Public Libraries Disrupting the Likes of Amazon

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When you think of the modern iteration of your local public library, a couple things might spring to mind, such as the perverts sitting at the computers offending everyone around them in the name of free speech. But another might be the question, how long can this model of an institution last? Well chalk one up for another blow to the hard and fast rule of disruption. I have observed the growing catalogue in recent years of digital material available for check out, including audio as well as e-books. But in the age of streaming versus download, the for-profit sector has started rolling out its own version of subscription based reading, and they face headwinds of an unlikely competitor, as noted in the Wall Street Journal, Why the Public Library Beats Amazon—for Now:

A growing stack of companies would like you to pay a monthly fee to read e-books, just like you subscribe to Netflix to binge on movies and TV shows. Don’t bother. Go sign up for a public library card instead. Really, the public library? Amazon.com recently launched Kindle Unlimited, a $10-per-month service offering loans of 600,000 e-books. Startups called Oyster and Scribd offer something similar. It isn’t very often that a musty old institution can hold its own against tech disrupters. But it turns out librarians haven’t just been sitting around shushing people while the Internet drove them into irrelevance. More than 90% of American public libraries have amassed e-book collections you can read on your iPad, and often even on a Kindle. You don’t have to walk into a branch or risk an overdue fine. And they’re totally free. Though you still have to deal with due dates, hold lists and occasionally clumsy software, libraries, at least for now, have one killer feature that the others don’t: e-books you actually want to read.

E-books you want to read? That’s right. So instead of an all-you-can-read list of digital titles with the equivalent of Smokey and the Bandit III, you have access to many of the titles from Amazon’s top 20 Kindle best-sellers of 2013 list with the following impressive results:

Percentage of Top 20 Kindle Titles of 2013

See the full grid from the WSJ article here. The article goes on to explain an interesting history of this windfall for local libraries:

How did library e-book collections get such a leg up? Amazon is locked in a hate-hate relationship with many publishers, so none of the five largest will sell their whole collection to Amazon for its subscription service…Over at the library, the situation is different. All of the big five publishers sell their e-book collections for loans, usually on the same day they’re available for consumers to purchase. They haven’t always been so friendly with libraries, and still charge them a lot for e-books. Some library e-books are only allowed a set number of loans before “expiring.”

There are obvious limitations to free services, such as availability, wait lists and time span for checked out materials. But for now, this is a terrific example of a public institution in the local community showing itself able to respond to disruptive forces, and provide viable resources to a wider audience with limited resources. It is also an excellent example of how a business model can benefit from adapting to a model that helps a local community as “publishers have come to see libraries not only as a source of income, but also as a marketing vehicle…since the Internet has killed off so many bookstores, libraries have become de facto showrooms for discovering books.” See brief overview here:

A Rough Assessment of Greenspan’s Career

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Barry Ritholtz has written an assessment of Greenspan’s career which spanned multiple decades and used it as somewhat of a chopping block pointing out both inconsistencies, enigmas and outright head scratcher anecdotes from his career. I will never forget reading Greenspan and Kennedy’s paper, Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences (written a good deal before the crash) where the authors discuss regular mortgage debt outstanding (RMDO) from the Federal Reserve Board’s flow of funds accounts where couple of things really stand out, of course, now through the filter of hindsight. Specifically, how “extractions” of home equity were to be paid back. The methods outlined were, “those resulting from refinancings, cancellation of debt by home sellers (separated into foreclosure sales and all other sales), unscheduled mortgage repayments, and scheduled amortization.” The first two mentioned should have been a warning of alarmist portions, namely, the idea that extractions were simply going to be paid back by papering over them with more debt, and certainly this happen for a while. But also, the assumption that there was always going to be someone who came along behind you and got into more debt than you did. The data from this paper spans through 2004, two years after the following activity pointed out by Ritholtz in, Celebrating Greenspan’s Legacy of Failure:

Amid the 2001 recession, and immediately following the Sept. 11 attacks, the FOMC brought rates down to new lows. Rates were under two percent for three years, and at one percent for a full year. This was simply unprecedented, and the impact was severe. Everything priced in dollars ramped higher. Inflation expanded rapidly, Gold began a decade-long bull market, and oil increased from about $20 to almost $150. The housing market took off, and rose faster and higher than ever before, setting up the inevitable denouement.

The result was clearly illustrated in the tables of Greenspan’s working paper from 2005, asset inflation:

Home Values 1991-2004

But this was not seen as a cause for alarm, as reflected in the Chairman’s words from a year earlier,

In evaluating household debt burdens, one must remember that debt-to-income ratios have been rising for at least a half century. With household assets rising as well, the ratio of net worth to income is currently somewhat higher than its long-run average. So long as financial intermediation continues to expand, both household debt and assets are likely to rise faster than income. Without an examination of what is happening to both assets and liabilities, it is difficult to ascertain the true burden of debt service. Overall, the household sector seems to be in good shape, and much of the apparent increase in the household sector’s debt ratios over the past decade reflects factors that do not suggest increasing household financial stress. And, in fact, during the past two years, debt service ratios have been stable.

As pointed out by Ritholtz, in the end, “Greenspan ultimately conceded there was a “flaw” in his market ideology. Easy Al, as traders had taken to calling him, recognized that allowing radical deregulation of credit markets was a mistake, as was opposing rules on derivatives and ignoring the subprime and non-bank lenders at the heart of the financial crisis.” In light of this, it’s no wonder at all that there is continued discussion of the complexities caused by headwinds five years after the official end of economic recession.

Corporate Inversions – Do you think this is going to become an issue?

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Corporate inversions are not a new issue, but it has had its run-ups over the years, as illustrated by Google’s Ngram Viewer:

What is a corporate inversion? From Investopedia, an inversion is simply,

Re-incorporating a company overseas in order to reduce the tax burden on income earned abroad. Corporate inversion as a strategy is used by companies that receive a significant portion of their income from foreign sources, since that income is taxed both abroad and in the country of incorporation. Companies undertaking this strategy are likely to select a country that has lower tax rates and less stringent corporate governance requirements.

But based on the anecdotal evidence alone, this issue is going to heat up. The Wall Street Journal has hosted an excellent short take on how these inversion deals work:

Many observers intuitively consider this simply an unpatriotic exploitation of a broken tax code and one of its remarkable loopholes. One legal counsel’s comment pretty much says it all, “it’s just too good of an opportunity to waste.” Others consider the expatriation of tax revenue the result of disproportionate burden on businesses and corporations. Either way, there is a race to mergers as business leaders and legal strategists believe this run is coming to an end. The Wall Street Journal has recently published a flurry of articles and posts on this subject with one conspicuous standout, the pharmaceutical industry:

The race by companies to sidestep U.S. taxes reached a fever pitch as two drug firms unveiled foreign mergers that will help them slash their tax rates…[there is a]  growing craze for so-called inversions, in which a U.S. company buys a foreign target and adopts its lower tax rate or establishes a holding company in a country with a low tax rate.

The deals, mostly in the pharmaceutical industry but also cropping up in retail, consumer and manufacturing, have come fast and furious amid two trends: rebounding appetite for large, transformative mergers and acquisitions; and fear that the opportunity to use the cross-border tax strategy soon could disappear.

Pharmaceutical Industry Inversion (WSJ)

Regardless of the cause, the reality is that the U.S. government stands to lose significantly from this export of tax revenue. From an another WSJ article:

How much revenue does the U.S. Treasury stand to lose from corporate tax inversions? It is difficult to say precisely, but one estimate puts the figure at close to $20 billion.

A nonpartisan congressional research panel said the U.S. would receive an additional $19.46 billion over a decade if most new tax inversions were essentially halted with proposed changes to the tax code. The estimate, by researchers at the Joint Commission on Taxation, is based on estimates from previous inversions, in which U.S. companies make overseas acquisitions to gain tax advantages, and doesn’t take into account deals being made now…calculating how much the U.S. Treasury would lose is nearly impossible because of a dearth of reliable tax data from companies’ public filings and the variables in how companies can structure their businesses, tax experts say.

However this is resolved, I think we can all agree that when a corporate trend that generates the above results is being referred to as, “all the rage,” or, “too good an opportunity to waste,” one wonders how, as yet another Wall Street Journal article reports, Congress Is Split on Taxing of Corporate Inversions.

Leadership and Developing Cooperative Participants

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Team building is about leadership and discernment. Different strengths are needed at different times in a given context. This is why fit, among other qualifications is so important. But within any type of organization, there is the need for leadership who does not simply lead or direct, but develops cooperative participants. It is well established (and pretty much common sense) that a leader is going to build a team by outlining and inspiring vision, direction, and a cumulative goal. But what tools are effective for constructing and leading such a team, and what are the positive outcomes?  Many a strong personality can cajole people into action, with dictatorial command from behind, or at the other extreme, running roughshod over people so far in front that team members are discouraged from participating. This of course is not team building at all. And the real loss is missing out on all the distinctive strengths and perspectives that each member of a creative and critical thinking team can produce together.

One author has suggested three skills to correct this error where the contributions of team members are not being taken advantage of: inviting genuine critical assessment and input without fear of retribution, receiving input while suspending judgment of it, and acting in a responsive manner to questions. Pretty simple, but requiring a great deal of confidence to implement. Leaders who do this though, will draw out ideas and creativity that people may not realize they had and find that motivation becomes less of an issue to try and generate and more of one to steer in the right direction.

How Optimism Bias Changes Long-Term Projections

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Weekend reading: IMF Working Paper, Growth: Now and Forever? by Giang Ho and Paolo Mauro. Those who do not follow the global market in general and the BRICs in particular (or other emerging economies), may not see a correlation to the U.S. market. In reviewing the paper, I would focus more on the psychological behavior of investors and the capital markets, rather than the particulars of emerging markets, their fundamentals, or the drivers in these markets, many of which are quite different from any of the G7. The premise is clearly stated in the abstract,

Forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth. Using long-term forecasts of economic growth from the IMF/World Bank staff Debt Sustainability Analyses for a panel of countries, we show that the baseline forecasts are more optimistic than warranted by past international growth experience. Further, by comparing the IMF’s World Economic Outlook forecasts with actual growth outcomes, we show that optimism bias is greater the longer the forecast horizon.

Just what do the authors mean by optimism bias? It’s frankly, little more than wish fulfillment. In the authors’ opinions, it is adding more weight to recent occurrences, then extrapolating those positive outcomes across the spectrum of events, where “forecasters often predict continued rapid economic growth into the medium and long term for countries that have recently experienced strong growth.” Again, this does not have a direct correlation to recent events in the U.S., as this economy has experienced forward yet modest growth in the last five years. But could this say anything about the continued expansion in the capital markets, which have little relation to economic events as they tend to affect the average person, employment and a service driven economy? In other words, although the markets seem to be pushing forward at dizzying heights, most would say there is nothing to indicate any kind of an eminent correction. Is the same bias at work in our capital markets? You decide. But the paper makes for an interesting case for why, in spite of argumentation for why global growth may in fact be slow in the coming years, forecasters continue to project strong growth, where predicting “economic growth into the medium term and beyond is notoriously difficult.” It would seem there are lessons to be learned here about bias from any perspective and how this bias has a tendency to affect the view of the future.

Ignorance is NOT Bliss

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“The only real mistake is the one from which we learn nothing” – John Powell

Right now the overall job market is an undeniable difficulty for us as a country. Thinking about this reminds me of a few things from some years back. The above quote causes me to reflect on a few difficult times and painful past lessons – experiences which are now filtered with hindsight (and the advantage of 20/20 vision as it were). But I am thankful for the experience of many of these difficulties, though some have taken years to get to that point. After one painful business experience in particular, I was encouraged by a friend (at a different stage in life and much more experienced than I) to journal out what I had learned. I remember that at that time, I didn’t want to hear of it, and I certainly didn’t want to talk about it, even alone within the very safe pages of a journal. All I could think about was the frustration I was experiencing from my own decisions, some of them hasty. But learning is an ongoing, dynamic process.

Sometimes, I believe, we don’t feel quite ready to learn from what we are presently going through. Which is part of the reason I am determined to learn from decades past, because our current problems span way beyond few years of misguided choices. I am optimistic too, because I think for many, there is an honest inquiry into present difficulties, and why past approaches may no longer be relevant. Ultimately, I want to be a better learner, and a better practitioner of that knowledge and experience.

The Lesson of ‘Good Enough’

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Comparing and contrasting the birds-eye view with the worms-eye view

The higher a person ascends the ranks of financial operations, the more imperative it becomes to discern between certain levels of detail, and the need to push work products forward to completion. This is especially true in the budgeting aspects of financial operations versus compliance issues in accounting and auditing which can become exceedingly nitpick at times. Closely related to this is the need to learn to communicate financial information to other business professionals who are not financial specialists. This can proved to be exceedingly difficult for a highly competent analyst who frankly, loves “getting their hands dirty.” In other words, this is not meant in any way to trivialize the value of a highly detail oriented analyst. But it is meant to serve as a cautionary note to those who wish to exercise leadership that is built upon their years of financial expertise. Two quick thoughts may serve to illustrate this: the worm’s eye view and the bird’s eye view, each with its strengths and limitations.

The worm’s eye view will assist with a great deal of detail, but sometimes distorts reality due to its limitations of vision. This is not to in any way demean or devalue the benefits or the work of highly detail oriented people. It is simply to say, sometimes in order to complete certain types of work in a timely manner, decisions of priority must take precedence over the desire to continue with hedgehog-like determination and the quest for perfection that is sometimes not practical.

The bird’s eye view on the other hand, enables a panoramic vision of the whole while simply limiting detail. Both have their function in analytical work. But here is the takeaway. Leaders communicating financial information need to be able to deliver highly summarized, accurate information. Then in an instant, zoom into detail in response to a question, request for clarification, etc. Then zoom back out to high level – smoothly and reassuringly. Listen to a few quarterly earnings conference calls for effective and ineffective examples. For the executive leader, a careful distinction between the two approaches and the timing of the each is essential.

IBM’s Mysterious “Big Blue” Nickname

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In honor of IBM’s conference call, I wanted to revisit the topic of the provenance of the nickname, Big Blue.

IBM's Mysterious Ubiquitous Name - Big Blue. Logo "bluing" courtesy http://howbehindwow.com/

IBM’s Mysterious Ubiquitous Name – Big Blue. Logo “bluing” courtesy http://howbehindwow.com/

I like urban legends not because they are believable, but because of what they say about human nature and sociology. Urban legends are also amusing not necessarily to believe, but they are fun to engage in (as if to believe) the idea of them being true, such as us humans ingesting eight spiders per year in our sleep.

A search for the provenance of the name Big Blue turns up very little historical documentation. Some say the term was first used in the early 1980’s, with the self-obviating point of the adjective big. But that doesn’t explain much. There are plenty of organizations with significant size, extent, influence, market share or intensity, and we don’t automatically add big to their description. The blue part seems to have no plausible theories at all. I have tried in vain to find the origins of this name, as I found myself instinctively using it years ago before ever realizing it was an ubiquitous nickname. I searched Google Books for the term and have been able to move the date back to 1975 with this mention. But the truth is, no one really knows the origin, including IBM:

How did IBM get its distinctive nickname, “Big Blue?” While the name came about organically, with no known single source, the first official reference in print to IBM as “Big Blue” was in BusinessWeek magazine:

“No company in the computer business inspires the loyalty that IBM does, and the company has accomplished this with its almost legendary customer service and support … As a result, it is not uncommon for customers to refuse to buy equipment not made by IBM, even though it is often cheaper. ‘I don’t want to be saying I should have stuck with the “Big Blue,”’ says one IBM loyalist. ‘The nickname comes from the pervasiveness of IBM’s blue computers’” (No. 1’s Awesome Strategy, BusinessWeek, June 8, 1981).

So there you have it. Isn’t that great, kind of mysterious and interesting? Or at least, it’s fun to engage in any of the possible explanations.

Shared Credit for Hard Work

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The way to get things done, is not to mind who gets the credit for doing them – Benjamin Jowett

Credit for hard work is not something we should seek to avoid. But at the same time, should we not be overly preoccupied with acknowledgement if our goal is truly to produce our very best work product [as possible] with what is required of us right now.  Self-aggrandizement, overbearing personalities, and the inability to actively and empathetically listen, short circuit the team building process and the natural outworking of progress.

This disproportionate concern with acknowledgment runs contra to the concept of a team, and its accomplishments.  Goals and objectives can still be accomplished by an organization with leadership who tends to be in it for themselves, but who wants to live “one man’s dream” when you could experience all the benefits of healthy team effort? It goes without saying that at best, it is generally not pleasant for those who have to constantly to one person’s ideas to the exclusion of all others. But at worst, over the long haul, an organization will have to deal with the wreckage of only one person being heard. When contributors are heard, included and acknowledged, I think it will encourage not only being truly on board with an organization and its mission, but these same people can become the greatest advocates for changes needed in response to challenges.

Center of the U.S. Population 1790-2010

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The U.S. Census Bureau has some of the most interesting data visualizations, many of which help illustrate the magnitude of the data being presented. According to the Bureau, after each decennial census is tabulated, “the Census Bureau calculates the center of population. The National Mean Center of Population based on the 2010 Census is near Plato, Mo., an incorporated village in Texas County.” The mean center is fictitious of course, for the purpose of illustration as the Bureau goes on to explain, “the center is determined as the place where an imaginary, flat, weightless and rigid map of the United States would balance perfectly if all residents were of identical weight.” And the movement is in a southwesterly direction as the interactive map below illustrates: 

What is even more interesting are the suggestions for why the migration has moved in this direction. The Bureau states that the westerly direction has historically been the result of a “sweep [that] reflects the settling of the frontier, waves of immigration and the migration west and south.” But it is fair to say that although the imaginary mean center still resides in the South, a very large and disproportionate part of the population (as well as commerce) has settled in the West in general and California in particular. And there is a clear movement (though not a net loss) from California and the Southwest. The economic and sociological reasons for this would be very interesting to explore.

Atlanta Fed GDPNow Sees 2Q at 2.7%

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Buoyed up by better than expected retail sales, Atlanta Fed’s GDPNow sees a rebound from the 1Q contraction:

FRB Atlanta 2.7

FRB Atlanta GridInformation overload or not, this tool is going to be fun to watch (adding to all the others). Please note from the Atlanta Fed: GDPNow forecast is a model based projection not subject to judgmental adjustments. It is not an official forecast of the Atlanta Fed, its president, the Federal Reserve System, or the FOMC.