• run with the bulls

    get your first month

    of hedgeye free


Bull/Bear Narratives

This note was originally published at 8am on February 28, 2013 for Hedgeye subscribers.

“Evolution does not rely on narratives, humans do.”

-Nassim Taleb


That’s just a money quote from Taleb on page 207 of Antifragile. Apparently Jaime Dimon liked the book so much, he called his bank antifragile. I assume he wasn’t talking about the Bear Stearns part. If you’d like my review of the book, please send me a note.


Reviewing the Bullish Narrative for US and Asian stocks requires one to evaluate the bearish one. The big one our institutional clients debate with me comes from a player I respect, Francois Trahan. His Bearish Narrative is grounded in inflation concerns.


His call is a lot like mine was at the end of 2010. I get that inflation expectations rising would be bad. But our call is Strong Dollar will drive the opposite – Commodity Deflation. That’s not just a narrative; that’s precisely what we have been seeing for all of February.


Back to the Global Macro Grind


Strong Dollar = Commodity Deflation? That’s also what we have been seeing for 2013 YTD:

  1. US Dollar Index +2.3%
  2. CRB Commodities Index -1.0%
  3. SP500 +6.3%

Within the SP500’s +6.3% YTD return, the worst performing Sector ETF is Basic Materials (XLB) which is down -1.54% for February and underperforming badly at +2.34% YTD. If you want to be bearish on something, be bearish on Commodities and related stocks.


There’s also a Nouveaux Bear camp that thinks Commodities falling is the leading indicator that A) Global Economic Growth is going to slow and B) the US stock market is going down in flames. I have debated Dennis Gartman on this 2x on live TV in the last week.


Finally, there’s the central planning camp (led by Ben Bernanke) that is still bullish on the stock market’s “valuation”, and never thought we had the inflation we are deflating to begin with (Bernanke said in his testimony “I have the best track record on inflation since WWII”).


So, what is the Bearish Narrative?


A)     Trahan: Debauched Dollar will drive us back to the bubble highs in Oil (2008), Gold (2011), and Food Prices (2012)

B)      Gartman: Strong Dollar will drive Commodity Prices down, if Oil, Gold, Corn, etc go down, stocks are going down

C)      KM: I’m actually just bearish on The Taro Aso and The Bernank lying to uninformed people


I usually have a decent Bearish Narrative on something (like the Yen here), but the bear case for Asian and US stocks is all over the place right now. Maybe that’s why the only down day for stocks in the last 4 came on a catalyst that none of these bears had to begin with (Italian Election). That’s not a research call, that’s being right for the wrong reasons (otherwise known as luck).


Another Q: KM, what about The Correlation Risk (inverse correlation vs USD) call that you used to trade Macro on during 2010-2012? First, Correlation Risks are not perpetual. And, second, our intermediate-term TREND correlation model is changing, big time, right now:

  1. Intermediate-term TREND correlation between US Dollar and CRB Index = -0.96 (short Commodities!)
  2. Intermediate-term TREND correlation between US Dollar and SP500 = +0.33
  3. Intermediate-term TREND correlation between US Dollar and MSCI Asia (Equities) = +0.52

In other words, both the Americans and the Chinese are loving Strong Dollar in more ways than one. It’s taking down Energy and Food Inflation. And it’s a tax cut that our central planning overlords are unable to provide.


That’s great for the one thing we haven’t had, sustainably, under either the Keynesian Bush or Obama regimes – real (inflation adjusted) economic growth. Of course, the government is always my Bearish Narrative, but I think my bullish one for stocks is still intact.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, and the SP500 are now $1549-1609, $110.67-112.68 (Oil is bearish TRADE and TREND now; a very bullish catalyst for the economy), $81.28-82.13, 91.71-94.67, 1.85-1.96%, and 1499-1536, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bull/Bear Narratives - Chart of the Day


Bull/Bear Narratives - Virtual Portfolio


The Macau Metro Monitor, March 14, 2013




According to Business Daily, WMS is likely to make a fresh bid for market share in Macau following its acquisition by Scientific Games Corp.



MPEL has finalized its partnership with Belle Corp for a US$1 billion (MOP8 billion) gaming complex at Manila Bay.  The deal effectively finalized the cooperation agreement Belle had signed with MPEL last October.



Visitor arrivals in package tours increased by 18.3% YoY to 757,190 in January 2013.  Package tour visitors mainly came from Mainland China (562,722), with 250,029 coming from Guangdong Province, followed by those from Taiwan (55,473); the Republic of Korea (42,469) and Hong Kong (30,763). 


There were 100 hotels and guesthouses operating at the end of January 2013, providing 26,027 rooms, up by 16.5% YoY.


In January 2013, the hotels and guesthouses received 832,543 guests, up by 19.1% YoY, with the majority coming from Mainland China (60.3% of total) and Hong Kong (14.5%).  The average length of stay of guests decreased by 0.13 night YoY to 1.4 nights.  Meanwhile, the average occupancy rate of hotels and guesthouses stood at 82.9%, up by 3.8% points YoY, with 5-star hotels reaching 84.9%.


TODAY’S S&P 500 SET-UP – March 14, 2013

As we look at today's setup for the S&P 500, the range is 27 points or 0.87% downside to 1541 and 0.87% upside to 1568.          














  • YIELD CURVE: 1.79 from 1.76
  • VIX  closed at 11.83 1 day percent change of -3.59%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Current Acct Bal., 4Q, est. -$112.5b (pr -$107.5b)
  • 8:30am: PPI M/m, Feb., est. 0.7% (prior 0.2%)
  • 8:30am: PPI Ex Food & Energy, M/m, Feb., est. 0.1% (pr 0.2%)
  • 8:30am: Init Jobless Claims, March 10, est. 350k (pr 340k)
  • 9:45am: Bloomberg Consumer Comfort, March 10 (prior -32.4)
  • 9am: Fed’s Raskin gives remarks at symposium in Washington
  • 10:30am: EIA natural-gas storage change
  • 11am: Fed to purchase $2.75b-$3.5b notes in 2020-2023 sector
  • 1pm: U.S. to sell $13b 30Y bonds in re-opening
  • 4:30pm: Fed releases Comprehensive Capital Analysis and Review


    • 9:30am: Joint Economic Cmte hearing on debt crisis
    • 10am: House Oversight and Govt Reform Cmte panel hearing on sequestration oversight
    • 10am: House Education and Workforce Cmte panel on guest worker programs
    • 10am: Senate Health, Education, Labor and Pensions Cmte hearing on minimum wage
    • 10am: API Pres. Jack Gerard, Inst for Energy Research Pres. Thomas Pyle testify on energy partnerships with Mexico, Canada at House Foreign Affairs panel
    • 10am: House Financial Svcs panel hearing on GAO assessment of who is “too big to fail”
    • 11:30am: Lawyers for Cisco, Adobe, SAS, J.C. Penney, J&J testify before House Judiciary panel on patent litigation


  • Fed releases stress-test results related to bank capital plans
  • JPMorgan, Morgan Stanley may divulge dividend/buyback plans
  • Senate panel releases findings on JPMorgan trading loss
  • EQT said to advance with IPO or sale of Springer Science
  • Dallas Fed cap would force U.S. banking units to shrink
  • Sprecher commitment to NYSE seen receding as cost cuts play out
  • CNPC to buy stake in Eni’s Mozambique assets for $4.2b
  • Glencore said to consider sale of Australia malt unit Joe White
  • Xi assumes China’s presidency to cement transition of power


    • Quebecor (QBR/B CN) 6am, C$1.13
    • Cominar Real Estate (CUF-U CN) Bef-mkt, C$0.45
    • Buckle (BKE) 7am, $1.25
    • Dynegy (DYN) 7:30am $(0.46)
    • Crescent Point Energy (CPG CN) 8am, $0.19
    • Ulta Salon Cosmetics (ULTA) 4pm, $0.98
    • Aeropostale (ARO) 4:01pm, $0.22
    • Molycorp (MCP) 4:01pm, $(0.30)
    • Nortek (NTK) 4:15pm, N/A
    • Bonanza Creek Energy (BCEI) 4:16pm, $0.36
    • Algonquin Power & Utilities (AQN CN) N/A, C$0.05
    • North West (NWC CN) N/A, $0.33


  • WTI Oil Drops as Supplies Gain; Brent Spread Near Seven-Week Low
  • Zinc’s Six-Year Glut Seen Ending After China Curbs: Commodities
  • Goldman Ranked No. 1 in Commodities in 2012 Followed by JPMorgan
  • Soybeans Reach One-Week Low as Harvesting Progresses in Brazil
  • Aluminum and Nickel Gain on Stronger Equities and Demand Signals
  • Gold for Immediate Delivery Falls 0.5% to $1,579.60 an Ounce
  • Robusta Coffee Falls as Prices Climbed Too Far; Sugar Advances
  • Cooking Oil Imports by India Climbing Send Inventories to Record
  • Rebar Tumbles to Lowest in Three Months After Iron Ore Slumps
  • N.Y. Farmers Learn Fracking May Mean Drilling If Neighbors Agree
  • Natural Gas at $4 Seen as Plants Beat Forecasts: Energy Markets
  • China Steel Consumption Seen Peaking in 2017, Deutsche Bank Says
  • CFTC Discussing London Gold, Silver Price Fixings, WSJ Says
  • Fire Idles 20% of S. African Gold Output at AngloGold, Sibanye


















The Hedgeye Macro Team







the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Ears Up

“You can judge by his eyes and ears. One cannot read bears like that.”

-John Vaillant, The Tiger


Is this a bull or a bear? Whatever it is, and whether you decide to use behavioral ecology, interconnected macro math, or licking your finger, you have to decide on some type of signaling process to answer the question.


Knowing where you are in an economic cycle matters as much as understanding where your predator is (the other side of the trade). That’s why I think Vaillant’s epic true story of a man-eating tiger in Siberia is so relevant to my market day.  


If you see that his ears are down, that’s not a good sign. Then you have to look at him in the eye with all the rage you can muster and the tiger will stop and back off.” (The Tiger, pg 248) When do you think the bulls will back off lifting your offers?


Back to the Global Macro Grind


How are the bears going to stop the US stock market from going up? Since there’s a bull market in top-calling right now, are they going to talk it down? That sounds scary. But does that have any teeth?


You know, the ears are her steering wheel. You can turn off her teeth with the ears” (The Tiger, pg 96).


Admittedly,  that advice comes from a Russian who used to “bag” tigers alive. Reading through Vaillant’s account of encounters with these big cats, I wouldn’t take a stroll into the taiga and try that alone. Neither would I short SPY’s with the VIX signaling 10.


Process Review: there are 2 main parts to how I make risk managed decisions in markets:


1.       Risk Management Signals

2.       Research Views


The Research and Risk Signals aren’t always aligned, but when they are, I move. Instead of the ridiculous “risk on, wax off” thing the sell-side implemented into Old Wall vernacular, let’s think of the market’s main risk (beta) as either having its Ears Up/Down.


Reminder on our current Global Macro Research View:

  1. #StrongDollar Deflates Commodity Inflation
  2. Commodity Deflation Drives real (inflation adjusted) Consumption Growth
  3. Consumption Growth Drives GDP Growth, Gold Down, Treasuries Down, Ears Up

Our updated Risk Management Signals for US #GrowthStabilizing and/or #Accelerating:

  1. US Dollar Index: up for the 6th consecutive week at $82.96 this morning (+4.0% YTD)
  2. CRB Commodities Index: closed down (with stocks up yesterday) at 294 (down -0.3% YTD)
  3. SP500: for the 1st time in 2013, our Risk Range is signaling a higher all-time high (up at 1568)
  4. Russell2000: already made a higher all-time high (yesterday) at 943 (+11.1% YTD)
  5. US Equity Volatility (VIX): closed at 11.83 yesterday (-38% since FEB25); no support to 10.89
  6. US Treasuries (10yr): made another higher-low this wk and is testing 6 month highs today

Then, on the interconnected Global Macro Equity market signaling front:

  1. Japan’s Nikkei = +1.2% overnight, making another new YTD high (+43% since NOV2012)
  2. China’s Shanghai Composite = +0.3%, making another higher-low, holding 2206 TREND support
  3. South Korea’s KOSPI = +0.12% overnight, remains bullish TRADE and TREND in our model
  4. India’s BSE Sensex = +1.1% overnight, back above TREND line support of 19,419 to 19,581
  5. Germany’s DAX = +0.8% this morning, making a run for fresh new highs (Bullish Formation)
  6. Brazil’s Bovespa = -1.4% yesterday, and continues to break down (Bearish Formation, -5.3% YTD)

Only 1 of those 6 Global Equity markets has its Ears Down. That 1 of 6 is not like the others because the Bovespa is a heavily weighted commodity stock market. This is why not everyone agrees with the fulcrum point of our Research View; not everyone gets paid by a Strong Dollar, Down Commodities. Know how people get paid, and you’ll know their confirmation biases.


Ears Down in Oil? Yep. And guess what’s driving that? #StrongDollar. While the immediate-term TRADE correlation between the SP500 and USD  is currently POSITIVE (+0.84), for Brent Oil vs USD it’s NEGATIVE (-0.88). That’s another way to think about signaling without losing yourself in a Ph.D dissertation about causality.


Like a charging bull, bear, or tiger, the Correlation Risk happens fast. And unlike these non-domesticated animals, these mathematical monsters run fast, both ways. So keep those eyes and ears open!


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1, $108.14-110.28, $82.46-83.11, 94.12-97.29, 1.97-2.11%, 10.89-13.18, 933-954, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Ears Up - Chart of the Day


Ears Up - Virtual Portfolio

Expert Call With Peter Tchir

Expert Call With Peter Tchir - Tchir 3.15.13


We will be hosting an expert call on Friday, March 15th at 11:00am EST entitled "Fixed Income: Opportunities and What It Means for Equity Markets." Peter Tchir, the founder of TF Market Advisors, will discuss what he sees as being most impactful from a macro perspective and break down the current trends in fixed income and equity markets.




  • Fixed Income: Opportunities and signals versus stocks
  • Europe: Current state of play
  • Treasuries: The lack of float and what the Fed is doing
  • U.S. Corporate Credit: A focus on high yield, leveraged loans and the LBO names
  • Emerging Markets: A focus on currency wars



  • Synthesize what is happening in today's global economy  
  • Unveil actionable items in fixed income (via bonds or ETFs)



  • Traded over $1 trillion of fixed income products during his career, including complex structured transactions, bonds, loans, CDS and index products
  • Previously a portfolio manager at KLS Diversified where he employed a strategy that included single name credit positions and macro trades while actively taking advantage of short term mispricing of securities and indices
  • Founding board member of the CDX suite of indices and started and headed the credit derivatives index businesses at UBS and then RBS
  • Started his career at Bankers Trust where he ran high yield credit derivatives
  • Received BS in mathematics and computer sciences from the University of Waterloo and his MBA with distinction from Vanderbilt University



  • Date: Friday, March 15th at 11:00am
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 818259#
  • Materials: CLICK HERE (full presentation will be available with this link one hour prior to the call)

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.