Beware of financial pundits writing about the stock market. Via Barry Ritholtz is New York magazine's treasury of bad 2008 investment recommendations.

• Jon Birger, senior writer, Fortune Investors Guide 2008 Smart investors should buy [Merrill Lynch] stock before everyone else comes to their senses.” Merrill’s shares plummeted 77 percent.

• Elaine Garzarelli, president of Garzarelli Capital, Business Week’s Investment Outlook 2008
Buy some of the most beaten-down stocks, including those of giant financial institutions such as Lehman Brothers, Bear Stearns, and Merrill Lynch.
As of January 1, none of these firms will still exist.

• Sarah Ketterer, CEO of Causeway Capital Management, Fortune Investors Guide 2008
“Fannie Mae and Freddie Mac have been pummeled. Our stress-test analysis indicates those stocks are at bargain basement prices.”
Fannie and Freddie had lost 90 percent of their value.

• Jon Birger, senior writer, in Fortune Investors Guide 2008
Our bet is that in a stormy market investors will gravitate toward, GE, the ultimate blue chip.
GE’s stock price tumbled 55%, and it’s on the verge of losing its triple-A credit rating.

• Archie MacAllaster, chairman of MacAllaster Pitfield MacKay in Barron’s 2008 Roundtable
“Bank of America will [not cut its dividend], I think they’ll raise it this year. My target price for the stock is $55.”
BofA share price now hovers around $14, and it has slashed its dividend in half.

• James J. Cramer, “Future of Business” New York Magazine
“Goldman Sachs… finishes the year at $300 a share. Not a prediction — an inevitability.”
Goldman Sachs’ share price was $78, and the firm announced its first quarterly loss — $2.2 billion.

Posted by Jay Hancock at 10:48 AM | Permalink | Comments (4)
        

New York Times columnist/blogger John Tierney linked to my post last week on his bet on oil prices with Matthew Simmons. Reprising Julian Simon's famous bet with Paul Ehrlich, Tierny bet "Peak Oil" theorist Simmons on the average daily price of oil in 2010. Tierney says it'll be less than $200; Simmons says more.

Several commenters on Tierney's blog seem to acknowledge that he's likely to win. (Oil is below $40.) But they say he lucked out with the severe global recession, which has depressed the demand for energy. The oil-price plunge, these commenters suggest, says nothing about long-term resource sustainability and long-term resource prices.

Not true. Granted, the recession does force energy prices lower, and the recession won't last forever. But recessions and limits to growth are a crucial factor in favor of anybody who's betting against long-term resource inflation. Until recently world GDP was growing close to an annual rate of 5 percent -- an astonishingly fast pace. The idea that it couldn't keep up was crucial to anybody betting against higher oil prices. Unsustainable demand was a key factor in the oil bubble.

But the business cycle is only one way economies adjust to seemingly scarce resources. When resources become expensive, we buy fewer of them. When resources become expensive, people switch to alternatives. When resources become expensive, entrepreneurs seek new sources or invent technology to better exploit old ones. All of these things have been going on with oil in the last two years. They are real but unmeasurable factors in its price decline. It's not just the recession. Tierney didn't luck out. He knew the odds favor the resource optimists for many reasons.

The real problem with sustainability has to do with carbon emissions and climate change. So far the true cost of carbon emissions isn't priced into oil and other energy. We need to price carbon correctly -- through a tax or a cap-and-trade system -- so that the myriad, uncoordinated economic adjustments that have made oil less than $40 can also work to mitigate global warming.

Posted by Jay Hancock at 10:55 AM | Permalink | Comments (9)
        

Gee, something in Chicken Soup for the Soul, Guideposts and on Oprah wasn't true. Who would have guessed? Peter Abelard: "By doubting we come to questioning, and by questioning we come to truth." Nobody in the feelgood industry doubts, and nobody questions.

Posted by Jay Hancock at 11:21 AM | Permalink | Comments (0)
        

First Mariner Bancorp, which has been hammered by the financial crisis, will defer interest payments on debt owed to its trust preferred subsidiaries.

First Mariner Bancorp (the “Corporation”) announces that it has elected to defer regularly scheduled quarterly interest payments with respect to an aggregate of $73.724 million of its junior subordinated debentures (the “Subordinated Debentures”) associated with its seven statutory trust subsidiaries that were formed for the purpose of issuing trust preferred securities. Pursuant to the indentures for the Subordinated Debentures, the Corporation can elect to defer payments of interest for up to 20 consecutive quarterly periods, provided that there is no event of default (as defined in the indentures) existing at the time of deferral. The Corporation is not in default under any of the indentures.

FMAR's trust preferred subsidiaries look pretty standard for bank holding companies. The trust sells preferred stock, and then the bank borrows from the trust in the form of these debentures. It's a weird setup, but there are tax and regulatory advantages, the primary one which appears to be that the money is counted as capital/equity rather than debt for assessing a banking company's solvency. Also standard are these deferral options.

But it's not a good development. FMAR is deferring quarterly interest on annual interest payments amounting to $2.8 million. The bank's deposits are covered by deposit insurance, but its stock has fallen below $1 from the $18 range not long ago.

Posted by Jay Hancock at 10:58 AM | Permalink | Comments (0)
        

In a story about short-term interest-rate spreads, Bloomberg says:

Central banks are pumping money into the financial system to combat the worst economic slump since the Great Depression.

You read this a lot. But so far it is patently untrue.

The U.S. employment rate for November was 6.7 percent. Is this the worst since the Depression? No. Unemployment reached 7.9 percent in 1949. Unemployment reached 7.4 percent in 1958. Unemployment reached 10.4 percent in 1983. Unemployment reached 7.8 percent in 1992.

Year-over-year U.S. job loss for November was 1.4 percent. Is this the worst since the Depression? No. In 1945 year-over-year job loss was 7.6 percent. In 1949 year-over-year job loss was 3.6 percent. In 1958 year-over-year job loss was 4.2 percent. In 1975 year-over-year job loss was 2.7 percent. In 1982 year-over-year job loss was 2.7 percent. In 2002 year-over-year job loss was 1.6 percent.

Nor is this the worst downturn since the Depression in terms of the decline in GDP.

It may well turn into the worst slump in 70 years. But the proof isn't there yet. It IS the worst financial collapse since the 1930s. But government is applying all kinds of remedies that weren't used or weren't used as quickly in the 1930s. To say that the worst financial collapse will lead to the worst macroeconomic performance is probably a good bet. But we're not there yet. Bloomberg and others are jumping the gun.

Posted by Jay Hancock at 10:51 AM | Permalink | Comments (3)
        

Why did Constellation Energy Group's stock crater after the company announced it was rejecting Warren Buffett's $26.50 cash deal for an investment by Electricite de France? Nick Abe on Seeking Alpha has an idea.

The problem CEG had with its stock price was entirely due to management’s explanation of the deal on the conference call. The real sell-off didn’t start until the conference call was over. The reason is pretty straightforward: management did not do a good job explaining, in simple terms, why this deal was better.

I, unfortunately, listened to the entire call and they spent very little time talking about the value of the assets they had, but instead spent the entire time talking about being focusing on debt reduction to the point of being “myopic”. For the record, it is never good to describe yourself as myopic. In my opinion, if they want to restore shareholder confidence, they should create a very simple slideshow. It should list all of their assets, one by one, and detail the revenue, profit, and how they value each one internally. They should also disclose the pre-determined selling price of the 11 assets included in the put option EDF gave them. This would give the market better clarity and help to better explain why this makes their company worth more than $26.50 per share even after the significant dilution penalty of terminating the MidAmerican deal.

Posted by Jay Hancock at 1:10 PM | Permalink | Comments (0)
        

The price for a barrel of oil has fallen from $145 in July to less than $40.

So you might think investment banker Matthew Simmons is worried about his wager that oil will be worth five times that amount two years from now. Convinced that oil production can’t keep up with global growth, Simmons bet New York Times columnist and blogger John Tierney $10,000 that the average daily crude price in 2010 will be more than $200.

Is he having second thoughts?

“God no,” he said on the phone the other day. “We bet on the average price in 2010. That’s an eternity from now.”

Simmons argues that the economy isn’t as weak as it seems, that low oil prices will shut down production and that the world will soon see a supply squeeze and price spike. Oil price graphs, he says, will look like a “V” – straight down and straight up.

“We’re going to create a ’V’ that’s very dangerous," he said. “We could pierce through the old price high like a hot knife through butter in a very short period of time.”

Well, why did oil just crash below $37? Doesn’t that indicate evaporation of demand?

“What we’re witnessing is probably a massive liquidation of paper contracts,” said Simmons, author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.

Tierney, an admirer of late University of Maryland business professor Julian Simon, likes his chances. The last time commodity prices soared, in the late 1970s, Simon bet environmental scaremonger Paul Ehrlich that they would fall. Simon’s thinking, based on centuries of economic history: Substitution, technology and new discoveries would keep resources from becoming scarce and expensive

Simon won the bet. Tierney had him in mind when he bet Simmons, in 2005.

“I remain utterly ignorant about the intricacies of the oil market either today or in 2010 – and I remain confident that it’s smart to bet against energy or any other resource becoming scarcer and more expensive in the future,” Tierney says via email. “So I figure the odds are with me to win this bet, especially now that prices are still so much below $200 a barrel.”

The futures market says he's right. Oil for delivery in eternity -- 2010 -- is $60 a barrel.

Posted by Jay Hancock at 11:39 AM | Permalink | Comments (8)
        

There are not enough lawyers in the world to sort out the Madoff mess.

From Mark Gimein:

Thanks to the Bayou court decisions, however, the moment Madoff was revealed as a fraud, any money that these funds-of-funds would have managed to take back would become gains that have to be given back to be redistributed among all the losers in the Madoff scheme. Now, this sounds bad enough, but ... again, there's more. There's no time limit on the gains they'd have to give back, so any fund that outed Madoff could be on the hook for any profits it had gained from its Madoff investments for years back. So, as my fund-manager friend puts it, “The question people have to ask is not, 'Do I have money in a fund that has exposure to Madoff now?' but, 'Do I have money in a fund that that has ever invested with Madoff?' ”

At this point, the complexity of the situation should be clear. But maybe not the whole potential for absurdity. Imagine that Rich Folks Capital Management—RFCM—placed its money with Madoff 10 years ago and then decided, five years ago, that something didn't feel right and pulled it out. Well, now RFCM is on the hook for any of its gains from the time before the fraud was discovered. But what happens if the people who'd invested with RFCM 10 years ago aren't the same as the people who invest with it now? Tough noogies. RFCM's current investors are probably responsible for paying back gains in the RFCM fund that they never even saw. Or, possibly, RFCM needs to go after its own former investors. No one's really sure.

From the statement by SEC Chairman Christopher Cox on why the SEC never pursued allegations of funny business made against Madoff:

The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.

In response, after consultation with the Commission, I have directed a full and immediate review of the past allegations regarding Mr. Madoff and his firm and the reasons they were not found credible, to be led by the SEC's Inspector General. The review will also cover the internal policies at the SEC governing when allegations such as those in this case should be raised to the Commission level, whether those policies were followed, and whether improvements to those policies are necessary. The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.

Posted by Jay Hancock at 3:48 PM | Permalink | Comments (0)
        

It's not really news that General Growth Properties is trying to sell any and all of its malls and shopping centers. But brokerage DTZ Rockwood has put a mini-brochure for Harborplace, South Street Seaport and Faneuil Hall on its Web site.

DTZ Rockwood LLC has been retained on an exclusive basis by affiliates of General Growth Properties, Inc. to arrange the sale of owner’s interest in the Festival Marketplace Portfolio, a portfolio of three landmark mixed-use assets including Faneuil Hall Marketplace (Boston, MA), South Street Seaport (New York City, NY), and Harborplace & The Gallery (Baltimore, MD).

Here's the poop on Harborplace. Harborplace and the Gallery generated $522 per square foot in sales for the 12 months ended Sept. 30. Not bad, but below the $598 of South Street and the killer $719 for Faneuil Hall. HP and Gallery were 82 percent leased.

Located on Baltimore's famed Inner Harbor, Harborplace is the dining, shopping and entertainment destination in the Baltimore metro. Harborplace is a premier mixed-use complex comprised of retail, office, hotel (non-owned), and parking uses. The property generated nearly $114 million in retail sales for the 12-month period ending September 30, 2008.

Posted by Jay Hancock at 3:25 PM | Permalink | Comments (3)
        

Mike Kreiner, who commutes to DC and uses the endangered 10:05 p.m. MARC train from Union Station to Baltimore, says he'll move to DC if they cancel the train. Cutting back on public transit is not what government should be doing, even in a recession. Kreiner emails:

I just signed a six month lease in Bolton Hill before reading this article. I work at the US Patent Office and was planning on commuting via MARC. If there's no late train I will most likely move back to the DC area following my lease. If that happens, MARC will lose a monthly pass customer. Also, I plan on buying a house in the next two years. I was hoping to buy a house in Baltimore, but I'll have to rethink that plan as well. I can live without the 11pm train, but I was counting on having the 10 o'clock train when I decided to move. Thanks for drawing attention to this issue.

Surely he is not alone. The fact that the 10:05 doesn't have a ton of ridership is not evidence of its uselessness. People need it as an insurance policy, to use every now and then if they work late. Otherwise they have to drastically alter lifestyles.

Posted by Jay Hancock at 1:20 PM | Permalink | Comments (0)
        

A lot of the people dumping the stock yesterday may have been arbs who usually exit positions when deal uncertainty is resolved. Stock is back up to $24.

Posted by Jay Hancock at 12:33 PM | Permalink | Comments (3)
        

Comment in my email this morning relating to this column: Biggest winner in Constellation deal is Buffett.

There were two additional winners in the Constellation Deal -- Mayo Shattuck and the Board of Directors -- they keep their positions, remaining in place. What a job they have done!!! Shattuck, with the compliance of the Board, ran the company into bankruptcy gambling on commodities trading, then sells the company at a "fire sale" price to stave off bankruptcy and now makes another deal to sell part of itself to EDF by giving the initial buyer, Warren Buffet $1 Billion in cash and stock now and, later repayment of his original down payment of $1 Billion at 14% interest. Am I missing something here -- a CEO and his Board take a company to the brink of disaster then pays a buyer so they can make a sale??? Is this a practice taught in business schools???? If so, please write a book about this new chapter in Amercian business theory.

Posted by Jay Hancock at 10:26 AM | Permalink | Comments (3)
        

EDF and Constellation Energy Group claim that their deal announced this morning does not require approval from the Maryland Public Service Commission. Sez the commission: We're not so sure about that!

The Commission is aware of the announcement that Constellation Energy Group, Inc. (“Constellation”) is terminating its proposed transaction with MidAmerican Energy Holdings, Inc. (“MidAmerican”) and will pursue an alternative transaction with Electricite de France (“EDF”). The Commission cannot comment on whether or not the proposed EDF transaction will require Commission approval or on any other matters regarding these transactions.

Posted by Jay Hancock at 1:39 PM | Permalink | Comments (9)
        

Constellation Energy Group CEO Mayo Shattuck on the investor conference call: CEG management will recommend that the board henceforth pay a "50- to 60-percent lower dividend rate per share."

Posted by Jay Hancock at 12:17 PM | Permalink | Comments (0)
        

What's new with Constellation Energy Group:

-- CEG signs deal with Electricite de France, the huge nuclear operator.
-- CEG and Warren Buffett's MidAmerican Energy agreed to terminate the agreement in which MidAmerican would buy all of CEG for $26.50 a share.
-- EDF will loan CEG up to an extra $600 million to keep CEG liquid until regulatory approvals are received. (This is in addition to the $1 billion EDF will invest immediately.)
-- EDF/CEG joint nuclear venture on existing plants will be separate from existing JV on developing new plants.
-- EDF will put U.S. headquarters in Baltimore and build a visitor center at Calvert Cliffs, where CEG owns two nuclear units.
-- CEG stock down 90 cents to $27.80.

Constellation Energy and EDF Group Enter Definitive Investment Agreement

Wednesday December 17, 10:35 am ET

EDF Development Inc. to acquire 49.99 percent interest in Constellation Energys nuclear generation and operation business for $4.5 billion Agreement includes immediate $1 billion cash investment in Constellation Energy and option to sell to EDF Development Inc. up to $2 billion of non-nuclear generation assets Constellation Energy to remain independent publicly traded company Investment by EDF Development Inc. enhances Constellation Energys long-term stability and liquidity position Transaction extends EDF Groups nuclear expertise in U.S. Transaction expected to close in six to nine months

BALTIMORE & PARIS--(BUSINESS WIRE)--Constellation Energy (NYSE: CEG - News) and EDF Development Inc. (a wholly owned subsidiary of EDF) today announced a definitive investment agreement under which EDF Development Inc., will acquire a 49.99 percent interest in Constellation Energy Nuclear Group, LLC, for $4.5 billion. Constellation Energy Nuclear Group owns 3,869 megawatts of nuclear generating capacity, which consists of the Calvert Cliffs Nuclear Power Plant in Maryland, and Nine Mile Point Nuclear Station and R.E. Ginna Nuclear Power Plant in New York. EDF Development Inc.’s interest in Constellation Energy Nuclear Group will be structured as a new joint venture between the companies, separate from the existing UniStar joint venture.

Under the terms of the agreement, EDF Group will also make several key investments to strengthen Constellation Energy’s liquidity position:

EDF Development Inc. is making an immediate $1 billion cash investment in Constellation Energy through the purchase of newly issued Constellation Energy Series B non-convertible cumulative preferred stock, which will be surrendered to Constellation Energy upon closing of the transaction and credited against the $4.5 billion purchase price for EDF’s interest in Constellation Energy Nuclear Group.

To provide Constellation Energy with additional liquidity support, EDF Development Inc. and Constellation Energy have entered into a two-year asset put option that allows Constellation Energy to sell to EDF up to $2 billion of non-nuclear generation assets.

EDF Group has provided Constellation Energy a $600 million interim backstop liquidity facility, which will remain available until receipt of all regulatory approvals relating to the transfer of the non-nuclear generation assets that could be sold under the asset put option or the date that is six months after the date of the investment agreement, whichever is earlier.

“This agreement with EDF Development Inc. provides an opportunity for Constellation Energy shareholders to achieve greater value for the company’s significant asset base,” said Mayo A. Shattuck III, chairman, president and chief executive officer of Constellation Energy. “The investment also provides the liquidity support to stabilize and grow our business as an independent public company dedicated to serving our customers across the country. EDF Group has been a proven partner of ours in the development of new nuclear plants in the U.S., and we welcome their involvement in the ownership of our existing fleet. As the largest owner of nuclear plants in the world, EDF Group brings experience, scale and financial strength to Constellation Energy’s future.”

In the U.S., EDF Group and Constellation Energy have an existing partnership through their UniStar joint venture to build, own and operate new nuclear generation. EDF Group is also a leading provider and developer of wind and solar generation in the U.S. through EDF Energies Nouvelles' U.S. subsidiary, EnXco.

EDF chairman and chief executive officer Pierre Gadonneix said: “This agreement further illustrates the strong relationship between EDF Group and Constellation Energy with the shared objective of leading the nuclear renaissance in the U.S. EDF Group and Constellation Energy intend to develop four Evolutionary Power Reactors (EPR) through the UniStar joint venture with the immediate focus on breaking ground for Calvert Cliffs Unit 3 as soon as the regulatory process allows, perhaps as early as 2009.

“EDF Group has long believed that there are significant benefits to be realized between the development of new nuclear assets and the operation and ownership of existing nuclear facilities, such as those owned and operated by Constellation Energy,” continued Gadonneix. “Through this agreement, we can capitalize on these benefits and EDF Group’s nuclear expertise to drive further growth to the benefit of shareholders, customers and employees of both EDF Group and Constellation Energy. We look forward to working further with Constellation Energy in the development of new nuclear generation in Maryland, New York and beyond. This agreement will contribute significantly to non-CO2 emitting energy generation in the U.S.”

In connection with the new joint venture, Constellation Energy and EDF Development Inc. each will appoint five members to a new Board of Directors, with a casting vote on matters related to safety, security and reliability to the chairman of the new joint venture (a U.S. citizen) appointed by Constellation Energy. The vice-chairman of the joint venture board will be appointed by EDF Development Inc. In addition, EDF Group will have an observer seat on Constellation Energy’s Board of Directors, and, upon closing of the transaction, will have the right to designate one director to Constellation Energy’s Board.

The agreement announced today reflects an amended offer from EDF Group, which follows the company’s initial proposal to Constellation Energy’s Board of Directors on Dec. 2, 2008. Upon careful consideration, and in consultation with its financial and legal advisors, Constellation Energy’s Board has determined that the revised EDF Group proposal is in the best interests of Constellation Energy’s shareholders. In conjunction with the agreement, MidAmerican Energy Holdings Company and Constellation Energy have jointly terminated the prior merger agreement, as separately announced today.

As a demonstration of its commitment to the U.S. nuclear renaissance, and in particular, Maryland’s future role in that renaissance, EDF Group will move its U.S. headquarters to Maryland. EDF Group will also invest $20 million in a new visitor and environmental center at Calvert Cliffs, consistent with the companies’ focus on breaking ground on a third nuclear unit at Calvert Cliffs as soon as the regulatory process allows.

Additionally, as part of its commitment to Maryland, EDF Group will invest $36 million in the Constellation Energy Group Foundation to support future charitable endeavors for the long-term benefit of the Baltimore community and the state of Maryland.

The transaction is not subject to a financing condition. EDF Group will finance the transaction, including the agreed liquidity arrangements, through corporate funds and credit facilities.

The companies expect to receive the necessary regulatory approvals for the acquisition of EDF Development Inc.’s interest in Constellation Energy’s nuclear generation and operation business and close the transaction within six to nine months. The companies will work closely with Maryland regulators to make them fully informed of the transaction’s details. Approval from Constellation Energy’s shareholders is not required.

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

MidAmerican Energy deal is off. Shareholder meeting next week is cancelled. Constellation owes Buffett $593 million in cash and 10 percent of Constellation stock plus the $1 billion Buffett fronted Constellation in September, at 14 percent interest.

BALTIMORE & DES MOINES, Iowa--(BUSINESS WIRE)--Constellation Energy (NYSE: CEG - News) and MidAmerican Energy Holdings Company today announced they have jointly reached agreement to terminate their Sept. 19, 2008, merger agreement, and as a result, the previously announced Dec. 23, 2008, shareholder meeting to vote on the MidAmerican merger has been canceled.

On Sept. 22, 2008, MidAmerican provided $1 billion of needed capital to Constellation Energy to assist them in continuing their business operations during unprecedented times of global financial stress.

Under the provisions of the termination agreement MidAmerican will receive a $175 million termination fee. In addition, the preferred shares issued to MEHC Investment, Inc., a wholly owned subsidiary of MidAmerican, will convert, and MEHC Investment, Inc. will receive a $1 billion note at 14 percent interest, maturing Dec. 31, 2009; approximately 20 million shares of Constellation Energy common stock, representing 9.99 percent of outstanding shares; and approximately $418 million in cash. Additionally, the $350 million liquidity resource will terminate.

“We greatly appreciate the professionalism, good faith and cooperation MidAmerican’s management and board have shown since we first initiated discussions in September,” said Mayo A. Shattuck III, chairman, president and chief executive officer of Constellation Energy. “Based on a careful process to examine all alternatives available to our shareholders and other stakeholders, we believe that termination of the merger agreement is in the best interest of all parties.”

“We were pleased to have been able to quickly provide a significant amount of capital that was critical to Constellation Energy as they went through unprecedented financial times. We appreciate the relationships we have built with the Constellation Energy team and wish them success as they pursue an alternative transaction,” said Gregory E. Abel, president and chief executive officer of MidAmerican.

The companies will make appropriate filings to notify regulatory agencies that the proposed transaction has been terminated.

Posted by Jay Hancock at 10:39 AM | Permalink | Comments (0)
        

For a couple decades the prime rate has moved in lockstep with the target Federal Funds rate -- with a 3 percentage-point spread. The FF target goes from 1.5 percent to 1 percent, the prime goes from 4.5 percent to 4.

But the target just got blurry. The Fed says its new target is a range from zero percent to 0.25 percent. So does the prime go down to 3 percent or 3.25 percent? Peter at Minyanville offers some insight, noting some smaller banks have already abandoned the traditional formua. It'll be interesting to see what happens, and what the "official" WSJ rate will be that determines interest on many home equity lines of credit.

Posted by Jay Hancock at 3:19 PM | Permalink | Comments (1)
        

Bloomberg is reporting that the board of Baltimore's Constellation Energy Group favors a bid from Electricite de France that would kill the deal to sell CEG to Warren Buffett.

Baltimore's Constellation Energy Group Inc. is nearing an agreement to sell to Electricite de France SA half of its nuclear-power business for $4.5 billion and terminate a planned takeover of the entire company by Warren Buffett's MidAmerican Energy Holdings Co., according to a published report last night.

Bloomberg News, citing people familiar with the situation, said the parent company of Baltimore Gas and Electric favors the sale to Paris-based EDF, Constellation's largest shareholder and its partner in new nuclear development. The agreement is contingent on waivers of bank covenants and might be announced as early as this week, said one of the people, who declined to be identified because the talks are private, according to Bloomberg.

What are the "bank covenants" that would have to be waived?

A month ago CEG closed on a $1.23 billion line of credit with UBS and Royal Bank of Scotland. The loan contract prohibits Constellation from engaging in the "Sale of Assets, Etc. Sell, transfer, lease, assign or otherwise convey or dispose of assets (whether now owned or hereafter acquired) to an unrelated third party, in any single or series of transactions, whether or not related."

There are exceptions for ordinary-business asset sales, but the EDF deal, which would sell EDF half of CEG's nuclear-generation business for $4.5 billion, doesn't seem to fit the exceptions.

Posted by Jay Hancock at 10:24 AM | Permalink | Comments (0)
        

I have spent much of the day trying to see if Madoff's damage extends to Baltimore. Haven't heard anything so far, including from people who ought to have heard if there was a bad one. From the WSJ:

Mr. Madoff tapped social networks in Dallas, Chicago, Boston and Minneapolis.

Not to mention NY, Palm Beach and Connecticut. Maybe Baltimore got lucky.

Posted by Jay Hancock at 3:17 PM | Permalink | Comments (0)
        

Would that the great Charles Kindleberger were alive to revel in the latest disaster. The author of Manias, Panics and Crashes: A History of Financial Crises, Kindleberger mapped out the immutable trajectory of bubbles and crashes repeated numerous times at least since the 1600s.

Let's grant that Bernard Madoff, who allegedly lost $50 billion of his clients' dough, has been convicted yet of no crime. But the Madoff episode looks to be fulfilling the Kindleberger prophecy of bursting bubbles in the same way Enron and WorldCom did after the 1990s bubble. To wit, says Kindleberger:

"The imploson of an asset price bubble always leads to the discovery of fraud and swindles."

Surely this is only the beginning of these kinds of revelations. Get to work, prosecutors!

Posted by Jay Hancock at 11:22 AM | Permalink | Comments (0)
        

For a piece on how the country underestimates the number of unemployed, I'm interested in interviewing people who would like to work but haven't looked for a job in the past four weeks. These so-called "discouraged" workers aren't counted in the official unemployment rate, which is 6.7 percent. Add in "discouraged" workers and you go over 7 percent. If you end up in the column, at least it'll be a cheap "available to work" ad. Email me jay.hancock@baltsun.com or call 410-332-6550.

Posted by Jay Hancock at 10:13 AM | Permalink | Comments (0)
        

For a snapshot of the homeland security boondoggle, read Peter Hermann's column from Sunday's paper.

A little more than three years ago, the Baltimore Police Department's Marine Unit was an indispensable crime-fighting tool. The city had spent $143,000 on a state-of-the-art 27-foot SeaArk craft packed with the latest radar, sonar and satellite navigation, and had enough federal homeland security money to buy two more.

"You are always concerned that there is a possibility that Sept. 11 can happen again, right here with us," Sgt. Ed Coleman explained back then.

The city's five police boats are still docked between Fells Point and Canton, but the 14 officers assigned there have dwindled to a single sergeant, who can go out if required. It's nearly winter, crime is surging, the budget is tight and the police commissioner has redeployed the marine officers to different jobs, at least until the ice thaws and people go sailing again.

Police are betting that fewer people will be on the water in the winter so fewer police are needed to enforce boating speed limits and pluck people from capsized vessels. Police move cops all the time based on shifting crime rates and new priorities, leaving one area vulnerable to better staff another.

Do you really need the latest radar, sonar and satellite hardware to rescue capsized sailboats?

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

The news from DC is that the Bush administration is preparing to bail out Detroit. How is this possible? The Treasury bailout pool was meant for taking stinky mortgages off Wall Street's hands by paying inflated prices for them. Detroit? GM? Chrysler? Those aren't mortgages.

Isn't this illegal? Oh yeah: Treasury's 450-page bailout bill included a throwaway clause authorizing Paulson to buy "any other financial instrument." He could buy bonds issued by monkeys if he wanted to.

Posted by Jay Hancock at 11:23 AM | Permalink | Comments (6)
        

The USA Today newspaper publishes this front-page story today: WHY HOME VALUES MAY TAKE DECADES TO RECOVER

It's a bit misleading: They're talking about inflation-adjusted home "values" as opposed to home prices, a distinction that will be lost on many readers. The piece largely relies on Peter Schiff, an investment pro and onetime campaign adviser to Ron Paul who has become famous for predicting the housing meltdown. At one point in the piece Schiff compares U.S. residential real estate, which has manifest economic utility, to gold, which has almost none. (Gold has monetary utility but almost no everyday uses except for jewelry.) This is quite a stretch.

Inflation could help homes recapture their old prices, if not their value. But when inflation is factored in, home prices might not return to their 2006 peak for many years. Housing prices are meaningless if you don't adjust for inflation, says Schiff, the investment manager.

He points out that gold peaked in 1980 at $850 an ounce in response to inflation and the Iranian hostage crisis. It never recovered. Today, it sells for about $750 an ounce and would have to top $2,000 an ounce when adjusted for inflation to match its value in 1980.

"That's the nature of bubbles," Schiff says. "The price never comes back."

Posted by Jay Hancock at 10:59 AM | Permalink | Comments (7)
        

December 11, 2008 – Washington – Responding to the media reports that Dr. Stephen Chu, Lisa Jackson, and Carol Browner will fill key energy and environmental roles in the incoming Obama Administration, the Renewable Fuels Association issued the following statement:

The energy and environmental challenges facing this country are formidable, but not insurmountable. We are confident that the energy and environmental team President–elect Obama is assembling shares his vision of a diverse energy portfolio that capitalizes upon America’s great ingenuity and productivity. Ethanol, today largely derived from grain, is a key component in this nation’s energy transition to homegrown renewable liquid fuel sources. The foundation being built by today’s ethanol producers is pivotal in ushering in second and third generation biofuel technologies that will greatly expand the science and feedstocks used to produce renewable fuels and help create the kind of green economy and jobs President-elect Obama envisions.

We cannot let the recent dip in oil and energy prices divert our attention away from continuing to develop domestic renewable energy sources. While $40 oil is attainable, it is not sustainable. Judging by the reported nominations of these well-qualified individuals, we believe President-elect Obama fully intends to build upon the successes renewable energy technologies like ethanol are achieving. We look forward to working with the Obama Administration to make the renewable fuels vision the president-elect detailed during the campaign a reality.

Posted by Jay Hancock at 1:52 PM | Permalink | Comments (7)
        

Without a late weeknight MARC train from Washington to Baltimore, Baltimore and Howard County become much less attractive for people working in DC. The train kept me from sleeping on the Farragut Square sidewalks many times when I worked in DC for The Sun. Mike Dresser chronicles the late MARC train's peril in today's Sun.

Veteran federal worker Rolf Schmitt does not regularly take the 10:05 p.m. MARC Penn Line train out of Washington. Usually, he is back at his Bolton Hill home much earlier.

But every so often, his job at the U.S. Department of Transportation keeps him at the office late into the evening. It is then that he depends on that train, which the Maryland Transit Administration is proposing to discontinue as of Jan. 12 as a cost-cutting measure.

Schmitt recently made an appeal to Baltimore City Councilman William H. Cole IV, who prompted eight colleagues on the 15-member council to join him in a letter asking Gov. Martin O'Malley to spare the train. They contend that a late train is critical if Baltimore is to attract residents who work in Washington, including members of the incoming Obama administration.

"It makes us a little less attractive for those people we're trying to attract," Cole said.

Posted by Jay Hancock at 11:37 AM | Permalink | Comments (5)
        

Judge Richard Posner pedantically insists on calling all recessions "depressions," regardless of their severity. From the blog Posner shares with economic Nobelist Gary Becker:

There appear to be three types of depression (why that word has been displaced by "recession" eludes me--who is supposed to be fooled by such a euphemism?). In one, the least interesting and usually the least serious, some unanticipated shock, external to the ordinary workings of the market, disrupts the market equilibrium; the oil-price surges of the early and then the late 1970s are illustrative. The second, illustrated by the depression of the early 1980s, in which unemployment exceeded 10 percent for a time during 1982, is the induced depression: the Federal Reserve Board broke what was becoming a chronic high rate of inflation by an unexpectedly steep increase in interest rates, which shocked the economy. In neither type of depression is anyone at fault, and the second was downright beneficial to the economy.

In the third and most interesting type of depression, illustrated by both the depression of the 1930s and the current depression, the cause is the bursting of an investment bubble.

Let's grant that "depression" once designated all economic downturns. ("Panic" is another old-timey financial term.) It seems that calling mild reversals "recessions" is not a euphemism but an ordinary exercise in distinguishing degrees of severity or intensity. We know red and carmine are related but different. etc.

But what would moderate language cop John McIntyre say? (In any event, visit his blog and hear his three-pints-of-Guinness joke.)

Posted by Jay Hancock at 11:06 AM | Permalink | Comments (3)
        

A decade after its American cousin chain gave up the ghost, "Woolies" in Britain is liquidating. From yesterday's Times:

Woolworths will hold a closing down sale tomorrow after administrators failed to find a buyer for the company's 813-store retail chain.

Deloitte, the administrator of the store, announced this evening that although negotiations are ongoing it would close the chain, which fell into administration last month.

The administrator made the announcement after informing Woolworths' staff. The closure of the stores makes mass redundancies likely. The group employs 30,000 people, approximately 25,000 of whom work in the retail arm.

Neville Kahn, the administrator, said: “We continue to make every effort to convert interest in the Woolworths assets into firm offers. While we are still seeking bids from interested parties, Christmas is clearly the busiest time of the year for retailers and it is prudent to do all we can to sell existing stock. By moving to a store closing sale and further discounting the stock, we are maximising the sales potential that this period offers.”

Posted by Jay Hancock at 10:28 AM | Permalink | Comments (0)
        

My earlier blog criticized Howard County Executive Ken Ulman for taking a $7,000 raise at a time of fiscal austerity. My apologies to Mr. Ulman. He's giving the raise to charity, says spokesman Kevin Enright. That's the right thing to do. I should've done more research before posting. Now Baltimore Mayor Sheila Dixon should profit from Ulman's standup example, but there's no evidence so far that she has.

Posted by Jay Hancock at 5:27 PM | Permalink | Comments (3)
        

From the Christian Science Monitor on a federal gas tax. This or a cap & trade program has to happen after the economy recovers. But Obama is right politically to hold off now.

But when "Meet The Press" host Tom Brokaw asked Obama on Sunday about bumping up gas prices, the president-elect waved off the idea. He said that, "putting additional burdens on American families right now" is a mistake.

Posted by Jay Hancock at 12:43 PM | Permalink | Comments (1)
        

UPDATE: Since I made this post on Wednesday, both Ulman and Dixon have said they'll donate their raises to charity. Dixon waited a day. As previously noted, Ulman's spokesman told me Wednesday he'll donate his raise to charity.

2009 will be the toughest year for public finance in Maryland since the early 1990s. Cuts in programs and personnel will be severe. Yet at least two sets of local leaders are collecting nice raises. Yes, the pay was set according to previously agreed-upon formulas. But this is the wrong signal to send at a time when everybody -- taxpayers, government employees and fiscal programs -- is squeezed.

"We are well aware of the tough fiscal decisions being made at both the state and local level," Howard County Executive Ken Ulman said last week, while reducing bus routes in the county. Ulman is pocketing a $7,000 raise, according to The Sun.

Council Vice Chairwoman Mary Kay Sigaty is slated to take over the council's top spot for the next year, as Courtney Watson steps down.

Based on the 4.9 percent increase in the area Consumer Price Index, Ulman's annual pay is to rise from $151,263 to $158,675. Council members' pay will go from $50,421 to $52,892, with the chairwoman getting an extra $1,000. That means Sigaty will get $53,892.

Watson's pay, meanwhile will rise $1,471 since she loses the chairwoman's extra pay. By comparison, county teachers, police and firefighters got 5 percent pay increases this year, while other county employees got 3 percent.

The formula for the raises is based on recommendations of a citizens committee and were approved by the last council before the November 2006 elections.

Last month Baltimore Mayor Sheila Dixon said the city is entering a period "worse than the Depression," while she was announcing big cuts. But Dixon and the other folks running folks running Baltimore are also in the money, according to today's story by Annie Linskey.

Baltimore officials quietly granted pay raises to Mayor Sheila Dixon, Comptroller Joan M. Pratt, City Council President Stephanie C. Rawlings-Blake and other council members last month, increasing politician salaries at a time when leaders are freezing pay for midlevel managers and slashing overtime for police officers and firefighters.

Dixon's salary is rising from $148,000 to $151,700, while Pratt's and Rawlings-Blake's go to $100,450 from $98,000. City Council Vice President Edward Reisinger will make $64,575, up from $63,000, and the other 13 members of the council will make $58,425, a raise from $57,000.

Posted by Jay Hancock at 11:38 AM | Permalink | Comments (13)
        

[The complaint alleges that] Blagojevich and Harris conspired to demand the firing of Chicago Tribune editorial board members responsible for editorials critical of Blagojevich in exchange for state help with the sale of Wrigley Field, the Chicago Cubs baseball stadium owned by Tribune Co.

Count Two

 Beginning no later than November 2008 to the present, in Cook County, in the Northern District of Illinois, defendants ROD R. BLAGOJEVICH and JOHN HARRIS, being agents of the State of Illinois, a State government which during a one-year period, beginning January 1, 2008 and continuing to the present, received federal benefits in excess of $10,000, corruptly solicited and demanded a thing of value, namely, the firing of certain Chicago Tribune editorial members responsible for widely-circulated editorials critical of ROD R. BLAGOJEVICH, intending to be influenced and rewarded in connection with business and transactions of the State of Illinois involving a thing of value of $5,000 or more, namely, the provision of millions of dollars in financial assistance bythe State of Illinois, including through the Illinois Finance Authority, an agency of the State of Illinois, to the Tribune Company involving the Wrigley Field baseball stadium; in violation of Title 18, United States Code,Sections 666(a)(1)(B) and 2.

During an intercepted call on November 21, 2008, ROD BLAGOJEVICH spoke with JOHN HARRIS. ROD BLAGOJEVICH asked HARRIS whether he told Deputy Governor A that “McCormick is going to get bounced at the Tribune.” (McCormick is believed to be John P. McCormick, the Chicago Tribune’s Deputy Editorial Page Editor). HARRIS said “no, I told him (Deputy Governor A) that McCormick is in a bad mood,” and that HARRIS was going “to check with [Tribune Financial Advisor] to see” whether “it was part of that message about the cuts on the Ed board.” HARRIS stated, “I had singled out McCormick as somebody who was the most biased and unfair.” ROD BLAGOJEVICH responded, “to [Tribune Financial Advisor] you did?” HARRIS confirmed that it was to Tribune Financial Advisor. ROD BLAGOJEVICH stated “that would be great,” and McCormick is a “bad guy.” ROD BLAGOJEVICH asked, “[Tribune Financial Advisor] is on top of this, right?” HARRIS replied that Tribune Financial Advisor said they would be “downsizing that division or changing personnel” and that Tribune Financial Advisor understands and “[Tribune Owner]” understands.

ROD BLAGOJEVICH confirmed that HARRIS made the point with Tribune Financial Advisor that the Tribune is advocating that ROD BLAGOJEVICH be impeached for going around the legislature and that “is precisely what we’re doing on Wrigley Field.” HARRIS said he explained that information to Tribune Financial Advisor. ROD BLAGOJEVICH asked whether Tribune Financial Advisor understood that “we are not in a position where we can afford to do that if . . . the Tribune is pushing impeachment.” ROD BLAGOJEVICH asked, “they got that, right?” HARRIS replied, “right.” HARRIS suggested to ROD BLAGOJEVICH that HARRIS explained to Tribune Financial Advisor that the Tribune’s editorials discussing impeachment “could jeopardize our efforts to do good things for people as well as the other thing (helping the Cubs sale at the IFA).” ROD BLAGOJEVICH responded, “there ya go. He got the message?” HARRIS replied, “yeah.” ROD BLAGOJEVICH stated “good.”

On November 21, 2008, approximately five minutes after the previous conversation with JOHN HARRIS, ROD BLAGOJEVICH spoke again with HARRIS. At the end of this call, ROD BLAGOJEVICH stated that “the Tribune thing is important, if we can get that.” HARRIS replied, “delicate, very delicate.” ROD BLAGOJEVICH said, “I know, I know. Use your judgment, don’t push too hard. But you know what you got to do, right.” HARRIS responded, “Alright, sir.”

After hearing that Tribune Financial Advisor had assured HARRIS that the Tribune would be downsizing or making personnel changes affecting the editorial board, ROD BLAGOJEVICH had a series of conversations with representatives of the Chicago Cubs regarding efforts to provide state financing for Wrigley Field. On November 30, 2008, ROD BLAGOJEVICH spoke with Sports Consultant, the president of a Chicago-area sports consulting firm, whose remarks during the conversation indicated that he was working with the Cubs on matters involving Wrigley Field. In that conversation, ROD BLAGOJEVICH and Sports Consultant discussed the importance of getting the IFA transaction approved at the IFA’s December 2008 or January 2009 meeting, because ROD BLAGOJEVICH was contemplating leaving office in early January 2009 and ROD BLAGOJEVICH’s IFA appointees would still be in place to approve the IFA deal.

On December 3, 2008, ROD BLAGOJEVICH spoke again with Sports Consultant and explained that ROD BLAGOJEVICH had control over state funds designated for use in connection with science and technology, and which could be used to pay for improvements at Wrigley Field. Later that same day, ROD BLAGOJEVICH spoke with Cubs Chairman and said that he could make state science and technology funds available to the Cubs without having to go through the legislature, and suggested that the Cubs come up with proposals that would allow the use of such funds. On December 4, 2008, ROD BLAGOJEVICH spoke with Spokesman.

On December 4, 2008, the Chicago Tribune announced it was reducing the size of its workforce by 11 members. During the phone conversation, Spokesman informed ROD BLAGOJEVICH that the Tribune had its “cuts” but that Spokesman did not think the “person we mentioned” was cut. ROD BLAGOJEVICH asked “McCormick?” Spokesman responded “right.” ROD BLAGOJEVICH instructed Spokesman to “go tell HARRIS that.” Spokesman stated he had already informed HARRIS of the information. On the morning December 5, 2008, ROD BLAGOJEVICH spoke with JOHN HARRIS.

On the morning of December 5, 2008, the Chicago Tribune ran a front page news story discussing an ongoing criminal investigation involving ROD BLAGOJEVICH. During the phone conversation, ROD BLAGOJEVICH and HARRIS discussed information contained in the newspaper article. ROD BLAGOJEVICH stated “what’s the deal? So, do McCormick stays at the Tribune, huh?” HARRIS stated “we haven’t heard that he’s gone, so.” ROD BLAGOJEVICH stated “I mean, those layoffs were minor (the December 4, 2008 Tribune layoffs).” HARRIS stated “well, I know they got a lot to do.” ROD BLAGOJEVICH asked “there’s still more coming?” HARRIS responded “yeah, they got a lot of cuts to make.” ROD BLAGOJEVICH stated “okay, at some point we should talk to [Tribune Financial Advisor] again, right?” HARRIS confirmed they should talk to Tribune Financial Advisor again.

Posted by Jay Hancock at 11:30 AM | Permalink | Comments (0)
        

So much for that prediction. From AP, Tribune files for bankruptucy:

NEW YORK (AP) — Media conglomerate Tribune Co. filed for bankruptcy protection Monday, as the owner of the Chicago Tribune, the Los Angeles Times, the Chicago Cubs and other properties tries to deal with $13 billion in debt.

Advertising revenue declined severely this year because of the recession, putting pressure on the Chicago-based company. Most of its debt comes from the complex transaction in which the company was taken private, with employee ownership, by real estate mogul Sam Zell last year.

Although the next major principal payment on the debt, of $593 million, isn't due until June, analysts say Tribune has been in danger of missing lender-imposed financial targets at year's end. Those targets are based on the level of debt relative to cash flow and become harder to meet as revenue declines, even if the debt itself doesn't increase.

Monday's filing, made in bankruptcy court in Delaware, could give Tribune time to raise cash by selling off assets in a tight credit market. It also could put additional pressure on its lenders to ease their targets, possibly in exchange for higher interest rates, as many other newspaper companies already have done.

Posted by Jay Hancock at 1:57 PM | Permalink | Comments (0)
        

Yes. Constellation Energy Group's board is not allowed to solicit competiting offers, but if one lands on the table in certain circumstances CEG can talk. Here are some relevant parts of the agreement, all cited in the proxy statement filed with the SEC:

Notwithstanding these restrictions, prior to Constellation Energy’s shareholders approving the merger, Constellation Energy may engage in discussions or negotiations with, and furnish information with respect to itself to, a person making a takeover proposal if:

-- Constellation Energy’s board of directors determines in good faith, (i) after receiving the advice of its financial advisors and outside legal counsel, that such takeover proposal constitutes, or is reasonably likely to result in, a “superior proposal” of the type described below and (ii) after receiving the advice of its outside legal counsel, that the failure to take such action would be reasonably likely to result in a breach of the directors’ duties to Constellation Energy and its shareholders under applicable laws.

-- Constellation Energy advises MidAmerican of its decision to take such action.

At first glance the proposal by Electricite de France seems to fit the definition of "takeover proposal":

A “takeover proposal” means any inquiry, proposal or offer from any person or group of persons other than MidAmerican, Merger Sub or their affiliates relating to:

• any direct or indirect acquisition or purchase of a business or division (or more than one of them) that in the aggregate constitutes 15% or more of the net revenues, net income or assets of Constellation Energy and its subsidiaries, taken as a whole, or 15% or more of the equity interest in Constellation Energy (by vote or value).

Constellation's board is contractually obligated to recommend shareholders vote "yes" to Buffett's proposal on Dec. 23. But here are the terms under which it can wiggle out. If Buffett doesnt' make a counteroffer, Constellation is still obligated to submit his original offer to a shareholder vote.

Constellation Energy agreed that it will not, and will not permit its subsidiaries or joint ventures or its and their officers, directors, agents or representatives to, withdraw, modify, or amend the recommendation of Constellation Energy’s board of directors in a manner adverse to MidAmerican or Merger Sub unless prior to the approval of the merger by Constellation Energy’s shareholders:

• Constellation Energy’s board of directors determines in good faith, after receiving the advice of its outside legal counsel, that the failure to take such action would be reasonably likely to result in a breach of the directors’ duties to Constellation Energy and its shareholders under applicable laws;

• Constellation Energy advises MidAmerican of its decision to take such action and, if the decision relates to a takeover proposal, the material terms and conditions of the takeover proposal, including the identity of the person making such takeover proposal;

• Constellation Energy gives MidAmerican five business days after delivery of each such notice to propose revisions of the terms of the merger agreement (or make another proposal) and shall have negotiated in good faith with MidAmerican with respect to such proposed revisions or other proposal, if any; and

• Constellation Energy’s board of directors shall have determined in good faith, after considering the results of such negotiations and giving effect to the proposals made by MidAmerican, if any, and after receiving the advice of outside legal counsel that the failure to effect such withdrawal, modification or amendment of the recommendation of Constellation Energy’s board of directors would be reasonably likely to result in a breach of the directors’ duties to Constellation Energy and its shareholders under applicable laws.

Notwithstanding a withdrawal or modification of the recommendation of Constellation Energy’s board of directors, Constellation Energy is required to submit the approval of the merger to the vote of its shareholders unless the merger agreement is otherwise terminated. See “The Merger Agreement—Termination” beginning on page 84 for a discussion of each party’s ability to terminate the merger agreement.

Posted by Jay Hancock at 1:29 PM | Permalink | Comments (0)
        

This just out: Directors at Constellation Energy Group, parent of BGE, have approved talks with EDF, which is trying to break up Warren Buffett's deal to buy Constellation for $26.50 per share. Buffett's people have said they won't increase their offer to compete better with EDF. We'll see. EDF has offered to invest $4.5 billion for half of CEG's nuclear generation business. Buffett is offering $4.7 billion for the whole company.

BALTIMORE, Dec 08, 2008 (BUSINESS WIRE) -- Constellation Energy (NYSE: CEG) today announced that its Board of Directors has authorized the company to begin immediate discussions and exchange of information with Électricité de France (EDF) related to EDF's unsolicited proposal, which was received on Dec. 2, 2008.

Constellation Energy said the decision to begin discussions with EDF was made following consultation with its legal and financial advisors, and in a manner consistent with its fiduciary responsibilities to shareholders, as well as its responsibilities under its definitive merger agreement with MidAmerican Energy Holdings Company.

Constellation Energy's Board of Directors has not withdrawn, modified or qualified its recommendation that shareholders of Constellation Energy vote in favor of the merger with MidAmerican. The special meeting of shareholders to vote on the merger with MidAmerican remains scheduled for 8 a.m. on Dec. 23, 2008.

Posted by Jay Hancock at 1:04 PM | Permalink | Comments (0)
        

We're all waiting for President-elect Barack Obama's economic stimulus plan. But it doesn't look like it'll be passed until after he takes office in late January. Then it'll take months to implement.

Meanwhile, a massive can of economic Red Bull is already pouring down the country's throat, courtesy of President Hugo Chavez of Venezuela, King Abdullah of Saudi Arabia and other oil merchants.

Commentators were frantic six months ago about the economic and personal damage of oil at $140 per barrel. It's understandable now if they aren't cheering about the 70-percent-off sale on oil. Lower energy prices are largely a side effect of a recession that is throwing millions out of work around the world.

But cheap oil is the best present we could ask for that doesn't come from Washington. Taxpayers don't have to pay for it. It won't increase the national debt. It'll weaken Iran, Russia and other places that do not love us.

Here is GasBuddy's U.S. gas price map:

Posted by Jay Hancock at 12:44 PM | Permalink | Comments (0)
        

Tribune Co., parent of The Baltimore Sun, has hired bankruptcy advisors. The company is struggling under billions in debt as a result of last December's $8 billion buyout controlled by Sam Zell. I'd be surprised if they file anytime soon. Newspaper creditors in Philadelphia and elsewhere have shown forebearance even though debtors are in default. Creditors know these are extraordinary times. Tribune has tons of assets (Chicago Cubs, newspapers & TV stations) it could sell in any normal market to satisfy debt obligations. But nobody can get a loan to buy them. That will eventually change.

From NYT:

The Tribune Company, the newspaper chain that owns The Chicago Tribune and The Los Angeles Times, is trying to negotiate new terms with its creditors and has hired advisers for a possible bankruptcy filing, according to people briefed on the matter.

Tribune is in danger of falling below the cash flow required under its agreement with its bondholders, but it is not clear how seriously Tribune is thinking about seeking bankruptcy protection. Analysts and bankruptcy experts say that the hiring of advisers, including Lazard and Sidley Austin, one of the company’s longtime law firms, could be a just-in-case move, or a bargaining tactic. The company would not comment on Sunday.

Posted by Jay Hancock at 10:41 AM | Permalink | Comments (0)
        

The “commodity” gas price for Baltimore Gas & Electric’s 600,000 household natural gas customers popped up a bit for December, rising from 96 cents per therm last month to $1.05 per therm. The federal Energy Information Administration blames unseasonably cold weather in much of the country for increased demand and higher prices.

But BGE’s price is still far below its level of a few months ago and below offers from independent suppliers. BGE Home, a lesser-regulated company owned by BGE parent Constellation Energy, has been trying to sell households on a fixed price gas contract of $1.599 for the winter.

The commodity cost is based on the wholesale market and doesn’t include delivery and other stuff. The wholesale price for natural gas has plunged by half since the summer. That’s not as much as the decline in oil and gasoline, but it’s still a huge break for consumers.

It may not feel like one, however, because households weren’t using much gas during the warm months. BGE’s default price is still higher than the 96 cents from December 2007. That’s partly because BGE bought some of its gas a few months ago, when prices were high.

If the economy continues to struggle, as it probably will, natural gas prices could fall even more. That could be offset, however, by an especially cold winter.

Posted by Jay Hancock at 9:34 AM | Permalink | Comments (1)
Categories: BGE/electricity
        

Obscured by the hubbub over the loss of 533,000 U.S. jobs in November was the fact that the government also sharply lowered the reports of jobs losses in October and September. A month ago the Labor Department had put the national employment decline for the two months at a little over half a million. Today's report says the country lost 723,000 jobs those two months.

Posted by Jay Hancock at 10:14 AM | Permalink | Comments (3)
        

Don't forget that oil was $140 a barrel a few months ago.

"VIENNA, Austria (AP) -- Oil prices plummeted Friday as the already battered market reacted to unexpectedly high U.S. unemployment figures -- the latest dramatic evidence of recession in the world's largest market for crude.

The damage to the economy by the financial turmoil is much bigger than the market initially thought," said Tetsu Emori, commodity markets fund manager at ASTMAZ Futures Co. in Tokyo. "The economic data now is much worse than what we expected a few months ago."

Light, sweet crude for January delivery was down $1.43 at $42.24 a barrel -- nearly a 4 year low -- in electronic trading on the New York Mercantile Exchange by afternoon in Europe after going as low as $42.05 on release of the jobs statistics. The contract fell $3.12 overnight to settle at $43.67, the lowest since January 2005.

Posted by Jay Hancock at 9:53 AM | Permalink | Comments (0)
        

From the Financial Times: Merrill says oil could temporarily dip to $25 next year:

Merrill Lynch warned that oil prices could fall as low as $25 a barrel next year if the recession affecting the US, Europe and Japan extended to China, the main driver of demand growth in commodity markets in recent years.

Merrill’s warning came as oil prices sank below the $44 a barrel on Thursday, the lowest level in almost four years, in spite of dramatic interest rates cuts in the UK, Europe and Sweden.

Francisco Blanch, head of commodities research at Merrill Lynch, said his main scenario was for oil prices to average $50 a barrel next year, but warned: “A temporary drop below $25 is possible if the global recession extends to China.”

Posted by Jay Hancock at 4:58 PM | Permalink | Comments (3)
        

This out from Fitch, apropos of Electricite de France's offer to buy half of Constellation Energy's nuclear assets for $4.5 billion. The deal is designed to dislodge Warren Buffett's offer (through MidAmerican Energy Holdings) of $4.7 billion for the whole company. Fitch raises am interesting possibility: What if Constellation shareholders reject Buffett's offer in favor of EDF's -- and then EDF's deal gets rejected by regulators?

Does that push Constellation back toward bankruptcy court, the course it was on before Buffett's rescue? Fitch also raises the possiblity of a counteroffer from Buffett. (MidAmerican has said it won't make one.) And it warns Constellation not to take EDF's dough and start buying back shares or paying dividends. From Fitch:

If the MEH transaction is terminated (whether because of rejection by shareholders or a decision by CEG's Board of Directors) and CEG accepts the EDF offer, it is not clear how CEG would deploy the net proceeds after funding required payments to MEH. If such proceeds were used to reduce CEG parent debt in recognition of the material reduction in cash flow after sale of part of its generation business and to provide additional liquidity support, the credit implications would be neutral or favorable. On the other hand, if net proceeds are used for equity distributions or share repurchases, ratings would be reduced as a consequence of the increased debt leverage relative to operating cash flow or resulting liquidity deficiency. Another downside scenario Fitch considered was the possibility of a negative vote by shareholders resulting in termination of the MEH transaction, followed by failure of the EDF transaction due to some legal or regulatory impediment.

CEG said its Board of Directors will review the EDF proposal as soon as practicable in a manner consistent with its fiduciary responsibilities to shareholders as well as its obligations under its definitive merger agreement with MEH. Fitch will continue to monitor the developments over the coming weeks, which may include such variants as a counter-offer by MEH or new deal terms that combine aspects of the MEH and EDF offers.

Regardless of whether CEG merges with MEH or remains independent with a nuclear joint venture with EDF, Fitch assumes that CEG will continue with its ongoing program to downsize or divest its global commodities and Houston gas trading businesses and will continue to shrink trading collateral requirements.

Posted by Jay Hancock at 12:21 PM | Permalink | Comments (2)
        

Warren Buffett's MidAmerican Energy has offered $26.50 a share for all of Constellation Energy. Electricite de France has offered to pay even more for only a portion of Constellation's assets, but the money would go to the company, not shareholders. And it would leave present management in power.

A knowledgeable shareholder states the dilimma well, probably better than I did in today's column on the Constellation/Buffett deal and EDF's gambit.

Basically, I haven’t seen anything that states what Mid American is actually paying to acquire CEG. The $26.50 per share represents a net payout to shareholders. Since as near as I can tell, CEG has between 4 and 6 billion dollars of outstanding debt (before any cost incurred to pay Warren off) the actual Mid American offer is for something between 8 and 10 Billion dollars.

In Contrast the EDF offer is basically to pay off that outstanding debt, and leave a severely diluted (and broke) publically traded company to the whims of wall Street (and CEG Management) for share price valuation.

As a result it strikes me that the question before shareholders is:

Should I take the $26.50 and run, or take nothing now and leave the future of my investment in the hands of the same cowboys that initiated this problem in the first place?

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

At one auction you can obtain first editions of Adam Smith's Wealth of Nations and Mao Tse-Tung's Little Red Book. Sotheby's will put them under the hammer (is that the auction cliche?) Dec. 17. The Adam Smith is expected to go for between 40,000 and 60,000 pounds ($58,000 -- $88,000). The Mao is expected to sell for between 4,000 and 6,000 pounds ($5,800 -- $8,800). That's a good approximation of their relative intellectual and moral value, too, although even there Mao is overpriced.

Posted by Jay Hancock at 11:09 AM | Permalink | Comments (0)
        

Constellation Energy, parent of Baltimore Gas and Electric, sent a memo to employees today announcing job cuts equal to 8 percent of its work force. That's more than 700 jobs. An alert employee sent it to my colleague Hanah Cho.

From the desk of Mayo Shattuck:

Dear Colleague,

In today's challenging economic environment, we have a responsibility to take swift and prudent steps to preserve our company's financial strength and to ensure our long-term ability to serve our customers. We have and will continue to take aggressive action to conserve cash and reduce discretionary spending. Unfortunately, our unique financial circumstances, and eroding global market conditions, require that we go further and reduce the overall size of our company, resulting in a corresponding reduction in our global workforce of approximately 8 percent.

Two factors are driving this action. The first is the near certainty of a prolonged and deep economic recession. This downturn is affecting virtually every company in every sector, as well as state and local governments. The second factor is the current financial market conditions that are placing severe restrictions on access to capital for investment or to support ongoing operations. We are addressing this challenge by acting on our previously announced plans to reduce risk in our commercial businesses and scale back or sell certain commodities business units.

Accordingly, the majority of job losses will be related to reducing risk and refocusing our commercial business. While there will be job reductions enterprise-wide, the largest share will occur in our commodities group and among related corporate staff. Over the past several years, growth in our global commodities business has required an increase in hiring to meet our expanded business needs. As we redirect our business strategy and exit certain non-core businesses, we must resize our workforce accordingly. Some of these reductions will be related to the previously announced divestiture of our London-based coal, freight and uranium commodities business, Houston-based gas trading unit and certain gas production assets. Other reductions will take place in our Baltimore-based commodities operations and in related headquarters staff. There will also be smaller staff reductions in our other commercial businesses, BGE and generation. We will take no action that compromises legal or regulatory compliance or our commitment to safety and reliability, but across the company, expenses must be curtailed. Our company and its budget must be sized appropriately, and each business must earn appropriate returns on capital.

I deeply regret this action but it's a necessary and responsible step we must take. I assure you this decision was the result of thoughtful deliberations and was taken only after many other cost-cutting options were considered and implemented. We will make every effort to ensure employees affected by this reduction will be treated with respect and fairness, and severance and outplacement services will be offered. The timing of the reductions is largely dependent on incremental steps we are taking related to our global commodities business. Some reductions will occur in the near-term, while others will take effect in 2009, as commodities business activities wind down and as we finalize the divestiture of the London-based business and Houston trading platform.

This workforce reduction and the strategic realignment of our business are unrelated to our pending merger with MidAmerican Energy Holdings Company. We're a stand-alone company today and will operate as an autonomous subsidiary of MidAmerican once the merger is completed.

The shocking declines in financial markets are understandably a cause for concern. When I look back at the last time our company was in distress, it was the fall of 2001 and we had to make the tough decision to cancel the separation of the company into two pieces. Our stock was at $22 per share and our generation fleet had eroding profitability due to below-market price caps in place in Maryland. The S&P 500 index was 25 percent higher than it is today. We have had a fascinating journey since that time as we built up our commercial and risk intermediation businesses to help buffer the malaise in other businesses. Now the tide has turned, and risk-oriented businesses require very expensive capital to support them. Our diversification has helped us weather storms of different types over the years, and today we must react to the market realities facing us. Our goal is to remain on solid financial footing.

Thank you for staying focused and keeping up the hard work during a very difficult time. I cannot overstate my deep appreciation for your professionalism and dedication to Constellation Energy.

Regards,

Mayo

Posted by Jay Hancock at 6:01 PM | Permalink | Comments (0)
        

Constellation Energy is up to $28.50 as I write, $2 more than Warren Buffett's buyout price of $26.50. The market thinks this French offer is real. Electricite de France is offering everything shareholders, Constellation management and Baltimore city fathers/mothers might want: continued independence for Constellation, maintaining Baltimore headquarters, cash to stave off bankruptcy. Questions: Can EDF come up with the dough? Can it clear all the regulatory obstacles? Will shareholders take the offer seriously after examining it?

The ball is in Buffett's court. Will he come back with a higher offer?

Posted by Jay Hancock at 10:48 AM | Permalink | Comments (4)
        

Ford's Alan Mulally has agreed to work for $1 a year, as Lee Iacocca did at Chrysler almost 30 years ago, if the government bails the company out.

Obviously he got the memo.

Posted by Jay Hancock at 2:56 PM | Permalink | Comments (3)
        

Bowing to hassles from Congress over corporate jets for Detroit bigwigs, GM boss Rick Wagoner will drive a Chevy Malibu hybrid sedan from Detroit to Washington this week, a spokesman said today. From AP:

Ford Motor Co. CEO Alan Mulally also is driving from Detroit for a second appearance before two legislative committees to seek $25 billion in government loans. Chrysler LLC CEO Robert Nardelli will not travel by corporate jet. A spokeswoman says his travel plans will remain secret for security reasons.

All three executives are returning to Congress for hearings on Thursday and Friday. They are seeking the bailout loans to help them through the recession and the worst sales downturn in 25 years.

According to Google Maps, it will take these guys 17 hours and 38 minutes to drive round trip from Motown to DC. Now that's efficient use for the time of a CEO whose company is on the brink of bankruptcy. If they get taxpayers to save them, though, I guess shareholders will decide that belly-crawling to Congress was worth it.

Posted by Jay Hancock at 10:32 AM | Permalink | Comments (4)
        

Constellation has begun in earnest the job of trying to sell its merger with Warren Buffett's MidAmerican Energy Holdings at the price of $26.50 a share, down from $107 not too long ago. Shareholders vote on the deal Dec. 23.

In a presentation to investors released this morning, Constellation makes two main points:

-- Failure to complete the merger could result in material challenges for continued business operations.

-- Market conditions continue to deteriorate, making completion of the transaction even more critical.

"Material challenges for continued business operations" means a threat of bankruptcy. "Market conditions continue to deteriorate" means Constellation, parent of BGE, would have trouble finding financing to go it alone.

To which I would add one more thing: Yesterday an analyst told me that $26.50 doesn't look as bad now as it did in September, when the deal was struck. That's because share prices of other electricity companies have also plunged, along with the general market. To wit: Exelon Corp. has fallen from $75 three months ago to $50 now.

Posted by Jay Hancock at 10:12 AM | Permalink | Comments (4)
        

Obama's transition project has released names of transition donors. (These are separate from campaign donors.) Those who made the maximum $5,000 contribution include these Marylanders:

Stewart Bainum Jr., Choice Hotels, Chevy Chase
Sandra Bainum, self-employed, Chevy Chase
John Hussman, Hussman Econometrics Advisors, Ellicott City
Miriam L. Johnson, self-employed, Cheverly
Aris Mardirossian, Technology Patents, Potomac
Marianne Mardirossian, Potomac
Majid Naderkhani, Excelacom, Bethesda
John Register, Ellicott City
Frank White Jr., Silver Spring

Posted by Jay Hancock at 4:35 PM | Permalink | Comments (1)
        

Yeah, that's a no kidding, Kenneth, headline. But until today the Business Cycle Dating Committee at the National Bureau of Economic Research hadn't declared a recession, which meant if you wrote "this is a recession" in a column people accused you of being a devious, anti-Bush partisan. Gee, it really was a recession.

I still think the NBER knew this months ago but waited until after the election to make the official pronouncement. "That's just completely wrong," Harvard economist and Business Cycle Dating Committee member Jeffrey Frankel told me in August. "If the verdict were clear - and one can imagine it becoming clear - of course we would declare a recession before the election."

Posted by Jay Hancock at 12:52 PM | Permalink | Comments (1)
        

Who is this Keynes guy we've been hearing about? Why does everybody think what he had to say is so important to understanding and ameliorating the global financial crisis? Ten years ago the interested citizen would have had to find Keynes' General Theory at the university library and plow through it unescorted. Now anybody can buy the book online and enlist, as a guide, the most interesting and fair-minded economist writing for a wide audience today. Sign up for Tyler Cowen's book club and be prepared to discuss chapters 1 and 2 a week from today.

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

Every energy reporter dreams of being immortalized in a filing at the Federal Energy Regulatory Commission. From a brief on the Constellation Energy/MidAmerican Energy merger submitted last week by the American Public Power Association:

The chain of events leading up to this proposed merger is more colorfully laid out in the media, e.g., the ongoing blog written by Jay Hancock, the business reporter for the Baltimore Sun.[1] One illustrative example, from September 17, 2008:

You leave the Web for 12 hours and look what happens. Who would have thought the financial world’s next holy guacamole moment would happen in Baltimore? Obviously a potential ratings downgrade has triggered a Constellation Energy liquidity crisis—or vice versa. Translation: Rating agencies, shareholders and lenders fear it may run short on cash to carry out day-to-day operations. But we have no idea what’s causing it yet. What’s clear is that Constellation’s reliance on borrowed money is putting it in dire straits. Much like many Wall Street firms that have run into problems, Constellation uses short-term loans to play the markets—in its case, mainly commodities such as wholesale electricity and natural gas. A huge portion of its profits—we don’t know exactly how huge—has depended on this play.[2]

The Commission, however, must put aside the exigent circumstances under which this corporate marriage was arranged, and dispassionately assess whether it is in the public interest, as FPA Section 203 requires. The Applicants have submitted their “Appendix A” competitive analysis (in the form of the Frame Affidavit). They further represent that MidAmerican is making “ring-fencing commitments for BGE as part of the Maryland state approval process for the transaction.” Application at 5. APPA obviously urges the Commission to review these analyses and representations carefully. But APPA also urges the Commission to “look beyond the change in HHI in its analysis of the effect on competition in both horizontal and vertical mergers.” FPA Section 203 Supplemental Policy Statement, 72 Fed. Reg. 42,277 at P 65 (August 2, 2007). The merged enterprise would be a public utility holding company of national scope (having affiliates on the East...
1 Available at: http://weblogs.baltimoresun.com/business/hancock/blog/2008/11/
2 Available at: http://weblogs.baltimoresun.com/business/hancock/blog/2008/09/ what_could_have_gone_wrong_at.html#more

Posted by Jay Hancock at 11:27 AM | Permalink | Comments (0)
        

Women who grew up in communities with fluoridated water earn more than those who didn't. Amazingly, after 60 years of fluoridated municipal water in the United States, the fluoride conspiracy theorists are still out there. From the National Bureau of Economic Research:

Fluoride has been shown to reduce cavities in teeth by as much as 60 percent. Municipal water fluoridation, “one of the 10 greatest public health achievements of the twentieth century” according to the U.S. Centers for Disease Control, began in Grand Rapids, MI, in 1945. It spread slowly throughout the United States, without any apparent relationship to wages or family income at the time it was introduced.

The authors find that “women who resided in communities with fluoridated water during childhood earn approximately 4 percent more than women who did not, but [there is] no effect of fluoridation for men.” The “much smaller and statistically insignificant” effect of fluoridation on the hourly earnings of men is consistent with Glied and Neidell’s hypothesis that: 1) women are more likely to be affected by consumer or employer discrimination on the basis of appearance; and 2) that women are more likely to select into occupations based on their physical appearance.

Posted by Jay Hancock at 10:26 AM | Permalink | Comments (6)
        

Tanta, the blogger on Calculated Risk and former mortgage banker who made wise and funny comments on the financial crisis, died of ovarian cancer yesterday. She was from Upper Marlboro, Md. Tanta's obit from the NYT:

The blogger Tanta, an influential voice on the mortgage collapse, died Sunday morning in Columbus, Ohio.

Tanta, who wrote for Calculated Risk, a finance and economics blog, was a pseudonym for Doris Dungey, 47, who until recently had lived in Upper Marlboro, Md. The cause of death was ovarian cancer, her sister, Cathy Stickelmaier, said.

Thanks in large part to Tanta’s contributions, Calculated Risk became a crucial source of prescient analysis as the housing market at first faltered, then collapsed and finally spawned a full-blown credit crisis.

Posted by Jay Hancock at 10:04 AM | Permalink | Comments (0)