California muni bond deal sees light demand from individual investors

A steep drop in interest rates on tax-free municipal bonds this year has curbed individual investors’ appetite for a new California debt offering.

The state’s brokerage network took in orders Friday and Monday for $640 million of a $2.5-billion general obligation bond deal offered by Treasurer Bill Lockyer, his office said late Monday.

By contrast, individual investors put in orders for nearly $1 billion of bonds at the last such offering, in November.

The difference between then and now: Market yields on California muni bonds have fallen sharply, pulled down by the slide in U.S. Treasury bond interest rates this year and by the relative calm in the muni market after a major sell-off last fall and winter fueled a spike in yields.

When it issued bonds in November the state paid an annualized tax-free yield of 4.23% on 10-year securities in the offering. This time around the state set the preliminary yield on its 10-year bonds at 3.17%, more than a full percentage point less.

The state is offering 4.80% on the 30-year bonds in this week’s deal, down from 5.50% on 30-year bonds it sold in November.

The decline in rates is good news for taxpayers who will foot the bill for the bonds, which will refinance previously issued debt. But individual investors “are very wary of these yields being so low,” said Joe Lee, a muni trader at bond firm De La Rosa & Co. in L.A.

Because of its protracted budget woes, California has the lowest bond ratings of any state, at A1 from Moody’s Investors Service (tied for last place with Illinois) and A- from Standard & Poor’s.

The relatively light demand from individual investors means the state is more dependent on institutional investors, such as mutual funds, to buy the bonds. Those investors will put in orders on Tuesday, which is when final yields on the securities will be set.

Some investors may be shying away from muni bonds because of President Obama’s proposal to limit the amount of muni bond interest that high-earners can exclude from their taxable income beginning in 2013. The proposal would help pay for the economic-stimulus program in the jobs bill Obama sent to Congress earlier this month.

It’s not at all certain that Congress will agree to limit the muni tax exemption. Lockyer and other state officials already have raised objections, warning that the move could mean investors would demand higher yields on muni bonds, driving up state and local governments' cost of issuing debt.

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-- Tom Petruno

Photo credit: Makaristos

 

Grocery strike averted with Ralphs, Vons and Albertsons

Grocery union officials and negotiators for Ralphs, Vons and Albertsons have reached a tentative deal on a labor contract, a move that averts a strike that would have had more than 54,000 workers across Southern California walking off the job.

The negotiations between United Food and Commercial Workers officials and the three grocery chains, which stretched throughout the night and well into the morning, had grown urgent after a deadline for a possible grocery strike passed Sunday evening.

The contract covers an estimated 62,000 checkers, baggers, meat cutters and other grocery workers across the region, including those employed by Ralphs, which is owned by Kroger Co. of Cincinnati; Vons and Pavilions, owned by Safeway Inc. of Pleasanton, Calif.; and Albertsons, which is owned by SuperValu Inc. of Eden Prairie, Minn.

The contract also covers employees at other retailers, including Stater Bros. Markets, which are negotiating separate deals with UFCW’s seven area locals.

Details of the deal were not available as of 11:48 a.m. Monday.

The current negotiations hark back to 2003, the last time Southern California grocery workers and their employers faced a similar standoff over labor issues. The subsequent 141-day strike and lockout that began that fall left many union members with staggering debts. It reportedly cost the employers an estimated $2 billion and gave competitors an opportunity to step into the gap.

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-- P.J. Huffstutter

Photo: A man stacks placards as grocery workers assemble picket signs in Los Angeles in September. The placards will no longer be needed. Credit: David McNew / Reuters

Lawmakers want to question Solyndra investors about its collapse

Two House Democrats said Monday that they want to question investors in controversial solar panel manufacturer Solyndra Inc. about the company's failure.

Reps. Henry Waxman (D-Beverly Hills) and Diana DeGette (D-Colo.) wrote to the chairman of the House Energy and Commerce investigative subcommittee and asked that executives from two of Solyndra's largest private investors, Argonaut Private Equity and Madrone Capital Partners, be called to testify at a Friday hearing on the Fremont company or at a future one.

Solyndra Chief Executive Brian Harrison and Chief Financial Officer W.G. Stover Jr. are expected to testify Friday about the failure of the company, which received a $535-million loan guarantee from the Department of Energy in 2009 as part of the Obama administration's economic stimulus plan.

Solyndra filed for bankruptcy this month, igniting a political controversy because President Obama had touted the company as an example of a successful alternative-energy manufacturer.

Republicans charged at a hearing last week that the Obama administration rushed approval of the loan, putting taxpayer money at risk. They also said that the loan approval might have been influenced by large investments in the company by billionaire George Kaiser.

Kaiser was a major Obama fundraiser in 2008, and Argonaut is an investment fund operated on behalf of the George Kaiser Family Foundation. Kaiser has denied personally investing in Solyndra or talking to White House officials about the loan.

Another Obama fundraiser, Steve Spinner, helped monitor the Energy Department's loan program for renewable energy projects. But administration officials said Spinner did not have a role in selecting applicants for the program and was recused from the Solyndra decision because his wife's law firm represented the company.

"One important question for the committee to examine is whether there were sound reasons to make an investment in Solyndra," Waxman and DeGette wrote to Rep. Cliff Stearns (R-Fla.). "Some sophisticated and experienced private venture capital investors thought the answer was yes, and they invested over $1 billion in Solyndra -– twice the support provided by the federal government."

Stearns' office did not immediately respond to a request for comment.

Waxman and DeGette specifically asked for testimony from Steve Mitchell, Argonaut's managing director, and Jameson McJunkin, Madrone's founder and general partner. Both served on Solyndra's board and could provide "perspective on why Solyndra attracted so much private capital, Solyndra’s representations about its economic prospects, and the external factors that have been affecting the U.S. solar industry."

Madrone is linked to the Walton family, founders of Wal-Mart and large Republican donors. Argonaut invested $271 million in Solyndra, by far the largest private investor, according to the Department of Energy. GKFF Investment Co., also a vehicle of the Kaiser foundation, invested an additional $50 million. Madrone invested $37 million.

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-- Jim Puzzanghera

Photo: Solyndra Inc.'s Fremont headquarters. Credit: Associated Press

 

Treasury bond yields dive as market bets on new Fed buying plan

Another slump in global stocks is helping to drive investors back to U.S. Treasury bonds, sending yields sharply lower again.

Something else also is stoking demand for Treasuries: expectations that the Federal Reserve this week will announce a new bond-buying plan specifically aimed at pulling long-term interest rates lower.

The 30-year Treasury bond yield slid to 3.19% as of 11:40 a.m. PDT on Monday, down from 3.31% on Friday and the lowest since January 2009.

The 10-year T-note, a benchmark for mortgage rates, fell to 1.94%, down from 2.05% on Friday and nearing the recent generational low of 1.92% reached on Sept. 9.

Bond yields tumbled at the opening of trading after European markets took another drubbing on fears that a debt default by Greece is becoming inevitable. Europe’s unending woes then tripped Wall Street, which had rebounded last week. The Dow Jones industrial average was off 172 points, or 1.5%, to 11,336 at about 11:40 a.m. PDT, after rallying 4.7% last week.

The renewed pain in equity markets is boosting Treasury bonds’ role as a classic haven.

Bond buyers also are confident that the Fed will try to keep yields moving lower: Wall Street’s main bond dealers have been stockpiling Treasuries, anticipating that the central bank wants to pull longer-term yields down further.

Fed policymakers meet Tuesday and Wednesday. Many bond pros believe the Fed will conclude its meeting by announcing a plan to sell some of its shorter-term Treasury holdings and use the proceeds to buy longer-term issues, such as 10-year notes, over an extended period.

With short-term rates already near zero, the idea would be that the Fed could help bolster the economy by putting further downward pressure on longer-term rates. That could help pull mortgage rates lower (good for homeowners who can refi) and cut borrowing costs on long-term bonds issues by companies and state and local governments.

Whether it would make a big difference in the economy isn’t clear, but the bond market figures the Fed has little to lose by trying.

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Home loan rates drop again

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-- Tom Petruno

 Photo: The Federal Reserve Building in Washington. Credit: Karen Bleier / AFP / Getty Images

Amazon warehouse employees overheated ahead of holiday season

With the holiday shopping season gearing up, retail employees are preparing to work hard. But probably not as hard as Amazon warehouse workers.

At one of the online shopping giant’s Pennsylvania shipping facilities, employees say they worked in extreme conditions during a “brutal” summer heat wave, according to the Allentown Morning Call.

The heat inside exceeded 100 degrees, leaving workers –- at least one of them pregnant -- lightheaded and unable to breathe, according to the report. In June, 15 employees collapsed in one day.

But with a tight job market, with a long line of applicants ready to take their place, employees said they felt pressured to endure the heat. Several complained of being reprimanded and threatened with termination if they failed to meet productivity targets.

Amazon, they said, kept paramedics parked in ambulances outside for employees suffering from dehydrating or heat stress -– but expected them to cool down and return to work.

The company is now heading into the busy holiday season. During its peak day last year on Nov. 29, Amazon customers worldwide ordered more than 13.7 million items -– or 158 items per second. 

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Retailers' holiday hiring plans remain conservative

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-- Tiffany Hsu

Photo: Paul Sakuma / Associated Press

Gasoline prices remain far above 2010 levels

Retail gasoline prices are falling, but at rates that are difficult to notice, especially in California. Perhaps even worse for consumers during a weak economic recovery, the pump pain remains locked in far above the cost of filling up a tank a year ago.

The average price of a gallon of regular gasoline in California dropped just 1.6 cents a gallon in the past week, to $3.93, according to the AAA Fuel Gauge Report. A year ago, a gallon of regular would have cost $3.008. Nationally, prices were falling at a faster pace, down 6.1 cents to an average of $3.588 a gallon. But a year ago, the national average for regular gasoline was  $2.731 a gallon.

The AAA Fuel Gauge Report gets its averages from credit-card receipts compiled from more than 100,000 retail outlets around the U.S. by the Oil Price Information Service and by Wright Express.

Some analysts chose to view the price declines in the best possible light. Patrick DeHaan, a senior petroleum analyst at GasBuddy.com, where members report the highest and lowest prices they see, said, "It took the end of summer for a drop in retail gasoline prices, but I'm sure motorists won't complain that we're finally seeing some drops."

DeHaan added: "As we enter October we'll see markets slowly quiet down, with retail gasoline prices falling to $3.35-$3.55 on average by Thanksgiving, with the exception being typical hotspots on the West Coast."

But other experts noted that the price drops won't be enough to boost the confidence of consumers who remember what they were paying for fuel last year.

Under the heading "EXPENSIVE GAS," Monday's Jacob Gold newsletter for investors said: "American consumers spent $44.9 billion at gas stations in August 2011, up $7.7 billion from the $37.2 billion spent at gas stations in August 2010." Gold is president and chief executive of Jacob Gold and Associates, a wealth-management firm in Arizona.

In other energy news, crude oil prices were driven lower in early trading on fears that the European debt crisis would weaken demand for the commodity. The U.S. benchmark crude, West Texas Intermediate, was down $2.46 to $85.50 a barrel on the New York Mercantile Exchange. Oil prices are down 6.4% so far for the year.

The European benchmark, Brent North Sea crude, fell $2.56 to $109.66 a barrel on the London-based ICE Futures Exchange.

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Graphic: The AAA Fuel Gauge Report's 12-month rolling average for the price of regular gasoline in California and around the nation. Credit: AAA

Wall Street: Stocks drop on Europe worries; gold sinks

Stocks: Wall Street fell sharply in early trading Monday as investors worried that Greece's debt crisis is reaching a boiling point. At one point, the Dow Jones industrial average, which just posted its largest weekly gain in more than two months, dropped 184 points to 11,323. Gold: Trading down $27.20 at $1,787.50.

Obama: Investors were also weighing an aggressive pitch by President Obama to cut the budget deficit. His plan seeks to raise $1 in new revenues for every $2 in cuts, and to ultimately generate $1.5 trillion in new revenues through an overhaul of the tax code.

Housing: The National Assn. of Home Builders reported that its housing market index dropped to 14 in September, from 15 a month earlier. The data came in worse than expected, though the news was of little surprise to the markets, which barely budged after the housing numbers were released.

The Fed: Investors are also focusing on what the Federal Reserve might say on Wednesday at the conclusion of a two-day meeting. There's already some indication that the Fed and other central banks are taking some of the global economic woes a little more seriously, taking action last week to pump U.S. dollars into European banks.

-- Joe Bel Bruno

Photo: The Wall Street stop on the New York City subway system. Credit: Bloomberg

 

What Makes Teachers Productive?

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

If you watch the documentary “Waiting for Superman” or read Steven Brill’s “Class Warfare: Inside the Fight to Fix America’s Schools,” you will learn that many advocates of school reform think they know how to increase teacher productivity: Rate teachers according to their students’ performance on standardized tests and fire those who don’t make the grade.

But economic theory suggests several reasons why this approach will probably backfire.

Today’s Economist

Perspectives from expert contributors.

Scores on standardized tests are not an accurate measure of success in later life, because they don’t capture important aspects of emotional intelligence, such as self-control and ability to collaborate with others. The Nobel laureate James Heckman describes noncognitive traits as a crucial component of human capital.

Perspectives from expert contributors.

Indeed, research by the economists Eric Hanushek and Steven Rifkin — both advocates of school reform — indicates that neither teachers’ own test scores when they were students nor their educational credentials explain much of the variation in their students’ outcomes. Why judge teachers narrowly on a set of outcomes that are not even predictive of their own success?

The most highly promoted evaluation schemes statistically analyze year-to-year changes in individual test scores, yielding an estimate of teacher “value added.” This approach helps control for differences among students for which teachers shouldn’t be held accountable. Still, the results show a high level of random variation and high error rates. Teacher rankings often vary from class to class and year to year.

Too much pressure to improve students’ test scores can reduce attention to other aspects of the curriculum and discourage cultivation of broader problem-solving skills, also known as “teaching to the test.” The economists Bengt Holmstrom and Paul Milgrom describe the general problem of misaligned incentives in more formal terms – workers who are rewarded only for accomplishment of easily measurable tasks reduce the effort devoted to other tasks.

Advocates of intensified teacher assessment assert that current practices leave too many incompetent or ineffective teachers in place. But many schools suffer from the opposite problem: high teacher turnover that reduces gains from experience and increases the costs of personnel management. As Sara Mosle pointed out in a recent review of Mr. Brill’s “Class Warfare,” about 40 percent of teachers in New York City quit after three years.

Teaching is an increasingly demanding job. Yet its average weekly pay has declined in recent years compared with the pay of other college graduates. Sweeping budget cuts have led to layoffs and worsened working conditions. Teachers in some school districts in Texas are now assigned janitorial work.

In principle, “pay for performance” based on student test scores (rather than sweeping classrooms) could help attract better teachers. In practice, however, most people don’t know whether they will be good teachers until they have given it a try. New teachers need support, encouragement and mentoring to help develop their skills. High-stakes assessments that force them into competition with one another discourage collaboration.

In a fascinating study of the effect of supportive social networks on teacher productivity, Carrie Leana of the Graduate School of Business at the University of Pittsburgh found that both the amount of time that teachers spent talking to peers and teacher stability had positive impacts on student outcomes. In other words, the development of “social capital” contributed to the productivity of human capital.

All these economic factors help explain why Mr. Brill’s version of education reform should get a low grade.

Effective schools require effective teacher assessments. But efforts to improve educational accountability have a long history, thoughtfully analyzed in a new book, “High-Stakes Reform: the Politics of Educational Accountability,” by my University of Massachusetts colleague Kathryn McDermott. The most important lesson, she concludes, is not that we should stop trying to measure performance but should “resist pressure to oversimplify and reach for all-purpose carrot-and-stick combinations.”

If we want super teachers, we need to be super careful about how we assess them.