NBR Complete Transcripts: 06-13-2006
Tuesday, June 13, 2006Stocks Still In Sell Mode As Inflation Fears Get Cranked Up
SUSIE GHARIB: Here on Wall Street today, investors continued to yell "sell." The Dow dropped 86 points, and the NASDAQ fell for the eighth straight session, losing 18 points. Driving today`s sell- off, new data showing an increase in wholesale inflation and a retail sales report that signaled a weakening economy. As Suzanne Pratt reports, many economists say today`s data supports the likelihood the Federal Reserve will raise rates again at the end of the month.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fresh data on wholesale prices reinforced the belief for many today that the U.S. has a growing inflation problem. Just how big a problem is still a topic of hot debate on Wall Street. The producer price index rose a relatively tame two-tenths of one percent in May, following a big gain in April. But prices paid to U.S. producers for goods other than energy or food, the so- called core PPI, rose three-tenths of one percent in May, the largest increase since February. The gain was more than economists expected and proof that energy prices are adding cost pressures throughout the production pipeline. Still, others say investors need to look at more than just the May data for a more complete inflation picture.
MICHAEL MORAN, CHIEF US ECONOMIST, DAIWA SECURITIES: If you focus on the longer term, say over the past three months or past six months or past year, you still see fairly tame readings on the core PPI. The increase we had in the latest month, three-tenths, was just a small offset to the one- tenth reading we had in each of the prior two months. So, on balance I think we`re still seeing restrained readings on the core PPI.
PRATT: Meanwhile, retail sales rose only slightly in May, raising red flags about a potential slowdown in consumer demand and the overall economy. Retail sales inched up one-tenth of one percent last month, although April was revised higher than originally reported.
JAMES GLASSMAN, SR. ECONOMIST, JP MORGAN CHASE: The areas that were really quite soft, building materials and anything related to housing-- that`s the area that`s really seeing significant pullback and we`re going to see more of this in the housing indicators this year. So, lots more confirmation of a slowing consumer.
PRATT: And in spite of the weakness in retail sales, most economists believe the Federal Reserve will still hike rates again when policymakers meet on June 28 and 29.
MORAN: I think the Fed will raise interest rates at the end of June. They sent some strong signals with public comments that they are prepared to raise interest rates, and I think the economy is strong enough to warrant that. I think the inflation numbers, although still low, are stirring enough that the Fed will want to take some precautionary steps.
PRATT: Tomorrow, financial markets and the Federal Reserve will get another look at the inflation picture with the release of the consumer price index for May. Experts say an increase of two or three tenths of one percent pretty much guarantees a rate hike at the end of the month. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Economic Optimism Doesn't Add Up To New Jobs
SUSIE GHARIB: On the labor scene closer to home, many American employers are confident about the economy these days, but apparently not confident enough to add new workers. A new survey by Manpower shows the majority of U.S. businesses it recently polled have no plans to hire in the next quarter. As Diane Eastabrook reports, high energy prices, rising interest rates, and other concerns are the obstacles to expanding the labor force.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: RS Owens is in the midst of making nearly a thousand Emmy awards, just as it has every spring for the past 30 years. But the Chicago manufacturer is doing the job this year with about 20 fewer employees than it had a few years ago. Productivity improvements and new competition from other firms have the nearly 70-year-old company holding the line on hiring.
SCOTT SIEGEL, PRESIDENT, R.S. OWENS: We haven`t been replacing factory people as they leave because we`ve been off-shoring some of our manufacturing and buying more product manufactured outside of the United States.
EASTABROOK: What is happening at RS Owens could be happening at many other companies across the U.S. In the latest Manpower survey, 57 percent of the 16,000 firms polled said they aren`t planning to hire in the third quarter. Thirty one percent of the companies polled say they do plan to add workers, 6 percent expect layoffs and the remaining 6 percent are uncertain. Manpower says the sectors that offer the best prospects for job growth include real estate, transportation, and the service industry. Economists think the survey reflects an economy that is still growing. But they also think it reflects an economy suffering growing pains as employers try to determine where interest rates and costs are headed. DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: We`ve got high energy prices still plaguing companies. They`re trying to do more with less to deal with those persistently high energy prices. That includes everything from investing in energy-saving technologies to maybe not hiring as aggressively as they might have been.
EASTABROOK: RS Owens says energy isn`t its only concern. The price of gold, silver, pewter, and zinc -- all used to make its awards -- have also skyrocketed and Siegel says rising healthcare insurance remains his biggest concern.
SIEGEL: The major impediment to having more employees, in my eyes, right now is the cost of healthcare. Our healthcare costs went up 20 percent this year. We had to change providers.
EASTABROOK: Siegel is optimistic RS Owens will be adding more workers over the next few years. But he is quick to point out those workers will probably be added through the acquisition of other companies. Diane Eastabrook, NIGHTLY BUSINESS REPORT Chicago.
China's Property Prices Are Slowing But Home Improvement Sales Are Building
PAUL KANGAS: Meanwhile, in China, the property market has been booming for the past five years, but prices have recently plunged in cities like Shanghai and are now, at best, slowing down elsewhere. One related industry that is still booming is home improvement companies, which are expanding their operations deep into the country to serve the growing ranks of homeowners with more discerning tastes. Nick Mackie reports.
NICK MACKIE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This was 24-year- old Zhang Shiyun a year ago. Armed with savings and her boyfriend`s annual bonus, she parted with $10,000, the obligatory 30 percent deposit, to buy an apartment that should look like this when it`s finally built. She`s been paying the monthly installments of $130 ever since, effectively co- financing the developer up-front from her 20-year mortgage. Now, with possession, what she gets isn`t much like the artists` model. That`s because, in China, buyers buy the promise of a home. They only get a shell that they can`t yet actually live in. An 860-square-foot apartment like this will cost another $5,000 to wire, plumb and decorate. But since she bought her apartment in this complex, changes in the property market have been unexpected. Prices in the more affluent coastal cities like Shanghai have nosedived, while even here, further inland, where homes are typically 50 percent cheaper, buyers are no longer prepared to borrow against rising prices that may have doubled between 2000 and 2005.
Since China allowed home loans in the 1990s, property has been considered a guaranteed good investment. But with property bubbles threatening urban stability, the government cooled speculation six months ago by limiting credit and strictly controlling land sales. Now the Chinese are learning a key lesson about the market.
TRANSLATION OF: ZHANG SHIYUN, FIRST TIME HOME BUYER: As far as investment is concerned, it`s not good. As a result of the government`s measures, the rise in value is not much and so any return is low.
MACKIE: But retail building supplies companies like Home Depot and Britain`s B&Q appear unfazed by any market volatility. Countrywide, the finishings sector is estimated to grow by over 50 percent to $60 billion by 2008 as interior design grows in importance. And even in this region, once considered an economic backwater, the foreign players anticipate a robust return as consumers turn more to brands which they associate with good design and quality.
TRANSLATION OF: STEPHEN XIAO, STORE MANAGER, B&Q CHONGQING: Over the next two to three years, growth in the western region will be obvious. The second Chongquing B&Q and others will open hand in hand with this development. B&Q strategy considers the western region as China`s key growth engine.
MACKIE: Zhang Shiyun and her boyfriend want quality, but they`re somewhat daunted by the cost of making their new home habitable. However, they were at least able to afford to buy into the new China comfortably, as a future round of rising prices in the marketplace could stretch home buying budgets to the limit. Nick Mackie, NIGHTLY BUSINESS REPORT, Chongqing.
Commentary: Examining The See-Saw That Is The Stock Market
Now if you`ve ever wondered why the stock markets seem to be going up and down with no rational explanation, you`re not alone. Tonight`s commentator has been wondering that, too. Here`s Allan Sloan, Wall Street editor of "Newsweek" magazine.
ALLAN SLOAN, WALL STREET EDITOR, NEWSWEEK: The stock market lives in a world of its own. It`s a world in which every move has a supposedly rational explanation. The fact that the explanation might or might not make any economic or logical sense doesn`t really matter. One day, oil prices go up and that`s why stocks went down. The next day, oil prices go up again, but stocks go up. When new jobs numbers come in high, stocks can rise because a strong economy is good for the market. When the jobs number is low, that can raise the market, too, because it means the Fed might not raise short-term interest rates.
The fact that a weak economy might also mean weak profits and weak consumer spending? Well, let`s not bother with that. Until about a month ago, almost everything, from inflation numbers to the phases of the moon to the Fed, was a reason for stocks to rise. Now, for the most part, they`re reasons for stocks to fall. Go figure. Let me tell you a dirty little secret. In the long run, the stock market is rational. But in the short term, the market is -- the market. It can rise or fall on any given day because of big investors doing index arbitrage or other random, fluky things. So worry about the long-term, not the short term, and take the daily explanations with a grain of salt or better yet, a 100-pound bag of it. I`m Allan Sloan.
Last Word: The History of Father's Day
SUSIE GHARIB: And finally, Sunday is Father`s Day, and it might surprise you to find out how the observance evolved. It was the idea of a woman in Spokane, Washington, as she listened to a Mother`s Day sermon back in 1909. Sonora Dodd wanted a day to honor her father, William Smart, a civil-war veteran with six children. So June 19, 1910 was chosen for the first Father`s Day in Spokane, because William Smart was born in June. Eventually, President Lyndon Johnson designated the third Sunday in June as Father`s Day nationwide. And then in 1972, President Richard Nixon signed the law that made it permanent. Hallmark estimates 102 million Father`s Day cards will be given this year and Paul I`m sure a lot of ties will go with them.
KANGAS: And don`t forget those pairs of socks.
Paul Kangas' Stocks In The News
PAUL KANGAS: At the start of the session on Wall Street today, an overdue technical rebound lifted the Dow 37 points and the NASDAQ 10 points early on. But then traders took another look at those wholesale inflation and retail sales numbers and wiped out the gains. By late morning, the blue chips were off 33 points. Trading turned very choppy this afternoon with investor confusion over the economy`s health. All this led to the seventh straight broadly lower close. Dow Industrial Average ended down 86.44 points at 10,706.14. The NASDAQ Composite lost 18.85 to 2,072.47. Standard & Poor`s 500 down 12.71 at 1,223.69. Over in the bond market, the 10-year note rose 4/32 to 101 7/32, putting the yield at 4.97 percent.
Most active New York issue on 21.4 million shares, Lucent Tech (LU) losing $0.11.
Followed by General Electric (GE) $0.14 drop there.
ExxonMobil (XOM) on the drop in oil prices, fell $1.43.
Major loser, Jabil Circuit (JBL) tumbling $7.11, traded as low as $23.13 after the company predicted lower than expected third quarter earnings of $0.33 to $0.37 a share. Previously, it said $0.47 a share. Meanwhile, Baird and Company brokerage downgraded it from "outperform" to "neutral." Earnings results incidentally are due out a week from tomorrow for Jabil.
Pfizer (PFE) $0.25 loss. That was fifth in big board volume.
Citigroup (C) fell $1.12. The financial services sector very weak today.
Time Warner (TWX) down $0.26.
Bank of America (BAC) another weak financial off $1.34.
Motorola (MOT) bucked the trend with a $0.07 gain.
EMC Corp (EMC) tenth in volume was down $0.03 a share.
Merck & co (MRK) managed to move up $0.29. A study shows the company`s proposed diabetes drug called Jenuvia cut blood sugar and had fewer side effects than similar competing drugs, so a little gain for Merck for a change.
Goldman Sachs Group (GS) tumbling $5.75. Second quarter earnings excluding one-time items $4.78, $0.50 better than the Street estimate. But the company`s cautious on the outlook and that sent the whole financial services sector down.
Let`s look at some other major brokers, Bear Stearns (BSC) off $8.30.
And then losses exceeding $2 a share for Lehman Brothers (LEH), Merrill Lynch (MER)
and Morgan Stanley (MS).
Maverick Tube (MVK) on the other hand, one of the big gainers, the big gainer of the day, up nearly $17 a share. Luxembourg-based steel pipe make Tenaris will acquire Maverick for $65 a share in cash. Tenaris stock was up $1.03 to $32.53 a share.
Lamson & Sessions (LMS), the company makes electronic products, up $3.42. The company boosted its second quarter revenue growth forecast to a plus 29 to 31 percent, said earnings should be around $0.80 to $0.83 a share.
Ametek (AME) up $2.38. The company makes electronic instruments and Keybanc brokerage upgraded it from "buy" to an "aggressive buy."
On the downside, Western Digital (WDC) fell $1.42. The company notes demand is soft and pricing lower than expected for its products in the current quarter and Goldman Sachs made some cautious comments about Western Digital`s outlook.
Dean Foods Co (DF) bucking the trend, up $1.35. Prudential upgraded it from "neutral" to "over weight."
And Advanced Micro Devices (AMD) losing $1.24. Prudential cut earnings estimates and also cut its price target on AMD from $65 all the way down to $45 a share on concern over a possible price war with Intel.
And then finally we see the gold tracking stock streetTRACKS Gold (GLD)tumbling $4.11. New York August gold as you saw earlier, down $44.50 an ounce to $566.80. The gold stocks however were not hit that hard, most of them large fractional losers.
Google (GOOG) topped the active list bucking the trend, up nearly $5.
Microsoft (MSFT) $0.20 drop. Apple Computer (AAPL) moved up $1.33. The Needham brokerage upgraded Apple from "hold" to "buy" on optimism that Window operating system users will soon by able to use Mac products.
Intel (INTC) a $0.26 gainer.
Qualcomm (QCOM) $0.65 rise. That was fifth in dollar volume.
Cisco Systems (CSCO) fell $0.12.
Amgen (AMGN) a nickel gain.
Dell (DELL) $0.21 rise.
Broadcom (BRCM) up $0.15.
And then Sears Holdings (SHLD) on the weak retailing group, down $6.92.
Diodes (DIOD) up $4.94. The company gave an upbeat forecast on its second quarter revenues.
And then Herley Industries (HRLY), which is in microwave equipment, had a terrible day, off $5.19. Some of the company`s units were banned from new government contracts because of alleged overcharging.
And then DexCom (DXCM) off $2.86. The medical devices company was downgraded by the Cowan and Company brokerage from "outperform" to just "neutral."
Those are the stocks in the news tonight.
