Monday, August 24, 2009

50 years later we ask did we make a mistake

We are in the throws of a very heated health-care debate in the United States. Some think the system is broken and the government needs to control health care insurance. The opposition raises the question, can we afford the cost to have the government run the health care bureaucracy? Some would ask what track record does the government have in running health care? We decided to move the administration of Medicare to the states because the Federal Government couldn’t manage it. The government passed a Stimulus Package this year of $750 billion; so far we have spent less than $100 million. People blame the inability of the Washington bureaucracy to get the money out.

During the debate we have heard about health care in Canada and England and how good it is to the residents. Some say these two are great examples of health care for all. There is the joke that in Canada that your dog can get a hip replacement faster than the owner. In England the expansion of the private pay health care system seems to be driven by people who want a better quality of care than National Health Insurance can provide.

In an interview with CNBC, Peter Toogood, (yes that is his real name) head of investments for Old Broad Street Research of London, talked about the problems with National Health Service. He said that the health care program in the UK is “unfundable” longer-term. He said that when they started NHS 50 years ago they were figuring that people would live 65 to 70 years of age. He said, “What has happened is that the number of people who are living into their 90’s is placing an incredible strain on the financial resources of NHS.”

NHS says that the increasing demands on the health care system is more a result of evolution rather than a revolution in the UK. They never thought then that people would be living to such an extended age. Perhaps we need to ask in the United States health care debate about longevity as it relates to our health care system. It is clear to me that if we look back at the original intentions on Social Security nobody envisioned the number of people to be covered and the length of peoples lives.

Speaking of Social Security and health care, the trustees of the Social Security Trust Fund are currently contemplating no increase in benefits for the next two years. We do know that the people on Medicare Prescription Drug program will see their monthly cost go from $28 to 30 per month.

Barbara Kennedy, the former Congress Women from Connecticut, says that people need the cost of living adjustment. If the Trustees freeze benefits for two year those on benefits will have less to spend and will have to dip into their saving to make ends meet.

We are facing difficult decisions that have some long-term ramification if we get it wrong. At least one person in England thinks the problem was short-term thinking. As we discuss the issue of health care in the US we need to make sure that we look at the UK as the model analyzing what they did wrong so we don’t make the same mistakes and find out 50 years later.

Dan Perkins

Friday, August 14, 2009

What do the markets and teeter-totter have in comon?

When I was growing up The single scariest thing to do in the local playground was the infamous teeter-totter. You got on and gently went up and down, but sometimes somebody got on with you that took you to the top and then jumped off. You could see them jump off, but for a second you were suspended in mid air just before you came crashing down. This past week was like the childhood teeter-totter in the park. One day we’re up and the prospects for the economy look great. The next day things didn’t look so great so the market went down. Well on Friday your friend jumped off leaving you up in the air and you knew that you were going to come crashing down. You also knew that it was not going to be a pleasant experience. So what happened on Friday that ruined your ride?

Consumer prices were flat in July as energy costs retreated following a big surge in June. Over the past 12 months, prices dropped the most in nearly six decades as the recession and lower energy costs kept a lid on inflation. The Commerce Department says consumer prices showed no changed in July, in line with analysts' expectations and far below the 0.7 percent jump in June. Prices fell 2.1 percent over the past 12 months, the biggest annual decline since a similar drop in the period ending in January 1950. Most of the past year's decline reflects energy prices falling 28.1 percent since peaking in July 2008.

Many market experts have been looking for some form of correction after the almost 50% run up in the market since the March low. The problem was that they have been looking for the correction for the last 15% of the market move. I also have been looking for a correction. After the S&P 500 hit 1,000 (May7) the market closed at 1,004 on Friday and has been higher but the correction is coming.

I suggested in a previous blog that the market would not have a serious correction until enough money from the sidelines had been sucked into the market. A significant amount of money has been drawn into the market, but not the level that I was looking for to come in from the sidelines. While we may see a continuation of the decline through the end of the month I do not expect to see the correction to be very deep.

Once this correction is over I would expect to see a run in the S&P 500 to close around 1,100 before we start down again. One of the phrases you hear again on the street is “Buy the Dips”. The logic in buying the dips is that the markets are going higher and every dip is the chance to get in before the market goes even higher. I think I have heard that saying more than once before, I think the person who said that was the person who jumped off the teeter-totter.

Well that person you got on the teeter-totter with is selling you the idea of buying the dips, but when they bail out you will come crashing with more than your bottom hurting.

Dan Perkins