Month: February 2018

A Retort To Scott Galloway’s ‘Break Them Up’

Have you ever heard the term, “this time it’s different?” I know, of course you have. And if you’ve ever been one of the unfortunate (or fortunate depending on your idea of integrity) and dared question the regurgitated metrics as to value anything in regards to tech, social, or dare I say it, unicorns. Not only did you hear this term, but it was used in much the same vapid manner as a teenager used their version of the same. e.g., “Because, just because!”

For those who think this is not a fair comparison (i.e. Silicon Valley aficionados, next-in-rotation fund managers et al.) I’ll add just one more example that usually followed, like day followed night, if you dared push for more answers of clarity:

Silicon Valley: “You just don’t get tech!”

Teenager: “You just don’t get it!!”

Then the subsequent storming off to express their outrage via a screamfest into their screen of choice. Sound that dissimilar now?

This has been the world of both business and investing going on now for nearly a decade. So with that said, invoking a grown-up induced tone of delivery, I dare say, “It’s different this time” to all those that once stood behind this gleamed, seemingly beyond reproach of an excuse. The reasoning I’ll explain as we go along is quite simple. To borrow from one of my favorite movies, “Constantine” (2005, Warner Bros.) when the Devil confronts the angel Gabriel: “Looks like somebody doesn’t have your back anymore.”

That “somebody” would be The Federal Reserve.

So now some of you might be asking: “What does the above have to do with the title I began with?”

It’s important for context, as it is at the heart of the arguments or clarion calls emanating from an ever-growing chorus of angry, or cautionary voices that at one time were arch defenders of Silicon Valley and all its ancillary brethren of tech everywhere. The only problem is – they seem to never quite say it. They use arguments and examples that from my perspective address symptoms – not the cause. And Mr. Galloway’s argument demonstrates exactly that.

Before I move on, let me make one thing clear at the outset: This is not a “hit piece” on Mr. Galloway. Far from it.

I have nothing but respect for him, along with his opinions. He’s one of the few academics in education that actually understands, while simultaneously defends capitalism. I believe he’s showing great fortitude in making the case that he is, making it publicly, and sometimes, directly in front of those that actually might be paying for his appearance. One should have admiration for that. He’s putting his opinions where his money, and quite possibly, livelihood is. And that takes guts, real guts. I only take issue in how we arrived, and what is to be done going forward. So for the record: I’m more apt to agree with Mr. Galloway’s opinions than disagree. Just so happens this time, I see things a little differently. Nothing more.

Last week Scott (I use the familiar only for ease) had an article published in Esquire™ with the ominous title, “SILICON VALLEY’S TAX-AVOIDING, JOB-KILLING, SOUL-SUCKING MACHINE” The premise: “Four companies dominate our daily lives unlike any other in human history: Amazon, Apple, Facebook, and Google. We love our nifty phones and just-a-click-away services, but these behemoths enjoy unfettered economic domination and hoard riches on a scale not seen since the monopolies of the gilded age. The only logical conclusion? We must bust up big tech.”

As I implied prior: He’s not mincing words. And in some ways I agree with his call. It’s in the how, and why that I differ with. I’ll take a few of his points on directly. However, I believe one should read the aforementioned article in its entirety and come to one’s own conclusions. Whether one agrees or not, it’s worth the time. For those who would rather watch it in video form, you can view it here where he delivered pretty much the entirety verbatim in premise, which is where I first heard it. He also delivered much the same at a more recent DLD™ conference just a few weeks ago. So, it’s not like it was a one-off, or intentional one-and-done. He appears quite resolved.

Now with the above for context let me address, in no particular order, a few of his arguments.

First: Amazon™, and Apple™. To wit:

“The benefits of big tech have accrued for me on another level as well. In my investment portfolio, the appreciation of Amazon and Apple stock restored economic security to my household after being run over in the Great Recession.”

This one statement tells you more about what has taken place over the last decade than nearly anything else. Not just for Scott per se, but for the entire world connected to the capital markets. The reason why these companies have grown to such behemoths is for one reason, and one reason only: Central Bank largesse. Period, full stop.

When it comes to Apple I have made it known that I am a product user and fan-boy. However, with that said, I also have some very firm disagreements with what I see flowing out of, (or not flowing out, depending) of Apple and have been openly critical, much in the same way a family member will openly criticize another when it appears they’re making obvious blunders.

But Apple does one thing that nearly all the others can not equal: They make a product that people will pay-up for, that generates obscene net profits relative to all comers. All in a market where there is literally a myriad of alternatives to choose from. e.g., In 2015 they earned 92% of all the profits of the smartphone market on a 20% market share. It’s come down since then where it’s now in the  80% range. Yet, if you average it out with 2016’s 103.6% share? Let’s just call it what it is shall we? Incredible, and well deserved. Remember – You have to buy, pay-up, and they are only 20% of the global market. Like it or not, Apple can arguably be what it is today without central bank largess. Although its current market cap may be far lower.

Amazon can not.

As much as everyone loves Amazon (which I too use, and a fan) Amazon as a business, without central bank largesse known in the U.S. as QE (quantitative easing) and in Europe as “whatever it takes” or in Switzerland as “One of the The Swiss National Bank’s premier investments) Amazon goes from a market capitalized juggernaut; defying any and all constraints of business fundamentals; with the ability of not only crushing competition, but suddenly constrain (by putting the fear of God) their investors into selling shares with just a simple press release – to possibly, and also quite arguably  – to be nothing more than an entry in the annuls of business as one of the tried and failed retail experiments of the internet. (I can hear the gasps through my monitors.)

Again, without central bank front-running by most, if not all, the major investing firms – there was no “buyer” per se for more Amazon risk shares. What Jeff Bezos did that needs to be commended is this – he understood that in order to survive he needed to do two things well. First: If they were going to keep buying shares – he would keep reinvesting as much and as fast as possible, till it stopped. Second: After the financial crisis is was all about narrative. Business metrics, fundamentals, ________(fill in the blank) were no longer relevant. All that was relevant was – the story to sold. e.g., The growth narrative. And sell it he did.

As far as a business? If not for AWS™ (Amazon’s cloud business) which turned out to be the exact right story, at the exact right time, who knows where Amazon would be today. This one story not only allowed for, but added exponential weight to any investment house narrative to sell the same “narrative” to others. All propelled by QE from here and abroad to be front-run.

To reiterate: Had it not been for AWS – there would be no Amazon as it is now known. And had it not been for central bank largesse – it is arguable there would be no AWS, for Amazon might not have had the investor backing (or should I say near religious backing) that it has today. All conjecture of course, but I stand behind it, vehemently.

Which brings me to Scott’s call of, “Break them up.” Although I agree with his points, I see it coming from a different place entirely.

I am of the opinion Amazon may be broken up in the very near future, but now how Scott does. I believe Amazon and all its subsidiary components will befall the same fate that always happens to behemoths in a market down turn. e.g., Calls for unlocking share holder value – from share holders. And make no mistake, yes, I believe that “market downturn” is upon us.

The funny thing here is, it’s going to come via the behest of a quasi-government directive, not the actual. e.g., The Federal Reserve’s normalization process (aka QT, quantitative tightening) along with further interest rate hikes. We got a glimpse of what that’s going to look like over the past week – and I do not, for one moment, believe that we are through. Let’s just say I’m in the camp of: we just witnessed Round #1. How many further before the K.O. is now in the hands of the betting parlors known as “Wall Street.”

Which brings me to the other two of Scott’s clarion call: Facebook™ (FB), and Google™ (aka Alphabet™)

When it comes to FB there has been more calls about “Fake” this and “Fake” that than nearly anything else. What I never hear in conjunction with all this fake is just how fake the metrics for all these colossal “ads for eyeball” purveyors has been. Is it me, or has anyone else noticed that suddenly, out of nowhere the “growth story” for these two not only stopped but reversed in conjunction with “fake?” Don’t take my word for it, look up their latest earnings report. It’s all there and more if one cares to look. And it would seem, quite a few did just that.

Scott goes on in his article about what the economic impact of FB has been on the advertising business, and in particular, the personnel that was once used or employed.

The issue I have here is only in the once held with religious zeal mantra of “you need to be in social” that was being told and sold throughout advertising by, of course – those that sold social media.

The “ads for eyeballs” narrative was such an easy sell. i.e., “This is where your customers are so you need to be there!” All sounds fine and dandy till many began realizing those “customers” were either, A) Bots that do nothing but click and suck the life’s blood of one’s advertising budget. Or, B) Children, teenagers, Millennial’s and more that are offended if you dare ask them for money, or put an ad in their viewing space when they’re busy consuming a Kardashian escapade. Or said differently: Ad dollars paid has not been a reciprocating process for those picking up the tab. (Hint: See P&G™ as just one example.)

Advertisers have been both lazy, as well as unsure when it has come to advertising on social. But now more and more are questioning their budgets, because (wait for it…) it would seem far more have not panned out as they were originally sold. i.e., Most never paid for themselves. And the once adamant “ad  agency pros” are having to answer for those poor results. And it’s getting more difficult by the day.

When the client says “put me in social, regardless” you put them in. When they start asking “What am I getting for all this social?” The campaigns begin changing. And that has been ongoing for a bit, and I look for it to be accelerating. FB and Google, I have contended, has seen “growth” in its advertising business only for being the last juggernauts standing. If the latest earnings are to be looked over with an inquiring eye of what the future may portend. Growth may be a harder term to apply in future reports.

FB is currently (and yes still) priced for perfection as far as its share values are concerned. However, so too was AOL™ back in its heyday. And as soon as the “ad story” of metrics changed? So too did the future of AOL.

I have always asserted, as well as argued, I believe FB to be nothing more than this periods AOL, meeting a similar fate. Heresy, I know, but that’s where I stand. And if I’m correct? Breaking it up won’t be hard to do – just like AOL. Remember the unlocking shareholder value example I used with Amazon? Need I say Instagram™, Oculus™, ___________(fill in the blank)?

And what about Google? Here I’m not exactly sure, but I did notice something quite interesting the other day that deserves attention and fits in with all of the above. Did anyone else notice the timing when suddenly ad clicks that are up near 50%, dropped in value by 14%? One would think if these “clicks” were delivering bona fide sales numbers to the advertisers bottom line their value would hold much firmer. That is, unless these “clicks” are just being made up via making the “click farms” work overtime to keep their bottom line in line. Think about it.

Then there was this: Suddenly in the middle of this “less money for clicks” the company folds back in Nest®. This was supposed to be the exemplar on how its “other bets” would be rolled out into stand alone entities. Suddenly, there seemed an urgency to “roll-it back in.” Coincidence? Possibly. But back to Scott’s point on needing to “break them up.”

If we are in what may be a nasty down draft that causes significant angst on the “markets” and the share value of Alphabet and the others begin tanking in earnest? Hint: Remember the phrase “Unlock share holder value by breaking them up” coming from shareholders, no government intervention required. Or said differently: Look for Nest and more to be pushed back out via calls made on Android® phones. (pun intended)

I’ll leave this conversation on one last point. Yet, it also illustrates just how far we’ve traveled down this road where reality has been altered in such manners and forms, arguments are being made in regards to symptoms rather than the underlying that’s directly in full view. Yet – it appears everyone has either turned a blind eye, or is just too close and can’t as the old adage goes “See the forest through the trees.” And to demonstrate the point, I’ll finish with another example Scott used in his thesis, and that, is Uber™.

Uber, and the entire stable commonly known as Unicorns, would not, could not, have ever existed without the hot money supplied via central banks along with its empowering disregard of any and all business fundamental, regulations, or ethics. Again, period, full stop.

In a world where money was not created ex nihilo and funneled directly into Wall Street, or the global markets for that matter, these companies would have either, A) Been limited in scope and scale to be nothing more than a pimple on the arse of the business world. Or, B) Bankrupt and out of money long ago based on what is fundamentally known as running a for profit business that can pay its bills using 1+1=2 math.

Uber, and most, if not all of its stable mates are in the “cash burn” business. This model suits only one dynamic: Making a very few, very rich.

In a sane world Uber, at best is an app business. And how viable at that is only proportionate to already established laws for taxis globally. Had Uber not had the availability of “hot money” flows via central bank largesse, then use math in an equivalent that would make Merlin blush for its alchemic features. It would have never had the strength of balance sheet to hire, let alone attract the high-flying political entourage (think David Plough for one) the payouts, (and/or purported pay-offs) of industry officials, insiders, _________(fill in the blank) and more, with a complete and total abandonment for recourse.

A touted $70BILLION dollar valuation would have never been seen as possible, never mind probable just 10 years ago. But today, it’s made one of the most derided CEO’s of Silicon Valley a billionaire.

Yet, just like I started this all with. If my “central bank” theme was wrong? Then I would not have accurately called for the decimation of IPO’s back when everyone in “The Valley” scorned that it was me that was the one who “Just did not get it.” And yet? How’s that whole IPO thing still working out?

But here’s the real “money quote” if you will that sums this all up as to whether I may, or may not, be correct about what I’m arguing. And it is this…

The few of us that have been banging the desk along with keyboards, stages, and airwaves saying that this entire market was built as either a Potemkin Village or House of Cards, have been maligned with calls of “Chicken Little,” Cassandra,” or my personal favorite “People that have missed this rally and are only pissed off for it,” and that’s just the mainstream business/financial media.

Yet, what I’ve long argued over these years is this: “We’ve been wrong – for the right reasons.” And the way one would know, or at least possibly construe which side had the more valid argument in the end would be addressed if, and when, the central banks actually began the unwinding of QE in earnest.

Hint: Last week was that moment. Now it’s all about follow through. Both via the central bankers, as well as the “market” in a now evolving game of “Chicken.” If I’m correct in my readings of what is taking place currently? Scott is going to get his wish…

Just not in the way he thinks, because this time – it’s different.

© 2018 Mark St.Cyr

For Those Wondering…

To say that the “market” has been under pressure this week would be an understatement. Yet, it should not come at any surprise, for I have been pounding my desk (and keyboard) over these many years that once the Federal Reserve began implementing their so-called “normalization process” aka QT (quantitative tightening) the Potemkin Village that this “market” has been built to represent would become manifest.

And – here- we – are.

The reason why I felt compelled to write this update is for two reasons. One: I’m being barraged and questioned by friends, family, people I meet in supermarket line. I feel I’m being asked questions more often than a French waiter what wine goes with “the fish.” Two: What I just heard via my radio in regards to so-called “experts” stating what the reason for, or why, this recent price action is playing out.

In regards to the latter: I just heard what must have been a prerecorded stock market update in the early morning before the market opened. In this “update” I listened to what is deemed “insight” from the “Chief” or “Head of investment” of a major national investment house. The argument and the reasoning behind it was obviously recorded when the major averages were all showing “green” this morning in what looked like a meaningful bounce or reprieve from the deluge of selling that has been taking place the last few days.

The arguments made for “this is it” type of arguments as in “the selling has stopped and now buyers are coming in and it looks like all the bad is now behind us” was not only laughable, but rather disturbing as I listened and was watching the screens tumble further, and further into “red.” This “ad” or “segment” should never have been allowed to be kept in the play rotation of the station. But that’s what happens when all there are are computers running the show. And yes, most radio stations are on complete, automatic, computer controlled autopilot. Even many of the “personalities.” Yep. all pre-taped. It’s called voice-over work, but I digress.

So here’s hat I’m looking at for those wanting to know.

Looking at this “market” via my “technical eye” I see two paths. The first is we are either going to find some support in or around this 2500 area in the S&P 500™, then have a significant bounce or as they say, “short squeeze” pulling this thing up quickly and forcefully. Or…

We are about to fall off a precipice in 2008 style. And I don’t mean in weeks I mean in either days, if not hours. That’s what I see when looking over all the charts, technicals, relative strength indexes, wave theory possibilities, etc., etc,.

Again, I’m not trying to cover my tracks here and say something akin of “if we don’t go down – we’re going up.” I leave that for so-called “experts” trodded out on the mainstream business/financial media at times like this.

To be clear, what I’m concerned with is this “market” is on the precipice (all my own opinion of course) of a 2008 style waterfall event. The issue here is: Does it happen now? Or: Does it take place after the so-called “pullback” off the cliff.

The odds of it taking place at any moment are now in my opinion 60/40. the 60 represents now rather than later. (now meaning within a few days, if not hours.)

I’ll use a simple chart using a simple Fibonacci extension graph to show my thinking.

Again, I have no idea if I’m correct or not. I could be wildly wrong. However, with that said, remember what I’ve been pounding the table saying before this all started. i.e., Once the Fed. began QT, in earnest – this is the type of reaction we should see if I was ever correct to begin with.

And last week was the first week they did just that – all as Ms. Yellen exited the Eccles building.

“Thanks Janet!”

(Source)

As I iterated earlier, all my opinion, but there it is for those that want to know, which seems to be quite a few today.

As always: We shall see.

© 2018 Mark St.Cyr

 

Correction Update to ‘Swiss Mix’

In my latest article I mistakenly used a currency chart for the US$ – Yuan cross-rate. I have since changed them out for the correct ones. Nothing else in the article is changed. Not premise, or anything else. And, it’s quite possible if you had only glanced you might not have even noticed, for they both show the same premise.

And, now you know what I’m probably going to address far sooner than later, because if one thinks it’s only the Swiss Franc that should make one nervous? Hint: It’s not.

Here are the referenced charts for those who may not have yet seen, or only need to see the change. To wit:

$Dollar / Chinese Yuan:

$Dollar / Swiss Franc:

(Source)

Once again, the charts, and only the above charts, have been changed on the original article.

© 2018 Mark St.Cyr

A Swiss Mix Pictorial

Let’s have a bit of fun with ‘pictures’ as they say in Silicon Valley. First…

Can you guess who this is? Answers below, no peeking!

Hint: It’s not who you think it is.

Have you ever heard the term, “Correlation doesn’t equal causation?” It’s a very good example that always should be held front of mind, for you always want to make sure you’re not just kidding yourself when looking for clues.

However, with that said, that doesn’t mean there are not underlying effects that may not signal 100% causation, yet, are far more influential than they may appear, or at least thought of. Which brings us to our next ‘picture.”

Can you guess what this may, or may not, correlate to with causation influences? To wit:

And last, but by no means least. Can you tell if the following ‘picture’ would indict erroneous conclusions for either? How about possibly holding both simultaneously, while being neither wrong, nor right? Yes, conundrum indeed. But that’s where the fun takes place for those looking for clues, yes? Again, to wit:

 

How’d you do? Did you think the first was a Bitcoin™ chart? Quite understandable if you did, but no.

Did you think the second was solely some representative form of valuation for the companies listed? Maybe a bit of a trick question, because it is a “yes” and “no,” depending on how one wants to frame the question.

And lastly, how did you do one the last? Looks pretty eery, does it not? Especially with what the “market” is currently doing these days. Yet, does it “correlate,” or is it “causational?” Or is it both? Again, sorry for the “tricky” part. But, sometimes, everything isn’t just a clean crisp line to follow.

So, without further ado, here they are screen-captured, in full…

Number 1: Stock chart of Swiss National Bank™

Number 2: Latest released numbers of holdings and valuations of (wait for it…) The Swiss National Bank. Didn’t know this bank was also one of the world’s largest hedge funds? If not: Welcome to the club of 99% of most “investors.” i.e., The 401K holding, investing public.

Ever wonder where all those “buyers” from nowhere came from in the FAANG family of investing prowess over the years? Isn’t printing money ex nihilo great?! Well, that is, as long as you can sell it for real cash. You know, like someone’s (or something) is doing right now. Correlation, causation? Tricky questions indeed, yes?

(Source)

Number Three: Cross-rate of the US$ and the Swiss Franc. And for those not aware (which is by far too many) the Swiss have a very bad habit of making, or removing, currency pegs abruptly, without prior announcements or indications. Think there’s any “stress” as they say looking at the following? To wit:

 

As always, “beauty” is always in the eyes of the beholder. But that doesn’t mean one shouldn’t look a little deeper, or a little closer as to try and picture where things may or may not be heading. So it’s on that note I leave you with this for your own interpretations. For after-all, that’s truly the only one that matters in the end. Again, to wit:

(Chart source)

Then again: What would happen if suddenly they (The Swiss Bank or Government per se) made a dramatic move in either their currency or stock portfolio? What about doing both simultaneously?

Nah, that’s probably too much of that other c-word aka conjecture. Or, then again…

Is it?

© 2018 Mark St.Cyr

Some Things Bear Repeating

Only because some things need repeating…

From my article, “Say Goodbye To The ‘Easy Button'” To wit:

This isn’t to brow-beat, or berate a point. What I’m trying to do is point out a very important fact, for the implications are what’s important, and it’s for the following:

Not only is Wall Street currently populated with more “never seen a down market” types than probably any time in recorded history. (Think most, if not all, so-called automated, goal based investment platforms, or brokers.) There’s another variable that’s even more chilling and it is this: There’s barely any people trading at all. i.e., It’s all machine trading based on pure algorithmic formulas. And the power (i.e., QT: quantitative tightening) to fuel those machines is being reduced. And that’s not all.

These “algos” per se, have been constructed and tested in much the same way. i.e., By recent college grad, math whizzes. And here’s another important factor: All during a market that only knows central bank largess.

Don’t gloss over that point. Truly contemplate the implications, it’s worth the time, if not the possible savings of one’s future bank balances.

Point One: “Think most, if not all, so-called automated, goal based investment platforms, or brokers.”

The resulting proof to back up such words for caution? Again, to wit:

(Non-working Screenshot – Source)

Point Two: “There’s barely any people trading at all. i.e., It’s all machine trading based on pure algorithmic formulas.”

The result? Via CNBC™, to wit:

“Why the stock market plunged today”

“The first thing to know about the stock market’s eye-watering slide Monday is that it wasn’t caused by anything fundamental.

There was no particular piece of news that drove the major averages to capsize, in a move that sent the Dow industrials off more than 1,500 points — a new intraday record — briefly in the final hour of trading.

Instead, the market took on a mind of its own, where sentiment and likely some computer-programmed trading sent Wall Street into a bizarre tizzy. Fear brewed over a number of issues, with the biggest being trepidation about rising interest rates even though government bond yields actually were lower on the day.”

Point Three: “These “algos” per se, have been constructed and tested in much the same way. i.e., By recent college grad, math whizzes. And here’s another important factor: All during a market that only knows central bank largess.”

The result? Via Nomi Prins. To wit:

“This debt creation can’t sustain itself forever. It doesn’t take but a tiny mistake by central bankers to throw the bond markets into disarray.

Equity markets don’t always follow right away, but they will eventually follow. And these past few days, equities marched in lockstep with the spike in bond yields.

The Fed’s balance sheet reductions until now have basically been a rounding error. But last week, the Fed sold $22 billion of assets. Is it a coincidence that stocks sold off?”

Bonus point, from my same article: “What do the machines seem to do when a market rout is on? Hint: “Pull plugs,” or my personal favorite, suddenly “break.”

The result? Via Eric Scott Hunsader. Again, to wit:


(Non-working screenshot. Source listed above)

And for reasons I believe are both relevant and important, Bonus, Bonus Point, from my article “Now It’s Bicoin’s $10K Dillema”

“If you think that’s a retirement vehicle or strategy you can bank on? May I interest you in some ocean-front property I have in Kentucky that I’ll let you have, cheap? (Sorry, but cash only.)

Now that Bitcoin has revisited prices beginning with $9, rather than $20? Look for prices in the 8,7,6,5,4,3,2,1,_? coming sooner, rather than later, in the very near future.”

The result? Via GDAX™. To wit:

(Screenshot taken on 2/6/18)

Or said differently…

 

© 2018 Mark St.Cyr

Say Goodbye To The ‘Easy Button’

A bombshell of a report was dropped last week, and no I’m not alluding to the “memo” released by the House. The report I’m referring to is what’s known as an “ending balance report” showing precisely what one’s current holdings are valued at week-end. And like the former – it had a lot of people seeing red, both figuratively and literally, in more ways than one.

Now the big question is this (as I heard echoed across the “whistling” media): “Is that it?” Hint: I don’t think so. As a matter of fact, I believe the show has only just begun. Maybe for both, but I digress.

The reasoning for it are manifold. Yet, what may be the most telling is the sell-off coincided with near precision the “curtain call” for the now former Chair, Janet Yellen. I regard both the timing, as well as the size and breath of the turmoil to be a very significant tell for the fate and future of the “market.”

To make the point let me use the following:

The known (or reasonably assumed) stance that the Federal Reserve would act favorably, if not outright rescue “markets” is no longer a known quantity – it’s now open for interpretation. And that “interpretation” will only be resolved in quality, and quantity terms via two things.

First: What the Fed. does – doesn’t do – or continues to do, during any market rout. i.e., Do we get Fed. jaw boning in droves and more? Or, do they openly state a halting, pausing, ________(fill in the blank) of already voted or known quantities? i.e., balance sheet normalization, rate hikes, et cetera.

Second: What they do – or won’t do, during an all-out market panic. i.e., Implement a QE4 measure, immediately, or some other brazen policy move? Or, heaven forbid, sit on their hands?

These were known, or at least assumed knowns, quantities under the tutelage of the Bernanke/Yellen Fed. Today? It’s an entirely unknown variable.

And that changes everything.

As of late the investing prowess known as “JBTFD” (just buy the f’n dip) has been held hostage to there being virtually no dips available, for over a year.

Since the election in 2016, the worst and most cancerous investing lesson ever learned (e.g., JBTFD) went from: Waiting, then – buy any and all dips. To: Wait only for the “markets” to open, then – buy anything and everything with a ticker symbol. And it has worked flawlessly – till now.

Yet, this is where that once “winning” strategy, along with the lessons and habits it’s rewarded so handsomely may become a curse.  Adaptability; along with a fundamental understanding for the complexity of how and why markets move (or at the least should) have either, A: Never been taught. Or, B: Been completely forgotten, or unlearned aspects of finance.

This is an important point, for it’s not as if there weren’t some very fundamental tells of what was coming (at least for the near future) being telegraphed within not only the bond, as well as currency markets, but also in commodities such as oil and others.

As these stresses (i.e., falling dollar, rising interest rates above key levels, China market rumblings, oil rising, et cetera) began rearing the ominous warning signs. The “market” not only didn’t react or take any pause – it began to further accelerate in true parabolic fashion.

This was the moment, in my opinion, which showed in spades just how far the codified investing prowess based purely on mimicking the machine learned behavior of the past decade had been internalized since QE and all its iterations. Most outlets appeared either clueless, or worse, completely ambivalent to having any regard.

JBTFD investing aka hitting the “easy button” was all that mattered, regardless of all other market considerations. This is mania type behavior, and it comes at a price. Hint: See Bitcoin™ for clues.

Personally, I’ve been left speechless (and coming from me that’s saying something) over the past few months as the “markets” went from going-up – to going-straight-up.

I’m not the only one, but you wouldn’t know of it watching, reading, or listening to most mainstream business/financial outlet. That is, unless someone volunteered to be the guest “piñata” of the day.

And that in-and-of itself is going to have reverberations going forward, because far too many working, as well as investing in the “markets” today have little to no clue, let alone any real hands-on experience allocating, or preserving mental, as well as physical capital during two-way markets. Especially swift, quickly reversing, multiple percentage moving markets.

This is where JBTFD investing prowess morphs into “Catching falling knives” results. i.e. in the red and bloody. Let me explain using the following:

If you graduated from school within the last 10 years and either work on Wall Street, or your work is closely intertwined? (and in reality it’s all intertwined) All you know is one side. i.e., You have never, ever witnessed market turmoil that demands both action in the moment, as well as a cognitive understanding that’s executable in that moment of, and for, risk/reward. Let alone tested strategies and tactics made under such direst.

If you think “diversification” or a “diversified portfolio” is all one needs and is going to save the day during market turmoil? May I suggest you think again. Or better yet, ask someone who’s either lived through the financial crisis, or even better – someone who traded during it. (On a side note, I did both for those wondering.)

This isn’t to brow-beat, or berate a point. What I’m trying to do is point out a very important fact, for the implications are what’s important, and it’s for the following:

Not only is Wall Street currently populated with more “never seen a down market” types than probably any time in recorded history. (Think most, if not all, so-called automated, goal based investment platforms, or brokers.) There’s another variable that’s even more chilling and it is this: There’s barely any people trading at all. i.e., It’s all machine trading based on pure algorithmic formulas. And the power (i.e., QT: quantitative tightening) to fuel those machines is being reduced. And that’s not all.

These “algos” per se, have been constructed and tested in much the same way. i.e., By recent college grad, math whizzes. And here’s another important factor: All during a market that only knows central bank largess.

Don’t gloss over that point. Truly contemplate the implications, it’s worth the time, if not the possible savings of one’s future bank balances.

In days of yore (pre financial-crisis) market-makers (e.g., humans) did precisely that – make markets. During fast and swift down markets people (e.g., Traders and the Houses and/or Banks that backed them) would step directly into the path of a rout and make markets based on their own tried-and-tested (along with big ole helpings of chutzpah) risk parameters and more. Even during what at the time seemed liked collapsing markets. (Think live trading and market-making in explosive volatility where jumps from the teens to 50 and 60 handles and back again were considered “fun” and “exhilarating”)

But that was then and this is now. And nearly all of those people have either left, or been jettisoned in lieu of computers. And that’s going to a very big problem going forward in my humble estimation. Why?

What do the machines seem to do when a market rout is on? Hint: “Pull plugs,” or my personal favorite, suddenly “break.” Then, they suddenly, magically seem to reappear, or get “fixed,” when the market stops going down, relieving any pent-up selling pressure. Then, again, as if by magic, the BTFD cabal suddenly reappears where, “everything is just ducky” once again. i.e., Nothing to see here folks, move along, your balances will be just fine come closing time.

This appeared as a proven, reasonably assumed conclusion, time and time again – until Friday. This has now left the “markets” in a quandary of, “Now what happens?” And that is where the big question now resides. i.e., Can you just hit “the button” without forethought any longer?

My opinion: Not any more, and here’s why…

Precisely what the Fed., or any central bank for that matter will now do, or more importantly, may not do – is now an unknown.

With Ms. Yellen bowing out, so too goes with her the known quantity these markets have been built on. e.g., “The Bernanke/Yellen Put”

Now the “market” (and the Wall Street cabal that runs it) needs to find out if there’s going to be a Jerome Powell version, similar in-kind.

And there’s only one way to find out. And that dear reader, changes everything…

Again.

© 2018 Mark St.Cyr

Now It’s Bitcoin’s $10K Dilemma

Below is from my article “Bitcoin’s $20K Dilemma” To wit:

So why did I use the argument that Bitcoin now has a $20,000 problem, you may be asking? Fair question, and it is for this reason…

Unlike the general stock market of the last nine years or so, Bitcoin is not backstopped, or propped-up via any central bank largess. In other words: There is no central bank “put” to ensure “investments” aren’t subject to the true laws of supply, demand, and more importantly – emotional swings of the investing public. And Bitcoin (and all its ancillary brethren) are at the epicenter of a purely emotional investing public. Period.

Why? It’s all been about get-rich-quick. At least, that’s my opinion, over the last 6 to 12 months. So much so Unicorns are tearing, if not out right bawling, with envy.

People didn’t, haven’t, and still don’t care what Bitcoin or anything else did, or does, as far as a product is concerned. All they’ve cared about is what the stock price is currently – can they get in on it – and will it keep rising? That is all the “fundamental” analysis that has mattered.

And many a so-called “experts” has been more than willing to wrap more specious styled analysis around that fundamental to sound as if they “know” something others don’t, when in effect, they are nothing more than speculating themselves with more makeup and better cameras.

Now, Bitcoin™ (and all cryptos I’ll contend) have a much, much, much (did I say, much?) bigger problem: it’s now worth less than 1/2 of what it was at the height of euphoria, again!

And that dear reader – changes everything.

The reason $20K took on mythical proportions was for its big number psychological value, congruent with its rocket-ship trajectory in little but a few months.

This is where “gurus” and more pointed and theorized “If it can be here, it can be at $1Million in nearly no time flat.” “Retire with crypto’s” has been the clarion call. Retire early, retire wealthy, retire good-looking, retire _____ (fill in the blank.)

I think it was also said to cure cancer, but I may be mistaken on that point. It’s been hard to keep up.

Then the unfathomable happened in near the same amount of time that it took to go parabolic. e.g., It began to lose its orbital trajectory and has been tumbling back ever since.

Now – it’s in fear of crashing or flaming out in spectacular fashion with every passing headline. That’s not the fairytale storyline this area of “investing” prowess was supposed to follow. According to the so-called “experts” that is. Nonetheless, the now entire debacle unfolding is being writ large in a way no one can miss. i.e., Bank balances. Both real and presumed.

Here’s the dirty little secret no one seems willing to say, so I’ll say it:

Unless you were one of the few (and that number is very, very, very few) that for whatever the reason speculated and got in on the crypto-bandwagon before the parabolic move of a few months ago – more than likely you are either sitting in a near break-even position if you’re lucky. Or – in a completely losing position at worse.

Welcome to when magical thinking – meets cold hard, brutal reality.

This is not the fabled path crypto’s were suppose to sojourn. It was supposed to revisit $20K well before it would ever see $10K again, if ever. The issue is now not only has it revisited $10, but it’s now hanging back with $9, looking like it’s lonley for something sporting an $8K.

Here’s something else that’s now, “different this time.”

If you are one of the few that were in before all of it.( i.e., When it took two Bitcoins to buy the equivalent of a pizza.) You now need to be looking at the current prices and contemplating (at least you should, in my opinion) at what level you should cash out – before it goes even lower. Rather than trying to stick to the foolish meme of stupidity investing being told and sold, aka HODL (hang on for dear life.)

For those thinking about, or looking for the “retirement lifestyle” that has been sold by many a “Bitcoin guru” of late. Just remember this:

Hanging on doesn’t pay the bills if you’re now living on what was presumed a “Bitcoin millionaire” lifestyle paid with present or future coins. Especially if they’re now trading at over a 50% discount in just under 6 weeks. Hint: The lease payments for the Bentley® won’t change for years. Think about it.

However, there’s now another aspect of all this that needs to be articulated, because none of the “gurus” will. And for those who may need the warning, here it is – Alert: Trigger warning!

If you invest in Bitcoin today; and it goes back to $20K; the best you’ll do is double you money. And, unless that is to happen in the very short future of let’s say a few months, tops? (and I’ll argue the odds are slim to none, emphasis on none) You can probably assume further reduced values ahead are going to be norm – rather than higher. Best case scenario? Opinion of course: Vacillates, and it all becomes dead money for the foreseeable future.

If you think that’s a retirement vehicle or strategy you can bank on? May I interest you in some ocean-front property I have in Kentucky that I’ll let you have, cheap? (Sorry, but cash only.)

Now that Bitcoin has revisited prices beginning with $9, rather than $20? Look for prices in the 8,7,6,5,4,3,2,1,_? coming sooner, rather than later, in the very near future.

And for those who need to be reminded of what “paper wealth” looks like when it’s losing value faster than the digital paper it’s written on. Here’s a picture that tells it all in less than 10 thousand words, or should I say “bits?” To wit:

(Source)

© 2018 Mark St.Cyr