Schwarzenegger Seeks Citrus Disaster Aid California Gov. Schwarzenegger Seeks Disaster Aid After Cold Destroys Nearly $1B of Citrus By OLIVIA MUNOZ The Associated Press

FRESNO, Calif. - Gov. Arnold Schwarzenegger asked the federal government Tuesday for disaster aid because of an ongoing cold snap that has destroyed nearly $1 billion worth of California citrus, and industry officials said shoppers will feel the sting through higher prices for oranges, lemons and other produce.

Visiting a Fresno orange grove, Schwarzenegger said he was asking the U.S. government for disaster status, which would allow California to seek aid from the U.S. Department of Agriculture and Small Business Administration to offset losses to growers and other businesses.

“This is not just about the crop this year. It could also have a devastating effect next year,” Schwarzenegger said. “My administration will make sure that we do everything we can to help the farmers and workers get through this.”

Nearly every winter crop is affected by the freeze, from avocados to strawberries to fresh-cut flowers, but it’s the state’s citrus crop that stands to take the biggest economic hit.

“We may adjust the prices as we discover the full extent of the damage next week, but for now, if you bought an orange at the supermarket for 50 cents, expect to pay a dollar to $1.49 for it,” said Todd Steel, owner of Royal Vista Marketing, which sells California citrus to markets throughout the country.

With the NFL playoffs in full swing, some fans may choose to go without two traditional favorites.

“Avocados are expensive enough as it is,” said Joseph Vasquez, a 32-year-old school teacher from Pasadena. “We may have to do without guacamole for a while. And we may be drinking our Coronas without limes.”

California is the nation’s No. 1 producer of fresh citrus, growing about 86 percent of lemons and 21 percent of oranges sold in the U.S., according to the California Farm Bureau. Florida produces more citrus overall about 55 percent of the nation’s total, according to the USDA but most of that state’s oranges are processed for juice.

More than 70 percent of this season’s oranges, lemons and tangerines nearly $1 billion worth of fruit were still on the trees as nighttime temperatures in California’s Central Valley dipped into the low 20s and teens on four straight nights beginning Friday. The freeze ruined as much as three-quarters of the California citrus crop, growers say; the fruit is threatened whenever the mercury falls below 28 degrees.

“Limited amounts were harvested before the freeze, so it’s not like the markets are going to dry up suddenly,” said Claire Smith, a spokeswoman for Sunkist Growers Inc., a Los Angeles-based cooperative owned by some 6,000 growers in California and Arizona.

Still, the diminished supply is bound to drive up prices, Smith said. Sunkist may import oranges and other fruit from South Africa and other countries.

On Tuesday, a Visalia-based citrus broker was selling 40-pound boxes of oranges for $22 to $32, depending on the variety. That’s up from $6 to $14 a week earlier, and with the National Weather Service calling for at least one more night of frigid temperatures in many areas, prices could continue to escalate.

Some shoppers took advantage of still-reasonable prices Tuesday, as many of the fruit on market shelves was picked before the freeze. Shopper Lindsay Beamish, 29, was surprised to see a 10-pound bag of oranges selling for $10 at a Vons supermarket in Pasadena.

“I might just have to get 10 pounds worth because that’s not going to last,” she said of the price.

Damages from the current freeze will likely surpass those from a three-day cold snap in December 1998 that destroyed 85 percent of California’s citrus crop, a loss valued at $700 million, state Agriculture Secretary A.G. Kawamura said.

The state also suffered a deep freeze in 1990 one that completely wiped out the $1 billion crop. It took growers two years to recover.

Labor leaders are also watching the weather closely. They estimate as many as 12,000 field workers and packing house employees could lose their jobs for the remainder of the season.

The state may offer emergency unemployment assistance to workers laid off because of the crisis, said Henry Renteria, director of the state Office of Emergency Services.

Damaged fruit from the current freeze may still be salvaged as juice, usually a byproduct for California farmers, Smith said.

“It’s not likely to have a big impact on the juice industry because California is not a big player in that market,” she said.

Adverse weather has also taken a toll on the Florida-dominated orange juice industry in recent years. After two nasty hurricane seasons compounded by drought and crop disease, PepsiCo Inc., which sells juice under the Tropicana and Dole labels, and Coca-Cola Co., which owns Minute Maid, each raised orange juice prices over the past several weeks.

Inflated prices also are expected for other crops that have fallen victim to the icy California weather, state agricultural officials said.

Lee Cole, chief of Santa Paula-based Calavo Growers Inc., which sells 35 to 40 percent of the state’s $380 million avocado crop, said it’s too early to know how severe the losses will be. But the freeze could claim up to 40 percent of Calavo’s crop in Ventura County, with damage along the less-frigid coast between San Luis Obispo and Escondido hovering between 25 and 35 percent, Cole said.

“Prices will certainly be higher,” he said.

If the damage is severe, the trees could also bear fewer avocados next year, Cole said.

Strawberries growing along the coastal regions of Southern California were mostly ruined, according to the California Strawberry Commission. The freeze also destroyed flowers that would produce the next berry crop on each plant.

Production will be disrupted for the next few weeks, according to the commission.

Growers in the Imperial Valley also were worried about tender vegetables such as lettuce that may not have held up to five days of temperatures in the mid-20s, said Brad Rippey, a meteorologist with the U.S. Department of Agriculture.

Throughout the cold snap, growers have tried to save their crops by pumping fields with heated irrigation water and running wind machines to circulate warmer air and keep it from rising off the trees. David Pruitt of Ball Tagawa Growers in Arroyo Grande has struggled to keep 200,000 square feet of greenhouses between 60 and 74 degrees.

The company produces a variety of seedlings, including pansies and marigolds. The greenhouses are heated with hot water fired by gas boilers.

The cold “multiplies our gas use enormously,” Pruitt said. The boilers “are just cranking full blast.”

For cut-flower producers, the damage mostly will be felt in the form of increased heating costs, said Kathryn Miele, director of marketing for the California Cut Flower Commission, which represents several hundred growers.

Many flowers including the Valentine’s Day rose crop are pampered indoors, meaning growers are forced to spend more to keep greenhouses balmy, she said.

Inspectors with the California Department of Agriculture and county agriculture commissioners were still assessing the damage Tuesday. In the meantime, fruit packers have been asked to keep produce harvested during the freeze on hold for five days to monitor quality problems and keep damaged fruit off shelves.

Associated Press writers Jacob Adelman, Mike Blood and Andrew Dalton in Los Angeles contributed to this report.

Diversification by asset class and geography, is, of course, a principle to which investors are urged to adhere at pain of possible portfolio implosion. The argument - an entirely reasonable one - is when one asset class or region stalls, another will rise to take up the slack.

Recently, however, many U.S. investors have begun to worry that increased exposure to a wide variety of global equity asset classes is not delivering the desired diversification benefits. Regardless of the geographic or market cap size category, global equity returns have become increasingly correlated over the past decade.

Based on monthly returns over the past five years, the S&P 500 and the MSCI-EAFE, which tracks developed markets, registered a correlation of 0.85. (A perfect correlation is 1.0.) Similarly, the MSCI-EM index, which represents emerging markets, sported a 0.78 correlation with the “500.” Mid and small-cap U.S. stocks also had correlations of at least 0.77 with developed and emerging markets, as well as larger U.S. blue chips.

However, S&P Equity Strategy believes increased correlations are only part of the story. Even though markets are more directionally correlated than ever, they still have diverging total returns, reinforcing their diversification benefits.

While the S&P 500 index, the MSCI EAFE index, the MSCI Emerging Market index, the S&P MidCap 400, and the S&P SmallCap 600 index have all posted positive trailing five-year total returns, the magnitude of the gains has varied widely.

While the “500″ has returned 9.5% annually over the past 5 years (through May 7), the MSCI EAFE index and the MSCI EM index have returned 17.2% and 25.9%, respectively, highlighting their powerful portfolio diversification benefits. Similarly, the S&P MidCap 400 index and the S&P SmallCap 600 index have posted returns of 12.5% and 12.6%, respectively, thereby adding value to a diversified portfolio. Hence, despite increasing directional correlation, the inclusion of a wide array of equity asset classes has significantly benefited portfolio performance.

In addition, country level analysis indicates both developed and emerging Asian equities are significantly less correlated to the S&P 500 than other international equity asset classes. Most notably, the MSCI Japan index (EWJ) sports only a 0.29 correlation with the S&P 500, among the lowest in the world.

We maintain our 65% equity allocation, divided between 40% domestic and 25% foreign. Our U.S. allocation includes 34% in large caps (http://www.businessweek.com/ticker/), 4% in mid-caps (http://www.businessweek.com/ticker/), and 2% in small-caps (http://www.businessweek.com/ticker/). The international allocation includes a 17% weighting in the MSCI EAFE index, comprised of developed overseas markets like Europe, Australia, and Hong Kong (http://www.businessweek.com/ticker/); a 5% emerging market weighting (http://www.businessweek.com/ticker/), which includes China, India, South Korea, Taiwan, Latin America, Eastern Europe, Africa, and the Middle East; and a 3% allocation to Japan (http://www.businessweek.com/ticker/).

Although Japan is included in the MSCI EAFE index, we afford it an additional weighting largely because of its low correlation to U.S. stocks, which we believe highlights its diversification benefits.

The clubby world of U.S. mortgage insurers received a jolt on Feb. 6 from news that the industry’s No. 1 player, MGIC Investment (http://www.businessweek.com/ticker/), agreed to acquire rival Radian Group (http://www.businessweek.com/ticker/) in a stock deal valued at around $4.9 billion. Shares of both outfits shot higher after the deal was announced.

Through subsidiaries, both companies provide private mortgage insurance (PMI), which protects mortgage investors in the event of default. Homebuyers are often required to purchase PMI when taking out low downpayment mortgages. Through a subsidiary, Radian also offers financial guaranty insurance in certain niche market sectors and reinsurance capacity.

Terms of the deal call for Radian holders to receive 0.9658 MGIC shares per Radian share. The deal is expected to close in the fourth quarter of 2007, pending approvals by regulators and shareholders. The combined company, to be known as MGIC Radian Financial Group, will have nearly $15 billion in assets with more than $290 billion of primary mortgage insurance in force.

MGIC CEO Curt S. Culver will serve as chairman and CEO of the combined company. S.A. Ibrahim, current CEO of Radian, will be president and COO of the combined company, and will succeed Culver as CEO in 2009 and as chairman in 2010. The combined companyЙs headquarters will be located in MGIC’s hometown of Milwaukee.

“Our companies have similar goals and shared values regarding increasing shareholder value. We will take a deliberate, methodical approach to integrating our companies, making certain that customers continue to receive high quality service and that our shareholders realize the potential benefits of this merger,” said Culver in a Feb. 6 press release.

“The appeal of this merger is compelling by any measure Г strategically, financially and operationally,” said Ibrahim in the press release.

The combined company expects to realize aggregate cost savings of $128 million, pre-tax. It expects to incur restructuring costs of approximately $125Г$150 million, after tax. The companies figure that the planned cost reductions could add 2.8% to EPS in 2008 and 6.3% in 2009.

In a Feb. 6 note, Standard & Poor’s Ratings Services said its ‘A’ ratings on MGIC and Radian are not affected by the merger deal. S&P Ratings believes there is “a good strategic fit” between the two companies in the mortgage insurance sector. “When the transaction is complete, the combined entity will be the largest industry player by far, significantly changing the playing field for all U.S. mortgage insurers” said the ratings agency.

Meanwhile, Standard & Poor’s Equity Research, which operates separately from S&P Ratings, was bullish on the deal. Analyst Stuart Plesser said he expects cost savings of roughly $130 million, with 75% likely to be realized in 2008. He also said the two companies make “a good fit”, since Radian would add more international exposure to MGIC’s heavily domestic book of business.

Plesser boosted his target price for MGIC by $6 to $77 and maintained his buy rating on the stock. He also boosted his target price for Radian by $8 to $77. (Standard & Poor’s, like BusinessWeek.com, is a unit of The McGraw-Hill Cos.)

Investors liked the combination as well. Shares of MGIC jumped 11.4% to $70.09, while Radian climbed 9.3% to $66.51, in NYSE trading Feb. 6.