News

Housing and Auto Data Send the Market Higher

By Robert Perrego, at 5:36 pm on February 2nd, 2010

Housing, financial and auto companies blazed the market path lower last year as the poster children for the economic nightmare that took the Dow Jones Industrial Average from its all time high of 14,198 to the low at 6,469.  Today, while Paul Volcker continued beating up on the banks, Ford Motor Co. (NYSE: F), General (Government) Motors and D.R. Horton Inc. (NYSE: DHI) released data giving the market optimism and also 117 points.  Ford reported their January sales increased 25% and GM was up 14% while Toyota and Chrysler dropped.  D. R. Horton actually posted a profit and the Pending Home Sales Index increased by a percentage point on a month-over-month basis, showing a flicker of strength in the housing sector.

The Dow Jones Industrial Average added 111.32 points (+1.09%, 10,296.85) with 28 of 30 companies finishing with gains while the S&P 500 rose 14.13 points (+1.30% ,1103.32).  The Nasdaq 100 lagged behind, gaining only 16.20 points or 0.92% (1,776.92)

Treasury Secretary Timothy Geithner defended the largest budget ever proposed in the history of the world, as Senators grilled him on President Obama’s new $3.8 trillion budget, fully loaded with a $1.56 trillion deficit.  At the same time, Paul Volcker was defending legislation to limit proprietary trading by banks.  Somehow, someone got the idea that proprietary trading caused the credit crisis.  Back when professional proprietary equity trading was taking off (prop day-trading), it seemed every evil deed within 50 miles of Wall Street was blamed on ‘proprietary trading’, ‘fast money trading’ and ‘day traders.’  I was a prop trader for six years and from what I remember, the people that knew the least about trading always blamed trading, even when it had absolutely nothing to do with trading.  “Deja vu all over again.” (Yogi Berra 1960)

New York spot gold added another $8.30 an ounce (+0.75%, $1,113.90, 4:32 p.m.) after popping up $25 yesterday as the PowerShares DB US Dollar ETF (NYSE: UUP) looks like its recent rally is over.  The UUP lost 0.34% today as it closed below its 200 day exponential moving average and also broke below the uptrend line that has been in effect since January 14th.  Nothing moves straight up or down in the financial markets so, while the UUP’s medium term trend is still up, the short term picture is down.  The UUP closed at $23.27 and the 200 day EMA is at $23.31.  The relevant support levels below are $23.16 (top support) and $22.90 (50 day EMA).

Oil is on fire, literally and figuratively, as a cold winter in the United States has propped prices up and Nymex crude gained $2.64 a barrel (+3.55%, $77.07, 4:32 p.m.) for a second straight very strong day.  Strength was seen in most commodities and the record $1.56 trillion proposed budget deficit cannot be ignored here.  If we start running the dollar printing presses like that budget says, while holding interest rates low to create jobs, some very nasty inflation will not be far behind.

PNC Financial Services Group (NYSE: PNC) is going to offer $3 billion of common stock in order to redeem $7.6 billion of preferred shares it gave the U.S Treasury for a TARP loan.  One by one the private firms are paying the TARP back with interest and click here for a great web page that tracks where all the money went.  From what I can see Fannie Mae, Freddie Mac, General Motors, Chrysler and AIG have all our tax money.  I hope Volcker makes sure the auto companies, government sponsored entities (Fannie and Freddie) and insurance companies are not engaged in proprietary trading to protect us from more economic calamities.

We have MBA Purchase Applications reporting at 7 a.m. tomorrow, the Challenger Job-Cut Report at 7:30 a.m., ADP Unemployment at 8:15 a.m., the ISM Non-Manufacturing Index at 10 a.m. (51.0 expected) and the EIA Petroleum Status Report at 10:30 a.m.  Watch the oil market around that EIA report as the 6% gain in crude in the last 2 days will set oil up for a plunge if the numbers do not come in bullish.

Selected earnings estimates for Wednesday, February 3, 2010:

AFFX -0.10 after the close, AKAM 0.43, AMP 0.75 atc, ARW 0.61, AIZ 1.01 atc, BDK 0.77, BRCM 0.44 atc, CSCO 0.35 atc, CMCSA 0.27 before market open, DBD bmo, FNF 0.22 atc, HNT 0.67 bmo, HMC bmo, IP 0.23 bmo, ITT 0.93 bmo, WFR 0.00, MWW -0.01 atc, NOV 0.77 bmo, ONNN 0.14 atc, PFE 0.50, RL 1.01 bmo, RVSN 0.17, R 0.47, SLAB 0.62, SPF 0.02 atc, TMX 0.40 atc, TMO 0.88 bmo, TWX bmo, V 0.91 atc, WWW 0.45 bmo, YUM 0.48 atc.

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News

Obama vs. The Healthcare Monster

By Robert Perrego, at 2:48 pm on June 19th, 2009

In a new made for TV horror story, “Obama tackles The Health Care Monster” and, according to some of the latest numbers, pretty much loses… us… a lot of money… like not just a little money … BUT A LOT OF MONEY!

On CNBC today they aired a graphic saying that right now 54 million people in this country are uninsured and, shockingly, that 39 million people would STILL be uninsured AFTER Obama’s current health care plan gets passed.  This graphic certainly surprised me so I started digging…

The New York Times (often cited as quite friendly with the Obama Administration and everything left of left) reported on June 15th that the plan on the table sponsored by Senator Kennedy (D-Mass) would cost ‘at least $1 trillion over ten years’ and still leave ‘tens of millions uninsured’.  The Congressional Budget Office released a report on health care the very next day citing the current plans would most likely cost $100 billion were it to be fully in place this year and that it would be reasonable to assume the costs for this program would grow at the same rate as the current health care cost growth rate.

A recent estimate on the rate of growth of health care costs in 2007 was 6.1%.

If we assume a 5% growth (very, very, very favorable to Obama assumption) rate over the next 10 years starting with the initial expenditure level at $100 billion, and discounting these future dollars using the inferred rate of inflation as indicated by the 10-year Treasury Bond (3.78%) we get a total current dollar cost of about $1.1 Trillion.

Now, the New York Times reports ‘tens of million’ left uninsured (why they did not give an exact number is quite curious) and CNBC reports 39 million will be left uninsured.  While 39 million is certainly ‘tens of millions’ it is very shockingly close when you compare it to the estimated 46.5 million currently uninsured (Congressional Budget Office).  Maybe this is why The Times did not use the exact number?

If we assume ‘tens of millions’ as reported by the Times to be 20 million and average that with the 39 million reported by CNBC we round out into 30 million.

$1.1 Trillion divided by 10 = $110 Billion.

$110 Billion / (46.5 million – 30 million) = $110 Billion / 16.5 million = $6,666.

$6,666 / 12 = $555.

So basically, giving the Obama plan favorable assumptions on health care plan costs growth rates AND using The New York Times most likely favorable ‘tens of millions’ as 20 million in order to define a number to use in these calculations, the result is that the current Obama plan will cost $555 a month to insure these 16.5 million people and will still leave 30 million people uninsured.

If we use CNBC’s 39 million left uninsured, it leaves us with only 7.5 million affected by the shiny new plan at a cost of $110 Billion per year.  That breaks down to $1,222 per month.

In November of 2008 a study reported on by Reuters showed that, for a single person, the average health care plan, nationwide, carried a premium of $158.  This does seem a bit low, but, even assuming that the average for this plan was for a lower tier plan that would cover only 1/2 of what our shiny new Obama plan would cover the price still does not compare.  Not even close.

$158 x 12 month x 16.5 million people = $31.3 Billion.  Obama plan = $110 Billion.

Ironically, if the Obama Administration would be able to buy ALL 46.5 million coverage at $158/month and just did this – the entire 46.5 million would have coverage for less than the currently considered plan.

46.5 million x $158/month x 12 months = $88.2 Billion

Basically we could buy all 16.5 million uninsured that are to be insured health insurance for much less than this plan is going to cost us.  A LOT LESS.

Ronald Reagan once said the scariest thing ever said was ‘I’m from the Government, I’m here to help.’

The Health Care Monster wins in a knockout!  Guess who got knocked out?  Your tax return!

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