Demographics, the Media and the Fed

 

Clearly, this may be the most unusual MR post that you will ever read. It concerns some, to me, strange actions by the Federal Reserve in the U.S. that appear to have been ignored by the major media for years.

 

A quick word of warning. This is a bit wonky. It is very unlikely that any of you discussed this over a drink with cronies or with your fellow professionals regardless of your discipline.

 

Here goes:

 

In late 2008, we had a financial crisis that ushered in what is now known as The Great Recession. There was panic in the financial markets across the globe. To help stem the fears, the US central bank, better known as the Federal Reserve, stepped in with boatloads of cash to quiet the markets somewhat. They also cut interest rates very quickly to the point where they approached zero. This new policy, often referred to as ZIRP (Zero Interest Rate Policy) helped to calm things down by acting as something of an economic stimulant.

 

Some weird things began to happen that really got my attention. I began getting solicitations to borrow $1-2 million at absurdly low interest rates of about 1.5%. For someone who considers himself to be modestly affluent, this was a bit shocking. I worked some math and saw that if I purchased a few stocks with high yields, I could easily cover the interest payments (and deduct them) as well as pay off much of the principal with dividends alone. If the securities raised their dividends each year, I could knock my loan down even faster.

 

I then began to see TV commercials on CNBC and Bloomberg for these types of loans. There was still much fear in the air, and I did not try to take out such a loan. I did, however, buy a car a few years later with ZIRP still rolling along. The interest rate and monthly was absurdly low. Being a child of rural New England, I have always hated debt and made extra payments for several months and paid off the vehicle quickly.

 

Okay, why did this concern me? As a media professional, demographics have been my beat for entire career. And being trained in economics academically, I realized that a ZIRP policy would have some winners and losers. Around 50% of American credit card holders carry a balance each month and pay annualized interest rates of 12-21% per year depending on their card selected and credit worthiness. With ZIRP, credit card balances were not slashed. They stayed largely intact.

 

To those with a substantial asset base, ZIRP was a windfall. To those struggling, it was business as usual except for mortgage rates which fell dramatically. Companies benefited mightily by borrowing money to buy back their stock at very low interest rates and thus pumping up their share prices as earnings rose due to a smaller float (share base).

 

By keeping ZIRP in place, there was an “Allocative effect” where certain parts of the economy benefited. It shifted money to wealthy people and larger corporations. I thought about this a great deal but could find nothing to confirm my suspicions. Finally, after some digging, I found an interview in the Wall Street Journal in May 2010 with Thomas Hoenig, a Federal Reserve regional president who articulated the “Allocation effect.” Hoenig was often the lone dissenter on policy matters during the Ben Bernanke era at the Federal Reserve. He was a “hawk” who did not think rates needed to drop as quickly as the Fed chairman did.

 

Finally, last year, Christopher Leonard, a financial writer wrote a book entitled The Lords of Easy Money (Simon & Schuster, 2022). He interviewed Hoenig extensively and covered the Fed’s handling of ZIRP in great detail.

 

My question is simple: How did I spot this back in 2009-10 and the media did not give it much attention? I am business news junkie but the Allocation effect did not surface clearly to me except from Leonard’s book.

 

I am not trashing the Fed. They are smart folks but also human. We did have a crisis in 2009 and things had to move fast. My personal feeling is that rates came down too fast and were kept too low for too long. We needed see how the initial rate cuts worked before going to zero. Younger people complain to me about high interest rates today.  For much of my life, 5% on a passbook savings account was the norm. The 3.5% mortgages that many received in recent years struck me as artificially low. I vividly remember telling people close to me that bankers would have to be crazy to give a fixed 30-year mortgage at 3.5%. Who knows what things will be like in 10 years, let along 30? The response was the usual, “Don, you just do not understand.”

 

At least we did not go the European route of negative interest rates. When I first read about them, I felt they were insane. How can you have a market economy with negative interest rates? The idea appears to have been to get people to spend so they made sitting on cash in savings accounts unattractive. A few Danish banks even wrote mortgages for a time with a negative rate handle. Don’t believe me? Read--https://www.theguardian.com/money/2019/aug/13/danish-bank-launches-worlds-first-negative-interest-rate-mortgage

 

I love the financial press and devour their offerings daily. Why was the “Allocation effect” not covered adequately? It gives left wingers more ammo to claim that the rich always get richer. Actions have consequences and many had to see this coming.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

Reach & Frequency--2023

 

I started in the ad agency business some 49 years ago as a Media Research Analyst. One of my jobs was to provide Reach & Frequency Analyses for TV campaigns, radio schedules and magazine buys. Media Planners and senior staffers would look at the results and decide where to put the funds. The most cerebral efforts tended to be with magazine selection as editorial content of a publication was as important as the number of people being reached by the message.

 

Reach simply meant the number of people who were exposed to the advertising message. Frequency was of those reached, how many times they were they exposed to it.

 

I dutifully did the analyses and learned a lot about daypart mix in TV, radio station formats and print pluses and minuses. One thing always gnawed at me. All the models provided EXPOSURE OPPORTUNITIES not actual delivery of the message. So, the numbers that we told the client that as many as 90% of the target will see the message an average of a dozen times had to be way too high and never correlated with recall scores or product awareness levels. Frustrated, I went to my boss’s boss who struck me as being more pensive than others in top management. He listened carefully, smiled, and said: “Don, you are correct. You need to realize that we need to have some means of comparison and clients need something to hold onto regarding performance of their large advertising investment. In a few years you will be speaking at client sales meetings (he was right) and these numbers play a small role in firing up a sales team at a convention”.

 

Another problem I asked at the same session was about trying to provide delivery across media. All media are used and perceived differently and very importantly are measured differently. Different methodology yields different results so how can we mix TV, radio, magazine, newspaper and outdoor together and provide a clear estimate? He agreed that intermedia estimates were shaky and too high and only used them when clients requested them.

 

Okay, a lot has happened in the past 49 years. When I think of how many hours I spent with people looking at the pattern of frequency distributions, it makes me laugh. We tried to reach people from somewhere to 3-12 times during a purchase cycle for a brand. You did not want to reach the same people again and again so we did quintile distributions. Invariably, the heaviest 20% of TV viewers would get 40-50% of the potential ad impressions. So, we tried very hard at times to structure buys that reached light users of media who may have been good prospects for our brand or service. We even looked at research studies on attentiveness and weighted TV dayparts by effectiveness. Primetime (8-11 pm, EST) and Prime Access (7-8 pm) scored higher than late night when many were asleep in front of Carson or Letterman (but the Nielsen meter kept rolling) or early morning (7-9 am) when people were in a rush to get the kids fed, lunches packed and also get themselves dressed and out the door.

 

Nowadays, the game is starkly different. Nielsen reports that in the season just finished over the air TV viewing declined 9% and many primetime shows delivered a 1 rating or less. Streaming services continue to gobble up more viewing, much of which is commercial free. Local TV weather is picked by going to the station’s website at any time of day. And, in a digital age, advertisers know how many people are buying their products, what they are willing to pay and how often they visit their companies’ sites. Big Brother truly is watching as they are smoking out your pain or opportunity thresholds for price of a unit and they know what styles you like.

 

These types of data are not exposure opportunities—they are empirical, i.e., real.

 

So, clearly we are seeing a trend away from a huge reliance on conventional media (TV, Radio, Magazine, and Newspaper) as their delivery keeps shrinking. A small market TV broadcaster told me off the record—“we sell to local players. Our audience is downscale and old. Some of the advertisers get it but others are slow to use 21^st century options. This cannot go on much longer.”

 

When I polled some agency people about R&F’s, a few got defensive but others were realistic about it. A few samples of edited quotes:

 

--we cut back conventional media each year. Digital will keep growing.

 

--clients love the accountability of digital and social media.

 

--our smartest client is always introducing new products that are not line extensions. She uses conventional media to introduce new products but does not go overboard.

 

--we do R&F’s if the clients ask for them. It is not a dealbreaker for most of them. Perhaps it is a security blanket as the world keeps changing.

 

--I would not say that that they are meaningless statistics but how do you aggregate the 100 things that we do across so many platforms into a solid unduplicated number? Sales are strong so people are happy at present.

 

 

So, is Reach & Frequency dead? Not yet, but when blended with actual performance estimates in digital, their role in media strategy and analysis is much diminished.

 

If you would like to contact Don Cole directly you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

 

 

The Open-Minded Myth

 

One lesson that I have finally learned in my long life is to question whether an opinion that I have is mistaken and, equally importantly, have facts surrounding the issue changed? Another way to look at it is to keep what is known as an open mind.

 

As I look back, I realize that very few people whom I knew, worked with or for or sold to were truly open-minded. Those who began a meeting with “I have an open mind about what you are proposing” were almost always really saying, “don’t confuse me with facts, my mind is made up.”

 

If the topic is a minor one or in an area with no big downside or emotional wallop, many of us can be quite open-minded. In other, more substantive areas, closed minds reign way too much.

 

In the media world, things have changed remarkably over the last 40 years. Getting people to test cable TV as it broke out as an advertising medium was an uphill slog. That was nothing compared to selling people on very modest digital tests over the last 20 years. The “facts” or media landscape had changed but people clung to their beliefs even though their business franchise seemed to be eroding.

 

On a personal note, looking clearly at facts has shifted some of my political beliefs somewhat toward the center. As a young man, I identified very clearly as a libertarian. I had a live and let live approach toward others but felt that when government got involved in many issues things got pretty screwed up. That is still largely true but, as a marketer, I was always observing demographic shifts. As the US and the western world has gotten older, I see the need for maintaining a strong social safety net. Each month some 71 million people in the US will receive Social Security or disability checks. By 2033, projections are that the Social Security “trust fund” will run dry and benefits under the existing structure will need to be cut by 24%. Most of you reading this post could deal with that, but a strong majority of the 71 million receiving checks could not. It would be a body blow to them and reduce some to horrible poverty. So, while I still believe in personal responsibility and for lawmakers to stop spending so much, something needs to be done (and soon) to protect the elderly. Facts changed my opinion once I saw how my simplistic prior view was mistaken.

 

The great economist John Maynard Keynes was a great example of someone who kept an open mind. In charge of King’s College investments after World War I, he began investing based on business cycle forecasts. He was nearly personally wiped out in the British calamities of the early 1920’s. The great man regrouped, dodged some of the 1929 crash and took a new approach. A man recognized by many as the greatest expert on macroeconomics at the time, abandoned that sophisticated thinking and invested in large, strong companies with good management. He said it was good to not try to be too clever.**  When then Lord Keynes died a multi-millionaire in 1946 (a million went pretty far then), his King’s College fund had also grown exponentially as well. He once said, “When my information changes, I alter my conclusions. What do you do, sir?***

 

My path to being open-minded is still a work in progress. May I ask that you join me?

 

 

**Notice how similar this is to the practices of Berkshire Hathaway’s wildly successful Warren Buffett and Charlie Munger. Charlie has said that he never considers macroeconomic variables in making an investment.

***For a different spin on Keynes, read Media Realism, 2/11/2011—“Would Keynes Still Be a Keynesian?”

 

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

My Favorite Governmental Department

 

From the time that I was about 19 years old, I have been a rather enthusiastic believer in the free market system. So, it might surprise long time readers of this blog to see me entitle a post, “My Favorite Governmental Department.” I generally like a light cloak of regulation in many areas.

 

What I am I writing about? The Congressional Budget Office. Sound as exciting as watching paint dry? Bear with me a few moments and read on. It has a very interesting history.

 

In the later days of the Nixon presidency Congress was concerned about the White House overreaching a bit into things on Capitol Hill. So, they wanted a new agency that would provide objective advice based on data about the impact on the federal budget on various policy proposals. With Nixon gone in August, 1974, The Congressional Budget Office (CBO) was established. Its first head was a dedicated and straight arrow pro named Alice Rivlin. Her resume later included being a deputy at the Federal Reserve, president of the American Economics Association, and Director of the Office of Management and Budget.

 

Under her leadership and that of her successors, the CBO became perhaps the most respected and influential institution in the DC swamp. Independent statistical agencies such as the CBO are important and need to be protected. They realize that much of their job is providing simple arithmetic which most politicians of both major stripes do not always want to accept.

 

Things went okay under Jerry Ford but Jimmy Carter did not approve when Rivlin & Co. did not accept the president’s plan for improving energy efficiency. Speaker Tip O”Neill, Speaker of the House, said the CBO ”was not helping.” My fellow Boston College alum did not get it. The goal and value of the CBO was to be impartial and Rivlin made sure that it was.

 

The genial Ronald Reagan who succeeded Carter also had issues with the CBO. In 1981, Reagan’s first year, the CBO projected that the budget deficits over the next several years would be far higher than the White House projected (sound familiar?). Reagan dubbed the CBO numbers as “phony.”

 

Is the CBO perfect? Of course not. What I respect is that they do not appear to make politically expedient errors in their calculations. Most of the time they focus on the gap between spending and tax revenue going out a few years. To my cynical eye on governmental projections, they strike me as unbiased.

 

There are other groups in DC that provide statistics. At the top of the list is the Census Bureau, the Federal Reserve, the Bureau of Economic Analysis, and the Department of Agriculture. All have some fine people on board.

 

Politicians do not like these purveyors of official statistics. When running for president in 2016, Donald Trump talked about how weak the US economy was. Officially the unemployment rate was pegged at about 5%. Trump said in speeches that it was 35%. I found that laugh out loud funny as in the Great Depression of the 1930’s unemployment peaked in 1933 at around 25%.

 

The absurdity gets better. When Trump took office in 2017, the official unemployment rate continued to ratchet down. His then spokesmen, Sean Spicer, said without winking, “I talked to the president prior to this, and he said to quote him very clearly. They may have been phony in the past, but they are very real now.”**  Clearly, he was manipulating data for his own purposes.

 

We need some grownups such as the statisticians at the CBO and other departments to give the politicians and the public a dose of reality. The media does not address this as clearly as they should.

 

As the fight over the debt ceiling goes on as I write, I wonder how many in congress have truly wrapped their heads around what $31 Trillion means and what the debt will be a decade from now.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

**Source, The Atlantic, March 2017

 

 

Be Curious

 

Several years ago, I was on a panel at a conference and a question came up for all of us. It was “what advice would you give a young person starting their first job?”

 

As we went around the horn, people said things to the effect as learn all cutting edge computer skills, find a good mentor or two, work harder than your colleagues, and always keep your resume updated.

 

When they at last came to me, I said that I do not like to give advice as it reeks of telling others how to live but I followed with, if pressed, I would simply say, “Be Curious.”

 

This got a few smiles from the attendees but, as I think back, it may well be the best advice that I have ever given to anyone.

 

Think about it for a moment. So many people seem to amble through life rarely asking why. Others are so superficial it is frightening. Many times, I was asked to brief someone for a meeting. The request would go something like “Make me smart on this topic. I have five minutes.”

 

I would try to be succinct but was always stunned at the request. Also, people working on a piece of business would not be willing to read a FORBES, FORTUNE or BUSINESS WEEK article about a company that was a direct competitor to their client. One person told me, “You are not my direct boss, and I am not giving up a half hour of my weekend to read that. I do enough here.” Pathetically, the direct boss did not encourage his team to read the article, but I had my team read it and we discussed it at length over a lunchtime pizza.  Everyone left knowing their client a bit better and what challenges it faced.

 

I understand that I am more curious about some topics than most. If it is something that I am very interested in such as markets, economic thought, certain areas of history, or foreign lifestyles I am all over it and read all that I can about it.

 

The issue is that curiosity is very valuable. I find that asking questions or reading about a topic in detail opens my mind up to different points of view. I rarely will argue directly with someone about politics or the economy but do probe a bit. 

 

As I get older I understand that dwelling on the past goes little good, I have to live in the present and always use the here and now to plan for the future.

 

Finally, do not confuse real curiosity with nosiness. When people start a sentence with: Tell me, I am curious about …. my antennae go up and I generally dodge giving an answer.

 

So, my unsolicited advice is keep asking why and dig a bit. Be curious!

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

My Problem with American Politics

 

Over the last year, I have received several requests from MR readers asking, “What is Wrong with American Politics?”. Interestingly, some 40% of the queries came from people outside the U.S.

 

My usual answer has been that MR is not focused on politics, so I dodged the question. Lately, it keeps popping up fairly frequently so I will give my opinion that, while not unique, may be different than your current perception.

 

A knee jerk reaction that many give is that money is what is wrong with our system. The day after someone is elected to the US House of Representatives, they start making calls the next day to raise funds for their re-election which is now less than two years away. Okay, that is definitely part of the issue.

 

Here is how I see it. Let me start by raising a name that is all but forgotten in US politics except for some real political junkies. Les Aspin was an 11-term congressman from Wisconsin and long-time chairman of the House Armed Services committee.  A Democrat, he had a PHD in economics from MIT and long was a burr in the saddle of many Pentagon bigwigs. He once famously said in a committee hearing that he wanted to know what we got for the trillions that we have spent in defense over the years.

 

Aspen left the house to become Bill Clinton’s first Secretary of Defense. To run the Pentagon well, you need to be a superb administrator and that does not appear to have been Aspin’s strong suit. He was eased out of the cabinet and, sadly, passed away a few years later at only 56.

 

 

 

My favorite Les Aspin quote is as follows: “If you give Congress a chance to vote on both sides of an issue, they will always do it.” He was not talking about voting twice during a roll call. What he was saying was that as a member of Congress, you serve two masters to get re-elected. The first is appease your constituents who vote you in to office. The second, which does not always get enough play in the media, is your campaign donors. They may have different agendas, but the crafty and cynical lifetime politicians often serve both.

 

Here is a wonderful example of this but an obscure story. Ever hear of Senator Ted Kaufman from Delaware? I would doubt it. A friend of mine from my Boston College days could always name all 100 members of the US Senate. I am sure that he remembers Ted.

 

Kaufman was named to the US Senate after Joe Biden was elected Vice President in 2008. He only served through 2010 and never got the political “disease”. As was true of many of us, Kaufman was disgusted by the shenanigans of many in the financial sector leading up to the Great Recession of 2007-2009. So, he tried to do something about it. Kaufman co-sponsored a bill dubbed FERA which was the Financial Enforcement Recovery Act. This bill authorized $165 million to target white collar crime. It breezed through both houses of Congress. I saw him in a TV interview, and he was thrilled.

 

Well, I got some political education here. While Congress had authorized $165 to chase down white-collar crime, eventually they appropriated just $30 million in the final budget. He could not whip up more support as members did not want to lose Wall Street contributions. It was then that I learned that there is huge difference between an authorization and an appropriation in the US Congress.

 

So, this was a clear example that Aspin’s seemingly cynical comment about voting on both sides of an issue can come to life. I am certain that either on the stump in fall 2010 or in debates, creeps in both parties proudly mentioned how they voted for the Financial Enforcement Recovery Act. Yet the money from Wall Street continued to flow in their campaign coffers.

 

The problem, then, is that money runs things and members of congress seem laser-focused on re-election rather than improving things. An option to help this issue that I have embraced in recent years is term limits. If people know that their time in Washington is limited, they might be more apt to do the right thing.

 

To close, I may surprise some of you who know me well by quoting consumer advocate and political gadfly Ralph Nader. When running for president in 2000, I saw Mr. Nader state the following in an interview that I believe was on C-Span: "We do not have a Democratic party or a Republican party in the U.S. What we have is an incumbent party.”

 

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

 

 

 

 

Artifical Intelligence and Advertising

 

These days it seems that every day I get a “gloom and doom” e-mail from someone saying how both robotics and Artificial Intelligence (AI) will transform our lives and kill millions of jobs within the next few years. Other messages come to me touting a certain new issue that will break through and tap in big-time to the trillions of dollars soon to be made in AI.

 

Do not get me wrong. I firmly believe that both robotics and AI will have significant and profound effects on our economic landscape. My issue is how fast they will develop and go completely mainstream.

 

Keep a few things in mind:

 

1)   About 40+ percent of new jobs are created by small business. It will be a while for a shop with 25 or fewer people to afford the high functioning robots that major manufacturers employ. Some coffee shops are testing robotic baristas, but it will be some time before such things are widespread.

2)   AI is definitely making inroads in our society. I would think that driverless trucks would be the first major job killer to hit the US economy. So, it would not be wise to be a 30-year-old long haul trucker and expect 30 more years of active service. Short haul delivery such as UPS or Amazon may also be affected but thousands of small businesses will keep their truck drivers for at least a decade. Uber and Lyft will likely go the driverless route once consumers get over initial skepticism. I would get in a test driverless Uber today and take my chances but not with my grandkids.

3)   AI, in many situations, will allow companies to trim significant costs, particularly personnel and benefits, which will have great appeal to both management and shareholders.

4)   One area where I think that AI will have significant and perhaps profound impact is in the advertising industry, particularly in the creative development process. Generative Artificial Intelligence, which most of you have been following closely should be a game changer in the field where many of us have toiled. This You Tube bit from a very recent CNBC segment is a wonderful introduction:

 

https://www.youtube.com/watch?v=yKWQMOqYV-k

 

 

      Finally, be VERY careful about investing in this New Age space. There are hundreds of new issues emerging and self-proclaimed market savants are touting start-up companies that are “sure” to make you rich. This reminds me of the late 1999-early 2000 cavalry charge of new internet companies. Some had no sales but raised many millions in venture capital. A few were seen on the 2000 Super Bowl and disappeared quickly.

 

     Call me old and out of touch but I am willing to bet that only a handful of the new entries will survive the coming crunch. Also, the big guns such as Amazon, Google, Apple, Microsoft, Meta and one or two others are investing huge amounts into these new technologies. If a few new players emerge with breakthrough applications, they will likely be bought by one or two of the existing giants who have the deepest pockets in business history.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.