Dow at new one-year high as stocks jump worldwide

The bears are being routed worldwide today as investors find plenty of reasons to buy stocks and not many reasons to sell.

The Dow Jones industrial average was trading at a new one-year high at about 11 a.m. PST, up 176.84 points, or 1.8%, to 10,200.26. That tops the recent closing high of 10,092.19 on Oct. 19.

Other major U.S. indexes also are up sharply, though still below their recent peaks. The Nasdaq composite, up 34.30 points, or 1.6%, to 2,146.74, is within 1.4% of its closing high of 2,176.32 on Oct. 19.

Today’s rally is rooted in faith that the global economy won’t go back into the soup. That sentiment got a boost after finance ministers and central bank chiefs of the G-20 nations met over the weekend in Scotland and pledged not to rush to remove fiscal and monetary support programs.

"We agreed to maintain support for the recovery until it is assured," the group said in a statement.

That helped stoke investors’ appetite for risk-taking as markets opened today. Emerging-market stocks are among the day’s biggest gainers. The Indian market jumped 2.1%, Russian stocks surged 5% and the Brazilian market is up 2.4% so far.

Commodity prices also are broadly higher, led by oil, corn, cotton and gold, with the yellow metal at a new all-time high of $1,102.20 an ounce, up from $1,095.10 on Friday.

With risk takers on a roll, the dollar is the day’s loser -- but it’s clearly not hurting the mood on Wall Street. The DXY index of the dollar’s value against six other major currencies is down about 1%.

As for concerns that the U.S. House’s passage of the $1.1-trillion healthcare reform bill would hammer medical-related stocks -- well, not today. Most major drug stocks are trading higher (Merck is up 65 cents to $33.24) and an index of 11 big HMO stocks, including Wellpoint Inc. and UnitedHealth Group Inc., is up 1.5% to a new 52-week high.

Even the bond market is cooperating with stock bulls today: Despite the dollar’s slide Treasury bond yields are flat compared with Friday.

-- Tom Petruno

Photo: Richard Drew / Associated Press

Michael Hiltzik: The real antitrust scandal in health insurance

Sometimes a minor dust-up distracts attention from a major problem, as when a police officer stops a car for a busted taillight and overlooks the dead body in the trunk.

The health insurance industry's so-called "antitrust exemption," the subject of my column today, is something like that. Liberal members of Congress have spent the last couple of weeks decrying an exemption enacted back in 1945 and have moved to repeal it. This seems to be such an obvious crowd-pleaser that it even attracted a handful of Republican votes on the House Judiciary Committee, which moved the repeal effort to the House floor.

Yet repeal of the McCarran-Ferguson Act would do almost nothing to halt the wave of mergers and acquisitions that turned a competitive industry into a nationwide oligarchy -- even a monopoly in some regions -- over the last 10 years. That's because it doesn't apply to mergers, which are still subject to federal antitrust scrutiny, and the collusive practices it does outlaw don't normally take place in the health insurance sector.

The real problem, as my column documents, is that federal antitrust regulators haven't taken their statutory authority seriously. They've waved through hundreds of mergers that have resulted in the elimination of competition across the nation and the disappearance of choice for millions of American consumers. And there lies the real rationale for the "public option" -- since the regulators have failed to preserve competition, it's up to Congress to reinstall it by fiat.

The column starts below:

I suspect I had the same reaction as many other Americans after hearing that Congress was planning to strip the health insurance industry of its antitrust exemption.

My question was: What idiots exempted health insurers from antitrust law in the first place?

The answer, of course, is Congress.

The antitrust exemption supposedly comes from the McCarran-Ferguson Act, which was passed in 1945 to protect state regulation of insurance companies, and also to allow insurers to share loss data with each other without being haled into federal court on antitrust or collusion charges.

It’s tempting to see McCarran-Ferguson as a giveaway to big business. What’s especially grating about it is that antitrust immunity should be grudgingly given. Major League Baseball has it — but it’s the national pastime, affording Americans months of pleasure every year (unless the Yankees win). Health insurers, by contrast, afford Americans endless frustration, and always seem to win, in the end. One would think the country needs antitrust immunity for health insurers like, well, the New York Yankees need another free-agent slugger.

Read the whole column.

-- Michael Hiltzik

Hiltzik column: Of healthcare mandates and loopholes

Followers of America's healthcare mess know that its outstanding feature is the loophole. Insurance companies exploit loopholes to deny coverage to those they fear might develop, you know, an illness, and to rescind coverage purchased by those whose illnesses threaten the carrier's dime.

As my Thursday column states, the key to effective reform is to close every loophole -- mandate that insurers sell coverage to all buyers, for example, and mandate that every American be a buyer. That way, the insurers are deprived of the incentive to drive away more costly customers while keeping the young and the hale.

The reform bill passed by the Senate Finance Committee this week under the guidance of Sen. Max Baucus (D-Mont.), incorporates the individual mandate. But the question is whether it has created a gaping loophole by soft-pedaling enforcement. Specificially, are the penalties for evading the insurance requirement so light as to be ineffective? Many economists believe so. Herewith an analysis, along with a caution about what the consequencies might be of a weak mandate. The column starts here:

Healthcare reformers tell a wry joke about one of their number who, called to heaven, is given the opportunity to pose a single question to God.

“Will we ever have universal health coverage in the United States?” the reformer asks.

“Yes,” comes the answer from on high, “but not in my lifetime.”

The simple truth implicit in this joke is underscored by the landmark healthcare bill passed this week by the Senate Finance Committee: America is walking up the driveway of universal coverage, but hasn’t yet made it through the door.
 

Read the whole column.

-- Michael Hiltzik

CalPIRG says small business left in the cold on healthcare reforms

If small businesses were run like the healthcare industry, they’d lose all their customers, the California Public Interest Research Group said today.

As it is, staggering healthcare costs pushed in part by a system rife with unaffordable policies and insurer abuses are already are leaving small businesses in a rut, according to the consumer advocacy group, which advocates a public health insurance option to compete with high premiums from private companies.

"Small businesses are being driven out of businesses because they’re unable to provide healthcare for their employees," said Emily Rich, the state group’s healthcare advocate. "The inefficiencies and wastes in healthcare are driving up the costs for small businesses throughout the state."

A July report  from U.S. PIRG, the federation of state PIRGS, surveyed 343 small-business owners and managers around the country. Just 29% of small businesses surveyed extended coverage to their workers, with the likelihood of employees getting covered shrinking with the size of the company.

Of those offering coverage, 55% do so to attract and retain good employees, and 27% do it to increase worker productivity. Of those small businesses that don't offer healthcare coverage, 78% said they would if they could. But most were stymied by the high cost and the rest complained that healthcare policies were too complicated.

Worse, most small business owners don't feel as if anyone in Washington cares much about them. Only 24% said they felt their interests were represented in the current health reform debate.

Owners also complained about other concerns about insurers, some of whom deny coverage to those with preexisting conditions. Also, small companies pay 18% more for insurance than large firms do for the same policy, and also must deal with complicated application forms and annual or lifetime caps on payment for care, Rich said.

Since 1999, health insurance premiums have jumped 113% for small companies, according to the report. Together, the companies will pay nearly $2.4 trillion over the next 10 years to provide medical insurance for their workers, according to a recent report from Small Business Majority.

-- Tiffany Hsu

House Democrats detail surtaxes to pay for healthcare bill

House Democrats today unveiled their massive healthcare reform proposal and detailed how they would pay for it. Included in the bill are proposed tax increases on high-income earners that are bigger than what was rumored last week.

The proposal calls for a 1% surtax on modified adjusted gross income between $350,000 and $500,000; a 1.5% surtax on income between $500,000 and $1 million; and a 5.4% surtax on income exceeding $1 million.

The income figures are for married couples filing jointly. In the case of a single filer, the thresholds would be 80% of the income levels listed above.

The 5.4% "millionaire" surtax exceeds the 3% that House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) last week indicated was the working number.

The top marginal federal tax rate now is 35% on taxable income above $372,950 for married couples.

The bill also includes a provision to raise the 1% surtax to 2%, and the 1.5% rate to 3%, in 2013 unless savings from federal healthcare reforms reaches preset levels. But if the savings exceeds certain targets the bill provides for a rollback of the tax increases.

Rangel said lawmakers chose the surtax on high-income earners because it "causes the least amount of pain on the least amount of people."

The centerpiece of the healthcare proposal, of course, is insurance coverage for Americans who don’t have it. All Americans would be expected to have some form of coverage. If you opt out, you'd pay a penalty tax of 2.5% of adjusted gross income above a specified level.

Go here for the Democrats’ summary of the plan, including proposed requirements for businesses and changes in Medicare coverage. (Curiously, the summary doesn't include the tax hikes, but they're in the 1,000-page bill.)

Bloomberg News has more, here, on how the political battle over the bill is shaping up.

-- Tom Petruno

Photo: House Democratic leaders, including Rep. Charles B. Rangel, second from right, at the unveiling of their healthcare plan today. Credit: Manuel Balce Ceneta / Associated Press

Healthcare bill: Taxes would rise on incomes above $350K

House Ways and Means Committee Chairman Charles Rangel today got more specific about his plan to tax high-income-earners to pay for healthcare reform, including coverage of the uninsured.

From Dow Jones newswires:

The House of Representatives will propose a surtax on taxpayers with income above $350,000 to help fund a $1 trillion health-care overhaul, House Ways and Means Chairman Charles Rangel, D-N.Y., said Friday.

The tax will be graduated, so wealthier taxpayers will be subject to a higher rate. While the rates themselves have yet to be nailed down, Rangel indicated they would be in the range of 1% for married couples making $350,000, 2% for those with income above $500,000, and 3% for those with incomes over $1 million.

A bill is expected to take shape next week in the House.

In his 2007 healthcare plan, Rangel proposed an extra 4% tax on incomes above $200,000 and an additional 0.6% on incomes above $500,000.

Earlier in the week the rumor was that Rangel, this time around, wanted to impose higher taxes starting at income of $250,000. So he has raised the income threshold by $100,000.

The top federal tax rate now is 35% on taxable income above $372,950 for married couples.

See this story for more on how the battle is shaping up over healthcare reform and how to pay for it.

-- Tom Petruno

Amgen shares jump on bone-cancer drug trial results

Amgen Inc. investors got good news late Tuesday on trial results for one of the Thousand Oaks company’s potential blockbuster drugs.

From Reuters:

Amgen said its experimental osteoporosis drug reduced and delayed serious bone complications among patients with advanced breast cancer, and the news sent its shares up almost 13% in after-hours trade.

The biotechnology company said its drug, denosumab, proved superior to Novartis AG's Zometa in a late-stage study.

Bone metastases, or the spread of cancer to the bone, are a serious consequence of breast cancer, weakening or destroying bone around the tumor.

The Phase 3 study assessed the incidence of serious bone complications among 2,049 such patients, including fractures, or the need for radiation or surgery to bone.

The report was issued after regular market hours. Amgen’s shares, which inched up 18 cents to $52.23 in regular trading, jumped to $59 in after-hours activity, the highest since early January.

UPDATE: The stock was up $8.41 to $60.64 in early trading Wednesday.

Amgen has a lot riding on denosumab, as the company faces depressed sales of its arthritis drug Enbrel and of its longtime cash cows, the anti-anemia drugs Aranesp and Epogen.

The company still is highly profitable, but first-quarter earnings were down 8% from a year earlier, to $1.02 billion. Revenue was off 8.4% to $3.3 billion.

"Amgen’s entire story right now is denosumab in cancer," analyst Eric Schmidt at Cowen & Co. said in a Bloomberg News interview last month. "Everybody on Wall Street is waiting now to see if denosumab can deliver."

-- Tom Petruno

Clock ticks louder on Medicare and Social Security

The deep recession will mean a faster road to insolvency for Medicare and Social Security, the programs' trustees warn today in their annual reports on the plans.

Their findings won’t shock anyone, and we’ve all been reading the same grim headlines about Medicare and Social Security for decades, to the point of numbness. The only difference is that the day the money theoretically runs out is getting ever closer -- particularly for Medicare.

Social Security now is expected to begin paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the trust fund will be empty by 2037, four years sooner.

As for Medicare, it's already paying out more in benefits than it collects in taxes, and the trustees estimate the program will be insolvent by 2017, two years sooner than projected in last year's report.

Read the summary of the trustees' reports here.

With the government already racking up unprecedented budget deficits to bail out the economy and the financial system, the prospect of funding shortfalls in Medicare and Social Security becomes even more daunting. Will the Chinese pay for our retirement, too?

Unless some huge portion of the 76 million aging baby boomers decide to leave the country (for, say, Canada?), the options for keeping the programs solvent aren’t going to change: raise taxes or cut benefits spending, or both.

In a statement, Treasury Secretary Timothy F. Geithner said President Obama "explicitly rejects the notion that Social Security is an untouchable politically and instead believes there is opportunity for a new consensus on Social Security reform."

As the trustees’ report notes:

Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16% increase in the payroll tax (from a rate of 12.4% to 14.4%) or an immediate reduction in benefits of 13%, or some combination of the two.

Ensuring that the system remains solvent on a sustainable basis beyond the next 75 years would require larger changes because increasing longevity will result in people receiving benefits for ever longer periods of retirement.

-- Tom Petruno

Obama's squeeze on health sector sends investors fleeing

Healthcare stocks were hammered today after President Obama's budget proposals confirmed some investors' worst fears about the administration's plans to squeeze the industry.

The sell-off is knocking out what had been one of the few pillars of support for Wall Street this year.

Managed-care companies took the biggest hit today: The HMO index of 11 major healthcare providers plunged 10.4%, bringing its decline so far this week to 20.4%.

UnitedHealth Group slumped $2.96, or nearly 13%, to $20.07. It’s down 28% this week. Humana Inc. plunged 19.5% today, to $23.64, and is off 42% this week. Woodland Hills-based Health Net Inc. slid 9.4% to $13.44 for the day and is down 20% for the week.

Obama wants to force healthcare providers to make competitive bids to provide so-called Medicare Advantage plans, which offer bundled benefits and subsidized care for nearly 11 million elderly.

As Bloomberg News notes: "The insurance companies are paid on average 14% more than it costs Medicare to provide benefits directly, according to government estimates, and Obama said in the proposal 'it's time to stop this waste.' "

As for the drug companies, Obama's budget "would raise rebates drugmakers must provide to supply medicines for patients on Medicaid, the U.S. plan for the poor, to 22% of the manufacturer’s price, from 15%," Bloomberg notes.

Can you feel the vise grips closing?

Among drug makers, Eli Lilly & Co. lost 4.7% to $31.04 today. Pfizer fell 2.9% to $12.70 and Thousand Oaks-based Amgen Inc. sank 9.4% to $51.23. Obama wants to open the door for generic-drug firms to make their own versions of biotech drugs, which could hurt Amgen in the long run.

Of 54 healthcare issues in the Standard & Poor’s 500 index, 52 declined today.

Until this week, the healthcare sector had been helping to cushion the broader market’s losses this year. Through last Friday the S&P 500 healthcare index was off just 2.9% year to date, while the S&P 500 index overall was down 14.7%.

With this week’s losses, the healthcare sector is off 10.2% for the year.

-- Tom Petruno

Photo: The Obama budget. Credit: Win McNamee / Getty Images

What bear market? Not for these stocks in 2008

The best stock market strategy in 2008 was just to stay away from it -- at least since August, when the bottom began to fall out of the financial system and the economy.

Even before then, this was no market for buy-and-hold investors. The average New York Stock Exchange issue now has fallen for five straight quarters.

And yet, even in severe bear markets like this one, there are winners.

Of 7,300 U.S. equities, 480 -- or 6.6% -- as of Monday were on track to post gains for the year, according to a tally by Standard & Poor’s. Most were small or mid-sized shares; just 15 were members of the big-stock S&P 500 index.

Many of the year’s advancers fell with the market plunge in the last few months. But either they didn’t lose enough to wipe out prior gains, or they’ve since rebounded enough to get back into the black for the year.

What defined the year’s relative handful of rising stocks? There were a few common threads:

1. The new national frugality. The recession, credit crisis and the housing and stock market crashes have made many Americans poorer. But basic needs still have to be met.

Compelled (or forced) to pinch pennies, consumers are turning to familiar icons of thrift: Wal-Mart Stores, for example, which posted higher sales in November even as most retailers saw steep declines. Wal-Mart shares, at $55.05 on Tuesday, were up almost 15% year-to-date, compared with a 39% drop in the S&P 500.

In the same vein, investors have flocked to shares of dollar stores including Southland-based 99 Cents Only Stores (up 31% this year), Dollar Tree (up 57%) and Family Dollar Stores (up 33%).

McDonald’s Corp. also has proved to be an investor refuge, with its stock up nearly 5% in 2008.

A few other apparent frugality plays: pet-medications-by-mail firm PetMed Express (up 49% this year), furniture renter Aaron Rents (up 36%) and off-price retailer Ross Stores (up 15%).

2. Alternative sources of credit. Can’t get a bank loan? Head over to your local pawn shop and put your Rolex up as collateral for some fast cash. As my colleague David Pierson recently wrote, the pawn business booms in hard times.

That has drawn investors to some of the publicly traded pawn-shop chains, including two Texas-based companies: EZCorp (up 31% this year) and First Cash Financial Services (up nearly 23%).

But note: High-interest payday loans, another aspect of the business, are coming under increasing heat in many states. That has slammed shares of some companies that focus exclusively on those loans, including Advance America Cash Advance Centers, which has plummeted 82% this year.

3. Fixing the physical infrastructure. Shares of many heavy-construction-related companies have rallied sharply over the last month, on hopes for a piece of the action from President-elect Barack Obama’s expected fiscal-stimulus spending plan. But most of the stocks still are in the red for the year.

Two that aren’t: Watsonville, Calif.-based Granite Construction, a big player in infrastructure projects such as roads, bridges and dams; and Missouri-based Insituform Technologies, which repairs sewers, tunnels and pipelines. Granite is up 18% this year; Insituform has jumped 33%.

4. Fixing the human infrastructure. In a bad economy, many people will have to find new lines of work. That should be bullish for the for-profit higher education industry.

Sure enough, shares of DeVry Inc., Apollo Group (parent of the University of Phoenix) and ITT Educational Services are up about 10% this year as investors bet on rising enrollment.

5. Revisiting biotech veterans. The healthcare business will forever offer growth opportunities, particularly given the planet’s aging population. Hunting around for growth ideas in an otherwise crumbling economy, investors showed renewed faith in some biotech firms that already are well-established -- and profitable.

The year’s gainers include Thousand Oaks-based Amgen Inc. (up 24%); Genentech (up 23%). Gilead Sciences (up 12%); and ViroPharma Inc. (up 69%).

But can the winners of 2008 keep it up in 2009? The themes that worked this year may still have appeal, but in a market this dicey there’s no substitute for hard-core, stock-by-stock research -- i.e., knowing what you own, and why.

It doesn’t hurt to be a little lucky, either.

-- Tom Petruno

Photos (top to bottom): Inside a Wal-Mart store in Ohio (credit: Amy Sancetta / Associated Press); a pawn shop in Beverly Hills (credit: Ricardo DeAratanha / Los Angeles Times); repairing I-580 near Oakland in 2007 (credit: Noah Berger / Associated Press); Genentech's headquarters in South San Francisco (credit: Ben Margot / Associated Press)