The Approaching Reality: When Dip Buyers Become Bag Holders

Remember in days of yore (i.e., about a month or so ago) when regardless the ticker symbol of a stock, ETF, Index, Crypto, __________(fill in the blank) there was no better investment strategy than to just BTFD? (buy the f’n dip) How’s that all working out these days? It would appear that once coveted “set it and forget it” type of mentality, as to buy any type of weakness, has suddenly become not so “genius” as it once did.

Funny how that happens just out-of-the-blue, is it not?

Well, actually, it’s not out-of-the-blue rather, its come from the Fed’s recent meetings and policy decrees. i.e., Hope you liked trading and inflating your assumed net worth with all that “paper money.” Now we start playing for real and you’re all on your own. Good luck!

I’ve received a lot of pushback over the past few years whenever I commented that the BTFD mentality with its rewarded and now cemented ingrained behavior will be the cause for harm and pain in the future as the Fed. begins the QT (quantitative tightening) process in earnest.

The issue and reason for my concern was also manifold. For this will affect everyone and everything throughout the entire personal, business and yes, government complex.

It’s quite possible (and I’m not trying to be hyperbolic just for kicks) that much like social media has injured (yes injured) many the ability to rationally cope and deal with the social norms of the day. Once BTFD has been completely disgraced via the carnage it will inflict when there is no more dips being bought and valuations plummet, what happens then? i.e., Personal assumptions for wealth and retirement, business planning and stability, city, state and federal tax receipt assumptions, just to name a few will drop their masks revealing what’s truly underneath.

Hint: It ain’t gonna be pretty.

BTFD has already been discarded by the professionals via all flow indicators and reports. Sure, there are some dips being bought, but they are all strategic in nature. Gone is the incessant “We’re down 5 handles buy’em!” that awaited every nascent sell-off or hiccup the market experienced now two years running.

Suddenly a down move that wipes out almost an entire years worth of BTFD prowess, in less than a week, is now seen as “WTF just happened?!”

Currently there are a lot (and I mean just that, a lot) of once BTFD aficionados that are wondering just what happens should the once, all but guaranteed, year-end rally into even higher highs fail to manifest?

So far today’s version of BTFD has manifested into nothing more than what is known as “a dead cat bounce” and it’s beginning to look like the market has softened a bit on bereft felines. Maybe it’s time to offer some “burnt offerings” (aka worthless stock certificates) to the market gods for some wishful 401K resurrection.

Listen, you may think the above sounds crazy, but investment advisors are a funny lot, for they’ve been known to do just about anything to quell the only word scarier than losses: redemptions.

Losses of returns in your account balance is unfortunate – demanding the return of your remaining account balance? That is unforgivable!

Back in early 2017 I penned the article, “Are 401K Holders About To Feel A Savers Pain?” This was when then, Chair Janet Yellen was still at the helm of the Federal Reserve. At that time we were only months past the presidential election of 2016. It was here I warned that the Fed. was hell-bent on not just raising rates, but in conjunction with the balance sheet roll off process, regardless of how the market reacted short of an all out panic.

From the aforementioned article. To wit:

There’s an old truism people forget all too often. It has many variations and is attributed to even more, its core meaning goes something like this:

“If the government can give it to you, then it can also take it away.”

Some of you might be wondering if I’m talking about the current “tax” advantages that have made these vehicles so popular over the years. To that I’ll say no, not at this current time. But I feel that will be the least of worries coming down the pike in the not so distant future.

No, what I’m directly addressing is what is now emanating from the one and only non-government, privately held institution, directed by a consortium of non-elected, Ivory Towered, policy wonks: The Federal Reserve.

And those emanations are anything but 401K holder friendly.

What I have found comical over the last year since Ms. Yellen has left then subsequently replaced with Mr. Powell, is all the discussions about how Mr. Powell this, or Mr. Powell that, when it comes to his oversight of the Fed. as if something has changed (or will change) under his tutelage. Hint: It hasn’t – and won’t is still up in the air.

There has been no policy change, or anything else for that matter, that was not dictated to indeed be forthcoming that differs from what Ms, Yellen and the other Fed. heads and FOMC participants signaled since late 2016 (i.e., directly after the election) and throughout all of 2017. Mr. Powell is just the newest face of that implementation.

The problem for him is it will more than likely be his face that will end up going into the history books of ultimate “bag holders” when things begin coming apart in more earnest measurements. i.e., global market routs.

Remember, Ms. Yellen’s claim in 2017 when asked about another financial crisis? Hint: “…will not be in our lifetimes and I don’t believe it will be,”

Here she is just a year later, you know, this year, in February, as Mr. Powell implements all her stated policies on her first day, repeat, first day as a private citizen where she was asked about the markets which she helped adulterate during her exit interview on CBS News™. To wit:

As for whether Yellen’s view that the stock market (which plummeted on Friday) has been too high in recent months:

“Well, I don’t want to say too high.  But I do want to say high. Price-earnings ratios are near the high end of their historical ranges.  If you look at commercial real estate prices, they are quite high relative to rents.  Now, is that a bubble or is too high?  And there it’s very hard to tell.  But it is a source of some concern that asset valuations are so high.

“What we look at is, if stock prices or asset prices more generally were to fall, what would that mean for the economy as a whole?  And the financial system is much better capitalized. The banking system is more resilient.  And I think our overall judgment is that, if there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”

“We’re in the ninth year of a recovery; can it really keep going like this?” asked Braver.

“Yes, it can keep going.  Recoveries don’t die of old age!”

I have a question for you dear reader and it is this: Is there anything in that above statement given by Ms. Yellen that differs in any way from anything you’ve heard from not just Mr. Powell, but anyone else that makes up the Fed? Again, nope.

Nothing has changed except for maybe the drapes and desk for his pressers. Other than that, it may as well be Ms. Yellen’s Fed. for policy, just as much as it now is, Mr. Powell’s.

As I have made the case since Ms. Yellen infamously flipped, back peddled and more from her endorsement of running a “high pressure economy” (aka as loose or, highly inflationary) styled policy when the expected election results were for a Clinton victory – to a tightening of anything and everything that it would make a battened hatch wince, with the election of Trump. This Fed. has not shown any regard – for anything – except for fulfilling the wishes set back when Ms. Yellen was in control. i.e., We’ll decide what the economy is or, isn’t. Period.

The subsequent silence of Fed. speakers running to the rescue flooding any and all cameras, microphones or digital print during any recent volatility has been deafening.

In just seven trading days all of 2018’s profits in just the S&P 500™ were wiped clean. Only for what appears to still be nothing more than a technical oversold bounce has any of those profits returned. The difference this time? How many times did you see or hear a Fed. president on your “information outlet” of choice implying soothing tones of “We’re here, don’t worry!”

Let me state or ask it a bit differently: When was the last time you’ve seen or heard of a person named Bullard? Answer – it’s been a while.

Fed. presidents such as Mr. Bullard et al. would appear, almost on cue, every time the “markets” appeared shaky. Today, we’ve witnessed systemic tremors, tsunami  styled cascading selling panics directly following important Fed. releases and confirmations for policy continuance – and it’s been more like the “market” is calling for Bueller rather, than Mr. Bullard. But all seem to be just as absent.

Just to reiterate, this is again from my “Are 401K holders…” article, again, to wit:

The issue here is – the “markets” have been levitated via the “wings of doves.” Suddenly – those “doves” have all but vanished. And if that’s true? What’s vanished with it may just be the BTFD genius along with it. And that will turn into a very big problem indeed if correct.

When savers were (and still are) getting crushed, no one cared, not even the Fed. The problem?

It seems just as the Fed. turned its back on savers pain all these years – they might be signaling how they’re going to feel about any 401K holders losses that may appear via their new-found policy stance. To Wit:

ZeroHedge: “What is the biggest S&P drop the Fed will accept before intervening?”

Minneapolis Fed. president Neel Kashkari: “Don’t care about stock market fall itself. Care abt potential financial instability. Stock market drop unlikely to trigger crisis.”

And with that, only one last saying comes to my mind:

Dear 401K holders – welcome to a savers world. Oh yeah, and buckle up. For things might get a little “bumpy” as that other saying goes.

I have a feeling it’s going to get a whole lot more bumpy going forward, for if there’s one thing the Fed. believes it will artfully sidestep going forward, it is this…

The Fed. has always believed (my conjecture) it would sidestep any blame should the “markets” falter since 2016. The issue is: this current U.S. president not only has no intention of being left holding any bag, but has already, much in Halloween tradition, placed it squarely back on the Eccles buildings door step and rang the bell.

You know what happens next.

© 2018 Mark St.Cyr