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Thursday, February 25, 2010

 

The Health Care Summit

Yesterday was the Health Care Summit and because we have access to C-Span from our desk top computers, I was able to monitor pretty much the whole thing. Republicans acquitted themselves very well, avoiding any hint of sarcasm or flippancy, sticking to the facts and making a strong case for a restart of the process. On the other hand, Dems did a horrible job, in my opinion. To make their point about the urgency of the matter, they relied on anecdotes that all too often simply pointed out the absurdity of an entitlement that is never enough (a couple tried to point out how unfair insurers were when benefits were curtailed after the policy MAXIMUMS had been paid out!). Towards the end, their major talking point seemed to be that since Medicare is going broke, and since Medicaid is causing both federal and state governments to go broke, an expanded entitlement was desperately needed. I guess they forgot that when those programs were debated, opponents warned they would be fiscally untenable. Now that those predictions have come true, shouldn't we have learned that the new proposal will also be bankrupting, once we set aside the gimmickry that CBO was asked to score (where ten years of fees and taxes are measured against six or fewer years of benefits).

Very effectively addressing the budget gimmickry was Rep. Paul Ryan of Wisconsin, the ranking member on the Budget Committee. Responding to Mr. Ryan's straightforward explanation of why the numbers did not add up was Dem Rep. Xavier Becerra of California, whose defense of CBO was both an obfuscation and an evasion of the point. As Mr. Ryan explained, as impartial and competent as CBO is, they can only score what is put in front of them. Mr. Becerra typified everything that is wrong with today's Dems, displaying a morally dishonest and flagrantly political attitude. Worst, he cynically and arrogantly exhibited contempt for the intelligence of viewers. Since viewers are better educated than ever on matters political, as has been previously discussed on this blog, this is a suicidal approach for Dems to continue to take.

By the way, Mr. Ryan's Roadmap for fiscal health can be viewed at the following website: http://www.roadmap.republicans.budget.house.gov/

Besides Mr. Becerra, a number of other perennial Democratic nincompoops distinguished themselves today: VP Biden, who never disappoints those of us who believe he can always find ever more ridiculous comments; Mr. Jay Rockefeller, the would be heir to Senator Kennedy on health issues, who does indeed regularly expound on all of the liberal toxic ideas but without the late senator's charisma; Nancy Pelosi's pet pit bull, Henry Waxman of California, who seems to set off my bathroom or kitchen reflex as soon as he starts talking; and of course the ethically challenged leadership group (Pelosi, Reid, Dodd, Rangel, et al) about whom nothing else need be said. These folks did have the salutary effect of making Obama look serious and presidential by comparison, even as he took up more microphone time than all the Republicans combined! The campaign just never ends. But he did concede that the minority was raising points about which you could have a debate.


One thing Americans seem to understand better than Dems is that no matter how much we may want to have something (e.g. universal health care), if we can't afford it, you have to accept a suboptimal solution. This is something Europeans and Canadians are learning through bitter experience. Businessmen live with this fact of life all the time. Once you get that, you can discuss seriously what to do next.

So where does this go next. There was a lot of talk about Dems jamming the bill through the Senate on budget reconciliation (even though Reid simultaneously argued for the reconciliation process while claiming he had never mentioned it). I don't think it will happen. In fact, I don't even think Pelosi can pass the bill in her House again. Some are saying she can't even drum up 200 votes for the Senate bill. The Blue Dogs, having watched the Massachusetts special election results, are itching for a second vote on Obamacare so they can change to "no." Though they will have been for it before they were against it (see Bush v Kerry), it gives them a better chance in November than a simple yes vote recorded for Obamacare.

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Dems seem to perform a little better on the SEC than they do in Congress, and somehow Republican Commissioners get lost on the wrong side of issues there. The recent ruling, triggering the uptick rule for short sales once a stock has a 10% loss for the day, was a well thought out compromise adopted by the SEC on a 3-2 party line vote. This allows short sales to proceed without the uptick rule until a stock really starts to get beaten down. This is an anti-cyclical remedy and an eminently fair one.

It was the pro-cyclical aspects of short selling and CDS collateral requirements that sent the stocks of AIG, Merrill Lynch, Bear Stearns, Lehman, and Morgan Stanley, among others, to oblivion in the 2008-09 financial crisis and the needed reforms must address procyclicality. The other sensible reform is the Volcker rule, separating government guaranteed banking operations from proprietary trading operations. Those two sets of reforms alone would constitute most of the re-regulation needed. We only need modest reforms on executive pay and consumer protection if you ask me, and the laws are already on the books to prosecute fraud such as what occurred in the mortgage market. Too big to fail is a red herring. None of the really big banks would have failed if bears had not been able to drive them to surrender. Of course, I expect Congress to ultimately miss the mark and go too far on regulatory reform.

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I was thinking the other day, for no particular reason, maybe because I was watching all the Russian and Arab terrorists communicate in English on "24," that it never bothered me that the Yul Brenner cowboy character in The Magnificent Seven spoke English with a Russian accent. I guess if it didn't bother Steve McQueen, why should it annoy anyone else?

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Time to catch up on stocks, et al. On Feb.9, we bought 100 shares of Goldman Sachs inflation protected preferred (GS.PR.D) at 20.56 for the IRA. On Feb. 11, we added400 more shares of AWC, our Australian aluminum company, at 5.85, a value buy. Then on Feb. 16, we sold 200 shares of Marine Max (HZO)for 10.81 (100 shares purchased in Oct. 2008 at 3.01, the other 100 in Nov. 2008 at 1.54. If you don't believe me, you can find the record of those purchases in the musings archives). We also let most of our Home Diagnostics (HDIX) shares go since it actually costs less to sell them than to tender them with my discount broker. We also got 11.51, a penny above the coming takeover price. So we sold 503 shares from the IRA (103 purchased 3/20/09 at 5.00, 400 purchased 8/14/09 at 6.31) and 1200 from the taxable account (400 purchased 2/4/09 at 6.38, 400 purchased 3/2/09 at 6.60, and 400 purchased 12/11/09 at 5.67). We are quite willing to pay capital gains taxes this year at the lowest rates we are going to see for the foreseeable future. On 2/19/09, we started putting some of that cash back to work, buying 100 shares of ENI (that's the symbol, not the European energy company) at 21.40, a zero buy. Then on 2/23, we bought 40 Treasury Inflation protected shares (TIP) at 103.66. Though deflation may be a near term concern, we still believe that inflation is the real worry, in the intermediate term. Yesterday, we bought 400 more shares of AWC at 5.31.

So even though the dollar is recovering, we still don't trust it. We are cranking in some inflation protection and international exposure for the portfolio. I think this is prudent since we are still heavily weighted in US stocks and currency.

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Comments:
We won't get anywhere on financial reform until we tackle derivatives. I believe that the issue here is not so much as reform but exposure. People need to know what has been sold and who is bearing potential risk. I am thinking that a market place for trading derivatives should be established. Let the market decide. If that is not possible/practical or just plain stupid than let the geniuses at FASB tackle the issue. Not that I trust them to come up with a good solution but they can at least start the process of getting these "financial weapons of mass destruction" out in the open.
BTW I disagree with the Redwaver about executive pay. Yes, that is a major problem but I believe the solution is more power to shareholders to change the pay awarded to that fat cats who do nothing to earn the pay. I would love to see the likes of IMMELT on the street collecting unemployment insurance.
And on a lighter note, as always, Hail Freedonia !
Rufus T. Firefly
 
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