NBR Complete Transcript: 05-26-2006
Friday, May 26, 2006Stocks End The Roller Coaster Week On The Upside
SUSIE GHARIB: Stocks ended a volatile week on the upside. The Dow rose 67 points and the NASDAQ was up 12 points. Gains came despite fresh evidence that inflation is picking up in the U.S. economy. The Commerce Department said today that the personal consumption expenditure, a closely watched inflation gauge of the Federal Reserve, rose a 0.2 percent last month. While that`s a slight slowdown from March`s pace, it puts the annual rate of core inflation over 2 percent. Most economists believe that`s at the top of the Fed`s comfort zone.
JERRY WEBMAN, CHIEF ECONOMIST, OPPENHEIMERFUNDS: We`ve been in a goldilocks environment now for a couple of years. And what today`s numbers, this week`s numbers in the market actually told us is that the risk that the porridge is either too hot or too cold, that`s really gone up.
GHARIB: Today`s data also heated up the debate about whether inflation pressures will force the Fed to hike interest rates again at its next meeting in late June. Many economists say such a move is too close to call right now.
It May Be May Day For The GOP Come November
PAUL KANGAS: The calendar says "May," but when it comes to politics, right about now everyone starts thinking about November. Analysts say this fall`s congressional elections may be the toughest for Republicans in more than a decade. As Darren Gersh reports, market watchers are beginning to weigh the consequences of a change in control in Washington.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ah, Memorial Day, when most Americans begin thinking about vacations and time off the job and politicians start ramping up plans to stay employed. This election year there`s reason for Republicans to worry.
AMY WALTER, POLITICAL ANALYST, COOK POLITICAL REPORT: The overall message right now is one that suggests that what voters are looking for fundamentally is just a change in direction. They don`t like the way that things are headed right now. They`re very open to the message that the status quo isn`t working; let`s vote for change.
GERSH: The Cook political report, an influential election guide, now rates 36 Republican house seats as vulnerable, up from 24 just two weeks ago. Political economist Tom Gallagher is now warning markets there`s a 55 percent chance Democrats will take back either the House or Senate, setting the stage for even bigger battles.
TOM GALLAGHER, POLITICAL ECONOMIST, INTERNATIONAL INVESTMENT & STRATEGY: Almost all the important tax provisions expire in 2010, so there will be an attempt by Bush in his last two years to extend that. And the better Democrats do, the harder it will be to do that.
GERSH: If Congress does change hands in the fall, it could mean big swings for key sectors. Health care is likely to benefit under Democrats. Gallagher also says individual companies supported by Democrats, like mortgage giants Fannie Mae and Freddie Mac, should do well, while those seen as Republican allies, like Halliburton, may suffer as newly installed Democratic committee chairmen launch investigations of contractors working in Iraq. And then there`s Wal-Mart.
GALLAGHER: There`s a bill with a surprisingly high number of co- sponsors in the House and Senate-- almost a majority, just short of a majority in the House and the Senate-- which would make it easier to organize companies, especially Wal-Mart. It`s really targeted at Wal-Mart.
GERSH: But Gallagher adds markets don`t tend to price in these kind of election possibilities until after Labor Day, so enjoy the summer. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Aon Corporation President & CEO Greg Case Braces for Hurricane Season
SUSIE GHARIB: The global economy is providing new risks for businesses, on growing fears about terrorism, pandemics and catastrophic weather. These issues all provide big challenges for re-insurers and risk managers, like Chicago- based Aon Corporation. Diane Eastabrook sat down with Aon`s President and CEO Greg Case. She began by asking him how prepared the re- insurance industry is for the coming hurricane season, which starts on Thursday.
GREGORY CASE, PRESIDENT & CEO, AON CORP.: The industry, I want to stress, is a strong industry, which for hundreds of years has served a very, very distinctive and impactful (ph) purpose and is positioned to do again. There are also other options in terms of just basic insurance. You look at the alternative marketplaces, the capital markets, et cetera, all things that Aon`s been very involved with, thinking about how to serve client needs. The basic primary insurance or reinsurance market is one of those, but there are others available as well.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: What other options might be available?
CASE: In the capital markets, there is a tremendous amount of interest around catastrophe bonds. The private equity money is also very interested in playing a role in insurance over time. And where there is need and there`s capital, they often come together and we`ve seen that a lot over the course of the last year.
EASTABROOK: The terrorism risk insurance act is going to expire at the end of next year, 2007. Can the commercial market compensate for that if we don`t have that government safety net?
CASE: We have in terrorism a very, very unique situation. In the $100 million cover that you just described, which really is only in place through the next renewal cycle, in our view is essential. In our minds, this is not an insurance question. The mistake that I see made is to become an insurance issue. It`s not an insurance issue. We`re not an insurance company. We`re advocates of this because it matters to our clients. When you try to understand what`s required to actually make a capital investment to build a hotel, to invest in housing, to do anything you want to think about in terms of capital investment, you must have risk assessment behind it, and terrorism throws a -- you know it throws a monkey wrench into it that is quite, quite unique. So our advocacy around a backstop beyond the industry is not about insurers. It`s all about clients and what clients need to make effective capital investments.
EASTABROOK: We`re seeing a lot of businesses going global these days. What are some of the other risks that they`re encountering as they go off and set up businesses in other countries?
CASE: The level of risk overall is just increasing, flat out, the level of risk is increasing. You touched on a few of the issues: terrorism, the whole catastrophe risk, risk around the pandemic, et cetera. The whole level is increasing, different than it`s ever been before. Beyond that, the complexity of risks are increasing. So take a look at Katrina as an example. In Katrina, there is a whole set of -- laws are being written today, as we speak, around was it a storm surge that caused the damage or was it the flood afterwards? That sounds trivial, but it`s literally the difference between businesses making it and living and not making it.
EASTABROOK: You made reference earlier to a pandemic, and we heard just a few days ago that bird flu has been detected again in Indonesia. How well prepared are companies for a possible bird flu pandemic?
CASE: We are working with many, many clients who are first starting with what`s the situation assessment? What are our risks in terms of human capital risks? What are our risks in terms of supply chain? What are our risks in terms of plants or customers who may not even be able to access our products for a variety of reasons? So first is, just what`s the quantification? What`s the real risk?
EASTABROOK: How much of a risk is this, do you think?
CASE: We are quite concerned about this. This is something that`s real, that we have seen before, and in many respects, the stakes are as high now as they have ever been. We all hope frankly this would be -- it would be wonderful if this was another Y2K and it just whimpered away, but if not, it`s incumbent upon us and our clients to be prepared for it.
EASTABROOK: Mr. Case, thanks very much for joining us.
CASE: It`s been my pleasure, thank you very much.
Hong Kong's Business Boom Might Be A Bust For Foreigners
SUSIE GHARIB: Hong Kong is one of the world`s most culturally diverse and business minded cities. Now, its government is considering a new racial discrimination law that could make it less attractive, especially for foreign businesspeople. From Hong Kong, Rob McBride reports.
ROB MCBRIDE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is a law generally welcomed by the business community in Hong Kong, a place where discrimination has been illegal, except when based on race.
JACK MAISANO, PRES., AMERICAN CHAMBER OF COMMERCE/HONG KONG: Hong Kong already has anti-discrimination laws on sex bias, family status bias and disability bias. This simply brings us up-to-date in terms of all the other industrialized countries in the world.
McBRIDE: The law that will make racial discrimination in employment illegal finds support from both management and labor.
ELIZABETH TANG, CHMN., CHIEF EXECUTIVE, HONG KONG CONFEDERATION OF TRADE UNIONS: Our union has been advocating for such a law for a long, long time. It will be also beneficial for local workers. And then they can just compete on their talents, on their abilities, and the performance.
McBRIDE: But applying the new law to recruitment, especially among Hong Kong`s executive class has raised the specter of greater government involvement in an economy that has always prided itself on a laissez-faire approach.
DAN CHAVASSE, MANAGING DIRECTOR, MICHAEL PAGE INTERNATIONAL: If it was ever to unfold in a way which made it more difficult for companies and banks to hire in Hong Kong, then there`s no question in my mind that people will migrate their regional headquarters to Shanghai or Singapore or another jurisdiction.
McBRIDE: The consensus among recruiters here, though, is that ultimately, Hong Kong has too much to lose by imposing too many restrictions on how employers recruit. And companies will still be allowed to bring in staff if they can prove they have skills not available locally. But western executives, take note, one skill everyone is after, the ability to speak Mandarin Chinese.
CHAVASSE: A lot of people think of expats as westerners. But most expats, many expats in this part of the world are Singaporeans. They`re returning Chinese. They`re returning Malaysian people, Taiwanese. So, they`re not just simply westerners.
McBRIDE: Indeed part of the problem with any race discrimination law has been making it flexible enough to accommodate Hong Kong`s increasingly cosmopolitan nature, something that applies to all sectors here, from the corporate high-flyers to the people serving them at table.
MAISANO: For instance, if you have a Japanese restaurant, clearly you can hire Japanese to work in that restaurant. If you have a French school, clearly you need French speakers to do it. So, these all have to be written back out of the law.
McBRIDE: The American Chamber of Commerce and other business organizations report a number of overseas companies are expanding or opening new offices in Hong Kong, all adding extra demand for workers from here or abroad. Rob McBride, NIGHTLY BUSINESS REPORT, Hong Kong.
"Market Monitor"-Mark Leibovit of vrtrader.com
PAUL KANGAS: My guest market monitor this week is Mark Leibovit, chief market strategist for vrtrader.com. Welcome back to NIGHTLY BUSINESS REPORT, Mark.
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Pleasure to be here, Paul, thanks for having me.
KANGAS: Last November when you were with us, you were as bullish as any market analyst around. The Dow as at the 10,700 level and you expected an intermediate move to 11,400 or a little bit more and it got there and then some, right.
LEIBOVIT: Yeah, we got to 11,700. I was hoping for even 12,000 or higher but our cycles played out. We were looking for strength in the spring, specifically mid-May and this is what really has happened.
KANGAS: Let`s have a look at your Dow forecast for 2006 and there we see the rally, end of the spring, where we came close to the old high. And then you`re looking for a nasty summer by the looks of it.
LEIBOVIT: A bit of a plunge lies ahead, Paul, a little bit of a technical right shoulder is developing here technically where we may bounce a little bit in June, but the model says get out in May, down until August, September, could be very sharp. I don`t have a number for you, but this is a time to be very defensive.
KANGAS: So that`s what you see as the trend, down in the summer and a little recovery in the fall.
LEIBOVIT: Yeah and a little bit toward the end of the year, a little bit of recovery. 2007 may still be good, Paul, but let`s get our 2007 forecast together before we go that far out, right there, near-term negative.
KANGAS: All right. How about for oil? What do you see there? Let`s have a look at your annual forecast model.
LEIBOVIT: Zigzagging higher. Steady zigzagging higher.
KANGAS: You got a number?
LEIBOVIT: $75 a barrel makes easy doings, as far as I`m concerned, $80, $85. KANGAS: Gold has been the talk of the town for months now. Let`s have a look at your forecast for that. That looks much higher also.
LEIBOVIT: We`ve been bullish for four years on gold. My big picture target is about $2700 an ounce believe it or not, so we have a long way to go. This year up, and the next several years up, I think we`re in a 20- year up move in natural resources and the precious metals in particular, so stick with it.
KANGAS: On your last visit with us, you liked four stocks. Let`s see how they fared since November. Microsoft can`t get out of its own way, down 15.5 percent. You still with it?
LEIBOVIT: I would sell it. The Dow`s headed down, part of the Dow, back out of Microsoft (INAUDIBLE)
KANGAS: Then the big uranium mining company, Cameco (CCJ), up almost 59 percent. That was a great call.
LEIBOVIT: Thank you. CCJ, uranium from $8 a pound to $43 a pound and probably going to $100 a pound, that`s uranium itself. CCJ is a good play there. It`s a blue chip in the group. Stick with it.
KANGAS: OK and then we have two others that you recommended, Miramar Mining (MNG), a little gold stock, up 90 percent, not bad.
LEIBOVIT: Yeah, well, the low-priced ones are generating a lot of speculative interest but stick with Miramar. As gold goes higher, this will go higher, probably the next target is around $5 to $7.
KANGAS: OK and then the ETF on the big board, streetTRACKS gold up 34 percent, great calls, Mark, excellent and I compliment you.
LEIBOVIT: Thank you, Paul.
KANGAS: How about some more winners? Do you have any new recommendation?
LEIBOVIT: I`m going to give you two more gold, silver-related plays as that`s still the big group with me, Hecla Mining is around $5, ticker symbol HL.
KANGAS: Let`s have a look at the chart there. It`s had a recent ride back down a little.
LEIBOVIT: Backed off to about 4 3/4, moving up again. I have a $9 intermediate target so I`d buy Hecla. Another one I like is Glamis (GLG). KANGAS: Let`s have a look at the chart there. That, too, has had a big rise recently which is logical.
LEIBOVIT: I`ll just pull back a little bit, but I`m looking for another 20 points to the upside of this as gold continues to break out. Hopefully if gold reaches $1,000 an ounce this year, this thing could be perhaps into the 40s.
KANGAS: OK, we have time for another recommendation.
LEIBOVIT: And finally, we`re going to go short. We`re going to short the Dow diamonds here, that`s an ETF for the Dow.
KANGAS: The Dow stocks on the big board.
LEIBOVIT: Yeah, DIA, go short. Our model which we put up a few moments ago, says down at the fall. This is a pure play on the Dow, short the DIA.
KANGAS: Especially in that summer sell-off that you`re expecting, correct?
LEIBOVIT: Right, we don`t know if we`re talking 10 percent, 15 percent, what percentage is here, but we should be headed lower, probably close to the 10,000 level at least, so it could be a lot worse than that. Cycles say down.
KANGAS: Do you own or are you short any of these securities?
LEIBOVIT: I am long the GLD, which is the streetTRACKS for the gold because that`s my big play on gold here. I`m definitely playing that one.
KANGAS: OK, I can see that you really are bullish on that. It`s been good to you, though. Anyway, Mark, thanks again for being with us. We appreciate your outlook.
LEIBOVIT: Thank you, see you in six months Paul, thank you.
KANGAS: My guest monitor Mark Leibovit of vrtrader.com.
Paul Kangas' Stocks In The News
KANGAS: Wall Street enjoyed its third straight upturn this morning as April personal income, spending and consumer prices all rose in line with estimates. Buyers were also encouraged by analyst upgrades on Merrill Lynch, Goldman Sachs and General Motors. At noon, the Dow posted a 56 point gain. NASDAQ was up 11. Those early bullish developments were enough to carry the market to a higher close this afternoon. Dow Industrial Average gained 67.56 ending at 11,278.61 today. For the week, the Dow was up three times, down two, had a net overall gain of 134.55 points. The NASDAQ Composite closed up 12.13 at 2210.37 today. It also rose three times and fell twice this week, had an overall gain of 16.49 points. The Standard & Poor`s 500 Index ended the day up 7.28 at 1280.16. Over in the bond market, the 10-year note gained 6/32 to par and 18/32, putting the yield at 5.05.
New York exchange volume leader on 13.7 million shares, Pfizer (PFE) moving up $0.15.
Followed by General Electric (GE) down $0.09.
Ford Motor (F) up $0.16.
Then a new issue, Mueller Water (MWA), this is a company that makes water control products, 25 million shares offered to the public at $16, opened at $16.50, high of the day, $17.20, backed down a little, but still had a positive debut on Wall Street.
Wal-Mart Stores (WMT) was a $0.20 gainer today, fifth in big board volume.
General Motors (GM) up $0.18, but it traded as high as $29.03 this morning after Prudential equities upgraded it from "neutral" to "over weight," that third brokerage upgrade General Motors this week incidentally.
El Paso Corp (EP) a $0.07 rise.
Lucent Tech (LU) a penny gain.
And then Citigroup (C) up $0.50.
Tenth in volume was Time Warner (TWX) rising a nickel a share.
Merck & Co (MRK) up $0.17. The FDA has approved the company`s shingles vaccine called Zostavax.
Then we look at Merrill Lynch (MER) up $1.31. Wachovia securities upgraded it from "market perform" to "out perform." Another big investment house getting the nod, Goldman Sachs Group (GS) up $5.62 after UBS financial upgraded it from "neutral" to "buy," citing the company`s attractive business mix.
Navistar Intl (NAV) did well, up $4.16. MarketScope Europe reports Germany`s M-a-n or Man Corporation is thinking of taking a stake in Navistar stock.
Las Vegas Sands (LVS), there you see it, up $5.96. As you heard, Singapore`s government selects the company to build and operate the Marina Bay resort and casino.
Big loser, Rex Stores Corp (RSC) down $1.58. The consumer electronics retailer had sharply lower first quarter earnings of $0.13, down from $0.48 in the same period a year ago. Revenues declined by 2 percent.
Another loser was Cooper Companies (COO), the maker and marketer of health products. The Piper Jaffray brokerage said second quarter earnings will likely fall short of Wall Street estimates due to product delays. There were rumors around the company had cut its contact lens sale force because it`s losing market share there.
Unisys (UIS) moved up $0.37, a little better than a 6 percent rise. Morgan Stanley, an analyst there, believes management may start to focus on maximizing shareholder value.
Google (GOOG) topped the active list, down $1.64.
Then Microsoft (MSFT) with a $0.02 loss.
Intel (INTC) moved up $0.17.
Apple Computer (AAPL) down $0.78.
Fifth in dollar volume, eBay (EBAY) edging up $0.32.
Cisco Systems (CSCO) a $0.21 loss there.
Dell (DELL) up $0.51.
Broadcom (BRCM) gained $1.21.
A dime rise in Yahoo! (YHOO).
And Qualcomm (QCOM) down $0.03.
Then we see Charles Schwab (SCHW) up $0.39, traded as high as $17.04 after Banc America upgraded it from "hold" to "buy" on the company`s promising outlook.
Then we see Hummingbird Ltd (HUMC), stock hovering almost around $28, up $4.78. The Canadian software company will be acquired for $26.75 a share by California symphony technology group.
Then Cubist Pharmaceuticals (CBST) up $4.30. The company got preliminary FDA approval for its treatment for staph infections.
And those are the stocks in the news tonight.
