Daily Market Data Dump: Monday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products




Daily Market Data Dump: Monday - equity markets 5 9


Daily Market Data Dump: Monday - sector performance 5 9


Daily Market Data Dump: Monday - volume 5 9


Daily Market Data Dump: Monday - rates and spreads 5 9

HHS blinks: Administration Trades Juicing Enrollment Numbers for Addressing Insurer Unrest

Takeaway: The curtailing of the Special Enrollment Period is welcome news for insurers like UNH, AET and ATHM but probably not a game changer.

Facing a May 11, deadline when insurers must submit applications to sell insurance products on the federal exchange and a whole lot of sword rattling from the insurance industry, CMS opted for appeasement. HHS released what is known as an "Interim Final Rule with Comment" which is a device designed to fast track adoption of a regulatory change. The change will more clearly define the circumstances under which an individual can purchase insurance on the exchanges outside of the open enrollment period in what is called a Special Enrollment Period (SEP) for a "permanent move."


Under current regulations, individuals that make a "a permanent move" are eligible to use a SEP to gain access to coverage. Insurers have raised concerns that this SEP was subject to abuse. In the Interim Final Rule, CMS notes that use or, rather abuse, of the "permanent move" SEP "has the potential to destabilize the health insurance market by creating an opportunity for adverse selection where persons undertake a permanent move solely for the purpose of gaining health coverage, in which they would otherwise not be qualified to enroll."


Speaking of SEPs in general, UNH CEO Stephen Hemsley was more direct. Speaking to investors on the Q3 2015 earnings call, he said, "In our view, in recent weeks, market performance expectations for exchange products have further deteriorated. We have identified higher levels of individuals coming in [via SEP] and out of the exchange system to use medical services, lower expectation for overall future participation, declining performance in and accelerating failures of the sponsored health cooperatives and out own emerging claims experience, which is worsening as the end of the year nears." At a Credit Suisse investors meeting, also in November, Aetna (AET) CFO made similar comments citing the SEP which enabled people to get into the system long enough to get medical services and then drop coverage, according to reports.

To make the point further, the insurance industry commissioned a report from Oliver Wyman. Authors Carlson and Giesa submitted the following findings:

  • SEP enrollment represented 17 percent of total exchange enrollment in 2014 and represented almost 25 percent of active enrollees as of December 31, 2014.
  • The per member per month claim costs during 2014 for individuals that enrolled in an SEP were 10 percent higher than those enrolled during the Open Enrollment Period  (OEP)
  •  Per Member Per Month (PMPM) claim costs for SEP enrollees during 2014 were 24 percent higher on average during the first three months of enrollment than for OEP    enrollees
  •  In 2015, the difference in PMPM claims cost increased to 41 percent for the first three months of enrollment
  •  SEP enrollees are more likely, on average, to lapse coverage. Lapse rates were 3.5 percent for OEP enrollees as compared to 5.0 percent per month for SEP enrollees

This report is based on claims data submitted by 13 different health insurance issuers for January 2014 to June 2015 and paid through October 2015. The submitted data represented $27 billion in premiums and $26 billion in allowed claims.


Since CMS is using this Interim Final Rule to address the SEP triggered by a permanent move, we should assume it was this class of SEP causing the biggest headaches for insurers. CMS acknowledges that the regulatory language for the "permanent move" SEP does not align with the intent of the provision. The original idea was that the SEP would be available to someone who moved out of one insurer's service area into another's and therefore lost coverage. However, when the regulations were written, no qualifying language was included. A permanent move could be one across country, across state or across town.


As a result of the vagueness of the regulations (and no doubt some poor oversight), insurers had run smack into an issue that has plagued educators for years - mobility. Low income populations, particularly those under 200 percent of the federal poverty threshold -the cohort that experienced the largest drop in uninsured rates after passage of the ACA - can be highly mobile, especially in urban areas. Because mobility involves moving from one school to another, the Bush-era education law, No Child Left Behind required the collection and reporting of mobility rates. as a way to evaluate academic performance.  Bailey Middle School in Nashville, TN with a population that consists of almost 95 percent free and reduced lunch eligible kids (up to 185 percent of the federal poverty threshold) had a mobility rate of 50 percent in the 2013-14 school year, to use just one of thousand examples.


Insurers, especially those with limited exposure to lower income, highly mobile populations, and regulators assumed that an SEP for a permanent move would apply on a limited basis. In fact, what has happened is that low income marketplace eligible enrollees were taking advantage of their mobility to get covered, if only on a short term basis. This behavior has led to a more unstable insurance market on the exchanges characterized by rising premiums and the withdrawal of UNH and others from a number of exchanges. Facing the expiration in 2017 of a number of ACA-mandated mitigation programs like reinsurance and the much maligned risk corridor program, insurer unrest and threats of a death spiral, the Obama Administration had to act.


Under the new rules, CMS will only permit use of the SEP for a permanent move if the enrollee was covered by another ACA-qualified plan for one day or more in the 60 days prior to the permanent move. Excluded from this change are people who are released from incarceration or who have moved back to the United States from a foreign county. Also excused from the new criteria are  people who should have been Medicaid eligible but living in non-expansion states and who then move to another state where they are eligible for coverage on the market places.


CMS is also eliminating the requirement that exchanges provide advanced availability of SEPs by January 1, 2017. Advance availability allows an enrollee to complete the necessary paper work before the triggering event such as a move or release from prison. Instead, CMS will leave it up to the individual state exchanges as to whether or not they wish to build out their IT infrastructure to accommodate this feature. In the meantime, CMS is reviewing SEP enrollment data to see what, if any additional changes must be made to regulations to ensure consumers are not inappropriately accessing coverage during SEPs.


The change is a positive for insurers but will it be enough to stem the tide of departures, bad press for the exchanges, and increased premiums?


We tend to think not. It is our opinion that the dissatisfaction with the SEPs and the marketplaces in general expressed by some insurers is a failure of strategy more than a structure, exacerbated by politics.


Policy makers, insurers and the Congressional Budget Office all forecast that the introduction of the health insurance marketplaces would result in people moving from employer based plans to the state or federal exchanges. In March 2015, the CBO had estimated that employer-based coverage would decline by 6 million people in 2016. In one of the great mysteries of the post-ACA era, that did not happen. A recent Kaiser Family Foundation survey shows that 57 percent of employers offering coverage in 2015 up from 55 percent in 2014.


Exacerbating the resistance of employers to dropping their group plans was the Obama Administration's decision, in the face of substantial fallout from people whose health insurance was cancelled, to allow states to waive the requirements of the ACA with respect to benefit design. This decision left those that were satisfied with their insurance - presumably because they were healthy or happy with their pre-ACA coverage - out of the marketplace.


With the currently insured - either through an employer or via a pre-ACA plan - sidelined, the exchanges have been primarily the insurance market for lower income individuals. Post-ACA, the cohort experiencing the biggest drop in uninsured rates has been people with incomes at 100 to 200 percent of the federal poverty threshold or between $24,000 and $47,000 for a family of four, according to the Kaiser Family Foundation report (Some of this growth is, of course, a result of Medicaid expansion).This population is also one that often moves in and out of Medicaid eligibility. In short, UNH, AET others thought the exchanges would be an extension of the relatively healthy and stable populations they were serving though their employer-centered plans. Instead, the exchanges have become an extension of the Medicaid system.


The plan design for a product geared more to a middle class, healthy working individual is different from that designed for an individual who moves between the exchanges and Medicaid coverage. UNH plans, for example, tend to be more expensive but offer more options through wider networks, This typical design makes such plans ripe for abuse by people churning through the system  by taking advantage of the "permanent move" SEP to access the richer benefits and broader networks, if even on a short term basis..


Lost in the outcry about the exchanges  has been the comments recently of Molina Healthcare's CEO, Joe Molina during the Q12016 earnings call and which are worth quoting extensively here:


Having addressed the cost drivers in the first quarter results, let me now turn to the future. What do all of the headlines about other insurers exiting the marketplace mean to Molina Healthcare? What is our strategy for the marketplace? Our plan is to stay the course. That is because our strategy and our goals for this product are different from those of many other insurers.


Our objective is to provide an accessible extension of our Medicaid product to individuals whose eligibility for Medicaid fluctuates, and we believe that we are successfully doing so. As a reminder, the segment most likely to purchase an exchange project from Molina healthcare are individuals under 250% of the federal poverty level who receive significant government subsidies. Approximately 90% of our marketplace members receive a government subsidy for co-pays and premiums.


We have never expected our marketplace product to perform better than our Medicaid business, nor operate at significantly better margins over the long term.


Molina's extensive experience with Medicaid appears to have paid off for their exchanged-based plans. Centene (CNC) is similarly situated. Of course, these companies are tiny compared to UNH, AET et al. which may just be the point. The exchanges are not and probably won't be much of an opportunity for big insurers. They do, however present a load of possibilities for the smaller, non-traditional insurers like MOH with the experience and data necessary to support service to the low income populations that currently dominate the health insurance exchanges.

The Epic China Crash Continues

Takeaway: Chinese equities descended further into crash mode overnight on unequivocally poor economic data.

The Epic China Crash Continues - China crash cartoon 08.25.2015


A bullish cabal of investors was quick to call a bottom in China's cooling economy. Well, Chinese equity markets are getting hammered this morning on yet more unsavory economic data.


Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers this morning:


"China down hard overnight (Shanghai Comp down another -2.8% and -47% from 2015’s high) on terrible export (-1.8% y/y APR vs. +11.5% MAR) and import (-10.9% y/y APR vs. -7.6% MAR) data – we’re not in the everything has “bottomed” camp."



The China knock-on effect reverberated loudly throughout macro markets...


"After getting smoked for a -5.7% loss last week (Dollar Up, Chinese Demand Down), Copper is down another -1.3% this morning to $2.12/lb after failing to make a higher-high than the March “reflation” level of $2.31/lb"



What does it mean?


Despite Wall Street forecasters and Fed bureaucrats proclaiming "all is good" in the global economy, economic reality continues to prove the contrary. We're crystal clear on this...


The outlook for global growth remains decidedly bearish.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

CHART OF THE DAY: Where The Big Money Is Made In Macro

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.


"... With another rate-of-change #slowing in non-farm payroll (NFP) growth for the month of April at +1.9% (vs. #TheCycle peak of +2.3% in Q1 of 2015), the big money in macro that was made last week was right where it’s been made all year long:


  1. Long Bond (TLT) up another +2.1% last week to +8.2% YTD
  2. Utilities (XLU) up another +0.8% last week to +12.8% YTD
  3. Gold up another +0.3% last week to +21.9% YTD"


CHART OF THE DAY: Where The Big Money Is Made In Macro - 05.09.16 EL Chart

Doubt Has Great Value

“Doubt is not a fearful thing, but a thing of great value.”

-Richard Feynman


Feyman was one of the greatest physicists in American history. When I think about massive opportunities - how much progress our profession can make in terms of both forecasting #process and accuracy - I often think about how he once described the medical field.


Phil Tetlock reminded me of that in his recent book, Superforecasting, where he wrote that “it was the absence of doubt – and scientific rigor – that made medicine unscientific and caused it to stagnate for so long.” (pg 30)


Tetlock made that point on the heels of a classic Feynman one that it’s “of paramount importance, in order to make progress, that we recognize this ignorance and this doubt. Because when we have the doubt, we then propose looking in new directions…”


Back to the Global Macro Grind


Are we doubting the US government and its Establishment “blue chip” forecasters? Or are we hoping that their US GDP and employment forecasts for 2016 are right?


Doubt Has Great Value - consenseless 3


On Wall Street, doubt only has great value if it forces us to answer questions more accurately than prevailing and perceived wisdoms. There’s a lot of money to be made betting against those. But your timing has to be right.


With another rate-of-change #slowing in non-farm payroll (NFP) growth for the month of April at +1.9% (vs. #TheCycle peak of +2.3% in Q1 of 2015), the big money in macro that was made last week was right where it’s been made all year long:


  1. Long Bond (TLT) up another +2.1% last week to +8.2% YTD
  2. Utilities (XLU) up another +0.8% last week to +12.8% YTD
  3. Gold up another +0.3% last week to +21.9% YTD


That’s right. As growth slows, long-term bond yields fall. Despite consensus being bearishly positioned in the 10yr US Treasury (see CFTC net positioning data below), the 10yr Yield dropped another -5 basis points last week to 1.78%.


With the 10yr Yield down a healthy -49 basis points for 2016 YTD, I’m glad I didn’t get sucked into buying the Financials (XLF) because “they’re cheap.” They’re already -0.8% for the month of May and -2.9% YTD as cheap gets cheaper when using the wrong numbers.


While the SP500 was down for the 5th week in the last 7, according to one prominent bull who chased its chart in April, it was “only down -0.4%.” Isn’t that great. Not down a lot is the new up.


In other big Global Equity market down moves last week:


  1. Hong Kong’s Hang Seng was -4.5% on the week to -8.2% YTD
  2. Italy’s MIB Equity Index was -4.1% on the week to -16.7% YTD
  3. Emerging Market Equities (MSCI) were -4.1% on the week to +1.4% YTD


So far we’ve missed being long EM (which is mostly up YTD, albeit up less than what we really like in TLT, XLU, GLD) and that’s mainly due to our concern that if we’re really right on our Q2 forecast for 0.5% US GDP growth, macro markets will be in Quad4.


What’s Quad4? In our rate-of-change GIP (growth, inflation, policy) model Quad4 is when the Dollar stops going down and rates keep going down. That’s also what happened last week:


  1. US Dollar Index +0.9% on the week to -4.8% YTD
  2. CRB Commodities Index -2.7% on the week to +2.1% YTD
  3. Oil (WTI) -2.7% on the week to +9.7% YTD
  4. Energy Stocks (XLE) -3.3% on the week to +8.2% YTD
  5. Copper -5.7% on the week to +0.3% YTD


In other words, there’s a big difference between Quad4 (DEFLATION) and Quad3 (REFLATION). And while Chinese demand plummeting (exports and imports -1.8% and -10.9% y/y in April, respectively) is part of the narrative, so is what the US Dollar does.


Now that consensus has smashed Fed Funds probability of a June “rate hike” to only 8%, how much lower can the US Dollar go after registering a 16 month low in late April? Here’s consensus on that (non-commercial CFTC futures and options positioning):


  1. US Dollar net LONG position at its LOWEST level of 2016 (+9,083 contracts) registering a 1yr z-score of -2.11x
  2. 10YR Treasury net SHORT position at its HIGHEST level of 2016 (-103,914 contracts) = 1yr z-score of -1.74x
  3. SP500 (Index + E-mini) net LONG position at its HIGHEST level of 2016 (+30,589 contracts) = 1yr z-score +2.24x


You’d need some serious cognitive dissonance to maintain all 3 of these bets in your portfolio. Being bearish on USD when bearish on growth makes sense, but only until you hit Quad4.


Consensus being bearish on bonds while chasing US Equity Beta (in April) might explain why High Beta Stocks (SP500) got crushed last week (-3.2% to -1.2% YTD). Meanwhile the great value remained in being long doubt via Low Beta US Stocks (+1.3% on the week to +8.2% YTD).


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.71-1.83%

SPX 2036-2070

USD 92.21-94.91

Gold 1258--1313
Copper 2.08-2.20


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Doubt Has Great Value - 05.09.16 EL Chart

Dollar Up, Rates Down

Client Talking Points


China was down hard overnight (Shanghai Comp down another -2.8% and -47% from 2015’s high) on terrible export (-1.8% y/y APR vs. +11.5% MAR) and import (-10.9% y/y APR vs. -7.6% MAR) data. We’re not in the everything has “bottomed” camp.


After getting smoked for a -5.7% loss last week (Dollar Up, Chinese Demand Down), Copper is down another -1.3% this morning to $2.12/lb after failing to make a higher-high than the March “reflation” level of $2.31/lb.

S&P 500

Don’t look now but SPX is actually down for 5 of the last 7 weeks as both top-down GDP and bottom-up EPS #slowing takes hold; net LONG position (futures/options contracts) +30,589 = highest of the year.


*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

As our Growth, Inflation, Policy model is oscillating between tracking in quad 3 and 4 for the second quarter, we’re sticking to core positions that perform well when growth is slowing and the yield curve is flattening:

  • QUAD3: Growth Slowing, Inflation Accelerating
  • QUAD4: Growth Slowing, Inflation Decelerating


The model signals that growth is slowing either way, and we expect a continuation of bond market discounting late cycle, growth-slowing. An allocation to Long Bonds (TLT, ZROZ) and Utilities (XLU) keeps investors out of the way of guessing which way assets levered to inflation will move next. The yield spread 10s-2s moved this week like it is headed toward taking out YTD lows. To be clear, this is NOT an indication that growth is back.


McDonald's (MCD) reported 1Q16 earnings on April 22nd that beat consensus estimates. The quarter serves as continued proof that the comeback story is in full swing.


The big question is where MCD is headed in terms of their national value platform. They had the McPick 2 for $2, then 2 for $5, now they have shifted to the monopoly promotion. McDonalds regaining a consistent value message is key to their success, and they know this. Additionally, we have another two quarters of tailwind from All Day Breakfast before we begin to lap it.


McDonalds’ recovery has been nothing short of extraordinary and has been a great source of alpha for all of its holders. We continue to like the name on the LONG side given the strong fundamental turnaround and the style factors that we love, big cap, low beta and liquidity.


#GrowthSlowing remains our call here in Q2. How do we know growth is slowing (ex. being validated by Treasury bond market and XLU outperformance)?


We look at every relevant data series on a rate-of-change basis to analyze a sine curve. Taking a look at our analysis of Y/Y Non-Farm Payroll growth, a clear cyclical picture develops. Mainstream media and other sell-side sources who talk about guessing the sequential NFP number are pursuing a fool’s errand (a confidence interval that is very wide) in terms of positioning into a number. We call this “open the envelope risk."


Rather, constructing a sine curve of the rate of change in NFP growth gives us a clear visual that employment growth peaked (in Feb. 2015), and it’s not recapturing that growth rate in this cycle. So whatever the sequential number is M/M, we know where this series is headed. And, when considered with every other relevant data series, we have a clear empirical view on where the U.S. economy is positioned in the economic cycle.

Three for the Road


REPLAY! This Week On HedgeyeTV… via @hedgeye



A mother is not a person to lean on, but a person to make leaning unnecessary.

Dorothy Canfield Fisher


According to a survey by the National Retail Federation, 66% of those celebrating Mother’s Day will buy mom flowers, spending an estimated $2.4 billion in 2016.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.34%