David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).
December 21, 2009
A quick market comment will follow this personal polemic on the abominable behavior we have witnessed this weekend in the United States Senate. Political bribery has sunk to a new low.
Senator Nelson of Nebraska sold his vote in return for special treatment for the Mutual of Omaha insurance company and for perpetual Medicaid funding for his state. He has just set a record for pork. I have not seen the present discounted value of an open-ended perpetual funding for Medicaid for all Nebraskans. Believe me, the other 49 states would like to have it. And if you are a taxpayer in the other 49 states you are going to pay for it.
Now if the good Senator had bargained the abortion issue out of his pure conviction, I would not have agreed with him but I would have respected him for having the courage and honesty to practice politics because of policy. He argued he was maintaining his position out of conviction for an ideal and a belief. But the reality is, he sold his 60th vote for money. He practiced political prostitution.
In my view and in the vernacular of the current generation: that just plain sucks. Accordingly, so does Senator Nelson. And we would add the same characterization to Senator Harry Reid and Senator Christopher Dodd and the others who voted with their feet to say that they would do anything to get to 60 votes.
Did all the Senators know about this Medicaid provision? I suspect not, but they do now. Did the House leadership? I suspect not, but they do now. Did President Obama? Maybe not, but he does now.
Ok, is this the “change” we were promised last year? Is this how we want the policy of the United States to be made by our Congress? The phone numbers for your Congressman and Senator are public information. Mine has already told me he will vote against this.
Now quickly to markets which are headed higher. Stock prices are responding to ongoing large central bank-induced liquidity and to the prospects that the recovery will feature high productivity, and low labor-cost pressure. Thus profit margins will be wide and earnings will reflect it. Cumberland accounts remain fully invested.
Back to Senator Nelson and the new level of political bribery. I worry for my children and for my granddaughter, who is three and a half and will inherit this mess. My friend and fellow grandfather Vince Farrell shares this worry. I will close with an excerpt from the morning missive he writes for Soleil Securities Corporation.
“Beat the Clock was a 1950s game show where couples tried to complete stunts within a certain time limit for prizes. It stayed on TV in one form or another until 1980 or so. It was a simple game and a classic of early American TV. I remember the host was Bud Collyer. But wait – it has not gone away. It only moved over to the US Senate where, if you know how, you can compete for far grander prizes than TV ever offered.
“Senator Ben Nelson of Nebraska has true conviction regarding his abortion views and was troubled by the language in the bill the Senate looked set to pass reforming health care in America. He was holding out. The bill would extend health benefits by, says the New York Times, ‘…expanding Medicaid and providing subsidies to help moderate income people buy private insurance. It would require nearly all Americans to obtain insurance or pay financial penalties for failing to do so.’ In place of the fiercely debated ‘public option’ the Senate bill would create at least two national insurance plans modeled after those offered federal workers (Senators included.) There is a long-term-care insurance program. It also bars insurance companies from denying coverage for pre-existing conditions and limits how much extra a company can charge due to age (I think I like that one.)
“All this will cost, says the nonpartisan Congressional Budget office, $871 billion over ten years. I love the exactitude of $871 billion. Not $870, or ‘about $900,’, but no, it’s $871 to the million. This will be paid for by new taxes and fees and reductions in government spending, especially Medicare. I heard on a Sunday talk show that the Medicare savings will be over $400 billion. (Why don’t I believe that will ever happen?) Senator Nelson got the language regarding abortion restrictions, but he also got an increase in federal grants to cover a Medicaid expansion in his state of Nebraska. Only Nebraska got this special extension. He also won an exemption from an insurance tax for Mutual of Omaha. He was not the only one, though. Senator Mary Landrieu of Louisiana obtained an extra $300 million in Medicaid funds for her state, for being open-minded enough to be convinced of the bill’s merits. Waiting to the 12th hour when the administration has its mind set on getting a bill passed this year is a good time to play Beat the Clock. I thought this was the ‘greatest deliberative body in history.’ Maybe it is. Politics is the art of the possible, but it does feel a bit disappointing to read the fine print.”