NBR Complete Transcript: 06-06-2006
Tuesday, June 06, 2006Inflation Fears Not 666 Spoked Investors Today
SUSIE GHARIB: More heavy selling on Wall Street today, as inflation fears continued to spook investors. The Dow tumbled as much as 122 points, but thanks to a wave of late-day buying, the blue chips closed down 46 points. The NASDAQ lost 6. As Erika Miller reports, Wall Street experts are still assessing what Federal Reserve Chairman Ben Bernanke`s latest views on the economy mean for the markets.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market has been taking a beating, but many Wall Street analysts are not nervous. They say recent worries about inflation and interest rates are overblown.
SCOTT FULLMAN, DIRECTOR OF INVESTMENT STRATEGY, HAPOALIM SECURITIES: Our market outlook remains fairly positive. The economy, to us, seems like it is moving forward at a pretty steady, sustainable pace, clearly going to be slower, but still moving forward. We don`t think inflation is going to become a big problem.
MILLER: Stock investors have been fretting about the possibility the Fed will raise interest rates at its next policy meeting June 28 and 29. Bond market futures are placing 80 percent odds of a quarter point hike at that meeting. But some Wall Street pros still believe the Fed could pause, igniting a stock market rally.
KEVIN BANNON, CHIEF INVESTMENT OFFICER, THE BANK OF NEW YORK: I`m still of the opinion that the Fed is very likely to pause, because we are clearly seeing evidence of cooling in housing, cooling in the labor markets. The Fed is forward-looking.
MILLER: Bannon recommends investors use current weakness to buy technology and business services stocks, areas which he expects will rally if business spending picks up. Harder to predict is the reaction in the stock market if the Fed does raise rates at the end of the month.
FULLMAN: I think you could even expect a rally. I think you could even expect a rally if the Fed only goes 25 basis points, because I think it brings some relief into the market that that`s what they`re doing.
MILLER: Fullman recommends investors start loading up on utility and financial stocks, sectors which could benefit when the Fed ends its tightening cycle. Some bulls say the biggest risk to the stock market is the statement accompanying the Fed`s decision. If it hints at the possibility of an August rate hike, experts say that would raise concerns about the economy and corporate profits. But if the Fed signals it could pause in August, some experts predict the market will soar to new highs.
FULLMAN: We think there is still an opportunity for that to happen, but we think the market has to work out some of the short-term to intermediate-term problems that it has been facing.
MILLER: After this month`s Fed meeting, the market`s focus is expected to shift to second quarter earnings. Some strategists predict stocks will rally in early July in anticipation of another quarter of double-digit earnings growth. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One With James Gillespie, CEO of Coldwell Banker
GHARIB: The National Association of Realtors today lowered its forecast for home sales this year and called for the Federal Reserve to take a break from hiking interest rates. The trade group says the housing boom has ended and home sales are settling into a slower pace. It is predicting a drop of almost 7 percent in existing home sales this year. New home sales should fall about 13 1/2 percent. Still, in both cases, sales would slow from record-high levels. The realtors say rising interest rates have slowed sales in many high cost markets, but job growth has boosted sales in some less-costly areas. Joining us now to talk more about the outlook for housing, James Gillespie, CEO of Coldwell Banker real estate corporation. Mr. Gillespie, a pleasure to have you back on the program.
JAMES GILLESPIE, PRESIDENT & CEO, COLDWELL BANKER: Susie thanks, thanks for inviting me back.
GHARIB: So do you agree with this forecast? Is the housing boom over?
GILLESPIE: Well, what we`re seeing here is return to a more normal market. Last year 7.1 million re-sales set an all-time record. So by being off 7 percent to $6.6 million is still the third best year in real estate history. And one thing that I`m concerned with maybe some of your viewers and potential buyers out there is that they are seeing headlines saying real estate is off by 7 percent. Well that`s true with units this year, but appreciation, the National Association of Realtors says that we will still see appreciation in the 5 to 6 percent range. So I want to make sure and this is a message that I`m preaching to our 118,000 salespeople to make sure that your buyers understand that real estate is still a very good investment. Sure, units are off, but there is still strong appreciation - historically strong appreciation at 5 or 6 percent.
GHARIB: People are also seeing headlines about the possibility of even higher interest rates which could mean higher mortgage rates. We`re seeing that the 30-year fixed rate mortgage is around 6.9 percent. Where do you see it going?
GILLESPIE: Well, I think the report said that by the end of the year, it would be at 6.9 percent. So over the course of this year, compared to last year, interest rates, mortgage interest rates will be about 1 percent higher and according to our National Association of Realtors that 1 percent will phase out about -- or price out about a half a million buyers so actually their numbers make sense going from 7.1 to 6.6 million re-sales this year. Again, the fundamentals are still there for real estate being a very solid investment. The demographics are overwhelming. Interest rates - my goodness, I started selling real estate 31 years ago and interest rates were 7.75. So with interest rates still in the high 6`s, it`s very, very affordable for most Americans.
GHARIB: We know that the rule of thumb is that as interest rates go higher, mortgage rates go higher, that home prices go down. What is the trend that you`re seeing?
GILLESPIE: Well no, that is not true. Appreciation is still here. The last time in our country where interest rates went up dramatically was between 1977 and 1982 and during that five-year period, there was tremendous appreciation. So what we`re seeing is less units being sold this year, 7 percent less, but with depreciation in the 5 to 6 percent range so that`s what I feel and that`s what the national association feels too, Susie.
GHARIB: So then what advice would you give to home buyers and home sellers? Is this a time to buy, sell, or hold?
GILLESPIE: Well, right now we`re in a balanced market for the first time in five or six years. The last four to five years it`s absolutely been a seller`s market. So with a balanced market, the buyers have the opportunity to see more inventory and not have to worry too much about having a home sold out from under them, although if they see the right home that they want, they need to make a decision. Sellers need to be very, very careful in pricing their home. Make sure you get with a reputable full service real estate company and a professional realtor and get that home priced correctly because there`s a lot more competition on the market. There`s a lot more inventory.
GHARIB: So where do you see the hottest real estate markets right now in the United States from the point of view of home sellers?
GILLESPIE: Well, this morning I was on television with "Good Morning Shreveport" Louisiana and that market is 16 percent up year-over-year first quarter over first quarter. Seattle is very strong. But what we`re seeing is a lot of strength in the heartland of America where the appreciation has never been as high as they have been on the coast and appreciation never -- not never, but usually not down. So the heartland of America is going very, very strong.
GHARIB: All right. Thank you very much. We appreciate you coming on the program.
GILLESPIE: Thanks. Thanks, Susie.
GHARIB: We`ve been speaking with James Gillespie, CEO of Coldwell Banker real estate corporation.
The House Takes Up The Net/Telecom Tug of War
SUSIE GHARIB: The House of Representatives is expected to vote on a key telecommunications bill this Friday. Among other things, the measure would let telephone companies offer video services without first negotiating franchise agreements with local municipalities. But as Stephanie Dhue reports, there`s a related issue at stake -- a growing battle over what`s called "net neutrality."
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Net neutrality is a fight among giants. On one side, the telecom and cable network operators -- companies like Verizon, AT&T and Comcast. On the other, content companies, like Google, Amazon, and eBay. The battlefield issue is whether network operators can charge content companies higher prices for bandwidth, for example, for things like downloading movies.
PAUL GALANT, ANALYST, STANFORD WASHINGTON RESEARCH: There`s a lot of concern on Wall Street that the phone companies are spending billions on network upgrades without any assurance that they are going to get their money back, and this new charge to content companies is a way to help recover their network investments.
DHUE: Content companies have waged a grassroots campaign to keep the network operators from charging higher prices for priority service. They want Congress to pass legislation that will keep the cable and telephone companies from discriminating against web sites.
PAUL MEISNER, VP PUBLIC POLICY, AMAZON: We want to insure that our customers will be able to obtain the services that we provide currently and in the future, without any impairments caused by the network operators to whom our customers are beholden.
DHUE: But network operators say customers aren`t beholden just to them, pointing out there is already competition from satellite and wireless firms. The network operators say they have no intention of doing what the FCC calls blocking, degrading or impairing content. The companies call net neutrality a solution in search of a problem.
WALTER MCCORMICK, PRESIDENT, U.S. TELECOM ASSOCIATION: We don`t believe the we should bring government-managed competition or central state planning to the Internet. Let`s allow companies that are willing to invest, compete, both in providing video services to consumers and provide high-speed Internet access to consumers.
DHUE: The House is expected to pass a telecom bill this week, but without a strict net neutrality requirement. Given the controversy over the issue and the relatively short time for the Senate to act, analysts don`t expect any net neutrality law this year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Mutual Fund Report: Craig Callahan of the Icon International Equity Fund
KANGAS: Until last month, it seemed that mutual funds specializing in foreign stocks could go only one way: up. Then, of course, the law of gravity kicked in. But all was not lost for shareholders of one fund that specializes in small and mid-cap foreign stocks: Icon International Equity Fund. Even after losing more than 10 percent over the last month, this fund is still up more than 8 percent since January. And last year, it returned better than 46 percent. Craig Callahan is the founder and president of Icon funds, and Craig, welcome back to NIGHTLY BUSINESS REPORT.
CRAIG CALLAHAN, PRESIDENT, ICON INTERNATIONAL EQUITY FUND: Nice to be here.
KANGAS: I guess the question that`s on everyone`s mind is, have the foreign markets peaked or are they experiencing just a pause?
CALLAHAN: Well, what happened early this year, it kept going. We might have seen peak type conditions but we`re value investors and now with this pullback we think there`s more in store for the next year to the upside.
KANGAS: Now we know that when it comes to stock collection, Icon Funds use the quantitative method. How does that work and do you do anything differently when you`re looking for stocks in foreign markets? CALLAHAN: We do it just like we do in the U.S. We have a valuation equation we apply to about 2,000 international stocks and we look for industries that have the potential to lead over the next two to three years.
KANGAS: Interesting. Since you`re dealing with small and mid gap stocks in the international equity fund, I don`t suppose that your holdings are exactly household names, but tell us about some of the favorite stocks that are in the equity fund now.
CALLAHAN: They generally tend to concentrate in an industrial, cyclical type economically sensitive theme. Vallourec in France.
KANGAS: Industrial machinery.
CALLAHAN: Industrial machinery and even an energy play there with steel tubing that they make.
KANGAS: U.S.G. People?
CALLAHAN: Great position. They`re in human resources of course with people through changing times. They need reeducation, retraining in their careers. They`re in a great spot.
KANGAS: And then a Hong Kong outfit, Hopson Development.
CALLAHAN: We find it to be about 37 percent, our estimate of fair value in developing real estate in Hong Kong.
KANGAS: How large a percentage of your portfolio do these three represent roughly?
CALLAHAN: They`re typically 2 percent. We`re very diversified.
KANGAS: All right. Let me just ask you if you personally own any of those stocks.
CALLAHAN: I do not personally but indirectly I do through owning this mutual fund.
KANGAS: Obviously. A lot of analysts think stocks of the emerging markets are especially vulnerable right now. So if investors are concerned about the stability of emerging markets, how does Icon International Equity stand in terms of its mix of stocks?
CALLAHAN: Being quantitative, we need certain data to estimate fair value and we just don`t get that data for emerging markets, so we tend to have very little exposure there.
KANGAS: We only have a minute left but a weak dollar tends to help stocks that are denominated in foreign currencies. If the dollar continues to drop, would that mean higher returns for this fund?
CALLAHAN: It would. It would be a boost. We do not hedge right now. But interesting when you look back the last two and a half to three years, the dollar is just about where it was then. So long-term investors have not gained or been hurt by currency.
KANGAS: So the fund really doesn`t gyrate that much in tune or out of tune with the dollars` movement.
CALLAHAN: No, that`s part of investing internationally is getting into different currencies.
KANGAS: Any last minute thoughts you want to leave with our viewers. We`ve got about 15 seconds.
CALLAHAN: Base on value, we see international stocks to be about 25 percent below our estimate of fair value. So we would expect price to try to approach value over the next year.
KANGAS: Very interesting, Craig. I want to thank you for your insights.
CALLAHAN: Pleasure to be here.
KANGAS: My guest, Craig Callahan of the Icon International Equity Fund.
Last Word: British Prime Minister Tony Blair In Coach
SUSIE GHARIB: And finally tonight, passengers aboard a no-frills Ryan Air flight on Saturday from Rome to London were probably a bit surprised to find out who a fellow traveler was. It was British Prime Minister Tony Blair! Blair was returning home from a vacation in Tuscany and meetings with Italy`s prime minister and the pope. Blair has drawn fire in the British press recently for using expensive government planes for holiday trips abroad. Ryan Air didn`t give details on how much he and his entourage of seven others paid for the tickets. But Paul, a search of Ryan Air`s web site turned up tickets on that route selling for about $25. KANGAS: I`ll bet you his quarters in Tuscany were a lot more than that, Susie.
GHARIB: You`re probably right about that.
Paul Kangas' Stocks In The News
KANGAS: Stocks opened with a reflex rally from yesterday`s tumble, with the Dow up 25 points early on while the NASDAQ rose three points. That mild comeback didn`t impress investors, so they turned to the sell side on continuing concerns over inflation and more rate hikes. At noon, the Dow was down 111 points and the NASDAQ fell 23 points. Some very cautious buying helped the market move above its worst levels of the day this afternoon, but stocks still ended broadly lower. The Dow Industrial Average closed off 46.58 at 11,002.14. The NASDAQ Composite was down 6.84 ending at 2,162.78, while the Standard & Poor`s 500 Index fell 1.44 ending at 1,263.85. Over in the bond market, the 10-year note rose 5/32 to par and 30/32nds, putting the yield at 5.01 percent.
New York exchange volume leader on 20.2 million shares was General Electric (GE) moving up $0.33. The company said it invested $75 million for the construction of the world`s largest solar power plant in sunny Portugal.
Time Warner (TWX) was up $0.13.
Pfizer (PFE) dropped a dime a share. ExxonMobil (XOM) gaining $0.35.
Fifth in volume was Lucent Tech (LU) which dropped $0.03 a share.
Interpublic Group (IPG), the big advertising firm, down $0.54. The company is seeking a new $526 million credit facility.
Nortel Networks (NT) dropped 6 points. The company in with a first quarter loss of $0.04 a share, double the $0.02 loss of a year ago and worse than most analysts expected.
SprintNextel (S) was up $0.66.
AT&T (T) rose $0.13.
And then tenth in volume, Motorola (MOT) down $0.06 a share.
United Tech (UTX) the Dow stock, down $1.40. The company`s going to pay $283 million to settle a lawsuit with the Department of Defense over accounting practices at its Pratt & Whitney unit.
General Motors (GM) an $0.80 loss, even though the company`s CEO says that the restructuring is making good progress and the company may experience tailwinds in the second half of this year.
International Paper (IP) down $0.46, even though Prudential equity brokerage upgraded it from "under weight" to "neutral" because of the company`s recent success in selling its coded paper unit and apparently getting a decent price for them.
Freddie Mac (FRE) lost nearly $2 a share after CS First Boston downgraded it from "out perform" to "neutral" and it did the same for Fannie Mae whose stock closed down $0.94 at $49.08 a share.
DR Horton (DHI) the home builder, off $1.40. Wachovia Securities downgraded it from "over weight" to "market neutral" and did the same downgrade for a number of other home building stocks.
KB Home (KBH) dropping $3.28.
While Lennar (LEN), Pulte Homes (PHM) and Toll Brothers (TOL) all lost more than $1 a share.
Eastman Chemical (EMN) down $1.82. Bank of America downgraded it from "buy" to just a "neutral" rating.
On the upside though, Moody`s (MCO) rose $1.16 on news it plans to buy back up to $2 billion of its own stock.
And Callaway Golf (ELY) up $0.50 a share. The company declared its regular quarterly dividend of $0.07 a share and also plans to buy back up to $50 million of its own common stock.
Google (GOOG) topped the active list with a gain of $15.55. The company today released a web-based spread sheet taking another step into Microsoft`s turf.
And Microsoft (MSFT) hit a new 12-month low apparently on that news, down $0.37.
Apple Computer (AAPL) lost $0.28.
Intel (INTC) a $0.19 drop.
Cisco Systems (CSCO) bucked the trend and up $0.29, fifth in volume.
Broadcom (BRCM) down $1.95.
Sandisk (SNDK) gained $0.44.
Ebay (EBAY) losing $0.91.
Qualcomm (QCOM) $0.49 gain.
And Hansen Natural (HANS) on a little profit taking, down $6.12 a share.
Evergreen Solar (ESLR) up $1.78. The story here, Renewable Energy Corp. boosted its stake in a joint venture between Evergreen and Q Cells (ph) Corp. and up went the stock of Evergreen on that news.
Brightpoint (CELL), this company`s involved in logistics services for the wireless industry and Deutsche Bank downgraded it from "buy" to "hold."
And then over on the American Exchange, Home Solutions of America (HOM) tumbling $2.80. The company`s in talks to buy an ownership stake in American Renaissance Homes and also may loan that company $800,000. Investors probably didn`t like that idea, judging by what happened to the stock.
And those are the stocks in the news tonight.
