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Join Today's Call: Marijuana Legalization: The Debate Begins. 2pm EST

We look forward to hosting a special call Marijuana Legalization: The Debate Begins, featuring Dr. Beau Kilmer, Codirector of RAND Corporation’s Drug Policy Research Center, today at 2:00pm EDT.

 

 

CALL OBJECTIVE 

Dr. Kilmer will provide a framework for assessing the marijuana policy landscape, incorporating his studies on drugs as a RAND researcher and specifically his work on marijuana legalization. He’ll discuss such topics as State versus Federal regulation, the key decisions policy makers face, his “8 Ps” framework, and social costs. We look forward to a robust Q&A on this very hot topic.

 

Join Today's Call: Marijuana Legalization: The Debate Begins. 2pm EST - pic. Smoking Marijuana Hit

 

ABOUT DR. BEAU KILMER

Beau Kilmer is a senior policy researcher at the RAND Corporation, where he codirects the RAND Drug Policy Research Center. He is also a professor at the Pardee RAND Graduate School. His research lies at the intersection of public health and public safety, with a special emphasis on substance use, illicit markets, crime, and public policy.

 

Some of his current projects include estimating the size of illegal drug markets, assessing the consequences of alternative marijuana policies, measuring the effect of South Dakota's 24/7 Sobriety Program on drunk driving and domestic violence outcomes, and evaluating other innovative programs intended to reduce violence.

 

Dr. Kilmer's research has appeared in leading journals such as AddictionAmerican Journal of Public HealthJournal of Quantitative CriminologyProceedings of the National Academy of Sciences, and his essays have been published by the BBCCNNLos Angeles TimesNew York TimesWall Street Journal, and USA Today.

 

His book Marijuana Legalization: What Everyone Needs To Know (co-authored with Jonathan Caulkins, Angela Hawken, and Mark Kleiman) was published by Oxford University Press in 2012. Before earning his doctorate at Harvard University, Kilmer received a Judicial Administration Fellowship that supported his work with the San Francisco Drug Court. 

 

 

CALL DETAILS

Toll Free Number:

Direct Dial Number:

Conference Code: 547194#

Materials: CLICK HERE (Supplemental materials will be available approximately one hour prior to the start of the call)

 

Please email  for more information.

 

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst

 



Seeking Revenge

“If you prick us do we not bleed? If you tickle us do we not laugh? If you poison us do we not die? And if you wrong us shall we not revenge?”

-William Shakespeare

 

For those who called it a bubble, the tech sector is seeking its revenge this morning.   Two of the mighty horsemen of technology, namely Facebook and Apple, exceeded expectations and as a result the Nasdaq is trading 1.5% higher this morning according to the futures market.

 

Seeking Revenge - fba

 

One of our top contrarian sources, The Street (known as the street.com in the last tech bubble) actually predicted this rally.  Specifically, two days ago the headline on The Street was, “What Will Cause Tech Stocks to Plunge?”   Funnily enough,  Jim Cramer from The Street (retire already Jimbo!) actually critiqued one of the world’s top hedge funders yesterday for not making enough money on the social media swoon in March. 

 

But, enough talk of side shows and carnival barkers, we actually had some legitimate questions on yesterday’s Early Look on this idea of bubbles and an insightful subscriber from London emailed us back with the following question:

 

“I’m also not sure why you’re so convinced that we’re in a Social Media bubble. Some Internet stocks are highly valued sure but for the likes of FB and LNKD these are real businesses with major competitive advantages, why are you so bearish on these too?”

 

Our Internet Analyst Hesham Shaaban had a thoughtful response, which included the following:

 

“The reason why valuations are so high is because of elevated growth expectations, which you can see in the table below.  The market sees Social Media as one collective industry, assuming the rising tide will carry all ships, and historical growth is a sign of things to come. 

 

Social Media is not one industry.  These players have varying business models, revenue sources, and growth prospects.  We see at least 2 big losers in the group (TWTR and YELP), and once growth expectations come in, their multiples will collapse with it.”

 

In the table directly below, we’ve included a summary of the growth expectations and valuations of $FB, $LNKD, $TWTR, and $YELP.  Certainly if there is a bubble, it is not that all of these companies have broken business models (though we believe some do), but rather, as Shakespeare also said, that expectations are the root of all heartache.  (Email us at if you’d like to be added to an institutional trial of our internet research.)

 

Seeking Revenge - chart of day

 

Back to the Global Macro Grind...

 

One of our other favorite contrarian sources, Peter Tchir from TF Markets, actually made a great contrarian statement on Twitter the other day (you can follow him @tfmkts if you’d like access to the contrarian signal) when he tweeted that he wasn’t a bear on housing. 

 

Ironically, in many ways, the housing market and the principal supply-demand-price dynamics underneath it are rather straightforward.  Admittedly, in other, sometimes very mechanical ways, understanding the prevailing trends in the housing market can be challenging for the uninitiated or marginally interested.

 

So, what’s the current state of housing?

 

Across the 22 primary metrics we track as part of our housing compendium monitor, 15 have worsened sequentially and 18 have worsened from a trend perspective. 

 

Indeed, the housing data released over the last few days offered further support to our expectation for an intermediate term #HousingSlowdown as current demand metrics (Existing & New Home Sales) continued to wane, while mortgage application data is signaling a further deceleration in forward transaction activity.   

 

That the deceleration in activity is occurring in the face of both the positive shift in weather and declining interest rates makes it that much more notable.  

 

To quickly review this week’s data:

  • Mortgage Applications:  The composite MBA mortgage application index declined -3.3% WoW as the Purchase Applications and Refinance sub-indices hit new lows in YoY growth.  As it stands, Purchase Applications are down -19.3% off the May 2013 peak and -18.5% YoY while refinance activity is down -71% YoY!
  • Existing Home Sales:  Existing Home Sales declined -0.2% MoM and -8% YoY.  The March decline marks the 3rd month of  negative year-over-year growth and a third straight month of accelerating decline.  Sales were down across  all geographies with the West region again leading the declines
  • New Home Sales:  New Home sales declined -13% YoY, marking the 1st month of negative year-over-year growth since September of 2011.   The Northeast was the lone region recording a MoM increase in sales while year-over-year sales growth declined across all geographies.

So, the demand deceleration has been both significant, geographically pervasive and has extended through March / April – all of which confute the "it’s the weather" in isolation thesis.  

 

While weather probably exaggerated some of the underlying weakness to start the year, we continue to think that the collective impact of stagnant income growth, declining affordability, a reversal in institutional interest, and the implementation of QM regulations will serve to pressure housing demand over the intermediate term.  

 

Home price growth, which follows the slope of demand on ~18mo lag, will follow the demand deceleration.   Given that home prices have a very high correlation to discretionary spending and the U.S. economic output is 70% driven by the consumer, we see the slowdown in housing as a looming headwind for economic growth domestically.  Aye, there’s the rub!

 

Our immediate-term Global Macro Risk Ranges are now as follows:

 

UST 10yr Yield 2.59-2.73%

SPX 1

VIX 13.02-14.72

NatGas 4.63-4.80

Gold 1 

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research


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April 24, 2014

April 24, 2014 - Slide1

BULLISH TRENDS

April 24, 2014 - Slide2

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April 24, 2014 - Slide7

April 24, 2014 - Slide8 

BEARISH TRENDS

April 24, 2014 - Slide9

April 24, 2014 - Slide10

April 24, 2014 - Slide11
April 24, 2014 - Slide12


It's The Fed's Fault

This note was originally published at 8am on April 10, 2014 for Hedgeye subscribers.

“And oftentimes excusing of a fault, doth make the fault the worse by the excuse.”

-William Shakespeare

 

As we high-earning commoners read the inflationary “minutes” from our un-elected overlords @FederalReserve yesterday, we gave thanks and praise for not being the 80% of America that will be plundered by them.

 

To be, or not to be plundered (by the aristocracy)? That remains the question that my man William asked The People over 400 years ago. In storytelling terms, Shakespeare’s questioning of the perceived wisdom of his day is timeless.

 

The aforementioned quote comes from The Life and Death of King John. But what will become of thy modern day central planning Queen Yellen? “Here once again she sits; once again crown’d”… and in real-life terms, the poor are getting hungrier…

 

Back to the Global Macro Grind

 

BREAKING: “Beef Price Hits All-Time High” –LA Times

 

It's The Fed's Fault - cow

 

And whilst all-time is by many considered a very long time, whatever you do, do not call this #InflationAccelerating! Immediately after the Federal Reserve released their groupthink meeting “minutes” yesterday, commodities ripped to freshly squeezed YTD highs.

 

Orange juice (+18% YTD) or Coffee (+68% YTD) for breakfast anyone?

 

I know. Silly Mucker. This, according to the Keynesian jesters in the high court of devaluing the Dollar, is “non-core” to American life. Food prices +20% YTD (CRB Foodstuffs Index) and the broader commodities complex (CRB Index, 19 commodities) +10.7% YTD (versus the almighty Dow down YTD) is nothing but a manifestation of my own cherry picking. At least I can eat those.

 

But that your royal pleasure must be done, this act is as an ancient tale new told.” –Shakespeare

 

And that tale is called a Policy To Inflate. Calling it by any other name, would be un-American.

 

To review what brainiacs in academic call “causal”, this is how the Policy To Inflate works:

  1. The Fed says something along the lines of price fixing the rate of return on American Savings at 0%, forever
  2. Then the Global Currency Market reads price fixing as US Dollar Bearish (that’s why we have a 22% allocation to other FX)
  3. Then the Commodity, Gold Bond, and #YieldChasing community buys everything they can with Burning Bucks

#cool, eh?

 

For the 20% of us who can buy inflation and slow-growth, maybe. For the 80%, not so much. That’s why the emerging “inequality” in this country that has been perpetuated by both the Bush and Obama administrations is largely the Fed’s Fault.

 

Unfortunately, you can’t eat an iPad.

 

It's The Fed's Fault - Burning Cash

 

If you’re in the top quintile of Americans (yes, most of you reading this are), you don’t have to worry about your kid dropping the next $700 burning bucks on the Qe6 iPhone upgrade either – you just need to keep buying inflation in order to finance his/her spending:

  1. Gold up another +0.7% this morning to +10.1% YTD
  2. Slow-growth Utilities (XLU) up another +1.0% on the Fed “minutes” yesterday to +10.3% YTD
  3. #YieldChasing REITS up another +0.7% yesterday to +10.3% YTD too!

Yes, there is something eerie about all three of these things being up the same % per day and YTD (Hint: it’s called machines front-running the Fed – which, in turn, slows US real consumption growth).

 

In real-life, you’ll be getting paid in nominal terms today. Nominal means whoever is writing the checks doesn’t adjust your weekly comp as the value of your purchasing power falls (i.e. the things that you need to buy go up in price).

 

Nominal is always obfuscated by money printers and plunderers alike as real growth. As you can see from the Chart of The Day, nominal US consumption growth is on a death path to perdition (i.e. it’s both secular and cyclical). That’s largely the Fed’s Fault too.

 

Rather than rant any longer (see our newly minted Q2 Global Macro Themes slide deck for all the non-Fed propaganda details – 48 slides Sales@Hedgeye.com), I will leave you with the only solution to all of this (from King John):

 

“What you would have reform'd that is not well,
And well shall you perceive how willingly
I will both hear and grant you your requests”

 

Unfortunately all that is not well is not being reformed. Neither your Republican nor Democrat governments are hearing your requests. Both parties support weak Dollar policy. Excusing the Fed’s Fault this time will only make all of this worse.

 

Our immediate-term Global Macro Risk Ranges are now as follows:

 

UST 10yr Yield 2.63-2.75%

SPX 1830-1890

Nasdaq 4041-4203

VIX 13.11-15.67

USD 79.41-80.04

Gold 1295-1325

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

It's The Fed's Fault - Chart of the Day


ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds

Takeaway: In the most recent week both equity and fixed income flows were very light however equity production was the "less bad" of the two

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, absolute money flow into both equity and fixed income mutual funds declined week-to-week, although the slack in equity fund flow was less pronounced than fixed income:

 

Total equity mutual fund flow decelerated sequentially week-to-week, producing a tally below the 2014 year-to-date weekly average. The $2.3 billion that came into all equity mutual funds during the most recent 5 day period ending April 16th was split between a weak $636 million inflow into U.S. equity funds and the marginally stronger $1.7 billion that moved into international stock funds. This higher demand for foreign equity products has been consistent over the past two years with international stock fund inflow having averaged $2.9 billion per week this year and $2.6 billion per week last year in 2013 with domestic fund products averaging an inflow of just $1.3 billion thus far in '14 and a $451 million inflow last year in comparison. The 2014 running weekly average inflow for all equity mutual funds is now $4.1 billion, still an improvement from the $3.0 billion weekly average inflow for 2013. 

 

Fixed income mutual fund flow also decelerated week-to-week, reversing last week's trend lines in the product graphs below, which had displayed improving momentum for bond funds versus equity funds. For the week ending April 16th, $659 million flowed into all fixed income funds, as opposed to last week's $1.6 billion inflow. The worsening of bond fund inflow amounted to $630 million which flowed into taxable products and a mere $29 million inflow into tax-free or municipal products. Still, the inflow into taxable products this week was the 10th consecutive week of positive flow and the inflow into municipal or tax-free products was the 14th consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.9 billion 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 experienced moderately negative trends during the week, with a notable week of redemption in stock ETFs with $2.2 billion of net outflow. Bond ETFs experienced only a slightly positive inflow of $204 million for the most recent 5 day period. The 2014 weekly averages are now a $973 million weekly inflow for equity ETFs and a $931 million 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 $754 million spread for the week ($109 million of total equity inflow versus the $863 million 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 $7.5 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

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 - Lackluster fund flow in both Equity and Fixed Income Funds - 1

 

 

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

 

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 2

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 3

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 4

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 5

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 6

 

 

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

  

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 7

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 8

 

 

Net Results:

 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $754 million spread for the week ($109 million of total equity inflow versus the $863 million 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 $7.5 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

 

ICI Fund Flow Survey - Lackluster fund flow in both Equity and Fixed Income Funds - 9 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 


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