marți, 12 februarie 2013

Stop Clicking Here! 7 Superior SEO Alternatives to Generic Links

Stop Clicking Here! 7 Superior SEO Alternatives to Generic Links


Stop Clicking Here! 7 Superior SEO Alternatives to Generic Links

Posted: 11 Feb 2013 07:39 PM PST

Posted by Cyrus Shepard

Ove the past year, we've seen a strange trend develop in the world of SEO: the rise of the “generic link.”

Generic links are bland phrases that avoid using keywords that search engines use to determine the context of what you are linking to. These include links like:

  • “Visit website”
  • “Read more”
  • “Useful site”
  • And, of course, “click here”

Google’s official SEO Starter Guide actually discourages webmasters from using generic links.

Google SEO Starter Guide

Google published this guide in 2010. Is it still relevant today?

Why some SEOs use generic links

After Google rolled out their Penguin update and over-optimization penalties in 2012, many SEOs discovered that too much exact-match anchor text was now a bad thing. Research suggests that successful backlink profiles actually contained a wide variety of anchor text including exact match, partial match, URL links, and even nofollow links.

To compensate for over-optimized backlink profiles, SEOs started to “balance” their link profiles with generic anchors like “click here.” For some, the trick seemed to work, a little.

Recently, my wife’s site was attacked by a black hat spambot. Take a look at the bot's link distribution:

Anchor Text

The profile was exactly 30% generic links!

Yes, it’s a huge improvement on using all keyword-rich anchors, but this also creates obvious patterns that any search engine could easily sniff out. It’s also evident these links were produced at scale in a non-editorial way.

As a result, these bots must build 1,000s of links to only rank a few days at a time.

We can do better

Aside from issues of usability, the reason Google advises folks to use descriptive words when linking is because this passes relevancy signals to the page you link to. If you link to this page with the phrase "SEO", search engines may determine this page is about SEO, and rank it higher in search results for that term.

In fact, there's evidence through various patent filings, and the experience of countless webmasters, that links using generic or off-topic anchor text pass potentially much less value than descriptive links.


- Bill Slawski, 10 Most Important SEO Patents, Part 5

Let's be clear: Google does likely devalue over-optimized anchor text, but there is no evidence anywhere of Google penalizing a website for not having enough generic “click here” links.

Instead, we should seek out links that enhance context and usability for not only our readers, but search engines as well. The best links are the ones where you don't controll the anchor text, but in cases where you do control the anchor text, strive for variety.

1. Related text and Co-occurrence links

Instead of requiring exact match anchor text to achieve rankings, Google has proposed many methods of passing value through anchor text that don't require the exact keyword at all. One of these methods uses the idea of co-occurrence, documented here by Bill Slawski.

Put simply, search engines may judge relevance not only on the anchor phrase, but also on the "related phrases" found in both documents.

In Google's own patent example, the anchor phrase "Australian Shepard" is related to several other words:

Related Text

Even though the second URL doesn't contain the words "Australian Shepard," it may still rank for this term if there are enough related phrases present. This helps closely related pages to pass more ranking relevance, while weakening unrelated anchor text (coincidently, a lack of related phrases is how search engines fight Google Bombs).

2. Party at Synonym City

Search for "funny pics" and search engines return results for "funny photos" and "funny pictures" instead. This gives us several possible alternatives to exact-match links.

One great way to find synonyms is through using Google's tilde (~) operator. The tilde tells Google to "search for pages that are synonyms or similar to the term that follows."

tilde operator

When combined with other operators, such as the negative (-), this gives you a powerful keyword research tool. In the example above, the search query "~inexpensive -inexpensive" returns "low cost", "cheap," and "affordable." All are synonyms for inexpensive.

Use synonyms in your anchor text for greater meaning.

3. Partial match – Variation for the reader

A partial match anchor uses at least one of your main keywords, without using the whole phrase. Matt Cutts gives a hilariously bad example of how not to construct text. In short, what he describes is...

Link Spam

Consider this anchor text: “Best Car Accident Law Firm Fort Worth.” If we saw this on a page, we would cringe in embarrassment for the SEO.

Natural anchor text is not stuffed with keywords, but is instead useful for the reader while acuratly describing what the text links to.

Better, more appropriate partial match anchors might include:

Like anything else, partial match anchors can be abused quickly. Use with care.

4. Company names and brands

Company and branded names make great links when called up. People can link to SEOmoz, Molly Moon's Ice Cream, or Lava Lamp all day long!

However, be careful when your business name matches highly commercial anchor text, such as "Los Angeles Flowers," for example. In this case, there's almost no line between branded anchor text and over-optimized, exact-match anchor text. This might send confusing mixed signals to search engines - as if you're trying to game the system.

If you're a smaller company without much branded visibility, it might be best to stick to other methods until you can build your brand credibility.

5. Get personal with names

Dan Shure provides the next tip from his NoBoard SEO series: link to people.

People's names (like your CEO, for instance) are rarely overused. Dan suggests attracting named-based links by creating strong "about" and profile pages for people in your company.

Dan's best quote: "People like to link to people."

6. URL links

In general, URLs are NOT ideal anchor texts. They're non-descriptive, clumsy to write, and pass very few relevancy signals to search engines.

That said, it's possible to use URLs for perfectly normal reasons, such as when you describe changing a website address, i.e. "The new URL is http://www.seomoz.org." URL links don't always include the full address:

  • www.seomoz.org
  • seomoz.org/blog/top-tips
  • seomoz.org

Although they don't pass few relevancy signals, URL links do offer marginally more value than generic anchors, so are offered here as a measure of last resort.

7. Link for the most important person - The reader

This post offers a number of linking examples, but for the most part the links flow as a natural part of the text, without artificial manipulation. The #1 priority of good content is not trying to outsmart the search engines, but creating usefulness and usability.

Shortcuts taken by scaling and repeating the same anchors over and over – even when they’re partial match or otherwise - are bound to get you in trouble.

Instead, craft each and every link you write to be as unique as the content holding it.


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Use Google Docs to Manage your Digital Projects, from Freelance to Large Agency

Posted: 11 Feb 2013 12:38 PM PST

Posted by Alex Moss

In July 2012 I launched 3 Door Digital alongside my three co-founders. The launch was part of a merging process between two existing companies (Pleer, based in Manchester, UK and Matan Media based in Tel Aviv, Israel). Along with the merger came some potential operational hazards that we had to make sure we were on top of prior and post launch. Part of my responsibility was to find and apply the best project and time management process for our campaigns moving forward.

In the past few years I have used numerous task management tools and decided to put a few to the test to see which one would work for us. In the end we found that Google Docs was actually the best platform for us to use. This may seem like an uncommon choice but with the correct setup it has proved to be extremely successful.

I'm going to share how we manage to stay on top of over 30 client projects at any one time whilst making sure we don't miss tasks or lose track of the hours we've spent.

Before covering all this, there was a second choice…

In the end we had a decision between two platforms – Basecamp and Google Drive (formerly Google Docs). Basecamp was great for us but there was something missing (which I’m sure will eventually be added at some point) – the ability to quickly browse tasks, task owners and time management all in one easy-to-read page. This is where Google Docs won. Don’t get me wrong – Basecamp is a fantastic choice for some companies – it just wasn’t the best solution for us.

So, there were a few reasons why we chose Google Docs and I’ll go through why, feature by feature. As well as this I’ll share a template document that you can copy as your own to tweak as you wish.

Google Docs Spreadsheets FTW

Before 3 Door Digital was born, I had two concurrent jobs: the Head of SEO at a search agency in Manchester and another running my own company with my wife and business partner. Because, at the time, there were only two of us it was quite easy to keep track of each other’s work using an Excel document within a Dropbox shared folder. Once 3 Door Digital started trading, it became obvious that this wasn’t going to be the best solution.

To start, I simply uploaded the spreadsheet template I’d been using for Pleer into Google Documents and added the additional clients from Matan Media into the new 3 Door Digital template. Simple!

“Simple” I thought – it wasn’t so simple. Although I was well aware that I was now planning out 20+ retainer clients, 10+ one-off clients as well as other internal tasks. It was time to roll out the “super template” that would make it easy to navigate these 30+ clients whilst being easy to read for all consultants, account managers and directors. Most of all, it had to be workable so that tasks were not missed out (the main personal downfall of mine for Basecamp’s GUI).

The Super Template

Marc and I took a day out to create this super template by discussing how both teams work between offices in two countries on various tasks. Each row would represent a different task, no matter how small. What we needed to do is select columns. For each task, we covered the following:

  1. Client Name
  2. Platform Name (because some clients have various sites and platforms, some of which may have different account managers)
  3. Account Manager
  4. Task Name
  5. Owner (if not the account manager)
  6. Deadline
  7. Budgets
  8. Actual Hours Undertaken
  9. Completed (this uses a tick, exclamation point or cross – more on this later)
  10. Notes

Project Management Google Doc

The “Summary Row”

Each client and platform is split by a few empty rows and a total time allowance is provided within a chosen “Summary” row. In this row we can use equations to calculate total hours spent on a platform and time left for the month. Scripts for time management are then applied in order to enable email notifications (covered later in this post).

Google Doc Summary Row

 

Using other Tools to Compliment Google Docs

Even after all this, we were well aware that more information was needed dependent on the task. There is some information that you simply can’t illustrate well in a spreadsheet. Because more information is sometimes needed, or at least you need a separate area to work with for a specific task, we used other online collaborative tools and resources to help us with specific tasks – using the notes column as the point of reference.

Before Going Elsewhere, use the Comment function

This feature is easy to use. Right click a cell and you can add a comment. You can tag a user of the doc with the @ or + sign, and they will be notified by the email and directed straight to the comment itself. Once commented, a small orange label appears in the top right of the cell. Hovering over that cell shows the comments as a popup.

Google Spreadsheet Comment Popup

You will also notice a “Resolve” button at the top right of the popup. Clicking this, tags the comment thread as resolved, removes the orange marker, and hides the comments from the cell itself. If you want to access all comments within the document you can access them by clicking the Comments button at the top right of the screen (next to the Share button):

Google Docs Comment Threads

Use other Google Docs

Sometimes the commenting feature is never going to cover everything that needs to be covered. Some projects may need a separate document or spreadsheet or have more dialogue with more limited access. Let’s say for example that this whole task document is viewable to the whole company but one task only the Account Manager and one Director want to see details of this specific task. Here, we would create a new document and only give the Account Manager and Director access rights. In the task sheet you simply link to that separate document.

For Even Larger Tasks that Require a Folder Structure

Sometimes a task or project needs its own file and folder structure consisting of a lot of different types of files. Within the company we use Dropbox for collaborative filesharing. We used the share option within Dropbox to link to the specific folder or noted down the folder location for anyone to access. Here’s an example of where an image is entered within the notes column for other people to click and view:

Share a file to Dropbox

Dropbox image preview

Dropbox URL from spreadsheet

Tasks that Require a More Visually friendly UI

One example of this could be a web build. We use Trello – a fantastic task management tool that I have been personally using for years and can’t recommend enough. I don’t want to talk about Trello in this post, however, sign up (it’s free), and get to know it well – and be comforted in the knowledge that they have an iPhone, Android and Windows 8 app and are currently developing their iPad app.

Trello Google Docs
 

Trello Board

Paddy Moogan of Distilled wrote a great post about using Trello to Manage Projects for SEO - go and check it out.

Conditional Formatting FTW

I’ve never been at a level with spreadsheet production that I would call myself advanced, but when I learn something new in it I realise how versatile it is and how it can display information. One thing I’m a fan of is colour coding as I like to see the status of multiple tasks without always reading each row in any detail. To achieve this, I used conditional formatting in two columns:

Completed

Google Docs Conditional FormattingFor completed tasks I knew that there were only three options that we would need to choose:

  1. Incomplete
  2. Hurdle
  3. Complete

The "Hurdle" option is when something outside our control is stopping us from completing the task. When this happens, we add notes into the notes column where we can make efforts to complete the task as soon as we can. Using conditional formatting I have made the three different statuses with three different backgrounds for us to easily identify. As well as this, we used the Data Validation option to ensure that only these three option can be selected by a dropdown. This is set by right clicking the column/cells and selecting Data Validation. We used the following configuration for status:

Google Docs Data Validation

This then allowed us to select an option rather than type the words manually. This is done when you select the cell and you will notice a dropdown option that opens a popup for you to make the relevant selection:

Originally in Microsoft Excel, I used a different system whereby each task is set to 0 by default for incomplete, 1 for hurdle and 2 for completed. In Microsoft Excel (version 2010 or newer) you can use conditional formatting using the tick/exclamation/cross Icon Set, which is what I use when not using Google Docs (if you work for Google and you’re reading this please forward that as a feature request ;)). This is the specific conditional formatting we used for the Status Column:

Google Docs Conditional Formatting with Data Validation

Deadline

This column used more sophisticated conditional formatting. We wanted to have different colour coding dependent on how many weeks or days there were to the task’s deadline. These were as follows:

  • If more than a week away, we’re good
  • If within the next week, turn orange
  • If within the next 2 days, turn red
  • If in the next 24 hours, turn even deeper red
  • If deadline has passed, turn black

Timeline Conditional Formatting

This conditional formatting is somewhat limited in Google Docs when it comes to timescales (another feature request :P) so we used the conditions above, the setup of which looks like this:

Date conditional formatting setup

Keeping the Document Tidy

After a while you may find that the document becomes crowded. To eliminate this, you could hide rows where the tasks are confirmed as completed. Hiding a row (different than deleting a row) means that all data is still stored for future reference; as well as it keeping other formula data such as time management.

Hiding rows

We choose not to hide rows, as we personally like to see all tasks regardless of its completion. Instead, we split our tasks into worksheets separated by month. At the end of each month, we copy the existing month’s worksheet as a new worksheet and delete all completed rows. This then leaves us with only incomplete tasks, which are then added to as the month progresses. If we want to refer to a previous month, we simply refer to the relevant month’s worksheet. This way we can easily see every task over the course of the whole year.

Duplicate worksheet

Getting More Technical with Time Management Scripts

One thing I found that Basecamp lacked apart from its UI was the lack of time management connectivity. Relevant Managers want to be notified via email if a client is running out of management time for that month. Within the email we can include information from anywhere else in the spreadsheet. In our example, we have used the Client Name and the amount of hours left.

If this method isn’t your cup of tea, other online tools such as Toggl and Harvest will help you with time management.

Managing Account Hours

To begin, let’s use a sample client. This client has three platforms and has a number of tasks within each platform. Each platform therefore has its own set time allowance for the month. We now have the following time data:

  • Total allowance for the month
  • Total estimated time for each incomplete task (if you want to be that detailed)
  • Actual Hours Undertaken

We use this data to perform the following equation to find how many hours left there are for a platform:

Time left=SUM(Allowance-(SUM of all actual hours undertaken))

Here’s one example:

Google Docs Time Formulas

Column I, the number of hours left, is updated as the document is edited and is the number we need in order to see how many hours are left for the month. What we needed was a way to be emailed once this approached a low number.

Creating Scripts

David Sottimano of Distilled shared a script with me that emailed a chosen recipient if the number of a specific cell reached a specific number. From here, I took that script and integrated it into our Task Document.

The script runs every time the document is edited (or opened, depending on how you configure it) and is triggered if the “Time Left” figure for the platform reaches 2 or less than 2 (i.e. 2 hours). Once triggered, the script collects the Platform name and emails the person responsible for receiving the alerts with an email that the platform has run out of account hours. To install the script you will need to configure

  • The column that contains the Platform name
  • The column that contains the “Time Left” formula
  • An integer that triggers the alert (we chose 2)
  • The email(s) to send the alert to
  • The column to set the notification integer (otherwise you’ll get a LOT of emails :P)

To include the script, you can use the script manager tool and set the trigger in there:

Script Editor


And here is the script itself (highlighting the five variables you can configure above):

function notifyManagement() {
// Update & Edit values below ###############

var testing = false; // false = Live emails ... true = Browser popup...

// The Column for the task name
var taskColumn = "
B";

// The Column for Time Remaining
var timeLeftColumn = "
I";

// Number of Hours (less than X) that you want to be notified
var HourTrigger = "
3";

// Column for notifications
var managementNotifiedColumn = "
O";

// Emails addresses in array format ['','','']
var managementEmails = ["
joe@bloggs.com","someone@else.com"];

// Stop Editing values here ##################

var sheet = SpreadsheetApp.getActiveSheet();
var lastRow = SpreadsheetApp.getActiveSheet().getMaxRows();
var row = 0;

 // loop through the timeleft column
for(row=1; row < lastRow; row++){
   var cell = timeLeftColumn + row;
   var managementCell = managementNotifiedColumn + row;
   var taskCell = taskColumn + row;

   // let us get all the values ready for checking
   var timeLeft = sheet.getRange(cell).getValue();
   var notified = sheet.getRange(managementCell).getValue();
   var taskName = sheet.getRange(taskCell).getValue();

       //check to see if we should send an email
   if ((timeLeft < HourTrigger) && (!notified) && (isInt(timeLeft))) {  
     // Set the notified cell
     sheet.getRange(managementCell).setValue("1");
     // email management
     for (var i = 0; i < managementEmails.length; i++) {
       if (testing) { Browser.msgBox("Email to " + managementEmails[i] + "\n" + taskName + " time managementccccss warning!"); }
       else {
          MailApp.sendEmail(managementEmails[i], taskName + " time managementccccss warning!", taskName + " has " + timeLeft + " hours remaining");
       } // end testing check
     } // end of send emails loop
   } // end of checking if we should notify
} // end of for loop of all rows
} // end of mailMe function

function isInt(n) {
  return typeof n === 'number' && n % 1 == 0;

}

Internally, we also created a similar function to email us when budgets were too low using the same template as above and changing the variables at the beginning to focus elsewhere in the document.

Triggering the Script

Once you’ve created your script you can set triggers for each one. To do this, select the “Current script’s triggers...” within the script editor:

Script Trigger option

Here, we have decided to trigger the scripts on edit so we have live notifications sent to us and not just when the next person opens the document:

Google Doc Script Triggers

Too Much for You? No Problem!

This post either may be too technical for you, or will take you too long to implement. That’s fine – I’m a nice guy. I’m a guy who’d be kind enough to share a canvas template for you with the script installed, conditional formatting set up, scripts running (with a fake email) and even included some sample data :)

Digital Management Google Doc

Known Bugs

Sometimes we have found when adding rows or editing the doc with new information, some of the rows or columns begin to look messed up. A simple refresh of the document usually fixes this and your updates should be all good!

An Added Note

This is an awesome document and works for us better than anything else we’ve used, but this may not be for you or your agency. We all have our own preferences, although I am pretty sure at some point we may need to invest in our custom management toolset.

This doc isn’t the only thing I use to manage my own time – I also have my own personal Trello board and can’t live without the traditional email inbox to keep me from going insane.

I’d love to know what other tools and resources you use for your own project management…


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Be a Part of the State of the Union

The White House Your Daily Snapshot for
Tuesday, February 12, 2013
 

Be a Part of the State of the Union

President Obama delivers his State of the Union address to the nation tonight. What's he going to say? You'll have to tune in to WhiteHouse.gov to watch the enhanced livestream at 9 p.m. EST and find out.

We sat down with the White House Director of Communications, Jennifer Palmieri, to discuss all the ways the American people can engage with the White House around the President's address. We hope you'll check it out:

Watch: White House Director of Communications, Jennifer Palmieri, discusses the ways the American people can engage with the White House the night of the 2013 State of the Union address. Learn everything at http://whitehouse.gov/sotu

In Case You Missed It

Here are some of the top stories from the White House blog:

An American Hero Receives the Medal of Honor
Army Staff Sgt. Clinton Romesha was awarded the Medal of Honor for his actions during the Battle of Kamdesh in 2009 during the war in Afghanistan.

State of the Union 2013: White House “Open for Questions” Marathon
In the days following the State of the Union Address, Administration officials will take questions on key issue areas addressed in the President's speech submitted by the public on social media during an "Open for Questions" marathon.

Vice President Biden Meets with Law Enforcement Officials in Philadelphia
Vice President Biden travels to Philadelphia to meet with law enforcement officials and hold a roundtable discussion to talk about the Administration’s plan to reduce gun violence.

Today's Schedule

All times are Eastern Standard Time (EST).

10:15 AM: The President and The Vice President receive the Presidential Daily Briefing

6:00 PM: State of the Union Countdown WhiteHouse.gov/live

9:00 PM: The President delivers the State of the Union Address WhiteHouse.gov/live

10:00 PM: Open for Questions: State of the Union 2013 WhiteHouse.gov/live

WhiteHouse.gov/live Indicates that the event will be live-streamed on WhiteHouse.gov/Live

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Seth's Blog : Those people

 

Those people

At a recent seminar, a woman who helps run a community college stood up to ask a question.

"Well, the bad news," she said, "is that we have to let everyone in. And the truth is, many of these kids just can't be the leaders you're describing, can't make art. We need people to do manual work, and it's those people."

I couldn't believe it. I was speechless, then heartbroken. All I could think of was these young adults, trusting this woman to lead them, teach them, inspire them and push them, and instead being turned into 'those people.'

You know, the people who will flip burgers or sweep streets or fill out forms all day. The ones who will be brainwashed into going into debt, into buying more than they can afford, to living lives that quietly move from one assigned task or one debt payment to another. If they're lucky.

No, I said to her, trying to control my voice, no these are not those people. Not if you don't want them to be.

Everyone is capable of being generous, at least once. Everyone is capable of being original, inspiring and connected, at least once. And everyone is capable of leading, yes, even more than once.

When those that we've chosen to teach and lead write off people because of what they look like or where they live or who their parents are, it's a tragedy. Worse, we often write people off merely because they've been brainwashed into thinking that they have no ability to do more than they've been assigned. Well, if we brainwashed them into setting limits, I know we can teach them to ignore those limits.


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luni, 11 februarie 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Japan’s Economic Minister Wants Nikkei to Surge 17% to 13,000 by March; Contender for Bank of Japan Supports Additional Easing

Posted: 11 Feb 2013 06:36 PM PST

Currency wars again took another leap forward this week as Japan's Economic Minister Wants Nikkei to Surge 17% to 13,000 by March.
Economic and fiscal policy minister Akira Amari said Saturday the government will step up economic recovery efforts so that the benchmark Nikkei index jumps an additional 17 percent to 13,000 points by the end of March.

"It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year (March 31)," Amari said in a speech.

"We want to continue taking (new) steps to help stock prices rise" further, Amari stressed, referring to the core policies of the Liberal Democratic Party administration — the promotion of bold monetary easing, fiscal spending and greater private sector investment.

The key index started rallying from around 8,600 points in mid-November when then-Prime Minister Yoshihiko Noda decided to hold a general election Dec. 16 that saw his ruling Democratic Party of Japan trounced by the LDP. Share prices have risen largely in response to the yen's depreciation against other major currencies on expectations for aggressive monetary easing measures by the Bank of Japan since the LDP's return to power.
Contender for Bank of Japan Supports Additional Easing

In addition to stock market cheerleading and targets from Japan's economy minister, Yen Weakens as Candidate for Bank of Japan Promotes Easing.
Japanese stock futures rose and the yen weakened after Haruhiko Kuroda, a potential contender for Bank of Japan chief, said additional monetary easing can be justified this year.

"If we do see a BOJ Governor of Kuroda's calibre, the dollar-yen could well punch through 95 and would head to 100 very quickly," said Evan Lucas, Melbourne-based market strategist at IG Markets Ltd., a provider of trading services. "It would also signal to Japanese consumers and investors alike that the government is finally taking action."
For the record, I have been in on a long Japanese equities, short the Yen play for quite some time.

Yet, I do not pretend to know whether or not the Nikkei will soar another 17% by March. However, I do know that it is economically foolish for politicians to hijack currencies and stock markets. Thus, my positioning is certainly not an endorsement of Japanese policy.

At some point, and perhaps we have crossed the point already, currency wars can and will get out of control. If and when that happens, the Yen will spiral downward out of control, with energy prices (in Yen) skyrocketing. Moreover, Japanese exports may not necessarily rise as everyone believes.

Sentiment is a powerful thing. Convincing everyone in Japan that a huge outburst of inflation is on the way, is not the brightest thing to do, to say the least. As I have stated many times, Japan better be careful or it may get (and then some in spades) more of what it seeks.

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

Cyprus "Radical Rescue" Proposal Proves Greece Not Unique; Sovereign Haircuts Detailed in "Secret" EU Plans; Russian Connection

Posted: 11 Feb 2013 10:48 AM PST

Cyprus is about to prove what anyone with common sense already knew, that Greece will not be the only country requiring haircuts on sovereign bonds.

Today the Financial Times posted news of a Radical rescue proposal for Cyprus
A radical new option for the financial rescue of Cyprus would force losses on uninsured depositors in Cypriot banks, as well as investors in the country's sovereign bonds, according to a confidential memorandum prepared ahead of Monday's meeting of eurozone finance ministers.

The proposal for a "bail-in" of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout. The ministers are trying to agree a rescue plan by March, to follow the presidential elections in Cyprus later this month.

The new plan has not been endorsed by its authors in the European Commission or by individual eurozone members. The memo warns that "the risks associated with this option are significant", including a renewed danger of contagion in eurozone financial markets, and premature collapse in the Cypriot banking sector.

It would reduce Cyprus's outstanding debt to just 77 per cent of economic output, compared with 140 per cent in the current full bailout plan.

Labelled "strictly confidential" and distributed to eurozone officials last week, the memo says the radical version of the plan – including a "haircut" of 50 per cent on sovereign bonds – would shrink the Cypriot financial sector, now nearly eight times larger than the island's economy, by about one-third by 2015.

But the authors warn such drastic action could restart contagion in eurozone financial markets, and put forward two more cautious alternatives.
Curious Thing About That "Full Bailout"

Notice how the existing "Full Bailout" still leaves Cyprus with a debt-to-GDP ratio of 140%. To get to an also unsustainable ratio of 77% requires a radical new plan.

Of course when that fails as well, there will be still more radical plans.

Russian Connection

Steen Jakobsen, chief economist for Saxo Bank in Denmark has some additional thoughts via email, as follows:

This morning hot topic has been a Financial Times article: Radical rescue proposed for Cyprus which indicates that depositors as well as investors in the country sovereign bonds stand to lose up to 2/3.
Cyprus is in need of approximately 17 bln. EUR - and how to reduce the overall burden which will reach 140 percent by 2015 without a hair-cut.- EU Finance minister meets tonight and need to secure deal before March 1st, 2013.

These are the leaked three options on the table:

  1. Bail-in (the radical version) - Reducing outstanding debt to 75-ish percent via hair-cut which will hit foreign depositors and bond holders. This will hard on the big investor Russia.
  2. Bail-in (Light version) - Only junior debt holders will be hurt, not bank depositors - this would however prolong the reduction of the banking sector by ten years - the suggestion will include increase corporate tax from 10.0% to 12.5% and withholding tax on capital income to 28%
  3. A classic ESM structure - selling the 'nationalized' Cypriot banks to the ESM and secure funding. Problem being ESM is not allowed, yet, to do direct funding of banks.

The political decision is really down to how big a reduction Cyprus need. Some people argues for 100 percent by end of 2015, others say it should be by 2020.

The deep irony of course being, that when we had the hair-cut on Greece, we were told Greece was a one-off and it will never be repeated - Well, Dr. Watson, It's elementary: Other people money is always easy to spend.

Making things complicated is two issues: Cyprus goes to the polls on February 17 and 24th - As we have seen across Europe it looks like a change guard: Cyprus opposition leads extends lead week before vote.

Cyprus is seen by many countries as tax heaven for Russian money, so bailing out Cyprus equates to "helping Russia investors" - We have no view on the issue but note how Asmussen, ECB Board member, is taking the high road in German press:  ECB's Asmussen sees Cyprus bailout by end-March.

Conclusion

It's clearly a concern for market that Greece was not, after all, a one-off. The radical version could reignite fundamentals issue in Europe and as we have written in our Stress Indicators recently: Risk off looks more and more likely.

We suggest securing profit and to reduce overall risk- mainly in EUR, JPY and major European indices. The deal will probably only be done at last minute, but it leaves us "hanging" for another two-three weeks, and one thing the market does not like is increased political tail-risk.

Safe travels,
Steen

Cyprus Debt



Curiously, "Government bonds from Cyprus seems unaware of any potential hair-cut" notes Jakobsen.

Thus for now, it appears the intent is to bail out Russia at the expense of Cyprus businesses and taxpayers on the misguided notion that will prevent "contagion".

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

Krugman's Explicit Endorsement "Time to Kick the Can" Shows True Colors He Denies in "Despicable Me"

Posted: 11 Feb 2013 01:13 AM PST

Angry Bear's column How To Debate Paul Krugman in response to my January 26 column How to Debate Paul Krugman: "Ask Questions Like a Child" was rather humorous for what it did not say.

Three-fourths of the Angry Bear article was a rebuttal of nothing I said, but rather a rebuttal of something stated by Austrian school economist Detlev Schlichter.

"Despicable Me"

Following the cue of Angry Bear, Krugman got into the act with Despicable Me, flattering himself with the notion that he is "History's Greatest Monster".

For the record, I never said, nor implied as Krugman claims in Despicable Me that "liberals must support any and all government interventions."

The irony in that ridiculous assertion is Krugman and Angry Bear both paint a straw man picture that does not exist, while hypocritically accusing me of doing just that!

Furthermore, I have never said Paul Krugman is always wrong, nor have I ever said that I am always right.

I happen to agree with Krugman's original stance on free trade as noted in Fair Trade is Unfair; Are Paul Krugman and Mitt Romney On the Same Page? It just so happens that Krugman was right then, and he is wrong now.

On the monetary front, I have stated numerous times that the Austrian economists and commentators in general were wrong that Fed printing was going to cause hyperinflation.

In Bizarro World Inflation; About that 2011 Hyperinflation Call ... I specifically mentioned: It pains me to see articles like On the Brink of Inflationary Disaster by Austrian economist Robert Murphy.

Moreover, I have explicitly stated on numerous occasions that Krugman was right on the inflation score (even though I do not agree with fiscal or monetary stimulus efforts for reasons explained below).

Thus, not all Austrians think alike, a point Krugman conveniently (and frequently) seems to forget.

Kick That Can

The story became even more amusing when Krugman flat out promoted Kick That Can on February 7.

In Kick That Can Krugman states "The key point is this: While it's true that we will eventually need some combination of revenue increases and spending cuts to rein in the growth of U.S. government debt, now is very much not the time to act. Given the state we're in, it would be irresponsible and destructive not to kick that can down the road."

I certainly disagree with the last sentence above, but I am in agreement with Krugman's statement that "Republicans often seem to believe in "weaponized Keynesianism," a doctrine under which military spending, and only military spending, creates jobs."

Krugman then dove off the deep end into a pool of Keynesian silliness as follows:
But aren't we facing a fiscal crisis? No, not at all. The federal government can borrow more cheaply than at almost any point in history, and medium-term forecasts, like the 10-year projections released Tuesday by the Congressional Budget Office, are distinctly not alarming. Yes, there's a long-term fiscal problem, but it's not urgent that we resolve that long-term problem right now. The alleged fiscal crisis exists only in the minds of Beltway insiders.

So we should avoid that damage by kicking the can down the road. It's the responsible thing to do.

Reflections on a Fiscal Crisis

Of course we are facing a fiscal crisis (depending on the definition of facing) whether Krugman sees it or not. Similarly, in 2005 we were facing a housing crisis whether or not anyone saw that.

Indeed, the very reason we were facing a housing crisis is because the Greenspan Fed blew the biggest credit bubble in history in a can-kicking exercise to bail out the banks who were in trouble in 2000-2001 from the dot-com bust.

Now Krugman states that it would be irresponsible to not kick the can, ignoring the fact that can kicking is one of the reasons we are in this mess in the first place.

Although the Fed is not going to create hyperinflation (or even strong inflation) any time soon, Fed policies have indeed caused massive distortions. For example, Fed policy clobbers those on fixed income as detailed in Hello Ben Bernanke, Meet "Stephanie".

In addition to clobbering those on fixed income, the Fed has blown yet another bubble in the equity and corporate bond markets.

Thus, there are many costs to kicking the can. And for what?

Take a good look at Japan. Over 20 years of can-kicking via both Keynesian and Monetary stimulus did not buy Japan anything but a mountain of debt.

Japan has not blown up yet, but it will, and sooner than the US in my estimation (a statement I made in 2005 if not before).

Krugman points out that austerity did not work in Spain or Greece. Of course it didn't. Both countries increased taxes and neither country implemented what was really needed, and that is work rule and pension reform. 

No respected Austrian on the planet would have raised taxes like the Troika demanded in Spain, Italy, Greece, and Portugal.

Yet that does not stop Krugman from blaming Austrian austerity for the collapse in Europe. Nor does it stop Krugman from ignoring Japan (on the basis Japan has not blown up yet).

In the meantime, we are force-fed the ridiculous Keynesian notion that the cure to a debt-mess is to pile still more debt upon debt as if debt will create a recovery.

More Debt Will Not Create a Recovery

More debt cannot be the answer for the simple reason I mentioned in "Libertarian Turned Keynesian": "Any person with a modicum of common sense, at any education level beyond 7th grade, should understand what happens to demand as soon as free money stopped."

It does not take a brilliant mind to understand that. Indeed, it takes someone living in an ivory tower of academic nonsense to not see it.

There is only an illusion that Keynesian stimulus ever worked, and that illusion is based on ability and willingness of consumers to take on more debt. If we have hit the end of the line on consumer attitudes towards debt (and I believe we have) further stimulus will be as useful as it was in Japan.

So, my original post was indeed correct after all. "It is very important in replies to people like Paul Krugman, that we don't get involved in technical details. Ask some questions almost like a child. ..."

What is the end-game? When does the stimulus stop?

The US has had trillion dollar deficits for years and faces them for years more to come. If's that not "stimulus" what is it?

Krugman wants stimulus measures to continue, with increasing doses until the stimulus works, but of course it never will (and all we will get for it is a massive pile of debt).

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

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