prev

[UNLOCKED] Early Look: If You Don't Laugh, You'll Cry

Editor's Note: Below is a special, complimentary Early Look written by Hedgeye Healthcare analyst Tom Tobin this morning. In it, Tobin writes:

 

"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."

 

*  *  *  *

[UNLOCKED] Early Look: If You Don't Laugh, You'll Cry - z chart3 

 

“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

 

[UNLOCKED] Early Look: 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 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 1301-1386

 

Best of luck out there today,

 

Thomas Tobin

Managing Director 

 

[UNLOCKED] Early Look: If You Don't Laugh, You'll Cry - 20160701 InsuredPopulation


[UNLOCKED] Fund Flow Survey | Bear Tracks

Takeaway: Both equity ETFs and stock mutual funds are having a bad 2016 with investors only subscribing to fixed income via passives and actives.

Editor's Note: Below is a complimentary research note originally published July 7, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

 

*  *  *  *

 

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending June 29th, equity ETFs experienced a net withdrawal of -$12.1 billion, the second largest drawdown so far in 2016. The running year-to-date tally for stock ETFs is now a -$31.6 billion redemption so far in 2016, which would be the worst year on record for the category through the beginning of our data set which starts in 2013. Despite the jarring start to the year for passive equity products, active equity mutual funds have lost over twice as much with withdrawals now totaling -$72.8 billion in 2016 in a continuation of the secular move out of active management.

 

Fixed income mutual funds also experienced withdrawals losing -$2.4 billion last week, however, bond products have averaged +$2.2 billion in new funds per week on the active fund side with fixed income ETFs raising +$1.5 billion per week thus far in '16. Finally, defensive investors shored up +$15 billion of cash in money market funds last week as summer risk aversion picked up.


[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI19

 

In the most recent 5-day period ending June 29th, total equity mutual funds put up net outflows of -$5.0 billion, trailing the year-to-date weekly average outflow of -$2.8 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net outflows of -$2.4 billion, trailing the year-to-date weekly average inflow of +$2.3 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net redemptions of -$12.1 billion, trailing the year-to-date weekly average outflow of -$1.2 billion and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$2.0 billion, outpacing the year-to-date weekly average inflow of +$1.6 billion and the 2015 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI2

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI3

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI4

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI5

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI12

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI13

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI14

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI15

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI7

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors pulled -5% or -$130 million from the materials XLB ETF while contributing +5% or +$404 million to the utilities XLU.

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI17

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$16.7 billion spread for the week (-$17.1 billion of total equity outflow net of the -$377 million outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$3.0 billion (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI10

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

[UNLOCKED] Fund Flow Survey | Bear Tracks - ICI11


Daily Market Data Dump: Wednesday

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, rates and bond spreads, and key currency crosses. 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

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Wednesday - equity markets 7 13

 

Daily Market Data Dump: Wednesday - sector performance 7 13

 

Daily Market Data Dump: Wednesday - volume 7 13

 

Daily Market Data Dump: Wednesday - rates and spreads 7 13

 

Daily Market Data Dump: Wednesday - currencies 7 13


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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


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.


Cartoon of the Day: Central Banking 101

 

Cartoon of the Day: Central Banking 101 - negative interest rates cartoon 07.12.2016

 

According to the Fiscal Times:

 

"Japan's household sentiment soured and inflation expectations hit the lowest since the Bank of Japan adopted its massive stimulus program in 2013, a quarterly central bank survey showed... The ratio of households who said they trusted the Bank of Japan's policy management also hit a seven-year low, with more than half of the respondents doubting whether it was independent from government interference, the survey showed."


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

next