Obama’s Healthcare
Stocks moved sideways all day today, as did bonds with their slight bias toward lower interest rates.
The Dollar lost another cent today.
Gold, oil and gasoline all went sideways.
In the news today…..
CPI (Consumer Price Index) – rose 0.1% in May over April. While this is a small number, it is positive, rather than negative as occurred previously this year. This small CPI increase will give credibility to the FED keeping its FED Funds Rate at zero when it meets next.
Let’s look at CPI on an annual basis. CPI has fallen 1.3% for the past 12 months because energy prices (especially gasoline) fell from last May (when gasoline cost $4.00/gallon). The core CPI (excluding food and energy) rose 1.8%.
What do these numbers mean? The overall CPI being negative is explained by the decrease in gasoline alone. For core CPI to gain in the face of our massive “deflation” means that there is still an underlying inflationary pressure – even as we fight our way through this recession. The only good news is that the core CPI is so small.
I fully anticipate that core CPI will increase much more over the next 12 months as the inflationary pressures start to kick in. Inflation will first show up as increases in energy and food, and then in the ordinary goods people buy in stores, like clothes, etc. One inflationary pressure to look for in the future is a “wage-price inflation.” This is when inflation is happening, and wages are not keeping up, but employers start giving out wage increases just to keep their employees from being hurt too much by the inflation. This type of inflation occurred back in the early 80’s, and it is very ugly when it happens. The result of “wage-price inflation” is that prices then start to go up BECAUSE wages are going up, and companies must increase their costs just to keep in a profitable position. When this starts happening, the economy would be in an upward spiral of inflation, and this can only be stopped by the government increasing interest rates.
FED Buying Bonds – today and was buying the 7 year Treasuries. So far the FED has purchased $163B worth of bonds. They have a total budget of $300B to spend, so they are a little over half way spent. I believe this FED action is the reason that Treasury interest rates are coming down for the past few days. So far, they have dropped 0.36% – not much, but if it keeps going down, that would help mortgage rates.
Tonight’s Dinner Conversation…..
Have you noticed that there are a lot of companies issuing shares right now?? Why are they doing this? To increase their capital, of course. This is always the reason to sell shares. It is similar to a squirrel hiding his acorns just before winter hits.
The interesting (but not necessarily guaranteed) fact around these share issues is that we are currently near a record rate of issuing new shares. AND, when this happens, it signals a BEAR market in stocks. In other words, companies tend to try to increase their capital just when things aren’t too good for the future.
Thought this would provide some interesting discussion.
Obama’s Healthcare…..
Here are some thoughts for you to consider as the Congress and the President set out their visions for a universal healthcare system in the US.
There are a whole bunch of people who don’t have healthcare insurance right now – and there is something fundamentally wrong with that. While they can go to an emergency room for treatment, and maybe not have to pay anything, this lack of insurance inhibits good health practices, and unquestionably creates stress in our society. The number of uninsured Americans has been estimated to be about 46 million people (and I won’t get into whether this includes or excludes illegal immigrants). This number is increasing as the number of people lose their jobs – and their medical insurance.
So, the first thing to consider is “how do we cover all these people with healthcare insurance?” One obvious answer is that the federal government could just pay for it. This approach would cost SIGNIFICANTLY less than any of the programs being discussed in Congress right now. So, why isn’t this being considered? I’ll leave that to your imagination. The implementation of this approach is very simple. Let the states manage the program. They currently manage Medicaid and Food Stamps – and these are programs funded by the federal government. In fact, why couldn’t an uninsured American be given a credit card (just like a Food Stamp credit card) that is loaded with a fixed amount of money each month to purchase healthcare insurance? This sounds like a very inexpensive way to administer the program.
There is one other idea that Americans should insist upon happening. Whatever plan is passed by Congress, all people in Congress from that day forward would fall under this new plan. Today, Congress has its own (free) healthcare insurance, and you can bet that it is much better than anything you or I can get our hands on. So, having Congress sign up for their own ideas seems like a morally decent way for us to insure that THEY are taking our welfare seriously.
Would you agree??
Here are the last numbers for today:
Dow Jones 30 Industrial – 8498 (down 7 points)
10 Year Treasury Bond – 3.65% (down 0.03%)
Euro – $1.3949
Gold – $936 (up $4)
Oil – $71.03 (up $0.56)
Gasoline $2.03 (down $0.04)
