Political passion and profitable investing don’t mix
Turns out that it’s hard to invest profitably when you’re wearing political blinders.
What counts in investing isn’t the world as you’d like it to be but the world as it is.
Yesterday, on the day after the evening when Democrats in the House succeeded in passing the Senate’s version of a health insurance reform bill, my e-mail box overflowed with predictions of a crash in the stock market, or of a rout in healthcare and drug stocks, and indeed of the end of just about everything.
Drug stocks crashed so hard they rallied. Bristol-Myers Squibb (BMY) climbed 1.8%. Pfizer (PFE) was up 1.4%.
Among the insurers WellPoint (WLP) was indeed down by 1.1% but Aetna (AET) was up 0.5%.
I guess the market will have to wait another day for the Nancy Pelosi apocalypse that some of my e-mail predicted.
Every investor has a political opinion, often passionately held. We all believe our community, the country, the world would be better if it went down Path A and eschewed Path B.
We get into trouble as investors when we allow that belief in Path A and that dislike for Path B to prevent us from seeing the stock market as it is.
Senate Finance Committe passes Baucus bill 14-9
This afternoon the Senate Finance Committee passed the $829 billion (over 10 years) Baucus health care bill.
The vote was 14-9 with only Republican Senator Olympia Snow (Maine) crossing over to join the 13 Democrats in voting “Aye.”
The Senate Finance Committee is the last of the five committees in the House and the Senate with responsibility for health care legislation to report a bill out of committee. The battle now moves to the Senate floor where Senators will try to somehow hammer conflicting bills into a single piece of legislation. That bill still has to be reconciled with whatever emerges from the House of Representatives.
A major step in the process but still a long way from a done deal.
Buy Teva Pharmaceutical (TEVA)
No matter exactly what health care reform bill (even no bill) emerges from Congress this year, the pressure to get costs out of the healthcare system is just going to get more intense. (For why see my October 13 post, http://jubakpicks.com/2009/10/13/losers-and-5-winners-from-health-care-reform-and-why-well-be-fighting-over-who-pays-for-a-decade/ )
In that effort requiring that health plans replace proprietary drugs with generics is an easy way to cut costs (or to look like you’re cutting costs).
So generic drug makers win once, because any legislation will expand the number of insured able to afford drugs, and twice, because economics will continue to move patients, doctors, and health care bill payers to generics.
No wonder that Teva Pharmaceutical Industries (TEVA) is guiding Wall Street to 30% earnings growth in 2010.
Losers and 5 winners from health care “reform”–and why we’ll be fighting over who pays for a decade
We know what the health care reform legislation due today for a vote in the Senate Finance Committee will cost: $829 billion over ten years.
We know that it will extend coverage to 94% of all Americans, up from 83% now.
And, thanks to the blessings of the Congressional Budget Office we even know that it will pass that committee. And, startlingly for those of us who winced through the August town hall meetings that roasted members of Congress, we even know that something like the committee bill, or stronger, is going to pass Congress.
What you and I as investors now want to know is what stocks are going to make money from health care reform legislation. I think the best way to answer that question is to apply the economics of “externalities” that I explained in my October 6 post http://jubakpicks.com/2009/10/06/capitalism-could-still-get-a-stem-to-stern-overhaul-to-keep-score-in-the-revolution-track-something-economists-call-externalities/
Hope you didn’t think I’d spent all those words building a tool that I wasn’t going to use for stock picking.
Capitalism could still get a stem to stern overhaul. To keep score in the Revolution track something economists call “externalities.”
“A crisis is a terrible thing to waste,” said Stanford economist Paul Romer way back in 2007 near the start of the recent (or should that be “current”?) global fiscal and economic crisis.
You certainly understand why if you take a look at U.S. economic history. Most of the time the structure of our economy seems ruled by inertia. It takes a crisis to change anything significant. It took the repeated financial crises of the late nineteenth century to produce the Federal Reserve, antitrust rules, and the Income Tax. The Great Depression to produce Social Security, the Securities & Exchange Commission, and the National Labor Relation, and more. (Hey, it was a BIG crisis.)
And what do we have to show for the crisis that has bankrupted the next generation?
Bubkis is the common conclusion. A tweak of CEO compensation here. A little cosmetic gussying up of bank balance sheets. Maybe, just maybe, some feeble protection against rapacious credit card lenders. Oh, and health care reform that is either “The path to socialism” or “Gee, I wish it went further” depending on your politics.
But compared to the bar set by the Great Depression, the Great Recession seems to have produced remarkably little change.
Well, I say it ain’t so. We’re engaged, final score isn’t in yet folks, in the most far-reaching effort to change the way that capitalism works since Bismarck invented the old age pension.
