Empathetically Bullish

“Only 3 percent of animals are monogamous.”

-Nassir Ghaemi


With the US Dollar up and Oil down, I am feeling Empathetically Bullish on Global Consumer stocks this morning.


From an active Risk Managing Investor’s perspective, empathy is probably one of the most misunderstood feelings that you need to respect. In A First Rate Madness (great behavioral psych book by Nassir Ghaemi), that’s the neurobiological point Ghaemi emphasizes about the 3% of animals (i.e. the 3% of us).


Besides humans, the only other monogamous primate species is the orangutan; chimpanzees, our closest evolutionary cousins, are highly polygamous” (page 80). Being Perma-Monogamous to a bullish or bearish Global Macro view for the last 5 years has not worked. You have to be able to empathize with swings in sentiment. You have to be able to change your mind.


Back to the Global Macro Grind


I had an excellent day of client meetings in Boston yesterday and, not surprisingly, the #1 question was, “what will get you to change your mind?”


Generally when I get that question it has to do with US Equities. Which is fair – that’s not what I do in considering globally interconnected growth and inflation expectations, but it’s what most people are paid to do.


We’re obviously long Chinese Equities (CAF), German Bunds (BUNL), and US Treasuries (TLT) right now – those 3 asset allocations have done well during the last 6 weeks of Growth Slowing. So has cash.


Back to answering the question on US Equities, the answer is as simple as the repeatability of our risk management process. I have 2 baseline scenarios that my team and I are constantly considering:

  1. Strong Dollar = Strong Consumption = Accelerating US Growth
  2. Down Dollar = Accelerating Inflation = Growth Slowing

In Macro, what happens on the margin matters most. That’s why we are so focused on the Causality of Fed Policy. If you get the changes on the margin of Fed Policy right, you’ll get the US Dollar right. If you get the big moves in the US Dollar right, you’ll get the big beta moves in US Growth and Inflation Expectations right.


What would get me to change my mind on US Equities (particularly Consumption Growth oriented Equities – not Energy and Basic Materials stocks), is more of what we have seen in the last 48 hours – an arrest of the US Dollar’s decline and a fall in the inflation tax on US Growth (Food and Energy prices).


The most common and relevant follow on question I had to what would make me bullish is “why doesn’t Bernanke do Qe again?” Sadly, my answer to that is that he very well could. That’s what he arbitrarily did on January 25th(pushing his 0% rate of return on American Savings accounts to 2014), and there’s no reason why a man fighting for his academic career risk wouldn’t do it again.


Since Bernanke has been completely politicized, the timing of the politics (US Presidential Election) matters:

  1. If Bernanke is going to implement the iQe4 upgrade it’s most likely to happen in the next 2 months
  2. If Bernanke drives an iQe4 upgrade for Oil prices deep into the election debate (September), Obama might fire him too
  3. If/when Bernanke starts to leak “news” of iQe4, you’ll likely see it in the price expectations of USD, Gold, and Oil

So, today is a great day in America because you don’t have an Un-elected Central Planner devaluing the Dollar and driving up expectations for another Qe.


That may change if the jobless claims number is as bad as they have been for the last month (up +15% versus where jobless claims were in mid-March). But, for now, Mr Macro Market is saying no Qe (yet) = Up Dollar, Down Gold, Down Oil.


Timing Matters, so do our risk management levels:

  1. US DOLLAR: our long-term TAIL line of $76.13 has held and now we’re going to re-test intermediate-term TREND of $79.55
  2. GOLD: remains in a Bearish Formation (broken across all 3 durations, TRADE/TREND/TAIL); TREND resistance = $1689
  3. OIL: Brent finally snapping its intermediate-term TREND support of $119.17 today – that’s new (bullish for Consumers)

This is why I do what I do every morning. I never know what the market is going to give me, but I am very comfortable embracing that uncertainty – primarily because my process does. Market moves pick me; I don’t pick markets.


What’s uniquely perverse about all of this is that investors seem to really fear Bernanke’s next move. My sense yesterday was that multi-duration thinkers know that another Qe would give this country $5-6 at the pump, but it would still cause one heck of another short-term rally in stocks.


Trying to empathize with that unique career risk of our profession (short-term relative performance chasing) is as important as empathizing with what it means to a retired fireman like my Dad. If you are living on a fixed income, you do have to pay non-“transitory” prices at the pump.


It all matters. It’s all interconnected. And if we don’t start empathizing with what Burning the US Dollar at the stake means to the 99% of people on this planet, I think we’ll lose whatever respect they have for us that’s left.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $117.71-119.17, $79.02-79.55, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


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