Meaningful Medicare?

Medicare is big business, so when companies like UnitedHealth Group (UNH) and its peers see improvement on the rates they're paid by the government to insure people on Medicare, people pay attention. But what's more important than a change in Medicare rates is that uptick in physician utilization (i.e. people going to the doctor's office). Our Healthcare team has forecast an increase a recovery in utilization for some time, as outlined in the charts below. A revision to medicare rates is irrelevant if the commercial business begins to deteriorate meaningfully this year.



Meaningful Medicare? - healthcarechart1



After a bounce in 2011 and a slowdown in 2012, 2013 is surprising everyone as utilization accelerates meaningfully. A number of factors have influenced the increase, including the worst flu season in years. accelerating maternity and cardio costs for hospitals, and premium growth continues to decelerate to multi-year lows.


Meaningful Medicare? - healthcarechart2


Please find the monthly table market shares and average daily table metrics below.  Total March GGR (including slots) increased 25.4% YoY to HK$30.4 billion, in-line with recently raised expectations but well above projections given prior to the first week of March.  We don’t yet have the full property detail so it remains to be seen how much hold contributed to the outstanding and record month.  Anecdotally, we’ve heard that VIP hold was high but that volumes were also very strong.  We believe volume growth played the majority role in the YoY growth. 


MACAU UP 25% YOY - 1


With the exception of SJM and MGM, the concessionaires posted shares almost exactly in-line with trend.  SJM’s 110bp increase in share over recent trend was pulled almost directly from MGM. 


MACAU UP 25% YOY - 2

Morning Reads From Our Sector Heads

Todd Jordan (GLL):


Maryland raising stakes in casino wars with Delaware and West Virginia (via Washington Post)


Kevin Kaiser (Energy):


LINN Energy Response to Another Round of Short Seller Comments (via LINN Energy)


Tom Tobin (Healthcare):


Humana Rises as U.S. Reverses Medicare Rate Cut Decision (via Bloomberg)


Jay Van Sciver (Industrials):


Raw-Material Bull Market Fading as Supply Expands: Commodities (via Bloomberg)


Rob Campagnino (Consumer Staples):


Anheuser-Busch InBev's 30 job cuts are in St. Louis (via St. Louis Business Journal)


Howard Penney (Restaurants):


Why an Australian town is fighting McDonald's (via KSAT)


Brian McGough (Retail):


J.C. Penney Elevating Jewelry With Bijoux Bar (via WWD)

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When The Going Gets Tough

Client Talking Points

Which Way Did It Go?

Yesterday, the market started off by testing a new all-time high on the S&P 500 (1570), which failed. By the close, the market had fallen and was lucky to hold our TRADE line of support at 1556. If you bought the open or sold the close, you made the wrong move. It's easy to get pulled into the market when everyone around you is suddenly an expert on stocks ("Buy 'em" my father said yesterday). Sometimes you have to be able to step away from the computer and just say no. Yesterday was a good day to do just that. 

Making Moves

While chasing the S&P 500 was not a viable game plan yesterday, taking gains on existing positions, cutting losses and initiating new positions was. Since the S&P 500 and Russell 2000 held their line of support, we bought the Russell via IWM yesterday afternoon. We also cut a macro position that wasn't working and bought a stock that worked in our favor. It's all about timing and watching the signals.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Darden stands to be a beneficiary from a housing recovery and an improved employment picture, which boosts casual dining trends. Darden reported earnings today that beat Wall Street expectations, though net income declined 18%.


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


"Cyprus finance minister Michalis Sarris quits. Who thinks the rest of their govt quits this month?" -@tbuhl


"The point of quotations is that one can use another's words to be insulting." -Amanda Cross


The US Dollar rises while the Euro softens after March PMI data for the euro area showed that activity contracted at an accelerating pace in March, dropping to a three-month low of 46.8.

Fear's Flattery

This note was originally published at 8am on March 19, 2013 for Hedgeye subscribers.

“Let those flatter, who fear.”

-Thomas Jefferson


Two years prior to penning his first draft of the Declaration of Independence in 1776, Thomas Jefferson wrote his first significant thought piece. That’s where the aforementioned quote comes from – it was called The Summary View (1774).


In addition to his comment about the British old-boy culture of backslapping, he went on to add that “it is not an American art. To give praise which is not due might be well from the venal, but would ill beseech those who are asserting the rights of human nature…” (Thomas Jefferson: The Art of Power, pg 74)


Less government, more economic freedom, and a strong currency – there is no praise to give those who fear these founding American principles. As corrupt Russians whine about getting taxed in Cyprus, think that through. What scares Putin should flatter us.


Back to the Global Macro Grind


To fear, or not to fear – remains your risk management question. Clearly, living in fear of the US Equity Futures indicated down 20 handles was no way to live yesterday; buying on red was.


To review the lower-highs (see Chart of The Day) of Front-Month Fear (US Equity Volatility, VIX):

  1. December 28th, 2012: people freak-out on New Year’s Eve on a Congress concern; VIX down -41% since
  2. February 25th, 2013: 1-day freak-out over an Italian Election; VIX down -30% since
  3. March 18th, 2013: 1-hour freak-out over taxing money launderers in Cyprus; VIX down -11% from the open

In other words, from a Behavioral perspective, the stock market’s implied fear is:


A)     Coming on lower-quality “crisis” story-telling

B)      Becoming more and more short lived


No, I will not navel gaze with Old Media sources who make-up crisis stories in order to sell ad space. Instead, I will call them to account; especially if they are the same people who have missed this entire 4 month rally. It’s un-becoming.


There will be a time to fear the market’s internal signals. And while I am probably blind to them again this morning, there is nothing I can do about that. I go with my process, not the inevitable and humbling force that will be the market eventually going against me.


To review: there are 2 big parts to our process – the Research View and the Risk Management Signals. In terms of the Research View, the fulcrum point of our bull case since December has been #StrongDollar. It got stronger, again, yesterday – and:

  1. That makes this the 6th week in the last 7 of an up US Dollar Index, $82.79 last
  2. Commodities (CRB Index) have been down for 6 of the last 7 weeks, in kind
  3. Commodity Deflation keeps A) the Fed on hold and B) a Consumption Tax Cut in play

Good getting better in terms of US Consumption is good for a Q113 (vs Q412) sequential US GDP acceleration and, at the same time, the wealth effect on the two big things that matter (your house price and stock market portfolio) going up, at the same time.


What could go wrong? Well, that’s easy - the things that have been going right (US employment and housing). #HousingsHammer remains one of our Q113 Global Macro Themes, and we’ll be very interested to see this week’s US Housing data (Housing Starts come out today; Existing Home Sales/Inventory on Thursday). Jobless Claims on Thursday is important too.


All the while, the Global Macro Risk Management Signals continue to tick:

  1. Japan’s Nikkei held TRADE and TREND support and led Asian Equities higher last night, closing +2%
  2. China’s Shanghai Composite held TREND support (2206) and rallied +0.8%, making another higher-low
  3. South Korea’s KOSPI recovered TREND support (1975) after dipping below it on Cyprus fears (for a day)
  4. Germany’s DAX continues to hold a Bullish Formation (Russian mob footing bailout bills is good for Merkel)
  5. Russia’s RTSI stock market index continues to break down (bearish TREND), down -12% since topping in JAN
  6. Brazil’s Bovespa remains bearish TREND as well (Commodity Stock markets are not like Consumption ones)
  7. Gold failed at its 1st major line of resistance (TRADE = $1605, TREND $1659, TAIL $1681)
  8. Treasury Yield (UST 10yr) held TRADE support (1.91%) and long-term TAIL risk support of 1.84% remains intact
  9. Japanese Yen (vs USD) failed at TRADE resistance (93.65) and remains in a Bearish Formation
  10. US Equity Volatility (VIX) failed at 14.46 TRADE resistance and remains in a Bearish Formation

Net, net, net – what all this means is that chariots of Cypriot fire haven’t changed the view we’ve held since December. In fact, they’ve improved it. Don’t forget that money leaving Europe and Japan goes somewhere. US currency and equity finally has the flows.


Will we get run-over by a legitimate market fear? For sure – I just don’t know when (so let me know, if you know!). In the meantime, we want to be long of growth (Asian and US Stocks) and short of fear (Gold, Treasuries, Yen). It’s been a flattering position.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, Russell2000, and the SP500 are now $1569-1605, $107.74-109.93, $82.14-83.13, 93.65-97.10, 1.93-2.02%, 10.77-14.46, 941-958, and 1539-1566, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fear's Flattery - Chart of the Day


Fear's Flattery - Virtual Portfolio


The Macau Metro Monitor, April 2, 2013




Taiwan Affairs Office of China's State Council and China National Tourism Administration have taken measures on anti-gaming to Taiwan authorities, stating that the Chinese government will ban Mainland tourists from visiting Matsu through the "mini three links" policy once Matsu opens gaming business.  However, Matsu has no plan to stop its legislation process for gaming or change its policy of opening gaming sightseeing on the outlying island.  Relevant authorities of Matsu reckoned that investors who intend to invest in gaming business in Matsu should seek to attract global customers rather than simply just targeting Mainland visitors.



The Land, Public Works and Transport Bureau has not yet received a request to extend the development timeframe for land being developed by LVS.  In a regulatory filing with the Hong Kong Stock Exchange on March 21, Sands China Ltd said it “expects to apply” to the Macau government for an extension of the May 2014 deadline.  This deadline for completing Sands Cotai Central casino resort on Cotai was set by the administration.


The possible extension of the completion timetable relates to the as-yet-unfinished third phase of Sands Cotai Central.  The same filing states there are plans for a fourth tower at the property – to be shared by a St Regis branded hotel and including “mixed use space”.



Macau gross gaming revenues grew 25.4% YoY in March to 31.336 BN MOP (30.42 BN HKD, 3.92 BN USD)

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