NBR Complete Transcript: 07-13-2006
Thursday, July 13, 2006Mideast Tensions Rock Wall Street
SUSIE GHARIB: Another brutal day of selling on Wall Street as violence in the Middle East intensified and oil prices soared to a new record high. The Dow tumbled 166 points and the NASDAQ fell 36. August crude futures surged, closing at $76.70 a barrel. Investors are worried that the turmoil in the Middle East could broaden and overshadow any positive corporate news. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today was another rough ride for stock investors, as escalating violence in the Middle East sent major market averages reeling. Traders are reporting a shift in sentiment on the floor of the New York Stock Exchange.
ARTHUR CASHIN, DIRECTOR, NYSE FLOOR OPERATIONS, UBS: You get a compounding effect. You know the old saw about the straw that broke the camel`s back -- well, you can keep piling trouble on the market, but after a while, the market`s going to break.
MILLER: Oil spiked to a new record high in New York, adding to the selling pressure on stocks. Light sweet crude settled at $76.70 a barrel, up $1.75. And some oil experts warn prices could head significantly higher. 1 FADEL GHEIT, OIL & GAS ANALYST, OPPENHEIMER & CO.: There is no speed limit on this highway, if you will. You could see $100 oil; we could see $110 oil. How high can oil go? Nobody really knows.
MILLER: Investors have also been bailing out of stocks on fears that second quarter earnings will be disappointing.
SCOTT WREN, SR. EQUITY STRATEGIST, AG EDWARDS: It has just kind of snowballed. Investor pessimism has been pretty high to begin with for quite a while, and when you start to see these earnings misses early in the season, like we do now, it`s the negativity. It`s just, let`s look for something to worry about.
MILLER: To a lesser degree, experts blame the sell-off on expectations Japan will lift interest rates tomorrow for the first time in six years. The fear for U.S. stock investors is that rising interest rates globally will lead to a worldwide economic slowdown. U.S. stocks have been in a downturn since early May and investors wonder if the 3.5-year-old bull market is ending. Near term, many strategists warn the pressures on stocks are likely to continue, but some still think the S&P 500 could gain almost 12 percent from here to close the year at 1,400.
WREN: We think that if we can get some clarity in the next month or two on inflation, on the Fed, I think the market can trade higher and we can hit that target by the end of the year.
MILLER: If he`s right, it would put the S&P 500 at its highest level since 2000. That may comfort investors, because today`s sell-off put the index back in negative territory for the year. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One With Robert Doll, CIO, Merrill Lynch Investment Managers
SUSIE GHARIB: Despite today`s sharp sell-off, our guest tonight says the stock market is still poised to post gains for the year. That was one of his 10 predictions when we talked with him back in January and he joins us now to update the list, Robert Doll, president and chief investment officer of Merrill Lynch Investment Managers. Hi, Bob.
BOB DOLL, PRESIDENT, MERRILL LYNCH INVESTMENT MANAGERS: Good evening, Susie.
GHARIB: Let`s first get your take on the market action today. With escalating tensions in the Middle East, high oil prices and worried investors, what gives you confidence that stocks can still end the year on the up side?
DOLL: Well, as you pointed out a few minutes ago, we`re very close to the break-even level for the year, which means we need just to trade modestly higher to get there. I think we`re probably going a little lower first, however. As you pointed out, turmoil in the Middle East, high oil prices not good news for equity holders. And then there are those second quarter earnings which so far are not so good. So I think we have further sell-off to go before we grab hold, hopefully, resolve some of the uncertainties and have a chance for a year-end rally.
GHARIB: Let`s look at the first five of your predictions. The economy slows, earnings weaken, bond yields invert and the markets experience a 10 percent correction and large cap stocks are the market leaders. So it looks like you`re on target for most of those predictions.
DOLL: By and large that`s the case. The tone of those predictions is slower growth, disappointing earnings, market not so good. We expected this to be a rougher year and it`s turning out, unfortunately, to be that way. We are yet to see the large caps dominate for the year. Certainly they`re doing better in this correction. When the year is said and done, we think large will have outperformed small, Susie. So, so far so good on those predictions.
GHARIB: Let`s look at the next batch of your predictions. The dollar falls, overseas markets do better than the U.S. and a boom year for mergers and stock buybacks and commodity prices rise. We sure know we`ve seen oil and gold go up. Do you see these trends continuing for the second half?
DOLL: We certainly do. Commodities have had a roller coaster ride but since the first of the year point to point, they`re up pretty nicely in most all cases, I guess natural gas a pretty significant exception. But look at the price of oil. Despite commodities in general coming down a lot in the correction, new high to new high pointing out geo-political problems as well as plain old good fundamentals, supply and demand. As long as the demand for the commodity is strong and supply is questionable, the price will go higher. We`ll need some pause in the price of oil rise in order for stocks to do better if we see $100 oil, as one of your earlier commentators said. I doubt we have an up year for stocks. So we need that part of the world to calm down somewhat.
GHARIB: Let`s talk about your last prediction, number 10, where you say that the Republicans retain control of Congress. What is your view of the midterm election?
DOLL: Well, obviously that prediction at the beginning of the year was a little easier to make than now or so it seems. Our view is while the Republicans are struggling without question, the Democrats don`t come up with a whole lot of good answers, either. So our view is come election day, the Republicans will, if you will, stumble across the finish line. They`ll lose some of the lead, but probably retain both houses, although it`s getting a lot closer. And all that`s important for the markets as it relates to tax policy and the like, Susie.
GHARIB: So it seems like most of your predictions are on track and that this is going to be a year where investors are going to have to struggle in difficult markets. Do you have any advice for investors -- long-term investors of what they should be doing in this environment?
DOLL: Yeah. It`s -- as was the case last year, Susie, the market gains overall weren`t great. Let`s hope we have market gains this year and a better second half than we`ve seen the last few weeks. But investors need to pay attention to what the earnings profile and the valuation as the companies they own. Good old-fashioned fundamental research. To be patient, to be willing to buy on dips, if you accept our thesis that we`re not going into a global recession. We don`t think there are a lot of excesses. We still have job growth. We still have wage rate gains, albeit a slower pace. And, yes, housing among other things is slowing, but our view is the U.S. consumer, more importantly, the U.S. corporate sector with incredible free cash flow is likely to put a floor under this market not far from where we are.
GHARIB: All right. We`re going to have to leave it there. We`ll have to catch up with you at the end of the year. Thank you so much, Bob. DOLL: Thanks, Susie.
GHARIB: We`ve been speaking with Robert Doll, president and chief investment officer of Merrill Lynch Investment Managers.
What's At Stake In The GM , Nissan, Renault Alliance
PAUL KANGAS: All eyes will be on Detroit tomorrow when the chief executives of General Motors, Nissan and Renault sit down for the first time to discuss a potential alliance. A partnership between the three companies would be a landmark achievement. But as Diane Eastabrook reports, many doubt that such a deal can be made.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: During an appearance in Washington today, General Motors Chairman and CEO Rick Wagoner was open to a GM-Renault-Nissan alliance.
RICHARD WAGONER, CHAIRMAN & CEO, GENERAL MOTORS: Both parties need to sit down and figure out what are the key elements and does that create value, appropriate value for the other side.
EASTABROOK: Analysts say, in theory, a linkage could provide cost savings for American GM, Japanese Nissan and French Renault. The three could save money by cooperating on research and development, purchasing supplies, and consolidating back office functions. But experts say in practice, the benefits are questionable.
JOHN NOVAK, AUTO ANALYST, MORNINGSTAR: When you start to look at the numbers and the practical realities of achieving those synergies, it will be much more difficult, and the upside may not be as great as it initially seems.
CARLOS GHOSN, CEO, NISSAN & RENAULT: If you get it right for the U.S., you are sure to get it right for many other countries.
EASTABROOK: Carlos Ghosn, the charismatic CEO of both Nissan and Renault, could help reverse the fortunes at GM the way he did at Nissan and is trying to do at Renault. That is why Kirk Kerkorian, the billionaire investor who owns nearly 10 percent of GM`s stock, proposed the three-way alliance. Ghosn dramatically cut costs at Nissan and rolled out exciting products. While GM has made progress cutting costs by closing plants and eliminating jobs, it is still struggling to build vehicles Americans want to buy. Analysts say Ghosn could help GM develop those new products, but they also think he could hinder its restructuring.
NOVAK: Bringing in a new personality into the mix, especially someone from outside the United States who currently operates nonunion plants in the U.S., definitely poses some risks. JAMES SCHRAGER, MANAGEMENT PROFESSOR, UNIVERSITY OF CHICAGO: Doing something wrong is better than doing nothing. Do something.
EASTABROOK: Management Professor James Schrager admits an alliance may not work, but he credits Kerkorian with trying to shake up the management and the culture at GM.
SCHRAGER: Kirk Kerkorian is in there for several reasons, none of which is to be a master auto strategist, which he is not. But he is there to show his bet on GM is right. He`s there to get the stock price in a different range and he`s there to get something changed. And on some of those bases, he`s doing the right thing.
EASTABROOK: Wagoner says an alliance with Renault and Nissan would have to benefit both General Motors and its shareholders, and experts say it will take at least a few months for GM to make that assessment. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"Bill of Health"-Going Global For Healthcare
SUSIE GHARIB: American companies have long outsourced their high-cost U.S. operations to low-cost foreign countries. Now, some American consumers are doing the same for their major medical care. As Jeff Yastine reports in tonight`s "bill of health", the growing medical tourism industry could spell big changes for U.S. insurers and healthcare providers.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For years, Americans have traveled to the Caribbean and other luxury destinations for cosmetic surgery. But now they`re traveling as far as India and the Philippines for major operations like heart surgery, dental implants, and knee and hip replacements. The cost is usually half or even less of what a U.S. healthcare provider would charge. Madeline del Sol, a Miami-based realtor, never thought of traveling overseas for medical treatment. Then her U.S. dentist told her she need $17,000 worth of dental work to fix long-standing problems, but she didn`t have dental insurance. So with the guidance of a friend, she wound up seeing a dentist in Bogota, Colombia instead.
MADELINE DEL SOL, MEDICAL TOURIST: Over there, basically what they did is they changed 13 fillings into white. They did two root canals, three crowns, and a bone implant. All of that ended up being about $1,600.
YASTINE: $1,600?
DEL SOL: $1,600, two weeks worth of work. Literally I was in the dentist`s office like almost every other day.
YASTINE: The number of Americans heading overseas for medical treatment isn`t known, but India last year saw a half million foreign visitors to its best hospitals. 250,000 visited Singapore for medical treatment. Bumrungrad hospital in Thailand is internationally accredited, with U.S. and London-trained doctors. Those credentials are helping drive Thailand`s medical tourism, with the hospital treating 55,000 foreign visitors last year. Experts say results like that have countries around the globe taking notice.
MILICA BOOKMAN, ECONOMIST, SAINT JOSEPH`S UNIVERSITY: Within the governments, there`s a cooperation now between the ministries of health, the ministries of transportation and the ministries of tourism. Because medical tourism is essentially splicing medicine, which is a high-growth sector in most developing countries and in the world, and also tourism, which is one of the fastest growing industries.
YASTINE: Bookman and her husband, Dr. Richard Bookman, vice-provost for research at the University of Miami`s medical school, have studied the trend in-depth and say it could have a big impact on the U.S. healthcare scene, potentially robbing U.S. hospitals of the high-margin, high-profit surgeries they depend on.
DR. RICHARD BOOKMAN, VICE PROVOST FOR RESEARCH, UM SCHOOL OF MEDICINE: Sometimes, the profits from an elective surgical procedure are the thing that makes it possible for that community physician to actually make a reasonable living and spend 10 hours a day in the community clinic. So the core of the strategy from the third-world country`s perspective, absolutely brilliant, go for the high-margin procedures. The impact of that on the U.S. healthcare market is one that U.S. policymakers need to be particularly mindful of.
YASTINE: Bookman says even U.S. health insurers could eventually encourage patients to head overseas for cheaper care. He says Britain`s National Health Service has already started doing just that. Jeff Yastine, NIGHTLY BUSINESS REPORT for "Bill of Health."
Commentary: The Have's & The Have Nots
SUSIE GHARIB: In tonight`s commentary, the growing disparity between rich and poor. Here`s Myron Kandel, president of the New Hampshire Initiative for Corporate Responsibility and Investor Protection.
MYRON KANDEL, PRESIDENT, NEW HAMPSHIRE INITIATIVE FOR CORPORATE RESPONSIBILITY: I`m a big believer in the free enterprise system, so I take a bit of pleasure when people get very rich from brains, talent, hard work or even just plain luck, as long as they did it honestly. I`m not one of those who believe that some other person`s good fortune diminishes my own chances. There`s plenty out there for everyone. Or is there?
I`m dismayed at the growing gap between the haves and the have-nots. All kinds of figures demonstrate this trend. The incomes of most working Americans are barely keeping ahead of inflation and in many cases are falling behind. And while the net worth of the richest Americans keeps rising sharply, the net worth of those at the bottom are actually falling. This is happening while the economy has been growing briskly.
So much for the concept that a rising tide lifts all boats. They do get lifted, but the yachts in the middle of the harbor rise a lot more than the rowboats stuck in the sand flats. I am disturbed by two other events that happened in the last couple of weeks. One was the turndown of an effort to raise the minimum wage for the first time in nearly a decade. The other was a study of CEO compensation from the Business Roundtable, which represents the fattest cats of corporate America. It contends -- big surprise -- they don`t get paid as exorbitantly as many of us believe. But wouldn`t it be nice if, instead, those giant corporations tried to help the folks at the bottom achieve a decent standard of living? I`m Myron Kandel.
Paul Kangas' Stocks In The News
PAUL KANGAS: Wall Street opened sharply lower, extending yesterday`s steep losses as oil surged to a record high amid growing turmoil in the Middle East. Hardly helping was a Merrill Lynch downgrade of Wal-Mart and CIBC rating cut on Disney. At the outset of trading, the Dow fell almost 100 points. NASDAQ lost 30. After a feeble midday rally failed, stocks were beaten down further and ended near the day near their worst levels. The Dow Industrial Average closed off 166.89 points at 10,846.29. The NASDAQ Composite tumbled 36.13 to 2,054.11, while the Standard & Poor`s 500 Index lost 16.31 ending at 1,242.29. Over in the bond market, the 10-year note rose 9/32 to par and 14/32, putting the yield down to 5.07 percent.
Most active New York exchange issue on 61.4 million shares, Lucent Tech (LU) down $0.06.
Followed by EMC Corp (EMC) with an $0.11 drop.
Then Wal-Mart Stores (WMT) losing almost $1, traded as low as $43.71 this morning after Merrill Lynch downgraded it from "buy" to "neutral" citing weaker sales trends at Wal-Mart which threatened the company`s long- term top line growth prospects.
General Electric (GE) down $0.39.
AT&T (T) dropped $0.60, fifth in big board volume.
Ford Motor Co (F) losing $0.32. Ford is cutting its quarterly dividend in half, from $0.10 to $0.05 a share and it`s reducing the amount directors are paid to serve on the board.
ExxonMobil (XOM) moving up a dime after those record high oil prices.
Time Warner (TWX) down $0.34.
Pfizer (PFE) dropped $0.31.
And Disney (DIS), another Dow stock on the downside, off $1.21. The CIBC World Markets brokerage downgraded Disney from "sector perform" to "under perform" on a valuation basis, thinks the stock`s a bit high.
Pepsico (PEP) moved up $0.97 against the general trend. Second quarter earnings came in at $0.80, up from $0.70 last year and $0.03 better than the Street estimate. Revenues during the period were up 12 percent.
As you might expect, the airlines plunged today. US Airways (LCC) down $4.03 on that record high oil price of almost $77 per barrel.
Let`s have a look at some other major carriers in the sector. AMR (AMR) losing $2.24.
A $2.32 loss in Continental Air (CAL).
And UAL (UAUA) off $2.15 a share.
Warner Music Group (WMG) down $5.23. The company`s reviewing a European court decision would annulled the merger between Sony and BMG and how that decision might impact Warner`s potential combination with EMI Group.
Jones Apparel (JNY), the big wholesaler, downgraded by Merrill Lynch today from "neutral" to "sell."
Media General (MEG) was off $2.85. Second quarter earnings plunged 47 percent from last year, $0.85 versus $1.61.
And Marriott Intl (MAR) fell $1.32, 22 a share I should say. Second quarter earnings, $0.42 excluding one-time items, $0.02 above the Street estimate, but the company`s third quarter revenue forecast was at the lower end of Wall Street estimates.
Google (GOOG) topped NASDAQ`s most active list with a loss of $8.42.
Apple Computer (AAPL) down $0.71.
Microsoft (MSFT) $0.38 loss.
Intel (INTC) down $0.16. Incidentally, Intel is laying off 1,000 managers on a world-wide basis.
Dell (DELL) was down $0.68. The company`s cutting back on its rebates in order to simplify pricing.
Cisco Systems (CSCO) $0.24 loss.
Oracle (ORCL) down $0.12, a little weakness there. Its rival in Europe for software, SAP forecast lower than expected second quarter revenues.
Sandisk (SNDK) dropping $2.63. The company`s in a pact with Toshiba to build a new chip factory that`s going to cost about $3 billion.
Broadcom (BRCM) was up $0.45, bucking the overall trend.
And Yahoo! (YHOO) down $1.15, tenth in NASDAQ volume.
Cree Inc (CREE) plunging 21 percent with that loss of $4.86. The company cut its fourth quarter earnings guidance on lower than expected sales of its LED products.
And then a major loser, Sento (SNTO), an information technology firm, dropping 53 percent and then some. The company sees a first quarter loss of $0.36 to $0.38 versus its previous estimate of a profit (ph).
And those are the stocks in the news tonight.
