Hedgeye and the Potomac Research Group are proud to present our first annual Spring Health Policy Conference.  This special, invite-only event will be held at The Benjamin Hotel in New York City on Monday, April 4th, 2016 from 9:30am - 4:00pm.



Please note that space is limited.  RSVP to  to attend.


Our lineup of health policy experts will offer an insider's view on their policy outlook and how as practitioners policy is influencing their decision making process.


This exclusive event will be moderated by Hedgeye Healthcare sector head Tom Tobin and feature in-depth presentations and panel discussions.  There will be ample opportunity for interaction throughout the day.







CHIP KAHN - Hospital Industry Outlook


Chip Kahn, President and CEO of the Federation of American Hospitals, will shape the regulatory environment for hospitals heading into the Presidential election.  Mr. Kahn’s extensive health policy expertise and lengthy Capitol Hill experience make him one of Washington, D.C.’s most effect and accomplished trade association executives.


NEIL HOWE - Demographic Outlook & Healthcare Reform


A historian, economist, and demographer, Neil is also a recognized authority on global aging, long-term fiscal policy and migration.  He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.


ANDREW MCKECHNIE - Health Reform Under Republican Administration


Andrew McKechnie, former policy advisor to the Senate Finance Committee, will discuss Republican efforts to repeal the Affordable Care Act and what the law may look like under a Republican controlled White House.  Mr. McKechnie was a key negotiator in bipartisan efforts to pass health reform in 2009, with an area of expertise in Republican politics and strategy.


YVETTE FONTENOT - Health Reform Under Democratic Administration


Yvette Fontenot is a partner at Avenue Solutions, a democratic government affairs firm that offers strategicadvice, policy development, and counsel in federal legislative and executive areas. She previously held theposition of Deputy Director of the Office of Health reform at the Department of Health and Human Services(HHS) and has helped to draft and implement the Affordable Care Act (ACA).


ROBERT LASZEWSKI - Managing Transition to Value Based Payment Models


Robert Laszewski, president of Health Policy and Strategy Associates (HPSA), will address the issues facing key stakeholders (Hospitals, MCOs, Physicians and Pharma) as we the transition to value based payment models focused on delivering better quality at a lower cost.  HPSA is a policy and marketplace consulting firm specializing in assisting its clients through the significant health policy and market change afoot.


DR. BABER GHAURI - Policy in Practice


Dr. Ghauri, Interim East Division CMIO for Trinity Health, will discuss how policy influences the decision making process of the second largest nonprofit health system in the nation.  Dr. Ghauri’s has a deep background in medical informatics and will also discuss how Trinity is using technology to pursue quality and value initiatives.


DR. RICHARD IORIO - Bundled Payments (CCJR)


Richard Iorio, MD, is the William and Susan Jaffe Professor of Orthopaedic Surgery at New York University Langone Medical Center Hospital for Joint Diseases and Chief of Adult Reconstruction at NYU Langone HJD.  Dr. Iorio was involved in the Medicare pilot program that led to expansion of the of bundled payment initiative for total knee replacements.

EHS | "Meaningfully" Weak

Takeaway: When the Chief Cheerleader (Economist) of the National Association of Realtors says the data is weak, you know you have a problem.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 


EHS | "Meaningfully" Weak - Compendium 032116



Today's Focus: February Existing Home Sales

Existing Home Sales were down -7.1% sequentially and decelerated to +2.2% YoY in February.  We’ve known for over a month that February was going to be soft (see: PHS | Leaping ...Downward! or EHS | What Goes Up?) as EHS recoupled to PHS so the print was of little surprise. 


Still, there are a number of callouts from this morning’s release: 


Leap Year Distortion:  Sales grew +2.2% year over year in February but the extra day in the period provided a +3.5% benefit.  Net of the extra leap day, EHS were actually down -1.4% Y/Y


Even Lawrence Yun, NAR’s chief economist, highlighted:  “[The February decline] was Meaningful”


Supply Stagnation:  On the inventory side, unit supply rose +3% sequentially to 1.88MM but remained -1% YoY (note: inventory is non-seasonally adjusted).  The net of declining volume and rising supply drove inventory on a months-supply basis to 4.44-months – marking a second month of rising months supply but still well below the 2015 average of 4.81-months and the 42nd month below the traditional balanced-market level of 6-months.


1st-time Buyers/Investors: 1st-time buyers fell to 30% of sales, implying a volume of 1.52MM units which was down -12.9% sequentially and decelerated to +5.7% YoY (vs +15% YoY in Dec/Jan).   As Yun notes, investor sales have actually increased in recent months after trending consistently lower over the last few years, 


"Now that there are fewer distressed homes available, it appears there's been a shift towards investors purchasing lower-priced homes and turning them into rentals. Already facing affordability issues, this competition at the entry-level market only adds to the roadblocks slowing first-time buyers."


Big Picture | Tail Chasing:  A dynamic and sustainably fluid housing markets requires a delicate supply-demand-price balance.   The imbalance prevailing in the existing market currently stems primarily from the supply side. 


A tight supply--rising price spiral resolves when:


  1. Declining affordability drives increasingly weaker demand which, at some critical threshold, acts as an anchor on further price growth or catalyzes a negative inflection in HPI.
  2. Rising prices incentivize inventory and the imbalance resolves from the supply side.   
  3. Some combination of the two


Historically low rates, top heavy demographics (↓ mobility/turnover), low equity positions and tight credit continue to sit as both cyclical and secular constraints on supply.  Alongside stagnant income growth, low equity (trade up buyers), tight credit, and demographics (lagged improvement in millennial employment/income trends) have similarly served to constrain activity from the demand side. 


Inventory tightness does not act as a ceiling on transaction activity when volumes are depressed but becomes a more tangible constraint as we push past average historical sales levels as we have over the past year.  As yet, rising home values have not been sufficient to drive meaningful enough gains in equity to incent incremental supply.  Instead, tight supply has manifest primarily in rising HPI  - a trend whose negative impacts compound over time so long as price grows at a premium to affordability (f(x) = incomes & rates). 


Empirically, the data in recent months suggests we are operating in a version of scenario 1 above whereby tight supply is/has driven declines in affordability in a negative tail-chasing feedback loop and is now constraining further upside in volumes as demand has already mean reverted.  Low equity positions will continue to improve alongside price gains and the credit box can expand pro-cyclically (should the expansion continue) but rates, demographics and the trickle through of millennial renter households to single-family purchase demand all remain secular overhangs.   In short, supply conditions may show gradual, partial improvement but are unlikely to resolve in the short-to-medium term. 


Looking Ahead:  We’re more interested in the Pending Home Sales data (Feb release = next Monday, 3/28) as the cleaner, more real-time read on the underlying trend in purchase demand in the existing market.  As it stands, PHS have decelerated for 9-months off the April 2015 RoC peak and we continue to expect sales in the existing market to decelerate through 1H16 with a strong possibility for negative volume growth against peak PHS comps in April/May.  Given the lagged relationship of home prices to volume (rate-of-change in home prices lag  the rate-of-change in demand by 9-12 months) we expect HPI trends to flat-line and begin to roll as we move through 1H16, representing an addition fundamental headwind for housing related equities. 



EHS | "Meaningfully" Weak - EHS units   YoY TTM


EHS | "Meaningfully" Weak - EHS Inventory MosSupply


EHS | "Meaningfully" Weak - EHS vs PHS


EHS | "Meaningfully" Weak - EHS 1st Time Buyers


EHS | "Meaningfully" Weak - EHS HPI by region


EHS | "Meaningfully" Weak - EHS Inventory Units


EHS | "Meaningfully" Weak - EHS YoY regional


EHS | "Meaningfully" Weak - EHS LT




About Existing Home Sales:

The National Association of Realtors’ Existing Home Sales index measures the number of closed resales of homes, townhomes, condominiums, and co-ops. Existing home sales do not take into account the sale of newly constructed homes. Existing home sales account for 85-95% of all home sales (new home sales account for the remainder). Therefore, increases in existing home sales tend to signify increasing consumer confidence in the market. Additionally, Existing Home Sales is a lagging series, as it measures the closing of homes that were pending home sales between 1 and 2 months earlier.



The NAR’s Existing Home Sales index is published between the 20th and the 22nd of each month. The index covers data from the prior month.




Joshua Steiner, CFA


Christian B. Drake

McCullough: Joke of the Year? Fed Data Dependence


In this animated excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough pulls no punches on San Francisco Fed President John Williams’ head-scratching contention that he’s data dependent. If you like this excerpt, you’ll love The Macro Show.

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The Whims, Wishes and Rumors Driving Markets

The Whims, Wishes and Rumors Driving Markets - Bull and bear cartoon this time different 7.08.2014


The story that drove markets last week was Dollar Down, Rates Down on the Fed move. 


Here's a quick update on what's happening in early morning trading today via Hedgeye CEO Keith McCullough in a note sent to subscribers


"Dollar Up, Rates Down this morning – as opposed to the reflation trade (many head-fakes in the last 18 months), that’s the #Deflation risk on move. I'm watching that closely this week with USD signaling immediate-term oversold on Friday."


 It's worth noting, over the past two weeks, the USD has been inversely correlated with oil. 


"Oil was down -2% this morning (it has a -0.8 inverse 15-day correlation to USD) after a +2.4% wk (WTI) with an immediate-term risk range of $34.65-41.53 and OVX (Oil Volatility) holding @Hedgeye TREND support with a risk range of 42-56."



But then ... oil speculation (insert: "rumors") took over.


Oil prices have rebounded sharply up 1.5% today on talks of an OPEC/Russia oil production "freeze." Potomac Research Group Senior Energy Analyst Joe McMonigle continues to point out, Iran plans to ramp up its oil production and that is in no way bullish for the price of oil, freeze or no freeze.


Click the image below to watch McMonigle's recent interview on this subject.

The Whims, Wishes and Rumors Driving Markets - mcmonigle pic


Here's the deal. Macro markets are getting whipped around by frenetic wishes and whims of traders. Meanwhile, economic fundamentals continue to deteriorate. So what happens once reality sets in?


It could get really ugly. 


The 'Dimon Bottom': Massive Conflict Of Interest? | $JPM

Takeaway: Below is a chart of JPMorgan's stock price showing the interesting proximity of Dimon's purchase and JPM's buyback announcement.

Remember the "Dimon Bottom?"


On February 11, it was widely announced that JPMorgan CEO Jamie Dimon snapped up 500,000 of his company's beaten-up shares. The stock moved sharply higher on the news. Last week (just five weeks later) JPMorgan said it would boost its stock buyback authorization by $1.88 billion. (Note: On Feb 11, JPM stock is at $53. Today? $60.) 


Do we sniff a massive conflict of interest?


We'll let you be the judge. Here is the year-to-date chart of JPM's stock:


The 'Dimon Bottom': Massive Conflict Of Interest? | $JPM - jpmorgan jamie dimon


KSS | The Kohl's Recession

Takeaway: Two distinct earnings streams -- one is at peak. One is at trough. Both are hopeless.

In typical KSS’ fashion, the company released its 10K after the close on a Friday. The biggest item that caught our eye was – you guessed it – credit income. The precise numbers are disclosed once a year, despite the fact that it has grown in to KSS’ single largest profit center.  A few points…


1) KSS’ share of income from its partnership with CapitalOne clocked in at $456mm. That’s now 29% of EBIT a level that we think is flat-out unhealthy for a company like KSS at this point in the economic cycle.

2) Consider this…KSS’ EPS was down 5.2% for the year to $4.04 (which includes credit income), but EPS from the operating business was down by 13% -- not good.

3) KSS core business earned $2.54 last year. As a frame of reference, that’s right where earnings came in circa 2008-2009.  In other words, right now its earnings are spot-on with where we were in the Great Recession. But…we’re clearly not in such a climate.  That begs the question – what if we actually enter a severe downturn (or even a moderate one) again?

4) Note that Macy’s delinquency rate ticked up materially in the fourth quarter. We also see CapitalOne’s charge-off rate ticking steadily higher.  We’re not making the call for a collapse in the credit cycle, but it’s pretty irrefutable that it is eroding rather than improving.


We still think that KSS is a 3-Stage Short Call. Stage 1) Starting with the weakness we see today by being such a bad retailer with poor competitive and geographic positioning, then Stage 2) morphing into a story where it jeopardizes its own credit income due to its own cannibalistic rewards program – without a roll in the broader credit cycle, and then Stage 3) a weakening economy having an outsized negative impact  on KSS’ consumer, its’ top line, margins, and credit income. 


KSS | The Kohl's Recession - 3 21 2016 KSS Credit EPS

KSS | The Kohl's Recession - 3 21 2016 KSS Credit EPS   of Total

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