Power And Dollar

Obamacare Makes Labor Market More Favorable To Small Businesses

 

Republicans champion capitalism, especially “the pursuit of happiness”.  For that, Republicans consider businessmen to be their safe constituents.  Is enabling small businesses to compete more effectively against the mega corporations something Republican look forward to?  Interestingly enough, Democrats are doing that this time instead of Republicans.  And that is through this Obamacare.

Extending health care to all is the idea of Obamacare.  Having this barrier to health care obviously gives an edge to someone.  In terms of politics (or policy), the question is always about who gets the advantage (or the disadvantage).  Prior the Obamacare days, the advantage is to the employers who can afford the administrative cost of providing a health care insurance to its employees, thus giving them an overwhelming advantage in recruiting and retaining the human resources they need.  This disadvantage suffocates small businesses and self employed.  Ultimately, innovation is sacrificed. 

Plenty of employees make employment decisions based on the health care package.  Many people give up their business dreams and stay as an employee because of the fear of not having health care for their families.  Almost everyone will be covered when Obamacare becomes effective.  Yes, the operating cost is higher for small business owners, however, this increase cost will draw the small business owners much closer to the advantage enjoyed by the mega corporations than if they acquire the health package alone.  In fact, only 38% offer health insurance to employees among the small business owners in 2009 versus 61% in 1993 (read here). 

If America’s small business owners’ talents for success are not willing to move to them and continue to stay in General Motors, ATT and like, then where is the next Google?

March 23, 2010 Posted by | activism, advocacy, america politics, Current Events, 美國, Democrats, economics, Election 2010, health care reform, nonprofits, obama, opinion, politics, Thoughts, US politics, wordpress-political-blogs | 1 Comment

Are These Obama Health Insurance Stocks’ Price Level Sustainable?

Shortly after Obama’s health care reform announcement on 2010.02.22 M, the health care industry stocks started to fall.  Even at closing, google still shows they are down.  However, health care insurance sector, such as Cigna (NYSE: CI http://www.cigna.com) and Aetna (NYSE: AET http://www.aetna.com), recovered very quickly and in factor closes better than yesterday 2010.02.19 F.  Who got the short straw in this latest round of Obamacare drama?  Why?  Didn’t Obama say job is his number one priority in the State of the Union?  Is this some kind of ideological fixation he has? 

If you need more information than CNN gives, then try this summary page.

The google health care index is down because the drug companies’, such as Merck (NYSE:MRK http://http://www.merck.com) and Johnson & Johnson (NYSE:JNJ http://www.jnj.com), stocks are falling.  Obama’s donut-hole fix will affect these drug companies’ financial performance.  On top of that, a lot of their patents are expiring. 

Health insurance companies are doing well because this round of reform is perceived to be creating demand for them.  Anti-discrimination is written in the announcement.  However, it is to “prohibit pre-existing condition exclusions, and prohibit discrimination in favor of highly compensated individuals” (the CNN does not say this.  You have to look it up from the summary link above).  In terms of “pre-existing condition”, that can translate to underwriting, i.e. if an applicant has to be accepted or not.  What it does not say is this: can the pricing of the same product be different to different individuals based on pre-existing condition?  Or based on zip code?  Based on county?  Based on race?  Which health condition is race related have you heard of lately?  Some explanation about “discrimination in favor of highly compensated individuals” is obviously needed. 

Obama knows health care reform did not work in the legislature.  He more likely than not knows his magic does not work on the Republican senators.  Does he believe his proposal will get some moderate Republicans?  If he wants to work getting moderate Republicans, then he would be work on them individually behind closed door.  And we will end up seeing a big announcement with some of these congressmen.  Instead, we see Obama’s proposal.  So, this is HIS proposal.  The other guys are missing.  So, he is making a political move to show to the electorate he has done his homework and tries to paint that the other guys are the real road blocks. 

Yes, they are.  And we have known it for a quite while.  And in fact, they have been encouraged by the voters to be road blocks.  Therefore, Obama better have planned a second move after Republicans’ predicted uncooperative stand.  If you truly believe that the Republican road blocks will not make Obama’s proposal work, then you should ask if these price levels sustain.

February 22, 2010 Posted by | Current Events, Election 2010, health care reform, obama, politics, US politics, wordpress-political-blogs | 1 Comment

Did Obama Plagiarize Glass And Stegall?

Did Obama’s Volcker’s Rule announcement contribute to the drop of DJ?  Did Obama plagiarize Glass and Stegall?  Pundits all over the place say that is the result of the Volcker’s Rule.  One, Volcker’s Rule alone did not necessitate the fall.  Two, who among these pundits actually read what the White House press release, and not the Bloomberg announcement, is about?  Three, Volcker’s Rule is not “new”.  Volcker’s Rule is actually a re-tro.  Four and finally, what is the implication/impact (theoretical or academic) of Volcker’s Rule?  What can we learn from Geithner’s opposition to this Volcker’s Rule?

Yahoo (of all places) actually hit it right: there are plenty of reasons for DJ to fall.  Realizing the profits from Massachusetts Senator election is quite a good reason already.  In fact, the rise of DJ on Tuesday contradicts the fall of DJ on Thursday: DJ rose because the market expected that having 1 more Republican in the Senate would derail the agenda of Obama.  If investors believed in that, then the investors could not have believed Obama’s Volcker’s Rule would become law.  So, Volcker’s Rule alone did not create the fall.

The White House press release regarding Volcker’s Rule actually gives very little information.  And luck would have it that everything covered by Obama’s 01.21 announcement is already covered by H.R.4173 – Wall Street Reform and Consumer Protection Act of 2009.  Quite possibly, nothing is new. 

Worse, nothing is new: Glass-Steagall Act probably covered everything Volcker’s Rule is about.  Since Volcker’s Rule is not in the legislation form, no comparison can be done.  In fact even Volcker calls it “in the spirit” of Glass-Steagall Act.  It further proves that Obama named it Volcker’s Rule for political purposes: to show he is doing something to punish the bad guys (banks) for the rest of us. 

Preventing banks from having private equity funds, hedge funds et etc do decrease profits of the banks.  However, these funds make up 5% of revenues of Bank of America (NYSE: BAC), Citi (NYSE: C) and the like.  Yes, it does strengthen the point that this rule is for show, especially after the Massachusetts’ loss.  However, Volcker’s insistence on this issue has a point: it takes 5% of their revenue.  However, these banks are using depositors’ money to play these large bets, using FDIC’s insurance to back themselves up, and twisting their risk adjusted return on capital (RAROC).  Here is an example:  How much can $1000 bet if you were to trade on currencies?  Answer: with $1k, you can trade the equivalent of $100k of Japanese yen, British pound, Euro and so on.  If the currency fluctates 1%, the $1k is already gone.  If the market swings more than 1%, the bank has to lose all of its money (the $1k depositors’ money) and more.  So, these banks are misappropriating depositors’ money (which would be illegal in insurance laws), making taxpayers pay for their risk, and presenting themselves before the eyes of investors. 

What it really does is to draw out a lot of hot money from the market: less money will change hands on a daily basis.  That affects all industries.  Investors (institutional espeically) will have to play with real money, if this works.  Retail investors will make up a greater proportion of money in the market than before.  Market will be more difficult to be manipulated than before by a few players.  Will that shrink the whole market? Probably.  However (or hopefully), it will mean everyone will be trading with a saner head since no one will be playing with free money.

January 25, 2010 Posted by | banking, Current Events, Investment, legislation, market, Money, obama, opinion, Palin, politics, Thoughts, trading, US politics, wordpress-political-blogs | 3 Comments

Will Haiti Lead 2010 Legislation Agenda: Immigration?

 

One week after Haiti earthquake, CNN finally talks about Haiti refugees, not that there is any yet.  Washington Post started this thread on the 5th after the earthquake.  Obama spoke of “unwavering support” to Haiti exactly because of the cost of refugee management.  Will Haiti refugee make the border security or immigration issue any easier? 

One certain outcome is that support to Haiti will be proportionally to the risk of refugee exodus from Haiti.  Will this be pushed into a fiscal policy management issue instead during the 2010 mid term election?

January 19, 2010 Posted by | Barack Obama, Current Events, Election 2010, obama, opinion, politics, US politics, wordpress-political-blogs | Leave a comment

Massachusetts Is Pushing Up Your 401k

As Massachusetts comes to a close to their choice US Senator, investors from the rest of world are approving their expected result: Republicans will win this election.  How does a local election affect your 401k?  Is that the only factor that drives up your 401k value?  No, certainly not.  However, the spike of not only a few companies (Aetna, NYSE:AET; Johnson and Johnson, NYSE:JNJ), but also industries’ stock value and the appreciation of US dollars against most currencies and in particular against Chinese yuan (CNY) is a good indication that this fluctuation is not due to some company quarterly earnings but some political event (Cadbury is the exception, NYSE: CBY).

NYSE and S&P500 are going up today.  What is the top concern of investors these days?  The future US fiscal deficit.  What will be the greatest contributor to future US fiscal deficit?  Health care.  Obama’s health care reform will have a direct impact to US fiscal deficit.  Not having an one-sided US Senate also means banking reform will have to have greater compromise.  Rumor has it that Consumer Financial Protection Agency may be dropped. 

Are investors disapproving Obama administration?  Investors probably will donate to his re-election campaign as well as his opponent’s in 2012, not to mention both parties’ 2010 congressional election funds.  Investors simply see that the new policies do not provide more values.  Investors like risk management tools that enhance certainties of any kind.  Risk certainty is what helps investors choose their company ownerships (i.e. how your mutual fund manager buys stocks for you).  Therefore, one cannot assume investors hate governments at all times. 

Health care reform in the States will create a higher demand for health care products, such as health care insurance, drugs, and equipments.  The list will be endless.  Financial industry reform will provide greater risk control or at least monitoring over systematic risk.  However, health care reform is so broad that no one can understand while financial reform favors the establishment of the financial industry and not the investors (you, a typical 401k or IRA investor).  

Obama’s options?  House (Nancy Pelosi) will have to pass the legislation at its current form or suffer a longer and more arduous negotiation between House and Senate for any bill senate passed, including the health care bill.  Divert attention from anything unpleasant to immigration legislations.  Haiti will induce refugee problems.  Mexican border violence will induce debate about border security, for instance border fence.

January 19, 2010 Posted by | america politics, banking, Barack Obama, Current Events, health care reform, obama, opinion, politics, US politics, wordpress-political-blogs | Leave a comment

Obama’s Another Banking Show

Taxing on banks is politically convenient since people are angry against the financial crisis.  Thus, it is a populist solution.  Furthermore, a mid-term election is coming up where the incumbent party is expecting to lose seats.  What is interesting about this item is: who will (and will not) get taxed among these banks?  What other options does government actually have to achieve the stated goals?

Community banks will get excluded.  Community bankers are still very influential in the local communities, i.e. they affect a lot of voting behavior in the congressional districts.  The key about this where is the cut-off point for community banks or non-community banks?  There are more than 8,000 banks in the country.  Of those, the top 3 banks take up about one third of the assets, more than $3T altogether.  About 100 banks are over $10B in asset.  If $10B is the cut-off, then we have 100 banks for this tax.  But is it $10B or $1B for a bank to be considered a community bank?  How much room is there?

The government says it wants to not affect consumers and investors.  That is rhetoric.  We all know it will get passed on to consumers AND investors.  It’s just who gets more of it. 

If eliminating fat cat is the goal, are there options?  There are always options.  The only question is: what kind of trade-offs are there?  A company is able to pay huge sum to executives (still employees) is that there are so few companies occupying the market space that investor have no choice but to part the profit to these critical employees.  Making the profit margin among these companies thinner by taxing is only one way to minimize the profit.  The more market oriented approach is to introduce more competitors in the market, for instance,

1)      Enable smaller banks to eat into the market share of the big markets;

2)      Disable banks from entering too many different markets, such as the old law that says a retail/mortgage bank cannot enter investment banking;

3)      Banks cannot perform house trade with depositors’ money.

Are these above new and bright ideas?  No.  These are all recycled ideas America has already tried and ditched or tried in other industries.  The first one is congruent to the anti-trust law.  The second one is Glass-Steagall Act.  The third one is from insurance industry and pension industry.  Obama can achieve the goal without being overly creative.  This creation simply tells us he is on another political show.

January 11, 2010 Posted by | america politics, banking, Barack Obama, 美國, Election 2010, legislation, obama, opinion, politics, Regulation, wordpress-political-blogs | 2 Comments

Want A Solution? Or Want A Political Solution?

Regulations suffocate businesses, so we have been hearing from the right side of the political spectrum.  Can you imagine a case where businesses, big businesses, want to have more regulation? 

Central bank veterans like Volcker (Federal Reserve) and Mervyn King (Bank of England) and politicians like Gordon Brown and Barrack Obama (or Timothy Geithner) are advocating opposing positions.  The first interesting story is that central bankers (or bureaucrats) are advocating less regulation.  The more interestingly part is the affected businesses want more regulations.  What is at heart of this debate?

King advocates that in order to prevent another financial tsunami, we should prevent having banks that are too big to fail in the first place.  To suffice that, we need to break up banks that are big enough to pose systematic risk to the economy.  In this case, they see financing the whole economy as a portfolio.  Diversification is the solution.  It is simple, very simple.  Cost of regulation is minimal.  Markets will regulate and therefore reduce some of the problems.  Easy on the government (read: central banks will not get blamed), easy on the consumers.  Who would have a problem?  Big banks: Citi (NYSE: C), HSBC (NYSE:HBC) etc because they are everywhere.  The market share of big banks is already big.  The top three banks (BOA, NYSE: BAC; Citi, NYSE: C; JPMorgan Chase, NYSE:JPM) in the US take up already 1/3 of the assets in the bank sector.  NYT has an article about how Volcker is doing with this effort.

Another angle to view the cause of this financial tsunami is that some financial institutions carried risky activities that were not lending in nature (i.e. not banking) and relied on government bailouts where the money came from deposit insurance funds when such funds were designed to protect depositor’s money and not to finance the risk of activities unrelated to banking, i.e. lending.  That is why CNN is saying the cost of the bailout will be higher than previously thought.  To suffice that, we can separate lending from the risky activities (trading).  This is actually the Glass-Steagall Act, which got repealed.  Again, who has a problem?  Again, big banks: Citi (NYSE: C), HSBC (NYSE:HBC) etc because they have activities of all kinds, from boring first lien mortgage lending to exotic trading activities that only the math PhDs in that specific department would understand and not even the CEO can speak to them intelligently in any kind of congressional hearings. 

Gordon Brown and Barrack Obama are advocating neither of these.  They want compliance enforcement agencies (Financial Services Authorities in UK and Federal Reserve and others in the States) to create new rules/laws for the governments to check on.  These would involve reserve requirements and so on.  In both countries, central banks will have more oversight powers, which should be what bureaucrats want (more government jobs!).  However, both (and Nobel laureate Stiglitz) argue against it.  Why aren’t politicians listening to their advice?  Since central banks still carry high credibility in the society, central bankers do not typically have aspiration for high political office, elected officials want central banks to mitigate this systematic risk and thus be liable to the failure of systematic risk.  The proposals by central bank veterans are fundraising poisons. 

Why is Alan Greenspan silent?  His position is that this systematic risk a financial tsunami.  Nothing could have prevented it (and thus it was not his fault).  If some compliance enforcement could have prevented this tsunami, then he would take the blame.  Thus staying silent serves his best interests.

October 21, 2009 Posted by | banking, Current Events, 美國, obama, politics, Regulation, US politics, wordpress-political-blogs | Leave a comment

Did Centrists Republicans Just Defeat Obama-Care?

Democratic Senator Baucus is presenting a compromise health care bill in the Senate without public option whereas CNN reports that Obama is finally drafting his own version with a trigger for public option.  The Gang of Six has three Republicans.  They are: Enzi, Snowe and Grassley.  Grassley says in CNN that public option is Obama Care.  Now that Baucus proposal does not have it, Grassley and the like may actually have a way to claim victory that they will have defeated Obama Care.  If so, then health care will pass a giant step. 

 

With the sections 2701 to 2703 and 2706, 152, Baucus essentially creates an analogous health care version of Equal Credit Opportunity Act.  The impact of this idea will be long lasting, much more profound than Equal Credit Opportunity Act not because of any anti-discrimination, but because insurance business is completely centered on selecting good risks, i.e. choosing the less risky applicants, in any kind of insurance product.  One example is that insurers give a different price of life insurance based on occupation of applicant.  If you are a fireman, then your rate is higher.  If you are in the army, you rate is higher.  That is the reason insurance companies are not allowed to use DNA to determine price of health or life insurance.  Similarly, if you are younger, your auto insurance is higher.  While your age can be a factor in auto insurance application, your age cannot be a factor in your credit application, as prescribed by Equal Credit Opportunity Act.

 

This piece of legislation is about health insurance.  Therefore, life insurance can continue to legally discriminate life insurance applicants based on existing conditions. 

 

Health insurance companies underwriting procedures will have to change, industry wide, nationally.  Health insurers are Cigna, Aetna (NYSE:AET), Humana (NYSE:HUM), UnitedHealth (NYSE:UNH) Blue Cross Blue Shield (http://bcbs.com).  Here is an example: Just like some life insurers give better rates for their life insurance policies, some companies may have been marketing well among smokers for health insurance policies.  If Baucus proposal goes through, all health insurance companies may have the same application procedure to underwrite a smoker.  Smokers market is now thinner than before for this smoker specializing insurer.  We do not quite know if discrimination against occupation is covered by Baucus, or age or anything else.  However, a lot of compliance work will get involved in the future. 

 

How will it enforced?  Is Baucus planning to have Department of Labor to have a stronger role in health care enforcement?  Insurance is completely state regulated, for now.  Will this kind of enforcement be incorporated in Treasury? 

 

We will know by the time our speech entertainer Obama gives another performance tomorrow.

September 8, 2009 Posted by | activism, advocacy, Barack Obama, Current Events, 美國, health care reform, opinion, politics, Regulation, US politics, wordpress-political-blogs | Leave a comment

Will Obama’s Health Care Bill Be A Plagiarized Product?

If Obama is drafting his own version of the health care bill, and that CNN is correct regarding a “trigger option”, then at least Obama actually wants it done, although fairly late in game since almost no Republican is left for negotiation.  One good example: Grassley says he will defeat Obamacare.

This trigger option seems to suggest Obama will be plagiarizing Bipartisan Policy Center’s ideas.  In the world of policy development, being violated (the copy right of your policy idea, of course) is a good thing.  What does Bipartisan Policy Center say?  Why does Obama listen to this one?  Remember there are thousands of “think tanks”, advocacy groups and lobbyists who have plenty of ideas (guess where lobbyists’ policy ideas come from?).  So why Bipartisan Policy Center

Bipartisan Policy Center is created by all the living Senate Majority Leaders (Dole, Republican; Baker Republican; and Daschle, Democrat).  Taking their work probably does not only symbolize that Obama is buying a plan that has 2/3 of Republican input, but taking Republican ideas seriously into lasting piece of foundation to the country.  Is it a tactic or philosophic in substance?  Hard to say.  Does it increase the probability of getting done?  Yes, but how much?  That will have to depend on the sales delivery mechanism.  Will it be LBJ style where Obama will be calling each Congressmen, their donor, mother, children, gardener and babysitter?  Will it be an air war about Republicans defeating their own ideals?  It reads like Obama will want to avoid fighting. 

If you want to have advanced information about how this policy will affect your favorite health insurance companies such as Cigna, Aetna (NYSE:AET), Humana (NYSE:HUM), UnitedHealth (NYSE:UNH) Blue Cross Blue Shield (http://bcbs.com), then consider reading Pillar 2.  The main piece of recommendation from Bipartisan Policy Center that is related to health insurance companies such as is in Pillar 2.  If you want to find out how it will affect balance sheet of health care delivery companies (hospitals and so on) like Health Management Associates (NYSE:HMA), Community Health Systems (NYSE:CYH), then Pillar 1 and Pillar 4.  Pillar 3 has something interesting about laws concerning patients.  Of course all 4 pillars are important to all vested parties, be they practitioners, insurers, buyers, support systems (technology service providers).

September 4, 2009 Posted by | activism, advocacy, america politics, Current Events, obama, opinion, politics, US politics, wordpress-political-blogs | Leave a comment

Another Obama TV Performance? This Time, Health Care

Is Obama ready for a deal?  Unnamed senior aide says so to cnn.com.  Obama may be preparing another TV performance again.  We all know everyone in the country is vested in this issue, one way or the other.  The question Obama has to answer is: who else does he need to pull to his side to get this done?  Of course, an interesting question would be: Is he aiming to pass a health care reform? 

A lot of critics have already voiced their opinion (this one and this one) how Obama administration could have handled this debate better, more civilly so that the debate can have more substance. 

Let bygone be bygone.  Obama is only interested at the future anyway.  Which vested party will have a continual interest to fuel more grass root anger?  Not necessarily pharmaceuticals.  PhRMA is not that critical.  It is so uncritical that Republican would rather attack PhRMA’s position on Obama-care. 

As long as Republicans do not sign the legislation, the success or the failure of health care reform will make Republicans the biggest gainer.  In that sense, Republicans are the greatest stakeholder.  If health care reform fails, it certainly is a victory for Republicans.  If health care reform passes, this health care reform will provide ammunition for elections to come. 

Back to the pharmaceuticals, their interest lies in having more profit.  If the health care will expand prospective customers to enlarge their profits, they will be all for it.  In fact, this is how I would understand PhRMA’s website statement (this one and this one). 

Patients are voters.  In fact this issue will motivate a lot of voters, especially seniors.  This is where the upcoming Obama-care speech will be a major source of information.  When Obama will be talking to the voters through the TV box,
1) Who are the interest groups Obama will be talking to behind the text?
2) How is he creating dissent among the opponents?
3) Is he blaming someone else for the fear raised in the town hall meetings? Or is he explaining his position to overcome the fears?
4) Does he show a sense of prioritized items in this legislation?
5) Is he setting up an epic failure to harden his core support and lend a focus on something else?

Whatever position Obama will choose by then, he ultimate will re-structure the health insurance market, and possibly more than just the health insurance market.  Does anyone remember the last time a piece of legislation that affects the society in such scale?  It was the credit market.  Not anything caused by the 2008 credit crisis.  It was actually Equal Credit Opportunity Act enacted in 1974.  How long was that legislation? 8 pages.  How long is the current the congress is discussing?  >1000 pages.   Once it becomes clear what this health care reform beast looks like, it will become clear what kind of a world Cigna, Aetna (NYSE:AET), Humana (NYSE:HUM), UnitedHealth (NYSE:UNH) Blue Cross Blue Shield (http://bcbs.com) will have to live with.  Some will grow and some will shrink.  This is how political risk affects regulation risks.

Obama, in my opinion, is a pro-civil servant president, a contrarian position of Benjamin Franklin, if you remember Franklin’s Dangers of Salaried Bureaucracy.  Obama also enjoys eloquence argument (eloquent is not succinct).  Having a short legislation is easier to make it eloquent.  Of course, this is not a critical factor.  However, being short definitely makes it easier for the salesmen (congressmen). 

If Geithner will have to do financial sector regulatory reform, Obama can actually break this health care reform in pieces, in Federal Trade Commision, Department of Treasury, medicare and social security reform.  If Obama can be stealthier about this reform, he can accomplish more than anyone can conceive.

The cost to the society is high for this prolonged battle, may Obama be victorious or not.  Even Gore’s election loss did not generate such a polarized conflict over such a long period of time.  The last time an event generated such political energy was probably the 60’s.  If we employ this kind of analogy, then is this conflict between eggheads and the rest of society or is this a conflict between generations? Or is this a continuation conflict of the racial haves and have nots from the 60’s?

September 2, 2009 Posted by | activism, advocacy, america politics, Current Events, obama, politics, US politics, wordpress-political-blogs | 2 Comments