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Cartoon of the Day: Yellen's Flock

Cartoon of the Day: Yellen's Flock - Yellen cartoon 06.23.2016

 

"In what seemed like an exasperating moment for the Fed Chair yesterday, when Senator Pat Toomey (PA) asked Janet Yellen if she’d yet considered that 0% rates might be a bad thing in the years 2017 and beyond… she answered 'No.' Wow," Hedgeye CEO Keith McCullough wrote in a recent Early Look.


The Irony Behind The Fed’s Inflation Target

 

 

In this excerpt from The Macro Show earlier today, Hedgeye U.S. Macro analyst Christian Drake explains why hitting the Fed’s 2% inflation target would be a “tax on consumers” given the rising, inflationary pressures associated with rent inflation.


Capital Brief: Will Sanders Supporters Choose Trump Or Clinton?

Takeaway: Donald, The Disciplined; Can Clinton Compete Countrywide?; Sanders Supporters Still Searching

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

 

Capital Brief: Will Sanders Supporters Choose Trump Or Clinton? - JT   Potomac under 1 mb

 

“He serves his party best who serves the country best.”

Rutherford B. Hayes

DONALD, THE DISCIPLINED

Donald Trump is pressing the reset button with the intention of setting a new tone for his campaign. In his first rebuttal speech to Hillary Clinton’s assault, Trump sharply hit Clinton with distinct blows – labeling her a status-quo candidate and sacking the Clinton Foundation, but also spent time emphasizing his path forward while looking composed, softening his tone, and showing early signs of change…for the most part.

 

There’s no assurance that this disciplined approach will last and we’ve all seen it before - although he did refrain from six scheduled interviews to avoid drowning out his message. But if he’s looking for a lasting way to right the ship, he’ll need to prove that this maneuver will last more than one day to major donors, elected party leaders across the country and the RNC and repair previous ruptures. The move comes in the nick of time as efforts by anti-Trump factions to disrupt the convention are picking up steam.

CAN CLINTON COMPETE COUNTRYWIDE?

To compete in all 50 states, Clinton will need all the help she can get – cue: meeting with House Dems. Her theme was simple - unity. Clinton emphasized the importance of her efforts to unify Democrats in ‘08 following her primary battle and loss to then-Senator Barack Obama, even though her supporters urged her to continue in opposition.

 

Clinton and the Democrats are nowhere close to the circling firing squad the Republicans are facing with Donald Trump, but she still must arduously work to pursue Sanders’ progressive wing of the party. While Sanders had only a fraction of Clinton's support among House Democrats, party leaders are well aware that they will all need Sanders’ supporters come November.

SANDERS SUPPORTERS STILL SEARCHING

While Bernie Sanders vowed to help Clinton defeat Trump in November, he has yet to endorse her - and more importantly - his supporters are still waiting on the sidelines. There is still a lingering distrust of Clinton among the Sanders crowd, viewing her as too establishment-friendly, hawkish, and concluding that she is beholden to too many special interests.

 

Clinton’s scant support among Sanders voters still has the opportunity for growth, but don’t expect it to be easy - many supporters still claim they could never support her - and a whopping 22% of them say they’ll support Trump according to Bloomberg.


INSTANT INSIGHT: Massive Corporate Buybacks, BOJ Firepower & PBoC Central Planning

Takeaway: Corporate Buybacks; U.S. #GrowthSlowing; The Lone BOJ Dissenter; PBoC Central Planning

INSTANT INSIGHT: Massive Corporate Buybacks, BOJ Firepower & PBoC Central Planning - earth

 

Below are a collection of interesting links and insights from today's news with analysis filtered through the Hedgeye macro lens. This installment discusses a recent record for corporate buybacks, U.S. #GrowthSlowing via Bed Bath & Beyond, BOJ central planning and China's yuan policy and shadow stimulus.

 

Enjoy! 

 

The 2nd-Largest Quarter Of Corp Buybacks Ever

"Companies in the S&P 500 spent $161.4 billion buying back shares in the first quarter of 2016, the second-largest amount on record, supporting stock prices amid the index’s early-year drop," the Wall Street Journal reports. Why are companies buying back shares? Simple. "As Earnings Slow, companies lever up and buy back stock to hit EPS targets that determine executive bonuses," Hedgeye CEO Keith McCullough writes.

 

Another U.S. #GrowthSlowing Casualty

"In other news, Bed Bath & Beyond (BBBY) is the latest US #ConsumerSlowing report (post market close)," McCullough wrote. BBBY posted a sales decline and missed earnings estimates as foot traffic slowed and increasing competition from Amazon.com hurt results. 

 

The Lone BOJ Dissenter Rips On Negative Rates

"The additional (positive) effects of quantitative and qualitative easing have been diminishing," Takahide Kiuchi told business leaders at a conference today. "On the other hand, numerous side effects of QQE seem to be increasing steadily," he said. Kiuchi has said before that the BOJ's sustained ultra-low interest rates and the negative rates decision had destabilizing effects on the bond market and hurt the central bank's credibility.

 

In other Japan-related Central Planning News

Is the BOJ holding back its bond buying firepower for after today's Brexit vote? Maybe. Bloomberg reports:

 

"Up to now, the Bank of Japan has tended to conduct bond-purchase operations -- known locally as “rinban” -- on the days following a government auction. Not this time. The Finance Ministry had sold about 400 billion yen ($3.8 billion) of Japanese government bonds with tenors of 20, 30 and 40 years on Friday, but come Monday, the central bank wasn’t buying.”

 

With yields on Japanese government bonds touching record lows last week, perhaps the BOJ is just holding off and letting the market ride for a bit? 

 

China, Yuan & Shadow Stimulus

According to China's state-owned media outlet Xinhua, the People's Bank of China is making strides toward "increas[ing] the investability of the renminbi." A seperate Xinhua article this week explains:

 

"The central bank has stressed that it will stick to market-oriented reforms and increase the yuan's exchange rate flexibility, according to the commentary 'Understand the yuan's fluctuations.'

 

'What needs to be avoided is not fluctuations but possible risks caused by them,' said the article, adding that while risks do exist, there is no basis for long-term depreciation of the yuan.

 

'We should make sound plans to respond to any risks, rather than hesitating over risk concerns,' it read."

 

Another interesting read on China, check out the FT's piece "China deploys state enterprises to economic stimulus effort." Here's the key takeaway from the chart below. Essentially, China's state-owned entities are doing the government's bidding to stimulate its slowing economy.

 

INSTANT INSIGHT: Massive Corporate Buybacks, BOJ Firepower & PBoC Central Planning - china investment

 


ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds

Takeaway: Brexit worries prompted investors to pull funds from all but three asset classes last week.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending June 15th, Brexit worries prompted investors to withdraw funds from every asset class but investment grade bonds, municipals, and ICI's other bond category which took in +$469 million, +$1.6 billion, and +$512 million respectively. Total equity mutual fund and ETF flows came in at -$6.0 billion while total bond mutual funds and ETFs were virtually flat with a -$2 million outflow. With the Brexit vote ongoing today, we expect another weak survey next week which will capture more jitters ahead of this volatility event. Year-to-date, Bond ETFs have been the best category with +$3.7 billion in subscriptions on average each week (versus a weekly mean in 2015 of just +$571 million). Municipal bond funds have also been high grossing with +$1.3 billion in subscriptions per week versus just a +$313 million average last year.


ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI19

 

In the most recent 5-day period ending June 15th, total equity mutual funds put up net outflows of -$5.9 billion, trailing the year-to-date weekly average outflow of -$2.7 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$1.5 billion, trailing the year-to-date weekly average inflow of +$2.4 billion but outpacing the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$167 million, outpacing the year-to-date weekly average outflow of -$864 million but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net outflows of -$1.5 billion, trailing the year-to-date weekly average inflow of +$1.4 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:

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI2

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI3

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI4

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI5

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI12

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI13

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI14

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI15

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI7

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: There wasn't a large standout in sector SPDR ETFs this week, but the materials XLB ETF saw the largest percentage outflow of -2% or -$68 million.

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI17

 

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$6.0 billion spread for the week (-$6.0 billion of total equity outflow net of the -$2 million outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$2.8 billion (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.)

  

ICI Fund Flow Survey | Brexit-ing Equity Mutual Funds - 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 | Brexit-ing Equity Mutual Funds - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA



Patrick Staudt, CFA







Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk)

Takeaway: ECB to "examine" the purchase of Greek government bonds, which still carry a junk rating, "at a later stage."

Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk) - greece

 

The Mario Draghi-led ECB is already buying junk bonds so why not add Greek sovereign bonds to the list too?

 

That's the latest bit of central planning hocus pocus from the ECB. Yesterday, the central bank granted Greek banks access to cheap funding, after sidelining them for more than a year due to debt negotiations.

 

Draghi & Co. would also "examine" the purchase of Greek government bonds, which still carry a junk rating, "at a later stage":

 

"The Governing Council will examine possible purchases of Greek government bonds under the public sector purchase programme (PSPP) at a later stage, taking into account the progress made in the analysis and reinforcement of Greece’s debt sustainability, as well as other risk management considerations."

 

Whatever It Takes: ECB To "Examine" Buying Greek Sovereign Bonds (& Other Junk) - greece owe everyone else

 

Why not?

 

The ECB is already purchasing corporate junk bonds. Here's Bloomberg reporting from earlier this month when the ECB first began buying corporate bonds:

 

"Purchases on the first day included notes from Telecom Italia SpA, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. The company’s bonds only qualify for the central bank’s purchase program because Fitch Ratings ranks it at investment grade."

 

And even if a bond is universally downgraded to junk by all ratings agencies the ECB can hang on. Here's more from an ECB press release:

 

"Will the Eurosystem sell its holdings of bonds if they lose eligibility? For example, if they are downgraded and lose investment grade status?

The Eurosystem is not required to sell its holdings in the event of a downgrade below the credit quality rating requirement for eligibility."

 

this is Draghi's "whatever it takes" on steroids.  


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