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miercuri, 25 februarie 2015

The Marketing Department of the Future - Moz Blog

Posted on: Wednesday 25 February 2015 — 01:16

My first marketing job was in porn.

After leaving my journalism career and having studied marketing in an M.B.A. program in Boston, I moved to Israel some years ago to pursue a marcom career in the so-called "Startup Nation." My first job, however, turned out to be at a pornography website that broadcast live "shows" for $1 a minute.

Yeah, it's a little embarrassing. But I learned a lot – about what not to do.

Every day, I would write fake porn stories that would be stuffed with keywords and then published on an "independent" site with links to the main website. One day, I heard that Amy Fisher – the "Long Island Lolita" of the 1990s Joey Buttafuoco scandal – would be "performing" on the website. Finally, I thought, a chance to use my marketing knowledge! I outlined a few ideas on promotion and publicity – but the SEO director dismissed them with a wave of his hand.

"I'm sure the marketing department is handling that," he said. As I understood later, I was in the SEO department. I left that job quickly. (Actually, I was doing "black-hat SEO" – in other words, spam. Of course, real SEO – "white-hat SEO" – is something entirely different. But more on that below.)

Today, I recommend that anyone who wants to get started in real digital marketing should work for a company that sells a specific product to a specific audience. Porn, forex, and gambling websites – despite their lucrative potential salaries – are usually generic businesses that rarely differentiate themselves and instead rely on methods that try to "trick" Google. (Seriously, I just heard the other day about one company here doing what it called "black-hat PPC" to get around Google AdWords' restrictions on its industry.) And those tricks don't work anymore.

After leaving the porn website, I held various positions at global agencies before working now as a digital marketing and communications consultant. Today, based on the problems that I have seen and the fallacies that I have encountered, I wanted to propose a strategy to Mozzers on how marketing departments and agencies should structure themselves in light of the need to integrate traditional and Internet marketing today.

Note: This is my third post in an unofficial series on Moz on integrating online and traditional marketing. For more on this topic, please feel free to read An Introduction to PR Strategy for SEOs and The Coming Integration of PR and SEO as well.

Don't divide traditional and online marketing

In large corporations and similar companies that have been in existence for decades, digital marketing is often added as a second parallel structure alongside the historical marketing activities. The incorrect assumption is that traditional and Internet marketing are entirely different things that need entirely separate approaches. My basic example:

marketing-department-based-on-type-of-ch

But such a structure can lead to major problems.

At a prior agency, we had a client who hired us for both public relations and organic social media (in addition to paid social-media advertising and conversion-rate optimization). The goal of the PR team was to get coverage of the business and its executives in major, relevant publications. The goals of the Social Media team were to generate qualified sales leads and build a large Twitter following.

However, due to the flawed decision to separate PR and social media, the extremely-large number of good Twitter followers did not come despite the company's gaining of major coverage from outlets including Fox News, The New York Times, Forbes, Wired, and AdWeek.

Why? The PR team did not concern itself with social media, and the Social Media team did not think about public relations. There were many missed opportunities:

Press releases that were sent to reporters and influencers could have included the Twitter handle and links to the Twitter account
The PR team could have asked the Fox News' segment producers to include the company's Twitter handle on the bottom part of the screen when the program showed the CEO's name and business
PR could have advised the CEO to make sure that the company's Twitter handle was listed in the footer of presentation slides
The company's booths at global events could have showcased the Twitter hashtag

Now, it was not the PR team's fault – I can attest that they were intelligent, professional people. It was just not how the agency's operations were structured as a whole. The PR team did not think about anything relating to social media because it was the Social Media team's responsibility – and vice versa.

In a personal essay on my website, I explain how to get more good Twitter followers. First, use Followerwonk to find relevant journalists, bloggers, and influencers based on your target audience and strategic messaging and positioning. Then, incorporate Twitter naturally into your PR and publicity activities. There are no "tricks" to gaining large followings. The key to being big on social media is to become something big in the first place. The online and offline worlds reflect each other. (Rare viral cases such as "Alex From Target" are exceptions that prove the rule – "going viral" is too-rarely successful enough ever to be a solid strategy in and of itself.)

Don't create too many silos

In contrast to larger companies with long, vertical, and parallel structures, many small businesses and startups today are extremely horizontal and flat. According to 7Geese, companies such as Morning Star and Return Path have even taken it to an extreme by stating that "no one has a boss."

Here is another basic example of mine of how marketing departments in companies with flat philosophies are structured. Every single function is on the same level:

marketing-department-with-flat-structure

I once walked into the office of the CMO of an Israeli tech company that was building numerous products in various sectors. I was there to explore a consulting opportunity. Each product had an overall product marketing manager, and there were numerous, separate teams on a flat level that would each do "PR," "SEO," "social media," and more for each product.

Here are a few excerpts of my conversion with the CMO:

Me: What is the function of the SEO team?

CMO: To get more links.

Me: But the PR team will get the links you need naturally.

CMO: The SEO team will buy the links that we want the most. It's just easier and faster that way.

And then:

Me: So, you've got a PR team to reach out to journalists and bloggers?

CMO: Yes.

Me: What if a writer is only reachable on Twitter – will the PR or Social Media team reach out to them?

CMO: (silence)

And then:

Me: What will the Social Media team do?

CMO: Spread the word about the company's products on social media.

Me: How will they do that by themselves without content and without essentially doing PR's job?

CMO: (silence)

I can hear countless Mozzers groaning while reading each quote! I did not take the consulting job – the CMO was committed to the old ways of thinking that do not work anymore, and I could not convince him otherwise.

How to think about marketing functions

Important note: I know that I just said NOT to separate traditional and online marketing. In context, this earlier step-by-step infographic on how to integrate SEO and PR separated the two because the use of the differentiation was the easiest way to explain the integration process – it was not a recommendation to divide the teams themselves.

In that essay, I explained the traditional marketing and communications process in this way:

A sender decides upon a message; the message is packaged into a piece of content; the content is transmitted via a desired channel; and the channel delivers the content to the receiver. Marketing is essentially sending a message that is packaged into a piece of content to a receiver via a channel. The rest is just details.

That same theoretical idea can be applied in an actionable way in terms of how to structure a marketing department, agency, or campaign. I describe the four-fold process as such: Strategy, Creative, Communications, and Audit.

In light of this idea, I argue that the operations of a marketing department should flow along these four lines and not divide traditional and digital channels because the Internet is just a set of new communications channels that can be used to execute overall marketing functions.

Here is a new flowchart that outlines this overall process:

marketing-department-of-the-future-restructured

Strategy

The senior marketing executives identify the marketing KPIs (Key Performance Indicators) based on the company's overall business goals and craft a strategy accordingly. They also research the target audience and potential channels, create the overall messaging and positioning, and develop a plan of execution.

Moz has excellent guides on creating audience personas and using random affinities
One of the prior Moz posts of mine shows how to create messaging based on the audience (a prior agency of mine took a mobile-app owner's personal story and turned it into a media pitch)

Creative

The creative team then creates all of the marketing collateral – what is now called "content" – based on the target audience, the positioning, and the channels on which the content will appear. The content can include blog posts, landing pages, online and offline advertisements, meta titles and descriptions, sales copy, catalogues, brochures, videos, e-books, podcasts, graphics, webinars, website text, and more.

Copy aims to sell – think taglines and product descriptions. Content aims to inform – think e-books that reveal the best-practices in a target audience's industry. The modern Creative department needs to use both.

Communications

The communications team then publicizes the marketing collateral via the desired channels. This can include paid and organic social media, print and online advertising, public relations and media relations, influencer outreach, and more.

There are many different types of communications functions – different businesses may need to use one, some, or all of them:

Public relations – Managing the flow of information from an organization to the public
Media relations – Responding to inquires from journalists and bloggers
Publicity – Getting news and blogger coverage of a person, product, event, business, or piece of content
Community relations – Dealing with the local, non-governmental community (this often includes a company's owned and/or online community)
Government relations – Serving as the go-between for the company and the government
Analyst relations – Corresponding with the financial analysts who cover one's business or industry
Influencer relations – Maintaining relationships with important figures in one's industry
Conference speaking – Gaining speaking positions at relevant conferences (by the way, Moz's Erica McGillivray has some great thoughts on how to improve slide decks, and I also interview her at length on my site on the best practices of speaking at marketing conferences)
Advertising campaigns – Running online and offline ad campaigns with the materials that were designed by the Creative department (as Ad Contrarian Bob Hoffman – an advertising veteran who is a self-described critic of social media and digital ads – says in the sidebar of his website, "Creative people make the ads. Everyone else makes the arrangements")

Audit

Account executives research and evaluate the results based on the KPIs through methods including web analytics, conversions and ROI, coverage in media outlets, lead evaluations from the sales team, and more. The Strategy team can then review the information and revise future campaigns accordingly.

Here are some resources to learn more about how to measure traditional and online marketing campaigns:

How to track social engagement that matters
Google Analytics Academy & Individual Certification
I walk through how to use PR software as part of a prior Mozinar
Moz has an intriguing method to gauge the effectiveness of content
How to value paid, social, organic, and referral, and e-mail sources of traffic in the sales funnel
How to measure brand strategy impact
Data-driven PR metrics

What this means for marketers

Oscar De La Hoya with the DeWalt Home Depot Marketing Team (Wikimedia Commons)

As you can see, I classify individual marketers as strategists, creatives, communicators, or auditors. Generalists as well as marketing and communications veterans tend to make good strategists. Great writers, graphic designers, and videographers are creatives. People with experience in public relations, publicity, and community relations are communicators. Analytics experts can be auditors.

But the important thing is that each "category" of people needs to learn as much as possible about executing their functions via all needed traditional and online methods. Creatives need to focus on writing, graphics, and video. Communicators need to learn how to use all communications channels – e-mail, the telephone, social media, and more. Auditors need to understand how to measure ROI and related metrics in terms of online conversions, media hits, brand awareness, and more.

Here are three examples of how individual contributors in such a traditional marketing structure will operate in the integrated marketing world of the future:

Are you a copywriter in the Creative department? You'll also need to learn how to craft meta titles and meta descriptions that include the desired messaging and get the reader to click to the website. You'll need to write the text of website product pages while keeping semantic understanding and keyword themes in mind.
Are you a publicist in the Communications department? You'll need to learn to use both traditional (the telephone) and online (e-mail and social media) channels to get media coverage, publicity, and brand awareness. You'll need to learn about the importance of links in general and how to evaluate the value of individual links.
Are you in the Audit department? You'll need to use traditional PR software to find the volumes of readerships of any print, TV, or online outlet. You'll need online-mention tools to track all hits. You'll need website analytics to see how traffic from those publications performs. You'll need to learn how to allocate ROI values to multiple types of referring websites and the roles that they play throughout the marketing funnel.

If you run with those examples in your mind, I'm sure you'll realize a lot more.

To the individuals who are reading this essay, I would ask yourselves the following questions to grow your career in the coming integrated world:

Am I a strategist, creative, communicator, or auditor? Most people want to be strategists, but few actually are.
What else do I need to learn to become a master in my "group" area? A personal example: I have always been a writer, but I know little about graphic design. That's something I need to learn. Another example: A publicist might be great at e-mailing reporters, but he or she might not know how to engage with journalists on Twitter. Those are intra-group items to learn.
What "group" area should I learn next? Say you're a genius at communications in general. What should you learn next – creative, auditing, or strategy? (Keep in mind that strategy is something that is best learned last after gaining experience in the other three fields.)

What this means for agencies

agency staff

Indian interactive media agency Social Eyes (labeled for reuse in Google Image Search)

Historically, agencies have generally specialized in one or more of the four areas that I mentioned earlier: strategy, creative, communications and advertising, and auditing and troubleshooting. The same is true today – except that agencies will need to learn how to do those practices in both traditional and digital contexts.

However, digital marketers have had a habit of assigning new names and buzzwords to already-existing practices as if they are something new. I hate clickbait headlines that include the words "death" or "end," but I am going to make an exception here because I am very passionate about this topic and want to warn the community of the gravity of the situation.

The end of "social media marketing"

If you are an agency (or a consultant) who brands yourself as a social media expert, you need to rebrand yourself. There will be no "social media" jobs in five years. Social media is just yet another communications channel that can be used to perform existing functions as well as transmit messages and content to an audience:

Customer-service representatives will use social media to do customer service
Publicists will use social media to generate publicity
Advertisers will use social media to advertise

Why is this the case? Simple. It's easier for a customer-support representative to learn how to use Twitter than for someone who knows Twitter to learn how to give great customer service.

The end of "content marketing"

The Content Marketing Institute defines "content marketing" this way (emphasis mine):

Content marketing is a strategic marketing approach focused on creating and distributing valuable, relevant, and consistent content to attract and retain a clearly-defined audience — and, ultimately, to drive profitable customer action.

In truth, "content marketing" is doing what Creative, Communications, and Advertising teams have done since time immemorial. It's nothing new. "Content marketers" also need to rebrand themselves as more and more companies and clients will begin to realize this fact. After all, one recent Nielsen study has shown that content marketing is 88% less effective than public relations – likely because most content marketers do not realize that they are really doing (in part) public relations and are therefore are not doing it well.

The end of "link building"

Over the past few years, there has been much debate over whether Google favors big brands in search results. Assuming this is the case, I would submit that the reason is merely because large companies have publicity teams that work around the clock to generate online discussions and news coverage – all of which indirectly generates millions of links.

The best link building methods are just publicity by other names. Moreover, traditional link building data such as PageRank and Domain Authority (DA) will be less and less useful as Google becomes smarter and smarter. If I sell widgets, then I want a link on a website that is read by people who like widgets – regardless of its DA. That link is more important than a link on a website that has nothing to do with widgets – even it has a vastly-higher DA.

Whenever I argue this point, traditional link builders usually respond by saying that they are needed because they are the best at ensuring that any coverage and mentions also come with links. Well, with all due respect, I respond with the statement that it's not much of a value-adding benefit. I'd just tell existing publicists to be sure that links are added to coverage whenever possible.

In economic theory, there is a principle called " opportunity cost." Basically, it states that "time spent doing A is time that is spent not doing B." In any business, there is only so much labor and time to accomplish a given task, so priorities based on ROI need to be determined. Given a time frame of three months, I'd argue that the ROI of developing and executing a publicity campaign will be far higher than spending that time fixing broken links, e-mailing countless website owners to beg for links, creating link bait, and so on.

"Link builders" will also need to rebrand themselves as more and more businesses will become wary of artificial links that may incur Google Penguin penalties. For the best results, hire PR experts instead of link builders. Links are just the by-products of good marketing and publicity.

So, what do I recommend? Stop reading articles on "how to build links." Instead, learn everything you can about public relations, communications, and publicity. Since the other sections of this essay that focus on strategy, content, and analytics typically receive a lot of attention on Moz, I'll provide a list of resources elsewhere on publicity. Here are some good places to start:

Public Relations: Strategies and Tactics (textbook)
This is How You Pitch (book)
The Publicity Handbook (book)
International Public Relations Association
Public Relations Society of America
Institute for Public Relations
Best and Worst Ways to Get Publicity (Inc.)
How to Generate Publicity for Your Business (Entrepreneur)

The end of link penalty removals

I stopped thinking about links a long time ago while I was at a prior agency job. My team and I would do the technical SEO, the creative and the publicity – and the best links would come naturally by themselves. I would not actively track links except for periodic checkups to make sure that competitors were not pointing spammy backlinks at our clients. It happens – one time, I saw a lot of link spam directed at a website with anchor text that was stuffed with keywords relating to prescription drugs. I disavowed them.

But except in that specific circumstance, I want to live in a world where link audits, link-removal software, and the Google Disavow Tool are no longer needed. For one reason, I feel bad for our collective clients. Many of us spent years making money recommending for and then building bad, artificial links – and now we're making money to remove them. But for the most part, I want to be in an industry where we no longer build links – or even specifically think about them in general.

If you do real, bona fide publicity, then you'll never, ever have to worry about Google Penguin penalties.

But, wait! Where's SEO?

Now, I did not mention search-engine optimization much until now for a reason. We're thinking about it wrongly.

Technical SEO

All technical and on-page SEO is copywriting and specialized web development. Copywriters (and sometimes content writers) should write meta titles and meta descriptions as well as website and landing-page text. The rest just comes down to web developers focusing on items ranging from XML sitemaps to mobile-responsive design to schema code.

Think about it from a financial perspective: It's far cheaper and more efficient to hire a web developer who knows to include all of these functions rather than to hire both a web developer and an SEO.

Off-page SEO

As I described earlier in my discussion of linkbuilding, the best off-page SEO is really just public relations and publicity and should be done by a communications team rather than an SEO.

Essentially, "SEO" is a collection of best practices that can and should sit in already-existing marketing and web-development teams. As much as this thought may prove to be controversial, SEO functions should be dispersed among other jobs. Most of the time, there is little need for separate and individual "SEO" agencies, functions, and employees.

Same as it ever was

The Talking Heads in 1978 (Wikimedia Commons)

Strategy. Creative. Communications. Audit.

If you do this process well and do it continuously to build a strong brand over time, then everything else will take care of itself. Higher search-engine rankings. More traffic. More customers. More leads. More sales. More brand awareness. And in the end, greater revenue and profit.

There are no shortcuts – it's just doing good marketing both online and offline together.

When you create a marketing department or team today, it's crucial to keep this in mind – in fact, it's what marketers have always kept in mind and the process that they have always followed. Same as it ever was. The traditional marketing practices of yesteryear are still relevant today. The only difference is that we are operating in an increasing number of available communications channels called the Internet.

I just wish I had known that fact when I had started the job at the porn website.

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marți, 24 februarie 2015

Mish's Global Economic Trend Analysis

War of Terror: "Disappeared in Chicago"; Illegal Detention by Chicago Police Without Charges; Beatings and Death
Cash for Gas: Russia Threatens to Shut Off Gas in Two Days for Lack of Payment; Meter Maid Called In
Ukrainian Currency Comparison: Budget Rate vs. Official Rate vs. Interbank Rate vs. Street Rate
Crash Course in Free Market Economics and Income Inequality

War of Terror: "Disappeared in Chicago"; Illegal Detention by Chicago Police Without Charges; Beatings and Death

Posted: 24 Feb 2015 06:00 PM PST

Meet the "Nato Three"

Brian Jacob Church, Jared Chase and Brent Vincent Betterly, known as the 'Nato Three'. Photograph: AP/Cook County sheriff's office.

All were arrested, put in an "off-the-books" interrogation compound in Chicago and denied access to lawyers. This goes on every day. People are beaten and threatened.

It's all part of the alleged war on terror. I prefer to call it "War of Terror".

War of Terror

Please consider the Guardian report "The Disappeared": Chicago Police Detain Americans at Abuse-Laden 'Black Site'

The Chicago police department operates an off-the-books interrogation compound, rendering Americans unable to be found by family or attorneys while locked inside what lawyers say is the domestic equivalent of a CIA black site.

The facility, a nondescript warehouse on Chicago's west side known as Homan Square, has long been the scene of secretive work by special police units. Interviews with local attorneys and one protester who spent the better part of a day shackled in Homan Square describe operations that deny access to basic constitutional rights.

Alleged police practices at Homan Square, according to those familiar with the facility who spoke out to the Guardian after its investigation into Chicago police abuse, include:

Keeping arrestees out of official booking databases.
Beating by police, resulting in head wounds.
Shackling for prolonged periods.
Denying attorneys access to the "secure" facility.
Holding people without legal counsel for between 12 and 24 hours, including people as young as 15.

At least one man was found unresponsive in a Homan Square "interview room" and later pronounced dead.

Brian Jacob Church, a protester known as one of the "Nato Three", was held and questioned at Homan Square in 2012 following a police raid. Officers restrained Church for the better part of a day, denying him access to an attorney, before sending him to a nearby police station to be booked and charged.

"Homan Square is definitely an unusual place," Church told the Guardian on Friday. "It brings to mind the interrogation facilities they use in the Middle East. The CIA calls them black sites. It's a domestic black site. When you go in, no one knows what's happened to you."

Unlike a precinct, no one taken to Homan Square is said to be booked. Witnesses, suspects or other Chicagoans who end up inside do not appear to have a public, searchable record entered into a database indicating where they are, as happens when someone is booked at a precinct. Lawyers and relatives insist there is no way of finding their whereabouts. Those lawyers who have attempted to gain access to Homan Square are most often turned away, even as their clients remain in custody inside.

"It's sort of an open secret among attorneys that regularly make police station visits, this place – if you can't find a client in the system, odds are they're there," said Chicago lawyer Julia Bartmes.

When a Guardian reporter arrived at the warehouse on Friday, a man at the gatehouse outside refused any entrance and would not answer questions. "This is a secure facility. You're not even supposed to be standing here," said the man, who refused to give his name.

"They just disappear," said Anthony Hill, a criminal defense attorney, "until they show up at a district for charging or are just released back out on the street."

Jacob Church learned about Homan Square the hard way. On May 16 2012, he and 11 others were taken there after police infiltrated their protest against the Nato summit. Church says officers cuffed him to a bench for an estimated 17 hours, intermittently interrogating him without reading his Miranda rights to remain silent. It would take another three hours – and an unusual lawyer visit through a wire cage – before he was finally charged with terrorism-related offenses at the nearby 11th district station, where he was made to sign papers, fingerprinted and photographed.

Church's left wrist was cuffed to a bar behind a bench in windowless cinderblock cell, with his ankles cuffed together. He remained in those restraints for about 17 hours.

Though the raid attracted major media attention, a team of attorneys could not find Church through 12 hours of "active searching", Sarah Gelsomino, Church's lawyer, recalled. No booking record existed. Only after she and others made a "major stink" with contacts in the offices of the corporation counsel and Mayor Rahm Emanuel did they even learn about Homan Square.

After serving two and a half years in prison, Church is currently on parole after he and his co-defendants were found not guilty in 2014 of terrorism-related offenses but guilty of lesser charges of possessing an incendiary device and the misdemeanor of "mob action".

Bartmes, another Chicago attorney, said that in September 2013 she got a call from a mother worried that her 15-year-old son had been picked up by police before dawn. A sympathetic sergeant followed up with the mother to say her son was being questioned at Homan Square in connection to a shooting and would be released soon. When hours passed, Bartmes traveled to Homan Square, only to be refused entry for nearly an hour.

An officer told her, "Well, you can't just stand here taking notes, this is a secure facility, there are undercover officers, and you're making people very nervous," Bartmes recalled. Told to leave, she said she would return in an hour if the boy was not released. He was home, and not charged, after "12, maybe 13" hours in custody.

On February 2, 2013, John Hubbard was taken to Homan Square. Hubbard never walked out. The Chicago Tribune reported that the 44-year old was found "unresponsive inside an interview room", and pronounced dead. After publication, the Cook County medical examiner told the Guardian that the cause of death was determined to be heroin intoxication.

"Back when I first started working on torture cases and started representing criminal defendants in the early 1970s, my clients often told me they'd been taken from one police station to another before ending up at Area 2 where they were tortured," said Taylor, the civil-rights lawyer most associated with pursuing the notoriously abusive Area 2 police commander Jon Burge. "And in that way the police prevent their family and lawyers from seeing them until they could coerce, through torture or other means, confessions from them."

Tracy Siska, a criminologist and civil-rights activist with the Chicago Justice Project, said that Homan Square, as well as the unrelated case of ex-Guantánamo interrogator and retired Chicago detective Richard Zuley, showed the lines blurring between domestic law enforcement and overseas military operations.

"The real danger in allowing practices like Guantánamo or Abu Ghraib is the fact that they always creep into other aspects," Siska said.

"They creep into domestic law enforcement, either with weaponry like with the militarization of police, or interrogation practices. That's how we ended up with a black site in Chicago."

There's much more in the Guardian report. Read it. I am so infuriated by this I am at a loss for words.

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

Cash for Gas: Russia Threatens to Shut Off Gas in Two Days for Lack of Payment; Meter Maid Called In

Posted: 24 Feb 2015 02:28 PM PST

Meter Maid Called to Resolve Dispute

Last year, Russia shut off gas deliveries to Ukraine for lack of payment. Most of the flow through Ukraine goes to Europe, but Russia accused Ukraine of siphoning off gas without paying for it.

In December, Ukraine agreed to prepay for gas. The flows resumed, but a major dispute has recently arisen.

Gas Dispute

Yesterday, Ukraine complained it has not received gas it paid for.
Today, Russia complains it has not been paid for gas delivered.

I have called in the meter maid to investigate these claims and counterclaims.

Shutoff in Two Days

RT reports Kiev Cash-for-Gas Failure Could Cost EU its Supply.

Russia will completely cut Ukraine off gas supplies in two days if Kiev fails to pay for deliveries, which will create transit risks for Europe, Gazprom has said.

Ukraine has not paid for March deliveries and is extracting all it can from the current paid supply, seriously risking an early termination of the advance settlement and a supply cutoff, Gazprom's CEO Alexey Miller told journalists. The prepaid gas volumes now stand at 219 million cubic meters.

"It takes about two days to get payment from Naftogaz deposited to a Gazprom account. That's why a delivery to Ukraine of 114 million cubic meters will lead to a complete termination of Russian gas supplies as early as in two days, which creates serious risks for the transit to Europe," Miller said.

Last week, Russian Prime Minister Dmitry Medvedev ordered the energy minister and the head of Gazprom to prepare proposals on fuel deliveries to the self-proclaimed Republics of Donetsk and Lugansk (DPR and LPR) after Kiev had cut off the delivery pipeline into the southeastern regions. Ukraine's Naftogaz said it had halted gas supplies to eastern regions due to broken pipelines.

Russian Gas to Europe

Russia supplies 30% of the European continent, and 55% of Russian gas flows through Ukraine.

Ukraine Says Russia Not Sending Gas Paid in Advance

Reuters reports Ukraine's Naftogaz Says Russia Failed to Deliver Prepaid Gas.

After cutting off Ukraine's gas for six months, Moscow resumed supplies in late-2014 when the two sides signed an interim agreement, under which Kiev would pay off some debt for past deliveries and pre-pay for supplies for the winter.

Naftogaz said the Russian firm had broken this deal by delivering only 47 million cubic metres (mcm) of a 114 mcm order that Kiev had paid for in advance last Thursday.

Last week Ukraine cut back supplies of gas to regions held by pro-Russian rebels, and Moscow began supplying gas to the separatist regions directly for the first time.

A Gazprom spokesman said at the time that the supplies to the rebel regions were being shipped under the contract with Naftogaz.

Gazprom Threatens to Cut Supplies to Ukraine

Radio Free Europe reports Gazprom Threatens to Cut Supplies to Ukraine.

Russian natural-gas giant Gazprom is threatening to cut off supplies to Ukraine entirely as early as February 26, a move the Russian company says could result in a suspension of supplies to Europe.

The European Commission helped broker a deal last October between Moscow and Kiev that was meant to ensure Ukraine received gas during the winter and that supplies of Russian gas to Europe through Ukraine were not disrupted.

Under that agreement, Ukraine promised to pay off arrears for gas received and to prepay for future gas shipments, while Gazprom agreed to lower the price. That deal is valid until the end of March.

Gazprom said it is supplying gas to the parts of the Donetsk and Luhansk regions in eastern Ukraine that are controlled by pro-Russian separatists -- since Kiev stopped supplying them.

Gazprom said it considers those two regions as being part of the contract with Naftogaz for supplies to Ukraine though the Russian company conceded that Naftogaz "does not take these volumes into account, as a result...estimates of how much prepaid gas has been supplied differ."

Lovely Rita Meter Maid

While pondering the claims and counterclaims, I offer this musical tribute.

Link if video does not play: Lovely Rita - Beatles

I am pleased to note that "Lovely Rita" just pinged me with a rhetorical question as well as her official opinion.

Rita asks "If pipelines to the Eastern regions are broken, how is it that Russia can use them, but not Ukraine?"

Rita says "It's pretty easy to see what has happened. One does not even need a meter. Ukraine is broke and does not want to pay for gas delivered to Eastern Ukraine."

Ukraine Bankrupt

For more on the plight of Ukraine and its budget woes, please see Ukrainian Currency Comparison: Budget Rate vs. Official Rate vs. Interbank Rate vs. Street Rate.

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

Ukrainian Currency Comparison: Budget Rate vs. Official Rate vs. Interbank Rate vs. Street Rate

Posted: 24 Feb 2015 12:17 PM PST

Last Friday, reader John told me the "street rate" for currency in Ukraine was not the reported 28 Hryvnias per US$ but rather on the order of 32 per US$.

I asked John where he got his information. He replied, "from my sister who lives in Lviv".

Lviv is a beautiful city in Western Ukraine.

John did not know what the "street rate" was yesterday, but he informed me the "interbank rate" was 31.50 to 32.50. The interbank rate is higher still today.

Meanwhile, Investing.Com shows a jump today to 32.487 today from 28 yesterday.

click on chart for sharper image

Interbank Rate is 33.5/USD

The above chart is closer, but still not correct.

On February 14, a researcher from Johns Hopkins Institute asked me where I got my rates from. I did not have an official source then, but today I have one.

Please consider The Dollar on the Interbank Market was Fixed at Around 33.5/USD.

Hryvnia exchange rate on the interbank foreign exchange market trading results on Tuesday, February 24, fell to 33.5 UAH / USD from 32,00 UAH / USD a day earlier. The top value today reached 33.80 UAH / USD.

Quotes hryvnia against the euro amounted to 36.2432 / 37.9354 UAH / EUR, RUR - 0.5072 / 0.5315 USD / ruble.

At the beginning of 2015 the hryvnia on the interbank market was about 19,00 UAH / USD.

February 24: The official hryvnia strengthened to 28.29/USD. National Bank Chairman Valery Hontaryeva explained the collapse of the hryvnia shock of transition to a free exchange rate . "We believe that the demand and supply of currency must find a balance, and hence the importance of adequate price" - said Hontaryeva.

Official vs. Interbank vs. Street

Note the "official" rate is still 28.29/USD. One cannot buy dollars at the "official" rate anywhere. And while the foreign exchange rate is 33.5/USD. I strongly suspect the "street" rate is worse yet.

Budget Rate

As long as we are discussing various rates, let's also consider the "2015 Budget Rate".

Ukraine's international newspaper, The Mirror (available in English), reported on February 16, Ukrainian Government Changes Rate to UAH 21.7/USD in 2015 Budget.

Thus, Ukraine's budget is a farce. The move from 21.7 to 33.5 is a decline of 35.22%. That's how far off Ukraine's budget is ... and worsening weekly, if not daily.

Exchange Rates

2015 Budget: 21.1
Official: 28.29
Interbank: 33.5
Street: Unknown but assuredly higher

At the beginning of 2014, the exchange rate was 8.21 per dollar. From 8.21 to 33.5 is a decline of 75% in just over a year!

And it's going to get worse.

Full Scale War

Ukraine's deputy foreign minister announced a "Full Scale War" on Saturday.

For details, please see "Prepare for Full-Scale War" says Ukraine Deputy Foreign Minister: "With What?" asks Mish; Ukraine Lie of the Day.

Ukraine is broke. It has no means to fight a war. Nonetheless, Ukraine is dedicated to the impossible, with foreign currency reserves dwindling.

Insistence on more fighting will produce more of the same results.

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

Crash Course in Free Market Economics and Income Inequality

Posted: 24 Feb 2015 10:56 AM PST

On February 19 Doug McMillon, President & CEO, Walmart, announced higher pay in a Letter to Associates.

Bloomberg columnist Barry Ritholtz, a higher minimum wage advocate, pounced on the news, calling the wage hike Wal-Mart's Crash Course in Labor Economics

Last week, we learned that Wal-Mart was giving the lowest paid of its hourly employees a raise. In a blog post, Wal-Mart Chief Executive Officer Doug McMillon said that as of April, the company will pay a minimum of $9 an hour. That is $1.75 more than the federal minimum wage of $7.25, which has been unchanged for almost six years. Next February, Wal-Mart's lowest hourly rate will rise to $10. All told, about a half-million Wal-Mart workers in the U.S. will be affected.

In the years since the last federal minimum-wage increase, many of Wal-Mart's employees had fallen below the poverty level and the strengthening economy has made it harder to attract and retain employees.

Although many factors contributed to the move, the simple reason for the increase is because Wal-Mart has stopped growing. Same-store sales have been little changed or declining for some time now. When we look at the underlying causes, the company's workforce, and how it is managed, are the prime suspects.

Cutting on salary and benefits, however, didn't necessarily lower costs. About 44 percent of Wal-Mart's hourly staff turns over each year. That's a lot of people, because the company employs 2.2 million workers worldwide. Hiring replacements is a costly and time consuming process.

Consider competitors such as Costco: It has average hourly wages of $20 and a turnover rate of "17% overall and just 6% after one year's employment," according to the Harvard Business Review.

Staff Turnover

Barry goes on and on with some things I agree with and many other things I don't. However, I believe we can all reasonably assume that staff turnover was a major factor in Wal-Mart's decision.

If so, what does that say?

It says that the free market wage for Wal-Mart employees is $10.00 an hour, not $9.53, not $12.28, not $15.00, not any pulled out of the hat government mandate.

Wal-Mart decided on its own accord it could not attract the quality of people it needs at $7.25. That says nothing about Costco or McDonald's.

Simply put, the free market worked, not pressure from protesters, not whining from Obama.

Wal-Mart is Not Costco

On August 29, 2013, I wrote Wal-Mart is not Costco; So Why Should it Pay Like Costco?

Bloomberg writer Megan McArdle also hit the nail on the head with her 2013 analysis of the situation in Why Wal-Mart Will Never Pay Like Costco.

Costco has a tiny number of SKUs in a huge store -- and consequently, has half as many employees per square foot of store. Their model is less labor intensive, which is to say, it has higher labor productivity. Which makes it unsurprising that they pay their employees more.

Trader Joe's is also private, but we do know some stuff about it, like its revenue per-square foot (about $1,750, or 75 percent higher than Wal-Mart's), the number of SKUs it carries (about 4,000, or the same as Costco, with 80 percent of its products being private label Trader Joe's brand), and its demographics (college-educated, affluent, and older).

In other words, Trader Joe's and Costco are the specialty grocer and warehouse club for an affluent, educated college demographic. They woo this crowd with a stripped-down array of high quality stock-keeping units, and high-quality customer service. The high wages produce the high levels of customer service, and the small number of products are what allow them to pay the high wages.

Minimum Wage Nonsense

The idea that government can dictate the right minimum wage that maximizes overall employment is nonsensical.

Wal-Mart decided on its own that its turnover was too high and/or the quality of its employees too low. Perhaps McDonald's makes the same decision, perhaps not.

Battle Over Hours

Another grievance of workers is flexible shifts that frequently change, and with short notice. The Financial Times details the problem in Walmart Pay Rise Obscures Shift in US Labour Market

Almost 7m US part-time workers are seeking full-time work in spite of a strong recovery in the jobs market.

Rising insecurity is driven by sophisticated technology that allows retailers and restaurant chains to adjust work rotas at short notice to respond to their own needs.

Zara and Urban Outfitters, the retailers, and Popeye's, a fast-food restaurant, are among those to come under fire for the notice employees are given on hours. Starbucks, the coffee chain, responded to a New York Times story detailing how workers were given schedules just days in advance with promises of improved working conditions.

Kory Lundberg of Walmart, which has witnessed protests from workers over pay and conditions, insists employees are given their schedules at least two-and-a-half weeks in advance "so they can plan their lives".

Part-timers who want additional work can sign up for extra hours online, Mr Lundberg adds. While this system has been praised by some workers' groups, others complain that shift availability varies from store to store.

Meddle Here, Cause Problems There

A primary cause of the rise of part-time hours (and more recently, uneven part-time hours and a rise in manager hours) is none other than government regulation called Obamacare.

In the last two years, hours worked by managers at discount and department stores are up 86% while hours worked by nonsupervisor employees is down.

Why? Supervisors, don't get paid overtime. It's yet another artifact of Obamacare.

I discussed that in Discount and Department Stores Boost Manager Ranks by 46% in Two Years, Hours Up 88%

The free market lesson at hand is "meddle here - cause problems there". The proposed solution by meddlers is always "more meddling".

Union Group Mobilizes "Against" Pay Hike

Just yesterday, I wrote Union Group Mobilizes "Against" Pay Hike.

I believe this is the first time in history a union group rallied to protest against a wage hike.

All in all, it should be perfectly clear that the minimum wage hike to $15 that McDonald's workers seek is absurd. Actually, any government mandated minimum wage is absurd.

Those who don't like their job can find another. If enough do, then wages will go up naturally, just as they did at Wal-Mart.

Crash Course for Ritholtz

Barry, please throw away your Soviet-style central planning model where governments set prices of wages, interest rates, crops, etc. It doesn't work.

Instead, embrace something that does work. It's called the free market. This economy would not be in such miserable shape, and wage inequality would actually be far less if we had more of a free market!

Crash Course on Income Inequality

For a discussion on the real cause of wage inequality ....

August 26, 2013: Income Inequality Explained: Why Wages Don't, Won't, and Can't Keep Up With Productivity
March 13, 2014: Democrat Sponsored "Income Inequality"; Law of Bad Ideas, Yet Again
October 17, 2014: Irony of the Day: Yellen Moans About Income Inequality; Seven Things That Cause Inequality
January 2, 2015: Income Inequality Author Turns Down Prestigious Award; Can you Solve a Problem When You Don't Know the Cause?

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

Damn Cool Pics

The Perfect Way To Hide Your Cat's Litter Box
Amazing Photos Of Nature That Aren't Photoshopped
This Is Husband Logic At Its Finest

The Perfect Way To Hide Your Cat's Litter Box

Posted: 24 Feb 2015 12:19 PM PST

These people got sick of the fact that they had kitty litter boxes all over the house. After a while the smell really got to them so they decided to convert in old dresser into a storage space. It turned out to be a brilliant idea.