prev

The Bearish Case On Housing

Takeaway: As demand for housing slows, watch out for decelerating home prices.

We went from being bullish to bearish on housing for the simple reason that when the data goes from "good" to "less good," housing related equities start to decline. And while the U.S. housing sector has had a great run, its momentum has been slowing for several months now.

 

The Bearish Case On Housing - run down houses

 

Case in point: This week's Pending Home Sales data contracted -2.5% sequentially in January, which brings the rate of year-over-year growth to its lowest since late 2014.

 

The Bearish Case On Housing - 03.01.16 Chart 

not good.

 

Why does this matter for housing related stocks? We may be "on the cusp of a negative inflection point for home prices," points out Hedgeye U.S. Macro/Housing analyst Christian Drake, as flagging housing demand (aka Pending Home Sales) "leads price growth by 9 to 12 months."

 

Click on the chart below to enlarge:  

The Bearish Case On Housing - housing demand

 

Equity markets will continue to discount this reality.

 

For more, watch the video below:

 


SPECIAL INSIGHT | Demographer Neil Howe Discusses Key 2016 Election Trends

Neil Howe, best-selling author of "The Fourth Turning" and Demography Sector Head at Hedgeye, discusses important generational shifts, the role of millennials and boomers at the polls and many more key developments to keep a close eye on during this heated election. He is joined by Director of Research Daryl Jones.

 

Click here to subscribe to our YouTube channel for more Hedgeye video content.


[UNLOCKED] Keith's Daily Trading Ranges

Editor's Note: We've made some new 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. Click here to view a brief video of McCullough explaining how to use it most effectively.

 

Subscribers now receive risk ranges for 20 tickers each day -  the last five are determined by what's flashing on Keith's radar screen and what tickers 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
1.87 1.65 1.84
SPX
S&P 500
1,899 1,992 1,986
RUT
Russell 2000
991 1,072 1,066
COMPQ
NASDAQ Composite
4,444 4,727 4,703
NIKK
Nikkei 225 Index
15,607 16,999 16,747
DAX
German DAX Composite
9,030 9,863 9,777
VIX
Volatility Index
16.99 24.13 17.09
USD
U.S. Dollar Index
96.69 98.90 98.22
EURUSD
Euro
1.08 1.12 1.09
USDJPY
Japanese Yen
111.75 114.39 113.44
WTIC
Light Crude Oil Spot Price
28.93 35.66 34.73
NATGAS
Natural Gas Spot Price
1.63 1.90 1.67
GOLD
Gold Spot Price
1,200 1,250 1,240
COPPER
Copper Spot Price
2.05 2.19 2.19
AAPL
Apple Inc.
93 102 101
AMZN
Amazon.com Inc.
527 585 579
MCD
McDonald's Inc.
114 120 118
XLU
Utilities Select Sector SPDR
45.27 47.62 46.31
JPM
J.P. Morgan Chase & Co.
54.06 60.29 59.76
COST
Costco Wholesale Corp.
145 156 153


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

VIX, Russell and Russia

Client Talking Points

VIX

We really did need sentiment to pivot back to bullish (positioning was bullish until we hit the FEB lows, then they sold the lows – then the squeeze). That said the bullish TREND in equity volatility has a risk range of 15-30, and now we’re at 17 – next big move = up.

RUSSELL 2000

While we’ve been bearish on the Russell 2000 (and S&P 500) since July, we’ve had some massive opportunities to underweight, sell, short, etc. Small Cap (SIZE) as a style factor at obvious lower-highs (from the all-time bubble high of 1295). Now = another one of those opportunities with immediate-term down side to 991 – Costco comps of 0% is not “an economy that appears to be picking up.”

RUSSIA

Forget your friends telling you “Oil has bottomed” or that they’re once again long levered Energy stocks (remember OCT?), the real fun was in being long Russian stocks for the last +14% ramp (in a month!); is this where the next 3-6 months of alpha is going to be? We say this and all Oil & Gas related exposures are happy hunting grounds for bears again.

 

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

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 2%
FIXED INCOME 28% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
XLU

Our preferred growth slowing vehicle remains Utilities (XLU) in equites. Hitting on Friday’s revised GDP report (Q/Q SAAR Q4 GDP revised to +1.0% from +0.7%), a deep-dive into the number doesn’t support an incrementally stronger economy:

  • Consumption was revised down marginally but net exports were up with the negative revision to imports outweighing the negative revision to exports. That’s good for the number but lower global trade activity is not a good sign for global growth;
  • Much of the actual change in the revision was due to inventories, which contributed +0.31pts to the headline number
GIS

General Mills (GIS) hit an all-time high last week when it reached $60.18 on Thursday. Although this would not be a great entry point, it is also not a reason to get out if you have a long-term view. Nothing has changed in our fundamental story and we have no reason to lose faith in our thinking to date.

 

Over the course of the past few years, GIS has made strategic acquisitions within the natural & organic / wellness space (we call it the string of pearls approach). Although they are not largely meaningful to top or bottom-line right now, they are changing the way the company thinks about its broader portfolio.

 

We continue to believe GIS is one of the best positioned consumer packaged foods companies due to its strong brands and best-in-class people and organization.

TLT

Our preferred growth slowing vehicle remains (Long-Term Treasuries) TLT in fixed income. A flattening in the yield spread (10YR Treasury Yield – 2YR Treasury Yield) continued last week into double digit basis point territory (currently at 96 basis points). Year-to-date the yield spread has declined 44 basis points while the 10YR Treasury Yield has dropped 47 basis points. As a reminder the yield curve flattens as the economy slows with policy and/or liquidity management driving the short-end higher and defensive positioning and/or discounting of lower future growth/inflation driving the long end lower. 

Three for the Road

TWEET OF THE DAY

Europe has rolled off its cycle peak and not enough investors have contextualized the impact this'll have on the USD

@HedgeyeDDale

QUOTE OF THE DAY

I don’t believe in luck, I believe in preparation.

-Bobby Knight                                                 

STAT OF THE DAY

Airbnb now offers over 1 million rooms or units nationwide.


ICI Fund Flow Survey | More is More

Takeaway: ICI has provided more detail in its weekly survey which will assist investors in pinpointing trends in the asset management sector.

 

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

The weekly ICI survey has just become more robust with the Investment Company Institute now providing additional categories within domestic equities, world equities, and taxable bonds in its weekly fund flow information which canvasses 98% of all publlically traded mutual funds. Please let us know if you would like a copy of the underlying information. For example, a fairly general aggregation of international equity flows has now been broken out into Developed versus Emerging Market survey results which are very different in trajectory and magnitude.

 

ICI Fund Flow Survey | More is More - new intro 

 

In the 5-day period ending February 24th, domestic equity funds had their second week of positive inflows in the last 22 weeks; investors contributed a net +$2.1 billion to the asset class with Large Cap (new category) driving the contribution. In fixed income funds, investors resumed withdrawals from the taxable bond category with investment grade outflows (new category) being offset by new risk taking in high yield (new breakout) which had a solid inflow. Meanwhile, tax-free munis continue to be the story for 2016 thus far taking in another +$1.0 billion in contributions (their 21st week of consecutive inflows). Money funds took in a large +$15 billion contribution last week, which is likely due to tax refund receipts and on going risk aversion.


ICI Fund Flow Survey | More is More -  5 ICI1

 

In the most recent 5-day period ending February 24th, total equity mutual funds put up net inflows of +$4.4 billion, outpacing the year-to-date weekly average outflow of -$346 million and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net outflows of -$100 million, outpacing the year-to-date weekly average outflow of -$777 million and the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$5.0 billion, trailing the year-to-date weekly average outflow of -$4.5 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.3 billion, trailing the year-to-date weekly average inflow of +$2.4 billion but outpacing 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:

 

ICI Fund Flow Survey | More is More -  3 ICI2

 

ICI Fund Flow Survey | More is More -  5 ICI3

 

ICI Fund Flow Survey | More is More -  4 ICI4

 

ICI Fund Flow Survey | More is More - ICI5

 

ICI Fund Flow Survey | More is More - 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 | More is More - ICI12

 

ICI Fund Flow Survey | More is More - ICI13

 

ICI Fund Flow Survey | More is More - ICI14

 

ICI Fund Flow Survey | More is More - ICI15

 

ICI Fund Flow Survey | More is More - 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:

 

ICI Fund Flow Survey | More is More - ICI7

 

ICI Fund Flow Survey | More is More - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors flocked to gold last week, contributing +$1.9 billion or +7% to the GLD ETF.

 

ICI Fund Flow Survey | More is More - 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 | More is More - ICI17

 

ICI Fund Flow Survey | More is More - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$775 million spread for the week (+$1.5 billion of total equity inflow net of the +$2.2 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 +$438 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.)

  

ICI Fund Flow Survey | More is More - 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 | More is More - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







The Macro Show Replay | March 3, 2016

CLICK HERE to access the associated slides.

 

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next