2. Consumer Metrics Institute, Inc. www.consumerindexes.com What Ben Bernanke Should Have Learned in History 101 Rick Davis President & CEO Consumer Metrics Institute, Inc.

3. www.consumerindexes.com Why do we have to study History? Youve gotta be kidding me! I hated History!

4. Consumer Metrics Institute, Inc. www.consumerindexes.com Luckily, this presentation is mostly about: a radical new technology to capture economic data.

5. Consumer Metrics Institute, Inc. www.consumerindexes.com But most of the people in this room will be unsure... about if or how they should use it in their practice.

6. Consumer Metrics Institute, Inc. www.consumerindexes.com In fact, the most common question after new technology presentations: Wow, it may be neat... but how can I actually use it?

7. Consumer Metrics Institute, Inc. www.consumerindexes.com History can show us why it is critically important to accept new technologies and radical ideas.

8. Consumer Metrics Institute, Inc. www.consumerindexes.com Agenda 10:30am – 11:00am –What Ben Bernanke Should Have Learned in History 101 –A Perspective on Assimilating Change 11:00am – 11:30am –A New Technology in Macro-Economic Measurements –The Consumer Metrics Institutes Leading Indicators 11:30am – 11:45am –Questions & Answers (Wow! Thats Neat!) (But How Do I Use It?) (Stump the Speaker!)

9. Consumer Metrics Institute, Inc. www.consumerindexes.com History 101

10. Consumer Metrics Institute, Inc. www.consumerindexes.com That Queasy Feeling How many of you have never, ever driven on icy roads? How many of you have never felt that queasy feeling when the car starts to move sideways? When you suddenly realize that youre on black ice and you envision...

11. Consumer Metrics Institute, Inc. www.consumerindexes.com That Queasy Feeling … when all of the controls available to you no longer seem to work.

12. Consumer Metrics Institute, Inc. www.consumerindexes.com Thats Exactly What … the Chairman of the Federal Reserve felt when he tried to stimulate the economy by dropping interest rates and increasing the money supply.

13. Consumer Metrics Institute, Inc. www.consumerindexes.com … In 1929. Chairman of the Federal Reserve 1927-1930 Roy Archibald Young

14. Consumer Metrics Institute, Inc. www.consumerindexes.com … In 1929. Roy YoungHerbert Hoover Roy Archibald Young and Herbert Clark Hoover were exactly the wrong people to be at the helm when the economy began to contract in 1929. They could not find solutions that were outside the box. They could not imagine the inconceivable.

15. Consumer Metrics Institute, Inc. www.consumerindexes.com Some Thrive in Chaos Some Seek Change People are Wired Differently Some Abhor Chaos Some Avoid Change

16. Consumer Metrics Institute, Inc. www.consumerindexes.com Change Avoiders: Wedding Planners Change Embracers: Rat Catchers People are Wired Differently New Nomenclature Time...

17. Consumer Metrics Institute, Inc. www.consumerindexes.com US Civil War Military Leaders: Wedding Planners: George B. McClellan George G. Meade Joseph E. Johnston P. G. T. Beauregard People are Wired Differently

18. Consumer Metrics Institute, Inc. www.consumerindexes.com US Civil War Military Leaders : Rat Catchers: Ulysses S. Grant William T. Sherman Robert E. Lee "Stonewall" Jackson People are Wired Differently

19. Consumer Metrics Institute, Inc. www.consumerindexes.com A Field Guide for Indentifying: Rat Catcher Wedding Planner

20. Consumer Metrics Institute, Inc. www.consumerindexes.com Wedding Planners are Always Planning for the Last War Rat Catchers Extemporize and Deal with This One The Bottom Line: In Times of War...

21. Consumer Metrics Institute, Inc. www.consumerindexes.com Wedding Planners Excel at Ceremony and Tradition Rat Catchers are Awkward to Have Around The Bottom Line: In Times of Peace and Prosperity...

22. Consumer Metrics Institute, Inc. www.consumerindexes.com Wedding Planners Muddle Around Until They Get Fired Rat Catchers Take the Initiative and Win The Bottom Line: In Times of Calamity...

23. Consumer Metrics Institute, Inc. www.consumerindexes.com Rat Catchers Think Outside the Box" The Bottom Line:

24. Consumer Metrics Institute, Inc. www.consumerindexes.com To Succeed in Uncertain times, Become a Rat Catcher! The Bottom Line:

25. Consumer Metrics Institute, Inc. www.consumerindexes.com Harder Than You Think, Especially for Those at the Helm. How Hard is That?

26. Consumer Metrics Institute, Inc. www.consumerindexes.com History 201

27. Consumer Metrics Institute, Inc. www.consumerindexes.com Early Evening, May 31st, 1916 … The two largest fleets of battleships ever assembled were steaming towards a horrific collision …

28. Consumer Metrics Institute, Inc. www.consumerindexes.com By Dawn the Next Day … … 14 British Ships and 6,000 British Sailors lay at the bottom of the North Sea off the coast of Jutland. 2.5 Times the U.S. Losses at Pearl Harbor!

29. Consumer Metrics Institute, Inc. www.consumerindexes.com Were largely because they had no idea where the German High Seas Fleet actually was... until the German guns opened fire. The Horrific British Losses …

30. Consumer Metrics Institute, Inc. www.consumerindexes.com … but it was deployed 1 hour after the battle commenced. A Critical New Technology …... was there at Jutland and could have turned the tide.

31. Consumer Metrics Institute, Inc. www.consumerindexes.com Simply failed to utilize a New Technology that would have allowed him to see over the horizon... because nobody had ever done it before. The Commander in Chief … Admiral John Jellicoe

32. Consumer Metrics Institute, Inc. www.consumerindexes.com Why Was John Jellico at the Helm? Wedding Planners rise to the top during extended periods of peace. Rat Catchers are simply uncomfortable to keep around.

33. Consumer Metrics Institute, Inc. www.consumerindexes.com Wedding planners are prepared to fight the last war: –They have identified who the last enemy was –They have studied how to win the previous battles –They have developed perfect weapons for the last war The Problem:

34. Consumer Metrics Institute, Inc. www.consumerindexes.com But they cannot think 'outside the box when: –The wrong enemy or problem shows up –The old tactics dont work –The perfect weapons misfire –New weapons need to be implemented The Problem:

35. Consumer Metrics Institute, Inc. www.consumerindexes.com Because The Other Side of the Horizon Is Outside of Their Current Box. Wedding Planners … Dont Know How To See Over The Horizon...

36. Consumer Metrics Institute, Inc. www.consumerindexes.com History 301

37. Consumer Metrics Institute, Inc. www.consumerindexes.com Flash Forward: 1929 … Perceived Economic Enemies: –Deficit Spending Induced Bubbles (1917-1918) Leading To Major Contractions (1919-1921) –Hyperinflation from Uncontrolled Expansion of the Money Supply (Weimar Republic 1921-1923) They Had the Perfect Weapons: –A Fiscally Conservative Administration Committed to a Balanced Budget –A Money Supply Tightly Coupled To Bullion Reserves

38. Consumer Metrics Institute, Inc. www.consumerindexes.com Couldnt See Over The Horizon... To Realize That the Real Enemies were: Roy Archibald Young … A Crippling Contraction of Credit A Devastating Deflationary Spiral Demographically Driven Slowdowns in Growth

39. Consumer Metrics Institute, Inc. www.consumerindexes.com With Utter Disdain for 6,000 Years of Economic Tradition to Attack the Problems. It Took a Rat Catcher …

40. Consumer Metrics Institute, Inc. www.consumerindexes.com To have the unmitigated gall to do the unthinkable: –Executive Order 6102 & the Gold Reserve Act –Emergency Banking Act & Federal Deposit Insurance Corporation –Glass-Steagall Acts of 1932 & 1933 –Securities Act of 1933 & Securities Exchange Act of 1934 –National Industrial Recovery Act & Works Progress Administration –Social Security Act of 1935 It Took a Rat Catcher …

41. Consumer Metrics Institute, Inc. www.consumerindexes.com Flash Forward: 2007-2010 … Perceived Enemies: –Banking System Capital & Liquidity Challenges –Institutions Too Big To Fail –Toxic Assets Hampering Credit Creation They Had the Perfect Weapons: –Unlimited Ability to Create Credit –Unlimited Ability to Transform Toxic Assets into Sovereign Debt

42. Consumer Metrics Institute, Inc. www.consumerindexes.com The Wedding Planners at the Current Fed Cant See Over The Horizon... to Realize that the Real Enemies are... But What If …

43. Consumer Metrics Institute, Inc. www.consumerindexes.com The Real Problems? –Sovereign Debt passing a Tipping Point? –The Moral Hazard Implicit in Too Big To Fail? –Supercritical Markets & Quant Programs? –Derivatives Supplying Unrestrained Leverage? –Higher Risks Forced on Investors by 0% Rates? –Demographics Altering Economic Growth?

44. Consumer Metrics Institute, Inc. www.consumerindexes.com And What If … The Real Scenario Isnt the U. S. in 1929, 1980 or even 2000... But Japan in 1990?

45. Consumer Metrics Institute, Inc. www.consumerindexes.com The Problem … Wedding Planners Fail to –Think Outside the Box – Look Over the Horizon

46. Consumer Metrics Institute, Inc. www.consumerindexes.com Wow, thats neat. But how do I use it? Most Common Comment:

47. Consumer Metrics Institute, Inc. www.consumerindexes.com Be a Rat Catcher Think Outside the Box" The Answer:

48. Consumer Metrics Institute, Inc. www.consumerindexes.com Look Over the Horizon And...

49. Consumer Metrics Institute, Inc. www.consumerindexes.com Economic History 401

50. Consumer Metrics Institute, Inc. www.consumerindexes.com History of U.S. Economic Data 1937-1938:

51. Consumer Metrics Institute, Inc. www.consumerindexes.com History of U.S. Economic Data 1937-1938: Recession nested within the Great Depression saw total GDP drop by 6%, comparable to Great Recession 2007-2009

52. Consumer Metrics Institute, Inc. www.consumerindexes.com History of U.S. Economic Data The Administration had no good data concerning the status of the recovery from the 1937-1938 recession They asked Wesley Clair Mitchell at the U.S. National Bureau of Economic Research to provide that data

53. Consumer Metrics Institute, Inc. www.consumerindexes.com History of U.S. Economic Data Wesley Clair Mitchell (1874-1948) –Devised Over 500 Time Series of Data –Many Still Being Collected to This Day –Measured Activities at Factories –Captured Activities Important in 1937 –Data Series Are Basis of BEAs GDP

54. Consumer Metrics Institute, Inc. www.consumerindexes.com BEA Methodologies: Questionnaire Approach is Unchanged Factory Focus is Unchanged Pace of Data Collection is Unchanged Pace of Publication is Unchanged

55. Consumer Metrics Institute, Inc. www.consumerindexes.com 1937 Methodologies: Data Collection Time Lags Large Firm Sampling Bias Survivor Biases Under-reported Casualties Inherited Market Share Gains Economically Downstream Sampling

56. Consumer Metrics Institute, Inc. www.consumerindexes.com But Think iTunes Downloads... How many times does a download get captured by: - New Factory Orders? - Finished Goods Inventories? - Rail Car Loadings?

57. Consumer Metrics Institute, Inc. www.consumerindexes.com Radical Ideas 101

58. Consumer Metrics Institute, Inc. www.consumerindexes.com Upstream vs Downstream: A Smart Factory Will Always Respond To Consumer Demand...... Often Lagging by a Quarter or more.

59. Consumer Metrics Institute, Inc. www.consumerindexes.com Downstream Factory Production

60. Consumer Metrics Institute, Inc. www.consumerindexes.com Lag Consumer Demand

61. Consumer Metrics Institute, Inc. www.consumerindexes.com Consumer Demand is a window to see the GDP thats still Over the Horizon Watching Consumer Demand:

62. Consumer Metrics Institute, Inc. www.consumerindexes.com Depending on Altitude, the Distance to Horizon and the Level of Discernable Details Change: Consumer Demand Horizon: Consumer Demographic Data: Time Horizon = 20 – 70 Years Analogy: Seasonal Weather Changes On-Line Shopping Data: Time Horizon = 20 – 70 Weeks Analogy: Five Day Weather Forecast

63. Consumer Metrics Institute, Inc. www.consumerindexes.com New Technologies

64. Consumer Metrics Institute, Inc. www.consumerindexes.com New Technologies: Consumer Behavior on the Internet is Collected by Advertisers in Order to provide Targeted Ads. Internet ConsumersConsumer Tracking Databases

65. Consumer Metrics Institute, Inc. www.consumerindexes.com New Technologies: Consumer Tracking Databases Data Mining Process

66. Consumer Metrics Institute, Inc. www.consumerindexes.com New Technologies: Benefits: - No appreciable delays or revisions - No large firm bias - The ultimate upstream data source - No survivor bias Internet ConsumersConsumer Metrics Institute

67. Consumer Metrics Institute, Inc. www.consumerindexes.com New Technologies: Limitations: - Internet User Socio-Economic Bias - U. S. English Language Transactions - Discretionary Durable Goods Filter - Exclusively Consumer Focused

68. Consumer Metrics Institute, Inc. www.consumerindexes.com How Do I Use This?

69. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now:

70. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: Annualized growth rate drops from 5.6% to 3.2%, Q4 2009 to Q1 2010. A 43% Decrease, a near halving...

71. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: Annualized growth rate drops from 5.6% to 3.2%, Q4 2009 to Q1 2010. A 43% Decrease, a near halving...

72. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: So, is the glass half-full... or is it half-empty? And which direction is the level headed?

73. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: Freeze Frame snapshots cant answer that question... especially ones taken only once per quarter.

74. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now:

75. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now:

76. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: By looking at the Consumer Demand we can see what is really happening in the Q1 2010 GDP snapshot.

77. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: By looking at the daily consumer demand we can see what is really happening in the Q1 2010 GDP snapshot.

78. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now:

79. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: In fact, consumer demand side activity began to show year- over-year contraction on January 15 th, 2010.

80. Consumer Metrics Institute, Inc. www.consumerindexes.com Contraction Watch

81. Consumer Metrics Institute, Inc. www.consumerindexes.com

82. Consumer Metrics Institute, Inc. www.consumerindexes.com 2006

83. Consumer Metrics Institute, Inc. www.consumerindexes.com 2008

84. Consumer Metrics Institute, Inc. www.consumerindexes.com 2010

85. Consumer Metrics Institute, Inc. www.consumerindexes.com Whats Happening Now: 2006: Hiccup 2008: Call-911 2010: Walking Pneumonia This time things may really be different.

86. Consumer Metrics Institute, Inc. www.consumerindexes.com The Shameless Plug

87. Consumer Metrics Institute, Inc. www.consumerindexes.com Consumer Metrics Institute: Who are we? –We aspire to be rat catchers. We're not welcome at the economists' parties. –We don't care what factories were doing last quarter. That's a symptom, not a root cause. –We only care what consumers were doing yesterday.

88. Consumer Metrics Institute, Inc. www.consumerindexes.com Consumer Metrics Institute: Who are we? –We're not economists (I'm actually a physicist). –Were just a bunch of geeks tracking consumer activities. –The data is real, but were weeks to months ahead of the traditional data sources & mainstream media

89. Consumer Metrics Institute, Inc. www.consumerindexes.com Daily Sector Indexes: Automotive Entertainment Financial Health Household Housing Recreation Retail Technology Travel

90. Consumer Metrics Institute, Inc. www.consumerindexes.com Specialty Sub-Index Samples:

91. Consumer Metrics Institute, Inc. www.consumerindexes.com Consumer Metrics Institute: H.S. Dent Demographics: Time Horizon = 20 – 70 Years Analogy: Seasonal Weather Changes Consumer Metrics Institute: Time Horizon = 20 – 70 Weeks Analogy: Five Day Weather Forecast

92. Consumer Metrics Institute, Inc. www.consumerindexes.com Wow! Sign Me Up!

93. Consumer Metrics Institute, Inc. www.consumerindexes.com Consumer Metrics Institute: Access to Data: Login IDs: Republish Rights: Custom Indexes: Appearances: Annual Cost: Personal Advisor Sponsor Partner Membership Levels

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103. Consumer Metrics Institute, Inc. www.consumerindexes.com Recap Time

104. Consumer Metrics Institute, Inc. www.consumerindexes.com Wow, thats neat. But how do I use it? Most Common Comment:

105. Consumer Metrics Institute, Inc. www.consumerindexes.com Be a Rat Catcher Think Outside the Box" The Answer:

106. Consumer Metrics Institute, Inc. www.consumerindexes.com... And Look Over the Horizon: H.S. Dent Demographics: Time Horizon = 20 – 70 Years Analogy: Seasonal Weather Changes Consumer Metrics Institute: Time Horizon = 20 – 70 Weeks Analogy: Five Day Weather Forecast

107. Consumer Metrics Institute, Inc. www.consumerindexes.com And Pray … That this time somebody understands what the real problem is...... and has the ability to do whatever is necessary to fix it.

108. Consumer Metrics Institute, Inc. www.consumerindexes.com Questions & Answers: www. consumerindexes.com Rick Davis

109. Consumer Metrics Institute, Inc. www.consumerindexes.com Rick Davis Consumer Metrics Institute, Inc. 14405 W. Colfax Ave., #192 Lakewood, CO 80401-3206 rick@consumerindexes.com (303)656-9801