prev

CHART OF THE DAY | #ProfitCycle: Consensus Estimates Vs. Reality

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.

CHART OF THE DAY | #ProfitCycle: Consensus Estimates Vs. Reality - top three

 

CHART OF THE DAY | #ProfitCycle: Consensus Estimates Vs. Reality - 07.07.16 EL chart


Tangible Themes

“Sound was ethereal, not tangible.”

-Steven Johnson

 

Global Macro Themes are far from ethereal. That word is one Steven Johnson used to describe sound in How We Got To Now (“e-the-real: lacking material substance or extremely delicate and light in a way that seems too perfect for this world” –Merriam Webster).

 

“For thousands of years after Neanderthal singers gathered in the reverberant sections of the Burgundy caves, the idea of recording sound was as fanciful as counting fairies… no one had imagined capturing sounds directly. Sound was ethereal, not tangible.” (pg 90)

 

Obviously, as a macro-economics profession, we’ve moved beyond being baboons. But for whatever reason, Old Wall Consensus has had a very difficult time capturing data (both economic and real-time market data) and contextualizing it within longer-term cycles. That’s how you generate tangible Macro Themes. Instead of lacking substance, that’s how we try to make tangible calls.

 

Tangible Themes - Macro themes call cartoon 07.06.2016

 

Back to the Global Macro Grind

 

No. Not all of our Macro Themes end up playing out. But we have built Hedgeye on a Research & Risk Management #Process that tends to be better than bad. The long-term goal, of course, remains excellence.

 

Turning tangible Macro Themes into big Global Macro Asset Allocation calls is the current manifestation of our #Process. Inspired by Bayesian Probability Theory, our best forecast for tomorrow perpetually evolves from what we just learned today.

 

Yes. Measuring and mapping TRENDING rates of change is a grind. It takes a disciplined and independent Research Team to both execute on that process (for 50 economies and their stock, bond, currency, etc. markets) and respond objectively to its messaging.

 

Once that’s done, across durations (TRADE, TREND, and TAIL @Hedgeye), the hardest thing to do is wait and watch…

 

Patience isn’t only one of the hardest things to have (because we are living in 21st century of “everything needs to happen now”)… but we also have a burgeoning client base of investors who operate with different investment mandates and durations as well.

 

Since we can’t be everything to everyone, I’ve determined that being who we are is the best place to start.

 

So I’ll start with that on this morning’s Q3 Global Macro Themes conference call (and @HedgeyeTV video presentation). If you’d like access to our 88 slide deck, ping .

 

Our Q3 Macro Themes are as follows:

 

  1. #ProfitCycle
  2. #ConsumerCredit
  3. #EuropeImploding

 

Hashtag them. Timestamp them. Call them names. In case you haven’t noticed, we do not poach, borrow, or apologize for our original content. Our themes are born out of our #process, and we roll with them until we realize we are wrong.

 

When they’re right (that is the goal of the game!). We let them ride. Because that’s what cycles do.

 

That’s why I’m gravitating towards making the easiest call Theme #1 (i.e. an extension of the call we’ve been making for a year now). Theme #2 is the one with the most contrarian pop, validated by more recent data. And Theme #3 is some kind of big bang thing.

 

Since themes are born (and die) in probability space, what that means is:

 

  1. Theme #1 is already high probability (> 66% chance and rising towards 80-90%) because it’s already happening
  2. Theme #2 recently crossed the threshold of high probability (instead of a coin toss it’s at least 66% and rising)
  3. Theme #3 is at the threshold, but potentially has a longer-term duration to the idea/theme playing out

 

That’s the thing with super-long-term ideas (our new Sector Head of Demography, Neil Howe, calls them “Super TAILs”), like real-time market risk… they can happen slowly, or all at once. You need to be humble enough to embrace uncertainty with those.

 

Back to Themes #1 and #2 (again with the preponderance of the recent data showing a rising probability of them being right, faster, than Theme #3), the “calls” I’m going to make at 11AM are going to be:

 

  1. LONGS: Slower-and lower-for-longer (no need to change the view on the Long Bond, Rates, Gold, Utilities, etc.) #LetThemRide
  2. FINANCIALS: reiterated as our favorite underweight, adding US consumer credit exposures to the table pounding
  3. CONSUMER DISCRETIONARY: (especially “high end”) is going to be an exposure to short on bounces, with impunity

 

Then, like the #BeliefSystem (breaking down) call we made on our Q1 2016 Macro Themes call, we have a bigger bang theory on this grand-central-market-planning-experiment called the Eurozone and her young ethereal currency they call the Euro.

 

I’m looking forward to not only presenting what we view as developing truths, but engaging in post call debates with clients, worldwide, on where we could be right or wrong. Collaboration is a long-term tangible theme for modern day risk managers too.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.29-1.50%

SPX 1

NASDAQ 4

VIX 14.11-25.29  
EUR/USD 1.08-1.12

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Tangible Themes - 07.07.16 EL chart


The Macro Show with Keith McCullough Replay | July 7, 2016

CLICK HERE to access the associated sliDES.

 

An audio-only replay of today's show is available here.


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

ICI Fund Flow Survey | Bear Tracks

Takeaway: Both equity ETFs and stock mutual funds are having a bad 2016 with investors only subscribing to fixed income via passives and actives.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending June 29th, equity ETFs experienced a net withdrawal of -$12.1 billion, the second largest drawdown so far in 2016. The running year-to-date tally for stock ETFs is now a -$31.6 billion redemption so far in 2016, which would be the worst year on record for the category through the beginning of our data set which starts in 2013. Despite the jarring start to the year for passive equity products, active equity mutual funds have lost over twice as much with withdrawals now totaling -$72.8 billion in 2016 in a continuation of the secular move out of active management.

 

Fixed income mutual funds also experienced withdrawals losing -$2.4 billion last week, however, bond products have averaged +$2.2 billion in new funds per week on the active fund side with fixed income ETFs raising +$1.5 billion per week thus far in '16. Finally, defensive investors shored up +$15 billion of cash in money market funds last week as summer risk aversion picked up.

 

 


ICI Fund Flow Survey | Bear Tracks - ICI19

 

In the most recent 5-day period ending June 29th, total equity mutual funds put up net outflows of -$5.0 billion, trailing the year-to-date weekly average outflow of -$2.8 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net outflows of -$2.4 billion, trailing the year-to-date weekly average inflow of +$2.3 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$12.1 billion, trailing the year-to-date weekly average outflow of -$1.2 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.0 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 | Bear Tracks - ICI2

 

ICI Fund Flow Survey | Bear Tracks - ICI3

 

ICI Fund Flow Survey | Bear Tracks - ICI4

 

ICI Fund Flow Survey | Bear Tracks - ICI5

 

ICI Fund Flow Survey | Bear Tracks - 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 | Bear Tracks - ICI12

 

ICI Fund Flow Survey | Bear Tracks - ICI13

 

ICI Fund Flow Survey | Bear Tracks - ICI14

 

ICI Fund Flow Survey | Bear Tracks - ICI15

 

ICI Fund Flow Survey | Bear Tracks - 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 | Bear Tracks - ICI7

 

ICI Fund Flow Survey | Bear Tracks - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors pulled -5% or -$130 million from the materials XLB ETF while contributing +5% or +$404 million to the utilities XLU.

 

ICI Fund Flow Survey | Bear Tracks - 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 | Bear Tracks - ICI17

 

ICI Fund Flow Survey | Bear Tracks - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$16.7 billion spread for the week (-$17.1 billion of total equity outflow net of the -$377 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 -$3.0 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 | Bear Tracks - 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 | Bear Tracks - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

Patrick Staudt, CFA







Cartoon of the Day: Wise Guys, Eh?

Cartoon of the Day: Wise Guys, Eh? - Three central bankers cartoon 07.06.2016

 

How long can these central planners keep this charlatan charade going?


35 Years Later ... From Simon & Garfunkel to Bieber Fever and All-Time Lows For Treasury Yields

Takeaway: What a long, strange trip it's been.

September 30, 1981...

 

Treasury yields peaked at 15.84% ... Ronald Reagan was in the early innings of his 1st term ... Simon & Garfunkel performed in Central Park for 500,000 people ... Home Depot had its IPO eight days earlier ... and the U.S. debt ceiling was raised to one trillion dollars for the first time.

 

35 years later ... we're saddled with over $19,000,000,000,000 in debt, Hillary Clinton vs Donald Trump, NIRP, Kim Kardashian and Justin Bieber.

 

35 Years Later ... From Simon & Garfunkel to Bieber Fever and All-Time Lows For Treasury Yields - ust 7 6


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next