Central Perk

luni, 22 august 2011

Mish's Global Economic Trend Analysis

Goldman Sachs Plunges in Late Trading on News CEO Blankfein Hires High-Profile Defense Attorney; Perjury Regarding Testimony Before Congress Proposed
Bank of America Tanks; Gold Goes Parabolic, No Telling Where It Stops
Global Trade Wars, Smoot-Hawley, and Peak Oil Followup to 12 Predictions from Michael Pettis
Last Chance to Oppose the Obama's Labor Board Union Elections Scheme
Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions

Goldman Sachs Plunges in Late Trading on News CEO Blankfein Hires High-Profile Defense Attorney; Perjury Regarding Testimony Before Congress Proposed

Posted: 22 Aug 2011 02:16 PM PDT

Shares of Goldman Sachs hit the skids in late trading so much so that people were asking "what's up?"

GS - Goldman Sachs 15-Minute Chart

Reuters explains in Goldman CEO hires high-profile attorney

Goldman Sachs Chief Executive Lloyd Blankfein has hired Reid Weingarten, a high-profile Washington defense attorney whose past clients include a former Enron accounting officer, according to a government source familiar with the matter.

Blankfein, 56, is in his sixth year at the helm of the largest U.S. investment bank, which has spent two years dodging accusations of conflicts of interest and fraud.

The move to retain Weingarten comes as investigations of Goldman and its role in the 2007-2009 financial crisis continue.

The U.S. Securities and Exchange Commission scored a $550 million settlement against the bank in a fraud lawsuit in July 2010, but other investigations continue.

"Why do you bring in someone like that?" said the source, who was not authorized to speak publicly. "It says one thing: that they're taking it seriously."

Blankfein has not been charged in any civil or criminal case, and it was not immediately clear why he hired Weingarten.

One former federal prosecutor, who was not authorized to speak publicly, said Blankfein may have hired outside counsel after receiving a request from investigators for documents or other information.

The Senate report raised questions about inconsistencies between testimony from Blankfein and other Goldman executives to Congress and emails unearthed in the Senate investigation. The subcommittee's chairman, Senator Carl Levin, has said the question of whether Blankfein and others committed perjury is up to the relevant federal agencies.

The former prosecutor cautioned that perjury cases were difficult to prove, adding that prosecutors would not bring charges unless they had a "rock solid case.

GS - Goldman Sachs Monthly Chart

Whatever the reasons, Goldman Sachs is revisiting a share price last seen in 2009.

I truly hope they nail Lloyd Blankfein and the New York Fed along with him. Do [not] count on it. No one has paid a price yet.

Note: That was supposed to say do "not" count on it. I accidentally left out the "not" and just added it in.

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

Bank of America Tanks; Gold Goes Parabolic, No Telling Where It Stops

Posted: 22 Aug 2011 12:51 PM PDT

I am somewhat amused by the lack of commentary on the latest advance in gold. Did people sell, waiting for a correction that did not come? I do not know the answer to that, but I can see that financials have been clobbered, led by Bank of America, while gold has soared. These events are not unrelated.

Bank of America Daily

click on any chart for sharper image

Bank of America Weekly

Questions Abound

Who would have believed in 2007 that a 44 cent drop in share price would amount to a 6.3% move?
How long before Bank of America tests that spike low of $2.51?
How much is CEO Brian Moynihan worth?

I suggest the answer to question number three is a negative number on the basis that Moynihan and former CEO Ken Lewis drove the company into the ground with excessive risk-taking and stupid-beyond-belief mergers.

The best I can report however, is that Moynihan has voluntarily reduced his bonus to $0, suffering the pain and agony of having to live on salary of a mere $950,000.

This of course brings up question number four. How can CEOs possibly scrape by on such meager sums of money?

Note: Bank of America closed down 55 cents (7.89%).

Gold Goes Parabolic

While pondering the brutal injustice of ridiculously low CEO wages, we now must turn our focus to gold.

Gold Daily Chart

This is no longer an orderly-looking move, but a weekly chart can help maintain perspective.

Gold Weekly Chart

If this is the start of gold-bugs long awaited extreme move, there is no telling where it stops.

Is it? I don't know (and they don't either).

What should be plain to see is that financial stocks, especially banks have been clobbered this year. Banks are under-capitalized, over-leveraged and realistically bankrupt. Mistrust of fiat currencies is high and rising.

Global Banking System Insolvent

For more on banks please see ...

August 21, 2011: Is Germany's Commerzbank in Need of Another Bailout?

August 20, 2011: Bank of England Regulator Argues "Banks Need to Take More Risks" to Underpin Economy; Revisionist Roosevelt History

August 15, 2011: BNP Paribas leveraged 27:1; Société Générale Leveraged 50:1; Sorry State of Affairs of U.S. Banks; Global Financial System is Bankrupt

August 10, 2011: European Banks Hammered; Societe Generale "Denies All Rumors"; French Bank Option Prices Soar; Credit Default Swaps on France Under Attack

July 18, 2011: Bank of America Clobbered on $50 Billion Capital Shortfall Related to Mortgage Losses

The entire global financial system is balanced on a mountain of debt, and that debt cannot be paid back. That is the message of gold, not the popularly believed fallacy regarding massive inflation.

Is gold reflecting a chance it once again has a role in international trade? I believe so, and let's hope that happens.

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

Global Trade Wars, Smoot-Hawley, and Peak Oil Followup to 12 Predictions from Michael Pettis

Posted: 22 Aug 2011 10:25 AM PDT

In response to Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions Reader Craig writes ...

"I was shocked by your commentary on 12. I thought for sure you would come out blasting U.S. trade restrictions as protectionist and leading to economic slowdown in the U.S. Instead, you basically said what Trump has been saying in every interview, and that is that China is playing us for fools and that we need to recapture our manufacturing from them. I thought you were a "free trader" to the max."

Craig, I am indeed a free trade advocate and I certainly do not agree with Donald Trump and other protectionists such as Paul Krugman. I simply failed to point out every nuance in the article I disagree with. It is a mistake to assume I agree with "everything" in an article just because I agree with 90% of it. I made no specific comments on protectionism so there should not have been an implication of agreement.

I do not think the US gains by protectionism. Other countries will do the same and US exports will dive if imports dive as other countries retaliate. There is serious potential for another Smoot-Hawley with equally devastating consequences if Congress goes overboard.

Where I did comment and where I agree with Pettis' contrarian thinking is that the brunt of the adjustment will be felt on trade surplus countries. Mathematically it has to, in any kind of rebalancing. Not every country can run a trade surplus. It is impossible.

Moreover, and as Pettis points out, the imposed austerity measures in Europe will impact Germany's ability to export. The slowdown in China and the US will also impact Germany.

The question is whether or not adjustments come about in a reasonable manner or by trade wars and currency devaluations. No one wins in another Smoot-Hawley setup.

I have pointed out what I believe is the solution on many occasions. Rather than tariffs I have supported a return to the gold standard. I saw no need to bring it up yet again, but perhaps I should have.

Here are the pertinent links once again.

Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Michael Pettis Warns of "Virulent Political Turn Against Euro", Adds Clarification to "Gold's Honest Discipline"

To that I would add we desperately need to get rid of fractional reserve lending.

I also want to add a note that peak oil (some say "peak everything") will impact China's ability to have an investment led economy based forever expanding infrastructure. Add peak oil to the list of reasons China will slow, whether they like it or not.

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

Last Chance to Oppose the Obama's Labor Board Union Elections Scheme

Posted: 22 Aug 2011 10:07 AM PDT

The National-Right-to-Work foundation notes that Monday is your Last Chance to Oppose the Obama's Labor Board Union Elections Scheme

Dear Concerned American,

Through Monday August 22, the National Labor Relations Board (NLRB) is accepting public comments on its proposed rule changes to union certification election procedures.

The new election guidelines would make union certification elections as one-sided as possible by ambushing workers with quick-snap elections and invading workers' privacy by forcing companies to hand over their addresses, phone numbers, and shift schedules to union bosses.

So far, the Board has received over 8,000 comments -- overwhelmingly pro-Right to Work and against the ambush election procedures.

Tell the Obama Labor Board that, as a concerned citizen, you oppose:

1. Ambush elections that allow aggressive union organizers to conduct one-sided unionization campaigns and deny workers sufficient time to educate themselves and coworkers about the effects of unionization and organize in opposition to the union;

2. Invading workers' privacy and exposing them to intimidating "home visits" by forcing employers to provide to union organizers the name, home address, phone number, email address, and shift schedule of each worker;

3. Abusive card check campaigns in which union organizers lie, trick, or harass workers into signing "union authorization cards" -- a practice that could become significantly more prevalent under the proposed rules because union organizers may withdraw the election petition but keep the list of employees' personal information to launch a card check campaign at a later date.

Click here to register your opposition to the NLRB's latest union-boss power grab

The bureaucrats at the Obama Labor Board are out of control. Demand they stop acting as an organizing tool for Big Labor.

I hope you'll act right away.

Sincerely,
Mark Mix
President, National Right to Work Foundation

Click here to register your opposition to the NLRB's latest union-boss power grab.

It will only take a few minutes to register your opposition this blatant abuse of power by the Obama administration.

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

Michael Pettis: Long-Term Outlook for China, Europe, and the World; 12 Global Predictions

Posted: 22 Aug 2011 01:56 AM PDT

Via email, Michael Pettis at China Financial Markets shared his outlook for China, Europe, and the world. The overall outlook is not pretty, and includes a breakup of the Eurozone, a major slowdown for China, and a smack-down of the much beloved BRICs.

Pettis Writes ...

August is supposed to be a slow month, but of course this August has been hectic, and a lot crueler than April ever was. The US downgrade set off a storm of market volatility, along with bizarre concern in the US about whether or not China will stop buying US debt and the economic consequence if it does, and equally bizarre bluster within China about their refraining from buying more debt until the US reforms the economy and brings down debt levels.

What both sides seem to have in common is an almost breathtaking ignorance of the global balance of payment mechanisms. China cannot stop buying US debt until it engineers a major adjustment within its economy, which it is reluctant to do. Until it does, any move by the US to cut down its borrowing and spending will trigger a drop in global demand which will cause either US unemployment to rise, if the US ignores trade issues, or will cause Chinese unemployment to rise, if the US moves to counteract Chinese currency intervention.

The Big Picture

Rather than try to wade through all the news this month, much of which doesn't seem to have much informational content, I thought I would duck out altogether and instead make a list of things I expect will happen over the next several years. We are so caught up in noise and market volatility – as the market swings first in one direction and then, as regulators react, in the other direction – that it is easy to lose sight of the bigger picture.

My basic sense is that we are at the end of one of the six or so major globalization cycles that have occurred in the past two centuries. If I am right, this means that there still is a pretty significant set of major adjustments globally that have to take place before we will have reversed the most important of the many global debt and payments imbalances that have been created during the last two decades. These will be driven overall by a contraction in global liquidity, a sharply rising risk premium, substantial deleveraging, and a sharp contraction in international trade and capital imbalances.

To summarize, my predictions are:

BRICs and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
Over the next two years Chinese household consumption will continue declining as a share of GDP.
Chinese debt levels will continue to rise quickly over the rest of this year and next.
Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade.
Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012.
Much slower growth in China will not lead to social unrest if China meaningfully rebalances.
Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness.
Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.

1. No BRIC Decoupling

Since most global consumption comes from the US, Europe and Japan, the collapse in their demand will ultimately be very painful for the BRICs and the rest of the developing world. The latter have postponed the impact of contracting consumption by increasing domestic investment, in some cases very sharply, but the purpose of higher current investment is to serve higher future consumption. In many countries, most notably China, the higher investment will itself limit future consumption growth, and so with weak consumption growth in the developed world, and no relief from the developing world, today's higher investment will actually exacerbate the impact of the current contraction in consumption.

2. Near-Term Decline in Chinese Consumption

By 2013 Chinese household consumption will still not have exceeded the 35% of Chinese GDP reached in 2009. In fact it will probably be lower.

Premier Wen listed the need to raise the consumption share of GDP second in his speech last March before the unveiling of the new Five-Year Plan.

But I remain very, very skeptical. Low consumption levels are not an accidental coincidence. They are fundamental to the growth model, and the suppression of consumption is a consequence of the very policies – low wage growth relative to productivity growth, an undervalued currency and, above all, artificially low interest rates – that have generated the furious GDP growth. You cannot change the former without giving up the latter. Until Beijing acknowledges that it must dramatically transform the growth model, which it doesn't yet seemed to have acknowledged, consumption will continue to be suppressed.

3. Chinese Debt Levels will Continue to Rise Very Quickly

The attempts to rein in debt growth will fail because they address specific areas of debt and not the overall tendency of the system to generate debt.

China funds almost all of its major investments with bank debt, and it long ago ran out of obvious investments that are economically viable – at least investments that are likely to be generated by what is a distorted system with very skewed incentives – so increases in investment must be matched by increases in debt.

To the extent that investments are not economically viable, this means that the value of debt correctly calculated must rise faster than the value of assets. By definition this results in an unsustainable rise in debt.

4. By 2013-14 Chinese GDP Growth will Slow sharply

I don't expect a significant growth slow-down until after the new leadership takes power in late 2012, but my guess (and hope) is that by 2013 the stubborn refusal of consumption to rise as share of GDP, and the continuing surge in debt, will have convinced all but the most recalcitrant that China needs a dramatic change of policy.

Why do I say we will be talking about 3% growth soon? Two reasons. First, I am impressed by the bleakness of historical precedents. Every single case in history that I have been able to find of countries undergoing a decade or more of "miracle" levels of growth driven by investment (and there are many) has ended with long periods of extremely low or even negative growth – often referred to as "lost decades" – which turned out to be far worse than even the most pessimistic forecasts of the few skeptics that existed during the boom period. I see no reason why China, having pursued the most extreme version of this growth model, would somehow find itself immune from the consequences that have afflicted every other case.

Second, I just use a very simple calculus. Remember that rebalancing is not an option for China. It will happen one way or the other, and the sooner the less disruptive. And for China to rebalance in a meaningful way, consumption growth is going to have to outpace GDP growth by at least 3-4 full percentage points (and even then, at that rate, it will take China over five years to return to the 40% that was not long ago considered astonishingly low).

5. Non-Food Commodities Disproportionately Affected

The decline in Chinese growth will fall disproportionately on investment and, because of this, it will severely impact the price of non-food commodities. The implications are inescapable, although I think many people, especially in the commodities sector, have missed them.

6. Significant Slowing Could Start in 2012

What happens to real interest rates will determine when the process of Chinese adjustment begins. In fact there is a chance that we may see growth in China slow significantly in 2012, perhaps even to 7%, although I suspect that it will probably be in the 8-9% region.

What the PBoC does to interest rates is likely to be the outcome of a struggle in the State Council between policymakers that are worried about growth and those that are worried about imbalances. If the PBoC can hold off the former, and especially if wages continue rising, we might begin to see Chinese rebalancing taking place a little earlier than expected. Of course this must, and will, come with much slower GDP growth.

7. Social Unrest Not a Given

Growth rates of 3% will not necessarily lead to social and political instability. Most analysts argue that China needs annual growth rates of at least 8% to maintain current levels of unemployment. Anything substantially lower will cause unemployment to surge, they argue, and this would lead to social chaos and political instability.

I disagree. The employment effect of lower growth depends crucially on the kind of growth we get. Since rebalancing in China requires less emphasis on heavy investment and more on consumption, and since rebalancing also means a sharp reduction in free credit provided to SOEs and local governments and cheaper and more available credit for efficient but marginal SMEs, a rebalancing China would presumably see much more rapid growth in the service sector and in the SME sector, both of which are relatively labor intensive. Much lower growth, in that case, could easily come with minimal changes in overall employment. Japan is a useful reminder of what can happen.

8. Large-Scale Privatization

Because of its rapidly rising debt burden, the only way for China to manage a smooth social transition will be through wealth transfers from the state sector to the household sector. In the past, Chinese households received a diminishing share of a rapidly growing pie. In the future they must receive a growing share. This will probably be accomplished through formal or informal privatization.

9. Disruptive European Politics

European politics will become much more difficult and disruptive. The historical precedents are clear. During a debt crisis the political system becomes fragmented and contentious. If the major parties don't become radicalized, smaller radical parties will take away their votes.

Remember that the process of adjustment is a political one. We all know someone has to pay for the massive adjustment countries like Spain must make. The only interesting question is about who will be forced to take the brunt of the payment – workers in the form of unemployment, the middle classes in the form of confiscated savings, small businesses in the form of taxes, large businesses in the form of taxes and nationalization, foreigners, or creditors.

Deciding who pays is a political process, and because the stakes are so high it will be a very bitter process. This means, among other things, that politics will degenerate quickly, and of course if Europe doesn't arrive at fiscal union in the next year or two, it probably never will. This conclusion is also the reason for my next prediction.

10. Spain, other PIIGS Leave Euro

Spain will leave the euro and will be forced to restructure its debt within three or four years. So will Greece, Portugal, Ireland and possibly even Italy and Belgium.

The only strategies by which Spain can regain competitiveness are either to deflate and force down wages, which will hurt workers and small businesses, or to leave the euro and devalue. Given the large share of vote workers have, the former strategy will not last long. But of course once Spain leaves the euro and devalues, its external debt will soar. Debt restructuring and forgiveness is almost inevitable.

11. Germany Will Not Voluntarily Share Costs

Unless Germany moves quickly to reverse its current account surplus – which is very unlikely – the European crisis will force a sharp balance-of-trade adjustment onto Germany, which will cause its economy to slow sharply and even to contract. By 2015-16 German economic performance will be much worse than that of France and the UK.

For one or two years the deficit countries will try to bear the full brunt of the adjustment while Germany scolds and cajoles from the side. Eventually they will be unable politically to accept the necessary high unemployment and they will intervene in trade – almost certainly by abandoning the euro and devaluing. In that case they automatically push the brunt of the adjustment onto the surplus countries, i.e. Germany, and German unemployment will rise. I don't know how soon this will happen, but remember that in global demand contractions it is the surplus countries who always suffer the most. I don't see why this time will be any different.

12. Expect US Rising Trade Protection Sentiment

As the US fights over the fiscal deficit and whether or not it is the right way to expand domestic demand, more and more politicians will focus on the expansionary impact of trade protection. There will be an increasing tendency to intervene in trade – in fact I think of quantitative easing as a policy aimed at trade and currency imbalances as much as one aimed at domestic monetary management.

As unemployment persists, and as the political pressure to address unemployment rises, the US will, like Britain in 1930-31, lose its ideological commitment to free trade and become increasingly protectionist. Also like Britain in 1930-31, once it does so the US economy will begin growing more rapidly – thus putting the burden of adjustment on China, Germany (which will already be suffering from the European adjustment) and Japan.

Trade policy in the next few years will be about deciding who will bear the brunt of the global contraction in demand growth. The surplus countries, because they are so reliant on surpluses, will be very reluctant to eliminate their trade intervention policies. Because they are making the same mistake the US made in the late 1920s and Japan in the late 1980s – thinking they are in a strong enough position to dictate terms – they will refuse to take the necessary steps to adjust.

But in fact in this fight over global demand it is the deficit countries that have all the best cards. They control demand, which is the world's scarcest and most valuable commodity. Once they begin intervening in trade and regaining the full use of their domestic demand, they will push the adjustment onto the surplus countries. Unemployment in deficit countries will drop, while it will rise in surplus countries.

That is a lengthy clip of ideas, yet hopefully within the spirit of Pettis' guidelines on these emails. His PDF is 14 pages and will appear on his blog shortly.

I added the bold headlines in the detailed discussion points above.

Six Key Ideas

China Will Slow Much More than China Bulls and Commodity Bulls Think
Non-food Commodities Take Big Hit
Eurozone Experiment Ends in Breakup
US Protectionism Takes Hold
Deficit Countries Control Demand, Thus Have the Best Cards
Disaster Hits BRICs

Contrarian Thinking

Except perhaps for points three and four (and perhaps for all six points) investors and analysts have taken the opposite view. Most are looking to buy the dip, invest in commodities, invest in commodity producing currencies, and invest in the BRICs.

We did not have commodity producer decoupling in 2008 and there is no reason to expect it as debt-deflation plays out and China abandons its reckless investments in infrastructure.

I suspect China slows sooner than Pettis thinks, but no sooner than the next regime change in China. Markets, however, may react well in advance.

Global Deflationary Outlook

Pettis does not use the word "deflation" in his writeup, but he describes a very deflationary global outlook complete with protectionism, beggar-thy-neighbor policies, currency wars, and falling non-food commodity prices.

Pettis did not discuss energy, but the forces are clear: peak oil. vs. global slowdown. Given peak oil and the possibility of war over it, energy is a wildcard.

What Country Leaves Eurozone First?

The current political path including the dismissal of Eurobonds by Germany and France certainly indicates a breakup of the Eurozone. However, I wonder if Germany abandons the Euro first, rather than one of the PIIGS.

I doubt it matters much, at least from the perspective of Germany. However, should Germany leave the Euro, France would then be in the position Germany is in now, certainly unable to bailout the rest of the Eurozone.

One way or another, the grand experiment will fail. Historically speaking it never had a chance. There has never been a successful currency union in history that did not also include a fiscal union.

The question at hand is how much more will governments force down the throats of taxpayers (hoping to bail out the banks and the bondholders) before this mess cracks in pieces. The more politicians force down taxpayer throats, the bigger the eventual repercussions.

Shrink to Survive

Just as I typed the above thoughts a Bloomberg headline came in on this very subject: Prospect of New Core Euro Gains Traction

The euro area may need to shrink to survive.

As its sovereign-debt crisis nears a third year and rescue efforts fail to stop the rot in financial markets, economists from Pacific Investment Management Co.'s Mohamed El-Erian to Harvard's Martin Feldstein say ensuring the euro's existence may require members to leave the 17-nation currency region.

The result would be what El-Erian, Pimco's Newport Beach, California-based chief executive officer, calls a "smaller, much better integrated, fiscally strong euro zone." While leaders such as German Chancellor Angela Merkel consistently rule out that option, El-Erian told "Bloomberg Surveillance" with Tom Keene on Aug. 17 that they eventually may embrace it over the fiscal union required to maintain the status quo.

Don' expect rational thinking from EU leaders. Instead, expect politicians to act in their perceived best interests and secondarily in the perceived bests interests of the banks and bondholders.

All it takes is for any country to leave, even Greece, before other countries consider the same thing.

There are lots of ideas in this post to consider, and I thank Michael Pettis for sharing his thoughts.

Addendum:

Reader Craig writes: "I was shocked by your commentary on 12. I thought for sure you would come out blasting U.S. trade restrictions as protectionist and leading to economic slowdown in the U.S. Instead, you basically said what Trump has been saying in every interview, and that is that China is playing us for fools and that we need to recapture our manufacturing from them. I thought you were a "free trader" to the max."

Craig, I am indeed a free trade advocate and I certainly do not agree with Donald Trump and other protectionists such as Paul Krugman. I simply failed to point out every nuance in the article I disagree with. It is a mistake to assume I agree with "everything" in an article just because I agree with 90% of it. I made no specific comments on protectionism so there should not have been an implication of agreement.

I do not think the US gains by protectionism. Other countries will do the same and US exports will dive if imports dive as other countries retaliate. There is serious potential for another Smoot-Hawley with equally devastating consequences if Congress goes overboard.

Where I did comment and where I agree with Pettis' contrarian thinking is that the brunt of the adjustment will be felt on trade surplus countries. Mathematically it has to, in any kind of rebalancing. Not every country can run a trade surplus. It is impossible.

Moreover, and as Pettis points out, the imposed austerity measures in Europe will impact Germany's ability to export. The slowdown in China and the US will also impact Germany.

The question is whether or not adjustments come about in a reasonable manner or by trade wars and currency devaluations. No one wins in another Smoot-Hawley setup.

I have pointed out what I believe is the solution on many occasions. Rather than tariffs I have supported a return to the gold standard. I saw no need to bring it up yet again, but perhaps I should have.

Here are the pertinent links once again.

Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited

Michael Pettis Warns of "Virulent Political Turn Against Euro", Adds Clarification to "Gold's Honest Discipline"

To that I would add we desperately need to get rid of fractional reserve lending.

I also want to add a note that peak oil (some say "peak everything") will impact China's ability to have an investment led economy based forever expanding infrastructure. Add peak oil to the list of reasons China will slow, whether they like it or not.

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

Damn Cool Pics

Myths and Facts About Breast Cancer [Infographic]

Posted: 22 Aug 2011 12:00 PM PDT

Each year over 200,000 women are diagnosed with breast cancer in the United States. Doctors recommend that women over the age of twenty undergo a breast examination every three years. Although there is no known way to prevent breast cancer, understanding the disease is an important part of beating the odd. Take a look at this infographic to learn more about breast cancer and the facts and myths associated with it.

Click on Image to Enlarge.

Source: asbestosnews

SEOmoz Daily SEO Blog

Panda 2.4 and Analytics Session Update Rolled Out Simultaneously

Posted: 21 Aug 2011 02:15 PM PDT

Posted by MikeCP

On August 12, Google announced that their high-quality sites algorithm, otherwise known as "Panda", had been rolled out for all languages save for Korean, Chinese, and Japanese. The change is said to impact 6-9% of users' queries, down from the 12% seen in the initial Panda update back in February. Though the official announcement post doesn't make mention of this update's effect on English queries, Vanessa Fox at Search Engine Land reported that a few minor changes were made, but there shouldn't be a substantial impact.

Only 9 hours earlier, the Google Analytics blog announced a change to the way visits are to be calculated, effective immediately. We'll get into just how this changed in a bit, but according to the announcement post, "most users will see less than a 1% change".

So, with all of of my clients being US based, I wasn't expecting to see much of a change from Panda, and I can deal with a 1% change in Google Analytics. However, apparantly two insubstantial impacts make a big one, because upon checking Analytics on Monday night, I was surprised to see this:

Organic traffic is up 30% week over week

This particular client saw a 20% drop from the initial Panda update back in February, and we've been working to get back to previous levels ever since. Was this the recovery we'd been hoping for?! After all, the site in question hardly fit the mold of the typical 'Panda-lized' site. Though we were told not to expect much change to English SERPs, I was hopeful.

Google's decision to push Panda 2.4 and the Google Analytics update on the same day wreaked havoc on my ability to see what was really going on. I can only imagine that some of the first-time Panda sites using Google Analytics are reeling right now.

Google pretty frequently points out that many of their teams do not share information intentionally. As an example, the search team has stated time and again that sites that run AdSense advertisements do not receive preferential treatment in the SERPs, despite the fact that this would positively affect Google's bottom line. Similarly, Google's other web properties like Maps, Places and Knol (purportedly) aren't given any special treament, either. Perhaps this is a similar case, but it's borderline irresponsible for Google to have pushed these two updates simultaneously. I believe the onus falls more on the Analytics team, but it's hard to know really.

Seeing Through Pandalytics 1.0

In trying to get to the bottom of this issue, it's important to understand how visit calculation in Google Analytics had changed. Straight from the announcement blog post:

What’s changing?

Currently, Google Analytics ends a session when:

More than 30 minutes have elapsed between pageviews for a single visitor.

At the end of a day.

When a visitor closes their browser.

If any of these events occur, then the next pageview from the visitor will start a new session.

In the new model, Google Analytics will end a session when:

More than 30 minutes have elapsed between pageviews for a single visitor.

At the end of a day.

When any traffic source value for the user changes. Traffic source information includes: utm_source, utm_medium, utm_term, utm_content, utm_id, utm_campaign, and gelid.

Ultimately, this change is about assigning proper attribution for conversions and engagement. As Michael Whitaker points out in his blog post, previous to August 11, it was possible to find plenty of keywords with pageviews and unique visitor counts but 0 visits. Grab the custom report from his post to see for yourself, or take a look here (with filter applied so that visits = 0):

Visits set to 0 before the change

Now, each new keyword is going to count as a visit, which is really the right move. See this same report set to a date after the change:

Now more empty visits

Some Examples

So what is actually going on here? Well, here are a few real-world scenarios where the way that visits is calculated is changing.

Scenario 1:

User searches Google for "Product Name" and clicks on your AdWords advertisement.
User leaves site and searches a few more times, click on competition and comparing prices and features.
User ultimately decides to with your product, Googles "Your Brand + Product Name", clicks your organic listing, and buys the product. This whole process takes less than 30 minutes.

Previously, the second visit to your site would still count towards the original query, "Product Name". The conversion is attributed to the most recent non-direct source, so "Your Brand + Product Name" gets the credit, but would not appear in your organic keyword report (or would with 0 visits attached). Now, this counts as 2 separate sessions, and "Your Brand + Product Name" will appear in your organic keyword report with 1 visit.

Scenario 2:

User searches "Product Name" and lands on your site.
User exits and visits a few other sites.
User searches "Slightly Refined Product Name", lands on your site, and buys.

Again, now this counts as two visits, where it used to be one. In fact, for this particular client, I believe this scenario was pretty common, as average query length increased significantly, suggesting users were refining their queries.

So Is My Traffic Up Or What!?

Still, in my example above organic visits were up over 30%. This is quite a bit more than the expected 1% change from Google Analytics, and the "insubstantial impact" from Panda 2.4. How can I know if there is any Panda recovery at play? If I want to compare apples to apples, the answer is going to have to come from my visit-agnostic numbers: Pageviews and Unique Visitors.

visit count
Visits up 30%
unique visitor count
Unique Visitors only slightly up
pageview count
Pageviews also only slightly up

So it is pretty obvious from the images above that while traffic is on the rise, it's not quite up 30%. It does remain pretty difficult to tell if there was any sort of Panda impact at all, or just a natural growth from some recent link building successes.

Google Pushes an Update to Analytics

Another factor at play in some of this data is that Google acknowledged a bug in the original rollout of this change, and updated their announcement blog post on the following tuesday:

We identified an issue responsible for unexpected traffic changes following our recent update to how sessions are defined in Google Analytics. A fix was released at 2pm PST Tuesday August 16th. The issue affected some sites using the following configurations:

If a user comes to a customer’s site with a space in some part of their traffic source data, then revisit the same landing page during that session by refreshing the page or later pressing the back button, a new session will be created for every hit to that page. (Clicking a link elsewhere on the site that leads back to the page should not matter.)

Google Analytics implementations using multiple trackers (an unsupported configuration) are also affected when a space is included in the traffic source data. These sites will see fewer visits from new visitors, and more visits from returning visitors (with some variation due to different implementations).

Taking a look again at the visits report above, this bug obviously affected the site in question, as visits after Tuesday dropped considerably. Still, the overall effect here is a change significantly higher than a 1% increase.

Again, non-English sites using Google Analytics that are seeing Panda for the first time may be in for a bit of a headache. I'm hoping I was able to shed some light on this problem.

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Video: Vice President Biden Has Lunch at a Snack Shop in Beijing

Your Daily Snapshot for
Monday, August 22, 2011

Video: Vice President Biden Has Lunch at a Beijing Snack Shop

Vice President Biden continues his tour of Asia this week. Last week, as part of the cultural exchange, the Vice President took some time to visit a local snack shop in Beijing after meeting with his counterpart, Vice President Xi of China. On the menu? Traditional pork buns, zhajiang noodles and cucumbers -- plus a chance to meet some locals.

Check out the full video.

Seth's Blog : Short-term capitalism

Short-term capitalism

There are a few reasons why one might not care what happens in the long run:

You don't intend to be around
You're going to make so much money in the short run it doesn't matter
You figure you won't get caught

Short-term marketing involves using deception to make a quick sale, or using aggressive promises to get a quick hit. Having a price war counts as well. Linkbait is on that list as well.

Short-term architecture means putting up a cheap building, a local eyesore, something that saves money now instead for building something for the long haul. The guys who put up the Parthenon in Rome weren't doing short-term anything. Hard to say that about a big box store.

Short-term manufacturing ignores the side effects of pollution, bad design and worker impact because it's faster money in the short run to merely make the product (and the sale) in the most direct way possible.

Short-term investment banking invests in transactions that are unsustainable and eventually blow up (after commissions are paid).

Short-term sales involve spamming as many people as you can, as fast as you can.

Short-term hiring requires you to hire cheap, train as little as possible and live with turnover.

Bernie Madoff was a short-term capitalist, of course.

Left to their own devices, (particularly during difficult economic times) too many people misunderstand the essence of capitalism, and rationalize a do what it takes mindset that is ultimately self-defeating. The reason we need the SEC, the EPA, transparent operations, a free press that cares about its mission and people willing and able to speak up is that they make it expensive to choose the short-term option.

The short-term capitalist is betting that someone else will clean it up.

One of the worst things you can call a business person, I think, is a short-term capitalist. He selfishly takes for now and fails to contribute in return.

The internet has opened two doors. First, it's easier than ever to do the short-term thing, anonymously if you choose, with a big splash, internet ads, eBay scams and more. On the other hand, since there's a revolution going on, it's also easier than ever to build something that matters, something that lasts.

The thing to remember about the short-term is that we'll almost certainly be around when the long-term shows up.

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luni, 22 august 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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Damn Cool Pics

SEOmoz Daily SEO Blog

SEOmoz Daily SEO Blog

Seeing Through Pandalytics 1.0

Some Examples

So Is My Traffic Up Or What!?

Google Pushes an Update to Analytics

Video: Vice President Biden Has Lunch at a Snack Shop in Beijing

Seth's Blog : Short-term capitalism

Short-term capitalism

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luni, 22 august 2011

Seeing Through Pandalytics 1.0

Some Examples

So Is My Traffic Up Or What!?

Google Pushes an Update to Analytics

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