Wednesday, September 26, 2012

Sold 100 LMLP at $3.4-Being Acquired by Digital River (LT Category)/Electronic Billing by Medical Providers/KWK/GS Prediction on Commodities

Will electronic medical records reduce costs? The government is spending billions to coax physicians and hospitals to digitize records and billings. The Obama American Recovery and Reinvestment Act of 2009 provided about $17 billion in incentives for hospitals and physicians to adopt electronic records and billing. AAFP While electronic records will improve care and cut down on some mistakes which are rampant in health care, electronic billing may make it easier to erroneously bill Medicare and insurance companies. 

NYT article published last week pointed out that costs have risen with the adoption of electronic billing. While the providers claim of course that their adoption of electronic billing resulted in more accurate billing, which is why the costs skyrocketed, the software used for billing makes it easy for providers to bill for services that were never rendered to the patient. 

One hospital in Nashville, Baptist, saw a 82% increase in billing from its emergency room care in 2010 after adopting electronic billing. 

How good are the American hospitals? This is a different question from whether American healthcare is cost effective. When 20% to 30% of all medications, tests and procedures are unnecessary, WSJ, it would be impossible to maintain that the system is cost effective. In 2010, the government concluded that $48 billion was billed improperly through Medicare for unnecessary procedures or tests.

The government has a website providing information about its improper payments: Payment Accuracy I took a snapshot of the programs generating more than a billion in improper payments per year:

High-Error Programs | Payment Accuracy

One could convincingly argue that U.S. hospitals are better than most of the ones operating in third world countries. However, when reading articles critical of U.S. hospitals, it is difficult to have a high comfort level in their quality.

An article in the WSJ noted that medical mistakes in the U.S. kill enough people each week to fill four jumbo jets. If medical errors were a disease, they would be the sixth leading cause of death in the U.S. It is almost impossible to fathom, for example, that a doctor will operate on the wrong body part, but that negligent act is committed almost 40 times a week. Have you ever read a story where a doctor removed a patient's good kidney rather than the diseased one?

Then, there are the large number of patients who die each year due to diseases contracted during their stay at a hospital. I previously noted that hospitals are breeding grounds for all kinds of deadly pathogens. Hospitals as Breeding Grounds for Disease

1. Quicksilver Resources (own two bonds and common as a LT): I own two senior unsecured bonds, one maturing in 2015 and the other in 2019. On Monday, Quicksilver Resources announced an agreement with a subsidiary of Royal Dutch Shell to jointly develop their oil and gas interests in the Sand Wash Basin in Northwest Colorado. A copy of the agreement has been filed with the SEC. I discussed this KWK asset, involving  the Niobrara Formation, in an earlier post. Item # 2  Bought 50 KWK at $5.3-LT Category I believe that this project was called "Thunderhead" by KWK which has been discussed in articles published by Investopedia and Seeking Alpha

Last month the KWK CEO stated that the company was in advanced talks for two joint ventures. This joint development deal with Shell is not one of them.

2. Commodities: Goldman Sachs forecasts a 18.2% rise in the S & P GSCI Commodity Index over the next 12 months. That prediction includes a rise of 26.5% in energy and 10% in industrial metals.

There is a "non-standard" ETF that tracks this index, offered by iShares. iShares S&P GSCI(R) Commodity-Indexed Trust (GSG) This index had a 68.03% weighting in energy as of 9/21.

GSG Prospectus:  iShares GSCI Commodity-Indexed Trust

Yesterday's close: GSG: 33.49 -0.01 (-0.03%)

Last SEC Filed Quarterly Report: Form 10-Q for iShares S&P GSCI Commodity Indexed-Trust This fund holds long positions in futures contracts on the S & P GSCI Excess Return Index.

I do not currently own this fund. I have bought and sold it. BOUGHT GSG at $24.89: Starting a Shift Very Slowly into Commodities (April 2009 Post)- Sold GSG at $27.91 (May 2009). While I have no memory of it, I apparently substituted a commodity ETN for GSG, Item # 1 Bought 200 RJI at $6.73, adding to an existing 100 share position in RJI bought at a lower price: BOUGHT RJI at $5.97 (April 2009). RJI has a lower weighting in energy than GSG which is apparently the reason for its substitution at the time. In January 2010, I sold 300 RJI at $7.6:

2010 RJI and RJZ Trades
Another ETN alternative is the Dow Jones-UBS Commodity Index Total Return ETN (DJP). That ETN also has a lower weighting in energy than GSG. Sector Weightings I will avoid ETNs most of the time. Apparently, I was willing to go with RJI an RJZ for a short period back in 2009. {Yesterday's close: RJI: 8.83 -0.01 (-0.12%)}

I do own two "principal protected" senior unsecured notes, MKZ and MKN, whose interest payments are linked to the  performance of the DJ-UBS commodity index. Bought 100 MKN at 9.85100 MKZ bought at 9.96Bought 100 MKZ at 9.91 in the Roth IRA

MKN: minimum of 3% or up to 33% Pricing Supplement
Starting Value on 3/31/12=141.902
Maximum Level Violation 188.73
Ending Value Determined on 4/1/12

MKN Ends Its Annual Period With Minimum Coupon Payment (4/16/12 Post)

MKZ: minimum of 3% or up to 31% Pricing Supplement
Starting Value: 130.56
Maximum Level Violation=171.033
Ending Value as of 6/24/13

MKZ Ends Annual Period-Paying 3% Minimum Coupon (6/26/12 Post)

DJ-UBS Commodity Index: Chart
Yesterday's Close=146.89
Close on 9/14 at 152.013 (Federal Reserve issues FOMC statement--September 13, 2012)

Item # 1 Principal Protected Notes
Item # 2 Principal Protected Notes

Both of these notes are traded in low volumes with wide bid/ask spreads. Both mature in 2014 at $10. Please note that all of my purchases were made at below par value. MKN hit pay dirt in 2010 and 2011: MKN Will Pay 25.56% (snapshot at  4/7/11 Post) ; Item # 1 MKN Pays 18%. MKZ has not paid more than its minimum coupon during my ownership. The 2011 MKZ payment of 3% was caused by a Maximum Level Violation during that annual coupon period: MKZ Reversion to Its 3% Minimum Coupon

Citigroup Funding Inc. Min Coupon PPN on Dow-Jones-UBS Commodity Index  (MKZ)

Citigroup Financial Inc. 3.00% Min Coupon Princ Protected Nts for Dow Jones AIG Community Excess Return Index (MKN)

3. Sold 100 LMLP at $3.4 Last Monday (Lottery Ticket Basket Strategy)(see Disclaimer): At last Friday's close of $1.87, LMLP Historical Prices, I was at break-even on my 100 shares bought at $1.8-LT Category (March 2012). I noticed Monday morning that I had an unrealized gain of almost 81% based on the price action that morning.

Digital River announced that it was acquiring LML Payment Systems. Digital River had agreed to pay $3.45 in cash for each LMLP share. I saw no reason to hang around for that payment.

I took this snapshot shortly before selling my 100 shares:

Unrealized Gain of 80.9% Shortly Before Becoming a Realized Gain
After commissions, I realized a gain of $144.08 on a total investment of $187.95. 

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