luni, 15 august 2011

SEOmoz Daily SEO Blog

SEOmoz Daily SEO Blog


Throw Away Your Form Letters (or Five Principles to Better Outreach Link Building)

Posted: 15 Aug 2011 04:15 AM PDT

Posted by iPullRank

Throwaway Your Form Letters (or 5 Principles to Better Outreach Link Building)

I'm sitting on an air mattress in my new unfurnished Brooklyn apartment listening to the sounds of the city out of the window after a long day of client meetings. At one point I was thinking "Man I wish I bought that ugly sofa from Ikea so I'd have something to sit on" and next thing I knew I was considering the Tao of Outreach Link Building.

I know, I know. Outreach link building is hard. It takes time. You send 1000 emails and end up with seven links but I believe that's largely because most search marketers approach link building the wrong way. In fact I'm going to declare right now that link building should be the easiest and most fun part of SEO.

Yep, I said it but wait, let me finish before you head to the comments to tell me why I'm wrong.

First, let me say that I love where we are moving with link building as a community especially with the stuff the King of Link Building, Justin Briggs, has been giving us lately. In fact what I have to offer for your consideration is very much an expansion on Dan Deceuster's new perspective on link building.

There is often a lot of talk about who to target and how to find them but there isn't much about how you get their attention, sustain it, close the deal and maintain the relationship. With the exception of what Justin spoke about in his Link building webinar, most recommendations revolve around building form letters and tailoring them a little more depending on the target.

The following are 5 principles that I have identified and streamlined to improve my link building success rate from about 20% to around 80%

In my experience, this is the least effective method to engage in outreach link building. The following are five principles that I have identified and streamlined to improve my link building success rate from about 20% to around 80%.

Talk to People Like People

Talk to People Like People (Throw Out Your Form Letters)

Search Marketers tend to think of link building as obtaining a link from a website. Truly link building is speaking to a person and convincing them to take a real world action that is beneficial to you. Link building is cast as a very impersonal process where we use the various methods to identify link targets, write a form letter and fire away expecting that the return on these outreach emails will be so low that it doesn't make sense to spend time on them.

Honestly, even just reading that back makes me think of how counterintuitive the process is.

Everyone reading this post has been subject to some sort of Email, Twitter, Myspace, Facebook spam. Hell, even Barack Obama and his friends have been spamming me for five years now (ok I opted-in but wasn't my vote enough – stop spamming me!). Think for a second, how do you react to spam? You erase it or ignore it of course. Even as an owner of various sites people often contact me asking me for links or offering me SEO services and such – with form letters that never get opened. Here's one I received since I started writing this post:

A spam email example

Certainly not a link building request but I imagine it's not far off from how many Search Marketers are writing their link request form letters.

If this is up for debate I challenge you to go on a dating site like Match.com and copy and paste the same form letter to 50 women. I guarantee a low rate of response and the girls that do respond aren't going to be the ones you wish responded.

People can usually sense a form letter immediately. Dare I say it? No, I'll let my homey Link from Legend of Zelda tell you.

Context is King

I myself had failed many times using the same approach to link building (not with women, of course). Then one day I realized that the link building strategies I was taught are counterintuitive to everything I've learned as someone who has had to network across various fields whether it be my Search career, in music as a performer and booking agent or as a generally (somewhat) social person. Be warned, my approach requires a genuine interest in people. Here goes:

  • Opening– Linkbuilders are typically very heavy handed and send an email that basically says "hey I have this site will you link to me because of x,y,z?" The only thing that I attempt to accomplish with my first email is an engaged response. I never bring up the idea of wanting something from this person until later in the email or tweet thread; the same way I wouldn't walk up to a girl and say "you're hot, let's have sex because I'm cute, I drive a luxury car and I have an apartment in a cool part of Brooklyn!" I keep my opening correspondence short, engaging and contextual to something that person has tweeted about or written on their site/blog.

Quite simply people love to know their work has been enjoyed, viewed, absorbed so actually take the time to read it and strike up a conversation about something you truly find interesting. As marketers we are taught to optimize one message that appeals to many people; there is simply no place for that in effective outreach link building.

In the following example I'm building links for the official Transformers 3 movie site (not that this would ever happen because those sites are always powered by Paid Media).

The Old Way of Link Building:


Link Fails at Outreach Link Building

Subject: Transformersmovie.com Link Request

Hello,

I am contacting you to request a link to Transformersmovie.com from your site. We have trailers, downloads, exclusive video and a gallery. Visitors can also find information on movie times and buy tickets online.

I see that your blog talks about Transformers and I think visitors of your site will find this content very useful.

Please link to http://www.transformersmovie.com using the anchor text "Transformers" or use the following code: <A href=”http://www.transformersmovie.com”>Transformers</a>.

Please contact me if you have any questions.

Thank you for your time and careful consideration.

Transformers Web Team
www.transformersmovie.com

While I don't doubt that some Link Builders have some very spiffy form letters much better than this, most of the time they still come across just as sterile as the above.

The New Way of Relationship Building:

Link's Great Opener

Subject: Power Rangers, Are You Serious?!

Hey Zelda,

I just read your awesome post where you compared Voltron and Power Rangers to Optimus Prime and crew. Not sure if I agree that the Power Rangers could have taken out Megatron in the first film. I mean honestly, they had trouble with giant bears on their own show!

Truthfully, I think Voltron would make short work of all of them. Speaking of Voltron have you ever seen this hilarious live action spoof? http://www.youtube.com/watch?v=YtwX0nuqPO0

Anyway I'm curious to know what you think of the new Transformers film. Give me a shout when you get a chance!

-Link

Link of Hyrule
Transformers Web Outreach Team
mike@transformersmovie.com
www.transformersmovie.com&

Option two is clearly stronger and was even more fun to write. Creating context allows me to hit more touch points to elicit a response. Also the engagement is all about opinion and sharing thus framing the conversation as just that – a conversation rather than a link request.

  • Sustaining – Sustaining is all about keeping the conversation going, building a rapport with this person and offering something of value. Most people will be tempted to jump the gun at this stage and just ask for the link right when the person responds. This is not the way to go because then your original correspondence appears to be a thinly-veiled link request, which it of course is but that is the mindset we are trying to eliminate.

In this stage it is good to have some content to share that this person may be interested in. It could be related to the site you're trying to get a link for or it could not, the important point is that you demonstrate that you are worthwhile resource of some sort whether it be for entertainment or educational purposes. Not only does this build trust but establishes context. This phase can continue as long as it takes for you to actually develop a relationship. In fact let's just rename link building "relationship building."

Continuing with our robot cartoon blogger example:

Link Sustains

Hey Link,

LOL Link, that video was hilarious and thanks for reading my post but there is noooo way that Voltron could take out the combined power of the MegaZord!! I'm not even sure Voltron could take out the GoBots!

I haven't actually seen the film yet. Do you actually work on the Transformers site?

Best,

Princess Zelda

Zelda thinks Link is worth talking to

 

Princess Zelda,

The GoBots? Zelda, you're killing me! The GoBots were a cheap rip off of the Transformers they should not be typed in the same email as Voltron! I bet you preferred Silverhawks over Thundercats too, didn't you? HA!

Anyway, yep I sure do work with the Transformers web team. Do you have any interest in seeing the film?

-Link

Link of Hyrule
Transformers Web Outreach Team
mike@transformersmovie.com
www.transformersmovie.com

Link is about to Close!

Hey Link,

LOL, you just keep making me laugh. Silverhawks?! I didn't think anyone remembered that cartoon. It was pure redux of Thundercats just as bird people!

I definitely do want to see the new Transformers film! Can you hook a princess up?

Best,

Princess Zelda

Notice how the suggestion of value causes the link target to become further engaged and it sets up the link request as a natural progression in this case in exchange for tickets.

 

  • Closing – The key thing in this phase is to only pull the trigger on asking for a link after context and value are established. The link request then becomes an aside to the correspondence rather than the entire correspondence.

At the end of our sustain phase Zelda, our Robot Cartoon Blogger, has taken the bait realizing that the link builder potentially has something of value to her and then puts the link builder in a position to close the link deal. The nature of the conversation puts Zelda in a position where she is comfortable enough to make the request so when the link builder requests the link it is natural for him to ask for something in return.

Link Makes a Friend and Closes a Link

Princess Zelda,

Hmmm...well I don't make it a habit to do this, but since you have such good taste in cartoons....

Sure, I can get you two tickets to see the film in your local theater, but in return can you write a review or write another one of your great articles and link back to our site?

If that works just shoot me your closest theater and I will send you a Fandango confirmation code for your tickets.

Also are you on Twitter? I'd love to keep up with the stuff you are posting on your blog!

-Link

Link of Hyrule
Transformers Web Outreach Team
mike@transformersmovie.com
www.transformersmovie.com

Just like that, we've just built a link just from talking about your favorite cartoons. The challenge and the fun is in finding something that interests both of you and using that information to build a relationship. The less you have to offer in the form of incentives the more sustaining and rapport building you will need to do in order to build the link. Do not think that this method only works with incentives. Value can be established in many ways when building a relationship.

A caveat that I should offer here is that it is painfully obvious when this approach does not work because people will not reciprocate the engagement. It might result in a simple "thanks for reading" response in which case you can decide whether you want to do more research to identify a different touch point and try again or to just move on to someone else. As you begin to adopt this process I'd say plow through but soon you will be able to spot a lost cause.

Standout In the Inbox

Standout in the Inbox

How do you feel about spam? Probably the same way you feel about telemarketers. When people can tell by their caller ID that a telemarketer is calling they don't pick up the phone. By that same token if they can tell an email is spam, they avoid it.

Never send an email with "Link Request" or something to that effect in the subject; they are doomed to never get opened. You want to take an indirect approach because you don't want the link target to decide before ever seeing what you had to say; this is the Trojan Horse of link building. Trojan Horse in the classic sense not a virus.

Let's go back to the email I mentioned earlier in this post. Here's my inbox on that day:

My Inbox

 

Notice that this email was the only one out of all the other spam that was opened. It was clear exactly what every other email was however there is some mystery as to what the "let's work together" email was about. It appeared natural and it stood out to me because it looked like someone requesting some sort of collaboration. It has a real name and the subject was in lower case. It resembles the emails I receive from people that want to send me beats or hire me to guest appear on their albums.

Obama tricks me into clicking his emails pretty often too. I don't always look at who the emails are from when I get them but most of my friends use short email subjects (like the following) that cause me to click through:

Obama inbox

 

Even when I do look at the Sender name it might be a quick glimpse to make sure it's a person and not a company or something.com. It was my assumption that other people reacted this way when I started to apply these principles and therefore the improvement in response rate is the only thing in the way of science I have to show for this.

However what I can show you is an example of a subject fail straight from the inbox of my fellow Philly to Brooklyn SEO transplant John Doherty:

1-800 Contacts Form Letter Fail

1-800 Contacts clearly runs some sort of CRM software for these types of emails and either someone was asleep at the wheel or they input the fields the wrong way. This could easily happen to you in a program like Link Assistant. Don't be that person. However judging by the format of the sender and subject fields it is highly unlikely that these emails will have an open rate worth talking about.

I'm sure there are more comprehensive studies on email optimization but to summarize:

Tips for Standing Out in the Inbox:

  • Keep Subjects Short
  • Keep Subjects Natural
  • Do Not Use "Link Request"
  • Send Emails as a Person (Not as a company or a "web team")
  • Include a Natural Salutation (The first line will appear next to the subject)

Do Your Research

Do Your Research

I don't want to encourage you to stalk your targets so...study your targets. Bloggers and webmasters are certainly not the most private people in the world and therefore have shared their thoughts, favorite music, films, travel plans and other endless minutia about themselves online for years – use it to develop your context for the initial email.

User data drives models of people for targeting our broad messaging, it only makes sense to use user data to create context for our specific messaging.

Don't get caught up in the whole romantic comedy "OMG I manipulated you but it turns out I really love you and I wish I could take it all back" aspect of this. Think of it as a way to increase your odds of relating to someone the same way that a girl in WuTang shirt would make me ask if she was at the Raekwon concert in Prospect Park last weekend (Shout out to John Doherty, Tom Critchlow, Rob Oursey and his wife!). Again, Context is King.

Choose something that relates back to the content that the person had written about on their own site. The subject should be something that you can relate to, offer insight on and speak at length. So if I'm doing link building as illustrated in the example I might check Zelda's Facebook, Twitter, and Last.Fm and I might weave a conversation about how Voltron was actually created after Power Rangers contrary to popular belief and the stance of her blog post. Then I might end the email with something to the effect of "wouldn't Radiohead be a great choice for the Voltron soundtrack?" Now we have a conversation that is still in context if only tangentially to the topic at hand.

Researching your targets turns link building into a video game – with a strategy guide.Offer Value

Offer Value

We tend to think of link building in terms of "what can this site offer me?" rather than "what is it about my site that will be interesting or useful to this webmaster or blogger?" or "what of value can I introduce this person to?"

Depending on where you are contacting them from part of offering value can be just in the fact that you have reached out to this person. It's important that if you are working for a client with some sort of reputation in the space that you are building links for that you obtain an email alias on their domain. For example if you are doing link building for SEOmoz then you should have an SEOmoz email address. So if you are following up with a blogger who has written a review about SEOmoz's software offering then they feel as though their voice has been heard by the company. Make sure your signature is reflective of their company's location so they recognize they are speaking with a real person and not something automated.

In a lot of cases you may not be link building for someone reputable so it's important that you share something of value with this person. Perhaps you have a link to some content important to the niche that hasn't been seen by too many people – share it with your link target. Maybe an awesome video has just floated around your office and you are actively going back and forth over email -- toss it in there. Maybe you just have an interesting story that you can share with this person or anything. Failing all that it's very important to have any client provided incentives.

The bottom line is approaching link building the same way as when you meet one of your friend's friends and your efforts will be more effective.

Maintain the Rapport

Maintain the Rapport

No one likes to be used. Therefore it is important to maintain an active rapport with your new friends otherwise if you only contact them when you need a new link they will be less inclined to help you out. Twitter is the perfect place to maintain this rapport. Follow your newfound friends and encourage them to follow you and be sure to retweet their links and engage with them from time to time so you are in constant contact. What the both of you tweet continues to generate context so even if you faked your way this far (which you won't if you have a genuine interest in people) you can easily start the process again based on their latest tweets.

Conclusion

Is this scalable? Well, it depends how much information you need to sift through to find a hook for the person you're reaching out to. Once you go through this process enough times it takes little more than the time it takes to uncover a buried email address. However outreach link building isn't the place you need to be looking for scalability to begin with.

The benefits of this approach are two-fold. 1. Your link building becomes more effective and while you may not reach out to as many people, you will convert a lot more of the people that you do. 2. You are building a rapport with many people that you can then activate in Social Media as it becomes more of a ranking factor.

Link building is viewed as an arduous task that no one really wants to engage in and it really shouldn't be. Link building is really an opportunity to make friends throughout the web and Social Media. Perform your link building as a marksman rather than a drive by shooter and you will see better results.

Context is King. Link Building is dead. Long live Relationship Building.

Also you'll be happy to know that I now have a bed, a desk, a chair and a dresser. Definitely give me a shout if you're ever in Brooklyn!

Oh yes...almost forgot the infographic. Go easy on me, it's my first one!

Link's Tools of the Trade Infographic by iPullRank


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Some Nifty SEO Bookmarklets To Make You More Efficient

Posted: 14 Aug 2011 01:58 PM PDT

Posted by Tom Critchlow

Being a chrome junkie and also a keen productivity evangelist I'm predictably a huge fan of javascript bookmarketls. I use them all day long and over time I've built up a few that I have made myself that I thought I'd share today.

What is a javascript bookmarklet?

A javascript bookmarklet is a small piece of javascript code that you can execute in your browser by bookmarking a link. I'm shamelessly going to steal Rand's image from his old post on bookmarklets:

The Basics - Cached Pages & Site Searches

What I'm covering in this blog post are all kinds of weird and wonderful bookmarklets but I want to re-post the basics here for you since these two bookmarklets I literally use 10s of times a day:

  • Quickly run a Google site: search for the site you're on - Site Search
  • Jump to the Google cache version of the URL you're on - Google Cache

Rand actually wrote a post that covers a lot of the standard bookmarklets (including the two above) and if you're new to them I strongly suggest you check it out: 30 SEO bookmarklets to save you time

Open Site Explorer Bookmarklets

Of course you can use the moz toolbar to quickly grab stats and jump to your favorite tools but sometimes I prefer the speed and elegance of a bookmarklet instead so here's a bunch of them that work with the new open site explorer URLs:

(By the way, while I'm mentioning OSE - you do know that CSV downloads are back right? Woop! Good job moz team!)

Domain Insights

These bookmarklets are designed to give you some insights about the domain you're browsing.

Social Data

I've talked about my love of Topsy on here before and it will be no big surprise that I have a Topsy bookmarklet:

This gives you quick acces to an OSE-style view of the most tweeted pages on a domain:

I've also talked about sharedcount before and it's no surprise I have one for them too:

Google Analytics Debugging

I spend an unhealthy amount of time in Google Analytics and often end up needing to debug how a site is using GA and what's going on with a particular issue. Both of these bookmarklets come in handy for this:

Technical SEO Stuff

Here's a few more technical SEO bookmarklets for some common functions that I find myself using over and over again:

Thanks to Berian Reed I also discovered these awesome bookmarklets:

SERPs Damn It

This is an awesome bookmarklet that you run on a SERPs page and it will open a new tab with all of the rankings displayed in an easy to copy and paste manner which is perfect if you're looking to quickly gather some data to throw in excel or an email or whatever:

 

Go check out the bookmarklet and explanatory video here.

HTTP Header Checkers

Webconfs has a nice header checker that has a bookmarklet associated with it. Here's the bookmarklet and here's the tool.

If you'd prefer a bookmarklet that stays in the window - check out this bookmarklet from yoast which gives you something like this:

Fun Social Stuff

We're entering an age of connected data and I stumbled across the Google social graph API a little while back and instantly fell in love. Using this tool you can quickly and easily see what pages Google has crawled and associated with a particular page. This is best demonstrated visually - if I put my twitter URL into the tool Google tells me that I'm related to these pages:

Check out the tool here.

When you're doing twitter research and trying to find out who someone is or find out how you might be able to get in touch with someone it's often handy to quickly lookup a twitter handle here and see where else that person lives online so I built a bookmarklet that jumps straight to the google social graph page from a twitter page:

Bonus Stuff

A lot of people I know swear by Quix which is supposed to be like bookmarklets on steroids. Personally I've never quite gotten my head around it (despite all the keyboard shortcut goodness) but I feel like I'm likely in the minority - if you're a power user be sure to check it out!

While creating and testing bookmarklets I found this JS prettifier extremely useful.

Let's Hear It For The Community!

I'd love to see what the community has built - what bookmarklets have you pimped your browser out with? Leave your best in the comments!


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President Obama Kicks Off Economic Bus Tour

The White House Your Daily Snapshot for
Monday, August 15, 2011
 

President Obama Kicks Off Economic Bus Tour 

Today, President Obama heads to Cannon Falls, Minnesota at the first stop of a three day tour of the Midwest. The President will hear directly from the American people in a town hall on the vital role rural America plays in ensuring the growth of our economy, the affordability of our food, and the independence of our energy supply.

Learn more about about the President's trip.

Photo of the Day 



President Barack Obama meets with senior advisors in the Roosevelt Room of the White House, Aug. 12, 2011. (Official White House Photo by Chuck Kennedy)

In Case You Missed It

Here are some of the top stories from the White House blog.

Weekly Address: Putting the American People First
While members of Congress are at home in their districts, President Obama asks Americans that agree that it’s time to put country before party and pass stalled bills to help grow our economy to let them know.

2011 Super Bowl Champs Visit the White House
President Obama welcomed 2011 Super Bowl champs, the Green Bay Packers, to the White House. This event continued the tradition of recognizing sports champions for their achievements, both on the field and in their communities.

White House Report Shows Continued Focus on Rural America
Secretary of Agriculture Tom Vilsack announces the release of a new report by the White House Rural Council that describes the economic needs and opportunities found in rural America.

Today's Schedule 

All times are Eastern Daylight Time (EDT).

9:00 AM: The President departs the South Lawn en route Joint Base Andrews

9:15 AM: The President departs Joint Base Andrews en route St. Paul, Minnesota

11:35 AM: The President arrives in St. Paul, Minnesota

1:05 PM: The President holds a town hall meeting in Cannon Falls, Minnesota WhiteHouse.gov/live

6:15 PM: The President holds a town hall meeting in Decorah, Iowa WhiteHouse.gov/live 

WhiteHouse.gov/live  Indicates events that will be live streamed on WhiteHouse.gov/Live

Get Updates 

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Seth's Blog : Dig yourself a hole

Dig yourself a hole

Make big promises.

Burn your boats.

Set yourself up in a place where you have few options and the stakes are high.

Focused energy and serious intent will push you to do your best work. You have nowhere to run, nowhere to hide. (Better than the alternative).

 

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duminică, 14 august 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


"Made-in-China" Only 2.7% of U.S. Spending; Really? What Does It Mean? Inflationists Take Note

Posted: 14 Aug 2011 10:44 PM PDT

For all the political bickering and scapegoating of China, 'Made in China' ranks only 2.7% of U.S. spending
Convinced that everything you buy these days has a Made-in-China label?

Then you aren't paying attention. Things made in the U.S.A. still dominate the American marketplace, according to a new study by economists at the San Francisco Federal Reserve.

Goods and services from China accounted for only 2.7% of U.S. personal consumption spending in 2010, according to the report titled "The U.S. Content of 'Made in China.' " About 88.5% of U.S. spending last year was on American-made products and services.

"On average, of every dollar spent on an item labeled 'Made in China,' 55 cents goes for services produced in the United States," the report said.
It would have been nice to have a link to the Fed report. Missing links is one of my pet peeves. News organizations in general only link to themselves. So do many bloggers. I am tired of it.

Let's do our own report instead.

US GDP

On July 29, 2011 the BEA gave the Gross Domestic Product: Second Quarter 2011 (Advance Estimate) as follows "Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.7 percent, or $136.0 billion, in the second quarter to a level of $15,003.8 billion."

China Trade

On August 11, 2011 the US census bureau reported Goods and Services Deficit Increases in June 2011

The Nation's international trade deficit in goods and services increased to $53.1 billion in June from $50.8 billion (revised) in May, as exports decreased more than imports.

Balance of Trade



China's portion of the trade deficit was $26.7 billion.

Goods by Geographic Area (Not Seasonally Adjusted)

  • The goods deficit with Canada increased from $2.7 billion in May to $2.8 billion in June. Exports decreased $0.3 billion (primarily fuel oil, passenger cars, and fertilizers) to $24.2 billion, while imports decreased $0.1 billion (primarily nonmonetary gold, petroleum products, and fertilizers) to $27.1 billion.

  • The goods deficit with China increased from $25.0 billion in May to $26.7 billion in June. Exports decreased $0.1 billion (primarily raw cotton, passenger cars, and pulpwood and woodpulp) to $7.7 billion, while imports increased $1.6 billion (primarily computers, apparel, and household goods) to $34.4 billion.

  • The goods deficit with Japan increased from $2.6 billion in May to $4.0 billion in June. Exports decreased $0.3 billion (primarily generators, fish and shellfish, and metallurgical grade coal) to $5.4 billion, while imports increased $1.1 billion (primarily passenger cars, computer accessories, and photo equipment) to $9.5 billion.

To do calculate the percentage, we need total imports from China, not the trade deficit. That number is $34.4 billion.


Let's Do The Math

  1. $34.4 billion is the latest monthly import total from China. The yearly total at the same rate is $412.8 billion.
  2. USD GDP annualized is $15,003.8 billion.
  3. 412.8 ÷ 15,003.8 = 0.02751303

I calculate 2.75%. The reported 2.7% is close enough. Revisions or rounding errors can easily account for the difference.

Regardless, that is how the number was derived.

San Francisco Fed Report

Having done the math (still peeved at missing links), I just found the San Francisco Fed report The U.S. Content of "Made in China".
Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling, and marketing goods carrying the "Made in China" label. Although the fraction is higher when the imported content of goods made in the United States is considered, Chinese imports still make up only a small share of total U.S. consumer spending. This suggests that Chinese inflation will have little direct effect on U.S. consumer prices.

In our analysis, we combine data from several sources: Census Bureau 2011 U.S. International Trade Data; the Bureau of Labor Statistics 2010 input-output matrix; and personal consumption expenditures (PCE) by category from the U.S. national accounts of the Commerce Department's Bureau of Economic Analysis. We use the combined data to answer three questions:

• What fraction of U.S. consumer spending goes for goods labeled "Made in China" and what fraction is spent on goods "Made in the USA"?

• What part of the cost of goods "Made in China" is actually due to the cost of these imports and what part reflects the value added by U.S. transportation, wholesale, and retail activities? That is, what is the U.S. content of "Made in China"?

• What part of U.S. consumer spending can be traced to the cost of goods imported from China, taking into account not only goods sold directly to consumers, but also goods used as inputs in intermediate stages of production in the United States?

Total import content of U.S. PCE

Not all goods and services imported into the United States are directly sold to households. Many are used in the production of goods and services in the United States. Hence, part of the 88.5% of spending on goods and services labeled "Made in the USA" pays for imported intermediate goods and services. To properly account for the share of imports in U.S. consumer spending, it's necessary to take into account the contribution of these imported intermediate inputs. We use input-output tables to compute the contribution of imports to U.S. production of final goods and services. Combining the imported share of U.S.-produced goods and services with imported goods and services directly sold to consumers yields the total import content of PCE.

Broader implications

The import content of U.S. PCE attributable to imports from China is useful in understanding where revenue generated by sales to U.S. households flows. It is also important because it affects to what extent price increases for Chinese goods are likely to pass through to U.S. consumer prices.

China's 2011 inflation rate is close to 5%. If Chinese exporters were to pass through all their domestic inflation to the prices of goods they sell in the United States, the PCE price index (PCEPI) would only increase by 1.9% of this 5%, reflecting the Chinese share of U.S. consumer goods and services. That would equal a 0.1 percentage point increase in the PCEPI. The inflationary effects would be highest in the industries in which the share of Chinese imports is highest—clothing and shoes, and electronics. In fact, recent data show accelerating price increases for these goods compared with other goods.

However, it does not seem that so far Chinese exporters are fully passing through their domestic inflation. In May 2011, prices of Chinese imports only increased 2.8% from May 2010. This is partly because a large share of Chinese production costs consists of imports from other countries. Xing and Detert (2010) demonstrate this by examining the production costs of an iPhone. In 2009, it cost about $179 in China to produce an iPhone, which sold in the United States for about $500. Thus, $179 of the U.S. retail cost consisted of Chinese imported content. However, only $6.50 was actually due to assembly costs in China. The other $172.50 reflected costs of parts produced in other countries, including $10.75 for parts made in the United States.

Figure 2

Geography of U.S. PCE, 2010

Geography of U.S. PCE, 2010


Figure 2 shows the share of U.S. PCE based on where goods were produced, taking into account intermediate goods production, and the domestic and foreign content of imports. Of the 2.7% of U.S. consumer purchases going to goods labeled "Made in China," only 1.2% actually represents China-produced content. If we take into account imported intermediate goods, about 13.9% of U.S. consumer spending is attributable to imports, including 1.9% imported from China.

Since the share of PCE attributable to imports from China is less than 2% and some of this can be traced to production in other countries, it is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressures in the United States.

No Excuse for Missing Link

Given that the article is readily available, there is no excuse for the LA Times' failure to link to it.

Generally, in cases like this, I ignore the superfluous article and instead go straight to the source. However, I have had enough of link suppression and am calling the LA Times on it.

Bloomberg authors take note. I nearly wrote the same about you a few days ago but was too busy. Fellow bloggers, watch what you are doing. I despise snips like "Reuters Says" with no link. Worse yet are instances where I cannot even find the quote when I search for it.

Inflationists Take Note

Moreover, in this instance, the LA Times author missed the most important implication of the report, which is "Chinese inflation will have little direct effect on U.S. consumer prices."

I concur with the San Francisco Fed conclusion.

Interestingly, the San Francisco Fed report did not show the direct math either. Now you know how to do it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Spain Pressured by Letter from Trichet; More on Agricultural Trade Wars; Which Comes First, Harmony or Workable Currency Unions?

Posted: 14 Aug 2011 07:12 PM PDT

Not only was Italy pressured by ECB president Jean-Claude Trichet, so was Spain. Courtesy of Google Translate, El Pais reports Trichet Pressures Spain in Letter.
The ECB makes recommendations to Spain in a less hard than Italy, in return for the purchase of debt.

The announcement of the budget measures made on Sunday by Finance Minister, Elena Salgado, was preceded by increased pressure on Spain by the European Central Bank (ECB). Its president, Jean-Claude Trichet, last week sent a letter to the Spanish government to ask him not to stop the reforms and measures to contain the deficit. The letter, whose contents are discussed in the meeting of the ECB governing council meeting on Thursday, August 4, left Frankfurt at the same time as the letter that led to the Italian Prime Minister Silvio Berlusconi to step on the accelerator of its fiscal reforms.
Does anyone think these were "recommendations" and not demands?

For a discussion on the letter to Italy, please see my previous post Trichet's Secret "Dragon Transfer" Letter to Italy PM; Watch France CDS Rates as France is "New Italy"; Trichet Illegally Usurps Judge-and-Jury Power

Agricultural Trade Wars Part Two

As a followup to Border Attacks: Spanish Farmers Threaten to Block Border with France; Global Trade Wars Yet Another Sign of Deflation here are more articles and images of the escalating agricultural trade wars between France and Spain.

Angry French Farmers Dump Spanish Peaches, Burn Tires

Via French to English translation, please consider The anger of farmers
Big day mobilization fruit and vegetable department. Objective of the mobilization: to maintain pressure on the government Tuesday after an action in the Gard region, where several trucks carrying merchandise Spanish saw their cargo spilled on the road.

Angry farmers are then directed to the St. Charles market, where they dumped tons of peaches and then burned tires at the roundabout at the entrance of the platform.



"This is a Spanish enclave on French soil. They betrayed us under the pretext of winning even more. After the intervention of firefighters to put out different fires, farmers are directed to the toll of Perpignan Sud to control several trucks coming out of St. Charles. One of them took the road to Germany was emptied on the floor by young farmers, especially put together. "We're not bandits and we have nothing against Spanish producers, but the merchandise that was found in the truck does not respect the rules especially for fisheries that are surcalibrées. Since the state does not respect the rules, they did their job."
Should we nationalize supermarkets?

You know trade wars are intense when you see questions like this in French headline news: Should we nationalize supermarkets?
Yesterday, at the toll Lancon, motorists could not believe their eyes. Fifty people brutally emptied the cargo trucks to foreign registrations. These people, it is the farmers of Vaucluse, Bouches-du-Rhône and Gard that have exploded in anger.

Low price for sale result of distortion of competition in their view by large retailers, more and more taxes to pay, and especially a flood of imported fruits and vegetables too important. These are the arguments of those farmers to explain the "unprecedented crisis" that they live this year.

"All agricultural sectors are affected, including fruits and vegetables. The retail products brought in from Spain and Italy among others. The labor is cheaper in these countries with low prices.

French farmers have to lower their prices by at least 20, 30 and even 40% to sell. Currently, the loss of gross turnover rises 25 to 50 according to the operation, "said Andre Bernard, president of the Departmental Federation of Farmers' Unions of the Vaucluse.

Thus, to fight against the importation, the farmers of Vaucluse, Bouches-du-Rhône and Gard, framed by the police, conducted a blitz by immobilizing all foreign trucks trying to cross the toll of Lancon, creating a cap of more than 5 km.

Manuel, a Spanish driver, despite his resistance, has seen its 24 tons of crushed nectarines on the tar. "It's incomprehensible, Manuel gets mad, I understand that the French production has problems, but why attack me? I do my job."



Within 45 minutes, farmers have drained three-truck trailers full of peaches, oranges, figs and pears. "The loading of these trucks is one year of work for one local farmer. And it's not for us we buy the products, carried away the chair 84 of the FNSEA. Now, that's enough. We ask to meet with government to develop a structure plan to save the profession. "
Which Comes First, Harmony or Workable Currency Unions?

While pondering the meaning of escalating trade wars between France and Spain, please consider this excerpt from When money brought us together
The dream that a common currency can foster harmony has a long history. But if the past is any guide, proponents of the euro may have it backward: Where money is concerned, harmony has to come first. You can't create a currency to unite people; you must unite people in order to have a currency. Given the growing tensions between the members of the eurozone, that unity, like de Parieu's dream of "pacific federations of the future," seems more distant by the day.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Swiss Government and Swiss National Bank in "Intense" Talks on Currency Target for Swiss Franc; Talk is Cheap

Posted: 14 Aug 2011 03:46 PM PDT

Bloomberg reports Franc Weakens Against Dollar, Euro After Report Currency Target Discussed
The franc weakened after SonntagsZeitung reported over the weekend that the Swiss government and the central bank are in "intense" talks over setting a possible target for the currency, citing unidentified people close to the situation.
Talk is Cheap

OK, once you decide a target, how do you get it there? I addressed that question previously in Swiss Central Bank Ponders "Temporary" Peg to Euro; Franc Trades Sharply Lower; This a Bluff? What Does it Take to Maintain a Peg?
Is the Threat a Bluff?

Just because someone discusses something does not mean the discussion was serious. We cannot tell.

However, we do know what a currency peg requires: To maintain a currency peg, one must buy (or sell) virtually unlimited quantities of a foreign currency, as much as the market supplies, to maintain the desired conversion rate.

Interest rate policy works the same way. To maintain an interest rate target, the Fed (or any central bank in general) must supply or subtract unlimited amounts of currency to maintain its target interest rate. This happens continually.

If the rate is targeted lower than what the market thinks, the Fed or Central Bank must print enough money to keep the target. Likewise, if the Fed sets a rate higher than the market dictates, it must drain as much money as necessary to keep rates to the peg.

Does anyone really think this continual micro-manipulation of currency to maintain an arbitrary interest rate (set by central planners who do not know what they are doing) is a good idea?

Currency Peg Risks

Back to the Swiss Franc: A currency peg is much riskier, because the defense is not in relation to its own currency as it is with interest rates. Moreover, one might expect wild swings and an immediate snap-back once the peg is removed. Thus "temporary" might mean for as long as the Euro crisis continues, and that might be a very long "temporary".

Finally, note the relative size of Switzerland vs. all the Eurozone countries. Buying "unlimited" Euros could rapidly get out of hand.

China goes through the same setup to maintain its "widening" peg to the US dollar. However, China does not allow much external trade of the Yuan.

The above discussion does not answer the bluff question, but it does state what the parameters of the defense must be. All things considered, I do believe it is a bluff.
Let's return to the question: Is it a Bluff? I still don't know but now I think it's more likely than I previously thought.

Bear in mind, setting a target and hoping the market reacts to it, and officially setting a peg are different things. However, once bureaucrats start marching down a certain path it is hard to get them to stop, no matter how futile the march.

I have never seen currency intervention work. It's hard enough if you are a large country, but the size difference in economies and forex trading says the idea cannot work unless the target just happens to be at or near where the market thinks it should be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Growing Gloom for States and Cities; Who is to Blame? What About Solutions?

Posted: 14 Aug 2011 11:29 AM PDT

A New York Times article accurately describes a set of fiscal realities in Sunday's editorial A Growing Gloom for States and Cities. The New York Times wildly misses the mark as to who is to blame for this crisis.

NYT: Washington should have been trying to find a way to help states avoid the layoffs and cutbacks that have contributed heavily to the high unemployment rate. Instead, it seems to be doing everything possible to make the situation worse in state capitals around the country.

Mish: That is essentially correct (except the implied tone). I proposed three items that would most assuredly help cities and states. Once again, here they are.

  1. Scrap Davis-Bacon and all prevailing wages laws that force up costs of construction and other projects at the city, county, state and federal level.

  2. End Collective Bargaining of public unions. Governor Scott Walker in Wisconsin shows the dramatic results that can happen if this is done. School districts that had budget deficits hugely in the read, saw them immediately go into the green, and not even for reasons that one might think. I wrote about it in Union-Busting is a "Godsend"; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids

  3. Pass national right-to-work laws. Again this will help cash-strapped cities, counties, and states that have to deal with union-mandated pricing instead of competitive pricing. The goal of government should be to provide the most benefit for the least cost. The goal of unions is to provide as little work as possible for the most cost. It's time we end that model.
We can easily avoid the layoffs the NYT mentions if public unions accepted lower wages. They won't. Instead, unions cannibalize younger workers for the sake of maintaining preposterous wages and benefits at the top vs. wages and benefits in the private sector.

Point blank, the public is fed up with higher taxes to support public unions who get vastly superior wages, benefits, and guarantees than they do.

NYT: A recent report from the Center on Budget and Policy Priorities showed that nearly all states will spend less on vital services in 2012 than they did in 2008, after inflation, even though there are more children in public schools and more poor people on the Medicaid rolls.

Mish: Sounds like a good idea to me. We have overpaid for services delivered. My proposals above will help address that issue.

NYT: And now comes the Budget Control Act of 2011, the deal reached in Congress to cut $2.4 trillion over the next decade in exchange for raising the debt ceiling. Although the deal could have been worse and was structured by White House negotiators to reduce the impact on safety-net programs like Medicare and Medicaid, it will do real damage at the state and local level.

Mish: The budget deal could hardly have been worse. There were no spending cuts, tax hikes, or reforms in the measure. The only agreement was to cut a lousy $2.4 trillion ($240 billion a year), all back loaded, not Congressionally binding, when the budget deficit is $1.4 to $1.6 trillion a year. How could it possibly have been worse?

NYT: The credit downgrade that resulted from the debt crisis has yet to directly affect state and city bonds, many of which are now absurdly rated higher than Treasury bonds, but credit scrutiny will only get stricter for already weakened states and cities.

Mish: I certainly agree it is absurd for city and state bonds to be rated higher than US treasuries. However, the S&P downgrade of the US was fully warranted, even if the S&P went about it in a horrendously sloppy manner. Moreover, increased scrutiny of city and state bonds is a fabulous thing. They are living beyond their means and accurate bond ratings can only help.

NYT: If investors start to get nervous about the public sector, borrowing costs could go up. Stock volatility is also taking a toll on state pension funds, which are often heavily invested in the market. Last Monday, when the Dow Jones fell by more than 600 points, the California retirement system lost $6 billion. Declines in the market also lower income tax revenues for state coffers.

Mish: It is the height of absurdity to manage interest rates, bond ratings,etc. for the benefit of the stock market. The fact of the matter is stocks are priced for perfection and they should fall because perfection is not on the way. Thus, the NYT is openly encouraging bubbles to bail out pension plans.

I have a better idea: Let's start tackling the idea that promises to public union workers and government workers are untenable and need to be reduced.

Come to think of it I need to add point 4 to my list. Here it is.

4. Immediately kill defined benefit plans for government workers and accept the idea that promised benefits will be reduced voluntarily or via bankruptcy.

NYT: The Republicans who produced this artificial crisis, and are responsible for its effects, say they would like nothing more than to see a reduction in state as well as federal spending. That is where government hits closest to home, affecting the size of classrooms, the bulbs in streetlights, the asphalt in potholes, and the lines in emergency rooms.

They are well on their way to achieving their goal, making life more difficult in every city and town.

Mish: That is one of the biggest pieces of nonsense in the entire article, chock full of complete nonsense.

It certainly is not Republicans who support Davis-Bacon, Collective Bargaining for public unions, or forced union employment against the free-will of employees. Indeed forced union employment is tantamount to forced slavery.

I discussed the slavery aspect of forced union membership many times. Here are a pair of articles to consider:



Thus, not only does ridding the US of collective bargaining for public unions and instituting national right-to-work laws make economic-sense, it also makes moral-sense.

However, there is plenty of blame for Republicans too. They failed to put these issues on the table. Republicans and Democrats alike refuse to do anything about bloated defense budget that could easily be cut in half at no expense to the security of the US. Indeed, if the US stopped trying to be the world's policeman, our security concerns and enemy list would plunge.

Cutting the defense budget by a mere 25% would save at least $2 trillion over 10 years. Sadly, both parties support unsustainable US war-mongering policies.

So, yes, I blame Republicans too, but 180 degrees removed from what the Times suggests. Finally, it is primarily Democrat support for unions and untenable union pensions that is at the heart of the crisis in city, state, and municipal governments.

There is plenty of blame to go around, let's recognize all of it, and for the right reasons.

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


Stanford Offers Free Robotics and Artificial Courses; 10,000 Already Sign Up

Posted: 14 Aug 2011 09:47 AM PDT

In the realm of good (as well as deflationary) news You (YOU!) Can Take Stanford's 'Intro to AI' Course Next Quarter, For Free
Stanford has been offering portions of its robotics coursework online for a few years now, but professors Sebastian Thrun and Peter Norvig are kicking things up a notch (okay, lots of notches) with next semester's CS221: Introduction to Artificial Intelligence. For the first time, you can take this course, along with several hundred Stanford undergrads, without having to fill out an application, pay tuition, or live in a dorm.



This is more than just downloading materials and following along with a live stream; you're actually going to have to do all the same work as the Stanford students. There's a book you'll need to get. There will be at least 10 hours per week of studying, along with weekly graded homework assignments. The professors will be available to answer your questions. You can look forward to a midterm exam and final exam. If you survive, you'll get a certificate of completion from the instructors, along with a final grade that you can compare to the grades of all those supersmart kids at Stanford.

You won't technically earn credits for the course unless you're a Stanford student, but for all practical purposes, you'll be getting the exact same knowledge and experience -- transmitted directly to you by none other than two living Jedis of modern AI. Thrun, director of the Stanford AI Lab, led the team that won the 2005 DARPA Grand Challenge, and, more recently, he helped develop the Google self-driving car. Norvig, a former scientist at Sun and NASA, is now director of research at Google and co-author of the leading textbook on AI.
10,000 have already signed up, and there is no limit.

Parents, if you have kids in high school, I encourage you to have them take this course. It may change their career plans for the better. For signup information and more details, please see the opening link.

I applaud the professors for offering these courses for free. Since the materials will be graded, college credits should apply but they don't. It's a start.

Addendum:

10,000 had signed up according to the article. The number is currently 56,000 and counting in various free courses. Here is a list of Free Stanford Courses

Some objected to the $58 (discounted) cost of the required book.

Here's the deal. Paying $58 for a book is peanuts compared to cost of 3 semester hours. Of course (and as I have pointed out) credits are not given for the free course. They will. Eventually, some college will get accredited and will accept these courses. It is inevitable.

This is a far better development than the failed policy "no child left behind" or raising taxes to throw at teachers' unions. Indeed, this is the future of education and it is very deflationary.

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


Seth's Blog : The inevitable outcome of marketing fear

The inevitable outcome of marketing fear

Years ago, the authorities decided that a key weapon in the war on terror (sic) would be to make people more afraid.

Two reasons for this: if you make potential bad guys afraid, they might not move up and graduate to become actual bad guys, and second, if something does go wrong (and of course, things always go wrong), at least it looks like you were trying.

And so an infrastructure is built in which photographers are detained, in which expensive scanners that don't work are installed and in which people believe they are doing their job when they engage in the fear mongering part of the work without paying attention to the actual inspecting and crime fighting part.

At the airport on Thursday, a colleague of mine was detained by two armed police officers because he took a picture (out the observation window!) of a sunset. And when I politely declined to go through the magic scanner, I was put through the regular (inferior?) scanner, detained, carefully searched and basically encourged not to do it again.

Of course, the hard-working folks doing the detaining feel like they're doing their job. It's easy to measure. It's in the manual. It feels like progress. It's actually a cargo cult, though, the sort of thing an organization does to simulate progress when it's actually distracting itself from the mission at hand.

Fear can be used as a tactic, but it's almost never the end goal of marketing. The problem with using it as a tactic is that it's so easy to do, organizations almost always forget the real point of the exercise.

 

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