« May 2007 | Main | July 2007 »
My colleague Paul Adams is preparing a story on how BGE residential customers are dealing with/responding to the price increase that took effect June 1. If you're mad/glad, cutting/increasing use, installing energy-saving measures or doing nothing, and you're willing to speak to him, please email paul.adams@baltsun.com.
The Reason Foundation, which advocates small government and voluntary, market-based solutions to societal problems, looks at state highways on a state-by-state basis. They try to measure congestion, potholes, efficiency of government spending, etc. The study does not include interstates and other federal roads. Maryland has one of the smaller state highway systems, with only 5,200 miles under state control. North Carolina, by contrast, has almost 80,000 miles. In overall performance, Maryland ranked 38th in the nation.Some highlights:
Most cost-effective states (low budgets and good roads): North Dakota, South Carolina and Kansas. However, South Carolina has one of the highest fatality rates per mile, which strongly suggests that the foundation didn't assign enough weight to that statistic in measuring cost effectiveness. A few more dollars spent by South Carolina might save some lives. Maryland is 38th in cost effectiveness -- an improvement from its rank of 43 a few years ago.
Least cost-effective states: New Jersey, Alaska and New York.
Lowest administrative costs per mile: North Dakota, Arkansas, Missouri. (Maryland ranks 30th lowest.)
Most administrative costs per mile: New Jersey, California, Massachusetts
Best bridges: Nevada, Arizona, Wyoming. (Maryland was 32nd best.)
Worst bridges: West Virginia, Pennsylvania, Rhode Island
Lowest fatalities per mile: Massachusetts, Connecticut, Vermont (Maryland was 9th lowest.)
Highest fatality rates: Montana, South Dakota, South Carolina
This ethanol distillery, intended to sell to the motor-fuel trade, is planned for Chesapeake, Virginia. It is one of dozens going up across the country, but there are relatively few planned for the East Coast. As with other ethanol-plant projects, the Chesapeake neighbors aren't too thrilled, reports the Virginian-Pilot.Fourteen months ago, Chesapeake began weighing plans to build one of the nation’s largest ethanol refineries near the banks of the Elizabeth River.But people living closest to the area heard about it a little more than a month ago. Now, with six weeks before a Chesapeake Planning Commission vote to grant the plant a use permit, the site’s neighbors – and some officials – are complaining that there isn’t enough time to learn about the potential impact of the refinery .
I have written about corn ethanol, which is shaping up to be one of history's legendary government boondoggles, here.
On Wednesday the Securities and Exchange Commission, building on recent efforts to improve disclosure of executive pay, said a new committee will examine all aspects of corporate financial reporting with an eye to making it more understandable.The SEC Advisory Committee on Improvements to Financial Reporting will study the causes of complexity and recommend to the Commission how to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting."Our current system of financial reporting has become unnecessarily complex for investors, companies, and the markets generally," Chairman Cox said. "The time is ripe to review how that system can be made less complex and more useful to investors."
Robert C. Pozen, chairman of MFS Investment Management in Boston and former vice chairman of Fidelity Investments, will chair the SEC's advisory committee. Chairman Cox said he expects between 13 and 17 additional members with varied backgrounds to be named to the advisory committee within the next few weeks.
"In addressing the complexity of the current system, our advisory committee will focus not only on offering better guidance to preparers of financial reports, but also on providing more user-friendly disclosures to meet the different needs of various types of investors," Mr. Pozen said.
Baltimore accounting god Jack Ciesielski hopes the agency will look at the U.S. legal system, which encourages shareholder lawsuits against corporations. The tort landscape compels corporate lawyers and accountants seek explicit, detailed instructions from bookkeeping authorities on what to report -- to bolster their defenses if they get sued, Ciesielski says. That, he says, adds to complexity.
What the committee is examining, he says, is
All stuff that’s been discussed in the accounting and finance world, and if major actions are taken on any of them, it could change life as we know it for investors, preparers and auditors. Anybody in those three categories should pay close attention to the workings of this committee.
Here are two very smart people (an economist and legal/economic theorist), discussing the thesis. Gary Becker won the economics Nobel and Richard Posner is perhaps the most distinguished U.S. appeals judge in the country.Posner:
Here is a puzzle: effectiveness in senior leadership positions in government does not seem to be well correlated with intelligence. Washington was a better President than Jefferson, though less able intellectually. Franklin Roosevelt, Harry Truman, Dwight Eisenhower, and Ronald Reagan were not as bright as Herbert Hoover, Richard Nixon, Jimmy Carter, or Bill Clinton. Lincoln, a brilliant lawyer, is an exception; Theodore Roosevelt perhaps another exception; and doubtless there are others. But overall the correlation between intelligence and effectiveness in the Presidency may actually be negative...What is required at the top levels of government is not brilliance, but managerial skill, which is a different thing, and includes knowing when to defer to the superior knowledge of a more experienced but less mentally agile subordinate.
Becker:Economists have been emphasizing in recent years that that while cognitive abilities of individuals certainly raise their education and earnings, many non-cognitive skills are often more significant. These skills include simple factors like finishing one's work on time, to more complicated ones like good judgments in making decision, or effectiveness at using talents of subordinates. Posner argues convincingly that non-cognitive talents may be of greater importance in determining success at top-level government leadership positions than analytical brilliance and other cognitive skills...The limited role of top analytical skills might explain why voters, as opposed to intellectuals, typically do not weight heavily the "IQ" of presidential candidates in choosing whom to vote for. The modest value of exceptional analytical skills should also imply that presidents would not place major emphasis on these skills when choosing their top cabinet officers and other high level appointees.
Read the whole thing here. (You have to scroll down. Out of ignorance or pride, the brilliant scholars do not provide permalinks.)
Rydex Investments, the Rockville mutual fund firm that lets small investors bet against the stock market and employ leverage and doesn't care how many times they move in and out of the funds, finally announced its sale this morning. It was one of the worst kept secrets in finance that Rydex was on the block.They haven't posted online links to the press release. The statement from the companies contained no price, which was rumored to be close to $1 billion. Rydex will stay in Rockville and keep its executives. The two companies were already close, with Kansas-based Security offering Rydex funds as part of its variable annuity menu. Combined, the companies will manage or administer $52 billion. I wrote about Rydex and its unusual, effective strategy a few days ago.
Update: Here is a link to the press release.
Somebody please give Baltimore Examiner editor Frank Keegan a civics lesson."I found out you don’t have to commit a crime to be thrown in jail in Baltimore," he told the Examiner yesterday after prosecutors dropped an assault charge against him.
Mr. Keegan, you don't have to commit a crime anywhere in the United States to be thrown in jail. Ever heard of probable cause, due process and nol pros? Authorities had reason to believe Keegan may have committed a serious crime, so they locked him up for the night. According to a police report based on an interview with a neighbor, Keegan pointed a shotgun at the neighbor and the neighbor's family. It happened in Baltimore, but it could have happened in Amarillo, Boston or wherever Keegan seems to think the justice system in better. It happens a thousands times a day all across America. In the end, prosecutors dropped the charges.
So why does Keegan unfairly slime Baltimore? His implication is that police here are too aggressive and careless of civil rights. Actually, they're trying under difficult circumstances to control city violence, a subject about which Keegan's newspaper has had some things to say. When police have reason to think somebody pointed a weapon during an altercation, it sounds like they might want to look into it and err on the side of caution. Even Keegan's lawyer told the Examiner that prosecutors "did the right thing" in dropping the charges. Sounds like the system worked just the way it's supposed to.
Harvard Professor Robert Barro had a piece in the Wall Street Journal this week. The gist was: Bill Gates did a lot more for humanity by founding Microsoft and getting rich than he will by spending his $90 billion fortune on philanthropic deeds. The implication was: He really shouldn't bother trying to help the poor; markets, capitalism and policies that promote them will take care of everything.
[Gates] suggested that with a personal fortune of about $90 billion (including what he has transferred to the foundation) it is time for him to give something back. I find this perspective hard to understand... He is kidding himself if he believes that the efforts of the Gates Foundation are likely to provide society anything like the past and future accomplishments of Microsoft.
Barro suggests Gates might do just as much good by sending a $300 check to every U.S. resident. Ugghh. What junk. It is true that the economic growth caused by capitalism beginning in about the 16th century has done a million times more to alleviate poverty and advance standards of living than all government, philanthropy and foreign aid programs combined. It is true that, barring catastrophe, markets will continue to do this for a long time. It is true that many efforts at philanthropy fail miserably. But this is no reason to hide ourselves in the counting house, count our blessings and trust inertia to take care of the surplus population. Even Barro would admit markets are not perfect. Markets fail. Markets come with bottomless holes and horrible booby traps.His recommendations to foster policies that promote markets are wise. But they are not sufficient. There is horrible suffering in the world: AIDS, malaria, starvation and poverty. Shall those with the means to alleviate them stand by and watch? Should economic efficiency leave no room for the milk of human kindness? The beauty of capitalism is that it accomplishes aggregate good through selfish motives. So be it. But it does not abolish the duty for those of us in better circumstances to try to help people directly.
The Wall Street Journal and Reuters are reporting this morning that Archer Daniels Midland, the agriculture company that is the biggest player in the U.S. corn ethanol business, might start making sugar ethanol in Brazil. Hard to tell whether it would be a good move for ADM. But on balance it wouldn't be a bad thing for U.S. energy policy to have this politically powerful company get a financial stake in the only kind of ethanol production that seems to make sense and is now essentially banned for U.S. consumers.Refining sugar for ethanol is much more efficient than refining corn. Raw cane has more calories than raw corn, and sugar produces much more "energy returned on energy invested" (EROEI) than corn. Even corn-ethanol fans rarely claim that it has an EROEI of more than 2. A research survey by the Natural Resources Defense Council looked at five studies that reported a corn ethanol EROEI of between 1.29 and 1.65. In other words, it takes as many as 100 units of oil, natural gas, coal or other traditional energy to produce only 129 units of so-called "renewable" corn ethanol energy. This is not going to do much to reduce U.S. dependence on foreign oil or fossil fuels. The juice ain't worth the squeezing. A professor at Cornell named Pimental says making ethanol consumes more energy than it produces -- a net energy loss for the economy. Sugar ethanol, on the other hand, has an EROEI of at least 3 and as high as 10 in some studies.
Brazil has successfully been making sugar ethanol for years at prices per gallon that are much lower than the present price of U.S. gasoline. But alas, Congress in its wisdom has fastened a 54-cent-a gallon tariff on any imported ethanol. If ADM gets involved in Brazil, perhaps pressure to get rid of this ridiculous law will increase. Brazilian ethanol production is not without its big downsides: Rainforest is being bulldozed to plant sugarcane. But sugar ethanol makes a lot more sense than corn ethanol, and in the right circumstances it could contribute to this country's energy future.
My Wednesday column was about how managers of the Mid-Atlantic grid have repeatedly silenced a regulator responsible for making sure electricity generators aren't reaping huge, monopoly profits in an increasingly deregulated business. Joseph Bowring, market monitor for grid overseer PJM Interconnection, said his bosses muzzled him numerous times after he raised concerns about potential "market power" or monopoly profits being pocketed by owners of generators. Bowring also complained that PJM wasn't giving him the resources he needed to do his job. It seemed like an untenable arrangement that needed to be ended. I closed the column by quoting Robert A. Weishaar, a lawyer who represents industrial electricity customers, saying the relationship between Bowring and PJM needs "substantial structural reform."
Ask and you shall receive. (Maybe.) Today the Federal Energy Regulatory Commission made preliminary proposals to remove monitors such as Bowring from the supervision of the grid managers and make wholesale electricity markets much more open to the public. Market monitors would report directly to FERC and interact frequently with state utility commissions. Public service commissions could even obtain some of the now highly-secretive bid information and other data from grid managers. The proposals are nowhere near being final, but FERC is finally starting to move in the right direction.
A selection from the proposals:
-- Remove the market monitoring unit from RTO/ISO (grid management) operations.-- Require that the MMU (market monitor) advise the Commission and other stakeholders of any design flaws and report to the Commission any tarriff violations it believes may have been committed by the RTO or ISO.
-- Regular conference calls among the market monitor, interested state commission and FERC staff.
-- Require RTOs and ISOs (grid managers) to post information that would facilitate long-term contracts.
-- Release of offer and bid data, with a lag period. Release would mask market participants' identities.
-- Subject to certain limitations, state regulatory commissions within an RTO or ISO may request and receive information from the RTO's and ISO's market monitoring unit.
Expensive electricity played a role in FMC Corp.'s announcement this morning that it will close its Baltimore facility. But electricity isn't the whole story, as it was in the shutdown of Alcoa's Eastalco plant near Frederick. Other costs -- labor, transportation -- also look like they made Baltimore uncompetitive. Here is an excerpt from a May column on electricity costs and Maryland manufacturing competitiveness:
At FMC Corp.'s Curtis Bay plant, which makes agricultural chemicals, employment has fallen from more than 350 five years ago to 135 now as the company has shifted production elsewhere, largely to Asia, said Frank Siwajek, director of the company's North American operations.Electricity is one cost among many - labor, transportation, fuel oil for boilers - that challenge FMC's facility. But rising power bills haven't helped.
"Are we moving things just because of energy by itself? No," says Siwajek. "But when you look at total costs, energy is certainly one of the key components."
Maybe more on this in Sunday's paper.
The worst of Jay's Inbox: A neverending series. The company that claims to have pioneered "forehead advertising" (yes, it is what it sounds like) now says it will recruit couples to post ads in their (the couples') bedrooms. The company makes something called SnoreStop, which is apparently something snorers are supposed to spray in their throats to attenuate the Harley-Davidson effect. Of course advertising in people's bedrooms, as the company puts it, reaches "a very limited consumer base" and is even stupider than forehead ads.
But they're hoping that editors, producers and writers will be gullible or desperate enough for copy to seize on this as an offbeat trend story and write about it, which is the REAL advertising disguised as journalism.
Wait! I just wrote about it! I gave them a free ad! The only remaining question is: Gullible? Or desperate?
From the PR come-on:
Dear Jay,SnoreStop, the company which helped pioneer forehead advertising in 2005, seeks to place ads in actual bedrooms in order to reach couples where snoring relief is needed the most.
More information about this new innovative marketing initiative can be found below. I’d be happy to put you in touch with Christian deRivel at SnoreStop to discuss their plans further. Please let me know if you’re interested and however I can help.
And:
CAMARILLO, CA- JUNE 20, 2007 – Call it the ultimate form of personal advertising. SnoreStop, the company which made news around the world by sponsoring forehead advertiser Andrew Fischer in 2005, is opening the door to yet another bold new form of advertising - and it turns out to be a bedroom door.Anxious to reach snorers and their long-suffering spouses where they need snoring relief most, Green Pharmaceuticals (the parent of SnoreStop) will shortly begin seeking couples willing to permit SnoreStop ads within and just outside of their home bedrooms, in exchange for cash prizes, a brand new bedroom makeover, or a Second Honeymoon vacation package.
The ads will come in three forms: SnoreStop posters to be placed on bedroom walls; promotional flags to be secured just outside of bedrooms; and rooftop banners to be affixed just above bedrooms. Though the final look and copy of these ads is still being finalized, the message of the new bedroom advertising program will be consistent with SnoreStop’s overriding “Save Your Marriage” campaign, designed to help otherwise-happy couples finally enjoy sound sleep without the sound.
Recognizing that bedroom advertising can, of course, only reach a very limited consumer base, SnoreStop will supplement the campaign by sending real-life couples out into the public wearing branded pajamas reading:
OUR BEDROOM IS SPONSORED BY SNORESTOP.
SAVE YOUR MARRIAGE THE WAY WE SAVED OURS!
According to Green Pharmaceuticals’ Christian deRivel, “Since SnoreStop is designed for the bedroom, we realized there is no better venue for us than an actual bedroom to promote the effectiveness of our product. Our company has a history of exploring interesting new advertising venues, and we intend to make this our most ambitious campaign yet.”
Mamas, don't let your babies grow up to be PR flacks.
The giant discount chain had been trying to go (relatively) upscale recently by stocking higher-priced, better made clothing and furnishings. It flopped. Now it says on its Web site this morning that it will open 1,000 "money centers" offering check cashing and money transfer services by the end of next year. These are decidedly not upscale services. In part Wal-Mart's move is driven by the fact that it can't get a bank charter; it would much rather offer a full range of deposit and lending products. But the move may also be a matter of "dance with the one who brung ya" -- the middle- and lower-income consumers who made the store a legend.
Unfortunately, Wal-Mart has few stores in lower-income neighborhoods, which tend to patronize check-cashing services heavily and which could really use the competition from a well-heeled, well-run outfit. Financial services for the poor tend to be very expensive, but unless Wal-Mart intends to open freestanding branches in low-income neighborhoods, this will have a limited effect in increasing the choice and quality of vendors. People who need check-cashing services most don't have cars to drive to a Wal-Mart.
Today's column is about the bombshell revelation by Joseph Bowring, who is supposed to ensure that the wholesale electricity markets from Maryland and Pennsylvania to Ohio are fair, that his bosses at the grid repeatedly suppressed his concerns about the market and altered his findings that some generation companies were making monopoly profits. Bowring first made the allegations two months ago at a public hearing before the Federal Energy Regulatory Commission, which asked him to elaborate. Last week he did so, in a detailed affidavit filed with the commission.
You can read the affidavit here. FERC also asked PJM Interconnection, the nonprofit grid manager that employs Bowring, to respond. PRM's statement is here.
The directors are regretful and chagrined. They always are, when it turns out people they were supposed to be supervising are living inappropriately high. But why didn't they stop it before it started? It's not like there aren't dozens of object lessons from the nonprofit world that show these kinds of things are all too likely.
The current case study is the Smithsonian Institution, where officers were living jet set lifestyles and took positions of blatant conflict of interest with an outside vendor. Yesterday another officer resigned, and directors expressed their mea culpas. Lawrence M. Small, Smithsonian's top boss, was found to be blowing huge amounts of money on trips, home furnishings, parties etc. The museum argued it was all part of Small's job, and he has not been accused of criminal wrongdoing. Directors seem to have approved all the items. But Sen. Charles Grassley, who spearheaded an investigation, accused Small of enjoying "a Dom Perignon lifestyle" at taxpayer expense. (The Smithsonian gets big government money and is also a nonprofit organized under section 501(c)3 of the tax laws.) Small was also a paid board member at Chubb Group while the company was selling insurance to the Smithsonian.
Memo to all big nonprofits. Heed the words of Smithsonian regent Patty Stonesipher to the New York Times:
“It’s never easy to do this kind of self examination, and we wish we’d been doing it on an ongoing basis.”
Human Resources company Ceridian says it asked corporate personnel departments to name the lamest excuses their employees had come up with to explain absences. The winners:
- I was trapped in my house by a skunk.- I have head lice.
- The barometer was too high.
- The neighbor's dog died in front of my garage, and I couldn't get the door open.
- I couldn't open my garage door because the power went off.
- My car tires were repossessed, and my car was up on blocks.
- I left my car keys at work last night.
- I didn't have a key to lock my house because my mom took it.
- My washing machine was broken.
- I dropped my kid's bike on my foot.
- My apartment was so cold that my hair froze after I washed it.
Is this really all worth it? Cingular, once a joint venture of BellSouth and SBC communications, is the "new AT&T," as the company is dying to let you know and have you tatoo on your arm. It it spending probably hundreds of millions on TV commercials etc. to get consumers to start forgetting "Cingular" and remembering "AT&T." Now there's another cost that Cingular (oops I mean AT&T) may not have thought about.
Cingular's Nascar sponsorship deal with the Childress Racing Team and driver Jeff Burton was grandfathered in three years ago when (Cingular enemy) Nextel signed an exclusive, Nascar-wide promotion contract. Now Cingular is putting "AT&T" on Burton's car, which Nascar says voids the grandfather exemption and breaches Nextel's right to brainwash racing fans in the absence of other telecom outfits. AT&T sued Nascar this year and secured an injunction allowing its logo on Burton's car. Now Nascar is countersuing, alleging breach of contract by AT&T/Cingular.
The funny thing is that, when all is filed, briefed, settled and paid for, AT&T will have no clue in the universe whether changing its name from Cingular was worth it. To me, AT&T evokes Lily Tomlin (1970s Saturday Night Live) in a 50s hairdo sitting at an ancient switchboard eavesdropping on party lines. I kinda liked Cingular.
A few days ago I posted comments from bear(ish) Barry Ritholtz on why the recent drop in bond prices and increase in bond yields/interest rates could harm stocks. Here's the argument for the other side from the (almost always) optimistic Ed Yardeni, of Yardeni Research:
Is it safe? The jump in bond yields last week poses several possible risks for the stock market. Here are three of them and some reasons why I am not convinced that these risks will derail the bull market in stocks:(1) Higher yields obviously increase the attractiveness of bonds relative to stocks. A yield of 5% on the 10-year Treasury is also attractive relative to the core PCED inflation, which recently fell to 2%. Nevertheless, at 5%, the bond has a P/E of 20 (i.e., the reciprocal of the yield). So the S&P 500, with a forward P/E of 15.5 currently, is still quite cheap relative to both bonds and inflation.
(2) Higher interest rates increase the cost of leveraged buyouts and might reduce (or limit the upside of) prices received by private equity investors when they try to cash out with an IPO. (See “Market Pressures Tests Resilience Of Buyout Boom,” WSJ 6/8.) While the anecdotal evidence certainly suggests that M&A and LBO activities have driven stock prices higher, the fact is that the bull market since 2003 has been entirely earnings driven. The market’s valuation multiple hasn’t risen as a result of all the financial engineering.
(3) Earnings could get hit hard if the backup in mortgage interest rates deepens and prolongs the housing recession, causing it to spread to consumer spending and the broader economy. The housing recession hasn't spread so far, but it could if it doesn't hit a cyclical bottom soon. On the other hand, the Fed is very unlikely to raise the federal funds rate in this scenario. That should keep bond yields from rising much higher. In other words, a flat yield curve at 5.25% may be just what the Doctor (Bernanke) ordered to allow the economy to grow just below its potential, thus keeping inflation at bay.
Good Jobs First of Washington does a good job of beating up governors and mayors for giving away taxpayer money to corporate fat cats for too little in return. They've also built an excellent database and reporting mechanism on deals. Here's the latest newsletter, with reports on sports outfitter Cabela's, a serial abuser of subsidies; ThyssenKrupp, whose Alabama steel mill I wrote about a few weeks ago; and Radio Shack, which is laying off hundreds in Fort Worth after getting big taxpayer subsidies for its headquarters building.
Cabela's recently announced that it will begin collecting sales tax on catalog and internet sales to residents of states where it also has retail stores. That's big news: Cabela's has been a holdout among national retailers with both "bricks and clicks," most of whom quit dodging such sales tax collections years ago. Normally, state "nexus" rules require companies with a substantial physical presence in the state to collect sales tax on all purchases that occur in the state - whether they occur in a store, via the internet or by catalog.But as it morphed from mostly a catalog operation to also include a chain of (massively subsidized) mega-stores, Cabela's sought and won rulings from attorneys general in a reported 19 states that its catalog, internet, and retail divisions were essentially separate entities and therefore did not create overall nexus.
Magazine writers typically have to file their stories days or weeks before they are published. Which sometimes causes the pieces to contain anachronisms. Such as this one in an article in the July Kiplinger's on how the stock market will do this summer:
Bonds are quiet, which is a good sign. Yields and market values of government, municipal and high-grade corporate bonds have been steady in 2007. There's no reason to expect changes soon.
Oops!
When does more road equal worse traffic? When it's at the junction of I-70 and the Baltimore Beltway north of Woodlawn. There has always been a bottleneck there -- three lanes on I-70 eastbound funneling into two lanes to get on the Beltway, one for the inner loop and one for the outer loop. The first lane fed into the southbound part of the Beltway to Glen Burnie; the second lane fed into the northbound part to Towson; and the third lane fed to an extension of 70 that goes into Baltimore via the park & ride on Cook's Lane. Until a year ago or so the bottleneck was on I-70 proper: You had to get out of the third lane before the exit ramps if you wanted to take the Beltway, which most people do. But then they extended the third lane onto the exit ramp, which merely moved the bottleneck from the top part of the 70 stem onto the exit ramps.
Result: The third lane, which previously provided a safety valve for congestion by allowing people (like me) driving into the city to breeze past the Beltway, is clogged up. Now it's not just the cars getting onto the Beltway who back up. It's EVERYBODY, increasing congestion by some huge multiple and making the backup worse than before even if you're heading to the Beltway. Now cars routinely back up to the Patapsco bridge, even at non-peak times. (Like this morning at 9:30.) Bad traffic engineering. Grrr.
Yale University will officially declare Blackstone boss Stephen Schwarzman a "Legend in Leadership" at a ceremony tomorrow at the New York Stock Exchange. Good guy to flatter: Documents filed this week for Blackstone's initial public offering reveal that Schwarzman will be worth $7.7 billion on paper after the deal closes.
Here's the canned quote from Yale B-school's Jeff Sonnenfeld:
"Having welcomed Steve Schwarzman to a dozen of our events, having worked at the two great universities where Steve Schwarzman earned his degrees, and having attended his same high school, I know that every institution touched by Steve has been proud of their association with him. Knowing many of his colleagues in the world of finance and private equity, no peer is more widely admired than Steve for his triumphant, high integrity institution-building and game-changing perspectives of evolving global markets. The four-generation panel of visionary, revered leaders presenting this award is as much a tribute to Steve as is the award itself."
Does such blather buy a Schwarzman Building for Yale? Or something even better?
Here are links and phone numbers for alternative electricity providers. Unfortunately, their current prices (June 2007) are higher than prices for BGE's standard product. But that may change, and some of them update their Web sites frequently.
All prices include generation AND cross-country transmission but DO NOT include BGE's charge for distributing the juice to your house. That comes to another 2.37 cents/kwh. Summer prices are for June-September. Non-summer is October-May. All of these prices may change any time -- up or down (unless you've already signed up, of course.) All rates are for residential, not commercial, service.
BGE's standard product: Year-round average annual price to compare, starting July 1: 10.85 cents. Summer price to compare: 11.387 cents. Non-summer price to compare: 10.531 cents. This is the default product that everybody gets unless they switch. BGE: 410-685-0123.
BGE's "time of use" product, which charges extra for peak electricity use but gives discounts for nighttime, weekends and holidays. See all the rates HERE.
Washington Gas Energy Services. 888-884-9437. Recent price to compare: 11.7 cents for two years.
Ohms Energy. 877-646-7363.
Energy Services Management, aka Maryland Energy Consortium. 410-585-1213.
Dominion Retail. 866-303-9669.
Commerce Energy. 877-226-7439. Recent price to compare: 13.2 cents for two years.
Pepco Energy Services. 703-253-1800.
Bond yields are falling a little today after their recent spike, but they could easily go higher still. Bonds always compete with stocks for investors' money. When yields (interest rates) are low, stocks benefit. Not only do meager yields compel investors to get into stocks (equities) to look for better returns; they also allow people to borrow cheap money, which is often used to bid up stock prices. When bond prices fall (and yields automatically rise), this process gets reversed.
Barry Ritholtz elaborates and enumerates the risks of higher interest rates to stocks:
) 1) Valuation: Models such as the so-called Fed model that have been declaring equities undervalued rely on comparing the earnings yield with the 10 Year yield. As the yield spikes, what was "undervalued" by this measure suddenly is much less so.2) The M&A / LBO Put: One of the firm bids supporting this market has been the manic pace at which public companies have been taken private of by Private Equity (soon to be public themselves). Some have argued this was based on cheap stock prices, but we shall soon find out that it was based in fact on cheap money. As that gores away, so too will the LBO Put.
3) Competition: If you could get a guaranteed 5.5% or 6% on your money -- risk free -- would you? The answer depends on your personal situation, but for many institutions and wealthy investors, the answer is absolutely.
4) Profits: If it costs more to borrow or finance, that bites into profits. Indeed, this has been one of the primary complaints about the Fed model, it double counts low rates this way, and can makes apparently cheap looking companies more expensive-looking in fast order as rates rise.
5) Share buybacks: Much of the share buybacks we have seen have been financed with cheap borrowed money. This is another leg of the bullish stool that is about to leave town on the same stagecoach as low rates. (cue music, sunset)
6) Consumer spending: WIth MEW sliding, we have seen an increase in consumer credit driven spending. Watch that crimp if rates stay near 5.25%. Indeed, we could see a move towards 5.5% by Summer's end once people realize Bernanke is serious about a rate hike by year's end.
Buy on the dips. That was the lesson Nasdaq investors learned in the 1990s. Every time stocks took a tumble that decade, the Nasdaq quickly recovered and moved even higher. Psychologically, the process became self-reinforcing. Investors "knew" from experience that stocks would always recover. The assumption put a floor on any decline and drove the market toward ever-loonier levels. For a long time, anyway.
We're starting to see the same process in China's "A" shares, which trade in yuan and are available only to Chinese. Today Shanghai shares rose by close to 2 percent, climbing back toward the high they achieved last month and erasing more of a 15 percent decline that occurred in the meantime. At 4072.81, Shanghai is now within 6 percent of last month's high. Efforts by Chinese authorities to contain the exuberance are seeming to have little effect. This recovery may draw in even more novice investors, who are helping blow the bubble.
Of course, this will all end someday, just as the Nasdaq madness did. The questions are: How and when? The answers, which matter because Asian markets affect U.S. markets, will depend on the Chinese regulators. Will they leave the craps tables alone, as Alan Greenspan did in the United States? Or will they keep striking back at mindless stock buying until the market cools off for more than just a week or two? Bet on the latter.
At least in terms of the size of their economies. Strangemaps notes that the gross domestic product of Maryland is approximately that of Hong Kong -- and then goes on to rename every state on a map of the USA after its quantitative economic twin. (Click on the map to see all the states.)
Most surprising to me: Saudi Arabia = Tennessee.
Others:
South Dakota = Croatia.
Louisiana = Indonesia.
Massachusetts = Belgium.
Ohio = Australia.
Washington D.C. = New Zealand
Select Equity Group owns nearly 10 percent of Laureate Education, the Baltimore-based higher-education company. Laureate's managers are trying to take it private with a lowball offer, and smart shareholders know this. As previously noted, Laureate is a fantastic globalization play that will make big money. First Laureate bosses offered $60.50 a share to current shareholders. Shareholders objected. Then if offered $62.00 a share. Today Select Equity followed T. Rowe Price in calling the sweetened bid too meager.
Laureate's recent operating results exceeded guidance and newly disclosed internal earnings projections are materially higher than what was previously disclosed; and 2) the valuations of Laureate's peers dramatically improved. Given these new facts, Select Equity states that the 2.5% increase to the $62.00 per share offer is negligible and actually values Laureate at a deeper discount to its peers today than the original offer did in January. If the terms of the revised offer are not amended to better reflect the intrinsic value of Laureate, then Select Equity will not support the proposed transaction and will not tender its shares. Select Equity believes that Laureate's shares would trade above $62.00 if the tender offer and merger proposal were to fail.
The whole press release and Select Equity's letter to Laureate's board is here.
My Sunday column is about Baltimore Gas and Electric's "time of use" plan, which gives discounts if you burn kilowatts late at night rather than at dinnertime, or on holidays and weekends rather than primetime on weekdays. If you're careful and motivated, you could save $200+ a year by signing up for TOU. Especially if you have electric heat and aren't home during the daytime on weekdays.
The column compares a few prices: Summer, off-peak kilowatts are 22 percent cheaper for time-of-use customers than the summertime, round-the-clock price that everybody else pays. In non-summer months TOU customers get an 11 percent discount on off-peak juice compared with what non-TOU folks pay. Etc.
(These are discounts off your COMBINED BGE electricity generation, transmission and distribution cost, even though the generation charge is the main thing that gets substantially reduced. Transmission and distribution charges are also lower for TOU customers, but TOU customers pay an extra customer charge of $4.50 a month ($12 vs. $7.50). The extra customer charge wipes out the transmission & distribution savings -- it's basically a wash -- so the main action is in the generation discounts.)
Here are the numbers behind the numbers, if you're into doing further calculations or seeing the basis for my conclusions. The information is from BGE's rate schedule that starts July 1. The current schedule on BGE's Web site is for June prices, which are close to the July prices but do not reflect a small transmission-charge increase that starts in July. That's why these figures are slightly different than prices posted earlier on the blog. These are the latest rates:
REGULAR BGE PLAN, used by 1 million households:
Total, round-the-clock price per kilowatt-hour, June through September: 13.757 cents
This includes: Generation, 10.992 cents. Transmission, 0.395 cents. Distribution, 2.37 cents.
Total, round-the-clock price/kwh, October through May: 12.901 cents.
This includes: Generation, 10.136 cents. Transmission, 0.395 cents, Distribution, 2.37 cents.
The price to compare for the regular BGE plan, which is the average, year-round (blends the seasonal prices above) generation/transmission use per kwh, is 10.85 cents. Add 2.37 cents for distribution to get the total cost: 13.22 cents/kwh.
BGE TIME OF USE PLAN, used by 90,000 or 100,000 households:
Total price per kilowatt hour, June through September:
Peak (10 a.m. to 8 p.m. weekdays): 18.158 cents
Intermediate (7.am. to 10 a.m., 8 p.m. to 11 p.m. weekdays): 11.612 cents.
Off-peak (weekends, holidays and 11 p.m. to 7 a.m. weekdays): 10.364 cents.
Total price per kilowatt hour, October through May:
Peak (7 a.m. to 11 a.m., 5 p.m. to 9 p.m. weekdays): 14.743 cents.
Intermediate (11 a.m. to 5 p.m. weekdays): 12.965 cents
Off-peak (weekends, holidays and 9 p.m. to 7 a.m. weekdays): 11.128 cents
All these TOU prices include distribution cost of 1.97 cents/kwh and transmission cost of 0.369 cents/kwh. To get the generation price just subtract 2.339 cents (1.97 + 0.369 = 2.339) from the total.
As noted, TOU customers pay an extra monthly fee of $4.50, which shaves some of the savings on TOU prices compared with the round-the-clock regular prices quoted here. In other words, you'll see that the TOTAL summertime price for off-peak kilowatts, as quoted above, is 25 percent less than the summertime, round-the-clock price that everybody else pays (13.757 cents vs. 10.364 cents) -- not 22 percent as the column says. But when you factor in the $4.50 it knocks it down.
Robert Bork, who was famously rejected as one of President Reagan's Supreme Court nominees, is a strict constructionist who has rightly complained that the nation has too many lawyers filing too many unmerited lawsuits. "Abusive litigation" and "excessive damage awards," he once said, are "national problems."
So what does he do when he falls off a dais and has to be treated for a non life-threatening injury? He sues. For more than $1 million.
Paul Adams' excellent piece in today's paper details the diverging missions of Baltimore Gas & Electric and its parent company, Constellation Energy Group.
As a public utility, Baltimore Gas and Electric Co. is obligated to get the lowest price possible for customers. By contrast, its corporate owner, Constellation Energy Group, has a duty to stockholders to sell the power it produces for as much as it can get.
One suspects that, too often, Constellation gets the upper hand in the conflict. Adams notes the concern raised by the Public Service Commission about John Collins, formerly Constellation's chief risk officer. When BGE was buying electricity, most of which ended up coming from Constellation, Collins sat on both sides of the table. He acted as buyer, advising BGE on how to bid in power auctions, and as seller, running a team that helped Constellation hawk megawatts to BGE and other customers. Did BGE and its customers really get the best deal here?
There are other troubling relationships. Last year I wrote about an internal Constellation cash pool that is mostly filled by BGE. Non-regulated Constellation units seem to be borrowing from the pool at sweetheart rates, which means they're effectively getting subsidized by BGE customers. Even Ken Schisler, the former PSC chairman who had a reputation for always seeing things Constellation's way, thought this was a problem.
Not least among of the conflicts of interest are the Constellation stock and stock options held by BGE President Ken DeFontes and other BGE bosses. With millions of dollars in potential personal wealth tied to Constellation's success, these folks have a huge incentive to run things so that Constellation makes as much money off BGE customers as possible.
This is the highest interest rate on the T-note since last summer, and it bodes an increase in other kinds of long-term rates. This includes mortgage rates. In part, investors are reacting to recent signs of increases in inflation. (Inflation erodes the value of interest yields, which causes bond buyers to demand higher rates in compensation.) Investors are also worried about recent reports that China is selling U.S. Treasuries to diversify its trillion-dollar cache of foreign reserves. The extraordinary stake that the Chinese government is taking in Wall Street's Blackstone Group is part of this trend. And bond buyers are concerned about downward pressure on the dollar compared with other currencies. Fear of a declining dollar often compels international investors to sell dollar-denominated bonds, which drives down their price and increases their interest yields.
On the other hand, if the United States slows down economically and pops the Asian investment bubble in the bargain, Treasuries will be rally nicely. At 5 percent they're starting to be an attractive hedge against what's looking like an increasingly foamy stock universe. The downside for Treasuries would be a severe increase in inflation, which, thanks to globalization and the downward pressure on prices from Chinese imports, seems very unlikely.
Who knew? File this under "No Kidding, Sherlock." A couple professors find that CEOs usually get richer when they merge their companies with another even the deals turn out to be disasters. Anybody paying attention already knows this. If they leave after a merger, CEOs get enormous golden parachutes -- truckloads of money that would have taken them years or decades to earn but for the merger. And if they stick around, they can argue to the compensation committee that the bigger company means they have more responsibility -- which requires more pay. But it's always good to get academics to ratify what common sense has figured out. No wonder there are so many bad mergers.
From the press release:
The study finds that following a merger, CEO pay is unaffected by poor stock performance, but increases with positive performance, allowing personal financial gains for CEOs in both cases. Even in mergers where shareholders lost money, 75 percent of CEOs studied ended up in better economic positions than they were prior to the acquisition. As a result, the study argues, there are significant incentives for CEOs to advocate mergers even when the outcome is likely to prove unprofitable for the company.
The study, by Jarrad Harford, Associate Professor of Finance at the University of Washington, and Kai Li, the W.M. Young Professor of Finance at the University of British Columbia, was published in The Journal of Finance.
The Worst of Jay's Inbox (a continuing series):
New Study Proves Whiter Teeth Helps Land Job and Higher SalaryWhat if the color of your teeth affected whether or not you were hired? What if it influenced your salary? What if your white smile made people trust you more?
Well, it does. A new study conducted by Kelton Research and overseen by Smile Psychologist Dr. Dacher Keltner was recently released, proving that people are more likely to get the job offer and even earn more money just because their teeth are whiter. The study found that 58% of participants were more likely to be hired and 53% of participants were given higher starting salary offers after whitening their teeth.
Please see the full release below for more information. We’ll be happy to coordinate an interview with Dr. Dacher Keltner to discuss these compelling findings and their implications on your readers’ ability to get ahead in their jobs. With almost seven million Americans out of a job and graduation right around the corner, it’s a great time to share this latest research that could help your viewers succeed in their careers.
I mean, really. Is there no shame? Guess who paid for the "study," which the email pitch forgets to mention? Procter & Gamble, maker of Crest Whitestrips.
T. Rowe Price is right. Managers of Laureate Education are bidding to take it private, and Price and other major shareholders don't want to sell out. Can you blame them? The Baltimore-based higher education company is the leader in what will turn out to be a brilliant idea: exporting American-style education to the world. For a profit.
We're used to reading how U.S. students lag behind their peers in other countries. But these studies are mostly about primary and high-school kids. America's higher-education system is perhaps without equal. Students immigrate from all over the world to attend U.S. universities. Laureate is shipping the product to where the students already are. University systems in many countries are sharply divided between a few elite, highly selective schools and tertiary institutions that still don't have enough capacity for all the people that want to attend. Institutions such as Laureate's Universidad Europea de Madrid offer an alternative: career-relevant courses in a university setting that will help kids improve their standard of living.
It's a great, high-demand, profitable product, and Doug Becker and Laureate's other bosses are trying to buy out the public shareholders just as things get rolling. The buyout group just raised its offer from $60.50 a share to $62. It's unclear whether other shareholders will agree with T. Rowe Price and rebel. Lots of arbitrageurs will be thrilled with the extra 2.5 percent. But 2.5 percent is a teeny piece of the upside for this company.
This is interesting because it's antitrust policy enforced on a micro level. In cooperation with federal authorities, Maryland Attorney General Doug Gansler has signed a settlement in which Rite Aid must sell one of the two drug stores it would own in tiny Denton, Md. (population 3,300). Rite Aid is buying rival Eckerd, and both chains have stores in Denton, which you pass through on your way to Rehoboth.
Somebody decided that Dentonites would be ill-served by the merger, which would leave them with only one drug vendor. The next-nearest pharmacies appear to be 17 miles away in Easton, which has a CVS and a Safeway, or 15 miles away in Harrington, Del., which has a Walgreen's. So Rite Aid has to sell the Denton Eckerd store. Probably Walgreen's or CVS will buy. More here. Rite Aid's press release on closing the Eckerd acquisition today is here.
Contrary to the expectations of many, the Federal Reserve will not cut short-term interest rates this year, Merrill Lynch's intelligent and interesting David Rosenberg forecasts this morning. The Fed is still far more worried about inflation than an economic slowdown, Rosenberg says, and things look like they're picking up for economic growth after an extremely slow first quarter. This is a U-turn for Merrill Lynch. Rosenberg writes:
The fact that the Fed has retained a hawkish stance in the face of five consecutive quarters of below-average 3% growth, not to mention what was a near-recession like 0.6 % GDP pace in the first quarter, is a clear signal that the Fed does not care so much about what the real economy is doing as much as [it cares about] what the unemployment rate and core inflation are doing.
Unless the stock market crashes or unemployment rises past 5 percent, he says, the Fed won't think about cutting if core inflation is more than 1.5 percent. More here.
Hands will be wrung and garments rent over yesterday's disclsoure that Netherlands-based Qiagen is buying Gaithersburg's Digene for $1.6 billion. This is the second substantial Maryland biotech company that will be bought this year; MedImmune has already agreed to sell out to AstraZeneca. Economic development officials always hope that homegrown companies such as these will remain independent, hire locally and turn into huge job and tax machines.
But Digene and MedImmune aren't going anywhere. They're both being bought by European outfits, which are more likely than American companies to give relative autonomy to acquired units -- and that means avoiding wholesale consolidation. Digene has 350 Maryland employees. There are numerous reasons for Qiagen and AstraZeneca to keep substantial operations in Maryland: the state's status as a biotech hub, the nearby National Intisutes of Health, Johns Hopkins' position as a research-grant magnet and the availability of employees with biotech experience. Merging with larger partners is a natural devlopment for biotech companies, such as Digene and MedImmune, that begin to sell products and generate revenue. There should eventually be other Maryland companies that will grow up and be in similar positions.
I don't know what's going on because BGE hasn't responded to my query. But today they have changed their published, kilowatt-hour prices for the post-June 1 period again. This at least the third change. It's not substantial, but it makes the prices published in today's newspaper slightly incorrect.
Here are the latest prices for BGE's default product, which is what you get unless you choose to buy electricity from Washington Gas Energy, Dominion Retail or somebody else. (ADD 2.37 cents per hour to all these amounts for BGE's distribution charge to get your total electric bill, not counting taxes, customer charge etc.) These prices will change again a year from now:
Average annual generation and transmission price: (price to compare): 10.77 cents per kwh
Summer generation and transmission price (June-September 2007): 11.307 cents/kwh
Non-summer generation and transmission price (October 2007-May 2008): 10.451 cents/kwh
For comparison, here are a few competing prices from alternative electricity providers. Note they are all higher than the standard BGE price. So there is little reason to switch unless you fear BGE's prices will go even higher a year from now and want to lock in on a two- or three-year deal. (ADD 2.37 cents per hour to all these amounts for BGE's distribution charge to get your total electric bill, not counting taxes, customer charge etc.):
Washington Gas Energy Services was offering 11.3 cents for two or three years yesterday but took it down today. My guess is they'll increase.
Commerce Energy: 12.9 cents for two years.
Pepco Energy Services: 13.59 cents, 100-percent wind energy for eight months
BGE's NEW deferral plan (not to be confused with the July 06-May 07 deferral plan) will not keep track of what each individual household defers and must pay back. What that means is you might end up paying back slightly fewer or more dollars than you deferred.
Instead of creating a separate deferral account for thousands of households, BGE will simply track the debts/credits in aggregate. For the deferral phase of the plan, they'll give credits per kilowatt-hour calculated to make charges to deferring households 18 percent lower and then 8 percent lower than the market rate. Then they'll apply a repayment charge for 21 months to recoup the deferred amount, without interest. For the average household, it'll be a wash. You'll pay back what you deferred. But if you use substantially more electricity during the payback period than you used during the deferral period, you'll end up paying BGE more than you deferred. This is because the deferrals/repayments are unchanging quantities tied to kwh, and BGE is assuming that most people will use roughly the same amount of juice in both cycles. But if you're planning to add central air or a swimming pool next year, you'll probably end up repaying more than you deferred.
BGE's description of its plan is HERE.
BGE customers are looking at the old "price to compare" for generation/transmission on their bills: 10.88 cents per kilowatt hour. Then they look at the new price to compare, effective today: 10.85 cents per kilowatt hour. Then they say: "THAT'S not a 50 percent increase, as the Public Service Commission & the newspaper are reporting. That's a DECREASE. What's up?"
Explanation: Overall costs are going up 50 percent because a CREDIT of 4.5 or 5 cents per kilowatt hour applied to BGE's DISTRIBUTION BILL disappears today. This credit is a loan that basically limited last year's 72 percent price increase to 15 percent. BGE will collect repayments on the loan from its customer base in dribbles over 10 years. So: The market price for energy has changed hardly at all. But the disappearance of the credit means that BGE customers will see big -- 50 percent increases -- in their total electric bills.
 |
Sign up for Business text alerts
Returning user? Update preferences.
Sign up for more Sun text alerts |
