Capital Brief: Who's On Trump & Clinton's VP Short List

Takeaway: Stronger Together...; Worth More Than A Bucket Of Warm Spit?; Trump Stump;

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email


Capital Brief: Who's On Trump & Clinton's VP Short List - JT   Potomac under 1 mb


“The ballot is stronger than the bullet.”

Abraham Lincoln


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.


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.


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.

Consensus Is Crowding Into a Precarious Position | $SPY

Takeaway: A closer look at CFTC futures and options positioning reveals that consensus remains rather long the S&P 500.

Consensus Is Crowding Into a Precarious Position | $SPY - S P 500 cartoon 06.08.2016


Below is analysis from our Macro team in a note sent to subscribers earlier this morning:


"As we highlighted on The Macro Show yesterday, the CFTC net futures and options positioning in the S&P was already long 58K contracts moving into this week, or +1.68x on a TTM z-score basis (and that’s positioning through last Tuesday). With the low volume melt-up moves from Fri-Tues (S&P +2.6%) , expect an even longer consensus position at the end of this week.


Go ahead and buy all time-highs on peak cycle forward multiples (and that’s assuming the consensus expectation for a major corporate profit turnaround) in a crowded long position, but we’re going to sit it out."


Consensus Is Crowding Into a Precarious Position | $SPY - cftc net long pos

Banks on the Barbie: Four Short Ideas In Australia’s Housing Bubble

Takeaway: The housing bubble in Australia is bad news for the country's big banks.

Editor’s Note: For more information on how you can access our institutional research email

Banks on the Barbie: Four Short Ideas In Australia’s Housing Bubble - Australia housing cartoon

Last week, Hedgeye Financials Sector Head Josh Steiner held an institutional call discussing Australia’s housing bubble, and why now is the time to short Australian Banks. 


The country’s big four banks: CommBank (CBA), National Bank (NAB), Westpac (WBC) and Australia & New Zealand Banking Group (ANZ) are holding the bag on this developing mess. With over 60% of their loan books in residential mortgages, there’s basically nowhere to hide.


Here are some noteworthy highlights from Steiner’s call:


Contrary to popular belief, the primary driver accounting for approximately 30% of the Australian GDP is building, selling, and financing property, not mining which only accounts for around 8% of GDP. 60-70% of the market being bought with interest-only mortgages; this model only works when property prices continue to go up, as Americans may painfully remember.


An important tenet of Steiner’s demand slowing call rests on the assumption that Chinese demand for foreign property investment will slow in 2016 vs 2015, and then slow further in 2017. Part of this has to do with the coming credit storm and pace of FX reserve drawdown.


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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.

OPEC Oil Production Hits 8-Year High: Remember The Production "Freeze"?

Takeaway: Hedgeye Potomac analyst Joe McMonigle called Saudi Arabia and Iran's plans to ramp oil production despite all the "freeze" talk.

OPEC Oil Production Hits 8-Year High: Remember The Production "Freeze"? - OPEC cartoon 02.16.2016


Remember the much-touted oil production "freeze"?


Oil prices tumbled -4% today following an IEA report that OPEC oil production hit an eight-year high last month. This news comes six months after discussions between OPEC and non-OPEC countries to "freeze" production fell apart.


Hedgeye Potomac Senior Energy analyst Joe McMonigle saw it coming. (Click here to read his prescient research note written back in March.) Here's what he said:


"We continue to see no chance of a production cut at this time and maintain our thesis that Saudi Arabia believes its market share policy is winning." 


Take a look at the OPEC oil production chart below from Bloomberg. As you can see, Saudi Arabia and Iran have been ramping up production just as McMonigle predicted.


OPEC Oil Production Hits 8-Year High: Remember The Production "Freeze"? - oil prod freeze

Are You Bullish? Fund Flows Paint A Bearish Picture For Equities

Takeaway: As money continues to flow out of Equity ETFs, fixed income and defensive sectors like Utilities and Gold have been the primary beneficiary.

Are You Bullish? Fund Flows Paint A Bearish Picture For Equities - bear 2


Investors are voting with their feet... 


And the picture painted isn't pretty for equity bulls.


Here's fund flow analysis via our Macro team in a note sent to subscribers earlier this morning:


"Year-to-date stock ETF flows are -$31.6 billion redemption, which would be the worst year on record for the category through the beginning of our data set which starts in 2013. On the active management side, it’s worse - active equity mutual funds have lost over twice as much with withdrawals now totaling -$72.8 billion in 2016 – everyone is long equity beta through automated asset allocations – scary stuff!"


Take a look at the chart below which show net money flows to Equity (less Fixed Income) funds with detailed analysis from our Financials team:


"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.)"


Are You Bullish? Fund Flows Paint A Bearish Picture For Equities - ICI10 large 7 13


Meanwhile, massive year-to-date inflows continue to flood into our favorite Macro call like Utilities (XLU), Gold (GLD) and Long Bonds (TLT). Again, here's our commentary from our Financials team:


"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."


Below is the sector and asset class weekly and year-to-date ETF breakdown:


Are You Bullish? Fund Flows Paint A Bearish Picture For Equities - ICI9 large 7 13


All things considered, with equity markets tapping all-time highs, its worth asking:

Are you bullish?


[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."


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[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