Strike Three Awaits aka: When “MOMO” Ends

If there’s been one thing prominent behind the headlines today that shows just how myopic, combined with, what appears to be a an outright willingness to jettison any deductive reasoning across most, if not all media outlets. It has been the stated interpretations or reasonings behind not just the Facebook™ share price collapse, but also the confluence of similar out-of-the-blue for either negative, or lack of reaction entirely, to the once darlings of any and all BTFD (buy the f’n dips) worshipers.

These reasonings have bordered from the outright delusional, at best. To forthright indulgence into the land of, baffle’m-with-bullsh*t. It’s been beyond ludicrous, to say the least.

The current myopic view is that the debacle in Facebook (FB), when it comes to its share price falling, is it’s the result of the latest scandal and Wall Street had a hissy over it. However, as they keep pointing out, the business (aka revenues) is booming! i.e., “This company is still generating Billions upon Billions!”

Yes, yes it is, which should be your first clue as to take what happened in its share price as an ominous warning sign for bigger things to come rather, than the myopic reasoning that this is solely just some over-reaction to a mildly disappointing quarter. Hint: It’s not.

To illustrate my point we need to look back over the course of the last year or so for context. For if you don’t, you could miss the larger picture contained within.

It’s also important in other ways, which are just as important to note. One is the standard moniker affixed to many like myself. i.e., “Even a broken clock is right twice a day.” It’s an easy trap to fall into when any calls for caution are continually pummeled under the sledgehammer of an incessantly climbing “market.”

I get it, “price is king” as some will say. Till – price reverses, then all that seemingly, well founded genius of “Buying any and all dips, regardless” gets dropped on its head. Or should I say, crown?

The issue one needs to be very cognizant of is, not only did FB’s share price get dropped, but this time, they came for Twitter™ in unison, with the those same “sledgehammers.” There is an importance here that many are missing.

Twitter, for those whom might not remember, just landed itself within the coveted S&P 500™ index listing. This was the moment that was supposed to prove all the nay-sayers wrong for holding any view other than “it’s different this time.” Now it’s all about the long view, value, etc., etc., etc. (i.e., These are mature or, maturing companies, and our view, along with our evaluations, should also change.)

OK, fair point. so what happened that we can “evaluate” as to help shape any new understandings going forward would be a good question, yes? So how is this playing out, any examples? Yes, yes there were, I’ll let you judge for yourself.

Nearly as soon as it was included, meaning more ETF’s, pension funds, 401K’s et al. would have increased exposure to it – the “sledgehammers” came for the newly ascended bird-on-a-perch. The result? Hint: See any portfolio now containing this once dynamic duo for clues.

The above are the most obvious, but they are far from the only ones that need to be included for perspective.

Netflix™ was hammered in much the same way. Alphabet™ (aka Google™) and Amazon™ are also notable for their lack of reaction, along with their inability to hold much of their lackluster push higher.

This is not the reaction expected to a season of “Great earnings beats!” that is told/sold across much of the business/financial mainstream media.

In fact 10% – 20% downdrafts in a single trading session of not just one, but a couple of the most high-flying names for recommendations across all of Wall Street, along with a sudden vanishing of any BTFD’ers to make them whole again (or appear genius) has suddenly manifested a myriad of facial ticks and psyco-babble across many a next-in-rotation fund manager.

And it’s just a start in my opinion, which brings us to my original headline and why I made it.

Now that we have the above for some context, let’s move it into the bigger-picture viewpoint and see if we can make any possible assumptions that might be valid, along with deducing any possible conclusions, where one might position themselves or, their business, against possible turmoil or headwinds.

Back to the “broken clock” theory first, for a moment, because it’s relevant.

The “broken clock” theory is based upon the idea that even if something is broken (meaning useless) that it can appear to be correct depending on the circumstances. It’s a double-edged-sword type of analogy when taken in full context. To illustrate this point one can use the idea of “a monkey throwing darts at ticker symbols” proving to be an illustration of the “broken clock.” i.e., even though in reality its a moronic exercise in stock picking, under the right circumstances, it can appear quite genius.

If you think this is hyperbole? Then it’s quite possible you don’t fully understand or appreciate the ramifications the last eight years or so of central bank fueled and rewarded BTFD (buy the f’n dips) “genius” has brought us. Because – that is exactly where we are now, as proved out in another recent Wall Street Journal™ article titled: “Darts Are Beating the Ira Sohn Investing Pros”

Here’s just one line from said article that seems to be trying to summarize where we are now. To wit:

“Once again, investors would have been better off picking companies by throwing darts at stock tables than listening to Wall Street’s geniuses.”

The issue is, to a few of us, this is old news. And, we’ve been stating it for years. (i.e., just one of QE’s ramifications) Here’s just one example back in 2014, again, to wit:

“What we don’t need – nor want – is another bowl of the 2008ish tripe washed down with this years new flavored Kool-aid™.

Here’s what a few of us also know that we are not “wrong” about.

When a monkey throwing darts can outperform most of today’s so-called “best of the best” hedge funds – we’re going to put our money on the monkey, rather than putting it anywhere close to where these people can put their hands on it for their own personal self-serving monkey business.”

Which brings us squarely into what may be “strike three” from a full windup pitcher who has already successfully placed two prior.

“Wait, two prior?” You’re now asking.

Yes, that’s correct. Two 110 mile-an-hour financial curveballs that took the “markets” breath away, yet, has left it remaining in the batters box thinking the next will surely be slower and wider, for no pitcher can sustain anything with such momentum and trajectory three times in a row. After all, 110 mile-an-hour curveballs are supposedly impossible, right?

Well, they are. But so to was the idea of QE – and here we are.

The problem here is this new releif pitcher (e.g., QT) has been sent in to close down the QE show – and there’s only one way to see if there is indeed any “gas” remaining in the tank. And that’s – to test it.

“Strike One” came when the original spigot of QE was officially announced over back in Oct/Nov. of 2014.

I stated over and over, and over again, that if everything I was arguing had any merit, than it should prove itself, with near immediacy, in the fairytale utopian “investing” vehicle built of QE known as “The unicorn and it’s IPO cash-out.” If I were correct it should come to an abrupt death of what was then considered the “darling of investing prowess.”

And it did.

The next came at the beginning of this year, when I stated much along the same as I’ve said before, that “If I’ve been wrong for the right reasons” then the moment the “markets” have confirmation that the Fed’s balance sheet has, indeed, reduced. (i.e., no more reinvestment of prior purchases and actual roll off accordingly) that the “markets” would react not just negatively, but knee-jerkingly so and in dramatic fashion, where thoughts of 2008 panic once again reemerged.

And it did, now known as the “February Scare.”

Yet, that “scare” seems to have been long forgotten, which is just another point in the progression that I’ve been stating should be the result if this QT (quantitative tightening) was to be appreciated in its fullest rather, than what most of the so-called “experts” were touting. i.e., “QT is now a well-known and the market has no real concern over it, blah, blah, blah…

The issue is these recent “market” actions are proving quite the contrary.

As I and a few others have stated since the beginning of the year, is this: If this entire Potemkin Village now known as the “markets” is nothing more than a house-of-cards built upon shifting sand, than the results to back up that premise would become manifest in-and-around the second quarter during the earnings reporting. The reasoning was simple:

After the build up made possible from the tax plan actually getting passed (something I originally doubted, with good reason) that euphoria would wear off once this years earnings began in earnest. It seems to have done just that for we have not since made any across the board new highs as of yet.

First quarter reporting covers the holiday shopping period. Exposure is a must regardless of what one thinks. Money has to be invested for exposure not just for the earnings, but for the new year. And when looking back at all the “beats” for ending 2017 – it didn’t take a genius to assume the “markets” would remain at elevate levels if not even surpass. And the First quarter did just that. But there was just one nagging issue – projections.

The problem here was that these “projections” were now sacrosanct to the last bastion of residual “hot money” left over from all the prior years of QE. i.e., The FAANG family of tech.

If the new religion purveyors of “It’s different this time” dogma demonstrated even-the-slightest of disillusionment to the “growth story?” It would show that it all was truly over with a sudden new-found appreciation for the old lost religion of, “Hurry up and sell!”

And it did just that, digging this once forgotten practice up in-spades. Let’s call it, “Strike Two.”

So now, what is this possible “Strike Three” call I’m making? Good question, and it is this:

There’s only one thing left that is to be tested as to solidify where these “markets” will go next. And it isn’t the results of a trade war per se.

No, this “market” has thrown quite a few pitches over-the-plate since the ending of QE. There have been some that were easily called strikes only to be reversed as called balls by the instant replay team composed of other central bankers. (Hint: James Bullard, or Mario Draghi et al.)

But now the count is full, and the entire series is on the line, with a full count and bases loaded. Which lies at the heart of the dilemma.

For this pitcher has now shown they are capable of throwing pitches at incredible speeds (think China) along with trajectories needing a degree in quantum physics to evaluate. (Think algo’s and more) And in the batter’s box is one named Jerome Powell.

One who has signaled prior, that when the game is on the line (i.e. markets selling off) he might not swing the Fed’s heavy hitting bat, also known as “more-cowbell,” and take his (i.e., the Fed’s) chances that any assuming market turmoil is nothing more than what will later be discerned as, “a called ball.”

The issue this batter may fail to realize is the extreme that this “market” is built on aka: “The Fed. Put.”

And in doing so this “market” is going to put its final pitch directly down the center-of-the-plate (i.e., roiling markets) where the decision for swinging will be made moot.

In other words: The Fed. will either have to swing-for-the-fences, and take the chances of missing – or not swing at all. Yet, both will have the same effect. e.g., Game over.

But make no mistake – that pitch – is coming.

© 2018 Mark St.Cyr