Even a Dead Cat Bounces!

The latest Case Schiller Index published yesterday shows signs of a bottom in the US Housing market - this is great news. I am more than happy to put my fingers in my ears and cover my eyes so I can't see seasonally adjusted numbers, growing numbers of homes entering foreclosure after the early Obama moratorium expired in May or the still rising unemployment rate, as after over 2 years of falling prices in most U.S. markets, any news is good news.

However the really interesting thing is what happens now?

The numbers will probably be marginally positive for some time thanks to that dead cat. This financial market truism is that when something falls from a great height, once it bottoms it will bounce at least for a while, predominantly because of two reasons. The first is the comparative nature of statistics and our own innate ability to have them say whatever we want, so 27% lower than last year magically transforms into 1.5% higher than last month! In addition, and more importantly, it is a sign of a hangover of outdated rationality. By this I mean that there will always be some people in the world who believe that the economic crisis of the last couple of years is like a black cloud and that once it has passed over the normally sunny skies will resume and everything will go back to where it was before - i.e. nothing has really changed. These people are easy to spot, they are the ones with something to sell that they have been hanging on to for the last few years!

But something big did change this time. The drastic price rises in real estate over the 2002-2007 period have been pretty conclusively been proven to have been caused by radical changes in the availability and cost of credit. Banks were able to make as many loans as they liked, package them up and sell them off to some unwitting investor somewhere else. 50% of U.S. mortgage backed CDO's were sold to overseas investors! Not just sub-prime, but every other category of loan too, including prime loans, which have the fastest growth in the rate of default in the nation right now.

Now along the way we heard a thousand reasons why prices were going up, pretty much all of them now debunked. After all, there are just as many baby boomers today as there were in 2006, but why are all those resort homes in Palm Springs and Naples only worth 40cents on the dollar today?

The thing to understand about the financing market is that it has changed for a long long time to come. We may have been able to sell the treasurers of multiple small towns in Norway and Argentina a package of loans wrapped with a AAA rating and a guarantee from AIG once, but I highly doubt they are going to line up to buy them again. As a result banks are going to be a lot more choosy about who they lend to and how much, as they are going to have to keep a lot more of those loans on the balance sheet themselves. It is now 2001 all over again, why should prices not reflect this.

The biggest engine of real estate price growth this century has gone and until we go through at least another couple of generations of business school grads who decide to ignore history and that this time they really have come up with the ability to eliminate risk through mathematical confusion, this isn't going to come back.

So does this mean its all doom and gloom. That my friend depends on who you are,where you live and what type of property you own. Real estate isn't going away, but the concept of "the market" will have to be re-imagined. People still prefer to own their own place for lots of reasons, but we will see a massive division between Winners and Losers, driven primarily upon the type of real estate and who it appeals to.

More tomorrow.

NEOblogger

Can I hang out with the cool kids?

So Microsoft is planning to open up stores right next door to Apple Stores. Do you remember the kid who was always trying to hang around at school but was completely devoid of personality - that's Microsoft.

It will be interesting to see what these stores are like. If they are like Windows you will be followed around by a security guard constantly asking if you actually wanted to do what you just did! In winter, will you get a virus just by going there? I am reliably informed however that rumors that Bill Gates is going to change his name to Cleve Bobs are wide of the mark.

This forms part of Microsoft's recent obsession with Apple. Their ads try to point out that you can get more features for your money with a PC (classic Traditional marketing). But despite massive marketing spend, their MP3 player (Zune) keeps being handed its ass by the iPod/iPhone juggernaut. Apple sales keep roaring without discounting while PC sales are in the tank and require huge price cuts to get them out the door.

Apple represents the sense of individuality at the core of the NEO typology. When the new economic order emerged as a force in 1991, a new social ‘wave’ began its ascendancy across the globe. It gathered up in its wake all the values and aspirations of NEOs and began shifting society from a traditional or institutional way of life to a decidedly individual focus.

Microsoft isn't going away but it represents a Traditional corporate model of the world that just really does not connect with the higher spending, more economically resilient NEO buyers.

My bet - discount posters in the window of Microsoft stores within 12 months.

Starbucks - One step forward, two steps back

Do you remember when Starbucks was cool? I will never forget the time I went into the original location in Pike’s Market in Seattle years ago. I had dodged the guy’s throwing fish over my head and really just stumbled across the place. I say stumbled but it was really the smell that drew me in – they had fresh bags of roasted coffee beans on the floor and the whole place just made you want to hang out (even though there were virtually no chairs back then).

When they came to New York and then London, I made a point of going to there, mostly because of the experience, as I have never really been a huge fan of their coffee. Howard Schulz is a great entrepreneur – I just wanted to see him succeed.

Then they grew and grew and grew some more. They were everywhere. Initially this was good, because they took coffee out of the bodegas and corner stores – it was definitely a step up. But while they grew into every airport, supermarket and even Target, little by little they lost their way. Interestingly they spurned a host of new coffee roasters and espresso bars, some of which are truly authentic and unique, such as Ink Coffee in Denver and JJ Beans in Vancouver. Now almost every urban area has somewhere like this.

Starbucks, although nobody will have ever told them this, lost their way because they abandoned the NEOs and Evolvers upon whom their success was based. It’s a pity because they are a great company, who are highly ethical to their suppliers and achieve an awful lot of good around the globe. However, uniform stores, lousy food, mediocre coffee and just being so damn ubiquitous, led the people who were always happy to pay a premium, off to other stores that just seemed more human. Not completely of course, we all still “grab a Starbucks” when it is convenient, but if you talk to NEOs; nearly all of them will have a great little coffee place they love.

Starbucks is now Traditional. It is the McDonald's of Coffee and is ironically fighting Big Mac for the discount latte market. They are in the process of further screwing it up by launching an instant coffee brand called VIA – it is all starting to look a bit desperate. They are even bribing people with a free pastry to follow them on Twitter! Revenues and same store sales are down – this is not the recession, this is a change in their customer base. They are now stuck competing on price - and that’s a pity for a company that did a lot right, but never really understood the NEO /Traditional world view.

Now they are trying to back up and reconnect with the NEO and Evolver audience by a new concept called “Fifteenth Avenue – Coffee and Tea “Inspired” by Starbucks”, which will have live music in the evenings and sell alcohol. It will be interesting to see how this works, but it is hard journey to re-establish authenticity once it is gone, especially while your Mom is drinking the instant stuff at home!

Perfection

Some things really are so perfect that they can say more with images than a million words. This video from New Zealand Tourism embodies virtually every element of a perfect campaign that will appeal to NEOs. Note that in place of the usual travel standards of relaxation and luxury, it embodies a sense of discovery, simplicity and authenticity - all strong NEO appeals. There are no offers, but you are left wanting to learn more (with a URL to find it from) and a strange desire to jump on the first plane to Auckland!

NEOBLOGGER