How Low Can It Go

Thinking about Detroit’s woes started us thinking, yet again, about the general state of the economy. Listening to the latest round of news, it sounds a lot like the game limbo. Except instead of challenging ourselves physically, where going to the lowest wins, we now have challenged ourselves economically, and it is far from clear where the bottom is. A month has past since the market opened in October with eight straight losing sessions and went from 10,800 to the 8400 range and just over three weeks since the heart-stopping almost 900 point loss. This whole discussion started to seem a moot point as we entered ad:tech. The markets had recovered, adding almost 20% from their multi-year lows. That was until after the election. No fault to President-elect Barack Obama, but the markets have since decided to give back almost all of their gains since the mini market recovery. It again reminds me of the resiliency of our industry and just how similar this time has started to feel to that of eight years ago.

• Regarding the economy in general, we remain incredibly bearish despite the fact that it doesn’t really feel that bad out there. Again, easy for us to say, but as we travel from city to city, eat and shop, things have slowed but the widespread fear, the all-consuming and crippling fear, the type that agoraphobics feel when thinking about going outside, has largely remained at bay. That has started to change.

While the emphasis has largely been on the financial markets, it’s in the more tangible world when and where we see the true impacts. It reminds me of a recent article about Fred Smith, founder of Fed Ex or Fred Ex as some like to call it. If you are like me, it’s easy to see the world myopically, thinking about the Google’s and others who create massive revenues on digital assets. You can’t see or feel it the same way that you do a highly technical but decidedly offline company like Federal Express. Not only do they earn close to $40 billion in revenue yearly, but as the article says, they own "300 jet airplanes, and tens of thousands of trucks and vehicles. FedEx moves an incomprehensible seven million packages each day to every corner of the globe." And, they directly employ more people than all of the Detroit Three at 252,000. That’s a truly astounding footprint on the US and the world. And, when we think about struggling times in the past, it wasn’t necessarily solved by the financial markets correcting but by industry putting people to work. As he said in the piece, "Our national policies actively encouraged all this debt," from companies that "in reality…weren’t adding a lot of value." He paints not just a commentator’s perspective but a first hand prescription for shifting the focus back to companies that build instead of just leverage.

Fred Smith provides an interesting interruption to the constant thinking about consumer spending and more about how to help companies who create the jobs that help people spend. It’s incredibly pertinent given the most recent bout of bad news. Take Best Buy. Their same-store sales fell 7.8% in October. Said Brad Anderson, CEO of Best Buy, in recent comments about the company’s performance,"Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen." At least they still have profitable stores. Circuit City just announced it was filing for bankruptcy protection, and most don’t expect it to emerge. That doesn’t help mall owners, one of the largest of who also announced it was struggling to stay solvent. This is why we’re so bearish. This is so much the heart of the economy, at least the visible one. When retail slips, it’s a huge problem. Think of the first job you might have had; it was probably retail. One in 10 work in the sector. Think of where most people turn when they can’t find anything else, retail. It’s not just the employer of last resort but in many ways that which we take for granted, surviving better than many other sectors. Not so this time around, and the banks unwillingness to lend isn’t helping. So, where do you go if the last resort isn’t hiring? That’s a dilemma we’re facing. It goes without saying that the results of the holiday season will be very telling.

There is a silver lining, at least for our industry or so we think. As the issues become more tangible, that’s where solutions become more tangible as well, one of which has the potential of catching on. The industry hasn’t heard too much about it, but loan modification might just have the same transformative impact that the refinance market did.

• It’s a little like debt settlement. As companies realize they can’t get the full value of the loans, because so many people are in trouble, they are finally starting to make deals. With the government’s help it could become streamlined and standardized across lenders, which means lead buyers can do exactly what they did years ago in reverse. They can again profit from helping people with their homes, undoing what they played a major part of doing previously.
• The new program doesn’t allow for the loan servicer to make the thousands of dollars per close that was the case before, but it should be a relatively simply close and widely popular with consumers. With depressed display inventory prices, it could create a resurgence in performance marketing on display, helping foster in that next era of growth for a new generation of performance guys. And, if we can get a similar program and/or cooperation from other debt holders, like credit cards or auto loans, things could get exciting pretty quickly.