Submitted by Mark St.Cyr [10],
It’s not supposed to be like this. We’ve all been told earnings are great, corporate profits are great, analysts estimates have been rising. As a matter of fact, if one dared to question any of these metrics we were referred to as “idiots.” (And that is an actual quote.)
Today as we enter this earnings cycle we have a new phrase that I’m sure will enter the lexicon of the lay person in reference to stocks, but will send shivers down actual Wall Street’ers as they have to defend, argue, or give a smoke and mirrors story that will have a chance of being believed. That phrase will be “a trap door event.”
Wall Street loves to spout nice little catch phrases when suddenly what they thought (or told) investors should happen suddenly turns around and does something else.
Some classics? The “value trap.” This basically is said when something was a “sure thing” as to go to the moon, and all you had to do is get on the launching pad now as to be along for the ride.
Then? Squat happens. Not only does it not go up, it just sits there. However, the whole time it is burning fuel. (i.e., burning through your balance in some form of fee to sit there.) But not too worry, you’re stuck in “value.” Makes one feel all sort of fuzzy when it’s put that way is it not?
Then there’s the dreaded “Liquidity trap.”
This is where you’ll hear talking head, after talking head tout this line as the reason “you need to be in stocks!”
It used to have a strict definition pertaining to interest rates, savings, and bonds. Now it’s just a mantra to instill fear into anyone sitting on any type of actual cash as to prove they are “missing out on this wonderful bull market.”
What it really means, is that they are missing out on grabbing a fee. And that can not be tolerated. After all, it’s their sole purpose to gain a fee (ahem) I mean: Its their job to make sure “you’re not leaving money on the table.” Yes, that’s it.
Lately it has worked in this “new normal” they have told everyone is upon us. For we were all not as sophisticated to understand that other mantra – “It’s different this time.”
Well, I may not be as sophisticated as those on Wall Street, but I will make this observation. It just may be “different this time.” Only not for those that have been trying to weed through all this smoke and mirrors. Rather, for all those architects that put these houses of cards together in the first place.
Suddenly this other “trap” analogy is showing its hand and it has a great many that pontificate that stocks are “fairly valued” and other such drivel very nervous; for its implications can have a great effect on their own investing future.
For how does one explain a “trap door event” to a client, when they’ve been assured their investment thesis was on solid ground?
Nothing puts this into the correct framing and shines a spotlight brighter for all to see than the latest absolute debacle for stock recommendations from non other than the once touted “genius” of mom and pop investors (or should I use his own “home gamers” moniker) Jim Cramer of CNBC™ fame.
In my opinion, this talking head has done more damage to the individual investor who follows his dissertations or recommendations than almost any other single person.
Why? Easy – For the few that are actually left in these markets with their 401K’s still struggling or trying to understand the ups and downs. Then basically being reassured by nearly every so-called “smart crowd” talking head that the absence of downs is a product of “the new normal.” And those that say it’s not should be shunned.
To suddenly watch their investment go up – down – then out – changes the way you view a thing. Dramatically! Here’s just the latest example.
On Aug. 26th Mr. Cramer (the person who shouts at your screen to: “make sure you do your own homework!” because that’s what he does) was recommending to people why an investment in GT Advanced Technologies Inc. is the place to be. Only weeks later on October 4th it loses not 10%, not 20, 50, or even 70 – but 93% of its value in what? A “trap door event.”
Here’s a chart of what I believe will become a reoccurring theme to many more so-called “Wall Street darlings.” Welcome to the “New” New Normal earnings season.
[11]Chart screenshot Courtesy of Zero Hedge
You can read a breakdown along with the actual clip reported on ZeroHedge™ here. Cramer Does It Again: GTAT -93% Since Aug 26th Recommendation [12]
At issue here is not that it’s just Jim Cramer, he was far from the only one. However, he is basically the single most recognizable figure with his main stream investing books, bells, buzzers and whistles TV show, along with putting on “investing shows” across the country on college campuses.
Along with probably single handily instilling more false confidence in many nervous moms and pops by touting the line “The Fed’s got your back!” more than any other single individual I can fathom to name.
Here’s another just because it brings more light. Here is a quote from Mr. Cramer’s Mad Dash [13] in April: “Cramer likes Apple but called Samsung a “great company” and stock. However, it may be difficult for U.S. retail investors to get in the name since it trades in the Korean stock market.”
That might be the best news that one might have not been able to “get in” for as of this writing the headline terms being used for Samsung™ earnings? “Implode.”
Not what other analysts want to hear being used either. For it was reported consensus estimate was around $5.2 Billion in profit. That’s quite a bit however when it comes in at $3.8 – that’s a whole lot of “value” no longer there.
As we move deeper into this earnings cycle I expect more “trap door” scenarios in some of the very names we’ve all been told ad nauseum were “fairly priced based on sound metrics and comparatives.”
The whole social media space I believe will be one of these areas hardest hit in the whole “new” new normal earnings period, based solely on the facts that “free money” will no longer be available to throw at this space as it goes away – at the very time it’s probably needed more than ever to keep it propped up.
With the Federal Reserve’s QE policy set to end this month all these “new economy” juggernauts are going to have to prove that giving away the store for “free” as to entice users, customers, and more; will have to prove they have the ability along with the quantifiable hard numbers accompanied by real “cold cash” they can pay those promised returns to Wall Street.
If this proves to be the case the term “trap door” will not be used in reference to some new gaming app available. It will be to describe serious consequences to people who assumed investing in these markets has been nothing more than a game to be played by “players.”
Just watch how fast the “players” in the world of algos and High Frequency Trading can change the meaning of “liquidity trap” when they decide – it’s not in their best interest to play.
It will take on a whole different connotation than anyone on Wall Street has been telling you.
