Mish's Global Economic Trend Analysis

Do Gift Cards Make Any Sense? Is it Time to Ban Christmas Presents Altogether?
EU Budget Laugh of the Day "No One Is Discussing Quality"
Hostess Fires 15,000 Workers in Liquidation; Twinkies Silliness From Readers

Do Gift Cards Make Any Sense? Is it Time to Ban Christmas Presents Altogether?

Posted: 22 Nov 2012 10:57 PM PST

Here is the "Black Friday" question of the day from Martin Lewis at the Telegraph: Is it time to ban Christmas presents?

Is it time to ban Christmas presents? Across the country people are growling at the enforced obligation to waste money on that they can't afford, for people who won't use it. Festive gift-giving has lost its point, risks doing more harm than good, misteaches our children about values and kills the joy of anticipation of what should be a joyous time.

Before you think this is just curmudgeonly bah humbug, this rant isn't about presents under the spruce from parents or grandparents to children or spouses. It's about the ever growing creep of gifts to extended family, colleagues, children's teachers and more.

The next year, I polled 10,000 people on whether we should ban presents. Seven per cent said ditch all of them, 30 per cent said to all but children, and a further 46 per cent said limit it to the immediate family. Fewer than one in five supported giving beyond that.

Social convention says give a gift to someone, or their children, and you usually create an obligation on the recipient to buy back, whether they can afford it or not. If that obligation is something they will struggle to fulfill, you actually let them down.

Gift giving misprioritizes people's finances.

Christmas presents are a "zero sum" game, as people usually swap gifts of similar value. Look at it as a simple equation:

David gives Nick a £40 blue tie for Christmas; Nick gives David a pair of £40 designer orange socks.

The net result ... Nick has spent £40 and got a blue tie; David has spent £40 and got orange socks.

Effectively, you pay to receive someone else's choice of object. Fine if people have wealth, but consider Janet and John. Financially, everything's bonzer for her, so she decides, generously, to buy gifts for all and sundry. In her cousin John's case, it's a pair of £25 funky cufflinks. Yet he's skint, in debt, and has three kids but pride obliges him to buy her something of equal value.

Without the gift giving obligation, would John have really chosen to prioritise spending £25 to receive cufflinks? Instead, perhaps he'd have replaced his children's shoes or repaid some debt. Worse still, maybe he borrowed more to buy Janet her gift.

In other words, giftswapping skewed John's priorities. He would've been better off if Janet hadn't bought him a present.

Final thought

Some will say my view is unromantic, and others more bluntly call me Scrooge. However, this isn't about stopping festive fun, it's a challenge to pressured, blithe and habitual gift giving.

When buying's a chore, a thing to tick off a list, does that really help our pockets or our souls? Spending your time making tokens others appreciate, or even just being more considerate, is more in keeping with the spirit of winter festivals. Perhaps the real gift is to release someone from the obligation of buying you a present.

Banning Goes Too Far

Certainly banning voluntary actions goes well overboard. We do not need more ridiculous regulations telling people what they can or cannot do.

That said, it is certainly a sad testimony that every year people trample others to death, rushing to get the latest hot to for their kid, when the toy will be forgotten or abandoned days or even hours later.

Gift Cards

Gift cards are popular, but what the hell is the point?

I give you a $50 gift card to Kohls and you give me a gift card to Home Depot? Is there any point to this madness?

Getting a gift card to a place I shop certainly is better than getting something I have to exchange (or throw away), but how is a gift card better than just getting $50 in cash. Yet, if I give you $50, and you give me $50 what is the point?

The obvious answer (yet one that few see), is there is absolutely no point at all.

Christmas Is For Kids

Young kids cannot shop for themselves, nor do they have any money, so I suppose a case can be made for getting children presents, provided one does not break the bank to do so.

Matter of Practicality

Other than shopping for kids, the whole Christmas charade makes no practical sense whatsoever.

Yet every year, the vast majority acts like a herd of lemmings, rushing around wondering whether or not Aunt Martha or Sister Suzie will like will like the gifts we bought them.

I actually like shopping. However, I hate crowds and I hate shopping under pressure.

Instead, I buy gifts for people that I am sure they will like, whenever I see them. Frequently my Christmas shopping is nearly finished by June.

This way, shopping is a joy, not a chore. And gifts from the heart are always more appreciated.

For everyone else it's high time to be practical.

Call the Whole Thing Off

If all you are going to do is exchange gift cards, or worse yet buy any damn thing just to get Aunt Martha, Sister Suzie, or cousin Louie something they may not need and/or could not afford to buy on their own, then why bother?

There is no need to ban Christmas, but there is certainly a need for common sense, and common sense suggests the best thing to do is have a "family gathering" suggesting to call the whole Christmas exchange charade off.

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

EU Budget Laugh of the Day "No One Is Discussing Quality"

Posted: 22 Nov 2012 01:02 PM PST

For now, the EU budget talks have collapsed. One major problem is cross agendas. All 27 nations have to agree to budget changes, and disputes are many.

The BBC reports hours of hard bargaining await.

Countries that rely heavily on EU funding, including Poland and its ex-communist neighbours, want current spending levels maintained or raised.

The UK and some other net contributors say cuts have to be made. At stake are 973bn euros (£782.5bn; $1,245bn).

France objects to the proposed cuts in agriculture, while countries in Central and Eastern Europe oppose cuts to cohesion spending - that is, EU money that helps to improve infrastructure in poorer regions.

They are the biggest budget items. The Van Rompuy plan envisages 309.5bn euros for cohesion (32% of total spending) and 364.5bn euros for agriculture (37.5%).

German Chancellor Angela Merkel says another summit may be necessary early next year if no deal can be reached in Brussels now.

In a speech to the European Parliament on Wednesday, the EU Commission President, Jose Manuel Barroso, complained, "No one is discussing the quality of investments, it's all cut, cut, cut."

UK Prime Minister David Cameron has warned that he may use his veto if other EU countries call for any rise in EU spending. The Netherlands and Sweden back his call for a freeze in spending, allowing for inflation.

Any of the 27 countries can veto a deal, and the European Parliament will also have to vote on the MFF even if a deal is reached.

Failure to agree would mean rolling over the 2013 budget into 2014 on a month-by-month basis, putting some long-term projects at risk.

If that were to happen it could leave Mr Cameron in a worse position, because the 2013 budget is bigger than the preceding years of the 2007-2013 MFF. So the UK government could end up with an EU budget higher than what it will accept now.

"No One Is Discussing Quality"

Barroso complains "No One Is Discussing Quality".

I for one am happy to discuss quality. There isn't any.

The agricultural subsidies are a joke, primarily aimed at propping up inefficient farms in France at the expense of higher costs for everyone. Those subsides should be cut to zero immediately.

And precisely why should the UK or anyone else contribute to infrastructure building in Poland? At what cost? Who determines quality?

Questions abound.

Pray tell, what is the basis for Barroso's statement "it's all cut, cut, cut"?

Point blank, there isn't any. There has never been a cut in the EU's budget in history and Barroso is actually bitching about a freeze at a time the Brussels' nannycrats are imposing huge austerity programs on Greece, Spain, Portugal, and Ireland.

Best Case Scenario

The best case scenario is the talks collapse, the EU raises the budget, and in response the UK tells the EU to go to hell and exits the EU.

We can hope.

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

Hostess Fires 15,000 Workers in Liquidation; Twinkies Silliness From Readers

Posted: 22 Nov 2012 08:43 AM PST

The BBC reports Twinkies firm Hostess Brands wins liquidation bid.

Note that the first step in liquidation will be the firing of 15,000 workers including the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores.

At least a dozen readers sent emails in response to my previous two posts on Twinkies.

One misguided soul from the Netherlands wrote "Your article on the bankruptcy of Hostess is so extremely biased. I am NOT surprised because you're ALWAYS bashing the unions."

Many emails including the one from the Netherlands pointed to articles such as Vulture capitalism ate your Hostess Twinkies.

One person accused me of being an extreme right-winger. I also received comments about me being an extreme left-wing Obama fan.

Silliness is clearly in the eyes of the beholder as it is impossible for both of those to be true. (In fact, neither is true because I am issue-based, not political party based, and I have huge differences with both major political parties).

I sometimes wonder if people can read.

Regarding Twinkies, I distinctly stated on my blog and I repeat (emphasis added)...

There is plenty of blame to go around, including untenable wages and benefits, leveraged debt, untenable management salaries etc.

However, the enabling factor behind the debt is loose monetary policy by the Fed coupled with fractional reserve lending. Factor in unions and corrupt management and there is no way the company could make it without huge concessions from the union.

Still, it is difficult to have much sympathy for those who vote to have no job in these trying times.

The union will likely see pension benefits slashed by 50% or more when handed over to the Pension Benefit Guarantee Corporation (PBGC). The PBGC is of course US taxpayers who should not have to pick up any of this tab at all (but they will).

The person who accused me of being an extreme right-winger heard me on Coast-to-Coast where I mentioned "vulture capitalists" and leveraged debt.

So yes, I am aware of leverage. I am also aware of huge raises and other poor management decisions.

The facts remain as follows

The Fed's loose monetary policy and fractional reserve lending enable leveraged buyouts
The unions made a piss poor choice

Past is Irrelevant

There was an offer on the table that would have saved 15,000 jobs. The union said no. Are those 15,000 people better off with no job than a job?

That is all that matters. Management salaries and leveraged debt are in effect sunken costs. If the majority of those people can go out and find a better deal, then they made the correct choice. If not, they didn't.

Given that accrued pension benefits went up in smoke in addition to all those jobs, I strongly suggest the union made a very poor choice.

I freely admit that if a majority of those workers can find better jobs with better benefits, then I am mistaken. However, that begs the question: If those workers could do better elsewhere, than why were they working for Hostess in the first place?

Like it or not, nothing else matters. Cutting off your nose (or your job) to spite management is not a smart thing to do.

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

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Thursday, November 22, 2012

Mish's Global Economic Trend Analysis

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