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ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up

Takeaway: Equity mutual funds had $4.9 billion in inflow this week, in-line with the YTD average but bond inflow trends were higher than the '14 mean

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent week, equity mutual funds had another solid inflow albeit just inline with the year-to-date averages with bonds funds showing improving subscriptions, well above the year-to-date mean:

 

Total equity mutual funds produced another strong week of inflow with $4.9 billion of net subscriptions, a slight deceleration from the $5.8 billion inflow the week prior. The $4.9 billion inflow had a domestic bend during the most recent 5 day period, with $3.1 billion flowing into domestic equity funds and $1.8 billion flowing into international stock funds. The 2014 running weekly average inflow for equity mutual funds is now $4.9 billion, an improvement from the $3.0 billion weekly average inflow for 2013. 

 

Fixed income mutual funds also had net inflows during the 5 day period ending February 26th with $2.3 billion flowing into all fixed income funds. The breakout of improving bond fund inflow amounted to $1.6 billion into taxable products and a $667 million inflow into tax-free or municipal products, the 7th consecutive week of inflow into munis after 33 consecutive weeks of outflow. The 2014 weekly average for fixed income mutual funds now stands at a $751 million weekly inflow, 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 bond fund inflow).

 

ETFs had mixed trends during the week, with a strong week of subscriptions in stock ETFs with $5.8 billion in net inflow with bond ETFs experiencing flat-ish trends with just $458 million of inflow. The 2014 weekly averages are now a $2.2 billion weekly outflow for equity ETFs and a $2.1 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 positive $8.0 billion spread for the week ($10.8 billion of total equity inflow versus the $2.7 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.0 billion (more positive money flow to equities), with a 52 week high of $30.9 billion (more positive money flow to equities) and a 52 week low of -$36.9 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Continued strong equity mutual fund inflow trends currently support our favorite long idea in the sector, T Rowe Price (TROW) which should benefit with a leading retail equity mutual fund franchise. In addition, we recently added Legg Mason (LM) to our Best Ideas list on the long side to capture the emerging trends on the institutional side of the industry which is experiencing inflow into fixed income and outflow in equities (see our Legg report here).

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 1 png

 

 

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

 

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 2 png

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 3 png

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 4 png

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 5 png

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 6 png

 

 

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

  

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 7 png

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 8 png

 

 

Net Results:

 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $8.0 billion spread for the week ($10.8 billion of total equity inflow versus the $2.7 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.0 billion (more positive money flow to equities), with a 52 week high of $30.9 billion (more positive money flow to equities) and a 52 week low of -$36.9 billion (negative numbers imply more positive money flow to bonds for the week). 

 

 

ICI Fund Flow Survey - Just an Average Week for Equities but Bond Trends Starting to Pick Up - ICI chart 9 png 

 

 

Continued strong equity mutual fund inflow trends currently support our favorite long idea in the sector, T Rowe Price (TROW) which should benefit with a leading retail equity mutual fund franchise. In addition, we recently added Legg Mason (LM) to our Best Ideas list on the long side to capture the emerging trends on the institutional side of the industry which is experiencing inflow into fixed income and outflow in equities (see our Legg report here).

 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 



Rose Colored Bubbles

“What’s in a name? That which we call a rose by any other name would smell as sweet.”

-William Shakespeare

 

What’s in a bubble?

 

I’ve been channeling my inner 1999 for the last 3-days in California. I’ve done Los Angeles, San Diego, and San Francisco. And while it would be cute to tell you that I can actually smell a bubble, these types of things don’t have a particular scent.

 

Rose Colored Bubbles - bub

 

At the all-time highs, they just look sweet.

Back to the Global Macro Grind

All-time highs? Yep. It’s not just Yelp (YELP) and Facebook (FB). It’s Barney Frank’s American Housing dream. The all-time highs in the largest component of American cost of living are here. It’s called rent.

 

Oh, you don’t rent? Ok, you’re like me then. You’re big time – you own. But don’t confuse the 20% of us who are long asset price inflation with the rest of them (80% of Americans) who get pulverized by Policies to Inflate. The cost to live in this country has never been bubblier.

 

What’s in the cost of living?

  1. Shelter
  2. Food
  3. Transportation

Unless you’re like the “folks” in Washington who take car service to work, you have to put gas in the transportation thing too. And if you can’t afford a car, you can always save some money and take the bus, or walk…

 

What’s in the all-time high in American “inequality”?

  1. The Housing Bubble
  2. The Commodity Bubble
  3. The Bond Bubble

One by one, central planners at the Fed blow these bubbles up so big that, like Jim Carey in The Truman Show, we start to live inside them. There’s an effervescence to that, I guess.

 

Or at least that’s what Oaktree’s Howard Marks said in our back to back presentations at the CFA Society’s Annual Forecast Dinner in San Diego on Monday night.  He called the cov-light-pik-toggle-bond thing being “back” – an “effervescent bubble.”

 

As we went back and forth in the Q&A part of the event, Marks made an astute observation about real-world life. The average American has $20,000 in post tax income, but spends approximately $22,000 a year.

 

So, if you ramp up the Top 3 things Americans have to pay for (if they don’t pay for their kids to go to school), the Bush/Obama/Bernanke/Yellen Policy to Inflate should drive cost of living up to say $25,000-30,000/year. That’s why the US Savings (as a % of disposable income) is retracing its 2008 crisis lows. Like their government, Americans once again have to borrow to spend.

 

In other news, inflation slowed US consumption growth again in February:

  1. USA’s ISM Services report for FEB (reported yesterday) slowed to its lowest level since FEB of 2010
  2. The Employment component of the ISM Services Series dropped < 50 (largest m/m drop since NOV 2008)
  3. US Services PMI (Markit data series) slowed from 56.7 in JAN to 53.3 in FEB

No worries though, it’s all “weather.”

 

If you want to join the Federal Reserve and believe that (and tell the 80% that inflation doesn’t slow growth), you can start turning on the Weather Channel and buying the all-time highs in social media every day they forecast yesterday’s sunny news.

 

I’ll be selling stocks (and buying Commodities, Bonds, and Foreign Currencies) into that. Because, like in Q1 of 2011, Down Dollar and Down Rates were signaling a US consumption growth slowdown inasmuch as they did in Q1 of 2008.

 

As for retracing my California travels of 1999, Q1 of 2000 wasn’t exactly the time to be wearing rose colored glasses either.

 

Our immediate-term Macro Risk Ranges are now:

 

UST 10yr Yield 2.59-2.75%

SPX 1

VIX 13.01-15.64

USD 79.86-80.43

Brent 107.31-110.02

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Rose Colored Bubbles - San Fran HPI

 

Rose Colored Bubbles - rta7


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THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – March 6, 2014


As we look at today's setup for the S&P 500, the range is 31 points or 1.38% downside to 1848 and 0.28% upside to 1879.             

                                                                                                                  

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.38 from 2.37
  • VIX closed at 13.89 1 day percent change of -1.49%

MACRO DATA POINTS (Bloomberg Estimates):

 

• 7am: RBC Consumer Outlook Index, March (est. 50.4)

• 7:30am: Challenger Job Cuts y/y, Feb. (prior 11.6%)

• 8:15am: Fed’s Dudley at Wall St. Journal event in New York

• 8:30am: Non-Farm Productivity, 4Q final, est. 2.2% (pr 3.2%)

• 8:30am: Initial Jobless Claims, Feb 28, est. 336k (prior 348k)

• 9:45am: Bloomberg Consumer Comfort, March 2 (prior -28.6)

• 10am: Factory Orders, Jan., est. -0.5% (prior -1.5%)

• 10am: Freddie Mac mortgage rates

• 10:30am: EIA natural-gas storage change

• 12pm: Household Change in Net Worth, 4Q (prior $1.922t)

• 1pm: Fed’s Plosser speaks in London

• 6pm: Fed’s Lockhart speaks in Washington

 

GOVERNMENT:

    • President Obama to speak on economy, healthcare
    • 9am: House Foreign Affairs Cmte hears Treasury, State, USAID officials on U.S. foreign policy, Ukraine
    • 9:30am Jack Lew testifies on FY15 budget at House Ways & Means Cmte
    • 9:30am: Defense Sec. Chuck Hagel at House Armed Svcs Cmte
    • 10am: House Small Business workforce subcommittee holds hearing, “ObamaCare and the Self-Employed: What About Us?”
    • 10am: Medicare Payment Advisory Commission meets
    • 12pm: Airline Pilots Assn President Lee Moak discusses state of airline industry at National Economists Club
    • Election Wrap: Romney backs Ernst in Iowa, Texas Primary

WHAT TO WATCH:

  • EU to consider Ukraine sanctions; Russia spurns U.S. diplomacy
  • Buffett cuts bond allocation as Berkshire warns on low yields
  • Bouygues offers $14.4b cash for SFR to rival Drahi’s bid
  • IMF said to demand greater say on Greek banks in ECB wrangle
  • GM weighs increasing South Korean car exports to Australia
  • Sinclair TV ownership model said targeted for breakup by FCC
  • Darden cancels analyst, investor mtg amid pressure: Reuters
  • Virgin America CEO Cush sees IPO late 3Q: Reuters
  • Jack Lew testifies on FY15 budget proposal
  • Feb. U.S. retail sales likely “lackluster,” hurt by weather
  • VTB cancels NY forum as U.S. relations over Ukraine sour
  • Multi-billion dollar LNG plants at risk over fuel price tussle
  • Rolls-Royce says DOJ probing bribery allegations: Telegraph

AM EARNS:

    • Canadian Western Bank (CWB CN) 8:30am, C$0.65 - Preview
    • Ciena (CIEN) 7am, $0.06 - Preview
    • CST Brands (CST) 7am, $0.51
    • Joy Global (JOY) 6am, $0.65 - Preview
    • Kroger (KR) 8:45am, $0.72 - Preview
    • Pinnacle Foods (PF) 8am, $0.58
    • SNC-Lavalin Group (SNC CN) 8:27am, C$0.64
    • Stage Stores (SSI) 6am, $0.99
    • Staples (SPLS) 6am, $0.39 - Preview

PM EARNS:

    • Alon USA Energy (ALJ) 6pm, ($0.14)
    • Ambarella (AMBA) 4:05pm, $0.19
    • Analogic (ALOG) 4:15pm, $1.20
    • Checkpoint Systems (CKP) 4:02pm, $0.31
    • Constellation Software/Can (CSU CN) 4:30pm, $2.50
    • Cooper Cos. (COO) 4:01pm, $1.46
    • Finisar (FNSR) 4pm, $0.44
    • Fresh Market (TFM) 4:02pm, $0.42
    • H&R Block (HRB) 4:03pm, ($0.11)
    • Korn/Ferry International (KFY) 4:01pm, $0.34
    • Quiksilver (ZQK) 4:01pm, ($0.06)
    • Spectrum Pharmaceuticals (SPPI) 4pm, ($0.11)
    • Thor Industries (THO) 4:15pm, $0.34
    • W&T Offshore (WTI) 5:20pm, ($0.14)

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Ukraine’s Revolutionary Farmers Back Home in Time to Plant Crops
  • Chinalco’s Sun Sees Aluminum Industry ‘Shakeout’ as Prices Drop
  • WTI Falls for Third Day as U.S. Oil Supplies Gain; Brent Stable
  • Syrup Sours as Rules Menace World’s Oldest Branding: Commodities
  • Palm Reserves in Malaysia Falling to Five-Month Low; Prices Rise
  • Copper Trades Below One-Week High Amid China Growth Concern
  • Gold Trades Below Four-Month High as Investors Weigh Ukraine
  • Coffee Tops $2 in Surge to Two-Year High on Brazil Drought Woes
  • India Mills Cut Sugar Production Estimate 4.8% to 23.8 Mln Tons
  • Off-Radar Iron Ore Exports Helping Hasten Global Market Glut
  • Frackers May Gain From U.S.-EU Free Trade Accord, Opponents Say
  • Europe’s Russia Gas Flows Jump to Month High as Buyers Hoard
  • Crude Gains Evaporate as Russia Seen Too Big to Sanction: Energy
  • Sugar Mills in India Reduce Output Estimate as Rains Hurt Yields

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 


March 6, 2014

March 6, 2014 - Slide1 

BULLISH TRENDS

March 6, 2014 - Slide2

March 6, 2014 - Slide3

March 6, 2014 - Slide4

March 6, 2014 - Slide5

March 6, 2014 - Slide6

March 6, 2014 - Slide7

March 6, 2014 - Slide8

BEARISH TRENDS

March 6, 2014 - Slide9

March 6, 2014 - Slide10

March 6, 2014 - Slide11

March 6, 2014 - Slide12


Price-Fixing Crisis

This note was originally published at 8am on February 20, 2014 for Hedgeye subscribers.

“Government policy is the primary cause of the financial crisis.”

-John Allison

 

That’s “fundamental theme” #1 in one of the most important post 2008 market crisis books – Chairman (and former longstanding CEO of BB&T Bank), John Allison’s The Financial Crisis and The Free Market Cure.

 

As I was taking a few pseudo vaca days with my kids (if you own a small business in America, there are no bailouts – no real vacations either – and real capitalists like that), I was struck by the simplicity of what hasn’t changed in this country – government price fixing.

 

Price-Fixing Crisis - go2

 

Yep, that’s what Allison and anyone who has studied economic #history calls it too (plenty of big time capitalists like Charles Koch agree). That’s what “forward rate guidance” by the Fed really is; it’s also what Presidential executive orders on minimum wage hikes and Policies to Inflate via currency devaluation are. Inflation is an un-elected tax that politicians aren’t accountable to. That’s why they cheer it on.

 

Back to the Global Macro Grind

 

Who needs to cheer for Latvia’s hockey team when you can wake up in America watching the Treasury Secretary (Jack Lew) whine about taxes (consumer price inflation) on European consumers being “too low.” Heck, the descendent of Geithner and Wesley Mouch is egging on the Japanese to burn its currency at the stake too.

 

Not to be outdone, the Congressional Budget Office is now analyzing what Obama thinks is his only way out of the tax he and Bush had the Bernanke impose on America’s poor (Down Dollar, Food/Energy Inflation) – wage inflation. My brother runs a McDonald’s franchise – ask him how many new stores he’ll be interested in opening if food costs rip and his “poor” employees cost him 10-20% more…

 

In other central planning news, Venezuela is “expelling” US diplomats this morning for “undermining the government.” Evidently some of these Americans aren’t yet socialist enough. Argentina and Venezuela are realizing the other side of currency devaluation, debt-rising, and #InflationAccelerating this morning – it’s called social unrest.

 

#InflationAccelerating? Who the heck does this Canadian think he is making that call without the government’s approval?

  1. US Dollar is down again this morning = down for 3 consecutive weeks, and now negative for 2014 YTD
  2. CRB Commodities Index (19 commodities) was up another +1.1% yesterday to a fresh 52-wk high of 302 (+7.9% YTD)
  3. Natural Gas is up (again!) this morning to $6.20 = +46.7% YTD (they don’t have heat or air conditioning in Washington)

I know, I know. It’s all the weather. Wages, Rents, Schooling – Facebook paying $16B for “WhatsApp”, Candy Crush going public – all of it!

 

But, but, the US stock market (SP500) is only down -1.1% YTD. And:

  1. Slow-growth Gold is +9.3% YTD
  2. Slow-growth-yield-chasing Utilities (XLU) are +5.9% YTD
  3. Lever-yourself-up-long Real Estate (REITS) are +7.5% YTD

Yep. As #InflationAccelerates, 71% of the US economy (consumption) gets A) taxed and B) slows:

  1. US Consumer Discretionary Stocks (XLY) are -3.2% YTD
  2. Consumer Staples Stocks (XLP) are -3.4% YTD
  3. Financials (XLF) are -2.2% YTD

But, don’t worry about it – when the weather improves, it’s all coming back – all of it.

 

Wait a minute. Will the spring in the Northeast change US monetary and fiscal policy? Or, as the economy slows, will Lew and Yellen quintuple down on the Down Dollar, Down Rates, House Flipping American Dream?

 

How’s that working out for Barney Frank and Ben Bernanke btw? US Mortgage Purchase Applications were down another -6% last week (after being down -5% in the week prior), testing post 2008 crisis lows. Imagine that, as the purchasing power of Americans falls alongside interest and savings rates, there are less lemmings this time who are going to join Than Merrill’s “Flip This House!”

 

John Allison’s book is a Top-10 on my shelf because he explains the basics of economics that we attempt to articulate each and every risk management morning. Two more of his “Fundamental Themes” are:

  1. “Government policy created a bubble in residential real estate”
  2. “Almost every government action taken since the crisis started (even those that may help in the short-term) will reduce the standard of living in the long-term”

#Agreed

 

And sometimes the short-term morphs into the long-term a lot faster than consensus government policy apologists think…

 

Our immediate-term Macro Risk Ranges are now:

 

SPX 1809-1848

Nikkei 14083-14992

VIX 12.76-16.99

USD 79.82-80.51

Natural Gas 5.34-6.22

Gold 1291-1336

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Price-Fixing Crisis - Chart of the Day

 

Price-Fixing Crisis - Virtual Portfolio


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