It's amusing watching all the GDP forecast downgrades in the wake of a huge string of bad economic data reports, one after another.
Following the retail sales report on March 12, the Atlanta Fed GDPNow forceast fell from 1.2 percent to 0.6 percent.
"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 0.6 percent on March 12, down from 1.2 percent on March 6."
The Fed forgot to update their picture. It still looks like this.
Blue Chip Consensus Eight Miles High
I am wondering what the "Blue Chip" forecasters are smoking. By any chance are they getting high off the glue in the string of recent jobs report?
To be fair, the "Blue Chip" forecast is as February 24, but by then the Fed Model had already been heading south.
Regardless, we are now at 0.6 percent and falling fast in the Fed model. The latest "Blue Chip" forecast is seemingly Eight Miles High.
One self-explanatory chart from Bloomberg conveys the overwhelming strength of the the US dollar this year.
Major Currencies vs. US Dollar Year to Date
If you wish to include some currencies you likely have never heard of, the winner is the Malawian Kwacha, up 6.42 percent against the US dollar this year.
The Somali Shilling, up 2.74%; the Seychelles Rupee, up 2.17%; the Suriname Dollar, up 1.87%, and the Costa Rican Colon, up 1.11% round out the top five.
Best Performers vs. US Dollar
click on any chart for sharper image
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Albert Edwards at Society General emailed a PDF on PE expansion and other equity trends. Albert comments ...
"Mario Draghi and the ECB's manipulation of asset prices make s Greenspan's Fed look like a rank amateur. More shocking though than the plunge in the euro, and more shocking even that 25% of sovereign eurozone bonds now trade in negative territory, is what has happened to eurozone equity valuations. For, as we approach the sixth anniversary of the US cyclical bull market (a post-war record), the PE expansion of eurozone equities is simply off the scale. History suggests this will end very badly indeed. Ask Alan!"
Eurozone 6-Year PE Expanded 220%
click on any chart for sharper image
Longest Post-War Bull Market in Months - S&P 500
Trading Days Without 10% Correction - S&P 500
12-Month Forward PEs Japan, US, Eurozone
Note the PE expansion in the US and Eurozone and the lack of it in Japan
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
It wasn't too long ago that everyone was freaking out over Renee Zellweger's face. Everyone thought she looked different last time she was in the spotlight but she recently stepped out for Paris Fashion Week and she looks like she hasn't changed at all. Renee smiled for the camera as she arrived at the Miu Miu 2015 autumn/winter fashion show and she looked just like her old self.
Death by decapitation is one brutal way to end a life but it's an execution style which is a common part of human history. When the human head is separated from its body some pretty interesting things happen from a biological standpoint and you're about to find out exactly what they are.
How much does the context of a link really matter? In today's Whiteboard Friday, Rand looks at on- and off-topic links to uncover what packs the greatest SEO punch and shares what you should be looking for when building a high-quality link.
Network security monitoring
For reference, here's a still of this week's whiteboard!
Video Transcription
Howdy, Moz fans, and welcome to another edition of Whiteboard Friday. This week we're going to chat a little bit about on-topic and off-topic links. One of the questions and one of the topics that you see discussed all the time in the SEO world is: Do on-topic links matter more than off-topic links? By on topic, people generally mean they come from sites and pages that are on the same or very similar subject matter to the site or page that I'm trying to get the link to.
It sort of makes intuitive sense to us that Google would care somewhat about this, that they would say, "Oh, well, here's our friend over here," we'll call him Steve. No we're going to call him Carl, because Carl is a great name.
Carl, of course, has CarlsCloset.net, CarlsCloset.net being a home organization site. Carl is going out, and he's doing some link building, which he should, and so he's got some link targets in mind. He looks at places like RealSimple.com, the magazine site, Sunset Magazine, UnderwaterHoagies.com, Carl being a great fan of all things underwater and sandwich related. So as he's looking at these sites, he's thinking to himself, well, from an SEO perspective, is it necessary the case that Real Simple, which has a lot of content on home organization and on cleaning up clutter and those kinds of things, is that going to help Carl's Closet site rank better than, say, a link from UnderwaterHoagies.com?
The answer is a little tough here. It could be the case that UnderwaterHoagies.com has a feature article all about how submariners can keep their home in order, even as they brunch under the sea. But maybe the link from RealSimple.com is coming from a less on-topic article and page. So this starts to get really messy. Is it the site that matters, or is it the page that matters? Is it the context that matters? Is it the link itself and where that's embedded in the site? What is the real understanding that Google has between relationships of on-topic and off-topic? That's where you get a lot of convoluted information.
I have seen and we have probably all heard a ton of anecdotal evidence on both sides. There are SEOs who will argue passionately from their experience that what they've seen is that on-topic links are hugely more beneficial than off-topic ones. You'll see the complete opposite from some other folks. In fact, most of my personal experiences, when I was doing more directed link building for clients way back in my SEO consulting days and even more recently as I've helped startups and advised folks, has been that off-topic links, UnderwaterHoagies.com linking to Carl's Closet, that still seems to provide quite a bit of benefit, and it's very had to gauge whether it's as much, less than, more than any of these other ones. So I think, on the anecdotal side, we're in a tough spot.
What we can say is that probably there's some additional value from on-topic sites, on-topic pages, or on-topic link connections, that Google has some idea of context. We've seen them make huge strides with algorithms like Hummingbird, certainly with their keyword matching and topic modeling algorithms. It seems very unlikely that there would be nothing in Google's algorithm that looks at the context or relationship of content between linking pages and linking websites.
However, in the real world, things are almost never equal. It's not like they're going to get exactly the same anchor text from the same importance of a page that has the same number of external links, that the content is exactly the same on all three of these websites pointing over to Carl's Closet. In the real world, Carl is going to struggle much harder to get some of these links than others. So I think that the questions we need to ask ourselves, as folks who are doing directed marketing and trying to earn links, is: Will the link actually help people? Is that link going to be clicked?
If you're on a page on Real Simple that you think very few people ever reach, you think very few people will ever click that link because it just doesn't appear to provide much value, versus you're in an article all about home organization on Underwater Hoagies, and it was featured on their home page, and you're pretty sure that a lot of the submariners who are eating their subs under the sea are very interested in this topic and they're going to click on that link, well you know what? That's a link that helps people. That probably means search engines are going to treat it with some reverence as well.
Does the link make sense in context? This is a good one to ask yourself when you are doing any kind of link building that's directed that could potentially be manipulative. If the link makes sense in context, it tends to be the case that it's going to be more useful. So if Carl contributes the article to UnderwaterHoagies.com, and the link makes sense in context, and it will help people, I think it's appropriate to put it there. If that's not the case, it could look a little manipulative. It could certainly be perceived as self-serving.
Then, can you actually acquire the link? It's wonderful when you go out and you make a list of, hey, here's the most important and relevant sites in our sector and niche, and this is how we're going to build topical authority. But if you can't get those links, hey that's tough potatoes, man. It's no better than putting a list of links and just sorting them by, God knows, a horrible metric like PageRank or Alexa rank or something like that.
I would instead ask yourself if it's realistic for you to be able to get those links and pursue those as well as pursuing or looking at the metrics, and the importance, and the topical relevance.
Let's think about this from a broad perspective. Search engines are caring about what? They're caring about matching the content relevance to the searcher's query. They care about raw link popularity. That's sort of like the old-school algorithms of PageRank and number of links and that kind of thing. They do care about topical authority and brand authority. We talked about on Whiteboard Friday previously around some topical authorities and how Google determines the authority and the subject matter of a site's authority. They care about domain authority, the raw importance of a domain on the web, and they care about things like engagement, user and usage data, and given how much they can follow all of us around the web these days, they probably know pretty well whether people are clicking on these articles using these pages or not.
Then anchor text. Not every link that you might build or acquire or earn is going to provide all of these in one single package. Each of them are going to be contributing pieces of those puzzles. When it comes to the on-topic/off-topic link debate, I'm much more about caring about the answers to these kinds of questions -- Can I acquire the link? Is it useful to people? Will they actually use it? Does the link make sense in context? -- than I am about is it on-topic or off-topic? I'm not sure that I would ever urge you to prioritize based on that.
That said, I'm certainly looking forward to your feedback this week and hearing about your experiences with on-topic and off-topic links, and hopefully we'll see you again next week for another edition of Whiteboard Friday. Take care.
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Money owed accrues interest. Banks and credit card companies thrive on this. The borrower gets to keep using the money, and the lender ends up with more in the end.
Apologies owed, on the other hand, accrue nothing whatsoever of value, to either side.
Forgiving a financial debt costs your balance sheet. Forgiving an owed apology frees you to be generous again.
Next week, on March 17th, voters in the East Bay area of Northern California will decide who will fill a state senate seat. Or, more likely, they will pick two candidates who will face one another in a runoff election. In this race, there are three viable candidates – all Democrats. The lone Republican candidate, Michaela Hertle, dropped out of the race and threw her support behind Steve Glazer, a moderate pro-business Democrat who appears to be a good fit for this fiscally conservative, socially moderate district.
The problem is that Glazer is hated by powerful public sector labor organizations. From their view, he had the audacity to oppose a BART strike – which inconvenienced tens of thousands of Bay Area commuters – and, even worse, he said he would not support a change in Proposition 13's rules regarding property owned by businesses.
So, rather than tell the truth about their anti-taxpayer agenda, the labor organizations have financed an expensive mail campaign in favor of the Republican who has dropped out of the race. This may seem crazy, but the goal here is to confuse Republican voters into voting their party as opposed to a moderate Democrat who actually has a chance to win.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
U.S. retail sales unexpectedly fell for a third straight month in February as harsh weather kept consumers from auto showrooms and shopping malls, tempering the outlook for first-quarter growth and a June interest rate increase. "This report points to a surprisingly bigger weather impact on spending activity than previously thought," said Millan Mulraine, deputy chief economist at TD Securities in the New York.
In regards to factory orders I noted that some blame the rising dollar, some blame weakness in foreign demand, some blame the port strike, and some blame lower oil prices, and some blame cutbacks in the energy sector. No one cited the "slowing global economy".
Curiously, no one blamed the weather for the decline in factory orders. Then again, This [retail sales] report points to a surprisingly bigger weather impact on spending activity than previously thought.
The retail sales consensus was +0.3%. Actual sales were -0.6%. That was a half percentage point lower than any economist's prediction.
Damn that bad weather! When does it end?
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Analyst estimates of Chinese growth keep getting lower and lower. Yet, those declining estimates have all been from a lofty level: From 10% to 9%, to 8% to 7.5%.
China's growth target for 2015 is 7.0%.
Many question those growth estimates. I certainly do. Chinese growth is not consistent with energy demand, raw materials, or personal consumption. Worse yet, growth does not factor in pollution or malinvestments in vacant housing, vacant malls, vacant airports, etc.
Malinvestments, pollution, and State-Owned-Entreprise (SOE) boondoggles (fraud is actually a better word) should all subtract from current GDP. Instead, fraud, pollution, and malinvestments have been buried and will remain buried until it's impossible to hide them.
I assumed China was growing slowly. After all, 7% is one hell of a lie. However, I now wonder if China is growing at all.
The video is very lengthy, but there are a number of speakers. Yang was the first speaker. Her presentation was about 28 minutes, less if you skip the first four introductory minutes or so. The rest is time well spent.
Is China turning into Japan? That's the new topic. Debt matters - $30 Trillion – up $9 trillion since 2008 Debt is 200-300% of GDP counting Shadow Banks.
If the average interest rate is 7% (banks 6% shadow banks 10%), economy would need to grow 21% in real terms to service debt.
Since that cannot happen, banks cannot make loans without injections from PBOC. A fundamental problem is 100% of new credit goes to rollovers.
Zombie economy effect – no credit demand – low demand.
Steel down, electricity down, cement demand down Growth subzero this quarter. No way economy is growing.
Massive overcapacity in petrochemicals, construction machinery, steel, cement, aluminum, SOEs. It will take years of growth to fill capacity.
Aluminum official said privately debt Is $1 trillion, profit 20 billion. Local governments force mills to open because smelters cannot make payments, banks have NPLs. Smelters are capital, not labor intensive.
Policy is not about jobs but about keeping money flowing.
Consumer sector tracking close to 0% growth as well – average days of clothing inventory is 174 days, electronics 123 days.
Consumer companies on China exchange Decline in gross revenue is 2% for the year, 6% third quarter.
Urbanization Local government officials hold nearby land with an incentive to get people to move in. Local people want schools hospitals. No real economic benefit.
Orange and lemon groves turn to useless, vacant housing
Property 20% of GDP and tracking negative (sales and pricing).
Overcapacity is absolutely obscene – 70 million units in the pipeline. 50 million vacant units. At height of US bubble, US built 1.2 million homes.
QE3 – No one has a good grip on who owns the debt.
Allowing debts to go under without even understanding who understand it can create a chain of consequences that any government would be terrified to identify.
Amount of capital required to keep rolling things over has reached a dangerous level.
Capital flight Net reduction of $91 billion in US$ reserves last year
Bang or whimper? Long deflationary bust
Massive daily injections to keep system running.
[Mish note: I question the above slide and corresponding video comment. I do not think she means 1.5 trillion daily]
What's Next? China has over $3 trillion in reserves, but many of those reserves not so liquid.
Is China's 1929 Moment Coming?
Yang made her presentation on February 24.
Since then, many others are questioning China's growth. For example, on March 5th the Washington Post asks Is China's 1929 Moment Coming?
It's weird to worry about China when it's still growing more than 7 percent a year, but it's a little less so when you consider how mammoth its credit bubble has gotten.
The numbers are historic. China's total debt has sprouted from 153 percent of gross domestic product in 2008 to 282 percent today. That, according to Goldman Sachs, makes China's borrowing binge bigger than 96 percent of all others on record. The problem is that, despite all this debt, growth is slowing and profits are falling, which makes it harder for companies to pay back what they owe.
China has so much debt now that it doesn't get as much bang for the borrowed buck as before. That's because more of the money it's borrowing today is going to pay back the money it borrowed yesterday. How bad is it? Well, China's private sector is spending something like 13 percent of GDP on interest payments alone.
China's banks are only allowed to pay people piddling interest rates, all so that exporters can borrow for less. That means, though, that people don't like to keep their money in banks, since they're really losing money on it once you account for inflation. Instead, they pour their money into property, snatching up empty apartments and leaving them like that, because they think those are a better store of value. Or they buy shadow bank products with names like "Golden Elephant No. 38" that promise 7.2 percent returns, but, it turns out, are only backed by an almost-abandoned housing project. In short, anytime people find anything that resembles a decent investment, it gets bid up until it's unmoored from any kind of economic reality.
For the first time in a long time, money is leaving the country. The snag is that China's currency "wants" to weaken, but they're not willing to give up their dollar peg—which forces them to shrink their money supply at the exact moment that their economy needs a bigger one. China, in other words, has plenty of problems even if its people don't become too scared to do anything with their money. But if they do, watch out.
It could be 1929 with Chinese characteristics.
China, Japan, US or the World?
The curious thing about the above Washington Post article is that with just minor changes, the article can equally apply to the US, Europe, or Japan.
Chinese industrial production, regarded as a good proxy for broader economic growth, expanded 6.8 per cent in January and February from a year earlier. Excluding the financial crisis, it was the slowest reading since records started in 1995, Goldman Sachs said.
Expectations that the US Federal Reserve will soon raise rates is sending the dollar rocketing higher, while central banks in the eurozone, China and many emerging markets are all easing to fight falling inflation and shore up growth.
China expanded at the slowest pace since 1990 last year, contrasting with the decades of double-digit growth since the late 1970s. The International Monetary Fund has already cut its gross domestic product estimate to 6.8 per cent this year and 6.5 per cent in 2016, the first time the IMF forecast lower growth in China than in India for decades.
Retail sales, one measure of how successful China has been at shifting to a more consumption-based growth model, also slowed in the first two months, expanding 10.7 per cent compared with 11.9 per cent growth in December.
China is also struggling with a huge and growing debt load and the threat of deflation.
At 282 per cent of GDP by the middle of last year, according to estimates from McKinsey, China's overall debt load is higher than that of the US or Germany.
The economy expanded 7.4 per cent last year, the slowest pace in almost a quarter of a century and the government has lowered its growth target this year to "around 7 per cent" from last year's "around 7.5 per cent".
Still, many economists believe the slowdown in the property market will make it difficult for Beijing to achieve that lower goal.
Beijing's Troubles Can Get a Lot Worse
The Financial Times wonders whether or not 7% growth will be reached.
Yang does not believe China is growing at all, a downward assessment from her December 6, 2014 interview in Barron's.
Barron's: Investors seem far more concerned about Europe's sinking into economic despond than slowing growth in China. Are they whistling past the graveyard?
Stevenson-Yang: I think so. China, for all its talk about economic reform, is in big trouble. The old model of relying on export growth and heavy investment to power the economy isn't working anymore.... The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt. The recent lowering of benchmark deposit rates by the People's Bank of China won't accomplish much because it won't offer more income to households.
Barron's:How bad can the situation be when the Chinese economy grew by 7.3% in the latest quarter?
Stevenson-Yang:People are crazy if they believe any government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross- domestic-product figures. It didn't take long for Beijing to figure this out and start doctoring those numbers, too.
I put much stock in estimates by various economists, including some at the Conference Board, that actual Chinese GDP is probably a third lower than is officially reported. And as for the recent International Monetary Fund report calling China the world's biggest economy on a purchasing-power-parity basis, how silly was that? China is a cheap place to live if one is willing to eat rice, cabbage, and pork, but it's expensive as all get out once you factor in the cost of decent housing, a car, and health care.
Barron's: Conventional wisdom holds that China has plenty of levers it can pull to stave off severe economic contraction and any debt crisis. Do you agree? Stevenson-Yang: Not really. Take, for example, the $3.9 trillion foreign-currency reserves that we discussed. Many people regard it as a giant piggy bank that can be tapped at will to rectify any financial problem. But the reserve is only good for defending the yuan and is a lot less liquid than many people realize. And as we pointed out, capital flight could dramatically diminish the size of the reserve.
Interestingly, liquidity seems to be a growing problem in China. Chinese corporations have taken on $1.5 trillion in foreign debt in the past year or so, where previously they had none. A lot of it is short term. If defaults start to cascade through the economy, it will be more difficult for China to hide its debt problems now that foreign investors are involved. It's here that a credit crisis could start.
Is China Growing?
China may be growing, but even 4% is not only a hard landing but a huge problem.
Stretching to reach hugely unrealistic growth targets is precisely what has created zombie SOEs with debt that cannot be serviced, cities where no one lives, massive amounts of pollution, and a cornucopia of other debt problems.
Global Recession at Hand
The spillover effects of a China slowdown on Australia, Canada, and Brazil are now widely recognized. Spillover effects of a China slowdown on the US and Europe have yet to manifest in a huge way. But they will.
The US dollar is soaring and without a doubt that will hurt US exports. If China lowers the yuan to compete with Japan, an all-out currency war looms at a time the Fed is presumably itching to hike.
Finally, Europe is a complete basket case. Few understand that Greek debt cannot be paid back. Fewer still recognize that Greece and Spain are not really to blame.
Add a US recession, European recession, and a China recession (or huge slowdown) together and there is only one conclusion: a global recession is at hand. Hardly anyone sees it coming.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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