Thursday, March 23

Today the house of representatives votes on the new administration’s healthcare bill – the “American Health Care Act”. If you use market movement as an indicator of consensus things are not looking good for the future of this bill. If it fails to pass (which it probably will) all healthcare and most financial institutions are going to take some kind of a blow.

If it does happen to pass, we’ll see an immediate and probably somewhat dramatic rise in price for most insurers. However, if it doesn’t things are going to start to look very bad for several industries. US financial companies have seen substantial gains this year as investors began to price in the new administration’s proposals. Various tax cuts and regulation easements would provide real growth to these industries. If this bill fails to pass many analysts believe that confidence in the administration’s ability to affect any of their proposed changes will fall. This psychological fallout will have a negative affect on US markets until we see some sign of effective policy change.

This means that we can have one of a few theses regarding this bill, and to a lesser degree the next four years. If you think the bill will pass, now (right now) is a really good time to acquire US health insurers and healthcare providers as they are currently falling. If you don’t believe it will pass (and you’re right) watch the financial sector closely – in the next few weeks we will probably see a decline as the confidence in the new administration is somewhat moderated.

If that happens, we are presented with another pair of possible outcomes. Either this administration fails to accomplish any of their campaign promises and no change in regulation occurs (sending the financial sector back down) or the administration manages to pass regulation reform (definitely possible with a conservative congress). In this second scenario losses over the next few weeks will be rapidly reversed and we’ll see a second rise in US financial services.

The short story is this: if you think the bill will pass, buy healthcare (but don’t because you’e wrong) otherwise wait until tomorrow or next week and buy the drop in financials (assuming you have confidence in the ability of this administration to deliver any of the changes they have promised).

 

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