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CoreLogic | Would the Real HPI Please Stand Up

Takeaway: CoreLogic again shows dramatic acceleration in HPI in July. Our enthusiasm is tempered only slightly by the trend toward downward revisions.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

CoreLogic | Would the Real HPI Please Stand Up - Compendium 090115

 

Today's Focus: July CoreLogic Home Price Report

 

CoreLogic HPI:  Home prices rose +1.7% month-over-month in July with year-over-year growth accelerating +130 bps sequentially to +6.9% - marking a 5th month of acceleration off the Feb ’15 RoC trough.   Prices lag demand trends by ~12 months and rising TTM demand along with the prevailing tight supply environment argue for further acceleration in HPI over the nearer-term.  

 

Revisions: Magnitude, Not Direction:  Downward revisions to prior month estimates have been serial in the CoreLogic HPI series over the last ~12+ months.  The August release continued that trend as the rate of change in HPI was revised lower by -30bps and -90bps in May and June, respectively (see 1st chart below). 

 

In short, the recurrent trend in CoreLogic estimates has been this: 

 

Initial estimates show a remarkable sequential acceleration in HPI ---> Subsequent downward revisions reflect only a modest acceleration ---> the direction of the 2nd derivative trend remains intact upon final revision but the magnitude of RoC improvement is significantly more muted than original estimates.

 

Given the prevailing trend, it’s likely the July figures see another downward revision while leaving the larger trend towards accelerating price growth in tact.  The larger trend towards acceleration is the key takeaway as rising price growth supports higher ASP’s, builder margin expansion, and positive equity performance across the housing complex.    

 

Further, it’s likely the trend across all three primary price series (CoreLogic, FHFA, Case-Shiller) becomes more congruent as the price trend matures.  Specifically, we’d expect the Case-Shiller series - which is the most lagging and currently reflecting flat price growth – to play catch-up to the CoreLogic data on a lag and as the trend becomes more firmly entrenched.  Historically, as can be seen in the 2nd chart below, the catch-up and overshoot dynamic has been typical of the Case-Shiller data over the last two decades. 

 

 

CoreLogic | Would the Real HPI Please Stand Up - CoreLogic July   June Revision

 

CoreLogic | Would the Real HPI Please Stand Up - CoreLogic vs CS LT

 

CoreLogic | Would the Real HPI Please Stand Up - Corelogic YoY TTM

 

CoreLogic | Would the Real HPI Please Stand Up - Corelogic Ex Distressed YoY TTM

 

 

 

 

About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."

 

Joshua Steiner, CFA

 

Christian B. Drake


P: Be Very Careful (WebIV)

Takeaway: Both sides of the trade need to be careful into the next catalyst. P could rip on fool’s gold, but will likely lose out in the end.

KEY POINTS

  1. THE NEXT CATALYST: SoundExchange (SX) went over the top in its Proposed Conclusions of Law, trying to get the P-Merlin deal thrown out altogether; suggesting that the deal is a derivative of the Pureplay Agreement, which is inadmissible as a benchmark for Web IV.  The CRB judges have punted to Copyright Register, asking if they are allowed to consider a market agreement if it references and/or is influenced by the Pureplay agreement.  The Register will make a decision within 30 days after the last submission from the involved parties (i.e. no later than 9/14). 
  2. NOT SURE WHO WINS HERE: In short, P is arguing that P-Merlin is admissible since the statute only only forbids compromise agreements (e.g. Pureplay) between the receiving agent (i.e. SX)  and the Services (e.g. P) from being considered, and SX was not involved in P-Merlin.  SX is deferring to Congressional intent, suggesting that the broad language of that statue doesn’t allow for a narrow interpretation, otherwise Congress wouldn’t have included qualifiers such as “or otherwise taken into account”.  It’s tough to build conviction either way.
  3. SELL THE NEWS REGARDLESS: Two potential outcomes; both tilted in SX's favor.  1) The Register could rule in favor of Sx, and imply that P-Merlin is inadmissible (game over for P).  2) the Register could punt back to the CRB judges, which the street will mistakenly view as a premature victory for P.  However, the latter only means that the decision falls back to the CRB judges to rule on the P-Merlin deal as a valid benchmark.  The fact that the CRB judges are asking the Register whether it should throw it out to begin with suggests that it already believes that P-Merlin is a weak benchmark. 
  4. P MAY HAVE ALREADY LOST: P has conceded in its initial response to the CRB Judges' questions to the Register that P-Merlin was influenced by the Pureplay agreement, which it is also called the prevailing “statutory rate”.  For context, The Web III Remand judges stated that, “The Act instructs the Judges to use the willing buyer/willing seller construct, assuming no statutory license”.  That said, the Web IV CRB judges would need to dissent from the prior Judges' decision for P-Merlin to get any credence.  Both the Web II and Web III Judges used prior Judges' interpretations as precedent in their rulings.  We're not sure why that would be any different this time around.

 

See notes below for supporting detail on our Web IV analysis.  Let us know if you have any questions, or would like to discuss in more detail. 

 

Hesham Shaaban, CFA


@HedgeyeInternet 

  

WEBCASTER IV NOTES 

 

P: Notes from WebIV Closing Arguments
07/22/15 01:26 PM EDT
[click here]

 

P: Losing the Critical Debate?
04/08/15 08:53 AM EDT
[click here]

 

P: Worst-Case Scenario? (Web IV)
03/23/15 09:30 AM EDT
[click here]

 

P: Webcaster IV = Powder Keg
01/13/15 02:49 PM EST
[click here]

 


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008

This research note was originally published August 27, 2015 at 08:22. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Domestic equity funds continue their streak of outflows, now at 25 consecutive weeks with another -$5.2 billion reigned in by investors in the most recent 5 days. The table below shows all domestic equity outflow sequences greater than 4 consecutive weeks in data going back to 2008. We considered a streak of outflows broken by 4 weeks of consecutive inflows. Within these parameters, there have been 8 total outflow sequences with the mean lasting 40 weeks with $105 billion lost on average. The current sequence, as of August 19th, is only the 8th longest in weekly duration, but at -$101.0 billion in total outflows lost, it is the 4th largest in magnitude. With an average outflow of -$4.0 billion per week, the running 2015 outflow is fastest pace on record in our data back to '08. 

 

ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI20 4

 

In other products, intermediate trends continued with investors fleeing fixed income given worries over the direction of short-term interest rates. In the most 5 day period, investors pulled -$1.3 billion from total bond mutual funds and ETFs with these withdrawals continuing to fund international equity investments. This week international funds took in +$4.7 billion, their largest inflow since +$5.0 billion in the week ending April 18th, 2007. 

 

ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI1


In the most recent 5-day period ending August 19th, total equity mutual funds put up net outflows of -$554 million, trailing the year-to-date weekly average inflow of +$70 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund contributions of +$4.7 billion and domestic stock fund withdrawals of -$5.2 billion. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 9 weeks of positive flows over the same time period.


Fixed income mutual funds put up net outflows of -$2.3 billion, trailing the year-to-date weekly average inflow of +$1.2 billion and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$50 million and taxable bond funds withdrawals of -$2.3 billion.


Equity ETFs had net redemptions of -$238 million, trailing the year-to-date weekly average inflow of +$2.2 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$968 million, outpacing the year-to-date weekly average inflow of +$814 million but trailing the 2014 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 year-to-date average for 2015:


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI2


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI3


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI4


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI5


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI12


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI13


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI14


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI15


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI16



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 year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI7


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed a massive +9% or +$448 million to the long treasury TLT ETF as they sought safety on Chinese and global growth concerns.


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI17


ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$524 million spread for the week (-$792 million of total equity outflow net of the -$1.3 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 is +$2.0 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 -$18.1 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI10



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 | 2015 Outflow Is Fastest Pace on Record Going Back to 2008 - ICI11 



Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 


Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com







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CHART OF THE DAY: Don't Go Chasing the Bounce With This Kind of Volatility | $VIX

Editor's Note: The following chart and excerpt are from today's Early Look written by Hedgeye CEO Keith McCullough. Click here if you'd like to say goodbye to lousy research and access some of the best around.

 

CHART OF THE DAY: Don't Go Chasing the Bounce With This Kind of Volatility | $VIX - zz dd 09.01.15 chart

 

...Volatility certainly has. And I’m not just talking about US Equity VIX ripping through 30 (again) this morning. Cross-asset-class volatility was a Phase Transition call we made in our 2014 Q3 (July) Macro Themes deck. So maybe that one is 12 months in!


Disenchanting Signals

“Disenchantment, whether it is a minor disappointment or a major shock, is the signal that things are moving into transition.”

-William Bridges

 

That’s a quote about life. But it fits my risk management framework for not only proactively preparing for Phase Transitions in markets, but for having the patience and #process to see those transitions play out.

 

Patience? It’s a word “long-term investors” seem quite amenable to using, other than when explaining why one of the lowest-beta, high return, positions during a slower-for-longer phase in both the Global and US economies, is the Long Bond.

 

We’re most bullish on Treasuries and Gold here. Others still like stocks. Will they be disenchanted with the selloff we’ll see to start September? Yes. How many others reworked and reset their risk parameters for causal risk factors that changed? We’ll see.

Disenchanting Signals - Gold Bond cartoon 07.10.2014

 

Back to the Global Macro Grind

 

Selling into a bounce (on decelerating volume) should be a lot easier than selling into the all-time highs. That said, when you seek a bullish confirmation bias, that risk management exercise can be trying.

 

To review: Hedgeye didn’t add the SP500 to our Best Short Ideas until we released our Macro Themes Deck for Q3 in July.  I won’t rehash the many interconnected macro reasons for that this morning, as I think I’ve been as clear as I can be.

 

At -6.3%, August of 2015 was the worst August for the SP500 since 2001. From a Sector Style perspective, Financials shocked the most amount of people at the most inopportune time (XLF -7.1% on the month) as consensus continued to bet on “higher rates.”

 

Other Sector Style callouts were:

 

  1. Utilities (XLU) outperforming early in the month, then getting slammed into month-end to close AUG -3.5%
  2. Healthcare (XLV) underperforming for most of the month, closing AUG -7.96%
  3. Energy (XLE) outperforming at the end of the month, closing AUG -4.3%

 

So, I guess, the new bull case from my competitors is “higher gas prices is clearly bullish for back-to-school.” Or something like that. But in all seriousness, this is getting serious – and there’s no value in debating Old Wall’s perma bull marketing ways.

 

It’s serious (and unnerving) because it appears that consensus is now LONGER (net) than they were last time the SP500 tested 1930. And since I have no support to 1, I think you should seriously think about that risk (the crowd) if it continues to manifest.

 

Another way to think about risk isn’t so much about depending on the market telling you where volatility adjusted “levels” of probable risk are (see my draw-down risk levels from my Friday Early Look note). It’s to overlay those signals with research.

 

Research, in rate of change terms, should go both ways. When undergoing a bullish (growth) to bearish Phase Transition, I like to think of the “research call” (different than the daily quantitative flow of the call) in three phases:

 

  1. Taking a non-consensus position early, but not too early (in July, Long Treasuries, Short Stocks)
  2. Staying with the short call after the 1st big “bounce” until your research catalysts play out
  3. Getting out of the call once something like #LateCycle + #Deflation becomes priced in as consensus

 

Currently we’re in Phase 2. And a lot of people are still trying to figure out what Phase 1 was all about (hint: it wasn’t just “China”).

 

While I suspect that Phase 2 can take some time (6-18 months, for starters – and we’re 3 months in), market history suggests that there’s nothing typical that maps out the “pricing in” of big top-down risks.

 

#EmbraceUncertainty

 

Volatility certainly has. And I’m not just talking about US Equity VIX ripping through 30 (again) this morning. Cross-asset-class volatility was a Phase Transition call we made in our 2014 Q3 (July) Macro Themes deck. So maybe that one is 12 months in!

 

Look at Oil, for example.

 

  1. BREAKING NEWS (on Bloomberg yesterday): “Oil Enters Bull Market”
  2. Lol
  3. Oil Volatility (OVX), meanwhile was making a 3-month high at 54!

 

Now what?

 

  1. Hedgeye’s long-term TAIL risk level of resistance for Oil (WTI) remains overhead at $60.74
  2. Oil’s (WTI) immediate-term risk range (the quantitative signal) = $35.74-48.93
  3. With Oil down -2% this morning, it could drop -25% (crash) from here, with no surprise

 

No surprise to our #process, that is. But I’d say that would probably be a tad disenchanting to whoever covered their Chesapeake (CHK) shorts into the close yesterday. We waited and watched and sent out another SELL signal on that into the close.

 

Contrary to popular “long-term” marketing beliefs, timing does matter; especially when in a Phase Transition. And our goal isn’t to rub that in our competition’s face. It’s to pound it into the keyboard so that it finds some place in your process.

 

Whether it is a minor disappointment or a major shock, our goal as a risk manager is to help you during transitions. After the last two cycle tops (2000 and 2007), we’re thinking your clients want to see that you’ve evolved your process and don’t have to make excuses.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.99-2.22%

SPX 1
DAX 9604--10272
VIX 20.82-42.50

Gold 1111-1165

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Disenchanting Signals - zz dd 09.01.15 chart


The Macro Show Replay | September 1, 2015

 


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