Maybe You’re Confused By The Fed – But Wall Street Is No Longer

As I type this the “markets” are once again sprinting higher to the highest levels of 2016. At the rate they are going it’s theoretically possible we could take out the all time high by lunch. After all – “it’s a great time to buy stawks,” no?

Everyone seems to have been caught off guard by Janet Yellen’s speech at the Economic Club of New York™. Why this is so alludes me. The reason? This is a gathering of “her” people. i.e., Wall Street. Too think she would intone anything of a hawkish nature at this highly publicized event was ludicrous. Especially after her comments at the latest FOMC presser where she defensively professed prudence in choosing inaction – as action, once again.

However, there was one striking change in both tone and demeanor from that conference of only a few weeks ago to this one: The palpable ebullience displayed by all..

The difference was absolutely striking. Lots of grins and smiles everywhere which also included not only the Chair woman herself, but especially from her colleague N.Y. Fed. president William Dudley who introduced her. Again, don’t take my word. Find a rerun on-line in your search engine of choice and see for yourself. One thing is very, very, very, (did I say very?) apparent. There wasn’t a dry eye in the house. I’d wager tears of joy flowed like the cocktails: freely and frequent.

The dulcet tones that caused such bliss? I believe there were two verses followed by a table thumping chorus that stood out far above any others. (and if not for cameras the participants attending might have stood up on the tables and danced in unison.)

The first verse contained the words everyone with a month ending quarter wanted to hear when it came to where the Fed. stands on raising further (if at all) “proceed cautiously.”  The second was a reiteration of “international developments” was first and foremost. “Data dependent” not so much. However, it was the chorus, that too my ears was really the highlight for Wall Street. It’s when Ms. Yellen stated:

“Financial market participants appear to recognize the FOMC’s data-dependent approach because incoming data surprises typically induce changes in market expectations about the likely future path of policy,…” (You can read the transcript in its entirety here. And I suggest you do as to draw your own conclusions)

Why would such be as I implied “a thumping chorus?” Here’s how I put it in a recent article that many brushed aside as coincidence not causation. To wit:

“The “markets” and its real players (i.e., HFT’s along with their headline reading algo’s and stop running programs etc., etc.) not only know this. I believe – they now know how to front run it with deadly efficiency.”

Now some will say “It was a private event, you can’t compare the two! You’re just nitpicking.” And that’s fine, it’s a fair response. However, being someone who has made speeches for a living, and, has had to be the bearer of bad news or directives that many participants in the audience were surely not going to want to hear (even if they had too.) I can tell you from first hand experience participants have quite the clue on what the tenor and tone of what you’re about to say before you ever hit the podium. And my speeches aren’t released beforehand unlike the Chairwoman’s was with a released transcript prior. (And the markets took off higher in unison precisely when that transcript was released. Coincidence? Or HFT, headline reading algorithmic front running causation? You be the judge.)

Don’t let that point be lost, for it is a very subtle yet important insight for those looking for clues. Do you think that audience would have been all smiles and laughter before, during, or after had she been there to reiterate any of the “hawkish” commentary coming out of subsequent Fed. officials at other venues over the past week or so? Again, truly ponder that point for it’s not as trivial of an insight as it may seem at first blush.

(On an aside. For those wondering if I’m trying to be coy when using my own example inferring they were probably the local bridge club, as opposed to, some conference or meeting on par with the participants at some “Economic Club” as to negate my thesis. All I’ll say is at one in particular that fit that bill, the “participants” in attendance were the C-suite of many a national brand; with global reach and markets; with annual sales in the multi-billion dollar club. I say this only for clarification – nothing more. So take it as you will.)

I’ve heard analysts and many others of late comment how this Fed. official, or that Fed. official has said this, when they just did that! Hawkish tones from this one, dovish tones from that one. I’m sorry, there shouldn’t be any more confusion. If you’re up around 2050ish SPX you’re going to hear “chirps” to give an illusion that maybe, just maybe, the Fed. might move towards normalization. i.e., As I’ve stated previously “fortitude central.” So expect it. However: At 1810ish SPX? Welcome to that other term I coined “capitulation central.” Here is where the only thing you’ll hear is how good (green) the Fed. is going to turn all that bad (red) with its toolbox of __________(fill in the blank.) Rinse – repeat.

However, I will say there has been one defining point from The Chair she first iterated at the latest FOMC presser, and reiterated once again at this latest speech. Personally I felt this would remain an unspoken truth rather, than openly admitted to. This point and moment was when Ms. Yellen, in fact, set the tone as for anyone who was truly listening (and Wall Street was all ears!) that the Federal Reserve has decided via its own directive and initiative: to put its U.S. congressional mandated directives (e.g., employment and inflation) secondarily to “international developments” whenever it decides. And it has decided that time is now.

To my ears – this was brazenly breathtaking in its implied scope and reach, with implication that are now truly up for grabs in everything we once took or believed to have known in both free markets, as well as capitalism itself.

This is not some misunderstanding or confused inference on my part. This point has been realized (and the list is growing) by many with far more gravitas in the world of finance than I have. If you now listen, read, or watch many a financial pundit, what you are now hearing is their own astonishment at the realization Ms. Yellen declared by both current policy direction, and implied statements: the Fed. is now “Central Bank of the world.” And that is the phrase they are using – not me implying.

“International developments” everyone now knows and takes as central bank parlance to mean: China. And the chairwoman in her speech made it quite clear “international developments” are what now drives Fed. policy action. Again, don’t take my word for it. You can find a transcript or watch the speech for yourself and draw your own conclusions.

Besides, if this is not the case; then how does one square the circle of the Fed’s mandate? For all intents and purposes the congressional mandated raison d’ être have now been reached within any tolerant measurement. The U.S. stock market is once again within spitting distance of it’s never before seen in human history high. So: how is it that all this “good” causes not even the modest of follow through as implied via the December 2015 rate hike decision with its explanations and certitude. But rather: the normalization schedule (inferred via the Dot Plot) in-turn gets reduce by half only 3 months later? And…the Chair herself implies that to may be too many? Something doesn’t square here if we’re doing so well does it.

That said: there is an inherent, overarching, problem within this now stated “international development” meme that I’m not sure the Fed. has really thought through. And it’s this…

If “international developments” (i.e. China) have now taken first position over U.S. data, one can only summarize that the Fed. is now following, as well as, instituting a policy as the self-anointed mop-up team for the sins and/or consequences of spill over of a communist run economy.

Capitalism, free markets, and everything else associated with it such as U.S. savers, insurance companies, bond holder, etc., etc., will take a back seat: Not lead. Nor – do anything that may hurt or foster any harmful effects caused by the mal-investment or debt crisis inherent caused by a nation following communistic policies and interventions within its own market, economy, and currency.

In other words: China will continue to be allowed to make a mess. The Fed. will play “janitor” of the monetary policy world. Talk about “leading from behind.” Actually, don’t talk about it: That’s not good for Wall Street. As if you were still confused.

Now there may be no more confusion as to exactly where the Fed. now stands. But confidence they can actually manage all this with positive consequential follow through? Without it all turning into some iteration resembling the Sorcerer’s apprentice? That’s a whole ‘nother matter entirely.

© 2016 Mark St.Cyr

Has The Biggest Of All Bubbles Popped: Central Bank Omnipotence?

Since the initial turmoil began with the onset of what is now referred to as “The great financial crisis.” One strategy has proven more profitable than any other. That strategy? BTFD (buy the f___n’ dip.)

Regardless of what proprietary advice (short of insider trading,) nothing, as well as, nobody has had a track record worthy of comparison. All one has needed to do is, whenever a selloff occurred (as rare as they had been,) when “the dip” presented itself, the only thing to do was to “buy, buy, buy!”

Forget 2/20 management. Forget stock picking. Forget listening to experts, economists, fund managers, et al. You would beat them all over the last 6+ years if you just BTFD, then bought some more. It had been that easy. However, if it was that easy – why didn’t everyone “just do it?” Easy…

A great many (and I put myself squarely in this camp) still believed that the fundamental laws governing free markets and stocks were still at play. No one, and I do mean that as in nobody with a modicum of business acumen thought, let alone believed the extent, as well as, the vast amounts of money printed ex nihilo by the Fed. would go on not only for as long, but also, in the amounts to which it has.

Now, today, some $4,000,000,000,000.00+ (i.e., over 4 TRILLION) later what has all this balance sheet accrual bought? Probably the bubble of all bubbles. The irony? That “bubble” is in the only true asset the Fed. had left. e.g., Confidence in their omnipotence. And it’s beginning to look more like it’s already popped with every passing FOMC meeting. And just as the name “bubble” implies – all it needed was the tiniest of pins to bring it crashing down. And it now appears a 25 basis point rate hike was just tiny enough.

Since the ending of QE in late 2014 one thing about the “markets” has been crystallizing more and more for everyone to see. Even if they try to turn their heads, it can no longer be avoided: without central bank (and now that includes all CB’s) continuous intervention – there is no market. It all falls apart like the house-of-cards that it is.

Again, without central bankers in one form or fashion continuously interjecting their willingness, as well as, openness as to do “whatever it takes” the markets will at first vacillate in place until they relent and plummet in unison causing conciliatory panicked responses from one central banker after another.

However, the responses to these actions or statements as of late have been in a way I believe these monetary bodies not only never considered, but rather, never thought possible.

Not only have they been creating doubt (as in saying one thing then doing the opposite) in their credibility, rather – their dictates are now having the complete opposite responses of their desired market reaction. i.e., Deliver a weaker currency inspired directive?  That currency actually spikes upward and running ever higher!

This phenom first presented itself with the grandest of foolish monetary policies brought forth by central banking Keynesian devotees: Negative interest rates. e.g, NIRP.

First it was the European Central Bank (ECB.) Then the Bank of Japan (BoJ.) Sure there have been others, but these are by far the “big players.” The result? Exactly the opposite of what had been anticipated.

“Big bazooka” commentary from Mr. Draghi at the ECB along with “Banzai” styled implementation as witnessed via Mr. Kuroda at the BoJ saying one thing, than doing the exact opposite only a week later, has pushed not only confusion further into the financial markets, but also, sent global currency trades on a roller-coaster ride worthy of having its own theme park.

Both the €uro as well as the ¥en strengthened. And not by little amounts either. The resulting spikes were so sudden, and with such ferocity, the resulting margin calls for those caught within its death grip suddenly found themselves sharing the same experience as those on the fictional planet Alderaan, “as if millions of voices suddenly cried out in terror – then were silenced.”

You know who was more caught off guard with this move than those with positions on? The central banks themselves. All one needed for proof was the subsequent jawboning from one official after another to state emphatically: “Don’t worry, we got this!” (we think) As they tried desperately to reassure their “markets.”

Again, for proof: all one needs is to remember Mario Draghi’s now infamous mea culpa when replying to whether or not his newest remarks were in reaction to the market’s response, e.g., “No not really. But not—well, of course. (Laughter.) And, It’s been pretty much the same only in different languages from one central banker after the next these past few months.

Yet, the one central bank that has been near impervious to this “credibility” or “omnipotent” issue has been the Federal Reserve. That is to say – until now.

Since the beginning of what is now considered “the zenith of unabashed central bank interventionism” few were willing to speculate, let alone admit, that without the Federal Reserve continuously pumping money in one form or another, while simultaneously keeping interest rates at the zero bound – the markets had no fundamental reason whatsoever to be at these current levels. Period. It was, and still is, a bubble created and encouraged by the central bank. Again – period. End of discussion.

And nowhere has this phenom become more visible and undeniable as made manifest over the last 14+ months with “market” volatility and price movement. Currently, the only direction the “markets” have shown a propensity to go in both momentum, as well as, fury during this period has been – down.

Currently up seems to only happen in response after some jawboning or implied immediate implementation. Where the theme is more mea culpa in nature. Rather, than fortitude or conviction of policy.

In other words: the moment we get up to levels I coined “fortitude central” (i.e., 2050ish SPX) where the policy members begin to show backbone and imply: “Yep, we’re going to start withdrawing accommodation.”  The markets begin to reverse in unison. And as soon as it appears the level of 1800ish SPX is about to be breached? A reversal, or better said “capitulation of error” begins to show up (in unison) as one Fed. official after another begins touting backpedaling statements in one form after another. The real issue here?

The “markets” and it’s real players (i.e., HFT’s along with their headline reading algo’s and stop running programs etc., etc.) not only know this. I believe – they now know how to front run it with deadly efficiency. Exacerbating the issue of credibility as well as omnipotence for the Fed. Or, stated differently – the “market” now not only can push the Fed’s hand – It now knows at what level it needs to exert the desired response at will.

This phenom has now become so glaringly obvious even Fed. friendly publications such as Barron’s™ can’t avert from the obvious any longer as shown by their latest article titled, When The Fed’s Bullard Speaks, the Market Listens. All I’ll say is this: If the main stream financial press has finally figured it out – that’s usually your first sign that what ever bubble there was – has either already popped. Or, about too.

But not too worry, after all, I didn’t even mention China and their forthcoming central bank omnipotent policies. Remember, they know how to control and manipulate a market and currency better than anyone. Just ask them. And if you don’t like what they state today? Don’t worry – they’ll change it again any day or minute from now. Again.

But why be of concern? After all, it was the Fed. itself that just reiterated “international developments” is their first cause. So don’t worry. I’m sure they got this. Until 1800ish SPX that is. Then we’ll see just how much confidence to BTFD truly remains.

© 2016 Mark St.Cyr

A FWIW Observation For Those Wondering What I’m Thinking

For those that have been following this chart for a awhile you can just skip down to the chart and following commentary. And as always: If someone says they “know” precisely what will happen next. My only advice would be to run – don’t walk. And the quicker, the better.

For those who are new: whenever the markets have either rallied or fallen in dramatic fashion is when I’m asked the most, “What do you think of the latest moves?” So, in response to this I began sharing the following chart and commentaries at precisely times like these. I make these commentaries in real-time. Where they go from here is anyone’s guess. That said, the chart speaks for itself as the consequential moves at these defining points as I said, are made in real-time, before they happen, just like I’m doing now. I state my observation, and thoughts, and let the chips fall where they may. To wit:

Below is that chart as of the close tonight (being Tuesday). As you can see where I had marked “here” and “or here” with grey ovals we did in fact land squarely there where I postulated once, and if, the level directly above was breached. Then the following price action took us directly back up to about that same level and cascaded once again back down, again, to that all important “Bullard Bottom” level.

Then, as I iterated, if that level didn’t break with conviction (conviction implying a break and close well below) we would more than likely return to it again, and where it went from there was anyone’s guess. Would we go up? Or, would we go down? Which is represented by, “#8 You are here.”

SPX as of the close Tuesday 3/21/16
SPX as of the close Tuesday 3/21/16

However, this level (in my opinion) is not just some arbitrary level. In a technical view I marked it with those two-line precisely because it represents a price gap as you can see. When I insinuated that first “here,” we had not touched that level and were well above it. Yet, I argued “If we get through to “here” then returning to the “Bullard Bottom” is near a certainty. Which as we now can see in retrospect, we did just that represented by “#7 And here we are.”

After piercing but not following through with a conviction styled closed we bounced precisely back up to this area (area being #8) only to return in much the same manner, and once again repeating that very same process in an almost mirror fashion as can be seen by the marks I placed with the smaller side-by-side ovals marked by “#9 It is still all about….”

Had that once again return back to that level marked by “#8” held? And had we returned in that subsequent fashion to once again test that “Bullard Bottom?” I am of the mindset the markets would have been dealt a serious shaking of confidence and the previous selloff in August of last year would have looked more like a warm up as compared to what I felt might be forthcoming if retraced and convincingly breached. But we didn’t – we went up and over not looking back.

So what does that mean as of today? Well, here is where I think we actually could be at a far more important level, as well as, turning point, with far more repercussions to the markets, as well as the economy in general, if things were to go awry here. And here’s my reasoning…

As you can see we are currently where I marked “#10” which is right back to where we were nearly 15 months ago in November of 2014 when QE 3 was shelved, and then, just a year later, in December of last year just 3 short months ago, this precise same level is the same when the Fed. actually did raise rates. Even if ever so slightly. What happened next?

The resulting market response is that gap of two lines directly beneath the “#10” and even more important – directly below as in “within spitting distance” of where we stand currently. In other words just a mere 10 points.

I am of the opinion: the only reason why we made it up here above that demarcation line marked by the “#8” was a direct result of a first trading day of the month fund manager buy-ins that ran the stops at that level, popping it up, and enabling it to close with conviction well above that level, which opened the door for more pile on and front running by both the HFT’s and others as to crush any remaining short positions as the market screamed higher into an OPEX (e.g. options expiry) cycle close of where we ended on Friday. Which is precisely where we still are here on Tuesday.

There are many things (too many to list actually) so for the sake of brevity I’ll just state the following:

First – we know via underlying measurements and market breath that the quality of this rally (i.e., the strength or conviction of buyers) has been nothing more than short covering fueled window dressing.

Second – much of that “fuel” was lit by either the Fed. punting once again on interest rate hikes. Or, a Fed. official jawboning what the market wanted to hear (or the algo’s want to read) in one form or another.

And Third – You now have terror on the “markets” mind in two forms. First: that of the serious and horrendous kind as witnessed in Europe today. And secondly – the terror that earnings season in not only once again right on the horizon – GDP is once again to be reiterated on Friday.

If for any reason the markets take the news as a signal for “It’s time to get outta Dodge!” (and no one knows if good is good, bad, or indifferent any longer) And we break back below that gap of where we are with conviction? I am of the opinion that the subsequent rally we have been on over the last few weeks or so will be retraced and not only violate that “Bullard Bottom” but will do so with conviction and spike down to levels not seen in years. Again let me iterate – and quickly! Why?

Because this latest rise has been on very, very, very, (did I say very?) tremulous grounds with outright weak demand. Therefore, if it falls apart, it will fall apart like a house of cards. We may get a “pause” in-between selloffs should it present itself. However, if it does turn I believe it will resemble when I first put the label of “#2 Level you are here….” For those who have followed this chart and my iterations you’ll remember what happened next. For those who are new…

Five days later we were at #4.

As always, it’s anyone’s guess. But that’s how I’m currently viewing these “markets” as of today. Make of it what you may.

© 2016 Mark St.Cyr

What’s The Frequency Janet?

Once again, in spectacular fashion, the financial “markets” have miraculously rebounded from the aptly moniker’d “Bullard Bottom” and without pause has traversed in a near vertical assent to recapture the levels where all the uncertainties began. In other words, after all the gyrations over the last 14+ months we are once again only back to the levels (as scored by the U.S. financial markets e.g., Dow, S&P, et al) where the Fed. stood confidently in their economic policy acumen.

Remember those confident proclamations during that time? (paraphrasing) “The economy has recovered quite admirably as to allow the QE (quantitative easing) program to end.” That was a good one, no? Remember what happened next? Nothing, as in the “markets” basically went nowhere up, nor down for months on end.

Sure there were some great headlines made of this path to nowhere as the market screamed sideways in a pattern much like a cardiac reading with blips and spikes that allowed headlines such as “New Never Before Seen In The History Of Mankind Highs!” on a near weekly basis. Yet, although those headlines were true, all they did was mask the fragile, ever deteriorating economy those “meters” were hooked to.

The one thing that never changed during that whole period? The implied fortitude of resolve that the Fed. would indeed strike the path towards normalization of monetary policy and begin raising interest rates away from the zero bound. After all, it was implied at near infinitum: The economy had shown great signs of improvement. e.g., employment at near “full” status and others.

So, with that “mission accomplished” narrative as the wind beneath their wings the table was surely set that in September of 2015 the Fed. would indeed raise rates. Remember what happened next?

Ah yes: China. It seemed just like any prudent U.S. investor or market aficionado might infer; a rate hike here means trouble there. After all, did anyone not understand just how interconnected these “markets” are with currency funded carry trades and more? Oh yes, sorry, it seems the Fed. either forgot or, never realized the obvious inherent risk and consequences. The result?

The U.S. financial markets fell is such a spectacular, as well as, cascading manner that for the first time in the history of the markets all three of the prominent futures markets were halted. Only after stick save inspired shenanigans as those delivered by CNBC™ fame Jim Cramer and his now infamous “Is that a pencil in your pocket or a note from Tim Cook?” reveal did the markets seemingly recover and stabilize.

Then, reality once again set in as the markets collectively held its breath near those lows as it awaited the Fed’s implied: “You’ve been warned we’re going to raise rates.” Then, as the markets reacted to this implied “fortitude” and drifted lower back towards that “bottom.” The Fed. with all its proclamations for faith in forward guidance and clarity did the exact opposite and punted. The result?

Once again in a near vertical assent the markets screamed upwards with barely a respite to recapture the same levels where it all began – again.

Now nearly a year later the Fed. stood poised to do what it said it would. i.e., raise rates. (Talk about mulligans!) So, with data points in hand which the Fed. proclaimed proved their well placed guided hand of interventionism monetary policy had worked effectively, they once again reiterated that they indeed were going to raise rates – and this time they did. The result?

Once again in a near carbon copy of the previous selloff the markets lunged downward in a fashion resembling a luge sled on a one way course. And how and where did the “markets” once again seem to find a stopping point? You guessed it: the “Bullard Bottom.”

And why this level appears so aptly named is for the fact that once again it was non other than St. Louis Fed. president James Bullard who took to the airwaves and threw a Fed. narrative over the decline of prices in oil. Result? (Need I say for I think you are seeing the pattern here.) The decline halted precisely at the level that bears his moniker. But the similarities don’t stop there.

Just like in Aug/Sept of 2015 as the markets began to once again rollover there was an announcement on February 12th. But this time it was not by a Fed. official. No, this announcement came from non-other than one of the Fed’s too big to fail recipient’s of the financial crisis J.P. Morgan Chase™ as its CEO Jamie Dimon announced he was buying 500,000 shares or some $26 million in stock of JPM. It seemed the market took that as “with confidence like that – we should be on board also!” and just like the prior the markets were off to the races skyward. After all, if a bank CEO is buying it surely must be a good time to buy also, right? And so they did.

So, one would garner such a display of “confidence” would give the Fed. the necessary backbone as to follow through on what they’ve implied through their rate hike projections via the Dot Plots. After all, the economic measures they state over ,and over, and over again as their “touch stones” of economic health as well as measurement (i.e., jobs, inflation, etc., etc.) are all within the tolerant values that define “success.” Surely they would continue on their path to monetary normalization. Guess what? Hint: Nope.

Not only did the Fed. punt once again. Both the metrics and language of the press release, as well as, the presser itself given by Fed. Chair Janet Yellen was so convoluted, obtuse, as well as defensive even many of her staunchest defenders or cheerleaders couldn’t make heads or tails out of what should be easily and readily addressable answers.

Dot plot projections that implied 4 rate hikes now imply 2, which to even the most casual Fed. observer now more likely means – zero. All that great data that was used for a “data dependent” Fed? Sorry, no data for you. Well; data that represents the U.S. that is.

You should now infer that all “data” is “international.” i.e., what’s happening elsewhere supersedes data the Fed. keeps repeating its mandated to oversee and foster. (e.g., U.S. employment and inflation.) Again, even some of the most lenient critics of the Fed. were themselves struck by the fact that the once stated goals which the Fed. communicates ad nauseam as desired levels for policy normalization once again decided inaction – as action. When in fact these levels have been either hit or, are within meaningful “mission accomplished” parameters. And when it came to answering about the Fed’s credibility issue? Well, see here for yourself.

All I’ll state for those still confused about Fed. policy is the following: When in doubt – just move the goal posts. Problem solved. In theory anyways. However, isn’t that all that all that economics truly is? e.g., Theory.

However, you know what is no longer theory nor a “data” point that’s fungible? What level the U.S. financial markets are currently trading at.

To now dismiss Fed. policy causation as “correlation theory” is laughable. The markets are now so intertwined and Fed. dependent the observation of whether correlation is causality has been rendered moot. Without the Fed. – there is no market. That’s now a proven fact. Period.

Everything, Every market, every stock, every currency, is correlated and dependent of its very existence or viability as former Dallas Fed. president Richard Fisher once implied: on a “diminutive woman” to play Atlas.

And exactly where are these markets once again? Hint: Right where it all began. Where the Fed. declared “mission accomplished” twice before when they announced QE was over, and where rate hikes were warranted. So, what happens at this third rendition? Is three times a charm? Who knows. All we can do is wait, see, and hope everyone is on the same wavelength the Fed. Chair states it’s on as well.

It’s also quite possible we now have two new concrete “data” points or metrics far more impervious to movement which have supplanted the once Congressional mandated “data” points current Fed. watchers once looked upon as “gospel.” Those data points?

Policy action or inaction is dependent on either a break of the “Bullard Bottom” (i.e. 1800ish SPX, 15,500ish Dow) or surge back to “fortitude central” (i.e. 2050ish SPX and 17,500ish Dow) where we once again stand, and await what monetary dictate the Fed. will deliver next. The only issue now is…

Is the Fed. still on the same page? Reading from the same playbook? Or, even on the same wavelength as the markets? And probably more importantly: with all the missteps and confusing commentary emanating from the Fed. – will the “market” continue to respond as it always has? (Look to the EBC and BoJ decisions of late for clues)

Right now it’s anyone’s guess. And in my opinion, there’s no one guessing more about what to do next – than the Fed. itself.

© 2016 Mark St.Cyr

With The “Full Monty” Exposed The Markets Now Require An X-Rating

It was U.S. Supreme Court Justice Potter Stewart’s candor which famously described his test in an obscenity trial (“…I know it when I see it,”) when arguments were posed as to why something did, or did not, meet the threshold exceeding the Roth test. Today, the obscenity as to just how adulterated the very fabric of the financial markets have become was ripped clean and laid bare for all to see this past week.

The markets were sent screaming first down, then up, by nothing more than some economic two-bit fantasy both during, and after, the latest ECB’s monetary dictates. These perversions are so visibly adulterating they can no longer be denied by anyone with a modicum of business, or common sense. They are both fiscally and economically disgusting perversions. Period.

As shameful as this has become, what’s just as disgraceful is the cohort of so-called “smart people” arguing why not only is all this trash good, but also, giving detailed explanations of economic theories, equations, formulas, extrapolations, causation, blah, blah, blah as to explain the nuances of it all. I have just one statement for the so-called “smart crowd.” Please stop it. You are now not only embarrassing yourselves ever the more (if it were even possible at this stage) You are now annoying everyone with any decency of what free markets are supposed to represent. You’ve gone past the once laughable stage to the outright vulgar. So please – spare us.

Today’s Ph.D’s within the Ivory Towers of academia, along with their minions throughout Wall Street, have shown they are nothing more than a gaggle of fantasy enablers and promoters as to perpetuate the delusion that there will be financial ecstasy in the end. Just like there always is for the “whomever” that knocks on the door in all those adult movies. Problem here is: this is the world economy they’re screwing with. Not the entertainment industry.

Today, if you’re trying to run a business of any size just how can one use, or view, the latest move in the markets for possible insights on what to do next? Hint – you can’t. Nothing of it made any sense at all, let alone gave one clues as to whether or not one could properly take meaningful advantage for gains or de-risk accordingly. Want just one example?

Hedged your exposure to volatility via the FX markets? How’d that work out last week? I thought things like that only happened in EM (emerging market) currencies? Well, look no further because the €uro just joined that cast with size and swings that would make an adult star proud.

I have a question for all the “Ph.D” styled economists currently touting their interpretations of why this, and that, or, why that, and not this, will equate into monetary bliss. After all; all I hear, read, or watch is one after another giving their hypothesis and back it up with the implied insinuation others should listen because they’re called “Dr.” more times during an interview than a real doctor is addressed at a hospital. Here’s that question:

What does R²+D/K-(34/8√)X52=? Hint: Absolutely nothing. Just like all the current equations, hypothesis and examples of economic theories spewed across most of the financial media as well as prevalent in Ivy Leagues across the globe. It’s all made up, meaningless, gibberish now shown as the outright alchemy it always was.

Today, it’s all about “the printing press.” (e.g., central bank interventionism) Economy falling off the cliff? Answer: Print. Need to cover over all those troubling data points? Print. Want to keep your place as “player” in the political hierarchy and remain on the “VIP” list? Print. Want to remain in the world spotlight? Print. Want to pick who wins or who loses? Trick question: Print and go deeper into NIRP. (negative interest rates) This way you get them both coming and going. (Sorry, the pun was unavoidable)

However, just when this pornographic display of adulteration into everything financial was thought to be contained on just the “pay per view” terminals. It’s now so endemic it’s reached the mass media as they watch in horror their 401K’s along with their hard-earned savings being exposed to this perversion no matter how far they try to remove themselves from its insidious effects or, even shield their eyes. Today it’s everywhere. And it’s being propagated in ways that would make Larry Flint proud.

It is now being not only acknowledged, but rather, cheered that the “Full Monty” most certainly will include the move into the outright purchasing of corporate bonds. And one thought that was only for the theaters of a “banana republic.” Again, the pun just writes itself. It would be funny if it weren’t so tragic.

I hear from friends, family members, along with others at events that are beginning to show the early stages of outright panic as to what is happening. Many (just like those addicted to porno) constantly now look at their screens whether it be on their phones, terminals et al, more times a day than ever before just to watch their balances go up and down in moves that would make a porn star blush. Why? Absolutely no other reason than a most likely intentional, well manufactured, and placed attention grabbing headline that may, or may not, be proved factual.

Another variation of this outright, blatantly manipulative theater is the latest full-frontal-assault now commonly used by many a central banker that takes to the stage and iterates incoherent remarks resembling “This was not that. Unless it’s this or that. However, be that as it may, it certainly will not be that, unless that is what we need, or not.”

Again, all gibberish as to say nothing more than possibly give the headline reading algorithmic, HFT (high frequency trading) parasites a cue to rip through whatever stop losses deemed “harmful” to the narrative, and clear the sheets of any so-called “true price discovery” that’s somehow discovering the wrong price that the bankers want.

You don’t need to be told what you’re viewing and just how debouched it has now become. It makes it all clear on its very own.

This was once perfectly summarized years ago by Themis Trading™ co-founder Joseph Saluzzi in response to the now routinely used “ambush styled” questioning when demanded he back up his insinuation there was manipulation taking place within the markets. He succinctly replied (I’m paraphrasing) “Proof? All I have to do is look at my screens!”

And there you have it as to explain the “markets” of today. Just like the former Justice once implied: All you need to do is acknowledge what you’re seeing – for what it is. No matter who is arguing differently.

So now the markets are all breathless awaiting the next release in this series of manipulative, market moving, economic dogma to be contemplated, then released, for the markets viewing pleasure (or horror) via this weeks FOMC meeting. All I’ll say is this.

For the sake of civility, refinement and taste – I’ll end here.

© 2016 Mark St.Cyr


Making A Few Points Clear And Why

In my latest article I opined how I viewed this whole “socialism” meme and how it’s not only creeping into everyday life, but also, business in general. That article generated far more interest than I ever imagined. However, one of the queries I received was “Why would a business/motivation type person like yourself want to delve into the political?” Actually I’m not as it’s being viewed and argued today. In other words, it’s not about some current candidates view per sé. It’s about the lackadaisical acceptance of the meme by far too many, and what it portends to business and much more that I rail against.

So, it’s in that context I thought I’d share what I responded with since these response explanations of late have taken on a certain liking with quite a few. To wit:

“I can see how you envision why I may be treading into the political. However, let me assure you, that is not my intention. Yet, I do see where you would assume that since we’re in the middle of the political season and the term “socialism” is currently the buzz word du jour throughout the press.

What you need to remember is this: I am both a fervent believer, and disciple of, true self-reliance and personal-achievement via the original concept and intent of free market capitalism.

As you know I also speak, write, and give seminars (and they’re not cheap) as to help foster these principles for true business economic health. And when the concept of free market enterprise and capitalism, along with its original intent gets bastardized and frivolously thrown around as being something that can, or should, occupy the same space with, or, alongside some perverted representation of crony-capitalism or socialistic structured enterprises enabled and perpetuated only via the interventionist monetary actions facilitated by the central banks – it just drives me nuts. For nothing can be further from the truth.

And it’s not just me which understood this. Many before me have felt the same and it’s not like they were unknowns. Yet, one would think by the trite that’s spewed from many a so-called ‘business expert’ or ‘gurus’ mouth they would understand a little more deeply than just the superficial. But I digress.

As you may know I have a few things I keep on my desk as to remind me what its (“its” being business and self-reliance) is all about. First, is an original 1937, first edition, first printing copy of Napoleon Hill’s “Think and Grow Rich.”  Second; are two quotes I had made into desktop plaques. One is from Andrew Carnegie, the other is from Hill. They read:

“The businessman pure and simple plunges into and tosses upon the waves of human affairs without a life preserver in the shape of salary. He risks all.”

That comes from Carnegie’s book “The Empire of Business” 1902 of which I also have a first edition, first printing copy.

The second is from Hill, but it’s from his latter book of 1967 “Grow Rich With Peace Of Mind”. Here he gets right to the heart of this matter…

“It may well be that the Science of Personal Achievement will become a strong factor in neutralizing the cancerous evil known as communism, which now threatens the liberty of all mankind.”

You can not believe, or allow, for the preservation of capitalism, as well as, true personal achievement where the benefits are to be had by all if you hold any part of the socialistic or crony capitalistic construct. Period. Let alone allowing for it to be, let’s say, “tolerated.” The two do not go together. Nor should they. Ever.

There’s currently what I call a ‘business-culture war’ taking place today where far too many are arguing “QE” is a “good thing” for business, and not equating it with the harmful effects of crony capitalism and more.

Same goes for many when they view a business owner. They now assume “they’re all rich!” when nothing could be further from the truth. Far too many in society have lost the understanding of: An employee always gets a salary – the business owner only gets one if there’s anything left after they pay said employee. All the while conveniently forgetting the most important factor of that agreement: If there wasn’t enough to begin with to pay the employee – they (the business owner) would need to go borrow it to meet that payroll.

The business owner (regardless of size) takes on all the risks in perpetuity, therefore reaps the rewards accordingly. An employee only takes on the risk that there will be a paycheck at the end of the week for their services rendered that week.

However, that’s the known risks for the business owner going in. And it’s also why few are willing to take that risk. That’s why there was always an understood risk/reward dynamic within the business world between employers and employees. It was understood by both. As well as freely accepted by both.

However, today with bank bailouts, QE fueled markets that allow CEO’s to enrich themselves via stock buy backs, along with the casualness as to the adulterating of business fundamentals such as Non-GAAP and more has clouded exactly what the vast number of businesses both large and small must deal with in today’s market place. e.g., Reality.

All I’m trying to do are two things. First: Help those in business that know something just isn’t right, but don’t know exactly what it is or, how to overcome it. And second: Remind those that clearly should know better – of it. Even if it means making them a little uncomfortable in the process.

Free enterprise, along with the right to choose one’s own economic destiny, and create it, is far too important to allow it to be glossed over willy-nilly as if ‘Hey, a little bit of that over here wouldn’t be such a bad thing, would it?’

I’m just here doing my best both to remind, and tell, the business community not only is a little a bad idea. The whole notion of it here would end up turning into our greatest nightmare. After all, just look to Venezuela for your most recent clue. Originally they too thought ‘just a little’ wasn’t such a bad thing at first. How’s that working out?

Other than that – I have no strong feelings on the matter.”

© 2016 Mark St.Cyr

Now It’s The Business Media That’s Sounding More Socialist Every Day

Here in the U.S. election season is in full swing, and it’s near impossible to find relief from the minute by minute relentless political ads, along with the ever-present media commentary. However, I never contemplated when I previously prayed, then begged for relief from the incessant pharmaceutical ads that bombarded me daily that my calls would be answered in the form of replacing them with ads of the political sort. Now I find myself again pleading or begging to return those intestinal discomfort or dysfunction et al ads. It truly gives credence to that old saying: “Be careful what you wish for!” Which is fitting to the topic of not only today’s politics, but business in general.

One of the newest (although it’s as old as time itself) idea dynamics to openly enter the U.S. political/business debate in my lifetime has undoubtedly been: Socialism.

What has baffled me is not only the rapid acceptance of the idea, rather, the call for it to be implemented here in the U.S. on a grand scale. We currently not only have politicians publicly advocating it, we also have many “business leaders” demanding varying forms of its implementation throughout sectors of the economy.

Whether or not one agrees with what is being called for, as well as, what has already been implemented, is up to you. Understanding the how, why, and where it leads based on prudent contemplation and where you’ll fit in as an entrepreneur, business leader, or solo-practitioner is quite another. For no matter what the political theme-of-the-day is currently being touted (i.e., Get the 1%! et al.) The people directly in those cross-hairs of “other people’s money” are going to be aimed squarely on the business communities balance sheets, as well as profits. Regardless if they have any. Remember that.

One of my personal favorite economic writers Thomas Sowell recently wrote an article where he describes, as well as, makes a poignant observation.

“Moreover, under any economic system, those costs are either going to be paid or there are not going to be any colleges. Money is just an artificial device for getting real things done.

Those young people who understand this, whether clearly or vaguely, are not likely to be deterred from wanting socialism. Because what they really want is for somebody else to pay for their decision to go to college.”

I would like to add my own two-cents to this observation that not only seems lost on just “”young people” but also, far too many people in general.

I am of the opinion there is currently no other more vivid, tangible, real life, in real-time example on the difference between a socialist view and outcome, as opposed to, a capitalism viewpoint and outcome, than the very place everyone is decrying “has to be fixed!” College tuition.

Under a socialist model your tuition will be both free – as well as worthless. Why? Because everyone will have a Ph.D. Just like you. So it had better be free because, they’ll be no employers willing to pay more for a candidate with one. It’s a race to the bottom. Think I’m wrong? Fair enough, ponder this…

Today there are easily more waiters and waitresses with higher degree levels than ever before. All these “higher degree” holders have pushed out the many lesser or non-degree’d holders that filled these jobs previously. Yet, it’s not that the wage scale of waiters and waitresses has gone up accordingly to attract these candidates. Quite the contrary – it’s that the job opportunities for these “higher degree” holders have dwindled. Welcome to a more “socialized” economy. “Would you like fries with that?”

Under the capitalistic model your tuition is supposed to cost, and if you want an education that prospective employers will pay extra for – you’re going to pay extra. Sometimes much more. The difference that once held here under this model was this: there would be a multitude of employers willing and able to warrant paying you enough salary not only to pay off that education, but also, to make a good living with the prospects of turning it into a great one. And that’s a race to the top.

The problem is we’ve gotten away from the “capitalist model” and have been going further, and further down the “socialist” model with ever greater speed over the past decade or more. Where today college students think the solution is to go even further, and ever faster in pursuit of the bottom. Why? Easy – this is what not only “young” people are being taught, but also, older people who should know better are reinforcing. And there was no greater example of this than what I heard on a recent “business/financial” show.

On Friday of this past week I was tuned into  Bloomberg’s Surveillance™ radio program (a program for full disclosure I like) where, like many others, awaited the latest monthly “jobs” report. However, as mystifying as the latest report was (i.e., how these numbers are compiled) what left me stupefied was some of the banter back and forth by not only the hosts, but also, by one of the guests. In particular. e.g., Alan Krueger

Mr. Krueger, once part of the current administration for economic policy is now back at Princeton University. When the “jobs” number was announced his verbal dissertation into why this report validated the idea that “we are on the right path” was laughable to anyone with a modicum of business acumen. Let me give you an example.

An argument goes something like this: “We created 3 times as many jobs as were lost.” Fair enough, but here’s the dirty little secret. Every one of those jobs lost was a job that paid more than the 3 “new jobs” combined salaries. e.g., One $50K job in manufacturing was replaced with three $12-$15K menial jobs. Result?

You not only lost $5K or more in real taxable income. Without that $50K salaried person spending, I portend, there will soon be a need for one less of those the menial paying jobs as the impending economic backlash of loosing that $50K job catches up. And when it catches up fully and in earnest? You’ll be lucky if there’s any need for the other two.

So, does that seem like “on the right track” to you? It’s no wonder why “young people” aren’t realizing these inherent dangers when in actuality they are being taught or instructed by the Ivy League itself  “this is a good!”

If one thinks about why this phenom is so, I’ll contend the reason is self evident: It’s not only in their best interest to do so. It’s also far easier to keep a “professor” employed than it is to be employed in a business. Let me illustrate…

Today, it is easier for an 18-year-old who has never held a job to acquire a loan they will never be able to discharge for not only tens of thousands rather, some for as much as hundreds of thousands of $Dollars. Again, all in the form of student loans for degrees which may not even be applicable to any future earning potential. Let alone the potential equivalent of simultaneously living above the poverty level as they might try. But it sure goes a long way in keeping the “Ive League” employed, doesn’t it?

All this is made possible by just filling out the requisite forms, and applying. i.e., Government guaranteed student loans.

Now, compare this to trying to get a business loan via the bank.

Let’s say you’re middle-aged with a great business track record. You’re prudent when it comes to spending. You pay your bills on time. And, you have worked with little to no breaks in your business career since high school. You can demonstrate in detail relevant examples, as well as, supply detailed plans on the how, and why, you can repay a loan. Whether it be for a new enterprise or, the expansion of one.

You know what you’re shown next? It’s called the door. And if you even suggest an SBA government backed loan? The paperwork and resources needed and spent just to apply only to once again be told “no” is even more ridiculous. And that’s if you’re only asking for let’s say $25K. But the 18-year-old who still needs “to find their calling” is almost guaranteed financing even if it’s into six figure territory. Whether repayment is truly ever possible to begin with.

As ludicrous as this sounds, just wait…it gets worse.

One would think business minded people would see the dangers inherent in this form of thinking from the get-go. However, it was during this same program I heard just how far not only the idea has creeped into the business discussion. Rather, just how much it is now being embraced and argued for in all areas of it.

As I iterated earlier it’s the political season. So with that said, I was floored when I heard one of the hosts retort a response to an assertion made by one of the candidates against the Affordable Care Act. (ACA) The response was (I’m paraphrasing) “He’s arguing as to abolish the ACA. Doesn’t he have any idea how many people are benefiting from it? My own kid just got a 2 year free ride!”

Yes, a “free ride” was the term used. I was mortified when I heard this retort for it showed in all too stunning detail just how far down this central bank quarried rabbit hole we’ve descended. After all – who’s going to pay for all this “free ride?” If you own a business or run one you know exactly “who” is. And the prices to be extracted and paid have yet to even kick-in fully. That begins in earnest next year. And what won’t be heard from the business community when it all comes into fruition is one word “affordable.” Trust me.

I am, like I said earlier, “mortified” as to just how far away we’ve moved from understanding what capitalism and entrepreneurship truly is. None of this would be taking place in its current amplitude and voracity if not for the largess made possible via the Fed’s funded placebo effects that are wearing off with greater speed as more and more notice it’s been no more than a “sugar high” to begin with.

Years ago I wrote a short explanation of how I viewed the socialist model. Although it’s an oversimplification I thought It fit the current discussion. For the more I hear people who I once held in much higher esteem, I think it’s time a few others take a breath and remember where all that “free ride” comes from. To wit:

One day a person decided to call their government because, if others were getting a handout, bailout, free stuff, _________(fill in the blank) why shouldn’t they ask and get something too! For as the thinking goes: If everyone else is getting something – why not them? After all it’s free, so why not.

They then called where the phone was answered by a very monotone voice who asked what was needed.

Once they made their request the voice then stated: “We need to check for funding please hold.”

As they waited on-hold they suddenly heard a vehicle screech to a halt in front of their neighbor’s home.

They stood shocked as they watched a number of government officials forcing their way into their neighbor’s home, then leaving with what appeared to be money.

The monotone voice then came back on the line and stated: “Funding for the request had been appropriated.”

The caller now stunned asked if what they just witnessed happen at their neighbor’s home had anything to do with their request. The voice replied: “Of course. The government doesn’t have money of its own. It all comes from other tax payers such as your neighbors. And by the way, you’re not the first to ask. We get this question a lot nowadays. Just relax for your request has been approved and appropriated.”

Feeling uncomfortable with what just happened they asked if their neighbor would know it was them. The voice replied: “That’s very unlikely. However, if you’re uncomfortable with us appropriating your funding with someone so close, we could get any additional funding you may need elsewhere, say from someone in another region of the country if that makes you feel more comfortable.”

Still nervous yet, feeling better as they wouldn’t know the person directly the caller said: “Oh yes please. That would be better!” The voice stated “We’ll make a note of that to your file.” and hung up the phone.

Some time had passed and the incident near forgotten when suddenly they heard a screech of tires outside their own garage. It appeared the very same people they seen go into their neighbor’s home were now forcing their way into this former caller’s garage.

When they demanded to be told what they were doing. They were informed they had come for one of their cars. All while stating this should be of little consequence for them since they had two. Someone, somewhere needed one so one of their two was chosen to fit that need.

This former caller yelled: “You can’t do this, I just bought that one!”

Undeterred the government officials confiscated the car and informed them they should be thankful they were able to help someone out other than themselves. For the car was going to a good cause where they supply free vehicles to the needy. All while being reminded they have two, while the other has none.

As this former caller stood slack-jawed the official handed them a notice of another program that was being offered in conjunction so that they may prepare and not be caught off guard if they returned. It read…

“Since so many people are requesting and in need of these items; there must truly be a need. So please make arrangements and be prepared to cover all the repairs, gas, or other expenses of this vehicle when needed. Please refrain from stating this will be a burden for it’s shown prima facie one would not have bought a second car to begin with if they couldn’t afford all the added expenses to begin with. On that basis one should consider themselves ‘a winner of life’s lottery’ with a willingness to share in those proceeds to those less fortunate. For only people who are in need would request something for free from the government. Take solace in the thought you could afford two – let alone one. While others have none. And as always remember – we’re here to help you.”

The former caller just hung their head only to now realize one of life’s great truths.

Nothing can cost so dearly as free stuff.

© 2016 Mark St.Cyr

Just A Thought For “Crazy Town” Skeptics

I have stated many times over the years, all I need to get the sarcasm train rolling is to make an observation followed with a possible conclusion on the way I see it – and the light in that tunnel ahead, more often than not, will be the freight train known as “The Sarcasm Express.” As I’ve also iterated, I take no issue with it, for if you’re going to make calls or observations at my level – it comes with the territory.

So with that said I’d like to share a rebuttal I gave the other day during a conversation as I was staring down the tracks as this “engineer” scoffed, “Looks like the markets don’t agree with your insights.” Then went on to use as example the current move that can only be described as a “rocket ship” over the last few days.

I told him “It’s a fair point.” Yet, as confident in his assessment as he now seemed, I asked if I might ask him a question. Here’s that question…

“In regards to how or why, just answer for me how you square this circle? As of little more than a week ago the markets were seen as to be “falling apart” since the latest decision to raise rates via the Fed. Then there was the G20 meeting that was supposed to foster “accommodation unity.” This, once again, proved to be a total bust.

All the latest data releases over the last week or so have once again shown more reasons for concern than relief. And: China is once again sending out mixed messages for policy stability. i.e., States no need to intervene in their currency – then goes right ahead and intervenes more than previously. Now the Asian markets are once again gyrating massively. All this in just the last week or so. And this is the backdrop where you are taking solace in the U.S. markets jumping up over 1000 points and seem to be going higher. Fantastic we’ll say. Except for one thing.

Does this now mean the Fed. was right to raise and should raise at the next meeting this month? I mean, after all, everything’s now fixed right? Why should there be any further concern? I mean, you just had Fed. officials come out and jawbone that they are “at the ready” with further accommodation if needed because the markets were looking so frail they felt they needed to say it. And, if you also listen to many a so-called “smart crowd” talking head, as of today, the implied tone is “The bottom held (1812-ish in the SPX aka “The Bullard Bottom”) so see – we really are doing much better.”

Again, fair points or observations I’d say. So again, I’ll ask: Does this mean they now raise again? Or, does this mean they stand pat? And if so – why so? And how would you know? Can you base it on what the Fed. said at their last presser? Or, do you go on what they’ve implied or said specifically at current meetings or interviews? And what happens if they (the Fed.) now agrees with your assessment that “the economy is far better and healthier” and indeed does raise just like they’ve implied they want to? Take your time to answer, I’ll order the appetizers while you sort it out.

Oh, and by the way, in case I forgot to mention it? All the markets have done during this “rocket ship ride” is come back to precisely the same level we were at in September of 2015. You know…the same where the Fed. decided to “punt” on a rate increase after we rocketed up in a mirror image of today’s ride from the August panic lows that halted the markets with historical measures. A move they inferred would not happen – and then did just that. Surely one can use what was said there for clues today. Or, do you discount any or all of what was said in your thinking? After all, It’s surely different this time, right?”

Maybe I should order you another drink with the appetizers? You look like you might need one. After all, there’s no need for concern. For that thing you’re driving is on rails, right?

© 2016 Mark St.Cyr