The Greatest April Fool That Never Was

April Fool’s Day, 1975

Offices of The Merrill Anderson Company at 100 Park Avenue

The preposterous invitation was addressed to Merrill Anderson's chairman, Earl MacNeill. He raised an eyebrow and handed it to his second in command, Bud Sommer. Bud looked, smiled and handed it to me.

Back in my office I examined the mailing. Ostensibly a new afternoon newspaper was starting up. A Merrill Anderson representative and spouse were cordially invited to learn more about it. On a five-day Bermuda cruise. On the QE2. All expenses paid!

Any temptation to suspend disbelief vanished after a glance at the return address: 90 Park Avenue, the building across the street. From my office window I could see dozens of workers sitting, standing, scurrying about. Which one was the April Fool’s prankster?

Still, no harm in calling their bluff. I RSVP’d to 90 Park.

A few days later came the phone call. There had been a change in plan, a voice said. (That figured. Out with the cruise. In with a free ride on the Staten Island Ferry.)

A change in plan?

You're a Hedgie? How Embarrassing!

Way back when, I avoided mentioning my job in market research. Too embarrassing. Now hedge-fund guys and gals face a similar problem. Subpar returns lead to poor image, and poor image leads to dissembling.

"Mentions of hedge-fund employment in marriage announcements have declined by 20% since 2007," reports Rob Copeland in The Wall Street Journal. 

Out of more than 8,000 hedge funds, "only 1,176 firms use the term hedge fund in the 'about us' section of their SEC investment adviser registration."

Favored euphemisms for hedge fund:

Alternative asset manager
Investment holding company
Private partnership

Can rebranding save the day? 

When Wealthholders Only Rang Once

Here's a list of CEO's headquartered here in New York and their phone numbers. Go see them. Ask how this airline's printed flight schedule could be improved.

That was my marketing assignment, circa 1957. My phone calls requesting appointments always got through, answered by the CEO's secretary or, once or twice, by the great man himself. Phone calls were serious business in those days.

•

Phone calls were still serious business a few years later, when I began to learn how major trust companies worked. "One reason we assign each client to a team," I heard time and again, "is so that client phone calls will be answered, always." 

If the client's trust officer was not at his desk, I was told, the client was put through to the investment officer, or to one of the team's administrative assistants. Every call was answered by someone  – someone who knew the client and was familiar with the client's account. That, at least, was the goal.

Today? The number one complaint investors have about their brokers is that their calls are not returned, much less answered satisfactorily. 

I know, nobody considers phone calls serious business any more. (Now texting, that's important!) Nobody but the caller. Then and now, even unimportant clients want to feel like important clients. When you return a call promptly or take the time to send a newsletter article on a topic of interest to a client, you're practicing timeless good marketing.

H/T to The Trust and Estates Prof for calling attention to this survey. 

P. S. Speaking of those survey findings, why does anyone go to his or her broker for an estate plan? 

Mind Control (Or, “My Unmentionable Job”)

My first job after the Army was with O'Brien-Sherwood Associates, a market-research firm on New York's Madison Avenue. Our offices were a block or two south of Brooks Brothers and handy to Grand Central, giving me an easy commute from Connecticut.

Mind you, I didn't tell my Connecticut friends I was doing market research. Too embarrassing. "Advertising research," I would mumble, if pressed.

The man to blame for my embarrassment was Ernest Dichter, a psychologist from Vienna,. By the latter 1950s Dr. Dichter had made "market research" synonymous with "motivational research." That wasn't good. Motivational research was widely regarded as a black art – one that sought to use Freud's psychoanalytic concepts to influence consumer behavior.

Dr. Dichter's motivational techniques made a lot of people nervous, including a little-known writer, Vance Packard. While I mumbled about my job, Packard was writing what would prove to be a surprise best seller: The Hidden Persuaders.

When Packard realized that a prime motivator for less-than-rational purchasing decisions was the desire to appear "high class," he followed up with another best seller, The Status Seekers.

(Remember Kaye Miller, the psychologist on Mad Men? She wouldn't be there if not for Dr. Dichter. Some say he invented focus groups.)

Motivational research never had the evil power ascribed to it in the 1950s and 1960s. Yet a significant percentage of hedge-fund investors must be status seekers. And brokers use plenty of hidden persuasion to frame product sales as "advice."

Today motivational research is old hat. There's a new key to creating Ads that Whisper in the Brain. If Vance Packard were still around he'd probably write another book, this one about neuromarketing.

Tales from the 20th Century: My Embarrassing Mortgage

Our first child arrived in 1961. The following year, while JFK dealt with the Cuban missile crisis, we decided to buy a house.

Using every last dollar, we could just make the 20% down-payment on a cute, four-bedroom cape in Rowayton. At 5%, the prevailing rate our bank offered, the mortgage payments would be barely doable.

But then our banker told us the facts of 1962 life:

"You need a twenty-five-year mortgage instead of twenty? Best rate we can give you is five and a half percent." Ouch!

" Let's see, the house was built in 'forty-six. We classify any house built more than fifteen years ago as old. On old houses you have to put down thirty percent!" Double ouch!

Somehow, we managed to borrow enough from family to make the higher down-payment and buy the home we lived in for 34 years.

Isn't it amazing how conservative bankers were when loaning their own money? Yet how easily conservatism vanishes when the "lender" can hand off the loan to be packaged as a CMO and sold to somebody else who puts it in a CDO and sells it to a pension fund in Peoria or a village in Norway.

Toto, I don't think we're in the twentieth century any more
Lately, people haven't actually been buying homes, a front-page story in The New York Times points out. In effect they've been renting:

Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home in order to cover closing costs.

* * *

The same sorts of loans that drove the real estate boom now change the nature of foreclosure, giving borrowers incentives to walk away, said Todd Sinai, an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania.

“There’s a whole lot of people who would’ve been stuck as renters without these exotic loan products,” Professor Sinai said. “Now it’s like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren’t any worse off than renting, and you got a chance to do extremely well. If it’s heads I win, tails the bank loses, it’s worth the gamble.”

* * *

“When people don’t have skin in the game, they behave like they don’t have skin in the game,” said Karl E. Case, a professor of economics at Wellesley College . . . .

Investing and conserving wealth was a tough job when Wall Streeters still talked about "good, solid investments." The job looks a lot tougher in an age where mortgages turn into leases and more and more derivatives seem to consist of computer-modelled smoke and mirrors.

Previous Tales from the 20th Century:
Shutting Down the Stock Exchange
Good Brokers
"Going Out of Business"
Borrowing Trouble

Tales from the 20th Century: Shutting Down the Stock Exchange

As reported earlier, the Senior Assistant Blogger spent his pre-college summer of 1949 working on Wall Street. Yet at 3:30 on a hot August weekday afternoon, we find him forty miles away in Connecticut. He's sitting on the sand sipping a Coke, watching kids jump off the high board at the Noroton Bay Beach.

Why wasn't he at work? Because much of Wall Street wasn't yet air-conditioned. On that August day, the heat became so unbearable that The New York Stock Exchange closed after lunch and everybody went home.

Air conditioning was a transforming invention of the 20th century. The way the market's been acting lately, that transformation may have a down side.

Yesterday, August 28th, was another of those now familiar occasions when program trading sent stock prices plummeting in the last hour of trading. Some Wall Streeters, including Muriel Siebert, blame the SEC's recent elimination of the uptick rule on short sales:

This regulation was put in place in 1938 to defang so-called bear raids on stocks, when sellers ganged up on companies' shares and profited by driving them down.

The uptick rule required that anyone shorting a stock - selling shares he or she does not own in hope of making a profit - can do so only on an uptick in its price. But the SEC got rid of the rule July 6, after it concluded that such restrictions "modestly reduce liquidity and do not appear necessary to prevent manipulation."

The commission drew its conclusions after years of study, analysis and discussion, of course. But Siebert said that with the rule no longer in place, it was easier for sellers to overwhelm stocks on down days.

* * *

Her second concern relates to the influence of electronic trading in big-name stocks. The specialist system - in which a human being with capital at stake is obligated to use it to maintain orderly markets - has been in decline for years. But Siebert said that the recent down days in the stock market might have a lot to do with the fact that the New York Stock Exchange is now dominated by computerized trading. Unlike specialists, machines that match orders don't have to put up capital to stabilize disorderly markets.

Usually the computer-driven plunges in stock prices are followed by a bounce back up the following morning. Looks like that's happening in the early going today. Mindless volatility is good for traders, Siebert admits, but she believes it scares individual investors.

Maybe The New York Stock Exchange should take this afternoon off. Better yet, declare a long weekend and reopen after Labor Day.

All in favor say, "Hit the beach!"

Previous Tales from the 20th Century:

Good Brokers
"Going Out of Business"

Tales from the 20th Century: Good Brokers

You'd think this blog was really down on brokers, to look at recent posts. Hardly. The Senior Assistant Blogger's financial career started in a brokerage house.

In the summer of 1949, at age 17, I went to work in the International Department at Kidder Peabody. The department head was a family friend, and his secretary wanted to take the summer off. He invited me to learn the business as his typist, gofer and general assistant.

I learned what multi-tasking really meant that summer. No Internet; no computers. To watch for prices on six different stocks for six different clients, you had to give most of your attention to the ticker while answering the phone and, oh yes, writing a letter to a nice lady in Switzerland, explaining why she couldn't make a profit, after Kidder's commissions, by buying at 40 and selling at 40 5/8.

I also learned what makes a good broker. I don't remember any lectures; just a steady barrage of pointed remarks:

A good broker put his clients' interests first. (There were few her's in those days.)

A good broker recommended the best investments he could.

A good broker never, never churned a client's account.

Kidder's brokers were not expected to adopt this behavior out of the goodness of their hearts. It was a matter of enlightened self-interest.

This behavior, I was taught, would result in a broker gaining more and more clients through word of mouth. The firm would then notice a star in the making and start bestowing bonuses and other rewards. Still more clients would come to him. And that's how good brokers retired rich.

There was a stick to go with the carrots. Wall Street was a smaller world in those days. A broker canned by Kidder for behaving badly was unlikely to be hired by Merrill Lynch.

I've known some good brokers, and I bet there are plenty of them today: men and women who thrive by putting their clients' interests first.

So here's to the good brokers!

And a pox on the sellers of overpriced investment products who prey on elderly, unsuspecting bank customers!

Tales from the 20th Century: “Going Out of Business”

Before The Merrill Anderson Company moved to Connecticut almost 30 years ago, headquarters was in midtown New York City, a short stroll from the intersection of Fifth Avenue and 42nd Street.

In the 1960s, a number of small stores around that intersection sold dubious cameras, fake Oriental rugs, strange exotic gifts and the latest electronics (transistor radios!). Competition appeared to be fierce: two or three stores always seemed to have "GOING OUT OF BUSINESS" banners stretched across the tops of their display windows.

Funny, though. When you walked by Henry's Electronics months after his sale, Henry was still there. And next time you passed, there was the "GOING OUT OF BUSINESS" banner again.

Eventually, New York City decided to stop such nonsense. A new ordnance required retailers who claimed to go out of business to actually stay out of business a year or two.

Fat chance.

Henry probably hated the bother of reincorporating annually: Alma's Electronics, Burt and Hank's Electronics, H&B Electronics, etc. But a man's got to do what a man's got to do to . . . stay in business.

And the moral is . . .

In 1973-4, the stock market held a “GOING OUT OF BUSINESS” sale so convincing that many an affluent trust or investment client swore he would never own stocks again.

Much more recently, when the tech bubble burst, Nasdaq held its own GOOB sale. It was a killer.

Yet the DJIA starts this potentially exciting Wednesday over 12,000. And lots of tech stocks aren't exactly languishing.

Are we about to see another "everything must go" sale in the stock market? Dunno. But if we do, remember Henry.

Previous Tales from the 20th Century:
Borrowing Trouble.

Tales from the 20th Century: Borrowing Trouble

Year: 1957. Scene: A carriage house on New York's Murray Hill, converted to serve as the offices of a small ad agency, The Merrill Anderson Company. The proprietor, Merrill Anderson himself, lives in an apartment on the top floor.

A young job applicant has just submitted three sample ads for Mr. Anderson's consideration.

"These two will do," he says. "Banking by mail and saving for college; we can use them."

The young applicant had hoped to bat three for three. "What's wrong with the third one?"

Mr. Anderson shook his head. "Vacation loans? We can't tell a bank to run an ad that encourages frivolous borrowing. It wouldn't be moral."

* * *

What a difference almost half a century makes! Plastic cards and home-equity loans have made credit available to anyone, usable for any reason. Since 1990, income for the median American household has risen a respectable 11% after adjusting for inflation. But median household spending has jumped 30% and now exceeds median household income. How can that be? Median household debt has leaped by 80%! Online Wall Street Journal subscribers can read more here.

Even the rich are borrowing, as noted in an earlier posting. That's why private bankers extend credit as a way to gain new wealth-management clients.

Borrowing, after all, is one way the richer get richer. Borrowing to buy more real estate. Borrowing to buy hedge funds that are already highly leveraged. Thank goodness real estate always goes up and hedge funds always produce stellar returns. Were that not the case, some affluent investors might find themselves poor again.

They might even need vacation loans.