AI & Employment/ USD Strength/ Insurance Costs/ Balance Sheet
AI & Employment
This past week the JPM Healthcare conference took place. The NVDA CEO and founder, Jensen Huang, took the stage with some Healthcare industry leaders for a fireside chat to discuss AI’s impact in healthcare. It got us thinking how will AI impact healthcare overall.
The above chart would suggest a fast-growing addressable market size by 2030.
Where is the present impact?
A more detailed idea of where the impact could be?
Why bring this up?
What will the impact mean for employment in the healthcare industry?
Well, we have noticed recently that 2 of the most impactful drivers to the Non-Farm Payroll (NFP) numbers have been Healthcare and Government jobs.
Below is a busy chart, we know, but it contains the contribution of Healthcare jobs, in the middle panel, and Government jobs, in the bottom panel to that of the overall NFP number, blue line in the top panel.
The top panel also contains the combination of the bottom 2 panels to give a better idea of just how much those 2 subsectors contributed. Bottom line to look for in the following charts is this: The 3 month average of government and healthcare as a percentage of total jobs contributed is just over 40%, with the last reading just under 44%. Almost half the NFP #, so closely watched by the Federal Reserve, is being largely driven from these 2 subsectors.
A simpler way to look at this is a chart of the % contribution of the 2 subsectors:
So, what happens if those drivers loose their momentum? Tough to argue against the demographics of an aging population, the Baby Boomers specifically. But, what if the initial AI contribution to the HC industry is the “low hanging fruit” if you will. Positions that AI can more easily and safely step into before taking on harder tasks that could carry a heavier responsibility to never be wrong. Since the beginning of 2022, as you can see from the 2nd panel of the chart above this last one, the HC industry has been on net hiring spree, that is a heck of a run.
Why include the Government jobs as well ? Considering all the chatter around a new quasi department, “DOGE”, Department of Government Efficiency, we think it’s a safe assumption that Government jobs could go net negative as that “department” begins to garner traction.
Bottom line, its possible that the 40% that has been driving the NFP numbers over the last few years could now be in jeopardy. Total conjecture on our part, but at the very least knowing what had been driving those NFP numbers is worthy of awareness.
In addition to the above its hard to miss anecdotal posts referring to AI’s forthcoming impact. Starting with GS CEO David Solomon:
or this one by Greg Isenberg:
Strength of the USD
We like to keep an eye on the GS Financial Conditions Index, the higher the Index the tighter Financial conditions are. Lately the Index has started trending north.
Many believe this is largely a function of the strengthening USD.
Notice the Blue line, USD Index, making a recent break higher, which some feel will only tighten financial conditions more.
So, if financial conditions have yet to be impacted fully by the strength of the USD, what do we think will happen to Fwd P/E multiples once the impact has begun to be felt?
Insurance Costs
We saw a very scary article on Bloomberg this week which we thought worth highlighting. The Uninsurance nightmare brewing in the US.
“But this isn’t just a Los Angeles problem. From California to Texas, Florida and beyond, parts of the US most susceptible to natural disasters are slowly waking up to an underinsurance nightmare. It’s still ballooning in scope as home values keep rising, people keep crowding onto the front lines of climate change and a heating planet keeps intensifying those disasters.”
“Nature will have a say in how quickly this process moves. Los Angeles homeowners caught in the city’s wildfires are already discovering insurance payouts won’t come close to replacing the full value of their homes, the Wall Street Journal reported this weekend. A lot of assumed wealth has gone up in literal smoke, destroying people’s financial security and deflating some of that housing bubble.”
“And home insurers aren’t just declining to renew policies in places like California’s WUI or Florida’s Gulf Coast. As the Budget Committee noted, they’re also starting to avoid places like Oklahoma, likely as a result of its exposure to thunderstorms, the destructive power of which has been amplified by climate change. Montana and New Jersey are among the many other states where insurance nonrenewals are a small but growing problem. This trend is driving homeowners, who must have insurance to get a mortgage, into the arms of state-run insurers of last resort or risky, lightly regulated insurers that tend to offer inadequate coverage.”
“Put it all together, and you get something that looks an awful lot like systemic risk, threatening home values across the country.”
Balance Sheet
Will we be seeing metrics like this consistently in the future ?
The US govt had total revenue (taxes, fees, tariffs) of $454 billion. The US govt paid $140 billion in interest on the national debt. 31% of all govt revenue was consumed by interest payments on the debt. It is actually worse than that. The money revenue and payments for things like social security push up the revenue number, but it is all out the door to recipients right away. If you ignore the social security and unemployment insurance money, the US govt had $317 billion in revenue and paid $140 billion in interest on the national debt. About 44% of all revenue went to interest.
or looked at another way:
Have a great weekend!
Best
Meraki Trading Team
About Meraki Global Advisors
Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.
For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development
