2013: Better than Expected by Guest Blogger Buck Klemkosky

Note: this summary for 2013 is provided by Guest Blogger Buck Klemkosky. Because it is long, you will see below his introduction and summary with 12 topics in the middle. Any of these topical areas can be read in full by scrolling down to the appropriate footnote number.

Americans, especially investors, have a lot to be thankful for in 2013. Remember, the year started with everyone worrying about falling off the fiscal cliff. Due to the budget impasse, automatic federal spending was cut through the sequester, and taxes were raised for the wealthy. Economic forecasters and other pundits were predicting that the sequestration would hamper economic growth or possibly cause a recession.

The Economy – The U.S. economy has performed better than expected with annual real GDP growth expected to be 2.4 percent for the year. The economy was bolstered by auto sales, housing and the consumer. It is difficult for the economy to have any meaningful growth without consumers being part of it, and they were in 2013, overcoming the supposed “fiscal drag” of the sequester and the austerity measures of state and federal governments. Economic prognosticators had forecast 2013 economic growth of less than 2 percent, so the economy performed better than forecast and the third and fourth quarter numbers suggest a stronger trajectory for the economy and consumer spending going into 2014.

Inflation[i]

Industrial Production[ii]

The Fed[iii]

Deficits and Defaults[iv]

The Volker Rule[v]

The Financial System[vi]

The Corporate Sector[vii]

Employment[viii]

Household Debt[ix]

Household Wealth[x]

Energy[xi]

Investable Assets [xii]

2013 – Recessions caused by financial crises take longer to recover from than normal cyclical recessions because debt has to be taken out of the system. This appears to have been completed in the U.S. for the household and financial sectors in 2013. Hopefully, this has set the foundation for continued economic growth in 2014 and beyond. The corporate, household and financial sectors in the U.S. are all in better shape than any time in the last decade or longer. The European economies and financial systems appear to have stabilized, and Abenomics in Japan has produced positive economic growth and stock returns in excess of 60 percent in 2013. China’s economic growth has come down over the last five years but still a solid 7.5 percent. Global and U.S. economic growth should be higher in 2014, with U.S. economic growth expected to be around 2.5-3.0 percent. Don’t expect 2014 stock market returns to replicate 2013; in 2013, markets anticipated and reflect economic momentum and other positive developments expected to occur in 2014.

The one big unknown is what if any problems have been created by the Fed’s zero interest policy and QE. It has created stock and bond market wealth and now housing again. Hopefully it has not created any significant bubbles or misallocations in the economy. So Fed actions and other macroeconomic events will continue to make headline news in 2014 and influence financial markets. Financial markets have performed much better than the real economy for several years, including 2013.

---

[i] The views on inflation have been all over the map. Many are worried about the enormous amounts of liquidity pumped into a global financial system by central banks and the potential for hyperinflation. Others worry that deflation may be the problem going forward. The inflation rate in 2013 was 1.1 percent, less than the 2 percent the Fed is targeting, as are the European Central Bank and the Bank of Japan. The most obvious danger of too-low inflation is the risk of falling into outright deflation of persistently falling prices. As Japan’s experience shows, deflation is damaging economically and hard to rectify. So central banks are more concerned about deflationary pressures than inflation.

[ii] U.S. industrial production, which measures the output of manufacturers, utilities and mines, hit a milestone in November 2013 when the index surpassed the pre-recession peak of December 2007. While manufacturing is still below its 2007 peak, overall production is up 21 percent since the end of the recession in June 2009 and up in 2013 relative to 2012.

[iii] The U.S. Federal Reserve celebrated its 100^th anniversary in 2013 and perhaps never in its history has it faced the complexity and risk it now does. At the end of 2013, three rounds of quantitative easing (QE) have inflated the Fed balance sheet to $4 trillion, up from $800 billion before QE started in 2008. QE3 started in September 2012 and entailed purchasing $85 billion monthly of U.S. Treasury bonds and mortgage-backed securities. Annualize that and it comes to more than $1 trillion a year of bond purchases that end up in the Fed’s balance sheet. QE3 is not sustainable and the Fed just announced that it will start tapering in 2014 by reducing monthly bond purchases by $10 billion. Chairman Bernanke announced in May 2013 the possibility of reducing or tapering the amount of bond purchases but delayed any final decision until December 2013, his last major decision as his second four-year term ends in January 2014. From May to December, tapering or lack thereof was the most talked-about and analyzed event in 2013 and it will continue to be as long as QE3 exists.

The Fed also will continue its accommodative monetary policy by keeping short-term interest rates close to zero even after unemployment rates fall below 6.5 percent unless inflation exceeds 2.5 percent. Janet Yellen takes over as Fed chair in February 2014 and is expected to continue Bernanke’s monetary policies.

[iv] Congress passed a 21-month budget resolution in December 2013, the first since 2010. While many applaud the ability of a dysfunctional Congress to even pass a budget, few seem to be happy about it. As a percentage of GDP, the federal deficit has fallen from more than 10 percent in 2011 to 4 percent in 2013 and less than 4 percent projected in 2014. Prerecession, a deficit of 4 percent of GDP used to be considered reckless; now some consider it austerity and a fiscal drag on the economy.

While a flawed budget deal may be better than no budget deal, one of the flaws in the U.S. fiscal policy is that congressional voting on spending is separated from voting on borrowing via the debt ceiling. The debt ceiling law has been in effect since 1917 but was not a political issue until the 1970s. Since the Carter administration, Congress has voted 45 times to increase the debt ceiling. Linking the vote to borrow to the vote to spend would seem logical, but don’t count on congressional rationality in this day of partisan politics. This will become headline news again in February 2014, when the federal debt is again expected to approach the debt ceiling of $16.7 trillion.

[v] The Federal Reserve Act, passed in 1913, was 31 pages long. The Dodd-Frank law, passed in 2010, was 2,391 pages long. It entails 398 rules, of which 161 have been finalized, and the Volker Rule is the latest. From its conception to finalization by five government regulatory agencies, the rule has grown to 963 pages, containing 2,826 footnotes and posing 1,347 questions. All this verbiage is to basically prevent proprietary trading by banks. They can still trade for clients, but most banks had already eliminated proprietary trading in anticipation of the rule. Full compliance is not required until July 2015. Monitoring and compliance will be complicated, and there may be unanticipated consequences such as less liquidity and more cost to trade less actively traded issues such as corporate bonds.

[vi] In 2013, the U.S. financial system was much stronger and transparent than before the financial crisis. Dodd-Frank, Basel III and other regulatory changes have taken debt and leverage out of the system, increased capital and monitoring not only of banks but also non-bank financial institutions. Hopefully regulators now understand how complex and interconnected the financial system is. One thing that has not been fully resolved is the too-big-to-fail issue. The 10 largest financial institutions in the U.S. in 2013 had more than $11 trillion of assets, compared with $7.8 trillion at the end of 2006. The market share of the 10 largest has increased, and thus their potential for systemic risk.

[vii] Corporate profits relative to GDP remain at historically high levels in 2013: 10 percent versus an average of 6 percent. While revenue growth was subpar, corporations were able to grow earnings through cost controls and share buybacks. Corporations today spend 60 percent more on share buybacks than on dividends, even though dividend growth has been positive. Because of economic and political uncertainty, corporate investment has not kept pace with profitability. Another reason is that the capacity utilization rate is slightly below 80 percent at the end of 2013, so there is no urgent need for capital expenditures until utilization picks up another 5 or 6 percent. Corporate balance sheets are in great shape and corporate cash as a percent of assets is at historical high levels. Even so, U.S. corporations set records in 2013 for issuing bonds, both investment grade and high yield, taking advantage of historically low interest rates. Two of the largest bond issues of all time occurred in 2013; Verizon issued $49 billion to finance an acquisition, and Apple $17 billion, even though the company had $70 billion in the bank, half of that overseas for tax reasons.

[viii] Job growth averaged about 190,000 monthly in 2013. The unemployment rate fell to 7.0 percent at the end of 2013 but not all of the improvement in the rate was due to job growth. The labor participation rate fell to a 30-year low of 63 percent, meaning millions of people have left the labor force for whatever reason. Still, at the end of 2013 there are 1.2 million fewer people working in the U.S. than at the end of 2007.

[ix] Financially, households have put their houses in order, so to speak. They have paid down more than $1 trillion of debt since the financial crisis, mostly mortgage debt which comprises about 70 percent of household debt. The debt service ratio, debt payment as a percent of disposable income, also fell to a 30-year low in 2013 as it approached 10 percent. With household balance sheets in better shape and consumers more confident, U.S. household debt increased in 2013, the first annual increase since 2008. One area of debt that is of concern is student loans; the amounts outstanding surpassed $1 trillion in 2013 and they had the highest delinquency rates at 12 percent.

[x] U.S. households lost $19 trillion in the financial crisis: $9 trillion in stocks, $7 trillion in housing and $3 trillion in other assets. This didn’t all happen simultaneously as stock prices started to increase in March 2009 and housing prices continued to drop through 2011. The peak loss was approximately $15.0 trillion. Household net worth, the value of assets minus debt, set a record of $77.5 trillion in 2013. However, adjusted for inflation, this amount is in real terms about the same as the $69 trillion of household net worth in 2007. Add in population growth and average household net worth is still below 2007. Less debt, housing prices up 12 percent in 2013, and stock prices up 29 percent have all contributed to the record levels of household net worth. One thing that has  not contributed has been interest rates; historically low interest rates, both short and long-term, have caused financial repression for households. Since 70 percent of household assets are financial in nature, interest rates and stock prices are the main drivers of household wealth.

Household net worth is 615 percent of after-tax income in 2013 compared to a peak of 662 percent in 2007, so households may not feel as wealthy today versus 2007. Plus the distribution of net worth is more unequal today than any time since the 1920s. The same is true of the distribution of incomes.

[xi] One of the major milestones in 2013 was that the U.S. became the world’s largest producer of energy, surpassing Russia. This is mainly due to natural gas production, but oil production also is ramping up. Because of horizontal drilling and fracking, the U.S. has the potential to become North American energy independent. The U.S. has started to export liquefied natural gas and has become the leading exporter of products derived from oil and natural gas. Lower energy costs have given the U.S. a real competitive cost advantage over European and Asian manufacturers, and the U.S. has started to attract direct foreign investment to the U.S. because of cheaper energy. This cost advantage should be sustainable for a decade or longer.

[xii] The star of 2013 was the stock market; the S&P 500 had a return of 29 percent, including dividends, the best one-year return since 1998. The consensus forecast at the beginning of 2013 was 8 percent. The NASDAQ and Russell 2000 did even better. In 2013, the Dow Jones Industrial Average hit 16,000 for the first time and the S&P 500 1,800. The NASDAQ crossed 4,000 for the first time in 13 years, except back then it was on its way down from its peak of 5,048 in 2000 and in 2013 on the way up. Bonds have been a mixed bag in 2013 with corporate bonds, both investment grade and high yield, providing positive returns of 5-7 percent.

However, long-term U.S. Treasuries did have negative returns. The big losers in 2013 were most commodities, especially gold, which fell more than 30 percent from its peak price of $1,800 per troy ounce. Some believe the commodity super cycle that started in 2000 may be over. Short-term money market instruments were also losers, as the Fed continued its zero interest rate policy. Real short-term interest rates were negative after adjusting for inflation.

Merry Christmas and a Happy New Year

Thanks for being part of my blog this year. Betty and I want to wish you a wonderful holiday. I hope your Christmas is filled with everything you want and that you have time to reflect on all the goodness and beauty around us. Sprouting has been a blessing for me in retirement and a great way to communicate with so many of my neighbors, friends, former colleagues and students, and family. We don't always agree with each other but it sure is fun hashing it out.

Next week we will have a special summary of 2013 from our frequent guest blogger Buck Klemkosky. So stay tuned and have a wonderful holiday.

S&P Newtonians – Have they lost their apples?

As November came to an end and shoppers duked it out at Macy’s and Victoria Secret, the financial news heralded the stellar performance of the stock market. Much of the news documented in one way or another how much the stock market valuations have grown this year and in the past few months. Some Newtonians concluded that what goes up must come down. Other analysts believe there is more room for stock prices to rise. Which is it—up or down?

As you know I am a humble macroeconomist and not a finance whiz and therefore I admit to treading in shark infested waters. What I read tells me that the risks lie toward mean-reverting behavior. After stocks have gone up so much it seems reasonable that they would take a breather. While that sounds pretty rational I think that view is missing some vital information. I see several reasons why stocks could continue rising and therefore I am more optimistic than many of the pundits.

Let’s face it the majority view has a lot going for. For one thing a look at stock market behavior over time does underscore a tendency of markets to deviate from and then return to longer term trends. And the famous PE (price to earnings) ratios mostly support the view that stocks cannot keep up rapid price increases. Stock prices have raced ahead of earnings – especially since earnings are slowing down. If you expect earnings to continue to slow as the world economy struggles then price to future earnings look high today – thus there is plenty of room from the PE camp to suggest a slowing or a retraction in stock prices.

So how can I support a more optimistic view of future stock prices? One point is that earnings have been volatile. During the recession them plummeted. After the recession earnings moved dramatically upward. It is natural they would fall off that rapid acceleration to something more normal. Thus, a slowing in earnings does not bode poorly for now or for the future.

My second point is based on an even longer-term view of stock prices. I am going to use the S&P 500 average for my analysis but what I am about to say works for most broad measures of US stock prices. The S&P 500 bottomed out in the recession at 676 in March 2009. That represented a major contraction relative to the heady days of pre-2008. Since March 2009 the S&P 500 rose to around 1,800 . From the bottom in March 2009 to July 2013 the S&P 500 rose by 166%.  That is pretty spectacular and you can see why some people think that behavior cannot be maintained.

But there is more to the story. If you compare this so-called high stock price level in November 2013 to the previous peak in November of 2007 of 1,520, you see that in a time period of six years the market has gone above that previous peak but is only 18% higher.  A gain of 18% in four years is not spectacular. Do not forget that those stock returns buy less because the prices of goods and services were rising during those six years. The Consumer Price Index rose by 14% in those six years. So you could conclude that in purchasing power terms, the peak level of the S&P 500 is only about 4% higher than it was six years ago. That peak resembles the humble Smokies more than the Rockies!

If we compared today’s so-called high level of stock prices to the previous peak in 2000 of 1,527, then today is 18% above that peak. Today’s peak is only 18% above the peak of 13 years ago! With inflation of 37% since 2000, the buying power of today’s market high is about 19% less than the peak in 2000.

We have a market high recently but when we compare it realistically to previous highs, it doesn’t look very spectacular and therefore does not imply a major contraction is ahead of us. The S&P 500 would have to rise from the 1,800 range to something greater than 2,200 to be comparable in buying power terms to the peak of 2000.  I am not predicting anything like that. But the US economy is growing. Companies are making profits. The fear of another major global collapse is receding. Employment is gathering steam. Smaller investors are getting back into the US markets. There is no reason why stock prices cannot continue their upward trajectory. If only the Fed and Congress would do their respective parts by not mucking up the economy.

Obama Reversing Undesirable Changes in the Income Distribution

I read the following quote in an article on Bloomberg last week. “President Barack Obama, setting out a theme that he’ll pursue in the final years of his presidency, said growing income disparity in the U.S. is the “defining challenge or our time” and Washington must confront it.

And then I remembered why I started this blog – to drink more JD. Geez Mary, what is our President trying to say? Let’s try some possibilities:

          1.   I discovered recently that income disparity is growing and we need to get together and do something about it.

           2.  I have spent the last six years focused on nothing but income disparity and only got this Boehner T-shirt   

 3.  I have spent my life devoted to correcting income disparity and have not succeeded so I am going to use the last years of my Presidency to doing more of the same.

The good thing is that this president is loyal to his goal of income redistribution. The bad thing is that he doesn’t have a clue about how to go about getting what he wants. Even if he waived a magic wand and turned all the Republicans into card-carrying liberal democrats, he would not get what he wants.

How can I support such an outrageous statement? Let me count the ways? First, the bull in the China shop is right in front of him but he doesn’t see it. Is he going to switch gears to income distribution before he is finished with employment? I mean which way is it? Which is his main goal? Some of what he hopes to get with reducing income disparity comes when the economy is growing again and employing more people. Did he relegate economic growth and employment to position #2? Or #3? Is that really the way to help people with low incomes catch up?

Second, he already made headway on policies to redistribute income. If Obamacare does not redistribute money to the poor, I don’t know what it does? But that’s not enough. He raised taxes on the rich in the last “kick the can down the road” exercise, increased spending and participation in most social programs, plans to reduce what the government pays to doctors, medical device companies, etc. Even with all that the data seems to show little to no improvement in the lot of people with lower incomes. Maybe he should go back to point 1 above – fix the economy.

Third, as it relates to income redistribution his plan is a repeat of very old dogma that got us to where we are now. There is not one new trick in this deck of dog-eared cards. Increase social spending, increase the minimum wage, raise taxes on the rich, have the government spend more on infrastructure, and so on. Come on! We did all that for 50 years and we have more poor people now than ever. And more rich people too. And guess what? While there are ways to measure the successes of some government programs it is not going to be easy to repeat those successes again starting tomorrow.

The infrastructure idea sounds nice but it will take decades to impact income distribution. Remember all those shovel-ready jobs of a few years ago? The problem Mr. President is not that we need to spend more on social programs or infrastructure. It is that we need to create an environment of short-term expansion and long-term economic growth. I already discussed the former above, now let’s think about the long-run.  

Why hasn’t the economy snapped back and resumed normal economic and job growth? Answer: because there is stuff wrong with the economy. If there is stuff wrong with the economy then you fix it. Don’t push the blood back into the bullet hole – sew the hole shut! A guy walks into an emergency room after being run over by a cement truck and has multiple injuries and asks if he can bum a cigarette and a few band-aids. What’s a good doctor to do? Surely not give the guy what he is asking for. 

I doubt I will be exhaustive but consider what needs to be attended to:

            Demographics mean labor force growth is much lower than it used to be subtracting close to 1% per year from economic growth

            Financial reform and regulation remains incomplete some five years after the recession providing an aura of uncertainty

            Housing reforms  remain incomplete. Banks still do not know the definition of a qualified mortgage.

            Global competition from countries that have lower wages eat away at low and middle skills jobs

            As more and more jobs are growing in highly technical fields, US education cannot produce graduates that place better than the median in world  comparisons of 15 year-olds
             Reams of pages of new regulations on firms

National debt is 100% of GDP

Okay I must have left something out. I know, I left Obamacare out on purpose. But do you really think we should be spending our precious time the next two years debating emotionally and heatedly about adding or not adding a  few points to tack onto the tax bill of rich doctors and lawyers? Let me say this as loudly as I can – I TOTALLY AGREE THAT WE NEED TO BOLDLY FACE INCOME DISTRIBUTION PROBLEMS.  I totally agree that income disparity is very wrong both economically and morally. But there are ways to do this that will work and other ways that won’t work.

The next ten years will not be like the last five. They will not be like your grandfather’s business cycle. We have a mess of problems that hurt lower income people. Some problems are short-run oriented related to the recession. Others have more to do with negative longer-term trends playing out. Raising the minimum wage or taxing the rich takes the eye off the ball. The term is worn out but we have a perfect storm affecting lower income people. The usual life vests are not going to be enough. We need to focus on what it takes to generate a decade or two of stronger economic growth. 

Obamacare’s Medical Devices Tax is a Heart Stopper

Almost exactly two years have gone by since I posted about the Medical Devices Tax (Obamacare, Jobs, and Global Competitiveness, November 22, 2011). In that post I worried about the negative impacts of the new tax on US employment. Two years later there is evidence that the worries were well founded even though the tax has not yet begun to bite. Since Congress may have the chance to save the day for the Medical Device Tax yet in 2013 and since there are some who would not repeal this part of Obamacare, I thought I would wade into this topic one more time.

This time I am spouting about an article written by Kent Gardner, chief economist for the Center for Governmental Research (Rochester Business Journal, November 15, 2013).  Gardner alleges that “Joint replacement earns a whopping profit for the implant manufacturers and a very good living for the surgeons and hospitals involved. And private insurers, Medicare, Medicaid and the Veterans Administration pay most of the bills.” He thinks these firms are doing just fine and uses three arguments to explain why the tax won’t have negative effects”:

1.     These firms are cartels and therefore medical device firms won’t pass the tax along to higher prices

2.     The tax will not cause US jobs to go overseas

3.     The tax will not cause any reductions in innovation and competitiveness

So let’s take a closer look at Gardner’s arguments. He says medical device firms are like cartel members. Wikipedia offers this definition of a cartel,

a formal (explicit) "agreement" among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production.^[1] Cartels usually occur in an oligopolistic industry, where the number of sellers is small (usually because barriers to entry, most notably start-up costs, are high) and the products being traded are usually homogeneous.

Implicit in this definition is that the cartel brings the members high or excessive profits. 

So Gardner is wrong on a lot of counts. First, there is no formal agreement among medical devices companies as there is in OPEC. Second, if there is an informal agreement to do all this bad stuff, then this is against the law – and these guys must be pretty good to have eluded the regulators for so long.

Third, these companies are not homogeneous. There is a relatively large number of medical device companies, and there is plenty of entry and exit, especially among the smaller innovative firms. . While there might be small numbers of companies in very specific segments of the industry, this is what one should expect when advanced science is behind specialization, continuous invention, and innovation. A company that leads in a particular kind of product, for example, may enjoy a monopoly position for a little while. But this is also true for cellular phones and many other electronic products – do we want to put additional taxes on Apple and Samsung because they lead their industry? Probably not. A small number of firms doing everything they can to take leadership is good for product price and quality and, of course, the consumer. Think Nokia if you want evidence that even a small number of firms can produce real competition.

Fourth, most of the data I am finding does not support the notion that these companies are making obscene or even risqué profits. I looked at rankings of profit measures by industry –published by Yahoo Finance and a consulting company, Analyxit . These rankings generally show that the Healthcare and Medical Devices sectors make very reasonable net profits as a percentage of revenue. For example Yahoo Finance found Medical Devices had a net profit ratio of about 13%, ranking it 42^nd among industries. In contrast Finance sectors had returns ranging from 36% to 81%.  The return on equity ranking showed Medical Devices at 14% with a ranking of 82^nd. Analyxit ranked Healthcare, including Medical Devices, as eighth among nine sectors based on net profits as a percentage of revenue. Again financial companies led the list with returns averaging 17%. Healthcare’s percentage was 4%. In the middle of the pack were utility companies with a ratio of 8%.

Gardner says these firms will not pass the extra cost of the tax onto consumers. He reasons… “When firms hold significant market power – as they do in this industry – the connection between cost and price has been weakened. Price is largely driven by demand factors, not cost: Monopolists already charge what the market will bear.” Gardner’s argument flies in the face of what we teach freshmen in economics every year. Market power translates into an inelastic demand curve -- which means that firms without much competition do not have to worry much about losing customers when they increase prices – and would as a matter of fact pass the extra costs caused by the tax into higher prices.

I would agree that these firms will eat the tax as a reduction in profits and not pass the cost along to medical consumers in the short-run. But this is not because these firms have market power. The main reason that profits will fall is that medical device manufacturers have long term contracts with hospitals and other health providers and cannot easily increase revenues to offset rising costs from the new tax. Won’t these firms benefit from a tidal wave of new enrollees in Obamacare? Probably not. Many of the newly insured will be younger and not require medical devices like new hips and knees.

What I showed two years ago is that while a 2.3% tax on revenue sounds trivial, the result is that the tax is a much larger percent of a company’s profits. While some people think profit is a dirty word, the fact is that profits are used to invest in research, product development, safety, and other critical outlays that invent and improve products. The more the government takes of these profits the less is available for increasing product quality and being competitive. Large for-profit firms are already seeking foreign locations and will be followed by private companies. And the negative impact on smaller entrepreneurial firms is disproportionate because in the early years a company often makes small or no profits despite having rising revenues. The upshot is that a 2.3% revenue tax will mean business losses and an end to these small businesses. Inasmuch, the bigger firms will gobble their assets and this will lead to less, not more, competition. A correlated worry is that all these firms will turn away from devices that cannot promise immediate returns or serve smaller markets. This bodes ill for future important improvements in the device industry.

But aren’t corporate taxes low? The answer is that despite some loopholes, US corporate income taxes are among the highest in the world. Domestic companies are already reducing employment and globalization means many are seeking production and market opportunities globally. The medical device news is full of stories about layoffs and new joint ventures, both domestic and foreign. Combining a high corporate tax with another 10-30% of income going to a medical device tax makes it more desirable for medical devices companies to find locations and markets where better profits can be made. China, India, Ireland, Costa Rica, Singapore and a growing list of countries are quite willing to compete on corporate profits as a way of winning production as well as R&D facilities.

The upshot is that this tax is not good for US employment nor US-based innovation and competitiveness. The US should be happy to have the world’s leading medical device companies and it should be fighting to keep it that way. Worse yet is the misleading contention that this tax increase will break up this medical devices cartel and lead to more competition. It will do just the opposite as large US companies get larger by combining with suppliers and competitors – and as they move more and more operations abroad.