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Fed Credit Plan – Dow Dope or False Hope?

The DJIA posted its biggest gain in five years Tuesday, noted Matt Krantz of USA Today in his March 12, 2008 article titled Stocks soar as central banks act; Dow back above 12K”. This move was obviously praised by investors, due to the respective gains of $600 billion in shareholder value in a single day! Furthermore, it eases the burden on the credit market by enabling the exchange of mortgages and bonds for government securities. That in itself is not a bad thing, because investment is discouraged when the reins are held too tight. But looks can be deceiving when the Fed interferes.

Take a step back, look at all of the spikes during the past six months, overlay a simple linear regression line, and give yourself a taste for where we could be heading. Djia_image Always put short-term gains in the context of macroeconomic trends (see graph). A true market reversal will take more than the shifting of risk from commercial to government institutions. It will require fiscal accountability at all levels, corporately and individually, and it includes all of us in the direct marketing community. Direct marketing is famous for surviving the tough times because it’s measurable. We are great at doing the response analysis for our clients, but let's never forget the importance of measuring our own internal ROI for list advertising.

In contrast to best practices for direct marketing, many list managers and list owners spend millions (in aggregate) on mailing list advertising programs that are unmeasurable, and even more on labor and resource intensive order processing systems. Far to much of our contribution margins are wasted on redundant tasks that add little or no value to the new customer acquisition process. Here's the good news. Unlike the current macroeconomic trends, these direct marketing habits can be overcome quickly, and with lasting benefits.

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