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Category Archives: Business

The Scandalous Truth about Obamacare Is Laid Bare, by Jeffrey Tucker

Governments, particularly Obamacare, are coercive. Markets rely on choice. Allowing even an iota of choice into the medical insurance market will upend Obamacare. From Jeffrey Tucker at theburningplatform.com:

It’s not just that Obamacare is financially unsustainable. More seriously, it is intellectually unsustainable, even though this truth has been slow to emerge. This has come to an end with President Trump’s executive order.

What does it do? It cuts subsidies to failing providers, yes. It also redefines the meaning of “short term” policies from one year to 90 days. But more importantly–and this is what has the pundit class in total meltdown–it liberalizes the rules for providers to serve health-coverage consumers.

In the words of USA Today: the executive order permits a greater range of choice “by allowing more consumers to buy health insurance through association health plans across state lines.”

Allowing choice defeats the core feature of Obamacare

The key word here is “allowing” – not forcing, not compelling, not coercing. Allowing.

Why would this be a problem? Because allowing choice defeats the core feature of Obamacare, which is about forcing risk pools to exist that the market would otherwise never have chosen. If you were to summarize the change in a phrase it is this: it allows more freedom.

The tenor of the critics’ comments on this move is that it is some sort of despotic act. But let’s be clear: no one is coerced by this executive order. It is exactly the reverse: it removes one source of coercion. It liberalizes, just slightly, the market for insurance carriers.

Here’s a good principle: a government program that is ruined by permitting more choice is not sustainable.

To continue reading: The Scandalous Truth about Obamacare Is Laid Bare

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Asset-Stripping by Private Equity Firms Is Booming, by Wolf Richter

There are many ways to legally steal money, and asset-stripping ranks close to the top of the list. From Wolf Richter at wolfstreet.com:

Here are the numbers. Peak chase-for-yield by institutional investors?

Most of the brick-and-mortar retailers that have filed for bankruptcy protection to be restructured or liquidated over the past two years have been owned by private equity firms – including the most recent major casualty, Toys ‘R’ Us. Part of how PE firms make money is by stripping capital out of their portfolio companies via special dividends funded by “leveraged loans” – more on those in a moment – leaving these companies in a very precarious condition.

So just how much have PE firms paid themselves in special dividends extracted from their portfolio companies? $4.76 billion in the third quarter, bringing the year-to-date total to $15.3 billion. So the year-total for 2017 is going to be a doozie.

In all of 2016, this sort of activity – “recapitalization,” as it’s called euphemistically – amounted to $15.7 billion, up from $10.5 billion in 2015, according to LCD, of S&P Global Market Intelligence. LCD’s chart shows the quarterly totals:

“This high-profile recap activity is a sign of the times in today’s still-overheated leveraged loan market,” LCD says:

Deals such as these typically proliferate when there is excess investor demand, allowing borrowers to undertake “opportunistic” issuance, such as corporate entities refinancing debt at a cheaper rate or, here, PE firms adding debt onto portfolio companies, then paying themselves an often hefty dividend with the proceeds.

As private-equity-owned retailers that are now defaulting on their debts have shown: this type of activity where cash is stripped out of the portfolio company and replaced with borrowed money is very risky.

Leveraged loans are provided by a group of lenders to junk-rated over-indebted companies. They’re structured, arranged, and administered by one or several banks. But leveraged loans are too risky for banks to keep on their balance sheet. Instead, banks sell the structured products to loan mutual funds or ETFs so that they can be moved into retirement portfolios, or they repackage them into Collateralized Loan Obligations (CLO) to sell them to institutional investors, such as mutual-fund companies.

To continue reading: Asset-Stripping by Private Equity Firms Is Booming

Globalization is Poverty, by Raúl Ilargi Meijer

Globalization is centralization and centralization leads to poverty. From  Raúl Ilargi Meijer at theautomaticearth.com:

Central bankers have never done more damage to the world economy than in the past 10 years. One may argue this is because they never had the power to do that. If their predecessors had had that power, who knows? Still, the global economy has never been more interconnected than it is today, due mostly to the advance of globalism, neoliberalism and perhaps even more, technology.

Ironically, all three of these factors are unremittingly praised as forces for good. But living standards for many millions of people in the west have come down and/or are laden with uncertainty, while millions of Chinese now have higher living standards. People in the west have been told to see this as a positive development; after all, it allows them to buy products cheaper than if they had been made in domestic industries.

But along with their manufacturing jobs, their entire way of life has mostly disappeared as well. Or, rather, it is being hidden behind a veil of debt. Still, we can no longer credibly deny that some three-quarters of Americans have a hard time paying their bills, and that is very different from the 1950s and 60s. In western Europe, this is somewhat less pronounced, or perhaps it’s just lagging, but with globalism and neoliberalism still the ruling economic religions, there’s no going back.

What happened? Well, we don’t make stuff anymore. That’s what. We have to buy our stuff from others. Increasingly, we lack the skills to make stuff too. We have become dependent on nations half a planet away just to survive. Nations that are only interested in selling their stuff to us if we can pay for it. And who see their domestic wage demands go up, and will -have to- charge ever higher prices for their products.

To continue reading: Globalization is Poverty

 

Tesla Shareholders: Are You Drunk On Elon Musk’s Kool-Aid? by Michael Lewitt

A Tesla short excoriates the longs. From Michael Lewitt at forbes.com:

Tesla shareholders (and bullish Wall Street analysts) are either geniuses or delusional and I am betting on the latter. Typical of the lack of gray matter being applied to this investment is a recent post on Seeking Alpha, often a place where amateurs go to pump stocks they own.

Someone calling himself “Silicon Valley Insights” issued an ungrammatical “Strong Buy” recommendation on October 11 based on the following syllogism: (1) “Tesla CEO Elon Musk has stated very firmly that they can and will reach his goal of producing 5,000 cars per week by the end of this year.” (2) “Musk has a history of setting aggressive targets (more for his staff than investors) [Editors’s Note: That is a lie.] and then missing them on initial timing but reaching them later. [Editor’s Notes: That is another lie–Musk has NEVER reached a production target.] (3) “Reaching anything [sic] significant portion of that 5K target (say 1-2K) by the end of December could drive TSLA shares significantly higher.” This genius then suggests that investors stay focused on the Model 3 ramp as the key price driver over the coming weeks and months and argues that the announcement that only 260 Model 3s were produced in the third quarter leaves “much of the risk…now in the stock price.” He is correct– there is a great deal of risk embedded in a stock trading at infinity-times earnings with no prospect of profitability , a track record of breaking promises, a reluctance to sell equity to fund itself even at price levels above the targets of most analysts, and a market cap larger than rivals that are pouring tens of billions of dollars into putting it out of business.

Undeterred, he offers two investment strategies. The first he terms a “reasonable and conservative” one that waits to invest in TSLA shares until the early November third quarter earnings call. In my world, a reasonable and conservative strategy would be to run for the hills or short the stock (as I am doing). A “more aggressive and risky strategy” (compared to skydiving or bungee jumping) would be “to buy shares before that third quarter report and call on the bet that the Model 3 production update will be taken positively.”

To continue reading: Tesla Shareholders: Are You Drunk On Elon Musk’s Kool-Aid?

America’s Obesity Epidemic Reaches Record High, New Report Says, by Felix Gussone

Americans are getting fatter and fatter. From Felix Gussone at NBC News via theburningplatform.com:

America’s obesity crisis appears more unstoppable than ever.

A troubling new report released Friday by the Centers for Disease Control and Prevention shows that almost 40 percent of American adults and nearly 20 percent of adolescents are obese — the highest rates ever recorded for the U.S.

“It’s difficult to be optimistic at this point,” said Dr. Frank Hu, chair of the Department of Nutrition at the Harvard School of Public Health. “The trend of obesity has been steadily increasing in both children and adults despite many public health efforts to improve nutrition and physical activity.”

Nearly 40 percent of American adults are obese, new CDC report says
The continued weight increase in the youngest Americans is especially worrisome for long-term health. One in five adolescents, ages 12–19; one in five kids, ages 6–11, and and one in ten preschoolers, ages 2–5 are considered obese, not just overweight.

Obesity is medically defined as having a body-mass index of more than 30. The findings on obese kids in the U.S. comes on top of this week’s World Health Organization report that childhood obesity is soaring around the world, increasing more than tenfold over the past four decades.

Overweight and obese children have a higher risk to stay obese and childhood obesity is linked to a higher chance of early death in adulthood.

Overall, 70.7 percent of Americans are either overweight or obese, meaning that an unhealthy weight has become the norm, with normal weight Americans — a BMI of less than 25 — now in the minority.

What the CDC report doesn’t reveal is why the obesity crisis continues to worsen. A recent study by epidemiologists at Georgia Southern University discovered that fewer Americans, particularly women, are trying to lose weight. Public health experts say that an unhealthy diet and the lack of exercise are still the two biggest culprits.

“There’s still a huge amount of cheap, accessible, highly processed food available everywhere almost anytime,” says Hu. “And despite people doing more recreational activity these days, the overall activity level, household activity and occupational activity has decreased in recent years.”

To continue reading: America’s Obesity Epidemic Reaches Record High

Where’s Ralph? by Eric Peters

Both the automotive press and the general press have been slow to point out electric vehicles many flaws. From Eric Peters at theburningplatform.com:

Ralph Nader made his name “exposing” the design defects (as he styled them) of the Chevy Corvair.

Leaving aside the fact that what he styled a “defect” was really more a difference – the Corvair was rear-engined and nose-light and so handled differently than the overwhelmingly front-engined and ass-light American cars that drivers of the time were used to, especially when tire pressure recommendations were not adhered to – the relevant thing is that he was cheered – deified – for “exposing” a supposed problem with the car.

Ditto all the other “consumer advocates” who followed in his slimy wake.

Well, where are they now – and why are they all silent?

About electric cars, that is.

 Somehow – for some reason – EVs have earned an exemption from the ordinary rules. Almost no car journalist ever writes or talks about their design differences. Much less their very significant defects.

Doesn’t the “public” – Nader, et al’s fetish object – have a right to know?

Apparently not.

Instead, a concerted campaign to fluff up the supposed virtues of the electric car – among them that they are  – allegedly – “zero” emissions (they’re actually not, it’s just that their emissions are emitted elsewhere).

Meanwhile, the EV’s numerous design deficits (if not defects) are simply not mentioned.

Examples?

One often reads that electric cars cost less to maintain than cars with gas or diesel engines because you’ll never have to change oil and filters or belts or coolant or replace a water pump or hoses. All perfectly true.

But why no mention of the electric car’s battery pack?

Eventually – just like the battery in your laptop and every other battery ever made – it will be less able to accept and store a charge. The cycle of discharge and recharge depletes a battery over time.

To continue reading: Where’s Ralph?

“Worse Than Big Tobacco”: How Big Pharma Fuels the Opioid Epidemic, by Lynn Parramore

Opioids are a beautiful business…for the pharmaceutical companies. Many are protected by a patent monopoly, and like cigarettes and alcohol, the customers often get addicted. From Lynn Parramore at ineteconomics.com:

Once again, an out-of-control industry is threatening public health on a mammoth scale

Over a 40-year career, Philadelphia attorney Daniel Berger has obtained millions in settlements for investors and consumers hurt by a rogues’ gallery of corporate wrongdoers, from Exxon to R.J. Reynolds Tobacco. But when it comes to what America’s prescription drug makers have done to drive one of the ghastliest addiction crises in the country’s history, he confesses amazement.

“I used to think that there was nothing more reprehensible than what the tobacco industry did in suppressing what it knew about the adverse effects of an addictive and dangerous product,” says Berger. “But I was wrong. The drug makers are worse than Big Tobacco.”

The U.S. prescription drug industry has opened a new frontier in public havoc, manipulating markets and deceptively marketing opioid drugs that are known to addict and even kill. It’s a national emergency that claims 90 lives per day. Berger lays much of the blame at the feet of companies that have played every dirty trick imaginable to convince doctors to overprescribe medication that can transform fresh-faced teens and mild-mannered adults into zombified junkies.

So how have they gotten away with it?

A Market for Lies

The prescription drug industry is a strange beast, born of perverse thinking about markets and economics, explains Berger. In a normal market, you shop around to find the best price and quality on something you want or need—a toaster, a new car. Businesses then compete to supply what you’re looking for. You’ve got choices: If the price is too high, you refuse to buy, or you wait until the market offers something better. It’s the supposed beauty of supply and demand.

To continue reading: “Worse Than Big Tobacco”: How Big Pharma Fuels the Opioid Epidemic

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