Brazil is trying to restart its economic growth spurt

SAO PAULO, Brazil — The Brazilian government is hoping to get South America's largest economy kicking again.

It has yanked down interest rates to record lows and kept the value of the real, the Brazilian currency, in check. The government has even doled out tax cuts in attempts to boost growth.

But so far, there's not much evidence those strategies are working — and key economic data released Friday probably won't change things.

The government reported the economy grew less than 1% for 2012, which was slightly below what economists expected. That expansion in gross domestic product was well below the 4.5% the country had been recently averaging, presenting a challenge for a government that needs growth to continue its social progress.

"We're suffering from a hangover from growing too fast, and the slowdown in 2011 and 2012 has been worse than we expected," said Caio Megale, an economist at the Brazilian bank Itau Unibanco. "We're waiting to get back on track in 2013 and 2014, but still, because of structural limitations we think that for the time being we'll grow slower than we did from 2005 to 2010."

Brazilians are living better than ever, enjoying record-low unemployment and still-rising wages. But more social gains depend on how — and whether — the country rebounds, economists say.

In Latin America, countries such as Mexico and Colombia are sucking in some of the investment that used to come to Brazil when it was still an investors' darling. After overtaking the UK as the world's sixth-largest economy last year, Brazil slid back into seventh place, ahead of France.

Investors have been startled by stubborn inflation, low productivity and onerous taxes that have reappeared as the country attempts to get back on track. Stocks have slid, and the Brazilian government hasn't done much to make it easy for foreign investors.

"Investing in Brazil is less of a no-brainer now," Megale said. "You have to know what stock or asset you're investing in. It's not just that you bring your money in and automatically make more money, like it was before."

For much of the 21st century so far, two factors propelled the previously long-suffering Brazilian economy forward.

First, Asian demand for commodities such as iron ore and soy pushed up prices, and money poured into Brazil. From 2000 to 2011, Brazilian exports to China increased more than fortyfold.

Second, governments put the country's previously crisis-ridden financial system on track, enabling Brazilians to go on a credit-fueled spending spree, often for basic (and Asian-made) consumer items such as refrigerators, cars and washing machines.

The resulting boom, combined with moderate social programs put in place by the government of Luiz Inacio "Lula" da Silva, has lifted almost 40 million Brazilians out of poverty and reduced the often shocking inequality among the country's residents. Investors got some nice returns, and Brazil emerged on the world stage — winning the rights to host the 2014 World Cup and 2016 Olympics in Rio de Janeiro.

But a recent slowdown in China, not to mention the European economic crisis, has taken its toll. Banks say Brazilian consumers are reaching the limit of debt they can take on.

After the economy averaged 4% to 5% GDP growth per year in 2005-10, growth dropped to 2.7% in 2011, and in 2012 it is expected to have been less than 1%.

"We think the growth from 2005 to 2010 was an exceptional period, owing to factors that won't be repeated," said Tony Volpon, an economist with Nomura in New York. He expects Brazil to grow 3.5% this year. "The government is waiting for the measures taken in 2012 to sooner or later cause growth, but those measures may have simply failed."

From 2011 to 2012, Brazil's central bank brought interest rates down to 7.25% from as high as 12.5% — around where they had long hovered as some of the highest in the world. The government also granted ad hoc tax breaks to stimulate industry and continued intervening in the foreign exchange markets.

The much-feared threat of inflation has also reared its head again. Inflation may be approaching the official upper limit of 6.5%.

That's still much lower than problematic levels in neighboring Argentina, but Brazil is especially averse to price rises after going through years of hyperinflation. Some parts of the market want the central bank to change course and raise rates again.

"Growth will stay slow unless there are structural changes, and that really means reform. There is some low-hanging fruit for easy changes, such as with the tax code, which is very silly in places," Volpon said. "But unlike in Mexico, there is no political consensus here for reform at the moment."

This may be because in the streets of Brazil, normal people are feeling great, and the government is confident. While investors have taken a hit, high wages and low unemployment have gone hand in hand with approval ratings for President Dilma Rousseff as high as 78%. With most people happy, there is little incentive to make changes.

But all will not stay rosy if growth doesn't return, Volpon and Megale said.

Many Brazilian industries are in dire need of skilled laborers, having already snapped up everyone available. Economists believe a scarcity of productive workers is one of a few obstacles to getting the country back on track, along with huge infrastructure bottlenecks long in need of investment.

"If we can't get investment up to 25% of our GDP, we'll never be able to grow at the rates we had going recently," said Paulo Sandroni, professor of economics at the Fundacao Getulio Vargas, an elite business school. Poor infrastructure could also be a headache during the World Cup and Olympics.

The worst-hit part of the economy, however, has been industrial production, undercut by competition from China, high costs, and an overvalued real.

"So far a consumer boom has counteracted drops in manufacturing output," Sandroni said. "But the weakening of the dollar really hurt us."

After the real climbed against the dollar, making Brazilian exports less competitive, Brazil Finance Minister Guido Mantega in 2010 blamed loose monetary policy in the United States, then put in place a shifting regime of capital controls that made it harder to invest in the country.

The real eventually came down, but as with low interest rates and the fiscal stimulus, the expected benefits have not yet materialized.

business@latimes.com

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Airports big and small may feel effects of federal budget feud

Get ready for longer lines at Los Angeles International Airport, slower delivery of packages and the possible shutdown of small Southern California airport control towers if a resolution isn't reached on federal budget cuts.

The good news is that the biggest effects probably will not take hold until April, giving President Obama and congressional leaders time to hammer out a deal to resolve the budget feud.

But if no agreement is reached, the Federal Aviation Administration will be forced to cut its budget about $600 million. That could force the FAA to close more than 100 air traffic control towers across the country, primarily at smaller regional airports, including in Santa Monica, Victorville and Oxnard.

The night shift for air traffic controllers could also be eliminated at about 70 larger airports, including LA/Ontario International.

The federal agency has also put out the option of furloughing FAA employees for one or two days per two-week pay period, beginning in mid-April.

At Los Angeles International Airport, officials say it is too early to gauge how much of an effect the budget cuts would have on the average air traveler.

But Transportation Security Administration head John Pistole said lines at security gates at major airports across the country could grow longer during the peak spring and summer travel seasons if he is forced to cut overtime pay, which would reduce the number of screening officers.

"The longer it goes, the greater the potential impact," he said of the budget battle.

The National Air Traffic Controllers Assn. expects the cuts to lead to fewer flights and increased delays of as long as 90 minutes during peak hours.

"Safety will remain the top priority, but in order to maintain the appropriate level of safety with fewer controllers, fewer planes will be allowed in the sky, as well as in and out of airports," the group said in a statement.

The FAA has announced plans to shut down towers at airports with fewer than 150,000 landings and takeoffs a year. Santa Monica Airport, which is on the FAA closure list, operates about 105,000 landings and takeoffs a year. Van Nuys Airport, which is not on the list, has more than 250,000 landings and takeoffs.

Still, the effect on smaller airports on the FAA cut list may not be severe because pilots can land and depart without the help of an air traffic controller by keeping track of each other through radio communications.

Joe Justice, who operates Justice Aviation, a company that offers flying lessons at Santa Monica Airport, said he doesn't expect his business to face major changes if the tower is closed.

"We would continue to give flying lessons," he said. "There would be no reason not to. We would depart here and practice at a place where there is an open tower."

Private jet charter companies said they may even get more business if sequestration increases delays on commercial airlines, forcing passengers to charter a jet.

"People who are sitting on the fence about wanting to hire a private jet may spend the extra money so they won't be caught in a situation where they have no idea how long their delays will be," said Ben Schusterman, founder of Los Angeles-based ElJet.

The closure of overnight shifts at the control tower in Ontario could eliminate 12 passenger flights, or 9% of operations, but a bigger effect would be the loss of 73 cargo flights, or 36% of all cargo operations.

Cargo operators at Ontario said they were still unsure of the effect of budget cuts on their businesses.

"UPS is closely monitoring the sequestration proceedings," United Parcel Service Inc. spokesman Mike Mangeot said. "And while we are in communications with the FAA regarding the effects of the possible cuts, it is premature to speculate at this time."

hugo.martin@latimes.com

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Island Air is Ellison's latest buy

How do you follow the purchase of an island in Hawaii?

If you're Oracle Chief Executive Larry Ellison, you buy an airline so you can hop to and from your tropical paradise.

Ellison has been on a shopping spree lately, buying 98% of the island of Lanai in June from Los Angeles billionaire David Murdock and then, in November, buying a beachfront Malibu home from film and TV producer Jerry Bruckheimer.

Ellison's most risky acquisition may be Island Air, which he bought Wednesday through a holding company.

The exact purchase prices of Ellison's recent deals have not been disclosed, but local observers value the 141-square-mile island at more than $500 million and the three-bedroom, three-bath Malibu pad at more than $3.65 million. The details of the airline deal were not announced.

Island Air, a regional carrier serving airports on all major Hawaiian islands, has 245 employees and three turboprop planes, with 224 weekly flights between the islands of Oahu, Maui, Molokai, Lanai and Kauai.

Lanai, the sixth-largest Hawaiian island, was once a pineapple plantation and is still sparsely inhabited. It includes two resort hotels and two golf courses with clubhouses, according to Hawaii's Public Utilities Commission.

But Ellison did not buy the airline just to get to and from his island, airline officials say.

He hopes to expand the businesses to serve locals visiting relatives on the islands and to fly mainland and foreign tourists throughout the island state, airline officials said. The airline plans to retire two 1980s-era planes and expand to four or five new ATR 72 turboprops by the end of the year.

But Ellison should not get his hopes up about pocketing big profits, said Ray Neidl, an aviation analyst for Nexa Capital Partners in Washington, D.C.

"It's a high-risk situation with no significant margins, at least initially," he said of owning an airline.

And if Ellison hopes to expand the business, he should expect to get some resistance from the big carrier on the island, Hawaiian Airlines, Neidl added. "It really depends on what Hawaiian does."

Island Air began in 1980 as Princeville Airways, carrying passengers from Kauai to Honolulu. The history of the carrier has not always been blue skies and soft landings.

"In our 30-plus years, we had our ups and downs, pardon the pun," said Michael Rodyniuk, a senior consultant to the airline.

Like most airlines across the country, he said, Island Air struggled during the economic turmoil between 2008 and 2012 but expects to thrive with a surge in tourism that Hawaii has been enjoying in the past year or so.

The state welcomed a record 8 million visitors in 2012, surpassing the previous high of 7.6 million visitors in 2006.

"All major markets are up," Rodyniuk said.

The previous owner of the airline, California businessman Charles Willis IV, had been looking for a buyer for the airline and had put all 245 employees on notice that layoffs could begin as soon as March 11 if a buyer was not found, he said. "So Mr. Ellison saved 245 jobs," Rodyniuk said.

Forbes ranks Ellison as the third-richest American, with a net worth of $36 billion. He has cut big checks in the past on high-priced properties in Malibu, Lake Tahoe, Rancho Mirage and other locations.

But unlike real estate, air carriers are an investment that can give investors nightmares.

Virgin America, a California-based airline partly owned by millionaire Richard Branson, has been operating for more than five years without recording a profitable year.

California Pacific Airlines is the brainchild of Encinitas businessman Ted Vallas, who has already invested more than $6 million of his own money but has spent the last year trying to clear federal red tape so he can begin selling tickets.

And then there are the 11 other airlines — including American, Delta, United and US Airways — that have filed for bankruptcy since 2000.

"The profit margins on airlines, even though they are improving, are not that attractive," Neidl said.

hugo.martin@latimes.com

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Deficit hawks' 'generational theft' argument is a sham

Here's a phrase you can expect to be hearing a lot in the national debate over fiscal policy, as we move past the "sequester," which is the crisis du jour, and toward the budget cliff/government shutdown deadline looming at the end of March:

"Generational theft."

The core idea the term expresses is that we're spending so much more on our seniors than our children that future generations are being cheated. An important corollary is that the government debt we incur today will come slamming down upon the shoulders of our children and grandchildren.

The generational theft trope has already been receiving a vigorous workout in the press. Earlier this month, the Washington Post gave great play to a study by the Urban Institute stating that the federal government spends $7 on the elderly for every dollar it spends on kids. As we shall see, this is true as far as it goes, but it doesn't go nearly far enough to render an accurate picture of government spending.

The National Journal, another influential publication in Washington, picked up the theme last week by observing that because the sequester exempts Social Security and Medicare from budget cuts, the automatic spending reductions it mandates will fall disproportionately on education and other such boons to the young. This will "deepen the budget's generational imbalance."

This is also a bedrock argument of the anti-deficit organizations, such as Fix the Debt, associated with hedge fund billionaire Peter G. Peterson. For decades he has pursued a wearisome and spectacularly self-interested campaign to cut Social Security and Medicare benefits for the working class so taxes won't go up too much on the wealthy.

One of those organizations, called "The Can Kicks Back," promotes a "Millennial-driven campaign to fix the national debt." But backstopping its twenty- and thirty-something leaders is an advisory board comprising such Peterson frontmen as Morgan Stanley board member Erskine Bowles and former Sen. Alan Simpson (R-Wyo.). These guys are "millennials" only if we're talking about the last millennium before this one.

So here's the truth about the "generational theft" theme: It's wrong on the numbers and wrong on the implications.

Let's start with that 7-to-1 spending ratio on seniors versus children. Among the flaws in the calculation is that the vast majority of government dollars spent on children comes from state and local governments, which pay most of the cost of education. On a per capita basis, state and local spending on kids swamps the federal government's spending 8 to 1.

Moreover, there are twice as many children 18 and under as seniors 65 and over (this 2008 figure also comes from the Urban Institute report). Put the numbers together and you discover that spending by governments at all levels in 2008 came to about $1 trillion on seniors and $936 billion on children. In other words, very close to 1 to 1.

The notion underlying the comparison of spending on seniors and children is that "if you save a dollar on Social Security it would be transferred automatically to children," observes Theodore R. Marmor, an emeritus professor of public policy at Yale and a long-term student of social welfare programs. He traces this notion to deficit hawks and dismisses it as "not naive, but cynical."

That's because most of the spending on seniors is in Social Security and Medicare, and therefore has been largely paid for by those very beneficiaries over the course of their working lives.

Payroll taxes have more than covered what today's average retiree will receive back from Social Security. They won't cover the average payout on Medicare, but that's an artifact of uncontrolled healthcare costs, not of the structure of Medicare itself. Changing the terms of that program, say by raising the eligibility age (currently 65) won't save money and may actually raise costs.

In other ways, treating Social Security and Medicare spending on the one hand and spending on kids on the other as though they're opposite sides of a zero-sum game is just an act of ideological legerdemain aimed at undermining those programs.

If America wants to spend more on children, it's plenty rich enough to do so without eating away at the income of their grandparents. The money can come from the defense budget, farm supports or dozens of other places, even higher income taxes.

Let's not forget, too, that the people who will really suffer from gutting Social Security won't be today's seniors, who will escape the worst of the cutbacks — they'll be today's young people, for whom Social Security would become much less supportive when they retire.

What about the debt load we're supposedly imposing on future generations? This is another transparently Petersonian feat of sleight of hand, based on the assertion that while it's we who incur the debt, it's our children who will have to pay if off.

All the hand-wringing over today's borrowing conveniently assumes that the debt buys nothing, which makes it easier for debt hawks to pretend that it's only an expense and not an investment.

But money borrowed for the stimulus has bought jobs and unemployment benefits, which have helped sustain families through the Great Recession. (At least a few of those families have children, wouldn't you guess?)

In a larger sense, money borrowed by every generation is typically invested in programs and infrastructure — highway, schools, research and conservation, for example — that will add to future generations' wealth.

It's the persistence of the "generational theft" claim, which bubbles up every few years, that exposes its ideological roots.

It's a fundamental piece of a decades-long campaign to distract Americans into thinking that the threat to their way of life comes from a war of old against young, rather than an intra-generational class war in which the vast majority of economic gains from improvements in worker's productivity has flowed to the wealthy, not to the workers.

The economist Dean Baker observes, for example, if the federal hourly minimum wage had merely kept up with productivity growth after 1969 rather than stagnating (and getting eaten away by inflation) it would be more than $16.54, and we wouldn't be arguing about whether the country can "afford" an increase to $9.

The "generational theft" argument is a sham. It's an attempt to get around the fact, so distasteful to the enemies of government social programs, that Social Security and Medicare are hugely popular. As Marmor observes, if you can't put across the case that these programs are undesirable, "you have to make them look uncontrollable, ungovernable, and therefore unaffordable."

The argument has been tried out on several generations in the past, and they've seen through it. Today's generation should see through it too.

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.

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Coordinated healthcare could save California $110 billion, group says

California could cut $110 billion in healthcare spending over the next decade, saving the average household $800 a year, by quickly moving away from conventional fee-for-service medicine and embracing more coordinated care, a new report says.

These findings released Tuesday come from the Berkeley Forum, a new group of healthcare executives, state officials and academics that studied California's healthcare market for the last year in hopes of finding ways to make care better and more affordable. The main recommendations are not entirely new, and these shifts are already underway in response to the federal healthcare law and pressure from employers to tame runaway medical costs.

But the group's report does quantify how much work remains to be done and the potential savings if major changes are made in how doctors and hospitals are paid. Health-policy experts at UC Berkeley convened this group, which included high-ranking executives from Kaiser Permanente, Anthem Blue Cross, Cedars-Sinai Medical Center and other industry players.

"This could be a game changer in the state," said Stephen Shortell, dean of the School of Public Health at UC Berkeley and a coauthor of the report. "These are the CEOs of big insurers, big health systems and large medical groups saying it's time for a change, and these are the people who can get things done."

The Berkeley Forum calls for a major shift toward "global budgets," in which physicians and hospitals provide care under preset amounts that are adjusted to reflect the health of their patients. These payments would also be tied to providers' performance on several quality measures.

This is similar to the "capitated" payments managed-care companies and HMOs have used for years in California. HMOs already cover 44% of California's population, which is about double the nationwide rate.

Despite that high penetration, the report's authors found that 78% of the state's healthcare costs, or about $245 billion annually, are still paid through fee-for-service arrangements, which can encourage medical providers to perform unnecessary tests and procedures. The report calls for reducing the share of fee-for-service payments to 50% by 2022.

The Berkeley Forum also says California should double the share of the state's population receiving integrated care from medical providers to 60% within the next decade. The most visible example of integrated care in California is Kaiser Permanente, the Oakland nonprofit that coordinates care across its hospitals and physician groups.

Other health insurers, hospitals and doctors are collaborating in similar ways through accountable-care organizations, medical homes and other initiatives that have strong backing from Medicare. Shortell acknowledged that there are "legitimate concerns" about this integration leading to higher prices as hospitals, clinics and physician groups rapidly consolidate.

The $110 billion in healthcare savings targeted by the group would amount to 2.5% of overall spending of $4.4 trillion over 10 years in California, according to the report. Those savings would mean an extra $800 annually for every California household.

Overall, the report found that 53% of the state's healthcare dollars are spent on just 5% of the population, illustrating the high cost of treating certain chronically ill patients.

Pam Kehaly, president of Anthem Blue Cross in California, said this industrywide collaboration "puts us on a path to improving the ailing California healthcare system."

chad.terhune@latimes.com

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Herbalife is global giant with business model in question

Stock spotlight is a new weekly feature that will profile a notable, public company.

The company: Herbalife Ltd.

Headquarters: Los Angeles

Ticker: HLF

Employees: 6,200 employees and 3.2 million independent distributors worldwide

Revenue: $4.1 billion in 2012

Net Income: $477 million in 2012

Stock Price: $36.79 at Friday's close

52-week range: $24.24 to $73

Annual dividend: $1.20 a share annually, a current yield of about 3%

P/E Ratio: $7.87, based on 2013 estimated earnings

The business: The company sells weight-loss, nutrition, hair- and skin-care products in more than 80 countries, utilizing independent distributors who profit from their own sales and sales from others they recruit into the business. Its top-selling product is cookies and cream flavor Formula 1, a high-protein, meal-replacement shake mix. Herbalife does very little mainstream advertising and does not sell products in retail stores. Instead it relies on a network of independent distributors who recruit customers, counsel them about nutrition and fitness and sell them products. The company recently agreed to a $44-million, 10-year deal to sponsor the Los Angeles Galaxy professional soccer team, one of many professional sports clubs it supports around the world.

The latest: Wall Street veterans say they've never seen a fight like this. Noted hedge fund managers Bill Ackman and Carl Icahn have engaged in a heated debate about Herbalife's business model, with billions of dollars at stake. Ackman has taken a $1-billion "short position" against the company's shares, meaning he'll profit if the stock price drops. In a slick, multimedia pitch on Wall Street, Ackman contended that the company is a well-disguised pyramid scheme. He said the vast majority of the company's independent distributors make little money or lose money, while a fortunate few get rich off commissions they receive for recruiting others into the business. Ackman said he expects Herbalife's shares to hit zero. Icahn said he has purchased nearly 13% of the company's shares and planned to talk to executives about strategies to increase its profitability, including taking it private. Herbalife acknowledged discussions with Icahn but did not elaborate. The company insists its business model is completely legal. Herbalife said it sells products that help people live healthy lives while giving entrepreneurs an opportunity to build their own businesses.

Accomplishments: The company reported record sales and profit in 2012 and said it expects things to improve in 2013. It has mountains of available cash, pays a decent dividend and repurchased 15 million — or more than 10% — of its shares in little more than a year.

Challenges: Herbalife shares have been extremely volatile in the last nine months, plunging more than 40% in the days after Ackman's attack, and falling 20% in a single day in May after hedge fund manager David Einhorn questioned the company's business model. Herbalife has acknowledged it is under review by the Securities and Exchange Commission. The Federal Trade Commission released dozens of complaints it has received about Herbalife in recent years. Neither agency has confirmed an investigation.

Analyst opinions: Seven analysts have the stock as a buy or strong buy, while four have it as hold. The average one-year target price is about $58 a share.

Voices: "Our belief remains steadfast that Herbalife operates a perfectly legal multilevel marketing model that has proven particularly efficacious in the weight-loss category.... Herbalife's sustained growth and 30-plus year history in a highly regulated industry indicate a legitimate business [because] pyramid schemes are unsustainable." — Scott Van Winkle, analyst, Canaccord Genuity;

"Buckle up, it's going to be bumpy.... We are maintaining our overweight, but recognize that the stock is not for the faint of heart. We expect Mr. Ackman to continue to make noise on his short thesis, however, and for the potential for an FTC investigation to be an overhang on the stock for the indefinite future." — Brian Wang, analyst, Barclays Capital;

"It is clear that over time Herbalife is answering the questions that need to be answered and providing greater clarity around their business model — one that we see as simple but effective. We think it logical that, as these questions are finally answered to the investment community's satisfaction, the shares will trade, finally to the premium valuation we believe it deserves. The scarlet letter it wears today in the minds of the short seller community will be removed." — Timothy Ramey, analyst, D.A. Davidson & Co.

stuart.pfeifer@latimes.com

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Jason Bateman gives Ernest Borgnine's estate a new identity

Markus Canter and Cristie St. James, who share the title luxury properties director at Prudential in Beverly Hills, like Jason Bateman's real estate sense. The actor got privacy, potential and a knoll location for $3 million.

Actor Jason Bateman and his wife, actress Amanda Anka, are dropping anchor in the Beverly Crest area with the purchase of the estate of Ernest Borgnine for $3 million.

The gated country English compound sits on a half-acre knoll. The 6,148-square-foot home features a formal entry hall, a grand staircase, a paneled library, an office, a den, six bedrooms and seven bathrooms. There is a guesthouse and a swimming pool.

Bateman, 44, stars in the comic film "Identity Thief," released this month. He is known to generations of TV viewers for his roles in "Arrested Development" (2003-present) and "Valerie," later retitled "The Hogan Family" (1986-91). Anka, 44, has appeared in "Bones" (2008), "Notes From the Underbelly" (2007) and "Beverly Hills, 90210" (1996).

Borgnine, who died last year at 95, is remembered for his Oscar-winning performance in "Marty" (1955) and his work in the title role as commander of a madcap crew in the sitcom "McHale's Navy" (1962-65). Until 2011 he was the voice of Mermaidman on "SpongeBob SquarePants."

The estate came on the market in October for the first time in 60 years priced at $3.395 million.

Billy Rose, Paul Lester and Aileen Comora of the Agency in Beverly Hills were the listing agents. Richard Ehrlich of Westside Estate Agency represented the buyers.

Where pair spent days of their lives

Soap star Peter Reckell and his wife, singer Kelly Moneymaker, have sold their custom-built, eco-friendly home in Brentwood for $3.35 million.

Before building the 3,345-square-foot house, the couple had the existing home on the site torn down, crated and shipped to Mexico for reuse by Habitat for Humanity. Then they designed and built a three-bedroom, four-bathroom contemporary that uses solar power.

Green elements include a photovoltaic system with battery backup, skylights, recycled glass terrazzo floors with radiant heating, recycled denim and organic cotton insulation, bamboo cabinets and doors, a roof garden and a water reclamation system.

A temperature-controlled wine cave and a recording studio are among other features.

Along with an indoor/outdoor koi pond, a meditation fountain and a solar infinity pool, outdoor amenities include a 16th century East Indian temple that was turned into a pavilion.

"This is my sanctuary," Reckell said. It frames views of the Santa Monica Mountains Conservancy.

Reckell, 57, played Bo Brady on "Days of Our Lives" from 1983 through last year. The show began in 1965. He also appeared in "Knots Landing" (1988-89). He is an avid environmentalist and bikes to work.

Moneymaker, 42, is a former member of the music group Exposé. She was inspired to build an environmentally friendly home because the carpet and other elements in the old house bothered her allergies and affected her voice.

Public records show they bought the property in 2003 for $1.14 million.

Daniel Banchik of Prudential's West Hollywood office was the listing agent. Scott Segall of John Aaroe Group represented the buyer.

Another rock owner for home

Hard Rock Cafe co-founder Peter Morton has made his mark on L.A.'s real estate scene of late, buying the old Elvis Presley estate in Beverly Hills at year-end for $9.8 million.

But flying under the radar was his bigger off-market purchase midyear for a property in Bel-Air at $25 million, public records show. Area real estate agents not involved in the transaction say Morton plans to take down the existing home and build another on the site. The estate had belonged to Joseph Farrell, who founded National Research Group Inc. in 1978 and brought market testing to Hollywood. Farrell died in December 2011.

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2013 Mustang GT: Does retro have a future?

A decade ago, as Ford engineers prepared the next-generation Mustang, they stared down an inescapable truth: The best Mustangs were built in the 1960s.

So they set out to build a brand-new 1968 Mustang fastback, wrapping modern technology in retro sheet metal. That strategy carried its own risks, like asking the Rolling Stones to rerecord "Exile on Main Street."

It's clear now that it worked brilliantly, setting off an unlikely second coming of the muscle car era. In a familiar stampede, Chevrolet and Dodge — which scrambled in the '60s to make their own "pony cars" — followed Ford's lead again with refried versions of the original Camaro and Challenger.

Photos: Mustangs through the years

The 2013 Mustang GT we tested recently, a drag-strip beast that could smoke most anything from the '60s, may be among the last of the retro breed. With the Mustang's 50th anniversary approaching next year, the engineers in Dearborn, Mich., are again feverishly designing the next-generation Mustang. They face an even tougher challenge: How do you take a car into the future after you've taken it a half-century into the past?

However wonderful the next Mustang may be, it will be a shame to see this one pass into history, whence it came. The successful remake of the 1967-68 car represents a kind of redemption for dumb decisions Ford made when it abandoned the early Mustangs in the first place, leading to a series of putrid pony cars throughout the 1970s. (Note to Ford: DO NOT bring back the Mustang II.)

A week in the old-school cockpit of the latest GT confirms that its ride, handling and shifting are an upgrade over both ancient and recent Mustangs, which have always been a bit crude — endearingly so.

Ford has also pulled off a subtle but substantial evolution of its retro design. A mid-cycle refresh in 2010 added a sharpened belt line and a rear end pinched in on both sides. For 2013, Ford added a more prominent front grille and other tweaks. The updates somehow made the car look simultaneously less dated and more like the old car.

But only one option really matters on this car: the 302-cubic-inch, 5.0-liter V-8, a direct descendant of the first 302 small-block introduced in the 1968 Mustang, now with a ludicrous 420 horsepower and 390 pound-feet of torque. The first retro Mustang GT, a 2005 model, was impressive enough with 300 horses. Piling on 120 more is like deep-frying bacon in pork fat.

With the optional six-speed manual, it's difficult to launch the GT without roasting enough rubber to set off neighborhood smoke alarms. Shifts into second gear provoke another loud bark from the rear tires. Pushing the 7,000-rpm redline in higher gears requires acres of open highway.

The car's least-expected quality is a near-optimal trade-off between aggressive handling and a comfortable ride, both of which came in handy on the twisty, pockmarked Pasadena Freeway.

The GT has its issues. All Mustangs do. Their point has never been perfection, but rather the proper ratio of performance to price. The car can be a handful to drive in town, and feels a tad too big and heavy. Its center console is awkwardly angled up toward the back seat, making manual shifting an elbow-bumping affair.

Proper flogging of the GT also exposes a drawback to the whole '60s motif. The retro thing extends to the tall, skinny numbers on the circular analog speedometer. They're cool but hard to read, especially in the split second you have to look down, past your white knuckles, as the horizon starts to blur.

The GT dispenses with zero to 60 mph in 4.3 seconds on its way to 12.7-second quarter mile, according to Motor Trend. If you want something just a hair faster, plunk down $190,000 on an Aston Martin DB9.

Our loaded test car came to $40,255, a bit high for the quintessential affordable fast car. But GTs start at $31,545, and the V-6 base model — with a more-than-respectable 305 horsepower — brings the price down to $22,995.

All this sets a high bar for the next-generation Mustang. If Ford has learned anything from history, it will take care to avoid repeating what happened after the 1960s, a textbook case of messing with success. The first Mustang, a 1965 model unveiled on April 17, 1964, at the New York World's Fair, lasted just two model years — even though Ford sold more than a million of the cars. Feeling competitive pressure from Chevy and Dodge, the automaker rushed out two more generations before 1970. They were larger, faster cars, but respectful of the original.

Then Ford drove the Mustang into a ditch. The stretched and bloated 1971 Mustang, stripped of its trademark side-panel scoops, was a misguided attempt to turn the pony car into a luxury coupe. By 1973, as new emissions standards and an oil crisis took hold, horsepower had plummeted to a measly 150 for the strongest available V-8, according to a history of the Mustang by auto information company Edmunds.com.

That mere mistake was compounded by the crime against transportation known as the Mustang II, sold from the 1974 to 1978 model years. The mini-Mustang, which shared a chassis and engines with the lowly Pinto, today ranks second on Edmunds.com's list of 100 all-time worst cars.

The Mustang didn't fully recover until 1985, when Ford finally dropped a respectable version of its 5.0-liter V-8 into the long-running sixth-generation pony car. Horsepower topped 200 for the first time since 1971, and the "five-point-oh" models proved quite popular. (Today's GT gives a nod to this era with a small "5.0" badge just behind the front-wheel hub.)

The history no doubt weighs heavily on Mustang engineers now holed up in top-secret design sessions, walking the line between traditional and innovation. Whatever emerges will be the product of much pride and many arguments, says Jim Owens, a marketing manager for the Shelby line of ultra-performance Mustangs.

"There's a billboard on the plant that builds Mustangs. It says, 'We love taking our work home with us,'" Owens said, describing the factory in Flat Rock, Mich. "We will argue over a single pound of tire pressure and what it means at the apex of Turn 11 at Laguna Seca."

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Foreign tourists' spending in U.S. rises to new record

The U.S. continues to be a hot destination for big-spending tourists, setting a new record of $168.1 billion in foreign visitor spending in 2012.

The country last year welcomed 66 million foreign visitors, whose spending represents a 10% increase over 2011, said Rebecca Blank, deputy secretary of the U.S. Department of Commerce.

The greatest increase in visitors and spending came from countries with a burgeoning middle class, including China, Brazil and India.

Spending by foreign tourists has been on the rise for the last three years, with tourist hubs such as Los Angeles, Las Vegas, New York and San Francisco reaping much of the spending, Blank said.

"The coasts that are close to Asia and South America will see the notable effects," she said.

The federal government and the tourism industry have been paying special attention to foreign overseas tourists because they typically stay longer and spend more than visitors from Mexico or Canada.

Long-haul foreign visitors spend an average of $4,000 per visit, while visitors from Mexico and Canada — although they represent the greatest number of foreign tourists — spend less than $1,000 per visit, according to federal reports.

Visitor numbers from Europe — once the source of most of the U.S. tourism spending — have been dropping in recent years, as Europeans struggle with economic hardships. But the U.S. Department of Commerce predicts continued growth in tourists from Brazil (274% by 2016), China (135%) and India (50%).

To promote more foreign visitors, the Obama administration and leaders of the travel industry launched in 2011 a public-private partnership to promote the U.S. in foreign countries. The campaign, known as Brand USA, is funded by fees charged to visitors applying for visas and contributions from private firms.

The administration has also pushed the Department of State and the Department of Homeland Security to shorten the wait time for visa interviews and expanded a program to speed low-risk visitors through expedited security lines at major airports.

The number of international visitors rose to 62.3 million in 2011, up from 59.7 million in 2010, according to the Department of Commerce. President Obama has set a goal of welcoming 100 million foreign visitors by 2021.

"Our projection is that the travel and tourism industries are going to create over 1 million jobs in the next decade," Blank said.

hugo.martin@latimes.com

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Rebates for California electricity ratepayers clear hurdle

SACRAMENTO — California electricity ratepayers could get rebates of as much as $1.6 billion from more than a dozen power wholesalers that allegedly manipulated the market during the energy crisis of 2000, the state Public Utilities Commission announced.

The commission in a statement released late Tuesday praised an "initial decision" issued Friday by a federal administrative law judge who ruled in favor of the state in a complaint filed with the Federal Energy Regulatory Commission.

The judge's ruling, which still must be endorsed by the full federal commission, found the power wholesalers guilty of overcharging California utilities and limiting electricity supplies in the summer of 2000. That resulted in high prices and rolling brownouts and blackouts throughout the state that drove one utility, Pacific Gas & Electric Co., into bankruptcy.

The alleged manipulators, the PUC said, citing the judge's ruling, included Powerex, a wholly owned subsidiary of Canadian firm BC Hydro; Shell Energy North America, a subsidiary of Shell Oil Co.; TransAlta Corp. of Alberta, Canada; and the Bonneville Power Administration, part of the U.S. Department of Energy.

A Bonneville spokesman said the government-owned power agency is "disappointed with the outcome" of the judge's initial ruling but needs more time to analyze the decision.

PUC President Michael Peevey called the initial ruling by the judge a vindication for complaints brought by California officials on behalf of electricity ratepayers.

"We've been relentless in our pursuit of economic justice for Californians who were grievously overcharged for electricity during and after the energy crisis of 2000-2001," Peevey said. "We look forward to the day when all of these cases can come to a close and consumers can see the benefit of refunds of the overcharges."

marc.lifsher@latimes.com

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Macy's seeks to block Martha Stewart Living's pact with Penney

Macy's Inc., the second-largest U.S. department store chain, will go to court in New York on Wednesday to try to persuade a judge to permanently block Martha Stewart Living Omnimedia Inc.'s pact with J.C. Penney Co.

Macy's sued Martha Stewart Living in New York State Supreme Court in Manhattan in January 2012 to stop it from proceeding with an agreement announced with J.C. Penney the previous month. Macy's claims that it has an exclusive right to sell Martha Stewart-branded products in categories such as bedding and cookware.

Opening statements in the nonjury trial will be before state Supreme Court Justice Jeffrey K. Oing.

J.C. Penney Chief Executive Ron Johnson and Macy's CEO Terry Lundgren probably will testify next week, as will Martha Stewart, her company's nonexecutive chairwoman, Macy's spokesman Jim Sluzewski said Tuesday.

In July, Oing granted Cincinnati-based Macy's a preliminary injunction blocking Martha Stewart Living from taking any steps with J.C. Penney on products in the exclusive categories.

In August, Macy's sued J.C. Penney in the same court, seeking to block it from proceeding with the Martha Stewart Living agreement. Oing denied Macy's request in that case.

Macy's said J.C. Penney and Martha Stewart Living "made a conscious business decision" not to disclose their talks to Macy's until the contract was signed to avoid the risk of a restraining order that would bar the agreement.

"Macy's contracted with [Martha Stewart Living Omnimedia] at a time when the MSLO brand was associated with the significantly downscale Kmart and Ms. Stewart was just being released from prison," lawyers for Macy's said in a pretrial memorandum. "Taking losses at first, Macy's moved the brand in soft home goods upscale, a herculean task under the circumstances.

"Now defendants, in complete disregard of the Macy's agreement, seek to reap the rewards of Macy's work and to usurp the benefits of Macy's contract."

Martha Stewart Living has defended its agreement with J.C. Penney, accusing Macy's of breach of contract and saying the retailer stocked and priced Martha Stewart products in a manner that favors private-label brands. Martha Stewart Living also said Macy's couldn't have exercised a five-year renewal option on the agreement because of the breach.

Martha Stewart Living has argued that its original 2006 contract with Macy's allows Martha Stewart Living to design and sell products within the exclusive categories as long as they are sold through the Internet, television or at any retail store branded with the Martha Stewart name that's operated by the company or its affiliates or "prominently" features the brand, according to court filings in the case.

The agreement "gives Macy's the exclusive right, with important exceptions, to sell Martha Stewart-branded products in certain exclusive product categories," Martha Stewart Living said in a pretrial memorandum. "The agreement does not, however, give Macy's any exclusivity — as to design, promotion, sale or anything else — with respect to products that are not Martha Stewart-branded."

J.C. Penney acquired a 17% stake in Martha Stewart Living for $38.5 million in December 2011. The Plano, Texas, department store chain is seeking to revive sales with new mini-stores dedicated to Martha Stewart and other brands.

Martha Stewart Living said in July that J.C. Penney agreed to pay at least $282.9 million in sales commissions over a 10-year period under an amended agreement, a $110.5-million increase from the terms disclosed in December. The amended pact also adds new products.

For Martha Stewart Living, selling its goods to multiple retailers is important to reversing declining sales. The company, which also publishes magazines, has posted losses and decreasing revenue for four straight years, hurt by a drop in advertising demand, and analysts estimate the same for 2012. Its stock lost 44% of its value last year. The New York company announced in November that it was cutting publishing jobs as it focuses on the Web.

Macy's Lundgren has revived the department store partly by adding more exclusive merchandise including Martha Stewart's cookware, kitchen utensils and bed and bath items.

The judge said he has scheduled the trial to run through March 8.

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Audit of Fed's gold finds it's safe, more pure than expected

NEW YORK — Turns out the Federal Reserve's gold is secure and a bit more pure than previously thought — or so the government says.

Auditors spent weeks last year in a vault five stories beneath Manhattan counting, weighing and drilling small holes into gold bars owned by the U.S. Treasury.

It was the first time the Treasury's inspector general had audited the department's gold held by the Federal Reserve Bank of New York, which has captured the imagination of Hollywood as well as government skeptics.

The audit's results are in: The New York Fed's operations and controls are up to snuff, and the U.S. gold on deposit is a bit finer than Treasury records had indicated.

Still, the audit probably will not lay to rest questions over whether the New York Fed has secretly lent the gold or otherwise encumbered it in a swap transaction with another government or bank.

"There's no way to prove there's not a secret agreement," said Ted Truman, a former assistant Treasury secretary and top Fed official.

The audit of the Fed gold came after 2012 presidential contender and former Rep. Ron Paul (R-Texas) questioned the central bank's gold holdings.

While he was in Congress, Paul questioned whether the Fed had lent or otherwise encumbered U.S. gold in financial arrangements. At a congressional hearing in 2011, the Treasury Department's inspector general, Eric Thorson, assured Paul that "not one troy ounce is encumbered."

Paul has called for a full, independent audit and assay of the country's gold reserves. But as part of its audit, the Treasury tested a sample — not all — of the government's 34,021 gold bars in the New York Fed's vault.

In three of the 367 tests, the gold was more pure than Treasury records indicated, according to the inspector general. As a result, the government notched up the value of its gold holdings by approximately 27 fine troy ounces — or about $43,500, based on gold's market price Monday.

The assaying process consumed 10 ounces of gold, and the remaining 69 ounces removed for sampling were returned to the Treasury, according to the inspector general's office.

The U.S. gold at the New York Fed has been placed under so-called Official Joint Seals, attesting to the results of the audit.

"At this point, we do plan to conduct this audit annually," the inspector general's office said in emailed responses to questions. "However, since the gold is now under Official Joint Seal, we would not anticipate weighing, counting and assaying unless the seal shows signs of tampering."

The audit also examined internal controls, security and operations at the New York Fed. "Our audit disclosed no material weaknesses and no instances of reportable noncompliance with laws and regulations," the Treasury's audit report said.

The New York Fed holds 99.98% of the U.S.-owned gold bars and coins in the custody of the Federal Reserve. The rest of the gold is on display at Fed banks in cities such as Richmond, Va.; Kansas City, Mo.; and San Francisco.

As of Sept. 30, when the market price of gold was $1,776 an ounce, the Fed banks held $23.9 billion in U.S. gold. (Gold has since declined in value, and on Monday the precious metal was hovering around $1,610 an ounce.) The vast majority — about 95% — of the country's gold reserves is held elsewhere, in Ft. Knox, Ky.; West Point, N.Y.; and Denver.

Truman, the former Treasury and Fed official, was not surprised by the audit's findings.

"I would be flabbergasted if they found some huge discrepancy or even a substantial discrepancy between what they said they had and what they found," Truman said.

Still, the audit won't end conspiracy theories that involve the government's gold held by the Fed, he said.

"I would surprised if anyone's convinced of anything," he said. "They'll conspire now about whether the audit was aboveboard."

andrew.tangel@latimes.com

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Mary Jo White could face conflicts of interest as SEC chairwoman

NEW YORK — As a lawyer in private practice, Mary Jo White worked for Wall Street all-stars: banking giant JPMorgan Chase & Co., auditor Deloitte & Touche, former Bank of America Corp. chief Ken Lewis.

White, President Obama's pick to lead the U.S. Securities and Exchange Commission, even did legal work for former Goldman Sachs Group Inc. director Rajat Gupta, the highest-profile catch in the federal government's crackdown on insider trading, according to disclosures White filed ahead of her U.S. Senate confirmation hearing.

If she wins approval to lead the country's top financial watchdog, government ethics rules could force White to sit out of some SEC decisions. Potential conflicts of interest — or the appearances of conflicts — could arise from her work at the high-powered New York law firm Debevoise & Plimpton, and that of her husband John White, a partner at the prestigious firm Cravath, Swaine & Moore.

Obama's appointment of White, a former U.S. attorney in Manhattan known for high-profile prosecutions of mobsters and terrorists, was seen as a signal the administration was getting tougher on Wall Street. Her confirmation hearing in the Senate has not yet been scheduled but is expected in the next several weeks.

"She would have quite a minefield to navigate," said Robert Kelner, an attorney who is an expert in government ethics rules at the law firm Covington & Burling in Washington. "But this is not unusual for a senior-level appointee coming out of a law firm."

White could have to abstain from votes on matters involving former clients at a time when the SEC has been struggling to regain investor confidence among regulators and financial markets.

Government ethics rules generally prevent commissioners from participating in matters in which they or their spouses have any financial stake, or have any interest that could raise questions about their impartiality, Kelner said.

These rules generally restrict commissioners from taking part in cases they worked on while in the private sector — whether to bring a securities fraud lawsuit against a former client, for example, Kelner said.

White could still be involved in other matters dealing with former clients, just as long as she hasn't previously worked on the other side of particular cases before the SEC, Kelner said.

What could also complicate White's tenure at the SEC is an ethics pledge Obama has required executive-branch appointees to sign since he took office.

Aiming to limit the effects of the "revolving door" between government officials and the private sectors they regulate, the ethics pledge precludes appointees from participating in any matter involving "specific parties that is directly and substantially related" to their "former employer or former clients." Kelner said the pledge generally would not apply to broad regulations or policies.

The White House could grant White a waiver from the ethics pledge.

White did not respond to an email request for comment. Nominees typically do not speak publicly ahead of their confirmation hearings.

White would take over the SEC at a time when the agency faces major regulatory issues, aside from enforcement issues. The five-member commission, under former Chairwoman Mary Schapiro, failed to pass a sweeping overhaul of money-market funds, which federal officials say remain a weak link in the financial system.

Also before the SEC are rules governing high-speed stock trading and how the increasingly fragmented stock market is structured. The agency still must mete out myriad regulations called for by the Dodd-Frank financial overhaul of 2010.

John Coffee, a securities law expert at Columbia University in New York, said White has no apparent conflicts involving the marquee regulatory matters facing the SEC.

"There is just a forest of bayonets waiting out there if she looked like she was protecting a former client from an enforcement action," Coffee said. "I think she's also too smart to put herself in that kind of position."

andrew.tangel@latimes.com

Times staff writer Jim Puzzanghera in Washington contributed to this report.

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Andrew Meieran has ambitious vision for Clifton's Cafeteria

The gig: Real estate developer and moviemaker Andrew Meieran, 46, is staking his reputation and millions of dollars on an attempt to revive one of the most beloved restaurants in Los Angeles history — Clifton's Cafeteria on Broadway.

Known for its Disney-like forest theme, Clifton's Brookdale Cafeteria served an estimated 170 million meals starting in 1935 but lost traction in recent decades as the city's historic core fell out of favor.

Meieran took it over in 2010 and closed it the following year to begin its renovation.

As longtime fans of the cafeteria wait, Meieran is laboring on a $5-million makeover that he hopes will make Clifton's an elaborate dining and drinking establishment unlike any other in the city and bring back crowds.

The vision: Plans call for Clifton's to have multiple bars and restaurants in markedly divergent styles throughout the four-story building. Each is to be crafted with the sophisticated attention to detail that Meieran brought to the nearby Edison, the Jules Verne-like subterranean nightclub he created deep under a century-old building on 2nd Street.

How to stand out: A memorable bar or restaurant must stay intriguing even on repeat visits, he said. "If you come back, I want you to notice more," Meieran said. "If we don't get the details right, we have a huge potential to miss the mark with our audience."

Comfort food: Meieran aims to restore and improve the forest-themed dining hall that generations of Angelenos associate with Clifton's and continue to serve such traditional cafeteria comfort food as pot roast, mashed potatoes and Jell-O.

Defined spaces: There will be distinct venues throughout the building, much of it rarely visited by the public in years past. The basement will house a bar full of historic local relics intended to transport visitors back in time. The ground floor and mezzanine-like second floor will remain a forest-themed cafeteria, with added details such as an old-fashioned soda fountain.

The third floor, which most recently held Gay '90s-themed banquet rooms, is being turned into a sit-down restaurant with classic food, Meieran said, but "not fine dining." It will also house a museum that he would not describe other than to call it "a cabinet of curiosities."

The fourth floor — Clifton's old offices — will get a Polynesian-themed restaurant and bar called South Seas, named after a Clifton's cafeteria on Olive Street that was popular in the 1940s and 1950s.

Also on that floor will be a second historic-themed bar and restaurant, this one Art Deco style. It's intended to be an upscale yet casual joint where diners can get a steak or chili.

Speed bumps: Renovation of the building, which opened in 1915 as a Boos Brothers cafeteria, has been far more costly and time-consuming than anticipated. At first, Meieran hoped to keep Clifton's open during construction. Then he closed it in fall 2011 for what he hoped would be a $3-million rehabilitation lasting three to six months.

Now he aims to finally reopen by Halloween, and even then some of the venues won't be complete. He's trying to keep the final tab under $5 million.

"Everything takes longer and costs four times more than you expect," he said. "What can go wrong will go wrong. My feeling is that there is just so much incredible potential in this project that it would be a disservice to not do it right."

Early years: Meieran was born and raised in the Bay Area and educated at UC Berkeley. As a young developer he bought a former Roman Catholic church in San Francisco and turned it into a live-work space.

In 1988 church leaders asked him to evaluate the real estate potential of St. Vibiana's, a Los Angeles landmark dating to the 1870s.

Meieran stayed in L.A. to help rehabilitate the adjacent abandoned Higgins Building office tower into housing and created the Edison in its basement.

Domestic front: Meieran and his wife, Christy, renovated and live in Charlie Chaplin's former home in the Hollywood Hills. They have two daughters, Amelie and Natasha.

Hollywood connection: Meieran produced and directed the upcoming "Highland Park," which stars Parker Posey and Danny Glover. Scheduled for release March 20, the movie, set in Detroit, is about the revitalization of a neighborhood.

Like Clifton's, he said, the movie "reflects my philosophy about taking responsibility and doing what you can personally to inspire pride and hope in one's community."

roger.vincent@latimes.com

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Carl Icahn buys nearly 13% stake in Herbalife as battle heats up

NEW YORK — It's no longer just a war of words.

Corporate raider Carl Icahn has thrown $214 million behind Herbalife Ltd., the Los Angeles-based maker of health foods and nutritional supplements accused of being a pyramid scheme by Icahn's foe, fellow Wall Street tycoon Bill Ackman.

Documents filed with the Securities and Exchange Commission on Thursday reveal that Icahn purchased more than 14 million shares and options in Herbalife, a nearly 13% stake that would make him the company's second-largest investor. Icahn said he would pursue talks with executives about possibly recapitalizing the company or even taking it private.

Icahn and Ackman have been engaged in a rare public battle for the last month, hurling insults at each other about past dealings and their respective positions in Herbalife. The two foes have bad blood stemming from a business dispute.

Ackman launched his assault on the company Dec. 20 by unveiling a $1-billion short position, or bet, against Herbalife. That same day, Icahn began snapping up the company's stock, according to the SEC filing.

"It's pretty obvious Icahn really wants to turn the screws on Ackman," said Chris Stuart, chief executive of Shortzilla, a Boston-area research firm. "He's put his money where his mouth is, for sure."

Investors saw Icahn's disclosure as reassuring that Herbalife was not going to collapse, as Ackman has predicted. Its shares surged more than 24% in after-hours trading after closing up $1.87, or 5.1%, at $38.27 on Thursday.

"I think he is definitely trying to hammer his good buddy Ackman, but he could also make a lot of money in this," said Timothy Ramey, an analyst with D.A. Davidson & Co. "It's an undervalued stock."

Ackman, who heads the hedge fund Pershing Square Capital Management, says that Herbalife defrauds its low-income distributors. His wager against the company pays off if its stock falls.

Herbalife hit back by saying the hedge fund manager was misinformed about the company and made an irresponsible bet with his investors' money. The company pointed to its 32 years in business as evidence that it is not a pyramid scheme.

Icahn sees Herbalife as undervalued and believes that the company has a "legitimate business model, with favorable long-term opportunities for growth," the filing says.

This is just the latest chapter in a long history of Icahn trying to exert influence on companies and their boards of directors in hopes of either motivating a merger or having his stake bought out at a premium.

In the 1980s, he famously took over airline TWA and immediately liquidated most of its assets. Since then, he's taken big stakes or controlling positions in companies including RJR Nabisco, Viacom, Marvel Comics, Blockbuster and Netflix.

Neither Icahn nor Ackman responded to requests for comment. Herbalife also declined to comment.

The battle over Herbalife is becoming a Wall Street spectacle, with money managers supporting either team Ackman or team Icahn.

Robert L. Chapman Jr., managing member of Chapman Capital in Manhattan Beach, who said he has invested in Herbalife, wrote in an email: "Carl Icahn just delivered Bill Ackman a Valentine he'll never forget."

andrew.tangel@latimes.com,

stuart.pfeifer@latimes.com

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European Union and U.S. to pursue transatlantic free-trade deal

WASHINGTON — The European Union and the United States announced that they will pursue talks aimed at achieving an overarching transatlantic free-trade deal.

The 27-country EU said Wednesday that such an agreement, first announced in the State of the Union address by President Obama, would be the biggest bilateral trade deal ever negotiated. Any agreement could boost economic output in the EU by 0.5% and in the U.S. by 0.7%, according to some estimates. That would be a highly desirable outcome when the EU and the U.S. are both struggling with slow growth, high unemployment and high levels of debt.

"Both of us need growth," said Jose Manuel Barroso, president of the European Commission, the EU's executive arm. "And both of us have budgetary problems."

In a joint statement issued simultaneously in Washington and Brussels, Obama, European Council President Herman Van Rompuy and Barroso said they were "committed to making this relationship an even stronger driver of our prosperity".

"Through this negotiation, the United States and the European Union will have the opportunity not only to expand trade and investment across the Atlantic, but also to contribute to the development of global rules that can strengthen the multilateral trading system," they said.

Trade between the U.S. and the EU is already huge, reaching $2.69 billion a day, EU Trade Commissioner Karel De Gucht said.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, estimates that a comprehensive agreement could boost U.S. output by about 0.7 percentage points.

A high-level U.S.-EU working group on jobs and growth said the goals of the agreement would include removing import tariffs, which average 4%, and getting rid of other barriers to trade such as the approval processes that businesses have to go through in order to sell products on both sides of the Atlantic.

Beyond that, De Gucht said, "There seems to be a consensus that the cost of a product contains about 10% of red tape. If you can largely make away with that, you will have the same product for a lower price without anybody paying for it."

One example of where the two economies could benefit from the talks is automaking. If each side recognized the other's car safety standards — or if the standards were harmonized — an auto manufacturer would not have to satisfy two sets of requirements. But there are other areas, such as agriculture, that will prove to be more difficult to negotiate.

U.S. Trade Representative Ron Kirk said Wednesday that the U.S. plans to push the EU to relax its ban on genetically modified crops. That's also a top goal of Sen. Charles E. Grassley (R-Iowa) and Sen. Max Baucus (D-Mont.), two leading members of Congress on trade issues.

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Health insurer WellPoint picks Joseph Swedish as its new CEO

INDIANAPOLIS — Health insurance giant WellPoint Inc., parent of Anthem Blue Cross, is picking a veteran hospital executive who has never run a public company to become its next chief executive.

The Indianapolis insurer says Trinity Health CEO Joseph Swedish will take over March 25, replacing interim CEO John Cannon.

WellPoint, the nation's second-largest health insurance company, has been searching for a new leader since Angela Braly resigned in August amid investor frustration over disappointing financial results.

The company runs Blue Cross Blue Shield plans in 14 states, including Anthem — the largest for-profit insurer in California. It also runs CareMore clinics in California and other states.

Swedish, 61, has been CEO at Trinity Health in Livonia, Mich., since December 2004. Under his leadership, revenue at the nonprofit Catholic healthcare system increased from $5.7 billion in 2005 to $8.9 billion in 2012, and total assets increased from $7.5 billion to $11.7 billion. The organization's community benefit ministry, which includes care for the poor and community heath activity, increased from $265 million in 2005 to $615 million in 2012.

Swedish's resume includes work with HCA, the nation's largest hospital chain. He also has served as a director for another insurer, Coventry Health Care.

In his new job, Swedish's tasks will include helping WellPoint prepare for coverage expansions that start next year under the federal healthcare overhaul.

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Domino's hopes customers flock to 'pizza theater'

A pair of mustachioed pizza makers in blue aprons — visible from behind a glass display at a new Domino's store in Seattle — tossed dough into the air as a handful of corporate executives looked on.

Domino's calls the concept "pizza theater" because customers now can come in and watch their orders being made.

The new look is part of a four-year effort to freshen the pizza chain's image and boost its growing ranks of carryout customers.

The open-kitchen format includes seating for a dozen or so people, a chalkboard where customers can leave comments, and a refrigerated section for grab-and-go items such as salads and milk.

"This is the way we always made our pizzas. A lot of people just had no idea," said Domino's Chief Executive Patrick Doyle, who was in Seattle last week to see the new store. "It was sort of one of those lightning-bolt moments where we said, 'Gee, maybe we should show them.' "

Founded in 1960, Domino's long has been known for inexpensive pizza delivered to your doorstep. Its 30-minute guarantee helped make it the world's largest pizza-delivery company in the 1980s (though it later had to drop the pledge amid charges that it led to reckless driving).

Today, the Ann Arbor, Mich., company holds a 22% share of the U.S. pizza-delivery market and ranks No. 2 overall among U.S. pizza chains.

More than two-thirds of U.S. consumers buy carryout pizza at least once a month, making carryout the most popular pizza format, according to research firm Technomic Inc. Nearly half of all pizza orders are for carryout, while a third are for delivery and a fifth are for eat-in.

Experts say that if a Domino's store is nearby, many consumers prefer to pick up their orders and save a few dollars that otherwise would go to a delivery fee and tip.

Domino's jumped on the trend last year when it began offering a weekday pickup promotion of a large three-topping pizza for $7.99. It also redesigned its logo, dropping the word "pizza" to reflect a larger menu, including sandwiches, pasta and chocolate "lava" cakes.

Doyle said the plan is to redo the greater Seattle area's 74 franchised locations by midyear, which would make Seattle the first market to be completely overhauled.

Doyle said Domino's also is setting out to hire 800 new full-time and part-time employees in that area — something he attributed to new store openings, as well as solid sales growth.

Domino's has about 4,500 U.S. franchised stores, as well as 390 company-owned stores. Its U.S. sales at stores open at least a year rose 3.3% in the third quarter, and its stock has been trading at the upper end of a 52-week range of $28.17 to $47.91. Its shares rose 8 cents Monday to $46.81.

Pizza Hut is the largest U.S. pizza chain, with an 18% market share, followed by Domino's, at 11%, and Papa John's, at 7%, according to Technomic.

In late 2009, Domino's rolled out a new recipe promising a garlic-seasoned crust, bolder tomato sauce and tastier cheese. The new store format builds on that push to be more transparent, Doyle said.

"Consumers want to see what they're eating," he said. "We've always been known as delivery experts, but a third or more of our orders now are for carryout. We're proud of these pizzas, and we want people to see it."

Seattle resident James Johnson, 28, a longtime Domino's customer, said he welcomes the changes. Johnson stopped by the revamped Domino's on his way home from work last week to pick up dinner.

"You can watch the pizza being made from beginning to end," he said. "It's kind of cool to see, depending on whether you're engaged and not on your cellphone."

Martinez writes for the Seattle Times.

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Dozens of airline fees rose or changed in 2012, study finds

Airline travel fees — including charges to check a bag and to board early — have become so prevalent that travelers almost need an advanced degree in mathematics to calculate overall trip costs.

Last year at least 36 airline fees increased, and 16 others were redefined, bundled or unbundled with other services, according to a recent study by the consumer travel website Travelnerd.

One bright spot in the Travelnerd study of 14 U.S. airlines is that most fee increases were only $5 to $10 each.

In one case an airline had a big fee reduction. The study found that United Airlines reduced its fee for checking an overweight bag to $100 from $200 for bags 50 to 70 pounds and to $200 from $400 for bags 71 to 100 pounds.

"Travelers really have to be extra cautious when booking a flight," said Alicia Jao, vice president of travel media at Travelnerd, who predicts travelers will see even more fees in 2013. "U.S. carriers are becoming creative at charging consumers extra fees."

But some airlines seem to charge fees arbitrarily, said Perach Mazol, a Los Angeles resident who recently flew to Florida with friends from Romania to take a cruise.

On her flight from L.A. to Fort Lauderdale, Fla., on Spirit Airlines, she said the Florida airline did not charge for the carry-on bags she and her friends were carrying, but the carrier asked for $50 each to carry the same bags on the flight back. (Spirit is one of only two airlines in the U.S. that charge passengers for carry-on luggage.)

"I don't understand why they charged us on one flight and they don't on the other," Mazol said. "It's confusing."

A spokeswoman for Spirit said the airline tries to enforce its policies consistently.

"Maybe she got lucky one way and didn't have to pay," Spirit spokeswoman Misty Pinson said.

United offering satellite-based Wi-Fi

United Airlines was one of the last major airlines to offer onboard wireless Internet. But the Chicago carrier is trying to make up for its tardiness.

United offers Wi-Fi in about 3% of its fleet of about 700 planes, one of the lowest rates of any major carrier in the nation, according to a recent study.

But United recently became the first U.S.-based international carrier to offer satellite-based Wi-Fi Internet for passengers traveling on long-haul overseas flights.

The carrier has installed satellite-based Wi-Fi on nearly a dozen planes, with plans to expand the service to more than 300 planes, or about 43% of the fleet, by the end of the year.

"With this new service, we continue to build the airline that customers want to fly," said Jim Compton, vice chairman and chief revenue officer at United.

Satellite-based Wi-Fi is typically as fast as ground-based Wi-Fi, experts say, but the advantage is that it can give passengers Internet access when flying over areas where cellular towers don't exist — such as the Pacific or Atlantic oceans.

But, of course, there is a price to pay for the service.

United is charging $3.99 to $14.99 for standard speed, depending on the duration of the flight, and $5.99 to $19.99 for faster speeds.

United is not the only airline to offer satellite-based Wi-Fi. Southwest Airlines, the nation's largest domestic carrier, offers it through Westlake Village-based Row 44.

Delta to raise fee to access lounges

Airline fees are rising not only for onboard services but for amenities at the airport too.

Delta Air Lines, which has invested more than $20 million in its airport lounges over the last two years, announced that it would raise the cost for annual membership to access its lounges across the country by $50, starting March 1.

The increase means that an annual membership will range from $350 to $450, depending on membership level. (The more miles passengers fly on Delta the less they pay for membership.)

Among the investments Delta has made is the addition of a new luxury bar that opened recently at Delta's lounge at Los Angeles International Airport. Instead of helping themselves at a self-serve bar, members can now belly up to a fully stocked bar and order a drink from a bartender.

hugo.martin@latimes.com

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Entrepreneur Brian Lee is business partner to the stars

The gig: Lawyer-turned-serial-entrepreneur Brian Lee, 41, is pulling double duty as the chief executive of two celebrity-backed e-commerce websites: ShoeDazzle, co-founded with Kim Kardashian, and Honest Co., co-founded with Jessica Alba. The companies are headquartered in Santa Monica and offer customers monthly subscription plans in addition to typical a la carte shopping for shoes and baby products, respectively.

ShoeDazzle has more than 15 million registered users and last year posted $100 million in revenue, up 80% from 2011; it has raised $66 million from investors including venture capital firm Andreessen Horowitz. Honest Co., launched a year ago, has yet to release membership or financial numbers but has raised $27 million.

From Seoul to L.A.: Lee was born in Seoul. When he was 1, his family immigrated to Huntington Beach, where he grew up.

As an 8-year-old, Lee mapped out his trick-or-treating route on Halloween so he could collect as much candy as possible. When he got home, he separated his loot into Ziploc bags, which he sold at school for 25 cents each.

"Cost of goods: zero. Profit margins: 100%, outside of my own little labor," he said. "I probably did that for five years."

He now lives in Marina del Rey with his wife, Mira; their 4-year-old son, Davis; and their 1-year-old daughter, Madison.

Education: Bachelor's degree in business economics from UCLA in 1993, J.D. from UCLA School of Law in 1996.

Bold cold call: After practicing law for a few years, Lee came up with the idea for LegalZoom, which offers self-help legal documents such as divorce and bankruptcy forms, prenuptial agreements and wills. He wanted a high-profile name to represent the start-up, and decided to approach O.J. Simpson defense attorney Robert Shapiro.

Lee got Shapiro's number from 411 and called him at 10 p.m. "He picked up the phone and said, 'Hi, this is Robert Shapiro, how can I help you?' and I said, 'Well, my name is Brian Lee and I have a business opportunity I'd like to run by you.'... I think he heard the desperation in my voice and he said, 'You've got two minutes.'"

LegalZoom, based in Glendale, launched in 2001.

Online shoe shopping: ShoeDazzle was inspired by Lee's wife, who one day returned from a shopping spree on Robertson Boulevard with a pair of pricey designer shoes. When Lee asked her why she didn't just go to Loehmann's or DSW, she said discount chains didn't provide the type of personalized, one-on-one service that small boutiques did. Lee set out to replicate that experience online and met Kardashian through Shapiro, who is a family friend.

ShoeDazzle launched four years ago as an online subscription business, with members viewing a customized showroom of shoes based on a personal fashion quiz and choosing one new pair to receive every month for $39.95 including shipping.

Taking back the reins: In November, Lee became CEO of ShoeDazzle for a second time. He returned after the departure of Bill Strauss, who scrapped the company's subscription-based business model last year, leading to speculation that the company wasn't doing well.

In his first 100 days on the job, Lee laid off about two dozen employees and hired celebrity fashion stylist Rachel Zoe as the company's chief stylist; ShoeDazzle also began introducing one new shoe style every day. This month the company will roll out an optional $9.95-a-month VIP membership program that includes free shipping, early access to sales, discounts and an extended return policy.

Since a site relaunch in January, orders have increased 30% and repeat visits are up 12%, Lee said. The company sells as many as 250,000 pairs of shoes per month.

From shoes to babies: Lee was approached by Alba when the actress wanted to start an eco-friendly baby products line. Honest Co. sells diapers, shampoo, sunscreen and household items online that are nontoxic and made with organic ingredients.

Caffeine junkie: As the CEO of two companies, Lee arrives at Honest Co. offices by 7 a.m. every day and is there until 9:30 a.m. He then heads over to nearby ShoeDazzle, where he stays until 5 p.m. or so. Then it's back to Honest Co. until about 8 or 9 p.m.

"I drink seven Coca-Colas a day," he said. "Regular Coke, which is really bad for me."

Advice to entrepreneurs: "Believe in the idea with 100% certainty," Lee said. "But also don't be scared to change that idea and pivot very quickly. Because as an entrepreneur, nothing ever goes to plan."

For instance, Lee said that in the early days of LegalZoom, the company created do-it-yourself software programs such as Estate Planning in a Box that it hoped to sell at Staples and OfficeMax. When LegalZoom realized that Internet-based downloading was the future, it dropped those plans.

"We spent a lot of resources on it," he said, "but we weren't afraid at all to just cut it."

andrea.chang@latimes.com

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