Tis The Season

Our family has kicked Christmas shopping into high gear this week.  I find that I am often asked what we will buy our son, who will be 10 months-old during Christmas.  My usual response is "not much", since I firmly believe in being cheap for the holidays when your child is too young to know the difference between an X-box and a cardboard box.  Nonetheless, I came across an interesting article in the WSJ regarding starting your child in investing as a gift and a means of financial education.  Here is the link: How to Give Children the Gift of Investing.  At first glance, I thought the idea of buying your kid stocks and bonds for Christmas was pretty lame.  However, after some thought, I am coming around to the idea.  Prior to taking this BUS 501 class, I literally knew practically nothing when it came to finance.  I knew the terms stocks and bonds, but had no idea what the difference was other than I was pretty sure bonds were safer for some unknown reason.  Yet, with this scarcity of knowledge I have purchased a home, acquired a credit card and started saving for retirement.  I'm lucky I have not put myself in financial ruin with my blind pursuits.  Maybe by introducing finance and investment at an early age to my kids, I can set them up for an easier road and more future success than I have had.

The Video Gamer's Day Has Come

Remember the grief your mother used to give you for spending too much time on all of those mindless video games?  Well, it turns out you may have inadvertently been learning some futuristic job skills.  I'm referring to the evolving world of robotic warfare.  Check out the article in the WSJ: War Machines: Recruiting Robots for Combat.  I used to enjoy watching those TV shows where people would build their own robots equipped with axes, saws or any other device capable of inflicting destruction on one's opponent.  It was like the Ultimate Fighting Championships for intelligent people, or those who got beat up by the ultimate fighters in high school.  Now, the government is creating their own robots, albeit with machine guns and grenade launchers replacing the axe or circular saw.  This sounds like a good idea in regards to saving soldiers' lives, but I would imagine the economic cost for robots versus soldiers will be greater.  Likewise, I would think the robots would eliminate much of the need to employ humans.  This technology may raise our deficit and eliminate jobs.  I'm sure these topics will not be highlighted in the press releases.  I'm off to make sure my Roomba is not plotting a coup against me.

The First Cut is the Deepest

Today's Wall Street Journal has an article detailing a plan by a White House commission to cut the federal deficit.  Check it out: Deficit Panel Pushes Cuts.  The plan includes horribly unpopular cuts to entitlement programs like Social Security and Medicare, defense spending, and middle class tax breaks.  Being fairly conservative, I suppose I should jump at the chance to criticize President Obama's crew for another terrible plan.  Yet, after reading some of the details I have to admit that I think this plan is a big step in the right direction.  Unfortunately, I am certain this plan will not come to fruition because we Americans only support cuts that do not impact us.  People will eagerly rally to support a "balanced budget", but if you want our votes you had better not plan to do anything that will negatively impact our pocket books.  Likewise, too many politicians are eager to jump on the bandwagon of this sentiment and portray anyone who proposes cuts to entitlements as a villain.  I may not be eligible for Social Security or Medicare, but as I member of the middle class I am willing to accept losing some tax breaks.  I will gladly pay my portion to help get out of this economic hole we are digging.  Medicare/Medicaid, Social Security and Defense make up nearly two-thirds of federal spending.  It only makes sense that they should have proportional cuts to reduce the deficit.  It's frustrating that most seem to burst with the desire to fix the economy, but are only willing to give up someone else's piece of the pie.

Not a Formula for Success

Why does it seem like America is no longer the economic superpower it once was?  Perhaps, with the shift to a more global economy, consumers care less about "buying American" and more about getting the most quality for their dollar.  Today's article in the Wall Street Journal detailing car reliability ratings illustrates the point.  Here is the link: Rating Car Reliability: Detroit Moves Up but Asia Rules.  In summary, of the 27 brands ranked for reliability by Consumer Reports Ford ranks 10th, Chevrolet (the highest ranking GM brand) ranks 17th and Chrysler stumbled into the ranks at 27th.  However, I am almost certain that if one surveyed the rankings of wages and benefits, the American autoworker would be at the top of the list.  Yet, we as Americans are still perplexed at how to get out of our economic funk.  Compare American auto producers versus our foreign competitors.  We produce lower quality cars, which results in fewer sales at a lower price tag.  Then we pay our workers more in wages and benefits.  It doesn't take a genius to figure out why we had to bail out the industry.  The days of getting by on average products and services is gone.  Check out Thomas Friedman's column at the NY Times The Election That Wasn't.  He does a great job of expanding on the same sentiment.

Up, Up and Away

Have you flown recently?  If so, you are likely a superhero, a drug taker, an airline passenger or perhaps any combination of the three.  As just a plain, old airline passenger and wannabe superhero I had a hard time swallowing the mass of charges included in a recent air travel ticket purchase.  The total cost of a trip ends up nowhere near the price quoted on an initial search of an airline website.  So, today's story in the Wall Street Journal, Airline Profits Taking Off, came as no shock to this customer.  The essence of the article was to report the record profits that U.S. airlines have reported this quarter.  The reasons for these gains should be fairly obvious.  The increase began when airlines permanently raised their prices in response to the skyrocketing oil prices of 2008.  Likewise, they tacked on a slew of charges including those for luggage.  The recent mergers of several big airlines have created a practical oligopoly in the U.S. market.  This might normally be good for consumers, as a price war could erupt between competitors.  However, as the WSJ article reports, the airlines are now concerning themselves more with returns, rather than market share.  Translation: They care more about profit than growth.  If this mentality continues across the industry, we should not expect to see prices fall anytime soon.  I guess I should thank Southwest for not charging me for my bags.  Those rebels.  Bold Prediction for 2011: Quarter- operated bathrooms and $1 charge for hitting the flight attendant call button.

Going Green with a Little Noise Pollution

Today's Wall Street Journal (yes, I read WSJ quite a bit) features a story about Sun Chips ditching their attempts to "go green" after numerous complaints from their customers.  Here's the link: Sun Chips Bag to Lose its Crunch.  In summary, Sun Chips created chip packaging that was advertised as biodegradable.  On the surface, this sounds like a good idea.  Yet, as a lover of the Harvest Cheddar Sun Chips, I can tell you the new earth-friendly bag has one giant drawback.  It's loud.  I mean really loud.  So, unfortunately every time a consumer opens the bag of their favorite snack everyone within a half mile can hear the loud crinkle of them digging into their chips.  I have no idea who was in the marketing meeting when this idea came up, but a rational person would think that someone might have raised the concern over the obnoxious sound of the bag.  When eating these chips, opening the bag is like making an announcement to your friends and family that you are just too gluttonous to put your chips down.  They may even think a bear broke into your kitchen and is destroying your home in an effort to satisfy its insatiable hunger.  This is a classic example of an idea that is good on paper but never should have made it to production.

Will Work for Food, as Long as the Work is Easy

Yet again, the U.S. continues to display the traits that have us sinking from world power to world pouter.  We can find plenty of energy to complain about the lack of jobs and poor economy, but we won't accept jobs unless they pay very well, offer regular 9-5 hours, and offer a comfortable working environment.  Check out this article from the Wall Street Journal regarding a meat factory struggling to find workers: Hot-Dog Maker, Lured for its Jobs, Now Can't Fill Them.  Our government has made well-intentioned efforts to offer unemployment benefits, debt relief help, and hundreds of other programs to aid the American worker, yet we workers do not seem willing to help ourselves.  We are becoming a culture dependent on the government to somehow meet our needs, and less and less of us value hard work to make a living.  Businesses need laborers to make their products in order to build equity, and I can no longer blame them for taking their jobs elsewhere when I read stories like this about American workers shunning these opportunities.

Signs, Signs, Everywhere are Signs

The United States' grip on wold power is quickly weakening.  This is apparent in our economic recession (of which we are apparently coming out of), our tarnished reputation amongst other countries, and now apparently our collectively poor health.  An article in yesterday's Wall Street Journal discussed why job growth and some areas of the economy are not necessarily encouraging.  Here is the link: Number of the Week: When Job Creation is Troubling.  Thousands of politicians are seeking to develop the cure to restoring the United States' surging economy while seemingly ignoring the most obvious factor to our sharp decline.  We are a country of excess, and we are not willing to give up those excesses.  This article further establishes that point in that the areas where we do see growth can be directly related to our culture of indulgence and the harmful effects that result.  It seems almost every solution rolled out by our government seems to attempt to come up with a way to fix the economy without inconveniencing any of its consumers.  It should be apparent by now that we as a country will not get back on track without some pain and sacrifice.  I believe it will take both increased taxes and decreased spending.  You cannot put a significant dent in our deficit without both.  It is simple economics in that the amount coming in must be more than the amount going out.  The numbers are there.  All the clues are there.  Now we need to face up to the obvious, make some sacrifices, and stop debating over the pain-free solution that does not exist.

Let the Bed Bugs Bite

According to articles in both the New York Times and Wall Street Journal today, bedbugs are making a comeback in the U.S.  Here is the NY Times link: With Bed Bug Hysteria, Many See Opportunity.  This has lead to a whole new industry full of invention and job creation to stop the spread of bedbugs.  When I read stories like this, I wonder if governments are ever tempted to create such "mini-epidemics" to stimulate economic growth.  When you think in business terms, it is a great way to spur industry.  One can easily create value in a market, as people are quick to act when they think their health is at risk.  Likewise, like moths to a flame, entrepreneurs flock to such epidemics as just the opportunities they seek.  Consumers may never be at quite as much risk as they assume, but will generally walk away satisfied with their purchase because they feel they were able to act in order to maintain their health.  Think back to the swine flu epidemic that struck last year.  The danger never reached anywhere near the pandemic level the public was lead to believe was possible.  Yet, I am sure vaccine manufacturers made out very well financially.  Government and public officials have the power to create a whole new industry just with a few strong health warnings.

All Aboard the Wireless Train

This week, Wal-Mart has chosen to wade deeper into the ever growing pool of wireless service providers.  Read the article: Wal-Mart to Offer Cell Plan With No Contract.  Clearly, Wal-Mart is targeting the segment of the population that desires wireless services, but with no binding contracts.  Likewise, this segment of the population does not care as much about having the latest device, as handset options are pretty limited. 

Nonetheless, I think this is another savvy move by Wal-Mart.  In these economics times, the lack of a contract with an expensive opt-out penalty is rather appealing.  I am sure your local I-phone crowd will turn up their noses at this offer, but many of them probably feel they are too classy to shop at Wal-Mart to begin with.  This is another good example of Wal-Mart knowing their market, and creating products to meet their needs.

Can't I Just Remove the Pedals? - Marketing

I've heard, and sometimes used, the phrase, "Don't reinvent the wheel".  Now, I find myself wondering why someone is trying to reinvent the bike.  In today's Wall Street Journal, there appears an article entitled, "Look Ma, No Pedals!".  Check out the link http://online.wsj.com/article/SB10001424052748703467004575463590327676222.html?KEYWORDS=look+ma+no+pedals.

In summary, the article discusses a new market of bicycles without pedals for children.  The selling point is that kid's will learn to balance more quickly, and no longer need to absorb the bumps and scrapes that come with learning to ride without training wheels.  This product displays some classic principles of marketing.  First, the makers attempt to create a market and establish value.  Based on this article, the manufacturers of the pedal-less bike seem to rely on anecdotal evidence and their own child's story to convince buyers to pay a premium price for their "invention".  Jennifer McIver, the co-owner of Wishbone Design Studio Ltd., even goes as far as to compare the method of using training wheels to "trying to go cold turkey on a cocaine addict".  If my memory serves correctly, it took this "cocaine addict" all of a day or so to lose the training wheels and balance the bike on my own.  I guess for $200 I could get my son a pedal-less bike and save him those 2-3 hours of trauma.  In my mind, I don't see the value unless there is some real research that shows your child will develop faster or something else tangible and meaningful.  These companies present no research.

So, as cynical as I am about the product, I'm sure there will be more than enough in the market who want to avoid the running down the sidewalks, bent over a bicycle, only to let go and watch their kids tumble to the pavement.  I, for one, would probably just remove the pedals from my kids bike, and put that extra $200 towards a rainy day.

We Get All the Credit - Concept: Economic Incentives

Earlier this week, it was announced that the sale of existing homes fell 27% in the month of July (which is a record for those of you scoring at home).  A plummet this apparent typically has an equally obvious cause.  In this case, we owe the free fall to the expiration of the $8,000 first-time home buyer tax credit.  Like any good incentive, the credit did spur people to action with a temporary spike in home purchases.  Yet, like most the intended behavior ended quickly once the incentive was gone.
In my opinion, much of the economic woe that we experience today can be traced back to our lack of personal responsibility or self-control as American consumers.  Most would acknowledge that spending is out of control at a personal and governmental level.  Yet, we find it very difficult to sacrifice any of this spending.  This brings me back to home sales and tax credits.  These incentives are likely well-intentioned, yet seem obviously short-sighted.  We have thousands of homeowners being foreclosed on, many due to making bad financial decisions in purchasing homes they could not afford.  We can blame unscrupulous lending practices to a degree, but in the end, my financial responsibility falls on me.
All of that to say, if we can identify unbridled spending as a primary factor in this recession, why is one of our solutions to create an incentive to spur on more spending?  In reality, I think most presidents are concerned about making the years of their time in office the best that they can be, not revolutionizing a culture for ages to come (just don't tell that to their campaign speech writers).  Maybe we are just hoping the banks will do a better job this time of not allowing us to get in over our heads, somebody has to.  That's enough rambling for today.  When does the responsible homeowner credit kick in?