Forgive your enemies,
but nevër forget their names.
John F. Kennedy
Chart of the Day
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| Courtesy of Investment Newsletter |
It wasn't just government bonds, either. Foreigners dumped $116 million of bonds made up of packaged U.S. mortgages. They sold $5.2 billion of Fannie Mae, Freddie Mac and Ginnie Mae bonds, and $5 billion in corporate bonds. And they unloaded $26.8 billion of U.S. stocks. All told, more international capital flowed out of U.S. markets than at any time in history, worse even than at the depths of the 2008 credit crisis.
June was actually the third month of mass dumping in the past four, for a total of $79 billion. China, the biggest holder of our bonds, unloaded $21.5 billion, while Japan, the second-largest holder, dumped $20.3 billionWow, such a show of confidence in Obamanomics and Fed monetary policy! Note that TBT, basically a short on longer-term Treasuries, is up over 25% YTD. I've been particularly concerned about the distributions of sectors in this recovery. For instance, for much of the stock market rise, the blue chips of American high tech have not participated in the run-up; after today's admittedly bad day, Intel, Apple, Microsoft, Cisco, and IBM are trading at a PE of 13 or less, and one-time marquee names like Hewlett Packard and Dell are struggling (in large part due to a maturing PC industry and a sluggish global economy). What sectors have recently done well have been helped by Fed monetary manipulation, e.g., autos and housing. Question: what do the Fed policy makers do if the economy takes a turn for the worse?
Some Comments on the ObamaCare Stand-Off
As media psychologist Dr. Phil McGraw might say, "Let's get real." Everyone with a modicum of intelligence knows ObamaCare is a fraud (I'll return to this shortly). Sen. Cruz has raised the possibility of a game of political chicken over the issue; I think this is politically imprudent. I, of course, oppose ObamaCare, but I think failure of the program is baked-in. More importantly, Harry Reid sees ObamaCare as a transitional step towards a single-payer, nationalized system. He is delusional; he sees the inevitable failure, but so long as the GOP maintains as least a filibuster-sustaining minority in the Senate, this will never happen.
Ironically Chief Justice Roberts may have planted the seeds for the inevitable demise of ObamaCare. There are a few reasons I say that. First, there are constraints on the size of a tax/penalty; the Democrats know that healthier risks will save money by paying the penalty--and because of guaranteed issue, they can enroll just long enough to socialize their costs for big-pocket expenses. So the Democrats naturally want to raise the penalty/tax. Why? Because they are capping high-risk premiums below cost for "fairness". That was the whole purpose for the individual mandate; the insurers cannot survive with losing its more profitable healthier (typically younger adult) policyholders while being constrained in what they can charge their money-losing higher-risk policyholders guaranteed issue.
So what's the real story? Young voters will soon discover if and when they've voted for "progressive Democrats", they've been played, and it's going to come back to bite them on the ass. They nod dumbly at the sales hype--isn't it unfair to deny care on preexisting conditions? Isn't it great you can defer getting your own policy by staying on your parents' policy at "no charge" until you're 26 or so? Isn't it great to get other people to pay for your personal birth control expenses? BUT THEY DON'T GET THE BIG PICTURE. You see, in "real" insurance, you pay for the risk; for example, younger drivers generally are not safer drivers (more accidents, etc.) so normally they pay higher premiums. But younger people, as a group, tend to be healthier risks, rarely seeing doctors or using medical services. (In fact, I don't think I saw a doctor my entire time as a graduate student or during my 5 years as a young professor.) I was covered by most jobs in my career, but for instance, I did not have a personal physician my first 4 years living in Maryland. So for most of my adult life my premiums/employer matches largely subsidized the health of other people.
The real story is that the mandate ensures a supply of guaranteed customers which are profitable enough to offset money-losing higher risks. The government cannot force an insurer to operate a money-losing operation from day 1. There are basically 3 ways for companies to capture more revenue on money-losing customers: (1) raise premiums to reflect true costs (Dems will refuse); (2) the government can subsidize the costs (given an already massive budget imbalance); and/or (3) the government guarantees a commensurate number of profitable customers.
The Ponzi schemers will attempt to demonize the "profits" of insurers, but the problem is not gross mismanagement in the sector, but the reality of an aging population and smaller numbers of healthy risks. What's clear is ObamaCare will have a hard time of enforcing the third option because younger people will find it a lot cheaper to pay the tax/penalty, there will be popular resistance to raising premium caps, and those penalties won't be enough to offset escalating subsidies.
It seems this is the Achilles heel of ObamaCare. Even if you disregard the mess of states refusing to go along with Medicaid expansion (which will be far more expensive than anyone realizes), and all these waivers, deferrals, etc., the federal subsidies will be far higher than anyone expects, and I suspect we'll also see vendor attrition in the exchanges. I suspect the Dems will try to use the crisis to argue a "market failure" and push for a singe-payer (because they are "already paying" for most people anyway). The GOP should hold the line and make the Democrats' eat their kaleidoscope accounting of ObamaCare "reducing the federal deficit". The fact is most providers depend on the rapidly diminishing private-sector market to subsidize Medicare and Medicaid.
Anyone with common sense knows that regulations for "free" services must be paid for in other goods and services, but artificially low prices for anything exacerbates demand and aggregate costs. The healthcare sector is already inflation-bound given pre-ObamaCare commitments. (I still feel the best process is to guarantee catastrophic coverage and to vest the consumer in more efficient sector spending, e.g., through a health savings account.)
On the legal front, expect political and/or legal challenges for Democrats trying to raise the tax/penalty; there are a variety of other challenges. Perhaps one of the most interesting of these is Pacific Legal Foundation's suit challenging ObamaCare's tax/penalty on the fact that the Constitution requires tax/revenue matters to originate in the House; ObamaCare originated in the Senate. Quite frankly, this is indisputably true. The question I have is certainly Roberts must have known this at the time of the ruling. I'm surprised the procedural issue of raising taxes didn't arise from the penalty/tax kerfuffle. Somehow I can't imagine Chief Justice Roberts saying, "Whoops! My bad! I should have declared it unconstitutional from the get-go..." My guess is that he'll sidestep the issue on some legal technicality, convenient precedent or perhaps it's not really a tax after all in terms of raising revenue.
More on Stop-and-Frisk
I think this is one of the better Reason videos in terms of presenting both sides. Bloomberg sees it as a form of preventive or proactive policing, keeping guns off the street. I'm more convinced by the fourth amendment argument than the racial profiling/equal protection argument. If, for instance, police tend to patrol crime-ridden areas where the numbers of residents are heavily minority, a disproportionate number frisked might simply be correlated with disparate distributions of crimes by racial/ethnic group status. I would be more convinced of an equal protection argument if, say, the police stopped a racially-mixed group of suspects, and only those members of one race or ethnic group were frisked.
The Boys in Blue Saving the World From Your Bedroom
My Greatest Hits: August 2013
This is the first month I can recall where the top 5 posts have all been recent ones in my signature daily miscellany format (and not my occasional one-offs). I have no idea why some daily posts draw twice as many readers as others (my commentaries on various topics vary daily, or it could be embedded features as well). As an empirical researcher (with 2 math degrees) I also review daily stats and there are interesting quirks, like I recently noticed a large number of hits on a lengthy post I wrote after Gingrich's comeback victory against Romney in the South Carolina Presidential primary. I was puzzled but quickly hypothesized maybe it had to do with the "yellow dog" statement (of voting for anyone against Obama); I recently wrote a similar statement over the prospective 2016 candidacy of Hillary Clinton. The "yellow dog" metaphor is familiar to anybody from the South; the Republicans were so despised after the Civil War and Reconstruction, that the real election was a Democratic primary. If you were politically ambitious and conservative, you sought election as a Democrat. For me, that changed after the McGovern 1972 campaign and especially during the Reagan Presidency, where conservative Southern Democrats were largely marginalized and we have seen a migration of conservatives to the GOP. This is still an ongoing process; the Libertarian Republican blog has noted some recent party switches of state legislators in Louisiana and Arkansas. When I use the "yellow dog" metaphor, it's an inside joke: putting the metaphor on its head.
Entertainment Potpourri
Political Cartoon
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| Courtesy of Henry Payne and Townhall |
Musical Interlude: My Favorite Groups Redux
The Beatles, "Let It Be". Simply one of the greatest songs ever recorded, in my opinion, the best McCartney composition since "Here, There and Everywhere'. To those of us whom grew up with the Beatles, our beloved supergroup was breaking up; John had left the group for personal reasons, and his and Paul's collaboration had been reduced to tweaking each other's work. Harrison didn't like his minimal song quota per album. Paul's announcement that he was leaving the group, too, was the point of no return. (All of us fans stubbornly clung to the hope of a reunion, especially after John's monster comeback LP, until John's murder.) During the turmoil, Paul had a dream of his beloved late mother Mary, whom had died of breast cancer complications when Paul was 14; this song reflected that experience.
I recently read Paul's recollection of losing his mom:
My mother's death broke my dad up. That was the worst thing for me, hearing my dad cry. I'd never heard him cry before. It was a terrible blow to the family. You grow up real quick, because you never expect to hear your parents crying. You expect to see women crying, or kids in the playground, or even yourself crying - and you can explain all that. But when it's your dad, then you know something's really wrong and it shakes your faith in everything. But I was determined not to let it affect me. I carried on. I learnt to put a shell around me at that age. That became a very big bond between John and me, because he lost his mum early on, too.
