The tax rebate checks sent Americans' after-tax incomes up by the biggest monthly amount in more than three decades, the Commerce Department said this morning. And now we know how at least some of the dough was spent. Some excerpts from howispentmystimulus.com. If you go to the site there are pictures, too. HT Big Picture.

"We spent our check on car repair. Don't you know the engine failed the week before our check came. So we stimulated an mechanic shop (which is fine). Our original plan was to finish paying off the car that we repaired... Still working on that."

"We paid for our all inclusive fees at a Mexican resort. Dos mas cervezas, por favor, Senor!"

"We are putting aside the money to pay for our 10-month-old daughter's childcare. Our $1500 check will pay for about 6 weeks of care at 30 hours per week. Maybe a little will be left over so we can buy her some clothes that aren't Mommy's hand-me-downs!"

"I bought a Beretta M9 because I've been wanting to get a pistol for a long time. Finally got to do it. Now I'm hooked and saving for a Sig P220 in .40S&W."

"I purchased a Nikon D40 DSLR that I've been lusting over for almost two years. It's finally mine! Now I just need to figure out how to use this fancy piece of equipment..."

"I lost hours at work and used the stimulus as a buffer. Kind of a drag considering I had already purchased a used bicycle for $200 with the idea that the stimulus would pay for it. Oh well, with any luck the bicycle will pay for itself. I blame corporate america. Enough is enough. This has gone on too long. I want my hours back. "

I haven't found any that said: "I used the stimulus to increase by Roth IRA and 401(k) contributions."

Posted by Jay Hancock at 10:22 AM | Permalink | Comments (2)
        

From the Seattle Post-Intelligencer's series on the evolution of Bill Gates, an email rant from Gates on Window problems, circa 2003.

Some highlights:

I am quite disappointed at how Windows Usability has been going backwards and the program management groups don't drive usability issues...

This site is so slow it is unusable... So I gave up and sent mail to Amir saying - where is this Moviemaker download? Does it exist? So they told me that using the download page to download something was not something they anticipated. They told me to go to the main page search button and type movie maker (not moviemaker!). I tried that. The site was pathetically slow but after 6 seconds of waiting up it came. I thought for sure now I would see a button to just go do the download.

So I did the download. That part was fast. Then it wanted to do an install. This took 6 minutes and the machine was so slow I couldn't use it for anything else during this time. What the heck is going on during those 6 minutes? That is crazy. This is after the download was finished. Then it told me to reboot my machine. Why should I do that? I reboot every night -- why should I reboot at that time? So I did the reboot because it INSISTED on it. Of course that meant completely getting rid of all my Outlook state...

What an absolute mess... So after more than an hour of craziness and making my programs list garbage and being scared and seeing that Microsoft.com is a terrible website I haven't run Moviemaker and I haven't got the plus package. The lack of attention to usability represented by these experiences blows my mind. I thought we had reached a low with Windows Network places or the messages I get when I try to use 802.11.

Posted by Jay Hancock at 10:56 AM | Permalink | Comments (2)
        

Last week I wrote that Illinois Attorney General Lisa Madigan accused Edison Mission Energy of perpetuating suspicious electricity trading patterns that Edison had told regulators it ceased in April 2006. Combing through bid/offer data kept by PJM Interconnection, the Mid-Atlantic grid, Madigan and consultant Robert McCullough identified plants they said were Edison's that seemed to be withholding power from the market in a possible attempt to drive up prices. They couldn't be sure because PJM's data masks plants' identities.

Edison Mission denied the plants were theirs.

"These are not our units," said company spokesman Doug McFarlan."We can't tell whose units they are, but we can tell you emphatically that they are not ours," said Edison Mission spokesman McFarlan.

Now, says McFarlan via email, PJM has confirmed that the plants do not belong to Edison. "Wanted to advise that today PJM contacted us and confirmed, at our request, that the specific units and bids cited in Mr. McCulloch's [sic] affidavit are not Edison Mission's," he said late Monday.

So I called PJM to double check. But PJM spokesman Terry Williamson wouldn't confirm what Edison Mission says PJM said, citing confidentiality rules. And my followup question -- "If the plants doing the suspicious bidding aren't owned by Edison Mission, whose are they?" was going nowhere with Williamson, either.

“I’m still bound by the confidentiality rules," he said.

Great. So there is prima facie evidence that somebody in the system that serves Maryland and a dozen other states is gaming the system. And PJM won't say anything about it -- not to exonerate a company that was publicly alleged to have continued doing something irregular, and not to identify the real suspect. There's your open, transparent wholesale electricity market for you. The only recourse consumers and state regulators have to pry this can open is the Federal Energy Regulatory Commission, which seems to be very happy with the way things are. FERC didn't even get to the bottom of Edison Mission's original irregular trading -- settling the case with a small fine for what it said was EM's lack of candor and misleading responses in the investiation.

What a mess. When electricity is ultimately reregulated, generation companies and pro-market policymakers will have only themselves to blame.

Posted by Jay Hancock at 10:46 AM | Permalink | Comments (0)
        

A blurb for Vampire Weekend to put on its next CD:

"The best new rock band I have heard in a long time."

-- Greg Mankiw, Harvard department of economics, former chairman, President Bush's Council of Economic Advisors.

Posted by Jay Hancock at 11:25 AM | Permalink | Comments (0)
        

Proxy Governance Inc., which advises instititional shareholders on how to vote at corporate shareholder meetings, tells owners of BGE parent Constellation Energy to vote against members of the board's compensation committee as a protest against excessive executive pay. The board members, Michael Sullivan, Doug Becker, Freeman Hrabowski, Lynn Martin and Robert Lawless, sit on the committee that sets pay for Constellation CEO Mayo Shattuck and other top bosses. CEG's annual meeting is July 18.

The average three-year compensation paid to the CEO is 156% above the median paid to CEOs at peer companies and the average three-year compensation paid to the other named executives is 190% above the median paid to executives at peer companies. We note that our calculations include compensation paid to former CFO E. Smith, who resigned in May 2007.

We have concerns regarding the company's executive compensation, which is high compared to peers and given the company's financial performance relative to peers. The high pay appears to be driven by two factors: first, in 2005, large option grants were made to CEO Shattuck
(valued at $18.4 million), EVP/Subsidiary Chairman T. Brooks ($5.6 million) and EVP/CFO/CAO F. Smith ($4.5 million).

A large portion of these grants represented “replacement” options that were granted in connection with the then-proposed merger with FPL, which was subsequently cancelled. These options replaced options that were exercised by the executives at the request of the Compensation Committee in order to minimize the potential amount of excise taxes and tax gross-up that would become payable by the company following the merger.

We believe that the company should not have offered to replace the exercised options
before the merger was certain. By doing so, the company locked in a profit for executives and gave them another chance to have "another bite of the apple" - to profit twice from the same option grant. We also do not support the use of gross-ups to pay for taxes that would have been
owed by the executives.

Secondly, we note that although the company generally did not grant equity awards to executives in 2006, they did grant unusually large cash incentive payments. In 2006, Shattuck received $10.8 million and the other named executives received between $4.5 million and $7.8 million in annual and long-term cash incentive awards. As we noted last year, the company abandoned its long-term performance metrics for 2006 on the grounds that uncertainty with regard to the FPL merger made any performance goals unworkable. This decision allowed the long-term award to vest 100% within two years, with no performance vesting requirements. We believe it was inappropriate for the committee to simply drop all performance-based vesting criteria from the long term incentive awards.

While we generally believe that the board is properly discharging its oversight role and adequately policing itself, it appears that the compensation paid to the company's executives is out of line relative to that paid to peer executives. Therefore, we recommend that shareholders withhold their vote from the Compensation Committee members who are subject to election at this meeting (D. Becker, F.Hrabowski III, R. Lawless, L. Martin and M. Sullivan) as a way of signaling concern about the company's compensation practices.

Posted by Jay Hancock at 10:29 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

Bank of America, which is buying Countrywide Financial, the troubled mortgage company, hit a new, 52-week low today, falling below $26 in intraday trading. This does not suggest that the financial crunch is over, as many claim. The TED spread, Paul Krugman's proxy for underlying financial trauma, is rising again, too.

Posted by Jay Hancock at 3:43 PM | Permalink | Comments (0)
        

University of Chicago Nobelist Gary Becker says the economic benefits from offshore drilling will be significant even if the price of oil declines from its present level. A windfall profit tax on oil companies, he says, will discourage future exploration and production.

Although the risks of offshore drilling are much harder to quantify than the benefits, I believe the shift in the benefit-cost ratio has been large enough so that the time has come to allow drilling. Norway and Great Britain, to take two examples, have allowed drilling in the North Sea for many years without suffering major environmental damage.

An excess profits tax that is expected to persist for many years discourages further exploration for oil simply because much of the profits on new oil production would be taxed away. In 1980, President Jimmy Carter introduced a windfall tax on oil companies to prevent them from profiting a lot from the high price of oil due to the Iran-Iraq war. An evaluation by the Congressional Research Service, a think tank that provides reports to Congress, concluded that the tax significantly reduced domestic oil production and raised oil imports. Disillusionment with the tax led to its abandonment in 1987. Yet the lessons from this fiasco have been forgotten, for since the post-Katrina rise in gasoline prices in 2005, members of Congress have made regular attempts to introduce legislation with a sizable excess profits tax on oil companies.

Posted by Jay Hancock at 11:17 AM | Permalink | Comments (3)
        

Today's column:

Two days ago, Illinois Attorney General Lisa Madigan said she had evidence a company called Edison Mission Energy continued a suspicious pattern of wholesale electricity trading long after it claimed to have stopped.

Why does this matter to Maryland?

Edison Mission sells electricity to the PJM grid, which stretches from the East Coast to Illinois. Potential price manipulation by Edison Mission or any other electricity producer in a deregulated marketplace can reap hundreds of millions in improper profits and raise prices for everybody who gets their power off the grid.

That includes you, Baltimore Gas and Electric customers.

Edison Mission denied Madigan's allegation yesterday, saying the troubling behavior she identified came from generation plants owned by other companies.

"These are not our units," said company spokesman Doug McFarlan.

Read the whole Hancock column here.

Posted by Jay Hancock at 9:50 AM | Permalink | Comments (1)
        

Iranians have downloaded 268,568 copies of the latest version of Mozilla's Firefox browser since it was released Tuesday. That Iran would download more copies than Brazil and almost as many as China and Canada says that there are millions of people in that country who are closely engaged with the Web -- which is to say, literate, Western-oriented and enlightened enough to shun the works of Bill Gates and his spawn.

Iran's government does not reflect its people, and the Internet eventually will help change that fact. Years ago I had coffee at the United Nations with the press attache from the Iranian mission in New York. He liked to play backgammon online. He played with people all over the world. Israelis? I don't remember. But he believed the Net would help bring people together and heal the globe's wounds. It hasn't happened yet, but the Internet is a force for good.

Posted by Jay Hancock at 1:06 PM | Permalink | Comments (1)
        

From today's Wall Street Journal, on the ex-managers of the Bear Stearns hedge funds who were arrested this morning.

The indictments of two former Bear Stearns Cos. hedge-fund managers are expected to cite a personal email sent from one to the other suggesting that the funds were headed for the rocks -- four days before they told investors there was little to worry about.

Fund manager Matthew Tannin emailed his more senior colleague Ralph Cioffi that he feared the market for complex bond securities in which they had invested was "toast." He suggested they discuss the possibility of shutting down the funds, according to the email, which was sent from Mr. Tannin's private account.

Four days after the Sunday-morning email, Mr. Tannin told fund investors on a conference call that he was "quite comfortable" with their holdings. Mr. Cioffi used similar language.

Do hedge fund managers owe investors the same duty of faith and candor that sell-side analysts owe smalltime stock investors? I don't know the answer. But generally the regulation of hedge funds is vastly different from the regulation of other investments. Hedge fund investors are wealthy and presumed to be able to fend for themselves in choppy waters. If what the Journal says is true, prosecutors are pursuing a line similar to that of Eliot Spitzer when he went after analysts for privately calling tech stocks junk -- even as they were promoting them to investors. But recommending WorldCom to little old ladies and potentially shading investment evaluations for hedge fund partners -- who knew well and truly what they were getting into -- are two different things.

Posted by Jay Hancock at 9:48 AM | Permalink | Comments (0)
        

Always good to hear a respected economist of the left dubunking financial conspiracy theories. The high cost of oil, says Robert Reich, Bill Clinton's Labor Secretary, is caused by 1) Booming demand from developing nations. 2) A weak dollar. 3) Investors hedging against a weak dollar. 4) Instability in the Middle East.

Bottom line: The days of cheap energy are over, folks. Gas may go down to $3.50 a gallon by this time next year, but you'd be wise to trade in your SUV for an economy car. And you'd be wise to avoid building that new addition to your home and put the money instead into better insulation.

There probably are manipulation shenanigans going on, and they should be investigated. Booms like this always bring fraud and overreaching. But at most they are minor factors.

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

Good retort by George Mason University's Don Boudreaux to an overstatement by Barack Obama:

According to today's Wall Street Journal, Barack Obama alleges that "Globalization and technology and automation all weaken the position of workers." If this presidential wannabe is correct, then some of the world's most prosperous workers must be the people in that newly discovered tribe in Brazil -- persons with absolutely no contact with the global economy or with modern technology.

Technology and globalization harm SOME workers. There is no disputing this. Right now technology and automation (the Web) are harming lots of workers in my business, the newspaper industry. But in aggregate technology and globalization deliver much more good than harm. They are the difference, as Boudreaux wryly notes, between a modern American standard of living and the Stone Age.

Posted by Jay Hancock at 11:34 AM | Permalink | Comments (0)
        

Celebrity housing victims. Former Citigroup CEO Charles Prince, who helped fuel the housing boom with billions in cheap and easy mortgages, now seems to be paying the price in the aftermath. From Bloomberg, via Big Picture:

Former Citigroup Inc. Chief Executive Officer Charles O. ``Chuck'' Prince III lost his job because of the housing slump. Now he's having a hard time selling his home.

Prince's five-bedroom Tudor-style house in Greenwich, Connecticut, has been on the market for six months. He has cut the price by $300,000 to $5.85 million, according to the property listing.

The housing recession has hit the bedroom communities that Wall Street favors most. The median home price fell 8.1 percent in Greenwich in the first quarter from a year earlier. Declines were as much as 25 percent in 14 of 19 wealthy Manhattan suburbs in Connecticut, New Jersey and Westchester County, New York, since the start of the year, according to a Bloomberg survey of brokers and multiple listing services.

...Prince, 58, who according to public records paid less than $4.48 million in 2003 for the Greenwich house with barrel-vaulted ceilings, south-facing terraces, a swimming pool and 2.3 acres of land. It was the same year he succeeded his mentor Sanford Weill at Citigroup.

Posted by Jay Hancock at 10:46 AM | Permalink | Comments (0)
Categories: Celebrity mortgage victims
        

Help Mozilla break the Guiness record for downloads in a day by shipping the Firefox 3.0 browser to your hard drive pronto. Firefox 3.0 went live today, Download Day, and as of this writing there were almost 1.4 million downloads -- including 37 in Iraq and 52,832 in Poland! At the moment Poland is beating Canada. For the uninitiated, Firefox is the free, open-source, widely praised alternative to Microsoft's Internet Explorer. Click here to download Firefox 3.0.

Update: Mozilla's servers seem to be having problems. Maybe you should help them break the (lesser known) record for most downloads the second day after launch.

Posted by Jay Hancock at 5:47 PM | Permalink | Comments (0)
        

Here's Dan Drezner, on the rapid growth of sovereign wealth funds, the huge money pools that China and Middle Eastern nations are accumulating (by selling stuff to developed nations) and using to invest in Western corporations. The implication is that we're not at the End of History after all. Centrally planned economies failed under communism because they were insular and inefficient. But can centrally planned economies such as China's stay in business by trading with the West, both as vendor and investor? And is this a good thing for the "liberal free-market democracies"?

Looking at the long term, sovereign wealth funds are one component of an alternative development path, suggests a possible rival to liberal free-market democracy. In state-led development societies, governments could use sovereign wealth funds, state-owned enterprises and banks, national oil companies, extensive regulation, and other measures to accelerate economic development, buy off dissent and promote technology transfer. If this model proves sustainable over the long run – and this is a big if – it could emerge as a viable challenger to the liberal democratic path taken by the advanced industrialized states. More countries might think of sovereign wealth funds as a signal of being a “successful” country. One could then envision the proliferation of such funds – even in situations in which there is no economic rationale for its creation.

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

Prices at the wholesale level rose 1.4 percent last month, the Bureau of Labor Statistics said this morning. That's an 18 percent annual rate, if anybody's counting. Not to worry, however, says the AP story on the producer price index. Not counting food and energy, inflation rose only 0.2 percent last month. The moderate increase in the "core" rate "suggested that other prices were fairly well behaved," AP said.

My car fuel tank is almost empty, so I think I'll fill it up with Windex, one of those "core" items that's not inflating. Then on the way home I'll pick up a pair of pants to cook for dinner.

Energy prices jumped 4.9 percent in May, also the biggest rise since November. Diesel fuel prices galloped by 11.2 percent, gasoline prices were up by 9.3 percent and home heating oil increased by 8 percent.

Food prices also rose sharply. They increased by 0.8 percent in May, after being flat in April.

In May prices for pork went up 8 percent, the most since September 1999. Prices for fruits and melons rose 5.9 percent, the most since December. Prices for beef and veal, natural cheese and certain confectionary goods also posted sizable increases.

There are fears that eventually these energy and food costs will force companies to boost prices for lots of other goods and services, spreading inflation through the economy.

Posted by Jay Hancock at 9:54 AM | Permalink | Comments (2)
        

It will be a difficult summer for businesses that require the customer to drive long distances to consume their product. Such as mountain resorts. Like some manufacturers selling gas- guzzling cars, distant resorts are trying to subsidize gasoline costs to lure clients. Check out this come-on from Squaw Creek at Lake Tahoe.

Lake Tahoe's AAA Four-Diamond Resort at Squaw Creek has introduced the "Affordable Highway” offer, which provides relief at the pump for guests traveling to the resort through September 30, 2008. Guests merely need to book two or more nights to receive a $25 gas card.

"We know this will help our drive market guests,” said Les Pedersen, director of sales and marketing at Resort at Squaw Creek. "For guests flying in and renting a car, this will help top-off their tank so they can explore the extraordinary sights in the Lake Tahoe area.”

Posted by Jay Hancock at 12:35 PM | Permalink | Comments (0)
        

The science of economics is founded on the notion that economic agents look out for their own financial interests in a rational way. We know of course this is wrong. The latest piece of evidence: Cindy McCain's balance of at least $225,000 on two American Express cards. The median interest rate on AmEx cards is about 14 percent, says Consumer Reports. Given that Ms. McCain is heiress of a beer distributorship, she may get something a little better. But not much. So she's paying more than $20,000 per year in non-deductible interest on balances that presumably she could easily pay off or refinance at a much better rate. But she doesn't. From the NYT, which also covers Barack and Michelle Obama's disclosures:

Another charge card, held by what was described as a “dependent child,” had also accumulated debts of $15,000 to $50,000. In addition, a credit card held jointly by the couple was carrying $10,000 to $15,000 in debt, the filing indicated, at a stiff 25.99 percent interest rate.

Mrs. McCain’s filing, however, indicated that she had substantial holdings in property and stocks — including shares in Anheuser-Busch, which this week became the target of a takeover bid that is expected to send its value climbing. Her land holdings included parcels in Arizona and California, one of which was sold last year for a profit of more than $1 million.

In other filings, the McCains have reported total household assets of $24.6 million to $39.5 million. In recently releasing a summary version of her 2006 tax return, Mrs. McCain reported income that year of more than $6 million, some $300,000 of which was derived from her salary as the chairwoman of Hensley, which was founded by her father.

Posted by Jay Hancock at 11:14 AM | Permalink | Comments (7)
        

Hoarders often exacerbate food and fuel shortages and price spikes. Steve Hanke, Johns Hopkins economics professor, notes that some of the worst hoarders these days are governments that stockpile staples because they think they can manage things better than the market. In his latest Forbes column, Hanke says:

Over the past year rice prices have more than doubled. Not because of private speculation and hoarding but because of governmentspeculation and hoarding. As the price of rice began to climb, governments invoked their concerns for food security and increased their hoarding propensities. Exporting countries imposed restrictions tokeep rice at home, while some of the largest rice importerssignaled that they intended to significantly increase their buffer stocks. This proved to be a deadly supply-demand cocktail that set off panic buying, a price surge and food riots...

The mother of all commodity hoards is the U.S. Strategic Petroleum Reserve. At its current status of 97% full, the SPR is more than twice the size of private crude oil inventories,
with enough reserves to cover about 71 days of U.S. crude oil imports or 47 days of total U.S.
crude oil consumption...

What should be done with the hoard of crude? It’s time to remove the release rules from the
grip of politics. Market-based release rules would transform the SPR into an oil bank. It would provide the country with a huge precautionary inventory of oil, generate revenue to defray some
of the government’s stockpiling costs, smooth out crude oil price fluctuations and push down spot prices relative to prices for oil to be delivered in the future.

How would an oil (or rice) bank work? The government would sell out-of-the-money call options on its stockpiles. It might, say, sell December 2008 oil options with a strike price of
$200 a barrel. If the price surged above that level, the option buyer would exercise and take delivery of crude oil from the government’s stockpile. If the price never reached $200, the
option would expire worthless, and no crude oil would be released.

Let the market, not politicians, determine the flow of rice, oil and other commodities. Lower, more stable prices will ensue.

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

A study at the Boston Fed reports some good -- and common-sense -- news. Most people with negative equity in their houses don't walk away from the mortgage. Negative equity is when your mortgage is bigger than the value of your house -- not an uncommon situation in these days of declining house prices. But in a study of Massachusetts homeowners, the researchers found that most people in negative equity situations continue to pay their notes.

Only when there is negative equity and a cash flow problem do people default. This offers a dose of optimism in response to those who fear that widespread negative equity will necessarily cause more defaulted loans. Basically, the researchers argue that the sizable costs of defaulting on your mortgage -- credit damage, moving expenses etc. -- outweigh any hit from negative equity and induce rational homeowners to stay put. HT Calculated Risk.

Millions of Americans have negative housing equity, meaning that the outstanding balance on their mortgage exceeds their home’s current market value. Our data show that the overwhelming majority of these households will not lose their homes. Our finding is consistent with historical evidence: we examine more than 100,000 homeowners in Massachusetts who had negative equity during the early 1990s and find that fewer than 10 percent of these owners eventually lost their home to foreclosure. This result is also, contrary to popular belief, completely consistent with economic theory, which predicts that from the borrower’s perspective, negative equity is a necessary but not a sufficient condition for foreclosure. Our findings imply that lenders and policymakers face a serious information problem in trying to help borrowers with negative equity, because it is difficult to determine which borrowers actually require help in order to prevent the loss of their homes to foreclosure.

Posted by Jay Hancock at 11:26 AM | Permalink | Comments (1)
        

People were surprised and heartened by yesterday's retail sales report, which showed an increase of 1 percent in May. Today's inflation report offers a little cold water. Retail inflation was 0.6 percent last month, meaning the real retail sales increase for May was only 0.4 percent. Not bad, and still better than people expected. But not exactly a spending spree. And it was all driven by the one-time stimulus of tax rebates.

Posted by Jay Hancock at 10:18 AM | Permalink | Comments (1)
        

The next pain in your pocketbook will be natural gas. Baltimore Gas & Electric's "commodity" price for May was $1.30 per therm, and email correspondents tell me it has risen even higher for June, although BGE hasn't posted it yet on their Web site.

May's price is a whopping 39 percent higher than BGE's natural gas price from May 2007. Natural gas still hasn't hit the post-Hurricane Katrina high of $1.63, in November 2005, but it might be on the way. Futures markets have natural gas at these levels until this time next year.

That'll mean big bills this winter. Most households don't use much gas in the summer, so the pain is limited for now. But when it gets cold, natural gas figures to add to the shock households are feeling over electricity prices.

Last fall I predicted people who rejected fixed-price offers from Washington Gas Energy Services and other vendors for $1 per therm would do better than those who signed up. This might be true for the 12-month offers. For November through March – the months of heaviest gas use, for furnaces – BGE’s price stayed under a dollar, dropping as low as 94 cents in January and February. The money you saved then might be more than the extra you’re spending to cook food and heat water now.

But people who locked in for a 24-month contract at last fall's prices will probably be shown to be very wise indeed. A dollar per therm will probably look pretty good next January.

Posted by Jay Hancock at 6:09 PM | Permalink | Comments (1)
        

From Housing Wire:

Growing concern over inflation in the U.S. led fixed and adjustable rate mortgages strongly upward this week, according to data released Thursday morning by Freddie Mac (FRE: 22.15, +3.65%). The average rate on a 30-year fixed rate mortgage rose 23 basis points to 6.32 percent, with an average 0.7 point, for the week ended June 12; last year, 30-year FRMs averaged 6.74 percent, Freddie said.

It’s been awhile since mortgage rates have been this high; the last time the 30-year FRM was higher was the week ending October 25, 2007, when it averaged 6.33 percent.

Rates on other common mortgages jumped as well, Freddie said. Fifteen-year fixed rate mortgages averaged 5.93 percent with an average 0.6 point this week, up from last week when it averaged 5.65 percent; five-year Treasury-indexed hybrid ARMs shot up nearly 20 basis points to 5.70 percent, up from an average of 5.51 percent one week ago.

“Mortgage rates jumped this week after a number of Federal Reserve (Fed) officials, most notably Chairman Bernanke and Vice Chair Kohn, expressed concern over a threat of inflation,” said Frank Nothaft, Freddie Mac vice president and chief economist. “This led some market participants to believe that the Fed will raise rates more aggressively over the year than previously thought.”

Posted by Jay Hancock at 2:11 PM | Permalink | Comments (0)
        

A coalition of consumer groups and bulk power buyers unveiled the Campaign for Fair Electric Rates today. Their Web site doesn't appear to be working. But here are some excerpts from the press release. Members include the American Public Power Association, the Electricity Consumers Resource Council and the Consumer Federation of America.

The campaign will educate consumers, businesses and the media on the failures of restructured electricity markets; and organize the public to contact their senators and representatives. The campaign is urging Congress to request that the Federal Energy Regulatory Commission (FERC) investigate the wholesale electricity markets and take action to protect consumers.

Participants in the campaign are united in their view that the restructuring of the wholesale electricity markets has not produced promised benefits and instead has harmed consumers and the economy. Fundamental changes made to the wholesale electricity markets have not produced competition; instead they have created exorbitant profits for many companies that generate electricity, excessively high electricity rates for consumers and insufficient investment in new power plants and transmission lines.

Despite these problems, the FERC, the federal agency with the responsibility to protect consumers, continues to ignore repeated calls from consumers and businesses to investigate these markets.

Posted by Jay Hancock at 1:55 PM | Permalink | Comments (1)
Categories: BGE/electricity
        

Wall Street is giddy this morning over the Commerce Department's retail sales report, which showed a 1 percent jump in May. The story is that consumers are freely spending their tax rebates and that the economy isn't so bad off after all. But the report is unadjusted for inflation. It's in nominal dollars. In case you hadn't noticed, inflation is in the house.

The AP story makes much of the fact that, even if you strip out gasoline sales, retail sales rose 0.8 percent in May. But gas isn't the only thing inflating. Inflation across the board makes last month's result look much more impressive than it really is. Don't tell me that inflation is only 0.2 percent a month. That was April's number. And, as measured by the Labor Department, it's badly flawed. Of course there probably was a tax-rebate effect in May, but guess what? The rebate is a one-time deal.

Posted by Jay Hancock at 10:06 AM | Permalink | Comments (0)
        

Reader Roger Fitzgerald points out that Doug Dribben, whose letter to the editor appears in today's edition of The Sun, is incorrect on estimated oil reserves in the Arctic National Wildlife Refuge.

But if President Bill Clinton had not vetoed legislation in 1995 to permit oil drilling there [ANWR], we could have an additional 27 million gallons of gasoline and diesel fuel from a million barrels of oil daily, which, as Democratic Sen. Charles E. Schumer noted on May 13 in a speech to the Senate, would cause the price of gasoline to fall "50 cents a gallon almost immediately."

The U.S. Minerals Management Service estimates that ANWR has about 85 billion barrels of oil and 420 trillion cubic feet of natural gas. This is 10 times the amount of oil and 20 times the natural gas that Americans use annually.

It's not true that ANWR has an estimated 85 billion barrels of oil. Even calculations from pro-drilling interests put recoverable barrels at between 6 billion and 16 billion. The 85 billion barrels is the estimate for the entire outer continental shelf.

A million barrels daily is a good estimate of what ANWR might produce. But the Energy Information Administration has a far less optimstic -- and more realistic -- assessment of how it would affect oil prices than does Sen. Schumer.

Additional oil production resulting from the opening of ANWR would be only a small portion of total world oil production, and would likely be offset in part by somewhat lower production outside the United States. The opening of ANWR is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light crude oil prices of $0.41 per barrel (2006 dollars) in 2026 for the low oil resource case, $0.75 per barrel in 2025 for the mean oil resource case, and $1.44 per barrel in 2027 for the high oil resource case, relative to the reference case.

Posted by Jay Hancock at 12:52 PM | Permalink | Comments (8)
        

Unions and anti-globalists are unhappy with Obama's selection of Jason Furman as the campaign's chief economic advisor, according to a story in the LA Times. I don't know anything about Furman; he's said to be a "centrist" who has worked for Brookings. According to the story, Furman's putative faults are 1) He claims that Wal-Mart's low prices confer economic benefits. 2) He once talked favorably of private Social Security accounts. 3) He favors free trade but believes people hurt by globalization should be aided.

"I hope the lesson that Democratic candidates take from this is not to bash trade and call for protectionism, but instead to call for a robust safety net," Furman told an NPR interviewer last year.

This is not exactly the voice of Milton Friedman talking. Good for the Economic Policy Institute's Jared Bernstein for defending Furman.

One economist from the left-leaning Economic Policy Institute, Jared Bernstein, offered praise for Furman, saying he understood why some critics were unhappy, though he thought their fears were misplaced.

"I understand the concerns, given positions he has taken" on some issues, Bernstein said. "But I am 110% certain that it will be Barack Obama -- not Jason Furman or Robert Rubin -- who will be setting the policies for the Obama administration."

Although Furman has directed think-tank work on some controversial topics, Bernstein said he would be an effective campaign staff member. "If you look at his body of work, it's quite clear that the ultimate goal is very much the same as Obama's," he said.

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

For frustrated former Ohms Energy clients owed refunds, the ordeal may soon be over. Ohms was an alternative electricity seller that suspended business last year. For some reason, some BGE customers (BGE delivered the Ohms kilowatts) got double billed near the end of Ohms' service and have been trying to get refunds ever since. The Public Service Commission knows about the problem and has been trying to resolve it. It said yesterday that the Ohms refunds will be sent out tomorrow. Here is the email from spokeswoman LaWanda Edwards:

Ohms and BGE has reconciled all of accounts who have either contacted > BGE or PSC to file a complaint against Ohms Double Billing practice. > Ohms will finally send refunds to BGE or directly to customers on June > 12, 2008. The refunds going to BGE will clear customers account who are > currently carrying balances related to the double billing. The direct > refunds to the customers, which this customer falls in this category, > paid the double billings by Ohms. That's why they will receive a > refund."

Posted by Jay Hancock at 10:24 AM | Permalink | Comments (0)
Categories: BGE/electricity
        

Great story by Mark Maremont on posthumous executive pay in today's Wall Street Journal. We knew CEOs got paid for showing up at the office and merely matching the stock performance of their corporate rivals. We knew they got paid for gross incompetence. Now we know that not even a pulse is necessary to trigger gargantuan executive boodle. The way some of these guys run their companies, posthumous pay is still a great deal for shareholders.

You still can't take it with you. But some executives have arranged for the next best thing: huge corporate payouts to their heirs if they die in office.

Take Eugene Isenberg, the 78-year-old chief executive of Nabors Industries Ltd. If Mr. Isenberg died tomorrow, Nabors would owe his estate a "severance" payment of at least $263.6 million, company filings show. That's more than the first-quarter earnings at the Houston oil-service company.

Dozens of other companies offer lush death-benefit packages to their top executives, according to a Wall Street Journal review of federal filings. Many companies accelerate unvested stock awards after a death, which by itself can amount to tens of millions of dollars. Some promise giant posthumous severance payouts, supercharged pensions or even a continuation of executives' salaries or bonuses for years after they're dead.

Posted by Jay Hancock at 9:37 AM | Permalink | Comments (0)
        

At least one restaurant chain is doing well. McDonald's store-to-store sales rose 7.7 percent around the world and 4.3 percent in the United States last month. That U.S. result isn't easy to do when the chain keeps pounding on its dollar menu, which inhibits franchisee's ability to raise prices. The overall strength reflects healthy economies in Europe and Asia. Pretty admirable result for a chain I would have pegged as topped out a few years ago. Stock is up a couple bucks. Reuters on McDonald's:

Same-store sales, a key gauge of retail health, rose 4.3 percent in the United States. The company cited new menu items such as the Southern Style Chicken biscuit and its emphasis on low-priced menu items, such as a $1 double cheeseburger, which have helped McDonald's weather the economic downturn by driving traffic and luring cash-strapped diners away from higher-priced sit-down restaurants.

McDonald's has said it plans to expand its value offerings this summer, when the majority of its U.S. restaurants will add $1 beverages to their menus.

Same-store sales rose 9.6 percent in Europe, led by strength in the U.K., France and Russia, and 9.7 percent in the Asia/Pacific, Middle East and Africa division.

Posted by Jay Hancock at 11:25 AM | Permalink | Comments (0)
        

No, these are not 1970s gas lines, in which motorists were queuing up to get fuel at any price. These are 2000s gas lines, in which drivers are waiting two and three deep to get relatively cheaper gallons. This morning the Carroll Fuel station on Route 40/Edmondson near the West-side Baltimore City/County border was selling regular for $3.899. The lines of cars stretched almost into the street. According to GasBuddy, however, this is not the cheapest metro Baltimore gas by a long shot. A couple Costcos are selling for $3.75. A Royal Farms on Eastern Avenue is selling for $3.85.

That sounds suspiciously low! You know here in Maryland it's illegal to give drivers too good of a deal on gas. Comptroller Franchot, pay no attention to those great prices!

Posted by Jay Hancock at 10:03 AM | Permalink | Comments (0)
        

Credit Suisse, in a report out today, says that "M&A discussion could become a positive catalyst for the stock" of Legg Mason. M&A is merger & acquisition, and, more to the point, CS is talking about potential outside buyers kicking Legg's tires -- and or least people TALKING about potential outside buyers kicking Legg's tires. Buy the rumor, sell the fact, as they say.

Legg's stock is worth about half of what it was a year ago, and the thinking is that at this level some potential strategic partners might start to get interested. However, CS is quick to say: "As we do not expect Legg Mason to be acquired over the next six months, we do believe the company may start to consider strategic investors (Chinese Insurance Companies, Asian Sovereign Wealth Funds, and European Financial Institutions) which could provide distribution leverage, and also prevent the LM stock from underperforming..."

M&A discussion indeed. In Wall Street's self-fulfiling prophecy fantasyland, Credit Suisse has already started it.

Posted by Jay Hancock at 3:24 PM | Permalink | Comments (3)
        

McMahon is $644,000 behind on his mortgage payments on a house that's on the market for $6.25 million. If we add Ed to Jose Canseco and that California congresswomen, previously chronicled in this space, we have an official new blog category: Celebrity Mortgage Victims. From the AP story:

"If you spend more money than you make, you know what happens," McMahon said Thursday night on CNN's "Larry King Live." ''You know, a couple of divorces thrown in, a few things like that. And, you know, things happen."

Asked why a millionaire couldn't make house payments, Pamela McMahon said the couple had less money than people may think and suggested they could have done a better job managing their finances.

"We didn't keep our eye on the ball. We made mistakes," she said. "It's embarrassing to say the least, and it's sad, because you know, Ed's worked his whole entire life."

Posted by Jay Hancock at 2:47 PM | Permalink | Comments (6)
Categories: Celebrity mortgage victims
        

  Great kicker on Paul Krugman's column today. The column is about how the digital age has made intellectual property such as music, print and software so easy to copy and share for free that content producers are having to figure out new ways to make money. He references a Rolling Stone article, "Rock's New Economy: Making Money When CDs Don't Sell," and notes that the Grateful Dead pioneered free content by letting people tape the concerts. The free content increased the fan base, which let the Dead make more money on T-shirts and concert tickets.

This is the wave of the future for book publishers, newspaper publishers and musicians alike, Krugman says. He closes the column with: "In the long run, we are all the Grateful Dead." Get it? It's an economics joke. For the reference, see here.

Posted by Jay Hancock at 1:15 PM | Permalink | Comments (0)
        

Today's column. The whole column is here.

A news story we might read soon:

Moody's and Standard & Poor's have downgraded the entire U.S. economy.

Effective immediately, the agencies said, America is assigned a score of "ZZZ+," a new category that more accurately captures the financial characteristics of consumers, businesses and politicians.

"Rather than taking the trouble to research thousands of companies and downgrade them one at a time, we figured we'd just get it over with," said Seymour Riteoff, a spokesman for the rating companies. "Our innovative bulk downgrading policy saves us money and, frankly, gives better results than our old system."

The U.S. economy had received the coveted "AAA" score along with other blue-chip credits such as Merrill Lynch mortgage bonds and the government of Iceland.

Now, however, the rating companies have determined that the economy's risk profile is similar to that of Las Vegas McMansions and Hummer dealerships.

Merrill Lynch and Iceland haven't fared so well, either.

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

The McCain and Obama campaigns are off and hawking. It's the Selling of the President 2008, and there's real merchandise involved. As has been noted on the Net, McCain's site is prominently featuring McCain golf tschotschkes, plus coffee mugs, autographed books, a McCain wall clock and an embroidered McCain blanket for $75.00. Obama has a blanket, too. Plus sweatshirts, hats, buttons, art posters etc. No Obama golf stuff, however. 

Posted by Jay Hancock at 10:55 PM | Permalink | Comments (2)
        

Guess which kind of retirement plan Americans have stocked with the most money – traditional pensions, individual retirement accounts or defined contribution plans such as 401(k)s?

I would have guessed 401(k)s and their cousins, which have been replacing "defined benefit" pension plans for decades. But the answer, according to the Government Accountability Office, is IRAs. In 2004 IRAs had about $3.5 trillion in assets, defined contribution plans had about $2.6 trillion and pension plans had about $1.9 trillion.

The reason makes sense when you hear it. Even though workers don’t put much into IRA plans directly, they usually roll over 401(k) plans into an IRA when they switch employers. So a lot of the IRA money started out as 401(k) money. In 2004 people rolled $214 billion into IRAs from other plans but contributed only $48 billion directly.

Government could do a better job of promoting consistent, direct IRA contributions, especially among small employers that don’t offer pensions and 401(k)s, the GAO says. In 1999 4.1 million taxpayers contributed to traditional IRAs, but fewer than half that many went on to contribute the next three years in a row.

The Labor Department should focus more on increasing creation of employer-sponsored IRAs and getting workers to contribute, GAO said. It’s not like the country had too much savings. Promoting SIMPLE IRAs, streamlined plans created in 1996 for companies with 100 or fewer employees, seems like a good place to start.

Posted by Jay Hancock at 7:44 PM | Permalink | Comments (1)
        

Military history is written by the victors. Economic history is written, to a large extent, by central bankers. In both cases you have to take official accounts with a larged ose of salt. Just consider the bubble-blowing charges leveled at the former chairman of the FederalReserve, Alan Greenspan. The former chairman has proclaimed his innocence. Let’s look at the evidence.

What is a bubble? A bubble is created when the Fed’s laxity allows aggregate demand to grow too rapidly. Specifically, a demand bubble occurs when nominal final sales to US purchasers (GDPminus exports, plus imports, minus change ininventories) exceeds its trend rate of growth by a significant amount. During Greenspan’s 18-year tenure as Fed chairman, nominal final sales grew at a 5.4% annual trend rate. This reflects a combination of real sales growth of 3% and inflation of 2.4%. (see chart)

The first deviation from the trend began shortly after Greenspan became chairman. In response to the October 1987 stock market crash, the Fed turned on its money pump and created a bubble: during the next year final sales shot up at a 7.5% rate, well above the trend line. Having gone too far, the Fed then lurched back in the other direction. The ensuing Fed tightening produced a mild recession in 1991.

From 1992 through 1997 growth in the nominal value of final sales was quite stable. But successive collapses in certain Asian currencies, the Russian ruble, the Long Term Capital Management hedge fund and finally the Brazilian real triggered another excessive Fed liquidity injection.

This resulted in a boom in nominal final sales and a bubble in 1999-2000. This was followed by another round of Fed tightening, which coincided with the bursting of the equity bubble and a slump in 2001. The last big jump in nominal final sales was set off by the Fed’s liquidity injection to fend off the false deflation scare in 2002.

As Greenspan put it, “We face new challenges in maintaining price stability, specifically to prevent inflation from falling too low.” By July 2003, the Fed funds rate was at a record low of 1%, where it stayed for a year. This set off the mother of all liquidity cycles and yet another massive demand bubble.

During the Greenspan years, and contrary to his claims, the Fed overreacted to real or perceived crises and created three demand bubbles. The last represents one bubble too many – and one that is impacting us today.

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

Whatever's going on in the wholesale markets, at least the market for retail gasoline still seems to be functioning. Evidence: Screaming promotions from gas stations. On my desk is a flyer from Beltway Shell (Route 40 and the Baltimore Beltway) advertising an "Under the Tent Event" on Wednesday. There's a picture of a nice clean Shell station draped with bunting and come-ons for free refreshments, a prize wheel and a $5 Shell gift card with any fillup. Plus, at a lot of Shell stations, gas is 5 cents off on Thursdays. I filled up at the Route 40 Edmonson Shell this morning for $3.92.

You missed the Under the Tent Event, but if you get a hold of the flyer it has dollar-off coupons for the next four weeks.

Posted by Jay Hancock at 9:57 AM | Permalink | Comments (0)
        

Today's column: O'Malley's economic deveopment makeover:

It's as plain as the steely resolve in Gov. Martin O'Malley's eyes that something interesting is about to happen to the Department of Business and Economic Development.

The governor didn't tell the department he wanted to overhaul it until just before he said so in a speech last month, according to people familiar with the situation, so O'Malley and DBED Secretary David W. Edgerley haven't been reading from the same PowerPoint plan.

The risk is that, like governors before him, O'Malley will turn Business and Economic Development Department into a deal-chasing boiler room for planning ribbon-cutting announcements with out-of-state companies.

Of course, DBED needs to play the business recruitment game. But its primary focus should be helping the companies that have already thrown in their lot with the state.

Read the rest of the column on O'Malley and DBED.

Posted by Jay Hancock at 12:51 PM | Permalink | Comments (1)
        

I'll be yakking on WYPR, 88.1 on your FM dial. 9:15 a.m. or so. About -- what else? -- BGE, Constellation and electricity prices. On the Sheilah Kast show.

Posted by Jay Hancock at 5:32 PM | Permalink | Comments (0)
        

From General Motors' annual meeting this morning. The company is closing several truck and SUV plants. And on the Hummer, CEO Rick Wagoner said GM is "undertaking a strategic review of the Hummer brand, to determine its fit with GM's evolving product portfolio" in light of changing market conditions," according to the AP story. "At this point, we are considering all options for the Hummer brand... everything from a complete revamp of the product lineup to partial or complete sale of the brand."

Sure, companies will be lined up around the block to buy that brand. Selling the Hummer line will require a buyer even more incompetent than GM. Oh yeah -- Ford!

Posted by Jay Hancock at 10:28 AM | Permalink | Comments (2)
        

But I wonder how much of importance the survey measures. Auto writers are gushing over how well Detroit did in Strategic Vision's Total Quality Awards. The Mercury Sable was the best large car. The Chrysler 300C was the best near-luxury car. The Ford Edge was the best medium crossover, etc.

But if quality is measured in terms of how well a car does its job and how much service it delivers for the dollars spent, these awards and similar ratings don't measure quality. They measure the warm giddy feelings owners have soon after they drive the cars home. This like judging the quality of a marriage by interviewing husband and wife right after the honeymoon.

The Total Quality Index™ was calculated from the responses of 20,655 buyers who bought 2008 models in September, October and November of 2007... The Total Quality Index™ is the premier measure of new vehicle owner satisfaction. It asks buyers to rate all aspects of the ownership experience, from buying and owning to performance and driving. It is much more than simply counting problems. “Innovation and thoughtfulness in functionality and design, keeping in mind how the customer will interact and use the vehicle, is essential,” reports Dr. Darrel Edwards, Founder and CEO of Strategic Vision.

Whatever. What's really essential is how a car runs after you've owned it for a year or two. You want to measure quality? Measure the seal on the piston rings after 100,000 miles.

Posted by Jay Hancock at 1:51 PM | Permalink | Comments (2)
        

More from the Maryland's PSC's statement this morning on electric-rate relief being sought from electricity generators.

If FERC grants the relief sought in the complaint, the PSC estimates that over the three year period in question, BGE ratepayers would save $1.068 billion, ratepayers in the PEPCO zone would save $544 million, ratepayers in the Delmarva zone would save $122 million and ratepayers in the Allegheny Power zone would save $170 million. “We could not escape or ignore the fact that the transitional auction results will, if left alone, force Maryland ratepayers to pay almost $2 billion for capacity that never materialized,” said Maryland PSC General Counsel Douglas R. M. Nazarian. “The complaint was careful not to mount a challenge RPM itself, but attacks the results of the transitional auctions, and the resulting wholesale prices. Under the circumstances, they cannot be just and reasonable.”

Posted by Jay Hancock at 11:52 AM | Permalink | Comments (0)
        

The Maryland Public Service Commission led the way on Friday's federal complaint against the "reliability pricing model" employed by the mid-Atlantic electric grid. The model provides windfall payments to Constellation Energy and other incumbent generators and is one reason among many that electricitiy prices are so high. See Paul Adams's story in Saturday's paper for an excellent description of what's going on. The PSC didn't comment in the story, but here's an excerpt from a statement they just put out. Doesn't seem to be on their Web site yet.

Under the Reliability Pricing Model, auctions were conducted in 2007 and 2008 to establish the price and supply of electricity capacity for the years June 2008 through May 2011. The complaint alleges that these auctions were not competitive, were subject to price increases by incumbent generators, yielded excessive prices, and did not accomplish the intended purpose of stimulating new generation for the periods in question. For the PEPCO and BGE service territories, no new generation was bid into the capacity auctions for these periods.

Posted by Jay Hancock at 11:47 AM | Permalink | Comments (0)
        

At the BP station at the corner of Mt. Royal and St. Paul, according to GasBuddy. It's $4 or more at nine other places noted by GasBuddy. The cheapest gas in Baltimore? $3.75 at a Costco store and a Sam's Club.

Posted by Jay Hancock at 11:38 AM | Permalink | Comments (1)