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The Worst Stock Predictions Of The Decade: See How Wrong The 2000 Predictions Were

2009-12-02T14:30:56Z

Along with the looks back at the 2000s, we'll also see plenty of stories touting stocks for the next decade in the coming months. Prognosticating just a year out is hard enough, much less a decade. Just ask the folks that made their projections for this decade back in 2000.

Below we highlight the stock picks for the next decade from two articles that came out in early 2000.

Black Friday Shoppers Run Wild In Wal-Mart (VIDEO)

2009-12-02T14:16:46Z

Unlike 2008, when a Wal-Mart employee was trampled to death in Valley Stream, New York, there have been no reported deaths this year associated with Black Friday, the most popular shopping day of the year. Nevertheless, Black Friday 2009 was not a subdued affair.

One video posted on YouTube shows the extent of shopping madness induced by sale prices and media hype. It shows shoppers, releasing piercing screams at an undisclosed Wal-Mart while furiously clawing their way into the store and down the aisles, leaving some shoppers injured on the ground.

Watch the video below.

Edward Harrison: On the sovereign debt crisis

2009-12-02T14:10:35Z

This post first appeared at my site Credit Writedowns

Given the spate of articles in the business press about this country or that country facing a potential debt crisis, I wanted to write a bit about sovereign debt crises.

In my view, economic stimulus has been warranted in order stabilize the financial system and prevent economic collapse. However, the price of that stimulus is unsustainably high increases in government debt -- in a world in which private sector debt is already critically high. I see the sovereign debt problem as critical, especially in Europe. The sooner we abandon a debt servicing cost mentality, the more likely we are to face up to this challenge.

The debt service mentality

During the boom and bubble which led up to the financial crisis, many in the financial community looked to debt service costs in the private sector as the only relevant metric to gauge whether debt levels were sustainable - both for individuals and in the aggregate. This was bubble mentality which I must take to task now now that we are seeing it crop up in discussions about public sector debts as well. If not, we will likely see some major sovereign bankruptcies in the not too distant future.

The debt service mentality goes a bit like this: Bob and Shirley are looking for a new house. They make $6,000 per month. So they can legitimately afford to pay $2,000 per month for their mortgage. With a 7% interest rate on a 30-year fixed mortgage, that means they can afford to borrow $300,000 - or just over four times income. So, if Bob and Shirley put 10% down on the purchase of a home, they can afford one that costs $330,000.

The problem is when this is the only constraint on borrowing. What happens to house affordability when Bob and Shirley's 30-year rate drops to 5%? Suddenly, they can 'afford' a $375,000 loan. What if they get a 4% rate? Now, they can afford $425,000 in debt - a loan more than 40% larger than at 7% and a massive 5.9 times income. Anyone who has a mortgage recognizes this math as integral to the home buying process.

The lower interest rates go, the more affordable any debt load becomes when debt servicing costs are the only constraint. As rates drop toward zero percent, theoretically Bob and Shirley could afford to buy any house no matter how expensive. But, of course, interest rates don't move in one direction. If rates were to move up significantly when Bob and Shirley wanted to move house, they would face a serious problem. In this sense, artificially low interest rates are toxic. And therefore pointing to debt servicing costs as the only metric of affordability and debt constraints is bubble finance plain and simple.

Here I am talking about bubble finance, not Ponzi finance. In the Ponzi finance schemes in the U.S., we saw fixed rates substituted with lower but unsustainable adjustable rates. Eventually affordability became passé as no-doc, zero-percent down, ninja loans became the norm. In the end, the Ponzi debt scheme collapsed in a heap - as it always must. That's what we saw in the blow-off stage of the bubble after Greenspan lowered rates early this decade. But, the debt servicing mentality is what preceded it.

Relative debt constraints

What is needed is a relative debt constraint like debt to income - or in the case of aggregate figures or sovereign debt figures, debt to GDP. For example, before the bubble in the U.K., one might have seen relative debt constraints like three times income. That meant one could borrow up to three times one's annual income - no ifs ands or buts. If you worked in the City and received a bonus, you might have convinced the bank to count half of it toward your income for loan purposes.

As prudence was thrown out, these constraints were relaxed. The Bradford and Bingleys of the world used lower interest rates to justify jacking these constraints up to 3.5 times or four times income. Eventually these constraints hit six times in the UK.

How do you compete against that as a bank? All of the business is going to Bradford and Bingley and you are getting stuffed. I guarantee you shareholders won't like that. As an executive, you better find the holy grail of prudent but profitable lending or follow Bradford and Bingley on the road to easy money. Otherwise, you will be out of a job.

Eventually, even the prudent relax their standards too - that's how risky behaviour drives out good when risk is rewarded. See my comments in "James Galbraith: How financial stability creates instability."

Operational and effective constraints

So all of the preceding caused Americans and Britons to run up massive amounts of debt. The same was true in places like Latvia, Spain and Ireland - and to a lesser extent in places like Australia. But I am referring here to the private sector. What about the public sector?

Here too there are limitations. For sovereigns with debt in their own fiat currency, there is not the operational constraint that you and I face. After all, they can go to the backyard and just pick some bills off their money tree - something we can't do unless we want to go to jail.

Remember, many countries like the U.S. or the U.K. can just print money to meet creditor demands. After all, the only financial obligation of government in a fiat currency system is the payment of more fiat money. This is a confidence game then. Creditors will only accept more fiat money from the debtor if they believe that the money represents good relative future value (i.e. when debt repayment occurs and where value is relative to other currencies or real assets at that time).

So while there is no operational constraint on government because of the electronic printing presses, there is an effective constraint in the form of debt and currency revulsion and price instability (large measures of deflation or inflation). On countries like Greece or Portugal in the Eurozone, the operational constraint is a lot more real than it is on the U.K. because of currency union. The same is true for countries with a currency peg or large foreign currency debts like Latvia, Hungary or Dubai.

Taxes

What is a sovereign government's income? It is the taxes we pay now and in the future. So this makes tax revenue central to the sustainability of sovereign debt.

How does the Beatles song go:

Let me tell you how it will be
There's one for you, nineteen for me

'Cause I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small

Be thankful I don't take it all

'Cause I'm the taxman, yeah I'm the taxman

Basically, if the net present value of all of the future taxes fall short of the net present value of expected government expenditures, you have a problem. Again, this problem need not be a hard constraint since the government can issue debt in its own currency. Nevertheless, there is a limit to how much paper money people are willing to take if they worry about the future value of that paper.

That's what the worries of a sovereign debt crisis are all about. At some point, the central government's debt become so high that everyone knows they cannot possibly tax the population enough to cover their expenses and service the debt. There are few way outs then - even for sovereigns using their own currency. One can print money, jack up taxes or cut spending drastically. Printing money is inflationary and causes currency and debt revulsion (The inflationary impact depends on the marginal propensity to save in the private sector i.e. the demand for credit). Raising taxes is deflationary as it curbs aggregate demand. And jacking them up far too high invites tax evasion, eventually making money printing the only fallback. And cutting spending reduces aggregate demand, can reduce the future tax base, and risks a nasty debt deflationary spiral. Pick your medicine.

And when I say printing money, I mean 'monetizing the debt' by buying up debt with money printed out of thin air or simply printing money to pay creditors. The two are functionally equivalent in a zero interest rate environment (see my post "On debt monetization").

So, in the short run, we can talk about supply and demand of government debt thinking only about the near-term deficit, budget gaps, and demand for government bonds. We can ignore health care liabilities in the same way we can ignore them for a family's immediate debt problems because this is not actual debt we have to service. Longer-term, there are constraints like huge unfunded liabilities, making the situation that much more difficult.

Enter the debt service mentality

That's where the debt servicing mentality enters this picture again. The public sector can get away with deficit spending for much longer than you or I. But, eventually they too must yield.

Japan is the textbook case. With sovereign debt to GDP well over 150% and rising to well over 200% soon, it will need to cut spending, increase taxes or print money (or all three) to avoid default. The only reason it has avoided problems is the bid for Japanese Government Bonds (JGBs) and Yen due to a huge current account surplus. What happens when that surplus disappears? What happens if interest rates are normalized?

This is the exact same issue Bob and Dorothy faced. When interest rates are low, debt servicing costs are low as well. But, as soon as rates move higher, you have a big problem. Theoretically, of course, if one takes on debt and 'invests' it, receiving a higher rate of return, then one could pile up more and more debt. This is what is commonly known as a "Carry Trade' - and it is a hallmark of bubble finance underpinned by the debt servicing mentality.

What if the investments don't succeed? What if they end up as malinvestments?Then you have wasted money and are now in a deeper hole than you were before. I think there is room to manoeuvre for the U.S. in terms of deficits to prevent a nasty double-dip recession, especially in regards to job creation. But a lot of what we have seen in terms of stimulus has been more dubious in nature; some will be malinvestment. Going forward, we should expect the same. And there has been absolutely no effort to reduce overcapacity in autos, banking, housing or elsewhere in the bailout nation. This is why relative debt metrics like debt to GDP are actually a good thing. They act as a hard constraint on deficit spending that otherwise does not exist.

Keeping this issue in mind, the following on Bruce Krasting's blog is interesting:

On ABC's "This Week" show there were some interesting thoughts from Paul Krugman.

He remarked:

"The cost of the deficit is only 1.2% real rate of interest at the Federal level."

This is economic speak. What Mr. Krugman was saying is that the Government can borrow long term at 3.2% and inflation is 2% so the real cost of debt is only 1.2%.

In response, George Will made the point:

"In ten years the interest cost of servicing the debt will go to $700 billion per year!"

Mr. Krugman responded:

In ten years GDP will be $20 trillion, debt service would still be 3.5%. "That doesn't sound too bad".

Mr. Krugman believes in the ultimate carry trade. His view is that growth will come from affordable (cheap) debt capital. He thinks that the US can go to 100% Debt/GDP without upsetting the applecart. I think he is dead wrong.

We are at the point where the laws of big numbers start to come into play. For Mr. Krugman' view to work out we would have to successfully sell an additional $900 billion of debt each year for the next decade. I think that is an impossible task. But what is truly impossible is that that amount of debt can be sold without an increase in the 1.2% after inflation cost of the debt that Mr. Krugman is relying upon. You can just fool so many bondholders for so long before they look elsewhere.

The cost of servicing our debt will likely double. The increase will be a combination of a general rise in interest rates and in increase in the "spread" that the US will have to pay. If debt expense was a modest 6% it would put the cost at $1.2 trillion. I don't think we will get to that level. We will blow up first.

The Carry Trade is fraught with risk.

Federal Reserve Debates A Bubble-Popping Strategy

2009-12-02T13:19:02Z

Amidst calls to bring greater transparency to the Federal Reserve, the central bank's leaders are torn over one key issue: can the Fed pop financial bubbles before they become dangerous?

As the much-criticized chairman Ben Bernanke faces a confirmation hearing in Congress on Thursday, the Wall Street Journal reports that the Federal Reserve is now looking to take a more proactive stance toward asset bubbles.

Of course, the Fed has long come under fire for missing -- or outright empowering -- the housing bubble and the credit crisis. In the WSJ's words, the Fed is currently "groping for alternatives" to its failed strategy.

According to minutes released from its closed door meeting last week, the Fed openly admitted that its officials are worried that record-low interest rates "could lead to excessive risk-taking in financial markets." For many, this admission was a long time coming.

In the near term, the Federal Reserve may already have more than a few candidates for the next financial bubble. Gold hit a record high on Tuesday; a hedge fund run by billionaire John Paulson owns more gold than many large countries. And many have pointed to the possibility of an a property bubble in Asia.

Here's the WSJ:

"..the question of whether and how to tackle bubbles before they burst is becoming a growing concern amid fears of new bubbles developing in commodities markets and in emerging economies. Gold prices are up more than 50% in a year's time. China's Shanghai Composite stock index is up more than 75% this year. Stocks in Brazil are up even more. Oil prices have rebounded. They remain far below last year's peaks but a return to those highs could fuel inflation in goods and services more directly than tech stocks or housing did."

But the explicit admission that the Fed can identify and should combat financial bubbles is, as Barry Ritholtz points out, a severe change of course for Bernanke. Ritholtz speculates that Bernanke is trying to distance himself from the low-interest, hands off legacy of Alan Greenspan:

Bernanke made his Fed bones, so to speak, back in 1999, when he presented a paper to Fed officials at their annual Jackson Hole meeting, arguing against the Fed popping bubbles. His argument? The Fed should focus on controlling inflation, not trying to manage the cycle of booms and busts.

That argument resonated with Easy Al.

Under Alan Greenspan, the Fed accomplished neither goal. The various Greenspan era bubbles such as tech-stocks, credit, oil and commodities boom, and of course, housing all ran their course unabated, with no interference from the Fed. Inflation -- much higher from 1999 to 2007 than CPI falsely reports -- also ran wild."

While Fed critics push to audit the central bank and kill the renomination of Bernanke, Henry Blodget argues that the next bubbles are already upon us. Blodget suggests the Fed should learn from the tenure of former chairman Paul Volcker, who raised interest rates in the early 1980s during a time of economic unease. As for our current regime Blodget says:

"Today, we are led by men like Ben Bernanke and Tim Geithner. Men who are so afraid of the consequences of making people pay for their profligacy and stupidity that they have restarted the debt bubble (free money and bailouts for Wall Street, FHA, cash for clunkers) and made Too Big To Fail a national policy."

Read the entire WSJ story here.

Federal Reserve Audit And Financial Reform Bill Heads To Key Vote In House Banking Panel

2009-12-02T13:04:22Z

WASHINGTON — House lawmakers are ready to clear a significant hurdle in their drive to slap new financial restraints on big Wall Street institutions and to demand greater openness from the nation's central bank.

Motivated by the crisis that caused a near collapse in financial markets, a House committee scheduled a vote Wednesday on legislation that would give the government the right to dismantle financial firms that pose a risk to the economy, even if they are healthy.

The legislation in the House Financial Services Committee also would require a sweeping congressional audit of the privacy-shrouded Federal Reserve and would assess fees up front on large financial institutions to pay for the failure of their competitors.

Already postponed once, the committee's bill could face another delay Wednesday. The Congressional Black Caucus, which has 10 members on the committee, held up a vote on the legislation before Thanksgiving because it wanted the Obama administration to address unrelated joblessness issues facing the black community, where unemployment far exceeds the national average.

Asked Tuesday evening whether the caucus would permit a vote, Rep. Emanuel Cleaver, D-Mo., a member of the panel and the caucus, said, "We're still studying and discussing."

In a statement Tuesday evening, White House spokeswoman Jennifer Psaki said: "The president's top priority is economic recovery and we understand the profound impact that the recession is having on the African-American community. We welcome a continuing dialogue with the CBC on how we can collaborate to implement the president's agenda to support economic growth and opportunity for all Americans."

If passed, the Financial Services Committee bill would set the stage for a full House vote as early as next week on comprehensive regulatory changes, ranging from the creation of a new consumer finance protection agency to restrictions on complex financial instruments blamed for feeding last year's panic.

In the process, some tough provisions requested by the Obama administration have been removed or weakened through exceptions. In the case of the Fed audit and the fee assessment on financial firms, however, administration officials have said the committee was too harsh. Some adjustments were still under way Tuesday, particularly aimed at toughening restrictions on derivatives trading.

Committee Chairman Barney Frank, D-Mass., faced not only Republican opposition to most provisions but also had to compromise with moderate Democrats who were not eager to go as far as Obama.

"You make trade-offs," Frank said Tuesday. "I think our bill came out stronger than I was afraid it would given where the membership was."

In a response to the government's rescue of the huge insurance conglomerate American International Group, the committee also planned to vote on legislation that would create an Office of Insurance Information. It would monitor the insurance industry and determine whether and when state regulations governing the industry can be overruled.

Regulatory efforts in the Senate were moving at a slower pace.

Banking Committee Chairman Christopher Dodd, after introducing a draft piece of legislation before Thanksgiving that was panned by Republicans, has asked Democrats and Republicans on his committee to split up into issue-based groups to work out compromises.

While Dodd, a Connecticut Democrat, initially aimed to have the legislation clear his committee this month, that could slip into next year.

Treasury Secretary Timothy Geithner was scheduled to testify before the Senate Agriculture Committee on Wednesday on proposals to regulate derivatives. The issue is difficult because the administration has asked for banks and hedge funds to trade these previously unregulated instruments on regulated exchanges. A coalition of companies that use derivatives to hedge risk – not speculate – have argued for exemptions.

Sen. Jack Reed, D-R.I., who is taking the lead on derivatives on the Senate banking panel, said he doesn't believe in spelling out a series of exceptions in the legislation. He said regulators – the Securities and Exchange Commission and the Commodity Futures Trading Commission – should decide who is exempt.

"The concern is that if you start carving things out legislatively, then you'll find that the exceptions swallow the rules," he said.

Raymond J. Learsy: Wall Street Compensation and Accountability Gone Off The Rails

2009-12-02T11:26:48Z

We are all subject to making right and wrong decisions. But in the world as most of us know it, we are held accountable for the decisions we make. What has become so grating about the financial sector is that all too often these rules do not apply. Win or lose, it is the shareholder or taxpayer that is left holding the bag whereas the financial players come out whole irrespective of the consequences of their decisions.

In an illuminating article for the New York Times, Andrew Ross Sorkin ("A Financial Mirage In the Desert" 12.01.09) while recounting the Dubai financial implosion informs us that an $8 billion dollar Citigroup loan was made to Dubai on December 14, 2008 and is now at precarious risk of default. This loan was made by Citigroup after they had received tens of billions under the TARP program weeks before. As we all know, the TARP program was instituted to support bubble offshore economies such as Dubai (Really!?), while the pressing needs of our downward spiraling domestic economy for capital/liquidity were secondary to the world class ambitions of our leading bankers.

Clearly, given his comments, part and parcel of the process that went into making this bone-headed decision was the role presumably played by Citigroup's Chairman Win Bischoff, who was quoted at the time, "This is in line with our commitment to the UAE market in general and reflects our positive outlook of Dubai in particular". Duh?! Here was a disaster in the making not only for its lack of incisive due diligence, but the very nature of making this bizarre offshore loan when the domestic economy was crippled and in desperate need of funds.

Certainly Prince Alwaleed bin Talal could not have possibly been thinking of his very significant deeply underwater investment holdings in Citigroup when quoted yesterday. "These banks are very mature banks, and they have to differentiate between a corporate loan and a sovereign loan," Alwaleed, said yesterday in an interview on Bloomberg Television. "When things go sour, you can't have some banks in the West going to Dubai and saying 'oops' and crying wolf and saying, 'You should have guaranteed those loans.'"

In the real world, anyone party to such wrong headed thinking would find themselves on the street looking for a job. But not our friends in finance. I do not know the level of Mr. Bischoff's remuneration but I would venture to guess the Dubai loan will be swept under the rug by his friendly compensation committee, and he will walk away with the many millions that had been set aside for him. After all, it's really only taxpayer money. Heads I win, tails you lose would be the appropriate moniker.

Porshe Sales Jump 18 Percent

2009-12-02T06:48:30Z

NEW YORK - Porsche Cars North America Inc. said Tuesday that its November sales increased 18 percent compared to the same month last year on stronger sales of its Cayman model.

BY THE NUMBERS: Porsche said U.S. sales were 1,626 in November, compared with 1,378 in the same month last year. However, sales dropped overall to 17,578 in the first 11 months of the year, compared with 23,881 for the same period in 2008.

HOT MODELS: Sales of the Porsche Cayman sports coupe jumped to 88 in November, more than double the number sold in November of 2008. But overall sales of the Cayman fell to 881 so far this year, compared with 1,312 in the same month last year.

GE, Comcast Deal For NBC Universal Is Complete, Reports CNBC

2009-12-02T04:04:57Z

The deal between General Electric and Comcast over a majority stake in NBC Universal is complete, and there is nothing left to do but process paper, a source close to the merger told CNBC Tuesday.

Dan Solin: Mr. Rogers' Neighborhood

2009-12-02T03:33:57Z

"Subprime Risks: Overblown" was an article written by John W. Rogers, Jr. on September 17, 2007.

Rogers is the founder of Ariel Capital Management. It has $4.8 billion under management and serves a broad range of corporate and individual clients. It manages the Ariel Fund, the Ariel Appreciation Fund and the Ariel Focus Fund.

Rogers is a regular contributor to Forbes and other publications.

In his Forbes article, Rogers explained that he was a "professional investor for 25 years and the owner of an investment firm." He noted that "[D]uring tough times like these I stay focused on the areas I know best, which keeps me calm and confident in my decisions."

He certainly was confident.

He counseled against over diversification which he noted was a "bad idea." Instead, he advised investors to focus on their "circle of competence", which in his case was financial stocks. These stocks were the "biggest weightings" in his portfolios.

He recommended three stocks, all of which were well within his "circle of competence":

City National (CYN). Shares were trading at 74 which he noted was "a 29% discount to my $104 estimate of 'private market value.'" City closed at $38.65 on November 27, 2009.

Assured Guaranty (AGO), which was selling at $26. Assured closed at $22.30 on November 27, 2009; and

HCC Insurance Holdings (HCC), which was selling at $28. Rogers noted that HCC was selling at a 32% discount to his $41 estimate of "private market value." HCC closed at $26.11 on November 27, 2009.

It has also been rough sledding for the Ariel Funds, although they recovered significantly in 2009.

The Ariel Fund (ARGFX) lost 48.25% in 2008. It is up 44.44% year-to-date. Its five year average return is a loss of 3.09%.

The Ariel Focus Fund (ARFFX) lost 35.09% in 2008. It is up 22.21% year-to-date. Its three year trailing return is a loss of 7.10%. The fund was started in June, 2005.

The Ariel Appreciation Fund (CAAPX) lost 40.74% in 2008. It is up 42.06% year-to-date. Its five year average return is 0.65%.

Imagine my surprise when I read Rogers' most recent article in Forbes, entitled "Separating Luck from Skill". Rogers had read Think Twice: Harnessing the Power of Counterintuition, by Michael Mauboussin. Mauboussin suggested a simple test to determine if an activity involves luck or skill: Determine if you can lose on purpose. If you can (like Roger Federer can lose a tennis match to anyone he chooses), the activity involves skill. If you can't (like playing a slot machine), it involves luck.

Rogers tested "stock picking skill" by asking 71 of his associates to lose on purpose. Each would pick ten stocks that would under perform the market in the second quarter. Only 19 of them succeeded. 73% tried to lose, but failed. Clearly, luck was the big winner in the short term.

Rogers' conclusions from this experiment are interesting. He states that in investing, "luck matters in the short term, but skill matters in the long term." He then proceeds to recommend three stocks based upon his projection of their short term earnings.

If stocks are efficiently priced over the short term, why is that not the case over longer periods of time?

It is. Every study indicates that over the long term, only a small percentage of actively managed funds will equal or beat their benchmarked index.

Active managers like Rogers and others continue to make short term predictions about stocks, frequently including their projections of "private market value." When they are proven wrong, they tell investors to take a long term view.

Investors who do will reject active management and adopt the views of Nobel Prize Winner William Sharpe, who stated: "After costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar. These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication and division. Nothing else is required."

This conclusion is validated by the performance of Vanguard's Total Stock Market Index Fund (VITSX). This low cost index fund tracks the index of all U.S. common stocks traded on the NYSE and NASDAQ. As such, Rogers would no doubt consider it "over diversified." Its five year average return is 1.00%, which is significantly higher than all three Ariel funds.

Market returns are superior returns. They can be hard to find in Mr. Rogers' neighborhood.

Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.

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David Leonhardt: Financial System Better Despite 'Flare-Ups' Like Dubai

2009-12-02T03:33:48Z

Thanks to low interest rates and other recent policies to support the real estate market, houses in this country are not especially cheap today, compared with incomes or rents. They're just no longer ridiculously expensive. Stocks were briefly inexpensive last spring, but they are now more expensive than they have been for most of the last 60 years, relative to corporate earnings.

So we should probably expect some more mini-busts -- some more Dubais, if you will -- in the near future.

Lloyd Chapman: Obama Jobs Forum Angers Small Business Groups

2009-12-02T01:15:11Z

On Thursday, December 3, President Barack Obama will commence a "Forum on Jobs and Economic Growth," at the White House. The American Small Business League (ASBL) is concerned that President Obama's jobs forum is yet another publicity stunt designed to yield positive public relations, as opposed to creating new jobs.

The summit will include, "130 liberal economists, union leaders, Fortune 500 executives, and even a few small-business owners," according to Kent Hoover, Washington bureau chief for bizjournals. (http://www.portfolio.com/views/blogs/capital/2009/12/01/bernanke-confirmation-hearing-is-real-jobs-summit/) President Obama's Forum on Jobs comes just weeks after the administration held a small business-lending forum with a mere seven handpicked small business owners invited to speak. http://www.asbl.com/showmedia.php?id=1521

The ASBL maintains that if President Obama really wanted to stimulate the national economy and create new jobs he would support the small business community and honor the promises he made during the 2008 presidential election.

During the 2008 election cycle, President Obama promised to, "end the diversion of federal small business contracts to corporate giants." http://www.barackobama.com/2008/02/26/the_american_small_business_le.php

To date, President Obama has failed to honor that promise.

The ASBL maintains that stopping the diversion of federal small business contracts to corporate giants alone would redirect more than $100 billion a year in federal infrastructure spending to America's chief job creators, its small businesses. Firms with 20 or fewer employees are responsible for over 97 percent of all net new jobs, according to the most recent U.S. Census Bureau data. http://www.inc.com/news/articles/200708/data.html

On October 26, Arianna Huffington took aim at President Obama's priorities by stating, "If this [small business lending] were really a high-priority for the administration, it could, you know, actually do something about it."
http://www.huffingtonpost.com/arianna-huffington/barack-obama-is-doing-my_b_334631.html

The ASBL maintains that President Obama's rhetoric is inconsistent with his actions.

If President Obama were really serious about creating jobs he would back H.R. 2568, the Fairness and Transparency in Contracting Act, which will redirect over $100 billion a year in federal infrastructure spending to the small businesses where most Americans work and where nearly all new jobs are created. H.R. 2568 is the simplest and most effective economic stimulus anyone has proposed to date. As George S. Patton said, "A good plan violently executed now is better than a perfect plan executed next week." Small businesses cannot afford the luxury of waiting for President Obama to become the man we all thought he was.

Did GM CEO Fritz Henderson's Daughter, Sarah Henderson, Rant On Facebook?

2009-12-02T00:49:43Z

Did the daughter of GM's resigned CEO Fritz Henderson write an incendiary message on the company's Facebook fan page, trash-talking the automaker's chairman?

Automotive blog Jalopnik has posted a screen grab of a message posted by someone claiming to be Henderson's daughter. Henderson resigned after GM's board concluded that change was not happening fast enough at the troubled company. The message by Sarah Henderson was posted to GM's Facebook fan page and was typed in all caps:

HE FUCKING GOT ASKED TO SETEP DOWN ALL OF YOU FUCKING IDIOTS. IM FRITZ'S FUCKING DAUGHTER, AND HE DID NOT FUCKING RESIGN. WHITACRE IS A SELFISH PIECE OF SHIFT [sic], WHO CARES ABOUT HIMSELF AND NOT THE FUCKING COMPANY. HAVE FUN WITH GM, I HOPE TO NEVER BUY FROM THIS GOD FORESAKEN COMPANY EVERY AGAIN [sic]. FUCK ALL OF YOU.

The post has since been removed, and the poster's identity cannot be confirmed. A search for the name "Sarah Henderson" returns 339 pages of Facebook search results. It's unclear if the profile picture attached to the post matches any of those "Sarah Henderson" profiles on Facebook.

There is one profile that stands out. This Sarah Henderson (whose profile is private), has ties to Michigan, claiming to have graduated from the University Of Michigan in 2008. ~~Fritz Henderson was once the CEO of Sara Lee Corporation.~~

CORRECTION: Fritz Henderson was never the CEO of Sara Lee.

Fareed Mohamedi: The Resilience of Dubai and the Gulf

2009-12-01T23:38:32Z

The collapse of Dubai World has called into question the failure of the Dubai economic model and even undermined confidence in the economic future of the Gulf. Much of these sentiments are misplaced as was the loss of confidence in the "Asian Model" in the late 1990s. In fact, both are quite similar since Dubai largely copied Singapore and the other Southeast Asian tigers. Structurally, both had three essential features:

An efficient and effective state planned and built world class infrastructure to attract private businesses. Of course, the seedy side of this was the use of virtually indentured labor from South Asia (in the case of Southeast Asia it was the Philippines and Indonesia).

Business investment was encouraged and actually established directly by the state to provide services to a globalized market place (i.e. tourism, business services, media, telecom, cargo handling and even additions to the global production chain)

Regional gaps and shortages created by restrictions and blockages in trade and finance in specific countries (for Dubai these target markets were Iran, Saudi Arabia, India, Pakistan and the FSU) were filled and alleviated.

Two additional features facilitated and ensured the development of the economic space:

A heavy reliance on debt financing, which in the specific case of Dubai also exploited the innovations of Islamic finance seen in the last decade

The creation of commercially run government companies that had the implicit guarantee of the sovereign. In Dubai's case there was an additional implicit guarantee from Abu Dhabi. These mobilized capital and created core sectors which then led to the in-gathering of other private sector businesses

Both the Asia Model and its Gulf clone had a big weakness - over reliance on debt. This was partly a function of the government guarantees and in this case, Abu Dhabi's back stop role. The success of Dubai in promoting itself also played a major role in the financial overstretch as local, regional and international lenders indulged the Emirate. Given the enormous amounts of excess liquidity in the Gulf and worldwide, prior to the financial crisis, it was almost inevitable that Dubai borrowed excessively, just as the Southeast Asian had in the run up to the crash in 1997-1998.

Despite this proclivity towards over borrowing, the fundamentals of the Dubai model are still sound. The infrastructure has been built and is still very useful. The underlying business logic of Dubai Inc - i.e. globalization of services and meeting regional finance and trade needs -- is still very viable even if demand for these services is somewhat more muted due to the problems of the world economy, financial instability and reversals in globalization. Moreover, this will put more pressure on the Dubai Executive to tighten up on regulations and improve governance, including financial management, which should improve the ability of Dubai to weather future storms. Ironically, one of the consequences of the financial bust, a sharp reduction in asset prices, will enhance the Emirate's competitiveness.

What appears not to be sound is the political issue which underpins the Dubai model (see separate forthcoming MIS memo). To get back on track, ruling families of the UAE will have to appear united and work on putting Dubai back on a more sustainable footing. Once this is done, there are few reasons for Dubai not to grow at a steady sustainable rate over the long term.

Another important factor that will help the long term growth of Dubai is that the rest of the Gulf's economies are resilient and their growth models (adaptations of Dubai and the Asian Model) are sound. Saudi Arabia is embarking on a huge capital investment program financed not by debt but by government cash reserves and a determination to keep prices above the Kingdom's threshold price of $55/b. Foreign and domestic private investment in petrochemicals and other downstream industries will also prolong the strong growth prospects in the Kingdom.

Similarly, Abu Dhabi is trying to develop its economy again from its vast foreign exchange reserves. While Abu Dhabi's development could be competition to Dubai, it most likely will complement its neighbor because many of the services it requires could be more economically purchased next door. The overall Gulf's growth will certainly help Dubai - Iraq's reconstruction is still on the horizon and could be another fillip to regional growth prospects.

The ultimate threat to the wellbeing of the region in the medium term is a sustained fall in the price of oil. There the prospects overall look fairly favorable despite a few dark clouds on the horizon. Most excess capacity is in the hands of the Saudis who are loath to do anything to destabilize the price. Other potential competitors to the Saudis and overall OPEC - the BRINK countries - potential output surges are not expected for a few years and there is still a high degree of expectation that they will absorbed without being disruptive to prices. Overall, the fundamentals and the economic policies of the Gulf, including Dubai, are sound and we will likely see this episode fade into the past --just as the Asian crisis did after the late 1990s.

Jonathan Littman: Tiger's Seven Lessons OFF the Course

2009-12-01T22:06:05Z

Tiger Woods is a great golfer. Arguably, the best who's ever lived. He's also human and, in light of recent developments, acting on lousy advice.

Woods' handlers deserve most of the blame for the way they've bungled his recent mishap. What's more, he and they have also provided a shining example of how not to deal with a crisis. Here are seven lessons that executives -- and even ordinary humans who don't live in gated communities -- can learn from his troubles:

1. Nothing is private if you are an executive or celebrity.

2. If it happens outside your front door it's even less private.

3. The more handlers you hire to spin your scandal, the more likely you are to whirl out of control and come off like a corporation instead of a human being.

4. Standing up the cops is always a bad move.

5. Telling half the story is a brilliant strategy ... to invite the National Enquirer to fill in the blanks.

6. Every day spent in hiding exponentially lowers the chances people will believe you.

7. Always keep your golf clubs in the car.

Jonathan Littman is the co-author of the new book I HATE PEOPLE! (Little, Brown and Company; June 2009) with Marc Hershon. A Contributing Editor at Playboy, Jonathan is the co-author of the best selling Art of Innovation.

Bob Jeffrey: Necessity Is the Mother of our Creative Invention

2009-12-01T22:04:46Z

We've heard the generational tales -- some tall, some true -- of the innovative survivors of the Great Depression. They wasted nothing. Necessity was the mother of their invention. Surviving demanded creativity.

If history repeats itself, these economic hard times are forcing our hands once again to be more creative and innovative. And that's good. As advertisers, we're in the business of breakthroughs and creative ideas to radically transform our clients' businesses.

We learn lessons from our past. As we look to 2010, the tough economy will accelerate the transition toward non-traditional channels. We see it as an incredible opportunity to lead clients toward experimentation. The industry is being redefined, but it's not a time for novices. We're going to have to capitalize on the best of the past and apply it to the best future.

I recently came across a poignant line from an in-house JWT publication that was published 100 years ago, "It is the mingling of good new things with good old things that gives us strength."

Brands have to be confident now more than ever. They need to be innovative in how they go to market with creative and communications. Ultimately, JWT has proven, tough times provide us with the chance to push boundaries. Around the world, through our craft, we've used this crisis as a chance to define and redefine the industry. It may be a global crisis, but it's also a global creative opportunity.

Our expertise and history are rooted in defining and reinventing global brands. Our relationship with Unilever spans more than a century. Our partnership with Ford goes back 66 years; US Marines, 62 years; and Rolex, 63 years.

We believe in work, reputation and growth. Great work transforms businesses. It steals market share. It turns indifferent brands into beloved brands. And it attracts clients to our agency.

For these clients, we work around a central premise of global networked creativity, the belief that ideas come from anywhere, which is why we need to be everywhere. With 200 offices in more than 90 countries, we're defining a boundary-free future -- free from geographical, media and historical constraints.

What bridges time, geography and culture is our central communication philosophy -- that we create ideas people want to spend time with. Creative ideas inspire people to spend time with a brand. More time means more bonding and ultimately more loyalty to the brand.

Consider the Kit Kat in Japan, one of the world's most competitive retail markets. Getting shelf space is not nearly the challenge of keeping it in Japan's fickle confectionery market. For Kit Kat, one of Nestle's flagship brands and one of the world's most famous chocolate bars, the strategy wasn't to fight the battle on the shelf, but to create a new level of meaning and a revolutionary new way to experience the brand.

The term, "Kitto Katso," translates from the Japanese as "surely win." It's a hopeful thought for people trying to compete with 127 million people in the country. Nowhere is the pressure to "surely win" more pervasive than in the schools. Every spring, friends and family send care packages to students embarking on school entrance exams. Hand-written notes are especially cherished. We wondered what if we could inspire the entire country to send students Kit Kats.

Our Tokyo team tapped the Japanese postal service, one of the country's largest institutions with more than 20,000 locations, to accept Kit Kats as edible postcards. In the first ever partnership between the government, Japan Post and a private brand, we introduced Kit Kat Mail. You could buy a candy bar at the post office, write a personal message and send it to a friend. The campaign was deployed in 22,000 offices overnight without a single competitor in sight.

The seemingly simple idea generated more than $11 million in free publicity and landed Kit Kat Mail as a permanent product in Japan Post outlets, alongside stamps and postcards. More than 260,000 Kit Kat Mail packages were sent, and even though the spring exams are over, hundreds of thousands of people are sending them to wish good luck for any occasion. Now, the candy bar is synonymous with good fortune. The work also won us a Grand Prix at Cannes, the most prestigious advertising award show in the world. This is the kind of open-minded, barrier-free idea that can be translated around the world and inspires real bonding with the brand.

We also recognize that global consumers are rapidly reevaluating and readjusting their value paradigms and purchasing decisions. Our job is to keep our ear to the ground with these consumers, providing relevant real-time insight to our clients that inspires cutting-edge, cost-efficient solutions.

Born out of our need to be more innovative is a change in how we communicate. We've evolved from a reliance on advertising that interrupted what people were interested in to communications that are what people are interested in. The new model shows interruption is out. Consumer engagement and interaction are in.

The idea is to engage the audience with meaningful work and keep topping that work with consistent innovation. In 2008, at the height of the economic collapse, JWT launched a campaign for Macy's called "Believe." The campaign asked Americans to prove they believed in the true spirit of the Christmas season by mailing their letters to Santa Claus at special mailboxes installed at more than 800 stores nationwide. For each letter, Macy's donated $1 to the Make-a-Wish Foundation.

The campaign was a massive success, collecting over 1.1 million letters. But our next assignment was to top it. For 2009, we needed to continue "Believe," build on its success, and find new ways to ignite the spirit of Christmas among customers. The solution wasn't to make more advertising. Instead, we made a television show from scratch.

"Yes, Virginia" is a 30-minute animated Christmas special written and produced by JWT. The show is based on the classic true tale of Virginia O'Hanlon, who in 1897 set out on a quest across New York City to prove Santa Claus was real. The entire story shows one little girl's struggle to "Believe" -- bringing our campaign idea to life in a way no commercial could ever accomplish.

Last year we were able to inspire 1.1 million people to write a letter to Santa Claus. By creating an original show for network television, we'll reach an audience far, far bigger than that.

It's contagious advertising exactly because it doesn't look anything like advertising. It's interaction, not interruption. Unlike a commercial or print ad, "Yes, Virginia" was crafted to be timeless. We had to deliver a show that was as good as or better than the other programming we were competing with. And above all, we tried to make something that would inspire people to believe long after this holiday shopping season is over.

These tough economic times may be forcing our hands to innovate and push harder to survive. But if we've learned anything from history, we can marry the good new things with the good old things and come out stronger for it.