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Author: Mark St.Cyr
Mark is a globally recognized expert in: Business, Capital Markets, Entrepreneurship and Motivation. He is also host of the groundbreaking MYTR Broadcast™. He writes and speaks from a first hand perspective. His insights are cutting edge via his first hand knowledge, experience and acumen. All delivered in a style that is classic Mark. Find it all at MarkStCyr.com
Markets at record highs. So high they are still within a hares-breath of new, all-time, never before seen in the history of humanity, new highs. A Federal Reserve poised (that’s the working assumption and positioning currently within said “markets”) to cut rates, maybe announce more QE (quantitative easing) – the number two central bank, the ECB, has already announced its plans to further cut and add even more “whatever it takes” easy money and credit into the system, et cetera, et cetera, et cetera.
And what does this do to allow what can only be described as smooth, cool, stellar air to help raise a unicorn-of-unicorns known as a “deca-corn” for the perfect “wind beneath its wings” with its IPO debut?
Never mind what I say. Let’s see what the current headline crossing the wires just moments ago say, shall we? To wit:
Via the Wall Street Journal™, again just moments ago…
“WeWork Parent Expected To Postpone IPO”
“WeWork’s parent is expected to postpone its initial public offering after investors questioned how much the company is worth and its corporate governance.”
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. 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.
In October of 2015, I made the case for why “crying towels” were the next big investment opportunity coming to Silicon Valley. This argument was met with derision and ridicule from many I refer to as: the Silicon Valley aficionado set.
After-all, it was they which implied they “knew” better about anything concerning the business of tech than anyone else on the planet. And if you wanted proof of that – just ask them.
Getting them to stop telling you may be another matter entirely, but I digress.
In the above mentioned article I proposed the following. To wit:
And this brings on a whole host of other meme shattering, break out the “crying towels” type arguments. For if it can happen there – guess where else it’s going to begin happening? Is ________________ next? Just fill in your current favorite high-flying Non-GAAP social darling on that line – for it’s going to happen at all of them very soon in my opinion. Much sooner than many now even think or ever thought possible.
“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.
Let’s put aside the once professed IPO or Tech “gonna be rich!” delusions of a Lamborghini® in every garage and McMansions aplenty to park them in. And bring in the very, very, very (did I say very?) real reality of stench and lunacy that currently is San Francisco.
Hint: Got your human feces notification app ready and updated? You’re gonna need it.
San Francisco’s median house price is continuing to fall. The “Silicon Valley” area (e.g., San Mateo, Santa Clara counties) are doing the same. The problem here is, these are not suppose to be falling when the “markets” are at all time highs and the so-called “Deca-corns” are being released from their IPO stables. Unless… (rhymes with “glue factory”)
Uber™ has since IPO’d – and the subsequent response for valuation appears eerily similar to that of what’s basking on the sidewalks of San Fransisco in both odor, as well as appearance. While others (think Slack™ et al.) appear to be mimicking this same offensive reaction.
Unlike what you need to avoid getting “San Fran” on your shoe. All one needs to do is look at a recent chart of the latest “price droppings” of these once lauded unicorns to be reminded that when they drop, it’s not going to be anything similar to the images of rainbow colored ice cream one conjured after viewing the slide-deck.
No, to ensure the same doesn’t happen in one’s portfolio as what happens to one’s shoe in California, you don’t need an app, all you need is to go back to using common sense while viewing a recent chart of these “great investment opportunities!” and know, whats on the walkways of San Francisco has more in-common with their valuations, than the delusions pitched at any road show.
And if you are one of the unfortunate many that suddenly realized were advised and you now have a bunch of this utter horse crap “growth stocks to protect against inflation” in your portfolio? You have my condolences.
However, since 2015 most, if not all, of the prior arguments I’ve been making to the screams and hollers of the “aficionado set” have been playing out. The only thing that has been masking the effects and timing is that the Fed. had first jawboned their intention to cave, then completely caved and reversed course.
If they had not? Let’s just say “The Valley” would be in far worse shape than it is currently. Yet, I think it’s all been just a “pause.”
Here’s a bit more from the aforementioned article to bolster my point, again, to wit:
“Coders” will gladly live in some single bed shared between 8 others apartment somewhere near the Valley. Heck. they’re now reporting stories how one can live in a shipping container on the cheap in San Francisco. Sounds fantastic right? Well, it is. As long as the dreams (and expectations) of landing the dream job in a start-up or similar where riches based in stock options and more are forthcoming or, dangled like carrots in front of wide-eyed dreamers.
There’s nothing wrong with lumping it out with the hope of future pay offs. I did similar things when I was young. It’s a risk reward thing and I champion those willing to take the chance.
However, you know what changes everything? When the meme of “Gonna stay here till I cash-in and then I’ll buy me a McMansion!” turns into the underlying realization that quite possibly – you’re going to end up living in a shipping container! Possibly forever if things don’t change.
Suddenly Mom and Dad’s basement looks like paradise, and the thought of leaving “The Valley” becomes more, and more front of mind with every passing IPO failure or failure to launch.
The above pictures make living in a shipping container look down right upscale, no? And to those that keep buying into the idea of “my next dig is a McMansion as soon as this thing IPO’s?” Hint: You’re now settling for a “dig” that makes those shipping containers the McMansion equivalent.
There’s an old saying that may just apply here, as in: The first step to getting out of a hole you’ve dug – is to stop digging. But then again, what do I know, for “It’s different this time” right? Right?
The illusion, or better yet, delusion, that the metrics for riches and business could be arrived at by believing 1+1 = (what ever you want) and could survive in perpetuity, without decending to the same results as any Ponzi scheme, implores how beyond lunacy its all been. Think of it this way…
The arguments now being made, along with what has already played out since central banks, and in particular the Fed, have perpetrated against the fundamentals of free markets and capitalism in particular: Bernie Madoff’s only crime would be – that he panicked too early.
For if he would have continued to “fake it” like most of these what I deem as “fake businesses parading as legitimate ones.” do quarterly. He would have suddenly found that in all but one or two years the Fed would not just “allow” but enable his scheme to even higher heights.
By the Fed doling out $Trillions, all his losses would now appear as just one big hiccup. Right in line with everyone else today. But it gets even more surreal if you want to take it out to its logical conclusion…
All those fake statements for wealth he had supplied would have not only been rectified, but would all be up somewhere north of 50% from the 2007 highs in only 10 years. Probably even more if he was able to partake on the IPO -VC racket. And he would no doubt be a requisite go-to fixture on every mainstream business/financial outlet to give “his take” at every hiccup that’s ensued since.
Heck, he may have even closed shop altogether thinking “Why should I continue to put out fake statements and risk going to jail, when all I have to do is invest in one of these unicorns and I can state legally my $million dollar “investment” is now worth $Billions?!”
Think about the above very carefully, for it truly is conceivable. And here’s why using none other than Uber, once again.
I made the arguments back in early 2017 that Uber was facing both a possible “Extinction Event” aka “Down Round,” as well as a possible “Theranos Moment.” Both of these (all my conjecture) have been mitigated (again, my conjecture) by only one thing: A VC (venture capital) outfit more brazen in its audacity to spin narrative of riches and business sustainability that made the founders of these money losing, cash burning fallacies of business envious. e.g., SoftBank™.
Here’s from that article, again, to wit:
If – and I do mean just that, Uber needs to go back to the “funding” rounds (and it’s easy to speculate it will need to with its self verified cash burn woes) with all the exposed dirty laundry, and excess baggage now exposed to the entire investing world and “Valley”, coupled with its extraordinary cash burning metrics and collapse in “growth ” story (i.e., China being just one) where the last funding round (June of 2016) was made via the Saudi Arabia’s Public Investment Fund.
Who’ll want to step in after it’s assumed that this company has now also burned through $3.5 Million of Saudi dollars – and now needs more?
Bueller did not attend or raise his hand. But Masayoshi Son of SoftBank did. And had he not?
I was, and still am, of the opinion that Uber and all the others prancing about in the IPO stables would have experienced that “event” right then and there. For he also single-handedly saved the entire IPO case. That is – till now.
In regards to my earlier “Therano’s” equivivation argument, here’s a bit from that article. To wit:
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.
May I remind you of just two numbers: whispered $120 Billion valuation, disastrous $45 IPO debut. The rest I’ll leave up to you.
So what does this have to do with today? Hint: Everything. Why? Hint: rhymes with WeWork™
WeWork is another of SoftBank’s VC latest investments that, much like Uber, came at what could only be deemed as a perilous time for these so-called “Deca-corns.” Because it appeared no one was willing to step or, or step in, only to find an ungodly amount of “San Fran” clinging to their shoes. But, once again, it was Mr. Son that did. And it’s unfolding into a pure disaster with every passing day.
Not only is the Uber investment not paying off as planned (reports have the “investment” now in the loss column over half a $Billion and climbing.) But the so-claimed proposal of WeWork being valued at nearly $50 Billion has fallen by near 80% if some reports are to be believed, and currently sits somewhere around a whisper number of only $10billion. And there are many more screaming it ain’t worth even that.
About that “screaming…”
Now enter none other than the clown prince of buzzer-banging investment advice: Jim Cramer.
So nervous of what this once lauded “Deca-corn” (yes, this is a real term because in the Valley, the term “unicorn” wouldn’t get the sycophantic media to cover your parties.) that he appears to have broken out into cold sweats when talking about it on CNBC™.
This is being said when the “markets” are flirting with braking the all-time-record highs at any given moment. And now he’s concerned? Think about that!
You know who else is worried? Hint: Rhymes with SoftBank. Yes, that SoftBank.
So worried that this debacle will turn into an even more unmitigated disaster, they have now proposed the idea that if it does actually come to light, that they will buy some $750million of its stock at its launch to help shore it up.
Can you say: Desperation? For that’s not the way these things are suppose to work. It would appear SoftBank is running down the same rabbit-hole of logic to tech and investing that the “coders” still waiting to cash in, or cash out, are doing trading a shipping container not into a McMasion, but rather, a pod.
But then again, maybe this is a brilliant ploy for all concerned in the end. Why?
Because if the WeWork IPO doesn’t pan out as planned, and if that results into a funding crisis as has been reported about their proposed available “lines of credit” secured only if a certain IPO threshold is met. All that real-estate WeWork is on the hook for may suddenly be available as “work from home” rentals. i.e., Trade in those pods for a desk. Call it…
“It’s different this time – so let’s right size where we work, eat, sleep, bathe and more. After all, a desk today is so much more – and – it’s not your Mom’s basement, right?!”
I know, I know: here’s a towel. But as for your shoes?
For those that may not get the reference above, it’s from one of the all time best opening scenes that depicted reality for far too many of us trying to find our way during that period. The reference comes from the 1981 movie “Stripes” (Columbia Pictures)
It starts off with Bill Murray mercurially giving up another in a long line of employment opportunities (see: cab driver) in a fashion many of us only dreamed of doing. (and some still do!) Then, just when he thought everything was much the same as it always was, i.e., get food, go home, explain to the “Mrs.” what you’ve done, argue, make up, find another “job,” rinse, repeat. It begins going off the rails – and badly.
Nothing works out the way it once seemed to, which is why this strikes such a chord with today’s “markets.” For, in my view, the similarities are legend. Hence my sudden remembering of the now iconic line “And then…depression set in.”
As I referenced, there are so many metaphorical corollaries it makes it worth watching through today’s eyes, just as it was back then. Or said differently: it never gets old. Here’s what I mean…
You could think of the opening cab ride scene alone, with Murray and his fare, as a metaphor of how to view Uber™, IPO’s in general, their founders and the VC community at large. Trust me, it’s not as much of stretch as it sounds at first blush.
I see Murray’s fare as the embodiment of an all wrapped up into one rich, crass, “I’m just special, because I’m now rich!” crowd. And Bill’s character seems to embody the now after IPO investing public or “employees” that were mercilessly assured by one and all (i.e. the mainstream business/financial media et al.) that “riches” were at hand for everyone.
Hint: Uber’s or even the more recent Slack™ stock valuations looks a lot like (i.e., metaphorically) Bill’s bridge and car keys scene, does it not? But it doesn’t stop there.
As the opening of the movie rolls along Murray is depicted doing what seems to be what he always does, which I referenced in the opening paragraphs. This entire sequence can be laid directly on top of what has been happening in the “markets” over the past decade. Let me illustrate…
Don’t worry, BTFD (buy the f’n dips) rinse repeat. It’s all just a temporary thing. That is until he (Murray) sees his car is being repossessed right in front of him.
“What does this have in common with markets?” you ask. Great question.
Think of the repo scene as a metaphor for what the Fed has been doing with raising interest rates and reducing its balance sheet (QT.)
All that “easy financing” at zero-rates to buy whatever flashy, shiny car badging (i.e., ticker symbol) you wanted, suddenly now gets “margin called” the moment you can’t afford the payments (i.e., margin.)
The reason for this is that lowly “margin clerk” that gets continuously derided or continually promised to “make things right” is no longer nervous every-time there’s a “dip” in your employment.
They’ve now been given the “keys” via management to your ticker symbols and sold them at whatever depreciating valuation they may be worth, today – now. For much like the repo of a car – your once “margin account” has had the keys pulled and is off to the auction, aka “exchange.”
Next, you are then nearly run down via this same “repo” crew (i.e., central bankers) where they hurl the same slurs they’ve been throwing mercilessly at savers everywhere for nearly a decade, as they speed of with your once valued possession. (i.e., money or interest ) shouting, “Tough luck, pal!”
Your ability to pay bills, eat, obtain transportation, maintain a home, apartment and more are suddenly metaphorically represented by Bill’s pizza now out of the box, laying upside down, in the middle of the street.
You (much like Murray) have suddenly reached a point where you have to actually decide on whether or not that “pizza” can be saved.
It seems irrational looking back, but in the moment? You do just what Bill does and put it back in the box and try to figure it out later, because too much has gone on already to “think” anything out at that moment.
Or said differently – that pizza represents many a retiree’s savings account or stock allocation made by some 26 year old bank “executive” following a “diversified” portfolio thesis with “recommended” (or preferred) stock allocations or ETF’s, because that’s what the “bank” told him to do and he read something similar in a Tony Robbins book. Hint: see “Uber” or “Slack” reference while thinking “You need allocations in growth to offset any inflation pressures.”
“Pizza” anyone?
Murray finally makes it back to the apartment where safety and/or coddling seems to have been the norm. Only this time using today’s metaphorical play on words: “It’s different this time.” For suddenly he finds that his girlfriend is no longer amused with his, once again, reckless behavior and concern with holding a job. (remind you of any FOMC participants?)
She’s grown tired of having to carry the weight (think: The Fed et al.) of being the “responsible” one. Let’s just say she, in my mind, represents central bankers deciding to end the charade of just “being there” every-time and anytime rewarding this seemingly unending recklessness.
At some point there has to be a way out or end she muses. Then she does just that, ends it. All to Murray’s dismay, as well as pathetic begging, setting the stage for that iconic line, “And then… depression set in.”
The movie then goes on with far too many other references that one could apply using the same treatment as I’ve highlighted above, but they are far too many to list. However, it’s in that spirit I’ll leave you with just one last example…
In the end Murray finally finds redemption, but only after having to pretty much be knocked down in a moment of reality delivered via his Drill Sgt. It’s one of those scenes that also can include an overlay of another metaphor credited to former Champ Mike Tyson “Everybody has a plan until they get punched in the mouth.”
There are two very consequential central bank meetings due over the next two weeks. The first is the ECB this Thursday. This in one of Mario Draghi’s last appearances before he hands the bag baton off to Ms. Lagarde.
There is a possibility he can either send “markets” scaling ever higher or, send them into a tailspin should he disappoint and not deliver, on all points, the dovish expectations the “markets” demand. (I.e., interest rate cut, QE, et cetera)
Then there’s our own Fed meeting following it the next week on Tuesday and Wednesday.
The Fed, much like the ECB, is under implied pressure, via “market” positioning, that they will in-turn do the same and be uber-dovish with, at the least, a 50 basis point rate cut and jawboning for more QE, and soon.
If they do only 25, there had better be an unequivocal signal, and verbiage to back it up, that another 25 was coming in the next meeting. The need for jawboning more QE would then be even more imperative via my conjecture.
The issue here is the entirety of Wall Street, along with its cheer-leading mainstream business/financial cabal of BTFD’ers, is expecting another “Groundhog Day” delivery and result.
Many could be surprised to find someone changed the reels in the projector booth.
Below is an edited reprint from my seminal “Profiting At The Bottom Line” series from a few years ago. I believe this one, in particular, is more germane to the topics of today than when I first presented it. The reasoning is this: I was in a dispute with the both the appointed quasi-political business leadership, as well as the local political.
What this has in common with today’s trade wars with China (as well as Brexit) is far more than most will give any passing thought. Most situations, both in life and business, are really only larger versions of the same things.
As many of you are well aware, I do not see the current trade war (or Brexit for that matter) through the same lens as the mainstream financial/business punditry does. I believe it’s a “war” that needs to be taken on – and now. For the current status-quo has been a detriment to the U.S. as a whole and gone on for far, far too long.
And for those that think I’m picking a political side here, let me be clear: I don’t care if a penguin was currently holding the office. If this was the act and deeds of a penguin? Color me – all in. Period.
Most that have lived through the slings and arrows to tell, work, or create another business will tell you, without pause: It’s all about understanding people, first. Understanding your business comes second. Get the first right – the second falls into place much easier. Get the second right and not the first? The business doesn’t stand a chance to stay in business.
Here’s a caveat: When it comes to negotiations: It’s all about the first, first and foremost. And only negotiations that result in real consequences matter in business. Follow through is not only the key, it’s a must that must actually be implemented. See Brexit alone for more insight on that one.
So with that all said, here’s that note. To wit:
This month’s focus: Not All Business Associations Have Your Best Interest
There are many good trade associations, as well as select business advocates, that take your business interests to heart. And through the power of association in numbers try to address issues; lobby law makers; offer assistance through red tape and more.
Then there are those that try to bridge the gap between public and private enterprise for the sole purpose of being the middleman. Where having one foot planted firmly on both sides of the spectrum makes prudent sense for everyone involved.
The problem occurs when the “middleman” forgets their role and acts in its own best interest rather, than its raison d’être i.e., They are there for the other parties benefit (i.e., the collaboration of businesses they are suppose to represent) – not their own.
Case Study: Circa 2000 after an LBO I was in the process of closing fell through, I decided to shed the corporate world and instead go back to my roots and open a free-standing sole proprietor based enterprise. I hadn’t decided exactly what until one day I was driving down the main drag of a town I once lived, and saw they were revitalizing the downtown district. As I looked around I thought “this would be a great place for a deli” and then proceeded down the road of a more formal inquiry.
My proposal and ideas were met with open arms, and within a few months, I indeed went ahead and made the investment opening its doors within 6 months.
At the time I was the talk of the town and things were moving along slow but steady, with future prospects looking well. However, within about a years time I began to notice odd talk, as well as deeds coming from the entity whose sole purpose was to help and be a liaison for this downtown district, as they (the liaison) made moves that seemed anything but.
Many seemingly fortunately timed “coincidences” that were said to be “impromptu” began taking place. However, I felt differently and began to take far more notice.
Over the course of about another year this “downtown director” seemed to be acting as if they owned the downtown rather, than worked for it. The warnings signs began to scream danger as I watched with discerning interest.
Suddenly, a “move” was made by this director that I could not ignore, let alone, allow to stand.
The move (a bit too detailed for this column) was in direct violation of any business principles, where the well-being of the downtown members should be first. In other words, this “move” put them (the director and organization) both at odds and in direct competition with the businesses they were supposedly “there to help.”
I made it well-known just how indifferent to it I was.
I subsequently went around to a few of the other members, as well as a few elected officials, and informed them that something stunk-to-high-heaven. I didn’t know exactly what, but something was wrong, where I was sure it had repercussions for the whole district if this person wasn’t looked into.
It fell on deaf ears however, the ears of this director were anything but.
They heard (i.e., were told behind the scenes) every word and approached (more like confronted) me at my place of business. I was told I “was off base, didn’t understand the way these types of developments work,” etc., etc.
I would have none of it and stated emphatically why everything they were professing was the abject opposite to not only my business, but the downtown as a whole and more.
I followed my argument with the declaration that: I felt so strongly on these issues, that I would close my business in 6 months and leave this area, because anything less would not be good business. Why?
True business practices demanded precisely that, regardless of any short term losses I may incur. If I didn’t? it would just be a matter of time before i was out of business, regardless.
So the question is: Did I do just that? i.e., put my business, money and livelihood where my mouth was.
Answer: Yes, I did, just as I said. Because, as I said: anything less was not business in my eyes, and I would be kidding myself to think I could “work through it.” Hint: you can’t, it’s only a matter of time.
“So what is the point to all of this?” you may be asking. Well, here’s the final results and I’ll let you decide…
A few years later I was sitting at my home around the holidays when my wife handed me the local newspaper with a smile saying “Merry Christmas, you were right!” As I opened the paper there, on the front page, was that very downtown with far more closed storefronts in obvious disarray. And the reason for the story?
That “director” had been arrested and subsequently sent to prison for embezzling 6 figures plus from that downtown development to fund an internet gambling addiction.
Understand, you’re currently only reading this via the sole reason the person writing it followed the best piece of business advice I ever discovered, honed and still practice. e.g., “It’s all about understanding people, understanding your business comes second. Get the first right – the second falls into place much easier.”
The above incident nearly crippled me both financially, as well as negatively affecting my business psyche for years. Actually doing what I did, when I did it, in that particular moment of time of my career, was one of the hardest things I ever did. But if I wanted to reach the goals I set, which were extraordinary in comparison to my peers – it demanded that I did just what I did. Even if everything else failed later.
All business is the same: a blood-sport. Only the match levels and prize money change. Nothing more.
Profiting At The Bottom Line™ is a monthly memo, which is pithy, powerful, and to the point. It focuses on innovative techniques and or ideas that you can put to work immediately in your daily or business life.
After the close of today’s “markets” I decided to do one of those “pictures” so many ask me for as to show in chart and technical form what I’m watching, and what I referred to earlier today, so here it is. It’s of the S&P 500™ represented using 15 min bar/candles. I’ve notated it and it’s pretty self explanatory even for those that may not be all that “technically” astute. To wit:
What should jump out at you is the amount of opening gaps over this month. This is one of the usual features when volume is all but non-existent and the futures can be pushed either way in the overnight to help “nudge” as they say, a desired outcome. Hence, the “paper cup” designation.
Another striking detail (again, all conjecture) is when this phenom is usually present, the seemingly magnetized adherence to text book lines of support and resistance, along with Fibonacci measured metrics being hit and settling near the obvious big round numbers (e.g., 2900) seems to make things a little too obvious – because what usually happens next is, when the positioning of month’s end are through? All h#ll seems to break loose shortly thereafter.
Will this be the case? Remember: anyone who tells you they know for sure, my advice is to not just walk away, but run and fast, because no one does.
However, with that said, if we suddenly find ourselves within that circle in the lower right? That should provide the first true ‘Uh oh!” signal.
I received a note from a colleague asking for my thoughts in relationship to what the “markets” are doing currently buttressed by my stated inclinations that a sell-off may be forth coming.
Here’s my reply…
Don’t read too much into the current gyrations both up or down during this very low volume week going into a month end, combined with a major holiday. This month, which is typically one of the lightest in terms of volume, is more at the whim-and-will of what traders call “the paper cup market.”
What this implies is just what the metaphor conjures. i.e., it doesn’t take much of a breeze (or a few strategic buys or sells) to move the “markets” toward a large target going into a month end close. This month appears to be 2900 for the S&P 500™. (“markets” love round numbers)
Where you really have to start paying attention to is what happens going into next month with both the positioning for a new month, while also calculating what they (i.e. Wall Street) believe the Fed will or won’t do at its meeting of this same month.
What you need to fully understand is the revelation that has now been made public via former Fed. president of N.Y. Bill Dudley is far from “yesterdays news.” It is the, and by that I mean just that the possible greatest PR blunder ever made by a central banker. And that’s not hyperbole.
However, what is now the thing that needs to be watched first is precisely how “Wall Street” (i.e., the markets) decides to interpret it. As I said prior: Does Wall Street still assume the “Powell Put” is active at these levels? Or, is the Fed inclined to watch the “markets” crash and burn for a while before making any other move? Mr. Dudley has now made this a needed calculation. And that changes everything. Let alone “Wall Street’s” propensity to test or force it.
There’s also another point to all this that I haven’t seen hypothesized anywhere, so I will. And it is this…
What if Mr. Dudley’s supposed PR faux pas was an intentionally planned release as to warn the so-called “friends in all the right places” as to get out as to: bank cash and sit on hands – then buy, buy, buy at much lower prices as they (the Fed) then ride in to rescue with a big ol’ helping of QE and sizable rate cut?
Think that through very carefully, because when it comes to those which reside at these levels, a little PR backlash and a contrived market sell-off that they believe has the ability to relieve them of any political foe, then reward (once again) their “friends of the Fed” on Wall Street. Do you really think that is something only “tin foiled hatters” would conceive, knowing what you do now about so many other things?
If you think I’m off base on this, or just trying to insert my argument of the Fed being political, may I remind you of what I wrote back when then Chair Janet Yellen was proposing for future Fed policy as it was all but assured Mrs. Clinton was going to win – and how both her (Mrs. Yellen’s) stance and proclamations flipped 180º when the results came in.
“Central banking is in a brave new world,” Atlanta Fed President Dennis Lockhart said in an interview on the sidelines of the conference.
While policymakers have maintained the Fed should eventually reduce its bond holdings, Lockhart said some officials were closer to accepting that they needed to learn to live with them. “I suspect there are colleagues who are contemplating at least maybe a statically large balance sheet is just going to be a fact of life and be central to the toolkit,” he said.
So why is the above relevant? Fair point, so one more quote, again, from the aforementioned article. Ready?
“You are seeing an exploration of how are we going to operate in a quite different world than before the crisis,” Lockhart said.
And the relevancy for the above is? Da, da, da, daahhh…..: The election had yet to happen. (of course, in my humble opinion)
The above was the working assumption inferred, and perpetuated by Fed. watchers, as well as the Fed. itself all the way and up until the election results on November 8th. Need I remind you about Ms. Yellen herself in mid October stating what the economy may need is for the Fed. to run what is termed a “high pressure” policy?
For those who’ve forgotten, here’s the money quote. 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.
Now, it’s a concerted gaggle of “Hawks’ Are Us” with 4 rate hikes, balance sheet reduction to proceed, and another hike signaled for December. Remember: It’s no longer a question of if, but now – it’s when, with dates, and amounts. And that’s what truly matters
(end)———————————————————————————————
I would also like to remind you the aforementioned Bill Dudley was a voting member of the very FOMC that went form “Doves on a wire” to “Hawks R Us” the moment Mr Trump was elected.
Do you think what he suggested openly this week wasn’t being discussed behind closed doors when he was actually a voting member?
In what has to be the most tone-deaf, as well as self-unaware moments that one could imagine to feel the need to “speak” one’s mind. This has to be it.
“What? The President just posted another Tweet?” you ask. No, for compared to the following, the comparison makes the presidential “tweeting” look down right perfectly toned for introspective, as well scholarly.
Think I’m off base? Spouting hyperbole of the first order? I wish I was, but I’ve been making this point now going on years where the “oh so-smart crowd” has poo-pooed it for just as long, if not longer.
“So what is it?” you ask, again. Fair enough, for it is this. To wit:
Via Bloomberg™ in an op-ed today…
I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable. Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election.
There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.
What this ex-Fed President of N.Y. (a recent retiree by the way) has done is not only confirm what I’ve been stating for years, but also, and probably even more important so at the moment: is to shout “FIRE!” in a crowded bull market.
The reasoning is simple:
You now have to question if the so-called “Fed Put” or Powell Put” is valid any longer?
Why? Easy…
For are they going to sit back and watch it all burn and fiddle away to bring about their intended election results for 2020?
Think I’m off-base? Then you need to re-read the above. And here’s another point:
“Wall Street” is going to make sure they are out far before anyone else if they view this as such.
Think about this very, very, very (did I say very?) carefully, for the implications go well beyond just these “markets.”
And yes, there’s even more to contemplate, such as the following. To wit:
The Federal Reserve will now come under far more pressure and calls that “they” are the root cause of anything to blame prior, since and going forward.
And not from just the President – but main-street et al.
Why? Again, easy or, simply put…
As retirement funds and 401K’s get decimated (if this comes to pass at all) the above op-ed, along with the tenor and tone from both the current Chair, as well as Yellen prior, will be the go-to evidence for laying blame.
Let alone where the pitchforks and torches may run towards.
On Friday the “markets” were suddenly hit by two revelations. The first was Fed Chair, Jerome Powell’s heavily anticipated, with bated breath Jackson Hole pontification, for a calmed sea approach as to signal ever-the-more “extraordinary measures” of central banker largess were at the ready.
What they received was more in-line with: at the moment “we’ll wait and see.”
The petulant child known as “markets” was not too happy, but yet, appeared to give Mr. Powell a bit of leeway as to finish his discussion and remarks before rendering its final verdict and tantrum. But that was not too pass…
Before Mr. Powell appeared to make his closing remarks (I’ll garner he was still probably taking questions from the requisite salivating gaggle of reporters) China made its own retaliatory tit-for-tat tariffs known, releasing its own $75Billion dollar tariff outline.
The timing in regards to Mr. Powell’s speech and the Chinese release told one all they needed to know about what really matters in this trade war. i.e., what is the Fed going to do.
I can only surmise the politburo had two responses at the ready, one: if they’re (The Fed) going to signal a big cut – we’ll devalue the Yuan overnight “bigly.” Or: If they (again, the Fed) show indecision or, more of a “wait and see,” we’ll just issue tit-for-tat type tariffs to signify a more subtle tone for escalation.
The latter had the complete opposite effect. i.e., enter the President…
The timing for a response via the President set itself up in a way that one had to wonder if this entire thing was actually a movie script. For the President left absolutely no questions about not only how he viewed the current Fed and its Chair – but that he was serious in how he going to both frame his argument and call the fight. To wit:
Before Powell’s speech…
After Mr. Powell’s “we’ll see” speech…
After China spoke as Mr. Powell was probably still speaking…
Regardless of what one thinks, one thing is not up for discussion: He’s not going to mince words on how he views any and all parties in relationship to his trade stance. And that dear readers is something completely anathema to the calculations of any political appointee or politburo. i.e., it’s the issue that needs to be paid strict attention to for any insight.
If you view his (the President’s) response from a purely business stand-point for strategy and/or tactics – this does not shock or, surprise anyone. It’s actually par for the course in most daily business situations. Because, from a business standpoint: The response was pure blood-sport. And in business – all business is blood-sport. Period.
To view it only via the political?
It’s like bringing home a rescued fighting dog into a home filled with toy poodles and cats. i.e., you’re going to be surprised when you come home after your first long day at the office. But anyone who truly understands dogs will not.
And make no mistake about it – we are currently in a junk-yard dog-eat-dog steel-cage death-match when it comes to trade, with more than one foe that has to be addressed at any time. i.e., having the luxury of only having to take on one at a time is going to be just that – a luxury that’s all but impossible.
If you thought otherwise, then now is time to “get your mind right” as they say, because it’s going to get a whole lot worse before it gets better. But there’s a reason why this fight is needed. The reason?
Just look at the empty downtowns and once former self-reinforcing economies that were peppered across the entirety of the U.S. that are no longer here. Ever truly wonder why? I mean truly wonder. Here’s a hint…
Wall Street Globalization enabled via the political indemnification of outrageously one sided trade deals that allowed for the legal stripping of America’s manufacturing base under the guise of “free trade.”
It’s been nothing more than today’s global version of the political, financial and/or industrial “carpetbagger” on steroids. I also found it hysterically comical when watching, reading or listening to the somewhat unhinged responses being made via many of the so-called “smart-crowd” of Wall Street.
Ray Dalio even made his thoughts known expressing such wisdom as to inform those still watching CNBC™ the difference between negotiating with China’s “top down” system and the U.S.’s “bottom up.”
Maybe it’s just me, and I’m sure it is, but I think the street version of such “genius” is called the difference between a Communist regime – and a Capitalist one.
I use the term “street” because it appears something like that is no longer taught in schools. Or even considered on Wall Street any longer, which bears its own abhorrence.
Mr. Dalio has also been in front of as many cameras and microphones that’ll have him on lately to explain why “Now is the time to invest in China.” Maybe someone should say: Uh-oh, Ray. But I digress.
When it comes to farmers, workers, _________(fill in the blank) or better said, when it comes to Americans, they fully understand that there’s going to be pain, maybe a whole lot of it when it comes to renegotiating these trade imbalances. Both from a monetary standpoint, as well as a competitive one.
But they’ve been paying for these imbalances daily for decades and have had to live with the consequences as their standard of living has been lowered so third-world back water countries that don’t follow 1/10 of the environmental, safety and other concerns are allowed to ship competing products at fractions on the $dollar.
Think I’m off base? Think of it this way…
It has allowed people like Warren Buffett to play his ukulele to a sycophantic chorus of mainstream business/financial media outlets during his shareholder meetings – as he ships another American factory producing an iconic, once typical, American staple brand (Fruit of the Loom®) out of Kentucky to relocate in Mexico with no prior warning.
But hey, he’s jolly “Uncle Warren, right? Right?
But that is just one example in 2014 of the long, long list that has been ever-increasing for decades. Need I mention GE™? Well, since I just did…
Wasn’t Jeff Immelt just wonderful as a CEO? Or how’d he do with that whole “Jobs Czar” thingy? Not all that well, but hey, he must have his reasons right?
Listen, who can blame him for the aftermath that’s resulted since his tenure at GE. I mean, he was so busy, he didn’t even know there was a completely extra second corporate funded jet trailing his when traveling – for 16 years! You know, just “in case” he developed a flat tire I guess during a junket business development meeting.
Dear Jeff: How are those GE share prices holding on? Still flying like your planes? Sorry, too soon? If you would like to know, just call one of your many former employees, or current shareholders for clues. I’ll garner they’ll be happy to let you know. I’m just sure of it.
Listen: I’m fully confident that the American workforce and its entrepreneurs are not made up like the caricatures of doe-eyed next-in-rotation fund-manager set that’s paraded across mainstream media every-time there’s some form of sell-off in the markets.
We all know there’s going to be some real pain coming from all of this. Although I can only speak for myself, in discussions I’ve had with others, they are fully cognizant of the facts, and of the mindset – it’s needed, and badly. And more to the point: and now!
The American worker, entrepreneur and more can compete against anyone when the tables for that competition are set to a fair and equitable framework. Sometimes, just because of our founding principles (Which are: capitalistic, not: communistic. Regardless of what they preach and teach in schools today) we’ve overcame some consequential impediments.
But America is sick and tired, actually, more like completely fed-up and infuriatingly ticked-off on the current status quo that “Wall Street” along with the Fed and others has enabled to fester into this perverted spawn known as “globalism.” All at The U.S.’s expense.
I may speak for myself, but I know I’m not alone. We’re through with it, and we’re ready now, more than ever, to roll up our sleeves and get back to work doing it by ourselves if need be, or with others that want to trade fairly.
“Wall Street” and the “globalized” finance and political crowd are about to feel what mainstreet America has been feeling everyday for decades.
But as the old saying goes: Better to pull the band-aid off now, all at once. rather than live the daily cuts America’s downtowns and mainstreets have been living day after day for decades.
In October of 2012 I made the following commentary, which at the time, was seen as painting with far too broad of a brush.
Today? I would like to, once again, enter into evidence that I possibly understood far more than those that thought otherwise.
In regards to your “competition” and why “retirement” for fear of competing against the “younger crowd” isn’t going to be what it used to be, i.e., ageism is about to be spun on its proverbial head. I articulated the following. To wit:
We started becoming self-sufficient at about age 13. For those trying to put the age to a year. I was born in the early 1960’s. So that’s my time frame for this discussion.
When I was a kid we had very little. My father left and child support was something akin to unicorns. I had relatives that helped when possible, but basically money was tight. So if I wanted something I had to work for it. The difference between then and today is this – I could. By the age of 12 or 13 a kid could find work one way or another. Today that world is as ancient or as mythical as Aesop’s fables.
People of my ilk worked a myriad of jobs growing up. One example not just in my town but nearly everywhere were local grocery stores of one size or another. You would go in and ask the owner if he had anything you could do. This usually came back with a yes. Then you would find yourself doing the most disgusting, gruesome cleaning of some corner or backroom that the owner just never had the time (or guts) to clean themselves. So if you wanted to make money, there you’d go.
Another great difference is this. When we were 16 or 17 most of us wanted nothing more than to be out of school and working so we could run our own lives. Every single person I knew wanted to get a job and move out on their own. Personally I was out of my mother’s home at 17. I was not an outlier. So were most of the people I grew up with.
The effect of starting so early for us was that by the age of 26 we were far away from anything that could ever be called a kid. Today’s generation looks upon their 20’s as a reason to still live at home, stay on mom & dad’s insurance, and continue going to school. The antitheses of everything we were just a short time ago.
However there’s also another side of all this that doesn’t get talked about: The knowing or learning just how hard some jobs were, and how difficult it was for the people who filled them. Many of us that worked in places whether they’d be factories or something else saw just what a real “hard days” work meant.
I remember when I was working in the mills pushing an 1100 pound rolling lunch wagon through the floors of the local textile mills. Right where people were working at their stations making shoes, clothes. leather, and more. You saw up close and personal what the term “work” meant. You also instinctively knew if you didn’t want that for yourself – you had better start getting on the ball with your own life because if you didn’t – life was going to be getting on with you.
So whom do you think will be more valuable in today’s turbulent workforce? The ones that went to work 10 years ago now toting a near decades worth of work experience? The healthier adults of this day and age with decades of real experience? Or a “kid” just out of school with some degree at 26 living at home with their parents?
So what does this have to do with today? Great question, again, to wit:
Via the Washington Post™ Monday, Aug. 19, 2019
When Joann Alfonzo, a pediatrician in Freehold, N.J., walked into her office recently she mentally rolled her eyes when she saw her next patient: a 26-year-old car salesman in a suit and tie.
“That’s no longer a kid. That’s a man,” she recalls thinking.
Yet, Alfonzo wasn’t that surprised. In the past five years, she has seen the age of her patients rise, as more young adults remain at home and, thanks to the Affordable Care Act, on their parents’ health insurance until age 26.
“First it was 21, then 23 and now 26,” Alfonzo says. “A lot of them can’t afford to live on their own and get their own insurance, or even afford the co-pay. And if insurance is offered at work, there’s generally a cost share involved, if insurance is provided at all.”
The idea of young adults continuing to see their longtime pediatricians has been around for quite some time – it was a laugh line on “Friends” in its last TV season in 2004. Rachel takes her child to a pediatrician, she sees the child’s father, Ross, in the waiting room and realizes he’s still a patient.
But these days that’s pretty realistic, Alfonzo says. “We have people who have had children, and they still see us, so we’re seeing the parents and their children, concurrently,” she says.
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. 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.
