While the president didn’t include the public option in his proposal for a final health insurance reform bill, the campaign to add it on through reconciliation with an amendment requiring 50 votes is still alive. The real question is, how possible is it that the public option is added, and how the process, not the option itself will impact health insurance companies.

The first thing we must look into is whether or not the democrats actually have the political will to try to pass a public option with 50 votes. While Reid has signaled support for pushing the public option through, the letter to him has began losing steam and the rate at which it has been garnering signatures has slowed. Nevertheless, both Chuck Schumer and Bob Menendez, 2 of the other 3 people in the Senate Democratic leadership have signed the letter urging a renewed push for the public option. All the same, finding 50 democrats for the public option in a reconciliation process will be hard and there seem to be only about 52-53 “gettable” votes. Ultimately, what you believe will happen with the public option proposal will be what directly impacts your view on how health insurance companies will be impacted. I personally tend to be slightly pessimistic about the plan’s chances, and believe the buzz will die after the health care summit, in which Obama will not give the public option the wholehearted endorsement it needs. The interesting thing about this, is how it will impact health insurance stocks.

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It seems as if the Obama administration may finally have gotten the hang of the recession.  The decision to consider using TARP funds for job growth is a great proposal that truly handles the two underlying problems of our recession.  It is thus that Fiscal Frenzy strongly supports such a decision, were it to be finalized.  Bank of America just recently announced that it was going to pay back all its remaining debt to the US government from the TARP funds.  Citigroup will soon do the same as will many other large banks.  The fact of the matter is that the banking industry has begun to recover significantly, and will likely see some of the biggest gains of any sector in the coming fiscal year of 2010.  The picture is significantly different when it comes to jobs and the deficit.  

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With all the hype about tax breaks for the middle class and tax increases on high income families in order to fix our deficit and benefit our economy we decided to take an indepth look at the distinct correlation between different incomes’ taxes and our economic prospects in general.  Using information from the Congressional Budget Office and the Tax Foundation we were able to compile the federal tax rates for all five income quintiles as well as the top one percent of families in particular from 1979 to 2008.  At the same time, we looked at the nation’s real GDP growth since 1979 and came up with some striking similarities and differences.  First lets look at the chart of how the federal tax rate has changed since 1979:

The most evident trendlines are the ones depicted above as well as something of an inverse with the very lowest quintile in which the tax rates increased first then have decreased since the mid 80’s.  The greatest increases for the highest income quintile and the top 1% occured in the 90’s during the Clinton Era.  Now lets examine the graph of real GDP growth in the same time period.  While there is clearly much more volatility and random noise, there is once again a distinguishing trendline.  Graph Follows after the Break:

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GDP results for second quarter 2009 are coming out tomorrow and as we indicated in our recent post, they will either lend credence to the recent market rally or undermine it significantly with a blow to Wall Street.  Bloomberg’s consensus estimate is a GDP change of -1.5 percent.  Back when we predicted 2009 GDP changes, we estimated an average contraction of 1.8 percent for second quarter.  The point is, recovery from first quarter is obvious, but the question is how close are we to no contraction.  President Obama indicated that there will be a contraction in 2nd Quarter GDP results today, but in terms of how much contraction, he could not (or maybe would not) say.  We believe that if the amount of contraction is anything less than 1.2 percent, that is great news for the Street and tomorrow, the indexes will react very positively.  If the GDP contraction is between 1.5 and 1.2 percent, then expect the bulls to still take over and prevent the results from harming the recent rally.  Read the rest of this entry »