NBR Complete Transcripts: 09-13-2006
Wednesday, September 13, 2006The Oil Price Slide Stops & Stocks Soar
SUSIE GHARIB: Stocks on Wall Street continued their climb higher today, even as oil prices halted their slide. In New York trading, October crude futures rose for the first time this month, up $0.21 to $63.97 a barrel. Still, oil prices have tumbled about 9 percent inSeptember and as Erika Miller reports, the question many investors are now asking is whether falling oil prices change the outlook for the economy.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For motorists, falling prices at the pump are a windfall. The cost of a gallon of gasoline has dropped roughly 12 percent in the past month, thanks to lower crude prices. But for the U.S. economy, there may not be much benefit. That`s partly because at $65 a barrel, crude is still relatively expensive.
DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR`S: We`ve got to get down below, well below where we were a year ago for it to have much significant impact. I just don`t think that`s going to happen. If we get down under $50, then I`ll start getting excited and saying the economy is going to strengthen again.
MILLER: If there is a benefit, experts say it will likely be limited. Falling prices could encourage spending by low- and middle-income consumers, benefiting stores like Wal-Mart, which were hurt by rising energy prices. But for the economy as a whole, falling oil prices are not always a good thing.
KATHLEEN CAMILLI, PRESIDENT, CAMILLI ECONOMICS: If oil prices are falling because global demand is weakening and because the overall global economy is weakening, it makes me more nervous about the outlook for recession in 2007.
MILLER: For now, Camilli does not expect that to happen. She thinks the latest pullback in prices is only temporary. What`s more, she doesn`t think lower energy costs will lead to lower inflation.
CAMILLI: There are offsetting factors in that wages are now starting to rise and labor shortages are getting more severe and so that is a factor in the inflation scenario.
MILLER: Most experts agree that falling oil prices probably won`t change the outlook for interest rates. They say Federal Reserve policymakers want to see proof of widespread price declines before concluding that inflation is waning.
WYSS: The Federal Reserve has been very careful to concentrate on core inflation. They take out food and energy, precisely because they don`t want to be swung too much by just what happens to oil prices.
MILLER: There`s a big debate about where oil prices head from here. Some traders think prices will fall below $60 a barrel, but other see a return to record highs, which would surely bring back economic worries.Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Lawmakers Try To Prevent The Housing Bubble From Bursting
PAUL KANGAS: The slowdown in the housing market is causing concern on Capitol Hill. So today, the Senate Banking Committee began a series of hearings looking at whether there`s a housing bubble that`s about to burst. As Stephanie Dhue reports, lawmakers heard that the market will lose some air, but probably won`t deflate entirely.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home prices have increased 56 percent nationwide over the last five years. Now lawmakers are worried that the run-up will be followed by a sharp decline.
SEN. JIM BUNNING (R) KENTUCKY: If the market has moved because of unsustainable or artificial forces, we may be in for a rough ride.
DHUE: Rough ride or not, the housing market is slowing. Economists predict an 11 percent drop in new and existing home sales for both this year and next, and with that, a drop in home price appreciation.
TOM STEVENS, PRESIDENT, NATIONAL ASSOCIATION OF REALTORS: We will see a continued decline in house values. We certainly have not bottomed out yet.
DHUE: Decreasing home values and increasing interest rates are already squeezing some homeowners. Mortgage delinquencies and the rate of new foreclosures are both up from a year ago and some lawmakers are worried the increase in interest-only and option-adjustable-rate mortgages could put more homeowners in a bind.
SEN. PAUL SARBANES (D) MARYLAND: Are we facing the potential of a sort of a major crisis of defaults and foreclosures?
DHUE: Regulators say the answer to that question is probably not.
RICH BROWN, CHIEF ECONOMIST, FEDERAL DEPOSIT INSURANCE CORPORATION: Those loans have been largely securitized in private asset-backed securities and sold to investors around the world. I think the consensus of mortgage professionals and economists is that those risks have been spread around in a fairly efficient manner.
DHUE: And mortgage bankers say most homeowners should be able to cope. DOUG DUNCAN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION: People who have loans that are about to adjust upward see that fixed rates are roughly the same and in some cases lower than what their adjusted rate will be on an adjustable, so they refinance out of that adjustable into a lower payment fixed rate loan.
DHUE: But some observers say if homeowners do struggle, lawmakers may want to step in.
ANDY LAPERRIERE, MANAGING DIRECTOR, ISI GROUP: I think we are just at the beginning of the stage of the housing correction and we`re going to see in the future, Congress increasingly getting on the regulators asking them to protect the consumer.
DHUE: We should see how all this plays out in the next year and a half. That`s when economists predict the housing market will bottom out. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Dick Green, President of Briefing.com's Street Critique
PAUL KANGAS: When it comes to the stock market and the economy, tonight`s "Street Critique" guest says pessimism abounds, even though he believes both are doing just fine. He`s Dick Green, president of briefing.com, a web site known for its market analysis and commentary. Dick, welcome to NIGHTLY BUSINESS REPORT.
DICK GREEN, PRESIDENT, BRIEFING.COM: My pleasure.
KANGAS: As a market strategist, what is your outlook for the market right now?
GREEN: We`ve turned bullish for the first time since early this year. We think the pessimism, particularly with regards towards the economic outlook as overdone in the market and that there`s some excellent buying opportunities.
KANGAS: What makes you so bullish?
GREEN: Well, originally or for most of this year, we have been concerned that the Fed would go too far in raising rates and we think that the market is still a little bit concerned about that. It appears the Bernanke Fed is showing great patience here and we don`t think that will happen.
KANGAS: So interest rates have topped out in your opinion?
GREEN: Fed might raise rates one more time, but even if they do, the interest rate outlook is good. It`s not going to be so bad as to cause asignificant economic slowdown.
KANGAS: You`re not worried about inflation?
GREEN: Inflation`s probably going to up tick a bit in the months ahead and the Fed may have to address that, but no, we`re seeing now the soft landing that the Fed desires, the economic slowdown is having the desired effect on inflation and the inflation outlook will improve.
KANGAS: Well, in this bullish environment in your opinion, what sectors do you favor?
GREEN: We like the financials. We like industrial stocks at this point. We also like selections in the health care industry.
KANGAS: Let`s get specific, Dick.
GREEN: Well, Home Depot is a stock we really like. It`s a good example of where the excessive pessimism is overdone. The company`s been putting up great numbers. The metrics throughout the business are excellent. They have not been rewarded in the stock market for that and we think there`s a lot of upside potential on a stock where the risk/reward ratio is very good.
KANGAS: It looks like the chart is telling us it`s bottoming out. Would you agree?
GREEN: We think so. We think it will definitely be higher six months from now.
KANGAS: OK, let`s go for a second choice.
GREEN: Bank of America is a stock we like in the financial industry. It`s well diversified, very well managed and again, a case where the excessive pessimism, for example towards their mortgage portfolio, is we fell, overdone. It`s a high-quality company.
KANGAS: OK. Let`s go for number three.
GREEN: General Electric is another stock we like. It`s not a very exciting stock, but again the risk/reward ratio here is very good. We think that it has not been rewarded for the growth it`s shown and there are concerns about the global economic outlook there that we think are overdone.
KANGAS: OK. Some big cap names there. One more, we`ve got time for one more. GREEN: Well, for one with a little more pizzazz, well draw up the name Immucor (BLUD). It`s an excellent company. They make blood, medical blood devices and sell products for that and we think it has a lot of upside over the next year.
KANGAS: Dick, do you own these stocks personally?
GREEN: I own three or four. I do not own Bank of America.
KANGAS: All right, very good indeed and thanks very much for being with us, some interesting choices there. My guest, Dick Green, president of briefing.com.
"The Green Option"-Part 2
SUSIE GHARIB: 30 years ago, ethanol was called "gasohol." But today the corn-based fuel is being called the fuel of the future. There are more than 80 ethanol producers in the United States and a growing number of those firms are going public. In part two of our series, "The Green Option", Midwest bureau chief Diane Eastabrook looks at some of the companies hoping to cash in on the ethanol craze.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Champaign, Illinois, trucks rumble into this grain elevator and unload 18 million bushels of corn a year. This eastern Illinois elevator is one of 14 the Andersons Agriservices owns. But this Ohio-based company thinks there might be another way to make money here. Andersons might build an ethanol plant next to its grain elevator.
LARRY WOOD, GEN. MGR., THE ANDERSONS AGRISERVICES: We`ve got a good supply of water, natural gas, electricity for probably the most important component is that there is plenty of corn grown in this area of the country.
EASTABROOK: Companies like the Andersons are behind the manic metamorphosis taking place in the ethanol industry. Thanks to a government mandate to increase ethanol use, production of the corn-based fuel is booming. As a result, corporations are replacing farmer-owned cooperatives as the big makers of ethanol. The industry`s big names include Archer Daniels Midland and Cargill. The smaller, but no less aggressive names include the Andersons, Aventine Renewable Energy, Pacific Ethanol, and Verasun. Agricultural leader ADM produces a quarter of the nation`s ethanol. Its seven plants manufacture, distribute and market a billion gallons of ethanol annually. Still, ethanol comprises only about 5 percent of ADM`s business, so the company says there is room for growth.
GREGORY WEBB, VP OF PUBLIC AFFAIRS, ARCHER DANIELS MIDLAND: We have made two recent announcements that will expand our production by 550million gallons by 2008, so we expect to be in that 1.6 to 1.7 billion gallon range by that time period.
EASTABROOK: Aventine Renewable Energy in Pekin, Illinois, went public in July. It is also jockeying for a leading role in the industry. The pure play firm manufactures, distributes and markets ethanol. The company makes 150 million gallons of the fuel a year at two plants. An expansion now underway will boost output an additional 40 percent. Aventine President and CEO Ronald Miller admits his company may never rival ADM as the industry leader, but it could come close.
RONALD MILLER, PRESIDENT & CEO, AVENTINE RENEWABLE ENERGY: We certainly committed ourselves to being the number two player in the industry and growing the scale that we need to grow to be a 10 percent producer, a 20 percent marketer in an ever-growing market.
EASTABROOK: While demand for ethanol is expected to grow, the industry faces uncertainty. Experts say manufacturers must still overcome distribution and infrastructure kinks. Ethanol prices also tend to rise and fall with oil prices, which in turn can impact demand. As a result, the stocks of pure play ethanol companies like Aventine can be more volatile than more diversified companies like ADM. Finally, some industry watchers fear the ethanol industry is growing dangerously fast and could be a bubble waiting to burst.
PHILIP FLYNN, ENERGY ANALYST, ALARON TRADING: You might get into a situation where you are going to have too many players in the business. You`re going to have a washout, like you typically do, and then you`ll come back with a few strong players and that is typically what happens.
EASTABROOK: Flynn says if ethanol does turn out to be an investment bubble, it could take up to a decade for the bubble to burst. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
KANGAS: As our series continues tomorrow, what do you feed these guys when their usual meal, corn, is used for ethanol?
"Money File"-Money Mistakes In Troubled Times
SUSIE GHARIB: Dealing with a family crisis is never easy, especially when there are financial issues to consider. From the money file tonight, some suggestions on how to make it easier for you and your family to handle those issues. Here`s Eric Schurenberg, managing editor of "Money" magazine.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: A couple featured in a recent "Money" magazine article described how they responded to the tragic accidental death of their son. They bought themselves a new car, remodeled their kitchen, and took long vacations to Europe and the Amazon. "It was our therapy," explained the mother.
Psychologists and financial planners say this reaction is common. Faced with a death, a divorce, a job loss or other personal tragedy, it`s tempting to try to bury the pain in a frenzy of buying. The problem is, it won`t work. All it does is risk turning a personal tragedy into a financial disaster. Here`s what to do instead.
First, don`t make any major purchases after a traumatic event for six months. Once the initial shock has passed, you may find you`re not so keen to own that sports car after all. If you must make major financial decisions in the near aftermath of a tragedy, get advice. An outside perspective can save you from some expensive bad calls. Right after 9/11, for example, many people bought far more life insurance than they really needed.
Also avoid risk. Many people try to shake off the pain by chasing a hot stock or jumping to a new job. That`s a mistake. When you are shaken by tragedy, you want more financial security, not less. Finally, get involved with others. Spending time with your community, your friends and your interests will do a lot more to usher in lasting emotional recovery than throwing money around. To find peace during a difficult passage, the best rule of thumb is spend time, not money. I`m Eric Schurenberg.
"Last Word"-Warren Buffett's Wheels
SUSIE GHARIB: And finally tonight, if you can`t walk in the footsteps of billionaire Warren Buffett, now you can drive in his car. Buffett`s 2001 Lincoln Town Car is up for sale on eBay. Bidding starts at 25 grand for the car, which has a light gold exterior and beige leather seats. The deal also includes Buffett`s personalized license plate with the word "thrifty" and an etched brass plaque with his signature. The proceeds of the auction will benefit Girls, Inc. It`s a youth service group that helps thousands of girls in the U.S. and Canada. And Paul, there`s one additional sweetener in this auction. When the winning bidder arrives at the Omaha airport to get the car, Buffett will personally pick up him or her and he`ll be wearing a chauffeur`s cap.
KANGAS: Well, if his driving record is as good as his investment history, those passengers are in good shape, that`s for sure.
GHARIB: That would be nice if they got some investment advice along the way, huh?
KANGAS: Why not?
Paul Kangas' Stocks In The News
PAUL KANGAS: Wall Street opened narrowly mixed today, but a rebound in oil stocks improved the market`s general tone, as did better than expected earnings from Lehman Brothers. By the noon hour, the Dow posted a 33 point gain and the NASDAQ Composite was up nine points. With continuing gains in the tech stocks and the bond market, stocks improved for the rest of the day. So the Dow Industrial Average closed up 45.23 points at 11,543.32. The NASDAQ Composite was up 11.85 ending at 2,227.67. Standard & Poor`s 500 Index gained nearly five points to 1,318.07. Over in the bond market, the 10-year note rose 2/32 to par and 28/32, putting the yield at 4.76 percent.
Most active big board issue on 23.7 million shares, Ford Motor Co (F) moving up $0.13. As you heard, there`s a rumor the company will cut 6,000 more jobs than originally planned. Tomorrow, there will be the official announcement to see if that`s true or not.
Then came Nortel Networks (NT) with a penny gain.
Sprint Nextel (S) up $0.19.
Walgreen WAS) down $1.69. I saw no specific news other than a block of 7 1/2 million shares of Walgreen traded at $49.75 a share.
Boston Scientific (BSX) fell $0.56. That was fifth in big board volume.
ExxonMobil (XOM) rebounding $0.66 on the higher oil prices.
Home Depot (HD) $0.51 gain.
Motorola (MOT) down $0.33.
General Electric (GE) moved up $0.17.
Tenth in volume, EMC Corp (EMC) with a $0.26 loss. Merck & Co (MRK) fell $1.09. A new study identified kidney-related risks from using Vioxx, the painkiller the company makes and it also suggested heart risks begin soon after starting to take Vioxx, not just after long-term use as the company claims. Some bad news for the company today.
Lehman Brothers Holdings (LEH) up $2.04. Third quarter earnings came in at $1.57, $0.08 better than the Street consensus and up from $1.47 a year ago.
Federated Dept Stores (FD) up $1.13. You see Merrill Lynch repeated a "buy" and also the analysts generally are giving the company good marks on the conversion of a number of department store chains it bought into one, namely Macy`s.
Windrose Medical Properties (WRS) up $1.90. Health care real estate investment trust will acquire this company for stock, .45 shares of health care REIT and that works out to a value of about $17.50 per Windrose share as of today.
Pall Corp (PLL) which makes filters of all kinds, up $3.18. Fourth quarter earnings, $0.50, $0.04 above the Street estimate, well above the $0.34 it earned a year ago. Sales were up 14 percent. Standard & Poor`s upgraded it from "sell" to a "hold."
Global Payments (GPN) up $2.61. UBS financial brokerage upgraded it from "neutral" to "buy."
On the downside, big percentage loser, International Coal Group (ICO) dropping $0.75 or 13 1/2 percent after the company cut its 2006 revenue guidance from $1 billion down to $900 million and it sees a loss for the year of $0.07 to $0.10 a share.
And NBTY Inc (NTY), used to be called Nature`s Bounty, down $2.81. Standard & Poor`s notes that the company`s preliminary August sales are disappointing. RBC Capital downgraded it from "out perform" to "sector perform" on valuation.
Google (GOOG) topped the active list, up $14.67. The company announced a marketing pact with Intuit.
Apple Computer (AAPL) up $1.57.
Intel (INTC) $0.08 gain.
Cisco Systems (CSCO) no change there. Microsoft (MSFT) gained a nickel, fifth in dollar volume.
Oracle (ORCL) a $0.09 gain.
Sandisk (SNDK) fell $0.17.
Qualcomm (QCOM) $0.35 drop.
Sun Micro (SUNW) a $0.03 gain.
And Ebay (EBAY) down $0.45 a share.
Energy Conversion Devices (ENER) up $4.21. The company had a smaller than expected fourth quarter loss of $0.02 a share. The Street was looking for a loss of $0.14.
And RF Industries (RFIL) surged $3 on third quarter earnings of $0.11 per share versus only a nickel a year ago on a 20 percent jump in sales.
