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REPLAY | Healthcare Updates You Can’t Afford To Miss Plus Interactive Q&A

New format - more details!  


Our All-Star Healthcare team was back in the studio today with a new and improved segment for you.



In this replay, Healthcare Analysts Tom Tobin and Andrew Freedman review the current names in their position monitor which includes their best ideas on the LONG and SHORT side as well as ideas on the bench. 


The team hosted an interactive Q&A session after reviewing the following:

  • MD Maternity Tracker: looks weak
  • JPM Healthcare Conference: key takeaways from companies in attendance 
  • JOLTS Model: strong for November and points to a solid Q415 earnings season
  • Allscripts Healthcare Solutions Inc (MDRX): best idea short, will discuss recent preannouncement 
  • AMN Healthcare Services (AHS): update to our thesis, calling for a slight beat for 4Q15, but are looking for weak guidance for 1Q16
  • Hospital Corporation of America (HCA): preannounced positive at the EBITDA line, but we have concerns about 2016 growth
  • Zimmer Biomet (ZMH): made some positive comments, but our outlook for 2016 and beyond remains bearish

Inverse Myopia: Checking In With Asia and Latin America

***While it’s easy to get myopic about domestic trends heading into earnings season with the VIX > 20, that doesn’t mean the rest of the world suddenly ceases to exist. International growth, inflation and policy developments have been and will continue to have an outsized impact on asset class returns broadly. As such, we thought the following country-level summaries of recent noteworthy economic developments would be helpful to quickly contextualize such risks. Please email us to the extent you’d like to dig into a specific economy further or if you’d like to see a similar write-up on an economy not mentioned below due to a lack of material incremental news flow or data releases.***




In China, while accelerating export, import and trade balance growth juxtaposed sharply with decelerating auto sales growth in December, it coincided with a sharp acceleration in the growth rate of Chinese exports to Hong Kong (evidence of fake invoicing). Also in December, headline inflation ticked up sequentially, while PPI remained at its deflationary lows. All of this is contributing to what we’ve previously identified as a nascent and tepid trend of economic stabilization in China. We describe it as such because our work would suggest that said stabilization is not at all sustainable on a multi-quarter basis. Elsewhere in China, SAFE continues enacting various measures to limit yuan outflows and reduce offshore yuan positions and liquidity. As we’ve previously stated, the CNY needs to depreciate by as much as 10-15% vs. the USD, but any such devaluation will come at a measured pace. Beijing has no interest in AFC-style rapid devaluations and will continue to use their wide arsenal of tools – including coercion and capital controls – to achieve this objective, which effectively implies the bearish CNY overhang is here to stay. All told, we reiterate our bearish bias on Chinese capital markets and the yuan.


Inverse Myopia: Checking In With Asia and Latin America - China Econ Summary

In Japan, minutes from the BoJ’s December 17-18th meeting confirm more of the same with respect to guidance on Japanese monetary policy: QQE expansion is unlikely to be a near-term event due to the board’s sanguine guidance on Japanese growth and inflation. While the December economy watcher’s survey and consumer confidence index readings were supportive of their bullish outlook, on the margin, trends across the preponderance of Japan’s high-frequency growth indicators continue to paint a decidedly mixed picture. Moreover, core CPI remains well shy of their official +2% target and long-term breakeven rates continue to collapse to new Abenomics-cycle lows. Given these dynamics, we continue to think QQE expansion is an inevitability due to a variety of reasons. That said, however, a delay should perpetuate additional covering of consensus yen shorts, which bodes poorly for the Japanese equity market at large. As such, we reiterate our neutral bias on Japanese capital markets and the yen for the time being. For more details, please refer to our 1/6 note titled, “The #CurrencyWar Is a War On Your PnL; Engage Appropriately”.


Inverse Myopia: Checking In With Asia and Latin America - Japan Econ Summary

In India, the advent of decelerating industrial production growth in November coincided with the release of accelerating CPI data for the month of December – the both of which are confirmatory of our #Quad3 outlook for the Indian economy. Indian financial markets are responding appropriately: short rates and the INR are pricing in a dovish RBI, while stocks and long rates are falling victim to capital outflow pressures. While the latter signals are justified, we do not think the RBI has much, if any, scope to ease monetary policy – which is likely why you’re seeing Modi enact what little policies he can implement on the fiscal policy front (see: crop insurance program) in the face of political gridlock that has stalled more meaningful economic reforms such as the long-awaited GST. All told, we reiterate our bearish bias on Indian capital markets and the rupee.


Inverse Myopia: Checking In With Asia and Latin America - India Econ Summary


In Taiwan, sequentially accelerating export growth in the month of December is in line with our #Quad1 outlook for the Taiwanese economy. While we remain fundamentally bullish on Taiwanese capital markets, the fact neither has responded well to the dramatic surge in cross-asset volatility we’ve experienced in recent weeks would seem to paint a dour picture for global equities broadly. If you can’t buy Taiwan, what can you buy?


Inverse Myopia: Checking In With Asia and Latin America - Taiwan Econ Summary

In Brazil, the advent of slowing retail sales growth in November coincided with the release of accelerating CPI data for the month of December – the both of which are confirmatory of our #Quad3 outlook for the Brazilian economy. Brazil just can’t seem to escape its deep, stagflationary recession in spite of receding base effects and dramatically loosening fiscal policy – both in relative and absolute terms. Elsewhere in Brazil, the country’s longstanding practice of indexing for wages, as well as various key goods and services are once again perpetuating fears of incredibly sticky stagflation, which is being priced into long-term breakeven rates. Also, with $7.9B of foreign currency bonds coming due in 2016 as at a time when at least a [record] third of all Brazilian companies are spending half their earnings to service debt, we can’t help but call out the risk of further sovereign downgrades and incremental capital outflows. All told, we reiterate our bearish bias on Brazilian capital markets and the real.


Inverse Myopia: Checking In With Asia and Latin America - Brazil Econ Summary

In Mexico, consumer confidence ticked up marginally in December while industrial production growth decelerated, also by a marginal degree. This divergence highlights the decidedly mixed nature of trends across Mexican high-frequency growth data. That, plus structurally depressed and decelerating CPI gives Banxico all the cover it needs to be as rhetorically dovish as it is inclined to be. Banxico Governor Agustin Carstens had previously been guiding Mexican monetary policy to be in line with that of the Federal Reserve (recall they hiked when the Fed hiked), but his latest comments suggest something on the order of Fed-style QE may be in the works if capital outflows continue to exert pressure on Mexican capital markets and those of emerging markets broadly. That would be incredibly and inappropriately dovish and both short rates and the MXN have picked up on this rhetorical shift. All told, we reiterate our bearish bias on Mexican capital markets and the peso. Mexico is one of many emerging market economies that have not adequately shielded their currencies from capital outflows that have been perpetuated by USD strength resulting from the now-G5 monetary policy divergence. For more details, please refer to our 12/16 note titled, “Macro Playbook Update: Keep Betting On #StrongDollar #GlobalDeflation” as well as our #CurrencyWar theme as detailed on slides 46-71 of our Q1 2016 Macro Themes presentation.


Inverse Myopia: Checking In With Asia and Latin America - Mexico Econ Summary

In Russia, the advent of decelerating CPI data for the month of December is in line with our #Quad1 outlook for the Russian economy. What is not in line are crude oil prices plunging to new lows and pending fiscal tightening measures – the confluence of which may send Russia back into #Quad4 indefinitely; Russian capital and currency markets have been and continue to aggressively price in this risk. Regarding the aforementioned fiscal tightening measures, Finance Minister Anton Siluanov recently stated that measures totaling 1.5T rubles ($2B), including a -10% cut in spending that spares outlays on the military and social services, are needed to avoid a shortfall of more than 6% of GDP this year: “If we consider today’s oil price and the ruble exchange rate and don’t take any measures, the deficit could more than double compared with the budget we have passed… We have enough reserves, resources for 2016, but we need to make decisions this year that would allow to balance state finances in 2017, 2018, 2019 and beyond.” It’s worth noting that Russia’s Reserve Fund – which is drawn on to plug gaps in the budget – has fallen -35% since its August 2014 peak of $91.7B. Additionally, Russia’s budget itself is based on Brent crude oil averaging $50 per barrel – which is +64% higher than where it closed today. All told, we reiterate our bearish bias on Russian capital markets and the ruble. As long as #StrongDollar deflation persists, any bounce(s) in Russian economic growth due to receding base effects is likely to be short-lived.


Inverse Myopia: Checking In With Asia and Latin America - Russia Econ Summary


In South Africa, industrial production growth accelerated sequentially in November, but it didn’t matter to global capital allocators. All that matters to investors is the slumping ZAR, which has fallen another -6.7% vs. the USD in the YTD to lead all emerging market currencies to the downside; this is on top of last year’s -25% decline. Its accelerated plunge to new all-time lows underscores a loss of faith in the Zuma administration’s willingness to enact the appropriate tightening measures – both monetary and fiscal – that can help protect international capital from further declines. Moreover, a sovereign downgrade to junk status is now a meaningful near-term risk in the context of the aforementioned deteriorating policy outlook. While credit ratings downgrades aren’t exactly meaningful leading indicators, a change in classification to junk may instigate incremental capital outflows. All told, we reiterate our bearish bias on South African capital markets and the rand.


Inverse Myopia: Checking In With Asia and Latin America - South Africa Econ Summary


Jumping ship, what does the following chart suggest about the outlook for global growth in 1H16 (and potentially beyond)?


Inverse Myopia: Checking In With Asia and Latin America - G20 Exports


Enjoy your respective evenings and best of luck out there managing the aforementioned risks. 




Darius Dale



Cartoon of the Day: REPENT!

Cartoon of the Day: REPENT! - RussHELL cartoon 01.13.2016


"Russell 2000 #Crash continues today at -22% vs. July Old Wall #Bubble high," Hedgeye CEO Keith McCullough wrote earlier today

FL: Adding Foot Locker to Investing Ideas (Short Side)

Takeaway: We are adding Foot Locker to Investing Ideas today.

Stay tuned. We will send out a full analyst report outlining our high-conviction short thesis early next week.


In the meantime, here is a brief excerpt from a research note sent to institutional subscribers from Retail analyst Brian McGough on FL:


"We remain confident that Foot Locker will prove to be one of the best multi-year shorts in retail. The company is likely to earn about $4.20 this year, which we think will prove to be the high water mark in this economic cycle.


We think that emerging competition from its top vendor, Nike (=80% of sales), will stifle growth, and leave the company with an earnings annuity somewhere around $3.50-$3.75 per share. Is that worth $61? Not a chance. Not for a company that is Nike’s best off-balance sheet asset. And definitely not when the Street is in the stratosphere approaching $6.00 in EPS (#NoWay)."


FL: Adding Foot Locker to Investing Ideas (Short Side) - footlocker

ZOES: We Are Removing Zoës Kitchen From Investing Ideas

Takeaway: Please note we are removing Zoës Kitchen (ZOES) from Investing Ideas

Shares of Zoës Kitchen (ZOES) have had a tough run since we added it to the long side of Investing Ideas this summer. While we've had more than our fair share of winners here, sometimes you have to acknowledge when it's time to move on.


The underperformance boils down to style factors. ZOES is a high beta, low cap name both of which are out of favor. According to Hedgeye CEO Keith McCullough, “I don’t want our individual subs wearing a small cap exposure into a recession, no matter how good the story is.” And, as he noted recently in the Early Look


  1. High Beta Stocks lost another -8.9% week-over-week and are -17.6% in the last 6 months
  2. Small Cap Stocks lost another -6.9% week-over-week and are -17.3% in the last 6 months 


ZOES is caught in this perfect storm.


Bottom Line: While our veteran Restaurants analyst Howard Penney remains very bullish on the long-term growth prospects of Zoës Kitchen, with the Russell 2000 currently in #Crash mode, the macro environment is turning a blind eye to the company at the moment.


ZOES: We Are Removing Zoës Kitchen From Investing Ideas  - zoes

FLASHBACK | McCullough: 'The Most Obvious Slow-Moving Trainwreck I've Ever Seen In My Career'

Don't say he didn't warn you. 


During this recent exchange on Fox Business, Hedgeye CEO Keith McCullough colorfully explains why we remain bearish on both the stock market and economy. For the record, we've been bearish on U.S. equities since July.

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