And So It Begins?

Over the last few years I have made it abundantly clear that sooner or later it would be shown that the whole Silicon Valley meme of “It’s different this time” (i.e., in regards to unicorns, social everything, eye balls for ads etc., etc.) was nothing more than the equivalent of a teenager’s response of “because” when arguing why valuations of many of “The Valley’s” newest, or trans-formative platforms were clearly not only out-of-whack with reality, but bordered on insanity.

A $BILLION dollars+ in valuation was thrown around as if it was “a given right.” “Who cares if it makes money today” the thinking went. As matter of fact, for many, who cared if it made money ever! It was still worth $Billions if you could get some investors to throw some cash at you, then, with a little bit of alchemy (actually a lot of alchemy) you could take a few $Million in subsequent funding rounds to $Billions and cash out via an IPO. Rinse, repeat.

If anyone questioned the bottom-line business metrics? Like a teenager; just stomp your feet and speak a bunch of incoherent figures and meaningless comparisons. Then, when you ran out of meaningless drivel, just finish your statement with, well, “It’s different this time.” However, it is precisely this once overused defense for magical thinking that is now rearing its dark side. For now, it just might be exactly that – and “because” may also have more coherence to solidify that reasoning than any teenager could have dreamed of.

Why do I make such an argument? I’ll give you one word that says it all: Twitter™.

As I type this Twitter shares are currently down over 15% from yesterdays close. By the way it’s going as of the mornings session, it looks like it could take out its all time lows by the end of day, if not sooner. After all, those lows are far closer than its closing price last night. Yet, there’s a much larger issue at play here that nobody as of yet (as far as I’ve seen) has put the real issue that is troubling for the whole “it’s different this time” players. That issue?

Twitter increased the one metric the whole meme (and in my opinion – survival) stands on. e.g., user growth. And what was the reaction? Hint: If you currently own shares  – you’re not happy. As a matter of fact you might also be a bit confused. After all, “user growth” (i.e., eye balls for ads) you were told (or sold) as the metric that beats all others. So why are the shares down? Well, I can only surmise: “it’s different this time.” Oh yeah, and – “because…”

Because, as in: “where’s my money” now matters more to Wall Street then “we’ll make money, someday.”

For those who’ve been with me for a while know I’ve been pounding the table (and keyboard) stating that you’ll know everything has changed when suddenly the metrics that were touted as the defense of “it’s different this time” suddenly seem to not matter. And to watch for when these metrics are “beaten” as in surprised to the upside – and the stock gets pummeled regardless. And in my opinion not only: Here we are. But rather: And it’s just beginning.

If you want more clues just look to Apple™ earnings reported also yesterday and the subsequent reaction in its stock price. The reaction?

Hammered is a worthy description. However, there’s a very big difference that must not be lost. For whatever you think of Apple and its stock valuations one thing is very different when it comes to comparing apples to apples (i.e., “the Valley”) Apple increased its cash hoard by $Billions because (and there’s that word again that now truly means something) it generated net profits in excess of actual cash that can either be saved, or used at another time. In other words – it added cash – not “eye balls” the exact opposite of all the others. And the reaction? Remember “hammered?”

How does one think this is going to play out for the 800lb “eye balls for ads” elephant in “The Valley” Facebook™ when it reports later this evening?

If you’re a business person of any sort I believe this is one earnings report in both timing, as well as, the response to what is not only reported, but rather, what transpires on the conference call and the resulting reaction too it.

It will be interesting to see exactly what the tone will be of those analyzing Facebook’s latest report once they finish digesting and parsing out what the latest implications from the Federal Reserve announces later this afternoon right before.

If the mood is dour from the Fed. going into Facebook’s earnings, Zuck and crew might find there’s not as much “love” or “likes” for its current valuation. Regardless of any improvement in “eye-ball” metrics.

I believe the focus will be more on “where’s my money” before he allocates it into another WhatsApp™ buying spree with their money. But, we shall see.

Regardless of whether you use, like, or have anything invested in the Facebook one thing is abundantly clear, and will become even clearer this afternoon.

Is it different this time – because…the party’s truly over? After all, what would one expect when many in the valley put more stock into their A-list for their themed parties rather than their company’s bottom line. Or, openly stated – “for charity” – they’ll be selling also.

Again, we shall see.

© 2016 Mark St.Cyr

If Draghi’s Latest Doesn’t Scare You? You Just Aren’t Paying Attention

To say central banks have intervened far too long within the financial markets would be an understatement. However, what can not be overstated is just how far down the “rabbit hole” of lunacy they are continuing to push all measures of fundamental business understandings such as, competitive advantage, governance, price discovery, viability, and a whole lot more. Not withstanding, the devastating effect these disruptions are placing upon the population’s at large that rely on these very businesses for both their own general welfare (as in employment) but also, the taxes they pay that go into general funds of all sorts whether it be local, state, federal et al.

Today, everything (and I do mean everything!) one thought they understood about free market capitalism has been thrown into the wastebasket of history and replaced with edicts and dictates set forth by an un-elected gaggle of economic theorists who’ve decided the world of business is theirs to control. How do they control it? Hint: The courage to print!

Whether you’re a solo-practitioner or CEO of a global concern one thing should be making you very, very, very (did I say very?) concerned: The recent proclamations, as well as, delivery from the ECB’s Mario Draghi.

Mario Draghi not only openly stated, but did so in a manner which many put into the “defiantly so” camp, that he has the right, the means, and wherewithal to purchase corporate debt as he see’s fit. If that doesn’t shake you down to your business core – you just aren’t paying attention.

I’m not trying to be bombastic or hyperbolic just for the fun of it. I’m absolutely stunned at just how openly brazen Mr. Draghi’s comments, as well as, retorts when asked about not only if he would, but rather, if he should intervene (e.g. purchasing) into the differing stratum of corporate bonds. I must state this again: “If that doesn’t shake you down to your business core – you just aren’t paying attention.”

So why is this of such concern some will ask. After all as the thinking will go: “Didn’t we do something similar with GM™?”

Well, yes we did – and the ramifications of that intervention are still yet to be felt. (i.e., as to how the rules of financial law play out, or applied from here on out) However, as large as GM is and the ancillary companies that were both helped, as well as, hurt by the government’s intervention. There are two distinct differences in both application as well as scale. First…

Whether you approve or disapprove of the decision, at the very least, it was made by elected officials. In other words (like it or not) people voted for those whom made the decision. It’s not a distinction without a difference. Nor, should that fact be lost. (please save the emails – this isn’t about who currently holds or, will hold the title. This is about what is, plain and simple.) Yet, with that said it’s in the second part where concerns should manifest…

GM was in many ways an isolated event. Draghi’s proclamation of both his intention, as well as, surety turns the volume of that in both size and scale up to 11!

Let me make it clear just how brazen central banker’s are increasingly becoming as to their function and purpose when it comes to their interpretation of what their “mandate” is using Mr. Draghi’s latest words in response to the “should” idea. Ready?…

“We have a mandate to pursue price stability for the whole of the eurozone, not just Germany,” he said. “We obey the law, not the politicians.”

Ponder that statement transposing Mr. Draghi with any other central bank and you can see just how concerning this is all rapidly devolving. Today it’s Draghi. Tomorrow?

This and more is referred to as a “lament” by the WSJ™. Personally, I never thought of someone giving the middle finger while proclaiming like it or not, this is what they’re going to do as a “lament.” But that’s just me I guess.

So with this newly professed (as interpreted) “mandate” Mr. Draghi will now have the power (as by decree) of corporate life and death (via their bonds) using the business acumen and economic theory residing within that bastion of business acuity The ECB as to buy or sell corporate bonds at a pace, or rate, it has deemed “appropriate.”

And where will this new-found “purchase power” come from? Hint: A keystroke which fills a bank balance sheet with funds created ex nihilo. Am I the only one that sees an issue here?

Let me put this into more blunt terms as well as examples…

Does anyone think for a moment that the leaders of let’s say, oh I don’t know: China, are going to sit idly by as Mario Draghi decides which companies will be able to compete with an unfair advantage (such as buying their bonds) against them? China would love nothing more than to return “the finger” to their own printing presses all the while pointing out the blatant hypocrisy of the ECB’s monetary policy. Can you say Yuan devaluation? And that’s just for starters.

Mr. Draghi boldly proclaims “We obey the law, not the politicians.” Well, that may be how he currently views the dynamic. However: how many politicians from not only the Euro-zone but from across the globe will just sit back idly as their once touted symbols of free enterprise make a mad dash to reorganize their corporate structure to become headquartered in the EU as to “get a seat at the table” when Draghi begins dishing out the monetary equivalent of corporate sustenance?

If you thought corporations liked tax inversions – just wait till you see how they react to the idea of unlimited financing of their bonds! And yes, “unlimited” is accurate because as we now have proof. “whatever it takes” means just that – “whatever.”

The ECB’s latest “lament” turns everything about business dynamics onto its head. No more is it “build a better mousetrap.” Mr. Draghi is now the one deciding who will “live or die” as to build one. There’s another term for that: it’s called playing economic god.

Again, the only differentiation as to whether or not many a company will live, or perish, via their bond funding will be whether Mr. Draghi believes they should. All via a nod and a keystroke. And maybe you thought the “god” reference was a little over the top at first blush. Not so when put under this light. is it?

What an absolute debacle this will create in more ways than there is digital ink to describe it all. It’s an absolute abomination to anything related to business and free enterprise and it should be denounced boldly, firmly, and vociferously by not only politicians – but by the business community itself. For as I stated: It’s an abomination of everything once thought of as free market competition. So much so it makes the BoJ or even Krugman look fiscally responsible by comparison.

Let’s use some real world hypothetical examples. (these are meant to be overly simplistic)

Who gets to build a “better” jet engine: the better company and/or design team with limited access to funds? Or, the company whose headquarters (whether newly configured or original) is located within the ECB’s purview as to purchase their corporate debt?

How about a car company? Software company? Phone maker? Retailer? ____________(fill in the blank.)

Competitive edge? Who cares! All that will matter is whether or not your company has access to the ECB’s bond program. And if so? Bottom line inefficiencies, or product advancements be damned.

Competition? Forgettaboutit! Unless they’re on Mario’s list – there is no competition. The only competition one needs to be concerned with is whether or not the ECB has a bond ticket with your name on it. Period.

If you think this is bad, just wait – it’ll get worse. A lot worse. Why?

Do you think for one moment other central bankers are going to allow themselves to be out done via “The Full Monty?” I sincerely doubt it.

I wouldn’t be surprised if not only the BoJ, but the Fed. and others decide to reciprocate in kind and offer similar lunacy into their economic structures – soon. After all, it’s all made possible via decree and a keystroke. And what’s even more concerning?

Not only don’t they need to ask for permission. You can forget about them ever begging for forgiveness if, and when, this all blows up. As a matter of fact, if former officials give us any clue – they’ll demand you pay $250K for the privilege to hear them proclaim how they “saved the world” from economic collapse which they, more than any one else, helped facilitate.

And that alone is concerning enough.

© 2016 Mark St.Cyr

Absurdity: When The Con Believes The Con

There are many infamous con games that have been foisted upon the public for millennia. Probably none more enduring than that of Charles Ponzi which bears his name as its moniker. Yet, there’s also been another who was also just as “daring” when it came to finding ways as to extract monetary gains by ill-gotten means: Victor Lustig.

Lustig is best known as “The man who sold the Eiffel Tower.” However, it was one of his other cons that came to mind as I was thinking about the current state of monetary policy we now find ourselves in.

Lustig’s other con was a device he slated would print $100 bills. But it had a problem.

Unbeknown to his mark, this problem was also part of the deception. The problem was (as stated by Lustig) – it could only print 1 bill every 6 hours. The genius was; located within the machine it contained two genuine $100 bills. After that – blanks. You could be long gone, and quite far with that kind of head start back then. Yet, it’s once the con, ruse, or scam is finally exposed one thing is certain: You don’t want to still be around or found.

As with any con game the perpetrator knows it’s all a con. In other words, “Duh!” Yet, if you listen closely to both past as well as present Fed. members you can’t help but notice by way of their current arguments, as well as, proposals for future monetary policy. The one’s who’ve truly bought into “the con” is: themselves!

Nowhere has this been on display more than the current public writings and musings of former Fed. Chair Ben Bernanke.

If you read his latest (which I’ve tried but can’t bear that much comedy in one sitting) he lays out what he thinks (or believes) should now take place involving Congress, the Administration, and the Fed. His great idea? Create and “fill” some arbitrary account which only the Fed. or its appointed designates have control of as to “empty” or “fill” as “Congress and Administration” see fit. But here’s the punchline, ready?

“Importantly, the Congress and Administration would have the option to leave the funds unspent. If the funds were not used within a specified time, the Fed would be empowered to withdraw them.” (Insert laugh track here)

Remember, this is coming not only from the former Chair, but also, one who is quite possibly the most emblematic of current thought residing throughout central bank policy makers with an additional caveat: He’s no longer bound by the position where his thoughts need to be guarded as a voting member of such policy lunacy. In other words: he can now speak his mind openly. To which I’ll muse – that’s no laughing matter when you consider how prevalent Keynesian economics now dominate.

The latest from Bernanke exposes just how far down this “rabbit hole” central bankers have gone. So far I’ll contend – its frightful. e.g., They actually believe this subterfuge.

When I’m giving a talk, or engaged in conversation, I often use the term “con game” when describing current monetary policy and its effect on business and more. Often the term “con” at first seems to put people on the defensive as if I’m using hyperbole, or trying to make a point by using over the top styled rhetoric.

The problem is (I’ll explain) it is exactly that. e.g., Many forget “con” stands for confidence in con-game. And now that the $Dollar along with just about every other currency is all fiat based: confidence is the only variable that supports it in a fiat system. Period. And once it’s lost just as with any “con” – it ends with blinding speed and consequences.”

This is the current danger now inherent after years of QE, NIRP, ZIRP, and every other acronym that represents some form or another of central bank intervention within the markets. So adulterated have the markets now become with central bank meddling; describing them without using quotes such as “markets” seems reckless. For these are far from the markets once thought to represent free market capitalism. Today they are “markets” in name only. For just like currencies – they’re no longer backed by anything once considered tangible like gold or actual net profits via 1+1=2 accounting.

At some point printing ad infinitum, as well as, companies reporting (ad infinitum!) losses of Billions in sales and revenue while declaring “We’re killing it!” via Non-GAAP accounting will make even the most ardent supporter of Keynesian thinking question this new reality. The absurdity can only go on for so long, because, to keep up the ruse (just like suckers) more absurdity is needed. We may be reaching that end point after all these years. And the latest clue might be in the absurd recommendations emanating from central bankers themselves. For it’s becoming clearer by the day if one reads Bernanke’s latest: they think this all makes perfect sense. Talk about absurdity.

Let me pose this question: Does anyone for a moment think China would (or will) allow the Federal Reserve along with the U.S. government carte blanche as to create “piggy banks” that can be used to help bolster its position without calling into attention the absurdity of it? Especially as it holds $TRILLIONS of U.S. debt on its own books? Imagine all this while not only the U.S. but the world of central bankers and other governments push, or brow beat Chinese current policies? Or, question their numbers for authenticity? How about Russia? Or Brazil? Or __________(fill in the blank.) Think they’ll all just stand idly by as their economies teeter on the brink of insolvency as the West just prints and points fingers?

If you listen to the musings emanating from many of the central bankers today whether currently holding an active position, or one which has returned to the “private” sector. One would have to construe that they believe exactly that. i.e., Don’t worry – they’ll buy it because that’s what we want them too. And that absurdity is a glaring warning sign from my viewpoint.

This shows just how far down this absurdity “rabbit hole” we’ve gone. And it can be directly contrasted with the con games of old. For it was always a given: for the ruse to work for the benefit of the perpetrator – one must have both the sense as well as alertness to “get outta Dodge” and not to be seen again as the game blows up. Today?

So enamored with the ruse they now fall all over themselves whether on TV, radio, or print, professing what absurdity should take place next to any and all that will listen. Again, even Lustig knew printing money ex nihilo was a con. Yet today, central bankers regard that as: prudent monetary policy. The difference for a contrast in the absurdity?

Before; it landed you a session in jail. Today? It lands you a speaking gig for $250K a session.

© 2016 Mark St.Cyr

A FWIW Update To: For Those Wondering What I’m Thinking

There’s an old saying or thought, and it goes something like this (although I’ve added my own spin too it:)

“If you want to instill an aire of genius about you; make bold statements, with conviction, in public. However, if you don’t want to be proven a fool – never write those thoughts down where someone can compare the results later on. Unless you’re an economist – then you just boldly make another prediction.”

The other day I made a case (or argument) about where I consider the “markets” to be at this point in time. It seemed no sooner than I posted the article that the markets took off higher in a manner that would make Speedy Gonzales of cartoon fame blush. And much like Speedy – they’ve never looked back. And, as far as my thoughts on Verizon™, Yahoo™? Let’s just say a Verizon walkout happening at the same time didn’t play in my favor of some “guru insight.” That said, I am still of that same opinion as to the premise, regardless of the final result with Yahoo.

I was just reminded of all this over lunch which I had with a friend, where I was asked (in a tone that seemed to cause them great humor) “So……How are the markets doing today?”

It was a fair question. And I thought I’d share (because these types of posts seem quite popular with readers) for those who may also be “wondering” since it would seem by all accounts “genius” is not a term one would associate with my latest thoughts. So, with that said, here’s how I responded. Take it however you like. And yes, even if you consider it humorous. For I understand – if you’re going to make bold calls and want it to be on record, genius and fool walk hand in hand. It comes with the territory. Yet, let me also express – I haven’t changed my mind. (As usual I’ve typed this in conversation format) To wit:

Me: “Obviously you read my latest post, right?” (response was an understated snicker, then a yes, just to give an overview on how this conversation started)

Again, Me: “Well, basically everything I stated I still stand behind. As far as the markets roaring higher there’s a myriad of reasons for it if you understand technical analysis and other market drivers such as HFT and the like.

What it also shows you (an opinion of course) is just how important that area I marked truly is to the “markets.” It would seem both “heaven-and-earth” are being deployed as to make sure that area is not breached. It would also appear that, once again, this move is being fueled by short covering – not new “bulls” buying in. And that should concern you.

There are reports of both market data, as well as, others that show over the last few weeks during this market rise since February or so, the vast majority of Sellers vs Buyers has been to the Sell side. Not Buy side. That also should be a real reason for concern. Like I said – If it falls apart, it will fall apart hard because, there’s no commitment as in buyers. It’s all short covering, light volume’d, algo spoofing-styled market action. In other words: “There’s no there – there.”

There’s another glaring issue. Did you happen to read the latest retail sales report today? (response: Not yet. Why?)

Me: Well it would seem they aren’t as good as one would think you would need to have for a market to be at these types of levels. After all, we are within spitting distance of the highest levels ever made in human history. Can you see the issue here? And that’s not all. First quarter GDP business inventories to sales figures are very concerning. But, (and it’s a very big but) there’s something to my way of thinking that’s even far more troubling.

The New York Fed. now wants to put out a “new and improved” model or version of GDP forecasting to offset the dower assumptions or predictions currently made from the Atlanta Fed. report. Which by the way, although dower, it has been more consistent, as too accurate, than most of the others. Funny huh? Suddenly now we need another so we can show more “hope and faith” in Fed. forecasting. Like I said, if you’re an economist and you’re wrong – just make another prediction. And if it’s to be on the record – if in doubt – just create another forecasting device or report altogether.

Remember how ADP™ employment and BLS figures contradicted each other back a few years ago? Then they adjusted ADP’s model (which was shown to be the more accurate) to the more flawed model of BLS (i.e., introducing more of the “seasonality styled adjustments and more) as to make them more in sync? Bam! Problems solved. Know what I mean? But everyone forgets those things, which is the intent, if time prevails. (here is where I got to snicker a little)

Again, Me: So, with that all said I just have one question: Are the markets at these heights, and worthy of staying here, (let alone continuing higher) based on fundamental business practices and/or accounting as you know or assume them to be? Or, are we at these lofty height for the sheer “Atlas” styled monetary policy creation being held up by the will and wisdom of a “diminutive woman” (that’s a direct quote and description used by former Dallas Fed. president Richard Fisher) that has done nothing other than spent her life residing within the halls of academia and government?

Again, no matter how much higher the “market” goes, I’m of the same opinion still. However, with one caveat:

With every tick higher my concern increases for an even more violent downturn. For just like a house of cards, there comes a point where that next level, is the level, that can bring it all down quickly. Other than that – I have no strong feelings on the matter. How’s your steak?”

On an aside note since I’m typing this shortly after the latest release of the Fed’s FOMC Beige Book. There’s more to this whole rebound in the markets that’s making it quite hard to “square-some-circles.” For instance: How is it that the latest retail sales reports shows troubling data, yet, the Fed’s report shows “improvement across all 12 districts?” Or, another which is far more confusing (paraphrasing): “Oil’s price decrease continues to help bolster or offset costs helping to boost economic activity.” All this while oil prices since that last meeting is now on a tear not seen since the downturn in 2015, which creates its own double-edged paradox: Does higher oil prices now mean stocks are going to be worth more because people will have less “in their pockets” as the saying goes? All while “highly accommodating monetary policy” is still required as the stock market is once again at the highest levels known to mankind?

Or maybe I should just end here with the immortal words of that genius Alfred E. Neuman:

“What, Me Worry?”

© 2016 Mark St.Cyr

For Those Wondering What I’m Thinking

As it seems over the last year or so when the markets are at extremes, or what many deem “moments of indecision” I get asked by readers and more, “What do you think of the current “market?”

As older readers have come to know I’ve been posting and annotating the following chart with my thoughts and/or observations. As always: before hand, and before any subsequent moves that may or, may not occur. Then letting the chips fall where they may. The results of those subsequent calls speak for themselves. However, I feel the market is on far more tremulous ground today than previous posts. For as I implied in earlier notes – “This last move back to the highs was based more on Wall Street shenanigans dealing with Qtr. ending and more, than anything which resembles a healthy economy.” So with that said…

Below is the chart of the SPX as we stand today before the U.S. “markets” open. As you can see we are right back into the same area (marked as #10) that we were when I first annotated it. I have moved the #10 annotation over to the right to make the current price action clearer since it was under the text. Yet, it doesn’t affect the call contained within. It still stands today as I typed it then: “Lose this area with conviction and a return to the Bullard Bottom Quickly is well on the table.”

S&P 500™ (SPX) as of the close of 4/11/16
S&P 500™ (SPX) as of the close of 4/11/16

If you look at the chart one thing is evident. As I implied earlier, once the Qtr. end shenanigans were over the markets did what? Hint: absolutely nothing.

As a matter of fact we’ve not only drifted back lower, any recent attempt to go higher, or at least maintain, has been met with selling down back to the lows of the day. And currently, we are once again not above, but below in what I construe as a first level warning sign of support that needed to hold when tested. Rather, than close below it.

If the “markets” continue to sell down, even in a “drifting lower” type fashion closing back below, or under that lower line (and it’s only a single digit move)I feel that’s your first “warning shot” that something is afoot and one should take very special care, and notice, of everything as it pertains to not only one’s investing side of the ledger, but business and more. Remember: Not knowing or understanding the ways in which your business and personal life can be effected by a sudden, if not violent swing, out of the blue in the financial markets is no longer an option for anyone who’s serious about business or their economic well-being. Period.

So, some might be asking “Why is today’s call more troubling than previous?” Here’s my reasoning…

As I stated in earlier notes of this chart the reasons (in my opinion of course) for the “markets” to race off the extreme lows were out of the now commonplace shenanigans by either Fed. officials jawboning they’ll do this, that, or the other thing as to rescue the “markets” if needed (hence the now moniker’d Bullard Bottom.) Or, another punt on rate hikes, etc., etc.

However, this last move off the lows came (or was fueled by) three distinct events that can’t be duplicated in the very near future i.e., next few weeks.

First, was the latest inaction over action rate hike announcement. Second, was Fed. Chair Yellen’s now deemed as making an uber-dove look militaristic speech at the Economic Cub of New York™. And finally – Quarter end window dressing combined with re-positioning for both the new month, Qtr., and the beginning of earnings season.

To my mind – that’s not only like throwing another log on the fire to increase the heat. It’s more like continuing with the furniture, and anything else combustible. And with all that “fuel” where are we? Hint: smack dab in the middle of a very (and I do deem these as very!) important inflection points.

So the question now becomes: “What do you throw into the “fire” now with all the “big wood” is already burned?”

Usually it would be earnings season that would supply and deliver the reasonable expectations of not only wood for more heat into the markets, but also some coal, gas, and other more BTU producing resources.

Yet, today? How does one feel this earnings season will play out? Retail going to surprise to the upside? How about tech? Or, energy? Or, banking? Or, _________(fill in the blank.) As I’ve stated previously, ” This earnings season may be one that fits that other well-worn moniker – “It’s different this time.”

With no fuel except for the near certainty of relentless jawboning from central bankers globally when the markets show any signs of weakeness during this current season, will only be matched by the near criminal Non-GAAP reporting that will be fudged, manipulated, prattled and more by the C-suite executives that report them. And let’s not forget the next in rotation fund managers throughout the media that want you to buy it. Literally.

Again, the question remains: Will it be enough? For “hot air” during a possible abysmal earnings season might not near be enough. In actuality, it may work in reverse and “blow it out.” For if one needs, or wants to see just how far a company needs to go this earnings cycle into the bizarre world of Non-GAAP to show “We’re killing it!” Just look at Alcoa™ and it’s latest earnings report for clues. It speaks for itself.

And as always: nobody knows, it’s anyone’s guess.

© 2016 Mark St.Cyr

Why A Verizon And Yahoo Deal Is Interesting

It appears Verizon™ has announced to make a play in the bidding for Yahoo™.  There are others in the mix (such as Google™) along with those that have already panned their interest (such as Comcast™ and ATT™.) Although the idea of what many would call “a mature” in not “aged” business model such as Verizon acquiring another “dinosaur” brand of the early tech years such as Yahoo (remember the also purchased AOL™ 10 months ago) just more of the “same old-same old” when growth is only possible (or at least verbally spun) via acquisition. This next round of aged cohabitation may be far more interesting and bring forth what the “new” composition of “the web” may look like in the not too distant future. For this time the Darwinian process may favor Silicon Valley’s oldest behemoths – not its youngest.

There’s a dichotomy of thought when it comes to investing in anything related to tech these days. First is the “user growth and only user growth matters” model (which is basically the “everything social” genre) contrasted against the “slow to near absent growth but; stable paying users” model i.e., subscription based and others.

And it is here in both the revenue side, as well as, the user side I believe things are about to get interesting. Especially in this QE starved “unicorn” environment.

If one looks at the current state of unicorns (as well as previously IPO’d) it’s hard to imagine things getting better in this current environment. As a matter of fact, I believe (and have stated many times previous) the entire “Unicorn” phenom is not only drawing to a close – most will never see the IPO light of day. Will not pass “Go.” And, will proceed directly to the glue factory instead where they’ll be drawn, quartered, and sold for what ever prices available – with the remains turned into digital adhesive.

Harsh? Yes. However, no more harsh than the catcalls and scowls I received from Silicon Valley aficionados when I dared point out other cracks in the Silicon Valley mirror. Yet today, it would seem those cracks are growing ever larger by the day. After all: have you seen a “Unicorn” IPO yet this year? Oh yes, it sure is “different this time.”

So, it’s with this dichotomy, along with where “the money” may flow I’m using as a kind of balance scale as to where I believe things could change in ways far too many may not realize. And, as I stated iterated earlier, “things can get very interesting.” So, using an oversimplified model and thesis here’s my reasoning…

When using the “everything social” model (i.e., the Twitter™, Facebook™, LinkedIn™, et al.) it’s all about user growth.

Valuations are said to be “validated” via how many, as well as, how fast more and more users are engaging with these platforms i.e., “eyeballs for ads.” In other words: BILLION $Dollar valuations are based on the same mythical measurements as actually seeing a real live unicorn – belief. Non-GAAP accounting facilitates the myth, where true GAAP accounting exposes the hoax or fiction. (I’m fully aware that Non-GAAP is also employed at these acquiring type entities also. It’s just for this discussion, the older entities I feel still have some time left in their use, where I believe the other may not. Yet, the end draws nigh for its continuation in both, regardless.)

Some will tout “That’s hogwash! “New tech” is not old tech and these valuations are viable.” Fair enough. However, if that is so; explain why valuations such as those of LinkedIn and Twitter remain in the….? Shouldn’t these be great companies on sale so Buy, Buy, Buy with horns over hooves? If the myth was still in tact (and QE was fueling it) the answer would be able to be spun as; yes.

Yet, all one has to do is look at many of these names and their current stock charts where one is quickly reminded, they seem to have more in common with what’s left behind by a horse – not a unicorn.

The more the “everything social” genre of companies try to fulfill their revenue expectations with changes where some form of user revenue is to be extracted (as promised, and promised, and promised, and…) the more its “user growth” or “engagement” model or myth meets reality. e.g., It plummets.

Nowhere is this more apparent than another once highly touted “This thing is the greatest!” new tech phenom of social everything: Instagram™

Back in September of 2015 Instagram announced ads would be rolled out to everyone. The results? Users hate it and engagement plummeted some 40%.

The real problem here is two-fold. First: That report came out just last month. Second: Facebook™ bought it for a $Billion, and both have relatively the same business model. Can you see the underlying problem here to the “everything social” model? And I wont even go into the justifications for valuation when Mark Zuckerberg paid $19 BILLION for WhatsApp™. How do you think that’s going to pan out if, and when, it tries in earnest to pay back and justify its stunning acquisition cost using its fellow brethren of a “unicorn” as its model? Again, in my opinion, the same model that its parent company is tied to. Talk about hitching your cart to the same unicorn. Like I said – things are getting interesting, no?

So, with all that in mind, here’s where “interesting” can really take both shape and form in ways many of today’s unicorns can’t: The model of Verizon is a paying user base that users of all the current “social everything” can’t exist without. i.e., the web access model. Verizon (I’m using Verizon but this pertains to all internet providers) can exist, grow, change, and add services for free or, charge more if applicable to already paying (and that’s the key) user base.

The “everything social” model, no matter how good, big, dynamic, popular, and everything else you want to say about it can’t do one thing that Verizon can: Exist without an internet provider to access it. Period. Never forgetting another very important point: the moment they try to charge – is the exact moment their user base tends to bolt.

Let me use this argument for you to ponder: I can access a crappy, boring, outdated Yahoo type portal via Verizon that may or may not also include a social media type add-on that is user stable at best, with the hopes or expectations that in the coming future they’ll get better and more responsive. Yet, without an internet provider such as a Verizon – you can’t access the most outstanding, latest and greatest social anything.

And if I’m an “investor?” Well, the room for growth and potential profit is much more clearer when viewed through the prism of current paying subscribers than the kaleidoscope prism of “unicorn” user growth models. Both past and future. Especially this earnings cycle in my opinion.

Consider it this way: Let’s say you’re an “investor” in this current climate i.e., with no more QE. Along with the realization the economy is far worse than the data has shown, and the Fed. is also out of bullets for the foreseeable future. Where are you going to start shifting and potentially parking assets with the two models becoming clearer by the day?

One model resembles the heights right before the crash of the last tech boom circa 2000. The other resembles the model that made it through those times and acquired all the former remnants at unicorn tear pricing when it was all said and over with.

It is here where the most compelling argument that things could be different this earnings season than quite a few previous…

The “social everything” modeled companies need every potential investing dollar available currently just to stay afloat. Let alone – grow and repay for past investments.

Just a small shift in fund allocations can bring the “unicorns” of both past and present tumbling to the ground faster than the bulls that may find themselves cliff diving from these latest market highs.

With earnings season quickly coming upon us, there may be no other time where the dinosaurs of the past may outshine and attract (as well as keep) the increasingly dwindling and existence sustaining investment dollar within its grasp. Whereas it is the new media, social everything, new kids on the block that find themselves having existential moments of crisis one after another with every upcoming earnings call throughout.

Remember, I don’t think its going to be lost on the truly smart money that one model not only exists, but can thrive with a reallocation of investment dollars in its favor. The other can only eat if it can justify its reason for existence via story-lines and fairy-tales of “Any day now, just you wait we’ll make money!” As investors wait, and wait, and wait.

That waiting may in fact come to a screaming halt with ramifications once thought never to be seen again – right around the corner.

Yes, interesting indeed.

© 2016 Mark St.Cyr

Why Silicon Valley’s “It’s Different This Time” Is Now A Broken Record

Like a broken record whenever a profit measure was asked of “Silicon Valley” (i.e., everything social or tech) as to when something would either be profitable or, begin returning investor cash with either net profits or dividends. The response was always the same “It’s different this time.” Meaning: there aren’t any now, but just you wait! Some are still waiting, and waiting, and waiting, and….

The only reason this retort was tolerated for as long as it had been is for that other “it’s different this time” meme that took hold in unison when it came to everything one thought they understood about investing, free markets and capitalism itself: quantitative easing e.g., QE.

As long as the Fed. enabled “free money” to chase momentum plays – the gravy train to cash-out-riches was running on rails. Yet, here too investors, savers, and more would ask “When does normalization type policies begin that benefit the prudent balance sheet or fiscally responsible?” And here the retort was much same, “Not now, but just you wait!” And again they too are still waiting, and waiting, and waiting, and…

Of course the answer to the question of why we’re waiting is, you guessed it – “it’s different this time.” Four words that replaced a teenager’s one word answer to everything: “Because!” But that’s what a Ph.D is for I guess – making the simple more complex. But I digress.

However, today there are visible cracks showing in the armor of that once fool-proof defense. Everywhere you look (but you have to open your eyes too see) the once celebrated IPO cash-out where dreams and fortunes are made regardless if the business model works, stable, or is even viable, has been all but erased 4 months into 2016. And how much longer it goes on is anyone’s guess.

As we stand today, as of this writing, there have been zero IPO’s of any “unicorns.” Zero, as in zip, zero, nada. Why? Is it – different this time?

It seems too me the deciding difference is more of the same old, same old. i.e., Without QE’s enabling “hot money” for momentum chasing – net profits matter. Not “net-eyeballs” for fairy-tale story telling. And net profits today are as rare as the vaunted unicorn itself: mythical. Unless it’s Non-GAAP, then as they say “You’re crushing it!”

Today, investors of all stripes seem to be no longer buying into myths. At least not without “free money” (e.g., QE) that is.

“Eyeballs for ads” (aka – user growth etc., etc.) has been the celebrated metric used and touted for everything social et al from its inception. Not sales, not profits, nor a whole lot of other business centric measurements as to the health and viability of an enterprise. No, like a broken record only user growth metrics (i.e., eyeballs) mattered. Yet, there’s currently a very, very, very (did I say very?) big problem with this whole “eyeballs” or “user growth” defense. The issue is: The fairy tale metric has morphed into a real-life counter factual that can no longer be hidden. And this nightmare is growing day, by day, by day, and by day. Let’s list a few shall we?

Regardless of how a next in rotation fund manager, economist, think tank alumni, or Ivy League’d Ph.D professor et al wants to justify these “markets.” Anyone with a modicum of business acumen understands there’s no fundamental business reason or metric that logically explains why we should be at these heights. None. It’s a fairy-tale story based on a mirage as its factual base. All smoke and mirrors supported via a cohort of complacent onlookers, along with, just as many fervent believers hoping, and praying that this “Never-land” can exist forever. Do I need to remind you that even the Bank of Japan’s governor Mr. Kuroda actually uses the term “Peter Pan” to describe his monetary thesis? Welcome to monetary policy 21st century style. Remember – it’s different this time.

Yet, how is it, here we are within spitting distance of the all time, never before seen in human history highs and: there hasn’t been a one? Not any unicorns cashing out? None in all of 2016 thus far? How is it different this time? Why is it different this time? How can all this good in the markets be so bad not only for the “eyeballs for ad dollars” based social everything genre, but all IPO candidates in general?

Oh right, I forgot. Not to sound like a broken record but “it’s different this time.” I would suggest this time, is a looking a lot like last time. Can you say A – O – L? Many can – they just won’t.

Another point is; when it comes to that cashing-out IPO stock option dream and picking up a San Francisco McMansion on the cheap at $5 million or so. Those dreams are beginning to take on more of a realization that a shipping container reality might be here to stay far longer than first anticipated. Or, if you’re lucky, you might find a nice place in some box, or under some stairwell or crawl space to rent while you wait for that “just you wait!” IPO announcement we’re told is coming any day now.

Only issue? Hopefully that box, or room in a McMansion isn’t rented from someone who is also waiting. Or, you may find they’ll need to use that space eventually for themselves as they list their bedroom on AirBnB™ to help foot the bill. But not too worry. For they’ll state, “It’s just any day now!” when they’ll cash out their shares with ____________ (fill in the blanks) unicorn’s IPO. If it ever does – at a value that pays. After all: there’s always next quarter, right? Just like earnings. But again I digress, sorry.

How about some past unicorn cash outs? How are they doing? Twitter™? Linkedin™? Square™? If you hold shares in these companies you should be crushing it when it comes to your portfolio. After all, these companies have seen their shares hurt “unfairly” as many a Silicon Valley aficionado or next in rotation fund manager will attest. So, with a historic rise that dwarfed all previous measures prior in the “markets,” with the best recovery ever (yes, ever) in a quarter in the stock markets history. The share prices of these companies should be on fire, no?

No. In actuality if you still own shares I would surmise the description would be more in kind with underwater, or drowning in a sea of red, yes? Well remember, it’s different this time, right?

But these are new business models we’re told. It is us or you that “just doesn’t get it” when it comes to all these new businesses emanating from tech. Disruption is the key! Profits come later, making net profits much later (if ever!) It’s all about “eyeballs for ads.” Once they get that user growth model back on track just you wait!

Well we’re still waiting, but more importantly, Wall Street has been waiting and has clearly shown it’s losing its patience. And for many, not only are they no longer willing to wait. But more importantly: They’re either pulling out, or turning a blind eye to “eyeballs” entirely. Now it’s, “Where’s my money or, I’m showing you the door.” And it’s gaining ground daily.

There’s no better example today than Yahoo™. Here’s a company only a mere 3+ years ago was heralded with its hiring of Marissa Mayer as CEO, its stake in Alibaba™, along with its “eyeballs for ads” count was, and still is, one of the highest on the web. Today? Now that  QE is no longer, the only thing worth keeping (as to sell) seems to be its stake in Alibaba. Although at a far lower value than they were from its own IPO heights.

How valuable is all that “eyeballs for ads” goodwill? As the ole saying goes: “How much you got?” For it seems via the rumor mill it isn’t going to take all that much to acquire it. Talk about a diminishing value. As for being a board member? That now has a life expectancy of “how long before you can move out?” And as for its once high flyer, party throwing CEO? Maybe LinkedIn will be her next ticket to fame. No, not as an executive – but as a job board participant. Oh and by the way, LinkedIn shares are still on sale – and nobody seems to care. Except those with double-digit percentage losses. But alas, once again, I digress.

It seems she’s just the latest in an ever-growing list of “social everything” brilliance – as long as there’s QE to supply the brain power. And the debacle at Yahoo is just the latest of the oldest names. For I believe: It’s coming to the “new” in much the same fashion and will snowball even quicker. And yes, even with the markets at these levels. Why? Easy…

The fairy-tale can no longer withstand reality. Net profits, and return of money and/or investment matters. Period. Unless…

You’re one of the fortunate that is somehow already located within an index fund that is targeted and/or held by either a central bank or sovereign wealth fund. If not? “There’s no soup for you!” (i.e., money to wait.) That time has now since passed for “it’s different this time.” And not the way the “Valley” has argued these last 6+ years. (And I believe that too is about to find itself in a whole ‘nother “it’s different this time” reality check in the very near future.)

The time of “eyeballs for ads” has peaked in my opinion. That story as I’ve argued over the years would unravel quicker than a sweater thread, and all it would take was when the meme of “it’s different this time” began being debunked by measurements the “Valley” itself couldn’t just talk over or spin away..

As a matter of fact I’m of the opinion that today: the more words used to protect the fairy-tale meme will actually work against it. I’ll finish with the latest example for anyone who wants to truly understand just how encompassing the “it’s different this time” narrative really has become and – to what extent.

There is probably no other industry that has been disrupted, broken, changed, and far more other ways than I can type – than music. And there has been no other business model in the “eyeballs/ears for ads” internet genre than streaming music services. Billions of listeners, billions of this, billions of that. Valuation touted of $BILLIONS, and more. “It’s the way of now!” “Streaming is it!” “Invest now or miss the boat!” “This is where the money of the decade is to be made!” And on, and on, and on. However, there’s a problem.

Remember how I implied “would unravel quicker than a sweater thread?” And all it would take was when the meme of “it’s different this time” began being debunked in ways so glaringly obvious without saying a word? Well, here is the latest fulfillment of that argument.

Streaming music; for all that it’s been touted to be; both the be all, and, end all of music. Along with why its business model would be the darling of investors everywhere. I ask you not only to contemplate this yourself, but also, think about how this one fact is going to play into the minds of not only current investors, but rather, those desperately needing new investors today for all that “cashing out” to take place tomorrow. Ready?

Vinyl sales, yes, as in those plastic looking arcane relics of yesteryear that adorn many a bar room wall or lie boxed is some grandparents basement hasn’t just made some resurgence that you didn’t read on you latest social media “eyeballs for ad revenue” of choice. No, this resurgence isn’t making such a comeback as to replace digital. However, what is has done is antiquated that meme of “it’s different this time” when it comes to those “eyeballs for ads” supported models. Ready? (If you’re an investor in one form or another of the “eyes for ads” model you might want to take a seat. Don’t say I didn’t warn you.)

According to the Recording Industry Association of America (RIAA) vinyl sales generated more revenue in 2015 than ALL the ads/advertising on YouTube™, Spotify™, and Soundcloud™ – Combined!

But what about all those eyeballs/and ears you ask? Sorry, but the pun just writes itself:

It’s differen..It’s differn…It’s differen…It’s differen…It’s differen…It’s differen…

© 2016 Mark St.Cyr