The US and UK Have Gone Completely Mad

Have the US and the UK gone completely mad?

We think so. Madder than Ken Bruce in fact.

I mentioned yesterday that earlier in the week I’d caught up with three old broking pals for a slap up feed.

We headed into the RACV Club on Bourke Street and treated ourselves to quite possibly the best value three course meal in town…

The all-you-can-eat buffet for $13.

Of course, if you add on the annual membership of a few hundred bucks then it’s not quite so cheap. But we try to forget about that when we think we’re getting a bargain – a bit like how property investors forget the costs of borrowing when they calculate their ‘profits.’

Anyway, at the lunch a number of subjects cropped up that are worth looking at further. One of them was the crazy new US universal healthcare plan.

This is what I mean about the US going mad. But I’ll get onto that in a moment, because there was another moment of madness that we saw this week. This time from the UK. From the 1st October the government has increased the national minimum wage levels.

What a great idea! During the middle of the worst recession in seventy years, the UK government decides to increase the cost of employing someone. As we mentioned earlier this week, minimum wage policies only result in one thing – higher unemployment.

So to increase the cost burden when their economy is already on its knees is just giving it a kick in the teeth. Look out for increased unemployment in the UK.

But back to the lunch. The subject of US healthcare came up and what it means to the US economy and of course, which companies would gain or lose.

The reality is, however new universal healthcare system pans out, the very fact that it’s a ‘universal healthcare’ system means it will cost everyone more in healthcare costs – including the poor. And just as likely, it will lead to a lowering of standards too.

So how much will this mess cost the US?

Well, we read with amusement earlier in the week a story from Reuters that Congress has managed to bash out a plan that would reduce the cost to just… USD$900 billion.

What a bargain.

We can see that the eyes of US healthcare and medical providers must be full of dollar signs at the moment.

That’s roughly USD$900 billion of revenue they may not currently have – but soon will.

A grinning House of Representatives Speaker, Nancy Pelosi even claims the new spending will decrease the US budget deficit. We’re still trying to work that one out. Spend USD$900 billion to cut costs.

Only a politician and sad bureaucrat could come out with that logic. But we’re sure it must be true otherwise she wouldn’t have said it.

But there’s no need to panic, the USD$900 billion is the ten-year spend. So about USD$90 billion a year. Only, of course you can double that figure. There’s no chance the final amount will be anywhere near USD$90 billion a year.

As I say, double it and you’ll get a more accurate number.

How can we be so sure? Well, take a look at the prime example of a socialized medical disaster, the UKs National Health Service (NHS) which was created just over sixty years ago. In Michael Moore’s film Sicko, he paints the NHS as being the beacon of universal medicine.

Clearly he’s never used it. It’s more like a half-way house to the cemetery than a place to get well.

In 2007-08 it’s estimated the UK government spent £87.1 billion. That’s about USD$139 billion.

And by 2010-11 the UK Treasury forecasts NHS expenditure to be £103.7 billion, or USD$164 billion.

And the US think they can get away with spending half that? They’re in a dream world if they really think that. Which we’re sure they don’t. They’ll release the full costs once the legislation has been passed and the beast has been unleashed on the unsuspecting public.

The US plan is supposed to cover the 40-odd million people who don’t have health insurance. That’s a number not much less than the number covered by the NHS in the UK.

But the new socialized programme is also bound to attract many more users. I mean, why voluntarily pay for your own healthcare when you can get someone else to pay for it instead?

So within two or three years they’ll realize the socialized health system needs to cater for 200 million people, not the 40-50 million they bargained on.

What will happen then? Well, that’s when they use the Australian method of compulsory healthcare coverage.

They’ll introduce a levy – like here – where if you earn above a certain amount then you’ll have no option but to take out health insurance otherwise you’ll be stiffed for a bigger tax bill.

All the while as individuals are getting clobbered about the chops, a few select groups will be laughing all the way to the bank.

So if we know that the taxpayer will lose out on this deal. And we know that the healthcare users will lose out, then who wins?

Well, let’s just throw a few names in the air and see how they fall…

The winners will be the doctors, healthcare suppliers (such as General Electric and Siemens), the drug companies and the hospitals.

The medical profession and allied industries must be licking their lips at the thought of a minimum USD$90 billion annual pay increase. Minimum. In fact, I’m even starting to think that doubling the amount is conservative too.

Triple it, quadruple it. Even then we’ll probably find ourselves coming up short.

Look at a chart of US pharmaceutical company Pfizer [NYSE: PFE]:

That doesn’t look like a chart where investors are worried about socialized medicine taking profits from the bottom line.

And what about insurance companies? They don’t seem to bothered either even though they’re the ones directly in the firing line. As evidenced by the stock performance of Humana [NYSE: HUM]:

Or German electronics company Siemens [NYSE: SI] who book billions of dollars worth of revenue (about 20% of its total revenue) each year from selling to the health industry:

They wouldn’t be in the game unless there was good money to be made.

So, we will concede one thing. While socialized medicine is the biggest budgetary disaster any government can force on its people, for investors, investing in healthcare companies provides a good opportunity to profit.

Or at the very least you can use it as a hedge against the money the government will steal from you to pay for their pet project of socialized medicine.

Other Stuff on the Markets

The S&P/ASX200 closed at 4,812.80 down by 25 points, while overnight on Wall Street the Dow Jones Industrial Average was up by 131 points to 10,081.31. In Europe the FTSE100 finished at 5,207.36, down by 0.96%. The Nikkei was down to 10,267.17 by 0.64%.

The price of gold in Australian dollars is trading at $1,144.90, while in US Dollars it is trading at $1,060.40. And the price of silver in Aussie dollars is $19.14 and in US Dollars it is $17.73.

The Aussie dollar gained a little versus the US dollar, trading at USD$0.9251, and improved against the Japanese Yen JPY84.55.

Crude oil closed overnight at USD$81.19.

For the biggest movers on the market yesterday click here…

Tagged as: congress, minimum wage levels, property investors, recession, UK, UK government, UK Treasury, US, US universal healthcare plan