CHART OF THE DAY | Neck & Neck: Trump vs. Clinton

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more.


"... Settings aside something coming from left field (or an errant email server), this race is down to The Donald versus Hillary. As of this morning and as you can see in the Chart of the Day, the pollsters are basically showing it to be a statistical tie. To the chagrin of many, the Donald is in it to win it and has a real chance to do so. The next 5 months may have to be the grittiest and most determined of Hillary Clinton’s political life."


CHART OF THE DAY | Neck & Neck: Trump vs. Clinton - 06.08.16 EL Chart

Grinding It Out

“Superlative performance is really a confluence of dozens of small skills or activities, each one learned or stumbled upon, which have been carefully drilled into habit and then are fitted together in a synthesized whole.”

-Dan Chambliss from “The Mundanity of Excellence”


We’ve been enjoying reading a book recently called, “Grit: The Power of Passion and Perseverance”, which analyzes the roots of success. As you guessed from the title, the book postulates that the single most important factor in determining whether an individual will be successful is whether they are “gritty”.


For those of you that have been subscribing to Hedgeye, you know full well this idea of grit is basically our mantra.. We are pretty comfortable that we aren’t the smartest or most talented in the room, but we think we can be the hardest working and most passionate.


The author of the aforementioned book, Angela Duckworth, attempts to quantify grit and in doing so has shown it predicts very effectively which cadets at West Points will succeed or fail, what inner city high school students will go on to higher academic levels, and what elementary school students will win spelling bees, among other things.


Interestingly, and apropos to today, the author also discusses Bill and Hillary Clinton and pans this idea that he is a natural and gifted politician and she will never be his equal. Setting aside your view of her politics, it is very difficult to disagree with the idea that she is one of the grittiest of modern political figures. These traits have rewarded her with many political victories and finally she has become her party’s nominee for President.


Settings aside something coming from left field (or an errant email server), this race is down to The Donald versus Hillary. As of this morning and as you can see in the Chart of the Day, the pollsters are basically showing it to be a statistical tie. To the chagrin of many, the Donald is in it to win it and has a real chance to do so. The next 5 months may have to be the grittiest and most determined of Hillary Clinton’s political life.


Back to the Global Macro Grind


Yesterday in the Early Look, Keith wrote that subscribers he is speaking to on the road are extolling the fact that the SP500 is now back to flat on the year. In fact, as of this morning, over the last year the SP500 is up +1.58%. If you were able to get positive absolute equity alpha in the last 12-months, congrats on the grinding! It hasn’t been easy.


In Europe this morning, the central bankers are persevering with their dovishness and the ECB’s corporate bond buying program kicks off. According to reports, the buying will be broad based with a focus on utility, insurance and telecom bonds. Someone should let Draghi know we have some “great” MLP paper he can buy in the U.S...


Grinding It Out - Brexit cartoon 06.07.2016


The implementation of corporate bond purchasing this morning dovetails with the latest poll from Pew ahead of the June 23rd Brexit vote. According to the poll, Europe, not surprisingly, is very much split with 47% of nations holding an unfavorable view of the EU and 51% in favor. Not surprising, support for the EU is lowest in these nations – Greek at 27%, France at 38%, UK at 44%, and Spain at 47%. Meanwhile, majorities in all countries except Germany and Poland also disapproved of the EU’s handling of the economy.


On the topic of Brexit, we will be doing a call this morning with Alexander Nicoll from the International Institute for Strategic Studies. He will be joined by Hedgeye Potomac’s Managing Director JT Taylor and our Senior Defense Policy Analyst Lt. General Emo Gardner. In a nutshell, the view is that we think Brexit will not occur and we’ll present the framework for why we believe this is the case. The call will occur today at 11am ET, please email for details.


Employment data from Britain this morning reinforces the view that Brexit is unlikely to occur. According to data from the Recruitment and Employment Confederation, UK firms increased staff numbers at the lowest rate in eight months due to “worries about the EU referendum”. Ironically, many UK firms are seeing candidate shortages, but due to the economic uncertainty around the referendum are unwilling to make hiring decisions. The economy still does matter, stupid.


Speaking of grinding, the PBOC ground out some new economic projections this morning. The Chinese central bank kept GDP unchanged at +6.8%, revised up CPI to +2.4%, revised up fixed asset investment growth to +11.0%, and revised down export growth to -1%. The World Bank also offered a new global growth projection that reduced growth to +2.4% for 2016, which was a 0.5% reduction from January.


Hmmm, global growth rates reduced by 20% and exports and the world’s second largest economy turning negative? Maybe those muckers and grinders at Hedgeye are on to something with their #GrowthSlowing view.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.64-1.79%

SPX 2080-2116

VIX 13.01-16.80
USD 93.34-95.25
Oil (WTI) 47.59-51.09

Gold 1


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Grinding It Out - 06.08.16 EL Chart

JT TAYLOR: Capital Brief

Takeaway: Golden State Warrior, Bernie Weakened; Trump Dials it Back??

JT TAYLOR:  Capital Brief  - JT   Potomac banner 2


GOLDEN STATE WARRIOR: With wins in CA, NJ, SD and NM last night, Hillary Clinton has now fully assumed the mantle of presumptive Democratic nominee. She has been victorious in a majority of the primaries, garnered three million more votes than her opponents, has 2,497 pledged delegates to Bernie Sanders’ 1,663, and has 571 superdelegates to Sanders’ 48. The party will now begin to unify around her with a popular president by her side as she moves into the next phase of her campaign. She and her allies will continue to define and dismantle Donald Trump and his policies; Priorities USA, a pro-Clinton super PAC, has allocated $20 million for an ad buy against Trump – building on her effective foreign policy speech last week pegging him as unfit to be president. Clinton will also need to reassess her trust and likeability factors – repairing and retooling her image will be critical - it will become her advantage when voters decide the “lesser of two evils.”


WEAKENED AT BERNIE’S: Bernie Sanders is all but out of the race – but that doesn’t mean he’s dropping out...In order to be viable for the nomination at this juncture - Sanders’ only option is to flip superdelegates – something that remains completely unrealistic (he’s flipped one in six months). He and some in his inner circle have been hard-pressed to accept his fate, but nonetheless he says he will not relent until the convention. With Minority Leader Nancy Pelosi’s endorsement of Clinton and President Obama’s expected soon, Sanders risks becoming a pariah in his party the longer he holds out.


TRUMP DIALS IT BACK?: The criticism over Trump’s comments on the impartiality of a federal judge with Mexican heritage continues in force, but he’s attempting to take a step back and assess it from a different angle – classifying his remarks as “misconstrued.” Though Trump did not apologize or show regret in his statement, it’s a sign that he’s reassessing given the universal condemnation he’s invited - and that’s just from his fellow party comrades.  He may want to change the subject, but we think he may not have the luxury of doing so this time around.


“A BETTER WAY”: Speaker Ryan rolled out a wide-ranging conservative agenda just a few weeks ahead of the Republican convention in July. The product of several task forces and dozens of meetings with House members outlines conservative proposals for jobs and the economy, taxes, health care, national security, constitutional authority, and poverty. The plan is a byproduct  of the autopsy of the failed 2012 Romney campaign as well as Ryan’s vision for an optimistic agenda for his Congressional colleagues and the party writ large. Ultimately, in the face of Trump terrorizing the party – the proposal gives Republicans a platform to run on in the fall, trying to put the Republican party back on track.


UNDER THE RADAR: With the spotlight on the main presidential event, CA voters sent two Democratic candidates to a Senate seat runoff in November– shutting Republicans out in a sign of the party’s diminishing support in America’s most populous state. CA hasn’t elected a Republican Senator since 1988 – in fact – it hasn’t elected any Republican candidate to any statewide office since 2006. We continue to reiterate our view that CA will be bluer than ever. Trump is delusional if he thinks he can be competitive in CA come November.


DISMANTLING DODD-FRANK: Financial Services Chairman Jeb Hensarling (TX) and “The Financial Choice Act” takes a shot at reforming Dodd-Frank and aims to dismantle portions of the regulatory overhaul. The plan has little hope of passing Congress this year – but is poised to influence both the presidential debates as well as the Republican Congressional agenda. The bill aims to replace the financial reform law’s “orderly liquidation authority,” repeal the Volcker Rule, restructure the CFPB, and the FSOC from designating any non-banks as “systemically important.”


NOC SEEING THE PINCH OF THE BOMBER WIN?: Check out our Senior Defense Policy Advisor LtGen. Emo Gardner’s insight on Northrop Grumman CEO's statement that he is "biasing more of our capital" inside NOC could be early indicator of future reduced margins as result of LRS-B win “NOC Seeing the Pinch of the Bomber Win?


FIRST OF MANY HHS BUDGET UPDATES; POSITIVE-MA PLANS, DRUGS & SERVICES; NEGATIVE- INSURERS: Our Healthcare Policy Advisor Emily Evans shares her insight on a Senate Appropriations Subcommittee approving the FY 17 HHS spending bill and more “First of Many HHS Budget Updates; Positive-MA Plans, Drugs & Services; Negative-Insurers


BREXIT: SHOULD I STAY OR SHOULD I GO?: Join us for a call today with Alexander Nicoll, a consulting member of the UK-based International Institute for Strategic Studies, as he discusses the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU. Please email us for dial-in information.

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 80.45%
  • SHORT SIGNALS 78.38%

Today 11am ET | Brexit: Should I Stay or Should I Go?

Takeaway: Join us for this call!

Today at 11am ET Hedgeye Potomac is hosting a special call with Alexander Nicoll to discuss Brexit – will the UK vote to stay or leave the EU on June 23rd? 


Nicoll will discuss the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU.  (Hint: he believes the UK will ultimately vote to Stay...).



Today 11am ET | Brexit: Should I Stay or Should I Go? - Brexit cartoon 06.07.2016



  • How did the UK get to a vote and where do the divisions lie between political parties?
  • What are the arguments for staying and leaving?
  • Who will win?
  • What are the financial, political, and cultural impacts on the UK from Brexit?
  • What’s the impact of Brexit on the EU and Eurozone?  Could another country vote to break free? 




Alex Nicoll is a Consulting Member of the International Institute for Strategic Studies, a London-based think-tank. Previously he was a member of the Directing Staff of the Institute as Director of Editorial, and also headed the defense program.  Before joining the IISS he was a journalist at the Financial Times newspaper for 18 years, with posts covering international capital markets, Asia, and defense. Earlier, he was a foreign correspondent for Reuters news agency, with posts in Hong Kong, Paris, Tehran and New York. 





Toll Free:


UK: 0

Confirmation Number: 13638701

Materials:  Click Here (available one hour prior to the call)



Ping for more information.

RH | Then and Now and Tonight

Takeaway: We have an upside bias to tonight’s print. But at this valuation, the market thinks RH is broken across any duration.

We’re roughly in-line on both comp (+5%) and EPS (+$0.06) for RH this quarter.  Our bias is to the upside on both metrics, but we think there are other things that matter a lot more. Let’s face it, this is a seasonally weak quarter for a company in the midst of a well-telegraphed yet painful transition period. The way the stock is trading, the market thinks that virtually no part of our long term bullish view is going to happen. On our numbers, RH is trading at less than 8.0x earnings, and at 4.0x EBITDA – and that’s on NEXT YEAR’s numbers – it’s not like we’re telling you to look out to 2018 or ’19.  So clearly, the market simply lost massive faith in this story and in the management team’s ability to deliver. We have not. Are we worried about the back half? Yes, particularly as the switch to the new promotional cadence (Grey Card ‘club’ as opposed to ‘in your face’ episodic promos) takes place.  Most people generally get the revenue volatility that’s likely coming down the pike. But very very few people we talk to actually want to take the plunge and own it through this year.  And there you have a 4.0x EBITDA multiple.


Also consider the following comparison of RH today to RH on its IPO. The table below tells it all, but here are some callouts. Enterprise Value is now a mere 14.5% higher, and yet…

1) Revenue has doubled to $2.1bn

2) Margins have more than doubled to 9.7%

3) Productivity went up by over $1,000 per foot, which is simply an astonishing statistic.

4) Net Debt/Total Cap went from 38% to 5%

5) P/E went from 30x to 13x


And keep in mind that at the time of the IPO, the ‘growth’ was in 20k foot Design Galleries, but we’ve since learned that landlords are giving RH preferential terms on 40k-60k sq ft properties, and they’re working as it relates to gaining outsized share of each of those markets.


Our point here is that the valuation has been decimated over this time period, and yet the growth story has expanded if anything, and been de-risked from a funding perspective. Is it in a pretty ugly pivot period right now? Yes. Might the company need to invest more capital to facilitate growth? Perhaps – worst case. But for a long term investor (ie you can look out 9 months or more), this name is as appealing as they come.


RH | Then and Now and Tonight - RH then now


RH | Then and Now and Tonight - 6 8 2016 chart2

First of Many HHS Budget Updates; Postitive-MA Plans, Drugs & Services; Negative-Insurers

Takeaway: A Senate Appropriations Subcommittee approved FFY 2017 HHS spending; IBAP zeroed out, more money for OMHA & NIH, Bad News for Risk Corridors

This afternoon, the Labor, Health and Human Services and Education subcommitee approved the FFY 2017 HHS spending plan. Tonight's approval marks the first time since FFY 2008, the upper chamber's subcommittee has accomplished this feat. With several Senators in close races, the need to accomplish something in a bipartisan and effective manner overwhelmed the usual inertia.


We are still early in the process, of course, but there are a few things in this vote worth mentioning:


Zero funding for IPAB accompanied by this explanation in the Chairman's press release:  "Funding for IPAB is eliminated.  IPAB is a 15 member board of unelected bureaucrats created by the ACA to achieve a reduction in Medicare spending through the only means they have – rationing care." 


Now, a spending deal for FFY 2017 won't get finalized before the Office of the Actuary has to report to the Secretary of HHS whether or not IPAB is triggered, giving today's vote limited power to calm the angst that might occur between now and the end of July. So, for what it is worth, our view is that the Office of the Actuary will report to the Secretary that IPAB is not triggered. We believe that because the law affords HHS a bit of discretion in calculating the Medicare per capita growth rate. Specifically, the Office of the Actuary can "take into account any delivery system reforms or other payment changes that have been enacted or published in final rules but not yet implemented as of the making of such [Medicare per capital growth rate] calculation." Given the pace of reform at HHS, that is a whole lot of stuff that gets taken into consideration.


If we are wrong, the vote today and what we anticipate will be complete agreement from the rest of the Senate and the House, will serve as a backstop. The zero funding of IPAB is good news for all health care but particularly Medicare Advantage Plans and drug manufacturers.


Increased funding of $5 million for the Medicare Office of Hearings and Appeals. The next steps in a lawsuit between the American Hospital Association and HHS depend on getting the backlog of appeals (mostly attributable to the Recovery Audit Program) under control. If HHS cannot, it could be bad news for HMSY, COTV, PFMT and GIB if the court is forced to intervene with a writ of mandamus. See more on that issue here.


Increased funding for NIH. An increase of $2 billion for Alzheimer's, Precision Medicine research and combatting drug resistant antibiotic drugs among other things. This is the second big year in a row for NIH funding. The impacts are not immediate but should be long lasting in the form of breakthrough medicines and other therapies.


Budget Neutrality for Risk Corridor Program. This marks year three for the budget neutrality language for the risk corridor program. Some insurance companies had been optimistic last year and HHS even suggested they would look for ways to make insurers whole. Not gonna happen. Ever. So, everyone is suing. This legislative action makes success in court, pretty unlikely, however.


Full text will be available at full committee mark-up on Thursday. Riders may be considered then so we will keep you posted as things unfold.