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 29th 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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