Professor Elam

Social Mood on Display No Different This time Around

Thursday April 30 2015

Here is a summary of a theme of my investment blog.  We experience alternating cycles of bull markets and then economic stagnation. 

1948-1966 bull Market

1982-2000 bull Market

1966-1982 - Economic Stagnation

2000-2018, likely Economic Stagnation. 

 

And so the same mood dominates each cycle, repeating itself. Nothing demonstrates this quite as well as the latest cover of Time Magazine. See at right, the 1968 date is struck out and replaced with

yep, 2015. 

after the Dow topped at 1,000 in 1966, social mood disintegrated among Viet Nam Tet Offensive and then the assassinations of Kennedy and King and then the Watts Riots. the market then see sawed back and forth finally dropping 50% from January 1973.

 

by the way retail investors are all in at TD America.  Is it possible we have run out of buyers?

 

Social Mood Update

Wed April 28, 2015

Market tops are often accompanied by natural disasters. The top in the Japanese market in  1989 was accompanied by an earthquake. 

Now we have an earth quake in Nepal.

Riots in Baltimore threaten the city's tourism and convention industry.

The DOE has collapsed Corinthian College putting thousands of students in limbo. 

William McGurn has a column in today's WSJ reflecting on what happens when the US pulls out of a war, aka Viet Nam 40 years ago. Instead of peace as promised, mayhem ensued. That is now the case across North Africa and into the Middle East where beheadings and refugee camps now abound. 

From that standpoint this looks a lot like 1968-1972. 

Update Corinthian 100

Wed April 28,  2015

I recently suggested that the formation of the Corinthian 100 was a prelude to the college loan bubble beginning to burst.

The Corinthian 100 are refusing to re pay loans extended to attend Corinthian campuses. The reason is that the Dept of Education forced Corinthian out of business. Now thousands of students are in limbo on their debt, whether it can be discharged or whether their credits transfer. 

What was Obama and his DOE  thinking?

From Dishwasher to Franchise Owner

Monday April 27, 2015

We have had a good response to our entrepreneurship initiative.

Here is an interesting article on how a Pakistani immigrant went from dishwasher to franchise owner.

But the NLRB isa threatening his future.

Mitch Daniel on the Future of Universities

Monday April 27, 2015

Here is a link to the interview with Mitch Daniel this past weekend in the WSJ. He is currently President of Purdue.

He notes that the top 40 universities have 2/3 of all the endowment money in the country, his point being that a lot of universities are going to disappear in the next few years.

Breaking Out of the Pack - Your Intention to become a CPA

Monday April 27, 2015

Every student who walks through my office door says they intend to become a CPA. But we know the fail rate on any one for the four sections of the exam is 50%.

A couple of students responded to my comment this past Saturday, do you want to interview with a CPA firm?  But in their conversation or resume each indicated they wanted to work for a business, there was no mention of working in a CPA firm. 

So, here are a couple of suggestions. Align your stated career objective with the interview. If you are interviewing for an internal audit job, that should be your career objective. And passing the CIA exam ASAP should be one of your tactics in achieving your overall strategy. 

If you are interviewing with a CPA firm, obtaining a position with a CPA firm should be your objective. And, as I mention in the first line to this post, everyone SAYS they are going to pass the CPA exam. 

But what is on your resume that suggests you will succeed at that?  What is the strategy and tactics you are employing to make sure you are in the group that passes rather than fails?

Have you been reading review books?

Have you been taking sample questions from a review source?

If asked during an interview, 

name the four parts of the exam

how long is each exam

how many questions are on each exam

which exams require answering a research type question

can you answer all those questions from memory?

If not you are clearly not serious about exam preparation, see what I mean?

The key to a successful interview is preparation, anticipating what questions will be asked. 

Stocks and Social Mood

Dennis Elam

Friday April 24, 2015

Word Count 667

Everything Old is New Again

Bill Griffeth and Sue Herera, CNBC anchors,  could hardly contain themselves. The NASD index of high tech stocks had soared from 1750 in October of 1998 to a lofty 5,000 by March of 2000.   The party did not last long with the index returning all of those gains in the next two years.

So here we are again at NASD 5,000. This time the NASD has merely doubled in the last two years.   We are assured that this is not a replay of the dot.coms, those alluring internet stocks with no earnings and high prices of the earlier era.

These days Facebook trades at a 74 price earnings multiple. Priceline’s $1,221 value seems downright blue chip, trading at a 26 multiple.

This time around however some of the highest fliers are not listed. Pininterest an online scrapbook, has an estimated value of $11 billion. Lyft, a ride sharing service is apparently worth $2.5 billion. Uber the original ride share service is apparently worth $41 billion.

But hey, tech high fliers sport high multiples, right?  I put together a short list of some current favorites

Stock	Price	Price /Earnings
Yelp	50.32	105.94
NFLX	559.06	129.41
AMZN	399.	-
LNKD	256.24	-
GRPN	7.15	-

From the top those are YELP, a rating service, Netflix, an on line entertainment provider, Amazon, the biggest retailing success ever and the most incapable of turning a profit, Linked In, a wildly successful social network, no profits, and finally already fading coupon star Groupon. The lack of a price earnings ratio means those firms literally have a price but no earnings!

At least back in 2000, the public pushed stock valuations higher. This time around the companies themselves have pushed stock prices higher.

Consider this from the February, Atlantic Monthly.

Over the past decade, the companies that make up the S&P 500 have spent an astounding 54 percent of profits on stock buybacks. Last year alone, U.S. corporations spent about $700 billion, or roughly 4 percent of GDP, to prop up their share prices by repurchasing their own stock.

Companies have  used Bernanke’s zero interest rates to borrow and buy back their own stock, insuring the generous options owned by CEOs pay off. But that means the money did not go to hire new workers or stimulate investment.  And so we have a slow growth economy.

This incidence of self-indulgence (buying one’s own stock to increase the price) is now reflected in social mood. The ends of eras produce nostalgic look-backs rather than startling new ideas. This summer one needs go no further than the nearest cinema to see social mood in action.

Mad Max Fury Road iis the fourth release in the Mad Max series. The first three outings were released form 199 7-1985 at the end of the last long bear market.  As befits the world situation now, there is little dialogue but lots of violence.

Jurassic World will be the fourth in the Jurassic series from 1993-2001. Interestingly the last Jurassic film was released in 2001 just as the market began a serious decline. Things never turn out sell for the tourists who keep coming back in the sequels.

Poltergeist is also a fourth release from the 1982-1988 series.  Themes are haunted houses and child kidnapping ghosts.

And oh no, Terminator Genisys features Arnold once agin reprising his role from 1984-2009. This will be  fifth film with two more to follow.  And yes, our famous android is beginning to age. The plots always involve time traveling assassins trying to re-arrange biological history.

We joined the Griswalds for five vacation films and now son Rusty is back with his own family.   Will  Granny Beverly D’Angelo die off as in the original version?

Only the Vacation series is what we might call light hearted fun, the others are dark themed movies. Is it coincidence that all are coming this summer with the NASD back at its old highs?

We will track the social mood throughout the summer, as well as the markets.

Follow Professsor Elam at http://www.themarketperspective.com

Meet Ankur Chopra, a TAMUSA Graduate

Thursday April 23, 2015

SA CPA Society featured Ankur Chopra  as the member of the month.

Ankur is a graduate of our accounting program and now is an Adjunct Instructor for us.

TR on Character

Thursday April 23 2015

From "Citizenship in a Republic," a speech that former president Theodore Roosevelt delivered on April 23, 1910, at the Sorbonne in Paris:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat. . . . There is little use for the being whose tepid soul knows nothing of great and generous emotion, of the high pride, the stern belief, the lofty enthusiasm, of the men who quell the storm and ride the thunder. Well for these men if they succeed; well also, though not so well, if they fail, given only that they have nobly ventured, and have put forth all their heart and strength. It is war-worn Hotspur, spent with hard fighting, he of the many errors and valiant end, over whose memory we love to linger, not over the memory of the young lord who "but for the vile guns would have been a valiant soldier."

Big Write Offs at Petrobras

Thursday April 23, 2015

We have been following the corruption scandal at Petrobras. Here is the latest on write offs as the WSJ says at the world's most indebted oil company. 

BRAZIL COMPANY WRITES OFF $17 BILLION

The Brazilian state oil company Petróleo Brasileiro SA is paying a hefty price for its corruption scandal, Paul Kiernan reports. The oil giant is writing off $17 billion, due to losses from graft and overvalued assets, as part of its first audited financial statements in more than eight months. The world’s most indebted major oil company wrote off 6.2 billion reais ($2.1 billion) due to alleged graft and another 44.6 billion reais for overvalued assets, including refineries. Petrobras also reported a net loss of 26.6 billion reais for the fourth quarter on revenue of 85.04 billion reais.

The corruption scandal has hurt Brazil’s economy, and Oxford Economics, an economic researcher, said Petrobras’s need to slash investments could “tip the Brazilian economy into a deeper-than-expected recession.” Petrobras Chief Executive Aldemir Bendine said additional revisions to the corruption-related write-downs are possible if prosecutors uncover more wrongdoing.

Also, a judge found Petrobras’s former downstream head guilty of money laundering and criminal conspiracy, along with several other suspected members of the corruption ring.

Farther north, oil-reliant Canada may actually benefit from low crude prices as they contribute to global spending power, Canada’s export credit agency said. That may mean higher sales of items such as cars, industrial machinery and equipment, and technology.

But the manager of an equity fund is less optimistic, and writes in Forbes that he fears the oil-industry doldrums may bring a repeat of the subprime-mortgage crisis.