• Understanding the Cost and the Value of Being First

    Seth Godin says "the cost of being first is higher than it's ever been."  But is the payoff worth the rising cost?  Godin suggests it is not:

    Have you noticed how often stock analysts quoted in the news are wrong? Wrong about new products, wrong about management decisions, wrong about the future of a company? In fact, they're almost always first and almost always wrong.

    Rule of thumb: being first helps in the short run. Being a little more right than the masses ultimately pays off in the long run. Being last is the worst of all three.

    A few people care a lot about scoops. Most of us, though, care about alert people making insightful decisions. Decide who you're trying to please, then ship.

    Read the full post at Seth's Blog, here.  

  • Marketplace Whiteboard: Shadow Banking's Lasting Dangers

    Paddy Hirsch says shadow banking was, for the most part, left alone by Congress and the Obama Administration in regulation changes this summer.  And that may be a problem.  As Hirsch reminds us, shadow banking lends more money to more Americans than any other financial sector.  He explains the potential danger in this Marketplace Whiteboard video:

    Shadow banking: still big, still dangerous from Marketplace on Vimeo.

  • GDP Grew During 2nd Quarter, But Not By Much

    The economy grew at an annual rate of 2.4% in the second quarter, according to data released by the Commerce Department this morning.  That is a slowdown from the 3.7% growth rate during the first quarter (this is a revised rate, as the Commerce Department had previously put the growth of GDP for the first quarter at 2.7%).  While the growth is smaller than many expected, it does represent the fourth straight quarter that real GDP rose.  Here's a look at the trend, from the Bureau of Economic Analysis:

    And some explanation as to what drove the growth, and what held further growth back:

    The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, exports, personal consumption expenditures, private inventory investment, federal government spending, and residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, increased. 

    The deceleration in real GDP in the second quarter primarily reflected an acceleration in imports and a deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending. 

    Read the release here.  

  • WSJ's Brett Arends on Market Myths 'That Just Won't Die'

    As Personal Finance Columnist for the Wall Street Journal, Brett Arends tries to look out for the individual investor.  And in this short video, he breaks down four "calming myths" about which investors should be very skeptical:

    Four myths not enough for you?  Arends writes about an additional six in this column.

  • The Real Option to Hold Cash

    Nick Rowe, Professor of Economics at Carleton University, takes real option theory to task at the Worthwhile Canadian Initiative blog. Rowe says that real option theory includes the option of doing nothing as one of its "neatest options." But this option overlooks the idea that doing nothing is indeed doing something--especially when cash is involved.

    You can't just do nothing with your income; you have to spend it on something. If all things you could spend it on were irreversible, then you can't talk about the option value of doing nothing, or postponing a decision. You have to decide now. You could insulate your house with R20, or buy a new car, or buy a holiday, but none of those expenditures is fully reversible. You can't return the holiday after you have enjoyed it; you can't re-sell the new car and get anything like what you paid for it.

    There is one thing you can spend your income on that is very reversible: cash. In fact, if we spend our income on cash, we don't even think of that as spending it at all. We think of that as not spending it. We think of holding cash as doing nothing. In fact, since we live in a monetary exchange economy, our income comes to us as cash anyway. So it's not like we make a decision to invest in cash today, and then reverse that decision next year. We have the cash already, and can decide to spend it now, or decide later to spend it later. Holding cash keeps our options open. Cash is the real real option -- to do anything.

    Talking about the option value of doing nothing only makes sense in a cash economy. If we invest in insulation we cannot reverse that decision next year. If we hold cash, we can reverse that decision next year. Holding cash is to hold the option. Holding insulation is to exercise that option, so you no longer hold the option.

    Read Cash as the real real option -- to do anything here.

  • Case-Shiller: Housing Prices Up in Most US Metro Areas, But Long Term Trend Shows 'Sideways' Movement

    New data released by the Standard and Poor's/Case Shiller Home Price Indices shows that housing prices rose in May.  The 10-City and 20-City Composites rose 5.4% and 4.6% respectively over their levels in May 2009.  Overall, average housing prices are now at the level they were in October 2003, as shown by this chart from S&P:

    S&P's Chairman of the Index Committee cautions us not to put too much behind this upturn, as it does not reflect a major rebound of the housing market, but rather a "sideways" movement of prices.  From the report:

    “While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Since reaching its recent trough in  April 2009, the housing market has really only stabilized at this lower level. The two Composites have improved between 5 and 6% since then, but this is no better than the improvement they had registered as of October 2009. The last seven months have basically been flat.” 

    Read the report from S&P here.  

  • Razorfish's Bob Lord on BP's Only Option

    In a long anticipated move, Tony Hayward resigned as CEO of BP yesterday.  Most analysts viewed the move as essential for the company to have any hope of improving its standing with investors as well as the general public.  Bob Lord, CEO of Razorfish, says there is really one way for BP to restore its brand, and that is to stop the oil spill in the Gulf of Mexico.  And, he says, they should be clear with the public about what they are doing.  

    Watch the full Big Think interview with Lord here.  

  • A 'Paper About Nothing': Using Seinfeld to Teach About Investment Decisions

    We're not sure how much Seinfeld resonates with today's students--it has been off the air for 12 years now (though in syndication).  And we're pretty sure almost none of them were paying attention when the Today Sponge was taken off the market in the early 90s.  But we still love the idea that Princeton University economics professor Avinash Dixit is using the popular Seinfeld episode in which Elaine introduced the phrase "sponge worthy" to America to teach students about investment decisions.  Mary Pilon describes Dixit's paper at Real Time Economics:

     

    The paper uses option pricing theory to deconstruct Elaine’s decisions in the “Seinfeld” episode number 119 “ The Sponge.” In it, Elaine’s preferred contraceptive sponge goes off the market, sparking an ultimately fruitless hunt for a greater supply. Her limited supply of contraceptive sponges forces her to reassess their usage, and decide whether a potential partner is “sponge-worthy” or not.

    “You are deciding whether or not to make an investment decision,” Prof. Dixit says. “The mathematical techniques are exactly the same as financial options.”

    Read The 'Economics' of Seinfeld here.  

     

  • Is 9-10% Unemployment the New Norm?

    Peter Cappelli, professor of Management at The Wharton School, says Americans have a tendency to accept unemployment rates as "normal" when they stay at the same level for a while.  In the 90s, for example, 4% became the accepted norm.  The "new normal" was 8% in 1981.  And now, we may be resigning ourselves to the idea that 9-10% is normal.  What is different now, Cappelli says, is there are more people who believe that "there is nothing that can be done" about high unemployment.  Here is Cappelli speaking about the current debate over what to do about unemployment today in a Knowledge@Wharton interview:

  • Business Lessons from the Dead...the Grateful Dead

    The Grateful Dead as role models for businesses?  Seems a bit far-fetched.  Until one considers their lasting power and the loyalty they built up among their fans.  In a new book, David Meerman Scott and Brian Halligan, stress that the Dead understood that their brand did not depend on heavy-handed control, but rather a willingness to evolve and innovate.  They write:

    The Grateful Dead teaches us to show our brand's playfulness and to trust that our customers will recognize our brand even if it looks a little "different."

    When designing your websites, e-books, whitepapers, and social media profiles, give your design professionals some leeway. Yes, you want them to follow your corporate design standards, but let them deviate from those standards as appropriate. Professional designers know how to exercise their skill and incorporate fresh ideas without deviating completely from your brand.

    By loosening up your brand, you allow your company to show its personality—and, by extension, its ability to roll with the punches.

    The book is titled Marketing Lessons from the Grateful Dead: What Every Business Can Learn From the Most Iconic Band in History, and Scott and Halligan have provided MarketingProfs with an excerpt.  Read it here.

  • A Fresh Approach in Financial Services

    Fast Company's Dan Macsai reports on a new financial services outlets in Austin, Texas that is trying to tap into the large number of Americans (25%, according to Macsai) who do not have bank accounts:

    The Mango Store, which opened in Austin in April, reimagines the entire banking experience for this market. Rather than treat the unbanked as transient customers, Mango aims to forge transparent, long-term relationships. Clients pay a one-time $10 fee that lets them "cash" as many checks as they want by loading the money onto debit cards (backed by a local bank). More sophisticated services, such as international money transfers and bill payment, cost extra. Even so, Mango's operating costs -- and, by extension, its fees -- are significantly lower than other alt-finance outlets because it uses its own technology (developed by Mpower) and offers a multitude of services (including Web and mobile-phone apps). "It's a smart strategy," says Jennifer Tescher, director of the Center for Financial Services Innovation. "If Mango helps its customers grow financially, it can stick with them as they climb the ladder."

    Read the full article here.

  • Bernanke: ''Economic outlook remains unusually uncertain"

    Federal Reserve Chair Ben Bernanke's appearance before Congress yesterday seems to have had an effect on markets in the US and abroad.  With the US economy as it now stands, Bernanke spoke in measured terms about recovery, with jobs and consumer spending as leading reasons for the üncertain"future":

    An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects. After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers' employment and earnings prospects.

    In the business sector, investment in equipment and software appears to have increased rapidly in the first half of the year, in part reflecting capital outlays that had been deferred during the downturn and the need of many businesses to replace aging equipment. In contrast, spending on nonresidential structures--weighed down by high vacancy rates and tight credit--has continued to contract, though some indicators suggest that the rate of decline may be slowing. Both U.S. exports and U.S. imports have been expanding, reflecting growth in the global economy and the recovery of world trade. Stronger exports have in turn helped foster growth in the U.S. manufacturing sector.

    Inflation has remained low. The price index for personal consumption expenditures appears to have risen at an annual rate of less than 1 percent in the first half of the year. Although overall inflation has fluctuated, partly reflecting changes in energy prices, by a number of measures underlying inflation has trended down over the past two years. The slack in labor and product markets has damped wage and price pressures, and rapid increases in productivity have further reduced producers' unit labor costs.

     Read the full speech here

  • An Argument for Putting Customers Second

    Vineet Nayar, CEO of HCL Technologies, Ltd., believes that businesses must hold customers in high regard.  He just doesn't think they necessarily need to come first anymore.  In a provocative new book, Employees First, Customers Second, Nayer argues that value is created when customers connect with employees.  It is at that "interface,"according to Nayar, where good businesses move forward.  And so a business's growth depends on those employees being the best they can be.  And so the business of management, in Nayar's view, is "to be in the business of encouraging, enthusing and enabling the employees to create the differentiated value."

    Nayar spoke about the book recently with Harvard Business Publishing's Sarah Green:

    For more of Nayar's thoughts on Employees First, Customers Second, click here.   

  • One Common Mistake by Young Entrepreneurs

    In an interview with Entrepreneur's Scott Gerber, Matt Wilson, co-founder of Under30CEO, spoke candidly about his own mistakes in trying to break out of the 9 to 5 world and start his won company.  And he shared his ideas on what challenges young entrepreneurs, in particular, face in the business world.  And, he says, many fail because they forget one of the most basic  pieces of tunning a business: figuring out where the money is coming from:

    One of the biggest mistakes young entrepreneurs make is neglecting their revenue model. Today there are so many businesses that haven't figured out how to monetize themselves yet. To me, the word monetize is redundant in business. If you don't have a business model, you aren't really in business--it's just a hobby. Sure, investors are dropping millions of dollars into companies with hopes of being acquired by Google, but without a solid business model behind it, you are just building "castles in the sky."

    Seasoned investors and accomplished entrepreneurs can help mentor young people to overcome this hurdle. Show them your financials and focus on how to generate cash flow. There are thousands of people out there who want to see young people succeed--you just need to ask.

    Read the full interview at Gerber's column, here

  • 5 Tips for Small Businesses When Growth Means Expansion Overseas

    When a successful small business looks for new markets, that can mean looking to reach customers overseas.  Such a move can reap rewards, but it requires some significant shifts in approach.  Verne Harnish, who writes under the "Growth Guy" monniker, is all for taking the leap.  Over at CNNMoney.com and Fortune Small Business, Harnish, CEO of the consulting firm Gazelles Inc., lists 5 strategies for any small business owner looking to go global:

    1. Set ambitious goals;

    2. Go multilingual;

    3. Focus narrow and deep;

    4. Source globally;

    and 5. Follow the customer.

    Click here to read Harnish's description of these strategies.

  • Growth in Telecom Dependent on Emerging Economies

    This new Economist slide show shares some interesting data on the growth and impact of mobile phones in the developing world.  As the narrator states, "what was once a yuppie toy has become a tool of economic empowerment."  Indeed, it appears that the future of the telecom industry is highly dependent on the mobile boom in emerging economies.  And those economies seem to be more and more dependent on mobile technology for their own growth.  Take a look:

    Telecoms in emerging markets from MF13 on Vimeo.

  • Calculated Risk's 'Really Bad Scenario' and Debt Defaults

    Calculated Risk is doing a series of blog entries describing the Really Bad Scenario.  This is not, as the author is quick to point out, an exercise in examining what will happen in the "worst case scenrio," but rather to look at historical precedents for the current global economic picture to get, well, really bad.  And the latest analysis is on sovereign debt (see Ireland's latest problems in that department below).  Calculated Risk poses the possibility of nearly half (45%) of all countries that have "large outstanding sovereign debt" default in the next 2-3 years.

    So, who defaults? A simple method is to choose the 45% of countries with large sovereign debts (over $50 billion) that currently have the highest cumulative probability of default. They are assumed to default in the same order as implied by their cumulative probability of default at 6/30/10 from CMA: Greece, Argentina (again), Portugal, Ireland, Spain, Italy, Turkey, Indonesia, Belgium, South Africa, Thailand, South Korea, Poland, Brazil, Mexico and Malaysia.

    This involves about $5.6 trillion of debt in default, about 16% of all sovereign debt. If historic trends repeat themselves, it all happens within about two years of the first default (Greece), and 11 home currencies are involved. At the low end recovery rate of 31% of face value, there are about $3.8 trillion of losses. This is about 2-3 times the amount currently embodied in credit default swap pricing which we calculated in Part 4 ($1.3-1.8 trillion).

    But then, since this is a really bad scenario, Japan defaults too. This might occur because of a global economic slowdown, a rise in general risk premiums and interest rates raising Japan’s debt service (this could take longer, Japan’s average maturity is 5-6 years), Japan’s banking system being affected by defaults elsewhere in the world, lack of political will to make reforms, or several other mechanisms.

    This is a scenario that must make policymakers' stomachs turn.  But the argument from the author is that this is what could happen, because it has happened in the past.  Read the post here.

  • China and India: Two Paths, But Similar Goals

    Girija Pande, chairman of Tata Consultancy Services for Asia Pacific, works with many companies in emerging powerhouses China and India.  He says the business approach varies greatly from country to country, but the goals can be quite similar.  He visited with Wharton professor of management Jitendra Singh recently and discussed the good and the bad, the effective and the ineffective, of businesses in China and India.  Here is part 1 of that conversation:

    You can watch part two of the conversation here.  And part three here

  • The North Dakota Success Story from The Minneapolis Fed

    In the first five years of the Twenty-first Century, only two US states lost population, FedGazzette editor Ronald Wirtz points out.  Louisiana lost population because of Hurricane Katrina and its aftermath.  The other state was North Dakota, which had economic stagnation to blame.  And yet, Wirtz writes, North Dakota is singing a different tune these days.  Take a look at how the state's employment numbers fare against its neighbors and the nation at large:

    North Dakota has not been immune from effects of the crisis.  It has had its share of factory closings, and seen some 11% of its manufacturing jobs go away, according to Wirtz.  But its struggles have been minor compared to just about every other state.  Wirtz:

    There are both obvious and subtle reasons for this success. Most people, for example, are quick to credit the shale oil boom in the western part of the state—the so-called Bakken play.

    Though oil prices have been up and down a lot over the past two years (see the September 2009 fedgazette and a Web-exclusive June update), the oil-producing portion of the state has been surging with the rebound in crude prices. Last year, the state pumped 80 million barrels of oil—up almost 25 percent from 2008. Since 2004, crude oil production in the state has grown an average of 17 percent per year. The state is now the fourth-largest oil producer in the United States, behind only Alaska, Texas and California.

    The success and impact of the oil industry shows immediately in employment data (see “Mining, Logging & Construction” in the table). Because this category includes construction jobs, most states saw numbers plunge—even more than in manufacturing—because of the collapse in housing. But not North Dakota, which saw sector employment rise by 5.6 percent on the heels of strong growth in the oil patch, a healthy coal market (the state is the nation’s 10th-largest producer of coal) and a more stable housing market.

    Read North Dakota: The little economic engine that could here.

  • Ireland's Bond Rating Downgraded

    Ireland's economic policymakers have taken another hit in their efforts to right the ship.  Moody's is downgrading the country's bond rating from Aa1 to Aa2.  The BBC reports:

    Ireland has suffered a severe contraction in GDP since 2008, causing a sharp decline in tax revenue.

    And Moody's said the banking and property sectors, which had driven the economy before the global economic downturn, would not contribute strongly to overall growth in coming years.

    It also pointed to the country's swelling levels of debt as a reason for the downgrade.

    Read the report here

  • Shirky: Capturing 'Cognitive Surplus' Through New Technology

    Clay Shirky--author of Here Comes Everybody and adjunct professor in NYU's Interactive Telecommunications Program--has a way of looking at what may seem like small acts and marking important shifts in consumer behavior.  Speaking last month at a Ted Conference in Cannes, Shirky addressed something he calls "cognitive surplus."  He argues that some creative behavior that we may see as solitary or non-productive might actually be pushing new ideas through "building a better, more cooperative world."

  • The Importance of Family Firms in US Business

    Sonja Carberry wonders whether summer family cookouts are also hotspots for business talk. As she writes in Investor's Business Daily,  "more than half of all incorporated U.S. businesses are family-led."  So the separation between family time and work time may not be so clear.  And that goes for a variety of business sizes:

    Think clan-piloted firms are mostly mom-and-pop operations? Ernesto Poza, author of "Family Business," pointed to relative giants Wal-Mart (WMT), Ford Motor (F) and Nordstrom (JWN).

    Family firms "account for — by the lowest estimates — 49% of the gross domestic product" and 60% of all new jobs, Poza told IBD. "They are the economic engines of the U.S. and the economic engines of the world."

    Read Win Working With Kin here

  • Why Marketers Should Take the Blame, Even When the Customer is Wrong

    So the customer isn't really truly always right, says Allen Weiss of MarketingProfs.com, but marketers have to operate as though they are--beacuse the customers are likely to believe they are right event when they aren't.  Weiss argues that this can be attributed to something called fundamental attribution error (FAE), and marketers are better off not trying to fight it:

    Consider service encounters. I'm sure you've had customers who've yelled at you for things that they did themselves. Maybe they didn't read the instructions carefully on a product you sold them, or they didn't see the links on your website they were supposed to click. Maybe you were at fault, or maybe you weren't. It doesn't make any difference, since it's something bad that happened to a customer, so they will typically say it's due to somebody else... namely, you. That's the FAE at work.

    Of course, the easiest way out of this is to make sure your customers always have good things happen to them... That makes them feel good, empowered... and they are likely to take responsibility for all of this good stuff.

    Let them.

    Read Why You're Always Wrong and Your Customers Are Always Right here

  • Marketplace Whiteboard: The SEC's Move to Eliminate Stub Quotes

    The Securities and Exchange Commission is pushing for new rules that will make the markets safer and, as ABC puts it, "ensure there is liquidity during stressful times."  And one of the measures the SEC is trying to take is to eliminate stub quotes.  And if you don't quite follow the potential danger of these orders, then Paddy Hirsch of Marketplace offers up an explanation:

    Market makers, stub quotes and new SEC rules from Marketplace on Vimeo.

  • Five Reasons Behind Successful Acquisitions

    One way to add value to a company is by adcquiring another.  But M&As are anything but sure bets.  In the latest McKinsey Quarterly, Marc Goedhart, Tim Koller, and David Wessels share five "archetypes" for successful acquisitions.  They are:

    1) Improve the target company’s performance;

    2) Consolidate to remove excess capacity from industry;

    3) Accelerate market access for the target’s (or buyer’s) products;

    4) Get skills or technologies faster or at lower cost than they can be built;

     and 5) Pick winners early and help them develop their businesses.

    Read the authors' descriptions of these archetypes here