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A Closer Look At Consensus Positioning (& Why We Completely Disagree)

Takeaway: Consensus is overwhelmingly long the S&P 500 and short 10yr Treasuries. Don't do that!

A Closer Look At Consensus Positioning (& Why We Completely Disagree) - consensus positioning

 

Consensus is overwhelmingly long the S&P 500 and short 10yr Treasuries. 

 

Before you dogpile in on that. Consider where we're at...

 

In her most recent speech, Fed head Janet Yellen expressed concern about the jobs market, while reiterating that the Fed is data dependent. In the past six months, the Fed pivoted from Hawkish (in December) to Dovish (March/April) to Hawkish (May). Market consensus now perceives Yellen and the Fed as flipping back to Dovish in June.

 

Meanwhile, Yellen’s favorite economic indicator (the “Labor Market Conditions Index”) just hit a 7-year low and credit growth had its biggest deceleration since 2010.

 

In other words, U.S. #GrowthSlowing.

 

So, what’s an investor to do?

 

The Fed is perpetuating volatility in macro markets, so stick with what’s worked all year, Long Bonds (TLT). Stating the obvious, that is the exact opposite of how Macro consensus is positioned. TLT has been our most vocal macro call for a while now and has served us well. It is up around 11% YTD versus 3% for the S&P 500.


[UNLOCKED] Keith's Daily Trading Ranges

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 of which are determined by what's flashing on Keith's screen and by what names 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
1.78 1.64 1.71
SPX
S&P 500
2,082 2,121 2,119
RUT
Russell 2000
1,139 1,195 1,188
COMPQ
NASDAQ Composite
4,872 4,995 4,974
NIKK
Nikkei 225 Index
16,303 16,972 16,830
DAX
German DAX Composite
10,015 10,368 10,217
VIX
Volatility Index
13.02 16.75 14.08
USD
U.S. Dollar Index
93.15 94.87 93.60
EURUSD
Euro
1.10 1.14 1.13
USDJPY
Japanese Yen
105.53 108.77 107.00
WTIC
Light Crude Oil Spot Price
47.78 51.37 51.53
NATGAS
Natural Gas Spot Price
2.12 2.60 2.46
GOLD
Gold Spot Price
1,240 1,270 1,265
COPPER
Copper Spot Price
2.02 2.11 2.06
AAPL
Apple Inc.
96.73 100.99 98.94
AMZN
Amazon.com Inc.
697 734 726
MCD
McDonald's Inc.
120 124 122
NFLX
Netflix Inc.
96 102 97
GOOGL
Alphabet Inc.
716 751 742
GIS
General Mills Inc.
63.00 64.75 64.42



A Brief History Of The #CreditCycle via Hedgeye's Darius Dale

Takeaway: "We are loudly reiterating our call that the unwind of ZIRP and QE will continue to deflate the easy money credit boom it fabricated..."

A Brief History Of The #CreditCycle via Hedgeye's Darius Dale - Fed cartoon 10.24.2014

 

Below is an essential risk management chart via Hedgeye Senior Macro analyst Darius Dale. Here's the key callout on the #CreditCycle from our quarterly Macro Themes deck:

 

"We are loudly reiterating our call that the unwind of ZIRP and QE will continue to deflate the easy money credit boom it fabricated in the form of continued recessionary earnings growth as the business cycle gets dangerously long in the tooth."

 

Click image to enlarge. 

A Brief History Of The #CreditCycle via Hedgeye's Darius Dale - delinquencies rising


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NFLX | Good vs. Bad (US User Survey)

Takeaway: Account sharing could actually be a funnel, but NFLX is struggling to drum up interest elsewhere. US runway may be shorter than most assume

INTRODUCTION: We’re in the process of running a larger survey to segment NFLX’s US user base and prospects.  This is the first batch (n=2,037), but this note focuses only on those respondents where we have demographic data (n=1,637), which is a key component to this analysis.  We have married our survey results to 2013 US Census Broadband metrics by Householder age, which we then grossed up to approximate SNL Kagan's more recent US Household Broadband estimates of 101M (via NFLX).  The Key Points below are our summary findings, the bulk of the supporting analysis is in the charts below.  

 

KEY POINTS

  1. THE GOOD: Our survey results suggest ~20% of NFLX’s accounts are being shared, which may be a concern at face value, but account sharing could actually be a funnel to new suscriptions.  Roughly half (48%) of those freeloaders are considering signing up for their own Netflix account, which is 4x the rate of those not using the service at all.  In short, freeloaders are effectively trialing the service.  Further, the ratio of account shares to freeloaders is less than 2 (1.6), which suggests a freeloader has access to no more than one account on average.  That said, NFLX churn risk is somewhat mitigated by the prospect of new sign-ups amongst freeloaders in the event the host subscriber cancels their account.
  2. THE BAD: The overwhelming majority (84%) of NFLX’s unpenetrated TAM currently has no interest in signing up.  It’s important to note that we asked the question with an affirmative bias (i.e. may be interested vs. not at all), and that this is an internet-based survey, so we don’t believe there is a negative selection bias.  Granted this is a subjective question; some of those that aren’t interested today may eventually change their mind over time.  But what remains of its TAM is decidedly older (~65% are 45+), which is historically a tougher group to penetrate given their below-average usage levels to date (both paid and free).  Once again, things could change, but it will likely cost a lot more in per-sub acquisition costs (marketing expense/net adds), which is currently over 55% of NFLX's annual ARPU in the US (TTM basis).
  3. NET-NET: NFLX’s recent softness in domestic net adds could persist in the near-term given that only 16% of NFLX's unpenetrated TAM may be interested in signing up; only a 1/3 of which are currently trialing (freeloading) the service today.  Assuming a maximum TAM of 101M US Broadband households (SNL Kagan), NFLX may only have a near-term runway of 9M US accounts vs. the 47M it has today, meaning NFLX may struggle to reach the lower end of its 60M-90M US user TAM estimate.  This is a much bigger concern regarding the longer-term prospects of its current operating model, which is essentially dependent on NFLX's ability to grow into its user TAM (see note below).  That said, international will become an increasingly important part of this story (note to follow).

 

See note and charts below for supporting detail.  Let us know if you have any questions, or would like to discuss further.

 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet

 

NFLX | Breaking Down Content Costs
05/26/16 08:14 AM EDT
[click here

 

NFLX | Good vs. Bad (US User Survey) - NFLX   Survey Responses 2

NFLX | Good vs. Bad (US User Survey) - NFLX   Survey Freeloader Interest 2

NFLX | Good vs. Bad (US User Survey) - NFLX   Survey Non User Interest

NFLX | Good vs. Bad (US User Survey) - NFLX   Survey Penetration 2

NFLX | Good vs. Bad (US User Survey) - NFLX   Survey Interested

NFLX | Good vs. Bad (US User Survey) - NFLX   Survey Not Interested

NFLX | Good vs. Bad (US User Survey) - NFLX   TAM segmentation 3


Dispelling Another Wall Street Fairy Tale: "Global Demand Has Bottomed"

Takeaway: Evidence of #GrowthSlowing? Japanese and German equity markets are tumbling and the 10yr/2yr Treasury yield spread is pancaking.

Dispelling Another Wall Street Fairy Tale: "Global Demand Has Bottomed" - growth escalator cartoon 04.29.2016

 

We've been hearing for a while now, from various pundits and prognosticators, that "global demand has bottomed." The problem with that argument is that it just isn't born out by the facts. 

 

Setting aside that economic indicators around the world are rolling over, simply looking at the massive drawdowns in global equity markets could satisfy even a casual observer's curiousity that all is not well.

 

Here's analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"I know. When trying weave the “global demand has bottomed” narrative about US stocks, you have to ex-out things like Japanese and German Equities (and their bond yields hitting all time lows) – small details I’m sure, but both Nikkei and DAX down another -1% today and down -20% and -19%, respectively, from last year’s highs."

 

Take a look at the Nikkei...

 

 

And Germany's DAX...

 

 

Clearly, global demand has not bottomed...

 

Here's the most obvious #GrowthSlowing indicator. The 10yr to 2yr Treasury yield spread is pancaking, with the yield on the 10yr at 1.669% this morning.

 

Dispelling Another Wall Street Fairy Tale: "Global Demand Has Bottomed" - yield spread 6 9 16

 

More to be revealed.

 

(FYI: Our biggest Macro call, Long Bonds (TLT) is breaking out to new highs today.)


Daily Market Data Dump: Thursday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Thursday - equity markets 6 9

 

Daily Market Data Dump: Thursday - sector performance 6 9

 

Daily Market Data Dump: Thursday - volume 6 9

 

Daily Market Data Dump: Thursday - rates and spreads 6 9

 

Daily Market Data Dump: Thursday - currencies 6 9


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