kiplinger connection
The Economy • Investing • Health Care

The Economy: The rise in interest rates isn’t over
Investing: Green is the word
Health Care: Retail health clinics on the rise.

The Economy
May’s job gain supports our view of an economy on the rebound after gross domestic product expanded a mere 0.6% in Jan.-March. The net addition of 157,000 jobs also shows firms aren’t hunkering down.
A tight labor market will help shore up consumer spending, which is taking a hit from housing’s slump and lofty gasoline prices.
The downside: An interest rate cut is probably off the agenda for this year...unwelcome news for holders of variable rate debt.

The rise in long-term interest rates isn’t over. We see the yield on benchmark 10-year Treasuries gaining a quarter percentage point by year end, to 5.2%. Average rates on popular 30-year fixed mortgages, which largely track Treasuries, are likely to end 2007 around 6.6%.

Rates are responding to global events more than the U.S. economy. Typically, long-term yields tend to ease when the economy is in low gear. But with foreign economies humming and attracting bigger capital inflows, rates on U.S. Treasuries have to move up a bit to lure global investors.

Investing
Venture capitalists can’t get enough green...companies, that is. Seed money for environmental and clean energy firms is on course to double this year to $3 billion after more than doubling in 2006.
The pace is on a par with the early days of the Internet craze.

But it doesn’t look as if the boom-and-bust pattern will return. Investors at both the venture and retail levels are more focused on firms with proven profit potential, unlike the anything-goes dot-com rush. Green companies will also draw sustained support from long-term trends: Oil scarcity, global warming dangers, and growing worldwide pollution.

Note these lower-risk options for tapping the green boom...less chancy than trying to pick winners among the many individual firms:
Large companies with green divisions, such as Dow Chemical Co., DuPont, and General Electric, which have diversified sources of revenue.
And mutual funds targeting the sector. Prominent green funds are Guinness Atkinson Alternative Energy Fund, Winslow Green Growth Fund, and the exchange-traded PowerShares WilderHill Clean Energy Portfolio.

Health Care
Medicare payments to doctors will be roughly unchanged next year, as will payments to skilled-nursing and home-care providers. Medicare payments to hospitals for inpatient care should rise slightly.
Congress has backed away from a planned 10% cut in payments, fearing that it would lead to a mass exodus of doctors from the plan.
But more doctors may still elect not to accept Medicare patients. As their costs climb, physicians see Medicare as a losing proposition.

The public insurer will use peer pressure to trim costs. Medicare officials will mine care data, identify inefficient doctors ... those delivering less bang per treatment buck...and send them comparisons with other doctors’ results. The program will be informational at first, but Medicare may make payments contingent on performance later on. However, a congressional OK to do so isn’t likely for a year or two.

The number of retail health clinics will double by year end to about 700, with this brisk growth continuing for a few more years. These in-store clinics, which provide basic medical services at low cost, are in high demand as consumers bear more of their own health expenses.
Growth is likely to vary by state. Expansion will be slower in states that require more oversight of retail clinics by physicians.