NBR Complete Transcripts: 10-27-2006
Friday, October 27, 2006The Economy Causes A Seismic Shift On Wall Street
SUSIE GHARIB: The Dow broke its four-day winning streak on news the economy slowed to a crawl. The blue chips fell 73 points and the NASDAQ lost 28. Investors became concerned about the outlook for corporate profits after the government reported today that third quarter GDP dipped to 1.6 percent, much lower than expected. Suzanne Pratt looks at whether the slowdown will continue.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The slumping housing market was largely responsible for the slowdown in third quarter economic growth. Gross domestic product, which measures economic activity within the U.S., grew at an annual rate of 1.6 percent in the third quarter. That was down sharply from 2.6 percent in the second. Residential construction fell more than 17 percent in the quarter, the largest decline in 15 years.
JOHN RYDING, CHIEF U.S. ECONOMIST, BEAR STEARNS: That took off a little more than a percentage point from growth, about what Bernanke had advertised, actually, in a speech almost a month ago.
PRATT: The widening trade deficit also contributed to weak third quarter growth. But the consumer sector held up well, with consumer spending accelerating in the period. As a result, most economists do not believe the soft GDP data suggests a recession is coming. Many believe the tepid growth is only temporary.
RYDING: I think there are signs the housing market is beginning to stabilize and once that adjustment is behind us, I think the economy is going to pick back up to a growth rate close to 3 percent.
PRATT: For financial markets, weak third quarter growth suggests the Federal Reserve is likely to remain on the sidelines for the foreseeable future.
BRUCE KASMAN, CHIEF U.S. ECONOMIST, JP MORGAN: I think the Federal Reserve has expected this kind of a number and in fact in some sense, it's welcoming it because it does have an underlying concern about inflation. So, I think in response to this result, the Fed is simply going to stay on hold here and it'll wait to see what the economy does over the next six to nine months before it takes any action in either direction.
PRATT: An additional piece of good news in today's data was that the inflation reading in the GDP report fell in the third quarter. Economists say that's one more reason why the Fed is likely to remain on hold. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
The Cost of College Bucks The Principle of Supply & Demand
SUSIE GHARIB: If you're a parent with a child heading for college, get ready to dig deep -- really deep-- into your wallet. The cost of a college education has skyrocketed in the last five years, and that trend shows no signs of abating. As Washington bureau chief Darren Gersh reports, it's an indication of an unusual economic situation: a business that has few incentives to keep prices in check.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In freshman economics, college students learn when prices rise, demand goes down and companies are forced to become more efficient. But analyst Kevin Carey says that's not how college tuition works.
KEVIN CAREY, RESEARCHER, EDUCATION SECTOR: You really don't have the danger in the core segment of not-for-profit higher education that someone else is going to come in, be more efficient and take away your customers and so efficiency is hard and they can avoid it, so they do.
GERSH: After adjusting for inflation, the price of a public college education over the last five years rose an astounding 35 percent. Carey says the influential college rankings put out by "U.S. News & World Report" are part of the problem because they reward colleges that spend the most per student.
CAREY: If you were a university that could figure out how to cut costs by 20 percent, spend less money, be more efficient and with no reduction in quality, your ranking would go down.
GERSH: But "U.S. News & World Report" executive editor Brian Kelly disputes that, arguing the rankings measure resources that matter.
BRIAN KELLY, EXEC. EDITOR, U.S. NEWS & WORLD REPORT: We're not the problem. The rankings look at academic spending -- spending that goes towards educational programs, faculty salaries, student support services, placement services, those sort of things. We are not giving people credit for building a new gym or having two salad bars in the cafeteria.
GERSH: Kelly says college costs are rising because there's so much demand to educate the children of the baby boom generation.
KELLY: I think you are going to see in a few years, when the demographic bubble begins to diminish, that they're going to have fewer customers and you will see a lot more price competition. I think a lot of schools probably are living in a dream world right now.
GERSH: But college presidents remind critics higher education is labor intensive and cutting costs can lead to lecture halls overflowing with students.
CATHERINE BOND HILL, PRESIDENT, VASSAR COLLEGE: When I look at my 20 years in private education, I could cut the costs, but I would reduce the quality of what we're doing.
GERSH: And even after taking into account the sticker shock, a college education is still a smart buy. The Census Bureau reports, on average, a college grad earns $23,000 a year than non-grads. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
How Corruption Stunts Economic Empowerment
SUSIE GHARIB: In many countries around the world, corruption is a way of life, but until recently, agencies like the World Bank and the International Monetary Fund recognized the role corruption played in hampering countries' economic development. That was particularly true in east Asia, where countries seemed to combine corruption with rapid economic growth. As Rian Maelzer reports, you have to look no further than the Philippines to see the true cost of corruption.
RIAN MAELZER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's a serious impediment to doing business in the Philippines. A recent study found that companies bidding for government contracts here set aside more than a fifth of their budget to pay bribes. From the beginning of the Ferdinand Marcos presidency in 1965 until today, the Philippines is believed to have lost well over $200 billion to graft and corruption.
The World Bank says corruption has been a major contributor to the appalling state of the Philippines infrastructure and to leaving more than a third of Filipinos mired in poverty. In the mid 1960's, the Philippines was the richest country in Asia except Japan. But after two decades of dictatorship and another 20 years of democracy, the Philippines has slipped behind not only Asia's powerhouses. It's now poorer than neighbors such as Malaysia, Thailand, and even Indonesia. But the roots of corruption run deeper than the Marcos dictatorship.
JOACHIM VON AMSBERG, THE WORLD BANK: One has to go back to Spanish colonial times and recognize that the state in the Philippines has been built much more as an instrument of the elites to extract income than as an institution to serve the common good.
MAELZER: Still, Marcos contributed to entrenching corruption by fostering the current system in which political parties barely exist.
BENJAMIN DIOKNO, FORMER BUDGET SECRETARY: Every candidate has to take care of themselves. You can't win unless you raise a lot of money from vested interests to run a campaign. And you have to bribe the commission election officials to count in your favor.
MAELZER: Under Marcos, corruption was highly centralized and predictable. So in some ways, doing business here has become more difficult during the two decades of democracy. There were signs that might change when Gloria (INAUDIBLE) Arroyo took over as president in 2001, replacing Joseph Estrada, who is accused of plundering state funds.
GUILLERMO LUZ, MAKATI BUSINESS CLUB: They put up a battle plan. The standout agencies here would be groups like the department of education, which used to be really very corrupt in the past, but over the years, put in much tighter controls on the bidding of let's say textbooks and the delivery of textbooks to make sure they got delivered.
MAELZER: But Luz and others feel the Arroyo administration has lost the political will to keep up the fight, focusing instead on survival, with the president and her close family themselves facing allegations of corruption. The government insists it is making progress, pointing to one or two high level prosecutions, and to its so-called lifestyle checks aimed at catching public officials living suspiciously extravagant lives. The government is also pushing state agencies to do more of their procurement via the Internet to reduce opportunities for graft, small steps that the government hopes will help the country recapture some of its long-lost economic promise. Rian Maelzer, NIGHTLY BUSINESS REPORT, Manila.
"Market Monitor"-Mark Leibovit, Chief Market Strategist for Vrtrader.com
PAUL KANGAS: My guest "market monitor" this week is Mark Leibovit, chief market strategist for vrtrader.com. And welcome back to NIGHTLY BUSINESS REPORT, Mark.
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Glad to be here and we're live from NASDAQ.
KANGAS: OK, good. Question -- is today's sell-off on Wall Street telling us the stock market has gotten ahead of itself and needs a correction?
LEIBOVIT: Well, the entire advance has been very orderly, Paul and we rallied 1500 points since the summer, so I guess there's always that risk of a pullback but it's a very clear uptrend. We have higher projections so I would say yes, a couple hundred points down might be great, but if there's any dip as a buy (ph) this market's headed higher. We have projections in the Dow to 13,600 and we think we can get there by next fall. So this is a strong bull move Paul and any correction would be a buy.
KANGAS: OK, fair enough. Let's take a look at some of your annual forecast models which have been relatively accurate over recent years. Let's see how your projections are for the year faring out (ph). We'll start with your Dow prediction. It certainly indicates we were in a rally mode late this year. There it is.
LEIBOVIT: We predicted a high in May. We went short for a summer correction, and the model said up until year end. And frankly, the rally is even a lot stronger than we expected in the current time frame. But seasonality is with it and any dip is a buy, like I said a moment ago.
KANGAS: Your prediction is on the top line and the Dow is the actual one on the bottom line. OK. Let's have a look at oil. What was your forecast for oil? Well, it had quite a fall in the late summer. And you didn't reflect that very much.
LEIBOVIT: No, we underestimated the correction. No question about it. But now we've had a very significant correction in crude oil and we're due for a nice technical rally. So I'll be looking for crude oil to rally back into the high 60s or maybe low 70s on a technical move. In fact, I see all commodities rallying here so I would be long.
KANGAS: OK and your annual forecast model for gold. And that would indicate that it's on an uptrend again after going through a correction.
LEIBOVIT: Of course, we have our big-picture projection, 20-year up move, $3,000 an ounce type number in the next five to 10 years. So we're always positive. Right now if gold can clear $660, then we're going to see new highs. Let's watch that $660 level if we get through it.
KANGAS: What's your ultimate goal on gold?
LEIBOVIT: $3,000 an ounce.
KANGAS: Oh my goodness! Well, we'll wait that one out. On your last visit with us in late May, you recommend three securities. Let's have a look and see how they've done since then. Hecla Mining has done very well, up 25 percent and Glamis Gold up 12 percent and that is a takeover by Gold Corp, I believe.
LEIBOVIT: Yes, it went actually higher that where you're quoting it here because I think it ran as high as $47 or so. So basically, Glamis is not going to exist any more, but yes, it was one of our strong picks.
KANGAS: You're staying with Hecla?
LEIBOVIT: Absolutely, silver is very strong. Hecla looks like $9.
KANGAS: OK and you had one other recommendation and that was the diamonds, the diamond trust and you recommend shorting it at 112 and it's well above that now. What happened? Did you cover your short?
LEIBOVIT: We do. We are looking for a move down toward 10,000. It stopped at 10,600 and double bond them (ph) there twice so we covered the summer on $107.
KANGAS: OK, fair enough. Do you have any new recommendations for our viewers, Mark?
LEIBOVIT: We sure do, four Paul. The first one is Gern. This is a stem cell play, starting to move today on some volume. I have seen this stock along with other stem cell stocks moving higher. I can see this as high as $15.
KANGAS: OK, let's go for number two.
LEIBOVIT: The next one is Ngas, which is Ngas Resources. This is a pure play on natural gas which has been decimated this year and is now experiencing a very nice technical rally. I look a move up to about $10 in Ngas.
KANGAS: Fair enough.
LEIBOVIT: Next one is USO, which is U.S. Oil Fund. This is on my play that crude oil and energy should recover here. This is an ETF that tracks various crude oil and related products. I think it's going into the 60s.
KANGAS: An exchange-rated fund, a little diversification there.
LEIBOVIT: Absolutely.
KANGAS: We got time for one more.
LEIBOVIT: One more is EZM which is Euro Zinc Mining. This is a play on copper, zinc, nickel -- all the metals, a little $3 stock that can go up to about $5, $6 in our opinion. In fact, zinc, nickel and uranium are the strongest metals now and that participates in two of them.
KANGAS: OK. Do you personally own any of the securities you're recommending, Mark?
LEIBOVIT: I own every one of them.
KANGAS: All right, very good. Mark, I want to thank you for being with us once again.
LEIBOVIT: My pleasure, Paul. Thank you for having me.
KANGAS: My guest, Mark Leibovit of vrtrader.com.
"Last Word"-Trick or Treat Trivia
SUSIE GHARIB: And finally tonight, what began as a Celtic ritual thousands of years ago has turned into a lighthearted ritual featuring costumes and candy. We're talking, of course, about Halloween! And here are a few facts about Tuesday's observance. The Census Bureau says there are just over 36 million would-be "trick or treaters" in the U.S., and they're defined as kids aged 5 to 13. There are 106 million possible places for them to canvass for candy. That's the number of occupied housing units across the country. There are some places in the U.S. that just seem made for Halloween like Transylvania County, North Carolina; Tombstone, Arizona; Pumpkin Bend, Arkansas; and Skull Creek Township, Nebraska. And Paul, here's an amazing fact. The Census Bureau says Americans each eat an average of 26 pounds of candy every year and most of it is snarfed down at Halloween.
KANGAS: As Jackie Gleason, the great one used to say "how sweet it is!"
GHARIB: Too sweet.
Paul Kangas' Stocks In The News
PAUL KANGAS: Wall Street opened broadly lower on that GDP reading and some profit taking. After an hour of trading, the Dow was off 51 points and the NASDAQ down eight. The market trimmed its losses by mid-day, but headed south again on those higher oil prices and a negative outlook from Goldman Sachs for chip sales. The Dow Industrial Average closed down 73.40 at 12,090.26 today. This week, it fell only once and gained 87.89 points overall. The NASDAQ lost 28.48 ending at 2,350.62 today. It fell twice and rose three times this week, had a net gain of 8.32 points. Standard & Poor's 500 fell 11.74, ending at 1,377.34 today. In the bond market, the 10-year note rose 12/32 to 101 18/32, putting the yield at 4.67 percent.
Big board volume leader on 18.2 million shares, Pfizer (PFE) down $0.06.
Followed by Sprint Nextel (S) with a $0.27 gain. It was up $1.18 yesterday on higher third quarter earnings.
General Electric (GE) $0.38 loss.
ExxonMobil (XOM) down $0.16.
Advanced Micro Devices (AMD) off $0.64 on that negative report on chip sales from Goldman Sachs.
Then we see Motorola (MOT) losing $0.42.
Followed by AT&T (T) with an $0.18 drop.
Corning (GLW) down $0.62.
Lucent Tech (LU) fell $0.04.
Home Depot (HD), tenth in volume, off $0.31 a share.
Alltel (AT) down $4.19. The rural (ph) wireless provider had third quarter earnings excluding items of $0.60. That was $0.04 below the Street estimate and the subscriber, the new subscriber rate was lower than expected for Alltel.0
Ingersol-Rand (IR), this is the industrial conglomerate, down $1.45. Third quarter earnings were a bit higher, $0.79 versus $0.75 last year, but the company is unsatisfied with that. Standard & Poor's also downgraded it from "strong buy" to just a "hold" rating.
Hartford Financial Services (HIG), the insurance firm, off $3.96. Third quarter earnings higher, $2.30, versus last year's $1.81 and a nickel better than the Street expected, but the CEO says 2007 earnings will be under pressure due to tough competition.
Rinker Group Ltd (RIN), this is the Australian cement and asphalt manufacturer. CEMEX of Mexico has offered $12.8 billion in a buyout bid and that's worth somewhere around $65 a share for Rinker.
W-H Energy Services (WHQ), the oil field services firm, third quarter earnings jumped to $1.02, $0.15 above the Wall Street estimate, nice move in the stock.
Georgia Gulf (GGC), the specialty chemical company, down nearly $5 a share. Third quarter earnings dropped to $0.66 from $0.82 a year ago and Citigroup downgraded it from "hold" to "sell" and so did Merrill Lynch.
McAfee (MFE) up $1.54 on higher third quarter earnings of $0.19 versus $0.13 a year ago. Revenues up 14 percent. RBC Capital brokerage upgraded it to "out perform."
Then we see Celestica (CLS) down $1.58. The Canadian circuit board maker had lower, had higher third quarter earnings of $0.18 versus last year's $0.12, but the company issued a weak fourth quarter outlook and that apparently what hurt the stock.
Orbital Sciences (ORB) down $2.29. The company has uncovered misdated stock options and it's going to have to restate several years of financial results.
Emulex (ELX) off $1.63. First quarter earnings dropped to $0.17 versus $0.19 a year ago. Revenues down 2 percent. AG Edwards downgraded it from "buy" to just a "hold."
And then Standard Register (SR) off $1.88, third quarter loss of $0.20 versus earnings last year. The Street was expecting $0.09 in earnings.
Google (GOOG) topped the active list, down $9.90 after a big gain over the last few days.
And Microsoft (MSFT) off a penny.
Intel (INTC) $0.67 loss, hurt by that Goldman Sachs chip report.
Apple Computer (AAPL) off $1.78.
Cisco Systems (CSCO) lost $0.47, fifth in dollar volume.
Red Hat (RHAT) moving up $0.80.
Oracle (ORCL) a $0.62 loss.
Yahoo! (YHOO) up $0.06.
Sun Micro (SUNW) a $0.14 gain.
And Akamai Tech (AKAM) fell $3.38 despite higher third quarter earnings of $0.24, versus $0.14.
Then we see Vertex Pharmaceuticals (VRTX) up $6.09. The company's experimental hepatitis C drug is showing promise.
And then Intuitive Surgical (ISRG) tumbling $11.48. Jeffries brokerage downgraded it from "buy" to "hold" and cut its target to only $100 a share.
Those are the stocks in the news tonight.
