NBR Complete Transcripts: 06-02-2006
Friday, June 02, 2006The Newest Employment Report Does A Job On Wall Street
SUSIE GHARIB: A much weaker than expected employment report today led to a volatile day on Wall Street. The Dow slipped 12 points. The NASDAQ lost a fraction and the yield on the 10-year Treasury tumbled to 5 percent. American businesses added the fewest number of workers in seven months, easing worries about inflation, but raising fresh concerns about economic growth. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The labor market faltered in May, with employers adding a meager 75,000 new jobs. Economists say it`s more evidence that growth is slowing sharply in the second quarter.
ETHAN HARRIS, US CHIEF ECONOMIST, LEHMAN BROTHERS: Clearly we have a weakening economy. It`s probably a little weaker than we`d like to see. A soft landing for the job market would be something in the order of 130,000 in job gains and this latest report shows only 75,000. So it`s little softer than we`d like to see.
MILLER: Non-farm payrolls posted their smallest gain since last October, when businesses were recovering from the Gulf coast hurricanes. In addition, the gains for the previous two months were revised lower. The unemployment rate, which is calculated in a separate survey, dipped from 4.7 percent in April to 4.6 percent last month. That`s the lowest level in almost five years. Hiring was concentrated in healthcare, education and professional services. Factories and retailers saw job cuts.
Also in today`s report, positive news about inflation. Average hourly earnings rose just a penny in May, or a 0.1 percent. That`s a big decline from April`s 0.6 percent increase. The big unknown on Wall Street is whether today`s data will encourage the Federal Reserve to hold off raising interest rates at its June 28 and 29 meeting.
BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: By itself, probably not. But it certainly would convince all of the skeptics that, in combination with all of the other weak economic data, that the Fed should pause. The data is screaming pause.
MILLER: But others say it is not so easy to predict what the Fed will do.
HARRIS: The problem for the Fed is that they also have to look at the inflation picture. The inflation picture argues that they need to continue to hike interest rates. We think it`s a very close call, but we still think the Fed will do another hike in their June meeting.
MILLER: There`s still more economic data which could sway the Fed. In particular, economists are waiting for two key inflation reports, the consumer price index and the producer price index. Both are due out in the middle of the month. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
The NYSE Goes Global
SUSIE GHARIB: Near round-the-clock trading in stocks, options and futures could soon be on tap here at the New York Stock Exchange. That, as the big board and European stock exchange operator Euronext announced what they`re calling a merger of equals in Paris today. The deal creates a transatlantic stock exchange with a business valued at $20 billion. NYSE Euronext will list its own shares in New York and Paris and be based in New York. Big board CEO John Thain will lead the newly combined exchanges. Thain calls the combination a perfect match.
JOHN THAIN, CEO, NYSE GROUP: We wanted to diversify both product wise and geography wise and we definitely wanted to have a linkage into Europe because of the importance, particularly of the euro as a currency, a global currency and also in terms of the strength of the European economy. The second piece is we wanted to get into the derivative business. The futures business is a very, very good business. It`s growing faster than the cash business and actually Euronext has not only a future`s business, but an options business that fits well with our own options business in the U.S.
GHARIB: Today`s deal caps four weeks of negotiations, but it still could face some hurdles. The combination needs regulatory and shareholder approval both here in the U.S. and in Europe. And the proposed combination could face opposition from the Deutsche Bourse. The German stock exchange said it will continue to press for a partnership with Euronext, despite the NYSE deal in the works. But analysts say it will be hard to beat the NYSE/Euronext combination.
RICHARD REPETTO, BROKERAGE ANALYST, SANDLER O`NEILL & PARTNERS: To this point, we`ve been very conservative on the New York Stock Exchange stock. We actually had rated it "sell." Now, with this deal, based on our numbers, it boosts earnings materially and over time and that now it comes back to where it`s more fully, fairly valued and we`re not saying to rush right in, there`s still some risks that the deal doesn`t get done. You still want to make sure that the integration goes as planned, but we`re saying that you know, it appears much more fairly valued given the earnings potential of the two companies.
GHARIB: Repetto raised his rating today on shares of the NYSE Group from "sell" to "hold." Shares of the NYSE Group jumped $2.06 or 3 percent to $64.51 on the merger news.
What Good Can Come of Keeping Internet Records Longer?
PAUL KANGAS: Law enforcement officials and Internet company executives met in Washington, DC, today, in hopes of hashing out a deal on access to Internet records. The Justice Department and the FBI want Internet service providers to keep customer records longer. As Stephanie Dhue reports, they say they need access to those records to fight pornography and terrorism.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Internet companies already keep track of instant messages, e-mails and web site visits. Now the Justice Department and the FBI want companies to hold on to those records longer. The Justice Department says it would help in child exploitation cases.
RACHEL BRAND, ASSISTANT ATTORNEY GENERAL, U.S. DEPARTMENT OF JUSTICE: Law enforcement can sometimes get to a point where they can tell what IP address is associated with the computer being used. But they then need to know what person is using that computer, what person is abusing that child ongoing and law enforcement has to be able to go and find that information so they can go find that person and get that child out of that situation.
DHUE: AOL, Comcast, Google, Microsoft and Verizon are among the companies in talks with the government about retaining their records. None of the companies would speak on camera although all expressed support for law enforcement. In a statement, Google said any proposals related to data require careful review and must balance the legitimate interests of individual users, law enforcement agencies and Internet companies. Industry representative Ed Black says law enforcement requests should be narrowly targeted.
EDWARD BLACK, PRESIDENT, COMPUTER & COMMUNICATIONS INDUSTRY ASSOCIATION: You don`t want them to blow up a building because somebody threw a rock at a policeman. You don`t want them to monitor trillions of communications because there are a few people who will abuse individual components of that communications system.
DHUE: If the companies don`t voluntarily keep records longer, the Justice Department may ask Congress to make it a requirement. But revelations of domestic surveillance of telephone calls, breeches of security at the Veterans Department and the FBI raid on Congressman William Jefferson`s office have outraged many lawmakers. Experts say it may also make it easier for companies to say no.
MICHAEL VATIS, ATTORNEY, STEPTOE & JOHNSON, LLP: This gives the companies probably a little more backbone, a little more leverage to resist the government`s entreaties and to say, if you want this, you need go to the Hill and we`ll oppose this, unless you at least provide for government reimbursement of our storage costs.
DHUE: And it`s not just the direct costs of increased record keeping that has companies worried. They`re worried about losing customers who don`t want the government monitoring their Internet habits. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
America Answers The Call of Japan's Health Crisis
SUSIE GHARIB: Japan has offered universal healthcare for 45 years. But as the country rapidly ages and medical costs spiral, many fear the system will go bust. Consumers, meanwhile, are clamoring for better quality and more modern treatment. Now American providers of medical goods and services are seeking to fill that need. Lucy Craft reports from Tokyo.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: We couldn`t film inside a typical Japanese hospital, so we`re showing you the outside of one. Japan`s enviable life span has been credited in part to the fact that basic medical care is guaranteed to every citizen, young or old, rich or poor, working or retired. But there`s a tradeoff. Even prestigious university hospitals like this one tend to be shabby, service substandard and choice of treatments almost non-existent, a first world country, in other words, with second-rate medical care.
JAMES KONDO, VICE CHAIR, HEALTHCARE POLICY INSTITUTE, JAPAN: It`s traditionally seen as a charity conducted by noble professionals who are not in the area for money. Most of the firms that could actually go into health care did not, mainly because they were afraid that they might be criticized for trying to make money off sick people. And I think that mind-set is still there, although changing.
CRAFT: Japan has long frustrated American makers of devices like pacemakers. Medical technology has adopted so slowly, patients seeking advanced treatment usually go to the U.S. at their own expense.
HUIMIN WANG, VICE PRESIDENT, JAPAN & INTERCONTINENTAL, EDWARDS LIFESCIENCES: Japan is pretty much the last country we can bring the latest technology in the world. So often times when we compare to the developed markets like Europe or U.S., we`re selling products that are two, three, sometimes even more generations behind. And if you`re in a field where things are happening very rapidly and you`re competing on the basis of innovation, it`s a difficult market to compete.
CRAFT: But Japan is rethinking its medical system because of an impending fiscal crisis. The Japanese are among the healthiest people on earth, but here`s the rub. Their health care system is on the skids, struggling to cope with a surfeit of senior citizens. The bill for treating all these elderly now stands at about $300 billion and it`s expected to double over the next 20 years.
Japanese consumers, too, are starting to demand more than one size fits all medical care, so a handful of providers are pioneering levels of service western patients have long taken for granted. This Tokyo clinic with its designer decor, concierge service and sympathetic physicians caters to corporate health care plans and patients willing to pay out of pocket.
TANSLATON OF: MITSUKO SHIMOMURA, DIRECTOR, GENKI PLAZA MEDICAL CLINIC: Japanese hospitals are cold, dirty, uninviting and physicians are arrogant. I wanted to provide a more healing atmosphere, coffee and cookies, relaxing music and physicians who treat patients as customers.
CRAFT: Some observers say the health system financing crisis offers an unprecedented opportunity for American and other foreign firm which can provide value in everything from drugs to medical devices to niche insurance plans.
KONDO: It`s a sector that hasn`t had many new participants come in. It`s lacking ideas and it`s clearly unmet needs of patients.
CRAFT: By streamlining its hospital system, emphasizing preventative health and introducing market incentives, experts argue Japan can cover its ballooning health bill without breaking its treasury, but first, it will have overcome a still entrenched socialist legacy. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Market Monitor"-Derwood Chase of Chase Investment Counsel
PAUL KANGAS: My guest market monitor this week is Derwood Chase, president of Chase Investment Counsel, a money management firm based in Charlottesville, Virginia. Welcome back to NIGHTLY BUSINESS REPORT. Good to see you again, Derwood.
DERWOOD CHASE, PRESIDENT, CHASE INVESTMENT COUNSEL: Thanks very much, Paul.
KANGAS: When you were with us last in August of 2005, you said interest rates were more important than the price of oil in deciding stock market strategy. Well, they`re both quite a bit higher now than they were then. Are you still of the same opinion?
CHASE: Well, I think so, Paul. The interest rates are particularly important with this many people in debt, not only consumer loans, mortgage loans and so forth, not to overlook the higher oil prices which are impacting consumer spending as well. And the market hasn`t done a whole lot since then, either.
KANGAS: Well, that`s true. But where do you think these two factors are headed? And let`s start with interest rates. Are we seeing a topping out finally?
CHASE: I think we`re close to it. I`m not that kind of an economist so maybe one more increase. But I think the Fed`s indicated they want to see the data and I think they`re telling the truth on that one.
KANGAS: And oil?
CHASE: Long term I think oil prices are going higher. Right now I don`t see any reason why they should go higher. And of course natural gas prices are well down from their peaks.
KANGAS: That`s true. What is your present stance on the U.S. stock market right now?
CHASE: Well, it`s a bit of a tug-of-war. Companies have a lot of money and are buying in their own shares or buying other companies in many cases and certainly the business -- level of business activity is very good. We are particularly mindful and I guess we`re cautious because, you know, the midterm years, if you take the presidential four-year cycles, haven`t been very good. After long periods of Fed tightening, we`ve usually had some significant problems. So I`d say we`re cautious on the market, think that there will be a significant correction sometime this year or early next.
KANGAS: OK. A lot of uncertainty out there about the midterm election, no doubt about that. On your last visit with us in August, you gave our viewers three "buy" recommendations. Let`s have a look and see how they`ve done. Amgen not well at all, down 13 percent, didn`t get much higher than the price that you looked it at nearly 80 then. Are you still with it?
CHASE: We eliminated it. It broke down technically and we eliminated it about 5 percent lower than where we were talking about it last August.
KANGAS: Well, Wellpoint is just about where it was then. It`s been a little bit higher but not much changed since your recommendation. Are you still with that?
CHASE: No, we`ve eliminated that as well.
KANGAS: OK, there was one other recommendation that you gave us back in August, XTO Energy which has done very nicely, up over 17 percent. That kind of makes up for those two on the down side, doesn`t it?
CHASE: Yeah and we still hold that, Paul.
KANGAS: You still hold it, OK. Would you buy it at this level?
CHASE: It`s a strong hold. If you didn`t have expiration, natural gas, it would be certainly be a strong holding in that area.
KANGAS: Do you have new recommendations for our viewers?
CHASE: Well, we like energy service companies a little bit better than just outright energy companies right now. Baker Hughes (BHI) is involved in all kinds of drilling, evaluation.
KANGAS: We`re looking at a chart here and it`s really had quite a rise. That doesn`t scare you off, though?
CHASE: No, their earnings are going to be up solidly this year and they should be continuing regardless of the prices, whether it`s U.S. companies which only control about 15 percent or national ones. We think it`s going to continue up.
KANGAS: We have little less than a minute. We have time for maybe two more recommendations.
CHASE: Well, Met Life (MET) is pretty defensive. They`re by far the largest insurance company in the United States, largely group and United Technologies (UTX) is....
KANGAS: Let`s have a chart on United Tech. Ther it is. It, too, has had a pretty decent rise.
CHASE: They`re number one in 65 percent of the areas that they compete. I`m sure your viewers would recognize the Carrier, Otis, Pratt & Whitney engines.
KANGAS: So you like high-quality names, that`s pretty obvious by those three choices. Do you personally own any of those stocks?
CHASE: I don`t directly own any of them. Either through Chase Growth Fund CHASX or Chase mid cap growth fund. I`m one of the largest holders of both of those funds and we do own them.
KANGAS: Derwood, we`re out of time unfortunately, but thanks for being with us again.
CHASE: My pleasure.
KANGAS: My guest, Derwood Chase of Chase Investment Counsel.
Paul Kangas' Stocks In The News
KANGAS: Stocks opened higher after that smallest rise in jobs since
For the second day in a row, the most active bib board issue was Qwest Comm Intl (Q)
. Today it traded 17 1/2 million shares. It moved up a nickel.
Then Lucent Tech (LU) down $0.04.
Followed by Time Warner (TWX) with an $0.18 gain.
Pfizer (PFE) moved up $0.29.
And fifth in volume was General Electric (GE) with an $0.11 gain.
Advanced Micro Devices (AMD) fell $1.29. Goldman Sachs says competitive pressures are increasing in the micro processor business. Goldman said yesterday`s annual meeting of the company confirmed that view.
ExxonMobil (XOM) up $0.54.
And then Citigroup (C) $0.31 gain there.
Nokia (NOK) fell $0.26.
Tenth in volume was Home Depot (HD) losing $0.55. Almost a third of the voting shareholders of Home Depot withheld their support for Chief Executive Officer Bob Nardelli`s (ph) reelection and 10 out of 11 directors got the same treatment by shareholders at the annual meeting.
Bausch & Lomb (BOL) up $2.02. Goldman Sachs today upgraded it from "under perform" to "in line." I think part of the reason that stock is down from a 12-month high of about $89 a share, all the way at 51 now.
Walgreen Co (WAG) up $2.05. Its May same store sales up a very respectable 9.9 percent.
King Pharmaceuticals (KG) however down $0.88. Bank of America downgraded it from "neutral" to a "sell."
Revlon (REV) losing 37 percent of its value with that loss of $1.13 after the company forecast 2006 revenue growth will be much lower than expected because of poor sales of a number of products as you see there.
Then we see Pulte Homes (PHM) dropping $1.70. The company cut its 2006 earnings forecast down to $4.70 to $5 from over $6 due to about a 30 percent drop in new home orders coming into the company.
Haverty Furniture (HVT) however up $1.47. Its May same store sales up 18 percent and the Morgan Keegan brokerage upgraded the stock from "under perform" to "market perform."
Blyth (BTH) down $2.06. The company makes candles and other d‚cor. First quarter earnings much lower than expected at $0.12, down from $0.25 a year ago and sales actually fell 4 1/2 percent during the period.
Heico (HEI) which makes aircraft parts, up $2.38. Second quarter earnings comfortably higher at $0.28 versus $0.22 last year and sales jumped 38 percent during the period.
Chicago Bridge & Iron (CBI) up $2.39. The Steifel (ph) Nicolaus brokerage upgraded it from "hold" to a "buy."
Volume leader was Google (GOOG) on NASDAQ once again, down $3.18 today.
Microsoft (MSFT) fell $0.06.
Apple Computer (AAPL) $0.51 drop.
Intl (INTC) bucked the trend, up $0.19.
Cisco Systems (CSCO) a $0.06 loss, fifth in dollar volume.
Comcast "A" (CMCSA) up $0.19.
Amgen (AMGN) a $0.39 gainer.
Juniper Networks (JNPR) fell $0.52.
Qualcomm (QCOM) a nickel drop.
And tenth in volume was Dell (DELL) rising $0.16 a share.
Encysive Pharmaceuticals (ENCY) up $1.50, almost a 35 percent gain after Cowan and Company upgraded it from "neutral" to "outperform" on optimism the company`s hypertension drug may soon get approval from European regulators.
Then we see Black Box Corp (BBOX) tumbling $9.51. Fourth quarter earnings were higher, $0.53 versus $0.39 a year ago, but the Street estimate was way up there at $0.75 a share.
And Omni Energy Services (OMNI) doing well, up $1.50. The company said second quarter revenues will likely exceed Wall Street estimates of almost $26 million.
Those are the stocks in the news tonight.
