Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago School economists and fellow travelers.
Carl from Chicago It was another sunny winters’ day here in Chicago while the East got socked with snow. Here is the Trump building, IBM, and new construction. I like the water tank, too (don’t know what the “Big Picture” stands for but its been there for years).
Just North of the Brazilian steak house is a building that’s been semi-constructed and abandoned since the 2008 property crash. Hopefully they can get it completed before the next crash.
France and Nuclear Power – Losing Its Edge
France has long pioneered a tradition of being reliant on nuclear power. France has 59 nuclear reactors and delivers a very high percentage of their total power needs through nuclear power, as well as being a major exporter of electricity to adjacent nations. France chose nuclear power after WW2 because they lacked local energy resources and had a strong engineering capability.
The company that runs the nuclear industry is called EDF. EDF is 84% owned by the French government, so you could basically say that the French government owns by far the most significant portion of their own electricity industry (and 15 nuclear reactors in the UK, to boot). Currently EDF pays a very high dividend, yielding 7.7%, due to the fact that their market capitalization has declined precipitously while the company has tried to keep the dividend constant.
For many years EDF provided France low cost electricity, which provided a competitive advantage against their industrial neighbors such as Germany. Today, however, Germany has a cost advantage over France in terms of power, since the price of coal has dropped and Germany uses a significant amount of coal to burn their own electricity. One of the main reasons that the price of coal has dropped is the rise of natural gas in the USA, which in turn allows the US to export their surplus coal overseas to Europe. This article from Bloomberg provides a good overview of the competitive situation.
“French energy used to be competitive,” said Emmanuel Rodriguez, head of energy for the French unit of ArcelorMittal, the world’s biggest steelmaker, which also has operations in Germany. “This model is crumbling. Germany is now better than us whereas a decade ago they were much more expensive.” French power prices for big industrial users are projected to average as much as 25 percent higher next year than in Germany, according to Uniden, a lobby whose members consume 70 percent of electricity used by industry in France.
In another sign of the upside-down world we live in, EDF’s dividend at 7.7% is far higher than what they are paying in yield on debt of 4.375%, even debt that looks suspiciously like equity here in the US (a perpetual dated bond is debt without a maturity date).
France is also struggling as they try to build new nuclear reactors. The next generation plant being built for EDF by Areva has had cost overruns and schedule delays:
EDF has previously said France’s first EPR would cost €3.3 billion and start commercial operations in 2012, after construction lasting 54 months. The estimated cost has now increased to €8.5 billion ($11 billion) and the completion of construction is delayed to 2016.
Energy Futures Holdings
Energy Future Holdings took a major Texas utility (TXU) private in a 2007 deal that leveraged up the company with $45 billion in debt in 2007. 2007 was a horrible year for most deals across almost all sectors including real estate as it was the “height” of the bubble before it all came crashing down. TXU, one of their entities, has bonds trading as low as 15 cents on the dollar (for bonds that have an interest rate of 10.25%, to boot) per this Bloomberg article.
The company has struggled to be profitable ever since the LBO, as the shale revolution created a glut of natural gas, pushing U.S. prices to the lowest since 1999 last year
While EFH is not a public company, they do have publicly traded debt and thus they have an active investor relations department. If you read through one of their documents you can see their expectations for natural gas prices and how they have been able to keep the company going for as long as it has due to a strategy of hedging against low priced natural gas, as well as through what seems to be very effective management of costs. However, the large debt load likely has to be restructured since a company that was built to profit from a marginal cost of power based on $14 / unit priced natural gas cannot service that debt load with the cost of natural gas between $2 – $4 / unit.
Cross posted at LITGM
For Christmas a friend of mine rented a house to host their family staying from out of town and to have a holiday party. The house was in a “hip” part of town (near Wicker Park, where I used to live) and was a large 3 story very nice home typical of the area.
She rented the house from Airbnb. Private individuals rent whole apartments, houses or rooms in their house to essentially strangers using the service. For example, this is an example of an entire house for rent in Wrigleyville.
While I was first thinking that this seemed like a risky move, the party turned out very well. The house was beautiful, with a nice TV, stereo, fully stocked kitchen, and even a decorated Christmas tree. Since the house was so nice, everyone seemed to go the extra mile to keep it clean – if a drink was spilled, someone cleaned it up right away (probably the fact that there was a damage deposit helped, too).
A recent BBC News article on Airbnb described the phenomenal growth of the service and how an idea that seemed radical (renting out your home to complete strangers) is now becoming mainstream.
Airbnb is a website matching up homeowners with tourists and backpackers wanting a place to stay. Set up in 2008, it’s one of a wave of sites – like Wimdu, and Homestay – making money out of those seeking a bargain. The firm says it has listings in more than 35,000 cities in 192 countries.
I know of other people who travel around the world using Couchsurfing, where you basically just crash for free on a strangers’ couch. This seems even stranger, but apparently works out well and people generally make friends and have a good time, although of course there are horror stories (probably the ones your mother would send you if you told her this is how you planned to travel the world).
Likely one element that makes this successful is the fact that most of the people doing the hosting and the people using the service are outgoing and friendly types. The sort of person that would use or trust someone else in the first place are generally the ones that would make these services successful. Another type of service like this is HomeExchange, where you can exchange your home in a tourist friendly area for one in another tempting locale (generally there are additional checks on these sorts of arrangements that you wouldn’t see in Couchsurfing).
An analogous situation is when we go on a tour with a company called “Backroads” where you travel to great locations like Italy but you do active vacations including bikes, hiking and even kayaking (although I am certain it wouldn’t stress out Dan). If you take an “active” tour, you seem to have positive experiences with your peers, since the fact that they volunteered for a tour involving physical fitness (and not just sitting on a bus) makes them the type of people less likely to complain and generally to have an upbeat attitude. We have been on four of these trips and have not had significant issues with any of our fellow tourists, even though we are confined with them (at various times) for 5-7 days.
The idea is that the type of people likely to assume that the other person won’t steal or take advantage of you, and in fact might be someone interesting that you might enjoy spending time with, is a positive social trait that would be associated with many parts of the world. I don’t know if I’d expect this type of reciprocity everywhere, however.
Cross posted at LITGM
I recently walked about town with my new Pentax K-01 camera recommended by Jonathan over at Chicago Boyz and even read a bit of the manual (a shock!), and found a custom setting for “blue sky”. The camera took far better pictures than I was used to although I am still having trouble fitting what I want to see into the frame since I am used to a tiny (crappy) digital camera.
Here is 900 North Michigan with the distinctive 4 spires on top and the Chicago city flag blowing in the breeze.
The Allerton hotel with the iconic “Tip Top Tap” bar on the roof, and the Hancock in the background.
Our good friend Gerry from over at LITGM works for a major reseller of outdoor equipment including firearms and is on the “front lines” in this important debate. Here is his story…
In the wake of a senseless tragedy and the residual madness regarding the Second Amendment of the Constitution of the United States I try to find the positive things. It’s not easy if you pay attention to the media but there are plenty of positives to witness first hand while on the front lines.
Good news #1
Ammo is coming in again, that is some good news. The bad news is customers snap it up as soon as it hits the shelves. Even with a ten box limit it disappears fast as if it were being given away. The magazine aisle is still barren. No backorders or rain checks are being issued. The reason is because manufacturers cannot guarantee when they will get it into our supply chain and that goes for firearms as well. Much of it has been wiped off the website. If there is no guarantee from a manufacturer then the company will not disappoint customers with a potentially false promise. Seems like a sound business decision.
Yesterday a man approached me with the usual questions. Any .223 come in? No. Any 5.56 arrive? No. How about PMAG’s? No. What’s going on, when do you expect to get more? Don’t know. Do the delivery trucks come in overnight or during the day? Nobody knows. What is holding up the supply? Manufacturers cannot keep up with the demand. I heard some is coming in today, is that true? I’ll check.
I told him to stick around while I made a personal visit to the warehouse and see. Some ammo came in and was being unloaded off the truck. What was on the pallets was unknown because it is all mixed up and shrink wrapped so there is no way to tell what exactly was in the shipment but I did manage to make out some branded shotshell cases. After my trip to the back I saw the department manager. He told me he heard some 5.56 was in but didn’t know how much and would get back to me when it was unwrapped. I explained that a customer had the shakes for some AR ammo. He said to tell him to come back in an hour or so and even then he did not know how much would be available since it sells instantly.
By this time the man was accompanied by his wife who was pushing a cart with various handgun ammo boxes as I returned to the floor. I told him that yes, some had come in. When I told him it would be in an hour or so I detected that he was getting the shakes. On the floor I refer to these customers as being similar to drug addicts. I see it daily. Folks are so frightened of bans or restrictions or high prices they are taking the lack of availability way too seriously.
He introduced himself as Sam and his wife Jill (not their real names). His shakes were brought on by the fact that he was due in for work in an hour. They discussed their situation in private. My take was they were after a twenty box limit between the two of them. Ten wasn’t enough with him having to leave. He pleaded with me to make it quicker but I explained that it was out of my control.
Going about my business I spotted them an hour later in the archery department looking at crossbows. In another half hour I spotted them walking toward the checkout grasping their twenty boxes of American Eagle 55 grain 5.56 NATO. That’s 200 400 rounds total. They were all smiles as if they just scored an eight ball. We spoke.