"It's always been my idea to make a few thousands early in the game, and then quit for as long as they last..." - Cary Grant, Holiday (1938).
Tuesday, April 3, 2012
Distribution Or Blow-Off?
It did not take much to get you excited, isn’t it? All the noise for less than 0.5 % drop? Don’t forget we have to keep the bears interested in the game as well. Just take a look at the daily candles. Today was an inside one.
The FOMC minute sparked a sell-off which puts in doubt the theory of blow off rally. But did anyone really expect the Fed to promise more free money at this stage? Not the big boyz at least. They know it is coming and they would have to be patient.
There are still big money waiting in the sideline and I think the trend change is not yet due. Well, I may be wrong but I will change my view only when I see /ES closing below 1390. Till that time it is a bear trap. As of now /ES bounced off 1400 and hourly RSI is oversold. The following is another daily chart of SPX.
The Ichimoku is on buy signal, there is no DMI cross over, there is no trend change in Arron and no obvious divergence in RSI either.
Therefore, I still maintain my call for top in SPX around 1455 and by the OpEx of April. The internals are getting weak and we will get our 15% correction but not yet. I have shorted too early in the past and I am not going to do the same mistake twice. As of now the up-trend is still intact. Only thing that changed from the weekend plan is how we get to 1455. When I wrote the plan, I thought we will have the spike up in 1st week, roll down in 2nd week and re-test the high and fail in the 3rd week. Now it seems we will grind up slowly all the way to Op-Ex.
If you will, let us repeat, we will not trade out of greed or fear. If you take a note, treasuries also sold off big time today and that does not really indicate bear attack on stocks. Anyone who cares to listen, now is not the time to short unless you are a day trader or scalper and know what you are doing.
That’s it for an exciting afternoon. Thank you for reading my blog. Please visit http://bbfinance.blogspot.ca/ and follow me on Twitter (@BBFinanceblog). You can post your comments in the blog or email me directly at bbfinanceblog@gmail.com. I look forward to hearing your thoughts.
Monday, April 2, 2012
Supreme court and health insurance part II
Yesterday's post morphed into a Wall Street Journal Op-Ed, reprinted below.
Why am I going on? I think too many people don't understand there is a coherent free-market, deregulated alternative. President Obama himself said today,
The WSJ Oped:
Last week, the Supreme Court heard arguments on the constitutionality of the administration's health law, aka ObamaCare. Opponents are giddy with the possibility that the law might be struck down.
But what then? Millions of uninsured, both those who choose not to purchase coverage and those who can't due to pre-existing conditions, will still be with us. The rising costs and inefficient delivery of health care will still be with us.
The country can have a vibrant market for individual health insurance. Insurance proper is what pays for unplanned large expenses, not for regular, predictable expenses. Insurance policies should be "guaranteed renewable": The policy should include a right to purchase insurance in the future, no matter if you get sick. And insurance should follow you from job to job, and if you move across state lines.
Why don't we have such markets? Because the government has regulated them out of existence.
Most pathologies in the current system are creatures of previous laws and regulations. Solicitor General Donald Verrilli explained as much in his opening statement to the Supreme Court: "The individual market does not provide affordable health insurance," he noted, "because the multibillion dollar subsidies that are available" for the "employer market are not available in the individual market." Well, if the problem is subsidies, we know how to fix it!
Start with the tax exemption for employer contributions to group health-insurance policies—but if your employer contributes an individual, portable insurance policy, you pay taxes. This is why you have insurance only so long as you stay with one employer, why you face pre-existing conditions exclusions if you change jobs, and why individual lifetime insurance is unattractive to young healthy people who know they will be employed someday.
Continue with the endless mandates (both state and federal) on insurance companies to provide all sorts of benefits people would otherwise not choose to buy. It sounds great to "make insurance companies pay" for acupuncture. But that raises the premiums, and then people choose not to buy the insurance. Instead of these mandates, at least allow people to buy insurance that only covers the big expenses.
What about Medicare and Medicaid? Two words: premium support. The underlying point of premium support is simple. If insurance costs $5,000 and the government gives an individual a $4,500 voucher, that individual will still feel the correct economic signal to shop for cost-efficient health insurance and health care.
The main argument for a mandate before the Supreme Court was that people of modest means can fail to buy insurance, and then rely on charity care in emergency rooms, shifting the cost to the rest of us. But the expenses of emergency room treatment for indigent uninsured people are not health-care's central cost problem. Costs are rising because people who do have insurance, and their doctors, overuse health services and don't shop on price, and because regulations have salted insurance with ever more coverage for them to overuse.
If we had a deregulated, competitive market in individual catastrophic insurance, that market would be so much cheaper than what's offered today that we would likely not even need the mandate.
Meanwhile, staggeringly inefficient markets for health care itself need a thorough, competition-focused deregulation. Americans will know there's a healthy market when hospitals post prices on their websites, and when new hospital and health-care businesses routinely enter to challenge the old ones. Here too regulations keep competition at bay.
The number of new doctors is still restricted, thanks to Congress and the American Medical Association. Congress caps the number of residencies, the AMA has fought the expansion of medical schools, state tests make it difficult for foreign doctors to work here, and on and on.
There are hundreds of government impediments to competition. New hospitals? In my home state of Illinois, every new hospital, expansion of an existing facility or major equipment purchase must obtain a "certificate of need" from the Illinois Health Facilities Planning Board. The board does a great job of insulating existing hospitals from competition if they are well connected politically. Imagine the joy United Airlines would feel if Southwest had to get a "certificate of need" before moving in to a new city—or the pleasure Sears would have if Wal-Mart had to do so—and all it took was a small contribution to a well-connected official.
The result is a monstrous system in which insurance patients are gouged to subsidize Medicare, and cash patients are gouged most of all. Here's Mr. Verrilli again: "Insurance has become the predominant means of paying for health care in this country." Yes, the cash market has been badly damaged. Whose fault is that? Shouldn't we bring it back?
Group health plans in today's system may appear reasonable enough—they seem to resemble "buyers' clubs," where people pool together to get good deals from providers. But in a real buyer's club, each buyer still pays his own bill—you don't go into a Sam's Club and haul off whatever you can with only a fixed $20 copayment. And real buyer's clubs don't depend on where you work. Real buyers' clubs for health services could be a useful way to get competition going and revive the cash-and-carry market for individuals.
A deregulated health-care and health-insurance market can work. We can at least start by removing the obvious elephants in the room: all the legislation, regulation and interventions that needlessly keep prices up, keep competition and innovation out, shelter people from the economic consequences of their decisions, and prevent the emergence of real insurance that follows you from job to job and from health to illness and back.
Why am I going on? I think too many people don't understand there is a coherent free-market, deregulated alternative. President Obama himself said today,
"I think the American people understand — and I think the justices should understand — that in the absence of an individual mandate, you cannot have a mechanism to ensure that people with pre-existing conditions get health care."This just isn't true. I don't blame Obama, but his health insurance advisers ought to know better. "Guaranteed Renewable," or "premium-increase insurance" is a possibility. It solves the genuine pre-existing conditions problem. It's been in the academic literature for almost 20 years (see e previous Articles, Opeds, Blog posts and citations in the Articles, especially to Mark Pauly's work and extensive coverage on Cato's health insurance and Universal Heath Care sites). A deregulated, competitive market can work.
The WSJ Oped:
Last week, the Supreme Court heard arguments on the constitutionality of the administration's health law, aka ObamaCare. Opponents are giddy with the possibility that the law might be struck down.
But what then? Millions of uninsured, both those who choose not to purchase coverage and those who can't due to pre-existing conditions, will still be with us. The rising costs and inefficient delivery of health care will still be with us.
The country can have a vibrant market for individual health insurance. Insurance proper is what pays for unplanned large expenses, not for regular, predictable expenses. Insurance policies should be "guaranteed renewable": The policy should include a right to purchase insurance in the future, no matter if you get sick. And insurance should follow you from job to job, and if you move across state lines.
Why don't we have such markets? Because the government has regulated them out of existence.
Most pathologies in the current system are creatures of previous laws and regulations. Solicitor General Donald Verrilli explained as much in his opening statement to the Supreme Court: "The individual market does not provide affordable health insurance," he noted, "because the multibillion dollar subsidies that are available" for the "employer market are not available in the individual market." Well, if the problem is subsidies, we know how to fix it!
Start with the tax exemption for employer contributions to group health-insurance policies—but if your employer contributes an individual, portable insurance policy, you pay taxes. This is why you have insurance only so long as you stay with one employer, why you face pre-existing conditions exclusions if you change jobs, and why individual lifetime insurance is unattractive to young healthy people who know they will be employed someday.
Continue with the endless mandates (both state and federal) on insurance companies to provide all sorts of benefits people would otherwise not choose to buy. It sounds great to "make insurance companies pay" for acupuncture. But that raises the premiums, and then people choose not to buy the insurance. Instead of these mandates, at least allow people to buy insurance that only covers the big expenses.
What about Medicare and Medicaid? Two words: premium support. The underlying point of premium support is simple. If insurance costs $5,000 and the government gives an individual a $4,500 voucher, that individual will still feel the correct economic signal to shop for cost-efficient health insurance and health care.
The main argument for a mandate before the Supreme Court was that people of modest means can fail to buy insurance, and then rely on charity care in emergency rooms, shifting the cost to the rest of us. But the expenses of emergency room treatment for indigent uninsured people are not health-care's central cost problem. Costs are rising because people who do have insurance, and their doctors, overuse health services and don't shop on price, and because regulations have salted insurance with ever more coverage for them to overuse.
If we had a deregulated, competitive market in individual catastrophic insurance, that market would be so much cheaper than what's offered today that we would likely not even need the mandate.
Meanwhile, staggeringly inefficient markets for health care itself need a thorough, competition-focused deregulation. Americans will know there's a healthy market when hospitals post prices on their websites, and when new hospital and health-care businesses routinely enter to challenge the old ones. Here too regulations keep competition at bay.
The number of new doctors is still restricted, thanks to Congress and the American Medical Association. Congress caps the number of residencies, the AMA has fought the expansion of medical schools, state tests make it difficult for foreign doctors to work here, and on and on.
There are hundreds of government impediments to competition. New hospitals? In my home state of Illinois, every new hospital, expansion of an existing facility or major equipment purchase must obtain a "certificate of need" from the Illinois Health Facilities Planning Board. The board does a great job of insulating existing hospitals from competition if they are well connected politically. Imagine the joy United Airlines would feel if Southwest had to get a "certificate of need" before moving in to a new city—or the pleasure Sears would have if Wal-Mart had to do so—and all it took was a small contribution to a well-connected official.
The result is a monstrous system in which insurance patients are gouged to subsidize Medicare, and cash patients are gouged most of all. Here's Mr. Verrilli again: "Insurance has become the predominant means of paying for health care in this country." Yes, the cash market has been badly damaged. Whose fault is that? Shouldn't we bring it back?
Group health plans in today's system may appear reasonable enough—they seem to resemble "buyers' clubs," where people pool together to get good deals from providers. But in a real buyer's club, each buyer still pays his own bill—you don't go into a Sam's Club and haul off whatever you can with only a fixed $20 copayment. And real buyer's clubs don't depend on where you work. Real buyers' clubs for health services could be a useful way to get competition going and revive the cash-and-carry market for individuals.
A deregulated health-care and health-insurance market can work. We can at least start by removing the obvious elephants in the room: all the legislation, regulation and interventions that needlessly keep prices up, keep competition and innovation out, shelter people from the economic consequences of their decisions, and prevent the emergence of real insurance that follows you from job to job and from health to illness and back.
"Blow-Off Top" Rally, Day 1
It was a rather sedate start of the “Blow-Off Top” rally. In the morning, before open /ES gave back all the overnight gain and was in negative. SPX even started in negative territory. But the cycles have bottomed last week and whatever be the news, the market zoomed up. I do really wonder, is it really the news which moves the market? Because we did call for the start of the rally from Monday, i.e today and the plan of action was laid out in the weekend report.
If we take an average target of 1455 and I will come back to that figure in a while, we are now only 35 points away and we have 3 days to reach there. I think it is immensely doable. And why 1455 you may ask. Because everyone is still shorting it as we go up and a big short is set at 1440 and then 1450. The market will take out all these shorts.
What to expect for tomorrow? The last hour sell off ensured that we get an up day tomorrow because it removed all the short term over bought conditions, paving the way for another up-move. I think we will see this pattern being played out for all the next three days, where we zoom up during the day and release some pressure before close. Remember, this is a “Blow-Off Top” Rally!
Today the old trusty FX proxy for SPX came back in play. AUD almost mirrored SPX as you can see from the following chart.
I was trying to figure out how AUD is going to play out in short term and I got this beautiful chart from Michael Boutros:
As you can see AUD is bouncing from the 50% level and a rising RSI trend-line. A close above 1.05 will be huge positive in short term.
Of course there is a curve ball in the evening because RBA rate decision is due tonight but I don’t think they will reduce the rate. If they keep the rate at the present level, that will be positive for AUD and “Risk On” trade.
This is a short week and seasonality as well as cycle indicates a very strong week. I think DOW will top around 13450-13500 and SPX around 1450-1460 this week. Again, it is just 35 more points in SPX and there is no reason to think that it will not be reached. Still too many talking heads are calling for immediate decline and they will be soooo disappointed. I think they will have to wait till May for any meaningful decline. And then they will jump up and down as if they have discovered gravity! As I said in morning, none of these folks know anything any better than any of us and these are all empty sound bites. We are all shooting in the dark. Sometime it works, some it does not. I am trying to figure out how to improve on the success rate. Getting there, slowly.
Thank you for reading my blog. Please pass it to someone who might benefit from it. Visit http://bbfinance.blogspot.ca/ and follow me on Twitter (@BBFinanceblog). You can post your comments in the blog or email me directly at bbfinanceblog@gmail.com. I look forward to hearing your thoughts.
Some Contrarion Thinking.
I was thinking that there are no bears left in town. It seems that I may be wrong. Everyone worth his name is now giving interview in Bloomberg that stocks are due for a pull back. For e.g.
Or take this.
Or take that.
I think stocks will go higher from here.
All these talking heads are just shooting in the dark and they do not know any better than you or me. Only difference is that we don't get a chance to wear a nice suit in front of the camera.
For those of you who like charts and believe in TA, here is nice chart from Ilya Spivak, Currency Strategist:
Sunday, April 1, 2012
The Trayvon Martin Case.
I am neither white nor black. So should I keep out of this? It is such a sensitive issue. I might be called names if I venture into this minefield. Might be blown apart. But after seeing the exchange of words between Piers Morgan and Toure’ in CNN, I cannot help but feel sorry for the state of affairs in American journalism.
The case is tragic. One unarmed person was killed in cold blood. For whatever is the reason, the local police did not arrest the killer. This is not acceptable in a civil society and justice must be done. But due process of law has to be followed. If racial hatred played a part in killing that must be investigated and guilty must be punished. What the colour of the skin has got anything to do with justice?
But does it mean all whites are guilty by association? Why the black journalists are trying to portray the whole black community as victims? Hasn’t Americans risen above colour politics and have elected a black person as President? It will never happen in France. It will never happen in England or Italy or Switzerland. It is possible only in America that American have risen above colour and elected someone as their President, who is black and has a middle name which is non-Christian. Then why paint all the whites as racist? Why are you blaming others for everything that is wrong with you?
Punish Zimmerman, by all means, when he is proven guilty. But even a killer is allowed to defend himself before law. Do you want to punish him by mob trial? If that is so, have persons of colour never killed an innocent white man/woman before? Are we still living in the pre-WWII era where you can punish a whole race because they are Japanese? What nonsense.
I would call Toure’ and all black journalists to show maturity. It is you folks who are tearing apart the social fabric of America. It is you guys who are guiltier than Zimmerman, because some dumb-head will get really worked up listening to your tirade and start killing innocent people somewhere else. You do not want to start another civil war.
Economic Inequality
Derek Jeter has made hundreds of millions of dollars. The sanitation worker who picks up the garbage at Jeter's home makes a fraction of that amount. What accounts for that discrepancy?
People are willing to pay high prices to watch Jeter play baseball and companies are willing to pay Jeter large amounts of money to speak favorably about their products. Is that wrong?
Why is there a problem here? It is not as if Jeter is the king and his garbage man is his serf. If the garbage man had Jeter's baseball skills and vice versa, then their positions might be reversed. In fact, in future generations that may well happen. Such is life in a free market.
Inequality of income and wealth by itself is of no signficance. It really does not matter. Poverty is a different story, but in the example above there is dramatic inequality of income but no poverty. These are different things and should not be confused.
Jeter is not wealthy because he compelled someone to give him money. He is wealthy because he has a skill and talent that people are willing to pay money to see. The system is working.
The attempt to create equality between Jeter and his garbage man may do nothing more than reduce both of them to poverty. Without a free market, there would be no Jeters and the garbage man would make little or no money because there would be scant tax resources from the Jeters of the world to fund the garbage man's job.
Today in the New York Times, Thomas Friedman has another mindless comment about income inequality that makes one wonder if he thinks before he writes. Those who wish to reduce inequality should address the talents, abilities, education and work ethic of the folks at the bottom of the economic pile. Wealth transfers won't help because they are soon dissipated through foolish behavior.
Free markets provide opportunity for the poorest amongst us. Every society has rich people, but the only societies in the history of mankind that have lifted the living standards of the average citizen are economies with free markets.
Dealing with poverty is an agenda worth working toward. Worry about inequality of income is a fool's game.
People are willing to pay high prices to watch Jeter play baseball and companies are willing to pay Jeter large amounts of money to speak favorably about their products. Is that wrong?
Why is there a problem here? It is not as if Jeter is the king and his garbage man is his serf. If the garbage man had Jeter's baseball skills and vice versa, then their positions might be reversed. In fact, in future generations that may well happen. Such is life in a free market.
Inequality of income and wealth by itself is of no signficance. It really does not matter. Poverty is a different story, but in the example above there is dramatic inequality of income but no poverty. These are different things and should not be confused.
Jeter is not wealthy because he compelled someone to give him money. He is wealthy because he has a skill and talent that people are willing to pay money to see. The system is working.
The attempt to create equality between Jeter and his garbage man may do nothing more than reduce both of them to poverty. Without a free market, there would be no Jeters and the garbage man would make little or no money because there would be scant tax resources from the Jeters of the world to fund the garbage man's job.
Today in the New York Times, Thomas Friedman has another mindless comment about income inequality that makes one wonder if he thinks before he writes. Those who wish to reduce inequality should address the talents, abilities, education and work ethic of the folks at the bottom of the economic pile. Wealth transfers won't help because they are soon dissipated through foolish behavior.
Free markets provide opportunity for the poorest amongst us. Every society has rich people, but the only societies in the history of mankind that have lifted the living standards of the average citizen are economies with free markets.
Dealing with poverty is an agenda worth working toward. Worry about inequality of income is a fool's game.
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