With Europe still dominating the World news, let’s recall the Supreme Court’s decision on Obamacare. This is actually bigger than the 120 bullion USD the EU leaders managed pulling together. The Economist on Obamacare.
JUNE 28th was a day of reckoning for the most important law of Barack Obama’s presidency, and for the president himself. The Supreme Court was to decide the fate of Mr Obama’s 2,700-page health reform. Oral arguments in March had not proceeded as Democrats had hoped. Mr Obama’s lawyer choked on his water, faltered in his opening statement, then endured a battery of hostile questioning. Suddenly it dawned on Democrats that their most treasured achievement might die.
But when judgment day came the Supreme Court sided with Mr Obama, by five votes to four. John Roberts, the chief justice, joined the court’s four liberals in upholding the Democrats’ biggest legislative feat in decades. The law requires Americans to buy insurance or pay a penalty—the so-called “individual mandate”. That penalty, the court ruled, falls within Congress’s power to tax. The court did impose a rider on the law’s expansion of Medicaid, the federal-state health programme for the poor. But the decision is a huge relief for the president and his allies. (Full reading here).
Guest post by Vix and more.
There are many ways in which investors can evaluate risk related to the euro zone. Credit default swaps for sovereign debt are one way to evaluate the risk of country default. Sovereign bond yields are a good proxy for a country’s access to funding via the credit markets. The euro crosses and related directional moves are a barometer of the strength of the currency and the euro zone countries as a whole, while various Intrade contracts can lend a sense of the probabilities that investors assign to various events, such as to the risk of one or more countries dropping the euro.
On the volatility side, the VSTOXX (EURO STOXX 50 Volatility Index) the EVZ (CBOE EuroCurrency Volatility Index) provide a market assessment of risk and uncertainty in euro zone stocks as well as the currency.
One piece of analysis I have not seen, however, is an assessment of the relative risk and uncertainty for equity markets in some of the more important euro zone nations. Specifically, Spain, Italy, France and Germany. The chart below attempts to offer up that very information, using 30-day implied volatility for the various country ETFs over the course of the past six months:
Peter Tchir of TF Market Advisors on the Euronews, the acknowledgment of the crisis and the way forward.
Basically everyone out there is saying to sell the news. Virtually everything I read points out flaws in the announcement. Why the plan won’t work. Who will vote against it. That it is too vague. That it doesn’t do enough. And largely I agree. The plan is vague. Some parts of it will probably change. It isn’t big enough. It doesn’t do enough, BUT, it is yet another clear sign that Europe is changing its attitude towards the crisis.
The bet was never that this summit would produce some “silver bullet”. As I wrote earlier in the week, it is only bears that thought the bulls needed “Eurobonds”. Eurobonds were not a necessary outcome to spark this rally. Nothing is solved, heck, it’s not even fixed, but every sign is pointing to Europe moving in the right direction. Germany and France in particular are using their borrowing ability to support the weakest countries. Banks are finally getting set to get recapitalized without being a major drag on the countries they reside in.
Based solely on the announcement, would I be constructive on risk? No. This particular announcement doesn’t do that much, but I’m long risk because it does enough. It pushes things forward and is another clear indication that Europe is willing to use their existing tools in a more aggressive way than they have in the past. It paves the way for the ECB to act. Over time, it may even lead to changes in the rules, though that is more far-fetched. In any case I view the outcome as constructive, and am very encouraged by the fact that virtually no one is saying it is good. This continues to remind me of the original LTRO where everyone downplayed it (myself included), yet it was a catalyst for a big move in stocks over time. 2012 may be 2011, but it is looking more and more like November/December 2011 rather than June/July 2011.
Guest post by Doug Short.
The chart below is my way to visualize real GDP change since 2007. I’ve used a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. As the analysis clear shows, personal consumption is key factor in GDP mathematics.
My data source for this chart is the Excel file accompanying the BEA’s latest GDP news release(see the links in the right column). Specifically, I used Table 2: Contributions to Percent Change in Real Gross Domestic Product.
So Merkel and her friends deliver another “Europe is saved” moment. This time with 120 billion USD pact in order to spur growth. The Algos managed lifting the markets, and may we remind you of the half year window dressing. The can is kicked down the road yet again, and yes, only the Spanish banks need more than 120 billion USD. They tell us we must save the Euro, but why, and for who? More on the subject by Golem.
It is a troubling aspect of our present financial and political situation that there has been a tendency, I would say a deliberate desire, to confuse wealth with debt; to present them as flip sides of each other when they are, in fact, entirely different. Why should this be? Well it might be because much of Mr Soros’ wealth, the wealth of the institutions he owns shares in, the wealth of banks and other financial institutions and the wealth of those who own and run them, is tied up in debt agreements of one kind or another. Your wealth and mine is probably in sovereign issued ‘money’. Most of us don’t have investments. Many don’t have savings to speak of. The wealth of the top 10%, on the other hand, is tied up in debt of one kind or another.
Since the advent of securitization, that process whereby debts can circulate as a form of currency, which can be used as collateral for issuing loans and can be counted as capital, debt has become a larger repository of wealth than sovereign currencies. Why do you think no one talks about the money supply the way they did in the 80’s? Governments do not control the money supply. The issuers of private debt control it.
Guest post by Azizonomics.
Americans are either celebrating or damning the Supreme Court’s 5-4 ruling that the individual mandate is constitutional.
I find it hard to believe that anyone believed that the Supreme Court would rule any other way. Precedent dictates that the Commerce Clause, and Federal powers of taxation are unimpeachable, and have been so since the New Deal. That’s the state of reality, and I found it puzzling that the individual mandate to purchase healthcare might be deemed unconstitutional when the collective mandate to collect taxes to purchase next-to-everything (including both healthcare and broccoli) has been considered constitutional for the best part of a century.
If America wants to overturn current legal norms America needs to elect different politicians. But with a greater and greater welfare-bound population, it seems inevitable that more and more Americans will vote themselves greater and greater quantities of free stuff.
Yet there is a bigger point to all of this, and it’s nothing to do with broccoli.
If Congress can constitutionally create a mandate for individuals to purchase healthcare, then Congress can create a mandate for individuals to purchase financial securities. Which — given the fiscal cliff that we are about to run off, and the reality that more and more sovereigns are dumping dollars and treasuries — could well be a useful weapon in keeping the Treasury’s borrowing costs low and the bread and circuses flowing.