US Supreme Court Upholds Affordable Healthcare Act

The vote is out and it is 5-4 in favor of the constitutionality of the US Healthcare Reform Act.

Chief Justice Roberts provided the 'swing vote' in viewing the individual mandate as a 'tax' rather than accepting the Commerce Clause justification which Reich had thought would carry.  Justice Kennedy dissented, staying with the Republican appointees on the bench.  I am sure Antonin Scalia will provide an entertaining dissenting opinion.

The expansion of Medicaid was held to be unconstitutional 5-4, based on the argument that the government cannot withold funding for the entire program from states that do not comply with the expansion. In essense, the Medicaid expansion was fine, it was the penalty that was deemed to be an unconnected intrusion on the States since the Court saw the expansion as 'separate' and not part of the original program.

I remind the reader that 'Obamacare' with its private sector 'mandate' is in reality a long-standing Republican proposal, originally conceived in the conservative Heritage Foundation think tank, to use the private sector to try to manage healthcare costs, rather than the 'single payer' option.  Prior to Obama the largest implmentation of this approach was achieved and lauded in Massachusetts by guess who.



As it evolved the law was considered a betrayal of Obama's base by the progressive voters who strongly favored the expansion of single payer.  This inhibits its acceptance by a broad swath of the public as it is a sort of awkward compromise, still containing some rather popular facets such as inclusion of older children, the striking down of predatory pricing, and the refunding for excess profits. In essence, the law seeks to turn the health care monopolies into managed utilities.

Robert Reich was very close in his prediction yesterday of how this would come out.  Roberts was concerned that another blatantly political ruling would undermine the credibility of his court and his legacy.

I should remind the read that this interaction between the Administration and a conservative Supreme Court is a remarkable replay of the 1930's, in which the Court, packed with the legacy of prior Republican administrations, repeatedly struck down elements of the New Deal.

I think the most reliable forecast is that rational discussion will continue to decrease, while polarized hysteria will dominate much of the commentary and most of the conversation.

All this is of most interest to us because of its significance on the inability to generate economic recovery. 

And in the short term it did not support the two day stocks rally and caused those gains to be sold off.  Since I agreed with Reich I had put on a big short hedge, and it has worked.  

This will passd quickly and Europe and the domestic economy will become the driving forces.  This being an election year most of the activity in the Congress for the rest of the year will be theater.

Why the Supreme Court Will Uphold the Constitutionality of Obamacare
By Robert Reich
Wednesday, June 27, 2012

Predictions are always hazardous when it comes to the economy, the weather, and the Supreme Court. I won’t get near the first two right now, but I’ll hazard a guess on what the Court is likely to decide tomorrow: It will uphold the constitutionality of the Affordable Care Act (Obamacare) by a vote of 6 to 3.

Three reasons for my confidence:

First, Chief Justice John Roberts is — or should be — concerned about the steadily-declining standing of the Court in the public’s mind, along with the growing perception that the justices decide according to partisan politics rather than according to legal principle. The 5-4 decision in Citizen’s United, for example, looked to all the world like a political rather than a legal outcome, with all five Republican appointees finding that restrictions on independent corporate expenditures violate the First Amendment, and all four Democratic appointees finding that such restrictions are reasonably necessary to avoid corruption or the appearance of corruption. Or consider the Court’s notorious decision in Bush v. Gore.

The Supreme Court can’t afford to lose public trust. It has no ability to impose its will on the other two branches of government: As Alexander Hamilton once noted, the Court has neither the purse (it can’t threaten to withhold funding from the other branches) or the sword (it can’t threaten police or military action). It has only the public’s trust in the Court’s own integrity and the logic of its decisions — both of which the public is now doubting, according to polls. As Chief Justice, Roberts has a particular responsibility to regain the public’s trust. Another 5-4 decision overturning a piece of legislation as important as Obamacare would further erode that trust.

It doesn’t matter that a significant portion of the public may not like Obamacare. The issue here is the role and institutional integrity of the Supreme Court, not the popularity of a particular piece of legislation. Indeed, what better way to show the Court’s impartiality than to affirm the constitutionality of legislation that may be unpopular but is within the authority of the other two branches to enact?

Second, Roberts can draw on a decision by a Republican-appointed and highly-respected conservative jurist, Judge Laurence Silberman, who found Obamacare to be constitutional when the issue came to the U.S. Court of Appeals for the D.C. Circuit. The judge’s logic was lucid and impeccable — so much so that Roberts will try to lure Justice Anthony Kennedy with it, to join Roberts and the four liberal justices, so that rather than another 5-4 split (this time on the side of the Democrats), the vote will be 6 to 3.

Third and finally, Roberts (and Kennedy) can find adequate Supreme Court precedent for the view that the Commerce Clause of the Constitution gives Congress and the President the power to regulate health care — given that heath-care coverage (or lack of coverage) in one state so obviously affects other states; that the market for health insurance is already national in many respects; and that other national laws governing insurance (Social Security and Medicare, for example) require virtually everyone to pay (in these cases, through mandatory contributions to the Social Security and Medicare trust funds).

Okay, so I’ve stuck my neck out. We’ll find out tomorrow how far.

Gold Daily and Silver Weekly Charts - More Criminal Manipulation in the News

There were two new developments in the ever unfolding crime drama known as the Anglo-American financial system.

Peter Madoff, brother to infamous Bernie and long time 'chief compliance officer' for the Madoff fund, is pleading guilty to the charge of 'falsifying documents.' As you may recall Harry Markopolos had attempted to call the fraudulent nature of the Madoff investment model to the attention of the regulators for years and was ignored, ridiculed, and threatened.

The bigger news of the day was the settlement with Barclays in the absolutely egregious fraud of fixing the LIBOR market rate. The Bank will pay a $450 million fine and incur no criminal penalties or trading sanctions.    The American CEO Bob Diamond says he will forgo his personal bonus as well.

Other banks were involved, but Barclays has settled. Barclays Pays 450m to End LIBOR Prove

Bart Chilton of the CFTC was on the news claiming victory for the regulators.

A read of the some of the emails discovered in the case shows that the manipulation was almost as blatant and obvious as placing food orders at a takeaway restaurant.

Ah hey old boy, our positions are up against it, so would you be a good chap and knock 50 basis points off LIBOR for us tomorrow morning please.

Anything for your my good man. Consider it done.

The Bloomberg TV crowd had fun with this story about Barclay's, with Matt Miller chuckling that the fine is 'only six weeks profits' for the Bank, and the market obviously doesn't take it seriously because 'look at the stock price.'  Barclay's stock finished the day down 3 cents.

Manipulating LIBOR is a BIG deal, one of the worst and most pervasive frauds to actually come to light since the widespread fraud in the CDO market.

That the firm faces no criminal charges, will not be barred from any markets, and is taking what the financial commentators dare to taunt openly as a minor fine is a disgrace.

And those who say that the markets should be without regulatory oversight and set the key interest rates without outside interference are living a romantic or ideological fantasy.

Do governments manage rates? Of course they do. That is a role of the Fed. They do it for policy decisions, and spend some time announcing and discussing those actions.

But this is not the same thing as private firms manipulating rates secretly for their private profit at the sake of other's losses. People who say they are equivalent are serial self-deceivers, and probably blinded by ideology.

Have no illusions. The fix is in, and often, in these markets. Those who scoff at such assertions as 'conspiracies' might bear both Madoff and Barclays in mind, not to mention Enron.

There will be more revelations of criminal conspiracies to defraud the public and the markets in the coming months.  But LIBOR is very significant.  It is a market touchstone.  And it was foul for a long time. 

SP 500 and NDX Futures Daily Charts

There are at least three major cross currents here.

First of course is Europe and the EU summit meant to speak to their sovereign debt crisis. There is much talk that Merkel will veto any action on Italy, Greece and Spain on behalf of Germany. Today Bloomberg TV was making the case that the EU skip the countries altogether and give the money directly to the Banks, so none is wasted. Nice sentiment if one is of the porcine clan. Personally I would just nationalize the banks, and take it from there with a forced restructuring based on their insolvency, and deal with the countries next.

Second is the US Supreme Court decision on the Healthcare Reform Bill. The court is expected to overturn at least a portion of the act, which may have a short term positive effect on equities.

And Third is the end of quarter and the painting of the tape by the funds to make their results (and bonuses) look better.

A consideration is the Fourth of July holiday in the States next week.

Gold Daily And Silver Weekly Charts - The Money Matrix - Sic Transit Gloria Mundi

As a reminder, today was the silver option expiration on the Comex.

The EU Summit meeting is on Thursday and Friday of this week, 28-29 June.

Next Wednesday is the US 4th of July holiday.  I would expect many punters would like to be leaving early this week if they can.

This is also the last week of the second quarter.

The US Supreme Court is expected to rule on Obamacare on Thursday, overturning at least a portion of it. This may provide a sellable rally.

Quite often the markets search for some level, and then try and let the junior traders hold it in light volumes, unless something happens.

With algos running we sometimes get some interesting intraday action but little in the way of progress.

This is a week that also brings some important metals events.

June 26 Comex July silver options expiry
June 26 Comex July copper options expiry
June 26 Comex July silver futures last trading day
June 27 Comex June gold futures last trading day
June 27 Comex June copper futures last trading day
June 27 Comex July miNY silver futures last trading day
June 29 Comex July silver futures first notice day
June 29 Comex July copper futures first notice day

I made an effort to describe a relatively simple model of the US banking system briefly and in relatively common terms in an intraday commentary today. Back Again To Money: Money Creation and the Banking System - A Forecast of Sorts

It is a 'barebones' version of the domestic money model I keep in my head, to help incorporate new events and interpret them within some greater context. It really is not so hard to do, if you put a little effort into it. I think you might find it helps to understand some of the things that are happening today.

The international money system adds a significant layer of complexity, but one thing at a time. I plan to write something on that in the future.

Basically gold and to a somewhat lesser extent silver, are annoying rivals to fiat money. In times of distress they are a haven for individuals in protecting their wealth, and a threat to the status quo banking system because they are fundamentally difficult to manage and to control since they do not rely on a promise.

Bullion banks and trading desks, with the likely cooperation of the government and the banking system itself, have created a leveraged paper market that surrounds gold and silver bullion like a large, opaque cocoon, many times the size of what is apparently owned itself.

At some point that reality will be revealed, and all hell will break loose as various groups seek to grab bullion ownership as fast as they can. It will make what happened at MF Global look like recess on the schoolyard.

This in a nutshell is the premise that GATA has put forward for some time, and it makes sense based on everything that I have seen.

The world financial system has been slowly and surely changing since the 1990's. In keeping with that change, central banks have turned from net sellers to net buyers of gold, particularly in the faster developing economies, a fact that should not be ignored since it is very likely a sign of things to come.

The international sovereign and banking debt crisis is hardly resolved, and while it is interesting beyond the norm to someone like myself, it also carries a tinge of concern, fear if you like, with it, because the safekeeping of productive wealth is essential to modern life with its predominant division of labor and production.

So we all strive to understand what is happening, and look for the important events and sort them from the trivial, to formulate our own responses to change as best we can. And it is not an easy task because of the fog of confusion and misdirection that surrounds even such a novelty as a currency war.

I told my son the other day that in my experience managing the disposition of water and energy are the principal tasks in maintaining a home, in addition to normal wear and tear, particularly of the childhood variety. It's always something.

Similarly, the principal problem today in managing personal wealth, besides obtaining it in the first place, is identifying and managing risk and return. Thanks to the central banks, returns are hard to come by. So risk looms larger, and mispriced counterparty risk in particular, because it can come like a thief in the night.

"O quam cito transit gloria mundi."

"How quickly pass the glories of the world."

Thomas à Kempis

Gold held closely is, in the recent words of the regulators, a 'riskless asset.' I might add silver is as well, although to a slightly lesser extent.

Proposed Bank Regulation Would Drive Gold Prices Higher - WashingtonBlog

Draw your own conclusions from all that. Diversity of portfolio is an insurance against improbable events.