Patient Traffic Down? Doubtful.

Takeaway: Lab consumption data combined with our physician survey is pointing to an improvement in patient volumes, not declining.

Editor's Note: This research note was originally published March 18, 2014 by Hedgeye’s Healthcare Team. For more information on Hedgeye please click here.  

Is Patient Traffic Really Down 6%?
We Doubt It

Patient Traffic Down? Doubtful. - B07PXA 2373906b


A widely followed physician office visit data series has been showing dramatic declines in doctor visits in the negative -6% to -7% range over the last two months.  The implication (which we disagree with) is that UNH and other managed care companies have a meaningful tailwind in Q114.


We do not find, when comparing this medical utilization series to any of UNH's cost trend metrics, or those of other managed care companies, a meaningful positive relationship. We also fail to find any relationship to this series to any of the historical company data sets in our database.


Patient Traffic Down? Doubtful. - UNH commercial cost trend


We do find, as it relates to UNH's cost trend, several alternative data items that do appear worth following.  The most interesting of these to us is the trend in the Personal Consumption Expenditure for Medical Laboratories (PCE: Med Labs, charted above) which has a positive correlation of 0.83 across multiple durations between 2008 and 2013.


The PCE: Med Labs trend agrees with our recent physician survey work where, after posting very strong patient volume metrics in Q413, January patient volume turned very weak.  However, February volumes have rebounded, particularly in the Midwest, where weather headwinds were likely worst.


Right here, we don't see a reason to change our negative view.


Patient Traffic Down? Doubtful. - OB PT VOL COMP


Fading Yellen

Client Talking Points


If you’re still staring at Q3/Q4 2013 US growth and inflation data and think everything in between was the “weather”, you’d be bullish on growth, USD, and rates here – we’re not – that was last year’s call.  Yes, USD ripped off its year-to-date lows. But, it remains well below TREND resistance of $81.14 on the US Dollar Index. Short it here.


The UST 10-year yield bounced off its oversold lows from last week, and it grabbed headlines, but I wouldn’t confuse this as a change in TREND. I’d have to see a breakout above 2.81% (our TREND line) on the 10 year to stop buying bonds on corrections. Fed Chair Janet Yellen wants inflation, and she’s getting it. It slows real growth, and her forecast should get dovish again, but on a lag.


After signaling immediate-term TRADE overbought at $1,385 on Friday and the biggest net long (futures/options contracts) position in a year, yes, Gold corrected. But it didn’t break any line of support that matters in my model. At up +10.4% year-to-date, buy it if you missed the move towards +15% YTD. This is going to be your chance.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.


We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.

Three for the Road


TREASURIES: no follow through in the 10yr to yesterday's freakout on #RatesRising, 2.76% last @KeithMcCullough


"The greatest achievement is to outperform yourself." - Denis Waitley


If taxes were romantic, April 15 would make for the world's biggest singles mixer. That's because single people, including heads of household as well those who are widowed or divorced, account for the majority of federal tax filers in the United States. In 2011, they filed 61% of all returns, according to an analysis of IRS data by the Tax Foundation. Unmarried Americans who are 18 and older now comprise 44% of U.S. households, according to the latest Census data. And Americans who live alone accounted for 27% of all households in 2012, up from 17% in 1970. (CNN)

Rose Colored Bubbles

This note was originally published at 8am on March 06, 2014 for Hedgeye subscribers.

“What’s in a name? That which we call a rose by any other name would smell as sweet.”

-William Shakespeare


What’s in a bubble?


I’ve been channeling my inner 1999 for the last 3-days in California. I’ve done Los Angeles, San Diego, and San Francisco. And while it would be cute to tell you that I can actually smell a bubble, these types of things don’t have a particular scent.


Rose Colored Bubbles - bub


At the all-time highs, they just look sweet.

Back to the Global Macro Grind

All-time highs? Yep. It’s not just Yelp (YELP) and Facebook (FB). It’s Barney Frank’s American Housing dream. The all-time highs in the largest component of American cost of living are here. It’s called rent.


Oh, you don’t rent? Ok, you’re like me then. You’re big time – you own. But don’t confuse the 20% of us who are long asset price inflation with the rest of them (80% of Americans) who get pulverized by Policies to Inflate. The cost to live in this country has never been bubblier.


What’s in the cost of living?

  1. Shelter
  2. Food
  3. Transportation

Unless you’re like the “folks” in Washington who take car service to work, you have to put gas in the transportation thing too. And if you can’t afford a car, you can always save some money and take the bus, or walk…


What’s in the all-time high in American “inequality”?

  1. The Housing Bubble
  2. The Commodity Bubble
  3. The Bond Bubble

One by one, central planners at the Fed blow these bubbles up so big that, like Jim Carey in The Truman Show, we start to live inside them. There’s an effervescence to that, I guess.


Or at least that’s what Oaktree’s Howard Marks said in our back to back presentations at the CFA Society’s Annual Forecast Dinner in San Diego on Monday night.  He called the cov-light-pik-toggle-bond thing being “back” – an “effervescent bubble.”


As we went back and forth in the Q&A part of the event, Marks made an astute observation about real-world life. The average American has $20,000 in post tax income, but spends approximately $22,000 a year.


So, if you ramp up the Top 3 things Americans have to pay for (if they don’t pay for their kids to go to school), the Bush/Obama/Bernanke/Yellen Policy to Inflate should drive cost of living up to say $25,000-30,000/year. That’s why the US Savings (as a % of disposable income) is retracing its 2008 crisis lows. Like their government, Americans once again have to borrow to spend.


In other news, inflation slowed US consumption growth again in February:

  1. USA’s ISM Services report for FEB (reported yesterday) slowed to its lowest level since FEB of 2010
  2. The Employment component of the ISM Services Series dropped < 50 (largest m/m drop since NOV 2008)
  3. US Services PMI (Markit data series) slowed from 56.7 in JAN to 53.3 in FEB

No worries though, it’s all “weather.”


If you want to join the Federal Reserve and believe that (and tell the 80% that inflation doesn’t slow growth), you can start turning on the Weather Channel and buying the all-time highs in social media every day they forecast yesterday’s sunny news.


I’ll be selling stocks (and buying Commodities, Bonds, and Foreign Currencies) into that. Because, like in Q1 of 2011, Down Dollar and Down Rates were signaling a US consumption growth slowdown inasmuch as they did in Q1 of 2008.


As for retracing my California travels of 1999, Q1 of 2000 wasn’t exactly the time to be wearing rose colored glasses either.


Our immediate-term Macro Risk Ranges are now:


UST 10yr Yield 2.59-2.75%

SPX 1848-1879

VIX 13.01-15.64

USD 79.86-80.43

Brent 107.31-110.02

Gold 1319-1351


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Rose Colored Bubbles - San Fran HPI


Rose Colored Bubbles - rta7

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CHART OF THE DAY: Fade The Fed's Forecast


CHART OF THE DAY: Fade The Fed's Forecast - Chart of the Day

Fade The Fed's Forecast

“If you have to forecast, forecast often.”

-Edgar Fiedler


You probably don’t know who Fiedler was. Like many Keynesian “economists” of the Nixon/Carter and Bush/Obama eras, his growth and inflation forecasts were useless.


But I like his quote.


And I really like the opportunity the market gave us yesterday to add to things we’ve liked from lower prices all year. That list of big macro stuff includes Commodities (Gold, Food, etc.), Foreign Currencies (vs. the USD), and Bonds (long-term Treasuries in particular).


Back to the Global Macro Grind


But, but, she said that the economy wasn’t slowing and that rates could rise, eventually…


“I do want to emphasize this is a forecast”

-Janet Yellen (March 19, 2014)


Fade The Fed's Forecast - yell


I hear you on what the market did in reaction to her forecast (Dollar up, Rates up, Gold down). Nice day-trade. But do you hear Mr. Macro Market’s trending forecast? He updates his forecast often.


So, now there are 2 big conflicting forecasts to concern yourself with:

  1. Janet Yellen’s forecast (which is based on what happened in the US in Q3/Q4 of 2013 – inflation fell, growth accelerated)
  2. Mr. Macro Market’s updated forecast of #InflationAccelerating and real #GrowthSlowing in kind

And, since you have to pick one of the two, which one will it be?

  1. A Fed forecast that is wrong at least 2/3rds of the time and is based on lagging economic data
  2. A market based forecast that is right more than 2/3rds of the time based on real-time market data

To recap the Fed’s forecast:

  1. Most of the Q114 slow-down was due to the weather
  2. As growth recovers in the 2nd and 3rd quarter, you should expect the Fed to continue to taper
  3. There is no inflation (its below the “committee’s objective”), so don’t worry about it

And to update you on what Mr. Macro Market has to say about that this morning:

  1. US DOLLAR is showing no follow-through to yesterday’s bid and remains bearish TREND @Hedgeye
  2. US 10YR TREASURY yield is showing no follow-through to yesterday’s ramp and remains bearish TREND @Hedgeye
  3. GOLD sold off to immediate-term TRADE support of $1321, and remains a bullish intermediate-term TREND too

So, on the “what Janet meant to say” part, you might need Hilsenrath to spell it out for you circa 3PM on a market Friday. I get that. You should too. Most people don’t have a macro process, and they have to take the Fed’s word for it, literally.


From a risk management perspective, if the following three things happen:

  1. US Dollar Index breaks out > $81.14 TREND resistance
  2. US 10yr Yield breaks out > 2.81% TREND resistance
  3. Gold snaps $1278 TREND support

Well, then I forecast that I will change my forecast. In the meantime, I say you fade the Fed’s forecast because I forecast that Janet Yellen will get less bullish on US Growth after growth slows.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.61-2.81%


VIX 12.99-17.57

USD 79.29-80.41

EUR/USD 1.37-1.39

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Fade The Fed's Forecast - Chart of the Day


Fade The Fed's Forecast - Virtual Portfolio

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