“Stocks take the stairs up and the elevator down.” – unknown

1. Greece reportedly faces IMF aid cut-off — The International Monetary Fund is set to stop aid payments to Greece, raising the odds that the nation will become insolvent as early as September as reported by Der Spiegel.
2. Moody’s Investors Service revising its outlook on Germany — Moody’s Investors Service has lowered its outlook on Germany, Holland, and Luxembourg to Negative, while affirming Finland’s Stable outlook and AAA credit rating. The agency cited the usual fears related to the eurozone’s debt crisis, along with the “increasing likelihood that greater collective support” will be needed for Spain and Italy.
3. Fed mulls more action to spur economy — WSJ reported Federal Reserve officials, impatient with the economy’s sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring. Purchases of mortgage-backed securities, a pledge to keep rates low for longer, or even a move to further push down the nearly microscopic short rates are among the choices available to the FOMC.
4. AAII latest sentiment readings — AAII latest bullish sentiment dropped to below 22; In prior bull market when the bullish sentiment dropped below 25%, the market rally over the next 3-month and 6-month;
5. U.S. growth slows to 1.5% in second quarter — Marketwatched reported The U.S. economy took a turn for the worse in the spring as consumers pared spending and businesses invested at a slower pace, with little sign growth will sharply accelerate anytime soon.
6. President Election Cycle — below is the chart (courtesy of the Bespoke Inv’t Group) which highlights the similarities between this year and prior Presidential Election years numerous times. If the pattern continues, the S&P 500 could be set up for a nice rally to end the Summer.

The week ahead — Economic data from Econoday.com:

“Short term volatility is greatest at turning points and diminishes as a trend becomes established.” – George Soros.

1. U.S. opens criminal probe in Libor scandal — The U.S. Justice Department is building a criminal case against big banks and individuals who manipulated a key global interest rate. Barclays, other banks including Citigroup Inc. (C), J.P. Morgan Chase & Co. (JPM), the Royal Bank of Scotland (RBS) and Deutsche Bank AG (DB) have said they also are being probed.
2. Saudi Arabia, UAE bypass the Strait of Hormuz — Saudi Arabia and the United Arab Emirates have opened new pipelines bypassing the Strait of Hormuz, the shipping lane that Iran has repeatedly threatened to close, in a move that will reduce Tehran’s power over oil markets.
3. Moody cuts rating of 13 Italian Banks — Moody’s has cut the ratings of 13 Italian banks, citing the weakening of the Italian government’s credit profile. The move followed the downgrade of Italy to Baa2 from A3 last week.
4. Libor probe now focuses on links between banks — the FT reported regulators are focusing on HSBC (HBC), Deutsche Bank (DB), Societe Generale (SCGLY.PK) and Credit Agricole (CRARY.PK) in their Libor investigation, the FT reports.
5. U.S. Post Office Might Miss Retirees’ Payment on August 1 — WSJ reported While many are counting on Congress to avert the “fiscal cliff” in January 2013, The Postal Service stated that without congressional action, it will default—a first in its long history, a spokesman said—on a legally required annual $5.5 billion payment, due Aug. 1, into a health-benefits fund for future retirees.
6. Eurogroup approves Spain bank bailout — Euro-zone finance ministers formally approved an agreement with Spain that will allow the country’s government to borrow as much as 100 billion euros ($123 billion) from the euro zone’s rescue funds to recapitalize its ailing banking sector.

The Bespoke Invt. Group posted a list of high yielders:

The week ahead — Economic data from Econoday.com:

The Supreme Court decision to uphold the Affordable Care Act will have a wide ranging effect on the healthcare industry. Hospitals, health insurers, drug-makers, physicians and technology companies will be affected. Below listed are the industries and selected individual related companies.

1. Hospitals will benefit — 16 to 20 million patients gain insurance coverage for payment. Fewer losses from treating the uninsured since the legislation mandates that everyone buy healthcare insurance or pay a penalty.
• Since the Supreme Court decision on June 28th, 2012, the Hospital Industry gains approximately 5% with many stocks currently consolidating.

Hospital Name Symbol
Tenet Healthcare (THC)
HCA Holdings (HCA)
Health Management Associates (HMA)
Community Health Systems (CYH)
Vanguard Health Systems (VHS)
Lifepoint Hospital Inc. (LPNT)

2. Individual insurance plans or (Health Care Plans) will be hurt by burdensome rules placed on these companies. (Companies will have to accept all patients and spend at least 80% of their collected premiums on patient care).
• The Health Care Plans industry corrected sharply near 10% since June 28th, 2012. Aetna (AET) and Humana (HUM) missed estimates in the 1st quarter.

Insurance Company (Symbol)
Aetna (AET)
Cigna (CI)
Coventry Healthcare (CVH)
Wealthpoint (WLP)
UnitedHealth Group, Inc (UNH)
Humana Inc. (HUM)
Healthnet Inc. (HNT)
Wellcare Healthcare (WCG)

3. Medical Device Manufacturers may see a decrease in profits. The law affirms the imposition of a 2.3% excise tax on all medical devices and expanded reporting of payments to physicians and institutional providers as mandated by the Sunshine Act.
• Many stocks in the Medical Device Manufacturing Industry remain fairly stable due to relatively high dividends.

Company (Symbol)
Boston Scientific (BSX)
Medtronic (MDT)
Hologic Inc (HOLX)
St. Jude Medical (STJ)
Stryker Corp. (SYK)
Zimmer Holdings Inc (ZMH)

4. Pharmaceutical Manufacturers and biologics companies will need to address sweeping changes to Average Manufacturer Price (AMP) and Best Price (BP); i.e. (gov’t dictates prices?).
• Pharmaceutical companies remain fairly stable due to relatively high dividends.

Company (Symbol)
Merck & Co. Inc (MRK)
Pfizer Inc (PFE)
Bristol-Myers Squibb Co. (BMY)
Eli Lilly & Co. (LLY)
Sanofi (SNY)
GlaxoSmithKline Plc (GSK)
Novatis (NVS)

5. Information Technology companies — selected EHR companies will benefit from the implementation and adoption of digital patient records.
• Selected Healthcare Information Services companies will benefit from the $18 billion subsidy to help physicians and hospitals purchase Electronic Health Records(EHR).

Company (Symbol)
Cerner Inc (CERN)
HMS Holdings (HMSY)
AthenaHealth, Inc (ATHN)
Qualily Systems Inc (QSII)
Allscript Healthcare Solutions Inc (MDRX)
Computer Programs and Systems Inc (CPSI)

6. Long-term care, skilled-nursing facility, home healthcare, rehab centers may experience negative affects from Medicare rate cuts.

Company (Symbol)
Brookdale Senior Living Inc (BKD)
Sunrise Senior Living Inc (SRZ)
Kindred Healthcare Inc (KND)
Sun Healthcare Group, Inc (SUNH)

7. Temporary Staffing Companies may also benefit as companies hire temporary employees to reduce expenses.
• The Temporary Staffing Companies may benefit at a later dates; For the short-term, the major headwind for these companies is high employment rate.

Staffing Company (Symbol)
Manpower (MAN)
Kelly Services (KELYA)
Korn/Ferry Intl. (KFY)
Robert Half Intl. (RHI)

We will provide more in-depth research for each company listed above at a later date. For each company, we will examine in detail of each company’s fundamentals, technical analysis and catalysts to determine the appropriate buy/sell point. A clear understanding of the impact of the Affordable Care Act will provide the investor an edge when considering stocks in the healthcare sector.

“I never buy at the bottom and I always sell too soon.” — Baron Rothschild

1. China imports disappoint, exports slow — Imports grew 6.3% in June from a year earlier, versus expectations for an 11.3% rise tipped in a Dow Jones Newswires poll, and below a 12.7% gain in May. Export shipments grew 11.3% for the month, ahead of the 9% rise expected in the Dow Jones Newswires survey, but down from May’s 15.3% rise.
2. Spain unveils €65 billion in new austerity — Spanish Prime Minister Mariano Rajoy announced €65 billion ($79 billion) of new austerity measures in an effort to meet new budget-deficit targets agreed with euro-zone partners. The additional austerity includes an increase in the standard rate of value-added tax to 21% from 18%, and the lower rate to 10% from 8%.
3. Third California city to file for bankruptcy — San Bernadino is set to become the third California city to file for bankruptcy protection in the last month after officials said it faced an imminent financial crisis. San Bernadino, which will join Stockton and Mammoth Lakes, hopes to restructure its finances while in Chapter 9, but a concerned municipal bond market may have other plans.
4. China second-quarter growth slows to 7.6% — Expansion marks slowest pace of growth in more than three years; Recent data meant China’s economy had cooled for six straight quarters, exceeding the five consecutive quarters of cooling seen in a financial crisis during the late 1990s that ended a rapid period of growth for the Asian region.
5. Moody’s downgrades Italy’s government bond rating — Moody’s Investors Service stated that it has cut Italy’s government bond rating to Baa2 from A3 with a negative outlook. The ratings firm said that Italy is more likely to experience a further sharp increase in its funding costs, or the loss of market access, than five months ago “due to increasingly fragile market confidence.” Also, Italy’s near-term economic outlook has deteriorated.
6. Banks could be hit for $22B in Libor penalties — Twelve global banks publicly linked to the Libor scandal face up to $22B in combined regulatory penalties and damages to investors and counterparties, according to admittedly “crude” Morgan Stanley estimates.

The week ahead — Economic data from Econoday.com:

“It’s a buy when the 10-week moving average crosses the 30-week moving average and the slope of both averages is up” – Victor Sperandeo

1. June ISM manufacturing gauge turns below 50% — Manufacturing activity in the U.S. dropped in June into contraction territory for the first time since July 2009, the Institute for Supply Management reported.
2. EU embargo on Iranian oil takes effect — EU oil sanctions on Iran came into full force July 1st as exemptions on some contracts and tanker insurance – which has been key in enforcing the embargo – expired. The IEA has forecast that the measures will remove around 1M bpd from oil markets.
3. Price-fixing suit would put potash industry on trial — according to FinancialPost, U.S. Court of Appeals has ruled that an antitrust suit against potash producers can proceed. Potash Corp. (POT), Agrium (AGU) and Mosaic (MOS) could face total damages of $2B-$6.5B if they lose.
4. ECB cut its benchmark lending rate by a quarter of a percentage point to a record-low 0.75% — European Central Bank President Mario Draghi said further downside risks to euro-area growth have materialized and indications for the second quarter point to weakened growth. lowered the deposit and marginal lending-facility rates.
5. China Cuts Interest Rates for Second Time This Year — per cnbc, China unexpectedly cut rates for the 2nd time in a month suggesting heightened fears about slowing growth.
6. Rate-Rigging Inquiry Widens — Barclay (BCS) Chairman, CEO and COO quit after the bank was fined $453 mil by the US and UK for rigging Libor, a benchmark rate underpinning $350 tril in global financial products. Investigators globally are probing more than a dozen big banks for rate manipulation.

Barron bearish article on investing in China — click here for more details

The week ahead — Economic data from Econoday.com:

June 28th, 2012 the Supreme Court decided to uphold the Affordable Care Act that was approved by Congress March 2010.

This is a multi part series. Part 1 (this article) summarizes the Affordable Care Act and its wide ranging effects on the healthcare industry. Hospitals, health insurers, drug-makers, physicians and technology companies will be affected. Subsequent articles will examine in detail each affected industry and individual related companies.

One of the Affordable Care Act‘s most sweeping changes is to require most individuals to obtain health insurance or pay a tax penalty if they do not obtain coverage for themselves and dependents starting in 2014. Coverage can be obtained through their employer, the Insurance Exchange, or private insurance market outside of the Exchange or government programs such as Medicare, Medicaid. The Affordable Care Act also provides subsidies to low-income individuals and their families in the form of tax credits and reduced costs for coverage purchased through the Exchange.

 Here are the key points of the Affordable Care Act (click here for additional details from the Government Healthcare site):

1. Up to 33 million additional Americans are projected to secure insurance coverage by 2021 (assuming all states participate in the Medicaid expansion).
2. Penalties will be assessed for not buying insurance by 2014; Starting at $95 or 1% of annual income and rising to $695 and 2.5% by 2016.
3. Insurance companies, those that focused on the wholesale market of employer-sponsored coverage, will have to devote a considerable amount of resources to individual policies sold on the exchanges.
4. Government through the Department of Health and Human Services (HHS) dictates premium increases by the insurance companies via the Medical Loss Ratio (MLR).
5. Physician services are already constrained. Increased demand for physician services may come from physician extenders, tele-health, retail clinics, and Federally Qualified health Centers.
a. Some primary-care physician may benefit from a temporary increase in the Medicaid rate.
b. First dollar coverage will be provided for preventive services. This will shift healthcare dollars to areas previously not well funded.
c. Large physician groups are better equipped to participate in the new reimbursement model.
6. Long-term care, skilled-nursing facilities, home healthcare and rehab centers may experience a negative effect from the Medicare rate cut.
7. Focus on EMR (Electronic Medical Record) implementation for reimbursement as dictated by Medicaid. This will shift dollars to technology but also result in a significant new cost to care providers.
8. Pharmaceutical and Life Sciences industry will experience the least operation disruption from the law.
9. Branded pharmaceuticals stand to lose over the next decade as a result of discounts in the Medicare Part D, the effect of the doughnut hole, increased Medicaid rebates and industry fees. This will be partially offset by a modest increase in sales from expanded insurance coverage.
10. Large generic manufacturers stand to gain in sales because of new discounts and rebate provisions.
11. The 2.3% Medical Device excise tax will mean that smaller medical device firms will be affected most.

The Affordable Care Act requires all employers with more than 50 employees to offer health benefits to every full-time employee or pay a penalty of $2,000 per worker (less the first 30). It also dictates the employers will have to provide insurance benefits to all employees as well as bear the cost of insuring the children of employees to a later age. The benefits must provide a reasonable level of health coverage. Except for grandfathered plans, employers will no longer be able to offer better benefits to their highly compensated executives than to their hourly employees. Employees can shop around for group health plans on new insurance exchanges as opposed to individual plans.

Congress created a $19 billion subsidy program in March 2009 (American Recovery and Reinvestment Act) to help physicians and hospitals purchase electronic-health record (EHR) systems. At this juncture, we are only at an initial funding stage of providing EHR.
a. EHR systems program is overseen by Centers Medicare and Medicaid Services (CMS) and Office of the National Coordinator for Health Information Technology (ONC) under the U.S. Department of Health and Human Services (HHS) umbrella.
b. Recipients of the subsidy must meet the criteria of “meaningful users” by purchasing a “certified” EHR and facilitate adoption of Health Information Technology.

Affordable Care Act‘s effects on the healthcare industries:

1. Benefit Hospitals 16 to 20 million patients gain insurance coverage for payment. Fewer losses from treating the uninsured since the legislation mandates that everyone buy healthcare insurance or pay a penalty.

Below are list of Hospitals
Hospital Name Symbol
Tenet Healthcare THC
HCA Holdings HCA
Health Management Associates HMA
Community Health Systems CYH
Vanguard Health Systems VHS
Lifepoint Hospital Inc. LPNT

2. Temporary Staffing Companies may also benefit as companies hire temporary employees to reduce expenses

Staffing Company Symbol
Manpower MAN
Kelly Services KELYA
Korn/Ferry Intl. KFY
Robert Half Intl. RHI

3. Individual insurance plans will be hurt by burdensome rules placed on these companies. (Companies will have to accept all patients and spend at least 80% of their collected premiums on patient care)

Insurance Company Symbol
Aetna AET
Cigna CI
Coventry Healthcare CVH
Wealthpoint WLP
UnitedHealth Group, Inc UNH
Humana Inc. HUM
Healthnet Inc. HNT
Wellcare Healthcare WCG

4. Medical Device Manufacturers may see a decrease in profits, the law affirms the imposition of a 2.3% excise tax on all medical devices and expanded reporting of payments to physicians and institutional providers as mandated by the Sunshine Act

Staffing Company Symbol
Boston Scientific BSX
Medtronic MDT
Hologic Inc HOLX
St. Jude Medical STJ
Stryker Corp. SYK
Zimmer Holdings Inc ZMH

5. Pharmaceutical Manufacturers and biologics companies will need to address sweeping changes to Average Manufacturer Price (AMP) and Best Price (BP); i.e. (gov’t dictates prices?)

Company Symbol
Merck & Co. Inc MRK
Pfizer Inc PFE
Bristol-Myers Squibb Co. BMY
Eli Lilly & Co. LLY
Sanofi SNY
GlaxoSmithKline Plc GSK
Novatis NVS

6. Long-term care, skilled-nursing facility, home healthcare, rehab centers may experience negative effects from Medicare rate cuts.

Company Symbol
Brookdale Senior Living Inc BKD
Sunrise Senior Living Inc SRZ
Kindred Healthcare Inc KND
Sun Healthcare Group, Inc SUNH

7. Information Technology companies — selected EHR companies will benefit from the implementation and adoption of digital patient records.

Company Symbol
Cerner Inc CERN
Qualily Systems Inc QSII
Allscript Healthcare Solutions Inc MDRX
Computer Programs and Systems Inc CPSI

We provide more in-depth research for each company listed above. For each company, we examine in detail of each company’s fundamentals and provide technical analysis to determine the appropriate buy/sell point.

“Buy low, sell high, cut your losses, let your profits run.” — Leon Cooperman

1. Sale of new U.S. homes rise to 2-year high in May — Sales of new single-family homes rose to an annual rate of 369,000 in May to mark the highest level in more than two years. The supply of new homes on the market, at current sales pace, fell to 4.7 months from 5.0 in April.
2. Spain makes formal request for bank bailout — Spain has formally asked the Eurogroup for a bank rescue of up to €100B, which, says Economy Minister Luis De Guindos, should be enough to cover all the needs of the country’s banks and provide a security buffer.
3. Stockton, California, to File for Bankruptcy Protection — Stockton, California, said it will file for bankruptcy after talks with bondholders and labor unions failed, making the agricultural center the biggest U.S. city to seek court protection from creditors. Stockton becomes one of the biggest U.S. cities to file for bankruptcy with debts of $700M. Stockton, which has already defaulted on three sets of bonds, got into trouble due to high retiree costs for municipal workers, spending on a revitalization effort, and falling property-tax revenue.
4. Cyprus requests European bailout — Cyprus, with its banking system ravaged by exposure to Greek sovereign debt, became the latest victim of Europe’s debt crisis by requesting aid from its euro-zone partners.
5. News Corp.’s Murdoch Said to Consider Splitting Company — Rupert Murdoch may reportedly split News Corp. (NWS) into two companies, one focused on publishing and the other on entertainment. Internal discussions are said to be at an advanced stage.
6. U.S. grapples with natural gas exports — the question, with exports of natural gas, is how much is too much? Both sides of the debate are wary of a public brawl, either for not wanting to be seen as opposing exports in general.
7. Obamacare’s Insurance Rule Is Upheld by Supreme Court — per CNBC, the Supreme Court, in a landmark ruling last Thursday, upheld the individual insurance requirement at the heart of President Barack Obama’s health care overhaul. The court, however, found problems with the law’s expansion of Medicaid, but even there said the expansion could proceed as long as the federal government does not threaten to withhold states’ entire Medicaid allotment if they don’t take part in the law’s extension.
8. EU Summit agrees to create single bank regulator in bid for banking union — EU leaders agreed that once a bank supervisor is in place, Europe’s permanent rescue fund — the European Stability Mechanism — will be able to directly recapitalize banks.

The week ahead — Economic data from Econoday.com: