Friday, June 1, 2012

The Upcoming Bump

When the Supreme Court announces its decision on Obamacare will result in a bump for our economy. The return to predictability will change the landscape in America, as business owners will no longer have to continue to create defensive positions for their enterprises. For those who live in states where there has been greater passivity in terms of working to meet the directives of those parts of Obamacare that directed the creation of state exchanges for health care insurance will see their health care costs decline. Those states that have aggresively pushed to meet those goals--like Oregon--will see their health care costs continue to increase. In the long run, those states that a freed from the economic and regulatory constraints imposed by Obamacare will see a quicker return to jobs creation and lowered market costs for the entire range of services and goods they consume.

Today's jobs report isn't surprising. What is going to be surprising is the revision that will occur within the next six weeks, when we find out the numbers reported today turn out to be worse that originally reported. This trend has been reported on. (Wall Street Journal)

Last August, a friend of mine who actively trades equities and I were talking about market levels. We agreed that the trading range for stocks on the Dow was 10950 to 11950. In recent weeks we've been trading above that level, but never more than one day's trading to 11950. At the moment, the Dow is trading at 12173.

The worst trading days were August 4, 2011; 513 points.

October 22, 2008; 514 points.

August 8, 2011; 634 points.

October 9, 2008; 679 points.

December 1, 2008; 680 points.

October 15, 2008; 733 points.

September 29, 2008; 778 points.

Now we're watching the Bataan Death March for the Euro, as Greece prepares for the re-introduction of the Drachma.

Ten-year yeilds are at historic lows, today dropping below 1.45%. Why are rates so low? This morning Rick Santilli asked, "what would be the price of Facebook, if 75% of Facebook stock was being held at Fort Knox for five years?" That is, taking so much off the market, how would you price the remaining stock? Well, that's what's happening in our money markets, as our government continues to issue bonds that they end up holding. Who is the biggest bond holder of U.S. debt in the world? (Rilly? You don't know? You rilly should find out.)

With the destruction of Obamacare, a gush of spending will stop immediately. Certainty for job creators returns. Insurance companies can drop their rates. Health care costs will drop.

Oregon, of course, is on a different path. Oregon's Coordinated Care Organizations will continue to drive health care spending by the state, as Dr. Dogood pushes nanny-state solutions for "those with the greatest need." This in the face of declining federal funding, Oregon has committed itself to a path of increased costs as programs designed to help "those most at risk" receive increased costs to affect an improvement in health care delivery to Medicaid patients.

With the repeal of Obamacare, you'll see a bump across the nation. That bump will be muted in Oregon, since we've become one of the early adopters of Obamacare, and will continue down the path toward socialized medicine on our own. Of course, to sustain this path will require greater sacrifices from the productive class. The private sector. But when you have liberal masters, you come to expect no less from the munchkins in Salem. They're little people with grandiose dreams. And they'll keep pushing us toward the cliff. It's what they do.

Well, have a nice day. I've gotta get back to work. It's going to take around 90 days for the death of Europe to felt impacting the average American's life. I just want to make enough before then to weather the upcoming financial storm.


innominatus said...

Uncertainty about expiration of "Bush Tax Cuts" at end of year: is there more anxiety about that than there is relief regarding end of barrycare?

Ten Mile Island said...

Will the tax cuts be extended or not? And how much uncertainty exists?

Elections matter. If Harry Reid is still calling the shots after this November's election, then I'd suggest that we are all well and truly screwed.

If not, then it doesn't matter, since the incoming Congress will extend, or possibly, make these tax cuts permanent.

Thing is, what impact will QE3 have on markets prior to the Fall election? My guess is, not much. Going through another period of asset devaluation combined with low interest rates makes for a much different environment for Congress critters. How much string can you push in one direction?

Higher unemployment rates, a Dow below 11950, bond prices in Europe at historical highs, and drying up of credit here at home. What do you do when monetary policy is no longer able to affect growth?

Only one option left; fiscal policy. Can you see another Stimulus Package coming out of Congress? I don't think so.

But the June Bump will be real. And it affects every single entrepreneur. Profitable firms have been holding off hiring prior to Obamacare passage in December of 2009. Three years of no job growth due to the uncertainty of the costs associated with the PPACA.

A single tax increase has a coefficient of uncertainty of either 0 or 1. The coefficient of uncertainty of Obamacare is incalculable.

This is a big difference.

MAX Redline said...

Well, pressuring the banks to make loans to people who couldn't afford them sure worked out well for the housing market - so now they're pushing banks to buy up our government's debt.

Obama smiles broadly, lights another exploding cigar....

g said...

Bullets and bullion.

T. D. said...

I wonder how many will notice that the better run states will do better and the poorer run states will not. Good post, TMI!