Author: Mark St.Cyr

Mark is a globally recognized expert in entrepreneurship, motivation, business, sales and financial markets. He writes from a first hand perspective. His insights can be both cutting edge, or just a cutting through the clutter. Either way they come from first hand knowledge, and experience that is classic Mark. Visit www.MarkStCyr.com "Pragmatic Insights For Today's Business World™"

Addendum to : The Fed’s Freestyle Returns

I originally posted this article using the math of 400 points (e.g., 400 ÷ 2400 = .16666) resulting in 17% for the example in the S&P. It should have been 300 at about 13%. (e.g., 300 ÷ 2400 = .125) I mistakenly used the lower bar of July (which was about 2000 points give or take) rather than the November low by mistake when typing. The post has since been updated. Yet, whether 13 or 17 doesn’t change the content or implications I made. The Dow at 3000 points and the NDX at 1000 are correct and have not been changed. Any misspellings or other typos? Well – that’s another matter entirely.

© 2017 Mark St.Cyr

Social Media: Stick A Fork In It

Let me make one thing clear before I start: It’s not that I’m saying “social media” is going away, as in no longer will be around or, will not have any use or value going forward. What I am stating is this: Everything that you’ve been told, as well as sold, about social media as it is currently argued and used, along with why the companies or platforms that supply it (i.e., the Snapchat™, Facebook™ Twitter™ et al) should be valued not just mere $Billions, but rather $10’s and $100’s of Billions is over. The signs are there for anyone paying attention.

The only ones (in my opinion) that have yet to grasp this are: the “experts”, fund managers, and analysts still telling, and selling its “So worth it!” drivel. Because, as I implied above: the signs are everywhere for those willing to look for themselves rather, than waiting for some “news flash” appearing in their “social feed” or “groundbreaking development” via the main stream business/financial media.

Hint: Remember when all the media went crazy touting why everyone needed to be on, and read their “expert” commentary on LinkedIn™? You know, right before its stock value suddenly plummeted facilitating the need or rescue via Microsoft™ for its very survival? It’s a point worth remembering for context.

Over the last few years I have not only taken the opposite view of what was once considered “gospel” in “The Valley” such as “the eyeballs for ads” model being the be-all, end-all metric for $Billion dollar valuations. But rather, in openly declaring such, I’ve been marked via that same congregation as a heretic for doing so. And that’s being kind.

Over the years their defence against such allegations were, of course, such things as IPO’s, stock valuations, and more. These “touchstones” at the time were touted to show why I was wrong – and they were right. Again, at the time, it all appeared or seemed irrefutable. After all, how could I question anything about what these “miracles” of tech provided, along with the near insatiable demand for their stock. For even an agnostic must surely agree, “tech” was proving and laying bare even the most skeptics’ arguments beyond the shadow of any and all doubt. However, that was when the manna-of-QE flowed freely.

Then – QE ended. And guess what else ended with it? Hint: “It’s different this time” went from holier-than-thou rhetoric to, “WTF is happening!” agnosticism. And it’s getting worse – much worse. Regardless of how many gnashing-of-teeth induced stupor one displays to the contrary.

Back in March I penned the article “Silicon Valley: From Rarified Air To Exhaust Fumes” which presented the following chart. To wit:

The reason why the above did as Rod Stewart famously stated “Every picture tells a story, don’t it?” Is because of just that. As I stated in that article as to why one needed to pay attention was the following. Again, to wit:

“The issue here is that process has one key attribute: It’s the same pattern we’ve seen before, but now it’s represented in days. From IPO to today. What had once taken well over a year has morphed from months to now days.”

What truly puts the stamp of reality on what it says today, is the fact, that even as the “markets” have since (once again) risen to never before seen in history all time highs since that post some 3 months ago. The above have done nothing but either vacillate right where they stood, or worse, have lost even more value. (See “IPO to save the IPO world” Twilio’s current value for further clues.) And two of the three were supposed to be the “proof” that proved all the naysayers such as yours truly wrong. In retrospect, it seems they have done just the opposite.

But making or implying such a blasphemous statement as “social media is dead” and not arguing the same for one of this “religion’s” most cherished houses of worship without addressing it squarely would be insincere. Of course that would be the “idol” commonly known as Facebook™(FB.) And yes, I still believe (and have continually argued) FB along with social media in general – is the AOL™ equivalent of the dot-com era. Here’s why…

Remember all the fanfare they released just prior to the latest earnings report? For those having a hard time it was a statement declaring they had reached “5 million” small business advertisers. Here’s what I stated in a subsequent article. To wit:

“As of today all the estimates are that they’ll handily beat and some analysts are raising their targets. It’s very well they could, especially in today’s world of earnings reporting alchemy. However, one thing which caught my attention was the sudden touting a few weeks back that they had hit “5 Million advertisers.” Small businesses noted as the “key driver.”

“Sound great!” many are saying, and, in-truth, it is a worthy milestone. However, I see the timing as possibly a little suspect, here’s why… (I make this point for it has become near laughable how nearly all upcoming “tech” earnings reports now suddenly coincide with an ever-growing list of preceding announcements of grandiose ideas that are alluded to be right around the corner (like next week!) of flying cars, self driving trucks, rocket rides to space, virtual reality, just to name a few.)

Facebook as of late has been in the news with nothing but negative reports with a slew of horrendous acts being broadcast via their platform. e.g., Rape, kidnapping, beatings, and others. One of the concerns over all this (apart from the issue itself) was a possible backlash from potential advertisers. And who could blame them, and there lies the possible rub…

As I implied with the sudden “5 million” hoopla, what I’m asking is this: Is the addition of these stated 1 million plus new small business advertisers a replacing (therefore a diversion as to squash attention) for the potential of 1 or 2 (or more) large buyers who may have pulled ads?

In other words, if they’ve added so many “new” small business users – shouldn’t the ad revenue explode this report with all things being equal? I believe this is the metric to watch for.”

As per FB CFO Wehner: He once again reaffirmed ad growth will come down “meaningfully.”

Is that a “Wait…what?” moment, “Oh…oh?”, or combination of the two? For it just seems a little confusing on how such a statement could even be expressed (via the CFO no less) when you’re told both the “buyers” (see above “5 million” reference) of those ads, along with the users (see the only metric that’s supposed to matter e.g. 1.94 billion MAU) to view them have both increased.

But not too worry. Because in what seems to be the now “playbook” (See Elon Musk and Jeff Bezos for clues) for all that is “tech”, there’s a reason why one should not pay attention to such things and focus on others. To wit:

Facebook now has a plan to eat another $350 Billion IT market.

Or said differently (as in my opinion) – Zuck and crew found another narrative they believe they can spend money on and keep all the “happy” talk perpetually happy. After all – spending $Billions on companies that seem to never produce a nickel in net profit warranting that spending is what FB has come to do almost better than anyone else. See WhatsApp™, Instagram™, and more for clues. Or, if you want to think of this way: Snapchat is supposedly the Instagram killer – and how’s that business model working out? Sorry, too soon?

Isn’t it funny when it comes to anything involving “The Valley” it always seems it’s about the next big “buy” that’ll be the reason why some insane P/E or valuation will be, “So worth it!” Never the core product that is/was supposedly its raison d’être. And it’s always just around the corner, or as close as the shareholders checkbook. Funny how that works. Or shall I say, “did?”

But then again it does seem so old-fashioned to worry about things like net profits when all one needs to do is use or follow the example below as a guide for growth in the #1 metric touted via “The Valley.” To wit:

“A Russian Went Inside A Chinese Click-Farm: This Is What He Found”

Makes you wonder how much further “value” all that “Asia” growth means to advertisers going forward. But then again…

It’s different this time, no?  Especially if advertisers themselves are beginning to see the light. See P&G™ for clues.

© 2017 Mark St.Cyr

‘Panic At The Disco’: The Fed’s Freestyle Reemerges

For the first time in what seems like an eternity the “markets” experienced a hiccup. And with it came a brief, yet far from terminal sell off. Declines of around 1 or 2% used to be viewed as average, routine, no-big-deal, and such. But that was then, and this is now. For today in a market that is viewed only as having one possible routine i.e., little to no volatility, buyers for every ask, fortified with an end-of-day ramp just to make sure if things have gone wrong, everybody gets healed by the close of the session. It’s been good to be a BTFD’er.

Then again, that was then, and this is now, And buying-the-f’n-dip every time from here on in just might be the worst learned, habituated, internalized, and institutionalized market strategy ever adopted. For the real pain of this “genius” trade will become self-evident when all those BTFD skills not only work against one, but fail spectacularly during real moments of panic selling when BTFD “genius” turns in “Catching falling knives” tragedy.

Remember: For all intents and purposes short sellers have been all but extinguished from this “market” for years. In other words: There’s no one who needs to buy to close out their position during panicky sell-offs which exacerbates turmoil. i.e., A “market” full of longs needing to sell to capture all that envisioned profit – and not a buyer needing, let alone wanting, too buy among them.

But wait – there’s more! as they say on late-night TV. And this “bargain” is something most have never thought through.

If, and when, short sellers (even at the margins) decide to re-enter these “markets” in earnest. i.e., They believe the Fed. or other central banks have lost control? Let’s just say the “dancers” become dear-in-the-headlights quicker than they can Foxtrot off. And the first taste of the “panic selling” has finally reappeared. And with it, for those paying attention, came a sight not seen in quite some time.

What was that you ask? Good question. But rather it was not “what”, but who? i.e., None other than a “panicked”, free-styling Fed. president to assure everyone to just keep-on-dancing. And just like that BTFD was once again in full swing. You could hear the music, popping of corks, and clinking of glasses everywhere.

I am arguing: Rather than “partying” at the reemergence of this form of BTFD exuberance. One should instead be cognizant of the underlying problem contained within. In other words: That a Fed. president felt the need to publicly contradict everything the Fed. is currently stating as its reasoning, and foundation metrics for raising in order to reassure the “markets” to keep-on-dancing. And the “markets” only hiccupped ~2% from all-time highs!

Again, for this point can’t be made more forcefully: A move of, a pull back from, a retracement of, however you want to phrase it, of ~2% from highs never before seen in the history of mankind warranted a Fed. president to break with the concerted, self aligning cadre of “Hawks are U.S.” to state publicly not only contradictory messaging, but rather, seeming more like “off the reservation” espousals that the Fed. itself, and its conclusions, may in-fact not only be wrong, but rather than tightening should be more inline with proposing more QE. Got that?

Mr. Bullard was doing some impressive “free-styling” and the “markets” took their cue and once again BTFD horns-over-hooves right back to those very highs, hence illuminating these two very big issues. First…

Although the act of St. Louis Fed. president James Bullard coming to the rescue and saving the “markets” whenever there’s been peril is nothing new. (see “Bullard Bottom” for clues) This time it’s less the “act” that one should consider, but rather, focus on the timing and its circumstance. This is where the real underlying issues present themselves. And this latest round is troubling not just for its implications to where the “market” now stands. But rather, to the reasoning why it stands there to begin with. e.g., Pure, unadulterated, hopium.

Since the election of Donald Trump the “markets” rocketed near vertical to the heights they are now poised. That accent constitutes some 300 points for the S&P 500™ alone, or said differently: Using simple math (e.g., 300 ÷ 2400= .125) nearly 13% of the entire S&P™ market (as well as the Dow™and NDX™ respectively) has been generated in just under the last 8 months.

The only thing fueling that move? Hopium. i.e., All in the “hope” the economics of the nation will turn and “Make America Great Again” via tax cuts, policy changes, and more. For the economic fundamentals that are supposed to support markets have long since vanished or resemble anything prior used for assumptions of good too great. Actually, just the opposite has happened where more hard data goes from bad too worse which fuels that other form of “hopium” that central banks will once again begin the IV of QE. e.g., Enter Mr. Bullard.

One can’t help but marvel how “markets” have not just shrugged-off things which only a few years ago would cause, at the least, reasons for caution. Yet, today? It seems to laugh and BTFD horns-over-hooves at every possible cautionary signal such as: Brexit, Italian political fallout; Greece, Brazil, Venezuela turmoil; China threats, Russian threats, Turkish threats, N. Korea threats; escalation in Syria, Iraq, Yemen, just to name a few; market rigging bank scandals (see LIBOR and more), saber-rattling, missile deployments, missile launches, nuclear threats, aircraft carrier deployment, reinforcing aircraft carrier deployments, more missile launches.

I’ll stop there, for that’s only within the last few weeks or months. Nothing has phased the hopium trade of reflation. Until now, and it’s just one word but the implications are legend. That word?

Impeachment.

This word may be cheered by many of the President’s political foes. However: It should (and seems to have done just that) strike terror into the hearts of anyone believing this “market” has ever been based on anything resembling fundamentals. That said, I believe the first ones to finally realize the terrifying situation awaiting them once this idea truly becomes understood and resonates within those very markets – are the ones who were up until a month or so ago cocksure they knew everything there was to know about how to control them. e.g., The Federal Reserve. (“idea” meaning “impeachment” talk signals all legislation DOA)

This is the reason why I believe Mr. Bullard made his subsequent remarks. Personally, I do not believe Mr. Bullard expressed his opinions out of vacuum. Yes, this is all conjecture on my part, however, with that said, I believe the Fed. used this expression as some form of trial balloon as to see if its efficacy was still as prevalent (and reliable) when employed during any form of correction as previously noted.

I also believe this latest result or “trail balloon” will be not only misjudged, but also misused, resulting in just the opposite effects going forward.

Some are thinking right now, “Yeah, but the Fed. has raised twice so far and look – nothing’s happened!” Which is precisely my point. But that’s about to change, and I believe the Fed not only knows it, but when the “I” word hit the main stream press, it did what Paul Tudor Jones implied they should. e.g., “Be terrified.” Because “I” all but guarantees the idea of any reflation trade legislation passing, then signing into law in 2017 is DOA. Period.

And with that so too goes the cover for the Fed. and its reasoning for hiking. For it will become self-evident if the reflation trade does, in-fact, fall apart here that all their tough talking, and rate raising, has been a colossal misjudgment for policy error. Because for all that “data” of a so-called “data dependent” Fed. is not, and has not been there. (See Fed. president James Bullard’s own take on the economy and data rather than taking mine.)

Should the weekend effects of this latest BTFD induced “The doves are back in town” subside and the realization once again reassert itself that the reflation-hopium-trade is indeed DOA? You have some 400 points respectively of S&P, 3000 of the same for the DOW, and some 1000 for the NDX just sitting there levitating, and purchased solely, on the premise of one singe idea: That the subsequent legislation Trump promised would overcome, and cure-all sins, including – the raising of rates faster than anytime since before the financial crisis, (well over a decade ago) along with no QE, and a reduction of its balance sheet.

I believe the Fed. (much like the “market”) didn’t understand just how precarious of a position it found itself till the “I” word was bandied across the main stream press, closed-door meetings, cocktail parties, conferences, and symposiums they attend.

Up, and until that moment I don’t believe they truly comprehended just how fast what they took as a “teflon market” could turn into a “panic at the disco” fiasco.

When warning signs appear smart people don’t just keep “dancing” – they begin moving towards the exits before the rest of the crowd even comprehends what may or may not happen next. I believe we witnessed that first move. Where we go from here? Who knows. But all I’ll say to that is this…

Mr. Bullard’s freestyle should not be taken as a cue to hit the “dance floor” once again. (e.g., Another manna-from-heaven BTFD opportunity.) No, it should be taken for what it may portend: A reason to be in full-view and close proximity of any and all exits should the need arise. For if time should have taught everyone by now – Hope is not a strategy. And you have some 13% of the entirety of the main indexes levitating on just that. Not counting the 100’s of $TRILLION’s at risk via derivatives.

But not too worry we’re told. For if you listen to any Fed. official, communique, Ph.D economist, next-in-rotation fund manager, et al…

“They’ve got this!”

© 2017 Mark St.Cyr

Addendum: I originally posted this article using the math of 400 points resulting in 17% for the example in the S&P. It should have been 300 at about 13%. I mistakenly used the lower bar for July (which was about 2000 points give or take) rather than the November low by mistake when typing. The post has since been updated. Yet, whether 13 or 17 doesn’t change the content or implications I made. The Dow at 3000 points and the NDX at 1000 are correct and have not been changed. Any misspellings or other typos? Well – that’s another matter entirely.

June: The Trifecta For Policy Error?

In about 30 days the Federal Reserve will hold its scheduled June (13-14) meeting of the FOMC to either give a thumbs-up, or thumbs-down to increasing interest rates in earnest once again. The odds that the Fed. will indeed raise again now stands at about 99%. In other words – it’s all but a near certainty.

With that said, one can’t help but marvel at not only the “markets” sheer abandonment on volatility with such a near certainty on its doorstep. But rather, the only thing to rival it is the sheer arrogance being displayed by the Fed. itself that such another increase is warranted as every data point to a self-professed “data dependent” consortium is not just flashing, but screaming danger with every passing day. e.g., B.E.A. Q1 GDP 0.7%, Atlanta Fed. GDP Now™ 0.2%, JPM Cuts Q1 GDP to Just 0.3%, and more.

In days of yore (i.e., Ancient history circa 2016) whenever the odds of hiking approached anything like the levels they do now, the Fed. would take to the media in any manner possible and try to supplant soothing tones of, “Hush now little ones and not too worry…” as to make it evidently clear the Fed. had no such intentions going into their next meeting. After all, as history has shown time, and time again, just the “idea” that a rate hike could be imminent sent the markets reeling needing for an ever incessant response of one Fed. official after another to shout, “Don’t worry! We’re here with ever more potent QE should the need arise!” i.e., This is why we now have such a thing being worthy of its own moniker. e.g., “Bullard Bottom.”

Today, the exact opposite is the case. Not only are there not any soothing tones, but rather, there are tones emanating from what can only be described as an outwardly defiant, all seeing, ever proficient collection of “Hawks Are U.S.” for any and all questioning.

As an example: In what can only be taken at first glance as a “Wait, what?” moment. The New York Fed. has concluded that the more than $500 TRILLION dollars (and rising – again!) of O.T.C. derivatives outstanding remain (wait for it…) “an important asset class.”

For those of you having that “Wait…what?” moment as you’re reading this and just can’t remember why your brain just froze from the absurdity of such a statement? That’s because “derivatives” was that phrase you recalled as the center for every reason which caused the great financial crash. (For those of you wanting more on this topic, I highly recommend this succinct breakdown by Wolf Richter of Wolf Street™.)

So why is the above important other than it’s “ticking time bomb” factor? (As if that isn’t enough.) No, the reason why it stands out for me is how it’s viewed by members of the Fed. itself. i.e., “Don’t worry, we got this!” And here’s the reasoning…

If it’s now on the books (see above) openly stating its acknowledgment with its size and scope, along with, that the Fed. itself sees it as an “important asset class?” That makes the case (or allows for it) that the Fed. itself not only allowed, but rather, with eyes-wide-open helped facilitate its further ballooning. Hence: If (or when) it “pops” the Fed. has no one else to blame but itself (along with the potential hordes carrying “torches and pitchforks”) for they have now openly stated (again, and inserted it into their report) they not only knew of it, but rather, considered it as an “asset class.” e.g., Giving it their blessing and endorsement.

Remember how that other all important “derivative” class of assets backed securities worked to facilitate the “Great Financial Crash?” Hint: CDO, MBS, CDS, just to name a few? That too was another “We got this asset category.” Feel better?

The real issue that sits squarely in-front of the “markets” is the realization that the entire “reflation” trade may in fact be D.O.A. much like the legislation that was supposed to foster its existence to begin with. Let me put it this way since we’re talking about “derivatives” and their potential for highly correlated monetary wealth destruction vehicles.

The “reflation” trade that is now omnipresent in the “markets” which has facilitated the non-stop rocket-ship ride since the election of Donald Trump is nothing more than a “derivative” vehicle (or expression) of the underlying legislation that was to be its foundation or “backing asset.” e.g. Signed into law legislation.

In other words – If the legislation (i.e., tax cuts, Obamacare repeal, et cetera) don’t become signed into law legislation amounting to precisely what the “value” of those cuts and more represented (i.e. $1 TRILLION in infrastructure, Obamacare total repeal equivalents, massive corporate tax restructuring et cetera) the entire run up from Nov 2016 to today becomes de facto null and void. e.g., The “derivatives” (as in the profits made) based on “the trade” become? Hint: It’s not good.

The only thing that could (or will) make matters worse was if the Fed. had raised interest rates in anticipation. Again, hint: Not only have they raised, they’ve raised twice, and looking to raise for a third. All into further deteriorating economic data.

To re-emphasize just how precarious the “market” now sits, below is a chart I feel puts it into perspective. To wit:

(Source)

As one can see, that red rectangle represents the turmoil the “markets” had portrayed once the QE “IV tube” for all monetary woes was removed. Again, not only did the “market” suddenly halt its ever-ascending journey, but it suddenly produced ever-increasing bouts of near-death experiences needing ever the more dovish tones from the revolving cast of Fed. speakers hitting the media in ways that would make a Kardashian envious.

Again, for I can’t mention this enough, right before the election in October 2016 the economy was on such shaky footing (and as the “markets” were rolling over once again) the Chair of the Federal Reserve gave what I call her most contradictory speech when juxtaposed to today’s raising into weakness stating (paraphrasing): Running a “high pressure” monetary policy may be the only way to heal the damage still residing within the economy via the crisis. An “ultra-dovish” insinuation if ever there was one.

And yet, as the above shows, just 30 days later with the victory results of Donald Trump now into the books the Fed. morphed into “Hawks Are U.S.” and have been ever since.

I made note of this and was subsequently mocked via the mainstream business/financial media as something that “Ain’t gonna happen” using the prior 2 years as evidence. i.e., Directly after the meeting most analysis was, “They’ll probably not raise again till mid year, if then.” Then, all the jawboning for more began in earnest via one Fed. official after another including “balance sheet reduction.” Then March happened, and now June is about too. Here’s what I wrote in Dec. of that week. To wit:

“I implore you not to solely take my word, but to watch the presser for yourself and draw your own conclusions. I believe it’s one of the most forceful expressions made, or conveyed by The Federal Reserve that it may in fact act aggressively via monetary policy should it decide – It (“It” being the Fed.) seems fit. i.e., The implications seemingly being sent are that they’ll decide what a “good” economy is – fiscal implications be damned.

Now is where “fiscal implications be damned” might be far more relevant than the Fed. (as well as “markets”) ever imagined prior. The reasoning?

All that “fiscal” seems to now be damned to not seeing the light of day as far as 2017 may be concerned. And that’s something I feel the Fed. hadn’t calculated into their conclusions. (never-mind the “markets”) After all, with both the House, Senate, topped with a president all controlled by the same political party; how would legislation not be passed swiftly? (Although many others wonder that exact same thing, but I digress.)

However, with that said, the economy was/is in no shape (just using the “data” we’re all told influences a supposed “data dependent” Fed.) for incessant hawkish jawboning followed up by raising twice within 90 days. Again: All while arguing (and allowing the inclinations to be held via the futures fund) that indeed the Fed. is “hell-bent” on raising once again – in June!

That would be 3 raises in all but 6 months with balance sheet reduction arguments still front and center in Fed. communications when speaking in open forums. Are you beginning to see the implications for “policy error” more clearly?

I’m sorry to keep repeating, but it’s something which can not be repeated or stressed enough: With further deteriorating GDP and other metrics, along with no fiscal stimulus possibly seeing the light of day (meaning actually signed into law) for the rest of 2017, along with a potential government shutdown and more. June is now to be considered (as via the Fed. not saying or refuting anything to the contrary) a done deal? And a prudent one at that?

Oh, and for those who may want even further examples for contemplation? Here’s just one of the items that can be classified under “and more.” Hint: China.

But not too worry, for if you listen to current Fed. officials and their assessment of global economic conditions, you know, where the “reflation” trade is the “derivative” of the underlying asset of passed legislation (which has gone from “passed” to all but DOA) that the entire recent run up is based on?

“They’ve got this!” Just like they’ve got those other “derivatives” under their watchful eye. So June is now a shoe-in.

Feel better?

© 2017 Mark St.Cyr

A F.W.I.W. Moment

I won’t go into much detail here, for as the old saying goes, “A picture’s worth a thousand words.” To wit.

(Source)

As of this writing there’s another saying which helps put the above (as they like to say in “The Valley”) “picture” in context. That saying is, “If misery likes company, fear not, for you are not alone.”

The above is, of course, a chart showing Snap™ (aka Snapchat™)  abutted by Twilio™ current share prices. Currently, if you invested 1 dime in either of these companies at their IPO launch, that dime is worth less. Far less. And for those who bought when the shares were higher? All I’ll say is “You have my condolences.”

And for those who believed all the recent analyst recommendations that Snap and all the others were a “screaming buy!” Not to mention all the recent tech press still using the “Snap is up 30% from its IPO pricing.” You’re now finding out “It’s different this time” as I’ve tried warning too many times to mention: is now, indeed, just that.

And for those who were told they were “lucky” to get in at $17? They’re now seeing that “up 30%” is now closing in on being 100% gone.

All in about 90 days.

© 2017 Mark St.Cyr

Why You Need To Pay Attention In May

Whether or not the old adage of “Sell in May and go away” means anything for traders over the decades is one thing. What it may portend for business owners and others looking over the past decade might be quite another.

It’s hard to turn on any business/financial media outlet as to try to make sense of what is currently taking place in the economy and try to match up its implications as represented in the “markets.” It’s now a fool’s errand. For the markets no longer represent anything of what was looked upon as “a gauge of business health” as they were only a decade ago.

All you’ll hear currently is nothing more than cheerleading i.e., “New all time highs!” is once again the daily clarion call. When it comes to why? The analysis more often than not is nothing more than further cheerleading via some next-in-rotation fund manager trying desperately to argue why “Stocks are not expensive compared to blah, blah, blah.”

It’s now far past annoying and borders on deranged in my book.

However, with the above said business people must somehow extrapolate what their gut tells them, then try to filter it the best they can with what they consider the best information possible. Even if that information isn’t what they might deem as the most reliable.

Sometimes you just need to understand that you may be feeling a certain way because there are legitimate reasons for it. Although, at the time, you just can’t seem to put a finger on exactly why, but you know instinctively – that it’s there.

So you search. Even though (you know) that search can at times lead to nowhere – search you must. It’s part of being a business person. It comes with the territory, and most will never understand it. That’s what sets a business owner/person apart from most. They can’t just sit back – ever. They need to either know – or die trying.

The reason why I state the above is the result from a call I had with a colleague, where the conversation was more like the two of us trying to figure out a Rorschach test, rather than anything else.

So after we were through I started doing a little investigating for the conversation weighed on me well after. This is what the conversation revolved around…

The old saying of “Sell in May and go away.” came up as we were discussing a few points, but it was more in jest than anything else, for we were joking “This ‘market’ will probably go even higher if WWIII breaks out in earnest!”

But the argument of “May” kept revolving around the conversation when we were talking about how, just last month, the Fed. was declaring how it wasn’t “terrified” when rebutting arguments that it should to the contrary. I made the point then “Yeah, that’s because it’s only April!” and the full effects of the rate hikes have yet to be factored in.

So, as I iterated, when the conversation ended I decided to take a look, below is what I found. To wit:

(Source)

As you can see I made a few notations on the above chart. If one looks closely the month of “May” has been a very important month over the last decade. The only time “May” wasn’t a factor was when QE3 was announced and the Fed’s intentions were leaked for Wall Street’s understanding (the leaking of such admitted to and causing the resignation of a Fed. president.)

Maybe “Sell in May and go away” when the Fed was not involved was one thing. However, today?

May has been the month where the “markets” began to roll over in earnest ceasing only once the Fed. launched another iteration of QE.

And the reason why some are feeling a little apprehensive? Hint: You are here = May.

So, for what it’s worth, you’re not crazy. You’re a normal thinking person, congratulate yourself for being such. For what happens next is still anyone’s guess. But a least take solace in the fact – It’s not you. There’s a real reason why your gut is giving you that check. Feel grateful it’s working as it should.

© 2017 Mark St.Cyr

Is N. Korea The Excuse China Needs To Launch Monetary Armageddon?

If one were only to get their “news” via the main-stream media outlets, it wouldn’t be wrong to assume when it came to the understanding of what is really going on across the globe, along with the consequences, most haven’t a clue. This point is made manifest with no greater example than the elections currently taking place in France.

I’m sorry, but the French election doesn’t trump, too all but exclusion, the potential for the breakout of WWIII. That is – unless you’re the main stream media. Yes, one has the potential for near immediate electoral upheaval (i.e., A potential Frexit, and possible finality for the E.U. experiment.) However, the other has the potential for a near immediate global war. That, of course, is the current standoff with N.Korea. And the reaction via the main-stream media? (Insert most recent Kardashian escapade here.)

Not to belittle the French elections and their possible consequences should the results go awry for the entrenched bureaucrats (not to mention the financial markets.) There is another standoff which may bring even more immediate consequences than the other.

Currently the Korean peninsula is in play much the same way Cuba was during the Kennedy administration known as “The Cuban Missile Crisis.” The overall situation and its possible consequences for missteps are eerily similar.

Missiles have been moved onto the peninsula in what can only be described as “outrage” via not only N. Korea, but also China. Whether or not one agrees with the move (along with the stationing of war ships off the Korean coast) as to send a message to Pyongyang to cease all provocation via its nuclear ambitions is irrelevant.

The real player (and the one to pay attention too) in this standoff is China. And how they go about resolving this issue at its doorstep. Both internally, as well as externally.

Make no mistake: China is not just juggling one possible conflict, it is also currently fighting another within its own borders. For China is simultaneously on the precipice of an another possible disaster. i.e., An outright monetary disaster of its own making which needs to be resolved with the same immediacy as this external one.

I’m of the opinion this kerfuffle with N. Korea may be the catalyst which drives China to either embark on an outright kinetic posture against the West to resolve. (e.g., If no one backs down or worse) Or – will be the inflection point as to allow the monetary fallout within its financial markets to begin in earnest. Crippling the entire global economy in ways not fully understood (or envisioned) by many, especially “The West”, in what may be akin to a “First Strike” monetary (rather than kinetic) action.

Aside from the obvious “trigger” events that could arise as I stated in the above. (e.g., N. Korea) There are a few other events which when taken as a collection, rather, than just their stand alone value, portend for far further cracking in the facade that is China.

Since we’re in the middle of a possible armed standoff the analogy of “Did China dodge a bullet?” seems fitting when juxtaposed to the recent tightening into weakness launched in earnest via the Federal Reserve.

As strange as anything resembling “normal” monetary effects have been, e.g., Central banks buying equities. One of the latest has a few scratching their heads, and it’s this: As the Fed. hiked not just once, but twice in 90 days, and, is signaling even more along with a reduction of its balance sheet – the $Dollar has weakened.

There are far too many factors to list as to what might be the catalyst. Yet, what is clear (and the only thing that matters currently) is that this manifestation has subsequently given China some form of “borrowed time” when it comes to the Yuan. For if the $Dollar had strengthened as it has during such cycles? The Yuan would be in a world of depreciating hurt.

Back in October I penned the following, “Why All The Yawning Over The Yuan?” And in it I made the following point. To wit:

“Now some will think “Maybe there’s no concern because the politburo has it under control?” It’s a fair response, but there’s a problem inherent with the answer, or answers.

First: If the Chinese are doing it in a “controlled” type manner, it reeks of “currency manipulation” tactics for others (think U.S. presidential politics as of today) to latch onto and build support, as well as strengthen a case for retaliation. i.e., placing tariffs, etc, etc.

If you think about it from the Chinese perspective: that would mean you were openly, and intentionally goading as to fuel some version of a trade, or currency war. When you come at it using that thought process; it just doesn’t make sense. Both from a tactical standpoint, as well as political. Hence lies what maybe even a more troubling scenario. e.g., They’ve lost control.

The only other reason more troubling than the first – is the second. For it is here where things become quite precarious, as I’ve stated many times: “The currency markets are where you must keep your eyes and ears affixed. It’s where the real games are played and won.” And losing control of one’s currency has implications for all others, both warranted, as well as unintended. And it seems this latter scenario might be more on point than the former.”

Where does the relationship between the Yuan and the $Dollar now stand? One would think with such a sell off currently taking place within the $Dollar market that the cross-rate should be in a much more manageable area for the politburo than before all things being equal, correct? Hint: It’s not. Again, to wit:

(Source)

As one can see by the chart above we are currently hovering at the 6.900 range. That’s important not just for its “spitting distance” away from the all important psychological 7.000 level, but rather, how (and why) it’s there at all.

All things being equal as the $Dollar had strengthened it put pressure on the Yuan. That pressure was/is wreaking havoc within China exacerbating the already near unmanageable capital flight taking place which shows no sign of letting up as evidenced by the chart above. For the higher the cross-rate ascends – the greater the issues weigh on the Chinese politburo via capital flight and more. And which lies-the-rub…

For if the index is rising as the $Dollar is weakening? (as it is currently) That means the Yuan is losing value far faster than it was only months ago. And that’s a very, very, very (did I say very?) big problem for the current monetary status quo. Not to mention the global economy in general.

The current financial underpinnings within the Chinese economy are once again under pressure in ways very few understand. With that said all one needs to watch as to perceive significant clues into the health of its underpinnings is the price stability in commodities. For much of China’s internal, and interwoven financial constructs for collateral are based on them. And one of the main players of that is iron ore. And guess what? Hint: Prices are/have collapsed at a precarious pace.

The easiest way to categorize the relationship of commodity prices and the financial underpinnings within China is this: Commodities are the collateral and pricing foundation to much of China’s financial obligations – as real estate values are to MBS and all their counterparts. Yes, much of China’s financial problems are now with real estate, but what all that real estate was built and financed on was? Hint: Commodity collateralization. (Think CDS/MBS times a factor of 1000, if not more.)

Now you have some idea of just how massive this problem is.

Just remember what a sudden (like in 2007/08) real estate value collapse can do (or did) to an economy, and you have the same scenario in earnest via commodity prices currently happening in China, where the full effects (let alone realizations) of such have yet to even be calculated, never-mind felt.

Add to this the current enactment of steel tariffs placed only weeks ago by the U.S and you know what you also get? Hint: An even more ticked-off Beijing. Again: All this in conjunction as some U.S. steel warships hold fast off the Korean coast threatening to possibly launch a first strike upon its next door neighbor and so-called Sino-influenced “underling.”

If the politburo decides that there is no other way (and easier timing for a scapegoat) than now as to suddenly devalue the currency and put a world of financial hurt squarely on the West (and the U.S. in-particular) while simultaneously using all the turmoil as to hasten the pace (and possibly secure the position for more SDR influence) the table for such a move has probably never been set so neatly, so perfectly, and so probable as it is today.

Waiting to see if the $Dollar reverses and brings the hurt on in ways that are out of the politburo’s control or sphere of influence will not be seen as “prudent” by anyone within the Chinese authority. “Waiting” from their viewpoint might be the last thing they can consider, especially since “warships” and “missiles” are now needed to be factored into the immediacy for monetary decision-making.

They may decide to act, and act sooner, rather than later.

No matter what happens in France or N.Korea.

© 2017 Mark St.Cyr

It’s Turning Into A Very Interesting Week

Back in days of yore (circa January 2017) I dared make the assertion that all that was “unicorn infatuation” in the Valley was much more akin to “the old gray mare ain’t what it used to be.”

In the article “Is 2017 The Year Silicon Valley Experiences The Dark Side Of ‘It’s Different This Time?'” I posed the following. To wit:

“Here’s the equation I believe will not only send shock waves, but will bring down many a valuation edifice within “The Valley” in 2017. And here it is:

“First: The Fed. And Second: Rate hikes.

Two very short sentences containing nothing more than two words each but their implications could have exponentially explosive results. For what they portend is that “It’s different this time” may indeed be exactly that.

What I hoped you may have noticed during this discussion is the one thing myself and very few others pointed out would happen if the hypothesis we’ve been articulating over the last few years was correct. That hypothesis has always been “Without the Fed. pumping in unlimited funds via the QE programs, and a “death-grip” to the zero bound (aka ZIRP) the first ones to show how much of a facade these “markets” where would be seen directly in the “tech” space.”

So what has happened today that should draw attention to those still believing in the “It’s different” meme?

Here’s how different. Remember the IPO last year that was supposed to save the IPO world? Hint: Twillio™.

This is what investors are waking to today. Again, to wit:

(Source)

Twilio, as of this writing, if you had invested on any day other (as in you bought any of the dips) you are now underwater. For some, you are under by “fathoms” which as of just a few days ago, to even consider such a position – appeared unfathomable.

The reason for such a move (some 25% via the opening bell) is in a way hilarious to my eye. Why? (although I do offer my condolences for those caught in this debacle)

It was reported that Twilio reported an earnings report that was “strong.” But there were two issues. First:

Revenues guided lower. (e.g., $356 -$362 Million vs $364-$372 Million projected earlier)

Can I just make a point here? Why are the revenues for a company that is supposed to be at the forefront of the tech space revolution (e.g., the Cloud space), along with the title and much heralded panache of the “IPO to save the IPO world” is showing anything such as “revenue guiding lower?” Never-minding that a “beat” means losing less money than before therefore “it’s totally worth it!” Welcome to “The Valley” world of metrics is all I’ll say there.

But what caught my attention more than the revenue miss and guide lower is who the CEO is blaming for the results. Are you ready?

Uber™. (not a typo)

From CNBC™. To wit:

“Twilio CEO blames Uber for disappointing financial results”

“Lawson said on Tuesday that he expects Uber’s “contribution to decline” because the ride-hailing company is “changing the way they do messaging.” He added that Uber is now “optimizing by use case and by geography” and “plans to move communications for some use cases in-app.””

So, an over valued (all in my opinion) unicorn that made it out of the IPO stables (making it as the article below states “Mightiest”) which was supposed to set the stage for the likes of all the awaiting unicorns, has suddenly been speared by the horn of the largest, and most valuable unicorn ever to be, and is still in those very stables.

I’m sorry, but if you can’t see the humor in that whole scenario I would have to imagine that you’re an investor in them. And if so, as I said earlier, “you have my condolences.” Because, after all, you were also told (and sold) to believe it was different this time.

(Source)

The issue is, as I’ve warned too many times to list.

It is precisely that.

© 2017 Mark St.Cyr

The ESPN Debacle: What Was At First Unimaginable In Now Business Fact

Back in 2015 I wrote an article titled “ESPN: Cutting The Cord Or Political Turn Off?”

At the time of that article not only did the business/financial media take my assertions to task, but so too did many in the sports media. The idea that ESPN™ (or any sports channel with such marquee talent and coverage) could be the recipient of any sort of backlash, especially via the political persuasion, was called on air by many as “Just ludicrous.”

Many even argued that any “political” view inserted into the discussion was actually seen as “good” or “helpful insight” into the player’s mindset at-large making them more personal with fans, rather than being simply superstars that can only be viewed from afar.

It all sounded so rational, so well thought out at the time. Problem was – it was all poppycock. And, we now have proof that the arguments I made back in 2015 when everyone from media analyst to next-in-rotation fund manager proclaimed such assertions as just “ludicrous” now appears to be business fact. And the resulting backlash has now forced the network to jettison some 100 employees including many of its own marquee on-air talent.

In my article (remembering this was in 2015 when even the idea of anything wrong at ESPN was seen as “not getting it” and came from all sides of the business and sports spectrum) I made the following point. To wit:

“However, is “cutting the cord” really the reason for ESPN’s loss of millions viewers? Or, is that the easiest crutch of an excuse for what might really be happening? After all, media is, and always will be, the king of “inflated” numbers. So much so I garner when a CEO of any media company reads a term like “double seasonally adjusted” they smirk and think – “Rookies.”

It’s just the way it has, is, and will be played; and everyone understands it. None more so than those within the business itself, which is why a few things struck me.

Why wouldn’t ESPN™ (or Disney™ its parent company) go to great efforts to include or push the narrative that “cord cutting” doesn’t necessarily mean “all” that cut have tuned off? In other words: why aren’t numbers from alternative viewing sources highlighted as to show they might not be viewing there – but they are over here? Unless – they aren’t.

And if they’re not – why not? After all, there’s probably no other content infringement policing company for copyright and other applicable ownership rights than Disney and all its subsidiaries. You aren’t going to see it for free or on alternative platforms unless they want or allow for it. Period.”

Well, there’s no reason to take my word for it, or my assumptions, because as of Thursday of this past week none other than ESPN anchor Linda Cohn of SportsCenter™ agreed reiterating my summations. Again, to wit:

“ESPN’s sweeping staff cuts are not just the result of ambitious TV rights deals and an overburdened budget, popular “SportsCenter” anchor Linda Cohn suggested Thursday.

The network may be losing subscriber revenue not just because of cord-cutting, Cohn allowed, but because viewers are increasingly turned off by ESPN inserting politics into its sports coverage.

“That is definitely a percentage of it,” Cohn said Thursday on 77 WABC’s “Bernie and Sid” show when asked whether certain social or political stances contributed to the stupor that resulted in roughly 100 employees getting the ax this week. “I don’t know how big a percentage, but if anyone wants to ignore that fact, they’re blind.””

I couldn’t have said it any better myself. Oh wait…

I did in 2015.

© 2017 Mark St.Cyr