MORNING BID – I was dreaming when I wrote this…

Aug 25, 2014 14:37 UTC

The move by Roche to buy biotech company Intermune for $8.3 billion at a 38 percent premium isn’t going to make Janet Yellen happy, given her thoughts on the valuation of certain biotechnology and Internet retailing names. Still, with the Fed chair on board for low rates for some time given the slack situation in the labor market that the Fedsters keep talking about (basically, the unemployment rate, like the old grey mare, ain’t what she used to be), the long march to 2,000 on the S&P looks like it’s probably going to be over before long (it’s been done on an intraday basis, and now we’re just waiting on a close above that level), representing a tripling in that average in a bit more than five years and raising again all those questions about whether this all makes sense and if anyone cares anyway.

On the first point, well, nobody knows anything – earnings were generally strong in this most recent quarter, particularly when one expands the universe to the Russell 1000, where Credit Suisse points out more companies that are beating analyst expectations are growing sales, a sign of improved demand.

About 70 percent of the Russell 2000 beat on earnings estimates (about 62-65 percent if you exclude the ones that only beat due to reducing share counts through buybacks), and of that group, 84 percent did so while growing sales, pointing at least to some hope on improved demand. But there’s always weakness out there somewhere, and it appears to be among the true small-caps – the Russell 2000, which has been trailing the S&P and yet still looks overvalued based on a number of measures and has been seeing more negative revisions even as the stocks struggle.

The weakness in those names, along with some lackluster stock performance out of consumer discretionary stocks, explains in part why hedge funds are once again struggling, up less than 1 percent for the year compared with about an 8 percent gain in the S&P 500 for the year (after 2013’s ridiculous rise, of course, when hedge funds wouldn’t have been expected to keep up in the first place).

Still, it’s been a rough outcome this time this year – heavy overconcentration in a lot of the social media names early in the year dampened performance when those stocks went belly-up, and after that heavy exposure to discretionary shares did them in, so just kind of an uphill battle ever since – which actually suggests the desire to catch up may result in more gains for the rest of the market throughout the rest of the year. To wit – Credit Suisse’s most recent data shows health care becoming a net overweight position among hedge funds, with long exposure increasing in the last few months.

Trends with benefits

Feb 11, 2014 22:57 UTC

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Yesterday, the Obama administration announced it would delay a part of the Affordable Care Act’s employer mandate, giving companies with more than 50 employees at least another year, and as much as two years, to make sure they cover all of their employees. At a press conference today, reporters asked the President whether the delays mean that the administration “is in part trying to push Americans toward the individual health insurance market and decouple insurance from employment”.

The President denied the allegation. Sarah Kliff writes that “this delay will likely amount to a relatively small, if non-existent, change”.

Ezra Klein and Josh Barro argue that workers are too reliant on their employers for healthcare. “Employers became the main vehicles for insurance not because anyone thought it was a good idea, but because the tax code made it a bargain”, writes Klein. Employers only began offering healthcare benefits to workers during WWII when wage controls didn’t allow them to offer higher salaries. The only thing that has perpetuated the system up to now is fear of change, he says.

The Congressional Budget Office projects that the ACA, through its individual exchanges, will have some effect on the relationship between employment and healthcare. The law won’t kill jobs; rather, it will allow people just working for the benefits to reduce their hours or quit outright. Read their FAQ here. “All of a sudden, employment isn’t such a key ticket to accessing affordable health insurance”, writes Sarah Kliff.

AOL is an example of a company that would likely benefit from insurance-employment decoupling, Ezra Klein writes. CEO Tim Armstrong said last week that the company had chosen to change its 401(k) matching program because healthcare costs had skyrocketed last year due to 1) Obamacare, and 2) two “distressed babies” that had resulted in million-dollar pregnancies. Like many large companies, AOL self-insures, which means its risk pool is much smaller than, say, Medicare, with 49 million beneficiaries. It may also have reinsurance. Armstrong’s comments were not well-chosen, but Klein says AOL’s problems are real, and Obamacare may actually save the company in the long term:

An irony of Armstrong’s predicament is that Obamacare, which he partly blames for his company’s increased costs, might be its salvation. Starting in 2017, states can choose to let large employers enter state health-care exchanges. That means companies would be able to add their employees to a much larger risk pool  — in some cases, millions strong.

And that’s good for everyone. — Shane Ferro

On to today’s links:

Barclays: soon with 8% fewer workers; 13% more banker comp – DealBook

Decline and fall
The power of algorithms? Upworthy traffic is down 46% in two months – BI

Fractal inequality: the 0.1% are leaving the 1% behind – Annie Lowrey

Inequality and indignity – Paul Krugman

“The best way to shorten unemployment is to make job-seeking less emotionally painful” – Megan McArdle

iTunes would be ranked as number 130 in the Fortune 500 if it were a standalone company – Horace Dediu

Primary Sources
Janet Yellen’s full prepared remarks for her Congressional testimony today – Federal Reserve
Felix cuts through the Fed-speak and annotates Yellen’s remarks – Rap Genius

It’s Academic
Planet Money podcast better at teaching students macro than “boring lectures” – SSRN
Study: “Citigroup was not only TBTF but also too large and too complex to manage or regulate effectively” – SSRN

Financial Arcana
Loan rates tied to CDS spreads – Deus Ex Macchiato

“Klout, the online popularity contest startup” is being acquired – Recode

Please Update Your Records
Women denied mortgage because her credit report listed her as deceased – WSJ

“Like walking onto a trading floor where a pack of goons were desperately displaying the contents of their wallets and/or underwear” – Choire Sicha

Gawker’s new recruiting program – Nick Denton

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Affordable Care Ack

Oct 31, 2013 22:22 UTC

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The rollout of has been a disaster. But what about the rest of the implementation of the Affordable Care Act? There are a couple of sticking points, many of them related to the way in which the individual insurance market has been overhauled.

Sarah Kliff writes that as a result of the new requirements mandated by the ACA, employers have raised premiums slightly (by less than 3%), and about 2 million people — mostly on the individual market — will lose their plan and will have to shop for new coverage. (President Obama is getting widely criticized for saying this wouldn’t happen).

The plans that those 2 million were under don’t meet the requirements of the ACA — some plans do things like exclude those with pre-existing conditions or have annual or lifetime treatment cost ceilings. Brookings fellow Henry Aaron says this is a good thing over the long term: “Obamacare is removing insurance products from the market that are bad for your health”.

Those that must switch plans are a very small portion of the population, about 3%. Ryan Lizza interviewed Jonathan Gruber, the economist and architect of both the Mitt Romney Massachusetts plan and the Affordable Care Act, who laid out the scope of the issue:

Ninety-seven per cent of Americans are either left alone or are clear winners, while three per cent are arguably losers. “We have to as a society be able to accept that,” [Gruber] said. “Don’t get me wrong, that’s a shame, but no law in the history of America makes everyone better off.”

However, Josh Barro calls Gruber’s estimates “garbage”. He says that Gruber estimates 14% of the population, which is currently uninsured, will be able gain access to affordable coverage. But Barro notes the CBO estimates only 8% of the population will gain access to coverage they didn’t have before. Additionally, Barro says that for those in the individual market, “their plan premiums may change greatly — in either direction”. – Shane Ferro

On to today’s links:

Billionaire Whimsy
“Having gotten rich at the expense of labor, the guilt sets in” - Bill Gross

“You can create all the derivatives you want, but total risk never goes away” - Aleph Blog

EU Mess
Italy has lost nearly a decade’s worth of jobs - Matt Phillips

Keep the economists off the trading desks - Josh Brown
Harvard’s endowment has lousy returns, and it’s way worse than Yale’s - Bloomberg

Meet the unassuming Los Angeles lawyer who’s the new scourge of Wall Street - DealBook

Primary Sources
The full 77-page Morgan Stanley report on the coming global wine shortage - Counterparties
Wine shortage OMG!? Maybe not: “Morgan Stanley’s report is just wrong” - SF Chronicle

New Normal
Why historically high profit margins aren’t going away - Gavyn Davies
“The true story behind net margins has been lower effective tax rates and interest expense” - Sam Ro

Stop it with the economic forecasting - Chris Dillow

Planes, Trains, and Automobiles
GM has realized that it should make cars that people want to buy - Matt Phillips

WTF is a “Senior Democratic committee aide”? A guide to DC’s anonymous sources - Ryan Grim and Jason Linkins

Primary Sources
Euro area inflation: really low - Eurostat

“Has someone died in your house? Enter your address. The click Search” -

“The ‘most extreme excess’ in global liquidity, LIKE, ever” - Ambrose Evans-Pritchard

Possibly Useless Information
What do you call the night before Halloween? - M.G. Siegler

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