27 March 2017

A Firstline Securities Limited Blog by: Thomas Verguet


A big blow to the Republican agenda happened this past Friday (24th March, 2017) with the failure of the bid to replace and repeal the Affordable Care Act, as not enough votes were mustered to pass President Trump’s Health Care bill through the Congress floor.

President Trump had, against all odds, decided to force a vote on the bill: this despite the Republican establishment’s advice that it would need serious amendments and rework to have any chance of succeeding.

There was of course no surprise that the Democrats were against the bill.  Obamacare was one, if not the most important, achievement of the past eight years of Democratic leadership under President Barack Obama.

However, this opposition to ‘Trumpcare’ did not only reside with the Democrats. The Freedom Caucus (the Tea Party, hardcore Republicans) as well as the Tuesday Group (moderate Republicans) both opposed the bill for vastly different reasons.

The Freedom Caucus believed the bill was not going far enough, and did not actually repeal Obamacare, but merely amended it…a reasonably accurate statement.  The Tuesday Group, on the other hand, made up of a large number of Republicans representing predominantly Democratic states, who wanted the bill to keep Medicare and Medicaid coverage untouched.

As a result, on Friday, President Trump pulled the bill from the floor a mere hour before the scheduled vote, effectively killing it for good, and then proceeded to spin the story that the failure of the bill was on Paul Ryan, the speaker of the house of representatives.

So, one may ask, what is the fallout from the death of what was supposed to be the first step in enacting the Republican political agenda?

In essence, as Paul Ryan accurately put it on Friday, Obamacare remains “the law of the land”. As per the Congressional Budget Office analysis, 20 to 24 million will get to keep their healthcare, and insurance premiums may continue to go up in the next few years. However, if the CBO’s analysis is correct, this should stabilise over time. Obamacare will apparently not “implode” as Republicans have been claiming.

Politically, this has tarnished the veneer of Trump as a dealmaker, something he has prided himself to be consistently, even in the face of reality. It will make it more difficult down the line for Republicans to pass any legislation related to healthcare. It may also impede the ability to pass a comprehensive tax reform and infrastructure bill – the two other pillars of the Trump agenda – unless the drafts are carefully crafted and Republicans are willing to compromise with both the Tea Party, on the one side, and the Democrats, moderate Republicans and Independents, on the other.

Ultimately, while Obamacare has its faults and weaknesses, it has provided low-income families in the U.S. with affordable health care as it was supposed to. The Republican alternative would have annihilated most of that achievement, whilst not providing anything in exchange, save for an apparent big tax cut for the rich.

Let’s hope this will be a good lesson for President Trump that governing a country and running a business are not one and the same and that, while deal-making is an integral part of both jobs, it is certainly not done in the same way.

Market-wise, the failure of the bill is already having an effect: with equities going down (particularly banking stocks – the main beneficiaries of the so-called Trump rally) along with the dollar; while the Yen, Euro, gold and bonds have all been trading higher.

Given the recent outperformance of equities, a re-balancing of the markets could be in the cards. Opportunities to trade the market are clearly available.


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