NBR Complete Transcripts: 11-29-2006
Wednesday, November 29, 2006The Beige Book Brings Some Green To Wall Stre
SUSIE GHARIB: Stocks on Wall Street rallied today on encouraging reports on the economy. The Dow jumped 90 points and the NASDAQ rose 16. Most of the buying followed the afternoon release of the Federal Reserve's beige book, which showed moderate economic growth in most regions of the country. Investors also applauded news this morning that the nation's gross domestic product grew 2.2 percent in the third quarter, well ahead of the earlier estimate of 1.6 percent. But new home sales fell 3.2 percent in October, the biggest drop in three months. However the median price of those homes rebounded, up almost 2 percent to more than $248,000.
One on One with Stuart Hoffman, Chief Economist at PNC Financial Services Group
SUSIE GHARIB: Joining us now with more analysis on those economic numbers, Stuart Hoffman, chief economist at PNC Financial Services Group. Hi, Stuart.
STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES GROUP: Hi, Susie.
GHARIB: As you look at all of these economic numbers, what do they tell you about the economy? What kind of shape is it in?
HOFFMAN: These numbers smack of the so-called soft landing. Clearly growth has slowed down. It's not growing at 3 or 3.5 percent as it was the last couple of years. Housing is certainly a drag and probably hasn't hit the ground floor yet, but the overall economy is doing well. The Fed's beige book from around the country anecdotal grass roots information says consumers were spending, houses were weak, autos were weak, but the rest of the economy, particularly the service sector seems to be doing quite well.
GHARIB: All right. Well, as you said, housing was weak and so far this year new home sales are down 25 percent. We saw today oil prices nudging up. They're now at $62 a barrel. So what do those factors mean for growth in the fourth quarter?
HOFFMAN: I think economic growth this quarter for real GDP will be about the average of the last two, somewhere around 2.25 to 2.5 percent. That seems to be the kind of slowdown that would define a soft landing. Inflation in those numbers last quarter were a little bit better than they were in the summer. Of course with the huge drop in energy prices even with oil back up to $62, gasoline prices, other commodity prices are down. It means inflation is going to be very good this quarter. So it's a pretty good picture and certainly music to stroke investors' ears.
GHARIB: As we saw today. Do you think that these numbers fit into the view that Ben Bernanke delivered in his talk yesterday?
HOFFMAN: Yes. I expect the chairman might have had a little heads up on the GDP number being revised up. He described an economy with a risk on inflation is still to the up side. That's what a Fed chairman and other Fed members are supposed to say and do. But it looks to me as though their forecast of slower core inflation in 2007, with which I agree, looks like a pretty good one as well as growth, economic growth, and job growth a bit below trend but not snowballing. We don't have an economy that is snowballing down some slippery slope to a hard landing or a recession.
GHARIB: Last question. We pretty much have a consensus from Street economists that the Federal Reserve will stand pat on interest rates when they meet in two weeks. What about in 2007? Where do you stand? Rate cut or rate hike?
HOFFMAN: I stand in the rate cut camp. I don't think it will occur until mid year so we have the Fed fund rated at 5 1/4 growing roots. They're going to be there for a while, but I think the fed will kind of do some root canal and cut the Fed fund rate starting around June -- May or June of 2007 and bring it down 25, maybe 50 or 75 basis points, closer to that over the second half of next year.
GHARIB: All right. We'll hold you to that and we'll check in again. Thank you so much. We appreciate you coming on the program Stuart.
HOFFMAN: Thank you.
GHARIB: We've been speaking with Stuart Hoffman, chief economist at PNC Financial Services Group.
"Power Struggle"-Underwater Sources
SUSIE GHARIB: The importance of clean air is a key driver in the research and development of new and renewable energy sources. This week, our special series "Power Struggle" is looking at the search for those sources. Tonight, Stephanie Dhue looks at a project hoping to generate renewable energy from the ocean's tides and the struggle to prove that technology will work. STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is where the East River passes New York City's Roosevelt Island. This area is also home to a test project for renewable energy. Ten feet below the surface, turbines will soon be installed that will harness the tides to generate electricity.
RON SMITH, CEO, VERDANT: The operational performance as well as the environmental performance...
DHUE: Ron Smith is the CEO of Verdant, the company behind the project. His goal is to prove that tidal power can pay off.
SMITH: The conventional wisdom today is that this can't be done because it will never be cost effective. Our intent and our challenge is to show that we can make it cost effective. Nobody's tried it.
DHUE: Since nobody has tried it before, Verdant has forged a new path for everything from designing the connections to the electricity grid, constructing the site and securing regulatory permits.
SMITH: Every time we turn a corner, there's just -- conventional practice does not address what we're trying to do here, so it's got to be - it's got to be tailored and customized and that takes a little bit of time.
DHUE: Verdant first began the project in 2003 and expects to complete the initial test phase in 2008. A key test is what impact the turbines will have on the fish population in the East River. Robert Goldstein is general counsel for the environmental group Riverkeeper. The group is usually at odds with business, patrolling local rivers to gather evidence against polluters. But for this tidal power project, Riverkeeper is working with the company to measure the impact on the river's ecology.
ROBERT GOLDSTEIN, GENERAL COUNSEL, RIVERKEEPER: It may have detrimental effects. We want to understand them. We want to know them. We want to be able to minimize them and I think, as we've been working with Verdant, we found that they want to achieve the same goals. They want to minimize the impact that their turbines are going to have on the biodiversity. We applaud that, but we want to see it work.
DHUE: To prove it works, Verdant sank $2 million into this underwater sonar system. The equipment tracks fish patterns to gauge their reaction to the turbines. The results will be provided to observers in real time.
GOLDSTEIN: We're natural skeptics, but we think that if they provide us with all the information that they generate, we can come to an intelligent conclusion and determine whether this project is really green.
DHUE: Experts say tidal and ocean wave power hold promise. One advantage over solar and wind is that tidal power is highly predictable. Studies suggest that tidal and wave could make up 5 percent of the nation's electric supply in the next five to 10 years.
ROGER BEDARD, OCEAN ENERGY LEADER, ELECTRIC POWER RESEARCH INSTITUTE: Wave and tidal energy, given proper citing, proper care and design, installation, operation and maintenance will become one of the more benign electricity generation technologies known to humankind.
DHUE: But first Verdant and others will have to prove it to investors, regulators and the public. Initially, the turbines will power this nearby complex, which houses a supermarket, parking garage and hybrid bus depot. If the project is successful, the plan is to build a 10-megawatt system, which could be enough to fuel 8,000 New York City homes. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Roosevelt Island, New York.
Microsoft Opens A Window on a New Vista
SUSIE GHARIB: Tomorrow is a landmark day for Microsoft. The company is making its new windows Vista operating system available to its biggest corporate customers. To introduce it, Microsoft is planning a billion dollar marketing campaign, beginning by ringing the opening bell at the NASDAQ. Tonight, New York bureau chief Scott Gurvey previews Vista and looks at its impact on the industry and Microsoft's bottom line.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Five years in the making, an eternity in the world of personal computers, Windows Vista is the latest incarnation of Microsoft's ubiquitous operating system, now found on 90 percent of the world's PCs. Bill Gates personally ordered a rewrite of Vista halfway through the development process to improve security and stability. Most reviewers say the work paid off.
LANCE ULANOFF, EDITOR, REVIEWS, PC MAGAZINE: Microsoft has done a great job of improving security, improving controls, protecting users from themselves. But that doesn't mean that it is impenetrable and I don't think Microsoft is even saying that. But I think that the ability to recover from attacks and to protect against them has certainly gone many levels up.
GURVEY: Vista sports a new graphic interface, at least on computers with advanced graphics capabilities. Older computers will not have the pretty images, but all will have new features. Critics complain many of these are already available on rival Apple's computers, but they will be new to the Windows platform. Also available for the first time tomorrow will be Office 2007, the new version of Microsoft's best selling application suite. The look and feel of Office has been significantly changed to make it easier for users to find the advanced features of Word, Excel and Power Point. Some experienced users may be confused, but Microsoft is confident the learning curve will be reasonable.
MICHAEL SIEVERT, CORPORATE VICE PRESIDENT, WINDOWS CLIENT MARKETING: More than five million people downloaded these operating systems and software packages during their development and tested them and gave us feedback on these things. So we've had a community of people involved in the development of them and that's how we have a lot of confidence that people are going to love them when they try the final product.
GURVEY: In fact, some analysts believe companies adopting the new Office suite will encourage computer sales for the home.
TED SCHADLER, ANALYST, FORRESTER RESEARCH: Consumers are also employees. If they have a computer that they use at work and maybe they bring that computer home, then Office is a big part of the story here for a company or for a consumer who is working for a company. So if you're a work from homer, Windows and Office go together. If you have a new version of Office, you're going to get a new version of windows and a new PC.
GURVEY: As of tomorrow, big corporate clients can download Vista and Office from Microsoft, but most will test the products for some time before rolling it out. Computer manufacturers already have the products and are expected to pre-load them on new systems by the end of January. Retail boxes for people interested in upgrading should appear in the stores at the same time.
RICK SHERLUND: The benefit of that will be more of the consumer cycle and we'll see that beginning at the end of January and that lasts about a year or so. Then the small business market a year or two years and then starting in about two years, the corporate market really begins to upgrade in a big way to the new desktop products.
GURVEY: Goldman Sachs has an investment banking relationship with Microsoft. Microsoft promises the next version of Windows in less than five years, but it has said little about what it will look like. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Powering Up Your Portfolio
PAUL KANGAS: As we continue our look at alternative energy, tonight's street critique guest has some stocks she thinks could power up your portfolio. Joining me, Hilary Kramer, market strategist and personal finance editor at aol.com. Hilary welcome back to NBR.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL.COM: Thank you, Paul. It's a pleasure to be here.
KANGAS: In the past, so-called green investment didn't always leave investors in the black. Why do you think the alternative energy sector is booming now?
KRAMER: It's totally different. This is sustainable. Paul, this is about tax cuts, subsidies, regulation. This is a bipartisan issue. Corporations are dedicated and consumers are to the environment and to reducing emissions.
KANGAS: That is certainly in their favor. Let's get right to your stock picks starting out with starting out with Covanta (CVA). There it is.
KRAMER: Yes, Covanta, CVA, one of my absolute favorite companies. Covanta is a (INAUDIBLE) company which means shareholders make a lot of money. It's about waste to energy, taking landfills and turning it into clean energy. This is one of these future companies we're going to see start to pop up and we're going to hear a lot about.
KANGAS: The stock has done well according to the chart. Number two is Evergreen Energy (EEE). Why do you like that issue?
KRAMER: Evergreen is coal to clean gasoline. We're going to hear a lot about that in 2007. Evergreen is at the bottom, bottom of its chart right now. It's a great buying opportunity as people, especially experts in the area start to believe that we can really take coal and go to clean gas.
KANGAS: I think your third choice is an ethanol company and that's VeraSun Energy (VSE). There it is.
KRAMER: Yes. I love VeraSun, VSE. It had a terrific day, up 5 percent today. What makes VeraSun different, different from Pacific Ethanol, different from (INAUDIBLE) is that they have a technology where they're not just doing ethanol, but in the same process, they can do bio- diesel and so we're going to see VeraSun break out and really have some up side on the stock side.
KANGAS: A fourth choice of yours is Suntech Power Holdings (STP).
KRAMER: I love Suntech, STP. This is a Chinese company. It is a solar company and it's certainly the stellar winner out there in the world of solar. We're going to also be hearing a lot more about Suntech.
KANGAS: OK. We have one minute left and time for another choice of yours and that's Tetra Tech (TTEK).
KRAMER: Yes. Tetra Tech, TTEK. This is a water purification play as well as environmental remediation. This is a value play in clean technology and alternative energy. I recommend it for those that don't want to take a risk with stocks such as Evergreen, EEE.
KANGAS: OK, fair enough. Hilary, do you own any of these stocks or have other disclosures to make?
KRAMER: Yes I do. Covanta, CVA as well as VeraSun, VSE.
KANGAS: You own those two issues?
KRAMER: Yes.
KANGAS: I want to thank you very much for joining us once again and we're going to see you next month to review how your past street critique picks have done.
KRAMER: That's right. I can't wait to find out.
KANGAS: My guest Hilary Kramer, personal finance editor at aol.com.
"Last Word"-3 Ring Lawsuit
SUSIE GHARIB: And finally tonight, the Ringling Brothers and Barnum and Bailey circus isn't clowning around when it comes to its slogan. The entertainment company is suing beauty products seller Sephora and its parent, Louis Vuitton Moet Hennessey, claiming trademark infringement. The circus calls itself "the greatest show on earth." Sephora is basing its holiday sales promotion on the phrase "the greatest gift show on earth" and it's on the company's web site, billboards, catalogs and print ads. And Paul, this suit is no laughing matter. Ringling Brothers is asking for unspecified damages for lost business and $5 million in punitive damages.
KANGAS: I'm sure the lawyers will have a three ring circus on this one.
GHARIB: You're right.
Paul Kangas' Stocks In The News
PAUL KANGAS: Stock prices moved steadily higher this morning. That GDP upward revision sat well with investors, as did a rebound in the dollar. At noon, the Dow posted an 85 point gain and the NASDAQ Composite was up 20 points. The rally eased as oil prices surged, but that beige book report dispelled fears of a hard landing, helping stocks end on a strong note. The Dow Industrial Average closed up 90.28 points at 12,226.73. The NASDAQ Composite was up 19.62 at 2432.23. Standard & Poor's 500 Index gained 12.76 ending at 1399.48. In the bond market, the 10-year note fell 5/32 to par and 26/32, putting the yield at 4.52 percent.
Once again the most active big board issue today on 40.3 million shares, Lucent Tech (LU) edging a penny higher. It's soon to be taken over of course by Alcatel.
Second in volume was Pfizer (PFE) moving up $0.02. Pfizer's going to cut 2200 jobs or 20 percent of its domestic work force. The company cites slowing sales growth and increasing generic competition.
AT&T (T) moved up $0.68. An AG Edwards upgrade on Verizon helped the whole telecom sector move higher today.
ExxonMobil (XOM) on those higher oil prices, up $1.87.
Ford Motor Co (F), fifth in volume, edged $0.02 higher.
Qwest Comm (Q) a $0.23 gain.
General Motors (GM) fell $0.47.
But CVS Corp (CVS), the big pharmacy chain, up $0.96.
Time Warner (TWX) a $0.15 rise.
And Bellsouth (BLS), another firm telecom stock, up $0.79 a share.
And there you see Verizon Comm (VZ) moving up $0.49. AG Edwards upgraded it from "hold" to a "buy."
And then NYSE Group (NYX) down $5.45. JPMorgan downgraded it from "over weight" to "neutral," partly because of the stock's high price earnings ratio at 30 times earnings.
On the upside, New York Times (NYT) up $1.55. The "New York Post" newspaper reported that former AIG Chairman Hank Greenberg has been buying big blocks of "New York Times" stock to break the Sulzberger family stranglehold on the media empire, but after the close, Mr. Greenberg said he only owns 100,000 "New York Times" shares and has no intention of boosting its stake. The stock dropped about $1 from this price in after hours trading on that news.
Mobile Telesystems (MBT), this is the big Russian cell phone company, up $3.69. It came in with third quarter earnings a little better than expected, $1.21 for ADS versus $1.26 last year, but revenues were up a very impressive 30 percent.
Fluor Corp (FLR) up $2.94. The company has been awarded a $2.2 billion engineering and construction management contract for a Saudi Arabian petrochemical complex.
Then Tiffany & Co (TIF) up $2.29. Third quarter earnings nicely higher, $0.21 versus $0.16 last year on a 6 percent rise in same store sales.
Aeropostale (ARO), this is the teen apparel retailer, up $1.98. Third quarter earnings $0.61 versus $0.47 a year ago, 19 percent rise in sales, nice move.
Manitowoc Co (MTW) gained $4.12 and the company forecasting 2007 earnings between $3.75 and $4 a share. That's well above the Street estimate of $3.65.
And Talbots (TLB) up $1.26. Wedbush Morgan started covering the stock with a "buy" and a 12-month target of $32 a share.
NASDAQ's most active, Apple Computer (AAPL) down $1, but it traded as high as $93.15. Bear Stearns boosted its target from $94 to $100 a share.
Google (GOOG) down $4.85.
Cisco Systems (CSCO) a nickel gain.
$0.18 rise in Microsoft (MSFT).
Intel (INTC) $0.26 gain. That was fifth in volume.
Then we see Research in Motion (RIMM) down $0.14.
Dell (DELL) $0.67 gain.
Sandisk (SNDK) up or down $1.04.
$0.65 loss in Broadcom (BRCM).
And finally, Dynavax Technologies (DVAX) surged $2.39 on positive results from a late stage trial of the company's hepatitis "b" vaccine.
And Qualcomm (QCOM) up $0.80.
