Professor Elam

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  • Professor Elam

    Japan Air Lines – Bankrupt

    Tuesday Jan 19, 2009

    JAL will file bankruptcy under their equivalent of our Chapter 11 re structuring.

    Some 15,000 will lose jobs, the stockholders are wiped out, the government is putting up $10 B in Japan;s fourth largest bankruptcy ever. 

    The President of JAL resigned, gee why don't we ever see that here?

    The story here is of the two not just one lost decades inJapan. Their stock market topped in 1990 and is now only half its value then. 

    Picture 1 IN the 1980s the US actually aired  a television show titled If Japan Can, Why Can't We? It told the story of Dr. Deming and TQM. What went wrong? Too much debt was taken on in the stock market run up. Rather than let companies go bankrupt, the banks tried to paper over the losses. JAL owed $25 B. Does this picture sound like our banks?  Ironically Greenspan even went to Japan and told them to write off the bad loans. 

    We made  a post last evening explaining how mood turns negative in bear markets. Understanding the socionomic psychology behind bad decisions will help you  the next few years. Note this market pretty well mirrors the two crashes the US has experienced 2000-02 and 2008. Another is coming.  

  • Professor Elam

    Bear Markets Polarize Opinion

    Monday January 18 2009

    Bull markets are inclusive and reflect good feelings .Bear markets are exclusive and reflect increasingly negative feeling. 

    We are witnessing those negative feelings over 

    backroom deals for Nebraska and Louisiana as their Senators got favorable treatment to vote for Obamacare

    backroom deals to exclude Cadillac union health care plans from various taxes

    all being played out in what was the most unlikely state for it, Massachusetts, dubbed Taxachusetts but its detractors. Note, the Dems lost major races in New Jersey and Virginia already. 

    Long shot State Senator Brown is now leading in the polls over the Dem State  Atty General Coakley who thought she was a shoe in for the race. 

    Unless you have had your television or radio off the last two weeks, this will be a huge upset and cost the Dems their 60- vote majority in the Senate. And that will set the political tone for the year. And that tone will be the sort of bitterness only seen as we continue the massive up and downs for an 18 year long period of stagnation. The Dow stands where it was ten years ago, brace yourself for another eight years. 

    Understanding socionomics, how popular culture determines what happens will help you weather this period of economic stagnation. 

  • Professor Elam

    A Year for Accounting

    Monday Jan 18 2009

    This looks to be a great year to read and study accounting, because it is going to be in the news. 

    Now Illinois careens towards bankruptcy.  This is even more of a problem because there is no provision for a state to enter bankruptcy court, California already figured that out. As Mish noted, eventually someone will have to toss the unfunded pension costs into a courtroom as there is simply no money to pay them.

    Dems running for governor are proposing huge tax increases, which will drive more business out of the state. 

  • Professor Elam

    Goldman Sachs, Betting Against the Client

    When a Wall Street firm sells a financial instrument it creates, who is the client?

    Grethchen Morgenson and Louise Story take a look at the CDOs Goldman and other created for clients. 

    Then the firms bet against the very securities they sold. In fact they created ways to leverage their bets against the client holdings even higher. 

  • Professor Elam

    Texas Land Prices Dropping

    Picture 5

    Sat Jan 16 2009

    I assume the black line is inflation adjusted. The blue line is what is known as a parabolic curve, all parabolas end with a crash.  

    The headline is that buyers find bargains on country property. However the correct comment is from A & M REal Estate researcher Charles Gilliland,

    The party is over. 

    Expect land prices to crash over the next few years back to the nominal line, this is another deflationary trend waiting to happen. 

    Deflation is still raging. Our previous post about the number of houses in potential foreclosure can only lead to lower prices. Pizza Hut is advertising any size any toppings just ten bucks. Hamburger chains have rolled out $1 sandwiches. The fellow in Kerrville making pine box caskets is tapping into both deflation and the desire to be more green, but the price drop in caskets is deflationary!

    Expect more deflation in the last half of this year as these postponed foreclosures finally start taking place. 

  • Professor Elam

    Record Home Foreclosures

    'Obama's paln to fix the foreclousre crisis has been a dud, putting the housing market recovery at risk.'

    Typical of Federal programs I would say, here is another quote

    'while homeowners and hosuing counselors say navigating the bureaucratic maze often seems impossible, mortgage companies say they struggle to get back the necessary paperwork. 

    'A record 2.8 million households were threatened with foreclosure last year, up 20 % from a year earlier,' another quote. 

    Okay accounting class, now why hasn't the bank foreclosed?  Answer, when one does that one has to recognize a loss on the loan. And no one knows how high that loss will be if all those houses go to auction. 

    When the bank made the loan it was

    Mortgage Receivable     200,000

        Cash 200,000

    Let's guess the house will sell for or does sell for $150,000, now the entry is

    Loss on Loan 50,000

        Mortgage Receivable    50,000

    The loss goes to the retained earnings account. If R/E takes enough hits, the bank has to raise more capital to stay in solvent capital requirements. This is what most banks around the world had to do this past year. 

    So banks are reluctant to finally foreclose, take the loss, and have to raise more capital.ONce again understanding accounting helps us understand business news. 

  • Professor Elam

    Final Furniture

    In the continuing downturn expect to see many more realistic approaches. Expect people to find alternate careers. One woodworker in Kerrville has done just that with Final Furniture Funeral costs are ridiculously high. And as Final Furniture points out, frankly the body decomposes n matter what kind of fancy box one uses for burial, so back to the past, the plain pine box. 

    Picture 1  Check it out at finalfurniture.org

    As he says this is all part of the green movement, as in dust to dust. 

  • Professor Elam

    Haiti and Logistics

    Logistics is is the study of how to move people and equipment in the most efficient manner possible. No doubt  there are better definitions but that is the essence of it. FEd Ex and UPS study such things reaching conclusions like, it is much more efficient to make right turns, left turns waste time waiting for your light to turn green.

    We have logistics on display in the disaster that is Haiti. There is only one runway so the US AF is setting up its own tower so to speak to direct traffic. As one report said this is like a trip to the moon, one has to bring everything, fuel, water, tents, generators. No one else does this quite like the US Navy or the USAF. It is on display on all the cable channels.

    By the way if you have never seen a nuclear aircraft carrier up close and personal it is difficult to describe, viewed from the waterline and yes I have been there, it is hard to believe it floats.

    After this is over, let's hope someone has the temerity to ask the President of Haiti how anyone could mismanage an economy on a fertile island quite so badly….

  • Professor Elam

    An Ethically Themed Movie Festival

    Perhaps my Dean of Students at Texas State was right when she remarked, Dennis I don't think it will ever be for them like it was for us.

    What she was referring to was the low tuition that made college a do able adventure as opposed to what it has become, a financial chore.

    While I cannot put you in a Time Machine back to those days, I can at least float a few ideas that might take us back to the days fo campus films and talks with one another rather than e mails and facebook.; So here goes.
    I am proposing a series of films. These would focus on college the first night and then a series of movies withe ethical themes. The idea is that the dicussion flows much better if we have ALL seen the same movie together.

    I don't know the right time, Saturday morning perhaps? You tell me, but here is what I have in mind.

    NIght One

    The Paper Chase

    John Houseman won the Academy Award for Best Supporting and he is really the lead. This is a story about a group of students in their first year at Harvard Law. While we are not in Law School, all the right elements are here, and a Paper Chase it is. The study group, the snobbery, the outline, the thinking you know it all, the starts and stops, yep, this one has it all.

    Night Two

    On the Waterfront

    This won some 8 Academy Awards and is as relevant today as when it was made.  Filmed on location at teh docks in Hoboken New Jersey, yep where some 40 officials including a couple of rabbis were arrested last semester.   The story is about mob corruption: I used this for an Education Innovation at AAA a few years back called Terry Malloy Meets Plato. Anyway, this also exposes the group to a true movie classic.

    Night Three

    Wall Street

    It's hard to believe 20 years has passed, but let's puick this one as Mike Douglass is releasing a follow up this year Wall ST II. Corruption, Insider Trading, but in this one the union is the good guy. Are there any good guys on Wall Street?

    I have an entire list of movies with ethical theme on Black Board so there are plenty top pick and choose from. ONe of my students insisted that her 12 year old watch Paper Chase to get the idea of what College is all about. We have the facilities to screen these at school, I have the movies and I bet we can get the popcorn. A discussion happens after the film about what it means. Bring the kids IF they are old enough to understand, no baby sitting.

    Anyone interested?

  • Professor Elam

    Bond Prices Move Opposite Stock Prices

    Friday Jan 15 2009

    Picture 4 

    Red and black bars are the TLT a fund of 20 year bond prices. The black line is the SPX. The blue arrows spotlight how each is opposite the other at price extremes. Back at the November low, money scurried into bonds as stocks sank. This has continued to happen at stock lows in November. As stocks rallied in December, bond prices tanked as money moved to stocks. Now stocks are topping short term resulting in a bond rally.