Now, some in this chamber may want to return to the days of outrageous state spending growth. To gimmicky programs that take money out of the taxpayers right pocket, and have Trenton keep most of it. Then return far less of it in their left pocket, take a bow and call it tax relief.
Now, New Jersey has seen 30 years of this as Trenton's solution to fix property taxes. It never has fixed a problem and it never will fix the problem. And New Jerseyans will not fall for the same old Trenton politicians' trick again.
We know that the only way to ensure that Trenton politicians will not waste your money is to not send it to them in the first place.
Famously outspoken New Jersey Governor Chris Christie says he's "tired" of making the discourse surrounding tax reform all about Warren Buffett - and that if the billionaire investor wants so badly to pay more taxes, "he should just write a check and shut up."
In a CNN interview on Tuesday, Christie sparred with Piers Morgan over the issue, arguing that, as governor, he's "not going to let the most vulnerable suffer." But the Republican governor added that he also is "not going to get into this class warfare business, where certain people are more important than others or deserve more attention than others."
"I'm so tired of talking about Warren Buffet. What are you going to bring up next, his secretary?" asked Christie on CNN.
"He should just write a check and shut up," Christie said, later on in the interview. "Really, and just contribute, OK? I mean, you know, the fact of the matter is that I'm tired of hearing about it. If he wants to give the government more money, he's got the ability to write a check, go ahead and write it."
Christie said that in New Jersey, he's proposed lowering tax rates for everyone, even the highest earners.
"What we're doing here in New Jersey is everyone will get a 10 percent tax cut. Everyone will get their taxes reduced," he said.
If you start sending government more money, I guarantee you politicians will find thousands of ways to waste it.
Christie will be on CBS' "Face the Nation" on Sunday, Feb. 26. It should be entertaining.
With the masses screaming their lungs of about hyperinflation, something that is highly unlikely at best, Hugh Hendry of Eclectica Talks About Hyperdeflation, why China might have a hard landing, and various off-the-beaten tracks Japan plays.
Here is clip from a Barron's interview.
Barron's: Where do you find yourself outside the existing belief system today? Hendry: In 2009, I made a YouTube video of the empty skyscrapers in Wuhan, China. Goldman Sachs and others articulate a very reasonable and compelling argument of being invested in China. With the evidence of my own eyes, I concluded that China had a very robust system of creating gross-domestic-product growth, but forsaking the creation of wealth.
When America was having its China moment in the 19th century, it occurred against the backdrop of a gold standard, a hard-money regime, with a public sector that was minuscule versus the overall size of the economy. As an entrepreneur, if your project failed to generate a sustainable level of cash flow, you failed.
If you talk about a hard landing in China, you talk about GDP growth of 5%, not minus 5% or minus 15%. The Chinese government prints money. It can build superfast railways and overbuild airports, because the rest of the economy can subsidize it. China's swollen public sector is directing asset allocation, rather than pursuing profit maximization. They see [their system] as a success. But it creates a bubble, which can prove quite damaging.
Barron's: You've already had a hard landing—in the Chinese stock market. Hendry: I should add something else that is contentious—U.S. quantitative easing [that eventually sent more money flowing to China], promoted because America had two sharp recessions and pursued orthodox policies, and had very little to show in the creation of jobs.
The policy was very successful. China now has inflation. Minimum wages have grown 20% annually for the past three years. This has encouraged the Chinese to tighten monetary policy. When you have bubbles and you tighten, bad things happen. China's stock and property markets are weak, a side-effect of quantitative easing. We may now have the pricking of the Chinese bubble. A year or two down the line, it could have enormous repercussions for the global economy.
Barron's: How does one play it? Hendry: The world is very fearful of hyperinflation. Pension schemes have a preponderance of real assets, from forestry to gold to TIPS [Treasury inflation-protected securities], because they are very fearful. The road to hyperinflation is via hyperdeflation. That is why it's proving so difficult for hedge funds to make money. How does the rational mind that anticipates hyperinflation own 10-year government Treasuries yielding less than 2%? It can't. That's why people are struggling. To lay the seeds of hyperinflation, you need really, really bad things to happen. I thought the U.S. housing market having a massive crash would be hyperdeflationary. But then my Chinese friends pumped $1 trillion of credit into their $5 trillion economy, and created a global recovery, which has just come to an end. I'm speculating that hyperdeflation happens before hyperinflation. What's the worst that could happen? But the sum of all my fears would be China having a real hard landing of minus 5% or minus 10% GDP growth. If we had that—and Europe—the Fed would be printing $20 trillion, and I would have gold at $5,000. You can have a modest amount of gold, but you can't have all your assets in real assets, in case we get that hyperdeflation event.
Barron's: So how do you make money? Hendry: Would you believe that the AIG strategy of selling too much credit protection in risky assets like mortgage-backed securities is alive and booming today in Japan? It doesn't concern mortgages. It is credit-default swaps on individual Japanese corporations.
Barron's: Do you seriously believe Japanese corporations are going to fail? Hendry: Clearly, they can and do go bust. I'm buying the CDS on investment-grade Japanese corporations because of the overpricing anomaly. Japan had a bust 20 years ago, and yet today the banking stocks, relative to [Japanese bourse] Topix, are making fresh lows.
If I'm a Japanese bank and I lend money to a new business, I get 1% on 10-year paper. Then the bank gets a call from me, and I'm willing to pay 50 basis points for five-year protection on this same company. So suddenly, the yield has gone from 1% to 1½%. Compare that to five-year Japanese government bonds, yielding 30 basis points. The bank thinks: This is a great trade! Japanese steel companies are investment-grade and won't go bankrupt. So, the bank gets this huge yen yield, and thinks it is not taking any risk. You'd better believe it will sell way too much of that good thing.
One of my partners told me about Japanese steel: Here is a country with no energy, no iron ore or coal, yet it's the largest exporter of steel in the world, exports half its output. To put that in context, China manufactures 700 million tons of steel and exports perhaps 30 million. Japan produces 110 million tons and exports 40 million. As long as Asia is strong, they are fine. But if Asia hiccups or reverses, plant-utilization rates go from very high to very, very low very quickly.
Then we discovered that Warren Buffett owned shares of South Korea's Posco [5490.S. Korea], and that Korea was the biggest importer of Japanese steel, but Posco and Hyundai [5380.S. Korea] are building huge, integrated steel plants. They have a surplus of steel capacity and—guess what?—they're exporting to Japan, because the yen is so strong.
Initially, I wanted to buy a three-year, out-of-the-money put on Nippon Steel. My broker said, "I've been in a 20-year bear market; my boss will kill me." Then I thought, being long credit protection is being long volatility. I redialed his credit counterpart. I said: "I'm thinking of purchasing up to a billion yen of five-year credit-default swaps in Nippon Steel." The first thing he said was, "Would you consider 10 billion?" So one part of the bank is banned from selling volatility, and the other part is having a party. I bought reams of the stuff.
Barron's: We've barely discussed Europe. Hendry: We are partly playing it through Japan. If events kick off again in Europe, the correlation across all [global] asset classes will go to one. So the steel CDS is 130 basis points, while to insure against default by the French government, I'd be paying the same amount. Which is riskier? A very leveraged steel company that can't tax you? Or a government that can? Our bearish bets are largely outside Europe. As for Greece, the end game will be the Greeks rejecting austerity. The euro is nothing but a gold standard lacking flexibility, and all the onus is on private citizens to take the pain. Eventually, a Greek politician will say, 'Vote for me, and I'll get us out of this system.'
Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.
The Barron's interview is well worth a read in entirety.
Sherry Hunt, a Citigroup quality-assurance vice president turned in evidence of purposeful fraud against Fannie Mae and Freddie Mac and now stands to gain as much as $31 million as her share of the fine.
Citigroup Inc. (C), which last week admitted breaking Federal Housing Administration rules and paid a fine, also violated regulations for home loans sold to Fannie Mae (FNM) and Freddie Mac (FRE), according to a whistle-blower's complaint.
The bank "defrauded, falsified information or misled federal government entities" by selling or securing insurance for mortgages with defects such as improper appraisals and not reporting them as required, Sherry Hunt, a Citigroup quality- assurance vice president, said in her complaint, which was unsealed yesterday. It was filed under the False Claims Act in federal court in Manhattan in August.
Hunt's charges formed the backbone of the U.S. Justice Department's case against Citigroup, which paid $158.3 million in a Feb. 15 settlement and admitted that it certified loans for FHA insurance that didn't qualify. Her complaint provides additional details into the bank's broken mortgage-processing system. In last week's agreement, the government reserved the right to pursue criminal and other charges related to mortgages originated or underwritten by Citigroup and not insured by the FHA.
As a whistle-blower, Hunt's share of the settlement will be $31 million before taxes and attorney's fees, she said in a Feb. 15 interview.
For Citigroup, the third-largest U.S. bank by assets, the high defect rates could be costly. It might be forced to buy back substandard mortgages sold to government-controlled Fannie and Freddie, who buy or guarantee most U.S. mortgages.
Last year, Citigroup repurchased 6,600 loans from government buyers, an 89 percent increase from 2010, according to a presentation on its website. The bank set aside $1.2 billion to buy back defective mortgages as of the end of 2011. That's the most ever, and up from $969 million in 2010.
Hunt said Citigroup knowingly vouched for the quality of loans that were "deficient" in income documentation, had incomplete borrower job histories, appraisal problems, errors in closing paperwork, missing credit reports and miscalculated maximum mortgage amounts, among other flaws.
Some managers' compensation was tied in part to reducing the defect rate, Hunt said.
For certain types of home loans, Citigroup's "defect rate" -- the rate at which the underwriting raised questions -- was 80 percent, said Hunt, 54.
Taxpayers are on the hook for over $180 billion in bailouts to Fannie and Freddie. Citigroup got off the hook with a $158.3 million fine, of which Hunt gets a bonanza jackpot of $31 million.
Meanwhile, fraud is everywhere, and no one has gone to prison or held remotely accountable.
As for why the price of gasoline is rising, how about a discussion of ...
Peak oil
Supply disruption in the Mideast
Unsustainable growth in China
Liquidity spigots in the US, Europe, Japan, and China
... because the falling dollar theory sure is not the right answer.
Nor does this statement from the article make much sense "At this point, we can be certain that, unless gold prices come down, gasoline prices are going to go up—by a lot."
Really? Why can we be certain of that?
I get the fact he likes gold, and so do I. However, while the factors driving gold and oil overlap to a degree, they are not identical, and as I have pointed out gold can rise in deflation (it already has).
Woodhill's comment "because the dollar is currently a floating, undefined, fiat currency, there is no inherent limit to how far the price of gold in dollars can rise, and therefore no ultimate ceiling on gasoline prices" is technically true, but only in the context of hyperinflation.
Otherwise there is indeed a practical limit on the rise of the price of oil. Moreover, and as I have explained many times, many ways, the odds of hyperinflation in the US are extremely small.
The ECB's LTRO was a stunning success. Or was it? Certainly rates dropped in Italy and Spain. However, all that really happened is the ECB became the buyer of first resort in which banks front-ran the trade, buying sovereign bonds for sure profit, plowing back into the same problem that created the European mess.
The ECB's balance sheet skyrocketed in the process, and banks that plowed into those 3-Year LTROs (long term refinance operations) at cheap rates will face a huge rollover problem when the program ends, if not substantially before then.
Should something go wrong (and it will), then the ECB (or rather EMU member countries, especially Germany) will be on the hook for losses.
Consider the enormous mess over the past few weeks caused by a measly 40 billion euro holding of Greek debt by the ECB. Now take a look at the ECB's Balance Sheet expansion recently.
ECB Balance Sheet
Since July 8 2011, the ECB's balance sheet has expanded from 1.92 trillion Euros to 2.66 trillion Euros, a rise of 740 billion euros. €489 billion of that that was taken by 523 banks in the ECB's long-term-refinance-operation LTRO.
Round two is scheduled for February 29, and the ECB is rightfully getting nervous.
Courtesy of Nomura's euro area economics and strategy team:
Nomura explains In a normal functioning money market a rate cut by the ECB should trigger a tick up in money (i.e. deposits) and credit growth.
But, in abnormal times the interest rate and the bank lending channel can break down. And when banks are shut out of the money markets, they are forced into asset fire sales; the pressure on bank balance sheets can be severe, preventing banks from expanding the supply of credit.
It doesn't appear that the interest rate channel has improved since 2008; a worrying conclusion given the myriad ECB unconventional policy interventions in that period.
ECB Buyer of First Resort, Banks Still Aren't Lending
Simply put, banks aren't lending and funds pile up at the ECB just as excess reserves have piled up at the Fed.
The ECB is in worse shape than the Fed because rules prevent it from taking losses. When, not if, Spanish rates head back up, the ECB is going to have a pile of losses it will have to force onto member countries.
The ECB is already sitting on small stack of losses on Portuguese bonds, but for now the ECB supposedly has a profit on Spanish bonds, just as it supposedly had a profit on Greek bonds.
Last month, European banks tapped the ECB for €489bn in a long-term refinance operation dubbed LTRO. On February 29, another round of LTRO is coming up and expect banks to go for the gusto. Banks like cheap money to speculate and that is exactly what they will do.
Several of the eurozone's biggest banks have told the Financial Times that they could well double or triple their request for funds in the ECB's three-year money auction on February 29.
"Banks are not going to be as shy second time round," said the head of one eurozone bank at last week's World Economic Forum in Davos. "We should have done more first time."
Unlimited Money for Three Years at One Percent
The ECB is offering unlimited money to banks for three years, at one percent. Banks are salivating because the first round went well.
The money is supposed to go for bank lending but it won't. Why should banks lend? They have a guaranteed profit by speculating in Spanish or Italian bonds, assuming of course Spain and Italy do not need bailouts coupled with a writedown on government debt.
However, that's quite a risk, and in my opinion Spain will need such a writedown. If so, Germany will be on the hook once again.
Money Supply Will Soar, Lending Won't
Don't expect the next LTRO to make it into the real economy. It won't. Rather the LTRO will fuel more bank speculation and more leverage in government bonds. Money supply will soar, lending won't and this rates to be good for gold.
Money supply did soar, gold rose, lending didn't, and the ECB is getting nervous.
The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future.
Powerful members of the central bank's 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last.
Central bank sources say they are worried that banks will become too reliant on ECB funds, removing the incentive to restart lending between themselves.
The ECB first offered banks low cost three-year money in December to stave off a freeze in interbank lending that threatened to make the region's debt crisis much worse.
Banks flocked to take advantage of the offer, filling their coffers, and ECB President Mario Draghi said "a major, major credit crunch" had been averted.
The ECB funneled banks nearly half a trillion euros in cash at the first operation on December 21. A Reuters poll of over 60 economists showed a mid-range expectation for it to allot another 492 billion euros next week with some expecting up to a trillion to be taken.
ECB officials accept they have to help the banking sector but they also want to send a message that the unprecedented liquidity provision will end.
Bundesbank chief Jens Weidmann has warned that "too generous" supply of liquidity could create risky incentives for banks, which could in turn store up future inflation risks.
Bank of Finland chief Erkki Liikanen is also worried about ample liquidity provision leading to future problems and has said the ECB must think about how to unwind the extraordinary measures. Other senior policymakers are concerned too.
Anecdotal evidence suggests banks in Spain used the first LTRO to make most use of this "Sarkozy trade" - a term adopted by markets after the French president suggested governments look to banks that tapped the ECB operation to buy their bonds.
Italy faces a debt issuance hump in the next few months and could do with the second LTRO fuelling demand for its debt. It needs to sell around 45 billion euros of its bonds a month in both March and April versus 19 billion in February.
The European Central Bank's new three-year refinancing operations have reduced the risk of a major funding crisis in the Eurozone, but they will not prevent banks from shrinking their balance sheets and constricting loan growth, Standard & Poors said in a study released Tuesday.
The rating agency also warned that the ECB's massive long-term lending has only deepened the divide that already existed between healthy banks and those that are more dependent on ECB funding. The ECB pumped E490 billion worth of three-year loans into the banking system in late December and is expected by some analysts to inject a similar or even larger amount at the second three-year LTRO to be held next Wednesday.
"The increase in ECB loans to banks and in bank deposits at the ECB reflects a deepening divide of the European banking industry. The gap is between the liquid, more credit-worthy banking groups that stockpile liquidity at the ECB and those that are less credit-worthy and relatively dependent on central bank funding and on government support programs in general," S&P noted. "The larger role of the ECB reinforces the credit tiering in the industry, in our view."
The reported cited "high dependence" on ECB funding for the banking industries of Greece, Ireland and Portugal, with "growing net use" by banks in Italy and Spain, and a "relatively neutral" position for French and Belgian banks. The banks in Germany, the Netherlands, Finland, Austria and Luxembourg, on the other hand, are net lenders to the ECB, the study showed.
The report also noted that the historically high volumes deposited by banks with the ECB -- a total of E730 billion as of February 3, in the overnight deposit facility and in one-week term deposits used to sterilize the central bank's sovereign bond purchases -- shows that the interbank market is still on very tentative footing.
"In our opinion, the huge amount of very low yielding deposits (25 basis points in the deposit facility, roughly 30-40 basis points on the fixed-term deposits) indicates that the top-tier banks prefer the safety of the ECB due to the uncertain conditions in the bank funding markets," S&P said, though it conceded that required risk weightings on interbank loans might also be a factor behind the large bank deposits at the ECB.
S&P's assessment of the ECB's three-year lending program is strikingly less upbeat than the central bank's own view. ECB President Mario Draghi and other top ECB officials have repeatedly argued in recent weeks that new cash is beginning to circulate in the economy and that the high level of deposits at the ECB was not necessarily evidence to the contrary.
Liquidity Floodgate Set to Backfire
The diagram above shows banks are hooked on LTROs
Those LTROs have created an exit problem for the ECB
Banks still are not lending so there has been no help to the real economy
Reserves are piling up at the ECB
The ECB is on the hook for losses, rather the net lenders to the system are: Germany, the Netherlands, Finland, Austria and Luxembourg
The widely touted "success" of the program will be fleeting. Look for huge stress on the system the moment rates in Spain and Italy head back up. A mess in Portugal (100% guaranteed) may trigger a catastrophe long before then.
European (SXXP) services and manufacturing output unexpectedly shrank in February as the euro-area economy struggled to rebound from a contraction in the fourth quarter. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate released by e-mail today. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey.
A separate report showed German services and manufacturing expansion unexpectedly slowed in February amid declining orders at factories in Europe's largest economy.
Unexpected?!
Exactly why anyone thought this would not happen is a mystery. The second mystery is why the data is so "good". Let's take a look at the actual data.
Flash Eurozone PMI Composite Output Index at 49.7 (50.4 in January). Second-highest in six months.
Flash Eurozone Services PMI Activity Index at 49.4 (50.4 in January). Second-highest in six months.
Flash Eurozone Manufacturing PMI at 49.0 (48.8 in January). Six-month high.
Flash Eurozone Manufacturing PMI Output Index at 50.4 (50.4 in January).
The Markit Eurozone PMI® Composite Output Index fell from 50.4 in January to 49.7 in February, according to the preliminary 'flash' reading based on around 85% of usual monthly replies. The latest figure signalled a slight contraction in business activity following the marginal expansion seen in January, which had been the first month in which the Index had risen above the 50.0 no-change level since last August.
The latest reading was nevertheless the second-highest of the past six months, and suggests that the Eurozone economy has stabilised over the first two months of the year having contracted in the final quarter of 2011.
Incoming new business fell for the seventh month running, but the rate of deterioration eased for the fourth month in a row to register the smallest drop in demand for six months. Rates of decline eased in both manufacturing and services, with the latter showing the smaller decline. Manufacturers reported the weakest drop in demand for seven months, led by an easing in the rate of loss in new export orders, while the decline in service sector new business was the smallest in the current six-month sequence.
Backlogs of orders fell across the region for the eighth successive month, but at reduced rates in both manufacturing and services. The overall fall was the smallest for six months. However, a combination of falling inflows of new business and lower backlogs of work caused companies to trim their headcounts, leading to a slight drop in employment for the second successive month.
Reductions in headcounts were only marginal in both manufacturing and services, but contrasted with robust employment growth in both sectors during the first half of last year. Employment growth in Germany slowed to the weakest since March 2010, while only a modest gain was seen in France. Elsewhere in the Eurozone, the average rate of job losses eased to a four-month low but remained steep.
Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:
"A retreat back below the 50.0 no-change level for the Eurozone PMI is a disappointment, and highlights the ongoing risk that the region may be sliding back into recession. Although business conditions are showing signs of stabilising so far this year, which represents a marked improvement on the widespread deepening gloom seen late last year, the Eurozone is by no means out of the woods. Demand needs to improve considerably in coming months before we can safely say that the region will return to anything like reasonable growth.
"Encouragingly, business confidence continues to improve on the better news flow surrounding the sovereign debt crisis and renewed stimulus from the ECB. But even German companies remain unsure about the outlook, and many are clearly seeking to cut costs where possible in order to be more competitive in a tough business environment.
"Sharp divergences in performance also continued to be evident across the region, with modest growth in Germany contrasting with a steep decline in the periphery. Given the lack of domestic demand in austerity-hit peripheral countries, this divergence looks set to continue for some time."
Expect German-Periphery Divergence to Resolve to the Downside for Germany
The idea that Europe can avoid a recession is complete silliness. Europe is clearly in a recession already.
The amazing thing is things have not deteriorated more than they have. Unlike the Chief Economist at Markit, I expect the divergence to resolve to the downside for Germany, not for the divergence to continue for some time. Given conditions in Europe and Asia, the odds that Germany is immune from the global slowdown are essentially zero.
We're living in the Last Days! But then, we're always living in the Last Days. Since ancient humans began recording their observations about the world, they've been making their guesses as to when it will end. Needless to say, everyone has been wrong so far.
This infographic, published by MyFreeEmailSearch.com, includes some of the most famous End of the World prediction fails from the past, and a few valid ones from scientists that we are still waiting for the conclusion of.
Talk about being demanding! This Scottish Fold cat just can't get enough petting. Fortunately, when they're this cute, it's hard to say deny them anyway.
BoraBora is a design concept for a sunlight pill by Quentin Vaulot and Goliath Dyèvre of French design duo Vaulot&Dyèvre. The concept was part of the Miniflux exhibition by Gallery Tator for the 2011 Lyon Festival of Lights.
Moodiness, flaccid skin, looking dull, tendency to depression! You are obviously in lack of sunshine. Our range of supplements Kelvin Lumen restores the vitality you need. Sunset Laboratories offers a wide range of solar radiation, Borabora, the Maldives, Haiti and the Bahamas, ask your pharmacist. Read the instructions carefully. Do not exceed the recommended daily dose. This additional Solar should not totally replace natural exposure. Avoid abusive use.
I've been running an experiment with some dark-hatted links for several months, consistently hoping Google will catch them and remove their value. So far... Nothing. Well, except top 3 rankings for all the anchor text pointed at those pages. Google's webspam team has all the incentive, brainpower and money in the world, yet their bets seem to be centered firmly on Google+ and the social graph eventually subsuming the "natural" results with those biased to what our friends and connections share/+1. Fine. I get it. Link buying isn't going away, no matter how much we wish it would.
Even if link buying is working in the short-term and webspam's being less aggressive, I still think it's a waste of money for three reasons:
Rankings are tactical: Earning your way to the top rankings is awesome, because it brings with it the branding, familiarity, trust, social sharing and dozens of other positive marketing signals that "earned" links carry. Spam and paid links just give you some more traffic (and not even as much as a trusted brand could earn in the same position). Conversion rates are lower than your peers, and the secondary traffic benefits from other sources, word-of-mouth, etc. never come into play.
It's Overpriced: My wife's travel site gets offers for several hundred dollars to put in a few links on a single post, and that's not even an efficient market like those created by professional link sellers and link platforms. Playing the link buying game in the big leagues takes thousands to tens of thousands of dollars each month
There's Always Risk: You're already familiar with the horrific pain of Google's Kafka-esque penalties, but maybe you're banking on not getting hit, given their relative ineffectiveness over the past couple years. Problem is, Google+ has created two new kinds of risk for link spammers. The first is that social search results, which have virtually no ties to the link graph, will overwhelm "natural" results and make those purchased links largely useless. The second is that Google+ gains enough momentum and data to leverage for webspam analysis. If you've been pointing lots of links at sites and pages that earn no social traction, get ready to feel some pain. Maybe you're risk-tolerant enough to scoff off both of these, but I don't think Google+ is going anywhere, and I give them even-odds to have a social content/sharing graph big enough to pull off both within 24 months.
"Blah, blah, blah, I've heard your white hat evangelism before, Rand" Yeah, you have. Fair enough. So how about instead of just warning about what not to do, I give you somewhere to spend all those earmarked-for-spam dollars.
Here's some rough calculations on link purchasing in a moderately competitive vertical:
Ranking goal: single keyword phrase plus some slight modified phrases
Required: minimum of 50 unique root domains
35 will be one-time payments, but are relatively low quality, $100 is the average price (like I said, low quality)
15 will require ongoing payments to maintain the link, $100/month (on average) will probably do it
Total cost over 12 months: ($100*35)+($100*12*15) = $21,500
So, for $21,500, you can probably buy your way into the top 3 rankings for a moderately competitive phrase in a vertical like niche travel, low-volume e-commerce products, etc. Many black hats I know would argue they can get it cheaper, and they can, but that's usually because they own networks and properties or have relationships for which they wouldn't pay directly. A marketing guy working in-house at a brand has none of the connections, no networks of spamfarms, nothing except dollars and a business model that can turn $21.5K in spammy links into $100K in CLTV at 50% margins for a net of $28.5K.
Now let's try an alternative: Buying a blog.
Say you're LastWear Clothing (a site one of my favorite Moz engineers, Marty, particularly likes). They could buy some links to key pages (in spite of all the many good reasons not to) and try to get rankings for queries like men's hakama or womens underbust corset. There's a small amount of existing search query demand, and they're one of the only sources on the web selling those precise garments, so there's a good chance that would turn into sales.
But, let's try another thought experiment. I'll head over to Google Reader and run a search for "steampunk" (the aesthetic of LastWear's clothing):
The second site that pops up has a blog with 6,647 subscribers... And it's talking about the fashion of steampunk! I think we're on to something.
The Steampunk Workshop blog has thousands of subscribers, and they're already clear proponents of LastWear (I know, at this point you're thinking I planned all this from the start, but I swear, it just fell into place as I was searching/writing). That Workshop site is also running ads on the sidebar and between posts, which suggests an attempt at monetization. While not every site like this is a potential option, many are likely to be interested in an acquisition.
Here's one way I might structure it:
Steampunk Workshop moves their blog to LastWear.com/blog
They continue blogging about all the things they normally would - no editorial interference or direction needed
LastWear helps with a more professional design, subscription buttons, some marketing polish, etc. to help the blog earn more traffic, visibility and fans
In exchange for the move, LastWear offers a monthly stipend to the blogger(s) and a lump sum payment at the end of 3 years. After those 3 years, they own the blog and the content therein, and both parties can decide how they'd like to proceed with the relationship.
If LastWear went down this road, I can promise two things; #1) they'll get far greater short and long term ROI than buying links and #2) it will be less expensive in the long run.
To my mind, this is a no-brainer. When you buy a blog or any form of online community, you're not simply acquiring links, you're getting:
An engine for brand building and indirect customer acquisition
An ongoing methodology to pull in links, tweets, shares, +1s, likes, etc.
Brand evangelists who will help expand your reach and credibility
A PR opportunity like few others, even in fields where PR is hard to come by (acquisitions are talked-about, blogged-about, and make the news, even those of relatively small blogs)
Content that's already been proven to attract an audience
All the organic signals that search engines love to see - from links to social to usage to content to branding
I honestly don't understand why this problem exists:
It makes you want to yell, "Why don't you just go get married already?!"
Here's five questions I'd ask brands considering online marketing to answer before choosing link purchasing tactics over a blog investment strategy:
Which is more likely to be scalable in the long term?
Which is more likely to work across multiple channels (content, social, SEO, referring links, etc)?
Which carries a greater risk->reward ratio?
Which is more likely to increase conversion rate and customer lifetime value?
Which is more likely to earn you accolades from your community and which is more likely to earn you a rankings penalty one morning when you really need to hit your quarterly traffic numbers?
To be fair, there's plenty of challenges and hoops to jump through in these types of transactions and some won't work out. But, I see a huge disconnect between those who are naturally earning all the signals engines say they want (blogs and online communities) vs. those need them (commercial sites) and no reason the two can't co-mingle. If you're a marketer looking to invest dollars into earning a presence in the search, social and web world, you can either build it yourself or you can buy it. I hope to see lots of dollars flowing to the content pioneers who've already proven themselves effective earners of inbound marketing signals -- the bloggers.
p.s. In the future, I hope to cover this topic in more depth and detail and provide tools and methodologies to structure discovery, transactions, value-creation, etc. but for now, I hope this post offers at least a little inspiration and an alternative use for capitol that can do far more good in the hands of bloggers than fly-by-night spam operations.
Sign up for The Moz Top 10, a semimonthly mailer updating you on the top ten hottest pieces of SEO news, tips, and rad links uncovered by the Moz team. Think of it as your exclusive digest of stuff you don't have time to hunt down but want to read!
Postări
