This Week in Barrons - 11-10-2013

This Week in Barrons – 11-10-2013

“If you like your current insurance…” … OOPS – I’m sorry!

After learning this week that (thanks to the Affordable Care Act) my own health insurance premiums will increase 47% next year, I decided to do a little digging.  [Thanks to JT for his timely assistance.]  The Affordable Care Act (ACA) is the single most contentious political action of my lifetime – outside of the Vietnam War.  It touches everyone in one-way or another, and often in profoundly personal ways.  Factually we were told:

-     If you liked your insurance you could keep your insurance – that’s NOT true.

-     If you liked your doctor you could keep your doctor – that’s NOT true.

-       Existing insurance cannot be cancelled – that’s NOT true.

-       We will make your insurance less expensive – that’s NOT true.

-       Your health information and data will be secure – that’s NOT true.

-       But what IS true is that due to all of the chaos, insurance companies are increasing their premiums.

The Manhattan Institute (this week) released a report that shows that insurance premiums, across 49 states, are increasing (on average) by 41%.  Obamacare insurance rates for younger men are increasing by 97%, and for younger women by over 55%.  The worst state is North Carolina, where some individual market rates have tripled for women, and quadrupled for men.  The rest of the world has to be looking on and saying: “USA – why are you managing this transition so badly?” 

A.   We are forcing people to buy into a virtual marketplace, that (for all intense and purposes) is a monopoly.  In theory, the ACA should have improved competition through their ‘Health Exchanges.’  Unfortunately, of the 2,500 counties served by the federal exchanges – 58% have less than 2 insurance carriers participating.  Therefore, in over half the US, we are being FORCED to buy insurance from private companies that have pricing power, market dominance, and are exempt from anti-trust supervision.

B.   Hospitals are also exempt from fair pricing laws.  If you go to a hospital, you'll get a different price (for the same set of services) depending on whether you're uninsured, on Medicaid, or have an insurance policy.  Because antitrust policy has been so inadequate for so long in the health sector, the lack of competition on the insurance side – is only magnified by the lack of competition on the hospital, pharmacy, and medical device sides.  For example: in the past 6 years, more than 250 corporate mergers have reduced healthcare competition, allowing the remaining firms to charge higher fees, and increasing subsequent insurance premiums by over 87%.  This has (however) produced a 428% profit increase within the insurance industry.

C.   The US spends far more than any other country on healthcare (almost twice the global average) – but does NOT achieve any better healthcare outcomes.  Chile, Hong Kong, and Singapore spend one fourth what we do, and achieve better outcomes and longer lifespans.  Therefore, spending more money isn't the answer.

D.   Most of our healthcare costs are incurred in the last twelve months of our lives.   Modern medicine delays natural death, better than it extends a healthy life.  Doctors understand what medicine can (and can’t) do, and therefore consume less healthcare than the average person.  An ‘Advanced Directive’ (a document that specifies what steps should and should not be taken to save their lives should they become incapacitated) has been signed by over 64% of doctors and less than 20% of J. Q. Public.  The gap is one of perception.  Let’s use CPR as an example.  CPR (that we’ve all seen on TV) was found to be successful in 75% of the cases, and 67% of those patients go home.  However, more recent studies show that only 8% of those patients survive for more than one month, and of those – only 3% lead a normal life.

E.   5% of patients create over 60% of healthcare costs.  A recent study asked if we spend more money – would we create a better quality of death?  The conclusion was exactly the opposite:  the LESS money spent during this time period produced a BETTER death experience.  It seems that no matter how much money you spend during that last year, the effort makes things worse.  A lot of the money is being spent to allow the patient to endure more bad experiences on a daily basis.  The patient’s quality of life is being decreased; all the while we’re increasing the cost of death.  We will all die.  Until we have the conversation about how we die, and recognize that we spend too much on medicine we don't need, we won't reduce our costs.

I always wondered how a fragmented country and government could produce a unified healthcare plan.  The answer is – it can’t.  So we’ll all just need to wait for Round 2 of Obamacare.

The  Market:

What a week.  We saw the European banking community (in a bizarre move) reduce interest rates by one quarter of a percent.  This surprised virtually everyone, including those in Europe.  But understand, the PIIGS nations (that crashed so hard years ago) aren't ‘fixed’ – they’re just papered over.  For example: nothing has changed in Cyprus since it’s bailout, and Spain still has it’s 45% youth unemployment.  We stand witness to the Eurozone Central bankers realizing that if they stop pushing money into the system – the system will fall apart. 

The market reaction to the move was interesting.  After a big pop on Thursday morning, our market actually rolled over and lost 150 DOW points.  Maybe (just for a few moments) everyone realized that destroying your currency, devaluing your money, and artificially stimulating your economy isn't such a hot idea after all?  

Then on Friday we received the monthly jobs report.  The estimates were for a gain of 120K jobs.  The report came out and told us we actually added 204,000 jobs in the month of October.  Honestly, with the ‘Taper’ in September, and despite the Government ‘Shutdown’ in October, you’re asking me to believe that we added twice as many jobs as were estimated?  And during this same time period (while all of these glorious jobs were being created) the labor force participation rate FELL to 62.8% - the lowest number since March 1978.  So we’re adding jobs (twice as many as expected), but the number of people employed is decreasing – to the lowest percentage in 40 years.  HUH?  How is that possible?

The market reaction to the number was very telling.  The minute the number hit the DOW fell almost 100 points.  Why?  Because if the number were true, we would be experiencing growth, and then the Fed would be forced to taper it’s QE.  The market knows that the only reason it is as high as it is, is because of QE.  The market also knows that whatever economic activity we are seeing, is solely because of QE.  Take away QE, and things fall.   So we are solidly in that area where good news is bad for the market, and bad news is great for the market.

But then something very different happened – the market turned around and surged higher.  Why?  It took the market a while to realize that the jobs number was as phony as Obama telling you: “You can keep your current insurance.”  Factually:

-       The birth/death model added 120K (of the 204k) jobs, and those jobs don’t really exist – they’re just a calculation.

-       The total number of people NOT in the labor force ROSE from 88.2M a year ago, to currently 91.5M.  If we were producing jobs – this number would be going down, not up.

-       And the employment (to population) ratio is down to 58.3% - from 58.6% in September and 58.7% a year ago.  Again, if we were producing jobs – the employment ratio would be moving up, not down.

So, the market figured out that the Government is just trying to make it look like we're not in a depression, and these ‘fake’ numbers are not going to sway the Fed.  Whew.  What a week.  After being beaten down on Thursday by 150 points, the market gained it all back on Friday.  Hope (as they say) springs eternal. 

I tend to spend a lot of time watching this market ‘digest’ it’s moves.  Lately the market has been running in place, working itself sideways, and NOT pulling back with any real conviction.  Usually these types of sideways moves mean that the market still has energy in it to move higher.  For example:  on October 29^th the market (the S&P’s) opened strong, inched higher and hit 1,772.  Eight days later (which was last Friday) we ended the day at 1,770 on the S&P.  That’s a virtually perfect sideways chart.  Naturally within those 8 days we wiggled, bounced and jiggled around, but the basic movement is sideways – not down.

When I examine the XLF (the Exchange Traded Fund (ETF) that covers the financial sector), I’m seeing that it’s MACD indicator is curving upward.  It is only about 14 cents away from challenging it’s all time high.  The XLF is the leadership that the market needs to accompany any ‘real rally.’

Therefore, between the sideways action of the market, and the performance of the XLF, one can only assume that there are more gains in store for this already wildly overpriced market.  Is that crazy?  Absolutely, but insanity has ruled this market for the last few years.  Unfortunately, one day we're going to pay for this with a major market crash, but until then, try and reap what you can.

The "trigger" (so to speak) is the S&P.  If it gets over the few intra-day highs set at about 1,775, then it should be free and clear to soar into the blue.  Over this next week we should see the market levitate to that area, struggle a bit, and then push past it.

Tips:

Looking around I still like:

-       WLT and ACI – both coal producers – both with very handsome option abilities right now.

-       The 3D printer space … SSYS / DDD / PRLB / XONE all worth a look.

-       CSIQ in the solar market – but it’s not for the faint of heart,

-       And more basics such as GILD, BTU (Peabody Energy) and POT (Potash).

-       Look at POT > 33, IBM > 181.50, and MOS > 47.50.

My current short-term holds are:

-       CLF – in at 25.53 (currently 27.20) – stop at 26.50

-       SIL – in at 24.51 (currently 12.15) – no stop

-       GLD (ETF for Gold) – in at 158.28, (currently 124.40) – no stop ($1,284.50 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 20.73) – no stop ($21.31 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there!

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