a the Fed’s research note)

Basically this is where the Fed. will have to be hands on in exactly how much their move of interest rates affects the underlying market structure. This is where what is known as “Money Market Funds” live. And the Fed. has never had to deal with the implications of a rate hike in this very important area since the financial crisis.

Do not let this point be lost on you for it is paramount in my estimation: It’s one thing for your stock value to “lose a buck or two.” That’s your problem as far as the Fed’s concerned. However – If the money markets “break the buck?” Not only is that the Fed’s problem. It could be the start of a contagious global market problem. So this is the area that needs to be watched going into the weekend. For if there’s trouble there – there’s trouble everywhere. (For a good quick breakdown of the mechanics ZH has a great article you can find here.

So, with that all said there’s really nothing more that can be said or done except “we just have to wait till the dust clears” to see just how much of a dust-up this hike (if we do in fact get it) does to the overall market picture. For right now. It really is anyone’s guess.

But that guessing game will end shortly and far more truth’s will be illuminated. For just as that other saying goes. “If there’s one cockroach…”

© 2015 Mark St.Cyr

About That Rate Hike…

On Wednesday of this week (December 16, 2015 to be precise) The FOMC committee at the Federal Reserve is slated to follow through on the 2nd most anticipated, telegraphed, jawboned, as well as hand-wrung policy dictates to end the now maligned zero-bound policy, and raise rates ever so slightly by 25 basis points. Some Fed. officials have publicly stated that many around the world are calling for them to “just do it.” Sure they were. Maybe a few weeks ago. But as we get closer to the actual moment where “should” turns to “will?” Things change, and change fast. Especially when that change looks awfully familiar as what transpired last time the global markets held its collective breath. i.e., As the market held its breath – all the air began streaming out of the balloon.

So once again we await the results for the monetary policy game of “Will they? – Won’t they?” The issue this time? The consequences may be in fact a little more costly than previously. For the world is a much changed place than what is was just this past September. And looking back less than 90 days later, it seems raising then may have been a cakewalk as compared to now. Like I said, “A lot has changed over the last few months.” And they all point to the same thing: Potential for disaster.

One thing that’s changed and yet remains the same? China. What’s changed is things seem to have taken a turn for the worse. What hasn’t changed? The blatant ham-fisted style of dealing with its monetary and market fiascos via its politburo.

A few weeks back I wrote in an article “Dec. 16th A Date Which Will Live On In Monetary Infamy”

“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.”

And guess what has transpired since? Not only has the Asian markets nearly mirrored what took place during that period. China itself has done things far more damaging to their own credibility of making their markets more transparent and stable. This time they’ve devalued their currency via backroom operations more frequently in moves that are causing outright consternation across the for-ex markets.

The inclusion into the SDR (Special Drawing Rights) Basket which was supposedly a coveted milestone awarded as to assign stability and confidence seems to have done anything but. As a matter of fact it seems to have done quite the opposite. Adding to this the PBoC signaled just the other day their intention to loosen the Yuan’s peg to the $Dollar. How’s that going to work for a Fed. rate hike? Can anyone say “importing deflation via Made In China?” And here the Fed. is said to be all worried about inflation. I wonder if we’ll see “Ooopsy” in any of the corresponding releases via the Fed. minutes. I’m of the belief that word is going to come front-of-mind quite a lot over the next few months. We’re now seeing just how much turmoil waiting for the “right moment” Fed. style is about to unleash.

Another actuality which shouldn’t be lost on anyone is just how many top Chinese business leaders or market participants have suddenly gone missing. If one is perceived in any way as not towing the Party’s line (which is what happens in communist countries which far too many forget China is) whether they are talking negative, selling shares, cashing out, or a myriad of other factors deemed “improper” by the politburo – they are gone. Gone as in: Are they still alive?

But not to worry we’ve heard from many a next in rotation fund manager appearing in the financial media. “Their markets are just fine. They’re working out issues that come with any growing economy. After all, don’t forget China’s economy and GDP is still growing some 6% plus! We wish we had such growth!! And now they’re moving from manufacturing to a service economy, Oh, the riches to be had by all, Just back up the truck and BTFD!”

Sure thing. After all, what’s a little market turmoil when you can just “ghost” those you decide are the cause of any selling or market turmoil. And even if they aren’t, that’s OK too. For as Mao stated “You have to break a few eggs to make an omelet.” And that’s when millions were “ghosted.” So what’s a few business leaders for the sake of “the markets” hmmm?

And that’s just China. Or, should I say the “international developments” excuse implied last time the Fed. was going to “just do it” and didn’t. How about a few other real international developments taking place this time that weren’t so front and center last time. e.g. Nearly every other Developed as well as other EM nation whose economy is linked heavily to commodities. With some EM’s looking into the real possibility of returning to Frontier statuses if there’s even further calamity in the markets. That catalyst being the now collapsing commodities market.

Today, if you are a nation that’s tied to commodities – your economy is either in turmoil, or, outright free-fall. Saudi Arabia for one is burning through reserves at a pace only equaled with their oil output. Canada is suddenly finding itself at the precipice of an economic tailspin. The once driving economic hot-spots such as Alberta , and Saskatchewan have been particularly hard hit, and the worst is far from over as the price of oil continues to fall to levels many suggested would never be seen again in generations.Yet; not only are they here. They seem to be going even lower.

Brazil? Disaster, and getting worse by the day. Venezuela? Worse. And I haven’t even mentioned problems such as in Puerto Rico, Mexico, and a few others. However, let’s do mention Europe. e.g., The EU, and specifically Mario Draghi and the ECB.

Not more than two weeks ago Mr. Draghi took to the media as to announce what the market presumed to be an even more dovish toned statement. i.e., More QE in one form or another. The issue? They didn’t get it – and the markets fell in unison.

Once again in less than 90 days since the August plunge the markets reacted in similar fashion and many market participants found out what the meaning of “liquidity” meant when playing in this HFT fueled world supposedly “full of it.” Only when Mr. Draghi came out the next day at a speech at the Economic Club of New York™ to reassure (or triage the rout) stating “We are ready at any time to re-calibrate our array of tools” did the markets reverse rewarding the parasitic, algorithmic, headline reading, stop running, HFT programs to front-run his soothing tones and vaulted the markets upwards.

When pressed after his speech by other participants if he had iterated these passages as to help quell market fears. He responded at first with some push back, only to relent at the same time stating, “No…not really. Well, of course.” Welcome to monetary policy 2015 style. If you need reminding just how adulterated and far the markets have come. You needn’t look any further. Only this time – they aren’t staying there. They’re falling, and falling quickly. What’s worse? The Euro is climbing if not outright spiking upwards crushing many carry trades where the carnage is still yet to be felt, as well as fully identified. However, there are clues to just how bad it is under the surface.

Unprecedented losses in hedge funds caused other ECB members such as Ewald Nowotny to state “I think it was really a massive failure of market analysts.”  Yes it was. Problem was the markets thought the ECB were not only going to keep the pipes open – they’d turn the valve up to 11! And why wouldn’t they when the ECB continued to give soundbites as late as Nov. 2nd such as: Nowotny says, “ECB has to act as inflation target to be missed.” Massive failure indeed is all I’ll say.

The entire Euro-Zone is in chaos with many of its member states not only arguing about national sovereignty. They are literally beginning to once gain erect barricades and border crossings that were once thought never to be seen again. Yet, there they are. Again.

The Syrian refugee crisis is bringing out old tensions and new fears across Europe. Greece is finding out the hard way just how much of its sovereignty it did indeed relinquish when it signed it away to EU oversight for loans. My how costly those interest payments seem today. Think Portugal and Spain are going to do the same as they begin demanding better terms? In this current light? I dare say – I think not. You think Germany has more solid ground to put a halt to such demands today? Give that scenario a thought through while remembering the ongoing Volkswagen™ scandal, as well as demanding millions more refugees be accepted into member states with their own 50% youth unemployment. I believe Mr. Schäuble would be in-store for a little unwanted Schadenfreude during discussions this time.

Then there’s Russia. You know, that other communist country that is currently engaged in a real kinetic engagement in Syria. A country whose leader has basically called out the U.S. for outright manipulation, and the root cause of all the Middle East turmoil and militant uprising. The same country whose leader, and military have made it known they are “To strengthen Russian nuclear forces” while simultaneously launching cruise missiles from a sub into Syria. Add to this, that Turkey (a NATO ally) has subsequently shot down a Russian fighter jet. Does one think a mishap (any mishap) is possible that may launch WW3? How about a monetary one? Think it’s implausible or lunacy? I would urge you to think again, as well as quite carefully. For it’s not as far-fetched as one might first think.

Back in October I proposed this very idea that a monetary policy action could in fact be construed by other nations as an outright act of war if the situations presented themselves in just the right way, at just the wrong time. Whether or not it was intentional the results could be the same. Here’s a passage to reiterate:

“With the way the current global markets are now predisposed to HFT – If one wanted to put a hurt on a presumed or proposed adversaries economy; why wait for sanctions to be reimposed or, tightened or, a number of other financial weapons that need to be brought for a vote or, announced or, whatever: when it could be done today through various other means with only a nod-of-the-head.”

The premise of such an idea at that time was shouted at as being “preposterous!” However, let me now add a detail that no one. And I mean, no – one thought would happen. Especially in these turbulent moments. To wit:

“The IMF Just Entered The Cold War, Forgives Ukraine’s Debt To Russia”  And just how do you think this was viewed last week in Putin’s war council deliberations? Better yet, how do you think it’s going to be viewed when it’s contrasted against the Fed. raising interest rates against a backdrop of every other DM across the globe devaluing theirs in a response to an outright commodity driven rout crushing not only those economies, but also swelling government burdens causing social unrest?

An interest rate hike here by the U.S. Federal Reserve could in fact be a catalyst that all but crushes their current fragile economies outright. Remember, this will be needed to be thought through enlisting the eyes of one Vladimir Putin. You know, the one installing ICBM’s where we also have forces. And had a plane shot down by one of our ally’s. Think he’s going to look at this as “Oh well, the Fed. had to save its credibility. Pass the vodka?”

Which brings us back to the first player – who is also a co-player with the last in the same arena: China.

China as of what has been demonstrated publicly sides with Russia, not the U.S. And has also been moving its alliances with others that we are now having difficulties with. i.e., Iraq and more. And it will also be China’s economy that may suffer just as bad as Russia if and when the Fed. raises rates. Yep, nothing to see here. Move along. thanks for stopping by. As we can now see the Fed. knew exactly what it was doing by delaying all these years. For this sure looks like the absolute best time to “just do it.” Right?

This is where the Fed. now finds itself. Here they were. Just holding policy lines doing what they in their Ivory Tower contemplated and the so-called “smart crowd” insisted they do. And now the saying of “Between a rock and a hard place” might be an understatement. The world sits atop a tinderbox fueled by monetary policies that created them and awaits a match that could set it off in a blaze of who knows what. All in short order.

Unless they don’t do anything except try their best Draghi impersonation and declare, “They too are once again at the ready to do what ever it takes!” Except – just not now. Or worse. They do raise – and near immediately need, and do issue – QE. At that point who knows which is worse. For what it won’t be, is:

Predictable.

© 2015 Mark St.Cyr

Profiting At The Bottom Line™

This month’s focus: Thinking One Has Leverage Only To Find They Are Levered Up And Out

A crucial element in any negotiation is finding if, or where, one has leverage. Then, to use that leverage to help elicit an outcome that favors your side. Leverage can be used to both bolster an argument such as, “We have the logistical tools to get things done that our competitors don’t.” As well as to politely warn such as, “Let me remind you if you so choose our competitors over us – we would just like to make it clear an immediate response if thing don’t work out because of their inefficiencies to handle your needs might not be readily available.”  Both are two sides of the same coin. It just depends on the situation on which one you may deploy. Careful use and knowing the unintended consequences of each is paramount to any skilled negotiator. Far too many have never thought through these leverage points. One common one is: “If I owe the bank a million dollars – that’s my problem. If I owe the bank 100 million – it’s the bank that has a problem.” Well yes, but that doesn’t mean the leverage is yours. Quite the contrary.

Case Study:  I directly worked under and reported to a CEO of a nationally branded manufacturer. The concern was a multi-million dollar concern employing hundreds of people and distributed via its own in-house transportation nationwide. The products were a nationally recognized branded label developed and manufactured by the company on store shelves across the U.S. They are still sold today.

The CEO was what many would deem as ruthless. And this was being kind. He was in many ways what one would expect to see played in some fictional “underworld” type movie portrayal. However, he was the real deal. He used rules and laws in ways that took one’s breath away for the brazenness of application to suit his needs. Leverage was a tool used mercilessly. And, had been a go-to weapon of his arsenal he both coveted and used his entire business career with great effect. I must reiterate: he used leverage as a “weapon.” Not “as an art form.” So another saying such as “Live by the sword – die by the sword” should not have been forgotten by this CEO.

A few years later after I had distanced myself I received a call from one of my former co-workers who was this CEO’s right hand at the time. He called to explain to me a stunning chain of events in the world of “leverage” which still takes my breath away, and should pose a cautionary tale to anyone who thinks “There’s nothing they can do – I have all the leverage!”

What transpired was the CEO wanted to refinance his terms and other arrangements with his bank. The bank for what-ever the reasons balked. He then decided he would take his argument and fight this bank (with name calling and innuendos of unfair practices, and more) in the local press. He believed he had all the leverage for the city had just renegotiated his tax allowances and more on both the business and factory. He had negotiated tax incentives and more when he agreed to build his manufacturing and warehouse in a specially incentivized industrial park with the city’s blessing as well as urging. For he was now employing hundreds upon hundreds of local residents. And now “the Bank” wasn’t playing along to his idea of what they “should” be doing. So, he started to not pay on his notes just long enough so that the bank couldn’t foreclose yet, were stuck with late payments and a bashing in the press they had to address near daily. This went on for more than a year and it seemed as if the bank was tiring of it all. And they were. Which was precisely what this CEO wanted. He felt it was just a matter of days when the bank would finally submit to his demands. After all, the premise was “He held all the leverage.”

On a Monday morning as the CEO arrived at his company, a day like any other day he had assumed; he was met at the door to his office by a group of police officials along with representatives of not only the bank, but also – a representative head of his largest competitor. A competitor that was multiple-times the size, as well as a global concern rather than just a national.

In a legal reading and declaration he was informed on-the-spot that: all the company’s notes (all meaning buildings, trucks/cars, inventory, equipment, sales, lines of credit et all. i.e., everything) had been sold in total to: his largest competitor. And – this competitor was foreclosing (or calling them in) then and there – on the spot. He no longer owned both the company. Nor had a job. As a matter of fact was made to surrender the keys to his car (which was a company car) on the spot and call a cab to get home. He couldn’t call his wife for if she had come she too would have had to do the same thing, (which was demanded to be done later that day for hers was also a company car) He lost everything. It seems that in the end  – he didn’t have as much leverage as he thought.

The company still thrives to this day. And both the products as well as the markets they were once in also remains, as well as have been expanded. The only difference? On the bottom of the label, where the decades old logo still remains are the tiny words: “A subsidiary of XXXXXXXX Co. Inc.”

The CEO who devoted his career and business acumen to gaining “leverage” to build his company lost it all due to his neglect to remember that leverage can be used in ways even the most proficient never imagined.

© 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 Some Are Questioning The Zuckerberg Charity Story

This week not only did social media come a buzz, so too did the main stream when it was announced Mark Zuckerberg and his wife were marking the occasion of the birth of their child by starting a philanthropic organization named in their child’s honor. They also declared they pledged to give 99% of their Facebook™ shares (worth some $45 Billion) to help fund its mission. Yet, one little item or detail seemed not to go unnoticed by some (which I am of this crowd.) Rather, it stood out like a sore thumb. That detail was: rather than what is typically structured as a nonprofit (i.e., what one expects to see and is traditionally administered when charity is involved) this “Initiative” was structured as an LLC. i.e., Can be used for both profit and maybe more importantly – political influence.

Here is a quote from the Facebook post they wrote to help illustrate their intentions. It was this passage which both caught my eye, as well as made me think deeper as to just what didn’t sit squarely in my mind at first take. To wit:

“The Chan Zuckerberg Initiative is structured as an LLC rather than a traditional foundation. This enables us to pursue our mission by funding non-profit organizations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need. Any net profits from investments will also be used to advance this mission.”

The line “making private investments and participating in policy debates” sounds innocuous enough. However, most (if not all) of those who spend their every waking moment glued to social media wondering if they too can keep up to this weeks misanthropic escapades of the Kardashian’s are the first to take to Facebook and any other social media outlet and bash, excoriate, and what ever else can be thrown around to pummel any Wall Street Billionaire or for that matter Billionaires in general from influencing public policy. Unless you’re deemed “their Billionaire.” Then have at it; as hard, as messy, and/or dirty as you like. Blindfolds will be supplied freely to blind-eyes everywhere.

Do not let this point be lost. If one thinks for a nanosecond people with enormous wealth don’t factor such things into any form of estate planning as well as everyday living planning – I have some ocean front property here in Kentucky you can have at a discount.

Why do I say such a thing? Well, I’ll use one of the most overused examples of “Look it’s not like I’m trying to skirt something I’m actually glad to pay” known to the wealthy as to show “Hey, I’m just one of you with a bigger bank balance by golly, gee whiz.” Again, from the same post as above, to wit:

“By using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively. In fact, if we transferred our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an LLC we do not. And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.”

And there’s that inference again that I pointed out in the first that made me think deeper. Or, as some might say, “Made me go hmmm.” That inference? “…but we gain flexibility to execute our mission more effectively.” I’ll construe: in a world that is driven by politics and political donations – I bet it does. And will.

Again, let me remind you, this is all conjecture on my part. However, like I stated earlier, I’m not the only (although one of the few) that feels there’s more to all this than what’s been bandied about by the main stream media et al.

Two examples of such “heart-fullness” voiced were the immediate comparisons to the philanthropy of both Warren Buffett and Bill Gates. Many of the observations posited by the media was how Mark (I’m using the personal’s only for ease) has seen the value in sharing one’s wealth and all the good it can do, and wants to do the same. It’s a fair point. However, I’ll posit there are a few other additional points no one likes to point out. Yet, that doesn’t mean they aren’t there.

Let’s take Warren for one. What’s lost on the general public (as well as many others) is the obvious double standard of how he is both viewed as well as reported on in the press. He too is giving all his fortune away. Makes for great press and keeps him in that almost blinding limelight of ole “Uncle Warren” when he’s doing or making any type of investment or doling out advice. He gives political causes great sound bites or quote lines similar to “I need to pay more taxes!” and more. Yet…

When it comes to those taxes on lower wage earners or the outright cost of employing people who need to pay them. It’s a far different tune. All that you saw reported nearly ad nausea during that period was what seemed like a video loop stuck on continuous play. That or footage of him playing the ukulele surrounded by the Fruit Of The Loom™ ensemble belting out tunes at his investor meeting. What you didn’t see reported anywhere (for there was no warning as per the story) was a complete Fruit Of The Loom factory that had been the mainstay of an area in Kentucky for decades: closed and all its textile operations sent to Honduras leaving hundreds unemployed. Good jobs at good wages. Only not here, that’s too expensive. They’re now in Honduras.

Another example would be how you never see ole “Uncle Warren” demonized for the sin of all sins: being connected with fossil fuels. e.g., Oil.

Koch Brothers and a pipeline? Vilified as a scourge or pariah on the Earth. (I’m not taking a side nor endorsing one side or the other. I’m simply pointing out a demonstrable difference as viewed via the light of the media and reports – nothing more. Use you’re own insight as to ascertain any meaning or not) Warren’s investment into the trains which carry that same oil that seemed to derail weekly for a time causing environmental catastrophes? If his name was mentioned is was at a whispers breath. If that. But hey – He’s giving away all his Billions – He’s one of the good guy’s. Not some greedy capitalist. Right?

Then there’s Bill Gates as of late. Again, his foundation may be doing great work. Yet, then again, it doesn’t hurt to make sure you profess as loud and as much as possible: “Hey, I’m giving everything away, don’t think or call me some greedy capitalist.” i.e., “Hey, go after those people’s money – not mine. I’m one of you! See!!”

It has been reported that he’s publicly stated to have taken all his philanthropy cues from Warren for they have been very close friends for years now. But Gates has done something even more head scratching than even Buffett. Lately Gates has publicly stated that it’s going to take both socialism and climate change advocates favorite tax (e.g., a carbon tax) to solve the ills of the world. Calling the private sector “inept.”

Nothing like self inoculating oneself with the right combo of political antibodies once one’s made their wealth via capitalism. Especially if one wants to keep both its use, as well as their new-found media persona intact. Kills two birds with one stone is all I’ll say. Almost like going for a political flu shot and receiving a double dose on the house. Again, all conjecture on my part, however, does one think for a moment Bill would say such things when he was developing privately what Microsoft™ was able to do for the public sector at large? That’s a decision for you to ponder and come to your own conclusions.

Which brings us back to Zuck and his latest philanthropic proclamation. As Gates learned and emulated Warren with his own brand of philanthropy. So too must Mark be watching and learning also. I may be critical of Zuck on many differing issues , but what I would never imply is that he is not a shrewd businessman. He’s demonstrated that in spades. Which by the way is exactly the basis for why as I stated at the beginning I’m not quite buying what’s being sold.

I also believe it is exactly for these reasons one should look for clues as to what might be on the horizon in other ways. For this could portend or, be a precursor that those “storm clouds” myself and a few others have been sighting are indeed becoming more obvious to Silicon Valley than many will let on. Here’s my reasoning…

You know the one thing Mark Zuckerberg with all his Billions can’t do today without causing a media sensation throughout Wall Street? Hint: Sell.

Let me express it this way: How would you think it would look to analysts, the financial media, stockholders, et al if Zuck announced he too decided to sell a Billion $dollars worth of stock when only weeks ago it was reported Mark Andreessen sold out nearly all (73%) his holdings in Facebook? This coming on the heels of the August 24th historic plunge in the markets. Think it would be seen in a “favorable” light? Neither do I.

You know what else an observant business Silicon Valley person might contemplate?

If we were in fact at the edge of a bubble in the Valley – how would one be able to sell at the top without bringing on some negative feedback loop in their stock price? After all, if history is any guide part of the problem for many during the dot-com burst was they never sold at the top. Many rode it all the way down to oblivion, and only a choice few (like Gates) made it through.

However, Bill had an operating system that was needed regardless of the economy’s state. Mark only has an operating platform that needs to sell ads. And if ads go dry – so too does your stock value and personal wealth. See AOL™ for clues.

With this newly formed “Initiative” any selling is now wrapped into a wonderful meme of “We’re not selling to profit. (or preserve) It’s for charity. And we’ve stated openly we were going to do just that. So, nothing to see here, please move along, thanks so much.”

Are you beginning to see why something seemed “more than what meets the eye” at first blush?

You know what else might be on the horizon that I’m more than sure will be brought up if things do begin to turn sour in the Valley? Mark’s near unrestricted power of authority to make acquisitions.

Right now he doesn’t need Board approval to spend. He’s been very shrewd in keeping that ability solely within his own purview. However, as I’ve written many times previous, “You’ll know everything in the Valley has changed once you see Wall Street calling for that oversight.” I believe that ship has already began to sail and will be coming much sooner than later if we have more hiccups like the one’s we saw in Aug. or if Facebook shares begin going the wrong way.

Yet, you know where that privilege will probably remain, unfettered, as well as with more influencing authority? Hint: “Initiative.”

Look, I’m fully aware this is a lot of conjecture, as well as speculation and more on my part. I’m also of the belief that there is truly some real intention to do good with one’s wealth. Especially once one has a child for it really does change perspective on everything you never would contemplate until. That said, I’m also of fact and well aware that there is nothing wrong with capitalizing on events no matter how they present themselves in manners, and ways, as to promote or protect one’s wealth. As well as image.

What caught my eye was, again – the structure. e.g. LLC. It was once you ask a few questions and ponder “why” while looking at the event horizon that only a very few of us are stating or trying to bring attention as it nears does one look closer at what might also be driving the reasoning behind such announcements.

Yes, it may be a wonderful vehicle for charity in the name of his daughter. And – it might also be a tell-tale vehicle for those willing to look as the first sign of a vehicle trying to “get-out-of-Dodge” before or, as fast as time will allow without causing others to panic first clogging the exits leaving themselves stuck. After all, what’s one to think about the “eyeball for ads” business when one of the other undisputed “eyeball” counted sights Yahoo™ is openly contemplating this weekend if it should sell its internet business?

Remember, also, this year is the first year that the once Holy Grail of “IPO’s to the promised land” have been mired in quicksand. (Just look at Square™ and Match™ for the latest clues) Funny how things like this happen when there’s no longer QE to fuel it. That, and the Federal Reserve has all but declared without question that a rate hike will in fact take place (unless they don’t) nearly forsaking corporate profits to $Dollar denominated purgatory.

Again this exercise could all be for naught and there may be nothing to ponder or, extrapolate. And Mark, Bill, and Warren may indeed have no ulterior motives to their philanthropic activities other than what they’ve stated. And that’s fine with me. Yet, there’s two sayings I’ve lived by most of my adult business life that have served me well. The first comes from Andrew Carnegie, “I no longer listen to what men say – I watch what they do.” The second I learned on my own after being blindsided by someone I thought was a friend, “It’s not what people do too you that’s the problem. It’s the way you have to treat everybody coming after that’s the problem.”

If you think the Carnegie quote is just some antiquated insight that no longer fits today’s circumstances or maybe can’t see how the second could apply to the circumstances of today. Need I remind you of another person who had philanthropy at the core of their decisions of just “doing good” where his actions were to be taken beyond reproach? Lance Armstrong.

Questioning is a prudent exercise regardless of the individual. Especially when they’ve proclaimed politics is going to be one of their predominate activities. For if it’s a business – I don’t have to buy or participate. When it’s political – I might not have a choice.

Charitable or not.

© 2015 Mark St.Cyr

Is The Old Business Model Needed To Save The New?

Over the last decade business models have been struck down via the “disruption” type model with a near fanaticism when it comes to “you must do this or else” type attitude that’s emanated via the “disruption crowd” of all that is tech. None is more representative of this model than the music business. Having been exposed to this business from both sides (both as a musician as well as radio exec.) I am well aware that the industry as a whole in many ways was ripe for disruption. However, exactly what or, just how disruptive was the questions no one seemed concerned with. The most dominating force of “disruption” which first bared its teeth was that of “free.” Remember Napster™? This was, for many, the first real shot across the bow that the music industry as a whole would never be the same. And it hasn’t. Yet – that is beginning to change.

The real issue about Napster was that people could via their own personal libraries share those copies with as many others globally so that they too could obtain a copy for their own personal use. (This is a simplified sketch purposely to keep it simple.) The problem here can be seen immediately to the business eye. One copy (as in just one song or CD) on just one person’s hard drive allows millions upon millions of others the availability to “own” it and have the “right” to listen to it whenever, and however they want for free. Great deal for the user. A terrible dilemma for not just the music industry, rather, for artists themselves. Yet, the whole argument was based why “free” was the only model. Technology underscored this point (at the point of a digital gun) with its incessant proclamations of: make it free – or else we’re going to get it anyway.

It took the lawsuit argued and won by Metallica to put light onto the whole subject of “who owns what” in 2000. Personally at that time (as well as still do) I applauded the band for their decision to not only put forth the suit, but also to articulate publicly the “why” in the face of a deluge of outrage from both non-fans as well as fans alike. Why was I for such a decision you may ask? Easy. I knew first hand both from experience, as well as friends, about how one goes about making a living via a musicians life. i.e., How you spend all your money and resources (e.g., time, blood, sweat, and tears) to finally create a “CD” for sale.

Selling just one singular copy to then be distributed to millions for free doesn’t put food on the table, pay the rent, nor buy guitar strings. Needless to say pay for the “Rock-star” lifestyle one dreamed of obtaining to begin with. The industry model was broken and did need disruption. However, disrupting it via breaking the backs of the artists per sé is quite another. And the result is sooner or later true business models are allowed to reassert themselves because “free” can no longer pay the bills.

You are beginning to see “the old” reasserting itself ever so slightly wrapped in some form of “new and improved” marketing. However, the only way to see it, is to be attuned for it. And I believe those notes are beginning to be sounded ever louder, as well as clearer. Yet, you still have to listen.

Right now streaming is all the rage. It has devastated many program formatted terrestrial radio stations. However, there’s more signs that streaming isn’t all it’s been made out to be. And worse – it’s not making any of the profits it was touted (or promised) were surely to be recognized once consumers signed up for “free” then, will obviously be converted into “paying subscribers.”

And if not? They’ll be subjected to that most demonized spectrum of the internet: They’ll be ads! Oh the humanity! You mean like what they have on traditional radio? Say it isn’t so. Just where will this madness stop! Spoiler alert – it doesn’t.

Streaming radio when left to its own devices (such as generating net profits) turns out to be a business model Wall Street is beginning to tune out. Pandora™ has lost nearly 75% of its value from its all time highs of just last year (i.e., from $40 to $11 thereabouts.) And the highly touted Spotify™ IPO that was supposed to debut to adoring fans, I mean “investors,” has since been delayed maybe for another year. Add to this the French streaming service Deezer™ has postponed their planned IPO a few weeks ago citing “market conditions.” Funny how “market conditions” would push aside a business that touted just this past Sept.

“We have everything in place to scale up the business and be a part of the fast growing market, accelerate growth, invest in core market in terms of sales and products and be part of the streaming revolution,” Deezer chief executive Hans-Holger Albrecht, told CNBC by phone.

Well, that all sounds good. And may be music to someone’s ears, but alas, it seems not Wall Street’s. Which is quite perplexing seeing that the markets had moved in a near parabolic ride upwards of within spitting distance of highs never before seen in the history of music, (I mean, markets.) What “market condition” could be better than that? Or, is the “free” ride via money thrown at anything with a ticker symbol meeting the same fate as “free” music? In other words, the moment you want someone to pay – all those once perceived raving investors, sorry, fans disappear. (I understand Deezer is in the EU but Wall Street is the only market that matters. Period.)

What “Free” ride you ask? The same one I’ve been pointing out for years that has been allowing business models that possibly should not be operating in competition with actual sound businesses models or practices (albeit one’s that maybe in need of true disruption via real competitive practices.) QE and “free money” via the Federal Reserve enabled businesses that more than likely should not have been, nor had the availability to stay in business to do just that. And, competed against true businesses and models (e.g., made actual net profits that could be deposited in banks and/or returned to share holders) putting many of these businesses out-of-business unfairly. Here’s a line from an article in Fortune™ that couldn’t sum up my assertions better if I had written them myself. To wit:

“And the main reason it is doing an IPO? To finance a business that is still swimming in red ink.”

Need I say more? Well, I won’t, but the headline of the afore article says it all: “Deezer prospectus makes one thing clear: Streaming music is a terrible business.”

Funny, that’s what they said about Radio, and how streaming music was going to solve all that. Hmmm, what are they going to say next? We need humans deciding or curating music choices, and not algorithms? That would be heresy right? Well, get ready for a big dose of just that.

It’s been touted by many of the platforms that they are either beginning, or actually doing, just that whether it be in small segments or more. However, when Jimmy Iovine now of Apple™ streaming music division says something of the kind – one needs to listen. He’s expressed his reasoning’s why (and one in particular got him into a little hot water with women) and he makes a lot of sense. However, I must ask: Isn’t that exactly what was done before in the days of, dare I say, Radio? As in, a program director and DJ?

So let me get this straight: We busted up Radio to now get a poor imitation of what Radio once was? I mean, think about that for a minute. Radio has been completely disrupted and nearly decimated out of existence so that we can now reassemble the disruption to be more like the platform they disrupted. All in order to make it a business model that works, rather, than the business model that broke it entirely, that now we find, doesn’t work. And, the only way to save it; is to make it more like what it destroyed. Folks, you can’t make this stuff up.

Now yes I know full well that the music industry as a whole (including radio, artist compensation, and more) was ripe for some form of disruption. The old model based on technological advances was in no way going to stand no matter who wanted it to. However, business principles where every entity involved (from creator to customer and all the distribution outlets in between) is allowed and rewarded for their prowess never goes out-of-business. It can only be pushed aside for so long. Sooner or later – money will have to be made and a self-sustaining business is formed. Or – that business model will go out of business. And the business that’s showing all signs of failing is the Wall Street supported model of the past 7 years. i.e., “Here’s a bunch of QE supplied speculative cash to burn through – hope you can do something with it.”

Now it’s the artists turn to show just how insignificant the streaming model is to an artists potential to make actual money of their talent. One needs to look no further than Taylor Swift, and now Adelle standing up to the finger-pointing of “You must do it this way, or else” and doing it their way and selling (yes selling as in people paying actual money) millions upon millions of their songs to their fans. (e.g., customers) Imagine that. Just like the old days where if you wanted to hear an artist when you wanted whenever you wanted – you had to actually go out (or download) and pay for it.

Who’d a thunk it! What is this? Some form of new alchemy? You mean to tell me people will actually pay for something they consider – worth it? My God man, this is revolutionary! How do we capitalize on such a revelation? Surely this must not be known by others. We can be the first – ever. We can make something people like so much, they will pay for it. Amazing! (sorry, I just couldn’t help myself)

As tongue-in-cheek as the above was – it has been the absolute antithesis of the thought process of nearly anything coming out of Silicon Valley over the last few years. i.e., unless it’s for free – you can’t sell it. Unless you sell ads, then, you need to buy it. That’s not a play on words. That’s really been the business model that has been sustained as long as there has been “free money” (via QE) to keep the boats afloat. However, without it? As anyone can see as of late (that is anyone willing to actually look) those held up by all that “free” are beginning to take on water at an alarming rate. (e.g. see any recent IPO as of late for clues)

However, this is really been all about “ears” as in Radio and music. It’s not like something such as this could ever hit the world of disruption where “eyeballs for ads” could ever be broken. After all, just look at Yahoo™. They have a platform that has one of the highest “eyeball counts” of any web platform bar none. Surely, in today’s new web-based model of business they must be doing far better and making more profits than any of its rivals. I mean what’s next? Yahoo decides to split off and sell its internet business as a whole? That would be a funny thing in such an ad-based modeled world. no? Except: Today from the Wall Street Journal™

“Yahoo Board To Weigh Potential Sale Of Internet Business”

And people said it was me who just didn’t get Silicon Valley. No, it seems, it is Silicon Valley that’s waking up to the realization: it forgot what real business truly means. e.g, needing to make real net profits that can be both deposited  and/or dispersed back to shareholders.

For real business, never goes out of business, nor out of style. Just like good music. If people want it because they feel its worth it, they’ll pay for it. And that’s a real win-win for everyone involved. For it’s a self-sustaining model.

© 2015 Mark St.Cyr