Biz - The Dow Jones Industrial Average

The other day I attended a presentation by Dan Sanders who is the CEO of Executive Wealth Management on general economic conditions. Mr. Sander had very insightful comments.

How do you explain the Dow Jones Industrial Average to ten and twelve year olds?

The Dow Jones Industrial Average is a general psychological statistical indicator of wealth in the United States. It’s a tracking scorecard of the of what people believe will be the future monetary value of thirty prominent companies. Some of these prominent companies include Walt Disney, McDonalds, Wal-Mart, Coca-Cola and Caterpillar. The Dow Jones Industrial Average measures their wealth by the daily common stock price value of these companies which trade every business day in the stock markets. When you hear people talk about the stock market they are usually referring to the Dow Jones Industrial Average.

Common stock is where a person owns a financial interest in a company similar to owning a video game. For example, you can trade your ownership or your financial interest in a video game at GameStop by buying or selling a particular game. The market demand for a video game will determine how much money you pay or receive. Notice how the newest and innovative games are much more expensive as people are willing to pay more for these games rather than for older games where people don’t see much playing value. Game values are always changing depending how people perceive the value of the game.

You may hear people talk about bulls and bears. A person who is a bull or bullish believes stock prices will rise. A person who is a bear or bearish believes stock prices will fall. The stock market goes through cycles. When prices rise it is called a bull market. When prices decline it is called a bear market. Below is a graph showing the value of the Dow from 1900 through 2004 similar to the one presented by Dan Sanders. The red indicates bear market conditions and the green indicates a bull market. Notice how the price value increases and remember our discussions on money supply growth.



Dad believes the policies, vision and optimism of Ronald Reagan led to the greatest bull market sometimes referred to as the Reagan Bull market from 1982 until 2000 when stock values increased 1,214%. This period saw the greatest economic, technological and productivity expansion in human history. It was achieved by limiting government, cutting taxes, and allowing individuals freedom to create. This period taught us there is no limit to what we can achieve.

Below is a short video clip of President Reagan who is not often spoken about in your classes talking about government..





[Credit on graph to http://www.ritholtz.com/blog/2005/12/100-year-dow-jones-industrials-chart/, video post by ThePoliticalEagle]

Biz - Branding

I recently attended and enjoyed a business presentation by Bob Lamons on branding. I won his book “The Case for B2B Branding-Pulling Away from the Business to Business Pack” via a business card drawing.

In Texas, my kids think branding is marking with a steaming hot iron symbols to indicate ownership of cattle.

All corporate executives would like to sear into the minds and hearts of their customers a positive image and idea of their products or services. Not that corporate executives view their customers as cattle but rather important business relationships.

Mr. Lammons writes in his book, “A good brand will generate a highly focused set of expectations for the buyer, as well as for distributors, retailers, suppliers, employees and other audiences in your marketing universe.”

Branding is about creating positive expectations for your target audience. When I asked by kids to give me an example of branding it was no surprise.



Mr. Lamons book is a real world business combat manual which supports his views with numerous examples and contains twenty one case studies. From a financial analysis perspective, understanding the premium future value of a company will in part depend upon the creativity of their marketing and branding.

My favorite case study was the Acme Brick Company. “In 1998, a telephone survey of new home buyers in four major Acme markets revealed an 84% preference for Acme brick. No other supplier had more than a 10% preference.” Plus, Acme charges a 10% price premium for their brick. Keep in mind these are rectangular stones we would like to throw at our television sets while watching the daily news.

Warren Buffet (Berkshire Hathaway) bought the Acme Brick Company in 2000 and said “We place a high value on investing in companies with strong brand positions in their markets.”

[image credit: www.mcdonalds.com,
Warren Buffet quote- http://www.brick.com/company/buffett.htm
Other quotes from Bob Lamons, “The Case for B2B Branding”]

Biz - Money Supply

Yesterday the St. Louis Federal Reserve Bank updated several of its economic statistics. I love graphs as they visually convey information words cannot.

Generally, if you increase the supply of money you increase the price of goods and services. The graphs below show this general trend. (Double click to see the graphs in detail.)


Adjusted Monetary Base Not Seasonally Adjusted
From 1-1-1918 to 5-1-2010 in billions of dollars

Think of this as money that is in the economic system such as cash and credit cards.


Consumer Price Index for All Urban Consumers
From 1-1913 to 5-2010

Think of this as the level of prices to buy things like video games and pizza.

You may hear reports on the news prices are declining even though the money supply is going up. When prices go up this is called inflation and when prices go down it is called deflation.

Prices are temporarily going down or deflation because the economy, people and businesses that purchase and produce goods and services are in a very serious decline and the true unemployment rate or people unable to find jobs is probably at depression levels. The last time there was deflation was during the Great Depression.

Biz - The Fastest Food Business: Chick-Fil-A

I have never seen a more successful fast food restaurant as Chick-Fil-A. I was seeking to purchase their common stock but they are privately held. No indications they will ever issue public equity.



At the Houston locations we frequent, during lunch and dinner hour, traffic overflows into the main streets they have so much business. They are beyond the drive through menu. At peak times they have their staff greeting vehicles as they edge into the parking lot and placing customer orders with portable electronic order tablets six or seven cars before the vehicles even reach the drive through menu board.

Little wonder they are the fastest of the fastest in the fast food business.

Chick-Fil-A Wins 6th Drive-thru Title

My kids love Chick-Fil-A and they are closed on Sundays.

There is only one Chick-Fil-A restaurant in Rochester, Michigan, I believe near Oakland University but is closed during the summer. A question becomes, why aren’t there Chick-Fil-A’s in Michigan?

Could it be the Michigan legal and business climate is so hostile to their corporate culture or structure Michigan is not a viable marketplace in their view? It’s the only explanation I can think of as to why Chick-Fil-A wouldn’t expand their market share into Michigan either through corporate stores or franchises.

Biz - A Maestro for the Masses

I first came across Andre Rieu when I was teaching my kids about St. Patrick’s Day and was searching for classical Irish music. He is headline news in the Wall Street Journal’s Weekend Journal section for June 4, 2010.

Few people know of him but the article states, “Mr. Rieu grossed about $96 million on tour last year. That haul landed him at No. 6 among the world’s top touring acts, according to Billboard’s 2009 tally – ranked just below U2, Madonna, Bruce Springsteen and above Britney Spears, Coldplay and Metallica.” The classical musical critics hate him, probably because he is very successful and makes too much money. Capitalism is about allowing consumers to make personal choices to decide, including what music they want to listen too. This is why ITunes and IPods are so popular, kids can choose their own music.

My kids even listen to his music and the songs below are in our ITunes library. Below is the song Irish Washerwoman. The gentleman in the silver hair is John Sheahan (from the Irish group Dubliners) and Andre Rieu when he was much younger than the sixty years old he is today.



Credits to: Wall Street Journal, June 4th edition, the article by John Jurgensen. Videographers: Irish Washerwoman - Escoscando]

Biz - Value Added Tax 1099 Reporting?

Buried in the 2,000+ page Health Care Reform Bill are new reporting requirements for 1099’s that appear to begin to lay a foundation for Value Added Tax reporting.

Currently businesses issue 1099’s to document income and certain securities transactions for individuals and other entities which creates a reporting challenge for the financial services industry. The purpose of the 1099 is to assist the Internal Revenue Service help taxpayers voluntary comply with income tax reporting.



Under the new law, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year.

Not just reporting income, all business purchase payments.

Businesses make lots and lots of purchases.

Hope I am wrong in raising a red flag. Why would the Internal Revenue need this information for current tax compliance? Hopefully the tax attorneys will figure this one out, and soon.

[Credits:
Tax Prof !

Cato !

Instpundit ! ]