Seth Godin wrote about Borders (referencing a post by John Moore):
It turns out that cutting inventory by 10% and facing books out (instead of just showing spines) increased their sales by 9%. This is counter to Long Tail thinking, which says that more choices and more inventory tend to increase sales.
I don’t think that’s what the Long Tail suggests. In fact, part of its premise means it can’t apply to a brick-and-mortar store, where display space is fixed (and expensive).
The key conditions are well-summarized in the Wikipedia entry:
The key supply-side factor that determines whether a sales distribution has a Long Tail is the cost of inventory storage and distribution. Where inventory storage and distribution costs are insignificant, it becomes economically viable to sell relatively unpopular products; however, when storage and distribution costs are high, only the most popular products can be sold.
Borders’ action here, instead of being “against Long Tail thinking” is actually perfectly aligned with it: they realize that their sales distribution does not have a long tail, because their customer base is too small and their cost of additional inventory is relatively high. So they have taken steps to increase the popularity slightly of a slightly smaller number of items.
Seth’s a very smart guy; it’s hard for me to tell if he’s misrepresenting the long-tail on purpose for something, or if he actually missed it on this one. I’m guessing the former, since the real point he seemed to be making in his post was a good one. Or am I the one missing the boat here?
You may or may not have heard of the Laffer Curve. It’s a theory that decreasing tax rates may, under some circumstances, increase tax revenue (and vice versa).
Now, you don’t have to accept that the Laffer Curve is true if you don’t want. You don’t have to accept that the earth is round, or that the sun goes around the moon, or that the Washington Redskins are evil, no matter who coaches them. Facts don’t care if you believe them, and you certainly don’t have to believe them.
Still, it’s just willfully ignorant to go around trumpeting that you reject the “Laffer Curve Theory” if you don’t even know what it is. And most of the people I’ve heard take issue with it clearly didn’t know what it actually says. I’m not saying that, “They disagreed with me, so they were wrong.” I’m saying that they were busy disagreeing with some straw man they’d concocted that had hardly any resemblance to the Laffer Curve itself.
So, if you want to know what the Laffer Curve is about, Larry Kudlow pointed to this terrific video a few days ago, from the Center for Freedom and Prosperity. It’s only around 7 minutes long, and moves quickly, and is quite clear. Just don’t get distracted by the short appeal for a flat tax toward the end; the Laffer Curve is not connected to any particular means of taxation.
p.s. - I’m not a flat-tax proponent myself, largely for pragmatic reasons, namely, I don’t think it would remain transparently applied, and would quickly turn into a bureaucratically-managed VAT nightmare. But that’s another story.
OK, prepare to be astounded with my ignorance. And please, if you are, enlighten me.
Marketwatch reported today that Countrywide reported that mortgage loan fundings for November 2007 were down 40% from November 2006.
The market has peeled off another 5% from CFC’s price today, though CFC’s been so volatile lately that it might be a little imaginative to call it a “reaction” to the news. It could be “reacting” to a butterfly landing on some institutional trader’s window and causing him for some reason to remember to unload another 100k of the shares. I don’t know.
Still, it’s interesting that this is being reported is that “CFC reports mortgage fundings down 40%”, as though this is the real news. But didn’t we already know that things are worse than last year? That’s not news any more. The news - the thing that is unexpected (or was to me) and of immediate interest - is that its total mortgage loan fundings were up 5 percent from the prior month. Why isn’t that the headline? When was the last month that CFC saw mortgage loan funding up from the prior month?
Again, I realize that there can be seasonal factors that make some months stronger than others, and so normally, comparing year-over-year makes more sense. But given that we’ve seen a massive dislocation and an ongoing effort to reprice mortgage risk, the huge year-over-year decline is already priced in. It seems to me.
Really, this isn’t about CFC, but about how financial reporting, and maybe most reporting, has to fit the current template. “CFC Mortgage funding up” doesn’t fit the “We’re all going to die because the 4% of the mortgage market in sub-prime loans is going to have above-average failure rates for a while” template. So the news, whatever it is, has to be reported in such a way that the template remains undisturbed (at least, that is, until the next template comes along).
Disclaimer: As you may have guessed, I am currently long CFC (though not in a big way).
