Central Perk

joi, 8 august 2013

101 Google Answer Boxes: A Journey into the Knowledge Graph

Posted: 07 Aug 2013 07:58 PM PDT

At MozCon last month, I gave a talk titled "Beyond 10 Blue Links" that included 85 screenshots of Google SERP features that went beyond the traditional organic listing:

I purposely tried to overwhelm people and to show just how much the landscape is changing, but the truth is that this was just one part of the big picture. So, I'd like to take a deeper journey today â€" a trip through Google's "answer box" â€" to show not only how SERPs are changing, but how the answer box reveals the direction and power of Google's Knowledge Graph.

What's an answer box?

An "answer box" is a SERP feature, usually displayed in a light-gray box, that occurs above the organic results (left column) and tries to directly answer a question. For example, if you were wondering what a "SERP" is and Googled "define serp", you'd see this:

Most answer boxes are primarily text, contain a relatively short answer (when possible), and may give limited information about the source of the answer. Seeing is believing, so let's jump right in.

(I) People & Relationships

Everybody loves celebrities, right? According to the supermarket checkout aisle, they're just better than the rest of us. Let's start with some answer boxes about people.

1. "Is Justin Timberlake married"

Sorry, ladies (and gentleman, depending on your persuasion), the short answer is: "yes". This same wedding also took Jessica Biel off the market â€" I feel like the government should have gotten involved.

2. "Ben Stiller's dad"

You can also check out other relationships, like famous parents:

3. "Jerry Stiller's kids"

Some relationships are many-to-one. Here's an answer box with richer content:

4. "How tall was Abraham Lincoln"

Was Abe really that tall, or were all the other Old-Timey people just really short, so he seemed tall by comparison? Turns out, he was pretty tall.

5. "How old is Bryan Adams"

So, the other day, I'm listening to "Summer of '69" and I started wondering how old Bryan Adams actually was in 1969. Turns out, he was barely 10 years old, and he wants us to believe he started a band? I'm on to you, Bryan Adams!

6. "How old is Mickey Mouse"

I'm not crying â€" that's just fairy dust in my eye (hat tip to @scheidja)!

7. "Walt Disney's birthday"

Of course, we can also look at the other side of the circle of life:

8. "Jesus birthday"

Interestingly, Google includes much more than just data about contemporary folks:

9. "Genghis Khan death"

Death information (and sometimes location) is available for historical figures, as well:

10. "Gandhi assassination"

Other notable dates related to people are also available, although not as consistently:

11. "Chaucer buried"

A serious note: If you're ever in Westminster Abbey, take a moment to realize that your standing on the graves of kings, queens, and poets.

12. "Justin Timberlake job"

What does JT actually do? Pretty much everything, because he's amazing:

13. "Conan O'Brien education"

Did you know that Conan went to Harvard? You do now.

14. "Paul Hogan nationality"

I'd like to apologize to our friends down under for our bizarre fascination with you during the 80s. Point of fact, though: Crocodile Dundee is legitimately Australian.

15. "Fun singer"

I don't know if he's actually fun or not, but kudos on capturing the SERP:

16. "Gandhi Bacon number"

If you've ever wondered why the internet exists, here's your answer (hat-tip to @BradyDCallahan).

(II) Athletes & Sports

Athletes are people, too, or so ESPN tells me. The sports realm has a number of unique answer boxes.

17. "How much does Beckham make"

Oddly, this seems uniquely available to athletes, for the most part. No word on what Victoria Beckham is cashing in these days.

18. "Kobe Bryant's number"

When you need to settle a bar bet, answer boxes look good on mobile, too.

19. "Peyton Manning's team"

In case you're like me, and occasionally get the Manning brothers confused...

20. "Where is Tiger"

The format isn't quite your typical answer box, but this is a great example of just how much Google is interpreting queries. Note that this only appears near active tournament dates (hat tip to @scheidja)

Fun fact: We originally saw this for "Where is Roger", and it brought up results for Roger Federer. Of course, we all know that there's only one Roger.

21. "Cubs score"

If you're a Cubs fan, like me, and in perpetual need of torturing yourself, Google's got you covered:

22. "NL Central standings"

You can also access division/league stats for many pro sports. Keep in mind that these are seasonal, and only seem to appear during the active season for any particular sport.

23. "Cubs schedule"

Here's an expanding schedule of upcoming games:

24. "Where do the Yankees play"

If you're really new to the sports world, fear not â€" there's an answer box for you, too:

Fun fact: This answer box does not actually say "Duh". Seriously, though.

25. "How many seats at Yankee stadium"

That's a lot of hot dogs. Inferior, New York hot dogs, that is.

26. "Stanley Cup champion"

Yeah, baby. Even we Chicagoans get to win something now and then.

27. "NHL Stanley Cup"

This isn't currently active, but during playoffs and championship series, you can see the entire schedule and historical scores:

28. "Tournament brackets"

For March Madness 2013, Google launched an entire bracketology feature (not currently active):

(III) Landmarks & Places

People shouldn't have all the fun. Places have feelings, too. Ok, they don't have feelings, but they do have answer boxes.

29. "Who built Wrigley Field"

Historical data is available for many major landmarks:

30. "When was the Empire State Building built"

Did you realize that the first skyscraper didn't exist until after the elevator was invented? People are lazy.

31. "How tall is the Space Needle"

It's been just over 50 years since someone thought: "Let's put a UFO on a stick!"

32. "How many floors is the Sears Tower"

It'll always be the Sears Tower to me, unless we also get the Arnold Tower and Mr. Drummond Tower. Then, I might come around.

33. "Population of Chicago"

Some answer boxes have specialized, rich content. This population trend graph is one of the more interesting ones:

34. "Size of Chicago"

You probably never actually wondered this, but I got a little crazy writing this post:

35. "Chicago unemployment rate"

Not one of our happier stats, but definitely an interesting, rich answer box:

36. "Seattle weather"

When I'm packing for the home office, this comes in handy. Google has all but taken over this space from the major weather sites. If you want local weather, you can just search "weather" or "temperature".

37. "Seattle Mayor"

When I need to study up on my second home, Google's there for me:

38. "Washington Governor"

There seem to be answer boxes for most major local, state, and Federal offices.

39. "Capital of Washington"

Note to self: Seattle is not the capital of Washington.

40. "Washington state flower"

You know what Illinois' state flower is? The violet. Way to overcomplicate things, Washington.

41. "Washington state bird"

Why was learning this stuff so important in school? No one has ever jumped out of an alley and shouted "Quick, what's your state bird?!"

42. "Canada languages"

What language do they speak in Canadia? It's Canadese, right?

43. "Canadian currency"

Also, they have money in Canada. Who knew?

44. "Canadian Prime Minister"

It's like they're a real country. FYI: you have to actually know the proper form of government to get this answer box â€" "Canadian President" and "Canadian head honcho" don't work.

45. "Mexico dialing code"

If you need to call your friends across either border, Google makes it easier for you:

46. "How big is the Pacific Ocean"

"Pretty damned big" would also have been an acceptable answer.

47. "How old is the world"

You can ask questions about just about anything georgraphic, including the entire earth (hat-tip to @zafeuer).

48. "Radius of Saturn"

Then again, why restrict yourself to earth-based factoids?

49. "How far is Saturn"

Ok, I meant "How far is Saturn from the earth", but this just goes to show you that Google still has a few kinks to work out (hat-tip to @IAmPhilSharp).

50. "How far is Saturn from the sun"

Sometimes, you just have to be specific. Oddly, distance from the earth is not available, but distance from the sun is.

51. "How far to Seattle"

Of course, the "how far" answer box does have legitimate uses. I wonder this every time I get a "Free Cupcakes" email from the office (which is about 17 times per day).

52. "Who discovered Neptune"

Here's a people and planets crossover answer box. Apparently, it took a lot of people to find Neptune.

Fun fact: John "Couch" Adams was the lesser known and lazier brother of our 6th president, John Quincy Adams.

(IV) Conversions & Calculators

Questions about numbers and units often yield interactive answer boxes. Here's a list of conversion and calculator features.

53. "How big is an acre"

Building on our geography queries, you can easily convert units of area:

54. "70 Fahrenheit to Celsius"

This one's handy for the MozCast followers out there (don't worry, building this in is definitely on our to-do list):

55. "5 years in hours"

This is how long I spent in graduate school. Funny, it felt like at least 50,000 hours.

56. "How many millimeters in a cubit"

Some questions yield direct answers, and not a conversion box. It could have something to do with no one under the age of 103 ever measuring things in cubits.

57. "Bits in a terabyte"

Here's a conversion calculator for us geeks. My first hard drive was 10 MB. Now, you can get a 1 TB external HD for $79.99. By the time I finish this post, they'll be $39.99.

58. "Dollars to Euros"

Google completely took over currency conversion queries. You can also just search for "currency converter".

59. "What is the speed of light"

Some specific scientific values have direct answer boxes. You can also look up mathematical constants, like "pi" and "Euler's constant".

60. "7 * 6"

Enter a mathematical expression, and you'll get a scientific calculator answer box. Expressions can be pretty elaborate, including parentheses.

61. "Answer to life the universe and everything"

Of course, if 42 is really the answer you want, then you should be asking the right question.

62. "sin(x)"

Enter a function or complex equation, and you'll get back a two-dimensional graph.

63. "sin(x)+cos(y)"

With the right multivariate equations, you can trigger a three-dimensional graph.

64. "How many calories in a taco"

Finally, the most important calculator of all: the taco calculator. Ok, it's actually the nutrition calculator. Sadly, Google will not answer the question "How good is cheese?"

(V) Dates & Times

We covered a few date-based answer boxes in the people section (like birthdates), but that's just the tip of the iceberg for date and time questions.

65. "When is Thanksgiving"

You can easily find the dates of many upcoming holidays, although a few minor holidays seem to be missing.

66. "When was Hanukkah"

In some cases, you can query the last occurrence of a holiday. Google also shows ranges for events that cover multiple dates.

67. "Mothers Day 2020"

Add a year to get the dates for future holidays. The year 2020 was as far ahead as I could get Google to currently go, but this may vary depending on the event.

68. "Fall Equinox"

This is the proper form of the question "What happened to summer?!".

69. "Time"

Google is personalizing more answer boxes, and queries like "time" work now. If you want the time in another location, enter sometimg like "local time Seattle".

70. "Sunrise Seattle"

On the days when Seattle actually has sun, Google will tell you when that alleged sun rises and sets.

71. "Timer 5 minutes"

Forget your stopwatch (and your iPhone, and your tablet...)? You can set a timer of just about any length directly through a search query. Added bonus: The alert is more obnoxious than a late-80s car alarm.

72. "Length of Martian day"

Don't you hate it when you've got a call scheduled with Martian clients and... ok, I really have no idea why you'd ever need this.

(VI) Movies, Media, & More

You can't spell "celebrity" without "le brit", which is French for "The British". Ok, half of that's not true, and none of it is relevant. Here are some answer boxes about stuff celebrities do.

73. "When was Star Wars released"

Here's a query I run when I want to feel l old. I was almost seven, for the record (hat-tip to @adamcarson).

74. "Who directed The 300"

I ask Google this question about twice a week, just to make sure I never watch any more of his movies.

75. "The 300 sequel"

Unfortunately, Google has no regard for my feelings:

76. "The Dark Knight rating"

Is it too early to let my 3-year-old watch the latest Batman saga? Ok, yeah, it probably is.

77. "Rocky writer"

Did you know that Stallone not only wrote the script to Rocky, but he did it in three days? Give Sly a little credit.

78. "James Bond movies"

Here's a slightly odd one â€" a not even remotely complete list of Bond films:

79. "Narnia movie list"

The much shorter Narnia series gets a complete list, including thumbnails. Other queries, like "Harry Potter movies" generate a Knowledge Graph carousel. Google seems to be experimenting.

80. "When did The Simpsons debut"

Purists will probably note that The Simpsons actually debuted on the Tracey Ullman show in 1987. This is why purists have no friends (hat-tip to @adamcarson).

81. "Super Friends final episode"

Farewell, Zan, Jayna, and Gleek. We hardly knew thee.

82. "Sunny in Philadelphia network"

The curse of TiVo is that I honestly have no idea when any show airs or what channel it's on.

83. "Greatest American Hero theme song"

"Believe it or not, I'm walking on air. I never thought I could feel so FREE-EE-EEE..." You're welcome.

84. "Honey Boo Boo genre"

When I want to remember which genre never to watch, I run this search. Ok, so I watch Top Chef. And Top Chef: Masters. And The Voice. And Pimp My Ride. STOP JUDGING ME!

85. "Harry Potter author"

Once upon a time, there were these things called books. Don't worry â€" there's an app for that now.

86. "Grand Theft Auto 5 release"

If you can't wait for whatever it is you kids can't wait for these days, then here you go (hat-tip to @KrisRoadruck).

87. "Wicked composer"

It's not quite as great as coming up at the top of "wicked awesome composer," but I'm still pretty jealous.

(VII) Companies & Brands

For all the talk of big brands dominating the SERPs, it's surprising how few of them currently have Knowledge Graph data. Here are a few examples of brand answer boxes.

88. "Amazon stock"

Google's rich stock ticker answer box is probably one of the most obvious examples of company-related data:

89. "When was Microsoft founded"

You can get direct answers for a few questions about major companies, including their founding date (hat-tip to @wilreynolds).

90. "Amazon founder"

This is also the new answer to "Who owns the Washington Post?" (although that doesn't get an answer box).

91. "Samsung headquarters"

You can look up the corporate headquarters for many large companies.

92. "Best Buy customer service"

Finally, a few companies pull up customer service phone numbers, but this data seems fairly spotty.

(VIII) Miscellaneous

Here are a few answer boxes that didn't fit neatly into any of my other categories.

93. "UA 241"

Want your flight status in about 17 clicks less than it takes on the airlines' sites? Just search your flight number.

94. "Flights to Seattle"

This isn't technically an answer box (See the "Sponsored" notification in the upper-right), but it goes to show how much the line between organic and paid content is starting to blur.

95. "Define googol"

Some words will pull up definitions in an answer box. Google may be testing an even richer definition box, which includes word origins and usage data.

96. "Search in mandarin"

Translation is available for some terms, but the implementation is inconsistent at best.

97. "Mono symptoms"

Google has experimented heavily in the health/medical niche. Here's a detailed symptoms answer box that pulls data from three major health sites.

98. "Cancer treatment"

I'm not sure cancer treatment can or should be summed up in a couple of paragraphs, but Google is apparently going to try.

99. "Poison control"

This doesn't fit the typical format of an answer box, but here's a situation where people obviously can benefit from a quick answer.

100. "How fast is an F-22 Raptor"

A few vehicles have statistics available in answer boxes. I would have expected more cars (especially high-end models) to have them, but I've mostly found aircraft data (hat-tip to @scheidja).

101. "Boeing 787 engine"

Here's one I wouldn't expect to have an answer box â€" the engines on a Boeing 787 Dreamliner.

The Knowledge Graph Connection

So, where do these answer boxes come from? Some, like stock tickers and weather charts, are clearly custom designed and can involve exclusive data partnerships. When it comes to the factoids, though, most of these answers come directly from Google's Knowledge Graph.

Let's go back to the very first example. Here's a portion of the Knowledge Graph entry for Justin Timberlake:

Notice the circled factoid, which just happens to match our first answer box. So, let's try a little experiment. Let's pick something you've probably never searched for: as a kid, I had a fascination with the Red Baron, who flew a plane called the Fokker Dr.I. If you search for "Fokker Dr.I", you'll see this KG entry:

So, what if we picked a factoid, like the Fokker's wingspan? Sure enough, if you search Google for "Fokker Dr.I wingspan", you get this answer box:

"Fokker Dr.I top speed", "...length", and "...first flight" all return answer boxes, but, oddly, "...manufacturer" doesn't. I'd say that about 70-80% of the factoids I found in Knowledge Graph entries could be used to generate answer boxes, but sometimes Google was very picky about how the question was worded.

This all goes to show that the Knowledge Graph is much more than just an isolated box of information in the right-hand column. It's fundamentally changing the nature of organic results and driving many of Google's direct answers to questions. As KG continues to expand, it's going to be critical to understand how it impacts your money keywords.

It also goes to show that these 101 answer boxes are just a sampling of what's available in the wide world of Google's Knowledge Graph. Have any favorites of your own? Be sure to share them in the comments.

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Seth's Blog : The choke point

The choke point

Sooner or later, all big public media companies go in search of a choke point, the place where they can find a leg up in terms of attention and monetization.

FACEBOOK said to you and to everyone else: Build your content here on our site, and we'll make it easy for you to effortlessly share it with your friends and their friends and their friends. Over time, of course, the clutter leads to less sharing, and now you can pay them to promote your work to the very people who used to bump into it for free. They have control of a scarce resource (attention) and they're building a business around it.

LINKEDIN approached many bloggers over the last year and asked them to contribute original posts on their site. In exchange, they'd direct lots of their readers to the content. Of course, it's not hard to see how soon it will become an isolated garden, a platform they own and can charge a toll on. They have control of a scarce resource (attention) and they're building a business around it.

GOOGLE cancelled their RSS reader because RSS is a free, unchokable service, one that's hard to put a toll on. On the other hand, when you build on their platform, you become part of their ecosystem, a click away from all sorts of revenue. They have control of a scarce resource (attention) and they're building a business around it.

Worth noting that GMAIL has figured out (acting, it seems, on behalf of users) how to use tabs to differentiate between "primary" emails and "promotions." If you're used to getting this blog by email, odds are you haven't seen it in awhile, because even though it's not a promotion, even though you signed up for it, by default, it's in your promotions tab (easy to fix, by the way, just drag one of the emails to the primary folder). While this tabbing default probably saves you from emails that are actually promotions, it also provides Gmail with a choke point for the future, because the person who controls which tab an email arrives in is powerful indeed.

I could go on about other companies and other platforms, but you get the idea.

Again and again, we see that if you're not the customer, you're the product. "Free" usually means, "you're not in charge." The race continues to be one for attention.

Tim Wu's book on the history of this process is a must-read for anyone who makes media.

• Email to a friend •

miercuri, 7 august 2013

Mish's Global Economic Trend Analysis

US Consumer Spending Flat Since March - Gallup

Posted: 07 Aug 2013 03:36 PM PDT

A Gallup Poll headline says "U.S. Self-Reported Spending Flat Since May"

However, the charts show stagnation since March. Let's take a look.

U.S. self-reported daily consumer spending was $89 in July, unchanged from the $90 of June and May. The relatively flat spending levels of the past five months are consistent with the weak GDP reports of the past three quarters and the lack of improvement Gallup finds in its Payroll to Population employment rate over the past couple of years.

Trend in Self-Reported Spending

Spending began the year at $80 in January and $83 in February. Consumers opened their wallets some more in March, spending an average of $89, reflecting the normally expected seasonal spring increase in sales.

However, consumer spending has remained basically at that level since -- in the face of what are normally positive seasonal factors such as warmer weather, home improvement projects, and spring and summer travel. Longer-term, Americans' self-reported spending is much stronger than it was from late 2008 to late 2011, but continues to trail early 2008, before the recession gained momentum.

Spending Across Income Levels Also Relatively Flat

Upper-income spending inched up to $158 in July, from $143 in June and $150 in May. But the upper-income spending data tend to be more volatile due to the smaller sample sizes involved, and the overall trend seems to be essentially flat over the past five months -- with a peak of $166 in March and a low of $140 in April.

Lower- and middle-income spending averaged $78 per day in July, similar to the $77 per day in June and May, and the $75 in March. Spending by this group in 2013 has been in a relatively narrow range, from a high of $78 last month to a low of $70 in January.

Survey Question

The survey question was "Not counting the purchase of a home or vehicle or your normal household bills, how much money did you spend or charge yesterday on all other types of purchases you may have made such as at a store, restaurant, online, or elsewhere?"

In simple terms, Gallup was checking up on self-reported consumer discretionary spending.

Conclusions

Even as Wall Street is reaching new record highs, questions remain about the strength of the Main Street economy. Gallup's self-reported spending results for July suggest the underlying economy remains fragile at best. This aligns with recent weak GDP reports, the lack of increase in full-time jobs with employers, the slight decline in economic confidence, and Friday's mixed, but also relatively weak, Bureau of Labor Statistics jobs report.

The reason spending hasn't in fact declined over the past several months may be that the Federal Reserve's efforts to flood the economy with money have not only been supportive of Wall Street, but also bolstered durable goods values in general, including housing and autos.

Still, at this point, Gallup's economic data do not support the idea of a significantly improving U.S. economy in the second half of the year. In turn, this suggests retailers may be disappointed with the Back-to-School spending season.

I agree with the above conclusions, written by Dennis Jacobe, Chief Economist for Gallup.

Fed Balance Sheet vs. Stock Market; Will QE Cause Inflation? US in a Minsky Bubble? About to Go Japanese? Looming Credit Crunch?

Posted: 07 Aug 2013 01:40 AM PDT

In response to Japan Near Stagnation Following 9 Months of Growth; Service Sector Prices Back in Deflation; Spotlight on Abenomics My friend "BC" writes ...

With little or no bank lending growth, decelerating wage growth, and trend growth of real GDP per capita at 0% to negative implies the 3- and 5-year change rates of US M2+ will decelerate from 2-3% to 0-1% in the next 5-6 years as occurred during the early to late '00s in Japan.

We're not turning Japanese because we want to, and we have convinced ourselves that we won't, even though the too-big-to-fail banks and Fed are responding in precisely the manner one would expect as we, in fact, turn increasingly Japanese.

The S&P 500 is ~200% overvalued in this context in a classic "Minsky Bubble".

Japan M2

Japan M3

Japan GDP

Fed Balance Sheet vs. Stock Market

The above chart from reader Tim Wallace.

US in a Minsky Bubble?

John Hussman had a thought-provoking article this week on the The Minsky Bubble

What's fascinating about QE is that it has no transmission mechanism to the real economy except as a weak can-kicking exercise - and even then only by creating enormous distortions in pursuit of minute "wealth effects." The risk premiums of risky securities have become unsustainably compressed in the process, and the Fed's balance sheet has metastasized to $3.5 trillion - a level that would currently require a nearly $800 billion contraction just to normalize short-term interest rates by a quarter of one percent.

The central effect of QE is not on the real economy, but on financial speculation. The Fed purchases Treasury and mortgage securities, and creates new base money (currency and bank reserves) as payment. This results in a huge pool of zero-interest assets that someone in the economy has to hold at any given point in time. This zero-interest money is a "hot potato" that creates discomfort and encourages a tendency to "reach for yield" in more speculative assets. Undoubtedly, the universal attention to Fed actions has already created a mob psychology where, to use Kindleberger's words, "virtually each of the participants in the market changes his or her views at the same time and moves as a herd."

It's worth observing that the 10-year Treasury yield is also well above the weighted average interest rate since 2010 (weighting by the quantity of Fed purchases), which means that the Fed is underwater on its holdings. Bernanke himself noted at his recent Humphrey-Hawkins testimony that the recent rise in interest rates had wiped out all of the Fed's unrealized gains, though he feigned ignorance about how much the Fed would lose if interest rates increased by 100 basis points. The math is easy enough, so let's do it for him. At $3.5 trillion in assets having an estimated duration of about 8 years, against only $55 billion in capital, a 100 point increase in interest rates would wipe out the Fed's capital five times over. The Fed would probably show an insolvent balance sheet today if its holdings were actually marked-to-market.

The boom of the Minsky model is fueled by the expansion of credit. Minsky noted that 'euphoria' might develop at this stage. Investors buy goods and securities to profit from the capital gains associated with the anticipated increases in their prices. The authorities recognize that something exceptional is happening and while they are mindful of earlier manias, 'this time it's different,' and they have extensive explanations for the difference.

"The continuation of the process leads to what Adam Smith and his contemporaries called 'overtrading.' This term is not precise and includes speculation about increase in the prices of assets or commodities, an overestimate of prospective returns, and 'excessive leverage.' Speculation involves buying assets for resale at higher prices rather than for their investment income. The euphoria leads to an increase in optimism about economic growth and about the increase in corporate profits.

"A follow-the-leader process develops as firms and households see that speculators are making a lot of money. 'There is nothing as disturbing to one's well-being and judgment as to see a friend get rich.' Unless it is to see a non-friend get rich.

"Investors rush to get on the train even as it accelerates. As long as the outsiders are more eager to buy than the insiders are to sell the prices of the assets or securities increase. As the buyers become less eager and the sellers become more eager, an uneasy period of 'financial distress' follows. Other words used to describe the interval between the end of euphoria and the onset of what classic writers called revulsion and discredit (or crash and panic) are uneasiness, apprehension, tension, stringency, pressure, uncertainty, ominous conditions, fragility.

We've learned all too well that each round of QE has at least enough impact to kick the can down the road for a couple of quarters at a time, at the cost of greater distortions. As thoughtful economists like Lakshman Achuthan and value investors like Jeremy Grantham and Seth Klarman know, this has temporarily made fools out of geniuses and geniuses out of fools. So refraining from any forecast of what will happen in the near term, it's sufficient to observe that the economic data is not nearly as strong as widely perceived, and the impact of QE on stock prices does nothing to improve the underlying cash flows. The advance of recent months has only made the prospect for dismal long-term equity returns even worse. QE has no ability to improve that situation. At this point, it can only elevate the distortion and thereby worsen the outcome. It's doubtful that investors who are enjoying the thrill of recent highs will actually realize the benefit of these prices.

Will QE Cause Inflation?

Inflationists and hyperinflationists have a watchful eye on the rise in treasury yields. Forget about it. I explained why in Message to 5.7 Million Truck Drivers "No Drivers Needed" Your Job is About to Vanish; Time Marches On, Fed Resistance is Futile.

John Hussman offers a similar take in The Price of Distortion

With respect to monetary policy, the Fed has now pushed the size of the monetary base to over 20 cents per dollar of nominal GDP. We know from a century of data that short-term interest rates are tightly linked to the monetary base.

Essentially, as the Fed creates more zero-interest money (relative to nominal GDP), cash becomes a "hot potato" and holders of cash seek alternatives, which drives down competing yields, particularly on "near-money" like Treasury bills. At present, the Fed is pushing on a string, and the entire force of Fed policy is based on the attempt to drive investors to hold securities of greater and greater risk in return for lower and lower prospective returns. All this despite decades of data that reject the notion of a material "wealth effect" from stock values to economic activity. People consume from their view of "permanent income" and do not respond to changes in the value of volatile assets - this is well established in both theory and evidence.

Note how far we have pushed the string. The Fed would have to reduce its portfolio by well over half to raise interest rates to 2%. So even if the Fed was to completely terminate new purchases of Treasury securities, that action would not be expected to raise short-term interest rates. This underscores the fact that reducing the pace of quantitative easing is not the same thing as raising the Fed's policy rates. But it should also underscore how far the Fed's policy has already gone, and how difficult it will be to normalize over time.

Frankly, I view the present course of monetary policy as reckless - not because it threatens inflation (which I don't think it will for several years), but because it diverts scarce capital away from productive investment and toward speculative activities; because it fails to act on any economic constraint that is actually binding here, so has little hope of providing the economic "support" that it purports to offer; because decades of historical evidence provide no basis to expect a material "wealth effect" from stock values to the economy; because the policy lowers hurdle rates and encourages borrowing for unproductive purposes - including stock buybacks at record highs (and there is no evidence that buybacks are a good indication of value); because it punishes the elderly on fixed incomes; because it perpetuates a bubble-bust cycle created by Fed intervention, which is not the medicine but the very poison itself; and because moving to the left on the liquidity preference curve will likely be as painful as moving to the right has been pleasant. Meanwhile, we'll continue along a studied, disciplined course over the remainder of this market cycle, considering a broad ensemble of evidence that has been validated across market cycles throughout history. Our views will change as that evidence does.

Another Looming Credit Crunch?

Let's wrap up the discussion with a look at Another Looming Credit Crunch?

Thanks to an over-flowing cup of Fed liquidity, corporate debt maturities have not only been pushed out in time but have risen in their nominal outstandings as cheap financing was too good to ignore (especially for those firms on the bubble of failure). The problem these firms face now is, with the Fed set to Taper (and indeed tighten on rates in the next few years); the outlook of much higher bond yields will have a major impact on firms that levered up and used this period to 'survive'.

As is clear from the chart above, debt maturities [rollovers and refinancing needs] will once again surge in 2-3 years. The message once again appears to be - there's no free lunch as the Fed has merely dragged forward exuberance at the expense of dystopia in the not so distant future.

Four Questions Four Answers

Here is a short recap of all the questions asked and answered above

US in a Minsky Bubble? Yes - And one of huge magnitude as well
About to Go Japanese? Yes - Fed policies ensure that outcome
Will QE Cause Inflation? No - Not any time soon
Another Looming Credit Crunch? Yes - Corporations will not be able to roll over debts at such low rates again

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