• Positive for Medical Office Space – 32 million new health insurance beneficiaries should drive up the demand for medical office space. Users that previously relied on emergency rooms or free clinics will now have the ability to see medical providers in a traditional health-care setting. This demand will be especially strong in areas where large numbers of currently uninsured people live.
• Positive for Realtors – currently nearly 30% of Realtors do not have health-care insurance mostly due to their status as an independent contractor. Health-care reform will bring them access to insurance products that were not previously available.
• Positive for Medical Property REITs – Real estate investment trusts focused on senior care housing, medical offices and hospitals should benefits for extra demand for medical space.
• Negative for Rental Income – investors in rental properties who are upper-income taxpayers will see an additional 3.8% Medicare tax on investment income including rental income.
• Negative for Real Estate Recovery – this added tax as well as other complexities need to be clarified and assessed before the final economic impact of health-care reform can be measured. To the extent that uncertainty still lingers, many investors will choose to stay on the sidelines further delaying the recovery in real estate.

As the law and the accompanying rules and regulations become finalized the effects on real estate investors will come into focus. And within time the savvy investor will learn how to best benefit from a surging demand in health-care services.

But perhaps today’s report is the final chapter and we can begin the long, slow climb back to creating jobs. However, it may be a while before the unemployment rate drops, and we may even see it rise as those who have stopped looking for work renew their search as the labor market improves.

The official unemployment number that gets reported is the “U-3″ rate. This is the measure of people who are without jobs, who are available to work, and who are actively seeking work. “Actively seeking work” is broadly defined and includes contacting employers, job centers, filling out applications, answering ads, etc. The U-3 reported today dropped from 10.2% to 10% (with improved revisions to the prior month’s numbers).

The more comprehensive measurement for labor underutilization is the U-6 rate. This includes people who have stopped looking for work or who have taken part-time work in the interim, but desire full-time employment (they are classified as “marginally attached workers”). That rate dropped as well from 17.5% to 17.2% – again, a positive sign for the labor market.

But the substantial difference between the 2 rates needs to shrink for there to be real, genuine improvement in the labor market. The official U-3 rate will likely rise or hold steady through the first half of 2010 as more people return to the job market. The discouraged / underemployed workers in the U-6 category will eventually fall into the U-3 category as they restart their job search. But the convergence of the U-6 and U-3 rates down the road will be a true indicator of improvement in the labor market and the economy overall.

By studying 4,300 hands of blackjack played at a Las Vegas casino, they were able to derive a large sampling of data to draw their conclusions. Their findings track with psychologists’ theories about regret. People tend to act more conservatively if there is a chance they will regret their actions. Take two investors for example: one loses money because he failed to sell his shares and another loses money because he sold his shares. Even if the losses are the same, the second investor feels more regret because he took direct action. The other investor can blame forces beyond his control and doesn’t have to take direct responsibility.

Blackjack offers a useful case study because there is an optimal strategy for playing each hand which yields in an overall winning rate of 48%.  In the study, the authors noted two ways bettors could deviate, either through passive actions (staying pat when you should have taken another card) or aggressive actions (taking a hit instead of holding). They found that not only were passive mistakes more common, but they were more costly as well.

The subjects made four times as many passive mistakes as aggressive mistakes. And the passive mistakes cost $2 for every $1 won, while aggressive mistakes cost less – $1.50 for every $1 won.

The study has wider implications about the problem of risk aversion and inertia in businesses as well as among individual investors. Take the recent drop-off in the stock market. “A lot of older people should have seen the risk of volatility earlier and should have rebalanced their portfolio. But they worried that if they sold and market rebounded they would feel more awful than if market just goes down,” study author Bruce Carlin said.

While most of us will never be a high stakes Vegas blackjack player, we all make decisions involving risk – investment decisions, savings plans, expense budgets, etc. Risk vs. inaction decisions are present in all areas of business and life.

Here’s the original study.

Here’s is a quick 10 question quiz from his website the help you understand your ability to recognize influence and persuasion techniques.

Influence Quotient Test

Sample Question:

You are attempting to persuade the Board of Directors of your company that it is in your company’s best interest to implement a costly revision to your back-office functions. You know that the Board is very concerned about costs, so you have also formulated two alternate plans that are less costly and less comprehensive. When it comes time for your presentation, which of the following strategies should you use to obtain the optimal results (the greatest degree of change the Board will support)?

1. Describe the least expensive revision first.
2. Describe the mid-range revision first, and then ask the Chair if s/he would like to hear the alternate plans.
3. Describe the most expensive revision first, then the mid-range, and then the least costly plan.
4. Ask the Chair which plan s/he is most interested in and then describe that plan only.

• 08-1 – Relates to revenue arrangements with multiple deliverables; and,
• 09-3 – Deals with arrangements that include both hardware and software elements.

Since the application of 09-3 will have a significant and dramatic effect on the earnings Apple reports for the iPhone, it has become informally known as the Apple Rule.

Background

Under previous accounting guidance, when devices combine hardware and software, companies have been required to treat the entire sale as software and recognize revenue over the length of time the consumer is expected to use the device. For companies like Apple (iPhone and AppleTV) and Palm (Pre) that means spreading the revenue recognition over 8 quarters even though the cash is received immediately.

Because software frequently consists of many elements – installation, training, maintenance and upgrades – accounting treatment has previously emphasized spreading the income recognition over the estimated time commitment and recognizing the underlying liability on the balance sheet until all the pieces have been delivered. Earlier policies did not allow companies to treat the hardware and software elements separately and therefore the deferral of revenue from the software commitments dictated recognition of the entire transaction.

Sidenote

As an aside, Apple has always treated the iTouch iPod as a hardware only sale, recognizing all revenue at the time of sale. That treatment has required Apple to charge for certain feature upgrades for iTouch users. Typically, major upgrades to the software have come with a $5 fee. Apple’s intent has never been to make money from these upgrades, rather they are to substantiate their prior accounting treatment. Consumers however have not always been so agreeable to such accounting arcana.

Updated Guidance

With the recent ratification of the EITF Issue No. 09-3, companies are now given the latitude to recognize the hardware portion of a device and some software portion upfront. It is up to companies to use their best estimates of the components’ stand-alone sales price in determining how to recognize revenue. This will be up to  a good deal of judgment and interpretation in some cases as often these components are not offered on a individual basis.

Investor Caution

The accounting changes will take effect in 2011, with earlier adoption permitted in 2010. Upon adopting this new reporting methodology, companies will see a sizable boost in reported earnings. Apple has stated that its most recent quarterly revenues would have been 17% higher and earnings 58% higher if revenue were recognized all at once. However, investors should be cautioned that none of these accounting rules change the fundamental cash flows of the transaction.

The new rules should serve to offer greater clarity going forward, but as they are subject to management judgment, investors should be cautious as companies adopt the new rules. Investors need to evaluate whether the new revenue reporting truly reflects the economics of the transaction or are simply management’s  preferred view.

The New York Times

Unfortunately, the number of houses listed for sale may severely understate the actual number of houses owners want to sell. This, in turn, may be creating a far too rosy picture of supply and demand.

Amherst Securities has produced a dire analysis of this “shadow inventory” overhang, which Amherst estimates is a shocking 7 million houses.  (The consensus is only 2-3 million).

Seven million houses represents 1.4-times the number of houses currently sold in the country each year.  As these houses hit the market in future years, they will keep pressure on home prices.  This will likely either lead to further declines in prices or delay the recovery.

The build-up of shadow inventory, according to Amherst, is the result of three factors:

• High “transition” rates. More mortgages that fall behind by 30 and 60 days are progressing through to default.

• Low “cure” rates. Fewer delinquent mortgages than usual are returning to performing loans.

• “Liquidations” of delinquent loans are taking much longer than usual. The banks are taking longer to foreclose and holding foreclosed properties to avoid putting pressure on prices (and thus triggering writedowns).  Mortgage mods are delaying foreclosures.  Many houses are early in the foreclosure process.

As a result, the analysts say a so-far undisclosed glut of homes is about to come to light, and it’s likely to further depress values and sales.

“There’s going to be a flood [of bank-owned homes] listed for sale at some point,” John Burns, a real-estate consultant based in Irvine, California, told the Wall Street Journal recently. He expects prices to decline another 6 percent this year. The analysts at Amherst predicted an 8 percent drop, while a Sept. 11 report by Barclays forecasted a further 13 percent drop, saying the worst of the crash is “decidedly underway,” with increased foreclosures sapping “the strength of the recovery in all but the most optimistic of scenarios.”

Pressure is mounting on CFOs to rethink and adjust their financial strategies in order to ensure that they continue to drive productivity and bottom-line performance. Right now, most companies are implementing cost cutting measures. At the forefront of those measures are Chief Financial Officers who can play a significant role in helping their company achieve substantial and sustainable cost reductions, according to a recent PricewaterhouseCoopers (PwC) report. It states, “Undoubtedly, CFOs should take a leading role in re-positioning the business’s finances.”

The PwC report argues that CFOs  they must re-think their role in the downturn and navigate to a more profitable future? PwC narrows it down to the following five steps:

1. Earn the mandate to lead by demonstrating competence: Leading from a position of strength requires having, or building, a reputation for the finance function as a great service and at low cost. In the current environment, the focus is on information.
2. Develop a plan: Assess the value and the cost of all operational and support activity.
3. Address the short term fixes decisively: Review quickly those costs inherent in the business that can be rapidly addressed without compromising value.
4. Tackle complexity: Long term sustainable cost reduction is achieved by eliminating unnecessary complexity that adds cost but no value.
5. Communicate: Ensure that actions taken are understood, supported and sustainable through effective stakeholder management.

CFO credibility is crucial, says PwC. It is also vital to show some diplomacy while deciding between non-essential and essential activities in order to preserve full shareholder commitment. The report states, “Be aware of the sensitivities, the ’sacred cows’, and deal with them appropriately.”

Throughout this process, CFOs are advised to “Be visible in driving the management of cost in the business.” Finance chiefs must ensure they have the support of top executives.

The PwC report also argues that CFOs must develop a comprehensive cost-reduction plan. CFOs should understand overall business costs, the major cost categories, what is fixed and what is variable and be able to identify opportunities. CFOs must be aware of customer value and strike the right balance between cost and value.

Undoubtedly, CFOs are being more intensely challenged now than ever before. The CFO’s ability to predict the future has become indispensable, but PwC says they must also address the short term: “Acting fast and getting the quick wins can make a big difference to long-term prospects, improving the outlook until longer term initiatives start to deliver. Low-hanging fruit should be identified – and taken.” PwC adds however, that quick wins should be balanced with the potential negative long-term impact on the business morale or culture.

CFOs should ensure that highest-value employees are retained and regularly informed of changes in the structure. An increased level in communication is an essential part of the a change in strategy, and it is “far preferable to overdo it rather than leave messages unsaid,” according to the report.

By having a unique view of the business across its costs, complexity and value drivers, CFOs can take the necessary cost-reduction measures and communicate results to the different parties involved – skills that are critical in the current economic crisis.

While CFOs typically earn 30 to 60% more than controllers (according to Robert Half International), the downside is that there is much higher turnover. A survey of Fortune 1000 companies from 2007 – 2008 reported a nearly 25% turnover rate in the CFO office. In smaller companies the average CFO position turns over every 2 to 3 years.

The key to thriving the in the CFO position is mastering 5 essential skills:

Strategy

It’s not enough for the CFO to simply report the financial results and monitor checks and balances. The CFO must offer strategic insight. The CFO needs a complete understanding of the whole company: operations, sales, IT, HT, etc. With a holistic view of the company, the CFO can then use the resources of the accounting and finance department to identify strategic opportunities to further the goals of the company.

Translation

The CFO must translate the performance measurements of the company into meaningful information for the CEO and other executives. And in turn, the CFO must develop measurements and reporting to help push the company’s strategy down the line.

By being both a critical listener and questioner, the CFO can help hone and execute on the company’s mission by creating timely and meaningful performance feedback.

Facilitation

The reputation for the accounting department is that it is the idea graveyard – the place where good ideas come to die. The CFO must avoid the trap to simply point out flaws and stifle innovation. Even in the face of lacking ideas, the CFO must help departments formulate initiatives consistent with the overall strategic direction of the company.

Pairing accounting and business knowledge, the CFO must create opportunities to improve the company, not just report the financial data. The CFO needs to be a problem solver instead of simply a problem identifier.

Leadership

The CFO is in a unique position to team with the CEO in providing motivation within the company as steward of the company’s assets. The CFO must motivate employees to meet critical deadlines while maintaining high standards of quality. With a number of recent high-profile incidents of corporate fraud, the CFO must establish a high ethical standard for financial reporting and oversight.

To accomplish these leadership objectives, the CFO will be called on to use interpersonal skills that may not have been critical in previous tax, audit and controllership positions. These communication skills are critical to the CFO’s success in leading and motivating.

The transition from controller to CFO is challenging. By recognizing the need to add these additional skills to his/her arsenal, the rising CFO can become a critical member of a company’s executive team – providing strategic leadership beyond simply reporting the numbers.

Option-ARMs are among the riskiest loans offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These “underwater” mortgages have been a driving force behind rising defaults and mounting foreclosures.

Unlike conventional ARMs, these mortgages offer an option to pay only the interest each month or a low minimum payment that leads to an increase in the loan’s principal.

When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan’s interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level.

Upon reset, payments can increase by 5 – 10 times as much.

Conventional wisdom held that most of these loans would be modified along the way to defuse the time bomb. However recent research paints a very dire picture. A Fitch Report issued in August indicated that only 3.5% of the 1 million loans have been modified. And more alarming, during the term of the loan 94% of borrowers elected to go with the minimum payment option. Thereby virtually guaranteeing that today they are underwater.

Adding more fuel to the fire is that fact that Option ARMs were often combined with second mortgages to create 80/20 or 80/10/10 loans. Recent estimates in California and the Southwest indicate that what was originally a 70% Loan-to-value loan is now at 126%.

Banks are quietly denying this massive exposure while trying to stall, delay and bargain with Washington in the hopes of taxpayer funded relief.

Fitch Ratings press release here.