In case you are wondering where you gasoline dollars are going,trip over to Dubai Marina. Or better yet just google. abhu dabhai developers.  Or consider the audacious Palm Island.  Here is a reality check. American ‘investment houses’ like CITI or Merrill Lynch have gone overseas to shore up their capital base after losing Big Time in the sub prime market. Now there is a new kid on the block. This group of Arab Investors has not frittered away the oil money. They are starting what will no doubt be the new Investment Capital of that part of the world. Just a few years back strategist Barton Bitggs said no one else could do what Merrill, or Morgan Stanley or Goldman could do in terms of raising money. Since then a majority of the IPOs have begun taking place overseas There may be a real estate slump here but not in Dubai.

FEb 29, 2008 / In an unexpected move today GM CEO Rick Wagoner announced that the company is exiting the North American market. “We are profitable the world over and expanding market share except in our home country. We are embracing globalization, not running away from it. We see value for shareholders by seeking a Chrysler style sale on our North American assets and spinning that company off from GM. Stockholders will then have our strong brands in North America as well as a globally positioned firm that is expanding in the hottest markets of India and China.”
Wall Street, not to mention Detroit, was rocked with this news. Already hedge funds are said to be eyeing cash brands like Chevy, others are considering auction prices for the rest of GMAC. GM shares jumped 15% in pre market trading as analysts saw increased shareholder value in the two (or more) new firms. “Stripping off GM NA will finally send a message to the remaining 74,000 UAW workers that this is Alamo time for them,” noted an auto analyst familiar with the story. Goldman Sachs is rumored to be in talks with Ford over a similar proposition. “Handing the keys to GM headquarters in Detroit to the UAW is not out of the question,” quipped one analyst.
On CNBC after the market close, Jim Cramer noted that GM shares had lost 50% from their recent high of 42 last October. At the recent low of 22, ‘that’s close to the Kekorian low.’ Cramer was referring to the ill fated attempt by billionaire Kirk Kerkorian to gain control of GM. GM was cool to the idea of a merger with Nissan/Renault. Kerkorian gave up when the shares came back above his average cost and sold out.
Okay just kidding, but was I? GM recently recorded a $39 billion loss. While management announced one would need a PhD in Accounting to understand it, everyone understood that it wrote off tax credits. The credits only have value against earnings. After three years without any earnings, the credits had to go but can be revived with earnings to offset. While everyone assumes things change gradually they do not. Witness the sale of Chrysler, and Mercedes paying the buyers to take it. In the last few years, Britain has lost control of all its auto industry to foreign holdings. VW has Bentley, BMW has Rolls, and Tata just bought Jaguar and Land Rover from Ford. Ford paid $4.75 B for the pair, with little to show for the effort. Ironically it too needs the cash from the sale. Even storied MG will be resurrected in Oklahoma by a Chinese purchaser, Nanjing.
We wish GM and Ford the best. Our 1995 Suburban is perhaps the best styled of that entire model run over the years. It has required little maintenance. My 2003 Ford Escape is perhaps the best vehicle I have ever owned. At 93,00 miles, I have yet to experience an actual repair, normal wear, yes, repairs, nada. No one does better than that. Can Ford and GM convince the public to come back while they still can, Ford and GM, that is.

Jerry Flint  is literally worried about whether there will be an American owned auto industry. Click to read this important article.

I wrote a similar warning in my newspaper column at the end of February, I copied it into the next post.

Think about this from a national security standpoint.  During WW II, America won by simply out manufacturing the Axis powers. We supplied fighter planes to Russia We lent destroyers to England.  We built over 100,000 tanks and some 290,000 airplanes. We perfected the duece and a half all wheel drive truck. The Dodge Power Wagon was the original SUV.  If we lose our American owned car makers, would Toyota take up the slack in armaments for us?  In Flags of Our Father, it is pointed out that the US is out of credit, the Arabs are demanding gold for oil, gee aren’t we about there again with the weak dollar?  While one can doubt the probability  of another prolonged WW II type encounter, we have been in Afghan and Iraq longer than we were in WW II already. And again, it is our armored vehicles, unmanned drones, and night vision that have aided in the fighting.  Without this manufacturing capability, the US would be France. Ahem.

Alert student Gordon Carlisle posted this article about the economy.  The analysts suggest the S & P now at 1260 could fall hundreds of points.  Here are a couple of numbers to keep that in perspective.  In 1974 when yours truly gave up on the stock market and went back to UT to study for the CPA exam the DOW Industrials bottomed at 577.  That is about what it dropped from the 1972 high and where it landed. Recently it hit 14,400.  Today it is 11,500 or so.  In 1982 it had only climbed to 800 when the market finally took off. The post 9/11 low was 7,000 or so. So yes given the sick banking system we could fall further. For a real look at the lack of consumer confidence consider the price of MGM Grand.  The largest casino in Vegas has fallen from 100 to 35 since last October, a drop of 67%!  As Vegas goes, so goes America?  What is more optimistic than getting on a plane to gamble in an expensive hall where the odds are known to be stacked against you?  Indeed Vegas has been the hallmark of real estate speculation with $500K condos being quite common. Now the odds makers are saying , vis a vis the stock market, maybe not.

The DeLoitte Report on DISD is at this hyperlink.  We will be devoting considerable time to studying these recommendations as an example of the lack of proper internal controls in the audit class this fall. 
Apparently the adjusting entries brought the books into enough compliance to do so but this is an unusual case in my opinion.

I read a piece today in which Mike Gorbachev referred to Parkinson’s Law.

This is simply the idea that work expands to fill the time allotted for its completion. The reality of this is the extraordinary time needed when a bureaucracy is involved. Court cases, patent applications, hearings before the FCC, can all take years for what is essentially a statement of facts already known. An anecdotal example is that the US Navy operates numerous ships powered by nuclear reactors, France and Japan use nukes for their energy programs, yet the US nuke program has now been ground to a halt and is paying $140 a barrel for fossil fuel to its enemies. 

 Lo and behold as I read I came across Student Syndrome. The fact that this occurs so often in the same time and place makes light of the reality.  It is so named because students typically ask a professor for more time to complete a project. My experience is that they typically will ask for the very last day possible to present an assignment.  The problem of course is that this eliminates the time buffer they have requested. Indeed, in class this past week students asked to present Tuesday and Wednesday rather than Monday. I inquired if in fact they intended to wait until Monday night to do the assignment.  The alternative would be to huddle on Friday by internet or e mail, assign tasks, and have them done by Sunday.  Student syndrome points up that the buffer of time evaporates as at the last minute there is no buffer left.  Indeed this happens again and again. A book report can be assigned for the entire semester yet at the last week books are still unread, this is occurring right now in some classes.

Other examples include the frenzy of last minute tax return filing. And indeed that works both ways. While tax return preparers complete the circle by also asking for more time before an IRS audit, an IRS auditor remarked to me that most of the returns they look at have actually been filed with an extension of time to eventually get the return done. So like the client, the preparer continues the student syndrome.   In my lifetime I have seen ‘tax season’  and the frenzy of last minute work go from April 15 to August 15 and now to Oct 15, the literal last date allowed by law if an extension is filed on April 15.

The point is that when one dispenses with the time buffer, there is no time for reconsideration or checking the results 24-48 hours after completion. This would of course fall under the costs of appraisal in a Quality Circle. A failure to do so will lead to an external failure during the presentation. And indeed this is an external failure cost.  If the presentation is poorly done, and on the last day of class, there is literally no opportunity for a second chance for the student to show that they have learned from a mistake and improved. And so when asked for a referral on their ability after the fact we professors can only say,
beats me. ………

In his Quality Points Dr. Deming tells us that consumers do not complain, they switch. Hmm, maybe not all the time Dr.  Check out this story on how passengers refused to disembark from an airplane when the flight was cancelled.

In fact they stayed on the plane throughout the night, a sit in reminiscent of the 1960s on American college campuses if you will.

Okay, guess where this happened? And on what airline-surely in the US where protests are common or perhaps say France which always goes its own Gallic way, right?  Nope, how about on a Chinese airline among Chinese citizens!  Gee I thought this was a Communist country where one dared not defy authority?  Perhaps the increased press coverage prior to this summer olympics has something to do with emboldening passengers. But perhaps we are just seeing a global shift to a consumer driven economy.  People are tired in every country of indiscriminate cancellation of flights. So here it is – another  reason China is scrambling to build so much infrastructure in their country!  Communist leaders are well aware that the citizens know how the rest of the world lives. The failure to provide services and infrastructure could start with  a quiet protest like this.  But if it spreads to the billion residing in China, even the Chinese Army will not be able to stop it.  So, we have Communists, as Jim Rogers says in Adventure Capitalist, acting like capitalists.  They certainly saw what happened to Gorbachev in Russia and Calcesceau in Romania-he and his wife were shot dead by firing squad, without a trial.

My piont-ponder what this means for totalitarian governments all over the globe. Not to mention companies that fail to respond to consumer shifts in behavior.

Dear Ben Bernake

Mr. Ben Bernake,
Chairman Federal Reserve
Washington, DC

Dear Ben

It didn’t work.

I know that’s a ‘cut to the chase, right to the gut’ summary but, the time for hope is past. Yesterday the Dow Industrials blew right through the January ‘panic low’ and the March ‘rescue Bear Stearns and everything will be okay low.’ In short, that guarantee to Morgan to buy Bear Stearns that required one fourth of the assets of the FED balance sheet was for naught. It is time to re think the strategy.
I realize that you are surrounded by people that believe you can actually ‘fix this’ and will do anything to humor you to cast favor in their direction. But frankly you did not make this mess but could get blamed for not ‘fixing it.’ By the way, how bad are things now, let’s review.

If the Dow Industrials matches the decline of the financial Exchange Traded Fund XLF, it will shortly be at 8,000 as the XLF has declined 43% just since last April. But hey, the DOW is only down 18%, so far at 11,400. GM stock has collapsed 71% since last October. Ford stock sells for less than any Ford oil filter. Bond insurer AMBAC ABK is down from $90 last summer to less than $2. The biggest casino in Vega, MGM Grand has lost 65% of its value, now there is a consumer confidence indicator for you! Oil has hit a new all time high, gold recently did the same. It could get worse, the oil price could start down indicating we cannot afford to pay the cost of it, note that Exxon XOM has not gone to a new high suggesting that might happen. The dollar has lost 40% of its value since pre 9/11. Most everyone agrees that commodity prices are up with the dollar down. Bond holders are nervous about getting paid back in tiny US bucks.
Oil has risen in price from $80 to $140 but demand is certainly not up 75% since last year. So the price ought to be about $80.

Now what are you going to do about it?
Stop trying to everything to everybody. These guys on Wall Street got themselves in this mess, it is high time they were held accountable. Besides, Justice has already indicted two of the Bear Stearns traders so why rescue more of them? Show some courage. Bond interest rates are already up, the FED usually follows their lead. Raise rates one half a point. Call the Congressional leaders together and point out that caribou and polar bears do not vote, American voters have a habitat too.
Get them to announce drilling in the Gulf and on Federal Lands. Everyone buys gasoline but everyone is not in Greenpeace. Showing the world we are taking responsibility for ourselves will bring oil prices in line and some new respect for the beleaguered buck.

Or you can do nothing. For a picture of what that will be like, gander at a few 1980-81 U S Newspapers. Sky high oil prices, rising unemployment, the DOW at 800, it was not pretty. And remember, Regan beat Carter 489 electoral votes to 49. The markets will take rates up if you don’t. In fact interest rates on most bonds are already going up. Trust me, if things are like this next January, the new President, not the polar bears, will pick your successor.

The long awaited  audit report from Deloitte on DISD has been presented, and it is not pretty.  Clearly the report was delayed until after the $1 B + bond election, which passed.  Click to read the DMN article.  Numerous control failures were cited by the new audit firm which replaced KPMG, another of the big four firms in the world.  As the timeline shows, DISD blew through numerous CFOs over the last few years.  The failure to balance subledgers to the main ledger, perform bank reconciliations, account for grant money, the appointment of outside consultants.The consultants say it will take three years to get things corrected. My take, gee Jimmy Johnson went from 1-15 to the Super Bowl in three years and we won WWII in four. This is accounting not the Super Bowl.  Simply acknowledging that things are bad and we should do better is hardly an adequate response from the Superintendent or the Board.  The article notes that there are less than five CPAs on the entire staff to handle the $1 billion budget.

We are studying school communication in EDAD 5610 and accounting in ACCT 5020. This is a perfect case for both classes.  Please , if you have not, get to  the store and buy a copy of the Friday Dallas Morning News. This is a keeper. As a communication event this is worth studying.  AS an accounting event this is a disaster of Titanic Proportions.  Interestingly there is a photo of teachers protesting about their lack of a raise, apparently they were not inside listening to the report.

DLE

I know I know you have been waiting anxiously but did you know it was already here. Yes the team that has won three WORLD championships and is now well on its way to a fourth. They smashed Miami 49-0 just last week. Yep what the world needs now, Women’s Football.

No no not women’s cheerleaders for men’s football, women’s football.  Meet the Dallas Diamonds.