Saturday, June 24, 2017

The Only Health Insurance Option Left

Less than two days after being released publicly, it appears that Senate Majority Leader Mitch McConnell's health insurance bill, the Better Care Reconciliation Act, is d.o.a.  Five senators have already announced their opposition to the bill as presently drafted.  A half-dozen or more have expressed concerns.  Since the doubters include both Tea Party types and moderates,  McConnell is in a bind.  If he offers compromises to win over the Tea Partiers, he will likely lose some moderates.  If he offers compromises to satisfy the moderates, he will likely lose some Tea Partiers.  It looks virtually impossible for him to get at least 50 votes. 

The Senate will vote soon on this bill--which is basically tax legislation that cuts taxes for the rich and funds those cuts by taking away health insurance coverage for a lot of mostly poor people--and it will either pass (unlikely) or fail (likely).  If it fails, what then?  Obamacare is struggling, with insurers pulling out of exchanges and premiums rising sometimes dramatically.  The Trump Administration and the Republican Congress have created so much uncertainty that health insurers apparently feel compelled to raise rates sharply.  Whether or not any replacement for Obamacare is passed, this uncertainty will remain, and rising premiums may force many people to drop insurance coverage. Thus, the number of people losing health insurance will rise under the Trump Administration even if Obamacare survives.

Forcing people to go uninsured is political anathema in America today.  Whether or not the Republicans like it, Obamacare established the baseline principle that all Americans are entitled to comprehensive health insurance coverage at an affordable cost.  Both Republican and Democratic voters subscribe to this principle, and legislators who violate the principle do so at the peril of their re-election.  But with Republican machinations making Obamacare increasingly unworkable, a replacement will have to be found.

Realistically, the only option left is a single payer system, with private insurance available as an optional supplement.  Private health insurance doesn't work well, especially when it comes to covering the poor, the sick (i.e., those with prior medical conditions) and the elderly.  That's why Obamacare is unwieldy and the Republican alternatives are worse.  We've already figured out that single payer is needed for the elderly, and established Medicare.  It works well.  Medicare can be supplemented by private insurance coverage and often is.  Sure, Medicare has long term funding issues.  But have you noticed how premiums demanded by private health insurers are going through the roof?   It's hard to believe that a government funded program would be more expensive.

Essentially all other advanced industrialized nations have single payer health insurance systems (or national health care, like the UK system), with per capita costs that are far lower than America's and better health outcomes overall.  No other advanced industrial nation has the extremely expensive and increasingly dysfunctional mish-mash of private coverage that America has.  Single payer systems are imperfect, and the availability of optional private supplements can ameliorate many of the imperfections.  The current Republican White House and Congress won't adopt a single payer system.  But their failure to do anything intelligent with health insurance coverage will push America toward the only realistic health insurance option remaining. 

Monday, June 12, 2017

How Comey is Winning the Credibility Battle With Trump

At first glance, you might think that President Trump and former FBI Director James Comey are at a standoff over who said what during their one-on-one meetings.  It looks like a he said/he said situation.  But Comey wrote memos about the conversations right afterwards.  These tilt the balance in favor of Comey.  While his critics might say his memos were self-serving, it's implausible to think he wove them from whole cloth.  The President doesn't appear to have any memos.

But the crucial factor would appear to be the issue of tape recordings.  The President alluded to recordings, saying "James Comey better hope there are no 'tapes' of our conversations before he starts leaking to the press!"  Comey called Trump's hand by saying he hoped there were recordings.  The Secret Service has now said it doesn't have any recordings--and the Secret Service would be the organization that would handle the recordation of conversations in the White House.  See http://nypost.com/2017/06/12/secret-service-says-they-have-no-comey-tapes/.  If there are no recordings, that would mean that Trump tried to bluff Comey into silence by hinting untruthfully about recordings that don't exist.  Trump's bluff would only undermine his own credibility.  

Of course, it's possible Trump recorded the conversation on a personal device, such as a smart phone. But if he has a recording that contradicts Comey, he surely would have released it by now.  But he hasn't revealed any recording.  Thus, Trump can only have a recording that supports Comey, or he's erased that recording (which would indicate the recording hurt Trump), or he doesn't have a personal recording (which means he lied about there being one).  Whatever is the case, Comey's winning the credibility battle with Trump.

Friday, June 9, 2017

The Big Question For Donald Trump and the Russia Investigation

After James Comey's testimony before the Senate yesterday about President Trump wanting Comey to shut down the FBI's Russia investigation, the most important question is whether the President recorded his conversations with Comey.  If he did record one or more of those conversations, and the conversations tend to confirm Comey's testimony, the President will be in serious trouble.  It is possible to conclude from Comey's testimony that the President wanted to quash the FBI's Russia investigation, something that could amount to obstruction of justice.  Confirmation in recorded conversations could strengthen that conclusion, perhaps by a lot.

One thing's for dang sure:  Special Counsel Robert Mueller will seek any recordings of those and other relevant conversations.  We will find out sooner or later if the recordings exist.  We may also find out whether they once existed but were deleted or destroyed. If the recordings exist and support Comey's testimony, the President will have a big problem.  If the recordings once existed but have been erased or destroyed, the President will have a big problem.  If recordings never existed in the first place, the President would appear to be a liar for having suggested that they did exist, perhaps a liar trying to bluff Comey into silence.

The only good scenario is if the recordings exist and contradict Comey.  But if that were the case, President Trump would surely have released them already.

Thursday, May 4, 2017

The Truth About Housing Prices

Ten years ago, this blog predicted that housing prices, which had fallen sharply in the mortgage crisis of the mid-2000s, would not recover until 2024.  http://blogger.uncleleosden.com/2007/09/when-will-housing-prices-recover.html.  That prediction may have seemed preposterously negative to many.  But real estate prices have meandered and stagnated since then.  Although some markets have recently enjoyed brisk gains, many others remain sluggish and below their earlier peaks.  Trulia, the real estate website, yesterday released a study that predicted real estate prices nationwide would not recover until 2025.  https://www.trulia.com/blog/trends/home-value-recovery-2017/.  Looks like my prediction of ten years ago was pretty accurate.  While my analysis and Trulia's aren't directly comparable (I focused on nationwide average prices adjusted for inflation and Trulia used nominal prices unadjusted for inflation while measuring recovery in all housing markets nationwide), the basic conclusion is similar.  It will take a shipload of time for housing prices to fully recover, and the mid-2020's may be when the housing market as a whole could once again start to accentuate the positive. 

Housing historically has increased in value about 1% faster than inflation.  Stocks have tended to average around 3% above inflation.  Buy a house if you need shelter and can afford it.  But pay off the mortgage, don't borrow against the equity, and save and invest in retirement and other accounts for your golden years.  Some people who can't save money end up relying on their homes to finance retirement.  But that's a much poorer choice (pun intended) than taking advantage of the greater potential of stocks and other financial investments.  Your house is your castle.  But it's not your best option for financing retirement.

Thursday, April 27, 2017

The Truth About Getting Rich

Wealth is relative.  That is, people tend to consider themselves wealthy by comparing themselves to those around them.  The fact that most people today live healthier, longer and more comfortable lives than King Henry the Eighth is irrelevant to them.  They care more about where they stand compared to the people next door or the colleague across the hall or the persons featured in today's news.

This means you can feel rich only if you have more wealth than others around you.  That, in turn, means you have to be different from most people.  You can't be just like everyone else and yet be wealthier than everyone else.  But if you see yourself as just an ordinary, middle class person, does that mean you haven't got a chance to be wealthy?

No.  You can be wealthy.  While some wealthy people inherit their riches, most millionaires get there on their own by saving more.  It helps if you earn more.  You'll have more money to work with.  But earning more helps only if you save more.   If you spend all your above average earnings, expect to dine on dog food in your retirement.

You have to resist temptation to spend.  An 856 inch big-screen TV and a 4,300 horsepower SUV won't make you wealthy.  The same goes for $700 shoes and $1,200 handbags.  You have to be comfortable with fewer European vacations and plenty of home cooking.  When people laugh at your frugal ways, you have to focus on getting the last laugh.

Most people won't make it.  They won't become wealthy.  That's inherent in the definition of wealth as a relative concept, and it's also a result of the human tendency toward conformity and group think.  But plenty of middle class people end up having comfortable retirements or better.  In part, that's because of social welfare programs like Social Security and Medicare.  But these programs alone don't provide a good retirement.  You must be responsible and save.

What to do?  It's not complicated.  The main thing is save early, often and in significant amounts, like 15% to 20% of your income.  Invest in a diversified portfolio to increase your chances for good long term returns.  (See http://blogger.uncleleosden.com/2009/07/simplest-financial-plan-of-all.html.)   There are a variety of ways to build up your wealth:  http://blogger.uncleleosden.com/2009/11/techniques-for-retirement-saving.html.  Look at each dollar you receive as a saving opportunity.  Remember that no matter how much money you make,  in the end you will have a finite income (we all do), and what you spend can't be retrieved.  It's gone. So don't waste that opportunity to save (see http://blogger.uncleleosden.com/2010/07/how-to-think-about-saving.html).  Avoid debt as much as possible (see http://blogger.uncleleosden.com/2010/07/why-you-should-avoid-debt.html).  Don't give up, even if you have financial setbacks.  Like so many other things in life, quitters aren't winners when it comes to building wealth.

You can have a somewhat decent retirement even if you don't save much, by building up your benefits and eliminating debt. (See http://blogger.uncleleosden.com/2011/01/hope-for-financially-lost.html).  But if you want to climb into the ranks of the wealthy, be different.

Tuesday, April 11, 2017

Fly the "Friendly" Skies of United? Maybe If You Feel Like a Cow.

As the entire world with Internet access knows, yesterday a passenger on a United Airlines flight from Chicago to Louisville was grabbed by security personnel and dragged down the aisle of a plane when he refused to get off in order to allow some United crew members fly to Louisville where they had to staff a flight the next day.  http://wjla.com/news/nation-world/new-video-shows-bloodied-visibly-shaken-united-airlines-passenger.  He ended up bleeding from a cut on his lip, and the plane had to be emptied of all passengers and his blood cleaned up before it could leave.  So everyone departed late.

United evidently believes that some fine print on its tickets allows them to kick passengers off after being boarded, even when the passenger presents no threat to security or safety.  There are reports that some sort of algorithm chose the passengers who were kicked off, although many people have noted that the dragged man was Asian.  Would United have dragged a white female out of the plane like this?  Why couldn't United have done the simple thing and rented a car (there are car rental agencies at airports, you know) and had the employees drive to Louisville?  They'd have gotten there anyway in time to work the next day.  But no.  United needs to put its convenience ahead of its paying customers' convenience.

It hardly needs to be said that United's conduct was outrageous.  A man who wanted nothing more than to be United's paying customer wound up being a poster child for the widespread discontent with airlines.  Airlines are among the most intensely disliked industries and we now have yet another reason why.  One wonders why United allowed the passengers to board before trying to bump them.  And if United is so disorganized it has to board and then bump, perhaps it should think about the fact that it's in a service industry, and service should be provided promptly, courteously and with a smile.  But, wait, we're talking about an airline--and that's different.  It would seem that with airlines today, there's no distinction between people and cattle, and all should be treated like cattle.

United's CEO, Oscar Munoz, proved himself inept and tone deaf,  initially criticizing the passenger for not acquiescing in being treated like a cow.  In a second statement, he began to sound little less strident.  After figuring out that he was the object of widespread international scorn and ridicule, he finally decided to apologize the day after the incident.  But with his three varying statements, it hard not to wonder whether the third one was sincere or a business decision.

This gets to the larger point.  This incident went viral and circumnavigated the globe in two nanoseconds.  Probably tens of millions and maybe hundreds of millions of people worldwide have seen the video.  The commentary on social media can be scored as zillions mad at United, zero pleased with United.    United's reputation has gotten ugly fast and its stock price dropped today.  Why was there such an international uproar over this incident?

Because it perfectly illustrates how people--at least ordinary people--don't matter any more.  The airlines will take your money. But they'll treat you like a commodity and seat you or not, at their convenience.  And if they seat you, they'll unseat you at their convenience.  They'll claim that the fine print in their tickets allows them to treat you like a cow, even if that involves conduct amounting to a physical assault on you.

Legal processes are now underway to investigate this incident, and the passenger will no doubt retain legal counsel to press claims against United.  If United were to play it smart, they'd settle this one fast with the customer, even if it means paying him a pretty penny, because they need to get this story out of the headlines.   If this story stays in the news, the video of the passenger being dragged down the aisle will be played again and again and again, many millions of times over.   But, given Mr. Munoz's initial defensiveness and seemingly slow apology, it's unclear that United will make the smart move here.  Maybe United thinks passengers won't stay away over this incident.  But some probably will, or at least demand the lowest fare on the route.  Either way, it could cost United, and with the airlines being a low margin industry, losing just a modest amount of business could noticeably affect United's bottom line. ( This is why the airlines try so hard to fly full by overbooking and applying bootprints to paying customer's asses if they overdo the overbooking--because just a small change in revenue levels matters to them.)

The overarching lesson, especially for those in the 1% or in positions of authority, is that ordinary folks are well aware that they are viewed as being nothing more than cattle--and not just by airlines.  In way too many contexts, way too many people are being told they are inconsequential.  They don't like it and are fighting back.  The people who elected Donald Trump were fighting back.  The people who almost elevated Bernie Sanders over Hillary Clinton were fighting back.  The vast majority of people don't want to be disputatious or quarrelsome.  But if often enough you knock them down and kick them while they're down, they'll react with the speed of the Internet.

Friday, March 24, 2017

Can the Republicans Govern?

With the postponement of the House of Representatives' vote on repealing Obamacare twice in two days, one must ask whether the Republicans can govern.  They control Congress and the White House, but they weren't able to fulfill one of their signature promises from last year's elections.  Dissidents on the far right and in the moderate middle couldn't, for different reasons, sign up for the repeal measure.  President Trump, drawing on his dealmaking experience in business, gave them a take it or leave it compromise--and they left it.  In business, if you pass on a good deal and go for a great deal, you can blow the deal.  But in politics, as Trump may be learning, you can often score points with your constituents by going for a great deal and losing the deal instead of compromising.  Politicians get ahead by telling voters what they want to hear--indeed, that's how Donald Trump got himself elected President.  But doing things that leave voters with mixed feelings--like compromising--places politicians at risk in the next round of primaries.  It's better to look and sound good than doing anything that could leave you open to criticism.

Obamacare will now become a permanent part of the American landscape.  Its essential features--universal access to coverage, subsidies or Medicaid for those unable to pay, no exclusion of pre-existing conditions, and substantial coverage of health problems--will form the foundation of American health insurance for the future.  Surely, Obamacare will be modified over time.  But Barack Obama's greatest legacy will live on.

For the Republicans, the Party of No, a more important question is whether they even understand what it takes to govern.  It's necessary to compromise, and to take the heat from compromising.  The Republican Party, like the Democratic Party, is a coalition.  If coalition members don't work together, governance does not happen.  The next great challenge for the Republicans will probably be the budget bill and tax reform, which will have to go hand-in-hand if the Republicans hope to accomplish everything they've promise.  Their problem is they've made too many promises for the amount of tax revenues the federal government will collect.  They can't boost defenses spending by $54 billion, build the Wall at the border with Mexico, cut corporate taxes, cut taxes for the wealthy (which is an unstated but obvious goal of theirs, given that the proposed repeal of Obamacare was more a bill to cut taxes on the wealthy than improve the health insurance system), and rebuild America's infrastructure, all at the same time.  Something has to give.  Either taxes are raised, federal deficit spending increases, and/or the Republicans give up on some of their goals.  The Republicans will have to compromise to accomplish anything.  But their failure to work out a compromise to repeal Obamacare does not portend well for their future.

Although virtually powerless right now, the Democrats must have gotten a lift today.  Their fortunes have started to turn around.  As devastating as their defeat in 2016 was, it's not the end of the world, or of their party.

Tuesday, February 28, 2017

Will Donald Trump Be a Traitor to His Class?

The most important legislative priorities of the Trump administration--tax and health insurance reform--will be enacted within a matter of months.  Both of these measures will greatly impact the working class whites who propelled Trump to the White House--either for better or for worse.

Preliminary assessments of the proposed tax reform indicate that taxes for the middle class will drop about a couple hundred dollars.  One percenters can look forward to many thousands in tax savings.  This isn't exactly what folks in small town America were hoping for.  To make up for the loss of income tax revenues from these cuts, the President may endorse a border adjustment tax (basically, a tariff on imports that would likely increase the prices of the inexpensive food and goods that low and moderate income Americans rely on).  To many, this might feel like another kick in the teeth.

Health insurance reform is turning out to be a very tough nut to crack.  President Trump has said he wants to preserve the protections that many low and moderate income Americans count on--guaranteed acceptance, coverage against pre-existing medical conditions, and subsidies for those unable to pay full freight.  But these conditions are very expensive.  How will the President cover the costs?  There seems to be little consideration of progressive taxation of the wealthy or increasing the federal debt.  Yet there's no free lunch.  One possible "solution," so to speak, would be to offer low cost policies with skimpy coverage--prior medical conditions would be covered but total coverage might go only up to $25,000 or $50,000 a year.  This would be expedient, but would effectively deprive people of coverage when they needed it the most.

On top of this, the President's desire to turn Medicaid into a program of block grants for the states has significant potential to reduce coverage for the low income.  Many of these people voted for him.  Where will they go for care without health insurance? Medicaid covers around 74 million Americans--almost 1 in 4.  Cuts to this program could mean many millions of people mad at the President.

President Trump's problems are exacerbated by his proposal to increase military spending by $54 billion.  Where will this money come from?  The Republicans in Congress won't agree to more deficit spending.  So the President can either raise taxes, or piss off many millions of voters by cutting other federal programs.

Donald Trump is President at a time when stark choices are necessary.  He was elected as an insurgent.  But he's stacked his cabinet with establishment Republican types, people who have no demonstrated concern or sympathy for his core constituents.  The Republicans who control Congress gave him scant and faint-hearted support during his campaign.  But today they stack the legislative agenda with bills that would make the rich richer and offer the working class hardly more than a crumb or two--and stale ones at that.  

If the President really wants to help his constituents, he'll have to be a traitor to his class.  He'll have to offer substantial improvements in life to the working class, and sorry to say, but wealthier people will have to pay for them.  America got itself into its current mess by believing that somehow everyone can get more of everything all the time at no cost to anyone else.  The last two large nations to subscribe to this notion--the Soviet Union and Communist China--had to abandon their illusions and now struggle with the consequences of the their wishful thinking.

Franklin Delano Roosevelt, the greatest President of the Twentieth Century, was labelled a traitor to his class.  And he was.  He endorsed legislation like Social Security and a strengthening of protections for workers and labor unions that uplifted many millions of ordinary Americans out of poverty and into the middle class.  The cost was born to a large degree by a sharp increase in federal income taxes paid by the well-to-do.  The rich grumbled and plotted against him.  But he ushered in the prosperity of the 1950's and 1960's, now viewed as a golden age in America.  America's perceived decline from those days also correspond with ever increasing inequality of wealth and income.  If Donald Trump really wants to make America great again, he'll have to make it great for the working class.  That isn't the direction he's been going in since his inauguration.  The next few months, when his most consequential legislative initiatives will be enacted, will likely make him both a traitor--either to his core constituents or to his class--and a hero--to the wealthy, many of whom didn't support him but are glad to free-ride on his policies and program, or to the working class that vaulted him into office.  The choice is his.

Wednesday, February 22, 2017

Investing in a Time of Trump

If there's one notable feature of investing in the nascent Trump Presidency, it's uncertainty.  Although macroeconomic statistics are generally good, we are startled every day by a spinning kaleidoscope of tweets, leaks, executive orders, allegations, innuendoes, news stories, fake news stories and occasional court rulings that splatter across our field of vision and further contort the cognitive dissonance in the political scene from the recent election.  When all news and news-substitutes seem to be open to challenge, what can an investor rely on?

The ever-rising market only makes things worse.  With such political confusion, it's far from clear that the economic and tax policies espoused by President Trump will be implemented any time soon.  Why does the market persistently climb higher?  One can only suspect that some market participants have conflated optimism with delusion.  The background music to today's market may not be the Grand March from Aida (https://www.youtube.com/watch?v=TX0qN6QEvGg), but rather Jimi Hendrix's Purple Haze (https://www.youtube.com/watch?v=cJunCsrhJjg).

What can an investor make of all this?  Bear in mind that you can't see a lot of what's going on in the market.  There are major undercurrents, often computer driven, that cause daily market schizophrenia.  Large investors can push the market one way or another in the course of making large purchases or unwinding large holdings.  Mom and Pop investors won't see this or hear about, except maybe after the fact.

Computerized trading can be particularly scary.  It no longer consists of following pre-determined algorithms.  Much of today's computerized trading is dynamic, using artificial intelligence-type programs that try to figure out as the trading day progresses where prices are headed and buy or sell to take advantage of the anticipated market move.  Since much of the trading these programs are observing is done by other computers, we have computers reacting to other computers.  Price, which traditionally has been a judgment call made by intuitive and irrational humans, is now the product of chains of logic.  That logic tends to respond to short term stimuli, such as price movements in the last few minutes, seconds and even milliseconds.  It doesn't factor in the uncertainty in Washington.

People know the future is cloudy.  But the computers don't.  Computers don't feel fear, nor do they have to save for retirement or build up a cash reserve to guard against a layoff or a large unexpected expense.  People may hold onto their cash, wondering if the market is too bubbling given the chaos in the White House.  But a computer may boldly keep buying, egged on by the trades of the past 20 milliseconds.

If you're hesitant about the market, keep your powder dry and your cash in an FDIC guaranteed bank account.  There's no computer program that can understand and explain Donald Trump.  Today's stock market may be too heavily driven by short term inputs, without a full understanding of longer term risks.  Remember the old computer adage: garbage in, garbage out.  If today's computerized trading is pushing the market up based on an incomplete picture, prices will eventually rise too far, if they haven't already.  Then, le deluge.

Sunday, January 29, 2017

President Trump Proving Too Much

Yesterday, President issued an executive order directing that refugees and other people from seven mostly Muslim countries be prevented from entering the United States.  Since then, the President's order has been brought before at least four federal judges, who have constrained its implementation in one way or another.  Within a day, the President is 0-4 in the federal courts.

The issuance of this order proves too much.  President Trump apparently intended to demonstrate to his supporters that he would fulfill a campaign promise to prevent the entry of terrorists into the country.  Perhaps they feel that he has been true to his word.  But his detractors believe that prejudice and bigotry underlie his actions and that the order may not be lawful.  The fact that at least four federal judges have seen fit to act heightens doubts about the President's order.

It also appears from news reports that the President may not have consulted all the knowledgeable departments and offices about this order before issuing it.  Had he done so, he might have learned more about what could lawfully be done and how it could be lawfully accomplished.

In other words, the President has managed to prove that he's what people thought he was, whatever that was.  This doesn't help.  We just had a very divisive election.  Continuing the contentiousness will only exacerbate the nation's problems.  There is a great deal of concern among Trump's detractors that he will be a lawless President, hellbent on imposing nativistic and bigoted policies in a despotic way.  He just managed to confirm those fears.  There's little evidence that this order will improve national security.  But by sowing chaos and instigating opposition and litigation, the President has managed to hinder his own ability to function.  Certainly, his opponents will be pleased that he unwittingly aimed at his foot and pulled the trigger.  But there have been innocent victims and collateral damage.  The President has to do better.