Put All Eyes On Europe For Money Is About To Become Very Nervous

(Note: The following is an observation wrapped in a format of pragmatic business insight. It’s presented in this form so one can take away the underlying idea or premise and apply it as an overlay when thinking about, or trying to evaluate, other instances.)

When I’m having a discussion or talk with entrepreneurs or any business people in general, inevitably I’ll state the following:

When it comes to business there are generally only two rules. First: Satisfy a customer with a product they’ll pay for which generates a net profit via 1+1=2 math. That’s rule #1. And second: When any part of the first can’t be met honestly, the only variable that can bridge, or allow, for any deficiency in the first will be of the psychological nature. i.e., “Faith” in the product, brand, culture, hassle to change, et cetera. But relying on the second to fortify the first, without addressing and correcting it – is only an exercise of how much longer till the “sand” eventually empties from the glass.

More often than not, companies rely far too heavily on the latter to make up for any deficiencies in the former. The real problem occurs when you lose any part of the latter (e.g., the psychological) while any part of the former (e.g., fundamental business metrics) is deficient. That’s usually the moment when you look back with a forensic eye – you can nearly pinpoint the precise moment when the dominant brand or business of the day began its path to irrelevancy, if not bankruptcy.

Now at first, I would imagine, many initially thought of the old axiom of “Rule 1: Don’t lose the money. Rule 2: See rule 1.” And that’s fine, however, that old saying doesn’t leave a lot as far as what to do, or where to look for clues either before, or after any business loses money, which is precisely my point. After all – It’s easy to say but does little in pragmatic terms. Here’s an example of the same rule and premise. “Rule 1: Don’t sink the boat. Rule 2: See rule 1.” Problem? Does boat meets uncharted, unforeseen iceberg bring about any thoughts?

Now I know this seems a little off track and some are thinking “What does this all have to do with Europe?” I’m getting to that but this is important so one can take away and see potential problems, issues, or even crises over the horizon when most can’t take their eyes any further than the beach itself. So – back to the “boat” example…

To explain this using the above; apply the thinking this way: In times of stress (e.g., the boat’s taking on water) to stay afloat you would need the psychological effect of rallying the crew, passengers, whomever, to all be of one mind, or of resolve, as to fix or alleviate the water coming in as to allow the ship to continue on, either to make repairs, or at the least, last until rescue could be had. And here’s the key: If everyone’s aware you never properly repaired the damage afterwards? If or when there’s anything resembling a “next time?” Everybody’s heading for the lifeboats first – including the crew.

Businesses are much the same in many different areas. An example would be: a company that at one time was the dominant leader of its time or product, then, after some time, innovative sclerosis of some type sets in and the company’s sales and product vacillates. And yet? The earnings reports (think Non-GAAP) show earnings beats and more.

The issue: So well does it work the first few times the company decides the “innovation” that’s needed is no-longer customer or product related. It’s shareholder related. And it seems to work, but it works only for so long until the psychological effect can not be held any longer (i.e., the belief that the stock price will hold) because anyone looking at the “balance sheet” with any business acumen will clearly see “There’s no there – there.”

In other words, the company wasted all its time leaving the “innovation” focus to its accountants, rather, than where it should have been – on the customer.

Examples of this (in my opinion) can easily been seen in companies such as Kodak™, IBM™, Cisco™, Sears™ just to name a few. Companies which did the opposite? Hint: Apple™ (e.g., Jobs return and focus.) Same could be said for Shultz and Starbucks™.

You can see how the psychological aspect allowed for giving them the room to refocus as they shored up the product, resulting in a subsequent strengthening of both product sales as well as net profit increases. Which is, again, the entire key that makes my statement factual, pragmatical, advice. For remember:

If the satisfying of customers, generating 1+1=2 dimension wasn’t dogmatically employed as the second part was allowed to bolster the first. (i.e., the psychological giving the breathing room via some form of faith via the customer, shareholders et al) Any subsequent hiccup (i.e., a fall in sales attributable to an easily understandable cause, or other “unexpected” item) people, customers, and even share holders would be sent moving, if not running, for the exits.

Which now brings me to Europe, and why you need to pay attention…

Since the financial crash one set of “companies” has not taken or applied my rule of business imperatives. In other words (again, my opinion, as I see things) banks have not “fixed” their number one part of the criteria, and instead, have relied totally on the largesse of central bankers to give the illusion that they did. i.e., “We’ll be bailed out by [fill in the government of choice here] and most “investors” can rest assured their money is safe with us, for remember – We’re part of the TBTF club!”

The so-called “stress tests” have shown to anyone with a modicum of rational thought that “stress” deserved quote marks. And there within lies the problem. Because that thinking is precisely what will now be tested from afar. As in, “I want my money as far away from these banks as I can get. For if there’s any stress to be tested? I don’t want it tested with my money!”

Why? As I started this whole conversation: Rule 1 was never truly addressed earnestly. And everyone knows it. Only the psychological aspect allowed money to remain “invested.” e.g. Allowing for the illusion of it being in a relatively safe spot.

But now that there is a bona-fide real example of precisely what (and how) “investor” money will be “bailed-in” along with the speed (as in days) bolstered with the supposed “calming proclamations” made by bank officials on the same plane as, “No need for concern, everything is fine.” Only to have the bank be taken over and sold days later? Remember my implied implications of what would happen on a boat? Hint: “Everybody abandon ship!” is usually what takes place first, rather than last. So again, back to Europe and why you truly need to pay attention…

Overnight Spain’s Banco Popular™ failed and was closed, then immediately sold to Santander™ by the ECB via their “Single Resolution Mechanism.” So what’s the big deal about that?

It’s two fold, first: You now have precedent. Second? Hint: It’s the psychological aspect that’s meaningful going forward. i.e., “How do I make sure I (or clients) don’t have any exposure because I now know what the results will be. e.g., I/We can Loose $ overnight or instantly.

Banco Popular wasn’t just some small time enterprise. Up until not too long ago it was considered the top bank in Spain. So now you have the first “ship” which quickly took on water in full view – and quickly sank.

The real underlying problem? How many other “ships” are far from sea worthy in let alone Spain, but Italy, Greece, and others? And not to add even more “water”, but just how many of these so-called “stress tested” European “debt-tankers” floating around out there with the psychologically held illusion of “safety” have others (think not just nationally, but globally) tied their profitability lifelines to? (think cross sold/held products like CDS’s and/or other exposures)

Now suddenly risk has gone from near nil to “Wait…what?” Again, this is the first, yet remember that other old axiom when it comes to sinking ships. Hint: Rhymes with rats and cockroaches.

With Mario Draghi on tap Thursday and what exactly he’ll allude to when it comes to further ECB money pumping is now all in question, and the “markets” will hang on every word, if not syllable and facial expression.

If there’s even the slightest hint of angst or double-talk emanating from the conference what we might begin to see is an ever so cracking in the facade of the “Steady as she goes!” or “What ever it takes” surety held by many when it comes to the ECB and its banks. There’s a lot riding there in light of the latest developments in my opinion.

The other troublesome issue is exactly what this all portends to U.S. banks if suddenly there were to be even more trouble in Euro-land. Not to mention the political of the day with elections and more.

To reiterate: As I stated at the beginning as in a “Rule 1: When you play the game of playing the second part to the detriment of the first? It’s easy to see what happens next. Today, we can only sit back and watch as to see just how this may take shape going forward. But at least you now have a prism you can use to view it along with using for others.

© 2017 Mark St.Cyr

June: The Fed’s 800lb Piece Of Interest Rate Straw

In about two weeks the Federal Reserve will meet as to decide whether another interest rate hike will be enacted. The odds of another hike still stands at near 100% even in the face of an evermore deteriorating macro environment.

The Fed. has stated over, and over, and over again via the openly mocked, and ineffectual tool known as “Forward Guidance” that it would raise rates in accordance with what the “data” provided. This became the genesis for the watch phrase “data dependent” to actually mean something to those looking for any “guidance” from the Fed. without being openly stated by the Fed. itself.

“Forward Guidance” was supposed to work something along the lines of the following. i.e., It wouldn’t take a rocket scientist to conclude there was an imminent launch forthcoming if a fueling truck was seen openly topping off the tank on a launch pad.

So, in theory, it shouldn’t take a Nobel Laureate economist to conclude if the fundamental economic measurements of the macro economy were either “in-line” or obviously healthy and moving in the right direction (as in, up), one would expect a forthcoming hike or other normalization event at any given FOMC meeting whether openly stated, or not. Conversely the opposite would also apply.

However, unless you were one of the fortunate to be on former Richmond Fed. president Lacker’s phone calls understanding anything emanating from the Fed. has been an exercise in deciphering economic gobbledygook, doublespeak, incoherent measurements and outlooks. And what maybe worst of all – the seemingly oozing of disdain for anyone who dare question their reasoning or insinuations – effectual results be damned.

One of the other catch words of Fed-speak that’s used more often than a revision of data downward, is the word “transitory.” This has been the go-to nullification tool of anything even hinting that the Fed. may be in fact on the wrong side of any economic efficacy. e.g, Bad retail sales numbers? Transitory – hike is coming. Bad employment numbers? Transitory – hike is coming. Bad GDP estimates and final prints? Transitory – hike is coming. Idea that the economy could be put into recession via hiking too much, too soon; aka policy error? Transitory – hikes are coming.

Again, if everything is doing so well: Why does the Fed. still feel the need to launch (or condone) off-the-reservation type arguments such as the latest from St. Louis Fed. president Bullard proving (once again) that soothing-tones are needed when the “market” experiences what was once known as “typical” price movements at record highs? Hint: Starts with “T”

The other catch-phrase that has taken the “markets” by storm is, of course, the increasingly disavowed mantra of “it’s different this time” which had been the rallying cry of “The Valley” as to stave off what they declared as business fundamental heretics. For the new “religion” of tech came directly from the book of “IPO genesis.” i.e., Get funded, Get Listed, Get Out. Cha-ching! Rinse, repeat. Or, said differently: BQE, and AQE.

“It’s different this time” now means the exact opposite of what it once implied. In other words, it has gone from meaning “fundamentals are no longer meaningful” to “no fundamental business practices means – no more business.” See the now “unicorn trail of tears” for clues.

Yet, as I implied, “it’s different this time” also applies to the Fed. for it is now (in my opinion) on a similar trajectory. And I don’t believe it’ll be transitory.

Back in May I made the following observation. To wit:

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

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

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

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

As of this writing not only has the economic data deteriorated further, some of that previously reported data has been revised down ever further.

What was supposedly “transitory” as implied by the Fed. at its most recent meeting, (i.e., the reported and referenced bad data was “transitory”) has gone from bad to not just worse – but much worse.

Why? Because it wasn’t just one data point that was revised lower. It was the preceding, along with the expected, all face-saving “rebound” that was supposed to show its transitory status was in fact applicable in the first place. Hint: See Friday’s “Jobs” report and its subsequent revisions downward toward abysmal for further clues.

So blatantly perpetual has the so-called “transitory” effects of a weaker than stated economy manifest, that even Goldman Sachs™ own Jan Hatzius has now all but jettisoned the idea of a hike in June, Sept., and any balance sheet reduction announcement to now only – a rate hike in December. i.e., Skipping June along with Sept. altogether and implying no impending balance sheet reduction either.

That’s not just a flip – that’s a stunning reversal of thought when it was all but a given via Goldman’s own calculations that a June hike alone was all but certain. Now? See above.

Then there’s that other “it’s different this time” behemoth for causing not so transitory effects: China.

I have been arguing, along with warning, over the last few years that the effects caused by the Fed. raising interest rates will be brought to bear most evidently in the “land of relentless GDP growth”, made manifest only via financial products and banking that would make a Non-GAAP devotee envious aka China.

We got a glimpse of just how “unsteady” things were in China back in August of 2015 when they nearly brought down the entire “market” singlehandedly.

Since that time it has only been arrested via the politburo throwing everything including not just the kitchen-sink, but along with it, the entire house at every hiccup that keeps emerging like a mutant financial game of “Whack-a-mole.” And things have not gotten better. They’ve only not been reported as existing, but the clues and traces of desperation are there – if – one cares to look at all.

Currently (as has always been the place to watch for clues) the Yuan is rising. But it’s not rising because there’s some form of confidence behind the move enticing others to invest. No, what’s currently taking place is total politburo manipulation as to try to defend against speculators (e.g., Shorts) and quell the ever-increasing fear of mainlanders pulling their money out of China and stashing it away in other countries or assets (see Canadian home sales for clues.)

What has been the unusual twist in this operation (no pun intended) has been the head-scratching near continuous plunge in the $Dollar. All things being equal: A hiking of U.S. interest rates alone should have gave rise (or strength) to the $Dollar as fundamental economic theory suggests. However, as of today, the $Dollar has been on a one way slide downward. The reasoning for this has left many currency pros themselves perplexed. Some, far worse, as in caught in the proverbial: right thinking – wrong result, resulting in large losses.

Why the $Dollar has been acting this way for right now is immaterial. What does matter currently (and in my opinion the only thing which has mattered) is the breathing room it has allowed China to invoke whatever ramshackle monetary “band-aid” it has as to try to get ahead of whatever else might be coming down the pike. Whether internally, or from abroad.

So far, it seems to have halted the outflows. But then again, so too did the proverbial finger-in-the-dam. And we all remember what happened next.

If the Fed. does indeed raise rates once again at the June meeting into what is obviously nothing that even resembles “transitory” worsening data? It could be the spark that sets the entire monetary fire keg ablaze. For the if the $Dollar reverses, and reverses hard (as is evidently possible, if not, plausible) you have as I stated earlier a “trifecta” for policy error shaping up. And it won’t just be China borne.

The “markets” and their reliance for spiking higher from the “tech” sector would also be in jeopardy. Because as has been documented by this site and others – without the ever-present central banking interventionism into the capital markets everything falls apart. See SNB, ECB, BoJ, Fed proxies such as Citadel™ and others for clues.

If the $Dollar suddenly reverses and takes heed to the sheer relentless jawboning of “balance sheet run-off” along with actually raising rates into an ever decreasing data driven backdrop? Others just might be panicked and decide the recovery was the thing which was transitory and its time to jump back in with both feet and hand-over-fists back into the “safety trade.” aka “the flight to safety.”

This could (or more than likely, would) send other central banks scrambling to dump their once “prudent” equity investments held via their “piggy bank” (aka Sovereign Wealth Funds) as to defend or stabilize their own currency fluctuations in any panic, exacerbating the entire process into what could easily become a self-reinforcing negative feedback loop. Think about it.

Bonds, along with yield curves are already showing those stresses may have already begun. For yields are falling as the “markets” are rising. Somethings not right with this dynamic if everything is so “hunky dory” as the Fed. likes everyone to infer from their “happy talk.”

We could very well be at that moment when all the so-called “experts” economists, their Ivory League brethren, along with their “think-tank” cousins continually pile on that further rate hikes is “just the thing” only to be precisely that – and it breaks the “markets” back like that other proverbial story about a piece of straw and a camel.

Nobody knows for sure, but those of us caring to look can see a disaster in the making should the wrong move come at precisely the wrong time. And this could be that time, but only time will tell. Again, no pun intended.

However, if you want clues as to see just how well the supposedly “best and brightest” of the economic guild are? I’ll just point to the current economic disaster in Venezuela happening with all its tragic human, and national costs, that shows no sign of letting up in the near future.

You know who never seen it coming? Hint: Nobel laureate economist, professor, former vice-president at the World Bank™, and widely hailed economics aficionado Joseph Stiglitz. Here’s what he was saying in 2007. To wit:

In his latest book “Making Globalization Work,” Stiglitz argues that left governments such as in Venezuela, “have frequently been castigated and called ‘populist’ because they promote the distribution of benefits of education and health to the poor.”

“It is not only important to have sustainable growth,” Stiglitz continued during his speech, “but to ensure the best distribution of economic growth, for the benefit of all citizens.”

10 years has past, so I have only one question: How’s that all working out?

And if you just had that sudden twinge in your gut? All I can say is: Yep, you’re feeling that queasiness for a reason. Because the Fed. is populated with people holding the same sense of sureness and economic interpretations. And it’s also now been 10 years since the beginning of their open insertion into the capital markets.

So again: How’s it all been working out? Can’t get any worse, right? That is, if you also see all that deteriorating data as “transitory” why be concerned in the least? After all, as they always imply, don’t worry…

“They’ve got this!”

© 2017 Mark St.Cyr

Being Ahead Of The Curve

Many times being ahead of the curve, or too far out over the horizon, at first gives the illusion that one has incorrectly judged the coming storm warnings. It happens to all of us that have the audacity to dare express contradicting arguments to whatever the daily general meme of the day is. It would seem I am currently experiencing one of those moments.

This came to light today when the news of the day hit with the disgraceful stunt launched by Kathy Griffin. As repulsive as the act is, what hit me was totally by surprise and showed just how striking a moment in history this may be.

I have to admit, as I wrote back in December I thought the “Political Celebrity Jump The Shark Moment” took place then, with the release of the now maligned political call to action video for the electoral college to not cast votes for Mr. Trump. Here’s a bit of what I said. To wit:

“Celebrities have always been used (and I mean just that – used) as to help sway public opinion one way or another. Or, to seemingly give some stamp-of-approval to one candidate over another. It’s been going on forever, and it’s not going to stop anytime soon.

However, with that said I do believe the most recent incarnation of the “political celebrity” may indeed be going way of the Dodo bird. Case in point: Martin Sheen and his leading of the gaggle to influence electors of the electoral college to stand up – and cast their vote for someone else.

In what was supposedly some form of call-to-action video Martin Sheen (did you notice the purple shirt?) and others called for electors to change their votes away from their sworn obligated duties and cast them for someone else. They wouldn’t openly state their desired choice (cough-Hillary-cough) however the intent was clear.”

Now to be clear, I’m not saying I was for, or against, any candidate, that’s not the point I was, or still arguing. The point is/was that I believed that stunt back in Dec. was a moment to be marked in history as a “jump the shark” moment. It appears I was wrong, and there is definitive proof that I feel compelled to share, even if it alters my original call. And it is this…

Back in the late 60’s Walter Cronkite openly called for the ending of the Vietnam War. To this call then president Lyndon B. Johnson is claimed to have said, “If I’ve lost Cronkite, I’ve lost middle America.”

In regards to this (not belittling the above) there was a reaction that may have just as much of a “punctuation mark” on this whole Political Celebrity nonsense. And the correlation comes from non-other than an advertiser.

It has been reported (as far as I’ve heard) that the first sponsorship that has publicly pulled their product featuring ads by Ms. Griffin is none other that Squatty Potty®.

Other headlines across the media are all along the line of, “Deal in the toilet” “Ad’s in the crapper” and so forth. Actually, the headlines are delivering more humor and originality than Ms. Griffin has in years. But that’s my opinion, yours may differ.

So, much like Johnson’s evaluation of Cronkite’s remarks I am marking Ms. Griffin’s moment. After all…

If you’ve lost Squatty Potty? What’s left that won’t follow? Especially if you’re on one.

© 2017 Mark St.Cyr

Clarifying The ‘Entrepreneurial Mindset’

Over the weekend I was approached by a friend who read my latest article and asked me a question that was perplexing them which I thought I’d share, especially for those whom may be new to my work. The question was this:

“Your article made a lot of fair points, but what I didn’t understand was how you equated “waiters and waitresses” into the mix.”

It’s a fair question for it’s a topic (or sub category, if you will) very few in my field ever include, let alone even equate, as a relevant topic into the whole business genre. Most (and it’s near all in my opinion) so-called “small business specialists”, as well as the so-called “corporate specialist” don’t even give the idea of such entrepreneurialism a second thought. Most are only concerned with either, “Can I sell this recycled “new and improved” gobbledygook to another HR Dept? Or, “Can I sell this recycled “new and improved” crap to an audience, lathering on enough jargon and mumbo-jumbo that they’ll be so confused they’ll clap rather than ask questions?”

(See the scientifically proven and disavowed “Left Brain – Right Brain” thesis for clues on just how long a brain-dead idea can remain within HR circles, culture, and seminars. And if you’re one of those who had to sit through one of these presentations? You have my condolences. But I digress.)

So, back to the question, “Why do I include waiters, waitresses, and others such as these into the small business or entrepreneurial categories?” Here’s why…

The term “entrepreneur” means different things to different people. Especially those who take the word literally. You can put the term into your search-engine or dictionary of choice, and the definitions are all about the same in one form or another. Here’s what you’ll get in a simple Google™ query:

en·tre·pre·neur
ˌäntrəprəˈnər
noun
a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.
synonyms: businessman/businesswoman, enterpriser, speculator, tycoon, magnate, mogul…

So, does a waiter or waitress fit into that description? Most will say no for reasons such as, “They don’t own the business of which they’re working. So that in, and of, itself excludes them from such consideration.” Fair argument. However, I disagree wholeheartedly, and here’s why…

First: For the sake of argument we all need to put the term “entrepreneur” into context as it is currently being used today. Entrepreneur used to mean (literally): building a business bigger than oneself. Today, the term has morphed into a catch-all phrase to now include anyone who’s self-employed.

Seth Godin uses the term “Freelancer” as to clearly distinguish between the two. e.g., Entrepreneur, freelancer. I agree, however I’ve just found the term easier to use then explain my rationale for using it later. (i.e., adding the “mindset”, or “spirit” descriptor) But that’s just me.

Here’s a quick explanation and sample from Seth’s blog back in 2006 which should be required reading to anyone thinking about entering the realm of business in any fashion. To wit:

“Most companies are not appropriate sites for VC money. That’s because they’re freelance ventures, not entrepreneurial ones. A freelance venture is one where you work to get paid. An entrepreneurial one is where you can make money while you sleep. Meaning that you work really hard and you scale and suddenly you own real estate or media properties or technology or a system or a brand that people pay for without you actually doing any incremental work yourself.”

“Freelancing”, in my experience, sometimes sets up the same kind of questioning that “entrepreneur” does in many of my conversations. Why? Because some people just want to take a thing far too literal (Usually, so they can argue about something they believe will show how they’re correct and I am not. e.g, One-upped the teacher syndrome.) rather than understanding the context of the discussion. This is why I use the term, “entrepreneurial spirit, or mindset.”

Waiter, waitress, or anyone who works where “tips” are part of their income are more times than not more entrepreneurial minded than most business people I know. The ability to earn “tips” is one of the only ways other than commissioned sales compensation that one has direct control over one’s ability to increase their income without acquiring or needing approval from management.

The better they do their job – the more compensated they are. Regardless of anyone else. And a good waiter or waitress can make or break a customer’s experience faster than a poorly prepared meal. Think about it; how many times have you been served an adequately prepared meal, but the waiter or waitress made the experience above average, and you tipped accordingly? i.e., Well above the 15% norm.

While conversely; how many of you had a wonderfully prepared meal – but the table service was lousy, and tipped accordingly? i.e., Left little to nothing.

In the latter scenario – which do you remember? The great food? Or lousy service?  And which one gives more weighting as to not going back? For many – It’s the latter. Are you beginning to see my point?

This is another reason why I railed against the idea of waiters and waitresses arguing for “gratuity entitlement” in accordance with impending minimum wage increases.

A waiter or waitress (or anyone where “tipping” is part of their income for that matter) who takes their profession to heart and executes their duties under the mindset that they’re the one’s who are in control of their income usually are not only in great demand – many can average incomes on par with some of the most senior white collared positions.

Some (meaning the wait staff) are the sole reason patrons frequent these establishments to begin with. You can usually tell a good restaurant when the same wait staff has been there for years.

I personally know a few “wait-staff”, and have a few friends who were put through Ivy League colleges paid solely by their mother’s income derived by waiting tables.

Don’t take my word for it, just ask people like Laura Ingraham and others who routinely will note such. Waitering, and waitressing are noble professions and one of the few which allows the entrepreneurial mindset and benefits to work near instantaneously when applied.

If you want a working example of how to start your own business using other people’s money? This is clearly one. Think about it.

However, you have to understand the principles at work – and apply them – to take advantage of them. If not – you just become someone similar to those which never receives more than a sympathy tip. (See: All those “tip jars” you now see at places where tipping is really not appropriate.)

As I always state: No matter the size or scope of one’s business, the first and foremost foundation of it all is:

“The Business of I.”

© 2017 Mark St.Cyr

On This Memorial Day

As we get ready for summer we begin with the kick off celebration of Memorial Day.

In our race to ready the grill, chill the libations, and hit the water, let’s not forget the reason for this celebratory kick off to summer. It’s made possible for us because brave men and women on our behalf stand in harm’s way so that we can relax in peace.

Let us never forget that. Ever.

I rarely talk about private matters. However, I think it’s only fitting no matter how old we get to still reflect on loved ones or friends who’ve gone past like ships in the night.

Marine Lance Corporal – James A. St.Cyr E/3 Born 2/08/47
KIA – Quang Nam 3/26/66
Vietnam Memorial Wall – Panel 06E – Line 052
(My Uncle aka Uncle Jimmy. To this day still missed terribly by all.)

As long as we’re alive – we should never forget. Whether it’s someone you know personally, of your own family, or even someone you’ve never met. We must always remember what it is to be an American regardless or race, creed, gender, immigrant, or nation born because: someone – somewhere – stands ready to give their life – so we may continue with ours.

Thank you to all that have served, or continue to serve. This American wishes all of you the best.

Mark

Remembering A Still Falling Hero: Small Business

On this holiday weekend known here in the U.S. as Memorial Day, I would like to make a slight turn in the narrative that many give little to no attention too, yet, is one of the most important underlying principles or fundamentals which helped shape, lift, mold, sustain, and create one of the world’s greatest economic powerhouses bar none.

That “turn” is in remembering: The liberty to create, and own, one’s own business.

As true as holding the principles of liberty close to one’s heart is near-and-dear to every American. What gets forgotten all too easily is what enabled many of those immigrants that fled here during its rocky beginnings, and still continues today, to shape and mold a better life for themselves and their families. That other foundational principle is this:

The ability to create, and pursue, a business idea that could, or would, allow them to acquire economic liberty based on their own self-expression made manifest via perseverance, and sometimes a little luck. And with that – create a foundation which could either be passed on, or sold, by their heirs, giving them possibly one further step-up, or ahead, onto firmer ground to take another. And maybe another, and another, and so forth.

Only through the pursuit of business was the true circumvention of any stigmatized political or economic class, ethnicity, and more so truly held in one’s own hands. Self-actualization, the pursuit of economic riches, the ability to ingratiated oneself by their own means to not only claim to be part of the American experiment, but to actually be American regardless of where one began, either from abroad or born within – was not inconsequential.

Being an American businessman, regardless of ethnicity, political class, economic class, religious persuasion, gender, or anything else, in many ways was the embodiment for something to be cherished and honored by the owner.

Being the sole-owner of one’s own economic future was either unattainable, or unavailable anywhere else.

It embodied everything the American principle was created for and rose upon. Without it – we would have just been another ruled monarchy; socialist; communist; caste; (fill-in-the-blank) or combination of all system under a different name with better topography. It’s the only thing that separates the U.S. from all others that came before and since.

(Note: The gender neutral term “business-person” just doesn’t flow and only emboldens the gender-sensitivity-police and I’m personally sick-and-tired of them. Women with true business fortitude understand there’s no derogatory slight in the term “businessman.” Period. For those wanting more on my thoughts about women in business see my article “The Bull On Bossy” for more insight.)

The term, as well as structure, that has allowed the U.S. to grow as to become such an economic powerhouse is called: Free Market Capitalism (FMC.) And its foundational starting point is the sole-person who decides to either create their own product, or work with (and yes even for) others who are in need of their talent. Then, decide where, and on what agreed upon price commerce takes place. (Examples of such are Family Dr’s., accountants, bakers, tattoo artists, waiters, waitresses, plumbers, electricians, salespeople, and far too many more to list. And yes, even bankers.)

Again, at its foundational point is the solitary person who decides to take matters and consequences under their own purview and either rise, or fall, on their own business prowess upon the battlefield known as business or commerce.

What is taking shape today, and what’s worse – growing – is anything but.

What most have no understanding of, let alone idea, that’s taking place today is the circumvention of Free Market Capitalism, and in its place, the insertion of its hybrid, ever-morphing, evil twin. e.g, Cronyism, aka Crony Capitalism (CC.)

I could go on for days explaining why this insertion of CC into the FMC model is not only egregious, but dangerous. However, all one has to do is look at the current economic landscape with an eye for truth – and its perversions and consequences can be seen everywhere.

It’s like a visible, metastasized cancer encroaching upon economic liberty. i.e., Forget about the “golden egg” its wrapping its hands firmly around the goose’s neck in broad daylight. And never mind those not bothering to look. What’s worse – is those who can’t turn their eyes away seem to think there’s anything wrong with this picture! e.g., Ivory Towered academics, main stream business/financial outlets, et al.

A few years ago I penned the following article, “It’s The Entrepreneur That Saves An Economy – Not The Fed” and in it I made the following point. To wit:

“The problem that’s taking place right now within the economy is exactly what you get when you take a free market economy and try to impose a command and control blanket over it: you smother it.

The Ivory Tower academics have no real understanding of what “free” actually entails when it’s expressed through the economy as a whole. The ability to build a better mouse trap, or, solve a previously unsolvable riddle all while charging a price two parties can both bear, profit by, and have satisfaction in the transaction does not, nor ever will take place within a command and control base. Ever.

Free markets allow for competition to find equilibrium as to provide and deliver a service or good someone will pay a fair price for. And yes, even for such an item such as a stock price.

Command and control fosters either the “State” to be the only provider, or, a fostered crony capitalism styled arrangement which is nothing more than another iteration of some communist system in prettier buildings wearing better suits. Harsh? Yes. Off point? Hardly. And that’s the problem.

The great capital formation experiment and enterprise known as Wall Street and its Exchanges, once the envy of the world, has now been transformed into nothing more than a rigged casino where Fed fueled “hot money” front runs orders in ways so egregious to the principal of fair play; walking into “a den of thieves” would be considered a step up.”

Here’s a bit more from that article directed squarely at the Fed. (or central banks in general) and its interventionist policies. At the time my accusations were excoriated as derisive, uneducated, (fill-in-the-blank.) However, with that said I’ll let you be the judge as to just whom seems to be “uneducated” when it comes to economic theory and practices. Again, to wit:

“Business people know and understand this intuitively. Ivory Tower academics, intellectuals, and economists are not only clueless, it’s their wanton indignation of these facts that move their policies beyond destructive right into outright dangerous territory for any free market based economy.

The only one’s that can benefit from such a business environment are those that gorge and reward themselves via the availability current Fed. policy fosters. And the name for it is: crony capitalism.

Whether the Fed. wants to admit or not, that’s what their current policy and communication fosters and bolsters which is the antithesis of what the Fed. itself states as its primary objective; for there is no wage growth, no true job creation, no sustainable capital formations, and not stable markets.

The Fed. is killing the economy – not helping it. And as de facto proof I point to their own measurements of achievement. The markets, the labor participation rate, small business formation, wage growth, and on, and on. It’s all pathetic.

The Fed’s QE program has adulterated valuations so much it will be a wonder if we ever get back to a more normalized set of business values let alone their valuations and away from this calamity.

There are entrepreneurs along with CEO’s of companies who are quite literally chomping at the bit to try new or improved innovations – yet don’t dare for either their competitors are being kept alive via cheap money afforded them under current ZIRP policy, or worse, don’t dare hire or spend for who knows if the Fed. will raise out of the blue or announce some new program that runs anathema to basic sound monetary policies.

You don’t invest in cap-ex or hiring for the long-term if you don’t know what the rules might be tomorrow never-mind next year. Period.”

If you gauge the current economy via the abomination now known as “markets” (which the Fed. clearly does) this “success” is all but missing its own “Mission Accomplished” banner. However, if you measure the economy via its true measurements of health like jobs, small business creation, cap-ex, and more? You go from banner to tombstone. Yet – the epitaph reads the same as “banner.” It only depends on perspective as to what the words mean. Think about it.

To make my point even further on just how far economic “thinking” has gone off the rails. I was reminded of it by none other than Mark Zuckerberg of Facebook™ via his latest speech or commencement address.

Nowhere in my recent memory has the idea of small business, along with what it means for the economic health (e.g. Free market Capitalism) been so avoided, so adulterated, so perverted in its messaging and delivery than what I witnessed when viewing Mark Zuckerberg’s address to this year’s graduating class at Harvard University.

In my opinion: It was the epitome of everything going wrong in business today. I also viewed it as one of the most tone-deaf, quasi-political speeches ever given at a commencement speech via someone who should be the embodiment of this time in history’s most celebrated and espousing Free Market Capitalism entrepreneurs.

It was so dreadful, and full of what I view as socialistic laced mumbo-jumbo, I couldn’t listen to much more than a few minutes. Again, via my interpretations; it was agonizingly void of anything resembling free market business principles.

Only a speech delivered by Hilary Clinton compared for substance and delivery. And that’s being kind.

This so-called “address” was anything but “uplifting” for those who are supposedly about to enter the work force and help create the next wave of dynamism for economic growth for the U.S. and subsequently the global business environment.

No, instead, after listening about such themes as “guaranteed universal basic income”, “we are the world”, “save the planet”, and more; it would make perfect sense after receiving their diplomas they simply returned home to their parents basements and waited for the world to offer them a corner office, 7 figure starting salary, trophy-spouse, 2.2 children (gender to be determined) and world peace. Just make sure you’re logged into FB as you wait. Because that’s how Mark gets paid, even if you don’t.

It seemed when listening that in a Zuckerberg vision of the world: Don’t pull on your own bootstraps. Wait! Sooner or later they’ll be able to offer you Utopia. And you’ll thank him for it. Just remember to vote “Like” to show your support behind him if, or when, he decides to run for office. Because for what that speech lacked in spoken words of business ideals, it was laced with more unspoken terms of the political which could not be ignored even when trying. i.e., I couldn’t help but think at any moment I would hear something to the effect of: “And be on the lookout for Zuckerberg for (fill in the blank) in 20??”

Compare Mark’s recent with the one delivered in 2005 by the late Steve Jobs at Stanford University. The two could not be more striking in both tone, as well as delivery. The difference is utterly remarkable and is clearly visible:

One is a businessman explaining via his own words and experiences how one may go about changing the world for the better via FMC principles and ideas eschewing anything to do with the political. The other? The antithesis of the former, delivering a speech more in-tune as if it were written by Mrs. Clinton’s former speech writers.

Don’t take my word for it, view both of them yourself and come to your own conclusions. The differences couldn’t be more striking.

The only way forward for this nation (e.g., U.S.) is for the rebirth of quest and zeal for small business America. It is what built this nation, continues to support it (although it is being waged war upon by crony capitalist benefactors and devotees daily) and is the only way to reassert and preserve the foundations of the Free Market Capital system.

What we are experiencing today is an adulterated, ever-growing, Frankenstein perversion of those once pristine principles that is growing ever-the-more unstable with each passing day and is showing signs that it’s about to break loose of its creators (The Federal Reserve) control at any time.

The current “market” is nothing more than a bull looking for a china shop. Ironically, it may be China that subsequently puts the “bull” into a place which no one “thinks”, let alone, believes.

For those of the newly minted “graduate class” let me offer you an example of just how cronyism works and is prevalent at the very core of what many of you use and treat almost as sacrosanct for entrepreneurialism in today’s business and “market” climate. e.g., Social media, and the companies that fuel it.

If you are one of the few that believed (or still does) Snapchat™ was possibly the next Facebook and invested in its stock, only to see your profits or initial investment go “poof” much like its core product? And yet – have watched simultaneously as FB shares rise and think there must be some “business” reason as to why this happens or “business acumen” you don’t fully yet comprehend? Hint: Welcome to central bank manipulation for picking winners and losers 101.

As I’ve stated too many times to count over the years: This is why having (or picking) a company with a stock price which has a central bankers “bullseye” on it is the only thing that matters. And guess what – Facebook does and Snapchat doesn’t. Want proof. Fair point. To wit:

Swiss National Bank’s U.S. Stock Holdings Hit A Record $63.4 Billion”

The real issue here as I’ve reiterated time, and time again, is this:

When your investment loses value – you lose money and net worth. When a central banks “investment” loses value – they just print more, and buy more, allowing the pretense of “health” to perpetuate inducing even more to buy alongside them furthering the charade of a “market” based price or demand. Rinse, repeat.

Hint: Facebook is on that “Bullseye” list. Along with a few other notables. Snapchat? See latest stock price for clues. And that’s just the SNB. You still have the Fed’s proxies, ECB, BoJ, PBoC and their proxies buying who knows what else.

Is it any wonder why small businesses are having such a hard time competing with these new-found business behemoths of today? For others, its having to compete with companies which are clearly “over.” e.g., See Sears™ for clues and why it has been able to stay open via cheap capital facilitated via Fed. policies unavailable to small businesses.

So with that all said: Long live small business! It may be badly banged up, battered, and bruised. But it’s far from dead just yet. We only need to remember its importance too all of us. Our nations health, and very survival depends on it. It’s a too often overlooked part of our fundamental liberties. Brave men and women of all stripes have, do, and hopefully will, continue to fight for its preservation along with our other sacred liberties.

Too all of them: past, present, and future – you have my sincere gratitude. Both military, as well as business people.

© 2017 Mark St.Cyr

Addendum to : The Fed’s Freestyle Returns

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

© 2017 Mark St.Cyr

Social Media: Stick A Fork In It

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© 2017 Mark St.Cyr

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Impeachment.

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

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

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

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

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

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

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

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

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

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

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

“They’ve got this!”

© 2017 Mark St.Cyr

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