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.


Why do we have to study History?

You’ve gotta be kidding me!I hated History!


Luckily, this presentation is mostly about:

a radical new technology tocapture economic data.


But most of the people in this room will be unsure ...

about if or how they should use it in their practice.


In fact, the most common question after new technology

presentations:

Wow, it may be neat ...but how can I actually use it?


History can show us why it is critically important to accept

new technologies and radical ideas.


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!)


History 101


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 ...


That Queasy Feeling

… when all of the controls available to you no longer seem to work.


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.


… In 1929.

Chairman of the Federal Reserve

1927-1930

Roy Archibald Young


… 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”.


Some Thrive in ChaosSome Seek Change

People are “Wired” Differently

Some Abhor Chaos

Some Avoid Change


• Change Avoiders: “Wedding Planners”

• Change Embracers: “Rat Catchers”


New Nomenclature Time ...


• US Civil War Military Leaders:• Wedding Planners:

• George B. McClellan• George G. Meade• Joseph E. Johnston• P. G. T. Beauregard



• US Civil War Military Leaders :• Rat Catchers:

• Ulysses S. Grant• William T. Sherman• Robert E. Lee• "Stonewall" Jackson



A Field Guide for Indentifying:

Rat Catcher Wedding Planner


Wedding Planners are Always

Planning for the Last War

Rat Catchers Extemporize and Deal with This One

The Bottom Line:

In Times of War ...


Wedding Planners Excel at Ceremony and Tradition

Rat Catchers are Awkward to Have Around

The Bottom Line:

In Times of Peace and Prosperity ...


Wedding Planners Muddle Around Until They Get Fired

Rat Catchers Take the Initiative and Win

The Bottom Line:

In Times of Calamity ...


Rat Catchers Think “Outside the Box"

The Bottom Line:


To Succeed in Uncertain times,

Become a Rat Catcher!

The Bottom Line:


Harder Than You Think,

Especially for Those at the Helm.

How Hard is That?


History 201


Early Evening, May 31st, 1916 …

The two largest fleets of battleships ever assembled were steaming

towards a horrific collision …


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!


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 …


… but it was deployed 1 hour after the battle commenced.

A Critical New Technology …

... was there at Jutland and could have turned the tide.


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


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.


• 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:


• 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:


Because The Other Side of the Horizon

Is Outside of Their Current “Box”.

Wedding Planners …

Don’t Know How To

See Over The Horizon ...


History 301


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


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


With Utter Disdain for6,000 Years

of Economic Traditionto Attack the Problems.

It Took a Rat Catcher …


• 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 …


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


The Wedding Planners at the Current Fed

Can’t See Over The Horizon ...

to Realize that the Real Enemies are ...

But What If …


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?


And What If …

The Real Scenario Isn’tthe U. S. in 1929, 1980 or even 2000 ...

But Japan in 1990?


The Problem …

• Wedding Planners Fail to– Think Outside the “Box”– Look Over the Horizon


Wow, that’s neat.

But how do I use it?

Most Common Comment:


Be a Rat Catcher Think “Outside the Box"

The Answer:


Look Over the Horizon

And ...


Economic History 401


History of U.S. Economic Data

1937-1938:



1937-1938:Recession nested within the Great

Depression saw total GDP drop by 6%,

comparable to “Great Recession” 2007-2009



• 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



• 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


BEA Methodologies:

• Questionnaire Approach is Unchanged• Factory Focus is Unchanged• Pace of Data Collection is Unchanged• Pace of Publication is Unchanged


1937 Methodologies:

• Data Collection Time Lags• Large Firm Sampling Bias• “Survivor” Biases

• Under-reported Casualties• Inherited Market Share “Gains”

• Economically “Downstream” Sampling


But Think iTunes Downloads ...

• How many times does a download get captured by:- New Factory Orders?- Finished Goods Inventories?- Rail Car Loadings?


Radical Ideas 101


Upstream vs Downstream:

A Smart Factory Will Always Respond To Consumer Demand ...

... Often Lagging by a Quarter or more.


Downstream Factory Production


Lag

Consumer Demand


Consumer Demand is a window to see the GDP that’s still “Over the Horizon”

Watching Consumer Demand:


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


New Technologies


New Technologies:

Consumer Behavior on the Internet is Collected by Advertisers in Order to

provide “Targeted” Ads.

Internet Consumers Consumer Tracking Databases


New Technologies:

Consumer Tracking DatabasesData Mining Process


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


New Technologies:

• Limitations:- Internet User Socio-Economic Bias- U. S. English Language Transactions- Discretionary “Durable Goods” Filter- Exclusively Consumer Focused

Consumer

Government

Private Industry


How Do I Use This?


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 ...



So, is the glass half-full ... or is it half-empty?

And which direction is the level headed?



“Freeze Frame” snapshots can’t answer that question ...

especially ones taken only once per quarter.



By looking at the Consumer Demand we can see what is really happening in the Q1 2010 GDP snapshot.



By looking at the daily consumer demand we can see what is really happening in the Q1 2010 GDP snapshot.



In fact, consumer “demand” side activity began to show year-over-year contraction on January 15th, 2010.


Contraction Watch


2006


2008


2010



2006: “Hiccup”

2008: “Call-911”

2010: “Walking Pneumonia”

This time things may really be different.


The Shameless Plug


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.



• 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


Daily Sector Indexes:

• Automotive• Entertainment• Financial• Health• Household• Housing• Recreation• Retail• Technology• Travel


Specialty Sub-Index Samples:



H.S. Dent Demographics:







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Western Wealth Management Consumer Index

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Access the discount at www.consumerindexes.com/hsdent


Recap Time


Wow, that’s neat.

But how do I use it?

Most Common Comment:


Be a Rat Catcher Think “Outside the Box"

The Answer:


... And Look Over the Horizon:

H.S. Dent Demographics:







And Pray …

That “this time” somebody understands what the real problem

is ...

... and has the ability to do whatever is necessary to fix it.


Questions & Answers:

www.consumerindexes.com

Rick Davis


www.consumerindexes.com

Rick Davis

Consumer Metrics Institute, Inc.

14405 W. Colfax Ave., #192

Lakewood, CO 80401-3206

[email protected]

(303)656-9801

consumer metrics institute, inc. what ben bernanke should have learned in history 101 rick davis...

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