I would like to say that everyone remembers what took place in 2007/08, which lead to changing one’s perception from considering what was once unthinkable, to having to consider the very real prospects that the unthinkable was now probable, if not undeniable. i.e., The entire financial system, globally, was not only unraveling, but could collapse upon itself sending what we once took for granted as “your money’s good” into “what’s money?”
I know that sounds like hyperbole, but for those that still care to remember – it’s the truth.
Yet, if one looks at the “markets” today, or listens to the mainstream financial/business media outlets, it’s as if it were just some run of the mill day of note that warrants some type of yearly revisit to help fill up some dead air time between some next-in-rotation fund-manager, Ph.D’d economist from academia or, between the buzzers and cowbells of Cramer’s next “buy, buy, buy” recommendation.
But alas, not only does everyone seem to not remember, but far worse – doesn’t care. The reason?
The rewarding for the reflexive new strategy aka, BTFD (buy the f’n dips.) Where the equivalent of a monkey-throwing-darts has, once again, become the genius of investing strategy. Albeit the “monkey” is now just a mechanical algorithmic bot. Hey, but it’s AI (artificial intelligence) driven, so that makes it de facto better, right? Right?! (Hint: see “Automated Investing” for clues)
On a side note, just for a bit of remembrance, as they say. Here’s a bit of history the “buzzer king” himself would surely like one never to remember: “In Cramer We Trust” via, “The Daily Show With Jon Stewart.”
But today? It’s all about BTFD, no buzzers needed.
AI along with its promiscuous HFT (high frequency trading,) algorithmic counterparts have adulterated and perverted what was once known as “true price discovery” into the waste basket of history. Watching screens as indexes, stocks and more vault higher and higher in the face of events to what was once considered events for pause, if not outright sell signs, has filled many a BTFD account just as fast as a teenagers wastebasket watching something else. Crude comparison, yes. But all that different? Not so much.
This strategy (BTFD) has rewarded the utter most foolish type of behavior, reasoning and follow through, not just for investing, but a whole myriad of other concerns, not counting its perpetuation of crony-capitalism in both a size and scale the world has ever known. i.e., King’s of yesteryear must be rolling over with envy at just how much power, control and influence central bankers now wheeled across every aspect of the globe.
Mel Brook’s famously quipped during his movie “History of the World” (1981, Brooksfilms™) “It’s good to be the king.” I often wonder if he made a part-two today, would there be something similar to portray what being a central banker has now become. When it comes to just how much over-arching, over-reaching, over-bearing adulteration of both “markets” and business fundamentals has now become. Maybe this scene captures it better.
And if you think that’s an overstatement, just ask any saver or retiree about interest rates. i.e., “Little to the left” is today’s “Under-shooting the inflation target.” Think about it, but I digress.
So here we are some ten years later (e.g., 2008) and, once again, we seem to be wanting to reassure the “investing public” that should anything go wrong, central bankers are at the ready to once again “save the world” via some consortium of “Three marketeers.” In 1999 it was Greenspan & company. In 2008 it was Bernanke and Crew. Will there be a need for 2018/19 moniker?
This (as far as I’m concerned) is the question of the moment. But asking that question correctly requires some unconventional (and controversial) hypotheses. i.e., Will it be banks that undermine the entire system this time? Or, will it be Silicon Valley? Both scenarios have one word in common that no one dares to contemplate, let alone, try to remember. That word? Hint: Again.
What is also contained within those questions, which brings forth the controversial aspect, is also something I believe central bankers themselves have no understanding of, let alone, plan to deal with. And that “controversial aspect” is this:
Does a sudden collapse in one of the now famed FAANG stocks begin a run on both the markets, then subsequently, a run on not just banks, but many a central bank?
This is a question I have brought forth previously which I now believe is more relevant than ever before. The reasoning is simple: This handful of companies represent nearly all the impetus of today’s nosebleed valuations. Over the last few months it has been down to just two. e.g., Amazon™, Netflix™. If you include Microsoft™ as of July of this year, those three stocks alone are responsible for 71% of the S&P 500™ returns, and 78% of the Nasdaq 100™ this year.
Again, contemplate all you’ve heard about “great values,” “markets are fairly priced,” and on, and on, against the backdrop that nearly 3/4’s of all gains contained within these indexes this year are based on just a few companies, with price to earnings multiples nearly 5 or 10 times respectively that of which Microsoft had right before the dot-com crash.
And if that’s not enough to make you go, “Wait…what?” One of these companies doesn’t make $Billions, but rather – loses them. And the other can barely make a profit in its core business. i.e., retail.
The issue now is what happens should the first of this family of stocks known as Facebook™ (FB) suddenly begin to falter further? Hint: As goes FB so goes social, all social. Period.
Could we see a replay of 2008, but instead of Bear Stearns then Lehman type of events, we something similar in-kind with FB, then Twitter™ or, vice versa? What happens, for whatever the reason, investors (or algos) begin dumping, reminiscent of the dot-com era?
What happens then, when the central banks of other countries find their once profitable investments which were perceived as once “no-brainers” to sure-up their own national finances begin dumping? Hint: here’s just one for your consideration aka Swiss National Bank.
Social media along with search (e.g., Google™ the “G” in the “FAANG” family) has been the benefactor of another great idiom that was once unassailable to the BTFD crowd along with their “it’s different this time” brethren-in-arms. e.g., The “ads for eyeballs” metric.
But that metric is now in a serious, as well as precarious moment of fate and fortune or, infamy for possibly draining then dwindling many a fortune once made by it.
Again, the reasoning is both simple and should be self-evident: With social media platforms and others uniformly purging content providers, inevitably leading one to reasonably conclude that the followers of those purged providers would in-turn purge their social accounts. Where does the value for growth in these companies come from to sustain already exorbitant perceived levels? Let alone – for ever higher.
Insiders such as “Zuck and Crew” themselves have already purged $Billions of their own shares. And insiders across the entire “market” have used this incessant “buy back” via company funded debt to sell their own shares again – at record levels!
Should a sudden collapse in the shares of Facebook or Twitter happen in an out-of-the-blue type moment, similar in type as we in any of the last episodic scenarios witnessed in ’08 or the dot-com era, what does a central bank such as the Federal Reserve or others do?
It may not be the banks that are the initial impetus for a scare – it may come from any of these high flyers of the FAANG family.
Does a sudden run have a knock-on effect for the Swiss and its currency? Does that begin a rout elsewhere? And who steps in this time? The Fed? The EU? Can anyone? And where do you apply the “tourniquets?”
The Fed. may have authority to sure -up the banks in a crisis, but will it need to sure-up corporates in a rout? And how will it do that without backlash? Does it even know how? And more importantly would it work at all?
It is easy to argue that the replacement poster-child of the mortgage lenders of 2008 which noted the opening salvo for financial panic in 2007 was the over-leveraged, over-extended mortgage companies. The first assigned for posterity was New Century Financial™, then Countrywide™, and so forth eventually pulling in the Bear Stearns, Lehman et al.
It is entirely possible (all my conjecture, of course) we have begun to see our first in what today could morph into similar repercussions. To wit:
Was this latest “Snap” moment the one that they’ll look back and point to, much like we do now with New Century as where it all started? No one knows, but to keep thinking or arguing there aren’t any clues today that resemble those that were taking place in both in 1999/2000 or 2007/08 is ludicrous.
For we are now in that moment of history, that may prove that old adage of history attributed to Mark Twain:
“History doesn’t repeat itself, but it often rhymes.”
As always – only time will tell. You can quote me on that.
© 2018 Mark St.Cyr