Attn: Senator Obama … Re: Your Tax Plan’s Marginal Rates

October 20, 2008

I’m now completely convinced that neither Sen. Obama nor anybody else understands what’s in his tax plan — the mathematics — and the implications.

For example, he told Joe the Plumber that his taxes would only go up 3% in order to “spread the wealth”.

Let’s start with the marginal tax rate for folks making more than $250,000.

Obama says that it will go back to what it was under Bill Clinton. OK, in 1999, the top bracket started at $283,150 (for both individuals and marrieds filing jointly) — the rate was 39.6%.

For 2008, the top bracket starts at $357,700 (for both individuals and marrieds filing jointly) — and the marginal tax rate is 35%. Note that it’s 35% — most politicos are running around saying it’s 36% — not true.

So, the top bracket marginal rate increase under Obama’s plan is 4.6 percentage points (from 35% to 39.6%) which is a 13% increase in the marginal rate (4.6% / 35% = 13%).

In 2008, the 2nd highest bracket starts at $200,301 for marrieds — with a marginal rate of 33%. For those folks, the increase is 6.6 percentage points (from 33% to 39.6%) which is a 20% increase in the marginal tax rate.

There’s a big difference between 3% and 13%, and a bigger difference between 3% and 20%. Shouldn’t somebody mention this to both Joe and Barack ?

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Taxes – If 39.5% sounds high …

October 20, 2008

Did you know that once upon a time, the high bracket marginal federal income tax rate was a whooping 90%. 

Add in some state & local taxes, and uber-earners were shelling every piece of marginal income to the government.

My surprises:

(1) the 90% rates hung in for almost 30 years.

(2) it was JFK, not Reagan that made the first cuts

image

Chart extracted from an IBD editorial:
http://www.ibdeditorials.com/IBDArticles.aspx?id=303088374745338

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'Play Ball' ? Obama – treading on the American pastime – says 'not so fast' …

October 17, 2008

Excerpted from THR.com “Fox to Change World Series Start Time for Obama”, Paul J. Gough, Oct 15, 2008

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To accommodate a half-hour Obama political advertisement on Fox on Oct. 29, Major League Baseball has agreed to move the start time of World Series Game 6 by about 15 minutes. That would move the start of the game from 8:20 p.m. ET or so to 8:35 p.m.

“Fox will accommodate Senator Obama’s desire … If requested, the network would be willing to make similar time available to Senator McCain’s campaign.”

The blessing from MLB clears the way for Fox to air the promo and collect upward of $1 million in ad revenue for the half hour, more than what either CBS or NBC was charging.

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Full article:
http://www.hollywoodreporter.com/hr/content_display/television/news/e3ifa25645bfd6bcf91b52ef4f665b661f5 

Thanks to SMH for spotting the story

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Ken’s Take:

(1) If I were McCain, I’d take Fox up on the offer and buy 30 minutes or so before game 7 … good buzz even if the series doesn’t go the full 7 games

(2) When at B&D, we’d buy “end of reel” time during the World Series.  It’s kinda like flying standby. Networks sell extra commercial spots (cheap) just in case a game has many pitching changes or goes into extra innings.  One year, we hit lotto — game 7 went extra innings and we got several exposures.  Mc Cain should do that, too.

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‘Play Ball’ ? Obama – treading on the American pastime – says ‘not so fast’ …

October 17, 2008

Excerpted from THR.com “Fox to Change World Series Start Time for Obama”, Paul J. Gough, Oct 15, 2008

* * * * *

To accommodate a half-hour Obama political advertisement on Fox on Oct. 29, Major League Baseball has agreed to move the start time of World Series Game 6 by about 15 minutes. That would move the start of the game from 8:20 p.m. ET or so to 8:35 p.m.

“Fox will accommodate Senator Obama’s desire … If requested, the network would be willing to make similar time available to Senator McCain’s campaign.”

The blessing from MLB clears the way for Fox to air the promo and collect upward of $1 million in ad revenue for the half hour, more than what either CBS or NBC was charging.

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Full article:
http://www.hollywoodreporter.com/hr/content_display/television/news/e3ifa25645bfd6bcf91b52ef4f665b661f5 

Thanks to SMH for spotting the story

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Ken’s Take:

(1) If I were McCain, I’d take Fox up on the offer and buy 30 minutes or so before game 7 … good buzz even if the series doesn’t go the full 7 games

(2) When at B&D, we’d buy “end of reel” time during the World Series.  It’s kinda like flying standby. Networks sell extra commercial spots (cheap) just in case a game has many pitching changes or goes into extra innings.  One year, we hit lotto — game 7 went extra innings and we got several exposures.  Mc Cain should do that, too.

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A PreMortem for The McCain Campaign

October 17, 2008

Ken’s Note: Howard Wolfson is a Hillary diehard who leans very left. This caught my eye because of (1) the notion of a “pre-mortem” analysis (2) I think his analysis is on target.  I only hope that reports of McCain’s presidential bid’s dying are premature …

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Excerpted from RCP: “A PreMortem for The McCain Campaign”, Howard Wolfson,  11.10.2008

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The economic crisis dealt the McCain campaign a fatal body blow. None the less, the choices that Senator McCain has made during this race will impact the margin of his defeat and the fortunes of other Republicans on the ballot. Today it’s worth considering what Senator McCain could have done differently. 

1) Avoid Faustian Bargains.
John McCain enjoyed a national reputation as a moderate maverick who was willing to challenge the voices of intolerance within his own party and work across the partisan divide. After 9/11 Senator McCain changed course dramatically and yoked his fortunes with President Bush’s. This strategy clearly helped Senator McCain capture his party’s nomination — but it left him poorly positioned to compete in a general election in the current political environment.

2) A Second Act for Sarah Palin.
Sarah Palin’s introduction to the American public was a strong one. She helped to rally the Republican base and drew interest from blue collar voters and some women who might not have otherwise given John McCain a second look. Since then her performance has been poor.

3) A Different VP Choice Entirely.
The choice of a VP speaks volumes to the American public about the candidate making it. What if he had chosen Gov. Tom Ridge, a pro-choice former Governor or former Senator Joe Lieberman instead? Would the choice of Mitt Romney have helped credential Senator McCain on the economy?

4) Distance from George W. Bush.
He allowed Senator Obama and Democrats to define his prospective first term as President Bush’s third. The last thing the American public wants is four more years of the last eight. Senator McCain never made a compelling case that he would do anything differently.

5) Attempt to Define Senator Obama Earlier.
Senator McCain’s efforts to hang Bill Ayers around Senator Obama’s shoulders are totally irrelevent to the current mood of the country and only serve to reinforce how out of touch he is with the real concerns of the American people. They are also much too late to do any good.

6) A Coherent Response to the Economic Crisis.
Senator McCain’s response to the economic crisis — first lauding the economy, then suspending his campaign to pass a bill that failed on its first try, threatening to skip the first debate — was lurching, incoherent, and tone deaf. 

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Full article:
http://blogs.tnr.com/tnr/blogs/the_flack/archive/2008/10/11/a-premortem-for-mccain.aspx 

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Consumers Lose as Packaging Shrinks

October 17, 2008

Excerpt from the New York Times “Ate a Whole Pint? Check Again” September 13, 2008

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REMEMBER the supersize phenomenon, when fast-food restaurants offered huge portions of soda and fries?

Some packaged foods that have shrunk in size include a jar of Skippy peanut butter, from 16.3 ounces down to 15 ounces, and a bag of Doritos chips, from 13 ounces to 12.5 ounces. The reverse is now happening in America’s supermarkets and big-box retailers. In industry lingo, it’s called short-sizing.

Aiming to offset increased ingredient and transportation costs, some of the nation’s food manufacturers are reducing the size of packages…Some companies possibly cut back on the quantity of product in a package in the hope that consumers wouldn’t notice or care. Judging by rants on various blogs, though, many consumers have noticed, and they do care.

Others have acknowledged that they have downsized products, but that has not stopped consumers from venting outrage…

Ice cream once was sold in half-gallon containers, but many companies shifted several years ago to 1.75 quarts. Now, with milk and egg prices soaring, many ice cream makers are selling 1.5-quart containers — without lowering the price…

Cereal boxes are becoming smaller, too, including those for Cheerios from General Mills and Apple Jacks and Froot Loops from Kellogg’s.

Frito-Lay has cut the size of Doritos, while jars of Hellmann’s mayonnaise and Skippy peanut butter have also shrunk recently…package sizes have also been reduced for…Hershey’s Special Dark chocolate bar, Iams cat food, Tropicana orange juice, Dial soap and Nabisco Chips Ahoy cookies…

Edit by SAC

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Full article:
http://www.nytimes.com/2008/09/14/business/14feed.html?_r=1&scp=1&sq=%22Ate%20a%20Whole%20Pint?%22&st=cse&oref=slogin

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Tough Ads for Tough Times, Marketers Use More Comparison Ads

October 17, 2008

Excerpted from The Wall Street Journal “And in This Corner…Marketers Take Some Jabs” by Suzanne Vranica, October 2, 2008

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As the economy gets ugly, marketers are getting nasty too.

From soup companies to pizza chains, marketers are stepping up their so-called attack ads, calling out rivals by name, comparing products and poking fun at competitors.

An example: This week, Domino’s Pizza is giving away oven-baked sandwiches to the first 1,000 customers named Jared — a reference to Jared Fogle, the well-known pitchman for Subway Restaurants…

Just how acrimonious is it getting out there? The National Advertising Division of the Council of Better Business Bureaus, which acts as the ad police, is fielding many more complaints from marketers who believe they are the victim of misleading comparison ads…in August alone, the NAD had 15 advertisers challenge competitive ads that rivals had begun using — compared with six challenges in August 2007. September also saw complaints jump about 50% from last year…

“In a downturn, people are being more and more careful on how they are spending their money, and more than usual you have to make sure you are breaking through and giving them a reason to buy you,” says Patrick Doyle, president of Domino’s USA.

Several weeks ago, Campbell Soup kicked off a big ad effort, created by BBDO, that took on rival General Mills’ Progresso. One print ad shows a can of Progresso with the caption, “Made With MSG,” while a headline above an adjacent picture of a can of Campbell’s Select Harvest reads: “Made With TLC.” The two brands have taken shots at each other in the past, but this is the most aggressive Campbell Soup has gotten…

Meanwhile, Burger King has deployed a steady string of ad attacks against its archrival McDonald’s and other competitors this year. One billboard ad featured a Whopper sandwich not fitting into a Big Mac box with a headline that reads: “SILLY WHOPPER, THAT’S A BIG MAC BOX”…

Comparison ads have been around since the 1970s, when the major television networks lifted a ban on the practice after the FTC publicly began to encourage it. Since then, they have been used to sell everything from antacids to paper towels. The technique is most closely associated with the cola wars between Coke and Pepsi…

With the current financial crisis looking like it is far from over, consumers can expect plenty more attack ads…

Attack ads, when they get too intense, can confuse consumers…The key is some subtlety in the delivery, marketers say. It is “inappropriate to get overly aggressive,” says Colin Watts, vice president and general manager of Campbell’s U.S. Soups…Despite the risks, many marketers say they have scored points with hard-edged ads.

…Campbell Soup’s taste-test commercial was the fifth-most-liked television ad that ran from Aug. 18 to Sept. 14, according to IAG, a Nielsen Co.-owned market-research firm that uses an online panel to measure ad performance.

Edit by SAC

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Full article:
http://online.wsj.com/article/SB122289868915095901.html

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Debate: Missed opportunities, no kill shots …

October 16, 2008

Among the things that I harp on with students is that each slide in their pitches should be explicitly “conclusive” or “prescriptive”. 

That is, tell the audience the answer, don’t make them figure it out on their own.  Otherwise, they might draw the wrong conclusion or no conclusion at all.

I wish McCain had taken one of my courses.  Last night, Obama artfully dodged and weaved. He gave McCain opportunities, but McCain never went in for the kill. For example,

* * * * *

On the subject of tax cuts to 95% of Americans, here’s what I was hoping McCain would say:

“Senator, since 40% of workers don’t pay any income taxes (thanks largely to the Bush tax plan) how can you give them tax cuts?  You’re not giving tax cuts, you’re rebuilding the welfare system that Pres. Ciinton dismantled.  What don’t you just call it what it is — welfare?” , or

“Senator, the core of you tax plan is to tax businesses — large and small — and give $500 credits to 95% of workers.  That works out to be about $1.37 per day. Higher taxes on businesses will raise prices (which is bad for all) — and will cut jobs. Do you really think that workers are willing to bet their jobs for a little over a buck a day?”

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On the subject of Obama’s sleazy associations:

“Senator, you attended Rev. Wright’s church for 20 years and didn’t hear his anti-American rants — the Rev. Wright of today isn’t the man you knew; you worked with and for Bill Ayres — a self-admitted terrorist — who isn’t the man you knew; you funneled government money to Tony Rezko — a convicted felon — but not the man you knew; your campaign gave almost $1 million to ACORN — an organization that has been tied to voter fraud in the last 2 presidential elections and is being investigated in 11 states as we speak — but that’s not the organization you knew.  Senator, if these despicable characters can fool you for so long, why should we have confidence that you won’t be fooled by people like Mahmoud Ahmadinejad?”

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Instead, McCain let it to the audience to draw their own conclusions.  My bet: they concluded “so what?”

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Green bubble bursting ?

October 16, 2008

Excerpted from LA Times: “The green bubble bursts”, Nordhaus and Shellenberger, September 30, 2008

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Amid the energy crisis, Democrats are losing the high ground on the environment to a GOP that is pushing oil drilling.

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As the election enters its endgame, Democrats and their environmental allies face a political challenge they could hardly have imagined just a few months ago. America’s growing dependence on fossil fuels, once viewed as a Democratic trump card held alongside the Iraq war and the deflating economy, has become a lodestone instead.

Republicans stole the energy issue from Democrats by proposing expanded drilling — particularly lifting bans on offshore oil drilling — to bring down gasoline prices.

Whereas Barack Obama told Americans to properly inflate their tires, Republicans at their convention gleefully chanted “Drill, baby, drill!” Obama’s point on conservation and efficiency was lost on an electorate eager for a solution to what they perceive as a supply crisis.

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Democrats and greens ended up in this predicament because they believed their own press clippings — or, perhaps more accurately, Al Gore’s. After the release of the documentary film and book “An Inconvenient Truth,” greens convinced themselves that U.S. public opinion on climate change had shifted dramatically, despite having no empirical evidence that was the case.

Global warming remains a low-priority issue, hovering near the bottom of the Pew Center for People and the Press’ top 20 priorities.

By contrast, public concern about gasoline and energy prices has shifted dramatically. While liberals and environmentalists were congratulating themselves on the triumph of climate science over fossil-fuel-funded ignorance, planning inauguration parties and writing legislation for the next Democratic president and Congress, gas prices became the second-highest concern after the economy, according to Gallup.

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This summer, elite opinion ran headlong into American popular opinion. The train wreck happened in the Senate and went by the name of the Climate Security Act. That bill to cap U.S. greenhouse gas emissions would have, by all accounts (even the authors’), increased gasoline and energy prices. Despite clear evidence that energy-price anxiety was rising, Democrats brought the bill to the Senate floor in June when gas prices were well over $4 a gallon in most of the country. Republicans were all too happy to join that fight.

Republicans have been bludgeoning Democrats with it ever since.  Former House Speaker Newt Gingrich quickly announced a book, “Drill Here, Drill Now, Pay Less,” a movie and a petition drive.

Seeing the writing on the wall, Obama reversed his opposition to drilling in August, and congressional Democrats quickly followed suit.

But the damage has largely been done. In following greens, Democrats allowed McCain and Republicans to cast them as the party out of touch with the pocketbook concerns of middle-class Americans and captive to special interests that prioritize remote wilderness over economic prosperity.

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In a tacit acknowledgment of their defeat, some green leaders, such as the Sierra Club’s Carl Pope, have endorsed the Democrats’ pro-drilling strategy. But few of them seem to realize the political implications.

With an economic recession likely, and energy prices sure to remain high for years to come thanks to expanding demand in China and other developing countries, any strategy predicated centrally on making fossil fuels more expensive is doomed to failure.

A better approach is to make clean energy cheap through technology innovation funded directly by the federal government. In contrast to raising energy prices, investing somewhere between $30 billion and $50 billion annually in technology R&D, infrastructure and transmission lines to bring power from windy and sunny places to cities is overwhelmingly popular with voters. Instead of embracing this big investment, greens and Democrats push instead for tiny tax credits for renewable energy — nothing approaching the national commitment that’s needed.

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Environmental groups, perpetually certain that a new ecological age is about to dawn in America, have serially overestimated their strength and misread public opinion. Democrats must break once and for all from green orthodoxy that focuses primarily on making dirty energy more expensive and instead embrace a strategy to make clean energy cheap.

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Full article:
http://www.latimes.com/news/opinion/la-oe-shellenberger30-2008sep30,0,5840948.story

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Reducing Carbon Footprint Confusion for CPG’s

October 16, 2008

Excerpted from The Wall Street Journal “Six Products, Six Carbon Footprints” by Jeffrey Ball, October 6, 2008

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A new concept is entering the consumer lexicon: the carbon footprint.

First came organic. Then came fair trade. Now makers of everything from milk to jackets to cars are starting to tally up the carbon footprints of their products. That’s the amount of carbon dioxide and other greenhouse gases that get coughed into the air when the goods are made, shipped and stored, and then used by consumers…

So far, these efforts raise as many questions as they answer. Different companies are counting their products’ carbon footprints differently, making it all but impossible for shoppers to compare goods. And even if consumers come to understand the numbers, they might not like what they find out.

For instance, many products’ global-warming impact depends less on how they’re made than on how they’re used. That means the easiest way to cut carbon emissions may be to buy less of a product or use it in a way that’s less convenient.

So, what are the carbon footprints of some of the common products we use? How are they calculated? And what surprises do they hold? What follows is a look at six everyday items — cars, shoes, laundry detergent, clothing, milk and beer — and the numbers that go with them.

…The U.S. emits the equivalent of about 118 pounds of carbon dioxide per resident every day, a figure that includes emissions from industry. Annually, that’s nearly 20 metric tons per American — about five times the number per citizen of the world at large, according to the International Energy Agency.

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CARS

The simplest statistic in the carbon-footprinting game may be this: For every mile it travels, the average car in the U.S. emits about one pound of carbon dioxide. Given typical driving distances and fuel-economy numbers, that translates into about five tons of carbon dioxide per car per year.

…an American-made midsize sedan emits the equivalent of about 63 tons of carbon dioxide. That number includes all emissions, from the making of the car’s raw materials, such as steel and plastic, through the shredding of the car once it’s junked.

The vast majority of those emissions — 86% — came from the car’s fuel use, the study found. Just 4% of emissions came from making and assembling the car. That means consumers can lower their footprint by buying a car with better fuel economy.  Sometimes, the differences between models can be substantial….

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SHOES

You may think you’re at one with nature going for a walk in the woods in your sturdy hiking boots. But those boots pack a lot of carbon. The big reason: the leather.

Timberland Co., a Stratham, N.H., shoe company with an outdoorsy image, has assessed the carbon footprint of about 40 of the shoe models it currently sells. The results range from about 22 pounds to 220 pounds per pair. Each of the shoes that has been carbon-footprinted comes with a label assessing its greenhouse-gas score on a scale of zero, which is best, to 10, which is worst.

Flip-flops tend to have footprints of 22 pounds to 44 pounds…Shoes typically range from 66 pounds to 132 pounds. Hiking boots typically pack between 154 and 198 pounds, Mr. Girard says.

…transportation typically accounts for less than 5% of the carbon footprint. By far the biggest contributor is the shoe’s raw material…The average dairy cow produces, every year, an amount of greenhouse gas equivalent to four tons of carbon dioxide, according to U.S. government figures. Most of that comes not from carbon dioxide, in fact, but from a more-potent greenhouse gas: methane…

Timberland officials concede shortcomings with their method…the calculations fail to recognize that some shoes require more electricity to assemble in the factory than do others. And Timberland’s calculations omit the carbon impact of the leather and other materials that fall to the cutting-room floor.

“No question, it’s crude in some ways,” Mr. Girard says. “But it’s a step more information than our designers were making a decision on before.”

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LAUNDRY DETERGENT

The recipe for a low-carbon load of laundry: Use liquid detergent instead of powder, wash your clothes in cool water and hang them out to dry…

The carbon footprint of a load of laundry done with Tesco detergent varies from 1.3 pounds to 1.9 pounds, depending on what form of detergent is used…According to P&G, the average American family does about 300 loads of laundry per year, or about six loads per week. That suggests a per-family carbon footprint from doing laundry of about 480 pounds per year, or about 10 pounds per week. And that doesn’t include running the dryer.

Solid capsules of detergent have the highest carbon footprint, according to Tesco. Powder has a slightly lower footprint; liquid has a lower one still; and concentrated liquid has the lowest of all. That’s because making solid detergent uses more energy than making the liquid variety.

But consumers who care about their carbon emissions should do more than switch detergent forms, the labels advise. Doing the wash in cooler water — 86 degrees Fahrenheit instead of 104 degrees — will shave the carbon footprint of each load by 0.3 pounds. That’s as much of a reduction as you get from switching to liquid from powder.

The biggest way to cut the environmental impact of cleaning clothes, however, is to stop using a clothes dryer. Drying laundry outside on a line, Tesco says, will cut the carbon footprint of every load by a whopping 4.4 pounds…

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JACKETS

Patagonia Inc.’s Talus jacket looks like a naturalist’s dream. In fact, its carbon footprint is 66 pounds. That, Patagonia notes on its Web site, is 48 times the weight of the jacket itself.

Over the past year, the Ventura, Calif., outdoor-equipment maker has computed and posted on its Web site the carbon footprints of 15 of its products. Because most of Patagonia’s products are made in Asia or Latin America and sold in the U.S., the company expected that a big chunk of the carbon footprints came from transportation. It was wrong.

The fabric for the Talus is made in China, the zippers come from Japan, and the jacket is sewn in Vietnam. Yet all that transportation adds up to less than 1% of the product’s total carbon footprint, Patagonia says. The majority of the footprint — 71%, or about 47 pounds — comes in producing the polyester, which originates with oil…

“Consumers are starting to put environmental values into their purchasing decisions, but it doesn’t always translate into their being willing to pay a higher price,” Patagonia’s Ms. Dumain says…Patagonia lays out this conundrum on its Web site, saying it “reflects the complexities involved” in balancing concern for the environment with the need for performance.

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MILK

A recent study by National Dairy Holdings found that the carbon footprint of a gallon of its milk in a plastic jug is either 6.19 pounds or 7.59 pounds. The difference rests in what kind of cases the jugs are placed in during transport from the milk-processing plant to the distribution center. Plastic cases, because they take more energy to produce, yield more carbon-dioxide emissions than do cardboard ones.

But National Dairy Holdings’ study doesn’t count all the emissions created by a gallon of milk. It includes those from the cows themselves (more than half of the total), from the processing of the milk and from the transport of the milk to a distribution center. It doesn’t count the emissions earlier in the process: growing the cows’ feed. Nor does it count the emissions later in the process: transporting the milk from the distribution center to the store and refrigerating it there…

National Dairy Holdings measured only its piece in the supply chain, explains Howard Depoy, the dairy’s director…That’s “the CO2 that we can control and manage,” Mr. Depoy says…the single biggest chunk of emissions from milk production comes from all that action in the cow’s gut…

The dairy industry doesn’t plan to put carbon-footprint labels on milk cartons, says Rick Naczi, an executive vice president for Dairy Management. “It’s something that would be very, very difficult to make understandable to consumers,” he says.

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BEER

When New Belgium Brewing Co. set out last year to compute the carbon footprint of a six-pack of its Fat Tire Amber Ale, it figured it would find transportation was the biggest problem…The microbrewer, based in Fort Collins, Colo., has been expanding into more states, necessitating more trucking of its beer.

When the numbers came in this summer, they showed that a six-pack’s carbon footprint was about seven pounds. The real surprise was where the bulk of that number came from: the refrigeration of the beer at stores. Transportation came in fourth, behind manufacturing the glass bottles and producing the barley and malt….

Now, New Belgium is considering switching to bottles with more recycled glass, because making them consumes less fuel. It’s also considering buying barley and malt produced organically, rather than with chemical fertilizers, which are big emitters.

Refrigeration poses a tougher problem. Stores selling Fat Tire aren’t owned by New Belgium, so even if the brewer wanted them to stop refrigerating the beer, they might not do so…

Edit by SAC

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Full article:
http://online.wsj.com/article/SB122304950601802565.html

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Wendy’s Changes its Target, Leaving the Red Wig Behind

October 16, 2008

Excerpted from the Wall Street Journal “Wendy’s Comes Up With a New Strategic Recipe” by Janet Adamy, September 29, 2009

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Wendy’s plans to target older customers, change its value menu and improve items like its french fries as its new owner takes over.

Wendy’s new chief executive, Roland Smith, says the chain plans to market to older customers…Wendy’s has struggled to increase sales and profit since Mr. Thomas died six years ago, and that led directors to put the chain up for sale last year.

In an interview, Roland Smith, president and chief executive of the new Wendy’s/Arby’s Group Inc., said executives plan to reverse the previous’ management team’s strategy of courting 18- to 24-year-olds and will instead aim its marketing at customers ages 24 to 49. A new marketing campaign that focuses on the quality of the chain’s food “is a breath of fresh air from the red-wig campaign,” a more offbeat series of commercials that Wendy’s ran last year featuring young men wearing red wigs, Mr. Smith said.

Mr. Smith said that, like rivals McDonald’s Corp and Burger King Holdings Inc., Wendy’s plans to change its value menu, which includes three items for 99 cents, as it faces higher ingredient and labor costs. He said Wendy’s is considering higher price points for some items and looking at putting different items on the menu…

Mr. Smith acknowledged that Wendy’s hasn’t done a good-enough job of creating products to bolster sales and fend off competitors. After talking to franchisees, he decided that the chain also needs to improve the quality of existing items and emphasize a message of freshness in its marketing. In particular, he wants Wendy’s to offer better french fries, sandwich buns and bacon.

For Wendy’s, one of the keys to increasing its sales and profit will be breaking into the breakfast business…Wendy’s has been serving breakfast at some locations but has yet to hit on a successful strategy. Mr. Smith said the company needs to reformulate some of its breakfast items and improve its coffee, which is made by Procter & Gamble’s Folgers. Wendy’s also is testing espresso drinks in some stores.

Another key to improving sales will be remodeling thousands of Wendy’s restaurants…The credit crunch is likely to make that more difficult for franchisees who need to borrow money to fund the renovations. “It’s going to be tougher to get money to buy stores and rebuild stores”…

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Full article:
http://online.wsj.com/article/SB122270629158386159.html

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Buzz Words: “Brand Accretion”

October 16, 2008

Excerpted from BusinessWeek “The Case for Brand Accretion”, by Steve McKee, September 12, 2008

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Brand accretion. With respect to branding, accretion is the simple principle that the more you invest—and the more consistently you invest—the better your long-term returns will be.

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In a branding context, accretion means that none of your marketing efforts exist in a vacuum. Sure, you want them to have an impact today, but they also add to, and are interpreted within, the context of your past and future efforts.

Think of branding as a process, not a static point in time; if your message is steady and consistent, you can build significant brand equity. If, however, you continually change your approach, carelessly cut your budget, or seek only short-term benefits, you’ll be compromising your own long-term interests.

* * * * *

James Gregory’s marketing firm, CoreBrand, has conducted years of research about the long-term effects of marketing investments. He says it’s rare for even a one-year surge in advertising spending to generate measurable results in image development; it’s usually at least three years before you see real change. That’s a long time if you’re starting from zero, but if your efforts are continuous, the power of accretion will continually work on your behalf.

Edit by DAF

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Full article:
http://www.businessweek.com/print/smallbiz/content/sep2008/sb20080912_752256.htm

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Its His Turn: Marketing to Dad’s

October 16, 2008

Excerpted from Marketing Daily “Marketing to Today’s Dad Requires New Approaches” by Karlene Lukovitz, September 22, 2008

* * * * *

Many Generation X and Y fathers, in particular, are a new breed who are more involved with their children’s lives and more likely to make day-in, day-out types of product purchases–not just the home electronics or riding lawnmower buys, confirms a new study from Packaged Facts authored by Silver Stork Research.

Marketers looking to reach beyond appealing mostly or only to mothers to tap into this “Dad Factor” need to stop reflexively “thinking pink,” say the analysts. They should gear their brands’ media outreach and benefits positioning to these new fathers–who have a markedly different purchasing behavior than moms…

Who are these new generations of dads? They are less defined by gender stereotypes and see much less of a dividing line between men and women…these dads approach parenthood with a team attitude. Gen X and Y dads are positive, comfortable with their gender, optimistic about being parents …and much more active consumers than dads of previous generations.

* * * * *

Key facts about newer-generation dads and marketing effectively to them, per the report:

Dads are men–meaning that parenthood doesn’t change their overall approach to the world; it just expands it.

Like mothers, fathers’ key concerns regarding their children are education and health…

Dads don’t like to browse and shop, at least when it comes to family-oriented products… However, they do have a propensity to make impulse purchases–an opportunity for marketers.

Electronic media and the Internet are key…

New dads are attracted to products that are practical and solve a problem. They put quality before price…At the same time, marketing should seek to leverage these dads’ appreciation of a humorous element in…and seek to add an element of fun to the products themselves. Fun and play are cornerstones of interaction between these dads and their kids.

Marketing/advertising should reflect these dads’ parental motivations to give their kids what they want, make their kids happy and be perceived as heroes by their children.

Marketing should include images of dads interacting with kids, especially “real” dads/kids, to reflect the more positive, involved image to which younger dads relate… Product packaging should take male-appeal into account…

Including products or product appeals geared to dads within promotions primarily targeting moms can also be effective.

Edit by SAC

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Full article:
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=91038

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Keep your toxic securities, we’ll take preferred stock …

October 15, 2008

Excerpted from WSJ: “‘Distasteful’ Capital”, Oct. 15, 2008

* * * * * 

The government’s rescue plan moved into a new phase with the announcement that Treasury is injecting $125 billion into the country’s nine largest banks  … as much as $25 billion each for the biggest. Another $125 billion is on the table for other banks that need capital on the same terms offered to the big boys.

Despite the risks, directly recapitalizing the banks is likely to prove a better tool than buying up “troubled assets.” 

Giving banks this additional capital cushion should give them some leeway to sell those assets at market prices without risking insolvency. At the same time, it avoids the vexing problem of how to price securities that the smartest minds in finance are having trouble assigning a value to.

And unlike buying dodgy mortgage paper, recapitalizing banks is something the government has done before and knows how to do, more or less. The FDIC has done so from time to time via open-bank interventions, and the Depression-era Reconstruction Finance Corp. recapitalized thousands of banks in the 1930s.

Under the program, banks that participate will pay 5% interest annually on nonvoting, senior preferred shares issued to Treasury. Treasury will also receive warrants to buy bank stock at the market price at the time of the capital injection. The warrants, equal to 15% of the face value of the preferred shares issued by the bank, offer some possibility of profit for the Treasury without being so dilutive to existing shareholders as to scare away private capital.

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Full article:
http://online.wsj.com/article/SB122402721776634391.html

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Putting the stock market (and capital gains) in perspective …

October 15, 2008

Historical Perspective

Like most folks, I’ve gotten hammered by the recent market declines.  But yesterday —when Obama said “McCain’s capital gains tax cut won’t have any effect … not even the best investors have to worry about capital gains these days” — it got me thinking “how bad are things, and is Obama right?”  Answer: “not that bad”, and “no”.

Below is historical data for the S&P 500 Index — right off Yahoo Finance.  Since the plot is logarithmic, the straight line represents a constant rate of increase — across 33 years.  Pretty remarkable, right ?  Even considering the past couple of weeks’ battering.  The chart really puts things in perspective. If you compare where we are to 2 artificially high periods — the internet -bubble and the housing bubble — things look pretty bleak.  If you compare where we are to the long run historical trend — we’re only slightly below the trend line.  In other words, right on track.

image

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Capital Gains

What about Obama’s assertion that not even the savviest investors will benefit from a halving of the capital gains rate?

Well, that might or might not be true. It depends on when stocks were bought.  Using the S&P 500 as a proxy for an average stock, if a stock  was bought near the peak of the internet or housing bubbles, it’s probably “under water” with no unrealized capital gains (i.e. capital losses).  McCain’s proposal to allow deductibility of up to $15,000 of losses (up from $3,000) would offset some of the pain.  The average tax benefit of the step-up would be about $2,400 [$12,000 step-up times 20% average effective tax rate equals $2,400].

But, note that a stock that’s been held for about 10 years — e.g. the portfolios of diehard “buy & hold” folks — are “in the money” and have capital gains.  Or, folks who bought into the market after the internet bubble burst may have capital gains.  For example, if somebody bought the S&P Index in Sept. 2002 at 815, they’d be sitting down from the housing bubble peak of 1,500 but — at 1,000 — they’d still have 185 of capital gains.  After McCains 7.5% capital gains tax, that nets to 171; after Obama’s 20%, that nets to 148 — a 16% difference. Hmmm.  I guess the cut in the capital gains tax rate could matter.

More important, McCain’s capital gains tax rate cut is intended to attract capital into the market now — with the prospects of favorable tax treatment when prospective gains are realized.  The increased flow of capital should boost the stock market — which is good for all investors, big and small — and should provide growth capital to businesses — which should help employment.  Win-win.

image

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Kumbaya ? I don’t think so …

October 15, 2008

Excerpted from WSJ: “Hopes Quickly Fade For a Postpartisan Era”, Seib, Oct. 14, 2008

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Idealists once looked at this presidential campaign, between two candidates who fancy themselves as free of conventional party ties, and thought it might produce the election that finally pulls Washington out of the deep rut of partisan divisiveness it fell into in the 1990s … Instead, partisan animosity is growing rather than waning.

Pollster Peter Hart has found some startling new evidence of high tensions. In surveying voters over the weekend, Mr. Hart found that more than a third of each candidate’s supporters say they have grown to “detest (the other candidate) so deeply that they would have a hard time accepting the one they don’t support as president.

* * * * *

It’s starting to appear that the only way for Washington to overcome partisan divides may be if one party — the Democrats, in this case — wins by such commanding margins that it can overpower the other party.
That might be good for efficiency, but it would be bad for building the kind of national consensus that’s desirable to overcome the enormous economic challenges the nation will face after Nov. 4.

(America will) again elect a president whom a sizable chunk of voters somehow consider illegitimate. That may make for good autumn sport, but it’s discouraging for anyone who thought Washington was about to pull out of its divisive partisan ditch.

Full article:
http://online.wsj.com/article/SB122393387064230201.html 

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More lessons from the financial crisis …

October 15, 2008

Excerpted from Harvard Business Online, “6 Lessons We Should Have Learned Already”, by Paul B. Carroll and Chunka Mui, September 30, 2008

* * * * *

The collapse of Washington Mutual, Wachovia, Lehman Brothers, AIG, Bear Stearns, Merrill Lynch, and others soon to fall stem from discredited strategies that should have been avoided.

Here are six lessons that, had they been learned a decade ago, would have kept us from being in our current mess:

* * * * *

1. It doesn’t work to let dealmakers make all their money up front.

Whether it’s lenders hawking mortgages, bankers pushing bonds, or salespeople closing contracts before the end of the quarter, dealmakers have to have responsibility for the health of those decisions years down the road. Where possible, the individuals who make the deals should also have their compensation depend on the long-term performance of those deals.

Green Tree Financial showed how dangerous it can be to separate up-front fees from long-term responsibility. In the 1990s, Green Tree offered mortgages on mobile homes that made no long-term sense — the mortgages lasted 30 years, while the underlying assets had a useful life of just 10 to 15 years. Yet, because Green Tree employees from the CEO on down had so much of their pay tied to the growth in the number of mortgages, the company churned out flawed loans at an ever-accelerating pace. When problems started to surface, Green Tree actually managed to sell itself to Conseco for almost $6 billion in 1999. Conseco subsequently wrote off all the profits that Green Tree ever recorded and went into bankruptcy proceedings.

Subprime lenders, having missed the Green Tree lesson, likewise became addicted to up-front fees and generated an astonishing number of bad loans that were turned into securities and sold.

2. Risks may correlate more than you think. In other words, a single problem can take you down if it’s severe enough.

Long Term Capital Management thought it had diversified its risks in the 1990s but found its whole portfolio turning sour simultaneously and collapsed in 1998. Having missed that lesson, this time around companies such as Merrill Lynch and WaMu built huge portfolios of mortgage-related securities that relied on historical data suggesting that housing markets were localized — in other words, the market in Denver was independent of the market in Sacramento, which was independent of the market in Pittsburgh. In fact, the credit crunch has clobbered all markets and all classes of lenders.

3. In a crisis, liquidity can disappear overnight.

LTCM thought that, in the event of problems, it could always unwind its positions in orderly fashion. In fact, all buyers disappeared. The same thing happened to Merrill, WaMu and others. The market got so scared so fast that nobody would buy their debt portfolios at almost any price. While Bank of America might have bought Merrill at a bargain for $50B, they also acquired $64B of toxic debt that will eventually mushroom the true cost of the acquisition.

4. It’s incredibly dangerous to buy a business unless you understand it in excruciating detail.

Conseco showed the danger. It had a great record of buying and integrating companies, but they were all in insurance. Conseco didn’t know anything about mortgages. It was so clueless about the problems with Green Tree’s business model that it actually stepped up the mortgage business, right to the point where it collapsed. AIG repeated the mistake when it started offering credit-default insurance on mortgage-backed securities that it didn’t understand. Merrill made this mistake when it decided it could copy Goldman Sachs and invest its own capital in what turned out to be toxic loans. (And Bank of America may have made this mistake when it agreed to buy Merrill, whose retail brokerage operation, investment banking unit and investment portfolio are outside its expertise.) As a colleague of ours says: Don’t assume someone smarter than you will understand the risks you’re taking on.

5. Whenever anyone says they’ve managed to do away with risk, head for the hills.

LTCM said its portfolio was impervious to risk. AIG and others said the same thing about the securities that were built based on subprime mortgages. We’ve no doubt that yet others will be saying the same as they argue for ways to take advantage of others’ mistakes as the current crisis unfolds.

6. Perhaps the greatest lesson of all is that bad strategies can happen to great companies and smart people.

The humility that comes with this lesson should cause the smartest companies and managers to instill process and cultural mechanisms that absorb these lessons and avoid such mistakes in the future by creating a culture of constructive debate and deliberation.

Edit by DAF

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Note: The authors researched 2,500 major failures and recently published both the Harvard Business Review article, “Seven Ways to Fail Big” and their book, “Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years”.

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Full article:
http://conversationstarter.hbsp.com/2008/09/six_lessons_we_should_have_lea.html?cm_mmc=npv-_-WEEKLY_HOTLIST-_-OCT_2008-_-HOTLIST1006

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Another Shift to Digital for P&G

October 15, 2008

Excerpt from Marketing Daily “P&G Eschews TV In Oral-B Pulsonic Intro ” September 12, 2008

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Procter & Gamble is introducing an ultrasonic toothbrush under its Oral-B brand, which includes manual and power toothbrushes for children and adults, oral irrigators, and products like dental floss…

The company will promote with ads and events touting it for its design and performance…Allisa Hammond, a spokesperson for P&G’s Oral Care division, says the marketing campaign for the Pulsonic is “very different than our typical marketing strategy.”

She says the campaign will include digital advertising, public relations, unique, targeted print and in-store displays. But, she says, “we will not be using TV advertising, which is something we normally use in our campaigns. Instead, we wanted to let the design of the toothbrush really stand out, and are relying on influencers such as magazine editors, bloggers, interior fashion designers and unique fashion and design sponsorships to reach this consumer”…

Edit by SAC

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Oral-B was one of the surprising consumer product good brands to make an appearance at New York’s Fashion Week.  As the article goes on to note the product spokesperson is an interior designer from “Extreme Home Makeover” and was a feature in the the Kardashian sisters’ runway show.

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Full article:
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=90443

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Big Profits from "Inferior" Products

October 15, 2008

Excerpted from Strategy & Business, “A Breakaway Opportunity for “Inferior” Products”, by Leslie Moeller, James Ryan, and Juan Carlos Webster, September 16, 2008

* * * * *
As the difficult economy causes consumers to trade down in their purchases, companies need to adjust their offerings to their customers’ new behavior.

The current economic crisis is creating a “new normal” in consumer buying habits. Before the recent downturn, when consumers tried to save money, they traded down from branded products to private-label or so-called value brands. But they tended to keep buying some form of the product; they continued to pay for the convenience of, say, antibacterial throwaway wipes or gourmet frozen foods. In the current economy, they are not just trading down within a category, but switching to “inferior” products and services — paper towels instead of wipes, washcloths instead of paper towels. In the process, they are raising the value of the type of products and services economists call “inferior goods”: those that attract consumers more when purchasing power declines.

This will require a major shift of focus for many consumer-oriented companies. During the past decade or so, marketers have grown accustomed to the trend known as “premiumization”: Each year, consumers sought out higher-priced and more distinctive products.

Premiumization will never go away completely. But suddenly it has moved to the slow lane. The reason, of course, is the continuing economic downturn.

The impact has not been gentle on premium products, even the relatively inexpensive or everyday kinds. Retail sales figures for the second quarter of 2008 showed declines of 0.7 percent for Target Corporation (versus a gain of 2.7 percent for Wal-Mart Stores Inc., which has much less of a premium focus in its category) and a significant “mid-single-digit” decline for the Starbucks Corporation.

* * * * *

If you can attract consumers to your category from another, the era of inferior products may bring you superior opportunities. Consumer-oriented companies should consider the following options when facing the current economic slowdown:

1. Don’t blindly lower prices to regain volume. Simply reducing prices could well be financially disastrous; it already has been for several casual-dining restaurant chains. Across-the-board price-cutting may lower the price of a $12 meal to $9 or $10, and thus affect the perceived value of, say, Boston Market versus Chipotle, but it will not have any effect on a consumer who is opting for a $5 meal by eating at home.

2. Find the inferior products that will attract consumers as their purchasing power decreases. Introduce a new brand or sub-brand in the categories to which consumers are moving in this downturn. Of course, companies will run the risk of potential cannibalization, but that’s still better than losing customers altogether.

3. Cement consumers to your brand. Once you have attracted consumers to your inferior product, bind them to your brand. Give them an experience that merits repurchase. Think about the products you can trade them up to when the economy starts to recover — for example, the health-conscious, convenient, or premium products that will make them stick to your brand as their incomes increase.

4. Make the new normal feel better. You can help consumers feel good about migrating to inferior goods by enabling them to justify their decisions in terms other than affordability. Toyota Motor Company’s Prius is a great example: Consumers don’t feel bad about trading in their BMW or Escalade, because they are doing their part for the environment; it’s not simply that they can’t afford anything more expensive.

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Brand owners and companies that offer products or services to customers across a broad range of price points, and that can manage the cycle, will fare better than those with more focused products and offerings that can’t adapt up- or downstream as consumer choices change.

Edit by DAF

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Full article:
http://www.strategy-business.com/li/leadingideas/li00093?pg=all

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Credit Crunch Decaffeinates Coffee Push at McDonalds

October 15, 2008

Excerpted from AdAge “Credit Crunch Takes Bite Out of McDonalds” by Emily Bryson York , September 29, 2008 

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The banking crisis is threatening to take a rather surprising hostage: McDonald’s big-budget coffee rollout.

Tightening credit conditions, which are crimping plans for marketers as diverse as giant General Motors Corp. and relatively small household-products company Method, have prompted Bank of America to halt loans to McDonald’s franchisees. They need the capital to frantically build coffee bars in the chain’s 14,000 locations for what was planned to be an April coffee introduction.

And although it won’t derail the launch altogether, it is likely to delay it nearly into summer — hardly optimal timing for a hot-beverage introduction. It also could force the company to postpone a huge marketing push it’s been planning to support the java drive, as the company generally waits until 60% of its stores have been outfitted to undertake a national ad push. The fast feeder maintains that everything is on track…

Franchisees are spending about $100,000 per store to accommodate the “combined beverage business,” which includes lattes and cappuccinos. Most are seeking loans for the build-out. “As money remains tight, it’s going to be more difficult to get the loans to remodel for the combined beverage strategy,” one franchisee said…

The corporate memo additionally advised that “now is not the time to be shopping for loans based on interest rates,” or to refinance existing debt. It went on to suggest franchisees consider using cash on hand to cover new-equipment costs…

“I think it could very likely slow down the [rollout],” said Darren Tristano, exec VP of Technomic. “That plus the impact that Starbucks has seen in traffic and a decline in sales, I think it probably would be better to slow it down and continue to test it and see how the results are.”

McDonald’s spokesman Bill Whitman, however, said the beverage strategy is “on target and progressing as planned.”

“There continues to be more than sufficient liquidity available to our franchisees to fund capital improvements in their restaurants,” he said, adding that more than 50 national, regional and local lenders are providing financing to U.S. franchisees.

…it seems clear that the company is backpedaling. In July, McDonald’s was expecting the rollout to be completed by April. Earlier this month, Ralph Alvarez, chief operating officer, told analysts at a Bank of America conference that the specialty-coffee rollout should be complete by mid-2009.

Even if that date stays on track, the chain would likely miss the cold-weather window in which hot drinks are said to be the most popular…Another problem will be what to do with the ad calendar…

Edit by SAC

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Full article:
http://adage.com/article?article_id=131320

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For the record: Ideas for McCain …

October 14, 2008

Last week I emailed some ideas to Doug Holtz-Eakin — McCain’s chief economic advisor. Why?  Just frustrated.  Waste of time ? Probably. I imagine that it went right to a spam file … and I certainly didn’t get a reply.

Still, since McCain is supposed to unveil some new economic tactics today, I wanted to get my notions on the record.  Interesting to see if any are included.

* * * * *  

    Ken’s Ideas

1) Make the first $100,000 of capital gains tax free for everybody
   (Note: Warren Buffet & other uber-fat cats
              wouldn’t benefit much)
 

2) Make IRA and 401K withdrawals taxable at capital gains rates — not ordinary income rates
    (Note: even though IRAs are down, many are still above water)

3  Make all capital gains from the sale of primary residences tax free … always
    (Note: allows empty-nesters to downsize — currently,
               only 1 primary home sales is cap gains free)
  

4) Allow home mortgage interest to be income tax deductible for the 65% of filers who use the standard deduction.
    (Note: roughly comparable to Obama’s 10% tax credit
              for mortgage interest )
  

5) Give a 1-time stimulus payment to Social Security retirees equal to 1 month their annual SS benefits
    (Note: gets some relief to fixed income Seniors)

6) Shift the payroll tax schedule by by increasing the earnings cap by $25,000 (to $127,000)
    … but give a non-refundable tax credit for payroll taxes on the first $25,000 of earnings.
   (Note: this Out-Obamas Obama)

7) Retroactively impose a draconian 1-time income tax surcharge for 2008 earnings OVER $5 million.
    For example: a 100% surcharge on income over $
     5 million would mean a 70% rate.

   (Note: I realize this isn’t conservative and
     muddies the “no tax” message  … but it
     goes right after the “greedy fat cats”
    Note:  tax changes can be retroactive
… puts responsibility on Dem Congress, this year)
 

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The health care debate … that isn’t being held

October 14, 2008

Ken’s Take: Coburn & Burr raise good points — especially re: the likely consequences of gov’t controlled health care.  But, even they ignore the biggest issue: we’re spending over $7,000 per capita annually on health care.  Until the costs get contained, we’re just shifting around the burdens of who pays what.

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Excerpted from RCP: “Americans Deserve a Real Health Care Debate”, Tom Coburn and Richard Burr, October 10, 2008

* * * * *

The American people have had enough and want the campaigns to confront the real problem: Health care is becoming less affordable and less accessible for millions of middle-class families. While health care premiums have gone up 78 percent from 2001-2007, workers’ earnings have only risen by 19 percent.

* * * * * 

Three core principles. First, a person’s ability to afford health care should not depend on whether they work for an employer who offers health insurance. Second, wealthy Americans with expensive health plans do not deserve a bigger tax benefit than working class Americans. And finally, workers should be able to pick the health care plan that best meets their needs, and they should be able to take it with them when they change jobs.

* * * * *

Our current tax code is fundamentally unfair and regressive. Lower income workers receive the least benefit, while wealthy Americans receive the most. Because tax rules are tied to employment (health care benefits paid for by employers are exempt from income and payroll taxes), if you leave your job, you leave your health care behind. Meanwhile, Americans who purchase their own health insurance generally do not receive a tax benefit.

* * * * *

Government-controlled health care is a seductive message that, in practice, is most cruel to those who can least afford a way out. Much of Europe is moving away from government-control health care.  Countries like the United Kingdom have learned the painful lesson that the only way government can control costs when it is in charge is by rationing care. In the UK, it is not uncommon for women diagnosed with breast caner to wait months for treatment.  Canadians look for health care asylum in the United States, not vice versa. As the Canadian Supreme Court said in a ruling that exposed the inequities of government-controlled health care, “Access to a waiting list is not access to health care.”In short, government-sponsored health care will do for the health care economy what government-sponsored mortgages did to the housing market.

Tom Coburn, M.D. is a U.S. Senator from Oklahoma and Richard Burr is a U.S. Senator from North Carolina.

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Full article:
http://www.realclearpolitics.com/articles/2008/10/americans_deserve_a_real_healt.html

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Financial crisis: history repeating itself ?

October 14, 2008

Source: IBD: “America’s Second Wake-Up Call!”, Oct. 10, 2008
http://www.ibdeditorials.com/IBDArticles.aspx?id=308530236252361

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Pepsi Targets Eco-Centric Consumers Online

October 14, 2008

Excerpted from Brandweek “Pepsi Ups its Online Eco Efforts” by Kenneth Hein, September 30, 2008  

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Pepsi, today, is launching not one, but two Web sites trumpeting its eco-friendly efforts. PepsiEcoChallenge.com and Pepsirecycling.com both spotlight Pepsi-Cola North America’s slew of sustainability programs.

The more promotional site, Pepsirecycling.com, offers consumers 100 Pepsi Stuff points for taking a quiz about recycling. Points can be redeemed for prizes, like shirts made from recycled materials, and entrance into a sweepstakes for a Smart car. Pepsirecycling.com  offers a myriad of information about recycling as well as origami instructions for used 12-pack cartons.

“We’re putting recycling front and center and giving our customers an incentive to do their part for the environment,” said Victor Melendez, vp-marketing, sustainability for PCNA, Purchase, N.Y., in a statement. “Pepsi has always stood for fun and now we’re channeling that Pepsi spirit into raising environmental awareness.”

PepsiEcoChallenge.com reads more like an interactive brochure that explains how the company is working to save energy and water as well as working to create sustainable packaging… It points out Pepsi is working to reduce its U.S. plants’ water consumption by 20%, electricity usage by 25% and fuel consumption by 25% by 2015.

Because a segment of consumers demand eco-accountability from their favorite brands, such efforts are of increasing importance, said John Sicher, editor of Beverage Digest, Bedford Hills, N.Y. “There is certainly growing interest among consumers in buying products from socially responsible companies,” he said. “It’s important that big companies like Pepsi reach out and show decision makers and decision influencers that they are taking a lead in this.”

Edit by SAC

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Full article:
http://www.brandweek.com/bw/content_display/news-and-features/digital/e3i5452d1396a606a4187805864881b8d0d

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Coke Leads Brand Value Rankings

October 14, 2008

Excerpt from Ad Age “Coke Still No. 1 in Brand Value” by Jean Halliday September 19, 2008  

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Coca-Cola is again the world’s most valuable brand, according to Interbrand’s just-released annual list of the Best 100 Global Brands.

While Coke held onto its top slot from last year, IBM, by expanding its services and transitioning out of production, moved up to No. 2, knocking Vista-burdened Microsoft to third…GE was fourth, boosted by its “Ecomagination” communications program, and Nokia fifth.

The brands with the biggest growth in the past 12 months were: Google, up 43%; Apple, up 24%; Amazon, up 19%; retailer Zara, up 15%; and Nintendo, up 13%. Only one brand in the top 20, Citi, saw its brand value fall…Joining the list for the first time are: retailer H&M, taking the No. 22 slot; Thomson Reuters, ranking No. 44; BlackBerry at 73; Ferrari at 93; Marriott at 96; FedEx at 99; and Visa at 100.
Among the five brands with the biggest year-over-year drops in brand value were three financial players: Merrill Lynch, which fell 21%; Morgan Stanley, sliding 16%; and Citi, falling 14%. Gap was down 20%, and Ford dropped 12%.
Strong and weaker brands all use research to try to stay in touch with their customers. But the winning brands can innovate quickly and bring fresh ideas to market, said Mr. Bateman, citing a statement by hockey great Wayne Gretsky as advice to fallen brands: “Skate to where the puck was going, not to where it was.”      

Edit by SAC
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For more information and to see the full list of brand rankings, visit: http://biz.yahoo.com/prnews/080918/ny33972.html?.v=1

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Full article:
http://adage.com/article?article_id=131117

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Obama’s Magic Show

October 13, 2008

Ken’s Take: Obama fans might want to skip this one. McCain fans will wonder why J-Mac can’t rattle this stuff off in debates. Open-minded folks should keep reading.

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Excerpted from WSJ: “Obama’s Magic”, Strassel, Oct.10, 2008

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And now, America, we introduce the Great Obama! The world’s most gifted political magician! A thing of wonder. Just watch him defy politics, economics, even gravity!

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To kick off our show tonight, Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don’t pay income taxes! How can our star enact such mathemagic? How can he “cut” zero? Abracadabra! It’s called a “refundable tax credit.” It involves the federal government taking money from those who do pay taxes, and writing checks to those who don’t. Yes, yes, in the real world this is known as “welfare,” but please try not to ruin the show.

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For his next trick, the Great Obama will jumpstart the economy by raising taxes on businesses that are today adrift in a financial tsunami! That will include … small-business owners, and the nation’s biggest employers who currently pay some of the highest corporate tax rates in the developed world. Mr. Obama will, with a flick of his fingers, show them how to create more jobs with less money. It’s simple, really. He has a wand.

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Next up, Mr. Obama will re-regulate the economy, with no ill effects whatsoever! Did someone in the audience just shout “Sarbanes Oxley?”  Usher, can you remove that man?

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Just watch the Great Obama perform a feat never yet managed in all history. He will create that enormous new government health program, spend billions to transform our energy economy, provide financial assistance to former Soviet satellites, invest in infrastructure, increase education spending, provide job training assistance, and give 95% of Americans a tax (ahem) cut — all without raising the deficit a single penny! And he’ll do it in the middle of a financial crisis. And with falling tax revenues! Voila!

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Moving along to a little ventriloquism. Study his mouth carefully, folks: It looks like he’s saying “I’ll stop the special interests,” when in fact the words coming out are “Welcome to Washington, friends!” Wind and solar companies, ethanol makers, tort lawyers, unions, community organizers — all are welcome to feed at the public trough and to request special favors. From now on “special interests” will only refer to universally despised, if utterly crucial, economic players. Say, oil companies. Hocus Pocus!

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And for tonight’s finale, the Great Obama will uphold America’s “moral” obligation to “stop genocide” by abandoning Iraq! While teleported to the region, he will simultaneously convince Iranian leaders to peacefully abandon their nuclear pursuits (even as he does not sit down with them), fix Afghanistan with a strategy that does not resemble the Iraqi surge, and (drumroll!) pull Osama bin Laden out of his hat!

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We’d also like to thank Mr. McCain for keeping all the focus on himself these past weeks. It has helped the Great Obama to just get on with the show.

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Full article:
http://online.wsj.com/article/SB122360618747721991.html

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Taxes: The 95% illusion … what’s a tax cut?

October 13, 2008

Excerpted from WSJ: ” Obama’s 95% Illusion”, Oct. 13, 2008

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One of Obama’s most potent campaign claims is that he’ll cut taxes for no less than 95% of “working families” … (and cut aggregate income taxes).

How does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? First, by proposing one of the largest tax increases ever on the other 5%.

There are several sleights of hand, but the most creative is to redefine the meaning of “tax cut.”

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For Obama , a tax cut is no longer letting you keep more of what you earn. In their lexicon, a tax cut includes tens of billions of dollars in government handouts that are disguised by the phrase “tax credit.”  Obama is proposing to create or expand no fewer than seven such credits for individuals:

  • A $500 tax credit ($1,000 a couple) to “make work pay” that phases out at income of $75,000 for individuals and $150,000 per couple.
  • A $4,000 tax credit for college tuition.
  • A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).
  • A “savings” tax credit of 50% up to $1,000.
  • An expansion of the earned-income tax credit that would allow single workers to receive as much as $1,110 if they are paying child support.
  • A child care credit of 50% up to $6,000 of expenses a year.
  • A “clean car” tax credit of up to $7,000 on the purchase of certain vehicles.

Here’s the political catch. The credits  would be “refundable,” which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer — a federal check — from taxpayers to nontaxpayers. Once upon a time we called this “welfare.”  Mr. Obama’s genius is to call it a tax cut.

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The Tax Foundation estimates that under the Obama plan 63 million Americans, or 44% of all tax filers, would have no income tax liability and most of those would get a check from the IRS each year.

The total annual expenditures on refundable “tax credits” would rise over the next 10 years by $647 billion to $1.054 trillion, according to the Tax Policy Center.  By redefining such income payments as “tax credits,” the Obama campaign also redefines them away as a tax share of GDP. Presto, the federal tax burden looks much smaller than it really is.

There’s another catch: Because Mr. Obama’s tax credits are phased out as incomes rise, they impose a huge “marginal” tax rate increase on low-income workers. The marginal tax rate refers to the rate on the next dollar of income earned. The marginal rate for millions of low- and middle-income workers would spike as they earn more income.

[Review & Outlook]

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Full article:
http://online.wsj.com/article/SB122385651698727257.html

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Ups & downs … Keep Your Money in the Market

October 13, 2008

Excerpted from WSJ: “Keep Your Money in the Market”, Burton Malkiel, Oct. 13, 2008

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As the world economy reels under the weight of the worst financial crisis since the Great Depression, we have been left with a broken financial system. Financial institutions around the world have suffered life-threatening, self-inflicted wounds by purchasing over a trillion dollars of complex mortgage-backed securities backed by dodgy loans based on inflated real-estate values.

These assets have been financed with enormous leverage and with short-term debt. Just prior to its “rescue,” Bear Stearns had a debt to equity ratio of over 30 to 1, making it susceptible to a “run on the … shadow banking system” built on derivatives.

The long-run solution to the present crisis must involve substantial deleveraging and a recapitalization of our financial institutions. In the meantime, credit has been essentially frozen and a world-wide recession seems almost inevitable.

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Investors should not panic. The best position for investors today is not “fetal and 100% in cash.”

We are not going to have a depression, and we have survived financial crises before.

A century of investing experience, as well as insights from the field of behavioral finance, suggest that investors who bail out of equities during times like these are almost always making the wrong decision.

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By all means, young 401(k) investors, and those in their prime earnings years, who are stashing away funds from every monthly paycheck, should stay the course. If you decide to eschew equities during periods of ubiquitous pessimism, you will lose all of the advantage of “dollar cost” averaging (buying more shares when prices are low than when they are high). Asset allocations should be shifted to safer securities over time as the investor ages, but only gradually and on a set schedule as through a “target maturity fund.”

If you are now approaching retirement and failed to move to a more conservative asset allocation, you should not do so now in response to a time of panic. If anything, well diversified investors should, at the end of each year, consider rebalancing to ensure that your portfolio composition remains consistent with the risk level appropriate for your financial circumstances and tolerance for risk. But this is likely to mean shifting into equities and not out of them.

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We will have a serious recession now, but a 1930s-style depression is highly unlikely. We will not let the money supply decline by 25%, as we did in the ’30s, and automatic stabilizers (like unemployment insurance) are now a significant element of fiscal policy. Don’t forget that the U.S. economy is still the most flexible in the world and our “innovation machine” is alive and well.

No one has consistently made money by selling America short, and I am confident the same lesson is true today.

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Mr. Malkiel is a professor of economics at Princeton University and the author of “A Random Walk Down Wall Street,” … he was Ken’s Econ 101 prof, and a faculty reviewer of Ken’s thesis “Money & Stock Prices: An Econometric Study”

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Full article:
http://online.wsj.com/article/SB122385741803727333.html

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Short course: The real cause of the subprime loan mess …

October 13, 2008

Ken’s Take:

Cuts through all of the rhetoric to the root cause: (1) the government “encouraged” bad loans   (2) the government allowed bundling of loans into MBSs (mortgage backed securities)  (3) the government provided an implied guarantee to the MBS bundles via Fannie and Freddie —GSEs ( government sponsored entities)  (4) the MBS bundles were resold up the financial food chain — separating their risk from their origination (5) the MBSs established a platform for very highly leveraged financial derivatives (e.g. CDOs, default swaps)  (6) when home prices peaked, the derivatives lost value and couldn’t support the associated borrowings, creating — in effect — the mother of all margin calls.

Dems are at the root of the problem, but the GOP isn’t blame free.  The Community Reinvestment Plan was a Dem brainchild, Clinton authorized the bundling of subprime loans, and Frank-Dodd-Reid have stopped regulation of Fannie and Freddie.  But, Bush also pushed for “a culture of (home) ownership” and had a GOP Congress until 2006 that should have been able to force greater regulation on Fannie and Freddie.

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From IBD: “America’s Second Wake-Up Call!”, Oct. 10, 2008

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Do you know the real cause of the out-of-control subprime loan mess that’s creating so much fear and hurting every American?

In 1995, President Clinton mandated new regulations that coerced banks to make significantly more subprime loans to inner-city residents previously viewed as unqualified buyers in high-risk areas. Many subprimes were variable-rate loans made without down payments or documentation of borrowers’ incomes. Banks were rated on how well they complied and faced big fines if they didn’t do what government regulators wanted.

The government’s worst decision was allowing and encouraging banks, for the first time, to bundle these subprime loans in giant packages with prime loans. These packages were then sold to other investors as safe because they were government-sponsored by Fannie Mae and Freddie Mac. The first of these government-encouraged packages came to market in 1997.

For the banks, the loan bundles were profitable because they could be sold quickly and thereby absolve the banks of any risk in the loans they made.

The banks could then use the money to make even more of these lower-quality, government-required loans, and Fannie Mae and Freddie Mac bought them with virtual abandon.

It evolved into a Big Government pyramid scheme . In short, this was yet another well-intended, government-designed and run program that failed miserably and had the usual unintended consequences.

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September 2003: Treasury Secretary John Snow, in testimony to the House Financial Services Committee, recommended that Congress enact legislation to create new agency to regulate and supervise financial activities of housing-related government entities to set prudent and appropriate minimum capital requirements.

Rep. Barney Frank, the committee’s ranking member, strongly disagreed, saying: “Fannie Mae and Freddie Mac are not facing any kind of financial crisis . . . . The more people exaggerate these problems, the more pressure there is on these companies, the less we’ll see in terms of affordable housing.”

April 2004: Rep. Barney Frank ignored warnings, accusing the administration of creating an “artificial issue.” “People pay their mortgages,” he told a group of mortgage bankers. “I don’t think we are in any remote danger here. This focus on receivership, I think, is intended to create fears that aren’t there.”

July 2005: Senate Majority Leader Harry Reid rejected legislation on reforming Fannie and Freddie. “While I favor improving oversight by our federal housing regulators to ensure safety and soundness, we cannot pass legislation that would limit Americans from owning homes and harm our economy in the process,” he said.

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Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=308530236252361

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Bad news: Tax-payers on the hook for the bailout … Good news (?): that’s not many people

October 10, 2008

Ken’s Take:  I’ve been railing for awhile on the trend to have a minority of voters incur the full burden of taxes. I think everybody should have some skin in the game.

So, who is paying for the bailout?  Read on …

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Excerpted from RealClearPolitics.com: “The Bailout and the Vanishing Taxpayer”, October 08, 2008

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We have heard much in the press lately about the American taxpayer being forced to rescue the sharpies on Wall Street from their own greed and irresponsibility. Anti-bailout sentiment cuts “across class lines” on Main Street because “the taxpayers are on the hook for the bad judgment of others,” as the Washington Post put it.

Now for a reality check. Many Americans probably won’t pay a cent of the cost of this bailout.

That’s because a rapidly increasing percentage of U.S. households legally pay no income taxes, and many others pay so little in taxes that they already get back more from the federal government in services than they send to Washington. The number of taxpayers  … is small and shrinking, which is why the only way that the folks on Main Street will pay for this bailout will be if Main Street is where the mansions are in your town.

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The declining portion of households who pay taxes is a direct result of policies pursued by both Republicans and Democrats over the last 15 years or so. While deductions and credits have always served to eliminate the tax bill for some low and lower-middle income workers, from 1950 through roughly 1990, the percentage of households with no income tax burden stood constant at slightly more than one-fifth of all filers, according to the Tax Foundation. But since 1990, Washington has added all sorts of tax credits��”subsidizing everything from “lifetime learning” to adoption expenses–that have further reduced the tax tab, and in the process raised the proportion of households with no federal tax liability to 33 percent.

A big culprit in this evolution is the current Bush administration and its tax packages. Although the 2001 and 2003 tax cuts are often criticized as having favored the rich, in fact they were also laden with tax credits benefiting low and middle income families, and as a result, under Bush, the percent of families not paying taxes increased more than under any other president during the last 50 years.

Both presidential candidates would vastly accelerate the trend (from 33% to the mid 40%s).

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In the end, how we actually pay for the bailout is just part of the issue. The larger point is that if McCain or Obama follow through with their tax plans, we’ll continue a trend that makes us look more and more like some European social welfare state, where many people have a stake in growing government entitlements, which fewer and fewer taxpayers finance. At some point along that road, change becomes impossible because too many citizens benefit from the system in place, while those who pay the freight for this system try whatever they can, including starting businesses elsewhere, or reducing their output, to avoid the disproportionate tax bite.

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Full article:
http://www.realclearmarkets.com/articles/2008/10/the_bailout_and_the_vanishing.html

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Worth reading: Playing Frisbee on a Precipice

October 10, 2008

Ken’s Take: Peggy Noonan a gifted writer who plays pretty much down the middle and always seems to cut to the core of political issues.   I think this sober analysis is worth reading and pondering.  Here are some highlights.  Full rticle is well worth the time.

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Excerpted from WSJ:”Playing Frisbee on a Precipice”, Peggy Noonan, Oct. 10, 2008 

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Punch Line: “America’s political class lacks the seriousness this moment demands.”

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In parts and pockets of the middle, we have Americans who aren’t thinking about politics because they’re busy trying to imagine what a modern depression would look like and wondering, for the first time ever, if it is possible that they may wind up living in their cars.

Quoting an old comic: “I have enough to live comfortably for the rest of my life, as long as I’m hit by a bus tomorrow.”

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In a time of crisis, do you really want one party to control the entire government? Don’t you want one party controlling one power center, and one in charge of the other, with each side tempering the other’s worst impulses?

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Both campaigns, in the closing stretch, seem not fully worthy of the moment. We are in crisis—a once-in-a-century event, as we now say. And what we got from the candidates, in this week’s presidential debate, was a bunch of gummy meanderings—smooth, rounded sentences so full of focus-grouped inanities that six minutes in viewers entered a kind of trance in which we almost immediately gave up on trying to wrest meaning from what was being said and instead focused on mere impressions. The look of things. The men on the plane, the pseudo-tough political operatives who surround both candidates, sometimes grouse, in private, that it’s all symbols now, all mood, all about the visual.

But they have some real responsibility here. They send their candidates out to speak such thin gruel, such spat-out porridge, that we are struck dumb, and left daydreaming about the fact that Mr. Obama’s suits are always slate gray and never seem to wrinkle, and Mr. McCain tonight seems like a rabbity forest creature darting amid the hedgerows.

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As to what they will do about the crisis, Mr. Obama will raise taxes on the rich and help us weatherize our homes, while Mr. McCain favors “energy independence” and buying up mortgages. On the causes of the crisis they spoke of insufficient regulation, or high spending.

But these were not the great causes. Neither party has clean hands. Or rather, both parties have dirty hands. Here is the truth, spoken by the increasingly impressive Sen. Tom Coburn: “The root of the problem is political greed in Congress. Members . . . from both parties wanted short-term political credit for promoting homeownership even though they were putting our entire economy at risk by encouraging people to buy homes they couldn’t afford. Then, instead of conducting thorough oversight and correcting obvious problems with unstable entities like Fannie Mae and Freddie Mac, members of Congress chose to . . . distract themselves with unprecedented amounts of pork-barrel spending.” That is the truth.

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And yet at the debate, when one citizen-questioner invited both candidates to think aloud about the responsibility of our representatives in Washington, they both gently suggested she was cynical.

She was not cynical. She was informed.

Why would anyone trust either candidate to help dig us out of this if they can’t speak frankly about what got us into it?

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One had the sense this week that our entire political class is playing Frisbee on the edge of a precipice, that no one is being serious enough, honest enough, that it’s all too revved, too intense, and yet too shallow. I have grown impatient with the strategists from the campaigns, the little blond monsters who go on cable TV to give us their bouncy, aggressive, tendentious talking points. They are like the men on the plane, the gargoyles with BlackBerrys who think the race is about them and their personal win/loss ratio, who think history is their plaything, who stay up with the press in the bar sipping Perrier and calling it seltzer, and who advise their candidates, in essence, to talk down to the voters, to the American people. They treat every crisis as if it is a political fact to be used for gain or loss, and not as a real crisis, something that deserves a response of gravity and seriousness.

It is asking a lot to ask a political animal to be thoughtful, because they find meaning in action. They are propelled through life by the force of their hunger. But now and then you want to see them think. You want to see them speak the truth. This is one of those times.

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Full article:
http://online.wsj.com/article/SB122359863551021415.html#articleTabs%3Darticle

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Brooks Brothers or Big Brother?

October 10, 2008

Excerpted from Strategy & Business, “Web Sales with a Human Touch”, by Edward H. Baker, August 28, 2008

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Many e-tailers endeavor to gather as much knowledge as possible about customer behavior and buying habits by aggregating and crunching massive amounts of data on users’ online buying habits. But those are just dry numbers and statistics. The plain truth is that even the most successful, tech-savvy retail Web sites still convert only 1 to 3 percent of visitors into buyers, largely because Web-based salesmanship is such a blunt instrument.

Suppose, however, that you could use the very technological virtues that make e-commerce so potent a sales channel, and bring in the human touch at exactly the moment it would be most effective. How much would that be worth? According to 24/7 Customer, a business process outsourcing firm based in Campbell, CA,  the human touch used in this way can increase online consumer conversion rates by 15 percent or more.

To prove this, 24/7 has developed predictive software called SalesNext that sorts online visitors into hot and cold leads and then makes personalized contact through online chat with the most promising prospects to close the deal.

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The flow of consumers from the category of mere visitors to that of actual buyers, in any sales channel, is like liquid passing through a funnel. At a real-world retail outlet, the marketing portion of the funnel at the top is poorly targeted because companies have limited control over who visits a store. The power of the funnel lies at the bottom, where seasoned salespeople convert store visitors into buyers.

However, the top part of the typical e-commerce funnel is potentially very efficient. Advanced Web marketing techniques can target prospects entering the online retail site on the basis of prior Web behavior and other historical data and drive them to items that match their past preferences. But the bottom part of the funnel narrows to a trickle, because most Web sites’ one-size-fits-all consumer experience makes conversion of those visitors into buyers much more difficult.

However, by separating the tire kickers from the hot leads, then chatting with those leads in a way that personalizes their experience and drives them toward a transaction, Web retailers can open up the bottom of the funnel significantly.

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Plenty of retail Web sites offer live human-to-human chat with consumers; what distinguishes 24/7 Customer’s approach is its ability to offer chat only to those who might not otherwise buy. Getting to the stage at which a visitor is invited to chat involves a series of filters de­signed to predict which individuals are most likely to buy as a result of a chat, rather than through self- service. After all, there’s no point in needlessly cannibalizing the lower-cost automated channel.

As a visitor browses the Web site, she is evalu­ated on a variety of criteria, including how she was referred to the site, whether she’s visited or bought anything there before, the time of day, the day of the week, her geographical location, and the product category. Equally important is the path a consumer takes through the Web site. If she heads immediately to the spec sheet for a particular digital camera, it’s unlikely that chatting with her will influence her buying decision. But if she appears to be wavering among three different models, a chat just might help her make up her mind.

The goal at this stage is to match likely consumers with likely product choices.

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Once a visitor is identified as a hot lead, another filter determines whether to invite him to chat — that is, the program analyzes whether talking to him is virtually the only way to convince him to make a purchase. On one level, deciding who to invite for a chat is a simple scheduling problem: Are there enough agents available to handle the chat? Increasing the number of agents means increasing the number of invitations to chat, which in turn means approaching colder leads who are less likely to end up making a purchase. The colder the lead, the lower the potential profitability.

On a more strategic level, the software must determine the number of agents that will maximize profitability. Further statistical modeling is needed to select the right agent for each consumer, depending on such criteria as the best-performing agent for the product category that individual is looking at.

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Now, it’s time to chat. The 24/7 chat format, of course, does not allow for all the nuances any decent salesperson picks up in a face-to-face conversation. It does, however, perform analyses of thousands of chat transcripts, through text mining and data mining, to perfect the techniques that human customer service representatives use to close the sale.

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Adobe, the software giant, rolled out SalesNext in July 2007 with excellent results. Since then, the company has seen a 15 percent jump in conversion among consum­ers who chat, says Dawn Monet, senior manager of Adobe’s worldwide call centers. And, she notes, the satisfaction of consumers who use chat is higher than that of both consumers who shop online without chat and those who shop by phone.

Edit by DAF

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Full article:
http://www.strategy-business.com/press/article/08313?pg=all&tid=230

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Packaging’s Impact On Waistlines

October 10, 2008

Excerpted from INSEAD Knowledge “Supersizing and downsizing: the impact of changing packaging and portion sizes on food consumption

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When it comes to packaging, size matters.

In a research paper, INSEAD Associate Professor of Marketing Pierre Chandon and co-author Nailya Ordabayeva, an INSEAD PhD student, found that changes in the shape of packaging or portions can have a big impact on our consumption patterns.

As consumers, we tend to buy bigger packages or order bigger portions because we believe we’re getting better value. However, this phenomenon leads to overeating and obesity because we fail to notice just how big these portions and packages are and hence underestimate how much we consume. The size and the shape of packaging play a key role in these misperceptions…

For marketers, this means that if a company increases the size of its packaging in one dimension, consumers perceive it to be much larger and so assume they’re getting a better deal and are more likely to buy it. If a company increases the product size by the same volume but the package is expanded in three dimensions – not just one – consumers don’t perceive as big of a change.

This has important consequences for purchase and consumption decisions…“If you want people to order a larger portion, then you should just increase the height because people will notice. If you want to reduce the quantity of your portions, for example if you had higher raw material costs, you should reduce the height, the width and the length because people won’t notice,” Chandon says.

The research is timely because the phenomenon of ‘supersizing’ has swept the US and is now moving to the rest of the world…This trend has had a big impact on how much consumers eat. The supersizing trend is one of the main drivers of the obesity epidemic and packaging is adding to the problem, the study states.

“It’s very easy to be influenced by marketers,” Chandon says. “For example, the size of the package, the size of the meals, even the size of the plates and of the spoons; we know these things have a very strong impact on how much we eat.”

When it comes to eating healthy, people sabotage themselves as well…Chandon’s research shows that, in addition to underestimating how much we eat, when we eat ‘healthier’ meals, we tend to reward ourselves with treats or bigger portions…

One of the other conclusions of the research: downsizing packaging and portions is one of the most effective ways of reducing overeating. Chandon believes there’s a growing market for low calorie, smaller portion products. But manufacturers need to be very clear in their labelling and careful about pricing, because many consumers think smaller portions are less economical. 

Edit by SAC

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Full article:
http://knowledge.insead.edu/SupersizingDownsizing080901.cfm

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Got $85 billion ? Go get a massage …

October 10, 2008

This one speaks for itself.  Only question: arrogance or stupidity ?

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After Bailout, AIG Executives Head to Resort

Less than a week after the federal government offered an $85 billion bailout to insurance giant AIG, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, Calif., running up a tab of $440,000.  The executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa.

“They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills,” thundered Rep. Elijah E. Cummings (D-Md.), of the executive retreat at the Monarch Resort.

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In March 2008, when the company’s compensation committee met to award bonuses, Chief Executive Martin Sullivan urged the committee to ignore those losses, which should have slashed bonuses. But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of over $5 million. The board also approved a new compensation contract for Sullivan that gave him a golden parachute of $15 million.

Joseph Cassano, the executive in charge of the company’s troubled financial products division, received more than $280 million over the last eight years. Even after he was terminated in February as his investments turned sour, the company allowed him to keep up to $34 million in unvested bonuses and put him on a $1 million-a-month retainer. He continues to receive $1 million a month.

image

http://www.campaignmoney.com/political/contributions/joseph-cassano.asp?cycle=08

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In Dec. 2007, PricewaterhouseCoopers, AIG’s auditor, told the company in March 2008 that the “root cause” of AIG’s problems was that people assessing risk did not have enough access to the financial products division, where the risky investments originated. PWC warned Sullivan that the company “could have a material weakness relating to these area.”  Still, Sullivan expressed confidence to investors.

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Thanks to SMH & JMH for the feed.

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The perils of buying at the peak …

October 9, 2008

Ken’s Take:

1) It never pays to buy at the peak — unless somebody is staking you — and the government is ready with a safety net.

2) Nobody that I know is good as calling the peak.

3) 2005-2007 … 3 years that will live in infamy … with their lessons forgotten by 2012

4) Remember: the mortgage mess is highly concentrated to California, Florida, Nevada, and Arizona.

5) Also remember: 1/3 of 75 million are owned free & clear of any mortgages

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[McCain Reshuffles Rescue Deal]

http://online.wsj.com/article/SB122351316270117559.html

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Worth reading: Lessons from the financial crisis …

October 9, 2008

Excerpted from RealClearPolitics.com: “Wall Street 101”, Victor Davis Hanson, October 09, 2008

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Until the past few weeks, the financial panic was still mostly far away on Wall Street. But not now.

Car loans, mortgages and college financing are suddenly harder to come by. Millions are stuck in houses not worth what is owed on them. Cash-strapped consumers are cutting back. The economy is slowing. Jobs are disappearing. Who wants to open quarterly 401(k) statements only to learn that everything they put away in retirement accounts the past two or three years is gone?

There is plenty of blame to go around. Greedy Wall Street speculators took mega-bonuses even when they knew their leveraged companies were tottering — and someone else would pick up the tab. Crooked or stupid politicians allowed Fannie Mae and Freddie Mac to squander billions, as they raked in campaign donations and crowed about their politically correct support for millions of shaky — and now mostly defaulting — buyers.

The new national gospel became charge now/pay later and speculate, rather than put something away in case of a downturn. To provide more goodies that we hadn’t earned, politicians ignored soaring annual budget deficits and staggering national debt and kept spending.

* * * * *  

But amid the gloom, there are some valuable lessons that we can take away from the Wall-Street panic.

First, cash really is king. For all the talk of a trillion here or billions there, when the crunch came many of these investment houses and their once-strutting managers found themselves with a minus net worth. They were desperate to find liquidity — any money anywhere they could find it. Pedestrian passbook savings accounts proved wiser investments than all the clever hedge funds, derivatives and subprime schemes put together.

Second, wisdom and blue-chip college educations are not quite the same thing. The fools in Washington and New York who blew up Wall Street had degrees from our finest professional schools. [For example, Barney Frank and Franklin Raines are both Harvard Law graduates.] If these guys are our best and brightest, then it is about time we rethink what constitutes wisdom, since an Ivy League law degree certainly seemed no proof of either intelligence or ethics.

Third, we as a nation need to relearn the old notion of shame — as in, “Shame on you!” Firms like Lehman Brothers and Bear Stearns were once responsible Wall Street institutions, built up over decades by sober men. But their far-lesser successors in just a few months have bankrupted these venerable brokerage houses — with seemingly no shame at what they have done to the image of Wall Street.

* * * * *

Americans used to pay their debts. Somewhere in all the blame-gaming about the crooks and liars in New York and Washington, we never hear that real people borrowed real money that they should not have. And they then defaulted on what they owed to others. Walking away from debts may have been understandable, but it was also a violation of trust — and wrong.

Finally, what one makes is no proof of his worth. Almost every head of a Wall Street firm took tens of millions of dollars in bonuses these past few years, as they posted phony profits by borrowing ever more with ever fewer assets. But if financing facilitates the American economy, we should remember that less exotic and remunerative construction — such as farming, manufacturing and mining — is what really powers America.

* * * * *

How odd that all those boring lessons from our grandparents turn out to be true in the globalized, hip 21st century: Save your money. Don’t borrow what you can’t pay back. Look first at a man’s character, not his degrees. And if a promised return on an investment seems too good to be true, it probably is.

* * * * *

Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University,

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Full article:
http://www.realclearpolitics.com/articles/2008/10/wall_street_101.html

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Is the mortgage glass 15% empty or 85% full ?

October 9, 2008

Ken’s Take:

1) The headline in the WSJ says “1 in 6 underwater”.  I’m more impressed that almost 85% of home owners owe less than their home is worth, and that almost 1/3 own their houses free and clear — with no mortgage balance at all.

2)  Though home prices have slid 13% in the past year or so, they’re up over 70% since 2000.  That’s not bad appreciation.

3) McCain went long-ball last nite with the mortgage buy-back proposal. Note that Congress enacted a “foundation” bill in July that provides a framework for doing so.

* * * * *

Excerpted from WSJ: “Housing Pain Gauge: Nearly 1 in 6 Owners ‘Under Water’, October 8, 2008

* * * * *

The majority of homeowners still have equity, and even among those who don’t, many continue to make their mortgage payments on time.

In contrast with the 12 million home borrowers estimated to be under water, 64 million have equity in their homes. These include 24 million households who own their homes free and clear, and 40 million whose homes remain worth more than is owed on them.

About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth.

The comparable figures were roughly 4% under water in 2006 and 6% last year, Among people who bought within the past five years, it’s worse: 29% are under water on their mortgages.

* * * * *
The result of homeowners being “under water” is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home’s value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.  As home values slip, growing numbers of would-be borrowers lack sufficient equity to refinance. The falling values also make mortgage lending look riskier to banks, spurring them to tighten credit standards.

Even for folks with equity in their homes, some borrowers fret that declining prices and tighter lending standards could make it hard for them to tap their equity.

* * * * *

Prices are back to 2003 levels in the San Diego and Boston metropolitan areas, and back to 2004 levels in Las Vegas, Los Angeles, San Francisco, Fort Lauderdale, Fla., and Minneapolis.

Among mortgages on one- to four-family homes, 9.16% were a month or more overdue or were in foreclosure in the second quarter.. That compared with 6.52% a year before and was the highest level since the association began such surveys 39 years ago.

Most mortgages in default were issued in 2006 and 2007, when lending standards were loosest and the housing market was peaking. Many who bought then made small down payments or none, so they had little equity in their homes from the start.

In July, Congress enacted legislation designed to help borrowers who owe more than their homes are worth by allowing them to refinance into a government-backed loan, provided their mortgage company forgives part of their principal. It’s not clear how many borrowers the program will help, because before reducing the principal, lenders would almost always try first to freeze or reduce borrowers’ interest rate to make payments more affordable.

* * * * *

How much pain homeowners feel varies greatly from place to place. The most severe drops in home values are in parts of California, Florida, Nevada, Arizona and other areas where speculation pushed prices up and builders far overestimated demand.

On a national basis, home prices peaked in mid-2006 after rising 86% since January 2000, according to the First American index. Since peaking, that index has fallen 13%.

The declines have made homes more affordable, bringing prices in many areas closer to their long-term relationship to incomes. In the second quarter, the median home price of about $203,000 was 1.9 times average pretax household income. That was close to 1.87 times income for 1985 through 2000, prior to the housing boom.

 

 

[Home Economics]

http://online.wsj.com/article/SB122341352084512611.html

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What's Your Google Score?

October 9, 2008

Excerpted from BusinessWeek, “Making Social Networks Profitable”, by Heather Green, September 25, 2008

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Imagine there was one number that could sum up how influential you are. It would take into account all manner of things, from how many people you know to how frequently you talk with them to how strongly they value your opinion. Your score could be compared with that of pretty much anyone in the world.

Maybe it’ll be called your Google number. Google has a patent pending on technology for ranking the most influential people on social networking sites like MySpace and Facebook. In a creative twist, Google is applying the same approach to social networks it has used to dominate the online search business. If this works, it may finally make ads on social networks relevant—and profitable.

The new technology could track not just how many friends you have on Facebook but how many friends your friends have. Well-connected chums make you particularly influential. The tracking system also would follow how frequently people post things on each other’s sites. It could even rate how successful somebody is in getting friends to read a news story or watch a video clip.

* * * * *

How would this improve advertising on social networks? Say there’s a group of basketball fans who spend a lot of time checking out each other’s pages. Their profiles probably indicate that they enjoy the sport. In addition, some might sign up for a Kobe Bryant fan group or leave remarks on each others’ pages about recent games they played or watched. Using today’s standard advertising methods, a company such as Nike would pay Google to place a display ad on a fan’s page or show a “sponsored link” when somebody searches for basketball-related news. With influence-tracking, Google could follow this group of fans’ shared interests more closely, see which other fan communities they interact with, and—most important—learn which members get the most attention when they update profiles or post pictures.

The added information would let Nike both sharpen and expand its targeting while allowing Google to charge a premium for its ad services. If Nike wanted to advertise a new basketball shoe, for example, it could work with Google to plop an interactive free-throw game only on the profile pages of the community influencers, knowing the game would be likely to draw the most attention in these locations. And because the new technique ranks links among groups, Google could also target the ads to broader communities.

“I would pay a premium to get a particular video in front of someone who [shares] with others, and an even bigger premium for a lot of people who would share,” says Ian Schafer, CEO of online ad firm Deep Focus, whose clients include Sean Jean and Universal Music Group.

Edit by DAF

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Full article:
http://www.businessweek.com/magazine/content/08_40/b4102050681705.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

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Captive Brands Compete Big in Beauty

October 9, 2008

Excerpted from Brand Week “Retailers Rally Behind Their ‘Captive Brands'” by Elaine Wong, September 28, 2008

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Retailers have come a long way from the no frills aisle.Rather than marketing store brands as some lesser, cheaper alternative to brand name products, Wal-Mart, Walgreens, CVS and others are increasingly creating and promoting their own “captive brands”… 

Carrying no evidence of the store’s affiliation, these brands, manufactured by a third party and sold exclusively at the chains (hence “captive”), let the retailer command a price similar to brands produced by consumer packaged goods companies like P&G. They also let the retailers gain ground in a category—beauty—for which consumers generally take a dim view of traditional private label brands….

P&G has taken notice. “We treat them just like we do any other competition,” said P&G rep Dave McCracken. “We try to out-innovate anyone, whether it’s a captive or retailer brand or other competition.”…Competition among retailers is driving the captive brand movement, said Walgreens rep Tiffani Bruce. “It’s a way of differentiating. If there’s something we have that other retailers don’t have, it’s an opportunity for us to build loyalty.”
Walgreens created an internal “brand police” to regularly evaluate its product portfolio. “They protect the standard and quality for our brands so we know that we are competing side-by-side with national brands,” Bruce said. “We have limited shelf space so we try our best to pinpoint which brands are resonating well with customers and what needs are being met.”

One reason why the shift has affected beauty care more than other industries is because the category itself is “over-SKU-ed,” said Mike Moriarty…”If you look at the haircare aisle, it has way too much product in it anyway.”  The influx makes it particularly tempting for retailers to introduce their own offerings because they can identify certain niches not yet met by their consumer packaged partners, Moriarty said.Since the retailer ultimately controls the display units, the result is a shelf space war. That’s a circumstance in which captive brands have a distinct advantage…This, however, does not mean that captive beauty brands will eventually displace their branded rivals, CVS’ Pensa said.. 

Edit by SAC

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Full article:
http://www.brandweek.com/bw/content_display/news-and-features/packaged-goods/e3if624dc1ee34cd1b5f24e9d19408550b8?imw=Y

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McCain goes long-ball with mortgage buyback … warning track or outta here ?

October 8, 2008

Ken’s Mega-Take: McCain rolled this grenade out last night, but didn’t explode it for impact. 

After researching the terms and conditions (below), I think McCain may be on to something.  A potentially good deal for the economy, but not clear to me how many votes it wins. The mortgage mess is concentrated in a few states:  McCain has Arizona locked and has no chance in California; but plan could help in  Florida, Nevada, Ohio. 

Keep in mind that only 75 million homes are “owned”, and 85% of folks are “above water” and making their payments (1/3 of homeowners own their homes free and clear of any mortgages). There could be backlash from honest, hard-working folks who don’t want slackers and cheats bailed out — whether on Wall Street or down-the-street.

* * * * *

Excerpted from Politico.com: “McCain proposes bailout for homeowners”,  10/7/08 

* * * * *

Qualifiers

The McCain “American Homeownership Resurgence Plan ” would be available to mortgage holders that:

1)  live in the home (primary residence only)

2) can prove their creditworthiness at the time of the original loan (no falsifications)

3) provided a down payment

Ken’s Take: Excludes investor-speculators, frauds, and folks who never had any equity in the home … I think the program is limited to the right group

* * * * *

Structure

The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner.

The direct “cost” of this plan would be roughly $300 billion, the amount of homeowners’ “negative equity” in some homes.

Funds provided by Congress in recent financial market stabilization bill can be used for this purpose; indeed, by stabilizing mortgages, it will likely be possible to avoid some purposes previously assumed needed in that bill.

The plan could be implemented quickly as a result of the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government’s conservatorship of Fannie Mae and Freddie Mac.

Ken’s Take:

1) What if “they” can’t qualify under the revised terms?  What if housing prices continue to decline and the homes go back under water ?

2) The initial cash out flow to buy the loans will be greater than $300 billion … but the eventual “cost” will only be the buy-out of the negative equity.

3) I like the idea of buying a mortgage versus buying a derivative based on a pool of mortgages owned by a trust and serviced by a third party.  At least I can understand where the money is going.

4) Reminder: in July 2008, Congress enacted a program to do just this — save for the government eating the lost equity

5) By my recollection, this is essentially the business that Fannie and Freddie were originally commissioned to transact.

* * * * *

Political Talk

AMERICAN HOMEOWNERSHIP RESURGENCE PLAN

McCain said he will direct his Treasury secretary to implement an American Homeownership Resurgence Plan (McCain Resurgence Plan) to keep families in their homes, avoid foreclosures, save failing neighborhoods, stabilize the housing market and attack the roots of our financial crisis. America’s families are bearing a heavy burden from falling housing prices, mortgage delinquencies, foreclosures and a weak economy.

“It is important that those families who have worked hard enough to finance homeownership not have that dream crushed under the weight of the wrong mortgage. The existing debts are too large compared to the value of housing. For those that cannot make payments, mortgages must be restructured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they’ve already suffered.

The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. By purchasing the existing, failing mortgages, the McCain Resurgence Plan will eliminate uncertainty over defaults, support the value of mortgage-backed derivatives and alleviate risks that are freezing financial markets.”

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Source article:
http://www.politico.com/news/stories/1008/14377.html

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Re: Congress – 59% say "throw ’em all out"

October 8, 2008

Excerpted from Rasmussen Reports, Oct. 6, 2008

* * * * *
Congress was front and center in the national news last week and the American people were far from impressed. Just 11% of voters say Congress is doing a good or an excellent job. If they could vote to keep or replace the entire Congress, 59% of voters would like to throw them all out and start over again.

Today, just 23% have even a little confidence in the ability of Congress to deal with the nation’s economic problems and only 24% believe most Members of Congress understand legislation before they vote on it.

Less than half (49%) believe that the current Congress is better than individuals selected at random from the phone book.

* * * * * 

Despite these reviews, more than 90% of Congress is likely to be elected this November due to an electoral system designed to benefit incumbents. The biggest advantage offered those in the House of Representatives is a process known as Gerrymandering where Congressional Districts are loaded with friendly voters from Representative’s own party. In effect, Members of Congress—working through their state legislature–get to choose their voters rather than letting voters choose their Congressman.

Also aiding incumbents is high name recognition from news coverage, large staffs funded by taxpayers, and other perks.

* * * * * 

When the Constitution was written, the nation’s founders expected that there would be a 50% turnover in the House of Representatives every election cycle. That was the experience they witnessed in state legislatures at the time (and most of the state legislatures offered just one-year terms). For well over 100 years after the Constitution was adopted, the turnover averaged in the 50% range as expected.

In the twentieth century, turnover began to decline. As power and prestige flowed to Washington during the New Deal era, fewer and fewer Members of Congress wanted to leave. In 1968, Congressional turnover fell to single digits for the first time ever and it has remained very low ever since.

Full article:
http://www.rasmussenreports.com/public_content/politics/election_20082/2008_presidential_election/59_would_vote_to_replace_entire_congress

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Positioning for "Precycling"

October 8, 2008

Excerpted from Brandchannel.com, “Pre-thinking Recycling: the New Eco-Consciousness”, by Claire Ratushny, September 22, 2008

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Companies and their marketers should take note of a new consumer trend that has been dubbed “precycling” in some quarters. That’s because it’s all about “pre-thinking recycling”, and it highlights a fundamental shift in consumer values.

Basically, people are opting to pare down and simplify their lives. Many consumers are becoming more selective about the products they purchase. The concept of “excess” is causing revulsion more than ever before, prompting consumers to purchase fewer products, to buy more in bulk, and then to repurpose as much as they can. Even trendsetters are reorienting their lifestyles in an effort to eliminate unnecessary waste.

Hence the notion of pre-thinking recycling. This cuts down on waste and on recycling. Good news for the environment and overflowing landfills, and, over the past couple of years, this trend has been catching fire with more mainstream consumers than ever before.

* * * * *

Examples:

–  45 percent of trendsetters and 14 percent of mainstream consumers have “cut down on bottled water purchases.”

– Many consumers are using canvas shopping bags to avoid plastic, and even cut down on paper bag use.

– Fewer people are subscribing to newspapers, preferring to get their media news online, cutting down on paper.

– Eco-conscious consumers are opting for washable dinnerware again and washable cloth napkins to cut down on paper waste.

* * * * *

At a time when brand loyalties are plummeting, eco-conscious brands are giving consumers reasons to believe.

* * * * *

Illustrating the marketing story of brands that are implementing environmental measures on company websites, product brochures, media outlets and packaging will dovetail with emerging values in the marketplace. They will resonate with consumers.

Selling new value propositions of brands is more important than trying to advertise and sell products through as usual, especially now when the economy is making it hard to do anything as usual. Advertising that continues to push new and improved products, tries to favorably compare with competitive products, or uses price as leading value indicators is increasingly falling on deaf ears.

However, brands and products marketed in an authentic eco-conscious way enable marketers to respond to emerging culturally driven values meaningfully. Companies, large and small, can begin to reposition their brands to be in sync with the communities they are doing business in, and by doing so, to offer greater perceived value to consumers than their competitors do.

The payoff: Consumers are increasingly attuned to supporting the brands that are perceived as doing something positive for the planet because that’s where their values are increasingly headed.

Edit by DAF

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Full article:
http://www.brandchannel.com/brand_speak.asp?bs_id=202

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Cheap & Chic Brands Pay Off

October 8, 2008

Excerpted from BrandChannel “Value Store Brands: High-end Taste for Low Spenders” by Barry Silverstein, September 29, 2008

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Arguably, the king of cheap chic is US retailer Target. Faced with intense retail competition years ago, Target chose “to reposition itself as a mass merchandiser of affordable chic goods”…While Kmart was approaching bankruptcy and Wal-Mart was dominating the retail market with low prices, Target “successfully associated its name with a younger, hipper, edgier, and more fun image than its competitors. Target is often pronounced in faux French, ‘Tar-zhay,’ to connote its trendy sensibility.”

Target achieved differentiation…This ‘cheap chic’ strategy enabled Target to become a major brand…Target’s strong sales results over the past several years prove that the strategy has paid off…the chain is doing better than many of its competitors, buffered by well-regarded store brands, clever advertising, and novel merchandising.

…One reason Target’s brands have achieved cheap chic status is Target’s emphasis on design. Fashion designers such as Mossimo, Isaac Mizrahi, Philippe Starck, and Sigerson Morrison have developed exclusive lines for Target…These collections have the cachet of name-brand designer merchandise, but at a price point far less than the typical designer-driven brands sold at more expensive retailers.

Other value stores use this strategy. Kmart, for example, sells Jaclyn Smith-branded fashion and Martha Stewart-branded housewares. Sears is currently featuring the exclusive LL Cool Jay Collection. Retailer Kohls has joined in, exclusively marketing Simply Vera Vera Wang, a premium fashion and lifestyle brand, and a Food Network-branded line of kitchen and home goods.

Price-cutting giant Wal-Mart has tried its hand at designer brands as well…Despite these efforts, however, Wal-Mart has not seen significant financial gains from its designer clothing—nor has Wal-Mart been able to match Target’s trendiness…

* * * * *

Target has exerted its cheap chic strategy in another area: upscale foods. Target markets a premium brand called Archer Farms…Archer Farms uses upscale packaging, often depicting full-color product photography on elegant boxes, bottles and jars. As with Target’s other upscale brands, however, the prices are unusually affordable.

Value-priced upscale food is a growing market in its own right. Chains such as US-based Trader Joe’s supermarkets…trade on the consumer’s desire for affordable gourmet products. Trader Joe’s unique differentiator is that…most of the items on its shelves are actually its own store brands. These products are largely specialty items priced considerably below gourmet food stores…

There is already a fair amount of evidence that store brands, chic or not, are seeing a significant uptick in sales because of the economy. In September 2008, Kroger, one of the largest US supermarket chains, reported that its own store brands accounted for a record 26 percent of its fiscal second quarter sale…

* * * * *

Whether it’s fashion, food, or any other product category, cheap chic is clearly a global trend…Global economic conditions are likely to keep the interest in cheap chic brands high. While the average consumer likes trendy merchandise at bargain prices, the wealthy shopper may find cheap chic increasingly attractive as luxury goods become too pricey…

Retailers like Target, who already know how to create and market cheap chic brands, stand to benefit the most. But adopting a cheap chic strategy could help many other retailers insulate themselves from an economic downturn. That would be a welcome development for consumers who don’t want to sacrifice quality design for price.  

Edit by SAC

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Full article:
http://www.brandchannel.com/start1.asp?fa_id=442

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Blame Wal-Mart, not deregulation for the financial mess …

October 7, 2008

Ken’s POV: I’ve been saying — only half in jest — that Wal Mart is at the root of the financial mess.  Not because they’re bad guys, but because they have been able to keep retail prices so low for so long — via efficient logistics and smart procurement, buying lots of low cost goods from off-shore.  Why is that important? Because the Fed trades off inflation and unemployment when it sets interest rates.  When inflation is low, rates can stay low to enable growth.  Wal Mart is big enough that it alone had a major impact suppressing inflation.  Well, prices stayed low and interest rates stayed low, so folks were able to make dumb decisions (higher rates make people think harder about financial decisions, and discourages debt-building). What I was missing was the China Syndrome — the transfer and recycling of wealth from the US to China and back.  Now, that’s a problem.

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Excerpted from Wash Post: “Blaming Deregulation”, Sebastian Mallaby, Oct. 6, 2008

* * * * * 

The claim that the financial crisis reflects Bush-McCain deregulation is … only nonsense.

The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China’s export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets ’round the world, driving up the price of everything from Florida condos to Latin American stocks.

That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan’s Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous.

So the first cause of the crisis lies with the Fed, not with deregulation. If too much money was lent and borrowed, it was because Chinese savings made capital cheap and the Fed was not aggressive enough in hiking interest rates to counteract that. Moreover, the Fed’s track record of cutting interest rates to clear up previous bubbles had created a seductive one-way bet. Financial engineers built huge mountains of debt partly because they expected to profit in good times — and then be rescued by the Fed when they got into trouble.

* * * * * 

Framing the mess as the product of deregulation will make the backlash nastier.

The next president will have to make some subtle choices. In certain areas, markets need to be reformed — by pushing murky “over-the-counter” trades between banks onto transparent exchanges, for example. In other areas, government needs to fix itself — by not subsidizing reckless mortgage lending … Everyone concedes that Fannie and Freddie poured fuel on the fire to the tune of hundreds of billions of dollars.

* * * * *

See the full article for a strong argument re: why “soft” regulation didn’t cause the current mess.
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/05/AR2008100501253_pf.html

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Baby boomers facing economic bust …

October 7, 2008

Excerpted from WSJ: “One in Five Baby Boomers Cuts Retirement Saving”, Oct. 7, 2008

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One in five middle-aged workers stopped contributing to their retirement plans in the last year, and one in three has considered delaying retirement … the latest evidence that the deteriorating economy and stock market are creating a less-than-golden outlook for the huge tide of baby-boom Americans surging into retirement age. This demographic, born between 1946 and 1964, numbers around 78 million.

About 60% of U.S. workers in the private sector have 401(k) accounts, holding about $3 trillion in assets. Surveys have shown workers don’t put enough into 401(k)s to support their retirements, even as such plans have become the main source of retirement support, surpassing traditional fixed-benefit pensions.

Labor Department statistics also show more Americans over 55 years old are staying in the work force, a sign that many can’t afford to stop working.

Most respondents believe they need to contribute more to their retirement accounts, but those who have stopped are “having trouble making ends meet for basic expenses like food, gas and utilities.”  More people (13%) have been pulling money out of their nest eggs before age 59-1/2, even though such withdrawals bring a tax penalty.

The poll was conducted … before the worst of the stock market’s recent swoon, when retirement accounts were heavily weighted toward stock mutual funds. The turmoil since then might have caused many investors to question the wisdom of plowing funds into investments.

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Full article:
http://online.wsj.com/article/SB122333045141409159.html

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Starbucks: Fewer Baristas to work longer hours …

October 7, 2008

Excerpted from WSJ: “Starbucks Looks to Reduce Labor Costs”, Oct 3, 2008

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Starbucks is changing its store worker scheduling system so there will be fewer employees working more hours at its coffee shops. The program aims to reduce the company’s labor costs and improve sales by fostering familiarity between customers and a smaller group of employees.

Starbucks introduced its program about a week ago as part of a broader effort to revive the company amid a slowdown in sales that’s prompted it to shut stores and curb its expansion.

Starbucks’ new program also is intend to address the longtime complaint among some Starbucks baristas, who are paid hourly, that it’s too difficult to secure enough hours on the clock each week. Starbucks, which has not guaranteed full-time hours for non-management store workers, is now creating a full-time description that aims to give those employees at least 32 hours per week.

In test markets, workers liked the program because, in the end, it gave them more regular schedules. He said the labor cost improvements will come from a lower rate of turnover among workers and lower training costs.

* * * * *

Starbucks employs 83,000 people at its U.S. stores. The average Starbucks has about 17 workers.

The Industrial Workers of the World, a union is trying to organize Starbucks workers.

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Full article:
http://online.wsj.com/article/SB122307217095003501.html

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Will Sports Fans Cheer for New Slingbox?

October 7, 2008

Excerpted from The Washington Post “A Lot for Sports Fans to Like, but the New Slingbox Still Isn’t a Slam Dunk” by Rob Pegoraro, September 25, 2008

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Watching television on a computer screen is no special achievement these days. Between the free streaming video on the Web and TV downloads at iTunes and elsewhere, you don’t need to work too hard to turn your computer into a replacement for the tube.

But if you can watch your own TV — with your local shows, your team’s games, your recorded programs — on a computer monitor, and do so hundreds of miles from your home, now that’s something else…

That’s the trade-off of the Slingbox, the Web-connected “personal broadcaster” from Sling Media. Today, this division…is introducing the latest Slingbox, a high-definition device that fixes two flaws of earlier versions but can’t do much about some other underlying issues.

The new $299.99 Slingbox Pro-HD, like older models, can take any video input and relay it over the Internet to a computer or smartphone running SlingPlayer software. But with a simple antenna, this model’s digital TV tuner can pull in high-definition broadcasts off the air for free; with enough bandwidth, it can send those programs out in nearly their original quality.

With the player comes an updated SlingPlayer 2.0 that — finally — adds pause, rewind and forward controls. You still can’t record a broadcast, but you can now pause it and zip ahead or behind.

A review unit loaned by the company, running an almost-final version of its software, usually performed those tasks without complaint but still exhibited glitches…

Slingbox owners seem as passionate about these boxes as any group of gadget enthusiasts, in many cases for a simple reason: This is the easiest way to follow their sports teams when they travel or move out of town…

Edit by SAC

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Full article:
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403037_pf.html

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Oops: Meet me at Katie’s Restaurant …

October 6, 2008

Excerpted form WSJ: “Biden’s Fantasy World”, Oct. 5, 2008

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Note: The article outlines several of Biden’s sustentative mis-statements during the debate. The others are way more inportant, but this is my favorite.

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Closer to home, the Delaware Senator’s blarney …  invited Americans to join him at “Katie’s restaurant” in Wilmington to witness middle-class struggles.

Just one problem: Katie’s closed in the 1980s. The mistake is more than a memory lapse because it exposes how phony is Mr. Biden’s attempt to pose for this campaign as Lunchbucket Joe.

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Full article:
http://online.wsj.com/article/SB122325448093406451.html

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TakeAway Point: Grandma Homa used to say “it’s better to not know than to not know that you don’t know”

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Investor alert: Dump stocks, buy comic books …

October 6, 2008

Excerpted from WSJ: ” When Stocks Tank, Some Investors Stampede to Alpacas and Turn to Drink”,  Oct.3, 2008   

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Investors have long turned to hard assets in market downturns, the idea being that if you invest in something real, it won’t disappear, even if its value declines. But analysts say this downturn is different in that real estate, the most traditional safe haven, is also sinking.

Given the gyrations in the financial markets, some investors are abandoning stocks and bonds and seeking refuge in unusual alternatives — parking spaces, for instance, and condos in Peru. Sales of exotic livestock are up. The U.S. Mint has seen a gold-coin rush.

A man in Atlanta, recently bypassed the stock market for liquid assets — $120,000 in champagnes. He bought 400 bottles, mostly 1996 vintage, that he says he plans to “sit on” for 10 or 15 years and then sell at a profit.   “The worst thing that could happen is that I drink all of it.”

Another man did invest in real estate, but not the usual sort. He became landlord of a single parking space in Chicago. He bought a 12-by-20-foot spot in the Field Harbor Parking Garage for $29,000 and rents it out. “The stock market is indicative of a lot of uncertainty. With a parking space, at least you end up with something,” he says.

An auditor in Johnstown, Pa., turned to an unusual farm animal. “I’ve lost a fortune in stocks, and my 401(k) is falling through the floor. I feel comfortable in alpacas,” she says. She invested $56,000 in a small herd that she believes has a better outlook than most mutual funds because of the animals’ breeding potential.

Financial firms are reporting that a growing number of retirees are rolling their money out of ordinary individual retirement accounts — commonly stocks, bonds and mutual funds — and into self-directed IRAs, where almost anything goes. “We’ve had people invest in a cypress farm in Costa Rica, and a condo in Croatia.”

A retired engineer, says he pulled his entire nest egg of nearly $1 million out of stock and bond funds in August and put it into a self-directed IRA. He invested some of the money in his niece’s company — which is building condos in Lima, Peru.  “I can see pictures of the land. I can see steel. I can see people working. When I put my money in a fund, I see a big list of things that don’t sound good.”

In past market downturns he saw people turn to chinchillas, worm farms and super-breeds of rabbits. Emus, too, were big. “Eventually, people got tired of them and just let them go,” he says. “To this day, you’ll be in West Texas and a big emu running wild will just come up next to your car.”

Hard-asset gurus have been advising people to buy bags of pre-1965 U.S dimes and quarters, which are 90% silver and in limited supply.

Some stock-market investors also are turning to superheroes. “There’s kind of a buying frenzy” in vintage comic books. The “Silver Age Comic Book Pricing Index” of 32 frequently traded ’60s comics, was up 14.2% in the 18 months ending in July, while the Standard & Poor’s 500 stock index was down 11%. “Spiderman is going to be here in 20 years — he’s not going away,”

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Full article:
http://online.wsj.com/article/SB122298871817500225.html

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Brand Wars: Obama vs. McCain

October 6, 2008

Excerpted from BrandChannel: “Brand Obama or Brand McCain ”, Patt Cottingham

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Ken’s Note: The full article is interesting reading for marketers.  It’s a non-political run-through of of how the candidates’ “brands” developed — the words, the images, and of course, the logos.

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OBAMA LOGO: The Obama Campaign chose an icon that captured the feeling of sunrise over a field of red and white stripes. There is also a subtle “O” for Obama that is in play here though the name Obama is not used in the icon. This makes it a universal logo/icon that anyone can attach their own meaning to. The Obama and Pepsi (far right) logos are both round, youthful, and use the colors red, white, and blue.

image

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McCAIN LOGO: The McCain Campaign chose a logo that comes directly out of his family heritage of 3 generations in the US Navy, as well as his war hero status political leader. The colors of blue and gold are US Navy colors, the star icon comes directly out a military reference found on many uniforms indicating rank. The McCain and US Army logos (far right) are traditional, proud, and derived from the military.

image

 

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Full article:
http://www.brandchannel.com/images/papers/443_Presidential_Brands_final_web.pdf

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