Central planners are increasingly pushing on a string as macro markets continue to move in direct opposition to the best efforts of policymakers at the ECB and BOJ.
Hedgeye Internet & Media analyst Hesham Shaaban removed LinkedIn from his Best Ideas Long list heading into fourth quarter earnings. Good call. The stock is down 50% year-to-date. In this brief excerpt from The Macro Show earlier today, Shaaban responds to a subscriber’s question about whether LinkedIn is now “too cheap to ignore” and gives a deep dive explanation as to why he’s cautious on the stock.
In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses why "we’re entering a new era in which simplicity — not choice — is the hallmark of a cutting-edge brand."
Click here to read Howe's accompanying About Everything research note.
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.
In an exclusive interview with Time magazine, Fed head Janet Yellen said:
"We are focused on Main Street, on supporting economic conditions—plentiful jobs and stable prices—that help all Americans."
We've been arguing that Fed policies have, in fact, perpetuated the exact opposite of Yellen's stated goal for some time now. In the charts below, via Hedgeye Senior Macro analyst Darius Dale, you can clearly see the massive build in asset prices that Fed helped create. This swelling of financial assets flowed predominantly to the balance sheets of the wealthy. Not Main Street.
"This grand central planning experiment where we've made literal market-moving rock stars out of government bureaucrats will definitely come to an end."
More on that...
Yellen & Co. have this nonsensical line of thinking that the Fed "did not make a mistake" with its December rate hike, a pause in April rate hikes was warranted because the Fed is "willing to be cautious" about poor economic data but that, ultimately, the economy is doing "quite well" so further Fed rate hikes is one of the world's "worst-kept" secrets.
Well, data-dependent Fed, what does the data say?
Here are a few charts via Hedgeye Senior Macro analyst Darius Dale of recent data releases. Notice the clear-cut declines across these data sets (Retail sales, PPI, and NFIB Business Survey):
Following yesterday's 4.5% pop in the price of oil on OPEC production freeze speculation, we're back to fundamentals this morning (a.k.a. stronger U.S. dollar pushing prices lower).
So where do we go from here? Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:
"Another fun ramp to an immediate-term overbought signal (on an oversold USD signal) finds resistance, USD bounces, and Oil sells off -1.7% this am; OVX (oil volatility) is signaling nowhere near the end of this bear market in Oil (OVX = 48 with an immediate-term risk range of 44-53)"
In a recent Early Look, McCullough noted that Commodities (CRB Index) have an inverse correlation (30-day duration) of -0.88 vs. the US Dollar. That's what's driving commodity prices and oil today.
If you are trying to read the OPEC tea leaves, however, watch our Hedgeye colleague and Potomac Research Group's Senior Energy analyst Joe McMonigle in the video below.
Today, Saudi Arabia's Oil Minister downplayed the prospect of oil producers taking action saying "Forget about this topic." Furthermore, Iranian oil minister Bijan Zanganeh announced that he does not even plan to attend the Doha meeting.
McMonigle has been arguing for a while now that speculation about an OPEC oil production freeze is just talk, since Saudia Arabia and Iran's true intentions are what really matter. Here are links to other videos and research notes via McMonigle:
Takeaway: All five active equity categories continued to lose funds last week; total eq MF flow came to -$4.9 B. Meanwhile passive equity took +$2.0 B
Editor's Note: This is a complimentary research note originally published April 7, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email email@example.com.
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Investment Company Institute Mutual Fund Data and ETF Money Flow:
The landscape between passive ETFs and mutual funds in fixed income is starting to look a lot like the landscape in equities. An inflection point is now evident in the growth rate of passive bond products versus funds starting in 3Q15 with fixed income ETFs growing through the volatility in credit and now cumulatively ahead of running net new assets in funds. The entire equity complex has shifted toward passive products for some time now making the chart below a future look at how the pie will shift in fixed income.
Specifically during the week, the latest ICI survey again relayed this migration for the five-days ending March 30th; all five equity mutual fund categories experienced withdrawals, bringing the total equity mutual fund flow to -$4.9 billion. Meanwhile, passive equity ETFs took in +$2.0 billion.
In fixed income, taxable bond funds experienced a -$195 million outflow as investors continue to prefer tax-free municipal bonds, which took in +$1.4 billion last week.
In the most recent 5-day period ending March 30th, total equity mutual funds put up net outflows of -$4.9 billion, trailing the year-to-date weekly average outflow of -$798 million and the 2015 average outflow of -$1.6 billion.
Fixed income mutual funds put up net inflows of +$1.2 billion, outpacing the year-to-date weekly average inflow of +$1.1 billion and the 2015 average outflow of -$475 million.
Equity ETFs had net subscriptions of +$2.0 billion, outpacing the year-to-date weekly average outflow of -$1.6 billion but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$258 million, trailing the year-to-date weekly average inflow of +$2.1 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:
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.
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:
Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the long treasury TLT ETF experienced a -$415 million or -4% outflow, although it has experienced the largest inflow YTD on a percentage basis of +48%.
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.
The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$4.4 billion spread for the week (-$2.9 billion of total equity outflow net of the +$1.5 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 -$422 million (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 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.)
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:
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