NBR Transcripts - January 3, 2005
Monday, January 03, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: The bulls get off to a bumpy start on Wall Street. Stocks end the day lower in the first trading session of the New Year with the blue chips falling 53 points. So is this a harbinger of things to come? We look at what's called the January barometer.
LINDA O'BRYON, NIGHTLY BUSINESS REPORT ANCHOR: U.S. presidents past and present appeal to Americans to help the victims of the south Asian earthquake and tsunamis. All three presidents are urging Americans to donate money to the cause rather than goods.
KANGAS: Walgreen's is raking in the green these days. Generic drugs and digital photos send its quarterly earnings up more than 30 percent and investors snap up Walgreen's stock.
O'BRYON: And it's anchors away for the latest player in America's cruise industry. We'll tell you about an Italian company breaking new ground, so to speak, by cruising American waters.
KANGAS: I'm Paul Kangas.
O'BRYON: And I'm Linda O'Bryon. Susie Gharib is off tonight. This is NIGHTLY BUSINESS REPORT for Monday, January 3.
Good evening, everyone. Wall Street kicked off the New Year on a losing note. The Dow falling 53 and the NASDAQ losing 23. Mixed economic news and profit- taking overshadowed a big drop in oil prices and an improved sales forecast from Wal-Mart. Historically, this month tends to be a good indicator for how the market will fare for the entire year. Suzanne Pratt explains.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: As January goes on Wall Street, so goes the year. That's the historically accurate occurrence known as the January barometer. According to the "Stock Trader's Almanac," since 1950, however the S&P 500 performs in January, the full year follows suit. The January barometer has correctly predicted whether the year will be up or down for stocks more than 90 percent of the time. There have been only five off years since 1950. Even though the first day of trading in 2005 was hardly impressive, experts are optimistic about this January.
TIMOTHY LEACH, CHIEF INVESTMENT OFFICER, U.S. TRUST: January is going to be a good month because we had nice momentum coming off of last year, and the market does favor momentum, especially when we've had a series of good news coming in.
PRATT: In general, Wall Street pros are cautiously positive in their predictions for the full year. Few are forecasting a down year for stocks, and most expect to see single digit returns in 2005 or in some cases even a bit better.
DAVID KATZ, CHIEF INVESTMENT OFFICER, MATRIX ASSET ADVISORS: We think that the year is going to be very similar to 2004 in terms of total returns. You get back to a 10 or 12 percent total return. We think the underpinnings are going to be radically different. We think many of the things that were the laggards last year are going to be the leaders. Many of the things that lead the market in 2004 are going to under-perform in the upcoming year. PRATT: As for this year's dominant trading themes, experts say there is the list of usual suspects. They include rising interest rates, volatility in oil prices and a continued recovery for the economy. Many believe the biggest headwind for stocks will come in the second half of the year.
BENJAMIN PACE, CHIEF INVESTMENT OFFICER, DEUTSCHE BANK PRIVATE WEALTH MGMT.: In 2005 we think that earnings growth is going to slow. It will still be strong in the first quarter. The fourth quarter numbers will still be strong, but then slowing down to about 6 to 8 percent type growth for the second through fourth quarters of 2005.
PRATT: There's also a curious statistical quirk that may be worth mentioning. Since 1885, the stock market has gone up every fifth year of the decade. So is that good news for 2005? We'll know in about 12 months. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
KANGAS: The first major economic report of 2005 suggests the U.S. economy is beginning the year on solid footing. The Institute for Supply Management says its manufacturing index rose to 58.6 in December. That's up less than a point from November, but slightly better than expectations, with a big rise in new orders. It's the 19th straight month above 50, indicating expansion in the manufacturing sector of the economy. And many experts see that trend continuing.
STEPHEN GALLAGHER, CHIEF ECONOMIST, SG CORP & INVESTMENT BANKING: We should be seeing some fairly decent I.S.M. readings I think for the next couple of months, particularly with this orders component, which surged in December because it's our best leading index within the I.S.M. survey.
KANGAS: Stocks got an early boost from that reading on manufacturing activity. The Dow jumped over 60 points at the outset, while the NASDAQ Index gained 10 points. But the market lost momentum on news November construction spending fell 0.4 percent when a rise was expected. Then investors wanting to cash in on profits from last year's late rally sent stocks broadly lower.
The Dow Industrial Average came in with a loss of 53 1/2 points at 10,729.43. The NASDAQ Composite ended 23 1/4 points lower at 2152.15. Standard & Poor's 500 fell 9.84 points at 1202.08. Over in the bond market, the 10-year note rose 2/32, putting the yield at 4.22 percent.
O'BRYON: President Bush is asking Americans to contribute what they can to the victims of the Asian tsunamis. That appeal comes as private donations continue to pour in from around the world. Over 145,000 people were killed and millions left homeless, after the tsunamis ravaged the coastal areas of Indonesia, Sri Lanka, India, and Thailand. President Bush today tapped his father, former President George H. Bush and former President Bill Clinton, to lead a private fund-raising campaign here in the U.S. All three presidents are asking Americans to donate to charities like the Red Cross, the Salvation Army, and UNICEF.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: In this situation, cash donations are most useful. And I've asked the former presidents to solicit contributions both large and small.
O'BRYON: President Bush also says passing disaster relief will be quote, the first order of business end quote, when the new Congress convenes tomorrow.
KANGAS: And when the 109th Congress begins work tomorrow, there will be an aggressive agenda on the table -- an aggressive Republican agenda. A majority of Republicans in the Senate gives the president's party more leverage. And as Darren Gersh reports, they'll need it if they want to make good on the president's plans.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In a pep talk welcoming new members of Congress at the White House, the president made it clear they should expect an historic agenda. The biggest item on that list is Social Security reform.
BUSH: And the fundamental question is do we have the will necessary to make sure the Social Security system is sound and available for future generations of Americans.
GERSH: Remaking the world's largest government program in a free- market mold will be an epic battle, one that many analysts expect to rage well beyond this year. The powerful AARP will spend $5 million to fight the president's plan for personal accounts.
DAVID CERTNER, FEDERAL AFFAIRS DIRECTOR, AARP: We certainly would like Congress to move forward on dealing with Social Security's long-term solvency. We do not want to see Congress move forward on any kind of partial privatization of the program.
GERSH: While Social Security is grabbing headlines, much of the early legislative business for the 109th Congress will be finishing old agenda items that were tied up in the last Congress. That means medical and legal liability reform, an energy bill and tax cuts. While the groundwork will be laid with hearings and a commission on more far-reaching tax reform, analysts predict legislative action will be pushed into 2006. This year Congress is likely to pass enhanced savings incentives, while extending the president's tax cuts.
DAVID KEATING, SR. COUNSELOR, NATIONAL TAXPAYERS UNION: You don't want investors wondering, well, is President Bush having second thoughts about making his own tax cut plan permanent? So the best way to resolve that is to move that through the Congress as early as they can this year.
GERSH: But hopes for an historic Congress are also at the mercy of events. An opening on the Supreme Court could easily tie up the Senate in a divisive debate over social issues. And then there are the elections in Iraq on January 30.
GREG VALLIERE, CHIEF STRATEGIST, STANFORD WASHINGTON RESEARCH: I think hanging over everything is Iraq. If Iraq goes poorly, I think the president's job numbers go south and he'll have a hard time getting much done.
GERSH: This year may also be historic in another regard. After years of record budget deficits, the White House is promising a tough budget that will end a record surge of spending. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
O'BRYON: Mother Nature is giving the northeast a break, with temperatures in New York City hovering around 60 degrees today. That sent oil prices sliding 3 percent on the New York Mercantile Exchange on concerns about limited demand for heating oil. Oil for February delivery closed off $1.33 to $42.12. The northeastern U.S. is the world's biggest heating oil market and above-normal temperatures are expected to be around for the next few days.
The stocks of cruise companies were on a tear last year, as the major cruise lines booked record numbers of passengers. So as you might expect, all that growth is attracting the attention of new competitors. Jeff Yastine looks at one company hoping to get on board the fast-growing cruise market.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Move over, Carnival. Move over, Royal Caribbean. There's a new cruise line in the neighborhood. The name? M.S.C. Cruises. The name may not be familiar in the U.S., but M.S.C. has been running cruise excursions in the Mediterranean for a decade. Now, with two new ships and two more being built in European shipyards, M.S.C. wants a piece of the U.S. cruising market. Overseeing the challenge is CEO Richard Sasso, who was named to the post last year. Sasso says you need more than new ships to compete in the U.S. cruising market.
RICHARD SASSO, CEO, MSC CRUISES: All of the great cruising companies have new ships. But it isn't about the new ships. It's about the onboard product. It's about the style, the spirit and the personality of the product. And at M.S.C., we call ourselves premium class, with a true Italian signature and with that comes a lot of benefits for our guests. And it's all in the software. New ships, yes, but great software where our guests are treated fabulously for the duration of their cruise.
YASTINE: The Italian flavor Sasso refers to, comes from M.S.C.'s principal owner, Gianluigi Aponte and the group he founded in 1970, Mediterranean shipping company. The firm is now the second-largest container ship owner in the world, with over 250 vessels. And Sasso has experience creating a cruise line brand. He and much of the executive team here helped build celebrity cruises into a major brand in the 1990s before it was sold to Royal Caribbean. Sasso spends a lot of time talking to travel agents.
SASSO: We want to make sure that the public and the travel agent community are onboard today, that they start to recognize this fabulous cruise line and they start taking advantage of our introductory rates and get onboard and start telling people that we have the best food at sea, that we have the best entertainment at sea, that we have an Italian signature, with Italian waiters and chefs and officers and we have brand- new ships that are going to provide fabulous vacations.
YASTINE: Analysts who have heard of M.S.C., which is a private company, say there is still plenty of room for a new cruise line to grow into the U.S. market.
ROBERT SIMONSON, ANALYST, WILLIAM BLAIR & CO.: The demographics of the aging American population and the baby boomers sit extremely well for the future demand of the cruise product. Approximately 40 percent of the people who take a cruise are 60 years or older and that number is going to accelerate fairly dramatically over the next 20 years.
YASTINE: M.S.C. is hoping to ride that growth to smooth sailing in its new U.S. home. Jeff Yastine, NIGHTLY BUSINESS REPORT, Fort Lauderdale.
KANGAS: Now let's take a look at some stocks in the news tonight.
New York exchange volume leader on 30.1 million shares, Pfizer (PFE) moving down $0.44. That stock lost almost 25 percent last year. Last Friday, the FDA gave marketing approval for the company's nerve pain killer called Lyrica but only as a controlled substance. UBS Securities said that that was a modest disappointment.
Lucent Technologies (LU) moved up $0.02.
General Electric (GE) a $0.09 gainer.
Merck & Company (MRK) down $0.88. That stock lost nearly 30 percent last year and today the scientists at the center of dispute over the safety of the company's Vioxx drug says his research now suggests 139,000 who took that drug got seriously ill or died from it, not 28,000 as early, as estimated back in August.
ExxonMobil (XOM) in the weak oil group, down $1.17. That was fifth in big board volume.
Wal-Mart (WMT) moved up $0.53. Company expects its December same store sales were up 3 percent. That would be at the high end of its projection.
J.P. Morgan Chase (JPM) $0.14 gain.
Citigroup (C) $0.09 rise.
Sprint FON Group (FON) showed no change.
Tenth in volume Time Warner (TWX) losing $0.03 a share.
Walgreen (WAG), a great day there up $2.01. First quarter earnings $0.31, up from $0.25 last year and $0.02 above the Street estimate. Same store sales were up 9.4 percent. Standard & Poor's repeated a "strong buy" on Walgreen stock. Delta Air Lines (DAL) edged up $0.08. Reportedly the company plans to simplify its fares nationwide which in many cases will lower them to meet the competition from discount carriers.
Amerada Hess (AHC) in that weak oil group, down $3.03. As you heard earlier, February crude oil dropped $1.33 a barrel.
Let's look at some other major stocks in the oil area, Burlington Resources (BR), ChevronTexaco (CVX) and Murphy Oil (MUR) all casualties on the day.
And another weak group the golds, Newmont Mining (NEM) the granddaddy, down $2.05. New York February gold dropped $8.70 down to $429.70 the ounce.
Let's have a look at a few more gold stocks, Anglogold (AU) down $1.31. $1.51 loss in Asa Bermuda Limited (ASA).
Moving along, we see a big loss in Bradley Pharmaceuticals (BDY) down $3.48. Raymond James financial downgraded it from "strong buy" to just "market perform," citing earlier than expected generic competition for the company's Keralac prescription skin softener.
And Boston Scientific (BSX) down $1.26. JPMorgan downgraded it from "overweight" to "neutral" in the belief that Wall Street earnings estimates for the company are a bit too high.
On the upside, Williams-Sonoma (WSM) gaining nearly $1. Raymond James financial upgraded it from "market perform" to "strong buy" on expected strong holiday sales for the company.
NASDAQ 100 (QQQQ) topped the active list, down $0.42.
And then Google (GOOG) jumping $9.92. Goldman Sachs boosted earnings estimates on Google because of strong online advertising trends.
Microsoft (MSFT) $0.02 gain.
Intel (INTC) down $0.32.
eBay (EBAY) fell $2.23. That was fifth in dollar volume.
Cisco Systems (CSCO) no change.
Yahoo! (YHOO) moved up $0.50. Goldman Sachs also boosted earnings for Yahoo! as it did with Google.
Symantec (SYMC) $0.44.
Oracle (ORCL) down $0.31.
And Apple Computer (AAPL), little profit taking there, down $1.11. That was tenth in volume.
Perficient (PRFT) up $2.73. The company increased its fourth quarter revenue guidance from around $13 million to as high as $21 million.
And AtheroGenics (AGIX) down $4.84 on news the company plans to add more patients in its clinical trials for its arteriosclerosis drug and that could delay results by up to nine months.
And those are the stocks in the news tonight. Linda?
O'BRYON: Well, Paul, Well, hopes are high this year for a comeback in the economy of Japan. The world's second largest economy is now emerging from a decade-long slump. But things have been stalled a bit by rising oil prices and a rising yen. As Lucy Craft reports from Tokyo, a massive demand for steel in Asia means Japanese manufacturers can't get all the steel they need.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: From factory assembly lines in Hiroshima, to shipyards in Kobe, to construction sites in Tokyo, the steel shortage has thrown a monkey wrench into the supply chain. Factory production has slowed. Manufacturers are scrambling for alternate sources of all grades of metal and steel prices are poised to creep higher. That's happening even though Japanese steel production is approaching levels not seen since the peak year of 1973, back when the country was still in its feverish, developing-nation hyper-growth mode.
TRANSLATION OF: ATSUSHI YAMAGUCHI, SENIOR ANALYST, UBS SECURITIES JAPAN: Steel is tight all around. In the construction industry, delivery time is normally 90 days. Now it's 180 days. So if you want steel, you need to order it six months in advance.
CRAFT: Starved for metal, Nissan and one other Japanese carmaker, number six Suzuki, were forced to take the unheard- of step of temporarily shutting down production in late 2004. They are under the threat of further shutdowns in 2005.
TRANSLATION OF: NORIHIDE TSUJI, SENIOR ANALYST/SHINKO SECURITIES: Carmakers are the steel industry's high-priority customers. When car companies can't get enough steel, that indicates how dire the situation is.
CRAFT: Japanese steel makers, such as market leader Nippon steel, have pledged to boost output slightly in 2005, through efficiency improvements. But after years of ruthless cost-cutting and restructuring, there are only about half as many blast furnaces in Japan today as in the 1970s. Steel makers are gun-shy about sinking billions of dollars into new furnace capacity.
YAMAGUCHI: First of all, the capital investment for a new blast furnace is huge. And once a furnace goes online, it will dump a huge supply of steel on the market, causing steel prices to collapse. Since prices have been continually falling over the last 20 years, no steel maker can afford to invest in new blast furnaces.
CRAFT: While construction companies can turn to alternate suppliers in South Korea and China, Japanese carmakers have little margin for error. That's because the ultra-high-quality sheet they require, on tight production schedules, virtually must be supplied domestically.
TRANSLATION OF: MITSUO SHIMIZU, SENIOR MANAGER EQUITY DEPARTMENT, COSMO SECURITIES: When you consider that China is ramping up its own auto production, high-end steel especially is likely to continue in short supply.
CRAFT: Steel supplies are likely to remain tight throughout 2005 and beyond, say experts, causing headaches for carmakers, shipbuilders and construction companies. At the consumer level, car buyers are unlikely to notice any difference in sticker prices, say experts, but the steel shortage could end up adding months to the waiting time for new cars. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
KANGAS: Tomorrow, a lesson from London about bucking the market.
O'BRYON: The man who brought the Yugo to the United States now wants to introduce cars made in China to North America. Malcolm Bricklin's firm, Visionary Vehicles has inked a deal with China's Cherry automobile company to start importing low-cost vehicles in 2007. The five models include a compact sedan, a mid-size sedan and a sport utility vehicle, with prices starting in the low-to mid-teens.
KANGAS: Here's an unusual car buying incentive: free auto insurance. Volkswagen America is launching a pilot program in two states, Illinois and Wisconsin, offering a year of free insurance coverage with the purchase or lease of a Golf, new beetle, or new beetle convertible. The promotion, dubbed "in the car," starts tomorrow and runs through the end of March.
O'BRYON: And here's a look at what's happening tomorrow. A busy day on the economic calendar, we'll see weekly retail sales, November's factory orders and December's auto sales numbers.
Tonight's commentator says now that we've rung in the New Year, it's time to look at what might be in store for it. Here's Mark Zandi, chief economist at economy.com.
MARK ZANDI, CHIEF ECONOMIST, ECONOMY.COM: This is the first working day of 2005 and a good time to consider the prospects for the economy in the new year. I'm optimistic. What matters most for most of us are jobs, and the economy is on track to create at least as many this year as the over two million created in 2004. Workers will gain a bit of negotiating power vis-à-vis their employers, translating into bigger pay increases. Supporting this optimism is the view that cautious businesses will become more aggressive. Businesses are flush, as profit margins have never been wider. These margins will be difficult to maintain, however, requiring businesses to look for revenue opportunities. This will require more hiring. The composition of growth will change. Modestly higher interest rates will take the steam out of a through-the-roof housing market. A modestly weaker dollar will mean higher prices for imported goods, weighing on consumers' ability to be aggressive shoppers. Picking up the slack will be the nation's long-dormant export industries. Exports of tech products, agricultural goods, aerospace equipment and medical instruments will accelerate, as will financial, marketing, legal, and management consulting services. Foreign tourism will be strong. There are risks. We are often reminded of the possibility of more terrorism. Energy prices could move back up. And the impending adjustment to higher interest rates and a lower dollar could be more uncomfortable than expected. But odds are that for the first time this decade, we will enjoy a solid and comfortable economy in 2005. I'm Mark Zandi.
KANGAS: Recapping today's market action, stock investors begin the year on the down side. The Dow falls 53 1/2 points. The NASDAQ Composite loses 23. To learn more about the stories in tonight's broadcast, go the nbr.com. And please be sure to join us at
O'BRYON: And finally tonight, the folks in Bismarck, North Dakota, apparently pride themselves on staying ahead of the times, but not this far ahead. When the state capitol building was lit for New Year's Eve on Friday night, it welcomed in the year 3005! Someone apparently hit the wrong switch on the building's lighting grid and tacked on a century to the real New Year. The mistake was quickly corrected and eventually Bismarck did welcome in 2005, the same year as rest of the world, Paul.
KANGAS: I'll bet you the person that made the mistake aged a few years more than the rest of us.
O'BRYON: Absolutely, a timely comment.
KANGAS: Absolutely.
O'BRYON: And that's NIGHTLY BUSINESS REPORT for Monday, January 3, 2005. I'm Linda O'Bryon. Good night, everyone and good night to you too, Paul.
KANGAS: Good night, Linda. I'm Paul Kangas wishing all of you the best of good buys.
