Markets and Medicare

Medical treatment is an increasingly more expensive need in this country. We can improve the efficiency of the delivery of medical care and treatment. But the costs of medical care will always increase. There's no curve of declining costs and increasing capacity as the semiconductor and computer markets have seen. No economy of scale. The US is a rapidly growing nation with a geriatric population growing faster than any other age group. That group alone will drive demand for more medical services and new medical services, resulting in soaring bills. But, as always, we can benefit from letting the markets do their work.


Rarely in Washington does the president get to propose legislation that Congress is required to fast track. Such an opportunity exists right now, and it pertains to the most serious domestic policy problem this country faces: the rising costs of Medicare.

Under a 2003 law, the Medicare trustees have certified that the program's finances have deteriorated so much that they "trigger" a required presidential response. Sadly, Washington's response is not new. The White House proposed across-the-board cuts in payments to doctors and hospitals in the budget earlier this month. Such measures do not improve care, and have not worked to contain costs in the past.

More recently, Secretary of Health and Human Services Mike Leavitt has proposed measures to promote electronic medical records, price and quality transparency, limits on malpractice awards, and means-testing of Part D (drugs) premiums. While in some respects commendable, these proposals are far from adequate.

According to the trustees, Medicare's unfunded liability is $74 trillion -- five times that of Social Security. According to the Congressional Budget Office, health-care spending is on a course that could crowd out all other government programs. Clearly the time has come for fundamental reform.

How can we control the rising cost of Medicare? There are many examples of waste and inefficiency throughout our health-care system: diseases that we fail to prevent; chronic illnesses that progress to preventable complications that are treated with duplicative and ineffective services; and too-common medical errors. There is an enormous number of people who in theory could change these practices, including the 650,000 participating doctors, the 30,000 participating facilities, and especially the 44 million enrollees and their caregivers.

Perversely, however, people who try to improve Medicare are often financially penalized for doing so. This needs to change.

Here's how:

- Free the Doctors. Doctors participating in Medicare must practice medicine under an outmoded, wasteful payment system. Typically, they receive no financial reward for talking to patients by telephone, communicating by e-mail, teaching patients how to manage their own care, or helping them be better consumers in the market for drugs. Medicare pays by task, and these are not reimbursable activities. So doctors who help patients in these ways are taking away from billable uses of their time.

In fact, physicians who help patients in these ways may end up with less payment from Medicare. To make matters worse, as Medicare suppresses reimbursement fees, they are increasingly unable to perform any task that is inadequately reimbursed. Other health-care providers face the same perverse incentives. All too often, high-cost, low-quality care is reimbursed at a higher rate than the alternative, and Medicare's payment rules get in the way of providers working together to improve health care.

We should be willing to reward doctors and other health-care providers who raise quality and lower costs -- including improving patient communication and access to care, and teaching patients how to be better managers of their own care.

Accordingly, providers should be able to propose and obtain a different reimbursement arrangement, provided that (1) the total cost to government does not increase, (2) patient quality of care does not decrease, and (3) there is a mechanism for accountability, and a method of measuring and assuring that (1) and (2) have been satisfied.

Geisinger Health System in central Pennsylvania provides an example of what could be done. It offers a 90-day warranty on heart surgery, similar to the type of warranties found in consumer product markets. If the patient returns with complications in that period, Geisinger promises to attend to it without sending the patient or the insurer another bill.

The problem is that Geisinger doesn't get financial support from Medicare for this practice, even as it can save money for Medicare overall. This is because health-care organizations like Geisinger get paid more when patients have complications that lead to more visits, more tests and more readmissions. What is needed is a system willing to pay for such guarantees. Medicare should be willing to pay more for the initial surgery if taxpayers save money overall.

Another innovative example: Virginia Mason Medical Center in Seattle offers a new approach to the treatment of back pain, a source of considerable medical spending nationwide. Under the old system, a patient would often first receive an MRI scan or specialty consultation and other tests before referral to a physical therapist. Under the new system -- which cuts the cost of treatment in half -- patients are first seen by a physical therapist unless additional diagnostic measures are clearly indicated, and receive an MRI scan only if the therapy doesn't work and symptoms persist.

The new system improves efficiency and saves money for payers but leaves the providers financially worse off. As in the case of Geisinger, Medicare should permit a new payment arrangement -- one that is win-win for Medicare and Virginia Mason.

Once one hospital or doctor group implements an arrangement with better payment for better results, there will be competitive pressures on other providers to find new and innovative ways of raising quality and lowering costs. Plus, once Medicare takes these steps, private insurers can adopt similar payment systems more easily. Medicare and the private sector will be pushing in the same direction, for better care -- not just more services.

For reform to work, however, there must be accurate measurements of quality and cost, so that these transactions can be easy to negotiate and consummate. Another essential ingredient is to allow doctors and facilities to work together as a team -- making needed improvements and profiting from those improvements.

Similarly, regulations that prohibit profitable provider arrangements should be relaxed, when those arrangements are leading to documented improvements in care. There are many low-cost, high-quality pockets of excellence just waiting for the support they need to grow. Medicare has considerable authority to implement these changes now. If health-care providers accept more accountability for the results of their care, we can start seeing the benefits right away.
- Free the Patients. Patients also suffer when payments to doctors and hospitals do not reward prevention-focused, efficient care. Many patients have difficulty getting to see primary care physicians. When they do, all too often they get inadequate information about their overall health condition and the best ways to improve it.

Studies show that diabetics, asthmatics and other chronic patients can often manage their own care as well as, or better than, conventional physician care, and at lower costs, when given the support they need. Yet to do this patients need training, easier access to information, and the ability to purchase and use in-house monitors. One way to do this is by allowing patients (especially the chronically ill) to save money when they choose less costly, high-quality care. They should be able to use the savings to purchase services that are not paid for by traditional health insurance, including telephone and e-mail consultations and patient education services.
Almost all the states now have "Cash and Counsel" programs for homebound, disabled Medicaid patients -- allowing them to manage their own health-care dollars and hire and fire the people who provide them services, instead of having these decisions made by an impersonal and outdated schedule of covered services and regulated prices. Patient satisfaction in these patient-controlled programs is almost 100%, according to government surveys. We need to build on this highly successful program by giving chronically ill Medicare patients some of the same opportunities.

Both within traditional Medicare and the Medicare private insurance plans (Medicare Advantage), this opportunity should include risk-adjusted deposits to the Health Savings Accounts (HSAs) of chronic patients. Unlike current law, these HSAs should be flexible -- allowing patients to exercise discretion where discretion is possible and desirable.
- Free the Entrepreneurs. While our health-care system has some of the most innovative treatments in the world, Medicare's payment system imposes many barriers to innovations in using those treatments efficiently and effectively. In normal markets, cost efficiencies and quality improvements mean larger net revenues when an entrepreneur finds a better way to provide products or services. By contrast, entrepreneurial efforts under Medicare all too often find their greatest reward when they exploit the system by finding ways to bill more for more services, rather than improve it.

We should welcome and encourage better ways of meeting patient needs. For example, a medical practice that uses walk-in clinics and electronic prescribing to lower overall Medicare spending for the beneficiaries it serves should get higher payments.

These are just a few of the many things that can be done to control the rising costs of Medicare, while improving care and health at the same time. These steps will not be enough by themselves to put Medicare and our health- care system on a sustainable course, but timely action by the president and Congress can make a big difference.
By JOHN C. GOODMAN

An Ill Fidel Leaves -- Now Cuba Can Recover

After almost 50 years in power, communist dictator Fidel Castro is near death. He has stepped down and revealed that his failed rule is over. For us, that means hope. But hope, like Fidel, springs eternal, and there can be no mistaking that the news of his pending death has many believing his vision will die with him. The end of Fidelism is near. But the end of Fidel is not enough to free Cubans. That will take may more changes.

When an intestinal illness required surgery in July 2006, the dictator ceded "temporary" power to his second in command, younger brother Raúl. That alone was monumental for Fidel, who hadn't ceded an inch of power in his life. Nineteen months later, in the online version of the state-owned newspaper Granma, a piece signed by the 81-year-old Fidel broke the news yesterday that he won't be coming back to run the place. How long before Fidel is displayed in a glass case in the middle of Havana?

Fidel was a ruthless oppressor, but less widely understood is that he was also an economic incompetent. In January 1959, Cuba had the third highest per-capita GDP in Latin America. Today the island is a malnourished backwater where dietary staples like milk, sugar and eggs are rationed, severe shortages exist in the medical system and electricity is a luxury. In the past Cuba had been dependent on the Soviet Union. Now the country begs from Venezuela, which gives it as much as $2 billion in aid annually. The nation nonetheless struggles to get by, and young Cubans routinely take their chances with the security police and shark-infested waters rather than face life under the Castro brothers.

Raúl wears bad glasses, seems charmless and missed out on the family charisma gene, so any hope of holding things together will depend on his ability to make Cubans better off. He can be as brutal as his brother. But many believe Raúl will move the country toward a more competitive economic system, on the China model, something he has supported in the past. He has even publicly contemplated the use of "incentives" to increase productivity. There is also widespread speculation that while Raúl will remain in charge of the military, the new Cuban president could be a civilian.

Raúl may be betting that all this would somehow soften the U.S. view of Cuban repression and provide an impetus to lift the U.S. embargo. In fact, Cuba is already able to buy as much food and medicine as it wants from the U.S. What Raúl wants are American tourists, financing from U.S. banks and World Bank aid. All of that requires Washington's blessing. He shouldn't hold his breath. Florida and its exile community are not likely to favor any plan that's good for either of the Castro brothers. Things are made touchier by our pending elections.

News Flash: Homeowner Pays Mortgage!!!

Underwriting Discipline Makes a Difference in Subprime Mortgage Lending

Believe it or not, lots of those loans are going to get paid back

Are you shocked and surprised by the overgeneralized predictions about eventual subprime mortgage credit losses lately being thrown around by people who ought to know better? As discussed here before, Egan Jones’ Sean Egan came up with his preposterous estimate that the guarantors need $200 billion in new capital based on . . . well, no research at all. Bill Gross says that eventual credit default swap losses will tally $250 billion. How does he come up with that number? He doesn’t say.

In fact, it’s possible to subject these back-of-envelope predictions of Armageddon to a reasonableness test. How? By looking at the actual credit performance of individual mortgage-backed securities issued as the subprime market began to crack up. The most widely followed are the MBS that underlie the ABX indices issued over the past two years, the ABX 06-1, 06-2, 07-1, and 07-2. They represent (as was the plan when they were included in the indices) a meaningful cross section of subprime mortgages underwritten in those time periods.

Credit quality among the different bonds varies enormously. Despite what the talking heads on CNBC would have you believe, not every subprime mortgage written over the past two years is bound to default—and not every MBS issued over that period is headed for a crackup. There is a huge disparity that’s not reflected in the alarmists’ broad-brush predictions of calamity.

First moral of story: underwriting discipline makes a difference. And by all appearances, Well Fargo is a superior subprime mortgage underwriter than its competitors, particularly WMC (now a unit of General Electric). Notably, Moody’s (apparently as panicked about what’s going on as anyone) acknowledged this very fact last fall when it broke out subprime originators into three tiers, from worst to best. Wells Fargo was, not surprisingly, ranked among the best.

WMC, by contrast, was in the lowest tier, while Countrywide was in the middle. According to Moody’s, delinquency rates of loans originated by Tier 3 lenders have historically run 2.4 times higher than those originated by Tier 1 lenders.

Wells Fargo-originated loans have shown a 30% lower delinquency rate than the WMC-Countrywide pool. Moreover, since the Wells pool has a much lower level of balances still outstanding, we estimate its lifetime losses will be only one-third of the mixed pool’s.

That is an enormous difference. But, again, it’s not a tough conclusion to come to if you’re willing to look at the underlying data. What’s more, the difference between the two pools hasn’t come about by coincidence. Underwriting rigor really does count. Notably, the average FICO on the WMC pool is higher than on the Wells pool—and doesn’t even count as subprime by some standards. But the WMC pool is a mess, just the same. The key to the outperformance of the Wells Fargo pool is just what you might expect: a much higher percentage of full-doc loans and much lower exposure to California.

This shouldn’t be a surprise. If you underwrite well, even if you’re underwriting a subprime mortgage, you will very likely get paid back.

The point is that the data for these MBS (which were selected to be representative of the market as a whole, remember) is there for anyone who wants to look. Yes, the performance of some of the bonds is truly ugly. But others are holding up remarkably well. If you want to come up with a reasonable estimate of how high eventual losses will be, all you have to do is go through the securities one by one. Yes, that makes for a lot of numbers to crunch. But the analytical work isn’t really all that hard.

Once again, the best-performing pool was also originated by Wells Fargo, and that the worst was originated by WMC. Sense a pattern?

This is why it's time to go apoplectic when reading analysts’ sweeping estimates of huge losses, that were arrived at with no apparent consideration for the characteristics of individual bonds, such as who the underwriter is. The data is there. People ought to look at it.

Talk Is Cheap -- For Everyone on the Planet

How long before Blackberries and iPhones reach the hands of those billions of people about to get their starter phones? These cheap phones are a leading indicator of growing global prosperity. Their distribution and use will form patterns on maps of the world that will show who's racing into the modern world at the greatest speed.


India unveils 'people's phone' for £10


India has already built the world's cheapest car — the £1,200 Tata Nano — now the country has delivered the telecoms equivalent: the £10 "people's phone".

The mobile handset, developed by Spice, an Indian conglomerate listed in Bombay and worth £1 billion, is angled at the lowest end of the market.

This means that it has jettisoned all "non-essential" features — such as a screen.

"It is just a phone," Bhupendra Kumar Modi, the Spice chairman, who hopes to sell about ten million in the next year, confirmed.

Mobile phones priced at less than £20 account for about a fifth of the global market.

However, with half the world's population yet to make a phone call and developing markets becoming saturated, manufacturers see massive potential in budget phones.

Spice will begin selling its people's phone in Asian markets from next month. It suggests that prices can be stripped down further and that a £5 model is not far away.

India, the world's fastest-growing mobile market, where mobile subscribers are expected to more than double in the next three years, to 500 million, is a prime target for a budget player.

While Western markets are largely saturated, It is estimated that more than 870 million of India's 1.1 billion population are yet to own a mobile.

Good News -- A Dead Terrorist

A terrorist was killed. Hooray. His death was followed by the usual muslim reflex -- Blame the Jews. Then speculation turned to back-channel dealings between the US and Syria. If this is true, it's unfortunate. The US would do far better to take a page from The Godfather and make offers to middle-east thugs that they cannot refuse. Offers like that would have them all in a line and quacking like good ducks in a matter of hours.

Hezbollah Commander, Wanted by U.S., Killed in Syria

Feb. 13 (Bloomberg) -- Imad Mughniyeh, a commander of Lebanon's Hezbollah militia wanted by the U.S., was killed by a car bomb in Damascus, the Shiite Muslim group said.

``The martyr Mughniyeh was killed late yesterday evening'' in the Syrian capital, Ghalib Abu Zainab, a member of the Political Council of Hezbollah, said in a telephone interview from Beirut today.

Mughniyeh was indicted in the U.S. for the 1985 hijacking of a TWA Corp. airliner, during which an American Navy diver was killed. Israel has accused him of involvement in the 1990s bombings of the Israeli Embassy and a Jewish center in Argentina that killed more than 120 people.

The U.S. also wanted Mughniyeh for the April 18, 1983, bombing of the American Embassy in Beirut, al-Arabiya television said. Seventeen U.S. officials, including Robert Ames, the Central Intelligence Agency's top Middle East analyst, and other CIA staffers were among the 63 people who died in that attack.

In a statement, Hezbollah said Mughniyeh was killed ``by the Israeli Zionists.'' His funeral will be held tomorrow, it said. Mughniyeh was 45, according to al-Arabiya.

``There are so many countries and intelligence organizations that had an account to settle with this guy that it could be a great many people,'' Yossi Alpher, a former official with Israel's Mossad intelligence agency and one-time adviser to former Prime Minister Ehud Barak, said in an interview today. ``Anybody who has an interest in stopping global terrorism should be satisfied that he's removed from the scene.''

Israeli Denial

Prime Minister Ehud Olmert's office said in a pager message, ``Israel rejects the attempts being made by terrorist groups that try to tie Israel to the incident.''

Mughniyeh, who also went by the name of El-Haj Radwan, was on the FBI most-wanted terrorists list, with a $5 million reward for information leading to his capture or conviction.

``It's a big blow and very significant blow no matter who did it,'' Paul Salem, director of the Carnegie Middle East Center, said in a telephone interview from Beirut.

``This was done in Damascus,'' he said, adding that, if the Hezbollah commander was killed by Syria, ``then it's enormously significant and, if not, then who was able to penetrate Damascus so coolly and comfortably?''

Mughniyeh was a hard target and his killing could be part of a deal between the U.S. and Syria, Salem said. ``He was one of the figures that was always asked for by name by the U.S. If, and it's a big if, it's part of a Syrian agenda, it means that the U.S. and Syria must be making progress and there is some deal- making on Lebanon.''

Unrealistic

Abdel Halim Khaddam, a former Syrian vice president and once a right-hand man to late President Hafez al-Assad, said he doubted the likelihood of such a deal.

``Such a deal is unrealistic in this day and age,'' Khaddam said in an interview today from his home in Paris.

The site where Mughniyeh was killed is in a security area, in close proximity to an Iranian school and the offices of the Syrian intelligence services and military intelligence unit, Khaddam said.

Mughniyeh's death comes before a rally tomorrow that is expected to draw tens of thousands of Lebanese to central Beirut to mark the third anniversary of the assassination of former Prime Minister Rafiq Hariri.

United Nations investigators said Lebanese and Syrian intelligence officials, including the brother and brother-in-law of Syrian President Bashar al-Assad, were implicated in the truck bombing that killed Hariri. Syria has denied any involvement.

Asserting Authority

``There seems to be a steady attempt to push Syria, and right now the United States and the West has very little leverage over Syria, and I think this is frustrating everybody in Washington as they see Syria asserting its authority in Lebanon,'' said Josh Landis, a specialist on Syria and director of the Center for Peace Studies at the University of Oklahoma. ``They've run out of tools and the only thing Bush can say now is that he's going to get a fully funded investigation'' into Hariri's assassination.

The fact that Mughniyeh was killed just before Hariri's anniversary ``means that there could be demonstrations by Hezbollah supporters today and tomorrow,'' Ted Karasik, senior political scientist at the Rand Corp. consulting company, said in an interview today. ``He was killed in order to ignite confrontation on streets.''

Lebanon has been without a head of state since Nov. 23, when Syrian-backed Emile Lahoud left office at the end of his term. The dispute over the post has threatened to ignite civil strife in the country. The crisis is the worst since the end of Lebanon's 1975-1990 civil war. Lebanese lawmakers have failed to elect a president on 14 occasions.

I Sing the Auto Electric

Inside Plug-in Car Tech's Race to Production

Big automakers and promising startups say electric vehicles are coming as soon as next year, but there's a lot of work to be done—by scientists—before lithium-ion batteries are ready for mainstream hybrids.

Flashy concepts and expensive, limited edition sports cars have made the plug-in car market an attractive one. Now major car companies from Detroit to Japan are outsourcing for chemistry and spending big bucks in-house to put low-cost, high-power packs of lithium-ion in larger production fleets by 2010 or 2011.

The future of American motoring will be—at least in part—battery-powered. Now, it’s becoming increasingly clear that the lithium-ion pack is what will get us there. Almost every top-tier carmaker has announced plans to use the technology, but they haven’t exactly said when we might see roadworthy li-ion-powered vehicles. The consensus is that they’ll probably start to appear in the 2010 to 2012 time frame—though no one’s promising anything.

Even though lithium-ion already runs everything from laptops to screwdrivers, the reality remains that only a handful of smaller companies actually make these electric cars for production (or soon will). It all comes down to that battery.

Issue No. 1: Battery Chemistry


Sounds simple, right? Like other batteries, those that use lithium work by shuttling ions (electrically charged atoms or groups of atoms) between their electrodes. The most widely used have a positive electrode made from cobalt or manganese oxide and a negative electrode made from graphite. The electrolyte (the material through which the ions pass from one electrode to the other) is a lithium-based gel or polymer. These types of batteries are mainly used in laptops, and are not well-suited for the automotive environment. The problem is that the chemistry isn’t stable enough, so batteries suffer from overheating—and that can have an explosive effect.

The most promising electrode chemical makeups, then, involve nano-engineered materials like phosphates of iron, lithium-titanate spinel and, most recently, bundles of silicon nanowires. Some battery companies have battery recipes that are ready for series production now, at least for mild hybrids. Milwaukee-based Johnson Controls/Saft, has been touting research it calls NCA, which has been approved for mild and full conversions by OEM powerhouses.

Meanwhile, Toyota appears to be close, if not locked into its chemistry of plug-in hybrids. Recently, Toyota’s president Katsuaki Watanabe said they would be accelerating development to have a large-scale (an estimated several-hundred-to-a-thousand-vehicle) test fleet in service by 2010 or earlier.

Even so, there doesn’t seem to be a clear winner here or a one-size-fits-all solution. And it’s going to take a lot more practical application to figure what works over the long run. “It’ll take companies like AC Propulsion and Tesla to put some products on the market to see what works and what doesn’t,” says Tom Gage, president and CEO of AC Propulsion. “Right now, the market is too small for the top tiers to produce anything.”

Issue No. 2: System Integration


This is where one of the major bottlenecks lies, because simply choosing a battery isn’t enough. It must work seamlessly within the vehicle, communicating with all major systems and working in unison with the vehicle’s drive system. Needless to say, synching everything up doesn’t happen overnight, though Gage insists the timetable “wouldn’t be different for any new tech being put into a car. It takes about three to six years for this process to happen.”


Johnson Controls/Saft may be further along—to a degree. Its team will supply the li-ion battery pack for Mercedes-Benz’s S 300 diesel hybrid in 2010, which will be a mild hybrid sold only in Europe (a gas-hybrid version will hit the U.S in late 2009). “We’ve cleared many of the battery management hurdles,” Andrew says

Issue No. 3: Production


After overcoming the first two hurdles, the industry would then need to figure out where all of these batteries are actually going to come from. “They need to be produced in high quantities and with a high level of quality control,” Gray says.

A source inside Toyota says that getting the lithium-ion packs into mass production—not the chemistry—is the company’s biggest hurdle. Late last year, Toyota engineers admitted that producing cells en masse while upholding the company’s usual quality was proving very difficult.

Still, Toyota is close to making production work, and they will be opening a new lithium-ion battery production line at the joint-venture Toyota/Panasonic plant soon.

Meanwhile, Johnson Controls/Saft broke ground on a new lithium-ion line at their Nersac, France, battery facility. This plant will produce the Mercedes batteries as well as packs for other possible European hybrids that have yet to be announced. However, it would be unlikely that this facility would produce packs for vehicles built in North America.

Mark Twain Redux

Many are familiar with Mark Twain's anecdote about words and their differences. As he famously noted, the difference between Lightning and the Lightning Bug. However, as usual, reporters don't know about stuff like that.

BUFFETT BUCKS UP THE BUCK

February 8, 2008 -- What a difference a space makes.

Just ask billionaire Warren Buffett after Dow Jones news service ran a headline yesterday quoting him as saying the US dollar would be "worthless" in five to 10 years if the country's account deficit wasn't brought under control.

Anchors for business news network CNBC spent some time dissecting Buffett's "worthless" quote before the Oracle of Omaha personally called to set the record straight.

CNBC's Becky Quick took Buffett's call on-air, although viewers couldn't hear Buffett's side of the conversation. She offered this correction: "He said it would be 'worth less' - two words."

It's no secret that Buffett has been negative on the US dollar, but the Berkshire Hathaway chief executive didn't go quite as far as the headline suggested.

"If our current account deficit keeps running at present levels, the dollar I think is almost certain to be worth less five to 10 years from now compared to other major currencies," he said at a business conference in Canada.

The Dow Jones story that followed the erroneous "worthless" headline reported his comments accurately as two words.

Peak Microsoft?

Steve Ballmer and his crew at Microsoft look like Indians (feather) getting ready for a last stand against the invading force of Google. It looks like the Indians are showing their weakness. They want help, a buffer, protection against the forces of the Manifest Destiny of Google. The Indians have sought help from Yahoo.

Like generals fighting the last war, corporate leaders are always ready to take down the old competitors. MSFT once dismissed the Internet as inconsequential and irrelevant to its corporate purpose. But the stunning success of Netscape changed all that. After MSFT's furious assault on Netscape with the Internet Explorer, it was clear an awakening had occurred. It worked. Next month Netscape shuts down for good.

But fighting the last war means fighting to advance the New World Business Model that is fading. The New World Business Model is now Old. Consumers don't pay for content these days. Not all of it, anyway. The online version of the New York Times is free. Most online versions of newspapers are free. Who's paying? The advertisers.

Google is free to the consumer. That includes its word processing software as well as its spreadsheet software. Imagine free Word and free Excel, free Microsoft Office -- with advertising. Is there a chance MSFT will give consumers online access to Word, Excel and the rest while charging advertisers for the opportunity of displaying their goods to billions of users?

Based on MSFT's willingness to pay almost $45 billion for Yahoo -- and taking the extra step of BORROWING to cover the expense -- the answer is NO.

Welcome to the last war. Microsoft's Last Stand. Peak Microsoft.

To protect its Office franchise, MSFT will buy Yahoo for $45 billion. That's a massive insurance premium. Worse for Ballmer and Gates, the payment is a premium on a term insurance policy. But the duration of the term is unknown and shrinking at an accelerating rate.

It's estimated that Internet advertising is likely to double by 2012, pushing the number of I-dollars to an annual figure of $80 billion by that time. How much of it will flow into MSFT? Enough to justify the purchase of Yahoo anytime soon? Probably not. With annual revenue around $7 billion and net income about $1 billion, it will take a while for this transaction to prove its value. However, it does protect Microsoft. That's worth a lot.

Meanwhile, one point is clear. MSFT is not willing to use one of its chief assets -- Office -- to fight Google. That shows the company's tolerance for risk is gone. These days MSFT wants Washington to referee. The bell is ringing. Microsoft has peaked.

Exxon -- Another Great Year

The world runs on oil and ExxonMobil provides about 3% of the world's daily consumption.

In late 1999 – when Bill Clinton was president – the Federal Trade Commission allowed Exxon and Mobil to recombine, giving us ExxonMobil.

The business includes Oil & Gas Exploration & Production (9% of sales, 67% of earnings); Refining & Marketing (82% or sales, 22% of earnings); and Chemicals (9% of sales, 11% of earnings).

The company has an ownership interest in 40 refineries in 20 countries capable of refining 7 million barrels of oil a day. Meanwhile, based on reports from the John Herold Research organization, the leading source of independent oil analysis, ExxonMobil replaced about 130% of reserves pumped since 2004. Its cost of finding and development was about $7 per barrel, which is below the industry average.

The superior management of ExxonMobil led to 2007 revenue of about $405 billion and net profits of $40.6 billion

Total costs were $334 billion; capital spending was $21 billion; income before taxes was $70.6 billion; income taxes were $30 billion; dividends were $7.6 billion.

In addition to income taxes, ExxonMobil generated sales taxes of $31.7 billion and other taxes of $44.1 billion for total tax payments of $105.8 billion. Its effective income tax rate was 44% in 2007.

The company produced an average of 2.6 million barrels of oil per day and 9.4 billion cubic feet of gas per day. Not bad. The thousands of employees of ExxonMobil do a great job of providing the fuel that allows the world to prosper. The world needs more ExxonMobils and fewer restrictions on exploration and production.

However, the stock is not attractive at these levels. The good news is already priced in and it looks like oil demand will ease a little in the year ahead.

What's Wrong with These People? -- Chapter 2

It's been estimated that 25% of American women have had extra-marital affairs. That's a lot of potential stonings if American women were suffering the same oppression known to Iranian women. Why are Iranian men irrational about women's sexuality? What do they fear? Since they are terrified by sexual desire among women and they believe murdering women is the appropriate punishment for sexual freedom, what other absurdities are these people capable of embracing?

As scary as some existing islamic beliefs and practices are, they're likely to get worse. The Iranians are attempting to obtain nuclear weapons and develop long-range missiles. What would a country that kills women for having sexual relationships do with nuclear weapons and missiles? The Iranians appear to think the world needs the stern hand of islam. It looks like Iran wants to carry on the tradition of spreading islam by force, this time with nuclear power. Hence, for the good of the world, the Iranian nuclear experiment must stop. A therapeutic bombing would end it.

Iranian sisters face stoning for adultery: report

Feb 4 08:50 AM

Two Iranian sisters convicted of adultery face being stoned to death after the supreme court upheld the death sentences against them, the Etemad newspaper Monday quoted their lawyer as saying.

The two were found guilty of adultery -- a capital crime in Islamic Iran -- after the husband of one sister presented video evidence showing them in the company of other men while he was away.

"Branch 23 of the supreme court has confirmed the stoning sentence," said their lawyer, Jabbar Solati.

The penal court of Tehran province had already sentenced the sisters identified only as Zohreh, 27, and Azar (no age given) to stoning, the daily said.

Solati explained that the two sisters had initially been tried for "illegal relations" and received 99 lashes. However in a second trial they were convicted of "adultery."

The pair admitted they were in the video presented by the husband but argued that there was no adultery as none of the footage showed them engaged in a sexual act with other men.

"There is no legal evidence whereby the judge could have the knowledge for issuing a stoning sentence," Solati said, adding that he had appealed to the state prosecutor.

"The two sisters have been tried twice for one crime," Solati protested.

Capital offences in Iran include murder, rape, armed robbery, serious drug trafficking and adultery. Iran currently makes more use of the death penalty -- almost always by hanging -- than any other country apart from China.

Zohreh's husband -- who accused his wife and her sister in January 2007 of having extra-marital affairs -- had planted a camera in his house in a bid to catch them in the act.

Zohreh said she had an edgy relationship with her husband because of the strict limits he imposed on her life.

"I was a teacher and loved my job but my husband did not let me work... he was always suspicious of me and thought our differences were because I had an affair," she was quoted as saying by the daily.

Etemad reported that the husband of the other sister, Azar, had not filed any complaint against her.