One year ago this month I wrote an article bearing the same title less the “still.” I’ll premise this one as I did then with the following: This is not a hit piece, nor an effort to arbitrarily take swipes. Or worse; some feeble attempt at click-bating. I’ve been a true fan since he first hit the motivational stage decades ago. However, that doesn’t stop me from pointing out issues where I see a compelling reason to do so. So with that said I’ll get on with it…
Over the last few weeks the financial markets have been on a tear. And not just any tear. The month of October saw gains that were not just spectacular: It now sports the position as the 4th grandest Oct. rally in the history of the markets.
It sure does sound “grand” if you don’t look at what it took to make it so. i.e., A collapse of an also historic nature that preceded it by mere weeks. Suddenly the praise of “grand” looses its largesse when reminded of why it took place to begin with. Yet, not to worry. The financial media will never remind or, alert you to such facts because – “everything is awesome!” once again.
Then on Thursday I was alerted that Tony (I’m using the personal only for ease) was out making the rounds on the financial/business shows. So, I tuned in to see. And what was the bulk of the conversation or questioning about? Fees. In other words, by using different instruments, brokers, et al, you could significantly reduce your brokerage fees by doing many things yourself in different ways such as investing in ETFs and other instruments. One example he used was from his own company’s experience where he reduced his outlays by some $5 million dollars. Sounds great at first blush. However, there’s two things overshadowing this enlightenment in my opinion.
First: The answers to the questions Tony realized are far from groundbreaking. They’ve been around for some time. Yet, it’s the second part that has the most troubling aspect in my view, and that problem is this: Although fees are a very important aspect of financial planning at any level. Where prudence in reducing them should always be sought with vigor. In markets such as these, just one year since Tony’s book “Money Master The Game: 7 Simple Steps to Financial Freedom,” (2014 Simon & Schuster) The most probing questions that should remain front-of-mind, everyday, with no respite should be focused squarely to: The surety for the return of one’s money. Then the proverbial “on.” Period. Confusing that sequence today is a recipe for financial disaster waiting to happen in my view.
Safety today is paramount. I am ever-the-more resolute of the opinion: Everything else is playing around the edges. And as I watched or listened – I heard nothing addressing the preponderance of possible systemic failures or upheavals. Let alone how one might safeguard themselves from one.
Oh wait, yes there was one: “diversification.” All I’ll point to on that note, is what I pointed to last time – 2008. For diversification in the markets was, for all intents and purposes; a meaningless exercise during the panic. Why? Lest I remind you during the panic how everything was going down the drain simultaneously?
If you listen to many a next in rotation fund manager or, economist 2008 is now considered ancient history. Even if it was only 7 years ago, took a government sponsored bailout, three quantitative easing interventions, along with other programs such as “Operation Twist” and more costing TRILLIONS of dollars to circumvent and still remains the benefactor of extreme monetary policy actions via the Federal Reserve and other central banks. That part of history they would like you to both forget as well as never be reminded of. (It’s bad for business.) However, let’s take a trip down “memory lane” with some pictures aka charts shall we?
In June of this year I wrote another article titled “F.T.W.S.I.J.D.G.I.G.T.” This title is a catch-all category for articles I’ve written where I was originally bashed for arguing such thoughts only to be proven out either correct or, far more on point than those of my detractors. In this article I argued many of the same points I’m arguing currently, and to help bolster my argument I posted this chart:
In that article I argued since the ending of QE, along with the release of Tony’s book, the markets had done something they hadn’t done since QE originally began. i.e., Gone nowhere.
Not only that; the markets had also experienced out-of-the-blue shocks consisting of selloffs answered with just as breathtaking rallies perpetuated only by central bank jawboning stick saves. “#3” on that chart represented the first of rollovers that took place causing ever more Fed officials to publicly mouth soothing tones following the initial, much larger, and more pronounced “looking into the abyss” moment that was only saved by St. Louis Fed. President James Bullard when he expressed maybe “more QE” was possible. This is now collectively referred to as “The Bullard Bottom.”
In the near 7 months represented on that chart the index stood only a mere 40 points higher. Not withstanding, something else was also “out of character” for a market which had been on fire for years prior: It was gyrating wildly.
The old “put a ruler down and draw a line upwards” was now absent. Again, something I stated would be the result (and worse) once QE’s lingering effects finally wore off. For as I’ve stated all these years “Without the Fed. – there is no market.”
That was then, so what about now? To wit:
This is the same chart as the previous. Only I added a little more time (Sept-Oct of ’14) for context, as well as a few more notations.
First, as you can clearly see, is the initial market selloff that transpired when the markets began adjusting to the fact that QE was indeed ending. (i.e, Oct/Nov) The reaction was both ugly as well as rapid to which it only reversed once a senior Fed. official publicly stated maybe “more QE” was possible. e.g. “The Bullard Bottom.”
The initial reaction takes you right to the point (#1) where Tony’s book came out a few weeks later. However, as I noted on that chart using “#3,” there, and nearly every other subsequent selloff was met by one Fed. official after another in concert with other central bankers jawboning the possibility of “more intervention” in one form or another till finally; the market just acted in faith that “The Fed. had its back” and the gyrations were less and less pronounced. Until…
In August China’s stock market along with its currency market began fluctuating wildly. So wildly it caused out right panic within their own markets that spurred a contagion effect into the markets as a whole.
Some will point (which I am of this thought) this was primarily a result of not only issues distinct to China, but rather, issues that were being exacerbated by the realization that the Fed. was indeed going to raise interest rates in September. The resulting chaos of such a hike to the emerging market currencies during a margin fueled bubble popping of the Chinese/Asian stock markets had the look and feel of taking down or, at the least, causing a global rout in the financial markets.
On August 24th the U.S. experienced a 1000 point plunge in the overnight markets. This plunge caused a never before seen in history halting of all three major future’s indexes before the opening bell. By the closing bell the markets would recover some, yet, still less than half closing down a whopping 588 points at the final bell. Although the damage was severe, what was the catalyst for it not being the full 1000? Or worse?
Many point to the now infamous “Note from Tim Cook” CNBC™ host Jim Cramer produced and read on air stating: China was better than anyone thinks based on iPhone® figures. This followed with more Fed. speakers hitting the airwaves and print with soothing tones of “We’re here at the ready” seemed to quell the ever-growing onslaught of panic. But it was not to last very long.
Again, as one can see on that chart the markets once again began to roll over. This is where the “panic” once again became palpable. Then, to the astonishment of many – the Fed. blinked and did not raise interest rates at their September meeting. Even though it was the most telegraphed, as well as anticipated in recent memory.
And with that it signaled to the markets that the Fed. was indeed painted into a corner and BTFD (bought the dip) with both hands, feet, and truck that could carry a stock ticker. The result? Another short covering fueled rally worthy of the record books. However, once again – there’s a problem. Or, should I say “question” that needs to be addressed. And this question has far greater implications than anything resembling a “fee.”
Now, one year later (almost to the day) the markets are right where they were previously – with one exception. All the things such as “wild gyrations, panic selloffs” and more that were supposedly vanquished with the Fed’s intervention as expressed by the financial media et al. Have not only reappeared: they’ve shown to be far more frequent, as well as volatile, and extreme as those not seen since the original crisis in ’08. Funny how this has only occurred since the ending of QE, no? Coincidence maybe? Hardly. And I personally believe it’s far from over.
As both myself and a few others have reiterated more times than I can remember: “This market is all about Fed. liquidity.” And if you want to see warning signs – just look to markets that are the most liquid in the world. For if they show signs of stress – you know there’s potential for really big trouble to fester.
So just what did a “fantastic jobs report” do to the most liquid capital market in the world known as “Bonds?” It caused a halt. But remember “the Fed’s got your back.” No need to question why here. Best leave those questions for other areas such as “what’s the cheapest ETF I should invest in?”
Or how about a few other questions that really should be front-of-mind knowing now what one didn’t expect to see ever again. i.e., Historic panic out-of-the-blue selloffs.
How does one go about contemplating “fee structures” or “diversification” in an environment that is far more precarious, and far more onerous than the market of just months ago let alone a year? Are these the correct “questions” for times such as this? After all…
The conditions that were stated to be the catalyst for China’s original markets issue was “margin debt leveraging.” This issue was supposedly being wound down, and ring-fenced as to not interject itself again causing a remake of such events. But a funny thing happened over all these few weeks since that late August rout. Margin debt has been reported to be back on the rise – and with a vengeance, with Asian markets vaulting once again to ever higher levels. Yet, this is only one of the factors that is once again back on the table for questioning.
Back in Aug. another of the very prominent reasons for market turmoil in China was the impending “Fed. rate hike.” Even the Economist™ pointed out this issue in their article, “The causes and consequences of China’s market crash.”
“…Emerging markets have also been squeezed by the Fed, which has been preparing the world economy to expect the first interest rate rise in nearly a decade in September. Tighter monetary conditions in America have led to reduced capital flows to big emerging economies, to a rising dollar, and to more difficult conditions for firms and governments with dollar-denominated loans to repay.
The global economy is right in the middle of a significant transition, in other words, as rich economies try to normalise policy while China tries to rebalance. That transition is proving a difficult one for policymakers to manage, and markets are wobbling under the strain.”
So another very important question (which no one’s asking) that needs to be asked and addressed today is: With the Fed. all but signalling come heck or high-water – they’re raising in December. Do the global markets once again stand at the same ledge they did in early August?
And if that is indeed so, the question that is self-evident is this: Are you now better equipped both psychologically, as well as strategically and tactically adroit to handle such gyrations? Or, have you focused on “fees” and “diversification” as expounded via today’s financial books with a tendency to just BTFD because it’s worked so well in the past regardless of forethought or angst?
If it’s the latter, the real question becomes more of one resembling Clint Eastwood’s now immortal “Do you feel lucky?” For that’s really all you’ll have if the stuff truly does hit the fan once again. Because this time – The Fed. doesn’t want to get in the way of it either. At least that’s what they’re saying or implying. But right now it’s anyone’s guess. Besides, once again…
“Everything is awesome!” And there’s no need to question that. Right?