September 5, 2013

September 5, 2013 - dtr



September 5, 2013 - 10yr

September 5, 2013 - spx

September 5, 2013 - nik

September 5, 2013 - dxy

September 5, 2013 - oil

September 5, 2013 - natgas



September 5, 2013 - eem

September 5, 2013 - VIX

September 5, 2013 - yen

September 5, 2013 - gold
September 5, 2013 - copper


ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows

Takeaway: Bond fund outflows continue with a substantial $9 billion out of fixed income against a marginal, albeit positive inflow into stocks

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Equity mutual fund inflow slowed to a trickle or just $300 million for the week ending August 28th, down from the $1.3 billion inflow the week prior but remaining positive


Fixed income mutual fund outflows remained substantial with a $9.1 billion withdrawal by investors, a slight decline from the $11.1 billion draw down last week but remaining at out-sized levels


Within ETFs, both equity and fixed income exchange traded fund money flow was negative for the week ending August 28th with just over $1.0 billion coming out of passive equity products and over $900 million coming out of passive bond products although both outflows were improvements from the week prior


ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 1

ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 2



For the week ending August 28th, the Investment Company Institute reported softening equity mutual fund flow trends, albeit positive flow trends, and continuing out sized withdrawals in fixed income mutual funds. Total equity fund flow totaled just a $300 million inflow which broke out to a $1.3 billion inflow into international equity products and a $1.0 billion outflow in domestic stock funds. These trends were a softening from the prior week's total equity fund inflow of $1.3 billion. Despite this deceleration in stock fund flows, the year-to-date weekly average for 2013 now sits at a $2.6 billion inflow for total equity mutual funds, a substantial improvement from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, outflow trends continued at exaggerated levels for the week ending August 28th with the aggregate of taxable and tax-free bond funds combining to lose $9.1 billion in fund flow, the fourth biggest weekly draw down in 2013 in what now has become the biggest bond withdrawal in the history of the ICI data. The taxable bond category specifically shed $6.2 billion in the most recent period versus the $7.3 billion loss last week. Tax-free or municipal bonds continued their sharp outflow trends losing another $2.9 billion in the week ending August 28th, continuing its trend from last week which experienced a $3.7 billion outflow. Franklin Resources (BEN) continues to have the most exposure in our coverage group to declining Municipal bond trends with over 10% of its assets-under-management in the tax-free category. The 2013 weekly average for fixed income fund flow has now drastically declined from 2012, now averaging a $136 million weekly outflow this year, a far cry from the $5.8 billion weekly inflow averaged last year.


Hybrid funds, or products that combine both fixed income and equity allocation, continue to be the most stable category bringing in another $1.1 billion in the most recent weekly period. The year-to-date weekly average inflow for hybrid products is now $1.6 billion for '13, almost a 100% increase from 2012's $911 million weekly average.



ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 3

ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 4

ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 5

ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 6

ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 7



Passive Products - Slight Outflows Across the Board:



Both categories of exchange traded funds experienced redemptions by investors for the week ending August 28th. Equity ETFs lost $1.0 billion, rebounding from the biggest equity ETF outflow in 5 years of over $12.0 billion last week and only the 10th negative week in the 35 weeks of 2013. Despite this week's outflow, 2013 weekly average equity ETF trends are averaging a $3.0 billion weekly inflow, an improvement from last year's $2.2 billion weekly inflow average.


Bond ETFs also had soft trends in the most recent weekly period losing over $900 million in fund flow. This outflow was a slight improvement from last week's $2.3 billion withdrawal and has now forced the 2013 weekly average to just a $284 million inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow from 2012.



ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 8

ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 9



HEDGEYE Asset Management Thought of the Week - The Shift Change is On:


For investors that are still defiant that an asset allocation rotation has not started need to look no further than the weekly money flow trends since the start of May. While equity mutual fund and ETF inflow on a weekly basis has slowed from the usual seasonally fast start to the year, stock fund flow has remained solidly positive through the most recent week to end the summer. Conversely, fixed income mutual fund and ETF trends on a weekly basis have taken a sharp turn for the worse and are now in massive weekly redemption through the most recent week.


Up until the week ending May 22nd this year, fixed income fund and ETF products were averaging over a $5.9 billion weekly inflow. Since the end of May however, fixed income trends have cascaded down sharply and since the 3rd week of May have averaged a massive $8.5 billion outflow. While the single week of June 26th represented the biggest weekly bond outflow in history of over $31 billion is skewing the weekly average on the margin, fixed income trends have been persistently negative on a weekly basis since the end of May. On the flip side, equity trends have been consistently positive albeit slowing into the summer period. For equity mutual funds and stock ETFs, weekly flow trends have been averaging a $3.2 billion inflow since May 22nd after averaging a $7.3 billion inflow weekly prior to the Fed's "tapering" comments before the week ending May 22nd this year. While all fixed income dollars drawn down are not being replanted one-for-one back into the equity markets, we do estimate that over time the reallocation from fixed income and into cash and money markets will continue to fuel a slow turn from the generational 30 year run in bonds into higher investor asset allocation into stocks.    



ICI Fund Flow Survey - Continued Smoldering in Bond Fund Flows - ICI chart 10



Jonathan Casteleyn, CFA, CMT



Joshua Steiner, CFA



CHART OF THE DAY: What Have You Learned?


CHART OF THE DAY: What Have You Learned? - Chart of the Day

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.

What Have You Learned?

“Wealth actually springs from the expansion of information and learning.”

-George Gilder


And here we were all thinking that innovation, growth, and wealth depended on what the Fed says next. Silly boys and girls of Keynesian academic dogmas we are sometimes…


In Chapter 5 of Knowledge & Power (pg 38), George Gilder nails something my Canadian craw has had a hard time articulating to both my partisan Democrat and Republican friends:


Believing that a weaker dollar is just the thing to spur a sluggish economy… they miss the consequent devaluation of all the assets of the country… abashed by Ivy League expertise, the great peril of establishment Republicans from the time of both Bushes… all cherish the illusion that leading Yale, Harvard, and Princeton economists possess vital wisdom about the economy. They generally don’t. Their preoccupation with static macroeconomic data blinds them to the actual life and dynamics of entrepreneurship.


Back to the Global Macro Grind


To learn (from new information channels) or not to learn, remains the question. Those of us building businesses on the back of our own risk capital actually have no other choice. It’s all about learning.


How quickly can we learn from our mistakes, biases, and dogmas? How flexible are we in implementing the constant change that we need in order to be successful? How readily do we dismiss perceived wisdoms for our visions of that change?


Sounds like the process of economic maestros in the Republican and Democrat parties, no? How about the “economists” of the #OldWall who Bush and Obama lovers cite as having “blue chip estimates” on the economy, markets, and #EOW (end of the world) risks?


On January 1st, 2013 here were #OldWall’s year-end (2013) forecasts for the SP500 and US GDP:

  1. Goldman (David Kostin): SPX 1575 on GDP of 1.9%
  2. Morgan Stanley (Adam Parker): SPX 1434 on GDP of 1.4%
  3. JP Morgan (Tom Lee): SPX 1580 on GDP of 1.8%

Now, to be fair, most buy-siders who get it would call Parker a perma-bear and Lee a perma-bull, so to see their views diverge is no surprise. What was surprising to me was that the most bullish guy on #OldWall (Tom Lee) wasn’t in the area code of what we call Bullish Enough.


Fast forward to this past weekend’s Barron’s forecasts (don’t laugh), here are the “revised” #OldWall forecasts:

  1. Goldman (Kostin): SPX 1750 on GDP of 2.2%
  2. Morgan Stanley (Parker): SPX 1600 on GDP of no one is sure
  3. JP Morgan (Lee): SPX 1775 on GDP of 2.5%



All these Keynesian “certainty” models do is anchor on the most recent SPX high and GDP report. Christie and Clinton better sign all these dudes up to advise them alongside Larry Summers (whose economic forecasting track record rivals Parker’s).


Stop it. I’m not trying to be mean. I’m an ex-athlete who is humbly trying to be one of your coaches. I’m just a little voice of annoyance in your ear so that you don’t get run over (I’ve never had a great coach who didn’t make me want to punch him every once in a while, fyi).


As a country (and a profession), after the mother of all global economics crises, what have we learned? Mr. Market helps us all learn in a hurry. Here are the main lessons of 2013:

  1. Be long growth (US growth stocks)
  2. Be short slow-growth (Gold, Bonds, MLPs, etc)

And that makes sense because, as the score board shows, even the most bullish of perma bulls weren’t Bullish Enough on US GDP Growth at the beginning of the year. Bears have been fighting the #GrowthAccelerating data since December. The best growth data of the 2013 (JUL-AUG) has coincided with the highest 10yr bond yields. That’s not Mucker’s genius. That’s just called an economic cycle.


Now you might say that the sell-side is “too bullish” because:

  1. The average SPX “target” has gone from 1531 to 1708
  2. The average GDP “target” has gone from 1.8% to 2.3%

But, if you are me, you’re saying who cares?


The consensus “forecast” by the sell-side only matters when it’s way outside of what your process says could happen. That’s already happened this year. Old News. The new news is that #OldWall’s latest forecast isn’t a forecast – it’s literally the last report:

  1. SPX closing high for the YTD = 1709
  2. US GDP Growth for Q213 = 2.4%



At the same time:

  1. VIX just failed @Hedgeye TREND resistance of 18.98 (again) = down -11% for SEP to-date
  2. II Bull/Bear Survey just clocked the lowest reading of “Bulls” since November 2012 at 37.1%

And that’s all I have to say about that.


Our immediate-term Risk Ranges are now (you can get all 12 Big Macro ranges in our new Daily Trading Range product):


UST 10yr Yield 2.74-2.94%


Nikkei 139

VIX 14.96-17.81

USD 81.81-82.67

Yen 98.49-100.12


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


What Have You Learned? - Chart of the Day

What Have You Learned? - Virtual Portfolio


After a long steep climb, the MPEL engine may be slowing down.



We're still positive on Macau so it’s difficult to be negative on MPEL.  However, MPEL’s recent share losses in the Junket segment are a little disconcerting and could continue.  Moreover, MPEL’s Mass share could be at risk as Sands Cotai Central begins its push into Premium Mass next year.  So while not negative, it’s probably safe to say we've pushed MPEL to the bottom half of attractive Macau operators, behind LVS, MGM, and Galaxy.


As seen in the following chart, MPEL’s 3 month average Rolling Chip share has fallen almost 200bps from its May high.  We do think it is possible that some of the drop could be conversion of Junket players to Direct VIP and Premium Mass.  Indeed, MPEL’s Mass share has held up well and VIP Revenue share (which includes Direct Play) has dropped 160bps - less than its Junket volume decline.  




However, our research indicates that competitive forces are probably playing a bigger role.  From the next chart, it appears that Galaxy, SJM and Wynn have gained the most share since May.  Galaxy recently moved 12 Junket tables from the Grand Waldo to the much more alluring Galaxy Macau.  We’re pretty sure Galaxy was able to attract at least one new junket.  Galaxy may also be offering a more attractive junket credit package.  We know SJM added a few new junkets this year as did Wynn.




In the future, LVS could be the market share gainer MPEL should fear, not only in Premium Mass but also in VIP.  With conservative COO David Sisk out of the picture, look for more aggression on the Junket side in terms of credit and commission advancement packages.  We already know that Sands Cotai Central will be opening new Premium Mass facilities which should grow the market but also take share from the Cotai Premium Mass leader, MPEL’s City of Dreams.


If Macau keeps growing in the mid to high teens rate, all the Macau stocks should do well.  Our view is that after a long and strong run, a few fundamental risks could derail MPEL’s momentum.  Other Macau stocks such as LVS look more protected, and thus attractive, at this point.


TODAY’S S&P 500 SET-UP – September 5, 2013

As we look at today's setup for the S&P 500, the range is 25 points or 0.61% downside to 1643 and 0.90% upside to 1668.                  










  • YIELD CURVE: 2.45 from 2.43
  • VIX  closed at 15.88 1 day percent change of -4.39%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Bank of England seen maintaining bank rate of 0.5%
  • 7:30am: Challenger Job Cuts Y/y, Aug. (prior 2.3%)
  • 7:30am: RBC Consumer Outlook Index, Sept. (prior 49.4)
  • 7:45am: ECB seen maintaining benchmark rates at 0.5%
  • 8:15am: ADP Employment Change, Aug., est. 180k (prior 200k)
  • 8:30am: ECB’s Draghi holds news conference
  • 8:30am: Nonfarm Productivity, 2Q final, est. 1.6% (pr 0.9%)
  • 8:30am: Init Jobless Claims, Aug. 31, est. 330k (pr 331k)
  • 9am: Fed’s Kocherlakota speaks in La Crosse, Wis.
  • 9:45am: Bloomberg Consumer Comfort, Sept. 1
  • 10am: Factory Orders, July, est. -3.4% (prior 1.5%)
  • 10am: ISM Non-Manufacturing, Aug., est. 55 (prior 56)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: DoE energy inventories
  • 11am: U.S. to announce plans for sale of 3Y notes, 10Y notes, 30Y bonds
  • 1:30pm: Fed’s Fisher speaks in economy in Dallas


    • G-20 Leaders Summit begins in St. Petersburg, Russia
    • 2pm: Members of Congress receive classfied briefing on Syria


  • Microsoft wins jury trial over Google patent licensing tactics
  • Aug. U.S. Retail Sales Seen Hurt by Delayed School Shopping
  • SKF to buy Kaydon for $1.25b to expand U.S. business
  • sells rest of its Facebook stake for $525m
  • Sprint raises $6.5b in biggest junk sale since 2008
  • Otsuka Holdings offers to buy Astex for up to $886m
  • Fed’s Kocherlakota says U.S. economy needs more accommodation
  • LinkedIn boosts offering to $1.2b after share rally
  • Liberty Media’s Malone said to plan for succession: NY Post
  • G-20 draft calls for more job training, infrastructure spending
  • Dominion bids $1.6m for offshore Virginia wind project
  • Nasdaq, SIP outline proposed actions after Aug. 22 glitch
  • Kuroda says Japan can roll out stimulus if needed after tax rise
  • Samsung $299 Galaxy Gear tests consumer smartwatch demand
  • Focus Media owners seek up to $500m dividend recap: Reuters


    • Conn’s (CONN) 7am, $0.60
    • Cooper Cos (COO) 4:01pm, $1.72
    • Finisar (FNSR) 4pm, $0.31
    • Infoblox (BLOX) 4:05pm, $0.09
    • Jos A Bank Clothiers (JOSB) 6am, $0.52
    • Quiksilver (ZQK) 4pm, $0.04
    • Smith & Wesson (SWHC) 4:05pm, $0.36
    • VeriFone Systems (PAY) 4:01pm, $0.20


  • WTI Rises From One-Week Low as Senate Panel Backs Syria Strike
  • Steel Rallying With Chinese Builders Beating Mills: Commodities
  • Tin Heads for Four-Month High on Concern About Limited Supply
  • Sugar Surplus Shrinks on Quickening Demand in China to Indonesia
  • Rubber Advances on Thai Farmer Protests, U.S. Car Sales Gains
  • Rebar Futures Drop to Lowest in a Month as Premium Lures Sellers
  • Palm Oil Climbs as Crude-Price Gain Increases Appeal of Biofuel
  • Gold Rises as Investors Seek Haven Amid Syrian Strike Debate
  • Gold Imports to China From Hong Kong Climb on Physical Demand
  • Libya Propels Sweet African Oil Toward 2011 High: Energy Markets
  • Oil Puts at 18-Month Low as U.S. Prepares Syria Strike: Options
  • Iron Ore Supply of Up to 830 Million Tons May Be Added by 2020
  • Asia Fuel Oil Viscosity Spread at Two-Month High: Oil Products
  • World Food Prices Fell Fourth Month in August on Cheaper Grains


























The Hedgeye Macro Team