Does The Reality Of ‘It’s Different This Time’ Get Tested This Week?

If you were one of the myriad analysts, next-in-rotation fund managers, tech commentators, et al paraded across the financial/business media over this past week – you had a good week. The narrative of “earnings beats” together with the so-called “relief rally” emanating via the French elections helped propel the argument.

However, if one (once again) peered passed the headlines of Non-GAAP reporting alchemy that would make Issac Newton envious one could clearly see that all was not “gold.”

Both Amazon™, and Alphabet™ (aka Google™) beat handily, and yet, a few questions emerged via my reasoning. First:

Has Google Ad revenue benefited from an increasing advertising pie? Or, are we seeing the first hints of rotation from platform to platform as advertisers dump one for another in a desperate attempt to obtain some form of return for their social or digital ad dollars?

It’s possible it could be the latter, and if so it spells “it’s different this time” just like it has before. i.e., circa early 2000.

The reasoning for this is simple: Twitter™.

As I have stated on more occasions than I can count, the one company to watch for clues into what is the entire “tech” or “Silicon Valley” health of the “ads for eyeballs” model is Twitter. And this once songbird of everything that was/is “The Valley” did something that is the anathema of what is presumed to be the “holy of holies” metric for the entire genre. To wit:

But not too worry, for this is reported as an earnings “Beat” when using Non-GAAP metrics. Yes, declining (again – declining!) ad revenue is reported as “Good News!” The only person I can see with more wonderment across his face than the ghost of Sir Issac is that of Bernie Madoff as he watches all this from a cell wondering “And I’m in here for what precisely?”

Then, of course, there’s Amazon.

After disappointing reports over the past two quarters Amazon (once again) rocketed to new heights as the headlines of “Beat”, “Smashed” and every other exclamation known-to-man was used to report it raced across the media. And yet, if you looked closely, again, there are a few issues contained within that should make those who are closing their eyes and hitting the “Buy” button horns-over-hooves concern.

  1. Guidance for operating income in Q2 is expected to be between $425 Million and $1.075 Billion compared with the $1.3 Billion in the same quarter last year.
  2. Amazon’s total operating income was $1 Billion for this Qtr. AWS (i.e., their web services) made up $890 Million of this. That means nearly all of Amazon’s operating income was generated via the division most people who use Amazon haven’t even a clue exists. (I’ll add to that most 401K holders also.)
  3. This puts their Current P/E ratio at near 190 times earnings (187.4 via Morningstar™ as of 4/27/17)

Moreover, as I posed the idea of “What if?” into the “ads for eyeballs” assumptions earlier; what does one takeaway when viewing the current rocket ship ride of Amazon? For if personal spending is supposedly DOA as was reported via the latest GDP report (e.g., worst since 2009) and GDP is now reported to be an abysmal 0.7% (not a typo) what’s fueling this?

Hint: It’s an outlier, or said differently: It’s nothing but what’s known as a “Momo Play.” To view it as anything representative, or as a “gauge” of current economic health (As I heard many a talking-head try) is as I’ve stated before – an abject lesson for wanting to be blissfully, ignorant. (Always remembering this is my opinion, for who knows where this “rocket ship” can travel.)

So with the above for context the issue at hand is: “Now what?”

The real trouble, in my estimation, lies with precisely where we might be in regards to “the markets.” By all rational objective reasoning, backed with the lessons which should be held front-and-center from not just the dot-com crash, but also the financial crisis of ’08. One can’t shake the feeling that we’re precisely (once again) on that knife’s edge. And just the mere fact of the “markets” precariously balancing on that “edge” is beginning to draw blood. The tell-tale signs are everywhere. Below are only a few of the ever-growing list…

  • How does a GDP report of less than 1% allow any sane person to state, “Improving economy?” Trick question, it doesn’t unless you work on, or report on/for Wall Street.
  • How does the reflation trade transfer into a better economic outlook when all of the proposals so far have resulted in DOA status?
  • Explain the reasoning why U.S. “markets” rally off the news of a French primary, all the while its own Navy has sent an armada to the Korean peninsula threatening a nuclear standoff? “Bueller?”
  • What data (or better yet – logic) is the Federal Reserve using that warrants hiking rates twice in 90 days into an abysmal GDP report when its main reasoning for any/all monetary policy protocols are supposedly “data dependent?”
  • If one of the reasonings behind the Fed. hiking was to allow for the cutting if (or when) there was another emergency: How does that happen when the $Dollar is currently going in the exact opposite direction than it should as it hikes? Does that not imply the Fed. could by that very fact be the catalyst of a run n the $Dollar?
  • And if so? What then?

These are just a few of the very real questions that are now permeating the once “it’s different this time” argument for belief. The problem with it is – that’s what always gets said right before reality comes roaring back with a vengeance.

I can’t make this point enough: Only since the election of Donal Trump the “markets” have been on a rocket ride straight up. Before that moment (i.e., October) the Fed. Chair herself was musing the idea that the only way to heal the lasting effects still within the economy was to possibly run a “high pressure” policy stance. (i.e., uber-dovish)

That “ride” has (once again) allowed for the proclamation of the NASDAQ™ hitting never before seen in human history highs. (e.g., 6000+) All against a backdrop of declining GDP, along with declining revenue and more from many of its once star players. All while not accounting for (in my opinion) the effects of those 2 rate hikes. These have yet to be both factored, as well as felt, in the current “market.”

As of right now the “hopium” trade that is a direct result of the Trump “reflation” trade is still self-propelling – but it’s quickly running out of fuel as evidenced by not only none of the campaign promises being passed (i.e., Obamacare repeal and others) but a 1 week resolution was needed as to not shut the government down.

And the “markets” closed where?

Hint: Right back to where they were before when I stated “You are here.” And things have not gotten better, as a matter of fact, they are worse – far worse. (e.g., Unless you are one of those who like to buy-the-potential-nuclear-war-dip that is. And if so, take solace in your decisions, because the President keeps suggesting the idea is closer by the day.)

What the Fed. has unleashed into the “markets” via their ever evolving iterations of QE and its ever grateful HFT frontrunning brethren (see the now resigned Richmond Fed. president Lacker for clues) has been the only fuel as to power the markets where they now stand. What they’ve also done in unison is make everyone oblivious to the inherent dangers within.

Hedging and more has been a fool’s errand, and for many, an abject lesson in not only losing money, but status. (See the Hedge Fund industry for clues.) However, what might be even more indicative of that intervention is none other than the tech space, with all its unicorns, deca-corns, and even super-corns (yes, that’s now an actual term in “The Valley”) suddenly coming up lame in the unicorn stables of “Cha-ching!” Not to mention the IPO disasters and disappearance of those “Crushing it!” stock valuations. (See Snapchat™ for clues.)

This is where the beginning signs for caution are raised for anyone paying attention. And they are there – in spades. But there are also other areas to watch that help back up the hypothesis. And one of the first to show stress when things are not going as well as planned in “tech” land is: The Russell 2000™ e.g., the small business index.

The Russell is not only not showing the exuberance of the others, it’s beginning to show all the signs of rolling over. That is something to take notice in conjunction with the tech sector as it hits ever higher highs. How that dichotomy resolves is anyone’s guess at this moment. But trying to ascertain any clues is of a paramount importance in my opinion.

Another key earnings report that may give far more light than anyone estimates is coming up on Wednesday. That, of course, is Facebook™.

As of today all the estimates are that they’ll handily beat and some analysts are raising their targets. It’s very well they could, especially in today’s world of earnings reporting alchemy. However, one thing which caught my attention was the sudden touting a few weeks back that they had hit “5 Million advertisers.” Small businesses noted as the “key driver.”

“Sound great!” many are saying, and, in-truth, it is a worthy milestone. However, I see the timing as possibly a little suspect, here’s why… (I make this point for it has become near laughable how nearly all upcoming “tech” earnings reports now suddenly coincide with an ever-growing list of preceding announcements of grandiose ideas that are alluded to be right around the corner (like next week!) of flying cars, self driving trucks, rocket rides to space, virtual reality, just to name a few.)

Facebook as of late has been in the news with nothing but negative reports with a slew of horrendous acts being broadcast via their platform. e.g., Rape, kidnapping, beatings, and others. One of the concerns over all this (apart from the issue itself) was a possible backlash from potential advertisers. And who could blame them, and there lies the possible rub…

As I implied with the sudden “5 million” hoopla, what I’m asking is this: Is the addition of these stated 1 million plus new small business advertisers a replacing (therefore a diversion as to squash attention) for the potential of 1 or 2 (or more) large buyers who may have pulled ads?

In other words, if they’ve added so many “new” small business users – shouldn’t the ad revenue explode this report with all things being equal? I believe this is the metric to watch for.

How the numbers break down should be interesting. Google showed its own problem (via Youtube™) seemed to have been a one-off with no real impact. That said, I don’t think that comparison is the same for Facebook should the numbers show otherwise.

We shall see.

If there is a “hiccup” in Facebook’s reporting, coinciding with a realization that the reflation trade is all but DOA along with much of the legislation that was supposed to make it so. I believe we could be in for a very, very, interesting week ahead.

Then again, if a nuclear showdown does persist even more so than today?

I guess the “Buy The Nuclear Annihilation Dip” nonsense is back on.

© 2017 Mark St.Cyr

Walking Across The ‘Hot Coals’ Of Ridicule

I heard from quite a few people over the weekend and into this week whom, for lack of a better term, are normally indifferent when it comes to the Federal Reserve and its current machinations into everything “market” related. Then – the “markets” (once again) hit all time highs – and the questions (along with the ridicule that I obviously must not know what I’m talking about) roll in with more fervor and conviction than the latest move in any index fund.

From friends and family, to readers of the blog and elsewhere I’ve been inundated with questions from both sides of the extreme.

One side comes from the true questioning region as to how, and why, the “markets” can remain in a near hyperbolic trajectory upward when there seems to be no economic data to support such move. (e.g., The “markets are record-setting never before seen in the history of mankind highs in both U.S. markets as well as European as I type this.)

Then, there’s the other, where the questioning is more of the observational (and derogatory) extreme where the implied tone is along the lines of “You’re wrong, your analysis is wrong, your reasoning is wrong, and, you’re ugly too!”

Just for clarification – that last line comes from family members. So all I’ll say too that is: “I’m telling!”

However, on a more serious note, I believe there are two questions that should be answered even if they aren’t asked directly. The First: What in the world is making these “markets” go ever higher? And Second: Have I changed my opinion on them in the face of such moves?

I’ll answer the “Second” first: No. And I believe this latest move puts the “markets” in an even more precarious, as well as dangerous position than before. I’ll try to explain why as to answer the “First”, next.

Before I start let me make this point clear with the following before I begin, because there are many new readers (and as always I thank all of you!) and some may not understand why I articulate my reasonings to begin with. (see the “About” page for more.)

First: I am not a “stock” or “market” guy, nor do I try to appear as one. I’m not offering in any way, shape, manner, or form anything to do with investing advice or such. That’s for others who are legally entitled.

What I’m offering is commentary, opinion, and ideas, backed with pragmatic insights and acumen that business people can use or broaden their own understanding of the financial markets as they now stand, and how that relates to their businesses that is (as far as my knowledge) unavailable anywhere else in one place.

You can find a myriad of places across the media and web that will tell you how to “make great gobs of money!” with your 401K and more. But you won’t find any that will tell you how the latest “market” moves either globally or locally may affect your business. Period.

Providing that insight to others whether it be to large or small business owners, CEO’s, solo-practitioners, “Mom” or “Pop” tattoo parlors, and hair stylists, down to the person working the usual 9-to-5’er but approaches his/her life via the entrepreneurial minded spirt is all I care about. Period.

This consortium of practitioners is the main focus of my insights. They don’t need more “Rah, rah, rah!” type of analysis, they’ve got enough of that crap and don’t need an ounce more. (See ratings of CNBC™ for clues) They need (and I’ll insert: want) someone to try to explain to them why everything they understand and know about business has suddenly become null and void. All – in less than 10 years.  (see Snapchat™, Tesla™, Amazon™, IBM™, or insert the latest Non-GAAP reporting star here _________, just to name a few for clues.) i.e., They want to know that they’re not crazy. Hint: You’re not.

So now that that’s out-of-the-way let me sum up what I believe is currently taking place in the “markets” and where we may go from here…

First: Every piece of incoming data (Soft Data for one) that’s been coming out has been not only negative, but clearly shows an economy not supportive of current prices. Trying to argue otherwise is a fools errand. Yet, there seems to be far too many wanting to believe, and an ever growing cadre of so-called “experts” feeding them what they want to hear. It’s stunning to me just how contorted these arguments and rationals have now become. It borders insanity in my opinion.

If one wants to dismiss all the “soft” then one has to square their circle of reasoning with this: Current estimates for Q1 GDP via the Atlanta Federal Reserve have now been revised (once again) down to a mere 0.5%. That’s not a typo.

Again – explain to yourself how can GDP revisions continually be revised downward – and not upwards once – and the “markets” sprint ever the higher, while never forgetting all deteriorating “soft data” is also their as a backdrop?

There’s only one explanation (one that actually make sense and is verifiable by any sane measurements and rationale) the “markets” are in bubble. That’s it – pure and simple. “Hopium” is the current fuel (i.e., aka “the reflation trade”) pushing them ever higher. Where it runs out is anyone’s guess. And it is just that – a guess.

The issue that is the most critical to understand (and prepare for) is this: Knowing that you’re in one. And we currently are, no matter what some next in rotation fund manager or show host says otherwise. Even if they have more bells, buzzers, and carnival barks than a circus show.

Why now is even more critical than before as to pay attention (and again prepare for) is that this is now happening against the wishes of the entity that made it all possible to begin with. e.g., The Federal Reserve.

With the Fed. now openly hostile to further easing and what can only be described as “hell-bent” on raising rates, raising them aggressively, while openly stating that balance sheet reduction is now not only possible but probable. What’s going to, never-mind, push the markets up further? The real question is this: What’s going to hold them up here once the hangover hits?

And that hangover is any moment phenom, not something which is telegraphed far in advance like many believe.

When that phenom hits (and it will as it has done so many times previous) is when “liquidity” as it is known today suddenly vanishes. That’s when “getting out” sometimes becomes all but impossible without incurring massive losses. (See 1999/2000 – 2007/08 for clues.)

Business owners et al need to understand where they are currently, how to approach coming cycles, what those cycles may entail, what may be distorting them, how they’ll finance, what type of financing, should the buy, lease, expand, the questions go on, and on.

There are advantages to take in bubbles, as well as stay clear of. Knowing where you might be in one is where the “edge” lies. And that’s where the competitive advantage of what someone like myself provides.

You want proof of this you say? Fair question. So let’s use one of the people whom everyone who had a keyboard (or spoke with me) gave me remorse for daring to question his “insights.” Tony Robbins. After all, didn’t I understand, this is Tony “freakin'” Robbins! Yes, I understood, and that’s why I argued as I did. First, a little background for new readers…

When Tony’s first book a few years ago came out I commented on it. A year later when he was still pushing his “advice” on the airwaves I commented again. At the time I was one of the few that took many of the claims inside to task. I was also one of the few that had the acumen and background to dare to do it. After all – it was Tony Robbins!

Personally, I like Tony, and have no axe to grind, but the book and its “insights” I felt would hurt far more than help if followed blindly in todays manifestation known as the “markets.” And I said so. The issue at hand was, and still is: My arguments still stand, and hold weight even more today than previously argued.

All one needs to do is look at a chart (which I’ve posted and annotated on numerous occasions over the two years since that book came out) where the “markets” not only went nowhere – you had more than one terrifying drop into what seemed the abyss where all that new found “advice” did little too help. The only thing which saved the “markets” from following into more of that abyss was further jawboning, and iplied action leveled by speaker, after speaker from the Fed.

This oscillation did not stop until – the election of Donald Trump.

Since that period we have been on an utterly unimaginable “hopium” propelled rocket ride to where we stand today. To be clear: Just prior to the election results so concerned that the “markets” were about to roll over and fall back into their already established pattern of “freefall” that the Chair Ms. Yellen delivered what is now her (in my opinion) most convoluted and contradictory speech when she argued that the Fed. may need to run a “high pressure” monetary policy as to help erase any of the lingering effects from the crisis still evident in the economy. i.e., That implies not only a dovish stance, but rather, an uber-dove policy.

Today? It’s now “Hawks are Us.” And – it’s only been a little more than 4 months since that speech (e.g., late Oct. 2016) and we’ve now had 2 rate hikes, a calling for balance sheet reduction, and calls for even more hikes.

If (and it’s a big if) any more (maybe even one more) of the Trump proposals such as tax cuts is seen as DOA as they did when Trump/Ryancare was killed – all bets are off. And I mean just that: ALL. For the only reason there’s fumes left in the “hopium” tank is that the proposed “Tax plan” will be even yuuuger than expected.

The issue at hand this: Forget if the plan has any upside surprise. The facts is if the plan underwhelms, or worse, is seen to be DOA? You’ll then have a moonshot rocket that’s not only run out of fuel, but didn’t attain orbit, and gravity begins to take over, and with the Fed’s current positioning the equivalent of re-entry and no parachute deployment device at the ready. For the Fed. has now raised twice since – and – the effects of those raises have yet to be felt in earnest. After all – It’s only April.

If the reflation trade appears in any way to be “in trouble?” Can you say “Houston, we’ve got a problem?”

But not to worry I guess, just “Buy, Buy, Buy” is what I hear from the media. Maybe they’re right, right? After all, who cares! Have you seen the price of _________ (fill in your ETF of choice here.)

So, back to Tony. Remeber when I made the case “They’re back, and why you should be worried?”

I heard (once again) a lot from others telling me how I hadn’t a clue, I was wrong, real estate is where it’s happening, I don’t know what I’m talking about, I’ve been wrong, wrong, wrong, and more.

I garnered this must be a result of those whom have taken the latest Tony Robbins financial book (along with the current “hopium” trade currently taking place within the “markets) and his latest new found venue for pumping up (for “bilking” out) those new found stock winnings into real estate. After all: Did you know you can be a real estate millionaire just by attending a seminar and positive thinking? 15-thousand did in Toronto just this past March.

Guess what happened in April? Hint: “Ontario Finally Cracks Down On Toronto Housing Bubble: Launches 15% Foreign Buyer Tax”

Can you say, “Oh, oh?”

But not too worry for I must assume they covered such things at that seminar, right? Right? But after-all – What do I know.

This is what happens when the “bubble mentality” takes over. In other words, one must become both: blissfully, as well as, willfully, ignorant.

Today, that’s the only way one can argue the assumptions of curent “markets” whether they are of the financial, or even those such as real estate. There’s a reason why prices can accelerate in multiples that make absolutley no sense when a basic understanding of, and business acumen are applied. It’s called a “bubble.” And the only way to hop in with both feet, jump up and down pumping your fists in the air chanting in unison that you and the other 15K attending the same seminar with you are going to get yours is to? Hint: Be both: blissfully, as well as, willfully, ignorant.

Sorry, but if you want to argue that I’m wrong, try arguing to the people who probably went out and signed on many of the dotted lines after that seminar to suddenly find not only “does the bank and everyone else own them” but also, the #1 buyer that fueled those prices is now about to be hit with a 15% tax.

And for the clues to just how much pain may be in-store? Just look to Vancouver where the same was implemented just a few months prior. Hint: The term “Crash” is the theme.

Or, then again, I hear all one needs to do is just “diversify” your way to fearless investment bliss. Just like everyone did in 2008. Oh wait, sorry, that didn’t work then did it. Well, I’m sure, “This time is different.”

Then again, even when “hot coals” has been the focus – it would appear the results have had similar forbearing. e.g., “Tony Robbins Asks Everyone To “Storm Across A Bed Of Hot Coals” – Dozens Get Injured”

But I guess that’s ancient history. After all – that was way back in June of last year. Time heals all wounds and financial timidity, yes?

I hope the people of Toronto remember that, because I’m pretty sure that wasn’t discussed at the “Wealth” expo. Then again, I don’t think you’ll hear any of that sort when it comes to the “markets” either. But then again…

What do I know.

© 2017 Mark St.Cyr

The Fed’s Not ‘Terrified’ For The Simple Reason: It’s Only April

Last week it was reported that Paul Tudor Jones was overheard openly implying (paraphrasing) “The Fed. should be terrified of the stock market value relative to the underlying economy.” This in turn prompted a response when the Fed’s vice chair Mr. Fischer was queried for a response and replied “We’re not terrified.”

Fair enough, then again, it’s only April.

The real issue at hand is not the response given by the Fed’s V.C.(after all what is he going to say.) No, the real near comical aspect of all this is just how matter-of-fact and “all-seeing” they believe their arguments to be. One would think with what is of public record from their “assessments” to their “reasoning” as to why they chose a death grip to the zero bound, to then suddenly once the election results were not only found the courage to raise, but decided to raise twice within 90 days while basically shouting from the top of the Eccles building that not only were more raises on the table, but also the balance sheet.

The problem for the Fed. of late has been – no one has been listening, and basically, no one’s cared.

This (in my opinion) is what truly terrifies the Fed. And if you watched both their tone and tenor, along with their arguments, as to why now, not before, not any later, but right now was the time to go full-bore on raising rates and cutting the balance sheet, you could see the real reason behind it: They were (are?) terrified of loosing all this new-found power and adulation.

For nearly a decade (yes, it’s been that long) the Federal Reserve along with central bankers everywhere have been the ones in near complete control of the global economy via their differing iterations of QE programs. And what do we have to show for all this economic “wisdom?” Let’s use the Federal Reserve of Atlanta’s Quarterly GDP report for a reference of efficacy shall we? But first, a little history…

Back in days of yore (circa January 2017) The above report for Q1 was estimated at being around 3%. One would think that figure to be a good sign, especially when the Fed. had just raised rates at their Dec. meeting only 30 days prior. Although 3% is still anemic, one will take any signs of “hope” where one can get it I guess particularly when the Fed. Chair via her presser expressed further hiking was all but inevitable, and at a far faster pace, than anyone presumed.

To reiterate: With a GDP estimate in-and-around 3% one could argue (although I would not) that the Fed. postulated with their brethren in other jurisdictions that the economy was indeed “on track” for sustainable and further GDP growth, which warranted raising rates. At least, that’s what you heard if you listened to any communiques via the Fed. and/or the main stream business/financial media. The messaging and tone of it was unmistakably in unison.

How does that same GDP estimate stand today with revisions? Surely it must be at least the same if not even higher since the Fed. felt embolden to raise rates again for the second time in a mere 90 days (March meeting.)

Envelope please…

The result for Q1 GDP estimate now stands at a whopping: 0.5% (that’s not a typo, nor was I handed the wrong envelope.)

But not too worry, after all, how much lower can it go? I mean, in April that is, for there is only one more revision to go (on the 28th.) Or, maybe I’m typing too soon? We shall see I guess, and sorry for that sudden feeling of anxiety you may have had. That’ll come all too soon enough I’m afraid. After all – it’s only April.

Below is an important distinction far too many forget…

“You know what the difference is between an Economist/Analyst, and a Business Owner?

When a Business Owner makes a prediction on his or her business and predicts wrong; the business could wind up in bankruptcy. When the Economist/Analyst makes a wrong prediction; they just make another prediction.”

I’m reiterating the above for this reason: The Federal Reserve is not only the ultimate cadre of economists/analysts, but what needs to be pointed out most prominently is this: It’s not only endowed with the capability as to print (e.g., create money ex nihilo) and replace any losses when wrong. There is also no personal recourse at risk for its members; whether it helps, or hurts, an economy other than what conferences, dinner parties, or “institute” they’ll be invited to attend during, or after they leave.

So it was from this perspective I thought it all but comical when the Fed’s Vice Chair responded with the rebuttal, “We’re not terrified” adding my two-cents: Of course not – it’s not your money that’s at risk – and – it’s only April.

So yes, maybe the Fed. isn’t “terrified.” However, with that said, what we can only presume is that at least one of these ever metamorphosing “doves to hawks” and back again depending on “market” conditions is more than a bit concerned as was displayed when none other than N.Y. Fed. president William Dudley had to suddenly take to the media as to calm what could only be described as the beginnings of a possible unrelenting torrent of unwinds within the bond, and currency markets, along with any subsequent accompanying hedges.

What was the catalyst for this sudden taking to the airwaves?

What the definition of “pause” was. (No, that’s not a joke, sorry too say.)

Did I mention this is all beginning to happen in April?

Seems funny how suddenly the “markets” only 30 days hence since the March hike (mind you – the 2nd in 90 days) are taking to reacting to any Fed. speakers words once again. It seems like only yesterday (it was only March) when the Fed. seemingly couldn’t get the “markets” attention. Not even with two rate hikes in 90 days and posturing for even more. So much “more” that none other than “Mr. Courage to print, and print some more” former chairman Ben Bernanke took to the keyboard as to show his concern if the Fed. was truly talking the game for balance sheet reduction with his opinion of (paraphrasing) “I hope not.”

Here’s how the former Chair described any balance sheet reduction ideas. To wit:

“First, to minimize the risk that unwinding the balance sheet will disrupt markets and the economy, the best approach is to allow a passive runoff of maturing assets, without attempting to vary the pace of rundown for policy purposes. However, even with such a cautious approach, the effects of initiating a reduction in the Fed’s balance sheet are uncertain. Accordingly, it would be prudent not to initiate that process until the short-term interest rate is safely away from the effective lower bound.”

So let’s take the above observation at its word: Does one think if that was a prudent observation via the former Fed. Chair with all his acumen pertaining to the Fed. and policy initiatives – that talking, insinuating, and proposing a reduction this year in concert, or, as a primary tool to be enacted when the effects of 2 rate hikes within 90 days have yet to be filtered, and their ramifications manifest within the economy as prudent or advisable?

Regardless of your feelings about the policy itself, just weigh the above in context from a business standpoint. Can you see where “policy error” could be the most terrifying expression to yet be felt in the economy based on the above? Especially – since it’s only April? (again keep in mind Mr. Bernanke penned that piece way back on January 26, 2017. I’m not sure if the internet had yet been invented back then.)

Why should this be of concern? Hint: Today (as in April) the Fed. (once again) has suddenly needed to sprint to the airwaves with near immediacy as to parse the definition of verbs once again, or else, all heck appears about to break loose. (See above’s bond, and currency scenario for context.)

Why might that be you ask? Great question, let’s start here…

For those who don’t remember it was only a few months ago when this current incarnation of Fed. board members that were so vehemently dovish back in Oct/Nov of 2016 suddenly morphed into a virtual squadron of “Hawks are Us” insinuating no room for misinterpretation directly after the U.S. election results.

The switch was unmistakable and the Fed. itself has been doing everything within its vocal cords as to prove that switch had indeed been made. The March hike was that de facto moment to any who thought otherwise.

That was until what appeared as the Fed’s cover-for-courage (i.e.,Trump-reflation, hopium trade) showed to be DOA.

Now, with all eyes refocusing back onto the Fed. and its raising of rates into the reality of an anemic, if not near recessionary economy, it would appear suddenly the Fed. feels the need to send out speaker after speaker in a “he said-she said” ever-growing conflicting narrative of “hawk vs dove” parsing spree for where the Fed. currently stands for the further raising of rates, and more.

Don’t take my word for it. All one needs to do is listen, read, or watch any current Fed. communications over the last 30 days or so. We’re back into parsing verbs and their meanings once again. (see the afore-mentioned Mr. Dudley’s latest for clues.)

Oh yeah – and it’s only April.

Speaking of April, I haven’t even mentioned the sudden “retiring” of two members out-of-the-blue: One for reasons not elaborated (e.g., Mr. Tarullo), the other, for reasons I can only surmise the Fed. wishes needn’t be elaborated (e.g., Mr. Lacker’s admission he leaked market moving data.) Did I say, “It’s only April?” This is also the reason why I used the term “this current incarnation.” After all – it’s only April.

Again, let’s go back to where this supposedly all stood back in and around January of this year. You know, when all that “economy is awesome”-ness was emanating from a confident FOMC rate hiking squadron of hawks deciding it was not only time to raise, but rather, it was time to raise, and raise some more. Has anything else happened since then?

Hint: Now with Article 50 triggered in the U.K. and Brexit all but a done deal. We now have the elections in France and a possible Frexit on tap depending on the outcome. This alone could be the beginning (as well as encouraging from the growing chorus of EU partners who also want out) for a possible (if not inevitable) complete and utter dismantling of the E.U. leaving the ECB (European Central Bank) and its ever so “ebullient” Mr. Draghi precisely where? And with what? To do what further “whatever it takes” exactly?

And I haven’t even mentioned N.Korea, China, Russia, NATO, a reverse in the $Dollar, and a whole lot more.

Did I mention: It’s only April?

With all the above for context it is also quite possible all the continuing soft data surveys falling in unison are nothing to worry about. Let alone be “terrified.” It’s also quite possible the old adage of “Sell in May and go away” is nothing more than an old traders tale not worthy of anything more than a “flip of a coin” for relevance. So why worry? Let alone – be “terrified”, right?

It’s also quite possible that the Fed’s front-running any possible fiscal stimulus emanating from congress might have been a little premature, if not over zealous. Especially when intertwined with calls of “balance sheet reduction” as not just a possibility, but rather, a probability now that it appears all the “stimulus” the Fed. appeared to be front-running is all but DOA.

It’s all quite possible any thoughts for concern are far too overdone. I mean: What else could go wrong, for the above is sooo 2017 already, is it not?

Sorry, I almost forgot: It’s only April.

© 2017 Mark St.Cyr

Unicorns Watch In Horror As Uber Careens Towards A Possible Extinction Event: A Down Round

For the average person the daily headlines containing the words “missile” and “nuclear” bring about thoughts of fear and anguish, especially when they pertain to the realization in which this time – it may be different. In other words, the sudden misstep resulting in an actual nuclear incident is far more probable than possible. e.g., N.Korea as the latest example.

However, not withstanding or minimizing any of the above, there is something just as closely being watched and the implications for what many (especially myself) would deem as a possible extinction level event is playing out right here in the U.S. Although, this one does not involve anything pertaining to military.

No, this one is the current nearly unstoppable “chain reaction” type event happening in the once unfathomable business unicorn known as Uber™.

This slow motion train wreck of what was once The unicorn of all unicorns in the current stable seems to be not only imploding – its once argued defense shield worthy of DARPA against any and all criticism seems to not only have been assailed, but appears to be all but destroyed by Uber itself with the latest headline that its head of communications (i.e., PR) Rachel Whetstone has now joined the growing list of high level executives to “dive out the door” of this still moving investment vehicle.

Regardless of the reasons, or innuendos circling about with this latest staff change, one element is undeniable, and it is this:

When a company’s head “PR” person quits smack dab in the middle of what can only be recounted as one of the most disastrous yearly beginnings in Uber’s short history (i.e., scandals, senior management leaving, CEO melt down caught on video with a driver, and more) and that company just so happens to be the most valuable start-up (e.g. a unicorn said to be worth some $68 BILLION), while also claiming the title of “disruptor of the disrupters”, and, is a cash burn machine with no concrete date for IPO? It’s the equivalent of a harnessed team of (e.g., all of The Valley’s) unicorns running smack dab, and full stride – into a concrete abutment. The resulting carnage will be legend.

Unicorns everywhere (primarily the ones whose sole goal was for the explicit reason to disrupt, regardless of profitable business metrics, fundamentals, or even laws, get funded, IPO, and cash out, rinse repeat) have hitched their dreams to the likes of Uber ever since it entered the marketplace.

Many held this company up as “the role model” for how to run, how to fight, and how to play by your own rules regardless if those rules may turn out to be in violation of known laws. i.e., “It’s all about disrupting and the Benjamins – screw everything else.” (i.e., AirBnB™ and it’s now legal issues as one example)

That works when it’s all “free money” supplied by an ever complacent Federal Reserve. But when that complacency is over (which now it clearly is) business fundamentals such as cash on hand, cash burn, net profits, management team, business metrics, execution, et cetera which were shunned in the “go-go” period come back with a vengeance.

So much so anything to do with “funding” seems more like being hailed to the executioner’s block rather than being invited to the all night parties which transpired after drooling V.C.’s threw money at their heads.

Suddenly, here’s where “funding round excitement” takes on a whole different connotation.

2016 was supposed to be the “rebirth year” of the IPO. Hint: It wasn’t. 2017 was also supposed to be the make up year for all prior sins with the announcement and fanfare of Snapchat™. Again, hint: It’s been anything but an unequivocal disaster in terms of stock price swings from gains to now losses on nearly everyone who’s purchased since the opening quotes, but that’s just my view. If you were one of those who did purchase? You have my condolences.

And, I’m sorry to say, “It appears to be getting worse.” Why? Because it’s (once again) sliding back into “teenager” territory, threatening to even make those early coveted $17 pre opening bell holders into losers as well. Only time will tell, after all, it’s only been 45 days or so to wipe out nearly all the gains prior.  And if there’s any solace in the old adage “Misery loves company?” Cheer up, for I’m betting you’re far from going to be alone in the not so distant future.

If – and I do mean just that, Uber needs to go back to the “funding” rounds (and it’s easy to speculate it will need to with its self verified cash burn woes) with all the exposed dirty laundry, and excess baggage now exposed to the entire investing world and “Valley”, coupled with its extraordinary cash burning metrics and collapse in “growth ” story (i.e., China being just one) where the last funding round (June of 2016) was made via the Saudi Arabia’s Public Investment Fund.

Who’ll want to step in after it’s assumed that this company has now also burned through $3.5 Million of Saudi dollars – and now needs more?


And what will it take to entice? If it’s a “down round?” (insert hair-band ending Europe’s Final Countdown song here in sympathy)

This is what is now creating the fear and loathing in not only the current V.C. cadre with investments sunk so deep into the remaining unicorns awaiting IPO pastures, any (if not most) returns are appearing to be all but lost. That’s bad enough – but that’s not all.

It’s also manifesting in much the same ways for any of those remaining “Valley” models looking, and still believing, they can just launch another funding round to survive. All I’ll say after looking at the current turmoil growing ever-the-worse by the day with its star unicorn, is this: “Good luck with that.”

In my opinion: They are all teetering on the edge of extinction if (or when) Uber has to do the near unconscionable act and hit the button and launch – a down round.

This I’m quite confident (just like when I stated most IPO’s were dead already but just didn’t know it a year ago) if it happens will force many in the current “unicorn stable” to tell their current investors: “After careful consideration it seems making a true net profit is once again a business fundamental which they can no longer circumvent, and will now liquidate in an effort to conserve any (if there is) possible cash or value.” Rather than face the executioner’s V.C.’s newly found funding wrath.

And with that here’s what may be a small window into what future “funding rounds” may look like after the glitz and glamor of the past where “metrics to nowhere” or “who cares about customers, investors, or profits – we’ve got a party to throw!” and more have been the norm, only to be dispatched (as they should) to the trash bin of investing history. To wit:

“Are there any takers to invest in this once in a lifetime opportunity to disrupt _______?” (fill in the blank.)


© 2017 Mark St.Cyr

The Coming Red Line That Can’t Be Crossed

We’re hearing a lot about red lines today. And when those “lines” are posed at a near incessant pace coming from every corner of the media while including other items such as: chemical weapons, missiles, carrier group, troop movements, and more. It’s easy to see how one gets desensitized. It seems for anyone trying to actually pay attention to world events the task gets harder by the day. It makes one think that maybe Timothy Leary was on to something, but I digress.

However with the above noted there is one “red line” which is currently below the horizon and has the potential to disrupt the globe in ways that everyone currently believes has been avoided. And much like the carrier group now steaming its way towards the Korean peninsula, it has the same amount of potential “firepower” to escalate things in ways we all hope can be avoided.

That “red line” is not a military one, but rather, a “market” one. And if crossed everything changes, and I do mean everything. To wit:

(chart source)

The above is a weekly chart of the S&P 500™ as of Wed. before the opening bell. As you can see we have been in a near vertical assent since the election. It’s important to put these things into perspective for reasons as I highlighted on the above.

First, as you can see there are two horizontals containing blue fields. Why is this area of importance? Because this area represents where we bounced within, incessantly, for months. Where the headlines of “New record highs!” dominated the mainstream financial/business media for months on end. That is, until about Aug. of that same year (2015.)

As you can see that range which allowed for the generating of all those “headlines” and “great vibes” that poured out of every next in rotation fund manager, economist, or Fed. speaker suddenly became null-and-void when the “markets” began to nosedive, seemingly out of nowhere. (e.g., the resulting aftermath of the overnight devaluation of the Yuan.)

That didn’t stop until Fed. officials (along with a note in James Cramer’s pocket) took to any media venue they could to shout from the skies on “the wings of doves” that they were “at the ready” with whatever new iteration of money printing may be needed. The “cooing” was always at its loudest as the “markets” approached (again, and again, and again) that now monikered “bottom.”

This was, and has been, the BTFD genius trade in spades. For every-time the “markets” rolled over? The Fed. has scrambled to assure their dovish tones, and deeds, were standing at the ready.

This (once again) was played (and I presume continues to be played) by Wall Street as I mentioned before – “in spades.” For if you look at that chart you’ll notice the “markets” were about to (once again) breach that all too familiar line and possibly resume its now familiar pattern of “It’s all falling apart! Someone do something!!!”

And as the above shows (once again) a Fed official did just that when the Chair herself made what is now deemed one of the most contradictory speeches as to what the Fed. might be contemplating with her insinuation that running a “high pressure” policy may be the only way to alleviate the damage still residing within the economy. We were, as the above shows, once again, looking as to repeat the same old, same old.

Some might be asking what’s so contradictory? Hint: “High pressure” insinuates a far more “dovish” monetary stance. (i.e., “Don’t worry boys, we’ll make sure Christmas isn’t cancelled.) This was in October. Within about 60 days of that speech Ms. Yellen would become the undisputed leader of the now gathering flock of “hawks are us.” The only thing that changed during that time besides the Fed’s posture? The election, imagine that.

Since the election the “markets” have been on a one way trajectory, straight up, into record-breaking, after record-breaking, closes. In my opinion: Nosebleed territory is an understatement. Yet, what one must remember is this…

The Fed. has seemingly done all it can other than openly scream, “We’re serious here, and still relevant!” about their intentions of further, and faster hiking, and/or their balance sheet reduction ideas.

And so far, it’s all fallen on deaf ears.

The “markets” currently are (possibly were) only concerned with the “Trumpflation” trade. i.e., If the economy gets what Trump promised as in: meaningful tax cuts, Obamacare repeal, incentives for manufacturing and more – the Fed. doesn’t matter. Only the economy and resulting GDP does, as it should. But there’s a problem.

Suddenly it looks like all that campaign promising and rhetoric is turning into just that – rhetoric, and promises that can’t be kept. And the “markets” ears are now beginning to wonder if all that “screaming” about further hikes, balance sheet rundown, and more coming out of the Fed. which is emanating no longer on the “wings of doves” but rather from a concerted group of “hawks” should be given more thought.

So “noticed” in fact, it seems to have taken the Fed. itself by surprise when none other than N.Y. Fed. president William Dudley after a speech where he expressed he favored gradual tapering of the balance sheet felt the need to take to the airwaves (sorry but, once again) only days later as to clarify what he meant by the word “pause” because of the adverse reaction given by Wall Street.

Yes, the Fed. got it’s wish – Wall Street is once again “all ears.” And with that the Fed. suddenly found itself like that old joke of someone shouting over the ambient noise at a party to suddenly find the music stopping mid sentence while they’re still screaming.

So comical was this knee-jerk reaction via a Fed. speaker as to make sure they clarified what “pause” truly implied, I nearly spit my coffee when I heard one of the hosts on Bloomberg™ make the observation: “Is this what its all come to? Needing to clarify the meaning of ‘pause?'”

Yes, yes it has. However it’s been that way for quite some time, just no one cared to listen other than those of us relegated to mocking as the “doom crew” or “tin foiled” types. The real problem is – we’ve been right. It’s just that most are just beginning, including the media to catch on. The issue that goes with that hand-in-hand is this: possibly far too late. And here’s why…

As I said in the beginning there’s a “red line” that needs to not be crossed in my opinion. I’ve marked on the above chart that line is, or about, the 2130ish area (give or take) on the S&P.

If that line is crossed there will be a battle which I’ve delineated as the “battlefield area.” I would assume we will ping-pong back and forth (i.e., 2130 – 2085 respectively) within this area until the break of where we’re heading in the near future is made. If it breaks lower? All bets are off. And I mean just that: All.

For this rally to hold and further gains to be promising that 2130 line needs to be avoided at all costs. Especially with the Fed’s current stance and policy implications. Much like a kinetic war, this “market” and monetary battle may have just as harsh ramifications if certain red lines are breached.

The issue at hand is this: Just as fast, and unrelenting as the “Hopium” trade of reflation has been. It can reverse with the same characteristics as it started, and we could end up at that “moment of truth” before we know it.

If we do start barreling there out-of-the-blue, and with some momentum? Your first signs for concern will be when you suddenly hear hawks cooing. Though that process (or metamorphosis) might already be underway. See Mr. Dudley for clues.

Now it’s time to see how the “market” reacts. Or more importantly:

Is the damage of 2 rate hikes in 90 days, and relentless jawboning for balance sheet reduction, along with the realization of potential reflation trade DOA damage already done?

© 2017 Mark St.Cyr

United Airlines Reinforces The Deplorable State Of Corporate Management

Forget the idea about trying to contain labor costs by automating front line positions such as installing “robo-flippers”, order taking kiosks, or teller annihilating machines such as the ATM. On a case by case comparison, this may be the equivalent as the old saying goes, “Trying to save the pennies from falling – as the dollars blow out the window.”

For my money the place where automation should now begin is directly in the C-Suite, beginning with a many of the current crop of CEO’s supposedly “running the ship” of the plethora of multi-Billion dollar enterprises with their extraordinary salary compensations, and “parachutes” so elaborate, calling them “golden” is the equivalent of equating the Hope Diamond to cubic zirconia.

The state of the C-suite (and subsequently the Boards that empower them) has now become an abject deplorable situation, ever-growing stain on true business management principles and ideals. It’s disgusting.

Unless you are one of the fortunate who doesn’t have to rely on the air travel for your daily commute or business needs it would be hard to imagine that you haven’t heard, or better yet seen, the now viral video of a United Airlines™ passenger being dragged down the center aisle of the plane like a corpse, with his face bloodied, in full view, not only of other adult passengers, but also their accompanying children. This was all the result of an altercation with security personnel as to extract him from an overbooked plane.

What was his crime? He was the poor unfortunate sole whose sole offense too God and man, was that he purchased a ticket supplied by the airline to travel. However, the airline “overbooked” and needed to make room for stranded “staff.”

In what the airline presumed was an act of “fairness” when their offers of “$800” for anyone wishing to take up the offer went unheeded, they decided to let a computer randomly select the passengers to be removed – then remove them. The above was the resulting fiasco.

Although it was a “computer” that generated what can only be deemed as “the extraction list.” It has nothing to do with any machine or computer, and has everything to do with the management. Here’s just a few examples of the pure idiotic management process which must be presumed took place prior to this altercation.

  1. Assumed this was a viable idea to begin with and probably had 273.5 meetings with stale pastries and endless hours of slide shows to discuss its viability and reasoning. Then, probably, a group hug, and some corporate “vision” chanting.
  2. Concluded passengers (or customers) are to be treated as they feel. e.g., like cattle. Therefore all decisions are to benefit the company and management – forget the customer. After all – there might be an “incentive” bonus.
  3. As long as “they” weren’t the ones to physically have to speak, see, or engage with any passengers (customers) any issues that may result are for the “front-lines” to deal with – not management. e.g., themselves.

The result? The equivalent (all assumed) of unleashing airport security as to extract a legally holding, properly purchased ticket holder with the implied understanding of, “If they don’t want to leave – make them leave by whatever means necessary.” Hence why this fiasco is eerily reminiscent of a special-ops take down and extraction.

Yes, there’s culpability abound as far as the way in which the security detail acted and behaved. But (and it’s a very big but) first and foremost it resided squarely, and prominently on United, its management, along with its CEO, which, I’ll get to as we go along.

Let’s just take the issue at hand for now because I’ve heard a lot of what I can only describe as convoluted reasoning, arguments, and/or justifications. First, let’s talk about the issue of no one volunteering to be “bumped” with the added incentive of an $800 bonus. This is an entirely specious and “red herring” argument.

United™ does not have the right (forget the “legal” we’re talking ethics here) to arbitrarily set a rate it deems as “fair” and if there are no takers – to then extract a paying customer arbitrarily and remove them from the plane because their system overbooked. That’s not the customers fault – that’s United’s. Period.

If for whatever the reason no one was willing, or accepting, of the offer there’s only 2 alternatives. First…

  • Up the incentive amount until you get takers, whatever that price might be.
  • If no one accepts – arrange for that “staff” which needs to get to their destination via other means. i.e., They’re an airline! Either fire up another plane or arrange travel via solely purchased, or “tag-along” on a private or corporate plane. Regardless of the cost. Again, that’s United’s problem not the customers.

An easy assumption is: had the price entered into the “thousand dollar” level the enticement to “take the offer and run” would have been met. The $800 figure was surely arbitrary. And if it wasn’t? Then who made that decision that it wasn’t? After all, they were only $200 shy of that far more easily sellable and enticing level. And yet? See the above.

Another argument was that the passenger (reported to be a Dr.) was in coach as if this was some form of swipe at his ability to acquire “business” or “first class” tickets therefore it was his fault. That insinuation and convoluted thinking is almost as devoid of intellect as the idea that transpired to create this entire debacle. Let me express it this way using myself as the example:

If I am in need of air travel to attend or speak at some event I’ll fly “First Class.” No, not because I’m trying to impress, but rather, I need the space and accommodations to both relax comfortably, as well as, work while traveling. However, purchasing “first class” airfare (especially when it comes to U.S. domestic travel) doesn’t mean there aren’t also “bumps.” No, you usually won’t be asked to give up your seat (although for the right incentive you may) but flights get cancelled for whatever the reason and there are times you need to make other arrangements stat, and, no pun intended, on-the-fly.

If my schedule is running close and I’m, let’s say, speaking at an event. I might need to take any flight available even if the ticket means I’m to be loaded in with the baggage as to make my engagement. Since my speaking fees are well into the 5 figures and the people who hired me, and the attendees that paid to be there, along with all the ancillary charges of venue and more are riding on my arrival? (which now can be easily calculated into 6 or more figures) An $800 “incentive” would do little to entice me. One could say (and I do) an incentive of $10’s of thousands would still not move me. I just couldn’t. Are you beginning to see my point here?

Now forget about me, let’s apply this to the passenger they forcibly removed. What if he was doing the same at a conference? What if he had an important presentation to give to others in the medical profession at some yearly conference where this was his only time to attend? Or, what if he was a Dr. being flown from another part of the country because he was the only one who had any idea of how to read the diagnosis charts of a deathly ill child, maybe, even your child? Think that through. Do you think it would be possible he’d put up a fight? Would you want him to?

Or how about it was your wife, husband, mother, child where all they cared about, for whatever the reason, was to get back home – and no amount of money was worth changing or missing a flight. Only to see them dragged down the aisle, bloodied, like corpse in front of others via the capturing by video becoming today’s “viral” phenom. I guess the only other more repugnant question would be if the social media venues would place advertising within it.

No one knew at the time why, and for what reasons this passenger didn’t want to relinquish his seat. All that was stated was – the computer has picked you – come quietly – or we’ll remove you forcibly.

I will tell you this: Had that situation been me? Trust me, I would have far been the only one with a bloody face once hands were placed on me. And it could have easily been me, or you, your wife, mother, father, daughter, son, grandparent, or others depending on the situation. It’s shameful, disgusting, and a whole lot more.

And what may be even more disturbing is this: And the management of United never contemplated such as ever being possible?

The answer speaks for itself: Obviously, or else this altercation could have never happened to begin with.

This is why I stated in the title the “deplorable state of corporate management.” For this incident (in my opinion) is just as disgusting, and just as insidious as the Wells Fargo™ scandal and its failure of management at all levels, its CEO, and its seemingly complicit inept Board.

Let’s take the easiest point first: over-booking.

What is the difference between a bank opening accounts for nothing more than a “metric” to be reached as to show growth or profitability to Wall Street then switching them out, or cancelling them, all without their knowledge or approval – and – an airline selling tickets to seats they know can not be accommodated without switching them out, or cancelling them outright, all against the wishes or approval of those ticket holders as to show Wall Street “metrics” of growth or profitability?

Hint: Absolutely nothing. The only difference is how the management implements, the C-suite enables via the Board’s complicit oversight.

Think I’m off base? Fair point. However, with what I’ve used to illustrate my argument how does the following sit with what I’ve highlighted. To wit:

United CEO Defends Staff’s Violent “Reaccomodation” of “Belligerent” Passenger

Some highlights from the CEO, again, to wit:

In a letter to employees, United CEO Oscar Munoz said he was “upset to see and hear about what happened,” but defended his staff’s actions because the passenger had been “disruptive and belligerent.

He told staff in the private email that he was “upset to see and hear about what happened” but defended United employees.

“Our employees followed established procedures for dealing with situations like this,” the Associated Press quoted the email as saying.

“While I deeply regret this situation arose, I also emphatically stand behind all of you, and I want to commend you for continuing to go above and beyond to ensure we fly right.”

As one can plainly see by the CEO’s own wording – this type of incident had been discussed, otherwise, why release an internal message discussing what happened in a de facto type message at all, correct?

And remember when I made the working assumptions that no one knows (or knew) the reason why this passenger would not give up his seat. Well, it seems we’re getting a little more about the reasons why. And they are…

It is reported, (paraphrasing) “He needed to be at work at a hospital.”

Why? It doesn’t matter and is a rat-hole ripe for specious arguments. Maybe it was to save a child, who knows, but the computer picked his name – the CEO obviously signs off on this procedure.

And with that decision, for the sum of probably saving a few thousand dollars – millions, upon millions, if not $Billions will be erased in market cap as more and more headline reading, parasitic, HFT, front-running, algo-driven, headline reading computers parse their interpretation of “fair.”

The stock price of United is already showing thse signs of stress.

I wonder how the Board, CEO, and management at United think about “random” computer picking and its subsequent actions now?

Here’s a consulting tip, free of charge to many a CEO if they don’t smarten up…

Your current state of affairs and positions will far less resemble a Wells Fargo debacle and aftermath such as the public humiliation of its former CEO, manager, and Board with its inept clawbacks and other seemingly disingenuous dealings on the matter.

No, what’s coming pretty soon at this pace is the exchange of multi-million dollar salaries and “parachutes” in exchange for something the front lines have been experiencing for years at managements behest:

A computer to replace the entire C-suite, making there no need for a Board other than its “motherboard.”

After all, what better “savings” to show profitability to Wall Street than cutting all the C-suite and board salaries and bonuses. It would probably be the first time in decades the airline sector as whole could actually become profitable, because the “air” they are traveling currently? As longtime investor Jeff Macke used to say…

“If the markets are open, it’s a good time to short the airlines.”

At its current evolution that may be an ever-increasing and applicable statement to a lot of “Corporate America” in the coming future. After all, it would appear to save a few hundred, or even a few thousand dollars the executives at United decided to put a plan in place that could/would damage its reputation and market cap costing hundreds of millions if not BILLIONS of market cap, its reputation, and brand.

You can get a computer to do far better than that and no “parachute” need apply.

© 2017 Mark St.Cyr

MYTR Sampler

Hello all, here’s a sample of some of the projects Mark’s been working on under the MYTR banner. It’s just a small sampling but it does give some perspective of what’s going on behind the scenes. Enjoy, and they’ll be more coming in the near future we’re sure.


J.D. -StreetCry Media Partners




© 2017 Mark St.Cyr In Assoc. with StreetCry Media Partners, All Rights Reserved

Trump Has The Opportunity To Reshape The World For The Better – If – He’s Bold Enough

Whether or not one agrees with the reasonings for why; one thing can not be dismissed: The current global standing of politics, trade, monetary policies, energy, and more are in a commingled stage of flux rarely seen but for very few periods in time, usually reserved for the aftermath of some form of all-out war, and rarely, if ever, before it.

We may be in just that moment of history where it comes before, as in pushing the threat back, rather, than trying to pick up the pieces afterwards. That is, if, there would be pieces large enough to find, at all.

Today those threats, real threats as in WW, are once again here. Threats that are very much to be taken as real. As a matter of fact, very real is the working assumption for those who have cared to take notice with the sudden tit-for-tat which just played out with Syria, N. Korea’s latest missile launches and threats.

And that is just today’s latest headlines, for we still have the South China Sea escalating tensions with China, Japan is suddenly testing missiles for the first time, Turkey’s continuing hostility against Germany and others, Iran, Yemen, and of course Russia. And that’s all I can remember of the top of my head, one would think it was enough, however, it’s not.

If something doesn’t stop the ever-increasing saber-rattling emanating across the globe; the next shoe to drop might not be in the form of anything conceived by most populations. i.e., I have the feeling anything involving the term “”WW3” or “nuclear” will be far worse than anyone has ever dreamed possible. Regardless what they’ve seen at the movies.

Said differently: Most understand (although they try never to contemplate) conventional warfare with standing armies, ships, and alike and think WW3 would probably be a lot like WW2 only with updated versions of the same weaponry and tactics. Some when they theorize the potential ramifications from a nuclear threat mistakenly think it’ll be something like Hiroshima, Nagasaki, and its aftermath. Hint: It wont, it’ll be far worse, even if it’s still only 2 bombs. For today’s nukes are thousands of times (yes – thousands) more powerful than those used during that war.

Don’t let that last line be lost on you. Far too many just don’t “get it” when contemplating the destructive powers and inevitable ramifications with its resulting aftermath of just one of today’s nukes. If you need a reference point? Think of the destruction unleashed in WWII via “Fat Man” and “Little Boy. Now think instead of only 1 falling to Earth: 3000+ “Fat Man’s” on one target, and another 3000+ “Little Boy’s” on the other, and you begin to have a sense of what today’s ICBM saber-rattle truly entails.

Again: and all you need to unleash that much devastation is just 2 – and there a thousands stored, and at the ready, across the globe. And I haven’t even discussed the threat of an EMP (eltromagnetic pulse) and its implications.

There’s also one other consideration which far too many see as almost impossible: The bulk of the next war, with all its fighting, bombing, destruction, and more could take place where it’s been near inconceivable for generations – directly on U.S. soil.

Yes folks – we’re currently in one frightening moment of history. Yet, where it goes from here is not only an open question; precisely what that “question” is could mark a moment that may (and I do mean may) be a turning point as to bring prosperity not only back for the U.S., but spread it around the globe in ways we haven’t seen in generations.

Wait, did I just raise the idea of hope and prosperity while also talking nuclear annihilation? Yes, yes, I did, and here’s why…

So what is that question?

It comes from none other than the recently departed Don Rickles when he suggested to Telly Savalas in the movie Kelley’s Heroes (1970, MGM) when things seemed all but lost: Rickles, “Then make a deal!” Savalas, “What kind of a deal?” Rickles, “A deal, deal! Maybe the guy’s a republican.”

That’s correct, in my opinion it’s not the question of the ages as Shakespeare put it “to be, or not to be” , rather it’s, “Deal? Or no deal?” That is the real question of today.

But exactly what deal, and precisely to whom is just as important. I believe everything, and I do mean everything, revolves on one deal, with one country, and it changes the world. e.g., a “New Deal” with China. Here’s my reasoning…

(The following is not an endorsement of any political side or person, it is meant as a “big picture” viewpoint with the current players that can, will, or won’t make any decisions going forth. Again, this is not about ideology, or political preference. These are the stakes, these are the players, these are their traits. Period.)

With the above for context we should all be on the same page as to why some form of “deal” that may foster some form of new grand alliance as to walk back a lot of this saber-rattling from the brink is needed.

I’m also of the opinion that “walk back” can only happen if the powers that be can do it within the framework of a business type arrangement, where the issue of “saving face” or “not looking weak” is afforded to the politicians, or leaders at the heads of their citizenry.

Without it? All bets are off, and everything from war, and more are squarely on the table. Possibly, even inevitable. And sooner, much sooner, rather than later.

This is where Donald Trump just may be in the precise position in history – to make history. For when it comes to “making that deal” it requires two very distinct traits which he is not only known for, but also, has spent a lifetime honing. And they are these:

High stakes (and I mean just that) deal making via mutual business interests, and pursuits – and – Thinking Big. And again, I mean just that as in “very big.” I believe these are the two, and only two requisites that apply.

If you say “politics” is also needed? I believe that to be not only wrong, but dead wrong.

Politics (as in the governmental sense) is the last thing that is needed to make a grand bargain. That particular “politics” is what you use to handle the process – after – not before. Hint: Think about the current debacle of Ryan/TrumpCare currently taking place. Here is where politics was placed first, before any proper deal was put forth. How’s that currently working out is all I’ll ask?

So what is the grand deal you’re asking? Fair question, just remember this is made to be oversimplified, and in very generalized sweeping terms as to propose the idea, not some “white paper.”

What would happen if China and the U.S. made some form of grand bargain both monetary, as well as trade related where the Yuan, and the $Dollar could, or would remain stable to each other, as well as trade imports and exports both to each others benefit?

Nonsense you say? We can’t do that now without one getting the better of the other? Maybe, but what if there was one product that the U.S. has in spades, and that China needs much like the U.S. needs China’s current cheap manufacturing?

That deal and its vehicle is: Natural Gas.

It’s well documented that the U.S. is the “Saudi Arabia” (if not larger) of proven natural gas reserves. It’s also well-known that natural gas is a far cleaner, and efficient resource than coal. This is something that is desperately need in China as their issues of smog, and its health hazard across their industrialized cities have become an unrelenting front page news source.

(On a side note: Please save the environment impact emails that I have no understanding about “clean” and more. I, unlike most, not only lived near a gas-fired energy plant; my property actually abutted it; and needed my approval as to even build it. So any forms of “NIMBY” rationales or “you don’t know!” don’t apply, because actually – I do.)

I’m not the only one who thinks this, noted Austrian economist Andy Xie also laid out and made the case for this back in February in the South China Morning Post™. Here’s a little from that article. To wit:

“The US has experienced a revolution in oil and gas production. Its shale oil accounts for over half its total oil production, making the US one of the largest oil producers in the world. Its shale gas has surged in output, making it one of the largest gas producers in the world.

On the other side of the Pacific, China’s oil production is falling. Its natural gas production is stagnating, despite repeated government prodding for higher output. China remains stuck with coal for two-thirds of its energy needs. Lately, use of the dirtier but cheaper brown coal has grown rapidly, adding to the environmental nightmare.

America’s success in shale energy and China’s failure reflect better endowment for the former but, more importantly, the triumph of entrepreneurial drive and the free market. The oil and gas sector is usually dominated by state-owned enterprises, like in China and Russia, and, in some countries by huge multinational companies. The US shale sector is very fragmented in ownership and production. Entrepreneurial dynamism is driving its rapid technological innovation.”

When I was reading that article back in Feb. (Mr. Xie is one of the few economists I follow) it was much like any other “insight” or “think” piece: sounds great in theory – and should be followed up on. But probable? Hard to tell, at least in the short-term.

But today? All I can say to that is – it just might be the right time for such a deal as never before. Because circumstances for the fruits of such a deal have never been more enticing. Here’s a little more from Mr. Xie:

“The US economy depends on the growth of its energy sector. But demand saturation seems to be limiting its growth despite the low price. Its ability to export depends on building very expensive liquefaction plants. Without long-term offtake agreements, this sector is unlikely to take off.

This is where China could come in. If China could offer long-term contracts, it would immediately spark an investment boom in the US and lift its economy. In the long run, China’s demand could eventually make the bilateral trade balanced, removing a major thorn in the Sino-US relationship.

China would benefit greatly. The shift to a clean fuel would help remove the biggest barrier to its growth. Stable and low-priced gas supply is in its long-term interest. As an added benefit, the demand for LNG tanks could revive its troubled shipbuilding sector. This is a big win-win.”

I agree, but also, I believe a much larger win-win has evolved than just a China – U.S. centric agreement. That “win-win” could inevitably end up altering the entire economic landscape, and current hostile threats in a way never conceived possible. All for the better as I’ll try to explain. And please remember, the following is supposed to be a broad brush, and over simplified example. That said – the ramifications could be utterly extraordinary. So here we go with the “What if” part of this…

What if for the sake of arguments Mr. Trump proposes the following to Mr. Xi:

“If you (China) take complete control whether it be military, or economically, and remove N. Korea as a threat by whatever means you see fit; what we’ll do is offer and negotiate a treaty and trade deal to supply China with a stable supply of natural gas that can traded in Yuan, $Dollars, SDR basket or whatever we both agree to, and, we’ll also recognize your claims to the South Sea with the caveat that we, and others, can traverse it as always without fear of incident.”

What might this do?

You would immediately calm China’s fear of losing the U.S. consumer good base where a populist uprising of suddenly out-of-work Chinese would take to the streets and revolt in the millions, causing the politburo untold headaches. Next, you would immediately take away the monetary finger-pointing issues such as devaluation and more. Then, you would begin a manufacturing revolution in both the U.S., as well as China in real wage paying manufacturing jobs as infrastructure and retrofitting takes place.

Think of what the drilling, and refining industry employs alone, along with what it would entail turning diesel-powered into natural gas, or propane powered infrastructure. The trucking industry alone would be worth untold $Billions of both savings, as well as, the tradesman that would be needed to actually build it. That is, these jobs would be true, wage earning, family supporting jobs.

And that’s just for starters. But it also sets the stage for more – and I do mean – much more.

As the U.S. built out, and retrofitted, along with the unimaginable possibilities of what further efficiencies could be possible as the minds, and money would be focused into what “natural” could do. (i.e., remember when under 10 miles a gallon was the norm before we needed to change that?) It would do something only dreamed of. but never envisioned as possible:

Cut our dependence on Middle Eastern oil once and for all.

If the U.S. could reduce our current oil demand even in 1/2 with a retrofitting of our current trucking and other infrastructure usage with home generated and refined natural gas that would change everything when it comes to Middle East supplied oil and all its political baggage, and melee.

Yes, it’s always been a “dreamed” option. But the China angle could get the ball rolling supplying the much-needed catalyst to end break the inertia in earnest.

However, if the above was possible (and why not when you factor just the diesel angles alone) the remaining 1/2 could be supplied by current U.S. shale, along with the addition of Canada’s supply. But that’s not all…

If you were to make such a “deal” it would make one other entity very nervous, and maybe even nervous enough to scuttle it by interjecting itself into it in an even more menacing fashion. That “entity” of course is: Russia.

However, it doesn’t need to be that way as I’ll lay out further…

What if you made the “deal” into a “Grand Bargain?” In other words as you propose to China, you also propose to Russia something along the lines of the following:

“Look, all of this “Middle East” stuff needs to end or it’s going to end up consuming all of us in a giant mushroom cloud, rather than the death by a thousand cuts we’re all currently experiencing. And all of us need it to stop, and stop now.

You know of what we’re proposing to China, so let’s talk about a proposal to Russia. If the U.S. no longer needs to be subject to Middle Eastern oil and its politics, that leaves Russia open to supply Europe with its oil unimpeded or with any considerations from a U.S. perspective. Run your pipelines through, or around whomever gives you the best deal. We don’t care because this whole Middle East thing is going to take us all down if we don’t stop supplying them one way or another.”

We could then possibly (and I do mean possibly) wait for the inevitable coming collapse of the Maduro government in Venezuela and make another deal with the near crippled, and desperately needing of economic income from the vast oil reserves it currently has as to help provide a re-birth of a capitalistic driven economy and principle leaving the sham, and shambles of socialism in its wake. Right in our own back yard.

The same could be offered to Brazil as to further import oil from their reserves providing another much-needed boost to their currently flailing economy. Again – right in our own back yard!

The real prize here is this:

If, and I do mean – if – the U.S. alone could move to become just 50% less dependent, never-mind 100%, the entire Middle East and all its problems become just what these nations scream they want: Their problems to be left alone and to do with as they wish. All while sitting upon a resource the world no longer needs, or wants (at least “needs” less of to start, but sure no longer wants) along with all its terror related exports combined with a whole lot smaller of a cash pile as to fuel it.

This could be a very small window of opportunity where East meets the West by way of the Pacific – leaving the entire Middle (as in Middle East, and all its warring factions) entirely isolated as to do with each other as they see fit.

If they want to kill each other, that’s their decision. Throwing American (and others) blood, treasure, and money as to try to stop them? Personally, I’m done. And I know a lot (i.e., the vast majority of the U.S.) feel the same. We’ve had enough. Somethings got to change. Period.

There is the possibility, especially with a Secretary of State in place who’s not only a former energy executive, he’s also dealt with all of the requisite players and knows how the details work, and how they need to be presented. Mr. Trump, on the other hand, has the wherewithal and the presence of mind as to propose such an audacious deal. This point can’t be trivialized.

And, what may be more important: A nation (possibly even nations) absolutely sick to death of worrying about some fanatic once again blowing themselves up in a crowded area, or driving a vehicle, or __________ (fill in the blank) demanding we, or our allies get out, or leave their nations alone. It’s time to do just that.

Instead of changing our laws, violating our constitution, subjecting our populace to ever-the-more violations of privacy, making business or vacation travel almost unbearable, and more as to deal with it, while simultaneously turning our own country (and now others) into a more totalitarianism looking “empire.”

Let’s give them (the Middle East) what they ask for and leave them – and their oil – alone. Leaving them to fight all their differences amongst themselves. What they do from that point on? Who knows. But the one thing I do know is this: Many of us (not just here in the U.S. but across the globe) are done with it all. Done, as in – finished, want it over and done with now. End of story.

It’s quite possible that an idea borne of capitalism, real unadulterated capitalism, just might be what brings the world back from the brink.

Will it happen? Nah…probably make too much sense. And you know what politics needs more of, but wants less of. i.e., Anything that shows they might not be needed. And making sense has a way of doing just that, which is why they hate it so.

But, you still have to dream, and dream big, regardless.

© 2017 Mark St.Cyr

Snake Oil So Toxic Even Snakes Marvel

Just when you think you’ve seen it all in business – you see something that makes you question everything, again.

Over the last few weeks there have been two stories that, more or less, flew under the radar. Yes, they were mentioned on different main stream financial/business media outlets, yet, that was all they were – mentioned.

In reality (at least via my perspective) these two stories should have been front page, or at the least “top stories” with their underlying implications discussed in earnest. However, as I said – they were barely mentioned, let alone, discussed.

The reason why I take such issue, is this: These two stories are not just illustrative, they are indicative to the deplorable condition of ethics, and ethical responsibility companies, and the people who both work and run them have become. And yes “ethical” is an accurate description, why? Hint: There’s a reason why we use the term “Snake Oil” to categorize unscrupulous business ethics and behavior.

So what are these two stories you’re now asking? Fair question…

The first, once again, represents all that is wrong, rolled into one, once tightly, rolled-up narrative that is unravelling and fraying ever-the-more by the day: Theranos™.

Back in July of 2016 I wrote about what I thought was one of the most unsightly displays of vomiting selling “snake oil” I had ever witnessed on television. And that’s saying something with all the late night “get rich quick” infomercials I’ve watched during my early career. The following is in response to that vision which appeared on Bloomberg™ in the interview, “DFJ’s Draper: There’s Nothing Wrong With Theranos.”

Here are a few excerpts from that article for context. To wit:

“So why do I bring this point up? Well, I was just sent a recent interview conducted by Bloomberg™ with one of the investors of Theranos™and it fit squarely into something else I’ve been calling out these many years: What’s behind many a “unicorn” is nothing more than a piecing together of anything which might appear believable as to hope and pray Wall Street buys it – literally.

Many of the shenanigans I’ve written or spoken about has been the literal calling out of what I see as pure – unadulterated – bulls##t.”

“This interview is just under 2 minutes. And it is an encyclopedia’s worth of insight for those who really want to understand what’s behind many a old-grey-mare unicorn still hoping for IPO paradise, rather, than the glue factory of M&A. That is, if the cash burn doesn’t force bankruptcy court vulture-ism first.”

To bring those who may not be up to speed on Theranos, as of late, they’ve been relegated to poster child of when “genius founder”, “unicorn worth 10’s of $Billions”, “revolutionary technology”, and “another Stanford drop-out becomes Billionaire” is found out to be nothing more than a – not so genius – euthanized unicorn – with questionable, if not fraudulent technology, and claims. Oh yeah, and a net worth revised by Forbes™ from $Billions – to $Zero. Not forgetting – it’s been only about 7 months since that above “There’s nothing wrong” argument was being touted across the financial/business media.

And as I implied – just when you think you’ve seen everything, just like late night TV – “But wait! There’s more!!!”

In what can only be summarized as a blatant display of illogical chutzpah. The one, and only, disgraced founder of Theranos Elizabeth Holmes who currently has even less credibility than the “snake oil” diagnosis she was dispensing to patients wants to make anyone thinking of suing her, or her company, a deal.

An “out of court cash settlement” you might be asking? Hardly, but the brazenness of the offer is stunning. Ready?

As per the WSJ™: “Theranos Offers Shares For Promise Not To Sue”, to wit:

“Theranos Inc. plans to give additional shares to investors who pledge not to sue the battered blood-testing company or Elizabeth Holmes, its founder and chief executive, people familiar with the matter said.”

Maybe what would be a better offer should be, “Would you like fries with that?” Because at least the “fries” have value. You just can’t make this stuff up.

And as I alluded, just when you think you’ve seen it all? Again, just like late night TV, there’s even more. “So go get your credit card, and get ready for this next special offer, we’ll wait!”

In what I can only describe as “one upping a Theranos offer” (and that’s saying something) was the sudden chorus of “Buy!” ratings, in unison, of Snapchat™.

Suddenly when the stock price seemed to be falling over the proverbial “IPO cliff” and had the appearance than the next bag holders investors to watch their so-called profits disappear on their “crushing it” $17 buy in, out-of-the=blue came a plethora of analysts with “buy” ratings.

Then, as soon as it was done – it was over. Why?

Morgan Stanley™ (you know, one of the banks that brought you this wonderful IPO to begin with) released a research note as to why Snap™ the company should be worth $28. Then, about a day later, issued a “correction” changing a range of those important metrics (you know, like earnings) that were used to make it such a “buy” revising them down.

What didn’t change in that revision? The $28 price tag. You know what did change? (in my opinion) Who was now going to be the bag holders.

Suddenly there was a myriad of “analysts” that piggybacked onto this research and now claimed “Buy, buy, buy!” who then (remember, this is all conjecture on my part) helped push the narrative so that other “investors” (since this is all hypothetical I’ll say both themselves and any clients they sold earlier) who were clearly underwater could off load their shares at possibly break even prices getting out. What do I use as my “proof” you ask? Fair point, and it’s this…

What metrics suddenly became so “fantastic” that they differed so much from the exhaustive research which one can only conclude “must” have been done only weeks prior when the IPO was getting ready to be launched to the public, that a new research piece from the bank that brought forth this IPO needed to declare?

Remember, this “research” ended up needed to be so hastily released, it needed to be just as hastily corrected.

No, not up as in “we think the earnings should even be better!” No, ooopsy! Those earnings metrics need to be adjusted – as in – adjusted down.

I’m sorry, but did someone just open a can of rancid beans? Because something suddenly sure does smell, doesn’t it?

Again, this is the same bank that supposedly should know everything there is when it comes to earnings and more for this company, and suddenly it needs to get a “research” paper out there where it is known too all that it will more or less be followed in lock step via other firms – to then about a day later have to issue an “Ooopsy?” Are you getting my point here?

So what was the resulting price action of all this you may be asking? As always, fair point, and the “picture” tells the story. To wit:


All I’ll say here is this: If there are going to be bag holders (which I’m confident in my assessment) I’ll just assume they’ll be fewer of their clients funds involved, as in “funds” from the banks that brought this wonderful IPO to market. I believe that’s a fair assessment given what we have to work with.

After all, it’s as good of an assessment as any of those earnings reports they released. And if I’m wrong in my conclusions? Just apply the same standard for accuracy on my assessment as these banks use for theirs. I’m not asking to be held to any higher standard than they do.

It’s just too bad that “standard” makes “snake oil” look legitimate.

© 2017 Mark St.Cyr

Are 401K Holders About To Feel A Savers Pain?

There’s an old truism people forget all too often. It has many variations and is attributed to even more, its core meaning goes something like this:

“If the government can give it to you, than it can also take it away.”

Some of you might be wondering if I’m talking about the current “tax” advantages that have made these vehicles so popular over the years. To that I’ll say no, not at this current time. But I feel that will be the least of worries coming down the pike in the not so distant future.

No, what I’m directly addressing is what is now emanating from the one and only non-government, privately held institution, directed by a consortium of non-elected, Ivory Towered, policy wonks: The Federal Reserve.

And those emanations are anything but 401K holder friendly. Let me explain…

I know many are wondering how a government inspired quote, a private institution, their retirement account, or savings account fits under one banner, or are some how all connected. Well, that’s easy:

The Federal Reserve has been the sole entity that dictates what any of them are currently worth. And if you don’t like their choices or decisions? Tough. There’s nothing you can do about it. Period.

Maybe that’s not quite correct: It’s not that there’s “nothing you can do.” The problem is – there’s nothing you’ll want to do. Hence where the real issues lie.

The following is for those who know of no other “investing” world (or 401K holder) other than after the financial crisis of 2007/08. Or put differently – if you’ve been working and saving only for the last decade or so. i.e., in the 35ish – 40-year-old bracket and younger.

Back in ancient history before algorithmic HFT parasites roamed the trading world (circa 2008 A.D.) One could retire comfortably with a modest sum of money and find relatively safe places to hold their assets receiving some form of interest payment for its usage. CD’s (certificates of deposit) bonds (such as U.S. Treasuries) and others were some of the most popular.

That was until the Fed. decided interest rates and everything that was connected to them was secondary (and even expendable) as to subjugate the financial markets and bring them into such a reflexive corollary that even if a Fed. official whispered- the effect on Wall Street was a realtime example of that other adage “When a butterfly flaps its wings…”

That’s what pumping (and printing) $4+TRILLION dollars via differing iterations of QE, Twist and a relentless death grip for years at the Zero-bound will buy you.

For those who don’t remember, it used to be when understanding investing prowess people used to say (or was advertised) things like, “When E.F. Hutton speaks – people listen.” Now it’s: “When The Federal Reserve whispers – Wall Street jumps!”

That’s what the greatest expression for capital formation the world has ever known has now become. i.e., Nothing more than a trained jumping flea circus. And again – all in less than 10 years.

Does a “Mission Accomplished” banner come with that? But I digress.

One of the reasons I can attest to much of what has been thrust upon (or taken from) retirees and others is that I actually am one, became one right at the beginning of the financial crisis. I was fortunate enough (via hard work and forethought) as to retire at the age of 45. A “dream” or ‘brass ring” many find elusive if not near impossible back in 2005.

It was a dream come true. However – it was also smack-dab right before, and squarely into the teeth of the “out of the blue” financial shock and market melt down for the ages that would transform everything. And I do mean: everything!

Suddenly the idea of diversifying one’s financial assets into relative safety was gone – and I do mean just that – gone. Which is, by-the-way, why I detest and so adamantly stand against all this over-simplified drivel once again appearing from so-called financial “expert” landscape. It’s going to hurt far more people than it’ll ever help.

The Federal Reserve decided in its infinite “wisdom” that interest rates were now to be considered a “poison” to the economy and not only cut – but slashed them, and held them at the Zero-bound for years. What this meant was one could no longer expect to receive any interest bearing accounts to live. i.e., Eat, pay bills, et cetera. And I won’t even get into what it has done to pensions and insurance companies.

But no one has cared – especially the Fed. Let me use the following for demonstration purposes…

Let’s say you were an entrepreneur and sold your business, or were able to some how via thrift or shrewd business acumen, and were able to amass a nest egg of let’s say $3Million dollars for the entrepreneur, and $1Million for the shrewd. Both scenarios are quite feasible for the prudent minded.

Just 10 years ago it was also not only feasible, but rather probable, one could safely allocate their resources finding returns of 5% (and higher, depending) in such mundane vehicles as CD’s, Treasuries, and more.

So, using nothing more than napkin math, one could easily calculate using the $1MM example that money would generate approximately $50,000.00 per year without touching the principal for one to live on. This was also a relatively accurate proposition because there was precedent going back decades. Sure, $50K ain’t what it used to be, but it’s sure a hell of a lot more than Zero – which is precisely what interest rates have been now going on years. And on $3MM? It’s the same. i.e. Zero, as in zip, zero, nada.

“But wait! There’s more!!!” as they say, but it’s not a bonus anyone wants to hear about. What is that you say? Glad you asked…

Not only does having a $Million dollars get you nothing at a bank (correct, not even a lousy toaster) if you are one of the fortunate (or unfortunate depending on perspective) who wants to put that hard-earned money safely under “lock and key” via the auspices of some bank – it’s going to cost you! And in some instances – they might not even want your deposit at all. Why?

Why else – it’ll cost them, and that’s a no-no in banking. Costs are something you pay – not them. And if enough profits can’t be made on legitimate transactions? See Wells Fargo™ for clues.

So what was the flip side? Here’s my opinion…

Welcome to the “markets” (or should I say casino) of today. Where 401K holders, and corporate buy-backs supported via the Fed’s balance sheet accrual, and zero interest rate financing meet the front running, algorithmic, headline reading HFT parasites which enabled the BTFD phenom to appear time, after time, after time, after time. Which, by its very nature and existence has allowed “investing” to be the equivalent of nothing more than following the strategy of a chimp hurling darts at ETF symbols backed by a central banks “bulls-eye.”

Ah, but what a difference an election does make, no? For that was then – and this is now. And “now” seems to be that the Federal Reserve is hell-bent as to raise interest rates regardless of what the “markets” desire.

Can you say, “Oh-oh?”

For years the cries of savers, pension plans, insurance companies and more have fallen on deaf ears. Actuary tables that prove these bedrocks of society can not sustain or endure under a Fed. policy such as what has been thrust upon them was relegated to the, “Who cares the “markets” up – deal with it!” status.

Now – That all seems to have changed.

Suddenly (as in the last few months) interest rates not only need to go up. They need to go up stat!

The Fed. via its differing speakers in public comments are signaling that not only is the raising of rates further, and quicker on the table, but so too is the balance sheet as to begin down sizing it.

If the above is to be taken at face value (and why shouldn’t it, after all, isn’t this why the Fed. makes public comments to begin with?) with signaling (via the Dot Plot and more) now stating 3 rate hikes for 2017 and some Fed. speakers signaling the possibility of even 4. Along with the abrupt metamorphosis of doves turning into hawks (using Ms. Yellen, and Ms. Brainard as examples) the “markets” are going to find fuel to propel them higher using what precisely?

The only fuel that has enabled the “markets” to propel this high has been all Fed. funded. And now this same Fed. is in no uncertain terms professing they’re out of the “hopium” business. Or at least – want to appear that way.

If this is true, taking them not just at their words, but rather via their actions – we now have 2 rate increases in 90 days with near shouting (as compared to prior discussions) that the Fed. is far more interested in raising further, and faster, than previously discussed. All while remembering it was only a few short weeks prior the Fed. Chair herself was touting the need for running a “high pressure economy” and has now flipped to jettison anything of the such – and is now the undisputed leader of “hawks are us.”

The issue here is – the “markets” have been levitated via the “wings of doves.” Suddenly – those “doves” have all but vanished. And if that’s true? What’s vanished with it may just be the BTFD genius along with it. And that will turn into a very big problem indeed if correct.

When savers were (and still are) getting crushed, no one cared, not even the Fed. The problem?

It seems just as the Fed. turned its back on savers pain all these years – they might be signaling how they’re going to feel about any 401K holders losses that may appear via their new-found policy stance. To Wit:

ZeroHedge: “What is the biggest S&P drop the Fed will accept before intervening?”

Minneapolis Fed. president Neel Kashkari: “Don’t care about stock market fall itself. Care abt potential financial instability. Stock market drop unlikely to trigger crisis.”

And with that, only one last saying comes to my mind:

Dear 401K holders – welcome to a savers world. Oh yeah, and buckle up. For things might get a little “bumpy” as that other saying goes.

© 2017 Mark St.Cyr