Ok so I am in a Paul Simon mood today.  This article on SARBOX  suggests that 22 companies mainly from China and Israel have raised some $4.4 B this year on the US Exchanges. So everyone is not running from SARBOX.  Yet major law firms say SARBOX onerous requirements are stil an issue and the US could be doing better with a less restrictive environment.

B/W reports that Toyota  is retinking it self in terms of EM 2 which stand for Everythign Matters Exponentially.  The entire company, manufacturing, servicing, etc is being re examine. Seems TMC has fallne down the quality list.  And TCM is very aware that only  a few years back, Ford was looking good, and now is gasping for air. Here is true TQM at work in re examining what is happening and making sure things stay fixed.  Emphasizing sales numbers has resulted in customer dissatisfaction, remember how Dr. Deming said to never manage by the numbers?  Workers are learning to ‘massage’ the doors of newly made cars looking for defects, all 30,000 will undergo re training.

TQM, it works as we say in Managerial Accounting.  Let’s hope all this re think results in a new more interesting MR 2, the last one was a dog with only an 1800 cc engine…..

I thought I had mentioned the Bear Stearns fiasco on the blog but  in looking back i don’t see it in the last month.  Okay, it seems Bear Stearns has tripled their loss estimates  for their, are you ready?,
High Grade Structured Credit Strategies Enhanced Leverage Fund.  Well actually anyone who swallowed the name of that one, invested and then was surprised at what happens is probably way too naive anyway.  This is a great read about how difficult it is to price or value derivative type investments, in this case our old friend, you guessed it, the sub prime mortgage.  Why did the loss estimate get tripled from the recent 6% loss number just last April to gulp 18-23%.  First understand what Bear Stearns is doing.

Bear ‘invests’ in sub prime mortgages. This is a loan to groups of new home buyers who really should not be buying the homes in the first place as they are of questionable credit worthiness.  Of course, Bear does not put up all the money to buy the mortgage, hence the word leveraged in the title of the fund.  Well once the folks that lent them the money to do this realize that the mortgages are plunging in value, they want Bear to put up more money. This is known as a margin call, lenders want more margin to protect themselves.  Do you think Bear put the margin up? Of course not.  Now we have the famous if I may use the phrase, Mexican standoff.  Will the lenders sell the bonds at discounted rates or will Bear dare them to do that realizing that doing so in itself brings a reality check on just what is there for collateral.  OH did I mention that Bear suspended the ability to redeem shares in the fund?  Why would they do that?  well they themselves would have to sell the bonds which were bought with borrowed money to pay back the shareholders. But the bonds are not worth their original cost and then the lenders would want more money if the investors got paid, so, nix to the investors, hold and hope it gets better.

Beware of funds with titles like these.  Beware of firms that think it is prudent to sell funds like these.  Be glad you are studying accounting so you can unravel the intricacies of such stuff for folks that depend on the value of a CPA.  BSC is down from 170 to 140, it ought to be lower than that in my opinion. 

I have not discussed taxation much on the blog, so here goes.  Rich Kalgaard, Forbes Editor, has a good short history  on the topic here.  The question is, what shold be the tax rate on capital gains?  A captial gain is not the result of work for pay which is ordinary income.  A captial gain is the result of investment over time,  be it five minutes or five years.  You buy stock or piece of real estate,  it goes up in value, you sell, you make money.  But now comes your silent partner, the US Government.  The Government wants to make social policy via the tax code.  Liberals want that tax high to continue their class warfare between the so called rich and everyone else (read their voters).  Anymore I am not sure what Republicans want but they used to want lower taxes, this was a huge part of Reagan’s policy, and Jack Kennedy’s while I think about it. 

But the counter argument is that low or better yet no tax on capital gains would free up lots of investments that are not being sold simply to avoid the tax.  THe current tax rate on cap gains is 15%, have you noticed the stock market soaring?  The reason is that investors don’t flinch at paying that rate.  But raise the rate to 35%, a full one third, and whoa, maybe we better not do anything.  The result is that the swirl or speed of transactions slows.  Individuals sitting on multi year gains in stocks and real estate are loathe to cash in and give up one third of their gains. 

Low tax rate advocates argue that the tax take will be increased if it is lowered as the velocity of transactions increases.  High tax advocates claim that ‘costs’ the government money.  The fact is that since Reagan lowered rates in 1986 the stock market has gone from about 2,000 to 13.500.  Now all that is not cause and effect, but some certainly is. 

What say you, how much of your profit does the govt deserve?

Shermichael Singleton is spending time with us here at UNT Dallas this summer.  We picked Shermichael as one of our two reps to Rotary Youth Leadership Camp.  He stopped by my office yesterday and we discussed his desire to study law and political science.  I asked if he read Tom Sowell; indeed he was not aware of Dr. Sowell and was much surprised to find the good Dr. to be a person of color.  Dr. Sowell tops my list of original thinkers in this country.  So for Shermichael and others seeking new and original thought, here is my short list of ‘Colorful Thinkers.’

Tom Sowell is the Milton and Rose Friedman Scholar at Stanford. That alone would be notable but there is good reason for his selection to hold that ‘chair.’  He has published over forty books, numerous academic essays.  Any week will see two or three columns.  his latest on Attention Getters  is typically incisive and observant.  Originally a firebrand liberal, he is now, is reflective of much more conservative thought. And if you are looking for an educationaly entertaining Friday, you can do no better than if you catch Walter Williams interviewing Dr. Sowell when Walter subs for Rush on his radio show. 

Walter Williams  is a Professor of Economics at George Mason Unveristy. He is also well published and  exhibits a great sense of dry humor when substituting for Rush.  Both Sowell and Williams are highly critical of the current education fads including culture diversity as opposed to real grounding in basic subjects, so be forewarned. 

Larry Elder  the Sage of South Central graduated from Brown (same as John Kennedy and Cristina Amananpour) and Univ of Michigan Law School.  He holds forth on KACB radio every day and has authored among other books, Ten Things You Can’t Say in America . 

Columns by these three are featured on Town Hall. 

Ken Hamblin’s Pick a Better Country  gets little or no attention in today’s universities which is a shame. It details how he got hired through an affirmative action program, notes that it near impossible for anyone on the job to take him seriously, and then details how he became a successful photographer and pilot.  Regrettably, his talk show in Denver has not survived but his book remains a standout.

I always enjoy reading Herman Cain.   After turning around Godfather Pizza, he has become  a successful columnist, author, personality, and subs for Neal Boortz on his Boortz talk show.

Successful, innovative, original thinkers, I’ll vote for that.
 

Ross Perot used to tell we employees a story about his Lincoln.  He claimed that when he took it to the shop everyone was very nice to him. Yet he was always surprised that no one ever inquired about whether he would like to purchase a new car. He finally got cured of that story addressing  a car salesman’s convention.  That night he lawn was covered with Lincolns and Cadillacs with keys in them.

But the point is well taken. Today I had to take my bike back to the shop for the second flat tire in a week.  I ride a Trek I bought in San Marcos.  This shop in Cedar Hills sells Trek.  I asked for slime in the tire, a puncture sealant.  Turns out Slime actually makes a tube for that purpose.  And so they installed one in one tire.  THen I asked why not the other? So they installed a second.  On presentation of the final bill I asked if this was a chain store, no was the reply, I own the store the lady said. Well then why didn’t you sell me two tubes?  She looked offended.  And of course in the twenty minutes I stood around, do you think she even attempted to engage me in conversation about my bike, where I bought it, did I like it, how long had I been riding, etc.  And I was the only person in the shop!

Students, there is a lesson here.  I frequently mention Dale Carnegie who emphasizes the importance of relating to the other person.  That is all marketing is.  That is all networking is.  Who are you, where are you going, why, gee the things you can learn if you make the other person the center of the conversation.  You never know where networking might lead so don’t hesitate to ask, after all we are all selling something, and you are selling yourself at this point. 

‘Futuramas’ in even the late 1930s and certainly by the early 1950s, had glorious views of what future America would look like.  Magazines of that era featured
‘work saving kitchens’ for Mom with mechanical dishwashers.  Traffic would move quickly on limited access ‘freeways’.  Better yet, we would all be whisked around town avoiding traffic with a great new idea called the ‘monorail.’  Funny the monorail never made it to Houston or Dallas.  But the City of Tomorrow finally got built, gee would Bugsy Siegel be proud, welcome to Las Vegas.

Click here to learn about City Center.   The Mirage was the first billion dollar project in Vegas in 1989.  Now the ante is much higher.  This project will cost $14 Billion.  The old Frontier property sold recently, an Israeli group is expect to spend over $5B on a project to replace it. 

I counted 13 construction cranes from our first room at the MGM Grand.  And Grand it is.  Both Wolfgang Puck and Emerill have restaurants on the property.  The resort boasts three Maybachs  to ferry VIPS the two miles to the airport and back. But I digress.

Futuramas boasted that modern cities would be planned for all this.  Yet frankly Vegas is the best example I have ever seen of actually getting the mass transportation located near the city. In fact the airport darned near abuts the hotels themselves.  I understand there are over 90,000 hotel rooms.  The recording on the Las Vegas Monorail  says that all these rooms are 90% booked during the week and 95% on the weekends.  MGM was booked solid last Sat Night, and starting price is $189 per room.  The monorail costs $8 a day to ride and allows access to the City Convention Center.  Several of the large hotels have their own centers but the 3.2 M square foot Convention Center  is large enough to host the very biggest events like the SEMA auto accessory show and the computer shows. 

It USED to be that the rooms and food were intentionally priced cheap.  One dollar breakfasts and $35 rooms were the norm in the Rat Pack Days.    Back then multi story signs like the one at the Sands shown in the foregoing article trumpeted which acts played which casinos.  Those folks about priced themselves out of the business but are back today.  Barry Manilow is playing the Hilton, magicians Lance Burton, David Copperfield and newcomer Hans Klok (partnering with Pam Anderson) are staples.  Celine Dione is sold out of course and others like Toby Keith and Jay Leno make appearances.

Harrahs has become a miniature Paris, France with a half sized replica of the Eiffel Tower and a Parisian themed interior.  The Bellagio features a giant water display and a truly gorgeous garden inside.  The Mirage has retained the White Tigers for display.  Even the MGM had a couple of very lazy lions on display. Wynn’s is the current state of the art featuring a Penske Ferrari dealership no less.

In a way the more it changes the more it is the same.  There are no windows or clocks in casinos, they want you in gambling not out enjoying the 106+ degree heat. 

I frankly think that gambling or gaming if you will has lead to the fascination with the stock market. Think about it, buying a stock that does not pay a dividend is rather like a long term roulette game in which one hopes that your number will eventually come up a winner.  The latest fad as you have read in the WSJ is speculation on high rise condos.  I literally could not count how many have already been built.  Oh no on seems to live in them.  Starting at around $500 K, everyone is playing a sort of musical chairs condo game hoping to sell theirs while prices are still rising.  One cabbie observed that prices started at about $450K rose to $600K and had now settled back to $500K.  Of course you understand that until City Center is completed there is really no traditional town here, no bank towers, or centers of commerce other than hotels with gambling casinos, hmm, sort of defines business eh?  And so we have betting on games of chance reflected in betting on casinos which get ever bigger and bolder leading to betting on condos and of course betting on outlying gaming areas in the state. 

Unions have organized the workers.  Good thing, but like most union jobs there does not seem to be much upward mobility.  I saw a lot of older dealers who I guess have spent their lives as well dealers.  Nothing wrong with that I guess. Las Vegas from that standpoint is I suppose the ultimate example of the ‘service economy’ run amok. The town produces nothing but, er well ah service.  I can see that it would be difficult to convince young people caught up in this gambling mentality that one should go to college. After all here they go to Dealer School.    Consider these testimonials about such higher ed!

Now honestly how Harry Reid (D-Nevada) can look in a camera and say the economy is lacking is beyond me.  But then the purpose of a union has always been to get a middle class income for a person of very limited skills, that’s Vegas.

But all of this relates to Managerial Accounting.  The cost of running any one of these facilities is staggering.  And clearly all that has to be calculated to the last penny.  Break even and target profit calculations make all the difference. Sensitivity analysis tells us how much business could drop before we are in trouble. 

Is there an end to all this?  I saw currency exchange rates at the cashier office for multiple countries, truly this is an international destination. Truly Vegas is the epitome of the ultimate service economy.  Gambling, restaurants, shows, shopping, and just generally hemorhagging money.  A prolonged downtrun would be disastrous, but for now 9/11 is but a memory.  But for now, all bets are on, Viva Las Vegas.

PS I had not been out there in at least ten years.  The wife’s daughter got married there and so, I was along for the ride, so to speak.  Plan on taking a credit card with a large cap if you go, nothing is cheap any more.   

You will have to scroll down to the left on the B/W career page  to find this article.  But it is a good slide show about the common mistakes that interns make.  Internships are the way companies screen their employees, this is your big chance, don’t blow it.

Headline writers are always looking for reasons WHY something happens.  A recent example is yesterday’s headline that the stock market was down 147 points on sub prime woes.  Well sub prime woes are nothing new, it is simply that there are more and more headlines about them. This B/W article   reports that now consumers are more likely to pay a credit card bill than the mortgage. Reasons given are that they have little or no equity to lose anyway, and that it takes several months to evict. And in that event, they still have the credit card to make ends meet and the car to get to work.  I suspect there is yet another reason.  Borrowers are not naive, what we may have is a sort of ‘double dog dare’ standoff.  So the lender threatens to foreclose, who is the lender going to sell the house to, and is the lender that ready to admit to a loss?  Probably not thinks the borrower, and indeed other posts here have suggested that lenders are slower to foreclose for just those reasons.

All in all,the economy is slowing down.

Actually the reason I posted this article  was not for the six ideas. What I am wondering is a few questinons for Christy Hefner. Hey Christy, when will you or your team get the results up for Playboy?  Christy giving career advice, huh?  check out the financials for Playboy here.    Gee I think I could make more money than that if I had the Playboy trademarks to work with….