NBR Transcript - Feb. 2, 2005
Wednesday, February 02, 2005SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The Federal Reserve does it again. The Open Market Committee raises interest rates. We'll tell you by how much, the reasons behind the hike this time around and get some analysis on what the Fed might do next.
JEFF YASTINE, NIGHTLY BUSINESS REPORT ANCHOR: It's a critical crossroads for President Bush. Tonight's state of the union address will detail his plans to reform Social Security. We'll have a preview of what to expect.
GHARIB: Shares of Boeing take flight after the aircraft maker reports a brighter than expected financial picture. We talk with Boeing's CEO about the outlook for its new jumbo jet.
YASTINE: And, if you want your money to grow, you might want to farm it out. Tonight, the questions to ask before you sign up with a financial planner.
GHARIB: I'm Susie Gharib.
YASTINE: And I'm Jeff Yastine. Paul Kangas is off tonight. This is NIGHTLY BUSINESS REPORT for Wednesday, February 2.
GHARIB: Good evening, everyone. Another interest rate hike by the Federal Reserve today, policymakers raised a key short term rate by a quarter percentage point, bringing the Federal funds rate to 2.5 percent. The hike is the first for 2005 and the sixth straight increase since the Fed began raising rates last June. As Erika Miller reports, experts say the Fed is far from finished.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: There was barely a stir as word of the rate hike hit trading floors. Experts say the move was so well telegraphed, it was almost a non-event. The Federal funds rate now stands at 2.5 percent, the highest level since October 2001. Economists say today's move is part of the Fed's plan to bring interest rates back to more normal levels.
JOHN RYDING, CHIEF U.S. ECONOMIST, BEAR STEARNS: The Fed wants to get policy back to neutral. But they want to try and do it without rattling the bond market the way they did in 1994. And right now they're being extraordinarily successful in not rattling the markets. MILLER: There were also no surprises in the statement accompanying the Fed's decision. It was basically identical to the one issued at the last meeting December 14.
JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MANAGEMENT: They still see the economy expanding at a solid pace. They see inflation as well contained. They see policy as still accommodative, even after this additional rate hike.
MILLER: The Fed also repeated its intent to raise rates at a measured pace as it has done the past six times. But the central bank was careful to leave its options open, saying again it will respond to changes in the economic outlook. Economists are certain there will be another quarter point increase at the Fed's next meeting March 22nd with no significant changes in the statement. The big unknown is when the tightening cycle will end and at what level.
RYDING: I'm not sure the Fed knows in advance, except they have -- a number of Fed members have given hints that, when they've been asked where neutral is on the Fed funds rate, they've given ranges that have been around 4 percent.
MILLER: Economists say any hints of change in the Fed's thinking could come at Fed Chairman Alan Greenspan's semi-annual testimony before Congress later this month. They hope he'll better detail the risk of inflation. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
GHARIB: Joining us now for more analysis of the Fed decision, Michelle Girard, senior economist at Greenwich Capital Management. Hi Michelle.
MICHELLE GIRARD, SR. ECONOMIST, GREENWICH CAPITAL MANAGEMENT: Hi Susie.
GHARIB: All right, very predictable decision from the Fed. The statement almost word for word what it was at the last meeting. So what's your analysis of the Fed's thinking at this juncture?
GIRARD: You're exactly right. They changed one word. The joke was they met for two days and changed one word in the statement. You know, basically it tells us that the Fed is very comfortable with their outlook for growth. They're happy with what the economy is doing. They're very comfortable with what the inflation picture looks like, and they're very satisfied with their current path of raising interest rates, 25 basic points a meeting. They obviously don't feel any need to adjust the -- not only the tightening campaign, but also market expectations. You know, the market is looking for the Fed to continue raising its rates at least through the middle of the year and they didn't feel any need to signal that that expectation was wrong.
GHARIB: I've asked you this before Michelle, when does the Fed stop raising rates. What's considered neutral?
GIRARD: Oh, everybody debates this. The range as, you know, one of the economists in the package noted that the Fed officials give is somewhere between 3 and 5 percent. I think that the neutral funds rate is higher than that. In a sense I think it's at the upper end of the range between 4 1/2 and 5 percent. So I think that the Fed will actually end up raising rates more this year than most people are expecting, but I don't think it's going to pose a risk for the economy or for the stock market. Again, this is all about the Fed taking their foot off the gas, not about them trying to slow the economy down. What they're trying to do is to raise rates and get to a neutral stance so that they don't risk letting, if they wait too long, they risk perhaps prices starting to rise and then ultimately having to play catch up and raising rates a lot more than we're talking about now.
GHARIB: Let me ask you about that. Some people have suggested that the Federal Reserve should be explicit about its inflation target. How much inflation can the economy tolerate and still grow? What are your thoughts on that and do you think it would lower anxiety for Wall Street?
GIRARD: I think the Fed is definitely working on improving transparency. We all have a much better idea about what the Fed is thinking. If they wanted to formalize that with an inflation target, I don't have much issue one way or the other. I guess it would be nice to some extent to see the Fed's focus shift purely to inflation rate. They have a double objective of having the economy at full employment and keeping prices stable and that's going to be tricky to do. It would be nice to see the Fed just charged with keeping inflation in check. I think that would make the Fed's job easier and if this inflation target gets us to that point, then all the better.
GHARIB: We just got a little bit of time left. Michelle, I want to ask you, Alan Greenspan is going to be on Capitol Hill testifying to Congress about the state of the economy and monetary policy. What should investors be listening for?
GIRARD: Well, clearly what everyone's going to look for is what is the Fed thinking in terms of how high interest rates are ultimately going to go? I think we're going to hear the Fed very optimistic on the economy, very comfortable with inflation, and I don't think we're going to hear any signs of them pausing, but that is what the market is going to looking for. What does the Fed think is neutral and how high are rates going to go this year and how fast?
GHARIB: Michelle, as always, we really enjoy talking to you and getting your insight. Thank you so much.
GIRARD: Thanks Susie.
GHARIB: We've been speaking with Michelle Girard, senior economist at Greenwich Capital Management.
YASTINE: Fed meeting or not, the bulls controlled the market throughout today's trading session. Buyers came in at the start, spurred on by better than expected earnings from Boeing, which we'll detail in a moment. The NASDAQ gained ground on Google's stellar profits we told you about last night. The indices seesawed after the Fed's announcement, selling off and then regaining strength. So the Dow gaining almost 45 points at 10,596.79. The NASDAQ rising 6 1/3 points to 2075 and a fraction and the S&P 500 advancing 3.75 points to 1193.19. The Treasury said today it has no plans to bring back the 30-year bond, despite rumors to the contrary and in today's trading, bonds barely budged on that Fed rate hike. The 10-year note dipping just 1/32 to 100 26/32. That leaves the yield at 4.14 percent.
GHARIB: Tonight, President Bush will take the wraps off the blueprints for his second term in office as he delivers his annual state of the union speech to the nation. Joining us now for a preview of what to expect, our Washington bureau chief Darren Gersh. Darren?
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi Susie. Well, the White House released a few quotes from tonight's speech. The president will again warn that Social Security is headed for bankruptcy and he will stress the need for a, quote, candid review of the options. We're expecting some new details. We hear Mr. Bush will make it clear the reforms will not affect people who are now 55 or older. Reform is a tall task, because the American people are both intrigued and troubled by the idea of adding personal accounts to Social Security. Social Security has given every American a number. The problem is the program's long-run tax and benefit numbers don't add up. But most Americans do not believe the math is as bad as the president says it is.
CARROLL DOHERTY, EDITOR, PEW RESEARCH CENTER: The public decidedly does not see the system in crisis. They see problems. Many people express doubts that they will receive the benefits that they have coming to them, but they don't see it as a system in crisis.
GERSH: Tonight, Mr. Bush will try to change that perception, laying out his case for action now to give younger workers a retirement system with personal accounts. Polls do show younger workers like that idea, but their parents worry about giving up a guaranteed benefit.
DOHERTY: When people are reminded that the stock market goes up and down and their benefits can go up and down as well, that tends to diminish support.
GERSH: Tonight's speech is also a chance for Mr. Bush to educate members of Congress. He is expected to reach out to Democrats, almost all of them opposed to personal Social Security accounts. But even some Republicans are worried about this debate.
SEN. OLYMPIA SNOWE (R), MAINE: There has created a lot of confusion among -- I know my seniors -- and fear, because suggesting there is a crisis and it is about to go bankrupt.
GERSH: At a Senate hearing today, the Social Security chief actuary explained the program's financial hole over the next 75 years is projected at just under three-quarters of one percent of GDP. But he warned delay makes the problem harder to solve.
STEPHEN GOSS, CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION: By enacting needed changes sooner, we will have more options to consider. We will be able to phase in the changes in a more gradual fashion and we will be able to give affected individuals more advance notice.
GERSH: Now Democrats did not wait to attack the president's plans. They have already released excerpts of their response calling personal accounts quote, Social Security roulette. Susie.
GHARIB: Well, certainly, Darren, there is going to be a lot of debate on this topic from both sides of the aisle. But in the final analysis, what are the chances that President Bush is going to get his way in reforming Social Security? What do you think?
GERSH: This is kind of the Washington forecasting roulette. But the analysts that I've spoken to say if you're talking about the president's pure plan what we're expecting him to put forward, the odds are pretty slim on that. Maybe 10 percent, 30 percent, that's kind of false precision, but Mr. Bush has taken a lot of things off of the table, raising the payroll tax. So that may be more difficult. But if he's willing to make some compromises, then the odds go up to a whopping maybe 50 percent, 51 percent, it's very tough. Susie.
GHARIB: Compromise is the way of Washington, right?
GERSH: There you go.
GHARIB: Thanks a lot, Darren. Washington Bureau Chief Darren Gersh, reporting from Washington.
YASTINE: Commercial airplane maker Boeing turned in better than expected earnings for the fourth quarter. After special charges for shutting down its 717 line of planes and a tax settlement, the company made $0.23 a share. That's way above estimates of $0.04. Boeing says it continues to see good growth in its business, delivering 325 planes this year, 40 more than last year. Earlier today I talked with Boeing's CEO Harry Stonecipher and began by asking him about Boeing's outlook for the industry.
HARRY STONECIPHER, PRES. & CEO, BOEING: You know, the traffic now is at world record levels and so there's great demand for airplanes, so we're seeing good demand pressure for our 737 and triple 7, as well as the 787 for the future.
YASTINE: China's airlines have come out with a big order last week for 60 of the 77 or 787 I should call them now. How is momentum building for that? Are you seeing enough interest?
STONECIPHER: Oh, absolutely and we saw so much interest last year and you know, the Chinese, we kind of had proposal acceptance and they love the airplane and we got to it their configuration that they liked. And so it was just a timing of getting this announcement made. And that's kind of what we've seen, is there's great interest in the airplane. And it just takes a while to get these things announced sometimes. And of course the customer is the one that decides when to announce.
YASTINE: But I presume you expect in the next year or two to start seeing more firm orders coming from...?
STONECIPHER: I think you'll see lots of firm orders coming almost monthly as we go forward. So there's a lot of activity out there.
YASTINE: Airbus is next year going to fly what is or will be the largest commercial airliner, the A 380. It's at least a portion larger than the 747. Is there any thought on Boeing's part as far as rethinking the strategy of more efficient but basically the same size versus the super jumbo aircraft that the A 380 represents?
STONECIPHER: No, not really. We're looking at a change in our 747 that might extend that line. But fundamentally we don't see a large enough market up on the top end in the big airplane size. There's a market, we just don't think it's big enough to justify the enormous investment that's required. So we have a different view than Airbus does and that's just fine.
YASTINE: However, airbus continues to outsell Boeing. I believe you've lost market share for a second year here. Is that a concern? Is there anything that Boeing wants to do to turn that around or is that not a concern?
STONECIPHER: No, that is a concern, and that's why we've made some changes and we're changing our approach in our marketing sales area. So that's really why we've lost market share. It hasn't been product.
YASTINE: Now, is that CEO speak for perhaps cutting some of the prices for your aircraft to gain back that market share?
STONECIPHER: No, not at all. When you get down to just price, you've already lost the order a long time ago. Now, there are some places where the price doesn't make any sense and you're going to lose it. So if someone makes up their mind that they want the order, you know, you can throw enough money at it to get it. But that in the long term doesn't make any sense.
YASTINE: I've got about 30 seconds left. A large portion of Boeing's business comes from the defense side. Is there any concern with some of the cutbacks we've already seen in various programs at the Pentagon, that perhaps the defense budget itself may come in for more slicing and therefore upset that part of your plan?
STONECIPHER: Well, no, I don't think it will upset our plan, because we've always anticipated that there would be pressure on the defense budget, either brought about by peace or brought about by real budget pressures. And so we're seeing real budget pressures. We expect that we will get clipped here and there, as everyone will. So we kind of changed our opinion about the growth rate from 10 percent to maybe 7 or 8 percent. So we're prepared to deal with it. It's a very strong, well balanced business and margins are great. So we love it.
YASTINE: All right. Mr. Stonecipher, thanks for your time.
STONECIPHER: Thank you.
YASTINE: Our guest, Harry Stonecipher, CEO of Boeing.
And now let's take a look at our stocks in the news tonight. And topping our list, Pfizer (PFE) gaining $0.21. Morgan Stanley says lingering safety concerns over Celebrex, along with expiring patents on some other drugs, will weigh on Pfizer's earnings, but it is confident the drug maker will grow profits this year by 30 percent if it has some sales force reductions.
Sprint FON Group (FON) gaining $0.30.
SBC Communications (SBC) gaining $0.47. The telecom said it would cut about 13,000 jobs if it wins approval for its merger with AT&T. That's about 12 percent of the workforce, although executives say much of that will be done through attrition and not layoffs.
Lucent Technologies (LU) gaining a fraction.
And Countrywide Financial (CFC) losing over $2. The mortgage giant posting a 39 percent drop in fourth quarter profits due to huge losses in deviates that are used to hedge risk against interest rate volatility.
AT&T (T) rising $0.46.
And News Corp. (NWS) gaining a nickel.
Citigroup (C) up $0.20.
J.P. Morgan Chase (JPM) gaining two pennies.
And Motorola (MOT) settling $0.28 higher. Motorola says its cell phone sales jumped by 36 percent with its razor B 3 (ph) a big seller and it's the second largest seller of cell phones behind Nokia and Motorola also putting some distance between it and third ranked Samsung in the market share business.
Boeing (BA) rising $1.19. As you heard, the Dow component out with stronger than expected fourth quarter results.
And here is TXU Corporation (TXU) climbing $2.67. Fourth quarter profits, excluding charges rising 600 percent on a year over year basis. That's the $0.67 a share. The company also raising its outlooks for this year and next.
Harrah's Entertainment (HET) rising $2.38. The casino operator hitting the jackpot with its latest fourth quarter report. Earnings more than doubled, thanks to its recent acquisition of (INAUDIBLE) horseshoe casino and the pending buyout of Caesar's Entertainment for $5 billion will also help them there when that comes along.
Family Dollar Stores (FDO) jumping $1.70. Merrill Lynch upgrading the stock to "buy" on the belief that the Dollar Store retailer group will be a standout this year.
And here's a look at Linens ‘n Things (LIN), jumping $2.40. The housewares retailer putting out a nice spread of fourth quarter profits that came in at $0.99 a share. That was above Wall Street estimates.
On the downside, shares of Cummins Incorporated (CMI) tumbling more than $6. The engine maker said full year earnings will likely be $8.30 a share and that was below earlier estimates.
Over on the NASDAQ, shares in Google (GOOG), there's a nice jump there, traded as high as $216.80 before settling down after the Fed announcement to about $205.96. After only six months as a public company, of course, that is a new high for the stock.
NASDAQ 100 (QQQQ) advancing $0.06.
eBay (EBAY) climbing $0.87. The stock down more than 30 percent from its highs in December. Users remain concerned about the listing fees charged by eBay and investors about the new upstart auction sites that might draw business away from eBay.
Microsoft (MSFT) rising $0.07. Intel (INTC) losing a nickel.
Here's a look at Apple Computer (AAPL) which gains another $2 today.
Yahoo! (YHOO) gaining $0.79.
Cisco Systems (CSCO) advanced $0.02.
Amazon.com (AMZN) losing $0.60 but sank to $36 a share after hours. It missed estimates, posting lower than expected fourth quarter profits of $0.36 a share, but the Internet retailing giant unveiled a new membership program which for $79 gives customers all you can eat express shipping.
Applied Materials (AMAT) losing $0.14.
Here's a look at THQ Inc. (THQI), jumping more than $4. Sales and earnings for the holiday quarter beating analyst estimates. It also raised estimates for the year.
And Monster Worldwide (MNST) tumbling more than $2. The online job listings firm said fourth quarter results were ahead of estimates, but it did trim its first quarter guidance by a couple of pennies. And those are our stocks in the news tonight, Susie.
GHARIB: Thank you, Jeff.
U.S. pension insurers took over the under-funded pension plans of US Airways today. The Pension Benefit Guaranty Corporation will now be responsible for almost $2.5 billion of liabilities carried by the retirement plans of the airline's flight attendants, machinists, and other workers. It's one of the largest claims in the program's history. By dumping the pension plans on the agency, the bankrupt carrier hopes to save $100 million a year. But the agency has its own financial challenges. Last year it was $23 billion in the red.
YASTINE: Tomorrow, pro football and the economy. Are they a super combination?
GHARIB: Dick Grasso inappropriately influenced the people who set his pay when he headed the New York Stock Exchange. That's the conclusion of an internal report commissioned by the NYSE and released today. The so called "Webb Report" says Grasso's compensation was excessive and beyond reasonable levels. A Grasso spokesman says the former chairman never spoke to anyone on the board about his $188 million pay package.
YASTINE: Blockbuster has fired another salvo in the bidding war to buy rival Hollywood Video. Blockbuster says it will now pay $14.50 in cash and stock for Hollywood. That's $1.25 over what a third company, Movie Gallery, is already offering for the chain. The tug of war over Hollywood has been going on for months now.
GHARIB: Here's a look now at what's happening for tomorrow. Weekly jobless claims come out and December factory orders, fourth quarter productivity and the Institute of Supply Management's non-manufacturing index for the month of January. Also tomorrow, earnings from Auto Nation, Gillette, International Paper, Raytheon, Sprint and Whirlpool.
GHARIB: In the "Money File" tonight, looking before you leap to invest. And before you leap, ask a lot of questions. Here's Eric Schurenberg, managing editor of "Money" magazine.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: A good investment advisor is hard to find, especially if you aren't rich. Lots of money pro's won't give you the time of day unless you plan to invest at least half a million. You can't really blame them.
Increasingly, they're paid a percentage of the money they manage. So if you haven't got a lot of dough, frankly, you can't expect a lot of attention. Still, if you're interested in a traditional pro who will help you with all sorts of decisions, you can find one. But you'd better get your expectations in line first.
Start by asking the planner for the size of the typical client's portfolio. If it's smaller than yours, you might question the adviser's experience. If it's much larger, don't sign up unless you're satisfied with the answers to the following questions.
Question 1: My portfolio is relatively modest. Should I be worried I won't get your attention? Listen to the tone of the response. If the planner laughs off your concern, you should wonder about his or her sincerity. No one has unlimited time for a small portfolio.
How often will you check in with me? Once a month would be ideal. Once a season is more realistic. How quickly will you get back to me? Even a busy planner should return your calls within a day, two days at the most. What should I expect to get out of your advice? If all the planner promises is a higher return, look elsewhere.
What you really want is help in reaching your goals. A planner should learn yours and tailor the advice accordingly because that's a planner's job, no matter how much or how little you invest.
I'm Eric Schurenberg.
YASTINE: And recapping today's market action, the Dow raises rates and stocks barely budge. The Dow gaining 44 points. The NASDAQ closes up six. And to learn more about the stories in tonight's broadcast, go to nbr.com. And that's NIGHTLY BUSINESS REPORT for Wednesday, February 2. I'm Jeff Yastine. Goodnight, everyone. Good night to you Susie.
GHARIB: Goodnight, Jeff. I'm Susie Gharib. Hope to see all of you again tomorrow night.
