This note was originally published at 8am on February 22, 2013 for Hedgeye subscribers.
“In the taiga there are no witnesses.”
-Dersu The Trapper
That’s the opening volley from a book I just cracked open, The Tiger – A True Story of Vengeance and Survival (by John Vaillant). The “taiga” is not to be confused with the Amur Tiger. Both are to be feared, in different ways.
The taiga is where these killers prowl, in “the mixed broad leaf and conifer forests of Siberia.” As for the Siberian tiger itself, people “fear it, revere it, tolerate it, and sometimes hunt it.” (pg 19)
If you want something to scare the hell out of you, I’m betting that one of these hungry cats does it better than this market can.
Back to the Global Macro Grind…
If I take you out back into the black bear bushes of Thunder Bay, Ontario (in the dark, with no crackberry or gun) I bet I can scare the hell out of you too. To be clear, there are times to fear – and yesterday wasn’t one of them.
After banging the top-end of our immediate-term risk range (immediate-term TRADE overbought on Tuesday, where we sold at 1530 SPX), the US stock market corrected for 2-days (from the all-time high in the Russell2000) and people were freaking out.
Or are they freaking out because they missed a +177 point move in the SP500 from the November lows, chased the February high, then got snow plowed? People have baggage, I get it. But let’s get real here – nothing about our bull case has changed.
- We are bullish on global #GrowthStabilizing (especially in Asia and the USA, not France)
- We are bullish on both US Housing and US Employment (Existing Homes Inventory reported -25% y/y yesterday!)
- We are bearish on Commodities, particularly Gold, Silver, and Food
So, if you want to get bearish on something, get bearish on something that’s actually gone down for more than 48 hours. Commodities and their related equities have been a relative train wreck for not only February, but since Bernanke’s Top.
Since Bernanke’s money printing top (September 14, 2012 - #timestamp it):
- The CRB Commodities Index (19 commodities composite) is down -8.7%
- And in the last 3 months, Gold and Silver are down -8.7% and -13.9%, respectively
- Wheat, Cocoa, and Corn are down -14.7%, -15.3%, and -6.8% in the last 3 months too
And if you don’t care on Cocoa (I don’t) and are a little shorter-term than that with a US stock market focus:
- For FEB to-date, Basic Materials (XLB) is down -3.3%
- The SP500 is +0.3% for the month-to-date
Wanna get nuts? I can get nuts. I can rip into a 40yr US Dollar Debauchery cycle rant like you have never seen. I can throw more historical data at you on what perpetuated the all-time highs in Commodities (2011) than you can shake a stick at. I can yell. I can scream. I can probably even win a butt-kicking contest versus a one-legged commodity bull on this, dammit!
(interviewing for Santelli’s job, so thanks for reading that)
Back to reality – I keep getting asked “well, Keith what about your call on US Dollar Correlation Risk from 2010-2012.” A: correlations in markets are never perpetual, and it’s 2013.
What do I mean by that? It’s just math. Here’s what’s happening in our immediate-term TRADE correlation model (vs USD):
- CRB Commodities Index vs USD correlation = -0.98! (uber negative correlation)
- Eurostoxx600 vs USD correlation = -0.68
- SP500 and MSCI Asia (Equities) vs USD correlations = +0.13 and +0.55 (note, they are positive)
So stop freaking out. Like the Reagan (1983-1989) and Clinton (1993-1999) US #GrowthStabilizing (then eventually accelerating) periods, Strong Dollar can become a pro-growth signal. Oh, and China likes Strong Dollar, down food prices too. Don’t you?
If you want to get scared, fear the biggest thing of all that can screw this all up - the government.
Out immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, UST10yr Yield, and the SP500 are now $1554-1617, $112.59-117.02, $80.63-81.53, $1.31-1.33, 92.87-94.39, 1.97-2.05%, and 1501-1530, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer