Month: May 2017

Why You Need To Pay Attention In May

Whether or not the old adage of “Sell in May and go away” means anything for traders over the decades is one thing. What it may portend for business owners and others looking over the past decade might be quite another.

It’s hard to turn on any business/financial media outlet as to try to make sense of what is currently taking place in the economy and try to match up its implications as represented in the “markets.” It’s now a fool’s errand. For the markets no longer represent anything of what was looked upon as “a gauge of business health” as they were only a decade ago.

All you’ll hear currently is nothing more than cheerleading i.e., “New all time highs!” is once again the daily clarion call. When it comes to why? The analysis more often than not is nothing more than further cheerleading via some next-in-rotation fund manager trying desperately to argue why “Stocks are not expensive compared to blah, blah, blah.”

It’s now far past annoying and borders on deranged in my book.

However, with the above said business people must somehow extrapolate what their gut tells them, then try to filter it the best they can with what they consider the best information possible. Even if that information isn’t what they might deem as the most reliable.

Sometimes you just need to understand that you may be feeling a certain way because there are legitimate reasons for it. Although, at the time, you just can’t seem to put a finger on exactly why, but you know instinctively – that it’s there.

So you search. Even though (you know) that search can at times lead to nowhere – search you must. It’s part of being a business person. It comes with the territory, and most will never understand it. That’s what sets a business owner/person apart from most. They can’t just sit back – ever. They need to either know – or die trying.

The reason why I state the above is the result from a call I had with a colleague, where the conversation was more like the two of us trying to figure out a Rorschach test, rather than anything else.

So after we were through I started doing a little investigating for the conversation weighed on me well after. This is what the conversation revolved around…

The old saying of “Sell in May and go away.” came up as we were discussing a few points, but it was more in jest than anything else, for we were joking “This ‘market’ will probably go even higher if WWIII breaks out in earnest!”

But the argument of “May” kept revolving around the conversation when we were talking about how, just last month, the Fed. was declaring how it wasn’t “terrified” when rebutting arguments that it should to the contrary. I made the point then “Yeah, that’s because it’s only April!” and the full effects of the rate hikes have yet to be factored in.

So, as I iterated, when the conversation ended I decided to take a look, below is what I found. To wit:

(Source)

As you can see I made a few notations on the above chart. If one looks closely the month of “May” has been a very important month over the last decade. The only time “May” wasn’t a factor was when QE3 was announced and the Fed’s intentions were leaked for Wall Street’s understanding (the leaking of such admitted to and causing the resignation of a Fed. president.)

Maybe “Sell in May and go away” when the Fed was not involved was one thing. However, today?

May has been the month where the “markets” began to roll over in earnest ceasing only once the Fed. launched another iteration of QE.

And the reason why some are feeling a little apprehensive? Hint: You are here = May.

So, for what it’s worth, you’re not crazy. You’re a normal thinking person, congratulate yourself for being such. For what happens next is still anyone’s guess. But a least take solace in the fact – It’s not you. There’s a real reason why your gut is giving you that check. Feel grateful it’s working as it should.

© 2017 Mark St.Cyr

Is N. Korea The Excuse China Needs To Launch Monetary Armageddon?

If one were only to get their “news” via the main-stream media outlets, it wouldn’t be wrong to assume when it came to the understanding of what is really going on across the globe, along with the consequences, most haven’t a clue. This point is made manifest with no greater example than the elections currently taking place in France.

I’m sorry, but the French election doesn’t trump, too all but exclusion, the potential for the breakout of WWIII. That is – unless you’re the main stream media. Yes, one has the potential for near immediate electoral upheaval (i.e., A potential Frexit, and possible finality for the E.U. experiment.) However, the other has the potential for a near immediate global war. That, of course, is the current standoff with N.Korea. And the reaction via the main-stream media? (Insert most recent Kardashian escapade here.)

Not to belittle the French elections and their possible consequences should the results go awry for the entrenched bureaucrats (not to mention the financial markets.) There is another standoff which may bring even more immediate consequences than the other.

Currently the Korean peninsula is in play much the same way Cuba was during the Kennedy administration known as “The Cuban Missile Crisis.” The overall situation and its possible consequences for missteps are eerily similar.

Missiles have been moved onto the peninsula in what can only be described as “outrage” via not only N. Korea, but also China. Whether or not one agrees with the move (along with the stationing of war ships off the Korean coast) as to send a message to Pyongyang to cease all provocation via its nuclear ambitions is irrelevant.

The real player (and the one to pay attention too) in this standoff is China. And how they go about resolving this issue at its doorstep. Both internally, as well as externally.

Make no mistake: China is not just juggling one possible conflict, it is also currently fighting another within its own borders. For China is simultaneously on the precipice of an another possible disaster. i.e., An outright monetary disaster of its own making which needs to be resolved with the same immediacy as this external one.

I’m of the opinion this kerfuffle with N. Korea may be the catalyst which drives China to either embark on an outright kinetic posture against the West to resolve. (e.g., If no one backs down or worse) Or – will be the inflection point as to allow the monetary fallout within its financial markets to begin in earnest. Crippling the entire global economy in ways not fully understood (or envisioned) by many, especially “The West”, in what may be akin to a “First Strike” monetary (rather than kinetic) action.

Aside from the obvious “trigger” events that could arise as I stated in the above. (e.g., N. Korea) There are a few other events which when taken as a collection, rather, than just their stand alone value, portend for far further cracking in the facade that is China.

Since we’re in the middle of a possible armed standoff the analogy of “Did China dodge a bullet?” seems fitting when juxtaposed to the recent tightening into weakness launched in earnest via the Federal Reserve.

As strange as anything resembling “normal” monetary effects have been, e.g., Central banks buying equities. One of the latest has a few scratching their heads, and it’s this: As the Fed. hiked not just once, but twice in 90 days, and, is signaling even more along with a reduction of its balance sheet – the $Dollar has weakened.

There are far too many factors to list as to what might be the catalyst. Yet, what is clear (and the only thing that matters currently) is that this manifestation has subsequently given China some form of “borrowed time” when it comes to the Yuan. For if the $Dollar had strengthened as it has during such cycles? The Yuan would be in a world of depreciating hurt.

Back in October I penned the following, “Why All The Yawning Over The Yuan?” And in it I made the following point. To wit:

“Now some will think “Maybe there’s no concern because the politburo has it under control?” It’s a fair response, but there’s a problem inherent with the answer, or answers.

First: If the Chinese are doing it in a “controlled” type manner, it reeks of “currency manipulation” tactics for others (think U.S. presidential politics as of today) to latch onto and build support, as well as strengthen a case for retaliation. i.e., placing tariffs, etc, etc.

If you think about it from the Chinese perspective: that would mean you were openly, and intentionally goading as to fuel some version of a trade, or currency war. When you come at it using that thought process; it just doesn’t make sense. Both from a tactical standpoint, as well as political. Hence lies what maybe even a more troubling scenario. e.g., They’ve lost control.

The only other reason more troubling than the first – is the second. For it is here where things become quite precarious, as I’ve stated many times: “The currency markets are where you must keep your eyes and ears affixed. It’s where the real games are played and won.” And losing control of one’s currency has implications for all others, both warranted, as well as unintended. And it seems this latter scenario might be more on point than the former.”

Where does the relationship between the Yuan and the $Dollar now stand? One would think with such a sell off currently taking place within the $Dollar market that the cross-rate should be in a much more manageable area for the politburo than before all things being equal, correct? Hint: It’s not. Again, to wit:

(Source)

As one can see by the chart above we are currently hovering at the 6.900 range. That’s important not just for its “spitting distance” away from the all important psychological 7.000 level, but rather, how (and why) it’s there at all.

All things being equal as the $Dollar had strengthened it put pressure on the Yuan. That pressure was/is wreaking havoc within China exacerbating the already near unmanageable capital flight taking place which shows no sign of letting up as evidenced by the chart above. For the higher the cross-rate ascends – the greater the issues weigh on the Chinese politburo via capital flight and more. And which lies-the-rub…

For if the index is rising as the $Dollar is weakening? (as it is currently) That means the Yuan is losing value far faster than it was only months ago. And that’s a very, very, very (did I say very?) big problem for the current monetary status quo. Not to mention the global economy in general.

The current financial underpinnings within the Chinese economy are once again under pressure in ways very few understand. With that said all one needs to watch as to perceive significant clues into the health of its underpinnings is the price stability in commodities. For much of China’s internal, and interwoven financial constructs for collateral are based on them. And one of the main players of that is iron ore. And guess what? Hint: Prices are/have collapsed at a precarious pace.

The easiest way to categorize the relationship of commodity prices and the financial underpinnings within China is this: Commodities are the collateral and pricing foundation to much of China’s financial obligations – as real estate values are to MBS and all their counterparts. Yes, much of China’s financial problems are now with real estate, but what all that real estate was built and financed on was? Hint: Commodity collateralization. (Think CDS/MBS times a factor of 1000, if not more.)

Now you have some idea of just how massive this problem is.

Just remember what a sudden (like in 2007/08) real estate value collapse can do (or did) to an economy, and you have the same scenario in earnest via commodity prices currently happening in China, where the full effects (let alone realizations) of such have yet to even be calculated, never-mind felt.

Add to this the current enactment of steel tariffs placed only weeks ago by the U.S and you know what you also get? Hint: An even more ticked-off Beijing. Again: All this in conjunction as some U.S. steel warships hold fast off the Korean coast threatening to possibly launch a first strike upon its next door neighbor and so-called Sino-influenced “underling.”

If the politburo decides that there is no other way (and easier timing for a scapegoat) than now as to suddenly devalue the currency and put a world of financial hurt squarely on the West (and the U.S. in-particular) while simultaneously using all the turmoil as to hasten the pace (and possibly secure the position for more SDR influence) the table for such a move has probably never been set so neatly, so perfectly, and so probable as it is today.

Waiting to see if the $Dollar reverses and brings the hurt on in ways that are out of the politburo’s control or sphere of influence will not be seen as “prudent” by anyone within the Chinese authority. “Waiting” from their viewpoint might be the last thing they can consider, especially since “warships” and “missiles” are now needed to be factored into the immediacy for monetary decision-making.

They may decide to act, and act sooner, rather than later.

No matter what happens in France or N.Korea.

© 2017 Mark St.Cyr

It’s Turning Into A Very Interesting Week

Back in days of yore (circa January 2017) I dared make the assertion that all that was “unicorn infatuation” in the Valley was much more akin to “the old gray mare ain’t what it used to be.”

In the article “Is 2017 The Year Silicon Valley Experiences The Dark Side Of ‘It’s Different This Time?'” I posed the following. To wit:

“Here’s the equation I believe will not only send shock waves, but will bring down many a valuation edifice within “The Valley” in 2017. And here it is:

“First: The Fed. And Second: Rate hikes.

Two very short sentences containing nothing more than two words each but their implications could have exponentially explosive results. For what they portend is that “It’s different this time” may indeed be exactly that.

What I hoped you may have noticed during this discussion is the one thing myself and very few others pointed out would happen if the hypothesis we’ve been articulating over the last few years was correct. That hypothesis has always been “Without the Fed. pumping in unlimited funds via the QE programs, and a “death-grip” to the zero bound (aka ZIRP) the first ones to show how much of a facade these “markets” where would be seen directly in the “tech” space.”

So what has happened today that should draw attention to those still believing in the “It’s different” meme?

Here’s how different. Remember the IPO last year that was supposed to save the IPO world? Hint: Twillio™.

This is what investors are waking to today. Again, to wit:

(Source)

Twilio, as of this writing, if you had invested on any day other (as in you bought any of the dips) you are now underwater. For some, you are under by “fathoms” which as of just a few days ago, to even consider such a position – appeared unfathomable.

The reason for such a move (some 25% via the opening bell) is in a way hilarious to my eye. Why? (although I do offer my condolences for those caught in this debacle)

It was reported that Twilio reported an earnings report that was “strong.” But there were two issues. First:

Revenues guided lower. (e.g., $356 -$362 Million vs $364-$372 Million projected earlier)

Can I just make a point here? Why are the revenues for a company that is supposed to be at the forefront of the tech space revolution (e.g., the Cloud space), along with the title and much heralded panache of the “IPO to save the IPO world” is showing anything such as “revenue guiding lower?” Never-minding that a “beat” means losing less money than before therefore “it’s totally worth it!” Welcome to “The Valley” world of metrics is all I’ll say there.

But what caught my attention more than the revenue miss and guide lower is who the CEO is blaming for the results. Are you ready?

Uber™. (not a typo)

From CNBC™. To wit:

“Twilio CEO blames Uber for disappointing financial results”

“Lawson said on Tuesday that he expects Uber’s “contribution to decline” because the ride-hailing company is “changing the way they do messaging.” He added that Uber is now “optimizing by use case and by geography” and “plans to move communications for some use cases in-app.””

So, an over valued (all in my opinion) unicorn that made it out of the IPO stables (making it as the article below states “Mightiest”) which was supposed to set the stage for the likes of all the awaiting unicorns, has suddenly been speared by the horn of the largest, and most valuable unicorn ever to be, and is still in those very stables.

I’m sorry, but if you can’t see the humor in that whole scenario I would have to imagine that you’re an investor in them. And if so, as I said earlier, “you have my condolences.” Because, after all, you were also told (and sold) to believe it was different this time.

(Source)

The issue is, as I’ve warned too many times to list.

It is precisely that.

© 2017 Mark St.Cyr

The ESPN Debacle: What Was At First Unimaginable In Now Business Fact

Back in 2015 I wrote an article titled “ESPN: Cutting The Cord Or Political Turn Off?”

At the time of that article not only did the business/financial media take my assertions to task, but so too did many in the sports media. The idea that ESPN™ (or any sports channel with such marquee talent and coverage) could be the recipient of any sort of backlash, especially via the political persuasion, was called on air by many as “Just ludicrous.”

Many even argued that any “political” view inserted into the discussion was actually seen as “good” or “helpful insight” into the player’s mindset at-large making them more personal with fans, rather than being simply superstars that can only be viewed from afar.

It all sounded so rational, so well thought out at the time. Problem was – it was all poppycock. And, we now have proof that the arguments I made back in 2015 when everyone from media analyst to next-in-rotation fund manager proclaimed such assertions as just “ludicrous” now appears to be business fact. And the resulting backlash has now forced the network to jettison some 100 employees including many of its own marquee on-air talent.

In my article (remembering this was in 2015 when even the idea of anything wrong at ESPN was seen as “not getting it” and came from all sides of the business and sports spectrum) I made the following point. To wit:

“However, is “cutting the cord” really the reason for ESPN’s loss of millions viewers? Or, is that the easiest crutch of an excuse for what might really be happening? After all, media is, and always will be, the king of “inflated” numbers. So much so I garner when a CEO of any media company reads a term like “double seasonally adjusted” they smirk and think – “Rookies.”

It’s just the way it has, is, and will be played; and everyone understands it. None more so than those within the business itself, which is why a few things struck me.

Why wouldn’t ESPN™ (or Disney™ its parent company) go to great efforts to include or push the narrative that “cord cutting” doesn’t necessarily mean “all” that cut have tuned off? In other words: why aren’t numbers from alternative viewing sources highlighted as to show they might not be viewing there – but they are over here? Unless – they aren’t.

And if they’re not – why not? After all, there’s probably no other content infringement policing company for copyright and other applicable ownership rights than Disney and all its subsidiaries. You aren’t going to see it for free or on alternative platforms unless they want or allow for it. Period.”

Well, there’s no reason to take my word for it, or my assumptions, because as of Thursday of this past week none other than ESPN anchor Linda Cohn of SportsCenter™ agreed reiterating my summations. Again, to wit:

“ESPN’s sweeping staff cuts are not just the result of ambitious TV rights deals and an overburdened budget, popular “SportsCenter” anchor Linda Cohn suggested Thursday.

The network may be losing subscriber revenue not just because of cord-cutting, Cohn allowed, but because viewers are increasingly turned off by ESPN inserting politics into its sports coverage.

“That is definitely a percentage of it,” Cohn said Thursday on 77 WABC’s “Bernie and Sid” show when asked whether certain social or political stances contributed to the stupor that resulted in roughly 100 employees getting the ax this week. “I don’t know how big a percentage, but if anyone wants to ignore that fact, they’re blind.””

I couldn’t have said it any better myself. Oh wait…

I did in 2015.

© 2017 Mark St.Cyr

Addendum To FTWSIJDGIGT

Earlier I released an article of the F.T.W.S… genre. However, I hadn’t hit the “publish” button when another item crossed my desk where at first I was not just surprised, but as I read (and tried to decipher its implications) I wanted to make sure I was interpreting correctly what I was reading. I’m sorry to say it seems like my earlier piece, I was.

In my Sunday article “Does The Reality…”  (yes the information seems to be coming faster and more furious than I can type) I made the following statement. To wit:

“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.)”

As of this morning (being Monday) what was thought to be a negotiating tactic (or at least that’s how many in the media were parsing it) of a 1 week budget resolution to avoid a shutdown before the Trump agenda, or what is commonly referred to as “The reflation trade” legislation metrics could begin to be argued in earnest. That “resolution” has now turned into another resolution very few thought possible. i.e., As of this moment: All the “meat and potatoes” that were to make the reflation trade possible are officially D.O.A. Period.

A resolution was passed that now funds the government through September until the next budget resolution is needed on October first. This means in effect (e.g., de facto) that all negotiations and hopes for tax reform, Obamacare, building a wall and more are gone. There is now no need (or reason) for any negotiations to even begin for another full 5 months.

Think I’m off base? Fair point, so square this circle for yourself. Ready?

How do you apply negotiating leverage to the opposing party when they have taken to the airwaves delighted with this now resolution? Hint: You don’t. And thinking anything otherwise is not only disingenuous – it’s delusional.

To reiterate a point I made back in March (which both the political, as well as business media pointed me out as being “off base” or “doesn’t understand the nature of this movement and its furor”) from my article, “When the Art of the Deal Meets The Empire Strikes Back”, again, to wit:

“The danger now shaping up is all that political relativism is going to meet a myriad of stone cold, fervent opposition from both sides of the political aisle, with establishment politicians (again from both sides of the aisle) whether by coincidence or concerted effort directly opposing the President and his agenda with the new-found argument “We can’t afford it.”

And that will be the go-to argument because the now growing chorus is that “debt matters.” When for 8 years “debt matters” was only relative term.

Are you beginning to see how the “legs” for any further Trump inspired legislation has been swiftly taken off at the “knees?” Or said differently: The “Empire” regains all control – once again. And the new administration will be left holding any and all “bags.” And the repercussions, once fully understood, will be swift if my assessment is anything close to being correct.”

As of right now – “You Are Here” means precisely what I implied over these last few months. e.g., It is no longer a matter of insinuation, speculation, or assumptions…

It’s now here.

© 2017 Mark St.Cyr

F.T.W.S.I.J.D.G.I.G.T.

(For those who say I just don’t get it…get this!)

Back in March I wrote an article titled, “They’re baaack! And why you should be worried – very worried”

In that article I made the case for why not only prudent financial awareness was paramount, but also how the manifestation of blissful ignorance, or, a belief in oversimplified business/financial advise is not the “ticket” to fulfill one’s dreams of riches, but rather, can suddenly become the “ticket” to your worst nightmare. It would seem I was more prescient about those claims than even I thought at the time.

First, this headline came across my desk about a week and a half ago via Bloomberg™. To wit:

“Cracks Appear In Toronto’s Housing Market As Capital Drops”

Today, I received a few more from a few colleagues noting the cause for concern, again, to wit:

“Contagion Fears Rise In Aftermath Of Home Capital Group Collapse”

“Why Everyone Is Talking About This Tiny Canadian Lender’s Woes”

“Home Capital’s Next Hitch Is Keeping Cash Crunch Under Control”

The above three are all within the last 24 hours of this writing. You can expect they’ll be many more. And they won’t be viewed as “All press – is good press.” You can bank on that.

For those who may not be familiar with the above struggling home loan lender, or its implications. The best description for comparison that can be given is the above lender and scenario is the mirror image of the set up that happened here in the U.S. right before the financial crisis (aka Real Estate Collapse) took hold in earnest when the lender known as New Century™ collapsed. This has all the same hallmarks.

Just to refresh a few memories it was at about this time (as in right before everything fell apart) that then Chairman Bernanke was touting the following. To wit:

Ben Bernanke July 2007:

“The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further, as builders work down the stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth in coming quarters, although the magnitude of the drag on growth should diminish over time. The global economy continues to be strong, supported by solid economic growth abroad. U.S. exports should expand further in coming quarters. Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.”

Sound familiar?

Although this was here in the U.S., the scenario, attitudes, defending of the current meme “It’s different this time”, and more are once again on full display, and a tour de force as evidenced by its current manifestation The Real Estate Wealth Expo™.

Here’s what I stated in my original article back in March that bears repeating:

“Bubbles are easy to spot – pinpointing when they’ll pop – is quite another.

I coined that phrase a while back which is nothing more than adding my own spin combining two very old catch phrases used by seasoned traders and investors. I use the word “seasoned” for a reason. Why?

Because they’re the ones that have been around (and been burned themselves) yet lived to trade, or invest, another day. Those who remained wedded (usually the novice or one who’s never experienced true volatility) to the more prominent and specious claims of “you can’t tell when you’re in a bubble” followed with “you can always get out in time” for the most part are long gone. i.e.,The bubble popped into the ether – along with their money.

Nowhere was this phenom more apparent than the real-estate boom of the early 2000’s, which followed the prior phenom only 10 years prior (e.g., the dot-com crash) that should have seared into people’s memory for millennia just how “bubbles” take shape – and the resulting financial devastation that happens rapidly once they’ve popped.”

And then there was this…

“This is the moment in time where generic, over simplified advice, that sounds so good (and too good) shouted too an adoring crowd – should be taken as the siren, and clarion call to those who are diligent in preserving their wealth to buckle up, buckle down, and prepare in earnest. For once this show is over? “Over” is going to be something many of those attending these types of seminars are going to pray for – as in “Please make it stop!””

Whether or not Home Capital™ becomes the catalyst for contagion fears across Canada’s banking sector is irrelevant to this discussion. The real issue is that for the 10’s of thousands (remembering there were 15K attendees at the Toronto Expo alone) who blindly followed the advice their so-called “ticket to riches” portended, rather than understand the need for caution for these are the manifestations indicative of the “bubble mentality” are now suddenly realizing all that shouting of “I own you!” isn’t coming from a stage – but now might be coming from the banks, real estate tax collectors, bill collectors, and more as they seek to collect the payments that were signed for on the dotted line to riches.

But what’s worse (far worse in my opinion) The “asset” used to make all those “Crushing It!” riches are now nothing more than overpriced boat anchors with a market that has gone from “Hot!” to “Frigid.” All in the span of  less than 90 days.

“Who’da thunk it?”

© 2017 Mark St.Cyr

(Addendum: There is a companion piece to this article released later that day which can be found here.)

Footnote: These “FTWSIJDGIGT” articles came into being when many of the topics I had opined on over the years were being openly criticized for “having no clue”. Yet, over the years these insights came back around showing maybe I knew a little bit more than some were giving me credit for. It was my way of tongue-in-cheek as to not use the old “I told you so” analogy. I’m saying this purely for the benefit of those who may be new or reading here for the first time (and there are a great many of you and thank you too all). I never wanted or want to seem like I’m doing the “Nah, nah, nah, nah, nah” type of response to my detractors. I’d rather let the chips fall – good or bad – and let readers decide the credibility of either side. Occasionally however, there are, and have been times they do need to be pointed out which is why these now have taken on a life of their own. (i.e., something of significance per se that may have a direct impact on one’s business etc., etc.) And readers, colleagues, and others have requested their continuance.