U.S. consumers are on the march, again, of consuming debt. It is not that the deleveraging of U.S. consumers has ended because the household debt service ratio is still decreasing, but that the appetite for credit is increasing. And the demand for credit does not necessarily indicate a positive for the U.S. economy, especially when U.S. consumers are in a less advantageous position. The top two occupations in the U.S. for 2010 were - Retail Salespersons and Cashiers. These two occupations employed 4.2 million (Retail Salespersons) and 3.4 million (Cashiers). The hourly mean wage for Retail Salespersons is under $15.00 with Cashiers under $10.00. Cashiers are not alone in earning a low wage because the hourly mean wage for eight of the top ten occupations are under $10.00, including Cashiers.
The resumption of debt consumption by U.S. consumers was inevitable, however the rate is at a minimum concerning. Overall, U.S. consumer credit increased by an annualized rate of 9.9% for November 2011. If the 9.9% holds, it would be the largest percentage change of the reporting period 2006 - 2011. The largess of the 9.9% is inline with a revolving credit increase of 8.5% and a non revolving increase of 10.75%. The statistics do not include loans secured by real estate. The most common type of revolving credit is credit cards whereas non revolving credit includes the likes of education and automobile loans that have fixed payments. Even though, the Federal Reserve did not include loans secured by real estate, home equity lines of credit (HELOC) provide important insight into asset leveraging by homeowners. A HELOC is revolving credit.
The opening of a HELOC is less interesting than the actual use of the HELOC. Opening a line of credit backed by the equity in real property indicates preparation or planning, but the HELOC may never be used. The use of a HELOC generally indicates a downward trend in personal finances, especially during the current economic conditions thus the HELOC becomes a sort of bridge loan until conditions improve. Using a HELOC to remove the equity from real property during uncertain times to just pad a savings account seems unlikely because the HELOC is tied to the property and becomes a debt obligation of the homeowner unless, of course, it is a non-recourse loan. The Federal Reserve Bank of New York reported an increase in HELOC balances of $14 billion or 2.3% for the third quarter in 2011. More interesting, is the upward trend since the first quarter of 2009 for HELOC balances versus HELOC credit limits.
Job creation in the U.S. is underpinned by low wage jobs, the majority (8 of 10 top occupations) of which earn under $10.00 an hour. Consumer credit is increasing at its highest level during the report's timeframe of 2006 - 2011. Homeowners are increasing their use of HELOCs as balances are greater than the available credit since the first quarter of 2009. If the U.S. consumer was a corporation, it would have a decreasing or static revenue stream with decaying assets and a greater reliance on short term debt in order to keep the day to day operations running. The corporation could sell off assets to raise capital, but that is dependent upon demand because a lack of demand could lead to a fire sale. The corporation could max out borrowing to invest in research and development to increase market share or enter into a new line of business. A difficult and costly move with the current capital market. So bankruptcy.
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Sources:
The Federal Reserve Board, What You Should Know About Home Equity Lines of Credit, April 6, 2011. Available at: http://www.federalreserve.gov/pubs/equity/equity_english.htm last visited January 20, 2012.
The Federal Reserve Board, Household Debt Service and Financial Obligations Ratios, December 13, 2011. Available at: http://www.federalreserve.gov/releases/housedebt/ last visited January 20, 2012.
Board of Governors of the Federal Reserve System, Consumer Credit G.19, November 2011. Available at: http://www.federalreserve.gov/releases/g19/Current/#fn3a last visited January 20, 2012.
Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit, November 2011. Available at: http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q32011.pdf last visited January 20, 2012.
U.S. Department of Labor, Bureau of Labor Statistics, Occupational Employment and Wages - May 2010, May 17, 2011.
Friday, January 20, 2012
Thursday, January 19, 2012
The Brand Issue for Paula Deen is not Diabetes, but Deception
So Paula Deen has had type 2 diabetes for three years. And for the past three years, Paula Deen continued to promote her products, specifically her cookbooks which are a culinary journey of indulgence - southern style. Southern style cooking has a reputation for being high in calories as a result of being high in fat. One of those recipes is Paula's "The Lady's Brunch Burger". The Lady's Brunch Burger is a hamburger patty between two glazed donuts. On PaulaDeen.com, the recipe is available without any nutritional information. Similar to how Paula has kept her fans in the dark regarding her health, Paula keeps them in the dark regarding their own health.
This was Paula's differentiation strategy when other television cooking shows were about calories and cost consciousness, Paula was not. Paula cast herself as the sweet lovable southern woman, dripping like molasses with her southern accent or drawl. This role is embedded with trustworthiness as most people have favorable opinions of their grandmothers. Grandmothers, generally, hold an honorary position in people's lives. Paula knew what she was doing when she chose this brand framework. It is a rather insulated image because anyone who calls Paula out would look like they are in favor of abusing the elderly. It took someone like Anthony Bourdain, who cares little about popular opinion, to push the issue of Paula's unhealthy cooking. Only after Paula admitted she had diabetes for the past three years was Anthony Bourdain redeemed.
Paula is deceptive, but she is not stupid. Although, at this point, stupid would have been a better position to attempt a comeback from. Paula and her sons are on an all out public relations campaign to remind people of the sweet lovable image, except Paula keeps saying that she never said people should eat like this all the time. It seems as though, Paula is listening more to her lawyers than to her public relations manager. Cooking is an everyday activity, for most people, so the likelihood that Paula's cookbooks would be used more than 4 times a year is high. Paula's got options, though. Paula is also promoting her sons' shows because they are now responsible for saving Paula's brand with low fat, low calorie recipe variations. Paula is making the most of this publicity promoting her new role as a diabetes drug spokesperson while at the same time denying culpability and cross promoting her sons.
If Paula is astute enough to work the business angles now, then she was astute enough three years ago when she decided not to disclose her diabetes diagnosis. It was a calculated decision to hide the diagnosis and it is a calculated decision to disclose - a necessity when a person becomes a diabetes drug spokesperson. Diabetes is not the issue, the deception is the issue. Mea Culpa, Paula Deen.
This was Paula's differentiation strategy when other television cooking shows were about calories and cost consciousness, Paula was not. Paula cast herself as the sweet lovable southern woman, dripping like molasses with her southern accent or drawl. This role is embedded with trustworthiness as most people have favorable opinions of their grandmothers. Grandmothers, generally, hold an honorary position in people's lives. Paula knew what she was doing when she chose this brand framework. It is a rather insulated image because anyone who calls Paula out would look like they are in favor of abusing the elderly. It took someone like Anthony Bourdain, who cares little about popular opinion, to push the issue of Paula's unhealthy cooking. Only after Paula admitted she had diabetes for the past three years was Anthony Bourdain redeemed.
Paula is deceptive, but she is not stupid. Although, at this point, stupid would have been a better position to attempt a comeback from. Paula and her sons are on an all out public relations campaign to remind people of the sweet lovable image, except Paula keeps saying that she never said people should eat like this all the time. It seems as though, Paula is listening more to her lawyers than to her public relations manager. Cooking is an everyday activity, for most people, so the likelihood that Paula's cookbooks would be used more than 4 times a year is high. Paula's got options, though. Paula is also promoting her sons' shows because they are now responsible for saving Paula's brand with low fat, low calorie recipe variations. Paula is making the most of this publicity promoting her new role as a diabetes drug spokesperson while at the same time denying culpability and cross promoting her sons.
If Paula is astute enough to work the business angles now, then she was astute enough three years ago when she decided not to disclose her diabetes diagnosis. It was a calculated decision to hide the diagnosis and it is a calculated decision to disclose - a necessity when a person becomes a diabetes drug spokesperson. Diabetes is not the issue, the deception is the issue. Mea Culpa, Paula Deen.
Wednesday, January 18, 2012
Curation of Online Sources: A Rebirth for the Formality of Libraries
The internet needs the formal organization of libraries in order to be a relevant source of information. Google's search engine displays results based on an algorithm hierarchy such as how much time searchers spend on a site. Apparently, the more time spent on a page, the more relevant it is to what a person is searching for. Another perspective is that the more confusing a site is the more time a person may take navigating its page(s). The tens of millions of search results indicates that Google is not in the business of winnowing thus not in the business of relevance. Relevance is not millions of sources. Relevance requires narrowing. There is not enough time in a person's lifetime to go through tens of millions of sources.
Based on:
Based on:
- Age Range 16 - 90
- 365 days a year
- 16 hours a day searching sources
- 5 minutes a source
- 5,185,920
Curation in the hands of companies such as the Huffington Post are self interested transactions. The Huffington Post is a business in the business of people moving from source to source. The click through fee is motivation to continue offering sources that pay the most money per click through. The solution is to create a library system or library like options as aggregators. Libraries work on relevance not popularity. The library is organized by subject matter and obscure sources have as much right to discovery as does a so called popular source. The Library of Congress is one such template. Censorship is not a threat to the internet from a library aggregator because censorship already exists based on search engine algorithms. A library catalog provides a level of parity between sources - parity that cannot be bought. Libraries, at its essence, is about knowledge transfer. Libraries facilitate the accessibility of knowledge.
The internet is not about accessibility, but about popularity and if history has taught people anything it is about the danger of popular or dominant voices and/or positions. Libraries are not without fault on some censorship issues in the past because of local citizenry, but libraries are also the one group that has done the most for First Amendment rights and discourse. By creating a trusted online curator using the library template, people have a greater opportunity of being exposed to alternative perspectives and/or information. Funding must be public via non-profits or government funds as it benefits the community be it local, national, or global. It is time for the internet to grow up and become its full potential. And a librarian is the best tool.
Monday, January 16, 2012
Companies and CEO Compensation: Fairy Tales are not Just for Children Anymore
It is an issue of agency and moral hazard. A CEO is an agent for the company's owners - shareholders. For the purposes of this post, publicly traded companies are the focus as closely held companies complicate issues of agency. The CEO is supposed to act in a manner that is in the best interests of the company's owners. To ensure that the CEO acts in this manner, companies seek to align the interests of the company and CEO. A common method for interest alignment is compensating a CEO with stock options. By tapping into the natural tendency of a CEO to act in his or her own best interests, a company can benefit alongside a CEO pursuing personal wealth creation. The tie up of company interests with CEO interests is also meant to keep at bay the issue of moral hazard. Moral hazard is related to risk. The less personal risk a CEO has when making company decisions, the less likely a CEO will act in a conservative, careful or thorough manner.
Consider the rental car versus the driver owned car scenario. A rental car requires less care or concern because the renter does not have long term consequences or replacement responsibility (unless negligence /recklessness). A renter is generally going to be harder on the rental car than one in which the renter owns. The hardship is a matter of degrees - higher speeds or harder turns otherwise opportunities for culpability increases. And culpability indicates responsibility so the risks are taken in such a way as to be disguised by continued use not an individual renter's use. The matter of degrees also applies to how a CEO directs the day to day operations of a company. Consequences of takings risks that can be assigned to externalities - stock market forces, competitive threats - effectively covers one's tracks and blur issues of moral hazard.
Risk temperance and the aligning of interests fail to control for intrinsic motivation. Wealth creation is an external representation of success. Intrinsic motivation is sourced internally and functions off psychological needs and desires. Extrinsic motivation is limited in its effectiveness and experiences diminishing returns, however it can be argued that intrinsic motivation never experiences that. The drive and ambition that created a CEO does not diminish once the CEO attains the position. It is channeled into a surrogate - the company. The company then takes on the personality of the CEO and depending upon how much self awareness a CEO possesses, the result could be devastating to the company. MF Global and its CEO Jon Corzine is a current example of how a risk seeking personality without a strong counterbalance is dangerous.
Jon Corzine was motivated by the potential reputation capital (mastery) had he pulled off the European sovereign bond gamble a la George Soros. George Soros' reputation or persona was created by shorting the pound in September 1992. The billion or so dollars that was made on the gamble is impressive, but not what people remember - it is that George Soros was innately aware of something that others were not - timing. This elevated the mystique of George Soros. Jon Corzine has, in the end, made a name for himself just not the name he intended. By focusing on the money as the overriding or sole motivation, companies will labor under the impression that Jon Corzine could have been more effectively managed had his compensation package not been what it was. Pure fairy tale. The management of Jon Corzine required strong gatekeepers capable of challenging his intrinsic motivation.
Instead, like many companies, MF Global relied on extrinsic motivation without understanding the diminishing returns of CEO compensation thereby making MF Global vulnerable to unmitigated risk. As long as companies believe in fairy tales, CEOs will continue to make risky decisions with greater and greater consequences as the global market becomes smaller and smaller. The ending, however will not be a Disney movie
Consider the rental car versus the driver owned car scenario. A rental car requires less care or concern because the renter does not have long term consequences or replacement responsibility (unless negligence /recklessness). A renter is generally going to be harder on the rental car than one in which the renter owns. The hardship is a matter of degrees - higher speeds or harder turns otherwise opportunities for culpability increases. And culpability indicates responsibility so the risks are taken in such a way as to be disguised by continued use not an individual renter's use. The matter of degrees also applies to how a CEO directs the day to day operations of a company. Consequences of takings risks that can be assigned to externalities - stock market forces, competitive threats - effectively covers one's tracks and blur issues of moral hazard.
Risk temperance and the aligning of interests fail to control for intrinsic motivation. Wealth creation is an external representation of success. Intrinsic motivation is sourced internally and functions off psychological needs and desires. Extrinsic motivation is limited in its effectiveness and experiences diminishing returns, however it can be argued that intrinsic motivation never experiences that. The drive and ambition that created a CEO does not diminish once the CEO attains the position. It is channeled into a surrogate - the company. The company then takes on the personality of the CEO and depending upon how much self awareness a CEO possesses, the result could be devastating to the company. MF Global and its CEO Jon Corzine is a current example of how a risk seeking personality without a strong counterbalance is dangerous.
Jon Corzine was motivated by the potential reputation capital (mastery) had he pulled off the European sovereign bond gamble a la George Soros. George Soros' reputation or persona was created by shorting the pound in September 1992. The billion or so dollars that was made on the gamble is impressive, but not what people remember - it is that George Soros was innately aware of something that others were not - timing. This elevated the mystique of George Soros. Jon Corzine has, in the end, made a name for himself just not the name he intended. By focusing on the money as the overriding or sole motivation, companies will labor under the impression that Jon Corzine could have been more effectively managed had his compensation package not been what it was. Pure fairy tale. The management of Jon Corzine required strong gatekeepers capable of challenging his intrinsic motivation.
Instead, like many companies, MF Global relied on extrinsic motivation without understanding the diminishing returns of CEO compensation thereby making MF Global vulnerable to unmitigated risk. As long as companies believe in fairy tales, CEOs will continue to make risky decisions with greater and greater consequences as the global market becomes smaller and smaller. The ending, however will not be a Disney movie
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