Central Perk

joi, 6 ianuarie 2011

Mish's Global Economic Trend Analysis

Rosenberg on the Non-Double-Dip; A Look Ahead to Second Half-2011 and 2012
Portuguese, Spanish Bonds Smacked on Sovereign Debt Financing Concerns; Euro Flirts with December and Mid-September Lows
Japan's Finances "Approach Edge of Cliff", Prime Minister Calls For Sales Tax Hike
EU Commission Plans Haircuts on Bank Debt; Greek Yields Hit New Record; China Buys Spanish Debt; German Courts to Decide Bailout Constitutionality

Rosenberg on the Non-Double-Dip; A Look Ahead to Second Half-2011 and 2012

Posted: 06 Jan 2011 07:39 PM PST

The "Double Dip" for 2010 did not happen and one for 2011 now seems unlikely as well. However, a recession in 2012 is not out of the question. Dave Rosenberg explains in Breakfast with Dave

Can We See 4% GDP Growth For Q1? Yes, But Look For Air Pockets Thereafter

This is not a forecast as much as something that should be on the radar screen. Nor should this be considered a change in our fundamental view for 2011 as a whole — as a year of overall disappointment on the macro front. Be that as it may, the probability of a much stronger Q1 economic outcome has risen very recently.

Yes, you read that right. But why would that come as a surprise? We had near 4% GDP growth in the first quarter of last year (the consensus was little more than 2.5% going into that quarter) and by summer everyone was still talking about a double-dip recession and the stock market was beginning to price one in.

The points below show what it would take to get 4% GDP growth for Q1 — believe it or not, it is not a stretch to get there. With consumer spending at 3.5% (perhaps even higher), it doesn't take much. The consensus right now is less than 3% (taken a month ago), but I would expect to see it revised up very shortly:

Consumer spending 3.5% (the impact of the payroll tax cut)
Residential investment 2% (the monthly construction spending numbers have risen modestly off the lows)
Non-residential spending 5% (the architectural billing index is consistent with this)
Capex 10% (still solid but moderating as the latest core orders data are predicting)
Net exports swing from $470 billion to $460 billion (net addition of 0.4%)
Inventories from $73 billion to $68 billion (drag of 0.2%)
Government 1.5%

Even if government is flat, the number for Q1 would still be 3.7% seasonally adjusted annual rate.

What is important is what happens in the second and third quarter when we see the U.S. economy hitting an important air pocket. In Q2, there is a loss of fiscal support at the margin. Moreover, we will be deeper into this renewed leg of the downturn of home prices, with negative implications for the household wealth effect, confidence, and spending. We will be seeing the peak impact from the runup in energy prices too. The inventory cycle has pretty well run its course as well (it was responsible for half of the GDP growth in 2010). It would also likely be prudent to assume that some risk aversion will resurface from the renewal of European debt concerns in March after the Irish elections (if the opposition party wins, expect the EU deal to be renegotiated and the debt to be restructured, and if that happens, look for other countries to follow suit). Of course, we have the debt-ceiling issue to contend with in March-April and the GOP are dangling $100 billion of spending cuts in front of the White House in order to get a deal done. This is not last year's lame duck Congress. And this doesn't add to uncertainty and possible disappointment in the second and third quarter?

The Fed is not going to be able to embark on more balance sheet expansion unless things were to get really ugly given the new Congressional oversight and the longer list of "hawks" that are FOMC voters ― this comes to a head in June and remember what happened last year when Mr. Market hit a pothole as the Fed contemplated its elusive exit strategy. It would be irresponsible to ignore these risks.

All we know about Q4 is that we should see a decent pickup in capital spending ahead of the end of the bonus depreciation allowance, which will merely create another problem for 2012 but the story here is (i) consumer-led first quarter, followed by (ii) air pockets in both Q2 and Q3, and then (iii) a capex-led fourth quarter. Moreover, a 2012 recession cannot be ruled out. In fact, elections are great years to have recessions: 1960, 1970, 1980, 2000 and 2008! How about that Mr. Potter?

The Real Cause For The Recent Exuberance

Personal income was revised up $46.3 billion in the second quarter. This was huge ― the Commerce Department found $46.3 billion for the consumer that it thought wasn't there before. This made the difference between income being up at nearly a 6% annual rate that quarter and 3%. The newly found income carried some important spending momentum with it into the third quarter and this was really big in terms of influencing people's perceptions of how the economy was performing.

When double-dip risks were at their peak, it was when Q3 GDP was released initially and it showed a mere 1.6% annual growth rate, which was even weaker than the 1.7% print in Q2 (which was less than half the growth rate of Q1). Then Q3 GDP was revised up to 2% and then all the way to 2.6% and that is all she wrote as far as the double dip for 2010 was concerned. And it now looks like we are going to see something closer to 3.5% for Q4. So what happened was that consumers had more income than was thought previously.

This is a nice story. It explains why we were wrong on the Q3/Q4 double-dip scenario, but going forward, this income revision and its impact on spending can be considered yesterday's story. As we said, there is the current payroll tax effect, but this will be contained to the first quarter and the one thing history teaches us is that tax cuts that are temporary in nature carry with them virtually no multiplier impact into the future. Look for Q2 of this year ― and likely Q3 as well ― to turn out to be as disappointing for the market, as was the case for these exact same quarters in 2010. In other words, look for a repeat except this time around we don't have a Fed and a Congress that is going to pull another rabbit out of the hat during the summer and fall.

Change of Tune

I too thought a double-dip in 2010 or 2011 was likely. I changed my mind some time ago and made it theme number seven in Ten Economic and Investment Themes for 2011

7. US Avoids Double Dip

The tax cut extensions and the payroll tax decrease will keep the US out of recession. However, growth estimates are still too high. The tax cut extensions do nothing more than maintain the status quo while the payroll tax deduction is just for a year. Most will use it to pay down bills. Look for GDP at 2.0-2.5%. That is the stall rate.

There is no reason to stick with a forecast that is not going to happen. When retail sales picked up in November and continued into early December, that was it for me. I had significant doubts even before that.

Robust Jobs

On Monday, January 3, before the ADP numbers came out, in Factories Expand 17 Consecutive Months, Jobs Don't I discussed the possibility for a couple months of good jobs reports.

The BLS report for December comes out on January 7th. The January report comes out on February 4th. Those reports could be robust because of retail and service sector hiring, especially the January report.

Everyone is now going gaga now because Wednesday's ADP National Employment Report "suggests nonfarm private employment grew very strongly in December".

ADP has private-sector employment at +297,000.

The pertinent question, assuming the report is correct (I'll take the way under) is "how sustainable is it?" On this score I am in agreement with Rosenberg. I suggest not very, although next month or two could be good as well.

Bear in mind we had strong employment reports early last year, only to see them fade in the second half. Given that headwinds are enormous, I see no reason to change what I said in Jobs Forecast 2011 Calculated Risk vs. Mish.

Nor do I see any reason to change my long-term forecast that the US slips in and out of recession or near-recession and deflation for a number of years, just as Japan did.

Little has changed except a massive amount of stimulus delayed the double-dip. What can't go on forever won't and I doubt if this Congress is very accommodating to states in trouble.

Economic forecasts for 2010 ranged from hyperinflation to strong growth and strong inflation, to weak growth and strong inflation, to weak growth and minimal inflation, to weak growth or double-dip accompanied with deflation (my call), to outright economic Prechter-like collapse.

Those in the hyperinflation and strong inflation camps missed the mark by a mile. Mid-year it looked like the US was headed back into deflation but QEII forestalled that.

Giving credit where credit is due, those in the weak growth and minimal inflation camp got the 2010 call right. There were not many in that camp, but Calculated Risk was one of them.

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

Portuguese, Spanish Bonds Smacked on Sovereign Debt Financing Concerns; Euro Flirts with December and Mid-September Lows

Posted: 06 Jan 2011 12:19 PM PST

Portuguese and Spanish 10-year bonds are getting smacked hard as refinancing needs mount. Greek yields are at all-time highs and a milder (for now) selloff continues on Belgian and Italian bonds as well. A flight to safety on German bonds is again in play, with German 10-year yields dropping slightly. The Euro once again flirts with December and Mid-September lows.

Bloomberg reports Portuguese, Spanish Bonds Decline Amid Debt-Auction Speculation

The extra yield investors demand to hold Portuguese securities rather than benchmark German bunds widened to the most in a month as the IGCP debt office announced the sale of 2014 and 2020 debt, scheduled for Jan. 12. Belgian bonds tumbled after the nation's political leaders failed to restart seven- party negotiations to form a government. German bunds rose.

"The underlying story behind this slide in Portuguese government bonds is supply-related," said David Schnautz, a fixed-income strategist at Commerzbank AG in London, who said he had heard speculation about the Portuguese sale before it was announced. "Next week we will keep on running at full steam in the primary market with supply from Spain and Italy," he said.

The yield on 10-year Portuguese bonds jumped 26 basis points to 7.17 percent as of 4:40 p.m. in London. The yield premium to bunds widened to 404 basis points, the most since Dec. 1. The 4.8 percent bond due in June 2020 fell 1.57, or 15.70 euros per 1,000-euro ($1,301) face amount, to 84.12.

Portugal is raising taxes and cutting wages to convince investors it can narrow its budget gap after the Greek debt crisis led to a surge in bond yields for euro nations last year. The Portuguese government said today it met its target for a budget deficit of 7.3 percent of gross domestic product in 2010.

The nation, which intends to sell as much as 20 billion euros in bonds to finance its budget and redemptions this year, auctioned 500 million euros of bills yesterday at a yield of 3.686 percent, up from 2.045 percent at a sale of similar- maturity securities in September.

Spain is due to sell debt maturing in 2016 on Jan. 13, the same day as Italian bond auctions for 2015 and 2026 securities. The Spanish 10-year yield rose 16 basis points to 5.49 percent. The equivalent-maturity Italian yield increased 11 basis points to 4.77 percent.

Belgian bonds tumbled, sending the 10-year yield 13 basis points higher to 4.07 percent, after politicians failed to break the political deadlock in Europe's third-most-indebted country. The extra yield over German bonds widened to 115 basis points, the most since Dec. 1. The spread, a gauge of the risk of investing in Belgium, has risen from 79 basis points before the nation's June 13 election.

The yield on German bunds, Europe's benchmark debt securities, fell three basis points to 2.91 percent.

Sovereign Debt Yields Greece, Portugal, Spain, Belgium

That chart is as of yesterday. The Portuguese 10-year yield has since widened to as much as 7.17% (quite a sharp selloff). Spanish 10-year yields are now 5.49% and Belgium 10-year yields are 4.07%.

Euro Weekly Chart

click on chart for sharper image

The sovereign debt crisis in Europe as well as recent job reports in the US are both US dollar friendly. For more on the European debt crisis including a look at a pending German court review of the constitutionality of the bailouts, please see EU Commission Plans Haircuts on Bank Debt; Greek Yields Hit New Record; China Buys Spanish Debt; German Courts to Decide Bailout Constitutionality.

For a look at the mess in Japan, please see Japan's Finances "Approach Edge of Cliff", Prime Minister Calls For Sales Tax Hike.

The potential for a substantial US dollar rally is staring dollar bears and US hyperinflationists smack in the face.

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

Japan's Finances "Approach Edge of Cliff", Prime Minister Calls For Sales Tax Hike

Posted: 06 Jan 2011 09:43 AM PST

Japan, which spent itself into oblivion fighting deflation (and losing), now needs to raise taxes in the midst of that deflation.

Please consider Sengoku Says Japan's Finances Near 'Edge of a Cliff'

Japan's top government spokesman said the country's fiscal situation is "approaching the edge of a cliff," underscoring Prime Minister Naoto Kan's call for a national debate on raising the 5 percent sales tax.

Kan is "expressing his deep sense of crisis and resolution about the sustainability of social security as the aging population increases under a low birth rate," Chief Cabinet Secretary Yoshito Sengoku told reporters today in Tokyo. "The supporting fiscal conditions don't allow for any delays, it's finally approaching the edge of a cliff."

The prime minister last night said in an interview with TV Asahi that he would "stake my political life" on addressing Japan's rising social welfare costs and increasing public debt. The day before he said "now is the time" to face these problems.

Japan's public debt is set to exceed twice the size of the economy this year and reach 210 percent of gross domestic product in 2012, both estimates the highest among countries tracked by the Organization for Economic Cooperation and Development, according to the group's forecasts.

Keynesian, Monetarist Deflation Cures Fail

The Keynesian cure for deflation is government spending. The Monetarist cure for deflation is quantitative easing. Japan tried both and the only visible result is government debt to the tune of 200% of GDP.

As Japan's aging work force heads into retirement, retirees need to draw down on their accumulated savings but they can't. Government buffoons fighting deflation spent it all and 100% more. So now, Japan stands at the edge of a cliff and needs to tax those retirees enough to pay their retirement pensions. Those pensions were squandered building bridges to nowhere, allegedly to end deflation.

Now the plan is to raise taxes enough to pay the retirees. Is that really supposed to work? For how long?

Raising taxes in the midst of deflation hardly seems right, but the alternative is default or further escalation of government debt. Compounding the problem, rising interest rates would crucify Japan as interest rates on the national debt already consumes most of government revenues.

At some point the Yen will sink to reflect this reality. In an extreme case, hyperinflation is possible. Yes dear reader, in spite of all the talk about hyperinflation in the US, the odds of it elsewhere are far greater. Note that "greater" means just that. It is not an explicit call for hyperinflation.

The Prime Minister's statement "Japan is approaching the edge of a cliff" is a sure sign Japan has already fallen off a cliff. Politicians do not admit problems until it is too late to fix them. Thus, we have official admission that Japan's demographic time bomb has just gone off. The only question now is how quickly the problem escalates.

One might think that economists would learn something from this, but they would be wrong.

Keynesian clowns think Japan failed to defeat deflation because government did not spend enough fast enough. In other words, Keynesian clowns think the way to get out of a hole is to dig deeper, faster.

Meanwhile, Monetarist clowns feel the central bank did not ease enough fast enough. They think if you just print enough money someone will spend it. In Japan, all printing money did was artificially suppress interest rates as the money went into government bonds.

Question of the Day: Do economists (in general) somewhere along the line acquire an inability to reason, or does an innate inability to reason lead one to a career as an economist?

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

EU Commission Plans Haircuts on Bank Debt; Greek Yields Hit New Record; China Buys Spanish Debt; German Courts to Decide Bailout Constitutionality

Posted: 06 Jan 2011 12:47 AM PST

A European commission has come up with a new proposal to shield taxpayers from the banking crisis via haircuts in senior bank bonds. The proposal only covers bank debt, not sovereign government debt, and supposedly it applies to some mythical time in the future, not now.

However, sovereign yields have hit new record highs in Greece, and are close to record highs in Portugal, Spain, and Ireland, I fail to see how the crisis can possibly be contained, and I fail to see why it takes a commission to decide that bank bondholders need a haircut. It should be perfectly obvious there is no other possible solution. The big fear is haircuts spread to sovereign debt.

It's time to put the fears away and concentrate on the reality. Sovereign debt haircuts are coming. With that backdrop, please consider the Telegraph article EU plans for bondholder haircuts unsettles debt markets by Ambrose Evans-Pritchard.

Michel Barnier, the single market commissioner, will publish a "consultation paper" outlining ways to shield taxpayers from banking crises. It is the first stage of what will almost certainly become a binding law.

"We are pursuing the idea of a debt write-down or conversion to help stabilise a failing bank and reduce the need for public funds," said an EU source.

Fears that this could evolve into a crusade against bondholders set off fresh jitters on EMU debt markets yesterday, pushing yields on 10-year Greek bonds to a record 12.59pc.

Portugal managed to sell €500m (£425m) of debt at a crucial auction but had to pay 3.67pc on six-month bills, double the rate in September. "It is an unsustainable dynamic," said Lena Komileva from Tullett Prebon.

Credit Default Swaps on Irish bonds jumped 16 points to 620 after Switzerland's central bank said it would no longer accept Irish debt as collateral.

The Commission paper refers only to bank debt, unlike Germany's proposals for sovereign "haircuts". Mr Barnier hopes to restrict burden-sharing to future debt only, fearing that a catch-all approach risks setting off a fresh EMU crisis.

Commission's Vote Is Irrelevant

The idea that haircuts can be limited only to bank bonds, and not even the existing ones, but mythical bonds at some mythical time in the future is preposterous. You know it, I know it, and the bond market knows it. Why else would Greek bonds yields be at fresh all time record levels?

I find it amusing that a commission has gotten together to vote on such matters. It is not up to the commission to decide. The market has already cast its vote. Unless Germany decides to pony up more cash, the market wins.

The Telegraph continues ...

However, Brussels may lose control once the process is unleashed. A populist backlash is gathering strength in most EU states, and regional elections in Germany may sharpen demands for retribution against cossetted monied elites.

"It is no coincidence that Chancellor Angela Merkel lost her majority in the Bundesrat two days after the Greek bail-out," said Andrew Roberts, credit chief at RBS. "Peripheral debt woes have not gone away. This will go on until Germany chooses whether to dilute its own credit rating by funding the system, or decides 'enough is enough'."

I seldom agree completely with Pritchard but I think he has this one stone cold. It is not even clear the German courts will find bailouts constitutional. A crucial vote is coming up next month.

German Bonds Lose Luster

Bloomberg reports German Bunds Lose Allure for Europe Fund Managers.

Germany has pledged more cash than any nation to bail out debt-ridden states such as Ireland and the country's fixed- income market is vulnerable, assuming Deutsche Bank AG analysts are right and the European Central Bank starts to increase interest rates as soon as June.

"When you look at the whole setup, Germany seems to be the ultimate guarantor of the whole region," said Robin Marshall, director of fixed-income at London-based Smith & Williamson Investment Management, which oversees $20 billion for customers. "You have to ask yourself why bund yields are so substantially below other countries. They aren't fully reflecting the risk."

"Bund yields may continue to fall in an early part of next year," said Rainer Guntermann, an analyst at Commerzbank AG in Frankfurt. "People are likely to continue to seek safety that German bonds represent as credit deterioration drags on."

Andre de Silva, the Hong Kong-based head of Asia-Pacific interest-rate research at HSBC Holdings Plc, isn't so sure. German bonds may lose their status as "the golden benchmark," he said.

"The more we go the bailout route and the more Germany, as a large contributor, has to stump up, the less German bonds can be claimed as a risk-free asset," de Silva said. "We are not saying Germany will lose its top credit rating, but the allure of its bonds is tarnished."

While Germany has one of the lowest deficits in the 17- member euro region, it has earmarked 119.4 billion euros to the European Financial Stability Facility for countries in need of bailouts. The contribution, the biggest by any nation, amounts to 27 percent of the fund.

"It's a difficult situation for Germany," said Kind of Frankfurt Trust. "Credit dilution, perceived or real, will push yields higher. It's no longer the case of the majority bailing out the minority in the euro region, but the other way round."

China to Buy More Spanish Debt

Please consider Top Chinese official promises to buy Spanish debt

Chinese Vice Premier Li Keqiang vowed to buy more of Spain's government debt on a three-day visit to the country, delivering a significant vote of confidence in the battered economy.

The visit came as Spain battled market concerns that it may need an Irish or Greek-style international rescue because of a debt refinancing crunch this year.

"We believe Spain, with its government and people working together, will surely overcome current economic and fiscal difficulties," Li reportedly told Spanish Finance Minister Elena Salgado after his arrival on Tuesday.

The above deal was announced on Monday, ahead of the trip. The Euro rallied for a day then sold off as did Spanish bank stocks.

Spanish Bank Stocks on Funding Costs

Bloomberg reports Spanish Bank Stocks Drop on Funding Cost

Spanish banking stocks fell, led by Banco Bilbao Vizcaya Argentaria SA, on concern raising funds will become more difficult in European nations with large budget deficits.

Raising money is getting more costly for banks in indebted euro nations as investors demand a higher return for taking the risk of holding their debt. Ireland in November followed Greece by seeking a bailout, while investors remain concerned about the growing debt burden in Portugal, Spain and Italy.

"The signals from the bond market are not very encouraging," said Daragh Quinn, a banking analyst at Nomura International in Madrid. "It's clear the next couple of months are going to be very tough for the Spanish banks."

Only 41% of Germans Want to Stay on the Euro

Deutsche Welle reports Survey finds half of Germans want Deutschmark back

German daily Bild commissioned a survey by Cologne's YouGov-Institute that found that 49 percent of Germans want the deutschmark back. Only 41 percent of those surveyed don't.

Some 77 percent of the 1,068 people questioned by YouGov said they personally had not profited from the adoption of the euro.

Would they adopt the euro today?

If the country were currently not part of the eurozone, only 30 percent of those asked would today vote to adopt the euro and 60 percent would vote against such a move.

Will Chancellor Angela Merkel Lose Control?

With those kind of numbers, to suggest Angela Merkel needs to walk a fine line is an understatement. The German courts have to be aware of those numbers as well.

Literally everything that the German anti-Euro crowd said would happen years ago has now happened, and they are not too happy about it.

Major Constitutional Court Cases Coming Up

Euro Maverick Edin Mujagic discusses the court battles in Stop blaming the Germans

December 21, 2010

Karlsruhe, a pretty little town on the German-French border, is the home of German Constitutional Court. It can destroy the euro even if the troubles on the euro area periphery are to be resolved in a structural way (which is not very likely).

At the beginning of next year the judges of that Court will look into quite a few cases brought forward vis-à-vis the German participation in saving Greece and Ireland.

The German government wants to proceed with those operations and is ready to save other euro countries as well. But Berlin wants the emergency euro-shield, which is now only temporarily (until June 2013), replaced by something more permanent. In order to do that, European Treaties will have to be rewritten, a time-consuming and very uncertain endeavor as there is a risk that not all EU member states will ratify it.

Time is of the essence

Nevertheless, for Berlin time is of the essence too. The new mechanism should be in place before the judges in Karlsruhe sit down to look at at least five complaints that have been brought before the Constitutional Court. The plaintiffs claim that saving those two countries from defaulting constitutes a breach of both the European Treaties and the German constitution and want the Court to order immediate stop of German participation in the rescue.

The German Constitutional Court has some experience with these matters. In 1993 and 1998 it looked at two similar cases. Plaintiffs tried to prevent the euro to be introduced at all (in 1993) and wanted it delayed (in 1998). Back then the Constitutional Court threw the charges out. But that should not be taken as guarantee than it will do so again this time.

In its verdict from 1993 the Court acknowledged that economic stability must be the basis of German participation in a monetary union at all times. In case the judges decide that economic stability of the monetary union can no longer be guaranteed, that could be interpreted as the cessation of the basis for German participation in the euro zone, making the German participation in it illegal.

Abandonment

Whatever the ruling however, the damage to the euro and the European monetary union will be significant. It is highly likely that in the future many more cases will be filed at the German Constitutional Court. That will cause great uncertainty about the future of the euro. At the end of the day, any currency is as strong as it has support of the people actually using it every day. The euro was never really loved by many Europeans and that is increasingly unlikely to even become the case. Uncertainty about the survival of the euro in the long run is the last thing a currency that wants to be an alternative to the dollar needs.

P.S. Just to add one last-minute development. In a recent interview, French Economy Minister Christine Lagarde said that euro zone policymakers deliberately chose to "violate" the bloc's rules in rescuing Greece and Ireland. The Greek and Irish bailouts and the creation of a temporary European rescue fund had been "major transgressions" of the treaty, according to Lagarde. "We violated all the rules because we wanted to close ranks and really rescue the euro zone," Lagarde was quoted as saying.

Nice, this is just what German politicians needed, weeks from the moment that Karlsruhe-judges convene to look at the complaints.

Thoughts on the Outcome

My friend "HB" who lives in Europe offers these thoughts on the lawsuits:

The most likely outcome is a compromise. The court will probably not stop the bailouts, but may well proscribe the government's freedom of action with regards to what it may contract for and what it may not contract for from here on out.

I expect some admonishment that the government must not overstep constitutional bounds.

The EU is not allowed to become a 'transfer union'. Karlsruhe has already given Gauweiler a partial victory in his suit against the Lisbon treaty by opining that no parts of the treaty may conflict with the constitutions of the federal states ('Länder') or that of the Republic.

We don't want no transfer union

Rounding out the discussion at long last, please consider The Economist article We don't want no transfer union

Although the IMF and European Union are acting as co-rescuers of Ireland and Greece, Germans see themselves as rescuers-in-chief—and they resent it. "Will we finally have to pay for all of Europe?" asked Bild, a tabloid.

German behaviour is guided by more than petty politics. In adopting the euro the Germans thought they were joining a condominium, in which every member would keep order on their own property, and not a messy commune. Now the crisis threatens that understanding. The Greek bail-out and the €750 billion ($980 billion) war chest created in May to defend the euro look to many Germans like a violation of the "no-bail-out clause" in the Maastricht treaty that created the euro. The government insists it is not, because the aid is voluntary and temporary. The constitutional court is evaluating this claim. The proposed successor, a permanent facility plus procedures to impose losses on creditors of insolvent countries, needs a treaty revision to pass constitutional muster.

Assuming the "compromise" call comes in, another crisis is all but assured when Greece and Ireland default. That might take a while. In the meantime, eyes are on Spain and Portugal.

Italy is the unseen elephant, simmering in the background. Should a huge crisis erupt before the court makes a ruling, all bets could be off on what the court decides.

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

SEOmoz Daily SEO Blog

Duplicate Content: Block, Redirect or Canonical

Posted: 06 Jan 2011 03:43 AM PST

Posted by benjarriola

This post was originally in YOUmoz, and was promoted to the main blog because it provides great value and interest to our community. The author's views are entirely his or her own and may not reflect the views of SEOmoz, Inc.

Duplicate content in SEO has been around for quite some time and even if Google has been saying they have been getting smarter and smarter in figuring out the best page to display in the SERPS from a list of duplicate content pages. They claim that it is something less to worry about today, than before. But knowing this issue exist, they give advice from various places, also in support threads, employee blogs, webmaster help videos, and many other places on how we should fix this issue. Some say simply block your duplicate content pages, some say redirect them. Maybe there is no 1 rule that best fits all situations, so I decided to enumerate the various ways to fix duplicate content issues, the differences so you can draw you own advantages and disadvantages to help you judge which method is the best to use for your specific situation. So let's go ahead and review each one.

Blocking in Robots.txt

Probably this is one of the most common suggestion used by many people, including several people from Google. This is also one of the oldest recommendations in the book and is probably outdated since there are many other things you can do today.

This would work in eliminating duplicate content. Search engine bots will see the robots.txt file and when it sees to exclude a URL of the hosted domain name, this URL is no longer crawled and indexed. Having said that, the only problem in using robots.txt in eliminating duplicate content is some people may be linking to the page that is excluded. That would prevent these links from contributing to your website's search engine ranking.

Using the Meta Robots: NoIndex/Follow tag

Another way to eliminate duplicate content, is to use the Meta Robots tag noindex/follow:

<meta name="robots" content="noindex,follow" />

The rationale behind using this tag is the noindex value is telling search engines not to index the page, thus eliminating duplicate content. And the follow value is telling search engines to still follow the links found on this page, thus still passing around link juice. The problem is there are still some people that believes this does not work. Once it's noindex, most probably it is automatically nofollow as well, but then again, why was the value nofollow and follow invented for the robots meta tag if you are not given the power to separate this out from the index and noindex? Crawled or not, this has to be tested out. I believe Rand has taken Google's word for it that this tag works. Upon searching around for people that tested this with anchor text using unique words, I found Scott M. Clay from UK doing some test. Well for me, for some reason, can never be satisfied by results and post by other people including Matt Cutts statements sometimes. And the only reason why I haven't tested this myself for a long time was there are just many other alternatives in fixing duplicate content that I didn't find the need to really know how search engines really treat this noindex/follow tag. But if any of the readers has done a good test on this, maybe you can publish your results here and also say how you did your test.

The 301 Redirect

A lot of people in the industry love the 301 redirect to fix duplicate content. Because so many people have tried it out and many know it works. It has also been abused in many shady ways too, but that's not my topic. So what really happens in a 301 redirect in treating duplicate content?

The nice thing about this compared to the two methods above is we are really sure based on statements from the respective search engines, as well as testing by numerous people (which probably includes you, the reader of this blog), knows that a link going to a page that 301 redirects will be considered as a link of the destination page of the redirect. This seems like the ultimate fix to all duplicate content issues, but actually, there is also a good reason to use the next methods I will mention.

This blog post though is not about how to do 301 redirects but if ever just in case that is what you were searching for, 301 redirects can be done on the webserver software (Apache, IIS, etc.) or through server-side programming (PHP, ASP/.net, ColdFusion, JSP, Perl, etc.). Probably a good starter guide for different 301 redirect implementations is the guide by WebConfs.

The Canonical Link Tag

The nice thing about the canonical link tag, search engines behave in the same way how it would look at a 301 redirect. It is not going to index the duplicate content page. Only the destination page will appear in the search engine index. All links going to the duplicate content pages will be counted as links of the main content page.

<link rel="canonical" href="http://(main content page)" />

If Google treats the canonical link tag in a very similar way how 301 redirects are treated, the main difference is what the user experience is. A 301 redirect, well... redirects. While the canonical link tag does not. So you can imagine when this might be better than a 301 redirect, when users may not want to be redirected.

Let's say you are browsing a department store website. And a business traveler is looking for different traveling bags and also needed a laptop bag and arrived to a URL like this:

http://www.example.com/travel/luggage/laptop-bags/targus/

While let's say there is some computer geek that wants a new laptop and a bag to go along with it and ended up in a URL like this:

http://www.example.com/electronics/computers/laptops/accessories/laptop-bags/targus/

Let's say these two pages are duplicate content pages on the same department store website, but doing a 301 redirect to fix the problem, messes up the user experience. If the buyer's train of thought in this example was to buy different bags, if they get 301 redirected to the computers section, makes them lost and would need to do some extra effort to go back to the luggage. Which the geek laptop buyer looking for different accessories would not want to be redirected to the luggage since he may be looking for more laptop accessories.

Although a canonical link tag does not redirect, you still have to choose which one would be the main page search engines would display in search engine results.

The Alternate Link Tag

The alternate link tag, is very similar to the canonical link tag. Although this is used mainly for International or Multilingual SEO purposes.

The Canonical link tag will remove all other duplicate content, but for the Alternate link tag, all pages will still be index, but this helps guide Google choose the best result for the individual country versions of Google. And eliminates the problems Google may run into treating pages as duplicate content.

To sum things up, here is a simply guide when to use which type of redirect in different cases of duplicate content:

Alternate Link Tag
- International pages, multilingual pages, intended for different countries.
Canonical Link Tag
- Multiple categories and subcategories with different category paths, but the same content.
  Example:
  http://www.example.com/products/laptops/sony/
  http://www.example.com/products/sony/laptops/
- Tracking codes, Session IDs mainly because redirection sometimes interferes with the functionality of the tracking codes and sessions.
  Example:
  http://www.example.com/path/file.php?SID=BG47JF448JD6I7TGF439LVFD476
  http://www.example.com/path/file.php?utm_whatever=5uck3rs
  http://www.example.com/path/file.php
- Different variable orders due to how some CMS platforms are created.
  Example:
  http://www.example.com/path/file.php?var1=x&var2=y
  http://www.example.com/path/file.php?var2=y&var1=x
301 Redirect
- Cases where a redirection does not bother the user experience such as www and non-www, index files, trailing slashes, hosting IP address.
  Example:
  http://www.example.com/
  http://example.com/
  http://www.example.com/index.html
  http://www.example.com
  http://123.123.123.123/
- Domain changes, and URL changes of pages that no longer exist.
  Example:
  http://www.example.com/old_folder/old_file 301 redirects to http://www.example.com/new-folder/new-file/
  http://www.example.net/ 301 redirects to http://www.example.com/
Meta Robots NoIndex/Follow
- Probably the best place to use this is in a list of archived post, such as a blog. Where the main URL of the individual blog post or the permalink may have content that is posted as a duplicate somewhere in the archive view by date, the category view, the author view, tag topic views, or in the pagination of older blog post from the blog homepage. You cannot really do a 301 redirect, nor do a canonical link tag since these pages may have more than 1 blog post listed and you will have to finalized where the 301 redirect should go or where the canonical link tag should point to. Thus I would take my chances using the Meta Robots tag, NoIndex,Follow, and hopefully all the links still help.
Robots.txt
- I no longer see a need to use robots.txt in duplicate content issues. The natural linking is something too precious to lose. Just use robots.txt to really block of content that does not need to be indexed at all, duplicate content or not.

Disclaimer: Although I have in my examples, PubCon and CSI Miami, both websites do not have duplicate content. The images are for example purposes only. As for SMX East, SMX Advanced London and SMX Australia, these pages also have no duplicate content.

Photo of Brett Tabke, was by Andy Beal. CSI Miami photo of David Caruso by CBS Television/Alliance Atlantis. Photo of Danny Sullivan is a photo by SMX/3rd Door Media. All other brands used in this blog post are trademarks or registered trademarks of their respective owners.

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How to Leverage Year Over Year Data Successfully

Posted: 05 Jan 2011 12:22 PM PST

Posted by JoannaLord

Oh the New Year. How we love you so. There are so many reasons to love you. Let us count the ways:

Those "Best of 2010" blog posts finally come to an end.
We all have a great reason to buy more stuff than we need because the entire world is on sale.
Everyone's energy is sky high. It's incredibly contagious. YES! LET'S DO THIS! WORLD DOMINATION!
Rarely does a New Year start without popping a bottle (or four) of champagne, which you all know is a favorite pastime of us Mozzers.
We can all get excited as we start baby stepping toward the summer, which means sunshine in Seattle is officially less than 1/2 a year away. Not that we are counting down or anything.

On top of all those excellent reasons I'd like to add my favorite part about the coming of a new year to the mix--it's time to explore your Year Over Year (YOY) data! Did you all just freak out like me? Yeah I thought so.

What makes YOY data so valuable?

YOY data is one of the few datasets that both offers a micro and macro view of your site's performance in one sitting. Throughout the year we work off mini-data segments (today compared to yesterday, week over week, month over month, etc.) and it is challenging to see outside influences. It is incredibly difficult to make valid conclusions off of data that exists in a vacuum. YOY analysis allows us the rare chance to compare large datasets side to side with similar outside factors already accounted for.

We can compare data and isolate out things like; year over year trends, year over year differences, anomalies that don't follow the grain, and so much more. In my opinion, all analysts should take a few hours in the next few weeks and just wander around their YOY analytics. Pull your performance reports, pull your traffic data, pull everything you can from 2009, and then pull it all for 2010. Put them side-by-side and then jump in there.

For those of you wondering the easiest way to get YOY data, if you are in GA, note the below screenshot. You can set the "Compare to" dates to be 2010 and 2009, and don't forget you can change the data represented from visits to whatever you are interested in looking at.

Google Analytics screenshot of compare to date ranges

If you switched analytic packages in the past two years, you might need to pull the data into excel from your two sources and create graphs there. Here is an example of what our Operations team tracks in excel. We will definitely be using this data in the coming year for a lot of sign up YOY comparisons:

Excel graph Year over Year stats SEOmoz

When it comes to pulling YOY stats, it might take some time to get it formatted in a useful manner. Trust me though, it's worth the few hours you take playing in reports and excel.

So what should you be looking at?

1. General health review

This is YOY analysis at it's most basic--have any of your site stats absolutely plummeted? As you collect data over the year you may see slight dips, and they not be red flags at the time, but in your YOY analysis you can now see that you are averaging a 15% higher bounce rate across your site that the year before. Three words folks: bad news bears.

This is what I mean by a general health review. You have internal goals for your site's performance, and YOY analysis lets you quickly identify any of the metrics that failed to meet your expectations. Specific metrics to keep an eye on are things like; analytic vitals (time on site, bounce rates, etc.) visitor engagement metrics (visitor recency, visitor frequency, etc.), and traffic drivers (branded term performance, your head term traffic, keyword queries that are historically conversion winners, etc.).

Other performance metrics to keep front-of-mind are things like value per visit (VPV), and cost per visit (CPV). While it's great that this year you made twice as much more money as the year before, you should also know if you are paying 1/3 more to acquire those successes. What if you could tweak something on performance and get that spend back down while maintaining increased performance? Then you are 133% above last year. These caveats in ROI calculations can make a big difference as you expand channels, and grow programs.

2. Dive deep into significant fluctuations

YOY data analysis is a great tool for gauging momentum gained or momentum lost on your site this past year. Do you see seasonal trends that show up year over year, and are they holding true? For some industries this may not be the case, but for quite a few industries you will see peaks and valleys around similar times of year. Pay special attention to the peaks. Believe it or not the valleys are easier to isolate out in smaller data segments, the real questions is did you see the seasonal jumps you usually see each year? If not, you may have an issue brewing. This is must easier to identify in YOY analysis.

See below picture for an example of how you can isolate out fluctuations and then easily research if they are accounted for.

** The yellow highlights were peaks and valleys in 2010 that matched the norm for 2009, but the two pink highlights weren't represented in 2009. Further research revealed they were due to us launching the web app and one of Rand's most popular posts of 2010. These are good things to know.

3. Use YOY data to measure the success of last year's company goals

I bet you all know if you hit your 2010 revenue goals, don't ya? How about traffic goals? What about your secondary metrics? Things like specific channel goals? Do you know if you are seeing that 10% jump in referral traffic you wanted to get by the end of the year? Do you know if you doubled the number of keywords driving traffic to your site like you wanted?

I blame the fact that we are all in the Inbox weeds at the beginning of the year, but I am also guilty of forgetting to circle back on last year's goals. Your YOY data is especially valuable when you want to quickly identify if you accomplished all you set out to do. Plus you can show all of these pretty comparison charts to your boss when you ask for that 2011 bump in pay.

4. Use YOY data to guide this year's company goals

We all know that accurate performance projection is an art form. In fact our VP of Marketing, Jamie Steven, is the in-house whiz on this, but I am realizing more and ore that good predictions involve a lot of data crunching. Last year's performance is one of those vital indicators not just on potential success, but on what times of year you may see drops you need to plan ahead for. Having YOY data to work from helps you be even more accurate in those predictions.

You can see below what parts of the year we see a drop in one of our key metrics--signups by month. You can imagine that our acquisition goals for next year (set on a week by week basis) will be adjusted accordingly during those times of year.

5. Find the Wild Card of Data Awesomeness

What the heck am I talking about? I'm talking about your low hanging fruit. When you do YOY research you often come across one or two metrics that literally have not seen much action or possibly seen recent minimal wins. With a little effort these guys can be quick wins for the company. If you can isolate out one or two of these and then build marketing campaigns around them, you can see big successes early in the year. It's a great way to start the year, don't you think?

A great examples would be to isolate out the long tail keyword wins (those words that ended up converting for you, or ones that now drive significant traffic) of the year before last, and take the ones of this past year, and see if you can combine them for a new category of long tail queries to go after. These would be less competitive to acquire traffic from, and you've already proven they will return.

Below is an example from our December 2010 stats. You can see that phrases with "title tag" in them caught wind in Decemeber when compared to November.

Title Tag volume by query seomoz

It would be worth it to see what title tag queries got traction in 2009, and start building content around the topic. People are looking for it, and it could be a quick 2011 content win for us.

So there you have it. These are just some of the ways you can take your YOY stats and milk them for data goodies. I know the beginning of the year we are all looking forward, but before you do, I urge everyone to take a little time and look backwards.

So cheers to a new year of data collection friends...may this year be full of beautiful charts, insightful finds, and the resulting ROI successes.

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Robert Gibbs Says Goodbye, Holly Petraeus Says Hello

Your Daily Snapshot for
Thursday, Jan. 6, 2011

Photo of the Day

President Barack Obama talks with Vice President Joe Biden in the Oval Office while National Security Advisor Tom Donilon and Counsel to the President Bob Bauer confer in the Outer Oval Office, Jan. 5, 2011. (Official White House Photo by Pete Souza)