Month: May 2016

On This Memorial Day

As we get ready for summer we begin with the kick off celebration of Memorial Day.

In our race to ready the grill, chill the libations, and hit the water. Let’s not forget the reason for this celebratory kick off to summer. It’s made possible for us because brave men and women on our behalf stand in harm’s way so that we can relax in peace.

Let us never forget that. Ever.

I rarely talk about private matters. However, I think it’s only fitting no matter how old we get to still reflect on loved ones or friends who’ve gone past like ships in the night.

Marine Lance Corporal – James A. St.Cyr E/3 Born 2/08/47
KIA – Quang Nam 3/26/66
Vietnam Memorial Wall – Panel 06E – Line 052
(My Uncle aka Uncle Jimmy. To this day still missed terribly by all.)

As long as we’re alive – We should NEVER forget. Whether it’s someone you know personally or in your own family. Or even someone you’ve never met. As long as we remember what it is to be an American because: someone – somewhere – stands ready to give their life – so we may continue with ours.

Thank you to all that have served, or continue to serve. This American wishes all of you the best.

Mark

Why The Next Black Swan Will Turn Into A Flock

I was on the phone the other day with a friend, who is also my accountant. We’ve been friends going on 30 years. Once in a while our discussions will veer off into what is commonly known as “shop talk” where we find we’ve suddenly gone from “just gabbing” to a multi-hour intense conversation about markets, the economy, and more. This past one was a little more of “the exception” rather than just the average swing into the generic.

What I discerned from many of his responses was just how inadequately prepared, justifiably frightened, as well as, an overwhelming sense of foreboding was lying right below the surface of those many might deem from the outside looking in as people of wealth, industry leaders, or people who are just assumed to be “well off.”

What was just as illuminating was how many he explained “are just rolling the dice, thinking nothing could be as bad as 2008.” The additional problem? They think (or believe) if it happens again all they’ll have to do is the same as they did last time e.g. Hunker down, wait for the storm to blow over. Rinse, repeat.

The problem (in my opinion) with that thinking is this: What you think you can do this time, has already been severely handicapped or, removed all together. And most have no clue.

This is where the real issue lies for not only the Fed. per se, but rather, the entire political as it is currently known. For if a “black swan” does indeed hit once again in the very near future? Once people realize just how systematically they’ve been cut off from those “assumed” resources, especially during a crisis?  All hell is going to break loose in ways the academic class, as well as, the political never envisioned. For when the time comes (and there is no more important “time” than that during a crisis of confidence) where words truly matter, and everyone no longer believes? Everything changes. And I do mean: everything.

The subject which initially fueled the discussion to take off was when I cavalierly made a comment of, “I’ll bet you haven’t even noticed the change on your latest deposit slip from the bank?” To which of course he said, “What change?”

I relayed the fact that if you now deposit cash (and “cash” means just that: cash) into your account as per the deposit slip it now reads “Further review may result in delayed availability of this deposit.” (this incident was at Chase™ I’m quite sure it’s at others, and if not, will be coming soon to a bank near you)

Or, said differently: “Just because you deposited cash, it no longer means, or can be inferred, as an instant credit to your account which has been the case for years. And that’s a real problem many business people, never mind, your average person are going to find out the consequences of the hard way.”

Why is this such a problem? I’ll use myself as the example, but I know I’m far from alone.

I don’t use them (as in banks) or a lot of other “payment” or “money” systems the way in which so many do today. Call me “old school” or “Neanderthal” all you want; but I’ve had many a (for the sake of politeness) “less than thrilling” experiences or dealings with banks over my business and personal career.

What a few of us (i.e., old timers) still do is to actually either carry some cash on us. Or, have a little “on top of the fridge” for those just in case moments. Not some vast sums. Just what used to be known as “walking around money.” For if I go to a store I don’t know, or a flea market, fair, or other such venue. I want to pay in cash rather than give my card and turn my account info over to someone I have no clue about. Yes, they may never use my card in nefarious ways, but there’s a whole lot of money to be made in selling that info to those that will. And once you’ve had your cards compromised (which I have) much like contracting seafood poising (again, which I have) – it only takes once to never allow it to happen again.

So with that said, I like many others also keep a very close balance when it comes to a debit or checking card and keep a running tally of my expenses as to know, and keep, me away from an overdraft. There are always times where you run things a little close, or make an impulse buy and the balance goes a little too low for one’s comfort level. As was always the case I would just hop over to my local branch and make a deposit. However, just a few months ago something changed.

It was a late Saturday afternoon when I felt my balance was a little too close and decided to deposit a few hundred dollars (actually $300) to give me a more comfortable cushion. For I had some outstanding checks and pending charges still floating and didn’t want any headaches. Guess what? The ATM wouldn’t let me do it. After several attempts I finally figured out it maxed out at $260. And that’s all I could deposit.

Why that number? I have no clue but can only assume (and for an assumption I think it’s as good as any) $260 is just about what a person earning $10 an hour working 40 hours would be in take home pay, there about, after taxes. Anything above that? You must have received it by nefarious means. Or, at least that’s the now implied assertion because when I went back to the bank on Monday to make the rest of the deposit? I was instructed I needed to show my ID (even though this was my local branch, not my first visit, she had my card, my personalized deposit slip, and my account open!) to deposit the rest. I was informed “all cash deposits now require a picture ID.”

So why is this little “inconvenience” such a big deal some might ask? After all as the saying goes “get with the times!” Ah yes, about those times…

How about those times when you suddenly find yourself overextended in your account yet – you have the cash in hand to cover it? Oh, oh; better hope it’s not a time when you’re instructed to use those delightful 24hr accessible ATM’s because the bank is now closed.

Let’s say you have just $3K in checks outstanding for you just wrote out the monthly bills via checks but you just can’t remember when trying to reconcile your current balance if you accounted for that $300 purchase the week prior. Guess what? You’ve got a problem. And more than likely – many more, as in compounding fees and such. What might be just as big a problem? You probably never knew there could be one to begin with until you just read this. And if you are one of those that never knew? That alone should show you just how problematic things can get if there is another swan styled event.

“Well that’s just for people who don’t want to take part in today’s modernized systems” some will say. Well yes, some will say that. But what “they” say is irrelevant and inconsequential. For the very act of thinking that way shows just how naive they truly are. Let me use another example to expand only we’ll use a business example.

You’re running a business and everything is going fine. Then, out-of-the-blue, one of your most trusted, as well as, important customers calls you on the phone late Saturday afternoon to inform you the latest payment (as in check) that you deposited on Friday is no good as in: It will bounce at Monday’s open if its processed.

This has never been an issue before and you’ve been dealing with this customer for years. So clockwork like are their payments you have built the habit of mailing your own accounts payable on Saturday afternoons at the local post office. All those “payables” by the way are based on those funds clearing that Monday as they have week after week, month after month, year after year.

Now here’s the conundrum: Good news! This customer knows what it is to be in your shoes for they’ve been there themselves. They inform you to “swing by and they’ll make the check good via cash right now.” Your problem? Your bank ATM just might not let you deposit it. Or worse, even if they do? Remember that little new added comment that now appears on your deposit slip? For those who need reminding: “Further review may result in delayed availability of this deposit.”

So, even if you get the machine to accept it – doesn’t mean it’s going to be “available.” Remember: we’re talking cash – not a check. Now: cash has to “clear.” Think an “academic” who’s never started or run a business understands this scenario, or has contemplated its plausibility? Hint: No.

My accountant was stunned. Not only did he not know, but what he expressed most concernedly was that he could only assume: neither does anyone else. For he works exclusively with either business entities or high net worth individuals. And to his bewilderment he was utterly shocked on how this (and its varying scenarios) had slid under not only his own radar, but most assuredly, under everyone else’s. (which by the way is also why we talk)

You could find yourself racking up fees (as in bounced checks both coming and going) and giving reasons for automatic “dings” to your credit report, all while you not only have the cash to cover it, but also; deposited that very cash into the bank all before the funds against them were applied for payment.

The above scenario can apply to either a business, as well as, your average bank account holder. And most don’t even know it. What’s worse? Those that say “get with the times” don’t assume that one of those checks that “might not clear” could in fact be their own pay check.

Far too many in the U.S. forget most people are employed by small businesses – not some XYZ conglomerate. The above business scenario is more likely to happen, and the risk keeps getting elevated with every passing day. If you want an analogy I’ll put it this way: The portending tail-risk of an extreme event has surpassed fat-tail and is now swinging to and fro beneath “the rocker” of the Fed Chair’s next policy edict.

As I said earlier “this was what fueled the start.” As we delved deeper it became increasingly obvious just how much was transpiring at such a rapid pace that it was nothing but a blur to even those who consider themselves “well abreast” of most financial matters when concerning business or wealth.

Another of the points raised was that concerning “the money markets.”

As I’ve implored so many times “if you want to look for clues, keep a keen eye to anything pertaining to the money markets.” (MM)  And during this discussion the MM came up as usual when in passing he told me that some of his clients had either sold out some or all of their interests and were squirreling away most (if not all) of their proceeds into the MM because they were just too scared as to do anything else. (For those wondering; we would never get specific with any names of either a business, or individual. Everything is always in the general, as it should be.)

I swore I heard either the phone hit the floor, or, maybe it was his jaw when I asked: “Did you see where money in your MM is now a bond rather than cash?” Once again to which he replied, “What!?”

I reiterated the story of how the rules were changed in the MM as to now they could be “gated.” However, it seemed to really make quite the impact when I followed up with, “And you do know that many brokerages are now putting (as in forcing) those MM funds people still believe are far more liquid than they currently are into “U.S. government securities” right?” It was then the phone seemed to go silent for a bit when another “What!?” came forth.

Here is where I reiterated the story (using Schwab™ as just the latest) at the beginning of this month (e.g. May) announced it will “…invest at least 99.5% of its total assets in cash, U.S. government securities and/or repurchase agreements that are collateralized fully by cash and/or U.S. government securities; under normal circumstances, at least 80% of the fund’s net assets will be invested solely in U.S. government securities including repurchase agreements. ”

So what’s to worry about, right? I mean; who cares about whether or not you need access to funds immediately if for the sake of “protection” you can be denied access to them but the balance will remain the same? That’s not a play on words – read it again and you’ll start to understand just how this will be framed if (or when) the next monetary crisis comes swooping in the wings of some rather ominous looking bird.

As I iterated to my friend:

“Just how many do you think are opening their statements, or looking at the last email notice from their broker where such a statement is made and not only not-reading it, but rather, understand the implications of it?

I’d wager dollars-to-doughnuts less than 25% of recipients will ever read it, and less than single digits of that even understand its implications. After all, you of all people know first hand just how many people throw their statements in a drawer and don’t open them till you see them 3 days before tax day. Now imagine them finding out what you now know in the middle of a crisis? Of any size. Imagine their reactions to suddenly find out what they “believed” was available to them (as in cash) was actually not only not-readily accessible, but actually, may be denied for who knows how long?

Forget days or weeks. You could be talking months or years depending on the severity. What do you think will be the reaction then? Think it will cascade? Don’t answer that, I’ll do it for you – you know it will. And it won’t just be fast; it’ll be more like light-speed. People will absolutely freak! Everything will grind to a halt. The only unknown after that will be – for how long?”

The above is just a few of the topics we discussed. There were many others with just as impending disruptions which could affect businesses in general. For what many people forget is this: if the business community grinds to a halt – everything shuts down. And I do mean just that: e-v-e-r-y-t-h-i-n-g.

And it is here where the academics within the Ivory Towers are going to find themselves in a quandary they have yet to experience.

Just when people will need to believe and trust what is being told to them within times of crisis, is precisely where they’ll (as in the Fed. or other monetary officials) will find the more they speak or promise – the more people will not only tune out, but maybe turn on them. For they’ve been told and sold these past 8 years “The Fed. is omnipotent.” So if that is true – than how did another “black swan” event happen to begin with is all that will be on everyone’s tongues.

That’s when much like geese – once you see one land, rest-assured, the flock is right behind. Along with the ensuing mess they’re sure to leave.

© 2016 Mark St.Cyr

Theranos, Facebook, And Unicorns: Why The Real Problems Have Just Begun In Earnest

Currently there are two stories emanating out of Silicon Valley. First there is the Theranos™ debacle where it’s been reported that basically everything you thought about the company from both its founder, right down to the technology, has been more of a sham than breakthrough. The other is the current brouhaha concerning conservative media and Facebook™ supposed willingness, or intent, as to suppress it. Whether selectively or passively.

Although the basis and the charges for impropriety are different. From my viewpoint: the consequences of both companies actions may have far more similar consequences in the end than some realize. Let me explain…

I have to start with Theranos, for this latest revelation helps put into light the overall meme of what has been transpiring throughout much of what we now generalize as “Silicon Valley” and in-particular: the tech space and its “unicorn” stable of future IPO derby candidates.

There has been far more written, as well as, to be written about Theranos. However, in a nut shell, what we’ve learned over the past week has been nothing short of breathtaking. i.e., It’s all but a complete sham.

I use “all but” for a reason: for as it’s been reported; out of the 200 or so tests that were supposedly made available via their Edison™ machines – only 12 or so were done via this method. The rest? Outsourced to companies using current technology and accepted practices. As far as it’s unicorn valuation metrics? I have a feeling “sham” will be a term used heavily in what can only be assumed a litany of upcoming SEC investigations. Not withstanding what usually follows: the criminal. Remember – it’s one thing to mess with and/or lose people’s money – it’s quite another to do the same with their health where lives are at risk.

This story is important to the whole because of what it brings to bear for helping others to better understand the whole “Silicon Valley” narrative or meme. e.g., It’s founder and spokesperson Elizabeth Holmes and the fawning over not only her, but the seemingly unquestioned jettisoning of business inquiry to the metrics, and replacing hard numbers or facts with fairy-tales and rainbow type thinking or examples as its legitimate replacement.

To get a glimpse into just how far what I like to call “breathing rarefied air turning into one’s own exhaust fumes” you need only look back just under 2 years ago when she was the darling of not only “The Valley” but also media in general. No where is this more apparent in her demeanor, but also, her “story” telling then at her 2014 TEDMED™ talk.

I believe it’s important to watch this talk in-particular for two reasons. First: Knowing what one knows now; you can’t watch it without being aghast at the level of not only insincerity but, (and this is a very big but) the outright peril she may have in fact placed the pregnant woman she described that came to her facilities for testing. And second: Now that you know what you do – is it not more obvious that people wanted or needed to believe for the sole purpose as to keep the dream (IPO) alive?

Now I give talks and speeches for a living. I also know what it is to be asked and put on stage in-front of some of the largest global corporations in one’s field and deliver news that none of them want to hear. (i.e., The medical field does not look kindly to outsiders telling them they have a better way. TEDMED or not.)

And I know from first hand experience the one thing you do not employ to get your point across is some canned speech with all its story note markers, canned hand movements and eye contact. You look about as phony as phony can get. And an audience can sense it a mile away. Unless – they don’t want to. And by looking at the subsequent press articles and talks given by Ms. Holmes since that speech – “didn’t want to” seems to fit the bill most accurately. (for those wondering – I was asked to give a speech years ago at a national conference when I was then running a company and making news that caught their attention. At the conference I warned of the possibility of an impending market crash in my field. After my speech I thought I would need armed security to reach my room. For if stares were daggers – I was the proverbial pincushion on stage. Just weeks later – the market did crash wiping out $Billions in value and more forcing some of the very attendants into outright bankruptcy.)

I say this because I now want you to think about every other speech you’ve watched as of late given by many of “The Valley’s” tech crowd. Hint: They are all just about the same. In other words formulated, prepared, gobbledygook that says nothing – and means even less.

Remember: Watch the Ms. Holmes speech (or however much you can stomach) then go to your search-engine of choice and watch one of Mark Zuckerberg’s or any other Valley high flyer of late. What is almost impossible to move past once you do is the uncanny resemblance they all have in both presentation, as well as, “story” telling. They all have the same formulation, as well as, stage presence. To my eye they’re so similar it would not be unreasonable to believe they were all schooled by the same speech coach. (if they were at all for I don’t know, it’s just an assumption)

Now I’m not trying to say the Theranos scandal and Facebook’s current “conservative” issue are the same. However, what I am trying to do is present some very striking, more often than not, overlooked details which not only get missed, but also, may hint at some insight of what might also portend once things (things being accusations with the weight of law) hit certain stages. For the way they handle subsequent accusations and more give ever more clues than may otherwise be first noticed. But – you have to watch with fresh eyes, rather than, just blindly accept; as has previously been the case.

Currently Facebook is in an all out (or at least what they want to be seen as) public relations dilemma with Conservatives. In particular: to the calls of censorship.

There has been quite a few stories written and told about the whole fiasco. This week also saw what was touted as “a meaningful meeting” between some of the more known conservative writers or speakers. What transpired and what was resolved is anyone’s guess for it’s also been touted there was a rather specific non-disclosure agreement needing to be legally bound to in order to attend. And it is precisely here I am going to make a statement which I’ll explain as we go on, and it is this:

If you think this is where the offending argument lays – you just aren’t paying close enough attention.

This (in my opinion) is a “look over here” part of both misdirection, as well as, to help build any evidence for defense that may be needed if the real “conservative” nightmare plays out in a way of charges which Facebook itself thought (or acted as if) it was immune to. i.e., Accusations of underhanded business practices which effected businesses unfairly, as well as, adversely that may need to be both defended against in court. And/or monetary damages to plaintiffs are possibly awarded.

The more I looked at who was invited, where, and the format – the more I saw PR text-book damage control (which is really useless when administered in such fashion) and more “discovery” and “narrative setting” for Facebook if or when needed in the future.

Without being coy I’ll state precisely how I saw it. Whether you agree or not is up to you…

I saw the attendees in this light if I were at Facebook: Glenn Beck: he knows probably better than anyone else if what we say is believable or not. We need to see how he takes what we say as credible or not. And why. Next: A Trump official: We’re on the record (in particular Mark himself) as not caring for Trump or his message. We need to know how they’re taking this. And just how much we need to possibly worry about retaliation if he does get the votes. Dana Perino: We need to know what are the instinctive reactions of a press secretary for a republican if they may hold the office next.

The others in my view were just filler (no disrespect to anyone intended, just a bigger picture view that’s all) to maybe add more weight to already existing thoughts. And it was based out off this reasoning, for if I’m Facebook and I grasp what truly might have the potential to snowball and play-out – I want to know the following as quickly as I can…

Will a media guy with true insights into media (love him or hate him his media accomplishments have weight,) a former republican press secretary, as well as, a high-ranking official from the potential republican nominee which now has shown a real possibility of winning believe our story?

If so: it’s possible we might have a chance to show or demonstrate: “We didn’t intentionally do anything wrong and when we found out? Well by golly we invited these people right here up to our offices to help us figure out how something like this should never happen again by golly, gee whiz!”

In my view, this is the real reason for if, or when, any court “discovery” sessions need take place as to possibly help cut this all off-at-the-pass before it gets ahead of them.

Again – this is where the real trouble for Facebook lies. And – it’s just beginning. (again – all in my opinion.)

Forget Facebook and the whole “conservative censorship” narrative for the moment. It’s only relevant to the bigger picture (or trouble) Facebook may face, for it’s just the straw that broke the camel’s back, or said differently – the straw that brought the light, as in spotlight.

No, the story here, and its implications to watch is the one being brought forth by comedian Steven Crowder. This is where Facebook could find itself in real hot water. And the current real problem Facebook would love you to either not notice or, forget. So don’t look for it in your news feed or trending topics…just saying.

Now why do I say this one may ask. Well, it’s for this reason:

As I see things, Crowder used Facebook for business purposes. He also paid (as in actual monetary payments) to Facebook for the sole purpose to help grow or maintain his brand. He paid (that word “paid” is where everything changes and hinges) Facebook for that help. If Facebook was taking his money while simultaneously suppressing either his content or, the viewership that was implied he would reach? All while he was being told (or sold) something different? There’s a term for that and it’s called: a criminal offense.

Now there’s more to this story and is explained by Mr. Crowder himself on his website. (here’s a link directly to it) Here he also explains how he could not get an answer about his account or his payment history. That issue is also very contentious because it puts both your business credit at risk, as well as, possibly your personal life causing a sea of nightmarish paperwork, filings, and affidavits to resolve. If you can in a timely manner, and, better hope one didn’t have a pending loan approval process open at the same time either.

The issue here as insinuated by Mr. Crowder, “nobody could be reached as to resolve.” He basically found himself connected to a disconnected phone when it came to trying to contact Facebook. I feel for him and understand his frustration for I had a similar issue years back with another of these platforms. It’s one of the reasons as I explained during the incident why I would no longer use these platforms and warned others of the same. Getting hold of someone as to try to resolve an issue makes getting answers at the DMV look instantaneous and friendly by comparison. If you get one at all that is.

So again, here is where the real issue lies for Facebook, and where this once seemingly “small” incident may have far larger implications. And it’s with questions or observations such as this…

What the Crowder suit opens up is a Pandora’s box of discovery claims that will surely come forth by others. And by “others” I mean entities that may have spent extraordinary large advertising dollars with Facebook. Not withstanding everyone else that ever spend $1 dollar.

It is well-known that advertisers have been less than enthused with the results they’ve received via Facebook advertising runs. Don’t take my word for it, you can find story after story across the web. I have posited Facebook has been more of the “nothing else is working might as well go there” recipient, as opposed to, “This platform is an advertisers dream come true!” Much like AOL™ was at the tail end of their dominance as an “eyeballs for ads” player.

And here is where the word “discovery” correlates into an impending headache (more like severe migraine) for Facebook. And I believe Facebook may not in fact yet grasp just how much trouble may be on the horizon.

For this isn’t about some free service “user agreed” boilerplate sign off indemnifying them from potential “oops, sorry about that, but don’t forget – you signed off in saying: we can’t be held responsible” No, the difference here is for the possibly that Facebook actively sold, then required payment (as in money) for that access, to a potential audience. If they did that all while knowing that “audience” as well as “the payee” themselves were being suppressed? Do you see my point here?

How many lawyers do you think are lining up or burning the midnight oil contemplating how they’ll attract others for a class action? Think about it. Is it unreasonable to think you won’t start seeing ads on late-night TV or business channels stating things like “Did you pay money only to see no results on Facebook? You may have a legal right to join our…..” See what mean? And that’s just the beginning in my opinion.

Think about if you’re a large organization that had little to mixed results with a recent or number of ad campaigns with Facebook. Do you sit there and look at all that red ink left in your advertising budget from a poor showing of results in corresponding sales because it was the cause of your poor ad design? Or, was it because you now believe (whether correctly or not) your ads were possibly not shown to what you deemed was your target audience: conservatives. Or, even others? For if it is proved they suppressed or adulterated one group – why could they not have done the same with another which you paid to be in front of?

Only one way to find out: sue for discovery. See how easy it is to escalate or conflate? Again, a class action or just plain business lawyers dream come true in my opinion. I’m also of the opinion – those inquiries will come even faster if any said “wronged” parties just happen to have their own in-house counsel, or, on retainer.

I can’t stress this point enough, remember: If someone is selling you an audience and making claims about your ability to reach that audience, then charging you and accepting payment for precisely that. And – at the same time – there are people employed by them actively suppressing content and more within that very group (even if it is only a portion) which could affect the results for cost and benefit without it being openly disclosed? What else have you told (or sold) me that I need to find out about that might have harmed me?

See what I mean? This is business. And once you make a claim, accept money for that claim, and deliver what a court may find “different?” Everything changes. And this is where the real story is to watch in the current Facebook/Conservative story. Not whether they should, would, or did suppress. They’re within their legal right as a private company to do that regardless if anyone likes it or not. But if you take payment for something and deliver something that is not exactly what one may have described (i.e., access to X,Y,or Z) because you are fiddling with those parameters in-house? And not stating that potential clearly to those paying customers? It’s a class action lawyers dream come true is all I’m saying.

Which brings me back to the third leg in this Silicon Valley “run for the roses” saga involving another type of equine: Unicorns.

I took a lot of heat from many a “Valley” aficionado when I called out the lunacy of what I felt was more of an “investor” based decision as opposed to an outright “business” decision when it was announced Jack Dorsey would head-up both Twitter™, as well as, Square™ as their CEO simultaneously. Here’s an excerpt, to wit:

“The only reason any company with potential for either real growth, let alone possible explosive styled growth (which in the Valley is the only metric that still matters) would pick (if not outright beg) an executive that can only devote 50% of their resources to run a once high-flying song bird which desperately needs direction – reeks desperation.

No one else in all the world let alone Silicon Valley was up to the task? A multi-BILLION dollar publicly traded enterprise on the forefront of all that Silicon Valley represents can’t attract any other CEO talent who could devote 100% of their abilities? This makes absolutely no sense what so ever unless: the board, as well as many investors are panic-stricken on just how bad things are behind the scenes and figured; the best they could do was to bring (or convince) a person such as Mr. Dorsey back on as CEO, spin the narrative as much as humanly possible, and pray Wall Street buys it. Literally.

Second: How does Square do the same to that circle where it itself is getting ready to IPO? I can not imagine for the life of me any serious business person, of any stature, that would postulate it would be a good idea to let its CEO devote 50% of their resources away from their now chosen organization at such a critical juncture. Not only that – to then reach back and devote the remaining 50% and try to mend the broken wings on a clearly fumbling entity. Unless – the decisions were all driven by intermingled investors between the two. In other words: This is all about saving stock (or IPO) values or, cashing out valuations. Not about saving or revitalizing a company. Or, for that matter – what Square will or might be after its IPO debut. Something here just isn’t right.”

Within that excerpt is what I feel is the underlying issue that is about to be fully exposed, as well as, destroyed in the very near future: i.e., Many “unicorns” have ceased to have been race worthy a long time ago, but the narrative has been desperately held up reminiscent of a Potemkin village for these last 18 months or more with hopes, prayers, and breathtaking fairy-tales bordering on outright fraud in hopes that maybe, just maybe, they’ll make it to an IPO and shed all that dead weight of having to holdup this house-of-cards pretension any longer.

It’s quite possible not only is that race never going to restart. It may be found that in fact unicorns, no matter how vivaciously curated a narrative – have been lying dead in the gates longer than many even realize. For if there is one thing this whole Theranos and Facebook debacle has unleashed it is this:

As I’ve stated many times before: “The damage isn’t in only what someone does too you. It’s the way you now have to treat everyone after is where the real damage lies.”

And the questioning of how and why a “unicorn” remains one, along with, how and why one spent money with today’s so-called “eyeballs for ads” platform leader have only just begun. And the resulting damage to a whole lot of “unquestionable” narratives are about to see something they haven’t possibly seen ever…

A whole lot of tougher questions followed with a demand for answers that have the weight of law and monetary consequences behind them.

© 2016 Mark St.Cyr

For Those Wondering What I’m Thinking

(For new readers, here’s a brief description for the following. For those who’ve been following for a while – you can just skip directly to the chart and following commentary.)

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.” Below is my latest take. To wit:

S&P 500™ (Via the SPX) as of market close 5/16/16

S&P 500™ (Via the SPX) as of market close 5/16/16

I received a call this evening from a friend who asked me what I thought about the “markets” as they sit today. As we spoke I detailed what I inferred as I was looking at the chart above. As I explained my thoughts and reasons – even I was struck by the current movements. For I hadn’t looked all that closely since my last observations a few weeks ago. However, once I did – I thought it was worthy of another update for those who may be interested. (as it seems quite a few are.)

If you look at the above chart you need to remember that I have been moving the “#10” and its corresponding text to the right for months now. The “double line” area that it marks I drew back sometime in February of this year in earlier posts, then marked it with “#10” and a reasoning for it when the markets were coming off the lows at what is now known as “The Bullard Bottom.” I stated then, as I have since, that this is “the area to watch.” And as the weeks and “market” action have clearly shown: this is now a demonstrable fact.

I have marked the recent moves back to this area and the resulting “market” reaction with 3 ovals to the left of “#10.” As one can now clearly see, this area seems to be the demarcation line for what happens next. For as I stated and marked with “#11″ it’s all about this area.” And it still is, but (and it’s a very big but) I believe we may be at the precipice of the resolve. And I’m of the opinion – It’s not going to be good.

Today the “market” fell straight down out of the blue once the minutes of the last FOMC meeting were released. Was there anything “new” to be had?

Well not really, except for one thing: it seems there was a little more chatter between members as to raise rates than was thought at first blush. Add to this, once again, we are hearing Fed. officials jawbone “they’re ready to raise” and the “market” is once again getting nervous that they may indeed “just do it.” The problem?

There’s been nobody, and I do mean, no-body buying into this market as it has levitated higher. In fact last week marked the 16th consecutive week of record-setting – sellers. The higher we’ve gone – the less people have bought – and more have sold. You think there’s not going to be a day of reckoning with a stat like that? That’s a stat that should send shivers down a policy makers spine, not give them backbone. Yet, that is exactly what it seems to be doing in this bizarro world we now know as “monetary policy.” But I digress.

We are currently in what is known as an options expiry cycle which ends Friday. During this period the markets can move up or down violently as positions need to be either rolled, exercised, or closed. There are also more Fed. speakers on tap to jawbone their latest interpretations of bizarro world tomorrow as well.

If for some reason the “market” interprets that the Fed. believes “everything is awesome” and may in fact raise rates (or even heavily contemplate the idea) I feel the markets could indeed selloff in a way not seen since August of last year when everything went haywire. (Yes, and I’m not being hyperbolic for some effect either.)

As I’ve iterated many times previous: we are at a greater risk of a possible extreme event for the exact reasons of why we are at these levels to begin with. There’s no economic rationale or reason to support being at these levels. Couple that with: And there are fewer and fewer people participating i.e., buying!

If there were (e.g. more buyers) you could not have an ongoing record of the longest back-to-back weekly selling in history. It just can’t happen unless something has gone awry. Period. And you are currently in week 17. Want this to be another one for the records? Suddenly “record” anything pertaining to the “market” is met with “Wait…what?” And not in a good way. And that’s not good. (Sorry, but the pun writes itself. For that’s how bizarre these markets truly are today.)

If the “market” gets spooked by either a Fed. speaker or anything coming out of Asia, I believe the “markets” have more than a fair chance of cascading in a waterfall type event straight down to where I marked my latest thought with “#12.” As I’ve stated before: If we break below that area marked with “#11” with conviction? I am of the opinion the markets may indeed not stop until that new square area I marked #12.

Remember: What will or won’t happen is anyone’s guess. No one knows. And if you find someone who says they do? As always – Run! Don’t walk.

© 2016 Mark St.Cyr

About Those Unicorn Valuations…

Last week I wrote an article titled, “If Everything Is So Great, Where Are The Unicorn IPOs?” In that article I posited an idea, or reasoning, as to why some companies such as Facebook™ and Amazon™ are suddenly deciding to release more GAAP friendly earnings reports as to show both investors, as well as, regulators the numbers with greater transparency, as opposed to, their relentless white-knuckled grip to Non-GAAP. In it I made the following observations, to wit:

“Imagine for a second you’re a rival to Facebook like, Oh I don’t know, let’s say Snapchat™. If you have yet to IPO: what are the chances you’re going to get anywhere near those implied valuations (I believe its somewhere around $16 BILLION) if now you’ll need to report using GAAP? Are you beginning to see my point?

A move like this (if it actually was an intentionally executed tactic, to which I would commend from a business perspective as: brilliant) would all but surely close a door behind you stifling anyone rivaling your acquisitions or future customers. That and surely just as important – cutting off nearly all their future investment dollars.

Any upstart or potential rival that is “cash burn” sensitive would be all but scorched out of business in no time. Then, all one would need to do is wait for the bankruptcy trial and pick up any patents and more on the cheap. As in very cheap.”

Of course, that argument was made in the hypothetical. Yet, whether intentional or happenstance a true fact remained i.e., Such a move could very well create utter chaos for not only the competition, but also, a near guarantee of an ensuing valuation mark down crushing any, and all, competitors that were “cash burn sensitive.”

It seems that Apple™ just took that idea and turned it up to 11!

On Thursday Apple let fly the headline it had invested $1BILLION in a Chinese ride-hailing service named Didi Chuxing. The reports as to why range from “wanting to understand the Chinese consumer better” and more. Well, I’ll garner it has something to do with that. However, with so many iPhones® and factories producing those and other Apple products currently in China; it leaves the idea of that as the major reason – a little flat. However, if you put it into the idea I argued in my previous article? Everything changes. And I do mean – e-v-e-r-y-t-h-i-n-g. Here’s why…

If it was (as I insinuated in regards to the GAAP reporting) from a competitive advantage, first mover point of view; both in tactical as well as execution? I’ll say it again, from a business perspective, it’s brilliant.

Exactly who is this Didi “whatever” some maybe asking?

Didi is Uber’s™ business nemesis and competition in China. Whether or not this is a “good investment” for ride-sharing dominance in China from my perspective is irrelevant. What should be the focus here is what such a move brings to the entire Silicon Valley narrative. And, in particular; the entire “unicorn” mythical valuation story. For it just might be that Apple single-handedly opened the seal on the unicorn apocalypse.

One thing in business never changes: Cash burn is a death sentence only kept at bay by either generating net profits, or, raising additional funding via loans and/or investors. Without the former, the latter is a never-ending begging and pleading process that ultimately ends in disaster because focusing on “investors” as the customer, rather, than actual customers with the ability and willingness to pay is no longer paramount. Only funding.

But “funding” has the ultimate “Achilles’s heel”: Perception. And once perception changes? Like I stated earlier – everything changes along with it. And I do mean – everything.

I’ve read quite a bit about this Apple/Didi “partnership” but I think it was summed up best in a Pando™ article I read by Sarah Lacy. To wit:

“But there is of course a much bigger reason why Apple and Didi were so keen to join forces: The deal is an incredible “f### y##” to Uber, a company that neither Apple nor Didi want to get much more dominant in the US.”

“The clues that this was not just an investment but a Statement were easy to spot: A billion dollars isn’t a random number — it’s a headline-grabbing way to telegraph This Is A Big Deal.”

I agree with her premise, I’m just more inclined to think it’s even bigger than it appears at first blush. i.e., affects the entire unicorn universe.

Let’s remember “unicorns” exist primarily for one reason, and one reason only: to cash-out via an IPO rewarding everyone in-between.

$BILLION dollar valuations are built upon early (then subsequent) investor narratives as to help perpetuate buzz to cause an ensuing stock price bidding war in the “markets” once they debut. And that “narrative” is built upon metrics employed and reasoned by those initial investors. Or, said differently: “It’s worth Billions because we say it is.” Only in unicorn valuations can Non-GAAP accounting be made to look conservative.

So here we have what could be the poster-child for all unicorn valuation metrics (i.e., Uber) having their valuation story for future investment and/or IPO dreams gutted in one fell swoop by Apple.

For what is a valuation story for future investors worth if your largest “story” for potential growth has just been nixed by not only a competitor, but also, that competitor’s partner owns not only the platform most used by that country and demographic, it also sells the very device most held and used within it! (e.g., the IPhone®)

Couple that with it didn’t invest a few $Million to then have that spun in unicorn fashion to represent adding a $Billion to its valuation. No, they invested (or you could imply Didi raised) $1BILLION. Using unicorn math doesn’t that now make Didi worth Oh, let’s say – 1/4 of a  $TRILLION? Talk about cutting the legs off from under a running unicorn with one fell swoop. Like I said, if it were intentional as I’m positing, it borders on tactical, as well as, execution brilliance when it comes to business strategy. For it goes so much deeper.

If you damage the narrative of unicorns in any way at this point; you not only can cut down rivals before they get too strong; you can also gut most unicorns before they even IPO, enabling you (if you have the cash) to buy them up as you wait for the courts to clear the remains at glue factory. Sorry, I mean auction after the bankruptcy process. For remember: cash burn sensitive companies are toast without the ability to continue funding rounds at satisfactory or business competitive terms. And to think the vast array of current unicorns don’t fit into this category, in my opinion, would be erroneous.

If the Uber valuation narrative gets tarnished or out-rightly questioned (e.g., what are current valuations without #1 positioning in China) what does that do to all the remaining?

After all, if you’re asked to invest further into any other: are they worth it if their direct competitor has a cozy relationship with another tech giant with the means (and willingness) to invest? After all – Apple just opened the door of “unicorn investing” using amounts that start and begin with B’s. Or, maybe better said: investing with amounts that require three commas to accurately describe. Not two hoping to be able to spin into a three comma narrative. Let alone having to use what would now invoke an underwhelming response. i.e., $Millions.

Again, I can’t stress enough how this must be looked at from a bigger picture narrative and not focus too myopic on just this one investment per se. The consequences, as well as, the resulting positioning within the tech space in general can be completely upended with this one transaction in ways far too many might just gloss over.

Remember: if suddenly there is any (and I do mean any) downdraft in the “markets.” The ability to raise funds for budding unicorns, as well as, those wanting to remain in the club not only gets more difficult. It can get near impossible at terms it can live with.

Earlier investors can get diluted in ways they may, or may not, fully understand. Employees also can find their “big cash out” dreams have been reduced to “Sorry – we’re just out of cash” in ways never anticipated. Again, once a meme gets upended, and the results of that upending are seen in cold hard facts (as in IPO’s never taking place, share dilution, etc., etc.) much like Humpty Dumpty – it doesn’t go back together all that easy. And it can get worse, much worse depending.

As I iterated in my previous article, imagine you’re Facebook just waiting to see if there is a downdraft in IPO valuations contemplating or imaging being able to have the possibility to maybe purchase a Snapchat™ or other possible rival at some ridiculous valuation because of mayhem in the IPO market, or “markets” in general. However, let’s take that process one step further, for here it gets a lot more interesting for my money.

Imagine you’re Apple. And you’ve looked at the current malaise in both your stock, price as well as, narrative and come back to the realization much as Jobs did once he returned from “the wilderness.” That trying to please Wall Street was a losing game. (To paraphrase) “If we create the products or enhance the business to the delight of our customers – the stock price will take care of itself.”

I would hope that Tim Cook and company have finally realized all that bending over backwards, and mushy talk, he has blathered endlessly upon Wall Street has, in the end, caused Apple the company more headaches than it was worth. He needs to get out from being: Apple the once darling of Wall Street. And back to: Apple the darling of its customers. That is what will consistently provide the metrics for net profits that pay dividends to both shareholders as well as customers. Not the other way around.

In a downturn of the “markets” let alone the IPO market. Apple has one thing most other companies don’t: $200BILLION plus of capital to spend.

If Apple sold only half as many products, and the markets went down by half (of course in theory) Apple would still have $200+BILLION to spend.

Imagine who, or what they could buy at a discount in that environment. (Don’t let this point be lost. It truly is something rivaling any other competitive advantage.)

Consequently: If the same happened to Oh, let’s say Facebook? Would they even be worth half as much as they are today? Or what about let’s say SnapChat? What would they be worth in that environment? How about others? Yahoo™? ___________ ? (fill in the blank)

Apple could invest $1Billion in each of the top rivals of any competitor they wanted to harm and still have possibly $200BILLION left in the bank. Again, they have some $230ish if I’m not mistaken. They could bring the entire unicorn stable to its knees in a way others may not even realize. And by others, I mean: rivals. Both current as well as potential.

It could be that Tim Cook and Apple is finally beginning to get it once again. And if they are I applaud it, for as I’ve stated many times I’m what many consider a “fan boy” for I use all their products to near exclusion. It just seems, as always, it sometimes takes being thrown under the bus to realize it. But then again, living through, from, and past the ordeal is where the mettle and money is once again tested and made in my book.

Just imagine if Apple causes the exact environment in which it may exclusively be able to dominate regardless of market turmoil (with acquisitions) all because it invested the same amount that was once so coveted, and so sought, as to be in the unicorn club to begin with: $1BILLION.

Talk about irony.

© 2016 Mark St.Cyr

If Everything Is So Great – Where Are The Unicorn IPO’s?

Over the course of the last week it seemed no matter where I turned in the business media one meme was being pushed above all others: It’s still a great time to be a private tech unicorn. Implying, that funding rounds were still “robust.”

What wasn’t said, so I will, is this: It’s a great time to be a private “unicorn” rather, than take the chance and become the poster-child for the IPO apocalypse. For it’s better to be assumed a $BILLION dollar success story rather, than IPO and officially open the books to the market and remove all doubt – that you’re not.

It would seem “additional funding rounds” is the story (the only story I’ll contend) that keeps the whole “unicorn” meme alive. For if these were great companies, at great valuations, with great prospects to earn or reward investors, founders, employees and so forth untold riches (which of course is told as to lure and keep talent and others) during the same period the “markets” were within a trading days movement of reaching never before seen in human history highs. How many tech unicorns of the over 150 now residing in the “unicorn stable” even hinted at a date, never-mind actually announced? __________ (Insert crickets here.)

At this stage a few questions must now be addressed. One would be: If it not now, when? And not a vague “when.” But rather: precisely when?

If a company today that has been raising funds to even be within this so-called “exclusive club” can’t articulate a date, or time period, with specificity. In other words: Definitive announcements that have meaning with dates such as those declaring “within the next 30, 90…,” whatever days. Or, something reminiscent of stating “November of this year barring a market panic or sell off etc., etc.” Not some lame “Market conditions warranted us deciding to postpone setting a date blah, blah, blah…” PR trash. Than are they to be believed of any metrics?

Why is this so important one might be asking? Easy, let’s put this into some context:

For all intents and purposes, 2016 is close to being over for just an announcement and the time needed to follow up with the subsequent roadshow to price and launch. Remember, we are currently 5 weeks away from the half-year point of 2016 without either an announcement or actual IPO. (Oh wait, there was one – Dell™. Need I say more?)

Again, it must be reiterated: 2016 is now well into its 5th month and within spitting distance of “the first-half is history” mark. And during this period the “markets” have been within a percentage point of breaking the all time highs and still remain at elevated levels.

The rise from the lows of February were not only meteoric, they were actually historic in both their percentage gains, as well as, time frame.

Add to this the Fed. has all but conceded “extraordinary monetary measures and policy” are the norm, rather than temporary. While reiterating: will remain for the foreseeable future. And there’s not a one?

Think about that. Does all that square with what you’ve been told (or sold) when it comes to everything “The Valley?” And speaking of “square….”

It would seem the price for one of the “The Valley’s” most recent (recent as in Nov. of 2015) IPO’d unicorn’s: Square™ isn’t doing all that well. As a matter of fact, it seems to be doing as well as its other CEO’s responsibility: Twitter™.

Remember when all the chatter and twit-storms were about how great it would be to have one CEO run two “disruptive” companies simultaneously? Especially when the “Jobs” reference was invoked? How’s that all working out? If you really want to know – just look to their stock chart. If you own them in your 401K? I’ll wager you already know even without looking at your last statement.

As I’ve stated many times, I take no issue with Mr. Dorsey, or the companies he’s founded. Both he and his companies show great value, as well as, potential for the future. However, with that said, the idea that the valuations and metrics used were both “reasonable” as well as “sustainable” along with the idea that Mr. Dorsey should be applauded to take the reins as CEO of two publicly traded, highly competitive, as well as, ever evolving companies simultaneously? All while one is flailing in its stock valuation while the other debuts with an IPO? It was ludicrous at best – moronic at worst and I stated so.

To this I was (as always) scorned and vilified by many a Valley aficionado. Yet, today? Well, let’s just say I’ve watched, read, or heard more revisionist statements about that “great idea” than I’ve heard a politician “clarify” their previous position.

I’ve argued ad nauseam about the whole Valley’s “It’s different this time” knee-jerk response to criticism. Especially when it has come to the once coveted title of “IPO’d.”

However, there’s also been another attribute which seems to be just as ensconced, as well as, obvious to those who are paying attention. e.g., Once rarefied air seems to be turning into exhaust fumes. And nowhere is this more apparent than with Apple™.

Nearly two years ago to the day I penned the following article, “Did Apple Just Become Microsoft?” At the time this was a complete and utterly opposing viewpoint to anyone comparing Apple to _______(fill in the blank.) There was the acquisition of Beats™ along with what I depicted as a complete and utter cave in to Wall Street. As quoted in MarketWatch™ To wit:

“But St. Cyr takes it a step forward by comparing Apple to the lumbering software giant. In a “complete and utter cave-in to Wall Street,” Apple’s latest report wasn’t consumer-products based; rather, it was designed to play Wall Street’s game, he says.

“Dividends, debt, splits, and more,” he said. “I don’t think the iPhone has added as many new features at once as the new features released in Apple the stock.” That’s how Microsoft MSFT does it, said St. Cyr as he waxed on about the Apple you knew is no longer. “ I hope I’m wrong, but the actions are beginning to not only speak for themselves – they’re screaming.

At this time Apple was the; and I do mean the darling of both Wall Street, as well as, most 401K holders. During that time it was basically insinuated; to question anything Apple whether in terms of strategy, products, acquisitions, and more. It was implied: “You – just don’t get it!” Fair point. The only problem? As of today, near two years to the day – the value of your shares are worth about the same as they were then. And, for some – the same as two years prior in 2012. To even think of such a possibility during 2014 never-mind articulate or postulate the idea was met with dismissal as well as scorn. And guess what the current meme surrounding Apple is today? Hint: Has Apple become Microsoft?

Which brings me around to another postulate which I’ve articulated that today is being met with just as much revile as well as repulsion to even consider the possibilities: Social media.

Today much like Apple during the wake of the release of the iPhone 6S®, Facebook™ latest earnings release is being heralded as “the earnings report that should put all the nay-sayers to rest.”

After all, it’s touted “just look at what they’re doing with mobile!” And it’s a fair point. However, what I thought was interesting that went either unnoticed, or, blatantly under-reported was the fact that Mark wants to add some new class shares so that when he sells his current shares he can remain “in charge.” OK, fair enough. It’s not like this type of thing hasn’t been done before. (If memory serves me, I believe Google™ for one did something similar) Yet, when you put it into context with another announcement made similar by Amazon™? It’s just one of those things that make you go hmmm…. What was the announcement?

It seems (to borrow from my previous article) “In a complete and utter cave-in to Wall Street” (in fairness also with some impending pressure from regulators) Facebook along with Amazon it has been reported will declare more GAAP refined metrics as opposed to Non-GAAP when it comes to “equity-based pay costs.” i.e., reporting them as real expenses on the earnings reports. As it should be in my opinion.

However, what does such a move hold for others? Others such as – new competitors? Older ones? Ones not even IPO’s as of yet? Or, better yet: how about when competing for those precious “to be allocated” sovereign wealth/central bank funds? After all, such a move would make most, if not all “unicorns” scrambling for funding rounds not only look worse than unprofitable. But probably looking closer to – insolvent.

Imagine closing the door on future rivals with the possibility of making your own earnings statement appear worse. Now that takes not only some chutzpah, but if it were to work? It borders on genius!

If you think Twitter, Square, or others have an issue reporting investor friendly incentive now? Just wait if their demanded (whether by regulators or peer pressure) to report using only GAAP. And for those remaining in the “Unicorn stables” awaiting cashing out in the IPO horse-race to riches? You’d be better off investing in any company that uses unicorn tears in its glue formulation. For you would all but drive a stake into the heart of most in the current batch of tech IPO’s in waiting.

Imagine for a second you’re a rival to Facebook like, Oh I don’t know, let’s say Snapchat™. If you have yet to IPO: what are the chances you’re going to get anywhere near those implied valuations (I believe it’s somewhere around $16 BILLION) if now you’ll need to report using GAAP? Are you beginning to see my point?

A move like this (if it actually was an intentionally executed tactic, to which I would commend from a business perspective as: brilliant) would all but surely close a door behind you stifling anyone rivaling your acquisitions or future customers. That and surely just as important – cutting off nearly all their future investment dollars.

Any upstart or potential rival that is “cash burn” sensitive would be all but scorched out of business in no time. Then, all one would need to do is wait for the bankruptcy trial and pick up any patents and more on the cheap. As in very cheap.

And it is precisely this which increases the potential as to keep more IPO’s off the market, rather, than on. And for one very often, overlooked reason: VC’s net worth can remain (or at least appear) more robust the longer it’s off the IPO scene – rather than on it.

I know this sounds counter-intuitive at first but remember: For a few million dollars you could “invest” in a startup at the right funding level and have your “assets” stated to be worth multiples more. Much more, as in BILLIONS more.

And don’t forget these “valuation metrics” for most of today’s tech unicorns are worth $BILLIONS and billions because? Hint: Because they say they are. That’s it.

If you think Non-GAAP accounting was “inflationary” when it comes to a company’s worth. The stated metrics for valuing whether or not a “unicorn” is a “unicorn” makes Non-GAAP look conservative!

So when it comes to all this nascent talk about “unicorns” and their subsequent funding rounds just remember: Is it really a great time to be a private unicorn? Or – has that window not only closed, but maybe, just nailed shut by two of the biggest to ever profit from the meme?

© 2016 Mark St.Cyr

A FWIW Charted Update

(For new readers, here’s a brief description for the following. For those who’ve been following for a while – you can just skip directly to the chart and following commentary.)

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.” Below is my latest take. To wit:

2016-05-04-TOS_CHARTS

S&P 500™ (SPX) as of 5/3/16 close

It would seem: the more things change – the more they stay the same.

This morning as I was having coffee I turned on my television to see that the U.S. markets had sold off in nearly a straight line downward in what many of the business news channels are calling an “out of the blue” move. The E-mini S&P futures for an example sunk near 20 points in a matter of just 2 hours. Is this an uncommon move? Well, yes and no. It really depends on context. That said, I am of the opinion there is some “context” here that should be paid attention to.

Before the U.S. “markets” open this morning in the above chart I’ve added my latest annotation as #11. It’s pretty straight forward. It’s all about that gap space directly under those three red arrows. Just as I stated back with “#10 …Lose this area with conviction and a return to the Bullard Bottom quickly is well on the table.” That argument not only still stands today, but I believe is even more relevant, as well as, possible since we are once again threatening it so soon after pushing through and turning it into what technicians call “support.”

“But why is this more concerning today than just a few weeks ago when we pushed through up and over?” some may ask. Fair question. Here’s my reasoning…

If you look at the above chart closely you’ll see that this area represents a previous price gap. This gap I believed more important than some others, and with that, I marked and annotated. The resulting price action speaks for itself. For as you notice when we (the “markets”) screamed back from those February near death encounters with the “Bullard Bottom” the cluster of resulting price action to nowhere over the following week or so is marked at “#10.”

Remember, these lines (like most of the lines on this chart) have been drawn weeks, sometimes months prior. The resulting price action at these levels give confirmation for their importance from a technical stance. (And yes, although I am just a “business person.” Unlike most, I do have the learned analysis chops to read and decipher a technical chart better than most of the so-called “smart crowd.”)

Let’s not forget the reasons “why” we bounced to begin with. Was it great earnings? Great GDP? Great _________(fill in the blank?)

No, it was great jawboning by one central banker after another promising (forget Draghi, does Economic Club of New York™ bring back any memories?) to have “the courage to print.” However, as I’ve iterated many times previous – it’s not having the lasting effects that it once did.( Here’s a recent article for those who may have missed or are new readers.)

In Japan, it’s safe to say, the ¥en is rather confused on exactly what it’s worth as compared to what Mr. Kuroda thinks or says. The problem with this? Hint: Does “carry trade” currency of choice mean anything?

In Europe? There’s now a brewing outright revolt building against current ECB dictates from the periphery. So much so Mr. Draghi has been, shall we say, annoyed? His public comments in rebuttals have been nothing less than loathing for his detractors. Not exactly the way one would think a central banker should go about “winning friends and influencing people.”

And once again we are hearing from Fed. speakers hawkish rumblings inferring “June is a live meeting” or “It’s time to raise” and more. Sure it is. Only one problem, a problem that once again shows itself every time: China.

Why you ask? You thought their recent (which lasted for about a week) “fixing” was to the high side disproving any inclination to devalue to contain capital outflows? Forgetaboutit!

What did China do last night that seems shall we say tit-for-tat with a sudden “out-of-the-blue” ¥en “manipulation” as to help curb its sudden rise? Hint: China devalued its Yuan the most since the August (remember that month?) collapse.

It’s anyone’s guess what happens from here. And as I always say “If someone tells you the do – don’t walk – run!”

However, with that said, being prepared for any outcome is a prerequisite for anyone who’s serious about being: in business. And the commitment to stay that way.

© 2016 Mark St.Cyr

Was The Fed. Just Given The Launch Codes?

Let me be clear right from the outset: this is not an article about politics when it comes to whose guy or gal is currently seated or running. This is about the current state of affairs as it pertains to business; how they seem to be in motion; and, how it may affect one’s business, or, business in general. As for the “who’s in,” or “who’s out” – that’s for others to debate.

So, with that said, I want to outline a few developing issues that have the potential (true potential, not the hyperbolic) for outright disruption of all business as we know it. And no – not the type of “disruption” that emanates from the tech world. No, this one is far more disruptive, and, has implications for not only the business world, but the citizenry as well. After all: if you don’t think a business disruption can wreak havoc quickly – watch how fast calamity ensues once it’s realized a lowly roll of toilet paper will no longer be available.

Back in October of last year I penned an article titled: A Perilous Possibility: Weaponizing The Fed. In it I made a few arguments about both the dangers, as well as, how differing circumstances may implement such a scenario. Whether intentional, or not.

As always the so-called “smart crowd” within media circles balked at the idea. However, I heard from quite a few in the business community that shared the same concerns once they understood precisely what “the game afoot” and its ramifications just might entail. And, I am of the opinion that “game” is not only afoot, but rather, blindly running at full speed in search of a cliff. The real problem for the rest of us is this: games that end with cliffs don’t bode well for either the 1st place finisher – or last. Below is an excerpt from that article. To wit:

“One of the real reasons for my concern stems from the players involved. I’m far more concerned and have a greater sense of foreboding when it appears the “intellectual” set are the one’s playing against adversaries or circumstances they themselves only understand through textbooks or debate. i.e., A relative example could be the proverbial college professor that teaches business theory and application yet, has never been outside the walls of academia.”

Why is such a concern I had then more alarming now? Well, for starters, here are a few excerpts from a recent meeting with Japanese officials and Paul Krugman. Supposedly this was an “off the record” meeting. Yet, it seems to have been made public/released by none other than Mr. Krugman himself via his Twitter™ account.

I would advise you to read the entire discussion and draw your own conclusions. But for me, there were two distinct references that if I were, ohhh let’s say, a leader of a communist country whose economy was faltering and was looking for a possible scapegoat to finger wave? You couldn’t provide better fodder even within your own ministry of propaganda. To wit:

“There is a special issue involving China. China is in big trouble. China which seemed to be a source of strength but also not very long ago we were accusing China I think correctly of manipulating its currency to keep it down. China is now in fact intervening to support its currency in the face of huge capital outflows. We believe that the capital flight in 2015 was about one trillion dollars. China has immense reserves but not infinite reserves, which mean that depreciation of the renminbi becomes a real prospect and that will make life very difficult for the rest of us. So, all of this interdependence is there.”

Or how about this gem?

“It could be that things are even worse than I am portraying, that China is going to experience an explosive collapse, or simply that demand is going to be weaker than even my rather downbeat projections. The consequences in those two circumstances are very different. If the world economy starts growing and inflation picks up, we know what to do. Mr. Kuroda, Mrs. Yellen, Mr. Draghi have had the tools to deal with that, no problem.”

Innocuous you might think at first blush. However, if we are to finish that “train” out to its logical conclusion, the inference is? Hint: China doesn’t.

And what of that should concern us? No, it’s not that they may, or may not, have the tools. That’s irrelevant. What’s pertinent in my opinion is this:

Mr. Krugman (today’s dean of Keynesian thought and advisor for implementation) is openly suggesting in any immediate economic chaos The West can win – China not so much.  And although Japan is of course Asian – it’s economy and monetary philosophy is by all measures Western. And what’s another point that should not be lost? They’re China’s #1 economic adversary.

So why are things such as this something to watch intensely? Well, I am of the opinion doors are being opened (again: whether intentionally or not) for the possibility of those with their economic backs against the walls, ways to exploit those openings in approach, and timing, equivalent to how we once viewed outright war.  Let me make the argument proposing the following…

In a communist run nation, as well as, economy. If one so desired: you can make the hard, as well as, immediate choices to devalue, and/or de-$Dollarize your economy simultaneously sending economic panic and upheaval globally (especially to your adversaries) – all while you have both the ability (via their military) and (don’t let this point be lost) the wherewithal to use it as to control any civil unrest. All while having the perfect “in their own words” evidence concurrently for that “first response” to any provocation. Militarily or economically. For in today’s world of interconnections/dependence – monetary/trade warfare may yield the same results as kinetic.

It seems far more onerous when put into this frame of reasoning, no?

And if one wants further “framing” I would ask that one remember the timing of all this, and how it’s been increasingly unfolding lately.

First: The meeting and subsequent release of the ideas discussed via Mr. Krugman with Japan’s leadership. Second: Suddenly the timing of Russian warplanes brazenly buzzing U.S. ships and more. Along with China’s outright refusal (remember the timing) to allow the U.S. a port-of-call exercise in Hong Kong. And thirdly: Remember what happened just a few days ago? Hint: Suddenly the U.S. Treasury has a new “list.”  It seems “currency manipulation” is now an issue. (I know, but don’t laugh, because this is where things really begin to get dangerous in my view.)

Want to throw in a wildcard in this house-of-cards? The Saudi’s have now (there’s that timing thing again) openly, as well as, explicitly threatened to dump U.S. Treasury Notes. And not just a few, but all. Add too that an almost in-your-face cozy-ing up to China with oil for Yuan – and you have a possible unraveling of everything once thought of as “stable” or “insulated” from geopolitical events.

So interconnected has the economy of today become as to just a few years hence the financial crisis – ATM’s at a U.S. mid-western small bank can be halted just as fast, and with the same expediency, as a letter of credit can be rescinded to cargo vessels laden with much-needed products from medicine to toilet paper. Everything can grind to a halt in hours, never mind days or weeks.

So why the use of “launch codes” in my title and how does this all fit in you might ask? Fair point. All I can point to is the “Emergency Meeting” that took place a few weeks ago between the President and the Fed. Chair. You know, “To discuss the economy” and “exchange notes” we’re told. Again, fair enough. However…

In light of what has taken place right before, during, and since that “meeting.” Along with what has recently been released for public consumption (and especially by other governments and officials) capped off with the sudden declaration via Treasury of “warnings” Is it really that much of a stretch to think that just one wrong move whether intentional or not – can set everything we’ve come to know as “business” into complete and utter disarray? If not worse? As in much worse?

Some will call it conspiracy thinking. Personally, I just think of it as prudent business contemplation.

© 2016 Mark St.Cyr