CLICK HERE to access the associated slides.
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.
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.
SPEAKERS AND TOPICS
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.
Takeaway: Lazard (LAZ) remains a favorite short idea with (still) excessively bullish sentiment according to our quantitative screen of Financials.
This afternoon we're flagging Lazard (LAZ - 90) as a short on sentiment. It is the highest ranked stock in the broker/asset manager category. Additionally, we hosted a best ideas black book call back in mid-January on why the M&A environment and LAZ's exposure to emerging markets makes the stock an interesting short. For more on Lazard, see our call replay and presentation materials.
Our Hedgeye Financials Sentiment Scoreboard is released in conjunction with short interest data. Our Scoreboard now evaluates over 300 companies across the Financials complex.
The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.
We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.
Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.
The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors.
The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”
Let us know if you would like to receive a copy of our black book, which explains this system and its applications.
BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations. Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.
SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations. Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms.
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.
LONG SIGNALS 80.46%
SHORT SIGNALS 78.36%
While U.S. 4Q GDP was revised up to +1.4%, the corporate profit component showed a -10.5% Y/Y contraction. That marks the second consecutive quarter in which corporate profit growth was down Y/Y. Over the past 30 years, two consecutive quarters of shrinking corporate profits have always preceded a material stock market crash.
Takeaway: The reality remains that small cap stocks are in rough shape.
As Hedgeye CEO Keith McCullough noted to subscribers this morning:
"The Russell 2000 lagged (again) last week, dropping -2.0% on the week (vs. -0.7% for the SP500); at -16.7% from its all-time high in July, RUT is back to within 330 bps of being in crash mode (> 20% decline from the July peak); Russell 2000 peaked when US corporate profits peaked (Q2 of 2015)."
Meanwhile, the average Russell 3000 stock (98% of the available U.S. equity universe) is down -29.2% from it's 52-week high.
Still feeling bullish?
Takeaway: For the record, we've been warning about corporate profits since early January.
Hedgeye senior macro analyst Darius Dale wrote a compelling note this past Friday highlighting corporate profits which just posted their worst growth (Y/Y) since 4Q08.
While U.S. 4Q GDP was revised up to +1.4%, the corporate profit component showed a -10.5% Y/Y contraction. That marks the second consecutive quarter in which corporate profit growth was down Y/Y. Check out the chart below illustrating why that's such bad news.
Bottom line? In the 30 years since 1985, two consecutive quarters of shrinking corporate profits have preceded a material stock market downturn over the next twelve months in all five occurrences.
Click to enlarge
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.