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Brandon’s Charts of the Week – Why Does Healthcare Cost So Much?

Posted: Brandon Arns

Every week, we read a TON of information. Blogs, articles, research papers…it’s our job to be informed about what’s happening in the market, economy, and society in general. Most people don’t have the time to sort through so much information, so we’ll do it for you. Every week, I will post some of the best charts, graphics, tweets, etc, that I find and put it here in a quick, digestible format. Enjoy.

 

One of the most interesting things I read this week was a report by the Milken Institute called, “Priced Out.” It tries to address why the USA spends so much on healthcare compared to other countries? The chart below shows how much Americans spend per person compared to other developed nations:

 

 

and here it’s expressed as percentage of GDP. Again, we’re by far the highest.

 

 

The report goes on to address different potential reasons why we spend so much. One factor may be our aging population, as baby boomers approach the later years. However, this doesn’t show up in the data as shown below. The U.S. is actually one of the youngest of the developed nations, yet we spend the most. Also counter-intuitive is Japan, with the oldest population spending near the least.

 

 

I’m skipping quite a bit, but the main culprit seems to be the growth in administrative costs in the U.S., compared to other nations. The chart below shows how many more administrators are hired than actual caregivers.

 

 

And a final chart to illustrate these overhead costs is the flow of a hypothetical $100 to purchase a $17 drug. If you’re at all interested in the healthcare system, I highly recommend reading the report.

 

 

Switching gears now, the Fed has recently cut interest rates 25 basis points (0.25%). Many are trying to decide if this is good news or bad news for near term stock performance/recession. Y charts looked back at different types of stock’s (value vs. growth/small vs. big) 1 year performance after both a 25 basis point cut and a 50 basis point cut historically. Interesting how much worse performance has been after a 50 basis point cut.

 

 

Of course, you always need to be careful of extrapolating what has happened in the past. As the chart below shows, the stock market looks quite a bit different today than in the past.

 

 

Verdad wrote an interesting piece called, “The Decline of American Investment,” which tackles the issue of whether or not American companies invest in the long term anymore. This is a hotly politicized debate, as politicians on both sides of the aisle accuse corporations of being too short-term thinking and shareholder-centric. As the chart below shows, capital expenditures (capex) as a percent of sales have been going down substantially over the last 40 years.

 

 

But the issue is more complicated than that. Perhaps the reason capex has been going down is because the price of those goods has gone down. From the post: “Economists estimate that the cost of machinery and equipment has fallen about 40% in developing economies, led by a 90% drop in the cost of computing equipment.” This is clearly shown below:

 

Also, as you saw a few charts ago, there are substantially more tech and healthcare firms today than 40 years ago. Those firms spend much more on research and development (which isn’t captured in the capex number) than they do things like machinery and equipment (which is).

 

Continuing on with America’s corporations, the chart below shows how investment grade companies are carrying more and more debt, as defined by debt to EBITDA (which is essentially the amount of debt compared to their annual profits).

 

 

“BBB” is the worst credit rating you can have, yet still be considered “investment grade.” As you can see below, “BBB” is now a record share of the investment grade universe. This potentially creates a lot of risk, because if these bonds get downgraded to “BB” (which is no longer investment grade) many funds and institutions will be forced to sell them all at once.

 

 

The last month has been pretty tumultuous in the stock market. The Fed has been forced to cut rates bringing recession fears, the yield curve has further inverted, tariff situations, etc. However, there are other types of investments than U.S. stocks (despite what you see on CNBC). The graphic below is a favorite of mine called the periodic table of investments. It demonstrates just how many different types of investments there are to choose from (although many overlap). Most investors will never venture out of just a few of these squares, but we believe its important to know and understand every potential option.

 

 

A bit random, but apparently the most CO2 intensive thing you can do…is have children? (note scale of y axis compared to child bar)

 

 

Finally, over the last two weeks I’ve been on vacation in Italy (Florence, Tuscany, Rome) and Greece (Athens, Santorini, Mykonos) and it was an incredible trip! Below are just a sampling of photos I took:
Starting with dinner in Athens in front of the Acropolis (Parthenon).

 

 

Then to Florence, Italy. (Probably favorite city)

 

Then to Rome.

 

St. Peter’s Basilica (Vatican City)

 

Santorini is probably the most beautiful place I’ve ever been to. Pictured below is the center of the (still quite active) volcano.

 

and last is the part of Mykonos known as Little Venice.


And that’s it! If you enjoyed, please share and subscribe. Thank you!
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