Facebook Numbers Show How Anemic The Economy Truly Is

Once again there was rejoicing to what was repeated as a “stellar” earnings report of top line, bottom line, user growth, user activity and more. It would appear at first glance there was something for everyone. Of course, that is if all you do is glance (which is all most do.) However, the closer you looked, then parsed it alongside of other reports, those “stellar” numbers painted a picture far less rosy than at first glance.

The picture painted by all is that Facebook™ (FB) is showing how it’s done when it comes to mobile. Words like “dominant,” “juggernaut,” and alike are used to describe both its user growth, as well as ad dominance in the mobile space. All fair points and the numbers back those claims. However, if FB was so “dominant” in sales – why aren’t the major retailers or dominant global brands the major source of ad buyers? It would appear the buyers that should be lining up to buy those mobile ads aren’t as impressed. Why?

I’ve stated ad nauseam if FB was delivering an ROI (return on investment) to advertisers that matched the “dominant” scale implied when we hear their metrics reported – the dominant advertisers for FB wouldn’t be ads for app installs. It would be major brands, and that’s not the case.

Here’s why this matters: App install ads are basically all those ads you hate getting even worse than what you think of as traditional retailer targeted ads. In other words, more ads to load an app that’s “free” so that app in-turn can supply you with more ads on their app. Welcome to “eyeballs for ads” 2.0

Now some will scorn my assertions, as well as opinion. And in fairness one should always be skeptical as I myself always assert “don’t just take my word for it.” However, with that said the reason for my opinion is not borne out of unfounded assumptions.

Earlier in my career I had a stint in advertising and needed to convince one of the major global food companies of a new way to reach possible consumers. (I’m not being coy with the name it’s just not needed, but for those wondering if I’m trying to scale some irrelevant “Mom & Pop” example I’ll just say this: they’re a Fortune 100™ company.)

The customer, campaign, as well as the vehicle format had never been tried or tested. I had to convince not only the company, but also their national media buyer as well not only to try it, but also to allow me to put our own touches to their already multi-million dollar, focus group tested, successfully implemented with clear calculable, tried and true ROI campaign metrics.

I used the words “put our own touches” they used the words “you want to tamper.” It wasn’t an easy “sell.” But in the end “sell” it did. So successful it has been introduced globally and the “idea” is still in use, and is a mainstay of their advertising budget to this day some 30 years later. So it’s not as if I don’t understand “new ways of advertising” and what it takes to both sell and keep those advertisers at the highest of levels. (I only state this to quell the Twit-storms that usually result by the so-called “smart crowd.”)

So now you may be wondering “OK, so what does that have to do with FB?” Fair point, and it’s this…

If there was an ROI for major brands or advertisers with FB, at this point, and this far into the game with all their so-called “dominance” and “they get mobile” homilies we hear from every next in rotation fund manager or Silicon Valley aficionado: Why aren’t the major brands lined up so deep showing a pipe line of future ad campaigns so long it would, at the least, warrant a mention on an earnings call? Yes, advertisers do cut back in lean times, but what they don’t cut back on is ads that work. Especially in lean times. Period.

But that must not be happening, because not only do you not hear such musings on the call – you’re not seeing their subsequent ad buys on the platform either.

What you do see is Silicon Valley type startups throwing the kitchen sink full of their VC’s wallets at what they consider the place of last resort before the fire from their cash burn peters out.

If this wasn’t the case then why are “App install ads” the predominant ad revenue generator? And just to add some more “food” for thought: who’s more likely to throw the biggest “sink” (as in ad spend) in this climate? Someone spending their VC’s wallet? Or a company that lives or dies via ROI’s that generate net profits?

Again: If major brand advertisers were getting an ROI, at the least, not only would they be continuing campaigns, there would also be a litany of their competitors falling right in line. No major brand concern (as well as any prudent business regardless of size) would sit back and allow their competitor ad dominance whether for sales or brand awareness without also being there – unless – they’ve concluded from earlier tries themselves, or it’s becoming well-known: it’s a waste of time and money.

Here are just a few examples for some context over the past few years. From 2012. From 2014. There are far more but you should do that research for yourself, rather than just go by my opinion.

What you also find today is the growing anger many are expressing when it comes their communities, followers, or whatever it is they’ve built on FB as it pertains to their brand. Many are coming away with outright hostility for what they feel are complete strong-arm tactics along the lines of “nice community and fan base you built here – pay us or never reach them again.”  If you think that’s off base – ask any publisher of late how they feel. You also have accusations of suppression, where the suppressed, was actually paying and FB accepting those payments for ever more reach! (e.g. the ongoing Steven Crowder litigation)

In a nut shell the way I view those “hitting the ball out of the park” results just released was not “Wow – do they get mobile!” as I heard repeated more times than I wish to remember. No, the way I viewed this latest release is FB is just the current recipient of what ever little is left to share migrating from the ongoing slow motion train-wrecks happening at the likes of Twitter™, Yahoo™, and Linkedin™ just to name a few. (all 3 by the way I was told by the so-called “smart crowd  I hadn’t a clue. How’s that all working out today is all I’ll say.)

Remember WhatsApp™? $20 Billion spent and what has it returned via the juggernaut of mobile that is FB? (insert lousy T-shirt joke here.) Or how about Instagram™? To the best of my recollection I remember the metric as reported by Emily Chang of Bloomberg West, “200,000 active advertisers” Sounds great till it was followed up with “75% of that are outside the U.S.”

Why is that not a “home run” metric in my mind? Well, if FB and Instagram are considered by their own viewpoint as “the 2 most important mobile ad platforms.” Only 25% of your ad sales (e.g. Instagram) come from the #1 consumer economy on the planet? Don’t let that point be lost on you, think it through a few times. I personally couldn’t get it out of my mind as the interview went on.

What struck me as  a defining point in my thesis was the latest GDP release. Not only was it abysmal, one of the most glaring metrics which jumped out at me was the absolute collapse in inventories. Businesses chose not only to work down, but rather – to clean out.

It’s one thing to work off inventory, it’s quite another to clean it out. Or said differently: There’s a dramatic difference in mindset between: We’d rather miss or lose the order as a result of an “out of stock” rather, than build a product and let it sit indefinitely for an order that may never arrive. The former is ever-present in bad times – the latter is prevalent in good. And if the inventory report is in any way close to true – things are as bad as many of us have argued. And what bolstered this opinion in my view was FB’s latest earnings report.

Again: where are the major brands if FB is so “dominant” of an ad platform? Hint: they’re not on Facebook. And that’s another tell-tale sign in my opinion that things might be closer to coming off the rails than stabilizing. Need proof? Again, fair point. I’ll just point to FB’s stock price and movement for your consideration.

After its initial jump what happened? Hint: rhymes with deflation.

All the stock could muster was a “pop” as to crush any crazies who dared put on a short position. And once they were cleaned out? It’s right back to where it began. All that “hitting it out of the ball park” styled reporting and the best it could do was migrate back to where it was before the report? That, in my humble opinion, in itself, once again, puts more weight as to show just how anemic this economy, as well as “markets” are. Nobody’s buying anything (unless you’re a central bank) – literally, as well as figuratively.

Well, I let me rephrase that. Someone is buying. The only problem is one of the “buyers” is AOL™. (e.g., Verizon™ buying Yahoo™)

Why do I bring that up one might ask? Well, if I remember correctly, right before everything went south. They also had “great ad sales” reports because no one got “digital ads” like AOL. Till the facts emerged that major advertisers themselves were no longer buying.

Sound familiar?

© 2016 Mark St.Cyr

When Joking About Intellectual Property Is No Laughing Matter

Over the years I’ve written about understanding what you own and what you don’t when it comes to one’s intellectual property (IP.) Today, most if not all of one’s IP can be found on a number of various social media sharing platforms. It is here that I have warned many against the all too familiar “Who cares, I just want to get it out there!” blasé attitude many have when it comes to their IP.

It’s one thing if you want to share content, like what you had to eat for dinner last night – It’s quite another when you want to promote as to sell a recipe to prepare that dinner.

One is truly social – the other is clearly a business. How you view each and treat each is what moves something from a pastime or “hobby” to a legitimate business. There are things you need to know, understand, and have the ability to control, as well as legally defend if necessary. If you don’t – you’re not “in business” regardless of how much money you may be making at any given time.

Building a business is completely different from building a “hobby” which can make a profit.

Some will think that last point is off-base, or at the least incorrect. Fair point, but let me express it this way: How many people have you met over your career that had a great “hobby” going on the side? A hobby that was doing so “great” that one day you heard they quit their steady gig to pursue the “hobby” full-time, only to hear not that far into the future they were out of the “hobby” business looking for a “steady gig” once more. It’s far too common of a story than those of a “hobby” that made it into a full-fledged business concern.

As I’ve iterated far too many times to count over the years, when it comes to business, building a business has specific metrics, measurements and other criteria that not only needs to be adhered to. It also demands that other distractions such as chasing “vanity metrics” without understanding what they truly represent as it pertains to making a net profit.

I have been absolutely shocked at how many people have approached me with absolute glee expressing they had something like “10,000 Likes” and when I respond, “Great! So what does that mean to your conversion rate as to a paying customer, any idea?” I then get an absolute blank face that morphs in slow motion into a look as if I just insulted their mother. It happens all the time, and I’m not trying to be caustic. I’m actually interested. That is – if we’re talking business. If we’re talking cat videos, I could care less. And if you don’t have any true grasp or understanding as to why you even pursued “likes” to begin with? You would be better off posting about the cats. That way, at the least, your “likes” could reach millions, that is if that was the intent to begin with.

One of the biggest peeves I’ve had is just how nonchalant many budding entrepreneurs are to giving away their IP on many of the various social networks. People sign up for certain platforms and sign away to “terms of service” without ever even glancing at it. Sure a lot of us do it in many circumstances. But when it’s for a business? You can’t. And if that means you can’t be on that platform because you could find yourself suddenly not owning what you believed was yours? You’ve got problems, maybe, big problems.

Have you signed away any of your rights on some if not all of the current “social” platforms? Do you even know? I’ll garner more than 75% of the readers that just read that line truly don’t. I know this because when I’m speaking with many of you at a forum, or discussion, and I ask a few probing questions the most common response is a blank stare.

So why do I bring this up. Well I do it because I want to highlight it’s not just you (that is if you are one with a blank stare) it also happens at very high levels. levels that many assume would have no ambiguity as to who owns what and so forth. Or, that no one would dare try to use IP everyone knows is owned solely by X,Y, or Z. Yet, as I alluded, that’s not the case.

Today’s example is none other than current “The Late Show™” host Stephen Colbert. It seems in a boost for ratings he, or his producers, decided it would be a great for him to morph into his character made famous on “The Colbert Report™”. However, there’s a problem.

Comedy Central™ claims all of it as their “IP” and can’t be used without their consent (or payment which is usually the case.) Which of course results in the lawyers and necessary paperwork being filed as to sue if needed. But there’s a twist which personally I find fascinating, and want to see just how it moves along for the precedent which it may, or may not, set has far wider implications than just “Colbert.” Here’s why…

Mr. Colbert is still using the persona only now claiming “He’s his identical twin” for the other “Colbert” he states is now dead. His past Comedy Central monologue “The Word™” has now been re-titled as “The Werd™” on his “The Late Show.” This move (all in my opinion) opens up a complete an utter can of worms into the entire IP area that the lawyers of all stripes are going to have both a field day, as well as pay-day once this all shakes out. For this thing is just beginning to rattle in my opinion, and has the possibility of shaking things off their IP pedestals in ways many never dreamed possible. Here are a few examples…

Try running any, and I do mean any commercial whether in print, radio, or TV using anything remotely looking or sounding like the NFL™ and the Superbowl™ let alone actually trying to use the actual words – you’ll be hit with a cease and desist order so fast your head will spin.

Try making a company where the logo is remotely close to looking like, oh say, Walmart™, Amazon™, Apple™ just to name a few. Then couple that with selling department store goods but call yourself WallyMart. or how about being an online retailer calling yourself Amazonian? Or tech gadgets as Applet? I hope you can see my point.

But there lies the question: Can “Colbert be the identical twin Colbert? If so, what a Pandora’s box this opens. It will be fascinating to watch because, as of this writing, this is the direction “The Late Show” intends to pursue. How this all shakes up is anyone’s guess.

Who actually owns the IP should never have been in question to begin with. It appears one side wasn’t as sure as they thought. But which one is now for the courts to decide.

© 2016 Mark St.Cyr

A Move Of Epic Proportions In China Is Far Closer Than Anyone Thinks

Lately there have been quite a few warning signs pertaining to China. Yet, concern seems anathema to not only the “markets,” but the media in general. However, I’m of the opinion that is all about to change. And that “change” is not years away, but rather, sooner (and much sooner at that) than later.

To use an analogy, I don’t think there’s a better one than the old “Bull in a china shop.” Sure there’s no broken dishes currently, but that’s because the bull has yet chosen an aisle to venture down. That is – if he chooses to use an aisle at all. And the “markets” are behaving as if the bull can somehow read or cares about the “you break it – you own it!” sign. This pretty much sums up the absurdity of complacency now taking place in the “markets.”

Last week China’s GDP figure was reported to be 6.7, beating consensus by just a tick. However, there was some concern that the print might come in (heaven forbid) below consensus. Why the need for any concern one might ask? After all, when your GDP figure is basically announced well in advance (e.g., 6.5 – 7.0) then hit with statistical precision, report, after report, after report as announced by the politburo of a communist controlled economy. Again, why sweat it? The so-called “smart crowd” weren’t.

Easy: Today, in a market so utterly adulterated and carry trade sensitive via central bank meddling, just a tick lower of the expected 6.6, as opposed to their tick higher beat, has ominous implications. For any movement lower is now suspect or viewed by the outside world as “just how bad is it if they reported lower?” An inline, or even just a tick higher beat is seen as “they must still have some control of their economy.” e.g., Phew…Buy, buy, buy!

Hence lies where the real concern is by those that understand the true, current economic conditions within China. For where that concern truly emanates from is all summed up in those 6 words. i.e, The assumption of “they must still have some control,” emphasis on “still” and “some.”

To understand the underlying concern of what is inferred by using “they must still have some control.” Let’s use another analogy, one of a speeding car with a driver either asleep, or impaired at the wheel. The driver represents chinese consumers. The car represents all those state funded enterprises of all sorts, fueled with artificially produced rocket fuel (i.e., loans.)

The politburo currently has no more control over that vehicle than that of guard rails. What’s also at issue are that these “guard rails” are not fully constructed. They’re being feverishly assembled, haphazardly and slightly ahead of the oncoming car which is careening from side to side as it goes along. So far they’ve managed to just stay ahead. But to say they have the situation under “control” is disingenuous at best.

To sum up the way this is being played across the main stream financial media, you’ll hear arguments to the likes of: “Currently the vehicle (e.g., chinese economy) is still traveling down the road. It appears things are going in the right direction with the politburo exerting control policies when needed which are showing to be quite effective.”

It is my stance the above example is a microcosm of just how most of the specious, egregious, or intentional lack of details is allowed to go unquestioned by the financial media at large. Precisely how one uses or views the word “control” (i.e., meeting or beating measurements) is where the rubber hits the road. e.g., Think Bill Clinton in his now immortal argument of what the definition of “is,” is.

So what are we to read into with this latest “beat” in GDP out of China? Are we to believe as is being dissected and disseminated by the so-called “smart crowd” that this “beat” is good news, showing that things in China are being managed efficiently and effectively, where the concerns of an impending crisis is “overblown?”

Or how about: “China is quite successfully demonstrating its ability of turning its economy from a manufacturing based economy, to a service economy. And this latest GDP print proves it.” Which by-the-way is near verbatim of what I’ve heard or read recently.

I am often amused at how this “switch” is reported on, as if it were remotely true. Need an example? Fair enough: Then why is China’s continuing (and sometimes panicked) credit expansion still directed into ever the more construction (and all its aggregates) when “consumption” can’t even begin to consume what’s already built? And no, that’s not a play on words.

Let me express it this way using just a little common sense and thought-through, as opposed to the “in-depth” analysis delivered by most of the main stream outlets that I’ve come across. Ready?

It took decades for the U.S. to show measurable signs that its service sector was in any way replacing its manufacturing based economy. And in many ways that “replacement” has not been for the better (see Detroit, Allentown, etc., etc.) So what we’re now supposed to believe is – in less than a decade – both during and after one of the greatest financial crisis and economic malaise of history – China has just “flipped a switch” and boom they’re now “Service Sector R Us?”

I’ll just add one more point: The same people who do hold that view, also hold the view that China doesn’t have a dept problem. Don’t take my word for it. Just listen to any current Institute president or “senior fellow” of some think tank.

I bring this all up for one reason: Few believe there is a reason for concern that China “might” do something which may upset the current economy as it now stands. I am not one of those. I’m of the opinion it’s “will” and soon.

I’m also of the viewpoint (and right now I know its controversial, and I may be well alone, but so-be-it) that the 6.7 GDP print was only to allow a little more wiggle room in the timing as for China to venture down a road of monetary policy that will rattle all other economies to their very core. I also believe some (“some” meaning developed market economies) will be shaken so severely they might monetarily implode all together.

Again, I’m not talking about emerging markets – I’m talking about the developed. Precisely which ones are up for grabs. But none will walk away unscathed. Here’s some of my reasoning for concern…

One of the things you won’t see in the main stream outlets is the all out flooding for credit expansion happening within China. Now some might say “Well that’s typical, nothing to see there, they’ve been doing that since the beginning.” Well, that’s yes, and no. Sure, they goosed the system in unison with every other developed economy during the go-go years. What they haven’t done is something of this size (which by all measures is gargantuan) when just previously in May they all but shut the spigots off.

To try and give that some context think of it this way: Imagine the Fed. coming out after the May FOMC with a 1.5% rate hike, then in July, announcing it was implementing a negative rate. (forget the global impact for comparison, just think about it from a domestic view) Would a move such as that give businesses or anyone else for that matter confidence in the controlling leaders? Yet, that’s just about what China did. And most are unaware of it even transpiring.

Think about it: In just one month (yes, that’s 30 days) new credit exceeded the total 2015 GDP of Chile, Ireland, or Vietnam. And all they felt comfortable reporting was 1 lousy tick above the “hit never miss” figure? (insert lousy T-shirt joke here) Again, reread that point. That was in a month!

Oh, and by the way, if you thought May was showing restraint and control – then maybe I shouldn’t mention April. Yep, nothing to see here folks – please move along.

It is my belief that China has already lost control and is desperately waiting for the right circumstance (much like the American version of “never let a crisis go to waste”) as to implement some form of game changing monetary upheaval that helps set the stage for a more China-centric platform, as opposed to them needing to react to both Fed. policy movements or ECB for that matter. And to my thinking, in many ways, those circumstances are piling up on a silver platter.

And to be clear: I believe China grabs that platter – and soon. And by “soon” I mean just that: very. Possibly before year-end

I’m also of the opinion China is already on that brink or dilemma for that point-of-no-return, first mover decision, as to initiate those controls and policies they believe must be implemented. For if not they’ll be left to deal (if they can at all) with the whims and consequences of all the other central banks. I believe that is an absolute non-starter for China, particularly in this current economic, and political environment.  .

No matter what one thinks about current Fed. policy, just the very fact that the Fed. “could” raise rates is causing huge capital outflow headaches for China. It’s as if China is being told and expected to wait patiently under the sword of Damocles while the Fed. ponders what policy move it should embark upon next.

And if indeed the Fed. were to actually raise? (I know don’t laugh but you have to access the possibility no matter) The politburo in China may be left helpless to stop the outflows unless they come down with a complete and unforgiving hammer.

However, too this point, China can’t make that kind of political and monetary move in anything resembling “normal” times. (i.e., “normal” being a relative term.) It would be seen as too heavy-handed (or communistic) now that they’ve supposedly become more sympathetic to playing by western rules. (e.g., inclusion into the SDR etc.) But the necessary fruit needed to upset that apple-cart (i.e., to their first mover advantage) is just sitting there on that silver platter adorned, hand delivered, again, and again by those very economies that believe “they need us, as much as we need them.”

To which I’ll say – au contraire.

China has been aligning, as well as solidifying its economy and its ideology (e.g., communist, dictatorial, or anti $ hegemony) with other like-minded players. Russia is just one example. Now with the advent of Brexit, who knows who else. In the advent of a sudden economic collapse one thing is certain: China can, and will, control any and all civil unrest. So too will Russia. The West? It’s an open question. And there lies the rub. Let me explain…

Why would China or any other communist/dictatorially led nation just sit there knowing full well that civil unrest, money outflows, and a whole lot more are inevitable because of economic dictates emanating from the West? (e.g. central bankers) Again, and I can’t make this point enough: All while they, in-turn, do everything they are telling China not to do themselves? i.e., Implement excessive central bank intervention buying up stocks, bonds, and more. All while funding those purchases by devaluing their own currencies ipso facto by hitting the “print” button over, and over, and over again, as they simultaneously warn China of devaluing their Yuan will be seen as “manipulation” calling for some kind of expressed condemnation, if not out right sanctions.

Think through just this one hypothetical: Do you think for a moment China is going to nonchalantly wait till the Fed. decides that it will or won’t raise, then deal with its aftermath? Hint: Not a chance on Earth. And in-particularly – not in this current political environment. And those that will write this type of argument off as some “tin foiled hat” type of assumption, in my view, either haven’t a clue, or aren’t paying attention. Period.

What China needs (and desperately wants) is to devalue the Yuan ever more. Yet, they can’t do that if there is any chance (as remote as it may be) that the Fed. may raise interest rates. The outflows would be exponential compared to today. However, as I’ve alluded to – that platter sits there just waiting to be tossed. And that “bull” is still within the store. If China devalues, and forcefully at that, the resulting mayhem ties the Fed’s hands from ever raising indefinitely. And there’s more…

Currently this supposed “bull” market in the U.S. has now been pushed to heights never before seen in human history. China’s? Not so much.

We also know China is sitting on massive stockpiles of goods from commodities to further finished. Add to this both the current political ramifications such as the recent decision in the Hague with a denouncement of China claims in the South China Sea. Along with a current U.S. election cycle rhetoric where one of the main topics is curtailing China both in trade, as well as militarily. How do you think this is all being viewed by not only the politburo in China, but by the populace at large? Hint: Not well.

As of this writing anti-U.S. protesters are smashing iPhones® in front of a KFC™ and calling for boycotts in China. This is in direct retaliation of the South China Sea decision. It is also exactly the type of “fruit” that makes that “platter” ever the more tempting. i.e., Why invent a scapegoat when your people are giving you one?

China has also been sending signals both overtly, as well as implicitly when it comes to how they will approach whether or not items will be sold regardless of how a manufacture believes in respect to whether it has a recognized brand, copyright protection, or not.

As I stated in an earlier article concerning China, here are a few points that should be raising alarm bells. To wit:

“China just announced some form of reprisal against Apple™ stating a copyright infringement on its phones therefore halting future sales. The reports have been mixed. Some say it isn’t true, some say it is. As of this writing I’m not quite sure myself. But what made this allegation stand out to me was the most recent public statements from none other than Alibaba™ founder Jack Ma when he stated “fakes are better than originals.”

That wasn’t all. He went on to make other assertions such as this. To wit:

“The problem is the fake products today are of better quality and better price than the real names,” he said during a speech on Tuesday at Alibaba’s headquarters in Hangzhou. “They are exactly the [same] factories, exactly the same raw materials but they do not use the names.”

“Why such a statement unless…you’re moving closer and closer to what China wants (or is demanding) you to accept. i.e., we make the stuff, start taking the credit and now openly state you’re going to take the money associated with it. Trade agreement or no trade agreement. Besides, agreements? We don’t need no stinkin agreements – we make the stuff! See my point?”

Millions of factory workers have been displaced in China over the last few years. Every developed economy via their central bank has been implementing some form of devaluation in one way or another. And you now have non other than the former chairman of the Fed. Ben Bernanke in the midst of all this flying over to Japan (China’s #1 trading nemesis) openly flaunting how maybe “helicopter money” styled policies might be the next best thing for Japan. How do you think that is being viewed in China?

The U.S. is currently playing a game a chicken in the contested waters of the South China Sea. N.A.T.O. is rattling sabres throughout Europe. The U.S. markets are at record heights. The ECB is buying up bonds levitating the values and solvency of its own manufacturers in Europe. Japan could at any moment embark on a “helicopter money” styled monetary policy making the ¥en ever the weaker helping their manufacturing.(Sure they’ve now openly stated this is not an option. Need I remind you of what they said about implementing N.I.R.P.?) South Korea is possibly embarking on their own further easing.

And what to all of this? China is to just sit there? With a stockpile of commodities, finished goods, stagnant factories, possible civil unrest directed at their own politburo? Are you starting to see the powder keg here? All while the West wags its finger and says “You better keep that Yuan in check!”

Thinking all this through just using my own prism of business experience there’s only one conclusion I would make: Use your first mover advantage – and dump everything. Your first loss – is your best loss. That rationale comes from my early career (the meat industry) where that’s still used because it’s true.

Yes, such a move may harm China, but it may hurt everyone else far more. And communist run countries can, and will, deal with their populace in ways and with calculations unfathomable to those in the West. i.e., Lenin’s famous quote when told of the millions that were dying under Mao’s regime and change, “To make an omelet, you must be willing to break some eggs.”

When one brings up the term “war” people immediately think “WW3” via some form of armed nuclear exchange. I believe that (although the warning signs are there) is where the mistake lies. People are assuming there’s only one way to fight a war today of global proportions. I’m not in that camp. I believe it will come via monetarily – not military. At least at first. For once it takes place all bets are off as to what happens next.

The obvious first mover advantage for China (and all its current allies) would be to use the rhetoric coming out of the current U.S. political arena, along with current, as well as proposed monetary policies via the Fed, ECB, and Japan. Add to that the proposition for the possibility of the Fed. tightening in this economic climate making it a magnet for outflows, all against the backdrop of a former Fed. chairman tries to convince their #1 trade nemesis to devalue and deploy monetary interventions of historic measures.

I would take all the above (and would find even more examples) and spin it all for populace consumption as  “What else are we to do? Sit back while the world holds our trade, our currency, our waters, and our economy, even our workers hostage to their demands?!” Then I’d dump every and all possible goods flooding the markets, devalue the Yuan in one epic move. And let the chips fall where they may.

From a business perspective: it would be of the utmost stupidity to just sit back and wait to see how you competitors were going to position themselves when nearly every move they make helps solidify their advantages and leaves you only some form of reaction mode.

And to think in this current environment China is going to stay, or be held to, some form of “reaction mode only” is absolutely ludicrous. I know I wouldn’t. And I made my mark in business as a “turn around” expert. And I’m here to tell you, if my people came into the board room and laid out just some of the things I iterated earlier? I can say unequivocally what my first response would be: Do it – and now!

That “bull” I alluded to earlier in the china shop is this current “bull####” market. It is currently standing at the peak of absurdity with no volume, earnings, or any other fundamental reason. And its fragility is just the same as that of any fine piece of crystal or china. And all it will take to send everything crashing down in a frenzy of broken shards is when he gets spooked. But by then – it will be too late. It will be a first mover world advantage world only – reactionary will be as useless as the broken glass that befalls it. Central banks (let alone many government officials) are in no way prepared for what could take place if China decides “it’s time.”

And I believe they are weighing the precise time to move – not if.

As I conclude these following two phrases kept coming into my head. I end with them because together I believe they frame just how precarious the markets, and for that matter, the global economy sits at the doorstep of what China decides to do next. Especially as I stated previously: in this current political, as well as economic and monetary environment.

First to quote Hugh Hendry: “If China devalues by 20% the world is over!”

The other comes from the movie “Margin Call” when Jon Tuld (played by Jeremy Irons) states: “It’s not panicking if you’re first.”

Mix in “your first loss – is your best loss” and you have a situation that has the near certainty of changing the global macro world in ways never dreamed imaginable. Not in the future, but right now.

And no one seems to even notice – let alone care.

© 2016 Mark St.Cyr

Stock Markets At Record Highs And Everybody’s Miserable. So, It’s Different This Time?

Want a few “It’s different this time” reflections? Consider these…

Remember when an IPO in Silicon Valley was seen as a birth right?

Remember when a “beat” in earnings meant something?

Remember when “user growth” trumped an earnings beat?

Remember when “a rising tide lifted all boats” actually did?

Remember when “it’s different this time” was used to explain why profits didn’t matter?

Remember when being on an “A list” meant more to a CEO’s reputation in Silicon Valley than making a profit?

Remember when Hedge Funds made money?

Remember the term “gated” was only heard during extreme panic?

Remember when an M&A announcement meant growth or opportunity?

Remember when the term “a captured market” didn’t insinuate central bank interventionism?

Remember when tuning into a financial program during a market rise was informative?

Remember when even insinuating the idea of a central bank purchasing stocks was laughable?

Remember when a jobs number under 5% meant there were actually jobs?

Remember when “investors” would openly defend a CEO running two companies simultaneously as a “brilliant” idea?

Remember when “cash on the sidelines” was an idiotic premise if markets were at record heights?

Remember when people holding Ph.Ds in economics sounded as if they actually knew what they were talking about?

Remember when Negative Interest Rate Policies were regarded as economic insanity?

Remember when $25 BILLION in net profits and no user growth trumped 250 million users and a $1BILLION cash burn?

Remember when central banks weren’t buying the debt of your competition allowing them to endlessly compete with you?

Remember when you had to keep an up to date calendar to track all the new tech IPOs?

Remember when just saying the term “IPO” signaled you were on the “in” crowd at all the Silicon Valley hangouts?

Remember when VC’s didn’t care about profits?

Remember when VC’s had the say when an IPO should take place?

Remember when “cash burn” wasn’t regarded as an extinction event?

Remember when raising VC money was easy?

Remember when not caring what the original terms or “the fine print” was when raising cash?

Remember when “eye balls for ads” was the only business plan needed?

Remember when trying to name a central banker was difficult?

Remember when “printing money” was seen as a ludicrous economic policy?

Remember when looking at failed economic experiments like Japan didn’t invoke thoughts of  “What we need here is that – on 11!”

Remember when people talked up the economy and stock market – not made excuses for it being at record heights?

Remember when the global economy didn’t hinge on the dictates of one solitary un-elected official?

Remember when a list such as this would be laughable with a jobs number at statistically full, a record-breaking stock market?

The sad issue this list will get longer, not shorter, because all too many people have forgotten…

That’s how it is in a Keynesian economy.

© 2016 Mark St.Cyr

Mission Accomplished or Houston, We’ve Got A Problem?

Over the past week I had quite a few calls from friends and others asking for my appraisal on the recent market mania. Unlike past episodes where I would only receive this volume during some out-of-the-blue selloff like those which have happened over the last two years. There was a distinctly different tone to these. It seemed there was far more questioning of the underlying, rather than anything resembling the confirmation new lifetime highs should have had with arresting any doubts.

No, I can honestly say – this time was different.

It wasn’t all that long ago (actually Feb. of 2016) where it once again became obvious (once again) “bad news is good news, and terrible news is terrific!” as to hold The Fed. from raising rates, which in-turn allowed the algorithmic HFT bots to feast and gorge on any and all shorted stocks or standing closing positions.

It was here (“here” as in trying to explain) more often than not, these explanations fell on deaf ears. In other words: the more the market recovered, the less inclined they were to remember the reasoning for it.

Don’t let that last line be lost on you. I’m of the opinion it’s far more important today than anytime previous. For it was precisely that perceived difference in tone (“difference” being wanting further details) I inferred which underscored my belief as I iterated earlier, “this time was different.”

Let’s walk down memory-lane as to give all of this a little more context.

After the initial stages of the crushing market fall which took place from late 2007, finally bottoming in early ’09 (aka The Great Financial Crisis) the markets gyrated wildly throughout 2010 after the initial rise from the abyss.

It was right here after the initial bounce (an oversold bounce which everyone both fundamentally understood, as well as welcomed) the markets began to once again show its frailty.

During this period then Fed. chairman Ben Bernanke made his now infamous Jackson Hole speech, where we got our first glimpse as to the resolve that the Fed. would abandon all economic prudence, and embark on a theoretical model of interventionism as to change the financial markets from a place of capital formation, into the greatest Keynesian experiment ever. Here are a few excerpts as reported by Bloomberg™ at the time as to help frame the picture. Remember, this is August of 2010. To wit:

Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank “will do all that it can” to ensure a continuation of the economic recovery and that more securities purchases may be warranted if growth slows.

The Federal Open Market Committee “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,”

Risks to the approach include a lack of “very precise knowledge” of the effects of the purchases and the chance that expanding the Fed’s balance sheet further “could reduce public confidence in the Fed’s ability to execute a smooth exit from its accommodative policies at the appropriate time,” Bernanke said.

Again, just for context: At the time of that speech and report, there were another 2 main points which today highlight just how clueless Fed. forecasting truly is. Ready?

The Federal Open Market Committee on Aug. 10 put its exit strategy on hold and decided to purchase Treasury securities to keep the central bank’s portfolio from shrinking as its mortgage bonds mature. The committee set a floor of $2.05 trillion for their holdings of securities.

And here’s the gem…

“Although mortgage prepayment rates are difficult to predict, under the assumption that mortgage rates remain near current levels, we estimated that an additional $400 billion or so of MBS and agency debt currently in the Fed’s portfolio could be repaid by the end of 2011,” the Fed chairman said.

Square any of that with what you now know, and rationalize why not only did none of it happen, but the $2.05 trillion reference has now well more than doubled. e.g., $4+ trillion. And as for that “repayment” you know “just for context” as it pertains to the MBS  portion. it currently sits (per the referenced report) at $1.74+ trillion. Or $1,743,541,000,000.00 to be precise. You know “just for context.”

Here was where, and when, the world got its first real glimpse of “The Courage To Print.” And print he did, over, and over, and over again. e.g., As seen by the chart below when the initial crisis was unfolding to where it stood in August of 2010 when he was making the above remarks. Then all the new and evolving iterations of QE, Twist, etc., etc. To where it now stands today. And the “markets” in sympathy (as in fueled) never looked back. Ever!

It was also where that term “bad is good and terrible is terrific” made its way into the lexicon. For every time there was anything that could affect the markets negatively, the Fed. either insured implicitly or covertly that it was at the ready to combat whatever ill there was. Which also gave rise to another moniker known as “The Fed. Put.” Want the above in picture form, you know, “for context?” To wit:

Federal Reserve Balance Sheet from 2007 to today.
Federal Reserve Balance Sheet from 2007 to today. Chart Source: Federal Reserve

This went on nearly unquestioned (and those of us that did question were quickly labeled or denounced as “tin hatted” and other such styled pejoratives) till mid 2013 when the markets not only regained their once lifetime highs, but smashed through them on convoluted reasoning and what can only be called adulterated data. i.e., reports with spin cycles that would make a washing machine envious, and earnings reports so brazenly massaged they make Bernie Madoff appear amateurish.

It was here (i.e., mid 2013) when people (and few at that) began to openly question the narrative of exactly how can the markets rise higher than previous when the metrics fueling that rise (e.g., real estate, GDP, etc., etc.) had never returned to the previous levels, let alone, provided the other metrics to push higher into “never, ever” heights.

And if you dared argued the correlation in the rise of the “markets” and the Fed’s ever-expanding balance sheet? Pejoratives were nice in contrast to what they now called one. For the sake of civility and class – I won’t type any of them here. Even if they would be perfect, you know “for context.” On a side note, I was more amused that Ph.D holders even knew such words or low-brow phrases. But I digress.

Here is where the term “”market”” was now needed to express the dynamics. For it was now apparent (apparent to those who wanted a real explanation) as to prove the markets were anything other than a goal-seeked representation of Fed. Interventionism. For how could we surpass the previous highs when (for good or ill) the metrics as they were once understood to achieved those highs were now non present? And worse: were in actuality regressing at a frightening rate.

GDP has now been so weak; for so long; and expectations revised lower, so many times; it’s possible past positive prints will be revised to negative in upcoming reviews. That is, if they ever do “review.” And that is a big “if” today as opposed to past look backs.

Once we broke the prior heights (circa 2013) there was still no underlying fundamental reason to even remain there, let alone go ever the higher. Except: QE was still in full force. QE wouldn’t end for nearly another 18 months till Oct/Nov 2014. And with that ending – so too did the rise in the “markets.” Coincidence? Hint: hardly.

So now here we are. And precisely where is “here” this time? Once again – at never before seen in human history highs, with cattle-calls to go even higher, making the rationality many once took as a-given (i.e., things must be getting better even though they didn’t feel it themselves) and turning that rationalizing into a “Wait…What?” moment.

In my view what’s driving this now foreboding sense of “maybe it really is all smoke and mirrors” is the once welcomed phenom of the markets vaulting ever higher.

It is precisely this which is now causing reasons to be suspect, not accepting. Especially after two years of going nowhere at best – and with more than a few perilous falls, saved only by ever the more central bank intervention whether it be putting off raising interest rates (again, and again…) or the near immediate erasure of any market shocking events after more coordinated central banker jawboning. This type of action of late reinforces the unsettling question: If everything is so good…why are they still meddling?

All the above has been transpiring long enough (now some two years) where a greater number of observers have had enough time to comprehend for themselves (via their own activities and experience within the economy) that things are far, far, from a situation that would support the idea, let alone the actuality, of the markets once again rising into the stratosphere.

It no longer makes sense even to those who want to believe. And it’s getting harder and harder for them not to question, never-mind, keep-the-faith.

Again, and I can’t stress this point enough, the only thing which is changing in their narrative or viewpoint is that they are now beginning to understand or at-the-least contemplate that the markets have indeed changed into something now deemed “markets.” And even though they once assumed the markets rising as always being a good thing. They can’t help as to shake this eerie feeling that maybe indeed – It no longer represents anything they once understood.

It appears to me that the initial knee-jerk reaction from anything resembling “should I get back in?” seems to be morphing and moving more towards “should I get back out?”

And that is the antithesis of what central bankers want and need. Confidence is not growing – it’s waning. And the rate of that waning is going to do nothing but accelerate, in my opinion.

What was once viewed by central bankers as a necessary function to maintain stability (e.g., their interventions pushing the markets ever upward) will be the exact catalyst for perpetuating a growing sense of disbelief by the very people they believed would pick up the baton as the market once again makes new highs. i.e., the general public via the wealth effect.

If I’m only half right it has perilous implications for the “markets.” Especially at these nose bleed heights.

I’ll paraphrase one call I received from a colleague that sums up all of the above. The conversation went somewhat as follows. I’ll mind you that this person is someone who took great pleasure in trying to get a rise out of me when the caution I called for was erased with a face ripping rally just days later perpetuated by an endless string of short squeezes of historical (yes “historical” is the correct word) proportions erasing, and then some, previous downdrafts. And as always, I leave it up to you as to draw your own conclusions. To wit:

Them: So…what happened in the markets today?

Me: You know precisely what happened. Look, I don’t have time to be poked, I’m not in the mood. I have a few deadlines on some projects that are driving me nuts. So: what’s up?

Them: No, really: WTF is happening? I mean sure I think it’s fun sometimes to poke fun on all that BTFD shenanigans you talk about. You know I get it, but now? Something just doesn’t feel right. I know of too many companies that are cutting back. And I know they’re not alone. The crap that’s going on abroad. The Fed. not raising interest rates again and such. And we’re breaking out to new highs again? On what?

Me: You tell me…

Them: I can’t. And that’s the point. I’m now starting to think this is all beginning to feel a little nuts.

Me: Beginning? OK, forget anything that I’ve told you previous. All I’m going to say is this, Bernanke was in Japan last week and the reports are they are going to unleash never before seen “helicopter” styled intervention on his recommendation in the worlds most used carry trade currency. Remember what followed last time Japan announced they were unleashing never before seen experimental policy in Japan? (e.g., ZIRP) Now – what do think?

Them: (silence)

I’m of the opinion they are far from alone in questioning the markets recently anointed heights. And that’s a very, very, big problem that the central bankers never anticipated. Let alone contemplated. All I can say is – we shall see. And all too soon at that.

© 2016 Mark St.Cyr

Just Keep On Dancing?

If there was ever any doubt that the “markets” are nothing more than a HFT (high frequency trading) cesspool of central bank funded front-running; today is that day when all doubt has been erased.

Whether or not one accepts that fact is a choice they have to make for themselves. Only you can decide how long you want to “dance,” as there seems to still be music playing in the casino ballroom.

Why all the dancing and music references? Well, it’s only because I, unlike most, remember 2007 with a little more clarity. To many ’07 is ancient history. To many others – the scars are still clearly visible.

Those scars which now far too many want to brush off as “temporary discomforts” came just after the so-called smart crowd wanted to profess just how solid everything was. Questioning real estate, CDO’s, CDS’. MBS’ _______(fill in the blank) and such was for the “ill-informed” or, for those who “just don’t get it.”

Tuning into CNBC™ at this time was an abject lesson in “It doesn’t get any better than this!” TV. It was boom-time (again.) And just the mere questioning as to how much longer that “boom” could go on was met with scorn, ridicule, and a whole lot more. For those with short memories (or were still in school circa 2000) the tech boom collapse was still fresh in many a business persons mind, not to mention many a 401K balance report..

As the markets went higher and higher in what seemed out of frustration as to answering all the nay-sayers questioning the run, Chuck Prince, the then CEO of Citigroup™, spoke the now infamous line as reported in the FT™. To Wit:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing”

Yes ladies and gentlemen, that now immortal line was uttered July 9, 2007 And here we are, once again, almost to the day some 9 years later. And we are “dancing” again.

Actually, “dancing” probably no longer fits the description. Maybe calling this a “rave party” is more accurate. For these party goers aren’t dancing ecstatically based on some simple monetary libation. No, these party goers are jacked up on monetary stimulants far more powerful than any bodily ingested chemical reaction could ever deliver. We are now entirely enveloped in the monetary equivalent of central banker “ecstasy.” A monetary stimulant so powerful it would make Timothy Leary envious.

Just to put things into some context, here’s the S&P 500™ as shown via the SPX shortly after today’s open. (click on image to enlarge) To Wit:

Screen Shot 2016-07-12 at 10.58.28 AM
S&P 500™ July 12, 2016 via the SPX shortly after the opening bell

I put a few annotations (just for context.) As you can see the peak on the left is the top of the “Dot-Com bubble” and its resulting aftermath. Then, up we go again into the next bubble phase now known as the “real estate bubble.” And right there at the top is where Chuck Prince made his most notable remarks. What follows is what is now known as “The Great Financial Crisis.” So what happened next? Great job creation? Great GDP prints month after month, year after year? Wage growth? Nope. All of it has been nothing more than the ability to front run central bank money printing of trillions, upon trillions, upon trillions of dollars. That has been the only “fundamental” catalyst. Period.

And today? Right there at the tip-pity top is where we currently are. Again, (just for context) we have never, ever, ever, been so high. We’re so high even “Ravers” are saying “Wow man!”

So why are we here? One word “Ben-zai-nomics” What is that you say? Well (just for context) remember how and why we went up here in the first place? Hint: Then Fed. Chairman Ben Bernanke deployed monetary maneuvers in the war against free markets which were once only a thought experiment to be contained within the hallowed halls of academia. Then, (much like Oppenheimer,) Mr. Bernanke unleashed the theoretical to the real world and QE was both created, unleashed, and deployed creating the equivalent of a monetary nuclear reaction to which the markets (and the world for that matter) had never seen. And much like that monetary dooms day weapon – we thought we seen the last of it. Until last night that is.

We now know none other than Mr. Bernanke has been at it once again. No, not here in the U.S., but in Japan. It would seem to be the case that Mr. Print, then Print some more has convinced the finance powers that be, in Japan, to deploy the equivalent of “helicopter money.” The result? Hint: Top of the chart, right hand corner, “You are here.”

What happens next is anyone’s guess. However, since it’s all guess’ and opinions now seem to be near worthless as compared to central bank largess. I’d like to offer up my own 2-cents.

If I’ve said it once, I’ve said it a thousand times, but for those who may need to hear it again here it is: China.

Does anyone think for a moment that China is going to sit back and say “Oh look, Japan is devaluing and deploying helicopter styled money-making their goods and services cheaper and more affordable. Good for them.”

Want a little more “context?” China was just told “Yeah that whole South Sea thing you say is yours? Sorry… no.” And they are far from saying “Oh well, that’s the way it goes I guess.” In actuality – they are far from happy, rejecting the entire process and outcome stating “China will never accept any claim or action based on those awards,” Chinese President Xi Jinping said.

Think China is going to take into consideration any turmoil a further devaluing of their currency is going to have on the west? You know, as to not want to upset the “apple cart?” Especially after what has transpired Monday and Tuesday? Give that a thought through, and a long one at that.

If China decides tomorrow, or in the very near future to send its own message in just one short blast of Yuan devaluation of any magnitude? The music stops. And you can quote me on that.

Just on a side note – didn’t the band play on during the Titanic disaster? Sorry, just thinking out loud.

© 2016 Mark St.Cyr

Chasing Fools Gold aka Central Banker Alchemy

Remember the story of “The Philosopher’s stone?” In a nut shell it was an alchemical substance capable of turning worthless metals into gold. Today, much like those of yore, central bankers across the globe are engaging in that never-ending quest for the ability to turn the worthless – into the precious.

And to the ill-informed it seems they have indeed achieved it. That is, as long as you wrap it in the same cloth as found in “The Emperor’s New Clothes.” For if not – the naked truth becomes appalling clear. And it ain’t pretty.

Case in point: Brexit? What Brexit? To those not actively involved in European politics, or the needing to understand the fallout – It’s like it never happened.

However, if you want to take absurdity “up to 11” I propose you’ll hear something along these lines in the coming days from some next in rotation fund manager, economist, or Ivory Tower alchemist at large.. Ready?

“Brexit showed the market was just waiting for a market clearing catalyst to vault higher. With earnings season set to begin, the Fed. now on hold indefinitely for 2016, the ECB at the ready with its own “whatever it takes,” employment growth continuing and at near statistical full employment, stocks appear reasonably priced to extend their gains well above current levels.” Rinse, repeat.

That said, here’s what I’m more than sure you won’t hear: Brexit triggers an upheaval to the entire European Union dynamic where its certainty in remaining solvent, let alone standing past 2016 is now an open question. Further details for possible upheavals and contagion effects are currently unknown. Caution and solvency should be of the first order.

No, it’ll be more along the lines of the former with additives such as: “Employment numbers in the U.S. printed 280K plus smashing the expected 175K consensus. This proves we’re on the right track, and see – May was an outlier. Blah, blah, blah…”

Again, just for perspective: June’s 287K print is being touted “as proof” that May’s print of 38K was indeed “the outlier.”

Fair enough, however, with that 38K now being revised down by some 2/3rds to just 11K. Wouldn’t that mean the “outlier” was just proved to be even worse?

Think that last point through: 38K is revised down by so much it is within a statistic rounding error of a negative print. Now, a month later, where one is to believe the BLS (which very few do) has had a better look, as well as received more plausible and calculable statistics, has concluded the “outlier” is not to even remain the same or revised higher. No, it’s lower, and not by just a few thousand. More than two-thirds of the entire figure was jettisoned. Again, 38K (now 11K) is the “outlier?” What type of sorcery is this?

Only in the so-called “smart crowd” of statistical magicians can such a claim be made with a serious face. To anyone else – it’s laughable. However, the fool’s arguments don’t stop there. In fact – they just begin.

I was left both confounded and slack-jawed more often than not over the last week as I listened too, or read one after another financial pundit explain their thesis as to why all this bad is now good. And all of it, and I do mean, all – of – it revolves around one base case: “Gold.”

Oh no, not the gold you’re thinking of. Heaven forbid, that gold is only for “kooks” and others of that mind-set we’re told. No, the “gold” they are touting which needs to accepted and held closest to one’s heart is: equities. i.e., stocks. After all, central bankers have once again proved they have “the stone.” And as proof? Just look at equities as today’s acid test is the clarion call.

Many an index is once again at never before seen in human history highs. The obvious conclusion implied? Central bankers have the alchemy secret. So just buy, buy, buy!

And when a BTFD (buy the f’n dip) moment such as what happened once Brexit was voted on? (i.e., when there’s a legitimate concern uneasiness may morph into a complete upheaval) Buy even more! For it’s just another opportunity of a lifetime laid out on a silver platter.

At least, that’s how it’s all being peddled across the financial media, once again implying: it would be you that’s foolish not to buy their “gold.”

I listened as one “expert” tried laying out the alchemic process now being employed by central banks. He went into great detail as to how using “this test tube” and “this combination” of economic ingredients have been administered by central banks. The real issue I took with this whole chemistry lesson of current monetary policy was how naive the conclusions were. The issue for me was this…

Central bankers are concluding much of the same as this person was as evidenced by their very actions. Or, stated differently: They are convinced with every monetary “test tube” experiment that they have successfully done it – this time. Then, once the smoke clears and the fumes dissipate – so too does the illusion of any economic miracle, and all that remains is a bright shiny looking substance – which is worthless. And after each experiment the pile of worthless economic mirages vanishes much like how they were created: in a puff of smoke.

Again, this scenario being explained as to express current central bank thinking using “test tubes” as the analogy was quite telling. Forgive me for I can’t recall his name although I did conclude by how many times I heard him referred to as “Dr.” that he must be of the “in crowd.”

Here the presenter went into detail about how central banks have used an array of monetary “test tubes” containing certain economic ingredients or components, then, adding specific monetary additives, the results were in line with what the text books concluded should happen. The real issue at hand as expressed was this, “it wasn’t working beyond the walls of the test labs.” And here is precisely where (in my opinion) the rubber-hits-the-road as to prove my point in why central bankers have more results resembling a sorcerer’s apprentice than anyone in possession of a “philosopher’s stone.”

Let me illustrate using a few examples. Yes, they are extremely over-simplistic and generic, but that doesn’t mean they aren’t relevant.

The whole problem for central bankers is they view the economy (e.g., a free market capitalistic one to be precise) as something which can be dissected, as in, separated and putting its essential components into “test tubes” for both observation and manipulation. Then, reforming the amalgamation into whatever performance quantity they desire. These “test tube” manipulations, granted, do have a high rate of observable success to their manipulations in isolation. However, it’s when the whole concoction is mixed together is where expected results morph into uncontrollable monsters. Here’s an example…

Lowering interest rates stimulates an economy. (i.e., test tube 1) Higher stock prices generate “a wealth effect.” (i.e., test tube 2) The first one for the sake of simplicity let’s say uses monetary “ammonia” as its catalyst. And let’s use “bleach” for the second. Both can be isolated, both can be manipulated, and both can have a fantastic end use when it applies to the overall purpose of cleaning (i.e., the economy.) But remember that “in isolation” detail I expressed?

As some of you already understand, this is where the combination of the two (bleach and ammonia) combines to make a very toxic, and in many cases deadly mixture depending on just how large the quantity. That is – if you come into contact with it. And there lies another rub.

If you were to observe this combination only from afar and how it was performing that “cleaning” only through its resulting application via robots (i.e., HFT, algorithmic, headline reading, front running parasitic trading bots) the conclusion would be it’s doing just a bang up job of removing any past stains (i.e., crash of ’08 and such) the combination has worked spectacularly and the sum is more effective than the parts in isolation. That is: as long as you remain both afar, as well as one step removed.

Anyone who would venture in where such a brew was being unleashed would find themselves in grave peril. This is the equivalent representation of today’s capital markets: Not only does nothing make sense – everything has become engulfed in a toxic cloud of monetary witches brew. So toxic, so disorienting, so deadly to anyone who enters (i.e., try being a pension fund, insurance company, saver _______fill in the blank) your only recourse is to not breathe, or better yet, not go near the place at all.

However, if one only sees or views the “markets” remotely. Say only via a “cleaning report” i.e., ________(place your report of choice here) while pontificating on those results from afar via cameras, microphones, keyboards, etc., etc. All while those whom supply those devices do nothing more but comment on just how well of a “cleaning” process is taking place via reports that are more sanitized of bad news than a redacted pentagon paper. Then yes, things are going just splendid and steady is the course. Or, should I say, steady as the formulation.

Just don’t ask anyone to touch the thing let alone enter into the same room because they won’t, and aren’t. And the week after week of record outflows prove it to be the case.

Add the following to this latest alchemic mixture…

A referendum breaking up of the European Union (e.g., Brexit) has just taken place. So far the fallout in just the real estate sector in the course of a week has caused 8 (and counting) funds to gate investors from accessing their funds. (i.e., Want your money back? Hurry up and wait behind the gate) GDP figures across the globe are continuing to collapse. Negative interest rates are now being applied to trillions upon trillions of government debt worldwide. China is devaluing at a record pace, the more Japan tries to devalue, the stronger its currency gets. The list of concerns goes on and on like; Italian banks; Spanish banks; German banks; etc., etc.

Here in the U.S. more people are on government assistance than ever before, civil unrest as is being witnessed will inevitably dampen or curtail future retail sales aggregates. Without Non-GAAP reporting being employed ever the more creatively this earnings season is now being looked upon as “cross your fingers and pray the bars are low enough” reporting season, as opposed to “more should surprise to the upside.” And this list of potential deadly GDP affecting ingredients itself is growing ever the longer by the day.

And what is the result of such ingredients one might ask?

Unemployment reports statistically near full. The U.S. stock market is once again printing record highs. One of the largest political upheavals in modern-day history (Brexit and the disintegration of the E.U. as known) when viewed via the stock markets is not only non-existent as for relative price action, it’s now arguable to have been a catalyst for ever higher market prices. Central banker alchemy at it’s finest. Solid “gold.”

However, if you would like to perform some “acid test” as to check for its purity before buying more? Sorry – you just have to take their word for it. Just like China’s GDP projections, which, by-the-way; makes western alchemy look like child’s play.

© 2016 Mark St.Cyr

A FWIW Followup On Theranos

I make this note only for the reason that it puts a punctuation mark with precision on the whole Theranos™ saga much better than I could ever hope to. For those who may have missed it, I outlined my feelings on what I’ve labeled “Silicon Valley Snake Oil” the other day. I used one of Theranos’ investors in an interview to make my point. During this video he brushes off the very notion of anything being wrong with Ms. Holmes as CEO as if one was being nonsensical. Fair enough. Just explain this. To Wit:

“Theranos Founder, Elizabeth Holmes, Barred From Running Lab for Two Years”

All righty then, is all I have to say too that, I guess. Of course, I leave what you have to say or think up to you.

© 2016 Mark St.Cyr

MYTR Audio: Brexit Proves It’s All A Central Bank Illusion

This is a new feature that will be part of upcoming exclusive content offered by Mark. It’s a work in progress, and a little raw, but we wanted to get it out there. Content such as this will only be available to subscribers to the blog, more details coming very soon. It’s a read through by Mark of his latest article and (as usual) there’s no edits or retakes hence the “raw” reference.

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