Author: Mark St.Cyr

Every time the idea is raised that the Federal Reserve seems to be acting, or basing policy decisions with some form of political bent, immediately the insinuation is either brushed off as ludicrous, or better yet, even conspiratorial. If the question is dared to be asked, or insinuated directly at any official during a public forum? More often than not the stuttering and stammering as to explain away any such notion becomes a real-time expression of just what was meant when applying the old adage, “doth protest too much.”

However, today, it appears no matter how curtly it’s deflected – the actions appear for more indisputable. Here’s a little history:

On December 14, 2016 the Federal Reserve raised interest rates for the first time since Dec. 2015. So as to save you the inquiry, yes, that was the only time during all of 2015 as well as 2016. These were the only two hikes since 2006. Yes, that’s nearly 11 years ago.

During the period of 2015-16, whenever a Fed. official was asked about conditions, or projections, getting a straight answer was just as futile as getting the same answer from one member to another. Again, it appeared this was just another real-time display of old examples such as, “good cop – bad cop” with some “I can no-longer recall precisely what I said I saw yesterday” eye-witnesses thrown in when asked about prior remarks. i.e., Think, Rorschach test.

This is when it become patently obvious one could no longer take wording, or implied messaging into account and must move to the more obvious using, once again, another maxim. e.g., Forget what they say – watch what they do.

Of course, that doesn’t mean to never take into account what is said. Using it properly simply means to put far more weight into past actions over any words-of-promise for tomorrow. Andrew Carnegie was a big believer of it and used it extensively, as do I.

This was the reasoning why before the December meeting of 2016 I opined that Nov. the Fed. may in fact not raise rates as many were concluding. Here’s what I stated. To wit:

“Everyone (and I do mean everyone) is flatly convinced the Fed. will raise rates this December. Personally, I’m not so convinced, while I’ll also add I’m more in the “will not” camp today than I was previous. i.e., I’m at about 80/20% plus today favoring they won’t. And here’s why….

At this last slated meeting and resolution the Fed., once again, chose inaction for action, keeping interest rates unchanged. Yet, we are told (by both the Fed. and their “watchers/pundits”) that the Fed. is “ready to move” and that “this December it’s really a go!” and more.

Fair enough, but if that is true: Then how does supposedly “encouraging” and “improving” data that swayed one of the more birds-of-a-feather doves (Boston Fed. president Eric Rosengren) to cast a dissenting vote in the previous meeting just 60 days later to change his stance? (e.g., back to should not raise from should)

Again, to make this point more clear: All when in less than 30 days – they are said – to really, really, really just going to “do it” this time?

It doesn’t make a lick of sense for any coherent communication based strategy, as well as projected policy stance. Period. Unless – that’s precisely (and I’ve argued exactly that) what you want. i.e., Never-ending obfuscation, and confusion. All wrapped in incoherent, nonsensical policy mumbo-jumbo”

To make clear: this was in November where both the “data” for a supposedly “data dependent” Fed. had not only rolled over, but so too had the “markets” and were, once again, threatening to break through prior support levels that were only negated when one Fed. official after another took any media available sending out soothing dovish tones to reassure the “markets” they had their finger poised above the “control-p” button should the need arise.

Couple the flip via Mr. Rosengren, along with Ms. Yellen’s “high pressure” speech in October, along with others such as Ms. Brainard’s consistent dovish stance and arguments, and last, but certainly not least; the believed inevitable surety that Ms. Clinton would emerge victorious in Nov. One could clearly see how The Fed. was setting itself up as to not “rock-the-boat”, regardless of any flip-flops or hawkish statements prior. i.e., The action for taking no action seemed to be the play at hand.

After all, as the Chair herself implied only 30 days prior (paraphrasing): “The harmful effects from the financial crisis were still within the economy, and the only way to possibly break their hold was to let inflation run hotter while keeping in place an accommodative monetary policy.” It had all the attributes for the setting up the reasoning for doing just that. If not, then why even make it? Especially by the Chair herself.

Then – Ms. Clinton lost. And suddenly all doves, dovish statements, dovish reasoning, and more were gone. Now, it’s an unflinching-flock of Hawks-Are-Us. All data prior? Hint:” What data?” The only data one needs to see is the vote tally for raising rates, and running off the balance sheet. i.e., A consensus of “Yes!” is an understatement.

And that brings us to today and the implied “normalization” path the Fed. is employing currently. For this is where the, “If you say you’re not one thing, then why are you doing things that demonstrate the exact opposite?” fits in.

As I stated back in December following the conference supplied by Ms. Yellen. I made the case that if one looked at the posturing, and listened to the rationale given as to explain away why the Fed. appeared to everyone watching to have morphed from dovish to hawkish (the Dot-Plot gave the first clues) her answers had more in common with grasping-at-straws than anything lucid. It was from that moment I made the case that the Fed., regardless of what they say going forward, were going to tighten and had indeed turned into hawks based on the election results.

No one agreed, and I was widely mocked by many in the main stream business/financial media for even implying it. After all, the “data” clearly showed not raising for another year was clearly applicable with past reasoning and actions. At the most was iterated, they may consider,( consider, not actually move) September as a possibility. Balance sheet talk? Forgetaboutit! was the reaction, even from the likes of Mr. Bernanke.

But now – here we are. And the biggest item I believe that’s both unrealized, and unaccounted for by most, and especially “the markets”, along with what I deem a “punctuation point” to the political, is this. To wit:

During all of Ms. Yellen’s chair-ship, along with most of her predecessors, one over arching theme was to not allow even the hint of any unforeseen or even foreseeable turbulence to enter the fray as budget talks or “resolution votes” transpired.

Always the case for “developments” was put foremost in front of any possible disruptive element that may occur during the process. i.e., Don’t make the “markets” more nervous than they already are about debt, debt-ceilings, shutdowns, and more. Let alone illuminating the Fed. in any possible unflattering role via casting a spotlight of “raising borrowing costs” in the middle of it.

And yet today?

The Federal Reserve has raised rates not once, not twice, but three times in under 6 months, and – and it’s the big one – has thrown the biggest of all bugaboos that the “market” fears (e.g., balance sheet reduction) directly into the teeth of one of the most important budget battles coming up this summer in years. Look for the term “shut-down” to re-enter the lexicon in increasing and ever vociferous manner from this point forward.

With the proposed wanting of setting new tax policies, Obamacare reform or repeal, infrastructure spending and more. Along with the ardent political bickering and who knows what more that will take place. The stakes could not be higher of exposing for everyone to see that the Fed. has made a blatant policy error decision with just the raising of rates via its current schedule. Especially should the “markets” begin faltering ever further going in.

This alone should be a real cause for concern for anyone questioning judgment or efficacy of current monetary policy based on current data. Again, that alone, and by itself, warrants the notion that the Fed. is taking a huge risk for backlash should it be proven out as such. i.e.,”Policy error” and “Lost credibility” will also enter the lexicon with the same furor and frequency as the political strife.

But, (and it’s a very big but) throwing balance sheet reduction certainty, with time schedules and amounts, into the that mix?

It turns the idea of “risk” on its head and wreaks of political skullduggery of the worst kind. And will not go unnoticed should the effects of such foolishness manifest.

As I implied at the opening: If the Fed. wants to keep stating it’s not politically motivated.

It should stop doing what can only be concluded as such.

© 2017 Mark St.Cyr

There comes that moment where the veiled threats against logic such as the go-to excuse of “it’s different this time” are exposed against the harsh light of reality for all to see with such clarity, “it’s different this time” is precisely the apt statement to show why it was all fallacy to begin with.

Uber™ has just had that moment, and the resulting fallout as I’ve iterated before: Will. Be. Legend.

To think, let alone, believe that the current implosion (and yes, I mean implosion) will be isolated within Uber is as much of a fantasy as was believing: “it’s different this time.” Why? Because: It is precisely that.

I believe (and have written) the remaining unicorns along with entire “tech” or “Valley” model for valuation are now facing what I called, “an extinction event.” Or said differently: The moment Uber is made to state publicly its current valuation going forward? It’ll be the equivalent for both “The Valley” and “unicorn” metric modeling – as was for the dinosaurs. e.g., Stick a fork in it, it’s done.

Now to be fair Theranos™ was/is caught up in what has been deemed as fraud for their product offering, Uber is not. However, why I use the “moment” appraisal is this: Once it was shown that the whole “so worth it” valuation metric was no longer above reproach? The jumping-of-ship for those closest happened so fast even rats took notice.

Ms. Holmes publicly declared any, and all, accusations as false before finally having to recant in the form of pulling, or re-verifying prior testing results. But as she was doing that publicly, quietly many either working for, or involved in management were reported to be heading towards any and all exits. Then, precisely one year ago this week (yes, it’s the anniversary) Forbes™ revised, and declared Ms. Holmes net worth had gone from $4.5 BILLION – To Nothing. And just like that it was over almost as fast as it had began.

So exactly where is the equivocation argument? Good question, and it is this:

The revising of valuations and more came when suddenly everyone no-longer could justify the valuations based on “it’s different this time” arguments.

That argument works fine when the Fed’s QE program is in full effect and works like some magical cloak to hide the naked fallacy that a company with less than $100 Million in revenues is worth some $9 BILLION because the VC’s invested say it is. (I can’t help myself from laughing as I typed that, it’s so far beyond ludicrous.)

But once the term “law suits” and more get thrown across a unicorns saddle? Let’s just say – viewpoints, and valuation metrics begin to change, and change quickly.

Uber is currently valued via all reports at around $68 BILLION dollars. And with that valuation it is currently the #1 unicorn, and most valued startup, and private tech company, in the world. And it’s core product? It’s an app to hail a cab.

Re-read the above line a few times, and let it sink in. Because as I implied earlier – this is where the equivocation moment comes. e.g., When all-hype suddenly meets law suits? All, and I mean just that – all – perspective changes. Especially for those of the unicorn variety.

Theranos, for all that it was going through at that time, one could argue (and some did making snake-oil salesmen look trustworthy) that there was at least some possible future if the law suits turned out to be defendable, or were misplaced. After all, it was about patented machines, diagnosis, and more. Nevertheless – it was over with near immediacy once it was blatantly obvious people once loyal and intimately involved, along with companies using the service publicly began jumping ship.

Suddenly every “news” outlet that once couldn’t get a flattering story out quick enough tripped all over themselves to re-write the now how, and why, for the imminent collapse of the once storied unicorn.

This time – is no different, for the stories have already begun. Again, once the unquestionable becomes questioned? I believe you already know the answer. But if you need reminding  – again – just look to Theranos.

Now, much like Ms. Holmes, the founder and CEO had to quit, or resign, to appease those calling for change. And, much like the previous example – those closest, and who should be the greatest ally for change and stay as to help weather out the storm are also jumping. Sound familiar?

The optics of such a “jump” while in the midst of such a sh*t-storm at Uber, from my perspective, shows only one thing: You know the jig is up, it’s all about managing the fall, and there’s no need to do that in plain view.

If I’m wrong, then why would such a staunch defender of the company and its CEO resign when the negative optics of such a move are clearly visible? Unless? See above.

And just like Theranos – Uber’s valuation has already began slipping.

The real difference here? Remember: Theranos was said to be worth $9 Billion when their fall from grace began. And that was all based upon the idea that they were involved in life changing medical technology. Uber? They are said to be worth $68 BILLION – and they’re an app to hail a cab. Think about that, again.

And lest one forget – Uber burns through, not makes: $BILLIONS. And its “world domination” thesis has already been cleaved when it gave up on China. And that realization alone has yet to be priced in, or out, one might say. Add to that just some of the above and “cleave” might be an understatement for future valuation adjustments going forward.

Just ask Ms. Holmes.

© 2017 Mark St.Cyr

Everyone’s heard the now well-worn excuse “it’s different this time” given to explain away fundamental logic or business principles when it comes to anything that is lumped into the “disruptor” category.  Anything “Tech” or “The Valley” centric used this almost as an invisible force field to protect any and all criticism of its business models. All that’s mattered over the years seems to have been: Get funded, Get listed, Get paid, Get out. Cha-ching! Rinse, repeat. If the company folded? Who cares, they got theirs. (e.g., early investors, employees, and founders et al.)

But that’s not working as well as it used to and for proof just look at the IPO stable of the last few years for clues.

With that said there has been one model that has been working splendidly, that model of disruptor applies directly to the current mega-cap’d companies where one could arguably suggest actual physical cash is what’s being burned out the rear of its rockets to propel both it, as well as the business itself, into orbit.

Personally, I’m a fan of these companies offerings. I’m also a great fan of their determination to do things others seen before as just pipe-dreams. Tesla™ has built an electric car with styling inside and out that competes with any modern luxury sedan. And before it? Golf carts looked and ran better than most offerings prior. Amazon™ of course changed the game of retailing and needs no further explaining. But something has changed significantly over the last 5 years that has disrupted another far more important aspect of business in my opinion, and it is this:

Fair competition, as in level playing fields, for something seems to have gone awry and I believe it’s not for the good.

A few weeks back I wrote an article where I raised my concerns and expressed it via the premise: What’s the difference between this and government sanctioned dumping?

I began asking the question because something just wasn’t sitting right with me as I looked over the business landscape. I did it, as always, because not only was no one else, but rather, it appeared as long as “everyone was getting theirs” who cares what pestilence it might leave in its wake. Here’s a sample. To wit:

“Free market capitalism is far too important as to just stand back and allow it to be bastardized, let run amuck, unfettered, with no considerations of the damage it can instill when not properly employed, or understood. But what at times may be far worse – is something thought of as one thing, then allowed to promulgate under that moniker instilling a “hands off – or don’t question” force field to be employed, while all the time it has morphed into something dangerous, or destructive and an anathema of its original intent or meaning.”

It would appear I was, once again, ahead of the curve for I was simply dumb-founded when the news broke this past Friday that Amazon would acquire Whole Foods™ for some $13.7 BILLION in an all cash transaction. This was at a premium of around 27% over the previous days close. All pretty mundane stuff when seen through the lens of typical M&A deals. But that’s just it – this ain’t no “typical” M&A acquisition from my perspective. I believe it to be the harbinger of the warnings I expressed earlier. Let me explain.

A background note: When it comes to the “food” business, I have a working understanding far more acute than most because I spent a career in it in one form or another, and at all levels. Just to give an idea; not only have I worked, managed, and owned one. I was one of the first in the country to formulate, and write, a corporate working HACCP program based on NASA protocols for USDA compliance of food safety when the program was launched.

I know to many it sounds like: “Big deal, so what does that mean?” Let’s just say, if a company of any size doesn’t follow – to the letter – of what that plan states? Or, has an issue that can’t be shown – as in proven – via the protocols of their HACCP plan to have been contained? You can be out of business overnight with recalls, fines, liabilities and more. Said differently: It’s your operation and procedures bible for any food business mandated, and enforced, via the USDA’s Food Safety and Inspection Service aka “The Food Police.” And yes – they do have badges!

So why do I even include the above many are asking. Well, it’s because of this point: When you hear that supermarkets and such work on razor-thin margins many at first blush think “Yeah, wouldn’t know it by looking at my grocery receipt, it’s always going up, up, up!”

But I’m here to state, in fact, that “razor-thin” is an apt descriptor. It’s a volume business and competition for your food dollar puts the law of supply, demand, and affordability via the competitive model to keep those low margins in place, and in check. i.e., It’s not an easy business to start, let alone, stay in.

Running against that model has been the Whole Foods model, which is basically the “whole paycheck” outlier of the industry. But as I stated – it’s an outlier when compared against the industry as a whole. i.e., It’s for those who feel comfortable possibly overpaying rather than being price sensitive. For what ever the reason they shop there because they believe – it’s worth it. Regardless of any other metric and that’s perfectly acceptable and appropriate in a free market.

But there’s now a twist entering this equation, and it’s this:

Amazon is now going to purchase them, and will by all interpretable media coverage I’ve read so far, is going to move that “whole paycheck” model into a more bulls-eyed approach toward traditional retailers. e.g., The Walmart™, Kroger™, et al. Or, again said differently: Amazon is now going to disrupt the supermarket model and industry much like it did (and still does) traditional retail.

And there lies the rub for the question that must be asked is: How can it afford to do it? Hint: Look at its current stock price.

This is not the only “twist” happening within the markets today, and from my perspective – it’s not only twisting business logic into something grotesque, it’s also twisted common sense in much the same manner. So much so, I believe it not only be antithetical to free market capitalism, but out right dangerous.

To be clear: This is not an anti-Amazon rant. If I were Jeff Bezos, in his position, I would probably be doing the same thing if the market allowed it. But the question is: Are we talking market? Or “market?” That is a difference with a very big distinction that must be addressed today. And nobody seems to quite understand the growing implications if it continues on its apparent preset course.

Let me pose a question to anyone who either owns, or is responsible for any company or business’s welfare; along with the welfare of their employees the following:

How is it right, or ethical, that a company such as Amazon is able to purchase another company, in a differing sector, and bring about competitive pricing structures unavailable and unsustainable to the companies currently battling within that structure made possible only by the largesse of central banks outright purchase or “bulls-eye” of a company’s stock or bonds whether directly or via their anointed representatives?

I use The Swiss National Bank™ as just one example but they’re all doing it in one form or another.

This – is – the issue of the day for free markets everywhere. Large or small. And especially small business. Why?

So adulterated and perverted have the principles and workings of business fundamentals become the only way not to see it (or admit it) is to not look at it. But much like pornography, I don’t need to be told what I’m looking at when I see it, to know if it’s pornographic or not. And the “dirtiest” moving picture of Friday that was broadcast for all to see was the stock price movement of Amazon and the resulting moves of the now “non-bulls-eyed” competitors. Again, to wit:

(Source)

The above are just three of the competitors within this market, and look at the market cap worth $10’s of BILLIONS of dollars erased in a day on the announcement. But what happened to Amazon’s? Because, what would always seem as the normal course would be for a company that is buying another that their valuation would take a hit. After all, they’re the one spending all the money, right?

Well, let’s just say another thing has entered the “It’s different this time” perversion of all things business or fundamental. Again, to wit:

(Source)

Want more proof? Here’s a chart provided in the ZeroHedge™ article “Grocery Stores crash after…” To wit:

See any thing that looks a little “odd” here? Like, maybe, there’s something out-of-place? You know, like the difference between free markets, and central bank captured “markets?” Or is it just me?

At the pace we are currently going, and in the manner it’s also following, the question that must be asked (because you have people asking it right now and are about to act on the above as empirical evidence that this is the new way to do “business”):

If you are one of the fortunate currently to still have a “bulls-eye” on your stock ticker: Do you now actively try and buy every market competitor available? Because, worry not about cost or profits for you’ll be rewarded with higher valuation near instantaneously and the leaders of that market who don’t have that coveted “bulls-eye” will be struck mightily with a possible crippling sell-off in their market cap possibly to the point of where the term “competitor” applies momentarily. See Amazon’s latest entry for further clues or possibilities.

Don’t gloss over the above because, as of now – this is the currently funded perversion of business central bankers have wrought. Amazon is just the first to show the consequences of that action in real-time. And now – there’s precedent.

If you think others aren’t right now contemplating something similar I have some ocean front property in Kentucky you can have at a discount.

In less than a day Amazon’s market cap went up in value basically covering the entire purchase price. So, with that as a backdrop why wouldn’t others do the same and just go-for-it? I’m not encouraging it (and believe it’ll come back to haunt in ways that will terrify many a current BTFD’er of today) but with Amazon now showing the results of such an action? Many are thinking right now: “Why not? Do you know what that’ll do if it works for my “golden parachute?!”

The issue here is also – what does it do to the market that relies on a stable pricing structures and product availability such as the whole food complex?

If BTFD’ers “bulls” (and central banks are the Apis bulls of the herd mentality with unlimited resources to just buy more, or cover for any losses via their “printing press”) shun the current market leaders making them appear as “unattractive” investments for the market, but yet buy “horns-over-hooves” more shares in the likes of an Amazon or other such equivalent in a similar scenario – Is that a fair market? Or how about this: Is this a new way to pervert the “market” and market sectors even more for other gains? Think about it.

Mom and pop shops don’t have access to such, nor most medium sized, let alone the larger one’s such as any noted above. i.e., If you ain’t the Amazon equivalent of their portfolio – you ain’t nothing. Period.

Just such a scenario sets up the conditions for not just crippling the completion (i.e., theres a run on their stock value.) But you may crush your future competitors before you even enter the market place! Again: Is that a fair competitive advantage? Because the only way one has that advantage – is via central bank largesse. And if they haven’t picked you?

See the above charts for clues.

© 2017 Mark St.Cyr

“For me, deciding whether to raise rates or hold steady came down to a tension between faith and data. On one hand, intuitively, I am inclined to believe in the logic of the Phillips curve: A tight labor market should lead to competition for workers, which should lead to higher wages. Eventually, firms will have to pass some of those costs on to their customers, which should lead to higher inflation. That makes intuitive sense. That’s the faith part.” -Minneapolis Fed. president Neel Kashkari explaining his reasoning for dissent at the June 2017 FOMC conclave.

There are times when moments of clarity are expressed unwittingly by those who try mightily to not only obscure their expressed meanings, but rather, make them so indistinct of their true meaning they become indecipherable, hieroglyphic, and what may be more important: appear to mean anything, to anyone. Which actually means – it’s meaningless inasmuch that usually listening to Fed. members explain their reasoning has more in common with a teenager defending their actions with the well-worn excuse of “Because!” Only with a better vocabulary.

Now, with that said, in my opinion, here’s why Mr. Kashkari’s assessment and explanation stands out as a moment of honest clarity: It demonstrates that the whole idea that the Fed. was ever “data dependent” at any time was also – an act in faith.

Why make such a claim? Well, it’s for this reason:

It is near impossible to any person holding the ability for critical-thought, living in the current real world economy, against a backdrop of ever deterioration macro data, to reconcile that today, again, today – is not only the best time for raising rates – but also – raise them at a pace not seen since before the financial crisis. And last, but certainly not least: stating, not trial ballooning, but declaring actual dates and amounts for the most feared process concerning Wall Street e.g., a reduction of the balance sheet, beginning in earnest ∼90 days hence. (e.g., September)

If one believes there will be no fallout from this decision going forward? I would suggest you’re not caught up in any act of “faith”, but rather, you’re suffering from delusion.

To make my point I ask this question in the same light as was asked many times of recently departed Adam West: “Riddle me this, Batman!”

“How is an economy stronger when all the data shows it to be weaker?”

Answer: “When the Federal Reserve says it is. Data be damned.”

To back up my argument, lest I remind one of what the Chair of the Fed. herself, Ms. Yellen, was stating only a few months ago back in the ancient economic history of October 14, 2016 AQE. To wit:

The Federal Reserve may need to run a “high-pressure economy” to reverse damage from the 2008-2009 crisis that depressed output, sidelined workers, and risks becoming a permanent scar, Fed Chair Janet Yellen said on Friday in a broad review of where the recovery may still fall short.

Here’s another from the same article, again, to wit:

Yellen, in a lunch address to a conference of policymakers and top academics in Boston, said the question was whether that damage can be undone “by temporarily running a ‘high-pressure economy,’ with robust aggregate demand and a tight labor market.”

“One can certainly identify plausible ways in which this might occur,” she said.

And what was the response and interpretations to such statements by others far more qualified to understand their implications and tone rather than take mine alone for it? Fair question, and again from the same article:

“This is a clear rebuttal of the hawkish arguments,” to raise rates soon, a line of argument pitched by some of the Fed’s regional bank presidents, said Christopher Low, chief economist at FTN Financial.

“Inflation can go to 3 percent, if the Fed thinks this is temporary,” said Gundlach, who agreed Yellen was striking a chord similar to Summer’s “secular stagnation” thesis. “Yellen is thinking independently and willing to act on what she thinks.”

Her remarks jarred the U.S. bond market on Friday afternoon, where they were interpreted as perhaps a willingness to allow inflation to run beyond the Fed’s 2.0 percent target. Prices on longer dated U.S. Treasuries, which are most sensitive to inflation expectations, fell sharply and their yields shot higher.

With the above for context: Explain what was the catalyst that would implore the Fed. ∼60 days after the above idea of running a “high pressure” policy, along with ever the increasing dovish tones that would make actual doves envious; to embark on a policy tightening schedule, along with the near overnight manifestation of morphing the most ardent uber-doves of the committee (e.g., Ms. Yellen, Mr. Fischer, Ms. Brainard et al) into a single-minded flock of hawks? Because as per the last voting record – all agreed to the hike, schedule for balance sheet reduction except, Mr. Kashkari.

Was it “the data” that’s improved? Hardly. Even Mr. Kashkari pointed out the obvious. And, as a matter of fact, it’s deteriorated ever further since the beginning of the year.

I have argued there’s only been one change which could have the resulting effect, and it’s not of the economic variety. (Hint: begins with “T”) But I implore readers to try to come up with their own based on their own sourced empirical data. All I’ll say before you start is – good luck.

To show further just how far off-the-rails the economy, “markets”, and the Fed’s relationship to them in both understanding, along with believing it has any semblance of control of it other than adulterating it, along with perverting once understood economic fundamentals. The Chair herself made a comment in regards to a question that not only knocked me back in my chair, but made me realize just how far down-the-rabbit-hole we truly are. It seems to have passed-by the media totally unnoticed. That comment?

It was her response to a question proposed via a New York Times™ reporter (question begins at 26:00) to elicit her interpretation as to how what was once seen as a tightening event, has had the same effect as loosening. And if she believed the market no longer cares about Fed. policy. Or said differently: Has the Fed. lost control? Below is her response. To wit:

“We have certainly noticed the stock market is up considerably over the last year, that usually shows up in financial condition indexes and is an important reason why some of them show easier financial conditions, there’s been a modest decrease recently in the value of the $Dollar, although it’s up substantially since mid 2014. So we take those factors into account in deriving our forecasts and deciding the appropriate stance of policy. We’ve done that. But other things also effect the stance of policy, so there really can’t be any simple relationship. We’re not targeting financial conditions. We’re trying to set a path of the federal funds rate taking into account of those factors and others that don’t show up in the financial conditions index, we’re trying to generate paths for employment and inflation that meet our mandated objectives.”

Got that? As I iterated earlier: appears to mean anything, to anyone. Which actually means – it’s meaningless.

But there’s far more to the above than what shows up in text, and it’s this: If you watch the exchange, it’s clear when she makes the statement, “We’re not targeting financial conditions.” She makes that statement emphatically as to make clear: the “market” is not an overriding factor for policy decisions.

Fair enough, then I ask, once again, “Riddle me this, Batman?”

Why was the Balance Sheet relentlessly expanded to a tune of some $4,500,000,000,000.00 (e.g., $4.5 Trillion) along with continuing a reinvestment rollover policy that’s currently still in effect if “the market” is something that doesn’t have a bulls-eye for outright central bank intervention (along with every other major central bank globally) on its back, for the sole means of propping it up as to instate or perpetuate some effect of “the wealth effect?”

Answer: Because they’ve been blowing smoke – that’s why. Period. And for those who’ve believed the contrary? Sorry, but there’s no real Santa Claus either.

Think I’m off base? Fair enough. So let’s look at the following for some further clues and ask a simple question, shall we?

Question: So, today, against the likes of the charts shown below is the time to turn so hawkish real hawks are envious? To wit:

(Chart source via ZeroHedge™ article “Last Time Economic Data Disappointed This Much…”)

The point being made here is not just some random use of putting up a few charts which might not mean anything to many at first glance. What needs to be accentuated, and understood, is the above charts represent what the data is showing today, how it has rolled over, and what anyone with a modicum of business, or economic acumen would believe should be the basis for consideration of any body, let alone a monitory policy making one, to use as a baseline for their “data dependent” reasoning.

But today? It’s meaningless. Why?

Well, I’ll just point to the current decision by the FOMC and let that stand as its own proof. For the Fed. in a near unanimous vote of consent and confidence believes raising rates and reducing its balance sheet straight into the teeth of the above is precisely the right thing to do.

Again, why is this such an important point to understand today? It’s for this reason:

Because when the data above were at these same levels (and remember, we’ve deteriorated back to them, not came up to them, an important distinction) it was the underlying basis or “data” used by former Chair Ben Bernanke to unleash another iteration of QE known as “Operation Twist.”

Are you beginning to see how all that “data dependent” gibberish along with all the sycophantic Ph.D’d talking heads, analysts, economic wizards et al who use the self-generating word-cloud after any meeting as to pick and choose what narrative and wording they’ll use to spin some yarn about how they interpret the Fed. to mean this or that? Again, they too have been doing nothing more than blowing smoke because you can’t have it both ways. And yes, even if you are on television.

I’m sorry for repeating myself (and I’ve been saying it for years) It’s all been nothing more than an exercise in blowing smoke. And the above shows the proof of that assertion.

The only “twist” that has happened since October is a twist in outcome of that other act of faith that everyone believed was inevitable: Hint: It began with an “H” but ended with a “T” instead. And with that the “market” is now at the mercy of an unflinching phalanx of faith observant “Hawks Are Us” that’s – data be damned – they’re gonna raise then blaze the balance sheet. All while continually blowing smoke so thick they hope it obscures any finger-pointing should the day arrive.

I thank Mr. Kashkari for at least being honest and openly state what many of us have been saying into deaf-ears for years. Whether he did it intentionally, or not.

© 2017 Mark St.Cyr

(For those who say I just don’t get it…get this!)

As of this writing the so-called “no brainer” IPO that was supposed to show the world just how “worth it” social media is, and that “every dip” should be bought horns-over-hooves, and to just tune out all of the “nay sayers” because “they just don’t get tech” and far importantly – don’t get most things because “it’s different this time” claims are coming back around – and not in a good way.

No those aren’t the words coming from “The Valley” per se. Those are almost verbatim quotes from the ever revolving next-in-rotation fund managers paraded across the financial/business media. The difference today, I would imagine, is they’re coming back around from angry clients in the form of “You said (fill in any of the above here)!” As they watch their so-called “investment” behave much like its core product. e.g., disappear into the ether.

So why is today unlike any other day prior? Well, let’s just say – it’s different this time. To wit:

Behold Snapchat™ via its ticker symbol and through the prism of today’s moment in “pictures” aka a chart.

(Source)

Remember all those headlines always touting the “up double digit percentage points from its IPO offering price” that were used to mask the complete, and utter carnage, of people who purchased at the opening at $24 and above? Above is the picture I’ll take a leap of faith and say – most will wish they both never saw, and will probably never forget.

As of this writing what many never dreamed of ever taking place again in history might, after everything is said and done, end up over time being the only suitable icon to replace the notorious sock puppet mascot of the dot-com craze. For as I type it is only pennies away from making every investors dollar of profit, even those “lucky” enough to buy-in at the celebrated, and “so worth it” $17 price, is much, like its core product about to go “Poof.” But the day is still young, and it would appear “principle” will be the next thing to go after the last remaining cents of profit are indeed vanquished.

As another more famous Mark once stated: “History doesn’t repeat itself, but it often rhymes.”

But what do I know.

© 2017 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.

During a discussion the other day I was asked by an audience member new to my work the following: “What’s with the use of all the ™ markings in your articles?”

It’s a fair question and I’ve answered it many times over the years but since there’s been an explosion in readership over the last few months (Yes, there really has been. And as always a heartfelt thank you too all, and yes, even the detractors!) I wanted to touch on it for those who may be new to my work. So here’s the reason…

When I first began expressing my thoughts about business after retiring from the corporate scene circa 2009 I was typing one of my first articles and I needed to use the name of a business as the example. I am, have always been, and will remain not only a staunch advocate for copyright or trademark respect, I abide by it to a near fault. (Just as an example: I won’t knowingly listen, read, or watch anything pirated knowingly, although it seems to be getting harder by the day to even notice or tell these things and may do so unintentionally in today’s internet. But I at least try, and I digress.)

As I was typing I remembered back to when I started my first business. When you named a business back then (according to the kids – when dinosaurs roamed the Earth) you named your company, then you would apply the denotation ” ™ ” following it.

This did two things. One: It demonstrated that you were (or at least implied) a legitimate business entity. And second: You were stating publicly (an important distinction in business law) that you were claiming that title as yours, meaning, no one else could use it. i.e., Usually valid only at the state level after filing your papers. If you wanted national rights you needed to take further steps, and far more expensive steps at that. But that’s the gist. Personal names like Any Body M.D., or Any Body C.P.A. et al doesn’t apply because you can’t trademark or copyright personal names even if they’re a sole business entity.

Choosing one’s business name has much in common with the likes of trying to come up with a band name. It’s a very personal (even if its via a group) and sometimes mind-numbing process to come up with just the one where you say, “This is it!” And from that moment on you want to make sure no one uses it other than how you see fit. There are, in many cases, where you’ll go through legal hell and expenses to protect it should the need arise. After all, a business is much like having a child – it’s your baby. And many of you will give your own life to keep it safe. That’s not hyperbole, think about it.

So, with the above for context I believed (and still do) since I was actually instructing people about business and more that I would give business entities that I knew to be such their respect and use the ” ™ ” annotation whenever I used their name. As far as other notations such as the ” ® ” I decided also to use that when I knew it to be applicable. e.g., iPhone®

I’m not perfect, and there are far more I’ve probably missed than applied – but I try because I believe it not only to be important, but also correct. I am quite aware basically nobody else does it, and in most cases isn’t required. But that’s just me. I feel if you’re going to be discussing business subjects you should denote businesses with the applicable mark that demonstrates they are, in fact, a business entity. The ” ™ ” does just that. If I use the business name more than once in an article or writing I just make sure (or at least try) to make sure the first use of it has the notation, after that I believe it’s self-evident.

Now let me take this discussion in a different direction far too many who consider themselves “business minded” don’t give the first thought until it’s far too late: The legal.

Everyone wants “protection” via the legal means when they believe their business has been infringed by something they deem as wrong. Doesn’t mean they have a legal case, but what they will do is sue first – ask questions later. And there are more lawyers willing to throw legalese filled trite against the proverbial walls-of-justice, at billable hourly rates, regardless if it sticks or not, because one thing is certain – someone is going to be stuck with the bill.

In many cases both parties will incur some form of bill, even if there’s no – there, there. The business legal system in many cases has become nothing more than lottery-ticket-justice. Someone only needs to pull a “ticket” to open a docket – the lawyers will do all the “scratching.” At a billable hourly rate of course.

I say this for this reason: Most have no understanding (and some are indifferent to even the pretense) of what, how, and will need to demonstrate their side of any story to a court should the need arise. And the one thing which is more important than most others has two sides. First: Intent. And second: Demonstrable prior actions to prove of, or shelter from, blame.

To demonstrate this at an easily understood level I use what I call. “The dog in court” scenario. It goes something like this…

When I ask people in the audience how many people own a dog the hands go up in abundance. Then I ask this question:

“Precisely how many of you know, and I don’t mean think, but actually have a working understanding of what you will need to demonstrate, along with provide, a court should your dog for whatever the reason bite, nip, or even knock over a child where the child is either injured, or even presumed was injured, in any way, and the parent sues? This goes from a a dog as small as a toy to one the size of a pony. Please raise your hands.”

The response is usually one – to none. And once I press further as in asking if they would mind sharing, about one or two sentences in they demonstrate they really don’t truly know – they just “think” they did. And that’s the problem.

Think about this very carefully for it will hopefully open a train of thought which you may have never considered possible, let alone probable:

Your “dog” might be the most perfectly mannered pet in the history of pets. However: If your pet harms in any way, shape, manner, or form, even if it’s presumed by all common sense standards that it was clearly, and entirely the other parties fault? That may be meaningful in the court of public opinion, but in a court of law? It could be meaningless.

The court is predicated via laws and prior rulings and judgments. What you “think” should be, might not be, as “the law” see it. Case in point:

A child sticks his finger through a fence and gets it bit by the dog inside. The fence is clearly defined, and you have postings up everywhere “Beware of dog”, “Dog Bites keep hands clear” and more. And the once unthinkable happens: a child sticks his finger in the fence when suddenly – there’s need for a Band Aid®.

The mother starts screaming, but you point to all the clear signage, fencing and more around your pet and state: It’s not the dogs fault it your yours! Besides, they only need a band-aid, it’s not like this is something serious.”

Au contraire, in actuality the “something serious” issue may be a very big one at that. e.g., your big serious problem. Here’s an example…

You may have to actually bring your pet into court or other facility, and demonstrate precisely what command you as an owner have control. You may have to put your pet through a rigorous appraisal of: sit, stay, et cetera, under the watchful eye of not only the court but also a trained expert witness that’s been hired to access your skills and command.

Have a dog (regardless of size or breed) that doesn’t “sit” or “stay” and more with reasonable demonstrable actions on command? You might be facing claims such as: “So you just let this uncontrollable beast wander around aimlessly in a pen exposed to the public at large without the slightest concern for children who obviously are too young to read let alone understand signage, and only want instinctively too pet what they believe in their childlike wonder “the doggie!” and you presumed nothing bad could ever happen? Are you telling this court something like this never even entered your mind as possible, let alone probable?!”

Are you starting to understand what I’m implying?

And if you own a dog did you just suddenly realize something you just might not have ever considered prior? Take this example and change it from pet to business or product and the change in storyline doesn’t change all that much. Again, don’t gloss over it, truly contemplate it, because if you do, you’ll be at the least one step ahead should the need arise to either protect yourself, or your business. Again, far too many never even contemplate it, then – it happens.

I have since the inception of my blog tried to always write or express my opinion from the start point of: If I ever had to defend myself against a frivolous, or even legitimate claim of infringement that I could (or at least honestly try) demonstrate via prior examples that I have tried to the best of my ability, and erred on the side of over cautiousness as opposed to any charges towards blatant disregard in any open court.

Not saying I’m indemnified by any stretch, but what I am saying is – I’ve given it great thought, understand the reasoning behind what may, or may not, be claimed of me. And, have a retrievable record to back up those claims. i.e., I have a starting point to base my arguments, or defense. Most haven’t even a clue which is why I make these points. For if you are as many say “In business?” Much like tax law: ignorance of the law – is not a defense from the law.

But this has also had another effect which, at first, I never thought of yet showed itself in ways I never dreamed would ever apply…

When I began writing (circa 2009) my visitor totals for the longest time averaged about 10 a month. I actually think it was my mother visiting ten times but let’s just use that for the example. (and if you’re reading now – “Thanks Ma!”) And like most I used Google Alerts™ to see if, or where, my work may be referenced. As I’ve commented and wrote many times prior this was a complete waste of time for my name rarely (and us even rarer today and I’m all over he place!) came up in any “alert.”

Then one day a reader emailed me and asked, “I just read this story on X site supposedly written by someone-else, all of which was behind a “members only wall. and I’m curious – are you writing under an alias or pseudonym on other sites?” Then they listed the site and name, and so I went.

Sure enough when I visited after gaining access there was much of my work, in its entirety, with someone-elses by-line attached.

I immediately notified and had my legal arm reach out sending the requisite cease-and-desist order of which was complied with, and apologies abounded.

One was (paraphrasing): “Our software defaults to the posters name, it’s the responsibility of that poster to make sure. But hey, you should be proud someone’s posting your ideas, maybe you want to join and post here yourself, after all, our traffic is, blah, blah, blah…” I could feel the sleaze through my monitors and just filed the response while holding up one digit.

I didn’t need, nor want to pursue anything, any further. But here’s the key take away: I knew precisely what to do, who to call, what needed to be sent, what needed to be followed up should the need arise, what other proof I would need, and so on. I knew and had considered this ahead of time.

There have been other such incidents over the years like when I had someone claim infringement against me for some frivolous violation on YouTube™. I wrote about the experience (you can read here, here) and was one of the main reasons why I shunned all these types of varying platforms, especially social media.

But here’s the main point or take away: When the “charges” came I knew not only what to respond to, but more importantly – why and how. Remember, if you’re in the content business, or idea business, or any type of so-called business – you’re in business which by default requires you to know about not just the rules, but the applicable laws in some form of coherent manner should the need arise.

But last, and certainly not least and germane too all of this was how that reader identified that maybe someone was not only plagiarizing me, but actually stealing my entire work as their own and taking credit for it. How you ask? Well, I’ll paraphrase it the best I can from memory and it goes something like this…

“As I was reading it I said to myself this sounds awfully familiar. Then, as I read further, was when I knew precisely where. The moment I seen the ” ™ ” symbols everywhere I knew without a doubt this had to be you!”

That’s all I needed to know – and now you know too.

© 2017 Mark St.Cyr

“Where’s the kaboom? There was supposed to be an earth-shattering kaboom!” -Martin The Martian (Warner Bros.)

In his Twitter bio Marc Andreessen used to use the above quote from Martin The Martian (one of my personal all time favorite cartoon characters I’ll add) for shrugging off, or deflecting any talk about another tech bubble bursting. At the time it was an easily defendable position, because the facts appeared (and I use “appeared” for a reason) to allow it. This was circa 2015.

(Note: This isn’t a hit piece on Marc, for I respect him and his viewpoints. This is about mindset and how everyone became enamored, then ensnared – again.)

On February 5, 2016 the once unthinkable happened: One of “The Valley’s” most coveted touchstones as to prove the reasoning, as well as proof “It’s different this time” share price fell – and not gently.

The once darling of Wall Street, LinkedIn™ saw its share price collapse 40% in one day after slashing its guidance to fall below its $45 IPO price. At the time, a near unthinkable (let alone believed) event for such a tech stalwart.

Here’s what I said about the event from the article, “Dot Com 2.0 – The Sequel Unfolds” To wit:

“The real issue was, it had nothing to do with “getting it.” It’s all been about Silicon Valley itself acting and arguing as if the past were irrelevant. Now many are coming to a very stark realization that the Valley may in fact once again have repeated all the same mistakes.”

“Far too many believed all their own press; and acted, spent, and mal-invested in ways that may eclipse the prior folly. Yes, welcome to Dot-Com 2.0. Where unicorns and more are bursting into spontaneous combustion in ways far more spectacular than previous. For it can all be viewed and commented on via the very creation that fueled it: Social media. I garner the news of this unravel will overtake these platforms with a speed, viewership, and voracity that could make the Kardashians jealous.”

“The kaboom now has a name, place, and can be seen and heard by anyone brave enough to not avert their eyes or ears.

It’s called LinkedIn™.”

Since that time the-cult-of “The-Valley”, along with many across the media, have done nothing more than give some lame reasoning as to why it happened, then tried to spin the event as actually a “fantastic opportunity!” Or said differently – since nobody else seemed to want to buy the stock, but now Microsft™ would/did? “Party on dude!”

I said at the time that showed as de facto proof that if there was real value at those higher prices – why wasn’t anyone buying in at such a “great discount?” (insert crickets here)

It took a little over a year for the effects of the Federal Reserve’s cutting off the quantitative easing (QE) spigot for the cracks to begin in earnest. But begin they had – have – and continue. LinkedIn was just the first true “kaboom” event. But they were everywhere – if – one bothered to look in the first place.

Another has been the once IPO stable of the “indestructible unicorns” which had/has been reduced to more of a barnyard resembling a collection of, “old grey mares that ain’t what they used to be.” (i.e., Does Uber™, or any other for that matter and its narrative today look anything like the Uber of 2016? 2015? 2014? 20??)

I made note of this phenom in May of 2016 when the still “happy talk” was being laid on so thick via the next-in-rotation fund managers across the entire financial/business media landscape it would make a snake oil salesman envious. Again, to wit:

“If Everything Is So Great, Where Are The Unicorn IPO’s?”

Now, well over a year later, we no longer need to speculate: They’ve basically turned into what their “unicorn” moniker implied all along. A thing of lore, built on myth, for when one of the few that actually did get dressed up, lipstick applied, and hit the big stage and lights? Everyone could see even from the back-row – it was nothing more than a “pig in lipstick.” Hint: Snapchat™

So here we are today in June of 2017 and the question that begs to be asked and answered is this: Has it gotten any better? Answer: Not only has it not, it’s gone from bad to worse, and maybe heading towards catastrophic as in hints of: “Dot-com”

For some further clues here’s what it currently looks like in the investing landscape known as “V.C. world” (i.e., venture capital deal making.) Below are some of the types of headlines contained within a report about the current outlook of V.C. from PitchBook™dated April 25, 2017. To wit:

“Activity and deal value have started the year off slow”, “Angel & seed deals have seen the deepest drop”, “First financing activity has fallen for seventh consecutive quarters”, “Growth equity deals have declined in count and value during recent quarters”, and last but certainly not least there’s this one – “More than 50% of 1Q deal value was in West Coast-headquartered companies.”

Why is the last one so important you ask? I only point it out for its significance if an actual turn is at hand and takes hold, once again, it will be “The Valley” hit the hardest and quickest. (i.e., By “turn” I mean a precipitous drop or sustained sell off.)

I also believe that process has already begun. In other words: The rarefied air has indeed turned to exhaust fumes and the sputtering sounds reverberating everywhere are the warning sign they may be about to enter the “seized engine phase.” The above article tends to validate (in my opinion) what I’ve been suggesting all along. (another hint: look at just how “innovation” stagnant Apple’s WWDC appeared. And they’re supposedly “the” leaders!)

On Friday the sell-off in the coveted FANG, FAANG, FAAMG, (or whatever acronym and symbols one wants to use or add in) exposed for all to see a troubling new realization, and was this: The cue now – is to sell first, question later.

This is eerily reminiscent of the type of market behavior during the beginning stages of the dot-com calamity signaling strong indications that there was much more going on beneath the surface than just some generic sell off.

This also in-turn revived that old phrase from Hemingway, “Gradually, then suddenly” to be the only true description of what transpired later as to describe it. It caught the entire “Valley” devotee off guard because no one thought (let alone believed) such was possible. And then – it happened.

I believe (and argued) we’ve been on the “gradual” slide since late 2014 with the ending of QE. We may have just entered the “suddenly” phase. No one knows for sure – but the clues are everywhere for anyone paying attention. And Friday was a big one.

On Wednesday the Federal Reserve has all but assured the “market” it will again raise interest rates. What the “market” does afterward is of course unknown, for they may, or could, (but I highly doubt it) decide to pass this time and bring on the “data dependent” excuse as to try to stave off any underlying panic styled rotational forces or correlated forced trades.

Again, remember the backdrop of Friday’s sell-off: out-of-the-blue, all the so-called “teflon” coated tickers.

If Friday was any clue, it may be this one: It may be setting the entire “market” for its own LinkedIn moment.

© 2017 Mark St.Cyr

This past Friday the coveted FAANG stocks (e.g., Facebook™, Amazon™, Apple™, Netflix™, Google™ et al) did something every BTFD trader should notice with great concern, if not fear. The reason for it is two-fold, first: the movement came out-of-the-blue, with no distinguishing catalyst other than speculation. (i.e., some will note a downgrade or other event, but to date, these types of warnings or events have done little, if anything, over the past.) And second: It happened on a Friday leaving a suddenly stunned BTFD cohort to parse and stew trying to comprehend just what, and more importantly: why it happened.

Because, said differently: It was a total “WTF just happened?” trading day for all too many.

These have been rare over the last few years, but that doesn’t mean what it may portend should be ignored, let alone, forgotten.

Anyone who’s traded, or been around, before 2008 will tell you (as in when market didn’t need quote marks) you don’t suddenly have a reversal in an amalgamation of specific stocks; especially the market leaders; in multiple percentage movements; seemingly out-of-the-blue; while the rest of the market appears disconnected – unless something’s changed.

It was clearly evident Friday that something had. Now the questions arise as precisely: What? And again, maybe more importantly: Does it persist?

That “something” needs to be known, if not, buying any dip going forward will just be an exercise (and painful one) of nothing more than “trying to catch falling knives.”  Or, might I dare say – “It’s different this time.” And not in a good way.

I know there are a lot of people right now thinking: “And here they come! The clock is right twice a day doom and gloom Cassandras’ trying once again to prove Ms. Little correct – again!”

In some ways there’s a valid argument there. However, there’s a distinct difference between “doom and gloomers” as in people who only see the bad side of anything regardless, and people who argue (and have been arguing near blue-in-the-face) the potential negative calamitous effects which are a near impossibility to avoid when both the measured metrics; along with fundamental aspects of business; are adulterated beyond anything considered to be normal or rational, let alone, sustainable. (e.g., central bank interventionism, along with reported government statistical data for nearly a decade.)

So what did happen Friday? I’d like to offer a few possibilities, whether they are or not, is of course, pure speculation. Yet, if I’m even close the ramifications are substantial nonetheless, so here’s my argument…

The “market” (i.e., “market”, my opinion pointing directly to sovereign wealth funds (SWF) in-particular, along with the hedge funds that mirror them) took notice during, and after, the Comey testimony in the U.S. and concluded that any reconciliation going forward between the two parties for passing any meaningful legislation was, by all appearances, D.O.A. At least for the foreseeable future remaining in 2017. But that’s not all.

I also believe they have concluded via their own access to back channels of central bankers that the Federal Reserve is hellbent to raise in June, September, and will continue jawboning calls for reduction of the balance sheet. Regardless of any “data” that should deter.

The only thing which may deter them?: A full, outright, market rout dealing in double-digit % losses.

Why do I say this? Hint: They believe (or at least construe) it all to be political, economic melee be damned. This is now all about power and who controls it. And here’s why…

Regardless of where one stands or leans politically, one thing is self-evident to anyone just following along with any understanding of skullduggery: There is an all out, internal, political war currently taking place to oust the U.S. president Donald Trump by any and all means possible. (please make note I’m talking about the political, not the violent.)

Some believe it to be “The Deep State”, others “The Far-Left”, or maybe “The Fourth Estate”, while others just use the term “Establishment.” Sometimes it appears it’s all the above and then some, depending on the news cycle. And we’re only 6 months into the new administration. We very well could be at a place where to quote an old phrase, “We ain’t seen nothing yet.”

Again, no matter whom, or what one calls it – it’s undeniable. And the Comey hearings showed for all the world to see just how committed this encampment is. WW1 trench warfare seems to be an apt descriptor.

As the hearing showed there was no, nor hasn’t been any, there – there from the beginning. And yet, one would think after viewing the subsequent reporting, or listening to many a politician, that Comey had just nailed the president and impeachment or jail time would be announced at 11, so stay tuned for more details.

It’s been more than stupefying for anyone watching with a modicum of rational thought, regardless of one’s political leanings. But there lies the rub, for again – it showed on full display just how committed the opposition party is. And that spells disaster for anything getting passed legislatively, emphasis on anything.

To show just how polarized, as well as hyper-political everything has become. I’ll use an example that shows what I, and most other business professionals consider as an unwritten, understood, absolute no-no rule for conduct or behavior by any business person. Especially a CEO as prominent along with his firm. e.g., Non-other than Lloyd Blankfein of Goldman Sachs™.

On two separate occasions (here, here) Mr. Blankfein used his own Twitter™ account for the first time and sent one message touting his disapproval of the presidents political action. But then, only a week later, on (wait for it) Friday felt the need to troll and snarked rhetorically, “How did ‘infrastructure week’ go?”

These are two entirely political affairs. The complete tone-deafness, along with appearance, is nothing short of breathtaking for a CEO in his position. Especially when he points out the fact that he “Just landed from China.” It would appear that only one of two things is a play here:

Either he violated the most understood, unwritten rule of business unknowingly? Or: He’s now openly on the “opposition” side and willing to also do “whatever it takes” because he already knows what happens next and believes him, and his firm, will survive (if not profit and prosper) from any economic turmoil which may result.

Think about that very carefully, and come to your own conclusions because if there’s one thing Mr. Blankfein should never be accused of is doing something which he already doesn’t know the coming results. (i.e., Think and apply the many summations touted by Bobby Axelrod of the TV show “Billions” for hints and clues.)

So what happens next? Well, we now move onto the scheduled June FOMC meeting which concludes this Wednesday where the odds of another hike are all but a forgone conclusion. Hence lies another clue or problem.

As I iterated earlier, I’m of the belief that the “market” realized just how far it has run on fumes and quickly noticed there wasn’t a GDP gas pump for as far as the eye can see. Suddenly the stench from all that hard data that’s been languishing in the toilet has become unavoidable. Regardless, of how many next-in-rotation fund managers across the business media try to tell/sell it as some new “eau de toilette” exclusive only to the “buy and hold club.”

Friday also demonstrated what was once the go-to strategy, e.g., buy the f’n dip horns-over-hooves – may in fact now be the most risky play of the “market” as I have warned incessantly. Why? Because the selling; the sector; the names; along with its sheer size and randomness has meaning. And what should also be taken as a prominent indicator is precisely whom was a top buyer in these types of names. Hint: central banks via their sovereign wealth funds or proxies. i.e., The Apis bulls in the ultimate herd.

That’s a distinction that makes a very big difference going forward if indeed it is different this time. And I believe it to be just that. For if they they’ve suddenly become squeamish and begin stampeding? All, and I do mean – all – bets are off. Period.

Let’s remember a few things via recent actions and put them in context, along with presumed fundamental actions that should have taken place and not only didn’t, but rather, had the opposite play out.

Any central bank’s raising of interest rates is fundamentally a tightening event. And yet, with the Fed. raising not once, but twice in 90 days, along with consistent jawboning of more hikes forthcoming, accompanied with balance sheet reduction jawboning: The net effect has been to have had the same effect as a rate cut! This caused even Goldman Sachs™ to ask has the Fed. lost control? (Again, this was why the CEO of the firm using social media to troll the president seems so out-of-place, unless?)

This, along with the Trumpflation/hopium-trade has nullified anything the Fed. has launched since Dec. The “market” has been seemingly wrapped in bubble wrap protecting it from any and all questioning of sanity. Then, the Comey hearing happened. And suddenly what became far clearer than any of the testimony was another undeniable truth: If there was any hope for a possible “pardon” for the release and subsequent passing into law any of the reflation/hopium legislation? All hope was squashed, vividly, and televised.

Now suddenly what the Fed. has on-deck matters. And matter greatly for two reasons in my opinion.

One: The “market” now has to not only take into account that a rate hike on Wednesday is a near certainty. But what is far more troubling: it will be dealing with the combined cumulative effects for sector rotational shifts for not just one, not two, but three rate hikes again – cumulatively – into an absolutely abysmal data noted economy. No longer can it just brush-off all those revisions downward.

And two: The “market” has to account for them now, and in a hurry because, not only has the market acted as if they didn’t matter. It’s acted like the “cavalry” was due at any moment, and it’s now abundantly clear – no one’s coming. The “market” is now completely on its own. Until…

And again there lies that other rub.

At what point can one now reasonably assume the Federal Reserve back-peddles on everything it is now touting and actually reinstate QE? Possibly the only “cavalry” that will matter in any sell-off going forward. And I don’t mean jawbone, I mean actually implement it, for that will be the only thing to stave off any protracted sell off, in my opinion.

Yes, St. Louis president reappeared sending soothing tones last month at a mere 2% drop. But those were just words. If another rate hike actually takes place on Wednesday can the Fed. just up and reverse itself and hit the QE button days or even weeks later without calls of policy error emanating from every corner of the economy?

But here’s a far bigger question: Will they even want to? Because a protracted sell-off would be just the thing for the Fed. to sit back and wait, letting the carnage pile up believing the finger-pointing won’t be at them from the electorate – but at someone else. Think about it.

Forget about what the so-called “smart crowd” has been touting as rationalizations for Fed. movements and its efficacy for a moment. Especially that spouted by some Ph.D economics professor or Nobel Laureate. Most of it has been pure drivel and nonsensical to any business person worth-their-salt. Truly consider it knowing what you now know having witnessed as fact, not speculation. Nobody believed in January the Fed. would be onto considering its third hike with near 100% assurance at only mid year let alone ever openly calling for, or considering balance sheet reduction talk. Even Mr. Bernanke openly stated he hoped they weren’t. And yet – here we are.

Back in Nov. 2016 I made the observation and stated why I believed if the Fed. did raise in Dec. it would suggest they were about to unleash a tightening path that was both anathema to current economic metrics supposedly used for a “data dependent” Fed. and had all the appearances of being political nature. Why? Because the economy was continuing to flash red, and the “markets” had begun (once again) to roll over. From the article, “Yellen’s Conundrum: Forestall Monetary Mayhem Or Release Political Pandemonium” To wit:

“Regardless of who wins the election, one thing is certain: the vote that takes place in December within the confines of the Eccles Building cast by a dozen un-elected, Ivy Leagued, academic bankers whose combined real world business experience is near nonexistent (less for that read in some wood-paneled library) will decide monetary policy that will have more implications for not only the U.S., but the world as a whole. Effecting not only the global financial markets, but quite possibly, the entire international political stratum as well. And the new President (as well as every other world leader) will have to adjust to that outcome.

November 8th is only the first-act of this very real, “landmine” infested global drama playing out on the world stage. On December 14th the world will truly witness just how much power has really been transferred to this unelected cohort.”

At the time of making that call, along with commenting in subsequent articles after their December meeting (which I stated they were in fact on that path) most of the financial/business media stated the reasoning as “absurd”, and the calls of no further hiking until next December, or maybe, just maybe, the remote possibility of one late in the year was the most common argument. Why? The “data” clearly showed it was far too weak to absorb another so soon. And what has happened since?

The data has not only deteriorated further, and faster than anyone presumed in December and January, but more importantly – The Fed has raised not just once, but twice, and is looking like the third is coming Wednesday. All against the backdrop that it still intends to openly ponder reducing the balance sheet beginning, maybe, even this year. Something nobody thought remotely possible to even consider just a few months ago, but now?

So here’s the last piece that needs to be addressed, and it goes something like this…

If you’re a died-in-the-hide BTFD bull and are looking at Monday as the next great buying opportunity to buy horns-over-hooves the beloved FAANG trade because its been such a no-brainer in the past. I believe – you aren’t paying nearly enough attention to what may be at play.

Yes, all conjecture on my part, but with that said, no one believed me when I made the case the Fed. would indeed tighten and tighten relentlessly – and here we are. Which leaves the bigger question squarely out front as I stated in the article “Are 401K Holders About To Feel A Savers Pain?” Again, to wit:

“The Federal Reserve has been the sole entity that dictates what any of them are currently worth. And if you don’t like their choices or decisions? Tough. There’s nothing you can do about it. Period.”

If indeed my presumptions prove to be correct then Friday’s first drawing of blood from the beloved FAANG trade will be far from its most serious bite. Or said differently: The pain may only be beginning with the real “chewing” of bank balances or profits yet to begin this Wednesday.

We shall see.

© 2017 Mark St.Cyr

Whether or not one agrees or disagrees with what’s about to follow is not the point, for I myself am not quite sure of precisely where, or if, lines should be drawn or should exist at all. However, with that said, I do feel that a discussion based on free market capitalism along with true business principles (along with ethics) is warranted.

The issue, as I see it, is far too many can’t (i.e., themselves entrepreneurs or business thinkers) seem to bring themselves up to questioning the premise for fear they themselves may not like the answer, so I will.

Free market capitalism is far too important as to just stand back and allow it to be bastardized, let run amuck, unfettered, with no considerations of the damage it can instill when not properly employed, or understood. But what at times may be far worse – is something thought of as one thing, then allowed to promulgate under that moniker instilling a “hands off – or don’t question” force field to be employed, while all the time it has morphed into something dangerous, or destructive and an anathema of its original intent or meaning.

The discussion arose the other day as we discussed the dire straights the state of Illinois finds itself in, and in particular Chicago itself.

Forgetting about the political the discussion inevitably turned to the ongoing collapse of the Medallion industry for cabs. For those not familiar with this topic, basically, what a Medallion is, is a government issued license allowing for a cab to operate. No Medallion? No cab. The issuance were limited but the licenses could be bought/sold/or transferred from one party to another. That’s the gist. So it made, via the free market system, Medallions valuable. In some cases – very valuable.

Then – Uber™ hit the market place and things have never been the same. And for cabbies’ and their once coveted assets? Things have gone from bad to worse, and as the above story shows – it’s not getting any better. Which was the genesis for this discussion, for the question is this:

If any nation (or for simpler constructs like state, local et cetera let’s just use the term: economic jurisdiction) has the right or concern as to not allow foreign entities or governments to unfairly dump competing products (“dump” meaning either government subsidizing or willfully allowing products to be sold far under well established actual costs, and in some cases near free) into a market, and applies remedies or threats such as tariffs or more as to stop the so-called “dumping” from unfairly competing. How is it that many of the so-called “tech disruptive companies” are not doing the same?

I believe it’s time to look at these questions honestly because what is happening in many instances is not what I believe to be free market capitalism, and is more along the lines of Wall Street driven monopolies, Robber Barron-ism, and in some cases – outright entrepreneurial and business ethical malfeasance. And in some cases outright fraud. (Think Theranos™ for clues)

Now I’m not singling out Uber per se, they’re just (in my opinion) one of the most recent and easily definable examples currently, for this applies also to not just the so-called Unicorn stable, but can also be applied to some of the most popular names in all of business like Amazon™.

Once again, the question is: Although I personally use and am an ardent fan of its service. At what point is Amazon not “dumping” against the likes of a Walmart™, Kroger™, Sears™, Target™, [fill in the blank]?

These are the sorts of questions I’m raising, and when I have, many a first reaction is something akin of “I never thought of it that way.” Which is precisely my point. (As I tell people all the time: “I’m not here to speak and make you feel comfortable, I’m here to provoke and get you to remember to think in the first place – comfortably or not.”)

Wall Street, in many ways, has morphed from what was once the bastion for the industrious, risk taking, entrepreneur as to raise capital for worthy enterprises in the gold standard environment that was once the envy of the world into – the equivalent of nothing more than a pseudo-government funding machine allowing for their entity of choice to facilitate a dumping of goods and services into a market place with no care about the profits, viability, or the human or business consequences left in its wake.

The only thing which now matters is creating another “symbol”, or “ETF” to be offloaded to anyone with a 401K who are either too stupid, or too unsophisticated to understand they’re being scammed (see latest IPO darlings for clues) to allow for more “red meat” to be ground into protons enabling the HFT parasitical monsters permeating the exchanges to front-run and gorge themselves without ever experiencing the slightest case of indigestion or hiccup.

Is this free market capitalism? Or free market entrepreneurialism? Or free market competition? Or free market anything as you or I have come to know and accept the term? My answer: Hardly.

Again, let’s use the both the premise and argument using another easily understood item: Steel.

If China dumps steel onto the U.S. market we understand at the gut level that this is a grossly unfair practice. Not only does it disrupt a market, but the damage it will cause a community, county, state, and even nation as a whole is not inconsequential. i.e., A company can’t afford to sell or match another governments subsidized price so it needs to cut back on production and then help, then a factory, and so on, and so on.  Wages are no longer circulating, local business close, local and regional taxes plummet, again, and so on.

So right now you’re possibly thinking, “But that’s on a large-scale, how does that apply to anything going on in “tech” or Wall Street?” Good question, so let’s look at a few examples. (Note: To reiterate – this isn’t to single out any company saying this or that is wrong, for even I’m not precisely sure. However, no one is asking any questions about a condition that seems to be growing more onerous, if not cancerous, with every passing day. And true free market capitalism is far too important to let rotting in some pile and allow everyone to just walk past and ignore it. The examples are to open the questioning which no one is currently doing. For over the last 10 years, nothing, especially when it comes to business, is what it once was.)

Using the above example of steel let’s move it a few “tech” examples and see if the argument I’m implying fits:

What is the difference between a government dumping steel – and a disruptive tech company that burns through more cash quarterly than the GDP of some small governments, along with, has never been, and may never be, profitable enough to make up that lost capital burn (via product sales, not stock) into a market where fixed costs demand higher product asking prices?

Or, said differently: (Remembering Medallions, or licensing if you will, are an enforced legal requirement with real costs as to operate in Chicago and is just one of the many expenses that cabs must pay and account for.)

What is the difference in allowing passenger service via the “cab” model made possible only by the equivalent of subsidizing the enterprise via the expense of using capital raised funds, and not true business fundamentals, anything different that a government subsidizing any product unfairly and dumping it into a market allowing for significant pricing discrepancies as to gain unfair market advantage? And I’ve not even mentioned the other required licensing and insurance costs the “disrupters” not only disavow, but rather disregard as even applicable. (Think AirBnB™ for more clues)

Bueller?

OK, I know because I earlier used the Amazon example earlier many want to know how that would apply. Again, fair question, so here’s one:

How is it different from the government dumping example when a company is allowed to sell and deliver products below well established norms any different that dumping. Example: All things being equal like price of product (let’s use $10.00 for this hypothetical) Say competitor A, B, or C decides to competitively gain market share from another it decides to work on little to no profit margin on our $10.00 example. Let’s say that’s competitor A.

Come into the store and the item is $10.00. It does this (and can remain doing it) only because it will make it up on other items when you come in. At least in theory. An easily understood model. Company B, and C either have to compete in other ways or fall victim to the market forces. But we all understand the item at $10.00 is basically the same for all. Only out of competitive bidding, size, and other fundamental practices would the price differ. i.e., If C ever got to A’s size; it would have the same bidding power.

Now let’s throw Amazon into the mix.

Suddenly not only do you have the price match of $10.00 – but now there’s another advantage. It’s delivered to your door for free if you either add a few more items (now between $25 or $35 threshold) or, you pay an up front yearly fee of about $100 and two-day delivery is available on just about anything, and is unlimited in number.

Could Walmart, or Target, or any other do that? Well, it’s kind of trick question, and here’s why…

Wall Street at the time wouldn’t allow for it to happen back when Amazon was cutting its teeth about ten years ago. And in truth, Amazon itself was beginning to acquire the ire of many early investors and analysts right before the financial crisis with a never-ending musing of when, or if, they would ever become a profitable company where Wall Street could be redeemed for their patience.

That was when the stock price was at around $100 and appeared to always be one earnings report away from share holder annihilation. For it was the Amazon model (because it flew in the face of fundamental business metrics like net profits and more) that was always the one questioned. However, that was then, today?

Its stock price is now over $1000.00

But has its fundamental business (e.g., the retail) side warranted this valuation? Hardly. And if one looks at it honestly it’s not all that much better than it was when people didn’t know if the model would ever work long run. i.e., The “delivery” model and pricing never made the fundamental business math work.

Again, forget the Walmart example, use the small one person mom and pop shop, or even a small business. As a matter of fact, any business which does not have the availability or access to Wall Street. (e.g., any non public company) Can they compete?

Well, yes some will say. They can, that is – if they sell on Amazon. But is that really competing? Or a fair business environment? As I said, I don’t know the correct answer, but something just doesn’t seem to fit when applying the “competitive market” overlay on these constructs via today’s Wall Street environment.

Let me use another example that at first glance might seem out-of-place, yet, also fits the area for questioning, for as much as it has enabled many a new giant tech disruptor to become worth $Billions upon $Billions of market cap – it also is anathema to their true fundamental enterprise competitive models, whether they realize, or even understand it.

These two names for that comparative argument: Facebook™, and Snapchat™.

Putting aside my bias against social media in general along with my arguments about how I feel about these current businesses, let’s apply my premise to these two entities and see if what I’m arguing still applies. Because if the argument applies to one, it should apply to all. And yes, even to what is surely taken as touchstones aka “disrupters” of the “disrupters.”

So, here’s the question: What’s the difference between a government sanctioned dumping into a marketplace and the unfair competitive advantage afforded by Wall Street that Facebook has to compete with at Snapchat?

I can hear the howling through my screens right now in a chorus of “Now wait a minute, now you’ve seen to taken this idea or argument just a bit too far! No way can the premise be applicable here.” Too which I’ll say, “Au contraire mon ami.” To wit:

Regardless of what one thinks about Facebook, it does have a fundamental business practice in motion. i.e., It has a platform where it sells access (aka ads) to companies, and other user metrics, to allow its business to be profitable, thus rewarding investors with potential returns either now, or in the future. At least that’s the theory and basis. Let’s not get side tracked with valuations and other metrics at the moment.

Enter: Snapchat.

Regardless of what one thinks about either company one thing is indisputable: Snapchat – as can be inferred via its creators – is not only the next Facebook, but possibly the Facebook killer. At least that’s intention I guess, which by all accounts is what any entrepreneur would think. It’s the entrepreneurial way. But here’s where thing go awry in my assessment of free markets, or free market capitalism, or fair competition, level playing field, whatever descriptor you want to use – and it is this:

Why should Facebook have to compete at all with a company whose own proclamation of business metrics which I wrote about back in February states clearly, on its S-1 filing, page 19, in bold, italicized text. To wit:

“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”

That implies, means, clearly states, leaves no room for other considerations other than this:

As long as Wall Street buys our stock – we not only don’t have a clear idea of how we’ll become profitable – we don’t even care as long as long as Wall Street keeps buying. Cha-ching!

So now Facebook (even throw in Google™ if you want) has to openly compete for ad revenue as to sell the virtues of their platform, and all its sunk costs, against a company who has openly stated not only has it no concern for profitability. If it never becomes profitable that’s fine with them because they (at least in theory) will still be able to be around and compete for who knows how long. That’s Facebook’s or Google’s, or [fill in the blank] problem.

So, if that’s the case? (and it’s a very real case) Just how low of a price does one think prices in that environment have to go when having to compete against an entity that is the equivalent of a Wall Street sanctioned product dump machine?

Can it just “give away” ads for ever? According to its S-1, why not? Is that a fair competitive edge for Facebook, or Google, or anyone to compete against?

Remember, how would Snapchat (or any company) even stay alive, let alone compete on a fair playing field when profitability – the do-or-die metric of any and all businesses is not even a priority? (If I’m wrong than why is it on the S-1!)

The other underlying issue that gives this whole “dumping” argument even more credibility is the fact that central banks have facilitated this phenom in spades ever since the financial crisis and its permeated throughout the entire “market” and business complex as has never been seen before.

Again, with central banks openly buying equities (see the afore-mentioned Facebook, Amazon, along with others) over the last years (which even further complicates the concern) there has been the equivalent of government sanctioned dumping throughout the entire business landscape turning the once bastion of free market enterprise, open markets, capital formation, and more – into a cesspool of sovereign wealth driven, crony styled capitalism, creating motes and unfair enterprise advantages that border on command and control business monarchies. Period.

I’m not exactly sure of how we go about addressing some of these concerns, but I do now this – nobody’s even giving these issues a modicum of thought – and too me, that’s not just ludicrous – it borders on dangerous for free markets, fair practices, level playing fields, and fundamental fiduciary based business funding and oversight. Somethings got to give, because like it or not, true free market business principles demand it. And giving the words “free market capitalism” lip-service ain’t getting it done.

I am an optimist though, I believe in many respects there’s going to be a re-birth of small business away from all this Wall Street crony capitalism stylized funding like we haven’t seen in years. Many think I’m crazy, but what I believe might be the catalyst for it is where many believe there’s currently no hope – the unemployed. Why?

Because if there is one thing that can help the unemployed find worthwhile work it is this – Forget about looking for your dream job, go create your own business and life where you stand right now. You need no one’s approval to begin. Just begin, you’ll work out the details as you go along, but just start, and stop waiting. Why?

We need anyone willing to take up the challenge and become a self-starter, self enterprising individual now, more than ever, in the fight. Because the fight for true – free market capitalism is – indeed – on. No job application needed to apply…

Just some guts.

© 2017 Mark St.Cyr

(Note: The following is an observation wrapped in a format of pragmatic business insight. It’s presented in this form so one can take away the underlying idea or premise and apply it as an overlay when thinking about, or trying to evaluate, other instances.)

When I’m having a discussion or talk with entrepreneurs or any business people in general, inevitably I’ll state the following:

When it comes to business there are generally only two rules. First: Satisfy a customer with a product they’ll pay for which generates a net profit via 1+1=2 math. That’s rule #1. And second: When any part of the first can’t be met honestly, the only variable that can bridge, or allow, for any deficiency in the first will be of the psychological nature. i.e., “Faith” in the product, brand, culture, hassle to change, et cetera. But relying on the second to fortify the first, without addressing and correcting it – is only an exercise of how much longer till the “sand” eventually empties from the glass.

More often than not, companies rely far too heavily on the latter to make up for any deficiencies in the former. The real problem occurs when you lose any part of the latter (e.g., the psychological) while any part of the former (e.g., fundamental business metrics) is deficient. That’s usually the moment when you look back with a forensic eye – you can nearly pinpoint the precise moment when the dominant brand or business of the day began its path to irrelevancy, if not bankruptcy.

Now at first, I would imagine, many initially thought of the old axiom of “Rule 1: Don’t lose the money. Rule 2: See rule 1.” And that’s fine, however, that old saying doesn’t leave a lot as far as what to do, or where to look for clues either before, or after any business loses money, which is precisely my point. After all – It’s easy to say but does little in pragmatic terms. Here’s an example of the same rule and premise. “Rule 1: Don’t sink the boat. Rule 2: See rule 1.” Problem? Does boat meets uncharted, unforeseen iceberg bring about any thoughts?

Now I know this seems a little off track and some are thinking “What does this all have to do with Europe?” I’m getting to that but this is important so one can take away and see potential problems, issues, or even crises over the horizon when most can’t take their eyes any further than the beach itself. So – back to the “boat” example…

To explain this using the above; apply the thinking this way: In times of stress (e.g., the boat’s taking on water) to stay afloat you would need the psychological effect of rallying the crew, passengers, whomever, to all be of one mind, or of resolve, as to fix or alleviate the water coming in as to allow the ship to continue on, either to make repairs, or at the least, last until rescue could be had. And here’s the key: If everyone’s aware you never properly repaired the damage afterwards? If or when there’s anything resembling a “next time?” Everybody’s heading for the lifeboats first – including the crew.

Businesses are much the same in many different areas. An example would be: a company that at one time was the dominant leader of its time or product, then, after some time, innovative sclerosis of some type sets in and the company’s sales and product vacillates. And yet? The earnings reports (think Non-GAAP) show earnings beats and more.

The issue: So well does it work the first few times the company decides the “innovation” that’s needed is no-longer customer or product related. It’s shareholder related. And it seems to work, but it works only for so long until the psychological effect can not be held any longer (i.e., the belief that the stock price will hold) because anyone looking at the “balance sheet” with any business acumen will clearly see “There’s no there – there.”

In other words, the company wasted all its time leaving the “innovation” focus to its accountants, rather, than where it should have been – on the customer.

Examples of this (in my opinion) can easily been seen in companies such as Kodak™, IBM™, Cisco™, Sears™ just to name a few. Companies which did the opposite? Hint: Apple™ (e.g., Jobs return and focus.) Same could be said for Shultz and Starbucks™.

You can see how the psychological aspect allowed for giving them the room to refocus as they shored up the product, resulting in a subsequent strengthening of both product sales as well as net profit increases. Which is, again, the entire key that makes my statement factual, pragmatical, advice. For remember:

If the satisfying of customers, generating 1+1=2 dimension wasn’t dogmatically employed as the second part was allowed to bolster the first. (i.e., the psychological giving the breathing room via some form of faith via the customer, shareholders et al) Any subsequent hiccup (i.e., a fall in sales attributable to an easily understandable cause, or other “unexpected” item) people, customers, and even share holders would be sent moving, if not running, for the exits.

Which now brings me to Europe, and why you need to pay attention…

Since the financial crash one set of “companies” has not taken or applied my rule of business imperatives. In other words (again, my opinion, as I see things) banks have not “fixed” their number one part of the criteria, and instead, have relied totally on the largesse of central bankers to give the illusion that they did. i.e., “We’ll be bailed out by [fill in the government of choice here] and most “investors” can rest assured their money is safe with us, for remember – We’re part of the TBTF club!”

The so-called “stress tests” have shown to anyone with a modicum of rational thought that “stress” deserved quote marks. And there within lies the problem. Because that thinking is precisely what will now be tested from afar. As in, “I want my money as far away from these banks as I can get. For if there’s any stress to be tested? I don’t want it tested with my money!”

Why? As I started this whole conversation: Rule 1 was never truly addressed earnestly. And everyone knows it. Only the psychological aspect allowed money to remain “invested.” e.g. Allowing for the illusion of it being in a relatively safe spot.

But now that there is a bona-fide real example of precisely what (and how) “investor” money will be “bailed-in” along with the speed (as in days) bolstered with the supposed “calming proclamations” made by bank officials on the same plane as, “No need for concern, everything is fine.” Only to have the bank be taken over and sold days later? Remember my implied implications of what would happen on a boat? Hint: “Everybody abandon ship!” is usually what takes place first, rather than last. So again, back to Europe and why you truly need to pay attention…

Overnight Spain’s Banco Popular™ failed and was closed, then immediately sold to Santander™ by the ECB via their “Single Resolution Mechanism.” So what’s the big deal about that?

It’s two fold, first: You now have precedent. Second? Hint: It’s the psychological aspect that’s meaningful going forward. i.e., “How do I make sure I (or clients) don’t have any exposure because I now know what the results will be. e.g., I/We can Loose $ overnight or instantly.

Banco Popular wasn’t just some small time enterprise. Up until not too long ago it was considered the top bank in Spain. So now you have the first “ship” which quickly took on water in full view – and quickly sank.

The real underlying problem? How many other “ships” are far from sea worthy in let alone Spain, but Italy, Greece, and others? And not to add even more “water”, but just how many of these so-called “stress tested” European “debt-tankers” floating around out there with the psychologically held illusion of “safety” have others (think not just nationally, but globally) tied their profitability lifelines to? (think cross sold/held products like CDS’s and/or other exposures)

Now suddenly risk has gone from near nil to “Wait…what?” Again, this is the first, yet remember that other old axiom when it comes to sinking ships. Hint: Rhymes with rats and cockroaches.

With Mario Draghi on tap Thursday and what exactly he’ll allude to when it comes to further ECB money pumping is now all in question, and the “markets” will hang on every word, if not syllable and facial expression.

If there’s even the slightest hint of angst or double-talk emanating from the conference what we might begin to see is an ever so cracking in the facade of the “Steady as she goes!” or “What ever it takes” surety held by many when it comes to the ECB and its banks. There’s a lot riding there in light of the latest developments in my opinion.

The other troublesome issue is exactly what this all portends to U.S. banks if suddenly there were to be even more trouble in Euro-land. Not to mention the political of the day with elections and more.

To reiterate: As I stated at the beginning as in a “Rule 1: When you play the game of playing the second part to the detriment of the first? It’s easy to see what happens next. Today, we can only sit back and watch as to see just how this may take shape going forward. But at least you now have a prism you can use to view it along with using for others.

© 2017 Mark St.Cyr