Which Narrative Will Win Out: Bulls Or Bears?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The battle boils down to what controls the market: central banks or fundamentals.

The tug of war between Bull and Bear has rarely been so clearly matched--and the stakes have rarely been so high.

Bulls are confident that central banks have their back in 2016. After all, whatever it takes has successfully pushed equities higher for seven years. Why not an eighth?

Many Bulls also believe the global downturn is over and higher growth is just ahead.

Bears see equities in a multi-year topping process that is remarkably similar to the tops in 2000 and 2008. Bears see sagging profits and stagnant sales as evidence that fundamentals no longer support historically high valuations.

Bulls and Bears can tout data, historical patterns and charts to support their case. Two simple charts cut to the chase: a simple chart of the SPX (S & P 500) and a chart of the real SPX (adjusted to present-day dollars, i.e. inflation) and margin debt, which is the debt punters have borrowed against their stock portfolios (courtesy of chartist Doug Short: NYSE Margin Debt Falls Again: More Confirmation of a Major Market Turning Point Last Year?

Though Bulls try to make the case that the global economy is about to enter a new growth cycle and equities are under-valued, this is simply code for central banks cannot afford to let equities decline. Given high levels of debt, declining profits and mixed sentiment readings, the Federal Reserve and other central banks must maintain equities at current highs to signal all is well.

After all, the entire goal of central bank manipulation, ahem, intervention, is to spark a wealth effect as households look at their rising portfolios and feel wealthy enough to borrow and spend money they don't have--in other words, get deeper into debt.

Margin debt is acutely sensitive to the fluctuating value of the collateral, i.e. equities. If equities stumble, the dreaded margin call will be issued to those punters whose margin debt exceeds limits. These punters must pony up cash (and who has cash in a market awash in cheap borrowed money) or sell equities to pay down their margin debt.

this desperate necessity to keep stocks at a permanently high plateau fuels Bulls' confidence that any decline will be stick-saved by central banks, just like the three recent drops were all stick-saved by central banks announcements / actions.

Bears on the other hand are counting on central bank talk eventually depreciating to its real value of zero. Once a central banker issues yet another whatever it takes pronouncement or assures the markets interest rates will never ever rise, never ever (for the umpteenth time) and equities fail to soar, the confidence that central banker words are all that's needed to boost equities will shatter, and fundamentals might matter again.

The fundamentals are decidedly un-Bullish. Real profits (as opposed to whatever is announced to beat Wall Street estimates by a penny) are plummeting, sales are stagnating, exports are faltering globally and excess capacity / overproduction is rampant.

Articles such as U.S. Economy 2016: 3 Classic Recession Signals Are Flashing Red are highlighting recessionary signals.

Companies don't make a profit because the GDP expanded by some marginal percentage--they make money if sales rise and/or costs decline. The only fundamentals that count are rising sales (which might eventually yield higher profits) and higher GAAP profits, i.e. real profits as opposed to PR "profits" announced during quarterly earnings.

The battle boils down to what controls the market: central banks or fundamentals. Belly up to the roulette wheel and place your bets, but don't forget that rigged games can suddenly become unrigged at the most inconvenient moments.

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Sir SpeaksALot's picture

in the end it s bears.

Ivanka2032's picture
Ivanka2032 (not verified) bada boom Apr 19, 2016 7:28 AM

"Which Narrative Will Win Out: Bulls Or Bears?"


But the chart talks about 'stick saves', so, it looks like the BlackHawks are winning.

Manthong's picture


Everyone knows it's the unicorns that own the kabuki masquerading as a market.

And they will own it until it fades into the phantasm of the state.


Haus-Targaryen's picture

These charts don't matter when there is someone who can print money in the picture.  

If the CBs want to "nationalize" the entire equities markets, they can, and make the equities markets look amazing.  NVM what it would do to the currency.  

Looking at indexs based off prices being quoted in a currency that is activly devaluating seems absurd to me.  

MillionDollarBonus_'s picture

The bull's narrative is simply correct, and the other narratives are wrong. We have had consistently positive NFP reports month after month for years, interest rates are at all time lows, our service sector is booming, and we have a record number of college educated Americans. All of this data projects strong growth in the economy, and it's only a matter of time before stocks rise to reflect this reality. The market doesn't care about narratives - it cares about raw, hard data, and those of us who study the data have no problem predicting the price of equities. My analysis indicates new all time highs within weeks.


RadioFlyer's picture

"interest rates are at all time lows"


Great for killing off the pensions, savers, and stealing every cent from seniors.  If anything, that will be the swan that shits on the economy.  Once all these pensions and 401ks go completely upside down, they'll be 'saved' by myRA.

Leveraged Algorithm's picture

The hard data didn't support it from December 11 to January 26th when everything was well on it's way to correct the misallocation of capital - great short.  At that point on the central banks provided negative rates and bullshit inflows to stop the natural market and we exited the shorts.


Hard data?  Give me a break.  Now the shorts that stayed in are getting killed every day by this wonderful data.  At some point the low rates will not matter either.  Everyday we are getting one step closer to reality.

MillionDollarBonus_'s picture

Saving hurts the economy. Low interest rates encourage spending which boosts aggregate demand and fuels our service economy, which creates jobs. Low interest rates also support our housing market. This is very important as for most people their home is their most valuable asset. The real estate industry also employs a lot of people, so we need to support it.

philipat's picture

@!MDB. Which is, of course, why we must have Negative Interest Rates and a ban on Cash?

OpenThePodBayDoorHAL's picture

CBs used to create money by creating debt, when that stopped working they switched to equity. Believe me they are nowhere near done.

With NIRP, time preference no longer exists, money tomorrow is worth less than money today...so the physics of money have been repealed, Oh I'm so happy, just wish I had me some of them thar stawks, oops I mean "money".

glenlloyd's picture

Are you being sarcastic or are you really this much of a schmuck?

bobsmith5's picture

MDB is many, many times worse than a schmuck.  It is not /sarc or satire either. MDB is for real, in that whatever/whoever is posting that nonsense means it.

I think it is probably a government bot in the form of advanced A.I.  Maybe, a paid shill.  What about an alien life form?  An evil intelligence? 

glenlloyd's picture

I suppose it could be Tay, back from the dead but I doubt it.

philipat's picture

Brilliant @MDB. Master of /sarc as the US persons need to put it..

overmedicatedundersexed's picture

I gave the go long oil in feb when everyone said sell..(my reason was the debt bomb with failing E&P's and the fed not wanting banks to go down)

I gave you a few days ago buy BTU in bk at 0.65  closed yesterday at .87,,

oil looks to be at a top, btu - take your profit..

I took the bear pill today.

check my posts if you think i did not do that.

now back to craps a more honest game than wall st.


bada boom's picture

Not sure about lowering the voting age with in the current system. First, we need to stop the BS in the schools that is promoting socialism and villanizing individuality & free market ideas. No political talk at all on who's better. Most teachers are dems, right? What can we expect them to teach. If anything, our children have become politically brained washed.

How about educating young adults how the system is stacked against them? The rigged political party system that is showing itself now.

Maybe the voting age should be increased until they have a chance to wear off the indoctrination into the political system.

HopefulCynical's picture

First, we need to stop the BS in the schools that is promoting socialis...

First, we need to feed the globalist oligarchy feet first into a woodchipper, because they're the pricks that set the schools up to be Marxist indoctrination centers.

Once the parasites have been purged, then we can unwind their propaganda/brainwashing machine. Until that's done, they can rebuild it faster than anyone can dismantle it.

PT's picture

It used to be that when one ran out of money they had to stop buying.  But now certain people can keep bidding and buying even though they have no money.  Why would they willingly give up such a game?  What will stop them?

The numbers haven't made sense for at least 15 years but the game goes on.  So what is really driving the game?

The petrol tank is empty but the engine keeps running.  Must be a gas tank hidden out back and it must be a bloody big gas tank.  Stop looking at the empty petrol tank and saying, "Yes, it's going to stop soon."  We need to find the bloody big gas tank out back, see how big it is, how it is fed and how it works.  We're looking in the wrong spot.

HopefulCynical's picture

I can't be out of money! I still have checks!


Must be a gas tank hidden out back and it must be a bloody big gas tank.

Hidden in plain sight. It's called the Fed.

back to basics's picture

Fundamentals winning means the "market" (or whatever the fuck abomination of one we have today) would correct in the 25-50% range (pick a number) which means every pension fund goes bust, every bank goes bust, the entire financial derivative make believe world collapses, and just about everything else goes down with it.

That's why fundamentals will never be allowed to win until perhaps an exogenous catastrophic event, a true black swan, overwhelms the power of the printing press but even then it's doubtful.

These fuckers have climbed on the tiger's back in 2009 and they know there is no getting off without being mauled.

Government needs you to pay taxes's picture

Just decide to be part of the black swan!  Refuse/resist.  Passively/actively.

waterwitch's picture

What, no Cubs or White Socks?

Ivanka2032's picture
Ivanka2032 (not verified) DeadFred Apr 19, 2016 9:37 AM

says 'Dead Fred' - LOL

philipat's picture

But if Central Banks control the ""markets" beyond fundamentals, then, by definition, there are no "markets". So what comes next?

Sir SpeaksALot's picture

they can cover it all with a major war.

Ghordius's picture

wars consume resources. real ones. so yes, of course this is a kind of understandable... fixation*. but of limited practical application. Iraq was and still is a too big piece to chew and swallow properly... even after all those years

*(similar to the fixation with stock markets, really. "woar and moar")

Ghordius's picture

eventually, a new narrative
it's a good article, really, but it has imho the wrong narrative, with "Bulls are confident that central banks have their back in 2016. After all, whatever it takes has successfully pushed equities higher for seven years. Why not an eighth?"
this narrative is based on the assumption of a cooperation among CBs (and that bad American habit of speaking of the FED in the plural form, leaving the doubt if the foreign CBs are included or not)
If you take the assumption that they are fighting each other - an assumption which is way more usual outside the US - then the question is this:

"When is the FED going to throw the towel?

(Bonus question: And raise rates, and stop doing reverse repos with the PoBC?)"

NIRP now covers 25% "of the globe". Does the FED dare to go there? Unlikely, since it makes banks... scream. and banks have too much political leverage in the US to go unheard
As long as the FED is not "calling uncle", this monetary war will go on
there are many perks about being "the leader of a pack"... but "the luxury of not leading" isn't among them

overmedicatedundersexed's picture

Ghordius, it is clear after last weeks fed secret emergency meetings and with Obuma..a new policy move is afoot..how to play it to make money is unk?

because what they decided is secret. most think a gift to main street, as mr yellen has said main street is our top worry.

markets sure acting like a money drop is in the works ..

Ghordius's picture

so you want to compete with people that already know where the next shoe drops... basing bets on assumptions? I would only advice such a scheme in desperate situations. sorry, those "markets" aren't rational, imho
I vaguely remember that nearly every exiting president made such a meeting in an election year. a kind of ritual, or a parting gift
oh, for the doomers: I tremble everytime a president of the US does not stand for reelection. no joke, not funny, I'm serious

XAU XAG's picture

Dear CHS


Your forgetting money flows.


Money will flow into stocks because of strong $ against other countries currency.


So it is not about Fundamentals or Centrol Banks.


It's money Flowing in from abroad for currency, stock and dividens gains.



Also if you are based in the USA or another country,what would you rather have.

Cash at a Bank?

Money in Bonds?

Real estate?

A stock certificate?

What would Big Money want to park in?

There's not enough PM's to Park In for Big Money.



Have a nice day

Slomotrainwreck's picture

short term, neither Bulls nor Bears. The PPT will keep trying.


McCormick No. 9's picture

Central Banks control the markets... until fundamentals do.

south40_dreams's picture

I don't see how fundamentals will ever matter again as long as politicized central banks rule the day.  I know its an old cliche but this won't end well, one way or another.  I worry most about the world my kids will one day inherit. 

brucyy's picture

No empire rules forever , the history of mankind is very clear on this matter.

What is destined to fail eventually fails.

Worth noting that probability of horrible death , spectacular string of failures on all fronts , and all out misery ,  are highly correlated with how much one leader claims to care about you , and achieve global happyness through central planning and mass surveillance.


Ivanka2032's picture
Ivanka2032 (not verified) brucyy Apr 19, 2016 8:08 AM

What also tends to happen is that a lot of people get crucified or eaten by lions as a spectator sport in a Colosseum while waiting for the empire to self destruct.

Storm Chaser's picture

Put another way, we are all Alice's trapped in "Underland" for a long time to come before reality returns.

HedgeAccordingly's picture

Bull until treasury yields recover, or until fed actually starts stair stepping rates higher in a predictable fashion. Then, prolonged risk off... Sprinkled with bits of panic.

cowdiddly's picture

Ill take Animals that shit in the woods of 500 Alex.

Bill of Rights's picture

Bulls will win, and many MANY will miss the bubble phase.

NoDebt's picture

"The battle boils down to what controls the market: central banks or fundamentals.Belly up to the roulette wheel and place your bets"

So far, central banks are winning.  And everyone knows they need to KEEP WINNING or it all falls apart.  As long as printing money at problems keeps working, money printing is what will continue to be used.

China did an about-face on their "reforms" to shift from an export economy to an consumer economy (because it wasn't working) and that's what kept it from falling apart the last few months.  Couple months from now it'll be some other CB's turn.


philipat's picture

BUT CB's and the TBTF's control, directly or indirectly, about 70% of all market volume. So how can it be changed? Just a thought.

MajorFall's picture

I dont know which will win out but I do know this: YOU will lose....

illuminatus's picture

Well, there is another scenario: The handlers tell the central banks to crash it.

The best Sun's picture

Massive holographic show with bogus first strike nuclear launches,

fake alien intervention to save the day,

alien reproduction vehicles cruising about,

assassinations and risen messiahs of all stripes!

Come one! Come all to the greatest show on Earth.

This won't be your grand daddies engineered collapse my lad.

quadraspleen's picture



...on a long enough timeline...