All posts by Elliot

Dr.Eisenberg is the Chief Economist for GraphsandLaughs, LLC, an economic consulting firm that serves a variety of clients across the United States. He writes a syndicated column and authors a daily 70 word commentary on the economy. He is a frequent speaker on topics including economic forecasts, economic impact of industries such as home building and tourism, consequences of government regulation, strategic business development and other current economic issues.

Reverse Engineering

The Friday File: The US economy has lost manufacturing jobs as foreigners can often make things more cheaply than we can. What manufacturing remains is increasingly high end; it’s less easily outsourced. But, there are exceptions. In Americus, GA 50 people make 2 million pairs of chopsticks/day bound for. . . .China! Turns out poplars, which are plentiful there, are ideal for chopsticks; they aren’t too hard and needn’t be treated with chemicals.

Free Trade Will Help

Earlier this week, the Congress passed free trade agreements with Columbia, Panama and South Korea. Passage may be hailed as a political achievement for promoting principals of free trade and for shoring up allies. Unfortunately, it will not do much to help our economy. This is because these three countries are quite small and Columbia and Peru are quite poor. That being said, it may boost GDP by 0.1%, or $15 billion.

The Volcker Rule

Big bank stocks are all down but shares of Goldman Sachs and Morgan Stanley especially so. Regulatory changes like the Volcker Rule prohibiting proprietary trading hurt all big banks but especially GS and MS as they rely more heavily on it. Brad Hintz has estimated that due to the VR fixed-income business could see pretax margin compression to 17.6% from 24.9% resulting in a return on equity of just 6.5%, well below the banks’ cost of capital!

Slot Swap

Delta and USAir are swapping slots at Washington’s Reagan and New York’s LaGauardia. In exchange the FAA is requiring that both airlines free up 8 slots at Reagan and 16 at LaGuardia. The slots will then be auctioned off by the FAA in bundles to allow discount airlines with limited or no access to those airports to buy enough slots to maintain more than bare bones service. The auction lets the newbies with who want the slots most badly to bid the highest! Bring on competition!

A Hail Mary for Sprint

Because Sprint now sells iphones (as of 10/1/11), its bottom line will take a hit. The extra subsidy cost of selling an iphone to an existing Sprint customer (rather than a Droid phone) is $100. Based on data from Verizon and AT&T it takes about a 12 months for any earnings benefit to show up. But, as Sprint has lower margins than A and V, it will probably take till 2014 for new iphone customers to become net revenue positive.

Payroll and Playoffs, Unrelated?

The Friday File: Baseball’s 3 teams with the highest payrolls are watching the playoffs on TV. The Yankees ($202.6 million) were upset by the Detroit Tigers ($105.7 million), while the Philadelphia Phillies ($172.9 million) were upset by the St Louis Cardinals ($105.4 million). The Boston Red Sox ($161.7 million) actually missed the playoffs after a staggering September swoon. Root for the cheapskate Milwaukee Brewers ($85.4 million).

What’s my Share?

Firms frequently buyback their own shares when they think they are undervalued. Problem is, firms often get it wrong! So far this year HP has spent $7.6 billion to buy 200 million shares at about $38/share. In ’10 HP spent $11.3 billion to buy 250 million shares at about $44/share. HP shares currently trade at $24! That is a loss of over $8 billion. Their new CEO says they will moderate their buybacks! Brilliant.

Nobel Prize Winners in Economics

The Nobel Prize in economics was awarded to Tom Sargent at NYU and Chris Sims at Princeton. Sargent’s work has helped us understand the impact of permanent changes in economic policy. Sim’s research has helped us measure the effect of temporary changes, or shocks, on the economy. Sims said he was going to keep his half of the $1.5 million prize money in cash for a while. I did not pick either to win.

Megaprofitable Texting

Last year about 2 trillion text messages were sent in the US generating more that $20 billion in revenue for cell phone companies. Experts estimate that it costs cell phone companies about a third of a cent to send a text message yet they charge us 10 to 20 cents for that same text. That works out to a markup of roughly 4,500%. And that, according to my 12 year old text loving daughter, is sweet!

Cricket Cost-Benefit

The Friday File: Despite the added risk of becoming bird food, male crickets gallantly give their mates priority in crawling into safe burrows. In a recent issue of Current Biology, researchers found paired males were 3.9 times more likely to be eaten than unpaired males; mated females were 5.6 times less likely of being snack food than single females. Why? Chivalrous behavior means more matings and more progeny. Clearly, these critters do cost–benefit analysis!