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The Can is Kicked down the Curb

Obviously, there have been gobs of differing perspectives on the healthcare overhaul poised to be signed into law by President Obama shortly. Those on the right believe that the free market principles that laid the foundation for our country are being completely abandoned, tossed into the garbage for a social agenda that mirrors Europe. Former presidential hopeful Mitt Romney went so far as to say the bill unleashes a "nuclear option", a poke at the public option that was widely sought by left of left Democrats.

Undoubtedly, the right's argument has strong merit. In bending the healthcare cost curve (the President's terminology, not mine), the government may yield to care rationing to keep the costs of the program from overflowing the rosy CBO assessment offered up last week. Care rationing, as I think about it, equates to less of a focus on saving human lives and more of a focus on containing costs at every step of healthcare (ultimately limits innovation) to prevent spiraling government outlays. I don't know about you, but developing new drug treatments to save lives, in addition to an attention on preventive care measures, is what healthcare should be about.

Whether I am reading too much into the healthcare proposal, time will tell. What I do know is that when this plan finally kicks into full gear I will be pushing 40 years old and not only potentially contending with various illnesses (note I am 27 currently, work out like a fiend, and have a diet that would impress Arnold Schwarzenegger…so I do not anticipate any illnesses), but being taxed for years of tireless dedication to hard work (prudent investing, prudent saving, constant learning). This is not a proposition I wholeheartedly embrace, and I am sure many others across this country share such a sentiment.

For those on the left, it's a historical week, a week in which long-term healthcare costs are destined to go down long-term and 31 million Americans will gain access to affordable healthcare. Children will be able to milk their parents' insurance until the age of 26 (I just missed the cut…sigh), postponing for many the sense of urgency to get into the workforce. Finding a job post college was always one part to increase cash flow to pay down debts and one part a pressing need to find healthcare insurance. I think that college graduates will delay their entrance into the workforce, perhaps deciding to pursue other interests while still having that lovely parental funded healthcare. In the end, Americans will fall further behind those overseas on the grounds of intellectual stimulation and real world experience.

Whatever one's political path, the stock market is sending the following message this week:

"The major impacts of the healthcare plan are way down the line, essentially beyond the investment horizons of most individual and institutional investors. So, buy equities now into a global economic growth recovery thesis and worry about downside risks brought about by big government actions later."

However, I am sensing that things exist on the horizon that present downside to risk assets after a year plus of living a bull's best dream. If the market is centered on non-healthcare opportunities and risks, then the following are deserving of attention.

* Financial regulatory reform that has the potential to reduce liquidity in the system and stifle a company's capital raising efforts. Access to capital is the lifeblood of a capitalistic system, which I think we still subscribe to (said tongue in cheek).
* Pickup in certain core aspects of inflation within the PPI and CPI reports.
* Lack of pricing power by many businesses.
* Conclusion of Bush era tax cuts.
* Lack of visibility into 2H10 demand, suggesting further investment in inventories is not guaranteed.

Housing Data Ringing Alarm Bells
By: David Urani, Research Analyst

Existing home sales for February came in with a 0.6% decline month to month to an annually adjusted rate of 5.0 million, falling in line with the consensus estimate. The result was not much of a surprise, although it still represented the third monthly decrease in a row, indicating that demand has indeed subsided since the second half of 2009 when tax credits and low prices drove buying. Modest sales increases in the Midwest and the South offset declines in the South and West. Overall, it was the slowest annual rate of sales since June 2009.

While the sales results did not particularly catch the Street or us off guard, there was a big spoiler in the report on the inventory line. The total supply of existing homes on the market rose by 9.5% month to month to 3.6 million units, representing the highest level since September. While we are not going to be too quick to rely on one month of data which could prove to be an outlier, the result does begin to fulfill a few fears we have been harboring: (1) slowing sales rates may have allowed continually high rates of foreclosure supply to catch up with and overtake demand; (2) a large pipeline of pent up foreclosures and "shadow inventory" is slowly being released; and (3) nationwide foreclosure prevention programs which had been delaying foreclosures for months are now releasing troubled borrowers onto the market.

Given the last few months of poor sales results and now the prospect of rising inventory, we are becoming legitimately concerned that home prices could stage another dip, possibly endangering the economic recovery as a whole.

Disclosure: none