Monday, November 08, 2010

Are we playing Russian Roulette?

So, the Fed's big move last week has been discussed at length but I'm not sure that everyone understands what the end game is for the Fed and why they are making the moves they have made.

1) The Fed's easing will weaken the US dollar as a currency which will increase asset prices including stock prices. It seems that the Fed is hopeful that if the stock market rises another 20-40% consumers will gain a renewed sense of confidence and will begin spending again. This can work but consumer participation in the stock market has fallen steadily since 2008 so I'm not sure they will get the biggest bang for the buck.

2) The other side of this equation is that the Fed assumes a weaker dollar will make our goods more marketable globally which will increase our competitiveness. For a San Jose software company selling in Toronto this works, but our ability to export has fallen so substantially over the past 30 years that I'm not sure we'll realize a significant boost from the weaker dollar.

There is another wild card that seems to be playing out - the other major nations seem not be on the same page as us. China, Germany, etc. are all fighting their own currency appreciation and if they are successful we will have painted ourselves into a corner. If the dollar holds steady relative to other currencies and we flood the market with dollars get ready for $6 gas and unemployment over 10%. This has less than a 20% chance of happening at this point, but I'll be watching this fairly closely over the next 12 months.

You may have seen this over the weekend on the NY Times website. This is one of those articles that makes me look for a large cinder block to smash my head against.

"Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting."

So the Department of Agriculture is promoting more ingestion of saturated fat and calories while funding anti-obesity campaigns. Open palm, insert face.....

What would you pay for first run movies? Time Warner apparently thinks you'd pay $30-$50/movie. At a time when people are starting to cut the cable cord (see news that the cable companies lost a combined 500,000 customer last quarter) this seems like a bit of a stretch, but I'm sure the cable co's know what their doing.

I'm sure the consultants for Time Warner have crunched the numbers and determined that "well, it costs $10/ticket to go to the movies so I'm sure a family of four would be happy to spend $40 to watch the latest Transformer 23: The Final Battle (until Transformers 24) in their pajamas". By that logic then Time Warner should renegotiate with the NFL and start charging $480/game because the average ticket is over $100 and wouldn't you rather watch a game at home?

Hopefully, some non-MBA consultants will get the ear of Time Warner and tell them that they need to pay attention to the way 18-25 year olds are getting their video and stop trying to kill the golden goose with $50 movies on demand.


1 comment:

Scott said...

Saturated fat is NOT the cause of heart disease or obesity. Dietary fat does not equal body fat. I know this goes against common consensus but come on now, how often is "mainstream" actually correct about anything?

Look at the massive campaign against fatty foods and how everything is "low fat" these days. Yet Americans are fatter and less healthy than ever before. It is the pizza crust, not the cheese, that is clogging your arteries and adding the pounds. Sugar and starchy carbs are converted into triglycerides by the liver. Trigs are small, dense pieces of fat that stick together and clog the arteries.

Meanwhile, healthy saturated fats actually get put to great use in the body. Everything from repairing your artery walls to lubricating your joints.

I drink a can of coconut milk every single day, which is good for 77g of saturated fat. I eat 4-6 eggs a day and a packet of bacon every couple of days. Avocados, fruit, nuts and chocolate galore. I have abs popping out with minimal exercise and my doctor said my cholesterol numbers are some of the best he's ever seen.

There's food for thought for you.

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Here's to more bacon!