Wednesday, May 30, 2007

The Burning! It's Stupid!

One of my least favourite words in all of business writing is "energy". This is peculiar because I write about the sector extensively. I don't mind the way it sounds, and I quite agree that it has a reasonable definition ("the capacity of matter to perform work", says wikipedia).

To you and me, it's what makes electric toothbrushes, cars, dogs and other contraptions operate without our input. It therefore covers not only electricity, but also the internal combustion engine, or powerin' devices and drivin' places, respectively.

It would probably be best for any sensible discussion of these to be split into two. But both industries have too much at stake in the warm and fuzzy-sounding "energy". Calpine Corporation, presently in Chapter 11 bankruptcy protection, is of the habit of referring to its electricity generating stations, or power plants, if you will, as "energy centers".

But the questions of how we power our generating plants, and how we power our cars are still separate. Take a look at the chart below from the EPA. From it we learn that power generation is a bigger factor in climate change than transport, and that we produce very little of our power through oil (the proportion gets smaller if one remembers that a decent chunk of US electricity also comes from hydroelectricity).

Some of this is a matter of economics - we could burn oil in quite a few of the US' power stations, but gas is - still - just - cheaper. But by and large you can't really change around fuels willy-nilly because the available infrastructure isn't suitable.

Now deep down the consumer broadly understands this, or chooses to be blind to this. Which is why we're much more cross about the carbon emissions from coal-burning power stations than those from cars. With cars we're much more worried about the cost.

Then, along comes a proposal to increase the subsidies for turning coal into motor fuel. This is going to do a few things. It will probably jack up the price of coal a bit, maybe slightly dent the price of oil, and increase hugely the emissions from the nation's transport fleet. But, where oil is concerned, crowing about energy independence and keeping the cars running is much more important than worrying about the CO2 emissions we've been accustomed to associate with industry and utilities.

Thus, we have ethanol, which consumes decent quantities of natural gas as fertiliser and in the process of turning corn into fuel, and we have the Canadian oil sands, which burn huge quantities of natural gas to melt the bitumen from the wilderness' oil deposits, which is then burned as synthetic fuel. But the Canadians, see, aren't Arabs.

I wish I could say that the cleaner forms of energy were somehow more admirable. But the US wind industry is a gang of gnomes subsisting on tax subsidies, well, what's left after dubious structured financing fees are factored in. It's weird world when a man can get more sense from an oil company tearing up bits of the Colombian interior searching for oil than a guy developing wind farms in Texas. But that's been the size of my afternoon.

Tuesday, May 29, 2007

How Junky Is Junk?

One of the overlooked elements of this wave of mergers, acquisitions, leveraged buyouts and management buyouts we've been experiencing of late is just how frickin' cheap debt has become. I don't mean the underlying interest rates on borrowings, which are ultimately set by the federal reserve. These have not changed one bit, as I can tell from a brief consultation of those handy mortgage calculators that real estate brokers put on their websites.

Nope, I'm talking about the premiums that lenders attach to the debt of companies with different risk profiles. Want to know why Mrs. Cutesome has to miss huge chunks of her Memorial day weekend? Because many private equity firms can pay a huge premium over a public company's value, as measured by its stock price, borrow huge sums of money to pay this premium, find the debt rated at what we used to refer to as "junk", and still pay about what I'd pay for a mortgage on an apartment in the "tony Park Slope section of Brooklyn" (they don't really call it that. Yet.)

Now, via, comes news of a study from rating agency Standard & Poor's, one of a couple of outfits that presume to tell us how risky debt is, saying that it doesn't really matter any more if your debt ends up with a "junk" rating. Well, what S&P actually says is ""With spreads compressed across all rating categories, the cost of maintaining an investment-grade rating no longer affords firms a significant cost advantage."

So you can spend hours convincing S&P you're a really good flutter, lard on much less debt than you'd ordinarily be inclined to do, and still borrow at an only slightly cheaper rate than the Leveraged To The Gills Financial Engineer. Demand for slightly riskier assets from non-bank lenders (hedge and other funds, mostly) has pushed down the price, or interest rate, of this debt.

Because ratings agencies have a certain amount of influence over the assets that many financial institutions buy, as well as, sometimes, their regulation, getting rated "investment grade" used to open the doors to an enormous universe of cautious investors. The difference in size between the cautious and less cautious investors, though, is much less stark now.

Still, what S&P has slightly neglected is the difference in premium between different types of junk-rated debt. This has become very important. Unfortunately i don't really have the time to explain the arcane numerology that the agencies use, but they have grades within the junk category, and these do confer different pricing benefits. If debt market liquidity holds up at near these levels, ratings agencies, as well as the general financial community, may just want to recalibrate the junk category downwards.

Friday, May 25, 2007

Big Business Is Not Your Friend. If It Was a Flavour It Would Be Pralines And Graft

Short story in today's Media Guardian looking at the BBC's coverage of business stories. Turns out that in the race to make business stories relevant to the dwindling audience for news, stories have been subjected to a sustained pro-consumer bias.

I''ve been spending a few weeks now having long, pointless, cosmic conversations with myself about the role of business in society. Most of these discussions, as you can tell, tend to degenerate into anguished howls about how poor business is in explaining its workings.

Still, I don't really think that slanting stories in favour of the consumer does much to redress the balance, because it keeps the focus on products rather than the workings of business, which should be spending much more time explaining its role in society, but doesn't have to because the terms of discussion of its role are much too limited.

Then there's the impulse to humanise business stories, a trait to which both UK and US outlets are apt to succumb. Well in the US it's almost an industry. This is just an impression of mine, but I''m fairly certain that TV journalists mete out much less tough treatment to business figures than to politicians (please refrain from saying that that is the politicians' fault):

However, an interview with Bill Gates on the 10 O'Clock News on January 30 this year was criticised for being "at times sycophantic in tone".

"We also agreed with witnesses that a number of BBC interviews with Stuart Rose, chief executive of Marks & Spencer, in January 2007 were too uncritical."

At this point I could say that more widespread stock market participation would be helpful. But I won't. I spent yesterday reading about how the quite astonishing and unsettling surge in Chinese stock markets is the result of small-time investors following their faith in lucky numbers.

Have a delightful holiday weekend. I'll leave you with one small piece of intelligence on our ghastly Borough president. The arch-publicity-chaser appears to have forgotten that with great visibility comes great scrutiny, and this cheery little tourist officer will need to fend off insinuations that he's being "treated" by corporate interests.

Grumpy Fresh?

Er, thanks, Lumi, I guess...

Ramblin' Al Sadr Man

The main reason for getting into podcasts was, for me, the BBC World Service, still the perfect way to receive coded signals from MI6 in Vauxhall and catch up on all the earthshaking news that somehow escaped the attentions of NY1's producers. You get five minutes of all of the most important stuff, which lasts me about as far as the Seventh Avenue Subway stop, at which point we hand over to the Gods of Metal.

One of the items piqued my interest this morning. Moqtada Al Sadr and his bulging eyes have been in hiding the last few months. But he's back. Where had he been? There are two schools of thought. Either he's been in Iran a bit of the time, or a lot of the time.

On the one side we have the New York Times, which headlines its article "Shiite Cleric Appears in Iraq After Stay in Iran", and gives the project the following opening paragraph, which is a little more cautious:

The powerful Iraqi cleric Moktada al-Sadr surfaced in his home base of Kufa in southern Iraq today, delivering a sermon in a local mosque after what American intelligence officials called a four-month sojourn in Iran.

But then jumps right back in:

The cleric had left for Iran after the Bush administration announced its new security push in January, and his militia immediately went underground, in an apparent effort to outwait the Americans and avoid a head-on clash. Members of his political party, however, say he never left.

On the other side we have the BBC, with "Iraqi cleric back in public eye", and the following quote from a follower:

A senior aide to Mr Sadr told the BBC that he had left Iraq over fears for his safety and made a regional tour, including a trip to Iran.

So we don't really know. There are a number of reasons why it would suit Us intelligence sources to point to Iran as his host, either because they think, rather wistfully, that it might make him less popular, or because it would provide a marvelous casus belli for all those aircraft carriers cruising up and down the Persian Gulf. Al Sadr's people have slightly less reason to fib, although the BBC and NYT both seem to acknowledge that his hold over his supporters has become a little weaker.

The man who might be able to get something reliable on this is concentrating on the Democrats in DC right now.

Either way, the man's clearly warped into the Scarlet Pimpernel of Iraqi politics, or possibly the Lord Flash

Thursday, May 24, 2007

Publicly Limited By Scrutiny

I've been having a love-hate relationship with listed companies for some time now. My day job involves looking at investments in infrastructure with incredibly long useful lives, and long-term returns. I'm sometimes asked to recommend interesting stock tips, usually demur, and am then chastised anyway when some hot tip in an industry with which I'm familiar tanks.

The point of stock exchanges is to price and allocate capital most effectively. They can be volatile, seemingly irrational, focused on the short term, and all the critiques that your typical leftist might fling at them. We tolerate them because they've enjoyed a pretty good record in fostering economic wealth.

Take utilities. Please (Ba-dum-chah!). There are some very good arguments that the monopolies providing water and power using proven technologies have little business subjecting their cost of capital to the vagaries of public markets. Yes, management can try and squeeze operating efficiencies from labour, capital, the very wires that carry your power. But these savings tend to be fairly small, and not worth the disruptions of public listings.

[You should note that I exclude from the above - tentatively - toll roads and other bits of transport, and telecoms networks, on the grounds that these do face competitive pressures, and exhibit a fair amount of potential to benefit from technological progress]

But listed companies can, and do, produce results exceedingly pleasing to capital markets, yet exceedingly destructive to society at large. One way to rein in this destructive behaviour is to use regulations of varying degrees of complexity and application to enforce better behaviour.

Sometimes exchanges can be enlisted in this effort, either through shareholder lawsuits or through the disclosure requirements that a public listing brings. I happen to think shareholder lawsuits are a good thing (sorry, Felix Salmon), because sometimes only a good lawsuit is enough to scare the bejeezus out of poor management. Exhibit A is in this post from the Epicurean Dealmaker on the EGL takeover battle, and the salutary effect of Apollo's lawsuit. Exhibit B will arrive when mounting shareholder lawsuits force the NYT and Dow Jones managers to stop being this weird mixture of precious and incompetent.

But the disclosure bit I like especially. I'm biased of course, because corporations' willingness to disclose more of their business activities makes my job much easier. It also allows you to read the juicy details of the above nasty takeover battle at EGL. It's a trade-off. A business gives up a little of its always-precious privacy in return for the liquidity that a public listing brings.

What what if you could invent an exchange that only fabulously wealthy institutions could join? Goldman Sachs just done that. Now, I'm trying incredibly hard to keep the class-war rhetoric out of this, but the GS TRuE exchange and others like it are signs that there now exist family offices (the investment arms of wealthy individuals and families), and other pools of unregulated money that could together constitute sufficiently liquid markets for corporations to raise capital without any oversight at all.

I'm not happy about this for a couple of reasons. Firstly, I cling to this very old-fashioned view that corporations and their management enjoy certain privileges not afforded to individuals, and that public listings are one of the most effective ways (regulations be damned) to bring their activities within the public purview. The second thing is that a large number of smaller investors and smaller analysts can perform valuable oversight, to borrow from, um, Instapundit.

All I need to do is to more generally decry the habit of taking companies private, realise that this includes privately founded companies, and I'm right in the middle of an argument about the rights of society against those of the individual.

But it's a strange place to be. Just as the surge of interest in taking companies of stock markets reaches a crescendo, I realise that public listings aren't that bad after all.

so you'll be amused to know that this little epic post has taken me so long that all of the amusing links I dug up have since been blogged comprehensively elsewhere. Still, it's a start.

Wednesday, May 23, 2007


The Other Brothers
Originally uploaded by Gringcorp.
No, there hasn't been any earthly reason for the poor rate of posting of late. There's been plenty to mull over, plenty to discuss, and plenty upon which to pontificate. I've just been in a slight funk. Not in enough of a funk to stop commenting, applying for jobs, or even writing columns for good old Sugarzine.

Things that have happened recently, about which I feel guilty for not writing, many of them Atlantic Yards-related:

1) So Marty Markowitz is not really a very nice man after all. Well, I knew that, you knew that, and presumably now only the truly high watching NY1 in the morning will now not know that.
2) There have been a couple of recent reminders that the "Great Brooklyn Brewery" has not brought Mr. Hindy to his knees. And some sneering. Let's just say it again. There's something profoundly disturbing about a small-scale brewer with strong community ties cheering on the destruction of that community. And our little effort to deny ourselves the pleasure of his wares was a reminder that many in this community don't like that. Considering how little the broader polity of New York know about the project it's unsurprising that the boycott has stayed local. (Bonus Hindy fact: he was a moonshiner in Saudi Arabia when he was posted there as a reporter. The authorities used to blame them for bomb attacks on expats before it became rather obvious that the place was riddled with Islamic militants)
3) Leveraged buyouts! Hedge funds! Lists of obscenely rich people posing as serious financial journalism. I have a feeling that the weirdest thing about this gilded age is not that it caused Tom Wolfe to lose his touch, but that there hasn't so far been a nasty little backlash. Globalisation and increased job insecurity don't explain this all.
4) Amy Winehouse. All of Elvis' worst traits. In a girl from North London. Which means some additional ones as well.
5) Brooklyn real estate. I've been horrendously immersed in this subject. Let me just say. Sometimes there is an Atlantic Yards effect, sometimes there isn't.

Right now I'm mulling taking this blog legit, or starting another one, and focusing more on business writing. If you think that's because I want to use it as a shop window, you'd be damn right. We'll see.

Monday, May 14, 2007

The Beer Mobile

The Beer Mobile
Originally uploaded by Gringcorp.
Posting has been light, a victim of the monthly day job publication cycle. After a full afternoon spent scouring the city for some gifts for Mrs. Cutesome (Sample quote, from a Russian sales clerk at Saks Fifth Avenue, "No, we do not have that. This is a luxury goods store. Maybe you should try Macys") I spied a beer truck on my own block.

And it belonged to my new favourite brewery. Since I no longer drink Brooklyn Lager, I have become increasingly fond of Sixpoint's beers. I even went to the brewery to do a tour the other day. Very good it was too, and I was very close to writing about it on a professional basis, but nothing became of it.

Still, I'd love to know what their van was doing on my own block yesterday, and what I could do to procure a keg from them.

Tuesday, May 08, 2007

Where There's Farts There's Cash. Or Not.

More grown-up posting, which the header vainly attempted to belie.

I probably should hold off from writing this till tomorrow, since I'm a couple of scotches to the better, and trying simultaneously to clear my RSS, take in MC Will E.P.'s strange found sound experiments, and work my way through this New York Times article on carbon credit projects in emerging markets. But it's bugging me mightily.

Projects in developing countries that reduce or displace emissions of carbon dioxide are rewarded with certified credits that polluters in developed countries can buy to illustrate their commitment to fighting global warming, or, more likely, because they'll be fined if they don't reduce their reductions or buy sufficient credits to outweigh them.

I won't go into the whys and wherefores of the scheme right now, because I had a pretty incoherent stab at the policy a few days back. But I would like to look briefly at the rationale for the clean development mechanism, which says that we can bring cash and technology to less developed markets and reduce emissions in the developed world at the same time.

The Times doesn't set out the flaws in the system in a particularly linear fashion, partly because it spends a while doing the whole reporting and explaining and illustrating thing. But they can be laid out pretty clearly.

1) The list of developing countries was fixed ten years ago. Some have got lots more powerful (China, S. Korea), and some a little less (Argentina). So you get a snapshot of economic development of the same vintage as a Billboard chart ruled by No Doubt, the Spice Girls, the Verve, and Third Eye Blind (I know, urgh)

2) But there's an in-built flaw in the way the mechanism works, since the countries at the top of the pile, which have more dynamic economies and financial systems, are the best at developing projects that produce credits.

3) Moreover, your country can't just be rich and entrepreneurial, since in that case Nigeria, whose banks are swimming in almost as much cash as their Chinese counterparts, would be flinging money at its entrepreneurs and reaping tidy returns from credits. No, the host country also needs a relatively stable framework for supporting whatever the CDM project is doing, be it selling wind power, trapping methane from cows' bottoms, or installing sophisticated pollution control equipment at industrial premises.

4) Oh, and preventing carbon dioxide emissions is a mug's game, even though CO2 is the most common greenhouse gas by many multiples. It's expensive and time consuming. Better to focus on a nastier and rarer gas, like HCFC22, as the Times article notes. The returns are much better.

This set of barriers to poorer countries exploiting the system more effectively is almost built in. The CDM was set up as a militant market approach to global warming. The designers essentially said "I'm sick of pieties, I'm sick of half measures, let's go out and make a difference RIGHT NOW." Which is very dynamic and valuable, and the CDM does produce results quickly, jsut not equitably or on a particularly useful or widespread scale.

The CDM, while arguably a spur to the development of such technologies, has had a negligible effect on emissions to date, and is transferring wealth, via a network of carbon brokers, funds, and their financiers, to a group of countries countries that will very soon need to be brought within the system anyway, and fined for polluting and so forth. The less about the rewards to this group of middlemen the better, though I know that muscular capitalism is meant to be the virtue of this approach.

The CDM will need to be tweaked in such a way that someone, whether a foreign government, the World Bank, or another rich uncle, guarantees that projects in less promising countries, will produce their crop of credits. Because at the moment, the financing and expertise is going to countries that don't need them.

Thursday, May 03, 2007

Murdoch: Crazy Like A Fox

Lorks, it's been that kind of week. By which I mean a fairly uneventful one that I have spent alternately leaving troll-like comments on local blogs, working, and interviewing for other positions. Oh, and moonlighting. So I have been tremendously disloyal to my day job. But also to you. Yes you, the guy who came here looking for pictures of Molly Kroon.

In the circumstances, you may be wondering what I think of Rupert Murdoch's $5 billion bid for Dow Jones, and thus the Wall Street Journal, which is often named, usually by people that think newspapers confer absolute truths rather than serve their readers, as one of the world's top five papers. And here's your answer: to this bitter trade rag hack it's very, very, funny.

Mostly, it's funny because financial journalists in the US have been isolated from the kind of pressures that have afflicted their brethren in the UK. And Murdoch will probably treat them about as well as Bill O'Reilly treats his producers. I've come up in business journalism where job protections are minimal and commercial pressures substantial.

I still remember what happened when Rupert Murdoch took over the Times in the UK, which at the time had a very unique reputation as an establishment mouthpiece. It carried (actually I think it still carries) a section called "Court Circular", where the comings and goings of the royals were laid out in one convenient place. I had various crusty relatives who assumed it was their god-given right to space on the letters page, no matter how barmy they were.

After Rupe took over it became smaller, less fusty, a little more digestible. By the time I started taking a daily paper I'd switched to the Guardian, cos I'm a bit of a liberal these days. But the Times has managed to keep this kind of detached establishment centrism intact, while at the same time keeping the circulation at pretty healthy levels.

I think if Murdoch took over the Wall Street Journal you can expect an end to those witless dot drawings, possibly an end to those stabs at whimsy that appeared in the left-hand column of the paper before it shrunk and now hover awkwardly between the contents and the lead story, and definitely and end to the bad right-wing craziness being confined to the comment pages. You'll probably end up with a Daily Forbes, and a pretty enjoyable one at that.

Then again, it could be a gigantic head-fake, and Rupe really does need to buy himself a business news-wire. But I disagree with Lex, which seems to think that Murdoch is this unholy master of media convergence, largely on the back of him being able to make money in print and on TV, and buying MySpace, the world's most badly-designed Web 2.0 website.

Here's the thing. There are very few decent examples of profitable cross-over between his vast properties, beyond the usual cross-promotion that any respectable fast-food chain seems to master at birth. has an existence as a place for right-wing blogs to link to, but doesn't harness any other properties. American Idol isn't a bad example, a bit of web, a bit of mobile, a bit of TV, a bit of record business, but the constituent parts are mostly separately-owned.

What Murdoch does pretty well is apply his own, pretty raw, journalistic and editorial instincts, and force them down the throats of his staff. And he's amazingly good at it. If he is right-wing, it's because unsophisticated populism has mostly been right-wing the last few years.

I don't understand the victims of the New York Post's rants reading it, but that's because it doesn't push my outrage buttons. I'm mystified by the amount of space it gives to Uri Dan gets there, most readers probably don't notice. I'm not saying I'm a better person than the faithful readers of the NY Post, I'm just not a hugely profitable demographic. But sooner or later, it will take down the NY Daily News, and Rupert will have had the patience to see it through.

He'll make a bundle out of the Journal too, and you'll hate him for doing it.

Now if you want some proper journalism, head over to Sugarzine, where you shall find me entertaining various far-fetched notions of musical development in our two great nations. Yes, I know, the hyperlinks aren't fixed yet.