Saturday, July 25, 2009

Health Care Lobbyists Will Save The Day for Obama

according to AP. (Since when are lobbyists praised as a positive force, by a news agency of all people?) Anyway, here's a highly partisan article from such a lobbyist-praising news agency, AP.

Lobbyists the silver lining in health care storm?
(by RICARDO ALONSO-ZALDIVAR, 7/25/09 AP via Yahoo News)

"WASHINGTON – A strong force, perhaps as powerful in Congress as President Barack Obama, is keeping the drive for health care going even as lawmakers seem hopelessly at odds.


"The drug industry, the American Medical Association, hospital groups and the insurance lobby are all saying Congress must make major changes this year. Television ads paid for by drug companies and insurers continued to emphasize the benefits of a health care overhaul — not the groups' objections to some of the proposals."

Note the word "hopelessly" in the first paragraph. To the writer, it's apparently a hopeless situation when the health care reform bill (H.R. 3200) strongly pushed by none other than President Obama hasn't already passed the House. Those pesky lawmakers. How dare they question the wisdom of the bill?

If doctors, hospitals, insurance companies are all for the so-called "reform", as the article claims as a good, positive thing, that is all the more reason NOT to "reform". I've never heard of an industry lobby lobbying for something other than the industry's own interest. Have you?

Now, let's continue with the PR article:

"President Barack Obama on Saturday continued his full-court press to pass health care reform legislation. In his weekly Internet and radio address, Obama cited a new White House study indicating that small businesses pay far more per employee for health insurance than big companies — a disparity he says is "unsustainable — it's unacceptable."

""And it's going to change when I sign health insurance reform into law," Obama said, adding that he has "a sense of urgency about moving this process forward."

"This time, the health care industry groups see a strategic opportunity. As lawmakers squabble, the groups are focused on how to come out ahead in the end game."

Obama's sense of urgency then is clearly fostered by these well-meaning lobbyists. The writer reveals his bias again in the last paragraph. This time, note the word "squabble". Actually reading the bill (H.R. 3200) and arguing the details is "squabble" to this writer.

AP by the way doesn't write like a news agency anymore, in case you haven't noticed. It seems to have become a PR agency for the administration, as their article demonstrated when the climate bill (H.R. 2454) passed the House in June (remember that bill?). Such a volunteerism.

Friday, July 24, 2009

Bank Closures Update 7/24/2009

FDIC closed 6 banks in Georgia and 1 in New York today. That brings the July tally to 19.

16 Georgia banks have failed this year, more than in any other state. The 64 bank failures nationwide this year compare with 25 last year and three in 2007.

Dow Jones Industrial Average managed to stay above the psychologically significant 9,000, ended the week at 9,093. It went up 3.99% this week. S&P 500 ended at 979, up 4.13% for the week. Nasdaq ended at 1,965, up 4.21% for the week. Small Cap Russell 2000 outperformed the major indices, up 5.63% for the week.

Financials ended the week flat. Commodities did very well, with the Commodity Related Equity Index (CRX) up 6.02% for the week.

Section 1233 of H.R.3200

(Be sure to read the other posts on health care "reform" by clicking here.)

H.R. 3200 America's Affordable Health Choices Act of 2009 has a section (1233) that will require senior citizens to meet with their physicians/nurse practitioners every 5 years to discuss living wills, durable powers of attorney, end-of-life services (like hospice), orders regarding life-sustaining treatment, and health care proxy.

Even if those senior citizens are active and in perfect health, they will be forced to see their physicians every 5 years to discuss how they are going to end their lives. What could be more depressing and life-shortening experience than that? (And when did physicians get training to double as attorneys?)

What's more, after reading the Section, "orders regarding life-sustaining treatment" does not seem to mean "orders to provide life-sustaining treatment". It seems to say that consultation will be provided so that everyone involved will understand why an order to provide or withhold such treatment is issued.

Here are relevant parts of the Section. If you want to read the whole Section or the whole Bill for that matter, go to the Library of Congress THOMAS, and type in the bill number (H.R. 3200).

Section 1233. Advanced Care Planning Consultation [emphasis is mine]

`(hhh)(1) Subject to paragraphs (3) and (4), the term `advance care planning consultation' means a consultation between the individual and a practitioner described in paragraph (2) regarding advance care planning, if, subject to paragraph (3), the individual involved has not had such a consultation within the last 5 years. Such consultation shall include the following:

`(A) An explanation by the practitioner of advance care planning, including key questions and considerations, important steps, and suggested people to talk to.

`(B) An explanation by the practitioner of advance directives, including living wills and durable powers of attorney, and their uses.

`(C) An explanation by the practitioner of the role and responsibilities of a health care proxy.

`(D) The provision by the practitioner of a list of national and State-specific resources to assist consumers and their families with advance care planning, including the national toll-free hotline, the advance care planning clearinghouses, and State legal service organizations (including those funded through the Older Americans Act of 1965).

`(E) An explanation by the practitioner of the continuum of end-of-life services and supports available, including palliative care and hospice, and benefits for such services and supports that are available under this title.

`(F)(i) Subject to clause (ii), an explanation of orders regarding life sustaining treatment or similar orders, which shall include--

`(I) the reasons why the development of such an order is beneficial to the individual and the individual's family and the reasons why such an order should be updated periodically as the health of the individual changes;

`(II) the information needed for an individual or legal surrogate to make informed decisions regarding the completion of such an order; and

`(III) the identification of resources that an individual may use to determine the requirements of the State in which such individual resides so that the treatment wishes of that individual will be carried out if the individual is unable to communicate those wishes, including requirements regarding the designation of a surrogate decisionmaker (also known as a health care proxy).

`(ii) The Secretary shall limit the requirement for explanations under clause (i) to consultations furnished in a State--

`(I) in which all legal barriers have been addressed for enabling orders for life sustaining treatment to constitute a set of medical orders respected across all care settings; and

`(II) that has in effect a program for orders for life sustaining treatment described in clause (iii).

`(iii) A program for orders for life sustaining treatment for a States described in this clause is a program that--

`(I) ensures such orders are standardized and uniquely identifiable throughout the State;

`(II) distributes or makes accessible such orders to physicians and other health professionals that (acting within the scope of the professional's authority under State law) may sign orders for life sustaining treatment;

`(III) provides training for health care professionals across the continuum of care about the goals and use of orders for life sustaining treatment; and

`(IV) is guided by a coalition of stakeholders includes representatives from emergency medical services, emergency department physicians or nurses, state long-term care association, state medical association, state surveyors, agency responsible for senior services, state department of health, state hospital association, home health association, state bar association, and state hospice association.

[More on "order regarding life sustaining treatment" in the same Section]

`(5)(A) For purposes of this section, the term `order regarding life sustaining treatment' means, with respect to an individual, an actionable medical order relating to the treatment of that individual that--

`(i) is signed and dated by a physician (as defined in subsection (r)(1)) or another health care professional (as specified by the Secretary and who is acting within the scope of the professional's authority under State law in signing such an order, including a nurse practitioner or physician assistant) and is in a form that permits it to stay with the individual and be followed by health care professionals and providers across the continuum of care;

`(ii) effectively communicates the individual's preferences regarding life sustaining treatment, including an indication of the treatment and care desired by the individual;

`(iii) is uniquely identifiable and standardized within a given locality, region, or State (as identified by the Secretary); and

`(iv) may incorporate any advance directive (as defined in section 1866(f)(3)) if executed by the individual.

`(B) The level of treatment indicated under subparagraph (A)(ii) may range from an indication for full treatment to an indication to limit some or all or specified interventions. Such indicated levels of treatment may include indications respecting, among other items--

`(i) the intensity of medical intervention if the patient is pulse less, apneic, or has serious cardiac or pulmonary problems;

`(ii) the individual's desire regarding transfer to a hospital or remaining at the current care setting;

`(iii) the use of antibiotics; and

`(iv) the use of artificially administered nutrition and hydration.'.

I would love to know if the author at Minyanville who painted a rosy health care future for us yesterday still insists that the government is a backstop. He probably will, because he probably will be too busy to be bothered by facts.

Companies Reporting Earnings on 7/24/2009

(The list is not exhaustive. It only shows the stocks I follow. For a more complete list, check Yahoo.)

Before market open:

  • ACI (Arch Coal): missed
  • CIT:
  • SLB (Schlumberger): beat
  • WAB (Wabtech): beat

Thursday, July 23, 2009

Viva Health Care Reform, from Minyanville must have been one of those bloggers (they are not exactly blogs, but..) who were invited by President Obama the other day to receive his directive on how to sell his health care reform to the Internet mass.

Here's an extremely simplistic, black and white argument for the so-called "reform", from Ryan Goldberg at

Health Care Reform Opponents Argue, "Go Broke, Don't Fix It"
(Ryan Goldberg, 7/23/09

Here's a snippet of the rosy future that the U.S. health care would have, under the president's plan, according to the author:

"So what does that experiment include? Well, let’s compare “what these countries do” -- as the Arizona Senator says -- to the US.

"First off, everybody has insurance. It's a guaranteed right. How silly is that: Who would want health care they get for free?

"There are shorter lines in emergency rooms and it's easier to see a primary-care doctor. There's little paperwork -- for both patients and physicians -- and those physicians say they feel free to practice medicine the way they want.

"The newspapers in those countries don't include stories of people going bankrupt or skipping medical care because it costs too much. And overall, they pay substantially less than we do. For instance, the French spend around 11% of their gross domestic product on health care, the Dutch around 10%. In the US, we spend around 16%."

Oh what a paradise. But...

Is health care a right? If it is a right, why is there a price tag at all? Free? Then why are they proposing to impose surtax? Free for who? Nothing that the government does is for free. Taxpayers have to foot the bill.

And where is the hard data to back his assertion about shorter lines and little paperwork, and all? In Great Britain, you have to wait 9 months for the treatment of arthritis.

The French and the Dutch may spend less of their GDP on health care, but they also have higher income tax than the U.S. France's top rate for individual income tax is 40%. For the Dutch, it's 52%. The U.S. top rate is 35%.

On page 2 of the article, he goes on to say:

"The mainstream press covers the issue, as it does most policies, in terms of a political fight or horse race. Then there's the fear-mongering that deploys visions of Soviet-style rationing from rich politicians who have never heard from a person who lives without insurance. "

Haha, that's funny. More Republicans oppose the bill than Democrats, but there are significant Democratic opposition, too. Somehow if they oppose, they are "rich" politicians? Nancy Pelosi's net worth is $19 million. President Obama's net worth is $7 million. The richest in Congress is John Kerry (D) at $231 million, with Jane Harman (D) closing in at $226 million. Are they opposing the bill? The author also fails to mention that Congress would be EXEMPT from the bill. The bill is only for us commoners.

"Our plan might make us like France or the Netherlands, where private insurers have a role but the government offers a secure backstop. Everybody gets covered somehow. In both countries, people spend significantly less time in emergency rooms and get same-day appointments far more frequently."

Might. Indeed. Might not. Here in the U.S., the government wants to run the show, not a backstop. Besides, France is no health care paradise ("French health care is badly run" by BBC, and "French Health Care Expert: France's System Broken, Should Copy US; Media Yawn" by Newsbusters).

Just like President Obama, the author reduces the issue to a choice between doing nothing at all and handing over the medical decision to Washington and closing our eyes and hope for the best.

The critics are not saying "Let's do nothing and go broke", as the author kindly simplifies for us. They are questioning the wisdom of foisting a trillion dollars on the taxpayers and employers in a severe recession in which the unemployment rate is likely to climb to a double digit; of the government bureaucrats dictating the private decisions with cumbersome rules and regulations.

I have a sinking feeling though that this monstrosity of a health care "reform" will pass, just like another monstrosity (climate bill) will somehow pass (already passed the House). And that will be partly thanks to the people like this article's author who talks like the president - all fluff and no substance just to make you feel good. Other part will be the gullible mass who swallow anything in front of them without checking the label.

Where is the red pill?

Obama Takes Blue Pill On Health Care "Deform"

Take the red pill, Mr. President
(David Freddoso, 7/23/09 Washington Examiner)

""If there's a blue pill and a red pill, and the blue pill is half the price of the red pill and works just as well, why not pay half price for the thing that's going to make you well?" -- President Obama

"In last night's press conference, President Obama seemed to be reliving that famous scene from The Matrix. The main character is offered a choice between a red pill that makes him see reality for what it is, and a blue pill that allows him to continue living in a pleasant world of illusions.

"Last night, President Obama appeared to have taken the blue pill before his press conference. How else could he convince himself, the Congressional Budget Office's numbers notwithstanding, that his health care reform bill will not increase both health care costs and the federal deficit? How else can he continue to make the argument that a massive expansion of government spending on health care will solve rather than exacerbate the current problems? How can he repeatedly express such absolute certainty that such a measure will easily pay for itself several times over in the long run? Why can he not at least acknowledge the possibility that it will become a costly and useless trillion-dollar boondoggle that follows in the footsteps of his stimulus package?

"With his example of the red and blue pills, and another about whether a child's hypothetical tonsils should be removed, President Obama unwittingly presents the real problem with his plan for reform. Here is a well-meaning government official who so fails to grasp the problem in health care that he can present such absurd oversimplifications and suggest that this sort of thing is the real problem -- doctors simply lack the common sense to make obvious medical decisions. President Obama wants us to solve this problem by putting himself and other government officials in charge of rescuing medicine from the medical profession. If medical doctors with a decade of schooling cannot distinguish between good cures and ineffective ones that must be discontinued, then by gosh, we're lucky that the good folks from the government can.

"President Obama thus frames the issue as a false choice between doing nothing at all and handing over to Washington complicated, case-by-case medical decisions that cannot possibly be legislated or dictated by government.

"This transfer of medical authority to the bureaucracy is intended to curb costs. Unfortunately, there is exactly one thing that government can do to control costs in health care: it can insist on paying below cost. This shifts the cost burden to private insurance companies, which in turn pass along higher premiums to their patients. This is what government-run Medicare does today for many treatments, including cancer. Government will do more of this kind of "saving" when it assumes greater responsibility for funding citizens' health care, particularly if a government-option health care plan is established."

"The one thing President Obama did not do last night was address directly any of the concerns that Americans have about his pending reform proposals. With this sort of rhetorical detachment from reality, it is not surprising that public support for his vision of health care reform is gradually eroding.

"President Obama needs to take the red pill, even if it does cost twice as much."

The problem is that the president seems to actually believe that the blue pill (his plan) costs less and just as effective. Understandable, coming from a person who spent the entire career in public or governmental service. He probably has definition of words "cost" and "effective" different from yours and mine. However, by distinctively recalling the storyline of this very popular movie and choosing the blue pill, he is saying he is in fantacy land where he can believe whatever he wants to believe. He is also recommending every one of us to do the same.

I can already hear the excuse he and his government officials would say when it turns out that it costs more and not effective. They would say, "Who could have known?", just like the previous administration officials said on number of occasions. They might add, "We meant well." Well, you may know the saying... the road to Hell is paved with good intentions.

Wednesday, July 22, 2009

Companies Reporting Earnings on 7/23/2009

(Updated 7:50 PM PST)
(Updated 8:35 AM PST)
(The list is not exhaustive. It only shows the stocks I follow. For a more complete list, check Yahoo.)

Before market open:

  • BG (Bunge): beat analyst estimates
  • CELG (Celgene): met
  • CME (Chicago Mercantile Exchange): beat
  • CS (Credit Suisse): beat
  • EMC: beat
  • FITB (Fifth Third Bancorp): beat
  • HOT (Starwood Hotels): beat
  • JBLU (JetBlue): beat
  • MAN (Manpower): beat
  • MCD (McDonald): beat
  • MMM (3M): beat
  • NEM (Newmont Mining): missed
  • OXY (Occidental Petroleum): beat
  • PM (Phillip Morris): beat
  • PNC (PNC Financial): missed
  • POT (Potash): missed
  • SWY (Safeway): beat
  • T (AT&T): beat
  • UPS: met
After market close:
  • AMZN (Amazon): met
  • AXP (American Express): beat
  • BIDU (Baidu): beat
  • BRCM (Broadcom): missed
  • COF (Capital One): beat
  • JNPR (Juniper Network): beat
  • MSFT (Microsoft): met
  • NFLX (Netflix): beat

Companies Reporting Earnings on 7/22/2009

(Updated: 10:55 PM PST)
(Updated 8:44AM PST)

(The list is not exhaustive. It only shows the stocks I follow. For a more complete list, check Yahoo.)

Before market open:

  • BA (Boeing): beat
  • GENZ (Genzyme): met
  • GSK (Glaxo-SmithKline): beat
  • PEP (Pepsi): beat
  • MO (Altria): beat
  • MS (Morgan Stanley): missed
  • PJC (Piper Jaffray): beat
  • STI (Sun Trust): beat
  • SU (Suncor): missed
  • WFC (Wells Fargo): beat
After market close:

  • AFFX (Affymetrix): beat
  • CMG (Chipotle Mexican Grill): beat
  • eBay (EBAY): beat
  • HUBG (Hub Group): beat
  • ISRG (Intuitive Surgical): beat
  • MOS (Mosaic): beat
  • QCOM (Qualcom): beat
  • SWKS (Skyworks): beat
  • TUP (Tupperware): beat
  • (

Obama To Say "We Rescued The Economy"

in today's evening news conference, according to his Chief of Staff Rahm Emanuel.

Obama goes prime-time to pitch healthcare
(7/22/09 UPI via

"U.S. President Barack Obama shifts his effort to convince the American people healthcare reform is the right thing to do right now to prime time Wednesday.

"In an evening news conference, Obama is expected to outline the case for healthcare reform as well as provide an update on what has been accomplished since he took office in January.

"White House Chief of Staff Rahm Emanuel told The New York Times Obama intends to use the news conference as a "six-month report card," to talk about "how we rescued the economy from the worst recession" and the legislative agenda moving forward, including health care and energy legislation." [emphasis is mine]

The very first thing that popped in my mind when I read this was the famous words by the former Vice President Al Gore (now the owner of Chicago Climate Exchange):

Many people say that we should be patient, the president is new to the job (isn't every one who is elected for the first time?), he inherited the mess from the previous administration, etc. etc. etc., ad nauseam.

Why should we be patient? This administration came up with 1,000-plus page stimulus package in February, 1300-page climate bill in June, and 1000-page health care bill in July. I don't think they are the rookies' job, just by the sheer size of those bills. In between, they bankrupted two of the three US auto makers without Congressional oversight, poured more US soldiers in Afghanistan, set up a "shadow" government with "czars" who are answerable to the President only, and pushing for a drastic financial regulatory overhaul with the Federal Reserve at the head when the growing number of Americans want to audit the Fed and even abolish the Fed.

The administration is waging a blitzkrieg while they can get away with it - i.e. during the first few months of the new administration when people are still hopeful, and patient. But once those bills pass, there won't be any reversal. We will be stuck with them. We should scrutinize every single thing that they do from the day one. We should have, but we didn't.

President Obama is reportedly threatening the reluctant Democrats in Congress that if they don't support him in the health care reform bill, "you are going to destroy my presidency".

That's a bit too much thuggishness from Chicago gangsta land for me. Too much Rahm.

Tuesday, July 21, 2009

Bernanke's Exit Strategy May Be No Strategy

The Federal Reserve Chairman Ben Bernanke testified before the House today, the first day of the semi-annual ritual before Congress on the subject of the Federal Reserve's monetary policy. (This semi-annual testimony, by the way, is about the only Congressional oversight on the Federal Reserve.)

What set today's testimony apart was in the prepared statement and his op-ed piece on Wall Street Journal: the Fed's "exit strategy" - how to shrink the Fed balance sheet once the economy gets going on its own.

I ran into two articles that say "When" is more important than "How": Here's one, by Catherine Rampell of New York Times; the other is here, by Jill Schlesinger of CBS. They both gloss over the "how", treating them as standard, run-of-the-mill tools.

Are they?

The Federal Reserve's balance sheet exploded from $900 billion in September 2008 to over $2 trillion two months later in November 2008. This is simply historically unprecedented. Don't we need to examine the tools that purportedly shrink this balance sheet, or whether it would be ever possible to do so at all? Could "standard" tools do? If not, what would happen?

I am more interested in knowing the "how"; from the recent past, I'm resigned to the probability that the Fed will get the "when" very, very wrong, unless by chance. So, let's take a look at the op-ed piece in Wall Street Journal, in his own words.

The Fed’s Exit Strategy (Ben Bernanke, 7/21/09 Wall Street Journal)

"The depth and breadth of the global recession has required a highly accommodative monetary policy. Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.

"These actions have softened the economic impact of the financial crisis. They have also improved the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages."

Many people (including myself) would question the validity of the second paragraph, but the first paragraph describes what the Fed has done. I accept that.

"My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road....

"The exit strategy is closely tied to the management of the Federal Reserve balance sheet... as the economy recovers, banks should find more opportunities to lend out their reserves. That would produce faster growth in broad money (for example, M1 or M2) and easier credit conditions, which could ultimately result in inflationary pressures—unless we adopt countervailing policy measures. When the time comes to tighten monetary policy, we must either eliminate these large reserve balances or, if they remain, neutralize any potential undesired effects on the economy." [emphasis is mine]

And exactly how is he going to do that?

First, it will happen automatically anyway: "To some extent, reserves held by banks at the Fed will contract automatically, as improving financial conditions lead to reduced use of our short-term lending facilities."

Second, he can raise the interest rate on the reserves so that the banks will keep their money at the Fed and not lend out: "we can raise the rate paid on reserve balances as we increase our target for the federal funds rate."

The first one is not a policy choice, so basically the first and foremost attack on bulging reserve is to raise interest rate on the reserve so that it will not leave the Fed and flood the Main Street and cause inflation.

Ummmm, hasn't the government been complaining that banks are hoarding the money at the Fed and not lending to Main Street?

Bernanke then cites European, Canadian, and Japanese experience where the interest rate on reserve acted as floor support for their short-term funds rates. However, despite "this logic and experience, the federal-funds rate has dipped somewhat below the rate paid by the Fed" and the Chairman partly blames it on banks' inexperience with the new system. (Yes, it's irrational, isn't it Mr. Spock?)

If this gap between the Fed funds rate and the reserve interest rate persists, Bernanke says there are four ways to tighten the monetary policy:

  1. Large-scale reverse repurchase agreements with financial market participants;
  2. The Treasury could sell bills and deposit the proceeds with the Federal Reserve. When purchasers pay for the securities, the Treasury’s account at the Federal Reserve rises and reserve balances decline;
  3. Offer term deposits to banks—analogous to the certificates of deposit that banks offer their customers; and
  4. Reduce reserves by selling a portion of its holdings of long-term securities into the open market.
Now, let's examine these four choices against the Federal Reserve's latest balance sheet.

1. Reverse repo agreements:

Repo agreements inject short-term credit, reverse repo agreements drain short-term credit. Currently the Fed has $66 billion reverse repo agreements on the balance sheet (liabilities), entirely with foreign and international account dealers. The Fed wants to greatly expand reverse repo agreements with a lot more institutions to drain liquidity. It is short-term and temporary.

2. Treasury sells bills and deposits the proceeds at the Fed:

That's a longer-term than reverse repo agreement, but still temporary.

3. Offer term deposit to the banks:

The Fed already pays interest on the reserves. All term deposit offers is that the Fed will be able to lock up the reserve for a specified amount of time.

4. Sell portion of long-term securities in open market:

Which long-term securities? As of Wednesday July 15, The Fed has
  • $659 billion Treasury notes and bonds and TIPS held at face value;
  • $102 billion Federal agency debt securities held at face value;
  • $526 billion Mortgage Backed Securities guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae held at current face value (=remaining principal balance of the underlying mortgages)
It seems to me that there are so many Catch-22 here.

First, Treasury notes and bonds. They are part of the collateral held against Federal Reserve notes (U.S. dollar bills, $1,054 billion outstanding). Also, if the Fed wants to vastly expand reverse repo agreements to drain liquidity, it has to post collateral, and the collateral for that operation is Treasury notes and bonds. That would mean the U.S. dollar's value would drop, as the dollar is backed less by Treasuries and more by securities of dubious quality (agency bonds and MBS).

Second, the federal government will have to issue more Treasury debt as far as eyes can see on their ambitious programs. Adding to the supply would lower the price, raising the yield and raising the cost of the debt.

Third, who in the world (literally) wants agency bonds, and who wants them at face value? No one. Ditto for MBS guaranteed by the likes of Fannie and Freddie. I don't know how much the Fed can get in the open market for these securities, but definitely NOT AT FACE VALUE.

The only method that would actually reduce liquidity seems to be the No.4, but then the house of cards would come tumbling down when the open market price discovery happens.

Luckily for Ben Bernanke, banks have very little interest in lending for now, as the economic "recovery" is seen tepid and slow. Unless they are forced to lend, like the Chinese central bank forced its banks by lowering the reserve interest, we don't need to worry about how the Fed is going to absorb excess liquidity.

I would like to know what exit strategy the Chinese central bank has, if any...

Companies Reporting Earnings on 7/21/2009 Updated

(Updated: 1:48 PM PST)

(The list is not exhaustive. For a more complete list, check Yahoo.)

Before market open:

  • AKS (AK Steel): beat analyst estimates ($47M loss)
  • BLK (Blackrock): beat (profit down 20%)
  • BTU (Peabody Energy): met (profit down 66%)
  • CAL (Continental Airlines): missed ($169M loss)
  • CAT (Caterpiller): beat (profit down 66%)
  • DD (Du Pont): beat (profit down 61%)
  • FCX (Freeport-McMoran): beat (profit down 37%)
  • HCBK (Hudson City Bancorp): beat (profit up 16%)
  • KO (Coca Cola): beat (profit up 44%)
  • LMT (Lockheed Martin): beat (profit down 17%)
  • LUV (Southwest Airlines): beat (profit down 83%)
  • MRK (Merck): beat (profit down 10%)
  • STT (State Street): beat (3.31B loss)
  • UAUA (United Airlines): beat
  • UTX (United Technologies): beat (profit down 24%)

(Most companies beat the analyst estimates that were low. So it was analysts who missed...)

After market close:

  • AAPL (Apple): beat (profit up 15%)
  • AMD: missed
  • BXP (Boston Properties): beat
  • GILD (Gilead Sciences): beat
  • SBUX (Starbucks): beat
  • STX (Seagate): beat
  • YHOO (Yahoo): beat (profit up 8%)

Obama Not Familiar With House Heath Care Reform Bill

This from the Heritage Foundation.

Morning Bell: Obama Admits He’s “Not Familiar” With House Bill (7/21/09 The Foundry @ the Heritage Foundation) [emphasis is mine]

"With the public’s trust in his handling of health care tanking (50%-44% of Americans disapprove), the White House has launched a new phase of its strategy designed to pass Obamacare: all Obama, all the time. As part of that effort, Obama hosted a conference call with leftist bloggers urging them to pressure Congress to pass his health plan as soon as possible.

"During the call, a blogger from Maine said he kept running into an Investors Business Daily article that claimed Section 102 of the House health legislation would outlaw private insurance. He asked: “Is this true? Will people be able to keep their insurance and will insurers be able to write new policies even though H.R. 3200 is passed?” President Obama replied: “You know, I have to say that I am not familiar with the provision you are talking about.” (quote begins at 17:10)

"This is a truly disturbing admission by the President, especially considering that later in the call, Obama promises yet again: “If you have health insurance, and you like it, and you have a doctor that you like, then you can keep it. Period.” How can Obama keep making this promise if he is not familiar with the health legislation that is being written in Congress? Details matter.

"We are familiar with the passage IBD sites, and as we wrote last week, the House bill does not outright outlaw private individual health insurance, but it does effectively regulate it out of existence."

This blog covered the issue of private insurance under H.R. 3200 in this post last Saturday, with the actual text of the sections in question. As the Heritage Foundation says, the bill will effectively kill the private health insurance industry with cumbersome new regulations and restrictions and raise the cost to employers and individuals.

And the President, who's clearly back in the campaign mode to sell this piece of monstrocity, doesn't even know what's in it. He probably doesn't know that Congress will be exempt from the very rules that they are crafting right now.

According to the Heritage Foundation, the bill will:

  • Approximately 103 million people would be covered under the new public plan and, as a consequence, about 83.4 million people would lose their private insurance. This would represent a 48.4 percent reduction in the number of people with private coverage.
  • About 88.1 million workers would see their current private, employer-sponsored health plan go away and would be shifted to the public plan.
  • Yearly premiums for the typical American with private coverage could go up by as much as $460 per privately-insured person, as a result of increased cost-shifting stemming from a public plan modeled on Medicare.
And remember that the bill wants to penalize people who don't have health insurance by taxing them on their gross income.

Has the whole country gone crazy or what?

Monday, July 20, 2009

Morgan Stanley Sees Bubbly China

and it's just fine and dandy with them.

Their latest on the Global Economic Forum is "Policy-Driven Decoupling: Upgrading Our 2009-10 Outlook", July 17, 2009 by Qing Wang, Denise Yam, CFA & Steven Zhang , Hong Kong.

"The Chinese economy staged a stronger-than-expected rebound in 2Q09, with real growth reaching 7.9%Y, up from the trough of 6.1% in 1Q09. On a seasonally adjusted basis, we estimate that the economy grew by a strong 4.5%Q (+19% annualized), accelerating from 1.5% in 1Q09 and the trough of 0.4% in 4Q08. We attribute the better-than-expected economic performance to the maintenance of the growth-boosting policy stance, which made possible a much-accelerated realization of the real stimulative effect from the multi-trillion renminbi fiscal package and expansionary monetary and credit policy, which we originally expected to materialize only in 2H09. In particular, policy-driven monetary and credit expansion, which has been consistently surprising on the upside, has enabled the significant pick-up in domestic investment. The Rmb1.53 trillion new loans made in June sent money and loan growth to new record-highs of 28.5%Y (M2) and 34.4%Y, respectively. Credit creation in 1H09 totaled Rmb7.37 trillion, three times the amount in the year-ago period, and exceeding the 2008 total (Rmb4.91 trillion) by 50%, helping to finance the 35.7%Y growth in fixed asset investment (nationwide) in 2Q09, up from 28.8% in 1Q (33.5% in 1H)."

So the Morgan Stanley analysts are basically saying that the Chinese stimulus is working miracles, unlike those in the Western nations. So where is this "domestic", "fixed asset" investment going, which is the result of "policy-driven monetary and credit expansion"?

Their summary does mention "the strong recovery in property sector", but the detailed discussion oddly starts with domestic consumer consumption (which the analysts say resilient) offsetting external weakness (i.e. export). I take it to mean it has stopped going down. Export has cratered because the U.S. and Europe are not buying anytime soon.

Then they talk about "policy-driven decoupling", meaning China has forced the banks to lend by lowering the interest on the reserves (they don't mention this) so the market is awash with new credits looking for places to go. And they are going places.

"Specifically, sustained and stronger-than-expected credit growth in recent months has continued to buoy sentiment and helped to deliver: a) an accelerated rollout of public infrastructure projects; b) more resilience in private consumption and private manufacturing sector capex despite weak exports; and c) an increasingly convincing recovery in property investment. These positive developments, together with the steady asset price reflation, are serving to compensate for the prolonged weakness in external demand."

The newly created money is going to public infra projects (not the most efficient use of money in any country, particularly in China), private manufaturing sector capital expenditure (without demand from export, that means overcapacity being built), and property investment. The money apparently make Chinese citizens feel good, as an important side effect.

The Morgan Stanley analysts call these developments "positive", and happy to see "the steady asset price reflation". It's the bubble time again!

Didn't we just popped one gigantic bubble based on asset price inflation? And these analysts are hailing the reflation of the same bubble and misallocation of capital?

They also say that despite rapid increase in M2 (28.5%), there is no need to worry about inflation at least for the next 12 months. And yet they talk about steady asset price reflation. So if I try my best to understand the Morgan Stanley economists, China is in a wonderful situation:

  • The stimulus is working, thanks to the government's monetary and economic policies, and money is going to infra, capacity build-up, and real estate market (wonder why they don't mention stock market);
  • Chinese citizens are happy that the asset price is being reflated without food price going up;
  • Export will resume its growth in the 4th quarter because of renminbi's peg to the weakening U.S. dollar and because of tepid demand to be coming from the U.S. and Europe;
  • M2 is growing rapidly but there will be no price inflation for at least for 12 months even if asset prices are reflating.
That foreign hot money is back in China I have little doubt. China's purchase of U.S. Treasuries jumped in May by $38 billion. China's central bank has been busy absorbing the U.S. dollar that has been entering their country; their foreign reserve recently topped $2 trillion.

I can't picture a worse scenario than to have a central planning and have a flood of hot money coming in.

Morgan Stanley recently announced that it plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings. The firm seems to want the return of good old bubble, so it's little wonder it is cheering the new (old) bubble in China.

Health Care Reform Seek "Inefficiencies" - Obama

In his own words... "The reforms we seek would bring greater competition, choice, savings and inefficiencies to our health care system", Mr. Obama said. (Read more at Politico.)

Treasury Auction for Supplementary Financing Program

As I was updating the result of today's Treasury auction for my other blog, I noticed an interesting announcement from the Treasury Department.

The Treasury Department, in addition to today's two auctions, will hold three more auctions this week. One is 4-week bill tomorrow. The other two are what's interesting.

The Treasury is auctioning two batches of 70-day Cash Management Bills (CMB), one for $35 billion (July 22) and the other for $30 billion (July 24), as part of Supplementary Financing Program. I haven't paid much attention to Cash Management Bill auctions, as I thought they are temporary borrowings by the Treasury to fill the monthly government budget shortfalls.

So what is "Supplementary Financing Program (SFP)"? It is a temporary program announced by the Treasury Department on September 17, 2008 (one day after AIG was bailed out by the Federal Reserve) basically to help out the Federal Reserve. The Treasury Department issues debt, and the money goes to the Federal Reserve for whatever the Federal Reserve is doing (no one knows for sure) to stabilize the financial markets.

So I took a look at the auction results for CMBs this year, and almost all of them have been for this SFP (i.e. for the benefit of the Federal Reserve). CMB auctions for the SFP have been held for the following dates, amounts either $30 billion or $35 billion:

  • January 7, 14, 21, 28
  • February 4
  • March 4, 6, 18, 20
  • April 1, 3, 30
  • May 13, 15, 21
  • June 3, 5
  • July 15, 22 (to be held), 24 (to be held)

So the Federal Reserve continues to need cash injection to the tune of $60 to 120 billion a month, even though the financial markets are supposed to have stabilized. What are they spending the money for?

Sunday, July 19, 2009

Bernanke: Bubble? What Bubble?

Found the video in LRC Blog. According to the Fed Chairman, there was no housing bubble. Only a localized problem here and there, but nothing threatening the national market. Subprime? It was not the big issue. And global economic growth remained strong.

Companies Reporting Earnings On 7/20/09

Companies reporting earnings on Monday July 20, 2009 include the following:

Before market open:

  • Halliburton (HAL)
After market close:
  • Legg Mason (LM) 4:00pm
  • Texas Instruments (TXN)
  • Zions Bancorp (ZION)

Bank Closure In July 09 - Mid-Month Update

July is shaping up to be the worst month in terms of bank closures since the current recession started. On Friday July 17, FDIC closed four banks (2 in California, 1 in South Dakota, one in Georgia). The total number of banks closed so far in July is 12.

Just remember: FDIC's reserve ratio as of March 31, 2009 was 0.27%. In other words, FDIC had $13 billion at hand at the end of March. This week's 4 bank failures cost FDIC over $1 billion.