Category Archives: 70 Words

Brother Can you Spare a Job?

While some are unemployed by choice and some due to a lack of necessary skills, I do not think it’s that many. Here’s why. There are 14 million unemployed and 3.1 million job openings, or 4.6 jobless workers per opening. Prior to the recession the ratio was about 1.5. In only a few industries do we see wage growth and we see increases in unemployment across all ages, occupations, industries and education levels.

Roads for Nobody

China has 46K miles of highways; we have barely 47K. China plans to build out to 112.5K miles by ’30 yet there are just one-third as many cars in China as here, and worse, Chinese highways have high tolls, to pay for the roads, which strongly discourage use. Unless auto ownership booms and drivers can soon afford the high tolls, China is wasting its money. It should build surface roads, not expressways that serve no one.

A Snorkel Perhaps?

Obama’s latest effort to help underwater homeowners, who are current, refinance at lower rates will help, but, it’s no panacea. Estimates are that a million households will take advantage of this plan and will, on average, save $2,500/year. If all $25 billion gets spent it will boost our economy by 0.16% of GDP. Of course this assumes none of the interest income that will be lost ($25 billion) was spent. So, the net effect will be somewhat less.

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.