Professor Elam

Accounting & Investing Info for San Antonio A & M

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  • Professor Elam

    Windows 7

    Clearly MSFT did not plan on a deflationary collapse in the economy much less the tech economy.

    And so they want to continue Neiman Marcus pricing in a Wal Mart tech world. As the article notes, the computer nanufacturers are making less than MSFT on each machnine. Yet again Balmer promises this will be the best windows yet followng the promises of Windows 95,97,03, 2007, VISTA, hey I am losing count. No doubt the last Yugo was better than the first I say…

    The article goes on to say that  "Our customers tell us that they want mobile, small-notebook PCs to go beyond basic Internet activities and deliver premium capabilities [so they can] play games, view pictures, and watch videos," says Brad Brooks, Microsoft corporate vice-president for Windows consumer product marketing.  Translation the customers that switched to other operating systems or Macs are not coming back and they are tired of our software crashing and they will pay for it, gee shoudl we respond?  This is precisely what managerial accounting is all about. Where is the customer value chain?

    Meanwhile Google offers an Android alternative morphing from a cell phone chip. The beginning of the end for MSFT?  We can only hope.

    A student asked for more tech posts, okay here we are but frankly I get that Chinese dinner feeling,

    for me the lively debate of the AMD versus INTC chip is not quite the same as measuring the visceral feel of the mid engine boxster versus the mid motor placement of the 370Z…..

  • Professor Elam

    California Dreaming, and Scheming

    The Sacramento Bee reports on the state of the CA Budget.

    A Republican view is posted here.  As both reports say, the Dem view is, raise taxes.

    But the point is, we study budgeting in Cost Class.  This is a budget out of control.  Clearly Gov A S is worried, the state wide tax hikes failed. We have covered this situaiton on the blog for some months now, noting that in February the state began using IOUs for tax refunds. No doubt some will pressure Arnold to ask for Wash DC help, as one article suggests other states would also ask. How long before the states in good shape realize they are subsidizing the states that are not.  Texas discoverd the Robin Hood system is eventually very unpopular, particularly with the states sending money.

    WE should know teh outcome pretty soon!

  • Professor Elam

    Fed Ex Confirms

    FEd Ex posts major losses. 

    As you read the article notice how many phrases like one time charge off you recognize from studying intermed accounting, this is why we study accounting. 

  • Professor Elam

    Govt Knows Who is too Big to Fail

    From Neal Boortz, author of The Fair Tax

    one student on the blog thinks he govt should regulate oil prices, okay you may get your wish….

    OBAMA'S NEW REGULATIONS

    By

    Neal Boortz

    @ June 17, 2009 8:38 AM Permalink | Comments (39) | TrackBacks (0)

    Today is the day that Barack Obama unveils his plans for one of the most radical growths in government this country has ever seen. Obama's plan will give the government the power to seize companies that are considered "too big to fail" and could jeopardize the financial system. We aren't just talking about banks, folks. We are talking about ANY company.

    OK … I can't let this pass. Over a week ago, when Obama was first promoting his executive compensation limitations, I told you that it would be no time at all before Mr. Government Control was expanding his ideas to companies his administration deemed to be "too big to fail." Thus far Hugo Obama hasn't actually used the "too big to fail" language. Instead we are hearing things about companies who's failure, as the Lost Angeles Times puts it, "jeopardizes the financial system." As determined by who? As determined by Obama's henchmen, of course. Now … here we are. Just how hard was that one to predict? Why, not hard at all, actually.

    This is what our country has come to. Our Founding Fathers are rolling over right now at the thought that our imperial federal government will soon have the power to seize virtually any company that it wants. All we have to do is get some government hack, like our tax-cheat Treasury Secretary, to say that the failure of this company would be bad news for our economy … and that the government needs to take it over. And Obama gets upset when he hears people refer to him as a Socialist. How sad.

    Think all of this over for a second. Medicare. Medicaid. Social Security. Welfare Housing. Veteran's Administration hospitals. TSA. Homeland Security. Look at all the enterprises our wonderful Imperial Federal Government operates? Do you really think that the government operates any of these entities more efficiently than the private sector could? And now we are going to sit back while Barack Obama sets up a system where he can seize pretty much any company he wants so long as he can make some argument that the failure of that company would be troublesome.

    While we're at it, why not go ahead and create another government agency? You really can't have enough government, can you? Obama's new regulatory body will be called the Consumer Financial Protection Agency. An administration official says that the agency will "protect consumers of credit, savings, payment and other consumer financial products and services, and to regulate all providers of such products and services." It will have the authority to write and enforce rules for financial firms. This agency will enforce so-called "fair lending" laws. Yeah … that will work. Can't wait until we find out what the government seems to think is "fair."

    Douglas J. Elliott, an economics fellow at the Brookings Institution and a former investment banker says, "As far as I can tell, the administration doesn't think it's as important to get that structure right as to get the rules right and make sure people are focused on acting the right way."

    Acting the right way. Now government will be the one to determine whether or not these businesses are "acting the right way."

    Could you have imagined when this last presidential election cycle started that we were going to end up with an administration that would be hell-bent on placing private businesses under government ownership? There were some people around who were warning you about that. They're called talk show hosts.

    Elections have consequences.

  • Professor Elam

    SFAS Fair value Accounting

    This article form the NY CPA Journal is a good look at Fair Value as discussed on page 716 in the spiceland intermediate book.

  • Professor Elam

    The Media, Getting it Wrong as Usual

    Here is an article hitting the panic button that the green shoots of recovery will be smothered by 

    This has it exactly backwards. If the writer critically examined his or her own comments $35 oil in fact occurred amidst a smash in global equity prices and an economic meltdown. $145 oil occurred amidst all time highs in global indices. 
    See longer article at 

  • Professor Elam

    Health Care Bill

    The Hill brings us the Congressional Budget Office estimate  on the Health Care Bill.

    Now remember this is really not about providing anyone with a health care bill health care is fine it is the payment system that is under attack. This is about a Congressional grab for power over 18% of the economy. 

    Lasik eye surgery has improved outside the insurance industry the result is more surgery at lower prices.  

    I would suggest we keep the govt out of this business and instead de regulate insurance policies. 

    Example, health insurance policies now include all sorts of mandates that you may not need. Delivering a baby is covered thanks to demands from folks that cannot afford the delivery, it beats me how they are going to afford to raise the child the next 18 years. But my point is, why would my wife and I at our age want a policy that provided for pregnancy?  But we could not by one without it. 

    Make health care a real insurance policy, it prevents against catastrophic loss which is what insurance is supposed to be about.  We contribute pre tax dollars to an IRA style health IRA.  WE build up a cash savings of several thousand dollars. OUr re insurance policy allows for costs in excess of say $5,000 for single events. Up to that point we deal with health care providers on what they charge just like car insurance or buying a car for that matter. 

    Result, freedom of choice and Adam Smith's magic hand to keep things in line. 

    Can you see where this is liable to go other wise?  If the govt controls your health care they control you. 
    Walter Williams quotes from Mark Steyn about where this has gone in Britain, read the link.  Overweight well the knee or hip is your problem. You smoked, hmm too bad. But as he points out other lifestyle options get a pass…..Why, because govt will use health care to highlight the behavior approved behavior. Look at energy, we have all the coal we need and nuclear has powered US Navy ships since the 1960s. Yet we are not focused on clean coal or nuclear to get independent of the Saudis, this is nuts, but reflects enlightened govt thinking. 

  • Professor Elam

    News Update

    Ed Whitacre becomes the new Chairman of GM. Interestingly he was CEO of SW  Bell that acquired ATT and a total of $285 B of companies along the way.  While he does not know the car industry he does not Washington DC which at the moment is a lot more important. And he is from Texas. 

    Six Flags Theme Parks filed for Chapter 11 bankruptcy this last week. Read the article and contrast what is happening here with what happened at GM.  Here the lenders take over, at GM the workers and the govt took over, gee sounds like the Red Russians to me. By the way this means the symbol SIX has changed to SIXF.OB. What?

    New York Stock Exchange NYSE ompanies have one to three letters, such as C, ED, or FDX. Overthe counter or NASD firms have four like MSFT.  SIX was delisted from the NYSE when it took Chapter 11. Ob refers to a bulletin board stock. Such companies used to have their share price available on the National Association of Security Dealers NASD bulletin board, one had to call a NASD dealer to get   quote. Now they are available electronically but not from the NYSE. NYSE has financial requirements for listing and staying listed, 

     GM and Citicorp C both got booted out of the Dow Jones Industrial Index. Travelers and  CISCO were substituted. 



  • Professor Elam

    CDS Accounting

    The first part of this article explains what financial institutions have been doing in accounting for their supposed gains in various derivatives. We will be discussing derivatives in Intermed II, start reading.

    Essentially the companies are booking profits today, and borrowing to pay bonuses and dividends even though they have not received any cash. This is the same stunt Enron pulled and of course violates the revenue recognition principle. This is so important I am copying the article and pasting it here. 

    More on CDS and Kabuki on the Potomac
    By Bruce Krasting

    Very interesting piece on the Kabuki. I think there is another angle to the banks trying to hold their control over CDS. It is accounting.

    Simplistic example. You are a bank. You have two customers. Southwest Airlines (NYSE:LUV) and Chevron (NYSE:CVX). SW calls and says, "Lets do a deal. Every 6 months for five years we will swap money based on 1 mm barrels of oil at $60. If the then cash price is less than $60 I pay you. If it is more than $60 you pay me."

    You say "fine" and then call Chevron. You enter into the exact opposite of the first swap trade. You make money doing this. You have a matched book. As a result of your purchases and sales you will have $50,000 in profit every six months for the next five years or a total locked in gain of $500,000.

    At the end of the day your boss asks, "How did you do today?" You answer, "we made $500,000". He says, "Great. Here is your bonus". If you went to three market makers who did exactly the same as you did on that day the profit and loss results might be significantly different. For example:

    – One could report a gain of $500,000. That would be justified. But would overstate the economic results

    – Another might just record a gain of $100K (the current year portion that is "locked in"). The balance of the income is realized annually for five years. This would understate income. No one like that.

    – Yet another might book just $400K of gains currently. This would represent the NPV of the $500k over the five-year period based on an internal capital rate set by the banks management. This is close to economic reality and is the form that most banks use to value this type of business. While it is the most appropriate and reasonable approach, it too is badly flawed.

    The next day your bank announces quarterly earnings and says, "We made $400K. We are paying a dividend based on that and we are paying bonuses based on that. Net-net, retained earnings will go up by $250,000. It was a good quarter"

    In this very simple example there is no cash from this profit. The cash will come to you over five years. So you have to borrow to pay the dividend and the bonus and all the other current expenses relating to this profit.

    What you have done is 'borrow' retained earnings from future cash flow. You look like you have retained earnings to support your tier one capital ratios. But when there is a real 'cash call' on your equity (2008) you do not have the cash equity to survive. So you have a TARP party.

    The OTC reform proposal plan does not give the banks the ability to do this. And that is why they do not like it. This same income recognition issue exists in the OTC swap market for currencies with maturities greater than one year.

    * * *

  • Professor Elam

    Central Texas Update

    I attended a CPE seminar conducted by the President of Business Bank of Texas

    Ed Lette  is also past President of the San Antonio CPA Chapter. This is another real world example that a knowledge of accounting helps in analyzing financial statements, as well as in assessing risk among loans. Ed made the observation that Austin and Houston have been harder hit than Dallas and San Antonio. Houston because the oil price collapsed. Austin because venture capital is simply taking its money out leaving lots of high tech companies high and dry. We will be studying  break even and target profit in cost this is when that knowledge is really put to use.

    I also spent time with an upper level manager at a large Austin high tech concern. It has shrunk in the last two years from 2,500-3,000 to about 1,200. Many of those flks were part timers but a job is a job.

    I expect we will see the  real impact this fall as markets seasonally peak in August September and then fall into October.Expect job competition to get a lot tougher.

    Last semeseter one alert student pointed out that one of the big Four accounting firms simply dismissed all those new hires that had not passed the cpa exam, brutally efficient, and consdiering the time and effort to hire all of them a real sunk cost.