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2 LEGAL DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice to individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more detail please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at HEDGEYE 2

3 3MO HEDGEYE ASSET ALLOCATION April 21, 2016 THE MACRO 4/11/2014 SHOW

4 3MO HEDGEYE ASSET ALLOCATION 80% 70% 60% 50% 65% The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other asset classes is 33%. 76% 40% 30% 20% 10% 0% 0% 15% 15% 0% CASH U.S. EQUITIES INT'L EQUITIES COMMODITIES FOREIGN EXCHANGE FIXED INCOME April 21, 2016 THE MACRO 4/11/2014 SHOW

5 1 2 3 EUR/USD SENTIMENT #THEDATA

6 EUR/USD The ECB is on hold with its interest rates decision (as expected). Tune in for the 8:30am ET presser in Frankfurt with Mario Draghi. We expect no great waves = announcements after the significant actions taken last month. Trade the range on the EUR/USD = $ $1.14.

7 SENTIMENT We talk about sentiment extensively from a behavioral standpoint (whether its derivative contract positioning, volume surrounding price moves, implied volatility, II bull/bear spread, etc.), but one notable call-out that sheds light on current bearish sentiment is the decline in forward-looking earnings expectations. We ve called out the likeliness of another quarter of declining rev. and earnings comps (so far 108/500 have reported and earnings growth is down -7.5%). But when you look at reported earnings vs. consensus expectations, every sector has beat bottom line for Q1 with aggregate earnings in the S&P 500 surprising to the upside by 5%. So right now you re weighing consensus expectations vs. increasing market-based multiples and we don t think it can last.

8 #THEDATA Since the late-september lows, the S&P 500 has held a reasonably tight positive 0.75 correlation with the Citi U.S. Economic Surprise Index, which itself has rallied hard off it s early-february lows as U.S. economic data stabilized in rate-of-change terms and perpetuated a waning of recession fears. Now, a topping process in the latter index appears to have gotten underway over the past two weeks, as most recently highlighted by this morning s meaningful misses in the Chicago Fed National Activity Index and the Philly Fed Business Outlook Survey. We reiterate our view that [pending] dour economic data itself is the catalyst for the market to decline from here. Since the late-september lows, the S&P 500 has held a reasonably tight positive 0.75 correlation with the Citi U.S. Economic Surprise Index, which itself has rallied hard off it s early-february lows as U.S. economic data stabilized in rate-of-change terms and perpetuated a waning of recession fears. Now, a topping process in the latter index appears to have gotten underway over the past two weeks, as most recently highlighted by this morning s meaningful misses in the Chicago Fed National Activity Index and the Philly Fed Business Outlook Survey. We reiterate our view that [pending] dour economic data itself is the catalyst for the market to decline from here.

9 HEALTHCARE TOM TOBIN

10 HEALTHCARE POSITION MONITOR Sentiment Investment Ideas - Longs Trade Trend Tail Sentiment Investment Ideas - Shorts Trade Trend Tail Score 1 LONG Score 1 SHORT 6 ATHN athenahealth, Inc. 93 ZBH Zimmer Biomet Holdings, Inc AHS AMN Healthcare Services, Inc MD MEDNAX, Inc. 45 HOLX Hologic, Inc. 24 MDRX Allscripts Healthcare Solutions, Inc. --- Sentiment Long Bench Sentiment Short Bench Score 1 LONG Score 1 SHORT 35 CSLT Castlight Health, Inc. Class B n/a CPHD Cepheid EVH Evolent Health Inc Class A MDSO Medidata Solutions, Inc CERN Cerner Corporation ILMN Illumina, Inc WOOF VCA Inc ICLR ICON Plc CYH Community Health Systems, Inc Q Quintiles Transnational Holdings, Inc CRL Charles River Laboratories International, Inc DVA DaVita HealthCare Partners Inc LPNT LifePoint Health, Inc QSII Quality Systems, Inc LH Laboratory Corporation of America Holdings HCA HCA Holdings, Inc PRXL PAREXEL International Corporation DGX Quest Diagnostics Incorporated CPSI Computer Programs and Systems, Inc DATA SOURCE: FACTSET HEDGEYE 10

11 EXCHANGE ENROLLMENT VS JOLTS Pre-Effectuated Exchange Enrollment (mill) Effectuated Enrollment (mill) JOLTS HC Job Openings (tho) ,100 1,000 # Exchange Enrollment (mill) JOLTS DATA SOURCE: ASPE HHS, CMS AND KAISER HEDGEYE 11

12 TOTAL ACA ENROLLMENT VS JOLTS 30 Exchange Enrollment* Medicaid Enrollment** Cumulative HC Job Openings *Includes a mix of pre-effectuated and effectuated enrollment for 2014/2015 period. February 2016 is preeffectuated only reflecting OE ACA Enrollment (millions) **Cumulative enrollees for expansion states relative to baseline enrollment year JOLTS (thousands) DATA SOURCE: CMS, KAISER AND BLS HEDGEYE 12

13 PENT-UP DEMAND NEWLY INSURED 7.0x 6.0x 6.2x Newly Enrolled Relative Use 5.0x Relative Use 4.0x 3.0x 2.0x 1.0x 2.5x 2.4x 1.9x 1.7x 1.5x 1.0x 0.9x 0.0x Knee Replacement Surgery Lower Back Pain Surgery Upper Endoscopy MRI/MRA CT Gallstone Knee Arthroscopy Dermatology SOCIETY OF ACTUARIES ANALYSIS OF KS CLAIMS DATA DATA SOURCE: HEDGEYE 13

14 MEDICAID ENROLLMENT & OUTLAYS Medicaid Enrollment (millions) Jul-Sep 2013 Medicaid Enrollment Baseline Total Medicaid Enrollment (incl. expansion states) Grants to States for Medicaid (3MAV) 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 Grants to States for Medicaid (Monthly, billions) DATA SOURCE: US TREASURY, CMS, HEDGEYE ESTIMATES HEDGEYE 14

15 MEDICAID PER ENROLLEE SPENDING $440 $430 Per Enrollee Spending Per Month (3MAV) Per Enrollee Spending Baseline July-Sep 2013 $420 $410 $400 $390 $380 $370 $360 DATA SOURCE: US TREASURY, CMS HEDGEYE 15

16 NEWLY INSURED MEDICAID SPEND $850 Per Enrollee Spending Per Month Baseline (3-mo Average) Newly Insured (3-mo Average) $800 Average Per Enrollee Spend Newly Insured Medicaid $750 $700 $650 $600 $550 $500 $450 Newly Insured Under Medicaid Spend +49% More Than Existing Population $400 $350 DATA SOURCE: CMS AND US TREASURY HEDGEYE 16

17 CUMULATIVE PER CAPITA IMPACT $350 Cumulative Total $ Cumulative Baseline $ Cumulative $ Impact (billions) $300 $250 $571/New Enrollee $200 $150 $100 $381/Enrollee Acuity Impact +$101.2 Billion $50 $- DATA SOURCE: CMS HEDGEYE 17

18 INCREASE DEMAND FOR LABOR YoY # Healthcare Employees Per Insured Individual YoY # Hospital Employees Per Insured Individual YoY # Physician Office Employees Per Insured Individual" (1.0) (2.0) (3.0) (4.0) (5.0) DATA SOURCE: BLS AND CMS HEDGEYE 18

19 HEALTHCARE EMPLOYMENT GAINS 600 April December Months April 2014??? 24 Months Rolling 12-Mo Healthcare Employment Gains DATA SOURCE: BLS HEDGEYE 19

20 HOSPITAL EMPLOYMENT 4.5% Employment - Hospitals y/y growth % 4.0% 3.78% 3.5% 3.0% Employment y/y % 2.5% 2.0% 1.5% 1.0% 0.5% - (0.5%) (1.0%) DATA SOURCE: BLS HEDGEYE 20

21 PEAK HC JOB OPENINGS? 1,100 HC Job Openings Average +1 Std Dev -1 Std Dev +2.9x Std Deviation 1, ACA Impact DATA SOURCE: BLS HEDGEYE 21

22 HEALTHCARE JOLTS SLOWING 50.0% JOLTS: HC Job Openings Rolling 3-Mo YoY % 2-Yr Average 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% DATA SOURCE: BLS HEDGEYE 22

23 HEALTHCARE JOLTS SLOWING 50% JOLTS HC Job Openings 3-mo Average YoY % 2-yr Average 40% 30% 20% 10% 0% -10% -20% -30% -40% DATA SOURCE: BLS HEDGEYE 23

24 HEALTHCARE JOB OPENINGS (JOLTS) 70.0% 60.0% 50.0% JOLTS: Health Care and Social Assistance - Job Openings y/y growth % 2-Yr Average Rolling 12-mo Average 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% DATA SOURCE: BLS HEDGEYE 24

25 HEALTHCARE JOLTS SLOWING 60.0% JOLTS: HC Job Openings Rolling 3-Mo YoY % ROC 50.0% 40.0% 30.0% 2/29/ % 20.0% 10.0% 0.0% 2/ % -10.0% -20.0% -30.0% 2/29/ % -40.0% -50.0% DATA SOURCE: BLS HEDGEYE 25

26 HEALTHCARE JOLTS % EMPLOYMENT 3.0x 2.5x HC JOLTS % of HC Employment Z-Score 2.0x 1.5x 1.0x 0.5x 0.0x -0.5x -1.0x -1.5x -2.0x -2.5x DATA SOURCE: BLS HEDGEYE 26

27 HEDGEYE MACRO 3MO PROCESS: RATE OF CHANGE April 21, 2016 THE MACRO 4/11/2014 SHOW

28 3MO S&P REVENUE & EARNINGS COMP April 21, 2016 THE MACRO 4/11/2014 SHOW

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