Accounting & Investing Info for San Antonio A & M
Tuesday April 6, 2010
I titled the first post on this small island, Iceland Freezes Up, Oct 9, 2008. Well seems Iceland is quibbling about the interest rate to pay off England and the Netherlands. Yes entire countries can go bankrupt as I said in class yesterday in the introduction to equity and liabilities. So don't be surprised when and if it happens to entire states in this country.
Gee, Greece is arguing over its interest rates as well, as the article says, choosy beggars.
Tuesday April 6, 2010
We have mentioned that Nick Cage was in financial trouble, read how much trouble here. You can follow the links to view multiple cars, motorcycles, yacht, English castle, two homes in the New Orleans Garden District, and of course the ex girl friend/mom……
His financial advisor did warn him that his lifestyle was costing $30 M a year. As these 'assets' will no doubt fail to bring what he had spent on them, it is hard to see any alternative to bankruptcy now but then he has not hired me as his advisor either.
Tuesday April 5, 2010
I removed the usual indicators of RSI and MACD and MAs,
okay, what do you see? Quick now…
The answer, first of all, is a head and shoulders topping
pattern. The deterioration is
clear with the right shoulder lower than the left. But more than that, the
second worry, the further one looks to the right, the more recent the trading,
the more gaps we see in the chart. In other words, it has been harder and harder to match buyer and seller as
the auctions of bonds became more and more crowded with supply. This should
worry anyone concerned with
interest rates, like all of us for example.
TLT a fund of 20 year bonds broke its support Monday. The
ten year is now at the shown by the green line. We suspect bonds are oversold
with a bounce due to April 18 as Barry suggests. But frankly the market
will be pressed to hold up that
long.
We have suggested that the year is shaping up like 1987, that is more
and more clear. The very real possibility that we could drop from a projected
high on the S & P of 1300 to much much lower numbers looms as a very real
possibility. Now all the FEDS have to do is sell $82 B worth of debt this week,
against the backdrop of the highest rates in months
Monday April 5 2010
The reason I write the blog is to supplement the textbooks with the context of the real business world.
We are beginning our study of the equity section of the balance sheets. A few years back Eddie Lampert was hailed as the next Warren Buffet. He recognized the real estate value of KMart and bought their stores out of bankruptcy. He then managed to snare Sears and formed SHLD, Sears Holdings. The idea was lots of cash flow which would finance other brilliant purchases.
Now the reality. Read the link to see that he has spent % billion since buying the company in share buybacks rather than investing in the stores. Earth to Wall Street, this guy is a hedge fund manger, not a retailer.
The share price zoomed after he formed the new company, he was hailed as a financial genius, by Business Week no less, usually a sign of impending doom, the stock peaked at 200, then reality set in. It was clear that he was not putting money into improving the stores against other hard chargers like Target or JCP, and so amid the stock crash, the shares went back to near $20. Now, why would he spend that kind of money, $5 B, to buy shares in a company he already owns?
The answer is in the arithmetic of earnings per share. If the number of shares decrease, then the earnings per share increase, the total earnings are spread across fewer shares raising the EPS. The performance of SHLD does not have to improve, this is mere financial manipulation to make things appear better. The result is that despite his critics, the share price has risen. Just looking at the chart, I would guess 120 will be serious resistance.
Most companies buy shares back to keep the number fairly constant. Here the idea is to decrease the number of shares outstanding.
Sunday April 3, 2010
The Washington Post reports on why Texas has weathered the real estate crisis better than other states.
Seven years before 1845 would be 1838, you will recall, of course !, that the battle of the alamo and Texas Ind as a nation was achieved in 1836. The real reason that the assorted crew of misfits was at the Alamo, was to found a nation where one could not have land, the farm or ranch, re possessed in bad times by bankers, thus losing everything. Crockett had gone bust in TN and Bowie had several incidents of dubious land speculation in his past. Indeed as it says it was 1998 before one could get another mort
The reference to Texas of all places was no doubt reference to the land and savings and loan collapse here in Texas during and following the run up in oil prices to 1981, land and building speculation were rampant, insiders at s and ls were flipping land for higher prices, sometimes multiple times in one day. The S and L crisis began and died here.
Here are a couple of sayings born of that era
Lord please give us another oil boom and we promised not to screw the next one up (honest that was a bumper sticker)
and indeed the banks did not go bust again when oil zoomed collapsed and now has come back
Texas can't run a S & L but everybody down there thinks he ought to be president (Bush, Connally, two months ago Gov Perry was on the cover of Texas Monthly with the headline Perry for President, the Greeks have nothing on us in the hubris dept)
Sat April 3, 2010
We touched on this topic Nov 22 2009 and Jan 23, 24 2010. We recounted that money from the Ford Foundation intended for capital use had been used for operations, the musuem has never come close to initial projections on attendance. And finally, the successful Museum of the Americas is down the street, why fund a failure?
To its credit, the Express News has been keeping tabs on the story. Employees are complaining of unpaid bills and later payrolls. And the city is on the hook for the rent. But, rather than pull the plug, the City has signed up for another $450,000 (a good deal of this may be rent for which the City is stuck anyway) AND another $2.1 Million in debt. Our point from the cost accounting angle is that the rent is a sunk cost, no matter what, that is gone so it should be ignored. Supposedly the money will not be extended unless and I quote ' a viable business plan is not developed in the next 30-60 days.' Gee, why wasn't a viable business plan in place after attendance was 50% below expectations the first year? We wondered in January if there would be any accountability, 60 days and counting…..no doubt there are many worthy organizations in SA that would appreciate the City paying their rent.
Again to the Express News credit they are reporting and calling for an end to this but,
what constitutes a viable business plan for a bankrupt company nowhere near its expectations?
This is what we teach in mangerial accounting, the plan must have specific outcome measures, without them it is a matter of conjecture.
Friday April 2 2010
Here is a link to the latest TSCPA web news. It features a discussion of the Lehman findings by the BK trustee as well as EY's response, guess what they contend are innocent…
As I said, mood is too positive at this point for a protracted battle, and trying to put a positive spin on the recovery, mucking thru all the past mistakes will not help attitude. My guess is that this mess stays on simmer until the financial markets melt down again. At that point I expect the government to substantially nationalize the external audit function. Remember you read it here first…
Friday April 2 2010
This firm has posted a helpful guide to the bond market, take a read!
Friday April 2, 2010
FORTUCAST CONFERENCE AND WORKSHOPS: MAY 21-23, 2010
(3/31) FORTUCAST is pleased to announce a “Fortucast Financial Visions into the Future Conference: Practical Tools for Outsmarting the Markets in a Changing World.” The conference will have 6 key speakers and 4 (2.25 hour) workshops and will be held adjacent to Best Western Inn of Sedona, May 21-24. Sedona is one of the major destination vacation sites around the world with amazing red mountain ranges. We are arranging special packages for coming early or staying late for tours of the Grand Canyon (2.5 hours north) as well as other local tours and golfing. Key speakers include Mark Leibovit, Barry Rosen, Marc Berkowitz, Barbara Rockefeller, John Miller, Dennis Elam, and Larry Acker and other major members from our staff and affiliate programs. See photos of Sedona atwww.sedona.net. Details are available on our web site. Early bird registration cost is $495.00 by May 1, which includes most meals plus an additional $195 for workshops with special packages available. Registration by phone available now; online registration available in 1 week. Call 1-929-284-5737 for registration and more information. See website at www.fortucast.com for more detail
I will be presenting a paper on the bond markets world wide. The presentation will trace bond prices from their inflationary peak in 1980-81 to today's single digit returns. The eighteen year cycle that predominates in markets will be presented. We will detail what has happened in previous government managed bond rallies. An examination will be made of bond prices in the 1930s as well as the similarity with today and 1987. An examination is made of the precarious municipal bond market, possibly the most dangerous place to be at this time.
Dennis Elam CPA has served as a Department of Justice Bankruptcy Trustee and will also look at which cities, states, and nations are the most exposed as to long term liabilities. The conclusion will be what to avoid and what to embrace for the turbulence we expect.
Thursday April 1 2010
Lynn Tilton with Patriarch Partners tried to buy Polaroid out of bankruptcy.
The bid she claims she lost is explained here.
I mentioned in class that the change in technology had caught companies like Xerox and PRD off guard, they had plenty of time but never prepared.
Professor Elam 