Professor Elam

Another One Bites the Dust

Alert student Adam Dupnik made this post over the weekend. I have moved it front and center as a good example of what is going on. 

As I write at 6:22 AM there is an interesting discussion on CNBC.

Most Community Banks are in good shape as they know their customers.

The interviewer asked, so why aren't they loaning more money?

Answer, one, few are asking for loans to make an investment in this environment, Two, the regulators are very harsh at this time, well guess what, why take a risk and get written up by  a regulator?  so there you have it, lax regulation led to risky loans, harsh regulation leads to very few loans and fewer borrowers, hello recession. 

Adam's comment follows. 

I did not know where to post this information but BBVA Compass bought out Guaranty Bank making it the first time a foriegn bank as bought out a struggling U.S. Bank. Guaranty Bank has 162 branches across Texas and California. 
Interesting stuff here, BBVA is the 13th strongest bank worldwide and has been looking at making an imprint here in the U.S. as of Novemeber they completed the U.S. merger of Compass Bank, Laredo National Bank, Texas State Bank, and State National Bank. It will be interesting to see what they do from here.

Latest from the Tax War Front

Our last post made the point that the Fed govt would become more and more militant in collecting income taxes. Ditto for local property taxes. Those empty car dealerships will take a big chunk of both property tax and sales tax revenue on reduced car sales. Hmm, less tax on non existent inventory come to think of it. 

So an enterprising couple with the most expensive house in SA, has decreased their property tax by $50,000.   The solution was to install a 'herd' of 18 miniature donkeys, garnering an agriculture exemption.   House values are falling,  more homes are becoming rentals in the absence of a ready market. Yet local governments are not able or wiling to do what really ought to be done. 

And that is,

cut salaries not positions. Cutting positions and closing libraries does nothing for service and puts otherwise employed folks on unemployment. Instead of annual pay increases, I suspect an annual expected pay decrease of say 5% for all, would be much more realistic. Employees could cut back on lifestyle and be glad they still have a job. Business is slashing like made, govt is not, when do we have more people working for govt, riding in the wagon, than pulling the wagon, working in business. 

Who Owns America?

George Will describes legislation that would return govt ownership to the private sector. Guess what, the first bill failed, will the second also?   We are moving to state control of more and more enterprises, banks, autos, health insurance. If the govt does a better job of running health insurance, is there anything they should not run. Can the govt do a better job of running health insurance?

I have suggested that CPAs are in danger of becoming de facto employees of the Federal government. 

CPAs

audit public companies

prepare financials to support bank loans

prepare tax returns.

In the first two, the federal govt is the ultimate insurer of companies too big to fail, CITI and FDIC 

guarantees that for member banks. As for tax returns, clearly they are prepared, in the govt view, with the govt as the beneficiary. It is not a stretch for the Federal Govt to take the position that errors in any of the three cost THEM money, hence more control and regulation is needed over cpas. 

Already the SEC sets the budget of the PCAOB which regulates CPAs using non CPAs as a majority on the PCAOB. You tell me....

Empty Car Dealerships

Terry Box describes the now vacant real estate as 20 DFW car dealerships have closed.

Please read the linked article. Suggestions include 

apartments

office buildings

work out centers

But wait, vacancy rates in office buildings are still increasing, we do not ned more office buildings.

Condos, oh please. And Bally Fitness had to file for bankruptcy, hard to see people spending more money to work out. 

The idea that Chinese and other dealerships will vill the void seems far fetched.  With total sales still around 10 million, down from 14-16 M, there is really no need for more dealers, we probably need less. Indeed, the article mentions that GM will close another 1,000 dealers by next fall. 

So now we have empty shopping malls AND empty car dealerships.  These are a testament to the end of the consumer economy, ever adding debt for things we never needed in the first place. As PIMCO says, welcome to the New Normal.

The 1930s saw makers of luxury Duesenberg Auburn Cord go under as well as other small makers. 

Can GM survive with one million sales a year/  Perhaps on pickups and SUVS, probably not on Volts.

SA, Where the Jobs Are

An interesting article about where the jobs are in SA

Downtown now has a 20% office vacancy rate.

considering the difficulty of navigating the spider web of downtown streets, is anyone surprised?

Weekly Column

Professor Elam writes a weekly column for the Andrews County News, an oil based economy in West Texas. It is re printed here. 

Follow the Boomers

 

Boomers are children born of the returning WW II veterans.  A demographic bump occurred, from the drought of baby creation caused by WW II.   The parents and the boomers left demographic footprints that tracked our economy these past decades. The suburbs created in Levittown,  Pennsylvania, the sporty Mustang for boomers of driving age, the move to stock market driven 401Ks in the 1980s, and now, what was known as retirement planning.   Retirement planning is an oxymoron, retirement funds as we have noted here are already falling behind in their funding assumptions.

Bank America created the VISA credit card about 1968.  Richard Nixon took the US off gold backed currency in the early 1970s.  Wilbur Mills tied social security payments to the Consumer Price Index in a failed bid to become President. That was Change to Believe In.   Congress, unrestrained by a gold backed dollar proceeded to print and spend dollars. Lyndon Johnson’s first $100 B budget is now in the trillions, a number incomprehensible to most people., especially  most in Congress.

My parents’ first Houston  home purchased in 1953 cost about  $12,000. Their first house bought in Andrews in 1965 was $16,000. My first all brick home in Andrews in 1976 cost $22,000.   Two years later I sold it for $44,000; as George Jones would say, the race was on.  Housing prices in Andrews soared to six digits. We will now see a return to the mean,  price will seek its long term average, in everything.  Midland millionaires were created via $3 oil.   Fiat money  has value by the decree of the issuing government, it is not constrained by the guarantee of gold redemption.  Money supply swelled and the price of oil zoomed to $36 in 1981, then $12 in 1986, then $145 and $36 (again, see the pattern?) and now $75. 

The era of volatility has begun.   Prices of oil, real estate, and stocks zoomed as the boomers stuffed their socks full. Congress was only too happy to oblige with higher spending driving inflation based prices up and up.

But now the cost of money to banks is near free, interest rates from the FED are less than 1%. This is the worst possible sign.  There  is simply no constructive use for the money which will return higher rates, why else would it be near free?  Indeed we now have moved from inflation, too few goods chased by dollars to deflation,  too many goods floating on a sea of debt.

Even in Texas, major cities feature lots jammed with new cars, buildings sporting lease signs, stores offering 2 for one everything, empty strip malls, and houses for sale becoming rentals. Such efforts only back up the eventual supply of homes for sale. Encouraging speculative home building at the end of the boomer era was an incredibly wrong headed government move. Now there is no a demographic bump to buy these new  homes, much less the now 40 year old homes of the boomers.   Already the rental market swells. Short term incentive cash for clunker homes or cars is a magicians’ trick, masking the ever growing unsold inventories behind the Curtain of Oz.

The price of oil is the collective emotional vote on the economy. The greatest volatility in oil prices in our lives this past year is a prequel to the next few years.  Do not naively assume things will calm down, they will not.  $145 to $34 to $75 is Nightmare on 14^th Street in Andrews.   As the government alternately jumps too and fro on favoring various economic sectors, robbing future sales to buy a vote in today’s opinion poll,  it will only heighten the volatility of price.

Last summer this column beseeched  everyone to avoid or pay off debt, prices would be falling.   The $75 barrier for oil and Exxon remains, markets may poke above it this last week of August, but that will be short lived.  Like Rudyard Kipling’s swaying Indian cobra, the August markets lull investors back to complacency, only to be jolted back by September and October. We expect more of the same volatility  this fall. 

The Weekly Rant

Much is being said about alternative learning techniques, Professor Cranky posts his weekly rant on these ideas.

I suspect that the student who does not read the book does not listen to the lecture on the iPod either, and no one will ever convince me that listening to a lecture while driving a car and not taking notes and not having any non verbal communication is effective. One either wants to KNOW the material or one does not, changing the delivery system does not change their desire to learn material if the overall idea is well I gotta take a darned accounting class and I sure do hate it... remember the Willie Nelson lyrics, gotta get drunk and I sure do hate it.... Okay here is the iPod, the choice is Beyonce Celine Dione Pat Green Dennis Elam on cash flow statements Hmm gee that's a tough one depending of course on your music tastes, ah er I want ah..... I sat in a meeting where we were supposed to learn how to put an online class on power point, the lady in charge said we should use different dissolves between slides, I pointed out that was no different than turning the pages of a book She replied, well you can see students are not reading! The implication I guess is that a clever dissolve will get them to move to the next slide, the love of learning will not There are no clever dissolves from page to page in the Gleim review books for the cpa exam by the way Despite all the 'you just do this for fifteen minutes three times a week and you will look like this 120 lb cute model' on cable tv we all know that is bunk, you have to quit eating junk food and work out two hours at a time three times a week and sweat like (insert sweating analogy here) but few want to embrace that idea And so schools and book companies jump to new delivery systems A realtor told me that now you can take an online review course for the realtor exam the pass rate for the realtor exam has dropped from 75 to 52%, this is what I am talking about IN a recent ethics class out of 20 senior students not one could describe maselow's heirarchy of needs Gee did we need a more entertaining iPod lecture on that? changing delivery systems does not change desire for learning or the effectiveness of one on one communication or writing notes in the margin of the book I used to outline the ideas before an exam. I would get the thrown away computer paper from the mainframe Control Data 3300 which tells you how old I am and write out the scenario of how we got into and out of various wars in this century I got the high grade on the final exam out of 400 students in Foreign Diplomacy since 1890 I am not telling you that to brag but to make a point I would not have done that by say listening to Dr. Divine, the instructor for that class, on my radio, the same tech then as the iPod now I will grant that one can learn the lyrics to a two minute song by listening to an iPod, or a radio I still know the worlds to Pencil Thin Moustache and most of the words to Life is Just a Tire Swing, both J Buffet tunes And the latter came out while I was studying for the cpa exam...... Dennis .

Fiat 500 to Mexico

Fiat will first build the Fiat 500 at the Toluca MX plant. Okay cost classes, why?

Margins are thin on compacts so keeping construction costs down helps. And Mexico is clearly a ready market for such a car. Building it their will overcome the high import tariffs.  

I have been saying that business will return to Mexico from China after all the problems including shipping, oil prices, time zones, etc of the last few years. Here we go....

Again San Antonio is well positioned to take advantage of such trade. SA is the nearest large city up I 35 for Mexican exports. 

Tablets to Come Back

Yesterday i speculated that the Kindle lacked an internet ability and it would need that to catch on. 

I also speculated that the tablet might re emerge as that product. Well whaddya know?

Apple and a host of other elec manufacturers are racing to do just that. I really don't see the necessity of allowing one to write by hand on the thing, but I do think merging e books and i downloads i necessary. Now if Apple can figure out where my music went that I paid for I might down load some again....

A blogger speculates on data entry in this post. 

Kindle is Catching On

Scott Burns has a good article about the popularity of the Kindle, Amazon's e book reader. 

You can log on to amazon.com and see the Kindle.  The second version has a larger more readable screen. I suspect it needs to be able to connect to the internet ala the iPhone and Blackberry to REALLY catch on but it is happening.

Here t TAUMSA we are moving to hybrid courses. Homework Manager Plus from McGraw Hill features a much less expensive e book than the print version, Wiley and Cengage and Pearson are going in the same direction.  The pricing structure forces one to the e book.

Professors voges, Hewitt and I were in a meeting recently where a Kindle was passed around, so it is catching on. What's your thought on e books?  I suspect that a company needs to 'bundle' four textbooks with an e book to get students to really buy into it so to speak, but so far Amazon will not come down on the kindle price, it sells in thousands and we need millions, like laptops for the price to really drop.

Come to think of it, now that lap top prices are down, that tablet idea never realy caught on, perhaps the next iteration will be a tablet pc that is an electronic book, yeah that makes sense.

Okay sound off, what is your opinion on the  e book? Have you bought one, have you bought an e textbook, did you like it?