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Daily Digest - Dec 31

Wednesday, December 31, 2008, 9:42 AM
  • Companies force workers to take unpaid vacation
  • Breaking Up Is Harder to Do After Housing Fall
  • Plan B for the Not So Wealthy
  • [Updated] Air-Pocket Watch: November Hotel Occupancy
  • GMAC to loosen criteria for loans upon bail-out
  • The governments of China and Japan are the only support for the dollar

Economy

Companies force workers to take unpaid vacation 

NEW YORK (AP) - Here's the vacation no one wants, courtesy of the recession: Forced time off without pay. 

Financially struggling universities, factories and even hospitals are requiring employees to take unpaid "furloughs" - temporary layoffs that amount to one-time pay cuts for workers and a cost savings for employers. This year, the number of temporarily laid off workers hit a 17-year high.

"If they do it once, I think it's easier for them to try to do it again," said Carrie Swartout, who researches traumatic brain injuries at the University of Maryland Medical Center. Maryland is requiring unpaid time off for 67,000 of its 80,000 employees as it struggles with a budget crisis. The state says the furloughs will save an estimated $34 million during the fiscal year.

Breaking Up Is Harder to Do After Housing Fall 

When Marci Needle and her husband began to contemplate divorce in June, they thought they had enough money to go their separate ways. They owned a million-dollar home near Atlanta and another in Jacksonville, Fla., as well as investment properties. 

Now the market for both houses has crashed, and the couple are left arguing about whether the homes are worth what they owe on them, and whether there are any assets left to divide, Ms. Needle said.

"We're really trying very hard to be amicable, but it puts a strain on us," said Ms. Needle, the friction audible in her voice. "I want him to buy me out. It's in everybody's interest to settle quickly. That would be my only income. It's been incredibly stressful."

Chalk up another victim for the crashing real estate market: the easy divorce.

Plan B for the Not So Wealthy 

PHILADELPHIA -- At Society Hill Loan, a pawnshop in a middle-class neighborhood here, a steady rain fell outside as a fashionably dressed young man parked his Cadillac Escalade outside. Looking around warily, he came in to speak with Nat Leonard, co-owner of the store.

The visitor was a 29-year-old engineer who was laid off earlier this year from one of the local chemical companies. Since then, he's been cleaning planes at the airport for less than half the salary he was earning a year ago.

Now he needs a $2,500 loan on his watch -- a Movado Fiero with a diamond bezel -- to pay his mortgage note.

"I want to help," said Mr. Leonard. But unlike Rolex and a few other brands, "there's no market" for Movado in his pawn universe.

The young man, who didn't wish to give his name, left the store disappointed. "I'm not sure what I'm going to do," he said.

[Updated] Air-Pocket Watch: November Hotel Occupancy 

The latest U.S. hotel industry occupancy data is out, and November was an air pocket for the lodging business. Check the following figures from STR, with occupancy dropping by 10% (!), on average, and daily rates falling alongside: 

AIG GMAC to loosen criteria for loans upon bail-out 

GMAC and General Motors moved quickly on Tuesday to capitalise on the US government's bail-out of GMAC, the Detroit carmaker's financing arm. 

GMAC said it would immediately loosen its criteria for vehicle loans, providing financing for car buyers with a score of 621 or more on the Fico scale, a widely used measure of Americans' creditworthiness.

Two months ago, as it was squeezed out of capital markets, GMAC limited financing to buyers with scores of 700 or more, with a maximum of 850.

The governments of China and Japan are the only support 

Both private capital inflows to the US and private capital outflows from the US have fallen sharply. They have gone from a peak of around 15% of US GDP to around zero in a remarkably short period of time ... 

This sharp fall has bearing on the bigger debate over the role global capital, global savings and foreign central banks played in helping to to create the conditions that allowed US households to sustain a large deficit for so long - and whether American and other policy makers should have paid more attention to the risks that came with the surge in foreign demand for US financial assets earlier this decade...

I think we now more or less know that the strong increase in gross capital inflows and outflows after 2004 (gross inflows and outflows basically doubled from late 2004 to mid 2007) was tied to the expansion of the shadow banking system [which has now reversed completely -- gm]. ...

Why didn't the total collapse in private flows lead financing for the US current account deficit to dry up? That, after all, is what happened in places like Iceland - and Ukraine.

My explanation is pretty straightforward.

Central banks were the main source of financing for the US deficit all along. Setting Japan aside, the big current account surplus countries were all building up their official reserves and sovereign funds - and they were the key vector providing financing to the deficit countries

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9 Comments

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 31

3

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 31


Thought I'd pass this along, it is perhaps the best definition of (monetary) inflation I have possibly come across...

From pages 96 & 97 of "Mean Markets and Lizard Brains" by Terry Burnham.

The Trouble with Inflation:

Papa New Guinea is a large island north of Australia.The coasts are populated with people who have been in contact with their neighbors in other countries for centuries. Soon after leaving the coastal region, the land rises steeply to a mountainous and elevated plateau that was thought to be too rough for hman habitation.

In the early part of the 20th century, a group of Australians devided to investigate the highlands in search of gold. There are several facinating aspects of this story. First, the highlands were far from empty, but rather contained close to a million people who had been almost complely isolated from other cultures for centuries. Second, the Australians brought a movie camera with them. This may be the onlyg film recording of a firs contact with a nonindustriliazed people/ Some of the original footage can be viewed in an academic movie appropirately titled First Contace. Thied, and particularrly relevant to our story, the people of the highlands placed a high calue on seashells.

Why would anyone use seashells as a form of money? For most cultures this would be silly, as no one would exchange anything of great value for seashells. In the highlands of Papua New Guinea, however, seashells make as mich sense as gold did for the ancient Greeks. Almost completley isolated from the sea, shells in the highlands were scarce enough that small amounts had a high value. It is easy to detect fake shells, and shells do not rot when stored. These are exactly the characteristics that make gold valuable all over the world.

As long as the highlands were spearated from the seashores, a seashell money standard made sense. However, it did not take the Austrilian gold miners long to understand the oppertunity. There was some gold in the highlands, but it required hard work to extract. The Australians flew in planeloads of seashells they used to pay wages of the highlanders who mined the gold. The highlanders worked for seashells until shells became so common as to lose value.

There is no question that the Australians exploited the Papua New Guinea highlanders, but the highlanders did not want to be paid in paper currency. With shells the highlanders could buy anything they wanted within their community; banknotes were worthless......

...Inflation is defined as a loss of purchaseing power for a particular amount of money. Before the Australians arrived, one beautifyl shell had considerable value and could even constitute the bulk of money paid to find a marriage partner. After shells became common, their value plummeted. Thus the Papua New Guinea highlanders experienced a severe period of inflation. Those who had accumulated wealth in the form of stored shells say the value of their savings devistated by the inflation....

 

Jeff Borsuk's picture
Jeff Borsuk
Status: Silver Member (Offline)
Joined: Jul 25 2008
Posts: 150
Re: Daily Digest - Dec 31

Great cartoon Davos!

May you have a successful 2009!

Jeff Borsuk

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 31

Hello Jeff: Thank you and happy new year to you, take care

eb_riesling's picture
eb_riesling
Status: Bronze Member (Offline)
Joined: Oct 28 2008
Posts: 53
Re: Daily Digest - Dec 31

Thanks for both posts!

 

I hope you have great New Year with no loss in the value of your shells!

 

E

 

shuttle's picture
shuttle
Status: Member (Offline)
Joined: Sep 9 2008
Posts: 1
Re: Daily Digest - Dec 31

Hello Davos

Many thanks for your Daily Digest report.  Is there any chance of a review of the book you are currently reading?

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 31

Hello Eb:

You to!

Hello Shuttle:

I can offer it now. I hate acedamia with a passion, but I heard this guy interviewed and picked up the book, becuase he, like Chris come across with a lot of common sense and acedemic smarts and he also sees the big picture and how scr#wey this global economic mess is.

 

  • The book is a 6 out of 10
  • It has a lot of diamond in the roughs - a lot
  • He does an excellent job of big picturing things, things like bond creation, debt and money
  • Is written towards a reader with a mid level macro ecomonic education, perfect read for me, not too tough, not too easy 
  • Book could have been condensed to 4 chapters, 100 pages
  • Best part was the old 8-/20 rule but this time applied to investing, 80% you don't want to rely on your cave man survival/gut instinct and 20% you better know what is going on in the macro economic area
  • I would encourage it
  • Oh, it is dated circa 2005
  • And when it comes to debt he neglects the off balance sheet debt and with GDP he doesn't get into Enron
Again, it, in my opinion is a good read, and I am a tough critic when it comes to books, this one will be a keeper for the bookcase though, the rest Marsh sells on half.com
 
Happy new years 

 

SteveS's picture
SteveS
Status: Gold Member (Offline)
Joined: Sep 6 2008
Posts: 358
Re: Daily Digest - Dec 31

I appreciate the daily news items and find them informative and sometimes entertaining. But something I find frustrating is incomplete news - not your fault Davos, you are just passing information on. I saw the item on GMAC from several sources over the past two days, but none of them indicated what the credit score criteria was before the crunch. Ok, so they have relaxed credit in relation to what the criteria was two months ago, but  how does that compare to six months ago? That tells us something about where we really are. Of course I realize it's all pretty meaningless in the big picture - it just bothers me when essential information is  missing. Again Davos, not a critic of you - it's the original source that's incomplete.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Daily Digest - Dec 31

Hello SteveS:

Yeah, I know what you mean. I read about 4 articles on GMAC, and in the interest of brevity/time and with the ever present Google I just pick the best of the worst in many cases.

I didn't search this out before, because I felt like this is a race to the bottom/sewer, but your question did broach my conscious before.

I don't know if I posted it or not? BUT FICO < 660 = subprime, and if I recall GMAC/Our Tax dollars are now doing 620's, if anyone buys, think jury is out in that aspect. In any event in my opinionated opinion GMAC = AIG.

Happy new years 

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