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Monday, February 8, 2010

Nobody Knows Anything

William Goldman is a marvelously gifted screenwriter. He copped Oscars for his original screenplay of “Butch Cassidy and the Sundance Kid” and for his adaptation to the screen of Woodward and Bernstein’s “All the President’s Men.” A number of years ago when summing up the entire entertainment industry he wrote “Nobody knows anything.” People took this as an indictment of all Hollywood moguls but he said his real point was that Hollywood has no real idea of how well a film will do.

“Rocky” was a low budget film that captured America’s imagination although film buffs said the editing was so bad that it looked as if it had been cut in a butcher shop. Yet, it won the Oscar for Best Picture. Our world will have similar surprises in the years to come.

Forecasting is tough yet there is no shortage of pundits out there who speak ex cathedra on just about any topic. Ever watch CNBC? I confess that I love it. The problem is that guests who should know better will predict the movement of the Dow Jones Industrial Average for the next week or even the next day. No one really knows. The great John Bogle took the opposite approach. Noting that most financial advisers cannot beat the market consistently, he created index funds with unusually low fees that simply mirror the market or a segment as a whole. One never does better than the market but never does worse and you tend to do well over long periods as high fees do not weigh down returns. Most of us, however, still think that we can forecast.

Taking some newsletters that I subscribe to and reading the latest books on energy, consumer behavior and the financial crisis, I cobbled together the following wildly hypothetical forecast:

“It is February, 2016. In Milwaukee, an 85 year old widow sits shivering in her small apartment. Her heating bill now exceeds the $925 Social Security payment that she receives each month and is the bulk of her income. She has to decide between heat, rent, prescription drugs, and food. Before the winter is out, several thousand Americans in similar situations will die horrible deaths.

“We finally hit the end of the 65 year period of continuing credit expansion in the U.S. It was largely based on using the U.S. dollar as the reserve currency. By 2014, the rest of the world became increasingly unwilling to accumulate dollars as our budget and trade deficits ran up trillion after trillion with no end in sight. Oil was no longer quoted in dollars and interest rates shot up quickly making our budget deficit far more acute. Finally, a new reserve currency emerges that is a basket containing the Chinese Yuan, Canadian and Australian dollars, Swiss Franc, and gold. The DJIA does not do much year to year but the volatility is wild and keeps the everyman “Peter Panics” from the market.

“India and China were doing fairly well and they and other developing nations bid up the price of gasoline to about $5 a gallon at the pump. The industry could not simply replace oil reserves fast enough. The American middle class was shattered as some could no longer afford to drive to work. Used car lots were bloated with gas guzzlers that most were reluctant to drive or unable to afford anymore.

“Newspapers and magazines folded by the hundreds and people stubbornly did not wish to pay for online content. So, the spiral continued as online versions died. The trend grew worse and worse.

“TV stations had a much looser relationship with their struggling networks. The networks produced fewer hours of programming and locally stations often killed their local news and ran syndicated versions of “2 and ½ Men” and other past network fare. The tight economy prompted many consumers to drop satellite and cable grimly held its own although it too suffered some subscription losses. The internet continued to grow as an advertising medium and Social Media gained nicely each year especially for well known brands as well as small, local retailers with affluent niche audiences.

“Some radio groups could not handle their debt service and went under. A few local players swooped in and bought properties for 25 cents on the dollar. They were not coining money but they had viable businesses with strong local community involvement. You Tube’s webisodes gained traction especially with young adults who loved the 5-7 minute series episodes that they could watch whenever they wished with only one commercial as a lead in.

“Stations and network players were excited about the 2016 elections and the record shattering amount of advertising revenues for the fall, although the campaigns were dirtier than any in memory. Some were embarrassed by the commercial content of many candidates but legally they had to take it and they really needed the money.”

Is this possible? After all, it is nothing more than a shrewd assemblage of today’s headlines with some friendly exaggeration piled on. And, it is not dissimilar to forecasts mailed to me by readers or seen in newsletters that I subscribe to or people send me.

The answer is almost surely NO. Some of the above will likely happen but in softer terms than what I imagined above. People are resilient and will adapt although some pain appears inevitable.

The only certainty that I ever take to the bank in business is DEMOGRAPHIC CERTAINTY. For example, I am one of the early baby boomers. More children were born between 1948 and 1953 than in the previous 30 years. By 2016, this group will largely be drawing Social Security and many will be on Medicare. They will put an incredible strain on government expenditures and they will be contributing far less toward taxes than they do now. Demographics are an unstoppable tidal wave. The only way to tame, not cure these entitlements is to raise taxes and/or cut benefits. Understandably, politicians loathe to do that as some seniors are virtually helpless and all too many of us soon to be geezers will vote and, usually, our pocketbooks.

So, panic is not a good idea. My advice is stay optimistic (but be realistic),be current with industry trends, flexible, and realize that anything can happen and often does. Humility, an oft forgotten virtue, will likely serve us all very well over the next several years if we embrace it. If 15 years ago, anyone explained Google to you, you would say that he or she was crazy. Social media? You have got to be kidding! Network TV erosion? Of course, but not so much! So, similar surprises will hit the media world and the United States of America.

Management guru Peter Drucker, who died a few years ago at 95, said in his old age, “The only thing that I know about the future is that it will be different.” I consider those wise and timely words from one of our most astute observers.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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