Archive for March, 2009

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Mail your warranty card to 1600 Pennsylvania Avenue … Attn: Mr. Obama

March 31, 2009

To me, the most stunning aspect of yesterday’s announcements re: GM and Chrysler wasn’t Rick Waggoner getting canned, or Chrysler being shotgun wed to Fiat (anybody out there own a Fiat ?) … it was Team O’s announcement that the Federal government would now be standing behind the car companies’ warranties.

First, I didn’t know that the Constitution gave a president the unilateral right to declare that my tax dollars will go to keeping somebody else’s shoddy car running for 5 or 10 years. 

More interesting: how exactly is the Federal government going to fulfill the warranty pledge?

Let’s pretend that both Chrysler & GM are headed to the junk heap.  Following them will be their dealers — the guys who currently provide warranty service.  Will they just put a couple of repair bays outside the White House?

More likely, it’ll just be an insurance program that reimburses independent garages who will be licensed to make repairs.  The process for handling the claims ? The reimbursement rates ? The fraud protection ?

And, many warranty repairs require parts.  Where will the parts come from? Answer: probably from China since domestic suppliers will crater soon after GM.

Does anybody in the administration give even a moment’s thought to implementation details?

I guess this program will be good practice for nationalized healthcare.  If they can do it for cars, they should be able to do it for human lives, right?

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This is tough love ?

March 31, 2009

Left leaning pundits were crowing yesterday about President Obama’s “ultimatum to the car companies” and his “tough love approach to the problem”.

Ken’s Take: “If your pulse isn’t revived, I’m going to declare you legally dead” isn’t tough love … it’s just politicizing the obvious.

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Sticking it to the "fly over" states … well, maybe not this year.

March 31, 2009

Excerpted from IBD, “Potholes Ahead En Route To Welfare State”, Barone,  March 27, 2009

Pres. Obama continues to insist that America cannot enjoy real prosperity again without higher taxes on high earners, a government health insurance program, a cap-and-trade program that amounts to a tax on energy and the effective abolition of secret ballots in unionization elections.

Even though there are large Democratic majorities in both houses of Congress, roadblocks have started to appear.

One has been set up by the Senate Budget Committee. Chairman Kent Conrad of North Dakota, who … has apparently decided that cap-and-trade is off the table for this year.

Cap-and-trade would impose higher costs on coal-fired electric power plants. In states where most electricity is produced from coal, this would mean higher utility bills for consumers and industrial users.

So, Democrats from coal states like North Dakota see energy issues differently from Democrats from coal-free states like California.

There are 25 Democratic senators from states that get 60% or more of their electricity from coal (in North Dakota, the figure is 93%). To get 50 Senate votes on a budget with cap and trade, 17 of those Senators have to discard their regional interests and vote for cap and trade..

So you can see why he was ready to ditch cap-and-trade, which, in any case, addresses a problem — climate change — whose purported evil effects are decades away.

Ditching cap-and-trade, however, may set up another roadblock, since the money the government was going to take out of the private-sector economy was slated for Obama’s middle-class tax cut.

This could get interesting.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=323047032396219* * * * *
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Sticking it to the “fly over” states … well, maybe not this year.

March 31, 2009

Excerpted from IBD, “Potholes Ahead En Route To Welfare State”, Barone,  March 27, 2009

Pres. Obama continues to insist that America cannot enjoy real prosperity again without higher taxes on high earners, a government health insurance program, a cap-and-trade program that amounts to a tax on energy and the effective abolition of secret ballots in unionization elections.

Even though there are large Democratic majorities in both houses of Congress, roadblocks have started to appear.

One has been set up by the Senate Budget Committee. Chairman Kent Conrad of North Dakota, who … has apparently decided that cap-and-trade is off the table for this year.

Cap-and-trade would impose higher costs on coal-fired electric power plants. In states where most electricity is produced from coal, this would mean higher utility bills for consumers and industrial users.

So, Democrats from coal states like North Dakota see energy issues differently from Democrats from coal-free states like California.

There are 25 Democratic senators from states that get 60% or more of their electricity from coal (in North Dakota, the figure is 93%). To get 50 Senate votes on a budget with cap and trade, 17 of those Senators have to discard their regional interests and vote for cap and trade..

So you can see why he was ready to ditch cap-and-trade, which, in any case, addresses a problem — climate change — whose purported evil effects are decades away.

Ditching cap-and-trade, however, may set up another roadblock, since the money the government was going to take out of the private-sector economy was slated for Obama’s middle-class tax cut.

This could get interesting.

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=323047032396219* * * * *
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Grape Nuts Breaks the Mold By Targeting Men

March 31, 2009

Excerpted from WSJ, “Grape Nuts Takes Aim at Men” By Suzanne Vranica, Mar 26, 2009

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Seeking to revive a crunchy stalwart, cereal maker Post Foods is launching a new ad campaign for Grape Nuts that is aimed at men.

The cheeky campaign includes a special Web site on MSN with dozens of two-minute videos … which tout the cereal’s quality and offer advice, such as how to ask for a raise in a recession … The site also offers “The Guy’s Manual,” with tips on topics like restoring vintage cars. The campaign’s print ads, which will run in Sports Illustrated, feature men fishing and golfing and include the new slogan “That Takes Grape Nuts” … 

The campaign is a departure for cereal advertising, which has been dominated by wholesome images of mom and the family breakfast table. Even Grape Nuts, which is eaten mainly by men, has run ads targeting women …

While men are increasingly sharing grocery-shopping duties, the task is still handled largely by women, ad experts say. “Men will be entertained” by the ad, “but is it going to influence their purchase if they aren’t the ones doing the shopping?” asks Kristi Faulkner, a principal at Womenkind, a marketing firm.

“When you do something that is different, there is always some uncertainly,” says Steve Van Tassel, Post’s president. He says Post plans to step up its in-store marketing efforts to make sure that whoever does the shopping is aware of Grape Nuts.

Post is trying to stand out in the $6.6 billion ready-to-eat cereal category, where the Grape Nuts brand has been hurt by a host of competitors in the healthy-cereal category … Grape Nuts sales slipped 15% to $54.2 million during the 12 months ended Feb. 22 from a year earlier …  All Bran saw sales rise 30%.

Wall Street and the packaged-goods industry will be watching the campaign closely. Ralcorp’s (Ralston Purina) accquisition of Post, whose brands include Honey Bunches of Oats, Shredded Wheat and Pebbles, raised questions about how a company known for shunning advertising to keep prices low would handle brands that were largely built through marketing.  Ralcorp spent just $97, 837 on ads last year …

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123801803460241457.html

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Miller’s New Strategy … Back to the Future

March 31, 2009

Excerpted from WSJ, “Miller Reprises an Old Theme” By David Kesmodel, Mar 20, 2009

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Beer giant MillerCoors, seeking to revive its flagging Miller Lite after a string of marketing missteps, is spending more than $100 million on a new campaign that features redesigned cans and bottles and new ads centered on the brand’s familiar theme: “Tastes Great.”

The campaign … is aimed at grabbing market share from leader Anheuser-Busch InBev and its top-selling Bud Light brand. While the new ads don’t attack Bud Light by name, they are clearly designed to persuade consumers that Miller Lite is the better-tasting brew …

Miller Lite, which introduced Americans to light beer in the 1970s, mostly has posted sales declines in recent years, and its performance has worsened under its new owner, a joint venture of SABMiller and Molson Coors Brewing … One problem is that Miller Lite has bounced from one ad strategy to another in recent years. “The brand has lacked a clear identity for so long … They just haven’t been able to find its voice” …

Now, MillerCoors, borrowing a page from Coors Light, says it will convey a consistent and straightforward message about the Miller Lite brand. That message will be built around taste … In a new twist on the “Tastes Great” theme, MillerCoors is rolling out ads that herald its “triple hops” brewing process, in which hops — the flowers that give beer its distinctive bitterness and aroma — are added to the beer at three different stages. The company says this gives the beer its flavor, “balance” and proper level of foam.

Miller Lite’s new “taste protector” cans will likewise tout the process. The cans have a lining on the inside to keep the beer from touching the aluminum, which can cause a metallic taste. The company also will promote new bottles with different labels as well as a “taste protector cap” designed to preserve the taste of the beer …

Highlighting the brand’s brewing process, however, carries the risk of backfiring with consumers, who are increasingly knowledgeable about beer ingredients. Light lagers like Miller Lite, have a low hops content, especially compared with many of the small-batch “craft” beers that are enjoying the industry’s highest growth rates.

“By overtly marketing their multiaddition hopping process, the consumer would presumably expect Miller Lite to be an overtly hoppy beer; it’s not” … MillerCoors also might find it hard to boost Miler Lite sales at the same time Coors Light sales are growing …

Miller Lite dominated the light-beer wars of the 1980s with its famed “Tastes Great, Less Filling” pitch. Miller Lite is now the No. 2-selling light beer in the U.S. after Bud Light, whose sales volume rose less than 1% last year … Coors Light, the nation’s No. 3 light beer, has been enjoying healthier sales growth than either Bud Light or Miller Lite.

MillerCoors won’t disclose how much it plans to spend on the new ad campaign this year, but Mr. England said it would be “well north of $100 million” …

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123750883420290503.html

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“I’ll cut the deficit in half !” … depends where you measure from, I guess.

March 30, 2009

President Obama keeps saying that his 10-year budget will cut the federal deficit in half.

Since that’s counter-intuitive — given the amount of new spending he has planned, I got curious …

Here are they key numbers:

From 1969 to 2008, the Federal deficit was about 3% of GDP.  That’s about $350 billion per year.

The deficit ballooned during the recent spending and bailout spree to about 12% of GDP.  That’s about $1.9 trillion.

The CBO projects that the Obama budget — as proposed — would have a 10 year out deficit (in 2119) that’s roughly  $1.2 trillion — 6% of GDP.  Team O claims that the out year deficit will be “only” $750 billion — about 5.5% of GDP.

Bottom line: Big O is technically correct if he measures from the 2008-2009 multi-billion dollar spending extravaganza and heavy rounds the numbers.   The deficit goes from $1.9 trillion in 2009 to $1.2 trillion (or $750 billion if you buy Team O’s numbers) — as a percentage of GDP, it goes from 12% to 6%.  That’s about halving the deficit between 2009 and 2019.

More important, but omitted in the President’s remarks: Team O’s out year deficit will be roughly twice the 1969-2008 percentage of GDP and his out year deficit will be roughly 3 times the recent average deficit (in dollars)

Maybe not a lie  … but very misleading … don’t you think?

Spend, spend, spend …

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http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/

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CBO Budget Analysis:
http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf

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Posted in Obama Administration, Taxes | 3 Comments »

“Value” is the New “Green”

March 30, 2009

Excerpted from Wall Street Journal, “Value is the New Green”, by Mark Penn, March 13, 2009

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Until recently, being green was the best way for companies to demonstrate a sense of social responsibility, and for consumers to feel good about their purchases. Healthy food, hybrid cars, energy efficiency — these were the attributes that burnished brands.

But now green is taking a back seat to a new core value — value. Green hasn’t gone away, but companies are having to consider their “value” equation to try to serve the millions of consumers who either can’t afford premium experiences, or just don’t want them anymore.

Companies need to evaluate everything they are offering consumers to see how they can infuse the value of good value into their brands.  

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Starbucks is a great example of one of the world’s greatest success stories being upended by the new times.  Its guiding idea was to give consumers not just a cup of coffee but an integrated experience filled with intoxicating aromas that made customers feel great about paying extra for a grande latte.  McDonald’s emerged as a competitor by saying skip the experience and savor just the coffee and save your cash. Two years ago, Starbucks was flying high. Today it is struggling against the value-based competition.

In the airline industry, those who have been able to make money have offered more for less, not the opposite.  Flagship airlines like United went through bankruptcy emerging in 2006, while value carriers like JetBlue and Southwest have been far more successful.  They not only offer the same basic transportation, but actually offer more up-to-date services like satellite TV in every seat, more organized boarding processes and better customer service.

But beware of being regarded as simply cheap.  Target, while holding up well, isn’t reaping the same rewards as Wal-Mart.  The trick in setting a “value” proposition is that brands need to avoid the trap of simply being less expensive without providing the right level of quality.

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This certainly spells trouble for a wide swath of experience and luxury brands for what could be an extended period, unless these brands figure out how to adapt.  History shows these trends go in cycles, and luxury always comes back.  But we are in a new age of continually declining costs of technology and manufacturing, which could mean the price of luxury will keep declining.

Edit by DAF

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Full article:
http://online.wsj.com/article/SB123689912898512981.html?mod=djemMM

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Unilever Sees More Isn’t Always Better With Ideas

March 30, 2009

Excerpted from Harvard Business Review, “Nurturing Good Ideas” by Jan van den Ende and Bob Kijkuit, April 2009

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Managers know that simply generating lots of ideas doesn’t necessarily produce good ones. What companies need are systems that nurture good ideas and cull bad ones—before they ever reach the decision maker’s desk. Our research shows that tapping the input of many people early in the process can help ensure that the best ideas rise to the top.

It’s not uncommon for companies’ idea-generation activities to produce thousands of ideas. Reviewing all of them to find the best is resource intensive and doesn’t guarantee high-quality results …

Some firms, however, are taking steps to systematically improve the quality of ideas before they’re submitted for review. They’re encouraging employees to first discuss ideas with their colleagues to gain insights about their technical and market feasibility or how they fit with company objectives, which will either enhance the ideas’ value or lead to their early and appropriate demise.

Consider how this works at Unilever, where we followed the development of ideas at the company’s food labs in a 14-month study. Employees there usually discussed an idea with colleagues and, based on their feedback, made changes in the idea before submitting it. People who tapped colleagues outside their departments were more successful; discussing an idea with them increased its chances of adoption, whereas discussions with colleagues from the same department didn’t.

Interestingly, communication with friends or trusted colleagues appeared to aid adoption, probably because their input tended to be richer and offered more constructive and critical feedback, leading to more substantial changes to the idea itself. What’s more, the greater the number of perspectives an employee got, the higher his idea’s chances of being adopted were.

Other firms take a similar tack. At the biotechnology research company KeyGene, management advises employees to discuss ideas with others before submitting them to a review committee …

This approach to idea development offers a clear payoff in efficiency and in the quality of ideas. But it has another benefit as well: It enhances motivation by improving the odds of success and reducing the chance that an employee will invest unduly in an idea that’s likely to fail.

Edit by SAC

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Full Article:
http://hbr.harvardbusiness.org/2009/04/nurturing-good-ideas/ar/1

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Airlines’ Battle a Boon for Travelers

March 27, 2009

Excerpted from Washington Post, “Downturn Puts Air Travelers on Cloud Nine”, by Sholnn Freeman, March 14, 2009

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Airlines have rushed out coast-to-coast travel deals for as little as $99 each way for the spring and summer as the economic downturn has taken hold. Continental Airlines and United Airlines, fighting it out on routes between Washington and Los Angeles, have priced round-trip tickets under $200. Airlines in recent weeks have cut ticket prices as much as 50 percent from a year ago.

The fare war comes as American companies scale back business travel and skittish consumers put off vacation plans, putting new pressure on airlines that only a year ago were fighting high fuel costs.

Yet some travel analysts are skeptical that travelers will buy, even at those prices. “With 600,000 or 700,000 people losing their jobs every month, they are asking themselves, ‘Can I really afford this?’ “

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Airlines began the year thinking the passenger market wouldn’t be so bad. Many had spent 2008 cutting less profitable routes and scaling back the number of flights, giving them more room to boost prices on the seats that remained.

Operationally, flight cutbacks mean fewer planes stacking up at airports, alleviating congestion. The government has reported that airline on-time rates are at their best level in years, even at busy New York airports.

Airlines began offering discounted fares in October after Wall Street banks began to buckle, grounding bankers and other financial executives who paid top dollar for transatlantic tickets. The steady stream of price cuts continued over the winter holidays. Now the discounting is spreading into the spring and summer — historically the strongest profit period for airlines as travelers take vacations.

“This is a major war,” said Tom Parsons, chief executive of BestFares.com, a discount travel Web site. “We never expected airfares like this in June or July of last year. We would have expected air fares double this.”

Edit by DAF

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/13/AR2009031303564_pf.html

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Posted in Airlines, Mktg - Pricing | 1 Comment »

How to Stop Customers Before They Defect

March 27, 2009

Excerpted from Ad Age, “Are Your Customers About to Defect?” By Chris Dickey, March 16, 2009

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In today’s tough economic environment, the most precious asset an organization has is its current customer base. And maximizing returns on that asset begins with a solid retention strategy … it is possible to curb customer defection before it’s too late. Here are three ways to maximize customer value by decreasing defection.

1. Determine the warning signs. This begins by developing a predictive model to identify the behavioral changes that are precursors to defection. The variables that predict defection, churn and other negative behaviors are often, but not always, intuitive: usage (recency and frequency), average ticket, satisfaction, visits, engagement. A model can identify the most significant variables … so the marketer knows which to monitor …

For example, the model may indicate that usage is the most meaningful variable in predicting defection, and that a 20% change in a given time period exceeds the threshold of concern and is, indeed, a warning sign to be concerned about …

2. Track and monitor changes to warning signs. Once marketers know which customer behaviors to focus on and what levels of change should be cause for concern, they can isolate and track behavior changes over time. They can then monitor those changes in real time by setting up automated tracking processes within a data warehouse.

Marketers can monitor behaviors with database-mining software and view them at a macro level using dashboards.

3. Develop a trigger-based engagement strategy to address behaviors in real or near real time. Marketers can actively intervene before a warning sign becomes a real defection. A trigger strategy must be developed over time, testing and optimizing to see which interventions can most quickly reverse negative behaviors. Interventions should be built around a highly relevant and dynamic message, an offer of relevant and significant value communicated in a channel that takes advantage of real-time data … 

Trigger-based programs are generally easy to set up and automate, and they are highly measurable. They can be geared to a wide variety of customer behaviors, and business rules can be developed to change the message, offer or channel based on other factors beyond just the behavior … By understanding the key warning signs within your customer-behavior data and developing proactive trigger-based programs to intervene, you can more precisely hone your marketing effort to those communications that drive the highest incremental return on investment …

Examples of Warning Signs and Thresholds of Concern

A member routinely visits three times a week for six months. In the past two weeks, usage is down 30%.
A retail customer’s average ticket is in the top 20% range. Her average ticket drops 10% to 20% in a month.
A top customer rates you at five consistently. Overall satisfaction drops from five to four in two consecutive quarters.
A “best” customer visits your website weekly, with an average engagement time of 20 minutes. Average time spent on the site falls 30% in three weeks.

Edit by SAC

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Full Article:
http://adage.com/cmostrategy/article?article_id=135269

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Dear AIG, I quit !

March 26, 2009

The NY Times reprinted the following  letter — sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward Liddy, the chief executive of A.I.G.

Won’t change many people’s minds re: the bonuses. but certainly paints another side to the picture …

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Excerpted from NY Times, “Dear AIG, I Quit”, March 25, 2009

Dear Mr. Liddy,

It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

I was in no way involved in — or responsible for — the credit default swap transactions that have hamstrung A.I.G. Nor were more than a handful of the 400 current employees of A.I.G.-F.P.

Most of those responsible have left the company and have conspicuously escaped the public outrage.

Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid. A.I.G. management assured us on three occasions  that the company would “live up to its commitment” to honor the contract guarantees.

I have the utmost respect for the civic duty that you are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

You’ve now asked the current employees of A.I.G.-F.P. to repay these earnings. As you can imagine, there has been a tremendous amount of serious thought and heated discussion about how we should respond to this breach of trust.

As most of us have done nothing wrong, guilt is not a motivation to surrender our earnings. We have worked 12 long months under these contracts and now deserve to be paid as promised.  They are now angry about having been misled by A.I.G.’s promises and are not inclined to return the money as a favor to you.

I can no longer justify spending 10, 12, 14 hours a day away from my family.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn.

This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget.

Sincerely,Jake DeSantis

For the full text of the letter:
http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=2&ref=opinion&pagewanted=all

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Posted in Financial Crisis, Obama Administration, Taxes | 2 Comments »

How about a stimulus package for brands?

March 26, 2009

Excerpted from Brandchannel.com, “Time for a brand stimulus package” by Kevin Randall, March 16, 2009

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In the marketing world, our industry is witnessing a diminishing commitment to long-term brand building. The mission of the moment is driven by the CFO, not the CMO, and calls for cost-cutting and short-term revenue-generating activities represent the only immediate focus.

A weighty and consistent body of historical data shows that marketers will do harm in the short- and long-run to their businesses and brands by knee-jerk budget slashing and running scared.

Hundreds of studies of marketing over ten recessions in the 20th century have concluded that not only did sales and profits decline for brands that cut brand-oriented advertising during the recession, but also that performance continued to lag upon the recovery (“Why it is important to invest in communications during an economic downturn,” IVCA.org, 2009).

Today’s brand leaders would be wise to consider and follow these 7Ps of Branding as a guide for the recession and beyond:

1. Profit
Marketers now have a golden opportunity to profit and establish real competitive advantage by exploiting the current situation. They can increase brand value and market share now relatively more easily and cheaply than during good times. With competitive noise levels reduced it is easier for a brand to stand out in the marketplace. Media costs are more attractive.

2. Persistence
Corporate brand directors need to stay the course by going against the grain and not following the marketing herd. Even if budgets are trimmed in some areas, there should be a core of strategic and tactical activities that endure (the former initiatives tend to be less budget consuming even in good times). Such brand perseverance will provide reassurance during uncertainty to both the existing customer base, an especially critical target now, and to internal stakeholders.

3. Planning
Despite the strong economic headwinds, brand builders should remain committed to pursuing long-term visions and executing plans while selectively and pragmatically improvising marketing tactics. IBM during the recessionary early 1990s and Southwest Airlines after 9/11 are examples of brands that never wavered from their long-range strategic compasses and profited enormously by doing so. These brands did not and do not meander based on quarterly results. The strongest, top-performing brands are built to weather the various storms that come along.

4. Performance
Brands (and their communications) will be judged and rewarded now by delivering on “value” over merely price. Some marketers have and will cut prices. Brand leaders do need to (re)define the value of their offering while not compromising the quality and experience customers expect or need. Harvard Business School professor John Quelch also recommends investing in opportunistic, focused market research since there is a real need to define “performance” and “value” and gauge what is relevant to customers in the shifting environment (“Marketing Your Way Through a Recession,” HarvardBusiness.org, 2008).

5. Positioning
Brand owners must uphold and defend their core positioning and resist the temptation to sacrifice quality, reduce innovation efforts or cut prices. A study of more than 1,000 companies showed that firms that cut manufacturing and administrative functions in a recession did tend to reap the benefits while those that decreased spending on new product development, quality and marketing suffered (“What strategic investments should you make during a recession to gain competitive advantage in the recovery?,” Strategy & Leadership, Profit Impact of Market Strategy [PIMS], Keith Roberts, 2003).

6. People
There needs to be an appreciation of the link between top talent and top-performing brands. Hiring, motivating and keeping the best people (who exemplify the brand) while competitors are pruning overhead is a key source of proprietary advantage. Management guru Jim Collins chronicles the cases of Boeing, Hewlett-Packard and Procter & Gamble, who bucked the trend during tough times by investing in talent (when their rivals were shedding critical human capital) only to thrive and outperform the competition (“Crisis into opportunity,” CNN Money.com, Jim Collins, 2009).

7. Principles
Brand leaders should work with CEOs to make sure their brands and organizations are integrated and that employees internalize and externalize a set of values that don’t change. Valued customers and employees will be more loyal if they are reassured on principles—by the brand and by its chief executive and sponsor. This is especially critical in the B2B world, with its large transactions and numbers of stakeholders involved in the customer experience.

Brands by the numbers

• McGraw-Hill analyzed 600 companies from 1980 to 1985. The results showed that B2B firms that maintained or increased their advertising during the 1981-1982 recession averaged significantly higher sales growth—both during the recession and for three years following—than those that eliminated or decreased advertising. By 1985, sales for companies that were aggressive recession advertisers had risen 256 percent over companies that did not maintain their advertising (“US Recession”, McGraw-Hill, 1988).

• A study of 1,000 firms during recessions between 1982 and 1999 identified key differences regarding the strategies of the best and worst performers, with the measure of performance being changes in the company’s market-to-book ratios. Notably, the best performers had increased their marketing and advertising spending not just relative to their competitors, but also compared to their own spending in better times. (“Learning to love recessions,” Richard F. Dobbs, Tomas Karakolev and Francis Malige, McKinsey & Co., 2002).  

Edit by NRV

Full article: http://www.brandchannel.com/brand_speak.asp?bs_id=214

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A Balancing Act for Credit Card Issuers: Cutting Costs While Keeping Customers

March 26, 2009

Excerpted from Reuters, “Credit Card Firms Slashing Rewards to Cushion Losses”, March 11, 2009

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U.S. credit card issuers are slashing rewards, raising interest rates and increasing fees as loan losses mount, taking action to “maintain a certain profit level in the business.”

Reward programs are expensive for credit card companies—for example, Discover Financial Services posted revenue of $5.7 billion in 2008, while the net cost of its rewards program was $710 million—so issuers want to make sure they are worthwhile.

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In a recent presentation to investors, JPMorgan said cardholders using its reward program showed a faster increase in spending, generated higher revenue and had lower credit loss rates.

But that does not mean card companies will keep offering freebies to attract customers. They are trying to determine which customers are good bets. 

In addition, lenders are trying to pass on part of the cost of reward programs to merchants by offering joint promotions that could bring new businesses and customers to battered retailers.

Not only have rewards been cut back—it has become more difficult to cash them in.

Still, losing a few rewards may be the easy part. Other credit card companies are raising interest rates and increasing fees, or simply closing down accounts entirely.

* * * * *

But this strategy could backfire: Higher costs and fewer rewards could frighten clients away, reducing the risk of default but also cutting into card company revenue.

“The people who have better credit quality have more offers, and if you raise their rates too much they will in fact leave you for somebody else.”

Edit by DAF

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Full article:
http://www.cnbc.com/id/29637583 

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Posted in Credit Cards, Mktg - Consumer Behavior, Mktg - Loyalty Programs | 1 Comment »

What ? No teleprompter ?

March 25, 2009

At his press conference last night, President Obama appeared to deliver his introductory remarks without a teleprompter.

True, his trademark twin-barreled, remote controlled teleprompter was MIA, but … in the back of the room were 2 gigantic big screen TVs  that scrolled the speech.  Same process, different media.

Call me cruel, but I’m still waiting for somebody to kick out a plug and give us a Milli Vanilli moment ….

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Over-Supply and Under-Demand-: A Tough Equation to Balance

March 25, 2009

Excerpted from BusinessWeek, “What Falling Prices Are Telling Us”, by Peter Coy, February 4, 2009

* * * * *

Consumer prices in the U.S. fell at an annual rate of nearly 13% in the last three months of 2008. Prices plummeted for all sorts of goods, ranging from clothing to TVs to furniture.

But deflation missed big chunks of the economy. For all of 2008, college tuition and fees increased by 5.8%, followed closely by price increases for hospitals and legal services. Even fees for preparing tax returns are going up.

This inconsistency in prices casts doubt on the usual explanation for the recession, which is that it’s mainly due to the credit crunch and the resulting squeeze on demand. It also hints at why government efforts to fight the downturn have been ineffective so far.

Here’s the big idea: If the lack of demand that the Obama Administration is fighting were the only problem, you’d expect prices to fall across the board. Instead, it appears that supply—that is, oversupply—is at least as important a factor. The sectors in which prices are falling are those plagued by an excess of factories and ways to get goods to consumers, often because of huge investment in plants in China and other developing nations. Most services, in contrast, are not in severe oversupply and have domestic labor as their main ingredient. Consider this: Prices of goods fell 4.1% last year; prices of services rose 3%.

* * * * *

The government’s deflation-fighting weapons—low interest rates, financial bailouts, and spending packages—can boost demand but do little to deal with oversupply. The world’s productive capacity is simply too big. That means prices need to fall further, or more factories need to close in the U.S. and abroad, or some combination of the two.

A stimulus can ameliorate the downturn, but not prevent continued contractions in the sectors of the economy where global overcapacity is the most extreme. The world is able to make 90 million vehicles a year, but at the current rate of production, it’s making only about 66 million.

* * * * *

“Pricing power is now deteriorating,” says a Morgan Stanley economist , describing a “vicious circle” of declining output, prices, and profits.

In many goods sectors, prices still aren’t low enough to bring forth enough buyers. There will have to be some combination of falling prices and destruction of productive capacity before supply and demand come back into balance.

Edit by DAF

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Full article:
http://www.businessweek.com/magazine/content/09_07/b4119000357826.htm?chan=top+news_top+news+index+-+temp_top+story

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Posted in Economics, Financial Crisis | 2 Comments »

Watch Out Wal-Mart, Best Buy Prepares for Battle

March 25, 2009

Excerpted from WSJ, “Best Buy Confronts Newer Nemesis” By Miguel Bustillo, March 16, 2009

* * * * *

Finally victorious over longtime archrival Circuit City Stores Best Buy  is now gearing up to fight an even more powerful foe: Wal-Mart.

Leading the challenge will be Brian Dunn, the company’s chief operating officer … His new strategy is to head off Wal-Mart Stores Inc.’s brutal price competition by giving consumers something the discounter cannot: more interactive stores, where customers can step into the world of a new videogame or see their faces captured by a high-definition video camera, instead of trolling aisles stacked with merchandise.

Analysts expect Best Buy to pick up at least half of the business of Circuit City, which closed its doors earlier this month, a victim of management and sales miscues as well as the recession.

Mr. Dunn won’t have time to celebrate. Wal-Mart has ratcheted up its once-tiny selection of big-brand television sets, videogames and mobile phones to become a fierce contender … Best Buy remains well ahead of Wal-Mart in U.S. electronics sales, but Wal-Mart is gaining in critical growth areas such as flat-panel TV sets … By contrast, Best Buy’s sales have shrunk during the recession, and it has cut inventory to compensate, perhaps too sharply …

At a meeting of store managers from the Southwest earlier this month, managers complained to Mr. Dunn that they had lost sales of flat-panel TVs because of a lack of inventory, a sore point for the chief operating officer … Mr. Dunn hopes to leapfrog growing competition from Wal-Mart by transforming the retailer’s stores into lively showrooms for the latest gadgets …

Focusing on showmanship and service to combat Wal-Mart’s low-price draw is risky in a recession where consumers are clamoring for no-frills bargains. But Mr. Dunn said he intends to win customers by matching Wal-Mart on prices, and then offering something more, building on Best Buy’s existing strategy of helping customers navigate increasingly complicated technology. The key will be making the most of Best Buy’s tech-savvy sales force, he said …

Mr. Dunn hasn’t always agreed with some of the ground-breaking changes at Best Buy; most notably, he opposed the 1989 decision to do away with commissioned sales in favor of salaried staff, which was widely opposed by sales workers who feared losing income. He now concedes it was the most important shift in company history, lowering worker costs and changing the core model of electronics retailing. Best Buy expanded across the U.S., and Circuit City eventually followed by eliminating sales commissions …

Right now, retailing needs leaders who can guide companies through troubled times, not visionaries, said Advance Auto Parts Inc. Chief Executive Darren Jackson, a former Best Buy vice president …  “Brian is someone who can still command respect from the rank and file.”

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123715878814235117.html?mod=djemMM

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“Mark to market” … what ? so what?

March 24, 2009

I finally heard an understandable definition of “mark to market” accounting as it applies to the so-called toxic mortgage backed securities that banks are holding:

‘Mark to market’: setting a book value for an asset that you have no intention of selling based on the price that a third party — who doesn’t want to buy it — is willing to pay for it. (I think it was Harvey Pitt, former SEC commissioner who said it)

Since the asset is what it is, why is the accounting such a big deal? 

First, because of basic financial reporting  — on which people decide whether to invest in a company or not.  But, that can be handled by using another valuation scheme (say, net present value of expected cash flows) and footnoting the differences to mark to market

Second, because — by government regulation —  banks have to keep a specified ratio of capital to loans.  So, if some non-sellable assets are undervalued. a bank has to raise other capital or reduce the amount of loans it has on the books.  That causes a credit squeeze.

There seems to be some momentum to easing the strict mark to market accounting rules, allowing banks to loan more money while staying in regulatory compliance.

Makes sense to me … especially since it’s free.

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Starbucks New Mission? Shed image as "poster child for excess"

March 24, 2009

Excerpted from Ad Age, “Starbucks: Not as Expensive as You Think”, By Emily Bryson York, March 18, 2009

* * * * *

Distressed that Starbucks has become the “poster child for excess,” CEO Howard Schultz said the coffee company plans to run an ad campaign proving its coffee isn’t expensive.

“There’s a myth out there that there’s this $4 cup of coffee at Starbucks,” Mr. Schultz told shareholders … “For whatever reason, Starbucks has become the poster child for excess, and if you want to be really smart, you should cut out that $4 cup of coffee.”

Mr. Schultz, noting that half of the chain’s beverages cost less than $3 and one-third are priced less than $2, admitted that Starbucks has been defined by its competitors … “We’ve been silent about these issues, but I can assure you we’re not going to be silent for too long.” Starbucks has also launched “value pairings,” such as a breakfast sandwich or muffin and a drink, for $3.95.

Forthcoming advertising will attempt to convince consumers that Starbucks products aren’t as expensive as they are perceived. Mr. Schultz said to expect social-media efforts, internet advertising, and more and sporadic TV ad buys he refers to as “brand sparks” …

Mr. Schultz also gave some insight into Via, the company’s foray in instant coffee … Via, he hopes, will lure some people to convert from brewed coffee. Of the 65 billion cups of coffee brewed in the U.S. every year, Starbucks has only about 4% of the market. The company will attempt to change consumer behaviors at home, where 25% to 30% of coffee is wasted, and at work, where many people don’t like the coffee that is sometimes offered free of charge in company kitchens.

Starbucks is testing Via in Seattle, without advertising, and in Chicago, with TV ads, in-store displays, and an outdoor push … Via will launch nationwide this fall and internationally next year.

Starbucks is, of course, attempting a complicated turnaround. In January, the company reported earnings were down 69% to $74 million, due largely to restructuring charges and same-store sales down 10% in the U.S. alone. At the time, Mr. Schultz said the company was beginning to see improvement in its business. Starbucks reports earnings again next month.

Edit by SAC

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Full Article:
http://adage.com/article?article_id=135361

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Posted in Mktg - Pricing, Value Mapping | Leave a Comment »

Starbucks New Mission? Shed image as “poster child for excess”

March 24, 2009

Excerpted from Ad Age, “Starbucks: Not as Expensive as You Think”, By Emily Bryson York, March 18, 2009

* * * * *

Distressed that Starbucks has become the “poster child for excess,” CEO Howard Schultz said the coffee company plans to run an ad campaign proving its coffee isn’t expensive.

“There’s a myth out there that there’s this $4 cup of coffee at Starbucks,” Mr. Schultz told shareholders … “For whatever reason, Starbucks has become the poster child for excess, and if you want to be really smart, you should cut out that $4 cup of coffee.”

Mr. Schultz, noting that half of the chain’s beverages cost less than $3 and one-third are priced less than $2, admitted that Starbucks has been defined by its competitors … “We’ve been silent about these issues, but I can assure you we’re not going to be silent for too long.” Starbucks has also launched “value pairings,” such as a breakfast sandwich or muffin and a drink, for $3.95.

Forthcoming advertising will attempt to convince consumers that Starbucks products aren’t as expensive as they are perceived. Mr. Schultz said to expect social-media efforts, internet advertising, and more and sporadic TV ad buys he refers to as “brand sparks” …

Mr. Schultz also gave some insight into Via, the company’s foray in instant coffee … Via, he hopes, will lure some people to convert from brewed coffee. Of the 65 billion cups of coffee brewed in the U.S. every year, Starbucks has only about 4% of the market. The company will attempt to change consumer behaviors at home, where 25% to 30% of coffee is wasted, and at work, where many people don’t like the coffee that is sometimes offered free of charge in company kitchens.

Starbucks is testing Via in Seattle, without advertising, and in Chicago, with TV ads, in-store displays, and an outdoor push … Via will launch nationwide this fall and internationally next year.

Starbucks is, of course, attempting a complicated turnaround. In January, the company reported earnings were down 69% to $74 million, due largely to restructuring charges and same-store sales down 10% in the U.S. alone. At the time, Mr. Schultz said the company was beginning to see improvement in its business. Starbucks reports earnings again next month.

Edit by SAC

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Full Article:
http://adage.com/article?article_id=135361

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Posted in Mktg - Pricing, Value Mapping | Leave a Comment »

Outliers’ KFS … find a satisfying job

March 24, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

* * * * *
Gladwell’s Observation

The ingredients to a satisfying job:

Autonomy … “a long leash”, “room to roam”

Complexity … varied experiences, sufficiently challenging

[Meritocracy] … strong connection between effort and reward

The more you like your job, the more likely you are to succeed at it. [No kidding, Malcolm]

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The American craving for small cars …

March 23, 2009

Ken’s Take: How often do you hear: “the Detroit 3 just make gas guzzlers … not the small, fuel efficient cars that Americans want.”  Maybe some day …

* * * * *

Excerpted from WSJ, “Industry’s Big Hope for Small Cars Fades”, March 23, 2009

Last summer, when gas cost $4 a gallon, buyers snapped up small cars so fast that dealers couldn’t keep them in stock. Ford decided to convert some truck plants to make small cars. GM added an extra shift at its Lordstown, Ohio, plant that makes the Chevy Cobalt, a diminutive sedan. Import brands also pumped up their production of small models.

Now, with gas prices half that level, almost 500,000 fuel-thrifty models are piled up unsold around the country. Practically every small car in the market is stacked up at dealerships.

The turnabout comes at a bad time for the struggling U.S. car industry, which has revamped factories and shifted product plans to produce more small cars in coming years.

“I don’t think Americans really like small cars,” said Beau Boeckmann, whose family’s Galpin Ford in southern California is the country’s largest Ford dealer. “They drive them when they think they have to, when gas prices are high. But we’re big people and we like big cars.”

AutoWay Honda in Clearwater, Fla.,  has a whole row of Civic hybrids that draw little interest.

Over the five months ended in February, industrywide sales of small cars totaled 718,000. That was down 28% over the same period in 2008, but small cars grew to 18.4% of total market, up 2.1 points from the year-earlier period.

Full article:
http://online.wsj.com/article/SB123776430557508813.html#mod=testMod

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Posted in Autos - Travel, Environment - Green, Mktg - Consumer Behavior | 1 Comment »

‘Oppressive, unjust and tyrannical’ … but retribution is so, so sweet

March 23, 2009

Ken’s Take: Over the weekend, engaged in a family debate.  Everybody agreed that the AIG FP hedgers were scum. Rest of family thought the bonuses should be reclaimed by whatever means it takes.  Period.  I argued that once contracts are broken to allow retroactive, punitive taxation is ok’d for one group of folks, there’s no room for complaint when the guns get pointed at you.  We’ll see …

* * * * * *

Excerpted from WSJ, “A Smoot-Hawley Moment?”, March 23, 2009

Bottom line: The Congressional action on AIG and banks is oppressive, unjust and tyrannical.

When does a single policy blunder herald much larger economic damage?

Sometimes it’s hard to know ahead of time. Few in Congress thought the Smoot-Hawley tariff was a disaster in 1930, but it led to retaliation and a collapse of world trade.

The question amid Washington’s AIG bonus panic is whether Congress’s war on private contracts and the financial system is a similarly destructive moment.

It is certainly one of the more amazing and senseless acts of political retribution in American history.With such a sweeping assault on contracts and punitive taxation,

Congress is introducing an element of political risk to economic decisions that is typical of Argentina or Russia. The sanctity of U.S. contracts has long been one of America’s competitive advantages in luring capital, a counterpoint to our lottery tort system and costly regulation.

Meanwhile, the 90% tax rate marks a return to the pre-Reagan era when Congress and the political class behaved as if taxes didn’t matter to growth or incentives. It is a revival of the philosophy of redistributionist “justice” in the 1930s, when capital went on strike for an entire decade.

Full editorial:
http://online.wsj.com/article/SB123776465612908965.html

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A new market force: Government induced ‘systemic risk’

March 23, 2009

Ken’s Take:

The Congressional act placing a retroactive confiscatory income tax on the understandably unpopular AIG FP bonuses is already beginning to have an impact — an impact that will certainly slow the untangling of the financial mess, and may even thwart it entirely.

All the Friday Wall Street chatter was about how the government can — on a whim — change the rules of the game in midstream, ditching contracts and agreements when it (the government) wakes up and realizes that its programs are ill-onceived and under-analyzed (i.e. unread) before enactment.

So, word has it that the government was soliciting 200 hedge funds to buy toxic securities as part of a public-private partnership.  Reportedly, only 3 have signed up — and it’s my bet that they did so before Thursday’s Congressional action and head for the exits.  (It’s ok for them to back out since deals aren’t deals any more).

Similarly, reasonably sound companies that took TARP funds because they were coaxed to do so by the government (think Northern Trust) are scrambling to find ways to pay back the money and walk away from TARP.  Reportedly, companies targeted with the TALC program (think student and consumer loans) are doubting whether government assistance is worth the pain.

Bottom line: in one svelte blame-dodging move Congress managed to put the recovery effort back to about square one. 

Way to go Nancy & Barney.

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Posted in Financial Crisis, Obama Administration, Taxes | 1 Comment »

Why does he always have to use that “trope” ?

March 23, 2009

“Trope”: a common or overused theme or device.

* * * * *
Excerpted from WSJ, “The unbearable lightness of Obama’s administration”, Peggy Noonan, March 20, 2009

There is something insubstantial and weightless in the administration’s economic pronouncements and policies.

The president seems everywhere and nowhere, not fully focused on the matters at hand. He’s trying to keep up with the news cycle with less and less to say.

The administration seems buffeted, ad hoc. Policy seems makeshift, provisional.  “The administration has an economic program. But there is, so far, no clear statement of the thinking behind the program.”

This in part is why the teleprompter trope is taking off.

Mr. Obama uses it more than previous presidents. No one would care about this or much notice it as long as he showed competence, and the promise of success. 

But the teleprompter trope has taken off: Why does he always have to depend on that thing?

The fact is that Mr. Obama only has two jobs, but they’re huge. The first is to pull us out of an economic death spiral—to save the banks, get them lending, fix the mortgage mess, address unemployment, forestall inflation. TARP, TALF, financial oversight and regulation of Wall Street—all of this is enormously complex, involving questions of scale, emphasis and direction. All else—windmills, green technology, remaking health care—is secondary. The economy is the domestic issue now, and for the next three years at least.

Mr. Obama’s second job is America’s safety at home and in the world.

These are the two great issues, the economic crisis and our safety. In the face of them, what strikes one is the weightlessness of the Obama administration, the jumping from issue to issue and venue to venue from day to day.

Isaiah Berlin famously suggested a leader is a fox or a hedgehog. The fox knows many things but the hedgehog knows one big thing. In political leadership the hedgehog has certain significant advantages, focus and clarity of vision among them. Most presidents are one or the other. So far Mr. Obama seems neither.

Leadership is needed here. Not talkership, leadership.  

Full commentary:
http://online.wsj.com/article/SB123750000839989123.html

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There is a new Web site where the President’s teleprompter shares its thoughts in a breathless White House diary. It’s bummed that it has to work a news conference next week instead of watching “American Idol,” it resents being dragged to L.A. in Air Force One’s cargo hold “with the more common electronic equipment.” It also Twitters: “We are in California! One of the interns gave my panels a quick scrub and I’m ready to prompt for the day.” And: “Waiting for my boss’s jokes to get loaded for Leno!”

Teleprompter blog:
http://baracksteleprompter.blogspot.com

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Banks Turning Away from TARP

March 23, 2009

 Ken’s Take: The retroactive conficatory tax on bonuses will insure a rush to TARP doors … shooting the program smack dab in the foot …

* * * * *

Excerpted from CNNMoney.com, “Banks: Take My TARP. Please!”, by David Ellis, March 12, 2009

Just weeks after Congress removed a key hurdle that prevented banks from paying back funds from the Troubled Asset Relief Program, or TARP, some banks are already queuing up with checks in hand.

So far, three banks have formally declared their intentions to pay back the government, and the list doesn’t include the dozens of institutions that were approved for government aid, but subsequently decided to turn down the money.

But even more banks are poised to return TARP money, including some of the nation’s largest.

PNC and US Bancorp, as well as JPMorgan Chase and Goldman Sachs, have been stating they hope to return the funds as quickly as possible. A repayment by those four alone would return an estimated $49.2 billion to government coffers.

* * * * *

Some institutions have argued that it is too costly to keep government capital on their books at a time when banks in general have been resistant to make new loans as the economy sours and more Americans lose their jobs.

Other banks have suggested that the recently passed stimulus package, which included a measure aimed at reining in bonuses for senior executives and top earners at banks that got TARP funds, would harm their firms even further.

Others worry that regulators or lawmakers could change the accompanying terms of the government’s capital purchase program as they see fit in the future.

For example, some fear that banks which have received TARP funds could be pushed to make certain types of loans or fulfill some sort of loan quota, following the ongoing public outcry that banks are not lending.

Edit by DAF

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Full article:
http://finance.yahoo.com/banking-budgeting/article/106724/Banks-Take-My-TARP-Please!

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Outliers’ KFS … Speak up if the plane is going to crash

March 23, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

* * * * *
Gladwell’s Observation

Historically (until recently), Korean airlines have had a disproportionate number of major commercial plane crashes.

Gladwell says that it’s because flight crew members are too deferential to the captains and downplay or sugar coat information that they give them.  It’s called “mitigated speech” — a result of a culturally high PDI (power distance index). 

When a culture’s PDI is high, deference to authority figures is high.  So, subordinates are reluctant to speak up — even in a crisis.

So, instead of yelling “pull up we’re too damn  low”, a co-pilot might ask “are we on the glideslope, sir?”.  So, critical information is either not conveyed, is conveyed casually, or requires an extra analytical step (or two) for its importance to be decoded.  Valuable time is lost in the process — sometimes fatally.

The countries with the highest PDI are: Brazil, Korea, Morocco, and Mexico.

* * * * *

Important Note: the air lines in high PDI countries are aware of this dynamic (now) and train their flight crews accordingly.  So, not to worry.

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Why did Nero fiddle when Rome was burning ?

March 20, 2009

Some questions to ponder over the weekend …

* * * * *

Why did Nero fiddle when Rome was burning ?

Obvious answer: Because there was no TV in 64 A.D., so appearing on the Tonight Show wasn’t an option.

Call me ‘old school’, but I would have rather seen the President huddled all day with his economic advisers …

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Do people who don’t pay takes have a right to be outraged ?

I cringe when I hear “everybody has a right to be outraged … those are your tax dollars going to the AIG execs”.

Now (post-stimulus), less than half of voting age Americans pay income taxes.  In other words, less than half have any skin in the game.

I guess those folks (who don’t pay income taxes) are outraged because taxpayer money going to AIG bonuses potentially drains the pool of freebies that they’re lining up to get.

Geez

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Why doesn’t Ed Liddy resign ?

This guy was pulled from retirement by the Treasury Dept to step in to the AIG CEO slot.  His comp package: a whopping buck a year.  Then, he has moron Congressmen denigrate him in public.

If I were he, I’d tell them to stuff it … let Barney Frank run the place if he’s so smart

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What about Wells Fargo, Northern Trust, and JP Morgan Chase execs ?

Press reports say that those banks took TARP money only because the Treasury Dept pressured them to do so — so that badly run banks wouldn’t suffer the indignity of being so easy to pinpoint.

OK, so those execs are running good businesses and, in reasonable people’s opinions, deserve performance bonuses.  Now, they get the bonuses taxed at 90%

And, TARP says they can’t just repay the TARP funds out of earnings, they have to replace it with fresh capital.

Prediction: you’ll hear a lot about this over the weekend.

* * * * *

Who’s next ?

As I pointed out yesterday, once a precedent is set to impose retroactive confiscatory taxes on people just because they are politically toxic … there’ll be no stopping the train. 

Imagine a $2 per gallon Federal tax on gasoline retroactive to January 1 … why not?

And, some folks got rattled by the Patriot Act.  This is one to worry about.

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Posted in Financial Crisis, Obama Administration, Taxes | 2 Comments »

Outliers’ KFS … Spend your time off wisely

March 20, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

* * * * *
Gladwell’s Observation

Generally, people conclude that U.S. schools fail miserably.  That’s probably true, but Gladwell found an interesting twist. 

Some Baltimore elementary schools gave students a battery of standardized tests in September to set a baseline and June — to measure accumulative school year achievement.

The general conclusion: roughly equal progression (from different baselines) for all students — regardless of their family’s income level.

The twist: researchers looked at changes from the June scores to the September scores — to measure retention or development during the summer vacation period.

What they found: at best, low income kids scored the same in Sept as they did in June — suggested limited development during the summer.  In general, higher income kids scored higher in September than they did in June — suggesting that their summer activities (reading, camps, classes, family trips, etc.) were constructively developmental.

Bottom line: students from lower income families would do better with a longer school year or more structured summer activities

Takeaway: Don’t waste your time off … think of it as valuable development time.

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We don't like you … so give us all of your money

March 19, 2009

Ken’s Take: Sure, the AIG FP execs are scum, but abrogation of contracts and retroactive confiscatory taxation can’t possibly be a good idea.  Once the precedent is set, there’s no way to stop them from doing it to me or you … just because they don’t like us. 

(OK, you run less risk because you’re probably more likeable than me.)

* * * **

Excerpted from Wsj,”Obama’s AIG Pani”, March 19, 2009 

Congress looking to string up AIG bonus recipients and, more generally, bankers in whatever bunker they can be found.

Senators Grassley and Baucus want to double the current income tax on bonuses, to 70% from 35% …Congresswoman Carolyn Maloney,  wants to tax it all — at 100%.

This is all too much even for Rep. Charlie Rangel, the House’s chief tax writer, who says the tax code shouldn’t be deployed as a “political weapon.”

He’s right. AIG’s managers may be this week’s political target of choice, but the message to every banker in America, indeed every business and individual  in America, is that you could be next.

At least we haven’t yet seen the resolution that was proposed in the English parliament, in 1720 in the aftermath of the South Sea bubble, that bankers be tied in sacks filled with snakes and tipped into the Thames.

But this fracas is still in its early days.

Full editorial:
http://online.wsj.com/article/SB123742023932678335.html

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We don’t like you … so give us all of your money

March 19, 2009

Ken’s Take: Sure, the AIG FP execs are scum, but abrogation of contracts and retroactive confiscatory taxation can’t possibly be a good idea.  Once the precedent is set, there’s no way to stop them from doing it to me or you … just because they don’t like us. 

(OK, you run less risk because you’re probably more likeable than me.)

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Excerpted from Wsj,”Obama’s AIG Pani”, March 19, 2009 

Congress looking to string up AIG bonus recipients and, more generally, bankers in whatever bunker they can be found.

Senators Grassley and Baucus want to double the current income tax on bonuses, to 70% from 35% …Congresswoman Carolyn Maloney,  wants to tax it all — at 100%.

This is all too much even for Rep. Charlie Rangel, the House’s chief tax writer, who says the tax code shouldn’t be deployed as a “political weapon.”

He’s right. AIG’s managers may be this week’s political target of choice, but the message to every banker in America, indeed every business and individual  in America, is that you could be next.

At least we haven’t yet seen the resolution that was proposed in the English parliament, in 1720 in the aftermath of the South Sea bubble, that bankers be tied in sacks filled with snakes and tipped into the Thames.

But this fracas is still in its early days.

Full editorial:
http://online.wsj.com/article/SB123742023932678335.html

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The “wealth effect” … err, make that the “drop in wealth effect”

March 19, 2009

Excerpted from IBD, ” Wealth Connection”, March 13, 2009

Economy: The Federal Reserve last week announced that Americans’ net worth took an $11.2 trillion hit in 2008 — the biggest on record.

Net worth — basically, the value of everything you own minus the debt you took on to buy it — plunged 9% from 2007’s $64.4 trillion to $51.5 trillion last year. In the fourth quarter alone, Americans lost $5.1 trillion in wealth. Both are records.

This is more than just a paper reduction in wealth. Such a big shift affects our behavior, making us less prone to take risks, less able to borrow, less able to spend and more anxious about the economy.

This is known as the “wealth effect.” When wealth rises, we spend more; when it falls, we spend less. For each $1 change in wealth, spending changes by 5 cents or so, economists say.

Across the economy, such impacts can be enormous. An $11.2 trillion drop in national wealth, for instance, translates into a $560 billion drop in spending — about $1,963 for every American.

This is why economists worry about net worth. If we don’t do something about stemming the decline in wealth and encouraging wealth accumulation, our economy will continue to struggle.

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image

 

Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=321837955855701

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What do field goals, 3-pointers, and hotels on Vermont have in common?

March 19, 2009

Answer: they’re all “advantaged assets” …

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Field Goals
As professional kickers have specialized and improved their technique, field goals have become more common. National Football League teams last season made nearly 85% of field goals, compared with barely 60% in 1974, according to Brian Burke of Advanced NFL Stats. There were two successful field goals for every three touchdowns last season, compared with barely two for every five touchdowns in 1974.

3-Pointers
In college basketball, meanwhile, three-point shots are falling with about the same level of accuracy of closer jump shots, even though they’re worth 50% more. To address this, the three-point line has been moved away from the basket by a foot, as college-hoops fans may notice during March Madness. Yet shots from 21 feet and 22 feet, the shortest three-point distances, were accurate more than 37% of the time this season — easier than those from any distance between five feet and 19 feet from the basket, according to college-basketball analyst Ken Pomeroy.

Hotels on Vermont
in Monopoly, paying $50 for that hotel on Vermont Avenue pays itself off in fewer than 15 rolls of the dice by your opponent, compared with more than 40 rolls for other hotel-adorned squares, according to simulations of 32 billion rolls by Truman Collins.

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Excerpted from Wsj, “Price Drop: Stocks, Homes, Now Triple-Word Scores”, March 18, 2009
http://online.wsj.com/article/SB123731266862258869.html?mod=djemalert

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Outliers’ KFS … be smart, but not too smart

March 19, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

Success requires intelligence plus personality plus ambition.  But, intelligence and achievement are far from perfectly correlated.  That is, high intellect doesn’t always translate into a greater likelihood of success.

Why?

First, because “general intelligence” does not assure “practical intelligence” … think book smart versus street smart.

[Often, people with high intellects tend to become linear logic specialists … that is, they may have vision, but not peripheral vision … they can connect the dots (convergence) but not think out of the box (divergence).]

Below a certain level of intellect, success is very unlikely.  But, there’s a “threshold effect” … if a person is just smart enough or talented enough to pass the qualifying threshold, then success is more a function of personality and ambition, moreso than incremental intellect.

Example cited: affirmative action law schools … some students may not have as high an intellect as others do, but they do well because they are “smart enough” to succeed.

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Quick takes …

March 18, 2009

In 2008, 75% of AIG’s Congressional political contributions went to Dems …

image

… about half of that went to Dodd and Obama (and that doesn’t count  $$$ to the DNC)

image

The Stimulus Bill contained an amendment called the “Dodd Amendment”, which says:

“Bonuses can only be paid in the form of long-term restricted stock, equal to no greater than 1/3 of total annual compensation, and will vest only when taxpayer funds are repaid. There is an exception for contractually obligated bonuses agreed on before Feb. 11, 2009.”

Sen. Dodd says the exception to his amendment was slipped in without his knowledge.  Hmmm.

If an amendment had your name on it, wouldn’t you read it before signing it ?

http://www.foxbusiness.com/story/markets/industries/finance/dodd-cracks-aig—time/

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What ever happened to Roland Burris?

A couple of weeks ago, Obama, Reid, Durbin, the new governor of Illinois, and most pundits were calling on him to resign after acknowledging that he “forgot” that he raised money for ousted governor Blago. 

Seems that the old coot survived the firestorm …

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New bumper sticker popping up …

image
http://www.worldnetdaily.com/?pageId=89958

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One man’s foreclosure is another man’s affordable housing …

March 18, 2009

Ken’s Take: Yes, there is a silver lining in the decline in home prices.  For many responsible people, sky high home prices made ownership out of reach.  Now, maybe some of these folks will have a fair shot.

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Excerpted from RealClearPolitics.com, “Subsidizing Bad Decisions”,  Sowell, March 10, 2009

The current political stampede to stop mortgage foreclosures proceeds…  

What if the foreclosures are not stopped?

Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices– prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for “affordable housing” for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of “affordable housing” is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit.

Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

Study after study, not only here but in other countries, show that the most affordable housing is where there has been the least government interference with the market– contrary to rhetoric.

When new occupants of foreclosed housing find it more affordable, will the previous occupants all become homeless? Or are they more likely to move into homes or apartments that they can afford? They will of course be sadder– but perhaps wiser as well.

The old and trite phrase “sadder but wiser” is old and trite for the same reason that “saving for a rainy day” is old and trite. It reflects an all too common human experience.

Full column:
http://www.realclearpolitics.com/articles/2009/03/subsidizing_bad_decisions.html

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Outliers’ KFS … the 10,000 hours rule

March 18, 2009

This is one of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

Mastery of a complex skill doesn’t come easy orfast.  Given an adequate amount of talent, the magic number is 10,000 hours.  That’s how long it takes the brain to assimilate the necessary knowledge and habitualize a complex set of relevant tasks.

Examples cited: Bill Gates and his mastery of PC software; elite classical musicians; the Beatles (before becoming overnight sensations).

Note: a typical work year is 2,000 hours (8 hours per day times 5 days times 50 weeks) … So, it takes 5 years of dedicated full-time effort to become success proficient.

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Ken’s Question: Tell me again how much relevant experience Obama had before becoming President ?

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PAI … gap closes to 4 points … believe it ?

March 17, 2009

According to Rasmussen it’s true … Top box approvers are fairly constant … bottom box disapprovers appear to be growing  … hmmmm

image

Source article:
http://www.rasmussenreports.com/public_content/politics/obama_administration/daily_presidential_tracking_poll

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Some simple tax math …

March 17, 2009

Adopting a European welfare-based economic model requires taxing about 50% of labor costs.

Question:  if the bottom 50% pay no income taxes, then how much does the top 50% have to pay?

Do the math … you can take 50% from 100% of the citizens … or 100% from 50% of the citizens.

Technical note: the top 50% of the citizens is a broader group than the targeted top 2%

[Labor's European Model]

http://online.wsj.com/article/SB123716333620835923.html

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Satisfied customers reduce stock price risk … here’s proof

March 17, 2009

Excerpted from Knowledge @ Emory, “Positive Feedback: Why Customer Satisfaction Means More than Just Happy Customers,” February 12, 2009

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Businesses are wielding a new weapon these days in the battle to survive economic uncertainty: the chopping block. No longer just a kitchen accessory, the chopping block has become a fixture in divisions and boardrooms across the country, claiming budgets, superfluous expenses and, yes, jobs.

Managers may want to hold off, however, on hauling that block into the marketing department. Market research firm Gartner recently reported that companies eager to cut their marketing budgets in a weakened economy risk damaging their ability to hold and add customers when conditions improve. Marketing, while possibly appearing to be the low-hanging fruit, is not necessarily ripe for chopping.

Sundar Bharadwaj … would welcome Gartner’s support of marketing budgets … “When most organizations are under spending pressure or they have to cut costs, marketing is one of the first things to go … If you can’t demonstrate its value to the bottom line or to metrics that matter to senior managers, then it becomes difficult to justify the existence of such spending. So, there’s a growing area of research in marketing that looks at marketing’s impact on the financial performance of a firm.”

Bharadwaj and colleague, Kapil R. Tuli, are the latest marketing mavens to contribute to this body of research. In their paper, “Customer Satisfaction and Stock Returns Risk,” they study the impact of customer satisfaction on stock returns risk—both systematic risk or beta … as well as idiosyncratic risk … The authors set out to develop, test, and find empirical support for the hypothesis that positive changes in customer satisfaction result in negative changes in overall and downside systematic and idiosyncratic risk. In doing so, they test the effect of changes in customer satisfaction on changes in risk …

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The results of the analysis … indicate that customer satisfaction does indeed lower a firm’s overall and downside systematic and idiosyncratic risk. Ultimately, customer satisfaction has a vigorous impact on stock returns risk …  

“The argument of the paper is that if I’m satisfied with the firm as a customer, I tend to be loyal and I tend to buy more from the firm. The firm has a richer understanding of my needs so they can more efficiently sell to me, which lowers their costs … They can plan their internal operations given that they understand me very well. That could lower their costs. I’m less prone to switch to other companies even if other companies come up with better offers. So, I stay with this firm and work with them. The firm’s cash flow therefore is not volatile. This is important because the financial market stock price is actually the present value of future cash flows. That’s why you would expect that firms with greater satisfaction would have much lower idiosyncratic and systematic risk” …

The study also proves that customer satisfaction is a metric that offers valuable information to financial market … “Customer satisfaction is critical,” stresses Bharadwaj … The results also underscore the holistic value of overall marketing efforts on a firm’s strength.

This is not only important for company managers, but the investment community and regulators, as well … customer satisfaction is a vital component of a firm’s performance and possibly worthy of more widespread public distribution. “Companies need to start thinking about reporting customer satisfaction numbers,” in annual reports and other investor relations material, suggests Bharadwaj. “Given their implications for risk, it will help investors to be more informed about how the company is doing in the marketplace” … 

Edit by SAC

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Full Article:
http://knowledge.emory.edu/article.cfm?articleid=1216

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Who’ll pay the climate tax ? … Oops, I meant “Cap and Trade” ?

March 17, 2009

Hint: They were promised a tax cut during the Obama campaign.

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Excerpted from WSJ, “Who Pays for Cap and Trade?”, March 9,2009

Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions.

Perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.

Politicians love cap and trade because they can claim to be taxing “polluters,” not workers. Hardly.  the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag — now Mr. Obama’s budget director — told Congress last year that “Those price increases are essential to the success of a cap-and-trade program.”

The Congressional Budget Office — Mr. Orszag’s former roost — estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.

Hit hardest would be the “95% of working families” Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat “unless you use energy.”

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But the greatest inequities are geographic and would be imposed on the parts of the U.S. that rely most on manufacturing or fossil fuels — particularly coal, which generates most power in the Midwest, Southern and Plains states. It’s no coincidence that the liberals most invested in cap and trade — Barbara Boxer, Henry Waxman, Ed Markey — come from California or the Northeast.

Coal provides more than half of U.S. electricity, and 25 states get more than 50% of their electricity from conventional coal-fired generation.

In Ohio, it totals 86%, according to the Energy Information Administration. Ratepayers in Indiana (94%), Missouri (85%), New Mexico (80%), Pennsylvania (56%), West Virginia (98%) and Wyoming (95%) are going to get soaked.

Cap and trade, in other words, is a scheme to redistribute income and wealth — but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street “green tech” investors who know how to leverage the political class.

Full article:
http://online.wsj.com/article/SB123655590609066021.html

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Outliers’ KFS (Key Factors for Success) … Check your ‘born on’ date

March 17, 2009

This is the first of several posts extracting some key points from the book Outliers: The Story of Success by Malcolm Gladwell, Little Brown, 2008

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Gladwell’s Observation

When you’re born significantly impacts the likelihood that you’ll be successful.

On a macro level, outliers reach maturity in the early stages of a “transformational era”.  For example, Bill Gates was wildly successful, in part, because he caught the early wave of PCs.

On a more micro level, your specific birthdate matters because of “relative age”.  Many schools and sports have cut-off dates for admitting annual cohort groups.  For example, little league baseball leagues typically place kids in age brackets that run from Aug.1 to July 31.  Schools may require that a student turn 6 by a certain date (say, Sept.1)

Kids born right after a cut-off date have an advantage — they’re older.  At young ages, there’s a big  proportional maturity difference (physical & intellectual) between the oldest and youngest members of the cohort.  So, the oldest tend to outperform the youngest by a big margin.

And, the advantage tends to be an accumulative because early high achievers are often “steamed” or “tracked” — think fast reading groups and competitive travel teams — with their sub-cohorts getting more attention, more resources, and better teaching & coaching.

Generally speaking people born on the right date are beneficiaries of  more and more specialized opportunities to succeed.

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The case for focus … on the the financial crisis, that is.

March 17, 2009

Excerpted from IBD, ” Friendly Fire Shows Obama Losing Focus”, Barone, March 13, 2009

Driven by Rahm Emanuel’s advice to “never let a serious crisis go to waste”,  Pres. Obama continues to assert that we can solve our economic problems only by advancing national health insurance, a cap-and-trade system to reduce greenhouse gases, and the end of secret ballots in unionization elections.

But, none of the issues … was in any way a cause of the financial crisis.

We did not have a housing bubble collapse because we don’t have a national health insurance program.

We don’t have toxic waste clogging the balance sheets of the banks and other financial institutions because of carbon emissions.

The Bush tax cuts were not a proximate cause of the giant public debt being run up under the Toxic Assets Relief Program or the 2009 stimulus package.

Perhaps the President should heed Warren Buffett’s advice  to “pay attention to the first thing on your platter : the financial crisis”.

Full column: 
http://www.ibdeditorials.com/IBDArticles.aspx?id=321836253252674 

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Pity the baby boomers …

March 16, 2009

Excerpted from cnbc.com, “Market Meltdown Amplifies Baby Boomer Worries”, 03 Mar 2009

If losing one’s job weren’t enough to worry about in this recession, for many Americans there’s the added angst of being able to afford one’s retirement.

And that may help explain why the seemingly relentless declines in home and stock prices have ravaged consumer confidence.

The depth of that damage … household wealth in the fourth quarter, … was some 12 percent below what it was during its peak in the third quarter of 2007.  The decline in wealth is the greatest on record.

Thus far, the median price of a home is down more than 20 percent from $219,000 at the market peak in 2007 to $170,000 in January.

Stock prices, however, have fallen twice as much, some 50 percent, from their October 2007 peak.

And while a greater percentage of Americans are homeowners than investors and thus the average household’s wealth is more defined by real estate than investments, the investment outlook is still a major force.

In 2008, 47 percent of all households, or some 54.5 million, participated in the market through equity or bond ownership .., 65 million.people participate in defined contribution (DC) retirement savings plans, such as 401(k)s.

The value of those holdings has shrunk considerable. Americans held $15.9 trillion in retirement assets at the end of the third quarter of 2008, accounting for 35 percent of all household financial assets.

At the end of the second quarter of 2007, right before the credit crunch first bit, the value of those holdings was $17.4 trillion.

In the current environment, the huge losses in the stock market may actually have a larger psychological effect than those of the housing market because of the more frequent reminders; the declines are measured daily and weekly, not just monthly, like housing.

While major stock market indices are at 12-year lows; existing single family home prices are a mere six-year low.

“Economic advisors are worried about the stock market because it is part of the puzzle, and it’s almost as if the politicians don’t care what the stock market is doing,”

Some say the President’s stated desire to raise the tax on dividends and capital gains from 15 to 20 percent … sent a negative message to Wall Street, even if it was consistent with his campaign comments.

What’s more, a higher capital gains rate may not pay off if investors continue to lose money because stock prices head ever lower.

Economists don’t expect the President to identify with investors the way he does with homeowners …

Full article:
http://www.cnbc.com/id/29471950

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Electronic medical records: huge savings, huge benefits … well, not so fast.

March 16, 2009

Ken’s Take:

The evidence is equivocal, but on balance, I’m a fan of electronic med records.  As a patient, I get frustrated when I have to repeatedly document my medical history — sometimes to multiple people on the same doctor’s visit. But, I think Team Obama severely underestimates the time, effort and resources that will be required to upgrade and integrate the multitude of competing  legacy computer systems in place in hospitals, labs, and doctors’ offices.  It’ll make landing a man on the moon look like a walk in the park.

Also — while I have zero concerns re: the FBI or any other government agencies tapping my phone or rifling through my bank accounts — I do do have concerns about the lack of privacy re: medical records. 

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Excerpted from WSJ, “Obama’s $80 Billion Exaggeration”, March 11, 2009

The flagship of Pres. Obama’s healthcare proposal is the national adoption of electronic medical records — a computer-based system that would contain every patient’s clinical history, laboratory results, and treatments.

This, he said, would save some $80 billion a year, safeguard against medical errors, reduce malpractice lawsuits, and greatly facilitate both preventive care and ongoing therapy of the chronically ill.

Physicians at the Harvard teaching hospitals, where electronic medical records have been in use for years, are dumbfounded, wondering how such dramatic claims of cost-saving and quality improvement could be true. The real-world use of electronic medical records is quite different from such an idealized vision.

To be sure, there are real benefits from electronic medical records. Physicians and nurses can readily access all the information on their patients from a single site. Particularly helpful are alerts in the system that warn of potential dangers in the prescribing of a certain drug for a patient on other therapies that could result in toxicity. But do these benefits translate into $80 billion annually in cost-savings? The cost-savings from avoiding medication errors are relatively small, amounting at most to a few billion dollars yearly..

Other potential cost-savings are far from certain. The impact of medication errors on malpractice costs is likely to be minimal, since the vast majority of lawsuits arise not from technical mistakes like incorrect prescriptions but from diagnostic errors, where the physician makes a misdiagnosis and the correct therapy is delayed or never delivered. There is no evidence that electronic medical records lower the chances of diagnostic error.

In fact, once a misdiagnosis enters into the electronic record, it is rapidly and virally propagated. A study of orthopedic surgeons, comparing handheld PDA electronic records to paper records, showed an increase in wrong and redundant diagnoses using the computer — 48 compared to seven in the paper-based cohort.

But the propagation of mistakes is not restricted to misdiagnoses. Once data are keyed in, they are rarely rechecked with respect to accuracy. For example, entering a patient’s weight incorrectly will result in a drug dose that is too low or too high, and the computer has no way to respond to such human error.

What is clear is that electronic medical records facilitate documentation of services rendered by physicians and hospitals, which is used to justify billing. Doctors in particular are burdened with checking off scores of boxes on the computer screen to satisfy insurance requirements, so called “pay for performance.”

Some have speculated that the patient data collected in national electronic health records will be mined for research purposes to assess the cost effectiveness of different treatments. This analysis will then be used to dictate which drugs and devices doctors can provide to their patients in federally funded programs like Medicare. Americans should decide whether they want to participate in such a national experiment only after learning about the nature of the analysis of their records and who will apply the results to their health care.

All agree skyrocketing health-care costs are a dangerous weight on the economic welfare of the nation. Much of the growing expense is due to the proliferation of new technology and costly treatments. Significant monies are spent for administrative overhead related to insurance billing and payments. The burden of the uninsured who use emergency rooms as their primary care providers, and extensive utilization of intensive care units at the end of life, further escalate costs.

Full article:
http://online.wsj.com/article/SB123681586452302125.html

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Does $1.3 million per new job sound high to you? … Economists rip stimulus plan

March 16, 2009

Excerpted from WSJ, “Old Europe Is Right on Stimulus”, March 12, 2009

A recent study by a trans-Atlantic team of four economists subjected the Administration’s stimulus to the most recent Keynesian scholarship.

The White House estimates of 3.6 million new jobs is based on an “Old Keynesian” model on the impact of government spending, while the new models adjust for the rational behavioral response to the stimulus by businesses and consumers.

What the four economists found is that the Administration’s estimates for stimulus growth were six times as high as they could produce under a modern Keynesian simulation. By their estimates, the stimulus would produce, at most, 600,000 jobs and add perhaps 0.6% to GDP at its peak.

For those keeping score at home, that’s $1.3 million in spending per job … and pushes the US deficit over 60% of GDP

image

The Administration is already worried that its stimulus will come up short … and the outside intellectual godfathers of the Obama plan are denying paternity.

Full article:
http://online.wsj.com/article/SB123681403239101741.html

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Help Wanted: Apply US Treasury Dept … why Geithner can’t staff up

March 16, 2009

Noticed that Secretary Geithner hasn’t been able to fill many direct report slots in the Treasury Department.   Hmmm. Wonder why ?

There’s the obvious: some folks don’t want to sign up with a guy who got caught ducking  his income taxes, who has stumbled in his initial prime time showings, and who has, at best, a 50/50 shot of being at Team Obama’s Christmas party.

More subtle: A high ranking finance person from real world ops — say, Jamie Dimon from JP Morgan Chase — would bring with him a team of tested, trusted stars — a cadre of key people who already buy in to his philosophy and way of doing business.

Geithner doesn’t have that expedient luxury.  He can only bring some fellow geeks from the Fed, or start the drawn out process of recruitment, selection, indoctrination, etc.  Which gets back to the obvious point — who’d want the jobs ?

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Trading down … from Target to Walmart

March 16, 2009

Excerpted from WSJ, ” Wal-Mart’s Trickle-Down Economics”, March 5, 2009 

The economic crisis is compelling shoppers to dig ever deeper for bargains.

Wal-Mart Stores and Target both stand to benefit from trade-down purchases, but even price-matching can’t trump Wal-Mart’s reputation for value.

Target has been matching Wal-Mart’s prices on identical items in local markets for over 10 years. That’s 20,000 to 30,000 of the roughly 80,000 products in a store.

But Wal-Mart’s image as a bastion of value may be helping it steal traffic, causing customers to purchase items that they could otherwise buy at Target for the same cost.

Target also carries more expensive variations on items such as apparel that consumers are passing over. And more than half of Wal-Mart’s products are regular purchases such as food and personal-care products, while that is about a third of Target’s mix.

Full article:
http://online.wsj.com/article/SB123628850444943445.html

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Told you so … Charities revolt to O’s tax hikes

March 16, 2009

Ken’s Take: We were on this one early last week.  O’s strategy: nationalize funding of NFPs … let government, not individuals, decide which charities are worthy.

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Excerpted from WSJ, ” The Charity Revolt Liberals oppose a tax hike on rich donors”, March 10, 2009 
  
Among those shocked by President Obama’s 2010 budget, the most surprising are the true-blue liberals who run most of America’s nonprofits, universities and charities. How dare he limit tax deductions for charitable giving!

They’re afraid they’ll get fewer donations, but they should be more concerned that Mr. Obama’s policies will shove them aside in favor of the New Charity State.

His budget proposes to raise the top personal income tax rate to 39.6% in 2011 from 35%, and the 33% rate to 36% while reducing the tax benefit from itemized deductions for the top two brackets to 28% from 35% and 33%, respectively. The White House estimates the deduction reduction will yield $318 billion in revenue over 10 years.

Some worry that the tax change “could be a disincentive to some donors.”

In 2006, Americans gave $186.6 billion to charity, more than 40% from those in the highest tax bracket.

A back of the envelope calculation by the Tax Policy Center, a left-of-center think tank, estimates the Obama plan will reduce annual giving by 2%, or some $9 billion.

Americans of all income levels have long given generously, notably in the 1980s as income tax rates fell and the economy boomed. Over the last five decades, American giving overall has hardly deviated from 2% of personal income

The White House may have underestimated the power of the liberal nonprofit lobby. The charity deduction cut is the only one of the President’s many tax increases that Democrats on Capitol Hill have publicly criticized. Politics hath no fury like a rich liberal scorned.

Full editorial:
http://online.wsj.com/article/SB123664427493678121.html

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Soften your hard edges … with an empathic logo

March 16, 2009

Excerpted from Brandweek, “Grim Times Prompt More Upbeat Logos” By Todd Wasserman, Feb 21, 2009

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As the economy gets uglier, logos are getting prettier. The stolid, angular look of visual trademarks like IBM’s and Bank of America are being supplanted by ones that sport softer, more approachable fonts; multiple colors and natural, child-like symbols.

The latest example of the trend is Kraft. While the food giant’s previous visual treatment was a red, white and blue hexagon, the new one, which the company introduced with great fanfare last week, is in lower-case and sports yellow, green, purple, blue and orange as well …

Designers have a name for the trend: The Google Effect. Many say that Google’s multicolor design and the company’s willingness to tweak its logo for holidays and such have been widely influential.

Ruth Kedar, the woman who designed Google’s logo, agrees … While acknowledging that Google wasn’t the first to tweak its logo … she said the notion was still an anathema to most companies until recently. “The idea that you could modify a brand and play with it was kind of a radical change in branding, going way out of the corporate ID manual” …

Indeed, the Google Effect in this case may have a triple meaning—Google’s introduction of an era of more transparent corporate images and the advancement of the Internet as a medium to showcase logos are also influences. Years ago, logos were designed to be seen on buildings and trucks, but now the primary forum is the Internet where “color restrictions aren’t as much of an issue” …

In regard to transparency, Mike Mitchell, a Kraft rep, said that the company’s new logo is a manifestation of a bottom-up change at the company. The visual treatment, he said, is designed to convey Kraft’s new mantra: “Make today delicious.” It symbolically represents various Kraft products. The triangle shape “is invocative of pizza,” he said.

Most consumers won’t catch those references but instead will walk away with a more positive feeling about the company, said Mitchell.

Cal McAllister, co-founder of Wexly School for Girls, a design firm … said the new logos are a reflection of a desire to at least appear more approachable and transparent. “Everyone is working off the same brief,” he said. “They say, ‘Give me something natural, like a sun or a flower,’ or ‘Make it soft and make it seem friendly …”

Since such sentiment is based on consumer research, McAllister speculated that the gloomy times may be prompting consumers to gravitate to such imagery.

“Because we’re in a tough time and people are getting laid off, I think there’s a subconscious desire to take you back to when you weren’t worried about things like that, which is why we’re seeing these almost hand-drawn logos … And when you see a logo that’s boxy and the edges are hard and sharp, and the company just laid off 10,000 people, you get mad at them. But if it’s a watercolory rounded logo, you feel kind of sorry for them” …

Edit by SAC

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Full Article:
http://www.brandweek.com/bw/content_display/news-and-features/direct/e3i6c21c5456af55219d01b2ee3650498cf

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