1. CPI rises .7% on a seasonally adjusted basis: On a non-seasonally adjusted basis CPI rose .09% in June. Consumer Price Index Summary The seasonal adjustment reduced it to .07% driven up by a 17.3% rise in the gasoline index. The core index, which includes food and energy, rose .02%.
2. Campbell Soup (owned): CPB projected that earnings growth will rise 5 to 7% in its fiscal 2009 year, compared to the fiscal 2008 of $2.09, on a currency neutral basis. The fiscal year for Campbell ends on 8/2/2009. In China, Campbell plans to expand its portfolio of products within its existing markets. CPB also emphasized that it had expanded its operations in Russia "by forging a long-term partnership in Russia that will provide access the best distribution system..."
3. "Surtax" On Those Earning More Than $250,000 To Pay For The "Right" To Healthcare For All: When I hear the Democrats talk about healthcare "reform", easily the most abused word in the language by politicians (The Most Abused Word: Reform), what they mean to say is that those who make money will pay for the healthcare of those who earn less. The Democrats estimate that the cost of the program envisioned by the House Democrats will be 1 trillion over ten years. Once health care is dispensed like free candy to the populace, the demand for it will rise, costs will increase, more people will be popping more pills and feeling worse for it, and the cost will end up being at twice whatever is estimated now to pass the bill. It has been proven, without any doubt, that politicians will mislead the public, even lie to us, about the cost of a new social program in order to secure the votes for passage, as witnessed by the recent extension of Medicare benefits for prescription drugs. Some Political Type Observations While health care providers will be soaked some to provide free or minimal cost healthcare to tens of millions, the Democrats think that soaking the earners of our society will be a perpetual money machine for them, as if increased taxes will increase growth and productivity rather than to impede it. And when the budget deficits continue to expand, they will find that drawing from the same well in the future will have diminishing returns, there are simply not enough wage earners to soak to pay for the unfunded liabilities that we now have, let alone any new ones.
The basics of the plan are summarized in this NYT article. For families with adjusted gross incomes of more than $350,000 and less than $500,000, the surtax will start at 1% in 2011 and rise to 2% in 2013. And what will it be in 2020 once this process is started? The surtax moves higher as adjusted income rises with a couple have an adjusted gross income of 1 million paying a 5.4% surtax. If an employer does not provide health insurance, there will be a fine of 8% of wages for an employer with a payroll over $400,000. The fine is lower for employers whose payroll is less than $400,000 but more than $250,000. I would anticipate that this plan will hurt hiring in small businesses.
The preliminary CBO estimates of the plan's cost can be found atwww.cbo.gov
Nancy Pelosi says she is happy about all of this. The Democrats claim that part of the cost will be paid for by savings in federal health programs. Well, if those savings were real, then why not do them first, and then see how much is really saved, as opposed to what politicians claim now? The trigger now for the increases in the surtax is the failure to achieve those savings, which is an interesting point.
The foregoing political observations do influence my investment decisions. Ultimately, I view the kind of irresponsibility prevalent in Washington to be irremediable. Possibly, the pace of irresponsibility can be slowed some at times, but that is all. Bush was not fiscally responsible. Are the taxpayers footing the 1 trillion or so ultimate cost of the Iraq War or was that tab just added to the debt and currently financed by our "friends" from overseas? After the Democrats soak the well to do to help pay for a new healthcare program, and then add to the tab later by increasing the surtax, where are they going to get the money to pay the currently unfunded liabilities for social security and medicare currently promised to the baby boom generation? The end result of the irresponsibility of both parties will be soaring budget deficits, a weakening of the dollar and its devaluation, and potential hyper inflation years down the road. And, I am curious what happens when the debt has to be financed at say an average cost of 7 or 8% rather than the currently abnormally low rates? Interest on the debt is already the largest single category of expenditures.
Maybe the Democrats need to focus more attention on the 100 trillion or so unfunded liabilities that the U.S. already has from programs in existence now, before launching new ones.
4. JBK Penny Rate (own 50 shares): I noted in a prior blog that I thought that the synthetic floater, JBK, was most likely now a fixed rate coupon Trust Certificate due to the bankruptcy of Lehman Brothers. An affiliated of Lehman was the swap counter party. It was the swap agreement which created the floater out of the fixed rate coupon junior bond issued by Goldman Sachs. When the swap agreement terminates, then the owner of this TC would receive the interest on the underlying fixed rate coupon bond which has a higher rate at 6.345% (applied to a $25 par value) than the guarantee of 3.5% provided under the float provision (see item # 2: Bought 50 of the TC JBK/)
I mentioned that the semi-annual interest payment was soon scheduled to be announced and that a penny rate of $.7931 would indicate the swap agreement had in fact been terminated, with the owner now entitled to receive the fixed rate coupon interest rate of the underlying bond. When I pulled up a detailed quote for JBK at my broker's web site, I saw today that the penny rate was in fact $.7931, with an ex date of 8/12, so that is consistent only with the termination of the swap agreement.
5. GANNET (GCI) (OWNED)(RB is responsible for the purchases of GCI, which are still under water even after today's big percentage gain. LB disclaims all responsibility for what RB did, calling all of the purchases plain nutty, even called a doc about some commitment papers for RB): I probably needed to categorize the purchases of Gannett as a Lottery Ticket. Instead, I thought it was just a deep, deep, deep value play. So deep, that no one could actually see it except for RB. GCI actually reported a decent profit for the second quarter today. Wow! What else can you say. Gannett also said that advertising has started to stabilize, with demand firming up "a bit" in some categories and geographic locations. Excluding items, Gannett earned 46 cents versus the consensus estimate of 37 cents.
6. UCBH: A Failed Lottery Ticket: I bought 50 shares of UCBH at $1.64, a bank that caters to the Chinese community mostly in California. Even for a lottery ticket, the amount of capital devoted to this bank was small, less than a $100, reflecting an overall lack of confidence in the management. I quit reading the last earnings call transcript when the management acted surprise about the weakness in the condominium market during the 4th quarter of 2008. /UCBH/ Now, that did not impress me much, that the main honchos at this bank had just noticed this problem. So, I was not surprised today to see that UCBH eliminated its common and equity preferred dividend, preferring to use the word "suspend" Yah Fin, and placed its trust preferred payments into deferral. UCBH is even stiffing the treasury on payment of its preferred dividends. Fitch cut the rating to CCC. UCBH is searching for capital from its largest shareholder, a Chinese banking institution called China Minsheng Bank. I will not even buy the other 50 shares to round the lot to an even 100 and may take my loss after hearing what the Chinese bank intends to do.