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.
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.
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
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.
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.
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.
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.
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.
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:
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.
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:
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.
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).
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 distributionTwitter 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 capitalUse 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.
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.
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.
World Bank President Robert Zoellick says the global economic crisis is already putting a major strain on development and aid efforts, and the World Bank, the IMF, and global leaders need to act now to "prevent a human catastrophe."
Zoellick made the remarks at the close of the World Bank's spring meeting. At the press conference, the World Bank's Development Committee outlined the following initiatives to help alleviate the economic challenges in developing countries:
protect the poorest, the Bank has set up the Vulnerability Financing
Facility, including the Global Food Crisis Response Program and the new Rapid
Social Response Program. IFC (International Finance Corporation) has also
created the Microfinance Enhancement Facility to help poor borrowers.
reinvigorate trade finance, IFC has expanded its Global Trade Finance
Program from $1 billion to $3 billion, and has also launched its Global Trade
Liquidity Program, expected to support up to $50 billion of trade over the next
maintain infrastructure development and create jobs, the Bank has
established the Infrastructure Recovery and Assets Platform. The Bank will lend
up to $15 billion a year for infrastructure, while IFC has launched the
Infrastructure Crisis Facility.
• To help
support the financial sector, IFC has created the Capitalization Fund, to
provide additional capital for developing country banks. MIGA has extended
guarantees to loans to Eastern Europe for coverage of $500 million.
You can read Zoellick's remarks here, and watch the full Development Committee news conference here.
There has been much discussion of the bank bailout funds this week--and some of it is good news for those who want financial insitutions to start giving back. Goldman Sachs and JP Morgan want to repay their TARP money. And earlier this week Treasury Secretary Geithner says he expects $25 billion of the TARP funds to be repaid by the end of the year. So where does that money go? According to The Explainer--Slate's Christopher Beam--the money goes back into the program:
If a bank wants to return its TARP money, it gets siphoned back—by wire, usually—into the original pool. In his testimony, Geithner said there's $110 billion left of the original $700 billion allocated by the TARP program. So once the expected $25 billion is returned, the remaining stash should reach $135 billion.
The return of the money seems like a good thing all around. But The Explainer points out there is a downside:
Of course, there are risks to letting the banks return money. One is that they'll need it again, which would create a public relations snafu. Then there's a systemic risk problem: If one bank appears stronger than others, the weaker ones might get hurt as investors yank their money, and short sellers bet against them. That's why Geithner is insisting on completing the stress test—which measures the banks' strength—before deciding which big companies get to return their money.
Read The Explainer's full explanation here.
And track the returned money at Slate's Tarp-O-Meter here.
Matt Winkleman is a graphic designer in Appleton, Wisconsin. He has been using his design/animation skills to produce online experimental music videos (under the name Beeple). Here he takes an "experiment" gone bad that many, many Americans and financial institutions took part in--the Subprime Mortgages--and provides one visualization of what happened for some overreaching homeowners:
subprime from beeple on Vimeo
.Hat tip to Caitlin Kenney at Planet Money.
Rita Gunther McGrath and Ian MacMillan say their new book, Discovery-Driven
Growth, is based on the idea that innovators can create "predictable,
manageable, and disciplined process[es]" for business ventures even when they
are tacking something brand new. In this
interview for the Harvard Business Review, McGrath, a professor at Columbia
Business School, says that when you operate without the benefit of institutional
knowledge, you operate on assumptions rather than experience. But that doesn't
mean you have to fly blind. She says
innovators have to "plan to learn" rather than "plan to be right."
You can read the first chapter of Discovery-Driven Growth
Financial Times Editor Lionel Barber agrees with critics who say financial journalists dropped the ball when it came to forecasting the global economic crisis, and he names four "weaknesses" in economic and financial coverage in the period leading up to the crisis. First, financial journalists couldn't get their collective heads around "over-the-counter" derivatives and their risk factors. Second, most journalists did not grasp the risks posed by the "implicit state guarantees enjoyed by Fannie Mae and Freddie Mac,"
Third, journalists failed to grasp the significance of the growth in off-balance sheet financing by the banks, its relationship with the pro-cyclical Basle II rules on capital ratios, and the overall concept of leverage. How many news organisations reported on the crucial Securities and Exchange Commission decision in 2004 to loosen its regulations on leverage? The explosive growth of structured investment vehicles at the height of the credit boom was also woefully under-reported.
Fourth, financial journalists were too slow to grasp that a crash in the banking system would have a profoundly damaging impact on the real economy. The same applies to regulators and economists. For too long, too many experts treated the financial sector and the wider economy as parallel universes. This was fundamentally wrong.
You can read Barber's full speech here.
Wall Street Journal economics editor David Wessel says there "isn't any doubt where the global economy is now," after yesterday's report from the IMF that we're in the midst of the worst global recession since the Great Depression. And just as the US dragged the world down into this recession, so too with the US be the driving force for recovery. In this short video, Wessel lays out three possible scenarios for where the economy is going (spoiler alert: "quick recovery" is not one of the scenarios):
Americans have historically shown a willingness to move for work, and the economy has often benefitted as a result. But according to the latest figures on mobility in the US from the Census Bureau, fewer Americans moved last year than in any year since 1962, when the total US population was 120 million people smaller than it is now. Sam Roberts of the New York Times reports on the findings. And while the lack of mobility is a not-so-surprising result of the economic downturn, it could also delay recovery:
Experts said the lack of mobility was of concern on two fronts. It suggests that Americans were unable or unwilling to follow any job opportunities that may have existed around the country, as they have in the past. And the lack of movement itself, they said, could have an impact on the economy, reducing the economic activity generated by moves.
Joseph S. Tracy, research director of the Federal Reserve Bank of New York, said the lack of mobility meant less income for movers and the people they employ and less spending on renovation and on durable goods like appliances. But, Dr. Tracy said, the most troubling prospect is that people were no longer able to relocate for work.
“The thing that would be of deeper concern is if job-related moves are getting suppressed and workers are not getting re-sorted to the jobs that best use their skills,” he said. “As the labor market started to improve, if mobility stays low, you can worry about the allocation of workers.”
Roberts discussed the report on The Takeaway with John Hockenberry and Katherine Lanpher. Listen to their conversation here. And read As Housing Market Dips, More in U.S. Are Staying Put here.
Credit card companies have come up with various new ways of fighting identity theft through new technolgies on the cards themselves. But these new ideas haven't stuck, mainly because they require merchants to change their equipment. A team of Carnegie Mellon students who developed a way of making a credit card magnetic stripe that could change its data from one card to another, allowing for greater security and added flexibility (theoretically, a person can carry several "cards" on just the one card). And for their novel idea, the team--now a company named Dynamics--was awarded the grand prize at the 2009 Rice Business Plan Competition. CNNMoney.com Small Business has a profile of Dynamics, and other winners at the competition, here. For more background on the competition, click here.
The Bernie Madoff story has a wide wake. While he sits at home after pleading guilty to the biggest investment fraud in history, the ripple effects of his Ponzi scheme continue to hit people. This week, a federal judge blocked any transfer of Madoff and his wife's personal wealth, and Madoff related lawsuits keep on coming.
Meanwhile, Harry Markopolos, the man who saw Madoff's fund for what it was--a massive fraud--and spent the better part of a decade trying to get the SEC to pursue charges against Madoff, tries to get back to his life. But his story is too compelling to ignore. Markopolos recently sat down with Curt Nickisch of WBUR-fm in Boston (Markopolos's home city) to provide his full story. Here's a short video of Markopolos explaining the difficulty he found in trying to warn investors about the Madoff fraud:
Read Nickisch's online report, and listen to his radio profile of Markopolos here.
The International Monetary Fund released its April World Economic Outlook report today, and economists and policy makers around the globe are squirming over its findings. The latest IMF projections show the global economy in its worst recession since World War II.
The global economy is in a severe recession inflicted by a
massive financial crisis and an acute loss of confidence. Wide-ranging and
often unorthodox policy responses have made some progress in stabilizing financial
markets but have not yet restored confidence nor arrested negative feedback
between weakening activity and intense financial strains. While the rate of
contraction is expected to moderate from the second quarter onward, global
activity is projected to decline by 1.3 percent in 2009 as a whole before
rising modestly during the course of 2010 (see right). This turnaround depends
on financial authorities acting decisively to restore financial stability and
fiscal and monetary policies in the world’s major economies providing sustained
strong support for aggregate demand.
The U.S. economy is projected to contract at a rate of 3.8% (-3.8% growth), while Britain is expected to see contraction of 4.1%. Japan is heading for growth of -6.2%. The Euro Area as a whole is projected to see -4.2% growth--Germany leading the way at -5.6%; -3.0% for France and Spain, and -4.4% for Italy. China and India are projected to see economic growth of 6.5% and 4.5%, respectively. The report does project global economic growth for 2010, but at a relatively slow rate of 1.9%.
You can read the first chapter of the report here, or a summary from the IMF press office here. And watch Olivier Blanchard (at left), director of IMF's Research Department, introduce the report by clicking here.