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The Week That Laid The Experts Bare

Authored by Mark St.Cyr,

The week that passed has left many of the so-called “smart crowd” flummoxed, disheveled, dismayed, and disrobed from their expensive facades of “expert insightful analysis.” It seems all that “expert” as well as “insight” wasn’t all it was made out to be. In less than a week: historic records weren’t only broken – they were smashed to smithereens. And the one’s that were the most historic? They weren’t set for positive things. No, the records these broke were for the worst of reasons. e.g., The Dow collapsed losing the most points in one day – ever. Another? For the first time (yes in history) all the major futures indexes (DOW™, S&P™, NASDAQ™) were halted for trading as they collapsed in a panic to trigger their “limit down” circuit breakers as to help quell further panic. The markets worst open since? 2008.

Let’s put some context here as to not lose sight of just how shocking as well as breathtaking these revelations were:

It was a mere sixty (yes 6 – 0 give or take) trading days ago the S&P 500™ made a new, never before seen in the history of mankind, all time high. It also remained there near stuck-like-glue throughout those following days. (e.g., That high being 2134.72, and the close on Aug.17th of 2102.44) During this period we not only tested that high, the index made a new all time record closing high, which was also tested. So the use of a term such as “stuck-like-glue” is far from an exaggeration: It’s a near perfect descriptor.

Back in November of 2014 (the S&P was then flirting with 2100) I wrote an article titled “Why Tony Robbins Is Asking The Wrong Questions” in response to his newest book as well as questions he laid out in other places along with his answers. I took quite a few barbs and digs from many not only for the questioning, (i.e., For who are you?) but also the near dogmatic reasoning and responses from most of the so-called “smart crowd” of why “This market is going nowhere but higher” as every minor sell off was quelled by the soothing tones of one Federal Reserve speaker after another. Giving ever more credence to their unquestionable resolve in the belief “The Fed’s got their back.”

Whether one turned on a television, radio, or read the latest headlines. All were predominantly pointing out how: GDP growth was back; the economy was set up to expand; China’s 7%+ GDP economy would be the stalwart to lead us out of any residual economic malaise; and on, and on.

Next in rotation fund managers, economists, analysts, chief investing officers of __________(fill in the blank) you name it scrambled to give their take on why all the nay-sayers should not only be shunned – but silenced. For as they would explain at length: “They (as in people like myself) have been wrong, and nothing but wrong, for years! Just look at these markets. Does this look like doom and gloom to you?” With the media lovingly gifting them all the time needed to make that case to the near exclusion of any reasoned push back.

The form of rationalizing many of these “experts” pointed out as to explain what was taking place in the markets and why was; and still is, the real issue. For the problem they dare not see or admit is – it’s all been an illusion. Period.

In direct contrast to this myself and a few others have been banging our fists (as well as keyboards) trying to explain to anyone who’d listen: Without the direct intervention via quantitative easing by The Federal Reserve – there is no market. And: Not only should one not trust its current valuations as to “get on the bandwagon.” Rather: One should primarily focus on safety. Maybe to the near exclusion of everything else. For when they break (which is only a matter of time) they will become out-and-out dangerous rivaling not only 2008, rather, quite possibly something even worse.

And what has happened of late? See the above opening paragraph.

Since the ending of QE (Oct/Nov 2014) the “markets” have done nothing more than bounce around in a range lurching at times higher adding to the illusion of imminent lift off leaving these mere stratospheric levels for heights rivaling Alpha Centauri. There have been calls for Dow 20K by year-end as was implied by Jeremy Siegel in Feb. Other experts were still sticking to the same call as late as May. And not to be outdone, Mr. Siegel reiterated that call in mid July. However they are (or were?) far from the only one’s calling for new highs.

In an article I wrote on July 29th titled “The Coming Credibility Hammer” I explained my stance on why I felt many of those in the near future were going to find themselves in quite the credibility quandary should things turn awry. One of the examples I used was an exchange or response given to the current earnings reports and its lack of performance as to drive index prices ever higher.

In response to earnings being far from great Tony Dwyer responded with: “They haven’t been the entire cycle and we’ve had a 300% gain. Look, I’m trying to understand how we keep coming on every quarter, that the earnings are terrible, revenue growth is terrible, this is going to be bad – and we’re up 300%” He added as to reaffirm he still believes double-digit gains just 6 months out from here.

I said then as I’ll state now, “A double-digit gain from where we were was a bold call.” Whether or not he is proven right going forward is up in the air. Although his call for a double-digit gain into new highs today appears conservative as compared to Mr. Siegel or many others. However, after what’s transpired this past week? Just remaining at these current levels by year-end may itself end up being an arduous task. Let alone retesting the old to surpass into ever higher.

Then we had none other than what many hold as the embodiment of Keynesian economics Paul Krugman, and his dissertation in the New York Times™ of what seems his only (OK only) fix to what ever ails the world: Debt. If you’re in debt, you need more debt. Buried in debt? Take on more debt. Insolvent? Get more debt and go more insolvent. Go into debt to build infrastructure. Regardless of the costs. That seems to be what his message is for how you’ll solve or grow a real economy these days.

As nonsensical as that sounds, this is what is professed as the cure within the Ivy Leagues, and Ivory Towers. The problem? Well, China did just that. And what’s happened as of late? Well, the economy that we were told was the economy we should mirror because “They know what they’re doing and were going to lead the world out of its economic malaise;” is currently coming off the rails where every respite in a free-falling stock market has been met with an even more ferocious round of selling pressure days, if not hours later after any interventionism by the PBoC or other means.

Their stock market has collapsed further, week – after week – after week. Now threatening to take down many if not all major markets across the globe if it doesn’t soon find an actual floor that holds for more than a week.

And let’s not skip over the small point: they quadrupled their debt load to bring it all about. I wonder how they are viewing the idea today of Debt Is Good?

Should they ask Greece for advice? Oh that’s right, all that “fixing” is currently tearing that country apart simultaneously. Better they wait till they elect another government first I would presume. If the people don’t storm the palace walls first because as of today – no one knows what will happen in Greece next. So much for all the expert opinions that stated “Greece is solved” I guess.

Then there was Suze Orman’s taking to Twitter™ pleading to none other than the Fed. and Jim Cramer.

Of Fed. Chair Yellen she pleads “help us out. Commit to no rate increases.” And to Mr. Cramer, “Jim do something” and more. This is coming from someone who self describes themselves as “America’s Most Trusted Personal Finance Expert.” I’ll let this stand on its own, and let you be the judge. I’m at a loss for lost for words, and for anyone who knows me – that’s saying something. For one can only surmise by her pleads, those that were taking her advice of late were caught and blindsided by the events of the day much like she appears to have been.

Yet, as one would think that’s the end of that, it seemed Jim Cramer did “do something.” One, that in my opinion, may go down in the history books of market saving brazenness ever dared on live television. Where minutes before the opening bell on Monday, as the Dow was falling over 1000 points and the other majors were either in, or about to be frozen in what was its first historic case of “limit down.” Where trading is halted as the circuit breakers are popped to quell the rout or panic selling. Mr. Cramer produces, then reads an email which he states “only he has” from non other than Tim Cook, CEO of Apple™ implying China is better than we think per Apple sales.

And what happens next? HFT, along with the many headline reading algos seemingly took that news and rocketed not only Apple into positive territory, but taking the entire market with it! For it’s a well-known phenom: As goes Apple – So goes the market. The only question on a lot of people’s mind is: Was this legal? This seems to be an open question. Only time will tell for it’s been reported it has raised eyebrows not only from lawyers, but the securities oversight agencies also.

Then, just when I thought I had finished a week full of “Wait…what?” moments which have become far more frequent as well as audacious. I came across another.

On Saturday I read on Bloomberg™ an article by Barry Ritholtz titled “Mom and Pop Outsmart Wall Street Pros” Here Mr. Ritholtz goes to great lengths to make the case that “Mom and Pop were content to ride out the market’s volatility this past month, more or less sitting tight.” It goes on to show how “Mom and Pop have wised up: they trade less and invest more.” “They are eschewing stock pickers, and embracing index and exchange traded funds.” and more. Sure they are.

Let’s not forget it’s Mr. Ritholtz that seems to take great umbrage with anyone like myself that questions “the data.” For he’s stated many times and repeatedly referred to them not only as “data deniers.” Rather, during a radio program on Bloomberg he summarily summed us up as “Idiots.” And just for clarification as to eliminate any doubt. That’s not a printed “air quote.” That’s open quote, Idiots, closed quote. As in; his exact word. It’s his right to have any opinion and express it however he would like. That’s absolutely his prerogative and I personally take no offense too it. However, I will end with this.

On the same day another article appeared on their site. The title? “Fed Up Investors Yank Cash From Almost Everything Just Like 2008” It would seem the data shows quite clearly Mom and Pop not selling during the panic was an illusion just like much of the data that made up this market over the last six plus years. According to Credit Suisse™ an estimated $6.5 Billion left equities in July as $8.4 Billion was pulled from bond funds, Then followed up with another $1.6 Billion, and $8.1 Billion respectably in the first three weeks of August.

Another point in that article? “Anytime you see something that hasn’t happened since the last quarter of 2008, it’s worth noting,” Saporta said in a phone interview. “It may be that this is an interesting oddity but if we continue to see this it could reflect a more broad-based nervousness on the part of household investors.” You can find a summary and more visual representation here.

I would only ask many of today’s “experts” that maybe, just maybe, before looking at all of us as uninformed “data deniers” or brazenly flipped off as to insinuate we’re all a bunch of “Idiots” to do one of two things, if not both...

  • First: Remember – When making money seems as easy as sticking one’s finger in the air, it should first be taken as a warning sign that something may be wrong – not of one’s brilliance.
  • And second: Before disparagingly calling names of others. Look in the mirror first. For the one that might fit your words more often than not – can be found there. Rather, than in others.