The Good Stuff: Reports and News Articles you May Have Missed This Week

Takeaway: The best of the best : our favorite reading material from the week of May 16 and a tribute to the King of the Texas Troubadours.


Happy Friday! In case your attention was turned toward, say The Fed for example, and you missed some of the more interesting health care articles/videos/podcasts, we have listed our favorites here:


Health Care Services

Fighting for Assisted Living Centers, The Hill, May 17, 2016 (Includes discussion of Nursing Homes) - <KND> <GEN> <DVCR>

You Mean I Don't Have to Show Up? The Promise of Telemedicine. NYT, May 16, 2016 <TDOC>

Mental Disorders Top The List Of The Most Costly Conditions In The United States: $201 Billion, Health Affairs, May 2016 <AAC> <ACHC>


Clinical Labs

Theranos Plans Bold expansion Even as it Reels From New Setbacks, Stat News, May 19, 2016


Health Insurance Coverage

Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, 2015, Centers for Disease Control, May 17, 2016 <All Health Insurers>


Durable Medical Equipment

Providing Quality, Affordable Durable Medical Equipment for Beneficiaries, The CMS Blog, May 17, 2016 (with links to recent accessibility data) <IVC> <MDT> and others



Health care data as a public utility: how do we get there? Brookings, May 18, 2016 <CERN> <ATHN>



When Drugs Don't Work, The Economist, May 21, 2016 <All Pharma>

Growth in Specialty Drug Spending from 2013 to 2014, Blue Cross and Blue Shield Association, May 2016 See esp Hep C treatments <GILD>

Columbia's Battle with a Cancer Drug Company Could Set A Global Precedent for Generic Meds, Vice News, May, 19, 2016 <NVS>

Actions by Congress on Opioids Haven't Included Limiting Them, New York Times, May 18, 2016

How Big Pharma Uses Charity Programs to Cover for Drug Price Hikes, Bloomberg, May 19, 2016 <All Pharma>



Shameless Self-promotion -Hedgeye Health Care Notes/Calls/Musings:

 CY 2017 End Stage Renal Disease Annual Reimbursement Update Sent to White House for Approval, May 19, 2016



CY2017 Home Health Annual Payment Update & Changes to Medicare CoP Sent to White House, May 18, 2016

The Hospital Lobby Making Progress on Site Neutral Payment Fix but it is Still Early, May 18, 2016



Lastly and having nothing to do with health care policy, regulation or legislation, the King of the Texas Troubadours, Guy Clark died this week. It is Friday, So Let Him Roll...


 Follow me on Twitter for more throughout the week

About Everything | Millennials: Are We There Yet?



In this seventh edition of About Everything, Howe discusses why the Millennial Generation is coming into adulthood, but delaying traditionally big steps like homeownership and family life. Howe explains why and explores the broader investing implications.


Click here to read the associated About Everything writeup.

Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience

Editor's Note: Below is an institutional research note written by Restaurants analysts Howard Penney and Shayne Laidlaw. To access our institutional research email In the note, Penney and Laidlaw discuss the "debilitating afftects" the proposed $15 minimum wage is having on Restaurant companies and how the industry is now fast tracking new technologies as a result.


Their conclusion? "It’s no secret that minimum wage laws are having a meaningfully negative impact on the restaurant industry," Penney and Laidlaw write. "As a result, restaurant companies are fighting back, and their actions will end up hurting the very employees the government actions are intended to help."


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - wendys


It’s no secret that minimum wage laws are having a meaningfully negative impact on the restaurant industry. As a result, restaurant companies are fighting back, and their actions will end up hurting the very employees the government actions are intended to help.


Restaurant companies, especially the quick service ones, have begun to fast track the implementation of technology in their restaurants in order to offset the rising wage pressure. In simple terms, this means computers are taking jobs from humans. The QSR industry simply cannot afford the rising minimum wage instituted by the government and in turn they are looking to technology to help maintain their already thin margins.


In a previous note we published in September 2015, we highlighted the debilitating affects $15 minimum wage would have on the QSR industry. Part of the inspiration for the note was driven by Andy Puzder’s (CEO of CKE Restaurant) op-ed piece in the Wall Street Journal (click HERE to view).


In the table below we run through a hypothetical (but close to reality) scenario analysis of a typical QSR restaurant doing average unit volumes of $1.2 million, $1.4 million and $1.6 million. As you can see in the table on the left, the industry already operates under very thin margins.


On the right side of the slide, is the impact on profitability of taking minimum wage up to $15 per hour. What this analysis does not contemplate is the Andy Puzder scenario of pricing a significant reduction in the number of jobs and the impact of new technology (automation) on profitability.


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - CHART 7


As WEN is facing 5% to 6% wage inflation, the loss of jobs is now becoming a reality, WEN recently announced their intentions to install self-order kiosks at its 6,000+ locations, which will be installed by the end of 2016. Others have begun to do it on a smaller scale and in other international markets, yielding positive results.


During WEN’s 2Q15 earnings call, CEO, Emil Brolick made a strong statement against the rapid rise in minimum wage,


“I think the reality is that what you will see in some of these markets like New York, where there’s significant increases [is that] our franchisees will likely look at the opportunity to reduce overall staff, look at the opportunity to certainly reduce hours and other cost reduction opportunities, not just price. You know there are some people out there who naively say that wages can simply be passed along in terms of price increases.”


Emil went on to say, “…unfortunately, we believe that some of these increases will clearly end up hurting the people that they are intended to help.” These comments were clearly a precursor for what was to come, and we can expect many other QSR’s to follow in a similar fashion more aggressively as the wage rate increases are phased in over time.


Although we do not currently have a firm call on Wendy’s (WEN) we wanted to share a survey with you conducted by CivicScience, which sheds some light on what the installation of self-order kiosks means for the consumer’s experience.


The business and political implications of this move could be profound. Wendy’s can gain a leg up in the market by reducing its labor costs, thus pushing other restaurant companies to speed up their technology initiatives. Perhaps more importantly, they could also drive a huge wedge in the public debate over minimum wage increases.


But it all hinges on a few big questions: How will consumers respond? Will the promise of more convenience and (theoretically) lower-cost food bring diners through Wendy’s doors? Or will the job market implications and (theoretically) poorer customer service keep diners away?


When the news broke on Friday, CivicScience (CS) launched a nationwide survey of U.S. adults to gauge their attitudes about Wendy’s announcement and kiosk ordering in general. They started by looking at how people felt about the socio-political trade-offs of self-serve kiosks:


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - civic science survey results


The sample of just over 1,500 U.S. adults painted a clear picture. 39% of respondents believe kiosks will have a net negative impact, compared to 22% who believe it will be positive. Notably, twice as many people believe the negatives “greatly” outweigh the positives, versus those who believe the contrary.


What’s driving these numbers?


The first thing CS noticed was gender. Women were much more likely than men to view kiosks as a negative.


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - CHART 2


Age was another strong factor. GenXers are clearly the most supportive of kiosks, while Boomers are the most likely to be against them.


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - CHART 3


Let’s look at the only numbers that really matter: How do frequent QSR diners feel about kiosks?


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - CHART 4


The ratio among the most frequent fast food eaters holds pretty steady with the overall numbers. Negative sentiment outweighs positive sentiment by just under 2 to 1.


All of this must spell doom for Wendy’s, right? Maybe not. Look what happened to the results when we asked specifically about Wendy’s.


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - CHART 5


These numbers tell a much different story. Yes, 9% of respondents and 24% of Wendy’s diners say that they will eat there less as a result of the kiosks. However, 12% of respondents and 34% of ‘in-market’ diners say they will eat at Wendy’s more. The largest group of regular Wendy’s diners will be unaffected.


The numbers look even better for Wendy’s among the most frequent QSR diners. 17% of respondents who eat fast food at least once a week say they will visit the restaurant more because of the kiosks. 10% say they will visit less.


Good Intentions Gone Bad: $15 Minimum Wage Killing Fast Food Jobs | CivicScience - CHART 6


It’s obviously way too early to tell how Wendy’s kiosk initiative will shake out and whether they’ll inspire more QSRs to follow their lead more aggressively. A lot will depend on the execution, the marketing, the ease of use for customers, and the overall experience.


But, for now, it’s interesting to see the disparity between how people feel from a socio-political impact perspective and how they intend to behave. People may care a lot about the minimum wage – they may just care about convenience and savings a lot more.

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20 Proprietary Risk Ranges

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Daily Market Data Dump: Friday

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: Friday - equity markets 5 20


Daily Market Data Dump: Friday - sector performance 5 20


Daily Market Data Dump: Friday - volume 5 20


Daily Market Data Dump: Friday - rates and spreads 5 20

The Great Debate: #Reflation or #GrowthSlowing

The Great Debate: #Reflation or #GrowthSlowing - growth  cartoon 04.05.2016


Are you long #Reflation or #GrowthSlowing? 


That's the key question investors need to ask themselves going forward. To be clear, Hedgeye CEO Keith McCullough has some #Reflation signals in RTA over a trade duration (3 weeks or less) but we're The Bulls on #GrowthSlowing.


Here's analysis via McCullough in a note sent to subscribers earlier this morning. 


"In terms of both Asset Allocation and longs vs. shorts in Real-Time Alerts, this as long as I’ve been all year. To be clear, that means I’m down to 49% Cash! And that’s mainly because the USD is signaling immediate-term TRADE overbought, so many of the #Reflation trades signaled immediate-term TRADE oversold this week (i.e. buy/cover signals)."



Like Russia...



Or commodity-linked Australia...



As McCullough wrote in today's Early Look, "growth is slowing faster than inflation is rising. And, in the intermediate to long-term, growth slowing at an accelerating rate, trumps inflation rising at a decelerating rate."


Here's how to trade that via McCullough... 


"Dollar Down, Rates Down is the other big reason for the setup (i.e. I can be long the Long Bond, Utes, Gold, etc. in that scenario); Gold’s immediate-term risk range = $1250-1280, so not a ton of upside from here but I’ll take what I can get."



Stick with your #GrowthSlowing positions here.

See Jobless Claims? The Countdown To Recession Begins

Takeaway: Growth in the number of people filing initial unemployment claims isn't the growth you're looking for.

Editor's Note: Below is an excerpt from an institutional research note written by Financials analysts Josh Steiner. To access our institutional research email

See Jobless Claims? The Countdown To Recession Begins - The Cycle cartoon 03.04.2016

WE HAVE GROWTH (Depending on how you look at it)


The latest NSA initial claims data grew on a Y/Y basis for the first time in a long time. While the increase was small at +2%, it's the first time since 2012 this has happened. Prior to 2012, you'd have to go back to 2007 to find the last time claims were rising. Initial claims are still at a low level in absolute terms, but rate of change matters. We wrote about this dynamic in detail back in February 2015 ("Initial Claims: Cognitive Dissonance & Mice"). 


Alternatively, in the last three cycles, claims have stayed below 330k for 24, 45, and 31 months before recession set in (33 months, on average). The current sub-330k run is now in its 27th month. That puts us 3 months past the minimum, 6 months from the 33-month average, and 18 months shy of the 1990s record-setting expansion. 


Click to enlarge

See Jobless Claims? The Countdown To Recession Begins - initial claims 5 19

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