Mish's Global Economic Trend Analysis

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S&P Warns Greek Bailout Plan Constitutes Default; Greece at Risk of Missing June Target; Spoon Feeding will Continue Until Greece Dies Posted: 04 Jul 2011 11:52 AM PDT Before receiving the next bailout tranche, Greece May Have Missed June Primary Balance Target Greece is at risk of missing a key budget target in June, European Union experts said in a report, a sign of the uphill struggle the country faces as it tries to get its deficit reduction plans back on track. The report, prepared by European Commission budget experts with input from European Central Bank officials and published over the weekend, says that Greece could miss its June target for its primary budget balance, a measure of the government deficit that excludes interest payments on outstanding debt. Government revenue faces "significant" shortfalls that have only partially been offset by lower spending and delayed payments, the report says. "As a result, the quarterly performance criterion on the primary balance could be missed already in June." Spoon Feeding will Continue Regardless of Shortfalls Short of telling the ECB, EU, and IMF to go to hell, nothing will stop the Plan to Spoon-Feed Greece to Death The original bailout was 110 billion Euros, now it takes another $85 billion (and counting). When the fire sale of Greek assets does not bring in enough money, the banks and IMF will place even harsher terms on Greece. Notice the plan to spoon-feed payments to Greece in 12 billion-euro bites while demanding "progress". This will ensure Greece is sucked dry (at fire sale prices) of any government assets worth owning by the time the "bailout" is over. Portugal, and Ireland should make note of the process. The same "bailout" plan will be used on them unless they tell the IMF and EU to go to hell. French Plan to "Save Greece" Constitutes Default The New York Times reports S.&P. Warns Bank Plan Would Cause Greek Default Greece risks being judged in default on its debt obligations if banks are forced to bear part of the pain, Standard & Poor's said Monday, suggesting that current proposals for rescuing the euro zone's weakest member may have to be reconsidered. In particular, a plan proposed by the French government and banks "could require private sector debt restructuring in a form that we would view as an effective default," S.&P. said in a statement. The rating agency also said it was cutting its long-term rating on Greece three notches deeper into junk territory, to CCC from B. A finding by the credit ratings agencies of default would also require the E.C.B. to impose discounts, known as haircuts, on the Greek debt it has accepted as collateral. That would inflict more financial pain on banks holding that debt. Euro-zone finance ministers agreed over the weekend to provide Athens with financing of €8.7 billion, or $12.6 billion, from the €110 billion bailout agreed to last year, to help the Greek government function through the summer. The new aid eliminates the prospect of a near-term default. But the finance ministers put off the question of how to provide a second bailout, reportedly valued at up to €90 billion, to keep the country operating through 2014, when it is hoped that Greece will be able to return to the credit markets. Nicolas Sarkozy, the French president, announced June 27 that French banks had agreed to a plan under which the banks would reinvest most of the proceeds of their holdings of Greek debt maturing between now and 2014 back into new long-term Greek securities. But Standard & Poor's said Monday that it "views certain types of debt exchanges and similar restructurings as equivalent to a payment default": when a transaction is seen as "distressed rather than purely opportunistic" and when it results "in investors receiving less value than the promise of the original securities." Both conditions would appear to be met by the French proposal, it said. Rating Agency Rollover Default Conditions It's a default if rollovers are distressed rather that opportunistic. It's a default if "investors receiving less value than the promise of the original securities" Point number one deals with the "voluntary" nature of the dealing. If banks roll over debt under duress, fearing bigger losses if they don't, the rating agencies will not consider that a "voluntary" rollover. Even if a voluntary rollover can be constructed, condition number two must still be satisfied. I fail to see how that is possible, at least without destroying Greece. Making Sense of the French Rollover Plan There is a nice article on Zero Hedge by Peter Tchir of TF Market Advisors called Making Sense of the French Rollover Plan The French proposal is slightly complex at best and convoluted at worst. Before digging into the specifics, let's look at what a true rollover would look like. If Participants agreed with Greece to extend the maturity AND reduce the coupon AND do it immediately, that would be a clear example of a rollover that benefited Greece. There are 3 key elements to a real rollover. The first is that they would agree to the rollover now. That would take away uncertainty. The maturity extension is the rollover, and the longer it is delayed, the better for Greece. The coupon on the new debt should be lower than the coupon Greece is currently paying. If all 3 of these criteria are met, and the new bonds are pari passu with the existing bonds, then I think everyone would agree that Greece benefits, the Troika would benefit, and the Participants would have made a sacrifice. We need to stop right there. What Tchir says is true, but since when is the plan to benefit Greece? Moreover, even if the plan was to benefit Greece, notice the key phrase "the Participants would have made a sacrifice. " A sacrifice implies "investors receive less value than the promise of the original securities". That in turn implies default, at least to the rating agencies. Tchir continues ... The French proposal, as we will see, potentially does not satisfy any of the 3 aspects listed – it is not immediate, the coupon will be higher than existing debt, and the maturity extension is linked to taking some debt out of the market, so it's not as clearly a benefit as the headlines make it seem. The ISDA credit derivative definitions for a Restructuring Credit Event have to meet 2 tests. The first part of the test is straightforward and is met if bonds are extended, or the coupon is reduced, for example. This condition would be met. The second condition is effectively that it is involuntary. If the actions of some bondholders can force other bondholders into an agreement then this condition would be met and there would be a CDS Credit Event. In the case of Greek bonds, that looks unlikely. I have only looked at the offering circulars from a couple of bonds, but there does not appear to by anything that could force a bondholder to change the terms of the debt. There is no reason, that on a €1 billion issue, €950 million could be exchanged and €50 million could remain outstanding. If that is the case, then there would be no CDS Credit Event under this true rollover. The rating agencies have taken the position (right or wrong), that if a rollover is done under duress, the rollover is not voluntary. However, Tchir goes on to say "The Rating Agencies can be largely ignored". The plan as it stands is complicated. Tchir does his best to explain it by comparing the rollover to 30 year mortgages. The Participants are not lending to Greece for 30 years, the duration is much shorter, and the coupon payments start out potentially high, and become usurious in the later years. The structure is designed in a such a way to make it look like the Participants are being helpful – 30 years at a low coupon, but separating the SPV into its zero coupon component and the loan to Greece clearly demonstrate that the terms being offered to Greece are far worse than the headlines that the Participants are selling to the public. I would be surprised if Greece agrees to the loan terms as included in the French proposal and wonder if they have even been consulted? Greece has had no say in this for the simple reason the plan is not to save Greece, but rather save the French banks who are most on hook should Greece default. It will be interesting to see if the plan changes now that the S&P has warned the French plan for Greece constitute default. Even if the plan is modified, I do not see how it can be modified to meet the "voluntary" rollover criteria of the rating agencies. Unless Tchir is correct that the rating agencies truly are irrelevant, something has to give. Actually, something has to give anyway. The situation in Greece is so dire, and the economy, politics and riots so messy that Greece is going to default sooner or later anyway. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

"Jobless and Wageless" Recovery in Pictures; Trends in Jobs and Wage Growth Posted: 04 Jul 2011 09:51 AM PDT Please consider a collections of charts from The "Jobless and Wageless" Recovery from the Great Recession of 2007-2009. Annotations in red (where present)are by me. GDP 2007 Q4 - 2011 Q1 GDP made a new high but look at the amount of US fiscal stimulus from Congress, monetary stimulus from the Fed, and global stimulus especially China, that it took to achieve that. Nonfarm Jobs Total Civilian Employment By the "end" of the recession the US economy shed 7 million nonfarm jobs and 6 million civilian jobs. Since the official end of the recession, there has been a small net loss of both nonfarm jobs and civilian jobs. Mean Weekly Private Sector Hours Mean weekly hours have risen by .5 hours since the recession ended but are still .2 hours below the start of the recession. Change in Civilian Jobs vs. Prior Recessions 7 Quarters Later Private Sector Real Hourly Earnings in Constant 201o Dollars Thanks to the Fed specifically and central bankers in general, real wages are below where they were when the recession ended. Real Median Weekly Earnings Full-Time Wage and Salary Employees in Constant 2010 Dollars Trends in Annualized Wage and Salary Accruals CPI-U Adjusted 2010 Dollars Annualized Value of Corporate Profits in Constant 2010 Dollars Snip from the report .... "To date, through the first quarter of 2011, the nation's recovery from the 2007-2009 recession is both a jobless and a wageless recovery. Aggregate employment still has not increased above the trough quarter of 2009, and real hourly and weekly wages have been flat to modestly negative. The only major beneficiaries of the recovery have been corporate profits and the stock market and its shareholders. Most holders of savings and money market accounts also are net losers due to declining real interest rates which have been in negative territory for many interest bearing and money market accounts." There are more charts, tables and commentary in the 23 page PDF report. Given the global economy is clearly weakening (disregarding inventory building and the latest US manufacturing ISM numbers), there is every reason to believe the jobless, wageless, "state of affairs" will last. Notice I called it "state of affairs". The recovery, if that is what one wants to call what we had, is on its last legs. For a look at the latest manufacturing ISM numbers and trends in other countries, please see Manufacturing ISM Weaker Than it Looks; Digging Into the Numbers; Inventory Restocking Accounts for Much of the Rise Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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Damn Cool Pics

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Taco Bell In The ’80s Posted: 04 Jul 2011 04:44 PM PDT I am sharing with you this Flickr set that was posted on Buzzfeed today. A former Taco Bell worker who used to work in Kansas City Taco Bell has shared his photos of what it was like to work there in the 80s. Taco Bells have changed dramatically since then, and definitely not for the better. Check out the Spanish tile counters and wood grain Formica paneling, sweet! The stores had Spanish tile on the front of the counters, and lots of wood accents. The Salsa Bar was in full swing. Those didn't last long, as they lost a ton of money. Original production line. Uniforms. Cleaning the production line, after closing. Boss, Tony, at the tomato dicer. Tony's folks were from Ecuador, and he was a first-generation American. He put store #1235 on the map, by hiring and retaining good young people, even as the store's volume shot up to nearly unmanageable levels.

Lady Gaga Day in Taiwan Posted: 04 Jul 2011 04:37 PM PDT A city in Taiwan declared Sunday "Lady Gaga Day" as the pop diva's first visit to the island sparked a frenzy among dedicated fans and local media. Lady Gaga, sporting a black and white wig, red trousers and a red dress with leopard-print sleeves, was given a key to Taichung city by the mayor at a ceremony attended by hundreds of enthusiastic supporters. "On behalf of Taichung, I now declare today 'Lady Gaga Day'...which also belongs to all of her fans," mayor Jason Hu said. Earlier in the day, hundreds of her fans known as "Little Monsters" defied summer heat to parade on the street dressed in costumes and wigs. Lady Gaga Day Ceremony Lady Gaga Taiwanese Concert

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SEOmoz Daily SEO Blog

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The Huge Untapped Potential of Q&A Content for SEO Posted: 03 Jul 2011 02:13 PM PDT Posted by willcritchlow Question and answer content has been around on the internet a lot longer than the web. From the early days of usenet (and before that, on prehistoric technologies that came before my time) people have been asking experts for answers. You can't fail to have noticed, however, that it has resulted in some of the lowest quality content on the web. For far too many questions, the ranking answer is Yahoo! Answers (or similar) that looks as though it was written by someone who found writing YouTube comments too intellectually challenging: Incidentally, note that there is a Yahoo! Answers API which can be a great source of data for keyword research and content inspiration. There is a clear need and opportunity for this kind of content. Many users search in question format: unfortunately not quite enough to support the venerable Ask Jeeves that encouraged this behaviour There are clearly a lot of commercially-oriented queries in there. You only have to look at many of the kinds of questions people ask on Twitter to see this: You can see the attraction to search engines of indexing Q&A content. While they have made leaps forward in natural language processing, they are still dumb text query engines at heart and having both the question and the answer in plain text on the page clearly supports them in providing efficient answers to many natural language queries. My favourite example of the right way of doing things is Stackoverflow. If you have ever tried to do anything related to programming, you will have hit annoying issues very early on. At Distilled we have labelled most programming as "copy, paste, swear, fix typo". If you're anything like me, RTFM might as well stand for JFGI these days and you will Just Google It(TM) straight away. As soon as you do this (certainly in recent months), odds are you are going to land on Stackoverflow. The answer you find there is likely to be helpful, authoritative and on you go. But how did it get that way? Stackoverflow is clearly good for search engines, but it got that way by being great for users. If anything, the experience of asking a question and getting it answered is even more impressive than just seeing the repository of brilliant answers that already exist. Even really annoying basic questions get quick, patient answers Lessons from Stackoverflow So what did they do so right? Avoid many versions of the same question The issue of multiple almost-identical threads is so prevalent on most Q&A sites that Google has evolved a UX pattern specifically for this: Stackoverflow gets around this with a many-pronged attack: Start with a culture of curation - when users know they are creating a reference, they behave differently to threaded forum discussions Use great power wisely - with curation as a justification, Stackoverflow editors can edit, move, lock or close replies to questions to encourage desirable behaviours Scale curation and editorial - I'll write more about the gamification, but the increasing site editing ability that comes with the earning of karma enables a small core team to enlist the help of a large passionate team of editors UX hints point people in the right direction - as you start asking a question, similar previous questions appear "google-instant" style encouraging browsing before submitting Get good answers, fast From what I've read the biggest KPIs for the Stackoverflow team are proportion of questions with accepted answers and the speed of answer. Indeed these are high on the list of metrics to consider before opening a bring q&a site out of beta. I love the data-driven attitude and transparency they show - this is a post about bringing the home improvement forum out of beta: It's interesting to think about how they have designed a site and a community to achieve great results on this front. In my opinion, a large part of it stems from having nailed the incentives - in particular: Gamification It's no secret that people love points, awards and power. The game mechanics built into stackoverflow bring all of these things: Points - with evidence ranging from gathering twitter followers to foursquare points, we see that give people a number and they will work to improve it even without an obvious reward. The setup of stackoverflow rewards both quick answers (high # points / time) in general and correct / insightful answers to hard questions (that get voted up). This nicely aligns with the goal of "good answers, fast" Awards - you get badges (see below) as you complete tasks around the site. These are nice for their own sake - especially if you get access to the rarer ones - but they also bring you: Power - the points and badges you acquire unlock special powers ranging from the ability to rate other people's answers all the way up to full admin rights to the site with the power to delete, move and edit pretty much anything. This funnel of power aligns user incentives very effectively I've only got a handful of stackoverflow badges so far. Maybe I'm immune to their wily ways? If you can, build from a passionate community In the case of Stackoverflow, they built from a bunch of overlapping groups of passionate users (as I understand it, based largely on the personal clout of Joel Spolsky and Jeff Atwood). In the case of the SEOmoz Q&A forum, it's obviously benefiting greatly from the community on the blog etc. If you want to read more about the intersection of Stackoverflow and SEO, they have had a couple of posts about it: one, two and a HN thread. Great moderation Stackoverflow solves the moderation problem in one way. Quora is tackling it in a different but fascinating way: A quiz for new users (that wasn't in place when I joined!) to ensure that everyone registering for the site at least understands the way that the business wants the site to end up structured A whole bunch of product features designed to nudge people towards desired behaviours An encouragement to "think in the Quora way" throughout - see the FAQ for a number of examples You should want these benefits on your site We have been doing a lot of thinking about the possibilities in this space - and what happens when you get it right. When Tom was at SEOmoz (before heading to NYC), one of the things he pushed hard was to add many of these features to the Q&A forum: Ask an Owner I have also been working with one of our UK clients, Reevoo, on a new feature they call "Ask an Owner" that enables retailers and manufacturers to allow potential buyers to ask questions of those who already own a product. By allowing those retailers and manufacturers to expose that content to search engines, we hope to access some relatively untapped areas. Reevoo already provide review functionality for many top retailers and brands and they are seeing some phenomenal stats on the new Ask an Owner service in terms of questions being answered, % of good answers etc. It is amazing how many relatively sensible questions still have no content indexed e.g. "Does the HP probook 4320s support skype video calling?" you can work out the answer from many of the resulting pages if you know what to look for, but wouldn't it be great if there was a page with that title and body content including something like: "Yes. There is an in-built webcam that works very well in reasonable lighting conditions. As with many laptops, it's built into the top of the screen which makes for natural conversations as you automatically look roughly at the camera as you speak. The built in microphone is also good enough in quiet conditions. For more serious use, you should consider a stand-alone microphone." That's the kind of content that should be generated by "ask an owner" style functionality. If you happen to want to know more about ask an owner and our general views on UGC in retail, you can check out the whitepaper I wrote on the subject (registration required). Q&A and the investment community The investment community got all excited about Q&A sites last year and pumped loads of money into Quora and the like. The reasons they got excited are similar to the reasons I believe there is untapped SEO potential here, but I also think there is significant value for many smaller businesses even in things that wouldn't get investors hot under the collar. Today is a US holiday and I'm also not in the UK office. As a result I may be slow to jump back into the comments below, but don't let that stop you sharing your thoughts. I'll join in when I can! Hey everyone, this is Casey from the SEOmoz Marketing Team, I thought I would take this time and add some stats from the SEOmoz Q&A Forum. Below are the stats from March 28 to July 3, 2011: Question 4,256 Total public questions asked by 1,941 members. 3591 questions are looking for a specific answer. 665 questions are open discussions. 18 Hours - the average until first answer was received. 2,044 answers marked as helpful. Traffic 1,011,500 pageviews. 5,254 keywords to 2,841 pages. 14,656 unique visitors from search traffic. Members 2,422 active members in Q&A. 52,722 MozPoints earned. 100 Users earned more than 100 MozPoints Thanks to all our members who have spent many countless hours in the Q&A Forum answering questions for other members! The amount of knowledge that gets shared in there is amazing! Do you like this post? Yes No

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