Mid-Life MBA: The Art of Business

Stephen Mihm, an assistant professor of American history at the University of Georgia has a feature article in the current issue of the Boston Globe called “The Black Box Economy.” Focusing on the shadowy world of ever more sophisticated derivatives, he speculates on the doomsday potential of these instruments that are valued at over ten times the world’s total GDP and that are often based on no underlying asset at all. Some hope is held out by way of the FASB.

Read the article here

Alocoa’s net is up 75% and that sounds wonderful but most of the reason is on account of the pending sale of its packaging and consumer business.  The WSJ points out that 4th quarter results were also due to a favorable restructuring adjustment and tax benefit.  The reality is that its quarterly revenues fell rather steeply and its “flat rolled” sales were down due to general market weakness.  The packaging and consumer business sale to a New Zealand company was worth $2.7 b and includes the brand, “Reynold’s Wrap.”

Reported in Barron’s, Joel Kurtzman, a senior fellow at the Milken Institute and publisher of the Santa Monica, Calif., think-tank’s The Milken Institute Review, says, “We’ve gone back as far as 1995 to look at the long-term trend in demand. It has increased by 1.5% per year. Consumers have used 300 billion barrels of oil and 330 billion barrels have been found. So in terms of supply, we’re in good shape,” he says.

The day the Iraq war began, oil was around $33 per barrel. Since then, demand hasn’t jumped and Iraq is again producing some crude, but prices have more than doubled. Says Kurtzman: “We’ve had three or four years of steady demand and increases in supplies, yet prices — it doesn’t add up. I think we’re going to see a drop that could be fairly precipitous.”

In addition to fear and uncertainty, the current price of oil also reflects compensation for a 30% decline in the value of the dollar, says Kurtzman. “It’s the ’70s all over again.”

What do you think?

Centene Corp is a managed care provider for Medicaid, Medicare, and Schip, services. It is the 4th largest provider in the USA and it closed on Friday at $21.00, down from $24.00 earlier in the week and down from an all time high of $28.00.

With 1st quarter earnings of 26 cents per share, excluding firstguard activity, it may not be a bad deal right now. Have a look at the Morningstar ratings below. A good deal of its success will hinge on currently pending contracts for services in Maricopa county, Arizona.

Centene’s managed-care organizations served more than 1.1 million members in six states as of March 31, up from nearly 875,000 on the same date in 2006.

The end of summer rally that brought the DOW within 110 points of its all time high lagged last week like a first-time, marathon runner hitting “the wall.”  Though a correction of some measure was likely, the Philadelphia Fed’s report on economic indicators gave it an excuse.  Treasuries rose, the dollar declined and stocks sagged.  The measure of comfort was found in lower oil prices as crude dropped below $61.00 dollars a barrel.

The market is probably due for some more declines in the short term, but shouldn’t pull back too dramatically, said Paul Rabbit, president at Rabbit Capital Management for CNN Money. He noted that the tail end of a quarter can be challenging as companies tend to warn investors if quarterly earnings are on track to disappoint.

In addition the last week of September is often rough, the Stock Trader’s Almanac notes, in that its the end of the fiscal year for a lot of mutual funds, and so managers tend to sell their losers for tax purposes.

But beyond the next week or so, “I think we’ll see an upward bias,” Rabbit said.

NHS London is the Strategic Health Authority for London, England.  A paper leaked in April of this year openly acknowledged NHS London’s new mandate for cost containment through health care rationing, this, despite it’s stated mission to “deliver world-class care.”

Among the cost cutting measures:

1) Panels were established across London to monitor the rates at which General Practitioners refer patients to hospital. Local health trusts were instructed to cut GP referral rates to the levels of the lowest 10% nationally at an estimated annual saving of 25m pounds.

2) Consultant to consultant referrals are also to be limited, effectively denying second opinons.  In an earlier draft paper Hammersmith and Fulham reportedly found that a fifth of consultant-to-consultant referrals were “clinically not necessary.” Trimming back referrals accross London is expected to save another 7 million, though the administrative burden is estimated at 1.6 million.

3) Emergency care practitioners in emergency departments will “redirect” 40-70 per cent of patients back to GPs or walk-in centres.  If they treat those who could have been treated non-emergently, they will not be paid.

The British Medical Association condemned the plan. Hamish Meldrum, the chairman of the association’s GP committee, said that they left patients in limbo, with no one clear where the responsibility lay if the condition worsened or the patient died.

From the article:

“The plan, which is still in draft, was produced by the London Transition Team, led by John Bacon, a senior NHS manager. It is typical of the action being taken nationally to save money by reducing referrals, or, putting it more plainly, treating fewer patients.

There are serious questions about whether such systems will work. say two experts in general practice in this week’s British Medical Journal.

Myfanwy Davies and Glyn Elwyn, of the Centre for Health Services Research at Cardiff, say there is little evidence that referral management centres work to improve the quality of referrals or save money.

They say that the centres have “appeared overnight in an evidence-free zone”.”

For Feedback:

America’s costs for publicly funded healthcare are similarly spiraling out of control.  How closely should we look at London’s model?  Should healthcare be rationed?  If so, how?

It really doesn’t matter who we are, none of us are consistent in our practice of the worldview that we hold.  If we are unbelievers who have thought through exactly what we do and don’t believe, we can only come out with a final conculsion that the world and all the individual things in it, are absurd.  As Francis Schaeffer used to say, the result of “the impersonal plus time, plus chance.”

Schaeffer used to point out that the both notorious, and noted athiest, Bertrand Russel, had concluded that humanity’s final destination was an ignominious consignment to return to the dirt.  Nevertheless, he gave himself to those issues that he viewed as moral causes.  Though he thought that it really didn’t matter whether one behaved “well” or “badly” he often championed the cause of peace.  Even an athiest cannot behave like one consistently.

From the starting point of Christian faith, one faces a high bar indeed.  The Bible is clear that we all miss the mark of God’s perfect standard.  Who is consistent in living out the most fundamental of the precepts of the faith?  Nevertheless, in another way the Christian is the most consistent of all in that the Christian is the thankful participant in the redemptive work of Christ.  By His finished work even our worst inconsistencies may be stricken from remembrance forever! 

God knows what we are made of and has provided for those of our inconsistencies that are truly sinful, but appropriation of that provision is only possible by faith.

The Dow jumped 1.7% today on news of multiple mergers.  Amex announced lower earnings however and gas prices rose above $3.00 per gallon.  Has the Dow finally found traction?  I’d give it an “A” for effort but I expect it’ll be short-lived for the time being.  We’re still down considerably from the last high spot in May and about where we were back in February.  I’m still looking to the 4th quarter before the market firms up. 

Nevertheless, I could be wrong.

Rich Lowery at National Review Online has published an intriguing analysis of George Bush’s economic accomplishments with tax reductions, increased spending and overall reduction of the deficit as a percentage of GDP.

Lowery points out how according to Brian Riedl of the Heritage Foundation, if annual spending increases in the Bush years had been limited to the rate of the Clinton years, roughly 3.3 percent, there would be a federal surplus now. Instead, spending has been growing at 8 percent a year. That demonstrates that the formula for deficit reduction from the 1990s—moderate-spending restraint coupled with higher-than-expected growth-generated revenues—would work again today, if only someone could manage the moderate-spending restraint.

Can anyone say “Laffer curve?”

A US News article recalls the legendary moment in 1974 when economist Arthur Laffer supposedly traced the Laffer Curve on a napkin at the Two Continents Restaurant in Washington, D.C. at a dinner attended by Donald Rumsfeld and Dick Cheney. Some time later, he sketched it for Ronald Reagan.

“It was a doodle,” said Laffer, in an interview with US News writer Paul Lim. Known to many as the father of supply-side economics, or as former President Bush once called it, voodoo economics. 

“The drawing in question was a graph that illustrated a theory now widely embraced by conservatives: If tax rates are lowered, tax revenues can actually grow as economic activity is spurred. Laffer’s igloo shaped curve illustrated how at either 0 or 100%, tax revenues will be 0 as increasing taxes serve as a disincentive to producivity.

In any case, Laffer and Reagan were eventually proved correct, Bush senior was proved wrong, and Bush junior in the company of Dick Cheney are producing positive results in keeping with their promise of overall deficit reductions.  Now if they could only slow down the spending…