DC Policy Questions Could Key Investments

 | Nov 01, 2013 | 5:01 PM EDT
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As markets look past Halloween and further into the holiday season, Washington offers mixed tidings. Recent weakness in managed care and credit card stocks could be accentuated or reversed by the next news on Obamacare and from the courts regarding the "swipe fee wars."   

A change atop the agency that regulates Fannie Mae and Freddie Mac could be seen as a modest positive for homebuilders and mortgage lenders, servicers and insurers. But when might such a change come, after Senate Republicans blocked Obama's Federal Housing Finance Agency nominee, Rep. Mel Watt (D-N.C.), yesterday?  

Meanwhile, any budget deal, no matter how small, might reduce near-term fiscal restraint, boosting U.S. GDP and equities more broadly.  But such signals look more likely on tap for January than mid-December -- and what if they just stick with the  sequester, after all?

I'll address the first two of these issues here, then come back with another post on the others.

How Toxic Is ObamaCare Exposure? 

To start, a report card around Thanksgiving on the Healthcare.gov Web site could create either fresh concerns about WellPoint (WLP)  among managed care providers, in particular, or perhaps a relative blessing for others like Humana (HUM) and United Health (UNH).  

WellPoint seems most exposed to the Affordable Care Act (ACA) exchanges, and thus may suffer the most should ObamaCare's woes metastasize. Yet its shares have fallen less than Humana and United Health since the Republicans' mid-September rebellion called attention to the potential for delays.  

Even though Congress may not pass a delay in the ACA's individual mandate, as the GOP has sought, my partner Kim Monk says that further delays in the open enrollment period -- now driven by the disastrous rollout of the exchanges and Web site -- could have the same deleterious effect.  

After all, the penalty date would also be pushed back, while participating providers have priced policies to both a narrow signup window and enrollments in size.  Should we instead see a wide window and lax penalties, producing lower-than-hoped-for enrollments dominated by the more-medically-needy, the community rating and universal coverage commitments that WellPoint and the Blues -- Blue Cross and Blue Shield -- have taken on could put them in a squeeze.  Meanwhile, an early signal of how much could be whether Health & Human Services Secretary Kathryn Sebelius is able to iron out the ACA's Web site issues by the end of November.

By contrast, not only do most of the other big players in the sector find themselves now only sparingly exposed to the ACA exchanges but they may also soon be in position for better pricing and more sign-ups as other Obamacare disconnects force individuals to scramble for other coverage. So there may be a pivot coming on these names soon, though with near-daily and breathless news coverage of the problem and its political implications, it won't sneak up on us.

What's in the Cards? 

Meanwhile, there could be a pre-Christmas stocking stuffer for credit card networks Visa (V) and MasterCard (MA), plus their affiliated large bank issuers -- Wells Fargo (WFC), Citibank (C), Bank of America (BAC), JPMorgan Chase (JPM) --  as well. 

Picking up on Jim Cramer's flagging of negative reaction to Visa's discussion of consumer sentiment on its quarterly conference call, I see the largest U.S. card network, along with its chief competitor MasterCard, positioned to hear potentially awesome news from the courts by mid-December. By that time, I expect U.S. District Judge John Gleeson to approve the proposed $7.25 billion class action settlement in the merchants' "swipe fee" case against the card issuers and networks. 

Most important will be whether Judge Gleeson tinkers with the "injunctive relief" in the settlement, which would shield the card issuers and networks for 10 years from lawsuits relating to pre-July 2012 practices.  

If you want evidence that the result will be significant for Visa and MasterCard as mobile wallet settles in as the new frontier, look no further than the fact that big-box retailers led by Wal-Mart (WMT), Home Depot (HD) and Target (TGT) have sued to block the settlement that some of their own attorneys had earlier helped to negotiate. 

Bottom line: Judge Gleeson, who is as much at the heart of the decades-old swipe fee wars as Judge Harold Greene was to the ultimate AT&T (T) breakup, may now take into December crafting  a final ruling capable of standing up to an inevitable further appeal. And his focused discussion during a Sept. 12 "fairness" hearing did little to reverse the impression that he's unimpressed with the dissident merchants' arguments.

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