Central Perk: 28 mar. 2011

luni, 28 martie 2011

Mish's Global Economic Trend Analysis

New Rule: Banks Exempt from New Mortgage Rules
Holy Grail of Investing
Misguided Views of Libertarian Economics and the Alternative "Regulation" Model

New Rule: Banks Exempt from New Mortgage Rules

Posted: 28 Mar 2011 06:09 PM PDT

Long awaited FDIC "skin-in-the-game" mortgage rules are out. Amusingly, banks are largely exempt from the new rules. On one hand it's hard to make this stuff up, on the other hand it seems laughably easy to believe. My ears say the proposal sounds like it came straight from "The Onion".

Please consider FDIC's plan for 'skin-in-the-game' loans

Federal regulators drafting tighter underwriting standards for mortgages are planning to exempt banks from a key rule if they sell loans to two seized mortgage-buying giants.

The long-awaited proposal is due to be publicly released by the Federal Deposit Insurance Corp. Tuesday, and the proposal was obtained ahead of that by MarketWatch. At issue is a provision in the Dodd-Frank Act that requires banks to have "skin in the game" — namely, by retaining 5% of the risk of loans they package and sell.

The goal is to eliminate what had been a problem underlying the financial crisis, where lenders packaged and sold subprime mortgages of dubious quality. But lawmakers who drafted the legislation also included a measure that would exempt certain high-standard mortgages from the risk-retention rule if their loans met certain high underwriting standards.

According to the proposal obtained by MarketWatch, loans sold to mortgage-refinance giants Fannie Mae and Freddie Mac would carry no risk-retention requirement as long as the mortgage giants remained in government conservatorship. Fannie and Freddie were both taken under conservatorship in September 2008, at the height of the financial crisis.

These loans wouldn't have to meet new strict underwriting standards for exemption set out in the proposal, but they must already meet underwriting standards that Fannie and Freddie generally require. Roughly 90% of all new loans today are sold to Fannie and Freddie.

"New Rule" Math

90% of loans are sold to Fannie and Freddie . Thus, 90% of loans will be exempt from the new rule.

90% seems like a high number and it is. However, why would banks accept any "skin-in-the-game" risk, when they can easily dump all the risk onto taxpayers via Fannie and Freddie?

Clearly, the effect of the new rule and its exemption will put upward pressure on the already astronomical percentage of loans going to Fannie and Freddie.

If the intent of this regulation is to get someone other Fannie and Freddie back in the mortgage business it will fail. If the intent of the regulation is to force more risk on banks, that will fail too.

If you are unemployed, look on the bright side. The FDIC will no doubt need to hire a few extra "regulators" to enforce this "brilliant" piece of regulation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Holy Grail of Investing

Posted: 28 Mar 2011 12:01 PM PDT

Reader "David" wonders why he went wrong in the last two years and asked me to do an article on the "Money Trail" to help him understand why.

David writes ...

Hello Mish

I am not stupid but based on what has happened with the stock market, I certainly feel stupid. I realize that my inability to profit over the last two years was due to a lack of understanding about the money trail that the FED creates.

Have you ever thought about building a visual representation of the money trail from step 1 of the FED actually buying bonds to where that money goes and then to where that money might go?

I would think if I had a better understanding of the money trail and the money changers, maybe, just maybe, a little guy like me might be able to be more successful in investing.

There is No "Holy Grail"

Hello David. You are not asking for a "Money Trail" but rather the "Holy Grail". It does not exist, especially over short-term time horizons.

If the Fed could prevent stock market declines, the S&P 500 would never have hit 666 in the first place.

If the Japan could prevent plunges the Nikkei would not be down 75% 25 years later.

We are all Guessing

The idea that there is a "money trail" that will tell you what to do is fallacious. Discard it.

People are selling all kinds of ideas. The fact of the matter is simple: They don't know, and I don't either.

However, I can tell you with reasonable accuracy whether the market is historically overvalued or not. On that, please consider a recent pair of articles.

Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It's Far More Likely Than You Think

Anatomy of Bubbles; Negative Returns for a Decade Revisited; Is Gold in a Bubble?

No One Can Possibly Know

Bear in mind that one of the best market analysts and authors I know says the Fed will "print and print and print" and the U.S. stock market bottom is in.

He may be right. However, I can assure you he will admit that he does not "know" either (and he would be the first to admit it).

No one can possibly "know". This is uncharted territory. What will China do? Congress? The ECB? The Bank of England? The Bank of Japan? How will sentiment change?

That latter question is the crucial one. Stock prices move much further and much faster on sentiment than on actual earnings. The willingness to bid PE ratios to the moon is a measure of sentiment.

PE ratios go through cycles of expansion and contraction. During expansion cycles it is difficult to do anything wrong. During major contraction cycles it is difficult to do anything right. However, there are counter-cycles. I believe we are in the mother of all counter-cycles one now.

History is certainly on my side, but no one "knows" when the current state of massive overvaluation matters.

What Country Blows Up First?

We are all guessing what major country blows up first. Many think the US and the US dollar with it. I happen to think Japan. Ironically, that means that Yen-Hedged investments in Japan are at bargain basement prices.

However, you can find any opinion you want.

I am bearish on China, others aren't. For my China outlook, please consider World's Biggest Property Bubble: China's Ghost Cities Revisited; 64 Million Vacant Properties

Tomorrow's Gold

The closest thing to a "Holy Grail" is to buy reasonably priced things totally and completely out of favor (gold and energy in 2000 are perfect examples) and hold on to them until they are fully valued. However, things can stay out of favor for decades then take decades longer to reach full value.

It is not easy to hold on! Heck it's not easy to recognize the turn in the first place. Moreover, mistakes are costly.

The best book on explaining the concept of buying things out of favor is one of my favorite books of all times and number one on my recommended reading list: Tomorrow's Gold by Marc Faber.

Unfortunately, the current state of affairs has little that one can call exceptionally undervalued. Stocks, bond yields, energy, and commodities all seem hugely overvalued and prone to a sharp pullback.

Yen-hedged Japanese equities are the closest thing to "value" that I can find. Japan is hugely out of favor and has been for decades. When or if that trade works, I have no idea.

I like gold but it is certainly not the bargain it was at $250 in 2000. Is it fully valued? The answer depends on what central banks do and how sentiment plays out. The former suggests gold can run a lot longer. The latter? I don't know. Nor does anyone else.

Sometimes the best thing to do is nothing (taking a significant portion of cash to the sidelines). I am reasonably confident that for most things, far better opportunities await those who are patient.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Misguided Views of Libertarian Economics and the Alternative "Regulation" Model

Posted: 28 Mar 2011 01:25 AM PDT

One of the brightest regulars who comments on my blog has a totally distorted view of what Libertarian economics is all about. Unfortunately, I am quite confident that her view is mainstream.

Tin Hat writes ...

Here is the core premise behind libertarian economics:

The private business sector will put ethics, morality and public employee good above profits, shareholders, bonuses, golden parachutes and CEO compensation -- IF they were completely unfettered from any government imposed rules, laws, and regulations.

And IF the private sector entity failed in its fiduciary duty to the public, Main Street would rise up and kick them out.

That's Corporatism.

Regulation Model vs. the Libertarian Model

Sorry Tin Hat but that is not what Libertarian economics is all about or stands for at all.

First let's ponder the "Regulation" Model.

The "Regulation" model assumes Barney Frank (feel free to substitute your least favorite representative) will write responsible legislation and Congress will stop taking bribes for legislation they want.

Here are some examples of what the regulation models has wrought.

The regulation model sponsored Fannie Mae and Freddie Mac.
The regulation model gave huge tax breaks written by GE for GE
The regulation model encourages flight of jobs overseas
The regulation model supports corrupt public unions that have bankrupted cities and states
The regulation model gave us the Fed and its bubble blowing policies
The regulation model gave us thousands of affordable home programs all of which drove up the price of homes
The regulation model provides hundreds of billions of dollars of student loans the effect of which is to make those graduating from school now, perpetual debt slaves.
The regulation model gave us a healthcare bill we literally "had to pass to find out what was in it" according to Nancy Pelosi. Congress did not write that bill, it was entirely written by a consortium of special interest lobbyists.

I can provide thousands of more examples of what the "regulation" model has given us.

The very best financial regulation will ever do is prevent the last crisis. However, we are not going to have another housing bubble for decades. At worst, and far more likely, new financial regulation is highly likely to sow the seeds of the next crisis.

Regulation sponsoring Moody, Fitch and the S&P did just that. So did thousands of affordable housing programs. So did the Community Reinvestment Act. So did sponsorship of Fannie Mae and Freddie Mac. So did HUD. So did thousands of financial loopholes. And most importantly so did the legislation that created the Fed and FDIC.

The legislation model has been disproved in spades yet otherwise intelligent people keep clamoring for more of it as if we could find, hire, and listen to some "all-knowing" super-regulator that can identify the next crisis in advance and write timely legislation that the likes of Barney Frank would deem wise and pass.

The idea is ludicrous given we cannot even get consensus about what to do after the housing bubble has already burst. Also bear in mind the Fed is supposed to regulate the economy. How well did that work out?

It's preposterous to believe that Congress can identify and appoint some sort of super-regulator because no such person exists in the first place.

Sure, many people identified the housing bubble in advance. I did, so did other bloggers and so did people like Elizabeth Warren.

What good did it do?

I am quite certain a huge number of bight people can identify the next crisis. Indeed they already have. Some people are calling for hyperinflation, some are calling for deflation, some are calling for stagflation, some think Japan will blow up, and others think peak oil will send oil prices to the moon. Some think printing money is a good idea, others don't.

Lots of people are going to be right because there are lots of people in every one of those camps, and one of them is guaranteed to happen. When one of them does, many people will say "I told you so".

So who do you want the Fed to believe?

I don't want the Fed to act on any of those calls because there should not be a Fed in the first place. The Fed failed as a regulator, again, and again, and again.

Libertarian Economic Model

The Libertarian model does not end all regulation. Indeed the basis of the Libertarian economic model is that we need to protect private property, prevent fraud, protect human rights, and give everyone an equal chance under the law.

Had we done that, and "just" that we would not be in this mess.

In the Libertarian model, Fannie Mae and Freddie mac would not have existed. Nor would there have been a Fed keeping interest rates too low, too long. Without the loose lending model of the Fed, and without banks being able to lend more money than they have, the housing securitization model that blew up would not have happened or if somehow it did, it would have been less problematic by orders of magnitude

In the Libertarian model, there would not have been government sponsorship of the rating agencies Moody's, Fitch, and the S&P.

In the Libertarian model the construct of "Too big to fail" does not exist. Indeed, allowing failure is one of the tenants of the Libertarian model.

Note that something like Glass-Steagall would work in the context of a Libertarian model because its purpose is to put a firewall to prevent fraud. Pollution laws would still be needed to protect private property. Child labor laws would still be needed to protect human rights. Public safety laws are fine. No one would be allowed to yell "fire" in a movie theater.

If you want to take that model and add some social safety nets, all but strict Libertarians might agree.

Failure of Regulation

All the corporatism, all the bank failures, the credit bubble, the housing bubble, and all the warmongering is a direct result "of" regulation that Libertarian economics has nothing to do with.

Indeed most of those those things could not happen in a Libertarian model. To the extent that any of them could happen, they would not occur to the same magnitude.

Libertarian Solution

The solution is to throw away all legislation except what is needed to protect private property, prevent fraud, protect human rights, and give everyone an equal chance under the law.

That means all tax breaks that favor GE as well as all tax breaks for homes, have to go. Tax code should not favor any group or thing. Drug imports from Canada would be allowed in this model and warmongering would stop. Subsidies to home builders would stop. Subsidies for ethanol would stop. In fact, subsidies for everything would stop.

Government would not be allowed to spend more than it takes in, banks would not be allowed to lend more money than they have ownership of, and the Fed would be abolished.

Instead, those in the regulation camp want to patch a million misguided pieces of legislation that should not even exist, and worst of all they expect Barney Frank to get it right.

One model has been tried and failed a million times. One model has never been tried.

Yet misguided souls want more of the model guaranteed to fail. Quite frankly it is preposterous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

SEOmoz Daily SEO Blog

Information Architecture, Faceted Navigation & Duplicate Content (Oh My!)

Posted: 27 Mar 2011 01:53 PM PDT

Posted by Hannah Smith

Hello there. You look lovely. I’m Hannah and I'm an SEO Consultant for Distilled. I'm British which means I spell things strangely sometimes, we like to make things more complicated than they really need to be here. This is my first post for SEOmoz, I hope you find it useful.

Whenever I kick off a new project with a client, they are typically very interested in how I might be able to get them some lovely links. They’re also pretty keen for me to create them some lovely shiny content. Sadly, most aren’t too interested in information architecture. Many don’t realise how important it is.

To be honest, up until fairly recently I was one of those people. Most of the sites which I had worked on previously were in the insurance niche. Now typically these sorts of sites don’t really have duplicate content issues. Likewise I had never encountered any problems with indexation. I secretly wondered what those other SEOs were whining about (bunch of big girl’s blouses).

But then... A rude awakening.

I’ll not name names (that’s just not nice) but I had a client who were part-way through a brand new site build. I figured the technical part of the project would be pretty straight-forward; after all when someone’s building a brand new site they’re bound to have given some serious thought to information architecture right? ...Right? ...Bueller? ...Bueller? ...Anyone?

Sadly not. The proposed architecture was riddled with so many issues it made my head spin. They would either have a lot of duplicate content or perhaps little or no content – it wasn’t quite clear which (and neither scenario made me jump for joy). They were likely to struggle with indexing. There were gaps you could drive a bus through in their landing page strategy. Their site was going to be a big old mess.

There was much lamenting, wailing, tearing of hair and gnashing of teeth... Then I calmed down.

What follows is a collection of the challenges I faced and how I dealt with them, plus definitions and explanations which I found useful when trying to fix these issues... Hopefully it’ll save you some pain. Once more unto the breach, dear friends...

The Challenge... No one cares but me

Yep, I came up against a whole heap of resistance when trying to fix these issues. No one really understood or cared about the situation. There was a lot of talk about how important the customer journey was; there was a lot of talk about brand experience – but SEO? Hmmm, well it wasn’t really getting much of a look in. The CMS being used for the build was apparently ‘SEO-friendly’ and there would be a sitemap, so the general consensus seemed to be that we were ‘all good’ for SEO thanks.

The Counter-Challenge – Education & Myth Busting

In my experience if you want to facilitate change, you’ll need to be prepared to do some serious ‘selling in’ of your ideas. But, the first step is to help people understand what the issues are, and as such, education is key. So, why should people care about information architecture?

Here’s what I went with...

Information architecture (or how the information on the site is organised) is important from a search perspective in two key ways:

It enables the search engines to index all of pages on the site
It provides suitable landing pages for all of the keywords (or search phrases) that you might wish to rank for

Without sound information architecture your site may not get indexed properly, and if a site isn’t indexed, then clearly you’ll have no chance whatsoever of ranking. Likewise, without suitable pages to rank for your selected key phrases, again, you’ll struggle to rank for those keywords.

From an SEO perspective we’re also seeking to ensure that we’re not creating duplicate content (i.e. the same content available via more than one URL) – as ultimately this causes issues with ranking as you have more than one page from your site competing for the same search result.

Finally, as links equal strength when it comes to SEO we’re also looking to ensure that we have strong internal linking within the site in order to maximise the strength of our most important pages (i.e. the pages which we really want to rank). Of course, external links will play a major part here, but ensuring we’re passing internal ‘link juice’ is also important.

I also had to do a little myth busting. The most pervasive of which was the mythical power of the sitemap. There was a strong belief that the sitemap would cure all ills, that provided it included all the pages they wanted to get indexed, they’d duly get indexed and everything would be golden. I’m sure I don’t need to tell you that this isn’t the case. Sure sitemaps are helpful, but they aren’t a cure-all and I certainly wouldn’t recommend that anyone rely on a sitemap to get their content indexed. More importantly even if the sitemap assists with indexation, there was still the issue of providing suitable landing pages for all of the keywords which they wanted to rank for.

Key Takeaways

If the search engines can’t index your content you will not rank.
If you don’t have a page for each keyword (or at least each sub-set of keywords – you can of course target more than one keyword per page), again you’ll struggle to rank.
A lack of rankings means a lack of traffic. A lack of traffic will likely mean a lack of revenue.
A sitemap will not fix this.

So, by this point they were finally pretty much onboard with why this was important. Yay! Time to sell in the solution (cue fanfare) - Faceted Navigation!

...Wait, what? What is that?

Faceted Navigation

A faceted navigation allows users to select and de-select various facets in order to search / browse for what they are looking for. As such, it allows visitors to utilise multiple navigational paths to reach their desired end goal.

Whilst that's a fairly useful definition it's probably easier to understand via an illustrated example:

Let’s imagine that you’re shopping for a t-shirt. You might want to browse t-shirts by size (i.e. only those in your size), by colour, by designer, by price etc. To find the t-shirt you want it would be really handy if the website you were browsing allowed you to narrow down your search using some or all of those facets. It might look a little something like this:

Now I think this is pretty darn lovely from a user’s perspective. Additionally, the flexibility this sort of structure gives you helps you to solve the ‘page for each keyword / sub-set of keywords you want to target’ issue. Whilst it may look fairly simple on paper there are quite a few things to think about when tackling this. Here are some of the things I came up against, and how I dealt with them...

1. How many facets do you need in order to get everything indexed?

Ideally your deepest facet should contain no more than 100 products. This will assist you greatly in getting all of your products indexed. (NB whilst most SEOs are comfortable that the search engines will crawl more than 100 links on any given page, I prefer to stick with 100 product links as most websites will have a number of navigation links on every page in any case. Sticking to a maximum of 100 product links will help keep the total number of links on any given page at a sensible level).

By ‘deepest’ I mean however many folders down you decide to go. Let’s stick with hannahstshirts.com as an example – here you may decide to use the following facets:

Womens
T Shirt Type
Designer

An example deep facet page: hannahstshirts.com/womens/v-neck/a-wear/ - on this page, visitors would see all women’s v neck t-shirts from A Wear.

Now this type of page should have no more than 100 products on it, so provided that none of your designers offer more than 100 of a particular style of t-shirt then this is as deep as you need to go. If this isn’t the case you’ll need to add in another facet – e.g. colour.

2. Facets versus filters

There will probably be further search / browse options which you want to offer visitors to your site that you don’t really care about from a search perspective. For example – it’s really useful for visitors to be able to browse only items which are available in their size; but you may decide that you’re not particularly worried about the search engines indexing these pages. That’s where filters come in. These filters should be implemented using JavaScript or no-indexed to prevent these pages from getting indexed.

3. Do you have pages to enable you to rank for all of the keywords that are important to you?

This is really linked to the previous two points. Again using the example above – if your facets were Womens, T-Shirt Type and Designer; but you had a burning desire to rank for the term ‘white women’s t-shirts’ – then bad news, friend. As colour is a filter rather than a facet you don’t have an indexable page for that phrase. If you want to rank for these sorts of keywords you’ll need to make colour a facet, not a filter.

4. Pagination

At the top level e.g. ‘Womens’ you’ll return a number of pages of results. Now really you don’t want these pages indexed. Page 2 onwards of a given set of results is rarely an awesome result for a user; plus of course you’ll effectively be having more than one indexed page competing for the same keyword in the SERPs. It’s bad all round. Therefore use Ajax or JavaScript to display page two and onwards.

5. Sorting

Likewise, you may decide to offer sorting options – e.g. sort by price, sort by rating etc. These are great for users, but a potential duplicate content love fest for search. You don’t want the various sorted versions of the same page being indexed separately, so use JavaScript or Ajax.

6. Duplicate Content

Ok, so we’ve dealt with pagination and sorting options but we’ve still got duplicate content issues? Why?

Because there are multiple navigational paths to a user can take, if you’re not careful there will be duplicate URLs for the same content . For example if you wanted to see all of the women’s white t-shirts by Bench you could go via:

www.hannahstshirts.com/womens/v-neck/bench

www.hannahstshirts.com/womens/bench/v-neck

Plus, depending on your site structure you might also be able to go via:

www.hannahstshirts.com/bench/womens/v-neck

www.hannahstshirts.com/bench/v-neck/womens

www.hannahstshirts.com/v-neck/bench/womens

www.hannahstshirts.com/v-neck/womens/bench

Uh oh. Imagine how many permutations of this you’ll have across the site. Bad times. You’ll need to make sure that no matter which route a user takes to reach a particular page, there is only one indexable URL. Now hopefully, you’ll either be custom building something awesome, or be using a CMS which will allow you to do this. If not? You’ll have to 301 all the variants back to one indexable URL.

Right, we’re nearly there, I promise. If you’re still reading then you definitely deserve a cookie. Possibly two.

Content’s Still King (well, nearly)

So, let’s imagine that you’ve finally got there. You’ve got a lovely looking faceted navigation. You’ve got all of the keyword targeted pages you need. You’ve defeated the duplicate content demons. You are made of win.

Don’t stumble at the final hurdle. Despite your best intentions, you still have a site with a lot of pages which look quite similar. Lists of products which are available on a variety of other pages. Doesn’t feel all that unique, huh? You’ll need to create some unique content for each of these pages, and the more important the page is to you; the more awesome this content needs to be.

Key Takeaways

Use as many facets as you need to ensure that your deepest faceted pages contain 100 products or fewer AND to ensure you have all the pages you need to target the keywords you want to rank for.
Pagination and sorting options can cause duplicate content – use Ajax / JavaScript to avoid this.
No matter which route a user takes to reach a particular page there can be only one (think Highlander) indexable URL
Remember to create unique content for each page – the more important the page, the more awesome the content

More Helpful Stuff...

If you’re wrestling with faceted navigation right now, you might find our handy cheat sheet useful – this was distributed post the Pro SEO conference in October – you can download the PDF here.

Plus, you might also like to check out Rand’s Whiteboard Friday on Faceted Navigation.

Failure image credit

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Tonight: President Obama Speaks on Libya

Your Daily Snapshot for
Monday, March 28, 2011

Tonight: President Obama Speaks on Libya

Tonight at 7:30 p.m. EDT, President Obama will deliver an address at the National Defense University in Washington, DC to update the American people on the situation in Libya, including the actions we've taken with allies and partners to protect the Libyan people from the brutality of Moammar Qaddafi, the transition to NATO command and control, and our policy going forward.

Watch live at 7:30 p.m. EDT at WhiteHouse.gov/live.

Photo of the Day

President Barack Obama talks with Rep. Steny Hoyer, D-Md., left, and Rep. C.A. "Dutch" Ruppersberger, D-Md., in the Situation Room of the White House, March 25, 2011. The President briefed a bipartisan, bicameral group of Members of Congress, many of whom joined via conference call, on the situation in Libya. (Official White House Photo by Pete Souza)

Seth's Blog : Initiative isn't given, you take it

Initiative isn't given, you take it

The amazing thing is that unlike taking an apple or a chocolate bar, there's no loss to the rest of us. After you take it, we all benefit.

There's one other thing you can take at work, easily and with approval: responsibility. In fact, they sort of have to go together. One without the other is a mess.