Central Perk: 13 ian. 2011

joi, 13 ianuarie 2011

Mish's Global Economic Trend Analysis

Business Owners Blast IL Tax Hikes;Quinn's Blatant Lies;Neighboring States Gleeful, Mayor Daley Whines;Escape to Wisconsin; Arrogance,Greed,Corruption
Hallucinations on Curing Unemployment; Modeling the Model
Amazing Footage of Australian Flood
No Such Thing as Cost-Push Inflation; Demographics and the "Demand for Money"
Frisby's Bulls and Bears 2011 Predictions from James Turk, Bob Hoye, Mish, Others

Business Owners Blast IL Tax Hikes;Quinn's Blatant Lies;Neighboring States Gleeful, Mayor Daley Whines;Escape to Wisconsin; Arrogance,Greed,Corruption

Posted: 13 Jan 2011 08:21 PM PST

Tax insanity in Illinois is now official. Governor Pat Quinn signed off on a 67% hike in personal income taxes and a 46% hike in corporate taxes the moment the bill hit his desk.

The personal income tax rate immediately rises to 5 percent, up from 3 percent. The corporate income tax rate rises immediately to 7 percent, up from 4.8 percent. The Chicago Tribune reports Quinn, House Speaker Michael Madigan and Senate President John Cullerton — all Chicago Democrats — muscled the tax hike through in the eleventh hour of the lame-duck legislature. Only Democrats voted for the bills.

In contrast to virtually every other state in the nation, Quinn has made no mention of any cuts in services or any givebacks by public unions. Mayor Daley is largely responsible. Any comments from Daley regarding tax hikes would have cost Quinn the election. Instead, Mayor Daley is whining now.

Quinn's Blatant Lies

The Daily Herald notes that On the campaign trail, Gov. Pat Quinn told voters he'd veto any income tax hike that would raise Illinois' rate over 4 percent.

I believe this is one of the fastest proven lies political history.

Escape to Wisconsin

Newly elected Wisconsin Governor Scott Walker makes some hay of Illinois' 66% income tax hike with a succinct message 'Escape to Wisconsin'

Wisconsin is open for business. In these challenging economic times while Illinois is raising taxes, we are lowering them. On my first day in office I called a special session of the legislature, not in order to raise taxes, but to open Wisconsin for business. Already the legislature is taking up bills to provide tax relief to small businesses, to create a job-friendly legal environment, to lessen the regulations that stifle growth and to expand tax credits for companies that relocate here and grow here. Years ago Wisconsin had a tourism advertising campaign targeted to Illinois with the motto, 'Escape to Wisconsin.' Today we renew that call to Illinois businesses, 'Escape to Wisconsin.' You are welcome here. Our talented workforce stands ready to help you grow and prosper.

Neighboring States Gleeful, Mayor Daley Whines

The LA Times reports Neighboring states gleeful over Ill. tax increase

While many states consider boosting their economies with tax cuts, Illinois officials are betting on the opposite tactic: dramatically raising taxes to resolve a budget crisis that threatened to cripple state government.

"It's like living next door to 'The Simpsons' -- you know, the dysfunctional family down the block," Indiana Gov. Mitch Daniels said in an interview on Chicago's WLS-AM.

Illinois state Sen. Dan Duffy, a Republican, labeled the tax increase "the nuclear bomb of jobs bills."

There was even some carping from Illinois Democrats. Chicago Mayor Richard Daley predicted jobs will start trickling out of Illinois with little fanfare.

"Businesses don't have press conferences like this and announce they're moving 50 people out, 60 people out, 70 people," Daley said at an event in Chicago.

Oak Lawn Business Owners on Edge

The OakLawnPatch reports Business Owners on Edge About New Tax Hikes

As state lawmakers prayed, celebrated a new gubernatorial inauguration and passed historic tax increases this week, Oak Lawn entrepreneurs and independent businesses prayed that they can keep their doors open another month in dismal economic landscape.

"Personally, I am only days, weeks away from closing the business as it is," said Chad Reno, owner of Cornerstone Café at 5177 W. 95th St. "I'm hanging on by a thread. I can't see finding more money to pay out."

Glen Kato, a board member of the Oak Lawn Chamber of Commerce and web designer, watched his business "virtually dry up" as clients tightened their belts.

John Crivellone, another chamber board member and owner of Security Associates, feels there is more that Quinn can be doing to bring the state's $15 billion deficit in check besides hiking taxes.

"It's so excessive, it's comical," Crivellone said. "We're in the middle of a recession right now. Any expert on economics will tell you this will be so detrimental to the economy that it would be like putting nails in a coffin for the small businessman.

For George Rock, co-owner of Every Good Gift at 10336 S. Cicero Ave., the new tax hikes are a surefire way to kill job growth.

"To me, it's just so counterproductive it's ridiculous," Rock said. "I characterize it as a very lazy way to approach this. It's uninventive and they should be looking for ways to increase efficiency and they're not bothering."

Quincy Business Leader Cites "Arrogance, Greed and Corruption"

In Quincy, Illinois Business Leaders Sound Off On Tax Hike

At Knapheide Manufacturing, Bo Knapheide, the company's vice president of fleet, held a news conference which blasted the state's actions.

"The past three years have been very difficult for Knapheide Manufacturing and our people," Knapheide said. "We have undergone significant layoffs, wage freezes, elimination of performance bonuses and numerous cost cutting measures."

Knapheide said the tax increase does not help the company compete in what is already a tough business environment.

"Price competition in our depressed markets is fierce," he said. "It is impossible to full cover increase in material costs, energy costs, the added expense of Obamacare and now the added cost of the waste and corruption in Illinois government."

Knapheide said downstate businesses are expected to pay for "the Chicago political machine" that is "destroying not only Chicago and Cook County, but the economy of the entire state of Illinois. The machine carefully takes care of their political cronies at the expense of the Illinois taxpayer. Their arrogance, greed and corruption leave the people of Illinois with high income taxes, high property taxes and high unemployment."

Mike Nobis of JK Creative Printers and head of the Quincy Area Action Council issued a statement via e-mail.

"The new tax increase will be really hard on this state and Illinois businesses will be under extreme pressures once the tax increases take affect which will be immediate once Quinn signs the new taxes into law," Nobis said.

Jeff Mays of the Illinois Business Roundtable said his analysis shows the Legislature's action will make the problem worse with a continual annual operating deficit that will hit $4 billion in 2016 and lead to an overall deficit of $14.2 billion.

New Illinois Constitutional Amendment Allows Gubernatorial Recall

Last November, Illinois voters were presented a chance to vote on a constitutional amendment allowing governors to be recalled. I am pleased to report the amendment passed by a wide margin and is now law.

Campaign To Recall Illinois Governor Pat Quinn Underway

My Campaign To Recall Illinois Governor Pat Quinn Is Underway

I have exciting news this morning. I am launching a campaign to recall Illinois governor Pat Quinn.
This is not a frivolous effort. It is a serious undertaking and one in which I intend to see to the end. It will take hard work and lots of volunteers but we will be successful.

I need volunteers to ...

Gather signatures
Talk to state legislative representatives to get them on board
Provide legal help
Design a website
Help with advertising

I will pay for website hosting and domain names.

We need to be successful because Governor Quinn has plans that will destroy Illinois.

Will You Stand Up To The Injustice?

There are many tasks to be performed and I will need volunteers from every county to gather signatures. I estimate we need about 520,000 signatures. My goal is to get 700,000.

If you can volunteer, time, web design, advertising, legal help, or any kind of general assistance, I would appreciate it. We need to put a stop to Quinn's proposals that will drive businesses and jobs out of the state and massively raise your taxes as part of the bargain.

Call To Action

I wrote the above call to action post on Sunday. Since then I have had over 100 volunteers including 10 web designers, a lawyer, and numerous business owners. Work on a website is underway. I have secured the appropriate domain names. One business owner who employs about 100 people graciously volunteered services of his legal department.

This is going to be a long slug, no doubt about it. Yet other than leave the state, there is little else we can do. I do need business owners to contact their legislative representatives and pressure them to sign the petition to Recall Quinn.

There are 118 state representatives and 59 state senators. To get started, all we need are 20 reps (10 each party), and 10 senators (5 each party), before we start the signature gathering process.

Please contact your representatives and get them on board. In the meantime, please email Recall Governor Pat Quinn Today (RecallQuinnToday@gmail.com) and lend your support to the effort to save the state of Illinois from Quinn's fiscal recklessness.

Please state in the email what you can do to help.

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

Hallucinations on Curing Unemployment; Modeling the Model

Posted: 13 Jan 2011 12:32 PM PST

In Get a Model, Plug in Guesses, Cure Unemployment Caroline Baum takes a look at Janet Yellen's statements regarding the alleged creation of 3.5 million jobs. Here are a few snips.

Just when you thought you'd heard the last of "jobs created or saved," the Obama administration's quarterly report card on its $814 billion fiscal stimulus, along comes the Federal Reserve with its own model-derived guesstimates.

The Fed's full menu of securities purchases, starting with $1.7 trillion of Treasuries, agency and mortgage-backed bonds in late 2008 and 2009 and including the current $600 billion of intermediate- and long-term Treasuries, "will have raised private payroll employment by about 3 million jobs," said Fed Vice Chairman Janet Yellen.

Yellen's projections, presented at the Allied Social Science Association's annual meeting in Denver last weekend, are based on simulations performed by the Fed's macroeconomic model, known as FRB/US, not real jobs.

That would be the same model that failed to grasp that mortgage loans made during a period of exceptionally low interest rates by lenders with no skin in the game might not be repaid, putting major financial institutions on the brink of insolvency; the same model that failed to understand how new and exotic derivatives based on these mortgages would perform; the same model that failed to see the millions of jobs that would be lost if housing and credit bubbles were allowed to inflate until they burst; and the same model that predicted an unemployment rate of 8.8 percent in the fourth quarter of 2010 without the enactment of a fiscal stimulus. (It was 9.6 percent with it.)

Fantasy Models

Baum asks "Why do policy makers persist in perpetrating this fantasy, in asserting something that can't be proven?"

That's a good question. I had questions of my own regarding Yellen's preposterous statements in Janet Yellen Says Fed Asset Purchases Will Create 3 Million Private Jobs By 2012

Should we add those three million jobs to the 3.5 million jobs Obama wanted to create or save? By the way what happened to those 3.5 million jobs anyway?

Janet Yellen thinks the Fed is going to create 3 million jobs by the end of this year. Let's do that math, too. 3 million divided by 12 is 250,000 jobs a month. Does anyone believe that?

I posted a graph in that article that shows we lost 3.87 million jobs in the very timeframe Obama pledged to create or save 3.5 million jobs. That's a whopping deficit of 7.37 million jobs.

Mathematical Models

As long as we are discussing models, let's look at the math behind them. The Fed bloated its balance sheet by $2.3 trillion to allegedly create 3.5 million jobs. My math suggests it takes $657,142.86 in balance sheet additions to create a single job.

Note the mistake by Yellen. She should have claimed the Fed created 10 million jobs, dropping the needed balance sheet expansion to a mere $230,000 per job.

Labor Force Models

Last year, the reported unemployment rate fell from 9.9% to 9.4%. In that time, those "not in the labor force" rose by 1,447,000 while those in the labor force rose by a mere 518,000.

If we factored that into the unemployment rate calculation, it would have risen. However, Yellen's model ignores such discrepancies so we must march on as if the drop in unemployment rate is real.

Forward Projections

Let's model what it would take to reach "full employment" (assuming that such a preposterous concept exists, even though I assure you it doesn't).

Economists love to project forever into the future the conditions we see today. It is one of their favorite pastimes, so I want to show you what the math suggests.

Currently it takes $2.3 trillion to cause a .5 point drop in the rate. To obtain a "full employment" unemployment rate of 5.9%, the Fed's balance sheet will need to expand by an additional $16.1 trillion to a total of $18.4 trillion.

To be fair, I most certainly ignored the fact that Yellen believes all we need to do is "prime the pump" and the economy skyrockets onward. Then again, it appears that $2.3 trillion did not do much pump priming judging from the pathetic performance so far. How much pump priming does it take?

The correct answer is pump priming does not work at all, but let's ignore that little factoid as well.

Marching on, it's fair to point out there is a significant risk of an economic relapse for numerous reasons including a tax hikes by states, layoffs and cutbacks at the city and state level, an implosion in Europe, a slowdown in China, a slowdown in consumer spending.

But hey, let's ignore those risks too, while we continue to "model away". Here is a summary of what will happen based on projections of Yellen's model.

Modeling The Model

The Fed created 3.5 million jobs.
The Fed bloated it's balance sheet by $2.3 trillion to do so.
It takes $657,142.86 in balance sheet additions to create a single job.
It takes the same $2.3 trillion to lower the unemployment rate .5%
The Fed's balance sheet will reach $18.4 trillion by the time the unemployment rate drops to 5.9%
It will take another 3.5 years to get to a "full employment" situation with an unemployment rate of 5.9%.

Don't blame me, I'm just modeling Yellen's model.

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

Amazing Footage of Australian Flood

Posted: 13 Jan 2011 10:14 AM PST

Best wishes to my friends down under, many of whom have been hit hard by flooding. Following is a spectacular video of a the "Toowoomba Flood"

Amazing footage of East Creek near Chalk Drive / Chalk Lane rising and washing away lots of cars during Flash Flood in Toowoomba on Monday 10 January 2011. This is some of the best footage I have seen of the Flood and was taken from the second floor of our office which backs onto Chalk Lane.

It shows just how fast the creek turned into a torrent and quickly flooded Chalk Drive and Chalk Lane.

With the incredible exposure that my video is receiving all over the internet and media worldwide I would like to encourage you to donate to the relief appeals.

Flood Relief Donations

Queensland Government Appeal
Churches of Christ Care Queensland Flood Appeal

Please pray for us. There are many people who are suffering through this.

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

No Such Thing as Cost-Push Inflation; Demographics and the "Demand for Money"

Posted: 13 Jan 2011 04:55 AM PST

In China's Foreign Exchange Reserves Jump by Record $199 Billion; Cost Push Inflation from China? Don't Count On It! I stated ....

Strangely, nearly everyone insists inflation is roaring in the US instead of where it is roaring, China and India. The alleged proof of US inflation is a series of widely circulated charts of various commodity prices even though there has been little-to-no passthrough on any consumer prices except gasoline, and home prices are once again falling like a rock.

In response my friend "HB" wrote ....

There actually is no such thing as 'cost push inflation'. Think about it - if the money supply were to remain stable (which isn't the case, but hypothetically), then a rise in price of some goods automatically would lead to a fall in prices of some other goods.

If you have $100 to spend per week, and you've spent $40 on say gas up until now and the gas price rose to increase your gas bill to $50, your demand for non-gas goods - assuming your gas consumption remains unchanged - would fall by $10. This decrease in demand would pressure the prices of non-gas goods.

Economy-wide , a rise in general prices is only possible if the money supply increases. of course there is non uniformity in such effects on prices and a lag effect as well. furthermore, the effect of the increase in the supply of money is mitigated by productivity increases. In any case, there can be no 'cost-push' inflation, unless the rise in the price of some goods is 'accommodated' by monetary pumping.

No Such Thing as Cost-Push Inflation

My Austrian-minded friend is correct. I should have been more explicit. However, I did state that the idea of cost-push inflation is "silly" once before in "Money's Already Quite Cheap"

Cost-Push Inflation?

Someone sent me an email stating that I do not understand push-through inflation and that is why I don't understand hyperinflation.

Well for starters hyperinflation is not caused by rising prices, hyperinflation is a loss of faith of currency (typically caused by some political event). The result (not the cause of hyperinflation) is rising prices. For a further discussion of hyperinflation please see "Straight Talk" with Economic Bloggers

Second the whole idea of cost-push inflation is silly. An excerpt from $30 Billion Offer No One Wants - Small Businesses Hit by Deflation will prove it. ...

By the way, there is a subtle error in what "HB" said. Did you catch it?

"Economy-wide , a rise in general prices is only possible if the money supply increases."

An increase in money supply is by far the most likely way there is a general price rise, but it is not the "only" way, even if we assume that "money supply" includes credit.

Prices Affected by the "Demand for Money"

In a general sense, if the demand for money drops for any reason, prices will rise. Conversely, if the demand for money rises for any reason, prices will fall.

The demand for money (the desire to hold on to it vs. consume) can change as consumer preferences change. Demographics is one such reason consumer preferences may change.

For example, someone at retirement age and barely scraping by has a far greater demand for money than a young person at age 30 with a decent job.

Here is another way of phrasing the same thing: A person aged 30 with a good job is far more likely to have high demand for the latest and greatest electronic gadget than someone aged 62 scared half-to-death about running out of money in the near future.

Changing demographics is a very powerful "price deflationary" card at this stage of the game. Indeed, Bernanke is doing his best to counteract the increased demand for money associated with boomer dynamics by pumping up actual money supply.

The result so far has not been the expansion of credit that Bernanke wants, but rather a massive increase in the amount of "excess reserves" held with Fed. (Please see Fictional Reserve Lending for further discussion).

In short, banks have no real desire to lend except to a small pool of creditworthy borrowers who have no desire to borrow.

In the real economy, demand for money is high (as evidenced by unprecedented drops in consumer credit). However, Bernanke (with much help from the Bank of China) did manage to ignite more recklessness in numerous speculative ventures including equities, leveraged buyouts, and commodities.

Thus, the Fed can increase money supply, but it cannot easily dictate where that money goes or even if it goes anywhere at all.

Frugality Revisited

The "Demand for Money" construct forms the basis for many "frugality arguments" I have presented over the years.

It is a topic much in need of discussion and understanding, especially by various inflationistas calling for hyperinflation later this year. The good news is we only have 11 more months to see them proven wrong. The bad news is they will simply bump up their target by a year or two.

Cliff Event In Japan

Meanwhile, Japan is the perfect example of strong demand for money in spite of amazingly low interest rates and in spite of all efforts by the Japanese central bank to cause inflation.

Nonetheless, Japan is at a state in its economy where it has consumed all of its savings and then some just as its retirees need to drawn down on savings that the government spent building bridges to nowhere in foolish attempts to fight deflation.

Please see Japan's Finances "Approaching Edge of Cliff" for details.

As a result of that "cliff event", strongly rising import prices in conjunction with a rapidly falling currency will likely hit Japan before the same thing hits the US.

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

Frisby's Bulls and Bears 2011 Predictions from James Turk, Bob Hoye, Mish, Others

Posted: 13 Jan 2011 01:28 AM PST

Last week I did an interview with Dominic Frisby at Frisby's Bulls and Bears. The interview was part of a series of podcasts with James Turk, Mike Hampton, Bob Hoye and others. I was Part V: Predictions For 2011 with Mike 'Mish' Shedlock

Click on the above link for the podcast.

In the one hour podcast I expanded on the ideas presented in Ten Economic and Investment Themes for 2011.

We also discussed a "bonus 11th" theme regarding Japan. You will need an hour to play the podcast but I put a link on the right sidebar so you can easily find it and play at your leisure.

For a quick review please see Mish Interview on Frisby's Bulls & Bears

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

SEOmoz Daily SEO Blog

Link Building Training - Strategies, Tactics and Tips

Posted: 13 Jan 2011 04:33 AM PST

Posted by willcritchlow

Want to know more about link building? I've got something you might be interested in. For the first time ever, we are running one-day seminars dedicated purely to link building:

London - 18th March 2011: (tickets cost £399 +VAT - or £299 +VAT with SEOmoz PRO membership) - book now
New Orleans - 25th March 2011: (tickets cost $600 - or $450 with SEOmoz PRO membership) - book now

At both venues, you will be invited to evening networking drinks. If you want to get exclusive one-on-one time with the expert speakers, we're holding a fancy dinner the night before for very limited numbers. It costs £175 / $200 per head - book early and request your place on the booking form.

Many of you have attended a Pro seminar such as the one run by SEOmoz in Seattle (see last year's invitation) or the one run by us in London (see last year's sneak preview). Pro training consistently sells out and the feedback has been phenomenal:

Just finished ProSEO 2010 and yet again Distilled and SEOMoz knock it right out of the park - if you are attending any conference in 2011, you've just found the right people to book with. Richard Hannan, Essential Travel

An event packed full of experts giving away actionable tips and the results of quality research. Cheaper than events of much lower quality too, bargain. Will O'Hara, Zen Web Solutions

Great, focused seminar that other event management teams could learn a lot from. Richard Underwood, Telegraph Media Group

[I am getting gradually less shy about shouting about the feedback (98% satisfaction rating!) as increasingly it's others in our organisation deserving credit for this - shout out to Lynsey Little (@lynslittle) for her phenomenal work on London 2010 - she's handling London and NOLA this time around.]

The feedback we receive at the end of each seminar make for fascinating reading. Predictably, great speakers get great feedback no matter what they are talking about. Slightly less predictably, any session about link building gets high scores. Let me repeat that. It turns out that our attendees keep telling us they want to know about link building.

We carried on for a little while doing what we were doing. Then it struck us(*). What about running a seminar dedicated to link building?

OK, so you can say we were a little slow to catch on, but at least we got there, right?

The schedule

You can expect us to cover:

Linkbuilding and social media: hitting the sweet spot
- Social platforms that recreate the old "linkbait on digg" effect
- How social forces can influence pages like links and how to earn tweets / likes / shares
- How to get links from real life relationships
Myths and case studies of outreach success
- Psychology and influence
- Content hooks to get links
Analysis: without data, you are working blind
- Gathering and sorting link data
- Understanding link metrics
- Measuring the competitiveness of SERPs to understand the challenge you face
Pitfalls, mistakes and traps for the unwary
How to scale link building
- How to "ask for links" scalably and effectively
- Using tools
- How to spend money effectively
Expert "give it up" secrets
- Rand has one about nofollow links....

(*) hat-tip Tom - we were sitting at the back of a link building session by Wil Reynolds in Seattle when he turned to me and said "you know what would win the internet?"

We push our speakers hard to bring their A games - everything is designed to be actionable, specific and tips-oriented. We don't want hand-wavy generalities - we want real stuff, that you didn't already know, backed by evidence, that you can take away and actually use.

There are going to be some more speaker announcements in the coming days, but we already have lined up many of the top-rated speakers from previous events as well as some new faces:

Rand Fishkin is speaking at both events (he's from some company called SEOmoz - you might have heard of him)
Wil Reynolds from Seer Interactive - after following Wil online forever, I finally met him last year in Seattle where he gave one of the best presentations I've seen on linkbuilding. We've snagged him for London and New Orleans.
Tom and I - people might get us confused, but we're easy to tell apart on stage [insert your own joke here]. See for yourself in both countries.
Jane Copland from Ayima - as pictured below - I've learnt a lot from Jane and I can't wait to see more of what she has to say - also in both countries
Martin MacDonald from Seatwave is speaking in London. His presentation at London Pro was one of the highest-rated - expect some more magic to be revealed based on real data and real-life experimentation
Kris Roadruck from click2rank is speaking in New Orleans. He's shared some awesome tips with me behind the scenes. I'm forcing him into the spotlight. Expect great things - I've heard he does well with pressure.
More TBC..... Watch this space

Crowd at pro seminar

New Orleans - book now

The New Orleans seminar will be held at The Pan American Conference and Media Center. The conference center is located in downtown NOLA, and is only a short walk from the beautiful French Quarter. I'm personally really looking forward to going to New Orleans after hearing Rand rave about it. I'm assured the party is going to be something special. Book now

Stage at Pro seminar

London - book now

The London seminar will be held at the Congress Centre, the same venue that we held Pro 2010. The venue is located in London’s West End, surrounded by many hotels and great restaurants. The linkbuilding training day will be jam-packed but will be followed by networking drinks at a location nearby to the Congress Centre. Book now

We will also be announcing more details soon around our plans for a memorial lecture dedicated to Jaamit Durrani and evening fundraiser for his family in conjunction with the guys from OMD.

FAQ

I might come back and add more here, but here are a few:

Video - yes - we will be recording both events - watch this space for the announcements of how to get your hands on those videos (and I believe there'll be news about the long-awaited 2010 recordings coming soon as well)
Pro seminars - don't worry we aren't going to stop the popular general sessions just because we're getting all specialised. There are plans to have events in Boston (May), Seattle(Aug / Sept) and London (Oct)
Staying up-to-date - if you want to make sure you hear all the details of all events, drop your email address here:

Just in case all of this wasn't clear. It's all about linkbuilding, you can book now and it's in London and New Orleans:

If you still have any questions, you can email events@distilled.co.uk (or drop them in the comments and I'll do my best to pick them up there).

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How Many Links Is Too Many?

Posted: 12 Jan 2011 10:02 AM PST

Posted by Dr. Pete

There's a long-standing debate in SEO about the maximum number of links that you should place on any given page. If you use the SEOmoz PRO Campaign Manager, you may have seen a warning that looks something like this:

Too Many On-page Links Warning

Digging deeper into the "Too Many On-Page Links" warning, you'll see the message:

You should avoid having too many (roughly defined as more than 100) hyperlinks on any given page.

A number of people have asked where we came up with 100 as the magic number and whether this is a hard limit or just a suggestion. I'm going to talk a bit about the history, whether that history still applies, and what the potential consequences are of breaking the 100-link barrier.

Where Did We Get 100?

The 100-link limit actually came from sources within Google and has been restated for years, as recently as a March 2009 post by Matt Cutts, in which he quotes the Google guidelines as saying:

Keep the links on a given page to a reasonable number (fewer than 100).

The early crawlers capped the amount of data they would process for any given page, due to bandwidth limitations. Ultimately, 100 links was mostly a good rule of thumb for what would fit in a page that met those processing limits.

Could You Be Penalized?

Before we dig in too deep, I want to make it clear that the 100-link limit has never been a penalty situation. In an August 2007 interview, Rand quotes Matt Cutts as saying:

The "keep the number of links to under 100" is in the technical guideline section, not the quality guidelines section. That means we're not going to remove a page if you have 101 or 102 links on the page. Think of this more as a rule of thumb.

At the time, it's likely that Google started ignoring links after a certain point, but at worst this kept those post-100 links from passing PageRank. The page itself wasn't going to be de-indexed or penalized.

Is 100 Still The Limit?

Since Matt's 2009 comment, the Google guidelines page he quotes seems to have dropped the phrase "fewer than 100." Observations from across the SEO community and multiple Google Webmaster Help threads confirm this change. In April 2010, Google engineer John Mu endorsed the following answer:

100 links to a page is a just a suggestion … There are pages out there with more than 100 links, and it isn't an issue. If your page is sufficiently authoritative, Google is going to be interested in the pages that are being recommended by that page.

Like many Google "limits," this is probably not a concrete number, and most likely varies with site authority. It's also likely that the number has increased over time, as Google overcomes processing limitations (especially post-Caffeine).

So, Does It Still Matter?

The short answer is "yes." There's an inescapable reality in SEO that the more links a page has, the less internal PageRank each of those links passes. To quote Matt again from his interview with Rand:

At any rate, you're dividing the PageRank of that page between hundreds of links, so each link is only going to pass along a minuscule amount of PageRank anyway.

To put it simply, more links equals less PR for each link. The actual math of internal PageRank flow gets complicated fast, but let's look at a couple of very simple examples.

Example 1: 3 Level-2 Pages

Let's say we have a very basic site with a home-page and three 2nd-tier pages linked from it. I'm going to grossly oversimplify the PR model, but let's say those 3 pages each inherit 1/3 of the PR of the home-page. Let's also assume that Google doesn't allow a page to pass 100% of its own PR – we'll cap the amount at 85% of the original page's PR (we're talking about actual PR in this case, not Toolbar PR). The result would look something like this:

3-page Link Example

Here, each of the pages inherits roughly 28% (0.85/3) of the original PR of the home-page. Again, I'm oversimplifying a much more complex reality to make a point.

Example 2: 150 Level-2 Pages

Now, let's expand those 2nd-tier pages and say that the home-page links to 150 internal pages. The diagram and PR values would look something like this:

150-page Link Example

Split 150 ways, the original 85% of the PR the home-page can pass ends up being less than 0.6% (0.85/150) per page. My graphic may have gotten a little carried away, but it's easy to see how quickly internal PR can become diluted in these situations.

What's The Right Number?

As with so many complex SEO issues (and I'm considering this purely from an SEO standpoint), there's no one answer. There's a balance between building a site structure that's too deep, creating pages that are many links removed from high-authority pages, and one that's too "flat," creating a situation like the one above. While many SEOs argue in favor of flat architecture, the basic problem is that it treats every link as being equal. Do you really have 150 (or more) pages that all deserve equal treatment from the home-page and that should all carry equal PR? Probably not, and so we try to take a balanced, hierarchical approach, focusing internal PR on the most important pages first. Ultimately, while it may be outdated, the 100-link guideline is still probably a decent rule of thumb for most sites.

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"I want our democracy to be as good as Christina imagined it."

Your Daily Snapshot for
Thursday, Jan. 13, 2011

Remembering the Victims in Tucson

Yesterday, President Obama travelled to Tucson, Arizona to attend a memorial service for the victims of Saturday’s tragic shooting. During the memorial service the President reflected on the innocent lives that were lost, the heroism of so many brave citizens on that day, and the importance striving to be better members of our community and citizens.

Watch the video.

President Obama embraces First Lady Michelle Obama after his remarks at the memorial service for the victims of the shooting in Tucson, Arizona, January 12, 2011. (Official White House Photo by Pete Souza)

SEOptimise

Reverse Engineer the Search User

Posted: 12 Jan 2011 07:48 AM PST

Michael Martinez of SEO Theory published an article a few days ago that explains in depth how useless it is to chase Google’s algorithm. I won’t repeat what he wrote here, you can read his explanation in case you haven’t yet:

Martinez refers to reverse engineering the Google algorithm as futile and decries good old ranking factors as obsolete. I would probably not go as far as he does but nonetheless my approach is similar. I always tried not to obsess about what Google really counts and what not. I was always keen on knowing what is out there in the know but I followed my own “secret list” of ranking factors.

Back in 2004

When I started out in SEO in 2004 the first thing I wanted to sell my first client was a blog: I argued that a user wants to see relevant content on a site and a blog is the easiest way to provide that. By then blogging was popular for 3 years at least but corporate and business blogging was in its infancy. At that time it was still far from apparent that Google prefers blogs in search results. So how did I know?

Well, I simply tried to reverse engineer the search user.

I was a complete novice to SEO in those days unlike now where many people consider me a must read blogger both on SEOptimise and on my own blog. So sometimes I was wrong or years ahead of time or both. For instance I expected Google to favor whole grammatically correct sentences in the title-tag. I imagined the user wanting something similar to a readable meta description up there in the title not just a stupid list of keywords. For years Google seemed to favor repetition and lists over grammar though but today it’s not that obvious anymore. Proper English ranks as well these days.

SEO: short term vs long term

So in way I failed in the short term then. On the other hand reverse engineering the search user allowed me to provide future proof optimization years in advance. I don’t tell you to abandon well known ranking factors even in case they are not so bullet-proof as we might hope. Combine your knowledge of ranking factors with common sense reverse engineering of the search user though. Start with yourself. Try to sit back and look how you really search. Then combine this with user testing and finally with A/B testing. Chances are that what’s best for the user will also be honored by Google sooner or later.

The explanation is quite simple: Google engineers are tweaking their algo constantly to provide users with what they want, when they want and how they want it. So chances are that they discover the same user preferences you do.

Attempt to anticipate Google’s next step by looking not at Google but at Google’s source, the actual search user.

* Image: Engine by Ack Ook