B/W reports aht lay offs should start any time with the huge US slowdown.

Look for unemployment and then crime to rise.

The Boeing Strike is literally costing the US Production.  The strikers do not want work outsourced outside the US or for that matter to any non union area. Good Luck.  Everyone is losing here.

This is also an example of a union trying to hold on to a defined benefit plan, they are on the way out.

A union shop state is one such that compulsory union membership can take place within a month of employment. this is why no one wants to build a plant in michigan or Ohio or Pennsylvania, all swing states in this election.

A right to work law prohibits this practice, hello new auto plants in Texas, Alabama, and Mississippi.

I cannot find a link but the front page of the SA Express News on Sunday carried a long story about Henry Cisneros involvement with KB, Countrywide, various affiliates, skirting the story of how he made millions, and left us with, Lago Vista. Lago Vista is on Zarzamora between the Loop 410 and I 35. It is surely a testament to the sub prime debacle. Billed as a new subdivision for the south side, it is a pretty sad group of inexpensively constructed 'houses' many already in foreclosure. The jogging trail never got built nor the reflecting pool.  Henry of course made lots fo money. He does not remember the rule being repealed that requred lenders to have third party appraisers any more than Barney Frank or Chris Dodd remember Republicans wnating more control of FNM and FRE.

Lago Vista is a mocrocosm of the socres of so called developments that now spread past 1604 to the west.

I am interested in your comments. Henry has now promoted San Antonio with the Alamodome and now thousands of sub 1500 sf 'homes' at inflated prices.  The list of rental properties on San Antonio Multiple Listing Service grows as I write. They can't sell, so let's rent them. Tomorrow's neglected negihborhoods are here today.

Guys like this are expert at gaming the system. A stint as a cabinet secy, an under, deputy, assistant to, whatever. Next thing you know they re appear as a lobbyist to the same bureaucrats they were supervising. Then they move on to management  positions of Boards and new start ups. There is always a link to their former post, this is most notable in the military defense industry.   this is how Arthur Andersen abrogated their oversight role at Enron, today we audit tomorrow we work there. 

 We can no longer afford the wars in Afghan and Iraq, they will soon become smaller.  We are however saddled with the results of the Community Organizers…….take a few mintues to drive thru Lago Vista on your next campus commute, you tell me….

Noted economist and erstwhile Hollywood actor Ben Stein offers up the most succint explanation of just how things went wrong and why the stock market crashed. He believes that the government will solve this problem by magically making the trillions of Credit Default Swaps go away.

I don't. The only way for this problem to be solved is for

houses to go to whatever market value they will have.

That process will be painful.  I suspect that a 1500 sf house is not worth $150,000, probably half that is more likely. At least the government is not going to attempt to buy all the bad mortgages, putting capital in the banks is the better idea. 

I look for more tests of the recent lows. Mid December looms large as another test. Retail stocks have tgruly collapsed wtih even MCD and WMT joining the fall this past week. Yikes, a good time to be in school.

My friend Terry Box writes the auto column for the Dallas Morning News. This week he wrote about a $79,000 modified Mustang, admitting that he could not understand the high price for the  500GTKR.  Terry has provided an  excellent management accounting example, let's analyze this.

I think I see the problem, indeed this car may be a classic for Ford, their stock price hit an all time modern low of about $2 just as 571 of these limited editions were produced. This parallels their peak in 1970 or so when they were building the then overweight forerunner to this overweight vehicle. 

This is a classic failure to apply Total Quality Management, Just in Time Techniques JIT to production lines.

Detroit still marvels at how Japan can produce low volume vehicles like the Miata with high quality, Miatas sell about 12-20 ,000 units a year in the US.  The reason for the GT high price is not the components but the fact that the car is being built twice. After it is completely built in Michigan,consider the added costs, all of these are non value added which is what JIT seeks to eliminate.

It is shipped to Las Vegas.

Numerous components are taken off the vehicle, like the suspension, hood, rear differential, wheels, exhaust system. Then we re install the new stuff, install in Michigan, un install in Las Vegas, then re install in Las Vegas, hmmmm are we seeing the problem here?  Even taking a semi finished car off the line and sending it would be a better idea.

What happens to the original parts that are removed I wonder, do the mechanics hock them at a salvage yard,  probably a better idea than  shipping them back to Michigan.

We even have to disassemble the interior, I would guess, to install a new shifter mechanism, gee, how much more does that cost than if we had done it right the first time?  Again, new components, what happens to the installed ones. By the way, if the Hurst shifter is such a great idea, why not re design the Ford Unit on ALL the vehicles, if it is better, why not, would it really cost that much more to design it right to start with?

And of course this is an extremely low volume process with no doubt many more hours required to do this the second time, not to mention disassembling all the first round work done in Michigan, all this has to be paid for by the consumer.

Now we are in Las Vegas, and of course the shipping dept is in Michigan. So a special hauler is necessary and admittedly it is a showy touch. But note we basically have a pickup truck engine in a not very sophisticated chassis, no independent rear suspension at this price,  with an $80K price tag by the time it hits San Antonio.

The inability to substitute the correct parts on a large assembly line has caused the massive increase in price at a time. Students will recall my example of Hunter Marine and their multiple products, many of which are closes in size to one another.  No doubt there are people who can pay the price for so few vehicles, but that misses the point. Why not put the right parts designed by folks like Hurst on from the get go, gee that is the way Mazda does it on the third generation mazda. Did I mention Ford owns a third of Mazda? So it is not like Ford could not get a few suggestions. As we say in accounting, if you own 20% of another company, you exercise significant influence. In this case, maybe not. It is rumored that Ford wants to sell their ownership of Mazda to keep Ford afloat longer, are we going the wrong way here?

In case you think I am exagerating all this about local govt problems, click DISD for the story on mass layoffs just two months in to the current school year. This is of course absurd, all salaries should have been cut district wide so that everyone could retain their job in a slowing economy. This is particularly so as DISD is one of the poor performing national wide large school districts. The spectre of a superintendent making a quarter of a million dollars, or more, in one of the best economies in the USA while firing innocent employees is a spectre of mass incompetence on his and the Board's part. This is why, ahem, we study accounting.

Muddled stories like this one about Lancaster Schools do not help citizens to be informed. This long story omits the current reality that the Board finally suspended Dr. Lewis. Lewis claims to think 10 years ahead, but apparently not in this year when the budget needs to be balanced. He overestimated attendance, which causes the school to receive state money. He then budgeted that money. Without the attendance, he is now short the funds.  Accounting matters.

Dispatches from the Market Front

We consistently warned of a top in oil prices this summer, now it is here.  Oil prices have dropped 50% since June. Now what?  Look for support at $60-70. OPEC, which has never shown the ability to stop prices from falling, has moved its emergency meeting to Oct. 24.  While Russia and Venezuela are not OPEC members, we expect their influence will have considerable sway.  Predicting what politicians might do is beyond our crystal ball, but even the suggestion that Russia might experience ‘supply interruptions to Europe’ would snap prices back.

Patterson Energy PTEN reflects the Andrews service economy. It has lost two-thirds of its value since June returning to the $12 level.  This price for PTEN has not been seen since 2002 when oil was $20!. The reality will be a cutback in the amount of time service companies can work, and a resultant collapse in all overtime wages. That means a lot less disposable income in West Texas. We hope readers, and their bankers,  used the $145 oil price to eliminate debt as we suggested.

The weak stock market reflects the reluctance of banks to loan. Fearing their own demise, banks have been afraid to loan for fear of not getting paid back.  Yet the London Interbank Rate LIBOR is easing and there are signs the flood of Central Bank money is starting to help.  Understand that the collapse in commodity prices from grains to oil has been spurred by the inability of normal commercial wholesalers to simply finance inventory shipments. This is the ‘oil’ that lubricates everyday commerce.  Hopefully that lubricant will start to flow as the US focuses on the new Big Four Banks (BAC, C, JPM, WFC) that will run the US financial system. Watch the stock prices of those banks for signs of renewed confidence, they are off their recent lows.

October is the worst financial month of the year.  We hope that the recent  lows seen in stocks will not be violated and that DJIA 7943 holds. Two weeks remain to exit October and the November elections.

Meanwhile we should see shocking new lows for commodity prices this next two weeks. We suspect it will be a buying opportunity. The adage suggests ‘buy low sell high’ but most do the opposite.

The next crisis will involve municipalities of all kinds.  Municipal bond prices have tanked 20%. This suggests real fear on the part of those investors that municipalities will not be able to re-finance their obligations. As usual, California is already in crisis mode, Vallejo is in bankruptcy and teacher payrolls must be financed statewide. In Texas marginal homes that cannot be sold are quickly up for rent. But the prices of materials used to construct those homes have collapsed. So the ‘home’ is literally not worth the lumber prices used to build it.  The answer is for home prices to do what stock prices have, tank. But are local governments ready to admit that local homes are not ATM machines for endless higher property tax bills? Cities, counties, schools will have to admit that property tax roles are grossly inflated. Local tax payers will soon revolt over inflated valuations.   Already schools in the Dallas area (DISD, Lancaster) are cutting wages or laying off employees. Get ready for much, much more of this state wide. Watch municipal bond fund prices like FRHIX for signs of improvement.

Retailers are pressed. The Toy Departments of boats, RVs, airplanes, second homes, etc. will shortly be subject to fire sales. Watch the retail SPDR XRT for signs of a bottom. 

Silver lining department-Airline stocks have bottomed as LUV hit long time support at $11.50.  Remember that the Andrews economy runs exactly opposite the US economy. As the Permian Basin  soared earlier this year the US was set to tank, it has. Now Andrews will undergo a pullback, watch PTEN for signs of improvement.  Lower gasoline prices will at least provide some cushion for consumers, if not in Andrews…..

One hardly needs an expensive econometric service to track popular sentiment. The ultimate shrine to the ‘Pinnacle of Misplaced Hope’ is surely the ‘Strip’ of palatial gambling palaces in Las Vegas. MGM Grande (MGM) and Las Vegas Sands (LVS) have matched the collapsed of the Dow Industrials in 1929. They have lost 90% of their value since the highs last year. So forget the Council of Economic Advisors. Just pop MGM or LVS into your favorite stock quote system for a look the real pulse of American consumer confidence.

Dennis Elam has authored  a weekly newspaper column in West Texas for over ten years. I will be publishing it on the blog in an attempt to add more coverage of markets.

Progress in Socionomics references our comments on the Dark Knigth. Click on Fall 2009 to see the full newsletter after you click on the Progress link.

Socionomics seeks to link the causality of popular culture and human emotion with how society views and shapes its responses and reactions to events. It holds that mood shapes events, not the other way round. For example, I have cited numerous incidents the last couple of years that foresaw a declining mood. Movies like The Dark Knight respond and reflect that emotion. Just as people crowded into theaters to watch The Exorcist, billed as the scariest movie ever at the time, they flocked to see The Dark Knight, tag line, the City Has No Hope. It is no mere coincidence that indeed many cities do not have a hope of meeting their financial responsibilities. Now markets and indeed confidence has plunged to new lows not seen in years.

Yovela Rico posed a good question to my observation that Russia may well loan money to Iceland. What does it mean in their relationship?  Well, the creditor pretty well owns the debtor. If the debtor fails to do what the creditor wants, no more credit, just like the bank loaning a business money.

The lady with Craftsman, we want lower priced tool pouches, did not know what to make of the current situation, nor did anyone else.  Somehow this presented opportunities though they were not specified. What has happened is this.

We export our light manufacturing to a cheaper country.

That country takes the money they earn and buy US bonds.

Now China is our creditor, and banker.  Are we in any position to tell China anything?  Where will the money come from for the bailout?  We have to sell bonds to the Chinese and anyone else still buying to finance all these bailout schemes or stimulation schemes.

My question

Was the cheap tool pouch really worth it? Now we go tin cup in hand begging the world to loan us money to continue this lifestyle?  Wouldn't we have been better off to make our own tool pouch, buy our own bonds, and cut back on lifestyle?  As it is we will have to cut back on our overseas commitments as the Buchanan column suggested I linked to. We will be watching the end of the US empire just as Greece, Rome, Holland, Spain, France, and Britain have seen their expansion and decline.

Meanwhile in San Antonio….

I have been looking at houses, and now rental houses in San Antonio.  What has happened is this. so many marginal houses have been built that now owners cannot sell them. So they are going up for rent. The first ones coming up are marginal, usually too far from the loop 410 to be handy to any job. As more and more houses go to rental instead of sale, what will happen to the rents, I suspect they will go down. A 1500 sf House becomes the new apartment.  This was all a foolish attempt to stimulate the economy by building marginal houses for people that cannot afford them. Now the price of material to build the house has fallen, so the house is not literally worth the cost to construct it last year.  With falling commodity prices, unemployment up so that there are plenty of carpenters, and financing not available, we will have more and more poorly maintained homes. No wonder muni bond prices are falling. Who will pay the property taxes on all these homes if they are vacant?  How can the city claim that property values are not falling?

VIctor Hanson explains the housing crisis in plain English. People that could not pay for their house and cannot now are no help to the rest of us that might and do  pay.  A house indeed is a place to live, not an investment to flip.   But I do not hear either candidate saying that.