• run with the bulls

    get your first month

    of hedgeye free


Mavericks & Milquetoasts

“You are the average of the five people you spend the most time with.”

-Jim Rohn


The quote above is lathered in cutesy life-coachy’ness, but I still like it.  It implies that #Greatness is, in part, a choice.  And, empirically, I’ve generally found it to be true. 


For the majority, our confreres in the daily grind constitute most of that top five.   With the Hedgeye firm meeting on Tuesday and our holiday party tonight, I’ll get a chance to look around and re-appreciate the unique team and business model born from the creative destruction of the financial crisis. 


It’ll also serve as the annual reminder not to be the weak-link outlier and bringer of negative skew to our Macro team’s greatness distribution. 


Mavericks & Milquetoasts  - s9 


Back to the Global Macro Grind…


You can choose your colleagues and comrades but you can’t, in large part, choose your neighbors.  You may, however, have more of them in the coming year. 


We’ve been bearish on housing since the beginning of the year with the expectation for the compressed demand shock (rising rates/tighter regulation) in 2H13-1H14 to manifest in a significant deceleration in home price growth and underperformance across housing related equities.   


At this point, most of what we expected at the beginning of the year has played out and, inclusive of the recent rally, housing related equities (ITB/XHB) have been among the worst performing sectors YTD. 


So, what now?


Housing, like most things Macro, is more about better/worse than good/bad.  From a rate of change perspective – how we measure/contextualize data – less good is bad, less bad is good, and the successful front-running of second derivative inflections remains the sangre vital of macro alpha generation.


As it relates to housing, while the macro environment remains a discrete risk, (very) easy volume compares, the lapping of weather/QM Implementation/FHA loan limit reductions, looser regulation, and a fledgling stabilization in 2nd derivative HPI trends all sit as modest, prospective tailwinds for 2015. 


In other words, the downside asymmetry that existed at the beginning of the year has largely collapsed and, from a rate of change perspective, demand and price trends are showing a nascent inflection that looks likely to continue as comps ease progressively into 2H15.   


We’ll be hosting a conference call on December 11th updating our outlook for housing in 2015.  Institutional subscribers can ping for call details/access.


I would, however, caution against conflating our shifting view on housing with our broader view on growth/inflation.  The counter-trend call on housing is more of an idiosyncratic, rate of change call at this point than it is a discrete call for a sustained acceleration in consumer discretionary or early-cycle exposure at large.   


Perhaps we’ll rotate out of our favored Quad #4 allocations to capture another short-cycle oscillation of pro-growth, high beta style factor outperformance but that’s not the call, yet. 


The call, of course, is always that the call can change – particularly when taking a multi-duration view of risk.  


In a tactical, counter-TREND move yesterday, we covered TIPS and bought JO (coffee) and FXY (Yen) in Real-time Alerts.


As the Quad #4 (i.e. disinflation and decelerating growth) callers the last couple quarters, we’ve been out front in slope surfing the strong dollar, down energy/commodities trade.  But that doesn’t mean we need to go full deflation-ista at every price and across every duration.    


As Keith put it:   COUNTER TREND Call = USD Down = Yen (and/or Euro) UP = Nikkei Down = Oil Up = High Short Int Energy Stocks Up


In other words, in the immediate term, with Japanese (Nikkei) and European (EuroStoxx 600) equities overbought and the Euro and Yen oversold, the market is pricing in a potent dosing of Draghi drugs and an ultra-smooth election bid for Abe. 


In other, other words, while our TREND view on deflation/Japan/etc. remains largely unchanged, the probability for a sizeable short-term macro reversal and $USD correlation risk to manifest in the opposite direction for prices is as high as its been. 


Since we get a regular flood of process related questions, it’s probably worth extending and generalizing the thought process under yesterday’s tactical RTA maneuvering.   


Our broader Trend view has been that:   

  1. We are currently late-cycle
  2. Our Trend expectation has been for disinflation and slowing growth
  3. Our favored positioning YTD has been Bonds, Cash and Low Beta/Large Cap/Defensive yield sectors/companies


Inside of that Trend view, the macro and market reality is that:

  1. Tops are processes, not points (as are bottoms)
  2. ‘Perma-‘ anything isn’t a process and there is always a time/price to like and not like something 


How do we integrate those market realities with our particular Trend view?

  1. By having a multi-duration view of risk.  The probability of a particular short-term move need not be the same (or in the same direction) as the probability of a particular intermediate-term price trend. 
  2. Recognizing that the market view should evolve and gross/net positioning should dynamically shift alongside changes in price


How does it work in practice?

  1. Selling/shorting on green and buying/covering on red (ie Fading Beta) within a defined, probability weighted immediate-term risk range allows us to pick off positive P&L in both direction without being overexposed to market risk 
  2. We can maintain a TREND view on the trajectory for macro fundamentals/markets while taking high probability, tactical counter-TREND positions on overbought/oversold conditions. Taking the other side of our own TREND/TAIL view for a TRADE (particularly at immediate-term momentum turns) need not be incongruous if there is a repeatable process for quantifying the balance of risk   


We get that multi-duration risk management and tactical positioning (i.e. “trading”) isn’t conventional investing in the classical sense but that’s why we try our best to explain the process and contextualize ‘the why’ underneath it.  It’s also why we tell you over what duration(s) we like a particular call/idea/theme. 


“If I had asked people what they wanted, they would have said faster horses.” (Henry Ford)


Cars are cool, but only if you know how to drive it.    


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.16-2.30%

RUT 1148-1190

DAX 92

VIX 11.71-14.53

Yen 117.03-119.99

WTI Oil 63.76-71.72 


To re-learning, defenestrating convention, and macro mavericking,


Christian B. Drake

U.S. Macro Analyst


Mavericks & Milquetoasts  - Compendium 120314


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


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

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

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

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.