NBR Complete Transcripts: 11-28-2006
Tuesday, November 28, 2006Federal Reserve Chairman Ben Bernanke Expresses Anxieties Over Inflation
SUSIE GHARIB: An inflation warning today from the chairman of the Federal Reserve. Speaking in New York to the National Italian American Foundation, Ben Bernanke said the economy is in good shape, but he's concerned about the current level of core inflation. His comments dashed hopes on Wall Street that the Fed might cut rates early next year. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fed Chairman Ben Bernanke got a standing ovation from the audience today, but not from Wall Street. Stock investors were disappointed the Fed chairman did not signal the possibility of an interest rate cut in the near future. Twice in his prepared remarks, Bernanke repeated this warning about inflation.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The level of core inflation remains uncomfortably high.
MILLER: That sparked concerns the next move by the Fed might actually be a rate hike.
JAMES AWAD, PORTFOLIO MANAGER, AWAD ASSET MANAGEMENT: He was implying that maybe you're going to get rate increases and certainly he said nothing to encourage those who were betting on rate cuts.
MILLER: But the news wasn't all bad. Bernanke gave an upbeat assessment of the overall economy, despite a slowdown in the housing and auto sectors.
BERNANKE: Over the next year or so, the economy appears likely to expand at a moderate rate, close to or modestly below the economy's long run sustainable pace.
MILLER: The Federal Reserve's open market committee will meet December 12, and nearly everyone agrees the central bank is likely to hold rates steady as it did the last three meetings. The bigger debate is which way the Fed will move next year. Even after Bernanke's speech today, the bond market is pricing in nearly 50 percent odds of a rate cut in the first quarter. But many economists think the next move will be a rate hike.
ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS: I think they might be on hold for another three months perhaps. I think we could see rates going up end of February, March, in that period of time, because I think by that time, the economy will have more clearly recovered.
MILLER: There were several other issues Bernanke did not address in his speech today. He did not mention recent weakness in the dollar or his planned trip to China next month with Treasury Secretary Henry Paulson.
This is Fed Chairman Ben Bernanke's last planned economic speech before the Fed's December meeting. As a result, experts say his next major economic assessment is likely to come in the statement accompanying the Fed's decision. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Securities Regulators Are Joining Forces
SUSIE GHARIB: There's a big merger in the works tonight in the securities industry, but this time it's not the brokers who are joining forces. It's the regulators. The National Association of Securities Dealers and New York Stock Exchange regulation are consolidating. The new merged entity will regulate the NASDAQ and the New York Stock Exchanges, as well as all 5,100 brokerage firms around the country. Washington bureau chief Darren Gersh has more.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: With competition from international stock markets intensifying, regulators say it's a good time to streamline the way they do business.
RICHARD KETCHUM, CEO, NYSE REGULATION: U.S. investors deserve a regulator that has the resources and skills to keep pace with an increasingly complex and changing securities industry.
GERSH: Right now, the New York Stock Exchange polices itself and its members through a regulatory subsidiary. The National Association of Securities Dealers does much the same thing for NASDAQ and the nation's 650,000 stock brokers. The Securities and Exchange Commission oversees both groups and today played regulatory matchmaker.
CHRISTOPHER COX, SEC CHAIRMAN: Instead of a menagerie of potentially conflicting schemes that can actually undermine the effectiveness of regulation, not to mention the efficiency of our capital markets, we might soon be able to increase the effectiveness of regulation for the benefit of all investors.
GERSH: Investor advocates have long been concerned that industry self regulation is undermined by conflicts of interest. Rolling the New York Stock Exchange's regulation into the NASD will in theory eliminate those fears. But the question is what happens in practice.
DAMON SILVERS, GENERAL COUNSEL, AFL-CIO: There is nothing about what the SEC announced today that suggests that it is going to be toothless, but there are going to be people pushing for it to be toothless. And that's the danger. The danger is that a good idea will be turned into something that's not good by political pressure.
GERSH: Regulators say their goal is to make the rules more consistent and easier to follow, and that could ultimately save tens of millions of dollars. But the woman named to lead the new organization says there will be no cutbacks in regulatory staff.
MARY SCHAPIRO, CHAIRMAN & CEO, NASD: This is not about cost saving in terms of a staffing of the new organization. This is much more about cost saving within firms that are currently dealing with multiple rule books, multiple sets of examiners, multiple enforcement inquiries and cases.
GERSH: The new regulatory entity still doesn't have a name and assuming the SEC gives final approval, won't be up and running until the second half of the 2007. Once that happens, each member firm will get a $35,000 check as a sort of down payment on the expected regulatory cost savings. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Those are the stocks in the news tonight.
Derivative Trading Goes Global
SUSIE GHARIB: Going global could be the wave of the future for the futures industry. Explosive growth in derivatives trading has many U.S. exchanges looking outside our borders for possible partners. Diane Eastabrook has more from Chicago.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Seventy five derivative exchanges worldwide trade everything from energy to crops to currencies. But consolidation is expected to pare their numbers over the next decade due to increased electronic trading, more competition for customers and de-mutualization. At the futures industry association expo in Chicago this week, global exchange leaders predict exchange consolidation will cross both continents and asset classes.
JAMES NEWSOME, PRESIDENT, NEW YORK MERCANTILE EXCHANGE: I don't think that it will matter whether they are domestic or international. I think the need to improve shareholder value will drive us toward more consolidation.
EASTABROOK: Industry consolidation has gained steam in the past few months. The New York Stock Exchange is pursuing a merger with Paris-based Euronext in hopes of gaining access to the lucrative futures market. And last month the Chicago Mercantile Exchange announced plans to merge with the Chicago Board of Trade. But that deal is being scrutinized by the U.S. Department of Justice. Analysts think anti-trust concerns will pave the way for more cross-border marriages.
RICHARD REPETTO, EXCHANGE ANALYST, SANDLER O'NEILL & PARTNERS: There are significant other benefits by expanding your markets, access to new products, so you'll see definitely more global consolidation as well as what you see in domestic consolidation here with the CBOT and the CME.
EASTABROOK: These exchange leaders think there will be even more opportunities to merge with international exchanges down the road. They say China and India are untapped markets for futures trading and they expect derivative exchanges to open there over the next several years.
ANDREAS PREUSS, CEO, EUREX: I think that both markets represent absolutely unbelievable potential for development.
WILLIAM BRODSKY, CHAIRMAN & CEO, CHICAGO BOARD OPTIONS EXCHANGE: I think that they'll have a tremendous impact on that because of the consumption as well as the production of these markets. If you look at what is going on in China with the commodity markets, it's quite outstanding.
EASTABROOK: Analysts predict that growth in derivatives trading will outpace that of equities for at least the next decade, driven by product innovation, access to new markets and increased investment by hedge funds. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"Power Struggle"-Light & Wind
SUSIE GHARIB: Call it a power struggle, the challenge of finding renewable energy sources that will be still viable decades, even centuries from now. And it's a power play that's attracting big bucks. Last year, venture capitalists poured almost $1 billion into clean energy startup firms. So we're taking a look at the renewable energy industry in a three-part series called, appropriately, "Power Struggle." Tonight, Stephanie Dhue looks at how light and wind could meet our energy needs in the future.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Using lenses and mirrors to concentrate sunlight, Silicon Valley start-up Solfocus is working to generate more energy for less money. Solfocus CEO Gary Conley wants to make solar power as ubiquitous as the PC.
GARY CONLEY, CEO, SOLFOCUS: Everything in our design does multiple duty. And then we use automotive type techniques to get that very low cost and very high reliability.
DHUE: Solar energy now costs about four times as much as conventional fuels.
CONLEY: We're trying to produce energy from the sun that is as cheap or as competitive as classic energy, which means oil, even coal. We want to approach this from an economic basis to where we can compete with other energy sources directly without subsidy.
DHUE: Some investors are betting Solfocus can cash in on its design. The firm planned to raise $10 million in venture funding, but investor enthusiasm brought it $32 million. That level of investor interest may be reminiscent of the dot com boom. But some investors are undeterred. Stephan Dolezalek is in charge of choosing alternative energy projects for Vantagepoint Venture Partners. He says there is great potential for renewable energy and energy efficient technologies.
STEPHAN DOLEZALEK, MANAGING DIRECTOR, VANTAGEPOINT VENTURE PARTNERS: If you're watching just one technology, you may well see a bubble-like behavior. If you watch the entire, what we call clean tech sector, what you're likely to see is a series of those waves moving forward and the whole sector will become much, much larger. And so there's a lot of money to be made in the sector. You just have to be careful as to which portion you're playing at, at which time.
DHUE: For example, wind power may already be largely played out. Michael Garland heads up the energy infrastructure group for financier Babcock and Brown. One of the projects he's working on now is this wind farm in the Altamont Pass in California. He says renewable projects are often more complicated then they appear and can take decades to generate returns. Still, he expects the market to grow but investors' returns to be lower.
MICHAEL GARLAND, ENERGY INFRASTRUCTURE, BABCOCK & BROWN: It really is going to be limited by the amount of the equipment and the ability to manufacture the subcomponents. Everything from last year we had issues with steel availability and towers and this year and for the next year or two we're going to see turbine limitations, in terms of the ability to manufacture enough turbines to meet the demand.
DHUE: Lower energy prices from traditional sources could also dampen enthusiasm for renewable projects. But even with lower oil and natural gas prices, many predict a sustained interest in renewables and clean technology. For example, Tesla Motors, which developed this fully electric sports car, expects interest to remain high even if prices at the pump are low.
MARTIN EBERHARD, CHAIRMAN & CEO, TESLA MOTORS: The fact of the matter is that we are deeply dependent now on oil from countries not only in the Middle East, but let's toss in Venezuela while we're at it, that don't like us particularly and that's from a national security perspective, not a good position to be in.
DHUE: Eberhard also points out electric cars have zero emissions so don't contribute to global warming, a point that remains regardless of the price of crude. The return for investors in renewable energy will be measured not just in dollars, but also by what new technologies, engineering and designs are developed. Stephanie Dhue, NIGHTLY BUSINESS REPORT, San Francisco.
"Commentary"-The Future Holds The Fortunes
SUSIE GHARIB: Tonight's commentator suggests investors may profit more from looking forward than looking backward. Here's Allan Sloan, Wall Street editor of "Newsweek." ALLAN SLOAN, WALL STREET EDITOR, NEWSWEEK: One of the journalistic rules I live by is that when everyone loves something, it's so over. Take hedge funds and private equity. Barely a day goes by without hearing of hedge funds driving the stock market or about a huge deal being done by private equity firms -- formerly known as leveraged buyout firms. Hedge funds and private equities seem destined to own the world.
But that's just not going to happen any more than tech mutual funds - remember them -- doubling every year or trees growing to the sky. Hedge funds and private equity are popular now because they did lots better than the stock market for the five years after the bubble burst in 2000. So some enormous investors, especially public pension funds, have decided they'll do better with hedge funds and private equity than with boring old U.S. stocks. We have a name for this. It's called investing by looking through the rearview mirror.
Hedge funds and private equity did well for investors when they were relatively small. Now, hundreds of billions of dollars a year are pouring into them. There's no way to put this all to work so that investors make out well, though the managers will do just fine, given the huge fees they charge. Some investors will do OK. But in a few years I suspect most of them will wish they'd stuck to boring old stocks, no matter what they see in their rear view mirrors today. I'm Allan Sloan.
"Last Word"-Sizing Up Money For All
SUSIE GHARIB: And finally tonight, most Americans don't think a lot about money --- and I mean, physical money, the printed currency we use every day. But a Federal court judge has thought about it and he says the Treasury Department is breaking the law by making all our currency the same size and texture. The problem: blind people cannot tell the difference among different denominations of cash. Of the more than 180 countries that issue paper money, the U.S. is the only one that prints all its bills in identical sizes and colors. So the judge has given the Treasury 10 days to come up with ways to fix the problem so the blind can tell the bills apart. And Paul, among those options, varying size or texture or using raised ink or embossed dots so you can tell the difference by feel, rather than by sight.
KANGAS: I think the U.S. ought to adopt whatever works best in those foreign countries.
GHARIB: Sounds like you're right on the money.
Paul Kangas' Stocks In The News
PAUL KANGAS: As bad as yesterday's sell-off was on Wall Street, stocks opened still lower today as the dollar continued to slide, while oil rose. The dow fell 30 points at the outset of trading. The NASDAQ lost 12. Bargain hunters cut those losses to single digits by midday, but they backed off during the Bernanke speech. Despite his concern about inflation, buyers came back in the final hour resulting in a positive market close. The dow Industrial Average ended up 14.74 points at 12,136.45. The NASDAQ Composite was up 6.69 ending at 2412.61. Standard & Poor's 500 Index gained 4.82 to close at 1386.72. In the bond market, the 10-year note rose 7/32 to par and 30/32, putting the yield down to 4.51 percent.
Once again volume leader on the big board of 20.4 million shares, Lucent Tech (LU) edging up $0.03. Alcatel should complete its merger with Lucent by late this week.
Pfizer (PFE) moved up $0.08. It was just one of the three gainers on the Dow yesterday. The only news out today on Pfizer, it discontinued developing an anti-psychotic drug with a Dutch firm called Paxonobel (ph).
Then Ford Motor Co (F) edging a penny lower.
ExxonMobil (XOM) on the higher oil prices today up $1.69.
General Electric (GE) $0.25 loss. That was fifth in volume.
Motorola (MOT) lost $0.12.
AT&T (T) moving up $0.14.
Time Warner (TWX) a $0.04 loss.
While Qwest Comm (Q) gained that much.
And CVS Corp (CVS), the big drug chain, $0.38 gain, tenth in volume.
Boeing Co (BA) closed up $0.57, but traded as high as $88.73 this morning after getting an order from Air Berlin, the second largest German carrier. The order is for 60 new 737-800 models and that's worth about $4.2 billion.
Nokia Corp ADS (NOK) was down $0.22. The company cut its targets for operating margins due to the pricing pressures in the global handset market.
Then Louisiana-Pacific (LPX) moving up $1.13 on takeover speculation. It's rumored that Weyerhaeuser could make a buyout bid, so far just speculation.
Servicemaster Co (SVM) up $1.25. The company's hired Goldman Sachs and Morgan Stanley to help explore strategic alternatives and that includes the possible sale of the company.
Quicksilver Resources (KWK), this is an oil and natural gas producer, got an upgrade from Goldman Sachs today from "neutral" to "buy."
Then Frontline Ltd (FRO), which is in the oil and the crude oil tanker business down $2.34. Third quarter earnings were higher, $1.32 versus $0.99 last year, but most Street estimates were above $1.50. The company cited for the shortfall the cost of dry docking seven vessels.
Donaldson Co (DCI) was down $3.07. First quarter earnings were a bit higher, $0.43 versus $0.37 last year, but that was only in line with estimates and a disappointment to some apparently.
Koppers Holdings (KOP) down $0.83. The company's involved in wood treatment systems, things like that and its largest shareholder, Saratoga Partners, is going to sell 1.75 billion shares.
The overnight market in Hong Kong, the Hang Seng Index tumbled almost 3 percent so the Chinese American Depository Receipts in the U.S. had a rough time of it today. As you can see, some major losses by these four issues, all ADRs. China Life Insurance (LFC), China Mobile (CHL), China Petroleum (SNP), Yanzhou ADR (YZC)
Google (GOOG) topped the active list up $4.75 on NASDAQ.
Followed by Apple Computer (AAPL) up $2.27 and that is a new closing record high for Apple. And incidentally, amazon.com says six of Apple's iPod products made the list of the top 10 most popular electronic products. UBS also boosted 2007 earnings for Apple from $2.75 to $2.84 a share.
Cisco Systems (CSCO) up $1.23.
Microsoft (MSFT) a $0.09 loss.
Research in Motion (RIMM), fifth in dollar volume, lost $1.01.
Intel (INTC) a $0.04 drop.
$0.89 drop in Broadcom (BRCM) and incidentally, Broadcom's CEO says the company's inventories under control, but the challenge is with some of its customers.
Qualcomm (QCOM) $0.60 drop there.
And then Oracle (ORCL) a $0.02 loss.
And Dell (DELL), tenth in volume, was off $0.06.
Palm (PALM) fell $1.18. After the close yesterday, the company cut second quarter revenue guidance due to the delay in shipping its new Trio smart phone.
And then we see Anika Therapeutics (ANIK) up $2.34. The company got preliminary FDA approval for its cosmetic tissue augmentation product.
