Tuesday, September 22, 2009

New Green Age for Marketers

This is a piece that recently ran in Ad Age, the bible for the marketing business:

Exit the 'Spurbs': Life Beyond the Real Estate Bubble
John F. Wasik's Future America Has Fewer Cars, More Walkable Cities and Cheaper Homes

Posted by James B. Arndorfer on 09.22.09 @ 02:13 PM

Business leaders and social observers agree that the Great Recession has been a reset event for the American economy.

The next question: What does a post-reset world look like?

According to journalist John F. Wasik, it'll be marked by the emptying of the exurbs (or "spurbs"); people returning to cities; and the rise of environmentally friendly, affordable and energy-efficient housing.

That's the world he describes in "The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream," a book that argues that the cultural origins of the real estate bubble can be traced back hundreds of years. (Remember Thomas Jefferson's agrarian ideal from high school history?) He also explores how people have been hammered by the recent collapse and spotlights architects of cutting-edge green housing.

Will it come to pass or is this just the latest take on GM's Futurama? Impossible to say, but Mr. Wasik has good instincts: He raised concerns about the housing bubble in 2002 as a columnist for Bloomberg, one of few as the media and marketing industries fueled the buying hype. ("Nobody wanted to hear this message," he says.)

"The real estate, banking and construction industries were marketing for generations the idea that homes were investments and you should leverage as much as you can to get the home of your dreams," he said in an interview. "The marketing has been relentless on that hot button."

The housing crash means marketers need to adjust to a new reality in which consumers just can't spend the way they once did, and won't for the foreseeable future. Marketers will need to figure out how to reach people "who've had their retirement funds clobbered."

"I'm fairly confident that this is going to damage the financial aspirations of an entire generation," he said. "There's only a small segment of baby boomers that has really saved and has really enjoyed the increase in prosperity over the last 20 to 30 years. The rest of them haven't saved much at all. They were hoping on tapping home equity to bail them out and they're going to be in a lot of trouble."

Mr. Wasik expects it could take a decade for housing prices to come back -- and in some cases, they might not.

"It's going to be a Walmart world," he said, adding that some marketers have figured this out. "At my local supermarket, not only am I seeing shelf stickers everywhere saying they've cut prices, but I'm getting tons of coupons." He also was hit up repeatedly at a department store by clerks pushing credit cards with plenty of coupon incentives.

But creative marketers still can thrive. Mr. Wasik points to financial services, where he anticipates demand for structured investments that can take risk out of peoples' retirement portfolios.

"I think there are some incredible opportunities right now," he said.

It's this financial insecurity, coupled with incentives for green building, that will encourage people to leave big, inefficient homes in the spurbs (often far away from jobs) and seek affordable, energy-efficient housing. And just as the postwar sprawl of suburbia fueled cultural changes and ancillary industries (durable goods, automobiles, advertising), Mr. Wasik expects this new green world will prompt a social reset.

"I think there will be a new 'green chic,'" he said. "It will be a new status symbol to have a home that produces power and a car you can plug in."

~ ~ ~
James Arndorfer, a former Ad Age reporter, now works for MillerCoors.

Thursday, September 17, 2009

Avoid Another Meltdown

This is my latest Bloomberg News column on the anniversary of last year's financial debacle on Wall Street:

Sept. 16 (Bloomberg) -- It has been a year since the music died on Wall Street.

What have many people done to protect their life savings from events such as the collapse of the 158-year-old Lehman Brothers Holdings Inc. and the ensuing financial pandemic? Next to nothing.

Market risk can and should be pared from retirement portfolios, though millions are just as vulnerable as they were a year ago. Most people have left their dominant stock allocations untouched. The key is to add more bonds.

The conventional wisdom that the historical returns of stocks beat bonds was and is misleading. If you are retiring during or immediately after a bear market, long-term returns are irrelevant.

Consider the period after the dot-com bubble exploded. Before the meltdown, didn’t you think technology stocks were going to create a New Economy that would produce profits for decades?

The tide turned fast. Let’s take 1999 through last year. You would have lost money in large-company stocks in four of those years (2000, 2001, 2002 and 2008). What if you retired in 2003 and had most of your money in big companies?

The chances are slim that your retirement plan has access to sophisticated portfolio insurance strategies available to institutional investors.

Because options for individuals are limited, you have to buffer your portfolio with an equal mix of stocks and bonds. The single-worst year for this formula was 1931, when such an investment would have lost about 25 percent.

Bond Hedge

Compare the 1931 stock-bond mix with a 43 percent decline for an all-stock portfolio in the same year, according to Ibbotson Associates, a Chicago-based research firm.

In 2008, the 50-50 mix would have lost only about 10 percent, which was the second-worst year on record for major stocks. Had you reduced your equity portion to 30 percent and upped bonds to 70 percent, you would have been in the black -- up 3 percent.

Increasing your bond holdings is dull, though, which is why most people don’t do it during a bull market. We have built-in emotional circuits that tell us that regret from missing out on profits is far more motivating than heading for cover.

Risk analysis goes out the window when everyone is enamored of the same idea and we lose sight of what we can lose.

Quick quiz: What’s the chance of losing one quarter of your money in stocks? Very, because it has happened twice in my generation and twice in my parents’ lifetimes. It will certainly happen again.

Following the Herd

Oh, but we can’t resist what our neighbors are doing. “Animal spirits,” to cite economist John Maynard Keynes, compel us to follow the herd, even when it is headed into unsafe territory.

Let’s go back to those splendid stock returns when everyone was making money. True, in 1999, big companies were up 21 percent. As it was the end of the dot-com bubble, many investors dumped almost everything they had into equities -- and stayed put.

Buy-and-holders should have reversed course.

Those who kept a 100 percent stock allocation would have lost 9 percent, 12 percent and 22 percent respectively in the three following years. Of course, they would have been rewarded in stocks from 2003 through 2007. Then the bottom fell out again last year as the biggest stocks plummeted 37 percent.


Government policy does little to short-circuit investment myopia.

Along with automatic enrollment for individual retirement accounts for small businesses and the ability to re-invest tax refunds in savings bonds -- both recently proposed by the Obama administration -- we should be able to easily insulate our entire retirement fund.

Even though conventional bonds are part of the solution, you still face interest-rate, credit and inflation risk from holding them. When interest rates go up, you could lose principal in all but consumer price-indexed bonds. A more easily accessed, principal-guaranteed vehicle is needed.

Enter the “R” Bond, a concept under development in the halls of the U.S. government.

The Treasury Department hasn’t provided details on this bond yet. If it isn’t linked to the stock market and the principal is guaranteed, your retirement plan could buy them automatically and you could even predict how much money you would have in the future.

If the R bond survives the twisted intrigues of Washington and Wall Street, it might become one of the most useful financial products since the fixed-rate mortgage.

To understand why the R bond is important, you need only look at your 401(k) balance.

Papered Over

Sure, your funds may have recovered somewhat, but consistent 401(k) contributions tend to paper over stock-market losses since account balances are rising. The one truth that remains since the Lehman-triggered rout? The more you need to protect principal, the less market risk you should take.

It’s time for a change. Market risk gets painful really fast once you hear how much your future living standard eroded due to unnecessary market losses. That’s an oft-sung ballad that sounds harsher the older you get.

(John F. Wasik, author of “The Audacity of Help,” is a Bloomberg News columnist. The opinions expressed are his own.)

Saturday, September 12, 2009

Audacity of Help A "Must Buy"

This is a gracious review from the website Black Men in America:

Reviewed by Gary A. Johnson

What a timely book. The Audacity of Help by John F. Wasik is one of the most comprehensive books about Barack Obama’s Economic Plan and his vision for America. Wasik is no slouch. Unlike many so-called experts, Wasik is uniquely qualified to write this book having spent time studying and following President Obama for years.

Given all of the media attention to the President’s economic plan and the distortions and misrepresentations about the President and his policies, The Audacity of Help is a comprehensive and yet easy to understand breakdown of Barack Obama’s economic plan and challenges for America.

The Audacity of Help is like reading a history book. The author provides charts and blueprints about packages passed by Congress and allows you to understand the bills and what they really mean. Wasik also takes a look at how the President’s policies will affect health care, education, the environment and taxes.

Each chapter is clearly structured to show “what Congress passed,” and “who benefits most,” on issues such as Unemployment Insurance Benefits, COBRA, Home Energy Credits, Early Childhood Education, and more.

This book is no joke. It deals with issues that matter to all Americans.

For me the best part of the book are the thought-provoking questions. These questions forced me to think about the impact these policies will have on my family now and in the future. For example:

* How will it stimulate the worst economy in a generation?
* Who will gain?
* Who will lose?
* What are his plans for reviving public education, small business, the environment, credit reform, health care, homeownership and entitlement programs?
* Which industries will benefit?
* What new jobs will be created?

This book appears to leave no stone unturned as it also compares the President’s plan with the New Deal.

Honestly, reading the book I felt as if I was studying toward an economic degree and liking it. And I hate math and economics, but I could not put this book down. The current economic climate and the author’s knowledge about the economic plan are a great match.

When President Obama took office, banks were severely impaired, companies were cutting pensions, and market disruptions and unemployment left more than 45 million people without health insurance or retirement security.

The book end asking the $64,000 dollar question: Who will pay?

The soaring national debt begs the question: How will this money be paid back? According to author Wasik, the Obamanomics mission will ultimately lead to President Obama being judged on how well his can restore and maintain prosperity. Or in other words, how will he remake or preserve the American Dream.

If you want to understand what is going on with our country’s economy, THE AUDACITY OF HELP: Obama’s Economic Plan and the Remaking of America (Bloomberg Press, August 2009), is a must-buy.

To find out more about the book or to purchase it: www.audacityofhelp.net

Tuesday, September 8, 2009

"Son of Stimulus" Coming Soon

This is a piece I wrote for Huffington Post on the need to stimulate the economy to create more jobs. It's based on research for my new book "The Audacity of Help."

So, where are the jobs? Even as the fog seems to be lifting over housing, manufacturing and the financial sector, the unemployment rate continues to float ever higher.

Despite the largest economic bailout in America history, the jobless rate soared to 9.7 percent in August. All told, nearly 7 million jobs have been lost since December 2007. Wasn't that $787 billion stimulus package supposed to make this awful number go down?

The stimulus plan is like trying to weld a plate onto the hull gash in the Titanic after it hit an iceberg. Once you set aside the money spent on economic triage - more than a half a trillion dollars - you have a long-term investment in social and physical capital. As I discovered in researching my new book The Audacity of Help: Obama's Economic Plan and the Remaking of the America (www.audacityofhelp.net), much of the legislation was a combination economic band-aid and long-term therapy.

While it may not be reflected in the unemployment numbers, there is visible progress from the stimulus spending. About $60 billion of the $288 billion in promised tax cuts has flowed into the pockets of most middle- and lower-class Americans. Another $84 billion of a nearly half-trillion dollars in capital improvements spending has been doled out. Roads are being repaved, bridges are being rebuilt and thousands of public works projects are underway, resulting in about 2 million jobs, reports IHS Global Insight, a consulting firm.

Where Money Was Spent

Let's start with the largest chunk of the stimulus program: Tax relief, which accounted for $288 billion of the spending. Those on fixed-income received a one-time payment of $250. That's not much help when Social Security payments, indexed to the consumer price index (CPI), were expected to remain flat. It would be ideal if the CPI reflected the true cost of living, which incorporates higher medical costs, all taxes and transportation, but it doesn't.

Sorry, you can't turn in your clunker for a bigger check to cover higher out-of-pocket medical or insurance bills. Most everyone else saw a slight increase in their take-home pay as withholding taxes were dropped a bit, although it only added up to a few dollars a week. A more salient way of boosting incomes would be to grant a holiday on payroll taxes for a few days or weeks, but that's not what Congress and the Obama Administration decided to do.

The next-biggest portion of the stimulus spending -- $144 billion -- was for "state and local fiscal relief." Faced with the loss of state and local tax revenue, government agencies were facing massive teacher layoffs and shutting down public services without this band-aid measure.

This move saved more jobs than would have otherwise been lost, although it doesn't address a more pernicious long-term problem. Property valuations, which are the basis for local real estate taxes, are continuing to fall. That means less money for schools, libraries, fire and police departments. How can public agencies replace this money? It's an ongoing crisis that will translate into more program, service and job cuts (or tax hikes) later this year and into 2010. Get ready for "Son of Stimulus" when this reality gobsmacks Congress as it heads into mid-term elections next year.

Long-Term Investments

The saving grace of the Obama-designed stimulus is that it's earnest about investing in infrastructure, research, energy and education.

$111 billion will be spent on infrastructure and science. This includes everything from medical research and fixing roads to high-speed rail planning.

Some $53 billion will be spent on education and training and is broadly distributed to everything from Headstart for poor families to higher education.

$43 billion will be spent on energy research for sorely needed technologies like efficient batteries.

What's not clear about the stimulus spending is if the money allocated to specific projects is being spent efficiently or that it will match the number of jobs lost during the recession. Early indications are that it isn't, although it will take time for nearly a trillion dollars to make it from the Treasury to a project in your community. The Obama Administration definitely needs to provide more information on its Recovery.gov site to tell taxpayers how that money is being spent. There are maps that tell you which projects are funded and where, but more detail is needed. For now, a much better source is the nonprofit journalism group ProPublica.

The stimulus program will either be a downpayment on a productive new shift in job creation - what I call social capitalism -- or a bandage on a hemorrhage. In any case, such a transformation will take time and the waiting period will be increasingly painful for those losing their jobs.

For more information please visit: www.audacityofhelp.net

Tuesday, September 1, 2009

The Summer of '09

As the dog days fade into the diminished evenings, all I can say is that it's been a grueling summer. Here are some landmarks, as I also remember my mother, who passed away a year ago today.

My daughters went to summer school, grumbling at first, then appreciating that they had fun climbing walls, taking photos, playacting and volleyball. A summer vacation we had intended to take for two weeks ended in a bitter way, so we came home early from Wisconsin's gorgeous Door County. At American Folklore Theatre in beautiful Peninsula Park, we saw "Cheeseheads: The Musical." An udder delight.

Before we left town, I published two books -- "The Cul-de-Sac Syndrome" and "The Audacity of Help." It wasn't my plan to send them out into the world within two months of each other; the first book was delayed by a year. I promoted them on radio, TV and in the blogosphere across the country. No human being should do this. It resulted in some painful health effects in early August. I'm still recovering as I launch into the Audacity promotion in full swing.

Shows I had the most fun doing include Thom Hartmann, Ron Reagan, Wisconsin Public Radio and Rick Kogan on WGN Radio.

We slipped out to see some Shakespeare at our favorite outdoor bard venue: American Player's Theatre in Spring Green, Wisconsin. Their production of "Winter's Tale" was competent, but their Comedy of Errors was one for the ages. I started working on bringing a production of Comedy of Errors to my community. If our "Bard in the Barn" succeeds, we'll do it in an outdoor venue.

When I had a chance, I read some excellent books:

* Jean Baker's biography of Mary Todd Lincoln (I hope to do a play on the first lady).

* $20 per Gallon by Christopher Steiner (a tour de force on rising energy prices).

* Matthew Fox's "The Hidden Spirituality of Men," (what guys need to do to embrace their inner Buddha and Christ).

* "Loving Frank" by Nancy Horan (Frank Lloyd Wright's tragic affair with Mamah Cheney)

Mostly I worked and watched the rain fall this summer, started to meditate and rest.

The summer really ended yesterday with some bad news on my wife Kathleen's health. Please keep us in your thoughts and prayers.