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BOND MARKET MESSAGE? Say It With Us Now ... #GrowthSlowing

Takeaway: The further compression of the yield spread confirms what we, at Hedgeye, have long known: U.S. growth is slowing.

BOND MARKET MESSAGE? Say It With Us Now ... #GrowthSlowing - Growth cartoon 06.03.2015 large  1

 

Below is a brief update on our U.S. economic outlook from our Macro team in a note to subscribers earlier this morning:

 

"The short-covering, reflation rally is fizzling with crude down another -3% this morning. Meanwhile, the yield spread is back inside 100 bps as the bond market and yesterday's consumer confidence report continue to re-affirm the slower-and-lower-for-longer reality."

 

The chart below shows the compression of the 10-yr / 2-year Treasury yield spread despite the Fed's December 15 rate hike. (Note: This is precisely why we're so bullish on Long Bonds (TLT). With slower U.S. growth and yields headed lower TLT outperforms.) 

 

BOND MARKET MESSAGE? Say It With Us Now ... #GrowthSlowing - rate hike 10yr 2yr

 

ALL TOGETHER now ... U.S. growth is slowing


Another Economic Indicator Signals Recession

Takeaway: An inside look at one of the top three indicators we use to forecast an economic downturn.

Another Economic Indicator Signals Recession - recession cartoon 02.04.2016

 

Below is a brief update on our U.S. economic outlook from our Macro team in a note to subscribers this morning:

 

"Yesterday we received incremental confirmation of our U.S. #Recession theme in the form of a sharp downtick in Consumer Confidence during the month of February to 92.2 from a downwardly revised 97.8 prior. This series is now slowing on a sequential, trending and quarterly average basis."

 

Another Economic Indicator Signals Recession - consumer confidence peaked

 

Recall that a breakdown in consumer confidence is among the top three (of several) proprietary indicators we use to forecast an economic downturn, with the other two being a breakdown in Corporate Profits and a breakout in Initial Jobless Claims. The confluence of these indicators is currently suggesting a recession is likely to commence within 1-3 quarters.

 

How do you play the coming recession? Watch this video...

 

 


McCullough: How To Think About Risk Ranges

 

In this brief excerpt of The Macro Show, Hedgeye CEO Keith McCullough explains how to use his daily risk ranges and why widening risk ranges could be signaling a coming collapse in equities.


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A Look At Wall Street's Hopes & Dreams Versus Hedgeye Research

A Look At Wall Street's Hopes & Dreams Versus Hedgeye Research - consenseless 3

 

"The problem with our industry is that many investors are flat-out lazy and would rather defer to a "proprietary survey" than analyze the data," Hedgeye Senior Macro analyst Darius Dale wrote earlier this morning.

 

At Hedgeye, we analyze Macro markets differently than Wall Street. Here's an us vs. them comparison...

 

OLD WALL:

A Look At Wall Street's Hopes & Dreams Versus Hedgeye Research - old wall

*Click image to enlarge 

 

HEDGEYE:

A Look At Wall Street's Hopes & Dreams Versus Hedgeye Research - dale indicators

*Click image to enlarge

 

"Many investors would prefer a short email with the first chart but the good ones prefer to analyze the latter table," Dale writes.

 

In our model, the fundamentals buried in macro markets continue to deteriorate. That's why we've been bearish on the U.S. economy (#GrowthSlowing & #Recession) and have warned subscribers about a coming crash in equities. Meanwhile, conflicted Old Wall strategists and journalists remain blissfully (or willfully) ignorant to these market risks.

 

 

Watch the video below of our take on Barron's recent "No U.S. Recession, 3% Growth" cover story:  


[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns

Takeaway: With the taxable bond category in a rare redemption cycle, investors are flocking to Treasuries in a flight to safety.

Editor's Note: This is a complimentary research note which was originally published February 18, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

* * *

While the ICI taxable bond category is broad including investment grade corporates, high yield, government, and global bond issues, the across cycle pattern is clear. When rare redemptions in the category occur, a resulting decline in 10 year Treasury yields ensue as investors are likely rotating within the group, out of corporate and global bonds and into U.S. government securities. Only during the Taper Tatrum of 2013, did ICI taxable bonds redemptions (the white line below on a 5 week moving average), not result in lower 10 year Treasury yields (represented by the green line below). This week, taxable bond funds gave up another -$729 million, the 14th consecutive week of outflow.

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - Treasury Yields to Taxable flows

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending February 10th, volatility picked up, equity markets tumbled, and investors backtracked on their contributions to domestic equities. U.S. stock funds lost -$3.6 billion in withdrawals, negating the prior week's inflows and bringing demand for total equity mutual funds and ETFs to a negative -$1.2 billion on the week. In fixed income, investors continued to favor municipal bonds and ETFs over taxable bonds. Munis brought in +$1.4 billion in contributions with fixed income ETFs gaining +$932 million, while taxable bonds lost another -$729 million. Finally, investors shored up +$3 billion of cash in money funds.

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI1 large 2 24

 

In the 5-day period ending February 10th, total equity mutual funds put up net outflows of -$1.4 billion, trailing the year-to-date weekly average outflow of -$993 million but outpacing the 2015 average outflow of -$1.5 billion. The outflow was composed of international stock fund contributions of +$2.3 billion and domestic stock fund withdrawals of -$3.6 billion. International equity funds have had positive flows in 41 of the last 52 weeks while domestic equity funds have had only 6 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net inflows of +$690 million, outpacing the year-to-date weekly average outflow of -$1.2 billion and the 2015 average outflow of -$475 million. The inflow was composed of tax-free or municipal bond funds contributions of +$1.4 billion and taxable bond funds withdrawals of -$729 million.

 

Equity ETFs had net subscriptions of +$158 million, outpacing the year-to-date weekly average outflow of -$4.6 billion but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$932 million, trailing the year-to-date weekly average inflow of +$2.3 billion and the 2015 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 2015 and the weekly year-to-date average for 2016:

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI2

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI3

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI4

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI5

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - 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] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI12

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI13

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI15

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - 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 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI7 2

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors seeking safety poured +$588 million or +7% into the long duration Treasury TLT ETF. Year to date, the TLT has experienced a +37% inflow or +$2.6 billion. Of the flows in the table below, that is the largest percentage inflow by far.

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - 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] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI17

 

[UNLOCKED] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$2.8 billion spread for the week (-$1.2 billion of total equity outflow net of the +$1.6 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 +$641 million (more positive money flow to equities) with a 52-week high of +$20.5 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] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI10 2

 


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] Fund Flow Survey | Taxable Drawdowns = Treasury Takedowns - ICI11 

 


CHART OF THE DAY: A Chart For The Bears To Hang Their Hats On

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Senior Macro analyst Darius Dale. Click here to learn more.

 

"... All told, the confluence of the aforementioned factors continues to underpin our bearish outlook for domestic equities and credit. Accordingly, we anticipate that the performance divergence between investors who are selling rallies because of deteriorating fundamentals and those who are buying dips because “everyone is bearish” will widen from here.

 

And even if we’re dead wrong on all the fundamental factors detailed above, there’s always the Chart of the Day for bears to hang their hats on…"

 

CHART OF THE DAY: A Chart For The Bears To Hang Their Hats On - Chart of the Day 2 24


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