Professor Elam

Accounting & Investing Info for San Antonio A & M

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  • Professor Elam

    CAT to cut 10,000 Jobs

    Friday Sept 25, 2015

    CAT shares dropped 7% Thursday.  Year to date the stock is down 25%. 2015 will be the third straight year os sales declines. CAT has been a bellwether for the world economy. As this article says CAT equipment is big and expensive. Purchases are always made as a result of exuberant social mood (my take). Or as CAT put it

    n Thursday, the industrial giant announced plans for it to cut as many as 10,000 jobs as part of a restructuring plan in the face of what it called "a convergence of challenging marketplace conditions in key regions and industry sectors — namely in mining and energy."

  • Professor Elam

    Time Management Seminar

     

     

    The Student Academic Success Center and Jaguar Tutoring are hosting a Time Management session for all A&M-SA students.  We will have sessions at both the Brooks City-Base campus and Main campus.

     

    • Brooks City-Base, Tutoring      Center, room 104:  Wednesday, October 14 at 4 PM
    • Main Campus, Tutoring Center,      CAB room 208: Wednesday, October 14 at 10 AM

  • Professor Elam

    VW Customers, the Next Stakeholder Group Affected

    Thursday Sept 24, 2015

    VW Customers are now feeling buyer's remorse. VW happily announced their new fuel diesels wold get 44 mpg and meet emissions regs.Now it appears that was not the case. 

    VW's 650 American dealers have only sold 238,000 vehicles through August. 20% of those were diesels. No one knows if a download software fix will solve the problem or whether it will take a two thousand dollar mechanical repair. And of course re sale value of the cars has fallen 20% since this happened. 

    Now let's address the obvious question, whey did VW do it?  Never mind whether the CEO knew or did not know another subject for ethical consideration.l Well as this WSJ editorial explains, the company was struggling to meet conflicting objectives.

    Engines tuned to produce more torque, the quality of a diesel, and less carbon, also produce more nitrous oxides. So either way you go there is a problem. I suspect VW did this as meeting both goals was just not possible. 

    Which brings us to the role of unrealistic regulations, a hallmark of this administration. As the WSJ puts it, is this the well known regulatory trade off that is being harshly punished for the first time?

    My 2009 Chevy Cobalt SS is equipped with the now industry standard 2.0  liter 250 bhp, 260 ft lb of torque output thanks to direct fuel injection and turbo charging. Nearly every auto maker has gone to this formula to meet emissions and power output standards. I mean even the larger Jaguar sedans have such an engine. 

    And in real world driving down 281 to school the engine consistently delivers 25 mpg on 89 octane. I'd say that is quite an accomplishment. The real climate problem is in China and India where citizens routinely wear masks due to heavy pollution. Setting an unrealistic 55 mpg requirement will only result in more companies resulting in cheating like this.

    Wake Up America!

    Earl Pitts

     

  • Professor Elam

    VW CEO Steps Down

    Wed Sept 23, 2015

    As reported here it did not look god for the VW CEO,

    he quit leaving his mess for he next CEO to clearn up.

    This was bound to happen but would not justice be better served if he had to fix what went wrong?

     

    9/23 VW CEO Winterkorn resigns.   Now read his comments

    In a statement issued by the company Winterkorn said he was "shocked by the events of the past few days."

    "Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group."

    So he has chosen to go with the tory that he did not know. As I said in a previous post this really does not look any better than knowing and denying, in this instance he is saying he is either not close enough to know what is going on day to day or he failed to establish a culture of ethics that would prevent such behavior, either way he is out.

    But is that justice?  Now someone else has to clean up his mess. What do you think.

    His statement recalls this famous scene from Casablanca.

     

  • Professor Elam

    Memories of the CPA Exam

    Wed Sept  23, 2015

    Hre is an article with CPAs remembering their onw personal Exam Experience.

    This reminds me that I need to do the same  but with a lot more detail, a few thousand words would be about right

    SmartQuote
                 

       

     

       

    		    

    Empty pockets     never held anyone back. Only empty heads and empty hearts can do     that."

       

    — Norman Vincent Peale,
        minister and author

       

    Share: 

       

  • Professor Elam

    WFT Cancels Share and Bond Offering

    Sept 23, 2015

    Note We are studying equity and share based compensation in ACCT 3304. There is a lot to learn in this article on the difficulty or raising capital in a down market. 

    Be sure to read the article on page B 3 in today's WSJ. Weatherford WFT had announced plans to raise $1 billion in cash with a combo of shares and convertible bonds.  WFT shares fell 17% to $8.41 causing the company to cancel the offering 14 hours after it was announced.  Yahoo Finance puts book value of WFT at $7.91. 

    Capitulation occurs as prices fall and fall resulting  in incidents like this where companies can no longer raise capital. The only choice is to put themselves up for sale or merge to stay in business. I don't think that is the case for WFT but I expect the stock price to dip below book value before this is all done. 

    WFT waited to long. Earlier this year Whiting Petroleum, a North Dakota play, raised $1.05 billion with stock at $30. today it trades for $18. 

    WE continue to look for some sort of long term bottom at year end or in the start of 2016. 

    Here are the terms of the offering though no interest rate is state for the notes.

  • Professor Elam

    Oil Priced in Gold Nearing a Bottom

    Wed Sept 23, 2015

    Again there are three stages of a bear market, denial, acceptance, and capitulation. Yesterday in intermediate accounting one student asked if, and I quote, if there was any hope for energy companies. Now that is a perfect example of social mood approaching capitulation, i.e., give up. At that point investors toss otherwise valuable shares of companies overboard swearing to never be involved again. 

    As Tom McClellan points out in his latest report, it is helpful to examine oil priced in something other than dollars. Or as our friends at Elliott Wave would say, real money like gold. This chart does just that.

    Crude Oil Priced in Ounces of Gold

    Screen Shot 2015-09-23 at 5.54.05 AM

    This ratio chart divides the price of oil by the price of gold. If one then multiplies the right hand scale by 100, we have the number of ounces of gold required to buy 100 barrels of oil. 

    .04 x 100 = 4 ounces of gold, the left side would be likewise multiplied, instead of one barrel, oil is priced in barrels, we have one hundred barrels. 

    To make the point I put the price of XOM Exxon Mobil on the bottom panel. 

    The investing point is that the ratio chart has already reached a third important milestone since 1999. In 1999 oil fell to $12. And that was the time to buy XOM just over $20. The weakness in the stock market and continued over supply of oil along with bankruptcies and take overs in the oil  patch will not doubt drive energy shares lower. As noted, many service companies are already below book value. 

    But the ratio chart strongly suggests the alert investor should be on guard for a final  low in the oil price. 

    Overall stock market weakness here may not translate into energy share gains but one might certainly benefit from an investment in USO which tracks the oil price. This ratio chart lines up with our expected low in commodity prices at year end. 

  • Professor Elam

    Emissions Crisis at VW Deeepens

    Tuesday Sept 22, 2015

    Yesterday we reported on VW admits to rigging emissions tests. Now South Korea and France are conducting their own investigations. A theme of any ethics class is that the tone is set at the top. Either th CEO did not know or chose to ignore an obvious violation of the rules. 

    Again this is coming at a time when VW is making a push to expand its brand in the US. A new dealership just opened in the Dominion. Looks like a long slog world wide from here. 

  • Professor Elam

    VW Admits Rigging Emissions Tests, GM Admits Guilt

    Monday Sept 21, 2015

    VVW stock drops 18% the day it admitted rigging US emissions tests.

    This is classic corporate bad behavior, knowingly and intentionally breaking the rules. Did they really think they would not be caught?

    GM agrees to pay $900 M fine over ignition switch disaster. the GM culture of never too cheap has gotten really expensive. 

    Blue Bell recalls products over listeria outbreak.

  • Professor Elam

    Honda’s 2 Minute Warning

    Weekend Sept 20 2015

    Here is a land mark ad from Honda.

    Now if they would just embrace turbo chargers they would have a real company.