Came across a couple of auto-email articles that could be of interest to some, having to do with the 1 March sequestration of across-the-board budget cuts, that is looking inevitable, and REITs. Particularly office properties and health facilities vis-a-vis' Medicare and Medicaid reimbursement reductions.http://www.snl.com/InteractiveX/Article.aspx?cdid=A-17055975...http://medicarenewsgroup.com/news/medicare-faqs/individual-f...The risk to office properties in the WDC area seems logical, although not sure what effect this will have on longer term lease-ups, vacancy rates, renegotiated rates and the bottom line of the likes of OFC, WRE and VNO. Others may be better able to offer some insight into this.The HC REIT that I think will be at greatest risk to Medicare Reimbursement reductions is OHI. Most of their revenue comes from operators of Skilled Nursing, and most if not all of these rely on Medicare and Medicaid, according to their last annual earnings report.Any other thoughts?BruceM
I really don't think that a 2% cut is going to affect much of anything. It's not even enough to cut spending in absolute terms, if I am not mistaken. And what little fiscal discipline this imposes may even positively affect equities in the long run.IMHO of courseKat
katangaUnfortunately, $89 billion encompasses a lot of operations no matter what the percentage is. For one example, one billion dollars is 10,000 employees making $100,000/yr. But we are not talking about one billion dollars but $89 billion and remember the fiscal year is 5 mo. gone so a lot of agency money has already been spent. There are going to be a LOT of people let go, not only in the Civil Service but also in contractors. and contractors do most of the government work these years. Perhaps one day a week furloughs can save the money for the Sequestor, but can people working 80% of full time do the work of employees working 100% of full time?Clinton was able to cut the Federal work force by some 700,000 in a period of good employment without serious economic effects, but such is not the employment picture today. You might look at my blog piece "Oh No, Not Meat Inspectors:" http://stopcontinentaldrift.blogspot.com/2013/02/oh-no-not-m.... Will the meat inspectors do a faster and less thorough inspection to keep the meat and poultry flowing? If so,I can see a scandal in the offing.But we don't have to speculate. The experiment will develop soon enough.brucedoe
Hi Bruce,I take your point about much of the fiscal year already being gone, though I wonder given that there's no budget to start with. Here's John Mauldin's take:Stupid SequestrationsThe media and much of the political chattering class seem to think that the upcoming sequestration of certain government spending is going to bring down the republic. The actual reality is that we are talking about some $45 billion this year. In a $16 trillion economy, that is a rounding error. And with a $1 trillion+ deficit, it is not enough cutting.Yes, across-the-board cuts are stupid. The Defense Department and, yes, even the other government departments should be given leeway to decide where to make the cuts, with proper Congressional oversight. But we need those cuts and more. We should be cutting the deficit by $100-150 billion a year every year until the budget is balanced (by which time we hopefully see some growth). If we simply held spending where it is, the problem would get solved with no cuts. Or if we cut the growth of spending in half, we could get close with some other adjustments.I worry about a lot of things. But this sequestration is just simply not on the list.
The thing to do with meat inspectors would be to privatize them and get them off the govt rolls. If Canada can do that with air traffic controls, Uncle Sam can with meat inspectors.
katangaMore to the point is if Canada can privatize air traffic controllers, why can't we?I think meat inspectors are different, however. to let corporation police their own product is like putting the wolf in care of the hen house, as they say. It is the job of the meat inspectors to catch the cheaters who are ready to absorb the cost of law suits for tainted meat. It is the job of air traffic controllers to prevent accidents. Though it is true that airline companies will cut corners - overwork their pilots, shoddy maintenance, etc., but I think it is not to the advantage of the airline companies to have a plane landing hit another taking off, etc.brucedoe
why can't we?Why should we? Why government is bad? I would rather have my government focus on things like food safety, airlines safety, etc than have a huge military or unsustainable entitlement programs.
CM001I have not quarrel with your post. I just wanted to compare apples to apples. Private airlines must be very afraid of crashes so they can regulate air traffic controllers themselves. Meat packers are not as afraid of tainted meat so they can't regulate themselves.brucedoe
Bruce,I personally favor making meat inspection an REIT. There. Now this part of the thread is on-topic. 8-)So:If air traffic controllers screw up, people die.If meat inspectors screw up, people die, usually fewer than in the case of the former.And you will be able to sue either if they screw up. That's a better place to be than if the government does these things, no?
katangaI'm not sure how you make meat inspection a REIT, but you could have a meat and poultry packing plant REIT. Maybe you are on to something.brucedoe
Isn't sequestration latin for incompetence :-)
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