The definition of a  ‘blue chip’ stock is one that endures by consistently making money and or paying dividends for years on end.  Indeed,one of the vivid impressions of my life is how even the most durable institutions can be gone in the blink of an eye.  Gulf Oil was founded in 1901, Dad worked for them for over twenty years, but in a Boone Pickens challenged buy out, Gulf, then Texaco and now Unocal are all eaten by Chevron.

Which brings us to the story of the James bond franchise.  The story is well detailed on the front page of the weekend journal.  The daughter of Cubby Broccoli, Barbara and her half brother Michael, havev re done the franchise with the latest $105 M Casino Royale epic. No less than Queen Elizabeth II herself is seen greeting the producers at the film premier.  It is an interesting story worth reading of how they have kept the franchise alive with a sense of what is Bond and what is not. Frankly I would argue that they lost their way in the last of the Connery films and wandered aimlessly with Roger Moore but things are finally back on track with a new gritty Bond sans many of the high tech toys. 

You can learn about the creator of the name is Bond, James Bond.  Jack Kennedy listed From Russia with Love as one of his ten favorite books.  Casino Royale was actually published in 1952.  Flemins grew famous by introducing a sleepy world to now famous glittering destinations a decade before jet airline transportations made such destinations easily accessible.  He would take a month off each year, retreat to Jamacia, and write another book.  Live hard die young, Fleming was only 56 when he died in 1964.  My point however is that great fiction is just that, the image of the spy who could successfully play the tables at Monaco in 1954 still fascinates. For a look at what Monaco really was at that time, get the DVD for
To Catch a Theif .  Like Fleming, Alfred Hitchcock featured famous places in his movies.  This was shot on  location in Monaco co starring soon to be Princess of Monaco, Grace Kelly.

While all of this may make you yawn, trust me thirty years from now, you will appreciate someone who can hold an organization together decade after decade.  This will be particularly true should you lose your job in one these corporate disappearance games. The thing to get here is, what endures and what disappears.

Nancy Pasternak of KPMG made a fine presentation at the Texas Educators CPA Conference on  the latest fraud findings.  Her presentation was mainly based on the KPMG Survey   You can download it and read at your leisure and for future reference on the hyperlink. 

The Association of Fraud Examiners also has its 2006 annual report out.  It is a bit longer but studies over 1100 actual fraud incidents.  Again, a good source for the future.  I will print these out and put on reserve in the library.

Frauds are committed by folks who have

the propensity to rationalize their behavior
the opportunity to seize assets for their own use
usually the lack of controls to prevent a small number of perps to commit the crime

We will be studying this at length in the systems class in the spring and the audit class in the fall.

Dennis Elam

Milton Friedman died November 16 this year.  Read about his remarkable accomplishments in Bruce Bartlett’s column .  It was Friedman that created the Chicago School’s obsession with money supply.  One of his more memorable accomplishments was a video series on free markets. One person he interviewed was Arnold Schwarzenegger.  Arnold was depressed with the socialist economy in Austria where 18 year olds were already a talking about their pensions.  As you can see, Arnold has made the most of his opportunity.

Better yet, Tom Sowell who is the Rose and Milton Friedman Senior Fellow at Stanford describes the enormous contribution of Friedman on page A8 of the Nov 18 Weekend Journal.  I will post a link to this column when it is available.

Daniel Henninger is always worth a read.   Here he notes that decreasing taxes has become a world wide trend, and those countries that are doing it are in leading in economic growth. The former sad sack of Europe, Ireland, now boasts one of its most robust economies thanks to a low flat tax.

Neal Boortz has been making a case for the Fair Tax which would be a national consumption tax and junking the entire income tax code. Someone needs to embrace this idea and run for national office, I think they would win the day.

If there is any city that mirrors or perhaps paces popular culture in America, it’s Las Vegas.  Indeed, one could argue that the emerging ‘service’ economy is not high tech but gambling.  Ben Seigel figured this out in the late 1940s and opened the first gangland financed casino.  He oversold the ownership and the Mob had him shot-a considerable shift from today’s golden parachutes for poor CEO performance.  Still the gambling mania has spread to Atlantic City and over thirty different states in the form of low end gambling and riverboat slot machines.  Indian reservations have hit pay dirt with about a fourth of overall casino earnings.  States have gotten in the act with lotteries and muscling out private enterprise in the form of poker machines. 

Station Casinos was so sure of its future that it titled its 204 Annual Report Econ 101. Station STN and Boyd BYD cater to the local gambler in Vegas.  The Vegas population is growing, inflation is up, multiply the two together and the future seemed bright for STN and BYD.  But page C1 of the 11/16/06 WSJ details that there has been more than just a bump in the road. BYD was so disappointed in their most recent casino, they promptly sold it back to the developer and took a one time $65M loss, ouch!  Station’s reduced its 4th quarter expectations after 18 straight quarters of meeting or exceeding estimates. 

Wynn’s WYNN has been touted as one of the most expensive resorts ever, and its stock is also down, with the overall market up.  It boasts one of the most lavish websites I have encountered, take a look at Wynn Resorts.   Notice the extensive investor relations information, also at the STN site.

Could this be a harbinger for things all over the US economy?  As gambling goes, so goes the US?  It was once said that what’s good for GM is good for America.  But today are we gambling on our very own success?

Oliver Stone in his film Wall Street  had Michael Douglas repeat some of the speech that Ivan Boesky once made. Boesky told a group of students that greed is good as it can create wealth.  Boesky in real life and Douglas in the movie rely on inside information to make their money, ever ready to trash a company and its employees for their own good.

The latest stock option backdating scandal (aka fishing in the company barrel to get rich quick) has taken  Bruce Karatz  out of the CEO seat at KB Homes. But what does he care.  Here is another article about greed at market tops  and the real estate business in particular. 

Note that this bull run in real estate has brought back a name from another era, the Donald er rather Donald Trump.  A tv show, new developments, and now a new book.  But Donald’s greed is such that he can’t stand to have anyone in the limelight with him. Carolyn Kepcher  barely got her book out before she too was fired. Not only are these guys greedy at the top, they don’t like to share the money or the limelight.

Click here to go to the hitachi site.  ( Enter and click on a new breed of bloodhound, the html screen a couple of posts back takes a while to load from the blog, it is much faster if you go directly to the company site.  At any rate, those of you who have expressed an interest in forensic accounting, please take a look. The FBI has always required agents to be lawyers or cpas to which we can only say, cpas now more than ever.

DLE

Seems like everyone is after WMT, from Barack and the Unions  towns in New England.  Alas, the generals always fight the last war, perhaps WMT’s detractors should spend more time looking at financial statements and less time looking back. Seems same store sales are up a tiny 1.5% year over year, yep, WMT has become its own biggest competitor robbing sales of other stores. This is not the case for Target as you will read on page B3 of the Wed Nov 16 WSJ.  When everyone gets really worried and the worry takes the front page of the conventional as opposed to financial press, you can usually bet that the real threat has already passed.  Tom Sowell observed in a past column that the A & P food market chain once dominated America, but where is it today, suggesting that this same fate could befall WMT.  I am not predicting the imminent demise of WMT but I am suggesting that the era of growth is over and that WMT is now a mature company, like MSFT, making money but growing the stock no longer.

At left I have constructed a ratio chart.  This plots the price of Target TGT versus Walmart WMT.  If the weekly bars are going up it means that TGT stock is consistently outperforming WMT.  Click to see what has been happening.  As you can see TGT has outperformed WMT for several YEARS now. So what is everyone worried about?  Once again, if WMT detractors understood accounting and technical analysis of stock prices, they need not have been so worried that WMT would continue to dominate the landscape.  Yes they do, but others are catching up fast.

DLE

While we are used to such pleas by the ‘homeless’ this is the first we have seen this sort of plea from GM and Ford.  On the front page of the Wednesday Nov 15, 2006 WSJ, Ford and GM are having to actually pledge their plants and equipment to secure loans.  This is a HUGE departure for firms that have routinely been able to sell commercial paper without any backing in the market.  Now the lenders are demanding first mortgage rights.  But that is what J P Morgan and Credit Suisse are demanding in return for lower interest rate loans. 

IN intermed accounting I we just studied the entries for pledging accounts receivable to obtain financing. Here the companies are not pledging short term assets but their apparently the most valuable thing left, land, plant and equipment.  Question, okay, suppose they default and J P Morgan and Credit Suisse have to foreclose and they end up as landlords, then what?  I suspect this would be the ultimate example of the dog catching the car it chases.  That would make for Strange bedfellows indeed.

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