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Daily Digest - Dec 27

Saturday, December 27, 2008, 11:56 AM
  • Gold Rises Most in a Week on Middle East, South Asia
  •  WSJ: Retailers Brace for Major Change
  • Refinance rates low; few qualify
  • New and Existing Home Sales (Chart)
  • Japan November industrial output falls 'off the cliff'
  • State Coincident Indicators (Chart/Map of states in recession, based on Fed indexes)
  • Total Net Borrowing and Lending in Credit Markets (Chart)
  • Retailers Want In on Stimulus Plan
  • GMAC Gets Bank Holding Company Status, and Potential Access to TARP 
  • Fed Papers GMAC LLC

Economy 

Gold Rises Most in a Week on Middle East, South Asia

Dec. 26 (Bloomberg) -- Gold prices rose the most in a week as mounting tensions in the Middle East and South Asia boosted the appeal of the precious metal as a haven. 

Palestinian militants yesterday launched their biggest rocket attack on southern Israel in at least six months after a truce expired Dec. 19. Pakistani troops are being diverted from tribal areas near Afghanistan to the border with India, the Associated Press reported. Gold gained 4 percent this week. 

"The only possible explanation for gold's gains are the geopolitical tension in Gaza and in India and Pakistan," said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

Some investors buy gold as a haven when military tensions threaten to disrupt financial markets. Crude oil rallied as much as 7.2 percent. 

WSJ: Retailers Brace for Major Change 

More Bankruptcies: Corporate-turnaround experts and bankruptcy lawyers are predicting a wave of retailer bankruptcies early next year, after being contacted by big and small retailers either preparing to file for Chapter 11 bankruptcy protection or scrambling to avoid that fate. 

Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% of retailers then tracked were at a high risk for filing. 

Refinance rates low; few qualify 

Interest rates may have reached their lowest level in nearly 40 years, but that doesn't necessarily spell relief for South Florida's struggling homeowners. 

Recent drops in interest rates have homeowners rushing to call local banks and mortgage lenders about refinancing. Loan applications are pouring in.

Yet, South Florida homeowners are mostly getting a big fat ''No!'' from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth.

''We got 53 calls to my branch on Friday,'' said Todd LaPenta, a private mortgage banker at Wells Fargo on Lincoln Road in South Beach. ``We could only help about five.''

It's another painful irony of living in one of the nation's worst hit housing markets -- borrowers who owe more than their homes are worth cannot refinance without ponying up thousands of dollars in cash to cover the difference between the old and new loan amounts.

And they're the ones in most dire need.

In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth, according to sales and mortgage data analyzed by Zillow.com, a web-based real estate services firm. Many of them chose adjustable-rate loans and other expensive mortgages because that was the only way they could afford the payments. 

New and Existing Home Sales (Chart)

Japan November industrial output falls 'off the cliff'  

HONG KONG (MarketWatch) -- Japan's industrial output tumbled at a record pace in November, stoking fears the country's recession may stretch longer and be more painful than anticipated. 

Industrial production fell as much as 8.1% in November from the previous month -- the biggest drop in the measure since the government started releasing comparable figures in 1953 -- as Japanese companies produced less automobiles and other machinery on vanishing demand.

The drop was steeper than the 6.8% fall expected by economists, and came after a 3.1% decline in October.

"Industrial production in Japan is falling off the cliff," wrote Merrill Lynch Economist Takuji Okubo in a note, adding that the decline was also greater than manufacturers planned as of October.

"Adding to this massive cut in November is manufacturers' plan to cut even further in the next two months. They now plan to cut their production by 8% in December and by 2.1% in January," Okubo added, referring to the result of a survey published by the Japanese Ministry of Economy, Trade and Industry.

State Coincident Indicators (Chart/Map of states in recession, based on Fed indexes)

Total Net Borrowing and Lending in Credit Markets (Chart)

Retailers Want In on Stimulus Plan  

The country's largest retail trade association asked President-elect Barack Obama Tuesday to add a series of sales tax-exempt shopping days to a coming economic stimulus package in an effort to revive consumer confidence and spur spending. 

The National Retail Federation called for three periods of sales tax-free shopping that would last 10 days each in March, July and October 2009. The trade group estimates that it would save consumers about $20 billion, or $175 per family.

Under the industry group's proposal, which would exclude alcohol and tobacco sales, the federal government would reimburse states for the lost tax revenue. State sales tax rates range from 2.9% to 7.25%, the group said. The five states without a sales tax -- Alaska, Delaware, Montana, New Hampshire and Oregon -- would also receive monies. 

GMAC Gets Bank Holding Company Status, and Potential Access to TARP  

After months of failed attempts, General Motors' financing arm, GMAC, was granted bank holding status from the Federal Reserve on Dec. 24 in a move that will allow the struggling firm to access funds from the Treasury's Troubled Asset Relief Program. 

"In light of the unusual and exigent circumstances affecting the financial markets, and all other facts and circumstances, the Board has determined that emergency conditions exist that justify expeditious action on this proposal in accordance with the provisions of the BHC Act and the Board's regulations," read a statement from the Fed.

The move comes after months of failed attempts from the financial institution, which has sought a piece of the $700 billion financial system government bailout program, but comes with the condition that neither GM nor Cerberus Capital Management (owner of Chrysler) can maintain a controlling portion of GMAC. 

Fed Papers GMAC LLC 

The Board has also considered the steps taken by the Department of the Treasury to provide assistance to GM and thereby help ensure the viability of a major business partner of GMAC and GMAC Bank. In addition, the Board has had extensive consultations with the FDIC, the primary federal supervisor of GMAC Bank, and has consulted with the UDFI, the chartering authority and state supervisor for GMAC Bank. 

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6 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 27

Economic Stimulus Checks cartoons image illustration picture

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 27

Hello DrBarbour:

I double posted the cartoon and flagged a request to have it removed...

Take care

drb's picture
drb
Status: Bronze Member (Offline)
Joined: Oct 11 2008
Posts: 95
Re: Daily Digest - Dec 27

Heh, I knew it had to be something innocent, all of your posts maintain a high degree of decorum. 

Keep up the good work (I always look forward to reading the nuggets of news you bring to the table)! 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 27

Hello DrBarbour:

 Thank you, it is great to contribute to this community, take care 

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Daily Digest - Dec 27

That cartoon, Davos. Love it.

Sebastian Ronin's picture
Sebastian Ronin
Status: Member (Offline)
Joined: Dec 28 2008
Posts: 7
Re: Daily Digest - Dec 27

Hello, Chris. I have arrived at your site (and most valuable Crash Course) via your front page article, The U.S. Government's Bankster Bailout, in Vermont Commons, Number 26. I suppose that how we arrive here is secondary to having arrived. The information/knowledge that you offer and, more importantly IMO, the way it has been packaged, is the type of "nuts 'n bolts" that is currently so scarce within the NAmerican secessionist movement. I would hope and imagine that one day perceptions such as yours will make the jump towards being crafted and incorporated into policy positions.

These are truly exciting and profound times. The dynamics of intellectual synergy and convergence unfold right on schedule. Should you and/or your readers be interested, a position paper entitled, Post-Peak Oil and NAmerican Regional Secession, presented at the Third North American Secessionist Convention in New Hampshire, can be found at www.novacadia.org.

Thank you for having made the Crash Course so easily, and freely, accessible. Best of luck to all of us.

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