SUPREME LETDOWN

Let me begin by saying that I’m not a lawyer and I have a plaque on my desk to prove it. But I can read, and have an independent mind. My goal in this blog area, as always, is to provide you – the independent investor – with all the tools and analysis required to invest successfully on your own. That is part of my chapter 8 guarantee.

For those of you who do not yet know, LOSE YOUR BROKER NOT YOUR MONEY won the 2012 International Book Awards for Investing. It did so for a reason. In the book I demonstrate how to identify changes in Market condition long before stock markets react to them. This allows you to stay way ahead of the trading curve. (It makes making money so much easier.)

As we know, governments control Markets. The American system of government has three branches: Executive, Legislative, and Judiciary – governors, regulators, and judges. Policy and legislative changes from any branch of government are major Market indications. Supreme Court decisions, while not permanent, are very close to it.

Red alert!

Recent Supreme Court decisions are poised to dramatically affect the American Market and stock market valuations going forward.Independent investors must take note: These rulings signify major changes in Market condition and direction.

In two incredibly important issues facing the U.S. economy (immigration and healthcare), the Supreme Court dealt the American cause a severe blow in two specific cases:

• Arizona v. the United States (a.k.a. ARIZONA), and 

• National Federation of Independent Business v. Sebelius, Secretary of Health and Human Services (re: Affordable Care Act, ACA). 

After reading the Opinions in their entirety, I am left with two profound questions:

1. At what point in American history did individual States cede their right to protect and defend their citizens as defined by federal statute – should the Federal Government choose not to enforce their own laws?  

2. Exactly what clause in the U.S. Constitution gives the Supreme Court the power and authority to impose a tax on the American People against the clear intent of Congress and popular sentiment?  

In a nutshell, States and People lost big-time with these two Supreme Court miscues.  And that’s not good for Markets, People, and Stocks. Here’s how I see it.

# # #

What happened in ARIZONA?

Arizona citizens, under a duly authorized elected government, enacted three laws that identically mimic Federal Statutes. They did so to enforce laws that the Federal government was not was enforcing in the same manner as in neighboring states, California, New Mexico, and Texas. Arizona claims that such a policy makes their state a “gateway” for illegal immigration – a real problem in the State, as the data proves.

The Fed cited “limited resources” for not enforcing border controls in Arizona but asserted that the Arizona laws were unconstitutional because border issues were restricted for Federal enforcement only. States had to stand down regardless of federal policy.

And the Court agreed.

# End of Summary #

ARIZONA highlights the burden of failed immigration policy. Crime is up, jailhouses are full, and Arizona’s education and healthcare systems are greatly strained. The Arizona government contends that the fiscal cost of an open border is vastly greater than responsible border enforcement. The data overwhelming corroborates their position. Illegal entrants have imposed a severe cost to their State and they wanted to employ their resources to stop the incursion.

But the Court ruled against them, and as such, provided all future presidents with the ability to use immigration policy – and border security – to sway elections and coerce States into following their national and political agendas.

How could any right-minded American believe that the Colonies gave sole control over their security to one man named, President? Something seems truly un-American about this type of individual federal power.

All fifty states lost in ARIZONA. Today all States are less free, less stable, less profitable, and more vulnerable. And since States are just Markets, it’s safe to say that all Markets also lost with this decision. Remember, dollars spent on the costs associated to illegal immigration come at the expense of free market activity, and are thus bad for investments, markets, and taxpayers (a.k.a. Consumers.)

Not good.

# # #

What is the issue with the AFFORDABLE CARE ACT (ACA)?

Two central themes of the Act were contested: the Individual Mandate and the Expansion of the Medicaid program. In the ACA, all able persons are required to purchase “minimum essential” healthcare insurance.  It’s commonly known as the Individual Mandate. It assesses penalties to certain people for non-compliance of the Mandate.

The ACA also requires all States to participate in the program. Congress achieves this by stripping a State from all of its Medicaid funding should it not participate in the ACA.

In a nutshell, Congress makes it quite clear that the only way the ACA program could work was if all the People in all the States participated.

The questions before the Court are simply these:

1. Can Congress compel people to purchase a product against their free-will?

2. Can Government force all States to comply with the ACA by withholding all Medicaid funding – Or is this extortion? 

In the end, the Court found the Individual Mandate constitutional under Congress’s taxing authority and struck down the Congressional effort to withhold all Medicaid funding for non-participating States. The Court held that States foregoing ACA participation can only lose new Medicaid funding under the expansion plan.

# End of Summary #

Somewhere along the line the Supreme Court lost its way – they, too, serve the cause to support liberty and protect the rights of the American People (a.k.a. Consumers) under our founding principles. The Affordable Care Act (ACA) was rammed through Congress against popular demand, with many polls showing more than 60% of Americans against the bill at the time of passage – a sentiment that still rings true today.

Most of the Justices forgot that the Individual Mandate was sold to the American public specifically as a “penalty” and definitely “not a tax.” While admittedly, the ACA is laden with taxes and duties, the Individual Mandate was specifically labeled a penalty numerous times in the areas defining it. The Supreme Court, against the Chief Justice’s pledge in his confirmation hearings, legislated from the bench, re-wrote the law and made liars out of Congress – and by so doing, levied a huge tax on the American People.

That’s not the way our system was intended to work.

And because the intent of the law was changed from a penalty to a tax, the Court in effect changed the character of the government’s role in the healthcare market from penalizer to insurer.—And that’s where the big problem is.

In the ACA, government looked to penalize certain groups of people, i.e. those who do not buy medial insurance. Ok, fair enough. The only way Congress could “finance” the ACA was if every able person purchased health insurance. It’s a Mandate, punishable by a monetary penalty for non-compliance.

To be clear: a penalty is a punishment for breaking a rule. A tax, on the other hand, is something entirely different. A tax is a required contribution to the government levied on income, profit, or certain goods and services.  In other words, all active People pay taxes; while only Violators pay penalties.

By transforming the penalty into a tax, the Supreme Court’s decision creates more confusion – What will this new tax be called, and how will Congress impose it? 

While these are legal barriers that a sly Legislature will surely overcome, I can see an easy Congressional remedy on the immediate horizon: They will raise the Medicare tax to pay for the Medicaid Expansion under the ACA, because under its definition, all Violators already pay taxes. This incubates a single payer system.

And just like with Medicare the government will end up calling all the healthcare shots – who gets what care, when, what it will cost the patient, and what the provider will get paid for it. After all, they will be the single largest payer of it all. This makes government the primary insurer and ultimate price fixer in national healthcare – a power born by Congress’s taxing authority, so this High Court says.

Unlike the Court, elected officials are driven by political motivations and spend money for reasons other than return on investment. It’s strictly political. That’s why they waste so much money – and why the American system was founded on three separate and equal branches of government. Our Framers knew all too well the natural tendency of government to expand power in order to gain domineering control. The Supreme Court, by design, is supposed to be liberty’s last defense against overzealous Executives and Legislatures. On that front, We the People have lost big with these two Court opinions.

And that’s not good for consumers.

When governments become too intrusive in markets corruption is not far behind and calamity is right around the corner. Recall the subprime mortgage debacle as explained in my book. What started in the 1990’s fell into ruin in the fall of 2008.  It was too easy – and money was too cheap for far too long.  Sound familiar?

The Affordable Care Act (ACA) is positioned to do the same thing to the healthcare market that the Community Reinvestment Act (CRA) did to the financial markets – it caused calamity. Not overnight, for sure. But in due course.

And for those of you who think this Supreme Court ruling is a great sign to a great new American Way – think again.  Medicare is government run healthcare – and it’s broke. Medicaid – a State and Federal joint program – is collectively broke. Social Security, a nationalized retirement program, is bankrupt by any reasonable account – regardless of the amount of taxes levied over its many decades of existence.

Do you see a pattern here?—If not, look to Greece and Spain for the end game (who, by the way, are drastically cutting education and healthcare programs at the present time.)

If you are middle-aged and are investing for retirement you must put your portfolio into high gear! Expect the cost of living to rise dramatically. No longer can you afford the establishment’s offerings (mutual funds and Social Security) to finance for your retirement well being. They will fall way short.

The “healthcare boom” begins today – and that includes price inflation – and will continue until another major fiscal crisis erupts. Sorry to say.

Prepare your portfolio now.

And let me if you need help.