Healthcare Reform Solves Nothing... It's The Debt, Stupid!

Tyler Durden's picture

Authored by Lance Roberts via,

Over the last few weeks, I have been discussing the ongoing consolidation process for the S&P 500 from the March highs. (For a review read: “Oversold Bounce Or Return Of The Bull,” and “Return Of The Bull…For Now.”) As the expected rally in stocks, and reversal in bonds, took shape as the S&P 500 was finally able to ratchet a record close at 2399.29. (Read: 10/2016 – “2400 Or Bust”)

“With the market on a short-term ‘buy signal,’ deference should be given to the probability of a further market advance heading into May. With earnings season in full swing, there is a very likely probability that stocks can sustain their bullish bias for now.”

The market did do exactly that this past week, and while hitting a new high, as noted above, it was a “weak” breakout as volume contracted. My friend Dana Lyons made an interesting observation this past week:

You will notice that while such events did NOT rule out “new highs” first, such periods often preceded either mild or intermediate-term corrections.

Furthermore, despite the record close on Friday, it did little to change the intermediate term backdrop of the markets. The “warning signal” I discussed three weeks ago, still remains which is currently keeping a  lid on stock prices for now. More importantly, we remain very close to triggering the secondary “sell signal,” also from an extremely high level, which would also raise caution levels higher, cut such has not happened…yet.

Importantly, both signals are improving over the last week, and, as I wrote last week:

“If the markets can continue to rally next week, and push to new highs, then both of those signals will reverse. The problem is the reversal from high levels historically has only been short-lived before a more significant decline took place as shown in the chart below.”

While much of the price action on Friday was due to continued “dovish Fed-speak” from a raft of speakers on Friday, it was also the high expectation of a successful French election this coming weekend. At current levels, the potential “reward” from an upward move next week is far outweighed by the downside risk. 

Therefore, a “reactionary” approach to portfolio management is a better choice in the current environment. In other words, let the market determine our next course of action rather than trying to “guess” at what may happen. Throughout history, investors have rarely “guessed” well.

Despite the push higher this past week, it should be noted that since the beginning of March internal measures have remained weak. With the markets very extended above their 200-dma, a correction is likely over the next month or so. This is particularly the case as volatility has dropped to its lowest levels in recent history.

Furthermore, both the ratio and number of stocks above their respective 50 and 200 day moving averages has also remained weak.

Lastly, the market remains very 3-standard deviations above its 3-year moving average. While the long-term signal currently remains on a “buy,” it will not require much weakness sometime this summer to trigger a long-term “sell.”

For now, the market remains in a bullish trend which keeps portfolios allocated on the long-side. Outside of small tweaks and close monitoring, nothing has occurred, yet, which would warrant more drastic movements within the allocation model. However, we have reached a point in the market cycle where the “risk” of remaining heavily invested in the market far outweighs the potential “reward.”

As has been the case over the last couple of weeks, caution, nothing more, is advised for now.

AHCA Solves Little

First, everyone just calm the **** down.

The passage of the American Health Care Act by Congress this past week does nothing immediately. Nobody is going to die. No one will lose access to health care. The world will not end.

All that happens now is the bill moves to the Senate where it will likely be dead on arrival. Given the bill only passed by 4-votes in the House, there is a much narrower spread of leadership in the Senate. The bill will likely get tied up in debates, and even it does somehow miraculously get passed out of the Senate, whatever changes are made will likely lead to a loss when it returns back to Congress for a final vote.

Then we will get to restart this whole process over again.

This also means that tax reform, repatriation, and infrastructure spending are likely much further down the road than currently estimated. 

One thing, however, is for certain – Obama no longer owns “the failed healthcare plan.” 

It now squarely rests on the shoulders of President Trump and the Republican party. Since the current construction will increase healthcare costs and government debt, the opposite of why Trump was elected, it will likely cost Republicans control of House and Senate in the next election. 

The ACHA, or now known as “Trump Care,” is roughly 90% ObamaCare with the taxes stripped out of it. Here are the details as provided by Goldman Sachs on Friday:


  • It would allow young adults to stay on their parents’ health plan until age 26.
  • The bill would let states opt out of Obamacare’s mandate that insurers charge the same rates on sick and healthy people.
  • It would also allow states to opt out of Obamacare’s requirement that insurers cover 10 essential health benefits, such as maternity care and prescription drug costs.
  • The measure would provide states with $100 billion, largely to fund high-risk pools to provide insurance to the sickest patients.
  • The bill also would provide $8 billion over five years to help those with pre-existing conditions pay for insurance.
  • It would let insurers mark-up premiums by 30 percent for those who have a lapse in insurance coverage of about two months or more.
  • The ability to charge older Americans up to five times more than young people. Under Obamacare, they could only charge up to three times more.


  • The bill would end in 2018 Obamacare’s income-based tax credits that help low-income people buy insurance.
  • These would be replaced with age-based tax credits ranging from $2,000 to $4,000 per year that would be capped at upper-income levels.
  • The Republican bill would abolish most Obamacare taxes, including on medical devices, health insurance premiums, indoor tanning salons, prescription medications and high-cost employer-provided insurance known as “Cadillac” plans.
  • Those taxes paid for Obamacare. Republicans have not said how they would pay for the parts of the law they want to keep.
  • The bill would also repeal the Obamacare financial penalty for the 2016 tax year for not purchasing insurance, as well as a surtax on investment income earned by upper-income Americans.
  • It would repeal the mandate that larger employers must offer insurance to their employees.


  • The bill would allow the Medicaid expansion to continue until Jan. 1, 2020. After that date, expansion would end and Medicaid funding would be capped on a per-person basis.
  • State Medicaid plans would no longer have to cover some Obamacare-mandated essential health benefits, fulfilling a Republican promise to return more control to the states

The ramifications for the economy are not good. For investors it likely means a much longer wait for tax reform and the expected boost to corporate profitability. Per Goldman:

“In our view, House passage of the AHCA is likely to further delay the consideration of tax reform. House passage arguably reduces doubts that Republicans can assemble a working majority for controversial legislation in the House, which suggests that complex tax legislation might be achievable as well. However, since the House cannot act on tax reform using the ‘reconciliation’ process until the Senate has passed (or decides not to pass) its own health legislation, tax legislation looks unlikely to emerge until September in our view. Given the time it will likely take to reach an agreement on tax legislation, this suggests that enactment of tax legislation is unlikely until Q1 2018. While our base case is still that legislation is more likely than not to pass in 2018, further delays could push consideration of tax legislation too close to the upcoming midterm election, reducing the likelihood that tax legislation is enacted in the next two years.”

For investors, it is a case of “Waiting On Godot.”  The only question is just how long will they wait.

Debt Is The Problem

But of course, here is the bigger point.

The chart below is the current amount of debt (not including the $1.1 Trillion continuing resolution last week) and the amount of interest currently being paid on that debt.

As the Committee For A Responsible Budget penned on Friday:

“Setting aside the health policy implications of these changes, the fiscal implications could be significant. If more people purchase health insurance, more will be eligible for the AHCA’s tax credits. Assuming no change in employer coverage, we estimate an increase of one million enrollees would cost about $30 billion over a decade, two million would cost $60 billion, five million would cost $150 billion, and ten million would cost $300 billion.”

“Taken together, that means the amendments would save an additional $5 billion if one million more people enrolled in insurance each year than CBO’s prior projection. But it would cost $25 billion if two million more people enrolled, $115 billion if five million more enrolled, and $265 billion if ten million did. With 6.5 million or more additional enrollees, the entire legislation would likely increase rather than reduce deficits.”

The significant importance of this was pointed out just recently in “Tax Cuts The Economic Growth Cure-All?”

“Of course, as noted, rising debt levels is the real impediment to longer-term increases in economic growth. When 75% of your current Federal Budget goes to entitlements and debt service, there is little left over for the expansion of the economic growth.”

“The tailwinds enjoyed by Reagan are now headwinds for Trump.”

The true burden on taxpayers is government spending, because the debt requires future interest payments out of future taxes. As debt levels, and subsequently deficits, increase, economic growth is burdened by the diversion of revenue from productive investments into debt service. 

This is the same problem that many households in America face today. Many families are struggling to meet the service requirements of the debt they have accumulated over the last couple of decades with the income that is available to them. They can only increase that income marginally by taking on second jobs. However, the biggest ability to service the debt at home is to reduce spending in other areas.

While lowering corporate tax rates will certainly help businesses potentially increase their bottom line earnings, there is a high probability that it will not “trickle down” to middle-class America.


While I am certainly hopeful for meaningful changes in tax reform, deregulation and a move back towards a middle-right political agenda, from an investment standpoint there are many economic challenges that are not policy driven.

  • Demographics
  • Structural employment shifts
  • Technological innovations
  • Globalization
  • Financialization 
  • Global debt

These challenges will continue to weigh on economic growth, wages and standards of living into the foreseeable future.  As a result, incremental tax and policy changes will have a more muted effect on the economy as well.

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_RRR_'s picture

if the FED ain't in control of the debt, Elon Musk will take it to space and beyond

Stuck on Zero's picture

Since the government is in total control of healthcare "reform" means reforming government. Fat chance.

sgt_doom's picture

This author of this blog posting needs to retract their heads from their skankholes and yell at those private equity and hedge fund scoundrels to convince them to halt their debt creation!

Troy Ounce's picture


Obamacare or Trumpcare, depending who you listen to, they are both the solution and the problem.


rejected's picture

This shit is getting really old. All you hear about is debt, debt,debt yet they keep creating more of it.

Obviously voting doesn't work, and Americans are too chickenshit to even go to protest events. They're only worried about their credit score and what their credit card limit is. They bitch about ObamaCare costs but pay it. They bitch about taxes but pay them. They bitch about wars but watch their kids go off and die.

Americas got the market cornered on insanity.


A. Boaty's picture

Does your comment imply you plan to attend or organize a protest against debt, war or taxes?

Wulfkind's picture

What about you Boaty ?


ThanksIwillHaveAnother's picture

Off balance sheet too.   Once the Treasury accounting shenanigans end late July the official debt is going to jump big-time!

Fake Trump's picture

Just a personal war between Trump and Obama at the expense of the American people.

DrData02's picture

They have the votes to do it right. They must not want to do it right. Either due to politics or lobbying. In either case it is disgusting. Clearly neither party is worth a damn. Neither party is looking out for the American citizen. We, the people, need another solution.

Wulfkind's picture

<ahem>.....2nd admendment anyone ?

max2205's picture

I ain't paying anything over 200 per month.....Fuck em 

Wulfkind's picture

Enjoy your $2,000 deductable

What foul dust's picture

My ass. IF you can find a 200 monthly you're looking at 7500 - 10000 deductibles. BUT, unless you're 21 and in perfect health 200 is a pipe dream anyway.

Rentier88's picture

Nah, be more like F you if you get hurt.  They will put you back together with crazy glue.  I have seen it, one of the neighbor kids broke his arm just above the wrist and they fixed it alright with a good 3-4 degree bend in his arm at the break point.  You get what you pay for and his parents have no insurance.

But, the real issue in the US is insane healthcare costs.  Procedures you can have done overseas for 1/20th the cost here because there isn't massive administrative fees there and restrictive competition like there is here.

geno-econ's picture

Nothing has been solved with Trump or Obama.  We are still hooked on Obesity, Opioids, Debt, Wars and Dumb Dumbing of America.    Only thing left is trying to outsmart the stockmarket which can only be done by insiders.  Duh !

besnook's picture

single payer is inevitable. use the flood insurance model with the wind hazard insurance model ( to cover disaster health issues) payable like the auto insurance model(a lot of open price and coverage competition) and you will begin to get a rein on usa healthcare costs. the problem with the usa is everyone is bought and paid for and there is no incentive to give up that paycheck for any meaningful change so the usa system will continue using crony medicine to determine what you will pay to save your life knowing that you will pay anything because the only human action a human will not put a price on is the ability to extract oxygen out of the air.

Rentier88's picture

Until the noncompetitive cost structure and illegal activities that only happen in the US healthcare come to an end it won't matter how insurance model is.

Singelguy's picture

Single payer may be inevitable but that will not solve the problem. It will only hasten the demise of government regulated health care. The cost structure is the crux of the issue. As long as a third party is paying the bills, the average consumer doesn't care what it costs. They only care about the cost of their insurance premiums. To make it truly competitive, patients need to foot the bills themselves, which would allow them to negotiate directly just like with any other service they purchase and if the personal financial risk is too high they negotiate with an insurer directly for a policy that best suits their circumstances. Then you will see dramatic reductions in cost.

Able Ape's picture

Money for nothing and the debt is phht!.....

Batman11's picture

Why doesn't anyone see the problem of debt?

It's missing from today's economic models.

The FED’s models always show things should get better but they don’t:

When you don’t include the debt that is causing the problem this is what your forecasts will look like.

The IMF’s forecasts are the same:

The IMF predicted Greek GDP would have recovered by 2015 with austerity.

By 2015 it was down 27% and still falling.

The effects of debt are missing from their models.

Debt is the problem and these clowns can't see it.

Roll out bad economics globally and you get one hell of a mess.

(This is the private debt problem)

Batman11's picture

Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions.

They all saw the problem being excessive debt with debt being used to inflate asset prices (US housing and US mortgage backed securities).

Steve Keen saw 2008 coming in 2005.

As debt gets reflected in the money supply you can see what Steve Keen saw too (the FED didn't see it and still haven't):

Everything is reflected in the money supply.

The money supply is flat in the recession of the early 1990s.

Then it really starts to take off as the boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan’s loose monetary policy.

When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands.

Obviously it’s a bit embarrassing rolling out bad economics globally, but reality is reality and you can’t escape it.

besnook's picture

debt isn't the problem. the problem is debt to income. the debt doesn't derive income anymore. student debt is a giant pit of unproductive debt, for instance. car loans create income by manufacturing a car. if usa labor received the same % of productivity gains they received as wages in 1980 the middle class would be strong and the debt wouldn't matter. they killed the golden goose and they are only now worried about it.

Wulfkind's picture


Debt has always been and forever will be the problem.  Debt is time travel.  It brings forward something you want now that would take you years to get of saving for it to get it at a further time down the road.  And time travel always has a price, whether real or metaphorically speaking.

Debt is slavery.  Debt enables the banking and financial Lords the power they have over our daiy lives.  It makes THEM the essential much so that ENTIRE governments will bend over backwards and subvert the will of the people in order to maintain the financial universe they have created.


Stan Smith's picture

Since Boomers are the one who created the problems to begin with, it's hard to argue that electing more of them to solve the problem makes any sense at all.    I'd argue that's really the issue.    Even if dont wanna say it's the Boomers fault, then fine.   It's the jack asses the Boomers have (and continue to) vote in.    They are not going to be the ones to solve the problem.    Which is why this will get worse before it's gets better.    Left vs. Right is a distraction.

tripletail's picture

Just another nail in the US empire coffin, which can't die soon enough.

DaveA's picture

It's the perfect crime -- run up a huge debt for your grandchildren to pay off, then don't have any grandchildren. Suckers! All this debt will be defaulted away one way or another, so who cares.

The good news is that the first major default will be instant death for all democratic social welfare states, just as communist prison states lost all legitimacy the moment the Berlin Wall opened.

I suppose the next state model will be nations openly owned and ruled by oligarchs, a big improvement over the current system, where no one has any idea who's really pulling the strings.

ThanksIwillHaveAnother's picture

Trump is a real disappointment.   He cannot even control the Replubicans in Congress.  This Thing is on autopilot.   Debt to skyrocket as BB's draw on promised benefits big time this year and next.

Wulfkind's picture

Did you really....REALLY....think that Orange Julius was NOT going to be a dissapointment ?

Singelguy's picture

The Republicans in Congress are bought and paid for just like the Democrats. They serve other masters, not the american people. How would you suggest that Trump control them? Put a gun to their heads? Trump is one man with limited power. He is not a dictator. Debt would sky rocket regardless of who was in the White House. That is what Congress does best, all the while skimming off the top for themselves.