Why ask why?

By Christopher Briem, on July 8th, 2011

Let’s see.  News from New York City is that their municipal pension funds are doing pretty well and were up over 20% over the last year.  I wonder how that compares to the City of Pittsburgh’s investment return?  Oh, nevermind. Does not seem to be a question anyone cares about.

Actually, not to be completely dismal on all of this.  Pittsburgh’s pension system is rapidly approaching a transversality condition no doubt, but some also like to describe the state’s far larger pension systems as being equally at the precipice. Others just write off the city’s pension problems as just par for the course these days when it just isn’t comparable to even the worse off pension funds elsewhere. There actually has been a lot of work on public pension funding out of the University of Chicago of late.  Seems to me that if I were a Harrisburg apparachniki, I would find some less than horrible news in this graphic via the NYT based on the work of Professor Rauh. Pennsylvania is actually classified on the positive side of a notional benchmark of 80% pension funding.

Then again there is the City of Pittsburgh, which if we look sideways, use old data, conjecture some less than liquid assets and otherwise suspend disbelief we are likely closer to 20% than 80%.

Speaking of unasked pension questions.. I have seen no public update to this kerfuffle between the state and the city.  Just asking…



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Pittsburgh's energy boom

By Christopher Briem, on February 16th, 2011


Circa 1916 I should mention.  Though it does read much like the advertisement from our friend Mr. McKelvey. I saw some other ad similar to that recently, but forgot to grab it to make a copy.

Radium, by the way, was selling for $70,000 per gram at one time around then.  That’s nominal, so work it out.  Some say radium was first produced commercially here in Pittsburgh. That $70K price dropped by $50K one day when someone found radium in the Belgian Congo.  I think that would be considered a bad day on the market.

Back to the present, it’s not too hard to find folks pitching Marcellus Shale for various forms of investment.  Looks like ebay is a forum for the pitch.  Nothing new in that ad, we’ve caught these before, but this one is a bit more interesting.  If you read that ad, it clearly says “no surface rights” and the location is in New York state, though the seller is in Pennsylvania.  The ad never mention that New York has a pretty complete moratorium on Marcellus Shale drilling.   It does add the nice map of the Marcellus field though.  As best I can tell, this property is near the edge of the field as marked on that map.  I originally thought it was a joke since the ebay ad starts with “Gasland!”, but I take they never saw the documentary.

I am sure someone knows better than me, but I am pretty sure there is leasing activity in New York State, but I bet a lot of the payments are contingent upon NY state changing the law to allow the development to proceed.  So that ad I am guessing is someone trying to make money selling their rights and actually get cash now…  Assuming someone realizes that, by definition a speculative play.



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Marcellus Watch

By Christopher Briem, on January 17th, 2011

So there is and isn’t lots of Marcellus news floating around.  A lot, but most has been written before in other formats…. but on it goes.

Trib has today: Low natural gas prices no boon for shale.  PG had related article yesterday: Shale gas affecting industry’s pricing

Yet Forbes has this: Chesapeake Could Be $30 Stock, Shale Reserves Are Huge

Yin and Yang?

On the state of Pennsylvania policy on this, really worth a read is this from the (Towanda-Sayre) Daily Review:  Sen. Yaw introduces Marcellus Shale legislation.  Note the section on the proposal for the state to merely ‘allow’ localities to use value of reserves is calculating property value and property taxes.  If the MSC was mad at the city of Pittsburgh, they must just hate anyone proposing anything like that.

Why would localities ever want property tax to reflect shale value?  Well, it looks like some Pennsylvania counties are having a hard time even funding their state-mandated hazmat teams.  No growing need for those I suppose.

Beyond PA wassup?

Industry exec in Dallas says: Natural gas prices’ wild ride is over, Atmos Energy chairman says

Speaking of Dallas… everyone likes to tout how Fort Worth is an American city that allows drilling inside its city limits.  Nobody ever mentions how much less dense Fort Worth is than say Pittsburgh. But what I didn’t realize is that even if Fort Worth is ok with it all, Dallas isn’t.  Few mention that.

Marcellus drilling is extending into Maryland.

and while virtually nothing is impeding Marcellus Shale drilling in Pennsylvania, New York continues its virtually complete moratorium.  Here is a quote in a Buffalo News story yesterday:

“It’s so frustrating, losing people to Pennsylvania,”

Just to begin with.  Think about that statement some next time you hear folks talk about the bad business climate in Pennsylvania.  Is the economy in North Central PA booming compared to upstate New York? It’s not quite obvious in unemployment stats.   We will have to keep an eye out if any migration stats ever back that claim up.  Do the movement into man-camps count though?

Speaking of Pennylvania and policy.  Johnstown Tribune Democrat the other day: State officials are no-shows for Marcellus forum

Anyway… just doing my bit to keep the social media consultants employed.. if there are no blog comments on the whole Marcellus thing, the contracts may not continue.  If you ask my thoughts on some of it, the price of natural gas is really the center of it all. And if you have been around long enough you know that few folks who claim to predict future energy prices ever ever get it right.  Dire warnings of price escalation have been followed by price collapses and stable periods have seen spikes appear out of nowhere. The emergence of Marcellus Shale is itself just one small (or huge dependng on your perspective) datapoint in the unpredictability of energy markets.  I used to love talking to the small energy derivatives desk at Lehman when I was there…  then one day out of the blue they were all let go.  Why?  The energy markets in the very early 90’s were so stable that it just wasn’t an easy play to make money off of… especially when you had all these other fun new derivative markets exploding.  Note the use of the term ‘explode’ probably changes in that context over the coming years.

In a sense there is a huge speculation going on in all energy development in that it depends.  Here we are in the middle of a cold-enough winter and generally speaking natural gas prices are below the basement of the range of prices most natural gas developers were pitching to their investors.   You would think something has to give.. Then you hear others say things like “Prices are at 15 year lows” with the implication they will rebound. Lots of money has been lost waiting for that reversion to the mean to eventually set in. The belief that prices will eventually have to revert to what their long term trend or pattern has been is the logic fundamentially that first did in LTCM, and later much of the CDO market.

For the intermediate term.. Natural gas is not quite like other commodities. I think I will agree with Duquesne’s Kent Moors who has an article on “seeking alpha” where he points out that the issue is storing the gas.

Then there is coal.. gotta talk about coal.  Later.



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Biz Friendly Pennsylvania

By Christopher Briem, on December 22nd, 2010

I need to apologize.  I have been harshing on the Marcellus Shale Coalition for their loud calls for boycotting the City of Pittsburgh and asking why they do not engage in similar tactics with New York State which has a much more extensive moratorium on Marcellus Shale development.  Yet, I guess I was wrong to a degree.  According to this story out of Albany, it sounds like the shale industry is in general attacking New York as well.  The money quote (literally) is:

“New York was the butt of many jokes by speakers involved with Pennsylvania development. One thanked New York for sending all of the investment capital to Pennsylvania.”

Wow.  “Sending all of their investment capital to Pennsylvania”.  How often do you hear folks proclaiming how business or investment friendly Pennsylvania is?  I’d get some of these people doing commercials for the next Pennsylvania economic development marketing campaign.  Like Jeff Daniels does for Michigan.

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Pittsburgh Past. Pittsburgh Future?

By Christopher Briem, on November 16th, 2010

Required reading in itself is Harvard’s Ed Glaeser latest in City Journal: Start-Up City Entrepreneurs are the heroes of New York’s past and the key to its future.

What I caught first was the reference to former Pitt Economist, the late Ben Chinitz, and his thoughts direct from his seminal work. Contrasts in Agglomeration: New York and Pittsburgh, American Economic Review, Papers and Proceedings, Vol. 51, 1961, pp. 279-289.   Read Glaeser on the crux of Chinitz’s argument desribing where Pittsburgh was 50 years ago:

Fifty years ago, the economist Benjamin Chinitz used the apparel industry to compare New York City, which then seemed like a model of small-scale entrepreneurship, with Pittsburgh, a city of massive steel companies. “My feeling is that you do not breed as many entrepreneurs per capita in families allied with steel as you do in families allied with apparel,” Chinitz wrote. “The son of a salaried executive is less likely to be sensitive to opportunities wholly unrelated to his father’s field than the son of an independent entrepreneur.” Few economists would use the word “breed” today, but Chinitz’s hypothesis remains legitimate: a vast industry of small-scale entrepreneurs leads to the development of entrepreneurial skills, which are used in other industries and also passed along to children.

Measuring entrepreneurship is one of those nearly mythical metrics we talk about far far more than we can really generate meaningful numbers for.  When it comes to Pittsburgh people seem to talk as if the entrepreneurial climate in Pittsburgh has improved in the half century since Chinitz wrote the article referenced above. Yet most measurements of entrepreneurial activity in Pittsburgh have never shown much improvement at any time since when Chinitz wrote. If you accept that observation as a premise it begs a big question?  Are our perceptions correct?



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N.Y. Manufacturing Accelerates into the New Year

By Eldon Mast, on January 18th, 2010

The New York Federal Reserve’s Empire State manufacturing survey report released on Friday indicates accelerating December-to-January growth in the New York region. The general business conditions index rose signficantly from 4.2 in December to 15.92. (any reading above zero indicates month-to-month growth; the larger the number, the faster the growth).

The new manufacturing orders index also shows accelerated improvement, jumping to 20.48 vs. December’s 2.77. Manufacturing shipments, which follow new orders, rose more than 12.5 points to 21.

Tim Ghriskey, CIO of Solaris Asset Managment observes, “These were significant increases across the board in the N.Y. region and expectations about economic activity remain very positive here in New York.”

You  may remember that earlier last year Alcoa highlighted a great sucking sound lurking just below the N.Y. Empire Index.



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