We're Back to Late 2007... or early 2000 (Remember How Those Ended?)

The market is rising… or is it?

The number of individual S&P 500 companies above their 200-day moving averages (200-DMA) has rolled over.

Put simply, the broader market is NOT confirming this move in stocks.

So overall the momentum is leaving the market... but still the stock market index is going higher...

Why is this?

Because the market is being propped up by just a handful of Tech Companies.

Those companies are: Apple, Amazon, Microsoft, and Alphabet.

These are the single most popular companies on the planet, with every fund manager, and even the Swiss National Bank loading up on them

Remove these companies from the market, and the markets are DOWN.

Why does this matter?

Because the fundamentals for these companies are rolling over. And the investment crowd will soon be running to the exits.

Take Apple.

Sales for Apple’s #1 product (the iPhone) began to decline a year ago.  They’ve declined in THREE of the last four quarters on a Year Over Year basis.

Throughout this same time period, the company’s stock price has risen an astounding 75%.

So… Apple’s stock has risen 75%... during a time in which its #1 product is selling less... and its trailing twelve-month revenues are below its 2015 results.

And this company, (and a handful of others like it), is holding the entire market up!

We are literally back to how the market was in late 2007… or early 2000 depending on how you look at it.

We all remember how those situations ended.

We offer a FREE investment report outlining when the bubble will burst as well as what investments will pay out massive returns to investors when this happens. It"s called The Biggest Bubble of All Time (and three investment strategies to profit from it).

We made 1,000 copies to the general public.

As I write this a mere 79 are left.

To pick up your FREE copy...

CLICK HERE!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

The 'Real' Question: What's Facebook's True Valuation Without "Fake"?

Authored by Mark St.Cyr,

There are two hot topics post the U.S. presidential election. One is “fake news”, the other is Facebook™ (FB), and its involvement in it.

The accusations and the defenses against have been all over the board. Both figuratively, as well as literally.

Management from Mark Zuckerberg on down have been professing when it came to anything “fake” it wasn’t of their doing. And gee-whiz-by-golly they’re going to do whatever it takes to make sure anything “fake” never sees the “like” of day again.

Sounds great, in theory. But there’s a very real fact that must now be considered…

If “fake” news was so wide-spread, and so devoured on FB that it had the ability to not only influence, but rather, to overturn political norms and ruin the election of what everyone in media on down believed; that this election was merely a formality on paper because, it was clear to all of them, Mrs. Clinton would win not just walking away, but running?

That would mean FB now has to alienate (i.e., by now not delivering “news” these people wanted to see) millions, upon millions, upon millions of now current users. What does that imply to their now “real” (ooopsy, again!) metrics going forward?

If the above hypothetical has the ability to be true (and from a business perspective it sure has) the very fact that FB will now openly censor, mark, tag, possibly defame (whether intentionally or not), and more articles of news, or anything else shared on its platform. Two questions have to be asked:

First: How many FB customers decide they don’t need or want a “mommy” deciding what they can, or can not, read or share? Second: How fast does that process begin, and by how many?

No matter what side of the political fence you’re on matters. The only thing that matters is what all this means from a business perspective to FB’s bottom line. For as much as everyone likes “free”, without Wall Street (or the Swiss Central Bank) buying? FB moves to AOL™ status quicker than you can say “You’ve got mail®.”

As of this writing some hand writing is all ready appearing on the wall as FB announced not only will it begin to find ways to forbid fact-check. But it has now joined forces with a third-party to do just that. Again, all sounds good on the surface until you’re made aware by one’s own fact-checking just whom that third-party is. e.g., Poynter™.

Who are they? Personally, I’ve never heard of them prior, but it only took seeing one man’s name on the roster of backers to understand the impact it will have on a great many current FB users, as well as content generators to imagine a most assured backlash. e.g. George Soros.

Again, it doesn’t matter what side of the political fence you sit. And it doesn’t matter whether you like or dislike Mr. Soros, or anything he’s involved with. What does matter is this: How many users, along with legitimate purveyors of content currently using FB are going to allow any form of what they will most certainly view as censorship via an entity controlled (or at least think is) by people they deem hold the antithesis viewpoint to theirs? And it will be they that has the control to censor.

What’s the number? 1? 10? 10,000? 10 Million? ____________? (fill in the blank). And what do they represent in economic impact to FB’s bottom line? Does it hurt user numbers? Does a revolt in buying ads, or promoting sites, or content develop? The list of potential revenue disruptors begins to get lengthy when you truly ponder the potential impact. And Wall Street doesn’t like things that have the potential to hurt the bottom line. Non-GAAP or not.

Remember: The argument is “fake news” (and FB is now considered the poster child for where it ran rampant, whether rightly, or wrongly) had so much influence in this election that it cost the presumed victor millions of votes.

So if you take that logic as being possibly true. Then that means millions of FB users are consumers (For they must have consumed, no?) of that type of content. And if they now know FB will some how either remove it, or make it so burdensome to access they won’t see it? Whether they agree with FB’s conclusions or not? Are you beginning to see how this could run?

Then add to that one of the parties responsible for that form of censorship which they will be subject to as for what they may, or may not read – is being decided by an entity presumably controlled under the auspices of Mr. Soros? The potential for both FB content consumers along with content creators getting upset maybe an understatement. Even among the so-called “legitimate” voices. FB could have an outright revolution of revulsion on their hands. Think about it.

What happens if rather than FB being the provider or outlet for calls of boycotts or other social protests when it comes to advertisers and more, suddenly finds those roles reversed where it can be the recipient of those calls? And how do advertisers view those prospects? This whole “fake” has truly opened up a very real can-of-worms for FB in my opinion. A very real and potentially costly “can” at that.

Don’t think things have a potential for explosive reactions? Just try telling someone (anyone) they’re not allowed to see or read something. Forget politics, I mean anything. Watch how fast any argument of “It’s for your own good” lasts, or works.

There are other considerations I’ll bet a lot of people have yet to even ponder. So, for those who don’t remember ancient history. Or care about “marketing.” Let me leave you with this:

One of the best marketing and sales generating campaigns for the written word ever discovered fell under this same category” i.e., “You can’t read that – we forbid it!” Or, “Book burnings begin tonight!” Or my personal favorite “Banned in Boston!”

Personally, I don’t use FB. However, with that said – I will be the first one to put up on my site in large letters “Banned by FB” Or “FB says Don’t Read This!” Or, something of that sort should one of my articles ever get shared and some form of signaling or notation is made accordingly. It would be a badge of honor. Besides…

You couldn’t ask for better marketing. All at FB’s expense, and quite possibly, literally.

Risk Happens Fast

By Chris at www.CapitalistExploits.at

As a teenager brimming with testosterone my reptilian brain loved action movies.

Top of my list were Steven Seagal movies. Clearly it wasn"t for his acting skills, which are only marginally better than Barney the dinosaur.

What I loved about Seagal was that he was both deadly and terribly fast. His opponents had mere seconds before their arms, legs, or other bones were snapped like twigs. Or they suffered a severe beating leaving them either dead or in a bludgeoned unrecognisable mess. Fabulous stuff!

With Seagal risk happened fast. The targets of his aggression never had time to get out once the onslaught began, and then it was all over in seconds. None of this drawn out biff-baff nonsense, taking forever to finally get to where you knew things were headed anyways.

Back in January of 2015 the currency markets had a "Seagal moment".

The Swiss National Bank (SNB) had pegged the Swiss Franc to the Euro at 1.20 and by the end of 2014 had already spent billions defending the peg.

All the numbers told us the peg was untenable. We didn"t know how long the peg would hold but we did know that with every passing day what was clearly untenable simply became more untenable. The stress was building.

Failing to participate is one of my regrets. I saw the imbalance, the fact that volatility was unbelievably cheap presenting awesome asymmetry, and instead made another cup of coffee thinking, I"ll get an entry sign. Something that allows me to identify timing. Dumber than thinking you can get out of Seagal"s way after disrespecting his mama.

Back in March of 2015 we explained why the probability of the Chinese renminbi being devalued was high and increasing daily. Five months later the PBOC shocked markets by devaluing the yuan. Here is what we said at the time when discussing the CHF:

“By pegging the CHF to the euro at 1.20 the SNB put a lid on how much it would appreciate against the euro. In doing so the SNB’s balance sheet grew faster than even the US Federal Reserve’s balance sheet, and finally in January the SNB realized it was fighting a losing battle and threw the towel in. This resulted in an “off the Richter scale” move (+30%) in a few minutes!

This disorderly revaluation shook the currency markets and impaired a number of financial institutions! In trying to suppress volatility and create more certainty all the SNB euro pegging efforts succeeded in doing was to achieve the exact opposite!”

At least having sat and watched the franc peg break the lesson wasn"t lost. And so when it came to watching the renminbi and the problems we"d identified in the Chinese interbank market (something we discussed on the blog as well) we could evaluate the cost of entering the short renminbi trade accordingly since volatility was priced as if it not only didn’t exist as a threat but that it would NEVER exist. We all know how that ended.

The same had been true of the Swiss franc. When it broke, the move was even more explosive.

See that long green line at the bottom of the screen?

That’s what you call complacency, trust, and faith. This made no sense given the fundamentals. It was as loony as planning a driving trip across Africa in a Lada, expecting trouble-free motoring.

Now if you look closely you’ll see the line at the very end of the chart is a 90 degree angle. This is the volatility in the EUR/CHF pair when it broke.

As reported by Bloomberg at the time in an article entitled, “No One Was Supposed to Lose This Much Money on Swiss Francs”:

“Goldman Sachs Chief Financial Officer Harvey Schwartz said on this morning’s earnings call that this was something like a 20-standard-deviation event, and while the exact number of standard deviations is of course a subjective matter, that’s the right ballpark.

Over the 12 months ended on Wednesday, the annual volatility - that is, the annualized standard deviation of daily returns - of the euro/franc relationship was a bit over 1.7 percent; over the last three months of that period the volatility was less than 1 percent. That converts to a daily standard deviation of something like 0.1 percent.

On Thursday, the euro ended down almost 19 percent, or call it 180 standard deviations, depending on what period you use.”

The chart below shows the EUR/CHF currency move which coincided with the volatility shown above.

The truth is that even though the situation was untenable and the cost to going long the CHF extremely low, it was unpopular since the market believed in the status quo, and its ability to sustain the unsustainable.

The Lesson

Experience has taught us that typically the greater the asymmetry, the less the opportunity for us to position when a move has already begun. There isn"t time! Risk happens fast.

The opportunities we focus on present asymmetry and often happen all at once. It is important to be positioned BEFORE the move. This requires risk management, and intelligent position sizing.

Thinking you will get to position once a move starts in a market exhibiting extraordinary asymmetry is a bit like thinking you can get out of the way when Seagal gets to work on you. It"s probably too late though perhaps I should use someone other than Seagal nowadays since the only thing "under siege" appears to be his arteries.

Discipline and patience are imperative. You will inevitably be a day or two early at the train station and waiting sucks but a minute too late and it"s a loooong walk.

What to Expect

Investing in such opportunities you can rest assured we have to suffer fools parroting phrases such as “being early is the same thing as being wrong” until a collapse demonstrates that actually no, it’s really not.

Hubris is one sign that asymmetry may exist. Volatility and the pricing of volatility is usually key. In scrounging around the global macro landscape in search of opportunity, and in speaking with the dozens and dozens of truly great investment minds, one thing that so often becomes vividly apparent is that the very best investment minds in the world are never complacent and you shouldn"t be either.

Have a great week!

- Chris

"This kind of event is the kind of thing that will trigger volatility. This is not a one day thing now." — Darren Courtney-Cook, Head of trading at Central Markets Investment Management on the SNB abandoning the euro peg

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