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Just Charts: A Boost From CAGNY?

This week begins the annual Consumer Analyst Group of New York (CAGNY) Conference from Boca Raton, Florida. Click here for a program of presenters this week.

 

Last week the Consumer Staples (XLP) sector finished up +2.2%, broadly in line with the S&P500 at +2.3%, however,  Consumer Staples is underperforming on a year-to-date basis, down -2.7% vs the S&P500 down -0.5%.  

 

The Hedgeye U.S. Consumption Model is flashing predominantly red, as only 5 of the 12 metrics are flashing green.

 

Just Charts: A Boost From CAGNY? - chart1

 

From a quantitative set-up the sector remains broken across the immediate term TRADE and intermediate term TREND durations, our language for a bearish medium term sector outlook. You’ll see a similar bearish setup for most of the largest names in Consumer Staples.

Just Charts: A Boost From CAGNY? - 222

 

We continue to believe that the sector is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 18.8x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index has not seen any real improvement over the past 6 months despite a mild increase week-over-week

Just Charts: A Boost From CAGNY? - 333

 

Just Charts: A Boost From CAGNY? - chart4

 

 

Top 5 Week-over-Week Divergent Performances:


Negative Divergence: BNNY -11.8%; LO -3.1%; PEP -2.7%; DF -2.7%

Positive Divergence: THS +12.8%; SAM +8.2%; FLO +6.9%; CPB +6.7%; IFF +5.6%

 

 

The “Newsy” News Flow:


Nestle Shedding Some of L’Oreal – last week L’Oreal,  the world’s largest cosmetics maker, agreed to buy back 8% of its stock from Nestle, through a cash payment of €3.4 billion for 27.3 million shares and in exchange for half of its Galderma skincare JV for a further 21.2 million shares.

 

TreeHouse Foods Sues Green Mountain Coffee and Keurig on Anticompetitive Conduct -  last week THS charged GMCR and Keurig over anticompetitive acts to maintain a monopoly over the cups used in single-serve brewers. As the WSJ specifically points out: Green Mountain has announced that its Keurig 2.0 brewer, to be launched later this year, will contain an anticompetitive lock-out technology that will prevent the Keurig 2.0 brewers from functioning with cups supplied by unlicensed competitors. TreeHouse asserts that these actions are an attempt to eliminate consumer choice and to coerce Keurig 2.0 brewer owners into purchasing only Green Mountain owned or licensed K-cups. In addition, Green Mountain has announced plans to eliminate the current lineup of K-cup brewers, which function with competitive cups, to exclude competition and force consumers to purchase higher-priced Green Mountain cups. TreeHouse's lawsuit maintains that any supposed consumer benefits from the new technology are more than outweighed by the harm to competition and consumers by eliminating their choice and forcing them to pay higher prices for Green Mountain cups.

 

 

Last Week’s Research Notes

 

Earnings Calls This Week (in EST):

 

Monday (2/17): Presidents’ Day

Tuesday (2/18): KO 9:30am

Wednesday (2/19): HLF 11am

Thursday (2/20): HRL 9am; NUS (TBD)

Friday (2/21): -

 

 

Quantitative Setup


In the chart below we look at the largest companies by market cap in the Consumer Staples space from both a quantitative perspective and fundamental aspect where we can offer one.  As you will see over time, sometimes our fundamental view does not align with the quantitative setup (though not often).

 

 

Alcohol


BUD – big beta bounce last week (on much lower-volume signals than we saw for the stock on the way down in the weeks prior), but still bearish TREND = 102.93 resistance

Just Charts: A Boost From CAGNY? - 5555

 

DEO – same quantitative setup as BUD; big v-bottom bounce on decelerating volume signals (that’s bearish) with TREND resistance intact overhead = $127.06

Just Charts: A Boost From CAGNY? - chart6

 

 

Beverage


KO – looks the same as BUD and DEO; beta bounce on unconvincing volume signals last week – would have to recapture TREND line of $39.97 to change the bearish view

Just Charts: A Boost From CAGNY? - chart7

 

PEP – this chart is what BUD, DEO, and KO can look like again, in a hurry – no volume on the bounce to lower-highs, then wham! Straight back down on big time volume; TREND resistance intact = $81.99

Just Charts: A Boost From CAGNY? - chart8

 

 

Food


GIS – doesn’t look nearly as bad as the beverage names; TREND resistance recaptured last week (now its support at $48.79)

Just Charts: A Boost From CAGNY? - chart9

 

MDLZ – bounce on a better than bad volume signal last week recaptures TREND support of $33.63

Just Charts: A Boost From CAGNY? - chart10

 

 

Household Products


KMB – higher-highs last week on low-volume, but this Kimberly Clark remains the best looking name on this list (TREND support = $104.56)

Just Charts: A Boost From CAGNY? - chart11

 

PG – guides down on Venezuela – funny, but the chart isn’t; bearish TREND remains intact at $80.61

Just Charts: A Boost From CAGNY? - chart12

 

 

Tobacco


MO – v-bottom beta bounce on no volume; bearish TREND resistance remains intact for the dog breath chart up at $36.43

Just Charts: A Boost From CAGNY? - chart13

 

PM – same smelly dog-breath situation as MO; bearish TREND resistance firmly intact overhead at $84.02

Just Charts: A Boost From CAGNY? - chart14

 

 

Matt Hedrick

Food, Beverage, Tobacco, and Alcohol

 

Howard Penney

Household Products

 

(o)


MACAU: ANOTHER STRONG CNY WEEK

While a slight slowdown sequentially, average daily table revenues for the past week climbed 45% over the same week last year.  ADTR grew only 8% versus the comparable post Chinese New Year week last year (2nd week – February 17-24th).  For the full month including slots, we think GGR could grow in the mid 20s% YoY.  Going forward, weekly ADTR is likely to slow dramatically and we expect March growth could fall to low double digit growth.

 

LVS continues to perform extremely well in February with market share considerably above recent trend.  While hold may be playing a role, we think volumes are very strong at the LVS properties.  Wynn and Galaxy are also trending higher while MPEL, MGM, SJM are well below.

 

MACAU: ANOTHER STRONG CNY WEEK - M1

 

MACAU: ANOTHER STRONG CNY WEEK - M22


[video] Keith's Macro Notebook 2/18: USD JAPAN NATURAL GAS


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.

ICI Fund Flow Survey, Refreshed

Takeaway: An historic week within ETFs with record outflows in equities and record inflows into bonds...trends unchanged within mutual funds

Editor's note: This research note was originally published February 13, 2014 at 08:13 in Financials. For more information on how you can subscribe to Hedgeye click here.

Investment Company Institute Mutual Fund Data and ETF Money Flow

 

ICI Fund Flow Survey, Refreshed - iceflows2

 

In the most recent week, we saw a continuation of the tale of two tapes with equity inflow and fixed income outflow in mutual funds (retail) and a record reallocation within more institutionally based ETFs with record outflows in stock ETFs and record inflows into bond ETFs.

 

Total equity mutual funds experienced another week of inflow as the lagged effect of fund flow chasing performance from last year has been strong enough to offset near term worries about emerging markets. For the week ending February 5th, equity mutual funds had $1.8 billion of inflow, a deceleration from the $5.4 billion inflow the week prior but none-the-less a positive inflow in a tough macro news flow week. The $1.8 billion subscription for the week however was below the running year-to-date weekly average inflow of $4.3 billion for stock funds in 2014. 

 

Fixed income mutual funds conversely had net outflows during the most recent 5 day period, a continuation from the negative performance of 2013. In the week ending February 5th, total fixed income mutual funds experienced a $2.8 billion outflow, which broke out into a $3.0 billion redemption in taxable bonds and a $146 million inflow into tax-free bonds, the fourth straight week of inflow for munis. The 2014 weekly average for fixed income mutual funds now stands at a $75 million weekly outflow, an improvement from 2013's weekly average outflow of $1.5 billion but a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in the bond market).

 

ETFs, a more institutionally oriented product, reflected the nascent risks in emerging markets and weaker U.S. economic data with record outflows in stock ETFs and conversely record inflows in fixed income ETFs. Stock ETFs lost a weekly record $27.4 billion in the 5 day period ending February 5th, the biggest weekly outflow in our data set spanning 18 months of information. Bond ETFs conversely booked the biggest weekly inflow in our information from Bloomberg putting up a $14 billion subscription. The 2014 weekly averages considering this latest data are now a $7.9 billion weekly outflow for equity ETFs and a $2.8 billion weekly inflow for fixed income ETFs. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $36.7 billion spread for the week (-$25.5 billion of total equity outflows versus the $11.1 billion inflow within fixed income; positive numbers imply inflows for stocks; negative numbers imply inflows for bonds). The 52 week moving average has been $6.5 billion (positive spread to equities), with a 52 week high of $30.9 billion (positive spread to equities) with this week setting the 52 week low of equity/debt weekly spread of -$36.7 billion (negative numbers imply a net inflow into bonds for the week). 

 

While the short term fund flow picture is showing drastic volatility with this week's historic outflow in ETFs, we highlight that the longer term picture within the mutual fund market continues to relay a rebound in stock funds to the detriment of fixed income funds. Looking at top line gross sales of all equity funds on a monthly basis, shows the continued trajectory higher to new record highs since 2007 through the end of last year. According to ICI data, all equity funds grossed $159 billion in sales in December 2013, a new high in all available data from 2007. Conversely, fixed income mutual funds continue to book lower highs in sales after peaking in early 2013. The most recent sales tallies in December (as January 2014 totals aren't available yet) amounted to $92 billion, well off the all-time high of $118 billion in fixed income monthly sales in January 2013. While net flows (what the industry normally focuses on) can be volatile on a short term basis, top line sales totals will eventually wash out short-term inflow or outflow and hence are a better indicator of which products have the most momentum. Thus these top-line sales trends still relay incrementally stronger demand for equities over fixed income in mutual funds for now.

 

 

ICI Fund Flow Survey, Refreshed - ICI chart 15

 

 

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product:

 

 

ICI Fund Flow Survey, Refreshed - ICI chart 2

 

ICI Fund Flow Survey, Refreshed - ICI chart 3

 

ICI Fund Flow Survey, Refreshed - ICI chart 4

 

ICI Fund Flow Survey, Refreshed - ICI chart 5

 

ICI Fund Flow Survey, Refreshed - ICI chart 6

 

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds:

  

 

ICI Fund Flow Survey, Refreshed - ICI chart 7

 

ICI Fund Flow Survey, Refreshed - ICI chart 8

 

 

Net Results:

 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $36.7 billion spread for the week (-$25.5 billion of total equity outflows versus the $11.1 billion inflow within fixed income; positive numbers imply inflows for stocks; negative numbers imply inflows for bonds). The 52 week moving average has been $6.5 billion (positive spread to equities), with a 52 week high of $30.9 billion (positive spread to equities) with this week setting the 52 week low of equity/debt weekly spread of -$36.7 billion (negative numbers imply a net inflow into bonds for the week). 

 

 

ICI Fund Flow Survey, Refreshed - ICI chart 16

 

 

While the short term fund flow picture is showing drastic volatility with this week's historic outflow in ETFs, we highlight that the longer term picture within the mutual fund market continues to relay a rebound in stock funds to the detriment of fixed income funds. Looking at top line gross sales of all equity funds on a monthly basis, shows the continued trajectory higher to new record highs since 2007 through the end of last year. According to ICI data, all equity funds grossed $159 billion in sales in December 2013, a new high in all available data from 2007. Conversely, fixed income mutual funds continue to book lower highs in sales after peaking in early 2013. The most recent sales tallies in December (as January 2014 totals aren't available yet) amounted to $92 billion, well off the all-time high of $118 billion in fixed income monthly sales in January 2013. While net flows (what the industry normally focuses on) can be volatile on a short term basis, top line sales totals will eventually wash out short-term inflow or outflow and hence are a better indicator of which products have the most momentum. Thus these top-line sales trends still relay incrementally stronger demand for equities over fixed income in mutual funds for now.

 

 

ICI Fund Flow Survey, Refreshed - ICI chart 14

 

ICI Fund Flow Survey, Refreshed - ICI chart 13

 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 


Burning Currencies

Client Talking Points

US DOLLAR

The Dollar was down another -0.7% last week and is trying hard to bounce this morning as the Japanese take their turn trying to torch the Yen. The Hedgeye TAIL risk is back on now from a Down Dollar, Up Commodities #InflationAccelerating perspective. Macro matters.

JAPAN

Ahhh... that smell of Burning Yen! The whole -0.46% of it versus the US Dollar got the Nikkei a +3.1% rip back to -8.9% year-to-date. Note the Nikkei VIX (volatility) is tracking around 30 now. I’m sure playing pachinko is fun too, but this FX versus Equity correlation whip wears on people after a while.

NAT GAS

Note to the omnipotent folks at the Federal Reserve: whatever you do, do not say there’s inflation in your world, ever. Take a look at Natural Gas. Boom. It is ripping another +5.2% higher to $5.48. That's up +29.7% year-to-date as the CRB and Gold continue to beat all US major equity indices at +4.7% and +9.6% year-to-date.

Asset Allocation

CASH 49% US EQUITIES 0%
INTL EQUITIES 6% COMMODITIES 15%
FIXED INCOME 15% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
FXB

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.

DRI

Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road

TWEET OF THE DAY

COMMODITIES: CRB Index and Gold +4.7% and +9.9% YTD vs Dow -2.5% #InflationAccelerating @KeithMcCullough

QUOTE OF THE DAY

Inflation is the one form of taxation that can be imposed without legislation.

-Milton Friedman

STAT OF THE DAY

Soros Fund Management has doubled up a bet that the S&P 500 is headed for a fall. Within Friday’s 13F filings news was the revelation that the firm increased a put position on the S&P 500 ETF by 154% in Q4, compared with Q3. The value of that holding, the biggest position in the fund, has risen to $1.3 billion from around $470 million. It now makes up a 11.13% chunk of all reported holdings.



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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