Wall Street always has a darling. Right now it is Apple. 

For years it was GM, then IBM, then a series of where did they go like Wang or DEC (heard of them lately) and then GE ( today a shadow of its former self in terms of stock price).  Now it is Apple. Is this pullback, crash, permanent turn in the market (you decided) a call to buy or the start of a turn in the vaunted high tech market?  This is a fundamental analysis that may or may not be correct. For every buyer there is a seller, which is right?

John Stossel makes the point that more economies offer more chioices, freedom, than ever.

Does that freedom come with responsibility ?  I have asked you to write about regulation and stimulus.  If people and lenders make bad choices, at what point does the governmet have a responsibility to bail them out?  And as Say’s Law asks, who will pay for it? Should the government rescue

dot com investors

mortgage borrowers with little or no equity

mortgage lenders who sought out the least credit worthy borrowers

Ford and GM and their bosses both union and corporate and their employees in Michigan

On the other had, should those lenders like the CEO at Merrill walk off with their pockets full, leaving Merrill stockholders with losses while the firm goes begging for capital, ditto everyone in this mess including all the banks and brokers.

As usual Walter Williams has a few word on this topic.

I look forward to your take on this situation.

Say’s Law. states that products have to be paid for with products. Who then shall pay for the stimulus?  Hillary says no one has to, yep fire up the Govt printing press.  As Soros noted in the previous post, this is one reason the US Dollar continues to decline.  And commentators on tv are wondering whether as both these articles say, throwing money from airplanes to the public is such a good idea.  We report, you decide. 

And in this article the WSJ questions decoupling. Monday’s world wide sell off shows that globalizatino has coupled rather than decoupled the markets of the world.  We get a cold, the Far East gets pneumonia. And clearly those markets questioned the proposals being floated here to do something about it. It will be difficult to solve this problem, have our cake, and eat it too.

George Soros has little use for George Bush, but Soro makes lots of money trading markets.  In this article Soros explains why this crisis could be worse than previous ones. In class yesterday I mentioned that the FED cannot lower rates a lot further without going to zero.  And, how long will foreign investors want to hold US Debt denominated in dollars with ever falling interest rates?  As he says at some point those investors will demand a higher rate of interest for their risk taking, where that point is no one knows.

The FED attempted to move decisvely this morning by cutting the Discount Rate 3/4 of a point. That is a good bit for a slow moving bunch of political appointees. With markets melting round the world 5-10% in two days, it was time to do something.  Did it work?  Well the market stopped going down, but we did not a positive cloes on the day, the DOW was down 128 but up from about 500 points down earlier in the day.  We should see a modest recovery in rpices the rest of the week.  If not there will really be some long faces in Washington DC this week. The Volatility Index VIX hit an extremem associated with the extreme last seen in August so we should get a bit of short term relief.

Homework Manager has been enabled for both these classes.  For ACCT 3120

http://mh2.brownstone.net/classes/Acct3120-Sec091/

ACCT 3270

http:/mh10.borwnstone.net/classes/Acct3270Sec090/

You must first sign up and get a password on the regular textbook site, it is the tab on the left that says Homework Manager. You want the $15 option, the more expensive option includes the on line textbook.

When you correctly work the problems it grades them and posts the grade for me, it also shows you the right answer. You can print out your results.

This does not require WEB CT to work thank goodness…You access this on the internet not thru WEB CT.

In  the current Business Week Maria Bartiromo interviews Ken Lewis, CEO of Bank of America BAC.  BAC had just bought Countrywide CFC mortgage. BAC had previously invested $2 B in CFC via preferred stock. He said no they were not worried about their $2 B as it was in preferred but thought they strategically ought to be in that market.  And he assured Maria that they had done extensive analysis about the real state of CFC.

Now we find out that while they were analyzing CFC BAC net profit dropped 95% from a year ago. This makes me wonder, just how sharp are those pencils at BAC?  Surely they realized their own loses, why jump into an even deep pit?  As world markets melt last and this week it raises even more questions about their intuition. Again, this is why I am having you make classroom presentations on such companies in the news. Most class cases have rosy scenarios and happy endings.  As Lehman LEH, C, and BAC and CFC are learning, not all endings are happy.

Yahoo YHOO  is rolling out plans to cut 1,000 employees.  I post this article to show you just how quickly a recession can start from a seeming distant part of the economy, sub prime mortgages to everyone else.  India and China markets are melting because investors fear a shrinking economy in the US will shrink the market for the goods they make like stereos and services they provide like call centers. Here is an example that  YHOO stock has fallen from $32.50 to currently about $20. The pressure is on management to get the stock price back up, the easiest thing to do is, cut the employees just hired as the markets zoomed to DOW 13,500.  It is oh so typical for companies to ever expand into the very top of a boom, and then reverse all their decisions as the economy contracts. Banks and brokerage firms are the very worst, alway s believing their own pres releases. Look for lots of layoffs this year on Wall Street.

The Economist, A british publication, weighs in on the market woes.It is always a good idea to have your reading list include articles written outside the USA, it provides a different perspective about us instead of written by us.

A bubble refers to excess speculation in a market. The bubble finally bursts leaving investors holding as they say, the bag.  Here is a story on how vaunted Lehman Brothers was scammed for inflated properties.  Every bubble brings such fraud schemes.  In the 1920s cunning con men created phony companies or mis represented earnings. in the 1990s we saw multiple firms misrepresent their situations.  Now con men buy a cheap property, inflate the value of homes with a bogus appraisal, borrow the money againt the inflated value, and leave town.  This is a lively article involving storing wine collections elsewhere with an air conditioner to keep them chilled, a flight to a South Pacific island etc.  The crooks weren’t so smart either, the real name for Samoa is American Samoa, the authorities had not problem extraditing them back to the US.

Lehman Brothers has been a broker and investment banker.  They got our of their realm and started directly loaning money on houses. Gee they don’t look so smart now!

We study accounting to better understand, analyze, and hopefully anticipate these kinds of financial train wrecks, that is what this blog is all about.  The veneer of civilized society is pretty thin, the real crooks are not the ones robbing the liquor stores at gunpoint, the crooks are the ones robbing Lehman Brothers for $50 M , no gun required.  White collar crime like this will dwarf ordinary street crime in its boldness and its size for the forseeable future.

India dropped 11% during trading today and European exchanges are down 4-6%.  The DOW was only down .5% here Friday but clearly the recession contagion fears have spread. The worry is that the US is now THE export market for Asian goods. A recession here mean less demand for goods there.

Ben Stein weighs in on the history of recessions and admits he has been over optimistic.  He does give you the track record for such past events.  Remember when he quotes percentages he is NOT quoting the stock exchange drop but the drop in the Gross Domestic Product or some such indicator.

Everyone I have read is still on the just stay the course do not worry it will come back track. This was not the case in Japan from 1990 to 2003 when the Nikkei fell from 37,000 to about 7,500 a loss of some 80%.  I can recall an interview with John Templeton, an early international investor, a few years back. He opined that he did not believe the American public would ever stand for a protracted period of economic decline like the Great Depression again. I agree, politicians would get tossed out in rapid fire succession until someone did something right. Of course that could take a while given the two year congressional election cycle or the four year presidential cycle.

It has been reported that there in fact is  a Federal Plunge Protection Team.  This was begun after the 1987 stock market crash.  It works this way.  The FED uses ‘moral suasion’ to get big banks and mutual funds to buy stock index futures on a particular morning. With such overwhelming force the market is hopefully forced up. Short sellers have to cover and the downward plunge is stopped. If they have been trying to do this lately clearly it is not working.  If there was ever a time to try halting the decline, it will be tomorrow moring after the declines in the rest of the world.  A 5-10% plunge here would certainly not be reassuring to the rest of the world.

Stock index futures are trading today on commodity exchnges even though the US stock exchanges are not open, got that? Futures traders can trade overall stock market indices even though the stock markets themselves are closed. The S & P has dropped some 60 points to 1265 from Friday’s 1325 close. An S & P point is worth about 9.3 DOW poinst so that would be a 9.3 x 60 = 558 DOW point drop.

We are certainly at a severe oversold level. In an election year neither party wants a recession, this will be an interesting week to say the least.

One of the most important things about a good presentation is the ability to put complex information in a form that is easily understood.  Rather than use a long table, this author presents World per capita GDP  in the form of a map.

Take a good look at the Pacific Rim.  Note that Japan and Australia stand out among the others. Even more amazing is that Japan and the actual populated portion of Australia are tiny slivers of land, compared the economic wreck of the other countries, okay China and India are in the news but this demonstrates just how far behind they are at this point.  As Greenspan notes in Turbulence, free market economies work, planned ones don’t. So why are all the politicans in this country plannning our rescue?

But I digress. As you read different article and we make presentations in class, start noticing the better presentations of data. Attempt to incorporate the successful ones in your presentations.