CLIENT TALKING POINTS
#Consensus
As we highlighted on The Macro Show yesterday, the CFTC net futures and options positioning in the S&P was already long 58K contracts moving into this week, or +1.68x on a TTM z-score basis (and that’s positioning through last Tuesday). With the low volume melt-up moves from Fri-Tues (S&P +2.6%) , expect an even longer consensus position at the end of this week. Go ahead and buy all time-highs on peak cycle forward multiples (and that’s assuming the consensus expectation for a major corporate profit turnaround) in a crowded long position, but we’re going to sit it out.
Eurozone
Industrial Production fell -1.2% in MAY Y/Y (vs +1.4% prior) and slowed to +0.5% M/M (vs 2.2% prior). While a stale data point in terms of where we are in the calendar, IP confirms our ongoing #EuropeSlowing macro theme. We believe there’s downside risk in the euro alongside a host of nations considering “exit” (see our Q3 Macro Theme of #EuropeImploding). Tune in to the Bank of England’s interest rate decision tomorrow morning as another barometer of where growth and inflation projections across the continent stand (hint: to the downside).
Fund Flows
YTD stock ETF flows are -$31.6 billion redemption, which would be the worst year on record for the category through the beginning of our data set which starts in 2013. On the active management side, it’s worse - active equity mutual funds have lost over twice as much with withdrawals now totaling -$72.8 billion in 2016 – everyone is long equity beta through automated asset allocations – scary stuff!
TOP LONG IDEAS
TLT
On Thursday, we introduced our Q3 Macro Themes: #ProfitCycle, #ConsumerCredit, #EuropeImploding. The gist of themes #1 and #2 emphasize that the economic cycle continues to roll over as evidenced by declining corporate profitability and the pending deceleration in consumer credit growth which is more of a “when” rather than an “if” scenario.
Consumer credit growth has a direct effect on consumption. Employment and consumption peaked on a Y/Y rate of change basis in Q1 2015 right after corporate profits peaked in the second half of 2014.
GLD
We want to be long of continued growth decelerating and inflation picking up from a GIP modeling perspective into the back half of 2016. TIPS are a great way to play both of these views along with our GLD (reflation) and TLT (growth slowing) positions.
TIP
See update on TLT/GLD.
Asset Allocation
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 7/12/16 | 56% | 0% | 0% | 12% | 25% | 7% |
| 7/13/16 | 56% | 0% | 0% | 12% | 25% | 7% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 7/12/16 | 56% | 0% | 0% | 36% | 76% | 21% |
| 7/13/16 | 56% | 0% | 0% | 36% | 76% | 21% |
THREE FOR THE ROAD
TWEET OF THE DAY
Cartoon of the Day: Central Banking 101 app.hedgeye.com/insights/52289… cc @KeithMcCullough #Fed #ECB #BOJ #NIRP pic.twitter.com/LFL3lAgf53
@Hedgeye
QUOTE OF THE DAY
"I was the future once."
-David Cameron
STAT OF THE DAY
Tony Gwynn batted .338 over his 20 year MLB career.
