prev

Call Details For Today's Athletic Black Book - 1PM EST

Takeaway: Call Details For Today's Athletic Black Book - 1PM EST

Below is the conference call information for our Athletic Black Book Call Today at 1:00PM EST.

 

We look forward to having you join us for the call.

 

Call Details

Toll Free Number:

Toll Number:

Password: 13597073

Materials: CLICK HERE

 


The Bull Case Is Now “Decoupling”

Client Talking Points

OIL

Oil bounces (again) and this one seems to be inspiring the many (Janet trades oil futures now - says the crash was just “transitory”). The immediate-term risk range for WTI, however, continues to signal lower-lows and lower-highs = 52.89-59.91, so if you weren’t short Russia, Energy, etc., here’s another chance.

RUSSIA

Putin is 1 of 5 central planners in the Top 5 Bloomberg Economic Stories this morning (the others include Yellen, Draghi, Abe, and a Swiss Guy who cut to negative rates). You know this is going to end well because Putin said Russia’s economy will “recover in 2017”… Russian stocks +5.3% on that to -47.7% year-to-date – UAE +13%, Saudi +8% (totally normal market moves).

EUROPE

The Swiss central bank telling savers they get to pay them (negative rates) is the latest catalyst to drive European Equities to lower-highs, but this doesn’t seem to be stimulating Greece (-2.2% to -26.6% year-to-date). #TwilightZone

Asset Allocation

CASH 59% US EQUITIES 4%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 7%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

TLT

We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

JAPAN: Weimar Nikkei correlation trade firmly intact, +2.3% overnight post Yen resuming being burnt to a crisp

@KeithMcCullough

QUOTE OF THE DAY

Beware of the person who can't be bothered by details.

- William Feather

STAT OF THE DAY

68% of 56 economists surveyed by Bloomberg late last week said the Federal Open Market Committee will drop its pledge to keep interest rates near zero for a “considerable time” and instead adopt a word such as “patient” to describe its approach to policy. Only 23% said the committee will keep “considerable time.”


CHART OF THE DAY: #Deflationary Dominoes

CHART OF THE DAY: #Deflationary Dominoes - 12.18.14 EL Chart

 

The following is an excerpt from Hedgeye CEO Keith McCullough's Morning Newsletter today.

 

*  *  *  *  *  *  *

...If you nailed every 50 handle whip-around in spooz perfectly for the last 2 weeks, congratulations. We had a great year here, so send me your docs and I might give you some of my money to manage. If you did not, and stayed the course of patient, dynamic asset allocation:

 

  1. You sold some of your long duration bonds at 2.03% on the 10yr
  2. You bought some #Quad4 US Equity Exposure (Healthcare or Utilities were 1-2 for us this week)
  3. You shorted more Burning Yens and Euros high, against a net long US Dollar FX asset allocation

 

I didn’t have to nail every US stock market move to get that right in our asset allocation model. I just had to have the patience to not buy the November highs in US stocks and/or get shaken out of my Long Bond and US Dollar allocations on the recent November pullbacks...



GET THE HEDGEYE MARKET BRIEF FREE

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

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

#Patient Risk Managers

“The two most powerful warriors are patience and time.”

-Tolstoy

 

In case you didn’t know that I’m not a fan of centrally planned markets and economies, now you know. My long-term risk management call remains that any asset price inflation that is based on perma-planning will end in some form of a deflationary shock.

 

And while I know everything is rainbows and puppy dogs these days in the US economy (it’s going to “de-couple” from all of Global Macro markets, but bounce when they do!)… even the most avid perma bull on global growth should note that the Top 5 Stories on Bloomberg this morning have everything to do with central planners bailing markets out of the “everything is awesome” narrative.

 

Janet Yellen leads headlines this morning, followed by Mario Draghi (Europe), Shinzo Abe (Japan), a Swiss dude you probably don’t know (Switzerland cut interest rates to negative), and, of course, Vlad – as in Putin. Other than what went violently wrong in markets in the 1st two weeks of both October and December, what could possibly go wrong? #Patience, Risk Managers. Patience.

#Patient Risk Managers  - Card house cartoon 12.03.2014

 

Back to the Global Macro Grind

 

Away from her ridiculous comment that the crash in Oil is “transitory” (she can’t call bubbles, but she can call crashes… boil the oceans, part the heavens, etc.), I must give Janet Yellen props for having the #patience to wait until year-end to cut her forecasts (again).

 

This is big news for Hedgeye as the Fed, once again, effectively agrees with our core macro call that:

 

  1. Growth is slowing
  2. Inflation is slowing

 

I recapped the sell-side forecasts for you on Tuesday. Here are the Fed’s for 2015:

 

  1. GDP Growth cut from 3.5% to 3.0%, lowering the range to 2.6-3.0%
  2. Inflation cut from 2.2% to 1.9%, lowering the range to 1.0-1.6%

 

Notwithstanding that the Fed’s forecasts on growth and inflation have been wrong 60-70% of the time since Bernanke/Yellen took over the central planning bureau, the point here isn’t about good or bad – it’s about better or worse.

 

One of my Partners here @Hedgeye (Josh Steiner) coined that one-liner… and since I’m a rate of change guy, I like it. It’s simply another way to say the same thing. I don’t care much about absolutes – I care about the slope of the line. Is it slowing or accelerating?

 

Clearly, both locally and globally, the rate of change in both growth and inflation expectations are slowing. That’s why US, German, and Japanese bond yields continue to fall. That’s also why FX, High Yield, Commodity, and Equity Volatilities continue to accelerate.

 

“So” (Janet said that every other sentence yesterday, proving she’s in the tank with #OldWall groupthink), now that most things Global Macro have corrected (and bounced) again, what do we do next?

 

  1. As Long-term Risk Managers (Long-term Investors, I know you like that term!) we want to have #patience
  2. From Oil to Energy stocks, to EM and High Yield, we want you to recognize that #Deflation’s Dominoes take time

 

What we don’t want you to do is very straightforward:

 

  1. Don’t chase high, and freak out low
  2. Don’t believe the Fed’s forecasts (front-run them)

 

That’s it – just #FadeBeta (when the non-consensus view on growth and/or inflation is the most probable one).

 

Don’t be a Consensus Macro perf chaser who gets stimulated above the 50-day moving monkey and depressed below it. That is not going to make you a warrior of the alpha generating gridiron. No Sirs and Madames. That is going to make you mentally weak.

 

I don’t do weak. And I don’t do drawdown risk either. If I can proactively prepare you for it, that is…

 

If you nailed every 50 handle whip-around in spooz perfectly for the last 2 weeks, congratulations. We had a great year here, so send me your docs and I might give you some of my money to manage. If you did not, and stayed the course of patient, dynamic asset allocation:

 

  1. You sold some of your long duration bonds at 2.03% on the 10yr
  2. You bought some #Quad4 US Equity Exposure (Healthcare or Utilities were 1-2 for us this week)
  3. You shorted more Burning Yens and Euros high, against a net long US Dollar FX asset allocation

 

I didn’t have to nail every US stock market move to get that right in our asset allocation model. I just had to have the patience to not buy the November highs in US stocks and/or get shaken out of my Long Bond and US Dollar allocations on the recent November pullbacks.

 

Patience and time. They work in risk management as well as your best long term ideas do. Be a powerful warrior versus the tyranny of centrally planned momentum chasing consensus.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.03-2.19%

SPX 1

VIX 16.33-25.27

USD 88.15-89.67

Yen 116.16-121.11

WTI Oil 52.49-59.91

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

#Patient Risk Managers  - 12.18.14 EL Chart


ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting

Takeaway: Investors pulled capital from both equity and fixed income mutual funds, placing $18 billion into money funds.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

Amidst global growth concerns, rising volatility, and sliding markets, net flows into risk assets were negative on both sides of the aisle in the 5 days ending December 10th according to the latest ICI Fund Flow Survey. Total bond funds lost $3.3 billion last week with equity funds also losing an equivalent $3.2 billion. Within the equity fund redemption was a $5.0 billion draw down in domestic stock funds, which makes it 30 of the past 33 weeks with outflow now totaling over $71 billion in domestic stock funds. This data continues to support our cautious stance on shares of T Rowe Price (TROW) and Janus Capital (JNS), especially into the seasonally weakest fourth quarter prints in January (see our JNS and TROW research here). Conversely, investors poured $18 billion into money market funds last week (which have now had $97 billion of inflows in the past 8 weeks), which supports our Best Long Idea for 2015, Federated Investors (FII) (see our FII research here). 

 

ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting - ICI 1 3

 

In the most recent 5 day period ending December 10th, total equity mutual funds put up net outflows of $3.3 billion according to the Investment Company Institute. The outflow was composed of domestic stock fund withdrawals of $5.0 billion versus the $1.7 billion subscription into international stock funds. The international and domestic equity categories continue to be polarized with international stock funds having inflows in 47 of the past 48 weeks, versus domestic trends which have been very soft with inflow in just 16 of the past 48 weeks. The running year-to-date weekly average for all equity fund flow continues to decline and now settles at a $850 million inflow, well below the $3.1 billion weekly average inflow from 2013. 

 

Fixed income mutual funds put up outflows of $3.3 billion with $4.4 billion of outflows in taxable funds being saved by $1.1 billion of inflows in tax-free funds.  Munis have had a solid run with subscriptions in 47 of the past 48 weeks. The 2014 weekly average for fixed income mutual funds now stands at a $1.0 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.3 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). 

 

Equity ETF results were resilient during the most recent 5 days, offsetting the outflow from equity mutual funds.  Equity ETFs put up a $3.8 billion inflow which is above the 2014 weekly average of a $2.7 billion inflow. Fixed income ETFs however put up a $126 million outflow, below the year-to-date average of $1.0 billion inflow.

 

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.   

 

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 - Defensive Money Funds are Positively Inflecting - ICI 2

 

ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting - ICI 3

 

ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting - ICI 4

 

ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting - ICI 5

 

ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting - 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 - Defensive Money Funds are Positively Inflecting - ICI 7 2

 

ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting - ICI 8 2

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the the XLB materials ETF experienced the largest flow on a percentage basis (+7% or +$179 million) with the XLY Consumer discretionary following at a +4% (+$302 million) inflow.

 

ICI Fund Flow Survey - Defensive Money Funds are Positively Inflecting - ICI 9

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $4.0 billion spread for the week ($563 million of total equity inflow versus the $3.4 billion outflow from 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 $2.2 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 - Defensive Money Funds are Positively Inflecting - 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 - Defensive Money Funds are Positively Inflecting - ICI 11 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

 


LVS SHORT: REMOVING FROM BEST IDEAS

Takeaway: Given the recent carnage in the name and potential for a relief rally off the sentiment ebb, we’d prefer to move to the sidelines.

We are removing LVS Short from the Hedgeye Best Ideas list.  We’ve been negative on the Macau stocks and LVS since February and acknowledge that signficant risks remain over the intermediate (trend) term.  However, investor sentiment may have bottomed.  We sense potential investors may be chomping at the bit to buy Macau at a perceived discount following the Chinese President’s visit tomorrow and the release of what is generally known to be awful revenue figures for December.  Thus, there appears to be increasing probability of a relief rally in the Macau stocks and while that’s not a great investment thesis, it is enough for us to recommend investors take profits in what has been a profitable short call. 

 

Significant risks are prevalent and we remain significantly below the Street for Q4 and 2015 estimates for LVS and the other Macau stocks.  Stay tuned.


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next