prev

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow

Takeaway: Domestic stock funds put up their 16 consecutive week of outflow and are now entering the seasonally weakest period of the year

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period ending August 13th, taxable fixed income flows snapped back to positive territory, eking out a slight inflow of $519 million after the substantial panic outflow of over $8.0 billion the week prior. Intermediate term trends are still intact for taxable bonds with inflow in 25 of the past 27 weeks. Domestic stock funds conversely continue to struggle with another $1.0 billion being withdrawn by investors last week which make it 16 consecutive weeks of outflows with now over $40 billion lost in the category. We remind investors that looking back to 2007, that the average outflow sequence in domestic stock funds has averaged 40 weeks with over $113 billion on average drawn down, so the initial weakness in domestic stock funds could easily run through the rest of 2014 (and into 2015). The equity mutual fund channel is also entering the seasonally weakest part of the year (the fourth quarter), and we recommend that investors avoid Janus Capital (JNS) and T Rowe Price (TROW) with the most exposure to the U.S. stock funds (see our report on why TROW should underperform).

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - chart1 drawdowns


ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - chart 2 seasonality

 

Total equity mutual funds put up a slight inflow in the most recent 5 day period ending August 13th with $225 million coming into the all stock category as reported by the Investment Company Institute. The composition of the inflow continued to be weighted towards International stock funds with $1.2 billion coming into the category offset by the ongoing 16 week redemption in domestic equity funds which totaled a $1.0 billion outflow last week. This draw down in domestic equity funds has now totaled a $40 billion outflow over the past 4 months. The running year-to-date weekly average for equity fund flow is now a $1.5 billion inflow, which is now well below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual funds had another positive week of production with $1.8 billion coming into the asset class. The inflow into taxable products of $519 million made it 25 of 27 weeks with positive flow. Municipal or tax-free bond funds put up a $897 million inflow, making it 30 of 31 weeks with positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.8 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 broadly positive during the week with inflows into both equity funds and fixed income products. Equity ETFs put up a $2.8 billion subscription while fixed income ETFs put up a $2.6 billion inflow. The 2014 weekly averages are now a $1.2 billion weekly inflow for equity ETFs and a $939 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 $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 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 $4.0 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). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 

 

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. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart1

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart2

 

 

 

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

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart3

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart4

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart5

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart6

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart7

 

 

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

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart8

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart9

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 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 $4.0 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). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart10 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA


Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE

Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE - Call Marketing Image

 

Hedgeye Macro is hosting an expert call TODAY (Thursday, August 21st) at 11:00 a.m. EDT to better understand the developing risks to Brazilian coffee production capacity next year and beyond. Brazil accounts for more than 1/3rd of global coffee production, and the damage from an unprecedented drought in the first three months of 2014 may have caused irreparable damage to a much larger portion of the 2015-16 crop than believed by consensus.

 

Our expert speaker will be Judith Ganes-Chase, founder and president of Ganes Consulting, an independent agricultural softs commodities research and consultancy firm. Judy worked on the sell-side for 20 years before founding J. Ganes Consulting in 2001.

Call Objective:

  •  With irreparable damage from last winter’s ---(BRAZIL SUMMER) drought already manifest, consensus opinion is much too optimistic on Brazil’s production capacity into next year and 2016
  • Lifecycle of the Tree: The idea that above average rainfall can restore soil moisture and rehydrate the trees allowing the lack of vegetative growth to be offset is simply not true. Production estimates for a 2015-16 crop based on the coffee from trees that have not yet flowered are PREMATURE
  • End users may be able to hedge OTC through financial intermediaries, but the assumption that the crop paid for in the future is locked-in and available is an issue. Scarcity may be a problem --> ESPECIALLY OF BETTER GRADES OF COFFEE.
  • Relevant Tickers: CAFE, JO, SBUX, DNKN, MCD, MDLZ, GMCR, THI  

Call Participant Instructions:

Participant Dialing Instructions

Toll Free Number:

Direct Dial Number:

Conference Code: 998836#

Materials: CLICK HERE

 

About Judith-Ganes Chase:

Judy has over 25 years of experience covering the agricultural softs space. Prior to founding Ganes Consulting in 2001, she spent most of her career as a senior softs analyst at Merrill Lynch and Shearson Lehman. Her most recent post was as the Director of News and Research at InterCommercial Markets.

 

 Ms. Ganes-Chase is a contributing member to Elliott Associates, Gerson-Lehrman Groups Council, and Coleman Research Group. She is also a participant in the ICE (Intercontinental Exchange) research program and makes regular contributions to several industry-specific publications: Specialty Coffee Association of America, National Coffee Association, and the International Women’s Coffee Alliance (IWCA).    

 

Hedgeye Macro Team


INDIA, CHINA, AND U.S. HOUSING

Client Talking Points

INDIA

EPI (WisdomTree India Earnings Fund) remains one of our top long ideas. India’s new “management team”, led by RBI Governor Dr. Rajan and Prime Minster Modi, is implementing the kinds of policies needed to structurally elevate India’s growth potential (TREND and TAIL durations.)

CHINA

We continue to think the shaky foundation on which the Chinese economy currently resides will force officials to ease monetary and fiscal policy, at the margins. This should be supportive of industries tethered to China’s fixed asset investment bubble (TREND duration).

HOUSING

Purchase demand declined for a third week, holding below the 170 level for a 6th consecutive week, that is the longest such soft streak since August 1995. The Composite index gained 1.4% week-over-week, buttressed fully by refi activity, which was higher by 2.7%, while Purchase activity declined -0.4%.

Asset Allocation

CASH 54% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

BOBE

The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.

TLT

Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road

TWEET OF THE DAY

GMO labeling measure makes Colorado’s November ballot http://wapo.st/1BCPf9F  via @washingtonpost $HAIN $WWAV $BDBD $BNNY

@HedgeyeHWP 

QUOTE OF THE DAY

Really great people make you feel that you, too, can become great.

-Mark Twain quotes

STAT OF THE DAY

Wal-Mart said it will sell the iPhone 5c for 97 cents and the 5s for $79, down from their regular prices of $99 and $199, respectively.


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

LEISURE LETTER (08/21/2014)

Tickers: BYD, MGM, PNK, WYNN, CCL

EVENTS

  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27:  BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes

COMPANY NEWS

GTK:IM – said 14 banks have agreed to lend the Company up to $10.7 billion, in part to back its planned acquisition of U.S. slot machine maker IGT (International Game Technology).  The financing will be via a senior bridge loan and will be available to GTECH for 15 months, after which the company is expected to issue bonds to refinance the bridge loan.  GTECH said 45% of the bridge loan would be denominated in euros and the remainder in U.S. dollars. Credit Suisse, Barclays and Citigroup have arranged a syndicate of 11 banks to jointly finance GTECH. Other lenders involved include BNP Paribas, Credit Agricole, Deutsche Bank, Intesa Sanpaolo, JPMorgan Chase, Mediobanca and UniCredit.

Takeaway: Full support by all the investment banks.

 

BYD & MGM – Borgata Hotel Casino & Spa announced seven shows with Emmy and Golden Globe Award winning comedian Jerry Seinfeld, performing at Borgata's intimate 2,500-seat Event Center.  Seinfeld will continue his series through 2016, with tickets on sale this Friday (August 22) for his first show scheduled for Thanksgiving weekend – Saturday, November 29, 2014

Takeaway: Building a schedule of headline entertainment programming in an effort to draw more visitors - and hoping they gamble. 

 

MGM & 2282:HK (GGRAsia) Chief Executive of MGM China Holdings Ltd, Grant Bowie on Wednesday commented that the declaration by Macau’s Chief Executive that the city’s casino operators should provide housing for their migrant workers raises “complex” issues as the SAR struggles with lack of buildable land as well as where to locate such housing.

Takeaway: Mr. Bowie attempting to play nice with Macau's Chief Executive, labor, and shareholders.

 

9776:JP – Konami Gaming, Inc., announced that its award-winning casino management system SYNKROS® has been selected by Canyon Casino in Black Hawk, Colorado, to replace their existing system.  Canyon Casino has more than 400 slot machines, 100 of which operate as coin slots where guests can still appreciate the sound of coins falling into the trays. The casino's available table games include blackjack, craps, and roulette

Takeaway: A notable win for Konami. 

 

1680:HK – In its Q2 2014 financial results, Macau Legend Development indicated the Harbourview Hotel opening will be delayed from Aug 2014 until tentatively in Q4 2014. Additionally, the redevelopment completion of Macau Fisherman's Wharf will also be delayed by one or two quarters as the company awaits the issuance of the superstructure construction license which is expected in Q4 2014. The Legendale Hotel which was targeted for a Q1 2017 completion has yet to obtain Macau government approvals to begin construction.

Takeaway: More development, construction and opening delays and postponements. Galaxy Phase II looks good for its timetable but we have zero confidence that the other Cotai projects will open on time.

  

WYNN & 1128:HK – The Board of Directors of Wynn Macau Ltd approved an interim dividend of HKD0.70 (US$0.09) a share for the six months ended June 30, 2014. The dividend will be paid on September 23. Last year the company had declared an interim dividend of HKD0.50 a share.

Takeaway: With the interim dividend announced, attention will now focus on the size of the year-end special dividend.

 

CCL – starting in October 2015, Carnival will offer 10- to 14-night cruises, a first for the line, out of Baltimore on the 2,124-passenger Carnival Pride. Previously, Carnival only offered seven-night cruises from Baltimore.

Takeaway:  For the Caribbean, the longer-dated itineraries have done better than the shorter itineraries this year.  

 


Insider Transactions:

HST – President & CEO Ed Walter sold 190,000 shares on August 19th at an average price of $22.6115/share and directly owns a remaining 116,568 shares.  Additionally, an Limited Liability Corporation indirectly owned by Mr. Walter also sold 10,000 shares on August 18th at an average price of $22.6489/share and the LLC now owns 90,000 shares.  Beyond the outright 116,568 owned shares, Mr. Walter beneficially owns 436,895 restricted stock share as well as 230,803 non-qualified stock options with expiration dates from January 20, 2022 through January 22, 2024. 

 

CHH – Stephen P. Joyce exercised employee stock options on 11,659 shares of the company’s stock and immediately sold the 11,659 shares on Monday, August 18th at an average $50.69/share via a 10b5-1 program.  The options expiration date was May 2, 2015. Following this transaction, Mr. Joyce now owns 125,763 shares of the company’s stock.  

Takeaway: This was Mr. Joyce's second sale within seven calendar days.  He sold 44,463 shares on August 11, 2014.

INDUSTRY NEWS

Japanese Gambling (Japan Times) – According to research published by the Japan's National Hospital Organization Kurihama Medical and Addiction Center,  4.38 million men, accounting for 8.7%, and 980,000 women, or 1.8%, are suspected to suffer from gambling problems, totaling 5.36 million people or 4.8% of the adult population in the country. The research was conducted along with a survey for alcohol dependence in July 2013. The team interviewed 4,153 adults nationwide chosen on a random basis, and conducted research on gambling and Internet addiction based on international standards.

Takeaway: Suspect timing of this dated study results - seemingly just ahead of the Diet integrated resort legislation debate this fall. 

 

Increased Asian Regional Gaming Competition (GGRAsia) In reaction to the escalating crackdown on official and business corruption across mainland China, several jurisdictions neighboring China, including Japan, Vietnam, South Korea as well as Cambodia and the Philippines, appear to be increasing their efforts and attempts to either enact or liberalize laws to encourage foreign direct investment by casino operators.

Takeaway: The proliferation of gaming across new international markets continues.   

MACRO

Macau Inflation –  According to the Macau Statistics and Census Service, higher rents and the cost of eating out were key contributing factors to Macau's July inflation report of +5.92% year-over-year. On a month-on-month basis, from June to July, prices increased 0.37%.   

Takeaway: Such reports unfortunately give a voice to the labor unions rather than calling on the Macau Government to support policies which support lower inflation.

 

China Economic Slowdown (redux)(WSJ) Highlighted the start-stop nature of China's economy despite Beijing's efforts to intervene with lower interest rates, project approvals and infrastructure spending to keep the economy growing. Yet, the portion of the economy that is most at risk of falling out of the government's control is the property market. Property prices and construction activity continue to fall, posing risks to the banking system, personal wealth and local government finances. The relaxation of curbs against property speculators, already implemented in several cities, may yet have a positive impact. More moves, including easier credit for mortgages and developers, appear likely.

Takeaway: Not all of China macro is looking better.

 

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.


CHART OF THE DAY: Intl. Idea Flow

CHART OF THE DAY: Intl. Idea Flow - Asia COD

 

"For those of you who with the ability to invest capital internationally, we thought we’d create the table below to help synthesize and hold accountable our investment ideas across the Asia, LatAm and EM space, which is my primary coverage responsibility for the team. In addition to updating you on the active recommendations therein, we are also taking this opportunity to provide post mortem on our closed ideas over the TTM." - Macro analyst Darius Dale in today's Morning Newsletter



Idea Flow

“I don’t really make decisions, I go with the flow.”

-Nicole Kidman

 

For most, Academy Award-winning actress Nicole Kidman requires no introduction; in this analyst’s humble opinion, her role as Dr. Chase Meridian in Batman Forever should forever be remembered as one of cinema’s all-time great damsels in distress.

 

Idea Flow - forever08

 

Lacking adequate contextualization for her quote above, we thought we’d spend some time this morning discussing “flow” in a more relevant context: investment ideas.

 

Be it the Surf Lodge in Montauk or the White Briar/Princeton combo in Avalon, NJ, I’ve done my fair share of “going with the flow” this summer. In fact, how I’ve approached social life in my late-twenties is not unlike how I’ve approached generating investment ideas – by remaining open-minded and gravitating towards those destinations that others are also likely to find most attractive.

 

That’s easier said than done, however, especially in the context of investing. How does any investor – fully equipped with his or her confirmation biases – remain open-minded enough to consistently and presciently spot those attractive destinations? While I’m sure asking 20 different analysts and portfolio managers will net about 19-20 different responses, my answer to that omnipotent question is simple: by doing the same thing each and every day.

 

Back to the Global Macro Grind...

 

My repeatable process commences each morning by writing down 186 unique, color-coded quantitative signals into my notebook. These signals can be anything from the MoM delta in India’s OIS spread, to the SPY’s Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI) score per our Tactical Asset Class Rotation Model (TACRM), to the top-20 and bottom-20 VAMDMI scores across the universe of global macro ETFs. It culminates with absorbing all of the relevant economic data and policy rhetoric in my geographical coverage area and categorizing the deltas as sequential accelerations, decelerations, tightenings and/or easings.

 

While this process is far from perfect, it does tend to afford me a consistent opportunity to kick the tires on many developing investment themes and ideas. From there, we apply a healthy dose of “secret sauce” to determine whether or not a particular theme or idea is worthy of communicating to our subscribers.

 

For those of you who with the ability to invest capital internationally, we thought we’d create the table below to help synthesize and hold accountable our investment ideas across the Asia, LatAm and EM space, which is my primary coverage responsibility for the team. In addition to updating you on the active recommendations therein, we are also taking this opportunity to provide post mortem on our closed ideas over the TTM.

 

Active Long Ideas:

 

  • FXI: We continue to think the shaky foundation on which the Chinese economy currently resides will force officials to ease monetary and fiscal policy, at the margins. This should be supportive of industries tethered to China’s fixed asset investment bubble. (TREND duration)
  • EPI: If we could LBO a country, India would be our top choice. The country’s new “management team”, led by RBI Governor Dr. Rajan and Prime Minster Modi, is implementing the kinds of policies needed to structurally elevate India’s growth potential. (TREND and TAIL durations)
  • EEM, EMB, EMLC and CEW: When we were making the opposite call ~18M ago, there were not a lot of investors who agreed with us that US monetary policy was the driving factor behind capital flows, monetary conditions and asset prices in emerging markets. Now everyone gets it and the fundamentals (i.e. US #GrowthSlowing) and quantitative signals (see slide #4 of TACRM deck above) support remaining long of EM assets here. (TREND duration)
  • EIDO: Definitely long in the tooth as it relates to Jokowi hoopla, but the comps in our GIP (i.e. Growth/Inflation/Policy) model portend a favorable investing environment for at least the next 2-3M. (TREND duration)

 

Closed Long Ideas (TTM):

 

  • ARGT: Booking the loss here. Loose fundamental thesis on our part with even looser results.
  • EWT: Great trade. Semiconductor stocks (SOX Index) have done nothing but go straight up over the past two weeks; a failure to make a higher-high would auger negatively for the consensus storytelling about a sustained recovery in CapEx.
  • ENZL: Decent timing on booking the gain. It’s been lower-highs and lower-lows for New Zealand for ~3M now amid marginally dovish monetary policy.
  • EWZ, BZF and PBR: Great [near] bottom-tick back in FEB; booked the alpha too early amid fears of a growing probability of a Rousseff reelection. Silva’s entrance into the presidential race throws a wrench in the trade, but we think Brazil is setting up to be a nice short heading into 2015 if either of the female candidates emerges victorious.
  • FXY: Not much to see here; we merely traded around what we saw as likely consolidation amid a fiscal and monetary policy vacuum in Japan.
  • CQQQ and CHIQ: Great trade. Our long “New China”/short “Old China” theme would’ve returned +1,154bps on an equal-weighted basis.
  • EPI: Booked substantial alpha ahead of the election, fearing consternation. Rotated back into it a few weeks later and haven’t looked back since.
  • DXJ: Calling for Japanese equity reflation to occur concomitantly with aggressive yen debasement back in 4Q12 remains one of the hallmark calls of my analytical career.

 

Active Short Ideas:

 

  • FXA: While his latest guidance on rates isn’t necessarily supportive of our view, it’s clear that RBA Governor Glenn Stevens wants a lower Aussie dollar, citing Australia’s deteriorating labor market. Just wait until Aussie CPI decelerates for the next 1-2 quarters, which is something our GIP model currently identifies as the most probable outcome.
  • General commentary: You’ll note that there aren’t a ton of active short ideas here. That’s by design, as both the bottom-up fundamentals and top-down quantitative signals continue to support a long bias towards EM assets at the current juncture.

 

Closed Short Ideas (TTM):

 

  • KRW: Booking the loss here. We couldn’t have been more right about South Korea’s deteriorating GIP dynamics or the aggressive spate of fiscal and monetary easing we’ve seen in recent months. Conversely, inflows from international equity investors have buoyed the won – likely well above where the BoK and Finance Ministry want it to trade.
  • EWA: Booking the absolute return loss/relative return alpha here. The glass half-empty reads: we underestimated the resiliency of the Aussie housing market and the Aussie consumer. The glass-half full reads: Australia’s substantial underperformance relative to global equities highlights some of the structural headwinds we were calling for back in mid-2012.
  • DXJ: Good trade. As we predicted, Japan did not participate in the rally across global equities from the early-FEB lows through our late-MAY note to stop fading consensus on the “Abenomics Trade”.
  • CHIX and CHXX: See commentary above RE: CQQQ and CHIQ.
  • EPHE: A bad play by us that could’ve been much worse. The EPHE ETF has appreciated +15.5% since we turned broadly positive on EM assets earlier this year – inclusive of backing away from the short side of Filipino equities.
  • CLP: A decent play by us that could’ve been much better, had we stuck with it. The Chilean peso has declined an additional -5% versus the US dollar since we backed away from it on the short side.
  • EWZ: Outstanding call. Not much more to be said.
  • EEM, EMB, EMLC and CEW: This round of #EmergingOutflows was far less severe than the first (see below).
  • FXY: This is the centerpiece of the aforementioned Abenomics Trade (i.e. short yen/long Nikkei) and one of the best calls of my analytical career. We more-or-less top-ticked the all-time lower-high in the Japanese yen. It’s been mostly straight down ever since – and by a lot!
  • CHIX: Great thesis; terrible timing. Reminded us of the one thing many investors forget when they ponder Chinese tail risk: China is a state-run economy. At the drop of a dime, they can manufacture both liquidity and economic growth. While reflation policies are obviously unsustainable over the long term, they can be a lot more sustainable over the near-term than the P&L of anyone trying to short China at such favorable turns in policy.
  • EEM, EMB, EMLC and CEW: Another one of the hallmark calls of my analytical career. Turning bearish on EM assets when we did was greeted with a substantial amount of disbelief and contempt from investors – until after they went down in price… by a lot!

 

Obviously the nuggets above are intended to be brief, so please feel free to reach out if you’d like additional color on anything you see above.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.34-2.46% 

SPX 1 

RUT 1120-1167 

VIX 10.83-15.52 

USD 81.48-82.39 

Gold 1 

 

Keep your head on a swivel,

 

DD

 

Darius Dale

Associate: Macro Team

 

Idea Flow - Asia COD


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

next