In this special HedgyeTV video, Hedgeye CEO Keith McCullough discusses why the establishment media is “fast becoming irrelevant” with Demography Sector Head Neil Howe.
Earnings season is underway and the results aren't looking good, particularly for the Industrials sector (see pre-announcements from Dover and Honeywell).
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Cue the barf bags. Chipotle (CMG) is down -2.5% today after a Wall Street analyst cut his outlook. It's down -45% since Hedgeye Restaurants analyst Howard Penney turned bearish in October 2015. He says Wall Street consensus remains “far too optimistic.” Here's why.
Takeaway: Disappointment continues for investors searching for a bottom in the industrial economy.
An industrial production update today confirmed yet another month of contraction in the industrial economy. Growth was negative for the 13th consecutive month at -1.03% year-over-year. That makes it the longest non-recessionary losing streak ever. Att the same time, earnings from manufacturers in the industrial complex are reporting dismal financial results.
In other words, investors searching for a bottom in the industrial economy have been disappointed for over a year now.
Our quarterly Macro Themes for the Q4 highlighted the #DoubleDipRecession risk embedded in the recent runup of the Industrials (XLI) sector. XLI is up +8% versus just 4% for the S&P 500. Here's what our Macro team wrote:
"The cyclical-industrial complex peaks ahead of the peak in the economic cycle and the current cycle has not proved different. Globally, growth and inflation expectations continue to be marked lower while PMI's and Industrial activity remain in Trend retreat. Domestically, manufacturing ISM's remain peri-contractionary while industrial production and corporate capex remain mired in their worst non-recession streaks of negative growth ever."
More bad news today for the industrial sector came from J.B. Hunt Transport Services' (JBHT). The freight trucking company cut its sales guidance for the year today to 7% growth from a prior range of 9% to 12% growth. The trucking industry has struggled with excess capacity, pricing pressures, and weak customer demand.
Double dip Recession? Yes.
Takeaway: We will provide a comprehensive overview of our #ACATaper and Healthcare Deflation themes with new datasets and analysis.
4Q16 healthcare themes conference call
We hope you can join us for our 4Q16 Healthcare Themes Call Today at 1:00 PM ET. We will provide a comprehensive update of our #ACATaper and Healthcare #Deflation themes with new datasets and analysis, including a detailed look at the population of insured medical consumers by month, state, and payor type (chart above).
The U.S. Medical Economy remains extended after the largest expansion in insured medical consumers in a generation. Slowing growth in medical consumers, continued deterioration in affordability, aggressive payment reforms, company leverage at 15-year highs, and multiples at 10-year highs is a recipe for downside. We don't believe that the U.S. Medical Economy growth recovery of 2014 -2015 is durable, but rather a temporary boost in consumption driven by massive government stimulus.
We are also extremely pleased to announce that Emily Evans, Director of Health Policy at Hedgeye, will be joining the presentation and sharing her views on major policy initiatives including Alternative Payment Models, MACRA, and post-acute reform, among other topics that significantly impact our fundamental views.
key topics WILL include
#ACATaper Update and Review
Data updates since our JULY 2016 presentation
(continue to progress in line with our expectations for slowing demand)
- JOLTS and Medicaid Pent-Up Demand
- Exchange Enrollment
- Premium/Deductible Affordability
#Demographic Headwinds (YES HEADWINDS!)
Incremental medical spending for the US Medical Economy
(the most profitable in the world, will be sourced almost exclusively from Medicare, one of the least profitable payors with mounting deflationary pressures.)
- Impact of Aging Population
- Per Capita Spend by Age Cohort
- Utilization History
Hedgeye Macro Has Been Highlighting Risk to U.S. Growth
(which is negative for the U.S. Medical Economy)
- Employment vs. Privately Insured
- Hospital Bad Debt Expense
- Real Private Fixed Investment
- Biotech Fundraising Cycle
#Cleansweep Policy Post Election
(Emily Evans will provide her outlook for post-election policy pressures which are likely to deteriorate further if Democrats make a clean sweep in November)
- Major healthcare issues that have crystalized during campaign including affordability of health insurance, drug prices and public option
- Implications to those issues if:
- Democrats win White House and gain majorities in House and Senate
- Republicans win White House and retain majorities in House and Senate
- Government remains divided
- Major healthcare issues that have not moved to the fore but have bi-partisan support include addressing mental health and substance abuse, elimination of certain ACA-related taxes and payment and delivery reform
#Defensive Long Healthcare Positioning Looks Like Consensus...
(and likely a bad idea here)
Healthcare As A Safe Haven Looks Like Consensus...
(likely to unwind if we are right on emerging fundamental and policy headwinds)
- Style Factor and Surprise Analysis
- Estimate Revisions
- Relative and Absolute Valuation
Please call or e-mail with any questions.
CLICK IMAGE above TO WATCH FULL INTERVIEW
Some key observations from Jones:
- "This is Hillary Clinton's race to lose. It's very unlikely Trump can come back from his deficit."
- "Setting the election aside, the fundamental macro economic backdrop is really negative."
- "Stock valuations are sky high."
- "This isn't like any other cycle. What happens in the short term with resolution of this election soap opera will be positive. But then we have to deal with the Fed again."
- "We actually have U.S. GDP slowing into Q1. That will be bad for the stock market."
- "The one area that's going to benefit under almost any scenario is infrastructure spending. Both candidates want to invest here."
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.