Why A Stock Market Drop Is Inevitable – And Needed

If all you were to do was take your clues about the health of the overall economy from the mainstream business/financial media, one would tend to think (or assume) that things are going along pretty splendidly. Stock market indexes contained to the developed nations (think: U.S., Germany, France et al.) all seem to exude a similar vibe whenever a moment of turmoil enters the fray. i.e., Don’t worry, BTFD (buy the f’n dip) for the central banks are still far from removed.

This theme is regurgitated, as well as vociferously parroted via the next-in-rotation: fund managers, Ph.D’d economists, or Ivy Towered think-tank elitists. For them? Business is booming! For the rest? Hint: It’s not what they’re trying to tell and sell.

The issue facing a lot of businesses currently that no one, and I mean just that, no one appears to have either the inclination or acumen to address, is this: The capital markets (aka stock “markets”) have perverted what was once known as free markets and commerce. We’re no longer operating under the guise of free market capitalism.

No, what we’re currently pretending to be (especially in the U.S. which is shameful) is a Potemkin Village parading as “Free Enterprise.” But there is something sinister hiding behind and protecting this facade. It is an ever-growing, multi-headed monster type of junk-yard-dog consisting of, “Crony-Capitalism” and its perpetually swinging socialist-to-communist sibling, “Higher-Ed”

As offensive as those two are to business (and capitalism itself) there is a third head, which by itself would make the, “Hound of Hades” think twice before growling. And the name of this mutant in the triad of all that is unholy to what was once considered fundamental business (e.g., creating net profits) I call, “The Disrupting Necromonger.”

Many understand (or at least used to) the reasoning why monopolies and such are dangerous in many aspects. Business people of all statures understand that unfettered anything, forever, will more than likely end in an unfettered disaster, eventually.

Even fans of the old “Wild West” days, whether of a nation, business, or social norms inherently know at some point there will be the need of restraints, of some sort, for our own good.

As bad as crony-capatilism is, the stank-and-stink emanating from the Ivy Towered Ph.D set that is directly profiting via the government guarantee (aka Sallie Mae®) for the lading of obscene debt onto economically clueless students is far more than shameful – its repugnant.

And yet, it is this set of “business intellectuals” that come out and tout how they believe the “free markets” should work.

I have an idea we should try: Let’s see how well (and valuable) all those theories work when a student can no longer sign up for the equivalent of a government-guaranteed-predatory-loan for a worthless degree in a discipline that doesn’t pay, first. And stake their pension and salary on those results. Think they’d be any takers? Hint: “Bueller…”

As bad as the above are, it is this third, now fully emerged mutant head I’ve named “The Disrupting-Necromonger” (DN) that’s causing many in business the most problems.

Some of the biggest names in commerce and more fall into this category – and it is here that shows not only how clueless the so-called “smart-crowd” is but, what I feel is far worse, and it is this: they are teaching and impressing on many future business creators, as well as future managers, at all levels, that this model is not only viable, but enviable.

That model? 1+1=2 is for losers. If you really want to make it in business, just sell 1+1= ______(whatever you need) and sit back and collect the stock options of rewards. Rinse, repeat.

And when the numbers don’t add up? Lie, or said in the proper vernacular, “per Non-GAAP.” Don’t argue silly old-fashioned notions like net profits, costs, or any other such nonsense. No, when you really want to make the big bucks just “baffle them with bullsh*t.” State “active users” or “eyeballs” or some other meaningless metric.

Remember: disrupting a viable business or market where companies are generating net profits to cover the costs as to pay irrelevant priorities such as: paying employees decent wages, adhering to applicable laws such as zoning, unemployment insurance, fire codes, et cetera, is for losers.

What you need to do, today is, announce you are going to “disrupt” the entire market, and all you need to do is, first: raise some venture capital to cover all the red-ink you’ll spread as you sell your service into that market at pennies on the dollars pricing models. Then, sit back and wait for your VC’s to come up with enough presentation slides full of incoherent gobbledygook that will allow it to be sold to Wall Street via an IPO. (i.e., get it past the S.E.C.)

This will allow you to fund any-and-all red-ink you’ve produced prior, as well as continuing to produce, along with extracting even more red-ink from all the businesses within that industry – in perpetuity. Till the one with the worst “books” is left standing.

Do this and you’ll be rewarded in what is now known as “The markets.” Where fiction has been replaced by outright fantastical, as well as fanatical thinking. It’s now so absurd its tragic.

To prove my point I want to use three quick examples that are in the news of late. I have made mention two of these names over the years. One is Twitter™, the other is Netflix™. But the other I have not, yet, as of today, demonstrates precisely just how far down the-rabbit-hole of business absurdity we have traveled, all perpetuated via the hand of Federal Reserve monetary policy since the first enactment of Quantitative Easing circa, 2008.

Twitter just announced it has purged some 70 MILLION in the last two months. That equals out to be around 20% of their 325+ million active monthly users. The reason? These are said to be “bot” accounts, rather than real people. i.e., real people generate ad revenue. (So do click bots that imitate real humans, just sayin’)

Ok, sounds fair, but (and it’s a very big but) what should happen to all that stock price enthusiasm and momentum which was surely made possible (or at least allowed its share price to vacillate) during all those “earnings reports” prior?

Or, is it fair to say, that now since Twitter was able to be sold within the S&P 500™ index in June that it would no longer need to keep up the charade of adding or keeping users? Because now, for all intents and purposes, “Who cares!”

All that hard work (and I’ll assume, lobbying) to get in has paid off with a more than doubling of its share values since 2016. What a way to make former bag-holders whole better off then by selling the bags to a broader audience indirectly, yes? Welcome to business in a DN environment.

Then, of course, there’s the behemoth DN known as Netflix. Great product, great service? Sure is. Great business model? Better question would be – “What business model?”

It has a model, but it doesn’t look like anything related to what was once known as, business.

The more liabilities, as in the more red-ink it spews – the higher its share price goes as to fund even more red-ink. All while it not only disrupts current models – it makes anyone considering trying to compete (aka trying to stay in the television or movie business) appear insane, for the “markets” in overabundance has rewarded the newcomer, with no regard to the balance sheet, nearly infinity-to-one share value over the businesses they’re trying to overturn. i.e., If you’re in the outdated business model of trying to make net profits via 1+1=2 math? Your stock is going to be sold and slammed, for there’s a new kid in town, and their story of balance sheet alchemy sound so much better than your old-fashioned one. “Net profits, who needs them!”

Then there’s the third I alluded to earlier, and it is here that shows just how far down that “hole” we’ve traversed. It’s name? “MoviePass™”

This is one of those ideas for a company that if you were to have the audacity to try to sell it (as in raise money) just 10 years ago – you would have been laughed out of most meetings. i.e., Raise money so you can sell a subscription service to the purveyors of said product, below cost – as you pay those purveyors at their set profitable levels until, well, maybe in perpetuity.

As bad as that sounds, what appears even more problematic is, not only did they originally achieve raising $Millions of dollars to begin this folly. Someone came along and looked at it thinking, “This is a great plan, let’s buy it!” and did just that where it sold for $28Million to a Wall Street listed firm, Helios & Mathos™ (HMNY)

Again, let me reiterate (all conjecture) how was it that no one seemingly ever contemplated that said “purveyors” could easily just do it on their own? Even possibly, dare I say, at cost-effective margins? How in the world does this make sense from a business perspective? Hint: It doesn’t. It’s just narrative game play, not true business. But it’s probably now being taught as “Business 101.1” in some $50K+ yearly “business school.”

Just this simple business understanding would make the idea of such ever being possible, let alone viable, moot. Yet, here we are.

Until the inevitable happens, many a business will remain stuck in “Dry Profits Gulch” also known as “Crazy Town” (Think: retail for one) till a mighty wind blows this Potemkin Village, or Houses of Cards over. Although as far as what’s holding it all up? It may only take a slight breeze from the East to show just how poorly constructed everything was.

© 2018 Mark St.Cyr

Knowing What’s Important And What Is Not

When you’re in business an empirical trait that must be learned, then honed, over and over again, is determining what is truly of first importance – and what falls into secondary, and so on.

Some appear born with this trait, seemingly through genetics or up-bringing. Others acquire it, or learn it, the old-fashioned way. i.e., through forced trial and error aka the required curriculum at the school of Hard Knocks. However, with that said, whether it’s ingrained at birth or learned, regardless of the age, one thing is paramount to understand. As I’ve stated over and over again, the key to its effective usage – is in the honing. The discipline can be learned.

“Gut feelings” are a great tool, but understanding the nuances of what your “gut” may be trying to tell you as in, “Is it the pastrami from earlier, or is this really a bad idea?” is where the real discipline comes in. And that is only done through trial and error, in real-time, and in real life.

You can learn a lot from books per se, but until you apply what you learn in a real situation, with real consequences, the “learning” is nothing more than hypotheticals.

This is why I silently laugh when I’m at some conference or gathering where a biographer, or devotee of some highly regarded figure begins to explain the how’s or why’s as if they’re just a transferable commodity, extrapolated via their research. i.e., They’re now selling a book, about what they read in another’s book, so you may purchase and read it for yourself.

This is the equivalent for creating your own “Instant Guru” recipe. i.e., instead of adding water, it’s a book.

Now don’t get me wrong, books are very important. And biographies (especially biographies) and other non-fiction, along with the entirety of fiction and other genres I enjoy, and extrapolate quite a few useful nuggets from the darndest places or passages.

But again, as I iterated earlier – everything remains hypothetical until one actually applies it then, evaluates the consequences for good, ill, or indifference in real-time and in real life situations.

This is why over the past few years I have written and spoken on the subject of, “Being wrong for the right reasons.” It’s easy to understand the premise, but living through the consequences of that premise and applying it, as well as arguing it, as the world seems to be lined up to throw water (and few other unmentionables) all over you – is quite another. And only those (let’s say most) who’ve been through it can articulate it as to give pragmatic insights that can be assimilated by others to then use as they see fit.

This is the reason why so many “business” or “management” titles reside on the shelves of some of the most incompetent, clueless CEO’s and managers today. i.e., They are nothing more than what I coined “office billboard advertising.” Even if they were read (and I’ve read a lot of them, actually too many of them) deciphering what these so-called “gurus” have deciphered and putting it into pragmatism – is chore I now leave for others. Actually, when convenient, I recommend many of these so-called “best selling” titles to those I see as ether a competitor, or just someone I dislike. But I digress.

Again, I’m not saying all – I’m saying most. The list is far too intricate and numerous as to try to list. (Hint: Want to truly have a grasp of understanding what’s truly important to the core of corporate management? Read all of Peter Drucker’s material and skip the rest. More often than not, you’ll be better off for it.) I know I’m painting with a broad brush here, and some may say even I fall into one or the other category. So it’s not like I’m throwing stones without realizing my own “glass house.”

But this is the reason why I began in the first place, because when I first began traveling down this path I thought I was learning as I read and listened to many (again, far too many) authors and speakers about what to do, what not to do, and so forth. What I learned was that most really hadn’t a clue – they just read – never applied. How do I know they never applied? Easy – they’re gone. i.e., Out of business.

I can not tell you how many times I’ve heard some so-called “investing guru” tout from the stage, or across one form or another of the mainstream business/financial media, the reason why they’re so adept for handling your money – is that they’ve read all of Warren Buffett’s books on investing. Hint: Ole “Uncle Warren” has never written one. So much for all that “insight,” but again, I digress.

Now the reason why I’m asserting the above is for context, because what I want to assert next is not only what I’ll describe as important, but all add it may be paramount as a key identifier for understanding as to interpret what may, or may not, effect your business going forward. They are the two things the entirety of the mainstream business/financial media along with its cabal of the so-called “smart crowd” has been professing for years either A: Doesn’t matter in the larger picture. Or B) Is completely under control and will have little to no impact on the “markets” going forward. I have been arguing vehemently that this viewpoint is irresponsible at best, and outright dangerous at worst.

So with that said let me give you the latest examples as to why you truly need to be paying attention, and the reasoning is simple: The core of the reason behind being “wrong” for the right reasons is showing just how vulnerable the “wrong” may be turned into right. And the implications are legend. To wit:

(Source)

The above chart is the U.S. $Dollar/Chinese Yuan cross rate as of this writing. The bars/candles represent daily intervals. I opined in a recent article that the “6.70” level was where one should watch to extract any clues. And it was precisely here where the PBoC (China’s central bank) openly intervened and slammed the currency cross downward as to both demonstrate control, as well as possibly scare any shorts out of positions. The reasoning is simple – whether by design as a show of strength, or out of a panic of losing control, you now have proof positive that there is, in fact, a demarcation line that is of critical importance. What you do with that information is up to you, but make no mistake, you now have legitimate proof, made manifest, via the intervention of the PBoC.

Here’s the other…

Again I (and others holding the same viewpoint) have been vehemently marginalized (at least that’s the intent) via many of the so-called “smart crowd” that once the Federal Reserve begins to extract its QE via the asset “roll off” program aka Quantitative Tightening (QT) that the negative effects will be in direct opposition to all the “happy talk” that’s been going on for years as to explain why the “markets” are at such dizzying heights. e.g., “Good earnings, reasonable PE’s, blah, blah, blah.”

My assertions became manifest exactly when I said they would which has now been coined by many in the media as the “February scare” when the markets fell, almost to the minute, the new Fed. chair took his seat.

But as I argued then, it wasn’t him that the market reacted too, but rather, this was when the “markets” caught its first verifiable glimpse that indeed the reduction of the balance sheet had commenced. And with that – the “markets” plummeted. And ever since – they’ve both never fully recovered those highs, and have zig-zagged back and forth between euphoria and panic. Below is a chart as of this writing to demonstrate, again, to wit:

So now I’m sure you’re asking, “So what’s the above got-to-do with the second point, and what the heck is the second point?” Good question, and it is this…

Remember that bit I stated earlier about the “balance sheet” and why it was important? As always, I’d rather let you come to your own conclusions. To wit:

(Source – screenshot of St. Louis Fed. FRED® Economic Data publicly viewable post)

This was reported via ZeroHedge™  just before the U.S. holiday. For those not fully understanding the above here’s what the above shows. Remember that “balance sheet” detail that seemed to scare the “markets” that everyone has said is immaterial? Well, the St. Louis Fed. has decided that it’s so immaterial that they’re no longer going to publish it. Hence the “DISCONTINUED” notification. Funny how that happens right before the QT program is now supposed to accelerate, or increase by over 50%, is it not? (e.g. $30Billion to $50Billion)

Now you have two of what I’ll call extremely important markers to watch for clues. Two, that I’ll also state, the mainstream business/financial media has been absolutely clueless in interpreting. But now, you have proof positive of exactly how important these markers are, for the reasoning is simple…

You know it’s important when either the governing bodies actively demonstrate that “their hands in the soup” – or – no longer want you to see where “their hands” are.

As always, what this all means too you is totally up to you to decide and act on, or not. Which is how it should be.

© 2018 Mark St.Cyr

The Trade War Gamble: It’s Not Trump’s To Win But China’s To Lose

As we sit here today the “markets” appear to be shrugging off any remaining discontent from the February scare earlier this year. Trade war? Who cares buy, buy, buy! E.U. concerns such as Germany, Italy, Greece, et cetera? Brexit? Who-gives-a-sh*t, buy, buy, buy! How about Argentina or Brazil? What about Mexico? Who cares, that’s all so Cinco-di-mayo ago. What about Canada? What about it? Unless their threatening to stop shipping beer, buy, buy, buy!

This has been the overarching consensus expressed via the “markets” as of this past Friday. Or, said differently, in those immortal words of Alfred E. Neuman, “What, me worry?”

I would contest: Yes, yes you should.

Regardless of the political view one may have about the current U.S. president, one thing can not be understated: The more one tries to frame the unfolding “trade war” kerfuffle via a political view exclusively – the more business illiterate one shows themselves to be.

This is why when you listen to most Ivy Leagued, Ph.D’d, think-tank, economists or academics paraded across the mainstream business/financial media to supposedly tell you something worth listening to for insight – you would be better off, just turning it off, because it’s all a bunch on nonsensical, “intellectual”, gibberish. i.e., When a so-called “business show” host tells their viewers the reason why one needs to listen carefully to their guest for relative or pragmatic business insights is, because they are a “liberal?” Sorry, you’ve just lost any remaining business credibility you once had.

Irrespective if one is a liberal, conservative, independent, or a penguin. It doesn’t matter when it comes to business. i.e., Business – is – business. Period.

The business of politics is a completely different matter, and understanding the difference, along with being able to understand and articulate points where they meet, and how they can be used for advantage or other scenarios, is what astute business purveyors can do instinctively.

Academics, evidenced by reason of their title alone – can not, for they know nothing other than academia. Where getting to the top is how much “paper one can push” or how well one can bloviate what they know, because of what they read, not what they’ve done.

Think I’m off track? Fair point, so I’ll use just one example, for it doesn’t just speak volumes – it’s an entire library.

Ask the once “next in rotation academic of insight,” business school professor, Nobel prize-winning, Joseph Stiglitz how well Venezuela is doing?

Hint: There’s a reason many argued against the views and rantings of Mr. Stiglitz and his Ivy Leagued ilk. e.g., In his book “Making Globalization Work” (2006 W.W. Norton & Co.), Stiglitz argued that left governments such as those in Venezuela, “have frequently been castigated and called ‘populist’ because they promote the distribution of benefits of education and health to the poor.” i.e., Socialism is the answer to capitalism, got it. So, how’s that whole Venezuela thing working out?

Well, just don’t expect to see that question asked via the mainstream business/financial media – for his insights on such matters seem to suddenly be out-of-sight. Funny how that happens, no? Just scheduling conflicts, I’m sure.

The reason for the above is this: If you look at the unfolding trade rhetoric solely through the political prism – it appears nebulous, nonsensical, or both.  However: If you view it through a business centric viewpoint – many clouded issues, along with seemingly illogical rhetoric, begin to become clearer, both strategically, as well as tactically.

To say differently: the more you understand business – the better you can both understand, as well as appreciate, the current situation and tactics being employed from all sides other than, if you try to interpret solely via the political, which is all most academics can do. Even if it’s all happening by happenstance, doesn’t matter. The implications remain the same.

Now, to be clear, I’m not arguing for, or against, the current administration based on their political party or view. What I am going to argue for is their current dealings when it comes to business, and in-particular the way it is dealing with prior trade agreements. For it is here, when one views the current stance and responses via the business prism – things make a whole lot more sense than what most of the so-called “smart crowd” interprets to be happening.

I wrote about just this point back in January, 2017 when the first iterations that things were not going to go along as “business as usual.” And since then my point has been made clearer, and clearer every-time the academics try to interpret, then explain their reasonings.

I’ve seen and heard more convoluted, nonsensical interpretations to the degree, I believe, it would make a Rorschach test blush. And when it comes to “Trade wars?” It’s even more of a farce, where I’ve stated so, in prior articles.

Whether one thinks the current situation is untenable, or not, is immaterial. Why? Because it’s the entirety of all the prior, globalized “free trade” deals that are the untenable part.

What the current administration has done is taken a play right out of not “The Art of The Deal” (November, 1987 Random House) but rather, the movie “Margin Call” (2011, Lionsgate) when John Tuld (Jeremy Irons) states, (paraphrasing) “It’s not called panicking, if your first.”

Using the above for context: The U.S. is the one that is now – first out the door – of these untenable trade agreements constructed out of whole cloth business assumptions permeated and perpetuated throughout academia and government house organs everywhere – and  – it is China that is beginning to panic, along with most, if not all, of the others.

My opinion of course, but it’s based far more on business acumen than any academic interpretation can muster.

China is now visibly struggling to keep all the “spinning plates” of financial engineering aloft, but they are beginning to wobble miserably.

The Shanghai Composite Index has now moved into technical Bear Market status (e.g., down 20%.) The Yuan, whether by stealth devalue or outright politburo control loss is within spitting distance of panic levels. (e.g., 6.70 USD/CNY cross-rate) Above 6.70 and the race for all out currency panic begins in earnest (e.g., 7.00)

In China their leader Xi Jinping was recently voted in as “leader for life.”  I have written about this prior where I made the argument that this will allow him to control the populace with an iron fist should the economy begin to falter, then runaway downhill. I also argued it was the reasoning why he pushed for it. I believe a difinitive answer to that assessment will be forthcoming in the very near future.

Yes, many will state that the current Trump administration will be tarnished should the economy begin to falter. That may be true, but it may also be false, and here’s why…

Should China suddenly falter with either a massive currency devaluation, whether directed via the politburo, or just from market forces, sending contagion knock-on effects reverberating globally will be just the catalyst (as well as straw-man) the administration can (and more likely, will) use to state something akin to, “See, it was China all along benefiting on our lousy trade policies. The more we asserted fairness, the quicker they fell apart. See, they can’t compete with us unless it’s based on tying our hands, so now we need to begin rebuilding right here, first!”

Doesn’t mean there won’t be pain for everyone involved, but the difference is “Rebuilding Main Street U.S.A., one job at a time” and the pain which may follow as to do just that is a lot more acceptable to the citizenry than – keeping bad trade deals alive so others like China can thrive.

If you want to know why there’s no “Main Street” feeling in most cities, look no further than the globalist “free trade deals” of yesteryear.

That wasn’t business – that was economic suicide. And anyone with half-a-brain (or no college degree) can see it.

© 2018 Mark St.Cyr

An MYTR All Access Exclusive

This is just a sample of one of the exclusive features, or presentations that will be coming soon under the MYTR banner and subscription. It is a raw, unfiltered video presentation that goes into a little more detail of the “markets” as to where we are, where we may be going, and what it may mean too you, or your business.

It’s recorded in the manner of, let’s say, we’re sitting, talking after a meal, having a beverage and you asked me for my thumbnail-sketch opinion of what I’m currently seeing through my prism or acumen.

It is a bit over 40 minutes in length, so when you have a few free minutes grab yourself a coffee, soda, or libation of choice and I’ll briefly explain my interpretations like we were sitting across from each other.

© 2018 Mark St.Cyr

 

Revisiting The Past For Future Insights

I thought in-light of the last few days “market” reaction to what’s playing out globally, as far as trade and more, that I would revisit a prior example and show the whats-and-hows it may be signaling, both for some pragmatic insight, as well as what it may be signaling in a broader context. So, here we go…

As you remember I began annotating a chart a few weeks back of the Russell 2000™. The reason for this was that, I believed, I saw something intrinsic within the developing formation that could be signaling possible issues ahead. Then, as time rolled on, the pattern seemed  to negate (i.e., signaling cause for worry was possibly unfounded) what it seemed to signal prior. But as time rolled on I continued to follow it, and again viewed what I believed were the same initial signals, only now, transforming into an even larger pattern.

Then, and once again, this followed the same course as above but, just like the prior, it seemed to have morphed into another. The difference this time was all the “markers” if you will, seemed to be all in the same places causing me to infer that odds of the original signaling may still be intact, just the time or “worry point” for caution had moved.

It would appear it is doing just that, and below I’ll illustrate. Here was the prior observance. To wit:

Here’s what is transpiring as of this writing, before the “markets” open here in the U.S. today, again, to wit:

(Source)

As you can plainly see with the “markets” most recent downdraft, as far as any “signaling” may be concerned, there is none. At least via a technical view in a larger time frame.

The reason this is important to understand for those who don’t fully grasp the whole “technical thing” is this, as I said prior: Until there is a clear break either up and out – or down and out, of the top or bottom of that channel – the chances of the market ping-ponging in-between, while still rising, has the most favored odds.

But (and it’s a very big but) the reason why the above (e.g., Mean Reversion Channel) is so important to watch is, because it is this type of pattern progression that many, if not most on Wall Street, and yes, even the HFT algos themselves, actually, especially the algos pay attention to for valid signaling processes. (Think: “Moving average crossovers” to be in this same camp)

So, until that time, as I noted on the above – You’re in “no man’s land.” We all just have to wait and see what happens next.

Now, with that said, for those that remember (and if not here’s the link) when I was making my case I used another example to demonstrate my argument for a colleague who was asking for more in-depth explanation. The example I used was Tesla™. Here’s how that is currently playing out. First, here’s the original take. To wit:

Again. just to reiterate, the reason for the above was to show why “mean reversion channels” are so telling. Because as I pointed out, just like my prior examples of the Russell, Tesla was exuding the same characteristics. i.e., At one point it looked like one pattern developed, then negated it, and so-on-and-so-forth, till it seemed to morph into the above. And as I stated in the Russell example: “Until it breaks either way, you’re in no man’s land.” So what happened next? Good question, let’s see. Again, to wit:

As you can see, precicely from that initial “won’t get fooled again” moment, Tesla remained within its confines and preceded to bounce along, ever so slightly, along the bottom of that pre-drawn channel. i.e., The initial “Oh crap!” moment began to ever-so-slowly morph into a “phew!” But is that it? Let’s see shall we?

The above depicts Tesla as of the close on Monday. In the bigger picture the latest is what many “BTFD” (Buy The F’n Dip) enthusiasts would consider an “opportunity.” Maybe it is, maybe it isn’t. But what the above does show is when very clear patterns begin to emerge within the very few patterns Wall Street considers valid, and maybe more importantly, the algos, it’s probably a very solid and pragmatic signal for others looking for clues to pay attention too, also.

What happens next? As always…

We shall see.

© 2018 Mark St.Cyr

Bitcoin Via Shanghai: A Chartered Course of Peril

You’ll know there’s real danger ahead the moment those in charge vociferously commence to assure everyone, “there is no danger.”

The above is my take combining a few old maxim with similar meanings. i.e., “You’ll know a politician is lying when their lips are moving,” “You’ll know there’s a problem when the government says, ‘there is no problem,'” or “when early adopters are telling/selling everyone, ‘it’s not too late to get in,’ is probably when you should be getting out,'” et cetera.

The above is relevant to keep in mind for this reason:

The Shanghai Composite Index™(SCI) of late, much like Bitcoin, has been exuding similar reactions by its defenders, i.e., China’s politburo and media class, and/or early adoption gurus and HODLs. The main difference is this:

One wipes out the fairytale fantasy that anyone with a “miner” can create wealth and currency ex nihilo in their mom’s basement then, buy a McMansion with a garage full of Lambo’s and retire.

The other: wipes out the very real fairytale where central bank intervention creating actual currency ex nihilo, allowing for it to be endlessly “mined” (i.e. rehypothecation) to finance construction projects, businesses, stocks, ________(fill in the blank) that would make Charles Ponzi blush, has the potential to bring down an entire house-of-cards and fantasy central banks have created globally – along with wiping out much of everyone’s “booked” retirement or net worth. i.e., those that only take their clues from the “gurus” and/or mainstream business financial media. aka, “Sheeple.”

That’s a pretty big statement, so let me explain my reasoning…

Bitcoin, regardless of whether one believed all the hype or not, performed an amazingly brief, yet meaningful live exercise in what happens when, for lack of better words – the thrill is gone.

Early adopters push and praise why it can only go higher, early investors with large “wallets” join the chorus and jump in looking for a free-ride to quick bucks, then “gurus” begin telling/selling how the average can now make millions, easy-peasy, if they’ll just “buy a ticket” to enable them a seat on this bandwagon.

Then – it all falls apart – where everyone is now stuck, Holding-On-for-Dear-Life as an out-of-control, careening bandwagon heads relentlessly down the ravine. That is, everyone except the band, for they, more than likely, sold the passengers their own personal “ticket,” at a “bargain,” of course.

This experiment with Bitcoin is instructional for this reason: It was allowed to react via price fluctuations, both up and down, with no central bank intervention as to adulterate the signaling transpiring within. i.e., whether one agrees with its premise for disruption or not, doesn’t matter. It has behaved more inline with how many assume a market is supposed to behave rather, than the adulterated-central bank-pervision of capital “markets” we are now enduring.

With that said, what’s now beginning to finally transpire is this: the more central banks take their foot-off-the-pedal – the more the “markets” are slowly exuding behaviors, more in line, with reality based market moves.

And nowhere is this phenom more prominent – than in both the currency market, along with what is known as, the emerging markets. And it is here, much like when Bitcoin began to show signs that, “the thrill is gone,” so too is this happening in these most volatile markets. (Think, Brazil for just one)

Again, the problem here is, “thrill” begins morphing into another matter entirely, for the consequences go from affecting only a small group such as Bitcoin – to wreaking havoc across entire global markets via contagion fears. i.e., when “thrilling” transforms – to frightening.

This is what I believe the SCI appears to be signaling. And if I’m correct? The inferred insinuations are just that, frightening, no hyperbole intended.

Let me demonstrate the case I’m laying out using what “The Valley” likes to call a “picture.” To wit:

(Source)

From a technical perspective both of the above are showing a very troubling potential. i.e., Much lower prices ahead.

The reason why these two markets matter for example purposes is this: Once their respective “peaks” had been traversed – the ride down has been far more “frightening” to those getting in on the down-slope, hoping for a sudden “chair-lift” to magically appear and propel them to ever higher peaks.

But when that “lift” never appears, or appears  to then suddenly break, leaving many just stranded with no way off? They do just like they do in real life: calculate just how much it may or will hurt – then – they jump.

If you look at the above chart, with that in mind, what you are beginning to see, in my opinion, is that “jump” moment playing out.

So why is the above relevant you may be asking? Fair question, and it is precisely whose “picture” the above represents. Again, to wit:

As you can see the one on the left is Bitcoin at the time of this writing, the other is the SCI via the same.

Bitcoin’s bars/candles are representing daily intervals, the SCI’s are weekly. Yet, both are alluding to similar conclusions. i.e., much lower prices ahead, along with both quickly and soon – possibly very quickly and even sooner.

No one knows what will happen, or not. But to think this isn’t a waiting game that demands one’s full attention is folly at best, and moronic at worst. But what’s really important is how those that believe they have direct influence over such matters react, or not.

With Bitcoin you had the equivalent of the “governing bodies pipe organs” take to the airwaves and conferences to profess that any and all down ticks have been the manna-from-heaven you’ve been waiting for as to now afford you the chance to “grab your ticket” onto this bandwagon of untold riches to come. Think John McAfee, Tim Draper, Tom Lee et al., forget the “gurus,” i.e., James Altucher and others, they appeared to have already bailed.)

The problem is, in spite of all this – it keeps falling.

With the SCI there’s not too much of a difference. The only thing is, that it truly is the governing bodies, e.g., the politburo, that is coming out to defend against any inferences of instability.

The issue with doing just that, is this: every other government and central banker (whether credible or not) is professing that the time to raise rates and intervene less, is precisely now, while in the midst of a global recovery. China – is now needing (or at least appearing) to be doing the exact opposite. i.e., Needing to intervene even more while professing everything is just hunky-dory with an announcement before this evening’s (morning in Asia) market open, that their central bank will cut the Required Reserve Ratio for some banks beginning in July – just two months following a similar action.

Hint: That’s not something one does to show strength rather, it implies weakness. And that should be sending off alarm bells everywhere. However, if one listens carefully – the silence is deafening.

As I stated last Sunday, the market to watch for those looking for clues, is Asia, in-particular China, which opens at around 9:00pm ET. (Barring any unforeseen holiday!) And that remains even more true this Sunday, than it was last.

The announcement of the RRR cut, coupled with the markets ongoing price action, has many a tell-tale sign that something is amiss. Whether, or how this all plays out is still anyone’s guess. But that doesn’t exempt those looking for clues from not pay attention to this occurring development, for the stakes for immediate contagion effects are enormously high.

But if there is one prediction that does have a fair shot off being correct, I feel, it is this one:

I predict a plethora of “slightly used miners” to be increasingly prevalent on both Craig’s List™ and/or Ebay™. And soon, as in very.

© 2018 Mark St.Cyr

Addendum To: Charting Possible Courses

I received a call from a colleague who is not of the “technical analysis” set. He, like most in business, have only a very limited understanding when it comes to looking at market charts. i.e., They only understand UP or Down.

As I have said since the beginning of this blog (and partly the reasoning for it) in today’s world of interconnected markets of all types – not understanding them, in at least a very familiar way with how they interact – is no longer an option for today’s business person. It’s now a requisite and has nothing to do with “investing” per se. It’s about understanding what may, or may not, put your business at risk, or help it grow. 401K type enthusiasm is for others.

So with that said, the question they asked was, “Could I show what I meant when it comes to that ‘False positive’ thingy and the ‘no man’s land’ warning in another example?” For they weren’t quite getting it. I said sure, and started to peruse a few ticker symbols, scanning for something quick to use, and I found one. It’s Tesla™.

For brevity’s sake, I’m not going to go into the minutia of differing time frames and patterns. The example itself should show precisely what I mean. To wit:

(Source)

The above, is again, a “Mean Reversion Channel.”

Tesla’s stock has been on an absolute tear off its most recent larger pull back. The news regarding Tesla, one would think, would warrant people to either sell, or at least pause in taking it toward its all-time-highs. Auto pilot crashes, investigations, spontaneous ignition, deaths, and more have done absolutely nothing in regards to stopping its upward progression. At just about every instance where it seemed that the “party may be over” signaled – the stock seemed to just gather even more momentum to head upwards.

Today, as I am writing, this stock has fallen by some 6% since the “markets” opening. That type of drop is nothing to sneeze at, especially if you are someone who bought into it on let’s say, Friday.

As you can see I have annotated the above chart, the time intervals represented by the bars/candles are hourly, the same as I used for the Russell earlier.

Today’s price action looks quite dramatic compared to any recent pull backs, and in previous smaller technical patterns and observations it would warrant possible impending turmoil. However, just like the Russel from my earlier post, the smaller patterns have been negated and what seems to have emerged is a much larger pattern which allows for quite the price moves – yet – doesn’t resolve to warn for more down or up. The “ping-pong” effect in the “No man’s land” area between the upper and lower is in effect. i.e., You just have to wait and see a clear break first ether way before any further action is warranted.

I’ll only end with this: If you are one that bought on Friday?

I would suggest you watch very carefully.

© 2018 Mark St.Cyr

Charting Possible Courses

As we await the “markets” opening in the U.S. here on Tuesday I wanted to update something I’ve been watching and notating over the last few weeks. e.g., A chart of the Russell 2000™ and what it may be portending via technical analysis. Here was the latest incarnation. To wit:

As I explained at that time what appeared to be playing out was what was called an ending diagonal, but as time went by every-time it appeared to be signaling that it may resolve in the manner it is best known for (i.e., odds favor a break in the opposite direction) the signals were, more often than not, proving out to be false positives. Then, when taking a further step back, the same pattern appeared to  forming – only on a much larger scale, which was the genesis and analysis for the above chart as I explained then.

Over the ensuing days this pattern looked as if it may resolve much like the original observation yet, this too has been completely negated as the index has pushed higher, and higher. i.e., Once the bottom drawn line crosses the top marking an “X” or “cross” any price action beyond negates the the observation or pattern entirely, i.e., something else is at play.

Now in the world of technical analysis patterns are subjective and many initial observations can be completely negated. i.e, time frame matters, where early indications can tend to play out giving more falls positives than their worth. Remember, true technical analysis is understanding you’re only playing with odds and probabilities via a visual representation of what buyers and sellers have done during a point in time. There is no “Holy Grail.”

However, with that said, one of the things most overlook when using this method of looking at “markets” is that: being wrong maybe, just being early. And one of the key signs of this are when differing patterns emerge yet, seem to show the same conclusion. I believe we may have such an instance playing out here in real=time. Here’s why, again, to wit:

(Source)

What the above chart represents is the same index (e.g., Russell 2000) using the same time intervals via the bars/candles as the earlier one directly above it. This is as of Monday’s close.

As one can see the original signal I was calling attention to see if it was playing out was a “throw-over.” The “markets” did just that yet, the price action just continued along the same path, again, negating the original observation. But when looking at it again what I noticed is that the original pattern has now seemed to morph into what is known as a “Mean Reversion Channel.”

Doesn’t matter if you are up to speed on technical analysis terminology and/or jargon. I am. And here’s what the above can possibly mean, and how to watch to see if it’s providing any pragmatic clues.

This type of pattern is very well used and respected, even by people who think the whole “technical thing” is nothing more than voodoo type analysis. (It’s not and the arguments made against are completely invalid, moronic, and feeble, but that’s for another article)

What this pattern also shows is what I implied earlier about how one pattern may be negated, but another one evolves showing the same possible results. For if you look at where the two lower boxes I’ve drawn appear, they are at the same levels respectively as the prior observations. Yet, there is a change and it’s an important one.

As you can see I’ve now drawn another box inside this channel called “no man’s land.” The reason why I named it this is because, for as long as the price of this index remains in this box? It’s all just noise. i.e., The market will probably go up as far, and as much, as it goes down, ping-ponging somewhere in the middle.

Not until you have a clear break below the bottom line, or back above the top line, will there be any indication of what may portend for the “markets.” But make no mistake, it’s in watching for a break to the downside that one should be paying attention to. Because if it does, then many are going to find themselves in a complete unfamiliar situation.

As always, we shall see.

© 2018 Mark St.Cyr

Well That Was Awkward

So there I was last night watching the Asian markets as I advised others in my latest article.

One after another opened in the red (e.g., down). Japan? Check. Korea? Check, and so on as I awaited the Chinese markets.

More often than not, I watch (more like just have on as I read) by having the television tuned in-to CNBC™, but with the sound off, glancing up occasionally to see if any interesting guest or market movements are posted at the bottom or side of the screen as it rotates through the various ones, with last night being no exception.

As the early evening wore on I noticed the U.S. market futures were continually posted as “unchanged.” I knew the U.S. was open so I toggled over to Bloomberg™ and sure enough the futures were posting showing the selling pressure. So, I flipped it back to CNBC (I prefer their Asia coverage) and thought no more about it. Then, when China should have come on-line I watched more intently, and watched, and watched, and watched. Nothing.

It wasn’t till about 10:00pm ET I started questioning if I messed up on the time difference not being in sync, for Asia doesn’t follow the daylight savings time adjustment of back and forth we do in the U.S. Or, was CNBC’s market tickers not showing the price movement like its U.S. tickers were. So, I decided to turn the volume up and see if I could figure out what was going on. Which I did, much to my surprise.

About 15 minutes into the next program I heard one of the hosts say something along the following lines, “It would be interesting to see how China would be reacting, but their markets are closed today in observance of a local holiday.”

Wait…what? was my response with a few expletives thrown in for color.

I did not know that China’s market was celebrating a holiday. As a matter of fact, I was rather surprised that they would announce their plans for reaction to the tariffs on Friday, then go into an extended weekend with their markets closed having to the react to what may be taking place, rather than preemptively setting or reacting to any initial fallout, if any, within their own markets first.

That, from a tactical viewpoint of intent may speak volumes or, may mean nothing at all. But it is another point of drama for this evolving soap-opera, that’s for sure.

As for my calls on watching the Asian (in-particular China) closely – all of it still stands. The only difference now is to see how their markets react when they finally open this week, for their shortened session could exacerbate an already skittish market as we are seeing this AM.

And for those who really want to know how I reacted when I found out that China was on holiday, when I thought for sure they were open? Hint: Think Ralphie from “A Christmas Story” (1983 MGM/UA Entertainment Co.) when he rushes into the bathroom after receiving his secret decoder to unravel the hidden messages contained within the “Little Orphan Annie” program, only to find he’s been had. The only difference in my case?

“An expletive holiday?!”

© 2018 Mark St.Cyr