Professor Elam

Weekly Column

Dennis Elam

June 30, 2009

Word count 629

 

Mid Year Update

 

World governments are proclaiming that for the first time in history, they have changed the natural order of human events. Intervention works!  The better view is that markets are emotionally exhausted after a brief snap back recovery. The next moves lie ahead this fall. Let’s take a look at where we are now.

Texas has made some big bets on globalization. The Dallas Logistics Hub, the Port of San Antonio and Houston all assume an ever larger inflow of goods. This inflow would be so large that there is literally no place to store goods short term.  Huge warehouses have been constructed, just for stuff we have not had time to buy yet! That assumption, ahem, is being challenged.   The Dow Transportation Index peaked at 3458.20 May 7. Until the ‘Trannnies’ better that number, the stock markets are subject to correction.  The complacency in the markets with the pullback in the Transports suggests a correction or price decline  in July.

Longer term interest rates are rising, and fast.  Even the short end of maturities such as the five and two years notes are seeing increases. For the near term, rates have fallen a bit. This makes a stock sell off a bit more likely. Money is hiding in Treasury securities, out of stock market danger. But ten year yields have doubled from 2.2 to 4% this year. Mortgage rates spring from the ten year note so there will be no relief for the sub prime borrowers. The FED effort to hold rates by buying bonds is the proverbial finger in the dike, the ocean lies on the other side. Rates will be moving sharply higher in the next few months.

I suspected oil prices would pull back to the $55-60 level.   That has not happened but neither have prices vaulted the $75 level. This is tempering our view for higher prices. The energy services stocks are stalled here. This has been more a reflex bounce in price than a surge in demand. Grousing over gasoline prices has begunm again. Government meddling has made fence sitting a new past time. Nuclear and coal, realistic alternatives sit neglected while Washington tilts at windmills.   That coupled with the reality of higher taxes is not prodding anyone to do more oilfield work.  Cap and trade passed the House 219-212 with the help of seven Republicans, Michael Steele where are you?

Gold frustrates.  The 50 week moving average is $873. Save for the sell off last summer fall, it has moved sideways since January of 2008.  Mining shares had a huge rally from the fall, the XAU index of gold stocks up from 65 to 160 and now, well, on the fence like other stocks.

Texas and the non union southeast United States are weathering this financial storm much better than other parts of the country. California has set the pace for social trends all our lives.  It continues to do so but now in a decidedly negative direction. Voters rejected a tax increase, the legislature will not cut spending. Will Washington DC bail out Sacramento?  As Sacramento returns IOUs for tax refunds we wait and see.  GM is one thing but a direct bailout to irresponsible governments will have them all standing in line.  How nay blue states can Obama save? How long would the rest of us support that irresponsibility? Indeed it would be our tax dollars not theirs, keeping the California afloat.   Can the few support the many?

 

So near term we look for a stock pullback.  That will test the market resolve. Meanwhile watch the  Transports and the  3458.20 high water mark. Until we better that number, do not expect oil to better $75.

 

More Dennis Elam available at www.professorelam.typepad.com/markets

Art and Culture Update My Weekly Rant

Contemporary Art Month CAM will move from July to March, good thinking, let's get out of the heat.

I read a good bit of The Story of Art over spring break. Art History is the history of a civilization and how well it comes to depict itself. This simple fact seems to be lost on  art education courses that require one to memorize the names and creators of art thereby boring everyone to death. What CAM needs is the integration of art and design to a profitable outcome. Just hanging a picture on the wall is not an outcome. 

Robert Rivard Page 5B reports that in 2001 part of the River was weed choked. Now what eight years later, it is beyond what Mayor Peak back then imagined. Well I would hope!

What on earth does the street, parks dept at the City and County do all day long?  What do all the volunteers in SA do? Eight years, we won WW II in four!

'The winding meander of the River is largely gone'  Well how did THAT happen with the Sierra Club on the watch. If we can mow all the parks in SA you are telling me we cannot control the weeds on a stretch of meandering river?  Gee how on earth did Mission San Jose ever get off the ground in 1550?

Now here is the best part, again I am not making this up

'Three years from now, a short time for public works projects, (now what was WW II but a public works project) nature will take over, bird life, butterflies, kayakers,

in short we will be back to 1550 when Mission San Jose got off the ground. 

Good grief, these sorts of time lines are ridiculous IF the citizens really wanted this to happen. 

How about the 15,000 Spurs fans (typical attendance at ONE game)  gathering on the banks and clearing weeds for a few hours, I bet that would unchoke a few things....

Okay I feel like some sort of academic Lewis Black.. your comments?

Weekend Update

From the SA newspaper

Assasins have killed more than 11,000 people amid Mexico's 30 month campaign against organzied crime.

The this unbelievable comment about a 30 year old priest shot in the back this past week. 

This is the  beginning an indication that they (the gangsters) do not respect anything. Comment by another priest

The beginning, what about the 11,000? There is no real legal system in Mexico, judges are regularly bribed which is why the outlaws operate so brazenly, they know nothing will happen to them. Apparently the drug trade is everything it is touted to be in the movies, one gets filthy stinking rich if one lives thru the ordeal. 

Meanwhile in Afghan we have given up on whatever the last plan was to squash the opium trade, Let's see, you and I are Afghans, we can grow opium or pistachio nuts, what shall we do....

But I digress. We should be focused on Mexico.   Legalizing at least marijuana as FDR repealed Prohibition would be a start, unless one takes the money out of the drug trade, no telling how high the body count will rise. And of course that would be the real way to defeat the taliban in Afghan, take away the money.   Does anyone really think the Mexican govt will dissuade the murderers of 11,000- people?

The population of Mexico is expected to rise from the current 45 M to much higher levels. THere is not an existing economic structure to support almost any population increase. 

WE cannot hope to build an economy in a country brutalized by open warfare with no real legal system. 

OH, your tax dollars at work dept....

The governors of Tx, Az, CA NMx want help on the border

Gates at the Penatgon does not want a permanent military on the border.

Napolitano at Homeland Security requested Nat Guard when Gov of AZ and now she disagrees with Gates

Meanwhile Obama wants Congress to spend $250 M to send troops while saying he does not 'want to militarize the border.' Folks I am not making this stuff up, see page 16A in the paper today.

Anyway, the goal of NAFTA was a free trade zone in the Americas which if you look at Laredo has increased trade. But hard to see how things are going to work out at this rate, I am not planning any trips to Mexico, are you?  Would you locate a manufacturing business in Mexico, don't worry it is just the outlaws killing outlaws.....

I report, you decide. 

 

Long Term Capital Management

Scholes was the creator of the now famous Black Shcoles option pricing model. 

Ironically he was a principal in Long Term Capital Management. 

LTCM went bust. Greenspan thought he had to rescue it in 1998, he Summers and Rubin ended up on the cover of Time as three who saved the world. As someone noted, had they let it go broke,  it would have been an early warning that this sort of nonsense will not be tolerated, it might have put the brakes on Lehman et a. But alas. This article gives some insight as to the folly of LTCM> 

Hydrogen Fuel, get the Checkbook

Alert student Rani Lerma submitted this link on hydrogen autos. 

This is the first I have read of converting a piston engine to hydrogen. Lots of vehicles run on propane which is a clean carbon gas. 

 Carbon is the fourth most abundant chemical element in the universe by mass after hydrogen, helium, and oxygen.

THe idea of taxing carbon as though it were some sort of penalty is as absurd as taxing sunlight yet it passed in the House Friday 219-212. This can only raise all sorts of costs for everyone in a recession brining ever more govt meddling in the economy in the never ending search for more tax revenue. 

Political Science on Display

I got this e mail from a friend and cannot verify it but....whether this is true I do not know but it reflects a mindset, at this point an electric car makes no sense, the energy is produced by carbon fuel to re charge the battery anyway, the battery weighs too much, it takes too long to re charge unlike gasoline, there are no re charging stations, the environmental damage from making and disposing of all those batteries is horrendous, this reflects the idea that if it does not make noise it must be Okay, you can't see the pollution since it came thru the wire to re charge the car. Electric cars also reflect a big city east coast mindset where five miles is a huge distance, try driving from here to San angelo in an electric car.......

(From a senior level Chrysler person) 
  
Monday morning I attended a breakfast meeting where the speaker/guest 
was David E. Cole, Chairman Center for Automotive Research (CAR). You have all likely heard CAR quoted, or referred to in the auto industry 
news lately. 

  

Mr. Cole, who is an engineer by training, told many stories of the 
difficulty of working with the folks that the Obama administration has 
sent to save the auto industry. There have been many meetings where a 
30+ year experience automotive expert has to listen to a newcomer to the 
industry, someone with zero manufacturing experience, zero auto industry 
experience, zero business experience, zero finance experience, and zero 
engineering experience, tell them how to run their business. 

  

My favorite story is as follows: 

  

There was a team of Obama people speaking to Mr. Cole (Engineer, 
automotive experience 40+ years, Chairman of CAR). They were explaining 
to Mr. Cole that the auto companies needed to make a car that was 
electric and liquid natural gas (LNG) with enough combined fuel to go 
500 miles so we wouldn't "need" so many gas stations (A whole other 
topic). They were quoting BTU's of LNG and battery life that they had 
looked up on some website. 

  

Mr. Cole explained that to do this you would need a trunk FULL of 
batteries and a LNG tank as big as a car to make that happen and that 
there were problems related to the laws of physics that prevented them 
from... 

  

The Obama person interrupted and said (and I am quoting here) "These 
laws of physics? Who's rules are those, we need to change that. (Some of 
the others wrote down the law name so they could look it up) We have the 
congress and the administration. We can repeal that law, amend it, or 
use an executive order to get rid of that problem. That's why we are 
here, to fix these sort of issues". 

Rock 'n Roll

While the media is all ga ga over Michael Jackson, let me bring a couple of guys to your attention that deserve this sort of attention. 

Little Richard perhaps rightfully claims to have invented rock 'n roll.  He still appears in commercials today as a matter of fact. 

INterestingly as I looked this up the Rock and Roll Hall of Fame is divided on Little Richard and 

Chuck Berry.  As one anthology remarked, by the end of the 1950s only Chuck and Little Richard remained true to their roots. The others had morphed into something that would appeal to the larger masses without the hard driving six beats to the bar of Good Golly Miss Molly or Maybelline. it was this same born in the south, yes black rock and roll that inspired Jerry Lee Lewis, Whole Lotta Shakin Goin On. 

Before all this true class acts like Nat King Cole, who had his own television show in the early 1050s, Count Bassie, Duke Ellington, and Louis Armstrong delighted audiences for decades....

Which led to Bill Cosby, Richard Pryor, well we will save that for another time. 

A high school counselor in Dallas asked me if we offered a music major, nope I replied, too bad he said, that might actually interest the students. 

Well I cannot construct a music hall but we could have a course on Music and the American Culture, now there's history course for you, something for everyone, a carnival tonite, what do you think?  Take a look at the links above, no better yet, go to iTunes and listen to the first few bars of Good Golly Miss Molly and Maybelline.....everyone wants to come to America, no one wants to immigrate to the Mid East, every hear their version of a pop tune? America has exported its culture the world over, it is on display in the streets of Tehran as I write, yearning to be free.....an Iranian Woodstock, dream on. 

No wonder rock ' roll was branded as dangerous when introduced to America, it is, gets toes to tapping and finger popping, hmm, it is all about an alternate method of expression, after you listen to the tunes I mentioned, try what it replaced on the charts, Shrimp Boats are a Comin, hear the difference?

Iran the Whole World is Watching

Charles Krauthammer along with Tom Sowell is a one of the best observers on the scene. 

Satellite communication means that revolutions are on display in a way that the Soviet invasion of Czech never was. Indeed this is the Global Village that McLuhan described in the 1960s, no not HIlary's village. 

The US no matter what your position has spent billions of dollars and several thousand lives to bring change to the mid east, The biggest possible change would be real democracy in the one regime that is the most threatening Iraq. 

As Krauthammer says, will Mousavi rise to he challenge?  There were numerous revolutions, some big time in the past century the shooting in Yugoslavia that got WW I going, the collapse of the czars in Moscow in 1917, but none of that was on television and You Tube, it is now. Will a Yeltsin or the Polish shipyard worker rise to the occasion?  A revolution in Iran would solve all the problems that both we and their neighbors in that region would favor. 

Meanwhile of course America is mourning the 'best known person in he world' weird Mike Jackson. 

What a diversion....

Rasslin' As Ted Turner Would Say

First read my posts on June 20 about the movie Hard Times and then June 22 about Trump buying WWE Raw Wrestling. 

My comment to Lee Ann's insightful post of Trump strategy. 

I would guess WWE ratings will rise, hard to skyrocket from here but we shall see, movies were big in the depression for a few cents you could to inside and escape the depression for ninety minutes. WWE offers the same sort of thing coupled with a sort of rage revenge scenario that plays out in the good guy bad guy tag team wrestling match. This will likely resonate with the audience that grows more restless over job losses, this is what the get the big guys and their salaries is all bout, Obama is tag teaming corporate America, hmm good I ought to make that a blog post. 

See my post on the movie Hard Times. June 20, Same thing. Okay I told you twice....

Indeed P T Barnum of circus fame made the comment that one would never go broke underestimating the taste of the American public. I should add  a book on him to our reading list. 

Summing up, in Hard Times attitudes grow hard. As I have mentioned here on several posts, it is only a matter of time until part of the country in relatively good shape, the SE, realizes it is literally supporting the part in bad shape, California and the midwest and New York. The Administration will really be risking its popularity if it chooses to 'bail out' California, a Dem laboratory for progressive ideas that have failed. 

''Sports' which are really not sports at all like wrestling and roller ball seek to tap into this sort of social dissatisfaction.  This is the ultimate good guy bad guy revenge game endlessly played out in the various personna that the wrestlers intentionally mimic.   The Coliseum in Rome provided the same thing, ever see the Chariot Race in Ben Hur, an older movie but what an expensive scene.  In that scene Charelton Heston drive, yep the gold and white chariot, the bad buy the black and red. Understanding the socionomic trends is key to success in public entertainment. 

Nothing new under the sun as they say. 

Writing Lab

For those of you in ACCT 3314, you do not have to return the re writes by Monday. You do have to return them re written for a grade.

You can obtain assistance at the writing lab, no they will NOT re write your paper for you. Please have  your paperin both paper and electronic format when you go there.

Writing Lab at Palo Alto Community College

210 486 3232

Applied Science Building #110

Monday - Thursday 8 AM - 7 PM