Dan’s Blog

Records and Namesake Debacles

Dan Calandro - Monday, November 25, 2013

A few stories are dominating the investment world today. First, the Dow Jones Industrial Average reached a new milestone by closing over 16,000 for the first time in its history, closing the week 16,065. The S&P 500 market average also set a record at Friday’s close (1,805). Add to them the dismal performance of gold, now down 28% in the most recent twelve months, and reason would expect the underlying economy to be stable and growing at a brisk pace.  

So not the case, which is perhaps best reflected in the 15-51i strength indicator. It's up just 1% in the most recent twelve months (compared to a 24% Dow gain in the same time), and is still off 10% from its all-time high reached in September 2012. See below.


In the two year period stock market strength is up 45% and the market average added 33%; gold is down 25% and the economy has gone nowhere – stocks and gold are telling the same backwards story. Their performances should be flip-flopped.

The economy continues to limp along; unemployment remains stubbornly high, consumers are tight, and banks still aren’t lending. Inflation is low but so is wage growth. And a large section of the Market, the healthcare industry, is in complete disarray – thanks to the implementation of the Affordable Care Act (ACA). 

The healthcare industry is approximately 1/6th, or 17%, of the U.S. market economy. Right now insurers don’t know what they can sell or how much they should charge for it; businesses aren’t sure if they should pay tax penalties or continue providing benefits to employees (taxes, of course, are much less expensive than healthcare premiums); and individual employees don’t know if they have coverage, don’t know how much their healthcare costs will rise, and don’t know if and how it will impact their wages and employment.  

I know this to be true.  

In my other life I own and operate a certified small business, that is, one with less than thirty full-time employees. According to the ACA, companies like mine were supposedly "grandfathered" and "exempt" from any kind of ACA impact – yet our policy, a Blue Cross-Blue Shield product held since 1999, was recently cancelled. A new policy was offered in its place and it is more expensive, provides less coverage, and increases co-pays and expenses to employee by more than $6,000 for families and $3,000 for individuals.  

That is not good for markets.  

Up to this point I have refrained from calling the ACA "ObamaCare" because I thought it was trite. But I’ve had a change of heart. The Affordable Care Act is not affordable and it does not increase care. The name is a total misnomer.

ObamaCare is spot on. President Obama signed the big government act that Democrats rammed through Congress against standard operating procedure and public sentiment. President Obama himself has referred to the ACA as "ObamaCare." He said he liked the name, and was proud of it. And when you think about it, the program is emblematic of the Obama presidency, a bureaucratic and fiscal disaster, a symbol of the ineptitude and corruption of big government. 

Perhaps it is ironic that I start referring to the ACA as ObamaCare while at the same time its namesake, President Obama, has begun referring to it by its legal name, the Affordable Care Act. 

Who could blame him for not wanting to be associated with such a debacle?

Many people seem to forget that in order for ObamaCare to work Medicare (healthcare for seniors) had to be cut and Medicaid (healthcare for the poor and unemployed) had to be expanded. So is there any surprise that UnitedHealth Group recently dropped thousands of doctors from its Medicare Advantage plans? 

We often hear about the redistribution of wealth inherent in the socialist system. But what we never hear about is the redistribution of assets like doctors and healthcare services that are currently going on in the healthcare industry today. To cut services to seniors is a travesty on its own, but it will also cause prices for end-of-life care to rise dramatically.  

ObamaCare negatively affects a significant portion of the market and stocks haven’t yet factored it into current pricing. Investors beware! 

The problem with big government is that it only gets bigger and more corrupt until it is stopped. For instance, Freddie Mac recently announced that it would make a $30 billion dividend payment to the U.S Treasury for debts it received during the ’08 bailout. Great, I thought, Americans are getting paid back. And then I read the fine print: Freddie Mac took a $24 billion tax credit in order to make the dividend payment.


Yes, in the world of big government a tax break in exchange for dividend income is a means of good payment, a reason to celebrate the practice of government bailouts. According to some, Freddie has "paid back" – albeit, after their complete destruction of the housing and credit markets – and then you hear of their new venture. Yeah, the Federal Housing Financing Agency (and offshoot of the FHA) is creating a new venture that will perform some "back-office functions" that Fannie and Freddie currently handle separately. The company is named Common Securitization Solutions, LLC. 

Does that sound like a back-office service provider to you? 

Big government initiatives corrupt markets, distort reality, and mislead investors and voter alike.  The Market is a mess right now and "the market" doesn’t seem to know it – stock market records and government debacles have it distracted. 

Don’t make the same mistake.

Stay tuned…

ShieldThe road to financial independence.™

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