Saturday, November 7, 2009




I have written several articles about the recent move toward what I referred to as socialism only to have some "expert" come back and give me the technical definition of socialism, fascism, or some other "ism". Now truth be known I am an investor and could care less about the technical definitions. I am simply trying to make money in the markets, and many critics stop by to inject their political views.

Regardless of what you would like to term it, our government is increasing regulations in many industries and that is never good for the long term health of the markets. Now before you rush to send me a heated email saying how regulation could have prevented the banking crisis last year---keep reading. Consider how regulation is generally a "pendulum" that swings too far. The Community Reinvestment Act was partly at fault for the banking crisis last year. ANYTIME Government mandates that private business make loans to certain individuals it is a recipe for disaster.

The current healthcare debate from a financial perspective is many, many times worse for our economy. This bill could truly bankrupt our country. Six years ago, as the CEO of a company with over 250 employees I was faced with increasing cost of employee health insurance. Rates for my company had jumped double digits in the previous two years and I was very concerned. In exploring every option, I received advice from an expert to increase my deductible and copays on prescription medications modestly. Our plan structure before had no deductible and copays for medications of $5, $10, and $20 for a 30 day supply. Simply by adding a $150 deductible (very reasonable as the average hourly wage at our firm was around $18) we found that utilization was reduced tremendously. Why? Because at such low rates consumers have very little "personal responsibility" in the consumption decision. Did such a deductible deny anyone life-saving medication? NO WAY!

So consider the quagmire that any public option will create for the economy. If the government does not limit consumption, you can be GUARANTEED that they have underestimated utilization in the cost of the bill. If they do limit consumption THEY ARE TAKING YET ANOTHER STEP IN LIMITING FREEDOM. Now again, I know all of the counter arguments. Many will argue that private insurance companies are making life or death decisions when they make payment determinations and are in fact limiting freedoms now. But consider this, remember several years ago when HMO's were going to be the greatest money saving instrument in the healthcare arena. The basis of the HMO concept was to have the primary care physician "quarterback" the patients care by authorizing visits to specialists. HMO rates were much more favorable than traditional rates for the end consumer. What happened? Many consumers decided they wanted to pay more for traditional care and now some HMOs exist, but they do not dominate the marketplace. That is the beauty of the free market system, consumers get what they are willing to pay for.

So what happens if the government option offers lower copays and rates than private insurance? Another government monopoly. Oh it sounds great to have this fine plan available to everyone. And when the competition is gone what will happen to the government plan? It will either bankrupt the government or be able to quickly take action to LIMIT CONSUMPTION. EITHER WILL BE AWFUL IF NOT FATAL TO OUR ECONOMY---NOT TO MENTION THE PERSONAL FREEDOMS THAT OUR COUNTRY WAS FOUNDED UPON.

So I am the one sounding political you say? I am analyzing my next move in the market if this legislation passes this weekend. Will it end the rally, or will it cause the rally to ignite because of concerns over the weak dollar? GIVE US YOUR THOUGHTS IN THE COMMENTS SECTION!!!!!!!!

I submit that this rally began as a bear market rally and has extended of late as the weak dollar has made equities cheaper abroad. Yes it has made the earnings of our companies abroad much more valuable, but that can't last forever. While it will be a topic for a more detailed post---there is a point of diminishing return with a cheaper currency and believe me this "honeymoon phase" that we are in with the weaker dollar will come to a screeching halt soon.

Yes GDP technically grew and consumer confidence is up. Many will argue that when GDP begins to grow it signals that things are better and unemployment rates are naturally a laggard---so not to worry. But the pillar of that thesis HAS TO BE THAT GDP GROWS FAST ENOUGH TO CREATE MEANINGFUL, SUSTAINABLE JOBS. We have been propped up by the falling dollar, massive government stimulus (cash for clunkers, housing tax credits), ridiculous bailouts that have all but altered the safety of our system know as contract law. You tell me, how many things mentioned are realistically still in the governments arsenal if they need to be repeated? What will happen to the dollar if we come back to the GIMME TABLE AND START OVER WITH THE BAILOUTS AND HANDOUTS? The answer lies in the recent dollar movement DOWNWARD. Downward enough where we are guaranteed to hit the point of diminishing return. The point where inflation hits, jobs produce much less disposable income AND ARE HARDER TO CREATE.

Is it 1929 all over again? Honestly, I despise comparisons of that nature. They are tough to substantiate. What I do know is that we are in a very difficult spot and while many positively refer to this healthcare legislation as "historic", I am afraid that its economic impact on our future generations will be more accurately termed as "bankrupt". I am certainly not advocating wildly shorting everything, as there are many sectors that will benefit over the short run if this legislation passes. I do however think that we are going to see many volatile trading days ahead and while many of my peers are hanging in with a long bias, I have a short bias and am patiently waiting for those bets to pay off.
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