Category: U.S. Economy

Analyzing business damages arising from the injury of a principal employee or owner

Lost profits arising from the injury of a principal employee or owner require an analysis of the actual and ‘but-for’  revenue of the business entity.  The date(s) the alleged economic damage to the business began and end is an obvious stating point in the business damages analysis.
Generally, there may be multiple dates if the economic damage occurred in stages.  For example, there may be a major impact time period, such as a period of time where principal(s) or the owner were not able to perform any managerial duties at all following a physical injury.  Following the major impact period, the principal(s) or owner may have returned to their duties in a limited capacity or full capacity after some amount of time

Confirming the business background of financial services professionals

The NMLS is the legal system of record and free service for consumers to confirm that the financial-services company or professional is authorized to conduct business in their state. 

A little bit about what the NMLS Consumer AccessSM provides:

  • Contains licensing/registration information on mortgage, consumer finance, debt, and money services companies, branches, and individuals licensed by state regulatory agencies participating in NMLS.
  • Information regarding federal agency-regulated institutions and their mortgage loan originators who are registered with NMLS.
  • Contains information that is self-reported to regulatory agencies or an individual’s employing institution by the licensed/registered company or professionals.
  • Is updated nightly on business days

Michael Lewis’s Flash Boys eye opening, fast moving account of High Frequency Trading

Michael Lewis’ Flash Boys is a fast moving eye opener for those of us who do not spend our days working  in and around ‘dark money’ pools and the backrooms of Wall Street banks.

The book begins by laying out the major players in the High Frequency Trading (HFT) market place.  These players include Wall Street banks, traders, stock exchanges, computer programmers and those that are related to those industries.

Lewis then, through a very fast moving person-focused narrative,  describes how HFT techniques have hurt the average investor for many years; mostly without the average investor even knowing that they were injured.  He describes how techniques such as stock ‘front-running’ and cross market arbitrage causes the average investor to pay more than they should for the trades that they make,  The amount of injury for the average trade is small; but collectively as Lewis describes, the amounts are extremely large and in the billions of dollars.

The real strength of the book is Lewis’ ability to bring HFT practices and the workings of dark money pools (pools of money where untracked and untraceable stock trades occur) to the forefront and up for discussion.  However, much more research is needed before determining if HFT and dark money pools are in fact good or bad for the working of the economy.   For example, some of the trades such as cross market arbitrage trades which equalize the prices investors pay across different exchanges are arguably good for the working of the stock market and the economy.  The same case could be made for trades that equalize prices across different time periods (even though the time periods are ridiculously small).

In any event, Lewis’ book, as usual, has shined a light on a area that was previously unseen or imagined by most of us.

— DDS

 

 

Economic modeling of business profit losses in a breach of contract case

An-Empty-Music-BoxModeling business profit losses
As discussed in a previous post, the plaintiff in this case is suing their landlord for breach of contract.  The plaintiff alleges that the defendant landlord misrepresented the terms of the contract, specifically regarding how the property that they were leasing could be used.
At the heart of the issue, the plaintiff alleges that the defendant represented that they would be able to operate a live music venue restaurant from the location.  The plaintiff alleges that the defendant’s failure to support the permitting and rezoning efforts constituted a breach of contract.
The premise lease was for 10 years.  The plaintiff operated the live music for two years.  In year three, since the facility did not have the proper permits, the  facility operated as a restaurant that also provided catering and was also a destination for weddings and other events.   The defendant terminated the lease after 3 years.
So how are damages analysed?
In this case there are three distinct types of damages: lost out-of-pocket expenses, lost profits from the termination of the premise lease, and lost expected profits from the performance of the contract.  In this case, the three different types of damages are distinct.
Lost out-of-pocket expenses:
These are the expenses that the plaintiff expended on services and products, such remodeling the interior, architects, construction etc.,  but was not allowed to use because of the defendants actions.
The total cost of some items such as the cost of professionals hired to complete the re-zoning applications, is included in the analysis.  In other situations, the un-used portion is relevant.  For instance, the plaintiff constructed special performance stages and purchased sound equipment for the outside music performance, which they were able to use for three years.  In these instances, the value of the use that the plaintiff received needs to be deducted, along with any salvage value, from the plaintiff’s cost.
Lost profits from the termination of the premise lease:
In this case, these are the losses associated with having to operate at a lower capacity.  It will in essence be the difference between the profits that the plaintiff could have continued to earn had they continued to operate as a restaurant without the live music venue (‘but-for’ reduced operating earnings) and what they actually earned ($0) from the business following the termination of the lease.  In this case, the plaintiff actually could, and did, operate the facility as a restaurant and wedding reception facility.  The earnings and profits from year three, the time period that the business operated as a restaurant and special events facillity only, is used as a benchmark for the reduced operating capacity ‘but-for’ profits projections. The business shut down after the lease ended so the actual earnings are $0.
Lost expected profits from full performance of the contract:
These are the alleged lost profits associated with the revenue that the business would have earned had the defendant fully performed the contract and performed the necessary steps for the plaintiff to operate the live music venue on the leased premise.
The lost expected profits are calculated as the difference between the ‘but-for’ profits that the plaintiff would have earned had the defendant fully performed the contract and the business was allowed to operate as a live music venue and the profits that the plaintiff could have earned had they continued to operate the business in its reduced capacity as a restaurant-special events facility only.  In this instance, the revenue from the two year time period is used to provide the benchmark for the ‘but-for’ and full contract performance profits.

 

Business lost profits in a breach of contract termination case

Live_Music_Dallas
Background
In this case, the plaintiff, who was a owner of several outside music venues in the Dallas,Texas area, signed a eight year lease with the defendant for a 5 acre premise which included a restaurant.  Upon signing the lease the plaintiff, built a large performance stage for outside music performances. The venue opening received a significant amount of press and the revenues exceeded its’ initial earnings projections.
After four months of operation, the City informed the owners that the premise was not zoned for the music venue and would need to be rezoned.  The landowner initially agreed to assist the plaintiff in the obtaining the necessary permits and the rezoning application. The plaintiff undertook the necessary steps, such as building more parking, improving traffic flow, and improving water drainage around the premise to obtain the necessary permits and to have the property rezoned.
The final stage of the re-zoning required a property easement, or a right-a-way agreement, by the landowner to the City.  At the final stage, the landlord reversed course and stated that they would not grant the easement to the City and ultimately could not support the rezoning efforts.  The plaintiff ultimately were not able to offer live music at the facility.  After several months of non-payment of rent in protest of the alleged contract breach by the landowner, a local court allowed the plaintiff to be evicted from the premise and the music venue closed.
Legal Issues
In this case the plaintiff is suing their landlord for breach of contract.  The plaintiff alleges that the defendant landlord misrepresented the terms of the contract, specifically regarding how the property that they were leasing could be used.  At the heart of the issue, the plaintiff alleges that the defendant represented that they would be able to operate a live music venue restaurant from the location.  The plaintiff alleges that the defendant’s failure to support the permitting and rezoning efforts constituted a breach of contract.
See the next post for an analysis of the business damages…

Breakdown of Customer’s Credit Card Use in a Small Business

Credit cards and debit cards are the way of the world now; it is how we pay for nearly everything we buy now.

One question that comes up for retail businesses is: Does the type of credit card tell us anything about the customer?

For example, do AMEX users tend to be bigger spenders?  The answer of course depends on the business.  The table below shows the average sale and percentage of monthly sales made by customers of a small restaurant broken down by the type of credit/debit card used.

 

Average Amount of Sale Percentage of Monthly Sales
AMEX  $                    21.88 3%
VISA  $                    19.46 73%
MC  $                    21.00 22%
DISCOVER  $                    22.19 2%

For this business VISA is king. Moreover there is little difference in the size of the average bill of the different types of credit/debit card users.

 

The Economics of Offshore Wind Power @awea

A recent study ‘Offshore Wind Market and Economic’ looks at the economics of the wind market in the U.S. A few of the highlights from the report.:

  • There are approximately four gigawatts (GW) of offshore wind installations worldwide. Nearly all of
    this activity has centered on northwestern Europe, which has led the industry’s development since 1999, but China is gaining market position.
  • Thirty-three announced offshore wind projects lay in varying stages of development in the U.S.,
    primarily along the Atlantic Coast.
  • Much of the expertise gained in the oil and gas sector has been leveraged in the offshore wind sector.  Early turbine installation vessels were jack-up barges repurposed from the oil and gas sector.
  • U.S. offshore wind development faces significant challenges: (1) the relatively high cost of offshore
    wind energy; (2) a lack of infrastructure such as transmission and purpose-built ports and vessels;
    and (3) uncertain and lengthy regulatory processes
  • The development of an offshore wind industry in the U.S. will depend on the evolution of other
    sectors in the economy. Factors within the power sector such as the capacity or price of competing
    power generation technologies will affect the demand for offshore wind. Factors within industries that compete with offshore wind for resources (e.g., oil and gas, construction, and manufacturing) will affect the price of offshore wind power

Three takeaways from a closer look at job openings data for March 2014

The Conference Board Help Wanted Online (HWOL) data series release for March 2014 indicated a number trends worth discussing.

The Conference Board Help Wanted OnLine® Data Series (HWOL) measures the number of new, first-time online jobs and jobs reposted from the previous month for over 16,000 Internet job boards, corporate boards and smaller job sites that serve niche markets and smaller geographic areas.

The Conference Board’s HWOL series measures help wanted advertising, i.e. labor demand. The HWOL data series began in May 2005. The HWOL provides seasonally adjusted data for the U.S., the nine Census regions and the 50 States. The HWOL also provides seasonally adjusted data for occupations and for the 52 largest metropolitan areas..

So what are the trends.  Three take aways

  • Shale drilling influences remain high.   The state of North Dakota, which has a very active Shale play,  had one of the lowest supply to demand ratios (S/D ratio) of 0.46.  That is there were over 2 jobs advertised for each available worker.  Texas and the metro areas in Texas also had high employer demand.
  • California economy is growing again but in spurts. Some metro areas in California such as San Jose had a very high employer demand (1.31 S/D ratio) while others like Riverside had a lot of searchers per job opeing (5.15)
  • STEM rules.  Computer, math, and engineering jobs are in high demand.  The HWOL data shows that many of these occupations have S/D ratios of less than one

Affordable Care Act changes high risk health insurance coverage in Texas

Like many states, up until the passage of the Affordable Care Act, Texas maintained a separate insurance pool for high risk individuals who could not obtain insurance from another source.

In Texas, that pool was known as the Texas Health Insurance Pool.  The Texas Health Insurance Pool insured individuals, such as those with pre-existing conditions, who could not obtain insurance from other sources.   As would be expected, the premiums, which reflect the higher health risk of the insured, offered by the Texas Health Insurance Pool were significantly higher than the rates offered by non-high risk insurance companies.

The Affordable Care Act and the Health Exchanges have changed high risk health insurance in Texas.  The Texas Health Insurance Pool no longer offers insurance policies and refers those individuals to health.gov for enrollment in the Federal Insurance Market system.

So how do the rates compare?  The rates under the Affordable Care Act are generally lower than the rates offered by the old Texas Health Insurance Pool.  For instance, consider a 53 year old, male smoker who had pre-existing health issues.  If this person were to select a gold level plan under the Affordable Health Care Act, which does not take the pre-existing conditions into account, they could expect to pay about $850 a month.  The same person would have paid about $1,500 a month under the old Texas Health Insurance Pool.