prev

Eye on NY Primary: Trump Momo... Bye-Bye Bernie?

Below is a brief excerpt from our Potomac Research Group colleague and Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

BYE-BYE BERNIE?

Eye on NY Primary: Trump Momo... Bye-Bye Bernie? - bernie sanders bye

 

Today's contest in NY is a critical make or break moment for Bernie Sanders - and if Hillary Clinton wins big (10% +)- Sanders' nomination dreams all but evaporate. If the race is closer than expected, the narrative then favors Sanders, his crusade continues unabated and he becomes more than a serious challenger.

 

Despite being a progressive blue state where Sanders has roots, Clinton's political experience in her adopted state provides her an edge, and has helped her to hyper-localize issues. Sanders has attempted to retool his national message for NY, but it's too little too late to match Clinton's in-state infrastructure and strategy of tailoring ads and messaging down to each media market and borough.   

IF I CAN, MAKE. IT. THERE...

Eye on NY Primary: Trump Momo... Bye-Bye Bernie? - trump cruz

 

Donald Trump will win NY's primary today - the only question is by how much. A big win (55%+) would allow him to sweep almost all of NY's delegates, whereas winning less than 50% of the vote would mean sharing a handful delegates with both John Kasich and Ted Cruz.

 

There are five Northeastern states next on the map, and tonight's results will determine if Trump goes into them with the big 'mo' - or if he will be harried by his competitors and anti-Trump groups along the way. We're betting on the former. Cruz just wants the second half of April and the Northeastern primaries to be over.

CHECK & BALANCE

Yesterday, the SCOTUS justices were divided in their oral arguments with regard to executive actions made by President Obama on illegal immigration in 2014 - leading to the deferred deportation of nearly five million immigrants. The actions have sparked opposition from 26 states, who argue that the president had overstepped his executive role.

 

A split-decision - due to the current vacant seat - would leave the matter in a temporary injunction - as decided by a lower court and likely passing the issue to the next Administration, and dealing a blow to President Obama. 


Cruise Liner Earnings: What We’re Most Focused On

 

In this brief excerpt from The Macro Show this morning, Hedgeye Gaming, Lodging & Leisure Sector Head Todd Jordan highlights the key issues his team is most focused on right now as we enter earnings season. 


DE: Adding Deere & Company to Investing Ideas (Short Side)

Takeaway: We are adding Deere to Investing Ideas today.

Editor's Note: Our Industrials analyst Jay Van Sciver will send out a full, detailed stock report outlining our high-conviction short case next week. In the meantime, below is a brief summary of our thesis written by Hedgeye CEO Keith McCullough in Real-Time Alerts earlier today.

 

DE: Adding Deere & Company to Investing Ideas (Short Side) - john deere

 

As many long-term followers of Hedgeye know, we have at least 30 excellent SELL ideas that aren't currently on the short side of Real-Time Alerts.

 

While I made some mistakes going back to the well on some names that had been imploding (on the short side) in FEB, I think I did a good job staying away from putting a lot of names back on the short side too early during the MAR-APR squeeze.

 

Time and prices change, but intermediate-term SELL calls from my Research Team (the one that's kept you from chasing charts high in the last few years) rarely do.

 

Deere (DE) is one of those core short ideas that I wanted to bring back in focus alongside an immediate-term TRADE overbought signal. 

 

Per our Industrials guru Jay Van Sciver, we see DE as a highly cyclical capital equipment supplier to a mature, zero growth industry.  Deere’s key, high margin franchise is large, North American ag equipment.  Prior to 2014 or so, that market experienced a decade long surge in equipment sales, driven by soaring crop prices, increasing land values, and comparatively easy credit.  Since peak, these factors have begun to roll over.  We expect the hangover – elevated new & used equipment inventories, excess manufacturing capacity, tightening farm credit, and declines in farmer equity – to be a prolonged affair that gradually takes equipment sales below ‘normalized’ demand.


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

4 Videos On Why We Remain Bearish

Takeaway: We'll say it again ... Risk happens slowly at first, then all at once.

4 Videos On Why We Remain Bearish - Bubble bear cartoon 09.26.2014  1

So... why are we bearish on U.S. equities?

 

The brief videos below lay out much of our case. For starters, we believe this recent reflation rally will prove short-lived, due to the fact corporate profits have fallen two consecutive quarters (a rather bearish historical harbinger) and we don't think central bankers can successfully arrest economic gravity.

 

1. Game Over. Central Bankers Can’t Do Anymore

In this brief exchange on The Macro Show, Hedgeye Demography Sector Head Neil Howe and CEO Keith McCullough discuss how global markets are closing in on a critical monetary policy exhaustion end point. “Why don’t people accept that?” Howe asks. “[Central bankers] can’t do anymore!”

 

2. McCullough: S&P Earnings Confront ‘Toughest Comps In U.S. History’

Hedgeye CEO Keith McCullough crystalizes an enormous risk facing the U.S. stock market right now in this brief excerpt from The Macro Show today.

 

3. Dale: 'What Are You Buying'

In this excerpt from The Macro Show, Hedgeye Senior Macro analyst Darius Dale discusses the recent reflation rally and provides critical context about why we remain bearish.

 

4. Beware the Reflation Trade Risk

In this brief excerpt of The Macro Show earlier today, Hedgeye CEO Keith McCullough discusses this week’s Fed meeting, the recent reflation trade bounce and takes a deep dive into commodities markets.


[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015

Takeaway: Domestic stock funds have shed -$36.3B so far in '16, far worse than the first 14 weeks in 2015 which was the worst year on record.

Editor's Note: This is a complimentary research note originally published April 14, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

 

*  *  *  *

 

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending April 6th, domestic equity funds lost another -$5.3 billion, bringing the first fourteen weeks of 2016 to a net redemption of -$36.3 billion. This current draw down pace is far worse than the first fourteen weeks of 2015 which had totaled just $-9.8 BB, but which ended the year as the biggest annual redemption for the category in history. Additionally, the 2016 YTD withdrawal is just shy of the Financial Crisis cadence in 2008, in which domestic equity funds had lost -$39.7 billion over the same period (but the '08 cycle finished the year strongly with domestic stock subscriptions). Investors also withdrew -$555 million from international equity funds last week, bringing total equity mutual funds lost to -$5.8 billion. Meanwhile, the migration into passive funds continued with investors contributing +$7.0 billion to equity ETFs. Below is Morningstar's current count to the biggest money management complexes with exposure to the domestic stock fund category.

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - Dom

 

On the fixed income side, investors made net contributions in all categories. Total bond mutual fund flows came to +$6.7 billion. Bond ETF flows were relatively weak last week, coming in at only +$240 million. Finally, money market funds lost -$27 billion to withdrawals, as the seasonality of income tax payments hit its final week.

 


[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI19

 

In the most recent 5-day period ending April 6th, total equity mutual funds put up net outflows of -$5.8 billion, trailing the year-to-date weekly average outflow of -$1.2 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$6.7 billion, outpacing the year-to-date weekly average inflow of +$1.5 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$7.0 billion, outpacing the year-to-date weekly average outflow of -$1.0 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$240 million, trailing the year-to-date weekly average inflow of +$2.0 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 | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI2

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI3

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI4

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI5

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - 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 | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI12 2

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI13 2

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI14 2

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI15 2

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI16 2



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 | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI7

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors made a +5% or +$631 million contribution to the technology XLK ETF.

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - 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 | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI17 2

 

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI18 2



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$5.8 billion spread for the week (+$1.1 billion of total equity inflow net of the +$6.9 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 -$540 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.)

  

[UNLOCKED] Fund Flow Survey | Domestic Equity Mutual Funds...Worse Start Than 2015 - 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 | Domestic Equity Mutual Funds...Worse Start Than 2015 - ICI11 


RL | From Last To First

Takeaway: Bottom line, if you can get RL at sub-15x EPS on a trough earnings number, you take that trade all day.

We’re taking RL from the bottom of our Long Idea Bench to the very top. The reality is that RL is one of the few stocks we can find in retail that has arguably found a floor, and has potential catalysts to take it higher. To be clear, we’re not certain of the fat tailed ‘recovery call’ yet, as we still have too many long-term concerns about management, the latest restructuring, and ultimately the Brand. As the research gets us past even just one of these concerns, we’re very likely to get full-on bullish.  

 

Here’s what’s changed in our mind.

  1. We think that earnings have bottomed. RL is likely to earn around $6.50 this year. That’s no surprise to the consensus. But remember that just 18 months ago, it was widely (and wrongly) ‘accepted’ that RL was going to earn $10 this year. The consensus was wildly wrong back then, and if it’s wrong again over the next 12 months, we think it will prove to be on the conservative side.
  2. EPS Looks Doable. The earnings report is on May 12, and we think that the Street’s $0.83 will be very tough to miss – especially when compared to $1.41 last year (-41%) and $1.68 (-51%) two years back in this quarter. That says something for a stock that traded down an average of 11% in 4 of the past 5 earnings reports, and has missed only twice during this economic cycle.
  3. What about a guide-down?  We all know that Ralph Lauren is a perennial sandbagger. But we can say for certain that the consensus (on either Side of the Street) is absolutely not expecting a blow-away quarter on the 12th.  But can the company guide-down? Yes. A bit. But we’d be surprised to see much.  The Street is at $1.01 for the June quarter, which compares to $1.80 in June just two-years ago, and business does not appear to have gotten meaningfully worse.
  4. The Last to be the First. If there is a guide-down on the print, the company will almost certainly point to the analyst meeting the first week of June. To be clear on this…it is Ralph Lauren’s first analyst meeting in the history of the company. We’re gonna bank on the assumption that RL is not all of a sudden going to invite Wall Street into its mahogany-paneled offices on Madison Ave to explain why it does not have a clue about its future.  
  5. It’s Cheap. This is never enough of an argument on its own – as a cheap stock with earnings risk is a land-mine waiting to make a big, ugly and painful mess. But RL is near its lowest multiple in over a decade. The only time it was lower is when we were in the Great Recession – but then the base of earnings expectations had not come down yet. Today it has.
  6. The Larsson effect. Is it possible that new CEO Steffan Larsson steps up the spending, and subsequently takes a bite out of EPS? Definitely. But we welcome that. RL has been a very good steward of capital in the past. We won’t welcome higher spending by most companies, but RL makes the cut.  In fact, we heard twice from investors in the past two days that there’s the potential for a lot of cost cuts at RL. We disagree. You can’t sustainably grow earnings for a Consumer Nondurable brand that is restructuring one company into six divisions and whose core distribution channel is in a secular decline. If ‘cost-cutting’ becomes a pillar to this story, then we want no part of it.

We admit that the text above reads like a ‘Buy RL Now’ note. If you have a duration of 2-3 months, then you read it right. But we definitely need more of an edge on the TAIL part of this story before we can truly get on board as a long-term investment. Then it’s not a call about simply going to $120…then we’re potentially talking $220+.

 

RL | From Last To First - 4 19 2016 Idea List chart1


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