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JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference?

Takeaway: What to watch on the election 2016 campaign trail.

Below is a brief excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.

MICHIGAN MATTERS:  

 

JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference? - donald

 

There are 150 delegates at stake tonight -- MI, MS, ID, and HI. Donald Trump is leading in MI with 59 delegates at stake, but John Kasich and Ted Cruz are both on his heels. If Trump pulls off a double-digit win in MI and takes MS as well, then the weakness in his numbers from the past weekend's primaries, currently being touted by the establishment press, will feel like an aberration.  

 

If the race is closer than expected, then the toll from two poor debate performances, millions of dollars in attack ads, and opposition from most of the Republican establishment may be taking root, and could make the winner-take-all primaries much closer than the pundits are predicting. 

CRUZ CROSSOVER: 

 

JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference? - ted cruz up

 

The Republican establishment has long detested Cruz, but his lead over Marco Rubio is persuading some that he is best-positioned to block Trump. We're hearing whispers that a number of Rubio supporters are quietly preparing to jump to Cruz's ship, while additional reports claim "multiple" senators will endorse Cruz later this week. Still, Rubio's camp insists that once they win Florida, the map favors them after March 15th... leaving Rubio no incentive to get out.  

WHOSE SIDE ARE YOU ON?  

 

JT Taylor: Will GOP Dump Rubio For Cruz... & Can Anti-Trump Money Make A Difference? - romney

 

Since Super Tuesday a loose anti-Trump coalition has spent over $10 million on ads targeting the Republican frontrunner -- an effort to impede Trump's popularity in delegate-rich states like FL and IL. While these ads are ubiquitous in those states and others, they fail to guide voters towards another candidate, and Trump's core supporters will blindly follow him into November.

 

If Trump cleans up on March 15th then the anti-Trump movement may be short-lived. The real damage will take its toll in the general election -- with the Dems' gift that keeps on giving from the Dean of the Establishment Mitt Romney and other Republican leaders providing great substance to the anti-Trump storyline. 


An Update On Retail Earnings: 'This Is Not Just Weather'

 

In this brief excerpt from The Macro Show earlier today, Hedgeye Retail analyst Alec Richards discusses earnings in the sector and why "every single company, with the exception of three, have guided down" this quarter.

 

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

 

Subscribe to Hedgeye on YouTube for all of our free video content.


Got a U.S. Recession? Profits Do

Takeaway: Only 4 of 10 S&P 500 sectors are showing positive earnings growth. That's very bad for U.S. equities.

Below is a brief update on where we stand in S&P 500 earnings season. 494/500 companies have reported aggregate EPS decline of -7.4% y/y.

 

CLICK TO ENLARGE

Got a U.S. Recession? Profits Do - s p 500 earnings

 

Why does this matter? Check out the chart below from our 1Q Macro Themes deck.

 

Click to enlarge

Got a U.S. Recession? Profits Do - EL profits

 

Bottom line? Two or more consecutive quarters of negative earnings growth always presages a crash in stocks.

 


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[UNLOCKED] 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.

Editor's Note: This is a complimentary research note which was originally published March 3, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

 

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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.

 

[UNLOCKED] 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.


[UNLOCKED] Fund Flow Survey | More is More -  5 ICI1 large 3 8 16

 

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:

 

[UNLOCKED] Fund Flow Survey | More is More -  3 ICI2

 

[UNLOCKED] Fund Flow Survey | More is More -  5 ICI3

 

[UNLOCKED] Fund Flow Survey | More is More -  4 ICI4

 

[UNLOCKED] Fund Flow Survey | More is More - ICI5

 

[UNLOCKED] 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.

 

[UNLOCKED] Fund Flow Survey | More is More - ICI12

 

[UNLOCKED] Fund Flow Survey | More is More - ICI13

 

[UNLOCKED] Fund Flow Survey | More is More - ICI14

 

[UNLOCKED] Fund Flow Survey | More is More - ICI15

 

[UNLOCKED] 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:

 

[UNLOCKED] Fund Flow Survey | More is More - ICI7

 

[UNLOCKED] 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.

 

[UNLOCKED] 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.

 

[UNLOCKED] Fund Flow Survey | More is More - ICI17

 

[UNLOCKED] 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.)

  

[UNLOCKED] 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:

 

[UNLOCKED] Fund Flow Survey | More is More - ICI11 


The Macro Show Replay | March 8, 2016

CLICK HERE for the associated slides.

Click here for audio replay.

 


Squeeze

Client Talking Points

CREDIT & CONFIDENCE

While tightening standards and declining demand currently characterize the corporate credit environment, Consumer Credit growth decelerated to its slowest pace in 23-months in January according to Fed data released yesterday. Small Business Confidence, meanwhile, retreated for a 4th straight month in February according to NFIB data released this morning. Notably, the Hiring Plans, Current Compensation and Compensation Plans Indices all declined sequentially to new 9-month lows.  Small Businesses represent over 99% of total U.S. Employer firms and > 60% of net private sector hiring on a monthly basis – sentiment around the current and forward prospects for business activity are discretely related to hiring activity and labor compensation trends for small businesses and the data has now shown a multi-month trend towards softening.

EURO

Trade the Range: buy it $1.08, sell it at $1.12. As we’ve noted in our Big Bang Theory, we think any “easing” policy announcement at Thursday’s ECB meeting from Mario Draghi could send the EUR/USD to the top end of its range.  

#REFLATIONTADE

We’re pretty confident calling a reflation trade a “squeeze” in a week where high debt, high short-interest, high beta stocks (everything that has gotten crushed) greatly diverge to the upside vs. the rest of the market. That continued yesterday with a +6% move in WTI. Most importantly with regards to the move in commodities, we highlight that a reflation TRADE doesn’t help spark another credit cycle. Corporate credit has gotten some relief in spread and fair value terms, but with lending standards tightening, a return to 2014-15 financing levels is unlikely at best. Looking at high yield energy spreads, credit is still trading at a level +400-500bps over March 2015 spreads. As we highlight in our Q1 themes deck, once the credit cycle begins to roll, any relief has historically been temporary.   

 

*Tune into The Macro Show with Retail Analyst Alec Richards live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 3%
FIXED INCOME 29% INTL CURRENCIES 6%

Top Long Ideas

Company Ticker Sector Duration
XLU

If you were long energy over utilities last week, nice trade! We'd remind you that Utilities (XLU) are outperforming the S&P 500 by +10% year-to-date. And that’s with the bounce. By contrast, Energy (XLE) was up 6.5% on the week but is up only 1% year-to-date.

GIS

General Mills (GIS) faces some headwinds across their portfolio, and although the 1H of FY16 was a challenge, the company has robust merchandising and consumer plans in the 2H that should improve results.

 

GIS has embarked on a mission to drive their top 450 SKUs, which represent 75-85% of their volume. Calling it their ‘Power 450’, surprisingly these 450 SKUs aren’t even in all retail locations and formats, broadening the distribution footprint of these top SKUs is priority number one for GIS’s sales team. The organization is also looking at the bottom 450, representing 1-2% of volume and making critical decisions on what products can be discontinued.

 

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

We can’t emphasize enough the bigger picture from both a data and top-down market signaling perspective. To contextualize the relief rallies and short squeezes in asset classes and instruments that are counter to our more longer-term view. Here’s what how we think the macro environment plays out from here:

  1. The market is positioned for more rate hikes into 2016
  2. The data continues to deteriorate, and market volatility ensues
  3. The expectation that “all is good” comes off the table and the market increasingly pivots to the view that, throughout 2016, the Fed is going to hike rates in methodical fashion straight into an economic slowdown
  4. The market takes in the growth slowing pivot in real-time (Treasury rates and the dollar both move lower, and inflation-leveraged assets like gold catch a bid)

 

Once the policy catalysts are out of the way in the next few weeks, our expectation is a return to outperformance in growth slowing asset classes (TLT and XLU). If you’re in for the TAIL and the TREND call, focus on the data, not the desperate attempts of central planners to arrest economic gravity. A brief reminder: ECB chief Mario Draghi will attempt to walk on water Thursday.

Three for the Road

TWEET OF THE DAY

Hedgeye CEO @KeithMcCullough on #ECB & "Is this time different"

[UNLOCKED] Big Bang Theory https://app.hedgeye.com/insights/49593-unlocked-big-bang-theory… @Hedgeye

QUOTE OF THE DAY

The best evaluation I can make of a player is to look in their eyes and see how scared they are.      

Michael Jordan                                                  

STAT OF THE DAY

Today in 1817, the New York Stock Exchange was founded.


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