image from www.newstimes.com

The Federal Reserve announced Wednesday that it would continue its economic stimulus program--that is, it would keep buying $85 billion of Treasury and mortgage-backed securities each month.  It also planned to keep the short term interest rates near zero.

The purpose of this program is to stimulate hiring and investment, and to keep the economy moving.

Ironically, the market responded by by losing ground--the Dow Jones average dropped over 61 points. Nevertheless, the Fed does not intend to stop its stimulus program any time soon...not until at least March of 2014. The term of Ben Bernanke, Chairman of the Federal Reserve Board, ends in February.

                               cartoon from the New Yorker, Oct 7, 2013

Source:   "Market Slips as Economic Stimulus Goes On," by the Associated Press, via the New York Times, October 30, 2013.

Follow up:

• What is the purpose or function of the Federal Reserve Board?
• What is the current controversy surrounding the possible future Chairperson, Janet Yellen?
  

image is an advertisement

There is a lot of revenue in the business of scaring people--a seasonal business, which ends on Halloween. Lily Rothman of Time Magazine will soon be posting an article called,  "Monsters Inc: Inside the weird world of professional haunting." She delineates how tough the competition has gotten, as people get inured to what used to scare them, and look for newer thrills to achieve the "adrenaline rush." It's all about marketing what's newer and scarier.

One businessperson gives away some haunting secrets in this video.

Source:   "The surprisingly complicated business of boo" by Kai Ryssdal, Marketplace, American Public Media, October 30, 2013.

Follow up:

• What part does seasonal timing play in marketing? What are the biggest seasons for various service businesses? For retail businesses? For certain products?
• What are your personal expenditures in the Halloween season? Are there other seasonal holidays that are more of a drain on your personal finances?  What are the factors that influence how much you will spend on what?

image from socialstrategizer.com   Nana ka robi ya oki

Business quotes can be sources of motivation. But sometimes they can be hard to decipher or understand. Which of these business quote speak to you?

From Brainy Quote:

"The superior man understands what is right; the inferior man understands what will sell."
Confucius

"If you cannot work with love but only with distaste, it is better that you should leave your work."
Khalil Gibran

"A budget tells us what we can't afford, but it doesn't keep us from buying it."
William Feather

"A consultant is someone who saves his client almost enough to pay his fee."
Arnold H. Glasow

From QuickSprout:

"The critical ingredient is getting off your butt and doing something. It’s as simple as that. A lot of people have ideas, but there are few who decide to do something about them now. Not tomorrow. Not next week. But today. The true entrepreneur is a doer, not a dreamer." – Nolan Bushnell

"The important thing is not being afraid to take a chance. Remember, the greatest failure is to not try. Once you find something you love to do, be the best at doing it." – Debbi Fields

"Business opportunities are like buses, there’s always another one coming." – Richard Branson

"Leadership is doing what is right when no one is watching." – George Van Valkenburg

"For all of its faults, it gives most hardworking people a chance to improve themselves economically, even as the deck is stacked in favor of the privileged few. Here are the choices most of us face in such a system: Get bitter or get busy." – Bill O’ Reilly

"To think is easy. To act is difficult. To act as one thinks is the most difficult." – Johann Wolfgang Von Goeth

"Your most unhappy customers are your greatest source of learning." – Bill Gates

"Success is often achieved by those who don’t know that failure is inevitable." – Coco Chanel

"I feel that luck is preparation meeting opportunity." – Oprah Winfrey

"Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations." – Steve Jobs

"Well, you know, I was a human being before I became a businessman." – George Soros

"Yesterday’s home runs don’t win today’s games." – Babe Ruth

"Let us not look back in anger or forward in fear, but around in awareness." – James Thurber

"In all realms of life it takes courage to stretch your limits, express your power, and fulfill your potential. It’s no different in the financial realm." – Suze Orman

"Hire character. Train skill." – Peter Schutz

"It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change." – Charles Darwin

"I don’t pay good wages because I have a lot of money; I have a lot of money because I pay good wages." – Robert Bosch

"You must be the change you wish to see in the world." – Mahatma Gandhi

"Let’s be honest. There’s not a business anywhere that is without problems. Business is complicated and imperfect. Every business everywhere is staffed with imperfect human beings and exists by providing a product or service to other imperfect human beings." – Bob Parsons

"You need to be aware of what others are doing, applaud their efforts, acknowledge their successes, and encourage them in their pursuits. When we all help one another, everybody wins." – Jim Stovall

"The only way around is through." – Robert Frost

"You only have to do a very few things right in your life so long as you don’t do too many things" wrong. – Warren Buffett

"The noblest search is the search for excellence" – Lyndon B. Johnson

"If you work just for money, you’ll never make it, but if you love what you’re doing and you always put the customer first, success will be yours." – Ray Kroc

"Motivation is the art of getting people to do what you want them to do because they want to do it." – Dwight D. Eisenhower

"The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong question." – Peter Drucker

"Statistics suggest that when customers complain, business owners and managers ought to get excited about it. The complaining customer represents a huge opportunity for more business." – Zig Ziglar

And from the recent government shutdown:

"'We’re not going to be disrespected ... We have to get something out of this. And I don’t know what that even is.' — Rep. Marlin Stutzman, a conservative Republican from Indiana, explains to the Washington Examiner why the House GOP won't just send a 'clean' spending bill to the Senate."

--from New York Magazine

Sources:   "101 Business Quotes,"  QuickSprout.com, October 29, 2013.

"BrainyQuote," BrainyQuote.com, October 29, 2013.


Follow Up:

• Which of these quotes speak to you? Explain why.
• Pick three of the quote authors and research them on the internet. Who are they, and what have they accomplished?

image from blueblindssocialmedia.com

"The accounting business has sometimes had an attitude of — how shall I put it? — contempt for those who would regulate it. The people who run the major firms know best, and regulators should yield to their superior judgment."
                            ---Floyd Norris, in the article linked below

Robert Kutsenda, while he was banned from practicing public accounting at Arthur Andersen for his involvement in Waste Management's financial fraud (2001), was put in charge of "document retention." Not surprisingly, the newly developed document retention policies required the destruction of exactly the documents that were used to bring Mr. Kutsenda to justice. The "unintended consequences" of these actions led to the destruction of Arthur Andersen and the passage of the Sarbanes-Oxley bill, requiring an increase in government oversight.

I find this fascinating. From 1978-1981, I worked for what was then a "Big Eight" accounting firm (C&L). At that point, consultants were not allowed to become partners, and the working papers of every audit were initialed and signed off on by a partner. Everyone had their own recognizable signature in both "initial form" (TB) and full signature (Teri Bernstein) and everyone was required to stand behind every piece of paper that they prepared, reviewed, or authorized.

I guess that things changed in the intervening years. At any rate, it doesn't seem as though the accounting industry has actually learned anything from Arthur Andersen's humiliation and subsequent liquidation in 2001. Deloitte & Touche has just been fined for similar disregard for auditing standards.

This story started in 2008. Deloitte was cited for not using properly "auditing the use of specialists" to properly analyze the fair value of assets (the primary issue in the mortgage debacle and subsequent recession). Regulators found Deloitte to have “a firm culture that allows, or tolerates, audit approaches that do not consistently emphasize the need for an appropriate level of critical analysis and collection of objective evidence, and that rely largely on management representations.”

Deloitte said "we strongly take exception" to the criticism, saying it did not like the "second guessing" of the regulators.

By 2011, it was clear that Deloitte totally disregarded the criticism, and made none of the recommended changes to its auditing policies. Moreover, Deloitte used an auditor who had been banned from practice as an expert. Of course, he was never required to sign off on the items audited. The firm kept the experts anonymous behind the firm's name. Deloitte and Touche were recently fined $2 million because of violations relating to this episode.

Interestingly, a study done in England found that “requiring an individual audit partner to sign a report improves audit quality by increasing the partner’s accountability and transparency of audit reporting.” Moreover, a study found also that investors also reward integrity:

"Even more interesting is their finding that investors notice. Companies with more lenient auditors have to pay more to borrow money, and public companies with such auditors trade at lower valuations than do companies whose auditors have earned better reputations."
                                  ---from a paper by W. Robert Knechel
                                                             of the University of Florida,
                                      Ann Vanstraelen of Maastricht University, 
                                      and Mikko Zerni of the University of Vaasa

It doesn't seem to matter to American auditing firms, however. Nevertheless, the PCAOB (Public Company Accounting Oversight Board) is expected to issue a regulation in December to require that auditing partners identify themselves as responsible for audit opinions, even if they are not required to sign them.

Source:   "Accounting World, Still Resisting Sunlight" by Floyd Norris, New York Times, October 24, 2013.

Follow up:

• Do you think that the partners of public accounting firms should take personal responsibility for signing off on the audits of publicly regulated companies?  Why or why not?
• If you think that partners should not sign off, what would you suggest would be offered to the public instead as assurance that the audit of the company in question is legitimate, to the best of anyone's ability?
• If you are interested in this issue read the PCAOB take on it the auditing standards surrounding it.
  

Ray Dalio--a billionaire hedge-fund manager of Bridgewater--has made a video that explains the economy. It is pretty practical, and describes the economy in a mechanistic, cause-and-effect way. Says Dalio:

“While I kept it confidential until recently, I now want to share it because I believe that it could be very helpful in reducing big economic blunders, if it was more broadly understood, I believe that most influential decision makers and most people cause a lot of needless economic suffering because they are missing the fundamentals."

Ray Dalio is not a typical economist--he disagrees with the monetary policy espoused by Milton Freeman, and does not think that the economy can be controlled by influencing the money supply. [ According to the Street.com, “M is the money supply; V is velocity — the number of times per year the average dollar is spent; P is prices of goods and services; and Q is quantity of goods and services. The equation suggests that if V is constant and M is increasing, there must be an increase in either Q or P.” ]

Ray Dalio is not the only original thinker who has been posting his economic theories on YouTube. For those of you interested in the economics of the recent government shutdown, and its part in the economic cycle, I have provided another YouTube video. Listening to both of the videos can be quite a concise economics education. One may be more effective than the other: you be the judge.

Source:   "Government Shutdown Explained," by Casey X., YouTube, October 12, 2013.

"Economic Theory, Via YouTube and Cartoon," by Andrew Ross Sorkin, New York Times Dealbook, October 22, 2013.

Follow up:

• According to Dalio, what is the most important part of the economy? Why?
  
• Who do think more credibly explains of the economy--Dalio or Casey X.?  Explain the plusses and minuses of each lecturer's approach.
• Explain the debt-swing cycles described by Dalio. 
• If Ray Dalio were your advisor, what economic policy would you embrace, if you were being considered (as is Janet Yellin) for a position as the head of the Federal Reserve?
  

Joshua Rauh, finance professor in the Stanford Graduate School of Business

Joshua Rauh has taken steps to bring education about pension and retirement financing to a broad audience. He has morphed his graduate-level Stanford University course into a MOOC (Massive Open Online Class). Over 13,000 students had enrolled as of last weekend, and the course starts today (Monday, October 14, 2013).

The course contains a series of 10 well-produced 45 minute lectures.  These lectures are available anytime after their release date (like a TV show on your DVR, or offered "on demand" from your cable provider). They are complete with animations and other visuals. Professor Rauh says that the course is particularly valuable for a mid-career individual (about 40 years old), but that people of all ages can benefit. The financial perspective is one of conservatism and caution--emphasizing that significant gains only arise when there is significant risk.

One piece of advice that Professor Rauh offers is that people anticipating retirement should consider a simple immediate annuity, or the cheaper alternative "longevity insurance." These choices require an up-front payment of cash that will result produce income for the remainder of life (the immediate annuity beginning now and the longevity option beginning at some later point).

But coming up with the cash to invest at retirement time requires a lifetime of sensible investing habits--tools that might be available in this course.

Source:   "Finance class on the web, for students of all ages" by Tara Siegel Bernard , New York Times, October 11, 2013.

Follow up:

• Did your college finance classes teach you much about personal investing? Where have you learned about investing and where do you hope to get more information?
• What do you think of taking a course by way of a MOOC? What might be the advantages and disadvantages?
• In case you are interested in an undergraduate personal investing course offered online, check out the Schedule of Classes at Santa Monica College.
  

image from www.newsers.com...Invasive bugs might
slip through because of fewer inspections...

Since the government shutdown on October 1, and the looming possibility of the United States defaulting on its U.S. Treasury debt, financial analysts have been pondering who might lose money and who might make money from this debacle. The holders of the debt (China and Japan, for example, hold more than $2.4 trillion) would be among the losers.  Who would be the winners?

For starters, maybe large investment banks would win. Citibank gamed European debt to their own advantage back in 2004. In August of that year, "Citigroup sold €11 billion of eurozone government bonds in less than two minutes and 30 minutes later bought back €4 billion at lower prices to pocket a profit of €17 million ($23 million)."

But today's markets are complicated by "credit default swaps"--derivative instruments that hedge the risk of owning debt. Buying this "insurance" means that you not only can make money if there is an actual default, but you can also make money when the price of this protection goes up. And the price of this protection goes up when there are threats by people in positions of government power that they might force the default to occur. 

In other words, entities have already made money over the last few weeks in the credit default swap business. But just as it is impossible to know how much life insurance or homeowner's insurance or car insurance a person has, it is impossible to know the size of the market in these "insurance"-type instruments. 

What a difference it would make if financial markets were more transparent.

Source:   "President Obama Might Ask Who Benefits From U.S. Debt Default" by Janet Tavakoli, Huffington Post, October 9, 2013.

Follow up:

•  Read about several other types of businesses that might profit from a U.S. debt default in this article from Mother Jones magazine. Which seem most likely to succeed?
  

A newly refurbished ancient school in India, Nalanda University, continues a marketing tradition that's been prevalent in India for decades: appealing to Buddhist pilgrims.

Though people of the Buddhist faith make up only a tiny portion of India's population, the country has been actively seeking Buddhist tourists for the past sixty years. Religious tourism is big business, and being Buddhist-friendly is also good politics--a way for the mostly-Hindu India to ally itself with its Asian neighbors.

Education, too, is an economic draw. Combining these by offering classes in comparative religion and history at a Buddhist university means that pilgrims can come not only to tour holy sites, but to study their significance as well.

The university is located in Bohd Gaya, one of Buddhism's holiest sites. Says Canadian Laurence Shepherd, in an interview with PBS: "Buddhists believe that this is a very powerful place and anything that you do here is magnified, so any wishes you make for other people, any good wishes, any practice that you do, it’s increased."

The link to Buddhism strengthens ties to neighboring Buddhist countries.  The connections not only serve the short term goal of boosting tourism revenues, but also the long-term goal of developing a "pan-Asian partnership." Japan, China, Thailand, and Laos have contributed funds for the rebuilding of the University's library.

Source:   "Buddhist University in India" by Fred de Sam Lazaro interviewing Ven Bhiku Chalinda, for Religion and Ethics NewsWeekly, via  PBS.org, September 6, 2013.

Follow up:

•  In what other countries does "religious tourism" play a part in developing global ties that influence business and political alliances?
  

image from sustainableamerica.com

Sustainable America is marketing the idea of using electric cars rather than gasoline powered vehicles. The numbers make good sense. It is interesting to note where in the U.S. financial differences are greatest. Still, there are other preconceptions that present marketing hurdles for proponents of electric-powered cars.

Source:   "Hippies Must Have Tampered With These Numbers, Right?" by Carolyn Silveira, Upworthy.com and Sustainable America.com, October, 2013.

Follow up:

• What percentage of your monthly income do you spend on gasoline? If you had an electric car, using these figures, how much would you save?
• Does "range anxiety" prevent you from going electric? Would you consider an electric vehicle with a gasoline back-up, such as a Plug in Prius or a Chevy Volt? 
  
• What are the other marketing hurdles for electric vehicles, and can they be overcome?
  

image from www.safunds.com

Most workers under 40 years old can probably expect to have several jobs throughout their working lives. If they are really lucky, some of those jobs will have a "defined benefit" pension plan, but that is becoming less and less of a possibility. A "defined contribution" plan is becoming more common (if there is a benefits package at all). An example of a defined benefit plan is a 401k. 

Contributions can be made by employees, and they are sometimes "matched" by the employer. When you move from one employer to another, however, you have some options regarding what to do with the money you have accumulated in your 401k.  Ann Carrns' article has some suggestions:

• Whatever you do: don't "cash it out"--try to avoid the temptation to use the funds for a new work wardrobe, or to move to a new job location. Think "long term."
• If you do cash it out--reserve funds for the tax burden. On a $10,000 withdrawal, there is an immediate $1,000 penalty for tapping the retirement funds early.  In addition, there are regular old income taxes owed that might be $2,000 to $2,500. So you might just net $6,500--and if you didn't reserve the taxes owed from the withdrawal, you might be in trouble on April 15th (the due date for individual tax returns).
• There is an "opportunity cost" for cashing it out as well--you lose out of years of tax-deferred earnings on the invested funds.
• You can sometimes keep the 401k balance with your old employer, but if you have several employers over the years you might lose track of the accounts.
• You can do a "rollover" into your new employer's 401k, or into an IRA. This is a formal process that shouldn't cost you any money.
• If your old employer mails you a check for your 401k balance (which they might do if the balance is less than $5,000 and if you have not been pro-active about the "rollover" option)--you have another problem. The old employer will take out 20% in Federal taxes--but you will be required to pay the WHOLE amount into an IRA if you want to avoid that 10% penalty. 
  

Even if the paperwork looks daunting--seek help from your new employer's Human Resources department or from your own personal banker to make sure you know the consequences of any action--or inaction--on your part.

Source:   "What to do with your retirement plan if you switch jobs," by Ann Carrns, New York Times: Your Money, October 3, 2013.

Follow up:

• Have you ever contributed to a retirement plan? Were you "vested" in the plan? Where is the money now? How much is there?
• Do you have an Individual Retirement Account (IRA)?  What are the advantages and disadvantage of regular and Roth IRAs?
  

image from www.thetimes.co.uk

Financial logic tells us that the reason to put one's money on deposit with a bank is to earn a greater interest return, or to borrow from a bank that allows the lowest interest to be be charged.  But it turns out that marketing bank services sometimes goes beyond financial logic.

American businessperson Vernon W. Hill II (who is often found holding the cute dog in the picture above) developed and expanded Commerce Bank in the northeast U.S. by keeping branches open long hours and focusing on customer service. He left Commerce in 2007, but is now busy "across the pond" in Britain. His new passion is Metro Bank, and he is changing the banking experience there in much the same way he changed the banking experience at Commerce.

"I’m a retailer, not a banker,” said Mr. Hill, a 68-year-old American entrepreneur...“British banks mistreat their customers.”

Same-day lost-card replacement and drive-through windows are some of the innovations that Hill is bringing to British banking...as well as beverages in the banking lobbies. He is attempting to get customers to switch from British banking stalwarts like Lloyd's Banking Group and Barclays.

Will British customers respond?

Source:   "A Charm Offensive to Lure Banking Customers in Britain," by Mark Scott, New York Times DealBook, October 2, 2013.

Follow up:

•  What are the most important factors in your banking experience?
  

website of Silk Road, as of October 3, 2013.

Silk Road--a website that has been described as an "eBay" for anonymous "black market" transactions--was shut down this month by the FBI. Silk Road's creator, Ross Ulbrecht, was also arrested. Silk Road's online commercial offerings included over 13,000 offers to sell controlled substances.  Recently, too, an offer of about $250,000 in bitcoin was made for a murder-for-hire.

Of course, these are illegal transactions. Part of Silk Road's website services included training on how to stay anonymous online, and how to negotiate transactions in bitcoin.

Observers noted that if Ross Ulbrecht had followed his own advice, he probably wouldn't have gotten caught. Additionally, market watchers are curious to see what impact Silk Road's shutdown will have on bitcoin, since about 50% of bitcoin transactions have occurred on Silk Road.

Sources:   "Silk Road Hits Bump Along the Way," audio interview by Ben Johnson and Brian Krebs,  Marketplace, American Public Media,  October 3, 2013.

Follow up:

• What is the "black market"?  How do the principles of capitalism apply to the black market?
  
• What is "bitcoin"? How does it derive its value? How is it the same and how is it different from other currencies?

Michael Dubin, the CEO of Dollar Shave Club, had two innovative ideas:

• Set up a subscription service to deliver high-quality but cost-effective razors to men via monthly shipments; and
• Star in and narrate an "irreverent" video advertisement to explain and promote his new service.

His video was released in March of 2012, and he had 12,000 orders within 24 hours. As a privately held company, his financial numbers are not public information, but he must be doing pretty well, as he had a $9.8 million investment from Venrock in October, 2012. Dubin started the business with $35,000 of his own money, and ran it out of his apartment at first. He has achieved an arc of success that few entrepreneurs achieve.

Source:   "Riding the Momentum Created by a Cheeky Video," by Darren Dahl, New York Times, April 10, 2013.
"Dollar Shave Club: Brand Storytelling for Market Disruption," by Omar Kattan, www.brandstories.net, October 1, 2013.

Follow up:

• What is "market disruption"? (check out the Venrock link as well as the linked articles.)  How does Dollar Shave Club fit that model?
• In what way is the Dollar Shave Club marketing model an innovation? What works well and what could be improved?
  
• Who is the "target market" for this product? Who might this marketing campaign not reach, or not appeal to?
  

image from www.cpapracticeadvisor.com

The government shutdown which began today might have several consequences for small businesses. Gene Marks, writing in the New York Times referenced an advice memo put out by Paychex, which is an outsourcing provider of payroll, benefits and other services to small and medium-sized companies. Some of the possible consequences include:

• There may be procedural changes for submitting tax payments to the IRS, and small businesses need to keep excellent records and stay aware of changes in instructions.
  
• The ability to negotiate with the IRS will be put on hold, so any issues in discussion where payments are due could result in situations that are not in the small business taxpayer's favor.
• Applications for Employers Identification Numbers will probably not be processed, so new businesses would be hampered in their ability to proceed as planned.
• There may be a slowdown in regulatory scrutiny, so raw materials that were usually inspected on a regular basis may not be.
• Employment of individuals from outside of the U.S. might be impossible, as visa approval processes will probably stop
• Small Business Administration functions will cease...and that includes the funding and processing of SBA loans.
• Of course small businesses with government contracts will have to exist without that revenue stream.
• International business travelers who do not have up-to-date passports will not be able to proceed with their travel plans, as passport processing will stop.
• Any small businesses that service federal workers (such as restaurants in the metropolitan area of Washington, D.C.) will see their revenue decline.  According to the director of the Center for Regional Analysis (George Mason University), Dr. Stephen Fuller, “In the Washington area, the loss of federal payroll and contractor payroll, and the spending that’s supported by those payrolls, add up to $220 million a day.”
  

Not to mention how it might affect tourism near the national parks...At least the mail service will still be operational, bringing in the daily collections on Accounts Receivable...

Source:   "Today in Small Business: Shutting Down," by Gene Marks, New York Times, October 1, 2013.

"Government Shutdown Would Close Pipelines of Credit to Main Street Businesses," by Catherine Clifford, Entrepreneur, September 30, 2013.

Follow up:

•  Read this article from the Business Insider.  What does and doesn't get affected in a government shutdown? Which of these would affect business operations in the short and long term?