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CHART OF THE DAY: Healthcare Investors, This Will Be A Jarring Experience

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Managing Director Tom Tobin. Click here to learn more.

 

"... The US Medical economy is currently in very good shape, particularly for providers and investors. During the healthcare crisis 20 years ago Matt Damon played Rudy in “Rainmaker,” a not-quite Jason Bourne hero fighting an evil health insurance company, so maybe we’ve travelled some distance. But as we will detail tomorrow in our Healthcare Themes call, we think we are going back to normal for investors and providers.

 

In 2016, growth in insured medical consumers will slow, the country will go back to hating insurance companies, continue to pay even higher premiums and deductibles, creating more medical debt, with more political “crisis-mongering,” and a general re-awakening to the reality that affordability for individuals, state and federal government, employers, providers and insurers is still out of reach. For the investor class this will be a jarring experience for those that are unprepared."

 

CHART OF THE DAY: Healthcare Investors, This Will Be A Jarring Experience - 20160701 InsuredPopulation


If You Don't Laugh, You'll Cry

“What the f*** is wrong with you? Sucking on a rock and barking at the moon is not a sign that someone is mentally ill, it’s a sign that they are a wolf with iron deficiency”

–John Oliver on Mental Health

 

As mourners gather in Dallas for the funerals of police officers shot and killed by Micah Johnson today, there is a familiar sense that someone, somewhere, is not doing their job. That familiar feeling isn’t restricted to guns and violence. It can be felt across the civic spectrum, from education, college debt, healthcare, trade, employment and growth.

 

As an individual, I can only really take care of my responsibilities; to myself, to my wife and daughters, family and friends, neighbors and community. And while I empathize deeply for the families hurt by gun violence, I confess I have only a vague idea of what a solution might look like. Unfortunately, I am suspicious of anyone peddling simplified solutions and fixes. The problem is not simple. But less vague is a feeling that someone, somewhere, is not doing their job.

 

My mother had the habit of using recycling aphorisms in her daily conversations. “Let’s send that up the flagpole and see who salutes,” “if it was a snake it would have bitten you,” and “that bed won’t make itself” were the few I heard most often growing up. But she used them to also dispense life lessons like routinely telling me to find work “I didn’t mind getting out of bed for in the morning” and to make sure “my income exceeded my outgo.”

 

My mother's favorite saying though was, “If you don’t laugh, you’ll cry.” To be sure, my mother was handed an extra dose of reasons to cry in her lifetime. She got out of bed in the morning after my father died at the age of 50 of a heart attack in 1974 (curable today) and raised 6 kids on her own as a “committee of one.” She put her confidence in her Catholic faith and “put one foot in front of the other.” In the face of her challenges and shortcomings, she was also a pretty funny lady while taking care of her family, which given her matronly no frills appearance (skirt below the knee and sensible shoes), her impromptu zingers had a straight-man comedic effect of surprise. But her message was clear; take care of your business. 

 

My mother died in 2005 at the age of 76. I think she would have found a new one-liner or two worth repeating over the last 10 years. The internet would not have been “her cup of tea,” but I know she would have been deeply upset by Dallas, and she would have likely written a letter to her congressman because “the squeaky wheel gets the grease.” My mother held her politics close to the vest (Democrat), and often summed up her position as “you read your newspaper and I’ll read mine” or “if I wanted your opinion I’d give it to you” if there was a disagreement afoot. I don’t think she would have been “partial” to either Trump or Clinton, but would have voted. And I do think she would have liked John Oliver, probably even more than I do. I think they both share a sense of humor and a do-your-job sensibility.

 

Before John Oliver comedy has been tuned to variations of detached observation. Jerry Seinfeld’s “did you ever notice...” for example. “Did you ever notice a lot of butlers are named Jeeves? I think when you name a baby Jeeves; you've pretty much mapped out his future” is one example from Jerry Seinfeld. “Debt-buying is a grimy business and badly needs more oversight, because as it stands any idiot can get into it. And I can prove that to you because I am an idiot and we started a debt-buying company” is the John Oliver version. Oliver’s 20 minute HBO formula of #gotchacomedy is more substantial, taking fake news back into reality adding in a nationally televised “squeaky wheel” prank with audience participation. We don’t just feel a little outrage and get a good laugh, but we get to play along.

 

What I find so impressive about John Oliver, and something I hope we are accomplishing at Hedgeye, is the power of a small team.  LinkedIn shows there are 92 employees on staff at “Last Week Tonight” with only 3 Senior News Researchers and 5 Research Associates and Assistants. The leverage in the model is obvious and impressive given “Last Week Tonight” averages 4.7M viewers per episode. By comparison, CNBC’s “Squawk Box” has 177,000 daytime viewers, some of whom have made websites devoted to getting Joe Kernen fired and the hypocrisy of Jim Cramer. An entirely different brand of audience participation! 

 

“Last Week Tonight’s” formula is simple:

  1. Choose a something-should-be-done-about-it! subject
  2. Illuminate, outrage, and lampoon, preferably with video of the subject saying ridiculous things
  3. Call the audience to action with a hashtag or email address so the audience can act on their outrage
  4. Imitate the subject with the sophistication of a very funny baboon

 

Back to the Global Macro Grind

 

However meekly and humbly, we will attempt to follow in “Last Week Tonight's” formula in today’s Early Look.

  1. Healthcare is too damn expensive! #HCTDE
  2. Medical Debt entraps millions and The Affordable Care Act appears less affordable and more temporary
  3. Use #HCTDE to tweet your story and read those of your fellow citizens
  4. Email your government representatives your #HCTDE and every new story with the hashtag #HCTDE

 

If You Don't Laugh, You'll Cry - Healthcare cartoon 07.14.2016

 

Our desire is to not to offer a fix, because that would be foolish, because as we all know, it’s complicated. Only the weight and scrutiny of the democratic process and a free and vigilant press can even attempt to reach for a solution. And we don't use the term solution as an endpoint because it is more reasonable and optimistic to believe problems will arise faster than the fixes. Imagine what the Genomic Revolution will mean for the future of healthcare and you should see there is no reasonable way to predict and solve for the unknowns.

 

Mark Twain said “the political and commercial morals of the United States are not merely food for laughter, they are an entire banquet” in 1907, so it appears the current “crisis” is at least 100 years old. Healthcare is in crisis according to some, including the Congressional Budget Office who forecast that healthcare spending will bankrupt the country.

 

For Trump and many Republicans, despite giving access to life saving insurance the ACA needs to be repealed. For Hillary, her healthcare policies appear to merely extend what hasn’t been working. Despite falling short of enrollment goals, creating billions of dollars in losses for insurers that threaten the ACA’s solvency, and still leaving medical care out of reach for millions of Americans, the Affordable Care Act did create the single largest expansion of insured people in decades.  That is clearly a step back from the crisis precipice, no matter how flawed the step. 


But any celebration should be short lived, because spurred on by decades of excess inflation, both innovation and snake oil, and opaque pricing models, among other drivers, every year 1 in 5 Americans under the age of 65 has problems paying medical bills. Seniors need well over $100,000 in savings to have a 90% chance of meeting their medical expenses in retirement, even with Medicare. However, one man’s insurance premium and medical debt is another man’s boat payment.

 

Those dollars go to pay the salaries of people like the CEO of Zimmer Biomet, who earns $10M, or the CEO of Ascension Health, who makes $7.1M a year, or the spine surgeon earning $700,000 per year even though some surgeries have questionable benefit to the patient. They also support the $100,000+ salaries paid to the R&D scientists that cured Hepatitis C while also paying the near poverty wages for hundreds of thousands of home care workers who are on the front lines of official government policies to shift patients into "low cost settings." Like I said, it’s complicated.

 

Affordable Care Act’s #ACATaper

The US Medical economy is currently in very good shape, particularly for providers and investors. During the healthcare crisis 20 years ago Matt Damon played Rudy in “Rainmaker,” a not-quite Jason Bourne hero fighting an evil health insurance company, so maybe we’ve travelled some distance. But as we will detail tomorrow in our Healthcare Themes call, we think we are going back to normal for investors and providers. In 2016, growth in insured medical consumers will slow, the country will go back to hating insurance companies, continue to pay even higher premiums and deductibles, creating more medical debt, with more political “crisis-mongering,” and a general re-awakening to the reality that affordability for individuals, state and federal government, employers, providers and insurers is still out of reach. For the investor class this will this will be a jarring experience for those that are unprepared.

 

But you can do something about it!

  1. Read the references embedded in this note if you want to learn more
  2. Tweet #HCTDE with your personal medical cost story
  3. Email your #HCTDE story to your government representatives which you can easily look up here 
  4. Retweet and email every story you see with #HCTDE to your government representatives

 

Hopefully, in this new age of individual broadcasting and mass awareness, the individual #HCTDE message will be heard. Maybe, just maybe, one more tweet, or one more email to a Congressman, will make a difference. Maybe another funnyman hero will step up and embarrass that guy we all suspect isn’t doing his job. I don’t know who he is exactly, but I am pretty sure, based on the evidence we detailed above, that he’s out there and needs a good shake and that our job is to be “squeaky wheels,” as my mom would say.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.31-1.55%

SPX 2067-2158

VIX 12.61-20.43
USD 95.17-97.01

Gold 1

 

Best of luck out there today,

 

Thomas Tobin

Managing Director 

 

If You Don't Laugh, You'll Cry - 20160701 InsuredPopulation


JT TAYLOR: Capital Brief

JT TAYLOR:  Capital Brief - JT   Potomac banner 2

 

“The ballot is stronger than the bullet.”

  ― Abraham Lincoln

 

STRONGER TOGETHER...: In a long-awaited and highly-anticipated speech, Bernie Sanders delivered an impassioned endorsement of Hillary Clinton while she rallied the crowd with the message that Democrats are unified and ready to take on Donald Trump in the fall. In the end, Sanders has much to feel good about – he’s helped shape the most progressive platform in Democratic party history. The remaining question is whether or not the Clinton-Sanders relationship will actually blossom, and if she will be able to fully win over his supporters - many of whom are still reeling that he left the race before the convention.

 

WORTH MORE THAN A BUCKET OF WARM SPIT?: This may be the year where the veep selections carry more weight than in years past - dating back to JFK’s critical pick of LBJ. Trump’s decision could be a make or break moment for legions of Republicans and undecided party leaders. The push to unify and reassure has Trump seriously considering Governors Mike Pence and Chris Christie, former House Speaker Newt Gingrich, and Senator Jeff Sessions. Clinton on the other hand, faces a much different situation. Her progressive moves within the party platform have helped her make progress with the wing she would most likely need help from and appears to be shifting her focus to VA Senator Tim Kaine, Labor Secretary Thomas Perez, and now Admiral James Stavridis. Title courtesy of VP John Nance Garner.

 

CONVENTIONAL THINKING: Convention delegates are starting to embrace Trump’s economic proposals – from downplaying the party’s support of free trade to endorsing the construction of a border wall. The reorganization of the platform comes amid a larger struggle – one where Trump and his camp face off with those looking to stage a party coup. Though the platform itself is generally irrelevant outside the halls of the convention and in no way binds Trump to any particular policies, it’s a reflection of shifting attitudes within the party.

 

PROGRESSIVE ASSURANCE: Coupled with Sanders’ wins on the platform, progressive Senator Elizabeth Warren (MA) picked up another pledge that could limit Wall Street’s influence in a Clinton Administration. Under the “fixing the financial system” title in the Democratic platform, there lies a personal favorite saying of Warren’s (we think she may have cribbed it from the Reagan era): “Personnel is policy.” The document vows that the Administration will only appoint officials who are not beholden to the industries they regulate. The language would give progressives fodder to oppose any agency official who they think does not act in the public’s best interest.

 

SUPREME CONFLICT: SCOTUS Justices rarely weigh in on the body politic, but that hasn’t stopped Ruth Bader Ginsburg from taking on Donald Trump in an election year that continues to defy all political norms. Never to shy away from a battle, Trump lashed out at Ginsburg raising the temperature (and legitimate questions) around the growing controversy. We haven’t heard the last on this one just yet...  

 

TRUMP STUMP: Trump continues to surprise - now adding Senate Majority Leader Mitch McConnell to his growing list of convention speakers - all to be announced later today. McConnell, who will attend as a delegate and a speaker, endorsed Trump shortly after he clinched the nomination in early May, but has since kept his distance given the steady drumbeat of Trump’s controversies. McConnell’s participation is another step in the right direction for Trump, but he still lags in winning over other key party types - including his main primary rivals.

 

DEFENSE PRIMES TO GAIN FROM $109B AGREED INCREASES TO NATO SPENDING: Our Senior Defense Policy Advisor LtGen Emo Gardner gave us his insight on why, even if NATO achieves only a fraction of its promised $109B increase in annual defense spending by 2020, U.S. defense companies will see windfall. You can read his piece here.

 

CALL INVITE | HEALTHCARE THEMES: Our Healthcare Policy Advisor Emily Evans will provide a comprehensive overview of our #ACATaper and Healthcare Deflation themes with new datasets and analysis. You can find call details here.

 


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The Macro Show with Tom Tobin Replay | July 13, 2016

CLICK HERE to access the associated slides.

 

 

An audio-only replay of today's show is available here.


July 13, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

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INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.55 1.31 1.53
SPX
S&P 500
2,067 2,158 2,152
RUT
Russell 2000
1,040 1,208 1,206
COMPQ
NASDAQ Composite
4,832 5,040 5,023
NIKK
Nikkei 225 Index
15,122 16,360 16,096
DAX
German DAX Composite
9,387 10,060 9,964
VIX
Volatility Index
12.61 20.43 13.55
USD
U.S. Dollar Index
95.17 97.01 96.49
EURUSD
Euro
1.09 1.12 1.11
USDJPY
Japanese Yen
100.30 105.16 104.75
WTIC
Light Crude Oil Spot Price
43.60 47.64 46.62
NATGAS
Natural Gas Spot Price
2.61 3.00 2.74
GOLD
Gold Spot Price
1,301 1,386 1,334
COPPER
Copper Spot Price
2.05 2.21 2.21
AAPL
Apple Inc.
93.80 98.33 97.42
AMZN
Amazon.com Inc.
718 760 748
NFLX
Netflix Inc.
87.11 99.90 95.97
GOOGL
Alphabet Inc.
685 736 732
JPM
J.P. Morgan Chase & Co.
57.01 63.47 63.20
AA
Alcoa, Inc.
8.80 10.99 10.69



Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


Trouble Ahead In Europe? Keep An Eye On Credit Default Swaps

Takeaway: Europe financials' CDS have been widening all of 2016 despite the episodic hope that ECB stimulus (see March declines) will prove a panacea.

Trouble Ahead In Europe? Keep An Eye On Credit Default Swaps - european cds

 

Even as financial markets swoon over Italian bank bailout hopes, a number of European financials' credit default swaps remain elevated versus where they were at start of this year. Make no mistake, the chart above is yet another example of the central planning #BeliefSystem breaking down.

 

Can the ECB save Europe's troubled banks?

 

Probably not.


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