NBR Complete Transcripts: 05-30-2006
Tuesday, May 30, 2006The President Picks Paulison For Treasury Secretary
SUSIE GHARIB: The CEO of Goldman Sachs has a new job tonight: Treasury secretary of the United States. Henry Paulson was chosen by President Bush today to replace outgoing Treasury Secretary John Snow. Paulson is one of Wall Street`s most powerful players, and, if confirmed by the Senate, could become one of the most influential decision makers in the nation`s capital. Washington bureau chief Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Polls show a large majority of Americans are uneasy about the economy and to reassure them, President Bush turned to Henry Paulson, one of the biggest names on Wall Street.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: He has a lifetime of business experience. He has an intimate knowledge of financial markets and an ability to explain economic issues in clear terms. He`s earned a reputation for candor and integrity.
GERSH: And for bluntness and drive, all wrapped in an unassuming package. The man who took Goldman Sachs public in 1999, and is worth an estimated half a billion dollars, is partial to Timex watches. He is not only a believer in markets. He helped to usher in the era of global finance.
HENRY PAULSON, TREASURY SECRETARY-DESIGNATE: Our economy`s strength is rooted in the entrepreneurial spirit and the competitive zeal of the American people and in our free and open market. It is truly a marvel, but we cannot take it for granted. We must take steps to maintain our competitive edge in the world.
GERSH: But don`t expect Paulson to make U.S. exports more competitive by winking at a falling dollar. Experts say most Treasury secretaries from Wall Street advocate a strong dollar policy which anchors the value of stock and bond markets. At the same time, Paulson may use his clout to quietly pressure China on the value of the yuan.
GARY CLYDE HUFBAUER, SR. FELLOW, INSTITUTE FOR INTERNATIONAL ECONOMICS: He might very well welcome some strength in the Asian currencies and that is how he would probably phrase it.
GERSH: Bringing Paulson on board is clearly a coup for the president. With the administration`s approval ratings at a new low, Washington analysts had come to expect economic policy to drift along until the 2008 election. Paulson might help change that.
KEVIN HASSETT, DIRECTOR OF ECONOMIC POLICY, AMERICAN ENTERPRISE INSTITUTE: Paulson is a real shot in the arm for the Republicans right now. The fact that a person of his stature is willing to join the team when the team is down is the kind of thing that could really change the spirit of Republicans in Washington.
GERSH: Paulson could help fill the stature gap in Washington. Alan Greenspan has retired and Fed Chairman Ben Bernanke is still untested by a major market meltdown. But Henry Paulson knows almost everyone worth knowing in world financial markets. If a global financial crisis breaks out, experts say Paulson has the experience and clout to help calm the waters. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Crude Prices Get Pumped Up
PAUL KANGAS: Oil was back in the spotlight on Wall Street today, as crude surged back above $72 a barrel. Spurring the rally, concern about Iran`s nuclear ambitions, strong demand from China, and the upcoming hurricane season. As Erika Miller reports, analysts say it`s likely crude prices will head even higher.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Traders yelled and waved, eager to buy and sell oil futures as they shot to their highest level in 2 1/2 weeks. Light sweet crude for July delivery closed at $72.03 a barrel, up $0.66. Worries about crude supply from Iran sparked the rally. Tensions have been escalating between the west and Iran over that country`s nuclear ambitions. On Thursday, the five permanent members of the U.N. Security Council and Germany are expected to meet in Vienna to negotiate incentives and penalties to persuade Iran to abandon its uranium enrichment program.
OHN KILDUFF, ENERGY ANALYST, FIMAT USA: I would say Iran as a situation is worth probably around $8 to $12 a barrel. I say that because if there was a diplomatic breakthrough announced in the coming days, you would see crude oil prices fall precipitously, based upon an easing of those tensions.
MILLER: Thursday is also the official start of the hurricane season, adding to supply concerns in the marketplace. It has been nine months since hurricanes Katrina and Rita hit the Gulf coast and more than 20 percent of the region`s oil production still remains offline. Also on Thursday, OPEC ministers will meet in Caracas, Venezuela, to set production quotas, but most traders don`t expect any major changes.
RAYMOND CARBONE, OIL TRADER, PARAMOUNT OPTIONS: It seems like the agreement will be rolled over. I don`t anticipate a production hike. If it is, it will be minimal. Production cut probably not going to happen.
MILLER: Many industry experts predict oil prices will continue to rally this summer. They point out that worldwide demand remains strong, even in the face of high energy prices. That`s especially true for China and the U.S. which just started the summer driving season. Oil prices have surged about 18 percent this year. They traded above $75 a barrel last month and some experts expect prices to soon pass that level.
KILDUFF: I think we`ll see new record high prices probably this week. Beyond that, it`s going to be, I think, the first storm of the season, the first hurricane or tropical storm that makes its way into the Gulf of Mexico that will get us I believe over $80 a barrel.
MILLER: There`s one more thing oil markets will be paying close attention to Thursday. That`s the government`s weekly oil inventory data. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One On One With Jeffrey Kleintop, Chief Investment Strategist with PNC Financial Services
SUSIE GHARIB: Our guest tonight says investors should be happy about the recent volatility in the markets. Joining us now, Jeffrey Kleintop, chief investment strategist with PNC financial services. Hi, Jeff.
JEFFREY KLEINTOP, CHIEF INVESTMENT STRATEGIST, PNC ADVISORS: Hi.
GHARIB: So tell us why investors should be happy about these volatile days we`ve been having recently.
KLEINTOP: Well, it`s certainly been kind of an unhappy day for a lot of investors today but you know what? We`ve got a very short-term market focus here. The Fed`s kind of given that to us here with their very data- dependent view. But if you step back from the short term and think about it in terms of the long term, we`ve been telling our investors all year the market was likely to follow a pattern, that pattern being a midterm election year pattern. Strong first quarter, second and third quarter in the summer months essentially giving back those gains we got in the first quarter. The good news is followed by a fourth quarter rally. I think that pattern will persist and give us a fourth quarter rally this year, but not before a bit more volatility this summer.
GHARIB: So how should investors take advantage of that?
KLEINTOP: Well, I think it`s great opportunity to tactically make some changes in your portfolio. If you`ve been overweight small cap stocks, if you`ve been really running with the materials and the energy sector that have really been driven by a lot of the price gains we`ve seen lately, I think the Fed`s putting an end to that, now`s the time to make some changes, capitalize on some of this weakness, take some positions in some stocks and certainly the stock market itself here as it`s pulled back, a great opportunity to reposition yourself to benefit not only in the second half of this year but over the next three to five years as well.
GHARIB: As we reported, one of the big news items today was that Henry Paulson of Goldman Sachs is going to become the new Treasury secretary. Do you think that he`ll have any impact on investor sentiment?
KLEINTOP: I do. I think so. You know, Wall Street is known for caring a lot about capital flows and not just trade flows. With the prior two secretaries were very focused on trade and sort of old line manufacturing type businesses. Now with someone from Wall Street, a return of focus to the capital flows comes into play. That means keeping the flows coming into the U.S. and the U.S. Treasuries. That might mean a more stable U.S. dollar and better news on interest rates. Perhaps they won`t be rising as much in the future as what some people might have forecast just a few weeks ago.
GHARIB: So, Jeff, what stocks are you recommending to your clients to buy and invest in, given the pattern that you`ve been talking about? Specific names.
KLEINTOP: Specific names, I think stocks in the tech sector like Corning or Cisco Systems as we`re seeing more of this infrastructure laid out as a lot of the telecom companies roll out their video services, they`re going to need to invest in a lot more infrastructure to do that. These businesses by the way are unit driven, not pricing driven. I think the Fed is putting an end to the pricing driven gains in the materials and the energy sector. So let`s look to technology and perhaps the health care sector as well, also very unit rather than price driven. Stocks like Johnson & Johnson or Wyeth are well positioned to benefit from the coming environment.
GHARIB: Do you own any of these stocks or does your firm have a financial relationship with them?
KLEINTOP: Yes, we own them and recommend them to clients. We don`t have a financial relationship and I do own them myself.
GHARIB: And what about GM which, General Motors which today really took a hit on an analyst downgrade. What`s your view on General Motors?
KLEINTOP: The auto industry is still in dire straits. They`ve got major problems still with regard to pricing. They`re at a cost disadvantage to the imports. I think we`ll continue to manufacture cars here. I`m not so sure that GM and Ford are going to be those manufacturers. So I think there`s still some more risk here although a lot of the pension issues are now at least beginning to be addressed and maybe fade into the background. It`s really the business issues on the cost side that these companies are still facing and still present a major challenge.
GHARIB: OK, Jeff, thanks for all the good information. Glad to have you on the program. We`ve been speaking with Jeffrey Kleintop, chief investment strategist with PNC financial services.
Hurricane Season Is Bringing A Storm Of Headaches For Insurance Companies & Home Owners
SUSIE GHARIB: Thursday is the start of the 2006 hurricane season, and after two years of major storm activity, many Americans are concerned about what this season could bring. The insurance industry is also concerned, so it is changing the way it calculates the risks of insuring for hurricane damage. As Jeff Yastine explains, those changes are causing big headaches for some homeowners.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some things have changed in the nine months since hurricane Katrina struck the Gulf coast. The U.S. Army Corps of Engineers rebuilt the New Orleans levee system at a cost of $800 million. Still, thousands of people throughout the four-state area remain out of their heavily damaged homes. For the rest of the Gulf and Atlantic coasts, something else has changed: how U.S insurance companies assess hurricane risks. For decades, insurers have used historical data of past hurricanes to show where they hit and how often. This year, they`ve switched to a new model, using teams of climate experts, and their analysis of what the next five years is likely to bring in terms of future hurricane activity. Insurers say the switch is necessary to adjust for fast-changing climate conditions.
THOMAS WILSON, PRESIDENT & COO, ALLSTATE: Clearly the environment is much different today than it was even 10 years ago Jeff. The water is warmer and the wind shear is different, so that means there will be more hurricanes, and those that happen will be stronger. So the whole industry has been reassessing how we deal with these catastrophes. We`ve been doing that at Allstate and we`re seeing many other companies do it as well.
YASTINE: That reassessment has come at a big cost. In some coastal Florida counties, homeowners are seeing premiums jump by more than 100 percent. Thousands more homeowners in Florida, Texas, even as far north as Long Island and coastal New England have seen their policies canceled altogether, based on these new hurricane risk models. The change alarms consumer activists, who say it subjects risk analysis to too much expert opinion on future conditions.
J. ROBERT HUNTER, DIRECTOR OF INSURANCE, CONSUMER FEDERATION OF AMERICA: They`re now saying, all right, we`re not going to use science anymore. We`re going to use a bunch of experts. And we`re not going to use 10,000 years of future projection. We`re going to use five years. And right now it`s a very high period, so we`re going to have to raise the rates again. It`s going away from science to a sort of kind of parochial guesswork, and I don`t think it`s right.
YASTINE: Guesswork or not, the risk assessment change is putting the heat on insurance commissioners in coastal states. They must balance homeowners` concerns about rising insurance rates against insurance companies that say they need those higher rates to take on new, higher hurricane risks. Jeff Yastine NIGHTLY BUSINESS REPORT, Miami.
Commentary: Internet Vs. Mass Media
SUSIE GHARIB: Tonight`s commentator takes a look at the growing influence of the media. Here`s Robert X. Cringely, columnist for pbs.org.
ROBERT X. CRINGELY, COLUMNIST, PBS.ORG: Something significant is happening to world media and I blame the Internet. Ad sales, viewership and readership for television, magazines and newspapers are all trending down, yet two recent studies show that Internet growth is slowing, too. What`s happening here is the growth curve for communication technologies has a peculiar kink in it on the way to 100 percent market penetration. Television, radio, telephones, even electricity grew to about 70 percent market penetration and stalled until a generation shift made ubiquity possible. Each of these industries literally had to wait until their non- users died.
Well, today`s Internet mobiles don`t want a 20-year stagger step in their growth so they`re fooling us into seeing the Internet as something else, not something new but actually something old. So the Internet is now a telephone. It`s a television, a radio, a newspaper, a record store. And we`ll shortly access the net through familiar devices from all of those industries. And Internet growth will grow at the expense of those industries. Take cable TV for example, which will probably never grow past its current market penetration of just under 70 percent. That magic number, because it`s morphing into an IP network instead. This is the era of iTunes, iPod, IPTV, voiceover IP. It`s the Internet as described in 1996 only this time we really mean it and the broadcasting, movie, telephone and publishing industries know it. Mass media as we`ve known it for 60 years is dying to be replaced by a combination of high-dollar spectacle and citizen journalism. A billion channels, they`ll call it, but will there be anything to watch on TV? I`m Bob Cringely.
Last Word: Robo-Bartender
SUSIE GHARIB: And finally tonight, two engineering students at West Virginia University say they have a better idea when it comes to bars. They have invented what they`re calling "electro-bar." It`s a computer-controlled bartender that can mix a cocktail at the touch of a button. The idea is to control costs and inventory in bars and lounges, places where it`s usually tough to do both. In an entrepreneuring contest, the "electro-bar" won the students $10,000 in startup capital to patent their invention and its software. So I guess Paul, this is one bartender that doesn`t offer advice or expect a tip.
KANGAS: Or pour a little extra for really good customers.
Paul Kangas' Stocks In The News
PAUL KANGAS: Sellers took command on Wall Street this morning, not only because of that spike up in oil, but also due to a brokerage downgrade on General Motors and Wal-Mart reporting May sales at the low end of estimates. Not helping things either, the Conference Board reported a slide in consumer confidence in May. At mid-session, the Dow was off 126 points, NASDAQ down 32. The sell off turned into a rout this afternoon, as the dollar weakened and interest rates rose. So the Dow Industrial Average tumbled 184.18 points to 11,094.43. The NASDAQ Composite plunged 45.63 ending at 2164.74. The Standard & Poor`s 500 Index fell 20 1/3 points to 1259.84. Over in the bond market, the 10-year note fell 8/32 to par and 11/32, putting the yield at 5.08 percent.
New York exchange volume leader on 13 million shares, Pfizer (PFE) down $0.42.
Followed by GE (GE) with a $0.28 drop.
Then Wal-Mart Stores (WMT) hurting the Dow with that loss of $1.35. The company estimates its May same store sales rose only 2.3 percent, at the low end of its forecast. The company cited high energy prices keeping shoppers away.
SprintNextel (S) down $0.57.
Ford Motor (F) down $0.33, certainly not helped by the GM downgrade. That was fifth in volume.
Then Merck & co (MRK) fell $1.42.
Time Warner (TWX) $0.22 loss. General Motors (GM) itself down $1.51. As you heard, Deutsche Bank downgraded it from "hold" to "sell" today.
ExxonMobil (XOM) off $1.41 despite the higher oil prices.
And then the big gainer of the day, Kinder Morgan (KMI), the pipeline company, up $15.90. An investment group led by Chairman and CEO Richard Kinder is proposing to take the firm private at $100 a share.
Tribune (TRB) did well, up $2.01. The company plans to buy back up to 75 million of its own shares at 25 percent of the outstanding stock and Prudential equities today upgraded the stock from "neutral" to "over weight."
Navistar Intl (NAV), which was up $4.16 last Friday on reports a German firm might want to take a stake in the company`s stock, down $2.37 today after Bear Stearns downgraded it from "peer perform" to "under perform."
IDT Corp (IDT) up $1.14, bucking the trend. This week`s "Barron`s" financial notes that the company after it closes on the sale of its entertainment unit for $400 million to Liberty Media, I believe, it will have a cash position of $1 billion and the stock could reach $25 a share according to the article in "Barron`s."
BASF Aktien (BF) down $1.86. Englehard Corp. finally approved the company`s hostile takeover bid which is at $39 a share or $5 billion. Englehard edged up only $0.25. It was already close to that price of $39, closed at $38.93 today.
On the downside, Wyeth (WYE) the big drug company, off $1.55. First of all, the FDA warned the company of possible contamination in some of its headache remedies that were packaged in Puerto Rico. On top of that, Merrill Lynch downgraded it from "buy" to "neutral" on concern about Wyeth`s product pipeline.
Then we see Orient Express Hotels (OEH) moving up $1.54. That`s after Citigroup upgraded it from "hold" to "buy."
And other gainer, small one on the close up $0.47 but it traded as high as $23.57 this morning after the audio technology firm got an upgrade from "hold" to "buy" on a valuation basis from Matrix Investment Research. Dolby Labs (DLB)
NASDAQ`s most active, Google (GOOG) losing $9.41.
Apple Computer (AAPL) $2.33 loss there. Microsoft (MSFT) fell $0.57.
Intel (INTC) $0.41 drop.
Cisco Systems (CSCO) off $0.54. That was fifth in dollar volume.
Dell (DELL) bucked the trend with a gain of $0.21.
But Qualcomm (QCOM) down $1.31.
Ebay (EBAY) fell nearly $1.
Amgen (AMGN) off nearly $2.
And Yahoo! (YHOO) fell $1.02.
Sirius Satellite Radio (SIRI) moving up $0.21. First of all, the chief exec Mel Karmazin bought another million shares today. On top of that, Lehman upgraded it from "equal weight" to "over weight" after the company settled a CBS lawsuit over Howard Stern for a rather trivial $2 million.
Then ADE Corp (ADX), a semiconductor firm, up $6.23. KLA Tencor now says it`ll buy the company for $32.50 in cash instead of stock.
And then another good gainer today, Marsh Supermarkets (MARSA) rising $2.29. This company received an unsolicited buyout bid from an investment group for $13.62 1/2 per share in cash.
And those are the stocks in the news tonight.
