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CHART OF THE DAY: Winning (Not Whining) Is The Name of This Game

Editor's Note: The chart and excerpt below are from today's Early Look written by Hedgeye CEO Keith McCullough. We have good reason to believe this morning note is the best way to begin your market day. Give us a try and see for yourself!

 

CHART OF THE DAY: Winning (Not Whining) Is The Name of This Game  - z z km 1

 

...It’s really not that complicated. What complicates Wall Street’s narrative is the excuse making.

 

What always happens on the downslope of the cycle (see basic rate-of-change sine curve in today’s Chart of The Day) is that bullishly biased investors start to give you every reason why “stocks are cheap” (as both growth and earnings slow).

 

Then, as “cheap” gets cheaper, their performance starts to come unglued, their frustrations mount, and the excuse making accelerates. All I have to say about that is A) evolve (this is the 3rd #LateCycle slowdown since 2000) and B) stop whining.

 


Every Reason

“It’s one way in, it’s one way out.”

-Jake Owen

 

For those of you country music fans in the Hedgeye community (rock on Jumbo Cleaves!), you’re probably familiar with a hit song by Jake Owen called “Every Reason I Go Back.” That’s where you’ll find the aforementioned quote. It’s a #beauty.

 

Jake Owen, like me, can be considered a jock – or a knucklehead. We’re supposed to be subservient to the intellect of the establishment. But we’re not. And we like it.

 

Owen was an aspiring pro-golfer turned wake-boarder (turned blown-out knee somewhere in Florida). So he picked up the guitar, grew out the flow – and the rest is history. His 1st hit (#1 on the charts) was called Barefoot Blue Jean Night in 2011.

 

Back to the Global Macro Grind

 

Gentlemen, do you wear jeans? How about jorts? Flannel? Flip Flops? Can you pivot between suits and tees? Or is it all about rocking the pocket scarf, all of the time? Ladies?

 

I personally don’t care what you look like. I couldn’t give a damn about what money you make (made) either. All I care about in life is who you are. You. The real you. The one who doesn’t change with money (or without). That’s character.

 

On our team, players who make excuses (when wrong) don’t make it. Something like this, for example: “We think much of the decline can be attributed to technical & systematic investors that are price-insensitive and largely indifferent to fundamentals..”

 

Really?

 

Every Reason - Bull bomb cartoon 09.01.2015

 

I didn’t hear you blaming your bull market returns on “systematic” chart chasing and bailout money printing. And how about those “fundamentals”?

 

Got #LateCyle, #Deflation, or Revenue/Earnings #GrowthSlowing? Even for a big time hedgie (you can look up who it is), solving for forward revenue and earnings growth is pretty fundamental (494/500 SP500 companies Q2 average rev/eps down -3%).

 

But I digress. After hearing about his “strategist” chirping my clients that “the market is going up from here” at ISI idea dinners throughout Q2, I had to call him out. It’s fine. He calls me out. He actually fired me for being right. And I liked that too.

 

In our risk management process, on the big stuff (growth and inflation), the cycles are both measurable and glacial. That means they take time to play out. It’s one way into a cycle peak, and only one way out. #Slowing

 

It’s really not that complicated. What complicates Wall Street’s narrative is the excuse making.

 

What always happens on the downslope of the cycle (see basic rate-of-change sine curve in today’s Chart of The Day) is that bullishly biased investors start to give you every reason why “stocks are cheap” (as both growth and earnings slow).

 

Then, as “cheap” gets cheaper, their performance starts to come unglued, their frustrations mount, and the excuse making accelerates. All I have to say about that is A) evolve (this is the 3rd #LateCycle slowdown since 2000) and B) stop whining.

 

Winning, not whining, is the name of this game – so let’s get back to focusing on that. I’m on my way to Chicago this morning and in bullet point form, this is what I see:

 

  1. Another bear market bounce based on HOPE for more central planning #COWBELL from Mario Draghi
  2. US stocks bouncing to lower-highs on DECELERATING volume (total equity market volume -8% vs 1mth avg)
  3. Russell 2000 and SP500 -11.5% and -8.5% from their #Bubble highs  
  4. SP500 risk range remains wacky wide at 1 with TAIL risk resistance above that at 2048
  5. US Equity VOLATILITY (VIX) remains in a raging bull market with a wide risk range of 21.63-41.90
  6. Draghi #Cowbell speculation weakening the Euro, strengthening the Dollar, perpetuating #DEFLATION
  7. Beta Chasing going back to Biotech (IBB +3.9% yesterday) since Oil & Gas (XOP) got smoked by #DEFLATION
  8. GOLD correcting (again) into the ECB meeting as Down Euro = Up Dollar = Down Gold
  9. OIL still in a nasty bear market with immediate-term downside to $35-36 for WTI and OVX range = 45-57
  10. Bond Yields, globally, “off the lows” of last week, as they have been on no-volume equity market bounces

 

Oh, and literally every major macro equity market signal, from Japan and South Korea to Germany, Russia, Brazil, France, Canada, and … yes, the USA, continues to signal bearish from an intermediate-term TREND perspective.

 

I think much of the decline can be attributed to the cycle and complacent investors who have been largely indifferent to macro fundamentals.

 

Below you’ll see our immediate-term Global Macro Risk Ranges with our intermediate-term TREND views (in brackets):

 

UST 10yr Yield 1.99-2.22% (bearish)

SPX 1 (bearish)
RUT 1080-1183 (bearish)
DAX 9614--10222 (bearish)

VIX 21.63-41.90 (bullish)
USD 93.65-96.41 (neutral)
EUR/USD 1.09-1.15 (neutral)
YEN 117.70-124.81 (neutral)
Oil (WTI) 35.81-48.35 (bearish)

Nat Gas 2.61-2.76 (bearish)

Gold 1115-1165 (bullish)
Copper 2.21-2.33 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Every Reason - z z km 1


LEISURE LETTER (09/3/2015) - APLE, CCL, RCL

TICKERS: APLE, CCL, RCL

COMPANY NEWS      

Station Casinos - A long-planned hotel expansion to Station Casinos' Indian gaming property in Northern California began Wednesday.  

  • The $175 million project will add a 200-room hotel tower and other nongaming amenities to the Graton Resort and Casino, which is located in the Sonoma County city of Rohnert Park. 
  • Station Casino manages the resort for Federated Indians of the Graton Rancheria. The project is expected to be completed late next year.  
  • Graton, which opened in November 2013 at cost of $800 million, currently contracts with neighboring hotels for its overnight guests. Graton is near the California wine country and adjacent to several golf courses.
  • "The simple answer is that we need rooms and it's one of the expectations of our guests," GM, Joe Hasson said. "This expansion allows us to become a full-scale destination resort."

ARTICLE HERE

Takeaway:  Pockets of growth in US gaming  

 

APLE - Apple Hospitality REIT, announced that it has closed on the previously announced acquisition of a 245-room Courtyard by Marriott in San Diego, CA for a purchase price of $56 million, or approximately $229,000 per key.

ARTICLE HERE

 

CCL - Holland America Line tests new internet social media plans.   Passengers sailing on Holland America may notice different Internet packages available for purchase.  The line is testing three new plans -- including one geared toward social media -- across its fleet for an indefinite time. 

ARTICLE HERE

 

RCL -  RCL is testing the waters at Wollongong's Port Kembla as a possible new homeport for its Australian fleet, which is fast running out of docking options in Sydney.  The operator has spent years seeking a solution to the chronic shortage of berths in Sydney Harbour, where the main cruise facility can accommodate only one ship at a time and its second terminal, in White Bay, is inaccessible to larger ships that cannot fit under the Sydney Harbour Bridge.  Port Kembla is about 80 kilometers (50 miles) from downtown Sydney. 

ARTICLE HERE

Takeaway: Could be a valid solution to Sydney's congestion issues. 

INDUSTRY NEWS 

Cuba Cruise Itineraries - A recent survey conducted by USA Today indicates that Cuba voyages haven't become that popular among American cruisers.  

  • The survey of 1,034 travel agents who book cruises by Travel Leaders Group found that just 2.9% have taken a booking for one of the recently announced Cuba voyages.  
  • Still, nearly 42% of travel agents queried said they've had a customer express interest in the trips.
  • One factor that may be keeping some Americans from booking the trips is that they're structured as "people-to-people" exchanges that are allowed under the USA's five-decade-old embargo of Cuba. General leisure travel from the USA to Cuba including traditional cruises still is banned.
  • The trips also are pricey, with fathom's new sailings starting at nearly $6,000 per couple for a week-long trip, not including taxes and port fees. That's more than triple the starting price for a typical seven-night Caribbean sailing with Carnival Corp.'s flagship Carnival brand.

ARTICLE HERE

Takeaway: It might take a little more time before the average cruiser is warmed up to the idea of a Cuban voyage.  

 

 


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.

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







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