Professor Elam

Accounting & Investing Info for San Antonio A & M

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  • Professor Elam

    Perot Family Gets Margin Call

    The Parkcentral Global Hub LTD Hedge Fund fell from $2.52 B to $266 M in a matter of months.

    While that in itself is not unusal given what has happened lately, the fact that the Perot family was the biggest investor was unusual. This is not the sort of thing that made Ross Perot rich. Speaking as one who has worked for Ross, I suspect this Hedge Fund idea came from someone other than Ross.

    Margin calls hastened the need to sell assets as this Fund like most others was highly leverage, ie, using lots of incredible debt. That is what caused so much selling, the need to raise cash to meet margin calls. This spiral down of selling   magnified the losses. IN short, we have a margin call as our security values have fallen. Okay sell something to meet the margin call. Whoops, now the value of other securities are down, so we need to sell some more to meet other margin calls. And before you know it, over $2 B is gone.

    An old saying has it, shirt sleeves to shirt sleeves in three generations.  The idea is that grandad makes money and the kids, not understanding how he did it, then foolishly risk it away. I don't expect the Perot bunch to be looking for jobs but I imagine there was a serious I told you so conversation from Ross.

  • Professor Elam

    The FountainHead – Ayn Rand

    Fountainhead Austin Kroll discussed Atlas Shrugged in Ethics class last week. I incorrectly suggested that Gary Cooper had been in the movie of the book, whoops, it was Ayn Rand's Rountainhead instead.

    That book, click the hyperlink for a description, is all about sacrificing principle for profit. Like Atlas, a great topic for an ethics class.  

    Patricia Neal fans can also spot her in winning Best Actress for Hud, another movie on my Ethics list come to think of it, and with John Wayne In Harm's Way.  Neal suffered a stroke after Harm's that limited her career for several years.

  • Professor Elam

    Soak the Rich, Playwright Weber Responds

    Birtian and the US are mimicing one antoher, tax the rich, they can afford it. But can the entire country. People vote with their feet and Weber here explains that will happen.

    Talent will simply pick up and go elsewhere. Interestingly Ireland of all places realized this a few years back, they lowered taxes to ten percent, attracted talent from all over Europe, and grew the most of any Western European country.

    Will we make the same mistake, we already are as New York has the highest taxes of any place one could live.

  • Professor Elam

    GM to Shutter Factories for Nine Weeks

    GM is planning to close factories for nine weeks given the 123 day supply of vehicles on its lots, and its precarious financial position. I doubt it can satisfy bond holders and come up with a plan that suits the government. 

    The government's plan is to force GM into BK court I guess. This however is seriously playing with fire.  Once the factories are shuttered, and the bond payments stop, as the economy shrinks further, will there be reason to come out of BK?  Apparently the secured bond holders are protected with credit default swap insurance.  So there is little reason for them to budge. Apparently the UAW will drive their car off the bridge believing the government will not let GM fail, whatever that now means. 

    This may have a very very bad ending. The only thing GM can really lay unique claim to is building a good light truck line up to about the two ton level. But that is a small fraction of what they do overall now. I am increasingly fearful that a trip into bankruptcy court may well be a one way venture.  When the government is faced with ultimatums that the taxpayers may not weather, it may be very very tough to emerge from BK court at all. 

  • Professor Elam

    Death of Newspapers

    John Kerry reporting for duty, again, this time for newspapers. Worried that the 'diversity of opinion' will suffer without the Boston Globe (that never met a Democrat it did not like) Kerry plans hearings for the newspaper industry. If the idea of the Feds running Fannie Mae and GM is not enough, how about the newspaper industry?  

    We suspect the total and utter lack of diversity as well as 98% editor content of newspapers is driving them out of business.  Every blogger offers a magazine for individual tastes. As newspapers cut back they eliminate more original, read local, content and add more you can get it anywhere why pay for it here boilerplate. 

    Talk radio and blogging is all about giving impetus to the creative spirit, you can contribute. Newspapers are all about editors telling us what we should think, hello Tea Parties. 

    E bay, Craigslist, Thrifty Nickel have just about gutted the private classifieds.  Now car dealers and realtors are on the internet. It is only  a matter of time before the strapped car and real estate industry drops the newspapers, after all, internet ads routinely feature a dozen photos of one car,this is impossible in a newspaper classified and delivers more content than the paper. Hello buggy whip. 

    Perhaps Kerry Heinz wife will buy the Boston Globe for him, or her. 

  • Professor Elam

    Texas Subsidizes Solar Power

    Picture 4

    Tax paying Texans  will no doubt be thrilled to learn that
    their legislature, ever vigilant to spend money, will be subsidizing solar
    power. As the price of oil falls through $50, funds will be siphoned off from
    electric bills for solar, ah, innovations. (So all the electric bills somehow
    contain ‘extra’ money?)      Firms,
    indeed homeowners, will be getting subsidies for installing solar generating
    schemes even though as mentioned they are inferior in producing energy to oil
    at these prices, but then whoever said going green would be
    cheap. Remember America voted for change and here it is.

     

    We went through all this in the Energy Crisis of 1980, and here
    we go again. Enviro types wistfully dream of putting garbage french fry grease
    or sunshine or some such in the auto fuel     
    tank ala the last scene in Back to the Future or. My
    understanding of solar cells is that the dirty secret is simply that more
    energy is expended in CONSTRUCTING them than they will ever recover in their
    useful life. It apparently takes huge amounts of energy to cook the special
    cells that turn light into energy. 

     

    As I pointed out to one presenter at the San Antonio Economic
    Conference, how about      subsidizing
    something      that actually works now?
    We got everyone in the country to install ceiling fans in the 1980s (actually a
    circa 1900 idea, tongue in cheek, there is nothing new under the sun). Nothing
    fills up strip mall stores faster than a new tax credit for an old idea like ceiling
    fans. So doing our part for Going Green not to mention      filling up auto showrooms and empty
    strip malls, here goes.

     

     

    Okay, if we really want to harness the sun's energy, how about
    an investment tax credit for installing roof mounted water radiators? Run a
    line from the hot water heater to the heat exchanger on the roof, I would guess
    water could easily be heated to 120 or so in the summer months, relieving work
    for the hot water heater. 

     

    The tank type water heater is literally a waste of energy, Not
    only does the high water temperature have to be maintained regardless of
    demand, once used the tank runs out of hot water. The superior design idea is a
    heated, water filled coil. Hot water is produced by simply running water through
    the heated coil so one never runs out and there is no water reserve to heat at
    all times. Let's give an investment tax credit for those adopting this superior
    technology, ala the 1980 ceiling fan. 

     

    How about adopting the practical idea of the Guayabera shirt, or
    at least killing the hated necktie industry once and for all by encouraging
    this Mexican Panama idea?

     

    The US Navy has had the
    original Bermuda Shorts idea as a standard uniform for the tropics for decades,
    if it is good enough for the US Navy, why not the rest of us? Both the shirt
    and shorts would eliminate the need for as much air conditioning in the
    summer. 

    Let's encourage porches all around, shade will keep the sides of
    al buildings cooler.

     

    How about no to very slim windows on the west side of homes and
    buildings? Thanks to the irrational idea of daylight savings time, it gets
    pretty hot on the west side at 5:00 PM here in Texas.

     

    Honda launched once had a
    600cc sports car for sale in the early 1960s. How about a tax credit for under      1500 cc (ninety cubic inch) 96 inch
    wheelbase cars weighing less than 2800 pounds?      This business of eight passenger vehicles is a joke
    anyway.      Suzuki built a 1000 cc
    vehicle of this description       
    sold under the Geo name in the 1980s. GM of course dropped it and now
    look at the company! Fun cars that deliver great economy, gee maybe that would
    get folks back in the showrooms.

    In the meantime, those
    looking for updates on the markets need look no further than my blog     www.professorelam.typepad.com/markets.
    And, unlike solar panels, it is government subsidy free….    .


  • Professor Elam

    CFO Freddie Mac an Apparent Suicide

    The 41 year old CFO of Freddie MAC FRE apparently committed suicide at his home early in the AM.

    While he was not the subject of any investigation no doubt he was under pressure as FRE lost billions in the mortgage market.

    Indeed this is a tragedy, we will see more like it. Interestingly of course the real culprits like Bernie Madoff or Ken Lay never hold themselves accountable and as Gordon Liddy might say, do the right thing.

    As I have said numerous times here, the socidal mood is turning down.

  • Professor Elam

    Look at an Audit Committee

    Enbridge Energy Partners EEP gives a good picture of how proper corp governance works in the SARBOX age. Take a look at their explanation of how the audit committee operates independent of the Board. Note that there is an anonymous tip line, many frauds are discovered this way, someone talks. 

  • Professor Elam

    Ford May Need Fed Funds

    Angus McKenzie at Motor Trend reports that Ford may also need some funds. 

    Yes Ford borrowed $23.5 B at the end of 2006. But Ford admits if sales are under 10 M units, it too will need funds. Read more on how automakers the world over are hurting, Mercedes burning through $24 M a day.

    Wondering how this ties to accounting?  Chapter 5 and 6 of Garrison's  Managerial Accounting covers break even. We know break even equals fixed costs divided by contribution margin, sales minus variable cost. None of the auto makers can cover their fixed costs at this overall sales level. If this keeps up, without government subsidy, some automakers will go out of business. This happened in the 1930s, for that matter it happened with Packard and hudson in the 1950s and Studebaker in the 1960s. 

    The slowdown in the 1930s took out Auburn Cord Duseberg makers of those luxury cars of that era. 

  • Professor Elam

    Today a Courtroom, Tomorrow Larry King!

    The surviving pirate turns out to be a Somali teenager who according to his parents was

    lured and recruited by strangers with money. Gee this is starting to sound like some sort of ocean going Goldman Sachs internship program!

    Of course a civil rights attorney now questions whether our pirate is of age to be tried.

    Gee what next, a roundtable with Dr. Phil on Larry King, Oprah, Greta, a moment with Whoopi on The View?   Note the other three pirates in the boat were shot dead, one would think there would be some gratitude for being alive period , but well I report, you decide.