Maryland's status as No. 1 in the nation in median household income last year got all the headlines when the Census Bureau disclosed the figures on Monday. But Maryland also ranks highly in equality of income distibution -- despite low-income neighborhoods in Baltimore and scattered rural poverty. That is to say, compared with income in the rest of the United States, Maryland's prosperity is widely shared.

Economists use an indicator called the Gini index to gauge inequality. 0 on the Gini scale is total equality: 20 percent of the population gets 20 percent of the income, 30 percent of the population gets 30 percent of the income, and so forth. 1 is perfect inequality: One guy makes all the income in a given year, and nobody else makes anything. In U.S. states last year, Gini scores ran from 0.410 for Utah -- lower inequality -- to 0.537 in the District of Columbia, which indicates higher inequality. Maryland's score was 0.433, indicating the 13th-lowest inequality in the country.

Maryland was one of only three states among the top-10 income states to have an inequality index this low. So not only is what wealth we have widely shared; compared with income in other states, there's a lot of it. Several states that did well in inequality scores last year also ranked poorly in income. Maine, New Hampshire, Vermont, Wyoming, Idaho, Indiana, Iowa and Montana all had higher equality. But they also had low income.

Note that these are all relative scores. A Gini range of 0.127 -- the spread between Utah's 0.410 and D.C.'s 0.537 -- is not a great degree of variability. To see extreme inequality in action, go to Brazil, where the income Gini index is 0.600. To see extreme equality, go to Japan or Sweden, where the income Gini index is 0.250.

Another way to look at inequality is to examine the income shares held by the top 20 percent and the lowest 20 percent of the distribution. In Maryland, the lowest 20 percent of the earners got 3.9 percent of the income last year. That's not much but it's twice the share in D.C., where the lowest 20 percent got only 1.9 percent of the income. In Japan and Sweden, the lowest 20 percent get 10 percent of the income. In Utah, the lowest 20 percent got 4.5 percent of the income. In dramatically unequal Brazil, the lowest 20 percent get 2.2 percent of the income.

The top 20 percent of Maryland's earners took home 47 percent of the income. In Utah, the most equal state, the top 20 percent got 45 percent of the income. In D.C., the top 20 percent got 56 percent of the income. In Sweden and Japan, the top 20 percent get 35 percent of the income. In Brazil, the top 20 percent take home 64 percent of the income.

Posted by Jay Hancock at 9:32 AM | Permalink | Comments (1)
        

Howard County, home of Columbia, Ellicott City and Elkridge, had the third-highest median income of any big locality in the nation, according to Census data that came out this week: $94,260 per household. That means half Howard County's families made more than that last year; half made less. Virginia's Fairfax County was first, at $100,318. Virginia's Louden County was second, at $99,371. (See post below on what's causing this: the homeland security boondoggle in Washington, the big federal deficits and all the tax dollars being vacuumed in from places like Nebraska and Michigan and being showered around the DC region.) Baltimore City, by contrast, had median income last year of $36,031.

But Howard County isn't really rich. Not Greenwich, Conn., or Beverly Hills, Calif., rich. Not Bill Gates rich, and not Warren Buffett rich. Howard County ranks high on the wealth charts because it has lots of households taking home $100,000 or $300,000 a year -- and hardly any poor people. In the 2000 Census fewer than 3 percent of Howard County's families were below the poverty line. Greenwich and Beverly Hills, on the other hand, are in jurisdictions with many poor families that pull down the median income. Howard County is an ethnically diverse but economically homogeneous swath of striving, upper-middle class burghers -- but nowhere near being filthy, Palm Beach rich. My guess is that the Columbia Mall Nordstrom's is not high on the profitability list of that department-store chain's stores.

Posted by Jay Hancock at 9:42 AM | Permalink | Comments (7)
        

For those who missed it in yesterday's newspaper, Paul Adams wrote about Ohms Energy's problems. They couldn't meet capital requirements for the grid, so all Ohms customers are back to BGE's basic product, which is more expensive. It should be a fairly seamless process: BGE sends you a letter, and you're billed at the higher rate next month. Ohms was among the most aggressive alternative providers trying to undercut the price of BGE's standard product last year and early this year. From Adams' story:

The state Public Service Commission indefinitely suspended Ohms' license to sell power Friday after it fell behind on payments to suppliers and disclosed that it could no longer serve its 2,100 customers.

Regulatory documents indicate the company ran out of money and couldn't come up with the collateral required to comply with energy market trading rules.

Ohms and other retail power marketers have also fallen victim to volatile energy prices and a regulatory scheme that allowed BGE to acquire its power supply this year at a price many competitors big and small find they can't beat.

Ohms' customers were notified last week that they will be getting their power from BGE, which is required to take back customers if a competing supplier defaults. The PSC said it doesn't know of any customers who lost money as a result, and White declined to comment on the matter yesterday. But those who signed up with Ohms will no longer get the small savings the company promised over BGE's rate.

Posted by Jay Hancock at 5:47 PM | Permalink | Comments (2)
        

Nugget from the new Census report on state-by-state income: The median income for Maryland women is 81.4 percent of that of men. Doesn't sound encouraging, but that's the 3rd-highest such ratio in the country. Not counting the District of Columbia, where women make nearly the same pay as men, the No. 1 state for gender pay equality was Colorado, where women made 82.4 percent of what men made. No. 2 was North Carolina, in which women made 81.5 percent of men's pay.

I can understand Maryland, where there are federal employers more likely to employ women in white-collar jobs and where a higher-than-average number of women have advanced degrees. But I don't get Colorado and North Carolina. In any event the statistic speaks highly of the North Carolina politicians, beginning with Gov. Terry Sanford in the early 1960s, who invested in the state's education system to raise it from the relatively severe inequality and poverty to which it seemed destined.

The subject of women's pay vs. men's is frequently debated and was the subject of a recent post here. There are non-discriminatory reasons for the gap: Women are more likely to choose lower-paying careers and to temporarily stay out of the workforce, which hurts their earning potential when they return. But studies show that even when women have the same experience & credentials as men in the same careers, they still make less.

Posted by Jay Hancock at 11:01 AM | Permalink | Comments (1)
        

Maryland beat out Connecticut, New Jersey, Massachusetts and other rivals last year for having the top median income (half the state's incomes are under the median; half are over) in the nation. As Kelly Brewington reported on the front page of today's Sun, Maryland's median income was $65,144. But, like the Orioles' World Series title in 1983, this victory will not turn into a dynasty. Maryland's economy has been pumped up for six years by federal deficits, federal outsourcing and profligate homeland security spending. The boom is equal to the one we had in the 1980s with the defense buildup under President Reagan.

This bonanza won't end quite as suddenly as the 1980s one did. Then, the end of the Cold War caused a drought in defense contracts, and Maryland suffered much more in the recession of the early 1990s than the rest of the country did. But this boom will end, and it already shows signs. Federal outlays are no longer increasing by leaps. The data on federal spending by state are way out of date, but when they show up they will surely demonstrate smaller increases or declines. Maryland will never sink to the income levels of Mississippi or North Dakota. But it will lose its No. 1 slot at some point to New Jersey or Connecticut, which have wealthy private sector employers that aren't so fastened to the federal nipple.

Posted by Jay Hancock at 9:26 AM | Permalink | Comments (6)
        

Liberals know why corporate welfare is bad: It takes taxpayer money and gives it to fat cats. But there is a more effective conservative argument against economic development subsidies: They amount to government economic planning and, by taking resources from one company and giving them to another, they breach the Constitution's promise of equal protection under the law. Here is more of the conservative argument, as expressed by a professor at Jacksonville State in Florida and posted on the Web site of the Ludwig von Mises Institute.

Although we should always be wary whenever public officials ask for more of our money, increasing funding for state economic development programs increases the likelihood that states will waste resources competing with each other for the favor of firms...

When other states are competing for the same firms to operate in their states as well, wise firms will hold out for the best offer. This forces states to take into consideration economic development packages being made by their competitor states. An aggressive state can win the firm's favor, but the incentive package will cost much more. Is it still worth it?

Robert Lynch argues that it isn't. The Washington College economist has been studying state subsidy issues for 20 years and found that such packages rarely cause firms to expand in geographic areas that they would not have otherwise expanded to without state incentives. The implication is that many of the businesses choosing to locate in Alabama or any other state would have moved there anyway...

Indeed, these malinvestments are multiplied when carried out among a cartel of fifty states, each competing with the other for limited capital. When they do, each state development agency becomes a net negative to its state, at which time taxpayers would be better off if they all shut down. They should. As hard as it may be for the arrogant state development community to believe, the vast majority of economic growth that occurred in the United States was actually coordinated without any such such central planning boards.

Posted by Jay Hancock at 11:07 AM | Permalink | Comments (0)
Categories: Corporate welfare
        

The Federal Reserve has not officially lowered its main interest rate, the federal funds rate on the money banks loan to each other overnight. Many on Wall Street have expected a Fed funds rate cut. Many have demanded it, in screaming tones. But so far the Fed has cut only its less-important discount rate, which is the price charged to banks that borrow from the Fed directly. It hasn't cut the Fed funds rate. At least that's the official story.

 But when you look at the "effective" rate that banks are paying for overnight loans, the Fed has indeed cut the funds rate -- a ton. This little-noticed move may be even more responsible for recovery in the stock markets than the discount-rate reduction that got all the headlines. Last week banks were paying an average of only 4.91 percent on overnight loans -- far less than the Fed's stated target of 5.25 percent, according to the central bank's Web site. Last Wednesday the rate was as low as 4.77 percent -- almost a half percentage point lower than the official mark. The effective funds rate has been lower for more than two weeks as Chairman Ben Bernanke has injected billions into financial markets rattled by mortgage worries. The overnight rate is the Fed's main way of creating money: When it desires an infusion it buys overnight paper, thus creating a credit on the account of some bank and lowering the rate by bidding up the price of the paper.

We can only conclude that the Fed is intentionally missing its official target for the funds rate. It hinted it would do this two weeks ago when it said: "The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target rate of 5-1/4 percent." What's YOUR definition of "close"? Everbody says the markets are waiting for a Fed funds rate cut in September. Hey, it's already here.

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (0)
        

Will post on Ohms Energy, PSC hearings etc. then.

Posted by Jay Hancock at 7:32 PM | Permalink | Comments (2)
        

I'll be out of town & not posting at least until Wednesday, Aug. 22. Meanwhile meditate positive meditations about the stock market.

Posted by Jay Hancock at 5:55 PM | Permalink | Comments (0)
        

In a note to clients this afternoon, Merrill Lynch economist David Rosenberg suggests that the Federal Reserve's cut in the discount rate this morning may be an effort to identify troubled lenders. The Fed has two ways of pumping money into the economy. 1) Changing the federal funds rate on the money that banks loan each other overnight. 2) Changing the discount rate on the money the Fed loans to banks directly. The first method is indirect. The Fed manipulates the overnight market as a third party and has no idea who is borrowing and who is lending. The second method is face-to-face. You can't belly up to the discount bar without getting carded and identified by the New York Fed.

By cutting the discount rate and not the federal funds rate, Rosenberg suggests, the Fed may be coaxing troubled banks to come to papa. The fed funds rate is still lower than the discount rate, but terms for discount-window borrowing may be easier, especially with the 30-day feature installed this morning. Rosenberg:

Clearly the Fed is trying to entice institutions that cannot access funds in the marketplace to borrow from the discount window - maybe in order to gain information as to who is really in trouble from a funding standpoint.

Needless to say, we have never seen the Fed cut the discount rate this much without a change in the funds rate, so clearly it is trying to send a message to the markets without having to imply that it is panicking. Talk about walking a fine line. Cutting the funds rate would have been a really big deal since it would be an admission that the Fed is now extremely nervous about the economic outlook; and for the markets this would have suggested a bolder move - that the Fed is now willing to supply liquidity on a more permanent basis. Note that in contrast to what some believe, the Fed has not lowered the credit standards on collateral they will accept, in other words the collateral base has NOT been expanded. However, as is always the case, the Fed by definition accepts a wider base of collateral at the discount window than it does in its repo operations.

We think that today's discount rate cut is mostly symbolic in nature (though companies such as Countrywide through the bank counterparts are allowed to borrow at the discount window). The real message is in the press statement today which is vastly different from what we saw last week at the post-meeting statement. Not a word about inflation this time - the Fed said that it is "monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets".

Posted by Jay Hancock at 4:04 PM | Permalink | Comments (0)
        

The spammers want to be your friend. At least they want you to think they're your friend. Email marketing pro Patrick Valtin spills some tips in a press release that landed in my inbox. Most of them are no-brainers. But in the endless contest of wits between consumers and the Great American Marketing Machine, it's interesting to see how our adversaries are thinking. Among their wily email ploys:

• -- Address the emailee by his/her first name. "Make the subject line personalized. 'How would you like a free weekend in Acapulco' compared with 'Dear Jane, How would you...' increases by 200 percent to 300 percent your chances it will be opened."
• -- Don't expect the person to buy something from the email right away. Woo him/her. Seduce him/her. Get prospects to join a regular email list and then nail them with the sale later.
•  -- "Make one-time customers into repeat customers. Offer an exclusive newsletter only for customers with highly valuable content." Translation: send your poor customers even more email disguised as a newsletter.
• -- "Have an option for people who subscribe to your newsletter to systematically send it to a friend." Memo to my friends: Don't.

Email marketers would tell you that email for which the recipients clicked "yes" on a Web site two years ago for reasons they no longer remember to answer the question, "Would you like to receive periodic notification of special sales and promotions?" is not spam. I say, if it looks like a canned meat product sold by the Hormel Foods Corp., if it walks like a canned meat product sold by the Hormel Foods Corp...   

Posted by Jay Hancock at 11:57 AM | Permalink | Comments (0)
        

The Federal Reserve, the U.S. central bank, lowered its discount rate a half a percentage point to 5.75 percent from 6.25 percent. The Fed's discount window loans money directly to banks that need liquidity. The move is largely symbolic. It's still cheaper for banks to borrow money from each other in the Federal Funds overnight market. The target for that rate -- 5.25 percent -- hasn't changed. The discount window is rarely used. It would be interesting to know who is using the discount window and for how much, but that kind of information isn't released. (The aggregate amount of the borrowing is disclosed.)

This is all, of course, a reaction to the turmoil in the credit markets resulting from the meltdown in subprime mortgage bonds. Stock markets cratered again early today in Asia and Europe. Asia is closed but Europe is zooming up in the wake of the Fed's announcement. Wall Street will probably do the same.

Much of the liquidity that the Fed is creating, I imagine, is being loaned to hedge funds getting margin calls -- demands by their brokerages for extra collateral -- for trading accounts that have plunged in value. If you can't meet a margin call, your broker automatically dumps the securities you bought with the borrowed money, which lowers the stocks/bonds' price and forces OTHERS to face margin calls. That's the kind of contagious robot-selling that the Fed wants to avoid.

UPDATE: Here is the Fed's statement.

Posted by Jay Hancock at 8:58 AM | Permalink | Comments (0)
        

Last Sunday's column was about economic literacy and how schools aren't doing enough to teach kids economics and personal finance. The piece was based on the U.S. Education Department's first-ever assessment of economics in high-school graduates. We worked hard on converting some of the assessment questions into an online quiz, but you may have missed it under the online version of the column. The quiz is HERE (nine questions).

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (1)
        

"A survey commissioned by the United States Mint has found that most Americans don’t know that Thomas Jefferson was the Nation’s third President and a shockingly small number could name the first four Presidents in order. Only 7 percent of those surveyed could name the Nation’s first four Presidents in order: George Washington, John Adams, Thomas Jefferson and James Madison.

"When asked specifically about Thomas Jefferson, only 30 percent knew that he was our Nation’s third President. However, slightly more than half of Americans, 57%, knew that Thomas Jefferson was the main author of the Declaration of Independence, the Presidential $1 Coin Survey revealed."

• Only 22 percent of Americans know that there have been 43 U.S. Presidents to date.
•  Only 21 percent of Americans know that the faces of Thomas Jefferson, George Washington, Abraham Lincoln and Theodore Roosevelt are carved on Mount Rushmore.
• Only 35 percent of Americans surveyed knew Thomas Jefferson is featured on the nickel.
• Only 28 percent of Americans surveyed knew that John Adams and John Quincy Adams were the original father-son pair of Presidents.
• However, 68 percent of Americans surveyed knew that George Washington led the Continental Army during the Revolutionary War.

Posted by Jay Hancock at 1:44 PM | Permalink | Comments (3)
        

Not nearly yet, and let's hope international trade keeps growing. But if the world goes into recession, if safety problems cause a significant decline in demand for Chinese products, or if anti-trade forces gain sway in Washington, shipping could take a hit.

One signal indicator of the industry's optimism is at left: the Emma Maersk. Launched last year and now plying the Shanghai-Bremerhaven route, the Emma is the biggest-ever container ship. It holds 14,000 cargo containers. It's 4.3 football fields long. And it's too fat for the Panama Canal. Here's hoping it doesn't go down in history as a white elephant. 

Posted by Jay Hancock at 11:41 AM | Permalink | Comments (0)
        

Ed Yardeni is one of the most optimistic economists I know of. He correctly called the 1990s decline of inflation, the spreading of globalization and the resulting bull market in stocks and bonds. He was pessimistic at the turn of the century, although for the wrong reason: He was perhaps the globe's No. 1 worrier about the Y2K bug, which turned out to be a nonevent. Stocks crashed in 2000-2002 because they were overvalued, not because of computer gridlock. Since then he has again been characteristically optimistic, raising the possibility of a "repeat" of the 1990s for the first decade of the 2000s -- slump early in the decade and boom at the end.

But the note he sent to clients this morning is the most pessimistic I have seen him in a while. Yardeni getting bad vibes is a negative leading economic indicator: From the note:

Two days ago, Debbie and I lowered our Target Scenario for H2’s [second half of 2007] real GDP [gross domestic product] growth to 2% from 3%, while maintaining our 3% forecast for next year. This morning we are raising the odds of a recession for the US over the next 6-12 months from 15% to 30%. The credit crunch has not been contained to the subprime mortgage market, but is rapidly spreading to the prime mortgage market, to the jumbo mortgage market, to private-equity financing, to the commercial paper market, and so on.

We believe that the Fed will have to lower interest rates in an effort to stop the credit crunch and to avert a recession. Meanwhile, various asset classes are under attack. Residential real estate, commercial real estate, high yield bonds, derivatives (CDOs, CLOs, CDSs), REITs, [real estate investment trusts] LBOs, [leveraged buyouts] hedge funds, commercial paper, [short-term paper bought by money-market funds] and stocks have all taken some direct hits in recent weeks.

Even the [hedge fund managers] Fortresses and Sentinels of this world aren’t holding up very well:

(1) Fortress shares are down 28.8% since February’s IPO [stock offering] peak. Blackstone [another private equity investor] is down 30.4% since it peaked on the day of its IPO on June 22, 2007. The main concern has been that a lack of investor appetite for corporate bonds will choke-off buyouts.

(2) Sentinel, a small firm that manages short-term cash for commodity trading firms and hedge funds, stopped allowing its clients to withdraw funds yesterday. Tin prices dropped yesterday reportedly because a trader was forced to sell to raise some cash.

(3) Here is an excerpt from Canada’s globeandmail.com (8/14): “Coventree buys long-term debts: Auto makers sell it car loans, retailers vend credit card debt, banks hand it mortgages. Coventree repackages all these loans as nine different types of commercial paper, under names such as Rocket Trust and Apollo Trust. This short-term debt is sold to money market mutual funds. Coventree takes a fee for structuring the deal. Coventree's business hits a roadblock when $250-million of commercial paper comes due, and no new buyers can be found. The company forces existing investors to keep holding the securities, while its stock tumbles.”

(4) Canadian rating agency DBRS reported yesterday that 17 Canadian asset backed commercial paper issuers are looking for back-up financing from banks.

(5) The Fed’s website has a chart which tracks the daily spread between 30-day A2/P2 less AA nonfinancial commercial paper interest rates. It shot up from around 15bps to 60bps yesterday.

(6) The Financial stocks continue to get whacked. Despite Goldman’s best efforts to characterize its $2 billion bailout of its ailing GEO fund as an opportunistic investment, the front page headline of the FT called it a bailout. UBS reported solid quarterly results. However, they were overshadowed by further losses in mortgage securities incurred by Dillon Read, its in-house hedge fund.

(7) Thornburg Mortgage said it will delay its Q2 dividend payment and has been getting margin calls from creditors, requiring the lender to make payments to make up for the declining value of mortgages used as collateral for those borrowings.

Posted by Jay Hancock at 9:47 AM | Permalink | Comments (2)
        

You're getting up in years now. You remember your paper wealth in the 1970s, when real estate investment trusts went to the moon and everybody thought the boom would last forever. It didn't. You remember the 1980s, when commercial real estate went absolutely bonkers and again you were rich, at least according to your partnership documents. You remember the housing boom of the 2000s, when home prices doubled and your rental properties churned out cash like a slot machine. Now that quicksilver, too, is slipping your grasp.

Finally you remember, too late, the real estate prayer, which a reader of The Sun sent my colleague, Laura Smitherman. He says he found it in an file from 1991, which was about the darkest hour of the last real estate crash:

DEAR GOD...Please Let There Be Just One More Real Estate Boom, And I Promise Not To &+#@ It All Away This Time!

Posted by Jay Hancock at 1:43 PM | Permalink | Comments (1)
        

RAMS, an Australian home-finance company, saw its shares fall as much as 32 percent this morning after it warned that the global mortgage shakeout could hurt profits. Looks fairly minor. It's a small company. It owns no U.S. subprime paper. Its problem is the cost of wholesale financing rather than the quality of the loans. Still, it shows you how jittery everybody is.

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (0)
        

"This is not a rescue."

You think he's just spinning a bad situation. Au contraire. He's making a deep, existential statement in the manner of Rene Magritte, the surrealist painter.

Posted by Jay Hancock at 2:14 PM | Permalink | Comments (0)
        

Many are criticizing the Federal Reserve for last week's injection of billions of dollars into the credit markets. Easy money from Alan Greenspan & Ben Bernanke got us into this mess, they're saying. Now they're compounding the problem with more easy money. They're bailing out the maniacs who made these dumb housing loans in the first place, goes the complaint.

There is a lot to be said for this sort of argument. If Wall Street believes the Fed will always step in to save the day, it will get more and more reckless. Charles Kindleberger, the eminent economic historian who died a few years ago, disclosed central bankers' secret formula in his classic book, Manias, Panics and Crashes. Government rescuers, Kindleberger wrote, must always swoop in to save the day when financial markets go completely haywire. But they must leave the matter in some doubt, he says. They must make investors guess about whether the rescue will take place, or else markets will take a bailout for granted and behave in ways that will make the crisis even worse in the long run.

This is the problem that modern central banks have created. For 20 years they have shown themselves to be more than generous in flooding the economy with dough when the going gets rough. 1987. 1990. 1998. 2001. Etcetera. Investors know they'll be there with the safety net, so they take more risks.

That said, last week's decision by the European Central Bank and the U.S. Federal Reserve to pump more than $100 billion into the economy seems like the right move. The reason: Financial companies were facing a liquidity problem that had little to do with the underlying soundness of the securities they owned. Mortgage real estate investment trusts, in particular, were under grave pressure. Mortgage REITS borrow at low rates and buy mortgage bonds at higher rates, making money on the spread. Their bonds act as collateral for the borrowed money. As the markets freaked out last week, mortgage bond prices plummeted -- you couldn't even get a quote on some because there were no buyers. This meant mortgage REITs got margin calls from their lenders. "The value of your collateral bonds has dropped," lenders told the mortgage REITs. "You need to put up more capital."

This was a problem: Mortgage REITs by definition are thinly capitalized. They have very little retained earnings because by law they must pay 90 percent of their profits to shareholders as dividends. So their margin squeeze could have been very bad, indeed. By buying mortgage securities last week, the Fed lubricated the mortgage-bond market. And by giving banks a huge injection of funds, they made it easier for mortgage REITs to borrow money to cover their margin calls for collateral. The alternative might have been distress sales of mortgage bonds to raise margin cash, and that would have made things much, much worse.

Bernanke is acutely aware of the perception that the Fed will rescue dumb investors. If the mortgage mess gets worse and the economy slows down later this year, we will get the true measure of the man. I bet he'll be slower to lower short-term interest rates than Greenspan would have been. That is, he may give investors just a shadow of doubt about that safety net.

Posted by Jay Hancock at 12:16 PM | Permalink | Comments (0)
        

If we're going to have a decent recession, consumers are going to have to stay away from the stores. So far they're not. The plunge in June retail sales got revised slightly upward this morning, and the July figures came in positive and better than expected. Sez Reuters:

WASHINGTON (Reuters) - Sales at U.S. retailers rose a slightly more-than- expected 0.3 percent in July and they were even stronger once car and gasoline sales were stripped out, Commerce Department data showed on Monday.

Excluding autos, retail sales gained 0.4 percent in July as forecast and the prior month was revised to a 0.2 percent decline versus a 0.4 percent fall initially reported.

Economists polled by Reuters forecast overall retail sales to rise 0.2 percent compared with a revised 0.7 percent drop in June, previously reported as a 0.9 percent drop.

So-called core retail sales, which exclude cars, gasoline and building materials, were up 0.6 percent from a 0.3 percent gain in June.

Purchases of motor vehicles and parts, which make up around one fifth of total sales, fell 0.3 percent. Gasoline sales fell 0.8 percent.

Posted by Jay Hancock at 8:47 AM | Permalink | Comments (0)
        

It happened this morning, and it's a massive intervention -- the biggest since right after 9/11, says Bloomberg News. What's more, the Fed isn't just buying Treasury paper -- its usual method of injecting money into the economy. It is also buying Fannie Mae and/or Freddie Mac bonds, which are backed by home mortgages. The Fed is obviously responding to yesterday's stock market pain, plunging stock markets worldwide and large short-term borrowing by U.S. banks to shore up their own liquidity.

The overnight federal funds rate, tied to loans banks use to top off their required capital at the end of every day, rose sharply this week -- way past the Fed's 5.25 percent target. That indicates some banks are borrowing heavily to stay liquid. To get the overnight rate back to its target, the Fed intervened this morning with the $35 billion injection. Yesterday it injected $24 billion, news reports say.

It's not unheard of for the Fed's open-market operation to buy mortgage paper. But it's unusual. And in this case it's a telling indicator that the Fed is as worried about the mortgage finance market as many private investors. The Fed also issued a rare statement announcing it was providing liquidity.

UPDATE: 3:20 p.m. Fed has pumped another $3 billion into the credit markets, according to the Associated Press.

Posted by Jay Hancock at 1:39 PM | Permalink | Comments (2)
        

That's the good news, according to two Cornell University economists. After making about 40 percent less than men for decades, women now make about 20 percent less, on average, say Francine Blau and Lawrence Kahn. The bad news is that a smaller portion of the gap can be explained by differences in education and work experience between men and women. People with more education naturally earn more than others; so do people with longer experience in their jobs. Women are coming closer to men in educational attainment and work experience, but they still don't make the same money.

The unexplained difference, the economists say, may be due to discrimination in hiring and raises. Discrimination is hard to put a finger on. But in this case it seems to fall under the Sherlock Holmes rule: When all the other possible explanations have been eliminated, the remaining explanation, no matter how unlikely, is the truth. They do note experiments done with real employers showing that, for certain jobs at certain businesses, women were less likely to be interviewed than men. But they end on an optimistic note -- for women, at least.

"Women's education has been rising relative to men's, and indeed among younger cohorts women are more likely to graduate college than men. This trend shows no sign of abating. And, technological change, which has raised women's wages through demand effects, will probably continue and could even accelerate."

You can read the column here. You have to register. It's free, but there seems to be a presumption that readers are academics.

Posted by Jay Hancock at 8:20 AM | Permalink | Comments (0)
        

A couple people asked me about something weird in their June BGE bill, which reflects May usage. Rather than read the meter, BGE estimated the May kilowatt use for these customers, and in both cases the estimate was very low. For these customers, this had the apparent effect of shifting May kilowatts into the July bill, by which time BGE had read the meter and trued up their account. After June 1, of course, BGE's standard price went up 70 percent. So a kilowatts that should apparently have been billed at the cheaper May rate got billed at the expensive June rate, giving BGE a markup.

If it's an isolated incident, maybe no big deal. But if it's part of a pattern, that's another matter. If BGE estimated your June bill (May electricity use) and it looks too low, pls. email me: jay.hancock@baltsun.com

PS. To see if BGE read your meter or estimated your use, look on the front page of your bill at the top right. There's a grey box with "Next Scheduled Reading" at the top and then "Electric Usage Profile" underneath. Under Electric Usage it shows data from your last two months of use and from the same month in 2006. Next door, under "Type of Reading," it'll say "Actual" or "Estimated." I'm looking for people whose bills were estimated for June or May and seem too low.

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (1)
        

"Irving Berlin, Cole Porter, and other songwriters of the Golden Era wrote popular songs that treated common topics clearly and simply. During the mid-1960s Bob Dylan, John Lennon, and Paul McCartney created a new kind of popular music that was personal and often obscure. This shift, which transformed popular music from an experimental into a conceptual art, produced a distinct change in the creative life cycles of songwriters. Golden Era songwriters were generally at their best during their 30s and 40s, whereas since the mid-'60s popular songwriters have consistently done their best work during their 20s."

Makes sense. When passion and energy are valued more highly than structure and cogitation, young people always have an edge. Impressionist painters bloomed early. Shelley, Coleridge, Wordsworth and Keats, the English Romantic poets who defined artistic emotion, all did their best work in their 20s. Keats and Shelley died young, and Wordsworth and Coleridge were worthless after 30.

But I wouldn't look just at the supply side. The careers of songwriters changed also because the audience changed. Music consumers were older before World War II. There was no youth culture as we know it. When American baby boomers grew up and found themselves with more money than any teenagers in the history of the world, they didn't want to buy music written by old guys. Maybe the changing audience altered the demanded material, which changed the kind of people needed to produce it.

The whole Galenson paper is here. It looks like it's behind a pay wall for the public.  

What I really want to know, however, is how the career cycle of rock & roll artists affects the price of Bowie Bonds. 

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (0)
        

(Valley Forge, Pa. – Aug. 8, 2007 – PJM Interconnection, the electric grid operator for more than 51 million people in 13 states and the District of Columbia, has ordered a 5 percent voltage reduction in its Mid-Atlantic region to meet the extremely high demand for electricity. The high electricity use results from the intense heat wave.

PJM also is asking consumers to conserve electricity. The voltage reduction and request for conservation affects the services territories of Atlantic City Electric; Baltimore Gas & Electric Co.; Delmarva Power; Jersey Central Power & Light Co. (JCP&L); Metropolitan Edison Co. (Met-Ed); PECO, an Exelon Company; Pepco; Pennsylvania Electric Co. (Penelec); PPL Electric Utilities; PSE&G; and UGI Utilities, Inc. PJM is working to ensure the area has enough electricity to meet demand as power supplies grow tight during the hot weather.

A voltage reduction lowers the demand for electricity. It helps to conserve generating or transmission line capacity. Electrical equipment generally is designed to operate at plus or minus 10 percent of normal 120-volt current. A 5 percent reduction is within that range. As a result, most customers generally do not notice voltage reductions.

Posted by Jay Hancock at 4:31 PM | Permalink | Comments (0)
        

No surprise. Days like this stress the grid like nothing else. Since the invention of air conditioning, it's no accident that all blackout crises happen in summertime. Unfortunately, on such days most kilowatt usage is not optional. But there are some no-brainers: Turn off the pool pump. Wait until night to run the dishwasher and the dryer. Raise the thermostat to 80 or so if you're out of the house at work all day. The grid says:

(Valley Forge, Pa. – Aug. 8, 2007) – PJM Interconnection, the electric grid operator for more than 51 million people in 13 states and the District of Columbia, today requested the public in its eastern states to conserve electricity. The call for conservation of electricity is a precaution during the extremely hot, humid weather today. Use of electricity may approach record levels today.

The request is being made for the service territories of Atlantic City Electric; Baltimore Gas & Electric Co.; Delmarva Power; Dominion; Jersey Central Power & Light Co. (JCP&L); Metropolitan Edison Co. (Met-Ed); PECO, an Exelon Company; Pepco; Pennsylvania Electric Co. (Penelec); PPL Electric Utilities; PSE&G; and UGI Utilities, Inc.

Demand for electricity is expected to increase as the excessive heat and humidity continue. PJM asks customers to conserve electricity, if health permits – especially between 3 p.m. and 7 p.m. Electricity customers can take simple electricity conservation steps:

· Close curtains and blinds to keep out the sun and retain cooler air inside,

· Postpone using major electric household appliances such as stoves, dishwashers and clothes dryers until the cooler evening hours,

· If health permits, set air conditioner thermostats higher than usual, and

· Turn off electric appliances and equipment that you do not need or are not using.

Conserving electricity will help ensure adequate power supplies. PJM and its members continue to carefully monitor power supply conditions.

Posted by Jay Hancock at 12:46 PM | Permalink | Comments (0)
        

Watch this. The damage in Wall Street credit markets is so bad, says the CNBC shouter, in an even louder voice than usual, that the Fed needs to whack short-term interest rates now and lend directly and cheaply to banks through its discount window.

An excerpt:

[Federal Reserve Chairman Ben] Bernanke needs to focus on this... Bernanke is being an academic. It is no time to be an academic! It is time to get on the Bear Stearns call. Listen! Open the door, Fed window! He has no idea how bad it is out there! He has no idea! He has no idea! I have talked to the head of almost every one of these firms in the last 72 hours and he has no idea what it's like out there. No idea! And [St. Louis Federal Reserve Bank President] Bill Poole? He has no idea what it's like out there!

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (0)
        

If they didn't already own them, that is. Legg Mason's Bill Miller, manager of the famous Value Trust mutual fund, says he's "bullish" and would buy homebuilder and mortgage stocks "amidst the panic selling currently underway." Unfortunately for him and his shareholders, he bought them last year and in 2005, which was way too early. It still may be too early, but Miller isn't dumping his housing stocks. He may be in for a long wait.

Other nuggets from Miller's most recent quarterly commentary:

-- We were clearly too early in buying [housing] stocks in late 2005 and 2006—and if you are early enough, that is indistinguishable from being wrong—thinking that the US housing experience would be similar to that in the UK and Australia, a correction from inflated levels that would be over in less than 2 years, that is, just about now. The very poor housing fundamentals, now exacerbated by a subprime loan collapse and the continuing upward repricing of adjustable-rate mortgages made in the past few years, show no signs of improvement. But the market looks forward, and by the time those signs are tangible and evident, the stocks will likely be a lot higher.

-- Energy and energy-related stocks continue to be among the market’s best performers and we don’t own them. That sector was the strongest performer in the month of June, in the second calendar quarter of 2007, in the six months ending June 30, and in the three and five year periods ending June 30. Only in the 12 months ending June 30 did other sectors perform better. It is said the only thing worse than being wrong is staying wrong. The question for us now is have we experienced a long cycle in energy, or is this a secular change where energy prices will not decline in real terms, as has been the historic norm, but will be stable or maybe even increase after adjusting for inflation? That question should be answerable shortly.

-- According to data compiled by Bloomberg, stocks are now the cheapest they have been in 16 years. The S&P 500 is valued at 15.4x estimated earnings, the lowest since January 1991. Again, a pretty good time to be a buyer of stocks! Even after this decline in the stock market, over the past 12 months the market is up 17% with dividends reinvested, which is well above the long-term average.I began the year quite bullish and remain so.

Posted by Jay Hancock at 9:02 AM | Permalink | Comments (0)
        

Two months ago the Clarke American check-printing company merged with the John H. Harland check-printing company. As often happens in mergers, they're looking at ways to consolidate and cut costs. Managers have said there will be layoffs. One obvious way to save money is close plants. Each company has about a dozen check-printing facilities across the country. The Harland plant in Glen Burnie has 270 employees, says the company.

"We're still very much in the planning and review process" to determine job cuts, Harland Clarke spokeswoman LaRhesa Pollock told me. "It could be as late as the end of this year before we really know."

What's mildly encouraging is that Clarke has no printing plants on the East Coast, so there is no obvious duplication with Harland's Maryland facility. The closest Clarke plant is in Charlotte. Harland has printing plants in Harrisburg and Atlanta.

I called Robert Hannon, Anne Arundel County's economic development chief, to make sure he's on the case. "We're aware of the merger," he said. "We'll start talking to the company and find out what might be done to help them."

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (0)
        

American Home Mortgage, which specialized in "Alt-A" subprime mortgages, sought protection from creditors in bankruptcy court this morning. Here is a story from Bloomberg. The company had issued stock as recently as April, which proves yet again that markets are NOT rational, despite what economists would tell you. American Home is a Maryland corporation and did lots of business here, but its corporate headquarters is in New York. The company laid off most employees last week.

It's hard to tell what this says about the Maryland real estate market. Nothing good, but then again most of the mortgages American Home held for investment were originated elsewhere. 10 percent were in Florida, which is ground zero for the real estate mess. 23 percent were in California at the end of 2006, according to the company's 10-K. California is not far behind as a real-estate mess. Other AHM loans were concentrated in Illinois, Virginia and New York.

Posted by Jay Hancock at 1:15 PM | Permalink | Comments (3)
        

Is it a real public-relations pitch for a news story? Or an idea for a Saturday Night Live skit? If it's hard to tell, it's the stupid PR pitch of the day. From my inbox:  

"RENEE RYAN, BEAUTY EXECUTIVE, CREATES GROUND-BREAKING “PET BEAUTY” CATEGORY "NEW YORK, NY – Renée Ryan, beauty brand creator and entrepreneur, has launched a unique cross-over category and created a brand-new niche in the marketplace called “pet beauty”. Launched in November 2006 at the iconic Studio at Fred Segal, Sexy Beast™ (www.sexybeaststyle.com) is a design-driven, luxury grooming and lifestyle brand that is pioneering new ground and single-handedly uniting the pet and beauty industries.

"With more than ten years experience in the luxury beauty industry working with companies like Estée Lauder, Avon and Unilever Cosmetics, Renée Ryan founded Ryan Basics in 2003, a full-service cosmetics and fragrance development firm who has created products for John Varvatos, The Cornelia Day Resort, Zirh International and LXR Luxury Resorts.

 "In 2006, Ms. Ryan set out to create a brand of her own. Wanting to apply her expertise to something “new and different”, her entrepreneurial spirit led her to the pet industry. A devoted dog owner and lover, Ms. Ryan researched the market in-depth and learned that it was undergoing a radical growth spurt and although there were many luxury offerings for pets in terms of clothing and accessories, there was nothing comparable in grooming.

"With a concept to create a line of pet products that were made with the same standards as the products luxury consumers use themselves, Renée pitched her project to several well-known beauty industry all-stars... Swiss fragrance house Givaudan, creator of some of the world’s most well-known fragrances, signed on to create the signature fragrance. She also worked with the former chemist from Kiehl’s to insure the products were made of only the finest plant and mineral-based ingredients. A year later, Sexy Beast™ was born."

The only thing left for Renee to do now is single-handedly unite the pet and lingerie industries.

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (3)
Categories: Stupid PR pitches
        

From Reuters. Is this the other shoe from Friday? Or a new set of clodhoppers to send U.S. markets down further?

"Asian stock markets tumbled on Monday with financial shares such as Macquarie Bank hit by global credit jitters, while fresh concerns about the health of the U.S. economy knocked the dollar lower.By the end of morning trade, Tokyo's Nikkei average had shed 0.9 percent, while other major markets across the region fell between 1 percent and 4 percent.

"Investors sold financial issues including Mitsubishi UFJ, Australia's Macquarie Bank and HSBC Holdings as well as exporters such as Canon, Sony, Hyundai Motor and Samsung Electronics.

"The MSCI index of Asian stocks outside Japan shed 2.2 percent by 0300 GMT after earlier plumbing a fresh one-month low. At the session trough, it was down 9.6 percent from the record high set on July 24, matching the percentage fall suffered in late February and early March.

"The index fell 1.0 percent last week, marking its second weekly decline.

"Among the region's top decliners, Singapore's Straits Times Index dropped 3.8 percent to 3-½ month lows while Hong Kong's Hang Seng Index slid 2.4 percent to one-month lows."

Posted by Jay Hancock at 12:54 AM | Permalink | Comments (1)
        

Reader Susan does laundry on the weekends, runs her dishwasher at night and otherwise tries to use electricity when it's cheap under Baltimore Gas & Electric's time plan. The plan rewards households for using kilowatts during offpeak hours and penalizes them for using kilowatts during onpeak hours. (Most BGE customers pay a flat rate for all hours.) But after analyzing her June/July bill, she finds she's not saving money.

Her analysis: Total kilowatts used: 1,121. Usage during peak hours: 29.5 percent. Usage during medium hours: 26 percent. Usage during offpeak hours: 44.5 percent. Total energy bill: $124.93. She figures if she had used the same amount of juice on the flat-rate plan she would have paid $119.38.

Her conclusion: "Why would anyone want to switch to it when Time of Use costs more money AND is a hassle to use? Frankly, BGE and/or Constellation Energy make it difficult to be a good citizen. Energy shouldn’t be so cheap that it can be wasted with no thought for the future….. but good citizens, willing to compromise and use energy wisely, should be rewarded, not penalized."

She makes excellent points. Offpeak kilowatts on the wholesale market are much cheaper compared with peak than what BGE customers are paying. This savings should be passed along. Easier said than done, however. It's more the fault of the design of the wholesale markets than it is BGE's. A year ago savings for using offpeak energy were even worse than they are now.

Things are moving in the right direction. I bet 10 years from now we'll all be on the time-of-use plan, using computerized electric meters connected to the Internet that give real savings for night and weekend consumption. But it's going to take awhile.

Posted by Jay Hancock at 12:14 PM | Permalink | Comments (6)
Categories: BGE/electricity
        

Hadn't heard about this one. From the Maryland attorney general's office:

"Attorney General Douglas F. Gansler is warning consumers about potentially dangerous tires that may have been sold to Maryland drivers and could create a potential safety hazard for those riding in light trucks, sports utility vehicles, and vans equipped with the tires. The tires were manufactured by the Chinese tire company, Hangzhou Zhongce Rubber Co., and imported into the United States by Foreign Tire Sales, Inc. (FTS) of Union, New Jersey. The affected tires may be susceptible to tread separation, which can cause serious accidents."

Posted by Jay Hancock at 11:54 AM | Permalink | Comments (1)
        

The country added only 92,000 jobs last month, according to the Labor Department report out this morning. It was the slowest growth since February and the second-worst month since late 2004. Unemployment went from 4.5 percent to 4.6 percent. The upshot: slower growth ahead.

The housing slump seems to be having an effect on the economy, even though it's not showing up much in the figures. According to the Labor Department, the country had only 23,000 fewer construction jobs in July than it did in the same period of 2006. In the big picture this isn't much. Some people believe that many of construction jobs were held by illegals, so they didn't show up on the books when construction employment was increasing and they're not showing up now that it's falling.
Here's a Bloomberg story.

Posted by Jay Hancock at 11:33 AM | Permalink | Comments (0)
        

Thank goodness this blog isn't the only media watchdog holding the Iowa meditators to account for Wall Street's problems. Reuters has also raised serious questions about issues in Maharishi Vedic City, Iowa, where the 1,800 transcendental meditators responsible for stock market increases and world peace are not delivering the results the American people have a right to expect. The Dow is down 600 points in a couple weeks. Who's running this show, Rumsfeld? FEMA? Helluva job, Maharishi.

From the Reuters story:

"U.S. stocks had a tough week with the Dow Jones Industrial Average suffering its worst one-week point drop in five years, but a group of meditators promise their good vibrations will send the index past 17,000 within a year.

"A group called the Invincible America Assembly made that claim and more on Friday, insisting they have America's prosperity under control and their positive vibes will bring fewer hurricanes and better U.S.-North Korean relations.

"Through group transcendental meditation the assembly -- which has 1,800 people meditating daily in Iowa since it was formed in July 2006 -- releases harmonious waves which benefit all aspects of U.S. life, spokesman Bob Roth told Reuters.

"And the group's leader, John Hagelin, said when that number reaches 2,500 within the next 12 months, America will see a major drop in crime and the virtual elimination of all major social and political woes. "Asked what it would take to achieve world peace, Hagelin said such a utopia would need 8,000 meditators."

Posted by Jay Hancock at 9:59 AM | Permalink | Comments (2)
Categories: Stupid PR pitches
        

Brilliantly stupid! A company called TOTO put out a press release saying it would cover up planned images of naked human bottoms on a Times Square billboard advertising its bidet/toilet combo.

"TOTO, a global leader in luxury, high- performance products for the bath space, today announced that it will place a wide white bar across the "happy bottoms" on its "Clean is Happy" billboard in New York's Times Square -- in effect, "clothing" them by removing any hint of their anatomical features.

"TOTO indicated the decision to alter the Times Square billboard's content was motivated by its business objectives for the "Clean is Happy" campaign. As the company pointed out, an effective outdoor advertising billboard's sole purpose is to create consumer awareness for the product being marketed. When a billboard's content or theme creates a situation whereby its primary marketing aim -- in this case, advertising the Washlet and raising US consumer awareness of this unique personal cleansing system -- becomes secondary to distractions that draw attention away from the company's business goals, it's time to change the advertising."

What a crock. The point seems to have been to draw attention by creating "controversy." First they announced that a smiley-bottom billboard would go up in New York. Then, miraculously, a church sued for alleged indecency. Now they agree to alter the billboard for high-minded reasons.

When the billboard was announced, TOTO got mentions by UPI, the Gothamist and the Syracuse Post-Standard.

When the church sued, TOTO got written about by the Associated Press, UPI, the New York Post (Headline: "REV. 'MOON': TIMES SQ. CHURCH FIGHTS TO SPANK BUTT AD"), the (New Jersey) Home News Tribune, the York (Pa.) Dispatch, the Albany Times Union, Newsday, and the New York Times. When a judge issued a TRO against the billboard, TOTO got stories in the New York Post ("BUTTS KICKED OFF BUILDING"), the Gothamist, the (Kenora, Ontario) Daily Miner, the Bismarck Tribune, AP, Toronto Globe & Mail, and NYT.

When TOTO agreed to alter the billboard Monday, there were stories in the Post ("THE BUMS' RUSH - TUSH COMES TO SHOVE AS NUDE AD HITS THE END"), the NY Daily News, NYT, the International Herald-Tribune, Newsday, papers in Australia etc.

Do they buy many toilet-bidet products in Bismarck?

Posted by Jay Hancock at 11:57 AM | Permalink | Comments (0)
Categories: Stupid PR pitches
        

The former Fed vice chairman weighs in with a piece in the New York Times:

"AN arcane debate is raging in Congress over the appropriate taxation of the bountiful incomes of people who manage private-equity and hedge funds — incomes that can range into the hundreds of millions a year. I don’t recommend trying to master the details unless you have either an accounting degree or insomnia. But one thing is easy to understand, though hard to swallow: Some people who are richer than Croesus are paying 15 cents in federal income taxes on the marginal dollar, while you may be paying 25 or 35 cents."

 My column in the topic last month is here.

Posted by Jay Hancock at 10:32 AM | Permalink | Comments (0)
        

Reader Robert asks: "When will FIOS come to Baltimore City? I look forward to the day I can leave Comcast." So I put the question to Verizon spokeswoman Sandy Arnette. Her response:

"Regarding your reader's question about when Verizon will bring FiOS to Baltimore City, we have not yet announced a timetable for Baltimore. But, of course, that in no way means the city will not get FiOS. So, please ask your reader to stay tuned -- recognizing that we cannot build a fiber-optic network everywhere at once.

"Just so you know, urban areas, because of permitting, undergrounding and property access issues present unique challenges that are different from suburban areas. We'll work through these issues in Baltimore knowing it's a good market for us.

"It's also important to note that we're still in the early stages of our fiber-optic upgrade, which we'll be working on for the next several years. Just because we have not built our network or obtained a cable franchise in a particular area now is not an indication that we won't do so."

I take this to mean: Don't hold your breath. I suspect the city is also not a first priority for Verizon because of lower-income neighborhoods, which the company may fear wouldn't sign up for high-priced cable/Internet packages at the rate of affluent neighborhoods. Verizon could cherry-pick Guilford, Roland Park, Federal Hill & Mt. Washington, but that would leave it wide open to charges of redlining. On the other hand, Baltimore has many more residences per mile of cable than the counties.

Posted by Jay Hancock at 9:34 AM | Permalink | Comments (16)