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On Stryker, Taxes, the Super Committee and Growth
Obama’s Affordable Health Care Act of 2010 was paid for (in part) with an excise tax on implanted medical devices. The 2.3% excise tax goes into effect in 2013. It’s already causing some of those “unintended consequences” that we keep hearing about:
Top News
Stryker to cut jobs to offset excise tax impact
Thu, Nov 10 18:18 PM EST
Nov 10 (Reuters) - Medical device maker Stryker Corp said it will cut 5 percent, or about 1000 jobs to largely offset costs related to the scheduled implementation of the new Medical Device Excise Tax in 2013.
Steve Ferguson, the chairman of Cooke Group (another device manufacturer) had this to say about the excise tax:
"Many companies are being forced to limit investments in R&D in the U.S. and go abroad. Further, many companies are looking to reduce their U.S. capital investment. For Cook, we had planned on making additional investments in U.S. communities. Now, because of the tax, those plans are on hold."
I hope that this small example will confirm to any doubters that tax increases do have consequences. When taxes go up, jobs are lost. Investments in new plant and equipment are either deferred or are made outside of our borders. It’s that simple.
Stryker’s stock (SYK) has been in the doghouse of late. It’s down 22% since the establishment of the Super Committee (mandatory cuts in medical spending). The stock market has done what it’s supposed to do; adjust the multiple to reflect the changing realities.
SYK was trading at a 16X PE on Friday. That multiple might be justified. After all, Stryker is a pretty good company. You can’t go to a hospital without using their stuff. They make the beds you lie on and the scalpels they cut you with.
They are also high tech. They make gizmos that will suck out your gall bladder in just a few minutes and leave a few small holes. They’re big in devices (hips, knees etc.).
The company is consistently profitable and has nice (15%) margins. It’s sitting on $3b of cash and functionally has no debt. For the suckers who think that dividends are the key to wealth SYK pays 1.5% and there’s every reason to believe the payout will grow. If one wanted to get a play on the global growth story, SYK is on the list. They’re everywhere. With rising incomes in Asia and aging populations in the West one would think the company is sitting pretty.
On the other hand, one could look at recent results. All the important lines are flatter then a pancake. What's the right multiple when top line is dead and the future is not so bright?
There are only 7 days left before the Super Committee efforts are to be released (they have to publish a plan 48 hrs before the 11/23 deadline). My sense has been that there will be no deal. That was confirmed today listening to the talk shows. We’re going to get big cuts in both healthcare and military spending as a result.
I wonder if the stock market has fully priced in the consequences for the few dozen companies whose future growth (or lack thereof) will be confirmed in a week. I also wonder what the big macro economists and players like the CBO, OMB, SSA and the IMF will say about revisions to US growth.
My guess is that the stock market has not fully priced this in and I’m convinced that the conclusion by the deep thinkers will be that long term US growth prospects have to be revised down, not up.
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The Repugnicans are using them as an easy bait and switch to prevent any spending cuts being blamed on them. Democommies are using the same tactic. NO decision will appear by the deadline.
Possibly.
I think it's more likely that they come out with something utterly inadequate with no real teeth. It'll be trumpeted the same way as all the crap around the time of the debt ceiling fight was. "4 Trillion in deficit reduction!!"
And then you have to go to the fine print to find that that number occurs over 10 freaking years and that NONE of it occurs right away.
Do you think these vermin will make a tough decision leading up to an election? Hahahahahahaha!
"I think it's more likely that they come out with something utterly inadequate with no real teeth. "
Like a loan from the EFSF?
I agree Bruce. The "grow our way out" solution is something that every sovereign nation is trying. If the entire planet is trying it, who are we selling to, Mars?
If any real people are doing anything with stocks this week, I predict more moving into solid dividend paying companies that have strong lobbies. Either that or outright selling, after all shorting is not allowed anymore.
Good luck next week all.
I was in Best Buy the other night just looking around. There were some people in there buying but not many. They had big screen TVs stacked up everywhere. The prices are so cheap. I do not watch all propaganda all the time TV that all supports the muslim. The TVs were assembled in Mexico and China. They were everywhere and no one was buying them.
Bought ours at a Pawn shop for a few hundred dollars. 1000 dollars retail at the time.
Today you can do better online than Best Buy ever can.
Best Buy is yesterday's Circut City. They live and die on the TV video games.
I don't buy what Stryker says about taxes. They are lobbying for lower taxes.
They are making hefty profits in the medical field and cannot pay a 2.3% more tax without cutting labor and decide to lay off workers and go overseas due to this ? I simply don't believe it. Besides I would not want to scare my employees that they will be laid of if the taxes are raised 2.3%.
Your statement is wrong and innumerate. An excise tax is levied on the entire price of the item. So if Stryker's profit margin is 15%, it is cut to 12.7%, about a 15% reduction in profit, highly significant for any company.
Your statement showed simple ignorance. Why not hop over and look at their income statements , if you understand them, and tell us what you find
I cry BS all the way around. Stryker is using the tax as an excuse to ship jobs overseas. The results is to enrich their stock owners and mismanaged corporate board. This is corporate America in a nutshell. Cronies get wealthy while everyone else gets screwed.
Yes, their excuse is pure propaganda. However, ask yourself this question. If the conditions in the USSA were the best for operating a business, where do you think they'd expand? The answer is obvious. The fact is, nobody in their right mind would start or expand a business in the USSA, nor plan to stay in the USSA indefinitely.
Another fact to remember. If a businessman is in the top 0.1%, the USSA is probably the best place on earth to live, because the entire weight and strength of the federal government of the USSA is available to enforce your every wish, defend you against any mistake, and bail you out if necessary.
However, if you are a businessman below the top 0.1% or so, you are likely to be a slave like everyone else [to a significant extent]. Given that, any businessman with the ability would be crazy not to relocate to an environment where life is more safe, civil, ethical and predictable.
"Given that, any businessman with the ability would be crazy not to relocate to an environment where life is more safe, civil, ethical and predictable."
And where is this paradise?
All these multi-nationals want to move the jobs somewhere else, but the executives don't move, do they? Why is that?
I am sick of it, quite frankly. They want all the benefits of living here - all the benefits built and paid for by those who came before - but since the Raygun revolution, nobody wants to pay for anything. Let's just eat the seed corn, then when it's all gone, we will move on and leave those we impovrished to fend for themselves.
What we need is very clear DIS-INCENTIVES for company moving jobs or hoarding cash in foreign countries. What we have been given by our rotten politicians is the opposite. Fuck these people and fuck these free trade agreements. Fair trade or no trade.
Flame on...but also offer up some solutions....solutions based in reality, not stuff that will never happen.
Why did you equate "where life is more safe, civil, ethical and predictable" with "paradise"?
Why pretend I said "the USSA is the worst place in the history of the universe" and also pretend that I said "everywhere else is perfect in every way" (paradise)? I guess that's one way to pretend you won an disagreement. I claim that many places are increasingly better than the USSA in a great many important ways, but also, everywhere has drawbacks too, some of which may be quite significant depending on your values and situations. I say this because I visited several other countries [and non-countries] over the past 3 years to find the one best suited for me... then leave, and not at all regret it.
What you seem to be pissed at is dishonesty... like when the predators-that-be call something a "free trade agreement" that in fact is something else (a massively rigged scheme to enrich ONLY megacorporations and the top 0.1%). If so, I agree completely.
It is the top 0.1% who "eat the seed crops, then move on". They can do that because the federal government is willing to write any freaking law, act, statute or regulation they want in exchange for a few million dollars from lobbyists. Smaller companies simply cannot afford a few million dollars a few times a year to get egregious legislation passed, so the megacorporations and top 0.1% gain sole artificial, unnatural, unethical benefits).
I understand your feelings, but objectively you are WRONG about dis-incentives. What we need are INCENTIVES... but only NATURAL and UNIFORM incentives - not arbitrary, artificial jiggered incentives that only apply to the megacorporations and super-rich. And really, what I call "incentives" aren't even that - they are simply the conditions of near anarchy. In other words, let people get what they deserve. What does that mean? Let natural ethics prevail, which I would summarize this way:
Ethics is the state in which every individual enjoys/bares/suffers ALL [positive/neutral/negative] consequences of every action they take, and also enjoy/bare/suffer ZERO [positive/neutral/negative] consequences of actions taken by others.
Your last comment is very important, and one that annoys me greatly. That is, how do we find a realistic, effective way to achieve a better life? That is NOT easy. Your question presumes that somehow I can somehow make the nature of an entire country change for the better. Though I'm far more likely to be able to do that than most people, the chances are still extremely remote. Sorry about that. I really am.
But "realistic solutions" are pitifully easy to see, if what you mean by "realistic" is "they would work, and they would not require overwhelming resources". In fact, what is required is to STOP wasting overwhelming resources on authoritarian central planning and authoritarian wet dreams. The authoritarians are all predators, pure and simple, and fundamentally what needs to happen is for the predators and parasites to NOT BE ABLE to suck the blood out of producers. As it is now, the predators utterly enslave and bleed the producers dry, and throw a few of the crumbs they stole to the parasites in exchange for votes that keep them in power. That has to stop, or there IS NOT ESCAPE from permanent worldwide slavery.
Since the parasite class is now so huge, the current situation is inherently impossible to change because the producers have far too few votes (and too many of them are too busy working to know how to vote effectively). Perhaps the best way to save the system is to stop operating within the system. Convert all liquid assets and investments into physical gold, silver, seeds, farmland (and especially, productive equipment and supplies that you operate to produce an endless stream of goods).
Bottom line? There IS NO SOLUTION (except extreme outlier possibilities) except cutting off the predators and parasites, and giving them the option to "produce or die" (or at least be restricted to whatever charity is voluntarily and freely given).
It's not a matter of "can't pay it". Any additional cost at a company results in rebalancing investment and other expenses. You may think you can simply take that money from their profits without changing anything else, but you are changing risk/reward ratios. Research and development is extremely risky. You don't make the same profit margin every year. If you remove some of the profit potential then you must remove some of the risk. That means less research and development spending and focusing on a slightly smaller core business. If investors must take a smaller profit then they will always shift to areas with less risk. No one takes high risks unless the potential reward is high. New product development is very risky. Most new medical products never see a hospital.
Yeah R & D is really risky when they spend 5% of sales on it. Most of the shit they sell was stolen or bought for pennies from a taxpayer supported R&D institution like the NIH or public Universities. The idea that they would invent anything or take risks is totally off the wall stupid. These guys aren't paid millions to take risks unless they have a in-place bail-out agreement with the feds.
This is not something everybody is competing with each other strongly.
They are given a robust field. No competition. Medical field is one of the biggest bubbles in us history.
Medicare and Medicaid are already bankrupting USA, they are unsustainable. This is a cost paid by all us citizens.
Besides they can increase their prices at anytime without any price control by the government.
And they still cannot pay a little more tax ? and announce this 2 years before they will lay off people ?
>> Research and development is extremely risky. You don't make the same profit margin every year.
The graph posted seems to say otherwise. Their profits have been pretty steady, and heafty. Any chance the CEO is going to trim his $5M salary? How about health clubs, health plans, country club plans, travel? Oh, only the working stiffs are going to get it? Capitalism at it's finest, capital means all, labor means nothing. I say fuck stryker. How many billions overseas, and they can't pay taxes? If the workin stiffs are all going down the shit hole, I say grab the capitalists by the throats and take them with us. Sure, all these companies and the capitalists are going to move to the living shithole called China. AMF.
If paying 15% more in taxes is no big deal, why don't you do it on your personal income taxes? Guess not.
BTW, this stupid excise tax will raise little revenue, but could, as usual, have major unintended consequences.
The 2.3% tax is just the beginning. The profit motive for providing healthcare is about to get beat over the head. But I think the Obamacare issue will take care of itself because the US will default first.
Waiting for default will hurt some things that have value. Shut down Obamacare now.
Look, the tax issue is a distraction. Universal health care is doomed when you have so many idiots who try to kill themselves by doing stupid irresponsible things (smoking, drinking, drug use, overeating, no excercise etc.). I say let these idiots die already. Everyone wants a fucking gaurranty that no matter what they do, everything will be fine. Sorry fucknuts, the laws of Nature make no promises regarding your survival. Thinking that any society can overcome this while punishing responsible behavior and rewarding irresponsible behavior is stupid and dangerous. Guess America will have to learn this the hard way. Got physical assets of value and like minded neighbors? You fucking better.
The Rand think tank did a study on smokers and non smokers and the social costs related to each group. They found that smokers, on the last day of their life, cost 7% less in social costs than non smokers. So, fat boy, why don't you stop pounding Doritos and BBQ ribs and be a part of the solution: Light up and live, damn it!!
Why don't you shove a carton of Lucky Strike's up your arsehole.
Yeah, cause "think tanks" are never biased. Troll harder fucknut.
What bias? It's simple math. No matter when you die, in the american system you're going to incur huge costs just before passing away. But the smoker typically dies before receiving as much social security bucks as the non smoker. So the smoker costs less overall.
And just for the record, I don't smoke and never have (except for the one cigarette I tried at age 11 and couldn't believe how bad it was) and I have no connection in any way to a tobacco company.
I wouldn't encourage anyone to smoke. But let's not pretend that facts don't exist because we don't like them.
I've got a better idea. Let's empty out the think tanks, give the "thinkers" shovels and have them do manual labor. No iPhones allowed, either.
@ Classical
Ahhhh, the Rand Corporation........
http://www.infowars.com/secrets-of-the-rand-corp-exposed/
Thanks CW, Yeah those unbiased think tanks. Good thing people can fund them in order to clarify the issues. Fucking idiots.
the law of physics is not an ideological farraday cage...nor the galapagos zoo...maybe you will be able to buy yourself a unique tortoise with your PMs. Like the last supper...
I don't care about Faraday cages or zoos. End Obamacare.
Precisely why you don't put all your eggs in one basket and why you also need like minded neighbors/employees. Do you have a fucking point or are you just another unemployed troll?
I don't care if people that harm themselves are dead or alive. Just don't make me pay for someone else's actions.
Exactly. Right now the system rewards irresponsible behavior AND makes you pay for it.
Shut down Obamacare and impeach Obama if he interferes.
Go whole hog, shut down the gubmint and fire all gubmint employees and politicians. The same gun is pointed at your head regardless if you are allowed to choose who is holding the gun. WTFU
The federal government needs to mostly disappear or it will eat the US whole during hyperinflation. This debt super committee is a big joke..it's all politics about deciding the best way to hide the fact that they're not going to cut spending.
Yup. Gotta love that mis-alocation of resources cause by central planning.
Egyptians were more advanced, they could suck out a guys brain using the two small hole already in place and Barney Frank..never mind.
Yeah your right, I saw that on the history channel !!!!!
you have two choices : you either live in a pyramid or an igloo; in the first case you are waitng for Indiana Jones, in the second for the man eating polar bear.
either way, never mind.
Its OK for the polar bear as Eskimos are not on the endangered species list.
I'll live in an igloo or a pyramid or a shotgun shack. Just shut down Obamacare in its entirety.