Fashion Arrogance


A pair of white sneakers from designer Tom Ford costs $2,490.  Yep, a pair of tennis shoes.

The white sneaker trend by itself is absurd enough to get mocking coverage on the front page of the Wall Street Journal today.  After all, how many nanoseconds does it take for white sneakers to get dirty?

White sneakers costing megabucks combine arrogance and stupidity.  With so many in financial distress, these shoes are a statement that the owner doesn’t care and that the best use of his or her money is to waste it.  The owner wearing these into work is sending a message that he cares about shoes more than his workers.  Unfortunately, some do.  Egomania run amuck.

However, wearing them on the street without an entourage of body guards is an invitation to be come a victim.   We’ve had people killed for much cheaper Nike shoes.  I’m sure we’ll be reading about that sometime soon.



Marketing and Politics in a Lying Age


“Trust.”  That’s the fundamental building block for personal relationships and business transactions.  Without it, there’s no basis for working with a person or a company.  None.

Perhaps the worst decision in the history of advertising was acceptance of the creed that “perception is reality.”  Or worse, there’s the quote attributed to a well-known therapist that “there is no reality, only perception.”

Lost along the way is the older adage: “You can fool some of the people some of the time, but you can’t fool all of the people all of the time.”  Further, once you have  fooled a person, he or she will  mistrust what you say.  It takes years to recover credibility once you’ve lied to someone.

Ads are promises.  The (should) showcase product features, but they also promise benefits.  Sign up and you’ll receive good service.  The product will be reliable and safe.

Chevy is trashing its credibility now through a series of creative ads about the Cruz car  model.  Yes, the car has some wonderful electronic features. However, it’s not “magical.”  That word is cute, but should never have appeared in an ad.  I had occasion to rent one last week and discovered that it has horrific gas mileage and — with the A/C on max — all of the acceleration of a  cardboard box.  People who buy it based on the ads are likely to be disappointed, and disappointed customers aren’t repeat customers.  Why would any business want that?

Chevy has built inferior products in the past, and been hurt by them.  It took years to rebuild its reputation, and now the company is repeating past mistakes.  If that’s the best GM can do, short the stock.

Volkswagon learned the hard way that lying about emissions would damage sales.  The damage will take years to undo.  When you lie about software, who’s going to trust you when you say the problem is fixed?  How can you prove it?  What else might be wrong?

Comcast has a history of poor customer service.  Their current ad campaign and “service guarantees” won’t fix that.  (I’ve already cashed in on the guarantee when they failed to make a service call on time.)  It will take years of very good service before consumers believe Comcast has improved, and any slip will convince consumers that the ad campaign is a smokescreen for continued poor service.  And Comcast wonders why so many customers refuse to spend on add-on services.

Advertising has to be based on objective reality.  Tell the customer all of the good things the product does, but don’t over-promise.  Once someone buys your product and discovers it is not what you promised, not only will you have  an unhappy customer, but you will have lost the ability to communicate with that customer.  He or she won’t trust what you say.

Why are Joe Biden, Bernie Sanders and Elizabeth Warren such potent political figures?  In all of Washington, they are among the few people most voters trust. People accept their statements as honest, regardless of whether they choose to agree or disagree.

Bill Clinton remains a charismatic speaker, but his ability to influence has been diminished by loss of trust.  Donald Trump’s willingness to speak before thinking has cost him as well.

For many people, “politician” is simply a synonym for “liar.”  Lack of trust also explains the failure of the current crop of politicians to be opinion leaders.  That’s the legacy of “spin.”

The cost of lying in business is lost revenue.  The cost of lying on politics is losing the ability to lead.  Both are heavy prices to pay.

We need to refocus marketing and advertising on reality.



It’s Disposable Income, Stupid!


Historically low interest rates have done nothing to grow economies in the US or elsewhere.  Why not?

Economists and politicians are doing everything in their power to avoid looking at the root cause of economic malaise.  They talk about “consumer confidence” as if that can be manipulated by interest rates.

They report statistics that are defined so as to skew perceptions of the reality consumers face.  Neither CPI nor the unemployment rate as reported in the US accurately represent the situation consumers face.  (I’ll talk about both of these problems in detail in future posts.)

The reality is that

(1) Western economies are based on consumer spending, and

(2) Consumers don’t have money to spend.

Consumers are tapped out because

(A) Historically low interest rates have not been passed along to most consumers.  Further, intelligent consumers are afraid of being squeezed when rates rise.  After been burned a number of times, people do learn.  (Unless they are politicians.)

(B) There has been no real effort to reform or reign in costs for healthcare, education loans or housing, and people are being told that they have to save for retirement at a much higher rate than in the past.  There’s no money left over for anything else in most households.

(C) Job downsizing is rampant, especially among those reaching the magic age of 50.  Corporations cut older workers to reduce salary and health costs, and don’t hire older workers for the same reason.  So, right when people are in the final push toward retirement, their income drops by 50% or more.  Historically, that was the age group with the most disposable income to support consumer spending, and now that’s gone.

(D) Regressive tax policies. Reductions in income taxes and increases in gasoline taxes and usage fees shift the tax burden to those who can least afford it.

The Federal Reserve can set interest rates any place it wants, and it won’t materially impact what consumers have to spend.  In this environment, the Fed has lost its ability to steer the economy.  Turn a car’s steering wheel when the car is stopped and tell me what the car does? Nothing.  Without consumer spending to push the economy forward, the Fed can do whatever it wants and nothing will happen.

What can you do?  Until Washington decides to confront reality, plan for a  stagnant economy.   Employees need to plan for what happens when they lose their current job.  In your 40s? You need to plan for a second career.  Employers are going to have to find ways to reduce costs and find growth through innovation.  The same-old, same-old isn’t going to get it done.  Mergers and layoffs simply worsen the situation.



Bubbles, Bubbles Everywhere


How temporary is the current rise in housing prices?  Could we see a repeat of 2008 in the near future?

The answer to both questions is a rounding “we don’t know.”  Betting on the mortgage market or on rising housing prices isn’t a safe bet.

Nor are car loans.  Jamie Dimon of JPMorganChase indicated auto loans as the next problem area in financial services (Wall Street Journal, 3 June 2016).  However, if auto loans crater first, the housing market may not be far behind.

A popular term in the financial pages in 2013 and 2014 was “shadow inventory.”  Those are homes that were foreclosed and never re-sold.  Some were held off the market pending an increase in housing prices.  Some were held off because banks may have been reporting them on their balance sheets at exaggerated values and didn’t want to take the hit on the books or in their reports to the Fed.

Just a few doors down, we have a townhome that was foreclosed perhaps 6 years ago and never resold.  To my knowledge, it hasn’t been on the market in years and would require substantial investment to put it back into shape.  At the time of foreclosure, comparable units were selling for $400,000.  In its current condition, the market value is less than $280,000.  What is the financial institution showing on its books?

No one knows how large this shadow inventory is.  Estimates available from commentators range from 1.7 million to 5.5 million housing units. The National Association of Realtors reported that 4.5% of mortgages nationally represented shadow industry in 2015, with wide variations between states.(2)  However, properties that have been foreclosed aren’t necessarily included in that percentage, so the volume of housing units involved might be much higher.

Something as simple as another round of Fed tightening controls on bank reporting could flood the market with inventory, dropping home prices and creating a  new crisis in underwater mortgages (mortgage debt that exceeds the value of the property).

The shadow  inventory has largely dropped out of the news.  Realtors aren’t worrying, since there has been no impact on priced thus far.(3)  However, per the standard caution on investing, past performance is no guarantee of future results.  After all, the Titanic was unsinkable until it sank.

The shadow market still exists and remains a peril for homeowners and lenders.

What can you do?

(a) If you own your home, enjoy it, but don’t count on it as an asset for retirement or anything else.  It’s a home and its future long term value is unknown.

(b) If you don’t own, think twice about whether you want to buy one or continue to rent.  If you do buy, don’t over pay.

(1) Fleming, Mark.  “A New Source of Shadow Inventory.”

(2) Yuh, Lawrence.  “Disappearing Shadow Inventory,”

(3)  “Taking inventory: What ever happened to Reno’s shadow housing market?” The Reno Gazette-Journal.  9 November 2015.