Central Perk: 11 apr. 2014

vineri, 11 aprilie 2014

Mish's Global Economic Trend Analysis

Reader Question on the Inevitable Los Angeles Bankruptcy; What About Chicago?
JPMorgan Earnings Drop 18.5%; Slowdown in Housing the Real Killer; Start of Mean Reversion in Earnings?
85% of Pension Funds to Fail in Three Decades

Reader Question on the Inevitable Los Angeles Bankruptcy; What About Chicago?

Posted: 11 Apr 2014 06:05 PM PDT

In response to LA Commission Studies Pension Crisis, Recommends New Commission; Bankruptcy Inevitable reader Daniel writes ...

Hello Mish,

Can you please explain why a home owner in a place like Los Angeles would be concerned with their city's future bankruptcy?

Will whatever happens not be short lived?

I understand that city workers will be affected and that unions and union workers will be affected as well, but how would your typical resident/homeowner be affected in such a situation?

Thanks for your wonderful blog!!

Daniel

Tax Hikes Coming

Hello Daniel

In a futile attempt to prevent the inevitable, the first thing LA politicians are likely to do is raise taxes, all kinds of taxes. They will probably invent new ones too.

Please compare LA's setup to Chicago.

Comparison to Chicago

Via email, Ted Dabrowski at the Illinois Policy Institutes writes ...

Gov. Pat Quinn is in a bind.

He's being asked to sign a Chicago pension bill that he knows has no real reforms and no way to pay for itself. By signing the bill, Quinn will give Mayor Rahm Emanuel his blessing to raise Chicago property taxes by $750 million over five years.

But that's just the beginning.

If the Legislature uses the same blueprint to "fix" the city and Cook County's other pension funds, Quinn will be blessing billions more in tax hikes.

The problem for Quinn is that he promised property tax relief to all Illinoisans in his state budget address just two weeks ago. Here's what he said:

"My comprehensive tax reform plan starts with providing every homeowner in Illinois with a guaranteed $500 property tax refund every year.

In Illinois, more is collected in property taxes every year than in the state income tax and state sales tax combined. In fact, Illinois has one of the highest property tax burdens on homeowners in the nation – more than 20 percent above the national average. The property tax is not based on ability to pay. The property tax is a complicated, unfair tax, hitting middle-class families the hardest.

For too long, Illinois has … overburdened its property taxpayers."

By signing a pension bill that helps Emanuel raise property taxes, Quinn will break yet another promise. The governor has already asked the Legislature to make the 2011 tax hike permanent, even though he originally promised it would be temporary.

But Quinn has a way out of his predicament. Besides the obvious political reasons to oppose the bill, Quinn has three good policy reasons not to sign it:

1. Property tax hikes won't solve Chicago's pension problem. Emanuel needs more taxes because his plan doesn't reform the broken pension system. Instead, it just props up a failed system run by the same politicians who bankrupted it in the first place.

What Emanuel and supporters of his pension bill won't tell you is that they'll be back for even more tax hikes. Emanuel's current plan calls for additional city contributions (above what the city pays today) to the municipal pension fund totaling $4.1 billion through 2025. But his proposed property tax hikes will raise only an additional $2.25 billion during that time period.

What Emanuel and supporters of his pension bill won't tell you is that they'll be back for even more tax hikes. Emanuel's current plan calls for additional city contributions (above what the city pays today) to the municipal pension fund totaling $4.1 billion through 2025. But his proposed property tax hikes will raise only an additional $2.25 billion during that time period.

That means the mayor's tax hike will be $1.9 billion short of the extra contributions needed through 2025. Without real reforms, he'll be back for more.

2. People and businesses will flee. Avoiding real reforms and raising taxes is a failed strategy. People and businesses will flee Chicago, just as they've been doing for years. Taxpayers will leave because they'll be paying more money for fewer services.

Each Chicago household is already on the hook for more than $61,000 in future taxes to pay down the massive long-term debt – more than $63 billion in bonds and pension shortfalls – that their city and county governments have racked up.

Tax hikes mean fewer people will stick around to pay a growing bill.

3. There is a plan to fix Chicago without tax hikes. The Illinois Policy Institute offers a reform plan that avoids tax hikes and immediately cuts Chicago's pension shortfall in half. The core of its solution is a hybrid retirement plan for city workers that gives them a self-managed plan and fixed, monthly Social Security-like benefits at retirement.

The plan makes the tough choices necessary to bring about real retirement security for Chicago's city workers.

Quinn and Emanuel's goal must be to end Chicago's pension crisis and to preserve Chicago's status as a world-class city.

Massive property tax hikes will do just the opposite and push Chicago further in the direction of Detroit.

Ted Dabrowski
Vice President of Policy

Everyone Affected

No one should assume they are unaffected by the pension crisis, even if they do not live in troubled cities. For starters, more cities are affected than admitted.

For discussion, please see 85% of Pension Funds to Fail in Three Decades.

Secondly, and equally important, Democrat controlled states like California and Illinois are dominated by union sympathizers. Of course that is precisely why those states are in serious trouble.

So even if you live in an unaffected city, states controlled by unions are also highly likely to raise all sorts of taxes to protect union interests.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

JPMorgan Earnings Drop 18.5%; Slowdown in Housing the Real Killer; Start of Mean Reversion in Earnings?

Posted: 11 Apr 2014 10:29 AM PDT

Stocks have been soaring mostly on investor sentiment. That sentiment was partially based on the belief earnings would continue to rise quarter after quarter, year after year. Investors also believe the Fed has their back. But what if the earnings thesis is not true?

The New York Times reports JPMorgan Earnings Fall 18.5% on Slowdown in Trading and Mortgage Lending

JPMorgan Chase reported an 18.5 percent slump in first-quarter earnings on Friday, as the nation's largest bank grappled with dual challenges: sluggish revenue from trading and lackluster mortgage lending.

The bank's stock dropped when the market opened on Friday morning, falling more than 4 percent.

Part of the slowdown came from a slowdown in revenue from fixed-income trading, which fell roughly 26 percent to $3.76 billion from $4.75 billion a year earlier.

JPMorgan's earnings also contained a number of bright spots, including an increase in average loan balances within the commercial banking business, along with an uptick in auto loans. Auto loans grew by 3 percent, to $6.7 billion from $6.5 billion a year earlier. Private banking was another rosy area for the bank, with revenue rising to $1.5 billion, up 4 percent from the same period last year. Credit card sales volume also grew, up 10 percent to $104.5 billion from the same period last year.

Still, the strength of those businesses could not completely offset the continued decline in trading revenue and mortgage refinancing, which had once been a particularly robust source of profit for JPMorgan and its rivals.

Now, the heady days of refinancing seem distant. Rising interest rates, coupled with an increase in housing prices, have damped homeowners' appetite to refinance. Mortgage loan originations also dropped to $17 billion, down 68 percent from a year earlier, and 27 percent from the previous quarter. That helped push net income down by $559 million to $114 million for the first quarter.

Asked whether the fall in mortgage loan originations might prompt the bank to broaden its lending to a wider swath of people — even those with tarnished credit scores — Mr. Dimon said on Friday that "our credit standards are pretty consistent." He added, "We feel pretty good about the risk that we are taking."

The comment reflects a deep timidity among the banks, which have focused their lending almost exclusively on borrowers with good credit. In part, the banks are reluctant to take on risk and are skittish about exposing themselves to litigation related to any questionable mortgages.

The Financial Times reports JPMorgan Misses Targets as Fixed Income Hit

JPMorgan Chase had its worst start to the year in fixed income trading since the depths of the financial crisis, causing the largest US bank to report a sharp decline in profits.

Revenues from trading bonds, currencies and commodities fell 21 per cent in the first quarter to $3.8bn, compared with the same period in 2013.

The first quarter is traditionally strong and the weak result – the worst since the start of 2008 – reverberated across Wall Street ahead of next week's results at Citigroup, Bank of America, Morgan Stanley and Goldman Sachs.

Earnings per share fell to $1.28 from $1.59 a year ago compared with analysts' forecasts of $1.38 a share.

JPMorgan had already warned in February that trading revenue was weak, but had then pointed to a 15 per cent decline. Other banks also issued gloomier updates from their trading floors. Overall markets revenue was down 17 per cent at $5.1bn with a smaller decline in equity trading.

Missing Ratcheted Down Expectations

It's rare for companies to miss expectations because of all the revised forward guidance. Typically companies guide to estimates they can beat by a penny.

That JPMorgan failed to do so, means that conditions deteriorated more than expected.

In this case, slowdown in fixed income and mortgages were way off the revised mark, and even further off the original estimates.

Bright Spots About to Dim

Supposedly autos are a bright spot. But are auto loans going to rise forever?

I think not. Rather, I suggest the demand for autos will soon peak if it hasn't already.

But it's that slowdown in housing that's going to be the real killer. A housing slowdown means a slowdown in other durable goods.

Looking ahead, a slowdown in durable goods, especially cars portends a decline in manufacturing hours or employment.

This is precisely what's wrong with taking a single indicator and projecting it forever into the future for "years to come" as economist Robert Shiller did recently with manufacturing hours.

For discussion, please see

Start of Mean Reversion in Earnings?

Those projecting future earnings explosion also play with fire. And if earnings expectation don't pan out (I suggest they won't), stocks are priced not for perfection, but well beyond perfection.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

85% of Pension Funds to Fail in Three Decades

Posted: 10 Apr 2014 11:49 PM PDT

Bridgewater Associates did an analysis of pension funds recently and concluded 85% of them will fail if returns average 4%.

Bridgewater notes that public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades. It would take an investment return of roughly 9% a year to meet those obligations.

With the 30-Year long bond yielding a mere 3.5% and with stock valuation through the roof, I expect negative returns for 7-10 years.

Stretched out over 30 years, 4% seems about right. 9% is out of the question.

CNBC has further analysis in Report: 85% of pensions could fail in 30 years

Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades.

Bridgewater came to these conclusions by stress testing the nation's public pension plans, much the way banks need to be evaluated on what could happen given a wide range out outcomes.

Many pension observers make the claim pensions will achieve 7% to 8% returns. But even if that assumption is correct, which is unlikely, public pensions are looking at a 20% shortfall, Bridgewater says. A 4% return is much more likely, the firm says.

Bridgewater set up a sophisticated model to simulate many of the possible market environments to see how they would affect public pension's resources. In 20% of those scenarios, public pensions run out of money in 20 years. And in 80% of the scenarios, public pensions run out of money within 50 years, Bridgewater says.

Massive Number of Municipal Bankruptcies on Horizon

I wonder what Bridgewater's model would predict starting with losses for the next seven to ten years, because that is what I think is highly likely.

Given the only way to shed pension obligations is bankruptcy, one hell of a lot of municipal bankruptcies are on the horizon unless some other legal maneuver is found.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Damn Cool Pics

Girls Get Bored at Work

Posted: 11 Apr 2014 10:16 AM PDT

World's 10 Most Dangerous Prisons

Posted: 11 Apr 2014 09:56 AM PDT

Some of them look like hell on earth.

Source: therichest

A Powerful Moment in History

Featured

A Powerful Moment in History

Yesterday, 50 years after President Lyndon Baines Johnson signed the Civil Rights Act into law, President Obama spoke at the LBJ Presidential Library to honor the work and legacy of our nation's 36th president:

The story of America is a story of progress. However slow, however incomplete, however harshly challenged at each point on our journey, however flawed our leaders, however many times we have to take a quarter of a loaf or half a loaf -- the story of America is a story of progress. And that's true because of men like President Lyndon Baines Johnson.

Watch President Obama's moving, personal speech on President Johnson's legacy.

Getting Branded Searches Right - Whiteboard Friday

Posted: 10 Apr 2014 05:16 PM PDT

Posted by randfish

Ranking for branded keywords is obviously quite a bit easier than for unbranded terms, but it takes some thought. We don't just want to send everyone through our homepages; it's far better to send them to the page that best answers their query. In today's Whiteboard Friday, Rand covers four steps to be sure you're setting things up the right way.

For reference, here's a still of this week's whiteboard!

Video Transcription

Howdy, Moz fans, and welcome to another edition of Whiteboard Friday. Today I'm going to talk a little bit about getting your branded search terms right. Branded search is very important, because when people perform branded queries -- your brand name plus some other modifier, some noun, some information they're seeking around your company and your brand -- you want to make sure you show up correctly in the search engines.

One of the challenges here is that, as SEOs, a lot of the time we think about trying to target queries that can bring us new traffic, which often means unbranded searches, things where people haven't yet decided what brand they're going with. But branded search is incredibly important. It actually makes up a huge amount of volume of Google and Bing and Yahoo's total search queries.

Here I performed a search for ZIIIRO Watches. I'm wearing one of their watches. I like them a lot. They have a weird spelling. It's Z-I-I-I-R-O Watches. If you searched for ZIIIRO Watches a few months back, their website was a little funky. In fact, most of the internal pages weren't crawlable.

I remember when I performed a search for ZIIIRO Watches, the only page that actually mentioned that they were a watch company, I think it was either their about or contact page would show up. That was the first page that ranks for ZIIIRO Watches. That's not ideal.

What you really want to rank there is either their homepage or their products page that lists all their watches. Those are the two things that I could potentially see as being valuable, and if it were me, I'd particularly want the watches page to be ranking, especially if they're expanding into other items beyond just making watches.

Now what you want here as a brand, when people perform branded types of queries, is the most relevant, useful page to answer queries about that specific thing. That's why I said if I were the brand manager at ZIIIRO or if I were the SEO at ZIIIRO, what I would want is my watches page there rather than my homepage. The reason I want that is because getting to that information as quickly, as fast as possible is likely to have the best impact on both my SEO and on how the visitors will perform.

If I list my homepage there, I'm asking visitors to make one more step to figure out my navigation system and get to my watches page, or whatever page it is on my website. I don't like forcing that step. I want them to get right there. Generally speaking, that can help with things like pogo sticking. It can help with time on page and engagement. It can help with conversion rate optimization. It's just the best way to drive traffic through search.

The second thing, you want a title and description right here that's going to really earn that click. Contact ZIIIRO Watches, phone, address, email form, that's awful, right? That doesn't entice me. Even if I did want to get in touch with them, what I really want there is if I put "ZIIIRO phone number" or "Contact ZIIIRO" or "ZIIIRO Help," "ZIIIRO Support," what I want to see is something like "Contact ZIIIRO and get immediate help. You can email us, call us, or one click to fill out our form and get responses in 24 hours or less."

That's what I want the description right there to say. It creates the action, the desire for me to click that, and the indication that I'm going to get what I want.

The other thing that I really like doing is making sure that the headline on the page itself, once I reach whatever page this is, I really want that headline, the big thing that comes up bold at the top, to closely match. It doesn't have to mirror exactly what the title says, but to closely match that title so that I never get that experience of a searcher clicking and then going, "Wait a minute. This isn't the page I thought I was about to get."

That's a bad experience. That's why I try and make those match up. Then the description as well, that intent should match.

Finally, the last thing that I urge folks to do here is to have internal links that point to the pages that are most likely to guide the searcher's next few steps. If I know that the next steps in a visitor's journey from the watches page are often to check things out by price group, or to check things out by color, or to check things out by types of, I don't know, wristband or whatever it is, I want to make sure that those links are very prominent and easy to access on the page that I'm showing them here.

What you don't want to do is let the wrong pages show up here, like we have in this ZIIIRO example. I can actually walk you through a process, step by step, of ways that I would actually urge every SEO to go through this process either once a year, or once a redesign, and find all the pages that might be ranking for branded queries that you don't intend to be ranking there, that you wish weren't ranking there, and how to change those up.

Step one, you need to get a list of your branded terms and phrases. This used to be easier than it is today, thanks to keyword not provided. But still, we are lucky that not provided is only 90% of your Google search traffic.

There are those 10% of queries we can get some of our branded search queries through there. You can do a filter inside of Google Analytics by performing a search on the referring keywords. Or you can also do this in Moz Analytics, if you set up a branded rule for your keywords.

Bing provides you keywords as well. Bing powers Bing.com and Yahoo searches as well. In the U.S., that's about 20% of searches or so. In Europe, obviously much less. But you can get some keyword data there.

You can use auto suggest and related searches, meaning I start typing "ZIIIRO" here, and I hit the spacebar and I see what else populates. By the way, the auto suggest tends to work better on Google's homepage if you set up "don't auto send me to the search results page." You can sometimes see more search suggest on the Google homepage than you can on the results pages.

You can use related searches, which is a box down at the bottom. If I were to scroll to the bottom of the results, I'd generally see a box down here that says "related searches" and five, six, seven, eight different queries that I could look at there.

You can also use your internal search query data, of course. You can use things like Google AdWords, the AdWords keyword tool. The challenge there is with a lot of low volume searches, which many of the longer tail stuff in the brand tends to be lower volume, it can be challenging to figure those out via something like AdWords.

Step two, we're going to depersonalize and search. We're going to take the keyword that we're looking for -- in this case ZIIIRO Watches -- and we're going to form a search query just like this, "Google.co.nz". Why am I looking in New Zealand? I'll tell you in a sec. "search?q=ziiiro+watches&GL=US".

Why this weird search query format? Well, what's happening here is that if I go to Google.com and I search for ZIIIRO Watches, I can add something like "&PWS=0" to the end of my search query, which will depersonalize the results, but it won't remove the geographic bias.

What I really want to see is no geographic bias when I'm performing these searches. To do that, I take myself out of the country, out of the U.S., into New Zealand, and then I put myself back in the U.S., thus removing any personalization that comes from geographic biasing. You can do this with
.ca, .co.uk, dot whatever. It doesn't actually matter. I like generally doing it with a country code that matches the language you're searching in, though.

By the way, when you do this, if you do it in a new incognito window, meaning you're not logged in, you don't generally have to worry about also adding "PWS=0" to remove personalized results.

If applicable, go to step three. Applicable meaning you need to localize. If I'm searching, for example, and I want to see how this looks in Seattle, Washington versus Portland, Oregon versus San Diego, California or Philadelphia, Pennsylvania, I can actually use the "&near" parameter at the end of a query like this to see what it looks like in a specific geography.

You don't have to, by the way, go out to New Zealand to do that. You can just search in regular .com. Then I can see what search results for people near Seattle, Washington, or I think you can also now use near equals a ZIP code if you want to get that granular.

Then your job is simply to list the non-ideal results and start fixing them one by one. So I take a list of these keywords that I've got, a list of any of the search results that I didn't particularly like, and I prioritize based on how much traffic I'm either getting for that keyword, how much search traffic that landing page is receiving, or how much the estimated volume might be in something like AdWords.

Now I've got a prioritized list that I can run through and say, "All right, got to fix this one. These three look good. Got to fix this one. These four look good." For that process, you can refer to some other Whiteboard Fridays that I've done on how to get the right result ranking for the search query term you're looking for. Generally speaking, it's not going to be that hard when it's a branded search term.

All right, everyone. Hope you've enjoyed this edition of Whiteboard Friday, and we'll see you again next week. Take care.

Video transcription by Speechpad.com

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