Market Talk

I mentioned the other day, Monday I think it was, that one aspect of the healthcare reform bill is that it actually codifies the insurance industry’s business model within the law. Holman Jenkins takes up the point in today’s  Journal, and notes that the “reform” somehow manages to leave in all the problems with healthcare:

Once everyone is required by government mandate to buy insurance, the industry’s survival is no longer threatened: It can just pass its skyrocketing costs along to customers. Once customers can no longer refuse to buy the industry’s product, the problem of costs won’t be fixed, but it no longer is the insurance industry’s problem.

There, in that one sentence, we give you the failure of ObamaCare, the failure of the congressional health-care debate, the failure of health-care politics in this country.

This the most insidious and least understood part of the healthcare reform bill: in the name of “universal healthcare,” it actually further institutionalizes the insurance business model, institutionalizes a failed model, one that includes a $250 billion annual tax benefit for employer-provided insurance that masks the true costs of healthcare.
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At some point this number will matter.

US stocks rising yet again, following yesterday’s gains, as President Obama signs new health-care legislation into law.

Positive reaction to the passing of the health bill is a bit perplexing, especially since many expected health care to act as a drag to the market’s yearlong rally.

But as we noted yesterday, it looks like there could be several benefactors from the legislation, ranging from hospital operators and pharmacy-benefit managers to drug and medical-device makers. And the final vote has added some much-needed closure to the situation, which seems to please investors.

But the ballooning federal budget deficit isn’t lost on some, and this $940 billion piece of legislation has Harvard economist Greg Mankiw worried about future implications:

In addition, I could not help but fear that the legislation will add to the fiscal burden we are leaving to future generations. Some economists (such as my Harvard colleague David Cutler) think there are great cost savings in the bill. I hope he is right, but I am skeptical. Some people say the Congressional Budget Office gave the legislation a clean bill of health regarding its fiscal impact. I believe that is completely wrong, for several reasons (click here, here, and here). My judgment is that this health bill adds significantly to our long-term fiscal problems.

Nevertheless, the stock market keeps puttering along. DJIA’s up 44 at 10830, while S&P 500′s up 2 to 1168.

“I don’t read this market rise as an endorsement of expanding federal indebtedness, but rather a vote of support for the functionality of government,” John Curran writes at Time’s Curious Capitalist blog.

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What else do you need to know about? The market loves ObamaCare (right?), but nobody in Europe more and more looks like a bunch of squabbling children (like Lord of the Feta, or some such thing.)

Runaway train never goin back.

It’s been about 12 and a half months since the stock market bottomed out. And with major indexes up more than 60%, inquiring minds are wondering how much longer investors will be able to ride the easy money train.

After such a furious rally over the last year, one would expect some sort of pullback to come sooner rather than later. Seven of the ten S&P 500 sectors are trading at overbought levels, while none are oversold, according to the folks at Bespoke Investment Group.

“As we have seen since last March, overbought markets can stay overbought for several days or weeks,” firm says. “It isn’t until an event occurs that gives the market an excuse to sell-off that the correction comes.”

Dubai debt concerns in late November as well as proposed financial reform and Greek troubles in January prompted brief pullbacks. With health-care reform passing, Bespoke wonders if this could be the next excuse to sell.

Not yet, as S&P 500 was recently up 5 at 1165. Hard to pinpoint exactly why stocks are higher today. Over the past few months, the market was expecting some sort of health-care legislation to pass. So after all the delays and confusion, it seems like the final vote has added some much-needed closure to the situation, which seems to please investors.

Delving a little deeper into the health-care legislation shows many companies ranging from hospital operators and pharmacy-benefit managers to drug and medical-device makers may profit from the bill.

Still, stocks will retrench at some point – you can count on that. Whether it happens tomorrow, next week, or a few months from now is debatable, but a pullback’s on the horizon. And when it happens, it will put the market at an important crossroads, according to Barron’s Mike Santoli, (hat tip Barry Ritholtz):

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Now that we've got universal coverage, we can save this moocher's life.

What in the name of John Galt’s going on around here? Are stocks actually rising? Rising, a day after the Democratic Party put the moochers on Easy Street? Does the Street like ObamaCare? Aren’t the Founding Fathers, Ayn Rand and Jim Cramer spinning in their graves? (What’s that, you say? Cramer’s alive? Oh, I guess only his reputation is dead.)

And look at this, Wonder Twins. What sector is leading the gains? Healthcare.  Healthcare?! How can this be happening?

It’s not that shocking, quite frankly, despite the dire warnings from the likes of Kudlow and Cramer. For one thing, absolutely nobody can say they were shocked by this. Sure, even yesterday afternoon the healthcare-reform bill’s passage wasn’t a guarantee, but it was a pretty sure bet. The Street’s been ready for this.

“I think people are realizing the sky didn’t fall,” said Karl Mills, manager at Counterpoint Select Fund. And while the bill’s passage in the Senate was followed by selling of dollars, the greenback’s being held up by worries about Greece, which are cutting into the euro, and pound for that matter.

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Pre-crisis.

Partisans will try to pin any selloff on last night’s vote on healthcare reform, which depending upon your political leanings is either historical or Pyrrhic. But there are other factors at work, and besides, the bill doesn’t even go into effect until 2014, so there’s still time to make hay.

There are other things of more immediate import going on, like the resolution of the Greek situation. With the EU holding a summit meeting, and with time running out for the Greek to get their funding in place before they have to turn over something like $20 billion in bonds in April and May, this week has all the makings of a Rubicon-type event (I know, that’s a Roman, not Greek, reference, but you know, if the sandal fits…)

The Brussels summit begins on Thursday, so we have three full days to twist in the breeze while this whole drama drags on. This is pressing down on the euro, which is driving up the dollar, which lately has been a heel on equities. So as much as Kudlow will probably be ranting by 11:30 a.m. that the market hates the healthcare plan, it ain’t that. It’s the Greek thing.

And for as much as this story seems to change hourly, the basic outlines have not changed at all: the Greeks fibbed for a decade, ran a dangerously profligate nation, and need a bailout. The prim and proper Germans don’t want to bail them out.

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What upsets me the most about the whole healthcare reform fight is this: in a year in which there were far bigger priorities, the Obama administration choose to make healthcare their signature issue. It’s actually infuriating. The biggest banking crisis in 80 years, the worst recession since the end of World War II. Eight million thrown out of work. Yes, healthcare is an issue, but it wasn’t the biggest issue.

So instead of really tackling those issues, he just had his Treasury Secretary conduct a white-wash of a stress test and threw money at the banks. He hastily concocted an $800 billion stimulus package, for whatever good that was. Congress pressured FASB to suspend mark-to-market accounting, the Fed open the liquidity floodgates, and everybody assumed the problems were solved, leaving Obama and the Democrats to chase their white whale, universal healthcare.

And that gave the Republicans their white whale, too, socialism. So everybody’s all geared up to fight this big, bothersome, distracting fight that’s an obsession for both sides, while the real issues, the broken regulatory system, the byzantine tax system, the massive debts at the personal, state and federal level, the deterioration of the middle class, get little more than jawboning.

Political capture. Remember that one.

Meanwhile, the problems aren’t being solved, and have moved up the food chain, from the individual level, to the corporate, and now to the state level. Regular readers of this blog won’t be surprised to learn that. But apparently, despite the spectacular meltdown in California last year, despite Detroit’s slide into oblivion, despite the massive budget shortfalls in New York and New Jersey, the scope of the problem hasn’t dawned on a lot of people. The NY Times’ Bob Herbert is one person, though, who gets it:

A story that is not getting nearly enough attention is the ruinous fiscal meltdown occurring in state after state, all across the country.

Taxes are being raised. Draconian cuts in services are being made. Public employees are being fired. The tissue-thin national economic recovery is being undermined. And in many cases, the most vulnerable populations — the sick, the elderly, the young and the poor — are getting badly hurt.

“We’ve talked in the past about revenue declines in a recession,” said Jon Shure of the Center on Budget and Policy Priorities, “but I think you have to call this one a revenue collapse. In proportional terms, there has never been a drop in state revenues like we’re seeing now since people started to keep track of state revenues. We’re in unchartered territory when it comes to the magnitude of the impact.”

America’s Greek crisis is already here. It may not get as bad here as in Greece, given that the states have the backing of the United States, while all the Greeks have are some squabbling neighbors and a seriously skeptical bond market. But this is a crisis all the same, with no easy solutions.

Lot of Washington-type cross-currents floating around today. You had the new credit-card rules go into effect, you had the President unveiling his latest tweaks — as most seem to be calling them — to his healthcare proposal, and you have these dueling financial-reform bills on deck for some time this week.

And while I personally think the biggest issue is financial reform, it’ll have to wait for another tomorrow, because today on Tomorrow’s News Today, we’re talking about the healthcare plan, as well as Toyota’s mounting problems and Janet Yellen’s pronouncements. And as Madeleine says, it’s time to get something done on healthcare.

- Economic fears prompt risk takers to take day off. “With investors and traders suddenly looking for shelter, the old standby – the dollar – is the day’s big winner,” Tom Petruno says.

- “News that is good (but not great) is sold in an overbought market while news that is bad (but not horrible) is bought in an oversold tape,” Minyanville’s Todd Harrison notes. It’s the reaction that counts.

- Apple (AAPL) speculation is running rampant ahead of its special event. The much-hyped tablet is expected to be unveiled, but could Apple announce a new phone compatible on Verizon Wireless?

- While we’re talking about Apple speculation, don’t expect a deal between Time Warner’s (TWX) Time Inc and Apple by next week when Apple’s expected to launch the tablet, MediaMemo blogger Peter Kafka says. But Time still remains “intensely interested” in the device.

- Scott Brown’s Senate victory in Massachusetts should be viewed as another indicator of increasing outrage over the state of the economy, the Pragmatic Capitalist says.

- Inflation fears aren’t warranted in the short-term. “But what we need is a convincing commitment from the government to both near-term stimulus and longer-term fiscal responsibility in order to be assured that it’s not a concern over the next decade,” James Hamilton says. “And that’s not what I’m seeing from the US Congress.”

- Sirius XM (SIRI) looks to be heading in the right direction. Between positive free cash flow for 2009 and a higher-than expected subscriber count in 4Q, “the winter holidays were particularly kind to Sirius,” John Paczkowski says.

- Stocks return to normalcy after the Massachusetts election rally. “It’s back to economic reality and an earnings season that is mediocre so far relative to expectations,” writes Miller Tabak equity strategist Peter Boockvar.

- Obama slows the health bill, telling lawmakers not to attempt to pass it until Massachusett’s new GOP senator takes office.

- BofA and Wells Fargo posted improved 4Q results, joining some of their other banking peers that have also performed better a year after the depths of the financial crisis.

- Oracle of Omaha isn’t a fan of Obama’s bank tax. ““I don’t see any reason why they should be paying a special tax,” said Warren Buffett. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”

We’re talking politics and chocolates today. And, of course, Citigroup. It’s Tomorrow’s News Today, the best three minutes you’ll invest all day.