Chingo De Dinero

Maybe they won’t save the world, but they could sure help the economy.  First, let me start with what they are, HSA are a tax free savings account which can be used to pay for medical related cost.  High Deductible Health Plans are just like regular insurance, except much cheaper and with a higher deductible.  Using the two together, you can control the cost of insurance without sacrificing care.

Let me explain in a little more detail…the idea of health insurance is to protect you from the high cost of low occurrence activities, sure as a coma, or life threatening disease.  But, because typical insurance has low deductibles, many people use it to pay for normal doctor visits, or prescription drugs that they do not necessarily need (fun debate to have with people who use them).  It also removes the cost of not taking care of ones self, which commonly leads to diabetes, which is extremely expensive.  Before I get too far off subject, all of these little cost, and lack of effort of people to stay in shape has lead to more use of the medical system, which has increased cost.  Because people are pooled together, they do not pay cost directly, so there is little individual incentive to take corrective action.

To fix this, the government has allowed for Health Savings accounts.  If a person wants to take responsibility for their health, is willing to pay for the low cost doctor visits or prescription drugs, and wants coverage for the high cost low occurrence accidents this is perfect.  How it works is you and your employer pay your respective portions for health insurance…but unlike typical insurance, not all of it goes to premiums.  Because of the High Deductible insurance, premiums are less (this is because it does not pay for many of the low dollar items which make up a large portion of typical insurance claims).  The savings from the low premiums is then deposited into a Health Savings Account, which can be used to pay for the low dollar items.  Any dollars left over roll from year to year, and can be used for anything although a penalty is levied if not used for health cost.

This situation produces a very favorable outcome, people take responsibility for their health, use less of the low cost items which add up to be a majority of health cost, and are insured for any high cost health issue.  Wow, people will be healthier and the cost will go down.  It is amazing what happens when people are given responsibility for their actions.

We are what we are, humans act how they act, right or wrong, there is no reason to be idealistic and think people will change.  We are selfish and do what is best for us.

Everyone talks about inflation and slowing growth.  Well unless we have stagflation, which has always gone with commodity price growth, we are ready for some deflation.  At least that is the side I am on.  Oil is down, Copper is down, signs of decreased consumption is being shown.  This could be complicated if lending dries up, which could mean few loans for businesses and less production.  But, I doubt this is going to happen.  My prediction, minor deflation in the near future, then strong growth following.  Who knows what the fed will do, but for sure, it will affect the timing of the two.

I am not sure if this has changed over the years, but it seems like more lending is going to consumers and more deposits are coming from businesses.  This can be seen in the large amount of mortgages out there and the relative stregnth in corporate balance sheets.   If anyone has particular information, let me know.

After today, I am wondering how bad it can be in the future.  Really, if you look at valuations, it is crazy.  Even if the economy slows by a little, you can make a killing.  Based on prices now, the economy is going to come to an halt.

If you watch the news you will probably come up with the same idea, but if you take a step back, really how bad is it.  Go to the mall or a fancy resteraunt and surprise they still have people making purchases.  If you are looking for a home to purchase, you can still get a loan, with a relatively low rate.  It just doesn’t make sense to me, but we will see.  Watch Q3, if it comes in okay and the forecast isn’t too bad, we will see some big jumps.

A lot of people talk about options and know the power in the amount of leverage you can get with them.  The one area where most of the people I talk to lack knowledge is how to price stock options.  If I ask if the option is cheap or expensive, the give me the blank look.  If I ask about implied volatility I get an even funnier look.

In short, the price of stock options boils down to implied volatility, which is more or less the probabilities of wide variations in the underlying stocks price.  Using Black-Scholes which is more or less the space under the normal distribution curve that shows the probability at different prices for the underlying stock.  Less volital, the taller, thinner the curve is.  As volitility increases the wider the curve is.  So, as you get an option away from the current stock price, the area under the curve is larger when the volatility is higher.

If you are not familiar with this, I doubt my short explaination will help much, but it should plant some seeds which will make more sense as you research.