Quick updates

The blogroll on the right has changed a bit. Someone noticed I had yet to move Bill Rempel's link. I also added Wallstrip, Andy Swan, and Howard Lindzon...while removing some others that I have stopped reading.

Quick hit thoughts

Sierra is getting bought by UNH? This morning, I wondered if UNH was the culprit sending Sierra bad business? Alas, the wonderful people at The Health Care Blog are all over it and it was not UNH, but "one of United's big competitors" (of which there are very few).

The more I use it, the more the blogosphere is proving itself to be a very, very useful research tool. Still not as good as talking to others, but taking a few minutes of traditional media away from everyday and supplanting it with the blogosphere seems to be a very valuable action.

In non-market news, this will never happen again in my life (at least while I am a student): I am getting solicitations to buy tickets from my alma mater, MTU who is playing my current school, Wisconsin , in the WCHA final five. (That's hockey for you non-puck fans). Meanwhile, Wisconsin is sending me the same ticket requests.

Oh, and Congrats to my other alma mater, Kimberly High School, on its improbable march to the Division 1 state boy's basketball championship, bringing the team's winning percentage to .500 in the process. RVB's littlest bro is on the team. GO 'MAKERS!

Unit Labor Costs

One of the things that I do not have the luxury of is years and years of experience. My adult memory only remembers one recession along with a major market selloff during that time. Even 1995's mid-cycle slowdown is a bit out of my memory - I was in High School. So I am unable to simply recall what it was like back then and try to draw conclusions for today.

Sometimes, this is actually advantageous - one could argue that my decision making becomes much less biased and I am forced to look at data. When it comes to asking the right questions, though, that's where years and years of experience can help. So like practically everything else in life - it's a gray area or a double-edged sword, or insert your cliche here.

Today's headline from Marketwatch states: "Unit labor costs rise 6.6% in Q4, a worrisome signal". When I read this, I always ask about the conclusion part of the headline, "Who says it is a worrisome signal?" This is very important to me because much of the time the conclusion is drawn from data that is purely noise.

So I pulled up the historical Unit Labor Costs. Saying to myself, "Alright, Factset, give me the year-over-year Unit Labor Cost % change...and start at the first available data you have". Below is the chart.

Source: Factset, Ecowin database (click for larger image)

I've highlighted my thoughts. Essentially, not much can be determined from today's data point. While the cost is a bit higher than we had in the slowdowns in '85 and '95 (the only two slowdowns worth comparison), it could be possible that a) the data is revised lower and b) unit labor cost y/y % change moderates.

That being said, on an absolute basis, labor cost inflation is a bit higher than in '85 and '95, and could keep the fed from cutting. That would be bad for stocks.

Are we in a bear?

This thought has briefly entered my brain in the past week, but I don't think we're in a bear...the data doesn't conclusively say anything's changed. We're just entiering a long overdue correction. The Wright Model (from Jonathan Wright at the Fed) still suggests about a 45% chance of recession, though. If you think the fed will cut, this should be just like '95 again. If not, then more like 1990. Maybe that seems too simple, maybe not but that's what I see right now. If you want higher prices, seems we need commodities to move lower and help cut inflation off so Bernanke et al can swing the machete at 5.25% ...

Update: Upon looking at this entry this morning, I realized that without a picture, the words are fairly meaningless. See below.

Source: Colin Twiggs, Incredible Charts

Healthcare IT Survey just released by AHA

The American Hospital Assocation just released an absolute GEM of a report on Healthcare IT usage by U.S. hospitals. It really sheds light on how much growth is left for vendors of these systems. It also clearly points out that bigger hospitals have adopted quicker (which is not a surprise) and that the small hospitals face more financial constraints due to their size. This, by the way, is why we own CPSI which targets these small hospitals and has operating cost advantages.

If you are looking for investing in a secular growth area, HCIT is still a great place to be, and adding these stocks when short-term issues arise seems like a winning strategy to me. You just have to get in these names at valuations that are attractive. Below is a table of pure-play HCIT companies and recent transactions in the space. (note that RX is a slightly different biz than the rest)

source: My own numbers, Factset, Mergerstat

disclaimers: I personally own shares in CPSI, but no shares of other co's mentioned in this post.

UPDATE: I should have also noted that DRTE is a different biz than the rest - a CRM business to be exact. Interestingly, in today's news DRTE is being acquired Cegedim S.A. at a 22% premium. EV/Sales is rougly 1.5x