If
you thought the pace of the head-spinning political events of the last two
months couldn’t get any faster, think again.
One of the most critical decisions of President-Elect Trump’s reign will
soon be decided. The final verdict will
have a direct impact on the direction of stocks, gold, and the economy in the
months to come.
The
decision in question is the Congressional challenge being made against the
Affordable Care Act (ACA), also known as Obamacare. Specifically, the requirement that individual
Americans carry health insurance or else pay a stiff financial penalty is being
challenged. Earlier this week, Trump
directed the Republican-led Congress to begin efforts at repealing and
replacing the health care law “very quickly.”
The
mainstream news media is sparing no expense in its efforts at turning public
sentiment against a repeal of the healthcare law. CNBC reports that “the number of people who
owed Obamacare fines last year dropped by about 20 percent, while the number of
Americans who benefited from financial aid for Obamacare plans grew to more
than 5 million.” The latest data was
culled from 2015 tax returns to the Internal Revenue Service.
IRS
Commissioner John Koskinen said the number of people receiving Obamacare
subsidies was up from 3 million in 2014.
For that year, customers got more than $10 billion in tax credits, with
an average subsidy of $3,430 annually, according to the IRS. Obamacare subsidies are available to wage earners
with low and moderate incomes. People
who earn less money get more in assistance than higher earners.
Koskinen
wrote that about 6.5 million taxpayers last tax season reported owing a total
of $3 billion in such tax penalties for failing to have coverage in 2015. In contrast, about 8 million people owed an
Obamacare fine for lack of coverage in 2014.
Fines related to lack of coverage in 2014 totaled $1.6 billion.
CNBC
reported that some 12.7 million people claimed one or more exemptions from the
ACA-coverage mandate when they filed their taxes last year. “The exemptions are wide ranging and can
include having very low income, being incarcerated or having a close family
member die recently,” according to CNBC.
While
pro-Obamacare media outlets such as CNBC are touting this news as confirmation
that the ACA is “working,” the gorilla in the room is conveniently
ignored. The reason for the decline in
Obamacare fines last year is that millions of Americans experienced a
significant drop in income, which ironically is a direct result of the economic
damage inflicted on businesses by the financial strictures of the ACA.
CNBC
also reported that the Republican-led Congress last week began taking steps
toward repealing key parts of the ACA, which include the funding of premium
subsidies and the individual mandate.
For the middle class’s economic sake, let’s hope the effort is
successful.
You
may be asking what all of this has to do with the price of gold or the stock
market. The answer is “everything!” Repealing the individual mandate would serve
as a huge catalyst for the U.S. economy and financial market. It would lift a grievous burden from the
shoulders of working-class Americans and would serve as a stimulus to consumer
spending. Economics 101 establishes that
when wage earners are allowed to keep more of their income, they’re less likely
to think twice about spending and investing it.
One
of the big reasons for the Nowhere-ville sideways trend in stock prices in the
last couple of years is because people have been forced to think twice before
spending or allocating money into investments due to the constraints of the
ACA. Pollsters have consistently
underestimated the number of healthy individuals who choose not to carry
expensive health insurance because they don’t consumer healthcare
services. Now those healthy individuals
are being punished for their lifestyle choices by being forced to pay upwards
of $1,000 per year in the Obamacare tax simply because they choose not to be
insured. This is an assault on personal
liberty and common sense, and it has created a massive obstacle to full
economic recovery.
What
can investors expect if the Obamacare tax penalty is soon repealed? First, there will be an immediate uptick in
consumer spending and overall economic activity. Americans are always looking for an excuse to
spend, and if they’re provided with what amounts to a massive tax cut they’ll
express their relief by purchasing the items on their wish list that they’ve
held off on buying due to personal budget constraints. Businesses, moreover, will begin to pick up
the pace of hiring since the healthcare mandate is no longer acting to suppress
business investment spending.
A
repeal of the ACA’s individual mandate would also revive the fortunes of
publicly traded companies which serve the middle class. Many of these companies’ stocks are
components in our Middle Class Index (below).
The Index has been languishing for the last two years, but I’d venture
that an upside breakout from the lateral trading range would shortly follow an
Obamacare repeal.
As
for gold, a repeal of the individual mandate would also likely have
far-reaching consequences. Gold’s
fortunes would be helped, ironically, by success in getting the Obamacare tax
removed. While gold is primarily a
safe-haven asset which feeds off investors’ concerns about the economic and
political outlook, gold’s moves over the last two years have been closely
correlated to the direction of the Middle Class Index. As the fortunes of companies which serve
middle class consumers have risen, so has gold’s price. Conversely, last year’s major peak and
subsequent decline in the Index has coincided with the July 2016 peak in the
gold price and corresponding mini-collapse.
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