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.



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


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.

LULU | Black Book – Vetting the Growth Algorithm

Takeaway: On Monday, April 11th at 11:00 am EDT we’re hosting a Black Book Call on LULU.

Watch a replay below.


Our thesis as it stands today reads like this. We think that this is a very good brand housed within a bad company. Management is shooting to get back to a low-50s gross margin, which is admirable. But the company has to invest in talent, distribution, branding, international and e-commerce capability in order to support a $4bn global sales target. All of which will a) understate the gross margin recapture over the near term, B) subsequently repair the top line (in 2+ years), and then, and only then will we even think about paying for a 'margin improvement story' here -- especially with UnderArmour and Nike committing incremental capital to women's fitness. 


With the stock up 30% YTD and 10% over the past two trading sessions, valuation seems stretched. Especially when we consider the fact that the majority of the near term earnings growth is centered on operational excellence (something LULU has never proven it can uphold). On the top line, 2015 was a win for LULU against a set of extremely easy compares in 2014. But, as we look out over the next 1, 2, and 3 years we need to make some bold assumptions to believe that LULU can grow organically in its core market without the benefit of accretive square footage growth, and improve operating margins as it fights tooth and nail for market share.


A brief preview of the topics we will be discussing on the call…

1) Long Term Plan – We’ll vet through the long term growth algorithm for LULU which management laid out on its call on Wednesday 3/30. The basics call for $4bil in sales and double the earnings in power. But, if we put all the pieces together: $4bil in sales, low 50’s gross margin, low 20’s operating margin, on a 2% and change buyback, that adds up to $5+ in earnings power. Our analysis will show that requires some very bullish assumptions for a brand that is on the wrong side of the maturity curve in its core market.

2) International – To get to $1bn by 2020 – we need to assume 30% comps for the next 5 years, and more importantly a meaningful inflection in profitability from a business that is currently dilutive. That comes in a region where a) LULU has limited brand awareness and b) is much more difficult to scale profitability due to the geographic limitations and undeveloped global supply chain.

3) Men’s – LULU’s men’s business has been knocking the cover off the ball for the better part of 3 years – with 20%+ comps in each of the past 10 quarters the men business finished the year at $330mm. That’s the past, from here to get to $1bn we need to assume a 25% 5 year CAGR, which would outpace even UA who added an incremental $625mm in its men’s apparel business from '06-'11. That type of growth (we will drill down if we think it’s even possible) we’ll require a significant capital investment to a) build brand awareness and b) reformat stores to give the men’s product a more prominent in store position.

4) E-commerce – 30% e-commerce penetration or $1.2bn in sales doesn’t seem like a stretch to us given the digital sales adoption rate, but the key question that needs to be answered is how cannibalistic is that growth to the in-store business. We can think of a handful of names that have been able to sustain both channels, and maybe half of those which have been able to do it while improving profitability.

5) North America – We’ll dive into each part of the growth algorithm from here, and ultimately flesh out what it means for the top line, profitability, and returns. Each of the three branches in the region is at a very different part of the growth cycle. Canada – mature, LSD comps, no sq. ft. growth. US – saturated in key markets, sq. ft. growth coming from less profitable avenues (bigger stores, less productive regions). Ivivva – sq. ft. and comp growth, but lower margin profile.


Call details will be provided prior to the call.

Us Versus Them (What We Think About US GDP)

Takeaway: Our estimate for Q1 2016 GDP is 1.0% versus delusional Fed commentary and Wall Street's high forecast.

Us Versus Them (What We Think About US GDP) - 4  growth cartoon 03.02.2016


Yellen & Co. remain steadfast believers in an "all is well" U.S. economy as a mostly blinded Wall Street eats it up. Right? Apparently, the Fed doesn't believe its own forecasts. The Atlanta Fed's GDPNow forecast for Q1 2016 has tumbled from 2.7% in Febraury to 0.6% today (click here and here for more). Talk about a messaging mess (among other Fed messes...)


Meanwhile, Fed head Janet Yellen waived away recent weakness largely blaming "transitory" lower oil prices, a stronger dollar that would "gradually dissipate" and "foreign economic growth... [that was] weaker this year than previously expected." 


Roger that.


Here's where we shake out in comparison to Wall Street's stubbornly high Q1 GDP forecast and the Atlanta Fed's scattershot estimate.


Us Versus Them (What We Think About US GDP) - gdp estimates wall fed us


... And watch the video with Hedgeye CEO Keith McCullough below to learn what we REALLY think about the Fed and "data dependence."


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10-Year U.S. Treasury Yield
1.89 1.75 1.78
S&P 500
1,989 2,069 2,060
Russell 2000
1,069 1,124 1,114
NASDAQ Composite
4,732 4,892 4,870
Nikkei 225 Index
15,852 16,853 16,759
German DAX Composite
9,713 10,062 9,947
Volatility Index
13.25 19.70 13.95
U.S. Dollar Index
94.26 96.31 94.58
1.11 1.14 1.13
Japanese Yen
111.42 113.66 112.12
Light Crude Oil Spot Price
36.64 39.92 38.11
Natural Gas Spot Price
1.80 2.04 1.96
Gold Spot Price
1,206 1,261 1,234
Copper Spot Price
2.15 2.24 2.18
Apple Inc.
103 110 109
533 606 593
McDonald's Inc.
122 126 126
Utilities Select Sector SPDR
48.13 49.84 49.62
Financials Select Sector SPDR
22.01 22.82 22.50
Facebook, Inc.
110 116 114

Welcome to Q2

Client Talking Points


The Nikkei was annihilated -3.6% last night after ending Q1 with 3 straight down days (it’s back in #crash mode at -22.5% since U.S. stocks peaked when the G7 Equity Bull Market Cycle peaked in July of 2015). The #BeliefSystem on central-market-planning is breaking down, hard, right where it all began (Krugman said “print lots of money” 1980s, and they did).


So Janet Yellen Devaluing Dollars into Q1 end doesn’t get everyone a sticker? Dollar Down pushes Yen and Euro Up causing Japanese and European stocks to move back into crash mode with DAX starting Q2 -1.7% and -21% since The Cycle peaked in 2015.


The Long Bond remains the best (and most liquid low volatility) way to stay in synch with our 1H 2016 #GrowthSlowing call. The UST 10YR Yield of 1.78% makes bonds overbought into the jobs report; so think about trimming some of that core in the 1.75-1.80% range so that you can reload on long in the 1.90-2.0% range – think about risk managing Utilities (XLU) longs that way too.


*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

CME Group (CME) put up a decent fourth quarter earnings print with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, at over 111 million contracts.


Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials.


We continue to like General Mills (GIS) as one of the best large cap names in the packaged food space. With that being said, the third quarter was not without its noise surrounding the numbers; Green Giant divestiture, Walmart clean store policies, foreign currency exchange, and grain merchandising just to name a few, muddied the waters. But digging through the noise, this is a business that is truly turning a corner. When they set sail on fiscal year 2016 back in June of 2015, we knew this was not going to be an easy ship to turn towards success. Now, with many key product platforms turning (through strong product innovation and renovation) in the right direction and operational improvements implemented through cost savings initiatives, GIS is on the cusp of success. We will be measuring this success by realization of sustained top line growth in the low single digit range.


In our model the second quarter is the toughest compare on both GDP and U.S. corporate profits so we want to be very careful going into that and be positioned defensively. Stay long Long-Term Treasuries (TLT).


While small/mid cap U.S. Equities reverted to their bear market mean last week (Russell 2000 down -2.0% on the week and -16.7% since US Corporate Profits peaked in Q2 of 2015), so did a few other US Equity Market Style Factors that had had a big 1-month bounce:

  1. High Beta stocks were -2.0% on the week
  2. High Leverage (Debt/EBITDA) stocks were -1.9% on the week
  3. High Short Interest stocks were -1.7% on the week


Three for the Road


NEW VIDEO | McCullough: Shame On You Mark Zandi… via @KeithMcCullough #GDP #Economy #OldWall



Most people never run far enough on their first wind to find out they’ve got a second.

William James                                                   


Founded in 1937 TROW is a leading stock fund manager with headquarters in Baltimore Maryland and employs 5,900 associates.

Hedgeye Converting to a Master Limited Partnership (MLP)

Independent Investment Research Firm Aims To Take Advantage of MLP Structural Advantages



STAMFORD, Conn., April 1, 2016 -- Hedgeye Risk Management announced today that it has officially converted to a Master Limited Partnership (MLP) effective immediately. This corporate structure conversion occurs concurrently with Hedgeye’s acquisition of all the assets of the “Old Walla-Balla Oil Field” headquartered in Lower Manhattan, with oil fields scattered across the southeast United States.


The main objective of Hedgeye’s corporate conversion is to increase tax efficiency and diversify the research firm’s growing revenue base.  In addition, like many MLPs before Hedgeye, the firm’s new low cost of capital will allow it to aggressively overpay for declining assets.


“This was a very simple decision,” said Hedgeye President Michael Blum. “Our Energy analyst Kevin Kaiser did extensive work featured in Barron's on LINN Energy, Kinder Morgan and Summit Midstream Partners which made us well aware of myriad risks to the MLP structure.  And yet, in the midst of the miasma, we saw one clear, obvious benefit too good to pass up—the ability of investment bankers to sell the dream of a yield in a zero interest rate universe.” Blum said.


The new Hedgeye MLP will issue a dividend to holders of both Hedgeye General Partnership (GP) and Hedgeye Limited Partnership (LP).


  • Holders of the GP units will receive a preferred dividend yield of 18% securitized by gold stored in the Company’s vault. 
  • Holders of the LP units will receive an unsecured dividend yielding 5%.  It is expected the initial payout ratio on the LP dividend will be 51%, based on pro-forma calculation excluding all expenses and capital expenditures.  (On a cash basis, the payout ratio is expected to be north of 300%)
  • All holders will receive a $25 gift certificate to Chipotle provided by Hedgeye Restaurants Sector Head Howard Penney.


“Look, like most things Old Wall, we recognize that these oil fields are a declining asset,” said Hedgeye Chief Financial Officer Todd Jordan.  “But we also recognize that our firm’s core revenues can’t continue growing at 30%+ per annum organically forever. This combination of tax savings and proceeds will allow us to further diversify our revenue and return cash to shareholders via a non-GAAP distribution set at a yield of 18%. Maybe 52%. It’s not entirely clear yet."


"Except the Chipotle gift card," Jordan added. "They’ll definitely get the gift card.”


***Proceeds from the bought deal coinciding with transaction will be used for the following purposes:


1) Start a Hedgeye Gear apparel business which has been launched in its Beta form.

Hedgeye Converting to a Master Limited Partnership (MLP) - z h gear 1


2) Wholly acquire the Charlestown Chiefs of the Federal League and move the team to Stamford, CT.

Hedgeye Converting to a Master Limited Partnership (MLP) - z ch

3) Acquire the yacht Octopussy under the auspices of the Jones Act and relocate our offices to its main cabin.



The firm is a declining, conflicted, and compromised asset based in lower Manhattans in the area more commonly known as “Wall Street.”




Hedgeye Risk Management is an independent investment research and media firm. Focused exclusively on generating and delivering actionable investment ideas in a proven buy-side process, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world's most regarded research analysts, all with buy-side experience, covering Macro, Financials, Energy, Healthcare, Retail, Gaming, Lodging & Leisure (GLL), Restaurants, Industrials, Consumer Staples, Internet & Media, Housing, and Materials.




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