Complete NBR Transcript: 05-11-06
Thursday, May 11, 2006Investors Take A Shine To Commodities
SUSIE GHARIB: Stocks today suffered one of their biggest losses of the year as commodity prices skyrocketed. June gold futures surged $15 to $721.50 an ounce. Silver prices jumped 4.5 percent and oil rose $1.19 to $73.32 a barrel. On Wall Street, the Dow tumbled 141 points and the NASDAQ lost 48 points. Those losses were fueled by inflation concerns just a day after the Federal Reserve raised interest rates and signaled that it`s watching commodity prices closely. Erika Miller has more on what`s behind the surge in metals prices.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s easy to understand the lure of metals, when you consider their performance this year. Since January, copper is up 85 percent. Gold has risen 37 percent. And though the stock market is having a good year, the 5 percent gain in the S&P 500 pales by comparison. Ten-year Treasury notes are currently yielding about 5 percent. Investors and speculators around the globe are flocking to hard assets like metals because they are concerned about a weakening dollar.
GEORGE GERO, VP GLOBAL FUTURES, RBC CAPITAL MARKETS: Right now the major interest in metals is from the world that is concerned about the dropping value of the U.S. dollar, because what people are concerned about is maintaining purchasing power.
MILLER: Improving global demand has also supported prices, especially for base metals like copper and zinc. But even precious metals, like gold and silver, are at their highest levels in a quarter century. Though gold has limited industrial use, experts say it is benefiting from worries about inflation. Gold is also being used as a safe-haven investment by investors concerned about Middle East turmoil.
GERO: Years ago, people always turned to Treasury bills as a safe haven. And today, where the Fed has been signaling that every time you buy a Treasury bill it may be worth less with another increase in the rate, the people are looking at other assets like gold.
MILLER: In the short term, most experts predict the rally in metals can continue, especially gold and silver. Gold closed above $721 an ounce today, and some analysts think it could challenge its all time high of $850 an ounce this year.
JAMES STEEL, METALS ANALYST, HSBC: Certainly there is enough bubbling in the Middle East. There`s going to be enough concern about inflation I think, and enough uncertainty in general going forward particularly if the dollar remains weak to keep gold and silver high.
MILLER: Experts say there`s one other reason for the renewed interest in gold: easier investment options. Investors can now buy gold exchange traded funds instead of having to own the actual metals. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Humana CEO Michael McCallister On The New Medicare Drug Prescription Plan
PAUL KANGAS: United,is the largest beneficiary of the new Medicare drug prescription plan, so far garnering 27 percent of enrollees. Right behind United is Humana, which has already signed up 18 percent of eligible seniors. The main enrollment deadline for the plan is this coming Monday. Stephanie Dhue sat down with the CEO of Humana, Michael McCallister to get his take on this new drug plan. She began by asking about his company`s experience with it.
MICHAEL MCCALLISTER, PRESIDENT & CEO, HUMANA: I think we`ve had a great enrollment period here with a lot of activity, a lot. We`ve guided the Streets for Humana to have 2.7 to 2.9 million members at the end of `06, so it`s a big success in terms of involvement. We`ve managed an incredible short-term implementation process and there`s been a few bumps. Where we are today, we have a huge percentage of our people who have received their cards. They`re getting their medications. They saved hundreds of millions of dollars just in our broker business already, and our information would say that people are largely satisfied with how it`s gone.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: You saw a hit in recent earnings because of the start-up costs of introducing the new plans. Will Medicare part D pay off for Humana?
McCALLISTER: It will. It`s never going to be a really high-margin business, but we didn`t actually think it would be. But it`s going to be profitable for us. The timing of it is odd and it affected our earnings look this year because of the way the benefit is structured. You have benefits early on and then you enter a coverage gap so the math gets a little unusual and it`s not a traditional benefit structure that we would have in the rest of our business. So it`s affected the way the earnings look, but in terms of all the projections around membership, the risk selection dynamics that would take place with all the multiple products, the mail order drug utilization, the generic drug utilization, all those metrics that we look at actually are on course.
DHUE: Some of your prescription drug plans high premiums of $1.87 a month. What`s your strategy with those plans?
McCALLISTER: Our theory has always been that we don`t look at the senior population - actually, we don`t look at any population -- but we don`t look at the senior population as a homogenous group. We know that they`re very diversified around their economics, their risk tolerance, their health status and so we basically approach the market with a strategy of offering different types of plans to different people. So they go from low premium with deductibles and all those things in place, all the way up to high premiums and very rich benefits and we find these people have a different desire. Some are interested in paying the higher premium, and getting the richer benefits and others are basically saying I`m looking for financial protection but I don`t need all this finance and I don`t want to pay high premiums. So it`s a segmentation strategy around meeting people where they are.
DHUE: Do you make the money off the $1.87 plan or do you hope that those people get introduced to Humana and then buy other kinds of HMO coverage?
McCALLISTER: We`ve been very straightforward. We think the Medicare advantage plans offer incredible value. And we think that we`re going to have people that are going to see that value over time, and we do think there will be some transition for some people from PDP (ph) plans into MA (ph) plans. We priced all of our products to make money, even the lower priced products, because you do have the benefit offsets. There`s been a real focus on the premium and I think inappropriately so. Unless you really look at the premium in the context of what the benefits look like, it`s hard to come to a conclusion how they`re economically going to work.
DHUE: There are 90 companies offering 3,000 plans. People are already predicting consolidation. What do you see happening in the next few years?
McCALLISTER: Well, if you look at the early data, it`s clear that there`s going to be a handful of very significant players and I can`t speak to what all the others might do. I`m a believer that if you`re going to do this sort of work, you need to do a lot of it. That way you can invest in technology, invest in information, stay very close to your customer, consumers. And I think information that`s actionable is important, that is driven by technology and data management. That requires a lot of business to really do that well. So I think that there`s likely to be less players going forward. We`ll have to see how that plays out.
DHUE: Policy makers envision insurance companies being able to negotiate better prices with drug companies. Are you on target to make that happen?
McCALLISTER: Sure. We did that even before. I mean, it`s something we do every day. People in our space negotiate with pharmaceutical companies for the price of their drugs. We negotiate with retail chains for what they`re going to charge to fill these prescriptions. So it`s something we were already doing as part of our business and now we`re basically just bringing those techniques into Medicare. I say to people all the time - because there`s some that would say well, government should be out negotiating prices for drugs. My push-back to that is well that is exactly what we`re doing on behalf of both the government and the individual.
DHUE: We have been speaking with Mike McCallister, CEO of Humana, thank you.
McCALLISTER: Thank you.
Bill of Health-Diabetes The Silent Killer
SUSIE GHARIB: It has been described as a quiet epidemic. Diabetes is a disease that 20 million Americans have and millions of them aren`t even aware of it. As Jeff Yastine reports in this week`s "bill of health," authorities are ramping up education efforts in an effort to stem that tide.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Doctors say the most frightening thing these days about diabetes is who`s getting diagnosed with it: more and more children. But there is help in the way of greater efforts at education and also technology for helping those who already have the disease.
UNIDENTIFIED FEMALE: We have already talked about the six nutrients, proteins, fat, carbohydrates, vitamins, minerals and water.
YASTINE: It`s not just the three "R`s" they`re teaching in school these days. Food education is becoming more commonplace as well. The reason: the growing problem of children with diabetes. By some estimates, 200,000 American kids are classified as diabetic, many with the more dangerous type-2 form of the disease.
DR. PAUL JELLINGER, PAST PRESIDENT, AMERICAN ASSOCIATION OF CLINICAL ENDOCRINOLOGISTS: It`s well recognized that there is an epidemic of Type II diabetes and we`re seeing many more patients with diabetes and pre-diabetes diagnosed at every age level. In fact, one of the more startling findings is that Type II is appearing now in adolescents and children when in decades past, it was a disease almost exclusively of the adult over 50.
UNIDENTIFIED FEMALE: Being overweight can be one of the major risk factors for diabetes. YASTINE: Researchers believe the increase in diabetes has gone hand in hand with the rise in obesity seen among adults and children over the past decade. The types of food people eat and their sedentary lifestyles bear part of the blame. In response, many hospitals have created diabetes and nutrition centers, like this one at Memorial Regional Hospital in Hollywood, Florida. Here, education about the disease and how to manage it are key.
JELLINGER: There`s no disease where education is more important than diabetes because no physician has enough time or no professional educator has enough time for a diabetic. They have to live with their disease every minute of the day.
YASTINE: Doctors say technology, in the way of easy to use blood sugar monitoring devices, as well as new forms of insulin, are making diabetes a more manageable disease. But they say it will take increasing amounts of education to keep more adults and children from becoming diabetic in the first place. Jeff Yastine, NIGHTLY BUSINESS REPORT, for bill of health.
Commentary: Illegal Immigrants & The Economy
SUSIE GHARIB: The issue of illegal immigration has Americans talking these days, among them, tonight`s commentator. Here`s Irving R. Levine, dean emeritus at Lynn University and former chief economics correspondent for NBC News.
IRVING R. LEVINE, DEAN EMERITUS, INTERNATIONAL STUDIES, LYNN UNIVERSITY: In wrestling with the issue of illegal immigration, Congress should focus on economic realities. Economic reality number one: legislation to deport illegal immigrants overlooks the fact that, like it or not, the U.S. economy has become dependent on them. Reality two: legislation based on the argument that illegal immigrants take jobs from Americans doesn`t hold water -- not with unemployment at 4.7 percent and "help wanted" signs proliferating.
Reality three: legislation should outlaw local bans on driving licenses for illegal immigrants. In many places driving is the only way to get to work. Reality four: legislation that offers different deals to illegal immigrants depending on their arrival date in the U.S. is unrealistic. Illegal immigrants are by definition undocumented. They have no entry documents. Reality five: legislation should give illegal immigrants a legal status. As legal workers, they would pay income taxes, benefiting the U.S. Treasury. Employers would no longer fear immigration raids. The winners would be the immigrants and the economy. In short, members of Congress, in passing new laws on immigration, it`s time to get real. I am Irving R. Levine.
Paul Kangas' Stocks In The News
PAUL KANGAS: American consumers were in a spending mood last month, but most of the growth in April`s retail sales came from consumer spending at the gas pump. The Commerce Department says retail sales rose 0.5 percent last month, with gas station sales jumping 4.6 percent. If you factor out fuel, retail sales edged up just 0.10 percent. Economists say this could be the start of a negative impact of energy prices on spending and they say retail sales could taper off even more as we get further into the second quarter. Those retail sales helped trigger a lot of stock sales on Wall Street this morning. So did those rising prices for oil and gold which rekindled inflation fears. By midday, the Dow was down 124 points and NASDAQ off 39. The sell-off accelerated this afternoon after an auction of 10-year U.S. Treasury notes got just a tepid demand and sent yields to fresh four-year highs. Stocks ended near their worst levels of the day. The Dow Industrial Average lost nearly 142 points to 11,500.73. The NASDAQ Composite tumbled 48 points to 2272.70, while the Standard & Poor`s 500 Index lost 16.93 to 1305.92. In the bond market, the 10-year note fell 7/32 to 95 lifting the yield to 5.16 percent. New York exchange volume leader on 25.4 million shares, Nortel Networks (NT) dropping $0.215.
Then American Intl Group (AIG) off $3.39. First quarter operating earnings a bit higher than last year, $1.29 versus $1.23, but that was $0.07 below the Wall Street consensus. And Lehman Brothers today cut 2006 earnings estimates by $0.10 a share down to $5.70.
Lucent Tech (LU) down a dime.
And then Motorola (MOT) an $0.84 drop.
Pfizer (PFE) fell $0.23, fifth in volume.
Time Warner (TWX) a $0.07 gainer.
UnitedHealth Group (UNH) though down $1.80. As you heard, SEC is probing the company`s practices in granting stock options and it may have to restate its earnings lower for the last several years.
General Electric (GE) $0.19 drop.
News Corp (NWSa) up $0.58, in with third quarter earnings more than, just exactly double last year, $0.26 versus $0.13 then and the company`s also going to double its stock buyback plan to a total of $6 billion.
ExxonMobil (XOM) gave up $0.42 today, tenth in volume.
General Motors (GM) giving up $0.78 after several days of good gains, a little profit taking and some questions about the turnaround plan.
JC Penney Co (JCP) off $0.93, despite higher first quarter earnings, $0.89 versus $0.63 last year and that was a penny above the Street estimate. And then a nice gain by World Fuel Services (INT) up $5.01. First quarter earnings jumped to $0.52 from $0.31 last year. Revenues up 43 percent and those earnings were $0.13 better than the Wall Street estimate, so a nice gain in the stock.
Koppers Holdings (KOP) up $2.52. Interestingly, the company deals in carbon materials and chemicals and the company had a nine fold increase in first quarter earnings over last year, $0.27 versus $0.03 and that was on 16, on 14 percent revenue increase and those earnings 16 percent above the Street estimate. That stock just went public incidentally in February at 14.
Office Depot (ODP) moving up $1.22. Citigroup upgraded it from "hold" to "buy."
And then Biovail (BVP) moving up $1.74. First quarter earnings jumped to $0.40 from only $0.07 last year. Revenues rose a very respectable 27 percent.
Agree Realty (ADC), a real estate investment trust, up $1.44. Compson Holdings is sweetening its buyout bid from $34.50 a share up to $38.75 a share.
And then the cigarette maker, Carolina Group (CG) down $2.55. Lowe`s Corp is going to sell 15 million shares of the stock in a public offering.
Big board volume leader, Google (GOOG) giving up nearly $16 a share to profit taking after recent gains.
Microsoft (MSFT) off $0.55.
Apple Computer (AAPL) down $2.45, caught in the downdraft of today`s high tech sell off, but also French lawmakers are pushing for access to Apple`s software codes that will convert files to a variety of formats for use with other music players besides iPod and Apple doesn`t like it one bit.
Cisco Systems (CSCO) down $0.70.
Intel (INTC) $0.22 loss, fifth in volume.
Qualcomm (QCOM) fell $2.26.
Baidu.com (BIDU) after sharp recent gains, down $2.47.
Broadcom (BRCM) also off $2.47. And Hansen Natural (HANS), which has really taken off in the last several days, down $16.77 on profit taking.
Teva Pharmaceutical (TEVA) tenth in volume, was down $0.16.
The Movie Gallery (MOVI) up $1.62, 51 percent gain there, but big earnings, first quarter, $1.27 versus only $0.58 last year. The company said it would be open for a possible business combination with Blockbuster.
And finally we see Escala (ESCL) tumbling $2.21. That stock last Monday was at $32 a share. It`s a collectible auctioneering firm in Spain and its parent is being accused by Spanish authorities of investment fraud in the stamp business.
Those are the stocks in the news tonight.
