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ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered

Takeaway: U.S. stock funds put up their 12th consecutive week of outflow with bond fund inflows holding steady

Investment Company Institute Mutual Fund Data and ETF Money Flow:


In the most recent 5 day period, the combined equity mutual fund complex had a moderate outflow with $2.2 billion being redeemed from the category. The culprit was U.S. stock funds which experienced a $3.9 billion outflow, its 12th consecutive week of redemption which was slightly softened by a $1.7 billion inflow into global equity funds. Aggregate bond funds conversely, including both taxable and tax free products, netted another $2.4 billion in new investor subscriptions making it 22 of 23 weeks of taxable bond inflows with 25 of 26 weeks of positive subscriptions into tax-free or muni bonds. We are growing increasingly cautious on the trends in U.S. equity funds with accelerating market share gains by passive ETFs and also entering the seasonally slower Summer months and the volatile Fall period. The U.S. stock fund proxies are T Rowe Price (TROW) and Janus Capital (JNS).


Total equity mutual funds put up a moderate outflow in the most recent 5 day period ending July 16th with $2.2 billion coming out of the all stock category as reported by the Investment Company Institute. The composition of the $2.2 billion redemption continued to be weighted towards U.S. stock funds with $3.9 billion coming out of domestic equity funds which was offset by a $1.7 billion subscription into international equity products. This drawdown in domestic equity funds has become an intermediate term trend with now the 12th consecutive week of outflow in the category. The running year-to-date weekly average for equity fund flow is now a $1.7 billion inflow, which is now below the $3.0 billion weekly average inflow from 2013. 


Fixed income mutual fund flows had another decent week of production with the aggregate $2.4 billion that came into the asset class besting the 2014 running year-to-date average inflow of $2.2 billion. The inflow into taxable products of $1.9 billion made it 22 of 23 weeks with positive flow for the category. Municipal or tax-free bond funds put up a $497 million inflow making it 26 of 27 weeks with positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $2.2 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). 


ETF results were solid during the week with inflows into both equity funds and fixed income products. Equity ETFs put up a $5.0 billion subscription, making it 7 of 8 weeks with significant inflows, while fixed income ETFs put up a decent $1.2 billion inflow. The 2014 weekly averages are now a $1.8 billion weekly inflow for equity ETFs and a $839 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 $914 million spread for the week ($2.8 billion of total equity inflow versus the $3.7 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 $5.3 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 - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 1




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


ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 2


ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 3


ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 4


ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 5


ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 6



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


ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 7


ICI Fund Flow Survey - U.S. Equities Over the Waterfall...Bond Funds Bolstered - 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 $914 million spread for the week ($2.8 billion of total equity inflow versus the $3.7 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 $5.3 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 - U.S. Equities Over the Waterfall...Bond Funds Bolstered - ICI chart 9 




Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA


Takeaway: The labor market continues to improve steadily, auguring well for one of our favorite long ideas: the credit cards.

Crisis: Risk & Opportunity

Last week we flagged how the strength in claims represents both risk and opportunity. The opportunity lies in the fact that historically claims tracked at sub-330k for 24 months in the mid-to-late 1980s, 45 months in the mid-to-late 1990s, and 31 months in the 2005-2007 period. Currently, claims have been running at sub-330k for 6 months (though if you count from the initial drop in mid-2013 then we're closer to ~12 months). In other words, history would suggest (the last 3 cycles at any rate) there could be another 18-39 months of track left before claims begin to rise. The risk lies in the fact that major market downturns follow sub-330k claims periods. And, importantly, there's no guarantee the last 3 cycles will reasonably represent the blueprint for this cycle. We often work in close conjunction with our Macro Team on the labor and housing markets. The chart below, illustrating the dynamic, comes from Christian Drake on the Macro Team.




Credit Cards

Credit Cards remain our favorite long on the improvement in initial jobless claims. We've been vocal in our enthusiasm for Capital One (COF) on the long side amid early signs of a resurgence in loan growth arising from increasing willingness to extend credit to subprime borrowers. So long as claims remain low, the coast is clear on the long side here and we expect both better than expected earnings and think there's good likelihood for some multiple expansion.


The Data

Prior to revision, initial jobless claims fell 18k to 284k from 302k WoW, as the prior week's number was revised up by 1k to 303k.


The headline (unrevised) number shows claims were lower by 19k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -7.25k WoW to 302k.


The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -12.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -11.1%





























Yield Spreads

The 2-10 spread fell -5 basis points WoW to 200 bps. 3Q14TD, the 2-10 spread is averaging 206 bps, which is lower by -15 bps relative to 2Q14.






Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT



CAKE reported disappointing 2Q14 results, missing top line and bottom line estimates by 110 bps and 313 bps, respectively.  The miss was driven by lower than expected comparable sales growth of +1.2%, which missed consensus estimates of +2.1%, and significant margin pressure in the P&L as cost of sales and labor expenses muted earnings.  Traffic declined -1%, making it the seventh consecutive quarter of negative traffic.  Management guided down full-year same-store sales estimates from 1-2% to 1-1.5% and full-year earnings estimates from $2.24-2.33 to $2.19-2.25. 


Casual dining same-store sales are weak, we get that, but what did management attribute most to the miss?  Cream cheese.  Furthermore, CFO Douglas Benn noted that butter, which is typically a good proxy for cream cheese prices, spiked to all-time highs in late 2Q14. 


But we’re not here to talk about CAKE – that’s old news.  Instead, the aforementioned comment from Mr. Benn got us thinking about BLMN, which tends to use quite a bit of butter in their restaurants.  We’ve been bearish on BLMN since 11/27/2013, when we added it to the Hedgeye Best Ideas list as a short.  Despite removing it from this list on 05/14/2014, we've maintained our bearish bias and are more confident than ever that there’s another leg down to the stock. 


Not only have casual dining sales come in weaker than expected this quarter, but street estimates of $0.29 in EPS in 2Q14 are too high by about $0.03-0.05.  This estimate suggests BLMN will see 17% EPS growth on 7% sales growth in the quarter.  As we’ve harped on before, BLMN has very little leverage in their business model and the company is in no shape to handle the current commodity inflation (beef, shrimp, salmon, butter).


As it stands, FY14 estimates aggressive, but FY15 estimates for 19% EPS growth on 7% sales growth are even more egregious.


At any rate, at least there's no "love" inflation!




Call with questions.


Howard Penney

Managing Director


Fred Masotta


Keith's Macro Notebook 7/24: CHINA COPPER EUROPE

LEISURE LETTER (07/24/2014)



  • July 24:  
    • PNK 2Q call (9am) ; pw: 27759616
    • LHO 2Q call (930am)
    • RCL 2Q call (10am)
    • PENN 2Q call (10am)
    • HOT 2Q call (1030am) ; pw: 61542222
    • AWAY 2Q call (4pm)
    • LA June revs released
  • July 25: PEB 2Q call (9am)
  • July 29: 
    • IGT 2Q release
    • GLPI 2Q call (10am)
  • July 30: 
    • MGAM 2Q earnings
    • MAR 2Q call (10 am) : , pw: 59383825


BYI – released its newest Asian themed slot game, Jewel of the Dragon. The slot game boasts a magical theme, enchanting sound effects and mesmerizing visuals. Jewel of the Dragon has 5 reels and 40 paylines, with special features including Wilds, Scatters and spin features such as Hot Zones, Drop Zones, Dragon Nudges, and Free Spins

Takeaway: The latest Asian themed game for the industry and second title in four weeks from BYI.


BYD & MGM – Attorneys for Marina District Development Company, LLC, the parent company of Atlantic City’s Hotel Casino & Spa, have filed a countering brief in response to a motion to dismiss the casino’s $9.8 million lawsuit against poker pro Phil Ivey.  Marina District Development restated their assertion that Ivey could be criminally charged. The casino’s amended complaint against Ivey includes civil RICO (racketeering claims), which the early motion to dismiss declared were invalid, but which the latest filing clarifies and reasserts.

Takeaway: Expect more allegations and developments over the coming months.


LVS & 1928:HK – Yesterday's ‘Occupy Venetian’ protest staged by local gaming labor union Forefront of Macau Gaming saw around 2,000 gaming workers chose to publicly voice their demands yesterday, primarily to complain about the promotion system practiced by Sands China.

Takeaway: Worker unrest and discord is increasing as gaming operator profits rise and labor remains tight.


WYNN & 1128:HK – confirmed it has been contacted by Macau’s anti-corruption agency regarding the company’s land purchase for its new resort-casino on the Cotai Strip. The agency is investigating why Wynn Resorts was made to pay 400 million patacas (USD50 million) for the land rights. The investigation follows a public records request submitted recently by the International Union of Operating Engineers to two government bodies in Macau asking for information regarding the commitment of land rights in Cotai to individuals from Beijing. The anti-graft body had declined to comment on the report as the case is under investigation.

Takeaway: We don't think Wynn is being accused of any wrong doing.


Russian Gaming – Russian President Vladimir Putin signed a bill allowing the establishment of gambling zones in Sochi and Crimea, in a bid to boost casino and tourism revenues. Casinos will be legal in certain areas of the former Winter Olympic park in Sochi, while local authorities will designate their own casino zones in Crimea. A final decision has not yet been made but acting Crimean head Sergey Aksyonov has said the gambling zone will most likely be located in Yalta, a Crimean resort city, according to media reports. Crimea will host a gaming congress on August 22 – the Crimea Gaming Congress – organized by Smile Expo.

Takeaway: FCPA is a big hurdle for US operators thinking about a Russian bid.


Macau Visitor Arrivals – during June were 2.43 million, an increase of 4.6% year/year and Mainland China arrivals were 1.6 million, up 9.1% year/year.

Takeaway: We highlighted the slowing year/year in Macau Visitation note yesterday.  Mainland visitation was the lowest of any month since November 2013. 


Las Vegas Airport Traffic – during June, LAS passenger traffic increased 1.3% year/year, up from the 0.3% increase in May.

Takeaway: A slight increase but positive nonetheless. 


South Korea Foot-and-Mouth Disease – South Korea confirmed a case of foot-and-mouth disease at a hog farm, the country's first outbreak in more than three years. Testing confirmed a foot-and-mouth case at a hog farm in Uiseong county, more than 250 km (155 miles) southeast of Seoul

Takeaway: Get out the biomasks...


China Macro – China July HSBC flash manufacturing PMI 52.0 vs Reuters 51.0 and 50.7 in June.

Takeaway: A potential catalyst for the VIP segment. 


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

Managing the Eccentric

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

“Prepare. Perform. Prevail.”

-Dave Tate, EliteFTS 


In what feels like a lifetime ago now, I owned a human performance and nutritional consultation company.  The work was rewarding, but not from a pecuniary perspective.   


Designing transformative programs for dedicated collegiate athletes and prospective professional athletes, bodybuilders and Olympians was certainly gratifying.   Rep counting for middle-aged housewives (in what invariably devolved into pseudo-therapy sessions)…not so much.   


Unfortunately, only one of those demographics generally had the discretionary dollars to spend to keep us a going concern. 


Because broke college kids don’t have much in the way of a food or supplement budget and certainly can’t afford high frequency, hormonal profiling, we had to resort to a little empirical “bro-science” to gauge recovery and the subsequent prescription of workout intensity.


Q:  How do you know if cortisol levels are muted, the central nervous system is piqued, and the overall hormonal milieu is primed for hardcore training and positive physiological adaptation…in ~5s and at no cost?

A:  Wake up and pick up something heavy.


If your grip strength is there right out of bed, it’s almost assured the body is recovered and ready for positive stress.  


Another underused training technique effective at jumpstarting progress in advanced lifters is targeted use of eccentric training.  The eccentric part of a lift can generally be thought of as the “down” part of the lift  (think lowering the bar when bench pressing)  


Managing the Eccentric - bench

Muscle contraction during the eccentric portion is stronger, allowing you to use more weight – resulting in greater muscle soreness and, if employed correctly, faster strength & hypertrophy gains.  


The majority of lifters and coaches only focus on the concentric portion of the lift – which, in investment speak, is analogous to simply being long beta.  Learning when and how to manage the eccentric (down) part of the lift cycle is where training alpha is generated. 


Back to the Global Macro Grind...


In our 3Q Macro Themes call tomorrow we’ll lay out the detailed case under our expectation for a sequential slowdown in consumption growth in 3Q.   The punditry of the Early Look prose typically carries a tendency towards intentional overstatement, so it’s worth emphasizing that we’re not making a recession call or even a call for an overly protracted deceleration (yet).   


As the current expansion matures, however, occasional detachment from the myopia of every market moment and consideration of where we are in the longer cycle can be a useful exercise. 


Because we have a self-imposed 900 word limit on the morning missive and alliteration has yet to steer me wrong, we’ll use the 3-D’s of Duration, Demographics, & Deleveraging as the conceptual framework for contextualizing the prospects for the present cycle:


Duration (of Expansion):   The mean duration of expansions over the last century is 59 months.   Inclusive of July, the current expansion stands at 62 months.  We continue to think the reality of the ticking expansion clock weighs into the Fed’s current policy calculus  – they need to get out of QE if only to give themselves the opportunity to (credibly) get back in if need be.   Stopping QE while the fundamental data is supportive implies that QE was (at least in part) effective in its objective.  Perma-QE, however, is a de facto admission to the market of its ineffectivenss, leaving it largely impotent as a forward policy tool. 


Demographics:  Growth in the working age population peaked circa 2000 and won’t turn again for another ~10 years and the aged dependency ratio (the >65YOA population in relation to the 16-64YOA population) will continue to rise well beyond that.  With labor supply in secular deceleration, productivity gains will have to shoulder an increasing share of the load to support trend growth in real gdp/potential gdp.  Real Wage Growth may benefit from tighter labor supply and productivity driven demand for labor - but that remains an “if” and, either way, higher entitlement spending and debt service costs will likely sit as an offset to gains in real income.


Deleveraging:  Household debt-to-GDP currently sits at 77.2%, down from the March 2009 peak of 95.6% according to the latest Fed Flow of Funds data.  Rates remain pinned at historic lows, for now, and debt growth remains below income growth so (assuming borrowers want to borrow and creditors lend) credit could support consumption growth over intermediate term.  However, given the initial debt position and zero bound rates, we certainly aren’t in position to jumpstart a repeat of the prior credit based consumption cycle. 


The simple reality of the last 30+ years is that, with the Baby Boomers (born 1946-1964) entering prime working age (24 – 54) alongside the secular increase in female labor force participation, we had the largest bolus of people ‘ever’ matriculating through their peak years of discretionary income with peak leverage on that (peak) income – all of which also happened to occur on the right side of a multi-decade interest rate cycle which provided a steady tailwind to asset values (via lower discounting) and offered self-reinforcing support to the credit cycle as rising collateral values supported capacity for incremental debt. 


No central bank liquidity deluge can effectively replicate that.


So, is it time to start managing the eccentric part of the macro cycle? 


Probably not quite yet.  Viewing economic cycles as periodic functions, balance sheet recessions are generally characterized by longer periods (slower recoveries) with lower amplitude.    So, it’s probable the muddle continues for a while longer with recurrent, short-cycle oscillations in growth for the Macro Marauders of Hedgeye to continue to attempt to front run.   


The “3D” style thinking above isn’t particularly new or novel,  but there’s a lot of economic gravity embedded in those realities.  Their recapitulation also provides an effective counterbalance to the latest Fed projections which call for GDP to grow in excess of potential output for the next 2.5 years – which is effectively a call for an accelerating recovery over the next 30 months and an implicit expectation for the 3rd longest expansionary period in a century.  


Do you take their word for it or are we #PastPeak in the current cycle?


We don’t know, exactly, but our model is dynamic and data dependent… and our 4Q Macro themes are still up for grabs.


In the meantime, we’ll continue to work to evolve and fortify our process for risk managing the eccentric.


Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signal in brackets) are now:


UST 10yr Yield 2.49-2.59% (bearish = bullish for bonds)

RUT 1165-1189 (bearish)

USD 79.64-80.19 (bearish)

Pound 1.70-1.72 (bullish)

Brent Oil 107.23-111.37 (bullish)

Gold 1315-1346 (bullish)


Winter is Coming!  Prepare. Perform. Prevail.


Christian Drake

Macro Analyst


Managing the Eccentric - Boomer Dependency

Daily Trading Ranges

20 Proprietary Risk Ranges

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