November 2010 - Global Economic Watch


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Cutting Costly Behavior on the Path to Growth

11-30-2010 9:26 AM with no comments

At CNNMoney, Verne Hamish, CEO of the executive education firm Gazelles Inc., says growth depends on cutting out some of the bad habits that slow your business down.  Here is his list of the five things you must stop doing in order to start growing:

1. Stop paying attention to the bad news

2. End a contentious relationship

3. Quit selling some of your products or services

4. Don't answer your own e-mail

5. Stop eating alone

Read 5 Business Killers here.

Posted by Graham Griffith

Morgan Stanley CFO: Fate of Wall Street and Main Street Intertwined

11-30-2010 9:09 AM with no comments

Ruth Porat, CFO for Morgan Stanley, says she we should have at least learned one big lesson from the global economic crisis: that the fate of small companies, medium companies, and large companies are all connected:

Posted by Graham Griffith

TARP Cost Estimates Continue to Drop

11-30-2010 8:30 AM with no comments

In its latest report on the Troubled Asset Relief Program (TARP), the Congressional Budget Office dropped the estimated cost of the program substantially.  The CBO's estimate is now $25 billion.  That's a far cry from the estimate of $66 billion in August, or $109 billion from the CBO's March report.  There is some explanation for the cost trending downward at the CBO's Director's Blog:

It was not apparent when the TARP was created two years ago that the costs would be this low. At that time, the financial system was in a precarious condition, and the transactions envisioned and ultimately undertaken through the TARP engendered substantial financial risk for the federal government. However, the cost has come out toward the low end of the range of possible outcomes anticipated when the program was launched. Because the financial system stabilized and then improved, the amount of funds used by the TARP was well below the $700 billion initially authorized, and the outcomes of most transactions made through the TARP were favorable for the federal government.

Some more specific reasons:

-Additional repurchases of preferred stock by recipients of TARP funds; 

-A lower estimated cost for assistance to AIG and to the automotive industry; 

-Lower expected participation in mortgage programs;

-The elimination of the opportunity to use TARP funds for new purposes (because of the passage of time and the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act).

Read the full report here.

Posted by Graham Griffith

Kenya Ambassador Touts Potential of Markets in Africa

11-29-2010 8:45 AM with no comments

Kenya's Ambassador to the US, Elkanah Odembo, believes American businesses are overlooking a potentially vast market in Africa.  He predicts that there will be 1 billion consumers across the continent, and that US firms should be seeking to engage with the growing middle class in African nations as Chinese companies have.  Here is Odenbo speaking about business opportunities in Kenya and other African economies at the Wharton School

Posted by Graham Griffith

Black Friday Retail Sales Rise Only Slightly, But Overall Data Encouraging

11-29-2010 8:24 AM with no comments

ShopperTrak reports that sales at retail outlets increased 0.3% on Black Friday 2010 over Black Friday 2009.  Not exactly a sharp increase--the increase from 2008 to 2009 was 0.5%.  But when you take a look at other factors, there is a lot for retailers to like about holiday shopping so far:

ShopperTrak's data shows early holiday sales and door buster promotions impacted Friday's performance as the company saw some unexpected strength in early November - as sales and traffic for the first two weeks of the month through Nov. 13 increased 6.1 and 6.2 percent respectively versus the same two week period in 2009.  ShopperTrak founder Bill Martin says this early boost could impact retail performance beyond Black Friday and into the weeks leading into Super Saturday.

"Retailers were very conscious of driving traffic early in November and in doing so some might have thinned Black Friday spending a bit," Mr. Martin said.  "The reality is we have a deal driven consumer in 2010 and that consumer responded to some of the earliest deep discounts we've even seen for the holidays.  Additionally, a percentage of retailers concentrated on pushing folks to their Websites with various online only sales which most likely influenced Black Friday performance as well."  Martin continued:  "That being said, we still saw a record amount of money spent on Friday so it's hard to say Black Friday wasn't a success, it's just not the success we saw in the mid 2000's when the day really became a phenomenon with the American public.  And if retailers continue the pattern of early sales and online promotions, this could be the new norm in Black Friday performance."

While sales were essentially flat, ShopperTrak reports total U.S. foot traffic increased 2.2 percent on Black Friday which points to a shopper driven by various sales and promotions.

Read the full release here.

Meanwhile, online shopping seems to be doing exceptionally well this year.  EBay and PayPal report that sales doubled on Black Friday (see TechCrunch).  And Bloomberg is reporting that a big day today, Cyber Monday, could push online sales for Thanksgiving weekend over $1 billion for the first time.

Posted by Graham Griffith

Martin Baily on Why Ireland's Struggles Matter to US

11-24-2010 9:01 AM with no comments

Dublin-based RTE reported yesterday that the EU and IMF bailout package for Ireland's ailing economy will total 85 billion euro.  Standard and Poor's lowered Ireland's bond rating from AA to A.  And now the euro has fallen to two-month low against the dollar.  Bad news for Ireland and the Euro-zone.  But also bad news for the US, says Brookings Senior Fellow Martin Baily, who sees instability in Europe as a real threat to US recovery:

For more of Baily's analysis of the impact of European struggles on US recovery, click here.

Posted by Graham Griffith

Small Business Saturday Marketing Tips

11-24-2010 8:43 AM with no comments

There are many reasons to question whether Thanksgiving is truly the beginning of the holiday retail season anymore, but that won't stop the coverage of Black Friday and Cyber Monday.  Now there is Small Business Saturday to add to the mix. Joe Manna, for one, welcomes the new focus on small business. But Manna, community manager at Infusionsoft, warns that small businesses should not try to mimic big retailers during the holiday shopping season.  In an article at Marketing Profs, he shares nine marketing tips designed to help small businesses get "the upper hand":

1. Differentiate your marketing

2. Offer extended support and service

3. Reward your most rewarding customers

4. Lay the bait and offer it to who responds

5. Double-down on pay-per-click (PPC) ads

6. Follow up!

7. Hunt down bargains for your contacts

8. Be active in social media

9. Provide premium digital goods to complement your product and service

Read Manna's descriptions for these marketing tips here.

Posted by Graham Griffith

Johnston on an Economy 'In Flux'

11-23-2010 8:19 AM with no comments

David Cay Johnston--best-selling author of books on tax policy, former Pulitzer Prize winning tax reporter at the New York Times, and columnist at Tax Notes and The Nation--recently appeared on Yahoo Finance's Tech Ticker.  And, with so many Americans out of work and having gone through a year or more without earnings, he warned of a possible "downward spiral" for the US economy:

(Hat tip Barry Ritholtz)

Posted by Graham Griffith

Economic Letter: 'Confidence and the Business Cycle'

11-23-2010 8:02 AM with no comments

The latest Economic Letter from the Federal Reserve Board of San Francisco Sylvain Leduc, a research advisor at the San Francisco Fed, takes a look at the influence of business and consumer confidence on the ups and downs of the business cycle.  Leduc finds that consumer and business "sentiment" have "contribute[d] significantly" to fluctuations in the business cycle.  But he also points out that any examination of the influence of consumer sentiment can't exclude the impact of confidence on monetary policy:

Periods of the kind of strong confidence that drives economic booms have repeatedly generated criticisms that monetary policy fueled excessive levels of optimism by keeping policy overly accommodative. For instance, theoretical work by Christiano, Motto, and Rostagno (2006) suggests that central banks that focus heavily on inflation may end up stoking confidence-driven booms. In their model, expectations that good times are ahead lead to upward pressure on real wages as the demand for labor increases. If nominal wages adjust slowly, pressures develop for prices and the inflation rate to fall. As inflation declines below their target rate, policymakers respond by lowering interest rates. In this way, they end up fueling the boom.

The evidence presented in panel C of Figure 1 suggests instead that historically, following an increase in confidence, monetary policy becomes more restrictive as the short-term policy interest rate rises. Monetary policy attempts to damp the boom by leaning against the rise in economic activity and inflation generated by rising expectations. Similarly, a wave of pessimism translates into a more accommodative monetary stance, as the economy weakens and inflation declines.

Read  Confidence and the Business Cycle here.

Posted by Graham Griffith

Former Trader Joe's President on the Importance of Building Strong Relationships

11-22-2010 8:27 AM with no comments

Doug Rauch worked for Trader Joe's for over three decades.  He was president for his last 14 years with the company.  And he saw the company through some big changes.  And through all those changes, Rauch argues that relationships became key to success.  Relationships between employees and customers, between the company and its employees, and between suppliers and the company: 

Posted by Graham Griffith

eMarketer: Small Business Attitudes Toward Social Media, Other Online Activities

11-22-2010 8:08 AM with no comments

In a recent eMarketer survey of small businesses--the majority of which were businesses with between 1 and 5 employees--nearly half of the respondents either don't believe their customers are using social media, or aren't sure. 

This seems to be out of touch with reality.  eMarketer estimates 57.5% are at least monthly users of sites like Facebook and Twitter.  From the report:

With a majority of US internet users on social networks, chances are the customers of even small local businesses are there. According toBIA/Kelsey and ConStat, 97% of US internet users used online media to look for local products and services in Q1 2010, and 90% used search engines. Research from comScore and TMP Directional Marketing shows that, looking for local businesses, searchers are much more likely to use a search engine than a social networking site as their primary resource, but both are used, especially among young people.

Read Does Social Media Marketing Make Sense for the Smallest Businesses? here.

Posted by Graham Griffith

Graphic Visualization: One Family's Mortgage

11-19-2010 2:56 PM with no comments

Dan Edstrom performs securitization audits for a company called DTC Systems.  According to the Zero Hedge website, that means Edstrom "reverse engineers" mortgages.  Edstrom drew up a flow chart reverse engineering one family's mortgage and then shared it with Zero Hedge.  Now this remarkable piece of work is making the rounds of the Internet.  Here's a look:

Click here for more on the chart, and to see a larger version.

Posted by Graham Griffith

In Speech at European Central Bank, Bernanke Defends Fed Policy, Criticizes Currency Undervaluation

11-19-2010 8:56 AM with no comments

Ben Bernanke made something of a stand today at the Central Banking Conference in Frankfurt today.  The Federal Reserve chair defended Fed policy, and called for more international "cooperation."  While the AFP interprets his remarks largely as a response to criticism over the Fed's quantitative easing measures from German officials, Bernanke also took some carefully worded aim at China:

It is striking that, amid all the concerns about renewed private capital inflows to the emerging market economies, total capital, on net, is still flowing from relatively labor-abundant emerging market economies to capital-abundant advanced economies. In particular, the current account deficit of the United States implies that it experienced net capital inflows exceeding 3 percent of GDP in the first half of this year. A key driver of this "uphill" flow of capital is official reserve accumulation in the emerging market economies that exceeds private capital inflows to these economies. The total holdings of foreign exchange reserves by selected major emerging market economies, have risen sharply since the crisis and now surpass $5 trillion--about six times their level a decade ago. China holds about half of the total reserves of these selected economies, slightly more than $2.6 trillion.

It is instructive to contrast this situation with what would happen in an international system in which exchange rates were allowed to fully reflect market fundamentals. In the current context, advanced economies would pursue accommodative monetary policies as needed to foster recovery and to guard against unwanted disinflation. At the same time, emerging market economies would tighten their own monetary policies to the degree needed to prevent overheating and inflation. The resulting increase in emerging market interest rates relative to those in the advanced economies would naturally lead to increased capital flows from advanced to emerging economies and, consequently, to currency appreciation in emerging market economies. This currency appreciation would in turn tend to reduce net exports and current account surpluses in the emerging markets, thus helping cool these rapidly growing economies while adding to demand in the advanced economies. Moreover, currency appreciation would help shift a greater proportion of domestic output toward satisfying domestic needs in emerging markets. The net result would be more balanced and sustainable global economic growth. 

Given these advantages of a system of market-determined exchange rates, why have officials in many emerging markets leaned against appreciation of their currencies toward levels more consistent with market fundamentals? The principal answer is that currency undervaluation on the part of some countries has been part of a long-term export-led strategy for growth and development. This strategy, which allows a country's producers to operate at a greater scale and to produce a more diverse set of products than domestic demand alone might sustain, has been viewed as promoting economic growth and, more broadly, as making an important contribution to the development of a number of countries. However, increasingly over time, the strategy of currency undervaluation has demonstrated important drawbacks, both for the world system and for the countries using that strategy.

Read the speech here.

Posted by Graham Griffith

When Introverts Make Better Bosses

11-18-2010 9:42 AM with no comments

Might introverts make better bosses?  The notion seems counter-intuitive, but Harvard Business School professor Francesca Gino has found that extroverts bring some disadvantages to managing, especially when it comes to leading a proactive team of workers.  In the latest Harvard Business Review, Gino, and co-authors Adam Grant and David Hoffman, share some research findings about some cases where extroverted bosses actually hurt profits.  Gino discusses the research in this HBR Ideacast:

Posted by Graham Griffith

Hulu Reaches 1.1 Billion Ad Impressions in October

11-18-2010 9:04 AM with no comments

comScore released the latest online video rankings this week, and they included some data on video advertisements.  There are no big surprises in the overall rankings--Google sites, which includes YouTube, account for nearly 40% of all online video viewership. Hulu comes in at 10th in number of unique visitors, but is second only to Google sites in minutes per user.  This may explain why advertisers seem to like the Hulu model.  And indeed, in terms of the sheer volume of ads, Hulu is lapping the field.  The site set a record with 1.1 billion ad impressions in the month.  Take a look at the breakdown:

View a summary of comScore's findings here.

Posted by Graham Griffith

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