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McCullough: Short Euro Over Yen

 

“If you only remember one thing when you’re trading currencies or risk mitigating central planning, it’s critical to always position for the next most incremental actor in the currency war,” said Hedgeye CEO Keith McCullough in this excerpt from today’s edition of The Macro Show. Asia Analyst Darius Dale added additional commentary on Hedgeye’s proprietary model and why European monetary policy could be more dovish than Japan’s.


Retail Callouts (10/20): AMZN Adds 20k Employees For Holiday, ICSC - Decelerating 2yr

Takeaway: AMZN bucks trend, takes Holiday employment up 25%. ICSC worst 2yr reading in 20 weeks.

AMZN - Increasing Employee Count by 25% for Holiday

 

AMZN has doubled its seasonal employee count in just 4 years  to 100k workers as the rest of retail -- particularly the department store space -- has pulled back the reins in earnest. Footprints at most of the group don't look much different when compared to 3 years ago, but the big difference is the holiday surge in online sales. According to IBM, E-comm sales were up 10.3% and 14% in 2013 and 2014, respectively, during the Holiday season. Which is ~3.5x what the industry has done in aggregate. And because it's become a disproportionate percent of growth during the season it only makes sense that employee counts would march higher in order to meet the Holiday surge at fulfillment centers. But that hasn't happened most likely because store hiring plans are down and with e-comm specific hiring up. Holiday sales forecast across the industry (NRF, Deloitte, AlixPartners, RetailNext, etc.) have been less than optimistic with each of the prognosticators projecting growth rates below last year’s 4.1%, and Holiday hiring plans reflect that. All except AMZN, of course, who is bucking the trend at +25%. 

 

Retail Callouts (10/20): AMZN Adds 20k Employees For Holiday, ICSC - Decelerating 2yr - Morning 10 20 chart1

  

ICSC/Redbook - No acceleration after 17 weeks of tough compares. 2nd weakest ICSC reading of the year at 1%, 2yr trend line decelerates 100bps. Worst 2-year reading we've seen in 20 weeks.

 

Retail Callouts (10/20): AMZN Adds 20k Employees For Holiday, ICSC - Decelerating 2yr - Morning 10 20 chart2

Retail Callouts (10/20): AMZN Adds 20k Employees For Holiday, ICSC - Decelerating 2yr - Morning 10 20 chart3

   

ETH - Guides 1Q EPS inline with street. Flat revenue, says written sales accelerating.

(http://phx.corporate-ir.net/phoenix.zhtml?c=81552&p=irol-newsArticle&ID=2098368)

 

AutoNation Names Kaveh Khosrowshahi to Board of Directors

(http://investors.autonation.com/phoenix.zhtml?c=85803&p=irol-newsArticle&ID=2098362)

 

 


McCullough: Long Bond, The Elephant Stomping Around in the Room

 

On Fox Business earlier this morning, Hedgeye CEO Keith McCullough discusses monetary policy and more with Wall Street Journal chief economics correspondent Jon Hilsenrath and Mary Ann Bartels, CIO of Bank of America Merrill Lynch GWIM. In discussing whether the Fed would keep rates lower for longer, McCullough said:

 

"If you’re a CIO and you told everyone that rates would surprise to the downside, you’re doing your job. You’re giving [clients] a much lower volatility profile and they would have a big position in the Long Bond. To me that’s the elephant stomping around in the room." 

 McCullough: Long Bond, The Elephant Stomping Around in the Room - 10 20 2015 Fox bus


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[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds

 

Editor's Note: This is an unlocked research note written last week by our Financials team. If you'd like more information on how you can subscribe to our institutional research please send an email to sales@hedgeye.com.

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Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending October 7th, investors continued to make withdrawals from risk assets including domestic equity and taxable bond funds. Domestic stock mutual funds lost -$1.3 billion, with a more substantial -$6.3 billion being redeemed in taxable bonds funds. Domestic equity funds have now lost a total of -$121.1 billion in withdrawals during 2015, which remains the worst year on record for domestic equity fund flows. Meanwhile, the only risk asset working is fixed income ETFs (exhibited by the +30% organic growth in BlackRock's fixed income iShares in its quarter yesterday), which saw +$5.4 billion of new subscriptions in the ICI survey this week. However, another emerging trend is the safety of cash, with money funds gaining +$20 billion in contributions in the 5 days ending October 14th. Investors are starting to rebuild cash on the sidelines with this week's substantial inflow to start the 4th quarter following the +$54 billion build in money funds in 3Q.

 

With investors continuing to seek safety, the current market environment supports our Long recommendation on money fund manager Federated Investors (see FII report) and our Short recommendations on equity managers Janus Capital and T. Rowe Price (See JNS and TROW reports).


[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI1

 

In the most recent 5-day period ending October 7th, total equity mutual funds put up net inflows of +$326 million, outpacing the year-to-date weekly average outflow of -$377 million but trailing the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$1.6 billion and domestic stock fund withdrawals of -$1.3 billion. International equity funds have had positive flows in 46 of the last 52 weeks while domestic equity funds have had only 11 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$5.8 billion, trailing the year-to-date weekly average outflow of -$20 million and the 2014 average inflow of +$926 million. The outflow was composed of tax-free or municipal bond funds contributions of +$558 million and taxable bond funds withdrawals of -$6.3 billion.

 

Equity ETFs had net redemptions of -$1.0 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 +$5.4 billion, outpacing the year-to-date weekly average inflow of +$1.2 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:

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI2

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI3

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI4

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI5

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in 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.

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI12

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI13

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI14

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI15

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in 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:

 

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[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the industrials XLI and materials XLB led contributions for the week. The XLI gained +3% or +$185 million in contributions, and the XLB gained +4% or +$77 million.

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in 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.

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI17

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in 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 -$281 million spread for the week (-$677 million of total equity outflow net of the -$396 million 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 +$1.6 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 -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in 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:

 

[UNLOCKED] ICI Fund Flow Survey | Safety First....+$20 BB Build in Money Funds - ICI11 



Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com







RTA Live: October 20, 2015

 

 


Starts & Permits | Noise-Free Highs

Takeaway: September Housing Starts offer further evidence that Housing continues to trend in the right direction.

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.

 

Starts & Permits | Noise-Free Highs - Compendium 102015 

 

 

Today’s Focus:  September Housing Starts & Permits

With the residual distortion in the July/Aug Starts data following the NY tax exemption pull-forward in May/June now rearview, this morning’s data for September provides the first (largely) noise-free read on the underlying trend in new resi construction activity in 5-months. 

 

Total Starts rose +6.5% month-over-month and accelerated to +18% year-over-year with activity rebounding back to the 8-year highs recorded in June.  Multi-family activity led the advance, rising +18.3% month-over-month (not overly surprising given the post-pull forward hangover) and +28% year-over-year.  MF permits, which have been exceedingly volatile on a month-to-month basis, dropped -12.1% sequentially while retreating to +1% YoY.  

 

The gain in single-family starts was more muted with activity rising just +0.3% sequentially with year-over-year growth holding at +12%.   SF activity continues to hold near post-crisis highs, growing +11% YoY on average YTD and flirting with 700K in average starts annually for the first time since 2007.

 

The crawling but continued rise in new resi construction activity continues to accord with the ongoing advance in Builder Confidence which made another new 10-year high in yesterday’s HMI print for October (HERE).  With ~38% upside left to LT average levels of SF construction and 250% upside to the prior peak, the MT/LT mean reversion and cycle opportunity for the sector remains conspicuous.   

 

 

Starts & Permits | Noise-Free Highs - Total Starts LT

 

Starts & Permits | Noise-Free Highs - Total   SF Starts 2Y

 

Starts & Permits | Noise-Free Highs - MF Starts   Permits LT

 

Starts & Permits | Noise-Free Highs - MFF Starts   Permits TTM

 

Starts & Permits | Noise-Free Highs - SF Starts   Permits LT 

 

Starts & Permits | Noise-Free Highs - SF Starts   Permits TTM

 

 

About Housing Starts & Permits:

The US Census Bureau records the number of new housing units that have obtained permits for construction and those that have begun construction. This data includes new buildings intended primarily as residential units. The US Census Bureau defines a start as, “Start of construction occurs when excavation begins for the footings or foundation of a building.” 

 

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


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