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
Below is a chart of the S&P 500™ as of the close of today’s day session. It’s the latest in my ongoing commentary that you can find (here). The chart is pretty self explanatory. i.e., I’ve notated it and there really isn’t much else to say. The “markets” will have the last word regardless.
However, with that said, today was interesting looking from a technical perspective, because as many times prior, one pattern that appeared text book to resolve one way, with the smallest of odds that it could go the other, is precisely what has happened over, and over again as of late. Or said differently: the signals have all been fake outs. But that’s why there are odds to begin with. Always remember that.
So with the above for context, what has been happening is a phenom I’ve tried to explain many times: The fake outs haven’t reversed or nullified the original interpretation, they’ve all gone on to form the same signals only in a larger context. This today seems to be doing it once again.
Now I know there are some of you out there thinking “Oh, you’re trying to have it both ways!” And it’s a fair point, but its points like that and not truly understanding the premise of what I’m saying that is precisely how people get in trouble. They believe it’s signalling one thing (like a new bull run) when all it’s been doing is building for possible and even sharper reversal. This same phenom I charted and kept notating happened in February.
Remember February? If not that’s OK, just look at the chart, it’s right there and it was “The highest market high in human history.” There was no Covid scare, no nothing, and nothing but “even higher highs” predicted – then it all fell apart just as I was warning about. Then, “The Wuhan Flu” came in March.
Once again, if you doubt what I’m saying just remember it was none other than the clown prince of buzzer-banging professing on CNBC™ how he felt the market and his nifty proprietary paid for signal sender was wrong and it was time to “Buy, Buy, Buy.” You are now only back to even from when he advised it.
And for those that followed his advice? How’s that round trip been? Good times, no? But I digress.
(Note: Remember, I am not giving or alluding to any trading or financial advice here. That’s not what this or any of my discussions about the markets are about. See the “About This Site” page for any questions.)
What I personally find intriguing about the above is: the pattern; the text book overthrow and reversal; its possible signaling (gold dot marked as “signal?”); both the timing happening at the end of the day, the day before last day of trading for the end of the month. I mean: it’s almost too text book; too good of timing; too perfect in shape and scope to be believable for possibilities. But it is – what it is. But I’ll also tell you that from a technician’s viewpoint – it’s so text book for what it possibly forebodes – it’s scary.
If the markets sell off from here (albeit the market can bounce higher and this pattern can still remain intact) and traverse into that lower circle I noted with “confirmation,” then all of your spidey senses should be beginning to tingle indicating there’s the possibility for real danger to come – and fast.
Will it? Nobody knows. And there have been more than a fair share of “This is it!” types of moments. Personally, from my perspective, I think when it comes to history rhyming, I’m still of the opinion we are more in line with the “Little Boy, finger and a dike” type analogy, rather than what many think is “Chicken Little.”
There was a time before 2007 when the mainstream business/financial media was a force to be reckoned with. Then the “Great Financial Crisis” began in early 2007 laying waste to everything that was once considered “money in the bank” thinking, along with the reputation of its most coveted band-wagoneers. i.e., Show hosts and their parading ensemble of next-in-rotation fund-managers and so-called “smart-crowd” populating most think-tanks.
Most of what was paraded as “insight” and more on these networks was nearly never, if ever, questioned. And if you happen to not be one of the coveted “in crowd?” You were more often than not derided and dismissed with an air of oozing superiority. A Bloomberg™ host used to use the term “Those that shall not be named.” to reference people like myself.
Then 2008 happened in earnest, and it was the entirety of this same media that suddenly looked at their camera lenses, microphones and keyboards like deer in the headlights, dumbfounded. The only thing that was worse was that every single explanation they gave for reasoning and calm was mercilessly ground into the annuls of “They ain’t got a clue!” history books. Yet, that didn’t mean they would ever stop.
Over the years these networks and shows have all but been relegated to the dust bin of history when it comes to the illuminating of anything useful or insightful, they’ve been beyond pathetic now going on a decade. I’ve written and spoke far too many times to list them all here. But to prove this point, let me not pull from the past, but use an example from today, as in, to-day.
This morning on CNBC™ “Squawk Box” anchors Andrew Ross Sorkin and Joe Kernen had a bit of a dust up (more like smack down) about the Corona virus, death tolls and the economy.
During a three minute skirmish it is clear (as I have pointed out, again, far too many times to note) Mr. Sorkin’s holier-than-thou political posture comes shining through. The problem is he is so politically biased he can’t postulate or conceivably understand any argument or premise that doesn’t fit his dogma. And, once again, he lays his cards down showing his true “insights.”
How you ask? Easy: If you don’t take his argument in toto – then you’re just defending Trump. Literally.
Don’t take my word for it, here’s a link to MarketWatch™ with the aforementioned spat. Doesn’t mean you or I are taking Mr. Kernen’s side. But once Mr. Sorkin plays his “Trump card” what more do you need to know?
In the wake of such stunning numbers he resites he seems to not be cognizant of one very, very, very (did I say very?) small detail. All the data, along with the C.D.C and others have lowered their numbers to barely equal a normal flu season. You would think Mr. Sorkin being so “up” on the news of the day would have some small grasp of that, not to mention N.Y. Governor Cuomo’s own proclamation that they got the numbers wrong.
Just make sure you don’t tell Andrew, because by the way he seems so convinced of his opinion, I don’t think he wants to know. Just sayin’.
If you think I’m just highlighting a onetime thing where Mr. Sorkin may have mistakenly allowed his politics to be seen on screen. May I remind you how he used his platform to have lawmakers and others badger and belittle credit card companies and banks into no longer allowing financing or purchasing constitutionally protected item such as firearms or ammo? This was the most egregious abuse of his platform in my eyes, because the companies are publicly traded and he hosts a show that can materially impact stocks. And CNBC allowed it all.
Is it any wonder why their rating are so bad they no longer publish them?
There have been so many glaring examples of political bias and/or “talking one’s book” its pathetic. Need I remind you of yet another, like the “I hate manias” Dan Nathan belligerently deriding a guest who didn’t share his views about one of the biggest manias of this current era known as Bitcoin™? And if you listened to his (Mr. Nathan) advice, all I have to say is what I’ve said ever since: You [still] have my condolences.
Then there’s the other farce that has lost its credibility almost as fast and deep, and if it weren’t for its terminal and news wire services – the name “terminal” would mean two things at once. e.g., Bloomberg.
As I mentioned at the beginning this network has itself shown its bias in more ways than one when it comes to advocating what they believe is relevant or informative. I stopped watching long ago when I as a viewer was told by host Tom Keene through the camera lens that I really needed to hear his next guest’s “insight” on the economy because “He was a Democrat.”
Here’s what I said to that bit of “insight.” Thanks Tom – click. And basically have never been back in a way as I used to.
Again, I don’t care what party affiliation anyone has unless we’re talking politics or legislation. This discussion (the day of that show) was the equivalent of talking open heart surgery and the reason why I needed to heed the next guest’s summation was not because they were a heart surgeon, or other medical specialist, but rather, they happened to have a Ph.D. which allowed them to be called “Dr.” and were a Democrat.
“But wait…there’s more!” as they like to say on late night TV. And boy, this one just leaves me speechless, and for those that know me, you know, that’s saying something.
Another fixture over at Bloomberg was one of the biggest blowhards of financial media known as Barry Ritholtz. Many times Mr. Ritholtz would take to the airwaves and refer to people like myself as “Idiots.” I’ve written about this when it happened and its all in the archives (as well as the Dan Nathan incident) But Mr. Ritholtz was someone with a big platform and seemingly loved to tell everyone and anyone just how smart he was and how everyone else is wrong (i.e., he loved to use the term “data deniers”). And much like Mr. Sorkin, holds a holier-than-thou attitude as he dispenses his own variant of self-indulgent dogma.
He even wrote a book about it. The title? Bailout Nation: “How greed and easy money corrupted Wall Street and shook the world economy” (2009, Wiley)
Here’s an excerpt from the cover-jacket. To wit:
Ritzholz leaves no stone unturned as he breaks down how the Federal Reserve’s interest-rate targeting policies as well as a condition known as moral hazard – the belief that you won’t bear the full consequences of your actions.
The United States has abandoned its capitalist roots and become a Bailout Nation.
Well guess what? In the most rocket fueled (aka Federal Reserve interest rate targeting policies and more) Wall Street mania of free money where stocks were at “Never before seen in human history highs” just 90 or so days ago. The investing entity with a reported $1+Billion under management aka Ritholtz Wealth Management, along with its chief executive officer Josh Brown ( yes, that Josh of CNBC fame) have reason to celebrate. Why?
They just got a government bail out!
Think I’m making it up? I completely understand, but here’s the aforementioned Mr. Brown in his own words. Again, to wit:
We qualified for the SBA-backed payroll protection loan after submitting our information and attestations. Two and a half months worth of employee payroll. I’m never comfortable taking on debt, but I’m even less comfortable about the idea of having to let people go. I would never be able to look myself in the mirror again if I had made that promise and didn’t back it up with action.
Thank you, Chase Bank! Thank you, SBA! It’s the news I needed and it came at the right time. Many of our peers of a similar size and employee headcount throughout the industry were able to make use of the program too. Being able to assure the firm that we’re keeping everyone and honoring all of our financial commitments meant everything in the moment.
I may be an “idiot.” But it’s a lot more credible than what they’ll now affix to Mr. Ritholtz and company, because after-all: Why did they not just buy the f’n dip? Seems to be working perfectly, no?
But, then again, what do I know. They’re the ones on TV, right?
Addendum: I would like to make clear, as I have said many times: There are some fantastic, smart and insightful people that both have and still do work for these organizations. What I find absolutely disgusting is these voices (again, people I believe to be stunningly informed) have all been seemingly erased from the light of the cameras, microphones and more. In other words – whenever it appeared they were questioning or veering from the “markets can only go up” dogma, they were thereafter more likely to be seen on the back of milk cartons, rather than the network. And it is there that I find my disdain the most pointed.
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.
Originally I was going to write and post a few housekeeping notes concerning both the website and the broadcast (you’ll find those at the bottom). But it seemed I had yet to even touch my first coffee when I was barraged by a few friends to discuss the current rip roaring “Bull Market” which I’ve surely both gotten wrong and want to change my stance.
Let’s just say the lines went quiet when I said: Why?
Depending on when you’re reading this, here in the U.S., the markets have opened up, once again, multiple percentage points. As I type this the S&P 500™ is now over 3000. The Dow™ 25,000. And the NASDAQ™ is within spitting distance of scoring another “Never before seen in the history of mankind” higher high. So what’s not to be bullish about is the general consensus.
Let me put it this way: Because it’s all bullsh#t and will end even worse I believe sooner (much sooner actually) than later. For as my favorite Riddler (Frank Gorshin) would say, “Riddle me this…”
When does: Emergency Unemployment Insurance ending; Rent and Mortgage Forbearance Ending; $1200 Emergency Handouts Spent; Election Uncertainty; China and U.S. trade deals collapsing; Unemployment nearing 20% plus and rising; and most of the global civilization still on lock-down orders equate to a Bull Market in stocks? (i.e. 25K in the Dow with 40mm (that’s million) unemployed in the U.S. alone.)
Hint: When all the Central Banks print more and more money and buy those very “markets.” (insert “rim-shot” here)
There’s another reason why you’re seeing these latest “pops” in the markets: There’s no one else in them. i.e., the volume that’s moving these markets too-and-fro is less than anemic. And when you’re in that time frame known as “Month-end window dressing.” The pops and hits just keep on coming – until they don’t.
This is the reason why I stopped commenting on the markets, for there’s nothing to gain for insight in regards to the health or well being of a company, or economy for that matter.
Why?
Because they are no longer markets – they are adulterated, perverted creations of Central Banks. If one does not understand this by now – there’s nothing more I can say to you but best of luck in whatever your pursuits. And I mean that.
As of now I only comment on said “markets” based on what I see via a technical perspective. I’ve been running a commentary based on it via a technical analysis framing. For many this is one of the most frustrating times for heeding any warning signals for far too many get caught flatfooted when what looked like a “This is it!” moment turns into another waiting for Godot. Then they assume, wrongly, all prior warnings were the equivalent of “Chicken Little.”
Remember: It is what it is – till it isn’t. Lest I remind you of another childhood story that featured a boy, dike and a finger. This is more along the line of rhymes we are facing in my humble opinion.
“So why do you still comment at all?” I can hear you ask through my monitors, and it’s a very fair question.
The only reason why I started this commentary and have been updating it is for the sheer fact that no one, repeat, no one in the mainstream business/financial media seems to be even aware of what we’re facing.
The “signals” that they are reporting as “forward looking” and more are specious at best and down right lies at worst. There is no economy currently running on the face of this little rock we call Earth that warrants “markets” at near human history highs as most are facing unemployment that makes Great Depression figures look like a hiccup.
There will be a turning point (again, I believe before the Nov. election) that will rival what we seen in March. I’m just trying my best to relay what I see via a technical perspective in a way that helps those that want to be kept abreast of what may, or may not be at hand. Yet – emphasis on “yet.”
Could I be wrong? Of course I could. But all I would ask is that you go back a bit and remember that more often than not I’ve been frustratingly early – not wrong. That’s a distinction with a very big difference, which is very unlike the buzzer-banger et. al. And if you were one of those that followed his advice back in March? How does it feel to be back to “even?” Good times, no?
For my last commentary on this “market” today I’ll just leave you with the following chart that I’ve used to notate certain gyrations since April. To wit:
The above represents the S&P 500 as I type this. What it depicts via a technical analysis deduction is this: That gold colored box represents the next area one would look for a reversal should the prior (see blue area) be vacated. In other words: this is doing nothing, repeat, nothing different than what patterns such as these have expressed with high odds. It is only the size and scope that has most thinking and insinuating all the “bad” is over and done with ala Jeremy Siegel style.
This is precisely another reason why I’ve been running my commentary: It is people like the a fore mentioned that insinuate and declare such things during these types of moves that set up far too many for disastrous results by catching the most amount of people, at the absolute worst time, flat-footed. Why? Because they are declared and treated as so-called “experts” across said mainstream business/financial media.
So there you have it.
But enough with that and onto coming changes to the site and show.
First…
The updates to the site over the holiday weekend went far better than anticipated. Thank you to all for your patience. There will be more, but for now, we are good to go.
Speaking of go…
The MYTR Broadcast is coming out of hiatus in the coming weeks. I’m delighted on the direction it’s going and will discuss more and announce when appropriate.
As we in the U.S. remain on some measurement of both self, as well as government imposed lock-down, where businesses are not just being threatened with draconian measures such as fines, license and permit suspensions or the very real threat of imprisonment. I would like to offer something for your consideration that needs to also be incorporated into your thoughts. Because as thankful as we are, and should be, for others that have put their lives in certain harm for us to enjoy freedom. We as business owners need to remember:
There’s a price to be paid for letting unqualified “resume enhancers” populate all out local boards, commissions, chambers et. al. For far too long, far too many have relied or regurgitated the tired old excuse of, “I’m trying to run a business here, I’m too busy for that!”
Now you know the reason why in most cases when you are told “You can’t open!” no one understands your plight. Now is the time to start making those corrections, now is the time to start unseating the “resume enhancement” set. Now is the time to make the case why your independent business is the foundation of American life. Not a government handout.
Immigrants risked everything to get here because in the U.S. the streets were thought to be “made of gold.” They were and still are, because that “gold” was known as “Main Street” where businesses composing of self starting individuals took their chance at prosperity. That vision is still well enshrined and possible. Maybe now more than in decades past. Yes – decades.
As was sung by Joni Mitchell “You don’t know what you’ve got till it’s gone.” I’m here to tell you it’s far from gone, but it’s on life support. But its going to be – the will to live – that more often than not brings it back stronger than ever before.
Think I’m overstating the case? Fair point. So let me show you a picture that just crossed my desk that inspired my writing this to begin with. To wit:
The above is taking place in Hong Kong in protest of losing their freedoms to communistic rule via China. Notice something? Hint: Social distancing be damned. Somethings are more important.
And let me leave you with one last item to consider that I said on my show before we went on hiatus…
For all those that thought the idea of communism couldn’t ever happen in the U.S.A. How’s your initial taste going so far? Because if you don’t start voicing, arguing and filling all those positions you left for everyone else to fill because – you were too busy. Here’s not another hint, but a Nostradamus inspired prediction for consequence…
This is only the initial course, there’s much more being prepared.
I am putting up the latest to my on going commentary of what I’m watching in the “markets” for those that want to know, which seems to be quite a few judging by inquiries. So with that I would like to address something I’ve found, once again, to be quite amusing. i.e., listening to the so-called “smart crowd” pontificate the reasons for this, that or another thing.
Nothing has been as hysterical as to hear many of the mainstream business/financial media drone on as to why “This is it!” as to mark the next bull run is upon us since yesterdays gyrations began with the most highest ever recorded tick count (a technical measure of buying or selling demand).
Again, the highest ever recorded in the history of the market.
Sounds pretty impressive does it not?
Well it is, but it’s only half the story. The other half is the way such charlatans such as the buzzer-banger et. al. try to spin it into hype mania, which I find comical.
The issue I have is that it is very easy for one to be impressed, that is, if one doesn’t take it or any other measurement, record breaking or not, and put it into perspective. The issue for many is they have no true comparative perspective. All they know is what they’ve grown up with or used to.
To give an example to show just that, let me use the following to help illustrate what I’m alluding to using a music reference.
Was it a worthy milestone? Of course. But is it the same accomplishment in true comparisons?
Hardly.
Most people have no clue who she is or could name a song unless of her age group and fan base. The Beatles? Every one both knew, could sing, and could pick any one of them out in a crowd of thousands. Most couldn’t pick out Ms. Grande in a line up of 2 if their life depended on it. Nothing against Ms. Grande, seems like quite a talent, but there’s no comparison. The metrics to do so from 1964 are now so watered down, manipulated and more – its an irrelevant measurement for comparisons.
Yesterday’s record breaking “Moonshot to the stars!” taking place within the capital markets is about the same in equivalence in my view, here’s why. To wit:
The above is one of the charts I’ve used in my ongoing commentary. I used the above in an article I wrote on April 28th. In it I posited that the area the “markets” had risen to since the initial downfall was precisely an area known in technical analysis as “text book fib retracement” (the blue box). i.e., The initial moves lower and subsequent reversal higher were quite extraordinary in regards to how they “feel” because of the sheer point values and money equated to those values. But in terms of structure? It’s something that takes place countless times a day in different variations of size, nothing more.
So, with that said, let me show you another chart which I noted at the close today, again, to wit:
The above is the equivalent of Ariana and The Beatles. Both are able to claim fame to holding a “Record Breaking” moment. But only one sang and wrote a hit called “Nowhere Man.” The other just shows it’s gone nowhere near as far or high as the mainstream business/financial media want to spin it.
Can it go higher? Sure can. But with all the press this “market” has been getting since last month it has more in common with “One Hit Wonder” when you put things into the proper perspective.
As I sit here I’m in absolute awe as to just what is construed as “informative analysis” in regards to not just the “markets,” but business and more.
Since putting the MYTR Broadcast™ on hiatus I have personally wrestled with the question as to whether it was the correct decision or not more times than I ever thought. The reason is, just like you, this “lock down” hysteria that has been forced upon us allows more opportunities for contemplation. To say that it was a difficult decision at the time would be an understatement. Yet, when it comes to business, you have to take what you deem as the best course for action at that time, whether you like it or not.
However, now that I’ve had this time for both reflection and analysis – I couldn’t be more resolute in my original decision. i.e., I would do the exact same thing again regardless of what I now know. That’s the best you can do. You can’t change the past.
Circumstances for/of the time demand decisive action. It’s one of those aspects of being either a business, or a person following one of my mindset principles from The Business of I™. i.e., You’re in charge, you’re responsible: evaluate, decide, follow through, adjust if necessary. Rinse, repeat.
Now with the above for some context, let me add another element to the above. The prior assumes that you will either A: Reap and keep the rewards of your prudent actions. Or B: will suffer the consequences.
Pretty simple, along with probably the only assumption ever worth assuming (we all remember about assuming, right?) i.e., you’ll reap or suffer.
It’s pretty universal – until you move it into the world of politicians and/or appointed positions. Here is where any assumption to “the real world” should be jettisoned both in their dealings with it, as well as their ideas of it. Because what you or I may do in relationship to it is more often than not diametrically the opposite to how they will and do.
As many of you know I’ve been highlighting my observations on said “markets” over the course of these many weeks as to try and articulate what I’ve been noticing in relationship to other activities, because the potential for a sudden falling off a cliff moment still remains more than present. Remember: this is all my conjecture, no one knows. Repeat, no one.
The reasoning is, based on my observations via different methods of analysis, that all the warning signs are in place. Much like I warned (once again) coming out of 2019 and into February of this year.
There is probably no other field for analysis the equates to the capital markets, although quantum dynamic programming are now a factor within it, but I digress. This is where any and all assumptions are taken out back and … (need I say it?) None more so than, “It’ll never happen!” Let’s just say for the sake of arguments: It just did. Here’s why…
Imagine for a moment that you and I were having a business meeting in one of the very fine restaurants located anywhere within the U.S. back in June of 2000. Then, during this meeting, I revealed to you that I wasn’t who you thought I was, but rather, I was a messenger from the future sent here to warn you about both what was coming at any moment, and what will transpire over the subsequent 20 years. Here’ what that would sound like…
Over the course of this year (2000) all assumptions that the Nasdaq™ and other markets would fall apart causing such massive losses that there would need to be a complete bailout causing the Federal Reserve to embark upon such dire economic policies that it would effect the way money, business and governments would interact with stocks.
I would go on to say …
Some governments would embark on purchasing their own debt therefore monetizing it. Japan would be the leader and many will follow. Then, over the course of 10 years time the Federal Reserve will levy and many times further enhance these disastrous policies creating another stock market bubble that will cause the ruination of home prices with catastrophic consequences where 50% losses in home values would be the average, Some will lose more.
All the while remembering at this time home prices going down was a “not possible” frame of mind.
As you shook your head in disbelief I continued by saying:
But that’s not the half of it, literally…
Over the next 10 years I’ll describe how the Federal Reserve will embark on a road known as “QE” (quantitative easing) that will allow for these funds to be fungible for people and organizations that will be moniker’d as “Friends of the Fed” through different accounting tricks, channels and more to lever up and make all past bubbles minuscule in nature. Using the same market (e.g., Nasdaq) I’ll outline how not only will it about double from where it is current;y (i.e., June of 2000) but it will subsequently crash by over 20% and within weeks will regain all that was lost. This will take place behind a backdrop that 36 million Americans will be reported having filed for unemployment during those same weeks . But wait…there’s more!
The entire global economy has been shut down. Whole nations, including the U.S. are under a quarantine lock down brought on via the scare of a global pandemic. Businesses are mandated to close, people are mandated to stay home, airlines can’t operate, automotive factories are shutdown. You name it – it’s not open.
Small business owners are being put in jail for daring to open their businesses. People are calling the authorities if children are seen playing together and on, and on.
At some point you’d be thinking, “This guy’s nuts!!” correct? It would be a fair assumption. The problem is all the “nutty talk” is now reality. And it gets crazier with every waking moment.
As I am typing this the “markets” are once again skyrocketing. Most of the U.S. majors have gaped up nearly 3%. Why? One simple answer and it’s been the same one in all of the above examples: The Federal Reserve.
On Sunday night, just as the U.S. futures markets opened (pretty convenient, yes?) “60 Minutes” reran an interview that Mr. Powell, Chair of the Federal Reserve did with CBS™ “Face The Nation” earlier.
I’m just going to highlight two sentences, but in reality, they’re all one needs to know. And going back to that hypothetical conversation I used above. If I followed it up with:
And they will not only just print excess money – but they will print it by the $Trillions during any given month.
You would have probably concluded, “Yeah, I don’t think any more – this guy is absolutely certifiable!!”
But here are those two quotes from Mr. Powell, ready?
First, on negative rates, he said…
“I continue to think, and my colleagues on the Federal Open Market Committee continue to think, that negative interest rates is probably not an appropriate or useful policy for us here in the United States.”
The issue with the above are these two words: think, probably. This is called hedging in the world of politics. i.e., I thought that way then, but I think this way now. And: probably doesn’t mean – never. I never said: never.
See what I mean?
Next, on how they make money possible…
“We print [money] digitally… we have the ability to create money digitally and we do that by buying Treasury Bills or bonds or other government guaranteed securities.”
For those wondering why the latter may be a bigger issue than the first, although both are just as damaging in reality, the latter if you were to do it would be called “counterfeiting.” And you would be thrown in jail.
When Mr. Powell instructs it to be done it’s now called “prudent monetary policy.”
Every once in a while I’ll get some sort of backhanded slight when I’m discussing a topic, where some person or persons have deemed, all beforehand, I couldn’t have the vaguest notion of what I’m talking about. After all as their thought process will inevitably yield: How could I? For I don’t have a Ph.D. or other such self-identifying moniker of “wisdom” they require as “club worthy.”
Usually that’s precisely the reason why I do have a better grasp than “the club.” And what I want to bring forward today is something I addressed going back nearly 4 years hence. The topic?
R*: aka “The natural rate of interest.”
It was in direct relation to this monetary policy phenom held out via the Federal Reserve that I stated, without question, was going to bring havoc to the very ones touting “They got this!” e.g., The Federal Reserve itself.
When I raised this argument (October, 2016) it was met with derision and more. What I now find absolutely comical is that it is now none other than the Chair himself, Mr. Powell having to make a special appearance to make sure everyone gets “the message” that R* going into negative boundaries is not something they are in favor of. As – it is already pricing in. And – just about to do it ever-the-more.
To reiterate, what was being told-and-sold back then (i.e., years back) about monetary policy and interest rates was that we were told – It’s all about R* – and they can always control that phenom at will.
It appears “that will” is now just as I said it would be: a problem. And not just a small one, but a very, very, very (did I say very?) big one. Why? Easy…
It will take raising rates to stop it. Something the “markets” know can not be done.
Not only does the “market” know it – but so does the Fed. i.e., the very reason (my conjecture) for the sudden “Hey, we’re against negative rates…”
Hint: As you’ll read below, that “you can always refinance” dilemma I warned about is now here. Imagine that, who’d a thunk it?!
I know more than a few of you reading this looked at the above headline and thought, “Huh? What the heck is R*?” And if you did, chances are, you’re one of the few remaining people with your heads down working tirelessly as to keep whatever en-devour you may be pursuing to stay afloat (i.e., your business, your job, etc.) For you don’t have time to think about esoteric monetary principles or theories now being debated, hypothesized, and pondered in the wood-paneled rooms reserved for Ivory Towered academics, policy wonks, Nobel Laureates, and central banks the world over.
However, with that said, make no mistake; as of today the entire global monetary system is riding upon those two seemingly unimposing characters: R*.
So what is R*?
Basically it is defined as : the neutral rate of interest. Also known as “the natural” or better yet, “The Goldilocks rate of interest.”
If reading the term “Goldilocks” and “interest rates” in the same sentence just made your blood chill? Congratulations – you’re normal. Yet, in the hallowed halls of economic policy wonks? Yes, that is a real moniker. And to prove that point here’s an excerpt from a recent FT article. To wit:
“A crucial part of the debate is a term which had previously been confined to economic textbooks – the neutral rate of interest, also known as “r-star”. It can be best described as the “Goldilocks” rate of interest – consistent with stable economic growth that does not cause inflation to overheat. Not too hot and not too cold.”
Now don’t get me wrong, I’m not taking shots at the Financial Times™ for trying to explain to the casual reader what R* means. What I am pointing out is this: Suddenly this once obscure term now needs explaining in the first place.
Media outlets such as the FT and others speak to a very specific crowd. i.e., (Ph.D economists, policy wonks, central bankers, et al.) And that crowd knows precisely what R* is and what it means. What I find interesting is just how often this once little known text-book equation and theory has now been referred to by not only The Fed, and in particular: Janet Yellen – but the entire global monetary spokespersons, along with the media and sycophantic think tanks that follow them.
This once obscure economic equation has now practically jumped into every current conversation today as it pertains to monetary policy. Suddenly, it’s everywhere. Nearly every conversation over the past few months whether it be television, radio, or print pertaining to monetary policy can no longer go more than a few minutes without delving into “the neutral/natural rate.” e.g.: R*
Even next-in-rotation fund managers have gotten in on the R* jargon bandwagon. And to my thinking – it rings the alarm-bells louder and louder with every increased mentioned. And here’s why: (Remember: This is meant to be an exercise as to grasp the concept of what’s taking place as a result. Not a working explanation of the theory.)
The way I explain R* is this: Think of R* as the “adjustable-rate” or “interest only” mortgage payments on the global economy. Yes, precisely like those wonderful mortgage vehicles that blew up housing and the entire financial system along with it in ’07/’08.
In other words: R* is the working equivalent that’s facilitating corporations to borrow and borrow as to buy back shares, conduct M&A and more by acquiring ever more debt at low-interest rates, while their top and bottom lines continue to deteriorate.
If that sounds a lot like another vehicle (e.g., Liar Loans) from that same period which allowed and facilitated people to buy bigger and bigger, or more houses right before the financial crisis? That’s because in principle – there’s no real difference. i.e., Financially engineer your books to state whatever it is you need (think Non-GAAP) then borrow money against it as to either put on an addition (think M&A) or to just increase your curb appeal raising the perceived value (think buy backs.) Rinse, repeat.
Not that dissimilar, are they?
(On a side note: I’m not even adding in the other more concerning fact of enabling governments the equivalent of a blank checkbook, forget about just a check.)
However, if you understand just how eerily similar the above is – here comes the part in which it becomes inherently frightening. Ready?
What was the working thesis during that period, as well as the repeated response when any concern was raised? Hint: “You can always refinance.”
How’d that all work out?
If you remember (or were unfortunate as to take one) adjustable rate mortgages and-the-like were speciously sold, or advised, to people as to not only buy homes or refinance, but also afford homes far beyond their means. Again, to reiterate the presumed working thesis: If the time came when interest rates moved higher or some other measure? They could always just refinance into some other vehicle. i.e., a fixed rate product, etc., etc. And if push came to shove: Just sell for either a profit, or wash.
The problem as we all now know is “refinance” became an empty promise – right before the guarantee of foreclosure, bankruptcy, or both.
Yes R* assumptions for stability and control-ability can turn into WTF* moments of panicked reality in the blink of an eye. All it takes is one (and just one at that) hiccup and the whole theoretical construct comes crashing down along with all those seeming stable lofty values and assumptions when suddenly – no one trusts who’s solvent, if anyone, regardless.
Whether you’re listening to the Fed. or any other central bank today the immediate response along with their working assumptions hinges around the same presumptive arguments that revolved right before the last crisis. i.e., “We have more tools.” “We’ll do whatever it takes.” “Sometimes you just have to believe.” etc., etc.
This is today’s equivalent by both Central bankers, and their gaggle, intoning words of “surety” much like the mortgage brokers, banks, real estate agents, media and more right before the crisis. i.e., “Relax, you can always refinance.”
In the days leading up to the first wave of the financial crisis in 2007 it all seemingly began with what appeared like only “a hiccup” in the ever burgeoning mortgage and real estate market. For then, out-of-the-blue, New Century Financial™, one of the largest subprime lenders went into a death spiral. Approximately 3 to 4 months later it would be gone.
After that? Again seemingly out-of-the-blue, only 3 to 4 months later, what was also regarded as “one of the largest if not largest” subprime lenders Ameriquest Mortgage™ would be gone. This was near inconceivable when less than 2 years prior (’05/’06) it appeared they were sponsoring everything from stadiums, NASCAR™, Super Bowl™, and even the Rolling Stones.
It was hard for anyone to imagine just how violent, as well as devastating this would all turn, again, just barely 24 months after 2005. Especially those who controlled interest rates and monetary policy. e.g., The Fed. (in particular) and central bankers globally.
If anyone cares to remember, during the initial crisis the Fed. then headed up by Chairman Ben Bernanke raised interest rates because? He felt (along with whomever voted along to enact it) that the housing crisis was both contained, and believed, for whatever the reasoning, that during that initial period of panic was precisely the right time to raise.
Question: How’d that all work out? Answer: Don’t worry – they now say they’ll know what to do should something like that ever happen again. Feel better?
Now there are two very important factors I would like to remind you of dear reader that I believe is very germane to this whole argument, and they are these:
First: Before the ensuing financial crisis the Fed. had kept interest rates low as to help ward off the lingering effects remaining in the economy from the dot-com crash just a few years prior. Many educated interest rate and monetary policy adept people and pundits (think James Grant, Bill Gross, et al) were sounding alarm bells that the Fed. was just enabling another asset bubble. e.g., The dot-com bubble being the first, then the subsequent housing bubble.
Second: It was during this period of time (i.e. 2005, you know, right before everything came off the rails) that a little known to the public-at-large Fed. member Janet Yellen, then the Vice Chair was articulating what was then an obscure theoretical model to what is now on the lips and tongues of nearly anyone concerning today’s monetary policy effects: e.g., Neutral monetary policy, or R*
And Third: Not to make anyone nervous, but one of the largest banks in the world with contagion risk via derivatives (think subprime products for banks) in the 10’s of TRILLIONS of $dollars looks to be entering a phase which many have dubbed “a death spiral.” e.g. Deutsche Bank™. Yet, just to add to the already frightening similarities of the last crisis, now it appears Commerzbank AG™ is raising alarm-bells in unison. The reason for these distresses? Current central bank policies and financial repression. Imagine that.
Make no mistake: On the global scale Deutsche Bank and its portfolio of derivative exposures alone has the ability to cause financial contagion across the global monetary system in ways similar to the initial days of the financial crisis. i.e., Who has exposure to what, along with the resulting freezing up of banks dealing with other banks as the fears feast upon themselves.
But not to worry, after all, we’re told over, and over again when it comes to things like this – “They’ve got this all under control.” And if that doesn’t make you feel better – take a line of resilience from that real “rock star” of calm and composure, Alfred E. Neuman….
I’m just adding this latest observation to my ongoing commentary, because it appears from the looks of my inbox, text messages, phone log, you name it – the only thing people seem to want to know is: “What’s your opinion about the ‘markets’ now?!”
So, for those that want to know, I’m putting up the following observation because I feel it could be one of those “Mark The Calendar!” type moments. To wit:
As always I’ve been fielding calls and notes from others asking me “Are you still sticking to your call?” since the “markets” continuous rally on Friday. My blunt answer has been: Yes.
Here’s the reasoning…
As much as the “markets” have rallied since the March lows when the Federal Reserve threw even more extraordinary measures at the already inept extraordinary measures it’s been stoking for months prior. In regards to what they call “market structure via technical analysis” again, said “markets” aren’t doing anything more than rallying from a deeply oversold (caused by a panic) condition fueled by extreme monetary policy (aka money printing ex nihilo) the likes the world has never before seen.
This so called “rally” seems extraordinarily powerful and unstoppable based only on the mere fact that both the sell-off, and reaction of policy measures to it, were extreme in and of themselves. However, with that said, from a sheer technical analysis viewpoint: They are doing nothing different than what takes place normally after any relatively forceful sell-off.
It is only the extreme size and scale of this latest one that is different. And this is that moment in time where everyone can get fooled. Repeat: everyone. (Need I remind you of the term “Autopilot” and what happened next, just as I said it would?)
So now with the above said for context I feel it’s only fitting to use another of those so-called “experts” that has some form of mainstream business/financial media guru/cult following when it comes to the “markets” and in particular stocks. e.g., Prof. Jeremy Siegel.
On Friday Market Watch™ (a publication I’ve also been quoted in which is why I’m highlighting it as to not show bias) ran the following headline featuring Mr. Siegel. To wit:
And there you have it. Only one of us will be correct, but the implications are enormous.
If I’m wrong? I’ll be the first to say: I couldn’t be happier.
If he is?
Those that took this as a “expert opinion” are going to be something, but it ain’t gonna be anything to do with happy.
In regards to this sudden, newly found, certainty from this segment of experts that were shocked (shocked!) weeks ago when their interpretations of higher highs into the stratosphere came crashing down. Remember: the “markets” fell apart in February before, again, sorry to repeat myself, but it’s far too important to gloss over – before anything called “Corona…” was widely known or understood.
You had others (i.e. the buzzer-banger et. al.) in March doing entire show segments touting how not to worry because “The market has it wrong” to then watch said “markets” collapse thousands upon thousands of points in free-fall. Again, remember?
However, to be fair, let’s put up two charts to show you exactly what has transpired over the past week and why I’m still arguing as to not alter my original interpretations or thesis.
Like many others I was waiting and watching the futures “market” with total incredulity as we awaited for what was sure to be one of the worst payroll reports in history. As we awaited the “markets” rose, and rose, and rose higher the entirety of the overnight session into the actual report.
Then, once the report was released, not only was it the worst ever recorded, but (and it’s a very big but!) the “markets” rose even higher, and are still at those highs as I type this. On a side note: Now you know why I’ve used the term “markets” (e.g. with quotation marks) for years to the screams and howls of the so-called “smart crowd.” Today signifies de facto why it fit so perfectly.
So it is with that context I want to post a line via an article over at ZeroHedge™ that pretty much sums up everything. To wit:
While economic fundamentals ceased to matter about a month ago when the Fed went nuclear and not only injected trillions in the bond and repo market, but also directly backstopped the corporate bond market (with many expecting it will do the same in equities), there is something utterly surreal and terrifying watching futures equity surge just as the US reports its worst jobs report in history, which it did moments ago when the BLS reported that in April, the US lost a record 20.5 million jobs, (not quite as bad as the 22 million expected but at this level what does it matter) the biggest drop in history, and 10x more than the 2 million jobs lost at the peak of the Great Depression.
And that dear readers is why I knew I had to change my focus, as I said before: Only fools would try to give rationale (i.e., great earnings, great P/E ratios, blah, blah, blah) for the “markets” doing this, that, or anything other. So I leave that task to the buzzer-banger and the rest of the mainstream financial/business media. Because they seem to be doing a bang up job of proving my point.
