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Online Ad Bust

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“Half the money I spend on advertising is wasted, the trouble is I don’t know which half.”
– John Wanamaker, Philadelphia retail giant, circa 1893

During the internet boom that defined the previous bull market, before 2000, one thing was clear. Advertising as we knew it was dead. Any maven or guru of the ‘net pointed to the ability to target audiences with pinpoint precision and collect real-time data on how effective the spending was. It was a feature that broadcast, direct mail, and print media would never be able to achieve.

Fifteen years on, we can see just how this has worked out. The short answer is that advertising is just as wasteful and untargeted as ever, even online. Worse, advertisers have not substantially moved away from broadcast ads, with teevee still the largest category of spending.

Is internet advertising a flop, or was the hype just ahead of the promise?

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Rue, Brittania

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The election is coming up, and boy is it getting crazy. Not the US election – there’s still a year and a half of nonsense to endure before that. I’m talking about the UK House of Commons election on 7 May. It will certainly test the limits of their parliamentary system, probably moving it into a more funkadelic system in the process.

I had to, I love that joke. Somebody’s gotta bring da funk.

The problem is the UK is more divided along fundamental lines than it has been in a very long time. Given the large number of parties that are likely to achieve seats (12) the election will almost certainly solve nothing, only marking the start of tortured negotiations that will last for three weeks. They’d like to have a government by the annual Queen’s Speech on 27 May, so there is a deadline, but it will be hard to meet.

It’s worth watching in the US if for no other reason than the turmoil they are experiencing is similar to ours, expressed very differently in a different system.

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Sitting on Cash

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If you’re like most people living paycheck to paycheck, you have a simple problem at the end of the month – not enough cash. There’s nothing to be embarrassed about here – it’s a common problem that is faced by a large number of families as the economic recovery struggles on.

But if you’re an S&P 500 company, you may have a different problem – too much cash. Not precisely too much cash on hand, that is, since that’s never a problem. You may have something like cash sitting around somewhere in the world that you have trouble bringing home to make use of the way you want to.

Therein lies the problem with this economy – not that there isn’t enough to go around, but that it isn’t going around.

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A Worker’s Paradise?

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A reflection for May Day, the International Worker’s Day.

Imagine for a moment that you live in the most fair and equitable economy you can dream up.  There are some very specific things that most people in the developed world, especially Americans, would think would be a part of this.

There would be upward mobility, where family circumstances do not determine the kids’ future.  People could find their own way according to their own talents and choices as to what makes a good life.  Money would rarely limit dreams, as a free-flowing capital market would provide funding for good ideas at reasonable rates.  Most would own their own homes and have control over their own destiny.  Workers would own the company they work for, banking their retirement at a reasonable age on the place that they helped build.  Basics like food and access to health care would not be expensive.

Such a place is the embodiment of pieces of both the Democratic and Republican parties in odd turns.  This place of the imagination has also been  pretty close to the perfect state envisioned by Karl Marx, although it may be descending into an oligarchy (which I prefer to call “gangster state”).

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From Net Collector to Payer

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We’ve discussed many times before how the Federal Reserve sets the interest rates for everything from used car loans to mortgages to savings accounts across the US. The task has always fallen to the Federal Reserve Open Market Committee (FOMC) and its “Fed Funds Rate”. As far as anyone can tell they perform a calculation based on the prevailing conditions as to what the optimal rate should be. They balance out the need for more jobs (favored by cheap money, or low rates) with a desire to keep inflation in check (with high rates) and a rate is published. From that baseline for the cost of no-risk money a premium is added by a bank based on the risk (low for a mortgage, high for a used car) or subtracted (the value of savings) and all is good.

Except for one small detail – that mechanism has been horribly broken since 2008 when every calculation suggested the optimal rate was below zero. As long as rates are near zero and there’s a flood of cash in the financial world (not that you are getting any) we have what’s known as a “liquidity trap”. And the way interest rates are going to be set in the near future is going to turn on some far more obscure things such as the “Reverse Repo Rate”.

Yes, it’s complicated.

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