NBR Complete Transcript: 06-09-2006
Friday, June 09, 2006Wall Street's Week Of Rallies & Worries
LINDA O'BRYON: It was a week that most investors would rather forget. Stocks ended a losing week with more losses on renewed concerns about inflation. The Dow fell 46 points today and more than 350 points this week. The NASDAQ posted its sixth straight loss, down 10 points to a seven-month low. Scott Gurvey reviews the volatile week on Wall Street and elsewhere.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Inflation, inflation, inflation. The market`s favorite bogeyman gets the blame for the worst week we`ve seen in nearly a year. The Dow fell 3.2 percent, the NASDAQ 3.8 percent, the S&P 500 2.8 percent, the Russell 2000 4.9 percent. And the losses were not limited to America. Morgan Stanley`s Europe, AustralAsia, Far East index fell 5.7 percent this week, its biggest drop in four years, while the emerging markets index lost 7.9 percent. All of this the result of investors` fear around the world as central banks will continue to raise interest rates to combat inflation.
BARRY HYMAN, EQUITY MARKET STRATEGIST, EKN FINANCIAL: Inflation is the worst possible thing that can happen to an economy. Trends back in the 1970s, early `80s will tell you that it`s hard to attract capital to equity markets or any other investment other than cash or bonds when interest rates are going higher because the yield is a great alternative.
GURVEY: This week the European central bank raised its benchmark interest rate a quarter of a point to 2.75 percent. Also this week Federal Reserve officials signaled the markets to expect another hike in interest rates when the Fed meets on June 28 and 29th. The Fed funds rate now stands at 5 percent. All the talk from the Fed, some say, has the effect of increasing volatility because it raises investor fears. They note that while stocks sold off sharply this week, the bond market was relatively stable and the price of gold, usually seen as an inflation hedge, actually fell.
JACK CAFFREY, EQUITY STRATEGIST, JP MORGAN SECURITIES: If people were worried about inflation, you`d be seeing more weakness in fixed income. You`d be seeing more strength in gold. This strikes us as concerns about the fear the Fed overdoes the interest rate story and chokes off economic growth, as a result reduces profitability. So this is more of a growth scare rather than an inflation scare.
GURVEY: Both scared investors and the Fed will get some new data on inflation next week when reports are expected on both consumer and producer prices. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Rising Oil Prices Are Greasing The Trade Gap
LINDA O`BRYON: The U.S. trade gap widened in April, after two months of declines, thanks to higher oil prices and growing imports from China. Still, the increase was less than most analysts expected. And as Stephanie Dhue reports, there are some positive trends in the numbers for American manufacturers.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The gap between what the U.S. sells overseas and buys from other countries rose to over $63 billion in April, a 2.5 percent increase from March, but still lower than the $65 billion deficit analysts predicted. The tab for foreign oil accounted for almost all of the increase in that gap. Crude oil topped $75 a barrel in April. While that widened the trade gap, it actually may help domestic manufacturers take back market share from importers.
CHARLES MCMILLION, PRESIDENT AND CHIEF ECONOMIST, MBG INFORMATION SERVICES: Some producers of goods, at least, may be beginning to reconsider their global sourcing models. Those models were developed during a time of very cheap oil and cheap transportation.
DHUE: Imports of Chinese furniture, toys and electronics helped grow the politically sensitive trade deficit with China. But there are some signs the trade gap in manufactured goods, which make up two-thirds of the trade deficit is stabilizing. The U.S. trade gap with the European Union narrowed more than 7.2 percent to $9.4 billion.
FRANK VARGO, VP INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS: If we are reading the trends correctly, and the manufacturing balance is turning, that would be good news for the third quarter or the fourth quarter of this year.
DHUE: The dollar rallied this morning on news of the better-than- expected trade numbers. But analysts say the currency markets aren`t discounting the risk of the trade deficit.
ALEX BEUZELIN, SENIOR MARKET ANALYST, RUESCH INTERNATIONAL: This is still seen as one of the key risks facing the U.S. dollar over the medium and longer term, but I think that the trade deficit is not seen as quite the risk for the dollar here in the short term, given the markets` renewed focus on the Federal Reserve.
DHUE: A softer dollar would help lower the trade deficit and analysts expect the dollar to weaken once the Federal Reserve takes a pause raising rates. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The Business & Fun of Summer Camps
LINDA O`BRYON: It`s that time of year again. The school year is coming to a close and one of the country`s biggest seasonal industries is about to start up. We`re talking about summer camps. They`re a big business, with all kinds of specialty camps now available for kids. As Jeff Yastine reports, some of them even reflect the sounds of the season.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: How do you become a play-by-play announcer in the NBA? Practice, practice, practice. Welcome to play-by-play sports broadcasting camp, where the dreams of many a girl or boy to be behind the microphone or in front of the camera become reality for a week. For that, their parents pay $400 and up.
Jeremy Treatman and Steve Goldstein started the camp five years ago in Philadelphia. It now tours seven other cities on a summer schedule that lasts through mid-August.
JEREMY TREATMAN, FOUNDER AND CO-OWNER, PLAYBYPLAYCAMPS.COM: I had this idea to do a sports broadcasting camp, because I`ve been a sportscaster for most of life, an aspiring sportscaster, and I just knew that there were a lot of kids in that 10 to 15, 15 to 18 range that were probably a lot like me, always dreamed about being a sportscaster. And one year I decided, you know, I`m going to give this thing a shot and try to run this camp for kids.
STEVE GOLDSTEIN, CO-OWNER, PLAYBYPLAYCAMPS.COM: A lot of the parents are sending their kids to specialty camps, and that`s helped us tremendously because a lot of kids now are not going to these seven- or eight-week camps. They`re going to a one-week basketball camp, a one-week lacrosse camp and now a one- week sports broadcasting camp.
YASTINE: Summer camps are a big business. Each season, parents spend hundreds and sometimes thousands of dollars to send their kids away. It could be a day camp, where the kids return back to their parents` home at night or a sleep-away camp. But either way, summer camps are a growth industry. Researchers say it`s a $20-billion-a-year business. The 9/11 attacks caused camp enrollments to decline for two years, but they have since rebounded, growing by 1 to 3 percent annually. Of course, it`s the business of sports broadcasting, not summer camps, that matters to these kids.
GAVIN GOOD, BOCA RATON, FL: Sometimes my dad will ask me why I listen to those post-game and pre-game interviews and waste my time, but I`m just interested in it. It just seems like a fun thing to do.
LEE PARIS, BOCA RATON, FL: There`s advisors for us to help us and just techniques, really, like how to call the game-winning shot. Do you be this emotional? Are you just relaxed? It`s just your style really.
YASTINE: Finding that broadcasting style is a lot of work and a lot of fun. Jeff Yastine, NIGHTLY BUSINESS REPORT, Boca Raton.
"Market Monitor"-Chris Orndorff, Head of Equity Strategy for Payden & Rygel
PAUL KANGAS: My guest market monitor this week is Chris Orndorff, head of equity strategy for Payden & Rygel, a firm which manages over $50 billion. And Chris, welcome back to NIGHTLY BUSINESS REPORT.
CHRIS ORNDORFF, HEAD OF EQUITY STRATEGY, PAYDEN & RYGEL: Thanks Paul, glad to be here.
KANGAS: What in the world -- and I mean that literally -- has caused the recent tumble, not only on Wall Street, but in the global markets as well?
ORNDORFF: I think really it can all be simplified down to the market volatility being a reaction to Bernanke, Fed Chairman Bernanke and the market just sort of getting used to each other.
KANGAS: They`re not friends yet but apparently...
ORNDORFF: No, they`re not friends, but then Bernanke didn`t have the benefit of being a commentator on NIGHTLY BUSINESS REPORT like Greenspan did.
KANGAS: That`s true. That`s a good point you make. But you think he`s going to do all right in the longer run?
ORNDORFF: I think he`ll do just fine. The key to inflation is unit labor costs. And if unit labor costs go above the rate of inflation, then you get both profit margin squeezes as well as higher interest rates. Neither one of those things are happening because unit labor costs are behaving themselves. I think the Fed has done its job.
KANGAS: Have such steep losses in the world`s market, especially on Wall Street, have they been overdone?
ORNDORFF: I think they`ve been completely overdone. The market`s pessimism is unwarranted in my opinion. Corporate earnings are still good. I think you`re going to see positive surprises and maybe even positive guidance in the second quarter in July when the earnings come out and I think it`s a good opportunity to buy some bargains. KANGAS: Well, going back to Mr. Bernanke, do you think the Fed is overplaying the threat of inflation? Last time you were with us in November, you said complacency about inflation was the danger. Do you think they`re overdoing it?
ORNDORFF: Yeah. I think the complacency now is gone.
KANGAS: It`s turned the other way?
ORNDORFF: That`s right. I really think that the fears are unfounded. I think the Fed`s going to do its job.
KANGAS: One more rise, a quarter point?
ORNDORFF: One more rise and I think we`ll be finished.
KANGAS: On that last visit with us in November, you boldly predicted that oil would be at $70 plus per barrel which was right on the money as it turned out. Where it`s going from here?
ORNDORFF: I think $70 is going to be the peak. I think the next time we meet it will probably be in the low $60s for probably the next year. It`s going to tail off from here.
KANGAS: That`s heartening to hear. Well, last November you had two buy recommendations. Let`s see what they`ve done since then. We see Coach down 17 percent. It got into the early 30s and then back down where it is today. Are you still with it?
ORNDORFF: We still like it. It`s not your typical consumer stock and people are nervous about consumer stocks.
KANGAS: This is the leather goods manufacturer.
ORNDORFF: That`s right, some of them rightfully so, but Coach is an excellent maker of handbags, briefcases and accessories. They have a very strong presence in Japan where the consumer`s at a different stage of the cycle and sales and earnings growth are still rising 20 percent plus.
KANGAS: And you would still buy it at this level?
ORNDORFF: I think it`s a good buying opportunity.
KANGAS: United Tech has done all right, up over 12 percent. Still with that? ORNDORFF: No, I think a lot of the things that we talked about in the last program are already priced into the stock and so I`d probably take my profits.
KANGAS: That`s going to hurt the Dow a little. How about some new recommendations?
ORNDORFF: Sure, I think the first one is a company called American Movil. It`s the largest mobile telecom provider in Latin America (AMX).
KANGAS: It`s had quite a rise as we look at that chart.
ORNDORFF: That`s right. Over half their revenue comes from Mexico where they have a 70 percent market share. They also have a very strong presence in both Brazil and Colombia. What I like about it is high cash flow generation, a solid balance sheet and a cheap valuation make it a good buying opportunity.
KANGAS: All right. I see it has backed down in recent weeks along with the market.
ORNDORFF: Exactly.
KANGAS: How about a second recommendation?
ORNDORFF: Sure, the next would be a company called Ecolab (ECL) which doesn`t do anything exciting except make money. They`re a specialty chemical company focusing on the cleaning and sanitizing markets. They have a solid 15 percent earnings growth. They`re a leader in their field.
KANGAS: You liked that before on a previous program.
ORNDORFF: I have. I`m sort of returning to that stock and I think it`ll do very well. The circle to customer strategy that they have is really paying off.
KANGAS: We have time for one more recommendation.
ORNDORFF: Sure. The last one would be Burlington Northern (BNI), again another stock that I`m returning to from an earlier program and this is more of a logistics company than a railroad, but shipments in both coal and grain have been doing very well. People are excited about ethanol. Ethanol is made from grape and grain gets shipped by rail.
KANGAS: It`s done very well in recent months and a little downturn recently, so perhaps a good buying opportunity? Is that what you`re telling us? ORNDORFF: I think it is. They have great operating ratio improvement, good volume increases, sales and earnings growth have been exceeding expectations. I think it`s a great opportunity to buy.
KANGAS: So it`s a little different this time than it was in November. You`re much more bullish than you were then.
ORNDORFF: I think so. The think the market has really given us a good opportunity. Earnings growth is good and I think the Fed is near the end.
KANGAS: Do you personally own any of these securities that you`ve been talking about?
ORNDORFF: I sure do. I owe them myself and we owe them in our paid and U.S. growth leaders fund.
KANGAS: OK, fair enough. I want to thank you for joining us once again, Chris.
ORNDORFF: Always a pleasure, Paul.
KANGAS: My guest, Chris Orndorff, head of equity strategy at Payden & Rygel.
Last Word: PDA Detox
LINDA O`BRYON: Finally tonight, if you`re among the ranks of Americans who is addicted to their Blackberry PDAs, help could be on the way. A Chicago hotel manager is offering a kind of PDA detox by locking up the devices. The manager of the Sheraton Chicago admits he was obsessed by his Blackberry, often called a crack-berry by those who can`t live without it. He finally went cold turkey and switched to a regular cell phone. He says hotel guests who want to do the same thing can surrender their PDAs to him and he`ll lock them in his office. He will, of course, return them when asked, with no charge for the special service Paul.
KANGAS: I wonder if there`s a camp for recovering PDA users?
O`BRYON: Another camp, could be.
Paul Kangas' Stocks In The News
KANGAS: Wall Street opened with modest gains after most foreign markets rebounded. The tech sector led the early upturn after Texas Instruments boosted its earnings outlook. The Dow rose 30 points early on, while the NASDAQ gained 15 points. Against a backdrop of rising oil prices and pre-weekend investor caution, stocks spent the rest of the day in a downward spiral and the major indices all ended lower across the board. The Dow Industrial Average closed off 46.90 at 10,891.92. This week it rose only one time and lost 355.95 points overall. The NASDAQ Composite was off 10.26 today, ending at 2135.06. It dropped every day of this week and lost 84 1/3 points overall. The Standard & Poor`s 500 was down 5.63, closing at 1252.30 today. Over in the bond market, the 10-year note gained 5/32 to 101 4/32, putting the yield down to 4.98 percent.
Most active big board issue on 17 million shares was Texas Instruments (TXN) losing $1.04. This morning it traded as high as $31.49 after the company boosted its second quarter earnings and revenue outlook as I mentioned earlier.
GE (GE) down a half a dollar.
Pfizer (PFE) lost $0.33.
Qwest Communications (Q) a $0.09 drop.
And then Corning (GLW) moving up $0.53. The Needham brokerage upgraded Corning from "buy" to a "strong buy."
ExxonMobil (XOM) fell $0.77.
Lucent Tech (LU) edging up $0.02.
Walt Disney (DIS) a $0.54 loss.
Motorola (MOT) dropped $0.23. And then Comp Vale Rio Doce (RIO) was up $0.40. This is a Brazilian mining company and Mark Mobius of the Templeton funds made some positive comments about it.
Coca-Cola (K) which is a Dow stock, up $0.16. Bear Stearns upgraded it from "peer perform" to "out perform" with a $48 a share target price for the stock.
Then we see National Semiconductor (NSM) edging up $0.58. JMP Securities upgraded it from "market perform" to "out perform" after the company reported fourth quarter earnings of $0.34 on a 23 percent rise in revenues. Merrill Lynch upgraded it from "neutral" to a "buy."
Royal Group Tech (RYG) up $3.28. Georgia Gulf, the chemical firm, will acquire Royal Group for $1.7 billion Canadian dollars. That works out to about $13 a share in Canadian money.
And Georgia Gulf (GGC) itself tumbled $4.26 on the news of that rather large acquisition.
Volt Info Sciences (VOL) up another $3.34. It gained just over $3 yesterday on strong second quarter earnings of $0.59, $0.23 better than the Street was expecting.
Then, Overseas Ship Holding Group (OSG) up $2.65. This company will buy back up to $300 million of its own stock.
Then we see Quiksilver (ZQK) which is a sportswear marketer. Second quarter earnings only $0.03, down from $0.28 last year, but that was in line with Street expectations and the company`s predicting 2006 earnings will be $0.87 to $0.88 a share. That`s about $0.12 better than the consensus on Wall Street.
Koppers Holdings (KOP) which makes treated wood products, was upgraded by Jeffries brokerage from "hold" to a "buy" and Jeffries boosted its 2006 earnings estimate from about $1.03 up to $1.20 a share.
Bristow Group (BRS), which provides helicopter services for the oil services industry, up $2.48. Fourth quarter earnings $0.75, way up from $0.56 last year. Revenues rose 18 percent.
And then Phillips-van Heusen (PVH) buttoning up a $1.12 gain after Prudential upgraded it from "neutral" to "over weight."
Volume leader on NASDAQ, Google (GOOG) down $6.73. Followed by Apple Computer (AAPL) off $1.52.
Intel (INTC) was up a nickel. Intel is moving up the planned shipment date of a computer chip that will compete against one of rival Advanced Micro Devices. Officials say the Tulsa chip will come out on the third quarter, rather than the fourth as originally planned.
Microsoft (MSFT) down $0.19.
Cisco Systems (CSCO) an $0.08 gain, fifth in volume.
Qualcomm (QCOM) down $1.01.
$0.65 drop in Broadcom (BRCM).
Sandisk (SNDK) off $0.68.
Hansen Natural (HANS) up $4.76. McDonald`s is testing some of its drinks.
And then Ebay (EBAY) down $0.64.
Major loser, Pozen Inc (POZN) tumbling $8.59. The FDA is asking the company for more safety information on its migraine drug called Traxima. It has to do that before any chance of an approval.
Those are the stocks in the news tonight.
