Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985. Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand. She attended the University of Michigan and Wayne State University.
photo by MC3 Ryan Mayes, US Navy, via AP: ship at left is delivering biofuel during Great Green Fleet demo
At the Great Green Fleet demo, the US Navy proved that bio-fuels work on existing military vessels--without modifications and without operational problems. This sounds like good news to those concerned both about environmental issues, and to those who wish to rid ourselves of dependence on Middle Eastern Oil. The news was met with anger, however, by lawmakers in Congress whose primary concern is too-much government spending.
The bio-fuel cost about $27 per gallon.
Why is this so expensive, compared to the costs you and I might pay? First of all, these biofuels were produced in small "artisanal batches" solely for the military tryout, rather than for mass production and consumption, as is the case with conventional petroleum-based fuels. Also, the diesel fuels were made from waste chicken fat and algae, rather than the corn-based ethanol that eats into food sources.
Entrepreneurial businesses need a large, stable consumer of biofuel products like the military in order to lower the risk of investing in the research and development of volume production techniques to bring the price per gallon down. A "guaranteed" military customer would help create the incentive to develop these sustainable fuels. Once the price was reasonable, individual consumers would expand the market.
“Finding a user like the military can rapidly help to scale technologies that then are used in the civilian marketplace — it becomes a catalyst,” said Bob Johnsen, chief executive of Primus Green Energy, which is developing fuels from biomass and natural gas. “If the military becomes a buyer, that becomes a means by which the production facilities can be financed.”
Source: "Running on Algae, Drawing Anger," by Diane Campbell, NYT Business, August 28, 2012
image from Detroit News link; photo by Charles V. Tines for The Detroit News
Maybe the economic recovery is a little "iffy" as reported in the political press, but, according to Marketplace, the US auto companies are doing really well. What a comeback! Factories are operating at greater than 100% capacity!
Wait a minute--How can something operate at greater that 100% capacity? That sounds crazy. But, using the principles of managerial accounting and standard costing, there is a "normal" capacity for operations for every business, and, really, every operation. For example, if you are a student, the "normal" number of units per semester is probably 15. But, you are still full time if you are taking 12 units, so a lot of students are in that zone.
If you are a human being, the "normal" number of hours of sleep per night is eight. The "normal" amount is what is labeled "100% capacity." But it is totally possible to operate at above that level at any point. You can take more than 15 units. You can sleep more than 8 hours.
The "over capacity" rating for the auto plants is based on a standard of two-eight hour shifts per day and and 5 day work week. Over capacity is anything more than that...i.e,: more than 80 hours of factory labor.
image from resources.avg.com.au
A few days ago, I wrote about BOX, a company that was providing cloud storage for businesses and mobile device users. That company saw themselves on the precipice of a huge revolution in computer use. Well, as it turns out--they need to join the club. Amazon is also a CLOUD enthusiast. [click link for NYT article]
Companies who hope to provide up-to-date weather prediction [Climate Corporation] or to act as your personal concierge [Cue], utilize Amazon's cloud broadband width to analyze more data than they could ever hope to host on their own. The vehicle is AWS, Amazon Web Services Division. Says Andrew R. Jassy, the head of AWS: "We are on a shift that is as momentous as the shift to the electrical grid...It is happening a lot faster than any of us thought."
So, the message is the same as the one I put forth the other day: Something really, really big is happening with respect to cloud computing. How do we jump on the bandwagon?
image from article linked below
The Business Insider did an analysis of the impact of Isaac vis-a-vis Katrina, in terms of physical characteristics and financial impact. While it is too soon to tell the full impact of Isaac, the storms have many similarities, including their unusually large size--about 400 miles in diameter. They both will hit land at approximately the same place, but the paths after landfall are expected to digress.
Hurricane Katrina did about $125 billion in damage and killed 1,800 people. Hurricane Isaac has already damaged 2,346 homes and has caused 24 deaths in Haiti. The evacuation efforts in the United States have improved since Katrina, and it is expected that the loss of life among the poor will not follow the same trajectory. It is too soon to say what kind of damage will be done to local business operations.
One business has already been affected by Isaac: the oil and gas industry, according to the Oil and Gas Financial Journal. As of last Sunday, Shell, BP and Anadarko have begun shutting down operations. Nevertheless, according to this article, there is a "small expected impact on commodities."
image from article linked below quote: this is a photgraph of Aaron Levie taken by Peter daSilva, NYT
Says Aaron Levie, the entrepreneur who started BOX:
“If you think about the market that we’re in, and more broadly just the enterprise software market, the kind of transition that’s happening right now from legacy systems to the cloud is literally, by definition, a once-in-a-lifetime opportunity,” he says. “This is probably going to happen at a larger scale than any other technology transition we’ve seen in the enterprise. Larger than client servers. Larger than mainframes.”The business potential, he adds, seems limitless: “We think we are just 1 percent into that transition.”
--from NYT "Bits" article by Nick Bilton, August 26, 2012
So what the heck is he talking about? What is this business, and why has it attracted the interest of so many high-powered venture capitalists?
Levie started his business with Dylan Smith while at the University of Southern California. Levie was the programmer; Smith raised capital by playing poker online (read the article to find out his secret). Seven years later, his Silicon Valley company, BOX, supplies cloud storage services to 125,000 businesses and 11 million people. Business customers are attracted to Box because of the company's responsiveness and flexibility in meeting their needs.
But Levie and his company see the shift from mainframe storage to cloud storage as only a small piece of the revolution. The real business revolution is in the vast numbers of mobile device users who rely on cloud storage because their mobile devices are so small. They need the services of cloud computing to switch between devices seamlessly and securely.
One of the tenets of Levie's business plan is to "fight" for the consumer and provide secure and easy-access storage for use-anywhere mobile devices--which are increasingly part of the way even corporation employees are doing business.
I am seriously considering buying or leasing a Chevy Volt. For 10 years, I have been driving a Honda Odyssey, and we are keeping that vehicle in the family because of its outstanding capacity for road trips. But, it's time for me to get at new car for daily driving.
Why would I consider a Volt?
What are disadvantages of a Volt?
I always buy my cars; I've never leased one, since the cost benefit always came out in favor of buying over leasing, considering my personal habits. Nevertheless, leasing a Volt, while more expensive, would mitigate the downside risks of ownership. Hmmm...
[image from the article linked below]
"Bad Grades Are Rising For Auditors" addresses a recent review done by the Public Company Accounting Oversight Board (PCAOB). It reviewed 23 audits that had been done at brokerage firms by CPA firms. NONE of the audits that were examined by the PCAOB were found to meet generally accepted auditing standards.
This result is particularly alarming because the ONLY reason that public accounting firms exist is to provide assurance that corporate entities are producing honest financial statements. If public accounting firms can't even follow the rules themselves, then dishonesty and misleading information will be allowed to be published...and relied upon by third party investors and analysts.
The CPA firms involved were not published by the PCAOB, but, as you can see from the graphic at the top of this post, the Big Four accounting firms are trending toward sloppy audits as well. The author gives the firms the benefit of the doubt, suggesting that maybe the PCAOB is doing a better job of finding errors and omissions. But--the PCAOB can't find what isn't there--real problems have to exist, and the rates of problem audits show substantial failures.
One of the areas that was found to be deficient was that auditing firms did not do enough testing to determine if the valuation of investments was correct. The valuation issue was the key problem underlying the mortgage crisis and other failures involving derivative investments. It is interesting to note that the PCAOB was formed as a result of the Sarbanes-Oxley act. Corporations have fought the implementation of provisions of this Act, and these types of findings may well be one of the reasons.
Source: NYT, linked article by Floyd Norris, August 24, 2012
image from organizationsandculturesstefanyalvear.blogspot.com
Entrepreneurs and other creative individuals experience changing the world through risk-taking and substantial individual effort. They must overcome fears, hurdles and setbacks. They must persevere with tenacity. It is a different experience from that of an employee. Nevertheless, no entrepreneur succeeds in a vacuum. The question explored in "Deluded individualism," is: Why do we, particularly as Americans, focus on the portions of our accomplishments that are self-reliant, and ignore the social network of police, firefighters, safety markers, roads, railroads, media, and national security that provide the business environment on which all of us rely? Can business thrive in the midst of crime and abject poverty?
drawing by Leif Parsons, from article linked above
The essay addressed how easy it is to ignore how much government support we take for granted:
"Thanks to a decades-long safety net, we have forgotten the trials of living without it. This is why, the historian Tony Judt argued, it's easy for some to speak fondly of a world without government; we can't full imagine or recall what it's like."
Source: NYT, article linked above by Firmin Debrabander, August 18, 2012
image, from linked article, by Lorika13, Creative Commons: image is from the TV show "The Jetsons"
Gartner, a research company, has released its latest "Hype Cycle Report," which tries to predict when new technologies will be available for all of us to use. [by John Moe, Marketplace Tech Report, August 20, 2012--podcast available at link]. When I was a kid, the cartoon show pictured above, The Jetsons, gave us a fictional glimpse of what life would be like now. It had several things right (video phones, eReaders, robots), but food preparation, jet-packs, and personal vehicles haven't caught up yet.
Each year, Gartner prepares several Hype Cycle Reports, in different technological areas. Here are some of the predictions, according to Hung LeHong, a spokesperson for Gartner, and one of the authors of the Reports:
I didn't purchase any of the reports from the site, so I didn't get to see the details about variance kinds of voice recognition and speech-to-speech translations, but it looks as though Gartner has some predictions in that area.
Meanwhile, if I could just remember the sequence of buttons to push on these remotes so that I could watch something on Netflix...
photo by Paul Sakuma: Associated Press: multi-tasking robots in a Tesla factory
Robots are doing work the work of humans. While some factory labor is being outsourced to China, robots in the Netherlands are using video cameras to do the same delicate work, with better precision. Plus they work 24/7. Every day of the year. Philips Electronics Corporation, manufacturing electric shavers, is managing both operations, according to "New Wave of Deft Robots Is Changing Global Industry" [by John Markoff, NYT, August 18, 2012].
The factory in the Netherlands employs less than a tenth the number of employees as the factory in China. And robots don't form unions, don't need healthcare or pensions, and don't complain. They also don't buy any of the company's products, but that is concern requiring a broader vision. Ironically, the jobs that were outsourced to low-wage countries, might find themselves turning to a "no-wage" population--either in China, or in North American and Europe.
"Returning jobs to America" is one stated goal of Flextronics, a solar panel and electronics manufacturer in northern California. But their factory has more robot workers than human workers.
image by Lianne Milton, NYT: robot stacking solar panels in Milpitas, CA
What impact will the robotization of the industrial workforce have on the global economy and on the way we live? According to Erik Brynjolfsson and Andrew McAfee, Massachusetts Institute of Technology economists, "The pace and scale of this encroachment into human skills is relatively recent and has profound economic implications.” [from their book, Race Against the Machine.]Robots have been making inroads in several sectors, including logistics, grocery operations, and airplane manufacturing, according to the article. Unskilled and semi-skilled laborers are becoming less and less important to the workforce. Economists predict that robotization will have an impact as profound as the Industrial Revolution.
image by Peter Macdiarmid, Getty Images: Shelford Landfill, Recycling and Composting Centre
What can our garbage tell us about our Gross Domestic Product [GDP]? Kai Ryssdal of Marketplace interviewed Bloomberg economist Michael McDonough to see what correlates [link to podcast at Marketplace, American Public Media, August 16, 2012]. According to McDonough, these are the factors that arise in measuring trash and correlating it with GDP:
Here is a graph of trash collection measured against Gross Domestic Product from 1994 to 2012:
It looks as though we will have to wait for the next quarter's GDP data to fill in the chart...but it doesn't look good.
image from WSJ research; panels are explained below in bullet points
The Nasdaq OMX Group, Inc. had set aside $62 million to cover losses for brokers and investors due to "mishaps" regarding the Facebook IPO. But one Swiss banking company, UBS AG, now accuses Nasdaq of "gross mishandling" of the May 18, 2012 IPO. [WSJ, "Facebook Losses Slice UBS Profits," by Jenny Strasburg, Telis Demos and Jacob Bunge, July 31, 2012]. UBS calculates its losses alone at $356 million, which substantially cut into its quarterly profits. Here's how it happened:
There are new facts coming to light that may indicate that UBS will have to share part of the blame, for not monitoring the transactions. They may also have to share the blame for the way its own computers were programmed--to re-send orders that were not confirmed. This is called a "fail-over" in the trading business. Human intervention was required to stop it.
Nasdaq's CEO, Robert Greifeld, has says that its plan to compensate for losses is "definitive," (whatever that means), and that it did not include legal costs for battling out settlements. On the other hand, Nasdaq has conceded that it failed to send out confirmations to brokers for about three hours, so no one knew where they stood.
It seems as though the courts might be the only place to settle this matter.
image from solarpowerhouse.wordpress.com
Solar energy has a bad reputation, but Sungevity is out to change that, according to "The Secret to Solar Power" [by Jeff Himmelman, NYT Magazine, August 9, 2012; print 8/12/12]. Sungevity's CEO, Danny Kennedy, has the "true believer" spirit, which he confirms by always wearing the color orange. He brings idealistic thinking and self-generated motivation from his background as an activist to the business of bringing residential solar power into the mainstream.
image from gigaom.com
According to Kennedy, solar energy's bad reputation is fueled by:
Nevertheless, solar energy, according to this article, has some "no-brainer" good qualities going for it:
puts it more vividly: "We’re killing people in foreign lands in order
to extract 200-million-year-old sunlight. Then we burn it . . . in order
to boil water to create steam to drive a turbine to generate
electricity. We frack our own backyards and pollute our rivers, or we
blow up our mountaintops just miles from our nation’s capital for an
hour of electricity, when we could just take what’s falling free from
This sounds pretty compelling. But how will the shift to routine installation of residential solar happen? What are the barriers to solar installation? One of the marketing issues has been the hurdles that local zoning ordinances place in front of wanna-be solar installers. Sungevity and other companies attempt to mitigate the issues by dealing with permitting from their own call centers.
My family installed solar panels on our home three years ago. At the time, solar lease plans were just getting started, so we purchased our panels, and took advantage of federal and state tax credits. Still, it was expensive (about $19,000 after tax credits). We calculated that our "payback period" would be about 8 years. Fortunately, we have been pleasantly surprised. Three factors have made it a better deal than we originally imagined:
We have been very happy with our decision to go solar. But will the rest of the country respond to the changes in solar marketing, and get on the band wagon? We'll see...
image from standupforamerica.wordpress.com
It looks as though I left an important business book off of my list: Atlas Shrugged by Ayn Rand. It seems that Paul Ryan, the presumptive nominee for Vice President on the Republican ticket has been influenced by the philosophy that is the theme of this book.["Paul Ryan's Dangerous Obsession with Ayn Rand," by Jamie Stiehm, US News and World Report, August 14, 2012 and "Five Reasons Paul Ryan is the Right Choice for Mitt Romney" by Ron Bonjean, ibid. and "Paul Ryan Does An About Face On Ayn Rand," by Husna Haq, Christian Science Monitor, August 14, 2012]
Ayn Rand espoused the "selfishness ethic" of "objectivism," which embodies positive values such as hard work and perseverance. Paul Ryan has used these values to bring the best out in himself, and he has had much success.
These principles may be at odds, however, with effectively governing a nation and civilizing large corporate interests. Alan Greenspan, another devotee of Ayn Rand, believed more in laissez-faire capitalism than regulation while he was supposed to be overseeing the Federal Reserve. The dot-com bubble and crash happened on his watch.
Other American values such as fairness and civic-mindedness might mean more to Americans--particularly small businesspeople and those on Medicare. Paul Ryan may be back-pedaling on his devotion to Ayn Rand--he recently told the National Review: “I, like millions of young people in America, read Rand’s novels when I was young. I enjoyed them,” he said. “…[but] I reject her philosophy.” [from the Christian Science Monitor article] It could be that the atheist views espoused by Rand fit neither Ryan's personal views nor the views of the voters he wishes to attract. And there are political stances Ryan has taken that don't seem to be aligned with her views as well. But Paul Ryan still seems to be aligned with her economic views, which is one of the reasons I am adding this book to the list.
image from Politifake.org
Moreover, Atlas Shrugged is the story of business interests vs. government regulation, which are key themes in modern life as well. It is also a love story and a mystery, so it makes for good reading. I recommend it.
image by Justin Sullivan for Getty Images
Google was assessed a $22.5 million fine by the Federal Trade Commission for illegal practices associated with "cookies"--tracking software that reports cyber activity of users clicking on URLs. [report by John Moe for Marketplace Tech Report, American Public Media, August 10, August 6, 2012--link includes radio podcast].
Here is how it happened, according to Jonathan Mayer, the grad student from Stanford who reported the problem:
"Google was setting cookies in Safari web browsers associated with their advertising service, Double Click. And they'd made a representation on their website that, if you were a Safari user, you wouldn't be tracked by Google. So they breached that representation."
No one knows whether Google did this on purpose, or whether it was an oversight. Nevertheless, the fine, although large, is small compared with Google's revenues: "Roughly equivalent to someone making $50,000 a year being fined $29.50."
The value of information gleaned from cyberspace traffic is a new frontier for marketers and programmers responsible for delivering tailored ads.
"A financial plan for the truly fed up" by Ron Lieber outlines some financial planning strategies for small investors who are fearful of investing in today's markets because of the headlines of corruption and hopelessness [NYT , August 3, 2012]. First, however, the article delineates some of the debacles that have led to mistrust, for example:
But, according to the article, even people who want to "opt out" of the greed establishment need to save about 15% of their income on a regular basis, and invest it in a balanced set of vehicles that produce a "reasonable rate of return" if they have any hope of ever retiring. Here are some investment entities to consider for a "model investment portfolio":
image from watrust.com
"When Banks Won't Lend, There Are Alternatives, Though Expensive," addresses the difficulties that small businesses are facing to borrow money. [by Ian Mount, NYT Small Business, August 1, 2012]. Money is still tight, and commercial banks seem more interested in making their money like investment banks than in performing their traditional role, making money on the spread between interest rates for money on deposit and money lent.
Small businesses still need cash. They turn to sources other than banks. Some of these sources have been available for years; others have only become available recently. These financing alternatives include:
image by Richard Drew for the Los Angeles Times
Knight Capital Group acknowledged this week that its technology products were responsible for the trading glitches that affected about 150 stocks trading early Wednesday morning. [Video and article are linked at Wall Street Journal, August 2, 2012]
Three of the affected companies were Berkshire Hathaway, Bank of America and General Electric, all of which experienced higher than usual number of trades and wider fluctuations in trades. Knight Capital Group was vague regarding the nature of the "technology issue." According to the WSJ, Knight may have to absorb an $80 million loss related to these glitches.
Erosion of trust in Wall Street may be exacerbated by this technological problem. Some observers have posited that the withdrawal of $305 billion in funds since May 2010 is an indication that an erosion of trust is already evident, and this could make things worse.