From the 2015 ‘Insight Up-rise’ Series

Here’s a quick hitting management insight titled “Testing decision making mettle” from one of my prior series in 2015 called “Insight Up-rise.” And just a reminder to anyone that didn’t hear Thursday’s MYTR Broadcast, there is no show today, but Thursday’s is a “must listen” for those that have been waiting for details about our change over to “subscriber only” exclusivity beginning in early January.

© 2019 Mark St.Cyr

Why The Phase One ‘Trade Deal’ Was Much Bigger Than Anyone Realized

(New feature, still in beta form: Audio version of article)

On Friday it was announced there was agreement on the once never-ending story for agreement known as “Phase One” of a trade deal between the U.S. and China. Consequently, before the imaginary ink was dry, there were more calls for questioning of the details than soybeans in a metric ton. The issue here is: If you’re weighing this agreement from a purely business transaction lens – you’re going to miss the bigger picture. “Bigly.”

Let me start off stating my own thoughts so you know precisely where I stand in all of this.

First: I do not believe a trade deal of any consequence that benefits both the U.S. and China (i.e., equal trading partners) will ever be agreed to, let alone a mutually agreed, formally signed one.

Second: I do believe China is at the precipice of an all out economic free-fall into the abyss much like the former Soviet Union was before the 1991 collapse. The only unknown today is precisely when and what will be the commensurate damage not just to China, but globally.

So with the above said I can hear you shouting through my screens “Then why did they both agree to anything then?!” It’s a good question, so let’s look at it through a different prism and see if we can gain a better view than the monocular most are trying to use.

There was a reason I used the phrase “never-ending story” in the opening paragraph, because this “agreement” has been argued to have been all but agreed to for some 18 months. During this time we’ve had both sides play with tariffs placed, increased, lifted, reinstated, etc., etc., etc. However, it’s surmised this last round of increases that was suppose to be imposed today (Sunday) that gave the Chinese pause.

I think that’s part of it, but not all of it.

What I believe changed the calculations for China was the impeachment vote. Why? Because this was a negotiation leverage point too good to not let play out. The problems began happening for China when there was no early wavering on the tariff debate up to, during, and after the impeachment vote.

The problem with all this? The President appeared to now be in an even stronger position politically, because of the watering down of the charges (remember: bribery?) and the newest revelations via the Horowitz report. In other words: the most useful tactic and beneficial reason for stalling had now become moot, where the now firmly visible Sword of Damocles tariff increases had to be calculated with a near 100% certainty for implementation.

Although both political leaders could ill-afford the potential damage economically and politically if imposed, it was China that suddenly found itself in a much more compromised position. And it is here where everything changes for those trying to calculate what’s coming next over the horizon.

When it comes to this so called “agreement” there’s already a very vocal chorus throughout the mainstream business/financial media questioning the validity of its claims. Personally, it is here I believe many are missing the bigger point.

Regardless of what the “deal” has in it or not. What it does have is precisely what the President wants and needs: a get out of trade-jail card to use whenever he needs from this day going forward, through the election cycle, and maybe, even further.

And I believe China not only knew it – but couldn’t do anything about it. If they could? They would not have publicly agreed via the people ultimately responsible, with the politically approved power to do so. Again: publicly.

Although there is much coyness emanating from both sides as to what precisely the definition of “is” is. All one needs to extrapolate for clues are what both sides are really doing – and why.

President Trump is now hailing this as a “great victory.” President Xi has to now politically massage, as to tap down, any and all assumptions that it was his team that caved from what I can only presume was thought of as a “sure thing” calculation for gaining the upper hand.

And it is here where I am going to predict that much like the old sage “Hell hath no fury like a woman scorned.” I will submit “No trade deal will ever be consummated by a communist leader appearing to have lost face.” I see this temporary stay (e.g., Phase One) of “agreement” only as that – temporary, while the plotting for revenge simmers and boils.

Currently China is facing internal battles of massive economic upheaval not only from within China proper, but also in one of world’s most prosperous and very visible enclaves: Hong Kong.

Ever since China regained full control over it that “control” has been questioned as to just, how much? Now “how much?” has reached the stage of: how long before that once perceived velvet glove rule for “One country, two systems” morphs into “One China, one iron fist?” Hint: Chinese military are an ever-increasing, very visible presence just across the bridge in Shenzhen.

Here’s another: China’s state owned enterprises (SOE) are showing immediate signs of distress with just the latest (and largest!) bond default in over two decades. e.g., Tewoo Group. Here’s a sample as reported by Bloomberg News™. To wit:

The one-time Fortune Global 500 company from the northern port city of Tianjin said dollar bond investors representing 57% of the the total $1.25 billion have agreed to be paid just 37 to 67 cents on the dollar, depending on the maturity of the debt. Bondholders representing 22.6% of these bonds voted to exchange their debt for new bonds with sharply lower coupons to be issued by Tewoo’s offshore debt manager, a state asset manager from Tianjin.

“China Suffers Biggest Dollar Bond Default By State-Owned Company In Two decades” 12/11/2019

When it comes to the agricultural agreements put forth in the “Phase One” deal, I have no doubt they may never reach any of the implied targets. e.g., $50 Billion in agriculture alone.

What I believe will happen is China will use whatever time this deal allows to procure whatever they need for the time being as they finalize their agreements with Brazil and others to replace U.S. imports in the future.

But just like the calculations likely applied to waiting out the impeachment vote and more – this will also end (again, my conjecture) in a grave miscalculation. Here’s the reasoning…

Every-time China either questions, reneges, stalls, _________(fill in your own here) on either buying ag products, or stalling of intellectual property rights – the President will have the “political cloak of righteousness” to hammer the point of “We had a deal! They’re not living up to it! Tariffs are back on!” And will, with impunity.

Again, regardless if there really was anything of merit in this so-called “deal,” it does not matter. The “get out of trade-jail card” is all that did. Period. It’s a political win and loss of enormous proportions. And China has lost much. Again, period.

“So what about American farmers, do they lose?” Good question, so let me state it this way:

If (and this really is conjecture, but it’s what I would do, so there you go) I was trying to sell this to America’s farmers, I would say this: Look, I have a very strong gut-feeling China will not live up to their end of this agreement. As a matter of fact, I think as soon as possible they’ll dump us. But we, as in you, will have to plant accordingly in the case that this really does work out, which I’m hopeful, but not naive, much like I believe you are of the same. So here’s the deal…

Plant what you need to to live up to our end, and if they do not buy? We”ll guarantee to subsidize you by buying it ourselves – then – we’ll dump it onto the global market forcing those that are making the deals with China now, such as Brazil and others, hoping to supplant us in a backdoor move. And it’ll crush their prices, profits and market. That way you won’t be hurt if they renege. Then you’re back to what makes sense to you depending on market forces.

“Doesn’t China benefit from lower prices if that happens?” Another good question, here’s my answer: No. Why?

Who’s going to make the next deal?

Now some of you may be saying “But Mark, China is the one really in control here, not the other way around.” To which I’ll argue:

Maybe, but that’s what the all the Ivory Towered academics, occupants of the Federal Reserve, and entirety of the mainstream media and opposing political class thought also…

How’s that all working out?

© 2019 Mark St.Cyr

Sunday To Sunday: Eight Days A Week That Could Rock The Financial World

(New feature: Audio version of article. Format and delivery are in beta form.)

Sunday night in the U.S. the futures market comes alive with the first trades of the new week. The overarching difference for this week in comparison to the usual, is this will be one week that is anything but “usual.”

Currently both the trade negotiations between China and the U.S., along with the negotiations between the politburo and Hong Kong, seems to be sending the same type of signals. i.e., Mixed, with no clear resolution possible without one side basically caving to the other. There’s a lot of “maybes and possibilities,” yet there’s never anything for real agreement. Only agreement to future maybes and possibilities. Rinse, repeat.

It was reported that China is supposedly willing to forgo any tariffs on pork or agricultural products in exchange for the U.S. to agree to some version of the newest, latest, greatest “Phase One” deal. However, what’s at the heart of this (my conjecture) is the Sword of Damocles equivalent scheduled for December 15th (Sunday) which is the newest, latest, greatest round of tariffs imposed by the U.S. on even more Chinese goods.

This offering from China shows anyone with a modicum of business acumen to be both insincere, as well as a badly played negotiation tactic. i.e., China needs (it’s called food for a reason) what they are offering to buy, and offering nothing in return but more talk is just that – talk. The administration (along with the Chinese politburo) can hear the growling stomachs of an ever growing populace from across the waters. Again, in “Negotiations 101” – this would be a text book no-no to make.

This was once a plausible “take it, take anything” scenario from China thinking Trump was now desperate and needing something for the “win” column. Prior to this past Friday, that was a possible consideration, but no more.

The now, very real problem for China, is that the Trump administration is now in position of saying “No,” from a position of strength, not weakness.

The latest employment figures was the administration’s “Get out of trade-jail” card. China seems to have been leaning towards and calculating from the idea that with all the political gyrations going on in the U.S. it would work to their benefit. It has not.

China’s economy is the one showing very visible signs of massive disruption within its banking and real estate sectors, the underpinnings that keeps everything thought about China afloat.

If that falls? All bets are off, and it’s already teetering, “bigly.” Then: there’s Hong Kong.

The U.S.’s official declarations of solidarity with the protesters in Hong Kong threw a wrinkle into not only China’s negotiating stance, but also House Democrats.

Although I agree with the declaration, I also believe this was drawn up so quickly as mostly another impediment to be thrown at the administration to gum-up the works in getting a trade deal to further hurt his re-election chances. Think I’m off base? Hint: When was the last time the House rushed to do the same thing when protestors in other countries rose up against their totalitarian overlords? It’s OK, I’ll wait.

To reiterate, this has now added strength to the administration’s posture because China is sooner, rather than later, going to need to show its true hand, or should I say, iron fist, to Hong Kong. For there’s no communist leader worth their salt in the eyes of Mao, Stalin and others that will allow this to go on much further or longer. Period. And Xi has shown he aspires to be not their equal, but – The One and only.

Monday morning in Asia (Sunday night U.S.) the markets will open and the positioning for the very real prospects of not only a “No deal” resolution will need to be calculated and positioned for. But what will really take hold is the realization that the December 15th prospects of further tariffs imposed on China will take front seat.

This could cause further gyrations in not only their markets and the Yuan, but could intensify with immediacy a far more hostile rhetorical posture emanating from the politburo. This is what I would be on the lookout for in what some would call ” a first hint” that things are about to go from bad to worse.

On Tuesday and Wednesday we have the Federal Reserve’s conclave of the FOMC. The implied odds for a possible rate cut at this meeting is about nil. However, what will be “Must Watch TV!” will be Mr. Powell’s press conference.

What is now evident, to everyone, is that the latest “NotQE4” program launched by the Fed is far larger than any one ever contemplated. I also propose: even the Fed itself. As a matter of fact the Fed had thrown more money in such little time that it dwarfs all prior examples. And yet, they still argue “It’s not QE!” Of course it isn’t, and pigs really do fly with enough lipstick applied.

The problem here is that the more money they print then throw – the more the market is demanding with a list of “oversubscribed” figures that would make holiday season “BOGO” (buy one get one free) campaign envious.

All eyes (and ears) will be on precisely how squeamish, uneasy or, mealy mouth the Chair responds to the most obvious questions that will surely be put forth, such as:

  • How “temporary” are all these “temporary stabilization programs” going to remain?
  • Does the Fed see any hard disruption possible if tariffs are enacted on Sunday? And what are they prepared to do if so?
  • Does the Fed see even more cause for concern for market positioning into year end tax problems such as that they addressed prior in the Fall? And if this is what they had to do to address that, what are they willing to do if year end is even worse?
  • How many more rate cuts does the Fed see for 2020 and is the Fed prepared to go to Zero? Because if inflation is now being said to be allowed to run “over” the Fed’s 2% goal. Doesn’t the Fed need to get down to at least zero – and soon – to facilitate that?

The above is only a sample, but the the answers to these alone will be ones that will be carefully analyzed by the headline seeking algorithmic bots that make up the “markets” today.

There also may be many a time the “markets” swing wildly and widely on any comment or phrase spoken or released in the preliminarily text. The bots will give Mr. Powell every moment of that presser to either qualify or rescind anything the market doesn’t like. But after? Let’s just say the term “not a chance” comes to mind.

Oh, and by the way, the term “wildly and widely” was not said for hyperbole, but rather, for true probability. The reason for it is this…

We are now entering the week for what is known as “Quad-witching.” This is the equivalent of not just one casino settling up and paying off all bets, but that one in four period of time when the equivalent of the entire Vegas Strip does the same – in unison.

Match this is up with a miscue or wrong-signaling from the Fed, possible trade deal disaster, imposing further tariffs, an impeachment vote, Hong Kong smack down, possible sudden Yuan devaluation, year end locking in of profits (aka “SELL!”) and you’ve got quite the ingredients for a year end fireworks show. And those are just the first ones that come to mind. I didn’t even mention Europe.

So here we are and now what you have is the culmination (possibly globally) of a “take the money and run” scenario that could make a “Bull in a china shop” look calm in comparison.

As always, we shall see.

© 2019 Mark St.Cyr

Central Bankers Have Officially Entered The ‘Pitchforks and Torches’ Insurance Market

(New feature: audio version of article. Format and delivery is in beta form.)

As the U.S. populace readies itself to deal with the reality of the oncoming workweek as the vestiges of any remaining typtophan dissipate. There is one entity that is still on the equivalent of a high that would make a crack addict envious. That entity is: the stock market.

The real issue with the above is not for its record setting highs. No, the real, and now very real problem, is how it got so “high.” For today the once shadowy figure that lurked just out of sight signalling “Don’t worry, the first is free and it’s not addictive.” Is now out in full view giving speeches, television interviews and more on how “free and non-addictive” QE is (quantative easing), by now proclaiming it’s not “QE.” All the while it doles out ever-the-more “hits” than any time prior.

What this has done is the exact opposite of what central bankers in general, and the Federal Reserve (Fed) in-particular had wished. In other words, rather than tilt the spotlight away from their money dealing hands, it’s shined a bright spotlight directly on them. Everyone is now aware of what’s the catalyst – and that means they now know precisely whom to blame once any destruction arrives.

It is now the Fed itself which has become acutely aware of this manifestation. And the latest absurdity being professed by Minneapolis Fed President Neel Kashkari shows it, in-spades.

Here’s a bit of what I’m referring to via Bloomberg™. To wit:

Minneapolis Fed chief Neel Kashkari says monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials

“We had historically said: distributional outcomes, monetary policy has no role to play,” he said in an October interview. “That was kind of the standard view at the Fed, and I came in assuming that. I now think that’s wrong.”

“Inequality Fight Gets In Ally At The Fed” Bloomberg .com 11/24/2019

Now unlike most I don’t partake in the viewpoint that any seated member at the Fed ever goes rogue in any public setting. I am of the opinion that although there may be very contrary, or vastly wide discrepancies on any given subject, they never deviate so far as to put any members in jeopardy for their opinions. i.e., Everyone knows and follows the “rule book” without exemption. Implying, all these varying ideas, as loony as they may appear at first glance, are more about premeditated trial-ballooning more than anything thought to be candor or, honest revelations.

Sure, you will get the occasional “Former Fed official” reporting of a suddenly rogue styled revelation (Bill Dudley is the latest) Yet, I’ll still contend these are just different tactics for delivery of the same strategy. i.e., Everything is a known and approved before hand. It’s all just a ruse to see if the brown stuff floats and how far.

On an aside: have you noticed the near blackout of any and all retired Fed Presidents? There was a time back a few years ago they were on nearly every financial/business channel and segment in one form or another. Today? Except for the now occasional Bernanke and/or Yellen excerpt from some speech, you’d be hard-pressed. Why?

Here’s an excerpt from from a 2014 speech made by former Dallas Fed President Richard Fisher at USC. To wit:

Let me cut to the chase: I am increasingly concerned about the risks of our current monetary policy. In a nutshell, my concerns are as follows:

First, I believe we are experiencing financial excess that is of our own making. When money is dirt cheap and ubiquitous, it is in the nature of financial operators to reach for yield. There is a lot of talk about “macroprudential supervision” as a way to prevent financial excess from creating financial instability. My view is that it has significant utility but is not a sufficient preventative. Macroprudential supervision is something of a Maginot Line: It can be circumvented. Relying upon it to prevent financial instability provides an artificial sense of confidence.

Second, I believe we are at risk of doing what the Fed has too often done: overstaying our welcome by staying too loose too long. We did a good job in staving off the deflationary and depression risks that were present in the aftermath of the 2007–09 financial crisis. We now risk falling into the trap of fighting the last war rather than the present challenge. The economy is reaching our desired destination faster than we imagined. 

Third, should we overstay our welcome, we risk not only doing damage to the economy but also being viewed as politically pliant.

“Monetary Policy and the Maginot Line” Richard Fisher July, 2014

The above was what you expected to hear from any Fed member (active or retired) that was being both prudent in his assessment, but also quite willing to call into question current policy for honest debate. You don’t hear anything of the sorts any longer, do you?

In fact, what you now hear is precisely the opposite and it’s down right bone-chilling.

When Mr. Dudley brazenly suggested the Fed should now add to its mandate the idea that if it didn’t like a sitting president, it should use (or curtail) its “toolbox” to rectify that situation as it saw fit. It not only backfired, but exposed a fatal flaw for its proclamation.

The real problem (my conjecture) now for the Fed was that it moved that aforementioned “spotlight” scenario I highlighted prior squarely into view with far higher wattage bulbs.

The Fed (again, my conjecture) was looking to see how the public would react to such an idea. After all, in the Ivory Towered halls of academia and the Eccles Building, removing Trump by any means seemed a no-brainer. The issue was – openly stating it was a completely brain-dead idea. But it did expose precisely why the Fed is worried.

The real problem, which I’ve opined now going on years, is not what the president or anyone else says about them, but what they say about them (Fed) using their (again, the Fed’s) own words and actions as proof positive.

It was at this precise time last year the markets were in absolute free-fall mode. Why? Hint: Rate hikes, balance sheet normalization, “autopilot.” i.e., The Fed insinuated at every juncture “We’ve got this!” What happened next?

Every single notion of “We got this!” has not only been reversed and rescinded. But the Fed has injected more money into the system over the last 2 months than at any time beginning, during or since the financial crisis. Again – ever!

The real issue?

The President was on the right side of the winning call, ‘bigly.” Doesn’t mean I agree with the call, but politically, it is what it is.

This in-turn means that the political Teflon® for any market crisis was moved from the Fed’s side of the ledger to the President’s. And the Fed is not only acutely aware of this ever-developing dilemma, but its trying desperately to inoculate itself from any potential social justice warrior (SJW) demonstrations should it all fall apart.

And make no mistake: regardless of the current “market” highs – it’s teetering on the precipice of a potential monumental fall. And no, I’m trying to be hyperbolic. Here’s why…

At the current run rate and increasingly apparent signals for negative repercussions emanating within the repo-market, coming before year end, are worrisome to say the least. And downright terrifying at the other end.

The Fed may have to nearly double (yes, double) what it’s already done so far in just two and a half months. e.g., every-time it makes ever-the-money available it’s been nearly oversubscribed by double. Meaning – the dealer is now at the mercy of the addicted market. Don’t deliver “the goods?” ___________ (fill in your own possibility here)

A few weeks ago I wrote the following article. To wit:

The case that I was making was, if one was actively paying attention, you would be hard-pressed to miss the so-called “1%” crowds adamant pleas as to say “Hey, don’t blame me and/or my wealth, it’s the system, you know: capitalism! Look. I’m really on your side, see, I donate and donated to _________ (fill in virtue signal of choice here.)” Ray Dalio has been the most vocal of late. But again, isn’t it funny this comes – after – he’s made all those $Billions? Funny how that happens, no? Purely coincidence, I’m sure.

But on the other side, do you notice who’s no longer out saying how little he pays in taxes any longer? Hint: rhymes with Warren Buffett. How about Bill Gates? Oopsy, yeah, now he’s out saying things that rhyme with “Hey, that’s too much!” when presidential candidates start arguing “No, it ain’t!”

Kashkari’s latest revelation that the Fed could do more, only this time directly for (and too!) the people, is nothing more than the central bankers coming-to-grips with the understanding that when this thing falls apart, the people that are going to be front and center for blame is them.

The reasoning is as simple as it is apparent: If they fail to stop the next crisis the people with torches and pitchforks won’t give them the benefit of doubt that they couldn’t, but rather – they wouldn’t and didn’t.

The problem with any “Torches and pitchforks” insurance is that it needs to be heard and understood by those carrying such implements. The real problem is they also have something else in common once the decide to pick them up and march. That problem?

Deaf ears.

© 2019 Mark St.Cyr

Perennial Relevancy

Below is from my original “Pro’s Series” back in 2012. This one in-particular is from November of the same year, making it seven years old this month.

To put it another way: you could say it’s now 3/4’s of a decade old! (Yes, a bit of melodramatics just for the fun of it.)

This originally was written and appeared earlier that year as an article for one of Seth Godin’s ventures then called “UpMarket Magazine.” It’s still as relevant today as it was back then, possibly even more so in retrospect to what is currently transpiring across the internet with shadow banning, site take-downs, demonetization and more.

In other words: I don’t need to move onto the newest and greatest fad-of-the-day to stay relevant like so many are today.

© 2019 Mark St.Cyr

Central Bankers Are Turning Corporations Into Worse Versions of The Post Office or DMV

(New Feature Currently In Beta Form: Audio Version Of Article)

Regardless of the many hard working people within these establishments, one theme is a constant known to all. And yes, even to those working within: innovation, diligence to customer service, meritocracy, sustainable business models and more are absent at best, dead-and-buried at worst.

The primary reason for this is simple: They’re business model relies on never-ending bailouts and/or government mandated protection from competition to stay in business. Without it, who knows what would take its place. However, via this model? We’ll surely never know. And that’s the problem.

The above is not suppose to be a problem for corporations in an unadulterated capitalistic marketplace. However, this is precisely what is and it’s getting worse with every passing Federal Reserve or other central bank iteration of quantitative easing (QE).

In a truly free flowing capitalistic model and economy (which we used to have but no more) unprofitable entities, poor customer service and innovative laggards either sold themselves to their competitors that did it all better or, went out of business entirely.

Today? They just buy back their stock at low to nil interest rates rewarding the entire Board and C-Suite (and then some) with bonuses, stock options.

For some it even allowed the ability to claim ignorance when it found a fully manned, yet empty second corporate jet shadowed his around the globe as he hobnobbed, seemingly more focused on his own image as a corporate titan rather, than what he’s doing to the image and shareholders of the company. Hint: He claimed years of ignorance of the plane. Do you think he was that ignorant of his “parachute?” Politicians everywhere probably looked on in awe over that one, but I digress.

As of this writing the “markets” (yes, the once bastion of capitalism for the allowing of capital formation to create great companies to provide great things now needs quote marks for accurate definition) are at record levels. And how have we got here?

Improving GDP growth? Nope. Signed trade deal? Again, nope. Expanding earnings? New and increasing buyers in the markets? Highest retail sales? Nope, nope and nope. We are here via one mechanism and one mechanism only: Money printing facilitated via the central banks and especially, as of late, the Federal Reserve. Period.

As the markets sit at these nosebleed levels the Federal Reserve is now set to have pumped by year end well over $300 Billion ($300,000,000,000.00 that’s almost 1/3 of a Trillion and this is only the start) and they are still trying to figure out if this will even be enough.

What they have figured out and agreed upon is the inane argument that if they don’t call it QE, it’s not. Even though this is more money printed and made available ex nihilo in so little time in the history of mankind. And yes, it even dwarfs anything during the entirety of the financial crisis. Think about that.

The truly grotesque issue the above brings into the marketplace is that companies that should be penalized or rewarded via the self-perpetuated evaluating and price affirming market auction facilitated through a neutral positioned market facilitating entity known as “Exchanges” is now anything but.

Today these are now nothing more than facilitators, accommodating only those that will pay the highest fee for privileged information as to front run any and all orders.

Today market advantage is no longer an art of insight and acumen made up by humans. No, today, it’s about microwaves vs light-speed, line of sight, abstract calculations executed via bots to mimic human emotional buying, which connection or portal you’re plugged into, et cetera.

Or, better yet, who can fool the regulators into submission for agreeing that today’s “market making” isn’t really what used to be known as “spoofing.” Hint: The regulators seem to no longer know, which is just the way this increasingly perverted “marketplace” not only likes it, but profits by it. Literally.

What this has allowed is the gaming for reduced expectations (While carefully managed and massaged during said quarter.) then via buybacks at little to no interest rates used to buyback shares, reducing the overall float to where a headline of “EPS Beat!” sends the headline reading, algorithmic trading bots into a buying frenzy. Even though the underlying metrics that were “beat” were actually worse, sometimes much worse, than prior YoY comparisons.

Apple™ today is the undisputed king of this. Is it any idea as to why innovation, product releases and more have been either long in the tooth, lackluster or barely “innovative” at all? Yet, the stock keeps rising. Week after week, after week.

It has now been calculated that under Tim Cook’s tutelage with his near immediate 180º reversal of Jobs adamant stance on buy backs and more. The most “innovative” thing he will be remembered for since Jobs passing is to, so far, repurchase a third of its shares. Remember, that’s since 2013 or just six years.

Or said differently, Apple has already purchased 1/3, in cash, one of the most valuable tech corporations the world has ever known. e.g., itself.

At the current rate and history as a guide for doing so: Tim Cook will singlehandedly bring Apple to the point of a private company (a self perpetuated LBO) owning nearly every last share within the next ten years or so. All with a backdrop of slashed revenue guidance and reduced metrics.

The issue here is that Apple is at least a company that still makes profits. However as far as innovative? All I’ll ask is this: Are the new products (those that have actually been released) setting the bar higher as it used to? Or, is it in many ways just catching up?

If you looked at the stock value for guidance, you would be terribly misinformed as to what the correct answer was.

You have others such as HP™, IBM™, GE™ and far too many more to list which over the years are now nothing more than a shell of what they used to represent. Why? Easy…

Rather than innovate – the buy backs keep everything afloat rewarding the top while the lower 2/3rds of the company wonder and worry why they seem to be continually feeling like their stuck in the mud. Just like a post office employee in a cargo van during rain, sleet and snow week.

As far as the DMV analogy. You would do much better trying to garner information for help at the local DMV than trying to gain any “customer service” at most tech spaces today.

Try getting a human on the line at Amazon™, Facebook™, Google™, Twitter™, ____________(fill in your choice here).

As a matter of fact, try getting a response of almost any type whether it’s email or otherwise. Hint: When you don’t get any reply back? You know it’s them.

And yet, just like many others, the “market” has done nothing more than reward them month after month, after month.

Want to compete with one of them? Sorry – they’ll crush you out of existence. Why?

They have the coveted stock market bullseye called “included in an index.” As long as they remain, the largess of central banks will be used to proliferate within these vehicles as to ensure they remain as strong as the index. Because regardless if no one buys – the index must for weighting purposes. That is – until it can’t. Then it’ll just drop and refill it with another in kind. Rinse repeat.

It took 10 years for the fallacy of today’s current IPO debacle to be brought to light, then crash and burn. But not without burning through $Billions upon $Billions of Mom and Pop 401Ks and IRAs as these now publicly traded companies are spiraling into investor purgatory.

The problem today is if we have to wait another ten years form here?

Getting a job in the once considered “high flying tech space” is going to be nothing more than the equivalent of today’s Post Office or DMV. And there will be little if any comparable benefits going forward for those putting in “their time.” Why?

Because those are always the first things jettisoned rather than any possible quarterly miss. Well, not always the first. Sometimes…

It’s the employees first.

© 2019 Mark St.Cyr

‘Headline Risk’ In Real-Time

I just received a note from a colleague with the following message: “Looks like your call for caution via the election results in LA is voided.”

Here’s what I wrote back…

“Can you explain what economic measures caused the ‘markets’ to reassess the possible implications that overshadow China’s poo-pooing any resolution to trade negotiations?”

His response: “No, was there?”

My response: “Trump Says Discussed “Negative Rates” In Unscheduled Monday Meeting With Chair Powell”

“Soon as the headline hit – the ‘market’ rocketed off the lows from a weakening open to new, never before seen in human history highs. Again!

Welcome to ‘Headline risk’ in real-time. The issue now is if it gets ‘poo-pooed’ as I say, by anyone at the Fed – things can change on a dime. Literally.

Just contemplate where we are right now, this time in history: Negative Rates in the U.S. are now not only a ‘discussed’ issue at the highest levels in the United States, but worse (depending on your viewpoint) propels ‘markets’ even higher.

You still think we’re not in a central bank infused bubble? If you do…

I still have that ocean-front property available in KY you can have super cheap.”

© 2019 Mark St.Cyr

Louisiana May Bode Ominous Results For Markets and Trade

In Louisiana there was a very high stakes governor race that concluded with the incumbent Democrat prevailing. The issue I’m going to bring to light has nothing to do with any “Left vs Right” argument or ideology. What I want to argue are the implications that this latest gubernatorial election has in respect to the capital markets, along with any possible trade dealings going forward. In other words: Baton Rouge may have just tilted the presumed world off its current axis.

Again, to be clear, this has nothing to do with what side of the aisle one stands, whether or not one likes the current president etc., etc. What I am speaking directly to are possible implications and consequences that now need to be calculated, for those possible consequences directly impact everything. And by that I mean just that: everything.

As we sit here today the major indexes of the U.S. stock market are residing at levels never before seen in the history of said markets. It all sounds fantastic until one delves a bit deeper into the details (which the mainstream business/financial media will not).

Everyday it seems hard to evade another talking head or buzzer-banger tout how well the markets are performing. “We’re up some 20% for the year!” is just one.

Is it correct?

Factually, yes. However, that’s because, at around this same time last year, the markets were spiraling toward the abyss shaving off some 20% from that years prior high.

How did the markets arrest and subsequently reverse from such a swift plunge? Hint: The Federal Reserve signaled, then implemented, a complete and utter reversal of all prior proclamations. i.e., They went from raising rates, to cutting rates. From shrinking their balance sheet to, once again, growing it. The result?

Using the S&P 500™ as the example, the markets currently stand only 180 points higher than they were in October of last year. That’s a bit under 6% (e.g. 3120 vs 2940). Hardly does this equate for the sheer sycophantic palpitations expressed by nearly every next-in-rotation fund-manger paraded across the financial/business press. But it is, what it is.

The issue that all the above relates to, is that it’s needed as a backdrop to help understand just where we are and where things might be heading in the business economy going forward. Because what got us here, (i.e., as in stock market highs) may not be able to keep it there. For Louisiana truly changes the dynamic for both interpretation, as well as positioning. Here’s why:

The Louisiana gubernatorial race was made out to be some form of signal marker for the national election due in Nov. 2020. Both sides of the aisle vociferously argued to both their constituents, as well as the general public as a whole, that their side needed this win to “set the tone” (as well as ramp up expectations) going into 2020. Even the President threw all his political weight into it trying to make it more of a “national” race of implications.

The problem is, it did just that. And now the results are going to be positioned for where they may matter a whole lot more than just in “The South.” i.e., The global stock markets. For this now has global implications.

Currently two of the three front-runners of the Democratic Party (Warren, Sanders) are both arguing and articulating how they will bring about communism and socialism to the United States. As crazy (or terrifying for those still sane) as that may sound, what’s even more nuts about such an absurdity, is they are being received with standing ovations and calls to action from a growing number of followers. Meaning: if one of them wins – then what? Hint: Money and stock markets will show it, well in advance.

Louisiana may push that move into the now.

Again, regardless of whether or not this recent election solidifies the prospect for one party or the other is not relevant to what’s at hand. This is about what has to be calculated and positioned for, now.

The present summation when looking at the latest results are that the Democrats are still able to win mighty contested (and funded) high office. They now have two in a very public “win” column. This solidifies the much anticipated pre-signaling for money and markets. i.e., That the President is vulnerable, very vulnerable – and that means a candidate running on “Free everything to everybody via taxing the rich into oblivion!” now has a more than 50/50 shot at winning.

Louisiana just made that calculation far more important.

Does this mean the President is doomed? Far from it, and that’s not what I’m arguing here.

The Louisiana election may be just what these type of races always are: local. And the President could go on and win in a Reaganesque styled landslide. But (and it’s a very big but) that’s not how money (especially stock market money and wealth) and businesses work. They have to plan on the possibility of the now. And that “now” is the possibility of a Warren or Sanders presidency.

To repeat, it’s now moved from a possibility calculation – to a plausibility one. And that single move and calculation has implications for everything. Again, emphasis on everything.

One of the current myths still held closely by much of the general public is that “long term investors” is a term that signifies “long” as something dealing in years if not a decade or more.

Buying for the “long term” or “investing” once meant meant one bought and held for years. That is no longer the case, for today most indexes are nothing more than trading vehicles rife with speculation where the term “long” now equates to weeks or months. And no, that is not an overstatement. Four months is now the “long term” average. The reason? Rhymes with “Central Banks.”

Currently the entirety of the “markets” (yes, it’s now so bad that markets needs to be in quotes) are nothing but one big front-running exercise powered by central bank largess. Without it? Hint: Pull out your year-end statement of your 401K or IRA balance ending 2018 for clues.

The reason this is important for context, is that the latest 180 point surge into “black-sky” territory is that term “central bank largess.” Because over the last couple of months the Federal Reserve has pumped over a quarter of $Trillion (e.g., $250,000,000,000,000.00 plus) in repo-operations and what they will not call “QE4” (even though it is).

Remember: it was just this time last year this same central bank was arguing why rate increases were a good thing, along with why reducing their balance sheet would be the equivalent of “watching paint dry” so much so that the term “on autopilot” was used as a descriptor for the process. All the while reminding everyone that there wasn’t the possibility of another financial crisis “in our lifetimes.” Even though it’s been Crisis-R-U.S. ever since.

Again, if you think that’s hyperbole? May I ask you to reread the paragraph above containing all those zeroes.

So now that there’s two very distinct representations (LA and KY governorship outcomes) for the plausibility of a socialist and/or communist bent winning the presidential election (whether it’s far fetched or not). Money and markets will begin to move toward the channels that it believes offers the best protection.

The issue with that is what that “protection” may mean, as in, out of the markets and straight into cash.

If this happens (and the faster it does, the worse it bodes) the markets could see itself in a sudden panic mode, where all that “fast-money” suddenly runs for the exits.

The other issue is that the Fed has already thrown more money at once into the markets than at any time. Yes, even during the entirety of the Financial Crisis.

Again: currently over $250 Billion in as little as two months. And they still don’t know if this will be enough. It all started at $60 Billion and was told/sold as “nothing to see here, please move along.” Now it’s $60B a month, every month. a $75B one or two day insurance marker, has become a daily “at least” $125B made available every night or the repo-market collapses, and it’s already proved to be not enough being oversubscribed to the tune of $137B.

Why do I say “still don’t know?” Because the end of year tax selling; repositioning; profit taking et cetera, et cetera still has to prove itself out. That happens at any time from now till end of year. And the issue here is the Fed is already “All in” as they say. What happens if that has to now go to “11!” or higher? Hint: November 2018 could become the front and center representation for Christmas past.

Does this mean the above is a certainty? Of course not, no one knows. However, with that said…

The Louisiana outcome changed two very critical calculations going forward. The first:

How does the markets react to the newly revealed political calculus?

Yet the other may have even far greater impending ramifications for the immediate future. And that is:

How does China see it?

Because if they (China) now calculate the winning edge is to no longer negotiate and a more winning position is to just sit back and wait it out for the possibility of a more friendly administration. The implications for a global upheaval of supply lines are not only huge, but quite possibly, immediately so.

Both of these scenarios have to calculated and positioned for now and going forward. The idea that money and markets will wait and see until Nov. of 2020 if wishful thinking at best.

Louisiana just solidified that imperative. And that has implications for all of us. Like them or not.

© 2019 Mark St.Cyr

The Rich Are Discovering ‘Torches & Pitchforks’ Insurance Premiums Have Outpaced Their Stock Gains

You would be hard pressed to avoid a headline implying the 1% are getting richer by the day. Everyday the “markets” bounce higher – the headlines are more frequent.

However, another headline has suddenly been making its way around the social circles and that is “The Rich ain’t paying their fair-share!”

In days of yore (circa 2007) the latter was barely even a whisper. Why? Because during the subsequent build up everyone (a relative term) seemed to be getting “rich” at the same time. The Dot-com bubble had come and gone basically squashing most early start-ups and techno instant millionaires.

Yet, for those that did not partake in that tech-bubble (which was the vast majority) they were mightily rewarded with their own millionaire-making, cash dispensing ATM called: a house. This led to what we now refer to as “The Real Estate Boom.” You know, the one that also resulted in the bust of 2008/09, but that’s for another article.

As the Dot-Com debacle imploded, what it showed writ large, was that the only reason why many of these once “brainchild of business ideas” were allowed to ascend to the once coveted arena known as “going public” was for their ability to obfuscate rather than prove they had a business model that worked, producing products or ideas that others would pay for to begin with. And, were producing net, repeat, net profits that paid the bills. The public markets (aka “Capital Markets”) were merely the next and necessary step to add true scale.

That’s what transpired then, and particularly, today.

What we are now experiencing has been the idea manifested during the Dot-Com crisis on steroids, where “businesses” (yes, quotes required) have been nothing more than a idea to hype, backed by accounting, lending, regulatory and reporting standards so blatantly reduced the term “lax” would imply burdensome.

Then, these same “businesses” would access the public markets and swindle as much ill-gotten loot before the authorities figured it all out. That is – if they would/could at all. Emphasis on the latter, if what we’re watching currently holds.

The difference today from the prior, is that we had that “Boom” in the middle of what is known as the “Home-ATM.”

This, in-part, reduced the glaring stares usually associated with stock market booms and busts. The reason? Everyone was looking in their own mirrors knowing (though many didn’t want to admit it) that they pretty much did the same thing in-kind. i.e., They could be held to the same rank and rancor as those on Wall Street. Remember, NINJA Loans?

But a funny thing happened on the way to “clearing market pricing and overvaluations” in 2009. That “thing” was called “quantitative easing” (QE) aka money printing, where suddenly the “Rich” were not only made whole, but ascended to their highly coveted realm of “Dirty Stinkin’ Rich!”

This was not lost on many. Again, emphasis on, many.

Not only has the vast majority of those that never partook in any of these “minting millionaires” excursions noticed. So too has that other “majority” that lost their houses and more during the early days of what we now call “The Great Financial Crisis” (GFC). The issue?

Many of these same banks, bankers and Wall Street tycoons have now become not just insanely rich, but some were not afraid to tell you so. e.g., Jamie Dimon’s ” That’s why I’m richer than you” comment in 2013 as just one example.

People notice things like this, but that’s not all who notice: politicians do also.

This is where things are beginning to really heat up. Why? Because many of these most recent “eat the rich” stylized chanting are coming from the very same party or politicians many of these now “insanely rich club” have supported, whether implicitly or explicitly.

Remember when “Ol’ Uncle Warren” (Warren Buffett) used to be on CNBC™ seemingly daily and profess just how little he paid in taxes? Remember how he used to proclaim the reference that his secretary paid more?

Remember when he would explain why Berkshire Hathaway™ was simultaneously not paying $1 Billion in back taxes? OK that was a trick question, but the IRS was not joking and I believe is still an ongoing dispute. But again, have you noticed he hasn’t been doing that anymore? Why?

Hint: Bernie Sanders, Elizabeth Warren and whole host of participating “comrades” just itching to make their vision come true. i.e., Don’t worry, we’ll make the idea of not paying enough just that, a wonderful long past idea. Because you’ll pay and pay dearly. Trust them, for if elected, they”ll “help you” in not only getting your mind right, but your bank balances also. Voluntarily or not.

Ray Dalio has been on what I deem a non-stop media blitz, plowing over people in ways that would make Jerome Bettis envious to get in front of any microphone, camera or keyboard to profess how “the system” or capitalism is broken, not working or the world has “gone mad.” Hint: Look in a mirror Ray. Just sayin’.

You even had the holder of one of the most coveted office positions known to Wall Street, Lloyd Blankfein former CEO of Goldman Sachs™ sheepishly admit in an interview with Poppy Harlow that he doesn’t want to pay more taxes, but (and it’s a very big but) would – if – the trade off was that people would spare his gates from the presence of “torches and rakes.”

The unmistakable undertone of all this and more? Their once “dogs in the fight” are now beginning to turn and are looking to bite not just the hands, but a whole lot more of those that used to feed them. The reasoning is simple:

There are now far more (and growing) onlookers watching piles and piles of “steaks” being amassed behind those once seemingly un-penetrable gates, while they’re constantly being told the ever rising, increasing crumbs chaffed off the “markets” into their 401K’s or IRA’s should be looked upon as manna from heaven. i.e., A few Grand for you, a few BILLION for them. And if you have savings or bonds? Be happy it’s not negative, yet.

As much as the above begins to illustrate just how things are beginning to morph to the displeasure of many in the “richer than you club.” Nowhere was it more evident than that which was addressed to another of this once: Look I’m with you ‘comrades,’ just don’t come after me, remember I’m actively paying my fair share of insurance premiums: Bill Gates.

(Note: I know I’m being harsh here, and I believe Gates deserves every penny of his wealth. What I’m speaking to is his over-the-top obsession to show “Hey I’m more charitable than anyone! So you need to be more like me!!” stance across the public stages and airways.)

It would appear Mr. Gates and his all too public gifting away his $Billions, along with another all too public (all my opinion) convincing and elaborating Mr. Buffett to do the same, seems to not quite be enough for the current front-runners in the presidential election.

It appears that Mr. Gates is more than happy to pay $20 Billion in taxes, but $100 Billion as proposed via Ms. Warren? That’s an amount even a willing Billionaire finds a bit too much.

But that’s when the interesting point to all this truly becomes fascinating. Why?

Because just like all communistic or socialistic ideas become once they seem to be on the upswing, the once gently proposing or insinuating of such ideas no longer seems so gentle in that proposing or insinuating – they’ve now become fashionable and down right practical (i.e., meaning they may have the backing via votes to just do it.) by those once doing the proposing and insinuating.

Don’t think so? Fair enough, then may I turn your attention to the reply given to Mr. Gates via Ms. Warren that should run chills down the spine of every person that still believes in the Constitution and the type of government it is suppose to uphold. Ready? To wit:

I’m always happy to meet with people, even if we have different views. @BillGates, if we get the chance, I’d love to explain exactly how much you’d pay under my wealth tax. (I promise it’s not $100 billion.)

Twitter™ statement by Elisabeth Warren

All you need to do is reread the above and replace “@ Bill Gates” with “comrade” and not only does the implied price that’s it’s going to be much more than $20, but the last line in parenthesis takes on a whole new meaning. Why?

Because over the last decade many of the richest among us have openly prostrated themselves across the media stating how and why if only they were forced to pay more, they would.

This was once the wink-and-nod (as in demanded) insurance premium dolled out to help ensure protection from any civil unrest. That has all now changed as made evident to Mr. Gates via Ms. Warren.

However, this is not an isolated insinuation, in my humble opinion. For it would appear the entirety of her party (at least those of front runner status) have not only echoed those words, but are now echoing one who said it best years ago. To wit:

“I am altering the deal. Pray I don’t alter it any further.”

~Darth Vader

Looks like those once affordable premiums have definitely moved into premium inflation mode, yes?

© 2019 Mark St.Cyr