Marines are now required to obtain a tan belt  rating in martial arts combat.  To make the exercise even more realistic, the Drill Instructors exhaust them physically (running, jumping, calisthentics) before the qualificaiton, read simulation battle, begins.  There is a reason for this.  Street fighting in Baghdad is liable  to happen only after

the Marine runs out of ammo
the Marine loses his knife
the Marine is dazed from an IED explosion
it is a desperate moment of kill or be killed with someone who has turned from friendly to foe in a matter of seconds
Such incidents may well involve an improvised weapon like a piece of glass, a pipe. or a scrap of  2 x 4
Except this won’t be a humorous scene from  a Jackie Chan movie, this is for real

Where am I going with this?  Toastmasters, the organization that focuses on making one a better speaker, has a weekly contest called Table Topics.  The participants have thirty seconds to prepare a two minute talk on  a topic literally pulled from a hat. 

A recent article, click on the hyperlink to read it, from Inc Magazine asks, Can you explain your company in thirty seconds?  Such exercises are often called an ‘elevator pitch,’ can you explain your idea in the length of time you might encounter someone on an elevator?

My point is that the  Marines and Toastmasters and Fast Company all have the right idea here. Often we are judged not by a well prepared formal speech, but by our ability to, as the Marines Say

Encounter,
Improvise
Overcome

And do so in short order when those about us have lost their bearings, remember the Rydyard Kipling poem IF?   In high school the speech/debate coach used a bell to interrupt us when we stumbled using an uh, ah, er, in our talks.  Yes it was irritating and embarassaing, but  like martial arts fighting with improvised weapons, it made us better speakers.  We consistently placed among the top three schools at tournaments.  That is my objective for you, I want you to be prepared to speak and stand out from the crowd. You will not learn how to do that by reading a book about making speeches, you will learn that by being called on in class and expressing yourself in a coherent fashion.   Now certain members of my pas t classes have found this to be an affront to their delicate sense of self esteem. We are here to improve your ability to project yourself  adn taht is what we will focus on.

So, put your ego and self esteem in your pocket, let the games begin, we will be particularly focused on this activity in ACCT 3405 Professional Development.

Robert Samuleson explains the real estate domino effect  in this good article.  I think macro economics has its place and he explains it as well as oh say  Tom Sowell.

The graph at left is the ICF or the American Stock Exchange Index of Real Estate Investment Trusts or REITS.  A REIT is a mutual fund of real estate.  It invests in commercials buildings, apartments, whatever and then pays 90% of its income to the investors.  That way the REIT avoids paying income tax, the tax is paid by the investor on the dividends.  Click on the graph to enlarge it.  Notice how the market enthusiasm or psychology has dramatically turned.  At bottom the black bars in February indicate that investors just could not buy enough REITS. Now they can’t sell them fast enough.  In a weak real estate market, occupancy drops and rents drop, if they drop enough, there are no payments to investors.  This is how the bear market of 1973 started, with a REIT collapse.  You of course have been aware if this for months by reading the blog and our discussions in class. 

Click on February at the side of the blog and read EOP, Selling Out at the Top, now there is a great market call if I do say so myself!  Look at the graph in this article again,  the actual top was February 8!  See, you can learn something reading the blog!!!!!!!  Now why can’t these guys that claim to be so smart like the ones at Bear Stearns figure all this out?

A couple of posts back I wondered about Jeff Skilling and what he is thinking from his jail cell. Jeff got 25 years and Fastow got ten, their crimes was the evaporation of Enron to the detriment of shareholders and retirees.  Gee I wondered, Bear Stearns just accomplished the same thing in their hedge fund, but no one is going to jail, no one pays a fine, and the firm will no doubt pay bonuses to those involved.

Now  makes the Supreme Court case for liability on the part of the Enron Enablers.  

The victims of Enron could not recover from Enron, there was nothing left.  But what about the investment and commercial banks, and law firms that gave the thumbs up all the way to the end?  Note that former Goldman Partner Paulson, now Tsy Sec, is asking Bush to oppose this.  I could not disagree more.  Hardly a month goes by that a brokerage firm is not slapped with a censure or fine for violating fiduciary duty to its clients.   If Bear Stearns or Merrill or whoever markets a fund that loses ALL the investor money, should not these self proclaimed investment geniuses who made money on the deal be penalized?

You might check out the charts of BSC and LEH to see what the market thinks of these guys lately.

What do you thnk? 

American Home Mortgage  was the tenth largest mortgage company in the US. Note the past tense in that sentence.  The companysimply evaported the last few days going from about $20 to 62 cents, read bankruptcy in a month’s time. 

What is going on here?  Accountants value assets and report them on the balance sheet. The so called assets for AHM, mortgages or loans held against properties, were clearly not worth what was reported on the balance sheet. Indeed as best I can tell AHM  was ‘worth’ $21 a share in net book value as recently as March 2007.  Yet today it is worth nothing.  This reflects the difficulty of valuing intangible assets like mortgages.  The mortgage is only worth what the debtor can pay or what can be realized from liquidating, read selling, the property. With so many properties coming on the market in foreclosure, it is hard to imagine that values will do anything other than plummet. 

This is an example of what I call the Black Hole of Wall Street.  The millions of dollars that shares in AHM did represent are now gone, as surely as if a spaceship had landed and spirited the firm away to the Planet Xernon.  This is why a bear market, in which shares decline or lose 100% of value is so hard on an economy. Wealth is destroyed in a bear market.  Click on the graph above to see the reality of such destruction. 

This story is getting lots of press but the Bancroft family finally said SELL.   What got my attention in the article was their realization that if they did not do this, they would have to pay the advisory fees to ML and their lawyers, a considerable sum.  So they took the $5 B offer and hope to get Murdoch to cover the fees, but with $5B I think they can pay the bills.

Please note the comment from the family, our passivity has brought us to this point, ie, if you don’t actively manage your assets, someone else will step to the plate to do so.  Things change fast in today’s world.  Murdoch is launching his own business news channel on FOX in Sept, the WSJ now stands to be a much bigger part of that. Neal Cavuto and Terry Keenan both on Fox now, were originally with CNBC.  I suspect they will move to the new business channel also. 

As many of you may know the new Dallas Cowboys coach is Wade Phillips, son of Bum Phillips, former Houston Oilers Coach. While Bum made some great contributions to football, my first place award to him goes for this piece written about what it means to be Texan. So for all we native Texans and those of you that just got here as fast as you could, here goes.

HAPPY BIRTHDAY, TEXAS — FROM BUM PHILLIPS

Being Texan by Bum Phillips

Dear Friends,

Last year, I wrote a small piece about what it means to me to be a Texan. My friends know it means about damned near everything. Anyway, this fella asked me to reprint what I’d wrote and I didn’t have it. So I set out to think about rewriting something. I considered writing about all the great things I love about Texas. There are way too many things to list. I can’t even begin to do it justice. Lemme let you in on my short list.

It starts with The Window at Big Bend, which in and of itself is proof of God. It goes to Lake Sam Rayburn where my Granddad taught me more about life than fishin, and enough about fishin to last a lifetime. I can talk about Tyler, and Longview, and Odessa and Cisco, and Abilene and Poteet and every place in between. Every little part of Texas feels special. Every person who ever flew over the Lone Star thinks of Bandera or Victoria or Manor or wherever they call “home” as the best little part of the best state.

So I got to thinkin about it, and here’s what I really want to say. Last year, I talked about all the great places and great heroes who make Texas what it is. I talked about Willie and Waylon and Michael Dell and Michael DeBakey and my Dad and LBJ and Denton Cooley. I talked about everybody that came to mind. It took me sitting here tonight reading this stack of emails and thinkin’ about where I’ve been and what I’ve done since the last time I wrote on this occasion to remind me what it is about Texas that is really great.

You see, this last month or so I finally went to Europe for the first time. I hadn’t ever been, and didn’t too much want to. But you know all my damned friends are always talking about “the time they went to Europe.” So, I finally went. It was a hell of a trip to be sure. All they did when they saw me was say the same thing, before they’d ever met me. “Hey cowboy, we love Texas.” I guess the hat tipped em off. But let me tell you what, they all came up with a smile on their faces. You know why? They knew for damned sure that I was gonna be nice to em. They knew it cause they knew I was from Texas. They knew something that hadn’t even hit me. They knew Texans, even though they’d never met one.

That’s when it occurred to me. Do you know what is great about Texas? Do you know why when my friend Beverly and I were trekking across country to see 15 baseball games we got sick and had to come home after 8? Do you know why every time I cross the border I say, “Lord, please don’t let me die in _____”?

Do you know why children in Japan can look at a picture of the great State and know exactly what it is about the same time they can tell a rhombus from a trapezoid? I can tell you that right quick. You. The same spirit that made 186 men cross that line in the sand in San Antonio damned near 165 years ago is still in you today. Why else would my friend send me William Barrett Travis’ plea for help in an email just a week ago, or why would Charles Stenciled ask me to reprint a Texas Independence column from a year ago?

What would make my friend Elizabeth say, “I don’t know if I can marry a man who doesn’t love Texas like I do?” Why in the hell are 1,000 people coming to my house this weekend to celebrate a holiday for what used to be a nation that is now a state? Because the spirit that made that nation is the spirit that burned in every person who founded this great place we call Texas, and they passed it on through blood or sweat to every one of us.

You see, that spirit that made Texas what it is, is alive in all of us, even if we can’t stand next to a cannon to prove it, and it’s our responsibility to keep that fire burning. Every person who ever put a “Native Texan” or an “I wasn’t born in Texas but I got here as fast a could” sticker on his car understands. Anyone who ever hung a map of Texas on their wall or flew a Lone Star flag on their porch knows what I mean.

My Dad’s buddy Bill has an old saying. He says that some people were forged of a hotter fire. Well, that’s what it is to be Texan. To be forged of a hotter fire.

To know that part of Colorado was Texas. That part of New Mexico was Texas. That part of Oklahoma was Texas. Yep. Talk all you want. Part of what you got was what we gave you. To look at a picture of Idaho or Istanbul and say, “what the Hell is that?” when you know that anyone in Idaho or Istanbul who sees a picture of Texas knows damned good and well what it is. It isn’t the shape, it isn’t the state, it’s the state of mind. You’re what makes Texas.

The fact that you would take 15 minutes out of your day to read this, because that’s what Texas means to you, that’s what makes Texas what it is. The fact that when you see the guy in front of you litter you honk and think, “Sonofabitch. Littering on MY highway.”

When was the last time you went to a person’s house in New York and you saw a big map of New York on their wall? That was never. When did you ever drive through Oklahoma and see their flag waving on four businesses in a row? Can you even tell me what the flag in Louisiana looks like? I damned sure can’t.

But I bet my ass you can’t drive 20 minutes from your house and not see a business that has a big Texas flag as part of its logo. If you haven’t done business with someone called All Tex something or Lone Star somebody or other, or Texas such and such, you hadn’t lived here for too long.

When you ask a man from New York what he is, he’ll say a stockbroker, or an accountant, or an ad exec. When you ask a woman from California what she is, she’ll tell you her last name or her major. Hell either of em might say “I’m a republican,” or they might be a democrat. When you ask a Texan what they are, before they say, “I’m a Methodist,” or “I’m a lawyer,” or “I’m a Smith,” they tell you they’re a Texan. I got nothin’ against all those other places, and Lord knows they’ve probably got some fine folks, but in your gut you know it just like I do, Texas is just a little different.

So tomorrow when you drive down the road and you see a person broken down on the side of the road, stop and help. When you are in a bar in California, buy a Californian a drink and tell him it’s for Texas Independence Day. Remind the person in the cube next to you that he wouldn’t be here enjoying this if it weren’t for Sam Houston, and if he or she doesn’t know the story, tell them.

When William Barrett Travis wrote in 1836 that he would never surrender and he would have Victory or Death, what he was really saying was that he and his men were forged of a hotter fire. They weren’t your average every day men.

Well, that is what it means to be a Texan. It meant it then, and that’s why it means it today. It means just what all those people North of the Red River accuse us of thinking it means. It means there’s no mountain that we can’t climb. It means that we can swim the Gulf in the winter. It means that Earl Campbell ran harder and Houston is bigger and Dallas is richer and Alpine is hotter and Stevie Ray was smoother and God vacations in Texas.

It means that come Hell or high water, when the chips are down and the Good Lord is watching, we’re Texans by damned, and just like in 1836, that counts for something. So for today at least, when your chance comes around, go out and prove it. It’s true because we believe it’s true. If you are sitting wondering what the Hell I’m talking about, this ain’t for you.

But if the first thing you are going to do when the Good Lord calls your number is find the men who sat in that tiny mission in San Antonio and shake their hands, then you’re the reason I wrote this tonight, and this is for you. So until next time you hear from me, God Bless and Happy Texas Independence Day.

May you be poor in misfortune, rich in blessings, slow to make enemies and quick to make friends. But, rich or poor, quick or slow, may you know nothing but happiness from this day forward.

Regards From Texas

Apple has now sold more than three billion songs on iTunes.   Thsi puts them past Target and Amazon as music sellers.  UNT Dallas student Ambrose came by with his iPhone yesterday and indeed it is just as cool as it appears in that tv ad.  A few years back Mike Dell suggeseted collapsing Apple and distributing proceeds to the shareholders, so much for his expertise on the high tech markets eh?

My answer is yes, but here is studied report on it from the Wall Street Journal.   Notice how market tops reflect a totally different emotional display than market bottoms.  Now Rupert Murdoch is spending $5 B for the Wall Street Journal, the Blackstone Group is going public, the real estate building  boom continues non stop in  Miami and Las Vegas.

This is because a market moving up that creates welalth also creates good vibrations as the Beach Boys might say.  Consider the mergers in Oil Field Services.   These mergers are taking place at all time high prices in the business, no one was merging in 1998 when oil was 12 bucks.  And so the stock market continues to mock the traditional supply and demand economic theory.  Traditional theory says that consumers want to buy goods at lower prices and that they avoid buying at higher prices. 

Click on the chart of RIG at left to see what I mean.  RIG is merging with GSF, both are in nose bleed territory having risen from the 20s to triple digits in the case of RIG. 
Such is the nature of popular culture and the stock market, people buy and merge high,they avoid such mergers when prices are low. 

Big Brokerage firms like J P Morgan and Goldman Sachs are collaborating on leasing new lavish trading rooms in NYC, all in the same building.  This would never happen at a market bottom, only the inclusionary feelings of a bull market would allow it. 

Prediction-I see a coming market meltdown toward October, expect the current rash of good feelings to darken by then.

Arthur Andersen misrepresented Enron’s statement, got tried for document destruction, and later was exonerated by the Supreme Court.
Meanwhile all 85,000 employees had to find new jobs.

The partners and principals in the KPMG tax shelter case got heaved overboard after no doubt receiving bonuses for
selling tax shelters. KPMG paid a hefty non deductible fine of $450 M and was barred from even paying the legal fees for the
accused. That last action was just overturned. Interestingly KPMG was never convicted of anything.

Now we have Bear Stearns who claims to be an investment banker who managed to lose not just some but all of the money
in two of their so called hedge funds. Did anyone lose their job, did anyone get fined, even the stock price has not suffered much.

Gee shouldn’t someone at Bear be headed out the door, if not to jail? No doubt Jeff Skilling is wondering from his jail cell
what the difference is between worthless Enron stock and a B. S. (interesting abbreviation don’t you think) hedge fund?

My point is that Skillng got a long jail term, Mr. Fastow got ten years, Ms. Fastow got one year,
yet Bear Stearrns also lost 100% of inveator money and kept the commissions!

This is justice?

Readers, please sound off on this one!

D R Horton had an operating loss of $823.8 M for the quarter anded June 30.  But it also took write offs and charges, read impairments, of more than $1.27 Billion in the same quarter.  J P Morgan commented that this was a huge step up from previous quarters, the impairments that is.

We study accounting to understand such things.  Firms  must compare carrying value with what the projected future value of assets will be.  If the carrying value is less, an impairment charge is dictated.  How did this happen to Horton, well think about what is on their balance sheet.  The write offs were charges to cost of sales, inventory impairments, write offs of deposits, land purchase contracts and goodwill impairment.  Which means that their inventory of homes and land are not worth what is shown on the books.  Sales are down 30% from the same quarter last year so prospects are getting worse not better.

Now none of this should surprise a regular reader of this blog, I have been detailing the Sub Prime Mortgage Wreck for some time.  What is surprising is how Mr. Bernake at the FED and Mr. Paulson at Treasury keep insisting nothing is wrong. 

The DOW was down 450 points at one time Thursday, and closed down 300 or so.  Look for a recovery over the first week of August but I suspect the top is in for financial assets, I will be posting my last two newspaper columns on these and other topics.