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Chile Turns to Retrieving Trapped Underground Miners Found Alive Yesterday - Bloomberg

Chile is preparing to start drilling a hole to retrieve 33 miners trapped in an underground mine for more than two weeks after they were found alive yesterday.
The first black and white images of some of the 33 men were shown on television news programs last night after rescuers made the first contact with them since an Aug. 5 tunnel collapse at the San Jose copper and gold mine in the Atacama region.
Authorities plan to pass food and water down the initial drill hole, keeping the miners alive until they can be retrieved through a larger hole that may be ready in three to four months, Andre Sougarret, who is heading the rescue operation, told reporters yesterday in televised remarks. They’ve survived for 17 days in a refuge 700 meters (2,300 feet) below the surface.
“The whole of Chile is crying with joy and emotion,” Chile’s President Sebastian Pinera said in televised remarks while holding up a letter from the miners yesterday. “This tells us they are alive, united and waiting to return to the sunlight and their families arms.”
Pinera said he will overhaul mining supervision in Chile, the world’s largest copper producer, after firing the head of the mining regulator on Aug. 11 over the accident. The reform may make it tougher for small-scale underground mines to continue operating, said Gustavo Lagos, a professor at the Catholic University’s mining school in Santiago.
Codelco, BHP
Rescue efforts are being led by mining experts from state- owned Codelco, the world’s largest copper producer. Melbourne- based BHP Billiton Ltd., which operates the largest copper mine in the world also in the Atacama Desert, is participating.
Most of Chile’s copper production comes from larger operators such as Codelco, BHP and Phoenix-based Freeport McMoRan Copper & Gold Inc. Small and medium mines make up less than 5 percent of Chile’s copper output which exceeds 5 million metric tons a year, Lagos said.
The accident, which has filled newspaper headlines and dominated television news programs in Chile since Aug. 6, comes four months after the country was hit by a magnitude 8.8 earthquake that killed about 500 people and caused an estimated $30 billion in damages and losses.
Pinera dismissed Alejandro Vio, director of Chile’s geological and mining service known as Sernageomin, after the agency allowed the San Jose mine to reopen after being shut down by Vio’s predecessor in 2007. Pedro Simonevic, an executive at the mine’s owner Cia. Minera Esteban Primera SA, told reporters Aug. 6 the collapse is unrelated to a July 3 accident at the mine that resulted in an injury.
Authorities will carry out a “profound restructuring” of Sernageomin to improve mining safety in Chile and will punish anyone found responsible for the San Jose collapse, Pinera said Aug. 11.
“This isn’t the time to assume guilt or forgiveness,” San Esteban Chief Executive Officer Alejandro Bohn said yesterday in an interview with Television Nacional. “An investigation process is under way.”

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The Associated Press: Oil rises above $74 in Asia amid hurricane risks

KUALA LUMPUR, Malaysia — Oil prices rose above $74 a barrel Monday in Asia as Tropical Storm Danielle in the Atlantic threatened to become a more potent storm, providing a reminder that hurricane season can disrupt crude production in the Gulf of Mexico.
Benchmark crude for October delivery was up 36 cents to $74.18 a barrel at midday Kuala Lumpur time in electronic trading on the New York Mercantile Exchange. The contract lost 97 cents to settle at $73.82 on Friday.
Crude prices rose amid concerns that Tropical Storm Danielle is strengthening in the Atlantic and could become a hurricane by late Tuesday. But forecasters have said it appears to be heading toward Bermuda and will not threaten any major land area.
"The Tropical Storm Danielle should pose no threat to production facilities in the Gulf of Mexico but it is providing enough support for oil to allow prices to hold on to $74 a barrel," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.
Shum said market sentiment remained pessimistic amid uncertainties over the global economic recovery.
He pegged crude prices at around $75 a barrel in the near term, with a floor provided by production concerns amid the hurricane season.
In other Nymex trading in September contracts, natural gas for September delivery fell 4.6 cents to $4.071 per 1,000 cubic feet while heating oil added 0.7 cent to $1.978 a gallon and gasoline rose 0.47 cent to $1.930 a gallon.
Brent crude was up 23 cents at $74.49 a barrel on the ICE futures exchange.

Most Asian Stocks Fall Amid Economic Growth Concerns; Mining Shares Gain - Bloomberg

Most Asian stocks fell amid mounting speculation that the global economic recovery is faltering. Australian mining companies rose on speculation they will benefit from an election deadlock in Australia.
Canon Inc. and Honda Motor Co., which both get more than 80 percent of their sales outside Japan, lost more than 1 percent before reports this week that may reinforce concern the U.S. economy is weakening. China Petroleum & Chemical Corp. sank 2 percent after second-quarter net income fell. Rio Tinto Group, the world’s third-largest mining company, rose 1 percent in Sydney on speculation a proposed resources tax will be scrapped.
“Ultimately, the global backdrop will be the biggest driver of markets,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors Ltd., which manages $90 billion. “You’re getting a sigh of relief on the Australian miners because of hopes the mining tax will be stalled.”
About five stocks fell for every three that rose in the MSCI Asia Pacific Index, which declined 0.1 percent to 118.12 as of 1:07 p.m. in Tokyo. A measure of material stocks in the index climbed 0.3 percent, the most among ten industry groups, while a gauge of consumer-related stocks slumped 0.7 percent.
Japan’s Nikkei 225 Stock Average fell 0.8 percent, while South Korea’s Kospi index was little changed. New Zealand’s NZX 50 Index slipped 0.5 percent. Australia’s S&P/ASX 200 Index lost 0.1 percent after the nation’s federal election failed to deliver a majority government for the first time in 70 years.
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge declined 0.4 percent on Aug. 20 as a drop in commodities pulled oil and metals producers down amid concern the economic rebound may be flagging.
Canon slumped 2.1 percent to 3,252 yen in Tokyo and Honda lost 1.3 percent to 2,783 yen.
A report tomorrow by the Chicago-based National Association of Realtors will show July sales of existing homes plummeted 12.9 percent from June, according to the median estimate of economists surveyed by Bloomberg. Concern over the global economy also deepened after Axel Weber, a European Central Bank council member, recommended helping lenders through end-of-year liquidity issues before determining when to withdraw emergency lending measures.
“The ECB official’s comments are making the market focus on Europe’s economic problems again,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees $104 billion. “Uncertainty about the economic recovery is making the market wary of taking risks.”
China Petroleum, Asia’s biggest refiner, slumped 2 percent to HK$6.23 after saying second-quarter net income fell 10 percent to 19.68 billion yuan ($2.9 billion).
In Sydney, Rio climbed 1 percent to A$72.30 after the ruling Australian Labor party failed to win a majority at the weekend election, raising optimism its proposed mining tax may be scrapped or diluted. BHP Billiton Ltd., the world’s biggest mining company, gained 0.7 percent to A$38.17.
“We’re seeing some cautious optimism in major stocks like BHP and Rio,” said Tim Schroeders, who helps manage about $1.1. billion at Pengana Capital Ltd. in Melbourne. “There’s a glimmer of hope for the mining sector that things aren’t as dire as they appeared on Friday in terms of a mining tax.”
To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

Investors Shake Up Fund Industry With Record Bond Love Affair - Bloomberg

Retail investors in the U.S., burned by two market crashes in a decade, have shunned stocks for the longest stretch in more than 23 years, upsetting the balance of power in the $10.5 trillion mutual-fund industry.
Bond funds attracted more money than their equity counterparts in 30 straight months through June, according to the Investment Company Institute, a Washington-based trade group. Preliminary data show the trend continued in July, matching the streak posted by bonds from 1984 through 1987.
The shift is pressuring asset managers, especially equity- focused firms such as Janus Capital Group Inc. and Capital Group Cos., because bond funds charge about 20 percent less in fees. Among the big winners are bond specialist Pacific Investment Management Co. and Vanguard Group Inc., whose index stock funds have become popular alternatives to actively managed portfolios.
“Retail investors are still shocked by what has happened in the past two years,” James Kennedy, chief executive officer of fund manager T. Rowe Price Group Inc. in Baltimore, said in an interview last month after releasing second-quarter earnings that fell short of analysts’ estimates.
Bond funds attracted $559 billion industrywide in the 30 months through June, according to ICI. Investors pulled $209.4 billion from domestic equity funds and $24.4 billion from funds that buy non-U.S. stocks.
Stocks fell 26 percent including reinvested dividends during the period, as tracked by theStandard & Poor’s 500 Index. Bonds returned 16 percent, based on Bank of America Merrill Lynch index data.
The Case for Stocks
Fund companies are trying to lure investors back into equities. Franklin Resources Inc., in a marketing campaign started in January, says that history shows stocks usually do well following a decade in which they lost ground.
“But many investors are turning their backs on equities now -- after one of the worst decades the stock market has ever seen,” the company, manager of $603 billion including the Franklin and Templeton funds, says in a presentation on its website.
Investors aren’t biting. In the first half of 2010, 98 percent of the money that San Mateo, California-based Franklin attracted went into bond funds.
“We are going to keep talking about equities,” CEO Gregory Johnson said on a July 29 conference call with investors. Johnson said he was concerned investors were putting “too much” money into bonds, whose price falls when interest rates rise, without realizing the risks involved.
‘Hair-Trigger Mentality’
The speed and depth of the market’s decline has rattled investors in a way past selloffs didn’t and has conditioned them to retreat from stocks at the first hint of trouble, said Jim Jessee, president of the U.S. fund business for Boston-based MFS Investment Management.
In the week following May 6, when the Dow Jones Industrial Average briefly lost almost 1,000 points and then recovered, investors pulled $12.3 billion from stock mutual funds, ICI data show. In April, equity funds had deposits of $13.2 billion.
“People have developed a hair-trigger mentality,” said Jessee in a telephone interview. “Their feeling is: ‘I am not going to be too slow the next time.’ ”
The S&P 500 has fallen 12 percent from its high for the year on April 23 amid signs the economic recovery is slowing. Investor pessimism deepened after the Federal Reserve said Aug. 10 that growth probably will be “more modest.” The central bank said it will maintain its holdings of securities to stop money from draining out of the financial system, its first move to bolster the economy in more than a year.
Little Good News
“It is hard to pick up the newspaper and see anyone optimistic,” said Francis Kinniry, who studies investor behavior for Vanguard, which is based in Valley Forge, Pennsylvania. “The problem is there is not a lot of good news on the recovery front and that translates in people’s mind into poor capital markets.”
Only one of the 10 best-selling mutual funds in 2010, the $117 billion Vanguard Total Stock Market Index Fund, invests exclusively in stocks, data from research firm Morningstar Inc. show. Its success shows that when investors put money into stocks, they prefer index-based funds over those that are actively managed.
Vanguard, a pioneer in indexed investments, attracted $58 billion in deposits to its stock funds over the 30-month period, the most of any company, according to Chicago-based Morningstar. Over that stretch, U.S. investors put $111 billion into stock index funds even as they withdrew $271 billion from equity funds whose managers pick securities.
Fees Squeezed
Vanguard, which has almost $1.3 trillion in mutual funds, manages an additional $112 billion in exchange-traded funds, which typically mimic indexes while trading throughout the day like stocks. The firm is owned by investors through their mutual-fund holdings.
Investors are using bond funds as a haven from the turmoil in equity markets, squeezing firms previously accustomed to the fatter fees charged by stock funds.
On a dollar-weighted basis, the average stock fund collects 76 cents in fees for every $100 invested, compared with 61 cents for bond funds, according to Denver-based Lipper.
The impact can be seen in return on equity, a measure of profitability, reported by publicly traded asset managers.
At T. Rowe Price, ROE fell to 22 percent in the second quarter from 26 percent in the fourth quarter of 2007, the last before the bond-dominance streak began. Stock and blended portfolios accounted for 72 percent of the company’s $391 billion in assets, down from 80 percent.
‘On the Sidelines’
Franklin’s ROE declined to 19.5 percent from 26 percent in the same period, as equity funds dropped to 41 percent of assets from 59 percent. ROE at Legg Mason dropped to 4 percent in the second quarter from 10 percent at the end of 2007, while stock funds fell to 24 percent of its $645 billion of assets from 32 percent.
“A big part of the problem is that people are still sitting on the sidelines in this market environment,” Mary Athridge, a Legg Mason spokeswoman, said in an e-mail.
The company posted net deposits into stock funds for the first time in more than four years in the second quarter.
Janus, with 93 percent of its $147 billion in assets in stocks, “has probably been hurt the most,” said Jonathan Casteleyn, a New York-based analyst for Susquehanna Financial Group LLLP.
The Denver-based company earned $61.5 million in the first half of this year, down 27 percent from same period in 2007. Equity assets fell 28 percent during the 30 months through June as investors pulled $3.9 billion from its stock funds and the decline in stock prices reduced the value of existing holdings.
Boon for Pimco
Janus’s return on equity climbed to 12.1 percent in the June quarter from 5.8 percent in the final three months of 2007, when earnings were depressed by a writedown of the value of a printing unit. James Aber, a spokesman for the firm, declined to comment.
The move by retail investors into bond funds plays to the strength of Pacific Investment Management, which started in 1971 as a fixed-income manager and whose $1.1 trillion in assets includes just $600 million in stock funds.
While Pimco’s parent, Allianz SE, doesn’t report financial results for the Newport Beach, California-based firm, the German insurer said on Aug. 6 that operating income at all its asset- management units more than doubled to 516 million euros ($656 million) in the three months ended June 30 from a year earlier.
Mark Porterfield, a Pimco spokesman, declined to comment on the firm’s profitability.
By other measures, Pimco is thriving. It attracted $40.2 billion in the first half of 2010, more than any other fund company, according to Morningstar. Pimco Total Return Fund, run by Bill Gross, had deposits of $20.9 billion in the period, the most for an individual fund.
American, Fidelity
The $239 billion fund, the world’s biggest, returned 5.8 percent in the first half, compared with a loss of 6.4 percent by the average stock fund.
The rise of the $822 billion ETF business, along with the shift to bonds, has hurt firms with a reputation for active management, including Capital Group and Fidelity Investments, which are both closely held.
American Funds, part of Los Angeles-based Capital Group, had $48.8 billion in withdrawals from stock funds in the 30 months ended in June, more than any other fund firm, Morningstar data show. American Funds has 72 percent of its $950 billion of assets in stocks and 19 percent in bonds, Chuck Freadhoff, a spokesman for the firm, said in an e-mail.
Fidelity experienced $48.1 billion in withdrawals from its stock funds in the two and a half year period, the second-most after American Funds, Morningstar data show.
1987 Streak
Fidelity said its withdrawals in the period were $32.8 billion, according to an e-mailed statement from Vincent Loporchio, a spokesman for the Boston-based firm.
Both American Funds and Fidelity have largely ignored ETFs.
From September 1984 through March 1987, a 31-month stretch, bond funds took in more money than stock funds, ICI data show, even as the S&P 500 Index rose 75 percent. Many U.S. investors were not yet comfortable owning stocks in the mid-1980s, said Geoff Bobroff, a mutual-fund consultant in East Greenwich, Rhode Island.
“In contrast to today, bonds also offered pretty good returns back then,” he said in a telephone interview.
The 10-year U.S. Treasury note had an average yield of 9.3 percent in that period, according to data compiled by Bloomberg. The 10-year note yields less than 3 percent now.
Institutions More Bullish
Fund investors’ latest aversion to stocks contrasts with buying by institutions such as pension plans and endowments, whose equity holdings rose to 68 percent of assets in July, the highest level in 15 months, a Citigroup Inc. survey showed.
If institutions ignite a sustained run-up in stocks, individual investors will eventually jump back in, said Jack Ablin, who helps manage $55 billion as chief investment officer at Chicago-based Harris Private Bank.
“What will happen is that the market will rally first, and retail investors will chase it later,” he said in a telephone interview.
More than 80 percent of investors polled in July by Fidelity said they wanted to see at least six months of market stability before making further investments.
Lasting Scar
“Someone who is waiting for stability is likely to miss out on the upside,” John Sweeney, an executive vice president at Fidelity, said in a telephone interview.
Sweeney said that in speaking to clients the firm stresses the value of diversification and the importance of owning stocks, especially for younger investors who may be 30 or 40 years from retirement. Fidelity has $1.25 trillion in mutual- fund assets.
Vanguard’s Kinniry said that the reaction to the 2008 market decline “is different from what we have seen in other bear markets.” Investors have been slower to return to stocks, he said, despite a roughly 60 percent climb for the S&P 500 Index since prices reached a 12-year low in March 2009.
The swiftness of the 2008 crash may explain some of the caution, said Kinniry.
From Sept. 2 to Nov. 20, 2008, the S&P 500 Index fell 41 percent, according to data compiled by Bloomberg. Investors were further frightened by the decline in home prices that was already underway, Kinniry said in a telephone interview. U.S. home prices dropped by almost one-third from July 2006 to April 2009, according to the S&P/Case-Shiller index.
Jessie of MFS said it may take a major market rally to get investors back into stocks.
“Unfortunately, my gut tells me the market will need to go up 30 to 50 percent,” he said.