Sunday, July 26, 2009

Stock Market Update

So are you feeling any richer today than, say, last Sunday?

You should be, at least if you have an IRA, 401k, 529 college savings account or any other investments in the stock market.

The market did suprisingly well last week, with the Dow closing above 9000. Led by strong earnings reports, the new question is "can the market keep chugging?"

There is a lot on the agenda this week, so investors need to take note.

First up, a deluge of earnings is scheduled to continue with Dow, Exxon, Chevron, Disney and Verizon leading the charge. If reports are good look for a strong finish to July.

However, August has been a traditionally slow period, as investors and bankers take vacations for the month. It might create opportunities for short-sellers looking to capitalize upon a very dicey economic recovery in both the United States and abroad. Combined with a White House that is fiercely arguing its points on healthcare reform, traders are apprehensive to call this a recovery - at least not yet.

There are far too many questions left unaswered at this point, and if anything, the economy will continue to weigh down a true recovery for the next 60-90 days. Unemployment will likely go above 10% when the government reports next and experts aren't sure where it will top out. Housing starts are not showing tremendous signs of recovery and consumer confidence barely exists. Throw in Microsoft and Amazon missing estimated earnings and it's clear not much has changed.

However, several conversations with purchasing managers this past week indicate a small uptick in orders occurred in metals and fluids, indicating that there is something going on out there. Perhaps it is stimulus dollars making their way into the economy or commitments that finally developed over many months ago. Regardless, it seems to me that next year at this time the economy will be heading back into full gear.

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Sunday, July 19, 2009

Health care reform

Let me be the first to admit that I seldom, if ever, need my employer-sponsored healthcare package. I'm probably one of the lucky ones. I'm also not a doctor (and I've never played one on TV) so I don't know the total story when it comes to billing, paying, services, wait times in emergency rooms, elective surgeries, etc.

With that said, however, I understand business, finance and people...in that order.

So it's no surprise that business people despise the new healthcare reform package offered up by the government. And to be fair, who can blame them? The current tax system already imposes 15-35% income tax on businesses, and individual states throw more on top. Mix in 7.5% taxes into the social security fund, 1.65% into unemployment on the first $7,000 earned by each employee and most businesses can fairly say they pay upwards of 45% to the government. That's a lot of money, particularly on small business owners, which make up 80% of all employers in the US according to the Small Business Administration. If you owned a business that made $100,000 per year before taxes, how would you feel if you only took home $55,000 -$60,000 per year and were being asked to pay more?

Not sure about you, but I'd hire fewer people and actually consider firing a few, too. That doesn't sit too well ever, but especially now given our current 9.5% (reported) unemployment.

On the finance side, the system stinks worse than the Pittsburgh Pirate's front office (maybe) and there's no end in sight. How can an insurance company charge one fee, accept another from the healthcare provider and not be held to better standards? While I fully support price discrimination, as most economists would (if you don't know what price discrimination is, think "Ladies night" or "kids eat free" or the way the airlines price tickets and you'll understand the concept) health insurance price discrimination makes no sense whatsoever from a financial point of view. The pricing scheme is so convoluted that I actually do know why things cost so differently from one provider to the next - they don't know how to price their product or service.

People. Now this is a different story entirely.

Shame on us. We know better, yet we continue to try and get something for nothing or ask for more support so that we don't need to modify our behavior that lead to the problem! Rather than asking Uncle Sam to come up with a solution, maybe it makes more sense to modify our diets, exercise more, smoke less and eat more veggies so that we don't need to go to the doctor's office as often. If we go less, the demand for the product goes down and providers would need to find a better method to attract our business, such as, oh I don't know.... LOWER COSTS?

Ah, the "preventive" maintenance argument. That one hurts the most, as it actually involves personal responsibility, but it makes the most sense.

Think about it. If fewer of us needed to go to the doctor's office, emergency room, surgeons, etc. because our bodies were better equipped and healthier, those needing services would have quicker access, less tired healthcare providers and insurance companies that weren't questioning everything?

I'd love to call it innovative, but it's as old as the hills.

So consider my healthcare reform today by reforming your old habits. Take a walk, turn off the television and put down that bag of chips.

Friday, July 10, 2009

Let's try this again

There ain't no cure for the summertime blues - that much is sure.

And the worldwide economy seems to support this theory, plodding along painfully slow like a Pittsburgh Pirate's baseball season.

The question I get most from students and friends is "when will it end?" Sadly, I don't know and I'm not sure anyone knows. Experts are currently feuding over another stimulus package, and I promised my wife and kids that I wouldn't get angry this summer so I won't touch that hot potato. Instead, I want to focus on the good things I see happening, despite unemployment at 9.5% (closer to 13% when you put part-time employment into the mix and assume they'd prefer to be full-time) and a California government writing I.O.U's while a Pennsylvania government can't do the one job they are elected to do - pass a budget.

I want to count the good things today, and there are many.

First and foremost is that there is finally productive conversations taking place at very high levels, unlike the previous six months of political maneuvering. I think that some (not all) of the politicians recognize that times are tough.

Gas prices are about $1.40 less this year than last year and we have already passed the traditional 'high mark' of July 4th. This bodes well to improve consumer sentiment in the coming months.

The stock market is flat, which beats the heck out of investments falling faster than a kid doing a cannonball at the local pool. Folks have finally seen the bleeding on their 401k's, IRA's and college savings accounts stop. In fact, they most likely saw the balances improve last quarter and they should be up about 10% year to date.

The herd is finally getting thinner as companies have begun to realize the impact of their cost cutting measures and the consumer is benefiting from the slimmer margins. I'm not suggesting we're spending more, but I am suggesting that we're at least spending the same and the feeling of doom and gloom is gone. There's light at the end of the tunnel.

Housing is near the bottom in most major markets, but not all. Here in Western PA, while the market is anything but robust, it is steady and homes are selling.

I am not about to call a bottom on a market, or a top for that matter. But I can observe, and right now, it seems to me that the worst is well behind us. And while we might not enjoy 6-8% growth for many years to come, I am going to suggest that a moderate 2-4% growth rate is not always a bad thing and beats the alternative of negative growth.

We're living within our means and that's a good thing. Banks are making loans to people who deserve them and those who pay their bills on time. How can that be bad?

Oh, and the best thing about July is that I go on vacation at the end of the month. I'm refreshed and ready to write, so please look for weekly updates. I also joined the Examiner.com staff as a freelance writer and will be tackling local business issues on a fairly regular basis. Add this site to your favorites please and leave some comments!