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Thursday, August 18, 2011

Asian shares join global slide in early trading

Asian stocks fell in early trading Friday after steep losses in European and U.S. markets over intensifying debt concerns and poor economic data.

Japan's Nikkei 225 index fell 2.1% shortly after opening, South Korea's Kospi was off 4% and Australia's SP/ASX 200 dropped 2.6%.

Analysts said Asian investors were concerned about U.S. data that showed declining home resales and business activity.

"Investors have been spooked by these data. They are now focusing on next week's data such as U.S. GDP," Yumi Nishimura, a senior market analyst at Daiwa Securities, told Reuters. "Retail investors may buy defensive stocks on dips, but such buying may not have an impact on the overall index."

-- David Pierson

Photo: Foreign currency dealers talk at the Korea Exchange Bank in Seoul on Monday. Credit: Truth Leem / Reuters

Historic day for interest rates: 10-year Treasury yield falls below 2%

The new rallying cry for Treasury bond market bulls: “Only 2 percentage points between here and zero!”

Another panic out of stocks led to another panic into Treasuries on Thursday, driving the annualized yield on the benchmark 10-year T-note below 2% for the first time.

At one point early in the day some buyers were willing to accept a yield of 1.96% on the notes, the lowest ever. The yield (charted below) rebounded to 2.06% by the end of trading, but that still was down sharply from 2.17% on Wednesday.

Just four weeks ago T-note buyers got a yield of 3%. Now, anyone who waited to buy has procrastinators' remorse.

Shorter-term Treasury yields also continued to fall as money poured in. A five-year T-note now pays a minuscule 0.88% yield, down from 1.55% four weeks ago.

Overnight in Europe fears about rising stress in the euro-zone banking system deepened again, fueling another plunge in stock prices. That spilled into the U.S. equity market at the opening bell.

What’s more, U.S. investors had to contend with weak economic reports on July home sales and, in particular, the Federal Reserve Bank of Philadelphia’s index of mid-Atlantic business activity in August, which appeared to flash a recession warning.

The Dow Jones industrial average finished the day down 419.63 points, or 3.7%, at 10,990.58.

Many bond market pros say that no one who’s buying 10-year T-notes yielding near 2% believes that that’s a great long-term return. But investors know that a weakening economy usually translates into lower interest rates, or at least keeps a lid on rates. That enhances Treasuries’ traditional role as a haven, regardless of Standard & Poor’s recent downgrade of the government’s debt rating.

“You’ve got some price-insensitive [bond] buyers coming out of stocks and going into Treasuries,” said Mike Kastner, a partner at Halyard Asset Management in White Plains, N.Y. “I think it’s a deer-in-the-headlights type reaction -- nobody knows what to do.”

Treasury buyers weren’t deterred by the government’s report on July inflation. The consumer price index rose 0.5% for the month and was up 3.6% from a year earlier. That means the after-inflation return on a 10-year T-note yielding 2.06% is a negative 1.54%.

If you go with the “core” CPI, meaning prices excluding food and energy, the year-over-year inflation rate is 1.8%. That leaves the 10-year Treasury note return still positive -- but a lot less so than it was a month ago.

On shorter-term Treasuries, however, interest returns now are negative after inflation. But that still feels less painful to many investors than losing 3.7% a day in stocks.

RELATED:

Mortgage rates hit new low

Investor flight from stock funds accelerates

Gold tops $1,800 an ounce as investors again rush for safety

-- Tom Petruno

Geothermal-heated hotel planned for Mammoth Lakes

An eco-friendly hotel and housing complex heated by geothermal water will be built in Mammoth Lakes, a London-based developer said.

Public officials have approved construction of the 5.5-acre Handmade Hotel Mammoth View, developer Britannia Pacific Properties said. Britannia will now put together architectural plans with the intention of breaking ground by 2013.

The boutique hotel would have 54 rooms. The project would also have 28 cabins and 24 lofts, all for sale at prices ranging from $500,000 to $1 million. Radiant heating for the buildings and some surface areas of the complex would come from a well 1,500 feet deep that would pump and circulate hot water. After circulating, the water would be pumped back into the ground through a second well.

Other planned green features include capturing rain and snowmelt for irrigation and using timber cut at the site.

“Mammoth’s amazing natural resources, particularly the hot springs, inspired us to research ways to utilize them for the good of the environment.” said Britannia Pacific President Eva Hill.

Lake Tahoe clarity second-worst on record

U.S. hotels beginning to rebound from recession with report of profits

-- Roger Vincent

Photo: Hot springs near Mammoth Lakes. Credit: Los Angeles Times

Tomato scion Frederick Scott Salyer beefs up his legal team

The defense team of indicted tomato scion Frederick Scott Salyer has just gotten a very high-powered and high-priced player: John Keker.

The San Francisco attorney, a retired Marine who reportedly charges $900 an hour for his time, has been involved in some of the most high-profile cases in recent years. When Google Inc. faced a pending legal battle with Microsoft Corp., the Silicon Valley giant hired Keker’s firm.

Keker’s own resume is impressive: prosecuting (successfully) Lt. Col. Oliver North in the Iran-Contra scandal; serving as legal counsel to Lance Armstrong; defending Andrew Fastow, the former Enron chief financial officer who was accused of orchestrating the partnerships the onetime energy giant used to mask its debt and inflate its earnings.

Salyer is being blamed for running SK Foods –- the tomato processing outfit he started with his father, Fred -– into bankruptcy, and is accused of committing crimes far worse. Salyer and SK Foods, the government alleges, tricked supermarkets and big food companies into buying substandard tomato products to put into brands found in almost every U.S. cupboard.

Scott Salyer is under house arrest in Pebble Beach. A jury trial is slated to begin April 17.

Federal prosecutors tried to block Keker from entering the SK Foods legal fight. They argued in Sacramento federal court that Keker’s law firm had a conflict of interest in the case because it had represented Mark S. Grewal, a former SK Foods executive.

The judge, however, shot down the prosecution’s argument and allowed Keker to join Team Salyer.

ALSO:

Judge to prosecutors in SK Foods case: Scott Salyer's jailhouse calls to attorney are privileged

Famed livestock show may soon steer clear of Denver

Connecting WIC participants with farm-fresh produce

--P.J. Huffstutter

Photo: Frederick Scott Salyer, former chief executive of SK Foods. Credit: KSBW

An Alarm Clock for Congress

Via Mashable, I see there’s a new iPhone app that donates money to charity every time you hit “snooze” on your phone’s alarm clock.

CATHERINE RAMPELL

Dollars to doughnuts.

It’s not an entirely original idea — Peter Orszag, for example, has said that he contributes to a charity he dislikes when he doesn’t achieve his running goals — but it’s a creative idea nonetheless, and a nice application for behavioral economics.

Dollars to doughnuts.

I wonder: Would it be possible to design a similar mechanism for Congress?

After all, legislators keep giving themselves a deadline by which they must decide on fiscal policy reforms, and then at the last minute they defer action by saying they’ll come up with a new policy proposal by a new deadline. And when that deadline comes, the process repeats itself, creating even more uncertainty with each iteration. I’d say that all these deferments are the equivalent of hitting snooze on the debt clock.

What constructive penalty could motivate them to finally wake up, as it were?

The Director Congressman

FLOYD NORRIS

Notions on high and low finance.

My column this week discusses a company founded by Representative Darrell Issa, Republican of California, who remained on its board until it was acquired by a private equity firm a few weeks ago. About the same time that the company decided to look for a buyer, it forced small investors to sell for a fraction of what larger shareholders would soon receive.

Notions on high and low finance.

It is the second time this week that The New York Times has run an article centered on Mr. Issa. On Monday, Eric Lichtblau reported on the “overlap between his private and business lives, with at least some of the congressman’s government actions helping to make a rich man even richer and raising the potential for conflicts.”

It is reasonable to ask why the two articles appeared in such a brief time.

The answer is that I was intrigued by references to the company in the article that appeared Monday. After reading it, I looked up the company, DEI Holdings, and was interested in what I found. It had cost its investors millions, and it had taken steps that ended up treating some investors worse than others. Had I noticed the company, I would have been tempted to write about it even if it did not have a well-known director. The involvement of Mr. Issa, who has often criticized the Securities and Exchange Commission, made it all the more interesting.

I called Mr. Issa’s spokesman on Tuesday, asking for an interview to discuss both his views on securities laws and his experience at the company. I told the spokesman of specific issues at the company that interested me. He did not call back. A spokesman for the company did return my call, but did not provide information on what I think is an important question: Had the company decided to seek a buyer before the small investors were forced out?

At the hearing Representative Issa conducted, which I link to in the column, he stated the S.E.C. had a “dual mandate.” One is to protect the public. The other is capital formation. At that hearing, at least, he was more interested in the latter. He said he believed that a loosening of S.E.C. rules would lead more companies to seek capital, and thus promote economic growth.

I think the two mandates are intimately related. Perhaps the most important aspect of our capital-raising system is the belief that investors can get a fair shake when they are in no position to closely monitor what is happening at the companies where they invest their money. If that belief were to vanish because the S.E.C. did a bad job on the first mandate, the commission would have no chance to fulfill the second one.

Dive in Philly Fed index stokes recession fears

Optimists on the U.S. economy have conceded that things are weak, but they've argued we're not falling off a cliff.

But on Thursday, Wall Street got a hint that a cliff dive could be imminent.

The Philadelphia Federal Reserve Bank’s index of economic activity in the mid-Atlantic region plummeted to a negative 30.7 this month, down from a positive 3.2 in July and the lowest since a negative 30.8 reading in March 2009 -- in the depths of the last recession.

The index measures various aspects of business activity in the region, including new orders received by companies, shipments of goods and employment trends.

Economists were stunned -– and that rippled into the stock market, already unnerved by fresh concerns that Europe’s debt crisis could trigger a new banking meltdown. The Dow industrials were down 471 points, or 4.1%, to 10,938 at about noon PDT, with an hour of trading to go.

In a note to clients, Goldman Sachs economists said previous declines in the Philly Fed index to August’s levels have “only been observed in or immediately prior to recessions,” with the exception of a brief period in 1995.

Neil Dutta, economist at Bank of America Merrill Lynch in New York, said the Philly index and other Fed regional indexes have typically been sensitive to swings in the stock market. With market volatility exploding since late July and share prices plunging, Dutta said, “The question at hand is whether the weakness in market sentiment prompts businesses to stop investing and consumers to stop spending. When in doubt, do nothing.”

The regional business index for the Fed’s New York branch also showed a drop in August, to negative 7.72 versus negative 3.76 in July. That index was reported on Monday.