Everyone knows that the government fudges its inflation statistics.

The benefit is clear: the government understates inflation and is able to keep social security, Medicare and other inflation sensitive costs down. It also can then claim that its clearly inflationary policies are not resulting in inflation.

But, as with everything else the government does, the unintended consequences of their inflation fudging are beginning to show up.

JP Morgan (NYSE:JPM) turned in a very solid second quarter earnings report this morning. Revenue was $2 billion better than expected, at $27.4 billion. And earnings were $0.06 better than expected, at $1.27 a share. This was the 11th consecutive quarter that JP Morgan has beaten.

You'd think analysts would be able to adjust their estimates to account for the consistent out-performance at JP Morgan. And truth be told, they probably are.

But there are so many little things the company can do to get its quarterly numbers that analysts have little chance of nailing it.

In a speech at George Washington University today, President Obama outlined his proposal to cut the federal deficit by $4 trillion in the next 12 years.

And with $65 trillion in current unfunded liabilities for Medicare, Medicaid and Social Security, it should be no surprise that cuts to these programs are in the works.

Medicare and Medicaid spending alone amount to $12,000 a year per recipient right now. At the current rate, that amount will balloon to $44,000 a year by 2040.

Indeed, according to a study done by Mary Meeker from Kleiner Perkins Caulfield & Byers, the Congressional Budget Office reports that if nothing is done about entitlement and debt, "...entitlement and net interest payments combined will equal all federal revenue by 2025, just 14 years from now."

There are literally trillions of reasons to be bullish on gold - but I recently received a letter from the Social Security Administration (SSA) that further cemented my belief in the uptrend for gold (and silver).

In a letter titled "Your Social Security Statement" the Commissioner of Social Security Michael J. Astrue wrote:

"...by 2037, the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations."

I've done the calculations, and I now pay about 7% of my income in FICA taxes, an amount I realize also includes Medicare - which is of course, matched by my employer. So, that's 14% of my potential income gone. It's more than I currently save for my own retirement.

It doesn’t take a CAT scan to figure out the U.S. health-care system is sick. Companies such as LHC Group Inc. (Nasdaq:LHCG) might be the prescription to help make it better.

Anyone who’s trekked off to the hospital for treatment knows that patients are going to be quickly whisked out the door afterwards. Home-health care demand is rising to a fever pitch, especially since more than 37 million Americans are aged 65 or older, and perhaps 10% need health-related assistance. That’s where LHC Group, a 14-year-old company in Lafayette, La., comes into play.

The home-health industry is highly fragmented, with many of the services coming from small, privately run operations — which account for roughly 90% of the business. Public companies like LHC Group and its competitors can shave costs from follow-up treatment after hospitalization for acute conditions — and better deal with insurance paperwork.

The Bayou Country base of operations should provide a hint to LHC Group’s niche: it focuses on rural-area geriatric care. LHC operates in 13 states, mostly in the South, and has 198 service locations (doubling since 2005). The 4,500 employees visit more than 60,000 patients annually.

LHC Group estimates its in-home care costs at $50 daily, compared to several hundred dollars in a nursing home or thousands during a hospital stay. With an aging population, Medicare enrollment is expected to double around 2030, from 42.5 million in 2005...

Health-care service provider Sun Healthcare Group, Inc. (Nasdaq: SUNH) was upgraded today by UBS on account of an expected strong fourth quarter propelled by an increase in Medicare rates and an increase in the number of short-stay rehabilitation units taking higher-acuity patients.

According to UBS analyst Donald Hooker, beginning October 1, the company’s Medicare rate will narrow to 70.2% from 75.8% due to a “reduction in the labor portion of the market basket.” Hooker says the reduction could lead to a positive 30 or 40 basis point comparison in the company’s Medicare rate.

“Notably, this “labor bump” could help partially offset any possible shaving of the 2008 market basket increase,” Hooker wrote in a research note today. “As such, Sun’s 4Q results will benefit from a full market basket starting on October 1.”

Hooker also noted that synergies from Sun’s acquisition of Harborside Healthcare Corp. should create approximately a $3 million year-over-year favorable comparison in the fourth quarter.

Sun acquired Harborside, which provides nursing and long-term care, for $350 million in cash in October 2006.

Hooker said he expects management will raise guidance ahead of a strong fourth quarter. Hooker has a target price of $18 per share. The company currently trades at a forward P/E of 19.1.

Shares of Sun Healthcare (Nasdaq: SUNH) climbed $0.71, or 4.78%, to $15.55 in late morning trading Monday.

According to the American Cancer Society, one in three Americans will develop some form of cancer in their lifetime.

Radiation Therapy Services Inc. (Nasdaq: RTSX) is a national operator of radiation therapy centers with 1,240 employees that has treated cancer patients for 24 years. With 80 locations in 16 states (many under the name of 21st Century Oncology), the company's facilities provide treatments to some 1,600 patients daily, offering them a broad spectrum of conventional and alternative radiation therapy services. Radiation Therapy Services also runs the Radiation Therapy School for Radiation Technology, a training center for oncology radiation therapists in Cape Coral, Florida.

The company has been profitable for ten years running, showing 30% annual earnings growth over the past five years. However, last month Wachovia Securities downgraded the stock to “market perform” from “outperform” amid fears that Medicaid may lower reimbursement rates on procedures that are performed at its clinics. (The company had been rated a “buy” since December 2006.)
 
Wachovia analyst William Bonello said he believes Radiation Therapy Services shares will trade in $29 to $32 range over the next 12 months, with potential to rise into the mid-to-high 30s if Medicare reimbursement concerns are exaggerated. (Medicare's current assumption for radiation therapy equipment is 50%, but some estimates put a new proposed assumption high as 70%.) According to Bonello, each percentage point increase in the assumption rate would negatively impact earnings by $0.03 per share.