Monday, December 20, 2010

On the Brink of Big Badness

When CBS News is calling socialism "unsustainable", it means the jig is officially up. Most of the 50 states are bankrupt, and there's even talk of massive municipal bond defaults. In other words, neither the overvalued stock market nor the house-of-cards bond market will be safe havens. A big pile of fictional wealth is going to disappear one way or another.

Friday, December 10, 2010

Socialism Sucks, Part 3: Centralized Planning



Article: Al Gore reverses view on ethanol.

Not so unintended after all: the whole point of Obamacare is to drive private insurance companies out of business, leaving us with one big socialized health-care system.

Wednesday, December 08, 2010

Fed charmain caught in a blatent lie

If the Federal Reserve Bank thinks that printing money is good for the economy and ultimately helps the average citizen, then chairman Ben Bernanke should gladly admit that he's printing money and bask in our gratitude.

But when the Fed prints money and lies about it, it does not inspire confidence.


The Daily Show With Jon StewartMon - Thurs 11p / 10c
The Big Bank Theory
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Sunday, December 05, 2010

Flat top?

The S&P 500 index has been bouncing back and forth between ~1180 and 1225 for the past month or so. (The earlier rally stalled as predicted.)

Stock market sentiment is still quite optimistic, so I doubt that a new prolonged rally is coming any time soon. I think it's more likely that the S&P will dive below 1180 next, but lately I've been wrong as often as I've been right.

Thursday, November 18, 2010

Uh-oh

Municipal bond prices have been plummeting for the past couple of weeks.


Municipal bonds are the vehicles that states, counties and cities use to borrow money. When bond prices fall, it becomes more expensive for local governments to raise cash because they have to sell more bonds (and promise bigger future payments) to borrow the same fixed amount of money.

Friday, November 12, 2010

Market update: optimism threatens the rally

Stock market sentiment is almost as optimistic as it was in late April of this year, meaning the current rally is nearly out of steam. Even if the market doesn't fall from here, it will probably have to at least stall for a while to let sentiment return to more neutral levels.


Thursday, November 11, 2010

Friday, November 05, 2010

Double Breakout

The S&P 500 index continues to defy most of my short-term predictions, and has actually accelerated above the rising tops trend line that's been in place since August. At the same time it's passed above the 1217 closing price peak of last April.


These are both bullish signals.

Thursday, October 28, 2010

A few reasons to oppose Obama and the Dems

These are the final paragraphs of Hanson's column "The Great Divider":

A vast new health care monstrosity that will send private insurance rates through the ceiling. The Machiavellian way in which it was slammed through. Failed stimulus. Wasteful pork-barrel spending of hundreds of billions in borrowed money. Persistent near 10% unemployment. Three trillion dollars in new debt in just two years. Record levels of federal spending. The vast increase in the size of government and its share of GDP. Eight years of projected $1 trillion annual budget deficits. Record high foreclosures. Record high usage of food stamps. The Keynesian zeal of Romer/Summers/Orzag followed by their sudden resignations in the wake of failure. Constant talk of higher taxes on “them”— the promised new health care surcharge taxes, the promised return to the Clinton income tax rates, talk of a VAT, talk of lifting the caps on income subject to FICA taxes, new capital gains taxes, new inheritance taxes on the horizon.

The use of extra-cabinet czars to avoid confirmation and audit. The neglect of the law, from reversing the order of Chrysler creditors to announcing a BP $20 billion shakedown and punishments for health insurers who don’t toe the line. The ascendance of ACORN and SEIU. The months-long shutdown of Gulf drilling. The failure to encourage coal, nuclear, and oil and gas new production. The Black Panther voting intimidation mess. The bowing abroad. The apologies. The outreach to enemies, and the snubbing of allies. The unnecessary humiliation of Great Britain and Israel. The Iran serial “deadline” charade. The unnecessary announcement of Afghan troop withdrawal deadlines. “Overseas contingency operations” and “man-made disasters.” The proposed civilian trial of KSM. The Ground Zero mosque mess. The beer summit mess. NASA’s new main mission of Muslim outreach. Stopping the border fence. Suing Arizona and demonizing the state. The apologies to the Chinese over the Arizona law, which was trashed from the White House lawn by the president of Mexico, and sued by foreign governments to the apparent approval of the administration.

The constant “Bush did it” refrain. The gratuitous slurs against limb-lopping doctors. The thrashing of the “rich” going to the Super Bowl and Las Vegas. The artificial divide of them/us based on $250,000 of annual income. The racial divisiveness from a sad cast of characters that gave us “cowards,” “stupidly,” “wise Latina,” and whites polluting the ghetto. Unhinged appointees like Van Jones and Anita Dunn. The occasional unguarded admissions like “never waste a crisis” and “at some point I do think you’ve made enough money.” The wacky behavior from the whining of “like a dog” to the sudden junketing to Copenhagen to lobbying for the Chicago Olympics. The Orwellian cheap damning of the Bush anti-terrorism protocols only to accept or expand tribunals, renditions, Guantanamo, Predators, Iraq, and intercepts and wiretaps. The golf obsession and Costa del Sol while trashing the indulgent rich.

And that's not even a complete list. These last two years under Obama (not to mention four years under the Democrat-controlled Congress) have been disastrous.

Sunday, October 24, 2010

Up

The stock market has been climbing for two months now, with the S&P 500 index forming a rising channel pattern.


There are reasons to hope for further gains: stock market sentiment has not yet reached optimistic levels, and there have been several occasions in the last century where long-term market rallies began in or near October of a mid-term election year.

On the negative side, price patters like the one the market is in now are typically violated by a price downturn, which could happen at any time. And of course the dividend yield of the S&P 500 - now down to 1.95% - is just getting worse as the index climbs.

Friday, October 22, 2010

Hanson body-slams NPR

It's hard to choose highlights from a column in which every sentence is gold, but I'll give it a try:

NPR is in some part either publicly funded or relies on a public brand to earn cash. Its charter is to promote the free exchange of ideas. That did not happen.

...

Note how the NPR CEO Vivian Schiller herself slanders Williams by suggesting that he talk with “his psychiatrist”—and a subsequent brief apology cleans up her mess.

...

Supposedly intolerant hard-driving Fox News has no problem with liberal Williams working for NPR; supposedly soft-spoken, inclusive NPR has a lot of problems with Williams working for Fox.

...

Note how CAIR, the Islamic advocacy group, pressures NPR on Williams’s remarks, but gives a lifetime career achievement award to the anti-Semite Helen Thomas, who calls for the destruction of Israel...

...

Notice that ideologue and partisan George Soros just offered NPR nearly $2 million to hire 100 reporters—and NPR accepted the gift. Would it have accepted money from, say, a more soft-spoken. but conservative philanthropist such as Charles Koch who might target where NPR needed “help”? And, if it is a publicly-funded agency, why do zillionaires have the right to donate and determine hiring for their pet causes? Maybe Bill Gates can offer to hire some IRS auditors, or Warren Buffet can fund a new branch of the SEC?

Read the whole thing here.

Thursday, October 21, 2010

NPR = Nothing but Propoganda Radio

How biased is National Public Radio? Juan Williams, a mouthpiece for the Left on Fox News, is too far to the Right for NPR's tastes. That's right: Juan Williams has just been fired by NPR.

Sit back and contemplate that for a moment.

Tuesday, October 12, 2010

So much for the "short term top"

The S&P 500 index has officially broken through the multi-month rising upper trend line.

It's now maneuvering in a narrow rising channel, which is usually broken by a decline through the bottom rather than an acceleration through the top. However, sentiment has actually been falling for the past week or so while the market has been rising, which means this rally could continue for a while.

On the fundamental side, the dividend yield of the S&P is now back below 2%, which only proves that the stock market today is a giant casino and not a real investment vehicle. Recall that the yield of the S&P 500 has spent many years above 5%, and has even touched 10% for brief periods; those yields correspond today to S&P 500 index levels of 468 and 234, respectively. For those who only speak "Dow," those high yield marks correspond to Dow 4400 and 2200, respectively.

Monday, October 11, 2010

Party does not always equal Ideology

Here's an ad by a Tea-Party wacko ... oh wait, this is the Democratic nominee for the Senate seat of West Virginia:



Judging by his ad, this guy is more of a Conservative than most Republicans in the Northeast or West Coast. It turns out that his Republican opponent is still ahead by about 5% - too bad he can't run and win in a place like New York or California.

Thursday, October 07, 2010

Why we're not Ottomans (or Muslims)

Today is the anniversary of the Battle of Lepanto, a decisive naval engagement in 1571 between the main fleet of the Ottoman Empire and an allied fleet composed of ships from Spain, Venice, and other European states. The allied fleet lost only 17 ships in the battle, while the Ottomans lost nearly 200 galleys, 20,000 soldiers and sailors, and 10,000 liberated oar-pulling galley slaves.

Just as the Battles of Britain and Midway proved that Nazi Germany and Imperial Japan weren't invincible in 1940 and 1942, respectively, the lopsided outcome of the Battle of Lepanto was a stunning reversal for the superpower of that time, and marked the beginning of the end of the westward expansion of the Ottoman Empire in the Mediterranean Sea and southern Europe.

Tuesday, October 05, 2010

Evil or stupid? Socialism is both.

This is Andrew Cuomo(D), then Secretary of Housing and Urban Development, bragging about forcing banks to loan money to poor people in 1998:
"They would not have qualified [for the loans] but for this affirmative action by the bank, which will be a higher risk. I'm sure there will be a higher default rate on those mortgages."



Another case of Government doing more harm than good.

Monday, October 04, 2010

Looks like a short-term top

The S&P 500 index has been lingering around the rising upper trend line for a couple of weeks now without making a decisive breakout.

In the meantime, price sentiment has become moderately positive, which is a short-term bearish signal. If I had to wager I'd say the trend line will keep holding and that prices will head lower. I'm not going to bet my money on that, however, because I want to see a long-term bearish signal in the charts before investing in a bear mutual fund.

Monday, September 27, 2010

"No End in Sight"

Every now and then there's an article that provides an honest glimpse into our financial future. Today in the Wall Street Journal: Banks Keep Failing, No End in Sight:
The largest number of bank failures in nearly 20 years has eliminated jobs, accelerated a drought in lending and left the industry's survivors with more power to squeeze customers.
...
The contraction represents an enduring threat to capital, lending and the economy. "When we step back and look at this financial disaster 10 years from now, the destruction of capital in our economy as a result of what we've endured will be the single greatest lasting impact on recovery and how the economy performs in the future."
...
The impact to the system has been "far more severe" than the savings-and-loan crisis. Not only were government rescue measures more sweeping and more global this time, the weakness in real estate continues to constrain economic growth. Since 2008, the industry's assets have shrunk by 4.5%.
And there's "no end in sight." As I've been saying for some time on the right sidebar, "a great deal of illusory capital is about to disappear."

Monday, September 20, 2010

Stock market update: Breakout?

If intra-day lows and highs are considered, then the S&P 500 index has finally broken through the nearly-horizontal upper trend line that's been in place since May.

However, if we only look at closing prices, then the S&P 500 finished the day today smack dab on the rising upper trend line, signifying nothing.

Even if this turns out to be a breakout and a continuation of the rally that began in late August, it would only mean an even more over-priced and fundamentally shaky stock market in the long run. I don't plan to buy any stocks any time soon.

Democratic Party = Socialist Party

For the record:

Friday, September 17, 2010

As goes Europe, so goes Blue State America

Ironically, the most anti-religious places in America (the Bluest/most Liberal) are proving the be the most susceptible to Islamification. Of course, when you consider that Blue states model themselves after European socialists, and that Europe is gradually succumbing to Islam, it may not be so surprising after all.

The Ground Zero mosque in New York City, which has the support of our first Son of Islam, Barack Hussein Obama, may prove to be the opening round in the as yet non-violent national debate over Islam in the U.S. Last year I witnessed local Islamification in person when I happened upon a strange hidden weekend meeting about Islamic banking on the campus of Boston University. Now there's this eye-opening example of Wellesley students visiting Boston:



It's bad enough that Red and Blue states have developed irreconcilable differences of opinion about the power of government versus individual liberties, but given enough time Blue states will be agitating for nationalized Sharia Law with the religious fervor of Muslim warriors. I don't want to be around for that civil war.

Wednesday, September 15, 2010

How the Brits saved Western Civilization (again)

Today is the 70th anniversary of the Battle of Britain Day, the date in 1940 when British Spitfire and Hurricane pilots officially turned the tide in the airborne defense of England against Nazi Germany's Luftwaffe. Although German fighters and bombers began their campaign in July, and would continue their attacks until the end of October, the downing of nearly 200 Germain airplanes by the Royal Air Force on September 15 marked the end of Hitler's plan to invade England.

Few today remember just how pivotal this battle was or how long the odds were for a British victory. The United States was still out of the war, and the United Kingdom was essentially fighting alone. Had Hitler defeated the RAF in 1940, it would have paved the way for a planned German invasion across the English Channel - D-Day in reverse. If the United Kingdom had fallen, it would have left America with no ally in North Africa, it would have left no staging area for an allied attack of Europe, and it would have allowed Hitler to mass more of his forces on the Eastern front when he later attacked Russia. All of Europe and much of Asia today would probably be part of either a Nazi or Soviet empire, and the world would be a much scarier place.
Never in the field of human conflict was so much owed by so many to so few.
-Winston Churchill, August 20, 1940

Even though large tracts of Europe and many old and famous States have fallen or may fall into the grip of the Gestapo and all the odious apparatus of Nazi rule, we shall not flag or fail. We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our Island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender...
-Winston Churchill, June 4, 1940

Saturday, September 04, 2010

Market update: whatever

The S&P 500 index refuses to start an upward or downward trend. It closed at 1105 on Friday, which is 4 whole points away from where it was on November 16 of last year (1109). Meanwhile, stock market sentiment is perfectly neutral by my reckoning.

Long term forecast: still dismal

Short term forecast: whatever

Tuesday, August 31, 2010

You might be a liberal

If you know gender is a social construct, but have no idea where electricity comes from,
you might be a liberal.

If you think the "evil" of Stalinist regimes is overstated and the tyranny of America is never stated enough,
you might be a liberal.

If you believe portraying Bush as the Joker is political satire, but portraying Obama as the Joker is racist,
you might be a liberal.

If you believe Glenn Beck is an extremist because Keith Olbermann told you so,
you might be a liberal.

If you believe that hurricanes are caused by people, and that crime is caused by the environment,
you might be a liberal.

If you think that treating all people equally, regardless of race, is racist,
you might be a liberal.

If you burn tons of carbon to attend a global warming conference that only sanctions the cleanest nations on Earth,
you might be a liberal.

If you think everyone would agree with you if they were open minded, and you refuse to listen to any other possibility,
you might be a liberal.

If you believe that a mosque should be built at Ground Zero, but Jews shouldn't build apartments in East Jerusalem,
you might be a liberal.

If all of your political arguments contain the phrase, "It's Bush's fault,"
you might be a liberal.

If you believe that Pro-Life violates the right to privacy, but you want to ban french fries,
you might be a liberal.

If you believe that immersing a crucifix in urine is fine art, but depicting the prophet Mohammed is insensitive,
you might be a liberal.

If you think the problem is that Obama is just too darn moderate,
you might be a liberal.

If you spend your day telling people that a border fence can't work, and then drive home to your gated community,
you might be a liberal.

If you think Sarah Palin was too inexperienced to be VP but that Obama had plenty of experience to be President,
you might be a liberal.

If you think the Right needs to be rounded up in camps to prevent them from acting like Nazis,
you might be a liberal.

If you think credit card companies are evil when they lend money, and mortgage companies are evil when they don't,
you might be a liberal.

If you think people have too many kids, and that those kids need to pay for your Social Security,
you might be a liberal.

If you think the Government should be obsessed with race, but no one else should ever mention it,
you might be a liberal.

If you think banks earning money on interest is wrong, but paying interest to China on the national debt is just peachy,
you might be a liberal.

If you think subsidies are an entitlement, tax cuts are a gift, and liberty is a controlled substance,
you might be a liberal.

If you totally hate haters, and wish those bastards would just die,
you might be a liberal.

Hat tip: Stormbringer.

Tuesday, August 24, 2010

God bless the infidels

Bored yet?

There's still nothing interesting to report about the S&P 500 Index, which remains stuck in the channel between 1010 and 1130.


The recent second flirtation with the 1130 level makes that upper resistance line all the more significant - if the S&P 500 crosses above that threshold then a continuing rally is likely. On the other hand, a drop below the 1055 level would leave 1010 as the last line of defense from a free-fall.

Tuesday, August 10, 2010

Short term forecast

The key stock market level appears to be about 1130 on the S&P 500 Index.

If the market can rise above that then a rally is likely to follow.

Monday, August 09, 2010

Bomb, baby, bomb

August 6th and 9th are the 65th anniversaries of the atomic bombings of Hiroshima and Nagasaki that ended World War II in 1945. Today I give thanks that hundreds of thousands of Americans and millions of Japanese did not die in an American invasion of Japan.

Among the Americans who were spared from being cut down on the shores of the Japanese home islands was my maternal grandfather; he landed in Normandy on D-Day with the American Army, and probably would have been sent to the Pacific theater by 1946 had Japan not surrendered. My mother and five of her siblings, who were all born after he returned from the war, just might owe their very lives to the atomic bombs. I, for one, will never apologize for them.

Friday, August 06, 2010

The money's not here.

If you think that your bank account is 100% safe and accounted for, then think again.



Today most Americans feel confident that their savings and checking accounts won't disappear because they're insured by the FDIC. That used to be a sure thing up until a couple of years ago, but due to all of the recent bank closings and rescues, the FDIC is now in debt $20 billion. If the U.S. Treasury had money to spare then this wouldn't be a catastrophe, but the federal government is in debt $13 trillion, and is adding another $1.5 trillion of debt this year. Were the economy to recover soon then increased tax revenues could at least allow the national budget to stabilize and limp along at its current debt level, but recent news is revealing the "Summer of Recovery" to be a mirage:
  • June job losses were larger than previously reported (220,000 lost instead of 125,000)
  • The total unemployment rate including part-time workers looking for full employment and people who have given up looking for jobs is now 16%.
  • The budget shortfalls of states and cities are getting worse nationwide.
  • A whole new round of residential and commercial foreclosures looms.
In other words, the financial system is not yet out of the woods and government needs more and more money to maintain the status quo, but taxpayers have less and less money to give.

The money's not here.

Friday, July 30, 2010

Nowhere fast

The S&P 500 index has been in a holding pattern for more than two months now.

Sentiment is neutral, so I can't make a short-term forecast. The dividend yield of the S&P is still at 2%, and global financial Armageddon looms, so the long term forecast remains very bearish.

Wednesday, July 21, 2010

Uh-oh

China - buyer of U.S. treasuries and manufacturer of cheap goods - is in the midst of a housing bubble that has begun to collapse. Whatever schadenfreude one might get from watching China stumble, an economic downturn there will put further strain on our own shaky economy.

Sunday, July 04, 2010

Downward trend; no politics please

Despite the bump in mid-June, the S&P 500 index has been in a downward trend for the past several weeks.

Short-term sentiment had a pessimistic spike in late May, but it has become more neutral since then, which means anything could happen at this point. I realize that's not a very helpful forecast.


I've watched the same Independence Day parade in Cape Cod, Massachusetts for the past 30 years or so, and something unusual happened this year. All of the political campaigns were bunched together in the last half of the parade, and as they started marching by with their signs the spectators grew silent, then restless, and then they started to leave before the parade was even over. I felt bad for whomever was bringing up the rear, because they probably had few if any spectators to wave to. For some reason the parade watchers just weren't in the mood for politics this year.

Tuesday, June 29, 2010

New low

Today's closing value for the S&P 500 index was 1041, which is a new low point for this large correction. The market is currently 15% below the late-April peak, and the S&P would have to drop to 975 to make it an official bear market.

Monday, June 28, 2010

No rally yet

The S&P 500 index is still wallowing around in the price region that it fell into more than a month ago.


My best short-term guess is that this is still the bottom of a correction, and that a rally is in the future. This is unrelated to my long term prediction that another big bear market will inevitably see prices fall well below where they are today.

Friday, June 18, 2010

A breakout - sort of

The S&P 500 index has broken above its short-term upper trend line, completing a textbook W-shaped double bottom pattern that usually signals the end of a correction.

The breakout hasn't been very decisive so far, so I'm going to wait a little longer before I guess whether this is the beginning of a rally or a head-fake before another decline.

Monday, June 14, 2010

Flat trend lines

Here's the three-week chart of the S&P 500 index:


Obviously the next significant technical event will be when the index crosses one of these lines.

Friday, June 11, 2010

Ho hum

Stock prices haven't really gone anywhere in the past three weeks.


Sentiment is still pessimistic, but not extremely so. If I had to bet one way or another, I'd say the next move will be at least a small rally, but since long-term fundamentals are as frightening as ever, and since I don't have to make a bet one way or another, I'm staying in cash.

Sunday, June 06, 2010

War then and now

On this, the 66th anniversary of D-Day, Iran has offered to escort the next blockade-running "aid" convoy to Gaza. That would probably spark the next regional war in the Middle East.

Now more than ever, we need to remember why the Normandy invasion was required in the first place. In the economic turmoil of the 1930's, the U.S. and other European powers allowed Hitler and Japanese militarists to arm their countries and to conquer and slaughter their neighbors without reprisals. Not until Japan had sunk most of our Pacific fleet and Hitler had conquered most of Europe did the U.S. finally jump into action, and World War II would be very nearly won by the Axis more than once before the tide turned. In all, approximately 55 million people died in the global war.

If the U.S., England and France had been better armed in the 1930's, and had attacked and defeated a not-yet-fully-armed Germany in the 1935-1938 time frame, then the remainder of the 20th century would have been unrecognizable. Eastern Europe wouldn't have been conquered by a vengeful Soviet army (at least not in the 1940's) and tens of millions of souls wouldn't have died.

The question today is how we're going to treat North Korea (torpedoing a S. Korean ship) Russia (annexing Georgian territory) and Iran (going nuclear and threatening Israel), and it comes down to whether our leaders are students of history or the type of Utopians that pinned their hopes on the League of Nations in the 1930's. Let's just say I'm not too optimistic right now.

Saturday, June 05, 2010

What happened to the freedom movements?

After the US started flexing its military muscles in Afghanistan and Iraq in 2001 and 2003 respectively, freedom and pro-democracy movements started springing up in and around the Middle East:
  • October 7, 2001: The U.S. begins strikes in Afghanistan.
  • Autumn 2002: George Bush is mocked and ridiculed for suggesting that democracy could be planted in the heart of the Middle East.
  • March 20, 2003: The U.S. and its allies begin the invasion of Iraq.
  • November 23, 2003: The Rose Revolution in Georgia forces President Shevardnadze to resign.
  • October 9, 2004: Afghanistan holds its first post-Taliban elections
  • January 20, 2005: Iraq holds its first post-Hussein elections.
  • January 23, 2005: The Orange Revolution leads to free and fair elections in Ukraine, elevating Yushchenko to office.
  • February 2005: The first local elections since the 1960's are held in Saudi Arabia.
  • April 4, 2005: The Tulip Revolution in Kyrgyzstan forces the corrupt Prime Minister to resign.
  • April 27, 2005: Syrian troops withdraw from Lebanon and the pro-Syrian government resigns, concluding the Cedar Revolution.
  • May 17, 2005: Women in Kuwait are given the right to vote for the first time.
  • May 2005: The Egyptian constitution is amended to allow for the popular election of the President every 6 years.
Those were heady times, and they appear all the more remarkable now that we have five more years of historical perspective within which to frame them, because freedom has been on the retreat lately.
  • June 2008: B. Hussein Obama wins the Democratic nomination, and promises to "restore our image" around the world, which is another way of saying that he wants to be more friendly with our enemies, and that he opposes military actions that are aimed at replacing dictatorships with democratic governments.
  • August 2008: Russia invades, occupies and annexes part of Georgia. No action is taken against Russia.
  • November 2008: Obama wins the Presidential election.
  • June 13, 2009: The first of many Iranian election protests begins, and although they continue off and on for many months in the face of torture and deaths at the hands of the government, neither the U.S. nor any other country offers any substantial help.
  • September 17, 2009: On the 70th anniversary of the Russian invasion of Poland, Obama cancels plans to deploy a missile shield in Poland and the Czech Republic.
  • November 8, 2009: Obama snubs the 20th anniversary celebrations of the fall of the Berlin Wall.
  • March 26, 2010: North Korea torpedoes a South Korean ship, killing 46.
Add to this the impending bankruptcy of the Western Powers and the increasing degree of cooperation between new and old enemies like Venezuela, Iran, North Korea, and Russia, and I fear that all of the revolutions of 2004-2005 could be reversed - and then some.


Friday, June 04, 2010

On the edge

The S&P 500 index has broken through the latest ascending bottom trend line, but not decisively.


Sentiment has become a little less pessimistic over the last week or two, which leaves more room for prices to fall, particularly if there's a slow decline from here that doesn't raise the panic level too quickly. (Sentiment is a contrary indicator: optimistic markets fall more readily than pessimistic ones.)

Tuesday, June 01, 2010

Hindsight Humor

Courtesy of the Teleprompter of the United States:



Context for future readers: the wars in Iraq and Afghanistan continue; Gitmo is still open; the unemployment rate has risen to 10%; the 2000-page health care bill that nobody read is going to raise medical expenses and bankrupt our health-care insurance companies; and the Gulf of Mexico is filling with oil.

Wednesday, May 26, 2010

Did you say DEflation?

Read it and weep, folks: The U.S. money supply fell by $300 Billion in the first quarter of 2010. This happened despite the trillions of dollars borrowed and printed over the past couple of years which were supposed to turn the economy around and prevent a depression.

When the money supply goes down, it tends to accompany deflation, or a general drop in prices. It was a strange blogger named Alstry who first made me aware of the concept of a deflationary spiral as the ultimate outcome of our mounting debts, and today's news may be the first bit of evidence that his verbose rants have been right all along.

My limited understanding tells me that cash is a good thing to have during a deflationary spiral, because as money becomes more scarce, its value actually increases relative to everything else. That's why I've been hoarding cash for nearly a year now. Of course, if the Federal Reserve Bank turns around and prints $10 trillion dollars this year, then deflation will be fended off for a little longer. Government policymakers can be fickle, so it's impossible for a private citizen to know for sure how to weather the storm.


May 29 Postscript:
Remember that high inflation helps a debtor, whether we're talking about a homeowner or a nation, because the fixed amount of money owed becomes a smaller fraction of the total money available. Conversely, deflation is a disaster for the debtor for the opposite reason. A little bit of deflation will make our debt larger in proportion to the economy, thus drawing away a larger fraction of the money to make next month's payments, which leads to more deflation, etc.


Monday, May 24, 2010

Stock market update

The S&P 500 index is flirting with the rising lower trendline.

Since market pessimism is approaching a multi-year high, this will probably be the low point for the short term at least. However, if the index eventually falls through the lower trendline, then that would be a key bearish signal.

Saturday, May 22, 2010

Socialism Sucks, Part Deux: Nanny State

I never thought I would see this day. An article in the New York Times has actually placed the blame for Europe's problems where it belongs: European Socialism. When the centerpiece publication of the American Left comes out against a core principle of the Left, you know times are a-changin'. I only wish I could have seen the confused looks on all of the NYT readers' faces this morning when they were informed - probably for the first time in their lives - that socialism is inherently self-destructive.

Some of the highlights in this article are particularly satisfying.
Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella.
Exactly right: America has been responsible for most of Europe's defense since WWII, and it was not military spending that bankrupted the continent. This topples one of the pillars of left-wing doctrine.
With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions.
Many on the Left are adamantly against large families, believing that they harm humanity and the planet, but it turns out that eco-friendly small families undermine the arithmetic of the cradle-to-grave safety net. Europe is also realizing (too late) that complete health coverage for all is unsustainable. It's too bad this didn't happen about a year ago, because it might have prevented the Obamacare catastrophe from coming to fruition in this country. Instead we're doomed to go through the same painful spasms ourselves.

A subtext here is that with Europe and America going bankrupt at nearly the same time, nobody will be able to step in and take over the military defense of Europe. Indeed, Victor Davis Hanson fears that an angry Germany, robbed of its retirement savings by defaulting Mediterranean nations, might rise up again in the power vacuum to come.

Hang on to your hats, folks.

Nothing to see here

The Wall Street Journal reports that 10% of U.S. banks are now on the FDIC's "problem bank list."

By the way, that same Federal Deposit Insurance Corporation is supposed to have tens of billions of dollars of credit as insurance for our savings accounts when a bank goes under, but instead the fund is now $20 billion dollars in debt.

Not to worry though. Everything's going to be just fine. Really.

Thursday, May 20, 2010

Mid-sized correction now

Today the S&P 500 index closed at 1072, which is almost 12% below its current bull market high of 1217. I call this a medium correction at least.

Interpreting the market's behavior is a little more complicated than usual. On the one hand, today's closing value - also the lowest price of the day - is still a little higher than the bottom of that crazy crash-and-recover maneuver on May 6.

On the other hand, this is the lowest closing value since early February, which is a bearish signal.

Stock market sentiment has plummeted to levels not seen since late 2008, suggesting that the market is near a short- to medium-term bottom. However, seasonal factors remain neutral at best, and the low yield of the S&P 500 forecasts a significant drop in the long run. Fundamentally I remain more convinced than ever that the global economy is doomed to suffer a large downturn, but I can't predict how much longer our government will be both willing and able to prop it up at the expense of future generations.

The bottom line is that I can't make a confident short- or medium-term prediction at this time. It can be frustrating sitting on the sidelines while the market makes big moves, but there will always be opportunities to make money in both directions, and at least I'm not losing money right now.

Wednesday, May 19, 2010

Mortgage situation getting worse

States can hide their debts for a while by selling bonds, and the Federal government can delay the inevitable for even longer by printing money, but private homeowners and small businesses don't have those options. So it should come as no surprise that another wave of mortgage foreclosures will lead the next economic downturn ... or the next round of nationalizations.
And these are the conditions with TARP, bailouts and buyouts.

The Federal government could simply decide to spend trillions each year from here to eternity to keep the economy propped up, but that would be mathematically unsustainable without printing money and hyperinflation. On the other hand, fiscal responsibility and balanced budgets would finally allow inflated prices to fall and insolvent banks to go bankrupt - but few politicians want to be held responsible for purposefully allowing that kind of pain to happen. Most prefer to give the impression of trying to help now, so that they can shrug their shoulders later when the whole system collapses more violently.

Monday, May 17, 2010

The debate is over: Socialism sucks.

The track record of socialism is a dismal one. Socialism sapped the life out of Cuba and turned North Korea into a living nightmare. It kept China a poor country and is now gradually being replaced by free market capitalism there. It ravaged Communist Eastern Europe and brought down the mighty Soviet Union after just 70 years. Now the rest of Europe seems poised to fall despite the supposedly better and "softer" version of socialism that it adopted after World War II.

I'm afraid the U.S. isn't far behind, even without the race to become more socialist under Obama and the Dems. Since their inception 45 years ago, Medicare and Medicaid have grown to comprise more than 20% of the (pre-bailout era) Federal budget. Social Security, a tiny program when it was created 75 years ago, now takes up another 21% of the budget. If we add in Welfare, unemployment insurance and the administrative costs to oversee all of these programs, then wealth redistribution totals nearly 60% of the unsustainable Federal budget, and this figure doesn't even include interest payments on the debt.

The Utopian goal of letting everyone own a home has created an economic catastrophe that has yet to be fully realized. The implosion of Freddie Mac and Fannie Mae, the Troubled Asset Relief Program (TARP) and assorted bailouts and liquidity programs can all trace their origins to "compassionate" policies that both facilitated and required banks to lend money to people who normally wouldn't qualify for loans.

Let's just admit it finally here and now: Socialism drains the vigor out of cultures and kills nations.

Socialism sucks.

It's official: Dems declare war on the economy.

I can no longer give the Democrats the benefit of a doubt. When the Speaker of the House overtly encourages economically productive people to quit their jobs and take up oil painting, she and her party are purposefully acting to harm the economy.



She makes a token mention of entrepreneurship here, but quitting a job and forcing other working taxpayers take care of you is the opposite of being an entrepreneur. It's the precise socialist attitude that's brought Greece (and soon the rest of Europe) to the brink of collapse.

Sunday, May 16, 2010

A broader view of debt

The U.S. Federal debt of $13 trillion and current annual deficit of $1.5 trillion are only part of the problem. State and local governments are collectively in debt to the tune of about $3 trillion and are adding $200 billion to that number this year. Mortgage, consumer and credit-card debts total another $16 trillion. All told, U.S. citizens are on the hook for $32 trillion of debt, or more than $100,000 per person on average.

If we were to enact Geek-like "austerity measures" to pay down Federal, state and local debts, it would involve some combination of drastically cutting programs (Medicare, Medicaid, Social Security, unemployment, welfare, military) and raising taxes. Needless to say, a combination of vastly reduced government payments and higher taxes would squash the take-home pay of the average citizen, making it far more difficult to pay off personal debts. Greece was able to convince several much larger economies (also in debt) to bail them out - I doubt we'd be able to find such saviors when we reach the brink.

Any way you slice it, it's looking less and less likely that all of these debts can be paid off in full. Printing money (and high inflation) may be the only way to prevent massive worldwide defaults.

Thursday, May 13, 2010

Fun with numbers

The Federal government is nearly $13,000,000,000,000 in debt, and is currently adding to the debt at rate of more than $1,500,000,000,000 per year. So naturally the IMF is using $100,000,000,000 of our money to help Europe with its $146,000,000,000 bailout of Greece. Or is it a $1,000,000,000,000 bailout?

Whatever. The bottom line is that indebted countries are lending money to other really indebted countries in order to delay the latter's bankruptcies and hasten the former's so that we can all reach bankruptcy at about the same time.

Got it?

Friday, May 07, 2010

Insolvency, Monetization, Nationalization: Part 2

This is an eye-opening follow-up to my earlier post from two weeks ago. It turns out that the Federal Reserve Bank is not only the agent of wealth-diluting monetization, but it is also a key player in nationalizing insolvent corporations with the very money that it creates. There's a great deal of concentrated power there that does not want to be scrutinized. I disagree with many of Congressman Alan Grayson's domestic policies, but I agree with him that the Fed has become too powerful, meddlesome and secretive, and I back his campaign to audit it.

Forty six little Greece's

All but four U.S. states this year are facing budget shortfalls which total nearly $200 Billion.

Like Greece, the states can't print their own money, meaning they have to choose between borrowing money or instituting unpopular spending cuts and/or tax increases. Greece's economic mess was created by continually borrowing too much, while the current civil unrest was sparked by switching to spending cuts and tax increases. If this sounds like a no-win situation, that's because it is.

Manipulated stock prices are the least of our problems

Yesterday's out-of-the-blue stock market plunge and miraculous recovery may well turn out to be the event that finally blows the lid off of a broken or corrupt trading system on Wall Street.


Under a more free market-minded government I would be eagerly anticipating the needed housecleaning and new regulations that would restore fairness to the market, but I only feel dread in this case.

A messed-up system of stock pricing is of relatively little importance to Obama and the Dems. Sure, they'll take some token steps to fix it, but to them the much larger problem is that some people have so much money to invest in the stock market in the first place. This money that producers and savers are frivolously investing in corporate America could be put to much better use if it were spread around to other people who aren't producing or saving, because after all (I wanna be clear, blah blah blah) at a certain point you've made enough money.

Yes, Obama and the Dems are going to get their fingers into the Stock Exchange alright, but if the other corporations and industries that they've touched are any indication, they'll make it less fair, less transparent, and less profitable for everyone. Well, almost everyone.


Thursday, May 06, 2010

More Fun Times

Well, that was the most exciting day that the stock market has seen in a while.

Right now the S&P 500 index is 7.3% below it's rally high of 1217, which puts it smack dab in the middle of "small correction" territory. In addition, at least two sentiment indicators suggest that the market is near a short-term bottom. However, it would never occur to me to invest in a stock rally at this point, because the market is still highly over-valued, seasonal timing is poor, and the global economy is still in a financial bubble that has yet to burst. I remain in cash (and short-term treasuries) and I'm not going to bet on either a rise or a drop at this point.

Wednesday, May 05, 2010

Fun Times

Greece moves to prevent all-out national bankruptcy the only way it can: slashing government spending and raising taxes, and the grateful populace rejoices with ... violent protests.

A car bomb turns out to be the umpteenth attempt by a Muslim man to commit mass murder. (Gosh, did anyone else see that coming?) This time it was a close call, because the materials were in place and the bomber almost got away. The attempts will of course continue, and as before some will fail or be thwarted, but some will also succeed.

Just when it looked like we'd finally increase our offshore oil drilling capacity and reduce our dependence on terrorist states for energy, an offshore rig blows up, threatening to cover Florida beaches with oil. I don't want to think what would happen to energy prices if we decide to curtail or entirely shut down our offshore oil production.

Like I've said before, there are any number of triggers out there that could initiate some serious economic pain, and even armed conflict. Unfortunately one can't predict when events like these will occur, or which one will be "the one," so it comes down to an unnerving waiting game.

Wednesday, April 28, 2010

The deciding factor?

If you want to know how soon and how bad the eventual economic collapse will be, I think it may come down to what kind of candidate the GOP fields against Obama in 2012. Another John "Reach-Across-the-Aisle" McCain or George "Prescription-Drug-Benefit" Bush - whether he wins or loses - won't change anything. We would continue down the current path and end up with either a bankrupt government that defaults on the debt, or hyper-inflation from monetization of the debt.

However, if Republicans can find a courageous voice like this one,



then we might have a fighting chance of slashing the Federal budget and paying down the debt sooner and with less pain. This assumes of course that the collapse doesn't happen before 2012, and I don't think we'll be lucky enough to get the candidate and beat the clock.

A possible preview of our future

A financial blog on the UK Guardian website is making live reports of Greece's financial crisis. This morning the yield on 2-year Greek bonds briefly spiked at 38% before settling down to 16% in the afternoon.

Bond yields increase when bond prices fall, so Greece's high yields are simply an expression of a severe drop in demand for them. Investors now fear that Greece won't be able to afford the interest payments to all of its bondholders - i.e., that it will default on its debt - so it takes a much higher interest rate (16% to 38% instead of the earlier 1% to 5%) to convince someone to take the risk of owning a Greek bond.

These higher bond yields spell doom for the budget of the Greek government, because they represent the interest rates that Greece will have to pay in order to borrow any new money through the sale of bonds. It's not difficult to picture a death spiral here, where interest rates go up, making it more difficult for the Greek government to pay off its older debt by issuing new debt, which reduces investor confidence in Greek bonds, which causes the bond yields to rise even higher ...

This is one possible outcome for the U.S. and every other indebted industrialized nation if we continue to borrow our way to financial oblivion. It will be bad enough when Social Security, Medicare, Medicaid, etc. suddenly stop making payments as our government runs out of money, but thanks to the Obamacare monstrosity, our entire health care system will soon rely on bond sales too. God help us all.

Tuesday, April 27, 2010

Probably a correction and not the beginning of a crash.

Sharp drops that occur after a long rally - like today's case - almost always precede moderate corrections of less than 10%. Bear markets and large crashes (>20%) usually start with something less dramatic. Ironically, today's dip probably means that the current bull market has further to go before it's over.

Sunday, April 25, 2010

Insolvency, Monetization, Redistribution, Nationalization

Barring the secession of states from the Union or a general civil uprising, the eventual outcome of our government's policies in dealing with current financial mess is pretty easy to predict. The Federal government is on course to take control of the economy, and to end the independence of state and local governments.

Insolvency

The simplest way to summarize the global economic crisis is this: We've been spending more money than we have and promising future payments that we can't afford, and we now find ourselves unable to pay off the debts and obligations that we've incurred. A couple of years ago in the U.S. the problem first surfaced with banks and financial/insurance companies being hit with more defaults and payout obligations than they were prepared to absorb. This was solved temporarily by taking out new trillion-dollar Federal loans and using the borrowed money to bail out or nationalize several large companies. (Fannie May and Freddie Mac, AIG, GM) This didn't solve the underlying problem, and today it has simply propagated to new areas: a growing number of delinquent home mortgages, states which are unable to meet unemployment, pension and bond obligations (California, etc.), and entire nations which suddenly find there are no more buyers for their bonds (Greece).

In a nutshell, private debt and state and local public debt is being transformed into national debt, with the main beneficiaries being homeowners who bought larger homes than they could afford, union and public employees whose generous benefit packages have bankrupted corporations and states, and certain favored Wall Street players.

Monetization

When our Federal government has to pay more money than it collects in taxes, it has to either sell bonds to Americans or foreigners, or create new money through the Federal Reserve Bank. Given the financial mess that we're in, investors are understandably nervous about loaning even more money to the government by buying government bonds. Not only does it seem less likely that a $14 trillion debt can ever be paid off, but the average U.S. investor today has less money to invest in bonds anyways.

Thus our government, which insists on spending even more money on new and enlarged social programs, is left with no choice but to make up the difference in the short term by creating money and risking wealth-destroying inflation. However, in the longer term, since Congress and the White House can't convince people to willingly buy debt, they are proposing to raise tax rates and create new taxes to boot.

Redistribution

A significant majority of the Federal budget is now devoted to social programs; i.e., taking money from those who can "afford it," giving some of that money to people who "need it," and spending the rest on the cushy salaries and benefits for the bureaucratic middle-men who distribute it. Social Security, Medicare, Medicaid, Welfare and Unemployment insurance constituted approximately 60% of the total Federal budget before all of the trillion-dollar bailouts and buyouts. Given the trend towards monetization, higher taxes and more-and-larger social programs, the entire enterprise ends up being a simple redistribution of wealth from people who save money and produce goods and services to those who don't produce or don't save - or to those who are currently favored by the Democrats.

Nationalization

So far in the first 15 months of his Presidency, Obama's solution to every single economic issue has been to increase the size of government by creating a new program, increasing the size of an old program, or nationalizing a company or industry. In not one case have Obama or the Dems proposed shrinking, eliminating, or privatizing some part of the bloated Federal government. Quite simply, every corner of the American economy will eventually be nationalized/socialized if Obama and the Democrats are given enough time. Thus far, the largest car company, the largest insurer, and the vast majority of home mortgages have been handed over to government control. The 2000 page health care bill has set the stage for nationalizing every aspect of medicine, and now Obama and the Dems have set their sights on nationalizing the energy industry (cap and trade). In addition, the Federal government now seems willing to bail out states when they run out of funds for unemployment or public worker pensions, and this obviously opens the door to new Federal meddling in the state budget processes.

Given the ability of the Federal government to print money, there's no mathematical limit to how quickly it can buy up the entire private sector. The most important limit is a political one, and oddly enough the drive towards nationalization is helped by economic turmoil. Any time a state, corporation, or interest group reaches the financial brink, the government can step in, take over and be seen as a hero. Were the Dems to try nationalizing GM during good economic times, it would probably be seen as the frightening power grab that it is instead of a rescue mission.

If I didn't know any better, I'd be concerned that the Dems might purposefully harm the economy in order to speed their nationalization agenda to a rapid conclusion. It's a good thing I know better.

Regardless of the of the Dems' intentions, it's becoming preferable to be a member of the "poor half" of the country who can sit back on his couch in the house he can't afford, watch the big-screen TV that he can't pay for, and let Big Bro the government take care of all of his basic needs. Work too hard or live frugally and save, and you risk becoming a member of the vilified rich, only to see most of your income taken away so that those who deserve it can enjoy their less stressful lifestyles. Yes, the new world order increasingly rewards the grasshoppers and punishes the ants - but how many grasshoppers can we afford before the ants say "enough?"


Thursday, April 15, 2010

Stock market update: High optimism, low yield

I'm not the first person to point this out, but more than one key indicator is signaling that stock market optimism is near a multi-year high. This condition forecasts at least a price correction in the near future, if not an end to the current bull market rally. Combined with the frighteningly low yield of 1.8% and the aforementioned poor seasonal conditions, I have no plan to be invested in stocks any time in the foreseeable future. In fact, I'm waiting for an opportunity to bet against stocks in general.

Friday, April 09, 2010

Try not to get sick, or just take a pain pill.

(Updates follow below)

If Massachusetts really is a small-scale test of Demcare/Obamacare, then the era of modern medicine in America is undeniably drawing to a close.

The health care system here in Massachusetts is already starting to implode. Three out of the four largest health insurers in the sate lost money in 2009. Governor Deval Patrick - whose campaign David Axelrod ran in 2006 - has essentially imposed price controls in order to prevent cash-strapped insurers from raising rates to meet costs. As a result, these same insurance companies have now stopped selling any new policies in Massachusetts because they can't afford to insure any more people. That's right: at this moment in time, small businesses and individuals cannot buy health insurance in Massachusetts.

This setback may seem ironic given that the intention was to provide health care to more people rather than fewer, but it's actually perfectly predictable because it's pretty much what I wrote about when the Obamacare bill passed a couple of weeks ago.

It turns out that some people in Massachusetts have been scamming the system by only buying insurance before major medical expenses are anticipated, and then dropping the insurance once the emergency is over. Since insurers are required to offer insurance to anyone - just like they soon will be nationwide under Obamacare - such scamming makes financial sense as long as the total price of short-term coverage plus penalties is lower than the price of a full 12 months of health coverage.

The really scary thing is that the Massachusetts health insurance policy is only a light version of Obamacare. Massachusetts isn't (yet) punishing insurers, hospitals, or health-care companies with new fees and taxes.

Needless to say, Massachusetts is becoming a less desirable place to be an insurance company, and by extension a less desirable place to practice medicine. My own experience seems to back this up, as I'm waiting almost three months to get my first regular check-up with a brand new doctor at Harvard-Vanguard.

It's too late for us to learn from the lesson of Massachusetts because Obamacare has already become the law of the land. Doctors, patients and insurance companies in Massachusetts can always flee to one of the other 49 states, but when Obamacare kicks in for real, there will be nowhere left to run. The only escape for doctors will be to leave the field, the only option for insurance companies will be to stop doing business, and only the wealthiest Americans will be able to fly overseas for cutting-edge procedures - IF there are any other countries left with free-market medicine.

So my advice to most of my countrymen is simply to not get sick. And when mortality inevitably catches up with you, just take a pill to dull the pain. As a matter of fact, that's exactly what Obama smoothly advised last year:



p.s.: (April 11) The last of the small steps towards fully socialized medicine is now easy to see. Once the private insurance companies either stop taking new customers or go bankrupt from the double-whammy of scammers and price controls, the government will "save us" with mandatory national insurance for all.

Another option is for Massachusetts (and the Dems nationally) to make a show of stopping insurance scamming by increasing the non-insured penalty until it's higher than the price of an insurance policy. At that point, the penalty fees might as well be used to sign those people up to a national program, which will be seen as more humane than just punishing them.

Update: (April 12) The webpage in question is currently overwhelmed with traffic, but CNS News is reporting that 60 hospitals planned for construction will have to be canceled because the 2000-page Obamacare bill has essentially outlawed any new physician-owned hospitals from being built. After all, what could physicians possibly know about running a hospital?? Once again, a bill that was sold as a way to increase access to health care seems to be doing the opposite, exactly as its opponents warned it would from the beginning.
(CNSNews.com) – The new health care overhaul law, which promised increased access and efficiency in health care, will prevent doctor-owned hospitals from adding more rooms and more beds, says a group that advocates physician involvement in every aspect of health care delivery.

Physician-owned hospitals are advertised as less bureaucratic and more focused on doctor-patient decision making. However, larger corporate hospitals say doctor-owned facilities discriminate in favor of high-income patients and refer business to themselves.

The new health care rules single out such hospitals, making new physician-owned projects ineligible to receive payments for Medicare and Medicaid patients.

Existing doctor-owned hospitals will be grandfathered in to get government funds for patients but must seek permission from the Department of Health and Human Services to expand.

To get the department’s permission, a doctor-owned hospital must be in a county where population growth is 150 percent of the population growth of the state in the last five years; inpatient admissions must be equal to all hospitals located in the county; the bed-occupancy rate must not be greater than the state average, and the hospital must be located in a state where hospital bed capacity is less than the national average.

The rules fall under Title VI, Section 6001 of the Patient Protection and Affordable Care Act. The provision is titled “Physician Ownership and Other Transparency – Limitations on Medicare Exceptions to the Prohibition on Certain Physician Referral for Hospitals.”

More than 60 doctor-owned hospitals across the country that were in the development stage will be canceled, said Molly Sandvig, executive director of Physician Hospitals of America (PHA).

“That’s a lot of access to communities that will be denied,” Sandvig told CNSNews.com. “The existing hospitals are greatly affected. They can’t grow. They can’t add beds. They can’t add rooms. Basically, it stifles their ability to change and meet market needs. This is really an unfortunate thing as well, because we are talking about some of the best hospitals in the country.”

The organization says physician-owned hospitals have higher patient satisfaction, greater control over medical decisions for patients and doctor, better quality care and lower costs. Further, physician-owned hospitals have an average 4-1 patient-to-nurse ratio, compared to the national average of 8-1 for general hospitals.

Further, these 260 doctor-owned hospitals in 38 states provide 55,000 jobs, $2.4 billion in payroll and pay $509 million in federal taxes, according to the PHA.

In one ironic aspect, President Barack Obama’s two largest legislative achievements clashed. The Hammond Community Hospital in North Hammond, Ind., got $7 million in bond money from the federal stimulus act in 2009. It will likely be scrapped because of the new rules on physician-owned hospitals, according to the Post-Tribune newspaper in Merrillville, Ind.

Doctor-owned hospitals have long been a target of the American Hospital Association, which represents corporate-owned hospitals as well as non-profit hospitals.

An AHA study from 2008 says that physician-owned hospitals “lessen patient access to emergency and trauma care;” “damage the financial health of full-service hospitals and lead to cutbacks in service;” “are not more efficient than full service community hospitals;” “use physician-owners to steer patients;” “cherry pick the most profitable patients;” and “provide limited or no emergency services.”

One AHA fact sheet asserts that physician-owned orthopedic and surgical hospitals costs are 20-30 percent higher than average hospitals. Further, these hospitals lead to higher profits just for doctors, the AHA asserts.

“We don’t cherry pick patients, period, end of story. We take patients based on their need for care, not on their ability to pay,” Sandvig said. “It [the health care reform] puts control outside the hand of physicians and patients and into bureaucrats’ hands really.

The Association of American Physicians and Surgeons (AAPS) is one of many organizations suing to have the law declared unconstitutional on the grounds that the federal government cannot compel someone to buy a product.

While the provision on physician hospitals is not part of the lawsuit, it will affect it, said Dr. Jane Orient, AAPS executive director.

“If the law is declared unconstitutional, then the prohibition is part of the bill,” Orient told CNSNews.com. “There are vested interests in getting rid of physician-owned hospitals because they do a better job and are more affordable.”

The provision in the legislation and efforts opposing these hospitals can be simply explained from Sandvig’s view.

“It’s anti-competitive. I think it’s pretty clear,” Sandvig said. “We’re a model that makes sense that’s affecting innovation. We’re trying to do something better than it has been done. Anytime you do that, there’s going to be a clash between the existing and the new. Unfortunately, it’s a real David and Goliath battle.”

http://www.cnsnews.com/news/article/64034