Guest Post: The Last Refuge Of Wall Street: Marketing To Increasingly Insolvent Consumers

Tyler Durden's picture

 Submitted by Charles Hugh Smith from Of Two Minds

The Last Refuge Of Wall Street: Marketing To Increasingly Insolvent Consumers

Wall Street is promising riches to those who believe social media is something more than just another Darwinian churn of starving piranhas.

Have you noticed that all the "hot" initial public offerings (IPOs) being hyped by Wall Street are all marketing companies? The big IPO that has everyone on the Street salivating is of course Facebook in 2012--the ultimate "social media" marketing machine.

What's striking about these heavily hyped Social Media companies is that they make nothing, and their service is either free (Facebook, Twitter, etc.) or a "free" marketing mechanism (Groupon). When was the last time a company went public in the U.S. that actually manufactured a good? When was the last time a "hot" company went public selling a service that had nothing to do with marketing and that actually performed a valuable function?

Wall Street has nothing left to sell except marketing schemes aimed at increasingly insolvent consumers. With a hollowed-out manufacturing base and leveraged financialization finally running out of steam as the engine of "growth" (see debt saturation chart below), then chumming the waters thrashing with marketing piranhas is Wall Street's last refuge of staggering profits.

Does anyone really believe Groupon coupons build lasting profits? Offering 50% discounts is basically the "Black Friday" scam run year-round: sales leap up because the product/service is being sold at a loss.

Once the customers grab the deal, they're gone until the next loss-leader sale. Meanwhile the enterprise experienced a blip up in revenues that quickly declines while racking up major losses to honor the coupon.

In other words, marketing to increasingly insolvent consumers is a Darwinian zero-sum game. Sales can't actually increase as consumer credit and incomes both decline; sales are simply brought forward in time or ripped from the desperate grasp of a competitor.

The only "hot industry" left in America that Wall Street can hype is the one promising to get to the consumer before the other marketing piranhas can strip the last shreds of cash and credit from their bones. Wall Street has no interest in hosting 800 Million Channels of Me for free; there is essentially no income in this "revenue model."

The "real money" in hosting 800 Million Channels of Me for free is in the selling of stuff to those who spend hours on the site, expanding their Channel of Me and socializing online.

But that model assumes the people spending hours on social media sites actually have disposable income to spend. The Wall Street crowd loves consumption math extrapolations--if 800 million Chinese people each buy one tube of Crest toothpaste, if 800 million Indian people each buy a Coke, if 800 million people on Facebook or Twitter each spend $20 on Farmville or another online game....

We're all get filthy rich!

Actually, it's the folks selling marketing services who will get rich, and Wall Street knows this. Those selling the "sizzle" of marketing take no risks and carry no costs of actually making goods or delivering services; their money is made the moment you fall for their pitch that "social media is the place to get to those consumers before anyone in old media can even smell their credit cards."

But Wall Street is working a meta-scam, as usual: you don't have to believe in the trillion-dollar potential of social media marketing, all you need to believe is that other suckers will believe it enough to buy the shares of the IPO off you for a bloated price.

Meanwhile, back in the real world, American consumers are increasingly insolvent: their incomes are declining even as their non-Federal taxes rise and their debts are pinned at the "crushing" level.

Let's glance at a few charts for a whiff of non-Wall-Street-tainted reality.

After tax income is way off the pre-recession peak-- and note that "government transfers" are a big part of non-earned income. Also note how the refinancing "your house is an ATM machine" boom that issued $2.5 trillion in crisp new bills to consumers per year at the peak has broken down for good; the "free money" from re-fi's has declined to a trickle.

 

Note that Median Income of working-age households has fallen dramatically.


 

Employment has tanked.

 



 

If we look at the ratio of employed to the civilian population, the reality is even more sobering.

 



 

Employment per capita has also fallen off a cliff.

 



 

As a percentage of GDP, employee compensation (i.e. earned income) has collapsed to levels not seen in 50 years.

 



 

Here is a chart of the costs of financialization: staggering debt loads in every sector of the economy, public and private.

 



Keeping all those wars "hot" and all those transfers flowing while tax revenues tanked means Federal debt has skyrocketed.



Households funded the past 30 years of consumption with debt.



 

All that debt no longer adds to GDP "growth," it actually causes GDP to contract. "Growth" based on exponential debt has run its course; marginal returns have turned negative. It's called debt saturation. 


The real economy is still well below pre-recession levels of production.

 

The financial media ignores rising taxes-- for example, property taxes, which continue to rise nationally even as the market value of real estate continues declining.



So let's add this up: less income, crushing debt loads, higher taxes (not to mention junk fees), no more "free money" from re-financing, and a Federal government that might not be able to borrow and blow 11% of GDP each and every year to prop up consumption.

The Darwinian struggle to strip the flesh from insolvent consumers before one's competitors do so is not a thriving economy nor a growing economy; it is a hollowed out economy at a dead-end of financialization and substitution of Federal debt for actual production.

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Ahmeexnal's picture

Reek of putrefaction.

eureka's picture

I have said it for two decades: US is a sales muscle - and its chief commodity is lies - that is to say myths/entertainment about its own glory, enforced by fear-mongering and bamboozlement.

I am glad someone else now sees it.

Merry Christmas - and cherrs - in good olf Anglish Christmas Ale.

GeneMarchbanks's picture

'US is a sales muscle - and its chief commodity is lies - that is to say myths/entertainment about its own glory, enforced by fear-mongering and bamboozlement.'

Bombs. They bomb people, often. Brown people usually, but not exclusively.

hedgeless_horseman's picture

 

 

Meanwhile, back in the real world, American consumers are increasingly insolvent: their incomes are declining even as their non-Federal taxes rise and their debts are pinned at the "crushing" level.

 

 

You buy furniture. You tell yourself, this is the last sofa I will ever need in my life. Buy the sofa, then for a couple years you're satisfied that no matter what goes wrong, at least you've got your sofa issue handled. Then the right set of dishes. Then the perfect bed. The drapes. The rug. Then you're trapped in your lovely nest, and the things you used to own, now they own you.

 

~Chuck Palahniuk, Fight Club, Chapter 5

trav7777's picture

real economy: negative profitability

solution: leverage and a virtual economy of MLM schemes

Note in EVERY SINGLE "recipe for a solution" we hear about how it will get "growth" going again.  That's a fuckin prerequisite, an axiom, of the system.  It's hundreds of years old and everyone has become accustomed to its running one-way.  It seems impossible that contraction could actually occur, yet that is where we are.

The monetary problems are a SYMPTOM, not a cause

GeneMarchbanks's picture

"The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending,"

A game of: Who Said It? Anyone care to guess?

Potemkin Village Idiot's picture

Sounds like Krugman for sure... Either that or some halfwit from the Ritholtz blog...

The Limerick King's picture

Close...it was actually Larry "The should have been a Cable Guy" Summers.

Mr_Wonderful's picture

Larry Summers.

I read the FT article a few weeks back.

Potemkin Village Idiot's picture

The same Larry Summers, who while in the process of losing a great deal of the Harvard Endowment fund, couldn't be bothered with an internal issue with regards to the startup of Facebook...

That Larry Summers?

Xkwisetly Paneful's picture

THey should just follow Germany's lead. They have been selling to insolvent customers longer than anyone else.

TheGardener's picture

So,what to make of those shallow Germans: Too big to hail ?

lynnybee's picture

You buy furniture. You tell yourself, this is the last sofa I will ever need in my life. Buy the sofa, then for a couple years you're satisfied that no matter what goes wrong, at least you've got your sofa issue handled. Then the right set of dishes. Then the perfect bed. The drapes. The rug. Then you're trapped in your lovely nest, and the things you used to own, now they own you.

 

~Chuck Palahniuk, Fight Club, Chapter 5         

it's obvious that Chuck Palahniuk wasn't running a household with kids to raise.    take it from me, my experience says that it's NOT the drapes & the rugs & the perfect dishes ....... it's the kids we raise that own us , the post-WWII lifestyle of hearth & home that owns us.

hedgeless_horseman's picture

 

 

I have read every word in Carla's Encyclopedia of Country Living at least once.  You should read Fight Club.  It will be like a trip to the zoo for you.

flattrader's picture

I have an original mimeographed copy given to me by my (then) hippie sister.

KK Tipton's picture

Bubuubut....what about Tajazzle?

http://www.youtube.com/watch?v=oxHoo_cXNrA

We do make something!

USA! USA! USA!

CPL's picture

The dead eating the dead.  Good times.  Good times.

 

economics1996's picture

The author forgets the role of government consumption, and misallocation, of resources in creating more paper and less production.  

In 1999-2000 the feds share of the GDP was 18.2%, the lowest since 1958.  If you want to get over this fiscal disaster eliminate the feds to 11% of GDP or just eliminate them like the USSR did.

Back to capitalism and the free market. 

http://www.whitehouse.gov/omb/budget/Historicals

flattrader's picture

The author just cobbled together a bunch of charts from other web sites (often without citing/linking the source) slaps some narrative on it and tries to pass it off as "commentary" or even worse, "analysis."

For example, one of the charts (the second chart) came from here--

http://www.epi.org/publication/a_lost_decade_poverty_and_income_trends/

scatterbrains's picture

anyone know what that spike in volume was at 11:18am on the down tick?  or was that just nutsack loading up short for the 2:30 light volume buy to cover ramp up?

sunnydays's picture
Explosive Interview Jim Willie "JP Morgan Crashed MF Global to Avert COMEX Failure, they stole all the accounts that were going to take delivery"

 

http://sherriequestioningall.blogspot.com/2011/12/explosive-interview-si...

fonestar's picture

Haha... I really enjoy the Jim Willie articles and interviews and am thinking about a subscription.

...a family member asked me, "hey Jim, what should I do with my money?" and I told them go buy a coffin because you haven't listened to a thing I've said!

fonestar's picture

Yes, excellent post.

I have gotten rid of all of my Google, Yahoo, MSN, Facebook, Twitter, Youtube accounts (I still need eBay because there are no coin shops in my area).

If these assholes (who produce nothing) are going to use me in their ponzi schemes, and to gather intelligence in their massive data mining operations, they could at least include me in their IPOs or pay me a fucking dividend!

We made these schmucks what they are today and can take it back with how we click and spend (and short).  I urge all fanatical ZHers to do the same, to chose FREEDOM, LIBERTY and the non-ponzi'd interwebs!!

trav7777's picture

facebook is only good as a rolodex of acquaintances and to vet chicks you picked up on dating websites to see if they actually look like their pictures

In Fed We Trust's picture

I only use FacEbook to post links to ZH.

And to post links about fairy tale terrorists

And such. I now have over 5000 friends.

My friends think im crazyvboth they always come back for more.

Befriend me facebook if you wish.

Patrick the Painter

Potemkin Village Idiot's picture

And such. I now have over 5000 friends

I'm assuming many of them wear jackboots & ride around in black helicopters...

Potemkin Village Idiot's picture

and to vet chicks you picked up on dating websites to see if they actually look like their pictures

If they 'vetted' you, woulkd you look more like your avatar, or more like the dude on the yellow shirt that Forrest Gump wiped his face on?

trav7777's picture

I clicked it and Chuck Norris came up in the video.  Yes, I AM CHUCK NORRIS

flattrader's picture

I saw a chubby guy in his mid 30s with a bad hair cut peaking out from under a ball cap.

The blonde-headed kid was cute.

In Fed We Trust's picture

Facebook

A rolodex for the CIA.

Populated willing by the sheeple.

Farmville. A conspiracy to end farming.

LouisDega's picture

Relax. Its a place to hangout and converse with friends and family. I find it very relaxing. Stop thinking so much. Its bad for the brain

In Fed We Trust's picture

Facebook

A rolodex for the CIA.

Populated willing by the sheeple.

Farmville. A conspiracy to end farming.

Potemkin Village Idiot's picture

Ron Paul... a conspiracy to END THE FED

Clampit's picture

The web has far more sinister plans in store for centralized solcial media. Diaspora, while it looks like they're off to a shaky start, will be the trend of things to come. All our computer toys have Tx and Rx capabilities, central [Facebook] servers (and ISPs) could all quickly become a thing of the past when mesh networks really take hold. This also highlights how any kill switch action might be considered "censorship" (in web parlance), a defect to be automatically routed around.

PAPA ROACH's picture

We will get past this all the day that true capitalism is allowed to work. Out with the old in with the new, only the strong survive, etc etc.

 

STOP THE FUCKING BAILOUTS!

DormRoom's picture

still waiting for the web 2.0 bubble to burst.  Once DST (Yuri Milner) implodes, Silicon Valley will be like detroit over the next decade.  DST is patient 0 down there.

 

The misallocation of capital in Silicon Valley over the last decade would make Soviet planning committees blush

 

If you work in a seed funded web company, it's time to update your CV.

nhr215's picture

hah, that won't help. I lived in SF during the first bubble crash and my friends who were all programmers working at hot startups basically were unemployed for almost 3 years....

trav7777's picture

Silicon Valley doesn't have the demographics to ever look like Detroit

vegas's picture

Valuable function in Soetero's Amerika? Yur shitin' me right? "We lose money on every sale, but we make up for it in volume."

 

http://vegasxau.blogspot.com

pods's picture

Yep, and most of the debt charts look strikingly like exponential functions.

Hmmmm.

Wonder why that is?  Future P=P+I.

pods

GMadScientist's picture

Welcome to the Terry Schiavo Economy! #Veggie

 

Occams Aftershave's picture

"When was the last time a company went public in the U.S. that actually manufactured a good? "

 

TSLA   FIO     come to mind

NotApplicable's picture

GM, baby! Channel stuffers, extraordinaire!

(well, except for the ones that self-immolate)

nhr215's picture

Agreed 100%. Most of these businesses are based on advertising revenue. They are digital magazines essentially. Facebook has non-ad revenue from gaming which is substanal. Plus they are the 500 pound gorrilla. Too bad by the time they IPO all the value will have already been extracted in previous private share offerings. All the rest are basically minnows. As soon as the advertising market drops off even a small percentage, valuations will come tumblinhg down for everything from Twitter to Linked-IN to Foursquare etc. Their projected extraploated growth rates based on funn-money advertising (i.e. mucha as in 2000 the ad-money is actually just VC money being recycled... all the startups are buying ads from each other to promote their services all paid with VC money) will be shattered and valuations will collapse.... We've been here before.

 

Potemkin Village Idiot's picture

Let's get Mark Zuckerberg & Sean Parker on the fone and tell them to go crash the Comex...