The Supreme Court of the United States (SCOTUS) recently upheld the constitutionality of the Patient Protection and Affordable Care Act, aka “Obamacare.” The justices didn’t say they liked Obamacare…they just stated it was constitutional. In a 5-4 vote, the Court ruled that it was within the power of Congress to impose a tax on a U.S. citizen if said citizen DOES NOT purchase health insurance. Chief Justice John Roberts sided with the four liberal judges (Ginsburg, Breyer, Sotomayor and Kagan) in saying that forcing individuals to pay a financial “penalty” for not obtaining health insurance may reasonably be characterized as a “tax.” Apparently penalties are NOT OK, but penalties that are called taxes ARE OK. Although it seems to me that, if it looks like a duck and it quacks like a duck, it’s a penalty. Scalia, Kennedy, Thomas and Alito referred to the decision as “vast judicial overreaching.” Back in the judge’s chambers, they probably used other words to describe it.
Without commenting on the merits of Obamacare, I am curious to know one thing…did any of the justices actually READ the entire Act? I mean, it’s a ridiculously long tome, 974 pages written BY nerdy lawyers FOR nerdy lawyers. Click on Patient Protection and Affordable Care Act and see for yourself. Here’s a test: Randomly scroll to virtually ANY page of the document and begin reading. See if you can make it to the bottom of your randomly chosen page without:
A. Starting various sentences over several times
B. Falling asleep
Now imagine you have to read ALL 974 PAGES! There’s no way! You had trouble reading ONE page. If I’m a Supreme Court Justice, I think I might be tempted to read the Obamacare Cliff Notes. Or I might have my Supreme Court “aide” go through it with a yellow highlighter first…then I would just read the highlighted parts. And then I would hire a new aide because that one just quit.
Had the Supreme Court voted against Obamacare, I think President Obama’s campaign to get re-elected would have suffered severe damage. He spent the first two years in office campaigning for Obamacare and ignoring the worst economy in 80 years. If his hallmark piece of legislation had been ruled unconstitutional, even Democrats would have trouble listing Obama’s accomplishments as President.
As it is, the race appears to be a close one with four months to go until the election. We have Barack Obama, who campaigned on the notion of “change” and “uniting” Americans and he has pretty much done nothing but “divide” Americans with his Class Warfare speeches (but he made good on “change”). And we have Mitt Romney whose idea of “roughing it” is staying in a hotel that does not have room service. Each candidate can be underwhelming in his own way…and neither seems to have a handle on what the average American needs…or wants.
Maybe it’s just me, but if you are trying to project the image that you understand the lower middle class voter in America, perhaps you should avoid the jet-ski vacation pictures. I realize that jet-skis are not the exclusive recreational toy of the super-rich but Romney’s advisors are not doing a very good job of helping him appear more “common”…if that is even possible. And I’m not saying Romney should or should not have to reveal every tax return back to the year 2000, but didn’t his advisors ever anticipate that his tax returns might become an issue? And that they might need to have a good response to that question?
Obama is currently (barely) leading in the polls and, barring an economical crater between now and November, will likely be living in the White House four more years. However, ignoring the economy for his first two years, combined with persistently high unemployment, still might cost him his job.
The Romney ads will repeatedly point out how unemployment has remained high throughout Obama’s term. The Obama ads will repeatedly point out that Romney is a spoiled rotten rich kid who, while at Bain Capital, caused many hard-working Americans to lose their jobs. I’m really sick of both of them already.
I can’t imagine that employment will improve much between now and November. Employers are not poised to go on a hiring binge. The economy is just barely plodding along. And uncertainty about fiscal policy, particularly after December 31st when the Bush Tax Cuts are scheduled to expire, has created an environment that does not encourage hiring.
My prediction? The tax cuts will be extended again for most people. If Obama is re-elected, the tax cuts may not be extended for the “super-rich” because, as we all know, the super-rich “are not paying their fair share.” If Romney is elected, the tax cuts may get extended for everyone indefinitely. And I’m not implying that’s a good thing either.
For five years I have maintained there is not going to be much of an economic recovery without the housing market showing signs of life. Today I am officially telling you that I think the housing crisis in the United States is over…well, almost over…well, maybe it’s almost over. Although the annual rate of filings for new foreclosures is still more than double what it was five years ago, it appears that prices have stopped falling. New home starts have increased. The formation of new households has increased significantly. “New households” means young people getting together to purchase a home and start a family. That used to be a young guy and a young girl buying a house and getting pregnant. I’m not sure what the actual definition is anymore but according to the statistics, the number is increasing.
Don’t get all excited and run out and buy a bunch of homes because they are cheap and you think you can make a quick buck “flipping it.” This is not 2006. (Remember that TV show on A&E that ran from 2005 to 2007 called “Flip this House”? Was that not enough of a red flag?)
Another sign things are improving: I was in Las Vegas a few weeks ago and, as I always do, I asked a cab driver, “How’s business?” For the first time in four years, I was told that business was significantly better…that corporate conventions and meetings are consistently making their way back to Las Vegas. Taxi cab business in Las Vegas has always seemed to be a good barometer of the economic health of our nation. So it was good to hear that cab drivers are picking up more fares.
What could derail this slowly improving economy? The same boring stuff we’ve been talking about for the last couple of years…mostly Europe. I told you last month to watch the Spanish 10-year bond interest rate…that if it rose above 7%, get lumber to cover your windows and load up your car to leave town because the hurricane might be hitting us. It poked its head above 7% on June 18th but then declined and finished the month at 6.3%. However, since the end of June (and as I am writing this), it nudged its way back above 7% and is now trading at 7.5%! And it seems that rising above 7% is getting easier than staying below 7%.
And if you think it can’t get any uglier in Europe…keep your eyes on France who recently elected a Socialist leader, Franҫois Hollande. Mr. Hollande has called for a lower retirement age and has vowed to increase the top tax rate on the wealthiest to 75%! It won’t be apparent very soon but a year from now, we may be watching the interest rate on the French 10-year bond the way we are watching it on the Spanish 10-year bond today.
How long do you think it will take the Germans to grow weary of paying for everyone else’s early retirement?
Conventional wisdom has been: if the government prints a lot of dollars, then the value of the dollar must decline…and we will then experience increased inflation and higher interest rates…at least eventually. The doomsday forecasters have been screaming this for several years. Ever since the government bailout, they have been preaching/recommending that we purchase gold, farmland, canned foods and ammunition.
Maybe the dollar will eventually decline in value but the dollar has been defying doomsday predictions for several years. And interest rates are the lowest they have been in my lifetime. It’s important to remember that the value of the dollar is a “relative” issue. Its value is always relative to the value of other currencies. In fact, for the past twelve months, the dollar has rallied significantly against most currencies…partly because other nations are having the same, if not worse, economic problems than the United States. Some people liken the dollar (relative to other currencies) as the nicest house in an ugly neighborhood…or the cleanest shirt in the hamper. Being a Kansas Jayhawk, I say the dollar is like the smartest student at the University of Missouri.
The currency that is almost in a “free-fall” is the Euro…and do I even need to explain why? One year ago, one dollar could be exchanged for .69 Euros. Today, the exchange will get you almost .82 Euros. Or, to put it in terms that are easier to understand, that European vacation would cost you about 20% less today than a year ago. And it may get cheaper. It may get to the point where $1 can be exchanged for 1€. That’s the good news.
The bad news, an appreciating dollar makes it more expensive for Europeans to purchase products made in America…or to take the kids to Disneyworld. It is now cheaper for us to buy a Mercedes and more expensive for Europeans to purchase a Ford. So we won’t be selling them as many Fords as we normally would have and we will be purchasing more Mercedes than we normally would have. In a Mitt Romney sort of way, that doesn’t sound all bad. Oops, did I just take a shot at Romney for being elitist? If it was that easy for me, his advisors need to start thinking “proletariat.”
The U.S. stock market rose in June, the S&P 500 increasing 4.12%. It is up almost 5.5% over the past twelve months. Another stock index, the EAFE Index (Europe, Australia and the Far East) has DECLINED over the past 13 months, primarily due to what has been happening in Europe.
At Boyer & Corporon Wealth Management, we continue to be overweight in fixed income…particularly corporate bonds and municipal bonds. Municipal bonds have rallied from their panic-induced depressed prices a year ago but still represent reasonable value. Bankruptcy announcements by Stockton and San Bernardino have revived a cloud over the municipal bond industry, creating relative value. We still don’t see a massive wave of municipal defaults coming.
Finally, in a case of misguided political grandstanding, Senator Harry Reid said, “I think they should be embarrassed. I think they should take all the uniforms, put them in a big pile and burn them and start all over again.” This was his response when he discovered that uniforms for Olympic Athletes from USA, which were designed by Ralph Lauren, were manufactured in China. Good grief. Please lead us to believe you are focusing on more important issues than where Olympic uniforms are being made. Sometimes it’s tempting to think that we could put all our Senators in a big pile and start all over again.
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