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Dallas, TX
December 14, 2009, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Health Care Legislation Has Plenty Of Holes
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What's Hot Today: |
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U.S. stock index futures were pointing to a higher open
on Monday. 1100 on the S & P 500 is now important support.
Today's Economic Calendar:
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 11:30 AM ET
- 6-Month Bill Auction 11:30 AM ET
News For Thought
Obama poll numbers crash and burn over weekend. According to Ramsussen
Reports.com: "The Rasmussen Reports daily Presidential Tracking Poll for
Sunday shows that 23% of the nation's voters Strongly Approve of the way
that Barack Obama is performing his role as President. Forty-two percent
(42%) Strongly Disapprove giving Obama a Presidential Approval Index rating
of -19." The president's poll numbers fell over the weekend. The poll numbers
are the result of averaging over three days, so at least one or two days
in this survey include the potential impact of the Copenhagen Climate Conference,
the acceptance of the Nobel Peace Prize, the increasing likelihood of the
passage of health care reform, and the analysis of the "surge" in Afghanistan.
Over the last few days, the president has tried to turn his attention to
job creation as well. Yet, the focus seems to be on tax increases, and
methods that have yet to be shown to be effective, such as Small Business
Administration loans, and the proposed use of TARP money for jobs.
Here's what's more telling about the potential problems for the president, as
he is losing support accross the board. According to Rasmussen: "The 23% who
Strongly Approve matches the lowest level of enthusiasm yet recorded. Just 41%
of Democrats Strongly Approve while 69% of Republicans Strongly Disapprove. Among
voters not affiliated with either major party, 21% Strongly Approve and 49% Strongly
Disapprove." In other words, he has not lost the independents and is starting
to lose his base.
Other subsectors of the poll are also alarming as "Among those who consider the
economy to be the most important issue, just 26% Strongly Approve of the President’s
performance while 39% Strongly Disapprove." And this one may be the kicker, as
the president looks to spend more money and Congress is planning to raise the
debt ceiling yet again. "Among those who consider fiscal policy issues the most
important, just 1% Strongly Approve and 81% Strongly Disapprove."
What separates Rasmussen's numbers from the rest of the pack is that they are
the views of likely voters, and that they are usually ahead of the other pollsters
in rooting out new trends. If this holds up, Mr. Obama's popularity seems to
be in the early stages of moving to yet a new set of lower lows.
Greenspan goes to bat for the Fed. Alan Greenspan went to bat for the
Fed on "Meet the Press." The former Federal Reserve Chairman, iconized as "The
Maestro" by Bob Woodward, noted that he thought the Fed had done all that it
could at this point and needs to start focusing on inflation. Greenspan is joining
a growing chorus that is suggesting that the Federal Reserve needs to start raising
interest rates. Mr. Greenspan, in our opinion, did a great job as Fed Chairman.
Lots of people disagree with us. We do have one beef with him, though, as he
was greatly influential in leading President Clinton and Congress to repeal the
Glass-Steagall Act. In our opinion, by allowing traditional banks to engage in
investment banking, the wall between Wall Street risk and systemic risk to the
economy was demolished, likely accelerating the subprime mortgage crisis.
That's a big stain on Mr. Greenspan's resume, as far as we're concerned.
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Health Care Legislation Has Plenty Of Holes
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Wild And Woolly Times Lie Ahead After Health Care "Reform"
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President Obama announced over the weekend that he expects a
health care bill to be out of the Senate by Christmas day. Yet, even as he made
the announcement, key senators are still waffling on their support, as cost
estimates suggest that the bill will likely increase health care costs.
As the year winds down, the pressure on Congress to pass a health care bill
is on the rise. Yet, the future of the bill remains up in the air, suggesting
that more wheeling and dealing is likely. The problem is that wheeling and
dealing is more likely to increase costs, either to the government or individuals.
So far, the bill has hinged on what to do about Medicare and abortion. The Democrats
want to expand Medicare to those aged 55 to 64. That seems to solve the problem
of access. The problem is that the cost is estimated to run to about $640 per
month as a premium. That's not much less than some families pay now as part of
their employer based insurance. And more important, often those targeted to become
part of this group may be partially disabled or limited in their ability to function,
meaning that $640 per month is nearly impossible to pay.
If you add pre-existing conditions to the asterisk list, it gets worse. According
to The Washington Post, a program proposed by the Senate to subsidize preexisting
conditions until 2014 could actually run out of money as early as 2011. The source
is Richard S. Foster, chief actuary at the Centers for Medicare & Medicaid
Services, in a Dec. 10 report. That means that Congress would have to find more
money for the program and add to the deficit.
The problem is that the so called "high risk pool," those with pre-existing conditions
may cost much more to insure than the amount that Congress has put into the program,
which is $5 billion. And when that money runs out, the covered person would be
responsible for the premium increases. In other words, folks may get temporary
coverage for maybe a year or two and then be potentially left out in the cold.
According to The Post: "The bill says that if the $5 billion proves inadequate,
the secretary of Health and Human Services "shall make such adjustments as are
necessary to eliminate such deficit." Could that include freezing enrollment?
The bill doesn't say."
And there is more fine print. As the Washington Post reported: "Even if Congress
increased funding for the high-risk pool, some people with preexisting conditions
could continue to go without care or incur crushing expenses. To qualify for
the pool, people would have to be uninsured for six months."
Now to the cost issue. According to Reuters: "U.S. healthcare spending would
rise by about $234 billion over the next decade under the Senate Democrats' overhaul
bill and some of the proposed savings might never be achieved, a U.S. agency
said in a report released on Friday." And this isn't some obscure agency, this
is the agency that runs Medicare, which means that they actually have cost data
and fairly accurate models for cost prediction, since they actually pay the bills.
Reuters added: "The report, written by Richard Foster, the chief actuary at the
Centers for Medicare and Medicaid Services, said the increase in healthcare spending
reflected the impact of millions of newly covered people seeking medical care."
Mr. Foster acknowledged that there was more "uncertainty" than usual with his
calculations, noted that "the added demand for health services at first may be
difficult to meet and could lead to price increases and a reluctance by providers
to treat patients with low-reimbursement health coverage."
According to the report: "Democrats argued the $2.5 trillion U.S. healthcare
system is fraught with wasteful spending and the savings from wellness programs
and payment system reforms that would reward quality rather than quantity of
treatments and services would be greater than estimated."
To be sure, this is a fair argument. Yet, what those who talk about waste in
the system fail to acknowledge is that some of that waste is based on patients
that are non-compliant with doctor recommendations about medications. There is
also a good deal of untreated mental illness in the general population that adds
to cost as depression and other conditions keep patients from actually making
it to the doctor's office or follow directions after being discharged from the
hospital. There are lots of other social issues such as family dynamics and drug
and physical abuse that are not being addressed in the cost structure.
Add transportation, malingering and other intangibles to the issues, and you
are likely to add more intangible costs to the equation that few in Congress
and the bureaucracy can't start to fathom and you have a ridiculously intricate
web to manage.
Conclusion
Neither Congress or the insurance industry will ever "manage" health care, because
it is unmanageable. Health care is human behavior at its most basic and has a
major psychological component that shapes it.
Illness isn't just of the body. It has a major mental component, which in many
cases is the overlying issue on everything else. In our other life, that of a
physician, we get to experience health care in the trenches.
Folks tell us the most personal details about why they feel the way they do.
And lots of the time, their back pain, although often rooted in arthritis, is
being made worse by life in general. And there is usually no cure for life.
The bottom line is that Congress and the insurance industry are trying to control
the cost of health care that is being brought on by the world we live in. People
smoke, drink, use drugs, and are very depressed about what their lives have become,
either because of their own personal choices, the effects of external events,
or both.
In other words, Congress is fighting a losing battle. They will never be able
to control costs. The more they tighten the noose, the worse things will become
as depression, anxiety, and chronic illnesses that are influenced by anguish
will flourish. People that are anxious and depressed don't want to exercise or
go to work. They want Xanax and Vicoden, painkillers and anti-anxiety agents.
Think of it this way. Illness is Chaotic by nature. Thus it is predictably unpredictable.
People will improve or eventually get worse, that much is nearly certain. What
is uncertain is what may happen if that Chaotic relationship is altered. By fiddling
with Chaos, Congress is likely to push the health care system into Disorder.
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Market Moves - Stock Of The Day
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Healthcare SPDR ETF (NYSE: XLV) Flourishes Amid Bill Controversy
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The Healthcare
SPDR ETF (NYSE: XLV) is near a new high despite the seeming
threat of profit losses ahead for the sector based on health
care "reform."
Chart Courtesy of StockCharts.com
Either health care investors know something or those who are pushing the sector
higher are getting the rally out of their system before whatever changes that
are coming make their way into the system.
XLV is moving nicely higher, which suggests that investors are betting that whatever
comes out of Congress will so watered down that it won't make much difference
tocompany earnings. And if that's the case what do investors know?
It's hard to figure. But maybe it's that even this late in the game some senators
are saying that they won't vote for the plan. Or maybe it's the thought that
some 30 million new paying customers will be added to the potential profit rolls.
If it's the latter, then the price increases that the pharmaceutical companies
have put in place, as well as the way that drug stores have passed them through
to customers, even on generic drugs, signal what's likely to be in the future.
If that's the bottom line, then we can see where the new highs on XLV have come
from, the expectations for even more profits ahead as more people pay even higher
prices for prescription medicines and likely even for other services.
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Technical
Look at the Market |
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S & P Finished Week Above 1100 But Not By Much - SPY ETF Remains at 4-stars
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The S & P
500 again failed to close too convincingly above 1100
on 12-11. This leaves the market in limbo. The volatility
bands around the 20-day moving average haver shrunk significantly,
though, suggesting that a big move is coming.
That means that traders have to choose between the positive seasonality of the
Christmas holidays, or the political uncertainties of the moment. That's a tough
call, which is why the market is going nowhere.
So the technical aspects of the market are increasingly important, and that's
why the volatility bands are very important to keep an eye on.
The bottom line is that it pays to be careful.
Summary of Start Rating System
We are adapting our star based rating system to the S & P SPDR ETF (NYSE:
SPY). In this section a 5-star rating for SPY is a signal that down side risk
is very low and that the chances of a further rise in prices are greater than
those of a fall. A 4-star rating Means that the risk is less attractive but that
the odds of a rise in SPY still outweigh the risks of a fall.
A 3-stars rating on SPY suggests that the odds of a rise and a fall are even.
2-stars and 1-stars suggest that down side risk is on the rise.
In no way is this star rating system intended as a series of buy and sell recommendations.
The system is intended as a guide to the general trend of the market and the
S & P SPDR ETF.
Star ratings can change rapidly based on the market's action. Followers of the
ratings should review them on a daily basis.
Star Ratings for S & P SPDR ETF (NYSE: SPY) - updated 12-8-09
S & P SPDR ETF (NYSE: SPY), 4 stars on 12-1-09 - closing price 110.84. Closing
price on 12-11-09 111.11. Short term support is at 109.57. Resistance is at 111.74.
A move above 111.74 would raise the rating to 5-stars. A move below 109 would
drop the rating to 3-stars.
Chart Courtesy of StockCharts.com
Chart Courtesy of StockCharts.com
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