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INVITE | Gold Flush? Materials Sector Launch Call (NEM, ABX, Gold Miners)

 

 

INVITE | Gold Flush?  Materials Sector Launch Call (NEM, ABX, Gold Miners) - Materials Launch Image

 

GOLD BUGS BITTEN:  Gold prices in dollars have declined since 2011, despite two incremental rounds of quantitative easing and perpetual zero interest rates.  US long bonds have performed well in a similar environment.  What are the gold bugs missing?  We’ll put forth our data-driven take in our Materials launch deck.

 

DIFFERENTIATED SECTOR APPROACH: The Materials coverage team applies our experience in cyclicals, macroeconomics, and commodities to produce Best-Idea focused, process-driven research. 

 

Our research process has three key components:

  • Structural Weakness/Strength: Identify structural vulnerability or resiliency in commodity related business (e.g. over/under capacity, demand susceptibility, deteriorating/improving structural position) that should have a dominant impact on market prices.
  • Unidentified Supply/Demand Changes:  We then look within those industries to see if consensus estimates for production or consumption are likely to prove incorrect based on our data-driven proprietary forecasts ranges.
  • Identify Companies Valued Inappropriately Relative To Forecast:  Deep-dive company specific valuation work oriented toward finding effective exposure our broader commodity thesis.  We align with our firm's top-down macro view when applicable.

 

COVERAGE TO BROADEN: While we believe the Gold Mining Industry provides a clear platform to demonstrate our process, our coverage will expand in coming quarters to areas where we see the best alpha opportunities.  We plan to host at least one Best Ideas call per quarter and to publish daily/weekly sector highlights, in addition to key research notes.

 

CALL DETAILS:

 

Toll Free:

Toll:

Confirmation Number: 13623545

Presentation Link: Materials Launch

 

As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.

 

Macro Team


ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again

Takeaway: The shift from active to passive in equities continues to rage and cash balances continue to perk up in 2H15.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending October 28th, investors flocked to equity ETFs inserting +$9.5 billion in passive stock products, the third largest weekly contribution this year. Conversely, active equity mutual funds continue to be the source of funds, with another -$2.8 billion being redeemed from all U.S. stock fund managers. This shift from active to passive has been rolling for almost a decade now however with still over $7 trillion in active equity mutual funds versus $1.6 trillion in U.S. equity listed ETFs, there is still plenty of market share to be gained. The chart below outlines that the -$595 billion in redemptions in U.S. mutual funds since 2007 has resulted in +$855 billion in new inflow into all passive products (index mutual funds and ETFs). This trend has continued throughout 2015 with a -$125 billion redemption in active U.S. mutual funds versus the +$88 billion subscription to U.S. ETFs. We recommend a short position in shares of T. Rowe Price as a way to express this ongoing shift (see our TROW reports).

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - top chart 

 

Cash continues to build on the sidelines as well as of the most recent survey with another +18 billion recorded by ICI in cash products as of October 28th. Money funds have now brought in +$48 billion in the fourth quarter to date, following a $67 billion build in the third quarter. In addition, the news of Bank of America transferring its +$80 billion money fund portfolio to BlackRock could be a trend to come as banking organizations start to move pools of assets that trigger capital charges under forming rule sets. We continue to like the cash management space and out of favor Federated Investors (see our FII report) on a combination of positive balance builds and profitability inprovements in the business for '16/'17.

 

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI1

 

In the most recent 5-day period ending October 28th, total equity mutual funds put up net outflows of -$2.7 billion, trailing the year-to-date weekly average outflow of -$412 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund contributions of +$62 million and domestic stock fund withdrawals of -$2.8 billion. International equity funds have had positive flows in 46 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 inflows of +$3.9 billion, outpacing the year-to-date weekly average inflow of +$201 million and the 2014 average inflow of +$926 million. The inflow was composed of tax-free or municipal bond funds contributions of +$1.2 billion and taxable bond funds contributions of +$2.7 billion.

 

Equity ETFs had net subscriptions of +$9.5 billion, outpacing the year-to-date weekly average inflow of +$2.1 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$917 million, trailing 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:

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI2

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI3

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI4

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI5

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - 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 is Massive and Cash is Becoming King Again - ICI12

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI13

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI14

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI15

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - 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 is Massive and Cash is Becoming King Again - ICI7

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the healthcare XLV ETF took in +6% or +$757 million in contributions. The energy XLE on the other hand lost -4% or -$477 million.

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - 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 is Massive and Cash is Becoming King Again - ICI17

 

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$2.0 billion spread for the week (+$6.8 billion of total equity inflow net of the +$4.8 billion 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 +$1.4 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.)

  

ICI Fund Flow Survey | Passive is Massive and Cash is Becoming King Again - 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 | Passive is Massive and Cash is Becoming King Again - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







Here We Go Again? A Poor Jobs Report's Effect on Bonds

Here We Go Again? A Poor Jobs Report's Effect on Bonds - 10yr yield cartoon FIX 01.06.2015

 

In a note to subscribers earlier this morning, Hedgeye CEO Keith McCullough laid out an under-appreciated effect that a poor U.S. jobs report would have on bonds. 

 

"We’ve only seen 8 alleged “breakout rallies” in rates the last 10 months (and every one of them has been quashed by that damn “data” that the Fed continues to say they are dependent on) – the U.S. labor cycle peaked in FEB and should slow well into the middle of next year."

 

Check out the chart below. In two of the year's more recent "breakout rallies," underwhelming U.S. economic data sent 10-year Treasury yields back below 2%.  

 

Here We Go Again? A Poor Jobs Report's Effect on Bonds - 11 5 2015 10 yr treasury

Here we go again?

 

Here We Go Again? A Poor Jobs Report's Effect on Bonds - 11.05.15 EL chart


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Penney: Why Chipotle Could Easily Fall Another 25% | $CMG

 

In this brief excerpt from The Macro Show, Hedgeye Managing Director and Restaurants analyst Howard Penney offers an update on where he stands with respect to shares of Chipotle and why they could fall much further from here.

 

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

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CHART OF THE DAY: The Huge Risk in Tomorrow's Jobs Report

Editor's Note: Below is a chart and brief excerpt from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to subscribe. 

 

"... While the probability of another #GrowthSlowing Non-Farm Payroll (NFP) print remains as high as it’s been since we started making the call that the US Labor Cycle peaked in Q1 of this year (see Chart of the Day with the DEC 2015 NFP top circled in red), what if the perma bulls paint it as “good”? This is where the fiction of “good” can become very bad for macro markets." 

 

CHART OF THE DAY: The Huge Risk in Tomorrow's Jobs Report - 11.05.15 EL chart

 

 


A Live Possibility!

“Truth is stranger than fiction, but it is because fiction is obliged to stick to possibilities. Truth isn't.”

-Mark Twain

 

The New York Federal Reserve’s Bill Dudley rocked the 2yr US Treasury Yield to the upside yesterday by suggesting that there is a “live possibility” that the Fed raises rates in December.

 

He provided the same caveat that Janet Yellen has guided markets to all year long. That, of course, is that America’s inaccurate forecasters at the Federal Reserve are “data dependent.”

 

That damn data, I tell you. If the US government simply didn’t report the data the Fed would have raised rates when they said they would (June). Instead, as markets discounted US GDP getting cut to 1.5% in Q3, the truth set accurate forecasters free.

A Live Possibility! - Fed lady cartoon 06.25.2016

Click here to join Hedgeye CEO Keith McCullough live on The Macro Show at 9am. 

 

Back to the Global Macro Grind

 

Ah, the possibilities of “green shoots” though – they remain. As does the effervescent hope that by year end stocks can’t go down because the Fed is back on hold.

 

Wait a minute – aren’t those conflicting possibilities?

 

Not to get caught up in the actual details or get in the way of any fictional story that may or may not be supported by one’s “company surveys”, our #process doesn’t leave room for cherry-picking data like our competitors do.

 

As my main man Darius Dale outlined in a note to Institutional Investors last night titled “Global Growth Has Not Bottomed”, we run a predictive tracking algorithm on every relevant data point from every relevant economy in the world.

 

The goal of this modern-day (math) macro #process is threefold:

 

  1. To contextualize sequential deltas (in data) as either ACCELERATING or DECELLERATING
  2. To contextualize immediate-term data within its intermediate-term TREND (accelerating or decelerating)
  3. To determine if the absolute value of the most recent data point (s) is at/near a probable mean reversion level

 

This is the precise process that called for US growth to accelerate coming out of the 2009 and 2012 lows inasmuch as it called for it to slow from the 2007-2008 and 2014-2015 #LateCycle highs. Our model is better than the Old Wall’s. And we don’t apologize for that.

 

As opposed to trying to write his own history, Ben Bernanke should have had the courage to act and apologize to Janet Yellen for not raising rates when US growth was accelerating in 2013.

 

Bernanke could have raised rates 4-6x by the time we hit US employment and consumption cycle highs of Q1 2015.

 

But he didn’t. And now, going on 78 months into a rate-of-change-slowing US economic expansion, Janet has the “live possibility” of making an even bigger mistake than not hiking into an acceleration – she could tighten into a slowdown!

 

Unless tomorrow’s jobs report flashes something > 317,000, there’s not a hope on this side of centrally planned hell that the TREND in the US Labor Cycle goes from DECELERATING to accelerating.

 

While the probability of another #GrowthSlowing Non-Farm Payroll (NFP) print remains as high as it’s been since we started making the call that the US Labor Cycle peaked in Q1 of this year (see Chart of the Day with the DEC 2015 NFP top circled in red), what if the perma bulls paint it as “good”?

 

This is where the fiction of “good” can become very bad for macro markets. But, if you were looking at what happened in FICC (Fixed Income, Currencies, Commodities) yesterday instead of staring at Dow Bro 18,000’s possibility, you already know that.

 

  1. US Dollar ramped > 98 on the US Dollar Index
  2. Euro (vs. USD) got smoked down to $1.08
  3. CRB Commodities Index deflated -1.7% on the day, resuming its crash

 

And that, my friends, remains the live possibility you need to be very much prepared for – the possibility that, 7 years after the US driven financial crisis, that the Fed becomes the catalyst that perpetuates the next global one.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.98-2.28%

SPX 2029-2116
USD 97.21-98.24
EUR/USD 1.08-1.10
Oil (WTI) 42.96-48.23

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

A Live Possibility! - 11.05.15 EL chart


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