Financial life in a big town

Federal authorities are investigating a suspected embezzlement of potentially millions of dollars from a St. Louis area medical practice, according to a source close to the investigation.

The FBI and U.S. attorney’s investigation comes on the heels of the termination by Metropolitan Urological Specialists PC of Dunard Morris, who until recently served as its chief executive. The investigation focuses in part on whether money was diverted from the firm’s bank loans, the source said. The amount of missing money isn’t known but could be millions, the source said.

The medical practice also maintains that Morris subleased a $5,475-a-month luxury apartment using company funds without approval of the firm’s board of directors.

During the last two years, the company has shown signs of cash flow problems, including the buildup of about $1 easy payday loans.3 million in delinquent federal, state and local taxes, interest and fees, St. Louis County records show.

Asked about the federal investigation, U.S. Attorney Richard Callahan said Thursday, “I don’t want to prejudge anything, but it is a matter that has our interest.”

Morris did not return phone calls Thursday. One of his lawyers, Patrick Smith at DLA Piper law firm in New York, has declined to comment. “I’m not authorized to talk with you,” he said. Morris’ local counsel, Richard Sindel, declined to comment.

Metropolitan’s attorney, Mayer Klein, said the medical firm “terminated” Morris in mid-September but would not detail why. He did confirm that the company is investigating the missing money.

“There were some concerns with regard to prior management, and we’re working with everyone involved

Stocks rallied Wednesday on hopes that a deal to save the euro would be agreed at a summit of European leaders at the end of the week.

Investors are betting EU leaders will agree on Friday a strategy that will allow the 17 countries that use the euro to link up their economies more closely. The tighter budget rules, proposed by the leaders of Germany and France, could then allow the European Central Bank to play a bigger role in solving the crisis by buying up the bonds of the most-imperiled countries.

“The market is becoming optimistic that the ECB will aggressively step up its action as both a reward for political action or in reaction to the threat of recession,” said Jane Foley, an analyst at Rabobank International.

Ahead of Friday’s meeting, the ECB is expected to cut interest rates on Thursday, possibly by as much as half a percentage point. If it did sanction such a big move, then the rate would fall to 0.75 percent and below the 1 percent that had previously been considered the floor.

Lower interest rates would help the eurozone economy, which has been sliding back toward recession under the weight of the debt crisis that threatens to spread from the relatively small economies such as Greece to much-bigger Italy and Spain.

Concerns that this could happen have eased this week. That was most evident in the performance of Italian and Spanish bond prices. Both have recovered this week, sending their yields _ the interest rates the countries would pay to borrow on markets _ down to more manageable rates. The yield on Italy’s ten-year bond was at 5.75 percent on Wednesday, way down from the 7 percent level it had traded at in recent weeks.

In Europe, Germany’s DAX rose 0.4 percent to 6,051 while the CAC-40 in France rose 1 percent to 3,212 paperless payday loans. The FTSE 100 index of leading British shares was 0.4 percent higher at 5,593.

Wall Street was poised for a solid opening too _ Dow futures were up 0.5 percent at 12,176 while the broader Standard & Poor’s 500 futures rose 0.6 percent to 1,262.

The euro was trading flat on the day at $1.3400.

U.S. Treasury Secretary Timothy Geithner said Wednesday he is very encouraged with the progress Europe is making in coming up with a plan to shore up the euro in the wake of a crippling debt crisis. Geithner’s comments to reporters followed a meeting with French Finance Minister Francois Baroin on the second day of his whirlwind trip through Europe.

“A more upbeat tone from Geithner in his support for Europe’s efforts to unify fiscal policy across the eurozone has been well received by investors,” said Jordan Lambert, a trader at Spreadex.

Earlier in Asia, Japan’s Nikkei 225 jumped 1.7 percent to end at 8,722.17 _ its highest close in a month. South Korea’s Kospi added 0.9 percent to 1,919.42 and Hong Kong’s Hang Seng gained 1.6 percent to 19,240.58.

Mainland Chinese shares edged higher, with the benchmark Shanghai Composite Index climbing 0.3 percent to 2,332.73, ending a five-session losing streak.

Oil prices meanwhile edged higher alongside stocks _ benchmark crude for January delivery was up 51 cents to $101.79 a barrel in electronic trading on the New York Mercantile Exchange.

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Pamela Sampson in Bangkok contributed to this report.

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Ask the people who invest billions for a living to name their favorite picks for 2012 and you’ll get a smorgasbord worthy of a holiday party: Brazilian stocks, U.S. junk bonds, and government debt from Colombia. Ask them what they dislike and they’ll name one of the top-performing investments this year: U.S. government bonds.

Investors can rattle off a long list of reasons to avoid Treasurys. They pay next to nothing and are bound to plunge in value whenever interest rates begin climbing from their historically low levels. It seems nobody likes Treasurys, yet everybody keeps buying them anyway.

“Our least favorite asset is Treasurys,” said Christine Hurtsellers, chief investment officer for fixed-income at ING Investment Management during a recent press briefing. “We still have a lot, but it’s hard to make the argument for them.”

It’s a tricky problem for bond-fund managers at a time when everyday Americans are trusting them with more of their savings. Among investors, there’s a solid belief that Treasury prices must fall and push interest rates up at some point. But those who have bet on a Treasury market collapse this year got burned.

Bill Gross, the bond-world version of investment sage Warren Buffett, dropped nearly all Treasury holdings from the fund he manages at Pimco in early 2011. He argued that if Republicans held up lifting the government’s borrowing limit, the country would risk default. Borrowing rates would spike as the world’s investors dropped U.S. government debt, just as they have in Europe.

Most of what Gross predicted came true. The debt-limit fight raised worries about default and led to Standard & Poor’s taking away the country’s AAA credit rating in early August. But instead of spiking, U.S. borrowing rates plunged as traders sold everything else to buy U.S. government debt. The race into Treasurys helped drive the entire bond market up 3.8 percent from July to September. Gross got the big picture right but his big bet against Treasurys didn’t pan out. Pimco’s Total Return Fund lost 1.2 percent, its worst quarterly performance in three years.

It’s been a recurring story since the financial crisis hit in 2008. For three years running, pundits have predicted that investors will eventually refuse to finance the U.S. government’s $15 trillion in debt and the Treasury market will collapse. But worries over the U.S. economy and the perilous state of Europe’s financial system keep drawing banks and money managers from around the world back to the U.S. dollar and Treasurys.

That demand continues to push U.S. government bond prices up, the main reason why the Treasury market has returned 8.5 percent this year, despite microscopic yields, according to Bank of America-Merrill Lynch data. The benchmark for stock market funds, the S&P 500 index, has returned less than 1 percent, including dividend payments, and that’s with a 7.4 percent surge over the past week.

“It’s been a pretty strong year for bonds,” said Michael Gitlin, director of fixed income at T. Rowe Price, “and it’s largely a result of Treasurys.”

Judging by the gauges money managers usually check before making a move, buying Treasurys still looks like a bad idea. Consider this sample:

(asterisk) The benchmark 10-year Treasury pays just 2 percent a year. Take inflation into account and the payout on Treasurys equals negative 1.5 percent, what finance types call the real rate.

(asterisk) Treasury yields pay less than top-grade corporate bonds at 3.7 percent and even less than the stock market’s 2 percent dividend yield.

“My colleagues say there’s little value in 10-year (Treasurys) and I’d agree,” Gitlin said. “People have been saying there’s a fixed-income bubble. No, there’s a Treasury bubble.”

If there’s so little to like about U.S. government bonds, why are the world’s investors still buying Treasurys instead of dumping them? In a word, it’s Europe.

As the crisis seemed to spread from country to country this year, the world’s traders plowed more money into Treasurys. The higher the demand for U.S. debt, the lower the interest rate, or yield. So when it looked like Greece might default on its debts earlier this year, the yield on the 10-year Treasury note sank below 3 percent. And when attention turned to Italy and its government debts the yield sank even further, dipping below 2 percent in September. The shift of money out of Europe and into the U.S. has pushed Europe’s borrowing rates to dangerous levels while causing U.S. interest rates to sink.

“You can hate the budget situation and hate the low yield, but if there’s a panic it’s the asset that outperforms,” said Robert Robis, head of fixed-income strategy at ING Investment Management.

A good reason to hold Treasurys, in other words, is that the Treasury market remains the world’s favorite hiding spot. So, for many fund managers Treasurys aren’t exactly an investment. Buying Treasurys is like taking out an insurance contract, Robis said. They’re protection against global financial trouble.

The ING Global Bond fund, for instance, has 15 percent of its $641 million in Treasurys, less than the 20 percent in the benchmark Barclay’s bond index. Robis said having none would be like betting European governments will come to a quick solution to the region’s debt crisis and that the U.S. economy will soon recover its health.

“There’s still a need to hold Treasurys,” Robis said. “Just don’t expect to make a fortune off them.”

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Bistate wage gender gap

The wage gap between men and women yawns wider in Missouri and Illinois than elsewhere, according to new data from the Bureau of Labor Statistics.

The average full-time woman worker in Missouri made just 75 percent of the average man’s earnings in 2010. Women in Illinois did a little better at 78 percent. The national average is 81 percent.

The bureau doesn’t blame the gap on state-to-state differences in sexism. Instead, it cites “variations in the occupations and industries found in each state and the age composition of each state’s labor force.”

In Missouri, the median weekly wage stood at $813 for men and $616 for women. Illinois was at $814 for men and $634 for women. The national average is $824 for men and $669 for women. (Jim Gallagher)

Ralcorp in ‘buy’ mode

If Toronto fireman Alexander Gunn was alive today, he might well feel like the Warren Buffett of his times.

The semi-detached home he bought in Toronto’s Riverdale neighbourhood for $1,200 in 1906, sold in November for $825,000.

Conventional wisdom has it that buying a home is one of the smartest things we can do. If you have been lucky enough to live in the Greater Toronto Area, especially in the last 10 years when house prices have doubled, that would be true.

But over the long run, is home ownership such a great deal? To find out Moneyville took a close look at Gunn’s house over the last 105 years.

Here’s what we found: Adjusted for inflation, an investment in the stock market would have yielded a better return, including all the ups and downs — starting with the 1929 stock market crash that ushered in the Great Depression.

Toronto was still rebuilding from the Great Fire of 1904 when Alexander Gunn was promoted to district captain after years of climbing the ladder at the city’s No. 3 firehall at Yonge and Carlton Sts. With his new responsibilities came a pay hike, from $850 to $1,000 a year.

It was the nod he needed to buy his first home.

The three-storey house in what is now known as Riverdale was brand new, part of a development on what had been fields where locals grew food to sell at market. It promised good luck: A shamrock had been crafted into its soaring gable, most likely by Irish immigrants who helped build these turn-of-the-century subdivisions.

Each day on his way to work, Gunn would have headed down Broadview Ave. with its sweeping view of the downtown and watched the burned-out city being rebuilt.

He would have kept warm at night in front of the house’s wood-trimmed fireplace and watched through its lead-glass windows as thousands more homeowners flocked to the area after 1912 when Danforth Ave. was paved and, later, the Bloor Viaduct erected across the Don Valley.

Gunn paid just a little more than a year’s salary for the modest house on a 20 foot by 112.5 foot lot. Today, a buyer would pay a fortune, relatively speaking — about five times their annual income given that the average price of a GTA home in October was $465,000 and the average household income $82,000, according to the Canada Mortgage and Housing Corp.

Gunn and his family lived at 56 Simpson Ave. for more than four decades, through two World Wars, the Great Depression and the remarkable transformation of Toronto.

The house changed hands just four times before its most recent sale. And the average annual gain over the 105 years, adjusted for inflation, was just 3.9 per cent.

“If I had to give new homebuyers some advice, it’s that houses aren’t always the ultimate investment. You should never bet the farm on the house, so to speak,” says Francis Fong, an economist with TD Economics.

Fong and his colleague Sonya Gulati helped Moneyville adjust prices for inflation and compare the appreciation of the home against Toronto Stock Exchange returns.

The challenge was to compare apples to apples. We had the home’s sale price going back to 1906, but the Bank of Canada’s inflation records don’t begin until 1914. Toronto Stock Exchange records start in 1919.

So we opted to track gains from 1947 onward, seven years after Gunn’s death, when the house sold for $6,300. We found that in those 64 years, the house appreciated at an average annual rate of 2.3 per cent, adjusted for inflation. (Inflation averaged 3.9 per cent during the same period, largely because of spikes in the 1970s and early ’80s.)

The TSX, on the other hand, did marginally better — producing average returns of about 3 per cent.

But when the everday costs of a house were included, things likes taxes, maintenance and upkeep, 56 Simpson fared much worse

“A house is not a good investment. It is a roof over your head,” says James McKellar, director of the real estate and infrastructure program at York University’s Schulich School of Business.

These days, homeowners in hot markets like Toronto and Vancouver may feel they have hit the jackpot: Most Toronto homes have virtually doubled in price over the last decade and in Vancouver they have almost tripled.

But once you factor in the other costs — interest on the mortgage, new kitchens, bathrooms, furnaces and electrical updates, “you’re lucky to make anything,” says McKellar. Studies have shown that it’s $800 a month cheaper to rent a 1,000-square-foot home than to own it, he notes.

“By any empirical study, houses do not inflate. They are a cost. But we all have to live somewhere.

“Calling a house a good investment is a process of rationalization. The last thing you want to admit is that, ‘I bought the house because I fell in love with it.’”

Catharine Grossi is proud to admit that. She and her husband Paul bought 56 Simpson for $462,500 back in 2001 because they were keen to move back to the city from the suburbs.

“When I saw that so much of the original house was there, and it was updated . . . That was good for me. I loved it as soon as I saw it.”

She became fascinated by the home’s history — she spent a day at the City of Toronto archives — and details such as its original fireplace, century-old exposed brick, the shamrock.

The house proved to be the perfect place for Grossi’s two sons and daughter to drop their bags after university or stints abroad.

Grossi wasn’t thinking so much about the gains she’s made, but rather the life she’s lived at 56 Simpson when the house sold Nov. 4. She and Paul are downsizing into a home two doors from their daughter and her newborn twins.

Grossi asked just one thing when her realtor called to say there had been an offer at asking price: “Do they love the house?”

James McKellar gets that.

He has lost money in the housing market: About $25,000 in the wake of the oil patch bust in Calgary in 1983 and $35,000 on a Boston home during the ’90s recession.

He now owns a home in Moore Park.

“The big drawback of renting is that it doesn’t give you the emotional satisfaction of owning,” he says with just the slightest chuckle.

“At the end of the day, when you go home and make dinner and relax, the numbers really don’t matter.”

Also read:

How we paid off our mortgage in three years

Why I sold my house and rent instead

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President Nicolas Sarkozy appeared to temper his calls for the European Central Bank to play a bigger role in solving Europe’s debt crisis as he agreed to a German effort to change EU treaties to improve the governance of the troubled eurozone.

Speaking after meeting with German Chancellor Angela Merkel and Italian Premier Mario Monti on Thursday, Sarkozy said “propositions for the modification of treaties” would be presented in the coming days.

He wouldn’t elaborate on what these changes may be but said they would be ready in time for the next EU leaders summit on December 9.

This was the first meeting of the three leaders since Monti took over last week following mounting market concerns over Italy’s huge debts.

The meeting in Strasbourg, France comes amid signs that even Germany and France _ the eurozone’s two biggest economies _ are not immune from the crisis that’s already seen three relatively small countries bailed out.

All three leaders said they would do what it takes to stabilize the situation and save the euro.

“We want the euro, we want a strong, stable euro … we will do everything to defend it,” Merkel said.

France has been reluctant to resort to changes to EU treaties to improve the way the eurozone countries work together and set policies and prevent future crises low fee payday advance. Germany had pushed for such changes, saying voluntary pledges by national governments are no longer enough to boost market confidence.

Merkel insisted that the proposed changes would “not deal with the European Central Bank,” which she stressed was responsible for monetary, not fiscal, policy. Sarkozy did not push for a greater role at their closing press conference, while Merkel insisted on the bank’s independence.

Many think the ECB is the only institution capable of calming frayed market nerves.

Potentially, the ECB has unlimited financial firepower through its ability to print money. However, Germany finds the idea of monetizing debts unappealing.

Monti, meanwhile, reiterated his pledge to balance Italy’s budget by 2013 though he sidestepped the question on whether achieving that aim would require more austerity measures, and if so, whether it risked triggering a recession in the eurozone’s third largest economy.

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The number of people applying for unemployment benefits fell last week to the lowest level since early April, a sign that layoffs are easing and hiring may pick up.

The Labor Department says weekly applications dropped by 5,000 to a seasonally adjusted 388,000. It was the fourth decline in five weeks.

The four-week average, a less volatile measure, dropped to 396,750. That’s the first time the average been below 400,000 in seven months.

Applications need to consistently drop below 375,000 to signal sustained job gains payday loan lenders. They haven’t been that low since February.

The total number of people receiving benefits also fell to the lowest level since Sept. 2008, when Lehman Brothers collapsed and the financial crisis intensified.

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Peabody Energy Corp. on Wednesday announced that it has increased its stake in Australia’s Macarthur Coal Ltd. beyond 90 percent — the threshold beyond which it can force remaining shareholders to sell their interests.

The announcement means St. Louis-based Peabody now has full control over the mining company, ending an 18-month quest. It also means Peabody will pay out an extra $100 million, bringing the total value of the acquisition to almost $5 billion.

Peabody last month promised to sweeten the offer slightly, to $16.40 a share from $16.14, to help increase its stake beyond 90 percent, giving it fuller control of the company.

Acquiring 100-percent of Macarthur “brings clear strategic and financial benefits,” Gregory H. Boyce, Peabody’s chief executive, said in a statement. He said the company “looks forward to completing operational improvements, accelerating the realization of synergies and advancing Macarthur’s growth pipeline.”

Queensland-based Macarthur controls 270 million tons of coal reserves and operates mines that produced about 4 million metric tons last year in the face of severe flooding that restricted output.

The additional sales volume is small for Peabody, which sold almost 250 million tons of coal worldwide last year. But Macarthur is the world’s largest exporter of pulverized injection coal — a commodity that’s in high demand from steelmakers. The bulk of Peabody’s sales volume is lower-priced coal that’s burned for electricity generation.

The acquisition also continues Peabody’s rapid expansion in Australia, a coal-rich country nearer to energy hungry China.

Peabody failed in an effort to gain a controlling stake in Macarthur last spring, offering as much as $3.8 billion. In July, the company made another bid with a minority partner, steelmaker ArcelorMittal, which was already a 16-percent shareholder.

Luxembourg-based ArcelorMittal dropped out and agreed to sell its interest to Peabody after China’s Citic Resources, Macarthur’s largest shareholder, agreed to accept the cash takeover offer, giving the suitors a majority stake.

Peabody recently sold $3.1 billion of notes to help finance the acquisition.

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Umberto Bossi, the longtime ally of former Italian premier Silvio Berlusconi, says his Northern League party won’t back any government led by economist Mario Monti “for now.”

Bossi says he told Italy’s president that his party will be a “vigilant” opposition to any Monti government until the economist spells out his program to rescue Italy’s troubled economy.

Berlusconi resigned Saturday after Italy came under enormous pressure for its sovereign debt.

Bossi says “for now, we said no online pay day loans.” He adds when Monti reveals his policies, the League will decide on a measure-by-measure basis.

Italy’s president could ask Monti to try to form a government to rescue Italy from looming financial disaster after talks with all parties Sunday.

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Greece’s embattled prime minister and main opposition leader agreed Sunday to form an interim government to ensure the country’s new European debt deal, capping a week of political turmoil that saw Greece face a catastrophic default that threatened its euro membership and roiled international markets.

As part of the deal, Prime Minister George Papandreou agreed to step down halfway through his four-year term. He and conservative opposition head Antonis Samaras are to meet Monday to discuss who will become prime minister and the makeup of the Cabinet.

The new unity government’s main task will be to pass the European rescue package, reached after marathon negotiations between European leaders barely a week ago _ a move considered crucial to shoring up the euro. The interim government will then lead the country into early elections, expected early next year.

Officials had been anxious to reach some form of agreement before a meeting of eurozone finance ministers in Brussels on Monday.

“Of course it’s a breakthrough,” government spokesman Elias Mossialos said. “It is a historical day for Greece, we will have a coalition government very soon, early next week. The prime minister and the leader of the opposition will discuss tomorrow the name of the new prime minister and the names of ministers.”

Papandreou sparked the latest crisis by announcing last week that he was taking the hard-fought debt agreement to a referendum. That outraged European leaders, who said such a vote could raise the specter of Athens leaving the common currency _ setting off an unpredictable chain reaction that could drag down other European countries.

They also warned a vote would jeopardize the disbursement of a vital $11 billion (euro8 billion) installment of Greece’s existing $152 billion (euro110 billion) bailout, which the country desperately needs to avoid the potential of a catastrophic default within weeks.

In the ensuing market turmoil, Italy _ which also faces severe financial difficulties, but is considered too big to bail out _ saw its borrowing costs spiral, sparking fears it could be dragged into the fray.

Papandreou withdrew the referendum plan Thursday in the wake of European anger and after it sparked a rebellion among his own Socialist lawmakers, many of whom called for him to resign. The turmoil also pushed the conservative opposition party to publicly declare it would back the debt agreement.

Any interim government that is formed with the support of both major parties will be almost guaranteed to push the European rescue package through parliament, even if it has to be approved by a reinforced majority of 180 of the legislature’s 300 lawmakers.

The new European deal would give Greece an additional $179 billion (euro130 billion) in rescue loans and bank support. It would also see banks and private investors write off 50 percent of their Greek debt holdings, worth some $138 billion (euro100 billion). The goal is to reduce Greece’s debts to the point where the country is able to handle its finances without relying on constant bailouts.

Greece’s lawmakers must now approve the package, putting intense pressure on the country’s leaders to swiftly end the political crisis so parliament can convene and put it to a vote.

A planned meeting with the leaders of all political parties in parliament, which was to take place Monday evening, was canceled after two leftist parties refused to attend, the president’s office said.

Sunday’s agreement came after a late-night meeting between Papandreou and Samaras called by President Karolos Papoulias at Papandreou’s request to end a two-day deadlock. Direct talks had failed to get off the ground because Papandreou had said an agreement had to be reached on a new government before he stepped aside, while Samaras insisted Papandrepou resign before the start of negotiations and demanded quick elections.

An opposition conservative party official said Samaras’ New Democracy party was “absolutely satisfied” with the outcome of the talks and that party officials were to hold meetings late Sunday night with Finance Minister Evangelos Venizelos and his advisers to discuss how long it would take to finalize the new debt deal and when elections could be held.

“Our two targets, for Mr. Papandreou to resign and for elections to be held, have been met,” the official said, speaking on condition of anonymity to discuss the process.

The Finance Ministry said a late-night meeting between Venizelos and opposition party members determined the “most suitable” date for elections was Feb. 19.

Two turbulent years after coming to power in a landslide election victory, Papandreou has seen his popularity plummet as his government has been forced to severely cut spending while hiking taxes to tackle a runaway deficit and debt that led Greece to become the first eurozone country to seek an international bailout.

Ireland and Portugal have since followed suit, but European leaders have been desperate to ensure other countries with larger economies are not also dragged down.

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Associated Press writer Nicholas Paphitis in Athens contributed to this report.

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