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Poll of the Day Recap: 81% Say Yes, Central Planners Are Destroying America

Takeaway: 81% said YES; 19% NO.

Bestselling, “Death of Money” author Jim Rickards discussed with Keith McCullough on HedgeyeTV last week how central bankers are destroying America.

 

We wanted to know if you agreed with Rickards, so we asked in today’s poll: Are central planners destroying America?

 

Poll of the Day Recap: 81% Say Yes, Central Planners Are Destroying America - Capitol in Ruins

 

At the time of this post, a clear 81% majority said YES; 19% NO.

 

These YES voters firmly (and even passionately) explained their choice:

 

  • “Fiscal policy hasn’t been and still isn’t able to induce sufficient real growth, so central bankers are committed to inducing sufficient inflation to attain and maintain a sustainable trend of deficit spending. Current monetary policy of currency devaluation robs the majority of their wealth given their insufficient allocation for greater inflation and understanding of sudden (market sentiment change)/(loss of confidence in the dollar).”

 

  • “Yes for several reasons, but mainly they have failed at creating the inflation they wanted and instead are getting the inflation you don't want (low wages, higher food prices). The low USD valuation is having long-term effects not just on purchasing power, but on economy/employment because of weak consumer purchasing power. Overall, I agree with Rickards that this is going to cost us our position as world currency leader. And, when that shoe falls, I hope not to be in the country or at least in Oakland, CA.”

 

  • “A country's currency is the best way to measure its economic strength. But our Fed is deliberately shooting our country on the foot. WTF!!! “

 

Of those who explained why they voted NO, one person said to “Buck up and play the game,” while another said, “Don't be consensus.”

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LO and RAI Off To The Races, Again Takeout Rumors

The tobacco rumor mill stirred up late yesterday with the London Times reporting that BAT could buy its remaining share of RAI (58%) and/or that RAI is looking to buy LO.  The Times mentioned that BAT sought out Deutsche Bank as an advisor for a possible deal; we’ll note here that these are not “new” rumors as BAT has been exploring potential deals since last year, and since mid-March of this year the rumor mill on a RAI-LO deal swirled heavily. 

 

Two weeks ago this same rumor “excitement” contributed to a +8.5% w/w move in LO’s stock price, however last week was apparently “rumor off” week and the stock was basically flat.

 

We maintain that this rumor flow continues to be a great tailwind for our Best Idea Long Call Lorillard that we presented on March 4 of this year, with a longer term price target of $80/share.

 

We maintain that a hypothetical deal (especially an imminent one) between RAI and LO is challenged:

  • Our main flag is that a combined RAI + LO would own ~ 67% of U.S. menthol market, which we believe should trigger anti-trust flags.
  • Big tobacco is already a highly concentrated industry in the U.S. across the big three – MO has a leading ~51% of market share; a combined RAI + LO would equate to ~ 42% share.   

RAI could look to divest such menthol brands as Kool, Winston and Salem (~5% total market share), which could serve to change the consideration of the FTC/DOJ.

 

We’re not surprised to hear rumors that LO is a take-out target. Underlining our Best Idea Long Call on Lorillard in early March was the strength of its portfolio:

  • Leading share and profitability of its core menthol business,
  • Our belief in the limited menthol regulatory risk over the longer term (substantiated by a Washington, D.C. tobacco expert), and
  • Upside growth in its blu e-cigarette business that commands leading share in the U.S.

As part of the Best Idea’s thesis we did not consider a RAI + LO deal. We also think the recent announcement that Susan Cameron will replace Daan Delen on May 1 could also be fueling some speculation that she wants to come out of the box “strong” – which is drumming up rumors about this deal. 

 

Below we’ve outlined our TREND duration over the intermediate term (3 month); appreciation to our $80/share target would be +35% higher than today’s price.

 

LO and RAI Off To The Races, Again Takeout Rumors - lo lo new

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst



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MACAU: SOLID 2ND WEEK CONSIDERING END OF GOLDEN WEEK

No change to our full month forecast of +20% YoY growth following the release of this past week’s table revenues.  Daily table revenues (DTR) averaged HK$1,001 million this past week, up 25% YoY.  As expected, DTR softened sequentially following the end of the Golden Week holiday but was up nicely YoY.  Month to date DTR are tracking up 16%.  Fears of a significant VIP slowdown continue to be proven unfounded. 

 

In terms of market share, LVS and MPEL are tracking below recent trend, consistent with April’s results.  We believe MPEL continues to be impacted by some junket liquidity issues more than the other casino operators.  WYNN and MGM are tracking above (go peninsula!).  WYNN remains our favorite operator given the potential for market share gains, particularly in VIP.  

 

MACAU: SOLID 2ND WEEK CONSIDERING END OF GOLDEN WEEK - macau1

 

MACAU: SOLID 2ND WEEK CONSIDERING END OF GOLDEN WEEK - macau2


Fund Flows, Refreshed

Takeaway: Last week's data reveals significant deceleration in equity fund flows, capping off a week of less-than-stellar performance.

Editor's Note: This research note was originally sent to subscribers on May 8, 2014 by Hedgeye’s Financials team Jonathan Casteleyn & Josh Steiner. Follow Jonathan & Josh on Twitter @HedgeyeJC and @HedgeyeFIG.  

Fund Flows, Refreshed - OB IB046 1pay04 G 20100405173327  

ICI Mutual Fund Data & ETF Money Flow

 

In the most recent 5 day period, absolute money flow into both equity and fixed income mutual funds fell week-to-week, with domestic equity funds booking the biggest outflow all year. 

 

Total equity mutual fund flows had their biggest redemptions year-to-date with over $3.8 billion being yanked from stock funds with the leading culprit the U.S. domestic stock category. Of the $3.8 billion that flowed out of all equity mutual funds during the most recent 5 day period ending April 30th, $3.9 billion came out from domestic equity funds which was saved by a slight $104 million inflow from international stock funds. This outperformance from foreign equity products has been consistent over the past two years with international stock fund inflow having averaged $2.5 billion per week thus far this year in addition to the $2.6 billion inflow averaged per week last year in 2013 versus domestic fund trends averaging an inflow of just $932 million 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 $3.5 billion, a slight improvement from the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual fund flow also decelerated on a w/w basis, although managing to leg out a slight inflow for the week. For the five day period ending April 30th, $931 million flowed into all fixed income funds, as opposed to last week's much stronger $2.3 billion inflow. The deterioration of bond fund inflow this week was the result of only $602 million that flowed into taxable products and $329 million that flowed into tax-free or municipal products. The inflow into taxable products this week was the 12th consecutive week of positive flow and the inflow into municipal or tax-free products was the 16th consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.8 billion weekly inflow, a vast improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 

 

Exchange traded funds (ETFs) had a strong showing this week, with a notable weekly subscription for equity ETFs, which experienced an inflow of $4.0 billion. The previous week saw only $193 million inflow into stock ETFs. Bond ETFs fell slightly this week, still, the $818 million inflow was only slightly below the previous week's $1.2 billion inflow. The 2014 weekly averages are now a $920 million weekly inflow for equity ETFs and a $896 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 $1.6 billion spread for the week ($148 million of total equity inflow versus the $1.7 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 $7.8 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. 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.   

 

Fund Flows, Refreshed - 1.3

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product

 

Fund Flows, Refreshed - 2

 

Fund Flows, Refreshed - 3

 

Fund Flows, Refreshed - 4

 

Fund Flows, Refreshed - 5

 

Fund Flows, Refreshed - 6

 

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

 

Fund Flows, Refreshed - 7

 

Fund Flows, Refreshed - 8

 

Net Results

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $1.6 billion spread for the week ($148 million of total equity inflow versus the $1.7 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 $7.8 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). 

 

Fund Flows, Refreshed - 9.2 

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