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Not Brexit: European Economies Just Look Terrible

Not Brexit: European Economies Just Look Terrible - Brexit cartoon 06.20.2016

 

"Whatever you do, don't talk about the UK economic growth data slowing this morning," Hedgeye CEO Keith McCullough wrote earlier today. 

 

Here's a look at this morning's UK data:

 

Not Brexit: European Economies Just Look Terrible - uk data

 

None of this Europe #GrowthSlowing data has anything to do with Brexit (we'll get a better understanding of the Brexit impact in coming data releases) and has everything to do with #TheCycle

 

Take a look at recently reported Eurozone data:

 

(No acceleration to speak of)

 

Not Brexit: European Economies Just Look Terrible - euro data

 

What do you do with ugly #EuropeSlowing data? We're watching the Euro. Hedgeye CEO Keith McCullough calls the euro "the main event." In a note sent to subscribers, McCullough writes:

 

"EURO – with the entire edifice of consensus staring at the Pound (which has a crazy wide risk range of $1.30-1.39), the EUR/USD is looking more and more vulnerable by the day; if they can’t break it out > $1.13, $1.05 is in play on the downside – something to seriously consider within the context of more exits and #GrowthSlowing."

 

Not Brexit: European Economies Just Look Terrible - eurusd 6 30

More to come

 


ICI Fund Flow Survey | Misplaced Optimism

Takeaway: While defensiveness continued, Brexit optimism ahead of the vote caused total equity MF and ETF outflows to ease somewhat to -$2.6 billion.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Optimism leading up to the Brexit vote caused equity outflows to ease somewhat in the 5-day period ending June 22nd, although total equity mutual funds still put in a -$3.8 billion net withdrawal. Equity ETF inflows of +$1.3 billion brought total equity mutual fund and ETF flows  to -$2.6 billion. Meanwhile, investors poured +$10.2 billion into fixed income mutual funds and ETFs, which was the category's best week since June 24, 2015. Money market funds, which experienced -$4 billion in outflows were likely a source of funds for that subscription to fixed income. Given the result of the Brexit vote, we expect defensive reallocations to continue and intensify in next week's survey.

 


ICI Fund Flow Survey | Misplaced Optimism - ICI19

 

In the most recent 5-day period ending June 22nd, total equity mutual funds put up net outflows of -$3.8 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 +$3.3 billion, outpacing the year-to-date weekly average inflow of +$2.5 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$1.3 billion, outpacing the year-to-date weekly average outflow of -$779 million but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$7.0 billion, outpacing the year-to-date weekly average inflow of +$1.6 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 | Misplaced Optimism - ICI2

 

ICI Fund Flow Survey | Misplaced Optimism - ICI3

 

ICI Fund Flow Survey | Misplaced Optimism - ICI4

 

ICI Fund Flow Survey | Misplaced Optimism - ICI5

 

ICI Fund Flow Survey | Misplaced Optimism - 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 | Misplaced Optimism - ICI12

 

ICI Fund Flow Survey | Misplaced Optimism - ICI13

 

ICI Fund Flow Survey | Misplaced Optimism - ICI14

 

ICI Fund Flow Survey | Misplaced Optimism - ICI15

 

ICI Fund Flow Survey | Misplaced Optimism - 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 | Misplaced Optimism - ICI7

 

ICI Fund Flow Survey | Misplaced Optimism - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the utilities XLU ETF took in +$214 million or +3% last week.

 

ICI Fund Flow Survey | Misplaced Optimism - 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 | Misplaced Optimism - ICI17

 

ICI Fund Flow Survey | Misplaced Optimism - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$12.8 billion spread for the week (-$2.6 billion of total equity outflow net of the +$10.2 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 -$2.7 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 | Misplaced Optimism - 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 | Misplaced Optimism - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

Patrick Staudt, CFA







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 30

 

Daily Market Data Dump: Thursday - sector performance 6 30

 

Daily Market Data Dump: Thursday - volume 6 30

 

Daily Market Data Dump: Thursday - rates and spreads 6 30

 

Daily Market Data Dump: Thursday - currencies 6 30


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.36%

Crashy: These 4 Stock Markets Are Down Over 20%

Takeaway: Germany's DAX and Japan's Nikkei are still in crash mode while our #GrowthSlowing call, i.e. long the Long Bond (TLT), continues to pay off.

Crashy: These 4 Stock Markets Are Down Over 20% - euro crash

 

"Gotta love the decelerating-volume month and quarter-end markups – economic and profit cycle reality continues tomorrow," Hedgeye CEO Keith McCullough wrote this morning in a note sent to subscribers.

 

Here's more from McCullough:

 

"Germany's DAX is backing off its bear market bounce this morning with both IBEX (Spain) and MIB (Italy) backing off -0.3-0.5% - don’t forget that A) all of these economies were going to slow in 2H 2016 ex-Brexit anyway and that B) all of their stock markets remain in crash mode (DAX -23%, IBEX -32%, MIB -34%) from their 2015 economic cycle peaks."

 

  

 

Meanwhile in Asia...

 

"JAPAN: flat for the Nikkei post a few days of a centrally planned bear market bounce, still -25.4% since July 2015," McCullough writes.

 

Crashy: These 4 Stock Markets Are Down Over 20% - nikkei 6 30

 

But there's always a bull market somewhere...

 

We're the Bulls on #GrowthSlowing. Here's a look at our favorite Macro position, long the Long Bond (TLT) year-to-date:

 

  • TLT: +14.8%

  • S&P 500: +1.3%

 


CHART OF THE DAY: What Establishment Media Has Missed All Year Long

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... I get it. Instead of truly trying to understand how we got to now (causal factor analysis across durations), what establishment media needs to do is hurry up some headlines on how they get ad revs up tomorrow.

 

Progress?

 

Nah. This is Wall Street. And while we think we can get away with more and more and more of this behavior, The People are telling us (see equity fund outflows, fee compression, redemptions, etc. for details) that they don’t trust us anymore."

 

CHART OF THE DAY: What Establishment Media Has Missed All Year Long - 06.30.16 EL Chart


How We Got To Now

“It only adds. I don’t understand how it subtracts.”

-Richard Feynman

 

I’ve spent all of this week up at the lake house in my homeland with my growing family. This is a place that is free of Wall Street’s noise. There are no Washington politics here. There are no central-market-planners either. It’s a place where I can breathe and think.

 

Like yours, my story on how I got to now is different. We are all different. If you study where everyone around you came from, you’ll quickly realize that our collective experiences only add to life’s lessons. They do no subtract.

 

How we all got to now is also the title of a book I’ve been reading this week. Steven Johnson is the author. He also wrote a great thought leader’s book called Where Good Ideas Come From.

 

After the biggest 1-day loss of Global Equity market cap in world history (Friday June 24th, 2016), I sincerely hope many of you were proactively positioned with not only good ideas, but great ones.

 

If you weren’t, I think you’ve been given one of life’s most progressive opportunities – the opportunity to learn, evolve, and improve. How We Got To Now is called history. It’s neither yours, nor mine. It’s ours – something we’ll spend a lifetime trying to understand.

 

Back to the Global Macro Grind

 

And the bounce… in US Equities, that is… a two-day +3.5% S&P 500 v-bottom (on decelerating volume) into the beloved compensation period that is both Wall Street month and quarter end.

 

Although cash comp isn’t what it used to be (and how we got to now in 2016 will have a record number of macro narratives on why) … the most basic and truthful one is that in the last 6-12 months, both the economic and profit cycle slowed.

 

How We Got To Now - The Cycle cartoon 05.12.2016

 

If you’ve had that right, you wouldn’t have had to blame anything. Your accounts are happy.

 

If, however, you’re looking for the latest perma bull marketing case for being long “stocks” instead of what’s been really getting people paid (Long Bond, Municipal Bonds, Utilities, Gold, etc.), here’s yesterday’s consensus headlines:

 

  1. “Oversold Conditions” – true (SPX 1998 is the low-end of our current 1 immediate-term risk range)
  2. “Brexit Backtracking” – uh, ok… are they going to re-vote or something?
  3. “Pension Fund Rebal” – sure, I don’t doubt there’s always a “buy program” somewhere
  4. “Lehman Moment Skepticism” – lol, is that what the bull case was all along?
  5. “Fed On Hold” – now we’re talking! Based on all growth and profit cycle forecasts being wrong, of course
  6. “Fiscal Stimulus Hopes” – oh, yeah – now we’re really talking – time for some bridges and roads, baby!

 

Not one of these headlines has anything to do with real economic or profit cycle growth accelerating. They all have to do with either the risks that a complacent consensus didn’t forecast, or what “the worst case” isn’t (and how government can make it all better again).

 

I get it. Instead of truly trying to understand how we got to now (causal factor analysis across durations), what establishment media needs to do is hurry up some headlines on how they get ad revs up tomorrow.

 

Progress?

 

Nah. This is Wall Street. And while we think we can get away with more and more and more of this behavior, The People are telling us (see equity fund outflows, fee compression, redemptions, etc. for details) that they don’t trust us anymore.

 

Should they?

 

With serious change in our collective behavior, I think they could. In fact, I think this might be the greatest growth opportunity that our profession has ever seen. But wow are we going to have to change both how we got to now before we have a chance to get there.

 

Ex-Energy, Ex-China, Ex-Brexit, the latest rate of change surprise in the US economy (next to #LateCycle employment and consumer credit growth slowing) is that US Housing’s gains from the 2015 highs are slowing.

 

In yesterday’s Pending US Home Sales report for the month of May, we saw signed contracts slow -4.7% month-over-month to negative (-0.2% year-over-year) for the 1st time in two years.

 

Since US Housing (and Autos) didn’t peak (in rate of change terms) until October of 2015, big ticket consumption is at risk of slowing from now until the US Election. Unless, of course, what happened to people’s net worth in June magically stimulates confidence…

 

If we want a confident population, we need to stop trying to centrally-plan stock market volatility and let The People’s hard earned currency become the strongest in the world. We need to stop lying to them about economic reality too.

 

From a realistic set of expectations, most humans can start to believe in how they can get to tomorrow. Trust is earned, not allocated. How most great families, companies, and countries got to now understand that. It only adds to progress.

 

Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TREND Research Views in brackets):

 

UST 10yr Yield 1.40-1.60% (bearish)

SPX 1 (bearish)
RUT 1087-1142 (bearish)

NASDAQ 4 (bearish)

Nikkei 140 (bearish)

DAX 9106-9758 (bearish)

VIX 15.19-25.84 (bullish)
USD 94.73-97.01 (bullish)
EUR/USD 1.09-1.12 (bearish)
YEN 101.10-105.38 (bullish)
Oil (WTI) 46.66-51.21 (bullish)

Nat Gas 2.56-2.91 (bullish)

Gold 1 (bullish)
Copper 2.05-2.20 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

How We Got To Now - 06.30.16 EL Chart


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