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 (4)
                    

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)
                    

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)
                    

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)
                    

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)
                    

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)
                    

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)
                    

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)
                    

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)
                    

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)
                    

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 (0)
                    

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)