Professor Elam

TXU

Jason asked why I had not mentioned the biggest buyout in history-TXU, good point. Let's get to it.  See the previous post about the DOW drop and the Elliott Wave.  Recall that I have put up several posts about how pop culture is turning negative, consider my post about Chuck Norris World Combat League on Pete Kendall's Socio Times Site.  At the same time, euphoria and inclusive feelings are leading to the biggest takeovers ever. The level of confidence is so high that the takeovers are being done with debt, and the lenders are happy to oblige!  Click on the graph of TXU at left to see what I mean, and why Jason asked the question.  Do you see that a debt takeover registers a higher level of positive emotion than a cash or stock takeover, the former is saying, hey  no problem we can pay it back, easy! My point is that it is only a matter of time until the negative emotions overwhelm the positive, the bizarre column by Norris is evidence of that, and with Jihad on the rise world wide there is plenty of negativity to fill the positive void.

Market tops are formed amid feelings of warmth and inclusion-everybody is happy. On the chart, the last black line up indicates the buy out offer, at the highest price ever for TXU.  The question is, why now, why not back two years ago when TXU was much cheaper.  My friends, the answer has nothing to do with Graham and Dood, or pay out ratios or anything else, by all financial measures TXU is certainly the priciest it has ever been the last few years. The buy out could not occur until positive emotions about this market were at the MAX, and only then would everyone feel self assured enough to do the deal.  Recently the owner of STN casinos bought out his own public company, missing the chance to cash out at the top and instead loaded up on debt. Sam Zell sold EOP when the REIT was yielding less than T Bills, and two different groups fought for the right to buy it!   

Sam Zell is not the only bright guy in town, let's give Donald Trump credit here.  He took TRMP public in 2005, TRMP is simply three or four gambling casinos, and the one in New Jersey just came out of bankruptcy.  Eager to follow the real estate icon, stock buyers bid TRMP up to $20.  Now guess what, that's right, TRMP does not make any money but the market has bid it up from ten bucks to twenty. Repeat, the casino company is LOSING money.  It  started falling since his fallout with Rosie O Donnell.   Now that is understanding the public mania for stocks, gambling, casinos,and trading on one's name all at the same time!

Fittingly the market had a correction immediatly after this latest spate of good feelings. Seasonally the market usually holds up until after tax day in April so I think this is just a warning shot.  Also note that the Chinese market was down 8% last night, emotions now travel round the world at shall we say, the speed of the tape. 

Takeovers almost never happen at market bottoms when things are cheap.  Why, all the ratios woudl indicate it is time to buy.  The answer is that emotional ratios are in full negative tilt, and no one is going to venture forth in that environment to buy. 

DOW Plunges 400 Points

The media will be agog over the fact that the DOW was down 400 points today.  Actually Paul Harvey probably had the best summary of this - the Chinese exchange doubled in the last year or two, a correction is to be expected. 

I am convinced that markets don't advance and contract so much on financial information as they do on expectations.  The Elliott Wave is a description of mass psychology.  Click to read a capsule summary. 

Here is an example of how mass psychology works, though I am sure Bill Clinton would not agree.

The basis of the theory, to the upside, is like this.  Bill Clinton the come from behind kid is elected. This starts Wave One, which is unexpected by the masses.  Soon however, there is a bump in the road the the trend reverses. This Wave Two confirms what the naysayers say about the current move, it is just a blip, not a long term trend.  For Bill this would have been the 1994 Republican capture of the House and Senate, leaving Bill to defend whether the President was relevant.  But, adopting a more middle of the road stance as advised by Dick Morris, Bill's popularity again soars. This is Wave Three, the largest of the five wave pattern.  Wave Four usually is opposite in severity from Wave Two.  If Two was down hard, Four is likely to be sideways. For Bill this was the Monica Lewinsky, well let's avoid the word affair. Again it brought out the naysayers.  But, buoyed by a great stock market and economy, Bill was soon back on top with Wave Five taking his popularity to new heights. Bill went out just as things were about to turn down in the dot.com crash, lucky for him.  But he peaked at a fifth wave top and of course now wanders the world looking for a way back into that kind of popularity.  Once a fifth wave top, the only way out is down.  Now as I said I am sure that no one who thinks he or she is IN CHARGE of their career or America or whatever thinks that they are subject to the whims of pop culture as defined by the Elliott Wave, but they are. 

The stock market is a mass phenomenon as it is the collective voice of millions of investors all voting at the same time.  Today you will hear that investors fear blah blah, well gee, where was all that fear last week?  A trend change, also evidenced in Chaos Theory, this is why a school of fish appears to change direction all at once, or were they just following the lead fish?

DLE

RSH-Another Graham Dodd Pick!

While I certainly do not promote this blog as an investment adviser, from time to time the analysis we learn in class, both technical and fundamental, can pay off.  BAck on Oct 29, 2006 I noted that RSH stock was on sale for 80% off its 200 peak. It had all the earmarks of a turnaround, including Craig Hall's suggestion that it was a great stock pick.  The president has been fired for lying about his college degree and stores were a mess.  A new CEO and then CFO came on board and changes were being made. I even visited with a local RSH store manager and he confirmed the positive.

Well whaddya know, read RSH reports earnings.  ON a day when the DOW was down 120 points, RSH jumped 3.25.  And yes I did buy some below 20 bucks.  Prior to  the last grad class I offered to come in early to discuss the a column analyzing Ford Motor which suggested the company was apparently worthless. But I guess that wasn't of much interest, only one person showed up early......

DLE

Pumping Irony with Arnold

My candidate for the come back kid award is clearly Arnold, read the latest at
Pumping Irony .  Bush, Al Gore, the Kennedys, please, all of these grew up in a life of privilege and had national name recognition from the get go. 

Arnold came to prominence in a 1970s film called Pumping Iron, hence the title of this article.  The point was that back then Arnold was able to 'psyche out' his opponents in what is essentially a male beauty contest.  Arriving in the States with a physique, a desire to succeed, an accent that everyone said would fail him in Hollywood and a name no one could pronounce or spell.  He was of course advised to change his name. His retort, 'by the time I am through everyone will know my name.'

And so he found roles that suited him and did what no body builder every managed to do before, go from strictly low budget b movies to huge box office success.  (Historical note, there were plenty of body builders around during the 1960s Roman Chariot movies and none of them ever got out of the chariots.)  And along the way he married a Kennedy while espousing neither the Republican or Democrat party line. 

He was continually underestimated.  Everyone mistook the accent and body building for some sort of bulked up low IQ type, wrong.  I understand he has also done will investing in real estate et al. 

My point, if you had take any of these other guys, Bush, Gore, Kerry, pick one, and said OK, you come in with an Austrian accent and a name no one can spell, where do you thing they would be today?   In politics, winning is everything.  ie, would you rather go to the Arnold S 'library' ( think Conan in I Max) or the Bush II library at SMU (think movies of the Christmas pooch) or the Clinton library on Ark (Bill goes to India)?  Gee, let me ponder on that one.........

PV of an MBA / Perry Wants More Graduates

One of the grad students found a great article  about the MBA experience. He notes the grade inflation as well as his inability to recognize some concepts on exams.  While he does not ID the school involved, I would say this is true of many of the programs.  The suggestion that there be a national exam to reallly earn the mba like a cpa or law degree is not a bad idea at all, but I doubt one could get a majority of schools, since everyone has an mba program now, to go along with it.

I see the latest idea from Governor Perry is to reward schools for graduating more students, uh oh.  And now that they, the legislature,  have let universities set their own tuition, Dewhurst is wistfully wishing those same schools would hold tuition constant.  One of John Connally's tenets was that tuition should not rise about 50 bucks a semester.    Here is the link.  No doubt this will be another example of Unintended Consequences. 

Got Lemons, Make Lemonade!

We have noted the cash problems of Airbus lately, so what will they do about it?  Ramp up production of the popular A 320 but wait, it offers razor thin margins in a very competitive category. What will this do to the suppliers?  One of the interesting things about teaching managerial accounting is that I never seem to run out of examples semester after semester. Here is yet another one. 

Read about A 320 Here.

Afraid to Be Number One?

One of my students at UTPB observed that the problem with college was that it did not offer the course one really needed, Office Politics.  Toyota faces much that problem, in the past. Now read how Toyota overcame being a foreign manufacturer.  I made the comment along these same lines that for poiltical and positioning reasons, I would not have built the Tundra, but left that segment to the Americans.  Guess that is why I am not running Toyota....Still a great read on diplomacy, particualry the part about using the Ron Howard film as a HOW NOT TO...

MBA to the Rich and Famous

As you know I have been advocating different directions for the MBA.  Well here comes B/W with Majoring in La Dolce Vita. Seems there is a B School outside Paris, France that specializes in marketing luxury goods, here is the link to ESSEC luxury brand management.

To me this has a clear element of DESIGN in its conception.  Seriously, that is the link, look at the faculty, curriculum and the testimonials about the outcome.  If you have even listened to half what I have said and written or opened the Dallas paper of D Magazine, this is truly the land of J R Ewing with all the baubles and trinkets one would expect. I believe there would be lots of opportunities for someone with a specialty in this field.

Long Distance Carriers

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?

Critical Thinking-Inputs and Outputs

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