The roll-out of Obamacare's health insurance exchanges has been rocky - to describe it generously. This is not the first hiccup upon the introduction of a new entitlement program. When President Johnson established Medicare in 1965 he not only expanded the safety net for the nations seniors, he created millions of additional insurance claims that had to be processed - a task well beyond the capabilities of either the government or the existing insurance companies. Enter Ross Perot. Ross, the son of a Texarkana cotton trader, had left the Navy in 1957 to become a salesman for International Business Machines (IBM). He quickly became their top seller, in one year filling his annual sales quota by January 19th  . He left IBM in 1962 to found Electronic Data Systems (EDS) when IBM brass dismissed his idea to sell data processing systems to large corporations. EDS received lucrative contracts from the U.S. government in the 1960s, computerizing Medicare records. EDS went public in 1968 and the stock price rose from $16 a share to $160 within days. Fortune magazine called Perot the "fastest, richest Texan" in a 1968 cover story. In 1984 General Motors bought controlling interest in EDS for $2.4 billion. In 1992, Ross made one of the most successful third-party Presidential runs in recent U.S. history. His famous "Giant sucking sound you hear" line referred to jobs heading south to Mexico due to the NAFTA treaty.

 

Asset Class Returns

  

Over the last few months the U.S. equity market have survived fears of the Federal Reserve tapering, a government shutdown and potential debt default and is currently at all time (nominal) highs. The truth of the matter is that the stock market showed relatively little fear of any of these events. It has not declined more than 5% from its high at any point over the last year:

Percentage Move in S&P 500 From One Year Ago

The bond market has seen a shift in tone as the lack of tapering and tepid economic indicators have put a floor under prices. The historic doubling  of interest rates between summer 2012 and 2013 has reversed course and rates on the benchmark 10 year Treasury have backed down from 3.00% toward 2.50%:

Yield on 10 Year Treasury

One definite result of the tapering, shutdown potential default combo has been a rally in non-U.S. equities as foreign markets look relatively more attractive than they had. This has produced a long awaited rally in these assets which had been significantly under-performing the U.S. market over the last couple of years:

Green - World Stocks ex-U.S.    Orange - S&P 500

A Note About InnerHarbor Advisors 
As many of you know, Mike Keating has left InnerHarbor to take a position as managing director at First Republic Bank. It has been a pleasure working with Mike over the last four years and I wish him the best of luck at that great bank. As a courtesy to those individuals that he had added to our email list and are not familiar with me personally, Mike has asked me to remove them from the mailing list. So for a number of you this will be the final newsletter you receive.  - John O'Meara

 

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