Last weekend, I came across several interesting articles regarding real estate market, including sub-prime lending, James J. Cramer’s Bloody and Bloodier sub prime crisis, The Mortgage Pig in the Python, to As Exotic Loans Reset, Popularity Persists. There were interesting numbers mentioned in Fox News’ Saturday business show Bulls and Bears. To summarize, there is $197 billion of mortgage reset this year for 2 million households and the foreclosure rate has jumped 93% from last year. Next year, there will be $521 billion reset in the first 6 months. The big concern is on Jumbo mortgage or exotic loans. The situation will become much worse for the whole real estate market in the next couple of years.
People are talking about bail-out, which is unlikely to happen, given the scope of the issue. US government has 9 trillion deficit already. Anything beyond several trillion will be hard for the government to digest. Further, bail-out is for wall street, not for main street. Saving mortgage firms won’t change the fact that million of families will be thrown out of their homes in the next couple of years, claiming bankruptcy. We have to let free market work things out by itself.
I like Jim Cramer’s favorite adage: bulls make money, bears make money and hogs get slaughtered, which is not only true for stock markets. Greed is good to a certain limit.
We had a pretty rough week last week in the stock market thanks to hedge fund subprime credit crunch. Market was scared, obviously, before Federal Reserve Board stepped in last Friday morning. Shorts were largely squeezed so it looks like that the market has recovered. However, given the fact that world central banks acted SO QUICKLY with a promise of more than $300 billion liquidity injection, the credit crunch is far from over. Though a short-term big crash in the stock market has been stopped by the Federal Reserve. At this point, Wall Street traders might not be very happy. Technically speaking, once stock market reaches a new bottom, it will try to retest it before bouncing up. Symmetrically, Dow tried 14000 twice before pulling back to its 200 day moving average last week. Correction is not over yet!
On the other hand, although an ecnonmy crash is seemingly looming around the horizon, there is no strong evidence at all to suggest a crash in either this year or even next year. Here are some numbers to remember. Mutual fund assets have hit $11.39 trillion, compared to $1.7 trillion that hedge funds have. The total mortgage size is around 10 trillion vs. 1.4 trillion from subprime. The nationwide foreclosure rate is still less than 3%. Further, business is slowing down in summer. Consumers intend to spend less since the shopping seaon is just 2-3 months away. For traders, there will be good buying opportunities in the next couple of months before reaching November, or even the end of October.
Two fabulous speakers, David Minter and Michael Reid, shared their 25-year experience with us in a speaker series, talking about how to nurture new product ideas for Corporate America, which is from their book Lightning in a Bottle: The Proven System to Create New Ideas and Products That Work.
They started with pointing out pitfalls and common mistakes behind the fact that nine out of ten new products fail:
- Incoming: Ideas are coming from everywhere. Often, ideas from the top are implemented without proper evaluation.
- Brainstorming: The common approach is lots of people, no bad ideas, go for quantity over quality, etc., etc. It doesn’t work.
- Focus Groups: Consumers do not make buying decisions while discussing that decision with a room full of strangers.
- Gee Whiz! Too often, new products move from research labs to market without finding out if anyone wants to buy them.
- Rip-off: Rip-off means to be a copycat. It works well under certain situations. But companies whose new ideas strategy is built around theft end up a “me too,” not market leaders. When economy turns around, they could be easily wiped out.
They went ahead with ten reasons why ideas fail:
- Trying to sell things people don’t want to buy
- The ideas don’t make financial sense
- Giving up too soon on good ideas
- Pushing bad ideas too long
- No separation of good ideas from bad
- Thinking small
- Delegating idea development to junior people
- No specialized talent for developing ideas
- No process, or a poor process to develop ideas
- No real, important difference versus competition
Finally, they concluded the presentation with a solid process:
- Learn
- Develop Working Theories
- Develop Ideas and Concepts from the Working Theories
- Conduct Financial Due Diligence
- Talk to Consumers: not in Groups, But One Person at a Time
- Iterate the Concepts by Listening to Consumers
- Take the Best Concepts Coming Out of the Interviews and “Monetize” Them
