15 Year Old Morgan Stanley Media Analyst Issues Great Reseach Report

Or should I say, 15 years and 7 months? Don't wanna cheat the guy out of those precious months. This research report is a interesting must read providing a teenage perspective on potential future trends media and technology usage.

Basically, the London office had one of their interns write down his thoughts and liked it so much they published it. In summary, he is positive on anything that's free, anti obtrusive advertising, somewhat anti Apple and watching videos over the computer. Oh and he's very much Anti Twitter. On Twitter-I've said it once, and I'll say it again, if those guys don't take the deal they are idiots. Holding out to wait for the business model to evolve is bad business judgment in this case. Take your billion and run. Or half billion even...

Here is the link to the Morgan Stanley report, and wow does it read "young".

The Administration is Back Asswards on Health Care

So in answer to a spiraling out of control costs in health care, the Administration’s solution is to expand the program to more of the population and give government a bigger role in a broken and syphilitic system. If you are in a hole, first you have to stop digging.

While expanding coverage to the uninsured might be helpful in reducing some costs, generally it would be a massive expansion of a dysfunctional and out of control system that raises prices by 9 percent last year in an environment where the rest of the economy is out of control. Where is all that money going?

The United States spends 17% on health care while the next highest in the World is Switzerland at 11% and they cover everyone. Has America become so fat and inefficient that it can’t do the same? Why isn’t 11% our goal too? Instead we are shooting for 20%.

Right now the President’s plan in Congress is stalled in the Senate and it deserves to be. What President has come into office with a mandate for more change than this President—and this is what we get? Just expand the bad system we have to make it bigger.

Further, why do we keep seeing all these announcements about “savings found” and health care companies promising the government all this money. Getting to 11% of GDP isn’t going to come because Congress negotiates it through back door deals, it’s going to come through competition, efficiency, and reducing government incentives to over consume.

Congress is worried about the details of a health care plan where they can take virtually any plan in the industrialized world and it would be better than what we have now. Take Switzerland or France or Holland—any one would be better than what we have now since its bankrupting the country. A lot of this feels like Rahm Emanuel, aka Mr. Execution, just wants to get a “win” by passing anything. This is a huge part of our economy and we need something that’s actually economically sensible.

This means instead of making health care bigger, we need to focus on cost control issues. Among these are:

• No health care plan should be adopted that increases aggregate spending. We should be working to get health care down to 13% of GDP, not trying to raise it.
• Shifting to outcome based health care. US consumers are used to over consumption across every major sector, it’s no surprise it’s a problem in health care too. We need to cut back here just like everywhere else. This also means, preventing unnecessary procedures and tests and reducing waste and over consumption.
• To understand a thing you have to classify a thing and health care is a black hole if I've ever seen one. Preventive and routine care needs to be separate from advanced medical research and experimental treatments. Similarly, people need to understand the difference between insurance and just prepaid medical plans. Advances in research on medical technology and procedures should become a lot more separate from preventive care than it is today. Think of it like the border between investment banks and commercial banks. Almost like a Glass Steagle for Health Care. Why? It’s a totally different type of business. Providing preventive care and routine procedures needs to be run a lot more like Walmart than a nuclear lab. It's just my gut, but right now I think the US mixes the two pots too much. The effect is that the US pays for advances in health care for the rest of the world thorough their monthly health care premiums which are ridiculously too high.
• People need to understand the difference between insurance and prepaid medical. Getting "insurance" for a dental cleaning that you know is going to happen every six months is not bloody insurance. You cannot insure for something you know is going to happen every year anyway. That's prepaid expenses. Preventive care for everyone is not insurance--that's prepaid medical. The two concepts need to be separated out and dealt with differently as part of any health care reform package.
• Eliminating government policies that encourage over-consumption. For example. The tax exemption on these “golden” health plans are remnants of wage control we had in World War II. They encourage over consumption and should be eliminated. Use that money to provide coverage for the uninsured. This idea has surprisingly little support in Congress given it’s a World War II policy. Mostly because unions have some of the most golden of the health care plans and guess who won the last election. President Obama needs to think of the whole country here, not just who elected him.
• Why should someone who gets a $60,000 a year health care benefit for his family and whose over consumption while some can't get $500 in routine annual checkups for their family get a tax deduction for it? All so we can protect the unions? No thanks.
• IT Initiates are the only sensible area where spending should increase. Even if this gives us a better idea of where we are wasting money—it’s worth it.
• Means testing for government benefits. If you’ve got 50 million in the bank, you don’t need Medicare.
• People keep asking where is the money going to come for to pay for health care? That's the wrong question. Even if you assume the 1 trillion in estimated costs of the Congressional plan, ask about year 11. Year 11 the costs start to balloon into a true disaster.
  
• You shouldn’t have to be a doctor to provide preventative care and basic procedures. More “substitute” doctors need to be allowed to do more procedures and more health care should be shifted to self monitoring where possible.
• The GOP needs to stop road blocking real reform here too. Their opposition to real reform and change here is just as backwards as the President’s policy. If you are the party of economic conservatism how is “rationing” a four letter word to you? Fear tactics such as "the President wants to take your doctor away" are also unconstructive. Nobody can afford cheap points here because the system is so broken and sucking too much of our national output.
• Debate over public plan vs. cooperatives is pretty meaningless. It’s not who owns health care that’s the problem, it’s the incentives that need to be changed.

China Times Reporting 9.7 inch MacTablet in October

Pretty consistent with what we've been saying on BlindReason and the timing as well of the tablet (and size too). My thing--could we please start making more products here please? Why do we have to get all the info leaks from China?

We've got deflationary wages, tons of people willing to work, and a currency that at some point is going to be a lot more competitive. You can get all sorts of deals to start manufacturing with free office space, tax exemptions and set asides. Besides, they can't keep a secret in Asia.

If you can read Mandarin the link is here.

Microsoft Moves Office to Online and for Free

Microsoft is in a very tricky spot as the traditional PC market "diffuses" into other categories. That loose diffusion into other devices such as cars, TVs, appliances means that Microsoft's main franchise is vulnerable to a technical transition. Additionally, people that use their computers simply for email and Internet browsing will be tempted to use something a lot more scaled down entirely.

Google Chrome will hit these people especially hard because they are more than content to run their applications from a browser based OS since that's what they use their computer for mainly anyway. To the extent that the browser that browsers become the application platform Google can at least take some share.

This was the driver for my predicting back in December that Microsoft was in a long term decline and while tech would outperform for 2009 I was concerned about the company. Here is prediction #5 from December.

5. Tech companies are among the first to rebound with Microsoft lags as it begins a long secular decline. Palm comes out with a fantastic new operating system that gets amazing reviews but eventually exits through a sale or wind down. Similar walking dead tech stories such as Motorola, Lucent, Yahoo, Nortel and Sun also finally exit through sales or wind down. It also ends up being the worst year in history for Big Media with the rise of new media and interactive entertainment. Big media can’t compete against much lower costs of content creation and distribution and one or more of these companies are forced to restructure.

I'm sorta giving the Miccrosoft part of that prediciton a "fail" because I've been surprised at how good Bing was, as well as Windows 7 and general weakness and lack of cash in the rest of corporate America (Microsoft is pretty much a big cash horde). I think ultimately the prediciton is only waylaid however because the company has no record of true innovation and transitions of things like Office to a web based format will be highly tricky and they are unlikely to pull it off. I plan to be out of the equity by the end of the year without new data. More from Gizmodoo.

California Budget Battle Spreads to Immigrants

Pretty aggressive measure to cut off benefits to children of illegal immigrants in California. That fight is going to get ugly. More here:

The plan: a California ballot initiative that would end public benefits for illegal immigrants, cut off welfare payments for their children and impose new rules for birth certificates.

"We will be out in full force to qualify this initiative," said Barbara Coe, who helped develop Proposition 187, the 1994 measure that would have ended benefits to illegal immigrants but was ruled unconstitutional. "Illegals and their children are costing the state billions of dollars. It's invasion by birth canal."

Supporters of the initiative, recently unveiled by San Diego political activist Ted Hilton, hope to challenge the citizenship of children born in the United States to parents who are here illegally.

The 14th Amendment states that "All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and the State wherein they reside." Backers of the initiative argue that illegal residents are not "subject to the jurisdiction" of the United States and that, as a result, their U.S.-born children should not be citizens.

Indigestion at Endowments

Notable piece on UVA "increasing (alternative) investments to $2 billion" in the next 6 years. It's sort of a bad way to express what's occurring as it implies some sort of increased flow of capital to alternative investments by institutions which is not occurring.

Generally, as marketable securities fall in price, the allocation to private to private equity rise because the investment obligation are structured over multiple years. Additionally, loss report lags significantly in alternative investments. I wouldn't be suprirsed if the overall losses were 30% or more, not 22% which is really pretty dramatic for an institutional portfolio.

Via Bloomberg:

The University of Virginia may double investments in private-equity, real estate and commodities as U.S. colleges are squeezed by commitments to fund managers made before financial markets collapsed.

Virginia’s holdings will increase to about $2 billion in the next six years because the Charlottesville school is contractually obligated to make the investments, Christopher Brightman, chief executive officer of the University of Virginia Investment Management Co., said in an e-mail. Losses on so-called alternative assets drove a 22 percent decline in the university’s $4 billion in funds from July 2008 through May.

“The increase that we project in the amount invested in private funds is largely a function of present uncalled commitments and our expectation for sparse distributions from private funds over the next several years,” Brightman said. “Until a more normal pace of distributions resumes, we will make relatively few new commitments,” he said.

Colleges and universities across the U.S. have little choice but to make good on agreements with fund managers to buy more of the same assets that fueled record losses in the fiscal year ended June 30. With an increasing chunk of their endowments in hard-to-sell holdings, they may see a repeat of the cash crunch that forced some schools to fire employees, slow building projects and sell bonds.

“We’re going to be more illiquid than we planned on being,” said Jeff Pippin, who manages about $465 million at Pepperdine University in Malibu, California. The school will make fewer fresh private-equity purchases “until we get a clear sense of where things are going.”

Michigan, Yale

Unfunded capital commitments range from 20 percent to 40 percent of the wealthiest college funds with more than $1 billion in assets, according to John Nelson, an analyst at Moody’s Investors Service in New York. Institutions such as endowments and pensions funds typically agree upfront to invest a set amount with asset managers over a period of years. Not all commitments are called by managers.

Most schools won’t disclose their unfunded pledges for the fiscal year ended June 30 until at least September. For the prior year, the University of Michigan’s $3.34 billion in uncalled commitments was the highest among the 10 wealthiest U.S. colleges, making up 44 percent of its $7.6 billion endowment. Yale University was next at $8.7 billion, or 38 percent of its $22.9 billion fund, followed by Princeton University at $6.1 billion, or 37 percent of the $16.3 billion fund.

Meet The Press Absolutely Ridiculous Today

How many Sarah Palin questions can you ask? Are there not a lot more important things going on for the country? I skipped through it all and really miss Tim Russert.

I've just started watching Fareed Zakaria "GPS" and find its just a much more enlightened debate. More big picture perspective and less Sarah Palin/ Michael Jackson stories.

Video Clears Up Obama Photo-Friday Levity

Morning Macro Musings

Just a few thoughts this AM:

• The Russians are threatening to seize two MT steel mills if "production doesn't rise". The Russians seem rather committed to a quasi state control of its economy despite the impact on future investment. Nobody wants to invest there with Putin as a de facto board member/owner.
• Some noise around Chrome OS as a challenge to Microsoft. Short term success in search and OS could breath some life into this company. Eventually "OS" will be a much broader category and I still believe its longer term business model is an issue.
• Wells Fargo. The rising defaults in California, comments from Buffet about his portfolio companies and a rather feisty management will make for an interesting quarter. Overall bank earnings this quarter won't be as impressive as they were last quarter. Any big dips should be good long term entries for things like JP Morgan.
  
• It's still very interesting to me how real estate prices in Asia have not experienced any huge relative collapse compared to the US. Either the US prices need to rise, or their prices need to come down to earth.
• The Congress is spending a lot of time trying to figure out new ways to tax people on health care, or on whether there is a public plan, or a co-op. The real focus should be on changing the incentives to over consume. The GOP is just as guilty with talk about how rationing is bad. When is the GOP going to return to being thrifty?
• Trade numbers came out this morning and they continue to improve. Exports were actually up in the United States which is amazing in a global contraction.
• Great to see protests continue to Iran. Down with the Mullahs!
• Oil continues to drop. No question a TON of this is based on threats of investigations. This really hurts Chavez and other Petro dictators.

Just for Disclosure: Short Petrobras, Short MTL, Long MSFT Calls, QQQ Calls (tech)

Pandora Feature Request

Don't play songs I already have in ITunes, or at least offer a free song skip.