…..GOP unveils repeal and replacement for Obamacare. H-1B suspended. Trade deficit at 5 year high. Eurozone growth. Brazil recession grinds. Exxon invests big in Gulf coast. Salesforce and IBM go all AI. Alexa to testify. RadioShack closing again. Raiders to LV.
Financial Review by Sinclair Noe for 03-07-2017.
DOW – 29 = 20,924
SPX – 6 = 2368
NAS – 15 = 5833
RUT – 9 = 1374
10 Y + .02 = 2.51%
OIL – .16 = 53.04
GOLD – 9.70 = 1216.40
Healthcare stocks were in focus today after the GOP unveiled its Obamacare replacement bill, called the American Health Care Act. The bill rolls back the Medicaid expansion and eliminates the individual mandate, which requires everyone to buy health insurance. Under the ACA, tax credits were provided to 85% of people enrolled in the exchanges, and the amount of the subsidy was determined based on income level, geographic region, and age. The amount of the tax credit in the House bill is based exclusively on age: The older you are, the more you get per month (though still less than you would get under the ACA).
A report from the non-profit Kaiser Family Foundation found that older Americans will receive significantly less help paying for their premiums, as will the poorest young Americans. Americans earning $40,000 to $75,000, on the other hand, are the winners—their subsidies will increase. The proposal would kill a 3.8% investment tax on the wealthy that had used to finance the health-care law. It would also kill a 0.9% surcharge on wages above $250,000.
Under the ACA, insurers could not discriminate against people with pre-existing conditions like cancer, diabetes, or heart disease. The new plan does away with coverage for pre-existing conditions and institutes a continuous coverage provision. People who have lapses in insurance cannot be denied coverage, but they can be charged more. Enrollees cannot have gone 63 continuous days (or more) without coverage, or they would pay a 30% penalty on premiums.
Older consumers would pay more for coverage under the GOP plan. The oldest consumers on the individual market are 64, just shy of the Medicare eligibility age of 65, and under the Affordable Care Act they can be charged no more than 3 times what a 21-year-old would pay. The GOP plan would broaden the age bands, as these rate limits are called, to 5 to 1, allowing insurers to charge the oldest consumers five times more than younger ones. What’s more, the proposal would give the states the latitude to broaden those limits even further or to constrict them back to 3 to 1 or another level. Moving to a 5-to-1 rating would increase monthly premiums for a silver plan in 2018 by 25% for a 64-year-old before tax credits. Older consumers would get hit with a double whammy: not only may their premiums increase, but the restructured tax credits won’t go as far as those under the Affordable Care Act in subsidizing the premium cost. The new tax credits are based on age, not on income, while in reality many of the consumers on the individual market are lower income.
The new tax credits would also rise at a slower rate than under the Affordable Care Act, where credits were pegged to the cost of the second-lowest cost silver plan in the consumer’s region. That benchmark reflects the true market cost of the plan. The new peg, by contrast, is pegged only to a measure of inflation.
The GOP’s plan includes the phase out of the Medicaid expansion. About 10.7 million people were newly eligible for Medicaid coverage after the ACA went into effect. One of the only ways to pay for the GOP’s health subsidies and cut taxes the ACA imposed on the wealthy is to cut off federal Medicaid funding. States will be allowed to continue to enroll people into Medicaid until 2020. Then, it will “freeze,” and no other enrollees can be added, the thinking being people will eventually drop out of the program as they earn more money; 31 states expanded Medicaid to people above the poverty level under the ACA, and the Republican plan would roll that back, though how has become a major point of argument inside the party.
There are several other components to the bill, including restrictions on funding for Planned Parenthood, plus more generous use of health savings accounts. But the meat and potatoes is that the bill repeals the mandate and replaces it with a 30 percent premium penalty for anyone – healthy or sick – who does not maintain continuous insurance coverage; which sounds kind of like a mandate, and will surely be challenged in the courts. The tax credits for buying insurance are also altered and reduced, making it more expensive for the old and poor. And major cuts to Medicaid funding which are already running into roadblocks. With Medicaid reductions and smaller tax credits, there is a strong chance that many people would lose their coverage. In other words, the new plan is less of a repeal and more of a revamp or re-branding, absent significant improvements and sustainable solutions.
The proposal has not yet been scored by the Congressional Budget Office, the federal agency that calculates the impact that proposed legislation would have on the debt and other considerations; that means we do not know how it will be paid for and whether it will cost more or less than ACA. If all proceeds smoothly, and the votes are lined up, the full House could vote on the bill within two weeks. The votes might not be lining up. The new bill to replace Obamacare is being savaged by early bad reviews from a wide range of conservatives, with one Republican senator declaring it “dead on arrival” in the Senate – if it can make it through the House, and it would take less than two dozen defections among Republicans to sink the repeal effort, assuming Democrats vote as a bloc. In other words, this could be a long, drawn out process. Just a reminder, Trump has said the repeal and replace of Obamacare needed to take place before moving on to tax reform.
Drug companies were generally lower today, including Endo, Valeant, and Mallinckrodt, which were all down more than 4%. Generics giants Allergan and Mylan were also down as much as 2%. Losers in the hospital space include Tenet Healthcare, down 4%, and Universal Health Services, down about 2%, and HCA Holdings was down a bit less than 1%. Biotech stocks were also getting hit, including Juno Therapeutics, Sage Therapeutics, and Intercept Pharmaceuticals, each down as much as 2%. The large health insurance stocks were flat.
The US Citizenship and Immigration Services said it plans to temporarily suspend fast-track processing for the H-1B skilled-worker visa program, a move that could slow down the process of hiring foreign workers for US companies.
The US trade deficit shot up in January to a five-year high. The trade deficit rose 9.6% to $48 billion in January from a revised $44 billion in December. The wider deficit was spurred by a 2.3% increase in imports of consumer goods such as cell phones from China and other countries. The higher cost of oil also boosted the value of US imports. Imports totaled $240 billion in January. US exports, meanwhile, rose a smaller 0.6% to $192 billion. Exports of cars and trucks, oil and soybeans all rose sharply.
Looking further afield, a new report shows the Eurozone economy grew by 1.7% in the fourth quarter. This was in line with expectations and slightly slower than US growth over the same period. However, German industrial orders in January delivered a nasty shock, slumping 7.4%.
In South America, new figures from Brazil show the country continues to grind through its longest recession ever, spanning eight consecutive quarters. Brazil’s economy shrank 3.6% in 2016. That’s just a slight improvement from 2015, when it contracted 3.8%, but still far from good.
Exxon Mobil promised to invest $20 billion over 10 years to build and expand refineries, chemical and liquefied natural gas plants along the Gulf Coast. Chairman and CEO Darren Woods said the work, which would focus on 11 plants in Texas and Louisiana, would create 12,000 permanent jobs and 35,000 construction jobs. Exxon currently has about 71,000 employees. The promised $20 billion, decade-long investment would be roughly equal to Exxon’s total capital spending last year.
The Justice Department is seeking additional information from General Electric and Baker Hughes over their pending merger, extending the waiting period related to the regulatory review until 30 days after the companies comply. GE announced a deal in October to combine its oil and gas business with Baker Hughes, forming one of the industry’s largest oilfield services and equipment companies.
Salesforce announced an artificial intelligence partnership with IBM. As part of the agreement, data from Big Blue’s Watson will be available to Salesforce customers, and the cloud company’s technology will be integrated into IBM’s system for internal use.
Amazon has abandoned its legal battle to protect its Alexa assistant with First Amendment rights – for now. The company filed a motion against a police search warrant in an Arkansas murder case earlier this month, but dropped it after the defendant agreed to hand over the data contained on his Echo speaker. Amazon previously claimed that voice interactions were a “constitutionally protected opinion.”
RadioShack stores are closing again. General Wireless, the joint venture with Sprint that purchased 1,700 stores from the original RadioShack Corp. after it filed for bankruptcy in 2015, apparently hasn’t been able to fix the 96-year-old brand. General Wireless is now preparing its own bankruptcy filing.
Toshiba is spinning-off its core memory chip business and seeking outside investors in it. Potential suitors include Apple, Foxconn, TSMC, Microsoft, Western Digital, Micron, and SK Hynix. Apple could have the edge to win the business, which would allow it to lock in memory technology for its iPhone and other products. Micron and SK Hynix face antitrust issues while Foxconn faces national security issues. The seller values the business at $17-18 billion. Bids are due March 29.
The Oakland Raiders have found a financial partner to back their new proposed stadium in Las Vegas. Bank of America has been secured to help complete financing on a $1.9 billion, 65,000-seat stadium that would be located on the Las Vegas Strip. The state of Nevada has committed $750 million to the project, with the team and the league paying the remaining cost contingent on the owners’ approval. The Raiders are eligible for relocation, but 24 of the 32 NFL owners must approve any move. The league’s owners are set to meet in Phoenix later this month.