Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
Takeaway: KSS positive sales performance does not look company specific with strong DDS, BONT, BLKIA results. ICSC sales feel the chill.
EVENTS TO WATCH
Takeaway: DDS put up a very good 4Q, leveraging a 3% comp into 17% EPS growth. This should help put the 3.7% KSS comp into perspective. Since KSS released its sales results for the quarter, we've been barraged with concerns that the company's new strategies like Beauty, National Brands, and new Rewards program will create a 1-2 year period where KSS meaningfully outperforms the group. We simply don't think that's true. We think the results from DDS, and what we saw over the holiday (and should see in upcoming EPS) from fellow mid-tier department stores like Belk and Bon-Ton will show that the lion's share of KSS' strength was definitely not company specific. It remains one of our top shorts, and we think that earnings are ultimately headed closer to $3.00, while the consensus (and current valuation) is eyeing something closer to $6.
ICSC RETAIL SALES (80 General Merchandise Stores)
Takeaway: As brutal as the weather was last year during the polar vortex, this year is not far behind. And it's gotten sequentially worse as the year has progressed which we think helps explain the 2yr trend in the ICSC numbers. It's still to early in this year's first fiscal quarter (3 weeks in) to make sweeping generalizations about impacts from weather, but to date it's been less than an easy compare.
TGT - Report: Target expands app functionality
NKE, ZU - Converse Settles With H&M, Zulilys
BBY - Best Buy opening tech center in Seattle
AMZN - Amazon wears Prada
GPS - Intermix Taps Former Saks Chief Merchant
APP - American Apparel Further Strengthens its Management Team
URBN - Anthropologie expands in France
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Despite the 3-week counter-TREND reflation move in February, #deflation remains our Top Global Macro Theme right now. The Eurozone just reported lower-lows in CPI at -0.6% year-over-year and the U.S. is going to print another CPI miss on Thursday. Will Janet Yellen be as dovish as this data is going to get come June?
Stay tuned. Her forecasts are the problem.
On a related note, UST 10YR Yields finally backed off @Hedgeye resistance and remains bearish TREND ahead of both the Yellen comments and slowing CPI and GDP data on Thursday and Friday. The immediate-term risk range is now 1.85-2.16% and that made REITS the best sub-sector yesterday +0.7% vs. Oil & Gas stocks (XOP) -0.9%.
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Takeaway: Make it 6 for 6 or all weekly periods in 2015 as having higher demand for fixed income than equities
This note was originally published February 19, 2015 at 07:14 in Financials. Click here for more information on how you can become a subscriber to Hedgeye.
Investment Company Institute Mutual Fund Data and ETF Money Flow:
Investors remained defensive in the most recent mutual fund and ETF money flow survey for the week ending February 11th. The sum of total equity mutual funds and ETFs against total bond mutual funds and ETFs, remained negative (-$2.1 billion) for the sixth straight week which has now totaled -$39.0 billion thus far this year (a $39 billion favoritism by investors for fixed income versus equities). For the equivalent first six weeks of 2014, investors had favored equities over fixed income by a +$31.3 billion spread, highlighting the very risk averse start to the New Year. In addition, investors built up cash positions last week, contributing +$4 billion to money market funds.
Focusing on domestic equity mutual fund flows, even with a quick 3 week positive subscription of +$7.8 billion for the prior 3 weeks, domestic equity mutual funds put up another loss of -$27 million this week and have now lost -$62.4 billion over the past 52 weeks (with outflows in 37 of 52 weeks). We continue to flag caution for the most directly affected managers in this group with our underweight or short views on T Rowe Price and Janus Capital (see our TROW and JNS research).
In the most recent 5 day period, ending February 11th, total equity mutual funds put up net inflows of +$1.3 billion according to the Investment Company Institute, lagging the year-to-date weekly average inflow of +$1.5 billion but outpacing the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$1.3 billion and domestic stock fund withdrawals of -$27 million. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 15 weeks of positive flows over the same time period.
Fixed income mutual funds put up inflows of +$5.9 billion, outpacing their year-to-date weekly average inflow of +$2.7 billion and their 2014 average inflow of +$929 million. The inflow was composed of +$5.2 billion of contributions to taxable funds and +$693 million of contributions to tax-free or municipal bond funds. Munis have had a solid run with subscriptions in 51 of the last 52 weeks.
Equity ETFs gained +$4.7 billion in contributions, outpacing both the year-to-date weekly average outflow of -$2.3 billion and the 2014 weekly average inflow of +$3.2 billion. Fixed income ETFs took in +$2.2 billion, trailing the year-to-date weekly average inflow of +$3.0 billion but outpacing the 2014 weekly average inflow 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.
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 weekly average for 2014 and the weekly quarter-to-date average for 1Q 2015:
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), the weekly average for 2014, and the weekly quarter-to-date average for 1Q 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:
Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR call-outs, energy XLE flows continue to track performance; the XLE returned -0.63% from 2/5 to 2/11 and lost -4% (-$570 million) in withdrawals over the same period. Separately, investors continue to make defensive sector allocations, contributing +4% (+$302 million) to the utilities exchange traded fund the XLU.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$2.1 billion spread for the week (+$5.9 billion of total equity inflow outweighed by the +$8.1 billion inflow to 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 +$1.6 billion (more positive money flow to equities), with a 52 week high of +$27.9 billion (more positive money flow to equities) and a 52 week low of -$15.5 billion (negative numbers imply more positive money flow to bonds for the week).
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:
Jonathan Casteleyn, CFA, CMT
Joshua Steiner, CFA
Takeaway: The Year of the Goat is starting off baaaadly. Lowering Feb and 2015 forecast
CALL TO ACTION
The Macau stocks have worked against us the last few weeks; that is to say they’ve worked higher. However, February 2015 doesn’t just face a difficult comparison, trends are deteriorating and the month is set up to fall at least 50%, much worse than the consensus 30-35% decline projected before the month started. The latest weekly numbers were awful, a sequential decline despite the onset of the Chinese New Year celebration. With still deteriorating market conditions – March looks awful - and new risks emerging including a further restriction of Visa travel, the outlook for Macau stocks looks lower, possibly retesting 52 week lows.
Please see our detailed note:
Despite the 3 week counter-TREND reflation move in FEB, this remains our Top Global Macro Theme right now. The Eurozone just reported lower-lows in CPI at -0.6% year-over-year and the U.S. is going to print another CPI miss on Thursday. Will Janet Yellen be as dovish as this data is going to get come JUN? Stay tuned. Her forecasts are the problem.
Burning Yens and Euros perpetuate #StrongDollar, so this Yen move to -0.6% gets you new 15 year highs in the Nikkei (+0.7% overnight to +6.6% year-to-date), but it also gets you an uglier Oil price deck and falling CRB Commodities Index (-1.2% yesterday to -3.5% year-to-date). Coffee prices pounded yesterday -3.3% to -13.3% year-to-date!
UST 10YR Yields finally backed off @Hedgeye resistance and remains bearish TREND ahead of both the Yellen comments and slowing CPI and GDP data (Thursday/Friday) – immediate-term risk range is now 1.85-2.16% and that made REITS the best sub-sector yesterday +0.7% vs. Oil & Gas stocks (XOP) -0.9%.
|FIXED INCOME||29%||INTL CURRENCIES||13%|
You want to own the Vanguard Extended Duration Treasury (EDV) in this current yield-chasing, growth slowing environment. The trend in domestic growth continues to signal growth slowing, and the counter-TREND moves we’ve seen over the last few weeks (@Hedgeye TREND is our view on a 3-Month or more duration) remain something to fade until we can see more follow-through that growth is trending more positively (second-derivative positive).
Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.
Hologic (HOLX), at this stage in their product cycle and in the current stage of the economic cycle, has some very impactful tailwinds emerging to their revenue growth and the implied growth in the future. A stock generally will perform really well when doubt about future growth turns to optimism while the most recent data confirms the optimism. So far, we have a little bit of both; recent positive data like the December 2014 quarter upside and consensus estimates and ratings starting to move off of multi-year lows. A less-worse trend in Pap testing and rising patient volume can combine to get us close to flat for HOX’s Cytology (Pap) business. As the growth in Cytology improves and is less of a drag, the 3D Mammography growth can flow through. We think the outlook is bright, and with a few more data points, we think a lot more investors will agree with us.
The Dr (Copper -0.3% to $2.53/lb) continues to get us paid on the short side, in #Deflation terms
My only plan is to keep coming to work
The market cap of the largest publicly traded U.S. company Apple is for the first time in 30 years more than twice the size of the market cap of the runner up (Exxon Mobil Corp.). Apple’s cap is $765 billion, Exxon’s is $374 billion.
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