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FROM THE BLOGS: MONEY & CO.

Teachers fund ponders whether to light up

June 05, 2008|Tom Petruno | Times Staff Writer

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Starting today, Business will occasionally print excerpts from Money & Co., a blog that tracks the market and economic trends that shape your finances. Visit latimes.com /moneyandco.

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In politically correct society, teachers and cigarettes are a bad combo.

So the California State Teachers' Retirement System should have known it would be courting brickbats by considering new investments in stocks of tobacco companies, after divesting itself of them in 2000.

The board of CalSTRS, as the pension fund is known, took up the question of tobacco-company investing at a meeting Wednesday and then voted to continue the discussion later this year.

That was after the Sacramento Bee, in a story Wednesday, flagged the item on the board's agenda, bringing an angry response from the American Lung Assn. of California and a more muted (but still negative) reaction from state Treasurer Bill Lockyer.

Tobacco stocks were ousted eight years ago from the portfolios of CalSTRS and from CalPERS, the California Public Employees' Retirement System, because of concern that the companies would be financially ruined by product-liability lawsuits.

They weren't. Instead, an index of nine big tobacco stocks has racked up a 292% total return (price appreciation and dividends) since the end of 2000, compared with a mere 21% return for the Standard & Poor's 500 index.

That would have meant some extra money for CalSTRS' now $170-billion portfolio, and therefore a bit more retirement security for the state's teachers. So the fund is reconsidering the tobacco-stock ban "based on fiduciary issues," spokeswoman Sherry Reser said.

Hooey, says the American Lung Assn. of California. Investing in the stocks would be "contrary to the state's policy on reducing tobacco use," said Paul Knepprath, the association's vice president of government relations.

"There are other issues here besides the responsibility to make money for teachers' retirement," he said.

Lockyer, too, took a swipe at the idea, saying he wanted further study of whether "we can fulfill our legal duty to teachers without investing in products that kill."

CalPERS, so far, says it isn't considering a policy change on tobacco stocks.

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Oil slides while natural gas rises

Crude oil continued to slide Wednesday, but the natural gas market apparently didn't get the memo about lower prices.

Natural gas futures jumped to the highest level since December 2005 as some traders focused on predictions of a nasty hurricane season that could interrupt gas supplies from the Gulf of Mexico.

Near-term gas futures in New York rose 16 cents to $12.38 per million British thermal units. The price has risen 6.3% since May 21 -- while crude oil has fallen 8.2% in the same period, including a drop of $2.01 to $122.30 a barrel Wednesday.

Oil has been everybody's favorite commodity to hate this year, but it's a piker compared with natural gas. The latter is up 66% this year; oil is up 27%.

Crude prices pulled back Wednesday, after the government reported a further drop in gasoline use and a jump in inventories. At last, high oil prices are bringing on what economists like to call "demand destruction." We'll just call it what it is: Many consumers can't afford to drive their big honkin' SUVs anymore.

As for natural gas, this is the time of year when U.S. inventories are rebuilt. They currently are about 17% below their level of a year ago, a factor underpinning prices.

Also, a widely followed forecaster is predicting four major Atlantic hurricanes this year, encouraging natural gas bulls who see the potential for gulf supply interruptions.

Summer weather is another variable. Extreme heat could boost air-conditioning demand and thus energy use by natural-gas-fueled power plants.

So even if you aren't paying The Man more at the pump, you may be paying him more at the thermostat.

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tom.petruno@latimes.com

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