Another installment for the (For those who say I just don’t get it…get this) files…

The other day I wrote an article titled, “Crying Towels: Silicon Valley’s Next Big Investment Op”. In that article I made some pretty bold calls and stated my reasons for them both clearly, as well as bluntly. I didn’t pick such a topic because I want to make friends or some pathetic attempt at click-bait. After all, if I wanted to make friends, the last thing one would do in today’s world of “everything social” is make the case against it. And anyone with headline expertise would see at first glance – my headlines are pretty pathetic if click-bait was what I was after.

Then on Thursday afternoon I was sent a note from a reader that stated I was getting the butt-end of sarcasm (as was Zero Hedge™) from a well-known Silicon Valley aficionado Paul Kedrosky via his Twitter™ feed. Some of the comments were “But the author uses bold and bold italics. It must be true.” Along with others such as, “and he has BEEN A CEO.” I guess the caps meant being retired is a bad thing? And in regards to ZH there were shots like “I only read it for the pictures.” and so on. I would imagine the hilarity of this Twit-storm was had by all. And I have no problem with that. If you’re going to play at this level it comes with the territory. However, let’s look at a few facts and “pictures” to see if there’s anything funny contained within shall we?

One of the main points in my article was contained in this sentence:

“The once emblematic IPO cash-out that lured many is beginning to morph into the loss of IPO dreams that resemble wash-out with every passing earnings cycle.”

Well, if a picture says a thousand words – then maybe a chart can show losses of Billions, to wit:


The chart above shows how some of the once “it’s different this time” much-anticipated IPO’s of 2014 have performed as of today. I drew a trend-line in the general area of where the IPO opened and to where it is as of this writing. Not only is the trajectory of that line going in the wrong direction. What’s far worse is everything above it represents loss, as in – “Hey I’m rich let’s buy a ___________!” To: “Oh crap how quick can I list this __________ on Craig’s List™ or Ebay™?”

How about a few more…

2015-10-16-TOS_CHARTS 2

Although Yahoo™ isn’t a recent IPO I thought it was fitting for it went hand in hand (as I’ve stated many times) on the success of its stake and sale of Alibaba™. I don’t know the other companies, I just included them for they are recently IPO, tech based, disrupt-er style in appearance and emblematic of the genre in total that is “The Valley” from my perspective. Maybe the day of launch brought out the champagne bottles, but as you look closely, once again, not only is that trend-line going in the worst of directions – everything above it are what’s known in Wall Street parlance as “Bag holders.” Plain, and simple.

And last but not least, this “photo album” couldn’t be complete without what I stated in that article as “the canary in the coal mine” for Silicon Valley as a whole: Twitter itself. Along with another IPO favorite that came out in the same time frame Pandora™. Again, all heralded as proof positive at the time, “This time it’s different!” To wit:

2015-10-16-TOS_CHARTS 3

I threw in two bonus charts. The lower left is itself the ETF for social media as a whole. I adjusted the chart to fit the same time-frames as the others for a more proper context. And what does the market think of “everything social?” Once again, that trend-line is not going in the right direction for anything that warrants “the hottest sector in all of Silicon Valley.” But wait…there’s more! As in one last chart that sums up pretty much what I’ve been trying to point out these last few years.

The chart in the lower right above is the ETF that represents the Biotech sector. I again fitted the time frame for context. As you can clearly see this sector was like the entire market itself on a rocket-ship ride to Alpha Centauri – until the propulsion system began misfiring. The reason? Fuel shortage as in QE not only being shut off, but none other than Fed. Chair Janet Yellen openly remarked she felt this sector was more or less overheated. The resulting market based “fundamental pricing” ensued with near immediacy. Fundamental as in “The jig is up!”

As eye-opening as the above charts may appear at first glance, they don’t tell the full story; for there’s more to it which also helps give even more context.

I derived the above names not because I knew all these companies. I did like any of you would do and did a quick Google™ query of IPO’s for 2014. And one of the results topping the list was none other than Jim Cramer’s The Street™. A favorite of many budding IPO dreamers.

The title of the article was: “14 IPO’s You Wish You Bought in 2014 And Made A Killing On.” I said to myself, fair enough, let’s take a look for it’s better to know I’m off the mark or, clearly have no idea of what I’m taking about if this article shows me otherwise. It would save me a lot of embarrassment as well as give more credence to the so-called “smart-crowd” in their reasoning of “It’s different this time.” Guess what I found by looking and reading that article? In February (when the article was written) you were looking like an investing genius. e.g., “Hey where’s the champagne to fill this pool because I’m swimming in it?!”

The problem? The sampling of names and charts above are from that article. And all I can say is by looking at the remaining contained within that 14 (which happened to be heavily weighted in Biotech – need I say more?) you aren’t exactly looking for champagne. So the question begs for you to be the judge: Break out more champagne? Or break out “crying towels?”

I’ll only add; it’s far from over in my opinion. As a matter of fact, I’ll contend as I implied in my article – it’s just getting started.

To get a little more insight as to extrapolate what may be coming on the horizon let’s use the “picture” below which is of the ETF: SPY aka known as the most liquid proxy ETF for the S&P 500™. I’m using this as opposed to the traditional index because in today’s market it’s all about how liquid products are behaving as opposed to what can transpire in others.

Screen Shot 2015-10-15 at 3.08.52 PM

As you can see there are two very important features in this chart I’ve highlighted. First: It begins in the left hand corner precisely when the then Fed. Chair Ben Bernanke announced there was no reason to fear (because we were once again rolling over after the previous QE ran out) that QE was now going to be around for a long, long time. And as you can see, the markets never looked back. JBTFD (just buy the dip) became Wall Street parlance ever since and is still wildly accepted as faith.

But then a funny thing happened. To the dismay of Wall Street The Fed. actually had the audacity to follow through on their commitment to end outright QE in Oct/Nov. and guess what happened? That’s right, markets began rolling over into a near free-fall causing alarm-bells to be answered across the Federal Reserve. As a matter of fact the selling did not cease till one Fed. official publicly stated (I’m paraphrasing) “Maybe more QE was an option.” And the markets rocketed back to finish the year once again, at all time new highs on the residual float and year-end annual “paint the tape for bonuses” finishing with a bang. This event is now commonly known as “The Bullard Bottom.”

But once again here lies “that problem” inherent in almost any chart you look at across nearly any index, as well as any “high flyer” that was the direct beneficiary of QE money policy looking for a home.

For most of 2015 – the markets go basically no where unlike their rocket-propelled trajectory when QE was the fuel that lifted all ships. What’s worse is, not only do they go nowhere, but for the first time in years (precisely when there is no longer any QE to make the push ever higher) out of no where – they free fall into sheer panic mode of historic (yes historic) proportions only to be halted coincidentally at the exact same level as “The Bullard Bottom.”

What ensued after was some faith as to JBTFD in an oversold bounce fashion. Then, once again, a problem ensued unlike any seen when QE (or the Fed. put) was ensconced. The markets (here’s that repeating term) once again rolled over and challenged breaking into out right free-fall. What stopped them from continuing? Great economic news? Unrealized GDP growth? Great data points from surveys and more? Far from it.

The reason for the “stick-save” once again was due only by a Federal Reserve punt on rate hikes. i.e., Free money carry trades can continue in earnest. And with all the hoopla and calls of “New highs here we come again!” being boasted across the financial media how far have we risen?

That arrow on the right marks the spot as of this writing. Funny how this years price action in stocks isn’t the same as all the years prior without that little quantity known as QE. And an even bigger issue is the fact; we may only be here because of the knock-on effects during an OPEX closing. For the fuel to rally has been provided only by a massive short squeeze, not based or caused by fundamentals (for every single new data point has been outright pathetic, and disheartening) rather something more akin to panic buying for earnings positioning during an oversold bounce period coinciding during an expiry period. This usually causes major panic buying or selling when they line up accordingly. And I’m of the opinion – this is all this latest “Happy days are here again” rally represents.

So the problem facing the markets from my perspective currently are two-fold. First: If the recent surge in stocks is only a short squeeze of mega proportions (which I’m of the belief that it is) because of an OPEX event. Then the subsequent weeks are quite possibly going to get very, very volatile indeed. Combine this with the never-ceasing uncertainty on just who says what, and when, or why by a Fed. official. All this in concert with an absolute pathetic start to this current earnings reporting period.

As many do, I could have waited till (or if) the markets began free-falling to then write an article like this. This way I would be able to parse my words and implications after the facts with much more brevity. However, that’s not the way to do things in my opinion nor, is it the way one should conduct themselves at this level. I would rather state why I’m saying what I’m saying, and either defend or, bolster the reasons for them as the market is rocketing back up into the “Never been higher in the history of mankind” zone once again. This way I can’t be accused of “cherry-picking” or blatantly trying to cover a flip-flop like some because the winds now appear to be going against their steadfast “informed” argument.

I’ll leave that to you dear reader while posing the following question: Looking at what I argued and presented above which do you think may be the better investment in the not to distant future? Cases of champagne for the steadfast JBTFD crowd that’s currently taking place as of this writing? Or “crying towels” for the same group? And remember…

I didn’t even mention the most overarching disrupt-er of all: China. Or should I say “International developments?”

© 2015 Mark St.Cyr