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Mark's Market Blog

2-16-14: Obamacare: Bronze, Stupid, Stupid, Stupid

By Mark Lawrence

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Stocks continued upwards this week, again approaching all time highs. However, market breadth is poor - of the 500 stocks in the S&P 500, only 68 made new 52 week highs. This market is being driven by very few stocks. Last December that number was 142, and last May it was 200.

S&P 500 August 22 2013 to February 14 2014

Europe is coming back on the radar. 18 months or so ago everyone was terrified of a European bond meltdown until Mario Draghi, their central banker, famously said he would do whatever it took to prevent this. Unfortunately the bond meltdown was a symptom, not a cause. Europe's economies are mostly not growing. Italy has lost 10% of their industrial production in the last two years - the same period when America has been experiencing a tepid but continuous recovery. And behind the scenes in this brew is a political crisis - most of the nations of Europe have a thousand+ year tradition of being sovereign, and as conditions decline voters are getting sick on unelected nameless Brussels bureaucrats being in charge of everything. This won't last long: even if the bureaucrats somehow manage to hang on, within 10 years Brussels will be a muslim majority city with a muslim mayor and police implementing sharia. That will be it for Brussels as the center of European Enlightenment.

Greece continues to come apart at the seams. Their economy lost 113,000 jobs last year, bringing the unemployment rate up to 28%. That's overall, the unemployment rate for 20 year olds is basically all of them. Greece is also having a major bought of deflation - something you might think impossible since they use the Euro, but Greek goods are selling for a little less each month. What prices are falling? Food, clothes, housing, transport, education, restaurants, services - pretty much everything but alcohol and health care. Deflation in a modern economy is considered a death spiral. If they left the Euro they could devaluate their currency, lower their debt and get their people back to work quickly, but for some reason I can't fathom the Greek government holds the Euro higher than their own people. Perhaps they dream of returning to last decade when they borrowed cheaply and put half of everyone on the government payroll - but those days are gone forever, it's time to think about the future and the next generation, imho.

Some time ago Italy's courts threw out their elected prime minister, Silvio Berlusconi, for corruption. Mario Monte was appointed to run the country for a while. Italy then had elections, but the results were inconclusive and no one was able to form a government. THen Enrico Letta was appointed interim prime minister pending Lord alone knows what. Now he too is resigning. So Italy can't elect a government and they can't appoint a government. What's next? More turmoil. Argentina speaks Spanish as their official language, but about 60% of Argentines are Italian immigrants or their offspring. No wonder the Argentines can't seem to govern themselves. The last truly successful Italian government was run by a series of dictators - the Caesars.

Argentina, Venezuela, and now Ukraine - all on the edge of collapse. Ukraine required a bailout from Russia just a few months ago, and they need another soon, very soon. This situation reeks of politics - the west wants to see Ukraine as a democracy, 'cause, you know, when we turned Iraq and Afghanistan and Libya and Egypt into democracies that turned out so well; Russia wants Ukraine back in the Russian sphere, they want Ukraine to invite in the Russian army to put down their anti-government protestors. 'Cause, you know, when Russia did that for Hungary, Poland, Czechoslovakia, that worked out so well. All I know for sure is everyone just wants the best for Ukraine.

The return of the housing bubble? Home foreclosures are on the rise in several states. After dropping each year for the last few years as the market clears up, now suddenly foreclosures are up 57% in California, 79% in New Jersey, 82% in Connecticut, and 126% in Maryland.

Scotland, for centuries ambivalent about being part of Great Britain, is once again considering succession. The plan would be to pull away from London, invent their own currency, then apply to join the EU and use the Euro. I find this befuddling - it's like all the cheerleaders in the high school are revealed to be drug addicts who are flunking out of school, but you desperately want to be a cheerleader. Scotland leaving GB is like a divorce: they want their share of London's gold and other assets, and perhaps they want to keep using the pound until they are cleared to join the EU. This all looks very complicated to me, and the prize is you get to join the France-Italy-Spain club.

Industrial production and consumer spending both contracted again in January. Is this a recession getting started, or just the simple fact that two-thirds the country has been snowed in?

Banks are stepping away from the plate. In 2012 2,300 branches were closed, 93% of them in low income zip codes. Minorities are finding it difficult to do their banking so the void is being filled by check cashing / payday loan companies. In New York there are more payday loan businesses than McDonald's. Country wide these check cashing businesses made $89 billion in 2012. Walmart has stepped into this void a bit, you can sometimes cash checks there and buy money orders inexpensively. Now Washington is considering turning the post office into a banking system. This is how it works in Japan - people have savings accounts at their post office, and the post office buys government bonds with the deposits. It is precisely for this reason that Japan has been able to run up twice their GDP in debt without major consequences - the debt is mostly owned by old Japanese people. I think you can already see the attraction of turning the US postal service into banks - why not sell our debt to our most financially unschooled? We sell them lottery tickets, surely this can't be any worse, right? And Elizabeth Warren likes it: a Harvard professor turned Senator, we can trust her. . .

Obamacare enrollment hit the 3,000,000 mark, but, surprise, surprise, surprise, young people aren't signing up for their expensive insurance - only about 25% of the enrollees are under 34, not nearly enough. January enrollments were about 50% lower than December enrollments. Obamacare has the smell of a train wreck coming straight at us. Frankly, I like some parts: there are now standard insurance policies, it's much easier to shop without worrying that the other policy gave you better coverage. Some part I don't like: the prices are noticeably higher, as the clear plan here is to get more premium money from more people to pay the $$$$ bills of the 10% of us who actually get sick every year. The web pages are nothing like complete, about a third of the time when I click on a link I get a screen saying that page isn't built yet. And the real info is buried very, very deep. This is a huge, complicated system which could accomplish 90%+ of the goals with 10% the complexity. Professionals probably mostly understand this system; you never will. Nothing personal, it's pretty clearly designed so that you can't understand it.

I looked further into Obamacare this last week with the help of a friend who has 30 years experience in the field of government healthcare and a bunch of phone time with various insurance companies. This was very difficult - I've spend about 8 hours of my time to date trying to understand this, and I'm still not all the way there. It took me about 3 hours to understand digital control of stepper motors - this is harder. There are four levels of Obamacare, bronze, silver, gold, platinum. What's the difference? The platinum is about twice as expensive as the bronze; they all cover the same stuff; and they all have the same annual out-of-pocket maximum. So if you get really sick they all wind up costing you the same, $6350 plus your premiums. If you almost never go to the doctor, then the bronze is the cheapest. If you go a moderate amount there would be a very complicated formula involving premiums and deductibles and co-insurance rates that would tell you which was the cheapest - I imagine there are particular people who would pay just a little less in a year if they had silver or gold. For example, with the bronze plan you pay for most everything but routine office visits for the first $5,000 you spend, then you pay 40% of the next $3400, then the real insurance kicks in and everything is free. For gold and platinum there's no deductible, you pay mostly co-pays and such until you hit $6350, then everything is free. In my case the yearly premiums are about bronze $6,500, silver $8,200, gold $9,600, platinum $11,000. If I get a little bit sick and use $2500 worth of health care this year, I pay about $9,000, $10,000, $10,100, $11,500. If I get very sick or need a major operation I pay a total of $12,850, $14,550, $16,000, $16,000 per year. One five-day hospital stay and the platinum and bronze have cost me the same amount - all I get to pick is the pay schedule, one way or another I'm gonna contribute $12,000 to the underprivileged doctor's fund. I have no idea why anyone would ever sign up for the higher $$$ policies. Helping out underpaid young doctors? The doctor treats you with more respect (lol)? Maybe you get a platinum health care card that you can wave around on dates? There are two deals, if you own a business with under 50 employees then you can get a 50% tax break on your insurance, but only if you sign up on the government web page. And if you're broke you get government assistance on your premiums, but not your copays, but only if you sign up on the government web page. By the way, if you choose name brand medication, you pay. And if you choose generics, the full price at Sam's club, Costco, Walmart, CVS or Walgreens is lower than your copay. Get used to buying most of your own pills.

Who are the most hated companies in the US? Cable companies can make a strong claim. So this week we hear Comcast wants to buy Time- Warner cable. Why share the podium when you can have the gold all to yourself? I see this as being a bit like Sears buying KMart - the entire cable business is of questionable basis now, as people are turning more and more to getting their media over the internet. The world is changing on these guys - I've already written about, a company that I hope will be ready by August to sign me up for Madison, WI TV, so I can watch all my Packers games for about $9 per month and ditch DirecTv and Sunday Ticket once and for all.

It rained in California, for 40 day (light hours) and 40 night (hours). The snowpack is up to 28% of normal for this date, 20% of normal for the year. The next rain isn't scheduled for another week or so - we schedule our weather out west, we have so little of it. Things continue to look grim for farmers this year. In the east there's lots of water so land is valuable. West of the Rockies there's lots of land but no water, so land is cheap and water rights are expensive - that's why our cities are all spread out, and why the state slogan of Nevada is "The meek shall inherit the earth... but not the mineral rights."

San Diego has a republican mayor now. This is noteworthy because San Diego, while our 8th largest city, is the largest US city that has a republican mayor - the 7 larger cities are all run by democrats.

Under heavy criticism from store owners, McDonalds revised their dollar menu, adding more money and raising prices above a dollar on most. Someone should have clued in McDonalds that the only competitor feared by Walmart is DollarTree - not SortaClosishToADollarTree. Since McDonalds revised their menu, same-store sales have dropped for three consecutive months.

Global Warming Watch: Lake Superior is expected to ice over pretty much completely this year, likely setting a record for the last 20 to 40 years. More typical is about 30% of the lake ices over. The average thickness of the ice is already 10" and expected to grow. Some parts of the lake have ice that's several feet thick. Normally Lake Superior turns over in late June and warms up; this year that's not expected to happen until August. In 2002 only 9.5% of the lake iced over.

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