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CHART OF THE DAY: A Look At The Peak In S&P 500 P/E

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.


"... Unless we’re going to go all-in #bubble multiple speak (Bernstein slapped a $1000 price target on AMZN yesterday), as you can see here in our Chart of The Day, forward SP500 P/E multiples already peaked (right on time) last year too."


CHART OF THE DAY: A Look At The Peak In S&P 500 P/E - 05.11.16 EL Chart

Big Cycle Blowout!

“Hoo-hoo! Big summer blowout!”



That’s right Frozen fans – gettem while you can. Buy “expensive” Low Beta #GrowthSlowing exposures before everyone else bids them away from you! If you want the “cheap” stuff… it’s A) getting cheaper and B) in ample supply when earnings miss.


For those of you who don’t have 4 girls at home, you may not be familiar with my boy Oaken price gouging Anna when she went shopping for the bare winter/mountain necessities. Of my 4 girls, one is my wife, and that scene completely cracks her up, every time.


If your bro-ker or hedgie levered you up long in stocks in July of 2015 (all-time #bubble high was a beauty), this is no laughing matter. You could have bought all the “cheap” Apple (AAPL) and “expensive” Disney (DIS) you wanted at $132 and $121/share, respectively.


Big Cycle Blowout! - Bubble bath 9.9.14


Back to the Global Macro Grind


You know, that’s the thing about #TheCycle – it can suck you right into doing things that just look silly, in hindsight.


Now that you know that we’re on the back side of both the US economic and profit cycle, should it surprise you that Disney (DIS) “missed” for the 1st time in 5 years? The time to buy Disney, Apple, and Starbucks was on the last US cycle’s lows (2009).


I’m going to pick on DIS this morning just because it’s a great company that Wall Street has had great issues explaining ever since the US cycle peaked in July of 2015 (don’t worry, I’ll keep reminding you of that date):


  1. From #TheCycle peak of 2007 to #TheCycle trough of 2009 the stock went from $27 to $12 (-56%)
  2. From #TheCycle trough of 2009 to 2015 the stock went from $12 to $132 (#crusher long idea)
  3. From #TheCycle peak of 2015 to the FEB 2016 low the stock went from $132 to $88 (-33%)


Oh, and that FEB 2016 low must have been the trough, right? Generational buying opportunity, for sure, eh?


Let’s stop talking to one another like children and get real here. Like Olaf, when #TheCycle (sun rising in the East) starts slowing, profits and multiples start melting. So, unless you have a central-market-plan to ban that, I’m sticking with our forecast.


Unless we’re going to go all-in #bubble multiple speak (Bernstein slapped a $1000 price target on AMZN yesterday), as you can see here in our Chart of The Day, forward SP500 P/E multiples already peaked (right on time) last year too.


In other words, while the March bear market bounce in cyclicals was nailed by everyone on Twitter, forward earnings estimates are still near their YTD lows … so a mini-multiple expansion drove part of that bounce… but to lower-cycle-highs.


With non-GAAP SP500 Earnings -8.9% year-over-year in Q1, what gets the stock market’s multiple back to peak? How do we get big Dow Bro components like AAPL and DIS back to the all-time highs?


Qs: Is it melting earnings (math: melt the E and the P/E goes up)? And/or helicopter money?

A: As I’ll tell Institutional Clients all day long (again) today in NYC, anything can happen!


Perma Bull marketing firms have a whole Disneyworld of ‘it’s different this time’ ideas that I’m happy to entertain:


  1. The Fed can go to Qe4
  2. With negative rates everyone can buy everyone (ex-SPLS/ODP this am)
  3. GDP “feels” like 2.5%


While I’m pretty sure everyone understands this, it’s worth stating plainly. For the Fed to move to ideas 1 and/or 2, Hedgeye has to be really right on our US #Recession Risk call. Entertaining those measures comes from 1 on the SP500, not 2084.


Option #3 though is probably what people who bought APPL, DIS, MSFT, GOOGL, etc. at #TheCycle highs of 2015 (don’t forget July!) were thinking though. Heck they may have been thinking GDP was feeling like 3-4%, in perpetuity, AFTER 78 months of GDP expansion.


This is what I expect to have to debate on the road today: “Keith, the Atlanta Fed just went to 2.2% GDP and Nancy is at 2.5%.” To be clear, Darius Dale and I cannot wait to respond (again) with our Street low GDP forecast and call that #TheCycle continues to slow.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.71-1.82%

SPX 2040-2090


VIX 13.11-17.61
USD 92.42-94.69
Oil (WTI) 42.55-46.19


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Big Cycle Blowout! - 05.11.16 EL Chart

LNKD | Tracker Update (Hiring Solutions)

Takeaway: Tracker suggests stable selling environment when mgmt issued 2Q guidance. However, we remain on the sidelines.


  1. MILD IMPROVEMENT: Our LNKD ARPA tracker held its sequential improvement through 1Q16, showing a seasonal rebound, and a mildly improving trend with the March update.  Granted, mgmt already reported 1Q16, so this update is more about what mgmt was likely seeing in the last full month before issuing 2Q guidance.  As it stands now, our tracker suggests the selling environment remains stable and mgmt has more than enough cushion on the 2Q guide.  As a reminder, our LNKD Hiring Solutions TAM analysis suggests that the bulk of that opportunity is in the upsell (ARPA) vs. new account volume.  Note that LNKD stopped reporting its Talent/Hiring Solutions customer counts, so we will not be able to calculate its ARPA anymore, but we'll continue to provide tracker updates.
  2. TRICKY SETUP: LNKD's stock barely budged following a relatively flawless 1Q16 print (beat/raise + no new major red flags).  Granted the stock had already climbed ~22% off its YTD lows leading into the print, but we're not sure how much of that was just beta.  The question now is what does LNKD need to do to get the street to chase the next print.  We're probably not alone is our expectation for another beat/raise (barring a turn in the selling environment), especially since LNKD's 2016 guidance is still basically implying a recession and/or a precipitous decline in salesforce productivity (declining ARPA and/or net new LCS account growth).  We still suspect it will take more than one positive earnings release to regain the trust of the street after the 4Q15 release, question is whether 2Q16 would be enough.  We remain on the sidelines for now.   

See the note below for additional detail on LNKD's 1Q16 release.  Let us know if you would like to discuss further.  


Hesham Shaaban, CFA
Managing Director



LNKD | Tracker Update (Hiring Solutions) - LNKD   ARPA vs. JOLTS 1Q16  Mar

LNKD | Tracker Update (Hiring Solutions) - LNKD   2016 TS Guidance Scenario


LNKD | Good Print, No Chase (1Q16)
04/29/16 10:34 AM EDT
[click here]



Cartoon of the Day: Dead On Arrival

Cartoon of the Day: Dead On Arrival - earnings season cartoon 05.10.2016


A brief update on earnings season:

  1. 441 of 500 S&P 500 companies have reported their Q1 2016 numbers
  2. Aggregate SALES growth is DOWN -2.4% year-over-year
  3. Aggregate EARNINGS growth is DOWN -8.9% year-over-year
  4. Ex-Energy (EPS -109% y/y), Financials have EARNINGS DOWN -14.3% year-over-year
  5. Ex-Energy, Technology has EARNINGS DOWN -8.4% year-over-year 

Trump & Bernie's War On Math

Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.


Trump & Bernie's War On Math - trump 55


Donald Trump is under fire for waffling on the pillars of his economic plans. We think he has a bigger numbers problem - and his difficult task of winning over key demographics (particularly Hispanics) may have just gotten harder. Yes, his unfavorables are at a historic high for a major party nominee; and yes, his misguided attempts to win over those groups (think: TacoGate 2016) have not done him any favors.


But that may be nothing compared to the impending "Hispanic backlash."  Trump is backed up against a big border wall for a number of reasons: he has a net favorability among Latinos of negative 78% (while Hillary Clinton is at +29%). Since 1980, no Republican has won the White House without locking down at least 30% of the Hispanic vote, and Hispanic registration is up in a number of key states - CA, CO, NV and FL - to name a few. 


Trump & Bernie's War On Math - bernie sanders another


The Democratic underdog is fighting over big numbers again, and this time they're coming at him from the left. The left-leaning Urban Institute did the math on Sanders' "Medicare for all" program estimating it would increase federal spending by $32 trillion over 10 years - yes, that's trillion with a T


Sanders had previously estimated the cost to be closer to a measly $13.8 trillion. But West Virginians don't seem too concerned. Despite Sanders' long list of policy proposals with no clear way to pay for them, he is likely to pick off another win in WVA today and the Democratic contest will just keep dragging on. 


Tax Notes recently suggested the Obama Administration could use the regulatory process to close the so-called "carried interest loophole." Treasury officials responded in an eerily similar tone it used during the run-up to recently-released inversion guidance, saying closing the loophole was a top priority and that Treasury is "continuing to explore its existing authority...but the department cannot eliminate the carried interest tax benefit by itself." 


Given the heat they are taking on their unilateral action on inversions, we would be surprised to see Treasury take on another battle.  But given Clinton, Sanders and Trump have all criticized the carried interest provision, the rhetoric on this issue will likely heat up just in time for the summer.

Connecting the Dots: Proposed Healthcare.gov Enrollment Change Should Magnify #ACATaper

Takeaway: A change to enrollment policy on the Healthcare.gov federal exchange and the state based exchanges is good news for insurers. For providers?

Yesterday, we published a note regarding a change in enrollment policy for the federal health insurance exchange, Healthcare.gov, and the state based exchanges. Specifically, HHS is drastically limiting Special Enrollment for a "permanent move." In that note we focused largely on the implications for insurers like UNH, AET and MOH. However, in light of Tom Tobin's note this morning on AHS and his ongoing examination of the #ACATaper, we thought it would offer a few points on the flip-side - the implications of the policy change to providers.


Recall that about 60 percent of people enrolled in federal and state exchanges were previously uninsured with the largest portion coming from people with incomes at or below 250 percent of the federal poverty level. This result is much different from what most people (policy makers, insurers, economists and the Congressional Budget Office) thought would happen. They expected a larger shift of people from employer-based coverage to the exchanges.

  • The elimination of the Special Enrollment Period for a "permanent move" is most likely to shift people back to uninsured status not to insured status (after waiting for the next open enrollment period.)
  • Providers, especially hospitals, are very adept at running patients through all eligibility screens when they present at the hospital. These patients will still present at a hospital or clinic but the case workers will have one less option when screening for coverage. The other SEPs are pretty restrictive (release from incarceration, addition of a newborn, etc.) so assuming the patient needs treatment, they will be admitted as a "patient pay" case while the hospital sorts out what if anything the patient can pay. More likely than not, especially if the hospital is non-profit under recent IRS regulations, the patient will be treated on an uncompensated basis.
  • A certain portion of patients that sought non-emergent care and received coverage from the permanent move SEP long enough to have the necessary elective procedure (like a hip or knee replacement) will simply forego treatment.
  • Bottom line is that Healthcare.gov enrollment should drop, provider admissions will go down, and uncompensated care will go up as a result of this rule change thus magnifying the trends already identified in the #ACATaper thesis Tom Tobin has been discussing.
  • If you toss a recession into the mix, the admissions drop may be muted as a portion of this SEP population shifts to Medicaid due to income changes.
  • We do not yet know how many enrollees in 2014 and 2015 gained coverage through a SEP but the insurance industry said that 13 payers received $25 billion in claims from Jan., 1, 2014 to June 30, 2015 for SEP enrollees, according to a recently released report by Oliver Wyman.
  • Rule becomes effective in July so impact should occur in back half of 2016.

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