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Transcript of Consumer Metrics Institute, Inc. What Ben Bernanke Should Have Learned in History 101 Rick Davis...
Consumer Metrics Institute, Inc.www.consumerindexes.com
What Ben Bernanke Should Have Learned in History 101
Rick DavisPresident & CEO
Consumer Metrics Institute, Inc.
Consumer Metrics Institute, Inc.www.consumerindexes.com
Why do we have to study History?
You’ve gotta be kidding me!I hated History!
Consumer Metrics Institute, Inc.www.consumerindexes.com
Luckily, this presentation is mostly about:
a radical new technology tocapture economic data.
Consumer Metrics Institute, Inc.www.consumerindexes.com
But most of the people in this room will be unsure ...
about if or how they should use it in their practice.
Consumer Metrics Institute, Inc.www.consumerindexes.com
In fact, the most common question after new technology
presentations:
Wow, it may be neat ...but how can I actually use it?
Consumer Metrics Institute, Inc.www.consumerindexes.com
History can show us why it is critically important to accept
new technologies and radical ideas.
Consumer Metrics Institute, Inc.www.consumerindexes.com
Agenda• 10:30am – 11:00am
– What Ben Bernanke Should Have Learned in History 101– A Perspective on Assimilating Change
• 11:00am – 11:30am– A New Technology in Macro-Economic Measurements– The Consumer Metrics Institute’s Leading Indicators
• 11:30am – 11:45am– Questions & Answers
(Wow! That’s Neat!)
(But How Do I Use It?)
(Stump the Speaker!)
Consumer Metrics Institute, Inc.www.consumerindexes.com
History 101
Consumer Metrics Institute, Inc.www.consumerindexes.com
That Queasy Feeling
How many of you have never, ever driven on icy roads?
How many of you have never felt that queasy feeling when the car starts to
move sideways?
When you suddenly realize that you’re on “black ice” and you envision ...
Consumer Metrics Institute, Inc.www.consumerindexes.com
That Queasy Feeling
… when all of the controls available to you no longer seem to work.
Consumer Metrics Institute, Inc.www.consumerindexes.com
That’s Exactly What …
the Chairman of the Federal Reserve felt when he tried to stimulate the economy by dropping interest rates and increasing the
money supply.
Consumer Metrics Institute, Inc.www.consumerindexes.com
… In 1929.
Chairman of the Federal Reserve
1927-1930
Roy Archibald Young
Consumer Metrics Institute, Inc.www.consumerindexes.com
… In 1929.
Roy Young Herbert Hoover
Roy Archibald Young and Herbert Clark Hoover were exactly the wrong people to
be “at the helm” when the economy began to contract in 1929.
They could not find solutions that were “outside the box.” They could not imagine
the “inconceivable”.
Consumer Metrics Institute, Inc.www.consumerindexes.com
Some Thrive in ChaosSome Seek Change
People are “Wired” Differently
Some Abhor Chaos
Some Avoid Change
Consumer Metrics Institute, Inc.www.consumerindexes.com
• Change Avoiders: “Wedding Planners”
• Change Embracers: “Rat Catchers”
People are “Wired” Differently
New Nomenclature Time ...
Consumer Metrics Institute, Inc.www.consumerindexes.com
• US Civil War Military Leaders:• Wedding Planners:
• George B. McClellan• George G. Meade• Joseph E. Johnston• P. G. T. Beauregard
People are “Wired” Differently
Consumer Metrics Institute, Inc.www.consumerindexes.com
• US Civil War Military Leaders :• Rat Catchers:
• Ulysses S. Grant• William T. Sherman• Robert E. Lee• "Stonewall" Jackson
People are “Wired” Differently
Consumer Metrics Institute, Inc.www.consumerindexes.com
A Field Guide for Indentifying:
Rat Catcher Wedding Planner
Consumer Metrics Institute, Inc.www.consumerindexes.com
Wedding Planners are Always
Planning for the Last War
Rat Catchers Extemporize and Deal with This One
The Bottom Line:
In Times of War ...
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Wedding Planners Excel at Ceremony and Tradition
Rat Catchers are Awkward to Have Around
The Bottom Line:
In Times of Peace and Prosperity ...
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Wedding Planners Muddle Around Until They Get Fired
Rat Catchers Take the Initiative and Win
The Bottom Line:
In Times of Calamity ...
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Rat Catchers Think “Outside the Box"
The Bottom Line:
Consumer Metrics Institute, Inc.www.consumerindexes.com
To Succeed in Uncertain times,
Become a Rat Catcher!
The Bottom Line:
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Harder Than You Think,
Especially for Those at the Helm.
How Hard is That?
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History 201
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Early Evening, May 31st, 1916 …
The two largest fleets of battleships ever assembled were steaming
towards a horrific collision …
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By Dawn the Next Day …
… 14 British Ships and 6,000 British Sailors lay at the bottom of the North Sea off the coast of Jutland.
2.5 Times the U.S. Losses at Pearl Harbor!
Consumer Metrics Institute, Inc.www.consumerindexes.com
Were largely because they
had no idea where
the German High Seas Fleet actually was ...
until the German guns opened fire.
The Horrific British Losses …
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… but it was deployed 1 hour after the battle commenced.
A Critical New Technology …
... was there at Jutland and could have turned the tide.
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Simply failed to utilize aNew Technology
that would have allowed him tosee over the horizon ...because nobody hadever done it before.
The Commander in Chief …
Admiral John Jellicoe
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Why Was John Jellico at the Helm?
• “Wedding Planners” rise to the top during extended periods of peace.
• “Rat Catchers” are simply uncomfortable to keep around.
Consumer Metrics Institute, Inc.www.consumerindexes.com
• Wedding planners are prepared to fight the last war:– They have identified who the last enemy was– They have studied how to win the previous battles– They have developed perfect weapons for the last
war
The Problem:
Consumer Metrics Institute, Inc.www.consumerindexes.com
• But they cannot think 'outside the box‘ when:– The wrong enemy or problem shows up– The old tactics don’t work– The perfect weapons misfire– New weapons need to be implemented
The Problem:
Consumer Metrics Institute, Inc.www.consumerindexes.com
Because The Other Side of the Horizon
Is Outside of Their Current “Box”.
Wedding Planners …
Don’t Know How To
See Over The Horizon ...
Consumer Metrics Institute, Inc.www.consumerindexes.com
History 301
Consumer Metrics Institute, Inc.www.consumerindexes.com
Flash Forward: 1929 …• Perceived Economic Enemies:
– Deficit Spending Induced Bubbles (1917-1918) Leading To Major Contractions (1919-1921)
– Hyperinflation from Uncontrolled Expansion of the Money Supply (Weimar Republic 1921-1923)
• They Had the Perfect Weapons:– A Fiscally Conservative Administration Committed to
a Balanced Budget– A Money Supply Tightly Coupled To Bullion Reserves
Consumer Metrics Institute, Inc.www.consumerindexes.com
Couldn’t See Over The Horizon ...To Realize That the Real Enemies were:
Roy Archibald Young …
• A Crippling Contraction of Credit
• A Devastating Deflationary Spiral
• Demographically Driven Slowdowns in Growth
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With Utter Disdain for6,000 Years
of Economic Traditionto Attack the Problems.
It Took a Rat Catcher …
Consumer Metrics Institute, Inc.www.consumerindexes.com
• To have the unmitigated gall to do the unthinkable:– Executive Order 6102 & the Gold Reserve Act– Emergency Banking Act & Federal Deposit Insurance Corporation– Glass-Steagall Acts of 1932 & 1933– Securities Act of 1933 & Securities Exchange Act of 1934– National Industrial Recovery Act & Works Progress Administration– Social Security Act of 1935
It Took a Rat Catcher …
Consumer Metrics Institute, Inc.www.consumerindexes.com
Flash Forward: 2007-2010 …
• Perceived Enemies:– Banking System Capital & Liquidity Challenges– Institutions “Too Big To Fail”– Toxic Assets Hampering Credit Creation
• They Had the Perfect Weapons:– Unlimited Ability to Create Credit– Unlimited Ability to Transform Toxic Assets into
Sovereign Debt
Consumer Metrics Institute, Inc.www.consumerindexes.com
The Wedding Planners at the Current Fed
Can’t See Over The Horizon ...
to Realize that the Real Enemies are ...
But What If …
Consumer Metrics Institute, Inc.www.consumerindexes.com
The Real Problems?
– Sovereign Debt passing a “Tipping Point”?– The Moral Hazard Implicit in “Too Big To Fail”?– Supercritical Markets & Quant Programs?– Derivatives Supplying Unrestrained Leverage?– Higher Risks Forced on Investors by 0% Rates?– Demographics Altering Economic Growth?
Consumer Metrics Institute, Inc.www.consumerindexes.com
And What If …
The Real Scenario Isn’tthe U. S. in 1929, 1980 or even 2000 ...
But Japan in 1990?
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The Problem …
• Wedding Planners Fail to– Think Outside the “Box”– Look Over the Horizon
Consumer Metrics Institute, Inc.www.consumerindexes.com
Wow, that’s neat.
But how do I use it?
Most Common Comment:
Consumer Metrics Institute, Inc.www.consumerindexes.com
Be a Rat Catcher Think “Outside the Box"
The Answer:
Consumer Metrics Institute, Inc.www.consumerindexes.com
Look Over the Horizon
And ...
Consumer Metrics Institute, Inc.www.consumerindexes.com
Economic History 401
Consumer Metrics Institute, Inc.www.consumerindexes.com
History of U.S. Economic Data
1937-1938:
Consumer Metrics Institute, Inc.www.consumerindexes.com
History of U.S. Economic Data
1937-1938:Recession nested within the Great
Depression saw total GDP drop by 6%,
comparable to “Great Recession” 2007-2009
Consumer Metrics Institute, Inc.www.consumerindexes.com
History of U.S. Economic Data
• The Administration had no good data concerning the status of the recovery from the 1937-1938 recession
• They asked Wesley Clair Mitchell at the U.S. National Bureau of Economic Research to provide that data
Consumer Metrics Institute, Inc.www.consumerindexes.com
History of U.S. Economic Data
• Wesley Clair Mitchell (1874-1948)– Devised Over 500 Time Series of Data– Many Still Being Collected to This Day– Measured Activities at Factories– Captured Activities Important in 1937– Data Series Are Basis of BEA’s GDP
Consumer Metrics Institute, Inc.www.consumerindexes.com
BEA Methodologies:
• Questionnaire Approach is Unchanged• Factory Focus is Unchanged• Pace of Data Collection is Unchanged• Pace of Publication is Unchanged
Consumer Metrics Institute, Inc.www.consumerindexes.com
1937 Methodologies:
• Data Collection Time Lags• Large Firm Sampling Bias• “Survivor” Biases
• Under-reported Casualties• Inherited Market Share “Gains”
• Economically “Downstream” Sampling
Consumer Metrics Institute, Inc.www.consumerindexes.com
But Think iTunes Downloads ...
• How many times does a download get captured by:- New Factory Orders?- Finished Goods Inventories?- Rail Car Loadings?
Consumer Metrics Institute, Inc.www.consumerindexes.com
Radical Ideas 101
Consumer Metrics Institute, Inc.www.consumerindexes.com
Upstream vs Downstream:
A Smart Factory Will Always Respond To Consumer Demand ...
... Often Lagging by a Quarter or more.
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Downstream Factory Production
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Lag
Consumer Demand
Consumer Metrics Institute, Inc.www.consumerindexes.com
Consumer Demand is a window to see the GDP that’s still “Over the Horizon”
Watching Consumer Demand:
Consumer Metrics Institute, Inc.www.consumerindexes.com
Depending on Altitude, the Distance to Horizon and the Level of Discernable Details Change:
Consumer Demand Horizon:
Consumer Demographic Data:
Time Horizon = 20 – 70 Years
Analogy: Seasonal Weather Changes
On-Line Shopping Data:
Time Horizon = 20 – 70 Weeks
Analogy: Five Day Weather Forecast
Consumer Metrics Institute, Inc.www.consumerindexes.com
New Technologies
Consumer Metrics Institute, Inc.www.consumerindexes.com
New Technologies:
Consumer Behavior on the Internet is Collected by Advertisers in Order to
provide “Targeted” Ads.
Internet Consumers Consumer Tracking Databases
Consumer Metrics Institute, Inc.www.consumerindexes.com
New Technologies:
Consumer Tracking DatabasesData Mining Process
Consumer Metrics Institute, Inc.www.consumerindexes.com
New Technologies:
• Benefits:- No appreciable delays or revisions- No large firm bias- The ultimate upstream data source- No survivor bias
Internet Consumers Consumer Metrics Institute
Consumer Metrics Institute, Inc.www.consumerindexes.com
New Technologies:
• Limitations:- Internet User Socio-Economic Bias- U. S. English Language Transactions- Discretionary “Durable Goods” Filter- Exclusively Consumer Focused
Consumer
Government
Private Industry
Consumer Metrics Institute, Inc.www.consumerindexes.com
How Do I Use This?
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
Annualized growth rate drops from 5.6% to 3.2%, Q4 2009 to Q1 2010.
A 43% Decrease, a near halving ...
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
Annualized growth rate drops from 5.6% to 3.2%, Q4 2009 to Q1 2010.
A 43% Decrease, a near halving ...
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
So, is the glass half-full ... or is it half-empty?
And which direction is the level headed?
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
“Freeze Frame” snapshots can’t answer that question ...
especially ones taken only once per quarter.
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
By looking at the Consumer Demand we can see what is really happening in the Q1 2010 GDP snapshot.
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
By looking at the daily consumer demand we can see what is really happening in the Q1 2010 GDP snapshot.
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
In fact, consumer “demand” side activity began to show year-over-year contraction on January 15th, 2010.
Consumer Metrics Institute, Inc.www.consumerindexes.com
Contraction Watch
Consumer Metrics Institute, Inc.www.consumerindexes.com
Consumer Metrics Institute, Inc.www.consumerindexes.com
2006
Consumer Metrics Institute, Inc.www.consumerindexes.com
2008
Consumer Metrics Institute, Inc.www.consumerindexes.com
2010
Consumer Metrics Institute, Inc.www.consumerindexes.com
What’s Happening Now:
2006: “Hiccup”
2008: “Call-911”
2010: “Walking Pneumonia”
This time things may really be different.
Consumer Metrics Institute, Inc.www.consumerindexes.com
The Shameless Plug
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Consumer Metrics Institute:
• Who are we?
– We aspire to be rat catchers. We're not welcome at the economists' parties.
– We don't care what factories were doing last quarter. That's a symptom, not a root cause.
– We only care what consumers were doing yesterday.
Consumer Metrics Institute, Inc.www.consumerindexes.com
Consumer Metrics Institute:
• Who are we?
– We're not economists (I'm actually a physicist).
– We’re just a bunch of geeks tracking consumer activities.
– The data is real, but we‘re weeks to months ahead of the traditional data sources & mainstream media
Consumer Metrics Institute, Inc.www.consumerindexes.com
Daily Sector Indexes:
• Automotive• Entertainment• Financial• Health• Household• Housing• Recreation• Retail• Technology• Travel
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Specialty Sub-Index Samples:
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Consumer Metrics Institute:
H.S. Dent Demographics:
Time Horizon = 20 – 70 Years
Analogy: Seasonal Weather Changes
Consumer Metrics Institute:
Time Horizon = 20 – 70 Weeks
Analogy: Five Day Weather Forecast
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Wow! Sign Me Up!
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Western Wealth Management Consumer Index
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© 2010 Consumer Metrics Institute Western Wealth Management Technology Index
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© 2010 Consumer Metrics Institute
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Custom Indexes:
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A special 10% discount is available to H.S. Dent Advisors Network
Conference attendees through May 31st, 2010
Access the discount at www.consumerindexes.com/hsdent
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Recap Time
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Wow, that’s neat.
But how do I use it?
Most Common Comment:
Consumer Metrics Institute, Inc.www.consumerindexes.com
Be a Rat Catcher Think “Outside the Box"
The Answer:
Consumer Metrics Institute, Inc.www.consumerindexes.com
... And Look Over the Horizon:
H.S. Dent Demographics:
Time Horizon = 20 – 70 Years
Analogy: Seasonal Weather Changes
Consumer Metrics Institute:
Time Horizon = 20 – 70 Weeks
Analogy: Five Day Weather Forecast
Consumer Metrics Institute, Inc.www.consumerindexes.com
And Pray …
That “this time” somebody understands what the real problem
is ...
... and has the ability to do whatever is necessary to fix it.
Consumer Metrics Institute, Inc.www.consumerindexes.com
Questions & Answers:
www.consumerindexes.com
Rick Davis
Consumer Metrics Institute, Inc.www.consumerindexes.com
www.consumerindexes.com
Rick Davis
Consumer Metrics Institute, Inc.
14405 W. Colfax Ave., #192
Lakewood, CO 80401-3206
(303)656-9801