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Gold (oz) December $1,190 +$30
 
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Apropos Endings
Dec 14, 2014

Stocks got slammed this week on the good news that oil prices continued to drop. Oil is now just $57 per barrel, down 50% from a year ago. Yet the Dow Jones Industrial Average lost 3.8% in the week and 15-51 Strength lost 2.9%. Gold added 2.6% and yields dropped sharply, again. The 10 Year T-Note is now trading at a paltry 2.1%.  See below. 

 

12-12-14a

 

The hysteria surrounding the drop in oil prices is actually hysterical – a laugh out loud condition. For days we have heard some speculate that lower energy prices will add further drag to an already struggling world economy, and thus stocks went down.

 

That’s silly. Lower oil prices cannot hurt the economy and it’s disingenuous to say so. In fact, the same argument was made when oil prices were skyrocketing. Pundits can’t have it both ways.

 

The drop in oil prices is being cause by two things: 1) lower global demand, and 2) higher global supply.

 

There is little doubt that lower oil demand is being driven by a weak and weakening global economy. Growth is slowing in most major Markets, and some big producers like Japan and Germany are falling into recession. But it’s not a drop in oil prices that is causing those economies to shrink, or will cause them to shrink more; it’s their shrinking economies that are causing oil prices to fall, and perhaps fall more. Shrinking demand in the broader market is the real problem – and lower oil prices can only help that condition. 

 

Higher global supply is coming from a boom in shale oil drilling in America and OPEC’s recent decision not to curb their output in the face of falling global demand. As mentioned in Records Abound, OPEC has their head in the game: They know lower oil prices put pressure on American drillers, and hurt Russia and the ISIS terror network.

 

Lower oil prices are good for many reasons.

 

Yet there were other pundits promulgating that the drop in oil prices is fueling deeper concerns about Euro Zone deflation, and so stocks went down. That, too, is silly.

 

Let’s make this simple: Lower energy prices are bad for oil suppliers and good for everybody else. Lower oil prices can lead to broader market growth and inflation because more dollars are being directed to more sectors of the economy, thereby lifting demand, and perhaps pricing, in those sectors.

 

Lower oil prices are better for the economy as a whole than higher oil prices could ever be.

 

Indeed, higher oil prices can contribute to broader market inflation because it is used in the production of so many goods, and because energy is required to transport all products to markets. I get that. But that’s not the Market problem right now. Lower demand is.

 

Besides, falling oil prices does not automatically bring about a fall in general prices – certainly not in the same way as higher oil prices will bring about a general rise in prices.  Producers are more likely to capture the fall in oil prices as retained earnings, and then lower production to meet lower demand. Any drop in general prices relating directly to oil are long off into the future, at the very least. 

 

That doesn’t mean world governments shouldn’t take deflation and the Market condition seriously. They should. These things could easily spin out of control.

 

The one surefire way to reverse deflationary pressure is to increase dollars circulating in the marketplace – and the best way to do that is to empower the consumer by cutting tax rates across the board, and by reducing the amount of government presence in market activity. If earners are given more of their hard earned money to spend they will spend it. Production will increase, unemployment will decrease, the economy will grow, and inflation will naturally return.

 

But, sadly, empowering consumers with more of their hard-earned dollars is never a viable option for today’s governments – Democrat or Republican, communist or socialist. 

 

The problem with today’s governors is they are all in the same basket: They want to control the Market through central planning, a Keynesian approach, which has proven bankrupt throughout the course of history. That’s the reason deflation is such a threat. Governments do not want to empower People; they instead want to empower themselves. (see: Their Side, for more info.)

 

Increased government subsidies and monetary shell games cannot solve the deflation problem because they are only temporary in nature and rife with corruption. Tax rate changes are permanent (or at least long term in nature) and have a much greater impact on the economy because working People are rewarded with additional dollars to spend freely in the markets they choose.

 

Workers and earners are the vibrant consumers markets need to thrive. Stealing from them to boost welfare and Wall Street is not a solution to thwarting deflation.

 

So forget about the deflationary fears relating to the drop in oil prices and stocks. They’re misguided and misplaced. Over-reaching central planners do much more harm – query: Jonathon Gruber

 

So why was the stock market down so significantly this week?

 

Simply put: Wall Streeters wanted an excuse to sell over-valued stocks because they’re scared of the lofty valuations at the present time. This week’s move was merely a price-value correction.

 

For more than thirty years I’ve been closely watching "the market," and while it’s impossible to have seen it all, certain trends seem to reoccur over the course of time. For instance, during the tech-boom in the 1990’s the S&P 500’s performance trend crossed over the Dow’s at the top of the market, and then crossed under it at the bottom. This characteristic (the S&P 500 crossing over the Dow at the market top) is common in advance of corrections. This dynamic also happened during the housing-boom -- and now it has happened again with the QE-boom.  See below.

 

12-12-14b

 

The S&P 500’s performance trend remained above the Dow’s for three years leading up to the crash of ’08. In today’s market, the S&P trend has been over the Dow’s for a little more than a year. So if history repeats, the next major correction (much different from mere price-value corrections) will likely occur around the time the Obama presidency ends.

 

And wouldn’t that be apropos.

 

Stay tuned…

 

 ShieldThe road to financial independence.™

Records Abound
Nov 30, 2014

There is little doubt that the recent drop in fuel prices has significantly affected economic activity to the upside. Gas prices around my market have dropped more than a dollar per gallon. That gives consumers an extra $100 to $200 per month to distribute to other sectors of the market economy – and with the holiday season upon us, it couldn’t have come at a better time.

 

The world needs a strong fourth quarter. Lower oil prices will surely help that cause, but for how long?

 

When oil prices fall OPEC usually cuts Supply (production of crude oil) to force prices higher, or to hold oil at its current price.  OPEC, a cartel of oil-rich countries, control world prices through their ability to greatly affect the world Supply of oil.

 

A decrease in Supply generally causes prices to rise, as long as Demand holds steady.  If both Supply and Demand fall together prices hold steady.

 

By standing pat with their current production plan, OPEC has indicated that they, too, are concerned about weakening global demand. They believe higher oil prices will cause more trouble than they’re worth.  And who could blame them.

 

The world economy is screeching to a halt – China, India, Europe, and Japan continue to show major signs of weakness. Growth is slowing and inflation is dropping (a sign of weakening consumer demand.)

 

Companies produce less goods when demand is falling; therefore, less energy is used in the production of goods. And with less production, fewer goods are transported to markets; and again, less fuel is required to move fewer goods and raw materials. It’s a vicious cycle that can lead to recessionary deflation – and OPEC knows it. 

 

Deflation, the general decrease in prices, is a condition that occurs when consumer demand falls faster than the level of Supply (the amount of goods produced and distributed to markets.) In other words, excess Supply causes prices to drop.

 

Oil prices affect the entire economy, and dollars spent towards it drain money from the rest of the economy. Lower oil prices help the entire economy because more money is available to spend in other sectors of the economy. Higher oil prices steal that money away and can easily push a weak economy into recession – which is a breeding ground for deflation – and OPEC knows it. 

 

OPEC’s decision was this: Sell less oil for more money per barrel, or sell more oil for fewer dollars per barrel. They recently chose the latter.

 

Besides, OPEC also knows that lower oil prices will pressure American shale oil drillers, who need higher oil prices to cover their higher costs of production.  

 

This is not to mention the ISIS terror threat, which has high-jacked oil fields in Syria, Iraq, and northern Africa. Falling oil prices strain their war effort.

 

And OPEC knows that too.  

 

So it appears that low energy prices might be here for a little while. That it should help corporate profits in the fourth quarter, like it did in the third. Real GDP for the third quarter was recently adjusted upward to 4.6%, from 3.9% -- thanks to falling oil prices.  

 

America uses about 7 billion barrels of oil per year. That amounts to $462 billion per year at current pricing – a mere 3% of the economy, and a smaller fraction of the national debt. Yet a drop in its price triggers an automatic market impact similar to the positives experienced with a tax cut. 

 

In other words, falling oil prices have done more good to the U.S. economy than the trillions of dollars the U.S. government has spent over the last several years. And that’s sad.

 

It’s even sadder that the answer to economic woes is never about people and markets. Instead it’s about printing more money and handing it to banks that turn the lion’s share over to corrupt central governments who blow most of it and waste the rest. That’s good for politicians, not people. 

 

Market freedom and People everywhere lose when government policy is dedicated to devaluing currency and expanding government debt and deficit. Their gain comes at the expense of free market participants. That’s good for government, not markets. 

 

Governments get away with their money laundering scheme by portraying their QE efforts as required to save the world from apocalypse.  And it’s total BS.

 

Case in point: falling oil prices help boost the majority of the market economy; and the only things QE-type policies have done is expand government, enrich Wall Street banks and bankers, and inflated the stock market to ungodly valuations.

 

This incubates a bigger problem, as a booming U.S. stock market makes everything look rosy to other central bankers and governors, and so the world follows along.

 

A struggling Chinese Market has recently undergone an easy money effort of their own, and Japan’s Shinzo Abe is asking his people for more time to let his easy money policies prove themselves. And while those two markets are on the road that America paved, there is a riff brewing inside the European Central Bank (ECB) over their form of quantitative easing (QE): their chairman wants it, but an executive board member doesn’t. One thinks it will cure the deflationary threat; the other doesn’t think the costs would be worth the benefit.

 

The latter has it right.  Easy money policies don’t solve anything; they just delay the inevitable – which is made worse by the massive increase to the monetary base. That’s what will make the next correction so terrible. 

 

Think of it this way, the Federal Reserve has printed more than $5 trillion dollars of new money in America over the last several years.  That’s $15,823 per American person. But is money any easier to come by? 

 

Of course not. If anything else, money is harder to come by. 

 

But you wouldn’t know that by looking at the stock market. The Dow Average is up 7.6% through eleven months and 15-51 Strength has added 9%. Gold, as one would expect with an up stock market, is down 3.5%. The year-to-date chart is below.

 
11-28-14a
 
 

Records abound in the stock market, as Strength is starting to peel away from the Average. And talk about finicky; stocks are up 13% after their 7% sell-off in October, just one month ago. Gold has done a complete reversal since spiking earlier in the year, appearing as if investors were expecting a recession but changed their minds at mid-year. 

 

It’s even easier to appreciate the stock market Bull Run in longer term views. Below is a seven year look.  
 
11-28-14b
 

It is clear that gold corrected after the stock market recovered, and continued building lower highs as stocks took off. Since the prior market top Strength is up 140% while the market Average has added just 26%. Gold is up 55%.

 

And since we’re talking about new all-time high records, the 15-51 strength indicator has also recently achieved a new milestone – 82,172.  The chart below shows its entire history from inception: 1996 through November 2014. Remember, both the Dow Average and 15-51 Strength portfolios started the period at 5,117.  

11-28-14c
 
 

In almost 19 years of activity 15-51 Strength has produced a stunning 1,506% return on investment – that’s 80% per year, and 606% better than the Dow Average, which posted a 249% gain, or 13% per year. It’s been a brazen run for Strength.

 

Think about the performance this way: the Dow is currently at 17,828, a record for it. The last time the 15-51 Strength portfolio was at that value was August 2004 – 10 years ago! – and more than four years before the ’08 crash.

 

Strength, speed, and performance.  

ShieldThe road to financial independence.™

 

 Now more than ever, it’s time to…

LYB_Plate

Gruber Acknowledges Supreme Letdown
Nov 17, 2014

Those who haven’t yet appreciated the recently released statements by Jonathon Gruber should know that the chief architect of the Affordable Care Act (a.k.a. ObamaCare, or the ACA) testified that law could only be passed by means of fraud, deception, and "the stupidity of the American voter."

 

How Gruber’s provocative admission isn’t plastered all over every media outlet is not only a travesty to We the People, but also negligent, corrupt, and criminal. His short form statement can be found here; and a long form statement can be found here

 

Indeed Gruber is partially right. Some Americans are, in fact, stupid; these are people capable enough to be well read and independently minded but instead choose to be led by media propaganda and political pressure. Then there are those who are illiterate; these are people without the ability to read and understand the most basic dynamics of the market economy.  And sadly, yes, people from those two groups can cast a ballot and vote.

 

But not all American voters fit that bill.

 

It should not be forgotten that more than 60% of Americans polled at the time of ACA passage were against the law, and outraged by the shenanigans Congress pulled to force that law through the system. Remember, Scott Brown promised not to deliver the 60th vote Democrats needed to pass the law if he won Ted Kennedy’s Senate seat, which he did. That was when Senate Majority Leader Harry Reid changed longstanding protocol and forced the bill through a process called reconciliation, which requires only 51 senatorial votes. Up until the passage of the ACA reconciliation had been reserved only for budgetary items. That makes ACA passage through reconciliation a clear breach of standard operating procedures for the U.S. Senate.  

 

This is not to mention the breakneck speed in which the bill was forced through congressional chambers, leaving little to no time for members to actually read the bill that was put to vote. That was when Speaker of the House Nancy Pelosi attempted to calm the controversy by notoriously stating, "we have to pass the bill so that you can find out what is in it."

 

I’m not so sure that’s what the Founders had in mind when they established congressional protocols. 

 

So there was a lot of outrage and dissent for ObamaCare, then and now, by a majority of voting Americans. And while there might be some truth behind Jonathon Gruber’s statements – heck, some people are still stupid enough to think the ACA is actually good law, good protocol, and good for the market – the fraud he reveals in the law’s passage is most stunning.  

 

In a presentation given at the Annual Health Economics Conference in 2013, Gruber and his cohorts actually poke fun at Chief Justice John Roberts for transforming ObamaCare’s penalties into taxes. The law, he said, was written in a "tortured" way to fleece the Congressional Budget Office and sway the Supreme Court, which it did. And just to make that point clear, Gruber’s elitist position places Justice John Roberts in, and at the top of, the "stupid American voter" group. 

 

Gruber has picked a major fight.

 

The way I see it: Gruber’s statements, the most recent election results – and the Supreme Court’s recent decision to review another major threat to the ACA’s constitutionality – completely reopens the national debate on ObamaCare. 

 

In a blog posted just a few days after the Supreme Court held that the individual mandate was constitutional, my blog Supreme Letdown highlighted the main reasons why the High Court’s decision was flawed (that entire blog follows this one).

 

In short, the Supreme Court held that the individual mandate was constitutional because it considered the law’s stated penalties as taxes – a clear constitutional power authorized to Congress – and because of precedent. After all, Americans are already mandated to purchase a national retirement program (Social Security) and senior citizen health insurance (Medicare).

 

And while Supreme Letdown provides a salient argument on the tax issue, it didn’t vividly address the obvious problem with the mandate issue. Never before in American history has Congress mandated American citizens to purchase a product or service from a private organization. Social Security is purchased from the U.S. central government. Ditto for Medicare. Their according taxes are collected by the IRS with specific tax rates on specific activity (wages). 

 

ObamaCare mandates people to purchase services from private healthcare insurers – not yet a government entity – and according taxes are collected by insurance companies. The tax rates are unknown to consumers and are dictated each year when policies renew. In other words, the healthcare tax rate is a moving target and can change without voter repercussion – and it has nothing to do with the level of activity. For instance, taxes paid by workers into Social Security and Medicare increase as their wages increase. Not so with health insurance taxes, which can rise or fall without any change in consumer activity. Instead, and without little doubt, the healthcare tax will be driven by central government deficit and the ruling Party’s political agenda.

 

Doesn’t that make you feel warm and fuzzy – especially when considering all the persistent incompetence displayed in Washington DC?

 

The fact of the matter is this: if ObamaCare could pass with only 51 Senate votes it can be repealed with the same number. Republicans have that number. But they will need 67 Senators to overturn Obama’s veto. The only chance they have in getting those votes is to pass a replacement that will efficiently and effectively achieve the objective – to lower healthcare costs and increase individual enrollments.

 

Here are some rallying points to compromise:

1.      Cut Corporate Tax Rates – if insurance companies pay less federal taxes they will pass less of those taxes onto consumers, which will lower healthcare prices. Or if that can’t pass then how about making the amount a company pays for healthcare insurance premiums double or triple tax-free (this to encourage enrollment). 

2.     Cut Personal Tax Rates – many doctors make a lot of money; their profession costs a lot of time and money, and the cost of malpractice insurance is outrageously high. They deserve a robust return on investment. If doctors pay less personal taxes they will pass less onto their customers – and consumers will have more money to pay for services.  Or if that can’t pass then provide a tax credit to those enrolled in an insurance program (again, to encourage enrollment.)

3.     Allow Health Insurance companies to Compete Across State Lines – prices fall when competition increases. The federal government must breakdown State boundaries to make it easier for healthcare businesses to compete nationally.

4.     Mandate all Insurances companies offer Healthcare Insurance – prices fall when competition increases. By offering multiple lines of coverage insurance companies will be better able to diversify risk across business units (i.e. health care, property & casualty, life, etc. etc.)

5.     Make Pre-Existing Exclusions Illegal – common sense, prices fall when more consumers (a.k.a. demand) contribute to overall expense. Besides, a free market is an open market.

6.     Increase Grants for Nurses and Doctors – prices fall when Supply (a.k.a. healthcare professionals) increases. We need more doctors and nurses; investing in them is a worthwhile government investment.

7.     Increase Grants for Immediate HealthCare Clinics again, we need more Supply to help prices fall – especially where dense populations exist. This will help inner cities and the poor, a worthwhile government investment. 

8.     Mandate that Immediate HealthCare Clinics Stay Open until 10PM – All too often a sickness happens after office hours of doctors expire – when people return home from work. Emergency rooms are the most expensive providers of healthcare services. They should be reserved for emergencies and unfortunate circumstances in odd hours.

9.     Impose a Healthcare Penalty on any employed person over 26 years of age and Not Enrolled in a major medial insurance program.

10. Limit the Amount of Malpractice claims to $10 million – Indeed, there is no way to appropriately value human life. My life is priceless to me, so any amount would be too low. But we need to address this out of control cost element; limiting damages will help do that. (Mandating malpractice insurers to also cover major medial insurance will also help.)

11.   Maintain that Medical Decisions are made Strictly between Doctor and Patient – whether it’s the government or a panel of doctors paid by some insurance company – no one knows better about appropriate care than doctors and their patients. Government and insurance company bureaucracies need to stay out of the decision making process; they can’t be trusted with our well-being. 

12.  Expand Medicaid until Supply catches up with Demand and reasonable prices exist in the marketplace.

 

Such a bill can be written in just a few pages, some 2,475 pages less than the ACA; and it will be much more effective in achieving the stated objectives. Yeah, it’ll take some time.  But it’d be worth it. 

 

I have one more quick point to make before leaving you with Supreme Letdown; at the end of that blog I say, "The "healthcare boom" begins today – and that includes price inflation…"

 

For those who believe the stock market is a leading indicator of the economy, consider that since Supreme Letdown was written the Dow Jones Industrial Average (a.k.a. "the market") is up 36% and United Healthcare is up almost double that, 68%. 

 

As a side note, my group insurance policy is up 27% in the same time. 

 

So contrary to the pompous ass that Jonathon Gruber is, some of us American voters had ObamaCare figured out from the very beginning.  

 

And I do hope, truly, that Chief Justice John Roberts has the last laugh. 

 

Until next time…

 

Stay tuned.

Shield

 

# # #

 

Supreme LetDown

Jul 07, 2012

 

Let me begin by saying that I’m not a lawyer and I have a plaque on my desk to prove it. But I can read, and have an independent mind. My goal in this blog area, as always, is to provide you – the independent investor – with all the tools and analysis required to invest successfully on your own. That is part of my chapter 8 guarantee.    

 

For those of you who do not yet know, LOSE YOUR BROKER NOT YOUR MONEY won the 2012 International Book Awards for Investing. It did so for a reason. In the book I demonstrate how to identify changes in Market condition long before stock markets react to them. This allows you to stay way ahead of the trading curve. (It makes making money so much easier.)

 

As we know, governments control Markets. The American system of government has three branches: Executive, Legislative, and Judiciary – governors, regulators, and judges. Policy and legislative changes from any branch of government are major Market indications. Supreme Court decisions, while not permanent, are very close to it. 

 

Red alert!

 

Recent Supreme Court decisions are poised to dramatically affect the American Market and stock market valuations going forward. Independent investors must take note: These rulings signify major changes in Market condition and direction.   

 

In two incredibly important issues facing the U.S. economy (immigration and healthcare), the Supreme Court dealt the American cause a severe blow in two specific cases: 

         Arizona v. the United States (a.k.a. ARIZONA), and 

         National Federation of Independent Business v. Sebelius, Secretary of Health and Human Services (re: Affordable Care Act, ACA). 

 

After reading the Opinions in their entirety, I am left with two profound questions:

 

1.         At what point in American history did individual States cede their right to protect and defend their citizens as defined by federal statute – should the Federal Government choose not to enforce their own laws?  

 

2.         Exactly what clause in the U.S. Constitution gives the Supreme Court the power and authority to impose a tax on the American People against the clear intent of Congress and popular sentiment?  

 

In a nutshell, States and People lost big-time with these two Supreme Court miscues.  And that’s not good for Markets, People, and Stocks. Here’s how I see it.  

 

# # #

 

What happened in ARIZONA?

Arizona citizens, under a duly authorized elected government, enacted three laws that identically mimic Federal Statutes. They did so to enforce laws that the Federal government was not was enforcing in the same manner as in neighboring states, California, New Mexico, and Texas. Arizona claims that such a policy makes their state a "gateway" for illegal immigration – a real problem in the State, as the data proves.  

 

The Fed cited "limited resources" for not enforcing border controls in Arizona but asserted that the Arizona laws were unconstitutional because border issues were restricted for Federal enforcement only. States had to stand down regardless of federal policy. 

 

And the Court agreed.   

 

# End of Summary #

 

ARIZONA highlights the burden of failed immigration policy. Crime is up, jailhouses are full, and Arizona’s education and healthcare systems are greatly strained. The Arizona government contends that the fiscal cost of an open border is vastly greater than responsible border enforcement. The data overwhelming corroborates their position. Illegal entrants have imposed a severe cost to their State and they wanted to employ their resources to stop the incursion.   

 

But the Court ruled against them, and as such, provided all future presidents with the ability to use immigration policy – and border security – to sway elections and coerce States into following their national and political agendas. 

 

How could any right-minded American believe that the Colonies gave sole control over their security to one man named, President? Something seems truly un-American about this type of individual federal power.

 

All fifty states lost in ARIZONA. Today all States are less free, less stable, less profitable, and more vulnerable. And since States are just Markets, it’s safe to say that all Markets also lost with this decision. Remember, dollars spent on the costs associated to illegal immigration come at the expense of free market activity, and are thus bad for investments, markets, and taxpayers (a.k.a. Consumers.)  

 

Not good.  

 

# # #

 

What is the issue with the AFFORDABLE CARE ACT (ACA)?

Two central themes of the Act were contested: the Individual Mandate and the Expansion of the Medicaid program. In the ACA, all able persons are required to purchase "minimum essential" healthcare insurance.  It’s commonly known as the Individual Mandate. It assesses penalties to certain people for non-compliance of the Mandate.  

 

The ACA also requires all States to participate in the program. Congress achieves this by stripping a State from all of its Medicaid funding should it not participate in the ACA. 

 

In a nutshell, Congress makes it quite clear that the only way the ACA program could work was if all the People in all the States participated.  

 

The questions before the Court are simply these: 

1.         Can Congress compel people to purchase a product against their free-will?

2.         Can Government force all States to comply with the ACA by withholding all Medicaid funding – Or is this extortion? 

 

In the end, the Court found the Individual Mandate constitutional under Congress’s taxing authority and struck down the Congressional effort to withhold all Medicaid funding for non-participating States. The Court held that States foregoing ACA participation can only lose new Medicaid funding under the expansion plan.  

 

# End of Summary #

 

Somewhere along the line the Supreme Court lost its way – they, too, serve the cause to support liberty and protect the rights of the American People (a.k.a. Consumers) under our founding principles. The Affordable Care Act (ACA) was rammed through Congress against popular demand, with many polls showing more than 60% of Americans against the bill at the time of passage – a sentiment that still rings true today.    

 

Most of the Justices forgot that the Individual Mandate was sold to the American public specifically as a "penalty" and definitely "not a tax." While admittedly, the ACA is laden with taxes and duties, the Individual Mandate was specifically labeled a penalty numerous times in the areas defining it. The Supreme Court, against the Chief Justice’s pledge in his confirmation hearings, legislated from the bench, re-wrote the law and made liars out of Congress – and by so doing, levied a huge tax on the American People.  

 

That’s not the way our system was intended to work.  

And because the intent of the law was changed from a penalty to a tax, the Court in effect changed the character of the government’s role in the healthcare market from penalizer to insurer.—And that’s where the big problem is. 

 

In the ACA, government looked to penalize certain groups of people, i.e. those who do not buy medial insurance. Ok, fair enough. The only way Congress could "finance" the ACA was if every able person purchased health insurance. It’s a Mandate, punishable by a monetary penalty for non-compliance. 

 

To be clear: a penalty is a punishment for breaking a rule. A tax, on the other hand, is something entirely different. A tax is a required contribution to the government levied on income, profit, or certain goods and services.  In other words, all active People pay taxes; while only Violators pay penalties.  

 

By transforming the penalty into a tax, the Supreme Court’s decision creates more confusion – What will this new tax be called, and how will Congress impose it? 

 

While these are legal barriers that a sly Legislature will surely overcome, I can see an easy Congressional remedy on the immediate horizon: They will raise the Medicare tax to pay for the Medicaid Expansion under the ACA, because under its definition, all Violators already pay taxes. This incubates a single payer system. 

 

And just like with Medicare the government will end up calling all the healthcare shots – who gets what care, when, what it will cost the patient, and what the provider will get paid for it. After all, they will be the single largest payer of it all. This makes government the primary insurer and ultimate price fixer in national healthcare – a power born by Congress’s taxing authority, so this High Court says.

 

Unlike the Court, elected officials are driven by political motivations and spend money for reasons other than return on investment. It’s strictly political. That’s why they waste so much money – and why the American system was founded on three separate and equal branches of government. Our Framers knew all too well the natural tendency of government to expand power in order to gain domineering control. The Supreme Court, by design, is supposed to be liberty’s last defense against overzealous Executives and Legislatures. On that front, We the People have lost big with these two Court opinions.  

 

And that’s not good for consumers.

 

When governments become too intrusive in markets corruption is not far behind and calamity is right around the corner. Recall the subprime mortgage debacle as explained in my book. What started in the 1990’s fell into ruin in the fall of 2008.  It was too easy – and money was too cheap for far too long.  

Sound familiar?  

 

The Affordable Care Act (ACA) is positioned to do the same thing to the healthcare market that the Community Reinvestment Act (CRA) did to the financial markets – it caused calamity. Not overnight, for sure. But in due course.

 

And for those of you who think this Supreme Court ruling is a great sign to a great new American Way – think again.  Medicare is government run healthcare – and it’s broke. Medicaid – a State and Federal joint program – is collectively broke. Social Security, a nationalized retirement program, is bankrupt by any reasonable account – regardless of the amount of taxes levied over its many decades of existence. 

 

Do you see a pattern here?—If not, look to Greece and Spain for the end game (who, by the way, are drastically cutting education and healthcare programs at the present time.)

 

If you are middle-aged and are investing for retirement you must put your portfolio into high gear! Expect the cost of living to rise dramatically. No longer can you afford the establishment’s offerings (mutual funds and Social Security) to finance for your retirement well being. They will fall way short.

 

The "healthcare boom" begins today – and that includes price inflation – and will continue until another major fiscal crisis erupts. Sorry to say.  

 

Prepare your portfolio now.  

 

And let me if you need help.  

 

ShieldThe road to financial independence.™

 
Down, Up, and Around the World
Oct 27, 2014

Volatility has once again found the stock market – and again, contradictory new reports are at the core.

 

On Wednesday, October 22, 2014, the Wall Street Journal online posted an article entitled, Clouds Darken for America’s Blue-Chip Stocks, citing weak results for traditional powerhouse stocks like AT&T, Coca-Cola, IBM, Wal-Mart, and General Electric. The article went on to note that a collective one-third (or 66%) of the entire Dow Jones Industrial Average "posted shrinking or flat revenue over the past 12 months."

 

Stocks fell 1% on that day. 

 

But just one day later, on October 23, a contradictory article appeared in the same publication entitled, U.S. Stocks Rally on Strong Earnings. This article reported strong earnings performances by two key Dow components: Caterpillar and 3M. Those two stocks, just 7% of the Dow, lifted "the market" by more than 1% on Thursday; and then added another point on Friday, October 24.  

 

Around the world poor economics continued to pour in – starting right here in America. On Thursday the U.S. Department of Labor reported worse than expected new jobless claims (283,000), and U.S. manufacturing fell short of expectations. 

 

In China, the world’s second largest economy, growth was projected to "slow sharply during the coming decade," while its "productivity [takes a] nose dive." China’s new government continues to struggle making economic reforms and is currently facing a "deepening housing slump" and serious environmental and budgetary concerns.

 

A lackluster China hurts global output. 

 

In the troubled Euro-Zone the first wave of earnings reports showed significant weakness – a grim outlook for their economy – especially now that the European Central Bank announced 25 of the Euro’s banks recently failed stress tests. 

 

Not good.

 

With all the war and strife in the Middle East it’s easy to forget about their economies. Managing director of the International Monetary Fund, Christine Lagarde, hasn’t. She recently urged Persian Gulf countries to balance their budgets amid falling oil prices. Those countries, like Saudi Arabia, have been on a spending spree building critical infrastructure elements like roads, bridges, and hospitals to fend off radical sentiment and unrest stewing from the Arab Spring. A significant drop in oil prices will cause unsustainable deficits that will threaten their spending efforts.

 

And then who knows what will happen there. 

 

Russia is in somewhat the same predicament. Already hampered by western government sanctions imposed for its actions in the Ukraine, a drop in oil prices greatly affects central government planning in that communist regime. For instance, Russia’s budget is predicated on an oil price of $100 per barrel. Oil is currently trading at $81/barrell. This kind of strain causes the specter of war to increase, as wartime conditions in oil rich nations threaten supply and raises prices – to thus increase revenues to oil dependent nations. 

 

The world is on a collision course with calamity. 

 

Yet the stock market appears not to see it. And while volatility has re-entered the equation, stocks and gold have produced little blood so far this year. See below. 

10-28-a


Both stocks and gold have moved a lot so far but have really gone nowhere: the Dow Average is up just 1.4%, 15-51 strength has gained only 1.7%; and gold - down 11% from its year-to-date high - is higher by just 1.9% in the ten months. 

 

Stocks and gold seem to be basing at these levels. 

 

Perhaps that is more easily seen through a longer view. The chart below spans more than three years and begins when stocks essentially reached "fair value." During this time 15-51 strength gained 70%, the Dow Average added 44% and gold lost 8%. See below.

10-28-14b

During the period shown above the economy grew at just 7% in Real terms – just a few measly points per year. That puts the growth multiple for the 15-51 strength indicator at 10 times economic output, and the Dow Average’s at 6 times, or 600% of economic output. 

 

That’s an unsustainable level of stock price inflation – which is the reason for increased market volatility - around the world.

 

Stay tuned…

 

ShieldThe road to financial independence.™

The Same Different Things
Oct 05, 2014

Reoccurring themes in the markets continued to play out again this week: the unemployment rate dropped to 5.9% – and labor participation didn’t change a bit; it’s still at 40 year lows. The International Monetary Fund (IMF) predicted lower global output warning "high debt, high unemployment…and mounting risks in the financial sector could spell years of weak growth" – yet European bonds went negative, a condition where lenders pay borrowers to borrow. Negative yields are a bad sign; they indicate an ass-backwards market – yet the stock market remains near all-time highs. 


Let me try to make sense of things…


As mentioned in Danger Will Robinson, the European Central Bank (ECB) is enacting a charge to deposits held by large European banks. This move is intended to encourage lending by charging an expense to idle bank capital. In other words, put idle capital to work or pay a tax.  


But the European economy stinks, as noted above by IMF managing director Christine Lagarde. Her comments substantiate the reason the ECB announced their plan to initiate a quantitative easing (QE) several weeks ago. QE is a move intended to strengthen banks. 


So let me ask this: If European banks are weak (hence the need for them to be strengthened via QE) then why is the ECB forcing them to lower their capital reserves by charging them an expense on those same reserves?


When asked why Europe would adopt QE, Andrew Roberts, co-head of European economics at RBS, said "Italy is the reason…[their] economic weakness is deepening." Yet Italy’s bond yields have dropped a stunning 63% since the last time they were bailed-out (2012), and they currently pay fractions less than the U.S.


How Italian bonds can be yielding 2.4% while the U.S. is paying essentially the same rate (2.45%) is nothing short of market dysfunction – a dysfunction that can only occur with over-reaching government intrusion.


Here’s how it happens…


Europe is in a no growth position and is again teetering on recession; job growth is dismal and free market activity is in such steady decline that deflation is a legitimate concern. For these reasons companies do not want to borrow - prospects are too bleak. And individuals aren't borrowing as well - either they don’t’ want to borrow or cannot afford to do it.

 

Europe is in economic gridlock and money isn’t moving. That’s why the ECB is acting. 


Unfortunately their actions will only make matters worse. Consider this…


Banks, now forced to put excess capital to work or face a charge, and with only limited free market options available, look to profit and cover their costs (the charge from the ECB) by lending it to sovereign States, like Italy. Italy’s current yield (2.4%) easily covers the charge imposed by the ECB (estimated to be a small fraction less than .25%.)

 

That's what markets do; they inherently search to maximize profits. Profit, of course, is their goal and purpose. Besides, States like Italy are more likely to get bailed-out when the next mess hits the fan – especially with a QE program already in tact. In other words, sovereign debt produces more return with less risk.

 

Sound familiar?- Wait, there's more... 


The increased demand for sovereign State bonds forced by ECB policy is the driving force behind falling yields in the Euro Zone. Put another way, poor monetary policy is facilitating higher debt levels to entities that can’t rightfully honor their obligations – like Argentina, Portugal, and Italy, to name a few.


Ironic, isn't it?- This is the same exact dynamic that occurred during the "subprime mortgage crisis" that produced the 2008 market crash. The only difference this time is that the lending isn’t happening to individuals unable to repay but Countries!


That’s a much bigger problem. 


So many things point to history repeating itself. For instance, during the last debt-boom the yield curve was often inverted, where consumers realized a monetary benefit from taking more debt (even though they couldn’t pay it back) because interest rates were less than inflation. The same is true now in Germany, where yields have recently gone negative.

 

With demand being so great for international sovereign debt, Italy, like so many subprime mortgagers did during the housing-boom, has no problem taking on more debt than it could reasonably afford - at rock bottom interest rates.


So please tell me: Why should we believe that this monetary ponzi scheme won’t end with a worse kind of disaster as the last one? - especially knowing that the same exact things are being done now as then, albeit in a slightly different manner.


The next crash is going to be an ugly one because not just banks but countries will be failing. Central bankers will be unable to print the massive amounts of new currency required to avert disaster without wreaking inflationary havoc on the economy. That’s why gold remains a huge buy here – and I don’t care one bit it has taken it on the chin lately. That’s a total misnomer (see: Programmed Trading for more info.) 


There’s an old saying, trade on speculation and invest on facts. The first is a short term perspective and the latter is a long term strategy. 


Think long term, strategically, and…  


Stay tuned…

 

Shield

The road to financial independence.™

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