Professor Elam

Ralph Lauren Appoints Outsider as new CEO

Thursday Sept 30, 2015

Ralph Lauren appointed the head of Old Navy as the new CEO for RL.  This is unusual as RL has been known for promoting from within. The Luxury Brands have been hard hit with a higher US Dollar and the slowdown China, where most have recently expanded. 

Check out the RL website. Ralph came from humble beginnings in Brooklyn and has been married to the same gal for some 48 years, a rarity in this league. 

R N Elliott, A Pioneering Accountant in Wave Theory

Tuesday Sept 29, 2015

Ralph Nelson Elliott was an accountant by trade. During an protracted illness he began studying patters of stock market behavior. He concluded that mass human behavior occurred in a three steps forward, interrupted by two steps backward. He used his own name to term this the Elliott Wave Principle.

Use this link to learn about the Elliott Wave Principle.

Robert Prechter Jr. is a Harvard graduate with a degree in psychology. He began his career working under Bob Farrell at Merrill Lynch in the 1970s. He began reading about R N Elliott's theories. This led to publication of a book explains the Elliott Wave Principle. 

Bob Prechter then expanded on the idea by applying the wave theory to the broader idea of human behavior. He terms this concept Socionomics.  This was a cover story in Barrons back in the 1980s. It led to creation of the Socionomics Institute, a monthly publication, and an annual conference. 

President Matson's official Inauguration will be Saturday October 10. She has arranged a week of academic and social actives in advance of the event. This next Tuesday October 6 at the Main Auditorium  I will be speaking on how social mood drives accounting . Business presentations are from  9 00 - 10 20 Am, I will be speaking at 10 00. The spotlight presentations are necessarily short at 15 minutes.

This past June I made a longer presentation at the Institute in Gainesville, GA. Bob commented that I had exceed his expectations. IO became the first person  placed on the program as a   presenter at the April 2016 Conference. 

Social mood is internally generated, not caused by external events. This is clear in the way the stock market is breaking down.  The Transport Index topped last November well before the final tops this past summer. Social mood follows the Elliott Wave Pattern in a five step fashion. 

All of this is on display at my Market Perspective blog. We will be demonstrating this in class as it is a repeat of the 2007-2008 meltdown. 

The collapse of the stock market is already underway with much more excitement to follow. Most observers will say there was no way to see this coming. That is hardly the case and with the Market Perspective Blog you will have a front row seat to know what to expect.

http://www.themarketperspective.com

I suggest you take advantage of this rare opportunity. 

 

GE Sheds Finance Unit, But Shares Drop 13%

Monday Sept 28, 2015

Last April GE finally announced plans to separate its finance unit.  The thinking was that the industrial unit would carry a higher P/E. 

And then, earnings estimates for GE began to fall. The falling oil price meant fewer opportunities for some of GE divisions. But having sold the finance unit, GE now has  more money to buy back stock.

This article demonstrates many of the things we are studying in ACCT 3304 and 3302. Please read it this week so we can discuss it in class. 

GE Sheds Finance Unit, But Shares Drop 13%

Monday Sept 28, 2015

Last April GE finally announced plans to separate its finance unit.  The thinking was that the industrial unit would carry a higher P/E. 

And then, earnings estimates for GE began to fall. The falling oil price meant fewer opportunities for some of GE divisions. But having sold the finance unit, GE now has  more money to buy back stock.

This article demonstrates many of the things we are studying in ACCT 3304 and 3302. Please read it this week so we can discuss it in class. 

VW Scandal Affects Finance Unit and Suppliers

Monday Sept 28, 2015

Candidates for the Texas CPA exam must complete a TSBPA approved class in accounting ethics. 

One of the components of an ethical reasoning model is identifying the stakeholders. 

I continue my coverage of the VW scandal as how a small decision ends up affecting so many. Most car makers have finance units. These units raise capitaL to finance the cars. If the collateral, the cars, fall in value, the paper, debt, has to be written down. 

Now that is happening to VW's Finance Unit.

But it gets worse. The supplier of th emission software, well respected Robert Bosch, wrote VW a letter way back in 2007 that the planned use of the software would be illegal. And then the VW internal auditors found the letter. Which raises the question ,if the VW internal auditors knew, how could the CEO not know?

Or as one of my friends like to say, it is always blackest just before things go 

Pitch Black.

And os the next casualty are the parts suppliers. Shares of Tenneco, Borg Warner, Delphi, ad Continental were pummeled last week following the disclosures.  The CEO at Honeywell complains that this casts a shadow over the diesel technology that does work. 

Bear markets are unforgiving. Bad behavior is punished in far more severe fashion than in bull markets. This is a good example of how the stone cast in the water creates a widening circle of disaster. 

 

Bad News Bears

Weekend Sept  27, 2015

Bad News Bears

In bull markets, all news turns out positive.

In bear markets, bad news tends to be, well, really bad.

The classic example of news in a bull market is the Clinton Presidency.  Whether the Republicans took over the House and Senate or the revelations of Monica, Bill seemed Teflon coated, nothing stuck. The reason was no so much Bill as the fact that positive social mood makes politicians appear successful. And so the stock market and Bill enjoyed a bull run.

Bear markets however work the other way.  Bad news sticks, the Teflon coating is gone, and events going black turn, well, turn pitch black.  I have received some negative feedback over my claim that stocks are transiting to a bear market. A weekly close under the August 24 levels will confirm just that. The Dow Industrials are a mere 500 Dow points from that level now. 

Here are a few items in the news illustrating the ‘bearish’ effects of recent news events.

Volkswagen wanted to be the largest carmaker in the world. (The recent experience of GM and then Toyota wishing the same thing should have suggested otherwise but this was a decision made in the bull market.) VW chose diesel engines as the tonic for low emissions rather than hybrid or turbo-charged gasoline engines. And so VW gleefully claimed 44 mpg while meeting worldwide emissions requirements.

Now here is the bad news.  VW has admitted installing devices, which ‘sense’ when testing occurs. After that is concluded the device turns the emissions system off resulting more pollution and more power.  In the period of three days

-VW stock dropped 18% the first day of the announcement and is now half what it was in May

-CEO Winterkorn, like Captain Renault in Casablanca, announces shock that this could occur at
VW, he resigns two days later

-First the US and then France and South Korea announce investigations, read fines are coming

-No one knows the cost of a ‘fix’

Stakeholders like new dealers hoping for VW expansion and now diesel car owners (we’ve been had!) are the latest casualties

The US Government is somewhat complicit in this. Tuning for lower emissions results in higher nitrides of oxygen output, one cannot have it both ways.   It may be that VW will be the first to be singled out for trying to cheat its way to success.

Any short list of top US CEOs would surely include Steve Wynn. He created and sold the Mirage and Treasure Island and then opened Wynn’s in Vegas.  But Wynn Macau and Wynn Palace are now suffering amid the Chinese meltdown.   The Shanghai SSEC exchange is down a whopping 44% just since June!  Since 2012 WYNN soared from 80 to 240 and now back to 60, losing 75% of its early 2014 value.  The slowdown in the Chinese economy has left the casino tables begging for customers.   Once again, large moves to the upside occur at the end of market manias just as the 2013 round did for WYNN.

Weatherford WFT had announced plans to raise $1 billion in cash with a combo of shares and convertible bonds.  WFT shares fell 17% to $8.41 immediately following the announcement. That drop caused the company to cancel the offering 14 hours after it was announced.  Yahoo Finance puts book value of WFT at $7.91. 

 

Capitulation occurs as prices fall and fall resulting in incidents like this where companies can no longer raise capital. The only choice is to put the company up for sale or merge to stay in business. That is probably not the case for case for WFT but recall how quickly Halliburton pounced on Baker-Hughes.  The WFT   stock price is likely to dip below book value before this is all done. 

 

WFT waited to long. Earlier this year Whiting Petroleum, a North Dakota play, raised $1.05 billion selling stock at $30; today it trades for $18. 

Once stocks hit a new low for the year, yes expect a big bounce, which is typical of the post October seasonal lows. But unlike the last Octobers since 2009, this time it is different. The bear is coming out of hibernation. 

An Inventory of Social Mood via the WSJ Weekend Edition

Weekend Sept 26, 2015

You better stop, look around
Here it comes, here it comes, here it comes, here it comes
Here comes your nineteenth nervous breakdown
Oh, who's to blame, that girl's just insane
Well, nothing I do don't seem to work
It only seems to make the matters worse. Oh, please

 

19th Nervous Breakdown, the Rolling Stones

This might be a good time to dust off your copy of Malcolm Gladwell's The Tipping Point How Little Things Can Make a Big Difference

no kidding

The news is plain to see, the job of the socionomist is to point out the how the change in mood is causing a change in event. I don't know when I have seen so many 'tipping point' news items in one newspaper edition.  We are in an 18 year period of economic stagnation and emotional ups and downs. This is reflected in that obvious social mood barometer of the stock market, now undergoing its third high since Year 2000. Such periods are exclusionary. Groups move apart, former public figures suffer unexpected defeats (not to the socionomist but to the general public) And is the news ever exclusionary!

To wit from this Weekend Edition of the WSJ

Boehner Departure Shakes GOP

Or as Donald Trump would say,You're Fired

Utah Sen Robert Bennett defeated 2010

Indiana Sen Richard Lugar out in 2012

Majority Leader Eric Cantor beat in his own primary in 2014

Jeb Bush falls from 15% to 9% unable to gain voter traction

Boehner steps down and plans to leave before his term is out 2015

Both Republican houses are unable to restrict Obamacare, the Iran deal of Planned Parenthood

bottom line, throw the bums out

Obama tells Xi to stop cyber-theft, uh good luck with that one

Iraq says no to foreign troops

700 killed in Mecca stampede

And the exclusionary process does not stop with politics consider that

Michigan State President Lou Anna Simon wants to explore what club sports (lacrosse for example) would look like without NCAA involvement, shades of Sierra Madre, we don't need no stinking' NCAA

WSJ lead Editorial calls on rebellious Republicans to put up or shut up, nice tone to that eh?

and rather than step back inhale and re consider regulatory over reach, yep

Regulators Plan Tougher Car Tests - nothing like doubling down on a dubious program that is engendering cheating already

Hillary tweet causes NASD Biotech index to drop 5.1% this week, is this Hillary's idea of income re distribution, shaving the price of biotech shares?

Pat Sajak tweets a new world wide thermostat has been developed to stop climate change

Currencies Go from Bad to Worse Malaysian ring at 15 year low, MSCCI Emerging Market Currency Index at six year low, Brazilian real is worst performer of any major global currency so far this year

For a look at what is why the Malay ringit  is down check out this post on Robin Wong's blog, caution, graphic four letter language in the protests

In an Enron like parallel (of course stocks are topping now as they did in year 2000) Dan Neil notes that 

VW Lost Its Moral Compass  in Quest for Growth (you know like GM, Toyota, Enron, Worldcom, Tyco, et all)

Dan notes that none of the 1,000 diesel specialists in Michigan how VW accomplished this without urea injection (the parallel being only one analyst at Merrill asked that about Enron and Enron got him fired)

and in a final Casablanca moment as we noted earlier this week, VW CEO Winterkorn is 'shocked' such behavior could occur, he was not aware of any wrong doing, as though that is a proper CEO talking point

_____________________

As we say this is surely a tipping point, world mood is quickly turning sour as one group turns on another, ISIS is tossing people off rooftops and killed nineteen women captives just this week

Stocks have already dropped 1,000 Dow points August 24, Shanghai SEEC is down 44% just since June, and mood has worsened since,  

The Bottom Line, this is just the sort of Tipping Point Gladwell was writing about

Socionomics is instrumental in providing clues about what is going to happen rather than what has happened. 

 

 

 

 

 

Dan Neil on the VW Crisis

Friday Sept 25 2015

Dan Neil is the weekend car review guy for the WSJ.  Here is his take on the deception.

If you are not reading Dan's week end car reviews you should be but then I confess to being a gear head. 

Asthma Stakeholders, the latest VW victims

Friday Sept 25

\I found this story on Click and Clack, the auto website.  As we will discuss in accounting ethics, identifying he stakeholders is an important part of examining ethics.

This is a serious story about how close anyone with asthma is to death.  Read  carefully.

FASB Tackles Materiality

Friday Sept 25, 2015

The FASB is set to tackle materiality.

Frankly after what they have done with revenue recognition and leasing, I doubt this is good news. 

Do we need more rules?

The proposals are part of the disclosure framework project FASB is undertaking to improve the effectiveness of disclosures in notes to financial statements. The proposals address the use of materiality in two ways: Helping organizations use discretion when determining which disclosures in notes to financial statements should be considered “material,” and Helping FASB understand the reporting environment in which it sets accounting and reporting standards. - See more at: http://www.journalofaccountancy.com/news/2015/sep/fasb-proposal-what-materiality-means-201513079.html#sthash.6nbGjilf.dpuf