The markets got a double dose of Fed views today, with Chairman Bernanke testifying before Congress in the morning and the May FOMC minutes released during the afternoon. The bottom line from both, in our view, is that the Fed is not yet ready to start scaling back the degree of accommodation – they need more data to confirm a sustainable recovery first. Our base case remains that a slowdown in growth and uncomfortably low inflation will defer tapering until next year. However, the general resilience of the economy increases the odds of tapering later this year. Market reaction during Bernanke’s testimony highlights the challenges the Fed faces in communicating its intentions.

Read the full report here.

This week, the Society of Actuaries threw a wrench into President Obama’s persistent assertions that his health-care overhaul is driving down the cost of health care. The nonpartisan professional association for insurance assessors came out with a report saying that medical claims—the biggest driver of premiums—will rise 32 percent (PDF) over the next three years because of Obamacare. In states such as Ohio and Wisconsin, the group expects the cost of claims to go up by 80 percent.

The study predicts that as states set up health insurance exchanges, people who are currently insured through state-sponsored high-risk pools will move into the private market, raising rates for everyone else. Many sicker people with employer-sponsored insurance are also likely move into the individual market because their employers will decide to drop higher-risk plans, preferring to pay a penalty rather than provide insurance.

The Society of Actuaries says that, at least in the short term, the cost of so many sick people entering the health-care market will more than offset the savings from the millions of healthy people who will enter it. This is the exact opposite of the argument the administration has been making.

This prediction—and recent assessments from the insurance industry—are causing the administration to tone town its optimistic rhetoric for the first time. This week Health and Human Services Secretary Kathleen Sebelius acknowledged that the promise of lower costs may not pan out, at least initially. She told reporters that some men and younger people could see their rates increase next year as key tenets of the law go into effect.

Some states already dispute the study, arguing that it doesn’t take into account additional Obamacare provisions that will do much to decrease spending. One example is the value-based purchasing program, in which Medicare reimburses hospitals for keeping patients healthy, as opposed to the fee-for-service model that has driven up the cost of care. (Researchers have argued that the rewards and penalties in pay-for-performance, which I wrote about last year, are too small to have much influence on provider behavior.)

Henry Aaron, a health-care expert at the Brookings Institution who supports the law, says it is obvious that health-care spending by government and insurance companies will rise initially, even if it’s not politically expedient to say so. For one thing, as more people get coverage, more claims will need to be paid out. Moreover, health-care costs continue to rise, even if the pace of spending has slowed. And Obamacare forces many people to get more complete—and therefore more expensive—coverage than they get now.

Over time, Aaron says, medical care should get cheaper. “There is a lot of room to improve health-care delivery, to bring down prices without undue loss of quality, and to encourage research into cost-reducing technology,” he says. “The major obstacle will be the first couple of years of implementation. I worry a lot about that. If we get by that period, I am very optimistic. We will reduce the growth of spending, but anyone who claims to know the timing is blowing smoke.”

The April consumer price report revealed broad-based weakness in inflation. The headline fell -0.4% monthly (versus -0.3% consensus and -0.2% BofAML) largely due to gasoline prices. Core CPI was also weak, barely up 0.1% (versus 0.2% consensus, 0.1% BofAML) with most categories soft. Overall, annual headline CPI inflation is running at just 1.1%, with core CPI inflation at 1.7% – its slowest pace since 2010. These numbers are likely to give pause to both hawks and doves on the Fed, and keep the current QE3 pace in place until signs of inflation returning to the Fed’s long-run 2% target emerge.

Read the full report here.

In our view, the forces driving the long-term improvement in US equity prices remain in place: the economy is growing modestly, the market is still undervalued by some metrics, and central banks are pouring in liquidity. Still, especially in light of the 15% YTD total return in the S&P, investors need to be aware of the possibility of a correction.

Read the full report here.

• Exercise:  if you don’t exercise, start!  Exercise will not only help lower your blood pressure, you will lose weight.  Reminder – prior to beginning an exercise routine you should consult with your doctor.
• Limit your salt intake:  eating foods that are high in sodium on a regular basis will increase your blood pressure, lead to heart disease and perhaps even a stroke.
• DASH!:  “Dietary Approaches to Stop Hypertension” – the DASH diet is a healthy diet which includes such items as fruits, vegetables, whole grains and low-fat dairy products.  The DASH diet has been shown to lead to healthy blood pressure levels.
• Drop Weight:   Losing weight will help to reduce high blood pressure.
• Easy on the Alcohol:  Limiting your alcohol will help your heart.

The suggested lifestyle changes are meant to promote not just heart health but overall good health.  GOOD LUCK!

How do I figure it out?

What are the new fees that are part of the PPACA?

What is “Play or Pay”?

How will all these changes affect my business?

To hear all the above answers and more… Join us for our Healthcare Reform Seminar.

E-mail swayne@csihro.com for more information.

The economy added 165,000 jobs in April while the prior two months were revised to show an additional 114,000 jobs. The unemployment rate fell to 7.5% as household jobs increased 293,000 while the labor force increased 210,000. Splashing a bit of cold water on the report, the private sector work week fell to 34.4 from 34.6. Given the furloughs in the federal government, the public sector work week was presumably down notably as well. This suggests that income growth was weak in April despite the better-than-expected payroll print.

Read the full report here.

1. Make your bed:  This small ritual can help create a calm environment for you in your bedroom.  A soothing bedroom is believed to help you sleep better.

2. Pack a snack:     Prepare a healthy snack to take to work or school with you. Fruit, unsalted nuts, low-fat cheese or certain yogurts make a healthy snack and when you get hungry later in the afternoon, you’ll be ready!

3. Clear your desk:  From stray papers to coffee mugs, clutter can make you lose focus and curb productivity.  De-clutter and you will feel more organized and will concentrate on the task at hand.

4. Listen to music:  Several studies have found that listening to music can help lower blood pressure, reduce stress, and boost mood. The right music has the power to change your attitude and improve your day.

5. Sniff a lemon:  For a quick de-stressing trick, turn to an underrated sense — your sense of smell.  A substance found in lemons, may turn down the classic “flight-or-fight” stress response. Not into lemons? Try basil, juniper or lavender – these scents have been found to lower stress.

6. Stretch:  Just a few easy moves will do.  Stretch your arms overhead.  Raise and lower your shoulders a couple of times.  Stretching can help improve your circulation & flexibility and ease the tight muscles that come with stress.

7. Meditate:  It’s easier than you may think. Here’s how: Settle into a comfortable position in a chair or on the floor. Then follow your breath – in & out — for a few minutes. Meditating daily, even just for a few minutes may help tame any stress.

8. Keep a gratitude diary:  Take a minute every day to write down what you’re thankful for — big or small. Being thankful for what you have can make you appreciate all the positives in your life.

9. Turn off your electronics:  Take a little break – from all your gadgets.  So log off — of everything — every now and then.

10. Prioritize:  Make a list – figure out what really matters, what can wait, and what you can skip. Work your way down the list, handling your top priorities first.

In an implicit acknowledgment of the softening data, the FOMC today explicitly indicated that it is “prepared to increase or reduce the pace of purchases” as the labor market and/or inflation outlooks change. Several Fed officials in the week prior indicated their willingness to ease if data disappoint persistently. With the Fed missing on both sides of its dual mandate, we expect the Fed to continue to back away from a quick tapering to QE3. We expect the Fed will maintain the current purchase pace into early 2014, then taper gradually.

Read the full report here.

Fed officials began this fourth straight year expecting to be able to pull back soon on the amount of monetary accommodation. And for the fourth straight year, the data once again are disappointing. Not only are growth and employment undershooting the Fed’s forecasts, but inflation has continued to decelerate sharply. The Fed’s preferred PCE inflation measure is running at a mere 1.0% yoy for March (1.1% yoy for core PCE inflation). This weakness has gotten the attention of hawks and doves, both of whom have raised the possibility that the Fed could ease further before it begins tapering QE3 purchases. We see an ever-shrinking chance that the Fed will start scaling back the pace of QE3 purchases in 2013. Rather, we expect tapering to begin around this time next year.

Read the full report here.