Professor Elam

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Saturday Review for Intermediate Classes

February 3, 2011

Thursday Feb 3, 2010

All, this Sunday is the Super Bowl so that is out. There fore the Help Desk has assigned us the following room

Translation, this is Room 3 in the Annex at 1450 Gillette Blvd, the main campus for now.

Yes we begin at 9 AM, you can do this and it will give you more time later this weekend. Please bring questions on what you do not understand. I cannot guess what you do not know.

topics will include

adjusting entries

closing entries

accting principles

time value of money for intermed II but we will be covering in intermed I

depreciation, again we will be covering it eventually in intermed I anyway

see you saturday morning

Dennis Elam

When:

Saturday, February 05, 2011 9:00 AM-12:00 PM.

Location:

SCCA Rm 3

When: Saturday, February 05, 2011 9:00 AM-12:00 PM (GMT-06:00) Central Time (US & Canada).

Where: SCCA Rm 3

Thi

Professor Elam

On the Road to, uh, West Texas?

February 2, 2011

Wed February 2, 2011

Tx A & M SA has sponsored a trip to Romania, trips to Ireland and I understand Argentina are also scheduled.

Well how about a cheapr alternative to another foreign land, yep, the land of the High Sky, the land of black gold, Texas Tea, yep, West Texas! Most folks in Central Texas have never been west of say Fredricksburg, actually believing the earth is flat and they will drive off the edge, but really, there is as the saying goes, a whole 'nother country out there.

What would we see and do, glad you asked.

Now honestly do you know anything about an oil field, Well a stop at the Permian Basin Petroleum Museum will improve you knowledge of the this business quite a bit. The museum has a donated oil rig but I suspect we could get a visit to a real operating rig, up close and personal.

The price of oil is up and things are booming again. We would also visit some oil service businesses to learn how that services oil production.

All of the Jim Hall Chapparal race cars, which are still being emulated to this day, are now on display at the museum. These rear engined, cars unitlizing ground huggin techniques like this wing and later fans to suck the air from under the car won lots of races.

I am sure we could arrange a meeting with both the Midland Economic Development

and Odessa Economic Development Boards. You will find West Texas communities quite aggressive in attracting new business.

Check back for more on this idea, I will be adding additional information.

Yes there are things to see and do in West Texas. Midland snagged the Commerative Air Force which was located in the Texas Valley region. Midland outbid Kelly here in San Antonio by simply handing the CAF a check for $5 million. In San Antonio the CAF would have been under the thumb of the the Kelly Command, the CAF is an independent bunch and was not interested in being under any other command.

$5 M was well employed to build a WW II type replica of an airfield right at the Midland Airport. Oddly I could not find a photo of the air terminal but here is a partial shot of the October Annual Arisho. No doubt you have been to other Air Shows but until you have seen this one, well, you haven't seen an air show. It is truly a world wide event.

The big story is how anxious the area is to attract companies that would diversify the area. The other big story is how the boom bust economy of the oil field, driven by the ups and downs of oil prices can create near instant wealth. The real economy is the oil service economy.

So you say you are into clean energy?

Sumiotomo bought into the Stanton, TX Wind Farm. Silly me I assumed there would be plenty of photos of it, believe me this is not it, there is not that much grass in all of West Texas. But there is a size wind farm in Stanton, Texas between Big Spring and Midland, now you know where it is, right?

And then there is the Yellow Rose Ostrich Ranch, another relic of the Ostrich Emu Mania in the post 1980s oil boom bust.

No trip would be complete without a stop at Dos Amigos cantina.

http://dosamigoscantina.com

This started out as a converted horse stable, the new owner encouraged folks that had left over building material to drop it off at the site, and so began the hodge podge collection of buildings that is the quirky atmosphere of just right country music, Tex Mex cooking, and occasional bull rides. I suspect this concept would be a smashing success on the south side of San Antonio, consider this a fact finding trip in the area of leisure interests.

Now honestly have you ever been on the floor of an operating oil rig, drilling for Black Gold? Just as I thought, well get your hard hat and come along, it is an experience you won't forget!

When asked if there was a need for a university in West Texas, one Odessan testified ( I am not making this up) in Austin, Senator, there is enough ignorance for two universities in the Permian Basin. Well jokes aside, UTPB began as Texas A & M SA is beginning, an upper level institution with students coming from community colleges. Today it has about the same enrollment as we do, over 3,000. So a stop there might be interesting, The Chair of the Acct Dept is a friend of mine.

Well I know you are bowled over by all this, Texas two steppin' ostriches, JR Ewing type oil booms, wind farms, and I haven't even hardly mentioned Midland, yet, the biggest, richest small town in Texas.

http://www.visitmidlandtexas.com/

and its blue collar cousin, odessa

Did I mention this is the original genuine Friday Night Lights Town

http://www.odessacvb.com/

And of course there will be the opportunity to see the famous Odessa Big Bunny, wait no, how did she get in here, not THAT kind of Bunny…

I mean the famous Odessa, TX ten foot jackrabbit on the left….

Now in all seriousness, I am sure that the cachet and allure of trans Atlantic trips outweighs what you are thinking about West Texas. But they do speak English, well after a fashion, you won't need a passport, it will be considerably less expensive, and it will be a foreign country in that most of you have never been there. And if you get a great start up business idea, they will be glad to talk with you about it. You will observe a community anxious to attract new business with generous offers of real estate and labor. You might get a new idea for something that would work in San Antonio. You will definitely meet some friendly people though I cannot guarantee friendly ostriches….Mario is right in his post below, it is quite a contrast to cities like Abilene and San Angelo, though I do have a soft spot for the San Angelo.

Anyone else interrested?

Did I mention there is an exact replica of the Shakespeare Globe Theater….
Professor Elam

Medical Students Engage in Reflection

February 1, 2011

Tuesday February 1, 2011

Medical student are increasingly asked to write and reflect. Should that be a requirement of accounting students as well?

You should be accumulating your written papers as a reflection of your thoughts and judgements as you complete college. You will then have a written record of what you think, and how well! Far too often students regard a paper as just another assignment, teachers routinely get the question, how long should it be.

It took Michaelangelo from 1508 to 1512 to paint the ceiling of the Sistine Chapel, and it had to do it laying on his back. But today it is one of the premier paintings in the entire world.

We are not asking for that sort of time commitment, indeed the ability to quickly express complete thoughts in writing in business is quite desirable.

The point being, when you finish a written assignment, will anyone want to read it? My definition of good writing is just that; readers will ask for more.
Professor Elam

What is the Threshold for Materiality?

February 1, 2011

Tuesday February 1 2011

I posed the question in class, what is a material number if you are auditing Valero? Click there to see the last three year income statements for VLO. Note that in 2008 Gross Revenue from all sources was $119 Billion!

I asked you if one million would be a material number for that audit. Hmm, ten percent of gross would be okay let's round gross to 120 B so ten percent is 12 B and one percent is 1.2 billion. Gee still a big number. One tenth of one percent would be 120 million. 1.2 million would be one one hundredth of one percent. Hmm is that material?

See what I mean. Sure one million bucks in your bank account is material but maybe not for a company the size of VLO. And, these decisions need to be made before not during or worse, after the audit.
Professor Elam

CPS Job Shadowing Opportunity

January 31, 2011

Monday Jan 31 2011

Once again, CPS Energy is opening its doors to our students for a one day Job Shadowing event. Right now the tentative date is set for late February or early March.

Depending on student interest, the date will be set.

Please note that CPS requires 2 weeks to conduct a background check. It is first come, first served and we anticipate 10 open spots for students.

Accounting, Marketing, Finance, CIS, Management and MBA students only. I would like to get a good variety of students as we did last fall.

Remember, a 3.0 GPA is required. Please refer students to my office or have them email me about meeting times.

Pass along the information to any and all qualified students.

Thanks.

Bennett Grey

Career Advisor

Student Engagement and Success

Texas A & M University-San Antonio

1450 Gillette Blvd.

San Antonio, Texas 78224

210-932-6287

210-932-6230

bennett.grey@tamusa.tamus.edu
Professor Elam

Finance Chiefs Expand Role

January 31, 2011

Jan 31 2011 Monday

In this era of maxuimizing the return for every dollar spent, CFOs are playing a greater role.

Forecsting is now centered more on scenario plannig. "There is a distinct need today for strategic CFOs because of the uncertainty of the economy.'

And so CFOs are meetings with all depts to better focus on the budget, how the money is spent.
Professor Elam

TQM at Chrysler

January 31, 2011

Monday Jan 31, 2011

My friend who writes the car column for the Dallas Morning News commented that he sat in on a me

-eting with Sergio Marchionne, the head of FIAT. The writer commented that Marchionne was the most informed auto exec he had ever met.

This attention to detail as well as being a real 'car guy' incontrast to what we see at GM, Mullaly at Ford came from brom Boeing, hmm I wonder if he can fly a plane?, Marchionne's attention to a door handle is in contrast to what I read about Many CEOs who focus only on financial results. I don't know if this link works, but give it a try. As he says, ifyou want ot run a business you need to get involved at this level.

In Detroit he offices with the engineers rather than in the former plush office removed from the day to day action.

The article mentions his obsession with detail. I have often thought that doing things well is doing fifty small things correctly. by contrast, doing things poorly is the sum of doing fifty small things wrong.

And he is making provisions for paying back the government loan. I have been skeptical of Chrysler, but I also read that Angus McKenzie at Motor Trend had a favorable meeting with the management now on board. Maybe FIAT will make it this time in America. the convertible 124 in the 1960-70s was way ahead of similar British offerings at the time. FIAT did not modernize their emissions and finally left the US market.

At any rate we have Total Quality Management on display with this sort of attention. Chrylser has usually had great engines and in the 1960s had the best automatic transmission which they called torqueflite. This article notes many engines are mismatched with transmissions. AFter going through the recovery under Iacocoa, the disastrous sale to Mercedes, the sale to hedge fund Cerebus, and now FIAT, I have had my doubts. All the former managers were interested in was cutting costs, I know I would not buy a Chrysler product. My Dodge pickup had all kinds of problems after 100,000 miles, In contrast my Suburban was still going strong.

We shall see, this is a crowded automobile market, no one has an edge anymore.
Professor Elam

If China Can, Why Can’t Japan?

January 31, 2011

Monday Jan 31, 2011

We are discussing Dr. Deming's theories on Total Quality Management in cost class today. Yet

Japan is entering its third lost decade, what happened?

Japan peaked at a nosebleed 37,500, and now is barely 10,000. Too much debt and speculation, the banks refused to write off the bad loans, the country is aging. At first I put the Shanghai SSEC on this same chart but it did not do justice to what has really happened. I also went to a linear rather than a log scale. The latter which is shown has each box the same size. A log scale shows changes in constant percentages. Now look at China over the same period.

This is the Shanghai or SSEC index. Note that the SSEC did not even exist when Japan peaked. China spiked just as Japan did in 1989 but has resumed an uptrend, can that last?

But wait, China is a managed society, Japan is far more capitalist and democratic. China has managed to keep the growth curve going by constructing empty buildings. The construction counts as growth but the buildings sit empty. China has a real estate bubble. Note in this article that China ranks 89th in ease of starting a business there due to its state owned economy. There has never been a manipulated economy that lasted very long, just ask Hugo Chavez. He has devalued his currency twice in the last two years.
Professor Elam

The Correction Gets a Foothold

January 30, 2011

Sunday Jan 31, 2011

The Correction Gets a Foothold

We titled last weekend’s update ‘Correction Under Way.’ We showed that five waves appeared to be complete from our buy signal at the July lows. We also showed that the Summation Index for the New York Stock Exchange was decidedly lower indicating reduced market participation in the advance. We suggest readers review January 22, 2011 before reading further, the events unfolded Friday just as the indicators predicted they soon would.

Our purpose of The Market Perspective is to provide a ‘big picture road map.’ This no nonsense ‘cut through the clutter of television news’ approach is based in what the internals of the market are telling us. Now let’s look at the Big Picture.

The Weekly Advance Decline line is in the center chart. The actual index for the NYSE is at top, this is the price you will hear or see on CNBC multiple times per day. At bottom we have the Slope or Rate of Change of the Advance Decline Line. Sadly most math courses bore students so badly that they drop out of school entirely. Math teachers fail to make a connection to a use of math. But here we have practical math on display. Let’s use an analogy to make the point.

When I was a kid in 1954 Canada and the US agreed to construct the

Distant Early Warning Line DEW. The idea was that a line of radar stations in far North Canada would provide an early warning of an over the North Pole missile attack from the Russians. It is regrettable that both sides were not spending that kind of money building washing machine factories or similar modern devices for the Russian people who were shut out of modern society for decades but that is another story.

Our point here is that the Slope in the bottom panel is SORT of DEW line for the weekly Advance Decline line, Which is a DEW line for the stock market. We marked the turn down in 2007 to make the point. We labeled the up downs in green for up and red for down. SLOPE topped in early 2007. Six months later the weekly A/D line NYAD, big panel in center, topped in July 2007. The actually market index at top, the NYSE, topped in price in October, 2007. After that the fate of the market was sealed. The smart money exited, option writing funds were selling at a discount.

The same reliability is evident at the bottom. SLOPE bottomed around November, 2008 at the extreme reversal in number of issues. Look above and the A/D line bottomed in November and again in early 2009. The actual NYSE bottomed in early March, then the bounce back began.

Now what do the indicators tell us? At bottom, SLOPE, the rate of change has been slowing all last year but has not gone negative. Negative means SLOPE drops below the zero line. This has yet to occur. In the center panel the distance between the MAs has widened indicating the top is nearing for the A/D line. Now let’s move our DEW line a bit closer to more recent action on a daily chart.

This daily chart of the same indicators confirms our Summation Index NYSI warning we showed last weekend. The rate of change or advance is slowing in the bottom panel This corresponds to our NYSI at a lower level in the Jan 22 update. In our January 15 letter on page 2 we showed that New Highs had broken down out of a triangle, again an early warning indicator. In our January 8 letter we noted that bond yields were rising while stock dividend rates were falling just as they did in 1987. We warned that eventually this disparity would be corrected in an unpleasant way. This will probably not happen in a big way until later this year but Friday did see a move to safety in bonds and a move out of stocks with the 166 point drop. In the DOW.

So we expect a series of up and down waves between now and some sort of final top probably by June, 2011 ( this could occur sooner). This morning we read that protestors in Cairo are riding on the tanks of the military, a better idea than shooting the demonstrators but certainly no solution. One of my clients returned from Russia about 1990 and predicted that country was finished in 18 months. The Russians had gained a view of the rest of the world with satellite dishes and VCRs and were not going to put up with it. His hobby was constructing custom made fishing rods. He noted that the fishing equipment he saw in Russia in 1990 would not have been competitive in the US in the 1950s. That same consumer dissatisfaction is on display in Egypt, Yemen, Tunisia, and other sub par Arab countries. (no washing machines, lots of tanks.) Negative mood is our earliest DEW indicator confirmed by the technical deterioration we show earlier.

Bonds

Here is the SLOPE indicator on TLT, a fund of long-term government bonds. Despite all the negatives one hears from Bill Gross and other experts, accumulation in TLT is taking place at a third higher low marked by the horizontal blue lines. Our weekly SAR PAR (blue dots) shown in the blue dots has not given a buy signal but note that when bonds broke out the last two times it was a rocket launch event. TLT pays a monthly divided with an annualized yield of over 4%.

Gold

We show the GLD ETF so that we can put the Chakin Money Flow Indicator in the middle panel. Recall that November was 89 weeks and 21 months from the March 2009 low. That clearly marked a top in money flow, which has been going down since. The news event Friday was the riots in Egypt but the tech indicators have been headed down since November. GLD was oversold and ready for a bounce.

Again we highlighted this deterioration on page 9 of our January 15 weekend update using the HUI gold bug index. So alert readers had notice of the change in trend.

Oil

We used USO the oil ETF for the same reason. Oil jumped Friday on the jitters in the med East. There are no oil fields in Egypt. However one would do well to review the Suez Crisis of 1956-7. Today the Center of Islamic Revolution is Tehran, then it was Cairo. Abdul Nasser was then the ruler (President?) of Egypt. He nationalized the Suez Canal. Then Britain, France, and Israel invaded to seize control of the Canal. Faced with defeat, Nasser sunk ships in the Suez to prevent its use. This potential interruption of oil shipments is the reason for US interest rather than the sad state of the Egyptian people. Again, the US has supported dictators with billions of dollars that never made a difference in the lives of oppressed people. Interestingly this got Onassis off to a start in the shipping business in a big way. He had the ships necessary to then haul oil around the Cape of Africa to Europe and America.

Socionomics

We are half way through an 18 year period of economic stagnation. The mood turned negative in 2000. Mood has alternated but basically stayed negative since. The revolving door of politicians around the world as well as ere is testament to wide spread dissatisfaction. Republicans out, Obama in, Democrats out, all in two years.

The Arab World is horribly imbalanced with the rich countries like Saudi Arabia, across the Gulf from Egypt, showing little interest in assisting their poor neighbors in Tunisia and Egypt. The same pattern from 1989 at the Berlin Wall is now playing out in the mid East. Recall that Romania’s Ceausescu and his wife were executed by firing squad in 1989, a scene that no doubt plays vividly in the minds of all Arab state ‘presidents.’

Interested readers might view

Under Fire, a realistic view of the last days of the Somoza regime in Nicaragua for a view of what modern revolution looks like up close and personal.

At any rate, negative mood has emerged again as observers in Western countries no doubt feel isolated from such change. But US long term unemployment, crushing taxes, exodus from high tax states to lower tax states, a dramatic turn in political representation, no change at the White House, evidence of mass wrong doing by the Financial Crisis Inquiry Commission, low to no bids on municipal bonds, all these will be cited as ‘well as anyone could have seen factors’ once the weekly A/D line turns down. See our daily posts on recent events at www.themarketperspective.com.

The Bottom Line

Expect violent ups and downs in the stock market for the next few months. But the momentum is clearly waning and a top lies ahead.

TLT appears to be finding buyers, and for good reason The US Dollar remains a safe haven in times of crisis. Our government continues to attempt to drive it down in the mistaken belief that will stimulate exports. This has disguised the slow advance of the dollar the last three years.

The injection of massive money into markets is now showing up in higher commodity prices driving residents of developing economies to revolt. And this is just the start of the massive inflation that money will eventually generate.
Professor Elam

Sat Night at the TV Movie Theater

January 29, 2011

The SA Express News dropped its Sunday week long tv section just as I subscribed for weekends. SO it was only today that I saw these but an interesting line up tonight.

AMC

Robert Redford plays mountain man Jeremiah Johnson with a better head of hair than any Mountain Man ever had. His career peaked about this time in my opinion after Btuch Cassidy and The Sting both co starring with Paul Newman. Oddly they never co starred in a third film together. Can you name me a great ,movie Redford did after this, he did direct Ordinary People but seemed to fade as an actor. 1972

Turner Classic Movies

Dustin Hoffman and Al Pacino were clearly the best new actors since Marlon Brando who frittered away his career. LIttle Big Man's main point is to showcase Hoffman's acting skill after his debut in The Graduate. A lot of license with history but good performances by Chief Dan George later co starring in Josey Wales with Eastwood, Richard Mulligan as Custer, Faye Dunmaway as well Faye Dunaway, and Martin Balsam. 1970

John Sturges directs an all star cast including Spencer Tracy, Robert Ryan, Anne Francis, Dean Jagger, Walter Brennan, Ernest Borgnine, and Lee Marvin. Tracy plays a one armed man who shows up in a small town asking embarassing questions. 1955 but it is in color

Who is this stranger, why is he interested in what happened here, and what will be the outcome? Eastwood seemed to love this scenario as he portrayed a similar character in Pale Rider and High Plains Drifter.

I show a clip from this movie in class on motivation and how a truly great mentor can inspire students to greater accomplishment, (tongue firmly in cheek here…) it has resonated well with my classes. Here Lee Marvin plays a Major who as Ernest Borgnine observes 'has seen a lot of fireworks.' He is assigned turn twelve convicts into commandos. Another all star cast of up and coming actors including Charles Bronson, John Cassavetes, George Kennedy, Telly Savalas who wold later star as TV Kojack, and Donald Sutherland who was usually cast as the weirdo in his early films. INteresting sidelight, during the movie making Trini Lopez had dinner with Frank Sinatra asking his advice about his singing career. Sinatra advised Trini that he needed to stick with the sining or his fans would forget him while the moviewas being made. Lopez heeded the advice and dropped out of the movie, note he dies in the parachute landing which is how he was written out of the script. 1967

Enjoy!

PS Not on tonight but if you enjoyed the gung ho of Dozen try Where Eagles Dare with Richard Burton before he took to self destruction in real life and Clint Eastwood whose own career was seriously getting under way. 1969

Ladies, one of my favorite early Eastwood films and still one of his best, Play Misty for Me. With four different wives in real life I never could figure out why he didn't marry Jessica Walter who plays the seriously deranged gal who wants Clint in this one. 1971