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jeudi 15 septembre 2011

Market research : the power of visual Metaphors elicited by consumers

Drawings, pictures and photos tell us more than a long speech or a flow of figures. This is the  magical power of visual metaphors to explain complexity. Few years ago, we built a new method, "l'Album on Line" focused on this approach. See also our post on the small world (university, students and professor).

And sometimes, the financial services are more creative than the market research to communicate sophisticated facts and results. 

Just have a look at the drawing below, a surprising JP Morgan’s use of Lego. The question ? "Who should pay for current and future sovereign/bank bailouts?" Michael Cembalest, the JP Morgan's analyst is happy to enlist his 9-years old son, Peter, for help with visualizing this complex relationship.

Here you get a representation of the cirisis in the European Monetar Union with a co-creation between Peter, a naive boy and an expert, Michael. The Lego Minifigures are used as a medium, in fact they are real visual metaphors. The result is the slideshow below.

 The metaphors are explained by Reuters blogger Felix Salmon and reported by Synovate, a market research institute. 
  1. "The toreador in a floppy hat, and the F1 driver with his helmet, represent Spain, Italy and the rest of the Euro Periphery.
  2. The three men with helmets, shields, and medieval weaponry represent the CDU, CSU and FDP parties in Germany.
  3. The blue-and-white sailor boy is Finland. Obvs.
  4. The woman with an oversized carrot and her friend in overalls with a shovel represent the Social Democrats and Greens.
  5. Wotan represents the Bundesbank.
  6. The piggy bank is the IMF.
  7. The grey-haired Banque chap is the ECB.
  8. The chap in the red bib is Poland.
  9. The artists are France.
  10. The angry chef, the sweeper with a broom, the airline pilot, and the rest of the motley crew at bottom left, represent EU taxpayers in Core countries.
  11. The storm troopers are the EU Commission and Euro Group Finance Ministers, chaired by Jose Manuel Barroso and Jean- Claude Juncker.
  12. The monocled banker and his assistant are EU bondholders and shareholders."

Now, the financial translation of this drawing given by Michael Cembalest, JP Morgan’s expert (quotes). Take courage...If you need the complete report, click here.

"[1] Spain, Italy and the rest of the Euro Periphery believe the ECB should buy bonds, prevent spreads from rising and give them time to implement austerity plans. Italy is the flash point, with sovereign debt equal to 25% of GDP rolling in the next year, plus 100 bn in Italian bank debt. Italy has undergone austerity before (1990’s), but that was when the promise of EMU integration was the carrot. This promise has proven to be illusory; Italy grew faster before joining the EMU."
[2] The CDU, CSU and FDP are the 3 German parties which control the Bundestag and are against doing more than what Germany has already committed to. Minority factions within all 3 are against proposed EFSF expansion in size and scope. The CSU circulated a paper calling for an ‘insolvency procedure” for Eurozone sovereigns instead of an open-ended transfer union. The 3 parties seek greater labor and pension reforms in the Periphery, and are strongly opposed to premature introduction of Eurobonds. If more than 440 bn is needed, they would begrudgingly accept more ECB buying."
[3] By requiring collateral for its share of EFSF exposure to Greece, Finland raised the ante on France and Germany, whose banks have much more exposure to the Periphery. Finland wants the bailout to reflect actual exposure, rather than ECB capital weights. The Dutch now want the same treatment.
[4] The Social Democrats and Greens are opposition parties in the Bundestag, but if an early election were held today, polls suggest they would be in control. Both parties support expanding the EFSF beyond 440 bn if needed, and may accept fiscal federalization if necessary to preserve the EMU.
[5] The Bundesbank is the ultimate protector of German monetary and fiscal interests, and is very concerned with steps already taken to deal with the crisis. Their strong preference would be for EMU countries looking for aid to first implement austerity and pension and labor market reforms (i.e., German Reunification steps). Bondholder losses (“creditor participation”) should take place before shareholders are subsidized by taxpayers.
[6] The IMF has taken a mostly passive role, lending money and overseeing austerity plans in Greece that are failing miserably. Ken Rogoff at Harvard refers to their role as “sycophantic”. Comments on bank shareholder dilution by new IMF head LaGarde may suggest a change in attitude (hence the dotted line).
[7] The European Central Bank is purchasing Spanish and Italian bonds in the secondary market to bring yields down with the intention of facilitating better primary auctions. This did not work in Ireland, Greece or Portugal. Spain and Italy yields declined by 1% once the ECB began buying, but have since drifted higher. The ECB does not like its current role as fiscal agent, and believes that EU taxpayers should bear the cost of solving the crisis.

[8] Poland, after a long period of wanting to enter the EMU, is waiting for a clearer picture of who will bear the costs of the sovereign debt crisis. The Polish Finance Minster is calling for more ECB buying of sovereign debt, a much larger EFSF, and warned that Poland will not want to join the EMU until the Euro is earthquake-proof. ""The fundamental problem of the Eurozone is not an economic but a political one," he explained. "The choice is: much deeper macroeconomic integration in the Eurozone or its collapse. There is no third way."

[9] France is relying on the ECB to handle what the EFSF cannot. While France supports greater fiscal
federalization, if this were done via further EFSF enlargement, it could risk France’s AAA rating.
[10] EU taxpayers in Core countries would be affected by various efforts to federalize costs of the EMU sovereign debt crisis, either through EFSF expansion, or introduction of Eurobonds. Lots of arrows point in this general direction.
[11] The EU Commission and Euro Group Finance Ministers, chaired by Jose Manuel Barroso and Jean-Claude Juncker, support ECB bond buying and fiscal ederalization in a variety of forms. They oppose Franco-German incrementalism, but may not have enough power to change it.
[12] So far, EU bondholders and shareholders have been subsidized by the ECB and EU taxpayers. The atest EU bank stress tests called for an additional Eur 2.5 billion of capital. This is not a misprint."

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