Tech firms cut jobs

Three large tech firms in Santa Clara, CA, have announced significant job cuts this past week (see here). The most recent is Sun Microsystems, announcing that between 5,000 and 6,000 jobs will be shed. Sun's CEO, Johnathon Schwartz was quoted here as saying “The focus here is to eliminate some of the inefficiencies that have made it hard to do business with Sun,”and the (short-term) result should be a significant cut to expenditures.

Are glitzy motor shows a thing of the past?

Many companies in the automobile industry announced heavy cutbacks to spending on motor shows. Traditionally these motor shows have been an (expensive) customer courtship activity, but with significant drops in the car market, possibly due to tougher loan criteria, many companies are not going to be engaging in this form of advertising this year. Further details can be found here.

At this time, Congress is currently debating the merits of bailing out the automobile industry, as summary of recent segments of the debate can be found here.

Compensation

Today it was announced that the seven top executives at Goldman Sachs will forgo any bonus pay for 2008. Given their leadership in the industry, it's possible more banks will follow suit. Read about the story here in the Wall Street Journal or here in Bloomberg.

This follows from heavy criticism of the financial services industry over the potential payment of bonuses in a year where banks are commonly seen as the cause of the sub-prime crisis. This argument can also be debated, given that bonus pay is considered a vital tool to the retention of high quality staff, a good summary of this debate can be found here.

Tough times for retailers 2

This article provides further discussion of consumer sentiment and it's expected affect on retail sales. There are also forecasts for retail sales in this article. An interesting point I noticed in the article, is the effect of tighter credit on retail in the auto industry.

The consumer sentiment index published by Reuters and the University of Michigan can be found here.

The 2009 outlook... not good

This week again saw significant declines on the US stock markets. With significant market volatility it is not surprising that bond prices increased. A summary and discussion can be found here.

Tough times for retailers

Today Best Buy announced an earnings warning, that is they projected that their earnings will be lower for the year, see the story "Worst. Buy. Ever."

The earnings warning is linked by management to changes in consumer sentiment, as fewer consumers appear willing to spend big recently.

In related news, the rival electronics retailer, Circuit City, had previously announced that it was entering into a Chapter 11 reorganization. This is likely to predict the end of the company, based on the statement of Credit Suisse analyst Gary Balter, who was quoted (in this article) as saying: "We have not seen a consumer electronic retailer successfully reorganize in Chapter 11 in our 24 years in this space."

Excess and the bull...

Micheal Lewis who wrote the book Liar's Poker recently wrote this interesting article: "The end of Wall Street's Boom" based on his experiences at Wall St. Note that there is profanity in it.

As an aside he also wrote the book Moneyball: The art of winning an unfair game that provides an interesting insight into the use of statistical information in baseball recruiting to aid in the selection of undervalued players and avoiding overvalued players (much like what we are seeking to understand in a market setting with quantitative analysis).

Quantitative analysis

A large part of our course is about how financial statement analysis can be used to help us gain insights into the valuation (and potential misvaluation) of stocks. One of the leading investment firms using quantitative investing strategies is Barclays Global Investors. This BusinessWeek article "Outsmarting the market" provides some insights into how their operations work.

The debate on the appropriateness of fair value accounting continues...

In today's news, Mark Olson the chairman of the PCAOB discussed the possibility of the PCAOB providing further guidance to auditors on the application of fair value accounting. The article is here.

The financial services industry is the most vocal critic of the application of fair value techniques. It appears that they'd like more choice in how they value certain financial assets (especially those with significant market prices declines?). Apparently, the best option according to some in the industry is a "mixed attributes model" that allows the choice between fair value (as in market price) and historical cost (see for example the amusingly titled "Bankers: Fair value is like throwing gasoline on a fire".)


Note that the SEC and FASB made an announcement on Sept. 30th aimed at clarifying the implementation of fair value accounting (the full press release can be found here):

"When an active market for a security does not exist, the use of management estimates that incorporate current market participant expectations of future cash flows, and include appropriate risk premiums, is acceptable."

Funnily enough, this treatment of estimating fair value is allowed under SFAS 157, specifically under the use of 'mark to model' accounting. At least in theory, it would be very easy to calibrate a present value model that was equal to the historical cost of the asset. Doing so though, of course raises the criticism that instead of marking to model, they are "marking to make believe." Warren Buffet was quoted (the rest of the article can be found here) as saying “The recent meltdown in much of the debt market, moreover, has transformed this [mark-to-model] process into marking to myth…Indeed, for a few institutions, the difference in valuations is the difference between what purports to be robust health and insolvency.”

Welcome

I have set up this blog in order to provide additional background material that will be useful to students undertaking ACCT6620 at the University of Utah.