NBR Complete Transcripts-06-26-2006
Monday, June 26, 2006Warren Buffet Gives Big To The Gates
SUSIE GHARIB: It`s official tonight, Warren Buffett is giving his money away to Bill Gates. The billionaire investor has earmarked 85 percent of his $44 billion fortune to the Bill and Melinda Gates Foundation. The move comes on the heels of news that Gates plans to wind down his work at Microsoft to devote more time to the foundation. Buffett`s historic gift dwarfs donations from legendary philanthropists like John Rockefeller and Andrew Carnegie. Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet the new dynamic trio of corporate philanthropy -- Bill Gates, Melinda Gates and Warren Buffett. At a news conference in New York today, Buffett, who is chairman of Berkshire Hathaway and the world`s second richest man, detailed plans to give $31 billion in Berkshire stock to the Gates Foundation, which is run by Gates, the world`s richest man. Buffett will also make large contributions to his late wife`s and each of his children`s charities. But today, he explained why the bulk of his fortune is going back to society and not to his family.
WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY INC: It isn`t in keeping with my view of how the world should operate to create huge amounts of dynastic wealth. I really believe that in terms of having equality of opportunity in this country, and the right people in the right jobs doing the right things, I don`t think they should inherit my position in society.
PRATT: To that end, the Gates Foundation is already the world`s largest philanthropy with nearly $30 billion in assets. The Buffett gift doubles the size of the foundation and effectively its annual giving, which last year was more than billion dollars. Gates says the extra money will allow the foundation to deepen its efforts in global health and education, rather than broaden into other areas.
BILL GATES, CO-CHAIR, BILL & MELINDA GATES FOUNDATION: We think that we can wisely take and even more than double the impact we have. In some ways the early successes we have now give us opportunity to scale up using the amazing resources that Warren has made available.
PRATT: Gates and Buffett say they hope other individuals will take their lead in terms of giving money away to private charities. Experts in corporate philanthropy say that`s already happening.
MELANIE SCHNOLL BEGUN, MANAGING DIR., CITIGROUP PHILANTHROPIC SERVICES: It`s going to be follow the leader, I hope so. I don`t know if it`s going to be that magnitude. But I think many people are going to recognize that when you have such an enormous opportunity to make a difference and to watch your money while you`re living make that difference, that that could be extremely powerful.
PRATT: In a letter to Bill and Melinda Gates dated today, Buffett outlined his plan to give the foundation 10 million shares of class-B Berkshire stock. Beginning in July and continuing every year of his life and after his death, Buffet will give a set number of class-B shares to the Gates Foundation. Buffett personally holds only class-A shares, but he will convert them for the gift. Shares of Berkshire Hathaway class-A fell today on the news, but Buffett says he sees no reason for the decline.
BUFFETT: I see no way that it decreases the intrinsic value per share of Berkshire and I see no way that it over time changes the price of Berkshire relative to its intrinsic value in the market. So, there should be no downside whatsoever.
PRATT: According to Buffett there could in fact be a positive for Berkshire stock associated with the immense donation. If the Gates Foundation increases selling of Berkshire shares, that will increase liquidity and the stock could ultimately be added to the S&P 500. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
SUSIE GHARIB: Joining us now to talk more about this, Phil Buchanan, executive director of the Center for Effective Philanthropy. It`s a non-profit research organization that helps foundations improve their performance. The center also receives some funding from the Gates Foundation. Hi Phil.
PHIL BUCHANAN, EXEC DIR., CENTER FOR EFFECTIVE PHILANTHROPY: Hi, Susie.
GHARIB: I would like to get your sense of the impact of this stunning gift from Warren Buffett. What`s the ripple effect of this gift? Do you think that Warren Buffett and Bill Gates have paved the way here for other wealthy individuals to give more generously to charities and to foundations?
BUCHANAN: Well, I think it`s really refreshing to see that Warren Buffett decided not to create another institution, a whole bureaucracy to support his philanthropic efforts but decided, instead, to get behind something that he thought was working. Again I think that that is a powerful message. And the hope now is that they can stay as focused and disciplined as I think they`ve intended to be even at this enormous scale that they will have, some $60 billion in assets which is, you know, bigger than a lot of countries` GDPs.
GHARIB: Warren Buffett did say today that one of the reasons that he decided to go this route of giving his money to the Gates Foundation is because he thought that Bill and Melinda Gates would do a better job at distributing this wealth than he would. Can you give us any sense of what has been the track record of the Gates Foundation?
BUCHANAN: Yeah, I think it`s hard to say because it`s early. I mean clearly in some areas such as their funding of vaccines against malaria in Africa, they can actually take credit for vaccinating millions of children and they`ve saved lives. There is little question about that. Other issue areas and this is really the challenge that charitable foundations face, it`s more difficult to quantify the results particularly in the short term. So they are focused on educational reform in the U.S. and as Melinda Gates said recently in a "BusinessWeek" interview, it will be 20 years before they fully understand the implications of what they`ve been doing. So here are two guys who are used to performance measures that are quarterly, you know, even daily entering a realm, the work of charitable foundations, in which performance measures can be elusive and it can take decades to really understand the impact of what you`ve done and the initiatives you`ve funded.
GHARIB: Now the IRS has some rules about how much of a foundation`s funds have to be distributed every year. In the case of the Bill and Melinda Gates Foundation, now with this big infusion from Warren Buffett, it`s going to be something like $3 billion a year, double what they have been doing. Now that seems to be a lot of money and a very challenging task. How do you go about doing that effectively and responsibly?
BUCHANAN: Yeah, I think that`s right. I mean it`s clearly a lot of money. On the other hand, it`s less than two percent of total U.S. charitable giving. So I think the challenge for them will be to stay focused. I think that the foundations in this country enjoy a lot of freedom. And that`s their strength in the sense that Gates can go in and take on malaria in Africa when no other actor, political or business had intended to do so. On the other hand, it can also make it awfully tempting to take on the next important issue. There are a lot of causes that really warrant support. And I think the challenge for foundations is to stay disciplined enough that they can really move the needle on a couple of issues rather than trying to affect a whole panoply of issues. So I was interested to see Mr. Buffett`s statement that he intends to support the current focus of the Gates Foundation. And I think that`s probably a good sign.
GHARIB: In a word or two, because we`ve little time left, is there a risk of being just too big as a foundation?
BUCHANAN: Sure. I mean I think the risk always with any large institution is that bureaucracy sets in and then it is harder to be nimble, to respond to changing environments or to change course on the basis of performance data that you have come back. But I think, you know, that can be avoided if you put the right performance measures in place and if you are disciplined and focused.
GHARIB: All right, we`re going to have to leave it there. Thank you so much, Phil.
BUCHANAN: Thanks, Susie.
GHARIB: We`ve been speaking with Phil Buchanan of the Center for Effective Philanthropy.
Are New Home Sales Really Showing Signs of Strength?
PAUL KANGAS: New home sales were unexpectedly strong in May, rising 4.6 percent. That data from the Commerce Department pegs sales rising at their fastest pace since December. But as Stephanie Dhue reports, the report is at odds with the cooling that many builders are reporting.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home builders are pulling out all the stops to attract buyers. Offers to build an extra room, pay the electric bill or even lease a luxury car may have helped drive sales last month.
DAVID SEIDERS, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS: The sales numbers, if they, in fact, increased or held pretty firm, I think a lot of it has to do with the builders taking a lot of efforts to sell those homes in a market that they know is weakening in terms of the fundamentals of demand.
DHUE: The Commerce Department reports just under 1.25 million new homes sold in May, a 4.6 percent increase from April. But the margin of error in the number is huge plus or minus 13 percent. The report also shows some price decline. The median price of homes sold fell 4.3 percent to just over $235,000. And it looks like builders now have fewer homes to sell. The inventory of new homes dropped slightly, from an all-time high of 560,000 homes in April. But the homebuilders say the actual inventory may be greater.
SEIDERS: When sales contracts are cancelled, this report doesn`t pick them up and it does not put the canceled home sale back in the builder inventory, even though in reality it does go back. So I think that the inventory level in reality is higher than reported in this report, and I`m kind of worried about where the inventory situation stands.
DHUE: The homebuilders worry the strong monthly report could give the Federal Reserve room to raise interest rates further. The Fed is widely expected to raise rates when it meets this week, but other observers expect the Fed to take a longer view.
DOUG DUNCAN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION: They won`t just look at the month-to-month headline. They`re going to look underneath that, because there is a lot of volatility month-to-month, and if you look at the underlying trend, I know they`ll see the same thing that we see, which is a gradually slowing market.
DHUE: New homes sales are down almost 6 percent from the same time a year ago and almost 11 percent year to date.
Home sellers are expected to offer even more incentives to encourage buyers and help close the deal. But even the most enticing incentives probably won`t turn a slowing market around. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Commentary: Don't Rely On Returns For Retirement
PAUL KANGAS: Tonight`s commentator says it was nice while it lasted, but he thinks the party`s just about over for those big investment returns we`ve been seeing over the past few years. Here`s Mark Zandi, chief economist at moodyseconomy.com.
MARK ZANDI, CHIEF ECONOMIST, MOODY`S ECONOMY.COM: The recent turmoil in global financial markets will prove temporary, but it provides a vital message, namely, that we shouldn`t count on big returns in our investment portfolios to provide for a comfortable retirement. Over the past quarter century, we have enjoyed out-sized gains on our assets ranging from stocks to housing. The period was characterized by steadily declining inflation and interest rates, which in turn supported rising asset valuations. In other words, asset prices rose more quickly than the growth in the earnings generated by those assets.
Economy-wide, this is evident in the six-fold increase in the value of household assets over the period, while GDP, the value of all the things that we produce, increased a much more modest four-fold. Recent events highlight that the long-running decline in inflation and interest rates is now over. They might not rise much going forward, but they aren`t going lower, at least not consistently. Asset prices are adjusting to this new reality, and future increases in our wealth will be more consistent with the growth in GDP.
Bottom line, this means that instead of enjoying high-single digit annual returns on our portfolios we should plan on mid-single digit returns. While this doesn`t mean much in a given year, it means everything over a period of a decade or two. Those of us counting on the out-sized historical returns to continue on and thus make up for our paltry saving will be ill-prepared at retirement. It`s time to save more. This is Mark Zandi.
Paul Kangas' Stocks In The News
PAUL KANGAS: Some of Wall Street`s popular indices showed double digit growth early today as all that takeover and merger activity inspired the bulls. After an hour of trading, the Dow posted a 28 point gain; NASDAQ was up 13. A surprise jump in May new home sales about which we`ll have details shortly, helped stocks this afternoon as did a drop in oil prices. The result was a higher close. The Dow Industrial Average ended up 56.19 points at 11,045.28. The NASDAQ Composite was up 12.20 ending at 2133.67. Standard & Poor`s 500 Index gained 6.06 to close at 1250.56. Over in the bond market, the 10-year note fell 3/32 to 99 5/32, lifting the yield to 5.24 percent. Most active New York exchange issue on 22.2 million shares, Boston Scientific (BSX) closing down $1.20 after trading as low as $16.76. The company would retrieve certain of its pacemakers and defibrillators from its sales force and hospital inventory, citing possible defects.
Pfizer (PFE) moving up $0.37 on news it`s selling its consumer health products division to JNJ.
Phelps Dodge (PD) plunging $6.72. It`s going to have to come up with a lot of money for the Falconbridge and Inco acquisitions.
Let`s have a look at those two stocks and see how they fared, very well, thank you, Inco ltd (N) up $5.95 and a $2.50 gain for Falconbridge (FAL).
Then we see Sprint Nextel (S) with a $0.13 loss.
Time Warner (TWX) gained $0.20. That was fifth in big board volume.
General Electric (GE) gained a nickel.
Kerr McGee (KMG), which is being taken over by Anadarko, up $0.57.
Johnson & Johnson (JNJ) itself fell $1.11. Anadarko Petroleum (APC) down $1.28.
And Zimmer Holdings (ZMH) a major casualty off $4.33. The Justice Department subpoenaed the company for documents related to the investigation of possible Federal criminal law violations involving the manufacture and sale of orthopedic implant devices. Standard & Poor`s downgraded Zimmer stock from "buy" to a "strong sell."
Let`s have a look at some other stocks in the orthopedic area, Biomet (BMET) lost $1.80.
Then Striker (SYK) down $2.68 on that news.
Walgreen co (WAG) moved up $0.49. Third quarter earnings $0.46, up from $0.40 a year ago and $0.02 better than the Wall Street consensus.
Lennar (LEN), the home builder, up $1.11. Second quarter earnings an even $2 a share, up from $1.48 and $0.13 above the Street estimate. Revenues soared 56 percent but the company cut 2006 earnings guidance from about $9.25 to as low as $8 a share on possible slowdown.
Bunge ltd (BG) down $3.44. The company sees poor second quarter results coming in just at about break even, citing farmer protests in Brazil. Bunge has cut its 2006 earnings guidance from a high of $4.25 to $3.67 a share at best. Prudential cut its price target down to $48 a share.
Then Prestige Brand Holdings (PBH) down $1.57. This company sells Comet cleanser and Spic N Span, things like that and its president and CEO resigned after less than three months on the job.
Kindred Healthcare (KNK) down $1 - up $1.72. Wachovia Securities upgraded it from "under perform" to a "market perform."
Google (GOOG) topped the active list with a $0.67 loss, $0.64 loss.
$0.32 gain in Microsoft (MSFT).
$0.16 rise in Apple Computer (AAPL).
Intel (INTC) gained $0.28.
Qualcomm (QCOM) $0.59 rise, fifth in volume.
Oracle (ORCL) was down $0.23.
While Sirius Satellite Radio (SIRI) gained $0.23. Sirius` CEO Mel Karmazin said he`d like to acquire rival XM Satellite, but admits there would be regulatory issues. Also Barbara Walters plans to do a weekly two- hour talk program for Sirius Satellite.
A penny loss in Cisco Systems (CSCO).
Yahoo! (YHOO) up $0.18.
And eBay (EBAY), tenth in volume, was down $0.28.
Redback Networks (RBAK) off $2.31. Canaccord Adams brokerage downgraded it from "buy" to "hold" on doubts the company can sustain the revenue of growth that it showed over the past two quarters.
And finally, a big percentage gainer, Somera Communications
(SMRA) rising $2.16. It`s going to be acquired by Telmar Network Technology for $4.60 a share in cash.
Those are the stocks in the news tonight.
