April 2009 - Global Economic Watch

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TV Exec Says Advertising is About Money, Not Brand

04-30-2009 10:54 AM with no comments

Longtime television executive Henry Schleiff runs the Hallmark Channel as head of Crown Media Holdings.  Despite the brand-identiity push of adverstisers in recent years, he believes television advertising is not about building brands after all.  It is, he says, about selling products. In this AdAge video from the 2009 Upfront Summit, Schleiff says it is time to blow up old myths about television viewing and ads.  

Posted by Graham Griffith

Income, Consumer Spending Drop in March

04-30-2009 10:10 AM with no comments

The good news yesterday was that consumer spending rose in the first quarter of 2009, but today we learn that spending dropped off in March.  The Commerce Department released figures on consumer spending and personal income this morning.  Both are down.  Take a look at the monthly change:

Here are the toplines from the Bureau of Economic Analysis:

Personal income declined 0.3 percent in March. Wages and salaries, the largest component of personal income, fell 0.5 percent after falling 0.4 percent in February. Proprietors’ income (mainly from partnerships and sole proprietorships) turned down.

Real disposable personal income (DPI), income adjusted for inflation and taxes, was flat in March. Taxes fell $33 billion after falling $25 billion. Tax credits from the American Recovery and Reinvestment Act of 2009 reduced taxes $11 billion in March.

Real consumer spending, adjusted for price changes, decreased 0.2 percent in March after increasing 0.1 percent in February.

Read the BEA's full report here.

 

Posted by Graham Griffith

Globalization and African Economies

04-30-2009 9:08 AM with no comments

Critics who argue globalization does not lift all boats, often point to the African continent for examples of economies left behind…or worse.  In this interview, Paul Collier, director of the Centre for the Study of African Economies and professor of economics at Oxford, discusses the factors—internal and external—that have prevented nations in Africa from economic growth.  Collier says the treatment of Africa as one entity is a common mistake.  He divides the continent up into three large groups—the nations with resources; the nations without resources but on a coast; and the landlocked nations without resources.  The coastal nations would seem poised to first take advantage of globalization, and Mauritius serves as THE example of an African country that built itself up in the global economy.  Other nations have not been able to copy the success (Madagascar was close, but recent political strife blocked progress). 

The big opportunity for African nations to break into global markets, Collier says, was back in the 1980s.  Now, after the growth of China in the manufacturing sector, and India in the service sector, developing nations are not facing a level playing field.  So trade pacts with Europe and the US are vital at this point.  As are the contributions of NGOs—the work of which Collier praises as one of the ways globalization has aided struggling African economies.  


Posted by Graham Griffith

OMB Director Lauds John Bates Clark Medalist Emmanual Saez

04-30-2009 6:16 AM with no comments

Last week, UC-Berkeley economist Emmanuel Saez was awarded the 2009 John Bates Clark Medal--given on alternate years by the American Economic Association to the best economist under the age of forty.  Peter Orszag, director of the Office of Management and Budget--who has worked with Saez--has a short appreciation on the OMB's website.  Orszag notes Saez's work on wages for the top 10 percent of American earners.  Saez and Thomas Piketty discovered a "U-shaped pattern" for wages among top earners in the 20th Century.  The share of income that went to the top 10% neared 50% of total US income in the Twenties, went down during World War II, then climbed back up at the end of the century and then reached 50% in 2006.  Orszag provides this graph that charts wages for the top 10%, 5%, and 1%:

And in the most recent past, the very highest earners did very well indeed, capturing almost three-quarters of total income growth in the economic expansion of 2002 to 2006, while the remaining 99 percent of the U.S. population split among themselves the final 25 percent of the increase. (What makes this trend all the more concerning is something that Emmanuel and his co-authors demonstrated in another paper: that this dramatic increase in incomes at the very top has not been mitigated by an increase in income mobility, which can be seen in the relatively stable probability of staying in the top 1 percent of earners from one year to the next since the early 1970s.)

Emmanuel's work on income inequality has helped to point the way for the Administration in its pledge to rebalance the tax code, with a tax cut going to 95 percent of working Americans while asking those at the very top to contribute more. The inequality that has arisen over the past three decades is not going to go away overnight, and it has been driven by many factors—
including a decline in the growth rate of college-educated workers. But where the prior administration used changes in the tax code to exacerbate these trends, this Administration thinks that the tax code should be used to mitigate them because an economy in which all can enjoy success is one that is strong for us all.

Read Orszag's post here.  

Posted by Graham Griffith

Bad GDP Numbers, But Many See Good Signs

04-29-2009 2:35 PM with no comments

The Commerce Department released some bad numbers today.  The department's estimated GDP showed the US economy contracted at a rate of 6.1% in the first quarter of 2009.  It was the third straight quarter in which GDP went down--the first time that has happened since 1975.  While the data showed a decline was not the least bit surprising, the rate was.  The Wall Street Journal reports that economists surveyed by Dow Jones Newswires had predicted a 4.6% drop.  And yet, as the Wall Street Journal's Phil Izzo and Kelly Evans point out, it is possible to find silver linings in the Commerce Department's report.  

Christine Romer, chair of the Council of Economic Advisers, also makes a case that there are some good signs in the data.  Here's what she told Reuters:

"There's perhaps a little bit of a silver lining," Christina Romer, the head of the White House Council of Economic Advisers, told Reuters Financial Television in reaction to news the U.S. economy contracted at a 6.1 percent annual rate in the first quarter.

"To the degree that that's a sign that firms are bringing down some of their inventories ... that combined with consumers coming back to life could mean we need to start to producing things again," she said. "It could put us in a position for perhaps a less dreary number going forward."

Read the Wall Street Journal report on the GDP numbers here.  And David Wessel's 12 Reasons to be (Economically) Optimistic here.  

Posted by Graham Griffith

Forrester's Five Eras of The Social Web

04-29-2009 9:59 AM with no comments

According to social media researchers at Forrester, the Era of Social Relationships is coming to a close, we are nearing the sweet spot of the Era of Social Functionality, and the Era of Social Colonization is just starting.  And each era takes us closer to the long awaited era where social media meets its commercial potential.  In the Era of Social Commerce--start date 2011--social communities will be in the driver's seat and "define future products and service."  Take a look at the different eras and the social media group and Web dynamics:

The Era of Social Commerce is projected to start in 2011, but Forrester's Jeremiah Owyang says brands need to prepare for that period now.  Brands, he says, need to "prepare for transparency," "focus on customer advocates," develop a "community platform" to take advantage of social networks as a means of conveying customer information, and:

Shatter your Corporate Website: In the most radical future, content will come to consumers –rather than them chasing it– prepare to fragment your corporate website and let it distribute to the social web. Let the most important information go and spread to communities where they exist; fish where the fish are.

The full report is available only to Forrester clients, but Owyang provides an overview here.  

Posted by Graham Griffith

What $100 Million Looks Like

04-29-2009 9:09 AM with no comments

At the first official meeting of the Obama Adminstration Cabinet, President Obama ordered his agency heads to make budget cuts that would total $100 million.  That's $100 million out of a budget over $3 trillion.  So what does that look like? 

Thanks to Andrew Sullivan and The Daily Dish.  

Posted by Graham Griffith

Nobel Laureates Panel at Milken Global Conference

04-29-2009 7:41 AM with no comments

The Milken Institute is holding its annual Global Conference this week, and as at conferences past, Michael Milken himself chaired a panel discussion of Nobel laureates in economics.  This year's panel:

Gary Becker, Nobel Laureate, 1992; University Professor of Economics and Sociology, University of Chicago

Roger Myerson, Nobel Laureate, 2007; Glen A. Lloyd Distinguished Service Professor in Economics, University of Chicago

Myron Scholes, Nobel Laureate, 1997; Chairman, Platinum Grove Asset Management

The theme this year was "Whither Capitalism?"  The panelists covered a wide range of topics, from comparing the current recession to the Great Depression (they think it is not an apt comparison);  to regulation and short-term efforts to shore up the financial system; to long term matters of concern, like education.  There is a heavy Chicago School infulence in the discussion, and the panelists show little fear that free market principles prevail and capitalism is not going anywhere.  Watch the discussion by clicking here.  Start at 15 minutes in if you want tot skip the conference business and Milken Institute marketing:

Posted by Graham Griffith

FDIC's Bair: End the 'Too Big to Fail' Presumption

04-28-2009 3:36 PM with no comments

Results from the Treasury Department's stress tests are coming in, so the banking community is on its toes waiting to hear which banks are safe.  And over the weekend the Federal Deposit Insurance Corporation closed four banks.  FDIC chair Sheila Bair says there are more bank closings ahead, but not to worry, the FDIC has ample resources to handle the additional failures.  So while she is not stressed about the results of the tests, she does want the resolution authority of the FDIC broadened so the agency has authority over an entire banking organization rather than just depositor institutions.  Here is what she told The Economic Club of New York in a speech yesterday: 

The lack of an effective resolution mechanism for large financial organizations is driving many of our policy choices. It has contributed to unprecedented government intervention into private companies. It has fed the "too big to fail" presumption, which has eroded market discipline for those who invest and lend to very large institutions. And this intervention, in turn, has given rise to public cynicism about the system and anger directed at the government and financial market participants.

We need a new resolution regime for these large institutions, which does a better job of imposing loss on investors and creditors, instead of leaving it in the hands of government and the laps of the taxpayer. To be sure, creating such a resolution mechanism would be very bold. But recent history –I believe-- has shown that it is a very necessary step.

Bair also spoke to CNBC's Trish Reagan yesterday.  Reagan asked about the FDIC's capacity to handle the failure of the big banks.  Bair said losses on large banks are actually smaller.  For example, she tells Reagan that the FDIC had zero losses off of the failure of Washington Mutual (WaMu) last year. And she further explains her contention that it is time to drop the "too big to fail" myth:

You can read a transcript of Bair's speech before The Economic Club of NY here.  

Posted by Graham Griffith

France's Finance Minister Calls for Coordinated Regulation of Financial System

04-28-2009 10:54 AM with no comments

The finance ministers of the G7 nations met in Washington on Friday, and they agreed that there are "some signs that recession-fighting efforts are finally starting to work" according to a Reuters report. But the finance ministers are not satisfied with the pace of recovery, and remain concerned with "the slow progress in cleansing bank balance sheets."

Christine Lagarde, France's finance minister, says banks in her country are in relatively good shape.  She is concerned that the global leaders have not yet dealt with fixing the overall regulatory structure of the global economy.  She was a guest on Charlie Rose last night, and in the interview she told Rose that she isn't calling for more regulation, but rather coordinated regulation--"common regulation, common principles."  When asked if governments should wait until after the economic crisis is halted to revamp regulation, Lagarde says that the French position is to do it simultaneously.  If we don't reform the regulatory structure before we stimulate growth, she says, we will soon have false hope.  That is, we will see a period of growth, causing people to then ignore the call for regulatory change, while the system remains be broken.  Here is Lagarde's interview with Charlie Rose:

Posted by Graham Griffith

'Lousy Time' to Sell a Business

04-28-2009 9:10 AM with no comments

Small business owners who sold their businesses in 2008 got out at a good time.  Most of 2008 was a great year to sell.  2009?...not so much, according tothis report from CNNMoney:

In the first quarter of 2009, the number of sold small businesses fell 36% compared to a year earlier, according to marketplace site BizBuySell.com.

The prices buyers paid also plunged. The median sale price dropped 17% for those transactions facilitated by the Web site, to $165,500. (The median asking price was $250,000.) Fewer entrepreneurs are even attempting to sell right now. In last year's first quarter, BizBuySell fielded 40,651 listings. This year, it had 37,277, an 8% drop.

"Those doing well enough to sell or want to sell are shying away," says Mike Handelsman, general manager of BizBuySell in San Francisco. "If they sell, it'll be based on cash flow and revenues, which are depressed now. In many cases, this is their nest egg, so they'll put off retirement to wait out these uncertain times."

Read the full article here.  

Posted by Graham Griffith

Stock Charts meet Twitter

04-28-2009 8:13 AM with no comments

Timothy Sykes gives investing, day trading, and penny stock advice in his books and at his blog.  And he says his love of trading began with his "fascination with stock charts,"

Because no matter what’s going on in the markets, no matter who says what or what company does well or not well, stock charts tell stories.  After all, the vast majority of PRs lie and mislead ...

...financial commentators probly don’t even mean to mislead, they’re either really that dumb or they just don’t care…etc…etc…charts and price action never lie, they take all the hype, manipulation, valuation questions, big buy/sell orders, small buy/sell orders, media hype, message board chatter, rumors, PRs–they are the end result of all the variables out there and create distinct prices and patterns from which it’s possible to analyze and predict future movements, sometimes with relative ease.

Now Sykes is part of a team that is trying to use Twitter to get investment information out to people quickly through something called Chart.ly.  Here is Sykes explaining Chart.ly on Vimeo:


Chart.ly Intro from TIMtv on Vimeo.

What is the upside of this type of digital tool?  What are the problems?  And is this an example of new media making old tools--subscription newsletters, for one--obselete?  Share your comments (click on comments at the top of this post).

Posted by Graham Griffith

'New York Twimes?' Umair Haque on Why the New York Times Should Acquire Twitter

04-27-2009 1:23 PM with no comments

In the If You Can't Beat Them, Join Them, Umair Haque, director of the Havas Media Lab, suggests the New York Times merge with or take over the social media networking site Twitter.  As several daily newspapers have closed up shop this year, much of the blame for revenue declines has been put on their inability to make up for losing the classified business to online sites like Craigslist.  Is Twitter a threat? On Harvard Business Review, Haque writes that "nothing is more timely than Twitter."  And "timely" used to be the bread and butter for news organizations.  But technology has greatly affected the whole notion of timely.  Here is what Haque says acquiring Twitter would provide the Times:

1. Viral distribution
Twitter is fast becoming a viral distribution platform for not just the 
NYT's news — but everyone's content. Record labels have spent a decade fighting an unwinnable war against viral distribution — file-sharing — and have destroyed their ability to create value in the process. Newspapers are making the same mistake — and acquiring Twitter would turn the tables. It's the 21st century's paperboy.

2. Context 
Distribution, by itself, is so industrial era. As we've discussed, next gen channels are really circuits. The tremendous amounts of context floating around on Twitter could help the 
NYT rebuild detailed information about people, products, services, and news.

3. Relational capital
Use that info to target people and saturation bomb them with ads? That's so lame. A better idea is to use the knowledge on Twitter as a way to let companies build real, meaningful relationships with people — relationships that are opt-in, multi-threaded, and always-on, like Comcast is starting to do.

4. Business model experimentation 
Where's the business model? Everywhere. Here's one: charge companies for the right to talk back to people on Twitter enriched by 
NYT content. Here's another: charge other content providers for the right to distribute via Twitter. Here's yet another: charge advertisers for the right to discuss products and services with people via Twitter. The point is that theNYT could experiment with literally hundreds — like I say: business models happen.

This is more modest proposal than it is actual advice from Haque, but it does point to one way that a big old media company might rethink its strategy.  And it points to just how social media is changing the playbook for business (more on that throughout the week--stay "tuned").  Read the article here.   

Posted by Graham Griffith

GM's New Restructuring Plan Puts 21,000 Jobs, and Pontiac, on the Chopping Block

04-27-2009 10:28 AM with no comments

In this ad for the 1967 GTO, Pontiac introduced "the great one: the ultimate driving experience," as the General Motors division hitched its brand to the "driving excitement" ethos.  

With steadily declining market share and profits, the excitement went away.  And now the division is going away.  As of this morning, the Pontiac brand is officially done.  General Motors has announced its latest restructuring plan.  The automaker will cut 21,000 jobs and eliminate the Pontiac brand by the end of next year.  General Motors is also trying to trade debt for equity, asking bondholders, as Bloomberg reports, "to exchange $27 billion of claims for equity to help the biggest U.S. automaker avert bankruptcy."

GM is trying to prove it’s viable, a U.S. requirement to keep the federal loans. The original loan terms called for GM to slash two-thirds of its bonds through an exchange offer and for the UAW to reduce a cash contribution to the health-care fund to $10.2 billion from $20.4 billion.

The bond exchange offer is contingent on the health-care fund, known as a Voluntary Employee Beneficiary Association, or VEBA, swapping at least 50 percent of its claims for equity, with the remainder of the obligations paid in cash “over a period of time,” according to the statement.

General Motors was facing a deadline from the Obama Administration to put forward a stronger restructuring plan than the one the company submitted in Feburary.  

 

Posted by Graham Griffith

Financial Stress: Adding Fuel to the Economic Crisis Fire

04-27-2009 9:14 AM with no comments

Chapter 4 of the IMF's World Economic Outlook focuses on financial stress, and how that stress "fuels the fire" and helps spread the effects of global recessions.  According to the authors, global crises have a history of bringing about "reduced capital inflows--often abruptly through sudden stops."  This brings lower growth and makes recovery long and slow.  And in a global economic crisis, everyone feels the pain as the financial stress is passed from advanced economies to emerging economies.  

The authors explain their Financial Stress Index in a post at the VoxEU blog.  They say that global financial stress, according to the index, hit a record high at the end of 2008, and that bank lending seems to be the key variable:

 

Our study finds that stress in emerging economies typically increases almost one-for-one with stress in advanced economies. This result is based on a two-stage estimation process (Forbes and Chinn 2004) using monthly data and a panel data analysis using annual data. Transmission is rapid and occurs within one or two months after advanced economies are in financial stress.

That said, there has clearly been regional variation during the current crisis. Emerging Europe was hit especially hard, while economies in Latin America weathered the first wave of stress fairly well. This variation is mainly accounted for by the strength of financial linkages with advanced economies. Countries with higher foreign liabilities – measured by bank lending, portfolio investments, and FDI as a percentage of destination country GDP – experienced stronger transmission.

The twist in the current crisis is that bank-lending linkages appear to be the main driver, rather than the more mobile portfolio investment links that drove the Asian crisis. Since the mid-1990s, Western European banks have dominated bank-lending flows. Emerging Europe stands out as the largest recipient (Figure 2). Using an econometric model for stress transmission, we find that an increase in bank liabilities to Western Europe from 15% to 50% of GDP (roughly the difference between Emerging Europe and other emerging regions) doubles the strength of stress transmission. It is no surprise therefore that Emerging Europe was the first emerging market region to be hit hard by the crisis.

 

Read Chapter 4 of the World Economic Outlook here, and the authors' VoxEU post here.

Posted by Graham Griffith

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