Tell It To Al

What are the odds of fraud at a company in a given year?

A new study pegs it at 14.5%.

Click here to read the study by Alexander Dyck, University of Toronto; Adair Morse, University of Chicago, University of California at Berkeley, and the National Bureau of Economics; and, Luigi Zingales, University of Chicago, NBER, & the Center for Economic Policy research.

So if there’s a 14.5% chance of fraud at a company every year, then given enough time, fraud becomes almost a sure thing.

Frauds cost investors within a company an average of 22% of the total enterprise value. And it costs all investors across all companies 3% of enterprise value, the study estimates.

“Until recently, the United States was deemed the corporate governance standard towards which other countries aspired,” the study says. ?The major wave of corporate scandals that emerged at the beginning of the millennium deeply shook this confidence. How was it possible for companies like HealthSouth to falsify its financial statements for 11 years without notice, or WorldCom to transform 3.8 billion of expenses into capital investments, or Enron to allow managers to enrich themselves while hiding billions of liabilities? Do these examples just reflect a few rotten apples, or are they instead the tip of the proverbial iceberg? … If we knew the frequency and cost of frauds this would help investors and boards to tailor resources to mitigate the scope of the problem.”

The study, however, has a slight flaw, beginning with its very first sentence: “We estimate what percentage of firms engage in fraud and the economic cost of fraud.”

Firms don’t’ commit fraud. People hiding within them do.

If you can get away with securities fraud for five years, you are home free.

The Supreme Court ruled today that the U.S. Securities and Exchange Commission only has five years from the commission of the alleged fraud to sue. It can’t discover an alleged fraud five years after the fact and then sue.

Click here to read more from the Associated Press.

Securities fraud is a complicated offense – whether it’s the ol’ pump and dump, insider trading, or your basic failure to disclose material facts – and perpetrators hide in that complexity. The SEC, which is understaffed and overloaded with securities fraud cases already, can count this as an additional challenge.

You can bet that somewhere out there are fraudsters breathing signs of relief.

For all the economic problems we face, it is getting easier to find optimists about the economy.

One of them is Robert J. Shapiro, who served as undersecretary of commerce for economic affairs under President Bill Clinton, and is now chairman of a private financial consultancy, Sonecon LLC. He says households and businesses have finally shed most of their excess debts since the 2008 financial crash, setting the stage for economic growth.

Click here to read my column on Mr. Shapiro on MarketWatch.

The U.S. economy shrank in the last quarter, Europe and Japan are in recession, China’s growth is slowing, taxes just went up for most Americans and Congress is threatening a battle over the budget in the great sequester debate,

Economists, however are glomming onto the good news. Economists surveyed by the National Association for Business Economics expect the U.S.

Click here to read more from the National Association for Business Economics.

Click here to read a report from CareerCast and JobSerf showing a rise in managerial hiring in major cities across the nation.

Click here to read the latest numbers on our improving housing market from  the Associated Press.

A lot of Americans are driving around in cars they can’t really afford.

In fact, median-income households in 25 of the nation’s largest metropolitan areas can only afford the price of one new car, not two, – and that would be at the average price of $30,550-  according to research released today by Interest.com, a Bankrate company.

“Americans are spending too much money on their cars,” said Mike Sante, managing editor of Interest.com.

The website deems a vehicle affordable if it fits within the “20/4/10” rule. That means a 20% a down payment; financing for no more than four years; and principal, interest and insurance not exceeding 10% of a household’s gross income.

If you live in Washington D.C. or San Francisco you will likely have no trouble affording a Beemer. In Tampa, Fla., however, you are probably looking at a low-end Chevy.

There’s never been any question about it: People strain their finances to buy cars, and automakers depend on low-interest rate financing to sell them.

Here’s a the maximum monthly payment that median-income households can afford to pay for a car in select  cities, according to the website:

Washington, D.C., $628; San Francisco, $537; Boston, $507; Baltimore, $468; Minneapolis, $470; Seattle, $466; Denver, $432; San Diego, $433; New York City, $431; Philadelphia, $419; Chicago, $417; Los Angeles, $410; Sacramento, $397; Portland, Ore., $397; Dallas, $389; Houston, $386; Milwaukee, $373; Atlanta, $376; St. Louis, $371; Pittsburgh, $340; Phoenix, $348; San Antonio, $334; Detroit, $332; Miami, $295; Tampa, $282.

Click here to read more from Interest.com

NewsChannel5.com | Nashville News, Weather

Inflation is under control as long as you don’t eat anything.

Shoppers at Compton’s Foodland could not help but notice rising food prices following last summer’s drought. Corn goes into nearly everything we eat, and the corn crop withered in the baking sun last summer.

If you get on the ground in the towns across middle America, you can’t help but see it. News Channel 5 in Nashville notes some economists are predicting spikes of 15% to 20% this year,

“It’s going to hurt a lot,” shopper Jo Riggan told the news station. Click here to see the full report.

Besides corn, the other commodity that goes into producing just about everything we eat is gasoline.

 Click here to read a report from the Associated Press on gasoline prices spiking 20 cents over the past two weeks.

One bright spot, however, is wheat. Favorable growing conditions have lead to an 8-month low in wheat prices. Click here to read about that.

Inflation, at least as it’s measured by economists, remains under control, but for how long? Or is this just someone’s idea about how to manage the nation’s obesity crisis?

Four years of easy money from the Federal Reserve and corporate coffers are just stuffed with cash.

Companies are increasingly using this money, not so much to expand and create jobs, but to pursue mergers and acquisitions.

So far 2013 is off to the quickest start for M&A activity since the heady Internet bubble days of 2000, according to data from Dealogic. These deals are great for the stock market, but do they create jobs?

Some deals, like the merger between Office Depot and OfficeMax, will actually eliminate jobs.

This is more than a tad ironic considering the Fed’s stated goal of continuing its bond buying programs is to get the unemployment rate down to 6.5%.

Click here to read my column in The Sunday Wall Street Journal.

Higher payroll taxes, delayed tax refunds, higher fuel costs, ongoing malaise in the jobs market – it’s all dragging on the outlook for one of the world’s largest companies, Wal-Mart.

Click here to read more from The Associated Press.

Four years after the Great Recession began, America’s poor and the lower rungs of the middle class are still hanging on by threads.

If anybody knows this, it’s Wal-Mart. The discount retailer can literally track the ebbs and flows of its sales by the very seconds people get paid.

“The Wal-Mart customer is a bit of a microcosm of the U.S. economy,” a top Wal-Mart executive once explained. (Click here to see the 2010 column I wrote about this Wal-Mart executive’s unique perspective on the economy in The Sunday Wall Street Journal.)

“You need not go further than one of our stores on midnight at the end of the month,” he said. “It’s real interesting to watch. About 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs, and continue to shop and mill about the store until midnight, when…government electronic benefits cards get activated and then the checkout starts.”

On the plus side, the poorer America becomes, the more it needs Wal-Mart. On the minus, if America gets too poor, Wal-Mart can’t keep growing.

China may sometimes seem to be calling out for a new global currency, but it is pretty much stuck with the dollar, according to Benn Steil and Dinah Walker of Council on Foreign Relations.

Click here to read their latest blog post: “Dr. Strangelove: How China Learned to Stop Worrying and Love the Dollar.”

They say China’s holdings of U.S. securities break down to about $1,000 per resident.

“Any major fall in demand for dollar-denominated assets would cause a collapse in the global purchasing power of China’s massive dollar hoard,” the write.

Can’t have that. So U.S. consumers will keep buying cheap Chinese goods, and the dollars they send to China will keeping flow back to the U.S., providing cheap credit to keep the cycle going for years to come.

“Neither partner in this monetary marriage is, therefore, likely to file for divorce any time soon.”

It seems no amount of horrific news will stop the cruise industry from growing.

Not even mysterious diseases, fires, missing persons, shipwrecks or a stagnant economy.

The prime age for cruisers is 45 and older, and with aging populations in the world’s most affluent nations, there seems to be a new cruiser born every second.

 Click here to read my column on MarketWatch. And click here to read my column on the Titanic II. The original Titanic went down in 1912, James Cameron released a movie about it in 1997, and now some people are lining up to do it all over again.

You know that expression, “like rearranging the deck chairs on the Titanic”? Well, some people are ready to cough up big buck for the chance to do just that. Click here to read about the demand.