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Gaining Insight?

“The goal is to transform data into information, and information into insight.”

-Carly Fiorina

 

That would (should) be the goal of any coach, captain, or executive. Sadly, it’s not the goal of central planners. They are mostly dogmatic-academic types whose goal is to obfuscate the data into their thesis, and their thesis into more central plans.

 

Dr. Gary Klein did a great job outlining the risks of ideologues and flawed beliefs in Seeing What Others Don’t. Here’s how he distinguished “successes from failures” in idea generation and decision making (pg 120):

 

  NO INSIGHT                       <--              -->     GAINED INSIGHT

  1. Gripped by flawed beliefs                    Escaped the fixation of flawed beliefs
  2. Lack of experience                                Experience
  3. Passive Stances                                     Active Stances

 

If your premise is that a bureaucrat (with no market experience) can part the heavens and smooth economic gravity, you’re gripped by some serious human hubris. If every impotent market policy move is met with more policy moves, there is no insight in that.

Gaining Insight? - campfire cartoon 10.31.2014

 

Back to the Global Macro Grind

 

“So”, since 90 TRILLION Yen in money printing + the 3 arrows of “Abenomics” isn’t working, what did the Japanese announce overnight? “Three More Arrows”!

 

I seriously couldn’t make that up if I tried. And if a spend more than another sentence on what the 3 “new” policies are, today’s note is going to turn into a joke (1. “Stronger Economy” 2. “Welfare” and 3. “nominal GDP target of 600T Yen”).

 

Best of luck with that, dudes.

 

In other central-market-planning news this morning the Norwegians have proclaimed their mystery of faith to the world that they can solve for all that is #Deflating in Norway with “rate cuts.” They’re cutting by 25bps to 0.75% and say they “can do more!”

 

I bet they can!

 

Europe, meanwhile, is right confused this morning:

 

  1. Draghi says he doesn’t need to deliver more #cowbell, because #EuropeSlowing isn’t yet clear to him
  2. Weidmann (head of the Bundesbank) says he’s “skeptical” about QE’s impact on the real economy altogether

 

The problem with the pending Draghi vs. Weidmann debate is that they aren’t debating #GrowthSlowing, yet. As the European data continues to slow, and the German stock market continues to crash (-22% since April), you can bet your Madoff that will change.

 

In the meantime, what is a Global Macro risk manager of this central-planning experiment gone bad to do?

 

  1. Stay away from cyclical stocks and “reflation” (locally and globally)
  2. Stay with long-term government bonds
  3. Keep building up that new contrarian Gold position

 

Yep. Until Draghi starts freaking out Weidmann with more “data/information” (like Sweden and Finland reporting new lows in Producer Price (PPI) #Deflation of -2.2% and -1.1%, respectively, this morning), Euro Up = Dollar Down = Gold Up. I like that.

 

As you know, I’m all about showing you the love these days. But don’t confuse my love for life, liberty, and free-market capitalism with a love for any trade-able security. My goal is to like/dislike macro positions as they undergo Phase Transitions. That is all.

 

What could get me to move off of the 0% net asset allocation to Equities in both the US and International markets? That’s simple. The combination of my macro market signals and research information. Until growth stops slowing at an accelerating rate, I’m all set.

 

Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND research views in brackets) are now:

 

UST 10yr Yield 2.08-2.20% (bearish)

SPX 1 (bearish)
DAX 9 (bearish)
VIX 19.90-26.62 (bullish)
USD 94.41-96.69 (neutral)
EUR/USD 1.10-1.14 (neutral)

Gold 1120-1148 (bullish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gaining Insight? - z ben 09.24.15 chart


Euro, Gold and the Dax

Client Talking Points

EURO

The Euro bounced right off our $1.10 TRADE support and seeing follow through to $1.12 vs. USD this morning as Bundesbank chief Jens Weidmann outlines his skepticism towards QE post the ECB President Mario Draghi fade – lots of macro moves on this.

GOLD

Long Gold is one of the plays after Up Euro = Down Dollar (Up Gold) and looks good post our Real-Time Alert to buy it again yesterday post the Draghi speech. To get a bigger breakout in Gold (toward $1190) we’d need the Fed to fade on the DEC hike (which we think they will).

DAX

The DAX does not like the Draghi fading – straight back down yesterday into crash mode (currently no bounce this morning -22.2% since April); reminder that we have the lowest European (and German) GDP estimates on the Street for both Q3/Q4 and 2016 #EuropeSlowing.

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 68% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 8%
FIXED INCOME 24% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald’s remains one of our Restaurant teams Best Ideas on the LONG side.  We continue to believe that 3Q15 will be the inflection point for the company’s turnaround and that we are going to be looking at a much different company 1-3 years from now.

 

Urgency has been instilled from the top down by new CEO Steve Easterbrook. He wants more speed and is encouraging people to get things done faster. The food and experience provided to the customer will greatly improve over the coming months as “Experience the Future” is implemented across the system. It won’t be instantaneous though, as MCD has a lot of work to do around changing the perception to bring back customers it may have lost.

PENN

Penn National Gaming continues to be our favorite Regional Gaming stock.

 

Regional numbers for August have come in soft, but we predicted the August weakness. September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels. 

TLT

Slower (and Lower) For Longer remains our non-consensus call. It's nice to see that the Fed is finally starting to see what the #GrowthSlowing late-cycle data does.

 

  1. GROWTH: is #LateCycle and will be slower (again) in Q3 than it was in Q2
  2. INFLATION: misreported, yes – in the area code of the Fed’s 2% “target”, no

 

Our estimate for Y/Y% GDP for Q3 is a range of 0.1% to 1.5%. Even the Q/Q SAAR # that consensus hangs on will be comping against a 3.7% Q/Q SAAR GDP print (second revision). Good luck positioning for a rate hike. Prepare for the fade…. AGAIN.

Three for the Road

TWEET OF THE DAY

VIDEO (2mins) Is This Raging Keynesian Bureaucrat the ‘Wesley Mouch’ of Today’s Atlas Shrugged? https://app.hedgeye.com/insights/46494-is-this-raging-keynesian-bureaucrat-the-wesley-mouch-of-today-s-atla

@KeithMcCullough

QUOTE OF THE DAY

Cultivate optimism by committing yourself to a cause, a plan or a value system. You'll feel that you are growing in a meaningful direction which will help you rise above day-to-day setbacks.

Dr. Robert Conroy

STAT OF THE DAY

According to the [unofficial] Caixin-Markit Manufacturing PMI series, Chinese growth slowed to a 78-month low in September, with the Output sub-index dropping to a lowly 45.7 from 46.4 in August.


The Macro Show Replay | September 24, 2015

 


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September 24, 2015

September 24, 2015 - Slide1


ICI Fund Flow Survey | Passive Aggressive

Takeaway: Last week saw an aggressive +$18B net flow to equity, +$19B of which went to passive ETFs as investors opted in favor of less active risk.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the five-day period ending September 16th, investors reduced interest rate exposure withdrawing -$2.2 billion from total bond mutual funds and ETFs. Alternatively, the investment community made a aggressive net contribution of +$18.1 billion to total equity products, the largest inflow to the stock asset class so far in the third quarter. Investors however opted for less active risk with +$19.3 billion of the allocation comprised of passive ETF inflows, +$11.2 billion of which went to the broad-market SPY ETF. Net equity mutual fund flows were negative on the week with international equity putting up +$2.0 billion of subscriptions offset by domestic equity funds which lost another -$3.1 billion. The cumulative running loss for domestic stock funds year-to-date is now -$112.3 billion.

 

We continue to recommend Shorting/Avoiding Janus Capital (JNS) and T. Rowe Price (TROW) on these trends. At Janus, what was once resurgent fund raising with emerging credit and a slight improvement in some of their equity funds has again turned to substantial outflow this summer. In our note, The More Things Change... The More They Stay the Same, we detail the firm's fund flow woes, most recently evident in the -$900 million firm-wide net redemption in August, the worst monthly period in 22 months. Additionally, we emphasize that both JNS and TROW across cycle have been 100% reliant on market returns to grow AUM and earnings. This situation exacerbates if volatility and negative beta returns persists past 3Q/4Q 2015.

 


ICI Fund Flow Survey | Passive Aggressive - ICI1


In the most recent 5-day period ending September 16th, total equity mutual funds put up net outflows of -$1.1 billion, trailing the year-to-date weekly average outflow of -$299 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund contributions of +$2.0 billion and domestic stock fund withdrawals of -$3.1 billion. International equity funds have had positive flows in 46 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 -$4.5 billion, trailing the year-to-date weekly average inflow of +$410 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$589 million and taxable bond funds withdrawals of -$3.9 billion.


Equity ETFs had net subscriptions of +$19.3 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 +$2.3 billion, outpacing the year-to-date weekly average inflow of +$1.1 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:


ICI Fund Flow Survey | Passive Aggressive - ICI2


ICI Fund Flow Survey | Passive Aggressive - ICI3


ICI Fund Flow Survey | Passive Aggressive - ICI4


ICI Fund Flow Survey | Passive Aggressive - ICI5


ICI Fund Flow Survey | Passive Aggressive - 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 | Passive Aggressive - ICI12


ICI Fund Flow Survey | Passive Aggressive - ICI13


ICI Fund Flow Survey | Passive Aggressive - ICI14


ICI Fund Flow Survey | Passive Aggressive - ICI15


ICI Fund Flow Survey | Passive Aggressive - 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 | Passive Aggressive - ICI7


ICI Fund Flow Survey | Passive Aggressive - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors contributed +$11.2 billion or +7% to the SPY last week, favoring broad-market equity exposure over any individual sector. 


ICI Fund Flow Survey | Passive Aggressive - 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 | Passive Aggressive - ICI17


ICI Fund Flow Survey | Passive Aggressive - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$20.3 billion spread for the week (+$18.1 billion of total equity inflow net of the -$2.2 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 +$1.7 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 -$18.8 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | Passive Aggressive - new net flow



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 | Passive Aggressive - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 


Joshua Steiner, CFA







CALL INVITE: FRIDAY 11AM - BOYD GAMING (BYD)

Hedgeye will host a call analyzing the investment prospects in Boyd Gaming (BYD), a regional gaming/hotel operator.

 

Call Details:

Friday, September 25, 2015 at 11am.  Attendance on this call is limited.  Please contact sales@hedgeye.com for details. 

 

Points of discussion include: 

  • Near term catalysts for BYD and regional gaming
  • August vs September – a tale of two months
  • Q3, Q4, and 2016 earnings outlook
  • BYD’s operational performance vs the competition – opportunities for improvement?
  • The emergence of 2 surprising growth markets for BYD
  • Valuation

Early Look

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