WIZARD OF OZ
HEALTHCARE FIRST LOOK
27 November 2009
I recently read the original Wizard of Oz to my four year old daughter. If you have not read it, we would both recommend it to you. The characters are a lot more complex and interesting than in the movie, telling a deeper story about the courage, love, and smarts needed to find one’s way back home. The land of Oz was in the middle of an impossibly large desert, but that’s not the only connection to the stories on Dubai’s debt payment delays. The connection is Oz himself, the former carnival barker turned supreme ruler, and who famously says in the movie version, “pay no attention to the man behind the curtain.” In the book, the same moment arrives, but after becoming murderously angry at Oz for his fraud, Dorothy and her friends continue to vest Oz with the power to change their lives. He lies to them, almost gets them killed, and still they think he can fix them! Dubai asking for a little understanding and six months to begin making debt payments again is something similar. Just because the world didn’t come apart at the seams (or get sucked up in a tornado) when it felt like it would, doesn’t mean we don’t want the folks in control, well, to be the folks in control. I guess if you don’t have the money and can’t pay the bill, Dubai really doesn’t have any choice. Over the next six months, we’ll see how good the interconnected banking world is at playing the role of Oz. There is probably a lot of wishing and clicking of heels this morning believing that Dubai won’t default on their debt when this 6 months is up, and there is plenty of other piles of debt, whose holders are still hoping nobody will notice “the man behind the curtain.” For the Research Edge portfolio, we added our shorts recently in the highly levered BKD and HMA.
HEALTHCARE PERFORMANCE
Healthcare finished green on Wednesday as Breadth remained positive and volume slumped 30% ahead of the holiday. Healthcare news was light but Macro econ data was fairly dense with housing, jobless claims, and consumer confidence data all coming in ahead of expectations. Perversely, and as we’ve been highlighting, what is good for the economy & American citizenry may be ostensibly negative for the market. Tangible economic improvement will force a self-proclaimed data dependent Fed to move off of zero percent ‘emergency’ interest rates and away from ‘extraordinary’ depression avoidance monetary policy. A strengthening dollar would serve to stymie asset reflation with a rising cost of capital pressuring leveraged balance sheets that have largely exhausted expense leverage and are unlikely to see attractive topline growth. We’ve been highlighting the cresting of the healthcare liquidity trade in Hospitals and Senior Livings which have tracked high yield performance off the march lows. We posited that with JNK prices moving back to pre-Lehman collapse levels, the balance of risk now lies in a re-expansion in risk spreads and a satiation in risk appetite. We are seeing evidence risk avoidance here this morning (USD/Treasuries up, JNK down) in response to Dubai World as the U.S. futures look to play catch-up to the two day sell-off in global equity markets. Large Pharma branch-out & R&D diversification continued as NVS announced its collaboration with INCY in the development of two investigational hematology-oncology therapies. - A collaboration worth a potential $1.1B for Incyte. ILMN, which recently completed a $75M share repurchase, led Scientific Equipment higher as the company announced an additional $100M repurchase program. Generics continue to perform well as the bidders line up in the auction for German generics drug supplier Ratiopharm. No holiday for biopharma capital raising as SPPI extends the supply of secondary offerings with its mixed shelf filing for $250M.
RESEARCH EDGE MACRO SECTOR VIEW
(++) TRADE and TREND bullish
RESEARCH EDGE PORTFOLIO - MD, UNH, (HMA), (BKD)
Activity – Keith Shorted BKD in the Research Edge Portfolio on Wednesday
According to the man who called the bottom in BKD (Tom Tobin), back to normal means the tailwinds off the March lows are played out. Small cap with leverage - thats what I want to be short here. KM
NEWS
Obama trying to refocus attention on CSMonitor
TT: Is Obama as Oz…
Reform Tax Boston
WA budget issues SeattleTimes
MS state budget Here
LA budget Here
AARP backing away from Public Plan Hotair
Lobbyists at the White House Bloomberg
Lincoln re-eelection at risk over Healthcare vote Here
SOURCES: FirstRain, Streetaccount, & Various Internet Sites
