I am going to say something that a lot of business writers are probably thinking but just don’t want to admit: I have absolutely no clue how the health care reform saga is going to end. Don’t kid yourself; tonight’s events are not the end.
As I am writing this, the floor debate is still going on, and whatever happens, the ongoing public opinion debate is going to continue. Here is what can still happen:
- By some bizarre parliamentary maneuver that I am still trying to figure out, the bill ultimately does not reach the President’s desk.
- The bill passes, but state governments opposed to the bill challenge it in federal court.
- The Republican party wins seats in the November midterm elections, and while they cannot repeal the bill (presidential veto), they could theoretically just not fund it in the budget.
- Or, ultimately the bill does pass, gets signed into law, and ends up being popular.
There are still far too many unknowns at this point, and these will likely persist for months on end. Health care will be a major political topic in the November elections.
I would not make investment decisions on health care companies based on this legislation right now. Expect significant volatility as the details are being sorted out–details that seem to be changing every 5 minutes or so.
I would, however, keep close attention to the bond markets. Reportedly, the United States is at risk of losing AAA status on its sovereign debt. A bill that the market sees as increasing the amount of debt could be a catalyst for a ratings change. Consider buying funds like TBT or TMV which are short US Treasuries as a hedge in case a ratings change does occur. A more aggressive way to play a ratings change would be to buy out of the money puts (not too deep out of the money) on Treasuries.