Accounting & Investing Info for San Antonio A & M
Monday Feb 15 2010
I suggest you add this article about Goldman for your background reading on the finanical crisis paper which is due this Wednesday. Indeed, the article lists ten question the EU will have in an audit of Goldman activities with European governments. One student wondered how Goldman could move Greek debt off the balance sheet into the future, so do I. As the article suggests, Goldman has now become rogue in the same way Solomon Brothers (Liars Poker) was 20 years ago.
Monday Feb 15 2010
We have added new links for students to give a better perspective on what is happening in America. Mish discusses how unions are self destructing, consider this excerpt.
More than 3,000 employees of nickel miner Vale Inco have been on strike since mid-July, and after seven months living off of $800 a month in strike pay, the repo man has come knocking.
"We've got people losing homes. We've got families breaking apart. We can't make our payments," said worker Pat Digby, braving a wind chill of -25C to picket at the front gate of Vale Inco's smelter in the Sudbury neighbourhood of Copper Cliff.
Price said he and some of his colleagues have looked for work elsewhere to sustain them during the strike, but no one wants to hire them because they fear they'll quit as soon as the labour dispute is resolved.
At issue are proposals by Vale Inco to reduce a bonus tied to the price of nickel and to exempt new employees from its defined-benefit pension plan, moving them instead to a defined-contribution plan.
We will study pensions in Chapter 17 in the Intermed II class. I have not covered this topic much in past classes as I contended there would not be another defined benefit plan created again, ever. Here is proof of what I am saying. The link above also mentions a proposal in Utah to eliminate the 12th grade, altogether. Other cities and school districts are foolishly laying off employees altogether. As I have mentioned in class, across the board salary cuts would keep everyone working and immediately downsize to what is needed without putting people on unemployment, oh well.
Sunday Feb 14 2010
It seems that 69% of the elementary and middle schools in Atlanta have been sited for the large number of erasures, changing wrong to correct answers on the state mandated proficiency exam.
This is nothing new, it has happened in Texas in the past. Administrators feel they are under so much pressure to produce results, well they take matters into their own hands and produce correct answers if not correct results. We are studying ethics in accounting class, here is a another classic example.
The fear of being placed in 'Needs Improvement' category has adults doing things they know to be wrong, Okay no one is convicted yet but….Experts said it could become one of the largest cheating scandals in the era of widespread standardized testing.
Sunday Feb 14 2010
Hey it's Valentine's Day! Unless you are fascinated with the luge run at Vancouver we suggest you turn to TCM this evening for
Casablanca is on everyone's All Time Best Movie List, why? Well intrigue, romance, fabulous ensemble cast and some of the best dialog ever penned. From left Humphrey Bogart, Claude Rains, Ingrid Bergman, and Paul Henreid.
''We'll always have Paris…..'
Katherine Hepburn was in independent female in the 1930s. While famous for gorgeous wardrobe and high society character, in this one she and Bogart are down and out on a worn out scow in Africa during WW II. Sparks and resentment fly but romance triumphs in a surprise ending.
Lay in a good supply of popcorn before the evening begins.
Sunday Feb 14 2010
Sometimes professors make statements to absurd it is hard to imagine how they retain their credibility.
In the last ten years gold has risen from $300 to $1200, and backed off a bit. The reason is the lower dollar and the increasing suspicion of all fiat money in the world. Fiat come from the Latin word fio meaning 'to be.' Fiat money is money because the government issuer says so, period. So what is the difference between monopoly money and Zimbabwe money, not much. The reason is that Zimbabwe does not have much economy to back up its huge amount of currency in circulation. Lately the Euro has gone down against the US dollar over worries that Portugal Ireland Greece and Spain have spent beyond their productive capacity. Not to sound like a broken record but, many countries and now US states and cities are spending a large portion of their annual productive capacity on government, simply moving money from one productive sector to another non productive sector.
At any eRW ON Pfw 10 of the Feb 14 Parade magazine (okay so it's not Fortune) Univ of Pennsylvania Wharton School Finance Prof Jeremy Siegel declares that the US should have sold its gold in 1971. Well Jeremy that was when gold was less than $100, as you know it peaked at $800 in 1981 and now has surpassed that by 50%. The IMF just sold its gold, a large portion to India, so it can hold more fiat money, hmmm. Gold is the only real money since politicians cannot print it from trees. Period.
I suspect what will eventually happen is that the US Dollar will stair step down in value as Congress has just raised the debt ceiling over $14 trillion. At some point, gold will continue to move up. States and cities will meet their Waterloo this year in finally having to deny unionized employees both raises and defined benefit pensions, there is just not enough money for that. But first I suspect the Federal Government will try to 'rescue' some of them. At any rate, as currencies collapse around the world, the US will finally have no choice but to re value its gold holdings at a market price of thousands of dollars to provide some backing for its currency. And at that point Jeremy, gold will be golden.
Friday Feb 12 2010
In Tipping Point, Malcom Gladwell concludes
that big events can start in a small way. This can work positively. New York
starts enforcing payment of subway tokens and crime recedes, at all levels. Or
it can work negatively, teenage pregnancy becomes the new normal and no one
does much about it. Nassim Taleb in Black
Swan suggests that unexpected and unusual events are not as unusual as one
might think. We are there, now.
Tipping
points abound, rather like flocks of Black Swans. The population of Greece is
half that of Texas. Its Gross Domestic Product at $334 B is about one fourth
that of Texas at $1.2 billion. But it has failed to meet the financial
requirements of being a member of the European Economic Union, EU. Greece, and
Portugal, Ireland, and Spain, have exceeded their debt to production ratios.
Ie, hey Mom we broke the bank. Before joining the EU, Greece, ala Argentina, would have just
printed more money, eventually devalued the drachma, and paid off in cheaper
currency. It might be a
pariah ala Argentina for a few years but hey, Citi has to lend to somebody. Now
Greece cannot print Euros so it goes begging for help. Yes, European bailouts
are on the horizon. But of course, Greece is just leading the pack so to speak.
All the Euro socialist economies
do the same thing, soak up about half their productive resources and re
distribute the wealth. Sensing that upper confiscatory limit on wealth
creation, Europe settles under the USA nuclear umbrella to enjoy a latte at a
fashionable sidewalk café. But,
how much debt can be minted to save every country in this shape? Dubai actually issued bonds by the way
to obtain its $10B rescue.
Meanwhile,
the states of the United States are in the same position. California is 13% of
the USA GDP while Greece is a far smaller component of Euroland. Our point is that California is
in dire straits from Sacramento to the large cities of San Francisco and Los
Angeles and even to bankrupt Vallejo. The promises on current wages given sagging sales and
property taxes cannot be met. And the promises on defined benefit plans, (see
GM) certainly are out of the question. Nevada is considering closing the UNV
Law School, out of money.
We
wish we could say that the members of government unions have read Gladwell and
Taleb and are acting responsibly. But this is not a column of fiction. Instead like the spoiled NYC
garbage workers of 1976, they are demanding ever more.
Now
comes word that even the White House admits the Federal Government will never
run a balanced budget again. Ever.
Again ignoring the Black Swans landing on the Potomac, a $1.6 Trillion
deficit is planed. That might work short term if there was buying power for
that much debt. But alas, US Households do not have the spare change and the
Chinese are saying no thanks to another helping of soon to be down graded US
junk bonds. Indeed, Marc Faber just this past week predicted a USA default.
Moody’s , never early to the debt downgrade party, even warns that the USA AAA
rating is in doubt.
In
the meantime the irony is that eh US buck is attracting funds as a ‘safe
haven.’ This is because it is more safe than the Euro but not safe as in well,
if you had other choices….
The
result is that short term a dollar rally took oil down to the low $70s. Oil
popped up as the dollar ran into
resistance this week. But like
Freddie Krueger the dollar is not finished with its run. We still expect oil to
decline to the $60s.
And
then? Well the only final option
is that investors and we use that term advisedly, will demand a greater rate of
interest on US debt. Bernake suggested he will raise a half point and the
Chinese are tightening bank reserve requirements. When does US Debt get to its interest rate tipping
point? We do not know but will
attempt to keep you posted.
When
that happens, expect a late 1970s replay all over again. Commodity prices will
soar, including oil. Oil
prices will not be soaring on demand which is down already, but on a sea of
depreciating dollars.
All
this may sound a bit much for a family newspaper in West Texas. But, I find
that when I delivered a talk on oil in West Texas, well even the janitors and
waiters sat down to listen.
Western
Civilization began in Greece, It may wind down there as well.
More
from Dennis at www.professorelam.typepad.com
Friday Feb 12 2010
Tonight on the PBS NEWSHOUR, business and economics correspondent Paul Solman takes a look at GOLDMAN SACHS and how they’ve made a profit over the past several years. Solman explores whether Goldman Sachs is an investment bank "doing God's work," as CEO Lloyd Blankfein claims, or actually a hedge fund. Solman looks at the issue and practice of front-running at the investment bank, and risk management.
From the piece:
PAUL SOLMAN: So when a Republican friend of mine who used to be in the Treasury Department says that Goldman Sachs is a hedge fund masquerading as a bank, that’s true?
DAVID STOCKMAN (President Reagan’s budget director who went to Wall Street in the mid-'80)s: Absolutely true.
*******
Lloyd BLANKFEIN: What we do is risk management. Because we had this risk, because we were accumulating positions which, by the way, we acquired from clients who want to sell them to us, we have to go out ourselves and provide and source the other side of the transactions so that we can manage our risk. These are all exercises in risk management.
ANGELIDES: Well, I'm just going to be blunt with you. It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars, // pension funds which have the life savings of police officers, teachers…
BLANKFEIN: These are the professional investors who want this exposure.
A & M Students
I have assigned a paper for next Wed Feb 17 on just this topic, I suggest you watch this broadcast, I have asked for a transcript but do not know if we will receive one.
Thursday Feb 11 2010
We completed some presentations in Ethics Class yesterday. The class was presenting their selection of movies with ethical themes. The class discovered, I think. like past classes, that explaining the movie, the plot, the characters, the ethical crisis, and what it meant in metaphysical terms, and well, how and why it had such an impact on them was well, difficult. It turns out that what appears simple when Joel Morgenstern at WSJ or Roger Ebert at Chicago Sun Times does it, is difficult. Hmm, something to what those guys do. Why is that?
I worked with several radio stations when I was a bankruptcy trustee. One station had the top morning drive show in the Midland Odessa area. I remarked on that to the co host. He explained what was happening as Theater of the Mind. When you are encapsulated in your car, driving to work, you and the host of the radio program develop a relationship. The listener forms and image of the DJ who after all cannot be seen. If the program resonates, the listener begins to form a Theater of the Mind in which he or she is the audience of one and the DJ is the welcome morning performer. An intimate relationship develops between the two. Of course what is really happening is replicated in that market perhaps 20,000 times that morning. Some listen to the whole show others hit seek and other stations in and out. But regular listeners form that relationship and look forward to it.
And so it is with you favorite movie or tv star, singer, or perhaps writer. There is one student I have noticed between a couple of my classes. He is in the hallway always listening to his iPod. And man, he is groovin', so to speak. He has completely tuned out all the hallway activity. He is completely tuned in to his Theater of the Mind. His hands are clearly holding imaginary drumsticks, his body sways to the beat of the song, he has metaphysically, joined the band in its Theater of the Mind Performance on the Cyber Stage.
Now where am I going with this? The challenge of a great presentation is to convey that Theater to your audience. Guess what, it's not easy. Every movie selection last evening was outstanding. No wonder, three featured Al Pacino, and one was a Nick Cage. These are people at the pinnacle of their profession, who would not be moved by Lt Frank Slade's comment in Scent of a Woman that 'I'm just gettin' started, I'd like to take a flamethrower to this place!
Pay close attention to the great performers. Obtain a tape of Bill Cosby doing Bill Cosby Himself, a one man stage show that launched his successful tv show in 1984. Take a look at older sketches of Burns and Allen, perfect comic timing, Jack Benny's self depreciating smile, or the exchanges between Johnny Carson and Ed McMahon. All these people developed their craft in front of LIVE audiences, immediate feedback, live or die on stage, just like in your presentations. Burns and Allen learned their craft in vaudeville, moving from town to town. Great stuff, okay I date myself, what is it about Nick Cage in Lord of War explaining that there is a gun for one of every twelve people on the planet? How many other actors can do that, what is it about Cage's sort of ordinary Jimmy Stewart looks that is so appealing. Have you seen George Scott do the Patton speech, really, you should. Benchmark yourself. What is it that makes a great presentation. Start studying….my compliments to all the students for outstanding selections and papers in that Class.
All the world's a stage the saying goes..We practice presentations in class and make mistakes and learn from them, college is a learning process, that is why we are here, far better to err here than on the outside, welcome to the University…….
Thursday Feb 11 2010
Nial Ferguson suggests that Greece is simply the movie trailer for what will be coming to the rest of the world. Or as one student put it in class, who will bail out the USA?
Thursday Feb 11 2010
The Chinese are famous for their disregard of copyrights, patents and other IP infringements. BYD
is copying entire cars and assembly lines and then attempting to duplicate the effort. So far this is successful. Moving the industrial revolution backwards, they use humans rather than robots, absorbing a huge quantity of unacceptable waste. Will this work?
If it did, gee, American Motors (Rambler) should have copied their competitors. To a degree AM did, using Ford carburetors and Chrysler transmissions. But the result was a hodgepodge, not a unified effort. Benchmarking can take different forms will this be a successful long term strategy, As the article says, eventually the manufacturer must innovate on its own.
Professor Elam 