This Is What ‘Losing Any and All Credibility’ Looks like.

The Fed just cut interest rates because of a scenario that was not to have taken place by any of their “forward guidance” calculations. It was only mere months ago that this same Fed was telling the world that raising rates and shrinking their balance sheet was going to be not only like “watching paint dry.” But the outgoing Chair, Janet Yellen professed we wouldn’t see another financial crisis “in our lifetimes.”

Since then we have had crisis after crisis that has now morphed into the Fed having to go back on everything it said and start cutting as the “market” is at never before seen in human history highs.

Now some would think that such a move would all but ensure a “pop” in the “markets,” at the least initially. But so far that is not the case and some have asked me for my thoughts, so here is my main one. To wit:

The Fed has ended the normalization process two months ahead of the already reduced schedule.

Remember “autopilot” surety? Remember the “watching paint dry” descriptor? All – null and void. The Fed now looks like a bumbling mess. Period.

This, in my humble opinion, is the sign of abject panic behind the scenes of the Fed, because all they thought has been proved wrong – and this shows it writ large.

The issue so too shows the “market” and may panic along with them.

As always. we shall see.

© 2019 Mark St.Cyr

From ‘What If?’ to ‘What’s The Odds?’

The other day I waxed on referencing a conversation I had with a colleague about the the Fed and its all-but-spent-money rate cut expected by the “market.” In that discussion there was one small kink that had the potential to make the argument either moot or, at a minimum, far less credible. That point was: the envoy currently meeting with China’s to possibly hammer out any possible trade negotiation or, even small concessions with China.

To refresh, one of the points I used in my hypothetical of how or why the Fed could choose not to cut and then hide behind the reasoning of: it’s not them (the Fed) that caused a market reaction with no rate cut but rather, a failed trade policy.

That “kink” as they say, was the possibility of any resolution, of any type large or small, could affect any potential CYA (cover one’s derriere) argument negatively for the Fed should that be the ultimate strategy. The reasoning was, the trade negotiations were simultaneously on-going and resolution could’ve (in actually should’ve) proceeded to later in the week, if not longer, until a statement was released good or bad. Conversely, the Fed has to make its statement by today 2:00 ET.

Just as a reminder: this was/is all done under the guise on forming a thought experiment, not a conclusion.

So why do I bring this up, and why does it matter? Great question, for I’ll post for you what I just received via that same colleague in said discussion. To wit:

The People’s Daily, mouthpiece of the Communist Party, responded to Trump on Wednesday with a commentary saying that China has no motive to “rip off” the U.S. and has never done so, and China won’t make concessions against its principles on trade.

On Wednesday, China’s foreign ministry spokeswoman Hua Chunying said at a briefing in Beijing that it doesn’t make any sense for the U.S. to exercise a maximum-pressure campaign. “Only when the U.S. shows enough sincerity and good faith can we achieve progress in the trade talks,” she said.

Bloomberg News: China Says U.S. Trade Talks To Continue With September Meeting

Translation: No deal or deals, the meeting has ended, and the envoy, as they say in Vegas “Has left the building.” Or, if you like, as was sung by “The Happenings” in 1966 “See You In September” Because when it comes to any more talk for now – it ain’t happening.

So with that new revelation, my Machiavelli inspired hypothetical has just moved what is truly the fulcrum of said argument from use as a lever position, to a more scale or balance one. This means rather than using the argument to do some heavy lifting in a thought exercise – it’s now moved into an odds position, because the heavy portion that was basically stuck in the mud, causing the argument difficulty in building upon further – has just been freed.

One again, just as a reminder: this is all in reference to an original thought exercise. But as you can now clearly see, in real time, that “exercise” has now just moved from solely on the plausible side, to where it now has encroached on the possible. i.e., moved from a lever position – to a scale and balance one. A distinction with a very big difference.

Doesn’t mean any of this is correct or, will come to pass. However, you that have read this now and prior have at least thought about it, where the vast majority of “experts” haven’t even given it a first thought, let alone second.

That’s what being at “the tip of the spear” truly means. For what others would never dream possible, people like yourselves have at least already weighed or calculated the possibilities.

© 2019 Mark St.Cyr

The ‘What If?’ Question

I was speaking with a colleague the other day about the current shape of business, markets and so forth, when they asked me to lay out a scenario if I were to affix a “tin foil cap” squarely on my noggin, and in their words, “Go for it.” So I did.

What happened next seemed to bring abject fear into their eyes, because they hadn’t really ever considered such a possibility. Their reasoning always sided on the “C’mon now, stuff like that happens in the movies…”

Although most of that is true. That doesn’t mean thinking or “noodling” possible scenarios from this side of the conspiracy divide is either uncommon, delusional or deleterious. Quite the contrary.

For if you’ve never been in serious negotiations or situations, where the stakes are high? Trust me, you wouldn’t believe the “conspiratorial” actions that can (or will) be put into actual play. It’s another reason I grew to be a fan of constructs such as the “10th man principle,” “Chaos theory” and others.

The reason why, in not too many words, is for at one time I didn’t think things or, thinking such as this was either relevant or, constructive to business, life and more. But let’s just say, I still walk “with a limp” from when I first was shown otherwise.

So with that all said, here’s what they asked and my answer in conversation form. To wit:

Them: I’ve been reading your latest thoughts on the Fed and such. And you say what was once “conspiracy” is now basically fact. I see your point. So let me ask you this: What do you think would be a possible outcome with the Fed that no one else is currently expressing that, in actuality, is not just a possible outcome but rather, has a very real plausible argument one should consider if they were really trying to cover “all the bases” as they say?

Me: If I were writing a, let’s say, novel and wanted to use the current events for its backdrop. I would use the current state of affairs regarding the relationship of not just the Fed, but central banks in general and the President.

I don’t believe anyone thinks a situation like what I’m going to say next is even close to even being considered, let alone thought through, which is why it would make for a great book. So here we go…

Currently the table is set for two possible scenarios that could have global impact and actually reshape the entire global structure or, reshape it back to where the “powers that be” sort of speak, were trying to mold it prior. But it’s now been completely jostled out of sorts with different political fashions percolating up.

The U.S. president is just one. In the U.K. you now have their new PM – and – with it dissolves the entire picture of the E.U. and more in all of about 90 days from now with a Hard Brexit drop dead date.

So rather than “tin foil” let me put on a “Machiavelli robe” and ponder from there.

Currently from the U.S. there’s a trade envoy speaking with China’s. The possibility of any deal worth sing its praises is about nil. However, add to that, you now have the Fed meeting on Wednesday. Everyone is expecting a rate cut, and by everyone I mean just that – everyone.

So my question is: What if they don’t? And if not, why not?

Because this same “everyone” is now convinced based on Fed speakers and more that it’s bankable. But what if the Fed, along with other central bankers, have or want a different message sent for ulterior motives?

Central banks have never enjoyed so much absolute power as they do currently – ever. They are now the one’s that basically control everything.

Do you think they want to relinquish any of that new found power? Again: any?

The Fed and its now Chair has been the “whipping post” for the U.S. president. People in their class (i.e. bankers, intelligentsia et al.) have made it clear they can not stand him (President) and appear they’ll do anything possible to help oust him.

So what if the Fed, with the market at record highs, a decent GDP report, unemployment at record lows and inflation held at bay decide to disappoint the “market” with a “wait and see” argument?

Using the data as a backdrop for cover, as the “market” (this is taken as a given) sells off, the Fed will use all its media connections and more stating that it was not Fed policy that caused any market sell-off. Rather, it was the result of a poorly executed trade deals and negotiations by the President that is the catalyst.

The entirety of the Fed and all its “think tank” sycophants across the globe and within the mainstream business/financial media will, in unison, point out and regurgitate that it had nothing to do with Fed policy and everything to do with a failed trade deal.

And, for this is very important to add into this scenario – will also use, include and point to the Brexit no-deal plan as even further proof for any sell-off hoping to kill or, mortally wound two birds with one stone. Because Johnson’s rise in the U.K. is the equivalent of Trump’s here in the U.S. (e.g., populism) – and they don’t like either.

Now you may say “Well Wall Street would go nuts!” and it’s a fair point. However, Wall Street is not the Wall Street of just a few years ago. Now Wall Street or, the big money if you will, are all on the Democrat side of the ledger. You don’t have to take my insinuation for such a call, they are the ones most visible in calling for the president’s ouster – by any means available.

Do you think they would take a hit to their net worth that would do little to effect their lifestyle if it meant getting rid of him? Think about that very carefully, for it’s a very important factor in all this.

Many believe all it would take is a stock market upheaval and that would be it. i.e., He would never be re-elected. So then, after the election, the Fed and all the other central bankers use the protracted sell-off as cover to print “to infinity and beyond.” This in-turn would give rise and cover to what they deem as their “natural order of things” to be restored.

“The President would scream!” you say. “He’d point fingers and more.” Yes, that’s probably more than true. But do you think they would care if they knew what they were doing would all but ensure by Nov. 2020 it would all be over within their minds?

Again, think about that very carefully. Because nothing in their world would change except the possibility of some real backslapping and more at all the conferences and cocktail parties they attend of said “beneficiaries.”

If you don’t think the media would willingly go along with some form of scenario, then I’ll just assume you never hear of the term “collusion.” See what I mean?

You can hear the calls now across the globe: “Brexit needs to be jettisoned in such a calamitous market upheaval!” The President ruined our trade set ups and now look, he has to go!” “The President is trying to blame the Fed for his own failure!” “A No-deal Brexit was always lunacy, now look!” The headlines write themselves.

Remember, the Fed is at risk of a “market” downturn if a 25 basis point rate cut is seen as not enough. Heck, a 50 point cut might seem not enough if their language disappoints in the least. So why not just completely disappoint, “keep the ammo dry,” as they say for when they’ll need it, because they will definitely need it, using the current economy as “good news” and a most certainly failed trade scenario as the cover?

Disappoint – but with a purpose. Are you seeing the possibilities here?

Them: Holy sh#t! I was not expecting anything like that, now you’ve got me thinking in ways I don’t even want to consider possible, never mind plausible. I should have never asked!

Me: But isn’t that the real reason why you did?

All this aside don’t forget this was just a thought exercise, nothing more. But it is an exercise that has plausibility at its core, not probability. You need to weigh what part is heavier than the other and act accordingly to what actions are comfortable for you to take in a “what if” type scenario. To be clear: this is nothing but a thought exercise or just akin to reading a novel.

Personally I believe, if such a thing were implemented, with the reasoning behind it as I laid out, for that purpose, it would backfire extraordinarily so, much like this “collusion” thing is currently.

But that doesn’t mean others may think quite the opposite. Which is why it’s, at the least, worth the thought exercise. Because not ever considering the possibility, ever? Now you know the reason for why I have that “limp.”


© 2019 Mark St.Cyr

Will They, Won’t They, and by How Much?: What Business, Investing and the Economy Has Descended To.

“When it comes to the Federal Reserve and other central banks: There has been no time in history where so much power has been given to a non-elected cadre to dispense edicts that can reward, stifle or punish any business, economy, or the wealth of its citizens, as they see fit, since the time of kings.”

-Mark St.Cyr circa 2010

I have been making the above commentary in one form or another nearly as long as I’ve been writing. Its overarching premise was actually the genesis.

Originally I began making commentary under the banner “Making sense of the non-sense” for I fully understood they were actually meddling behind the scenes, as they say. What I just didn’t fully comprehend was by how much, because it all was supposedly something that would “never be allowed.”

Back then the entirety of “erudite” business and financial commentary was anathema to even the idea. And militantly so.

If you dared try and articulate any thoughts, in public, to the contrary? You were immediately deemed and shouted down as some “conspiracy theorist” (or worse) by the entirety of the mainstream business/financial media and its ever-revolving set of fund managers, Ph.Ds, and so-called “think tank” aficionados.

Then in 2010 at what many of us refer to as “Ben Bernanke’s infamous Jackson Hole speech.” The then Chair announced that quantitative easing in one form or another (something I call the “QE4eva” signal) was at the ready should they desire employing it. Hint: They have been employing it ever since, now entering a decade.

The funniest aspect (actually tragic) to all of this has been the contortions many of the above mentioned crowd have done in having to acknowledge what was once berated as “conspiracy theory” has now come to represent “prudent monetary policy” along with “protecting market volatility.”

“Monetizing the debt” is now simply: QE. And the “plunge protection team” is a now such an open secret that it makes front page news to ensure every one knows if and when it may be needed. Hint: “The Call from Cabo.”

What Wall Street, our overall economy, 401K, pension funds and more have morphed into is nothing more than a groveling cohort of willing participants begging (some demanding) for Central Banker largess. For without it – it all falls apart. Period.

The more “easing” of anything that the Fed embarks on doesn’t really “help” the economy as they would like to argue. In actuality, what it does is feed the ever-growing sclerosis of anti-competitive practices employed by those with a favorable ticker symbol. Rewarding its own choice of winners and losers. For front-running central bank largess algorithmic parasitical trading is now the norm.

Another is judgements and fines in the $BILLIONS for unfair, if not illegal business practices are shrugged off with a cavalier attitude as just a cost of doing business mindset.

After-all, if the Fed is going to keep printing, funds are going to keep buying, as the company itself can just borrow even more at nearly zero cost to entice ever-the-more.

It appears “fining” has now become a signal to buy, probably rewarding their own C-suites with even more compensation. Hint: Facebook™, Google™. Who’da thunk it.

So now we have, in many respects, a crucial meeting of the Fed coming this Tuesday and Wednesday. All eyes are on not if, but by how much. For if the Fed dares to think it can get away with any form of not cutting in a “wait and see” type position, it won’t end well.

The “market” has all but priced in not just a cut of rates but rather, at the least, needing a signal that this is not some “one and done” event. The Fed through its myriad of speakers has signaled that they are back on the rate cutting bandwagon. Anything less and the “market” is going to employ its well known two-year-old game into full swing. e.g., It’s going to throw a hissy-fit and start dumping everything – everywhere. So much so it’ll make real diapers search for cover.

This is where we are today. There is nothing else that is driving these markets or anything else. Either the central banks (and The Fed its exemplar) continue doling out its largess in one form or another – or – this entire Potemkin Village, House of Cards, Hall of Mirrors, ________(fill in your own) mirage of what is now called a “market” crumbles.

If there is one aspect to all this unfolding possible turmoil that we now sit at the precipice for resolution one way or another, it is this:

Mr. Powell, with his many renditions since being appointed of his “too cute by half” approach as to demonstrate how he views the President – is now the one sitting smack-dab in the middle of any forthcoming “blame game.”

All by his own hands and words.

© 2019 Mark St.Cyr

Is It True Face Value?

Watching, listening or reading any reporting of Facebook™ and its latest earnings “beat” via the mainstream business/financial media, you would be hard-pressed to find anything but praise. All you hear is how “impressive” the following metrics were:

First: EPS (earnings per share) was a “solid beat!”

Next: Revenue was up Y/Y. And they “added even more MAU’s!” (monthly active users.)

All sounds fantastic, and maybe it is. However, here’s what we seem to not be hearing, anywhere, unless you want to start digging harder and deeper than a coal miner.

In regards to the “First”: Earnings was a beat – as long as you use what Mark Zuckerberg proclaimed a few years back ( e.g., circa May of 2017) to the then delight of “Wall Street.” But to those of us that actually have some business acumen saw it as a pure, calculated, predatory maneuver to backhandedly “knee-cap” any possible rising stars in the eyes of big investment houses everywhere with the proclamation…

Facebook will, for the most part, only report numbers that come from Generally Accepted Accounting Principles or GAAP. It will limit the numbers it reports that don’t follow GAAP rules.

Specifically, Facebook is no longer reporting non-GAAP expenses, income, tax rate, and earnings per share (EPS), it says. It will still use non-GAAP numbers in limited ways, such as to share with investors the impact of foreign exchange rates on its revenue, and to give insight into free cash flow. 

But it is getting rid of non-GAAP numbers for the meat-and-potatoes portion of its results.

“Facebook Embraces the GAAP” -Business Insider™

But it’s different this time, right? I mean, 2017 is sooo ancient history, right? So with that said, here’s the true “beat” when using GAAP vs Non-GAAP. To wit:

GAAP EPS of $0.91 misses by $0.94

Facebook Report Q2 2019 -Seeking Alpha™

Yes – that miss is larger than the actual number.

But hey, remember, back then is also the same “ancient history” when Mark told everyone via news conferences and more that he was going to work and work really hard to solve anything concerning any bias issues and more.

I guess “it’s different this time!” Or, is it the same? I don’t know any longer and can’t keep up.

And, about all those newly added MAU’s…

Where did they come from mainly? Hint via CNBC™: Europe? Nope. Numbers were flat. U.S. and Canada? Combined users went from 186 million to 187 million. That’s in favorable rounding error territory if you ask me.

“So where are all these new users coming from?”, you ask. Great question, maybe this has something to do with it. Because Asia is the growth story for Facebook.

But then again, Asia is also known for something else known as “click fraud.” But saying anything like that is something that’s just for “conspiracy theorists,” correct?

Well, here’s just a sample video that shows how “users” are created and used. And, as always, I’ll let you be the judge. Again, to wit:

Via YouTube™ (How ironic, right?)

Speaking of Google™, they also just reported better than expected earnings. However, there is just one thing that seems to catch my eye every time I hear some company announce how they are going to apply Non-GAAP accounting in certain areas so that “investors” have truer, more representative number to analyze when trying to read just how profitable a company truly is. You know, like what’s left after expenses. And we all know giving out stock shares like you’re the Federal Reserve just slamming the print button whenever the cause arises was beginning to be seen (more like ridiculed) as something that should be placed in the debit column. After all, it is an expense regardless of how one wants to “bend” the rules of math.

So it is in that light that this little line in Google’s, I’m sorry, Alphabet™ report just kind of made me chuckle when I watch these next-in-rotation fund mangers give their “insight” into why these numbers are just “hitting it out of the park.”

When comparing Y/Y a Non-GAAP measurement is used to compare the numbers as if there wasn’t a fine of $5 Billion needing to be surrendered to the EU in 2018. So the “operating income was adjusted from $3,045 MM to $8,116 MM for 2018 to 2019’s $9, 180 MM.

All sounds fine, but then that word “fine” enters once again, as in, another one.

This time it’s March of this year (March 20th) to the tune of $1.7 Billion.

Now I know it’s all when or where one enters it on the ledger, along with when one actually cuts the check. But with that said, that would via the tried, true and trusted “back of the napkin” math that basically built the 19th and 20th century industrial revolution, turn that Y/Y comparison of 2019 from a $9,180 MM into a more subdued (or less than to use basic English) $7,480 would it not? (e.g., 9,180 – 1,700)

Now sure some of you are saying, “Well, Duh! But $7,480 MM is still a long ways better that the $3,045 MM reported with a $5 Billion fine, so there’s that!”

Well, there is – and there isn’t. And here’s why…

This is the third multi-Billion $Dollar fine levied on them (near $10 Billion and counting) in just as many years. i.e., Any so thought of (or reported) Y/Y growth comparison has been subsequently cleaved from their check book – and it doesn’t look like it’s going to stop any time soon.

Conversely, it appears there’s a risk for even more, and even larger ones on the horizon, for I haven’t even mentioned the U.S. and what may be “Coming down the pike” as we used to say back in Boston.

Are you beginning to see what I’m describing here? This is Non-GAAP at its finest. i.e., Report “great” comparisons today – book blood letting fines later – then compare them using whatever time table or “adjustment” you like. Just make sure the algos read it the way you want and will buy, buy, buy.

And if you think that might not be enough?

Announce you’re going to buy back $25 BILLION just to make sure they do. Yeah, they did that also.

So with that all said I just have one question that keeps nagging at me, and it’s this…

Is it all just coincidence that the two behemoths that make their money via “clicks” and “users” are the only two that for some reason always seem to get ever the more “clicks” and “users” even when the value of their own “clicks” is diminishing to paying advertisers?

I mean, if there are that many new “eye balls” and “user” interactions with ads and more. Why would the cost for buying one be going down? Think about it. Or better yet, replay the above video a few more times and come to your own conclusions.

Doesn’t mean I’m right. I’m just sayin’ because it seems no one else either will – or can.

© 2019 Mark St.Cyr

What Took Three May Now Only Take Two

Those of us that care to remember any of the warning signs prior to the Great Financial Crisis where terms morphed from being the “greatest thing e-va!” into the greatest thing ever reaching critical-mass, triggering a near extinction level event for finance and markets, remember a term vividly.

That term was known as “Credit Default Swaps” or “CDS” for short. And it proved to be the financial alchemic mixture of hubris and greed that brought the entire financial system to its knees.

I just want to call your attention to this both to jog-the-memory as they say, while also brining front-of-mind what may end up being its equivalent.

Although many believe that CDS’ are a thing of the past, which would be a grave mistake because, they’re baaack! There has been another form of mental “insurance” construct playing out, which has the potential to bring anyone who ever thought “these things are safe” to their financial knees should things , once again, go awry.

But this time it’s only two words, but the possible contagion effects both for the market, as well as investors psyche, should not be discounted.

That term is: “Covenant-Lite” or “Cov-lite” for short.

Many have taken to these things as if there’s some implied “insurance” component as they think of when thinking about normal bond issuance. Nothing could be further from the truth. And for many realizing this truth, too late, could have serious truth bearing consequences.

Here’s a bit from Investopedia™ on what they are and how they work. I would suggest to you, very strongly, to familiarize yourself with not only what these are, but also, who has been loading up on them, as well as issuing them.

The possible insight could be well worth the effort both from a competitive advantage standpoint, as well as general market insight and more. To wit:

What is a Covenant-Lite Loan?: Covenant-lite loans are a type of financing that is issued with fewer restrictions on the borrower and fewer protections for the lender. By contrast, traditional loans generally have protective covenants built into the contract for the safety of the lender, including financial maintenance tests that measure the debt-servicecapabilities of the borrower. Covenant-lite loans, on the other hand, are more flexible with regard to the borrower’s collateral, level of income and the loan’s payment terms.

How a Covenant-Lite Loan Works: Covenant-lite loans provide borrowers with a higher level of financing than they would likely be able to access through a traditional loan, while also offering more borrower-friendly terms. Covenant-lite loans also carry more risk to the lender than traditional loans and allow individuals and corporations to engage in activities that would be difficult or impossible under a traditional loan agreement, such as paying out dividends to investors while deferring scheduled loan payments. Covenant-lite loans are generally granted only to investment firms, corporations and high-net-worth individuals.

Covenant-Lite Loan Explanation via Investopedia .com

It is in my humble opinion that it is here many “investors,” as well as the entirety of the so-called “smart crowd,” will trample over their own mothers to get to the nearest microphone, camera or keyboard to say how shocked, shocked! they are to find how much trouble these things are causing should something go awry. Just like they all did during the CDS revelations throughout the financial crisis.

Or, quite the opposite happens, where suddenly you may need to send out the bloodhounds to find them, because finding these once “genius'” of the mainstream/financial media to talk about them was suddenly like trying to find Waldo. It’s comical to think about it today, but back then, it was a completely disgusting.

Going back to the days of yore (i.e., during the meltdown of 2008) that one three word descriptor (e.g., CDS) came up over, and over, and over again as the reason for much of the crisis.

OK, there were more as in MBS’, CDO’s and others. But the above really took the cake during this period, from my purview. But not too worry, we may only be down to one term and two words, so that’s improvement, right? Right? But I digress.

That once “no brainer” insurance policy (CDS) that appeared as “good as gold” went from rock solid status to then morph before everyones eyes not just into some form of fools-gold or tungsten plated equivalent. But rather, became so viscus, so gooey, so toxic, so acidic to the underpinnings of balance sheets everywhere, that the only equivalent description would be something along the lines of what we see in all the Alien movies. i.e., it burned through layer, after layer, after layer of ledger balances with no apparent way on how or if it could be contained.

The difference this time is that these “Cov-lite” loans have been bought and sold like they’re the most stable, trusting and safe way for companies to finance themselves, as well as “investors” to load up on as way to “extract yield” in a near yield-less world.

It all appears genius – till it bears its idiotic fruit.

© 2019 Mark St.Cyr

From ‘Seismic’ to Systemic Catastrophes

Do robots dream? That’s one of those questions that begets a different answer every time. Here’s something we do know: when they are awake in the “markets” they control it. Humans are the ones that can go back to dreaming as if their trading matters. Why?

Because they don’t. Or said differently: It’s their world now – you just happen to live in it.

The rise of algorithmic bots in the market was suppose to ensure greater efficient markets with tighter spreads for buying or trading stocks. And for a while it did just that.

But today what was once seen as “efficient” seems to have morphed into something more along the lines of parasitic. And that’s just the start of it.

Another side of this new phenom is this: Yes – they can buy, sell, hold or sit out. But (and it’s a very big but) can they truly interpret? i.e., can they really tell when a false positive or negative is truly false or positive?

This is where things begin to get tricky. And it is here that the “market” seems poised to find out – whether it wants to, or not.

Currently the bots or quants (i.e., systematic strategy allocations) are dominating the “market” buying anything with a ticker symbol backed via a buyback schedule. All while the humans (i.e., discretionary investors) have been cutting back.

What’s at issue here is whether or not this lines up with any skillful interpretation of true “market” front-running vs real future economic insight. Or is it purely: if A = B then C?

You can count me in on the latter.

What’s quite ironic about the above is it’s also “code” for one of the most telling signs that should signal danger to those knowing how to interpret. i.e., It’s called: herding. And it now seems the bots are taking on their own persona of “Electric Market Cowboys.”

Does this pose a systemic issue? It could, and here’s why…

As I insinuated in the title we are already experiencing seismic like ripples throughout the global “markets.” If this appears to be news to you, don’t be surprised, because the only thing that’s made “news” over the last few weeks is the verbal contortions of logic being spewed to explain why record setting market highs signal the need for rate cuts. But here’s the stuff that really matters…

China’s economy is not just showing signs of stress, but rather, it too is showing systemic concerns. Banks are beginning to fail, yes fail. China’s Baoshang Bank fell at the end of May, but the shock waves are still reverberating throughout its funding channels.

Speaking of “banks,” have you heard the tremors rippling across the ocean from one of Germany’s biggest, also known as Deutsche Bank™? If not, let’s see if I can sum it up…

So far this month they let go about one fifth (18,000) of their work force; their stock seems to be nosediving ever further and faster towards “rescue” territory; Oh yeah – and they have $49 Trillion worth of derivative exposure (aka “risk”) that most of our own “too big to fail” banks are exposed to in one form or another. Not to mention 401K’s, pension funds, etc., etc., etc. But I digress.

Again, that’s $49,000,000,000,000.00 give or take a few billions, I would imagine. Because with numbers like that, billions are just chump change, right?

I say that because when you see (or don’t see) the amount of press such a situation is getting, one has to be thinking “What, me worry?”

For those who work better with visuals. Here’s a “picture” that says far more than words can summarize. To wit:

(Chart Source)

Then we have what can only be described as “getting in to the meat of things” such as: earnings.

Since I brought up “meat” it’s probably a bit nerve rattling that we have more of those “FANG” stocks coming out this week. For if Netflix™ is any guide – someone better ready the Novocain® dispensers. Or better yet, maybe the gas will be more appropriate.

Again, speaking of “laughing gas.” Did you hear the one about how maybe Netflix might need to add commercials to become profitable? You know, just like the industry it decimated with its more “superior” model. I mean, who needs anesthesia when you have “insight” like that, right? And we all thought the dentist/stock broker jokes were all but dead. Who knew! What’s next, commercials on Spotify™? Wait…

Then there’s the IPO darlings that either can’t stop falling or can’t stay above their IPO price. i.e., Slack™, Uber™. All I’ll say to them is this: Don’t feel bad – at least you’re not WeWork™. Or what is it now, something like “The We Company” or something like that?

Before it IPO’s the Co-Founder is reported to have already cashed out for, wait for it… $700 Million. And no, that’s not a typo. But hey, that’s what being a Silicon Valley disrupter is all about, right? Get yours – get out. Who cares about ethics, optics, or anyone else. “Cha- ching!!”

Remember: for every cash-burning “wonderling” that IPO’s – more often than not – that great “exposure to growth” stock suggsted and supplied via some broker is probably in someones mature 401K retirement plan or pension fund. Think about it. You know, to make sure they were covered for any “inflation expectations.”

And never forget: when it comes between you eating dog food in retirement and a fund managers stock bonus today? Be thankful you bought an electric one when times were good, just sayin’.

Last, but surely not least, during all this we get ready for what could portend to be “plate shifts” that make the San Andreas fault look down right miniscule. Or would a mechanical bull in a china shoppe be more fitting? Hmmm…

Then, of course, you have the Fed. decision coming forth a week from Wednesday, where three things take place also.

First: It (the Fed announcement) falls directly on the month end. If you like “market” shenanigans? Month-end is where the “pros” play, and for real. A disappointment or, buy the rumor – sell the news event, in conjunction will make things interesting, to say the least.

Second: More earnings like Apple™ the day before the Fed. decision. Did I just feel a tremor? Probably nothing, right? Right?

Third: Another jobs report the following Friday. Wait, what was that…?

“So what’s the kicker here?” you may be asking. Good question, and it is this:

Throughout the entirety of next week, with everything going on. How are the machines going to interpret what to do next? Because when it comes to the “markets,” remember what I said earlier: It’s their world now, we just live in it.

What if they decide the best strategy, as described in the movie “WarGames” (1983/United Artists™) is: “Not to play?”

Tremors can go from seismic waves, straight to systemic contagion all in the blink of an L.E.D.

© 2019 Mark St.Cyr

Maybe A ‘Step” Too Far

Anyone that was old enough to remember where they were when we set foot on the moon (I am one) are probably aware, as well as watched, the show “Happy Days.”

This latter event gave us another of those enduring moments in our pantheon of memes that has lasted almost as long as Apollo’s. i.e., we went from landing men on the moon where “One small step…” has been applied to countless memes – to a television actor “Jumping the shark,” which has taken on its own status for implying that almost assuredly – it’s over.

To add to this, let me quote another that’s been used to describe many a situation from a revered band of that same era known as the Grateful Dead: “What a long, strange trip it’s been.”

Today we have an entire segment of people claiming we never really went to the moon, and another still believing it was really Fonzie jumping, as opposed to a stunt double. After all, it was the Fonz!.

The only thing that’s remained consistent since, in my view, is the Dead’s now proven astute observation then and continuing now. For “strange” doesn’t seem to capture the entirety of it all.

So here we are celebrating the 50 year anniversary of that monumental achievement – and the biggest thing dominating the mainstream news (NYT™ is just one of many) is either how going to the moon was some form of intentional male privileged or race based endeavor that needs to be shunned.

All I have to say is this: Did the entire “triggered” movement just “jump the shark” or “the moon” with this one?

If it did? Then at least, maybe, there’s one good aspect to this entire nonsensical brouhaha…

A safe landing back to sanity. (Cue the Dead’s “Truckin” song here)

© 2019 Mark St.Cyr

For Those Wondering What I’m Currently Watching

Below is a chart of the S&P 500™ just after the open at about 10am ET. It is represented via 15 minute candles/bars.

Remember: If someone tells you they “know” what happens next – don’t just walk, but run – and fast! So with that said…

What has caught my eye is there is what is described in technical analysis lingo as an “ending diagonal.” The reason why these types of patterns catch the eye as they say is because they usually have more “predictive power” for lack of a better term after what are also known as “extreme moves.”

And to say the recent run up to new never before seen highs in the history of mankind, as most of the same companies making up said market are making either lower lows never mind new highs isn’t “extreme” enough to warrant at the least an eye brow rise? I don’t know what will.

And yes, that’s not a misstatement. Or said differently, welcome to your central bank fueled fantasy of “market” logic.

So with that said here’s the aforementioned chart. To wit:

(Chart Source)

Another way to describe what these types of indicators suggest in image form show what one could consider as “A strong conviction to buy – loosely held.”

As always, we shall see.

© 2019 Mark St.Cyr