Comments of the Day
15 December 2020
Video commentary for December 14th 2020
A link to today’s video commentary is posted in the Subscriber’s Area.
Some of the topics discussed include: stocks pause following initial vaccinations, waiting on additional stimulus, bitcoin and high growth stocks rally, gold and gold shares pause, oil steady, Dollar steadies against Renminbi.
Email of the day on yield to worst versus total return calculations
Dear Eoin. First of all, thank you for all the great work you do! In a recent email there was a quote that mentioned 10-year Treasuries would decline by 2/3 in value if rates go from 1% to 3%. This is not even close to the correct math. A $1000 bond today selling at a 1% semi-annual yield would be worth $828.31 should rates go to 3%. It is true that a 1% bond has greater convexity than a 4% bond but the differences are not nearly as material as the quote suggests. A 4% par bond moving to 6% would trade at $851.23 which is less than a 3% difference to the fall in value for the 1% bond. Hope this helps, (I disclose that I am an actuary :))
Thank you for this email which highlights an important consideration for bond investors. Your raw bond calculations gel with the bond calculators in Bloomberg I used to discuss the issue in the Big Picture Long-Term video.
Kidney Dialysis Is a Booming Business. Is it Also a Rigged One?
This article by Carrie Arnold for Undark may be of interest to subscribers. Here is a section:
The scheme, according to Wood and other critics, works something like this: Nearly everyone in the U.S. with end-stage renal disease is eligible for coverage by Medicare, even if they are under age 65. The federal program pays a fixed cost of about $240 per treatment. Patients receiving Medicare pay an annual deductible, after which they continue to be responsible for a 20 percent co-payment, or about $48, for each visit.
Patients with private insurance, however — including those with health benefits paid for by their employers — are a different story. Those insurance companies must negotiate payments with for-profit dialysis centers, and research has suggested that the centers have an edge in those negotiations — one they use to jack up prices. One research letter, published last year in the Journal of the American Medical Association, Internal Medicine, found that private insurers paid, on average, over $1,000 per treatment — roughly four times Medicare’s fixed costs.
One possible reason: More than 80 percent of dialysis patients receive their treatments from either DaVita or Fresenius Medical Care, which is headquartered in Germany, giving the two companies upwards of 80 percent of the $24.7 billion American dialysis market — and significant influence over the prices charged to private insurers. What’s more, both are widely known to donate hundreds of millions of dollars to the American Kidney Fund, covering the vast majority of the nonprofit’s budget. That’s a problem, according to Wood. With the help of the American Kidney Fund, after all, more patients are able to stay on private insurance longer, so both companies have an incentive to keep the AKF well-funded. More patients with private insurance means DaVita and Fresenius can bill much higher prices for their dialysis services — and pad their own bottom lines.
According to Wood, for every dollar DaVita or Fresenius donates to the American Kidney Fund, they get roughly $3.50 in return from private insurers. No wonder, then, that the two dialysis giants, which together earned about $2.2 billion in net income in 2019, reportedly donated $247 million to the nonprofit organization in 2018 — roughly 80 percent of the fund’s annual budget that year. (AKF’s own financial documents do not name the companies outright, instead referring to two unnamed corporations. When asked to confirm the identity of these donors, Tamara Ruggiero, a spokesperson for the organization, said the AKF was barred from doing so by rules established by the Inspector General of the Department of Health and Human Services — ironically to “ensure that patients are not unduly influenced in their choice of dialysis providers.”)
This is but one example of how perverse the US healthcare system is. The reality of private health insurance is that there is no competition. The dance between for-profit insures with for-profit providers means that costs are greatly inflated relative to the rest of the world. The existence of vendor financing deals for patients is just another example of how difficult it is to ever reform the system.
Barnier’s Narrow Path: How a Brexit Deal Could Be Done This Week
This article by Ben Sills for Bloomberg may be of interest to subscribers. Here is a section:
Barnier said that if fishing rights can be settled, then the deal could come this week. But he warned that there’s also a risk the talks could drag on right up to the Dec. 31 deadline, and could eventually end in failure.
France’s junior minister for EU affairs, Clement Beaune, said he doesn’t think the negotiations should go beyond this week because it would leave too little time for dealing with the consequences — whether that’s ratification or a collapse.
People close to the British team had been talking about a deal as early as Tuesday to give the U.K. Parliament time to ratify the accord before it breaks up for the Christmas vacation. On Monday afternoon, however, an official said there had been no significant progress in recent days despite British efforts to invigorate the process.
What’s the latest mood?
“Obviously, no deal is a possible outcome,” Prime Minister Boris Johnson’s spokesman, Jamie Davies, told reporters on Monday. That marks a step back from Johnson’s warning on Thursday that a no-deal split was a “strong possibility.” But after a moment of optimism on Sunday, both sides are once again talking up the difficulties ahead.
When politicians talk about the possibility of a no-deal it has generally meant they are actively negotiating. When they seem confident of a deal, the market tends to be more willing to support a higher price value for the Pound versus the Euro.
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