WASHINGTON, April 27, 2015 – As stocks continue, incredibly, to melt up even in the face of fair-to-middling earnings reports, traders need to pay attention to two items, one fairly traditional, the other potentially catastrophic, at least in the short term.
The first of these is the old “sell in May” syndrome. That’s generally been OK advice, as stocks historically have a tendency to sell off in the May-August timeframe before picking up the pace again later in the year, often in October. We suspect this is already where a good bit of surreptitious selling has been happening, keeping the market going sideways even as the mind-numbed financial press crows about “new highs.”
The second potential issue, however, doesn’t appear to be on most traders’ radar screens: the upcoming Supreme Court ruling on the legality of Obamacare subsidies for insureds in states without their own state insurance exchanges. A ruling against the administration could send stocks in the entire healthcare complex plunging in a waves of panic selling, taking averages down with them, big time.
To state it bluntly: Even a reasonably well-informed layman must know by now that the Supremes should rule against the administration on this issue.
At the time the Obamacare legislation was jammed through, it was well known that the citizens of states that chose to use the federal government’s enrollment system or “exchange” (as opposed to setting up their own exchanges) would be denied ACA insurance subsidies even if they qualified as individuals.
Typical of this massive, Democrat cram-through legislation, this part of the Affordable Care Act (ACA) was specifically meant to be coercive, forcing yet another largely unfunded federal mandate on the states. That coercion was the “stick,” carrying with it the political implication that once a given state’s constituents had been “screwed” out of subsidies—presumably by their conservative Republican legislatures—they would vote en masse to remove the offending party (the Democrats’ opposition) from office the very next chance they had to head for the voting booths.
The “carrot” to those states setting up their own exchanges was the federal government’s offer to subsidize the cost of setting up and implementing state-run ACA enrollment systems and vetting qualifying health insurance plans—through 2017. After that, the costs all devolved back to the states, which is where that unfunded mandate shows up.
By means of this short-term break on administrative costs, congressional Democrats and the administration meant to lure all 50 states into the good old unfunded mandate trap, leaving states to fend for themselves after the administrative subsidies expired.
States opting out of the carrot were willing to risk the legislation’s “stick,” immediately seeing through the legislation’s cheap ruse and fully aware that there would be no limit to their cost liabilities after 2017. Simple, easy.
Everybody knew what this incentive-disincentive was all about. That’s why so many states not only chose to bolt from the state exchange trap, but also to sue the government on the validity of this sweeping legislation as well.
Any attempt to spin the relevant clause in the original ACA legislation in any other direction is at the very least dishonest, just as the administration’s quiet and costly violation of the legislation’s specific and well-known intent was duplicitous and illegal. Embracing the Grubergate philosophy, both congressional Democrats and the Obama administration figured the voters—and most of the states—would be too stupid to puzzle this little trick out.
Obama, as is his custom, simply ordered the appropriate bureaucrats to ignore this portion of the law and fund insurance subsidies for the 37 opt-out states anyway. Doing this got around around this potential political hot potato, which would have blown up immediately upon the initial implementation of Obamacare.
Happening on top of the already disastrous rollout of the government exchange’s website (as well as the dysfunctional sites set up by several other states), this potentially huge brouhaha would have interfered with the administration’s plans to use Bain and the Koch brothers to smear Mitt Romney and cakewalk to victory in the 2016 presidential contest. It was all politics, pure and simple.
And it still is.
If the Supremes rule for the administration, we’ll know that this administration’s thugs have been threatening the high court once again, just as they did on the states’ original lawsuit. Once again, Obama will, by coercion and threats, illegally usurp even more power, this time from the judiciary.
What does this have to do with the stock market? As of now, it’s clear from the silence of the administration-controlled “mainstream media” that the administration doesn’t want anyone to know what’s going on. Further, given Justice Robert’s surprise cave on the last ACA case, a complacent majority of politicians, pundits, fund managers, bankers and traders understandably expects the Supremes to retreat again. Many justices, possibly a majority, might cave once again on this obvious no-brainer rather than risk a constitutional crisis and incur the wrath of Washington’s current take-no-prisoners regime.
But if the Supremes show some spine on this issue; if the court’s so-called conservative majority can get it together to defend the independence and constitutional prerogatives of the Court; and if they thus choose to rule against the administration’s laughable arguments in favor of the illegal state subsidies, there will instantly be uncontrollable hell to pay both politically and in U.S. markets as well.
On Wall Street, an adverse ruling could have a swift and at least temporarily catastrophic effect on the entire stock market, beginning logically with hospitals, pharmaceutical and healthcare companies, and proceeding to drugstore/pharmacy and insurance stocks before moving outward to engulf everything else.
Much of this reaction would be foolish panicking on the part of purely reactive investors and institutional funds, seriously exacerbated by high-frequency trading computers programmed, as most of them are, to buy and sell on rumors and headlines.
Knowing this, however, wouldn’t make a market crash any less real. That’s why, though they’re not saying much publicly (out of fear of reprisal), mature, seasoned investing pros are getting nervous about June, and why spring trading seems completely range-bound at least at the moment.
Yes, potential interest rate hikes and the destruction wrought by the administration’s Middle East policies are a problem, too. But the Supreme Court’s upcoming ruling on ACA insurance subsidies is the gorilla in the room that no one wants to talk about.