“Not QE4” The Fed’s Final Move Before: Full Krugman

So why not?

It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you’ve been living in a cave for the past four years.Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.

Paul Krugman “Be Ready To Mint That Coin” NYT January 7, 2013

As I may not be a Nobel Prize winning, Ph.D’d economist professor. I do seem to posses something far more valuable than any title, “shingle,” media and “think tank” speaking gigs, etc., etc., etc. that appease little more than a cadre of so-called “intelligentsia.”

That “something,” of course, is: common sense. Because the more they profess – the more evident it becomes they are barren of any.

Last week we were once again “schooled” by another of this same cadre of Ivy Tower styled elitists from non-other than The Federal Reserve and its now Chair Mr. Powell, where he profoundly expressed that increasing the Fed’s balance sheet “is not QE” (quantitative easing).

This is now making my childhood viewings of Romper Room® down right scholarly in comparison.

If you think this is hyperbole? Let me give you another recent quote from another Fed official, reported, once again, from the New York Times™, where supposedly all the “smart-crowd” gets their information. Ready? To wit:

“It’s not a change in our policy stance,” the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, said in an interview Friday.

“Fed Unveils Plan to Expand Balance Sheet but Insists It’s Not QE” NYT Oct. 11, 2019

Let me go back to use a little common sense argument, if I may. And since I brought up Romper Room, let me use the following example for your “noodling.” Ready?

Precisely one year ago the Federal Reserve was on a path to increase rates, reduce its balance sheet by 50 $Billion per month. So confident of its position and reading of the economy that its Chair, Mr. Powell uttered the most feared words on Wall Street known as “autopilot” to signify that the Fed was indeed following through on its stated and professed course.

Insinuations or inferences to any market gyrations were of little to no concern regarding monetary policy. A clear path and schedule had been laid out over a year prior by then Chair, Ms. Yellen.

Mr. Powell was just implementing, signalling “You’ve been warned this is coming and now it’s here – deal with it.”

Then, the “market” did just that – and Mr. Powell and the entirety of the Eccles Building have been trying to deal with what was not suppose to happen “in our lifetime” as implied by Ms. Yellen. i.e., Another financial crisis.

Hint: It’s been Crises-R-U.S. ever since.

In about 90 days the “market” went from making never before seen in human history all time highs – to entering a Bear Market (e.g., 20% downdraft from those same highs) right before Christmas. That is, until the now infamous “Call from Cabo” came through from the Treasury Secretary to assure everyone (my conjecture) on Wall Street “Ol’ Saint Nick” would make an appearance, even if that meant giving the president his gift early, which was a pallet of new phones all pre-programmed to Twitter™ and Mr. Powell’s personal email account.

Now we have the Fed not only reducing its original “autopilot” schedule for reducing the balance sheet. But rather, they have stopped it all together.

“But wait, there’s more!” as they say on late night TV. Actually, much, much more…

They also went from raising rates – to cutting rates twice in this same period. And: it’s expected, at the least, one more before year end. The idea of it being two more is also a distinct possibility, if not probability.

That 50 $Billion “autopilot” schedule of reducing the balance sheet? That’s now been jettisoned entirely and replaced with (wait for it…) an “initial” 60 $Billion per month purchases of Treasury Bills (remember – you’re also told that’s not monetizing debt, but I digress).

So, back to my children themed rational. Using Sesame Street® this time, because it truly does fit more than what the so-called “smart crowd” wants to portray. I ask the question in song and let you decide. Ready?

🎶”One of these things is not like the other. One of these things just doesn’t belong.” 🎶

Oh, that’s right, you would need to know why one didn’t belong in the first place. Sorry, I thought I made that clear: just use the quote above “It’s not a change in our policy stance.” from the Fed. Again, I’ll let you decide for yourself, but the answer appears to be far more obvious than the same Fed believes (as in hopes) people will see it for what it truly is. e.g., Abject policy and implementation failure. Period.

Now back to: “Full Krugman.”

The issue currently is two fold, the first: What if any, if not all this new “NotQE4” money doesn’t get put back to use in the so-called “markets” or economy? But instead, is horded by the very entities the Fed is hoping will use it to push the “Velocity” principle? (e.g., M2V)

Hint: Expect “Full Krugman.” Maybe even squared or cubed! Who knows, maybe to “Infinity and beyond!” if we stick with the scholar theme.

Just because the empirical results of theories and claims made by Nobel Laurette Ph.D’d professors teaching your kids at schools costing those same “kids” the basic equivalent of a lifetime of bankruptcy worries and more are undeniable. That doesn’t mean the Fed still won’t follow them, even though the once picturesque socialist utopia professed by this same cadre (Stieglitz anyone?) known as Venezuela crumbles further into oblivion. All the while as its people wander the streets eyeing once household pets – as food. The zoo animals have long ago met such fate.

“How can I make such a statement?” you say. Easy. Just look at where the current Fed is positioning itself today from where it was just a year ago. As one of my hero’s Andrew Carnegie is famous for saying (paraphrasing) “The older I get, the less I listen to what people say, and the more I watch what they do.” The Fed’s recent actions speak volumes if you are truly paying attention.

So does this mean we’re getting a $Trillion dollar coin? I have no idea, but something akin to it is far closer to being put squarely on the monetary table than any theoretical coin, and that is MMT aka “Modern monetary theory,” which also encompasses such wonderful ideas like “Helicopter money” and more.

Again, the implied “beauty” of all this clap-trap thinking for monetary policy, is that it’s all wrapped up with a nice big theoretical bow for cover, which is…

No need to produce anything such as a physical coin. Just hit “Control-P” and just like magic! Everyone’s got a brand new bag of “cash.” Just like the Fed has been done prior and is, once again, doing so with the banks.

“A brand new bag” is metaphorical of course. More like some new version of an EBT type card or such. Because, if it does see the light of day, which is now a 50/50 bet, in my humble opinion, it’ll include everyone. And by that I mean just that – everyone.

If you think this is crazy talk now? Go back to the opening quote of this article, all while remembering, that the original idea for needing a “$Trillion Dollar coin” was to circumvent one political party from holding the other one hostage from spending. How’s that all working? And that’s with no coin!

That’s why I use “Full Krugman,” because the original thesis when compared to where we are today wouldn’t even be considered worthy of half-measure status. That’s how far down the rabbit hole of lunacy we now are. Think about it.

The only thing someone with any remaining common sense can do as to help persuade the Fed from taking the final step into monetary Armageddon comes from the movie “Tropic Thunder” (2008, DreamWorks™) that inspired the “Full…” moniker quote to begin with. To wit:

“Never go full…”

But then again, they haven’t listened to people like myself, ever. Even though we are the ones being proved correct with every passing policy decree.

Every. Single. One.

© 2019 Mark St.Cyr

Who’da Thunk It In 2015

There seems to be a collective race among many commentators, media outlets and so forth as to when the IPO or “tech” bubble popped. Some are pointing to the recent WeWork™ debacle, others are using Uber™, and even more pointing to SnapChat™.

All of them I contended do offer fine examples. But what I pointed out to a friend that had called asking for my opinion was, I had pointed out precisely what would happen long ago, before they became the “obvious” examples they are now – back in 2015.

To prove my point I related this passage from an article I penned, again, back in April of 2015. To wit:

If the stresses now rearing their head within the markets continue I’ll make a prediction.

What you’ll not find more of going forward is VC’s strewn across the skies dawning capes and spandex searching through an ever-expanding universe of start-ups to fund. No. What you’ll find is a lot of the once so-called “wonder companies” that were previously funded desperately seeking additional funding of any type possible. Not to expand, or to buy the next greatest “eye balls for dollars model” to compliment their existing “now desperately seeking eyeballs for dollars” model.

What they’ll be in is a frenzy seeking funding – for their very own survival. Because Non-GAAP “We’re killing it!” earnings reports won’t do the most important thing in a recessionary downturn alongside the reality of no more “free” money.

And what’s the most important thing?

The ability to generate actual net profits garnered from servicing satisfied customers that actually purchased what you made available for sale at margins that in turn pays: the help, rent, and other bills – consistently. Period.

“Bubble Confirmed: From Sock Puppets To Action Heroes” April, 2015

Here was the catalyst that pushed me into writing that article, again, to wit:

Photo credit CB Insights™

And here’s what replaced them, just as I argued would happen:

(Image Source)

As I iterated to my friend – the moment QE ended in earnest in late 2014: It’s. Been. Over. Period.

The once rarefied air breathed in Silicon Valley has been nothing more than “The Valley” sucking on their own exhaust fumes for years.

We’ve just arrived at that moment when everyone else smells it also.

© 2019 Mark St.Cyr

Gradually, Then Suddenly: We’ve Moved Past The ‘Gradually’ Stage

Ernest Hemingway replied to the question “How did you go bankrupt?” by responding “Two ways. Gradually, then suddenly.”

This quote is still referred to today, because of its intrinsic poignant clarity.

Today, far too many either don’t fully understand what’s taking place with the capital markets, or don’t want to. Either way the results will be the same, for the “suddenly” stage is now here. i.e., everything once believed in “disruptive tech” is now over. Done. Gone. Kaput. Do not pass “Go,” do not collect $200. Period.

The idea that a company, any company, could present itself to the investment world (i.e., public capital markets) lose money on every sale since its inception, ridicule the thought of using 1+1=2 math, present a business model that two-year-olds’ openly mock as “there isn’t a diaper around that could hold that much crap” was not just ludicrous, but borders on criminal. Yet, that’s exactly what has been going on for the last decade. But as I implied – that’s now over.

What I would like to find comical, but it’s both dangerous and instructive, is just how truly ingrained this entire notion of “genius” is either attributed, or personally held, by so many from this set. Even though (my conjecture, of course) most, if not all of this so-called “genius,” is a direct result of a complete breakdown of business principles fueled by central banks.

In other words: if the central banks didn’t pursue the greatest monetary experiment in the history of the world printing $Trillions upon $Trillions ex nihilo, where only a decade ago such lunacy was argued across the once great Ivy League campuses as “conspiracy theory nonsense.” Most, if not all of these “disruptions” would ever had seen the light of day other than some small R&D experiment. Let alone, survived to become multi$Billion market capped behemoths of today.

But that’s what the “suddenly” stage is all about, isn’t it? For we’re now in precisely that.

“Gradually” was that period of time that I’ve been commenting on (and been proved correct) when the Fed ended the original QE (quantitative easing) experiment at the end of 2014. As I opined back then and subsequently ever since, I made the case that the entirety of the IPO phenoms known as “unicorns” was over. And it has been.

Were there some that came to “market,” as they say, since that period? Of course. But as I said back then, the first to feel the real “cash burn” will be those that buy into the public offerings. And the more damage that occurs there – the more wobbly the entire space will become. Till suddenly – it’s the VC’s who are the ones to feel the same pain.

That moment is precisely and suddenly – now.

The accompanying sudden scramble to save face, assets, cash, dignity _________(fill in the blank) is evident everywhere. That is – if you do the looking, because as far as the mainstream business/financial press in concerned? (insert cricket sound here)

What you will hear, read, or watch as of late is another so-called ” genius billionaire” profiled to tell the American public that either “capitalism is dead,” “communism works,” or my personal favorite (snark) “communists aren’t really communists, it’s in name only.” See Bloomberg for more “insight” on that one.

If you think I’m off base on any of those prior claims, let me just add the following for your consideration and let you be the judge. Ready?

Ray Dalio, a person that created a multi-$billion dollar empire making himself ridiculously wealthy in the process via a business model (my opinion) of nothing more once stripped down to its bare essentials to be: a parasitical based algorithmic empire that does nothing more than feed itself by front-running central bank largess. And all he seems to want to do now is explain to any media outlet that’ll carry him is how “capitalism” isn’t working. Well isn’t that just “fresh.”

Another is Salesforce™ founder and CEO Marc Beinioff who wants to tell everyone that will either listen or not (i.e., those that see right through this charade) that “Capitalism as we know it is dead.” This he says from a stage in San Francisco where people need an app to avoid getting more “San Fran” on their shoes than in a Porta-Potty®.

Here’s a hint for Mr.Beinoff and others of this ilk:

No, capitalism as we should know it is making a comeback.

What we have been subjected to and experiencing that people of this ilk profess as “capitalism” – that – is now dead. Let’s just say we’re in the “wake” or “mourning” aspect of this funeral. And it could go on a bit longer than many of us would like.

But not to worry – just have ready those “crying towels” I said one should have invested in way back in 2015. Because – you’re gonna need’m. Hint: See WeWork™, Uber™, Snap™, Softbank Vision Fund™ for preliminary diagnosis for metastasize-ation.

I also hope others attending conferences for such “insight” didn’t leave that event with anything getting on their shoes, after all, that’s a direct result of your (the Silicon Valley aficionado set) brand of “capitalism” is it not?

Again, this is all happening directly in the back yard of Silicon Valley in the first place, supposedly the richest and most humane and environmentally conscious place on the planet, right? How did this happen when there’s so much wealth dripping from these tech billionaires?

Sorry, I’m just asking the questions the business media won’t. But that’s just me. Yet, since I’m on a roll, as they say, let’s ask another, shall we?

I wonder how all those that took the plunge into foregoing salary and more for those “lucrative” stock options, trading their dignity to live in shipping containers or pods while waiting for the big IPO pay-day feel about the homeless right about now?

Hint: if you thought there was an inevitable “brain drain” in Silicon Valley before – just wait till these once convinced “I’m gonna be filthy rich!” 20 and 30 somethings’ start viewing their compassion for the homeless as an inevitable warning sign that it may be them next as it all comes crashing down. Because the “suddenly” I keep alluding to, is now here.

Stock options in some of the recent debacles once deemed to be worth the equivalent for buying a modest home just weeks ago are now, maybe, worth enough to by a few bicycles. That is, if they don’t go down any further.

The message boards used primarily in “The Valley” are loaded with such comments. And this is only the beginning. Be sure to contemplate the repercussions of this very carefully. For that’s a sea-change of enormous proportions that has yet to fully “reach shore.”

The VC community that propelled all this absolute bull-crap known as “unicorns” and more is already in abject panic mode. Early investors like Bill Gurley who barely made it out of Uber without the help of what appeared to be a giant Ponzi-styled investing/valuation round from Softbank’s Mr. Son, now looks to shun the entire IPO thingy he profited so well by for direct listings.

Funny how that happens, suddenly, no? Remember when 120$Billion was a whisper #? It’s now a laugh-out-loud running joke, but I digress.

Mr. Son’s “Vision 2™” idea seems to be in the process of being shelved. Again, is this not funny when the entirety of his “Vision Fund” the once most dominant late stage stratospheric valuation enabling VC fund, appears itself to be in dire straights?

Remember: It was only weeks ago everything was going along so smoothly that there was some form of “need” to bring forth the idea for a Vision 2.” Now, suddenly, everyone is questioning not just the health or wealth of Son’s original vision, but its viability to last just another 12 more months.

Can you imagine the suddenly different gut reaction to hearing “Mr. Son, MbS is on the line, do you want to take his call?” Think about it.

If one doesn’t think any of this effects all prior “unicorns” that made it out prior and are some of the largest market cap, market dominant purveyors the world has ever seen? You would be sadly mistaken.

The once unassailable “growth” narrative combined with the nitro-mixture of central bank largess is not just fizzling out – it’s now relegated to “non-operative” status.

Over the last two weeks the Fed has begun, whether they call it QE or not, an “organic growth” program to its balance sheet. The Fed has now increased its balance sheet over the last few weeks by 181 $Billion through its Repo program. And what has the “market” done? Hint: barely remained in place.

The Fed has cut interest rates twice in recent weeks. The ECB has now signaled that incoming Ms. Lagarde will more than likely follow the path laid out by outgoing Mario Draghi. And it is with this backdrop that the markets are, again, calling for even more – or they will panic sell – suddenly.

The reason why this really is “different this time” is because these extraordinary measures being applied this time, after nearly a decade, is because there really is trouble under-the-hood of the “markets”. Real trouble. And the Fed itself is trying desperately to appear as if “They got this!”

The problem?

They’ve already had to increase time frames, add more $Billions daily than anticipated, needed to add more programs than anticipated (i.e. from overnight repos to separate 14 day programs ) are already contemplating these and more may need to be permanent in nature, and the “market” narrative that central banks know what they’re doing is in utter shambles. And it’s only been two weeks since they started down this road, again.

Not forgetting things like impeachment or a primary for who can out communist the other, et cetera, et cetera, et cetera.

So, suddenly, it’s all wrapped up in the perfect question for our times, posed by the great Alfred E. Neuman…

“What, me worry?”

© 2019 Mark St.Cyr