ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed

Takeaway: The trend of smaller bond fund outflows continued in the most recent week but still both taxable and tax-free bond funds booked outflows

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Equity mutual fund inflow accelerated week-to-week to $5.2 billion for the 5 day period ending September 11th, up from the $903 million inflow the week prior


Fixed income mutual fund outflows also improved but still resulted in a $5.5 billion withdrawal by investors, an improvement from the $6.7 billion draw down last week


Within ETFs, passive equity products experienced an large inflow of $10.3 billion, the best weekly period in 2 months with bond ETFs flows also experiencing positive trends with a $1.4 billion inflow


ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 1



For the week ending September 11th, the Investment Company Institute reported improvements in both equity and fixed income mutual fund flows however with bond trends simply booking a smaller outflow. Total equity fund flow totaled a $5.2 billion inflow which broke out to a $2.7 billion inflow into international equity products and a $2.4 million inflow in domestic stock funds. These trends were an improvement from the prior week's total equity fund inflow of $903 million. Including this acceleration 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 for the week ending September 11th with the aggregate of taxable and tax-free bond funds combining to lose $5.5 billion in fund flow. The taxable bond category specifically shed $2.8 billion in the most recent period versus the $4.7 billion loss last week. Tax-free or municipal bonds continued their sharp outflow trends losing another $2.7 billion in the week ending September 11th, continuing its trend from last week which experienced a $2.0 billion outflow and the 10th consecutive week over the $2.0 billion outflow mark. 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 $464 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 $1.2 billion in the most recent weekly period, an improvement from the $349 million inflow the week prior. 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 - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 2

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 3

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 4

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 5

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 6



Passive Products - Large Equity ETF Inflow:



Exchange traded funds experienced positive trends for the week ending September 11th with a massive equity inflow and also a stable fixed income subscription. Equity ETFs gained $10.3 billion, the biggest inflow in 8 weeks for equity ETF products and the 5th largest inflow for the category in all of 2013. Including this week's inflow, 2013 weekly average equity ETF trends are averaging a $2.8 billion weekly inflow, an improvement from last year's $2.2 billion weekly inflow average.


Bond ETFs also had a positive week with a stable $1.4 billion inflow which was a slight decline from last week's $2.4 billion subscription. Including this sequential drop in the most recent period the 2013 weekly bond ETF average is now just a $375 million inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow from 2012.



ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 7

ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 8



HEDGEYE Asset Management Thought of the Week: Quantitative Easing...To Infinity and Beyond:


With the renewed emphasis on pumping liquidity into the credit markets and beyond as articulated by the Fed Reserve yesterday, we highlight the corresponding historical reaction of the asset management stocks in 1 week; 1 month; and 3 month time-frames. While each announcement was made in very different market conditions (for example the announcement of QE1 in 2008 was made in a Bear market for all stocks versus the announcement of QE2 in November of 2010 which was made in recovering equity markets), we none-the-less estimate the average stock reaction for all 4 current rounds of Quantitative Easing (QE) is useful for investors to understand. The averages point to the most favorable positive reaction for Blackrock shareholders, with BLK stock having averaged a 4%; 4%; and an 11% return in the 1 week; 1 month; and 3 month periods following major Fed QE announcements, the best reaction in the asset management group. This is likely because of the firm's substantial emerging markets business (which is 10% of the entire EM assets outstanding when including ETFs and mutual funds) which have historically benefited with lower or easing credit conditions in developed market economies. The leading real estate and balanced fund franchise at Invesco (IVZ) has also reacted positively to QE announcements as lower rates and easing credit conditions makes these yield based products more competitive. IVZ stock has averaged a 5%; 4%; and 5% return over the various stages of QE announcements in the 1 week; 1 month; and 3 month time-frames, the second best beneficiary of these announcements.  


 ICI Fund Flow Survey - Taxable Bond Outflows Improving on the Margin - Muni's Just Getting Crushed - ICI chart 9



Jonathan Casteleyn, CFA, CMT







Joshua Steiner, CFA











WYNN is considering an investment north of USD4 billion in Japan casino resorts if it wins permission.  MGM has also commented about investing “several” billion dollars in the market if given the opportunity.


Hiroyuki Hosoda, the chairman of a cross-party group of lawmakers promoting casino development in Japan, said that the group aims to submit a casino bill to the next diet session which starts in October and pass the bill in the following session of parliament.  A competitive bidding process will be needed before one or more casino resorts can be developed, he said. It would take five years after the legalization before the first casino is operational, Hosoda said.


MGM and WYNN said that they plan to partner with local consortiums to develop casino projects. According to managing director of global development for LVS, George Tanasijevich, LVS is also “open minded” about having local partners.


Among speculated local partners are trading companies such as Mitsui & Co., Mitsubishi Corp. and Itochu Corp. and gaming machine makers Sega Sammy Holdings Inc. and Konami Corp.  The trading companies have project-finance experience and real estate development connections, while the game makers have helped develop casino projects and technology outside of Japan.  The specific details about sites and operators will probably come after legalization.


Possible sites include the Odaiba section of Tokyo, an island of reclaimed land in Tokyo Bay, between Haneda airport and the business district surrounding the city’s main train station.  Sands will fund Japan casino resorts with existing operating cash if allowed to build, Tanasijevich said.


Tokyo’s potential as a gambling market is also drawing interest from CZR, SJM, and MPEL. 



Time is running out for the governing Kuomintang in Taiwan to pass legislation that would permit casinos on outlying islands. reports that a committee crucial for the passage of the bill has no plans to meet ahead of the end of the current legislative session in December.  A political stalemate is also threatening to stall the bill’s passage into law.  A lobbyist in Taiwan for Park Strategies, Anita Chen, said gaming legislation was included in the premier's list of some 45 priority bills.

Weidner Resorts of Las Vegas is the only company that has openly campaigned for a casino-resort, on Matsu.



Macau CPI for August 2013 increased by 5.31% YoY and 0.17% MoM.



Macau Government Tourist Office director Maria Helena de Senna Fernandes says there is no plan to extend the individual visa scheme to more mainland cities.  Apple Daily newspaper said Hong Kong officials had suggested the scheme could be extended to tourists from the northern cities of Qingdao, Taiyuan and Xi’an.

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Is It Over?

“Insanity: doing the same thing over and over again, and expecting different results.”

-Albert Einstein


Is it over?


Well, it depends on what you think it is.


Is it the US Constitution? Is it the US Dollar? Is it US Growth?


Back to the Global Macro Grind


I’ll keep it tight this morning, because if I rant about what I really think about what Ben Bernanke did yesterday, I might lose some clients and have the NSA parked outside of my house.


While it was a great day for those of us who have been US stock market bulls in 2013, it was a very sad day for America.


Basically, Bernanke eviscerated almost my entire bull case for US growth accelerating from here, so it's a good thing he cut his GDP forecast. The best way to slow real (inflation adjusted) economic growth is by burning your currency.


To review the 3 core components of our 2013 bullish thesis for US #GrowthAccelerating:

  1. American Purchasing Power (US Dollar) stabilizes and strengthens by arresting policies to devalue the Dollar
  2. As purchasing power rises, American confidence, hiring, and spending does – rates rise too (it’s called a cycle)
  3. Economic cycles are reflexive – they feed on themselves, so the Fed needs to get out of this one’s way

None of that happened yesterday, because an un-elected central planner decided so. #perfect


Exactly what Jefferson and Franklin had in mind.



  1. After snapping my intermediate-term TREND line of $81.34, Bernanke smoked the US Dollar to a 6 month low
  2. Everything slow-growth went ape (to the upside); Gold, Bonds, Utilities, etc, – everything we don’t want to see
  3. And Emerging Markets went haywire (Turkey +7.6%, Indonesia +4.7%, India +3.7%, etc)

I have no doubt that everyone who is in the business of being long every recipient of the US Dollar devaluation had a great day. But that doesn’t do jack for the hard working American who will be taking this one in the pump and/or the conservative American saver who was actually getting something more than 0% for the last few months.


Bernanke should have respected Mr. Market’s long-standing American pro-growth signal of #StrongDollar, #CommodityDeflation, and #RatesRising – and he did not. Period. For that, he should feel shame.


So you tell me, is it over? And over for whom? Who is going to hold Bernanke accountable for:

  1. Renewing the American Tax at the pump (Dollar Down, Oil up on Bernanke is as potent as Assad)
  2. Cutting risk-free income on savings accounts (2yr yield just dropped 36% to 0.33%)
  3. Causing US GDP growth to go from 2.5% real to 1.5-2% (the GDP Deflator goes up when the Dollar goes down)

Is this all part of the class warfare thing Obama likes to talk about? Other than the political class, who, precisely, Mr. President, got paid by Bernanke’s un-objective and un-elected decision yesterday? Or did all those “folks” you’ve been standing up for refi whatever they have left on their house and buy Gold futures with it yesterday?


I clearly don’t get what Bernanke is trying to achieve by banning things like gravity, consumption tax cuts, and the economic cycle. But my gut says no one in America who doesn’t get paid to say they get it gets it either.  


Unlike the US Federal Reserve who has been behind the curve using broken forecasting models, my research team will continue to respect both the data and markets as leading indicators. That part of what we do isn’t over this morning. Neither will changing our mind as circumstances do.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.58-2.81


VIX 13.11-14.82

USD 80.12-81.34

Brent 109.04-111.76

Gold 1


Best of luck out there with your centrally planned day,



Keith R. McCullough
Chief Executive Officer


Is It Over? - chart


Is It Over? - z. vp 919

What Have You Learned?

This note was originally published at 8am on September 05, 2013 for Hedgeye subscribers.

“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%

SPX 1643-1668

Nikkei 13739-14099

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


TODAY’S S&P 500 SET-UP – September 19, 2013

As we look at today's setup for the S&P 500, the range is 23 points or 0.96% downside to 1709 and 0.38% upside to 1732.                            













  • YIELD CURVE: 2.37 from 2.37
  • VIX  closed at 13.59 1 day percent change of -6.47%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Init Jobless Claims, Sept. 14, est. 330k (pr 292k)
  • 8:30am: Current Acct Balance, 2Q, est. -$97b (pr -$106.1b)
  • 9:45am: Bloomberg Eco. Expectations, Sept. (prior -5)
  • 9:45am: Bloomberg Consumer Comfort (prior -32.1)
  • 10am: Leading Economic Indicators, Aug., est. 0.6% (prior 0.6%)
  • 10am: Philly Fed Business Outlook, Sept., est. 10.3 (pr 9.3)
  • 10am: Existing Home Sales, Aug., est. 5.25m (prior 5.39m)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: Treasury’s plans for following wk sale, 2Y/5Y/7Y notes
  • 11am: Fed to buy $2.75b-$3.5b notes in 2020-2023 sector
  • 1pm: U.S. to sell $13b 10Y TIPS in reopening


    • U.S. House Speaker John Boehner, Majority Leader Eric Cantor, Majority Whip Kevin McCarthy, Republican Conf. Head Cathy McMorris Rodgers meet with Facebook CEO Mark Zuckerberg on immigration law
    • Finance ministers from Asia-Pacific Economic Cooperation group in Bali for 2-day summit
    • 9:30am: House Oversight Cmte hears from Thomas Pickering, chairman of Benghazi Accountability Review Board
    • 10am: Senate Homeland Security Cmte hearing on renewing U.S. Postal Service
    • 10am: Sen. Foreign Relations Cmte hears from Caroline Kennedy, nominated to be ambassador to Japan, at confirmation hearing
    • 3:30pm: House Armed Services hearing on lessons of Benghazi


  • JPMorgan said to pay $900m to settle London whale probes
  • CEO doesn’t expect criminal charges for bank, execs: NYPost
  • Wells Fargo eliminating 1,800 more mortgage production jobs
  • Activision’s stock sale blocked by judge over investor vote
  • Tesla CEO says co. to develop practical autopilot for Model S
  • Zuckerberg says undocumented in U.S. treated “unfairly”
  • Obama puts Lockheed, Merck, Pfizer, IBM CEOs on export council
  • Google may stop using cookies to track web users, WSJ says
  • Cisco execs accused in suit of aiding Falun Gong monitoring
  • Harrisburg, Pennsylvania, seeks court approval of debt plan
  • Grand Theft Auto sets $800m 1-day record for video game sales
  • JPMorgan said to underwrite Chrysler IPO, CNBC says
  • East West Bancorp to buy MetroCorp for $273m cash, stock
  • Icahn challenges corporate governance in WSJ opinion piece


    • Cintas (CTAS) 4:15pm, $0.63
    • ConAgra Foods (CAG) 7:30am, $0.39
    • IHS (IHS) 6am, $1.17
    • Pier 1 Imports (PIR) 6am, $0.21
    • Rite Aid (RAD) 7am, $(0.04) - Preview
    • TIBCO Software (TIBX) 4:05pm, $0.22


  • Wall Street Defends Commodity Trades Against Regulatory Scrutiny
  • Lead Glut Diminishing as Bear Market Shuts Smelters: Commodities
  • Copper Touches Three-Week High as Fed Continues U.S. Stimulus
  • Brent May Target $115 If Resistance Breached: Technical Analysis
  • Soybeans Climb for Second Day as China Buys More U.S. Supplies
  • Sugar, Coffee, Cocoa Advance as Fed Unexpectedly Keeps Stimulus
  • Gold Fluctuates in London After Surging on Fed Stimulus Plans
  • Red Kite Spins Off RK Mine Finance Fund II Under Oskar Lewnowski
  • Commodity Revenue at Top Banks Climbs in Asia as Loans Rise
  • Carbon Trade Seen Losing Globally in Aussie Vote: Energy Markets
  • Cotton Output in Australia to Drop as Drought Curbs Planting
  • Cheese Maker Uses Pig and Cow Poop to Trim U.K. Energy Bills
  • Copper Exchange Stocks-to-Use Ratio at 10-Month Low: BI Chart
  • JPMorgan Leads Banks in Commodities Revenue Followed by Goldman


























The Hedgeye Macro Team













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