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The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo. via crisis of credit

Data Shopping and Dropping

I'm always been fascinated by the idea that Walmart might be able to know - before most healthcare providers in an area that a flu or common cold outbreak is on the way based on their fine detail of the data produced in their shops and through their supply chain. And it does seem, not surprisingly, that they are very, very hot on data acquisition and monitoring. As this piece from the NYT in Hurricane season 2004 makes clear:

The experts mined the data and found that the stores would indeed need certain products - and not just the usual flashlights. "We didn't know in the past that strawberry Pop-Tarts increase in sales, like seven times their normal sales rate, ahead of a hurricane," Ms. Dillman said in a recent interview. "And the pre-hurricane top-selling item was beer."

"Thanks to those insights, trucks filled with toaster pastries and six-packs were soon speeding down Interstate 95 toward Wal-Marts in the path of [Hurricane] Frances."

Of course, more recently the non-profit arm of Google - google.org - came out with Google Flu - which uses search (and hence user intention/need) and IP addresses rather than actual consumer behaviour buying cold remedies to track the emergence, location and spread of flu. 

So in light on this the following observations or comments are not necessarily very novel but I'm kind of fascinated by the ways in which supermarkets mainly, but also their key suppliers, are reporting interesting trends in the way that shoppers are reacting to the recession in terms of what they are buying, not buying or buying less frequently than previously. 

For example, this recent report in the FT outlines the experience of FMCG company Unilever. Thus spake their marketing man:

"The company was selling less bubble bath and more shower gel as people forgo filling up the tub in favour of brisker, cheaper showers....The consumer goods company, whose products can be found in 99.4 per cent of British homes, said sales of Knorr stock cubes were growing “double-digits” as more people chose to cook from scratch.

Tubs of Flora and Stork margarine and jars of Hellmans mayonnaise are also selling well as people make sandwiches for lunch and bake cakes and bread instead of buying them."

In the cleaning aisles, sales of niche products – such as specialist stainless steel cleaners and soaps for wood floors – are declining as families opt for multi-purpose Cif cleaners. Sales of all-purpose cleaners rose about 2 per cent in 2008, and specialist cleaning products had a 6 per cent drop in sales in value terms.

Unilever also said that, while people with dry skin were still buying moisturisers such as the Vaseline intensive rescue range, sales of everyday lotions – Dove body creams, Impulse moisturiser and others – were on the wane as people either did without or used creams less often.

Mr Close’s comments echo those by Andy Bond of Asda last year when he observed a rise in sales of hair-dye kits and frozen food. The chief executive of the supermarket chain said the severity of the downturn would change behaviour in the long run, and a generation of consumers would emerge who think frivolity “unacceptable” and frugality “cool”.

There's lots in here to unpack. On the one hand, some product choices allow supermarkets and manufacturers to read behaviours rather directly. Swapping premium brands for own labels is obvious enough a shift in behavior. But there's the interpretations they're making too which are revealing: more Stock means people are cooking themselves, more Hellman's means more sandwiches are taken to work. More cake baking means a return to wartime frugality. 

Either way, they have a unique dashboard on consumer behaviour and, at one level removed, sentiment, which no doubt they will continue to use to finesse supply chains, inventory and manufacturing levels. But it also acts a remarkably finely tuned radar on which they can rely to understand where the recession is heading and when the green shoots of recovery might be called. 

In the UK, we often hear of sentiment indexes and so forth, which combined with house price indexes etc are used to provide a window in the soul of the hapless consumers of late capitalism. What though if this data were more publicly aggregated and explored, and shared with Central bankers, policy makers and politicians needing more fine tuned information than ever before into how people are responding, feeling or coping. 

What if RFID had really taken off and it was on every packet that left a supermarket and uploaded data into a cloud outside your local Sainsbury. using Pachube or something whizzzy like that you might be able to map the local realities of shopping habits and understand the micro-realities of recessions in local areas. 

I imagine Experian is working with Asda on something like this already. 

Still Spinning World

At times like these it is as well to remember that the world is still spinning, the sky has not yet fallen in and life will continue. This piece by Bruno Argento - Italian futurist, a cautious optimist, and Bruce Sterling’s twin brother, nailed that beautifully: 

After 1989 we enjoyed a strange interregnum where "history ended." Everyone ran up a credit-card bill at the global supermarket. The adventure ended badly, in crisis. Still, let us be of good heart. In cold fact, a financial crisis is one of the kindest and mildest sorts of crisis a civilization can have. Compared to typical Italian catastrophes like wars, epidemics, earthquakes, volcanoes, endemic political collapse — a financial crisis is a problem for schoolchildren.

The year to come is best approached as a learning opportunity. It offers a golden chance to bury our dead prejudices and learn how to properly feed the living. Once we stop shaking all over and scolding Americans, we will recognize the tremendous potential this new century offers the people of the world. The sun still shines, the grass still grows, we are still human. If we stopped pretending to be puppets of an invisible hand, we would not fret over the loss of the 20th century's strings. We might see that life is sweet.

Oh F*ck

Capturing perfectly the eloquence and succintness of The Economist this version of their front cover (from two weeks ago?) sums up this moment in time rather nicely...

via

Nudge Gamble

  Picture cred

If you were worried that the world financial system had become a bit like a casino, then this development might worry you. The latest front on the drive for financial innovation turns out to be poker. Simply put, based on estimates that 95% of online poker players lose, since they don't know how to play to win, if you wewre to train up people who could play, give them some money, monitor their playing patterns (and losses) and adjust the players' daily limits accordingly and split the profits with them:

The players get half their money at the end of the month and the remaining half at the end of the year. This is to protect BadBeat if and when a player hits a bad run, but it also helps players to control and keep their earnings. Daily loss limits are seen as the cornerstone to developing profitable players. Losing your daily loss limit three times means you move down to playing with half that amount until the poker gods smile on you again. “We have players bankrolled from $50 to $100,000 a day. At these top levels, tens of millions of dollars are gambled a day,” says Conroy...

...The business is testing its training model by paying 50 graduates in Serbia to learn to play from scratch, putting them through an intense poker boot camp. They had to be able to handle basic probability to get selected. “Thirty-five of them were playing non-losing poker within two weeks,” says Conroy. “We showed them the cards to play in various positions. It’s not rocket science. It’s about the discipline and using position.” Position is the player’s seat in relation to the dealer, and thus his or her place in the betting order, an important tactical consideration

Turns out, surprise surprise, that:

Hedge fund managers and traders are certainly familiar with poker. Manro Haydan trader James Vogl won $400,000 at an event at the 2004 Las Vegas World Series of Poker before concentrating on the financial markets. David Einhorn, president and founder of Greenlight Capital, a US long-short value-oriented hedge fund, finished 18th in the 2006 World Series of Poker main event, winning $659,730.

I look forward to seeing how comapnies like BadBeat play their hand as the current economic story unfolds. And it stikes me that despite being gamblewrs at heart they might show more discipline than hedgies, sinc etheir moto is "risk not thy whole wad".

Punishment Capital

The Undercover Economist, Tim Harford, alerted me to a forthcoming book which uses the economics to explore the nature of contemporary parenting. This volume joins a long line of recent books in which, it is contended, economics is presented as a tool for understanding pretty much everything (Freakonomics, The Economic Naturalist etc) Harford's own book suggests, "the logic of life".

Parentonomics is written by Australian economist Professor Gans who having spent much of his day job thinking about incentives wonders how this might have affected his parenting style.

"Can incentives and rewards help to get them to do things like sleep through the night, eat healthy meals, clean up their rooms, do their homework? Can economics help the smart, caring, well adjusted, high-achieving little person that we know is in there to emerge?"

One concept that emerges from the world of economics to help ailing parents manage, or change the behaviour of their children is "punishment capital". As Harford explains:

if you are the source of a steady stream of money or sweets, that gives you a negotiating position. Threatening to remove the carrot (or rather, the flow of chocolate coins) is more credible than threatening to wield the stick.

As an aisde, only the FT readership could comment on this piece as follows:

I personally favour a good-cop-bad-cop strategy and therefore, with my three daughters, I played the role of a generous World Bank while my wife, their mother, that of the strict International Monetary Funds.

I know of what this man speaks. Each night without a visit from my eldest son and daughter costs me one euro. 50 cents each. If we have to go to our daughter but she doesn't come to us, she gets 20 cents. The alternative is nocturnal visits which force us to adopt the uncomfortable position of outriggers at the edge of the bed. Our 18 month old is blissfully unaware of this potentially lucrative revenue stream that sleeping chez Roberts entails. Given that he's just sleeping through the night this seems wildly unjust. But the logic of economics is inequality and he is ignorant that he's experiencing this particular aspect of parental economics.

Cash Flow

In case any further illustration of the growing dominance of the Chinese economy were needed I stumbled upon this piece of anecdata in a FT article on trade wars: the EU’s trade deficit with Beijing [is] growing by about €15m ($22m, £11m) an hour

Yes, you read that right. £11 million an hour. That's lots of red ink.