Obamacare Passes

In a 5-4 vote Obamacare also known as the "Affordable Care Act" (ACA) passed.  We will have Obamacare starting in 2014.  In plain english, here are some of the highlights of the program.

Americans must sign up for healthcare by 2014:

Congress did order Americans to obtain - and to keep up every month - what it called "minimum essential coverage".  Congress in the ACA made the mandate depend upon an assessment for those who do not sign up or maintain health insurance.  For those who do not signup and maintain health insurance a federal "tax" will be imposed and paid to the IRS.  Whether you obtain insurance or not, you will be treated under the new act.

What is the penalty and how will it work when it goes into effect 2015 for 2014 tax year?

The "Affordable Care Act" (ACA) uses complex formulas to determine how much the penalty will be, but in general it is calculated each month the individual does not have health insurance, and it is to be paid as a flat amount or as a percentage of household income.  If it is to be a flat dollar payment, the law starts at $95.00 a year in 2014, $325.00 for 2015, and $695.00 for year 2016 (each month's assessment is 1/12 of those totals).  After 2016, the monthly amount is to be adjusted for a cost-of -living amount.  If it is assessed as a percentage of household income, it starts at 1% of a base amount in 2014,  to 2% in 2015, and 2.5% after 2015.  The failure to buy health care insurance shifts the cost for the uninsured to health care providers, insurance companies, and everyone who does have health insurance.

Medicaid:

The courts decision on Medicaid expansion is divided and complicated.  The main focus is. 

A)  Congress acted in offering states funds to expand coverage to millions of new individuals;

B)  So states can agree to expand coverage for exchange of those new funds.

C)  If the state excepts those expansion funds, it must obey by the new rules and expand coverage.

D)  A state can refuse to participate in the expansion without losing all of its Medicaid funds; instead the state will have the option to continue with its current no-expanded plan as is.

Bottom Line:  Stocks did not like the outcome of this act, as markets initially sold off after the decision was public, but later rallied to close down just slightly.  Health care companies were down with the market on an even basis. 

 

Fed Continues Operation Twist

Back in September of 2011 the fed chairman Ben Bernanke announced Operation Twist, which I wrote about here  Fed Announces Operation Twist. Today the Fed announced a continuation of the same program and that interest rates will remain low through 2014.  The continuation program of selling shorter term treasuries and buying longer dated treasuries is an attempt to keep bond yields low.  The program will run until the end of 2012 and will total 267 billion. The initial program was estimated at 400 billion, which is set to expire.  Similar to the original Operation Twist, the fed's balance sheet will not expand as it did during the release of QE1 and QE2 (quantitative easing).  How did bonds react after the announcement of the continuation of this stimulus package.  Below is the 10 year bond TLT.

This move by the Fed looks like it was telegraphed and expected weeks early as bonds put in an all time high as seen from the chart above.

Under QE1 & 2, the feds balance expanded by purchasing mortgage backed securities and treasuries, and the liquidity found its way into stocks, commodities and bonds worldwide.  I don't see this stimulus continuation being as equity friendly as the prior two stimulus packages, that did not see a rapid economical improvement when all was said and done anyway.

Bottom Line:  I am not sure what another few basis points lower will do to spur the housing market.  Also, unlike QE1 and QE2, this package will not have a direct effect on stocks or commodities, but should lift longer maturing bonds (lower yields) in an effort to boost the housing market. Thank you for stopping by.

Greece Kicks the Can

All eyes were on the Greece elections last night.  Greece voters chose to stay on the Euro and accept the bailout money, kicking their problems further down the road.  The markets originally liked this outcome over night, but since then the euphoria has worn off.  The Euro crisis is far from over.  Forget the headlines, let's look into the credit markets of specific country bond yields to see what they are saying.  Below is a chart of Spain 10 year bond yields, which have reached new highs today.

So the cost of borrowing for Spain has increased to new elevated levels.  I would have expected Spain 10 year bond yields to come down some, given the Greece elections have been decided.  Italy 10 year bond yields have also increased today, but not as much as Spain.  Below is a chart of Italy 10 year bond yields.  Not an all time high, but still elevated at over 6%.

Bottom Line:  The Greece elections were an important event to see if they would stay within the Euro.  Even with the outcome to stay in the Euro, the 10 year bond yield in Spain reached a new all time high of over 7%. One has to ask, has anything really been solved. Has the sovereign debt crisis disappeared or have they simply borrowed more time?