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