Client Talking Points
Neither did a follow through day on what looked like a classic bear-market bounce in Japanese stocks; Nikkei -2.5% overnight in what was an ugly session for Asian Equities – all the Fed has to do is no SEPT hike and the Dollar Down --> Yen Up --> Nikkei Down pattern repeats.
Oil seems to like the idea of no SEPT hike (new bull market catalyst = “higher gas prices”), +0.8% this morning to $44.48 with a risk range that finally implies a higher-low of support > $41/barrel WTI; if the Fed fights Fed Fund futures and hikes into the slow-down, we expect every “reflation” trade to get blasted.
The UST 10YR tapped 2.24% resistance yesterday and quickly backed off to 2.18% as U.S. Equities had another huge intraday reversal – it’s sad, but the Fed is still probably sitting there trying to make a game-day decision (on an injured economy) based on what SPY does – here’s the 3 month setup into the event.
**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE.
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Top Long Ideas
The franchisees voted YES on the proposal to launch All Day Breakfast nationwide at all 14,318 U.S. locations. This is a very important, monumental move by CEO Steve Easterbrook. It will define his legacy as the CEO that changed McDonald's (and the rest of the industry) for many years to come. In 2016, if MCD (with all day breakfast and an improved value message) can drive same-store sales up by 5%, the system will generate $1.9bn in incremental system-wide sales.
As noted in our survey we released on July 27th, it is evident that All Day Breakfast (ADB) will be a game changer for the company. Breakfast is the single most requested item by McDonald’s customers. Listening to the customer is a tried and true way to succeed.
Following our recent visit to Plainridge and meetings with senior management, we reiterate our positive Penn National Gaming thesis. Stability in regional markets provides good earnings visibility while expected strong contributions from Plainridge and Jamul next year should provide a nice 2 year growth story.
Regional gaming likely cooled off in August following a strong July. While that could provide some consternation as the states begin releasing August gaming revenues later this week, the YoY slowdown is more related to quantitative factors rather than the health of the regional gaming customer. September should quickly provide evidence of that.
The labor market peaks late cycle and the trend in key employment data suggest things are going from great to good (marginal changes matter). The ADP employment report showed a sequential acceleration, printing +190K vs. +185K in July. But to be clear, this series peaked at over +200K additions in the first couple of months of 2015. Initial jobless claims bottomed about six weeks ago. The trend in that series is moving back to the all-important 300K level. While the headline NFP number was a bomb on Friday, printing +173K for Aug. vs. estimates for +215K, the trend is also turning. This series also peaked back in February on a YoY rate-of-change basis.
Why do we point to all of this growth-slowing data? Because it’s meaningful.
Three for the Road
TWEET OF THE DAY
McCullough: 1987 Redux? https://app.hedgeye.com/insights/46254-mccullough-mccullough-1987-redux… via @KeithMcCullough
#markets #stocks $SPY $VIX $QQQ
QUOTE OF THE DAY
Doing what you like is freedom. Liking what you do is happiness.
STAT OF THE DAY
According to a Reuters estimate based on the monarchy's interests in its key investment vehicle, royal estates and its trove of treasures, the British monarchy has nominal assets worth about 22.8 billion pounds ($34.8 billion).
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Takeaway: Domestic equity funds experienced their first contribution in 27 weeks, but 2015 remains the worst year on record for the asset class.
Investment Company Institute Mutual Fund Data and ETF Money Flow:
In the 5-day period ending September 2nd, domestic equity funds experienced a +$1.8 billion contribution, the first positive flow to the asset class in 27 weeks. International equity funds also rebounded modestly with a +$191 million addition after last week's first registered redemption all year. Investors sourced the funds from bond products and money market funds. Taxable bond funds, tax-free bond funds, and money market funds gave up -$5.8 billion, -$510 million, and -$16.0 billion respectively, as fixed income markets have also been volatile.
Even with last week's contribution, domestic equity funds remain at a -$106.3 billion total outflow for 2015, -$20.5 billion worse at the same point in 2012 and -$41.8 billion worse than the same point in 2008. 2008 and 2012 are the second and third worst years on record after the current running 2015 period for domestic equity flows. 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).
In the most recent 5-day period ending September 2nd, total equity mutual funds put up net inflows of +$2.0 billion, outpacing the year-to-date weekly average outflow of -$190 million and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$191 million and domestic stock fund contributions of +$1.8 billion. International equity funds have had positive flows in 47 of the last 52 weeks while domestic equity funds have had only 10 weeks of positive flows over the same time period.
Fixed income mutual funds put up net outflows of -$6.3 billion, trailing the year-to-date weekly average inflow of +$635 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$510 million and taxable bond funds withdrawals of -$5.8 billion.
Equity ETFs had net subscriptions of +$7.4 billion, outpacing the year-to-date weekly average inflow of +$2.0 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$6.5 billion, outpacing the year-to-date weekly average inflow of +$1.0 billion 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:
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.
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:
Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed +$7.2 billion or +5% to the S&P 500 SPY ETF on higher confidence in the U.S. market following positive GDP data and dovish comments from Fed President William Dudley.
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.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$9.2 billion spread for the week (+$9.3 billion of total equity inflow net of the +$158 million 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 is +$1.9 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.)
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
On The Macro Show this morning, Hedgeye CEO Keith McCullough discusses what he calls the “Central Planning War Gone Wild” and advises against waiting for a singular catalyst to usher in the “Big Thing.” According to McCullough, in rate of change terms, there's reason to believe that it's already happening. He adds that there’s no reason why anyone should be surprised if U.S. stocks fell 10-20% from here.
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