Professor Elam

Accounting & Investing Info for San Antonio A & M

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  • Professor Elam

    Internal Control Problems

    Lancaster ISD near Dallas, Tx has a few internal control problems.  Apparently no money is missing but reading the article one can see IC is well lax.

    This is the reason we study internal control in both intermediate and audit. Read this article for examples of both. Lancaster is next door to DISD, another of our favorite IC examples on this blog.

  • Professor Elam

    Jobs Number Worse than it Sounds?

     From the Elliott Wave Group

    www.elliottwave.com

     

    Long experience has shown me that it really pays to read beyond the financial headlines. You usually have to dig into two or three articles about the same story to get all the relevant facts — or even to learn what the real news is.
     
    Like today's big story about "651,000 Jobs Lost in February." It's tempting to give that a glance and just move on — the job news is bad and everybody knows it. But, here's what you might well conclude if you did some digging: The 651,000 figure is probably way off, perhaps by as much as 30% — meaning the jobs losses would be more like 846,000.
     
    Why a 30% difference? Not for some nefarious reason, but instead because economic data nearly always undergoes several revisions after the initial report. When more data than usual is coming in on a given economic activity — like a labor market that loses at least 2.6 million jobs in four months — the revisions tend to be large. The people who crunch the numbers literally have more work to do.
     
    For example, the initial report for December 2008 was a loss of 524,000 jobs; a month later that December figure was revised up to 577,000; another month later (today), December's figure was revised up to 681,000. That's a 29.9% increase over the initial report.
     
    Since you've read this far, I may as well fill in the rest of the ugly picture. The New York Times and Wall Street Journal each ran stories about how today's unemployment rate of 8.1% itself understates joblessness. If you include people who want a job but have stopped looking and part-time workers who want a full-time job, unemployment stands at 14.8%.
     
    Professor Elam's take
     
    While indeed 14.8% sounds bad, wait, if one is laid off, one is usually eligible for unemploymnent.
    But today's headlines warn that state unemployment funds are already running dry. My personal experience observing the unemployment skyrocket in West Texas in the lat 1980s was that  most folks got very comfortable very fast on unemployment. I suspect it should decline from the second week, driving home the point that this is a temporary aid, not a new position.
     
    Right now the US Dollar is strong because the Euro is weak, how long before New York and California are demanding that the FEDS replenish their unemployment funds?  How long can the US borrow from the world to do that?  How long before states in better shape, like Texas, realize they are subsidizing the inefficiencies of failed states. For example, California has enacted all sorts of special environmental formulas for their gasoline, meaning the gasoline refined in Texas cannot be sold in California.  The new administration has actually favored such irregularity. 
     
    Pre Khomeni, Iraq was a reltively westernized country.  Sadam Hussein set it back a century or so, its collapse brought on a virtual 800 AD midevil environment, Mad Max circa 800 AD  but with modern weapons. And it all happened in a matter of months.  Here we will have swelling resentment over illegal immigrants taking jobs (remember)American do not want, hmm, do they want those jobs now?  You bet they do or will.  Oh I forgot, for those of you in your 20s, Mad Max was a series of movies that brought Mel Gibson to international attention. Made in Australia, it depicted a society in utter chaos, fighting over what little fuel was left. Society, what there was of it, had descended into anarchy.
     
    On my return to this campus in August  I warned of the trend to negative attitudes. With unemployment at 8.1%, prepapre to see those attitudes up close and personal on the evening news.

  • Professor Elam

    Frank Luntz, Words that Work

    Luntz  did lots of audience focus polling during the election.  This is a link to his site. Since we study how to make an effective presentation in class I thought this link to his site as well as his thoughts on rhetoric would be of interest.

    Clearly he has a career consulting with folks on how to best communicate their message.

    Perhaps soneone will review his book Words that Work for us!

  • Professor Elam

    Impatience

    Before there was a Warren Buffet, there was John Templeton.

    Templeton pioneered the idea of global investing, was knighted, and no less than Prince Phillip, husband to Queen Eilzabeth, conferred his annual humanitarinan award.  I observed Templeton make the remark in the 190s that Americans (or anyone else) would not likely sit still for the sort of prolonged economic crisis that we had in the 1930s. Then FDR would thry this and that for years and years, all to no avail. FDR was never able to re ignite the private investing economy. Eight years later unemployment was still well into the double digits.

    We appear to be headed to that end now, high unemployment and massive financial difficulty as I have cataloged here. The State of California cannot send a citizen a good check for an income tax refund. As my wife queried, how long will people let the government confiscate their real wages and return only a promise.

    We just had the worst two months in stock market history in Jan and Feb. Clearly this is a no confidence vote in the Bush policies that Obama has continued, printing money and changing plans week to week.  CITI stock about a buck and GM has  Going Concern warning from its auditors.  Stocks melted another 300 points yesterday.  

    Obama may have won the election but we will have another Congressional primary in about twelve months. While Congress has gerrymandered itself to near permanent status, as the last two elections have shown, there are some swing seats that determine who runs the show.  The clock is ticking and America is waiting for action not promises, until then expect lower markets. I chronicled the tea parties planned for April 15. If stocks are still melting then, expect the start of a real revolution.

  • Professor Elam

    Auditors Post Going Concern at GM

    If the Viability plan does not work for GM, the auditors say it is subject to a Going Concern Warning, ie, it would have to liquidate. 

    High Noon for GM the UAW and the FEDs is here. 

  • Professor Elam

    Weekly Column

    Getting up Off the Mat

     

    Will
    the Rocky Balboa of the Permian Basin (energy prices) get off the mat?  Or as  Trainer  Burgess
    Meredith quipped, is he hurt Poimanent! 
    The answer is that prices are showing bottoming signs though a genuine
    rally across the energy complex has not begun.  We need all four components rallying to become bullish but
    there are hopeful signs.

    Crude
    oil trades monthly at the New York Mercantile Exchange (www.nymex.com).   As noted here, those prices have traded at deep
    discounts to future months, recently as much as $5-6 from the near month to the
    next. This reflected a world awash in oil.  Stories of ocean going tankers as storage facilities still
    dot the news. But,  do not look at
    the news of the latest OPEC antics to gauge the markets. Instead look at the
    what the markets are saying.   Oil for April delivery is trading over $40.  Six months out the contacts are about
    $6 higher, This is  a much more
    normal relationship that reflects the costs of storage.  Just two months ago the deep discounts
    to the future reflected way more supply than demand. While the daily dollar
    plus gyrations frustrate, the prices are slowly moving up. Various technical indicators
    are flashing recovery signs.

    Heating
    oil has not recovered. It is trading at $1.21 and needs a close over $1.65 on
    the weekly charts. Unleaded gasoline has recovered from a spike low under $1
    and now trades at $1.38. This price has generated positive technical signals.
    (This is a newspaper column not a technical market letter after all).  Perhaps the most significant component
    for Texas is natural gas.  This is
    because the US produces natural  gas, it is not imported from the Mid east. Buying season for
    natural  gas is the spring when
    prices seasonally rise. This component has collapsed from over $13 to
    $4.34.   This market needs a close over $4.84.  This may be  the best indicator for the Texas economy.

    The
    fact of the matter is that stock prices track crude oil prices. Once crude oil
    started dropping from $145, stocks accelerated their downfall. The reason is
    simple, crude oil price demand is a barometer of the economy.  Even stocks are not accelerating with
    the same ferocity shown in October and November.  Stock prices however have lost over one half of their total
    advance since the 1932 low at DOW 41! And this has happened since October,
    2007. Admittedly half that advance to DOW 14,000 occurred since 1995 but it
    happened.  The full result of this
    erasure of wealth, this theft from every endowment, 401K and IRA has yet to be
    felt.  Estimates by the State
    Comptroller that only 100,000 jo9bs will be lost in Texas are hopelessly naïve.   Still the big drop in stocks
    should be nearing some sort of capitulation this spring.   We certainly do not believe that
    will be THE low in prices.  The
    market is reflecting  all time lows
    in bullish sentiment and nearly complete 
    wave structures.

    Ask
    your friends and neighbors, is anyone buying shares of any energy concern?    Would any banker loan money
    on oil in storage at this point, now that prices have collapsed?   Patterson Energy, my informal
    proxy for the Permian Basin Economy, is back to 2001 price levels. The market
    is still selling PTEN. 

    Market
    bottoms take place amidst massive negative psychology.  People swear they will never ever ever
    participate in said market again. 
    PTEN is trading for 59% of book value.   It has no debt. 
    Cash amounts to 53 cents a share. 
    This means  the equipment is
    priced  at less than half its book
    value.  At this point, the market
    seems to be saying……

    Yo
    Adrian!

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

     

     

  • Professor Elam

    Quants Get it Wrong!

    While surveying the magazine rack at the airport, this article in Wired Magazine caught my eye. 

    Okay I have not digested it all myself yet but looks interesting, seems David Li came up with a formula for risk that did not quite take every possibility into account. And then the markets melted…..

  • Professor Elam

    A Smaller Bite of the Apple?

    The Apple Mac that is

    One author says Apple had best abandon its platinum pricing policy not seeing enough innovation at slightly lower prices to move inventory out the door. 

    Dell stock has dropped below $9 to $8.88. Apple is about ten times that…..

  • Professor Elam

    Protectionism

    India is worried.

    The new administration in the US is making it more difficult for companies to hire workers with certain foreign visas. And now Obama is making it harder to send work overseas, for the Kelly Girl of the Far East, this is bad news.  

    Just yesterday BRIC was Brazil Russia India China, a fast rising ETF. Now, growing protectionism threatens the fabric of globalization.  

  • Professor Elam

    B/W – Worst Hiring Climate Since 2002

    Business Week

    says it is the worst hiring climate since 2002, the last time the Dow dropped to 7,000. Indeed it is much worse than that because the Dow is still dropping. We have taken out the half way point from the 1932 low of 41, virtually zero to 14,000. NO one knows where the ultimate low will be. 

    As we discussed in Ethics class today, we have you do presentations and papers in class to prepare you for this eventuality.  On a job interview you will be sized up in the first five minutes. Your promotion may well turn on the one page memo you write about evaluating a section of the firm's business. This is the time to experiment and stretch yourself, plan on making the mistakes here in class,not on the job. that is why we are here. Yes I realize it is not alway comfortable standing there in front of the class, but hey, we are all pulling for you. 

    I would liken this to 1974-74 when the Dow bottomed in December 1974 at 577.  But relax we are not that far down, yet…