Friday, December 10, 2010

Has anyone seen "19 Facts About Deindustrialization...?"

Have you received an email or noticed this very blogged post? I have inserted it below and have added my comments to it. To my knowledge, no one has bothered to respond; probably because it is riddled with hyperbole and does not suggest what to do about this doomsday situation. Hope you enjoy my rebuttal which is italics and bolded after each number...

So what happens when the debt bubble pops?

The deindustrialization of the United States should be a top concern for every man, woman and child in the country. But sadly, most Americans do not have any idea what is going on around them.

For people like that, take this article and print it out and hand it to them. Perhaps what they will read below will shock them badly enough to awaken them from their slumber.

The following are 19 facts about the deindustrialization of America that will blow your mind....

#1 The United States has lost approximately 42,400 factories since 2001. About 75 percent of those factories employed over 500 people when they were still in operation.

The 3 million manufacturing jobs lost since 2000 have been reabsorbed into our economy. They are a very small part of the unemployment today, which is primarily marginal service workers.

#2 Dell Inc., one of America ’s largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.

They did this to sell more computers in China. Wouldn’t you? They are competing with Lenovo (formerly IBM PCs) in their home market. Seems like a good idea.

#3 Dell has announced that it will be closing its last large U.S. manufacturing facility in Winston-Salem, North Carolina in November. Approximately 900 jobs will be lost.

And this is because it is competitive? Of course it is not competitive. Here’s one for you…why have Mercedes, Toyota, Honda, BMW and Nissan all set up manufacturing in the USA? Because they are not unionized.

#4 In 2008, 1.2 billion cell phones were sold worldwide. So how many of them were manufactured inside the United States? Zero.

Question, how much of the software running he 1.2 billion dollars was produced inside the United States? Almost 100%

#5 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.

The United States has been more than 25% of the world’s GDP since 1950. As a fully industrialized nation, our economy cannot grow if the world economy does not grow. The only way it grows is to produce and sell more. The first phase of industrialization is to export. The second phase is to consume. China has not even begun to consume. The answer for US job growth is to innovate and to produce efficiently.

#6 As of the end of July, the U.S. trade deficit with China had risen 18 percent compared to the same time period a year ago.

Just ponder the following table for a moment. It shows the development of the world’s largest population. They are earning more and spending less on food and closing and housing, and increasing their expenditures on health, transport, telecommunications, services and goods. Hmmm…

#7 The United States has lost a total of about 5.5 million manufacturing jobs since October 2000.
The number is actually 3 million. The real question is, what do you want them to build? More washing machines? More cars? More iPods? Part of our manufacturing decline has to do with SATIATION. How much more stuff do we need?

#8 According to Tax Notes, between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies increased an astounding 30 percent to 10.1 million. During that exact same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.

Are we supposed to interpret this to mean that the foreign affiliates are producing goods and shipping them back here? That is offensive to the reader’s intelligence. Let’s take General Motors. They have increased manufacturing employment in China to around 250,000 to BUILD BUICKS FOR THE CHINESE. See the Dell comments above.

#9 In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent.

According to all sources, including Wikipedia, this number is 21.9%, not 11.5%.

#10 Ford Motor Company recently announced the closure of a factory that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford's new "global" manufacturing strategy.

Ford just announced this week that they are hiring 1,800 people to work in their Louisville plant.

#11 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.

I dispute this figure. I simply think it is inaccurate. The US Bureau of Labor Statistics says in 2010 we have over 16m in this category.

Still I don’t know what the point is here. Do we want our college educated children working in manufacturing just to get this number over 12 million? Even with unemployment at 10%, we have more adults working now than ever.

#12 In the United States today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services.

If this was not happening, we would be Cuban. It literally shows an absolute lack of understanding about society’s economic development. We are fully industrialized. Every home has a washer and dryer, refrigerator, television, furniture, etc.

#13 The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.

This seems to be the Department of Redundancy Department.

#14 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.

This has to do with 1) Excessive Government Regulation and 2) countries with small populations putting broadband into place.

#15 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.

Not in absolute terms, but perhaps in % (see point 11 above).

#16 Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.

Why would stamping silicon be an ambition. 90%+ of the world’s software running the circuit boards is created in the USA.

#17 The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.

See the table above about Chinese consumption and you tell me if you think they will be buying more or less of our goods in the future.

#18 One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.

That would happen if Al Gore is correct and the USA will be 20 feet below sea level and we are all dead.

#19 The U.S. Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in the 51 years that records have been kept.

Poverty should always be a serious issue, but only a U.S. citizen who has never left this country could possibly think that our definition of poverty is the same as the rest of the world. We define the Poverty Line (2008) for a family of 4 as earning less than $22,200 per year. The international poverty line is defined by $1 per day. Do I need to go on?..

Wednesday, November 10, 2010

What is Youth and Youth Marketing?

What is youth? Why does it matter to marketers? The following article addresses both of these questions, and in doing so, will provide an introduction to some of the strategic brand thinking we do at Tangible Worldwide. This discussion is not about marketing to young people. Quite the contrary, we are exploring why so many brands targeted at adults consistently draw upon elements of youth to present their brands.

So let us begin by considering what makes youth so appealing to adults. Why does youth have such a tremendous emotional appeal to all human beings? We are naturally drawn to babies or toddlers and even adolescents. We obviously love the real thing, but we are also drawn to images of youth, and are fundamentally moved by what we perceive youth represents. I believe there are five fundamental reasons why we are attracted to the image and reality of youth. These are:

The innocence of youth – also known as naiveté; the lack of sin; the curiosity and inquisitiveness of the young
Vitality and health – there is a virility and strength that comes with youth; there is also the natural competitiveness in play and sport and the classroom
Relevance – popular culture is generated by youth, and youth amplifies trends.
Rebelliousness – this generally takes the form of “stick it to the man” and there is also the bad boy element
The desire to protect the young and everything for which it stands.
Yes, it is true, there are also painful memories and associations from growing up – being teased or bullied is never pleasant; being rejected by the first person you found attractive; or going through that awkward stage where you felt like you never fit in. But it is because we hope for the better outcome that we look past those negatives and focus on the positives; or at least marketers do.

Great brands, and the very best agencies working to build brands, love to focus upon youth BECAUSE THESE FIVE ELEMENTS POWERFULLY EVOKE EMOTION. They are the basis for great story-telling. These key elements are found in every cultures myths, histories and religions. As we shall see, focusing upon youth is a major reason behind what make brands powerful and what make work great.

Innocence and Youth

One of the most interesting parts of being young, and the feature most adults find endearing in youth is naiveté. Youth exhibits an honesty and innocence which touches most people. We expect for the young to be sheltered from life’s uglier truths – primarily sin, and mortality in particular. We find the association of innocence and youth in Hinduism, Buddhism and Judeo-Christian stories. For example, when we read the list of seven deadly sins – Gluttony, Sloth, Lust, Greed, Wraith, Coveting, and Vanity – we do not associate them with youth. But neither do we associate youth with the pretentiousness of the Cardinal Virtues. With a general lack of awareness of the “evil that men do,” comes an aura which once observed , makes us reflect on the very best a human being can be. When a child asks a question like, “will Fido go to dog heaven?” or they say “let me kiss that boo boo to make it better,” we all know that it is from a natural and pure love born of naiveté.

We also enjoy the curiosity of youth because it is both playful and naïve. There is honesty in the questioning of children, even to adolescence. As adults, we admire the courage of asking a question. While children are oftentimes called “clean slates,” it is not that they do not know an answer; it is that they have the trust and the courage to ask questions without the taint of age and experience. They do not know what it is like to be embarrassed.

It is the innocence of youth which forms the foundation of some great communications platforms. On the one hand, there are those moments that elicit from the viewer “aaahhhh” with a deep sigh. We see a child gently kiss another child on the cheek after the first receives a candy from the 2nd and we all get that feeling. But it does not have to be a communications platform which shows children. When Prudential shows people doing a “good turn” and inspiring other to do the same, Prudential moves us in a similar way.

The Vitality and Health of Youth

Another key element of youth is health. We expect that younger people are more fit, have more stamina, and desire to compete to distinguish themselves among their peers. This vitality and virility is again one of the mainstays of many advertising and communications programs. As Bob Hill, creator of Fox Sports once said, “Every man views himself in the mirror as being 21. Those under 21 want to be that age so they can drink and get girls and every man over 21 wish to return to that age to be free and get girls.” Some of our fascination with youth is that young people play. As we grow older, we don’t go to the playground and swing nor climb on the jungle gym. And to be honest, we miss that vitality; that plain and simple joy. We see the faces of young people when they chase a dog or a kite, and we remember how that felt. We see a toddler laugh as she pops bubbles blown by a parent, and we long for that discovery. We see two teenagers holding hands for the first time and we remember how it felt when we were that age. We also remember when we had the energy to take up a cause and to fight for what we thought was right rather than just go along for the ride.

Marketers use youthful images to convey this energy, this joy, this power and this spirit in many campaign ideas. It is in the use of color and light. It is in the use of movement, including dance. Most carbonated beverages, whether Coke, Pepsi, Sprite or Mountain Dew, all play upon the joy and vitality of youth in their marketing campaigns. Even Nike’s emphasis on “just do it” is about effort. Indeed, it is a competition against laziness, and it is a competition to do one’s best, not necessarily beat others.

The auto category is especially fond of youthful vitality. Mazda’s Zoom Zoom campaign launched with the image and voice of a young boy for this reason. When Toyota noticed that its average owner age was increasing by more than 1 year each year, it knew it needed to appeal to younger people. It launched the Scion with a campaign focused upon hip hop music, street dance and raves. While Scion’s demographic is younger than Toyota’s, in the end, they still have an average over 35. It seems that middle age people want to be perceived as young too.

Being Relevant to Popular Culture is Defined by Youth

As a quick precursor, I define popular culture as a blend of music, entertainment, technology, sports and fashion. In each of these areas, youth play a critical role.

Music – when we think of music, we think of youth. The charts are defined by the sales of music to young people. Hip Hop, Rap, Electronica, Dance, Alternative and Emo are all modern genres from the youth of the last 20th and early 21st century. Having been to Sasquatch and Bumbershoot for the past few years, trust me, the mosh pit is not populated by 50 somethings. Just as video killed the radio star; YouTube killed the video star, sings MGMT. Adults are not trolling YouTube for the latest music video, young people are. And they discuss it, and define what is in and what is out. Adults look to the young to decide whether today’s music is even possibly relevant. The good news is that most of us grew up with rock and roll, and therefore we can hear the Ramones in Green Day, and the Talking Heads in Modest Mouse, and David Bowie in Arcade Fire. This is also a reason by music is so prevalent in all marketing campaigns. It not only sets a tone, it demonstrates relevance.
Entertainment – this is less clear, because it is true that youth does not make Crazy Heart an Oscar winner nor a blockbuster, but Disney and DreamWorks make their living on the very young. More towards adolescence, Reality television shows like the Hills, Jersey Shore or Nickelodeon bring shows which both reflect and guide (much to the horror of parents) the norms for behavior for young people.
Technology – young people don’t wear watches because they use their cellular phones to tell time. Young people do not have CDs because all of their music in on iPods and their PC. Young people use Wikipedia for homework, and the web broadly for all research. Young people used texts and tweets first. Young people adopt touch screens without the baggage of past experiences. Young people are the beta test users of nearly everything new.
Sports – people love the games they play, and when they cannot play them anymore, they watch them. So goes the development of soccer, football, baseball, basketball, and hockey; collectively known as the “Big 5.” Yes, women and men can play golf and can ski more or less their entire lives, but only with Tiger Woods (who doesn’t seem that youthful anymore) has golf become cool, and it is Shaun White, a snowboarder not a skier that has made the winter sport hip. We love to see new stars emerge. We love their stories because they are fresh and because a “new star” means that there is a process of renewal that fulfills our need for faith in immortality. When we see a young star like LeBron or Reggie Bush or Tiger or Shaun White, we begin to dress and act like them. Moreover, they tend to become spokespeople for all kinds of products and services.
Fashion – Granted, young people don’t define the garb on the cat walk, but they are the reason why tattoos and body piercing has moved from bikers to the mainstream. Young people mix and match, and quite frankly quickly scale what is “in and out.”
Not only does each of these major categories of popular culture rely upon youth and youthful images, but they are parlayed into the marketing of other products and services. Young people “get it.” They are in touch with what is in and what is out. Because they are going through socialization as teenagers, they guide the greater society into understanding what makes someone acceptable and unacceptable.

It is Apple more than any other brand today, which stands as the definition of what is relevant in popular society. They are not only the way in which cool people should access music and entertainment (and information and communication), but they do it with a design which sets the standard for fashion, and they deliver everything with an elegant interface which sets the bar for technology advancement.

The Rebelliousness of Youth

Perhaps starting with Rebel with a Cause we have consistently accepted that young people need to resist the norms and beliefs of their elders. Age represents society’s Institutions. The reality is that no matter how good we think we have it today, we also see real issues of poverty, crime, inequality and injustice. That means the present state, created and run by adults, needs to be improved. Young people are the catalyst for that change. As the writer Jorge Ortega y Gassett pointed out, young people go through a generation where they explore ideas in order to develop their generation’s beliefs. In turn, those beliefs dominate society until the next generation arises.

In modern marketing and communications campaigns, we see this motif frequently. The underdog fighting against the market leader (most famously portrayed in Apple’s 1984 advertisement) is perhaps the most common use of this youthful image.

This idea of fighting for justice against either a flawed or corrupt system is very powerful. Combined with innocence, and a competitive spirit, we quickly arrive at virtue and heroism. We readily accept young heroes and heroines who overcome older villains. Yes we do have older heroes, but they are nearly always redeeming themselves for past sins. And let’s face it; we all either consciously or unconsciously hope that things will get better. We want someone to make things better, and while we wish to “respect our elders,” we also know that they have had their chance.

We hope that youthful heroines and heroes will save us. This hope for salvation is a metaphor no less powerful that of resurrection or reincarnation. If adults are sinful and sin is death, and youth is sinless, then youth may deliver us from evil and even mortality.

Perhaps the brand most associated with the rebel is Harley Davidson. It is very focused upon youth, even though its average customer’s age is over 45. Many sports brands, especially in the action sports arena, work to have rebelliousness as a centerpiece to their DNA. We see it in brands like Oakley and Billa Bong. In one of the most classic images of the late 20th century, BASF showed a young man in a comfortable chair getting blasted by stereo speakers. This represented both the rebelliousness and vitality of youth.

Protecting our Youth

As the above review suggests, adults hold powerful if not romantic views of youth. The innocence, the vitality, the relevance and even the rebellion (so long as it is just) are all things we wish to protect.

Many brands assume the role of protector or use this story arch as the basis for their brand. Michelin is a protector of families, with a special focus upon mothers and children in their ads. The same can be said of the Coca-Cola “re-visioning” of the Grand Theft Auto story where in a world with Coke, the protagonist does only good deeds. Staying with videogames, in our work for Gears of War, we specifically set up that the war being waged was to protect all that was innocent and good

In Financial Services, we have two interesting examples of using youth to market. ETrade uses talking babies to convey that their system is easy to use. Fidelity, on the other hand, wants to show adults (with a green path) the way to financial security, and references protecting assets for both the children’s and grandchildren’s future. But perhaps the best example we have of protecting what is right is the quirky reverse psychology of the Ally Bank campaign. In it, an adult male mistreats and deceives children (stealing their Easter eggs, denying them ice cream, keeping them from playing with toys). The slogan, “Even kids know when something is wrong” is a literal application of this underlying concept of protecting the young.

Brand and Communications Strategy: Why Youth Matters

As we have seen, there are five basic reasons why people are powerfully moved by the images of youth – our attraction to its innocence, our desire for its vitality and energy, our belief that the young define popular culture, our respect for youth’s rebelliousness, and our need to try and protect all of these things from being lost. Each of these elements powerfully evokes emotions when marketers use them in creating great brands and telling stories about those brands. The creative execution can be consistently excellent when given this archetype and definition.

As a wise man once told me, "great brand marketing is telling the same story over and over, and never telling it the same way twice." This is especially true in the realm of youth marketing.

Tuesday, October 26, 2010

Ray Ozzie inpsires me!

I am in no way, shape or form a visionary like Ray Ozzie, but he has made me think about Software and Information Technology and what I see as the immediate challenges facing the space.

1. IPv6 or 128 bit code. I am running 64 bit for the first time on Windows 7, and I have had no problems, but 128 is up and I have not seen much progress. Interestingly I have heard many Venture Capitalists say that software is not being developed to fully utilize the capability of 64 bit (nor dual processors). This is a very big challenge as a potential gap could develop between hardware and software.

2. The portable device and the "cloud." The True Cloud is NOT a web server farm. The True Cloud is the linkage of open hard drive space on all web-connected devices. This Peer-to-Peer sharing of data and information -- with the necessary security features -- is a key to our affordable progress (energy and equipment). The problem is whether portable devices (laptops, notepads, phones) will be on enough of the time ot make this work.

3. People. Has anyone heard the statement, "We need more engineers?" Usually it is for building bridges or autos or machines. Well, we don't have enough software engineers. We don't have enough experience across disciplines in hardware and software to generate innovation. This is a big problem.

4. Education. Right behind people is how we train our students. Too many really bright minds have gone for "efficient market" theory economics and spend all of their mathematical brilliance on trying predict and control financial markets. Look where that got us! We need to move beyond traditional approaches to hardware and software and press forward with breakthough materials and concepts for communication, analyisis and production (including AI).

5. Storage Management and Security. Disclaimer...I have an interest in Digital Lifeboat which is going after this issue. I have previously written that 'The future of business technology is likely to involve a combination of three things: secured data managed onsite; outsourced data warehousing; and so-called cloud-based services.' I believe this to be true and this is the area where we will see the most progress. It is VERY expensive to do this for governments and Fortune 1000 companies.

6. Open Source. Is it really working? In my limited experience, anything that is really good suddenly becomes closed. Figure that. The support necessary for this concept is much greater than anyone imagined. It is also hard to find a way to make money and remain open.

7. Patents and IP protection. Don't think me a grubby capitalist, but I think this is a big issue. Getting your work ripped off by the Chinese is a big deal. Not having enough clarity around what process or ideas are defensivable has depressed a lot of great ideas.

8. "Video killed the 'face to face' star." Just like the first video played on MTV (yes I saw it live, I'm that old), we are now seeing how information and communication technology are replacing entertainment (meals and ball games) in the realm of sales and service. This is just the beginning with WebEx and GoToMeeting. Think about the merger of collaboration software with these services wherein clients and suppliers work dynamically to find solutions to problems.

9. Where art thou, virtual world? What the heck happened to Second Life? Is it possible that the real world is now so connected that we don't need to have a virtual shadow? Was the idea really that lame or are we just not doing it correctly yet?

10. GPU vs. CPU. Much like my point on the failure for sofware developers to fully utilized dual and now quad and soon mult-core processors effectively, we are NOWHERE when it comes to getting the most out of GPUs in laptops and phones. There is a long way to go here and we better get started. By the way, who should care? Network television.

Friday, September 03, 2010

Being a Dad

Sunday, August 08, 2010

U.S. Immigration Reform

Requirements for Citizenship
To become a U.S. citizen, several requirements must be met. All applicants must be at least 18 years of age (or be their dependents) and legally reside in the United States for at least five years (except for immediate family members of U.S. citizens, for whom the requirement is three years). In addition, the law requires an understanding of English (speaking, reading and writing) and the history, principles, and form of government of the United States, good moral character, attachment to the principles of the Constitution, and favorable disposition toward the United States. Ineligibility may be due to failure to meet any of the above requirements of as a result of opposition to the U.S. Government or U.S. law, favoring totalitarian forms of government, desertion from or refusal to serve in the Armed Forces of the United States or certain serious criminal offenses.

Section 335 of the Immigration and Nationality Act provides that "Before a person may be naturalized, an employee of the [Immigration] Service...shall conduct a personal investigation of the person applying for naturalization in the vicinity or vicinities in which such person has maintained his actual place of abode and in the vicinity or vicinities in which such person has been employed or has engaged in business or work for at least five years immediatiely preceding the filing of his application for naturalization."

The Current Surge in Naturalization
First, there were many immigrants eligible to apply who had never gotten around to doing so. Second, the number had recently been growing rapidly due to much higher numbers of new immigrants. Third, welfare reform legislation removed some benefits for resident aliens that remained available to U.S. citizens, and finally, a growing public concern about illegal aliens may have led legal aliens to protect themselves against any backlash by becoming citizens.

The surge in naturalizations caused waiting periods to lengthen unacceptably--far longer than the standard of six months; in major immigrant settlement cities the wait became over two years. The INS launched a major effort to overcome the backlog problem, and has largely succeeded in bringing waiting periods back to around six months.

Two Sides
The two extremes of the debate appear to be 1) Conservatives who state the obvious that "all illegal aliens are breaking the law," but then go further to portray all illiegal aliens as dangerous criminals seeking criminal lives; and 2) Liberals who see this as a human rights and labor issue and want amnesty and unionization of all workers. No wonder we cannot make progress. Search FAIR for Conservative perspective and Reform Immigration for America for Liberal perspective.

Democratic outline for reform
Under the proposal, illegal immigrants currently in the United States would be eligible for legal status in eight years, as long as they learned English, had not committed a crime and paid their taxes. The federal government would increase funding for border security and require all American workers get a new version of their Social Security card that would include a biometric identifier to protect against the creation of counterfeits.

What issues need to be addressed in the process to become a citizen?1. We need to reform the temporary work visa system. The U.S. system must issue legal temporary work visas to all seeking entry to the country. They need to be identified, screened, documented. They need to pay fees and taxes once employment is gained. If they wish to remit earnings to their home country, a transparent system should be created to account for those money flows (including fee and tax collection). This should be the starting point of a 4-8 year path to naturalization.

2. Allocate sufficient visas to close unlawful migration channels. The present system inadvertantly SPONSORS criminal activity by the creation of a system to smuggle people into the US. This shadow process is run by organized crime, and is based upon the process to move illegal drugs. The extreme violence in recent years is an outcome of this bi-prodduct of our broken system. Second, one of the great failures of our current system is that the level of legal immigration is set arbitrarily by Congress—as a product of political compromise. The allocation of employment visas to workers should be depoliticized and placed in the hands of an independent commission that can assess labor shortages and determine the number and characteristics of foreign workers to be admitted, with Congress’s approval.

3. Enhance our nation’s security and safety. A sensible enforcement strategy will keep America safe, protect due process and human rights, make the most effective use of the tools and policies already available in a fair and reasonable manner, and be fiscally responsible. Such a strategy would prioritize enforcement actions to target genuine threats, violent individuals, unscrupulous employers; traffickers and drug smugglers, and those that might exploit the immigration system to do the country harm.

4. Establish a strategic border enforcement policy that reflects American values. A border strategy that prioritizes the safety and security of border communities and consults with these communities in the process is the best way to ensure that our border policies protect our national security, while balancing enforcement with economic development and human and civil rights.

Sunday, July 25, 2010

Consumer Behavior & the Internet

For more and more aspects of our lives, the Internet is the "everyday answer." For travel, almost everyone uses the Internet over a travel agent or calling an airline directly. Surprisingly, financial services have overcome privacy and security concerns and now most people bank online. This follows the acceptance of the ATM in lieu of branch visits, so perhaps is not too surprising. We see that people are managing their careers online, whether with job search (careerbuilder) or resume management (linkedin). Even finding love ( or other relationships (craigslist or is more and more the mainstream. We read that most people buy goods in stores, but Amazaon and other shopping sites are generally accepted. Most people do not use Skype to call, but more people adopt it for one-on-one connections with distant friends and family.

The power has certainly shifted over the past decade. Comfort with the Internet has grown dramatically, as fear has subsided. Usage is growing steadily, but that usage is not uniforms. Most people do not blog, but people increasingly "post" their status. Indeed, for those under 18, over 33% receive their "news" from blogs and message boards. Even journalists promote blogs as they seek an audience and freedom from the newspaper owners they generally despise. Blogs are no longer the online equivalent of "public access cable."

The other major change in the past decade is that we no longer "surf the web" we "search the web." Unlike TV where people will turn on and browse about for something to watch, going to the web is less and less an experience without a specific purpose or destination. Just like in our own lives, we generally do not "watch a show, we watch TV," this also occurs when people peruse Facebook or Twitter just to see what people are doing and talking about.

Think about how we increasingly investigate what ails us. There is so much information, both pedestrian and highly technical, about medicine and our health. More and more people use the Internet to try and self-diagnose. What does this say about our confidence in our General Practitioner? I hear more and more Doctors complain that their patients don't tell them their symptoms but rather tell them the various things they think they have and why...

I am very confident that the practical aspects of the Internet will insure continued growth -- gathering information and transacting. My word of caution for all this is over the very nature of consumers. We are comparative (good for the web), compulsive (good for the next cool thing) but also satiable (bad for doing the same thing over and over forever). Basically we like choice. If we don't have something, we want it. But once we have it, we don't want it anymore. Where this becomes problematic is for social networks like Facebook. So long as the community can sustain itself with interesting things, then it may work, but like so many others...when it is no longer "cool" because "everyone is doing it" (especially for the next young generation), then a new "exclusive and cool" network will emerge. Remember, great consumer marketing ALWAYS seeks to segment the audience to improve sales and margin. The social network "market" will do as all markets do...consolidate and fragment. It is in the very nature of capitalism as Schumpeter taught us in his theory of creative destruction.

My final thought is on how we consume entertainment. Initially, when we accessed the Internet with dial-up, media usage was limited. Today, with broadband "always on" and with high speed service, we see that media consumption is rapidly changing. There are several interesting trends. First, young people are watching TV and movies on PCs and laptops (legally with Netflix and illegally with Surf the Channel). This is a natural evolution from the "time shifting" of DVRs. We expect to watch what we want when we want thanks to TIVO. Second, more and more people are watching television with a PC or laptop in the same room or literally by their side. Call it multi-tasking, but for more and more people, the Internet can enhance the TV experience (answer questions, communicate with other fans, etc). Third, the future of TV is that TV will become more like the Internet. Next up will be tCommerce, where we will be able to purchase directly from our remote control. All the cable and satellite companies are working on this. Fourth, there is no good news for news. All demographics are getting information from the Internet and their mobile phones. Newspapers will need to drop "papers" from their name soon enough. Radio is ok because of the car, but that's about it. Internet radio is even better at discovery, the key to radio's success. Magazines may be ok for a while, but as soon as iPads and Tablet PCs can give us the big photos and big ads (interactive), then they too are going to exit the "cutting down trees and printing with ink" business.

In summary, people are increasingly living their lives on and through the Internet. My advice to publishers and businesses is to think of the Internet no differently than any market. Focus is better. Keep it simple and effective. Understand that every consumer is unique, that segmentation is required, and that choice is good. Next, we should all expect our experiences on the web to move to mobile phones and larger hand-held devices. Finally, two words of caution. The most technically advanced are already beginning to push back against 1) too much tech and 2) too much intrusion into their lives. People are becoming reflective about being tethered to devices 24/7. Many are saying "enough already." Also, advertisers must be careful to establish when and where they will be so people can understand and accept. Control must remain with the individual.

The Internet has always promised to empower and to be "free." When people can no longer escape; when people feel addicted or dependent; when freedom is curtailed, then even this wonder will begin to fade.

Thursday, July 15, 2010

American Polity and Politics

My facebook page has been the home of some wonderful debates about our nation and our President. I would like to offer some thoughts about some fundamental "truisms" that seem to be at the core of the challenges we face today.

My overall point is that the majority of Americans oppose big and growing government. They oppose high taxes to support big government. Why? Because we value freedom and competition.

1. America is a capitalist and consumerist society. People make choices everyday in a very competitive marketplace for the products and services they want and need. In my lifetime, competition has exploded in every industry -- transportation, food, technolgy, financial services. As consumers and capitalists, the majority of Americans do not believe the federal government provides good value for money. To be very clear, the majority of Americans do not believe that the taxes they pay are effectively nor efficiently spent to provide services they need and want. Indeed, if I were to write a full paper on this subject, I would create a "hierarchy of needs for government services" which would clearly show that citizens appreciate "direct" services like the police, fire department, roads, water/sewage, trash collection. They tolerate military expenditures because they are effective, but not efficient. Hence we run out of patience for the cost of wars like Iraq and Afghanistan...not because we are losing, but because they are expensive. When we move towards "indirect" services, meaning Energy, Eduction, Health and Human Services...we begin to see that Americans don't believe they are well run nor worth the money being spent vis-a-vis taxes. When we move farther afield towards Medicaid, Medicare, Social Security, Welfare, most citizens understand what they are but don't think this is an ideal system. It is bloated, wasteful and uncompetitive.

2. The United States federal, state and local governments are large and have a self-interest in maintaining and growing their place in our society. I have yet to meet a politician or career civil servant who does not know that my first point is true. But they are not going to voluntarily quit their jobs. It is only under duress that governments furlough (notice I did not say fire) workers. Indeed, we should all be thankful for the AMERICAN voters resolve to pass balanced budget laws in 48 states. These force governors to cut spending, or as is the case in Washington State, raise taxes, which will most likely lead to voters ousting the party in power this fall. If we had a balanced budget amendment for the federal government, which INCLUDED entitlements, then we would see the type of appropriate cuts that have been forced upon Greece, Spain and Ireland.

3. What all Americans demand of the President of the United States, as the highest ranking, most powerful and completely responsible CHIEF EXECUTIVE of the nation is outstanding GOVERNANCE. The Executive branch of the USA EXECUTES. It does not LEGISLATE and it does not ADJUDICATE. Those tasks are for the other two branches of government. We demand that the President be the world's best CEO. He has to tell us where we are going, and how we will get there. Then he has to perform as an Executive. The most successful US Presidents have well understood that they must enforce the balance of power against the other two branches. The Executive Branch is the only one which can government my 2nd point, and respond to my first point. The Executive Branch must cut waste over the departments it runs. It must improve the services it provides. Look at the Internal Revenue Service; it has completely remade itself into an effective and quite frankly friendly and useful part of our federal government. The US President must govern the passions which are inherent both from the Legislature and from the Civil Service. That is her/his job.

4. So why do a majority of Americans not support President Obama today? Well, the answer is simple -- we don't like where he is telling us we are going, and he has not proven to be an outstanding Chief Executive. To be clear, he has succeeded in his LEGISLATIVE agenda. He has passed health care, financial reform, and economic stimulus. He will LEGISLATE changes in Education and Energy. He will continue the policy of withdrawal from Iraq and upscaling our efforts in Afghanistan. So why don't we support him? BECAUSE HE IS NO LONGER A LEGISLATOR, and what we all see is that he believes in big government and higher taxes. We don't want that. We know it is not efficient nor effective. That is not where we want to go. The majority of Americans are aware that our spending is out of control. We see that the because citizens refuse to pay for more government spending with taxes, the government borrows money to pay for what they provide. This is not market competitive and is not sustainable. This is where Obama has lost us. On the second point, we fear that he is not the world's best CEO. We are becoming concerned that he is no more capable than George W. Bush.

This is not about communism nor socialism. This is about the majority of Americans NOT believing in big government nor higher taxes. This is about the majority of Ameicans demanding great leaders and executives in the White House.

Sunday, June 27, 2010

What Caused our Global Financial Crisis?

The U.S. Housing market became a "bubble" for the following reason -- people who could not afford the down payment nor the mortgage payment of the home were allowed to borrow anyway. Banking institutions then packaged these mortgages and sold them to Fannie Mae and Freddie Mac.

So how did this happen? The United States Government -- Executive Branch since Clinton, and the Legislature -- has promoted home ownership by lowering the financial requirements. In the 1980's, over 80% of homes had a 20% cash downpayment required with a 30 year fixed rate mortgage. By 1992, with the Community Reinvestment Act, Banks were not just ALLOWED to accept 15%, then 10% then 5% then no downpayment, then were told they could generate the loan and then sell it to Fannie Mae and Freddie Mac. Let me go further...Banks were now only allowed to offer variable rate mortgages, but they were encouraged to market products which ASSUMED home price appreciation and a growing economy (because it had been so for 30 years), because they could SELL THE MORTGAGES to the Government.

All the Investment Banks which set up Collateralized Debt Obligations did so because not everyone is so stupid as to think that people can put zero down, and not make a payment for 12 months and then only pay 3% for 24 more months and then the rate goes to 5 percentage points over 90 day T-bills. That's just retarded.

So what is the answer, you ask? Higher Capital Requirements (ala Basel III) for all banks, globally. Only Capital on hand can mitigate risk taking. The higher the risk activity, the higher the capital required to hold in reserve.

Unfortunately, the "fines and fees" to punish banks, and the restrictions on their profitablity work directly against increasing capital requirements (say 10% overall on a risk-adjusted basis).

Tuesday, February 09, 2010

You think you had a tough year!

President Obama's first year:
  1. Promise to close Gitmo in a year, but don’t
  2. People accuse you of not being born in the USA
  3. You give Gordon Brown a box of DVDs in NTSC format
  4. Pass $787 billion stimulus bill and promise unemployment below 10%
  5. Authorize the use of deadly force against Somali Pirates
  6. Air Force One buzzes Manhattan
  7. Administration creates hysteria over Swine Flu
  8. Arizona State won’t give you an Honorary degree at Commencement speech
  9. Administration takes over ownership of General Motors
  10. Cash for Clunkers benefits Toyota most of all
  11. You have a beer with Sgt. Crowley after calling him “stupidly”
  12. Joe Wilson shouts “You Lie”
  13. The “Tea Bag” movement begins and involves 2 million people
  14. You promise Olympics in Chicago and fail
  15. You threaten Fox News and back down
  16. You win the Nobel Peace Prize and no one (including you) thinks you deserve it
  17. Wall Street wins and Main Street loses
  18. You lose Virginia and New Jersey governor’s mansions
  19. You decide to try Khalid Sheikh Mohammed in NYC and then change your mind
  20. You don’t succeed in passing Healthcare
  21. You fall below 50% approval
  22. You lose Ted Kennedy’s Senate Seat
  23. You propose a $3.8b budget with $1.3b in new debt.

People don't like Obama because he's just like Bush!

1. The majority of Americans (hereafter "we") wanted to exit Iraq because it was not clear what we were doing. It is still not clear and there is no certainty of exit.

2. We wanted to get out of Afghanistan, but we now have another Bush/McCain “surge" of 30,000 troops. Even Jon Stewart believes there is little difference between the two on National Security.

3. We did not trust President Bush because he had a very small inner circle of advisors. See

Barack Obama is even worse. Now there are calls for the ouster of Axelrod, Gibbs, Jarrett and Emanuel.

4. Related to #3, we all felt that Bush was a huge disappointment in NOT being bi-partisan. But Obama is even more partisan than Bush! When was the last time President Obama criticized Congress? Not the Republican Congress, but Congress in general? When was the last time he said he supported any Republican initiative?

5. George Bush ran up the National Debt unlike any Republican President before. On the day President Bush took office, the national debt stood at $5.727 trillion, and the day he left, it almost doubled to more than $10 trillion. In one year, President Obama has added more than $2 trillion more.

"A new Rasmussen Reports national telephone survey shows that 75% of likely voters now say they are at least somewhat angry at the government’s current policies, up four points from late November and up nine points since September. The overall figures include 45% who are Very Angry, also a nine-point increase since September."

6. George Bush's economic policy was a simpleton version of Reagan's -- he cut taxes but did not cut government. As a consequence, government spending as a percent of GDP was about 20%, but tax receipts fell from 20% under Clinton (balance) to 18% under Bush. Eighty-three percent (83%) of Americans, in fact, say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes.

President Obama just submitted a budget at $3.8 trillion which is 25% of US GDP (forecast $14.7 trillion), and $1.8 trillion is funded by debt, meaning tax receipts are only 14%!
So here's my point, "Mr. President, we the people of the center, who voted for you, now implore you, please 1) get us out of these two wars; 2) lead from the heart and open up to more advisors and reach across the aisle and 3) get the national debt under control and attack the size of our government, and entitlement programs."

Monday, January 04, 2010

So where are investments headed in 2010?

There are four investment issues on my mind as we start this New Year:

1. Commodities and specifically gold.

I believe that there are macroeconomic supply and demand issues which will continue to press commodities higher over the course of this year. Soft commodities, like coffee, tea, sugar, all increased over 25% in 2009. Metals in general had a very good year, and food as a whole should continue to rise. The one glamour play (pun intended) which confounds me is gold. I must admit that have successfully invested in gold this year via GLD, but now wonder if we are at the top. What would make gold go up? Not demand -- industrial and jewelry demand is sated. One reason would be a weak dollar (see below). General fear could drive gold higher. And then there is everyone sees the new highs and rushes in. What could make gold go down? No real demand, stable to appreciating dollar, no fear and fewer fools rushing in. Gold is sideways to down in 2010.

2. The U.S. Dollar.

The dollar has been in a decline because of the current account and trade account deficits, and the very loose monetary policy of the Federal Reserve. Basically, we spend a lot more than we bring in via taxes, and we buy more foreign goods than we sell. To fund our government, we issue debt, and when the debt comes due, we issue more debt. To stave off the financial crisis of 2008, we have expanded the amount of U.S. dollars (not by printing currency) by making interest rates near zero for banks to borrow from the government, and by allowing the Federal Reserve to purchase U.S. Treasuries (to fund the budget and trade deficits). When there is too much supply (too many dollars denominated bonds and bills) then demand goes down. When you earn zero interest, demand also falls relative to other currencies. This is the weak dollar scenario. The question is, are we at the bottom? What would lead to a higher dollar? Well, if the dollar is seen to be better than the Pound, Euro and Yen, that's a start. Remember, all of Europe is in more or less the same boat -- deficits and financial market problems. Japan has had no growth for 20 years. But what should we think about the BRIC nations? Yes, China has had a big year -- leading the world out of recession -- but now it seems strained to continue to lead. Russia continues to appear less stable and oil dependent. India is a great ally, but not without structural problems. Brazil seems like a winner, along with Mexico, but again is a very small part of the world currency market. When we think about the dollar, the two opposing forces are 1) do we have too many which will ignite inflation in the next decade and make the dollar worth less? or 2) Given we will be a democracy in 10 years, and every other polity is less certain, do we remain the foundation and therefore stable to appreciating? I say the dollar is stable to appreciating in 2010.

3. U.S. and Global Equities.

Honestly, I just don't see a lot of upside. The earnings for 2009 were driven by cost cutting. If we don't see 1) higher and sustained employment growth and 2) a return to rising home prices, then I don't see any increase in demand (e.g. revenue growth). The P/E will not rise if the earnings don't rise, and cost cutting (especially job cuts) won't get us there. The S&P 500 will be up 5-10% this year at best and volatility will be the rule.

4. U.S. and Global Bonds.

I think that safe investors are in fixed income securities, and this is still a wise place to be. The risk is whether interest rates either go up in 2010, or the markets think they will be rising steadily in 2011, 2012 and beyond. This could hammer bonds and hurt all the "safe" investors. Now, the one way to avoid this is to hold bonds until maturity, and to renew your holdings as rates rise (buying lower and getting a higher yield). This is not for the faint of heart, but I believe in this approach. What I'm saying is that we should not see big gains in bonds anywhere in the world in 2010 because rates are too low (no inverse leverage). I want to be in fixed income, but I fear the best scenario is flat to 5% total return. So where can money be made? I wish I knew. Emerging markets appear strong, but don't be fooled by their new independence from western demand -- without it; their recent growth is a house of cards. Perhaps individual sector plays, and specific stocks. I'll let you know if I figure it out...