Are These Obama Health Insurance Stocks’ Price Level Sustainable?

Shortly after Obama’s health care reform announcement on 2010.02.22 M, the health care industry stocks started to fall.  Even at closing, google still shows they are down.  However, health care insurance sector, such as Cigna (NYSE: CI http://www.cigna.com) and Aetna (NYSE: AET www.aetna.com), recovered very quickly and in factor closes better than yesterday 2010.02.19 F.  Who got the short straw in this latest round of Obamacare drama?  Why?  Didn’t Obama say job is his number one priority in the State of the Union?  Is this some kind of ideological fixation he has? 

If you need more information than CNN gives, then try this summary page.

The google health care index is down because the drug companies’, such as Merck (NYSE:MRK http://www.merck.com) and Johnson & Johnson (NYSE:JNJ http://www.jnj.com), stocks are falling.  Obama’s donut-hole fix will affect these drug companies’ financial performance.  On top of that, a lot of their patents are expiring. 

Health insurance companies are doing well because this round of reform is perceived to be creating demand for them.  Anti-discrimination is written in the announcement.  However, it is to “prohibit pre-existing condition exclusions, and prohibit discrimination in favor of highly compensated individuals” (the CNN does not say this.  You have to look it up from the summary link above).  In terms of “pre-existing condition”, that can translate to underwriting, i.e. if an applicant has to be accepted or not.  What it does not say is this: can the pricing of the same product be different to different individuals based on pre-existing condition?  Or based on zip code?  Based on county?  Based on race?  Which health condition is race related have you heard of lately?  Some explanation about “discrimination in favor of highly compensated individuals” is obviously needed. 

Obama knows health care reform did not work in the legislature.  He more likely than not knows his magic does not work on the Republican senators.  Does he believe his proposal will get some moderate Republicans?  If he wants to work getting moderate Republicans, then he would be work on them individually behind closed door.  And we will end up seeing a big announcement with some of these congressmen.  Instead, we see Obama’s proposal.  So, this is HIS proposal.  The other guys are missing.  So, he is making a political move to show to the electorate he has done his homework and tries to paint that the other guys are the real road blocks. 

Yes, they are.  And we have known it for a quite while.  And in fact, they have been encouraged by the voters to be road blocks.  Therefore, Obama better have planned a second move after Republicans’ predicted uncooperative stand.  If you truly believe that the Republican road blocks will not make Obama’s proposal work, then you should ask if these price levels sustain.

Barney Frank Agrees With Evan Bayh

Barney Frank agrees with Evan Bayh that the climate in the Congress is not operating as it should and that there is too much partisanship. Frank thinks it would be better if Senator Bayh stays on and helps to end the filibuster, a procedure that allows bills to be stalled or killed.

Both parties have used the filibuster and both have threatened to kill it in order to pass their agendas. The filibuster is only good when one is in the minority and bad when one is in the majority. Minorities love using it.

The filibuster is a thorn in the side of the majority because invoking it requires a 3/5 (60 vote) cloture to end it. This means that each time the filibuster is used it requires more than a simple majority to get things passed.

The Constitution describes a quorum as a majority of a particular chamber present. This suggests that a majority is all that is needed to conduct business and to get things done. However, the Constitution also allows each chamber to make its own rules and the rules of the Senate allow for the filibuster and requires 3/5 to end it. They can change those rules but that would require 2/3 (67 votes) to vote for the change. It is unlikely that the Senate could get 67 people to vote on ending the filibuster as a rule change.

If Democrats were to succeed then it is likely they would ask for the filibuster in the future and would want a rule change to get it. Remember, the minority party loves the filibuster. If they could get 67 votes they might get satisfaction now but regret it later when a Republican Congress and President could do what it wanted with no opposition from Democrats.

Another option is the Nuclear or Constitutional option. This is a procedure where the filibuster is declared unconstitutional and then must be voted on. In order to pass, a simple majority of 51 votes is needed. In other words, the Democrats could declare the filibuster unconstitutional and then use 51 votes to end it (Republicans do not have enough votes to stop it).

This is what Bill Frist threatened to do when Bush nominees were being denied an up or down vote. The Democrats threatened to shut down the Senate if Frist invoked the nuclear option. The filibuster was obviously important to them at that time and they were willing to shut down the Senate to keep it.

I am not sure how they could have shut down the Senate but one would have to assume the Republicans could do the same thing.

If the Democrats declare the filibuster unconstitutional then it would likely be lost forever. How could any Congress later state that it was not unconstitutional after all? Of course, how can they declare it unconstitutional when they have been using it since the mid 1800s?

As for Barney Frank, he is not part of the Senate so his input really matters little since he cannot vote on the Matter. Besides, he has been one of the most partisan people in Congress.

His idea of partisanship is when Republicans do what the Democrats want. Frank has little concern for the ideas of the other side.

I did not like Ted Kennedy but he knew how to broker a deal and to reach across the aisle on occasion. He worked with Republicans and Republicans worked with him to get legislation passed.

Was it always good legislation? No but they did work together.

We do not need to end the filibuster, we need to end the tenure of the people in Congress. It is time to sweep out the people who have been there for way too long.

In the last election the youth of America embraced Barack Obama as young and in tune. They discounted McCain, in part, because of his age and length of service.

It is time they did the same to the people in Congress by embracing younger people who are not career politicians.

Most Americans are not far left or far right. I am conservative on some things and moderate on others. Adam and Darrel, who comment here, are liberal on some things and moderate on others. We can have the debates about policy and what we think is good for America and we can either agree or agree to disagree. In the end we have more in common than not though we differ on how to get to where we need to be as a country (and where we need to be). One thing is certain though, we cannot get anywhere as long as we allow people to take up residence in DC and have decades long careers. We need fresh blood.

Vote for the new person in the primary and then let the parties fight it out in the general election. Let us show them who they work for and let us hold them accountable.

I will not vote for any incumbent in November. I urge everyone else to do the same.

Sources:
CBS News
Breitbart

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What Do You Care About Greek Default? Or Andrew Jackson?

My employer has no business ties in Greece.  I have nothing Greek: no property in Greece, no mutual fund based in Greece, no IRA fund based in Greece, relatives in Greece.  So, what do I care about Greek?  You got to be kidding me.  Eh…. Do you care about the US recovery?

Greece is part of Euro.  A fiscal instability leads to the instability of Euro, or more precisely the depreciation of Euro.  Now, that is the beginning of problems.  First off, US exports get more expensive in the Euro land, i.e. the continental Europe that Rumsfeld called the Old World.  Euro’s depreciation is no good if it happens when US wants to export more.  But then, where can US export?  China?  Even when Chinese are buying Walmart products, how does that help US unemployment rate when those products were made in China to begin with?  Of the products that are US made, how many of them can be sold in China without violating either US embargo (regulated high tech products) or Chinese sanctions (produced by companies who sell arms to Taiwan)?  Do you think US can sell solar panels to China when China is the largest solar panel producer (by footage) in the world?  How many jobs can be produced in the US if Chinese eat more MacDonald’s?  It certainly gives a higher return for your pension funds, your 401k funds and IRA funds.  But jobs? No. 

Secondly, it is not a good idea when US wants to sell assets in Europe and the bring cash home.  It will either make the sale less appealing to the buyer if the seller wants it to be a US dollar deal, or it will make the sale less appealing to the seller if the buyer wants it to be a Euro deal. 

GM for sure will not be happy since they are selling SAAB.  Although the deal for SAAB is in US dollars, it certainly makes it more difficult for the buyer to finance the deal.  And if you have bought a house before, you may recall that the deal is often contingent on funding availability. 

Third, it certainly makes US assets more expensive to Euro investors.  NYSE (or NASDAQ) stocks are looking for more expensive to Euro investors now, although US and/or UK assets may have to become the safe harbors for the time being.  But they certainly are looking more expensive. 

The value of a currency (Euro or USD) has a great deal to do with the expectation how well that currency’s assets are.  The assets in Greece, i.e. Euro, are not looking good due to Greek fiscal policies.   A comparison of Greece in Euro land has been made to California.  While that may resemble somewhat in economics sense, I tend to think of this crisis as the early United States where the federal government was still responsible to foreign debts incurred during the Revolution War but all the states retained their rights to print currencies.  European Union has long been criticized as an elitist creation.  Voters mistrusted it in Ireland (2008), France (2005), Denmark (2000).  Urbanite/merchant Hamilton created the central bank to monopolize monetary power and ruralite/agrarian Andrew Jackson removed it.  As a result of multiple currency issuer and each currency has its own exchange rate (inevitably), interest rate, and ultimately credibility, the United States became worthless monetarily.  

The striking difference here is US were debating about the monopoly of monetary power whereas Europe already got their monopoly of monetary power.  Is this a lesson where Europeans have to reflect on their European federalism or a lesson where urban elitist (in the sense of Sarah Palin’s “East Coast Elites”) creations, European Union, never work?  The answer will prevail if Brussels elites managed to figure it.

Did Obama Plagiarize Glass And Stegall?

Did Obama’s Volcker’s Rule announcement contribute to the drop of DJ?  Did Obama plagiarize Glass and Stegall?  Pundits all over the place say that is the result of the Volcker’s Rule.  One, Volcker’s Rule alone did not necessitate the fall.  Two, who among these pundits actually read what the White House press release, and not the Bloomberg announcement, is about?  Three, Volcker’s Rule is not “new”.  Volcker’s Rule is actually a re-tro.  Four and finally, what is the implication/impact (theoretical or academic) of Volcker’s Rule?  What can we learn from Geithner’s opposition to this Volcker’s Rule?

Yahoo (of all places) actually hit it right: there are plenty of reasons for DJ to fall.  Realizing the profits from Massachusetts Senator election is quite a good reason already.  In fact, the rise of DJ on Tuesday contradicts the fall of DJ on Thursday: DJ rose because the market expected that having 1 more Republican in the Senate would derail the agenda of Obama.  If investors believed in that, then the investors could not have believed Obama’s Volcker’s Rule would become law.  So, Volcker’s Rule alone did not create the fall.

The White House press release regarding Volcker’s Rule actually gives very little information.  And luck would have it that everything covered by Obama’s 01.21 announcement is already covered by H.R.4173 – Wall Street Reform and Consumer Protection Act of 2009.  Quite possibly, nothing is new. 

Worse, nothing is new: Glass-Steagall Act probably covered everything Volcker’s Rule is about.  Since Volcker’s Rule is not in the legislation form, no comparison can be done.  In fact even Volcker calls it “in the spirit” of Glass-Steagall Act.  It further proves that Obama named it Volcker’s Rule for political purposes: to show he is doing something to punish the bad guys (banks) for the rest of us. 

Preventing banks from having private equity funds, hedge funds et etc do decrease profits of the banks.  However, these funds make up 5% of revenues of Bank of America (NYSE: BAC), Citi (NYSE: C) and the like.  Yes, it does strengthen the point that this rule is for show, especially after the Massachusetts’ loss.  However, Volcker’s insistence on this issue has a point: it takes 5% of their revenue.  However, these banks are using depositors’ money to play these large bets, using FDIC’s insurance to back themselves up, and twisting their risk adjusted return on capital (RAROC).  Here is an example:  How much can $1000 bet if you were to trade on currencies?  Answer: with $1k, you can trade the equivalent of $100k of Japanese yen, British pound, Euro and so on.  If the currency fluctates 1%, the $1k is already gone.  If the market swings more than 1%, the bank has to lose all of its money (the $1k depositors’ money) and more.  So, these banks are misappropriating depositors’ money (which would be illegal in insurance laws), making taxpayers pay for their risk, and presenting themselves before the eyes of investors. 

What it really does is to draw out a lot of hot money from the market: less money will change hands on a daily basis.  That affects all industries.  Investors (institutional espeically) will have to play with real money, if this works.  Retail investors will make up a greater proportion of money in the market than before.  Market will be more difficult to be manipulated than before by a few players.  Will that shrink the whole market? Probably.  However (or hopefully), it will mean everyone will be trading with a saner head since no one will be playing with free money.

Will Haiti Lead 2010 Legislation Agenda: Immigration?

One week after Haiti earthquake, CNN finally talks about Haiti refugees, not that there is any yet.  Washington Post started this thread on the 5^th after the earthquake.  Obama spoke of “unwavering support” to Haiti exactly because of the cost of refugee management.  Will Haiti refugee make the border security or immigration issue any easier? 

One certain outcome is that support to Haiti will be proportionally to the risk of refugee exodus from Haiti.  Will this be pushed into a fiscal policy management issue instead during the 2010 mid term election?