Jason in the grad class can’t figure out the airlines or the A 380.  Well some airlines are quite different than others.  Take Singapore Air for example.  I logged on and here is a vidoe clip  promoting their business class in between economy and first class.  Go ahead, take a look, this big seat makes into a bed.  As you can see from SIA home page  their mission is to fly people from all over the world to Singapore, a considerably different mission than say SW Airlines.

Kuwait Air  apparently does some smaller runs and uses some smaller aircraft but I did not see a listing of the exact aircraft that SIA uses.  Now imagine you run one of these airlines.  You are an international carrier.  Kuwait to Frankfurt, not too bad, but to LA, now that’s along haul.  Click here for K A routes.
As you can see they are all over the world, their mission being to bring the world to oil rich Kuwait.  How would you use CVP and budgeting to make sure every flight made money?

A current buzzword in Higher Ed is the importance of Critical Thinking.  This would be the ability to discern statements for what they are, see through the rhetoric, and apply logical reasoning.  Consider the Balanced Scorecard.  There are four measures

Financial Performance
Customer Satisfaction
Internal Business process
Innovation and Learning

Now stop and think.  If you ask most administrators, CEOs, whoever, to describe their organization in 50 words or less what will they say?  Typically most will respond by stating the number of employees, the amount of the budget, the number of books in the library, or the growth rate of whatever.  But most of these measures are not OUTPUTS of the organization.  They are INPUTS.  I actually read a description of one Texas University by its President in which he listed the appraised value of the buildings on campus.  What on earth value is that measure, unless of course we are trying to construct a viable starting auction price for the campus!

The measure of the Vision Mission Outcomes of the organization is the OUTPUTS it produces.  The number of students that graduate versus those admitted, the starting salaries of the business grads, or perhaps who hired them.  The Balanced Scorecard measures outputs. 

Is the NOI up year over year?
Are customers more satisfied as evidenced by a higher rate of second time buyers than the competition?
Are we more efficient than last year, see the previous article about the Toyota paint shop.
Innovation and learning-Are we doing a better job of reaching the strategic goal?

Next time you hear a ‘leader’ describe his or her organization, ask yourself, are these measures inputs or outputs, only outputs tell the real story.

DLE

PLEASE read this article about CQM at Toyota.     Here improving the process IS the job, not just building cars.  Read about how the paint station used to take 10 hours and waste 30% of the paint in cleaning hoses.  Now it takes 8  hours and no paint is wasted.  This is not a factory, it is a brain.
This is precisely what Dr. Deming was describing, except not everyone has embraced the new methodology. 

Several letters appeared in FAST COMPANY commenting on that article-mainly the writers complained that MBA types were too short term focused to pay attention to this kind of system. Yet this is precisely what managerial accounting is all about.

Donald Trump has created another moniker for himself with his intonation on the TV show The Apprentice, of You’re Fired!  Well Ross Perot trumped the Donald so to speak with a genuine reality show called duPont Glore Forgan over thirty years ago.  And yours truly was there in the thick of it.  You can read  how the story ended at Perot’s Orderly Retreat.   But that, trust me, is hardly the real story here.

This will be a lengthy story, so get yourself a Perrier and settle in. 

In reading the story above I hope you note the sad state of the brokerage community in 1974. Yes the DOW hit 1051 in January of 1973 while we were in brokerage school but by December of 1974 it was at 577. Which is to say it had not only dropped about that much in two years, it WAS 577, less than one twentieth of where it is today at 12,500, but more on that later.

Try to imagine just how different the world was then.  There were no personal computers, only three TV networks, phonograph records, eight track tapes were on the horizon as high tech. The first portable electronic digital calculator became available while we were in training school. It was made by Commodore (who?), about the size of a four inch thick paperback and we negotiated a price of $64.  I passed and kept my slide rule.  There were no discount brokers, if you wanted a quote you had to call a brokerage firm.  The market hit 390 at the top in 1929 and did not better than until after WW II, despite what the brokerage industry will tell you today.  The DOW hit 1,000 for the first time about 1966 and then went sideways until  it hit that 1051 in 1972.   Nixon had been re elected in a landslide despite the first Arab Oil Embargo, gee,  gasoline prices has soared to over a dollar, oil was still in the single digits however. 

As the article says, the Street did not want a major firm to collapse. I think the story is a bit off, my recollection is that Wall Street put up most of the $100 M but since this is Time, maybe some of that money was Perot’s, it certainly contributed to our belief that duPont could not fail.

Okay, now who was this guy?  Remember there was no MSFT or DELL or APPL, Hewlett Packard existed but it was a military contractor, not a producer of anything civilian.  The first PC would be invented by Wozinak in a garage in about 1978.  No one had heard of Warren Buffet  and certainly no one thought the market seemingly went up forever at 20% per year, because, it didn’t.

Ross Perot was the Buffet, Gates, Dell, Jobs of the day. He had been a computer salesman for IBM that legend had it, made his ‘quote’ in the first few days one year. He was a Naval Academy grad and quit IBM to start EDS. EDS was a software company that got rich doing back office work for Blue Cross and the government, though Perot never said much about that.  Perot was and is a master salesman, he spoke at UNT Denton the other day. He had taken EDS public, well the 15% of it that he sold, at the unheard of multiple back then of 189 to one, via a little known firm, I W Pressprich, no one else had offered such a lucrative deal.  The result, as the article notes, is that he literally became the first paper billionaire with a stock offering.  But, like the dot.com crash and every other crash, the stock eventually tumbled to about one tenth that value.  But I digress and am getting ahead of myself.

Yours truly had finished a two year stint at the City of Austin first as an internal auditor and then budget analyst. I had finished at the top of the Finance Class at UT Austin 1/70 winning both the Wall Street Journal Achievement Award and the Faculty Award at graduation. I tell you that not to brag but to put in context that hey, I should have known something about finance, right? And I had finished my UT MBA in August of 1972 while working at the City.   Well, I knew what they told me at UT….

And so I heard that Ross Perot was taking over duPont.  Computers were so difficult to program that trading hours were cut down two days a week to allow the firms to try to get the paperwork straight.  And this on days that saw only  ten million shares a day traded!  This is why Perot’s expertise at EDS was seen as a Saviour to the industry.   I drove to Houston for an interview.Other firms had rejected me because it was, are you ready for this, not married. True Story, State Farm rejected me as an insurance trainee (after weeks of assuming I had been hired) because I lacked the stability of not being married.  I had to thow that in as a  further sign of the times.

The guy who interviewed me in Houston was single so I crossed  that hurdle and went on to Dallas.  The hiring was so intense that Perot was flying everyone to Dallas to be interviewed by himself personally.  I was interviewed by one of his lieutenants instead.  Imagine being whisked off to be interviewed by Mike Dell or Bill Gates or Steve Jobs today!

Now let me be clear.  I admire Mr. Perot.  I called on him long since and he generously helped a friend of mine he had never met in a time of need.  Mr. Perot is particularly generous when it comes to a military family in need, there are many stories you never read.

And so I was off, no more laboring at a government desk job in what would eventually become one of the desired cities in America.  Where if I had stayed I would have quickly become the Budget Director while still in my 20s. No, I was going to get rich on Wall Street. I can recall that while driving to LA across Arizona,  I listened to an Indian Dialect (that would be Native American)  station on a Sunday Minoring. The strangeness of the language and the setting got me to thinking about the undertaking.  Well, I reasoned, if the entire project failed, Perot would be in worse trouble than I.  Silly me, he would still be rich.  But as I like to say, EXPERIENCE IS WHAT YOU GET WHEN YOU ARE EXPECTING SOMETHING ELSE……

duPont Glore Forgan had  multiple classes. I was in 72-2 ,,meaning the second class of 1972.  I worked a few weeks in Houston, yep on the 32nd floor of Two Shell Plaza, heady stuff.  We were treated to the buffet at the hotel in the Galleria for Sunday Brunch, an in thing in that day and time.  Wow, I had arrived.

Perot, ever distrustful of the manner Wall Street operated, wanted us as far away from WS as possible.  That  would be LA. He had rented a former Shearson office on Wilshire Blvd, right down from the Original Brown Derby, the restaurant in the shape literally of a derby where Hollywood types dined. 

The class was a collection of married and single guys.  Indeed there was only one woman in any of the classes.  Remember I said it was a different time.  The had us in an apartment building, the singles on different floors than the marrieds. I liked my roommate from Memphis TN.   There were ex fighter pilots, Marines, Army and an equal number of civilians. A few were out of college like myself but more were older and  from other kinds of businesses.  In retrospect I was one of the youngest of the group.

The day was divided in two parts. The morning was devoted to learning the business of WS.  Back then one had to work in the business for six months before one could be unleashed on the public. See what a clubby ole boy network this was?  No negotiated commissions, no discount trading, no CNBC, you want a quote, you can read it in the WSJ or call a broker.  The afternoons however were devoted to sales training, which for Dennis was like throwing Brer Rabbit in the proverbial briar patch. In high school our teams  won numerous tournaments, speaking contests, and debates, two guys even won the state debate championship.  Making class presentations was not problem for me, but as I say, that was a a bonus and a drawback to one so young at the time.

We reported to work M-F 8-5 but of course if you really wanted to make an impression  you were there before 8!  Perot had recruited a few guys from the industry.  The fellow in charge had been a partner at duPont, he had helped bring Sea World public.  The usual drill back then was that you would be a ‘gopher’ going for coffee and helping in the ‘wire room’ for most of the six months at your home office, Then the firm would send you to NYC for three weeks for a crash course in passing the Series Seven exam.  Not with ROSS!  We spent the entire six months in LA. There has never been before or since such an expensive training program undertaken in the industry.  In  a game plan way ahead of his time, Perot decided he would not depend on the vagaries of the market.  Then the firms only did as well as the market they traded, market up, they made money, market down, they nearly went out of business.  We would instead be licensed in insurance, stocks and bonds and commodities. We would be a total financial planner, a designation that would not come into being until we were out of broker school. 

Okay, now I told you all that to get to this story, as Ron White says in his routines.  Remember that Perot had not only hired everyone, he had rejected MOST of those sent to interview with him. Indeed he flew managers of offices all over the country to Dallas to excoriate them for sending him, are you ready, guys in leather motorcyle jackets not suitable for the business. In reality this could mean a sport coat and slacks with a blue shirt not a white one.  And so we reported for class each day in our cheap dark suits, ill fitting white shirts, and wing tip shoes if you had a pair.  Oh, and forget the long hair that was stylish for the era, military cuts only.  IN fairness to Ross, this was THE uniform of the day at prestigous firms like IBM, Xerox, etc.

Well just to show they meant business we would ‘role play’ in the afternoon session. One of us might be the client and the other the stockbroker.  We would pretended to be selling or prospecting the client and the client was expected to respond accordingly.  Before LA some of the class had spent about two months In NYC. One of them was a well heeled son who drove a Lotus Super Seven and smoked cigars that came in nice metal silver tubes.  But he was a flop at presenting, selling and understanding the business.  At any rate, the process of finding fault with some one’s performance soon began. Now, understand this is not the sort of objection or complaint that I have made in class, ie, you have not done the work. Here it was assumed you handed in the assignments for the exam and did the role playing  Here you got kicked out if they thought your presentation did not measure up.  And I am not talking some Supreme Court appeal process, you were called in that afternoon and gone the next day.  After one session where Jim performed poorly as the broker while I asked tough questions as the client, he got the boot that day.  The class eventually shrunk from 42 to about 25.

Okay reading this story, you know the ending, but hey, we didn’t? Imagine after all this process, that Steve Jobs calls you in, along with his other top execs and tells you that not only will you NOT be admitted to the fast track exec program at Apple, you are fired here and now. Gee, guess we won’t be using that on the resume, eh?

Early on the class was split in two.  We each had to make a presentation about ourselves.  The class voted on the best presentation.  I ended up presenting last in my group. I can still literally remember trying to calm Hank Liss, a genuinely nice fellow from Dayton, OH.  He was married. If he got the boot, he would have to explain to the wife and start all over with something else back in Dayton.  I calmed him best I could before his presentation. I was last, had the benefit of seeing everyone else, and as I say, a professional league HS experience in debate. I got the vote for best presenter in my half of the class, which later saved me from probable ejection when I clashed with the instructors, this was not a free give and take in class.   Again this is not a brag on me but an explanation on how my otherwise polished performances saved me from being ejected for wise cracks and unwanted questions, recall I was young.

It was not all negative.  Most of us had not been far from Home in the US, even the military guys had been round the world but not the US. And so for Christmas we went up the coast to San Francisco, did the Top of the Mark and ate at Omar Kayham’s. State Highway One takes you past San Simeon, the Hearst Mansion.  We took two of the three tours and went back later to finish  the third. After San Francisco, we drove to Tahoe, a light snow made it a beautiful experience.  One of the guys had friends who were still working there after dropping out of college.  They treated us to a great breakfast in a cabin overlooking Lake Tahoe.  Great stuff for a kid from West Texas…..

Ross himself came out as I recall three times. We were high tech which meant there was a video camera to record presenters.  They re ran one of his presentations again at the end of the six months.I remember marveling at just how well he handled himself.   If you ever get the chance to see Ross in person, go, He is a master salesman. Back then he wore inexpensive suits and had the short hair, in fact the suits are better these days but the hair is still short.  He realized all that was a bit offsetting to the audience, and used it to his advantage. Within ten minutes, the boy from Texarkana would have you believing that you and he were the only two people in the room. In fact he had us call him Ross, everyone in the company did.  Jess Dawkins told the story about how his office had him pick up Perot at the airport one time in Jess’s VW!  It was all part of a carefully constructed plan to make you feel part of the team.  Assuming of course, that you didn’t get kicked out. 

Perot appeared on the Today Show and declared that ‘in a year or two we’ll know who is better, me or the HR dept at Merrill Lynch!’  That’s the part in the Time Story that WS didn’t feel too bad to see Ross go down.

duPont was in trouble financially.  The new recruits could do nothing about a falling stock market.  To keep the firm afloat Ross  engineered a ‘merger’ with Walston AND got the SEC to grant him a delay in reporting required capital until July, after the usual June 30 deadline, remember I said Ross was a great salesman….

And so I finished 72-2 in April of 1973.  One of the mistakes was sequestering us in LA for six months. When we got to our offices we were strangers, and of course had been told to avoid the business as usual atmosphere there anyway.  Gee that didn’t help.  And so the market spiraled down.  There were always ‘sell programs’ but never buy programs on WS.  As one friend remarked, I understand resistance but never support. 

In Houston I moved from duPont to Paine Weber a week before duPont closed but the client accounts could not get transferred anyway, what a mess.  Discouraged and distraught, I quit in August of 1974, four months before the bear market low of 577, which was only 180 points above the 1929 market high, gee who’d a thunk it as Lil  Abner would say.

Again quoting Ron White, and I told you all this story to remind you that a  BBA or MBA or a whatever won’t mean squat to a Ross Perot. Your ability to perform and say yes I can , not gee that’s asking too much, won’t get you anywhere.  I take that back, it will get you a one way trip out the door. 

Aftermath

The stock market finally got its legs back wtih Ronald Reagan’s revitalization of America as it took off from sub 1,000 in 1980 and soared to 2750 by the crash of 1987 only to recover to 12,500 today. Had you predicted this in Dec of 1974, they would have called for the guys in the White Jackets.

Ross Perot sold EDS to GM for a whole bunch of money. Everyone at EDS who had accumluated EDS stock was well rewarded. Roger Smith, the CEO, quickly grew tried of Ross’s criticism of GM, perhaps most famously Ross’s accurate remark that it took five years to build a new model at GM, gee we won WWII in only four. Roger demanded Ross quit the Board and offered to pay him $750 M  to leave.   Ross later refused, noting it was a bad deal for the stockholders,  and then took $750 M from GM, 1/4 of their cash at the time, to leave the Board and stop criticizing Roger Smith, then CEO.  The accuracy of Ross’s prediction then is coming home to roost today for all the Big Three.
Perot started  Perot Systems  which is still a viable successful consulting firm. His son has begun the Alliance Inland Port north of Fort Worth.  He is a contributor to UNT Denton. Interestingly he has survived the computer tech meltdown of the 1960s and the 1990s.  Look how others have come and gone, even in short periods, Mike Dell is in the headlines again,but for all the wrong reasons.  Not so with Ross.

The brokerage industry imploded in the aftermath of 1974 with many firms going under and lots of mergers. Merrill Lynch got in the investment banking business by acquiring White Weld.  Today there are three premier IB firms, Merrill, J P Morgan, and Goldman Sachs.  A Goldman partner has been Secy of Tsy in both the Clinton and Bush administrations, even Barney Frank noting that things go better with a  Wall Street type at Treasury,. now Hank Paulson.

I went back to UT and took the hours required to take the CPa exam in 1975 and passed the first time.  Yours truly re entered the brokerage business, never thought  I would do that again, in 1983.  I learned, taught myself,  technical analysis and the bond business. I also studied business history and the psychology of the markets via the Elliott Wave.   I correctly tracked  the crash of oil prices and lowering of interest rates using technical analysis  in the 1980s and ended up trading all sorts of fixed income securities. I was the number six broker of some 2500 at First Affiliated Securities in 1985-87.  I ran my own securities and commodities office and held six differenet NASD licenses including Securities Principal and Registered Options Principal.  Today I write a weekly analysis for Fortucast Mutual fund Timing. I returned to UT in 2000 and finished my PhD in 2003.

Two of my best friends are from broker school  John Lee, retired US Army Captain, Airborne Ranger, is Chairmman of USA Financial Group and was a sponsor of CcATS. Mac Vogelei is a lawyer and consultant to Caterpillar Tractor in China. 

I called on Ross Perot in 1999 to help a good friend and military veteran. Everyone was stunned that I could get that done. Understand Ross would not know me if I walked into his office, but I do know what motivates Ross. Such understanding is vital to success. 

And the final lesson here is

Every day the cheetah must run faster than the slowest gazelle or starve. Every day the gazelle must run faster than the fastest cheetach, or get eaten.  Moral, keep running. 

 

Click here for Lusail.   This takes you to th3e site for Qatari Diar, the real estate arm for Qatar. Then click on projects, then click on Lusail.  This brings up the development pictured at left.  Hmmm, reminds me of Everett Dirksen’s quote about Lyndon Johnson’s first $100 B budget, ‘a billion here, a billion there, pretty soon you are talking real money!’

There is a special advertising section in Forbes   promoting the investments Qatar is making to improve the country.  Indeed Forbes held its CEO Middle  East Forum at the Four Seasons  in Koha, Qatar.  Click on Forbes to see the entire section. 

There are severa points to be made here. The Mid East is finally seriously investing its money on its own future.  And it is working attracting investment capital and MONEY to the area.  To the extent this requires Mid East leaders to help foster a more peaceful world, surely this is a good thing.   It’s a cinch we won’t see Hamas doing anything like this.  No doubt you have seen photos of the fabulous development underway in Dubai, including he indoor ski run.  Have you seen the latest coming in 2008, yep the $1B AED Dubai Ski Dome.   Next time you fill up at least you will understand the money is going for a great cause!

Now think about the recent posts showing that NYC is losing its financial leadership to other parts of the world.  This indeed is a new world order.

Check out Get Healthy Or Else! while it is still on the B/W website.  It is the story of one company’s quest to wean or force employees off unhealthy lifestyles. One bicyclist is stunned to find he has a serious heart condition, a smoker is fired before he has the chance to undergo withdrawal therapy. But make no mistake this is going to be the new hot issue.  As the comptroller for a local government, I was privy to all the health care costs. With about 450 employees, every year there were about 20-25 expensive surgeries.  It didn’t take a medical scientist to see that if you could dump the unhealthy ones, the cost of the health plan would decrease dramatically.  Read the article before you comment, as the CEO says, we consulted law firms about what we can and cannot do. But as he also says, why should we subsidize destructive behavior like smoking?

I noted in one class that the new EDS facility in Plano sports a luxurious health club.  But the subject of the article has gone way beyond why don’t you work out at lunch to demanding lifestyle changes.  While there is no question about the danger of smoking, how much extra weight is too much.  Gee I wish I could lose ten pounds, and  no doubt a 24/7 rabbit food diet would get me there.  Should my employer demand I do that?

Okay gang, sound off, what say you?  Clearly health care costs are on everyone’s agenda from GM Ford on down.  And before you answer, please understand that if you are in the same plan as the 30 year old on the cover of the magazine, when he eventually gets clogged arteries and goes in for a stent, your higher premiums are paying for his lifestyle.

Jason Raper in the grad class asked how could they (Airbus) build such a thing?  Well, log on to
the Airbus Site   and read all about it.  And there is a story on its first round the world  proving trip.  Once one is committed, it is of course near impossible to change the story.  And for carriers like Singapore Air, maybe it does make sense. After all, Singapore is the hub and the world’s major airports are the spokes, there are no inbetween routes to speak of I would think.  And as you can see on the site, they are betting big on China, but then everyone since Marco Polo has been wanting those millions of customers.
No doubt Airbus will say the fat lady has not yet sung the battle is not over yet. 

Clint Eastwood said you can learn as much from a bad movie (in terms of movie making) as you can from a good one, and by golly, the maker of Pink Cadillac  (yuck) and Play Misty for Me (now that’s more like it) ought to know.  What did Airbus see in the Big Bird that simultaneously caused Boeing to reject it?  After all the three networks all turned Simon Cowell down on American Idol, Murdoch with maverick Fox said yes but only after a call from his daughter. My point is that there is a lot to be learned from mistakes.   Clearly Airbus thought the hub and spoke system was the wave of the future and the most seats to the hub would win.  Thirty years ago as I have noted, the world’s carriers thought they wanted a supersonic airplane, turns out they didn’t.

Also-interesting article in the latest B/W.  It turns out that corporate jets are made for about 500 hours flying a year not 1200. So when you divide up the ownership 16 ways, the plane is flown beyond the design limit and it spends lots of time in the shop.  So the leasor is having to find more aircraft to fulfill the promise to the leasees so there goes the budget.  By the way intermed class, would that  be an operating or a capital lease?  Here is another example of poor planning, and having to make up the difference.

DLE

We have had several posts about Boeing and Airbus.  Airbus has missed the delivery date for its giant A 380. And it apparently made a strategic mistake by inventing a new 747 thinking that a hub and spoke system would prevail in the world’s air traffic.  Appparently not as Boeing is winning converts to a point to point system eliminating the waste of passenger time in a hub and spoke.  Example, try to fly to Oklahoma City from Odessa, TX, yuck. Under the Wright amendment you had to fly to dfw or Love and then change and well four hours later you finished what should have been a 90 minute flight.  Seriously this REALLY puts a state like OK behind the economic 8 ball when you think about it.

Anyway, a friend sent me a series of aviation photos that included the A 380 above.  Click on the image to get a perspective of just how big this thing is.  Remember there are two rows of seats on the plane, upper and lower.  Note the upper and lower doors for entering and leaving, imagine standing in line, lines.  I think I’ll pass.  Boeing passed on this design years ago thinking it was just too much to ask of passengers, I agree.

I am sincerely interested in the success of each and every one of you.   Do not hesitate to send me an e mail ab out a question, I look at denniselam@tx.rr.com and delam@unt.edu all the time, web ct less so since it takes more time to access so if you have a question don’t hesitate to send it to one of those sites.  Remember if you have a question others have the same question.  I appreciate that we have little time in the grad class relative to the material to cover so don’t be bashful about asking.

I will be out all day tomorrow Tuesday at the Dallas CPA CPE confab and here at school after that till 7 PM

DLE

I suggested that the entire T Bond market was too big for one person to influence.  HOwever that does not keep folks from ‘slamming the wire or engaging in other predatory practices to enhance their position.  Other practices in clude hoarding a particular issue in hope of driving up the price, particularly if that issue is the subject of an interest rate swap.  We are studying derivatives in the intermed II class now.  Read this in conjunction with the appendix in the spiceland book and come to class with some questions on Wednesday.