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