« 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.
