Tuesday, July 28, 2009

It's Just Seasonality Stupid

The economic headlines continue to distort reality to my amusement. If you can't find any actual real growth out there in the economy, you can just try to find a seasonal signal and then claim that it is real growth. Simply forget the fact that year over year something is down 20%, when you report a 2% month over month gain. Forget the fact that housing starts tend to improve in the summer (when the weather is seasonally better), that housing sales tend to spike in the summer (when families prefer to move to minimize disruption), and that housing prices tend to rise in the summer as well (because of the increased demand). Call it Dennis Kneale accounting or whatever you want. So we get a couple of normal, seasonal, month to month gains in housing prices, housing starts, and houses sold, and every douchebag, idiot on TV claims the recession is over and we have a housing bottom. Sorry, but it does not quite work that way. All three measures continue to be around 20% down year over year. Until that number shrinks down to closer to flat, you can't really be calling a bottom.

If you look at that past two major recessions (early 80s and 90s), housing prices did not rise until 2 to 4 years after the unemployment rate peaked. Both of those recessions may end up being milder and have quicker recoveries than this one. Unemployment is not expected to peak until sometime next year, so realistically we are looking at 3-5 years or more before housing prices start to improve. Between now and then we will find a bottom, but we are not there yet by any real measure. A bottom would mean that year over year prices are flattening, which they are not doing now.

I have been playing the market a bit lately, because it really wants to rally, but has no where to go. It is pretty easy to ride it up until it exhausts itself (where it is about now), and then get out and wait for it to drift back down and catch it's breath. I think the latest rally is the market pricing in the positive of health care not passing. Any negative shock, or sign that the health care package may still have legs should send the market right back down at this point. Q2 GDP numbers are due Friday, and its hard for me to imagine that they will not surprise to the negative side. Tax revenues are down about 25% this year, but GDP only about 4% officially so far. Seems like the GDP numbers have some catching up to do with the horrible economy as indicated by tax receipts, and that may include some negative revisions to earlier quarters. Be prepared to get out quick when things go south.

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Tuesday, July 21, 2009


Rather then just bashing Obama’a approach to healthcare, I would like to offer up a few suggestions that could make the system better, and not cost the government or taxpayers any extra money.

Health Care Fee Reform

I think there is a fundamental problem with the way fees for services are determined. The way the system works now different patients are charged wildly different amounts for the exact same services. This is completely unfair and a huge problem with the current system. If you are a Medicare/Medicaid patient a small amount is charged. If you have health insurance, you will be charged different larger amounts based on what brand/type of insurance. Lastly, if you are uninsured you will be charged way more (sometimes 5x) what the same insured person would pay. This last part artificially inflates the “cost” of the uninsured on the system, and makes it prohibitively expensive to not have health insurance. Fees should be mandated to be identical for all patients, and should be set by the provider at a competitive rate of their choice. Medicare, Medicaid, and Private Insurance can say what the maximum fee they will cover per procedure is, and the patient can pay the difference if any. This allows for higher levels of service for patients willing to pay for it, and can allow for low levels of service for Medicare/Medicaid patients. It also allows for people to forgo health insurance altogether, and just pay as they go without getting completely ripped off by the provider on the same exact services. If people had a reasonable option of not getting insurance, it would help to keep a lid on insurance prices. Also insurance prices could be held in check on some policies by not increasing the payout amounts, and forcing the patient to pay a larger difference amount over time.

Tort Reform

Part of the increasing cost of health insurance is due to the many expensive lawsuits that are lost and defended every year. I would fix this, by having a two-tier fee schedule. The low base fee would come with an agreement to settle all claims in arbitration with a 2 million dollar cap. For an extra fee of $10 to $20 per procedure, you could waive the arbitration requirement, and waive the max. settlement cap. The extra fees would pay for the insurance to cover the extra liability. This way all patients do not have to pay for the costs associated with massive lawsuits.

Emergency Room Reform

Nobody should be turned away from an emergency room with an immediate life threatening condition or after a serious accident. However, if you show up at an emergency room for a regular doctor visit of some sort, and not with a life threatening condition, hospitals should be required to deny emergency room care. They simply should be refer the patient to the nearest walk-in clinic, and face no penalty from the government for doing so.

Health Insurance Reform

Government regulations on health insurance need to be greatly reduced. If we simplify the fees as stated above and go with a transparent/identical fee structure for everyone, insurance plans should be able to just state what they pay per procedure, and offer whatever coverage they want to. There should not be any minimum level of coverage mandated by the government. Where government regulation should exist, is in denial of claims. Once you are accepted for insurance, and have paid your bills you should never be denied coverage for any reason. Pre-existing conditions may get an exception here, but that is it. You apply for health insurance and unless you are outright lying about a major pre-existing condition, you can’t be denied coverage once accepted. This would eliminate tons of headaches and lawsuits from the system. Insurance providers may need to beef up their prequalification process, but that’s the correct way to do it.

Pre-existing Condition Reform

I am totally against allowing someone to go without insurance until some major problem happens and then apply for insurance to cover it. That is simply not fair, but seems to be what the liberals are after. I think that as long as you have had “continuous coverage” of health insurance, pre-existing condition requirements should be waived. If you are laid off at work, and are going to lose your existing policy you should be able to roll your insurance over to a new carrier with no penalties or pre-existing condition checks. If you have not had “continuous coverage” you should have to pay a much higher premium or simply be denied for health insurance coverage. Currently, many people are trapped in their jobs due to a medical condition that would be pre-existing if they switched insurance, but that is really not fair. Denial for pre-existing conditions should only be used against those who do not have current coverage.

Health Care Record Reform

I actually think there is some cost savings to be had here. If privacy concerns, can be addressed electronic health records could be a real cost saver, and help to reduce medical errors. How many times have you filled out the same medical form when visiting different doctors? They should standardize on electronic medical forms, and they should be filled out once, and updated on an ongoing basis. This eliminates the cost of obtaining and entering the same information over and over again in different computer systems. This can be entirely paid for by fees charged to doctors. Charge a $5 fee per medical record pulled for a while to cover the costs. The doctor’s office saves the time and money to print out paper records, and enter them into the computer offsetting the $5 cost.

Dealing with the Uninsured

Well I have not said a thing about what I would do here, or if it is even an issue. I think this is a small issue that is overblown, but I have a solution. The fee reform ideas will allow many to safely go without insurance, and not sacrifice on care. There should be some type of supplemental insurance that only covers major issues (say 10k or higher in bills), that pay as you go types could get. What’s left are illegal immigrants that should not get insurance, and those who simply can’t afford it. For those that can’t afford it, we need to come up with a bare bones policy that has high deductibles, co-pays, and low levels of coverage. No optical or dental should be included and only generic drugs where possible. The monthly cost of such a plan could be kept small, but it would be pretty shitty coverage. When the uninsured show up for treatment, they should be required to apply for the low cost plan, and pay all co-pays, deductibles, and fee differences when seeking treatment. They can ask for assistance there as well. The government then determines if they have the ability to pay all or part of the premiums, and deducts from a paycheck as required for the barebones coverage, and supplements the rest. This way the uninsured get some low level, bare bones coverage at some government expense, but would still need to shell out cash when receiving services. The poor coverage is a great incentive to go out and get a job and get better employer health insurance, or to afford a better private insurance policy.

I think all of the above are good logical steps to take to contain health care costs and get more people covered. The best thing is that none of them include a competing government plan, or require large amounts of government outlays to put the reforms in place. It’s more about writing some new regulations to address the issues rather than creating a costly government run mess to do the same. We simply can’t afford to raise taxes in anyway in the current economic situation. An approach like the one above is all that is currently possible with today’s budget deficit, yet it will still go much farther in reducing cost growth long-term than an expensive government run option.

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Wednesday, July 15, 2009

Economy at the Bottom of Obama’s Priorities

I think by now it is becoming obvious that Obama has no intention of fixing the economy. Fixing the economy appears to be at the bottom of his agenda. You need to judge a president by his policies, and not what he says in speeches. His policies are all devastating to the economy, and will prevent any kind of recovery unless they fail to pass or are over turned at a later date. He talks a bunch about everything he is doing to fix the economy, but let’s look at what has actually been done so far, and what he is planning to do to fix the economy.

The Stimulus Bill

This was nothing but a pork-barrel liberal wish list with a massive welfare plan thrown in for good measure. It has nothing to do with stimulus, and as a result is an over all negative to the economy. All of the wasted money will need to be paid back with interest in the future. Obama claims that the stimulus is working as planned. We have spent about 10% of it in the first 5 months. Most of it will be spent in 2010, and 2011. If we were planning to stimulate the economy in 2011, than we were planning on the economy not recovering until then. With the recession (soon to be depression) starting in late 2007, it is already about as long as any recession since the great depression. Planning on it continuing until 2011 is like planning on a depression, and doing pretty much nothing about it for a year or two. As you can see there is no actual intention of fixing the economy with the stimulus bill. If you really wanted to stimulate the economy in the short term you need to drastically reduce business and personal tax rates (i.e. Regan). That puts all of the money directly into the economy at a pretty fast rate (depending on how low you go with rates). Having the government spend the money wastes at least half of the actual stimulus portion of the money, and allows them to spend the rest of it on stuff that does not even stimulate the economy. A bunch of the money went to extending and increasing unemployment benefits. If you would have lowered taxes instead of raising unemployment pay, it would have provided for a much larger incentive to go out and get a job, and for employers to stop laying off people. There is no way I would go for additional stimulus offered by the architects of the first bill. However, if you want to actually stimulate the economy, you could cancel what has not been spent, and redo it now as a massive tax cut. That would only happen if Obama’s priority was to fix the economy.

The Health Care Bill

Trying to push a massive heath care bill though right now is laughable. It’s like the guy who has been living beyond his means on credit cards for 40+ years, is at major risk of losing his job and has taken a recent massive pay cut, and yet goes ahead and shops for that luxury yacht he has always wanted. You would call that person insane. No sane person or responsible lender would lend that person the money for the yacht. It works differently though when you can print your own money I guess. So let’s see what situation the United States is currently in. We have been running a budget deficit for 40+ years (living off credit cards). The few Clinton year surpluses were not surpluses net of Social Security, so they do not count. The U.S. tax income is down 22% this year and dropping fast. That’s like taking a huge pay cut with the threat of more cuts or unemployment to come. So now Obama is out shopping for the luxury yacht called “Universal Health Care” that we simply can’t afford. The responsible individual would wait for his job situation to stabilize and pay down some his debt, before even thinking about a yacht. Obama is simply not responsible with America’s money. Now this is being sold as a way to lower costs long term while adding health insurance for all uninsured. Those two things simply can’t happen at the same time. Insuring tens of millions is going to cost hundres of billions extra on an ongoing basis. The cost savings are not really explained. Adding demand to the existing supply of health care will raise the cost according to the law of supply and demand. So not only do we need to pay for all the new people covered, but the cost for everyone will also go up as well because of increased demand. The government simply can’t mandate new lower payout amounts. Doctors and other providers will simply leave the system if it is not worth it any more, causing further downward pressure on supply. Rationing health care will be the only solution to the supply and demand imbalance caused by the bill. Because of the ongoing expenses required to cover this bill, taxes will be going up on top earners. Also, there will be a penalty for individuals and businesses that do not provide or take out health insurance. This is where the economy gets destroyed by this bill. About 60% of the high income individuals own or run small businesses. Small businesses are also the most likely to be hit with penalties for not providing health insurance. This is a double whammy that will continue to depress the opportunities for small businesses that create the vast majority of new jobs in this country. As long as this bill is hanging over the U.S. economy, there will be no recovery. Nobody will be starting new small businesses now unsure of how high taxes are going or if health insurance will be mandated. If it actually passes, small business job creation will crawl to a near stand still, and the economy will not recover. If, Obama’s priority was to fix the economy, he would put this bill on hold until the economy has recovered and the budget deficit has been removed (i.e. indefinitely). Continuing to push for this bill now is a major headwind against economic recovery. Obama could step up and lead, by saying that we can’t currently afford the healthcare bill, and need to focus on economic recovery, but I doubt that happens.

The Cap and Trade Bill

This is just a feel good enviro-nazi bill that addresses a problem that does not even exist at massive expense to U.S. jobs and the economy. The heart of the bill is something like this. We want to double the price of gasoline, heating oil, natural gas, and electricity (from natural gas and coal), so that the cost of electricity produced from solar and wind becomes more competitive. The bill ignores several key facts. Solar and wind by themselves for example, simply can’t replace the electricity that we get from coal and natural gas no matter how hard we try. If electric cars are going to replace gas powered cars, we are going to need more electricity not less. But wait! If the cost of electricity doubles, that makes electric cars less competitive. No problem. Lets triple or quadruple the cost of energy until wind, solar, and electric cars are competitive. Ultimately, this is just a massive energy tax that does not even lower the amount of CO2 produced in the United States since we still will need the energy and baseline energy alternatives do not exist. Nuclear Energy is the only source that could meet the U.S. needs without producing CO2, but nothing in the bill promotes Nuclear. Another problem is that the world is not signed up to do the same. So energy costs go up drastically for U.S. businesses and individuals, while they do not change at all in the rest of the world. This will simply ship jobs over seas where energy and environmental costs are lower. I would love to see how the union manufacturing shops with vastly higher labor costs, will continue to compete when energy costs become vastly higher as well. To get this bill through the House it was watered down a ton, and is not even supported by the top Global Warming advocates anymore. Most of the costs are delayed for about ten years, but it must make energy prices go way up at some point in the future to actually work. The economy is in no shape to take on the uncertainty of a massive energy tax plan, or the effects of a massive new energy tax. This is a job and economy killing bill, and if Obama had the economy as a top priority he would put this one on hold for a while. It would also be nice to see the science behind Global Warming actually debated before taking on these massive expenses. The globe has been cooling for 8 years now, and the current June 2009 temperature anomaly against the 1979-2009 satellite measurement record is zero, meaning that today we are not above the average temperature of the last 30 years. This bill can wait for Global Warming to be confirmed scientifically before we purposely add more headwinds to the economy.

The Government Meddling in the Private Sector.

This simply needs to stop. Anything the government does to help the economy in the private sector hurts the economy. Bailing out weak companies hurts the strong. Recently CIT which is a major small business lender started teetering on bankruptcy and is looking for a bailout. The argument goes that they are the top small business lender and must be saved. Let’s imagine for a second that they became the top small business lender by under cutting their competitions fees and taking on more risk than there competition would. So this business model fails, and the government comes in with a bailout that props up the failed model at the expense of the successful ones. Had CIT failed, the competition would have picked up a good portion of the business with the exception of the loans that should never have been made. This is how capitalism works. Bailouts distort and destroy the free market. The same is true for the car makers. Had we just let them go unassisted into bankruptcy they would have either been liquidated or emerged as much smaller and profitable companies. Ford would have likely picked up significant market share because people do like to buy American. The additional market share would have allowed them to hire a good portion of the employees from GM and Chrysler, and get them working on cars that people actually want. By propping up GM and Chrysler post bankruptcy like we are doing, we are allowing the weaker companies to compete unfairly against Ford. They don’t need to turn a profit because the government is there to backstop their losses. So to move their crappy cars they undercut the competition on price, even if that means no profitability ever. So we are just hurting Ford at taxpayer expense by propping up the weak competition. All these government interventions in the private economy are delaying the recovery and hurting the economy. We need to stop all of it, and support capitalism and free markets as the way out of this mess. The economy may go a bit deeper short-term, but it will find its bottom much faster and set the stage for a natural, unforced recovery. If, Obama wanted the economy to recover, he would get the government out of the private sectors business.

Quit Destroying Americas Job Engine

Small business is the growth engine of the American economy. They have led us out of all of the recent recessions through massive hiring. We will not get out of this recession/depression until small businesses are comfortable hiring again. Enacting policy after policy that hurt small businesses is no way to fix the economy, but that’s what Obama is doing. How about throwing these guys a bone rather than choking them to death. Below are the many ways that Obama is killing job creation in small businesses.

1) Increased or planned increased tax rates on small business owners (Bush Cuts expire, and top 5% pay for health care)
a. Less incentive to start a new business
b. Less incentive to expand or take risks if reward is reduced

2) Mandatory health insurance coverage with penalties.
a. Less incentive to start a new business
b. Less incentive to grow business to where coverage is mandatory
c. Increased costs if penalties apply

3) Increased or planned increases of energy costs
a. Increased costs to all businesses
b. Increased competition from low energy cost countries

4) Increase to Minimum Wage
a. Increased labor costs
b. Less incentive to hire entry level employees

5) Increased regulation and red tape (equal pay laws…)
a. More regulations to follow
b. More lawsuits to defend

6) Bailouts to big businesses only
a. Unlevel playing field that favors the big over the small

So Obama’s many policies are all huge negatives on the economy, while he continues to talk about all that he is doing to fix the economy. He either does not understand economics enough to see the effects on the economy from his proposals, or he is actually proactively trying to depress economic activity to help push through a wealth redistribution agenda. He may be successful in shifting some wealth from the top to the bottom, but he will also be successful in shrinking the overall wealth of the nation. When you take away all incentive to create wealth, and incentivize those who are unemployed or underemployed, you are going a long way to destroy the economy and overall wealth. Let’s just hope somebody can stop this nonsense.

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Wednesday, July 08, 2009

The System

I have been a pretty big sports better most of my life. Most of the time, I analyze the match-ups, and come to a solid decision on what side to bet based on my sports knowledge. I have also employed betting "systems" in the past. One of the betting systems that I used in the past was for baseball, and it worked really well. I have not used this system in about 15 years, but I see no reason why it would not continue to work. Since IMO the system continues to work, yet I have not chosen to use it in a long time I have no problem revealing it here in detail, for someone who wants to take advantage of it. The system is basically an arbitrage system that takes advantage of the fact that Baseball is thinly bet compared to other sports, and has a very low house edge. The edge from arbitrage can easily out way the house edge, and lead to long term profits for the user of the system. Once you have convinced yourself statistically that the system works, you can ramp up the amounts you are betting and make some significant money on it. When I was last using the system I was betting between 2k to 5k a day as an unemployed UNLV student.

Baseball Betting

There are three main ways to bet on baseball. There is the money line which is a bet on who will win the game. There is the over/under line on what the total combined score will be. There is also a line called the "Run Line" which is a line with the favorite -1/2 run (The favorite to win by 2 runs or more). The system exploits the information from the over/under to find arbitrage opportunities between the Run Line and the Money Line. Arbitrage is simply a way of exploiting inefficient markets. The baseball betting market is inefficient because it is thinly traded. An example of arbitrage would be buying goods in the United States, transporting them to Europe and reselling at higher European prices. If the market is inefficient allowing for price disparity between two markets, and the cost of transport is less than the price disparity, guaranteed profits can be made. Guaranteed profits can be made betting baseball using arbitrage.

The System

So lets take a hypothetical game like the Yankees vs. the Red Sox. Lets say that Beckett is pitching for Boston and Boston is the favorite. The money line might be -145 (bet $145 to win $100) for Boston, and +140 (bet $100 to win $140) for the New York. If the house can get equal money laid on both sides they make a small profit by taking in $145 for every $140 that they pay out. The run line for this same game would be something like -145 for N.Y., and +140 for Boston. While Boston is favored to win the game outright, they are not favored to win the game by two or more runs. In this case, they are the underdog on the run line. Lets also say that the over under for this game is 10 runs. In nearly all cases the favorite on the money line is the dog on the run line unless they are huge favorites. The system is based on the fact that Boston will not win this game by exactly one run more than one in five times. I take $100 and bet it on Boston to win the game by two or more runs (run line), and $100 and bet it on N.Y. to win the game (money line). So I am betting $200 and will get back $240 if Boston does not win by exactly one run. As long as this happens less that one in five times I will collect $200 in profit before I lose both sides, and lose $200. I am looking for an average win of at least $40 in this case, so you shop sports books for lines like this. You also shop multiple sports books to find the best possible lines for each side. Because baseball is thinly bet, the lines are often different at different sports books. You identify the games you are interested in, and find the best lines to make your bets against. A lot of the time you will be able to do better than a $40 average win on a $200 in total bets if you shop around, but that is the minimum acceptable amount.

Before I started the using the system, I studied it against past games for several months to verify that it worked. What I found is that it works for American League games and was close to break even for National League games. Rockies home games were an exception to the rule for the National league. I also looked at the correlation between the over/under line, and the success of the system. I found that the higher the over/under on the games selected, the more successful and profitable the system is. All of this makes perfect sense. High scoring American League games are less likely to be decided by one run, while low scoring National league games, where they like to manufacture runs, are more likely to be one run affairs. So you can use the over/under line as a first screen to select American League games, and then make sure you can earn at least $40 on average based on a $200 successful bet. The higher the over/under, and the higher you can make on average per success helps to increase your profitability. In practice I like to use the system on about 5 games each day. That way you either made a nice chunk of change if everything works out, or you will break even if one of the five games is a one run game won by the favorite. The disaster scenario is losing two of the games, but I think that was so rare it only happened to me once or twice as long as I used it.

You will end up making huge bets with the system, and winning smaller amounts, but that is fine. You will be a high volume player, so you may be able to get rakeback or deposit bonuses at online sportsbooks while using the system. Back before the UIGEA when I was sports book bonus whoring it was not baseball season, so I was using football. This system would have cleared bonus requirements faster than you could blink, so there is some additional money to made there as well. Another great thing about this system, is it is purely analytic. You don't need to know anything about baseball to profit from it. Let me know if you have any questions or plan on trying it out.

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