Thursday, October 04, 2012

Monday, September 14, 2009

And Now Back to the Stock Market

It has been some time since a comment on the stock market and the state of the economy.

On the surface to many, including CNBC-type pundits and others with professional self-interest, most appears well in the stock market. We've experienced about a 50-percent move up since the March lows, with many stocks far exceeding that. Also on the surface to many, all appears to be on the mend in banking and even in housing in certain regions of the nation. Recent surveys show improvements in consumer confidence and yes, even manufacturing activity. Honestly, I forgot that we manufactured anything here except bad mortgages and creatively packaged financial derivatives products.

The next "big thing" is apparently going to be chopped and repackaged life insurance policies. Talk about "death panels!" We don't want the gubbamint doin' death panels. But hey Wall Street? Just fine with us!

Back to the real subject, though. We live in a consumer-driven economy. Our wallets and credit cards account for something like 70-percent of economic activity in the United States. And no, it is not all accounted for by the wealthiest two-percent. Sorry folks. This pundit does not think that they need even more unaffordable tax cuts, as much as some Republican politicians and pundits might have us believe that is the route to follow.

I could use a tax cut though. How about you? When I see my health insurance premiums increase nine-percent or so in 2010, and my income stagnate, I suspect I will be spending less - again! - or relying on credit cards to fill my material desires. But since people continue to express concern about job security, will they really ring the registers? Perhaps for Christmas. Maybe not. Too early to say, in my opinion, though spending addicts may say, "What the heck" by the time December comes around.

The recovery in the stock market is not unprecedented. However, it feels - and in some ways looks - like it is built on beach sand and not bedrock. To the extent that we are seeing earnings growth - the "bedrock" of the stock market - well it's largely a result of "downsizing." Hey that's you, isn't it! You may be among the millions of people that have lost their jobs over the past year or so, not to mention the millions that lost their jobs during George W. Bush's stewardship of the economy.

Given soft demand for goods and services - slow or no revenue growth - what better way to prop up profits than to fire the people....hmmmmm....that BUY YOUR STUFF. Oh sure, you can have your business rely on the federal government for incentives and bailouts. Worked for a month or so for the auto industry with "cash for clunkers." It's also working for banks, especially the largest banks, you know, the "too big to fail" banks that still plague us.

Remember all the bank and Wall Street "stuff" that precipitated the worst recession since the 1930s? Mortgage-backed securities and derivatives and such? To a great extent, they are still on the books of the largest financial institutions in the nation. Only now, we don't seem to be worrying what they are worth because the feds changed the rules - well at least for a period. With all the foreclosed properties clogging the housing market and with all the potential for millions more down the road, who cares how much those mortgage-backed securities are really worth! Especially since housing prices are predicted to continue to fall in many regions of the country.

Oh, almost forgot. Commercial mortgages and construction loans. With retailers and others continuing to "downsize" and close locations, with corporations consolidating office space and continuing, yes, to ship manufacturing overseas - well we'd rather support a Chinese worker than an American one, being the patriotic Republicans and business managers that many are - what about those loans?

Wall Street must be onto something. Bundling life insurance policies! After all, you recall - or do you - those stories about investment bankers jumping out of buildings during the Great Depression, right? Maybe this economy will slash average life expectancy and those chopped and bundled life insurance policies will pay off handsomely. Who needs jobs? We don't need to build things; we can just kill people off by keeping conditions bad.

But then, we'll have to worry about the actuarial integrity of life insurance companies. I hope they have sufficient reserves to pay everyone off.

Oh yes, the stock market. I got sidetracked worrying about PEOPLE'S JOBS and stuff like that.

I maintain that it is still a challenge to value many companies based on projected earnings because I still see too many uncertainties in the economy. So I must keep a sharp eye on those pesky technical indicators of stock market strength. And they are truly a mixed bag.

A couple of things stick out, though. First, the good old Advance/Decline line. What's that? (# of Advancing Stocks - # of Declining Stocks) + Previous Day's A/D Line Value. It's a cumulative thing. It has been climbing a very steep wall since the March bottom. In fact, it is at its highest value in history, near as I can tell. Looks like a good thing. Investors are accumulating stocks - at least more are increasing in price every day. But the climb seems unprecedented in its scope and time. And it is not like we've been experiencing record volume, day in and day out, to support this advance. Lots of cash remains on the sidelines, in safe havens.

Second, all analysts have their favorite short- and long-term trend lines of the popular stock market indices. I have mine, but you don't need to know what it is just now. In any event, having absolutely nothing else to do with my time, I spent a few moments to go back in time, oh a little more than two decades. Helps to put these trends in perspective.

When the stock market climbs too far too fast, like anything else the law of gravity tends to bring it back down. No, not necessarily back to wear it started, but usually to the soft, warm, cushy support of one or more coveted trend lines.

In our current scenario, the stock market is about 15-percent above trend line. Historically speaking, this is pretty high. In fact, we don't often see the stock market double-digit percentages above this trend line. Going back to, say, 1987, we've seen this about six other times. On average, the stock market has pulled back about nine-percent each time. I tossed out the two outliers of three-percent and 55-percent that began in February 1996 and August 1987, respectively.

True, only two of these declines represented double-digit percentage declines - the 55-percent bubble of 1987 and 18-percent in 1997. The others? "Small potatoes."

So what might we be looking at here? Well, case #1: the stock market falls out of bed and either erases all of its gains since March, or perhaps a third of them or thereabouts. Case #2: not much in percentage decline, but months of treading water, perhaps after an initial decline in the ten-percent neighborhood.

This market is fragile, as is the underlying economy. Without improving prospects for job creation, increasing personal incomes, and stability in housing, unless the United States suddenly becomes a ginormous engine of exports to the rest of the struggling world, a flat U.S. economy will eventually translate into flat stock market prospects, and it is more than likely to begin with at least a small thud.

The slightest disappointment, out of Washington or elsewhere, or perhaps it could be a big disappointment, like, oh for instance how are independent auditors going to do with all those possibly nearly worthless toxic assets on the books of financial institutions at year-end audit time? Can't hide them in plain sight forever, can they?

Citi, JPMorgan Chase, Morgan Stanley, Bank of America, AIG, and lots of small little known banks and other players, are still - pardon my street lingo - full of crap. Answer me this: to the extent that you have not written off billions of dollars of paper whose underlying assets are defaulted mortgages on now or soon to be foreclosed homes and businesses, well just how do you plan to handle that? How do you place a value on non-recyclable trash?

I can't offer up a day or value for this stock market's top. Could the S&P500 advance another 100 points? Sure, why not. But at this point, unless we begin to see some solid fundamental improvement in the economy and not simply a deceleration of its decline, the higher we go from here, the bigger the fall will be. It's gravity.

Thursday, September 10, 2009

Obama's Speech on Health Care Reform - and so?

One thing is clear in the aftermath of President Obama's well-delivered (did we expect otherwise?) speech on health care reform before the September 9 Joint Session of Congress...oh yes, and the American people.

Insurance companies seem to have come out potential winners? The publicly trade stocks of all the health insurers, the usual suspects, are up today and up substantially. As of this writing, with less than one hour to go in today's trading session, the common stocks of Aetna, Cigna, United HealthGroup and Wellpoint are up, for the most part, between two- and five-percent. What does this suggest? That Wall Street expects to see higher profits and solid growth from these companies in the years to come, at least at first blush.

While the President did "mention" a role for a public option, clearly there was no strong emphasis on it. Rather, if legislation does pass, we can expect to see the following benefits - via private health insurance companies:

1. Elimination of pre-existing conditions clauses;
2. No more cancellations based on development of disease, annual or lifetime caps on benefits, or failures to disclose adolescent acne.
3. An "exchange" - still fuzzy on that one - where people can go to find insurance policies and maybe even a public option, too.

There was more, but that was the nut of much of the President's speech.

So we may look forward to all of these wonderful benefits that the health insurance industry will be more than happy to splash upon us. Here's the rub: what about cost controls? Sure, United HealthGroup (United), the largest health insurer in the U.S., will be more than happy to write policies with pre-existing conditions and other cancellation clauses. But at what price?

Did I mention price? If I have a pre-existing condition - which I do (multiple sclerosis) - you mean that United will now be happy to write a policy for me "at a fair price?" Oh, gee, did I say "fair price?" We heard no mention about the effect of these "benefits" on policy pricing.

Several things are likely to happen. First possibility: United raises all premiums in order to recoup or maintain their profit margins in exchange for accepting higher risk customers. Second possibility: United will happily write me a policy if I am willing to pay 50-percent more for it than a healthier person. I just pulled that 50-percent out of my ass. It could be 20-percent or 100-percent, maybe even less. But who knows? No mention of policy cost in the President's speech.

It's kind of like a crack dealer, not that I have firsthand experience, mind you. Based on the dealer's analysis of you when he meets you on the street, he could charge you anything he likes, right? I suppose, anyway.

Car dealers can be the same way, especially if you're a woman, right?

The Republican responses to the President's speech are so far pretty much little changed, as if they really didn't pay attention while he was speaking last night. Even the Louisiana Congressperson's televised response was clearly written weeks ago. Nope, the Republican talking points are little changed. The damned Dems still want a government takeover of the entire health care system. Funny that I didn't hear that last night, nor did I read it in the transcript, nor have I EVER heard it except from a teeny weeny spectrum of legislators.

The Republicans are clearly all gahgah about the possibility of tort reform and the elimination of what they pen as "junk lawsuits," which I personally define as any lawsuit in which a Republican or corporation is not the winner. But that aside, the numbers clearly demonstrate, thanks to work available from AM Best's Aggregates and Averages, that malpractice lawsuits are not the horned devil and deep-pocketed demon cause of skyrocketing health care costs they are made out to be. They are, rather, the proverbial drop in the bucket.

Look. Everyone wants to make a buck and why not? People should be allowed, encouraged and honored to succeed, but succeed fairly, without someone, without millions of people feeling they've been ripped off. I fear, and I suspect I am not alone in this, that we just may be opening the floodgates for health insurance companies, the very same folks that we have worked so hard to paint as villains or at least culprits in this mess, to generate yet greater profits and revenues, charging consumers still higher prices. This time, however, they may have even greater "justification" for it because we will be empowering them to assume greater risk in their underwriting thanks to legislation.

The health insurers may just have succeeded in getting the payoff they've been hoping for through their "investments" in Senators and Congresspersons. So what if insurance companies have been paying out less and less of each premium dollar, the result being increased profits for stockholders and increased salaries and BENEFITS for executives. So what if they haven't felt a huge priority to make their administrative functions more efficient without sticking it to policyholders. They've been investing in a Golden Goose and it just might finally be paying off in the months to come.

Friday, September 04, 2009

Is It Racisim, Pure and Simple?

On Tuesday, September 8, President Obama, yes PRESIDENT Obama, not that "black guy occupying the White House," is giving a speech to elementary school students nationwide.

The subject? "The goal of the speech is to encourage students to set goals for themselves." This according to Heather Higginbottom, deputy director of the White House Domestic Policy Council. In addition, according to Higginbottom, "The whole lesson plan speaks to setting goals in increasing their educational achievement."

So while the United States faces something like a thirty percent dropout rate and we continue to fall behind developing countries, such as China and India, in academic achievement, Right Wing Republicans have their panties burning up.

School districts in at least six states are declining to show the President's speech. Even school districts in a relatively highly educated state like mine, Colorado, are inundating school administrators with phone calls and emails demanding that the speech not be broadcast or parents will keep their children home on Tuesday.

Presidential addresses to school children are far from unprecedented. Gosh golly, even Republican presidents, including George H. W. Bush - the only truly elected Bush - gave speeches to school children, yes broadcast nationwide, encouraging to set goals, to achieve.

So what's different this time around? Must be that damned black man in the White House and all that socialist indoctrination stuff he be indoctrinatin' our keeds wit.

If the "Birthers" didn't get to all "true, white Americans" and the "killin' grandma Deathers" crowd and the "tax the middle class" crowd and the "takin' away our precious guns" crowd and whomever I've missed hasn't "done the job," well let's just put it on our kids. "We gotta protect our precious Right Wing white kids from the evil socialist black man that is livin' in da White House."

Sadly for America, the Republican Party has been more than gleeful to stand back while they allow the organization of every hate group among us to work to destroy this nation's duly elected President.

Wackos, even wackos over the age of 65, do not understand that Medicare is a government program. But Republican cowards have encouraged people to believe that if Obama takes control of health care in the United States, Medicare will be lost.

Yes, even actual members of Congress are spewing daily diatribes of misinformation and lies about the President's agenda and programs. You can't go anywhere on the "Internets" without being bombarded with phony, but really good looking lists of items in the Democrats' health care bills that are, well, phony and non-existent.

The Republicans actually use misinformation from a wholly-owned subsidiary of the second largest health insurance company, United Health Group, aka the Lewin Group, to support and promote false claims about a) what health care reform is all about and b) how beneficial and altruistic the existing system is.

But back to education. Seems like dem same white folk, the macho gun-totin' to political events, the Deathers and Birthers, the Nazis that simultaneously seem to claim that Obama is a Nazi and that is bad and that Obama is a socialist and THAT is bad, not to mention the millions of blue collar, middle-class Americans that have lost their jobs and, at the same time, believe that government should do nothing to restore the economy, now do not care about their children's education and future in a rapidly changing world.

And of course, all of these folks seem to claim to be Christians on top of it all. Yes, I am quite sure that Jesus, not to mention his Father, would be quite happy to support hatred, racism, health care only for the shrinking few that can afford it, and gun rights above anything else. I am pretty sure that I read all of that in the Bible. In fact, I must be certain of it. In fact, for two centuries or more (I am trying to be conservative, hahah), self-described MEN of faith have stood before their congregations and preached hatred and segregation of blacks and whites, support for immoral wars, hatred of the dreaded Muslim hoards that are out to wipe us all out, all the while leaving out Jesus' principle teachings for people that believed in him and his mission - as a Jew, I might add - that we should take care of the poor, feed the hungry, and behaved towards others as we would have others behave towards us, etc. etc.

What drives the "Joe the Plumber" and "Sarah Palin" mentalities in our nation? Really. What drives it? Is it only about Republicans battling Democrats? That has been going on for decades upon decades. But truly, we have never seen such hatred and falsehoods spewing forth from this day's "loyal opposition" party. Elected representatives threatening secession from the country, even threatening revolution. What is this all about? And it is supported by "pulpit occupiers", many of whom are more interested in selling books and DVDs, and raising money each Sunday to support their lavish lifestyles and palace-like mega-places of prayer.

Yes, I am fearful that we may face losing America, not the whites only America, not the gun totin' America, not the tax breaks for the wealthiest America, but the America where opportunities are available for everyone, where education in schools is valued and encouraged, where religious freedom is honored and respected and not institutionalized as part of a government philosophy, as Bush II attempted.

George W. Bush was a major proponent of "looking into a person's eyes and seeing their soul," albeit he obviously needed new prescription glasses. Maybe each of us needs to look into our own soul - if we can.

There IS "right." But it's clearly NOT the "right" of the Right. If this nation cannot rediscover its soul, if it cannot even make room for the President of the United States to have an inspiring conversation with elementary school children about their education, for cryin' out loud! What have we come to?