prev

ICI Fund Flows, Refreshed: More Equity Choppiness

Takeaway: Taxable bonds have just put up their 18 consecutive week of inflow assisted by tax-free inflows at 22 consecutive weeks.

This note was originally published June 19, 2014 at 08:28 in Financials

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, bond fund flows in both taxable and tax-free products had solid production producing inflows last week over the year-to-date running averages. This intermediate term trend for fixed income is highlighted by 18 consecutive weeks of inflow into taxable bonds assisted by 22 consecutive weeks of inflow into tax-free fixed income funds. Conversely, equity funds had another choppy week with domestic stock fund outflows, the 7th consecutive week, offset by international stock fund inflows.

 

ICI Fund Flows, Refreshed: More Equity Choppiness - w34

 

Total equity mutual funds put up a modest inflow in the most recent 5 day period ending June 11th with $2.2 billion coming into the all stock category as reported by the Investment Company Institute. The composition of the $2.2 billion subscription continued to be weighted towards international equity funds with $3.7 billion coming into international stock funds which was offset by a $1.4 billion outflow in domestic products. This outflow within domestic equity funds has become an intermediate term trend with now the seventh consecutive week of outflow in the category. The aggregate subscription of $2.2 billion for the recent five day period was below the year-to-date average for equity funds of a $2.6 billion inflow, which is now running below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual fund flows had a solid week of production with the aggregate $2.3 billion that came into the asset class besting the 2014 running year-to-date average inflow of $2.0 billion. The inflow into taxable products of $1.8 billion was the 18th consecutive week of positive flow and the inflow into municipal or tax-free products of $527 million was the 22nd consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $2.0 billion weekly inflow, an 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). 

 

ETFs had a mixed showing versus mutual funds last week with equity ETFs putting up a strong week of production offset by weak passive bond flows. Equity ETFs experienced a robust $8.6 billion inflow, while fixed income ETFs put up a meager $137 million subscription. The 2014 weekly averages are now a $1.1 billion weekly inflow for equity ETFs and a $1.2 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 $8.3 billion spread for the week ($10.8 billion of total equity inflow versus the $2.4 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 $6.9 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 Flows, Refreshed: More Equity Choppiness - cast1

 

 

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

 

ICI Fund Flows, Refreshed: More Equity Choppiness - ICI chart2

 

ICI Fund Flows, Refreshed: More Equity Choppiness - ICI chart3

 

ICI Fund Flows, Refreshed: More Equity Choppiness - ICI chart4

 

ICI Fund Flows, Refreshed: More Equity Choppiness - ICI chart5

 

ICI Fund Flows, Refreshed: More Equity Choppiness - ICI chart6

 

 

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

 

ICI Fund Flows, Refreshed: More Equity Choppiness - ICI chart7

 

ICI Fund Flows, Refreshed: More Equity Choppiness - ICI chart8

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $8.3 billion spread for the week ($10.8 billion of total equity inflow versus the $2.4 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 $6.9 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 Flows, Refreshed: More Equity Choppiness - ICI chart9 

 

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com


June 25, 2014

June 25, 2014 - SLIDE 1

 

BULLISH TRENDS

June 25, 2014 - 2

June 25, 2014 - 3

June 25, 2014 - 4

June 25, 2014 - 5

June 25, 2014 - 6

June 25, 2014 - 7

June 25, 2014 - 8

 

BEARISH TRENDS

 

June 25, 2014 - 9

June 25, 2014 - 10


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 25, 2014


As we look at today's setup for the S&P 500, the range is 37 points or 1.28% downside to 1925 and 0.62% upside to 1962.                                                  

                                                                             

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: 2.08 from 2.12
  • VIX closed at 12.13 1 day percent change of 10.47%

 

MACRO DATA POINTS (Bloomberg Estimates):            

  • 7am: MBA Mortgage Applications, June 20 (prior -9.2%)
  • 8:30am: Durable Gds Orders, May, est. 0.0% (pr 0.8%, rev 0.6%)
  • 8:30am: GDP Annualized, 1Q, est. -1.8% (prior -1%)
  • 9:45am: Markit US Composite PMI, June (prior 58.4)
  • 9:45am: Markit Services PMI, est. 58.0 (prior 58.1)
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to purchase $2.25b-$2.75b in 2021-2024 sector

 

GOVERNMENT:

    • Cochran, Lankford win; Rangel race still close in N.Y.
    • Israeli President Peres has lunch with President Obama at White House
    • 10am: Supreme Court issues rulings
    • 10am: Sen. Homeland Security and Government Affairs Cmte votes on Shaun Donovan’s nomination to be OMB director
    • 10am: Sen. Judiciary Cmte hearing on legislation designed to strengthen Voting Rights Act
    • 10am: House Foreign Affairs Cmte hears from James Dobbins, State Dept representative for Afghanistan and Pakistan, on Afghanistan’s transition
    • 10am: Senate Banking Cmte votes on nominations of Julian Castro to lead HUD, Laura Wertheimer to be inspector general of FHFA
    • Treasury Sec. Jack Lew testifies on Financial Stability Oversight Council’s annual report to Congress
    • 10am: House Financial Services Cmte hearing on reauthorizing Export-Import Bank, witnesses incl. Delta CEO Richard Anderson, Ex-Im President Fred Hochberg

               

WHAT TO WATCH:

  • Obama said to be preparing sanctions on Russian industries
  • Exchanges get test to curb dark-pool trading in SEC program
  • SEC orders exchanges to start pilot for wider ticks
  • Abbvie seen having to raise Shire bid to $51b for deal
  • News Corp. faces possible corporate charges after hacking trial
  • Cochran survives Mississippi runoff as Tea Party suffers loss
  • For more election news, ELECT <GO>
  • Hazard insurers may face suit over fees for Fannie-Freddie
  • Obama administration seen widening exports for shale oil
  • Marriott sees revenue boost as global economy recovers
  • LVMH, Constellation Brands may bid for Treasury Wine: AFR
  • France sells GDF stake for $2b as state seeks Alstom cash
  • Silverstein said to seek private funding for 3 World Trade tower
  • Best Buy said to explore options for China business: WSJ
  • DuPont is more likely suitor for Syngenta, Nomura says
  • Google to introduce Android TV set-top box: WSJ
  • American Apparel founder to seek $23m-$25m severance pay: FT
  • China’s postal savings bank said to plan $4b IPO
  • Google courting developers as device sprawl creates hard choices
  • GoPro touts content ahead of IPO for higher value than cameras

 

EARNINGS:

    • Apollo Education (APOL) 4:01pm, $0.66
    • Barnes & Noble (BKS) 8:30am, $(0.49)
    • Bed Bath & Beyond (BBBY) 4:15pm, $0.95
    • General Mills (GIS) 6:58am, $0.72 - Preview
    • HB Fuller (FUL) 5:20pm, $0.78
    • Herman Miller (MLHR) 4pm, $0.46
    • Lindsay (LNN) 7am, $1.41
    • Monsanto (MON) 8am, $1.55 - Preview

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Iron Ore Outlook Cut by Australia as Global Supplies Spur Glut
  • WTI Pares Gains as U.S. Export Ruling Seen Limited; Brent Falls
  • Obama Administration Seen Widening Exports for Shale Oil
  • Aluminum Advances to Two-Week High as Bookings Surge to Record
  • Soybeans Rise Amid Concern of Crop Damage as Inventories Slide
  • Gold Falls After Advance to Two-Month High Seen Spurring Sales
  • Crop Sowing Delayed by Weak India Monsoon Threatening Prices
  • Steel Rebar Rises to Highest in Three Weeks as Iron Ore Gains
  • Koch to Start European Power Trading as It Plans LNG Expansion
  • Ghana Cocoa Seen Damaged Without Pesticides From Government Soon
  • Commodity Investor Interest Seen by Bank of America Picking Up
  • Russia Joins Turkey Boosting Gold Reserves as Ukraine Cuts: IMF
  • China’s Gas Consumption May Surge 64% by 2017 on Energy Shift
  • Raw Sugar Drops for 3rd Session Before Unica Report; Cocoa Gains

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side?

Takeaway: Right now may be a bit early, but gold is shaping up to be a compelling long idea heading into 2014.

(Editor's note: This macro note "Gold: Is It Time to Get Back In on the Long Side?" was originally published on November 26, 2013. Hedgeye remains the non-consensus bull on Gold. It is up over +9% since 12/31/13.

 

CONCLUSION: Keith summed up our latest thoughts on gold in a brief @HedgeyeTV video this afternoon: http://www.youtube.com/watch?v=COWDQhsI3jI. The note below expands upon those high-level thoughts in greater detail, including our updated cyclical outlook for the US economy.

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - goldd

 

Since the start of NOV, Keith has been trading gold with a bullish bias in our Real-Time Alerts signaling product. This has been a marked shift from having traded gold with a largely bearish bias since late 2011.

 

From a fundamental perspective, we now anticipate the emergence of distinct tailwinds that are increasingly likely to materialize over the intermediate term. As we detailed in last Friday’s Early Look, we think the most probable cyclical GIP outlook for the US economy is as follows:

 

  1. #GrowthSlowing: We think monetary and fiscal policy uncertainty (mostly monetary policy uncertainty) will weigh on consumer and business confidence. Furthermore, GDP comps get difficult as CPI/GDP deflator comps get easier, at the margins.
  2. #InflationAccelerating: We think domestic disinflation is now a rear-view phenomenon as easy comps and a weak dollar provide upward pressure on CPI and PPI readings.
  3. #IndefinitelyDovish Monetary Policy: We are increasingly of the view that the Fed is aware of the systemic risk present in the bond market and is potentially setting up to never commence tapering. They will likely accomplish this by setting far-too-aggressive targets for GDP growth and shifting their focus to combating a perceived risk of deflation, at the margins.

With regards to points #1 and #2, the confluence of #GrowthSlowing and #InflationAccelerating puts an economy squarely in Quad #3 on our GIP model:

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - gold1

 

Historically, moves by the US into Quad #3 have been bullish for the price of gold, as both the US dollar and real interest rates tend to decline in this economic “state”; the opposite holds true on a move into Quad #1 (i.e. #GrowthAccelerating as #InflationAccelerates), which is where both the reported data and consensus expectations have tracked throughout much of 2013. Given where we’ve been on growth and inflation for much of the year, it would be modest to say that we are not surprised to see gold down almost -26% YTD (we’ve been the bears on gold for much of the past 12-18M).

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 2

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 3

 

Again, we think monetary and fiscal policy uncertainty (mostly monetary policy uncertainty) will weigh on consumer and business confidence and we’re already starting to see that in the high-frequency data:

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 4

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 5

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 6

 

That brings us squarely to point #3 as laid out above: we think Janet Yellen will prove to be the Mother-Of-All-Doves and, perhaps more importantly, we don’t think consensus agrees with this view. The latter point can be seen squarely in the aggregate futures and options positioning amongst speculators (the market has swung heavily into a net short bet on LT Treasuries):

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 7

 

With regards to how the Fed might get there, we continue to think they are out-to-lunch (i.e. way too high) with respect to their 2013E and 2014E GDP growth forecasts. Moreover, they are well below consensus on their 2013 and 2014 inflation estimates and the confluence of both gives them scope to:

 

  1. Not feel any pressure to taper in the next few months (because of the perceived “threat” of deflation); and
  2. Reset market expectations in the following months for when tapering will likely commence to consistently later-than-expected start dates (because growth, and the labor market, will likely surprise their expectations to the downside).

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 8

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 9

 

There are two caveats to the aforementioned charts:

 

  1. Our forecasts for growth and inflation in 2013E and 2014E are not locked in and are highly subject to change as new data feeds into the algorithm. What our GIP model is designed to do is provide a manageable range for the most probable directional adjustment(s) from the base rate in the absence of incremental evidence. Unlike traditional economic models, we don’t subscribe to the lick-your-finger method of making groundless assumptions about the future state(s) of the economy. Rather, we prefer to let market-based signals and fundamental (i.e. high-frequency) data guide our expectations on a rolling basis.
  2. The Fed’s forecasts for inflation are for the Core PCE Price Index, not headline CPI. It is very likely that Core PCE does not materially blow through the upside of the Fed’s official target given that: A) the target is a healthy +2% (and potentially higher if they decide to move the goalposts again); and B) there won’t be a ton of upside pressure on the rate of core inflation (via pass-through costs) if headline inflation isn’t projected to come in much higher than that.

 

All told, we think a waning threat of tapering, at the margins, is likely to serve as a positive catalyst for the price of gold – and other inflation hedge assets – over the intermediate term. The following chart, put together by our very own Christian Drake, highlights the causal relationship between #TaperTalk and the precipitous decline in the price of gold over the LTM:

 

FLASHBACK | Gold: Is It Time to Get Back In on the Long Side? - 10

 

Are you prepared for Janet Yellen to be a lot more dovish than the market currently thinks she will be? History would side with those of you who are, in fact, getting prepared for just that. The following is an excerpt from a late-2005 speech she gave on the housing bubble to the Conference on US Monetary Policy:

 

  • “How, then, should monetary policy react to unusually high prices of houses—or of other assets, for that matter?... The debate lies in determining when, if ever, policy should be focused on deflating the asset price bubble itself.”
  • “In my view, it makes sense to organize one’s thinking around three consecutive questions—three hurdles to jump before pulling the monetary policy trigger. First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble?”
  • “My answers to these questions in the shortest possible form are, “no,” “no,” and “no.””
  • “In answer to the first question on the size of the effect, it could be large enough to feel like a good-sized bump in the road, but the economy would likely to be able to absorb the shock.”
  • “In answer to the second question on timing, the spending slowdown that would ensue is likely to kick in gradually, because it mainly affects household wealth… So the impact of a gradual spending slowdown could well be cushioned by an easier policy.”
  • “In answer to the third question on whether monetary policy is the best tool to deflate a house-price bubble, there are several points to consider. For one thing, no one can predict exactly how much tightening would be needed, or by exactly how much the bubble should be reduced. Beyond that, a tighter policy to deflate a housing bubble could impose substantial costs on other sectors of the economy that would lead to equally unwelcome imbalances.”
  • “Taking all of these points into consideration, it seems that the arguments against trying to deflate a bubble outweigh those in favor of it. So, my bottom line is that monetary policy should react to rising prices for houses or other assets only insofar as they affect the central bank’s goal variables—output, employment, and inflation.”

 

CLICK HERE to access the full transcript of the speech.

 

Alas, if you thought her predecessor was cool with inflating the bond bubble and all the other intended and unintended #BernankeBubbles, then, by the looks of it, you haven’t seen anything yet. That is, of course, assuming a 67-year-old woman who’s been doing and saying the same exact things for ~50 years doesn’t have a massive change of heart upon taking office as the world’s most important government official – if not human being.

 

In the history of central planning, crazier things have happened, though. Stay tuned…

 

Darius Dale

Associate: Macro Team


Poll of the Day Recap: 60% Voted For Clear Spirits

Takeaway: 60% voted for Clear Spirits, 40% voted for Brown Spirits.

Hedgeye’s Consumer Staples team is interested in consumption trends of spirits as part of its alcoholic beverage coverage universe. So for today’s poll, we wanted to know what you're consuming more of this year; brown spirits (whisky, scotch, bourbon, brandy, cognac) or clear spirits (vodka, gin, rum, tequila, sake). Our poll question was straightforward:

 

Are you drinking more brown spirits or clear spirits this year versus last?

 

 

At the time of this post, 60% voted for Clear Spirits, 40% voted for Brown Spirits.

 

Those who voted for Clear Spirits had this to say:

  • I drink both bourbon and gin and have enjoyed exploring many of the new boutique products in both categories, but have spent more time exploring the gins.  There a simply a lot more to choose from now than a year or two ago.
  • I like to nurse scotch in the winter, but prefer clearer spirits in mixed drinks over the spring and summer, even leading into the early part of the autumn.  It's a seasonal issue.

Voters who chose Brown Spirits had this to say:

  • Recently, I have settled down a bit and my trend is more towards darker spirits, but much less consumption.  Back in my high consumption and possibly alcoholic days, I would consume large amounts of clear spirits. So overall, I think clear spirits have more potential to be consumed in mass, and if I were to suddenly decide to get re-open that can of worms, it would probably be back to the clear spirits if I were planning on buying in bulk and also consuming in bulk.
  • I'm not a character from Sex and The City. Clear spirit guys, enjoy your cosmopolitans with the little umbrellas!


DRI: MANAGEMENT'S PERPETUAL, MISGUIDED VISION

Upon further review of Darden’s disastrous 4Q earnings release and outlook for FY15, we have updated some of our thoughts on the company’s vision for the future.  To be clear, following the divestiture of Red Lobster, we believe the company will struggle to pay its current dividend in FY16 without levering up.

 

For the sake of shareholders, Starboard must get control of the Board on September 30th.  Without a change of this magnitude, shareholders can expect more of the same: dismal returns, value destructive initiatives, and a complete disregard for shareholder concerns.

 

We’ve attached our commentary in a 12 page slide deck below.

 

CLICK HERE

 

Call with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next