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The Macro Show Replay | September 3, 2015

 


September 3, 2015

September 3, 2015 - Slide1

 

BULLISH TRENDS

September 3, 2015 - Slide2

September 3, 2015 - Slide3

 

BEARISH TRENDS

September 3, 2015 - Slide4

September 3, 2015 - Slide5

September 3, 2015 - Slide6 

September 3, 2015 - Slide7

September 3, 2015 - Slide8

September 3, 2015 - Slide9

September 3, 2015 - Slide10


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds

Takeaway: Every asset class lost funds last week except for money markets with international equity posting its first redemption of 2015

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the five days ending August 26th, investors pulled funds from every risk asset class on a net basis but shored up +$9 billion in money market funds on global market volatility. Taxable bond funds lost -$11.4 billion, their largest outflow in 47 weeks. Hybrid funds experienced an uncharacteristically large outflow of -$4.3 billion, the largest since November 16th, 2011. International equity funds, which had not experienced a weekly outflow all year, lost -$1.2 billion in the most recent 5 day period of the survey. Finally, as expected, the extreme market turbulence only strengthened the short case against the domestic equity managers, with domestic mutual funds losing another -$9.8 billion last week. The asset class has now lost a total of -$108.1 billion in 2015, the worst start to a 35 week period in the history of the ICI data. T. Rowe Price (TROW) stock with over 60% of its assets-under-management (AUM) in mutual funds and 85% of its AUM in domestic products continues to be our Short/Avoid proxy on these trends (see our TROW report HERE). Conversely, the +$9 billion build during the week into money funds has aggregated to +$79 billion in new cash/money funds quarter-to-date in 3Q15. This compares to the +$43 billion build for the entire 3rd quarter last year, so with still 4 weeks left in the 3Q15 operating period, our Best Ideas Long position in Federated Investors (FII) is experiencing solid fundamental trends in its core business (see our FII report HERE)


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI1


In the most recent 5-day period ending August 26th, total equity mutual funds put up net outflows of -$11.0 billion, trailing the year-to-date weekly average outflow of -$253 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$1.2 billion and domestic stock fund withdrawals of -$9.8 billion. International equity funds have had positive flows in 47 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 -$12.1 billion, trailing the year-to-date weekly average inflow of +$844 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$715 million and taxable bond funds withdrawals of -$11.4 billion.


Equity ETFs had net redemptions of -$10.5 billion, trailing the year-to-date weekly average inflow of +$1.8 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$1.7 billion, outpacing the year-to-date weekly average inflow of +$840 million and 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 | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI2


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI3


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI4


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI5


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - 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 | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI12


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI13


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI14


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI15


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - 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 | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI7


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors continued to seek safety in the long treasury TLT ETF. The TLT took in +$275 million or +5% in contributions last week.


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - 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 | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI17


ICI Fund Flow Survey | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$11.1 billion spread for the week (-$21.5 billion of total equity outflow net of the -$10.4 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 is +$1.8 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 | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - 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 | The Slippery Slope - Fear in Equities - A Bull Market for Money Funds - ICI11 



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.

CORRECTION: Stock Report: Gold (GLD)

Takeaway: We added Gold to Investing Ideas on Friday, August 28th.

Editor's note: In the second paragraph below, the original version inadvertently read "...consensus was positioned for a rate cut." We apologize for the error. Of course, we meant rate "hike."

 

CORRECTION: Stock Report: Gold (GLD) - z banner HE GLD T 9 2 15

THE HEDGEYE EDGE

From an asset allocation perspective, when growth is slowing and inflation is tracking well below target central bank levels, the dogmatic policy response is to ease.

 

Because the market is currently sniffing a dovish policy shift from the Fed, we decided to take down our U.S. Dollar exposure and add some gold. Remember, as we outlined three weeks ago, consensus was positioned for a rate hike (short gold and oil and long dollars). The risk embedded in a disappointment (which we called out) is now unfolding.  

 

Aside from the week-to-week policy whispers (you’ll get more of it tomorrow at the ECB meeting), remember that the modern day Fed has never normalized policy into a late-cycle slowdown. This has been somewhat baked into market expectations over the last few weeks. But many Fed members remain hell-bent on hiking the federal funds rate this year. It’s possible that they, and actual market participants, will be disappointed.     

 

As our CEO Keith McCullough wrote yesterday, our core long ideas right now are:

  1. Long the Long Bond
  2. Long Gold
  3. Long Cash

Gold loves down Dollar and down rates. Period.

TIMESPAN

 

INTERMEDIATE TERM (TREND) (the next 3 months or more)

  • Inflation expectations have crashed 
  • Relative central bank policy around the globe has exacerbated a strong dollar deflationary environment
  • The Fed won’t sit on its hands. They’ll either “kick the can” or hike into a late-cycle slowdown which could spiral into QE4 which would crush the dollar.

 

We always model a high and a low range estimate in the Hedgeye Predictive Tracking Algorithm Model for any country’s GDP. For Q3, here are those two scenarios:

 

A)     HIGH: Q3 2015 GDP (E) 1.5%

B)      LOW: Q3 2015 GDP (E) 0.1%

 

Notice that this range of Hedgeye estimates (should it even be remotely correct) is country miles apart from the 3.7% Q/Q SAAR. A deceleration even using that methodology is probable.

 

Cue the cowbell.

 

 

LONG TERM (TAIL) (the next 3 years or less)

Cyclical and secular headwinds are matching up at the same time for a deadly combination. Our expectation is that global central banks will all drive interest rates right to zero (devalue until it’s over).

 

After that, we’ll see what happens.

 

Read a history book. You will want some gold when it all ends. 

ONE-YEAR TRAILING CHART

CORRECTION: Stock Report: Gold (GLD) - z chart HE GLD C 9 2 15


Stock Report: Gold (GLD)

Takeaway: We added Gold to Investing Ideas on Friday, August 28th.

Stock Report: Gold (GLD) - z banner HE GLD T 9 2 15

THE HEDGEYE EDGE

From an asset allocation perspective, when growth is slowing and inflation is tracking well below target central bank levels, the dogmatic policy response is to ease.

 

Because the market is currently sniffing a dovish policy shift from the Fed, we decided to take down our U.S. Dollar exposure and add some gold. Remember, as we outlined three weeks ago, consensus was positioned for a rate hike (short gold and oil and long dollars). The risk embedded in a disappointment (which we called out) is now unfolding.  

 

Aside from the week-to-week policy whispers (you’ll get more of it tomorrow at the ECB meeting), remember that the modern day Fed has never normalized policy into a late-cycle slowdown. This has been somewhat baked into market expectations over the last few weeks. But many Fed members remain hell-bent on hiking the federal funds rate this year. It’s possible that they, and actual market participants, will be disappointed.     

 

As our CEO Keith McCullough wrote yesterday, our core long ideas right now are:

  1. Long the Long Bond
  2. Long Gold
  3. Long Cash

Gold loves down Dollar and down rates. Period.

TIMESPAN

INTERMEDIATE TERM (TREND) (the next 3 months or more)

  • Inflation expectations have crashed 
  • Relative central bank policy around the globe has exacerbated a strong dollar deflationary environment
  • The Fed won’t sit on its hands. They’ll either “kick the can” or hike into a late-cycle slowdown which could spiral into QE4 which would crush the dollar.

 

We always model a high and a low range estimate in the Hedgeye Predictive Tracking Algorithm Model for any country’s GDP. For Q3, here are those two scenarios:

 

A)     HIGH: Q3 2015 GDP (E) 1.5%

B)      LOW: Q3 2015 GDP (E) 0.1%

 

Notice that this range of Hedgeye estimates (should it even be remotely correct) is country miles apart from the 3.7% Q/Q SAAR. A deceleration even using that methodology is probable.

 

Cue the cowbell.

 

 

LONG TERM (TAIL) (the next 3 years or less)

Cyclical and secular headwinds are matching up at the same time for a deadly combination. Our expectation is that global central banks will all drive interest rates right to zero (devalue until it’s over).

 

After that, we’ll see what happens.

 

Read a history book. You will want some gold when it all ends. 

ONE-YEAR TRAILING CHART

Stock Report: Gold (GLD) - z chart HE GLD C 9 2 15


Sorry Buds, ‘This” Is Not Just Like ‘That’

 

Hedgeye CEO Keith McCullough got unusually animated during RTA Live this morning when discussing central banks, economic cycles and the flawed analysis many people (who should know better) make when analyzing the two.

 

Subscribe to Real-Time Alerts today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.

 


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