Wide Acceptance

This note was originally published at 8am on April 25, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Wide acceptance of an idea is not proof of its validity.”

-Dan Brown (The Lost Symbol)


I continue to be fascinated by the groupthink that permeates our profession. You’d think that after all that we have been through in the last 5 years, that would have changed as the facts have. Nope.


I’m not talking about Apple. I don’t have the “edge” on that stock that the 58 sell-siders who follow it purport to have. Legitimate “edge” on a stock like that would probably raise one’s risk to wind up wearing an orange jump suit anyway.


I’m talking about the Wide Acceptances we’ve seen in 2012. From Europe is “fine now” (right before Spain started to crash, again) to “Dow 15,000” (cover of Barrons in February right as Global Growth started slowing, again). Fascinating. As a Risk Manager, you shouldn’t be tasked with chasing returns. You should be tasked with disproving every widely accepted thesis impacting your P&L.


Back to the Global Macro Grind


One of the most widely accepted one-liners from the media and sell-side this week has been some version of a Most Read (Bloomberg) headline this morning: “US Stocks Rise Amid Better Than Forecasted Earnings.”


That, of course, is nonsense. Generally speaking, stocks have been falling during this earnings season. Sure, some stocks have risen on better than expected results, but some have been getting tattooed on inline to worse results versus buy-side expectations.


The key to what I just wrote is “buy-side expectations.”


For as long as I’ve been on the buy-side of this game (since 2000), I can’t remember a time when the game wasn’t gaming the game of buy-side expectations.


The sell-side consensus that pundits refer to on “beating expectations” is just a backboard that buy-side pros play against. Consider AAPL expectations: you get multiple sell-side firms slap $1000 price targets on AAPL into March quarter end; the buy-side proceeds to sell stock into that for a -12% AAPL drawdown from April 9th-24th; and presto, the stock is up +9% on an “earnings beat.”


Obviously if AAPL wasn’t going to “beat” the sell-side’s actuall earnings expectations, the US stock market would be crashing this morning. So, we averted one of those. Nice.


Another way to think about a Wide Acceptance of an event or Storytelling line of consensus from the sell-side (the media has no choice but to use them as their research “source”) is to use that event as an opportunity to Fade Beta.


What does Fade Beta mean?


It means that if the market is up or down (beta), allegedly, on a widely accepted idea that has no proof of validity you either:

  1. Buy on red
  2. Sell on green 

I know. That’s some really complex stuff…


Here’s an example of how a Global Macro investor considers Fading Beta today. Start with simple questions: 

  1. Does Apple’s beat mean Growth is no longer Slowing, globally?
  2. Will Apple’s quarter inspire Ben Bernanke to move to iQe4 at his 215PM FOMC speech?
  3. What are Global Macro market prices telling us about questions 1 and 2 in real-time? 

The beauty of our process is that A) we built it ourselves B) it’s repeatable and C) there are specific answers to question #3: 

  1. Hong Kong, South Korea, and India’s stock markets all closed DOWN by the end of the session = #GrowthSlowing
  2. Hong Kong’s Export report for March came in at a startling -6.8% y/y = leading indicator for Global Growth
  3. Singapore’s Export report for March came in at a almost-as-startling -4.3% y/y = nasty
  4. Chinese stocks closed up +0.75% and we think they really work during a Deflating The Inflation (ie no iQe4 from Bernanke)
  5. UK GDP missed and moves back into the official “recession” zone of -0.2% for Q1 = #GrowthSlowing
  6. UK stocks (FTSE) have reversed their early morning Apple gains, barely up on the day
  7. Spanish stocks (IBEX) lead the short-term squeeze rally in Europe (after crashing, again) = low quality signal for bulls
  8. German Stocks (DAX) are up, but need to recover and sustain intermediate-term TREND support of 6688 to be bullish
  9. European bond yields don’t seem to care, at all, about iStuff
  10. Latin American debt, currency, and interest rate risk continues to accelerate in Mexico, Argentina, and Venezuela
  11. Oil prices are pushing higher = the #1 factor in our model for continued #GrowthSlowing, globally
  12. Copper is up small (+0.6%) and remains in a Bearish Formation (bearish across all 3 risk management durations)
  13. Gold is down, again, implying to me that the answer to Question #2 is a no today (Gold goes up when Bernanke devalues)
  14. Treasuries couldn’t care less about the US Equity Futures move; 10yr yields remain in a Bearish Formation at 1.98%
  15. US Treasury Yield Spread (10yr minus 2yr) remains 17bps below where it was when Growth Slowing wasn’t consensus 

Sure, I picked all of the factors that are bearish signals, on the margin, relative to widely accepted storytelling that suggests otherwise. That’s the point. That’s what I do. I don’t change what I do based on what other people are forced to do.


In other news, Donald Trump is going after Scottish Parliament in Edinburgh today for proposing to fire up a wind farm near the ole Don’s latest golf course project. Wide Acceptance from The Scottish People to Mr. Trump’s self-interested whining is not expected.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index and the SP500 are now $1627-1655, $118.51-121.60, $79.01-79.46, and 1361-1392, respectively.


Best of luck out there today,



Keith R. McCullough

Chief Executive Officer




Wide Acceptance - 1



Wide Acceptance - 2

It's Your Problem

“The Dollar is our currency, but it’s your problem.”

-John Connolly, US Treasury Secretary (1971)


That’s the quote Jim Rickards uses to start Chapter 5 of Currency Wars. From an economic history perspective, it’s a critical quote to contextualize as President Richard Nixon was the first Republican President to go all-in Keynesian.


I’m not a Republican or Democrat. I am Canadian. So sometimes I just have to laugh when Republicans blame Obama for everything. It’s as if these partisan political pundits think we are dumb enough to believe that the likes of Nixon and Bush didn’t uphold the same monetary and fiscal policies to debauch the Dollar.


At least Nixon admitted it when he said plainly, “we’re all Keynesians now.” But are we? Inquiring minds in this country would like to know. Are we as numb to economic reality as the economically partisan media? Being Keynesian (Republican or Democrat) is partisan you know. And that probably had something to do with Republican veteran Lugar losing to the Tea Party in Indiana.


Back to the Global Macro Grind


You can blame Greece or Canada at this point, but the market doesn’t care to hear the excuses. The global economy is as interconnected as it has been for the last 5 years. The idea of “de-coupling” is only something the Sell-Side could make up.


If you didn’t know that the US Dollar is still the world’s reserve currency and that its daily, weekly, and monthly moves are driving what we call The Correlation Risk, now you know.


The US Dollar Index is having its 6th consecutive up day (touching $80 this morning), and one of our major Global Macro Theme calls for Q2 2012, Bernanke’s Bubbles (as in Commodities), are popping.


Since the Old Wall begged for Bernanke to do it, market expectations became addicted to it. Now it, as in “It’s Your Problem”, is on the tape.


Deflating The Inflation of easy money Commodity bubbles in Gold, Oil, etc. are riding the following immediate-term TRADE correlations to the US Dollar: 

  1. Gold -0.85
  2. Palladium -0.81
  3. Copper -0.67
  4. Oil -0.84
  5. Heating Oil -0.82
  6. Soybeans -0.79 

If you want to call these mathematical ironies, you can. As a matter of fact, you can call anything in this profession whatever you want to call it until you have to report your performance results back to your clients. If you are just a pundit, not held accountable to the TimeStamps of what you say and when, I can’t help you from yourself. Twitter’s gotcha!


In our 50 slide Q2 Global Macro Themes Deck (April 2012) we walked through the Top 10 Bernanke Bubbles (email if you’d like to review it with refreshed risk management levels).


The aforementioned immediate-term TRADE correlations anchor on 6 commodities. If you want to look at The Correlation Risk from a bigger picture perspective, here’s how the USD Index is trending versus some fairly major stuff: 

  1. CRB All-Commodities Index (19 Commodities) = -0.93
  2. S&P 500 = -0.85
  3. Euro Stoxx 600 = -0.84 

It’s Your Problem” or its your opportunity now. It’s a major performance problem if you are long anything US, European, or Japanese Equities (all Keynesian Policy Bubbles) or commodities. It has been since the middle of March.


Now plenty people who are long Gold (I have a zip lock bag of the stuff in my desk, fyi) will quickly say that’s precisely why they are long Gold – because it’s “protection against all the money printing and Keynesian central planners” of the world.


Fair e-nuff.


But what if the world is pricing in an end to the Nixonian madness? They did in the early 1980’s. What if we are on the verge of actually getting off the iQe drugs? Gold being up for 12 consecutive years naturally implies some mean reversion risk to the idea that Americans are dumb enough to vote for Dollar Debauchery for much longer.


In addition to their Keynesian economic policy making teams, Bush and Obama have one thing in common – Ben Bernanke. This is not unlike what Nixon and Carter had in common – Arthur Burns (who was also tasked, politically, with devaluing the Dollar and monetizing US Treasury debt).


Got Causality? 

  1. Dollar Debauchery in both the 1970’s and 2000’s perpetuated commodity price inflation
  2. Dollar Debauchery in both the 1970s and 2000’s perpetuated fear-mongering by policy makers to back their policies
  3. Dollar Debauchery in both the 1970s and 2000’s perpetuated a lack of confidence/trust and employment growth 

Both GDP Growth and US Employment Growth were as nasty as they have ever been (by decade) in both the Nixon/Carter and Bush/Obama periods of raging Keynesian Economic policy influence.


So, here’s a little reminder from little old me in New Haven, CT this morning to all of the Keynesians, from Larry Summers to Ben Bernanke, and all of their offspring – It’s Your Problem now. If that sounds like I am picking a fight, that’s old news. I did that in our April Themes presentation too. We are officially Fighting The Fed (and winning).


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Euro (EUR/USD), and the SP500 are now $1, $110.92-113.87, $79.42-79.88, $1.29-1.31, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


It's Your Problem - Chart of the Day


It's Your Problem - Virtual Portfolio

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

Behind Bed Bath & Beyond’s Cost Plus deal


TODAY’S S&P 500 SET-UP – May 9, 2012

As we look at today’s set up for the S&P 500, the range is 17 points or -1.08% downside to 1349 and 0.17% upside to 1366. 












    • Down from the prior day’s trading of 252
  • VOLUME: on 5/08 NYSE 902.47
    • Increase versus prior day’s trading of 19.64%
  • VIX:  as of 5/08 was at 19.05
    • Increase versus most recent day’s trading of 0.58%
    • Year-to-date decrease of -18.59%
  • SPX PUT/CALL RATIO: as of 05/08 closed at 2.03
    • Up from the day prior at 1.31 


  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.82
    • Decrease from prior day’s trading at 1.84
  • YIELD CURVE: as of this morning 1.57
    • Down from prior day’s trading of 1.59 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, week of May 4 (prior 0.1%)
  • 10am: Wholesale Inventories, Mar., est. 0.6% (prior 0.9%)
  • 10am: Fed’s Kocherlakota speaks in Minneapolis
  • 10:30am: DoE inventories
  • 10:45am: Fed’s Pianalto speaks in Lexington, Kentucky
  • 12pm: Fed’s Plosser speaks in Philadelphia
  • 1pm: U.S. to sell $24b 10-yr notes 


  • President Obama meets with NATO Secretary General Anders Fogh Rasmussen to finalize plans for NATO Summit in Chicago, 2:10pm
  • Chamber of Commerce holds quarterly economic briefing, 8:45am
  • Postal Service announces plan for smallest post offices, 10am
  • House lawmakers hold news conference calling for a special prosecutor to investigate the collapse of MF Global, 11am
  • House, Senate in session:
    • House Judiciary holds hearing on FBI oversight, with testimony from Robert Mueller, 10am
    • House Natural Resources hearing on offshore drilling, 10am
    • House Armed Services marks up defense authorization bill, 10am
    • House Financial Svcs subcommittee holds hearing on regulatory compliance costs for small financial institutions, 10am
    • Senate Banking panel holds hearing on need for long-term reauthorization of national flood insurance program, 10am
    • Former Fed Chairman Paul Volcker; FDIC member Thomas Hoenig testify before Senate Banking panel on limiting federal support for financial institutions, 2pm
    • World Economic Forum takes place in Ethiopia 


  • S&P 500, Dow index futures lower; Dow has dropped the previous five sessions amid concerns of political wrangling in Europe
  • Glaxo to begin hostile offer for Human Genome at $13/shr
  • Toyota forecasts profit will double to highest in five years
  • China passenger-vehicle sales rise 13%, exceeding estimates
  • Confidence among U.S. CEOs in 1Q reaches highest level in 3 yrs
  • Green Mountain Coffee removes chairman after stock sale
  • Verizon Wireless Airwaves purchase said to raise U.S. concerns
  • U.K. retail sales plunge by most in more than a year, BRC says
  • Commerzbank exceeds capital target as profit misses estimates
  • FDA advisory panel meets on PFE’s tofacitinib
  • Disney profit rises 21% on theme parks, says there will be “Avengers” sequel 


    • Spectrum Brands Holdings (SPB) 6am, $0.31
    • Quebecor Inc (QBR/B CN) 6am, C$0.68
    • Dollar Thrifty Automotive Group (DTG) 6am, $1.35
    • Agrium (AGU CN) 6:30am, $1.04
    • Enbridge (ENB CN) 7am, C$0.48
    • AOL (AOL) 7am, $0.17
    • Tim Hortons (THI CN) 7:30am, C$0.59
    • Dean Foods (DF) 7:35am, $0.21
    • Ariad Pharmaceuticals (ARIA) 7:35am, $(0.25)
    • Macy’s (M) 8am, $0.40; Preview
    • (PCLN) 4pm, $3.95
    • MEMC Electronic Materials (WFR) 4:01pm, $(0.26)
    • News Corp (NWSA) 4:03pm, $0.31
    • Live Nation Entertainment (LYV) 4:03pm, $(0.41)
    • Cisco Systems (CSCO) 4:05pm, $0.47
    • Universal Display (PANL) 4:05pm, $0.04
    • Activision Blizzard (ATVI) 4:05pm, $0.04
    • Alterra Capital Holdings (ALTE) 4:05pm, $0.62
    • BMC Software (BMC) 4:05pm, $0.80
    • Tesla Motors (TSLA) 4:10pm, $(0.70)
    • Monster Beverage (MNST) 4:10pm, $0.38
    • CenturyLink (CTL) 4:25pm, $0.58
    • TELUS (T CN) post-mkt, C$1.04    



GOLD – no iQe4 upgrade option = down Gold, or at least that’s how Gold acts; its immediate-term TRADE correlation to the USD is also -0.85, so with the USD up for 6 consecutive days, if you didn’t know about the Correlation Risk, now you know. Ron Paul saying abolish Bernanke in DC yesterday and Tea Party win vs Lugar – there’s an American Zeitgeist out there called The People. 

  • Silver Forecasters Bullish as Hedge Funds Retreat: Commodities
  • Oil Falls Sixth Day in Longest Drop Since 2010; SocGen Says Buy
  • India to Rival Vietnam, Dethrone Thailand as Top Rice Seller
  • China Said to Plan Auction of 3 Million Tons of Soybean Reserves
  • Ex-Deutsche Securities Banker Plans Commodities Hedge Fund
  • Copper Declines for a Fifth Day as Euro Debt Crisis May Worsen
  • Gold Drops to Four-Month Low in London on Concern Euro to Weaken
  • Corn Drops as U.S. Planting Gains, Boosting Supply Prospects
  • Palm Oil Declines to Two-Month Low on Greece Political Impasse
  • Sugar Gains on Rising Thai Premiums, Ramadan Demand; Cocoa Falls
  • Gold to Rebound to $1,700 an Ounce This Year: Technical Analysis
  • Sino-Forest Debt Insurance Set to Pay Out 71 Cents per Dollar
  • Thai Rice Output From Main Crop Set to Gain 21% on State Buying
  • Gasoline Seen at Earliest Peak in U.S. Since ‘98: Energy Markets
  • Ex-Deutsche Banker Plans Commodities Fund
  • OPEC Crude Drops Below $110 for First Time Since January
  • Glencore Says Commodity Demand ‘Healthy’ as Production Increases









ITALY – we covered our short position in France yesterday; re-shorted Spain (down -2.3% this morning and continues to crash); and stayed short Italian stocks as we think they’ll be back in crash mode in no time (already down -18.9% from the YTD peak in March when most global Equity markets stopped going up, including the Russell2000).






 ASIA – you can blame Europe or Canada or whoever, but the fact of the matter is that we live in a globally interconnected economy that doesn’t “de-couple.” India moved to QE yesterday and the market there didn’t care; China finally had a down day of -1.6%; and Japan is getting wrecked, down -1.5% overnight (down 17 of the last 23 days during a 12% draw-down).










The Hedgeye Macro Team