MAYBE THEY'RE LISTENING TO IPODS
By Charles Payne, CEO & Principal Analyst
1/26/2010 1:48:18 PM Eastern Time
Maybe it was the latest consumer confidence reading but the market pulled itself off the canvass and looks impressive all things being considered. Certainly it would have been hard to come in below the last reading that saw the "expectations bias" at its widest ever, which is how people feel about things in the present versus the impression of how conditions will be in the future. Actually, the present conditions reading posted a solid gain while expectations edged moderately higher. Still, as the old saying goes, it's tough out there.
Business Conditions:
* "Good" climbed to 9.0% from 7.5%
* "Bad" climbed to 46.1% from 45.7%
Jobs:
* "Plentiful" increased to 4.3%
* "Hard to Get" decreased to 47.4% from 48.1%
Story Follow-Up
By: Brian Sozzi, Research Analyst
In a late December note, I outlined a strong case for building positions in the PBM/drug wholesale sector. I stated:
"Whatever one's opinion on the soon to be law healthcare reform package, the fact is that there are money making investment opportunities as a result of the scheme. A subsector well positioned to benefit from an increase in those obtaining access to care are the pharmaceutical benefit managers (otherwise known as "PBMs") and drug wholesalers. The main players in this drug middleman sector include Express Scripts Inc. (ESRX), Medco Health Solutions (MHS), AmerisourceBergen (ABC), and Cardinal Health Inc (CAH). An honorable mention goes to the struggling CVS Caremark (CVS). PBMs and drug wholesalers are cash rich companies that stand to become much richer as the healthcare debate shifts to political complaining about the actual law."
Obviously, with Scott Brown's win the healthcare debate has changed dramatically. Gone may be the expensive, anti-growth measures put forth by the Obama Administration. Who knows the end result, but any change in healthcare that provides insurance to a greater amount of people will be welcome news to the PBM/drug wholesale sector. However, assuming those uninsured people stay uninsured, the fact is that the government is friendly toward the expansion of generic drugs. Over time, it's hoped by industry insiders that "bio-generics" will reach the market, all in an effort to reduce the significant costs of having to purchase brand drugs for chronic illness (or having to purchase brand drugs at all). A tighter focus on generics is music to the ears of the management teams at PBMs and drug wholesalers as this is the best medium from which to expand gross margins. Generics account for only about 22% of prescription drug spending in the country, although they represent nearly three-quarters of the prescriptions written. That means 78% of the nation's drug bill goes toward the 25% of prescriptions written for name-brand medicines.
In other words, the industry opportunity is huge, and is why I continue to be bullish on shares of AmerisourceBergen. Check out
www.wstreet.com later today for a special article I plan to post on the company, which announced earnings this morning.
Behind the S&P Case-Shiller Numbers
By: David Urani, Research Analyst
The S&P Case-Shiller home price numbers for November showed a 0.2% month to month decline (+2.0% seasonally adjusted), representing a 5.4% decrease year over year. The month to month decline broke a six-month winning streak for the index, although it was only a mild decrease. Actually, we were surprised to see prices increase so smoothly in previous months. There are still significant foreclosure issues behind housing, and in the months ahead we are expecting to see some volatility in pricing.
Regionally, the numbers have been a little concerning. Over the past couple of months, the increasing regions have generally been the hardest hit markets (the biggest month to month gain was 1.1% in Phoenix) such as California, while prices have been declining throughout the rest of the country. It seems likely that the cocktails of government aid that are going into these difficult markets may be propping up values for the time being, and taking them up from extremely depressed levels. Meanwhile, the "healthy" markets are on a slow decline. The biggest monthly drop was a 1.1% decline in Chicago. It is apparent after recent home sales data that without the tax credit in place (it had been set to expire in November, causing a drop in demand), home sales will fall. Consequentially, removal of the tax credit would lower the floor in prices. For now, the tax credit is a necessary safety net.
Jobs are still being lost nationwide, which is the biggest driver of foreclosures. In addition, the White House's HAMP mortgage program currently has more than 850,000 people enrolled in a trial, of which less than 70,000 have been converted to the full program. We are afraid that a large amount of these trial participants that do not qualify for a modification are likely to enter the delinquency process. However, the said decline in employment is showing signs of abating and by the middle of the next year we could well be seeing job growth. This would help greatly to stall foreclosures, while also reigniting natural home demand (sans tax credit, mortgage liquidity, and other aid). When employment does eventually turn, then we would expect to see supply and demand come back into balance, allowing prices to begin making significant progress to the upside.
Like it or not, if the government wasn't so involved in housing, the market would have continued to fall much further, and still could if these measures were taken out. The tax credit appears to have a meaningful psychological affect on buyers, maintaining demand. Meanwhile, the HAMP program, as inefficient as it may be, is likely to cause enough of a delay effect on foreclosures to carry the market to that point of employment growth when the market can begin to recover more naturally. Prices will rise then, but the big question will be how the Administration winds down those programs, if it does. In addition, there are likely to be big structural changes in Fannie Mae, Freddie Mac, and the financial industry as a whole.
What we need to acknowledge is that the government is essentially re-inflating the housing bubble to keep it from crashing further, and it will be an incredibly difficult balancing act to ensure that the housing market recovers to actual growth before taking out these backstops, but then to also wind down the programs once we are on our way to avoid artificially supercharging the market. I believe this can be done, but I have my concerns, particularly with respect to Fannie and Freddie. Barney Frank has already acknowledged that they need to be restructured, and I think just about anybody would agree with that. However, I would bet my bottom dollar that Fannie and Freddie get fully integrated into the government as opposed to broken up. A fully Fed-backed Fannie and Freddie with the government at the controls is an extremely powerful bubble driving machine.
Consumers Becoming a Bit More Confident
By: Carlos Guillen, Research Analyst
Earlier today, the Conference Board announced that its consumer confidence index ticked higher to 55.9 in January from 53.6 December, higher than the Street's expectation of 53.5. However, while consumers are more confident, they still continue to feel pessimistic overall.
It is encouraging to see that the index of consumer confidence continued to inch higher for the third time in a row. Consumers see that the current situation is not likely to get worse, but this is as good as it gets. Consumers are not quite seeing things getting much better either and, as a whole, the number of pessimists continues to outnumber the number of optimists.
Overall there seems to be a mixed bag of feelings about the present and the future. On the positive side, those who believe that business conditions are good increased to 9% from 7.5%. Those who believe that jobs are difficult to obtain decreased to 47.4% from 48.1%, and those who believe jobs are plentiful increased to 4.3% from 3.1%. On the negative side, those who believe that business conditions are getting worse increased to 46.1% from 45.7%.
Looking at the future, those that believe the next six-months will bring better business conditions decreased to 20.9% from 21.2%, and those that believe business conditions will get worse increased to 12.7% from 11.8%. Those that believe job opportunities will become fewer decreased to 18.9% from 20.6%, yet those that believe that there will be more jobs also decreased to 15.5% from 16.4%.
The only solid conclusion that can be made from all this is that consumers do not see things to get worse, but they are not really expecting things to get much better either.
Final Note
It is good to see the market react to positive developments rather than outside influences. People feel slightly better, but miles from confident about jobs.
