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.