Author: Bonddad

Thanks to right-wing talk radio the level of disinformation in the public stream of information is at an all-time high.  Hannity, Rush, and all their brethren will literally say anything to either start a ratings increasing controversy or make the Republicans look good.  As a result, there is a perception that people who don’t have medical insurance somehow choose not to have insurance.  The Kaiser Foundation published a study called “Myths About the Uninsured” that debunks some of these right-wing hacks more egregious claims.
Most of the Uninsured do not have health insurance because they are not working and so don’t have access to health benefits through an employer.

Actually, 80 percent of uninsured Americans come from working families.  However, of these 80%, 81% are employed be companies that don’t have insurance, or are not eligible for their employer’s health plan.  

In other words – they either have a job, or one of their immediate family members has a job.  

Buying Insurance is always an option.

The average annual cost of a private insurance plan is around $3300/year or $275/month.  For an individual who makes $2000 after taxes, this represents 14% of their monthly income.  This is on top of, rent and the ever-increasing price of gas.  In other words, the cost of insurance is prohibitive below a certain income level.

The uninsured believe they don’t need it or don’t want it.

The majority of the uninsured (52%) state medical insurance is too expensive.

Most of the growth in the uninsured is in higher income brackets.

The unemployment totals have increased 5 million in the last 5 years.  Of these 5 million, 75% are from low-income families.

Does anyone see a pattern here?  It’s about money.  Plain and simple.  These are people who are working trying to move-up in the world.  But, insurance is financially beyond their reach.  These people know about insurance but don’t make enough money to pay for it.  And I’ll bet you employers work this system to their advantage to keep people off their insurance rolls to keep their costs down.

http://www.kff.org/uninsured/7307.cfm

DIA -.02%, SPY -.08%, QQQQ -.11%
10-year Treasury +7/8, yielding 3.94%
Oil -95 cents to close at $59.09/bbl
Dollar +.8% versus Yen and .6% versus Euro

The song “Nowhere Man” has run through my mind all week when watching the markets.  They are up a touch here, down a touch there, but overall no one is willing to commit in either direction.  On the plus side, the underlying economic numbers are strong.  On the negative side, oil is rallying, and there is speculation the Fed is near the end of its rates increase which would signal the economy is getting ready to cool.  There is also little substantive economic news released this week.  On top of all that news, the summer just started – a traditionally slow time for traders.  As a result, the market is best described as non-committal right now.

The 10-year Treasury fell 7/8 to close at 3.94%.  There were two stories in the today’s market.  The first was oil.  Traders are looking at oil’s recent run-up as a possible brake on the economy, leading to slower growth.  If this is accurate, the possibility of inflation decreases, which would increase the overall return on fixed income investments.  Secondly, the possibility of lower European interest rates is a further sign of a slowing global economy which again contributes to lower inflation and higher overall returns on fixed-income investments.

Oil fell 95 cents to close at $58.09/bbl.  The Department of Energy’s weekly report on the oil market stated that although oil inventories decreased 1.6 million barrels last week, distillate inventories increased 1.3 million barrels.  For the last few weeks, traders have focused their attention on the end of the year, concerned that today’s high refinery utilization numbers would prevent refiners from producing enough fuel for the winter.  Today’s numbers helped to alleviate that fear.

The dollar rose .8% versus the Yen and .6% versus the Euro.  The direction of European interest rates was the dominant theme in today’s market.  Although 2 European central bankers denied the central bank would cut rates anytime soon, traders were still looking at the slow European growth figures and speculating a rate cut was inevitable.  Sweden’s recent 50 basis point rate cut added fuel to the fire, as did 2 dissenting members of the Bank of Britain’s recent policy meeting to hold interest rates steady.

[From the diaries by susanhu.] A new report titled Tracking Health Care Costs: Declining Growth Trend Pauses In 2004 highlights that while medical costs have slowed their increases, these increases are still far faster than inflation and the pace of wage increase:

“Health care spending increased 8.2 percent in 2004. This was virtually unchanged from 2003, which suggests that health care cost trends have stabilized. Hospital spending grew 10.1 percent in 2004, also virtually unchanged from 2003, reflecting a small increase in the hospital utilization trend and a small decline in hospital price inflation.  Meanwhile, growth in prescription drug spending continued to fall as a result of slower growth in prices. Growth in health insurance premiums slowed again in 2005, likely reflecting earlier years’ slowing in cost trends and signaling that a turn in the insurance underwriting cycle might be under way.”

“The trend in private health insurance premiums slowed in 2004 after a long period of acceleration culminating in a peak increase of 13.9 percent in 2003. Nevertheless, premium growth continues to outpace growth in the economy and workers’ incomes by a wide margin, making health care benefits increasingly unaffordable for employers and employees alike.  The high rate of growth in premiums is primarily the result of rapid growth in the health spending that underlies private health insurance premiums–that is, the cost of services typically covered by private health insurance. Underlying cost trends are the dominant long-term determinant of premium trends.”

The Report also highlights the following price trends.

Spending on prescription drugs increased 7.2%, while prescription drug prices increased 3.3%

Hospital prices increased 7%.

Hospital Outpatient appending Increased 11.3 while inpatient spending increased 6.2%.

The report stated that health spending “stabilized at 8%”.    This indicates the US can expect this rate of spending increases to continue for the foreseeable future.  Consider this fact from the following perspective: real wage growth has been stagnant for the last few years.  Therefore, health spending is taking a greater proportion of the average person’s salary.  And that continued increase is not going to slow down anytime soon.

So, why all this attention on health care?  It’s not as sexy as the Downing Street Memo and talk about impeachment.  Let’s get back to the real issue of the day.

Here’s the answer.  In a recent CBS news survey, 28% of the respondents stated health care was the most important domestic issue, making it the number one main concern of Americans.  People could care less about the DSM; what they do care about is how are they going to deal with the ever-increasing costs of staying healthy.  And no one is talking to these people about their real concerns.

DIA +.04%, SPY +.06%, QQQQ -.05%
10-Year Treasury +5/8, yielding 4.04%
Oil -47 cents to $58.90/bbl
Dollar -1% versus yen and -.4% versus euro

The markets traded sideways for most of the day.  This is a very slow news week, so traders are looking for other news to influence their trading.  Oil’s price spike is concerning traders, but not enough to induce a large sell-off.  There is growing concern of an oil-induced slowdown should oil’s price continue to increase.  On the corporate news front, Ford lowered its projected earnings for the second time this year and Loews and AMC announced they will merge their movie theater businesses.
Technically, the markets are meandering, they are looking for a strong enough signal to move in either direction, but are not finding it in current economic numbers.

The 10-year treasury rose 5/8 to yield 4.04%.  A 50 basis point rate cut by Sweden’s central bank signaled to bond investors the world economy may be slowing.  This in turn indicates inflation will slow, which increases a bonds rate of return.  Additionally, the increase in US Treasury prices could be viewed as a flight to quality, as investors become more concerned about future economic prospects.

Oil retreated from an intraday all-time high, closing down 47 cents to $58.90.  Today’s sell-off was a bit of profit-taking from the recent run-up.  In addition, traders are awaiting tomorrow’s weekly oil report.  There is still some concern about the Nigerian situation and a possible Norwegian strike.  However, traders continually point to the underlying fundamentals as the primary reason for the recent run-up.  Refinery capacity is still near 100% and there is concern production will not be able to shift to winter fuels early enough to stave-off supply concerns.  Technically, the market has spent the last two trading sessions consolidating, as traders prepare for tomorrow’s report.

The dollar fell 1% versus the yen and .4% versus the Euro.  A rumor of possible Chinese revaluation hit the yen market, sending it higher versus most currencies.  Traders view the yen as a proxy for the yuan.  The euro rose on speculation the European Central Bank would lower interest rates soon, a move many traders would welcome as a sign the ECB was acting to stimulate the slowing EU economies.  Today’s move could also signal a reversal of the dollar’s recent bull run.  The dollar has tried to move through the 110 yen and 120 euro levels several times over the last few weeks and has not been able to breach either mark.

I love baseball.  If God came down and asked me what I really wanted to do I would respond “play second base for the Washington Nationals.  Make me a 290 hitter with a good on base average so I could be a lead off man.  Give me some speed to swipe some bases.”  One of the basic rules of baseball – and one that has become part of popular US lexicon – is “three strikes and you’re out.”  This adage aptly applies to “voodoo economics” – also known as supply-side economics.  Voodoo economists have made three unsuccessful arguments about economic policies – twice in implementation and once in rebuttal.  Reality has given them their three strikes:
They’re out.

The first problem with this theory is it was never properly implemented.  True supply-side economics requires that for every dollar lost in revenue there must be a proportionate cut in spending.  While politicians love to say they are cutting taxes, they never say they are cutting spending.  This problem caused supply-siders to come up with a different rationale.  They knew that cutting taxes for the rich would lead to revenue shortfalls.  The government would pay for these shortfalls by issuing debt.  Because debt is the kiss of death to conservative politicians, they came up with another rationale.  By cutting taxes they would stimulate the economy to such a degree that tax revenues would sufficiently increase to pay off the debt incurred to pay for the tax cuts.  The problem with this is it has never happened.

Reagan was the first president to implement the new theory of voodoo economics and it failed.  “By 1986 the budget deficit was as high as 5% of GDP and government revenues had fallen by over 2% of GDP since the introduction of the 1981 tax cuts. So much for the Laffer idea of self-financing tax cuts!” Although Reagan’s attempts to implement the new voodoo economics failed, that didn’t stop the second Bush from implementing a similar policy.  And it too has failed: “In 2000 the budget surplus was $236 b (2.4% of GDP) while by 2004 we had a budget deficit of $412b or 3.6% of GDP. This was a worsening of the fiscal balance of 6% of GDP in four years. What accounts for this worsening? Government revenues fell in those four years by 4.6% of GDP (from 20.9% in 2000 to 16.3% in 2004).”  So, the two times they have implemented voodoo economics, Republicans have lead the country into the realm of financial ruin.  This accounts for their first two strikes.

Strike three occurred when voodoo economists proclaimed the Clinton’s tax increased would lead to economic stagnation. “The tax increases and spending controls of Clinton led to eight years of exceptional economic growth, exceptional labor supply and employment growth (20 million new jobs) and a boom in investment. Productivity soared, the stock market boomed for years, inflation remained low and we went from a budget deficit of $290 b (4.7% of GDP) in 1992 to a budget surplus of $236 b (2.4% of GDP) in 2000, the last year of the Clinton administration”

Historical facts counter any arguments supply side economists can make.  They have had their way for 25 years with public discourse and have been wrong three times.  That is their three strikes; they are out.  Next batter.

http://www.roubiniglobal.com/archives/2005/06/index.html#000333

“Kaisernetwork.org provides quick access to timely, reliable, and non-partisan information on national health issues through daily news summaries, webcasts, transcripts, access to public opinion data, and much more.”  (from their website).     The statistics from this report are scary and should give all of us cause for concern.  Below are some statistics from their report Trends and Indicators in the Changing Health Care Marketplace which is available on their website.
Annual private employer-sponsored insurance premiums averaged $3,695 for single coverage and $9,950 for family coverage in 2004.  Broken down into monthly figures these numbers are $308/month for a single person and $830/month for a family.

From 2001-2004, average earnings increased 4%, 2.6%, 3%, 2.2% respectively.  Over the same period, health insurance premiums increased 10.9, 11.9, 12.9 and 13.2% respectively.  At their lowest level, health insurance premiums increased 2.5 times faster than wages.

From 1996-2004, the average annual increase in health plan premiums was 8.5%.

For those of you who think national health care is a bad idea, here is some very bad news: the public sector already pays for 44.2% of health expenditures.

The percent of the nonelderly population without insurance rose from 17.3% in 2002 to 17.7% in 2003 (or 44.7 million uninsured), an increase of 1.4 million over 2002. The proportion of Americans with employer-based insurance declined from 63.3% in 2002 to 61.9% in 2003.

The percentage of firms with 3-199 employees that offer health insurance decreased from 68%-63% from 2002-2004.

Only 23 percent of part-time workers have access to their employer’s health insurance.

In 2004, the average annual increase for retiree health care costs was 11%

The average annual weighted retiree cost increase in 2004 was 24%.

Do you think maybe it’s time to deal with this problem?

http://www.kff.org/insurance/7031/index.cfm

DIA -.08%, SPY, -.03%, QQQQ +.33%
10 -year treasury -3/8, yielding 4.14%
Oil + 1.5% at $59.37/bbl
Dollar +.4% versus Yen and Euro

The markets have little new economic information this week, so traders are left to their own devices.  Today’s low leading economic indicator reading of -.5% was a non-event, as traders have started to question the indicator’s veracity.  Oil’s rise did not help; as oil sold-off near the end of the session, stocks rallied.  Traders are now concerned with second half-earnings.  The second quarter is nearly over, implying negative pre-announcements may start over the next few weeks.

The 10-Year Treasury lost 3/8 to yield 4.14%.  Today’s sell-off was largely a continuation of last week’s selling trend.  Traders are concerned oil’s increase will lead to inflationary pressures.  Higher inflation lowers the value of interest payments bond investor’s receive.  In addition, Fed governor Stern reiterated the Fed’s plan for a continued “moderate” rate increase policy, which left traders with the impression of rate hikes through most of the year.  Despite 2 weeks of selling, the treasury market is still technically overbought.  

Oil closed up 1.5% at $59.37.  This is a classic problem of demand outstripping supply.  In addition, refineries are operating near capacity, making any possible slowdown in production a price-spiking event.  Talks of a possible Norwegian oil strike did not help, nor did the news that Iraqi production is down because of water in the oil reserves.  The only good news related to oil’s price was the re-opening of the US’ Nigerian embassy which signals possible internal problems have passed away.  Technically, there is still upside room in the oil market, although short-term it is nearing overbought conditions.

The dollar rose .4% versus the yen and the euro.  The bullish dollar sentiment continues.  In addition, there are rumors the EU central bank may lower interest rates.  This would signal to the markets that the EU economy needs economic stimulus.  It would also make Euro denominated assets less attractive relative to other currency’s assets.  

From the Los Angeles Times

“To put it mildly, exploding healthcare costs present a more tangible problem for many more Americans than right-to-die cases. Since 2000, according to the Kaiser Family Foundation’s authoritative survey, healthcare premiums for family coverage have increased by 59%, six times faster than inflation.”

Recently, General Motors has hit a very difficult financial patch.  Major ratings agencies downgraded their debt to junk status.  Their US market share is also declining, adding further pressure to their already tight financial margins.

“In 1996, GM spent $3 billion to provide healthcare to 1.2 million workers, retirees and family members. This year, it expects to spend $5.6 billion to cover 1.1 million people. That means GM’s per-person expenditures for healthcare have doubled (from $2,500 to nearly $5,100) in less than a decade. GM now spends more than $1,500 on healthcare for each car it produces. That’s more than it spends on steel.

More importantly, that’s also significantly more than its key foreign competitors spend on healthcare. GM officials estimate that healthcare costs for Toyota are only about one-fourth as much per car, largely because the government pays more of the tab in Japan than in the U.S.”

The health care issue is slowly morphing to a question of national competitiveness.  Companies are required to provide health insurance for their employees.  Because of the escalating costs, employers hesitate to hire new employees.  This partially explains why this recoveries employment numbers are historically low.

Regardless of how GM and its unions resolve the situation, the company is still at a competitive disadvantage.  Its Japanese rivals don’t have to factor in health insurance when developing cost projections.  If this number was small, it wouldn’t create a problem.  But for US companies, factoring in medical expenses for its employees is a major headache that negatively impacts their ability to compete in the world markets.

DIA +.36%, SPY +.37%, QQQQ -.08%
10-Year Bond -1/32 yielding 4.09%
Oil + $1.89, $58.47/bbl
Dollar -1.4% versus Euro, -.2% versus Yen

The markets rose today on the good news about consumer sentiment – which came in higher than expected.  In addition, this week’s good news on inflation, manufacturing and housing had a cumulative effect of extending the week’s rally.  There appears to be a move towards a more bullish outlook on the markets.   However, in today’s spike in oil prices continues, it could damper the rally.  The Dow and S&P are slowing moving up, but don’t have a technically strong position.  The NASDAQ appears to be consolidating it’s recent rally.

The 10-Year Treasury fell 1/32 to close at 4.07%.  The unexpected jump in consumer sentiment to 94 – which was 8 points higher than consensus estimates – led traders to believe the period of rate hikes may continue.  In addition, the bond market is still technically overbought, giving traders a further excuse to sell positions.

Oil closed at a record price, rising $1.89 to $58.97.  It is up 9% for the week.  The US closed its Nigerian embassy today for unspecified reasons.  Nigeria is the 11th largest oil exporter and has had civil unrest on and off for the last few years.  Because of the tight supply and demand situation in the oil market, any possible disruption in supply makes traders very nervous.  Adding to the buying frenzy is the International Energy Agencies second half demand projection of demand being 3% higher than supply.  In addition, there was a possible mechanical problem at a Baytown refinery.

The dollar fell .2% versus the yen and 1.4% versus the Euro.  The record trade deficit of 195 billion or 6.4% of GDP was the primary reason for the dollar’s drop.  The US imbalances were the primary reason for the dollar’s losses versus the euro and yen in the second half of last year.  Since the beginning of 2005, forex traders have focused instead on the growth differences between the US and other countries.  As a result, they have bid-up the dollar.  However, this week’s weak international payments number and record deficit may once again shift currency trader’s focus to the twin deficits.  In addition, technical factors weighed on the dollar which was very overbought going into today’s sessions.  For traders looking to take a profit from the recent dollar run-up, the trade deficit provided amply fodder.

From the Bureau of Economic Analysis

“The U.S. current-account deficit–the combined balances on trade in
goods and services, income, and net unilateral current transfers–increased to $195.1 billion in the first quarter of 2005 (preliminary) from $188.4 billion (revised) in the fourth quarter of 2004.  The increase was more than accounted for by increases in the deficit on goods and in net outflows for unilateral current transfers.  These increases were partly offset by increases in the surplus on services and in the surplus on income.”

Why this is important.

The US currently purchases more than it produces.  To make-up the difference, the US must find some type of financing.  This is one of the reasons Asian countries hold about 1.1 trillion in US Government debt.  We buy some of their goods on credit.

As the total amount of debt increases, the chance of defaulting on debt increases.  Creditors will start to demand a higher interest rate to compensate them for this increased risk of default.  This will translate into higher interest rates for the US domestic economy.