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REPLAY | GOLD FLUSH? MATERIALS SECTOR LAUNCH CALL

We are hosted a kick-off call for Hedgeye Materials coverage on Thursday, November 12th and will illustrated our investment process in the Gold Mining industry.

watch a reply BELOW. 

 

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 of Jay VanSciver and Ben Ryan applies our experience in cyclicals, macroeconomics, and commodities to produce Best-Idea focused, process-driven Materials sector 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.

 

REPLAY | GOLD FLUSH? MATERIALS SECTOR LAUNCH CALL - Gold


WATCH LIVE | GOLD FLUSH? MATERIALS SECTOR LAUNCH CALL (NEM, ABX, GOLD MINERS)

REPLAY below

 

We are hosting a kick-off call for Hedgeye Materials coverage TODAY (Thursday, November 12th at 1:00 P.M.), and will illustrate our investment process in the Gold Mining industry.

WATCH LIVE | GOLD FLUSH? MATERIALS SECTOR LAUNCH CALL (NEM, ABX, GOLD MINERS) - L.T. Gold Price Chart

                    

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 of Jay VanSciver and Ben Ryan applies our experience in cyclicals, macroeconomics, and commodities to produce Best-Idea focused, process-driven Materials sector 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.


FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII)

Takeaway: We are flagging JPMorgan (JPM - Score: 93) (short) and Federated Investors (FII - Score: 15) (long) on sentiment and short interest.

This morning we are publishing our updated Hedgeye Financials Sentiment Scoreboard in conjunction with the release of the latest short interest data last night. Our Scoreboard now evaluates over 300 companies across the Financials complex.

 

The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.  

 

We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.

 

Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.

 

The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors. 

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI1 2

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI2

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - SI3

 

The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”

 

Let us know if you would like to receive a copy of our black book, which explains this system and its applications.

 

BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.   

 

SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms. 

 

 

FINANCIALS SENTIMENT SCOREBOARD - JPMorgan (JPM) AND FEDERATED INVESTORS (FII) - Absolute 12 mo

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


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INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS

Takeaway: Energy state labor market conditions continue to deteriorate relative to the country as a whole.

The labor market was unchanged week over week as there was no change in either SA claims, which came in at 276k, or in the year-over-year rate of change in NSA claims, which held steady at -7%.

 

Claims in energy states, however, continued to worsen versus the country as a whole in the week ending October 31 (the most recent state-level data available). The spread between our two indexed series in the chart below widened again to 28 from 25 in the previous week. We continue to expect that spread to widen in coming months as energy companies see their hedges roll off.

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims18

 

The Data

Initial jobless claims came in at 276k, consistent with the previous week's reading, which was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 5k WoW to 267.75k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -7.0% lower YoY, which is consistent with the previous week's reading.

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims2

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims3

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims4

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims5

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims6

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims7

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims8

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims9

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims10

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims11

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims19

 

Yield Spreads

The 2-10 spread rose 6 basis points WoW to 148 bps. 4Q15TD, the 2-10 spread is averaging 143 bps, which is lower by -10 bps relative to 3Q15.

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims15

 

INITIAL JOBLESS CLAIMS | ENERGY WEAKNESS GROWS - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown

Takeaway: Investors slammed domestic equity mutual funds with -$12 billion in redemptions, the worst week for the asset class in over 4 years.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending November 4th, investors slammed domestic equity mutual funds with -$12.1 billion in redemptions, the largest weekly draw down from the asset class in more than 4 years. Domestic equity mutual funds have now lost -$137.5 billion in withdrawals so far this year, worse than 2008 redemptions over the same period, making 2015-to-date the worst year on record for the asset class.

 

Meanwhile, investors favored passive equity mandates, making +$6.1 billion in contributions to equity ETFs. Fixed income ETFs did not fare as well with -$1.2 billion in redemptions. However, fixed income mutual funds more than made up for that redemption with +$2.6 billion in contributions.

 

As we approach a possible rate hike in December, the following chart provides perspective on how the last fed rate hike cycle starting in late June 2004 affected fund flows for investment grade and high yield fixed income mutual funds. As yields rose and attracted investors, IG fixed income experienced net inflows in all but three months between July 2004 and June 2007, taking in a cumulative +$128.9 billion. High yield flows were not as consistent and were in fact negative for a good portion of the 2004-2007 rate-hike cycle. However, with consistently positive inflows after Fed Funds stabIlized, high yield funds came to a cumulative +$3.1 billion inflow for the period of July 2004 through June 2007. If the Fed does hike rates in December, we expect it to be a clear positive for investment grade bond managers as investors should gravitate to the combination of higher yields and relative safety of investment grade issues.

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI20 3

 

In the most recent 5-day period ending November 4th, total equity mutual funds put up net outflows of -$12.5 billion, trailing the year-to-date weekly average outflow of -$688 million and the 2014 average inflow of +$620 million. The outflow was composed of international stock fund withdrawals of -$461 million and domestic stock fund withdrawals of -$12.1 billion. International equity funds have had positive flows in 45 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 +$2.6 billion, outpacing the year-to-date weekly average inflow of +$251 million and the 2014 average inflow of +$926 million. The inflow was composed of tax-free or municipal bond funds contributions of +$496 million and taxable bond funds contributions of +$2.1 billion.

 

Equity ETFs had net subscriptions of +$6.1 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 outflows of -$1.2 billion, trailing the year-to-date weekly average inflow of +$1.2 billion and the 2014 average inflow of +$1.0 billion.

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI1

 

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 | Active Meltdown...-$12 Billion Drawdown - ICI2

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI3

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI4

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI5

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI12

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI13

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI14

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI15

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI7

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors made significant contributions of +$1.3 billion or +7% to the financials XLF ETF. Meanwhile, the utilities XLU ETF lost -$382 million or -6% in redemptions.

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI17

 

ICI Fund Flow Survey | Active Meltdown...-$12 Billion Drawdown - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$7.8 billion spread for the week (-$6.4 billion of total equity outflow net of the +$1.4 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 +$1.0 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 | Active Meltdown...-$12 Billion Drawdown - 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 | Active Meltdown...-$12 Billion Drawdown - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







[UNLOCKED] Keith's Daily Trading Ranges

Editor's Note: We've made some updates and enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. 

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five of which are determined by what's flashing on Keith's screen and by what names subscribers are asking about. Click here to subscribe.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.38 2.09 2.32
SPX
S&P 500
2,054 2,093 2,075
RUT
Russell 2000
1,160 1,204 1,178
COMPQ
NASDAQ Composite
4,999 5,111 5,067
NIKK
Nikkei 225 Index
18,996 19,930 19,691
DAX
German DAX Composite
10,588 11,001 10,908
VIX
Volatility Index
14.17 18.83 16.06
DXY
U.S. Dollar Index
98.05 100.23 99.16
EURUSD
Euro
1.06 1.08 1.07
USDJPY
Japanese Yen
121.33 123.99 122.85
WTIC
Light Crude Oil Spot Price
42.07 45.37 43.07
NATGAS
Natural Gas Spot Price
2.19 2.39 2.27
GOLD
Gold Spot Price
1,065 1,105 1,086
COPPER
Copper Spot Price
2.16 2.27 2.22
AAPL
Apple Inc.
115 120 116
PCLN
Priceline.com Inc.
1,279 1,371 1,330
VRX
Valeant Pharmaceuticals International, Inc.
71.06 92.69 78.90
BABA
Alibaba Group Holding Ltd.
77.98 83.29 79.85
M
Macy's Inc.
38.91 45.27 40.44
KSS
Kohl's Corp.
41.22 46.12 43.16

 

 


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.

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