Professor Elam

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  • Professor Elam

    Fed.com

    “If it gets any worse than it was at the November 2008 ‘lows,’ and the subsequent March 2009 ‘undercut lows,’ they might as well close the NYSE and I’ll retire.”

    Jeffrey Saut, Investment Strategist at Raymond James

    This quote caught my eye, for several reasons. But specifically because of the suggestion in an interview with three economists in a recent Business Week.  Roger Farmer, of UCLA suggests that (and as humorist Dave Barry says, I am not making this up so I will copy the exact quote)


    The answer, in Farmer's view, is for the Fed to set a target for how high it wants the stock market to be by a certain date, then commit to buying enough shares (through broad-based index funds) to hit that target. Higher stock prices will make people feel wealthier and spend more, creating prosperity. Symmetrically, he would have the Fed sell to hold down prices in boom times.

    While magazine covers like Newsweek proclaim We are All Socialists Now, this really takes the idea of the Plunge Protection Team where ala Startrek, No one has gone before. Indeed, why bother with the Exchange at all?  No brokers, no expensive seats, no need to read the financial press,  just punch FED.com to see where the market is going today!  

    Is this the harbinger of the next wave of government involvement, CHANGE as Obama promised. Well the government is certainly re writing bankruptcy rules designed to protect creditors in favor of workers. If the neighborhood donut shop goes broke, does the employed baker take charge rather than the bank, apparently so under GM Chrysler rules. 

    We address mood on this blog. Economist Sargent thinks it would be a good idea to simply change the  mood of the public but stops short of saying just how we should do that. 

    Sargent now says that theory was an oversimplification. In real life, he explains, households and businesses are highly uncertain. Developments such as an unexpected government action or a major company going bust can cause people to drastically revise their beliefs about what might happen next.

    The good news: Beliefs may shift back again through unexpected positive events. Sargent is not willing to say how that might happen, but he notes that in the early 1980s the Federal Reserve was able to lower the public's expectations about long-term inflation. That, in turn, caused actual inflation to fall, ending a period of stagflation.

    Socionomics holds that mood moves the markets. Here Sargent simply suggests that all we need to do ala some sort of 1984 Vision, is change the mood and we change the markets.  

    Hmm, Jeff Foxworthy for the new FED chairman anyone?  When the economy needs a spurt, trot out  comedian, when it needs to tone down, perhaps we introduce Woody Allen's concept of his Jewish Mother always chiding us for what we should have done for her. 

    That Issue of BW asks the cover question, What Good are Economists?  Well now we know!


  • Professor Elam

    New Blog

    Check out

    We now have a companion site that specifically covers markets. 

  • Professor Elam

    The Finnish Lifestyle

    A criticism of Americans is that we are to consumption oriented. Here is a description of

    life in Finland.

    I would note that Finland does not have the diverse content of different ethnicities and backgrounds that we have here. In addition the Northeast clearly has a different view of expectations than say the Southwest. 

  • Professor Elam

    Benchmarking Chrysler

     

    Benchmarking Votes

     

    Benchmarking is the process of  identifying successful strategies of the best in the field to implement one’s business plan. Sadly most political projects only count the votes available and spend accordingly. The latest case in point is Chrysler.  Bankruptcy is a pretty good deal, assuming one is not really bankrupt, just ask Wayne Newton or Donald Trump.

    AP Chrysler LLC filed for bankruptcy protection Thursday and announced it will temporarily halt most of its vehicle production while it completes a deal with Italian carmaker Fiat designed to revive its tattered fortunes.

    Fortunes, what fortunes?  Chrysler has been a company perpetually on the verge of bankruptcy, now it is official.  Chrysler was ahead of its time with the fine 225 cubic inch slant six. Other developments such as aluminum blocks and fuel injection  on that engine were strangely never brought to market. Chrysler was basically an large engine/transmission maker (318/383/413/440/hemi and torqueflite ) from the 1960swith  Don Garlits winning  on the drag strip and Richard Petty in NASCAR  with Chrysler engines.  Lee Iacocca and Mitsubishi saved their bacon in the late 1970s.   Lee left the company in good shape financially with the hugely successful mini van and a lineup of turbocharged 2.2 L four cylinder powerplants. Later management frittered that away, discarding  the engine that even Consumer Reports loved. In the deal of the century, succeeding management sold the firm to Daimler Benz (Mercedes)  enriching themselves and setting Chrysler towards its present state.  The resulting culture clash had Daimler paying hedge fund Cerebus to take it off their hand.  But Cerebus bought less than a complete company even then.  There was no design studio, the economy cars had been eliminated just in time for $4 gasoline, and the sedans come in 13th in ten car comparison tests.   Obama was driving a 300  sedan but sold it for a Prius during the campaign.

    Congress never asked the airlines to benchmark Southwest Airlines in giving them $15 B after 9/11. So don’t expect them to ask it of Chrysler .

    And while the unions are being asked for concessions on a hopelessly out of reach defined benefit plan, the real problems are ignored like the elephant  on the coffee table. There is no way the Pension Benefit Guaranty Corp (another Federal idea) can handle the Chrysler or GM unfunded pension liability. The task ahead is simply not financially feasible. But the potential votes are there and so we soldier on.

    Chrysler has dallied with French Simca and Mitsubishi and even Lamborghini and Maserati (Lee was Italian after all).   With those deals in the past, Obama now turns to FIAT for a solution. Indeed FIAT is successful in Europe and has small car technology. But it would easily take two years to start building Fiats in US Factories. This is not pasta after all.

    The bankruptcy deal requires the Federal Government to provide Debtor in Possession funding during the bankruptcy when all plants will be shut down. Optimists predict a sixty day make over, I wonder if in fact Chrysler will ever emerge from the free for all known as bankruptcy court.   The Administration envisions the UAW, themselves, and Fiat on the board. One wonders what the goal of the UAW will be?  Better cars, a real dealership system, a focus on quality rather than cost, or paying out all the money in wages with just enough left to pay the government, hey that’s Fiat’s job after all.

    No doubt a not so subtle ploy here is to make it clear to GM that this could happen to them. The ultimate irony is that GM and Chrysler debt holders are re insured with Credit Default Swaps courtesy of Federally subsidized AIG.  But make no mistake, the cost to the country of letting thousands of  dealerships go under along with the factories would be expensive indeed.   

    This is all about keeping Chrysler and GM on life support so that the UAW will help Democrats carry Midwestern states in the 2012 elections. That is   three and a half years from now. After that, all bets are off for GM and Chrysler. Can the party last that long?

    Dennis Elam teaches at A & M San Antonio and can be reached at dennis.elam@att.net.

  • Professor Elam

    My Last Word on Certified Exams this Semester

    Here is the link again to various certifications.

    My suggestion to you is this.  Whatever exam you take your fellow co workers will only know whether you passed or failed. So make sure the one they know you are taking is one you will pass. Hint, do not go for the most difficult on the list, pick one you know you will pass.

    It will do you no good to be known for failing something multiple times even if you do eventually succeed in passing, all you will be known for is having failed before you passed, hardly an enviable position.   But all I can do is dispense free advice.

  • Professor Elam

    Chrysler on the Brink

    Chrysler in my lifetime has been a company that manages a small profit in the best of times and is going out  of business, always, in the worst. We are at such a low spot, again. 

    One of the problems here is that the Administration is beholden to the UAW. Things would be better if the Administration were in the position to tell the UAW, not listen to them. 

    As i write today is the deadline for the banks, bondholders, FIAT, and anyone else to make a deal or to BK court we go. I suspect this is also a way to leverage the GM deal by showing the Admin is serious about letting it go to court if a deal is not struck. 

    Chrysler in this environment has little to offer. A mediocre line of sedans, no economy car, a better truck than Chrysler used to make, an incredibly weak dealership network, hmmm, other than the votes from the UAW, there is not much to save here. The Admin has the upper hand as it is the only one that can or will put up the cash to keep the doors open. 

     

  • Professor Elam

    Portfolio Magazine RIP

    A Forbes columnist comments on the passing of Portfolio magazine.  His conclusion is that being born in New York City doomed the publication. If NYC is in trouble, it stands to reason that new ideas for publications born there will have trouble. He speculates that one shoulder launched missile launched into a fancy NYC eatery at LUNCH would advance publishing for everyone. 

    Here here, all my life since the birth of modern television in the 1950s, we are subjected to the view from New York City. Folks talk about Fifth Avenue or the Bronx but never about Helotes or Terrel Hills in San Antonio or Bellaire or Sharpstown were we in Houston. And that is the point, broadcasting has a New York myopia or a Los Angeles myopia as though all original thinking could only originate there. 

    At least CNN was birthed in Atlanta but that seems to have given way to NYC also. 

    The battle for the intellectual control of the US continues. Harvard and Yale would have us believe it is all up there, but for you and I, it is all out here, go West young man or lady. AS the New York Times founders losing millions a week, and New York City drives residents elsewhere with high taxes, one can scarcely tell in Texas that it is the worst of times. But in Detroit the residents hang on every promise from the NYC to Washington DC corridor, no wonder Perry mentioned the Secession word. 

  • Professor Elam

    GM’s Likely Future

    I suspect Chrysler is toast, here Jerry Flint speculates on GM's future. 

    For sure the Democrats in charge will keep GM somehow someway on life support thru the next Federal Election. That would hopefully capture several midwest seats in the election. With those states like Ohio and Michigan, along with New York and California, it is hard to see how the Dems could fail to hold the White House. 

    Meanwhile the battle for world wide auto supremacy will be fought between Toyota and VW, huh?

  • Professor Elam

    Sowell on Housing Bust

    Prof Tom Sowell's latest book examines who was behind the housing and financial crisis. 

    The Housing Boom and Bust would be a good choice for a book review in any business class. 

  • Professor Elam

    How We Feel About Celebrities

    Dallas based Davie Brown Entertainment has devised the DBI index that tracks and ranks how we fell about more  than 2,000 celebrities. You can go to the site here, but of course it takes a membership to view the results.  

    The index tracks how we feel about celebrities. Here is socionomics in action. The usefulness of the index is to allow firms to decide who would best be for example a spokesperson. That would be decide d by the traits the public links to that product or service. In trustworthiness, President Obama now runs second to Morgan Freeman. Mike Phelps shot up after winning multiple medals at the Olympics but fell from grace after the marijuama incident.

    This is more evidence that social mood dictates what actually happens in markets.