campaign manager David Plouffe Barack
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MARCH 19, 2010
This Week in Health Care Reform
This week, President Obama continued traveling outside of Washington to rally support for his health care reform plan. Meanwhile, Democratic leaders increased their efforts to pull together enough votes to push the package through the House of Representatives by week’s end. House Speaker Nancy Pelosi (D-CA) needs to accumulate 216 votes to pass both the original Senate bill and the reconciliation bill of “fixes” before the Senate can take up the reconciliation bill next week.
Health Care Reform Negotiations
Democrats’ “Deem and Pass” Process: On Monday, the House Budget Committee voted 21-16 in favor of advancing the health care reform legislation toward a final floor vote later in the week. Two Democrats sided with all 14 Republicans on the Committee in voting against the plan.
Meanwhile, the House Rules Committee spent much of the week waiting for the final scoring from the Congressional Budget Office (CBO), which would clear the way for committee members to pass the reconciliation bill. Once the bill is approved, Democrats must wait 72 hours in order to give all lawmakers a chance to review both the original Senate bill and the reconciliation bill.
On Thursday, the CBO released its final cost estimate of the health care reform bill. The bill would cost taxpayers $940 billion over 10 years, while trimming the federal deficit by $130 billion in the first 10 years, plus an estimated $1. 2 trillion in the second 10 years.
With the November midterm elections looming, House Democrats are weighing multiple options for passing this health care reform legislation. One option Democratic leaders are currently considering would allow the House to ” deem” the original Senate health care reform bill passed without actually voting on it. Instead, a so-called “self-executing rule ” would deem the Senate’s version of health care reform legislation approved so long as House members also vote on the reconciliation package. A vote on final passage is expected on the House floor this Sunday.
Kucinich Changes Vote to Yes on Health Care Reform: On Wednesday, Rep. Dennis Kucinich (D-OH) changed his vote on the health care reform legislation from no to yes, signaling a shift in votes and a chance for Democrats to win over former opponents of the bill. Members of the news media report that President Obama lobbied Rep. Kucinich both privately and publicly to vote in favor of the bill. Rep. Kucinich’s decision signals the first Democrat who originally opposed the House legislation in November to change his vote, moving the party closer to the 216 votes needed by this weekend.
Abortion Issue Remains at Forefront of Debate: Rep. Dale Kildee (D-MI) announced on Wednesday that he will support the health care reform legislation and will not oppose it based on the abortion issue. Rep. Kildee, a strong ally of Rep. Bart Stupak (D-MI), says he is satisfied with the provisions in the Senate-passed bill that seek to limit the use of federal money for insurance coverage of abortion. This announcement gave a huge lift to House Democratic leaders, who have been working to assure abortion opponents that a vote for the bill would not reflect any change in policy on abortion.
President Obama Continues to Campaign for Health Care Reform: Throughout the week, the President has been working to garner increased support for health care reform through a variety of public forums. On Monday, President Obama traveled to Strongsville , Ohio, to build support for his health care plan. In his speech, the President cited rising costs, declining insurance coverage and the inability of millions of Americans to pay rising insurance premiums as reasons for overhauling the health care system.
On Wednesdayevening, the President appeared on Fox News to reiterate his stance for necessary and immediate reform. And on Friday , the President heads to the Patriot Center in Fairfax, Virginia, to hold his fourth and final rally on health care reform.
CBO Scoring of Reconciliation Bill: On Thursday, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) released their preliminary scoring of the House reconciliation proposal. Upon release of the legislative language in the proposal, the CBO will need to review that language and refine its estimate accordingly.
The CBO estimates that enacting the Senate and reconciliation bills together would result in a net reduction to the federal deficit of $138 billion over the 2010-19 period. The reconciliation bill itself would add $20 billion of net deficit reduction to the Senate bill’s $118 billion net deficit reduction previously estimated by the CBO.
The Congressional Budget Office also estimated that the deficit reduction effect of the Senate and reconciliation bills together for the period 2020-29 would be approximately one-half percent of the GDP. However, the CBO states that this estimate is imprecise and has a great degree of uncertainty.
Public Opinion
Americans Continue to Oppose Reform: Opposition to the health care reform plan is still prevalent in national polling. In a newly released Rasmussen Reports survey , 53 percent of American voters continue to oppose the health care reform plan proposed by President Obama and congressional Democrats. Similar to the numbers last week, 55 percent of those polled believe health care costs will continue to rise, and 52 percent think the quality of care will go down. Further, 57 percent believe passage of the proposal currently working its way through Congress will hurt the economy.
In a recent Wall Street Journal/NBC poll, 48 percent of voters considered the health care reform bill a “bad idea” and 36 percent considered it a “good idea,” when given a choice between those two answers. According to the survey, Americans are unhappy with the job Congress is doing, which is evident by their 17 percent approval rating. Further, 50 percent of those polled said they would vote every member of Congress out of office regardless of party affiliation.
Looking Ahead
Sunday’s vote is expected to move the House closer to final passage of the two bills. And next week, Senate leaders await their chance to debate the reconciliation bill on the Senate floor.
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The hangover of the December holidays typically lingers a few weeks into the new year and 2010 was no exception. Tight ranges in the S&P gave us very few trading setups early in the month. We spent a protracted amount of time out of the market. As the month wore on and equity prices began to deteriorate, our programs managed to find a few suitable trading situations. The late month expansion in volatility notwithstanding, opportunities remained few and far between and as such, ROE Capital turned in a positive month with below average trading volume. (For more information on our managed futures performance, please review our complete January performance report).
Our correlation to the S&P has begun to reverse, which is good as I expect the S&P to be under pressure all year. Our managed futures colleagues (represented in the NewEdge CTA Index above) struggled in January as well, with trends proving elusive in many markets.
Monticello Equity
January 2010:
1. 03%
2010 YTD: 1. 03%
Jefferson Index
January 2010:
1. 00%
2010 YTD: 1. 00%
S&P 500
January 2010:
(3. 70%)
2010 YTD: (3. 70%)
Newedge CTA Index
January 2010:
(1. 44%)‡
2010 YTD: (1. 44%)‡
‡Estimate using data reported by 2/1/2010 | Past performance is not necessarily indicative of future results.
The better than expected GDP reported in January failed to reverse the equity losses of the month. All of the major averages took out their December lows which, as I noted in my year end review, is a bad omen for 2010 equity prices. After the beginning of the month bounce, the January jobs report looms large. Since February is seasonally the second worst performing month for the S&P, a catalyst will be required for a rally to gain traction.
A rally might materialize from a much stronger than expected jobs report building on strong ISM numbers. Without that catalyst, the S&P should move sideways to lower throughout February. The geopolitical situation looks to add pressure to equity prices as well. Iran is bristling over the US decision to deploy a patriot missile shield in the Persian Gulf. China is moving to cap its real estate bubble through tighter monetary policy, which will negatively impact global growth. Greece is facing what Moody’s called a “slow death” as it is unable to attract buyers for its debt at sustainable rates.
Taken in total, equities face an uphill battle in February. It is my hope that this added pressure will reveal more trading setups for my models.
At the end of January and in our year end review, we noted that the macro conditions argued for rising volatility in the major averages with sideways to lower prices throughout February. This was indeed the case in the first week of the month as the VIX raced to new 2010 highs and the S&P to new 2010 lows. This situation gave rise to many trading opportunities for our systems early in the month. Volatility faded sharply mid-month on the back of the equity rally, reducing our opportunities and we spent most of the last week of February in cash. Traders made several attempts to break the market at the end of the month, but prices rebounded to close the month.
Our Monticello Equity Spreads program booked its most successful month since April of 2009, with the Jefferson Index posting its most successful month since December of 2008 and its 12th consecutive positive month. (For detailed performance results, click here. ) For the second month in a row, both of our programs had nearly identical performance, despite substantial variance in trading through the month. That is unlikely to continue.
The macro environment has not improved since our last survey. The situation in Greece has taken a turn for the absurd, as it becomes clear that it used OTC derivatives to mask the depth of its deficit and debt. Greece and its euro-zone equivalents remain unable to address their fiscal shortcomings because public unions undermine the political will to cut off the public trough. More than one sovereign default is imminent.
A similar situation continues to play out in various debt swamped US states. As Illinois is our home, it is our favorite example. The state finally admitted that it will likely have a $13 billion dollar budget shortfall-almost half it’s core 2010 budget-which is almost as much as California’s deficit, though Illinois has 1/3 the population of the Golden State. The politicians are talking about raising revenues to meet the crisis, but even a 300% hike in state income taxes would not fill the gap (especially considering the decline in incomes and employment in this recession). And of course, addressing only revenue sources does nothing to fix structural budget imbalances, enormous unfunded pension and health benefit liabilities or general government waste. California, New York, New Jersey, Connecticut, North Carolina and Florida are not far behind. Without a federal bailout, Illinois should be in default before the end of the year.
We want to be clear on what the risk of this unfolding sovereign debt crisis means. As all recent economic data has indicated, the global recovery is soft-even after trillions of dollars were thrown into the financial system by central banks and governments. High levels of public debt have prolonged past recoveries by placing debt burdens on future growth, but this debt environment is very different. Never before have so many wealthy nations carried such high levels of public debt. Either Western governments reign in the spending, which will keep us in a protracted (but necessary) period of economic stagnation, or they march onward to default, which brings on the second wave of global financial crisis. This is not a question of if for us, but when. Living standards in the West have increased on paper asset inflation in the last 20 years; that “juice” has to come out of the market, living standards must revert to income levels and then real economic growth can resume.
The disconnect between US equity market prices and reality will continue in the short term. The S&P 500 has retraced a little over 50% toward its 2010 high. Traders will gun for 1150 in the S&P, pouring into stocks the first days of the month of March. This rally should fade by the end of the first week and the S&P will be range-bound awaiting news (look for a potential surprise lower in the February non-farm payroll number). Bernanke indicated that the Fed is in no hurry to raise interest rates, but it is ending the purchase of mortgage backed securities at the end of March which could test the banks. If previous shallow recessions are any indication this deep recession will necessitate prolonged record low interest rates for years, even in the face of a sovereign debt crisis. With the euro in crisis, the dollar will find support in the lack of a currency alternative. Stocks remain cheap to cash, so the major averages should rally until the sovereign debt crisis forces the market to test its 2010 lows.
We expect near term volatility to return to elevated levels in the next few weeks. This should provide our systems with many trading opportunities in March.
John L. Roe| President | ROE Capital Management, Inc. | http://www. roecapital. com
Ranked as one of the top stock index CTAs in 2009. | For performance – http://www. roecapital. com/perform. asp | For market commentary – http://www. roecapital. com/newsleters. htm
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. An investment with ROE Capital Management is speculative, involves a high degree of risk and is designed only for sophisticated investors who are able to bear the loss of more than their entire investment. Read and examine the disclosure document before seeking ROE Capital Management’s services.
44 Presidents Of The United States.1789-2009 UPDATE Leann Rimes National Anthem
Disney’s Hall of Presidents attraction at the Magic Kingdom in Walt Disney World has been updated to include speeches from advanced audio-animatronic versions of US Presidents Abraham Lincoln, George Washington, and Barack Obama. This video shows the full speeches delivered by these robot versions of Washington and Obama at the end of the show. Be sure to visit the Magic Kingdom to view the entire newly-enhanced show. The animatronics look even more lifelike in person.
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