The Approaching Summer Of Discontent aka Financial Climate Change

As we stand here today one would conclude by all that’s professed via mainstream business/financial outlets (MSBFO) of print, radio and television that we are in a “Goldilocks” climate for not only business, but employment, stock markets, corporate earnings, wages, housing, and on, and on.

Again, if one prescribes to the idea that the entire economy is now situated for rapid growth or expansion. The only way one can hold that construct is by fully embracing the notion that the “weathermen” of today’s financial media know of which they speak. Hint: Does the term, “weather-rock” conjure up on any images?

Personally, I tune into most MSBFO’s only to see just how the incoming release of major data (e.g., GDP, Unemployment, et cetera) will be both interpreted, as well as spun.The whole exercise has now become something more akin to comedic relief, or fantasy land. This past Friday, however, had me constantly wondering if I had been unknowingly abducted (or committed!) and transported into some asylum for the delusional, for the discussions concerning the “release” weren’t borderline crazy – they genuinely were nuts!

For the moment, let’s all be grownups and come to an agreement, or understanding for rationality before we move on, shall we? i.e., The “numbers” or “government released statistics” are and always have been created for one thing and one thing only: Political spin.

Every administration, every political side, every single politician or wannabe, whether currently in, or out, uses these numbers to push an agenda, or criticize one. “Spin” is – the name of the game, whether to use for, or against. Period.

With that said, one also needs to remember these “numbers” are, for all intents and purposes, constructed for the populace at-large’s consumption. Any business person, or C-suite inhabitant, with any acumen, would be considered inept if they based their business prospects via what the “government data releases” stated. At least that’s the hope. But I digress.

Yet, this is exactly what the MSBFO’s of today appear to not only believe, but worse, promulgate. It’s now turned into sheer “crazy-talk.” And in many ways its out-right dangerous.

The issue that’s now facing far too many, is this: When financial “weather channels” (let’s call them that, for the sake of argument, at this moment) use nothing more as the basis of their rational and reporting something akin to a weather reporter using a weather-rock? This makes the old saying, “garbage in – garbage out” look down right scholarly.

The glaring issue is that there are far too many posing as “weathered financial analysts” that have never experienced a sustained sell-off, or rising interest rate environment. Again, e-va!

I switched back and forth and across various outlets, and all were about the same. i.e., Some economist, or next-in-rotation fund manager, was jawing-on about “3.9 this,” or “full employment that,” coupled with, “great earnings beats across the board, blah, blah, blah.”

I heard not one, repeat, not one thoughtful or well articulated counter to any of it.

The only analysis given remained bound to the hypothesis that everything being reported was, in-fact, true, i.e., Statistically full employment, great earnings, et cetera. So, what was proposed as to happen next was basically, “a given,” i.e., We’re basking in a “Goldilocks” climate period. i.e., Just go about your day and enjoy the sunshine. (And your 401K balance.) Let’s break here for a commercial and we’ll come back to more of this wonderful insight. momentarily.

The only thing that made me wince more was when the collaborating data to prove their hypothesis was based on (wait for it…) the last decade of data sets. i.e., Con QE, not Sans. (no pun intended, it writes itself.)

I’ll only say this: I agree 100% in the “Goldilocks” comparison if the underlying premise means – we’re currently transgressing within a pure fairytale. For if one thinks a participation rate of about 60%, give-or-take, represents “full?” I have a wonderful fairytale piece of oceanfront property in Kentucky you can have, on the cheap. “Trust me.”

Here’s the troubling issue with the above: The worst possible calamities take place when everyone buys into the premise that either: A) It won’t happen. Or B) Can’t happen, again. That’s about the same as saying a 100-year-flood can’t happen tomorrow, because it happened just 10 years ago. And yet, this is precisely the same amount of critical thinking being professed across the MSBFO’s when it comes to today’s financial and/or market climate. It’s beyond vacuous. And that’s being kind.

Let me illustrate this using the following for you to ponder through:

Imagine you’re on a coast somewhere, after a lifetime of hard work, retired. Off in the distance your instincts tell you what you’re perceiving is an immense storm, heading straight your way. You’ve been through a storm or two over your career, so you start preparing best you can for the possibility. You know, just-in-case.

You start monitoring the local and national news outlets, but all you see, hear, or read, is that the weather outside is great, and the prevailing forecast amounts to providing for more of the same. You then talk yourself into the idea that, “If the so-called ‘experts’ don’t seem to be that worried, then maybe, you shouldn’t be as much either.”

Then – it hits.

After the front passes and the carnage is revealed, you begin rebuilding, vowing to never “trust” the so-called, “experts,” ever again. You begin paying attention to other sources where you can find data and more that allow you to form a better opinion of the “financial headwinds” or “weather patterns” approaching you. During this time you suspect that “this storm” is far from over, regardless of the current clear skies and beaming sunshine.

Armed with your increased acumen you find a source that allows you realtime satellite data to then contemplate that the initial “storm front” was not an isolated event as all the current “weathermen” are professing. No, what you begin to realize is – you’re right in the middle, or “eye” of a monstrous hurricane. And the previous was only the leading edge, where the backside has yet to come into full-view, and is far more intense, with the potential for even greater devastation.

And yet, when you turn to any of the MSBFO’s, aka the “news,” it’s all the same: Clear skies today, means clear skies tomorrow. The previous storm? A one-off of the 100 year variety, probably never to be seen again in one’s lifetime.

Then, to prove their point, they point to the now “accepted data provider” for weather analysis – a weather-rock.

This is precisely where we are in terms of the analysis of both the “markets,” as well as overall economy. (My opinion, of course) And yes, I believe we are in exactly that place known as “the eye” of a hurricane, both “markets” wise, as well as economically. But here’s the real kicker…

Many of the earlier “weathermen” have been replaced with younger, more so-called “data savvy” replacements. armed with the latest algorithms and more, To which they, along with management, have determined that the reason for the prior debacle, or lack of forecasting prowess, was easily correctable by ensuring that the “data” would now be more readily accessible and easily seen as to make judgements at the speed-of-light.

Some form of “futuristic gizmo” one might be wondering? No, that would add latency. The reason?

They’ve now moved the “weather-rocks” indoors directly placed onto their desks for immediate “signaling” interpretation. No interface needed.

Think about it.

Here is, let’s call it, “a satellite picture” for this moment to show precisely what I’m alluding to. To wit:

I posited the above back in February when the original “storm front” made its debut. The idea behind it was simple: The moment the “market” received hard evidence that indeed QT had begun, along with rate hikes, one would see just how intense the potential storm was packing. For if there was truly “nothing on the radar” to be concerned about? The above would not have made “landfall” with such immediacy and severity as it did.

The timing, plus severity, with the “market” getting its first look confirming QT (quantitative tightening) had begun, in earnest – was a textbook causation, correlation example, in real-time. For if the underlying premise of the “markets” robust nature was predicated on a true “robust economy?” Than the Fed. easing should have shown to be nothing more than, at the most, a blip.

And looking at the actual data using the above as a guide – It was nothing of the sort.

Unless that is, if you’re in the MSBFO. Because for them, it has been, and has been regarded as nothing more than just that, “a blip.”

The premise (mine, that is) was then, and still remains – this was the leading edge of a much larger hurricane styled type, or scenario that’s still developing. And if I was correct in my original assumptions (and as of today my assumptions are still the same) than the above is what I see transpiring, possibly as early as summer. Or said differently…

Financial climate change is all but upon us, aka “Winter is coming.” No “weather-rock” needed.

Just a little financial market, or economical, common sense, which seems to be lacking from any plain sight.

© 2018 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)

In February 2017 I penned the following article, “The Big Snapchat IPO Question: Will Investment Dollars Also Go Poof?”

From the article. To wit:

Let me phrase it this way: All this waiting, all the hype, all those “dreams” placed squarely on the shoulders of this forthcoming IPO – and all they get is a lousy $3 Billion and the CEO gets to keep (and wears) the “lousy T-shirt.” Yep: “rejoice” just seems a little out-of-place after that, doesn’t it?

Now $3 Billion is nothing to sneeze at. Especially if it’s “your” money that’s going to be the content for the counting. But this is Snapchat! You know, the supposed next Facebook™ (FB) if not FB killer.

Comparisons to other tech companies (e.g., Twitter™) brings a swift response from roadshow messaging, “We’re the next Facebook, Not The Next Twitter.” All I’ll say is investors better hope, pray, and give burnt offerings to help that insinuation along before the possibility the “burnt offerings” is their money up-in-smoke after the fact, just saying.

Again, here we have “the” most anticipated IPO to come down the pike in quite some time. Their shopping for this IPO has been done in near secrecy where “confidentiality” was the term used as to describe the process. Many thought since they waited till the “markets” once again were tractor-beamed into never-before-seen-in-history-highs that this IPO would be priced at the whisper number of $5 Billion reminiscent of FB’s. Especially given all that seems to be riding on this “unicorn’s” back.

Sorry, to be the bummer, but $3 Billion is closer both in math, and reality, to Twitter’s $1.8 IPO offer range, than it is to FB’s $5 Billion. And what may be even worse? Their filings seem to make that case even further.

In my opinion: This isn’t a good sign if you’re the supposed “David” in “The Valley’s” version of “Goliath” killers. Especially if you’re simultaneously held to be the IPO savior of tech. And there’s only one thing worse than “expectations” not being met, even if it is hopes, or dreamlike infused wishes.

The reason for reiterating the above is important, for if one remembers, there wasn’t a mainstream business/financial media outlet that was not only “on the bandwagon.” But many seemed to be unaware of just how foolish they were making themselves trying to show how “hip” they were using the product on live television. The floor of the stock exchange awaiting this IPO had turned into not just a media feeding frenzy, but a circus.

This was hosted as “the” and I mean just that, “the” pivotal moment as to prove the nay sayers of the “It’s different this time” new-religion wrong, once and for all.

I was rebuked across the media, as well as the Silicon Valley aficionado set. (Branded as a heretic seems more appropriate.)

So how has it all worked out, is the obvious question. And it is here that I’ll let what they call a “picture” in, “The Valley” do all the talking from here. To wit:

(Source)

Other than the above, need I say more?

© 2018 Mark St.Cyr

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.

Today’s Perplexing Question aka Apple’s Conundrum

By all accounts across the mainstream business/financial media Apple™ reported “fantastic earnings.” The earnings report was a “solid beat across the board,” again, using the vernacular of the media. (Full disclosure, I am an avid user to near exclusivity.)

There was one metric however, that sent jubilation across the next-in-rotation fund-manager cabal. It wasn’t that Apple guided higher for the next quarter, surpassing future expectations, but rather, offered up another $100 BILLION dollar stock buyback on top of all the previous $Billions allocated prior. They (e.g., Apple) also announced concurrently, that the current payout of dividends would also increase by double-digit percentages.

The implications to all the above are very clear: If you are a shareholder in Apple stock? Yesterday, was a very good day.

Yet, like a great night out on the town, where spirits flow freely and enthusiasm to consume runs even wilder – then comes the morning. And it is here, that suddenly, quite a few people are waking and asking themselves: “What really happened last night, and was it truly worth it, if I don’t remember?”

That question is very much in-kind a representation of the many questions I fielded this A.M. from a few business leaders I confer with regularly. It seems there is a conflict going on within their respective craniums as they try to parse though the “great earnings” reported, while at the same time, reconcile why they were having this moment of, “Yeah, last night was off the hook! Tell me again what happened?”

Again, let me make clear, by all accounts from a “share holder” perspective, there was nothing not too like about what many heard as the, “headline reporting and analysis” via most (if not all) the mainstream financial/media outlets parlayed across the wires and satellites. Most (again, if not all) was nothing more that pom-pom waving. It’s now just par for the course. However, if one did listen carefully, there was one overture that seemed to be rearing its head by just the tiniest bit as to not scare the children aka “momo-investors.”

That overture?: Apple may be a transitioning into a value play as opposed to growth story. Hint: Can you say Microsoft™?

This is the reason, I believe, that helps explain why the people I spoke with appeared perplexed as to why they had on the one side, by all accounts, every reason to think the “party” was nothing but a smash hit. Yet, at the same time, they have this nagging feeling that the next person they speak with about what happened are going to suddenly reveal a detail that makes them think or say, “I was doing what, with who?”  Causing that in-the-moment flash of either anxiety, outright panic, or both, simultaneously.

“So where does this relate to Apple’s earnings report?”, one may ask. Good question, and it is this…

Again, form a casual “share holder” perspective – there was nothing not too like. All the headline numbers, buybacks, dividend increases and more were all reported on in ebullient fashion.

But then, for those with any business acumen, there just seemed to be something under the surface that you just couldn’t quite grasp its meaning or significance, yet, were highly apprehensive that the next person one talked to would fill in those details sending the, “Oh great” into the “Oh crap” with every revelation or forthcoming detail you either forgot, or breezed over.

Which, of course, is why I suddenly began receiving queries about, “Last night.” Or phrased differently, “So… you were there, right? What did you think?”

Here was my reply, which I repeated near verbatim every time I was asked. To wit:

“Let me ask you this: Why are you asking, when you yourself are prefacing almost everything you’re asking under the guise of, ‘But the earnings were more than solid, don’t you think?’ It’s like you’re trying to convince yourself, as well as me. Look, the reason I believe you are having some doubt, yet don’t want to fully understand the ‘why,’ is because you’re looking at it through your own ‘share holder’ type glasses. All the while your business side is screaming in your brain, ‘Wait…what?’ And you don’t know why.

Well, maybe it’s not that you really don’t. It’s probably more in-line with – you really don’t want to know. And that’s fine, but the problem is your business side wants you too know. Or, at the least, convince yourself via your own acumen why your business side shouldn’t be listened to. Do you think that’s possible?”

Amalgamated response: “Go on.”

“Here’s what I believe the answer to your question really is, but it’s more of a conundrum situation, rather than an outright answer for you to weigh what side of the scale you want to place your true meaning for what this latest earnings release showed. So, let me put it this way in simple form:

If – the tax cuts had not have been enacted, and remember, that was only just a few months ago and was right at the beginning of this reported quarter. Would you be as ‘pleasantly surprised’ with this earnings report? Remember, the reason stated for all the share holder money being returned was via the tax cuts.

iPhone® sales are contracting, margins contracting, product launches (Christmas shopping season no less) missed, ballooning inventory, and more. Yes, the bottom/top line numbers are solid. However, the best Apple can do with $Billions upon $Billions of dollars in cash is return it? Again, Apple’s best use of cash is to – return it. Is that because last time they spent cash, as in Beats®, it’s been lack luster at best, and more like foolish-folly at worst?

That’s the point that I believe is gnawing at you, that you don’t want to entertain the implications of. It’s also the same perplexing conundrum you aren’t going to hear in the media. But if you play-along and just ignore the 800lb. elephant, (like most are currently) it’s all sunshine and lollipops.

But your business side won’t let you.

Maybe what you need to do is go back using purely the business side of your reasoning, sit down, and figuratively ask yourself squarely something akin to: ‘Alright, no games, tell me everything again, in detail, exactly what happened last night.’ Then take that detailed earnings report – and read it, looking at every detail as you normally would as if you were buying the business itself, and reassess why you’re having these mixed thoughts. If you do that, I’ll bet dollars-to-doughnuts you’ll come to your own clarity as to the ‘why’ quite quickly. Then – act accordingly.”

Usual response: “I think you’re right, thanks. I’ll get back to you.”

If you, dear reader, may be having the same perplexing thoughts on what Apple’s earnings may truly encapsulate, I would suggest the same to you.

You may be quite surprised (maybe pleasantly, maybe not) at your conclusions when you do. If not, may I suggest ordering more aspirin?

© 2018 Mark St.Cyr