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Cartoon of the Day: BOJ to the Rescue?

Cartoon of the Day: BOJ to the Rescue? - Nikkei  BOJ cartoon 09.13.2016


Sure, this is normal. The BOJ (already a top-five owner of 81 companies in Japan’s Nikkei 225) is on course to become the #1 shareholder in 55 of those firms by the end of next year, according to Bloomberg. Meanwhile, BOJ Governor Haruhiko Kuroda almost doubled his annual ETF buying target last month.

The Senior Wave

Takeaway: Aging Boomers will feed (or starve) a wide range of industries—thanks to their sheer demographic size and generational preferences.

Here's a preview of the next issue of "About Everything." You're welcome to join a Hedgeye Q and A on this topic tomorrow, Wednesday, at 12:30 pm.

the senior wave



The Baby Boom is moving into its senior years.


Over the coming decades, massive cohorts of aging Boomers will swell the nation’s elder population. Last year, 14.9% of Americans were age 65+. By 2035, that share is projected to jump to 21.4%. Over that same time period, the share of the population age 75+ is projected to nearly double, from 6.4% to 11.1%.


The Senior Wave - seniorwave2


Sure, this looming senior wave is hardly a secret. But few analysts go much beyond the raw numbers. In fact, thanks to generational change, we’re looking not just at a quantitative shift, but a qualitative shift—dramatic changes in the attitudes and behaviors of these new seniors.


Remember: These are Boomers we’re talking about, not the G.I. and Silent Generation who raised them and against whom Boomers protested raucously in their youth. What kind of collective temperament will begin to emerge among older age brackets in the coming years? Think about their life story.


The oldest Boomers began entering America’s college campuses in the mid-1960s, helping to ignite countercultural passions and pushing the nation into an era of political idealism, cultural awakening, and social upheaval. In the years that followed—from LBJ to Reagan, from hippie to yuppie—Boomers shook the windows and rattled the walls (to paraphrase Bob Dylan) of everything their parents had built. In so doing, this generation began to manifest so many of the collective attitudes and behaviors for which they have since become famous: their individualism, their attraction to personal risk, their distrust of big institutions, their carelessness about material wealth, their cultivation of self, their die-hard moralism.


None of that will change as they move into their 70s. So when you speculate on the hottest senior brands three or five years from now, keep in mind that lifelong obsession with values, extended family, spirituality, and personal transformation (“experiences”)—something you would never associate with today’s seniors.


Pay attention as well to the sobering socioeconomic shifts within this generation as you move from its first wave (born in the mid-1940s) to its last wave (born in the late 1950s).


Compared to first wavers, last-wave Boomers are more likely to live alone, be never married or childless, and be immigrant or minority. Among Boomer males, college completion actually declines from first wave to last. Also in decline, holding age constant, are most living standard and health indicators. Reaching age 70 over the next two decades, each successive Boomer birth cohort will (on average) experience declining median household net worth, declining median income, less DB pension coverage, greater inequality, and higher rates of disability and chronic disease. Among noncollege whites in their 60s, we are already seeing a remarkable decline in life expectancy as younger Boomer cohorts move into this age bracket.


The Senior Wave - seniorwave3


The Senior Wave - seniorwave4


The Senior Wave - seniorwave5


The Senior Wave - seniorwave6


In other words, we need to be realistic. Even as they usher in a new set of life priorities as consumers, this generation—first wave to last—will face growing wealth and health challenges and will cope with more fragmented living arrangements. They will also bring a more hourglass-shaped income distribution to a “golden-years” age bracket that has in recent decades been known for its strong middle class.




The sheer size and unique generational preferences of aging Boomers will be a boon to many industries.


“Traditional” healthcare. Here is a bankable prediction: Boomers will touch off a relentless rise in healthcare spending. The basic reason is that healthcare spending per capita is a very strong function of chronological age—with the cost rising exponentially from age 20 on. The per-capita cost of a 60-year-old is about double that of 40-year-old. The cost of 80-year-old is roughly double that of a 60-year-old. And so on. Per-capita Medicare spending peaks at age 96, which is really the highest age for which CMS has good data. As the U.S. population becomes top-heavy with seniors, the healthcare expenses associated with older age brackets will skyrocket.


The Senior Wave - seniorwave7


This cost boom will be further multiplied by adverse health trends (obesity and diabetes, most importantly, but also a growing cohort-linked rise in homelessness, alcoholism, and drug use).


One program where we’re already seeing the Boomer health cost wave is Medicare Advantage (MA). This will continue to accelerate. Over the last decade, spending on MA enrollees has surged by a remarkable compounded annual growth rate of nearly 14%. It’s not just that a lot more Boomers are consuming a lot more healthcare—but also that MA is a delivery mode that they strongly prefer. The share of senior Medicare beneficiaries enrolled in MA has more than doubled over the last ten years (from 18% to 36%). The CBO projects that this growth will continue in future years.


Why is MA so popular? These plans offer a more comprehensive set of benefits than traditional fee-for-service Medicare. Members are guaranteed access to an integrated network of doctors, out-of-pocket limits on healthcare services, and additional benefits like dental and vision programs. These qualities make it popular among both high-income and low-income seniors.


In the near term, first-wave Boomers will tax the healthcare sector with their demands for extra services (at higher premiums). In the longer term, for last-wave Boomers, the policy debates over Medicare, Medigap, and Medicaid will be mostly about delivering basic services at lower cost. Eventually, this will lead to a decisive shift away from fee-for-service medicine. MA began with a reputation as a frills-filled program for the affluent. In time, I expect, it will morph into a vehicle for capitated cost savings.


“Nontraditional” healthcare. Holistic Boomers will fuel a novel demand for New Age products and services in the 65+ age bracket. They will augment traditional medicine with alternative remedies—including supplements, coaches, traditional Chinese medicine, and other “wellness” solutions. Rock gardens, ministers, mindfulness sessions, and even psychotropic drugs are already becoming a staple of oncology units and hospices.


This trend extends to food. While previous generations of seniors were happy with their favorite CPG brands, Boomer seniors will go “all natural” by visiting Whole Foods (WFM)—or cheaper alternatives now offered by Walmart (WMT) and others. In fact, they’ll probably go online at GNC or the Vitamin Shoppe (VSI) to make sure they’ve got complementary medicines fully covered.


Perhaps the largest healthcare expansion of all will occur outside the realm of medicine. With more seniors living alone at times or on the move, Boomers (and their children) will increasingly hire professionals to handle everyday tasks like household chores and transportation. (Since these services fall outside the CMS’s strictly medical “home health care” category, these custodial costs will be largely out of pocket.)


One very promising growth area is telehealth. Although just 15% of family physicians used telehealth services in their practices last year, that share is sure to expand rapidly in future years. The acceleration will begin in rural areas where access to specialists (or even internists) is limited. Third-party private firms like American Well and Healthsense—as well as public firms like Teladoc (TDOC)—offer remote health monitoring services and telephone consultations.


Telehealth is in its infancy, to be sure, and Medicare has yet to expand its payment rules to accommodate diagnosis and care over broadband. But that will soon change. Earlier generations of seniors could hardly conceive of a doctor who didn’t live in the community and meet with them personally. Boomers have always prized independence and choice—and will want a healthcare option that fits into their more independent lifestyle.


Home improvement. When the G.I. and Silent Generations retired, they wanted to be close to their peers and their spouses—and to be distant from their kids. (Witness the rise of senior communities with age-restricted covenants located in the Arizona desert.) Boomers are the opposite. They don’t want to be near their peers and a growing share of them don’t have spouses. But they are far more likely to live near or even with their children and grandchildren.


Already, over the last decade, the share of seniors living in multigenerational families has swelled—and the share living in formal senior communities and nursing homes has shrunk. Yes, a growing minority (the spouseless and the childless) may be living alone, but even they will be drawn to so-called “intentional communities.” Besides, today’s affluent seniors are much more likely to still be working. Net result: Boomers will be aging in place rather than packing a Beacon 18-wheeler for the Sun Belt.


All of this means the Boomer family home is likely to remain a timeless and rooted family manse. And that in turn means big money for the home improvement industry. Boomers have already become the nation’s biggest spenders on McMansion upgrades. As they continue to age, even more of them will upgrade their homes to better accommodate themselves, their adult children, and their grandchildren.


Travel and hospitality. Boomer seniors will be on the lookout for meaningful getaways for their entire family. They will gravitate toward accommodations that allow the entire gang to share the same space instead of being divided into separate rooms—like the bungalows and villas offered by Walt Disney World Resorts (DIS).


When they aren’t spending time with their families, Boomers will want to go on their own adventures of self-discovery. Unlike the last two generations of seniors who traveled together in large groups to bland attractions, Boomers will seek out the high-brow, the edgy, and the serious—cultural tourism, “voluntourism,” ecotourism, or food tourism. Expect theme parks at Disney and Universal (CMCSA) to add an immersive personal transformation curriculum for these outward-bound seniors.




Plenty of industries that have grown disproportionately reliant on Boomer consumers are in for a culture shock in the decades ahead.


In the auto industry, for example, Boomers have recently been a lot more likely to buy cars than younger generations. (In 2011, one vehicle was purchased for every 14.6 drivers ages 55 to 64—compared to one for every 34.9 drivers ages 25 to 34.) Boomers have also been the disproportionate buyers of high-margin cars, like super-HP Mustangs or super-lux pickup trucks. The auto industry, having already sucked consumption out of future years with near-zero interest rates, is definitely worried about the aging of Boomers and their car culture.


Many parts of the entertainment and leisure industry are graying quickly as well. At the movies, attendance among younger audiences is falling, while attendance among older audiences is on the rise.


And what about pro sports? According to a 2013 Nielsen report, NASCAR, MLB, and the PGA had the oldest audiences of any sport—with 49%, 50%, and 63% of viewers over age 55, respectively. Sports have always been vulnerable to generational turnover. Boomers themselves recall as children an era when boxing and horseracing dominated the sports-page headlines. Wonder what happened to that?




Invest in sharing-economy technologies that cater to aging Boomers. A growing number of startups are doubling down on Boomers. Whether it’s meal delivery kits or Uber rides for seniors, the possibilities are endless. And with more Boomers living independently, the demand for these sharing-economy services is sure to grow.


Some companies have already jumped on the trend. Envoy, for example, allows people to hire stay-at-home parents to do a wide array of everyday activities—from shopping to transportation to household chores. GreatCall (the company that sells Jitterbug phones) now gives customers the ability to press a single button to contact an operator who can hail a Lyft for them—no app required!


The Senior Wave - seniorwave8


The Senior Wave - seniorwave9


Worried that Boomers will recoil from the tech-driven sharing economy? Don’t be: They’re no stranger to the sector, either as consumers or as workers. In fact, seniors in 2015 accounted for 16% of all workers in the sharing economy—a slightly greater share than youth age 18 to 24 (14%).


The Senior Wave - seniorwave10


Understand that Boomer culture will be ageless. In recent postwar decades, the cultural touchstones of seniors were often shunned by younger generations. When G.I.s and Silent dominated older age brackets, Benny Goodman or Frank Sinatra were widely considered “old-people music.” Today, by contrast, Boomer icons like Led Zeppelin or Mick Jagger enjoy pan-generational appeal. Indeed, most Millennials freely concede that Boomers did most of the great creative stuff, for whatever that’s worth.


The widespread generational appeal of Boomer culture explains why it is often used in advertisements not just for older folks, but for younger audiences as well. Age itself has acquired a certain cool. (The Dos Equis man, anyone?) The cross-generational appeal of Boomer culture will further narrow the generational gaps across extended families headed by Boomers.



  • In the coming decades, Boomers will swell the nation’s oldest age brackets. But what often goes unmentioned is the generational aspect: Boomers will bring their own distinct personality into senior age brackets, creating a whole new set of opportunities.
  • Due both to this generation’s sheer size and the new characteristics that it will take into old age, Boomers will fuel new demands in a variety of industries. Among those that stand to gain the most are healthcare, wellness, home improvement, and travel and hospitality.

Steiner: Market Risks Significantly Exceed Reward

Hedgeye Financials analyst Josh Steiner highlights the most significant economic threats right now and says that market risk is exceeding reward.


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EVENT | CERN Black Book Presentation

Thursday, September 15th at 11:00AM ET


Watch live below.


CLICK HERE to access the audio-only replay.


Please contact sales@hedgeye.com to access the associated slides.

P | Just the Bad (Business Update Call)

Takeaway: Today's announcement skewed slightly negative, but the key takeaway is that P's new cost structure favors the the sub model even more now.


  1. JUST THE BAD: In short, P was only able to offer us disappointing headline economics of its new deals without any real color on what it’s getting in return for offering these concessions.  That and it has only struck deals with 2 out of 3 major labels; there’s no timetable for when/if it will ink deals with Warner Music Group.  While we suspected P needed to give away a lot to get these deals done by year end, the headline economics were worse than we were expecting.  Most notably, P’s ad-supported content costs (Ad LPMs) are stepping up from a reported $30.65 in 1H16 to ~$33 moving forward.  In exchange, P will be receiving additional functionality on the ad-supported product that should also create more ad inventory.  Regarding the subscription model, P is expecting content costs in the range of 65% to 70% of revenue (consistent w/ Spotify), but that applies to the entire sub portfolio, which is also a step-up on its current offering that we estimate has content costs in the range of 50% to 55% of revenue.  Once again, P will be receiving additional sub functionality in return, but was unable to tell us what that will be.    
  2. SUB OR BUST? The ad-supported model is now even more expensive to run under these new terms, and while the additional functionality/ad inventory is a positive, monetizing that model has always proved difficult since it’s largely headcount (sales rep) dependent.  In short, the ad-supported model now just costs more without any guarantee of improved monetization.  That said, the economics of P’s model favors the subscription model even more now.  The question is how much mgmt will prioritize that model moving forward.  While the longer-term opportunity really depends on how aggressively P chooses to go to market with its expanded sub portfolio, a key tenet of our long thesis is that P really doesn't need that much conversion in the initial year post expansion to move the needle given how poorly the ad-supported model is monetized.  That said, we're comfortable staying long the initial year of the expansion, especially since we suspect take-out speculation/activist pressure to backstop any fundamental mishaps along the way.  


For more detail, see the note below and/or let us know if you would like a copy of our P Blackbook deck & replay.


Hesham Shaaban, CFA
Managing Director




P | New Best Idea (Long)
08/16/16 03:54 PM EDT
[click here]





Hanesbrands: Best Idea Short Conference Call | $HBI

Editor's Note: Our Retail team is hosting a Best Idea short call on Hanesbrands with institutional investors today. Email sales@hedgeye.com for more info.


Hanesbrands: Best Idea Short Conference Call | $HBI - z hbi


  • Hanes has top share in a slow growth category.
  • Feeling competitive pressure at high-end (Tommy John, Under Armour, Lululemon) and low-end (Gildan) = negative organic growth. The latter is particularly under-appreciated.
  • Capacity utilization at owned factories is at peak (90%+). People do not realize this as it is not readily disclosed.
  • Margins at peak 15.5% -- higher than Nike (not a direct competitor, but the comparison is telling). Trough margin  is 8-9%. It will see that level again.
  • As growth slows, doing deals at peak earnings and multiples to goose perceived/reported growth.
  • Latest deal is a non-scalable underwear company in Australia. They don't have our call that Australian economy faces a massive headwind as consumers run out of financial assets to draw upon to fuel consumption.
  • HBI takes more special charges than any company we've seen in retail. Strips out all investments to take up margins and get management paid.
  • Management selling/stepping down.
  • $5 upside, $15 downside.

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