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Hanesbrands: Best Idea Short Conference Call | $HBI

Editor's Note: Our Retail team is hosting a Best Idea short call on Hanesbrands with institutional investors today. Email sales@hedgeye.com for more info.

 

Hanesbrands: Best Idea Short Conference Call | $HBI - z hbi

SOME KEY DISCUSSION POINTS:

  • Hanes has top share in a slow growth category.
  • Feeling competitive pressure at high-end (Tommy John, Under Armour, Lululemon) and low-end (Gildan) = negative organic growth. The latter is particularly under-appreciated.
  • Capacity utilization at owned factories is at peak (90%+). People do not realize this as it is not readily disclosed.
  • Margins at peak 15.5% -- higher than Nike (not a direct competitor, but the comparison is telling). Trough margin  is 8-9%. It will see that level again.
  • As growth slows, doing deals at peak earnings and multiples to goose perceived/reported growth.
  • Latest deal is a non-scalable underwear company in Australia. They don't have our call that Australian economy faces a massive headwind as consumers run out of financial assets to draw upon to fuel consumption.
  • HBI takes more special charges than any company we've seen in retail. Strips out all investments to take up margins and get management paid.
  • Management selling/stepping down.
  • $5 upside, $15 downside.

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory

Takeaway: Risk appetite gauged by international equity trends is bordering levels seen in major drawdowns in '11 and '08

Editor's Note: Below is a complimentary research note originally published last week by our Financials team. For more info on our institutional research email sales@hedgeye.com.

 

*  *  *

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In early March of this year, international equity mutual funds began to lose favor rapidly. Over that period, the category's 52-week moving average has collapsed from +$2.0 billion to -$112 million per week, including the most recent week's -$1.7 billion outflow. There are only two prior periods on record where the rolling 52 week moving average has gone negative in an indication of receding risk appetite, mid-2008 and early 2012. International equity funds have been a bedrock of diversification by financial advisors, as over the past 25 years, the best performing stock market annually has been outside of the U.S. We are extremely cautious on trends in the active management industry as International Equity is a high fee product and has been offsetting even weaker trends in domestic stock funds. 

 

In other categories, domestic equity funds lost another -$3.8 billion and total bond funds gained +$1.3 billion. In ETFs, equities gained +$320 million but were outpaced by fixed income's +$2.3 billion inflow. Finally, investors pulled -$11 billion from money market funds.

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - z chart baby


[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI1

 

In the most recent 5-day period ending August 31st, total equity mutual funds put up net outflows of -$5.5 billion, trailing the year-to-date weekly average outflow of -$4.1 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$1.3 billion, trailing the year-to-date weekly average inflow of +$3.0 billion but outpacing the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$5.8 billion, outpacing the year-to-date weekly average inflow of +$339 million and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$1.0 billion, trailing the year-to-date weekly average inflow of +$1.8 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:

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI2

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI3 2

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI4

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI5

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - 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.

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI12

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI13

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI14

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI15

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - 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:

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI7

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors redeemed -4% or -$308 million from the long duration treasury TLT ETF.

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - 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.

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI17

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$2.0 billion spread for the week (+$320 million of total equity inflow net of the +$2.3 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 -$5.1 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.)

  

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - 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:

 

[UNLOCKED] Fund Flow Survey | Foreign Funds In Major Drawdown Territory - ICI11 



Jonathan Casteleyn, CFA, CMT 

203-562-6500 

 

Joshua Steiner, CFA

203-562-6500

 

Patrick Staudt, CFA

203-562-6500







NFIB = Not For Impartial Bulls

Takeaway: Small Business Confidence = Past Peak. Small Business Lending = ↓, Small Business Profitability Pressure = ↑

Small Businesses represent ~99% of total U.S. Employer firms, ~50% of total Private Sector Employment and ~60% of net private sector hiring on a monthly basis. 

 

While a fair amount of air time has been given to the post-crisis retreat in entrepreneurship and business creation, the trend in small business hiring, confidence and investment spending remains critical to aggregate trends in employment and economic activity.  In short, it still matters.     

 

That’s the contextual preface, here’s a quick update and some rumination on this morning’s August data:

 

 1Q15 = The Peak:  Small Business Optimism fell -0.2 pts sequentially August with Hiring Plans (-3pts), Outlook for Business Conditions (-7 pts) and Sales Expectations (-2pts) leading the retreat. 

 

While the YTD trend has been muted and largely uneventful – oscillating in a 2-pt range between 92.5-94.5 – the larger Trend has been one of conspicuous slowdown.  As the first 3 charts below illustrate, Business and Consumer Confidence both peaked concurrently in 1Q15 and have subsequently failed to breach to new highs.

 

As we’ve highlighted, when viewed in the context of the temporal procession of macro fundamentals, the peaks in consumer and business confidence come as little surprise: 

 

2H14: Income Growth, Corporate Profits and SPX Margins Peak --> 1H15: Employment Growth, Consumption Growth, Net Domestic Investment, Forward Multiples, Business Confidence and Consumer Confidence Peak  -->  2Q/3Q15: Global Equities Peak

 

NFIB = Not For Impartial Bulls - NFIB LT

 

NFIB = Not For Impartial Bulls - U of Mich Confidence LT

 

NFIB = Not For Impartial Bulls - Conference Board Confidence

 

NFIB = Not For Impartial Bulls - Confidence Table

 

 

Small Business Lending ↓:  Small Business lending volumes dropped -12.7% MoM in July according to the latest Thomson Reuters/Paynet Small Business Lending Index.  At an index reading of 121.5, this represents the slowest pace of small business lending activity in almost two years outside of the peak growth/deflationary angst print in January. 

 

Functionally, the slowdown in lending activity can come from tighter lending and lower credit availability, decreased demand or some combination of the two. 

 

The Trend decline in Small Business Optimism and the continued deceleration in small business hiring support a demand side explanation.  But with Small Business Deliquency rates demonstrating a fledgling negative inflection and loan standards for C&I and CRE loans across large and medium size firms showing a multi-quarter tightening according to the Fed Senior Loan Officer Survey (See: Tightening Trifecta | 3Q16 Senior Loan Officer Survey), some emergent constraint on the supply side is also not unreasonable. 

 

Regardless of the supply/demand delineation, the growth implications are the same as ↓ lending = ↓ Spending/Investment = negative drag on growth …. And, at some point, feeds back negatively on hiring decisions.

 

NFIB = Not For Impartial Bulls - Small Business Lending

 

NFIB = Not For Impartial Bulls - Small Business Delinquency Index 

 

Jobs Hard to Fill = Cycle High:  The NFIB Jobs Hard to fill Index made a new cycle high of 30 in August.   The challenge of finding qualified applicants has been a defining characteristic of the current expansion and one that has continued to build alongside declining labor supply and a growing spread between Job Openings and actual Hires.     

 

There a couple of interesting potentialities that follow from this imbalance. 

  1. If employers do find qualified applicants, it’s likely that they will have to pay up for them. 
  2. If employers fill those positions with applicants who don’t possess the requisite skills, its likely they will still see some modest labor cost pressure give diminished labor market slack. 

Given that the ability to find qualified applicants is apparently getting worse while the aggregate supply of available workers continues to decline, it’s unlikely the imbalance resolves (at least fully) via scenario A.

 

An obvious implication of Scenario B is that hiring people who don’t know how to do the work will not be particularly supportive of productivity – which is currently in its worst streak in 4-decades - or profitability, which remains in one of the worst non-recessionary runs of contracting earnings ever.

 

Whether that supply-demand-price dynamic does, in fact, characterize the future state of the labor market is an open question but some version of it is not an overly improbable scenario and the profit dystopia associated with it is evident. 

 

Recall, aggregate nominal earnings growth has been running at a premium to nominal output growth.  And if your largest input cost is growing faster than your revenue, the earnings outlook can only be so rosy.  At currently prevailing demand and productivity levels, ongoing labor market strength will continued to be paid for via declining corporate profitability.

 

NFIB = Not For Impartial Bulls - NFIB Jobs Hard to Fill

 

NFIB = Not For Impartial Bulls - NFIB Hiring Plans

 

NFIB = Not For Impartial Bulls - Emplyment by Firm Size

 

 

 

Christian B. Drake

@HedgeyeUSA

  


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 78.35%

September 13, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.70 1.50 1.68
SPX
S&P 500
2,137 2,171 2,159
RUT
Russell 2000
1,219 1,249 1,235
COMPQ
NASDAQ Composite
5,140 5,241 5,211
XOP
SPDR S&P Oil & Gas Explore
36.07 39.15 38.25
RMZ
MSCI US REIT
1,180 1,230 1,199
NIKK
Nikkei 225 Index
16,507 17,112 16,672
DAX
German DAX Composite
10,401 10,692 10,431
VIX
Volatility Index
13.29 18.07 15.16
USD
U.S. Dollar Index
94.30 96.31 95.00
EURUSD
Euro
1.11 1.13 1.12
USDJPY
Japanese Yen
100.40 104.37 101.84
WTIC
Light Crude Oil Spot Price
42.86 47.98 46.29
NATGAS
Natural Gas Spot Price
2.62 2.96 2.91
GOLD
Gold Spot Price
1,303 1,361 1,325
COPPER
Copper Spot Price
2.05 2.13 2.10
AAPL
Apple Inc.
102.12 106.74 105.44
AMZN
Amazon.com Inc.
750 790 771
JPM
J.P. Morgan Chase & Co.
65.03 67.98 67.06
INTC
Intel Corp.
35.27 36.97 36.08
LVS
Las Vegas Sands Corp.
52.86 58.17 56.89
CMG
Chipotle Mexican Grill
399 440 428

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


CHART OF THE DAY: America's Anti-Robin Hood Fed

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

 

As a refresher, our American Goldilocks Theme (i.e. both stocks and bonds go up, at the same time) works like this:

 

  1. US GDP growth slows from 3% (year-over-year) from its cycle-peak in 2015 to 1% year-over-year
  2. But it neither accelerates sequentially (quarter-over-quarter) > 2% , nor decelerates below 1%
  3. The Fed then pivots back to dovish (from currently hawkish), and all is well for the 10% of us

 

You didn’t get the memo? We’re all killing it because 10% of The People own 85% of financial assets geared to Dovish Fed Asset Reflation (see "Chart of the Day" below for details on that).

 

CHART OF THE DAY: America's Anti-Robin Hood Fed - z 09.13.16 EL Chart


Chitter Fed Chatter

“Like a crane or a swallow, so did I chatter: I did mourn as a dove.”

-Bible

 

Chitter Fed chatter, let’s get at er’ this morning. It’s all about who says what next, Ex-God and economic gravity.

 

While the Federal Reserve continues to confuse both themselves and macro markets, there is a core community of doves out there who have no problem crying. My man Jon Hilsenrath @WSJ gave those lamenting #Growth Slowing what they needed last night:

 

BREAKING: Divided Federal Reserve To Stand Pat –WSJ

 

Booyah! Right? Until we get something like this morning, that is. With everyone running net long everything (stocks, bonds, commodities), perma equity bulls do NOT want Rates Down, Stocks Down. Behold, that is something to mourn!

 

Chitter Fed Chatter - Perma wrong cartoon 09.12.2016

 

Back to the Global Macro Grind

 

You see, the Rates Down, Stocks Down (Long-term Bonds, Gold, VIX, etc. Up) thing is what happened after Janet Yellen “raised rates” into a slow-down in December. That’s also when GDP was tracking towards 0%. That was not American Goldilocks.

 

As a refresher, our American Goldilocks Theme (i.e. both stocks and bonds go up, at the same time) works like this:

 

  1. US GDP growth slows from 3% (year-over-year) from its cycle-peak in 2015 to 1% year-over-year
  2. But it neither accelerates sequentially (quarter-over-quarter) > 2% , nor decelerates below 1%
  3. The Fed then pivots back to dovish (from currently hawkish), and all is well for the 10% of us

 

You didn’t get the memo? We’re all killing it because 10% of The People own 85% of financial assets geared to Dovish Fed Asset Reflation (see Chart of The Day for details on that).

 

As for the other 15% of those assets, borrow against your car lease and lever up long in a 3x Bull Gold Mining ETF and pray that growth continues to slow. Alongside European and UK economic data slowing (again) this morning, you’ll get that US data Thursday/Friday.

 

Back to the “divided Fed”… check out yesterday’s chitter chatter:

 

  1. Atlanta Fed Head, Dennis Lockhart, said “notwithstanding a few weak monthly reports from the ISM, I am satisfied at this point that conditions warrant a serious discussion.” (on raising rates)
  2. Federal Reserve Governor Lael Brainard said that “the apparent flatness of the Phillips Curve together with evidence that inflation expectations may have softened on the downside… makes the case to tighten preemptively less compelling.”

 

One token hawk, one Democrat. That’s the divide.

 

Brainard was Obama’s Undersecretary of The Treasury for International Affairs while Lockhart is now a lifer in missing #GrowthSlowing signals (he missed calling 2007 #LateCycle while heading the Atlanta Fed).

 

Didn’t you hear? Ex-ISM, Ex-GDP, Ex-Oil – that stuff slowing is all “transitory”… but do you really think Lael wants Janet to go for Gold and lose her Democrat rising-star standing under a Trump Presidency?

 

Oh, don’t worry. Another macro market forecasting neophyte, Neil Kashkari (new head of the Minneoplis Fed whose had more jobs than Mark Sanchez at QB in the last 5 years), was “on” Old Wall TV yesterday assuring us “nothing at the Fed is political.”

 

I couldn’t make this up if I tried, but at one point in the interview yesterday, Kashkari told the establishment media journo that “look, I don’t even use a Bloomberg – I get out there in the field and talk to people.”

 

Grrrr-eat!

 

That’s all we need on Wall Street – another qualitative “survey” guy and channel checker when modern machines and predictive tracking algorithms can get you a lot closer to the number by measuring and mapping the rate of change in the actual numbers.

 

On that score, Darius Dale and I will be seeing Institutional Investors in New York City all day today (I’m writing this to you from the car right now) and we’ll provide an intra-quarter update on our proprietary and accurate GIP (Growth, Inflation, Policy) Model.

 

As the data changes, we do. There are 30 monthly (backtested) economic data points in the model and currently Real (inflation adjusted) GDP is tracking as follows:

 

  1. Q3 of 2016 +1.1% YoY/+1.7% QoQ SAAR (down from the previous update of +1.2% YoY/+1.9% QoQ SAAR)
  2. Q416 and Q117 we are at +1.0% YoY/+0.4% QoQ SAAR and +0.6% YoY/-0.8% QoQ SAAR, respectively

 

That’s not chatter. That’s math, using one of the few tested and tried forecasting processes that nailed both US #GrowthAccelerating in 2013 and #GrowthSlowing in 2016.

 

Lockhart should ex-out the Hedgeye forecast. Brainard would climb the Democrat ladder, faster, if she paid for our research. And even if Kashkari starts using real-time data (Bloomberg machine, bro), we don’t publish our forecasts there for free anyway.

 

Our immediate-term Global Macro Risk Ranges and intermediate-term TREND Research Views (in brackets) are as follows:

 

UST 10yr Yield 1.50-1.70% (bearish)

SPX 2137-2171 (bearish)
RUT 1 (neutral)

NASDAQ 5140-5241 (bullish)

XOP 36.07-39.15 (neutral)

RMZ 1180-1230 (neutral)

Nikkei 162 (bearish)

DAX 102 (neutral)

VIX 13.29-18.07 (bullish)
USD 94.30-96.31 (bullish)
EUR/USD 1.11--1.13 (bearish)
YEN 100.40-104.37 (bullish)
Oil (WTI) 42.86-47.98 (bearish)

Nat Gas 2.62-2.96 (bullish)

Gold 1 (bullish)
Copper 2.05-2.13 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Chitter Fed Chatter - z 09.13.16 EL Chart


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