Bullish Bears

This note was originally published at 8am on June 14, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“I was just saying on that particular play, I would have played it different.”

-Roberto Luongo (Vancouver Canucks)

If you’re going to get paid to play this game at the highest level, whether you like it or not, you will be held accountable to both your words and performance. I’m not just talking about the Stanley Cup Playoffs. I am talking about the Future of Finance.

Last night in Boston, the Bruins chased Vancouver Canucks’ goalie Roberto Luongo to the bench within the first 10 minutes of the game (to chase de goalie means to pull him from de net – and make him feel shame). At that point, the score was already 3-0 en route to a big Bruins’ Game 6 win. Boston goalie Tim Thomas played the 1st period “differently.”

I played against Tim Thomas in college. He was at Vermont. I was at Yale. They were a national powerhouse. We were in the dog house. I’ll never forget coming onto the ice for the warm-up in their barn. I was like a Thunder Bay deer in headlights facing a full student section of kids clanging cow bells and playing some version of the Smurfs song while I tried to pretend they weren’t there.

You can pretend your competition isn’t there, but you’ll have a really big problem if they’re really good and Proactively Prepared to beat you. From Boston last night to Vermont in 1995, that’s what winners do – they wake-up every morning expecting to win.

I don’t expect to be Bullish inasmuch as I don’t expect to be Bearish. I expect my teammates and I to execute on our research and risk management process to the best of our ability every day. When we fail, we learned. When we win, we expected to.

This morning’s economic data and, more importantly, the market’s reaction to it, is bullish:

1. Chinese Data – Growth Slowed at a SLOWER RATE as Inflation Accelerated at a SLOWER RATE (May data)
2. Deflating The Inflation (Q2 Hedgeye Macro Theme) – oil prices falling to a 1 month low deflated the CRB Index by 1.1% yesterday
3. Stock Markets – after 6 consecutive down weeks, around the world, they stopped going down

But can you be a Bullish Bear?

Yes We Can. Our risk management task every morning isn’t to be either Bullish or Bearish – it’s to be right.

That’s the American (and Canadian) Optimism we’re looking to champion. That’s the winning attitude we can believe in.

Are there bearish data points in my notebook this morning? You bet your Madoff there are:

1. United Kingdom Stagflation – continued in May with Consumer Prices (CPI) remaining in-line with April’s print of +4.5%
2. Hong Kong Property Bubble Popping – in motion now that HK Industrial Production has dropped to 3.5% (versus 5.7% last quarter)
3. Spanish/Greek Piggies Don’t Fly – both countries issued more Pig Paper (fiat debt) this morning at higher yields than last auction

But what trumps what? In the aggregate, are these 6 bullish and bearish data points more bullish or bearish? Do you have an investment mandate to be bullish or bearish, regardless? Or are you tasked with neither being a Perma-Bull nor a Perma-Bear?

My answers to these questions are already in print. I think this morning’s Global Macro Grind flushes out as bullish as last night’s Bruins win. That doesn’t make me un-Canadian. Neither does it pigeon hole me into not being able to change my mind within the next 24 hours. The only rule in this game is to say what you think – take your position – and be accountable to it.

Across our 3 core risk management durations, the Bullish Bear’s view of US Equities from yesterday’s closing price is as follows:

1. Immediate-term TRADE upside in the SP500 to 1290
2. Intermediate-term TREND upside in the SP500 to 1320
3. Long-term TAIL upside in the SP500 to 1377

Wow. Maybe on The Kudlow Report tonight (I’ll be on with Larry at 7PM EST) I’ll pretend I am Don Luskin and only be bullish. Maybe not.

Across our 3 core risk management durations, the Bearish Bull’s view of US Equities from yesterday’s closing price is as follows:

1. Immediate-term TRADE downside in the SP500 to 1259
2. Intermediate-term TREND downside in the SP500 to 1223
3. Long-term TAIL downside in the SP500 to 1223

You see, if you are Duration Agnostic, there are two sides to every market debate – and, not surprisingly, two sides to every bid-ask spread across different times and prices. Sometimes durations converge (my intermediate and long-term support levels are the same right now). Sometimes they diverge. Sometimes you should be bullish; sometimes bearish.

Sometimes your competition is sleeping. All of the time we need to keep changing our positioning as the market’s time, price, and expectations do. As my great hockey Coach and mentor at Yale, Tim Taylor, taught me – you have to keep moving out there.

My immediate term support and resistance ranges for Gold (bought more yesterday), Oil (we remain bearish; Goldman bullish), and the SP500 (we have no long or short position here) are now $1517-1538, $97.60-100.03, and 1259-1290.

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer