MarkStCyr.com

I won’t go into much detail here, for as the old saying goes, “A picture’s worth a thousand words.” To wit.

(Source)

As of this writing there’s another saying which helps put the above (as they like to say in “The Valley”) “picture” in context. That saying is, “If misery likes company, fear not, for you are not alone.”

The above is, of course, a chart showing Snap™ (aka Snapchat™)  abutted by Twilio™ current share prices. Currently, if you invested 1 dime in either of these companies at their IPO launch, that dime is worth less. Far less. And for those who bought when the shares were higher? All I’ll say is “You have my condolences.”

And for those who believed all the recent analyst recommendations that Snap and all the others were a “screaming buy!” Not to mention all the recent tech press still using the “Snap is up 30% from its IPO pricing.” You’re now finding out “It’s different this time” as I’ve tried warning too many times to mention: is now, indeed, just that.

And for those who were told they were “lucky” to get in at $17? They’re now seeing that “up 30%” is now closing in on being 100% gone.

All in about 90 days.

© 2017 Mark St.Cyr

Whether or not the old adage of “Sell in May and go away” means anything for traders over the decades is one thing. What it may portend for business owners and others looking over the past decade might be quite another.

It’s hard to turn on any business/financial media outlet as to try to make sense of what is currently taking place in the economy and try to match up its implications as represented in the “markets.” It’s now a fool’s errand. For the markets no longer represent anything of what was looked upon as “a gauge of business health” as they were only a decade ago.

All you’ll hear currently is nothing more than cheerleading i.e., “New all time highs!” is once again the daily clarion call. When it comes to why? The analysis more often than not is nothing more than further cheerleading via some next-in-rotation fund manager trying desperately to argue why “Stocks are not expensive compared to blah, blah, blah.”

It’s now far past annoying and borders on deranged in my book.

However, with the above said business people must somehow extrapolate what their gut tells them, then try to filter it the best they can with what they consider the best information possible. Even if that information isn’t what they might deem as the most reliable.

Sometimes you just need to understand that you may be feeling a certain way because there are legitimate reasons for it. Although, at the time, you just can’t seem to put a finger on exactly why, but you know instinctively – that it’s there.

So you search. Even though (you know) that search can at times lead to nowhere – search you must. It’s part of being a business person. It comes with the territory, and most will never understand it. That’s what sets a business owner/person apart from most. They can’t just sit back – ever. They need to either know – or die trying.

The reason why I state the above is the result from a call I had with a colleague, where the conversation was more like the two of us trying to figure out a Rorschach test, rather than anything else.

So after we were through I started doing a little investigating for the conversation weighed on me well after. This is what the conversation revolved around…

The old saying of “Sell in May and go away.” came up as we were discussing a few points, but it was more in jest than anything else, for we were joking “This ‘market’ will probably go even higher if WWIII breaks out in earnest!”

But the argument of “May” kept revolving around the conversation when we were talking about how, just last month, the Fed. was declaring how it wasn’t “terrified” when rebutting arguments that it should to the contrary. I made the point then “Yeah, that’s because it’s only April!” and the full effects of the rate hikes have yet to be factored in.

So, as I iterated, when the conversation ended I decided to take a look, below is what I found. To wit:

(Source)

As you can see I made a few notations on the above chart. If one looks closely the month of “May” has been a very important month over the last decade. The only time “May” wasn’t a factor was when QE3 was announced and the Fed’s intentions were leaked for Wall Street’s understanding (the leaking of such admitted to and causing the resignation of a Fed. president.)

Maybe “Sell in May and go away” when the Fed was not involved was one thing. However, today?

May has been the month where the “markets” began to roll over in earnest ceasing only once the Fed. launched another iteration of QE.

And the reason why some are feeling a little apprehensive? Hint: You are here = May.

So, for what it’s worth, you’re not crazy. You’re a normal thinking person, congratulate yourself for being such. For what happens next is still anyone’s guess. But a least take solace in the fact – It’s not you. There’s a real reason why your gut is giving you that check. Feel grateful it’s working as it should.

© 2017 Mark St.Cyr

If one were only to get their “news” via the main-stream media outlets, it wouldn’t be wrong to assume when it came to the understanding of what is really going on across the globe, along with the consequences, most haven’t a clue. This point is made manifest with no greater example than the elections currently taking place in France.

I’m sorry, but the French election doesn’t trump, too all but exclusion, the potential for the breakout of WWIII. That is – unless you’re the main stream media. Yes, one has the potential for near immediate electoral upheaval (i.e., A potential Frexit, and possible finality for the E.U. experiment.) However, the other has the potential for a near immediate global war. That, of course, is the current standoff with N.Korea. And the reaction via the main-stream media? (Insert most recent Kardashian escapade here.)

Not to belittle the French elections and their possible consequences should the results go awry for the entrenched bureaucrats (not to mention the financial markets.) There is another standoff which may bring even more immediate consequences than the other.

Currently the Korean peninsula is in play much the same way Cuba was during the Kennedy administration known as “The Cuban Missile Crisis.” The overall situation and its possible consequences for missteps are eerily similar.

Missiles have been moved onto the peninsula in what can only be described as “outrage” via not only N. Korea, but also China. Whether or not one agrees with the move (along with the stationing of war ships off the Korean coast) as to send a message to Pyongyang to cease all provocation via its nuclear ambitions is irrelevant.

The real player (and the one to pay attention too) in this standoff is China. And how they go about resolving this issue at its doorstep. Both internally, as well as externally.

Make no mistake: China is not just juggling one possible conflict, it is also currently fighting another within its own borders. For China is simultaneously on the precipice of an another possible disaster. i.e., An outright monetary disaster of its own making which needs to be resolved with the same immediacy as this external one.

I’m of the opinion this kerfuffle with N. Korea may be the catalyst which drives China to either embark on an outright kinetic posture against the West to resolve. (e.g., If no one backs down or worse) Or – will be the inflection point as to allow the monetary fallout within its financial markets to begin in earnest. Crippling the entire global economy in ways not fully understood (or envisioned) by many, especially “The West”, in what may be akin to a “First Strike” monetary (rather than kinetic) action.

Aside from the obvious “trigger” events that could arise as I stated in the above. (e.g., N. Korea) There are a few other events which when taken as a collection, rather, than just their stand alone value, portend for far further cracking in the facade that is China.

Since we’re in the middle of a possible armed standoff the analogy of “Did China dodge a bullet?” seems fitting when juxtaposed to the recent tightening into weakness launched in earnest via the Federal Reserve.

As strange as anything resembling “normal” monetary effects have been, e.g., Central banks buying equities. One of the latest has a few scratching their heads, and it’s this: As the Fed. hiked not just once, but twice in 90 days, and, is signaling even more along with a reduction of its balance sheet – the $Dollar has weakened.

There are far too many factors to list as to what might be the catalyst. Yet, what is clear (and the only thing that matters currently) is that this manifestation has subsequently given China some form of “borrowed time” when it comes to the Yuan. For if the $Dollar had strengthened as it has during such cycles? The Yuan would be in a world of depreciating hurt.

Back in October I penned the following, “Why All The Yawning Over The Yuan?” And in it I made the following point. To wit:

“Now some will think “Maybe there’s no concern because the politburo has it under control?” It’s a fair response, but there’s a problem inherent with the answer, or answers.

First: If the Chinese are doing it in a “controlled” type manner, it reeks of “currency manipulation” tactics for others (think U.S. presidential politics as of today) to latch onto and build support, as well as strengthen a case for retaliation. i.e., placing tariffs, etc, etc.

If you think about it from the Chinese perspective: that would mean you were openly, and intentionally goading as to fuel some version of a trade, or currency war. When you come at it using that thought process; it just doesn’t make sense. Both from a tactical standpoint, as well as political. Hence lies what maybe even a more troubling scenario. e.g., They’ve lost control.

The only other reason more troubling than the first – is the second. For it is here where things become quite precarious, as I’ve stated many times: “The currency markets are where you must keep your eyes and ears affixed. It’s where the real games are played and won.” And losing control of one’s currency has implications for all others, both warranted, as well as unintended. And it seems this latter scenario might be more on point than the former.”

Where does the relationship between the Yuan and the $Dollar now stand? One would think with such a sell off currently taking place within the $Dollar market that the cross-rate should be in a much more manageable area for the politburo than before all things being equal, correct? Hint: It’s not. Again, to wit:

(Source)

As one can see by the chart above we are currently hovering at the 6.900 range. That’s important not just for its “spitting distance” away from the all important psychological 7.000 level, but rather, how (and why) it’s there at all.

All things being equal as the $Dollar had strengthened it put pressure on the Yuan. That pressure was/is wreaking havoc within China exacerbating the already near unmanageable capital flight taking place which shows no sign of letting up as evidenced by the chart above. For the higher the cross-rate ascends – the greater the issues weigh on the Chinese politburo via capital flight and more. And which lies-the-rub…

For if the index is rising as the $Dollar is weakening? (as it is currently) That means the Yuan is losing value far faster than it was only months ago. And that’s a very, very, very (did I say very?) big problem for the current monetary status quo. Not to mention the global economy in general.

The current financial underpinnings within the Chinese economy are once again under pressure in ways very few understand. With that said all one needs to watch as to perceive significant clues into the health of its underpinnings is the price stability in commodities. For much of China’s internal, and interwoven financial constructs for collateral are based on them. And one of the main players of that is iron ore. And guess what? Hint: Prices are/have collapsed at a precarious pace.

The easiest way to categorize the relationship of commodity prices and the financial underpinnings within China is this: Commodities are the collateral and pricing foundation to much of China’s financial obligations – as real estate values are to MBS and all their counterparts. Yes, much of China’s financial problems are now with real estate, but what all that real estate was built and financed on was? Hint: Commodity collateralization. (Think CDS/MBS times a factor of 1000, if not more.)

Now you have some idea of just how massive this problem is.

Just remember what a sudden (like in 2007/08) real estate value collapse can do (or did) to an economy, and you have the same scenario in earnest via commodity prices currently happening in China, where the full effects (let alone realizations) of such have yet to even be calculated, never-mind felt.

Add to this the current enactment of steel tariffs placed only weeks ago by the U.S and you know what you also get? Hint: An even more ticked-off Beijing. Again: All this in conjunction as some U.S. steel warships hold fast off the Korean coast threatening to possibly launch a first strike upon its next door neighbor and so-called Sino-influenced “underling.”

If the politburo decides that there is no other way (and easier timing for a scapegoat) than now as to suddenly devalue the currency and put a world of financial hurt squarely on the West (and the U.S. in-particular) while simultaneously using all the turmoil as to hasten the pace (and possibly secure the position for more SDR influence) the table for such a move has probably never been set so neatly, so perfectly, and so probable as it is today.

Waiting to see if the $Dollar reverses and brings the hurt on in ways that are out of the politburo’s control or sphere of influence will not be seen as “prudent” by anyone within the Chinese authority. “Waiting” from their viewpoint might be the last thing they can consider, especially since “warships” and “missiles” are now needed to be factored into the immediacy for monetary decision-making.

They may decide to act, and act sooner, rather than later.

No matter what happens in France or N.Korea.

© 2017 Mark St.Cyr

Back in days of yore (circa January 2017) I dared make the assertion that all that was “unicorn infatuation” in the Valley was much more akin to “the old gray mare ain’t what it used to be.”

In the article “Is 2017 The Year Silicon Valley Experiences The Dark Side Of ‘It’s Different This Time?'” I posed the following. To wit:

“Here’s the equation I believe will not only send shock waves, but will bring down many a valuation edifice within “The Valley” in 2017. And here it is:

“First: The Fed. And Second: Rate hikes.

Two very short sentences containing nothing more than two words each but their implications could have exponentially explosive results. For what they portend is that “It’s different this time” may indeed be exactly that.

What I hoped you may have noticed during this discussion is the one thing myself and very few others pointed out would happen if the hypothesis we’ve been articulating over the last few years was correct. That hypothesis has always been “Without the Fed. pumping in unlimited funds via the QE programs, and a “death-grip” to the zero bound (aka ZIRP) the first ones to show how much of a facade these “markets” where would be seen directly in the “tech” space.”

So what has happened today that should draw attention to those still believing in the “It’s different” meme?

Here’s how different. Remember the IPO last year that was supposed to save the IPO world? Hint: Twillio™.

This is what investors are waking to today. Again, to wit:

(Source)

Twilio, as of this writing, if you had invested on any day other (as in you bought any of the dips) you are now underwater. For some, you are under by “fathoms” which as of just a few days ago, to even consider such a position – appeared unfathomable.

The reason for such a move (some 25% via the opening bell) is in a way hilarious to my eye. Why? (although I do offer my condolences for those caught in this debacle)

It was reported that Twilio reported an earnings report that was “strong.” But there were two issues. First:

Revenues guided lower. (e.g., $356 -$362 Million vs $364-$372 Million projected earlier)

Can I just make a point here? Why are the revenues for a company that is supposed to be at the forefront of the tech space revolution (e.g., the Cloud space), along with the title and much heralded panache of the “IPO to save the IPO world” is showing anything such as “revenue guiding lower?” Never-minding that a “beat” means losing less money than before therefore “it’s totally worth it!” Welcome to “The Valley” world of metrics is all I’ll say there.

But what caught my attention more than the revenue miss and guide lower is who the CEO is blaming for the results. Are you ready?

Uber™. (not a typo)

From CNBC™. To wit:

“Twilio CEO blames Uber for disappointing financial results”

“Lawson said on Tuesday that he expects Uber’s “contribution to decline” because the ride-hailing company is “changing the way they do messaging.” He added that Uber is now “optimizing by use case and by geography” and “plans to move communications for some use cases in-app.””

So, an over valued (all in my opinion) unicorn that made it out of the IPO stables (making it as the article below states “Mightiest”) which was supposed to set the stage for the likes of all the awaiting unicorns, has suddenly been speared by the horn of the largest, and most valuable unicorn ever to be, and is still in those very stables.

I’m sorry, but if you can’t see the humor in that whole scenario I would have to imagine that you’re an investor in them. And if so, as I said earlier, “you have my condolences.” Because, after all, you were also told (and sold) to believe it was different this time.

(Source)

The issue is, as I’ve warned too many times to list.

It is precisely that.

© 2017 Mark St.Cyr

Back in 2015 I wrote an article titled “ESPN: Cutting The Cord Or Political Turn Off?”

At the time of that article not only did the business/financial media take my assertions to task, but so too did many in the sports media. The idea that ESPN™ (or any sports channel with such marquee talent and coverage) could be the recipient of any sort of backlash, especially via the political persuasion, was called on air by many as “Just ludicrous.”

Many even argued that any “political” view inserted into the discussion was actually seen as “good” or “helpful insight” into the player’s mindset at-large making them more personal with fans, rather than being simply superstars that can only be viewed from afar.

It all sounded so rational, so well thought out at the time. Problem was – it was all poppycock. And, we now have proof that the arguments I made back in 2015 when everyone from media analyst to next-in-rotation fund manager proclaimed such assertions as just “ludicrous” now appears to be business fact. And the resulting backlash has now forced the network to jettison some 100 employees including many of its own marquee on-air talent.

In my article (remembering this was in 2015 when even the idea of anything wrong at ESPN was seen as “not getting it” and came from all sides of the business and sports spectrum) I made the following point. To wit:

“However, is “cutting the cord” really the reason for ESPN’s loss of millions viewers? Or, is that the easiest crutch of an excuse for what might really be happening? After all, media is, and always will be, the king of “inflated” numbers. So much so I garner when a CEO of any media company reads a term like “double seasonally adjusted” they smirk and think – “Rookies.”

It’s just the way it has, is, and will be played; and everyone understands it. None more so than those within the business itself, which is why a few things struck me.

Why wouldn’t ESPN™ (or Disney™ its parent company) go to great efforts to include or push the narrative that “cord cutting” doesn’t necessarily mean “all” that cut have tuned off? In other words: why aren’t numbers from alternative viewing sources highlighted as to show they might not be viewing there – but they are over here? Unless – they aren’t.

And if they’re not – why not? After all, there’s probably no other content infringement policing company for copyright and other applicable ownership rights than Disney and all its subsidiaries. You aren’t going to see it for free or on alternative platforms unless they want or allow for it. Period.”

Well, there’s no reason to take my word for it, or my assumptions, because as of Thursday of this past week none other than ESPN anchor Linda Cohn of SportsCenter™ agreed reiterating my summations. Again, to wit:

“ESPN’s sweeping staff cuts are not just the result of ambitious TV rights deals and an overburdened budget, popular “SportsCenter” anchor Linda Cohn suggested Thursday.

The network may be losing subscriber revenue not just because of cord-cutting, Cohn allowed, but because viewers are increasingly turned off by ESPN inserting politics into its sports coverage.

“That is definitely a percentage of it,” Cohn said Thursday on 77 WABC’s “Bernie and Sid” show when asked whether certain social or political stances contributed to the stupor that resulted in roughly 100 employees getting the ax this week. “I don’t know how big a percentage, but if anyone wants to ignore that fact, they’re blind.””

I couldn’t have said it any better myself. Oh wait…

I did in 2015.

© 2017 Mark St.Cyr

Earlier I released an article of the F.T.W.S… genre. However, I hadn’t hit the “publish” button when another item crossed my desk where at first I was not just surprised, but as I read (and tried to decipher its implications) I wanted to make sure I was interpreting correctly what I was reading. I’m sorry to say it seems like my earlier piece, I was.

In my Sunday article “Does The Reality…”  (yes the information seems to be coming faster and more furious than I can type) I made the following statement. To wit:

“As of right now the “hopium” trade that is a direct result of the Trump “reflation” trade is still self-propelling – but it’s quickly running out of fuel as evidenced by not only none of the campaign promises being passed (i.e., Obamacare repeal and others) but a 1 week resolution was needed as to not shut the government down.

And the “markets” closed where?

Hint: Right back to where they were before when I stated “You are here.” And things have not gotten better, as a matter of fact, they are worse – far worse. (e.g., Unless you are one of those who like to buy-the-potential-nuclear-war-dip that is. And if so, take solace in your decisions, because the President keeps suggesting the idea is closer by the day.)”

As of this morning (being Monday) what was thought to be a negotiating tactic (or at least that’s how many in the media were parsing it) of a 1 week budget resolution to avoid a shutdown before the Trump agenda, or what is commonly referred to as “The reflation trade” legislation metrics could begin to be argued in earnest. That “resolution” has now turned into another resolution very few thought possible. i.e., As of this moment: All the “meat and potatoes” that were to make the reflation trade possible are officially D.O.A. Period.

A resolution was passed that now funds the government through September until the next budget resolution is needed on October first. This means in effect (e.g., de facto) that all negotiations and hopes for tax reform, Obamacare, building a wall and more are gone. There is now no need (or reason) for any negotiations to even begin for another full 5 months.

Think I’m off base? Fair point, so square this circle for yourself. Ready?

How do you apply negotiating leverage to the opposing party when they have taken to the airwaves delighted with this now resolution? Hint: You don’t. And thinking anything otherwise is not only disingenuous – it’s delusional.

To reiterate a point I made back in March (which both the political, as well as business media pointed me out as being “off base” or “doesn’t understand the nature of this movement and its furor”) from my article, “When the Art of the Deal Meets The Empire Strikes Back”, again, to wit:

“The danger now shaping up is all that political relativism is going to meet a myriad of stone cold, fervent opposition from both sides of the political aisle, with establishment politicians (again from both sides of the aisle) whether by coincidence or concerted effort directly opposing the President and his agenda with the new-found argument “We can’t afford it.”

And that will be the go-to argument because the now growing chorus is that “debt matters.” When for 8 years “debt matters” was only relative term.

Are you beginning to see how the “legs” for any further Trump inspired legislation has been swiftly taken off at the “knees?” Or said differently: The “Empire” regains all control – once again. And the new administration will be left holding any and all “bags.” And the repercussions, once fully understood, will be swift if my assessment is anything close to being correct.”

As of right now – “You Are Here” means precisely what I implied over these last few months. e.g., It is no longer a matter of insinuation, speculation, or assumptions…

It’s now here.

© 2017 Mark St.Cyr

(For those who say I just don’t get it…get this!)

Back in March I wrote an article titled, “They’re baaack! And why you should be worried – very worried”

In that article I made the case for why not only prudent financial awareness was paramount, but also how the manifestation of blissful ignorance, or, a belief in oversimplified business/financial advise is not the “ticket” to fulfill one’s dreams of riches, but rather, can suddenly become the “ticket” to your worst nightmare. It would seem I was more prescient about those claims than even I thought at the time.

First, this headline came across my desk about a week and a half ago via Bloomberg™. To wit:

“Cracks Appear In Toronto’s Housing Market As Capital Drops”

Today, I received a few more from a few colleagues noting the cause for concern, again, to wit:

“Contagion Fears Rise In Aftermath Of Home Capital Group Collapse”

“Why Everyone Is Talking About This Tiny Canadian Lender’s Woes”

“Home Capital’s Next Hitch Is Keeping Cash Crunch Under Control”

The above three are all within the last 24 hours of this writing. You can expect they’ll be many more. And they won’t be viewed as “All press – is good press.” You can bank on that.

For those who may not be familiar with the above struggling home loan lender, or its implications. The best description for comparison that can be given is the above lender and scenario is the mirror image of the set up that happened here in the U.S. right before the financial crisis (aka Real Estate Collapse) took hold in earnest when the lender known as New Century™ collapsed. This has all the same hallmarks.

Just to refresh a few memories it was at about this time (as in right before everything fell apart) that then Chairman Bernanke was touting the following. To wit:

Ben Bernanke July 2007:

“The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further, as builders work down the stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth in coming quarters, although the magnitude of the drag on growth should diminish over time. The global economy continues to be strong, supported by solid economic growth abroad. U.S. exports should expand further in coming quarters. Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend.”

Sound familiar?

Although this was here in the U.S., the scenario, attitudes, defending of the current meme “It’s different this time”, and more are once again on full display, and a tour de force as evidenced by its current manifestation The Real Estate Wealth Expo™.

Here’s what I stated in my original article back in March that bears repeating:

“Bubbles are easy to spot – pinpointing when they’ll pop – is quite another.

I coined that phrase a while back which is nothing more than adding my own spin combining two very old catch phrases used by seasoned traders and investors. I use the word “seasoned” for a reason. Why?

Because they’re the ones that have been around (and been burned themselves) yet lived to trade, or invest, another day. Those who remained wedded (usually the novice or one who’s never experienced true volatility) to the more prominent and specious claims of “you can’t tell when you’re in a bubble” followed with “you can always get out in time” for the most part are long gone. i.e.,The bubble popped into the ether – along with their money.

Nowhere was this phenom more apparent than the real-estate boom of the early 2000’s, which followed the prior phenom only 10 years prior (e.g., the dot-com crash) that should have seared into people’s memory for millennia just how “bubbles” take shape – and the resulting financial devastation that happens rapidly once they’ve popped.”

And then there was this…

“This is the moment in time where generic, over simplified advice, that sounds so good (and too good) shouted too an adoring crowd – should be taken as the siren, and clarion call to those who are diligent in preserving their wealth to buckle up, buckle down, and prepare in earnest. For once this show is over? “Over” is going to be something many of those attending these types of seminars are going to pray for – as in “Please make it stop!””

Whether or not Home Capital™ becomes the catalyst for contagion fears across Canada’s banking sector is irrelevant to this discussion. The real issue is that for the 10’s of thousands (remembering there were 15K attendees at the Toronto Expo alone) who blindly followed the advice their so-called “ticket to riches” portended, rather than understand the need for caution for these are the manifestations indicative of the “bubble mentality” are now suddenly realizing all that shouting of “I own you!” isn’t coming from a stage – but now might be coming from the banks, real estate tax collectors, bill collectors, and more as they seek to collect the payments that were signed for on the dotted line to riches.

But what’s worse (far worse in my opinion) The “asset” used to make all those “Crushing It!” riches are now nothing more than overpriced boat anchors with a market that has gone from “Hot!” to “Frigid.” All in the span of  less than 90 days.

“Who’da thunk it?”

© 2017 Mark St.Cyr

(Addendum: There is a companion piece to this article released later that day which can be found here.)

Footnote: These “FTWSIJDGIGT” articles came into being when many of the topics I had opined on over the years were being openly criticized for “having no clue”. Yet, over the years these insights came back around showing maybe I knew a little bit more than some were giving me credit for. It was my way of tongue-in-cheek as to not use the old “I told you so” analogy. I’m saying this purely for the benefit of those who may be new or reading here for the first time (and there are a great many of you and thank you too all). I never wanted or want to seem like I’m doing the “Nah, nah, nah, nah, nah” type of response to my detractors. I’d rather let the chips fall – good or bad – and let readers decide the credibility of either side. Occasionally however, there are, and have been times they do need to be pointed out which is why these now have taken on a life of their own. (i.e., something of significance per se that may have a direct impact on one’s business etc., etc.) And readers, colleagues, and others have requested their continuance.

If you were one of the myriad analysts, next-in-rotation fund managers, tech commentators, et al paraded across the financial/business media over this past week – you had a good week. The narrative of “earnings beats” together with the so-called “relief rally” emanating via the French elections helped propel the argument.

However, if one (once again) peered passed the headlines of Non-GAAP reporting alchemy that would make Issac Newton envious one could clearly see that all was not “gold.”

Both Amazon™, and Alphabet™ (aka Google™) beat handily, and yet, a few questions emerged via my reasoning. First:

Has Google Ad revenue benefited from an increasing advertising pie? Or, are we seeing the first hints of rotation from platform to platform as advertisers dump one for another in a desperate attempt to obtain some form of return for their social or digital ad dollars?

It’s possible it could be the latter, and if so it spells “it’s different this time” just like it has before. i.e., circa early 2000.

The reasoning for this is simple: Twitter™.

As I have stated on more occasions than I can count, the one company to watch for clues into what is the entire “tech” or “Silicon Valley” health of the “ads for eyeballs” model is Twitter. And this once songbird of everything that was/is “The Valley” did something that is the anathema of what is presumed to be the “holy of holies” metric for the entire genre. To wit:

• It reported a surge in “ad engagement.”
• They increased their monthly active users to 328 million, up 7 million beating expectations.
• And this resulted in a first ever 8% LOSS of advertising revenue.

But not too worry, for this is reported as an earnings “Beat” when using Non-GAAP metrics. Yes, declining (again – declining!) ad revenue is reported as “Good News!” The only person I can see with more wonderment across his face than the ghost of Sir Issac is that of Bernie Madoff as he watches all this from a cell wondering “And I’m in here for what precisely?”

Then, of course, there’s Amazon.

After disappointing reports over the past two quarters Amazon (once again) rocketed to new heights as the headlines of “Beat”, “Smashed” and every other exclamation known-to-man was used to report it raced across the media. And yet, if you looked closely, again, there are a few issues contained within that should make those who are closing their eyes and hitting the “Buy” button horns-over-hooves concern.

1. Guidance for operating income in Q2 is expected to be between $425 Million and $1.075 Billion compared with the $1.3 Billion in the same quarter last year.
2. Amazon’s total operating income was $1 Billion for this Qtr. AWS (i.e., their web services) made up $890 Million of this. That means nearly all of Amazon’s operating income was generated via the division most people who use Amazon haven’t even a clue exists. (I’ll add to that most 401K holders also.)
3. This puts their Current P/E ratio at near 190 times earnings (187.4 via Morningstar™ as of 4/27/17)

Moreover, as I posed the idea of “What if?” into the “ads for eyeballs” assumptions earlier; what does one takeaway when viewing the current rocket ship ride of Amazon? For if personal spending is supposedly DOA as was reported via the latest GDP report (e.g., worst since 2009) and GDP is now reported to be an abysmal 0.7% (not a typo) what’s fueling this?

Hint: It’s an outlier, or said differently: It’s nothing but what’s known as a “Momo Play.” To view it as anything representative, or as a “gauge” of current economic health (As I heard many a talking-head try) is as I’ve stated before – an abject lesson for wanting to be blissfully, ignorant. (Always remembering this is my opinion, for who knows where this “rocket ship” can travel.)

So with the above for context the issue at hand is: “Now what?”

The real trouble, in my estimation, lies with precisely where we might be in regards to “the markets.” By all rational objective reasoning, backed with the lessons which should be held front-and-center from not just the dot-com crash, but also the financial crisis of ’08. One can’t shake the feeling that we’re precisely (once again) on that knife’s edge. And just the mere fact of the “markets” precariously balancing on that “edge” is beginning to draw blood. The tell-tale signs are everywhere. Below are only a few of the ever-growing list…

• How does a GDP report of less than 1% allow any sane person to state, “Improving economy?” Trick question, it doesn’t unless you work on, or report on/for Wall Street.
• How does the reflation trade transfer into a better economic outlook when all of the proposals so far have resulted in DOA status?
• Explain the reasoning why U.S. “markets” rally off the news of a French primary, all the while its own Navy has sent an armada to the Korean peninsula threatening a nuclear standoff? “Bueller?”
• What data (or better yet – logic) is the Federal Reserve using that warrants hiking rates twice in 90 days into an abysmal GDP report when its main reasoning for any/all monetary policy protocols are supposedly “data dependent?”
• If one of the reasonings behind the Fed. hiking was to allow for the cutting if (or when) there was another emergency: How does that happen when the $Dollar is currently going in the exact opposite direction than it should as it hikes? Does that not imply the Fed. could by that very fact be the catalyst of a run n the $Dollar?
• And if so? What then?

These are just a few of the very real questions that are now permeating the once “it’s different this time” argument for belief. The problem with it is – that’s what always gets said right before reality comes roaring back with a vengeance.

I can’t make this point enough: Only since the election of Donal Trump the “markets” have been on a rocket ride straight up. Before that moment (i.e., October) the Fed. Chair herself was musing the idea that the only way to heal the lasting effects still within the economy was to possibly run a “high pressure” policy stance. (i.e., uber-dovish)

That “ride” has (once again) allowed for the proclamation of the NASDAQ™ hitting never before seen in human history highs. (e.g., 6000+) All against a backdrop of declining GDP, along with declining revenue and more from many of its once star players. All while not accounting for (in my opinion) the effects of those 2 rate hikes. These have yet to be both factored, as well as felt, in the current “market.”

As of right now the “hopium” trade that is a direct result of the Trump “reflation” trade is still self-propelling – but it’s quickly running out of fuel as evidenced by not only none of the campaign promises being passed (i.e., Obamacare repeal and others) but a 1 week resolution was needed as to not shut the government down.

And the “markets” closed where?

Hint: Right back to where they were before when I stated “You are here.” And things have not gotten better, as a matter of fact, they are worse – far worse. (e.g., Unless you are one of those who like to buy-the-potential-nuclear-war-dip that is. And if so, take solace in your decisions, because the President keeps suggesting the idea is closer by the day.)

What the Fed. has unleashed into the “markets” via their ever evolving iterations of QE and its ever grateful HFT frontrunning brethren (see the now resigned Richmond Fed. president Lacker for clues) has been the only fuel as to power the markets where they now stand. What they’ve also done in unison is make everyone oblivious to the inherent dangers within.

Hedging and more has been a fool’s errand, and for many, an abject lesson in not only losing money, but status. (See the Hedge Fund industry for clues.) However, what might be even more indicative of that intervention is none other than the tech space, with all its unicorns, deca-corns, and even super-corns (yes, that’s now an actual term in “The Valley”) suddenly coming up lame in the unicorn stables of “Cha-ching!” Not to mention the IPO disasters and disappearance of those “Crushing it!” stock valuations. (See Snapchat™ for clues.)

This is where the beginning signs for caution are raised for anyone paying attention. And they are there – in spades. But there are also other areas to watch that help back up the hypothesis. And one of the first to show stress when things are not going as well as planned in “tech” land is: The Russell 2000™ e.g., the small business index.

The Russell is not only not showing the exuberance of the others, it’s beginning to show all the signs of rolling over. That is something to take notice in conjunction with the tech sector as it hits ever higher highs. How that dichotomy resolves is anyone’s guess at this moment. But trying to ascertain any clues is of a paramount importance in my opinion.

Another key earnings report that may give far more light than anyone estimates is coming up on Wednesday. That, of course, is Facebook™.

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.

How the numbers break down should be interesting. Google showed its own problem (via Youtube™) seemed to have been a one-off with no real impact. That said, I don’t think that comparison is the same for Facebook should the numbers show otherwise.

We shall see.

If there is a “hiccup” in Facebook’s reporting, coinciding with a realization that the reflation trade is all but DOA along with much of the legislation that was supposed to make it so. I believe we could be in for a very, very, interesting week ahead.

Then again, if a nuclear showdown does persist even more so than today?

I guess the “Buy The Nuclear Annihilation Dip” nonsense is back on.

© 2017 Mark St.Cyr

I heard from quite a few people over the weekend and into this week whom, for lack of a better term, are normally indifferent when it comes to the Federal Reserve and its current machinations into everything “market” related. Then – the “markets” (once again) hit all time highs – and the questions (along with the ridicule that I obviously must not know what I’m talking about) roll in with more fervor and conviction than the latest move in any index fund.

From friends and family, to readers of the blog and elsewhere I’ve been inundated with questions from both sides of the extreme.

One side comes from the true questioning region as to how, and why, the “markets” can remain in a near hyperbolic trajectory upward when there seems to be no economic data to support such move. (e.g., The “markets are record-setting never before seen in the history of mankind highs in both U.S. markets as well as European as I type this.)

Then, there’s the other, where the questioning is more of the observational (and derogatory) extreme where the implied tone is along the lines of “You’re wrong, your analysis is wrong, your reasoning is wrong, and, you’re ugly too!”

Just for clarification – that last line comes from family members. So all I’ll say too that is: “I’m telling!”

However, on a more serious note, I believe there are two questions that should be answered even if they aren’t asked directly. The First: What in the world is making these “markets” go ever higher? And Second: Have I changed my opinion on them in the face of such moves?

I’ll answer the “Second” first: No. And I believe this latest move puts the “markets” in an even more precarious, as well as dangerous position than before. I’ll try to explain why as to answer the “First”, next.

Before I start let me make this point clear with the following before I begin, because there are many new readers (and as always I thank all of you!) and some may not understand why I articulate my reasonings to begin with. (see the “About” page for more.)

First: I am not a “stock” or “market” guy, nor do I try to appear as one. I’m not offering in any way, shape, manner, or form anything to do with investing advice or such. That’s for others who are legally entitled.

What I’m offering is commentary, opinion, and ideas, backed with pragmatic insights and acumen that business people can use or broaden their own understanding of the financial markets as they now stand, and how that relates to their businesses that is (as far as my knowledge) unavailable anywhere else in one place.

You can find a myriad of places across the media and web that will tell you how to “make great gobs of money!” with your 401K and more. But you won’t find any that will tell you how the latest “market” moves either globally or locally may affect your business. Period.

Providing that insight to others whether it be to large or small business owners, CEO’s, solo-practitioners, “Mom” or “Pop” tattoo parlors, and hair stylists, down to the person working the usual 9-to-5’er but approaches his/her life via the entrepreneurial minded spirt is all I care about. Period.

This consortium of practitioners is the main focus of my insights. They don’t need more “Rah, rah, rah!” type of analysis, they’ve got enough of that crap and don’t need an ounce more. (See ratings of CNBC™ for clues) They need (and I’ll insert: want) someone to try to explain to them why everything they understand and know about business has suddenly become null and void. All – in less than 10 years.  (see Snapchat™, Tesla™, Amazon™, IBM™, or insert the latest Non-GAAP reporting star here _________, just to name a few for clues.) i.e., They want to know that they’re not crazy. Hint: You’re not.

So now that that’s out-of-the-way let me sum up what I believe is currently taking place in the “markets” and where we may go from here…

First: Every piece of incoming data (Soft Data for one) that’s been coming out has been not only negative, but clearly shows an economy not supportive of current prices. Trying to argue otherwise is a fools errand. Yet, there seems to be far too many wanting to believe, and an ever growing cadre of so-called “experts” feeding them what they want to hear. It’s stunning to me just how contorted these arguments and rationals have now become. It borders insanity in my opinion.

If one wants to dismiss all the “soft” then one has to square their circle of reasoning with this: Current estimates for Q1 GDP via the Atlanta Federal Reserve have now been revised (once again) down to a mere 0.5%. That’s not a typo.

Again – explain to yourself how can GDP revisions continually be revised downward – and not upwards once – and the “markets” sprint ever the higher, while never forgetting all deteriorating “soft data” is also their as a backdrop?

There’s only one explanation (one that actually make sense and is verifiable by any sane measurements and rationale) the “markets” are in bubble. That’s it – pure and simple. “Hopium” is the current fuel (i.e., aka “the reflation trade”) pushing them ever higher. Where it runs out is anyone’s guess. And it is just that – a guess.

The issue that is the most critical to understand (and prepare for) is this: Knowing that you’re in one. And we currently are, no matter what some next in rotation fund manager or show host says otherwise. Even if they have more bells, buzzers, and carnival barks than a circus show.

Why now is even more critical than before as to pay attention (and again prepare for) is that this is now happening against the wishes of the entity that made it all possible to begin with. e.g., The Federal Reserve.

With the Fed. now openly hostile to further easing and what can only be described as “hell-bent” on raising rates, raising them aggressively, while openly stating that balance sheet reduction is now not only possible but probable. What’s going to, never-mind, push the markets up further? The real question is this: What’s going to hold them up here once the hangover hits?

And that hangover is any moment phenom, not something which is telegraphed far in advance like many believe.

When that phenom hits (and it will as it has done so many times previous) is when “liquidity” as it is known today suddenly vanishes. That’s when “getting out” sometimes becomes all but impossible without incurring massive losses. (See 1999/2000 – 2007/08 for clues.)

Business owners et al need to understand where they are currently, how to approach coming cycles, what those cycles may entail, what may be distorting them, how they’ll finance, what type of financing, should the buy, lease, expand, the questions go on, and on.

There are advantages to take in bubbles, as well as stay clear of. Knowing where you might be in one is where the “edge” lies. And that’s where the competitive advantage of what someone like myself provides.

You want proof of this you say? Fair question. So let’s use one of the people whom everyone who had a keyboard (or spoke with me) gave me remorse for daring to question his “insights.” Tony Robbins. After all, didn’t I understand, this is Tony “freakin'” Robbins! Yes, I understood, and that’s why I argued as I did. First, a little background for new readers…

When Tony’s first book a few years ago came out I commented on it. A year later when he was still pushing his “advice” on the airwaves I commented again. At the time I was one of the few that took many of the claims inside to task. I was also one of the few that had the acumen and background to dare to do it. After all – it was Tony Robbins!

Personally, I like Tony, and have no axe to grind, but the book and its “insights” I felt would hurt far more than help if followed blindly in todays manifestation known as the “markets.” And I said so. The issue at hand was, and still is: My arguments still stand, and hold weight even more today than previously argued.

All one needs to do is look at a chart (which I’ve posted and annotated on numerous occasions over the two years since that book came out) where the “markets” not only went nowhere – you had more than one terrifying drop into what seemed the abyss where all that new found “advice” did little too help. The only thing which saved the “markets” from following into more of that abyss was further jawboning, and iplied action leveled by speaker, after speaker from the Fed.

This oscillation did not stop until – the election of Donald Trump.

Since that period we have been on an utterly unimaginable “hopium” propelled rocket ride to where we stand today. To be clear: Just prior to the election results so concerned that the “markets” were about to roll over and fall back into their already established pattern of “freefall” that the Chair Ms. Yellen delivered what is now her (in my opinion) most convoluted and contradictory speech when she argued that the Fed. may need to run a “high pressure” monetary policy as to help erase any of the lingering effects from the crisis still evident in the economy. i.e., That implies not only a dovish stance, but rather, an uber-dove policy.

Today? It’s now “Hawks are Us.” And – it’s only been a little more than 4 months since that speech (e.g., late Oct. 2016) and we’ve now had 2 rate hikes, a calling for balance sheet reduction, and calls for even more hikes.

If (and it’s a big if) any more (maybe even one more) of the Trump proposals such as tax cuts is seen as DOA as they did when Trump/Ryancare was killed – all bets are off. And I mean just that: ALL. For the only reason there’s fumes left in the “hopium” tank is that the proposed “Tax plan” will be even yuuuger than expected.

The issue at hand this: Forget if the plan has any upside surprise. The facts is if the plan underwhelms, or worse, is seen to be DOA? You’ll then have a moonshot rocket that’s not only run out of fuel, but didn’t attain orbit, and gravity begins to take over, and with the Fed’s current positioning the equivalent of re-entry and no parachute deployment device at the ready. For the Fed. has now raised twice since – and – the effects of those raises have yet to be felt in earnest. After all – It’s only April.

If the reflation trade appears in any way to be “in trouble?” Can you say “Houston, we’ve got a problem?”

But not to worry I guess, just “Buy, Buy, Buy” is what I hear from the media. Maybe they’re right, right? After all, who cares! Have you seen the price of _________ (fill in your ETF of choice here.)

So, back to Tony. Remeber when I made the case “They’re back, and why you should be worried?”

I heard (once again) a lot from others telling me how I hadn’t a clue, I was wrong, real estate is where it’s happening, I don’t know what I’m talking about, I’ve been wrong, wrong, wrong, and more.

I garnered this must be a result of those whom have taken the latest Tony Robbins financial book (along with the current “hopium” trade currently taking place within the “markets) and his latest new found venue for pumping up (for “bilking” out) those new found stock winnings into real estate. After all: Did you know you can be a real estate millionaire just by attending a seminar and positive thinking? 15-thousand did in Toronto just this past March.

Guess what happened in April? Hint: “Ontario Finally Cracks Down On Toronto Housing Bubble: Launches 15% Foreign Buyer Tax”

Can you say, “Oh, oh?”

But not too worry for I must assume they covered such things at that seminar, right? Right? But after-all – What do I know.

This is what happens when the “bubble mentality” takes over. In other words, one must become both: blissfully, as well as, willfully, ignorant.

Today, that’s the only way one can argue the assumptions of curent “markets” whether they are of the financial, or even those such as real estate. There’s a reason why prices can accelerate in multiples that make absolutley no sense when a basic understanding of, and business acumen are applied. It’s called a “bubble.” And the only way to hop in with both feet, jump up and down pumping your fists in the air chanting in unison that you and the other 15K attending the same seminar with you are going to get yours is to? Hint: Be both: blissfully, as well as, willfully, ignorant.

Sorry, but if you want to argue that I’m wrong, try arguing to the people who probably went out and signed on many of the dotted lines after that seminar to suddenly find not only “does the bank and everyone else own them” but also, the #1 buyer that fueled those prices is now about to be hit with a 15% tax.

And for the clues to just how much pain may be in-store? Just look to Vancouver where the same was implemented just a few months prior. Hint: The term “Crash” is the theme.

Or, then again, I hear all one needs to do is just “diversify” your way to fearless investment bliss. Just like everyone did in 2008. Oh wait, sorry, that didn’t work then did it. Well, I’m sure, “This time is different.”

Then again, even when “hot coals” has been the focus – it would appear the results have had similar forbearing. e.g., “Tony Robbins Asks Everyone To “Storm Across A Bed Of Hot Coals” – Dozens Get Injured”

But I guess that’s ancient history. After all – that was way back in June of last year. Time heals all wounds and financial timidity, yes?

I hope the people of Toronto remember that, because I’m pretty sure that wasn’t discussed at the “Wealth” expo. Then again, I don’t think you’ll hear any of that sort when it comes to the “markets” either. But then again…

What do I know.

© 2017 Mark St.Cyr

Last week it was reported that Paul Tudor Jones was overheard openly implying (paraphrasing) “The Fed. should be terrified of the stock market value relative to the underlying economy.” This in turn prompted a response when the Fed’s vice chair Mr. Fischer was queried for a response and replied “We’re not terrified.”

Fair enough, then again, it’s only April.

The real issue at hand is not the response given by the Fed’s V.C.(after all what is he going to say.) No, the real near comical aspect of all this is just how matter-of-fact and “all-seeing” they believe their arguments to be. One would think with what is of public record from their “assessments” to their “reasoning” as to why they chose a death grip to the zero bound, to then suddenly once the election results were not only found the courage to raise, but decided to raise twice within 90 days while basically shouting from the top of the Eccles building that not only were more raises on the table, but also the balance sheet.

The problem for the Fed. of late has been – no one has been listening, and basically, no one’s cared.

This (in my opinion) is what truly terrifies the Fed. And if you watched both their tone and tenor, along with their arguments, as to why now, not before, not any later, but right now was the time to go full-bore on raising rates and cutting the balance sheet, you could see the real reason behind it: They were (are?) terrified of loosing all this new-found power and adulation.

For nearly a decade (yes, it’s been that long) the Federal Reserve along with central bankers everywhere have been the ones in near complete control of the global economy via their differing iterations of QE programs. And what do we have to show for all this economic “wisdom?” Let’s use the Federal Reserve of Atlanta’s Quarterly GDP report for a reference of efficacy shall we? But first, a little history…

Back in days of yore (circa January 2017) The above report for Q1 was estimated at being around 3%. One would think that figure to be a good sign, especially when the Fed. had just raised rates at their Dec. meeting only 30 days prior. Although 3% is still anemic, one will take any signs of “hope” where one can get it I guess particularly when the Fed. Chair via her presser expressed further hiking was all but inevitable, and at a far faster pace, than anyone presumed.

To reiterate: With a GDP estimate in-and-around 3% one could argue (although I would not) that the Fed. postulated with their brethren in other jurisdictions that the economy was indeed “on track” for sustainable and further GDP growth, which warranted raising rates. At least, that’s what you heard if you listened to any communiques via the Fed. and/or the main stream business/financial media. The messaging and tone of it was unmistakably in unison.

How does that same GDP estimate stand today with revisions? Surely it must be at least the same if not even higher since the Fed. felt embolden to raise rates again for the second time in a mere 90 days (March meeting.)

Envelope please…

The result for Q1 GDP estimate now stands at a whopping: 0.5% (that’s not a typo, nor was I handed the wrong envelope.)

But not too worry, after all, how much lower can it go? I mean, in April that is, for there is only one more revision to go (on the 28th.) Or, maybe I’m typing too soon? We shall see I guess, and sorry for that sudden feeling of anxiety you may have had. That’ll come all too soon enough I’m afraid. After all – it’s only April.

Below is an important distinction far too many forget…

“You know what the difference is between an Economist/Analyst, and a Business Owner?

When a Business Owner makes a prediction on his or her business and predicts wrong; the business could wind up in bankruptcy. When the Economist/Analyst makes a wrong prediction; they just make another prediction.”

I’m reiterating the above for this reason: The Federal Reserve is not only the ultimate cadre of economists/analysts, but what needs to be pointed out most prominently is this: It’s not only endowed with the capability as to print (e.g., create money ex nihilo) and replace any losses when wrong. There is also no personal recourse at risk for its members; whether it helps, or hurts, an economy other than what conferences, dinner parties, or “institute” they’ll be invited to attend during, or after they leave.

So it was from this perspective I thought it all but comical when the Fed’s Vice Chair responded with the rebuttal, “We’re not terrified” adding my two-cents: Of course not – it’s not your money that’s at risk – and – it’s only April.

So yes, maybe the Fed. isn’t “terrified.” However, with that said, what we can only presume is that at least one of these ever metamorphosing “doves to hawks” and back again depending on “market” conditions is more than a bit concerned as was displayed when none other than N.Y. Fed. president William Dudley had to suddenly take to the media as to calm what could only be described as the beginnings of a possible unrelenting torrent of unwinds within the bond, and currency markets, along with any subsequent accompanying hedges.

What was the catalyst for this sudden taking to the airwaves?

What the definition of “pause” was. (No, that’s not a joke, sorry too say.)

Did I mention this is all beginning to happen in April?

Seems funny how suddenly the “markets” only 30 days hence since the March hike (mind you – the 2nd in 90 days) are taking to reacting to any Fed. speakers words once again. It seems like only yesterday (it was only March) when the Fed. seemingly couldn’t get the “markets” attention. Not even with two rate hikes in 90 days and posturing for even more. So much “more” that none other than “Mr. Courage to print, and print some more” former chairman Ben Bernanke took to the keyboard as to show his concern if the Fed. was truly talking the game for balance sheet reduction with his opinion of (paraphrasing) “I hope not.”

Here’s how the former Chair described any balance sheet reduction ideas. To wit:

“First, to minimize the risk that unwinding the balance sheet will disrupt markets and the economy, the best approach is to allow a passive runoff of maturing assets, without attempting to vary the pace of rundown for policy purposes. However, even with such a cautious approach, the effects of initiating a reduction in the Fed’s balance sheet are uncertain. Accordingly, it would be prudent not to initiate that process until the short-term interest rate is safely away from the effective lower bound.”

So let’s take the above observation at its word: Does one think if that was a prudent observation via the former Fed. Chair with all his acumen pertaining to the Fed. and policy initiatives – that talking, insinuating, and proposing a reduction this year in concert, or, as a primary tool to be enacted when the effects of 2 rate hikes within 90 days have yet to be filtered, and their ramifications manifest within the economy as prudent or advisable?

Regardless of your feelings about the policy itself, just weigh the above in context from a business standpoint. Can you see where “policy error” could be the most terrifying expression to yet be felt in the economy based on the above? Especially – since it’s only April? (again keep in mind Mr. Bernanke penned that piece way back on January 26, 2017. I’m not sure if the internet had yet been invented back then.)

Why should this be of concern? Hint: Today (as in April) the Fed. (once again) has suddenly needed to sprint to the airwaves with near immediacy as to parse the definition of verbs once again, or else, all heck appears about to break loose. (See above’s bond, and currency scenario for context.)

Why might that be you ask? Great question, let’s start here…

For those who don’t remember it was only a few months ago when this current incarnation of Fed. board members that were so vehemently dovish back in Oct/Nov of 2016 suddenly morphed into a virtual squadron of “Hawks are Us” insinuating no room for misinterpretation directly after the U.S. election results.

The switch was unmistakable and the Fed. itself has been doing everything within its vocal cords as to prove that switch had indeed been made. The March hike was that de facto moment to any who thought otherwise.

That was until what appeared as the Fed’s cover-for-courage (i.e.,Trump-reflation, hopium trade) showed to be DOA.

Now, with all eyes refocusing back onto the Fed. and its raising of rates into the reality of an anemic, if not near recessionary economy, it would appear suddenly the Fed. feels the need to send out speaker after speaker in a “he said-she said” ever-growing conflicting narrative of “hawk vs dove” parsing spree for where the Fed. currently stands for the further raising of rates, and more.

Don’t take my word for it. All one needs to do is listen, read, or watch any current Fed. communications over the last 30 days or so. We’re back into parsing verbs and their meanings once again. (see the afore-mentioned Mr. Dudley’s latest for clues.)

Oh yeah – and it’s only April.

Speaking of April, I haven’t even mentioned the sudden “retiring” of two members out-of-the-blue: One for reasons not elaborated (e.g., Mr. Tarullo), the other, for reasons I can only surmise the Fed. wishes needn’t be elaborated (e.g., Mr. Lacker’s admission he leaked market moving data.) Did I say, “It’s only April?” This is also the reason why I used the term “this current incarnation.” After all – it’s only April.

Again, let’s go back to where this supposedly all stood back in and around January of this year. You know, when all that “economy is awesome”-ness was emanating from a confident FOMC rate hiking squadron of hawks deciding it was not only time to raise, but rather, it was time to raise, and raise some more. Has anything else happened since then?

Hint: Now with Article 50 triggered in the U.K. and Brexit all but a done deal. We now have the elections in France and a possible Frexit on tap depending on the outcome. This alone could be the beginning (as well as encouraging from the growing chorus of EU partners who also want out) for a possible (if not inevitable) complete and utter dismantling of the E.U. leaving the ECB (European Central Bank) and its ever so “ebullient” Mr. Draghi precisely where? And with what? To do what further “whatever it takes” exactly?

And I haven’t even mentioned N.Korea, China, Russia, NATO, a reverse in the $Dollar, and a whole lot more.

Did I mention: It’s only April?

With all the above for context it is also quite possible all the continuing soft data surveys falling in unison are nothing to worry about. Let alone be “terrified.” It’s also quite possible the old adage of “Sell in May and go away” is nothing more than an old traders tale not worthy of anything more than a “flip of a coin” for relevance. So why worry? Let alone – be “terrified”, right?

It’s also quite possible that the Fed’s front-running any possible fiscal stimulus emanating from congress might have been a little premature, if not over zealous. Especially when intertwined with calls of “balance sheet reduction” as not just a possibility, but rather, a probability now that it appears all the “stimulus” the Fed. appeared to be front-running is all but DOA.

It’s all quite possible any thoughts for concern are far too overdone. I mean: What else could go wrong, for the above is sooo 2017 already, is it not?

Sorry, I almost forgot: It’s only April.

© 2017 Mark St.Cyr