Maestro Obama: Profit as the “master” meddles with the market
Today's Financial News - Posted May 11, 2009
Washington is fascinated with “fixing” the healthcare system. About all it will really do is drive down share prices. For short-term traders there are plenty of opportunities. Today’s action is proof of the volatility to come.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Let’s say you have a choice of two investments; one with a revenue stream growing by over 6% each year, the other expanding by just 4.5% each year. The difference in the growth rate adds to $2 trillion.
Which would you choose?
If you are a fan of making money, you will obviously choose the company with the largest growth potential. You would certainly be willing to pay more for a stock with a higher growth potential.
But if you are a fan of Obama and his punish-the-successful mentality, by default you have to choose the loser.
I wish I could say I pulled those figures out of thin air. Instead, I grabbed them off the wires this morning, straight from the nation’s healthcare industry.
Remember last week when I said the lull in action from Washington was merely a temporary break so our leaders could catch their breath? Well, they’ve got their running shoes on once again and are racing towards unknown.
Get ready for change
In anticipation of Obama’s free-for-all healthcare reforms, the nation’s health providers announced their plans to slash costs over the next decade. Instead of allowing the sector’s revenues to grow by an estimated 7% annually, the companies say if they work together they can reduce that growth figure to just 5.5%.
It may not sound like a big deal, but with the healthcare industry responsible for 16% of GDP annually, the cost-cutting efforts will eventually suck more than $2 trillion out of the American economy.
The cost cutting has the potential to save an average American household an extra $2,500 annually, just enough to buy a few extra Chinese-made TV sets.
I will let you decide whether the money is better off filtering through the job-creating healthcare industry or remaining in the hands of the folks getting free healthcare.
There are a lot of variables surrounding the situation, like who gets what and who pays for it. Just about the only certainty is it will not be good for the nation’s largest providers.
Today’s action proves it.
Humana (NYSE:HUM), a large Medicare/Medicaid benefits provider, is down about 5% today. Aetna (NYSE:AET), the insurer of choice for many Americans, is down over 4%. Same story at Unitedhealth Group (NYSE:UNH). And Cigna (NYSE:CI) is currently down over 6%.
The more talk Obama’s plans get on Capitol Hill, the smaller those stock prices will become. During the debates, volatility will rise. We will see a week of surging prices, then a week of negative action.
While the long-term trajectory is certainly downhill, there will be plenty of opportunities to profit. Short-term traders will have a field day playing the news and its effect on share prices.
Washington is in charge of Wall Street these days. It may not be what this country stands for (or used to stand for), but it won’t prevent us from making some money as the markets figure out what comes next.
Next Article: Today’s top 3 stem cell stocks under $6
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