The NYT columnist's post on the question of whether it's a recession:

I’ve had time to look at it a bit more closely — and it’s much weaker than the headline number suggests (and MUCH weaker than the previous quarter, even though the growth rate was the same.) It’s not just that final sales fell, so that the economy grew only because of inventory accumulation. If you look at consumer spending, purchases of goods actually fell substantially. Only service purchases rose — and much of that was housing and medical care.

For examples of inventories climbing faster than sales, see here and here.

Posted by Jay Hancock at 6:22 PM | Permalink | Comments (0)
        

Everybody's trying to predict the next bubble. Reuters columnist James Saft says it may be emerging markets.

Emerging markets are very likely the next bubble, but don't let that stop you.

Emerging market shares are already expensive relative to developed market ones, but economic growth in places like China and India will continue to pull away, and investors will pay an increasing premium for that, especially if the ageing economic giants of the 20th century slip from their long term growth paths.

And in a process we've seen before with internet stocks and houses, big returns will attract big money, driving further rises and making it all seem very sensible, at least for a while.

The definition of "a while" is of course, as with all bubbles, the key question.

Posted by Jay Hancock at 5:30 PM | Permalink | Comments (0)
        

Starbucks' profit for the first quarter missed analysts' estimates and fell sharply from the same period last year, the company just reported. Company made 19 cents a share. Wall Street had expected 21 cents, on average. Profit fell 28 percent. The company blamed the recession.

"Fiscal 2008 is a transitional year for Starbucks and, while our financial results are clearly being impacted by reduced frequency to our U.S. stores, we believe that as we continue to execute on the initiatives generated by our transformation agenda, we will reinvigorate the Starbucks Experience for our customers, and in doing so, deliver increased value to our shareholders," commented Howard Schultz, chairman, president and ceo.

Be careful when they say "transitional year." They've been saying that about the Orioles since 1999 or so. This may be worse than just a cyclical bump for the coffee chain. It said it had a "mid-single digit decline" (percentage) in sales at stores open at least a year. That should be disturbing for shareholders. The company's phenomenal growth story appears to be transitioning into something else.

Posted by Jay Hancock at 4:54 PM | Permalink | Comments (0)
        

My colleague Paul Adams and I are getting questions based on his story today, BGE bills to jump 8% this summer

Readers want to know the exact rates per kilowatt hour starting June 1. The PSC hasn't disclosed the rates, and neither has BGE. BGE rate czar Wayne Harbaugh says the state requires all utilities to disclose new rates on the same day, which will be Friday.

I wrote last week that the "price to compare" for BGE will go up about 4 percent after June 1 to 11.8 cents per kilowatt hour. This is for SUMMER only -- June -- September -- and it doesn't count BGE's additional delivery charge of about 3.4 cents. The 8 percent increase Adams refers to is an average for the 12 months beginning June compared with prices for the 12 months ending in May. It sounds like they bought some winter power this month at pretty high prices, which will crank up the average for the whole year.

PS: But it still doesn't change my opinion on whether you should buy an alternative dirty-electricity product from WGES, Commerce Energy or others. If you want green energy and are willing to pay for it, go for it. But their offers for standard electricity are still higher than what BGE will be charging in the next year. And even if you think electric prices are going even higher, the alternative vendors don't let you lock in for more than two years. So it's not much of a hedge.

Posted by Jay Hancock at 2:20 PM | Permalink | Comments (2)
Categories: BGE/electricity
        

So economic output only scraped zero in the first quarter instead of dipping below, at least according to preliminary estimates. Gross domestic product grew at an annual rate of only 0.6 percent from January through March, the Commerce Department said.

Bloggers are asking: Where's the recession? A rule of thumb for a recession -- often cited in news reports -- is two consecutive quarters of negative GDP.

But the National Bureau of Economic Research's Business Cycle Dating Committee -- accepted by most economists as the official recession arbiters -- looks beyond GDP to identify economic setbacks. In fact the last official recession declared by the NBER -- in 2001 -- included only one quarter of shrinking GDP. In 2001 there were two negative quarters, but they weren't consecutive. Output shrank in the first quarter, but that was mostly before the official recession began in March. Then output grew at a 1.2 percent annual rate in the 2nd quarter. In the 3rd quarter the economy gave all that up and more. In the fourth quarter -- right after 9/11, interestingly -- output grew at a 1.6 percent annual rate. NBER declared the recession over in November.

NBER also looks closely at employment, which shrank sharply in 2001 and is shrinking now. The U.S. job base has now shrunk for three months in a row, starting in January. This Friday we'll get the preliminary report for April. In 2001 and 2002 -- an economic downturn considered mild by many economists -- the job base shrank for 15 months straight.

UPDATE: Barry Ritholtz says it's totally a recession because the government's inflation measures are flawed. By underestimating inflation, he says, the Commerce Department is overestimating economic growth. (Bean counters try to strip inflation out of their calculations to get the "real" amount of output increase.) So if you include a better inflation measure, output really did shrink in the fourth quarter and the first quarter.

Posted by Jay Hancock at 12:01 PM | Permalink | Comments (6)
        

The biggest U.S. financial crisis isn't the housing crunch. It's the government debt bomb being planted by baby boomers to explode in the faces of their children and grandchildren

But presidential candidates and their media interlocutors (both groups largely populated by boomers) have said almost nothing about it. The country is headed toward terrible inflation, huge taxes and economic decline? Pfft. Let's talk about flag pins.

So it's up to you, young people. The only hope is that you realize how badly you're getting ripped off and decide to do something about it. Two new dispatches - a book and a movie, both with Baltimore connections - are your manifestoes.

Read the rest of it here.

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (2)
        

Many of you have pointed out an omission in my recent material on Baltimore Gas & Electric's time-of-use plan, which gives discounts for electricity burned at low-demand times. The "customer charge" for TOU customers is $12 vs. $7.50 for households on the standard plan. I didn't mention it because TOU customers pay a lower delivery charge per kilowatt hour than regular customers, which basically wipes out the higher customer charge. So the rates are pretty comparable between the two plans.

Posted by Jay Hancock at 11:22 AM | Permalink | Comments (2)
        

The S&P Case Shiller index showed that metro DC house prices fell almost 3 percent in February and 13 percent from the levels of February 2007. That was about in line with the national average and not as bad as Miami and Las Vegas, where prices were down more than 20 percent year over year. But it's decent decline, and one that's necessary for the housing problem to get fixed. Looks like home sellers are getting more realistic about what their properties are worth.

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

A few days ago I caught Steve Hanke, professor of applied economics, giving a talk to the Johns Hopkins alumni club downtown. The title of the talk: "The Fed's Bubble Machine." Readers of Hanke's Forbes column know that the upshot of a Hanke analysis is often where to invest. The recommendation from the bubble talk: Buy gold. He is also invested in oil, and he thinks the Chinese currency, the renminbi, will also appreciate. The economic prognosis: "I think we're in for a very tough period of time. This is going to take several years to work itself out."

An economist of the "Austrian" school and a monetarist, Hanke blames Alan Greenspan for blowing up the money supply beyond what the economy could productively invest, thus setting the stage for the Nasdaq crash and the housing crash. And inflation.

But he doesn't define a bubble by looking at asset values. Instead, he looks at aggregate demand (as measured by nominal final sales in the GDP accounts) in the U.S. economy over time. "Nominal final sales that are significantly above the trend line is a bubble in the economy."

The Fed's response to the 9/11 attacks and the stock market meltdown of 2002 -- reducing the Fed funds rate to 1 percent -- was "the mother of all liquidity cycles," Hanke said.

One problem with the housing bubble, he said, was the disappearance of traditional banks and loan officers from credit process. With brokers selling loans directly to Wall Street, "there was really nobody monitoring the credit resk. There was nobody evaluating the credit risk in the first place."

The U.S. is in danger of entering a period of stagnation such as Japan experienced in the 1990s, he said. In Japan banks stopped issuing credit into the real economy and stocked their balance sheets with government paper instead. In the U.S., "credit channels are completely plugged up because banks aren't making loans," Hanke said.

Inflation is already high, he said. And the government has a perfect motivation to stoke inflation further -- to inflate away the trillions in debt that it owes. "The certainly don't want to increase taxes to pay it off."

Hanke is amused that credit reform plans would give much more power to the Federal Reserve. "They were responsible for regulating banks" during the mortgage bubble, he said. "They couldn't even do that."

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

Blurbs from a confab of the Society of American Business Editors and Writers, being held at the Sheraton Waterfront in Baltimore this week. Carlyle Group co-founder David Rubenstein spoke early this afternoon. Carlyle Group is one of the best-known private equity funds.

Rubenstein:

"Right now, the single greatest investment opportunity in the U.S. are our financial institutions. Nothing else comes close." Said Carlyle will be taking financial equity positions as well as buying back some of its own credit extended to financial shops.

Said sovereign wealth funds from China, the Middle East and elsewhere have been offended by questions about their transparency in the United States. This could repel them from U.S. markets, he said, which of course has implications for liquidity.

"I think the sovereign wealth funds are a little bit disgusted with the way they've been treated by U.S. officials. I don't think they're going to rush to do those deals again."

The second session comprised mutual fund stars Brian Rogers from T. Rowe Price and Robert Hagstrom from Legg Mason. I didn't take notes because I was moderating, but both managers believe the worst of the U.S. credit crunch is over and expect stocks to do well later this year. Both see the Bear Stearns collapse as the nadir of the credit trough.

Hagstrom is impressed with low P/E multiples on U.S. stocks and especially likes certain parts of the wireless and Internet businesses. Rogers is surprised at how high oil has gone. The last $30 a barrel of increase doesn't obviously come from fundamentals, he said. But he owns big pieces of oil companies.

Hagstrom, who wrote The Warren Buffett Way and other books on Buffett, was very surprised that Buffett is buying Wrigley at 29 times earnings -- a lot. But maybe Buffett sees that Wrigley and other makers of consumer nondurables are going to have the ability to raise prices that they haven't had for a long time, Hagstrom said. He said he'd take a closer look. He also thinks things may be turning around for Fannie Mae and Freddie Mac, the government-backed mortgage packagers.

Posted by Jay Hancock at 6:19 PM | Permalink | Comments (1)
        

New Maryland law abates property tax, increases incentives for renewable energy. From the solar-energy trade association on legislation Gov. O'Malley signed last week.

For homeowners (House bill-377/Senate Bill-207) increases the maximum incentives for state grants for solar applications and broadens them to include geothermal heat pump technology up to $3,000 at $1,000 per ton of heating. The bill also addressed key tax issues that have been barriers to solar energy adoption. Funding incentive levels for solar water heating equipment - now also includes space heating and cooling technology - increases from 20% or $2,000 to 30% or $3,000, whichever is less, of installed cost. Solar electric (photovoltaic) installations will increase from 20% or $3,000 to $2,500 per KW of installed capacity not to exceed $10,000. Geothermal heat pumps will receive a $1,000 per ton credit, not to exceed $3,000. The bill’s tax provisions make the sale of solar systems exempt from sales or use tax - which is 6% of the material cost of solar hardware. Perhaps the most valuable provision for the long-term growth of the industry is that this bill exempts the owners from property taxes on the value of their solar technology.

Posted by Jay Hancock at 10:51 AM | Permalink | Comments (1)
        

Former Treasury Secretary Larry Summers, in today's Financial Times. (Registration required.)

...America’s commitment to internationalist economic policy is ever more in doubt. Even before the significant increases in unemployment likely in the months ahead, the indicators are all disturbing. Presidential candidates attack the North American Free Trade Agreement. The Colombian free trade agreement languishes. There are increasing attacks on foreign investment in the US, not to mention growing support for restrictive immigration policies...

I suspect that the policy debate in the US, and probably in some other countries as well, will need to confront a deeper and broader issue: the gnawing suspicion of many that the very object of internationalist economic policy – the growing prosperity of the global economy – may not be in their interests. As Paul Samuelson pointed out several years ago, the valid proposition that trade barriers hurt an economy does not imply the corollary that it necessarily benefits from the economic success of its trading partners...

In a world where Americans can legitimately doubt whether the success of the global economy is good for them, it will be increasingly difficult to mobilise support for economic internationalism. The focus must shift from supporting internationalism as traditionally defined to designing an internationalism that more successfully aligns the interests of working people and the middle class in rich countries with the success of the global economy.

Posted by Jay Hancock at 10:37 AM | Permalink | Comments (1)
        

From today's NYT:

Stung by rising gasoline and food prices, Americans are finding creative ways to cut costs on routine items like groceries and clothing, forcing retailers, restaurants and manufacturers to decode the tastes of a suddenly thrifty public.

In March, Americans spent less on women’s clothing (down 4.9 percent), furniture (3.1 percent), luxury goods (1.3 percent) and airline tickets (1.1 percent) compared with a year ago, according to MasterCard SpendingPulse, a service of the credit card company that measures spending on 300 million of its cards and estimates purchases with other cards, cash and checks.

Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.

Sales of Nabisco graham crackers have dropped 7.5 percent, and Keebler Fudge Shoppe cookies have slipped by 12.3 percent. Not even beer is immune. Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down, the firm said.

Some are skipping drinks altogether. The number of people ordering an alcoholic drink fell to 31 percent last month from 42 percent last summer, according to a survey of 2,500 people conducted by Technomic, a restaurant industry consulting firm.

But, but! Americans are not giving up the true necessities.

By no means has the economic downturn been bad for all product categories. For instance, sales of big-ticket electronics, like $1,000 flat-panel televisions and $300 video game systems, are on the rise, according to retailers and research firms.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (2)
        

Green Hornet: When journalists were heroes, production values were terrible and scripts were worse. Plus, Bruce Lee (as Kato) kicks total badguy keister. 9:30 p.m. Fridays on AmericanLife network. (Verizon FIOS channel 213.) 

Posted by Jay Hancock at 4:10 PM | Permalink | Comments (0)
        

Dear Jay,

If you're ever by chance doing something on the correlation between how people look and how they do professionally (i.e., many believe short or heavy people have a tougher go of it), please consider a chat with nationally respected hair transplant surgeon Dr. William Rassman to discuss the connection between baldness and leadership. A timely angle in this regard might be the fact that we haven't elected a bald President since Eisenhower.

Thanks so much for your consideration!

Update: From comments. Good one!

Guess that one hit a little too close to home, eh Jay my boy?

Posted by Jay Hancock at 4:28 PM | Permalink | Comments (1)
Categories: Stupid PR pitches
        

Here is a beautiful illustration on the economics of power production. Ohio is about to put the brakes on deregulation, prohibiting the further transfer of generation plants (paid for by utility ratepayers) to unregulated corporations. But Duke Energy has filed an apparently last-minute motion with the Feds to switch its Duke Energy of Ohio plants to an unregulated affiliate, where they would be able to charge what the market bears. From the Cleveland Plain Dealer:

Duke has filed a request with the Federal Energy Regulation Commission to move ownership of its power plants to unregulated companies owned by North Carolina-based Duke Energy Corp.

Duke made the FERC filing as the Ohio Senate approved Gov. Ted Strickland's energy bill on Wednesday.

The new law specifically prohibits such transfers of ownership unless the Public Utilities Commission of Ohio agrees, an unlikely consent any time soon.

This kind of transfer set the stage for Maryland's electricity problems. The switch of BGE's former generation plants to an unregulated affiliate owned by Costellation Energy led to very large price increases for BGE ratepayers and very large profits booked by Constellation. Constellation is BGE's parent.

It's true that fuel prices have driven up generation costs and that these have been passed on to BGE consumers. But profit on the former BGE plants has risen even further than costs. Most are coal and nuclear plants with relatively cheaper fuel. In an unregulated market where the marginal price of electricity is largely determined by expensive natural gas, coal and nuke plant operators make a killing. Under regulation they would have had to pass those lower costs on to consumers.

Duke obviously wants that kind of action in Ohio. Its Ohio plants seem to be fueled by coal.

Posted by Jay Hancock at 3:13 PM | Permalink | Comments (3)
        

Robert Wildrick, CEO of Jos. A. Bank Clothiers, called apropos of today's column that spanked the company for refusing questions from analysts and not better explaining how it will cope with what looks like a U.S. recession. Wildrick:

-- Apologized for the fact that no executives returned my calls.

-- Said (good naturedly!), "I don't like being compared to a communist leader."

-- Said lawyers have discouraged the company from taking questions on their conference calls. Bank is the subject of shareholder lawsuits. Its lawyers are concerned not so much about conference-call queries from large investment houses as questions from short-sellers and litigants, he said. The lawsuits have no merit and amount to "extortion," he said.

"It isn't the analysts that we're afraid of. It's that other people will come in on the call, and they might be setting us up. And they [lawyers] don't want us to do that at this time."

-- Noted that shares in other retailers have fallen as well as Banks' shares. "The segment is not in favor now. The thing we have control over is our performance, and we try very hard to take care of our customers."

-- Defended the company's large inventory. "Part of our stategy has always been to carry a lot of sizes... If you're going to be in business you've got to have all of them...so that when you come in the store we have a good shot at having your goods. One of the things that has made us sucessful is we have sizes. We have a very high closure rate; it's like 93 or 95 percent. The only way to do that is stock up on key items."

-- Didn't really answer analyst Richard Jaffe's main question in the column. For the first time in years, costs are rising substantially in the places Bank makes its clothes. In the face of rising costs and an uncertain U.S. economy, how will the company maintain profits?

Wildrick noted that Bank's profits, profit margin, employment and other measures have improved to a very impressive degree since he took over in 1999. But what about profits going forward, in this challenging environment?

"It's a good academic question," he said. "But that's what management is here for."

Posted by Jay Hancock at 12:08 PM | Permalink | Comments (1)
        

The University of Michigan issued the latest consumer sentiment stats at 10 a.m. Almost as worrying as consumers' poor expectations for economic growth are their robust expectations for inflation. From AP:

An early advance fizzled on Wall Street Friday after a consumer sentiment reading fell to its lowest level in more than 25 years and a disappointing forecast from Microsoft Corp. weighed on technology issues.

The Reuters/University of Michigan consumer sentiment index came in at 62.6 for April, down from 69.5 a month earlier — and the lowest reading since the early 1980s — as Americans contended with rising energy and food prices. Consumers' flagging mood is worrisome for Wall Street because consumer spending accounts for about 70 percent of U.S. economic activity.

From Dismal Scientist:

The University of Michigan consumer sentiment index dropped 6.9 points in April from the March average, according to final data. The index came in at 62.6, which was 0.6 points below the preliminary reading and the lowest reading for the index in 26 years. The decline from March was fairly evenly split between the expectations and current conditions components, although the latter was responsible for most for the decline in the second half of the month. Near-term inflation expectations rose very sharply, while long-term expectations also rose significantly.

Posted by Jay Hancock at 11:26 AM | Permalink | Comments (0)
        

Who was the one member of Russia's legislature to oppose Vladimir Putin's latest move to crush the press? From the AP story:

Russia's lower house of parliament has voted for new restrictions on the news media after a Moscow newspaper reported that President Vladimir Putin had divorced his wife and planned to marry a champion gymnast.

The State Duma voted 339-1 on Friday to allow authorities to suspend and close down media outlets for libel and slander following the furor over the story, which was denied by both Putin and the former gymnast.

Critics say Putin has presided over a steady rollback of post-Soviet media and political freedoms. Under his rule, all major national television networks have come under the control of the Kremlin or its allies and Russia's print media have also experienced growing official pressure.

Posted by Jay Hancock at 10:23 AM | Permalink | Comments (0)
        

Today's column is on Jos. A. Bank Clothiers' refusal to take questions from its owners and its owners' proxies on quarterly conference calls.

Jos. A. Bank Clothiers stock has fallen by nearly half since last spring. The menswear chain is defending itself against two shareholder lawsuits. Analysts worry it might get squeezed between a falling economy and rising costs. "Short sellers," who will profit if the shares fall further, are betting on it.

How does the company respond? With a passive-aggressive pout guaranteed to egg on the skeptics. Bosses Robert N. Wildrick and David E. Ullman don't take questions on conference calls with stock analysts. Apparently, they don't talk to journalists anymore, either - at least not this one.

Hey, Joe: "Fair disclosure" doesn't mean being scrupulously evenhanded by telling almost nothing to nobody. You're hurting yourself as well as investors. You might even have a good story to tell...

A retail veteran sends the comment below, saying the real question isn't inventory or communication but whether men's tailored clothing will continue to sell. It's a valid point, but people have been predicting the demise of the men's suit for 20 years. It hasn't happened yet.

Jay, I always am interested in and usually agree with what you write, but you somewhat missed the critical issue with JOSB. It's not inventory, many have considered their inventory too high for some time. It's logical to question inventories rising faster than sales, but this isn't A&F we're talking about. Men's tailored clothing's turn is the slowest of slow. And product offering changes very little from year to year. With the dollar's continued weakness and high levels of demand from India and China Bank may be accelerating some buys to counter anticipated inflation. In any case, this isn't central. It's not their mark up/markdown marketing strategy. I don't like it either, but the reality is it's done ok by them for what, ten years? Macy's problem isn't the "red pencil game." It's irrelevance. As with Men's Wearhouse, Talbot's, Chico's, Ann Taylor, etc. there's a reasonable probability that JOSB's aging customer base has moved on. Either cutting back as they approach or enter retirement or, much more importantly, embracing the notion that 50 is the new 40. There's nothing hip or cool about the above listed endangered species. And therein lies the rub.

Posted by Jay Hancock at 9:59 AM | Permalink | Comments (0)
        

Maryland won't really start to address its looming electricity shortage until households get better incentives to use electricity during off-peak hours. In the old days customers on BGE's "time of use" plans got huge discounts if they ran dryers and dishwashers at night or on weekends instead of at 5 p.m. on a Tuesday. Now the savings for the one in a dozen households using the plan are much less, and they just got a little worse. BGE has published prices for June -- September. The differential between peak prices and offpeak prices is a little less than it was last summer.

If you're on the plan (most households aren't), electricity burned from 10 a.m. to 8 p.m. on weekdays will be most expensive -- 15.298 cents per kilowatt hour. (This doesn't include charges for transmission and delivery, which are extra.) That's actually a little less than last year's peak price.

But the offpeak price has risen. This summer electricity used on weekends and from 11 p.m. to 7 a.m. on weekdays will be 8.917 cents per kilowatt hour, up from last year's 8.025 cents. The price for "intermediate" times -- 7 a.m. to 10 a.m. and 8 p.m. to 11 p.m. weekdays -- went up, too. With the offpeak price only a fifth less than the round-the-clock fixed price that most BGE households pay, it may not be worth the trouble.

This will change, and the sooner the better. Part of the problem is that the wholesale electricity market is sliced and diced differently than BGE's time-of-use price schedule. That needs to be fixed. But the biggest gains will come when BGE starts widely installing "smart meters." Smart meters will "know" when the cheapest and most expensive kilowatts are being offered at your doorstep, and you'll be able to buy accordingly.

Posted by Jay Hancock at 6:53 PM | Permalink | Comments (2)
Categories: BGE/electricity
        

Hoisted from reader comments:

Today, 24 April, in follow up to an earlier telephone call to BGE Customer Service and your article, I called BGE (1-877-746-6243) to confirm the residential rate beginning July 1. The operator knew nothing about a new rate for July and could only quote the current rate of 10.86 cents/KWH. That is sad and not good customer service. Those of us who now are with WashGas must act before May2.

This is part of the problem with Maryland's electricity "market." The new standard BGE prices take effect in not much more than a month, but it was almost impossible to find out what they were. I couldn't find them on their Web site; I had to ask one of the executives, which customers can't do. Markets don't work if prices aren't obvious. For the record, BGE's official rate sheet for this summer can be seen HERE. Add .4 cents for transmission and you get the new, 11.8-cent "price to compare." (You pay BGE a delivery charge on top of that, but delivery applies no matter which supplier you choose.)

BGE doesn't know what prices will be after September. (BTW, the new prices take effect June 1, not July 1 as the commenter said.)

Posted by Jay Hancock at 12:56 PM | Permalink | Comments (1)
        

Steve Forbes provided an object lesson three years ago in the hazards of predicting the direction of oil prices. Here is an article from an Australian newspaper published in August 2005, just as Hurricane Katrina was bearing down on the United States.

PUBLISHING billionaire Steve Forbes has predicted that soaring oil prices will lead to a crash that could make the hi-tech bust of 2000 "look like a picnic".

Mr Forbes, publisher of Forbes magazine, said the price of oil, which peaked at more than $US70 a barrel on Monday as Hurricane Katrina headed for the US Gulf Coast, was unsustainable.
He said factors such as inflation and increased demand for oil from China and India accounted for only a small part of the price hike from $US25-30 a barrel three years ago.

"The rest of it is sheer bubble speculation," he said.

Mr Forbes, who was speaking at the opening of the Forbes Global CEO Conference in Sydney yesterday, said the higher the oil price rose, the harder it would eventually crash, creating more pain for hedge fund managers and their clients.

"I don't think it's going to go to $US100 but if it does the crash is going to be even more spectacular," he said.

"It will make the hi-tech bubble look like a picnic -- this thing is not going to last."

He predicted that oil would fall to $US30-35 a barrel within a year.

Posted by Jay Hancock at 11:49 AM | Permalink | Comments (0)
        

Ohio policymakers settle on what the newspapers describe as a "hybrid" of regulation and deregulation. Apparently the bill has a "market option" for electricity prices. Some generation plants have been transferred to unregulated corporations, as happened in Maryland. Others are still owned by the regulated utilities. There is also a mandate for a certain amount of renewable generation. From the Cleveland Plain Dealer:

All utilities must first file traditional rate plans with the Public Utilities Commission of Ohio. FirstEnergy is the only utility that can then request a complete market rate because it has moved ownership of its power plants to an unregulated subsidiary. Downstate utilities can move to wholesale markets over the next 10 years, and only if the PUCO allows it.

If FirstEnergy chooses market rates, the PUCO will hold an auction or seek competitive bids from outside power companies -- an inherent risk for the Akron-based utility. The PUCO will then choose the least-cost bidders, which might be from the FirstEnergy subsidiary, or not. Once a utility goes to market, it cannot return to regulated rates.

Posted by Jay Hancock at 11:19 AM | Permalink | Comments (0)
        

The euro lost nearly two cents against the dollar this morning, which would be its biggest one-day decline in weeks if it holds up. Oil fell back toward $117 a barrel.. The Fed said via the Wall Street Journal that it might be near the end of short-term interest rate cuts for now. Low rates have killed the dollar and driven up the price of crude, which acts as a dollar hedge. U.S. crude inventories also rose more than projected.

Posted by Jay Hancock at 10:34 AM | Permalink | Comments (0)
        

Today's Wall Street Journal has a front-page story on the Federal Reserve. The nation's central bank, writes Greg Ip, may be close to ending rate cuts for now. This is the first sign that U.S. officials are worried about the plunging dollar and may be willing to do something about it. Fed officials have Ip's ear, and when he writes about what they're "likely" to do, it's almost as good as hearing Bernanke say it himself.

The Fed is also worried about rising inflation and wants to signal the bond markets that it hasn't fallen asleep on the job. On the other hand, it has a deteriorating economy to deal with. Lower short-term interest rates, which are a big factor behind the dollar's swoon, are the Fed's main weapon against a recession. Bernanke is trying to thread the needle. This also suggests he believes the worst of the Wall Street credit meltdown may be behind us.

By Greg Ip Word Count: 1,058 WASHINGTON -- The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week -- but then may be ready for a breather.

The Fed, meeting Tuesday and Wednesday, is likely to make what would be its seventh cut in eight months. The reason: Some officials see a case for more insurance against a deeper recession.

But others are concerned a cut could contribute to inflationary pressure with little benefit for growth. That means the option of standing pat will likely also be on the table.

Posted by Jay Hancock at 9:36 AM | Permalink | Comments (0)
        

Food hoarding in the United States? Rice-purchase controls at Sam's Club? Get ready to unfurl your rationing coupons and plant a Victory Garden. What is the world coming to? Here is the story from AP, in its entirety:

Wal-Mart's warehouse chain Sam's Club limits rice purchases

BENTONVILLE, Ark. (AP) -- Sam's Club, the membership warehouse division of Wal-Mart Stores Inc., is limiting how much rice customers can buy because of what it calls "recent supply and demand trends."
The broader chain of Wal-Mart stores has no plans to limit food purchases, however.

Sam's Club says it will limit customers to four bags at a time of Jasmine, Basmati and long grain white rice. Rice prices have been hitting record highs recently on worries about tight supplies.

Sam's Club's restriction is effective immediately at all locations where quantity restrictions are allowed by law. It does not apply to other staples such as flour or oil.

Posted by Jay Hancock at 4:03 PM | Permalink | Comments (1)
        

AP reports that President Bush will meet with participants of a 6-way kidney-transplant operation at Johns Hopkins. Here is my column on legalized kidney sales, written in the wake of a 5-way kidney operation at Hopkins in late 2006.

Of course the five-kidney, 10-patient transplant extravaganza at Johns Hopkins Hospital got on the CBS Evening News last month.

A dozen surgeons worked all day to fulfill a complex, "my relative will give you a kidney if your relative gives me a kidney" contract that pushed the bounds of clinical logistics."A huge medical story," said Katie Couric. "A surgical square dance," said CBS correspondent Sharyn Alfonsi. A "triumph of the human spirit," transplant director Dr. Robert Montgomery told The Sun.

And yet the heroics barely skimmed the ocean of desperate people needing kidneys. Five kidney donations down; only 68,980 to go, according to the Organ Procurement and Transplantation Network in Richmond, Va.

Is there a better way? Yes. It's time to experiment with buying and selling kidneys for cash.

The medicine is ready. The economics are ready. The people on the waiting list are more than ready; 4,000 die each year before they get an organ, Transplantation Network data show, and the list is getting longer.

The only thing that's not ready is society. But it can learn.

It's true that more "paired donations" such as those at Hopkins would shrink the queue.

Paired donations occur when a potential donor's kidney doesn't match his needy friend or relative but does match a stranger. If the stranger's donor matches up with the first patient, the parties can participate in a multi-kidney exchange. Such arrangements have been hindered, Hopkins officials say, because Congress hasn't explicitly allowed them. They want the law modified.

But why stop there? Even unfettered paired donations won't come close to meeting the need. At best they might double the 6,000 kidneys contributed annually by live donors.

Most people with failed kidneys have no live donor, compatible or otherwise. They must wait years for a transplant from a car-accident victim or other cadaver, which furnishes fewer than 10,000 kidneys a year. Each year 40,000 people join the waiting list.

Cash payments, which would need to be decriminalized by Congress, could break the logjam.

This is where you can start to squirm. I'm talking about "organ trafficking," peddling the tissue that God gave us for currency that could be exchanged for a widescreen TV. "My side is starting to ache," a friend said last week when I described the idea.

But legalized, closely regulated sales could not only close the kidney supply gap; they could offer salubrious competition to the shady, international black market that goes on now.

Donating a kidney is surprisingly low-risk - lower than that of childbirth. We are born with two kidneys, but one usually does the job. Decades later, donor mortality is no worse than that of the general population, studies show.

The biggest objection to legal kidney markets - and it's a good one - lies in the potential for social inequity. Rich folks buying harvested kidneys from poor folks who might need the money for rent is not a promising formula for civil society.

But there is already a glaring inequity in the status quo. Blacks are more likely than whites to languish for years on the waiting list. (Partly that's because they do better on dialysis.) Carefully controlled financial incentives could increase donations and help minority renal patients and everybody else disconnect from tubes.

"The argument is simple," says Dr. Arthur J. Matas, a prominent Minnesota transplant surgeon. "It's that patients are dying and suffering for lack of organs, and incentives could make a difference. And we should have some trials so we can find out."

Thoughtful proponents such as Matas don't want to sell used kidneys like Chevrolets. He suggests a government agency to fix a price, broker all donations, require lengthy counseling for donors and make insurers, not kidney recipients, pay donors.

"Four years ago this was an extremely radical position," he says. "Right now I would say that the tides are truly turning."

But only so far. Matas is careful to say he speaks only for himself, not for the American Society of Transplant Surgeons, of which he is president. Johns Hopkins wants nothing to do with the idea, citing "too many unresolved ethical issues."

"We are always interested in finding new strategies to help patients waiting for kidney transplants," Dr. Montgomery, director of the hospital's Comprehensive Transplant Center, said in a written statement. "However, the use of financial incentives for organ procurement is not one of them."

Too bad. The average kidney-transplant wait used to be about a year. It is now pushing five years. A pilot program might well convince us that the social and ethical costs of buying kidneys are greater than the social and ethical costs of letting thousands die each year. But we won't know until we try.\

Posted by Jay Hancock at 1:59 PM | Permalink | Comments (4)
        

Here they are. A commenter mentioned that she lost money on time of use in 2006. But the price differential between on-peak and off-peak is a little better now than it was then. Below are the TOU GENERATION rates that will be in effect from June through September. Add another .4 cent or so for transmission and another 3.4 cents for delivery. The flat summer rate will be, as noted, 11.4 cents plus another .4 cent for transmission plus 3.4 cents for delivery.

On-peak: 15.298 cents/kwh
Intermediate-peak: 9.933 cents/kwh
Off-peak: 8.917 cents/kwh

Posted by Jay Hancock at 1:04 PM | Permalink | Comments (2)
        

Target wrote off credit-card charges at an 8 percent annual rate in March -- a hefty bite and an increase from the 6.8 percent writeoff rate for February. Of course, charging double-digit interest rates helps make up the loss! The portfolio's annualized yield for the three months ending in March was still 19 percent. Here is a Bloomberg story. Here is a table from Target's SEC filing.

PORTFOLIO PERFORMANCE RATES

(a) Net Charge-Offs (annualized % of Principal Receivables at beginning of period)

8.12%

(b) Monthly Payment Rate ( % of Total Receivables at beginning of period, adjusted for number of days in period)

14.76%

(c) Trust Portfolio Yield (annualized)

26.58%

(d) Portfolio Yield (3 month average (annualized))

19.20%

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

Oil and copper aren't the only commodities being hoovered up by fast-growing nations such as China and India. They're substantially increasing cigarette consumption. Profits announced by Philip Morris International this morning demolished analysts' estimtes. From the AP story:

Cigarette maker Philip Morris International Inc., spun off last month by longtime owner Altria Group Inc., reported Wednesday a 29.2 percent rise in profit for the first quarter, beating estimates, and raised its outlook for the year.

PMI said it earned $1.87 billion, or 89 cents a share, in the first three months of the year, up from $1.445 billion, or 69 cents a share, in the same period last year.

Analysts polled by Thomson Financial expected profits of 77 cents per share.

Full-year earnings are predicted to rise by 14-16 percent in 2008, PMI said in a statement from New York.

"We continue to witness an improvement in our business fundamentals as evidenced by the double-digit revenue and income growth recorded in each of our geographic segments," chairman and chief executive Louis Camilleri said.

Growth was strongest in Asia, with shipments up 10 percent, while the European Union declined by 5.9 percent.

PMI was spun off to Altria Group shareholders last month. Altria's Philip Morris USA continues to operate in the United States.

Posted by Jay Hancock at 10:53 AM | Permalink | Comments (1)
        

Is from BGE's standard product. From today's column:

Jennifer and Rob Brewington of Glenwood switched to an alternative electricity supplier two years ago, saved a few dollars and figured they would renew when the deal expired in June. That was before they checked the details.

"It looks like they're raising the rates," says Jennifer Brewington. "Because they were slightly more reasonably priced than BGE back when I signed up with them, I thought they might continue to be."

But the new offer, from Washington Gas Energy Services, was about 17 percent higher than what Baltimore Gas and Electric's standard, electric-supply price will be after June 1. The Brewingtons canceled the WGES deal and went back to BGE.

Which might be a good idea. Because BGE locked up most of its electricity supply for this year months ago, when prices were lower, rival suppliers such as WGES and Commerce Energy are having a hard time undercutting it.

Posted by Jay Hancock at 10:43 AM | Permalink | Comments (0)
        

Here are the latest prices and offers from alternative electricity supplies to BGE customers. As Wednesday's column says, they aren't very attractive compared with BGE's standard price.

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

Dealers sold 27,118 cars last month -- a 17.5 percent decline from the figures in March 2007. This from figures posted by the MVA. January and February sales were down by about 8 percent compared with the same months last year. For all of last year, Maryland new-car sales fell 5 percent.

Used-car sales fell by 9 percent in March. The average price for new and used cars also fell from the level of March 2007. For most Christian denominations, Easter happened in March, which may have depressed car sales. Let's hope they rebound this month.

Posted by Jay Hancock at 5:45 PM | Permalink | Comments (2)
        

Princeton economist and New York Times columnist Paul Krugman replies to those who argue that the increase in prices for oil and other commodities represent a speculative bubble.

We’ve had a huge runup in commodity prices — fuels, food, metals. But why? Broadly, the debate is between those who see it as a speculative phenomenon, driven by some combination of low interest rates and irrational exuberance, and those who see it as a collision of rapidly growing demand with constrained supply.

My problem with the speculative stories is that they all depend on something that holds production — or at least potential production — off the market. The key point is that the spot price equalizes the demand and supply of a commodity; speculation can drive up the futures price, but the spot price will only follow if the higher futures prices somehow reduces the quantity available for final consumers. The usual channel for this is an increase in inventories, as investors hoard the stuff in expectation of a higher price down the road. If this doesn’t happen — if the spot price doesn’t follow the futures price — then futures will presumably come down, as it turns out that buying futures produces losses.

Posted by Jay Hancock at 10:38 AM | Permalink | Comments (1)
        

Finally, a definitive forecast on the prices of oil, copper and other commodities, all of which have gone bonkers. From The Atlantic's Megan McArdle on the possibilities:

1) They will go up

2) They will go down

3) They will stay about the same

Further than that I am unwilling to say.

Invest accordingly.

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

Daniel Gross's Newsweek piece is about how the low dollar is juicing U.S. exports.

[A]round the world, demand for the goods and services that Americans produce has never been greater. While it's fashionable to say that the United States doesn't manufacture anything except debt and Disney movies, Americans do produce bumper crops of stuff the world needs: scrap paper, pharmaceuticals, coal, airplanes, wheat and livestock, to name a few. And thanks to the weakening dollar, American goods of all types are essentially on sale.

For years, Baltimore-based Marlin Steel Wire Products struggled in the U.S. market against stiff competition from cheaper, Chinese-made products. But president Drew Greenblatt automated the factory line and abandoned the low-margin end of the wire-basket market—rack warmers for bagels, for example—to make more-expensive products like antimicrobial baskets for restaurant kitchens. Since the dollar began to decline two years ago, Marlin Steel has landed clients in Belgium, Canada, Mexico and Japan. Sales rose from $800,000 in 1998 to $3 million last year, and Greenblatt forecasts sales will rise by one third this year. "I was losing a hundred thousand dollars a year just a couple years ago, and now I'm shipping wire baskets to New Zealand," Greenblatt says.

Posted by Jay Hancock at 9:36 AM | Permalink | Comments (1)
        

Wednesday's column will probably be about how much higher BGE prices will rise starting in June and what alternatives you have. To that end the Kilowatt Shopping Headquarters has been refreshed, with the latest prices from alternative suppliers. They've all gone up by a penny per kilowatt hour or so. The good news is that standard BGE prices won't be rising as fast as gas prices. They'll bump up about 5 percent. More Wednesday.

Posted by Jay Hancock at 6:25 PM | Permalink | Comments (10)
Categories: BGE/electricity
        

The Rev. Thomas Malthus was a prophet of misery based on what he believed to be the tendency of human economies to outgrow their resources. Until recently, the word "Malthus" appeared in the Nexis media database about 10 times a week. Since the beginning of March it has appeared at almost twice that rate. Are we approaching a Malthusian surplus of Malthus references, which would be precursor to a huge decline? 

Posted by Jay Hancock at 12:03 PM | Permalink | Comments (0)
        

This is from the Economist Intelligence Unit, an affiliate of the weekly Economist magazine. It ranks countries according to labor supply, labor quality, transportation, regulation, taxes etc. The winner is Denmark, which is surprising. No. 2 is Finland. No. 3 is Singapore. The United States is 10th, after Sweden and before Ireland. Some highlights on Denmark:

The Danish labour market model wins plaudits. One of the most attractive aspects of the Danish business environment is the labour market-Denmark's "flexicurity model" has become the yardstick for reforms in other European countries. The system combines low non-wage labour costs and few restrictions on hiring and firing with high unemployment benefits (funded by the state via income tax, not business) and opportunities for workers to upgrade their skills. This provides a high degree of flexibility for employers, while generating a high level of employment and income security.

A "globalisation fund" has been established to prepare Danish workers and businesses for greater global competition through higher spending on education, and research and development. Following the reduction in the corporate tax rate in 2007, income tax cuts will be introduced in 2008-09. A "tax commission" will also meet during 2008 to propose a more comprehensive reform of the tax system.

If Denmark is to hold onto its number one rank in the long term, it will need to ensure an effective response to the projected decline of the working-age population.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (0)
        

A bracing bit of analysis from Leon Panetta, former White House chief of staff and Hillary Clinton supporter, in today's New York Times. The subject is how mad the Clintons are at superdelegates and other former supporters who are endorsing Obama. The Pennsylvania primary is Tuesday.

“These are people that the Clintons gave an opportunity to serve,” said Mr. Panetta, speaking generally. “They helped give them the titles they now have, and made them a lot of money. I think the Clintons probably feel they are owed something.”

So politics is really about using the government's and taxpayers' resources to help your friends get ahead, not about doing what's best for the country. Of course there are many who believe this. Rarely is it uttered out loud.

Posted by Jay Hancock at 8:50 AM | Permalink | Comments (2)
        

What Pope Benedict thought was so important: Sixty years ago the United Nations, assembled in the trail of the most horrific war known to history, redeemed a promise made by John Locke and the Enlightenment. The U.N. promulgated a Universal Declaration of Human Rights and decreed that it "be disseminated, displayed, read and expounded principally in schools and other educational institutions, without distinction based on the political status of countries or territories." Some highlights:

All human beings are born free and equal in dignity and rights.They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.

Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. Furthermore, no distinction shall be made on the basis of the political, jurisdictional or international status of the country or territory to which a person belongs, whether it be independent, trust, non-self-governing or under any other limitation of sovereignty.

Everyone has the right to life, liberty and security of person.

No one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms.

No one shall be subjected to torture or to cruel, inhuman or degrading treatment or punishment.

No one shall be subjected to arbitrary arrest, detention or exile.

Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.

Everyone has the right to leave any country, including his own, and to return to his country.

Everyone has the right to own property alone as well as in association with others.

Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.

Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.

Posted by Jay Hancock at 10:25 AM | Permalink | Comments (0)
        

Oil bulls are yelling at me for being "bearish." I didn't think the column made a very good bearish case, did you?

The Fed is printing money to clean up the housing bubble, which was fueled by the money it printed to clean up the Internet bubble. The only question is what kind of bubble the new money will inflate.

Bet on oil and other energy.

Unfortunately for energy users, which is all of us, it may be years before the oil foam settles down. If this were the Internet bubble, we're probably closer to Nasdaq 2,500 in 1998 than Nasdaq 5,000 in 2000.

Every bubble needs a story. The Internet story was that the whole economy would shift to the Web. The housing story was that people don't trade Cape Cods and ranchers like penny stocks and that Wall Street knew how to lend to high-risk borrowers.

The energy story is that the planet is running out of oil, and we must pay $115 a barrel or more or return to the Stone Age. The "peak oil" theory, a fringe doomsday scenario a few years ago, is now an investment philosophy.

Like the other bubble stories, the energy tale contains substantial truth. It's just a matter of how much the truth is going to cost you.

Read the rest of the column HERE.

Posted by Jay Hancock at 1:48 PM | Permalink | Comments (2)
        

I'm worried about my favorite store. Borders Books is having some financial issues, just got a capital infusion and has said the company might be sold. Its relatively new CEO, George L. Jones, isn't from the book business and is revamping inventory to increase sales and profitability.

Borders' decision to cut back on audio CDs is already obvious in its Columbia store, where you'll see lots of empty space in the music section.

"We do have an inventory program under way, where we're really doing our best to have in our stores products that customers want -- that sell," said Anne Roman, the Ann Arbor-based company's director of corporate affairs. "Any physical store has to be smart about what it offers and has to be smart about what customers are buying.”

The company is also reducing in-store book titles. Does that mean it's going to focus only on best sellers?

"We are still retaining our commitment" to a broad selection of book titles, Roman said. No sign of a big book-inventory change in Columbia. Still plenty of titles in the history section.

The company's policy of having more book covers face out from the shelf -- instead of lining them up spine-by-spine -- has come to Maryland. This is especially true in cooking and travel. Last year Borders lost $20 million on shoplifting, so it has put almost all its DVDs -- a big theft item -- in security jackets. It is also trying to boost sales by putting more impulse-purchase items near the checkout line.

It's launching an online bookstore, which will have huge selection. But that's not the same as being able to buy a great, obscure book off the shelf. Don't cut back too much, Borders.

Posted by Jay Hancock at 1:17 PM | Permalink | Comments (2)
        

From the Associated Press:

Citigroup Inc. lost $5.1 billion during the first quarter and will eliminate about 9,000 more jobs, as poor bets on mortgages and leveraged loans lopped billions of dollars from its investment portfolio.

Write-downs related to mortgages and turmoil in the credit markets reached about $12 billion, and costs stemming from consumers' credit problems surpassed $3 billion, the bank said Friday. And in a conference call with analysts, Citigroup chief financial officer Gary Crittenden said the bank, seeking to cut costs, is eliminating about 9,000 additional jobs.

That means Citigroup has announced 13,200 job cuts in all, following an announcement in January that the bank was cutting 4,200 jobs. And more work-force reductions may be on the way.

The WSJ liveblogged the conference call this morning. Some highlights:

Jason Goldberg of Lehman Brothers wants to know about the head count reductions. “I think it’s unlikely that you will hear some very large significant number that we’re going to announce, but I think it’s highly likely that you will continue to hear that we’re very focused on improving our cost competitiveness, and as a result are consistently working away from a productivity perspective,” Mr. Crittenden says, a pretty meaningless statement when one thinks it over. He notes that about 7,000 of the 9,000 eliminated comes from the consumer business. Mr. Goldberg wants to know about total headcount reductions — including attrition and job losses. Mr. Crittenden estimates it in the 16,000 range....

Ms. Whitney also wants to know about “earnings visibility” for the rest of the year, noting that the firm is going to have “persistent restructuring charges and sort of more moving parts than less moving parts.” She wants to know when “you think you’re going to turn the corner.” Mr. Crittenden first notes that if reduced values on certain assets were removed, “revenues would have been roughly flat.” He notes that the environment is rough — increases in credit-card losses, poor housing fundamentals and rising unemployment. “We are in unprecedented territory from a real-estate standpoint,” he says.

Mr. Crittenden continues. “We could, in fact, be facing head winds…There’s no assurance that the amount of marks that we have taken in this quarter are finished. We’re three quarters into this. I think we have substantially reduced our amount of risk but there’s also the prospect that you could have additional marks, and that throws the calculation of that number pretty much out the window. What I would say is that I think you should hold us accountable for a couple things that we make significant progress on headcount and that we make significant progress that is discernible in our numbers on expenses.”

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (0)
        

According to news reports, Aquila Inc. built a $140 million Missouri electric plant without a permit and in violation of zoning laws. Now the powers that be are trying to finesse the matter and call it legal. Maryland, of course, seemingly can't get a power plant built under any circumstance.

"Aquila knowingly built the project without a permit and in violation of county zoning laws." said an editorial in the Kansas City Star this week. "Aquila plunged ahead after receiving approval from the Missouri Public Service Commission. In 2006, though, Circuit Judge Joseph Danduran ruled that the then-operating power plant must be dismantled. He said Aquila was guilty of 'arrogance' and 'disregard for the law.' The PSC tried to sidestep that decision by once again giving Aquila permission to keep the plant open."

The latest development is a fabulously florid email, sent by Barton County, Mo., Associate
Circuit Judge Charles Curless, excoriating a legislator trying to make the plant legit. Some excerpts from the Star's copy:

Ed, Congratulations on reaching an all-time low in your so-called "representation" of the 126th District. I am, of course, referring to your incredibly scandalous preferential treatment of the folks at Aquila, regarding the unlawful power plant in Cass County...

You certainly must be aware that the vast majority of us who, unfortunately, live within your istrict are respectful of the rule of law, and are disdainful of activist legislation, such as that which you have ramrodded through the House Special Committee on Utilities...

What in God’s name are you thinking? You have railed, both in your weekly "report" and in many orations, about how judges must follow the law. Now we find that it is your opinion that your friends at this powerful corporation, Aquila, are above the law, and that when it comes
to your friends, "logic" trumps the law. Who else’s pocket are you in?

You have pulled many boneheaded stunts during your time in the legislature which are contrary to the interests and wishes of the citizens of this district, but this one gets the blue ribbon.

Posted by Jay Hancock at 9:35 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

From Bloomberg. This fits Michael Kinsley's definition of a gaffe: When a public figure tells the truth. Former Treasury Secretary Paul O'Neill tells the truth about Washington's "strong dollar" policy, which Johns Hopkins economist Steve Hanke says is really a weak dollar policy wearing a different label.

``When I was Secretary of the Treasury I was not supposed to say anything but `strong dollar, strong dollar,''' O'Neill said today. ``I argued then and would argue now that the idea of a strong dollar policy is a vacuous notion.''

``The markets actually have control over those relationships. When people say strong dollar, if they don't mean that `we believe intervention can work and we're prepared to intervene,' then `strong dollar' is ridiculous.''

``It implies in it that somehow we have the ability to manage the relationship between the value of the U.S. dollar and other currencies around the world,'' O'Neill, now a special adviser to Blackstone Group LP, today said in an interview with Bloomberg Television.

Posted by Jay Hancock at 10:19 AM | Permalink | Comments (0)
        

Laura McCandlish writes in today's Sun about new denied-boarding rules for travelers in the United States. The government basically doubled the compensation due travelers who are significantly delayed or kicked off their flight because the airline overbooked.

Get bumped or delayed by more than two hours and you get twice the cost of the ticket, up to $800. Get delayed by up to two hours and you get the cost of the ticket up to $400. This is closer to Europe's bumping rules but still not as good. In Europe in you get up to 600 euros ($940), depending on the length of the flight. Often the airlines will offer even more in flight vouchers to keep from having to pay cash. Airlines operating in Europe must also furnish meals and free email and telephone calls and a hotel room and transportation if the delay is overnight.

The University of Maryland's Julian Simon helped develop the modern bumping system by proposing a "reverse auction" in which "the airline flight personnel would simply need to ask each ticket holder the lowest amount he or she would be willing to accept to wait for the next plane, and then select the necessary number of low bidders." That's not how it works today, but Simon helped legitimize the idea of seeking voluntary bumpees and compensating them. Previously airline personnel would often decree who would get bumped and who would fly.

Posted by Jay Hancock at 9:40 AM | Permalink | Comments (1)
        

ACA Financial, run out of New York but registered in Maryland, has rocketed to stardom as an example of how not to manage credit risk. The bond insurer guaranteed a lot of subprime paper and other financial garbage that has Wall Street gagging these days. It is not in receivership, but its affairs are under the control of the Maryland Insurance Administration. Today the Board of Public Works approved another $1.2 million to continue MIA's investigation into ACA. From the agenda:

After almost three months of an in-depth investigation of ACA Financial Guaranty Corporation (ACA) insurance company, Bingham McCutcheon LLP is still finding information and reporting that information to the Administration. The need for this investigation still exists and the contract needs to continue. Additionally, the restructuring efforts could take many more months, and if ACA is placed into receivership, it could take years to wind up the affairs of ACA, which would mean the possibility of additional modifications to the contract.

ACA pays the $1.2 million to Bingham McCucheon, the law firm combing through its books. But apparently it's a state contract and Public Works has to approve it. Banking companies such as Citi, UBS, Merrill Lynch and Wachovia reportedly have billions in exposure to ACA. So far ACA has signed three "forbearance" deals in which its creditors temporarily agreed not to press claims. Forbearance No. 3 runs out April 23.

Posted by Jay Hancock at 6:17 PM | Permalink | Comments (0)
        

Lacy Hunt and Van Hoisington are some of the smartest guys around. They've made lots of money for their clients in the Wasatch-Hoisington U.S. Treasury Fund by being bullish on long-term Treasuries and bearish on inflation since the 1990s. They know economic history cold, see forces repeating themselves and know that this repetition makes it possible to make calculated predictions about what happens next. I always look forward to their quarterly commentaries. The newest one is out today.

Summary: This economic slowdown isn't going away anytime soon; inflation (hardly anybody else is saying this) is under control; and interest rates will fall further. Some highlights:

The point for investors is not what type of recession we are experiencing, but rather how long the downturn will last. Our conclusion is that our present economic difficulties will persist for at least two years...

Going forward, the main problem for the U.S. economy is likely to be a protracted period of restrained consumer spending... The main cause of the weaker trend in personal income in this decade was lackluster real wage and salary income that rose just .8%, or one-half the rate of gain in the expansion of the 990s. This meager gain was caused by the sluggish .8% payroll employment growth rate that was the smallest of any expansion since World War II. With this key determinant of consumer spending restrained, consumers lived well beyond their means, only because their paper worth was boosted by surging home prices...

Treasury yields have dropped to near record lows, but the historical record suggests the ultimate bottom in cyclical rates is considerably in the future. On average, thirty year Treasury bond yields are a lagging economic indicator... Thus, if this growth, or outright recession, ends in 2008, the low in bond yields will be some time in 2010. However, if we are in an extended growth recession that lasts into 2009 or 2010, as we suspect, and if rates are at record low levels, similar to the 1940s and 1950s, then the low in rates is likely to coincide with the end of the recessionary period

Posted by Jay Hancock at 11:40 AM | Permalink | Comments (3)
        

Electricity rate caps expire at the end of this year for Ohio. Legislators are flailing around trying to do something, or trying to appear to do something. They were up past midnight this morning talking about incorporating "favorable" rates into law and prohibiting or taxing "excessive earnings." From the Columbus Dispatch:

Republican legislative leaders worked into the wee hours this morning attempting to forge a new regulation plan for electricity that satisfies those who want to see competitive markets develop, while easing concerns of Gov. Ted Strickland and others that major rate increases will result.

The final marathon of negotiations followed a veto threat by Strickland, who said Friday that "the bill does not protect consumers against unwarranted and unjust rate increases."...

House Speaker Jon Husted, R-Kettering, has argued that customers will pay the most favorable rate, whether it's regulated by the state or set through a transition into an open, competitive market.

But Rinebolt told a House committee yesterday that the bill's definition of "favorable" was an "ill-defined standard for pricing."...

The governor on Monday evening proposed adding a new provision to the bill covering "excessive earnings," defined as a rate that "significantly exceeds the returns achieved by businesses in the private sector with comparable risk."

"We want a clear and common-sense rate system that doesn't allow utilities to run away with excessive revenue and earnings," Strickland spokesman Keith Dailey said.

But Republicans balked at the proposal, calling it a tough-to-define standard that does nothing to promote efficiency among utilities and could lead to purposeful higher spending....

"I don't want to push something that's going to raid retirement accounts, fatten CEO salaries and promote waste," he said of the governor's proposal. "We're trying to come up with something that's a fair test that promotes efficiency."

Posted by Jay Hancock at 11:05 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

Laura McCandlish reports in today's Sun that air freight at BWI has fallen sharply, reflecting a slowing economy. But rail freight seems to be doing better. Railroads are the transportation of choice for bulk commodities -- especially coal. Commodities, in case you hadn't noticed, are booming. So while train companies, like other transportation concerns, are having to pay more for fuel costs, they're also benefiting from the boom in fuel, crops, minerals and other basics.

Cargo at Baltimore-Washington International Thurgood Marshall Airport is down 7 percent from year ago levels. March bulk rail freight, however, was practically even -- down 0.1 percent. Container freight -- comprising higher-value-per-pound items, often from overseas -- fell by a more substantial 5.7 percent. From the Association of American Railroads:

Railroads originated 1,308,482 carloads of freight in March 2008, down 0.1 percent (1,467 carloads) from March 2007, the AAR said. U.S. intermodal rail traffic, which consists of trailers and containers on flat cars and is not included in carload figures, totaled 856,404 units in March 2008, down 5.7 percent (51,705 trailers and containers) compared to March 2007.

For the first three months of 2008, total U.S. rail carloadings were up 1.1 percent (46,756 carloads) to 4,172,966 carloads, while intermodal traffic was down 4.1 percent (119,944 units) to 2,819,095 trailers and containers. Total volume was estimated at 431.5 billion ton-miles, up 2.3 percent from last year.

Coal and grain were the bright spots for U.S. rail traffic in March 2008. Carloads of coal were up 5.9 percent (32,369 carloads) to 582,574 carloads, while carloads of grain were up 13.9 percent (12,055 carloads) to 98,650 carloads. Carloads of chemicals in March were up 0.6 percent (695 carloads) to 125,391 carloads.

“Recent disappointing economic news helps explain why rail traffic is not more robust,” noted AAR Senior Vice President John T. Gray. “For example, the Department of Commerce recently reported that construction spending is down, which helps explain why carloads of crushed stone, sand, and gravel are down. Weak consumer spending and the weak dollar help explain why rail intermodal volume is down. And, of course, a fragile housing market has been negatively affecting rail shipments of lumber for quite a while. On the other hand, the weak dollar means U.S. exports are less costly overseas, which is helping boost U.S. exports of grain, coal, and other commodities.”

Posted by Jay Hancock at 8:37 AM | Permalink | Comments (1)
        

Intelligent libertarian Megan McArdle says she rolls out her tax plan every year, like a Christmas display. Of course nobody pays serious attention. Being simple, fair, humane and fiscally prudent, it makes far too much sense. (Note that in Item 1, "a steep negative rate of up to 100%" means that, instead of taxing income at very low levels, the government GIVES you money to match what you earn.)

1) Get rid of all our poverty programs, except those aimed at the disabled, and temporary unemployment assistance, and institute the negative income tax. That is to say, the system should be continuously progressive, from a steep negative rate of up to 100% on very low earners, gradually declining until it zeroes out around $28,000 a year, and then rising gradually until it maxes out around 35% on the top brackets.

2) Eliminate FICA and pay for Social Security and Medicare out of general revenue. It's time to stop pretending it's a pension system, when there are no assets in the "trust fund"

3) Eliminate the corporate income tax

4) Eliminate the special treatment for capital gains. All income should be taxed at the same level, regardless of its source.

5) Eliminate all deductions. Period, end of statement. No mortgate, student, child, etc. All causes are equally worthy in the eyes of the person who possesses the deduction; it is a waste of our time as a nation to sit around arguing about who deserves what.

6) Just say no to the Value Added Tax. In theory, it's a good tax. In practice, because it is extremely hard to tell what proportion of the price of anything represents the tax, it removes the good and natural pressure upon tax rates.

7) Get rid of the estate tax, and tax the capital gains on whatever is sold.

Posted by Jay Hancock at 10:22 AM | Permalink | Comments (0)
        

So says the table at the bottom of the press relese from RealtyTrac, which gagues these things. March 2008 foreclosures in Maryland were up 343 percent from March 2007. Maryland is also in the top 10 states for foreclosures as a percentage of total houses. The worst states are Nevada, California and Florida.

Posted by Jay Hancock at 10:01 AM | Permalink | Comments (0)
        

Not good news. This morning the Labor Department said that producer prices rose at a a level that was much more than economists expected. For the first three months of this year wholesale prices were 7 percent higher than levels for the first quarter of 2007. Even the "core" rate of increase -- excluding food and fuel -- is up almost 3 percent year-to-year.

From AP:

Inflation at the wholesale level soared in March at nearly triple the rate that had been expected as the costs of energy and food both climbed rapidly.

The Labor Department reported Tuesday that wholesale prices rose by 1.1 percent last month, the second largest increase in the past 33 years, exceeded only by a 2.6 percent rise last November. Analysts had been expecting a much more moderate 0.4 percent rise in wholesale prices for the month.

Posted by Jay Hancock at 9:34 AM | Permalink | Comments (1)
        

Nobel Prize-winning economist Gary Becker assigns great blame to ethanol subsidies for the food shortage that UN Secretary-General Ban Ki-moon says "has reached emergency proportions." The ethanol lobby is yelling its head off trying to separate ethanol welfare from food inflation. I think I'll believe Gary Becker:

Rather, the boom in petroleum prices and subsidies to ethanol and other biofuels are the most important forces explaining the recent increase in food prices. Both the sharp run up in oil prices, and the continuing subsides to ethanol production in the United States, and to a lesser extent Europe, induced an increasing diversion of corn from feed and human consumption to the production of biofuels. The main goal of the diversion has been to produce more ethanol as a substitute for gasoline. During the past year, one quarter of American corn production, and 11 percent of global production, was devoted to biofuels, and the US contributes a lot to the world corn market. The growth in demand for biofuels explains why acreage was shifted from other grains to corn-the acreage devoted to corn in the United States increased by over twenty percent in 2007-8, while that devoted to soybean production declined by more than fifteen percent. The reallocation of production away from other grains explains the rapid price increases for wheat, soybeans, and rice as well as for corn.

Posted by Jay Hancock at 3:59 PM | Permalink | Comments (0)
        

First it was Maryland Comptroller Peter Franchot who decided to apply a loose interpretation to his duties as defined by the Maryland Constitution. The comptroller, says the Constitution:

shall have the general superintendence of the fiscal affairs of the State; he shall digest and prepare plans for the improvement and management of the revenue, and for the support of the public credit; prepare and report estimates of the revenue and expenditures of the State; superintend and enforce the prompt collection of all taxes and revenues; adjust and settle, on terms prescribed by law, with delinquent collectors and receivers of taxes and State revenue; preserve all public accounts; and decide on the forms of keeping and stating accounts.

Franchot decided that he was also the assistant secretary for biotechnology at the Department of Business and Economic Development.

Now Doug Gansler has decided that he is not only attorney general but also secretary of the Maryland Department of the Environment. A press pitch from Gansler's office:

As part of the Attorney General’s audit of the Chesapeake Bay and it’s [sic] tributaries, Attorney General Gansler will visit Chestertown, Maryland on Wednesday, April 16th to hear firsthand from local environmental leaders, residents and elected officials the challenges facing the Chester River. As part of his visit, Attorney General Gansler will take a boat trip down the Chester River at 11:30 am. The boat will depart from the Chestertown Marina at 211 S. High Street in downtown Chestertown.

In addition to the boat trip, Attorney General Gansler will host a Town Hall meeting at Washington College at 5:00 p.m. in Hodson Hall, 300 Washington Avenue. The public is invited to attend the meeting and share with the Attorney General their concerns about the health of the Chester River.

MEDIA NOTE: Members of the media who would like to accompany the Attorney General on the boat trip must RSVP to the Press Office at 410-576-6357 as soon as possible because space is limited.

Space is limited! From the Constitution:

The Attorney General shall:

(1) Prosecute and defend on the part of the State all cases pending in the Appellate Courts of the State, in the Supreme Court of the United States or the inferior Federal Courts, by or against the State, or in which the State may be interested, except those criminal appeals otherwise prescribed by the General Assembly.
(2) Investigate, commence, and prosecute or defend any civil or criminal suit or action or category of such suits or actions in any of the Federal Courts or in any Court of this State, or before administrative agencies and quasi legislative bodies, on the part of the State or in which the State may be interested, which the General Assembly by law or joint resolution, or the Governor, shall have directed or shall direct to be investigated, commenced and prosecuted or defended.

Posted by Jay Hancock at 11:28 AM | Permalink | Comments (5)
        

The parody Wall Street Journal is out.

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

Making the email rounds:

Posted by Jay Hancock at 10:09 AM | Permalink | Comments (0)
        

I forgot about this. Thanks to alert reader Richard.

Baltimore Sun, Aug. 20, 2004 By Allison Klein SUN STAFF

A $10 million class action lawsuit filed in Baltimore Circuit Court alleges that the city has been fraudulently sending out $75 tickets to people who it says run red traffic lights.

The allegation is that the signals in question had unusually short yellow lights -- less than three seconds -- that placed unsuspecting motorists under the signals as they turned red. Then, cameras took pictures of their license plates, leading to fines for car owners.

"These car owners are the unwitting victims of a fraud," reads the suit. "The complaint seeks to recover damages for those vehicle owners who ... paid for tickets for which no lawful violation could have been proven."

Alfred H. Foxx, the city's Transportation Department chief, said the suit is without merit.

"We are responsible for the safety of the people in this city," Foxx said. "It would be ridiculous to say we're manipulating a light just to try to catch somebody."

The city has until Sept. 7 to file its response. In the seven-count suit, filed last month, the plaintiffs allege fraud, unjust enrichment and negligence.

Thomas J. Minton, one of the lawyers who filed the lawsuit, said his aim is to help reimburse motorists who wrongly paid the tickets.

"A lot of people don't challenge tickets," Minton said. "They'd rather pay $75 than sit in court all day."

Baltimore's red-light cameras, first installed in 1999, are run by Dallas-based Affiliated Computer Services. ACS gets between $11 and $27 per citation.

Every month about 13,000 tickets are issued to motorists, Foxx said. At $75 apiece, that's $11.7 million a year, although some fines are waived in court.

According to federal guidelines, yellow lights should last about three seconds before they turn red.

More than 30 percent of all red-light camera citations that are contested in Baltimore's traffic court are from signals that have less than three-second amber lights, judges say.

"Roughly a third of the people who come to court with the tickets have a defense of 2.9 seconds or less," said District Judge H. Gary Bass, who sometimes presides over traffic court. "I throw those out."

Posted by Jay Hancock at 3:21 PM | Permalink | Comments (2)
        

What I did on my lunch break:

Maps by Leonardo da Vinci. Maps by J.R.R. Tolkien, Thomas Jefferson, Abraham Lincoln, Benjamin Franklin. 3-D topo military maps from the 18th century. Minard's map of Napleon's retreat from Moscow made famous by Edward Tufte's The Visual Display of Quantitative Information. Medieval portolan charts and pilgrim maps. Pieces of a huge stone map of Rome from antiquity. A five-foot long renaissance panorama/map of Venice. An even longer Japanese road chart. Really cool. Thank you to the anonymous donor who paid for the exhibition.

Posted by Jay Hancock at 3:08 PM | Permalink | Comments (3)
        

Companies selling things to my household are acting suspiciously. First my home-equity lender cut the interest rate a quarter percentage point for no reason I could divine. Then Verizon offered to lower my monthly bill for cable TV and Internet by $5.

In both cases I would have been perfectly happy to keep them at the old price. In neither instance did I complain, threaten to fire them or do anything else to prompt them to give me a discount. Nor were contracts expiring. Accustomed as I am to being nickeled and dimed by banks and airlines and everybody in between, I find this highly disturbing.

Fortunately, says consumer expert Richard Feinberg, companies aren’t turning into welfare agencies. They’re just as interested in making a buck as ever, and often giving unsolicited, permanent discounts helps them do so. In high-turnover industries such as finance and telecom, such deals can retain customers who haven’t thought of defecting yet but might do so later.

“They’re playing smart now because they know how many customers they’re losing if they don’t do that,” says Feinberg, Director of the Center for Customer-Driven Quality at Purdue University. “All this is based on the lifetime value of the customer. The businesses that understand the lifetime value of a customer are more aggressive at keeping them.”

Verizon loses $60 a year by giving me the discount. But if the deal keeps me with them an extra two years, they make up that money and more. In fact, Feinberg says, I shouldn’t settle for a $5 Verizon discount. “You could have gotten $10.”

Posted by Jay Hancock at 12:53 PM | Permalink | Comments (0)
        

As part of Provident's plan to boost capital, management and directors are buying an undisclosed number of newly issued shares at $10.80 -- a slight premium to yesterday's closing Provident price of $10.45. Institutional investors, however, are buying in at only $9.50. The package also includes the sale of convertible preferred stock with a 10 percent coupon. Institutional investors includes T. Rowe Price, Philadelphia Financial Management and Jefferies Dakota Fund. T. Rowe price is buying "on behalf of certain clients," Provident said, which seems to mean people other than retail mutual-fund investors.

Provident rose 20 cents this morning on the news.

Posted by Jay Hancock at 11:43 AM | Permalink | Comments (0)
        

Just ahead of next week's shareholder meeting, the Baltimore-based banking company, which has had to write down significant assets as a result of turmoil in the credit markets, is also raising $115 million in debt and equity to bolster its capital.

Dividend Realignment: The Company's dividend will be reduced to $0.44
per share on an annualized basis. This will allow the Company to
preserve approximately $29 million annually in retained capital. The
dividend reduction is expected to commence with the dividend payable in
May 2008.

Read the whole thing here.

Posted by Jay Hancock at 11:08 AM | Permalink | Comments (0)
        

The Federal Reserve releases transcripts of meetings of the Federal Reserve's Federal Open Markets Committee meetings five years after they take place. The 2002 tapes came out this morning. Here is AP's story.

Greenspan expressed concerns about the country falling into a "deflationary hole."

"It's a pretty scary prospect and one that we certainly want to avoid," Greenspan told other members of the Federal Open Market Committee.

The transcripts in their entirety can be read here.

Posted by Jay Hancock at 10:51 AM | Permalink | Comments (0)
        

David A. Dadante was making questionable stock trades almost immediately after Ferris Baker Watts took him on as a client in early 2003.

By May of that year, Ferris management was concerned enough to launch an internal investigation. By early 2004, Ferris Chief Executive Officer Roger L. Calvert was so worried that he stopped letting Dadante borrow new money from the firm to buy shares.

Too bad they didn't shut him down and call the cops. If they had, documents filed yesterday suggest, the brokerage wouldn't have gotten into deep trouble with regulators, probably wouldn't be selling itself to a rival and wouldn't be ending a century-old Baltimore story.

Read the whole thing here.

Posted by Jay Hancock at 9:56 AM | Permalink | Comments (0)
        

KDFW-TV in Dallas, Texas finds that:

the city of Dallas, Texas depends upon short yellow timing to maximize red light camera profit. Of the ten cameras that issue the greatest number of tickets in the city, seven are located at intersections where the yellow duration is shorter than the bare minimum recommended by the Texas Department of Transportation (TxDOT), KDFW-TV found.

The city's second highest revenue producing camera, for example, is located at the intersection of Greenville Avenue and Mockingbird Lane. It issued 9407 tickets worth $705,525 between January 1 and August 31, 2007. At the intersections on Greenville Avenue leadding up to the camera intersection, however, yellows are at least 3.5 or 4.0 seconds in duration, but the ticket producing intersection's yellow stands at just 3.15 seconds. The yellow is .35 seconds shorter than TxDOT's recommended bare minimum.

"For 30 miles per hour, if your yellow time was less than three and a half, you would not be giving that driver enough time to react and brake and stop prior to getting to the intersection," TxDOT Dallas District office transportation engineer supervisor Chris Blain told KDFW.

No evidence I've seen that Baltimore is doing this, but somebody should check it out. HT Marginal Revolution.

Posted by Jay Hancock at 11:12 AM | Permalink | Comments (1)
        

My mistake. I said in an earlier post that the $170 BGE rebate will vary according to how much electricity your household uses. Wrong. Every BGE household gets $170 exactly, says spokesman Robert Gould. It'll be credited against your monthly bill later this year. To repeat earlier details: You get the rebate regardless of whether you switched to an alternative electric supplier such as Washington Gas or Commerce Energy. All current BGE households get it. If you moved out of the BGE territory last month, you're out of luck. And this rebate has nothing to do with whether you deferred the 72 percent BGE rate increase from a couple years ago. You get it one way or the other.

Posted by Jay Hancock at 1:41 PM | Permalink | Comments (3)
Categories: BGE/electricity
        

American Airlines is canceling hundreds more flights because the FAA says the planes aren't airworthy. Sez the Dallas Morning News:

American had pulled its MD-80s out of service over two days in late March to inspect the wiring harness to an auxiliary hydraulic pump in a wheel well, canceling nearly 500 flights then.

But a Federal Aviation Administration audit of the work Monday showed that the work did not appear to conform to the engineering change order that details how modifications were to be done.

Sounds pretty technical and nonserious. But the first rule of crisis corporate PR is: When regulators have a problem with your business, even if it IS technical and nonserious, you don't say so. The AA press release says:

These inspections – based on FAA audits – are related to detailed, technical compliance issues and not safety-of-flight issues.

They're all safety-of-flight issues, American. That's why the FAA is flunking your planes.

Posted by Jay Hancock at 11:06 AM | Permalink | Comments (0)
        

Last year the Maryland Public Service Commission grew concerned about the dual role in BGE's electricity purchases played by an executive named John Collins. Collins was chief risk officer for Constellation Energy, BGE's parent and one of the electricity suppliers seeking to win BGE's business. But he also advised BGE on its electricity purchases -- held via a reverse auction -- and was in a position to see bids from Constellation rivals.

The PSC correctly was troubled by this. Theoretically somebody on both sides of the table could have coached Constellation on how to win BGE's business without bidding a penny lower than necessary. Constellation did indeed win a huge portion of the BGE account. Collins has since been promoted to chief financial officer. Yesterday BGE/Constellation spokesman Robert Gould told me that the dual role has been eliminated for Collins' successor or anybody else.

Since 2006, no one from CEG, including the Chief Risk Officer, has participated in the auction - has not, is not, and will not be advising BGE on the auction. We took this action voluntarily and not under any order or demand of the PSC.

More on the opaque process by which BGE buys electricity in today's column.

Posted by Jay Hancock at 8:29 AM | Permalink | Comments (0)
        

All 1.1 million existing BGE households get the rebate when it is handed out later this year. If you move out of BGE territory before then, you're not eligible, says PSC Chairman Steven Larsen. If you stay in BGE territory but switch electricity suppliers to Washington Gas or Commerce Energy or somebody else, you DO get the rebate. It's based on who delivers your electricity at the time it is granted, not the identity of your electricity vendor.

Posted by Jay Hancock at 3:46 PM | Permalink | Comments (3)
        

Jim from Dundalk politely raises the question of whether BGE households who switched to Washington Gas Energy Services, Commerce Energy or another alternative supplier will receive the $170 rebate.

Hancock , you are a first class jerk , I did what you suggested 18 months ago and went with washington power and light,,,,,,,,,,,now I won't get the $170.00 .....that will be the last time I listen to you..............

Tone aside, he brings up a good point. The answer -- I just asked BGE's Robert Gould -- is that EVERY BGE household gets the rebate. It doesn't matter whether you buy the default BGE electricity product, green energy from Pepco or supply yourself with a solar panel on your roof. All 1.1 million BGE households get the estimated $170, which will vary according to your electricity use.

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

In today's BGE story, O'Malley and his folks portray the settlement as "a $2 billion win for consumers." But only $187 million is something you can put in your pocket -- a rebate, of $170 or so per household, due this year. The rest is credits and transfers of liabilities for the far distant future. I bet its present value is nowhere near the balance of $1.8 billion. And you have to live in BGE territory practically forever to fully benefit.

Posted by Jay Hancock at 11:36 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

In today's story on the BGE settlement, Sen. Jim Rosapepe got the reason for approving it pretty much right. It leaves Maryland options for both deregulation and reregulation.

Rosapepe noted that the settlement would not preclude the state from returning to regulation and urged his colleagues to reverse course rather than jeopardize the rebates.

"Today, we have the opportunity to approve a rollback of $2 billion of overcharges of ratepayers in the past," he said. "And tomorrow, the fight to end deregulation continues, because nothing in this legislation will stop it."

Insurgent senators wanted to amend the bill by requiring any new electric generation plants built in the state to be regulated by the Public Service Commission. But that would have limited the state's options and deprived BGE customers of a small amount of rate relief, for no good reason. (It would have squelched a quid pro quo in which Constellation agreed to rate relief.) Under required regulation, no generation company would build in Maryland without billing household ratepayers for construction costs. The provision would have effectively stopped Constellation's plans to build a new Calvert Cliffs nuclear plant and probably other projects, too.

As passed, the bill doesn't foreclose the possibility of new, investor-built generators for Maryland. But neither does it keep the state from exploring reregulation -- having BGE ratepayers build their own plant or contracting to buy power and pay the mortgage on a plant built by a third party.

Posted by Jay Hancock at 11:01 AM | Permalink | Comments (7)
Categories: BGE/electricity
        

Tyler Cowen praises Peter Moskos's Cop in the Hood: My Year Policing Baltimore's Eastern District.

Motivated primarily by a desire for court overtime pay, police officers want arrests on their own terms, ideally without victims, complaints, or unnecessary paperwork. Young officers make more arrests than veteran officers. These officers believe that making arrests is police work. In my squad, the top three officers in arrest totals were three officers with the least experience. An arrest-based culture can exist in a low-drug environment, but without a limitless supply of arrestable criminal offenders, an arrest-based culture cannot make a lot of arrests. Neighborhoods, without public drug dealings will not produce a high number of arrests.

That is from Peter Moskos's truly excellent Cop in the Hood: My Year Policing Baltimore's Eastern District. This is one of the two or three best conceptual analyses of "cops and robbers" I have read. It is mandatory reading for all fans of The Wire and recommended for everyone else.

Posted by Jay Hancock at 4:19 PM | Permalink | Comments (0)
        

From the Financial Times:

Alan Greenspan has hit back at critics who blame the Federal Reserve under his leadership for causing the US housing bubble by keeping interest rates too low for too long in the early 2000s, saying the evidence of any link between monetary policy and the bubble was “statistically very fragile”.

Writing in the Economists’ Forum on FT.com, Mr Greenspan says he is “puzzled” why so many commentators seek to explain the US housing bubble in terms of Fed actions when many other economies with different central banks and different monetary policies also saw rapid house price gains.

The former Fed chairman says the most likely cause of this global house price boom was a “dramatic fall in real long term interest rates” around the world, which he believes was caused by abundant global savings.

In any event, Mr Greenspan says, it is only with hindsight that it looks like the US economic recovery was well enough entrenched before 2004 to allow the Fed to start raising interest rates sooner than it did.

“With inflation falling to quite low levels, that was not the way the pre-2004 period was experienced at the time,” he says.

Posted by Jay Hancock at 2:35 PM | Permalink | Comments (2)
        

Mortgage banker, finance thyself. Great story by Jeff Birnbaum in Saturday's Post on the Mortgage Bankers Association's problems with the financing of its Washington headquarters.

The result: The trade group is about to find it harder than it imagined to pay its own mortgage.

Scheduled to close on the building in the coming weeks, the association will have to pay millions of dollars more than it would have a year ago when it contracted to buy the 160,000-square-foot structure -- millions of dollars it is now less able to afford.

Critics also see irony -- and some justice -- in this predicament. "They are certainly getting what they deserve," said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal research group. "Mortgage bankers encouraged people to take out mortgages that were very risky, and the result of that was a large number of the mortgages went bad and caused mortgage interest rates to soar. Now they are the victims of high mortgage rates and chaos in the market more generally."

Calculated Risk has the solution:

I guess they could always just walk away.

Posted by Jay Hancock at 10:56 AM | Permalink | Comments (0)
        

As The Sun reported this morning, Gov. O'Malley and his allies are trying to get rid of a provision that the Maryland Senate tacked onto legislation that is crucial to the settlement with BGE and parent Constellation Energy. The amendment would require new generation plants in Maryland -- including a putative new nuclear unit at Calvert Cliffs -- to be regulated by the Public Service Commission. Great idea! What a gesture of solidarity with electricity customers!

But if it passes, it won't just scuttle O'Malley's BGE settlement. It will either 1) prevent any new power plants from being built in a state that badly needs them, or 2) force the public to pay for the costs of constructing them. The regulatory covenant -- dating to the 1930s -- was that capital costs for building transmission lines and generators were built into rates. The ratepayers covered the mortgage. In return regulators capped profits from generation.

The deregulatory idea is that power companies use their own money to build plants and then compete for customers. Customers escape the capital costs but bear the risks of "the market," such as it is. But Constellation will never use its own money to build Maryland plants if what it can charge for the juice will be controlled by the PSC. Nor will anybody else.

So then we're back to square one on ensuring Maryland's energy future. My guess is that we'll end up having a combination of new plants -- some built entirely with nonregulated money and some built with ratepayers covering a portion of the mortgage.

Posted by Jay Hancock at 10:00 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

The report finding that Baltimore Gas & Electric and parent Constellation Energy conducted themselves properly in the 2005-2006 BGE auctions has arrived on the PSC's Web site. Before only an executive summary was released. The PSC wanted to know whether the reverse auction that BGE used to buy electricity in 2005 and 2006 and that led to a 72 percent price increase was flawed in any way.

The report is censored. They blacked out stuff that was deemed to be confidential information for Constellation Energy, BGE's parent, and other wholesale electricity sellers. It is long (40 pages) and seems thorough. I have asked smart people to look at it over the weekend. At first glance, however, there is one disturbing item: After initial bids flunked a test to ensure prices weren't too high above wholesale costs, the PSC and its consultant raised the threshold and allowed power companies to bid again.

(Update. I should add that the PSC overseeing the 2005-2006 auctions was the "old" PSC, operating under Gov. Ehrlich and headed by Kenneth Schisler. The Kaye Scholer investigation of the auctions was commissioned by the "new" PSC, headed by Steve Larsen and dominated by people appointed by Gov. O'Malley. That PSC has been in the saddle for a year.)

The high-price protection was called the "Price Anomaly Threshold." According to Kaye Scholer, it was supposed "to protect against systemic problems that produce above-market results in the aggregate in order to prevent residential ratepayers from being charged more than a competitive market price for electricity supply." The PAT was based on various components of wholesale electricity prices. It was supposed to shield against the possibility that, for example, a scarcity of bidders could keep the auction from being competitive and could lead to companies winning BGE business at prices substantially above market.

BGE's auction for 2006, when the 72 percent increase kicked in, "saw a sharp decrease in the number of bidders," Kaye Scholer said. In the first round of bidding for the 2006 supply, every single bid exceeded the price anomaly threshold. So what did the PSC and its consultant do? They raised the threshold. The consultant "determined that it needed to modify the PAT," the report says, "to reflect more current market conditions."

Voila: In the next round of bidding, "all of the average bid prices came in below PAT," the report says. "Nothwithstanding issues with the PAT, both Boston Pacific [PSC's consultant] and the OPC's [Office of People's Counsel] consultant, Jonathan Wallach, certified the bidding process as competitive, although not as robust as in prior years."

Despite this, Kaye Scholer found that there was no reason to believe that the resulting BGE rates weren't "just and reasonable" and that regulators or BGE customers had any recourse.

Last week, I reported on another consultant who found that, based on analysis of one round in the auctions, BGE customers were paying 20 percent more than market.

Posted by Jay Hancock at 4:10 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

The family is trying to get to Europe this summer. To that end I've spent time shopping for airplane tickets on the Web. The conclusion so far? Yikes! All the time in the world on Orbitz etc. won't keep the trip from costing at least $1,000 per person round trip from Dulles to Paris, thanks to huge surcharges for expensive jet fuel.

Orbitz, Travelocity, Expedia, Kayak and Airfare.com all seem pretty much the same in terms of which companies they search and which flights they flag as the best deals. I liked Kayak's interface the best. At a click it shows the best fares to your destination available on each major airline as well as the best fares for various route configuations: nonstop, one stop etc. On some sites -- FareCompare and Airfare.com, for example -- you don't immediately see the full cost of the ticket and all the surcharges. All the sites give the full bill before you pay, however.

Priceline, another ticket search engine, also lets you bid on tickets. I threw in a few lowball offers -- $750, $850 -- to see what would happen. They got rejected, but the Priceline computer then sent an offer for $1,050 British Airways flight that everybody else listed.

Fare aggregators don't offer newer, discount airlines. One option for transatlantic travelers is to fly a major carrier to London or Dublin and then fly a discount Euro carrier -- Ryanair or EasyJet -- to the ultimate destination. The combined cost may be less than the expense to take the major carrier all the way. However, the hassles probably outweigh the few hundred dollars you might save. Discount carriers use secondary airports far from city centers, and you have to claim your bags and recheck them in London or Dublin.

Posted by Jay Hancock at 1:26 PM | Permalink | Comments (3)
        

Not on the Web site yet. Here's the email.

Attorney General Douglas F. Gansler today announced an agreement with all of the major United States wireless carriers as well as Asurion Protection Services, a provider of cell phone insurance protection policies to the customers of the carriers. Under the agreement, Asurion will more clearly disclose key terms of its insurance policies in the materials that it provides to the wireless carriers. AT&T Mobility, Sprint Nextel, T-Mobile USA and Verizon Wireless will ensure consumers are provided with the key terms when they enroll customers in the insurance plans administered by Asurion. Although the agreement applies solely to Maryland, it is expected that the carriers and Asurion will make similar changes in other states.

Posted by Jay Hancock at 10:07 AM | Permalink | Comments (0)
        

From the AP this morning. Employers shed more jobs in March. And job losses from previous months were bigger than previously estimated.

WASHINGTON - Employers buffeted by talk of recession slashed 80,000 jobs in March, the most in five years and the third straight month of losses.

At the same time, the national unemployment rate rose from 4.8 percent to 5.1 percent, the clearest signal yet that the economy might already be shrinking.

The new snapshot of the job market, released by the Labor Department Friday, underscored the damage that a trio of crises _in the housing, credit and financial sectors -- has inflicted on companies, jobseekers and the economy as a whole.

"The labor market has indeed turned south," said Joel Naroff, president of Naroff Economic Advisors. "That was the one last bastion of hope to stay out of a recession. Now the question is how deep and how long will it last?"

Posted by Jay Hancock at 10:02 AM | Permalink | Comments (0)
        

Maryland attorney general Doug Gansler just sent this email to reporters.

BALTIMORE, MD (April 3, 2008) – Attorney General Douglas F. Gansler will hold a press conference on Friday, April, 4 at 10:00 a.m., 20 Maryland Avenue in Rockville. Attorney General Gansler will make a major announcement regarding the four major cell phone carriers and a wireless phone insurance carrier that will significantly impact Maryland consumers and potentially consumers across the country.

Posted by Jay Hancock at 3:44 PM | Permalink | Comments (0)
        

That massive amounts of fraud took place at the mortgage origination level in the last few years doesn't seem to be in dispute. Mortgage brokers, bank loan officers, appraisers and borrowers all seemed to be playing fast and loose with loan qualification standards. So how come we aren't seeing more stories like this one in today's Boston Globe?

A Boston mortgage broker was charged yesterday with using forged bank statements and tax returns and other false documents to help unqualified home buyers secure subprime loans.

The mortgage case arose from four loans that Lyder helped obtain for clients who were low-income, unemployed, or marginally employed. Between November 2005 and June 2006, she used false bank statements and deposit slips, tax returns, and rent verifications to secure mortgages for clients to buy houses in Dorchester, Randolph, and Taunton for between $325,000 and $529,000, David Waterfall, assistant attorney general, told a Suffolk Superior Court judge yesterday afternoon.

In two cases, the borrowers were single mothers who gave up subsidized housing to purchase homes that they ultimately could not afford. Borrowers in two of the loans have since lost them to foreclosure; the other two had been in foreclosure.

Posted by Jay Hancock at 11:04 AM | Permalink | Comments (2)
        

Interesting choice of words by the Fed's Ben Bernanke, getting grilled before the Senate Banking Committee the morning. He is defending the Fed's decision last month to extend up to $30 billion in credit to grease the sale of Bear Stearns to JP Morgan Chase. Letting Bear Stearns default, he says, was not an option.

"Moreover, the adverse impact of a default would not have been confined to the financial system but would have been felt broadly in the real economy through its effects on asset values and credit availability," Bernanke said.

Wall Street IS the real economy. That's the problem.

Posted by Jay Hancock at 10:50 AM | Permalink | Comments (0)
        

This morning from the Associated Press:

WASHINGTON - The number of new people signing up for unemployment benefits last week shot up to the highest level in more than two years, fresh evidence of the damage to a national economy clobbered by housing, credit and financial crises.

The Labor Department reported today that new applications filed for unemployment insurance jumped by a seasonally adjusted 38,000 to 407,000 for the week ending March 29. The increase left claims at their highest point since Sept. 17, 2005, following the blows of the devastating Gulf Coast hurricanes.

"This report supports the view that the jobs market is deteriorating toward recessionary conditions," said T.J. Marta, a fixed-income strategist at RBC Capital Markets.

The latest snapshot of labor activity was worse than economists had anticipated. They had predicted claims would be much lower, around 365,000.

Good commentary from The Capital Spectator:

No one should be surprised by this morning's discouraging news on weekly jobless claims, which surged to 407,000 last week--the highest since the anomalous but temporary spike in September 2005 directly after Hurricane Katrina. The warning signs have been bubbling for months. And so, this time, the rise in new filings for unemployment insurance is a reflection of a weak economy rather than a one-time weather event. In short, there will be no sudden and sharp drop in new claims this time, as there was in 2005.

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

We are still awaiting the report commissioned by the Maryland Public Service Commission on BGE's 2005-2006 auctions, which led to the famous 70 percent price increase for electricity. On Monday the commission released the executive summary, which said there was no evidence of collusion by Baltimore Gas and Electric and its parent, Constellation Energy.

But the full report, by the law firm Kaye Scholer, is still being purged of what PSC spokeswoman LaWanda Edwards said was confidential Constellation/BGE information. (These auctions are supposed to be open after they are concluded. What's so confidential?) It won't be available until next week at the earliest, she said this morning. Of course that'll be AFTER the General Assembly is expected to approve legislation Constellation wants as part of the settlement with Gov. O'Malley and the PSC.

Posted by Jay Hancock at 12:41 PM | Permalink | Comments (1)
Categories: BGE/electricity
        

This is relevant to Maryland, which is steadily increasing the number of traffic-signal ticket cameras. The National Motorists Association compiled news accounts of localities that reduced the time for the amber light, which warns that a signal is about to turn red. With less warning time, the number of people who ran red lights increased -- and so did the cities' profits from tickets. But safety, obviously, declined.

Short yellow light times at intersections have been shown to increase the number of traffic violations and accidents. Conversely, increasing the yellow light duration can dramatically reduce red-light violations at an intersection.

Some local governments have ignored the safety benefit of increasing the yellow light time and decided to install red-light cameras, shorten the yellow light duration, and collect the profits instead.

Posted by Jay Hancock at 12:20 PM | Permalink | Comments (4)
        

This is old, but cute and still very relevant. From Columbia business school's stage follies two years ago. The Police's Every Breath You Take, rewritten for Ben Bernanke, chairman of the Federal Reserve.

Posted by Jay Hancock at 11:57 AM | Permalink | Comments (1)
        

Widely watched economist/investment strategist Ed Yardeni was sounding uncharacteristically dejected in recent months as the housing market tanked and pulled Wall Street down with it. After yesterday's blossom in the Dow, he sounds much happier.

The Fed’s “shock and awe” show of force during March has been followed by a big surge in stock prices, suggesting that the Fed's mission will soon be accomplished. A week ago, I wrote, “If you are still bearish, are you sure you want to bet against the government of the United States of America? I think that fewer investors and speculators are willing to do so after last week’s 'shock and awe' performance. The Fed’s monetary actions to stimulate the economy may take a while longer to revive economic growth, in general, and housing activity and home prices, in particular. However, while we are waiting, the tax rebates that start arriving in the mail in May should provide the initial boost to the economy. The previous two recessions lasted only eight months each. Despite all the doom and gloom in recent weeks, could it be that the current recession will last only six months--the bare minimum amount of time to be labeled an official recession? It is an increasingly likely scenario.

Posted by Jay Hancock at 10:01 AM | Permalink | Comments (0)
        

Electric bills are higher than ever. The economy is slowing. What a great time for Baltimore Gas and Electric not to renew a big cash grant for the Fuel Fund of Maryland, which helps low-income families pay energy bills and whose reserves have fallen by 80 percent.
Read the rest here.

Posted by Jay Hancock at 9:43 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

Today The Sun is reporting that consultants hired by the Public Service Commission found no wrongdoing by Constellation Energy in connection with reverse auctions that caused BGE rates to go up 70 percent. But we know that former Constellation chief risk officer John Collins had contact with both Constellation -- the seller -- and BGE -- the buyer -- in BGE's purchases of electricity and could see bids from Constellation's competitors. Potential problem, right? That could have given Constellation -- which owns most of the generation around here anyway -- a huge advantage. Here is how the report, from law firm Kaye Scholer, addresses the issue:

Furthermore, we found no evidence of collusion by legally independent actors or market power abuse that would support federal or state antitrust claims. As affiliates wholly owned by a common parent, Constellation and BGE are legally incapable of conspiring with one another. [My emphasis.]

So Kaye Scholer is basically saying that BGE and Constellation cannot break collusion laws no matter what their relationship in the auction. That misses the point by a mile. The essential problem -- a potentially uncompetitive auction costing BGE ratepayers millions -- is still there. And what happened to a separate investigation of the auction process by Joseph Bowring, market monitor for the Mid-Atlantic electric grid? I've been asking for four days and still don't have a good answer. More later.

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (2)
Categories: BGE/electricity