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Teflon Don + 6 Key Election Takeaways

Takeaway: Donald Trump is poised to clean up on Tuesday, putting the party on the verge of crowning a nominee before its Democratic rivals.

Below is an excerpt from Potomac Research Group Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning.



After a dozen debates, Marco Rubio finally nailed one, but it may have come too late for the Senator.  With only four days to go before the make-or-break-FL vote on Tuesday, Rubio's performance is sure to give him some badly-needed oxygen, but it's unclear whether it will be enough to dethrone Donald Trump. It was also good news for Ted Cruz and John Kasich, who don't have a shot in the state, but need to deny Trump its 99 delegates in order to have a path forward. Trump turned the theatrics way down last night as part of his recent pivot to a more 'presidential' demeanor -- but it was clear who the alpha dog was on stage, with Cruz the only one willing to take him on directly. Last night's debate was, mercifully, the most civil and policy-oriented to date with Cruz, Kasich and Rubio leading the charge on wide range of issues -- but when the frontrunner's shallow grasp on any given topic doesn't seem to matter, its impact is largely a matter of optics, not substance.


Teflon Don + 6 Key Election Takeaways - z tefl



To ensure that any good news from last night's debate is overshadowed going into the weekend, Trump has secured the endorsement of his onetime rival Ben Carson with an announcement to come at a 9am presser today.   While his support has dwindled over the course of the primary, he still has a very loyal following and may augment Trump's current lead in Carson's home state of FL.



Donald Trump is poised to clean up on Tuesday, putting the party on the verge of crowning a nominee before its Democratic rivals -- a scenario that would have been inconceivable just a few months ago. We've noted that Hillary Clinton's delegate lead was insurmountable, allowing her to shift her focus to running against Trump in the general election -- now Bernie Sanders' surprise win in MI has forced Hillary to turn her attention back to becoming her party's nominee. With Hillary refocused on Sanders, it gives Trump all the more room to secure his delegate lead, and avoiding the flak that he would otherwise be getting from her and the Democratic party.



Sanders' resiliency has forced Clinton to shift her campaign message to cater to his supporters. In many ways she's now running the campaign that Sanders hoped for with regard to the issues, but at the same time she is trying to paint Sanders as a conservative stooge on gun rights, the Ex-Im bank, and even the minutemen militias patrolling the Mexico border -- while herself outflanking Obama to the left on immigration. The farther left Clinton ventures, the more difficult it will be for her to swing back to the center for the general -- and TPP is only the first casualty of this shift.



Being the frontrunner with a sizeable delegate lead, and having a devoted support base that won't budge is the typical dream of a presidential candidate. Labeling himself as a 'unifier' and an 'asset' to the party because he brings out more voters, Trump's new tack belies his divisive rhetoric -- including his newest statement about Islam. Trump is only expanding his own support base, not the party's, and he is narrowing his chances of winning in the general election every time he steps up to the mic.



Trump is spending more money in FL and OH than he has done in recent states, to bolster his dominance in earned media -- which so far has played in his favor. Knowing that this is a chance to knock out two opponents and seal the deal for the nomination, he's spent $1.2 million in FL and just over $800k in OH. He'd be the first to say that this is pocket change for him, but that figure is dwarfed by the combined spending of his rivals and the anti-Trump superPACS, which have dumped well over $10 million into the two states. The anti-Trump movement is rushing to throw all they can at Trump before Tuesday, but we again doubt it will stick to the Teflon Don.

A Special Update From Our Healthcare Team | MDRX ATHN CPSI CERN

Editor's Note: Below is an institutional research note written by Hedgeye Healthcare analysts Tom Tobin and Andrew Freedman. Our Healthcare team describes the key takeaways after attending last week's annual HIMSS Conference on Healthcare IT. This note contains insights on our Allscripts (MDRX) short thesis along with analysis of other companies in their coverage universe, including athenahealth (ATHN), Computer Program & Systems (CPSI) and Cerner (CERN).



A Special Update From Our Healthcare Team | MDRX  ATHN CPSI CERN - booth activity


We had a great week out in Las Vegas at the HIMSS Conference, where all of Healthcare IT gathers once a year in the largest trade exhibit show of its kind. Not only was it helpful to attend the learning sessions and spend time on the exhibit floor talking to industry people, but it was equally helpful meeting with clients and comparing takeaways.  We learned more than can fit here, but below are our biggest takeaways from HIMMS.

  • ATHN - Booth activity was high; more positive on inpatient opportunity.
  • MDRX - Booth activity was moderate; more confident in short case after product demos.
  • CPSI - Booth activity was extremely low; problems are terminal...watchful waiting to get back on the short.
  • CERN - Booth activity was high; no change in sentiment with a long bias... a lot of interest in their pop health services.


Interoperability was one of the top buzzwords of the conference.  While the ability to share data between disparate EHR systems exists today, seamless interoperability between systems continues to be limited by the lack of workflow standards, a single patient identifier and vendor openness. The ability to aggregate and analyze clinical information in a way that is useful in the increasingly challenged reimbursement landscape remains limited and a very complex process.


A Special Update From Our Healthcare Team | MDRX  ATHN CPSI CERN - himss critical 


However, emerging standards such as FHIR and a mandatory use of APIs to meet MU3 requirements is laying the infrastructure for data exchange beyond the current C-CDA. ONC also announced additional oversight into the EHR certification process this past week to ensure conformity to the criteria and interoperability standards.  Lastly, it has quickly become a political nightmare and a business risk for a vendor to be perceived as a 'closed' system (likely a reason why Epic lost the DoD contract to Cerner).  In response, vendors have signed pledges, committing to 'no information blocking'. While it remains to be seen what actually comes out of these pledges, such public commitments are a significant step forward from where we were just one year ago.  


Let us know if you would like the slides to the 'Interoperability and Health Information Exchange' symposium.


A Special Update From Our Healthcare Team | MDRX  ATHN CPSI CERN - standardizing 3



Advances in interoperability is a positive for some vendors, in particular athenahealth, as they expand their addressable market to health systems willing to take a 'best of breed' approach toward vendor selection (e.g., Epic Inpatient / athena Ambulatory).  Over the long-term, interoperability between EHR systems poses a major risk to the HIE vendor community whose sole existence is dependent on the lack of interoperability. 

regulatory tailwind/headwind

There continues to be a lot concern among providers and vendors regarding the timing and requirements of MU3, PQRS, VBM and MIPS.  These programs are complex and awareness within the physician community surprisingly low based on the CIOs we spoke with. For large health systems, the resources and processes needed to merely be able to submit quality metrics and avoid penalty are immense.  The ability of a vendor to be able to incorporate quality reporting into the EHR, thus allowing the provider to select quality measures based on eligibility criteria and provide benchmarking services is of critical concern for CIOs.


A Special Update From Our Healthcare Team | MDRX  ATHN CPSI CERN - recognize 4


athenahealth is well positioned because of their PQRS guarantee and ability to leverage their network to provide data and analytics to track performance relative to peers.  While Allscripts does provides quality reporting, we are concerned about their ability to support users through the final stages of Meaningful Use and MIPS given they must maintain three different EHR systems.


A Special Update From Our Healthcare Team | MDRX  ATHN CPSI CERN - bottom line 5




MDRX | We would describe traffic in the Allscripts booth as moderate, with the most buzz around their population health suite of products and not their core EMR and Practice Management solutions.  We were very underwhelmed by the graphical user interface (GUI) of all their products compared to their main competitors.  From a usability and workflow perspective, the technology was more reminiscent of early 2000s than what you would expect from a company that spends $200+ mill annually in R&D.  Overall, there was a lack of common workflow and design between product offerings, which is consistent with a portfolio of acquired and not internally developed solutions.


In our view, Allscripts needs to make major investments in the design and integration of their current systems to be more competitive today and in the future.  We left HIMSS more confident in our short thesis.


A Special Update From Our Healthcare Team | MDRX  ATHN CPSI CERN - ehr vendor comp 6 




While Allscripts markets their population health products under the 'CareInMotion' umbrella, the four main systems (dbMotion, Care Management, Analytics and ePSi) are siloed from a workflow perspective.  It was also difficult to understand which products were necessary in order to make other products work. For example, their core analytics solution really required the purchase of dbMotion in order to get the data needed to run the analytics, although it was also being sold as a standalone solution.  This compares unfavorably to competing solutions we did demos with, where the analytics and data aggregation were all part of a single platform with one user interface.  While Allscripts promotes the flexibility of a modular design, the market is clearly trending in the opposite direction toward complete solutions.




We were impressed with the functionality of ePSi, which is Allscripts business intelligence tool that allows a hospital to do cost based accounting and drill down into the P&L on a case by case basis.  A significant problem is the lack of a direct data feed or HL7 capability, which means that data must be batch uploaded from a separate database system or .csv file.  The system is also not integrated with their other pop health solutions.




When compared to competing acute care EHR solutions from Cerner, MEDITECH, Epic and athenahealth, the biggest disappointment to us was Sunrise.  Maybe we had too high of expectations going in after all the good things we heard about it, but there was nothing we saw that was competitively differentiated from any of its peers.  The primary advantage we saw was in its simplicity, with an easy workflow design that is consistent with anecdotes we have gathered from consultants and customers.  Sunrise is Allscripts only integrated EHR solution across inpatient and ambulatory that does not require the purchase of dbMotion. 




Allscripts began rolling out Touchworks 15.1 this year, and per their website is "Designed with the physician in mind, TouchWorks EHR 15.1 features a significant improvement to the existing user interface,user experience, and overall system architecture."  However, we did a demo of Touchworks and found that there were only minor design changes:

  1. Billing Integration 
  2. Order Submission
  3. Macros (shortcuts)

We would note that these are all features that are currently considered industry standards and have been offered by all major competitors for some time. Touchworks continues to be the Allscripts Achilles Heel, and nothing that we saw makes us believe attrition issues will change course.  In fact, another Touchworks loss was announced last week with Dignity Health extending Cerner's PowerChart EHR across its physician enterprise for +400 docs.


In an ideal situation, management would sunset Touchworks and migrate the users over to Sunrise ambulatory.  However, given the financial commitment to Touchworks by Allscripts largest clients, and the disruption of migrating, this is an unlikely scenario. Therefore, management will be forced to continue to allocate resources to a non-competitive product that is losing share.




When we spoke with sales reps at Practice Fusion and eClinicalWorks, the top vendor they were winning new business from is Allscripts.  Similar to Touchworks and Sunrise, there was no reason why an educated purchaser would select Allscripts over competing ambulatory solutions (absent price).  We observed a current Allscripts Pro customer asking questions about the workflow, specifically that they couldn't figure out what insurance number to enter in a field. There were five Allscripts reps in attendance and not one of them were able to answer the question.  


ATHN | The level of activity at the athenahealth booth was high throughout the conference.  During the first two exhibit days, they were the only vendor we observed with a packed demo booth all the way through closing.  We spoke with an ambulatory sales rep who said that activity was about the same as last year, but the lead quality was higher.  On the inpatient side, we followed up with a sales rep after closing on Thursday who said they were booked solid with 40 demos in the first day, and had to actually turn people away.  For the entire week, they did about 100 demos, of which 90 were hard leads with most using McKesson, MEDITECH, CPSI and Healthland.  This compares to ATHN's current customer base of ~50 athenaOne hospitals with ~25 of those added in 2015.  Sales reps described several situations where larger hospitals ( > 75 bed) were anxiously asking about availability in 2017.


We left HIMSS more confident in athenhealth's ability to successfully penetrate the inpatient market.


CPSI | The level of activity at the Evident booth was extremely low, and many times we passed by throughout the day to find it empty.  We tried scheduling a demo late in the afternoon on Thursday (last day exhibit floor is open), but they were already packing up.  It also goes without saying that the level of activity at athenahealth does not mean good things for CPSI.


We left HIMSS more bearish on CPSI over the intermediate term, and seriously question the future viability of the company amid intensifying competition. 


CERN | The level of activity at the Cerner booth was high throughout the conference.  Based on discussions with sales reps, most of the customer interest was around their HealtheIntent population health platform.  At its core, HealtheIntent integrates clinical data from disparate EHR systems into Cerner's PowerChart EHR workflow.  We asked about EHR replacement activity and were told that they are seeing "decent activity", but is "less widespread" than in prior years.


Our sentiment on Cerner remains unchanged after HIMSS.  It is clear they are well positioned as the #2 vendor in the space, with a competitive and comprehensive product offering.

A Few Thoughts On ECB Easing, Growth Slowing & Fed Rate Hikes

Takeaway: The ECB is increasingly hamstrung while Draghi's easing yesterday also has key implications for future Fed rate hikes.

A Few Thoughts On ECB Easing, Growth Slowing & Fed Rate Hikes - Draghi cartoon 01.20.2015


Not so fast Euro-bulls. The potency of global central planners is slowly disintegrating and Euro-area growth is slowing.


Notwithstanding today's bounce, that's the quick take on why you should be, at least, cautious. Here's analysis from Hedgeye CEO Keith McCullough in a note to subscribers this morning:


"The belief system needs the transmission mechanism (Burning Euros) in play to “reflate” European stocks. So, “off the highs” in yesterday’s epic big bang EUR/USD ramp, Euro -0.7% gives birth to a new hope that doing whatever it takes is going to arrest an almost 3 year European economic expansion from slowing."


As McCullough points out, the ECB is increasingly hamstrung, unable to devalue the euro beyond key levels. That is in no way bullish for European stocks.  



So here is the important question. "Is Draghi's latest dance enough to arrest the cascading of the Eurozone economy from its multi-year cycle peak?," Hedgeye Senior Macro analyst Darius Dale wrote this morning. 


Here's the chart with all that RED (aka declining) data. 

A Few Thoughts On ECB Easing, Growth Slowing & Fed Rate Hikes - darius eurozone data


This matters.


As Draghi went all-in on monetary cowbell yesterday, it actually raised the probability of a surprise Fed rate hike. Take a look at the chart below from Dale mapping the Bloomberg Economic Surprise Index against 10-year forward Fed funds future implied yield. Notice the recent spike in this reading:



Equity investors have also been touting the recent spate of positive U.S. economic data as supportive of their bullish narratives. But that's a short-term mirage within a long-term downward trend, as Dale points out.


Here's A compendium of RED (read: Bad) U.S. data:

A Few Thoughts On ECB Easing, Growth Slowing & Fed Rate Hikes - darius us data


We have been noting that the Fed's overly-optimistic forecast remains a substantial risk to macro markets. "Will the Fed read into sequential upticks across U.S. data and extrapolate #Quad2 into their economic outlook?," Dale asks.


Good question.

Here's the key takeaway: 

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HEDGEYE Exchange Tracker | Same Old Playbook for London

Takeaway: ICE seems to be gearing up for an '07 style bidding war for the LSE akin to the playbook executed for CBOT.

The forming competitive bidding process for the London Stock Exchange Group (LSE LN) looks a lot like the 2007 bidding war for the Chicago Board of Trade (CBOT) by CME and ICE. In our view, ICE never presented the best industrial logic as the CBOT acquirer however with its competing bid for the Chicago Board, ICE ensured that CME paid top dollar for its across town rival. In the end the original bid of $7.9 billion by CME, ended up on sweetened terms at $9.2 billion in '07, as ICE made a case of an anti-competitive conglomerate and a lack of competition in U.S. rates (which none-the-less resulted in the creation of the CME Group). Regardless of how the LSE saga unfolds, out-of-the-money call options on the target have always been a decent way to express a view on what can be a lengthy exchange takeout battle. ICE stockholders seem to be looking for a break from its deal flow with the recent stock decline and also the fear of the acquisition of another hyper-competitive cash equity business.


HEDGEYE Exchange Tracker | Same Old Playbook for London - LSE ICE 


Weekly Activity Wrap Up

Volume expanded week-over-week in all three U.S. exchange traded categories pushing 1Q16TD average daily volumes (ADVs) well above their year-ago levels. Cash equity volume for the week came in at 8.8 billion shares traded per day, bringing the 1Q16TD ADV to 9.0 billion, up +30% Y/Y. Futures activity at CME and ICE came in at 22.5 million contracts traded per day this week, bringing the 1Q16TD ADV to 23.8 million, up +19% Y/Y. Additionally, CME's open interest currently tallies 115.8 million contracts, +27% higher than the 91.3 million pending at the end of 2015, which ensures robust trends for the foreseeable future. Options came in at 16.8 million contracts traded per day this week, bringing the 1Q16TD ADV to 17.7 million, up +14% Y/Y. 


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon1


U.S. Cash Equity Detail

U.S. cash equities trading came in at 8.8 billion shares per day this week, bringing the 1Q16TD average to 9.0 billion shares per day. That marks +30% Y/Y and +28% Q/Q growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 24% share of first-quarter volume, which is consistent with the prior quarter and year-ago quarter, while NASDAQ is taking an 18% share, -157 bps lower than one year ago.


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon2


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon3


U.S. Options Detail

U.S. options activity came in at a 16.8 million ADV this week, bringing the 1Q16TD average to 17.7 million, a +14% Y/Y and +11% Q/Q expansion. In the market share battle amongst venues, NYSE/ICE has been trending downward at a moderate pace, but at an 18% share it is +72 bps higher than the year-ago quarter. Meanwhile, NASDAQ's recent declines bring it -396 bps lower than 1Q15. CBOE's market share is down -144 bps Y/Y but has improved recently; its 27% share of 1Q16TD volume is up +135 bps from 4Q15. BATS and ISE/Deutsche have been taking share from the competing exchanges, with BATS up to a 10% share from 9% a year ago and ISE/Deutsche taking 15%, up from 13% a year ago.


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon4


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon5


U.S. Futures Detail

17.0 million futures contracts traded through CME Group this week, bringing the 1Q16TD average to 18.1 million, a +20% Y/Y and +37% Q/Q expansion. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 115.8 million CME contracts pending, good for +27% growth over the 91.3 million pending at the end of 4Q15, an improvement from last week's +24%.


Contracts traded through ICE came in at 5.5 million per day this week, bringing the 1Q16TD ADV to 5.8 million, +15% Y/Y and +21% Q/Q growth. ICE open interest this week tallied 69.8 million contracts, a +10% expansion versus the 63.7 million contracts open at the end of 4Q15, an improvement from last week's +8%.


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon6


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon8


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon7


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon9 


Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon10


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon11


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon12


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon13


HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon14

HEDGEYE Exchange Tracker | Same Old Playbook for London - XMon15



Please let us know of any questions,


Jonathan Casteleyn, CFA, CMT 




 Joshua Steiner, CFA





A Guide For Trading The Recent Bounce In Oil Prices

A Guide For Trading The Recent Bounce In Oil Prices - Oil cartoon 12.28.2015


What's the latest bullish catalyst for permabulls? 


We've had a massive 35% rally in oil from the February lows. With oil prices up, we may be closing in on another opportunity to short oil and energy stocks. Here's some analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning. 


"Oh, right, that’s going on too. Oil up +2.1% this morning is another big-bite reason to keep reflation bulls in the game here – immediate-term risk range (dynamic) $31.66-39.45/barrel for WTI as Oil Volatility’s risk range remains surreal at 48-60. We are much more bearish on the Financials than Energy, but would love another shot (short side) closer to $40 Oil."



Remember... chest-thumping permabulls were touting reflation back in October 2015 too. We remember how that turned out.

RTA Live: March 11, 2016




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