Standard and Poors 500 Index going to 100?

My correspondent Ted Kavadas writes great stuff at Prosperity by Pen, which is on the blogroll. He has an article entitled "A S&P500 Target of 100? Impossible, Improbable, or Impending?" It relies on the fact that there is little technical support between recent S&P 500 Index lows and 100, and little in the way of current earnings to prevent the index from crashing to such a level.

It's interesting as his work always is. And from the point of view of gaining publicity for an idea it never hurts to be extreme . . . wasn't Harry Dent calling for Dow 45,000 before he decided that the Dow has strong support down around zero? (I did this myself once, calling for an Indonesian Rupiah at 10,000 to the dollar at a time when it was around 1,700 -- but I was not extreme enough as it ultimately went north of 15,000)

The first material critique I make to the argument is that markets do not look only at current year (year 1) earnings, but look beyond the earnings trough, whether that is this year or next year or whenever. Market participants can be wrong about that and need to reset expectations, but there is no way they drive the S&P to 100 based on current year earnings estimates, without other things happening (e.g. the financial system collapses despite all efforts, terrorism hits us at home in a spectacular way, Obama embraces Chavez-ism.)

Second, market participants have already largely discounted the work product of the analysts, who have proven again that as a group they are no use under deeply cyclical conditions. The shock value of their downgrades is more limited now. Certain analysts who have made particularly good calls are exempted from the criticism that they don't know how to analyze in this economy, but even they are finding it hard to shock the market at this point.

Third, given the cyclical conditions, participants will prefer to consider earnings over a longer segment of a full cycle than just one year. I have heard of people calibrating valuation to an average over ten years. No one can forecast year 10 earnings for any company, but if investors are finding this approach works for them that's great.

Fourth, and maybe the big one. Let's not forget that current earnings are heavily penalized by non-cash charges. This is the central problem of our markets today, the fact that charges required by mark-to-market accounting have demolished the capital of the financial system, requiring markdowns and charges on assets even if they are performing. It's madness, but it's the system we have now. If you are of the opinion, as I am, that much of this capital destruction is unreal and unnecessary, then true earnings, though depressed, are still higher than reported. It is not only financial companies that are taking these charges because they are forced to. Other companies are "kitchen-sinking" their earnings in order to get out whatever bad news they could conceivably ever have at a time when markets are inured to bad news. Hence Nike recently wrote down Umbro, which they bought mere months ago and now declare impaired, taking a heavy hit to earnings in the current period. This charge is wholly discretionary. They did not have to take it now or probably ever. This is why some participants prefer cash flow to manipulable reported earnings. Earnings lie, cash flows tell the truth.

Chinese Business Naming: Baby Banana Fettewql, etc.

I once met with a company in China. It had a great business plan for its proprietary skin care products for men, terrific sales pitch to go with the products, attractive product design and logo. Altogether pretty credible, until you got to the name. Who told them it was a good idea to pick a Chinese name that transliterates to something that sounds exactly like "Lady Man"?

A lot of regular guys feel mildly conflicted about using any product beside the traditional soap and shaving cream on their skin. Offering them Lady Man brand products is going to queer the deal, probably for good.

The Lady Man men have an elaborate explanation of how they came up with their names, trademarks, and trade dress, all of which is really beside the point. They have made the mistake of being unintentionally ridiculous in a major world language. Of course they are not the first or the biggest to do so. Many of us have heard how General Motors struggled to sell Nova’s in Latin America at a time that it apparently had no Spanish speakers on staff to point out that “no va” is Spanish for “doesn’t go.”

There are hundreds of world languages, and no doubt almost everything is ridiculous to some linguistic community or other. For the brand manager it might be OK if your name is smutty in Sinhalese, hilarious in Hittite, or politically incorrect in Papuan, as long as it is OK in all the majors. On the other hand, if you sell Iran’s market-leading detergent Barf, you don’t worry because your customers do not know or care why Americans think that is so funny.

But back to Lady Man. This is one small particular instance of problematic product/business naming in China, where companies are thinking big, trying to graduate from producing dollar-store fodder and white-label products for foreign brand owners to developing international brands in their own right. They need to know that getting the right name is the first and most important part of this, because you are not a brand unless customers ask for you by name.

Some Chinese companies are going international with their Chinese name, transliterated into foreign script -- for example Huaxin Cement, Hai'er Appliances, and Tsingtao Beer. This follows the example of many Japanese and Korean competitors (e.g. Toyota, Samsung). It takes confidence and a willingness to hear foreigners mispronounce your language. It is working pretty well for Hai'er as they establish their brand worldwide.

Other Chinese companies venture out into the wide world with their Chinese name translated into foreign language -- Snow Lotus Cashmere, White Cat Laundry Detergent. These brand names can seem quaintly "Chinese-y" to foreign ears.

It is common for companies and brands all over the world to bear the name of their founder or animating spirit, and this seldom presents any problems. With the growth of individual enterprise and entrepreneurial culture in China, we can expect to see more labels and brands bearing the name of the real people behind them. Yue Sai-Kan had turned herself into a brand before the personal branding consultants in the U.S. ever thought of such a thing. Han Feng, the Shanghai-based fashion designer, is my favorite example in the fashion industry, one of the businesses I know best.

For fashion and allied businesses such as cosmetics and salon and spa services, the Chinese consumer values foreign experiences and foreign brands far above homespun Chinese, so the smart domestic entrepreneur picks an evocative personal name, place name, or foreign language word. In big city malls, the fashion brand Sao Paulo is side by side with Only, Less, and a Korean competitor that rejoices in the name of Mojo S. Phine NY. But it remains to be seen whether Sao Paulo the Chinese fashion brand can gain a following in Sao Paulo the Brazilian business capital.

How about using the Chinese proprietors' names together with foreign language words? Cindy Luo's label Omnialuo reaches for the classics -- the name of her line is literally "all things Luo" in Latin. Will Omnialuo mean anything to modern consumers in the western world? It just might, if they can learn to say it.

But from there things go downhill in some significant respects.

For purposes of this discussion we are concerned with legitimate business, rather than the products of intellectual property theft, made-in-China copies of foreign products with stolen brands and trademarks that make up 7% of global branded consumer product sales according to one estimate. This is criminal activity, understood as such by all concerned.

But in China and even in China's near-abroad, many Chinese companies sell own-design products under close facsimiles of well-known foreign brand names and trademarks -- there are Prader, Pal Zingeri, Dunhïll, and dozens of others, including countless variations on the name and trademark of Valentino, the leading IP victim according to my research. The foreign brand owners object to this abuse of their IP too, but the purveyors of this stuff go about their little activities unmolested. To the extent that these near-knockoffs make it into mainstream outlets such as Isetan in shopping Meccas like Kuala Lumpur, the IP originators can legitimately complain of real displacement and lost sales.

There are facsimile trademarks that rely for their effect on the font style rather than the actual names. In Guangzhou I saw a Frognie Zila store with the name rendered unmistakably in the font style used by Ermengildo Zegna.

One other case that fascinates me is the "Polo" name. There once was a bright, ambitious chap from the Bronx named Ralph Lifshitz who understood the value of names. He changed his own name to Ralph Lauren and called his fashion lines Polo. Ralph has tried to claim a proprietary right to the name and has even disputed the use by the sport's governing body of a polo player logo in its licensed apparel. But because Polo the sport has been around longer than Polo the brands, there is a little space for others to squeeze into, especially outside the U.S. where Ralph and other litigious parties are less likely to prevail. So in China, "Polo" has become a name applied indiscriminately and in dozens of variations to every kind of luggage and leather goods – “New York Polo”, “Polo Club”, “Polo Golf” -- if you can’t identify fifteen different Chinese Polos at a baggage carousel in any mainland airport, I’ll eat a polo mallet. The original and best Chinese Polo is simply Polo, and the proprietor is a friend of my family. His leather goods are excellent and his business operations in Beijing and Guangzhou are substantial. If his brand name did not bring him into conflict with industry heavyweight Lifshitz, er, Lauren, he would have a sure shot at success in international markets.

If abuse of foreign trademarks is a concern, abuse of foreign language is just a laugh. Visitors to China derive hours of amusement from the weird and wonderful uses to which random foreign letters, words, and texts are put there. In the men’s room in Jinan’s airport is a sign that says “Protect Environment Saving Bumf.” I don’t know what Bumf is, but sure, let’s save it. And while we’re at it let’s also save Chinese brand owners some grief by letting them know that silly confections such as Marisfrolg, Baby Banana Fettewql, and Biemlfdlkk are probably not going to work at the Mall of America.

My father told me, “Don’t try to be clever sonny, just be yourself.” It is good advice, which many in Chinese industry lack the self-confidence to employ despite the good progress of Hai'er and others: Just be yourself. The Japanese are always and everywhere themselves. At some early stage, Toyota decided to be Toyota rather than Forb or Fiak (or Fiaklfdlkk). Shiseido did not try to pass itself off as Channel. Yohji Yamamoto did not change his name to Johhny Valentino. Would it be too much to ask our Chinese friends, in just this one respect perhaps, to look at the Japanese and take a page from their book?