The next time a contractor tells you the kitchen remodeling will be done in six weeks, you might ask him to get real and reconsider his estimate.

People often fail to remember that the world is not ideal when they predict when they will complete a project, how frequently they will exercise, or how much money they will save.  However, a subtle reminder of the difference between ideal and realistic predictions can yield a more accurate estimate, according to new research from Duke University’s Fuqua School of Business and the Wisconsin School of Business.
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Image courtesy of flickr/Stuart Crawford

We finally got the information on the stress tests.

The government will consider two scenarios: baseline and worst case.

The goal of the stress test is to see if banks have the capital to weather a darker storm.

However, and incredibly, the worst case scenario is not really a worst case.

The government’s idea of the worst case is a GDP decrease of 3.3% this year and growth of 0.5% in 2010; 8.9 unemployment rate in 2009 and 10.3% in 2010.

That is not the worst case! That is what I call the “baseline”. We are probably at 8% unemployment in February.

As a result, the stress test is a sham. It yields very little information. The government’s rosey worst-case scenario perpetuates the incompetent risk management that got us into this mess.

See my comments on this topic on BNN.

In these difficult economic times, top marketing officers are turning to new and often unproven strategies that focus on the Internet, partnerships, new markets, new products and services to help their companies.

These are some of the results of The CMO Survey, a poll of 581 U.S. marketing executives conducted in February 2009. The survey was conducted by professor Christine Moorman of Duke University’s Fuqua School of Business in conjunction with the American Marketing Association.

Overall, the survey indicates that 59 percent of marketers are less optimistic about the economy than they were one quarter ago, a reduction from the 77 percent of respondents who reported a decrease in optimism during the August 2008 CMO survey.

“While marketers in general remain unexcited about the economic situation, it is encouraging to at least see that pessimism is not increasing among the marketing community,” Moorman said. “This could either indicate that marketers think the worst times are behind us, or they have simply adjusted to operating in an adverse environment.” Read the rest of this entry »

You hear the buzz about the nationalization of Citi?

What does this mean?

The U.S. government has dropped $45 billion of cash on Citi and another $250b in debt backstops (guarantees).

There is talk of converting some of the $45b in preferred stock into equity to get 40%.

Well, the current market value of Citi’s equity is only $10b. Hence, you don’t need to use all of the $45b to get 40%. However, I am afraid that they will use (or blow) all of it. That would be like the American taxpayer shelling out $10 for stock that’s worth $2. It is like buying toxic assets worth only 20 cents on a dollar for full value. It would be yet another incarnation of the trademark government strategy during this crisis (whether Democrat or Republican): Taxpayer=Loser

See my interview on the topic on BNN.

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New research by Duke Health Sector Management Director Kevin Schulman and Fuqua alumnus Seth Glickman was featured in this week’s New England Journal of Medicine, and also covered by the Wall Street Journal and New York Times.

DURHAM, N.C. – Top-tier U.S.-based pharmaceutical companies are moving their clinical trials overseas at warp speed, raising questions about ethics, quality control, and even the scientific value of their findings for people back in the U.S.

Many of the trials are taking place in developing countries in Eastern Europe and Asia where study participants are often poorer and less educated than are study participants in the U.S., according to researchers at Duke Clinical Research Institute (DCRI).

“The FDA is supposed to provide oversight for such trials, but it simply wasn’t designed to handle this kind of situation,” says Kevin Schulman, M.D., the senior author of the report appearing in the New England Journal of Medicine. Schulman says the number of Food and Drug Administration investigators based outside the U.S. has grown by 15 percent every year since 2002, while the number of U.S.-based investigators has fallen just over 5 percent during the same period.

Schulman and a research team led by Seth Glickman, M.D., a senior scholar at Duke’s Fuqua School of Business, used the clinicaltrials.gov registry to examine recruitment patterns in industry-sponsored Phase 3 trials in 2007. Phase 3 trials are typically the largest and most meaningful trials, often involving thousands of patients. They found that about a third of the trials (157 of 509) were being solely conducted outside the U.S. They also discovered that over half the study sites (13,521 of 24,206) lay outside U.S. borders. Read the rest of this entry »

The Fuqua School of Business has been ranked as the No. 2 business school worldwide for research productivity.

The annual study, released by the UT Dallas School of Management, ranked The Fuqua School of Business at Duke University No. 2, ahead of the Leonard N. Stern School of Business at New York University, which occupied that position last year.

Top-Ranked Schools
1. University of Pennsylvania
2. Duke University
3. New York University
4. University of Chicago
5. University of Michigan

These rankings identify the top 100 business schools in North America and worldwide on the basis of faculty research productivity in leading academic journals over a five-year period. The school has tracked the publications of business school faculty members since 1990 in 24 leading peer-reviewed academic journals. The current rankings are based on the number of articles published in those journals from 2004 to 2008.

Here are three new video blogs.

1) Bank CEOs Testify before Congress

Eight bank CEOs appeared before Congress on February 11, 2009 to explain how their institutions used the TARP funds they received in 2008. I comment on their testimony and the American taxpayer’s role as primary stakeholder of many of these firms.

Watch on YouTube

Watch streaming video from Duke University.

2) The Positive Aspects of the Treasury’s New Plan

On February 10, 2009, Treasury Secretary Geithner delivered a speech and released a 7-page fact sheet describing the government’s new moves to address the financial crisis. I detail what I believe are the strengths of the plan.

Watch on YouTube

Watch streaming video from Duke University.

3) The Negative Aspects of the Treasury’s New Plan

Unfortunately, the new plan has many flaws. I outline a few of the many problems.

Watch on YouTube

Watch streaming video from Duke University.

The international banking system is at great risk in the current environment.

This week Fortis shareholders rejected a takeover offer. This puts the whole country of Beligium at risk. Fortis’ assets are more than 200% of the GDP of Beligium.

I know that Iceland gets a lot of press — but that country is tiny.

If you combine UBS and CS, they represent 700% of Swiss GDP. RBS assets are about 140% of U.K. GDP.

Fortunately, the U.S. is no where near as exposed. The largest banks assets, like Bank of America and Citigroup, each represent less than 20% of U.S. GDP.

My BNN interview explores these issues in more detail. I argue that no bank is safe in today’s environment. Previously thought of safe assets are not necessarily safe.

Watch BNN Interview.

What we saw yesterday was more of the same.

I was flabbergasted that the plan was so light on details. They have had 3 months to put something together and the best they could deliver is a 7-page fact sheet.

In addition, the plan seemed scattered. It was reminiscent of the original 3-pager for the TARP. Say you will do many things, then figure out later what to do.

I was particularly disturbed by the following remark by the Treasury Secretary: “We believe that the United States has to send a clear and consistent signal that we will act to prevent the catastrophic failure of financial institutions that would damage the broader economy.”

Huh? “clear and consistent”?, you gotta be kidding.

There are two ways to translate this. First, he knows more than we do and he is telling us that our financial system is insolvent. Second, it is fear-mongering to get support for this (as well as the so called ’stimulus’).

Here my take on the positives and negatives.

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Image courtesy of flikr/Bill HR

TED2009 bloggers provided live coverage, including a digest of Twitter dispatches, from Professor Dan Ariely’s February 7 talk at the TED2009 conference.

Ariely shared his research findings regarding cheating, demonstrating the dangers of many people cheating just a little bit, and explained why it can be easy for people to justify cheating to themselves.  Learn more about Ariely’s findings from this piece on Wired.com.