Healthcare Spending; Toyota; China Conflicts

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Now, on to what I read…




1. Markets

The market fell 26 points to 10,270.55. With 255 companies in the S&P having reported earnings, earnings are 47% higher than a year ago, but sales growth was only 3.8%.  One analyst noted that 75% of S&P companies (which have reported) have beaten analysts’ expectations, but only 30% have shown revenue growth.




Strong economic data pushed the dollar higher. The dollar hit a two-week high against the yen.  There is thought that a strong jobs report on Friday could lead to the Fed raising rates sooner rather than later.




2. Economy

Better jobs report. The ADP report showed that private sector jobs fell by only 22,000 in January.  This is the smallest drop since February 2008.  Service jobs continue to rise.  We have a great country.  We simply just service each other (which is why I don’t want Jenny working outside of the home).  Everyone is waiting on the real jobs report which will be released on Friday.  Economists are forecasting that no jobs were lost in January.  This number will be skewed by the hiring of census workers.




Less optimistic jobs report. Challenger, Gray & Christmas said that companies announced (in January) plans to reduce 71,482 jobs.  This is the highest number in five months.

Interestingly, TrimTabs Investment Research estimated that we lost 104K jobs in January.  They base their estimate on income tax deposits to the US Treasury.




The ISM non-manufacturing index (service) rose to 50.5 (from 49.8 in December) indicating an expansion.  (Anything above 50 indicates expansion.)




Good news on tech spending. Cisco’s profit rose 23% as the company reported its first sales increase in a year.  Revenue increased 8%.  CEO John Chambers reported broad acceleration in all businesses.  They also said that they would hire 2,000 to 3,000 employees.  Last week, I mentioned that business spending on equipment and software increased 13.3% in Q4.  Cisco’s numbers were consistent with this.  (But spending is still 18.5% below late 2007.)  Capital spending outside of tech is not as promising – GE’s revenue fell 10% in Q4.




Bernanke fights for independence. At his swearing-in ceremony, Chairman Bernanke said that the Fed must maintain its independence.  This will allow monetary policy to be set with long term goals in mind rather than short-term political interests.  (After barely getting re-appointed, I wish Bernanke would have made a speech like “George W” made when he was elected with something like 12% of the popular vote and then said that he was going to spend his political capital.)

Bernanke also said that the Fed still faces “enormous” challenges.  Agreed.

3. Government / Debt / Problems

The federal Centers for Medicare and Medicaid Services are releasing a really scary paper on Thursday. Next year, for the first time ever, government programs will account for more than half of all US health-care spending.  As a result of the recession, more people are relying on Medicaid.  Here are some key numbers:

-       public spending accounted for 47% of the $2.34 trillion of health care spending in 2008

-       estimates are that we spent $2.5 trillion in 2009 (+5.7% YOY)

-       health care was ~17.3% of GDP in 2009 (up from 16.2% in 2008)

-       government spending on health care was 8.4% of GDP in 2009

-       health care spending is expected to reach $4.5 trillion in ten years

-       it is predicted that Medicaid enrollment will increase 5.6% this year and spending will rise 8.9%

-       the first baby boomers turn 65 in 2011 and become eligible for Medicare

-       government spending should reach 52.9% of health care spending by 2019




Everyone is complaining about the budget. Congressmen are complaining about cuts contained in their budget.  I don’t know how anything gets done when no one wants to give up anything.  One proposal suggests a $5,000 credit for each new worker a firm hires in 2010.  Opponents say that a tax credit does not provide incentive for a firm to hire.  Thus, this $33 billion expense is simply a transfer payment to firms that were already planning on hiring.




More to get mad about. The WSJ reports that the Administration’s mortgage modification plan is resulting in first mortgages being modified (reduced) and second (junior) liens being left intact.  In other words, the senior creditor takes a hit, while the junior creditor doesn’t.  That makes no sense.  Of course, it sounds similar to the GM bankruptcy – where capital structure didn’t matter.  Interestingly, most second mortgages are owned by banks.  As a result, this is just another hidden bailout of the banks.  BAC, WFC and JPM had junior mortgage portfolios worth $381 billion and $607 billion of first mortgages.

4. Toyota

Please report to the Principal’s office. US Transportation Secretary Ray LaHood said that he wants to talk directly with Toyota’s CEO.  It’s amazing to see how quickly a company can lose a reputation for quality (although Toyota’s reputation had certainly been sliding in the past couple of years).  Personally, I think that that we should have the Toyota CEO stand in a crosswalk and have people drive their Toyota down the street and see if their car stops or suddenly accelerates.  If he’s comfortable with that, then I’m okay with Toyota.




I didn’t mean that exactly. LaHood had to backtrack on Wednesday after he warned people to not drive recalled Toyotas until they’ve been fixed.  He corrected this comment and said that Toyota owners should contact their dealers. Interestingly, it sounds like the defective parts in the Toyota cars were manufactured by American companies.




Things continue to get worse. Toyota said that Japanese officials had ordered them to investigate braking problems with the Prius.  On the good side, those cars don’t go faster than 5 MPH, so brakes aren’t that important.




5. China

Here comes the Dalai. China urged President Obama to not hold a planned meeting with Dalai Lama, saying that it would further hurt US-China relations.  China’s opposition of our meeting with the Dalai Lama sort of reminds me of when Jenny opposed my watching videos of the Dolly Parton.  Just like China, Jenny said that those videos would hurt already strained bilateral relations.  Speaking from personal experience, I encourage the President to meet either with the Dalai or Dolly.  Either will help you find peace.




Currency debate. To add fuel to the fire, Obama said that China needs to allow their currency to appreciate and that this was going to be a major issue for us.  I think that will be pretty well received by China…   Of course, China is going to respond with the fact that they are our biggest creditor and will tell us to shut up.




China granted 580,000 patents in 2009. This is a 41% increase from 2009.  Some people have complained that China’s rules discriminate against foreigners.  If you complete an invention in China, you must apply for security clearance (which can take up to six months) prior to applying for patents abroad.  This may create risk of trade-secret theft because it extends the period during which people can steal the information prior to the patent.  Who would ever think that China wouldn’t protect intellectual property?  Maybe we can get the Dalai Lama’s opinion on the matter.

6. Random

Organic? There are 14,540 organic farms in the US – less than 1% of the 2.2 million US farms.  The organic farms account for 4.1 million acres.  The total acreage of all US farms is 922 million acres.  California accounts for 20% of our organic farms (I’m not sure how much of that is marijuana, but probably all of it…).  The US does not supply enough organic goods to satisfy all of our needs.
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