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TODAY’S S&P 500 SET-UP – December 4, 2014

As we look at today's setup for the S&P 500, the range is 45 points or 1.90% downside to 2035 and 0.27% upside to 2080.                                                                                                                          












  • YIELD CURVE: 1.73 from 1.73
  • VIX closed at 12.47 1 day percent change of -2.96%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Bank of England seen maintaining 0.5% bank rate
  • 7:30am: Challenger Job Cuts y/y, Nov. (prior 11.9%)
  • 7:30am: RBC Consumer Outlook Index, Dec. (prior 51.7)
  • 7:45am: ECB seen maintaining 0.05% main refinancing rate
  • 8:30am: Init Jobless Claims, Nov. 29 est. 295k (prior 313k)
  • 8:30am: ECB’s Draghi holds news conference
  • 8:30am: Fed’s Mester speaks in Washington
  • 9:45am: Bloomberg Consumer Comfort, Nov. 30 (prior 40.7)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 11am: U.S. to announce plans for auction of 3M/6M/1Y bills, 1Y bills, 3Y/10Y/30Y debt
  • 12:30pm: Fed’s Brainard speaks in Washington



    • Sec. of State John Kerry meets with Russian Foreign Minister Sergei Lavrov in Basel, Switzerland; delivers remarks at London Conference on Afghanistan, holds meetings with officials including Pakistani Prime Minister Nawaz Sharif
    • Financial Industry Regulatory Authority board meets to consider items including proposed amendments to TRACE rules
    • 11:50am: President Obama delivers remarks at summit on college opportunity
    • 2:30pm: SEC Commissioner Kara Stein speaks at the Consumer Federation of America’s Financial Services Conference



  • Draghi Nudges Policy Bounds as ECB Awaits Stimulus Evidence
  • Fisher Says Slow Roll Off of Fed Assets Would Do No Harm
  • CBS to Pull Network From Dish Today Without New Agreement
  • Chrysler Expands Air-Bag Recall; Not Enough for Regulators
  • Toyota Widens Air-Bag Recalls on Japan Scrapyard Rupture
  • November U.S. Comps. Seen Benefiting From Early Holiday Sales
  • Unilever to Split Spreads Business Into Standalone Unit
  • *Blackstone Pres. James Considers Role Outside Co.: Reuters
  • Best Buy Sells Five Star Business in China to Jiayuan Group
  • Google Seeks to Avoid Paying Authors to Scan Their Books
  • Nextera Agrees to Buy Hawaiian Electric for $2.63b
  • Sanofi Whistle-Blower Says in Suit Drugmaker Paid Kickbacks
  • EU’s Privacy Law Backtracking Seen Thwarting Google, Facebook
  • Amgen Wins Early U.S. Approval for Rare Leukemia Treatment
  • Take-Two’s Grand Theft Auto Pulled From Australian Shelves
  • Buffett’s NetJets Sued by Pilots’ Union Over Privacy Breach
  • UTi Worldwide, DSV Said to Halt Talks After UTi Shares Spike
  • Putin Calls for Harsh Measures on Speculators as Ruble Drops



    • Barnes & Noble (BKS) 8:30am, $0.31
    • CIBC (CM CN) 5:56am, C$2.25 - Preview
    • Descartes Systems (DSG CN) 6am, $0.15
    • Dollar General (DG) 7am, $0.80 - Preview
    • Dollarama (DOL CN) 7:30am, C$0.54
    • Express (EXPR) 7am, $0.16
    • Gildan Activewear (GIL CN) 8:30am, $1.08
    • Kroger (KR) 8:30am, $0.61 - Preview
    • Sears (SHLD) 6am, ($3.31)
    • Toro (TTC) 8:30am, $0.15
    • Toronto-Dominion Bank (TD CN) 6:30am, C$1.06 - Preview
    • United Natural Foods (UNFI) Bef-mkt, $0.63



    • Ambarella (AMBA) 4:05pm, $0.54
    • American Eagle Outfitters (AEO) Aft-Mkt, $0.22
    • Cooper Cos (COO) 4pm, $2.03
    • Finisar (FNSR) 4pm, $0.25
    • Five Below (FIVE) 4:01pm, $0.06
    • Smith & Wesson (SWHC) 4:05pm, $0.07
    • Ulta Salon (ULTA) 4:03pm, $0.84 - Preview
    • Zumiez (ZUMZ) 4:01pm, $0.53



  • WTI Crude Steady After U.S. Stockpiles Drop From Five-Month High
  • Gold Retreats as Dollar Holds Advance Before ECB Policy Meeting
  • Blame Italian Olive Bugs for Dearth of Virgin Oil: Commodities
  • Sub-$50 Oil Surfaces in North Dakota as Regional Discounts Swell
  • Philippines Starts Evacuations Before Super Typhoon Lands
  • Copper in London Rises on U.S. Jobs Data, Mine Fire: LME Preview
  • Vietnam Plans to Replant 120,000 Hectares Coffee by 2020: Duc
  • World Food Prices Stabilize as Costs Diverge for Grain, Sugar
  • Purple Cocoa Pods Help Women Farmers Crack Ban on Land Ownership
  • Zambia to Resist ‘Stampede’ Against New Mines-Tax Proposals
  • Norway Seeks to Temper Oil Addiction After OPEC Price Shock
  • Wheat Extends Slide From Five-Month High Amid Ample Supplies
  • Ebola Traps Drug Shipment as West African Economies Unravel
  • Saudi Arabia Seen Widening Asia Oil Discount on Shale Surge



























The Hedgeye Macro Team



















ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities

Takeaway: Mutual fund activity during the past 5 days continued to be subdued, giving way to more robust trends in exchange traded funds


We are hosting a Speaker Series call with the Head of Americas research at Lipper this morning at 11 am EST to discuss the historical outflows at PIMCO and which asset management firms stand to benefit. Please join us:


Participant Dial-In Instructions - Today December 4th at 11 am EST:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 176731#
  • Click HERE for materials 



Investment Company Institute Mutual Fund Data and ETF Money Flow:


In the most recent 5 day period, mutual fund activity was subdued with investors continuing to prefer exchange trade funds. All ETFs took in over +$12.7 billion (both fixed income and equity) versus the total take for all mutual fund products at  just +$1.5 billion. Year-to-date, running aggregate money flow also reflects this preference for passive products with equity ETFs more than doubling the production of equity mutual funds (with $122 billion netted by equity ETFs versus just $47 billion inserted into equity mutual funds).  The battle in fixed income is more balanced with bond funds taking in $52.8 billion YTD versus fixed income ETFs’ having raised $48.5 billion. As outlined in our sector exposure table at the bottom of this note, BlackRock (BLK) and Invesco (IVZ) house the most substantial ETF exposure on a revenue basis at 44% and 19% respectively. Both stocks year-to-date have outflanked the S&P asset management index with BLK returning +15.5% and IVZ up +14.0%. The asset management group is up 9.6% thus far in 2014.


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 12 2



In the most recent 5 day period ending November 26th, total equity mutual funds put up net outflows of $1.2 billion according to the Investment Company Institute. The composition of the outflow was sourced by domestic stock fund withdrawals of $2.0 billion versus the $869 million subscription into international stock funds. The international and domestic equity categories continue to be polarized with international stock funds having inflows in 46 of the past 47 weeks, versus domestic trends which have been very soft with inflow in just 16 of the past 47 weeks (with outflows in 30 of the past 32 most recent weeks). This data continues to be supportive of our underweight or short recommendations on the U.S. centric equity asset managers (see our research here). The running year-to-date weekly average for all equity fund flow continues to decline and now settles at a $1.0 billion inflow, now well below the $3.1 billion weekly average inflow from 2013. 


Fixed income mutual funds put up inflows in both categories with taxable fixed income netting $1.8 billion and municipal bond funds putting up a $769 million inflow during the week. Munis have had a solid run with subscriptions in 45 of the past 47 weeks. The 2014 weekly average for fixed income mutual funds now stands at a $1.1 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion, but still a pittance of the weekly average of +$5.8 billion in 2012 (our view of the blow off top in bond fund inflow). 


Aforementioned ETF results were strong during the most recent 5 days with substantial inflows into equities and decent subscriptions into passive fixed income products. Equity ETFs put up a $11.1 billion inflow which is well above the 2014 weekly average of a $2.5 billion inflow. Fixed income ETFs netted $1.5 billion in new investor funds, slightly above the year-to-date average of $1.0 billion.


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 - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 1 2


Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the running weekly year-to-date average for 2014 and the weekly quarter-to-date average for 4Q 2014:


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 2


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 3


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 4


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 5


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 6



Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI) and the running weekly year-to-date average for 2014 and the weekly quarter-to-date average for 4Q 2014. The third table are the results of the weekly flows into and out of the major market and sector SPDRs:


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 7


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 8


Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors bounced the energy sector with the XLE taking in +$826 million or a 9% increase in total assets for the week. In addition, Financials grabbed a bit of new investor interest with the XLF collecting +$645 million last week or a  3% increase.


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 9 2



Net Results:


The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $5.8 billion spread for the week ($10.0 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 $2.6 billion (more positive money flow to equities), with a 52 week high of $17.7 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 - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 10


Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:


ICI Fund Flow Survey - Passive Market Share Continues to Overwhelm Mutual Funds in Equities - ICI 11 




Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA


Building Expectations

This note was originally published at 8am on November 20, 2014 for Hedgeye subscribers.

“In the end, if you build it, they may not come.”

-Jim Rickards


Whether it’s the Japanese burning their currency, a demigod named Draghi “saving” Europe, or the Fed’s perpetual Policy To Inflate asset prices, I often wonder if Rickards is right – now that markets have built these expectations, will the growth come?


So far, the long-end of the bond market says no. On growth that is… but what are markets telling you about the centrally planned illusion of growth (i.e. inflation expectations)?


And “what happens when you manipulate markets using price signals that are the output of manipulated markets?” (The Death of Money, pg 86) Never forget that the biggest risks to markets are the critical answers to the toughest questions.


Building Expectations - Monetary policy cartoon 11.07.2014


Back to the Global Macro Grind


I spent all of yesterday seeing Institutional Investors in Greenwich, CT. The meetings, as always, were tremendous learning opportunities. And there was one moment in one of the meetings that I’ll never forget.


As I was sitting across from a Portfolio Manager, the Federal Reserve’s “Minutes” (from their last meeting) were released. So, I sat there and watched Liesman @CNBC spew his interpretation of what he thought the Fed said…  and the seasoned PM just giggled.


Even at the most sophisticated funds, whether they like it or not, this is modern day “macro” – where you have to not only think about what you think… but seriously consider what everyone else was told they should think…


Here’s what I think was incremental in those Fed Minutes:


  1. Inflation expectations are falling
  2. The Fed only has one move to address that newfound concern
  3. In the next 3-6 months, as US inflation falls, the Fed will get more dovish, because of that


Since our “Bad #Deflation” view is not yet consensus, it’s really hard for consensus to get why this is bearish for bond yields (and bullish for the Long Bond, TLT, EDV, etc.). But markets almost always front-run consensus – and that’s already in motion.


After our interlude with the English-major turned pretend macro savant (who has never traded a market in his life), the Portfolio Manager asked me a very simple question that I get asked a lot: “what things should I look at to monitor your #deflation view?”


I answered by referring him to exhibit 15 (the slide in my #Quad4 Deflation Macro deck) that shows #InflationExpectations:


  1. TIPs (5 year Breakeven Rate)
  2. Fed 5Y-5Y Forward Breakeven Rate


Then I said:


  1. The price of Oil relative to my bearish TREND view
  2. CRB Commodities Index (TREND resistance = 281)
  3. Russell 2000 relative to my bearish TREND view


The price of Oil ($74.20/barrel) continues to crash this morning (-31% since June); the CRB Index is trading at 267 (-4.6% YTD); and after having another horrendous day (both absolute and relative to US Equities yesterday) the Russell 2000 is DOWN (again) for 2014 YTD.


Back to real economic growth expectations, I told investors yesterday what I’ve been telling them all year long – my catalyst is the cycle. As the growth cycle data slows, whatever these “bullish surveys” are telling you will look wrong.


That’s what’s happening from China to Europe this morning (they release Producer Manufacturing and Services data for November). Literally all of the growth data slowed.


While China’s PMI print of 50.0 wasn’t as bad as France’s (47.6 NOV vs. 48.8 OCT), that’s not saying much. Bond Yields are falling because the rate of change in global growth is slowing.


When both growth and inflation data slows, expectations for asset price inflation in those things slow. So BUY slow-growth-yield-chasing assets (TLT, EDV, MUB, XLV, XLP, XLU) and keep SELLING growth and/or inflation expectations (IWM, KRE, XOP, EWQ, VWO).


And that’s all I have to say about that.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.29-2.36%

SPX 2005-2055

RUT 1141-1173

France (CAC 40) 4139-4281
YEN 116.02-118.64

WTI Oil 73.01-76.13


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Building Expectations - 11.20.14 EL Chart

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Cartoon of the Day: The (Real) House of Cards

Cartoon of the Day: The (Real) House of Cards - Card house cartoon 12.03.2014

This central planning game will not end well.

JNS - Can Janus Return to Deity Status? Hedgeye Financials Speaker Series Call with Lipper Funds

Our Financials team of Josh Steiner and Jonathan Casteleyn will be hosting a conference call tomorrow Thursday, December 4th at 11 a.m. EST with Lipper Fund Research, a leading mutual fund ratings and research firm to discuss the current "money in motion" within the investment management industry. Representing Lipper will be the Head of Americas Research Jeff Tjornehoj. Our topics to be addressed on this call include:


  • The historical importance of the Bill Gross move from PIMCO to Janus and why it has been an industry watershed event.
  • Estimates of how much investor capital will eventual flow out of PIMCO Total Return and other funds and which firms stand to benefit most.
  • How much capital and the total impact that Bill Gross can have on stock fund manager Janus Capital.
  • Other current industry topics including a stabilizing Invesco after a major PM departure and the early results from new products including Liquid Alts.


This call aims to be applicable to investors in the following stocks:




Participant Dial-In Instructions - Thursday December 4th at 11 am EST:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 176731#
  • CLICK HERE to automatically add this call detail to your Outlook calendar


Jonathan Casteleyn, CFA, CMT



Joshua Steiner, CFA

Will Draghi Deliver the Drugs Tomorrow?

To issue sovereign QE, it ‘tis the question.

We polled our customer base earlier today and the verdict is decidedly mixed --  in fact it's a dead heat.  50% say “YES” Draghi will announce a QE program when the ECB meets tomorrow.  50% said “NO” he won’t.


Will Draghi Deliver the Drugs Tomorrow? - yy. poll


Unfortunately, our crystal ball is in the repair shop. But as we’ve noted in a previous note, recent language from Draghi, his VP Victor Constancio, and other policy heads (including those of the governing council) all seem to suggest that tomorrow’s meeting will disappoint the YES vote. The likeliest scenario? The ECB will remain in a “wait-and-watch” mode to assess its concurrent programs.  


We do suspect a lack of action (hold on rates and a QE announcement) is due to the fact that the Bank only just started to purchase ABS (November 21), the 2nd tranche of the TLTROs will only be allocated a few days following the ECB meeting, and the covered bond purchasing program is in early innings. In addition, we also suspect that the ECB will have to contend with the Germans who oppose sovereign QE on legal grounds.


Tomorrow we’ll also get updated ECB staff GDP and Inflation estimates – you know our call is for the estimates to be revised DOWN #EuropeSlowing.



What’s our investment call?

As Keith noted this afternoon, European Stocks (EuroStoxx 600 Index) are signaling immediate-term TRADE overbought with a risk range of 337-351. The EUR/USD is signaling immediate-term TRADE oversold at $1.23. Broadly, with the “risk ranges” being at the top and/or bottom end of the range increases the probability of a short-term reversal – the probability is as high as it’s been of seeing a big macro reversal.


Will Draghi Deliver the Drugs Tomorrow? - yy  stoxx 600

Will Draghi Deliver the Drugs Tomorrow? - yy  EUR USD


Matthew Hedrick



Early Look

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