Today we get our first glimpse at what the true cost of the Health Care Reform bill will actually cost America. This morning AT&T gave us the first Billion Dollar Red Flag. According to their filing with the SEC, AT&T will take a $1 Billion dollar non-cash charge expense recorded against their first quarter 2010 earnings. So much for the Obama administration's claim that health care reform would have no direct costs until 2014! "AT&T Inc. ("AT&T") intends to take a non-cash charge of approximately $1 billion in the first quarter of 2010 to reflect the impact of this change. As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree health care benefits offered by the company." http://www.sec.gov/Archives/edgar/data/732717/000073271710000017/filing8k.htm Earlier, both Caterpillar, and John Deere Corp made similar moves, but they were ONLY $100 Million, and $150 Million respectively.
So just what does this mean? Well, Stock price values come primarily from Earnings Per Share (EPS), and for AT&T this is approximately an 8% hit, Caterpillar 11%, and John Deere would be roughly 16%. This tells us that major corporations will all need to be taking similar charges (SEC rules Require these charges be posted as soon as a company is aware of them) which means that all of their stock prices are now overvalued by whatever portion of their earnings these represent. Guess which way stocks should be headed over the next few days/weeks?
So if this is happening now because of changes to RETIREE benefits, what do you suppose will happen when the corporations begin "evaluating prospective changes to the active" workers? I'm sure glad this is going to be DEFICIT NEUTRAL to America!
One more thing, 4th quarter GDP was revised lower today, and the latest economic forecasts project lower growth ahead which means less tax revenue. These charges decrease profits further so we will get the double whammy of lower production, with lower profits resulting in Lower Tax Revenue to help fund our Increasing Deficit.