The market is certainly taking the road less traveled these days. Down 500 points one moment, up 300 the next. Market pundits are dumbfounded and quite confused to say the least. What is going to happen next? Some say an upward trending market and then there are those that are sounding the alarm.   Just when you thought it was safe to go back into the water…..some market analysts are breaking the glass.

For the few who are in the know, the tealeaves spell impending turbulent times ahead.   If the recent past market moves are any indication of the choppy waters coming our way, then we should brace for one hell of a roller coaster ride.   Even active managers who have managed hedge funds for years, such as Bill Ackman are having such a hard time their redemptions are piling up.

While retail investors were first piling into the market already flush with returns from 2017, professional money managers have been navigating the waters by taking shorter-term positions.   Those hurt the most in the investment community have been those taking directional risk or large position risk. To the rest of us this means that the market as we have stated in prior articles was headed for a correction, which it has already started.

What will likely continue to be a volatile year may actually end with markets up.   But what comes next is scaring many market experts.   The markets in 2019 will most likely become bearish in nature and then what a lot of pundits are calling the “long slide” will happen for the next five to ten years.

You see we are victims of our own policies.   Back towards the revamping of monetary policy after 2008, the Fed put us on a course of market revitalization.   That policy of course helped fuel the bull market that has most likely just ended.   Stocks have become over valued due to the free flow of money and the constant continued growth that everyone was so focused on.   Growth that cannot continually be sustained for successive periods according to market experts. The liquidity created by the Fed producing more money in circulation has led to the over value of many issues.  Add to that the economic plans of the new administration have added to the growth and increased valuation.

What happens is almost like borrowing against your future earnings.   So, since the Fed increased liquidity to assist in the jump starting of markets after the Great Recession, the elongated future of stock prices has been borrowed against already.   Add to that the fact that there are fewer public companies today because of lots of years of regulation and buyout transactions, and there are not enough names to go around for investors to purchase. That is why you see such volatile swings in the market intraday.

All in all, many market pundits are calling for a five to ten year sliding market where the market trades sideways and basically goes no where. Due to where we are economically it is the ultimate in stasis market theory.   Picture it as a basic market tug of war.   There is enough good news and enough bad news to keep the market within a trading range that goes absolutely nowhere for an elongated period of time.

Buckle up everyone as this is going to be an interesting ride….

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One will never forget the invention of the compact disc, which was a digital solution to an analog world.   Music went from being stamped or etched into a record, to being magnetically recorded on cassette tapes and then digitally encoded to a compact disc. Tapes led to the introduction of the first “Walkman”.   The portable player that ran on batteries and could play all of your tapes.

Fast-forward to today and we have come very far. Not only have we removed the need for you to carry around cumbersome equipment with tapes or records, but also we have seen the whole music industry revolutionized. We have seen storage in the music industry go from the iPod to your iPhone. Now several services have taken the digital experience to a whole new level with streaming music via the internet.   Whether it is using data on your phone plan or utilizing WIFI, you can now ‘stream’ music at the same time as everyone else does.

Streaming services differ slightly, but most have the same idea behind the business plan. One in particular that is going public now, is Spotify.

Spotify is the premier music streaming service that charges more than fifty million (50,000,000) people $5.00 a month for the ability to listen to over 30,000,000 songs.   The company that is currently filed to become a publicly traded entity in early April has been valued at north of $18 billion by investors.

The company has helped to transform the music industry, as we know it.   The old world record production houses and studios who only green-lighted the acts they wanted to record and promote for financial reasons have had to retool or close.  Today with the use of Spotify artists have the ability to reach an audience on their own and can write, sing, play and produce their own work.   Cutting out the middlemen of the record companies was what Spotify was invented to do. Spotify’s original concept was to connect artists directly with fans and make the record labels and publishers a thing of the past.

Fast-forward to today and that plan is being executed with precision with one inherent flaw. Spotify itself does not make any money. Somewhat like the IPO of Snapchat, Spotify will be another company going public without earnings to speak of.   While business has increased significantly over the past several years so have costs.

One of the major issues with the Spotify business model is that the artists who have their music on the service get approximately $.75 for every dollar spent.   As the company tries to attract investors to believe in the next level of its growth as a public company, Spotify has some large hurdles to get over.   First, Spotify needs to negotiate better with the record companies it is trying to replace.   Why you ask? Well because most of those labels own the publishing rights to more than fifty percent (50%) of artists’ music on the service.   Second, there are other competitors out there who have had issues making money themselves such as Pandora.   Since Pandora has been a public company it has filed to make any money.   (Spotify needs to decide that it doesn’t want to be come that)

Spotify will have to use the public markets not only to attract capital but to possibly attract a maker of technology that fills a void. A good combination with a company in the tech world that has some distribution of a product in the music industry would help the company be able to lose money on the listening of music. Take the example of Apple Music.   Obviously Apple does not have a valuation issue, as its cash horde is larger than the GDP of some small countries.   That is why Apple can afford to make next to nothing off of their streaming service, as the music streaming is only designed to sell more hardware.

Spotify not unlike Netflix is cost heavy but must continue to expand in order to remain dominant in a very competitive market.   The same way Netflix is changing the way we watch movies and TV, the music streaming service run by Spotify is user friendly and allows you to have instant gratification.   You can listen to music anytime, anywhere night or day.

Netflix, who has its own original programming, competes with the major studios. Spotify has claimed to date it will not be looking to compete.   It has stated that it wants to be the premier platform for content not unlike other social media platforms.   The company has already been dabbling in videos and podcasts among other directly related offerings.   It is also utilizing the data it collects on the tastes of listeners and it can help artists target audiences more directly for an album launch or a tour.

All in all what will Wall Street’s feeling be when Spotify the public company hits the market? The jury is still out. One thing is for certain and that is the company cannot continually depend on just offering up the same services. In order to continue to be the dominant player in the space, Spotify has to allow artists to bridge the gap that will allow them to market directly to fans.   The other thing is a company cannot lose money for forever.   It doesn’t matter how good the technology momentum is.   At some point and time earnings need to be seen…..or are we headed to a new market paradigm where companies have tens of billions of dollars in valuation but will never make any money……

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The Bubble Explodes Again….

March 13, 2018

Several market pundits have recently reported on a topic that is not something everyone wants to openly discuss. That is the ballooning amount of debt in the world has reached monumental proportions.   According to one study the overall amount of debt outstanding is over $200 Trillion.   (Yes you read that right) That number is so […]

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#Neveragain

February 25, 2018

Approximately ten days ago Nikolas Cruz opened fire on children at Marjory Stoneman Douglas High School. Seventeen children were killed because of this tragic event and others wounded.   Since the incident, many groups have pushed to have our country focus on the laws that govern gun purchasing. The types of guns one can buy or […]

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Don’t Let it Happen Again

February 15, 2018

Dear America, Yes today is sad day.   Sad indeed.   Yesterday once again a disturbed young American opened fire on innocent children and staff in a school killing seventeen people and wounding others. What started out as a normal school day at Majory Stoneman Douglas High School in Florida turned into every parent’s worst nightmare.   Senseless […]

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ETFs, ETNs and what it all means…

February 11, 2018

When we were growing up market volatility could be easily witnessed at trading desks and on the floors of the various exchanges, as well the trading floors of large trading firms.   People were responsible for the buying and selling that took the markets to new heights and also dropped the market to new lows. In […]

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Too Good to Be True….

February 2, 2018

The day of reckoning for the continued run up of the market has finally reared its head.

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It’s Time to Act like Americans…

January 29, 2018

What is wrong here? This is the United States is it not? Last time we looked it is America correct? So why are we continually allowing the constant berating of our current elected President? Why is it that we continue to hear self absorbed stars babble about the current administration? Can’t we realize that Donald […]

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The Runaway Train — The Dow’s Rise to 26,000

January 17, 2018

It took approximately seven days for the Dow to rise from 25,000 to 26,000. Certainly one move for the history books, as this was the fastest rise in one thousand point numbers in history.  

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Its not just Bitcoin…

January 1, 2018

It is only a day into 2018 and already the markets are creating some possible backdraft.   Bitcoin has already dropped today from its recent high.   Surprised?  We are sure you aren’t.    There is no secret the monumental rise of Bitcoin’s price has created a feeding frenzy that is not set in reality. […]

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