Obamacare Is A Complete Victory (For Short Investors)

Demonstrating his complete divorce from reality after eight years in the gilded cage of the Oval Office, Barack Obama is claiming victory for Obamacare as the program’s costs are skyrocketing. In a recent appearance in Miami, he crowed about “all the progress that we’ve made in controlling costs” while portraying the law’s critics as “false and politically motivated.” Perhaps Mr. Obama’s acolytes are stupid enough to believe this drivel but the rest of us are not, including the actuaries at the Health and Human Services Department who work for him and report that Obamacare premiums will soar by an average of 25% next year. But the news is much worse – unbelievably worse – in some states – Arizona will see hikes of 116%, Oklahoma of 69%, Tennessee of 63% and Minnesota of 59%. Voters who return supporters of the law to office will have nobody to blame but themselves when they can’t afford to pay for healthcare.


However noble and well-intentioned the desire to provide healthcare to more Americans, it is obvious that Obamacare was not the way to do it. Leaving such an important initiative in the hands of a bunch of condescending intellectuals-yet-idiots like Ezekiel Emanuel and Jonathan Gruber and corrupt politicians like Nancy Pelosi and Harry Reid was certain to end in disaster, and it has.

But fortunately, if you’re investing on the short side, there’s a silver lining to this mess…

Obamacare Is Driving Healthcare (And Healthcare Stocks) To The Breaking Point

While healthcare was allegedly extended to 20 million Americans who didn’t have it before, premiums and deductibles for all Americans exploded and virtually everyone has to wait longer for treatment. Doctors are leaving in droves what was once an honorable profession where they were properly compensated for their skills and judgment. The law inflicted enormous damage not only on the healthcare system but on the broader economy.

Healthcare and health insurance spending increased by $157 billion over the past 12 months ending in August, accounting for 35% of the increase in nominal personal consumption. The law bent the cost curve, just in the wrong direction! As the always perspicacious Christopher Wood points out in the October 14, 2016 issue of GREED & fear, healthcare spending is crushing discretionary spending. When Mr. Obama and the Democrat Party shoved Obamacare down the throats of the American people (a majority of whom opposed it), they committed political malpractice. Then House Speaker Nancy Pelosi wasn’t kidding when she said, in a rare case of political truth-telling, that lawmakers had to pass the law in order to learn what was in it. Now we all know what was in it and every member of Congress who supported it then and supports it now should be voted out of office.

Healthcare stocks rallied strongly after passage of Obamacare because they benefitted from being bought off by the Obama Administration in exchange for their support for this noxious law. The Justice Department stopped enforcing the antitrust laws and allowed massive consolidation in the hospital, healthcare and health insurance industries, damaging consumers while rewarding political supporters of a bill they thought would provide them with new customers whose bills would be paid by American taxpayers.

But Obamacare insurance rates and drug prices went through the roof. Now many insurance companies that formerly supported the bill are nursing huge losses and jumping ship, leaving the lame duck president to lick his wounds.

There are signs that consumers are finally reaching the breaking point on healthcare spending. Last week, McKesson Corporation (NYSE: MCK) saw its stock drop 20% after it announced disappointing earnings and said it was having trouble raising drug prices. (Short investors would do well to keep an eye on this stock). This news hit the entire healthcare sector.

In particular, my particular favorite healthcare short, the financially and morally bankrupt Valeant Pharmaceuticals Intl Inc (NYSE: VRX), fell to $20.35 per share on the news (the stock has been losing ground virtually every day for weeks but fell almost 8% on the McKesson news). Valeant stock then sunk another 10% to around $18.00 per share on Monday, October 31 after news that its former CEO and CFO are under criminal investigation, something I predicted months ago. Then on Tuesday, November 1, the stock jumped almost 30% after more news that it is in talks to sell its Salix unit that it originally bought for $11 billion for $10 billion. Salix is one of Valeant’s crown jewels and its sale at a loss will hurt cash flow and shareholder value. I still believe Valeant stock will eventually be worth nothing since it has too much debt and no ability to repay it, and I would maintain short positions. Readers of Sure Money already made up to 700% on Valeant’s fall earlier this year, and I expect it to keep going down.

Investors with heavy exposure to the healthcare industry suffered large losses that are unlikely to reverse anytime soon. When you lie down with dogs, you get fleas.

Sincerely,
Michael

11 Responses to “Obamacare Is A Complete Victory (For Short Investors)”

  1. Frederick Niemann

    OCare’s architects knew it would fail.That’s how they designed it. H’s minions already floating “single payor” system. Health insurers can’t merge, but acquisitions by mainland Chinese of American companies go through without a hitch. If the Demos win, time to short healthcare insurers?

  2. Obamacare in its original form would have been a lot better than the severely compromised legislation that passed after (mostly Republican) legislators required politically motivated changes which were economically unsound in terms of how insurance works. Adverse selection (which almost guarantees that there will be underwriting losses and the need for higher premiums to cover future years’losses) was baked into the state insurance exchanges provisions of the legislation. Agreed, the legislation that passed needs an overhaul, but let’s do that to make the law better, niot gut it on ideological grounds.

  3. Charles Campbell

    The idea of handing control of your health, even your life, over to government bureaucrats – especially corrupt ones who don’t mind bending the citizens to their will (e.g., IRS-gate and appointment of Supreme Court [and other] Justices who ignore their oaths of office and the principle of Rule by Law, Not by Men), and/or staying in power through using other people’s money to buy votes – is FUNDAMENTALLY flawed in the eyes of anyone who values FREEDOM.

  4. Public healthcare in Canada is fabulous. Although not perfect, the vast majority of Canadians benefit from a government run system that is fair and comprehensive in its coverage. Americans afraid of public health simply have their head in the sand on this issue.

    The reason healthcare is so expensive is because it is based on benefits to employees. Benefits based systems naturally gravitate to overpriced services because of how payments are made. Consider the costs of eyeglasses. Once eyeglasses were added to employee benefits programs, the costs of eyeglasses skyrocketed. The core costs are significantly less than what the average person pays in the store, because benefits based payment systems inflate the funds available to eyeglass providers without a counterbalancing correction. This doesn’t happen with public healthcare because doctors and hospitals are only allowed to charge negotiated prices. This check keeps costs in the system down. Average care costs in the US are significantly higher than in other countries with public healthcare because of the way payments are made.

  5. Obama, the worst president in history….but will be #2 in a few days if LIEING Clinton gets in. There are so many stupid people who will vote for her. I can’t understand at all how anyone would give her a vote knowing she has broken so many laws, as in really serious laws. It’s all the serious laws she’s broken, not necessarily her political views that has me so amazed. How can she be able to even run for the highest office in our nation. So many in prison today that haven’t even come close to what she has done. Shame…Shame…Shame. For you that vote for her and if she wins will pay a big price over time….a very long time. Enjoy your poverty!

  6. As long as the solutions involve insurance companies and the system discourages competition, prices will continue to rise. Using insurance to cover regular medical care adds layers of unnecessary overhead, waste and profit. It also suffers from abuse by those who don’t feel the costs of their actions. Designing the plan around insurance providers was bound to cause problems. It takes insurers a while to assess their pool and price premiums correctly.
    Additionally, not allowing any price negotiation was a foolish gift to the medical industrial complex.
    It wouldn’t hurt if some of the insurers were mutuals instead of being slaves to Wall Street. Or non profits even, with customer service as the primary motive.
    There have been some studies on healthcare professionals being more cost concerned when they were given data on the relative costs of tests and medications. Surely there are lots of small changes that could impact costs, but letting the foxes choose what to do with the hens is not the safest course of action.

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