Professor Elam

Saturday Oct 16, 2010

I have begun posting my thoughts on the markets in the companion blog, 

the link is at the top of this blog, just click to go there. No doubt most of you are just now learning about markets. Frankly such analysis is not studied at colleges and universities, most professors prefer fundamental, read near useless, research. But I predict the next two years will bring startling consequences to your life. Your assumptions of that assured job after graduation will certainly be challenged. I suspect we will see an accelerated trend towards employer testing of new hires, for the very few that are hired. This is the reason for my suggesting that you focus on attaining a certification now, and have it in hand by graduation. 

I realize that many of you are disappointed in your scores thus far. Frankly most of that is not your fault, you are a product of a testing system that has handily provided test answers or near answers since you were in the ninth grade. And so it is understandable that most believe they do not need to read a textbook as you never have, and after all, it got you this far. 

My efforts top put more on line via the electronic tablet were not in my opinion, of a high enough level of assistance to merit posting. I am still casting about for a better video platform. However one thing was clear to me while watching the graduate students demonstrate problems in cost class last week. 

It is absolutely necessary to have read and attempted the problems before coming to class. Otherwise you are walking into the movie thirty minutes into the plot, you have no idea what is going on. Success requires reading the chapter for content, outlining the learning objectives, watching any available power points, attempting the multiple choice quizzes on line and in the text, and then the homework. then come watch me try it. So far only about 15% of each class is using this method, and the grades reflect it. 

Now for a practical application of cost managerial, financial accounting, and socionomics. 

Now, another thing I hope you learn from my class, is to observe what is going on . If you read the markets blog I make a strong case that the financial markets are topping now. This is happening amid a new found era of better feelings, Now let's look at the newspaper. 

Chris Pappas of Pappas Brothers restaurant fame has struggled with LUB since buying it in 2001, it was a near bankrupt then. This past year 24 stores were closed. Now Chris announces that after 2.5 years of negative sales, Luby's has stabilized. No Chris, what happened is that LUB is experiencing the top of the Wave 2 rebound from the March 9, 2009 stock market low. People now feel confident enough about the future to spend ten bucks for lunch. The only winners in the lunch game have been the one dollar deals at MCD. 

So what to do, well, now the Brothers have purchased Fuddruckers, the guild your own burger chain which started right here behind the office of San Antonio CPAs as a matter of fact. While it is one of the ten largest casual fast food chains (gee now what category was that?) it too was or is in bankruptcy but available for a mere $63M. 

Earth to Chris, hmm, what's the fat content on that plate, cheeseburger, giant french fries, not a Michelle Obama approved lunch. Just today in the same paper is an article that obesity is causing 17% of all medical problems. Now it is true that in downturns people are less interested in physical fitness, they are also less interested in $10 lunches. 

Warren Buffet never likes turnarounds. Luby's has doubled down after one near bankrupt to try the same thing again but at the top of a stock market recovery, a poor timing decision indeed. 

It is easy to see Chris thought process here. Even a year after the stock market lows of March 2009. LUB was still scraping bottom near 3.25, yikes. Now the summer rally has lifted all boats and stocks, but LUB failed to register a new high for the year, even though the stock market did. This is a classic negative confirmation that the market does not like what it sees. It has not rallied the entire summer but gone sideways as the overall market did rally. For comparison I put McDonalds MCD at top, see how it went to a new high, see how LUB did not, this is what we mean by a negative divergence, investors refuse to bid LUB higher. We suspect LUB will see 3.25 before it sees $6.  LUB trades  at .88 of book value and is still losing money. Good luck guys.