Accounting & Investing Info for San Antonio A & M
Monday Aug 22, 2011
A Vice President at Moody's, the rating service, has issued his own statement. He is saying what we all know, that the rating agency is actually a captive of the very companies they are supposed to rate.
This is similar to the conflict of interest that accounting firms have, hired by a client to issue an opinion on the firm.
Read this link, we will discuss the ethical implications in class.
Sunday August 21, 2011
Dieter Rams has been designing for over fifty years now. He notes that only about 10 CEOs take design seriously, the best example being Apple.
Apple has that sense of minimal aesthetics except everything they do is maximal.
I believe that an MBA Program infused with a Design emphasis would be a hit, the Southwest School of Art and Design would be a great partner for such a venture. Your take?
Thursday August 18, 2011
Two stars of yesterday meet again. Yes Merrill, once a lead underwriter and now the ward of the Walking Wounded Bank of America, holds the mortgage on, yes, Burt Reynolds home. Burt took out a mortgage on the house in 1993 after divorcing Loni Anderson. No doubt he thought he would make enough money to pay back the proceeds. No doubt Merrill thought he would as well. Funny thing, they both have needed bailouts.
It didn't have to be this way.
While this story may not mean much to our younger students, older readers will recall that Burt once ran neck and neck with the likes of, yes Clint Eastwood. I recall reading an article comparing then stars Burt Reynolds, Clint Eastwood, and older Charles Bronson. What happened?
Bronson simply settled for doing serials of the street avenger he first played in Death Wish. But he was at least a big supporting star in the 1960s in Dirty Dozen and Once Upon a Time in the West. But settling for remake after remake of the same story suggested he was not interested or the studios had typecast him.
Reynolds however achieved stardom equal to Clint, they even co-starred in a thoroughly forgettable movie together. Burt had a fling with Dinah Shore, then Sally Field (which never made sense to me), and finally blonde bombshell Loni Anderson. Burt snagged the lead in the popular tv series Evening Shade. He even had a actor's studio in Florida, a stretch given his role in films like Gator and SMokey.
Clint has been married four times and fathered seven children. But Burt seemingly blew up after the divorce from Loni and lost the tv series. Unlike Clint, he had not solidified himself as a director producer with acting as a sort of second life. And so he has appeared in tv series and B movies since. Perhaps he peaked, in retrospect, when he posed pretty much in the all together for Cosmopolitan in the 1970s.
Clint made sure that despite remakes like Dirty Harry, he had control of his career, and his films made the studios lots of money. Every Which Way was the second biggest grossing film for Universal after Jaws at that time!
The bottom line, get control of your career, focus long term, otherwise you and also rans like Merrill might end up as uncomfortable bed fellows.
Thursday August 18, 2011
Professor Sam Rock (psychology) and I did a paper entitled Peak College for the recent Southwest Teaching and Learning Conference held here. We suggested that Higher Education like sub prime mortgages were supported by lots of easy loans perpetuating an industry (colleges) that encouraged more lending and accordingly was free to raise costs. Indeed tuition inflation has outpaced any other inflation.
Now our friends at The Socionomist have a similar study suggesting Higher Ed is a bubble.
Historically a financial bubble is a mania supported by the belief there will no end to the value of the object being chased. Examples include the Tulipmania of 16736, stocks in 1929, the dot.com stocks of 1999-2000, sub prime housing of 2007-08, and silver in 1980. As we suggested what really makes the Higher Ed bubble interesting is that there is literally no collateral. No matter what one says, at least a sub prime mortgage usually involved some shack and the real estate under it, somewhere. But in the case of a college degree, the collateral, the degree, is completely intangible. So, no collateral to seize. The collateral instead becomes the grad's future wages which can be seized.
Now even Susan Combs, The Texas Comptroller is jumping on the Higher Ed Bubble Bandwagon.
She has chosen to quote a Univ of Tennessee professor rather than ourselves but the case gets more and more clear. At some point the cost of the education is simply not supported by the future benefits.
Already there are blogs about the dubious value of yes law school education. Private for profits have a 43% default rate on their student loans. This week I sat next to a Professor from Trinity at a forum. She said two semesters at Trinity cost about $35,000 for a graduate degree. How high is up, is the Beanstalk of Higher Ed topped out?
Friday August 12. 2011
We study accounting to use it as an analytic tool. This allows evaluation of companies including our own.
Groupon is the new start up that offers one time coupons to sample a service or product. It is planning an Initial Public Offering. The only problem, it loses even more money the bigger it gets!
The dot.coms never made money either, yet investors bought them. This will be a good example to begin our accounting classes this fall.
Wed Aug 10 2011
Aston Martin has long been a maker of high end grand touring automobiles. The Vantage V 8, the VIrage V 12 and now
yep, the Cygnet 1.3 Liter Four banger.
In an effort to keep the overall fuel CAFE standard down, Aston martin is now building the Cygnet. This 78 cubic inch dynamo is essentially a Toyota product assembled under the Aston name with a spiffy leather interior. No doubt existing Aston owners will purchase the first of 4,000 planned for sale in England. And it makes sense as a city car.
Oh, yes, 30,000 Euros, a bit more than a comparable Fiat 500 but then exclusivity has its price….
The British experts on the Top Gear tv show made fun of the idea. Frankly I think it's pretty innovative by letting Aston continue to build fuel thirsty performers for their Mid East customers while keeping the overall CAFE number down.
Friday Aug 5 2011
$85 Oil
Now we have another ominous sell signal. I take these very seriously; everyone in Andrews should do likewise.
One on One, Andrews County News, July 28, 2011
That was our lead in comment last week. We went on to postulate a potential scenario of a world-wide meltdown in stock and commodity prices. Now one week later that scenario is already coming true. For those of you just joining us, we noted that a monthly sell signal in our timing model occurred in crude oil. This is exactly how the world-wide melt down in the markets began in the summer of 2008. We have been warning of such a top for several weeks in this space. We hope that those of you in the energy service business have taken note, raised cash, and paid off debt. We also noted the anecdotal signs of frantic activity all over Andrews from fancy pickups to folks living in motel rooms. So, let’s look at both the fundamental and technical side of what has happened in the last week.
As I write Friday morning August 5, crude has fallen to $85. Oil Market Fundamentals News sources around the world are broadcasting photos of Egypt’s Mubarak in his 'cage' on a gurney with cancer (we are told) on trial for his life. It is a sure bet the meaning of this photo is not lost on other Arab leaders. The only possible result is that either the current leaders will pump more oil to create programs to calm the protesting masses or those that replace the current leaders will do the same thing. Either way there can only be more oil produced in the face of falling demand. Unemployment is on the rise and people are driving less. Oil prices and demand for oil is falling as Manufacturing and Purchasing Manager Indices fall around the world. Real estate prices world-wide are floating on the sea of speculative money still sloshing around from government stimulus schemes.
The next marker to fall will be commercial and residential real estate, particularly in over heated commodity based economies like Australia and Canada. By the way, even in conservative San Antonio, the downtown office vacancy rate is 28%! Already cotton, coffee, and now crude oil prices are falling.
The next phase of the bear market, which is likely to last into 2013 will destroy the remaining existing pollyana assumptions about positive stock market returns. This will put existing pension and teacher retirement plans even further under water. All defined benefit plans make an assumption about annual returns from their investments. If the investments come up short, the provider is supposed to add to the plan to make up the difference. But, few to no providers do this! The only possible result will be to roll back existing retirement ages as well as promised benefits. More people will just continue working. This will mean fewer openings for those coming into the work force. This is ALREADY happening which is why so many college grads are moving back home. Hence the unemployment levels will continue to rise with less take home pay and therefore fewer purchases of hard goods like washing machines and automobiles.
The European reality is that it is not merely the small countries but the too big to fails like Spain and Italy that have too much debt. The Italy ETF which is EWI has lost one third of its value since May 1. This will eventually weaken the Euro resulting in demand for the US Dollar. The Dollar rallied 1.5% Thursday. Since oil prices are denominated in dollars, a stronger dollar is likely to further dampen oil prices. Patterson hit $35 in 2008; that has been our warning signal. Patterson PTEN made it to $34 and has fallen 19% in just five days. In the energy service industry, cut backs are on the way. And, the apparent salvation of the industry, natural gas, has dropped 20% since the first week of June to less than $4 an mcf. Price drops will make it difficult to support the expensive fracturing and related services that have been driving the shale gas boom.
Will gold and silver be the last refuge of safety? Yesterday GDX a bell weather gold mining holding company dropped 5.57%. Mining stocks have stubbornly refused to confirm the run up in the price of gold. So far gold is the last commodity refuge of speculators. Crude has fallen $30 or 26% from its high of $115. Yes it is oversold but trying to catch the proverbial falling knife or predict a near term price support level in a panic is a fool’s game. But frankly the absolute price level will not be driving the activity level in the Permian Basin. Expectations drive activity levels. And now the expectations, have dramatically changed from $145 oil to how low might it go.
So, once again, as was the case in 2008, we prepared you for what has happened. We hope that all in the energy service (including the bankers…) industry have taken precautionary, defensive steps to protect their business.
Tues Aug 2, 2011
I don't know what interest rate this presentation assumes but when interest costs finally rise, that cost will consume the federal budget.
Tues Aug 2, 2011
A large percentage of high end cars are leased.
This explains why we see so many, and my earlier post about Porsche 'selling' 10,000 cars a year, about half are sold to lease car companies. This is all one big be on whether the temporary owner can flip the car to someone else before the value drops.
Of as Dad observed to me once, all I know about leasing is that it's for people that don't have any money.
Well put Dad.
Monday Aug 1, 2011
By the mid 1990s Porsche imports to the US had slowed to a trickle. Only a few thousand cars were imported. But Porsche re made itself studying Japanese manufacturing techniques. And it expanded the line to include an SUV and a four door.
Now Porsche is the most profitable car maker in the world with a 20% return on sales. They sold an astounding (for a former small niche car maker) 100,000 autos this past year. Targeting upscale markets was a big part of the success. Achieving high levels of reliability was another part of the puzzle.
Professor Elam 