Bull/Bear Class

This note was originally published at 8am on January 09, 2013 for Hedgeye subscribers.

“The first question to be answered is this: What constitutes a class?”

-Karl Marx

 

Most classically liberal economic historians will recall that Karl Marx and his ideology of #ClassWarfare went out on a low note. The aforementioned quote comes from the final chapter of Marx’s “Capital” in 1894 – not surprisingly, it was called “Classes.”

 

Capital” was published long after Marx and Engels issued their now infamous “The Communist Manifesto” (1848). It wasn’t unlike some of the fear-mongering pablum you hear from American politicians today – a political strategy born out of crisis.

 

In Britain, they called this mid-19th century economic crisis The Hungry Forties. Charles Dickens’ “A Christmas Carol” was published in 1843 as a progressive answer to the regressive social-fear being perpetuated by Marx, Carlyle, Malthus, etc. I’m the son of a firefighter and a teacher – I wasn’t raised thinking about Marx’s first question. I don’t think it’s healthy to lead from that perspective either.

 

Back to the Global Macro Grind

 

I don’t believe in Class Warfare. It’s a cowardly top-down ordering of humanity by our leaderless #PoliticalClass that attempts to pin us against one another for their political gain. The only class war I see in this country is between them, and the rest of us.

 

I don’t believe in being part of the Perma-Bull or Bear Class either. That’s so Old Wall. It’s such a marketing thing too. I believe in freedom of choice and bottom-up personal liberties. That includes being able to change my mind.

 

I guess that means I’d be a bad politician.

 

To review my decision making process – there are two big parts:

 

1.       The Fundamental Research Process

2.       The Quantitative Risk Management Process


They are not the same thing. Neither do they always agree. When the research and risk management signals are aligned, I either get loud about my rising conviction or I tone it down and reverse course.

 

In mid-November, both the research and risk management signals changed to bullish on both Global Growth’s Slope (stabilizing instead of slowing) and equity market direction (the SP500 held its long-term TAIL support line of 1364). So, we changed.

 

That doesn’t mean this morning’s risks have gone away (I listed my Top 3 Risks in yesterday’s Early Look):

  1. #EarningsSlowing
  2. Rising Oil Prices
  3. Japanese Policy

It simply means I don’t wake up at the top of every risk management morning looking for confirming evidence to my current positioning. To review that position from an asset allocation perspective this morning:

  1. We have our highest Global Equity asset allocation in a year
  2. We have a 0% asset allocation to Fixed Income
  3. We have a 0% asset allocation to Commodities

So, when the research and risk management signals are lined up, I don’t beat around the bull or bear bush – I make the call. No, that doesn’t mean this should be the pension fund asset allocation of the government of Qatar – it simply means that for my hard earned wealth, I like equities, straight up, over bonds.

 

Our bearish call on Commodities isn’t new. We have been making it since March of 2012. It’s probably a little long in the tooth, so we covered our Gold (GLD) and Gold Mining (GDX) shorts on red this week after getting immediate-term TRADE oversold signals. That doesn’t mean I am bullish on Gold; it just means I can re-short it on the bounce at my immediate-term TRADE overbought signal.

 

This is a tough game. There are multiple durations and multiple risk factors to consider. But it’s proven to be a lot tougher ever since the SP500 topped in 2007, Oil topped in 2008, and Gold topped in 2011. We try not to buy tops.

 

Has the SP500 topped for 2013?

 

I don’t think so. In fact, if the front-end of Earnings Season delivers (the Financials report first with Wells Fargo on Friday and  they will have relatively strong growth due to the strength in both Housing and the Yield Spread), Mr Macro Market may have this right.

  1. The Financials (XLF) are already the best performing S&P Sector at +3.5% YTD
  2. The 2-day correction in the SP500 came on a DOWN volume signal (volume is now accelerating on the UP days)
  3. US Equity Volatility (VIX) risk management signals are telling me the VIX wants to make lower-lows

So, we’ll see if I am right or wrong on this. That’s why we keep score. In the meantime, if you ever see me becoming perma anything, send me a friendly reminder that it’s time to retire to the class of mediocre minds who are inflexible.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), Corn, US Dollar, EUR/USD, UST 10yr Yield, VIX, and the SP500 are now $1639-1671, $110.23-112.71, $6.80-6.89, $79.99-80.72, $1.29-1.31, 1.84-1.96%, 13.34-15.11, and 1441-1487, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bull/Bear Class - Chart of the Day

 

Bull/Bear Class - Virtual Portfolio


Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more