Baby Bust

This note was originally published at 8am on July 05, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Every child begins the world again.

-Henry David Thoreau

 

Deciding to start a family is an incredibly hopeful act and one that reflects in part the national mood.  It should be no surprise then that birth trends in the United States peaked in 2007 and then began a long period of deceleration and decline over the subsequent 5 years.  Births were still declining in 2011 and look likely to continue to slow in 2012, reflecting the shifting landscape of global economic concerns.  There are glimmers of hope, however, and a recovery bodes well for many stocks in Healthcare, but in particular Hosptials.

 

There is a large body of academic work that describes how individuals and families consume, save, and plan over their lifetime.  The broad name of the field is Life-Cycle Hypothesis (http://en.wikipedia.org/wiki/Life-cycle_hypothesis).   In the simplest terms,  an individual  behaves in predictable ways over their lifetime.  They buy a home, invest in stocks, have children, reach their peak income, among many things,  in predictable ways over their lifetimes.  For Healthcare, they also age, which begins an accelerating cycle of doctor visits, medications, and hospital stays.  The key point though is that theses consumption patterns are distinct at discrete age groups.   Looking then at the historic pattern of peaks and troughs of births tells a story of predictable consumption in the future.

 

What makes understanding these consumption patterns worth thinking about is the wide variation in birth trends over the last 100 years, including the last five years of declines in the United States.  Birth trends fell in the 1920s and 1930s, which has been a present day problem for Nursing Homes and Senior Living in recent years as the growth in their key customer base has slowed.   The Baby Boom following WWII led to the great healthcare boom of the 1990s and early 2000s as Boomers aged through the period in their life when healthcare consumption begins to accelerate in earnest.  It helped too that they had reached peak earnings (late 40s) and peak disposable income (50s).

                                                                                                        

For Hosptial companies birth trends play a major role in admission trends, making up over 20% of the total hospital admissions.  While there have been many issues facing hospitals including reimbursement pressure from states cutting Medicaid, cuts to Medicare writen into the Affordable Care Act, and pressure from private insurers through rates and rising out of pocket expenses for their enrollees, the slowdown in births has been the least discussed. 

 

Our analysis shows that over the last 5 years, the differnece between the predicted number of births, based on per capita birth rates by age and the number of women entering child bearing years, and actual births has created a cummulative deficit of between 530,000 and 1,600,000 babies not being born.  Considering that there were 4.3M births in 2007, the magnitude is indeed relevent.  Further, uncovering where the inflection point of a recovery lay in the furture will be a meaningful catalyst for admission trends for Hosptials.  In addition to slowing birth related admissions, Hosptials have experienced pressure on admissions from everything from Knee Replacements to Cardiovascular surgeries.

 

Our best forecast about the timing of a recovery in births in the United States is that we will see them turn positive in Q412.  However, over the next two quarters, trends will remain soft and in fact appear to be weakening further sequentially.  This will have a negative impact on Hospital admission trends, revenues, and earnings.  Weighing the short term weakness against the longer term acceleration will be our key focus over the next few quarters. 

 

Our immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Germany’s DAX, and the SP500 are now $1596-1624, $97.47-101.71, $81.59-82.39, $1.24-1.26, 6567-6679, and 1365-1380, respectively.

 

Tom Tobin

Managing Director Healthcare

 

Baby Bust  - EL 7 5

 

Baby Bust  - VP 7 5


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more