Reading the World

Warming to Health Savings accounts

CBS Market watch

Health insurance isn’t really insurance. Insurance works and can only work to spread the risk over a pool or population. Say there is a small probability of a bad outcome like death for a young person; a pool of young people spread this risk with life insurance low premiums. This won’t work if all pool members are in there 80ies.

Or take car insurance, it can insure you against crashes because they are infrequent, but not against oil changes that are inevitable. You can’t insure against the inevitable because there is no risk to spread if the outcome is certain.

For those inevitable health care costs, aspirin, fillings, antibiotics, and the myriad of drugs need for a maturing population, paying the insurance companies to administer the paper work adds about 35 percent to the cost.

Health Savings Accounts let us do it ourselves. This is so appealing to the gen. Xers who are the do it your self generation. They love saving money, being in control and being able to decide when and how to spend there pre-tax health care dollars. This will spread like wild fire.

Russell

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April 28, 2004

Greenspan sees long term affect in oil gas prices
By Greg Ip
Wall Street Journal

Greenspan is the master of stating the obvious. If oil and gas prices stay at very high levels then this will produce long term change. Really, it would be more instructive if he commented on the change in monetary policy that has allowed both oil and gold prices to rise sharply in the past 3 years; there has been of course no disruption in gold output or for that matter in copper output, or milk.

Russell

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April 27, 2004

A Quirky Brilliance vs. the Dreams of Venture Capitalists
By Saul Hansell
New York Times

Using Clayton Christenson's (author of The Innovator's Dilemma) RPV framework for looking at companies further supports our claim that Google will stumble. Christenson divides the factors that affect the capabilities of an organization into three classes: Resources, Processes and Values. Resources are assets such as technology, employees and cash. Processes are the patterns for interacting and coordinating that allow the company to transform the working assets into products and services of greater worth.. Values are the criteria upon which all decisions and prioritization will be made.

In a start-up, much of the company's capabilities are attributable to its employees or resources. Overtime people work together and processes and values become more defined. Soon it becomes clear what the business model will be and the values are set by the company and its customers. Once this occurs, the incremental valuation that can be generated for the company comes from better defining their processes. The processes allow the company to recurrently and efficiently produce products and services that will better service their defined market and customers. Successful companies, such as Google, often have trouble adjusting after they go public because they continue to lean on resources (people) rather than build the necessary processes. This leads to burnout and eventually retirement of key employees which leaves the company with no choice but to design and implement the processes anyway. Google's strategy of "organization through disorganization" is an announcement that they are NOT planning to build the necessary processes crucial for growing wealth in a public market. Ultimately they will correct but the employees and shareholders will pay the cost for this doomed strategy.

For more insight please see our Yahoo vs. Google newsletter.

Rates and politics
By Bruce Bartlett
Townhall.com

Inflation has no relation to unemployment or the operating rate. The output gap model presented in this article is useful for explaining the deficit, but not for predicting inflation. Commodity prices and growth in the money supply predict inflation, and the Fed must begin to raise rates now.

Russell

“We believe that the CPI is underestimating true housing costs and that inflationary pressures are rising as the result of an excessively accommodative Fed policy.” GKST Economics

New home sales will continue to increase after interest rates start up. Buyers will buy now to beat the next rate increase.

Russell

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April 26, 2004

Energy Providers Seek Grant as Step to Build Nuclear Plant
By Matthew L. Wald
New York Times

This is the start of a growing trend. We will build several of these no mater who is the president. France gets 20 percent of its electric from nuclear.

Russell

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April 22, 2004

My misgivings
By Bruce Bartlett
Townhall.com

I believe we should be in Iraq. I do think it is the right thing to do, but the reason to be there has not been articulated to the American people and at bottom I believe in democracy and the will of the people. If Bush can’t convince a majority of Americans that this is the right thing to do, we must get out. That is the political parallel with Viet Nam.

Russell

Losing Our Edge?
By Thomas Friedman
New York Times

This is wrong thinking. We don’t need a national competitiveness plan. We do need to change the visa policy. Free markets and our growth tax policies will do the rest.

Russell

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April 21, 2004

Farwell to new Europe?
By Frank J. Gaffney, Jr.
Townhall.com

New Europe will not sign and surrender its foreign and defense policy to the French and Germans. This will simply not happen. They will instead join NATO.

Russell

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April 19, 2004

The March jobs report confirms that the economic recovery is real. It brings into the near future the moment when the fed will start to raise rates. In fact rates have already started up. This will increase the level of activity in credit sensitive sectors like housing. There will be an increase in home buying and in new house starts as buyers rush to beat future rate increases. This is a temporary shift and it will accelerate the entire economy.

STAY BULLISH

Russell

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April 15, 2004

“The CPI increased by a more-than-expected 0.5% in March, following a 0.3% increase in February.” GKST Economics

The price level is rising.
On a year over year basis, the gold price has been increasing at between 10 and 15 percent for longer than 11 months. If this continues, a new round of inflation and interest rate hikes will clearly be under way. If gold falls or stays flat until the end of the year the price bubble that is starting will be a one-time event. This is the great debate between economists now. We for now are betting on the bubble lasting.

This is bad for financial stocks and credit sectors of the economy and stock markets.

Russell

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April 12, 2004

“Two extraordinarily important events took place in Iraq this weekend -- or to be more precise: One thing did not take place; the other did. In the first instance, the weekend's pilgrimage of Shia did not flare into chaos. What did take place was a truce in Al Fallujah, marking the first time that the United States has dealt with the Sunni guerrillas as a coherent force -- one with a command structure that could be bargained with. Both were, we think, defining moments in the history of the war.”
Geopolitical Diary, from Stratfor Analysis

The news is good or at least it stopped getting bad. An agreement may be close which will let elections go forward but in a way that gives the Shia a clear control.

Russell

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April 8, 2004

John Kerry's acorn
By Stephen Moore
Wall Street Journal

“Even a blind squirrel finds an acorn now and then, as the saying goes. And so it is with one surprisingly productive idea in John Kerry's otherwise economically schizophrenic new jobs proposal. Best of all, there is a way to improve on the idea now, without even waiting for November.”

Moore is a good friend and good thinker. He is right. Capitol goes where it is treated well, and it is capital that increases jobs and produces high wages.

Russell

Are There Any Iraqis in Iraq?
By Thomas Freidman
New York Times

Freidman asks, Are there any Iraqis instead of Sunnis or Shiites? We gave them a constitution and a government, but we did not give them a stake in a common economic future. How can there be any Iraqis in Iraq? There is really no Iraq yet. There is no public ownership; the government owns things not the people. We should have put the government assets in a mutual fund and given shares to every citizen to give each one Sunnis, Kurds, or Shiites a financial stake in the future of a prosperous Iraq.