"Are We About To Reach That "Margin Call" Moment, Again?"
by Mark St.Cyr
"Over this past weekend the movie “Margin Call” (2011, Lionsgate™) made its way back into the rotation on my cablebox. For those who have never seen this movie, regardless if you are involved in stock trading, it is a must watch on so many levels, be it general business, corporate leadership, department interactions, skullduggery, familial, as well as personal backstabbing, the list goes on. It is absolutely loaded with a plethora of take-aways of the real-life-lesson variety. I say this because I have been involved around, in, as well as been at the receiving end of the proverbial “poisoned dagger.” Not on Wall Street, but within other fields.
I can tell you with point-blank certainty that many of the situations and scenarios contained, or played out in that film, are applicable (as well as happen in-kind everywhere) to getting a condensed lesson in what happens in real-life at the top of the game of business. i.e., When you’re playing for, “all the marbles” as they say.
"Margin Call" was nominated for an Oscar, in my view, not only should they have won, but swept them. But that’s just me. I’ve written about this movie before using one or two scene constructs, then applying what was addressed to today’s “markets” or business environment. There are many scenes within this movie that people think (as well as believe) would never happen in real life. Yet, I’m here to tell you, not only do they, but many of those scenes I’ve witnessed, near script-like, in other situations during high dollar/value negotiations or situations.
The boardroom scene played out by Jeremy Irons (John Tuld) when he addresses one of his underlings as to tell him what is concerning him and to explain it in plain english, or as if he were (paraphrasing) “…speaking to a young child, or golden retriever” is just one. And is far more true-to-life than many may realize, let alone understand at first glance.
In other words: No jargon, no formulas, no big words, no bullsh#t. i.e., “Tell me so that even my dog would understand.” Trust me when I tell you, again, there’s far more real-life contained in that entire exchange than there is movie fiction. The entire movie is an allegorical lesson for life at the “high stakes” table. And those of us that have been around a bit, and played on those higher levels, agree. (via my own conversations with others)
The ruthlessness, along with the soul-dead responses portrayed and played out in other scenes, is far more true to life than fiction. Which brings me to the reason why I felt the need to elaborate on it today.
Over the last few weeks I have been barraged from friends and colleagues asking me for my interpretation of what is currently taking place in the “markets.” The questions have all had the same underlying theme, i.e., “With all this good (earnings, tax cuts, N.Korea, and more) why are the “markets” not higher?”
When I probe them a bit what I’ve found, almost to a person, is the reason for their consternation is they’re trying to wrap their heads around what the mainstream business/financial media is propounding and what the “market” is doing. Which for all intents-and-purposes – has been nothing. i.e., We’re now in May, and the best the “market” could do after all those “fantastic!” earnings was get back to break even for 2017.
When I repeat the same answer that I’ve been trying to ingrain into their reasoning for years, many of them seem to still not want to hear it. And others just don’t. After-all, if it was purely the Fed. they muse, that would mean everything is a mirage. And they just don’t want to make that leap.
It’s understandable, it’s a very hard concept to understand if one doesn’t want to undertake the due diligence themselves to incorporate all the potentialities. But that doesn’t mean those potentialities are not there!
As of late my go-to response, as to back up my assertions, has been the following: “What you need to realize is this – If I were wrong and they were right, then the “markets” should at the least, be at, or above the previous high water mark.
But what seems to be playing out is the exact opposite, in other words, I’m correct and they have been selling you smoke-and-mirrors. And what’s really concerning you, is there are cracks forming everywhere that you seem to be aware of, yet don’t want to consider. What you seem to be asking for is another mirror, or more smoke, as to just pretend it’s not happening.
Again, what you seem to not want to ask yourself is the fundamental question, which you should, and that is: Is it not funny how this all is happening – with near precision timing – now that the Fed. has reversed course?”
Which brings me back to the movie, because it is their response that is the most troubling. That response? “Well, that just means the Fed. will step back in as they’ve always done, right?” The answer (and I’ve given) to that question is: Yes, no, maybe. And, at what level? And, will it work? And, if not, then what?
Many (as did I when I was younger) don’t entertain, let alone fully comprehend, just how separated and detached many view their positions when it comes to the human toll that can result via those very decisions. It happens in politics, business, and yes, even families. But right now I’m speaking directly to “markets” and we have a very real-life expression taking place as to show anyone who cares to look, just how detached the people “in charge” (e.g., Federal Reserve) are with any perceived “concern” for your money, investments, et cetera.
To wit: "An “Audible Gasp” Was Heard When The Chicago Fed Unveiled Its “Solution” To The Pension Problem" “An audible gasp went out in the breakout room I was in at last month’s pension event cosponsored by The Civic Federation and the Federal Reserve Bank of Chicago. That was when a speaker from the Chicago Fed proposed levying, across the state and in addition to current property taxes, a special property assessment they estimate would be about 1% of actual property value each year for 30 years.”
Here’s what I opined in April of last year for the possibility of what was more than plausibly on the horizon. Again, to wit: “Are 401K Holders About To Feel A Savers Pain?” "There’s an old truism people forget all too often. It has many variations and is attributed to even more, its core meaning goes something like this: “If the government can give it to you, than it can also take it away. Some of you might be wondering if I’m talking about the current “tax” advantages that have made these vehicles so popular over the years. To that I’ll say no, not at this current time. But I feel that will be the least of worries coming down the pike in the not so distant future.
No, what I’m directly addressing is what is now emanating from the one and only non-government, privately held institution, directed by a consortium of non-elected, Ivory Towered, policy wonks: The Federal Reserve. And those emanations are anything but 401K holder friendly.
If you combine the latest discussions emanating via Fed, officials, along with current gyrations within these “markets,” what you have is the resulting amalgamation of policy wonks channelling the Sorcerer’s apprentice, tinkering with spells and devices they have no true fundamental understandings with (e.g., all academics) all seated around a “monetary caldron” known as fiscal policy. And the resulting fiascos are beginning to show.
The real trouble with all of this? People, far too many ordinary, as well as well-intentioned business leaders think or believe – they actually care about what happens to you, your family, or your business. Hint: They don’t.
Well, not from their position of power, that is. The above scenario that played out in Chicago, just days ago, should be signal enough to drive that point home. For some it may be their first realization, and I get that. Yet, nevertheless, for those trying to pay attention, the clues are far too obvious and blatant to be ignored.
So I’ll end here with another scene from the movie "Margin Call", which I believe sums up how one should interpret precisely how the Fed. views the possible collateral damage it may wreak amongst the populace via its monetary policy decisions. In the beginning of the movie as the firm is getting ready for what will be unannounced, immediate purge of employees, Paul Bettany (Will Emerson) makes his way to Kevin Spacey’s (Sam Rogers) office to try to console him, where Roger’s is visibly holding back tears.
The initial reaction for thinking that this sudden jettisoning of personnel, without any notice, must be troubling him to his core with what will obviously be a true gut-wrenching shock and ordeal of work, life and monetary upheaval to those being jettisoned. The obvious conclusion or assumption is that this must also be taking its toll on Spacey. The twist comes when Bettany is told that the reason for the tears is not for the sudden human toll the company will now systematically doll-out across its employees. No, the reason for the tears are because he just got some truly bad news: His dog is dying.
Hint: Your 401K, your savings, your home, your business, your __________ (fill in the blank) are a lot of things, but one thing it is not, is this: Anything they’ll (The Fed.) shed a tear for or over.
And the proof of that statement will be made manifest in the “markets” as we continue the year. And if you want any further proof in that? Just ask any savers, retirees, or others over the last decade how many tears the Fed. shed as interest rates were cut and held at the zero bound. Hint: 0"
“The Dangers of Buying on Margin”