One of our themes in class is the speed of re organization.  So Yahoo  is re  organizing to try to boost its stock price to match the Jack and Beanstalk results of Google. The hyperlink is to a B/W article.  It illustrates why we study accounting very well I think, note the comparison of stock prices and earnings and market share. Also note that the CFO is being given a more prominent management role-did you also notice she is female, and yes certain to be a CPA.  Why is this happening?  Because CPAs understand how the company makes money, which is the whole point.  As Dr. Price and I point out, you can go anywhere you want with a degree in accounting.

DLE

Here is an interesting look at how merger mania occurs at the top of market indices.
I have mentioned in several of the classes that merger mania is typical of market tops.
It is inclusive which is a socionomic feature of the ‘good feelings’ generated by making money-let’s let everyone in!  Yet this is the exact opposite of what economists tell us in the ‘classic supply and demand curve’ which state that consumers want to buy low and sellers want to offer high.  Indeed, in merger mania Even more buyers want in at the top, as the graphs clearly show in past market tops.

And of course there is always someone to cater to this craze. Consider Dealmaker Magazine!  which is referred to in the first hyper link.  Note the bold black color of the website (remember DESIGN) indicating power (it is no accident that most Harley Davidsons are black). Even the name of the publisher suggest gambling-Doubledown Media, a name taken when one doubles down or doubles a bet in blackjack on two similar cards. 

Yesterday I got my latest copy of Forbes magazine, accompanied by Forbes Lifestyle magazine which is a sort of business person’s Town and Country-high priced toys and lifestyle for the jet set. Forbes is apparently making more money on selling lifestyle than business information.   Of course no one demonstrates this better than the recent fascination with Donald Trump.  The financial press is replete with stories about the collapsing real estate market-re read my 12/3 post on the Real Estate Bust Comes to Dallas.  Yet Trump has taken his overpriced (my opinion) and late to the market condo developments public-a smart move at the top of the real estate market.  No matter whether the condos (which according to his ads in the WSJ) sell which I guess they have, he will make out on the IPO for TRMP.  Donald is always good at making money for Donald.  Indeed, just yesterday the president of Toll Brothers TOLL , developers of high end houses, was lamenting the poor market for their product.

An article in the WSJ indicates that Morgan Stanley is expanding into casinos=-the ultimate bet from Wall Street on gambling of course.  One theory has it that stockbrokers are after all croupiers with in a Brooks Brothers Suit.  Indeed, the mania for takeovers is so high, that Station Casino owners, already possessing 30% of the company, have offered a 22% premium to Station themselves.

The better move would be to sell to greedy investors at the top, but that is not the psychology of market tops, everyone wants in at the top, which is why the buying pushes prices ever higher, until of course we run out of buyers.  The parallel is our observation that sub prime mortgages are accelerating in non payment.  Most of the condo sales in Vegas are no doubt simply bets on speculative real estate that the boom will continue long enough to ‘flip’ the property to the next buyer.  Take a look at the ‘Distincitive Property’ pages of the Thursday thru Saturday WSJ.  Do people really live in these things-of course not, they are toys for speculation.  Mushrooming sub prime mortgages, sagging stock prices of builders and the ongoing takeover mania all suggest this will not be the case as Scott Burns reported in his column on Dallas real estate.

DLE

In the several years I have been teaching I have observed a few students who are trying to come up with some sort of formula job for making money.  Which field pays the best, how do I qualify, how much will it pay me?  The problem is that they are equating this with job satisfaction, a huge mistake. Putting pills in a bottle all day long as a pharmacist  indeed may bring a high starting salary, but frankly it does not sound like much fun to me.  Besides, how long before voice recognition, bar codes, and a sort of computerized warehouse of drugs have machines filling the bottles instead of people?  Think about it, the machines don’t get tired standing up or worry about the kids at home.

Richard Watson   addresses some of these issues in an innovative column.  And he points out what I have been saying, repetitive jobs will be replaced by machines, creative jobs are in design.  And as I have also suggested the MBA is becoming old hat, there is an oversupply and like anything else, when we all have a cabbage patch doll, the novelty wears off.

I ran across this at the http://www.fastcompany.com site, I suggest you bookmark that one, great stuff about our changing world.

Morgan Freeman at age 69 has just started Clickstar .  And you can click on the hyper link to read about it.  This is an interesting article in that it involves surveys and statistics, at what point (time, mechanical devices required) and at what price ($10,15,20) will someone download a movie?  Freeman dived in working on the fear of piracy, which indeed strikes fear into the hearts of Hollywood actors and producers. 

Read how he built a special demo house to show off the product.  Music on the internet was and is big, it is also cheap and fast.  Folks will listen to their favorite three minute song many times, but we typically watch our favorite movie far fewer times.  Will this work?  You be the judge.  But this is what business comes down to, market surveys, budget estimates, time value of cash flows versus up front costs, yep it’s that accounting thing. 

My guess is that it simply takes too long to down load a movie so this will be a much slower go than the music downloads.  But this whole technology things is all about speed.  I have a whole box of zip disks that a friend gave me-100K and 250K, handy but now we have 2 G thumb drives for about 25 bucks that can hold a movie, a 250K zip cannot do that.  Iomega the creator of the zip disk and drive was a hot property just a few years back, it just goes to show how quickly things are changing.

Will download speeds accelerate fast enough to make Clickstar a success?

Okay, think about this.  One of the things that makes something important is scarcity. If  few have it and there is value, it is valuable. If everyone has one, it tends to lose value.  Hence the price of television sets has fallen while quality has improved, now everyone has multiple tv sets but no one is rushing to buy stock in a tv manufacturer.

Now compare this to the college MBA.  When only   a few folks could afford to attend Harvard or some other toney in the day time in the late 1950s and 1960s, the MBA certainly had a cachet.  To be admitted one had to be in their late 20s, had worked at a major firm for a while, and well, got the firm to sponsor the, IE, they were comers.  Now every school in the country has mimicked that platform.  Yes it is somewhat difficult to get in the UT Austin program for example, but frankly I took some courses there just these past few years, and egads, they looked and acted about like any college student. 

Goodness knows we have eliminated the scarcity of MBAs. You can go daytime, nighttime, weekend, on line, or failing that, just log into http://www.quickmba.com and wing it!

Okay now that everyone who has one does, are business failures the lack of on staff MBAs?  IE, is there a shortage of MBAs at GM, Ford, WMT, MSFT, or other companies trying to improve their market share?  Answer-no.

There is however a mistaken idea that an MBA can run any sort of company, just ask GM about all those MBAs from Proctor and Gamble, and then what happened to Oldsmobile?  After producing Olds that looked like Cheerios, they took the proud Cutlass, once an in demand Olds,  made four different models of the same car (see the Cheerios Corn Flakes Captain Crunch comparison) and then put the division out of business to ‘help’ beleaguered GM.  Gee thanks.

Let’s look at the successful companies

Porsche
BMW
Apple
Target
Lands End

And then

MSFT
WMT
Dell
Ford

My point is that the lack of MBAs is not causing the hand wrenching at  the last four. 

It is the lack of clever innovative Design ideas.  After studying the iPod for the five years it has been out, MSFT’s ZUNE fell off the top ten electronic  best seller list after two weeks-swell…

Take a look at Pen Again.  Now here is a simple idea and a new design.  Did it come from BIC or Parker? Nope, a guy thought it up in detention hall.  Just like the auto engine, the airplane, the telephone, the Apple II, a clever designer had a goal and solved the problem.

My suggestion is that the MBA has run its course, it is time for a new curriculum-incorporate Innovation and Design into the curriculum of Grad Business School.  Appeal to types that never considered business before.  Innovate, study great designs of the past.  How many MBAs ever read a book about DaVinci (no not the fiction one,  a biography about the Leonardo himself

Well this is my call for a new curriculum, take a look at the Innovation Issues of Business Week, there are some cutting edge ideas, and cutting edge, not spreadsheets, are what the new innovators are all about.

Your thoughts!

DLE

Check out the article on page B1 of the Friday WSJ 12/1/06.  Shopping as the Dollar Drops details how Europeans are flocking to the US to shop, since goods are cheaper here with the US Buck at a 20 year low against the British pound.  This is an offshoot of the story on page one about how the new Secy Treasury Paulson is letting the dollar fall to boost our economy and improve the trade deficit.

Okay, do you see anything wrong with this idea-let one’s currency fall and so our goods become more competitive?  Yep, you guessed it, the problem comes when one tries to put the brakes on the fall. AT that point one risks becoming a shrewed manipulator of a currency and falling right into banana republic status. The latter term refers to the reality of Central and South American countries to inflate their currency only to have to devalue you it against stronger currencies.  Social welfare programs, read vote getters, like those of Hugo Chavez, are the usual culprits. For the time being Hugo has the money to do it, most countries have not in the past.  The result is that their currency is priced down with out a real economy and output to back up the increase in currency in circulation.  The result i ruinous inflation and re pegging the currency to lower levels.  The Russians pegged the ruble to the dollar one for one in the early 90s. After it fell to 3500 rubles to the dollar, the economy was well on its way to being dominated by the Russian Mafia.

Cheaper currency, more trade, a Siren Song with the same eventual result that befell sailors lured onto the rocks in Homer’s Greek Odyssey.  The Sirens were a group of women in the Odyssey that sang such beautiful songs sailors would be lured to their island only to crash on the dangerous reef.   You will recall Ulysses had the crews ears stuffed with cotton and himself lashed to the Mast so he could hear the song without injury.  It is no accident that the stock market is topping as the dollar is falling, watch out below.

DLE

I will put Scott Burns column form the Sunday 12/3/06 DMN on reserve in the library.  You will recall that when we discussed time value of money concepts, I was careful to go over the pitfalls of making  a low or no down payment mortgage, particularly at the top of a housing boom.  Scott Burns, the financial writer for the DMN, explains how this is playing out in Dallas, and now California. 

Please read this article and feel free to come by the office and ask questions, avoiding such a pitfall could be the smartest thing you ever learned here at UNT Dallas.

DLE

I think the worst advice any young person ever gets is

Never give up.

Ususally the person really means, perhaps you should re think the original goal in terms of recent information on the effort. 

But in many cases, giving up and going to the next gig is a better idea.  GM is a case in point.  No less than Ross Perot tried to get GM on point. On learning that it would take five years to produce a new model, Ross replied, gee we won WW II in four.  Another comment, there are a lot of nice people around here, too bad you can’t say that about the cars.  Roger Smith, CEO at the time, paid Ross $750 M, one fourth of GM’s cash at the time to leave.  He did and the market share continued to drop.  Kirk Kekorian is the latest to throw in the towel. He made $100 M on his multi billin investment, not much but he didn’t lose money.  He finally decided that trying to fix GM wasn’t worth the fight.  He has returned to investing in casinos where he made his original fortune.  His comment, diversifying is for people that don’t know what they were doing in the first place. 

I don’t agree that GM should throw in with Nisasn/Renault as Kirk claimed they should.  But I don’t agree with Rick Waggoneer that Nissan stood to benefit more than GM either.  This leaves GM as it was, saddled with legacy costs, slowing sales, and decreasing market share. Toyota continues to chalk up sales records.

And so a second try comes to an end.  GM  and Ford will end up much smaller companies than they were, never to dominate their industry again.  And Ross and Kirk will continue to make money. 

IN assessing which company to work for, or your own prospects, as many Ford and GM employees are deciding, it may be better to try something else.  Something else does not necessarily mean giving up on yourself, just facing facts and making a better plan. 

DLE

First we’ll kill all the lawyers
King Henry VI, Scene 2

Alan Murray speculates on the outcome of the Committee on Capital Markets Regulation on page A2 of the Wed 11/29 WSJ. The conclusion is -too many lawyers.  Too many complex regulations and too many mouthings of what is money. Incredibly the SEC is staffed with 1344 attorneys and 27 economists, what no CPAs, now wonder nothing gets done.

On page A11, Treasury Secy Paulson warns against protectionism-establishing tariffs to protect domestic workers in any country from a ‘flood of under priced goods made by cheap labor.’  Paulson, fresh from his 71st trip to China, is worried that a slowdown in the Chinese economy would slow the world economy.  One reason the Depression lasted as long as it did was the passage in the early 1930s of the restrictive Smoot Hawley Tariffs . 

Now on the op ed page the WSJ editorializes that the US dollar has sunk to a 20 month low,  the Dems are talking protectionist legislation, Paulson is fearful of just that, and Bernake thinks inflation may still be a big worry.  They are all of course correct.

A currency sinks versus other currencies due to lack of faith in both an economy or the government that should help provide stable prices  supported by a stable currency.  Protectionist legislation chases investment in an economy away, that is why South America and India have wandered in the economic wilderness for decades; ditto for Western Europe today with 9% unemployment.  As the dollar falls, commodity prices rise to maintain a constant value.  And so oil has hit a low and is advancing as are gold and silver.  All the pieces fit together don’t they.  If this continues Bernake will have no choice but to raise interest rates which he does not want to do.  This is a good example of how economics, finance, and accounting all fit together to help one understand the world economy.

DLE

Yesterday one of you indicated that you had not seen the movie Patton.   Wait no longer it is on AMC tonite Thursday  11/30 at 7 PM.  Make plenty of popcorn as it runs near three hours, 180 absorbing minutes.

You can read some reviews on the hyperlink. Some actors get the role of a lifetime and this was just that for George C. Scott.  The opening speech to Army he would command in the race to Berlin alone would have made the movie memorable, but it is much more than that.  I have been reading Omar Bradley’ Soldier’s Story, who was very well portrayed by Karl Malden in the film. Bradley  remarks, Patton was an excellent tank commander who never learned how to command himself. Bradley was the technical source for the movie and the first scene in Africa is drawn right from his book.  Francis Coppola co wrote the script.  Jerry Goldsmith’s Patton March theme music quickly became a staple of football marching bands. A modern movie in every sense, great photography, great battle scenes using the Yugoslav Army, it’s all here.  A true biographical study of someone who believed in reincarnation and destiny. Yet as a German lieutenant muses in the film, without a war to fight, Patton will be without a mission or purpose. 

Patton was unable to keep his mouth shut and managed to get fired two or hree times in the same war. He is a controversial figure to this day –  A must see.

DLE