In Response To An Inquiry On Wells Fargo

I received a few inquiries today on my thoughts about the current debacle unfolding at Wells Fargo™ and in-particular, their now embattled CEO John Stumpf. I thought I’d share them with you for you never know if they’ll be run or not. And I know some of you just like to know. So here was my reply:

Question: What is your current thought pertaining to Mr. Stumpf and his appearance today before congress?

Me: His appearance today will probably be seen as much worse than his first, if that’s even possible. The reason for that is two-fold. First: He did himself absolutely no favors in his first appearance for it seemed all he did was try to hide behind some form of Human Resource inspired gobbledygook. It was both painful, as well as pathetic to watch.

A CEO, any CEO in my opinion, that does not have the moral footing as to come out and denounce such revelations both vociferously, as well as, having (or at least insinuating) the moral standing as to denounce these revelations with forceful, and believable righteous indignation, does nothing more than show themselves to have been nothing other than a “Don’t ask question, if it’s not hurting the bottom line” facilitator.

If he takes to the congress today resembling or stating anything like that as he did last week? Regardless of how much they have said will now be clawed back from him and others? The congress will be looking for not only his head but probably quite more.

The panel will be far more prepared to go after him for they know there’s “blood in the water.” The problem for Mr. Stumpf is: it is his – not some underling’s further down the chain of command. It’s quite possible like many times in history where one’s name can suddenly become a moniker. For the offense is so large it not only marks that single event, but marks where others (“others” being further banking allegations or investigations toward others) may follow. e..g., A Minsky Moment. The Madoff Moment, and now, quite possibly The Stumpf Moment, but we shall see.

Question: Are you saying you think this is the beginning of something larger?

Me: Precisely.

As much as I don’t like the idea of private businesses being called before politicians in an open forum where allegations and more can be thrown about resembling kangaroo court antics. The banks as well as their CEO’s have pretty much brought this all upon themselves with the bailouts and more resulting in the 2008 financial crisis. In effect the banks pretty much abdicated their “private” entity when they decided as to accept more congressional intervention or oversight since. And for one of the largest banks to be caught red-handed in a scandal such as this? All I can say is: How foolish can you be? Oh wait they answered that, didn’t they?

Question: Thanks for your responses.

Me: You’re welcome.

© 2016 Mark St.Cyr


Facebook: Rhyming AOL With An Auto-Tuner

For the last 7 years or so one thing has been certain: don’t you dare compare anything “tech” today to back then. What is “back then?’ Hint: the dot-com crash.

Why? Because: “It’s different this time!” Well, my answer to that remains the same: “Sure it is.”

I have been making that case to the screams and howls of many of today’s Silicon Valley aficionados. And for a prominent example, I’ve used none other than the most idolized company of tech today to compare it against the same of the 90’s e.g., Facebook™ and AOL™.

In doing so I have received more vitriolic disdain than if I had tried to openly explain the value of religion at an atheist convention. The only comparison that may top both is trying to explain Business-101 to Ph.D economists. But I digress.

In trying to make the case using true business metrics, as opposed to unicorn and rainbows, fundamental business metrics, and principles, have always fell short for only one reason: The stock price.

When a company has nothing more fundamental than a burn-rate, as opposed to a fundamental such as making net profits? The rising value of the stock price (regardless of its multiple) is nothing more than the fundamental business phenom known as – the greater fool theory. Period.

Yet, the argument of “It’s different this time!” tries to hide behind that theory (a fool’s theory by the way) as the reason why companies that generate less than no profit – are worth 10’s of $BILLIONS in market cap. That’s not – it’s different this time – genius. That’s – same as it ever was – stupidity. Plain and simple. Where some of the reasoning argued could make even P.T. Barnum blush.

So why do I say Facebook (FB) and AOL of the past are rhyming and so in-tune today? Well, let’s just look at the most recent scandal revelation coming out of FB today. e.g., Overestimated a key video metric for two years.

Now some are stating this latest oopsy is immaterial since FB is said to charge after 10 seconds. So, as the thinking goes, no one paid for something they shouldn’t. Well, that’s how it’s being argued by both FB and those marketers that rely on getting companies to part with their ad dollars via their services and FB’s. But to an advertiser? I’m sorry, but that revelation is far from no big deal. And here’s why:

First: Why was the distinction of not counting from the first moment till after 3 seconds made in the first place if not to skew a metric in a more favorable light? i.e., against other competitors metrics, etc.

One thing you haven’t heard, at least to my knowledge, is this: Advertisers (you know, the ones who actually pay) were made aware they didn’t count the first 3, that they start their compiling at 4.

I’m sorry, but if they didn’t disclose that in their metrics and hid behind skewed numbers instead? That’s a problem. And a very big one at that. Why?

FB seems to not just be having an out-of-the-blue oopsy moment. No, it seems revelation, after revelation of improper practices are coming to light faster, and what some might infer as more scandalous than the next. Need a reminder?

Remember how FB claimed for the longest time its “trending” news stories were all algorithm based? (i.e., no human intervention.) Only to admit “oopsy” yes there was. Yet, the “You should still trust us” excuse came in the form of some “because no one is/was suppressing anything” only to find out that, once again, oopsy – there actually might have been some. But not too worry, it was just a little, nothing material, nothing to see here, move along, thanks for signing in and stopping by.

That whole scandal/revelation still has much further to go as to where it may, or, may not end. For much like the “3 second video” disclosure – advertisers were paying for something using metrics supplied by FB and possibly receiving something different. e.g., The ongoing Steven Crowder vs Facebook Inc. lawsuit.

Add just the above with another revelation (one, in my opinion, is truly breathtaking) which came in the form of not a scandal per se. But rather, it came in the form of the largest ad buyer in the world stating publicly that one of the cornerstones of FB’s ad business (i.e., the ability because of its vast data gathering to target specific customers, in my opinion its raison d’être)  was – yeah, not worth it.

So that’s just some of what is transpiring today, so “Where are the comparisons to AOL?” you’re asking. Fair enough.

If you watched any followup of FB earnings reports by the mainstream financial media one of the things you’ll hear is something along these lines, “They really get mobile, and they’re the biggest player in that space and making money to-boot!” They’re fair points, but just like in the 90’s – all “ad” spaces were new. Mobile is just this period’s comparison to desktops, as banner ads were to actual newspaper ads.

Here’s a report done by CNNMoney™ on AOL way back in August of 1998 (you know, just previous to it all coming apart) titled “AOL – We’ve Got Profits!” As one reads it, it’s striking just how much it rhymes with FB today. Especially when you read things like this:

“Entering our new fiscal year, we’re not only the biggest in the industry, but the most profitable. Fiscal 1998 was more than a great operational year for us, but it will serve as a strong foundation for years of profitable growth,”

Sound familiar? How about another?

From the same article:

“If we continue to grow membership, advertising and commerce, we believe we will continue to show very strong growth in profits.
“The overall driver will be turning this into a mass medium. The question is who’s going to get those customers.
“We’re not going to get complacent, but we’ve created a service that’s fun and easy to use. Those factors and the general shift in spending to new media positions AOL as the best brand in the industry.”

Uncanny, no?

Now a lot of people are going to say “Yeah, but you’re just “cherry-picking” as to try to make a point.” And that is a fair argument. However, FB and its entire business model, stock valuation, and many others I have been stating (and pointing out) are far too similar to AOL of the past and is a real-time barometer of what I believe portends to the entire “social” genre of today. i.e., It’s just one hiccup away from entire meme of “it’s different this time” going the same way of the dot-com bubble of the 90’s. Because, in my opinion, FB is showing it’s contracting a very, very, bad case of fundamental business indigestion with each new scandal revelation.

As to show how the “indigestion” becomes manifest into business “ulcers.” Here’s a story from the NY Times™ just a few years later (’02) titled : “AOL Falls 15% as Analysts Express Concern Over Ads” And here’s just a few quotes. To wit:

“The call today was psychologically driven, rather than quantitative,” said Richard Greenfield, an analyst at Goldman, Sachs, which removed the stock from its recommended list and rated it as market perform.

“It was based on the belief there were too many issues that had piled up about the AOL division including its growth strategy, its current lack of management and the S.E.C. probe,”

And here is one I feel is probably the most ominous for those who understand such things. Once again, to wit:

“Regardless of whether it accounted for them properly in the past, AOL made some new disclosures yesterday that showed its online ad business might be far worse than previously understood. Until the end of 2000, America Online would boast each quarter about its advertising backlog, or the value of signed contracts to advertise in the future.

AOL had made a specialty of signing multiyear, multimillion-dollar advertising deals, especially with dot-com start-ups hoping to go public.”

Do you remember who was one of the largest contributing ad buyers in FB latest earning call? Hint: Ads for app installs. i.e., Start-ups. Today’s version of yesterday’s dot-coms. And guess what today’s “app installers” have with yesterday’s “dot-coms? Hint: Entities created on spectacular, speculative cash-burn. (Cue onerous Halloween music here)

Here’s a line from an article to put it into context from Fortune™ in July of this year. To wit:

“Some investors believe that Facebook may see a drop in ad spending as the funding for tech startups pulls back. Startups are big customers of Facebook’s popular app-install ads.”

The more things change, the more they stay the same, no?

Then, in just under a year later – it was just about all over. One of the main drivers for the stock falling ever further? Here’s a transcript of an online discussion on this subject via The Washington Post™. Of all that is asked and answered this one line hit me with such rhyming, it is where the auto-tuner reference came to mid. Once again, to wit:

“Arlington, Va.: What’s behind the huge drop in ad spending at AOL?

David A. Vise: AOL aggressively made unconventional ad deals, many with .coms that have since gone broke when th bubble burst. The drop reflects the run-off of those deal and AOL’s inability to replace those ads, even though overall spending nationwide on online ads is growing, boosting ads @ Google, Yahoo and others.”

Yep, nothing to see here folk, just keep on signing on, and buying, in while humming a happy tune that rhymes with something like “The Swissy’s got my back, Yeah, Swissy’s has got my back, Oh the Swissy’s….”

Yup, It sure is different this time.

© 2016 Mark St.Cyr

Yellen To Wall St: It’s Christmas In September So Buy, Buy, Buy!

So, here we are, the first day of Fall and just like the leaves slowly losing their luster before they wither all together and die, so too is the economy as The Federal Reserve – once again – chose inaction for action. All the hawkish implied statements, all the “They’re really, really, really, gonna do it in September!” has come and gone – once again – upon the furious wings of doves. I’m sorry, but this has now become so ridiculous – it’s bordering on maddening.

If one listened to the presser immediately following the rate decision given by Ms. Yellen, one couldn’t help but be dumbstruck as to think that they really might think we believe, or are considering, their prognostications are based in reality. The only true reality is, I almost couldn’t stop laughing as I typed it. And I know I’m far from alone.

First off starting with the press conference. One of the things I’ve had to hone over the years is the ability to read people, in real-time, whether it was for sales negotiations, contracts, hiring, etc. It’s an essential part of the business toolbox much like the need for a well honed bull#### meter. And the more I watched many of the exchanges, along with contemplating the reasoning of the answers, the more my meters kept pegging to 11. I’ll highlight just two for examples.

The first came oddly enough in the very first question posed in the Q&A by CNBC™ reporter Steve Liesman. The question was nothing out of the ordinary especially given the current circumstances (i.e., questioning Fed. credibility as they once again kicked the can.) However, what did seem rather odd was Ms. Yellen’s response. Not the content of that response, rather – the way in which she delivered it.

Her answer seemed in no way to be extemporaneous. It had all the hallmarks of an “in-advance, prepared question and response.” Here’s my reasoning (remember, “reasoning” for I have absolutely no proof):

First: It’s well-known that Mr. Liesman is an ardent supporter of the Fed. along with a seemingly favored (i.e., they know they’ll be treated with kid gloves) interviewer by the Fed. itself. Second: The question was the most obvious question, and the one that needs to be addressed first as to get it off the table (i.e., I’ve already answered that so let’s move on.) Yet, it’s the third part that solidifies the reason why my meter went to 11, and it was this: Ms. Yellen seemed to be reading the answer verbatim from a prepared statement.

Don’t take my word for it, watch it for yourself. Personally I was dumbstruck by the exchange, and especially by one who should understand “communication” and how the cottage industry of detailing and parsing the Fed’s wording, demeanor, and more is now viewed in today’s Fed. centered world. Or, did she do precisely what is demanded in today’s HFT centered market?

Under normal circumstances it would be far more important for any leader (i.e., Chair, CEO, etc) to have answered such a question directly, forcefully, and extemporaneously. Again, especially given that the Fed. had done nothing but send “hawkish” signals prior. Yet, the Chair delivered what can only be interpreted as “prepared remarks and wording” to what is posed as an open question live Q&A.

You would not do that if your intended recipients were carbon based. It just doesn’t come off as credible. However: that’s precisely what you would do if your intended audience (or the audience that strikes fear into your committee) is silicon-based e.g., the parasitic, algorithmic, headline reading, laser enabled, High Frequency Trading (HFT) outfits. Here – wording, and precise wording at that, is paramount.

The next iteration of this form of exchange came a few questions later from none other than who is now known as “The Fed. whisperer” John Hilsenrath of the WSJ™.

Again, here was a question much like Mr. Liesman’s: a must ask, and, the way in which it would be answered, again, has real implications. i.e., “Will you raise before end of year, and is November now off and December the real focus?” The response? No need to type it all again. Just insert from the first question and response here, in every detail.

Now I will say there are times Ms. Yellen does answer other questions where at times seems to be glancing at either notes, or a prepared “call back into mind” response note which are tricks of the speaking trade. That’s not what I’m calling attention to here.

What I am highlighting is the stunning coincidence that the two most probable important questions of that presser were one: asked by the two reporters, to many which are viewed as the most accommodating Fed. reporters currently, and secondly, those questions seem to be the only ones in the entire meeting that were answered as if reading from prepared text, with absolutely no follow-up questioning as to clarify or pull any more information forward. None. Yet, that last part isn’t that hard to understand. For they’ve all seen what happens when one does precisely that.

If my assumptions are correct, than the implications for not only the “markets” but for the economy as a whole are truly frightening. Why?

Easy: It would prove as I stated many times earlier: “Wall Street now knows it can manipulate Fed. decisions with deadly efficiency.”

Want proof? See Wall Street’s efficiency in real-time by looking at any recent index chart and the “markets” response to a well-known dove imitating hawkish calls (e.g. Mr. Rosengren) then to what was considered the last voice of the Fed. before their media “black out” time before the September meeting delivered by Ms. Brainard as she intoned why the Fed. should refrain from raising rates.

If that isn’t enough “coincidence” to make a point I offer up the time since as the “market” appeared to be in limbo (if you look at the two days prior to the announcement it would not be unreasonable for the average person to look and ask “Were the markets closed Monday and Tuesday?”

And here we are today, less than 24hrs later when the Fed. basically made the same announcement as it did the previous year: “It’s Christmas in September. You’re welcome.” We are now (once again) poised to make never before seen in history highs across the “markets.” (The Nasdaq™ already did that within minutes after the decision. Remember: nothing to see here, move along. Thanks for stopping by and buy, buy, buying.)

So to bring all the above into more context let me illustrate why this is all now become far more frightful in my opinion….

If one watched the above presser (and if you haven’t, you should, don’t just take my word for it) you’ll notice when Ms. Yellen is asked what is probably the most important question after the above two, she answers it far more directly when the question is posed, as to the allegation, that the Fed’s decisions to keep interest rates low are politically motivated. It’s here that helps solidify my contention of opinion.

Her response needs no notes, is directly addressed in demeanor, and some might argue quite curt.

Why do I make this observation? Well, here is where carbon based (e.g., humans) recipients of the messaging is paramount. If you hadn’t noticed the difference previously, now that I described it, it’s far too obvious to now miss. It’s conjecture yes, I admit that. Yet, my assertions are made via years in business and needing to read these things in real-time. Your conclusions are your own, as they should be.

So, with that said, it was the answers she gave to that last question that left me both slack-jawed, as well as foreboding.

In response the Chair defended and pushed back against the political insinuations. Yet, it is hard to square a few circles in the logic or reasoning given in her answers. To wit:

  1. If the November meeting should be considered “live” how much of a stretch of the implausible does it take to believe the Fed. would indeed raise rates (regardless of how small) one week before a presidential election?
  2. If the results delivered a Trump victory, does the Fed. truly believe they could raise then without shattering all credibility as to the “politically aloof” contention the Fed. emphatically tries to bolster? The ramifications from the electorate, never mind the elected, could inspire “torches and pitchforks” type movements.
  3.  If the results delivered a Clinton victory, does the Fed. believe they could raise without inspiring the “torches and pitchforks” scenario not coming from the electorate – but being led in procession by the elected? (For clues look to the former senator’s senior senator from N.Y. Charles Schumer when he indignantly advised the former Chair Ben Bernanke when he expressed maybe more help from the political class was what was needed more than more monetary policy. i.e., “Get back to work Mr. Chairman.”)
  4. If someone thinks Wall Street hasn’t parsed and concluded the answers to the above – there’s a bridge in Brooklyn they’d be happy to sell you options on. Just ask them.

I’m now firmly in the camp that not only will the Fed. not raise this year – they may not raise again for years. For they are not only “painted into a corner” via their own misdoings – they are chained there by Wall Street. They’ve missed the window (which myself and a few others have stated was years ago) and now that window is boarded shut in the very way the Fed. itself should have done to its own Discount Window years ago. Again: Now they’re stuck. And the only monetary policy tool available is to make Christmas a recurring holiday at every FOMC meeting going forward.

As I stated long ago, once you began hearing the Fed. refer to “the neutral rate” or the “natural rate” as a go-to defensive response to monetary policy, that was the clue that they’ve lost control and are just punting and praying. Period. But the result of all that can kicking is an ever-growing tulip-mania beholden Wall Street, and a financial repressed economy that’s having a harder and harder time of concealing crony-capitalism manifestations both large and small. (See Wells Fargo™ for the latest, but surely not the last. Remember the cockroach theory is all I’ll say to that one.)

But hey – It’s Christmas after all, right? Just ask Wall Street and look at these “markets!” Who are we to question anything different, at least, that’s what the mainstream financial media tells us. And they should know, right?

© 2016 Mark St.Cyr

Wells Fargo: Who Says Crime Doesn’t Pay

Unless you’re one of the few people still watching CNN™,  you may have missed what can only be one of the most scandalous in-house criminal activities to be uncovered at a bank. And not just any bank. It happened at none other than Wells Fargo™, which, up until the scandal was revealed, was the number one bank (as measured via its market cap) in the U.S. The scandal? Here are just a few highlights as reported. To wit:

“On Thursday, federal regulators said Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts — without their customers knowing it — since 2011.
The phony accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money.
“Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a statement.”

And to use CNN’s own words to describe it: “The scope of the scandal is shocking.”

How shocking you may ask? Fair enough, here’s a little more from their reporting…

“The way it worked was that employees moved funds from customers’ existing accounts into newly-created ones without their knowledge or consent, regulators say. The CFPB described this practice as “widespread.” Customers were being charged for insufficient funds or overdraft fees — because there wasn’t enough money in their original accounts.
Additionally, Wells Fargo employees also submitted applications for 565,443 credit card accounts without their customers’ knowledge or consent. Roughly 14,000 of those accounts incurred over $400,000 in fees, including annual fees, interest charges and overdraft-protection fees.”

As scandalous as all the above is, what is far more insidious, is the damage it inflicts (once again) upon the very fabric of free market capitalism, trust in laws, and last but not least: trust and belief in actual contrition. i.e., “No we’ve really changed, really!”

As I implied, that “trust” has just been obliterated by the very people and institutions that created the last crisis in the first place. e.g., Banks, bankers, boards, and the very CEOs that run them.

Yes, I said it: i.e., Not some intimate object such as “bank.” But the very people who work there; from low-level staff, all the way up to the top as made evident in this latest banking scandal.

Again, as egregious as these revelations may be. What has been far worse (in my opinion) is the way the bank (Wells Fargo) handled this whole sordid affair both during, as well as after the fact.

As reported by the WSJ™, CEO John Stumpf defended his firm with this gem of damage control retort. To wit:

“There was no incentive to do bad things,” Mr. Stumpf said in an interview with The Wall Street Journal. He called the conduct that led to last week’s settlement with federal and local authorities “not acceptable,” adding that the bank doesn’t “want one dime of income that’s not earned properly.”

Here’s a tip for Mr. Stumpf, (after all, it is what I do) if that’s the best you could come up with at that time, not only should your PR team be fired along with the 5300 others you’ve dispatched. But so should you. Immediately.

Not only did you not show a minuscule of righteous indignation – you seemed to bend-over-backwards as to defend the payment of (wait for it…) $125,000,000.00 as a parting gift to Carrie Tolstedt, who has been reported to have been the executive in charge of the unit where all this fraud took place. You know, the division where “sandbagging” customers continued long enough to have created its own internal moniker. Absolutely disgusting and shameful. Period.

It has been said that Ms. Tolstedt’s timing to exit was a result of “personal decision to retire after 27 years” with the bank. Geez, I wonder why. Yep, nothing to see here, move along. Just pathetic.

When asked about clawing it back? (Insert non-committal, illogical, double speak here) But if you need to hear what Mr. Stumpf thought about her back in July:

“Tolstedt’s team is a leader in building and deepening customer loyalty and team member engagement across the business, which today serves more than 20 million retail checking households and 3 million small business owners, and employs 94,000 team members.”

It would appear “sandbagging” pays, no?

I suppose everyone was rewarded, even those at the top by the “added shareholder value” produced by such a “team player.” Everyone that is – except the poor customers who trusted one of the largest banks in the U.S. to be watchful stewards of their money, and personal identities. No, it would appear they were preyed upon like minnows thrown into a shark pool. Glad we have all that Dodd-Frank type stuff enacted so people could once again “trust” the banks and their bankers. But I digress.

If the CEO (e.g., Mr. Stumpf) would have hit the news wires first in some form of scathing rebuke of not only the people involved, but the audacity that the people at the very top of this scandal (which, in my analysis, directly implicates him either by willful ignorance or just plain incompetence) could walk away veritably unscathed with $millions to-boot? There might, and I say “might” have been a chance for credibility of deniability. But now it looks far more like implicit, willful, ignorance more than anything else. i.e., “Hey, her numbers are good – don’t ask questions. By the way, have you seen our latest stock price?!”

Because of this, it is my sentiment, that both Wells Fargo, as well as its CEO, have added their images to be poster-child’s in the growing list of what crony capitalism produces.

What the CEO (i.e., a true CEO with an ethical backbone) should have done was to come out swing with something along the lines of the following:

“This scandal is not only repugnant, it is unconscionable that some of the employees, some that I personally trusted and regarded highly, have been found to have violated our customers trust, along with our own, with criminal activity.
I have recommended to the board, and our legal team, to do everything in our power to claw-back every single dime possible that we have paid out seemingly under false pretenses, whether they were in the form of salary or bonuses. And, I want every possible criminal charge brought forth against them that may be applicable. Yes, even those which may result with the need of time being served. Let me be clear: against everyone responsible.
This is a blatant urination upon the sacred trust that is supposed to be upheld when a customer, regardless of how large or small, deposits funds or opens credit terms at any bank. Not just Well Fargo. This is unacceptable and it must not go unpunished. And I won’t rest with anything less than the full repercussions that the law can provide.”

Did you hear, read, or see anything resembling 10% of what I just stated? Hint: Nope.

Read the above quotes I referenced earlier as a reminder. Makes you want to run out and open an account and dispense with any of that troubling, filthy vehicle known as cash that far too many so-called “smart crowd” intellectuals are touting you should do. Doesn’t it? i.e., Don’t trust cash – trust the bank. Only criminals care about cash.

The only problem that now appears with that logic? It seems those criminals are within the banks just waiting for one to “hand it over.”  That’s a reality which is now becoming downright frightening. Just imagine what Jesse James would think about all this. It’s down right laughable if it wasn’t so infuriating.

And, by-the-way, if you’re concerned about such things: you’re insulted or portrayed as some type of “alarmist” (or worse – you must be a criminal) if you dare argue against the idea of a cashless society and the inherent problems contained within the theory.

Take the latest insult to intellect as proposed by Ken Rogoff, a chaired economics professor at Harvard, and a former chief economist at the International Monetary Fund.

In his case against cash, Mr Rogoff likes to build his case for a “cashless society” around all the boogeymen an Ivory Tower can muster. James Grant of Grant’s Interest Rate Observer™ wrote a cogent, scathing rebuke of Mr. Rogoff’s thesis. Here is just one line, yet, notice how perfectly it fits into this whole story. (The entire article is a must read) To wit:

“Terrorists traffic in cash, Mr. Rogoff observes. So do drug dealers and tax cheats. Good, compliant citizens rarely touch the $100 bills that constitute a sizable portion of the suspiciously immense volume of greenbacks outstanding—$4,200 per capita. Get rid of them is the author’s message.”

That’s right. Mr. Rogoff want’s you to deposit that filthy cash into a bank as to keep it out of the hands of criminals. The issue?

Well as of today it seems if you followed his advice and deposited at, oh let’s say, Wells Fargo? What you did in actuality was to hand it over to some greedy, dirty, disgusting criminal within where it was used to fuel criminal activity and self gain for themselves.

What’s the take away from all this? Hint: If there’s going to be criminal activity (as far as academia is concerned) might as well have it inside the bank rather than outside. After all: Criminals hate competing with each other. Whether in digitized currency or actual.

To people like Mr. Rogoff it would seem when it comes to criminality – banks are exempt. I wonder how Mr. Rogoff would feel if it was his “cash” that was suddenly misappropriated when it came time for him to use his ATM card only to find “insufficient funds” displayed when he knew he made a deposit days prior? I would wager he’d want his account closed – and paid in cash – as opposed to a “check” or “balance transfer” if he just found out “the bank” had been playing criminally with his hard-earned money. Bet on it.

Now Mr. Rogoff and his ilk could care less what a person like myself has to say about their ideas. After all, we’re nothing but a bunch on illiterate, economically challenged plebes that need to be herded into doing what “they” believe is “best for us.” Whether it’s in our best interest – or not.

So to that I would like to remind this Ivory Tower set of exactly what transpires when the banking system that issues all those digitized ones and zeros goes into free fall because of the reckless nature of those within that system created. e.g., The Great Financial Crisis of 2008. You know, the one that’s not even 10 years past and is requiring central banks around the world to continue “spinning plates” that would make a circus performer blush as to keep it all from crashing.

In, or about, 2008 during the heat of the crisis with the markets gyrating widely, none other than Mohamed El-Erian then at Pimco™ (someone I have great respect for) said in a televised interview on one of the financial shows I was watching (I’m paraphrasing): “My wife called me and asked me what she should do. I told her to go the nearest ATM and withdraw as much money as possible. For we both had no idea of just how bad things were going to get.”

I just wonder how well Mr. Rogoff’s argument about “cashless” would have stood had he needed to argue that position to Mr. El-Erian during that period? i.e., “Hey Mohamed, tell her not too worry, cash is for criminals and low life’s. She or you don’t need no stinkin’ cash! Have faith, faith in the system, faith in the banks!”

I don’t know what the response might have been, but I bet it could be summed up today in two words: Wells Fargo.

Yeah, I guess those other two words you were thinking of (e.g., FU) might be more appropriate. For I was thinking the same. Yet, on the other hand; don’t they mean the same thing as of today?

© 2016 Mark St.Cyr

Did The Music Just Stop?

Back in July I wrote the following article titled “Just Keep On Dancing?” And In it I stated the following. To wit:

“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.”

Since then the “markets” have (reminiscent of 2015) made headlines of “new lifetime highs” screamed by financial pundits everywhere extolling the virtue of today’s stock markets. Yes, every tick or move higher was praised as coming directly from the “earnings beats” produced by today’s balance sheet engineers.

Who needs fundamentals (you know, like more sales and such) when you can state before the earnings season you’re going to sell a gazillion dollars worth of product. Then, by the time you need to show those numbers, you have reduced it from “a gazillion” to about a dozen, where you’ll now proclaim you sold 13 “beating” your now stated, although lowered, target. Yet, it still offers up the headline “beat” for the next in rotation fund managers to proclaim across their willingly and reflexively repeating media outlets.

For that’s all that matters. Rinse, repeat.

So now as we sit here today the markets are waking up to not only a 2%+ downdraft across most of the major indexes. The “markets” are suddenly not behaving as they have since the beginning of the year. It seems someone, somebody, or something (i.e., your friendly HFT’s) have decided BTFD is now risky business. Funny how that happens, no?

It would appear based on “fundamentals” owning stocks, bonds, and a whole lot more isn’t as wonderful of an opportunity to buy, buy, buy if the number one fundamental facilitator of all price action (e.g., The Fed.) just might close the “open bar.”

No one knows for sure, but when the crying “doves” appear to be wiping away their tears as the jukebox begins to play “We’re not gonna take it!?” The prudent begin to move toward the exits and call for rides.

In that July article I posted a chart as to show where we were then. Below is where we are as of Monday before the market opens. To wit:

S&P 500™ as of September 9. 2016
S&P 500™ as of September 9. 2016

As you can see, we really went nowhere. However, if one remembers all the headlines and proclamations touting “New lifetime Highs, Again!” over the last few months. It would be easily explainable why, when one looked at the above chart, you felt a little puzzled. After all, not only has the “market” basically gone nowhere since then. It now sports a selloff of over 2% – and the month has just begun. (The above is a monthly chart)

So the question is: Did the music stop on Friday?

If it did, then that red line I placed showing the rise based on nothing more than “Central Bank Liquidity” as the fundamental reason of that rise shows just how precariously high, and subsequently, just how precipitous of a potential decline is once again being placed “on the table.”

As I stated in another article “Wall St. Laughs As The Doves Cry” It appeared the HFT cabal was more than emboldened that the “liquidity bar” was going to remain open, regardless of any further rhetoric coming from the all too predictable Fed. members.

However, once a perceived dyed-in-the-wool Keynesian dove (The Fed’s Eric Rosengren) starts touting the idea that he too believes it may be time to raise rates, all while he does the equivalent of strutting across the bar-room, hitting the jukebox, and it begins to belt out a Twisted Sister song? As I said earlier – the prudent are going to begin heading for the exits.

That’s a fundamental you can bank on.

Now the only question is: How much further does this decline travel before the owner of this “bar” (Chair Yellen) proclaims once again…

“I declare September is off the table! Drinks are on me!”

Welcome to your fundamentally flawed “markets,” where the only thing that matters fundamentally – is the open spigot of liquidity.

© 2016 Mark St.Cyr


From My Perspective…9/11…Life and Death

In remembrance of  Peter Hashem…Flight 11,  Seat 20A…Struck the North Tower at 8:46:40 am EST.

This column is different for me, this one is a little more personal. Unlike my usual columns, this is to give perspective for not only myself, but maybe for you also.

The only thing I can say to start is: Life is precious. And when it ends for what ever the reason, at any time, chances are you will not have any control of the timing or the circumstances. So live to the fullest everyday, regardless of where you are in life, because the unexpected, and the horrific, can also happen to you, not just someone else.

When the tragedy on 9/11 happened, it changed many of us, if not all.

Like most, I remember exactly where I was. I remember also standing in line at my local bank moments after it happened, and watching the televisions while waiting in line in utter disbelief along with everyone else in the bank. For all of us…time had stopped.

The days and months that followed with the heroism and the outpouring of help and support is well documented elsewhere. Living in New England at the time, you either had gone to Ground Zero yourself to try to offer any help, or someone you knew had.

I owned a local Deli at the time. The owner of a company who supplied me with breads went back and forth to Ground Zero to pass out muffins and pastries to the rescue teams at night only to come back up to New Hampshire and then start his deliveries. No one complained, no one said how hard it was to do, no one was looking for credit. It was just done. It’s just the way it was.

On that day many of us changed. We viewed life a little bit different. It suddenly hit you with laser like focus that life is precious, and death can come at any moment, from anywhere. No longer was this an esoteric exercise. This was life at its core, and it was playing out in front of our eyes leaving no gray area to ponder.

You either got it – or you didn’t.

In honor of that tragic event I myself set new rules, new guidelines how I was going to go forward in life. I decided I would live life my way, by my rules, and if I were to die today, so be it.

I could say that because I was going ensure I was living, regardless of economic conditions. Not just trying to exist or simply get by like so many other do. That was not why we’re given life. It’s for us to live! Never let that be taken from you – by anyone. Period.

September 11, 2001 changed my life forever. It’s now hard to comprehend it’s been 15 years since. But as I said, in honor of that tragic day I decided to use it as a reminder that while on this Earth, I will live. Live everyday, take nothing for granted, take no one for granted, and live to today to chase the dreams of tomorrow. For if I do that one simple step, whether I reach those dreams or not…I will have lived.

For you see, Peter was not only someone who tragically died on that day. He was the younger brother of my close friends growing up. Life doesn’t just happen to someone else. It happens too us all.

We owe it not only to ourselves, but to them. Never forget.

© 2016 Mark St.Cyr


Janet – You Gonna Have Some ‘Splainin To Do!

For those who might not get the intended pun in the above title, it’s a play on words Ricky Ricardo (Desi Arnaz) would use when demanding his wife Lucy (Lucille Ball) as to explain whatever mischief or crisis she suddenly found herself in on the “I Love Lucy” show. I think it fits the bill today as to describe just what type of “mischief” or “crisis” the now Chair of the Fed., Janet Yellen may now find herself painted into. The only issue that’s not laughable for the comparison is the fact that Lucy’s escapades were fictional. Ms. Yellen’s are going to be on public display in an all too real reality – although it might be quite the spectacle rivaling anything on current reality television.

As I’m typing this it has been less than 48 hours since presidential candidate Donald Trump gave a speech in Philadelphia calling for a vast expansion of the military. Already there are arguments across the media about “how to pay” for such an expansion. As usual the main stream outlets are throwing “cold water” all over such an idea. After all, it’s easy to say “We can’t afford it!” Easy to say yes, but the problem is – the same outlets have praised how easily we could afford, and “can do more!” to cure the ills of this current economic malaise via The Federal Reserve and its toolbox of monetary magic.

Now let me say this directly, and as forcefully as I can so that there is no misinterpretation of what I’m stating here: I am not endorsing one candidate or another. I’m not saying I agree or disagree with either’s positions or proposals. That is for you to decide. What I am stating is a factual based retort that has ramifications for all of us because regardless of who wins, the facts are the facts, and it will be from the next victor of the “bully pulpit” that the current Fed. Chair will need to explain why she can – or – why she can’t do “X” when it was they themselves who are the ones that showed the world how money ex nihlo truly works.

As of today the Fed. has swollen its balance sheet to some $4,500,000,000,000.00 That’s 4.5 TRILLION (give or take a few Billion, but what’s a few Billion among friends, right?)

A few years back I made the argument that people (and the main stream financial/business media in particular) were throwing around numbers as if they were talking about nickles or dimes. A few Billion here, a couple more there, and pretty soon you were talking about “chump change” in the eyes of the media. $100s of Billions of dollars were discussed as if they were nothing but pocket change in the “larger scheme of things.”

It was to these ridiculous, incredulous, and outright callousness to remain clueless of what these figures really represented that I penned an article as to understand what these numbers truly represented. Here’s a sample of that argument. To wit:

“So here’s a quick example I used to give perspective. This is not – I repeat – not an endorsement of what I believe we should be spending our money on. It’s just an analogy so one could wrap their heads around the differing circumstances. For if we are talking BIG numbers, you’re going to need BIG things to represent them.”

“Bring up the subject whether they should or shouldn’t stop or taper and people seem to have no problem with spending or printing the $85 Billion month after month if that’s what it takes. Regardless if they understand what $85 Billion represents or not in any other form. It’s a fools way to look at it in my opinion. So here’s some perspective using items procured through the military.

If the Federal Reserve only cut their quantitative easing (QE) this month from $85 Billion to say $75 Billion. That cut would represent approximately the equivalent of building – FIVE – B2 Stealth Bombers. That’s per month. And that’s the reduction! Currently the Fed. is printing and pushing money into the markets as if we ordered (wait for it….) FORTY TWO brand spanking new B-2 Stealth Bombers – per month!

Let’s not forget Congress cut the building of the B-2 at a little over 25 planes down from the original 100 or so first envisioned because of costs. The Fed. today injects into the markets monthly the monetary equivalent to purchase double the existing force again – every month.

Want a better representation? In just 1 year, again just one year, the Federal Reserve has pumped enough money into the markets to have purchased, (Again, wait for it...) FIVE HUNDRED and TEN new B2’s. Remember – we now have somewhere in the mid 20’s. (I used 2 billion for each plane since that’s in line where they were when first ordered, however at that pace would a discount be in order? Just sayin’)

So again to make it clear – that’s just one year in planes. What would it be if we used say the most expensive and technological marvels on the planet? The Nimitz Class Nuclear Powered Aircraft Carrier.

Currently they have an approximate price tag of around $13 to $14 Billion dollars each. Based on the above math QE pumps into the markets the equivalent of purchasing SIX brand new state of the art Nimitz Class Aircraft Carriers – per month!

In just one year the same amount of QE dollars would purchase SEVENTY TWO. Again for a little perspective our current navy stands at around 19 commissioned ships. That’s both old as well as new combined. Once again in just one year, we could replace and expand our entire aircraft carrier fleet with the newest and greatest available nearly 4 times over.

Let’s just throw one more technological marvel in for the fun of it. One of my absolute favorite marvels the world has created. The submarine. Using today’s most advanced example aka “Boomers” or Ohio class. You could build approximately TEN per month at the pace the Fed. is injecting money.

At only $6 to $8 billion a piece that means in one year you could build nearly One Hundred and Twenty brand spanking new technological marvels. Again – in just one year. I believe that would replace all existing vessels also by multiple folds.”

Now let me reiterate what I just outlined here again as to get some perspective on not only the dollar amounts but, what those dollar amounts truly entail.

“In just 3 years the Federal Reserve has pushed into the financial markets via the QE programs the equivalent in dollar amounts to have purchased

510 B-2 Stealth Bombers,

72 Nimitz Class Air Craft Carriers,

120 Ohio Class Submarines,

and I still have nearly 2 more years of money to appropriate where ever or for what ever I desire. i.e., Two TRILLION is still in my pocket left to spend. QE and its equivalents are now nearing 5 years.

I still have plenty left to buy the aircraft, to man them or, the missiles to outfit them. Heck, that’s just if I stop here. So far there is no indication the Fed. is going to stop and there’s also talk that the new Chairperson might be inclined to spend more!

Maybe we should add a few M1 Abrams tanks just for the fun of it. They’re about $7 Million a piece so we can get Oh let’s say TWELVE  THOUSAND a month. Yes that’s 12,000 per month or One Hundred Forty Four Thousand (let that number sink in – 144,000) in a year. Sounds like a bargain when I state it that way doesn’t it? And I would still have a Trillion left if they stopped printing today.

But here’s the real crux of this argument and why I stated it as such. Sure it’s a little hyperbole and the math is not exact. We would never do now nor would anyone ever approve of such a plan. However, think of where GDP and the economic output as to where it would be today as to employ the talent needed to build those marvels. The engineers, the skilled labor, the steel, the copper, the mechanized equipment, the hotels, restaurants, and more to feed those that just supply the day labor, never mind the industrial backbone of supply that would be needed and more.

If one thinks there is a spin-off in trickle up or down money in housing or cars – just think about the economic impact building one of these marvels entails. At the above run rate you probably couldn’t have an unemployment issue. The impact would be far too great across far too many industries. Yet…”

So with current FOMC members stating that they need more “fiscal policy” along with some in the “Ivory Towered Halls” of economics/academia openly touting a “doubling” of its balance sheet (after all what’s another $4Trillion among friends, right?) should be considered to foster economic growth; there lies an even bigger question on the horizon for Ms. Yellen….

What exactly will the chair do when the call of “Ms. Chairman – get back to work” comes this time from the President with the “bully pulpit,” as opposed to just one of 100 senators relegated to CSPAN™ and Wall Street? Nan you just imagine the badgering that will be unleashed when something like “We can’t afford to do that.” comes up when it was done for Wall Street?

The new fall season for reality TV just got a whole lot more interesting from my perspective.

© 2016 Mark St.Cyr

The Fed Fiddles While Free Markets Burn

We’ve all heard the story of how the emperor Nero fiddled as Rome burned. Today, we use it an as analogy, whenever fitting, to show the callousness of either a person or entity when they are obviously engaged in wreaking havoc or utter devastation; all while caring none-the-least.

Nobody seems to fit that bill today more than central bankers. And to show just how Nero-esque they can be, it was none other than our own Stanley Fischer, current V.C. of the Fed. who displayed in an interview with Tom Keene of Bloomberg™ what can only be deemed as the most infuriating lack of compassion, as well as sheer imperialist intoned advice. Here’s a few “gems” from that interview. When it comes to negative rates? To wit:

While the Fed isn’t “planning to do anything in that direction,” the central banks using them “basically think they’re quite successful,” Fischer said Tuesday on Bloomberg Television with Tom Keene in Washington.

“We’re in a world where they seem to work,” Fischer said, noting that while negative rates are “difficult to deal with” for savers, they typically “go along with quite decent equity prices.”

So what is one to infer? Easy: Fed too savers and the prudent: Screw you – buy stocks.

You don’t need to take my word for it. If you’re a saver, a retiree, an entrepreneur who just sold your business, a pension fund recipient, an insurance policy recipient, __________(fill in the blank) You know all too well the harsh reality of what the Fed. and others have wrought to these markets and their once stable products.

No, you’re now told to wipe those tears with those now negative yielding, once safe repositories for one’s wealth – and plow it into stocks. You know, where the Fed. believes things are pretty “decent.”

That is, until their next policy error. Then? Who knows. Although, with that said, what I have no questioning of is this: The ones who clearly don’t have a clue are the very ones now sitting back giving some form of altruistic investing advice. e.g., central bankers.

As bad as all the above is, what is even more concerning is that the Fed. (as inferred by all the latest Fed. chatter) is that they are absolutely clueless as to just how damaging they have been over the last few years. They have gone from self-imposed saviors of the world economy – to destroyers. And the evidence of that is now making itself known, much like the iceberg did for the Titanic. i.e., It may be too late to do anything other than see just how bad this is all going to end.

Based on what you may ask? Well, to my observations it can all be summed up in one word, and it too has to do with shipping. e.g. Hanjin™.

The issue with this story is two-fold. First: Not only is this story being brushed aside in an “Oh well, a shipping company went out of business.” story by the financial/business media. The second is: nobody seems to grasp the underlying destruction that may result in both business to business confidence and subsequent other damages it will have across the global supply lines in ways that will effect everyone – and the central bankers will be left powerless to do anything to quell it. For they are the cause, not the remedy.

The reason why this latest developing revelation (and it is – just starting) is so crucial to understand is this: It’s not about a company – it’s about how all companies will, or will not, send products to market going forward.

For if a company can no longer have surety that products will reach their destination, and they will be paid when they arrive – everything stops. And by that I mean everything. In other words; the company that produces the raw material, the company that produces the product, the middlemen, the retailer, and on, and on.

And when one of the worlds largest shipping companies with cargo aboard goes belly up stranding everything at sea, ports, yards and more out-of-blue? Everyone (as in every business) is now suspect.

Rates, letters of credit, insurance, and a whole lot more will most assuredly begin to go not only through the roof; some might not even be available going forward.

This is a direct response and result to central bank interventionism. For the pricing models, and market signals that would normally be present in a free market capitalistic environment have been either obliterated, or perverted so much to the point prudent business people can longer decipher market signals. And if you can’t see with some clarity – you just no longer take chances and sit on your hands. Even if that means lay offs, scrapping projects mid stream, and a whole host of others.

Central banks have destroyed market fundamentals. Pricing models that have worked, and been honed for generations, have been laid to waste by current central bank QE (quantitative easing) interventionism. And now those market forces are coming home to roost. And the premier of those forces is: Trust. i.e., getting paid.

Once there is even the slightest hint that that “trust” may be in question? All bets are off. And there isn’t a damn thing any central banker is going to be able to do about it if (or when) it happens. Period.

If central bankers are feeling frustration after flooding banks with trillions upon trillions of dollars and they still can’t get people to borrow or the banks to lend. Disruption in the “trust” when it comes to business to business transaction will make the first look like child’s play. And trust me, in practice? It is.

Pricing mechanisms along with their practical applications for hedging, price discovery, and more have been completely obliterated. And Hanjin is just another in an ever-growing list that many not only in academia haven’t a clue about, but also, those in the main stream business/financial media also seem oblivious to it’s all too real upcoming ramifications.

Want some proof? Just look to cattle futures. Or should I say – don’t look? For that market is all but been obliterated. After all, why make markets when all you need to do is take that money with little to no risk (at this moment) and BTFD in a “market” that’s more corralled than a stock yard? i.e., anything “branded” with a central bank bulls-eye on it.

That is – until beef begins swinging to-and-fro in ways that make going to a grocery store a decision on whether to bring your wallet – or a wheelbarrow?

Without stable markets to hedge livestock, vegetables, fuel, and more – don’t think for a moment some farmer or rancher is going to just “risk” raising or growing what everyone takes for granted to keep the shelves full. They won’t. And you’re already seeing the damage. It just takes time to work its way though when the decision, for the next decision, to raise, or plant has to be made.

For some markets (such is cattle) that time is now. But the results won’t be fully understood till later when there isn’t as much available, or worse, it possibly costs far more than most can afford. But hey – buy stocks right?

What most don’t understand (particularly those in academia) is just how quickly everything changes in business and commerce once the “trust” of being paid begins getting questioned. You don’t have to look all that far back for real life examples to see just how devastating, as well as how quickly, everything can go awry. I know for I was in the middle of it trying to conduct business during one of the most tumultuous times of the last few decades. e.g., During the Savings and Loan crisis of the late ’80s early ’90s.

During this period one of the most businesses hobbling things that manifested was the ever-changing terms of not only outright business credit, but also the terms on one’s revolving line of credit used to pay things like receivables (i.e., the bills) and you know that other little recurring expense – payroll.

Whether you, or your customer would be able to meet those obligations was at first, a monthly challenge, then weekly, then daily as terms via one bank to another changed from one day to the next.

An example went something like this, and this is from first hand experience, not speculation….

First you received a phone call out-of-the-blue and were told by your bank that your credit line on receivables, which were allowed for receivables 90 days old or less, were now reduced to 60 days.

In effect, what this did was this: Let’s say you had a customer that paid you 90 day terms like clockwork, never had a late payment, and did business with you at a rate of let’s say $300K per month.  You now just lost $300K in working capital. And that’s for just one of you accounts.

To make matters worse, these changes were implemented immediately, as in today, not tomorrow, not next week, not next month, but right there and then.

And the response when you questioned (or screamed?) “Sorry, those are the new policies, and if you want to pay your balance off and find another bank? We understand.” And there was an unmistakable tone (or hope) that that was exactly what you would do. But it didn’t stop there.

Then, just like the previous, you received a notice that 60 was now 45. Then 45 became 30, then 14. Till in the end, you could no longer afford or manage being in business. Remember, this was taking place at first over months, then it was weekly, to near daily. But it wasn’t just you. It was also the same at your customers. And as they too succumbed to the same thing happening to them, the banks themselves then started shuttering at an alarming rate. Hence the now “Savings and Loan crisis” moniker.

Any business that relied on credit terms (which was just about most small businesses) was crushed out of business. Meat and provision suppliers closed, restaurants closed, and on, and on. If you were working in any downtown during the crisis you know just how fast businesses you deemed as “main stays” of a downtown and more closed in rapid succession. And guess what? It was none other than “the Fed.” who supposedly came in to rescue what basically they created. Hint: Does “The Committee To Save The World” ring any bells?

Back in 1999 when the Fed. was much like it is now riding a wave of media inspired congratulatory press as the “markets” were still riding the bubble created that would set the stage for one of the largest market collapses in history. e.g., The dot-com bust.

It’s quite possible I’m completely off base on this, and in many ways I hope that I am. However, I just see this latest Hanjin disruption much like when I made the case about why one should be prudent when it came to commodities far before the ensuing collapse when I penned “The Scarlet Absence Of A Letter Of Credit.” One doesn’t need to be a commodity trader to remember what happened next.

Again, maybe all this angst when it comes to these most recent manifestations should be taken in stride. After all, as Charles Prince of CitiBank™ famously stated (paraphrasing) “While the music is playing – you have to keep dancing.”

Yes, that may be true, for it is unmistakable via Mr. Fischer’s latest remarks that both the Fed. and others are quite content at bowing their monetary fiddles.

All while free market capitalism burns at the altar of monetary imperialism.

© 2016 Mark St.Cyr