Under Armour, the Baltimore sports-apparel company, hit all-time highs this morning after disclosing second-quarter earnings and estimating results for the near future. The stock shot up 15 percent in early trading, hitting $63.

 A lot of this is short covering. Under Armour has grown so far so fast that many expected it to stumble and bet that the stock would fall. Specifically, they borrowed shares and then immediately sold them, hoping to pay them back later when the stock was cheaper. Unfortunately for them, Under Armour disclosed killer results this morning. To close out their positions, the short-sellers are having to buy back the stock to repay their borrowed shares. Naturally this sends the price even higher.

There must be some satisfaction at UA headquarters in Tide Point that the short sellers are on the run. But it won't be all smooth sailing. At 75 times trailing earnings and 65 times projected earnings, this stock is still very very expensive. "Priced for perfection," as the saying goes. The short sellers may yet make some money.

Posted by Jay Hancock at 10:26 AM | Permalink | Comments (0)
        

Verizon reported second-quarter results today, including 1.1 million FIOS  Internet customers at the end of the period. That'll give them about $1 billion a year in revenue. (Only half the 1.1 million customers are getting FIOS Internet and TV. The others get Internet only.) Not a bad start on the $20 billion-plus Verizon is estimated to be spending on rolling out FIOS. Keep digging trenches, Verizon.

Posted by Jay Hancock at 11:07 AM | Permalink | Comments (5)
        

Another boutique stock index is born. In the tradition of broadband, Internet, business-to-business and nanotechnology indexes, we present: the Merrill Lynch Energy Efficiency Index. The ostensible idea is to isolate a sector of the economy and employ public stock prices as a proxy for what's going on in the sector. The real idea is to get publicity and maybe royalty money if somebody decides to start a mutual fund or exchange-traded fund based on the index. Merrill Lynch's new index may deliver useful information on what's going on with smart-meter companies, insulation makers and so forth. But mainly, it's an indicator of the investment fad of the moment. (Which is to say, be careful out there.) From the press release:

"The index is currently comprised of 40 companies globally that Merrill Lynch believes should benefit from the growing momentum to reduce CO2 emissions and the cost of energy.

"“While there has been a clear shift of resources and investor attention into renewable energy, energy efficiency remains an area that is relatively under-explored,” said Asari Efiong, Merrill Lynch SRI/ Renewable Energy equity analyst. “We believe that energy efficiency represents a significant market opportunity for investors, as policy changes look set to force a structural shift in demand.”

"Merrill Lynch has identified the automotive industry, capital goods, semi-conductors and building materials as most exposed to this theme. The Merrill Lynch Energy Efficiency Index is divided into four components: integrated plays with a focus on the capital goods sector; fuel efficiency in the automotive industry; building insulation; and energy-efficient solutions, including products, applications and industrial processes."

Posted by Jay Hancock at 10:26 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

Here is my review in last Sunday's book section of Justinian's Flea, a history by veteran editor William Rosen of the Eastern Roman Empire as led by Justinian the Great in the 6th century. Economics content: The first severe outbreak of bubonic plague devasted the Mediterranean labor force, which caused big changes in wages and worker mobility. From the review:  

"Perhaps a quarter of the citizens had died. The resulting labor shortage drove up wages and costs for both agricultural production and military service. Consolidation of the empire stalled and then reversed, perhaps accelerated by the fact that Justinian had no sons.

"Even so, Justinian and the flea that carried the bacillus, Rosen argues, created conditions for the formation of modern Europe.

"Justinian's consolidation and rationalization of Roman law underpins the civil code across the continent. Hagia Sophia, Justinian's great Constantinople church, is one of the wonders of the world. The chaos left by imperial decline turned out to be an incubator for nation-states such as France and Spain. The plague-caused labor shortage spurred technology improvements that boosted agricultural productivity and put Europe on the path to becoming the world's first rich continent."

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (0)
        

Constellation Energy Group, owner of BGE, reported a 23 percent increase in earnings per share this morning for the second quarter. This missed analysts' estimates, but only because a derivative contract that hedged an offsetting position lost value. Under accounting rules, hedges must be marked to their market price even if they're neutralized by accrued gains in normal operations. The accrued gains will be booked later, so the 14-cents-a-share hedge loss in today's report is really a non-event.

Constellation's gains were especially helped, said CEO Mayo Shattuck, by "continued strong performance from our Merchant business." The merchant business is the former BGE generation plants and other generators that Constellation owns around the country.

Posted by Jay Hancock at 10:23 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

Dow is down 325 points so far on the day and fell 226 on Tuesday. Those meditation guys in Iowa got some splainin to do.

Posted by Jay Hancock at 3:29 PM | Permalink | Comments (1)
Categories: Stupid PR pitches
        

A few days ago Constellation Energy Group, parent of Baltimore Gas & Electric, traded over $98 -- an alltime high. But news of a billion-dollar settlement in Illinois with Exelon and Ameren, both utility holding companies, has pushed power stocks down, says Steven Rountos of Talon Capital, which invests in energy stocks. Constellation is down $3 this morning to $88 on the Illinois news and on today's story in The Sun that the Maryland Public Service Commission has issued subpoenas to Constellation, seeking evidence on how much profit Constellation is making on plants once owned by BGE. Investors are worried that Maryland regulators will get a substantial chunk of cash out of Constellation to give back to BGE customers -- something Maryland has been unable to do so far.

Posted by Jay Hancock at 10:48 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

Gov. O'Malley hosted a policy summit today on how to make Maryland energy affordable, reliable and clean. Two people summed up the event very nicely, one cynically, the other realistically. Cynical: a lawyer who shall be nameless: "Nice photo op." Realistic: Public Service Commission Chairman Steve Larsen: "Everybody agrees we need to do a combination of things, but the question is, what's the most cost-effective combination?"

It's true that the event provides good PR for O'Malley, who is on the defensive after overseeing a 50 percent rise in BGE residential electric prices. But it also brought out articulate descriptions of the challenges and lots of ideas. It should help the process. O'Malley, who seems quite educated about energy issues, didn't grandstand and mostly listened.

That said, the meeting gave the impression of people talking past each other, with not enough signs of compromise. The environmentalists want wind power, but they don't want the new transmission lines needed to ship it to customers. The power companies want new generation plants and are frustrated when communities object. The consumer advocates want cheap electricity and forget that it costs money to clean up pollution and build new plants. Government officials want to reduce energy use, but they are very reluctant to admit that the best way to make that happen is raise prices.

Forging consensus would be hard under any circumstances. Making things harder is the fact that state leaders have only limited ability to effect change. Wholesale power markets, which are a big part of the electricity picture, are largely regulated by the Federal Energy Regulatory Commission. One thing missing from today was much reference to what's going on elsewhere in the country. Numerous states are trying to deal with these issues, and maybe a model will emerge for Maryland to follow.

Posted by Jay Hancock at 4:48 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

Gov. O'Malley has convened stakeholders from across the supply/demand spectrum to talk about how to plot an energy strategy (mainly electricity) for Maryland. Impressions so far:

-- O'Malley's kickoff spiel very cosmic. Talked about the "challenge we face as a state, as a nation and as a species..." And: "These are not just kitchen table issues. These are life and death issues for our planet."

-- Guv threw bones to both populists and capitalists. Power companies need stability and must "know that when investments are being made they will be able to recoup their investments," he said. On the other hand, Maryland "must declare our independence from large, centralized power generators." "We are all one Maryland," including electricity producers, but "people of this state have a right to know they aren't being gouged."

-- State energy czar Malcolm Woolf commits an economics misdemeanor. Observes that California kilowatt prices are more than 50 percent higher even than the newly jacked-up prices in Maryland. Then notes that electricity demand in California has been flat, adding that if Marylanders consumed electricity at the rate of Californians, "they would save 42 percent on their electric bills." In a fantasy world, yes. But Californians use less juice BECAUSE it is expensive. You need high prices to moderate demand, and that's not going to save anybody 42 percent. One must account for both the X axis and the Y axis on the demand curve. 

-- Controversy from the getgo. The first speaker from the panel, MaryPIRG's Terry Harris, suggested a "public benefit fund" that could invest in energy conservation etc. Mike Powell, representing Maryland industrial electricity consumers, essentially said: And you'll finance the fund by levying a surcharge on my clients? Forget it.  

Posted by Jay Hancock at 2:30 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

Shell station on Cooks Lane in Southwest Baltimore (near the I-70 terminus): $2.699 for regular unleaded this morning. (Only today. Wednesday is nickel-off day for Shell.) Almost all the stations on Edmonson Avenue were under $2.90. Gasbuddy says there was $2.69 gas yesterday at the Texaco at Route 40 and Joppa Farm Road and gas in the $2.70s neighborhood many places on the east side of town.

Posted by Jay Hancock at 10:31 AM | Permalink | Comments (0)
        

And you thought the stock market was rising because of world growth and increasing corporate earnings. Not so, says Global Financial Capital of New York. The stock market is rising because: “Large group meditations in Maharishi Vedic City, Iowa, are creating coherent national consciousness—the basis of a healthy, prosperous, invincible nation.”

If it's a joke, it's a very elaborate one. They've been sending me email press releases for years. And they have a Web site. Last summer 1,800 people in Iowa started projecting positive vibes, the press release says. Lo! Since then the stock market has gone up. Memo to statistics professors: If you need a case study showing the importance of distinguishing correlation from causation, this would be it.

More from the press release:

 "Prior to the Invincible America Assembly, since January 1, 2000, the Dow decreased on average approximately 0.02% percent per week. However, immediately following the beginning of the Assembly on July 23, 2006, there was a statistically significant shift to a rapid, positive average rate of growth of 0.50% per week. The probability of observing a change this large in the Dow’s rate of growth purely by chance is less than 0.014.

"As predicted one year ago, a surging U.S. stock market has charged to record-breaking highs, the longstanding nuclear crisis with North Korea is quietly being resolved without incident, and public backing and congressional support are on the rise for peaceful new approaches to resolving the Iraq war and other conflicts around the world.

"These dramatic and unexpected developments are just a few of the concrete signs of the success of the Invincible America Assembly in Iowa—the largest-ever scientific demonstration project to document the effects of large group meditations on the economic and social trends of the nation, according to Dr. John Hagelin, world-renowned quantum physicist, executive director of the International Center for Invincible Defense, and President of the Global Union of Scientists for Peace, who is leading the Assembly."

Posted by Jay Hancock at 10:32 AM | Permalink | Comments (3)
Categories: Stupid PR pitches
        

Continuing the shakeup at PJM Interconnection, which manages the mid-Atlantic electricity grid, CEO Phillip Harris is out. The company, which has been conducting an internal inquiry on allegations that PJM compromised the independence of its grid watchdog, announced Harris's exit at 1:30. It was billed as a retirement. Harris is 59.

I asked whether Harris's departure is related to the internal inquiry. “I don’t have a specific reason for it," PJM spokesman Terry Williamson told me. "There was a discussion between Phil and the board.” Williamson said he didn't have a timetable on when the internal inquiry would be complete. Harris is the third top PJM exec to leave the organization in three months. Chief operating officer Audrey Zibelman left in May to take a job with Nodal Exchange, an electricity financier. General Counsel F. John "Jack" Hagele retired May. 1. The fact that PJM named no permanent replacement for Harris suggests his departure was not planned.

One executive who's still there is Joseph Bowring, the market monitor who has produced copious evidence showing that Zibelman and other PJM bosses forced him to alter reports and otherwise checked him when he saw evidence of electric-generation companies using monopoly power to charge exorbitant prices. Bowring also produced emails and other evidence showing that Harris was contemplating replacing Bowring's unit with an outside contractor. Presumably such a plan is defunct.

If Harris's departure means that PJM's board takes Bowring's allegations seriously and will give him more leeway and authority, that's a good thing. Even better, however, is a recent proposal by the Federal Energy Regulatory Commission to make Bowring and other grid monitors independent. From the PJM press release:

"Valley Forge, Pa. – July 23, 2007) - The PJM Board of Managers today announced that President and CEO Phillip G. Harris has elected to retire from PJM. "The Board appointed Karl V. Pfirrmann, presently senior vice president, as interim President and CEO. A special Board committee will be formed to conduct an executive search for the position.

"The Board also has elected Howard Schneider as Chairman and Lynn Eury as Vice Chairman of the Board.

 "Pfirrmann has 37 years of experience in the electric utility industry and joined PJM in 2003 from Allegheny Power where he was vice president of system planning and operation. A native of Cincinnati, Ohio, he graduated with a degree in electrical engineering from Carnegie-Mellon University.

"The Board’s statement follows:

 "“We are announcing that President Phillip G. Harris has elected to retire from PJM. We want to acknowledge Mr. Harris’ considerable contributions to PJM and our industry over his many years of service. Without his guidance and vision, PJM would not enjoy the reputation for technological and operational excellence that has made it the benchmark for regional transmission organizations the world over.

"“During this transition, we want to reassure our stakeholders, as well as federal and state regulators, of our ongoing commitment to reliable operation of the grid and competitive wholesale markets. As always, the one constant is the quality of our fine employees who diligently and faithfully continue to perform their critical functions every day. We are confident that the organization is in capable hands with Karl Pfirrmann at the helm.”"

Posted by Jay Hancock at 2:02 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

Illinois lawmakers are about to extract hundreds of millions of dollars in rebates from holding companies that took over utilities' electric-generation plants when the industry was deregulated. This is what Maryland was unable to accomplish last year. In 2000 Constellation Energy took over Calvert Cliffs and other low-cost plants owned by Baltimore Gas & Electric without ever compensating BGE customers. Then, after price caps expired a year ago, the plants were able to auction off the juice to the highest bidder as prices escalated. Because the plants are powered by low-cost coal and nuclear energy in a market where the clearing price is often determined by expensive natural-gas generators, Constellation has been pocketing huge profits.

But after BGE announced a 72 percent price increase for residential customers last year, Maryland's General Assembly never came close to getting serious money out of Constellation for rate relief. The legislators delayed the rate increase for a few years, but customers will eventually have to pay it anyway -- with interest. Annapolis did get BGE to cut its profit margin slightly, and it got Constellation to agree to stop collecting money to decommission Calvert Cliffs decades from now. But Constellation never should have been getting the decommissioning money in the first place. They own the plant, and liabilities for shutting it down should be their problem now, not BGE customers'.

The Illinois settlement sets a model for what might happen in Maryland. The attorney general sued holding companies Exelon and Ameren, alleging irregularities in wholesale electricity auctions. Now the companies have reportedly agreed to give back more than $1 billion. Illinois is also scrapping its auction system and appointing state bureaucrats to oversee electricity purchases. Nobody has alleged that Maryland's auctions were flawed. But PSC Chairman Steve Larsen says he is still examining whether they were conducted properly. And he is hiring experts to examine the profits Constellaton is making on the former BGE plants, which I wrote about yesterday.

From a story in the Chicago Tribune:

"Utilities and Illinois officials reached a proposed agreement that would return about $1 billion to customers stung by this year's brutal increase in electric rates, sources said Friday, and also replace the controversial auction that led to the high rates with a new state agency that would procure electricity on behalf of consumers.

"About $800 million of the consumer rebate will come from Exelon and its corporate offspring, ComEd. Ameren is contributing about $150 million and other, smaller electrical generators will provide the remaining $50 million, the sources said. The rebate is expected to be paid over a period of several years.More complete details of the agreement are expected to be announced Monday."

UPDATE: A Reuters story on today's deal announcement:

"NEW YORK, July 23 (Reuters) - Illinois electric customers of Exelon Corp.'s (EXC.N: Quote, Profile , Research) Commonwealth Edison and Ameren Corp. (AEE.N: Quote, Profile , Research) will receive $1 billion in refunds and other relief as part of a reform package, state officials said Monday.

Half of the $1 billion would go to Ameren's 1.2 million customers in the southern part of the state and half would go to Commonwealth Edison's 3.8 million customers in the northern part of the state."

Posted by Jay Hancock at 10:47 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

Recently a German research outfit tested wastewater in more than a dozen worldwide cities for metabolites of cocaine. The idea was to infer per-capita cocaine use by measuring the concentration of coke by-products (excreted through urine and then through the waste treatment system) in the Hudson, the Potomac and other great rivers of the world. The winner, by a lot: New York City, with an estimated useage of 134 lines of cocaine per day per 1,000 inhabitants. That's 16 tons a year. Miranda de Ebro, in Spain's Pyrenees, came in second. Washington D.C. placed third, with 56 lines a day per 1,000 inhabitants or 7 tons per year. San Francisco was fourth. No tests were done on the Patapsco.

Source: Institute for Biomedical and Pharmaceutical Research. The study was cited in the United Nations' World Drug Report, published a couple weeks ago. Thanks to Big Picture for the tip.

Posted by Jay Hancock at 2:58 PM | Permalink | Comments (1)
        

Sleuthing and prodding by Nebraska Sen. Charles Grassley -- one of the best legislators in Washington today -- has found that -- surprise! -- nonprofit hospitals across the country don't deliver that much care for the poor in return for their tax exemption. He also found that -- surprise! -- the hospitals use the money they aren't spending on the poor to pay big executive salaries and benefits. This is still developing, and you'll hear more about this out of Washington. Here are highlights of a survey of 65 nonprofit hospital systems that the Government Accountability Office performed for Grassley. The hospitals weren't identified.

-- 15 of the systems did not require executive compensation consultants to be free of conflicts of interest.
-- 21 of the 55 systems paying for the CEO's car use had not performed an internal audit of the expense since 2004.
-- 26 of 45 hospital systems paying the CEO's country club dues had not performed an internal audit of the expense since 2004.
-- 13 of the systems paid travel expenses for the CEO's spouse.
-- 17 of the systems paid for the CEO's tax preparation.
-- 2 systems made loans to the CEO.
-- 28 systems pay for the CEO and other top executives to attend sports events.
-- 16 systems pay for the CEO and other top executives to attend the theater.

Posted by Jay Hancock at 11:29 AM | Permalink | Comments (0)
        

Harvard's Greg Mankiw is former chairman of President Bush's Council of Economic Advisers. Chalk up another Republican who believes that "carried interest" earned by venture-capital managers and other private-equity pros should be taxed as ordinary income, not long-term capital gain. The top rate for ordinary income is more than twice the 15 percent levied on long-term capital gains. I wrote about this in Sunday's paper.

Mankiw:

"Several people have asked me my views on the taxation of carried interest. It is a complicated issue, and I don't pretend to be an expert on tax law, but here goes.

"Deferred compensation, even risky compensation, is still compensation, and it should be taxed as such. Paul Krugman put his nail on the head with this question:

""Why does Henry Kravis pay a lower tax rate on his management fees than I pay on my book royalties?"
"The analogy is a good one. In both cases, a person (investment manager, author) is putting in effort today for a risky return at some point in the future. The tax treatment should be the same in the two cases.

"One hedge fund manager told me that the initial value of the carried interest should be taxed as ordinary income and then the subsequent returns should be taxed at the capital gains rate. Maybe so, but taxing the terminal value as ordinary income (as is being proposed) seems strictly better for the manager in present value. It is as if the manager put the initial value of the carried interest in an tax-deductible IRA, deferring tax on this compensation until the money is withdrawn at a later date. The proposed reform, therefore, does not seem excessive.

"John Berry's recent article on carried interest suggests that the Bush administration is opposed to reform. If so, I fear the administration is on the wrong side of the issue."

Posted by Jay Hancock at 11:32 AM | Permalink | Comments (0)
        

Dan Drezner is asked: "What should [Democrats] be doing [to improve worker security] that conservatives wouldn't assault like mad dogs until the last breath was torn kicking and screaming from their bodies?" In other words: What can the country do to improve worker security without putting up trade tariffs and quotas that would hurt growth, cause inflation, reduce tax revenues and -- in the long run -- hurt worker security? Drezner, a free-trade apostle and conservative on economic matters, has three good suggestions:

"1) Health care portability. Every poll I've seen suggests that workers are more scared of losing their health coverage than anything else... including their job. If the Democrats can propose something that's in the same ballpark as what Mitt Romney implemented in Massachusetts, it would go a long way towards alleviating public anxiety about globalization.

"2) Tax reform. In the current issue of Foreign Affairs, Kenneth Scheve and Matthew Slaughter propose a "New Deal for globalization" that includes making the payroll tax much less regressive:

"A New Deal for globalization would combine further trade and investment liberalization with eliminating the full payroll tax for all workers earning below the national median. In 2005, the median total money earnings of all workers was $32,140, and there were about 67 million workers at or below this level. Assuming a mean labor income for this group of about $25,000, these 67 million workers would receive a tax cut of about $3,800 each. Because the economic burden of this tax falls largely on workers, this tax cut would be a direct gain in after-tax real income for them. With a total price tag of about $256 billion, the proposal could be paid for by raising the cap of $94,200, raising payroll tax rates (for progressivity, rates could escalate as they do with the income tax), or some combination of the two. This is, of course, only an outline of the needed policy reform, and there would be many implementation details to address. For example, rather than a single on-off point for this tax cut, a phase-in of it (like with the earned-income tax credit) would avoid incentive-distorting jumps in effective tax rates.

"This may sound like a radical proposal. But keep in mind the figure of $500 billion: the annual U.S. income gain from trade and investment liberalization to date and the additional U.S. gain a successful Doha Round could deliver. Redistribution on this scale may be required to overcome the labor-market concerns driving the protectionist drift. Determining the right scale and structure of redistribution requires a thoughtful national discussion among all stakeholders. Policymakers must also consider how exactly to link such redistribution to further liberalization. But this should not obscure the essential idea: to be politically viable, efforts for further trade and investment liberalization will need to be explicitly linked to fundamental fiscal reform aimed at distributing globalization's aggregate gains more broadly.

"Slaughter was a Bush appointee to the Council of Economic Advisors, by the way.

"3) Eliminate all tariffs on food products, footwear and apparel. Because they are concentrated in food and clothing, the remaining U.S. tariffs hurt the poor much more than the rich as a fraction of income. Don't take my word for it, this is the argument made by the Progressive Policy Institute: "tariffs appear at least on average to be the only major tax in which effective rates rise as incomes fall." [UPDATE: Kudos to Congressmen Joseph Crowley (D-NY) and Kevin Brady (R-TX) for proposing legislation that addresses this issue.]"

Posted by Jay Hancock at 10:52 AM | Permalink | Comments (0)
        

Today's inflation report contains mostly good news. Consumer prices went up only 0.2 percent from May to June, according to the government. But that's a weighted index, of course. Prices for some items rose faster than 0.2 percent. One of the biggest pops came in "lodging away from home," ie., hotel and motel rates. Room prices rose 2.5 percent in one month. That's an annual rate of 34 percent! Of course hotel rates won't go up that much. But they're rising much faster than inflation, which helps explain why hotel stocks are doing so well and why my wife and I paid $400 for a night in New York last month.

Here is graph, courtesy of the Labor Department, showing year-over-year percentage increases in hotel/motel rates. The price of lodging away from home was up 6.8 percent last month compared with the level of June 2006.

Posted by Jay Hancock at 5:30 PM | Permalink | Comments (1)
        

Courtesy of Big Picture, here is the letter that Bear Stearns just sent to investors in its subprime mortgage hedge funds. The essential message is: We lost all or most of your money. (Big Picture & the letter are hyperlinked but it's hard to see with our new graphics, at least on my screen.)

A couple nice touches:

"During June the Fund experienced significant declines in the value of their assets resulting in losses of net asset value. the Funds' reported performance, in part, reflects the unprecedented declines in the valuations of a number of highly-rated (AA and AAA) securities."

Translation: MOODY'S TOLD US THIS MONEY LOANED TO PEOPLE WITH BAD CREDIT HISTORIES BUYING HOUSES THEY COULDN'T AFFORD WAS A GOOD RISK. IT'S NOT OUR FAULT!

"The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007."

Translation: THE HIGH-GRADE FUND LOST ONLY 90 PERCENT OF ITS VALUE. WE REMIND YOU THAT HIGH-GRADE IS A RELATIVE TERM.

Posted by Jay Hancock at 11:38 AM | Permalink | Comments (0)
        

In my inbox this morning is an email from Bookswim.com, which claims to be "a full-service membership-based online book rental club." Bookswim debuted yesterday. Plans start at $19.99 a month. They send you three books at a crack. No shipping charges. No late fees and a catalog of 150,000 books.

"July 17, 2007-MONROE, NJ —BookSwim.com, a full-service membership-based online book rental club, officially announces its launch today. The subscription service, which lends readers paperbacks and hardcovers through the mail, opened its doors to beta testers only two months ago. The plans, ranging from three books at-a-time for light readers all the way to 11 books at a time for heavy readers and families, have shed a new light on a new delivery method for the centuries-old book medium.

"BookSwim book rental is now affordable and reflects the true nature of consumers saving money by renting over buying.

""The cost has gotten out of hand, especially when you might not always desire ownership," explains George Burke, Chief Marketing Officer. "Book prices shouldn't be a factor for people who love books. The whole purpose of BookSwim is to help avid readers save money on all their favorite authors: J. K. Rowling, James Patterson, and Jodi Picoult, just to name a few.""

I'm skeptical. This model seems to be working for Netflix. But avid book readers are probably far fewer than avid movie-watchers. It takes only a couple hours to watch a movie vs. several days -- minimum -- to read a book (for most people anyway). So the capacity for people to consume Bookswim's product is more limited than for Netflix. If Bookswim does get substantial numbers of customers, it'll be vulnerable to competition from Barnes & Noble and Borders, who will start their own rental services. And then there's the public library. I imagine Bookswim will concentrate heavily on newly released bestsellers, as movie-rental places do. These can be hard to come by at the library, but still... At at price of $240 a year, Bookswim has its work cut out.

Posted by Jay Hancock at 10:20 AM | Permalink | Comments (0)
        

Apparently not all Jurrasic-rock music priced at $15 an album is collecting dust. This story in today's Sun tells how AC/DC's 1990 album, Back in Black, sold 440,000 copies last year and has sold 156,000 this year. Metallica, Guns N' Roses and Bon Jovi, whose members are all candidates for prostate enlargement and male pattern baldness, are also still best sellers. But I still think deep discounting of labels' less-popular, older material would generate revenue and royalties. The costs for these albums are totally sunk. ANY revenue is gravy, and some of the artists (not Bon Jovi) could probably use the dough.

Posted by Jay Hancock at 12:04 PM | Permalink | Comments (2)
        

Last October I noted that health-care and social-assistance positions had accounted for 64 percent of metro-Baltimore's job growth over the previous five years. In recent months the medical industry has carried even more of the burden. For March through May, Baltimore and its surrounding counties added 15,100 jobs, according to the Bureau of Labor Statistics. All but 3,000 came in health care. That's a stunning number, and it suggests that without the medical business metro Baltimore would be close to recession.

Business Week economist Michael Mandel, whose September story on the outperformance of health-care jobs on a national basis gave me the idea for last fall's column, has an update on his blog, which shows a similar pattern. His chart shows the gap between national growth in health-care jobs compared with growth in non-health-care jobs.

The health care sector is growing so fast, people joke, that eventually it will take up 100 percent of GDP and we'll all be working as doctors taking care of other doctors.

Posted by Jay Hancock at 6:21 PM | Permalink | Comments (0)
        

... in Rolling Stone.

Overall CD sales have plummeted sixteen percent for the year so far -- and that's after seven years of near-constant erosion. In the face of widespread piracy, consumers' growing preference for low-profit-margin digital singles over albums, and other woes, the record business has plunged into a historic decline.

In 2000, U.S. consumers bought 785.1 million albums; last year, they bought 588.2 million (a figure that includes both CDs and downloaded albums), according to Nielsen SoundScan. In 2000, the ten top-selling albums in the U.S. sold a combined 60 million copies; in 2006, the top ten sold just 25 million. Digital sales are growing -- fans bought 582 million digital singles last year, up sixty-five percent from 2005, and purchased $600 million worth of ringtones -- but the new revenue sources aren't making up for the shortfall.

More than 5,000 record-company employees have been laid off since 2000. The number of major labels dropped from five to four when Sony Music Entertainment and BMG Entertainment merged in 2004 -- and two of the remaining companies, EMI and Warner, have flirted with their own merger for years.

More record executives now seem to understand that their problems are structural: The Internet appears to be the most consequential technological shift for the business of selling music since the 1920s, when phonograph records replaced sheet music as the industry's profit center.

Record companies face many of the same problems as the print-news business, and show many of the same symptoms. There is no easy solution, and whatever solution is found almost surely will involve smaller profits. I agree with Big Picture's Barry Ritholtz, however, that record companies really, really need to cut prices on their back catalog. It's crazy to be charging $15 for Rolling Stones and Temptations albums that haven't charted in 40 years. Cutting prices would move merchandise and generate revenue.

Posted by Jay Hancock at 11:20 AM | Permalink | Comments (0)
        

People scoffed when the U.S. Mint ordered Americans not to melt down pennies and nickels a few months ago. Sure, the zinc and copper in the coins had gotten to be worth more than their face value, thanks to the boom in prices of metals and other commodities. But who would go to the trouble? You'd have to melt a zillion coins to make $100, even if you could find a scrap dealer willing to buy. But the Mint feared entrepreneurial metallurgists might cause a penny and nickel shortage.

Here's a BBC story that shows what the Mint feared coming to pass in India. People are melting rupees, converting them into razor blades and smuggling them into Bangladesh. Result: a one-rupee coin is worth 35 rupees once it's converted into male grooming equipment. And no more rupees.

Police in Calcutta say that the recent arrest of a grocer highlights the extent of the problem. They seized what they said was a huge coin-melting unit which he was operating in a run-down shack.

The grocer confessed to melting down tens of thousands of Indian coins into razor blades which were then smuggled into Bangladesh, police said.
To deal with the coin shortage, some tea gardens in the north-eastern state of Assam have resorted to issuing cardboard coin-slips to their workers.

The denomination is marked on these slips and they are used for buying and selling within the gardens. The cardboard coins are the same size as the real ones and their value is marked on them.

Posted by Jay Hancock at 5:03 PM | Permalink | Comments (0)
        

From Kiplinger's Personal Finance magazine:

With an extra $1,000, you could invest to make a profit—or you could invest to make difference in someone’s future.

The August issue of Kiplinger’s Personal Finance offers 20+ tips for putting your money to good use, including these ideas for budding philanthropists:

-- Help teachers help students. Classrooms with limited budgets can now go to www.DonorsChoose.com, a web site that connects donors with small schoolroom projects. A $1,000 donation can provide a computer to one classroom, or be split up among multiple classes, offering dress-up clothing to kindergarteners in one city and a digital camera to third graders in another.

-- Do good with a donor-advised fund. Instead of the $10,000 minimum contribution required by most mutual fund companies to open a donor-advised fund, many community foundations allow you to start one for $1,000 or less. The program invests your assets, and as they grow, you have more money to give. When your fund is large enough to make a grant -- that threshold is usually $10,000 -- you then recommend which charities should receive it.

-- Fight poverty with micro loans. You don’t have to be rich to be a venture capitalist. For as little as $25, you can provide seed capital to a fledgling baker in Azerbaijan or fund a home-products wholesaler in Ecuador. Although investing in these businesses won’t make you rich, you’ll help make the world a richer place by enabling struggling entrepreneurs in developing countries to lift themselves out of poverty. Browse the listing of budding businessmen and women at www.kiva.org.

Posted by Jay Hancock at 12:42 PM | Permalink | Comments (0)
        

See Mary Gail Hare's great story in today's Sun. Dairy farmers are buying expensive, automatic milking machines so they don't have to spend hours under the udders. David Dallam used to milk all 60 or 70 of his cows by hand. I don't know how long it takes it takes to milk a cow, but even if it's only two minutes you're talking two hours to milk the herd. And Mr. Dallam had to do it twice a day.

Farmers are using the time saved by the milking robots to make and sell ice cream, work their fields or go to baseball games.The labor productivity gained -- economic output per hour worked -- is obvious. The capital productivity gain is less obvious. The robot milker costs $180,000, and who knows if the extra resources freed up by the machine will pay the mortgage?

But this is indicative of a larger and healthy trend that has been going on in Western society since the 1700s. Productivity growth is the sole gauge of society's ability to produce wealth and raise standards of living. An example from the agriculture sector is especially relevant. To keep a country from starving, 90 percent of the population once had to work on the farm. But as tractors and combines replaced ploughs and threshers, and as fertilizers and pesticides increased per-acre yields, farms were able to produce much more food with far fewer people. The newly unemployed farm boys and girls sought their futures in the city, where they learned how to make automobiles, tools, bank loans and life insurance products. Productivity growth eventually enriches everybody. Why? The more you can produce with an hour of your labor, the more you get paid. Good luck to the Dallams.

Posted by Jay Hancock at 10:44 AM | Permalink | Comments (0)
        

PJM Interconnection, which operates the electrical grid in Maryland and a dozen other states, is in an all-out war with its own market monitoring unit. The unit is supposed to guard against price-gouging by generation companies of the sort the Enron pulled in the Western U.S. in 2000 and 2001. But market monitor Joseph Bowring has alleged in recent weeks that his PJM bosses repeatedly suppressed his concerns about "market power" by generators and compromised his independence. PJM disputes the allegations, saying that Bowring didn't follow internal procedures and that there were problems with his analyses. New comments by PJM CEO Phillip Harris, however, seem to demonstrate annoyance at the very existence of a market watchdog, at the federal regulators overseeing the group and at the public discussion surrounding Bowring's allegations.

"You know, we didn't ask for [a] market monitor," Harris said to a large group of employees in the PJM parking lot two weeks ago, according to a DVD the company made. [The government] made us have a market monitor, and all they said was, 'Here's some general rules.' So over time that's evolved to the point that there's an actual dispute over what the role versus the accountability is. It's a shame that that dispute got turned into a public debate, and which led to litigation. But... it was something we should expect. You're in a transition industry. Things haven't been formed. You have the federal government trying to say what it should be, which isn't how you turn process, so you're just ripe for dispute and debate. That will be worked out through the litigation, and we'll move ahead with that."

Evidently somebody leaked the DVD to Bowring's lawyers, who included a partial transcript of Harris's remarks in a letter filed yesterday with the Federal Energy Regulatory Commission.

"PJM appears to dismiss the need for a market monitor, as well as the Commission's role in ensuring market monitoring independence," said the letter. "Mr. Harris' comments speak volumes. It is fundamentally wrong to call this policy debate a 'shame' because this is a matter of public interest that should be debated openly."

I asked PJM for a response. Spokesman Terry Williamson says:

"Those remarks came as part of a 20-minute discussion with employees where Mr. Harris pointed out that the current debate over the role of the market monitor comes in a long line of similar debates, such as the controversy over the formation of PJM as a power pool. The point is that PJM has always been at the center of the ongoing national debate about the structure of the electricity industry.

"There has been considerable debate for the past decade about the design of this function. Mr. Harris was referring to the fact that no detailed federal rules have been established as to how it's set up, which is evident in the advance notice of rule-making issued recently by FERC on this subject.

"The truth is that when you strip away all the rhetoric -- political and otherwise -- this is about the ongoing, intellectual debate of trying to strike a balance between the accountability and independence required for this function. As prescribed by FERC, PJM is accountable for this function in the current constrict, but the market monitor believes he should be the judge of whether his role is truly independent.

"Concerning the public aspect of this issue, Mr. Harris would agree that it is unfortunate that this dispute about accountability became an adversarial matter of litigation when the appropriate forum is a pubic, elevated debate about the appropriate design of the market monitoring function before the commission and involving all parties."

Yeah, that would be nicer. But Bowring is alleging that PJM generation companies have reaped millions of dollars in "excess payments" and that his PJM bosses stopped him from saying so. Seems like the time for elevated debate is over. Maybe they didn't ask for a watchdog, but it sure sounds like they need one -- with bigger teeth and a different address.

Posted by Jay Hancock at 2:21 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

This is a big deal and dark blot on the plaintiff's bar. The Milberg Weiss law firm has reaped tens of millions of dollars over the years by filing lawsuits on behalf of public shareholders claiming they were wronged. Now it emerges that it was paying kickbacks to plaintiffs -- sharing millions in legal fees with them. The motivation, according to prosecutors, was so it could quickly find live bodies to file suits whenever the firm deemed that a breach of corporate duty might have occurred. Timely filing allowed New York-based MW to be the lead firm in many filings, enabling it to reap higher fees.

Yesterday a Beverly Hills opthamologist pleaded guilty to conspiracy and obstruction of justice and, says the Los Angeles Times, "admitted that he and some of his relatives and associates agreed to serve as named plaintiffs in approximately 70 class actions Milberg Weiss filed" in return for $6.1 million in secret payments.

On Monday ex-Milberg Weiss partner David Bershad pleaded guilty to conspiracy in accusations related to the same scheme. Former Milberg partner Steven Schulman has been indicted, and indictments of former MW partner Bill Lerach and co-founder Melvyn I. Weiss are "practically inevitable," a Columbia University law professor told the Times. Few corporate directors or CEOs are feeling sorry for these guys.

Posted by Jay Hancock at 10:53 AM | Permalink | Comments (0)
        

In a report published yesterday, the nonpartisan Congressional Research Service said that the cost of the Iraq war is approaching half a trillion dollars. Of course this is multiples of what the Bush administration, with a straight face, said it would cost in 2003.

White House economic advisor Lawrence Lindsay was reproved and ultimately fired for estimating that the war could cost $100 billion to $200 billion. That figure was "very, very high," budget chief Mitch Daniels retorted. Actually, it was quite low. Yale economist William Nordhaus, in a 2002 paper, predicted all too accurately what would happen.

From a Hancock column four years ago:

Senate Majority Leader Bill Frist of Tennessee told reporters that $74.7 billion was Bush's "best estimate" of the war's cost. But don't be surprised if the estimate is wrong.

Conservatives correctly observe that actions by government generally bring unintended consequences. The bigger the action, the bigger the surprising repercussions, and government programs seldom get bigger than war.

Often, one consequence of war is - more war. And more war expense.

U.S. leaders frequently misjudge the cost of hostilities, Yale economist William D. Nordhaus said in a paper published late last year.

The Civil War cost 13 times what President Abraham Lincoln's Treasury secretary had estimated, and "the costs of the Vietnam War were grossly underestimated even as the buildup occurred," Nordhaus reported, adding that "in assuming that the war would end by June 1967, the Pentagon underestimated the total cost of the war by around 90 percent."

Neither Nordhaus nor this column is arguing that the war on Iraq will turn into Vietnam-style quicksand, though that is not impossible. Wars, however, are major disturbances in the political/economic pond, often generating waves more powerful and far-reaching than anybody expects.

Nordhaus figured an Iraq war could cost between $120 billion and $1.6 trillion, with the higher figure resulting from an "unfavorable" outcome of prolonged conflict, high peacekeeping costs and a ravaged Iraqi oil industry.

Posted by Jay Hancock at 10:08 AM | Permalink | Comments (0)
        

From the Israeli embassy this afternoon:

WASHINGTON – Israel has announced that starting this fall, it will significantly reduce the petroleum consumption of its senior diplomats in the United States by switching to hybrid-electric vehicles. The symbolic initiative, led by Israel’s Ambassador to the United States, Sallai Meridor, will include Israel’s embassy in Washington, its nine consulates throughout the U.S. and its mission to the United Nations, making Israel’s foreign service among the first in the U.S. to significantly reduce oil demand throughout its entire official fleet.

"Reducing oil dependence and protecting the environment are key factors in improving international security," Meridor said. “We are proud to be among the first countries to take this small but symbolic step. Our hope is that many small steps taken together will lead to major policy action around the world that will address one of the most critical strategic and environmental issues facing our common future.”

Israel plans in the years ahead to strengthen energy cooperation with the U.S. by developing alternative energy technologies and assisting American efforts to reduce petroleum dependence.

“Israel has always been at the forefront of conservation,” Meridor said. “We believe in the critical importance of embracing alternative sources of energy and advanced vehicle technology to help achieve energy independence and build a sustainable environment.”

Posted by Jay Hancock at 6:10 PM | Permalink | Comments (0)
        

Two Irishmen and a company called Steorn claim they have overcome a basic law of physics and employed magnets to produce cheap, clean energy from thin air.

Orbo produces free, clean and constant energy - that is our claim. By free we mean that the energy produced is done so without recourse to external source. By clean we mean that during operation the technology produces no emissions. By constant we mean that with the exception of mechanical failure the technology will continue to operate indefinitely.

The sum of these claims for our Orbo technology is a violation of the principle of conservation of energy, perhaps the most fundamental of scientific principles. The principle of the conservation of energy states that energy can neither be created or destroyed, it can only change form.

Because of the revolutionary nature of our claim, not only to the world of science but to the world in general, Steorn issued a challenge to the scientific community in August 2006 to test our technology and report their findings. The process of validation that has resulted from this challenge is currently underway, with results expected by the end of 2007.

Now they are demonstrating the revolutionary discovery in London. Or at least trying to. Last week they experienced "technical difficulties" and had to put historic event on hold. Cold fusion, anybody?

Posted by Jay Hancock at 11:04 AM | Permalink | Comments (0)
        

Ten years ago David Friedman, son of Milton, published a book called Hidden Order: The Economics of Everyday Life. It applied basic economic concepts -- incentives, monopolies, rational expectations etc. to the daily experiences of shopping, marriage, driving etc. I don't know how well it did, but it's probably fair to say that it wasn't a blockbuster.

These days, it seems, a new popular economics book emerges every week. The enormous success of Steven D. Levitt's and Stephen J. Dubner's Freakonomics has prompted a boom in "everyday economics" books, many of which are doing very well. There is Tim Harford's The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor -- and Why You Can Never Buy a Decent Used Car, and Robert Frank's The Economic Naturalist: In Search of Explanations for Everyday Enigmas. Now my favorite blogger, George Mason University economist Tyler Cowen, has an offering. Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist won't be published until August. I haven't read most of the offerings, but I'll be sure to check out this one.

Why the bull market in pop economics? Economists are getting better at making their important discipline fun and understandable for ordinary intelligent folks. The fear of seeming to "dumb down" economics apparently has been vanquished by the prospect of six-figure publishers' advances. It is telling that the people writing these books are all young and therefore hipper, more colloquial and more accessible than their PhD advisors and the rest of the previous generation. These are not serious books. They won't change policy or provoke lofty arguments, as did, say, Milton Friedman's Monetary History of the United States or J.K. Galbraith's The Affluent Society. But if they teach more people about the theory and practice markets -- the mechanism that lifted mankind out of mass poverty and into the modern age -- that's a good thing.

Posted by Jay Hancock at 9:34 AM | Permalink | Comments (0)
        

George Mason University economist/blogger Tyler Cowen calls our attention to a piece in the latest Economist magazine.

The article is about "ultimatum," a classic game-playing scenario, in which there is a pot of money and two players. The first player gets to divide the cash in two portions of any size, one for each player. The second player gets to accept the portions or reject them, but if he says "no," nobody gets any money and everybody loses. Classical economics says that the intelligent, "rational" answer for Player No. 2 is to agree to the split-up no matter how small his portion is. After all, it's more than he had to start with, which was zero. But of course human nature doesn't work this way. When psychology subjects play the game, the second player often deems his small portion "unfair," and he pulls the plug.

Now a Harvard professor has published research showing that, in his experiments, male players who rejected small shares and ended the game had much higher testosterone levels than those who didn't.

The Economist:

The responders who rejected a low final offer had an average testosterone level more than 50% higher than the average of those who accepted. Five of the seven men with the highest testosterone levels in the study rejected a $5 ultimate offer [out of $40] but only one of the 19 others made the same decision.

Tyler Cowen:

In other words, irrationality isn't just a deviation due to imperfection, we are programmed to be spiteful. Here is information on how high testosterone levels are correlated with urges to compete and be dominant.

Posted by Jay Hancock at 9:47 PM | Permalink | Comments (0)
        

I'll be on Maryland Morning with Sheilah Kast. To talk about -- what else? -- electricity. 9 a.m. Topics are Gov. O'Malley's conservation campaign, how to get generators built and what happens next at the Public Service Commission.

Posted by Jay Hancock at 9:36 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

This study, published at the National Bureau of Economic Research, has been written about in several news accounts. It just crossed my desk.

The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets... The sophistication of financial choices peaks around age 53 in our cross-sectional data.

Performance tends to rise and then fall with age. Baseball players peak in their late 20s (James 2003). Mathematicians, theoretical physicists and lyric poets make their most important contributions around age 30 (Simonton 1988). Chess players achieve their highest rankng in their mid-30s (Charness and Bosnian 1990). Autocratic rulers are maximally effective in their early 40s (Simonton 1988). Authors write their most influential novels around age 50 (Simonton 1988). The present paper studies an activity that is less august, though it is relevant to the entire adult population: personal financial decision making.

Posted by Jay Hancock at 10:03 AM | Permalink | Comments (1)
        

Breyers Yougurt's public relations agency, Crier Communications, has come up with a way to try to get the media to mention YoCrunch, the product packed with granola plus M&Ms, Butterfingers candy chunks or other goodies. You can't just write a press release that says, "Hey look. We're trying to sell this product. Please mention it in a news article. Please!?" Instead you have to think of a theme for a possible news story that your product fits into.

In this case the themes are "convenient" packaging that pre-mixes Oreos into the yogurt so customers don't have to do it themselves (lame, themewise) and hitching your relatively unknown brand (Breyers Yogurt) to famous marques such as M&Ms, Nestle's Crunch etc. (better, but no thanks). They want you to interview Breyers Yogurt President Chuck Marcy.

Chuck would also be a great resource to discuss how innovation and simple details can differentiate a brand, along with the benefits of pairing complementary name brand products with a line to increase market awareness and your product's place on the shelf.

Please let me know if you're interested and however I can help. Thank you!

Posted by Jay Hancock at 9:10 AM | Permalink | Comments (3)
        

Yield on 10-year Treasury, trading today

This is the T-note's first time under 5 percent in almost a month. It hit 4.998 percent around 3 p.m. today. When bond prices fell and interest rates rose in early June, they caused much havoc. Higher rates obviously mean higher borrowing costs, and markets feared that bigger bond yields would siphon money from stocks and slow the economy. Stocks and bonds both fell, risk spreads widened and analysts thought they saw a new landscape. Mortgage rates rose as well, which people worried would further hurt the housing market. The T-note yield got as high as 5.25 percent on June 12. Was it just a temporary bump? The bond rally that began in mid-June is also starting to reduce mortgage rates. The Dow is also moving today -- up 100 points.

30-year mortgage rate, thanks to Bankrate.com

Posted by Jay Hancock at 3:27 PM | Permalink | Comments (0)
        

Foreign Policy magazine, edited by the wonderful Moisés Naím, former trade & industry minister of Venezuela (pre-Chavez), figured out what it would cost to fill up a Honda Civic in several countries. The lowest costs were in Turkmenistan, Venezuela, Iran and other places where the government heavily subsidizes energy. The highest was in Turkey ($93.98 to fill up) followed closely by Britain and France. Since this study was done last November, when prices had dipped a little, the figures would be even higher now.

Posted by Jay Hancock at 10:16 AM | Permalink | Comments (0)
        

The scarcity premium for iPhones dropped sharply over the weekend. The new Apple cellphone/camera/music player could be bought Friday for the first time. Retail price: $500 or $600, depending on memory. Average eBay re-selling price, as of late Saturday: $962, according to the Associated Press quoting the online auction company. But by late Sunday the average eBay price had fallen to $740, according to AP. Maybe that's because iPhones were available at sticker price in many Apple stores over the weekend, according to the blogosphere. Or maybe word about problems in activating the devices cooled the ardor of potential buyers.

Sunday night on eBay, 8-gig iPhones were still getting lots of action north of $700 -- $100 over their store price. For many orders that included free express shipping. eBay clients were on track to buy more than 3,000 iPhones by the end of the weekend. That's 3,000 smalltime entrepreneurs turning a quick profit of $150 or $300. Of course they'll declare it on their tax forms.

Posted by Jay Hancock at 8:54 PM | Permalink | Comments (0)