NBR Complete Transcripts: 12-12-06
Tuesday, December 12, 2006Interest Rates Remain The Same
SUSIE GHARIB: No change in interest rates today by the Federal Reserve. The central bank held its key benchmark rate at 5 1/4 percent. This is the fourth straight meeting with no change in monetary policy. As Suzanne Pratt reports, economists are now beginning to speculate on what moves the Fed will make in 2007.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In its last meeting of 2006, the Federal Reserve opted to leave interest rates unchanged and make only subtle adjustments to the wording of its policy statement. The widely expected decision by the Fed's committee on monetary policy keeps the Federal funds rate at 5.25 percent. The Fed has been on pause for the last four meetings, after policymakers took rates to that level in June.
STEVEN RICCHIUTO, CHIEF US ECONOMIST, ABN AMRO: I think they've left rates unchanged since the summer because there's clear evidence building that the economy was really suffering from the decline in the housing industry and the consolidation of the automobile industry. Those are two pretty weighty pieces of the economy.
PRATT: In the statement that accompanied its decision, the Fed renewed a warning that risks from inflation remain. But policymakers added the word "substantial" when characterizing the slowdown in the real estate market. The statement said, quote, economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market, end quote. While the bond market rallied on the substantial inclusion, some economists say the policymakers were merely tweaking their assessment of the economy.
DAVID GREENLAW, CHIEF US FIXED INCOME ECONOMIST, MORGAN STANLEY: I think what they're doing is just acknowledging that we've had a substantial cooling in housing and they're giving a backward-looking assessment of that. Most importantly, the forward-looking component of the statement continues to be pretty upbeat.
PRATT: As for monetary policy in 2007, experts say the Fed gave no hints or clues. Nevertheless, most economists believe rates will remain unchanged well into next year because the Fed will remain concerned about core inflation.
GREENLAW: The most likely scenario for the Fed at this point is for them to be on hold with a 5.25 percent funds rate for quite sometime. In fact, we see the Fed holding rates steady until very late in 2007.
PRATT: By keeping the Federal funds rate unchanged, the Federal Reserve all but guaranteed that U.S. banks will keep the prime lending rate at 8.25 percent. That's an early holiday gift for the U.S. as it gives a break to consumers and business borrowers. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Analysis of Unchanged Interest Rates With Michelle Girard, Senior Economist at RBS Greenwich Capital Management & Mike Holland of Holland and Company
SUSIE GHARIB: Joining us now for more analysis of today's Fed decision to hold interest rates steady, Michelle Girard, senior economist at RBS Greenwich Capital Management and Mike Holland of Holland and Company. Hi, guys.
MICHELLE GIRARD, SENIOR ECONOMIST, RBS GREENWICH CAPITAL MANAGEMENT: Good evening.
GHARIB: Michelle, let me begin with you. This is four straight meetings now that the Fed has held rates steady. Do you think that the Fed is on permanent hold?
GIRARD: Well, I do think that they're on hold well into 2007. You know, there are two dynamics at work here which I think argue for the Fed not to do anything. You do have the economy that is growing more slowly, as they acknowledge, because of the substantial cooling in housing. On the other hand, inflation is uncomfortably high, so any, I think, speculation about the Fed cutting interest rates in response to economic weakness is extremely premature. Their hands are sort of tied and so I think it's a one or the other of these sort of dynamics becomes more compelling, the Fed is likely to just sit and wait.
GHARIB: Do you agree with that Mike? What's your take on today's Fed decision?
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: It's interesting to see the markets actually are saying the opposite of what Michelle very common sensibly just talked about. The fact is, the markets are saying they believe the Fed is going to drop interest rates in the not too distant future. And the bond market particularly with a 4.5 percent 10-year Treasury, that's an indication that the bond market also believes inflation isn't a problem. So I think it's interesting to see how disparate the markets are with respect to what Michelle just said, which I think is what the Fed is saying.
GHARIB: Tell us a little bit, Mike, more about the market reaction today, because before the announcement, the Dow and the NASDAQ were down. After the announcement, they were still down but not as much. Tell us more of what you see the message is here.
HOLLAND: OK, very -- this is a little inside baseball here, Susie, but the inside baseball reaction was there are a couple of comments there that the market, the stock market viewed as somewhat dovish, meaning that they might, in fact, fulfill the dreams of the people who expect them to lower rates in contrast to what Michelle was just talking about. That helped a little bit, certainly helped in the bond market. Michelle would probably agree with that.
GHARIB: Right. Michelle, let me pick up on what you said that was mentioned in the statement, that the Fed said that the economy has been slowing because of a substantial cooling in the housing market. A number of people have come on our program recently who I've interviewed have said that they're beginning to see the bottom of this housing slowdown. If they're right and home buying picks up, so where does that leave the Fed? Will they have to raise rates?
GIRARD: Well, that's interesting. That is sort of what we're picking up anecdotally. I mean it may be too early to say there's a bottom, but it seems like as prices have adjusted lower, we're getting interest from home buyers dipping their toe back in the water and so you are hearing that maybe the demand side of the equation is bottoming out. I think that housing is going to be a drag on growth until probably the middle of next year at the earliest. But beyond that, we do think growth will get back to trend. And then the question for the Fed will be if inflation is still above their comfort zone and now the economy is kind of back on solid footing and therefore the prospects for a further deceleration in inflation look pretty limited, does the Fed come in and take action to get inflation down further? Ultimately we think that's what will happen.
GHARIB: What is your firm's position Michelle on inflation in 2007? Where is it going to settle?
GIRARD: Well, we do have it topping out in the first quarter at around 3 percent on the CPI, a little bit lower on the core PC deflater. And it will gradually head down. But the Fed wants it to be, say, between 1.5 and 2 percent and we don't think it's going to get there by the end of 2007. We still have it close to -- just under 2.5 percent. So that's why I think the Fed won't tolerate that and will ultimately come in and take action to get inflation back down in the zone it wants to see it.
GHARIB: Mike, given what we've been discussing here, have you changed your investment strategy at all and then also, what is your outlook for the stock market for 2007?
HOLLAND: First question first, Susie. No, I haven't changed my outlook or my actions whatsoever. The best news for me is what Michelle was just talking about and that is the Fed will do nothing for a long period of time. They've made some mistakes in the past that have caused investors a lot of pain and it looks as if they probably aren't going to do that irrespective of where we think they're going to eventually move. So that's number one. Number two, the stock market right now, Jeffrey Immelt this morning from GE, the CEO of GE spoke about the possibility of 12, 13 percent growth in GE's earnings next year. The reason I mention that is because 2007 GE is a good indicator of what world economic growth. If he's looking at a book of business that looks like that, I think that the holiday cheer for people may be that we are looking after a good year in the stock market, another decent year in the stock market if the Fed doesn't screw it up.
GHARIB: All right. That's a good forecast. Thanks a lot, Mike. Thank you, Michelle. We've got to leave it there. We've been speaking with Michelle Girard, senior economist at RBS Greenwich Capital Management and Mike Holland of Holland and Company.
"Project False Hope" Scam Busters
SUSIE GHARIB: Meanwhile, also making a case today, the Federal and state law enforcement officials. In an effort dubbed "project false hopes," they're cracking down on business opportunity scams. You've probably seen the ads promising thousands of dollars a month by working from home. But as Stephanie Dhue reports, many people have learned the hard way that scams like these lead to broken promises.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Retired police officer Dale Stange lost more than $30,000 on a bogus business opportunity. After seeing an advertisement, Stange bought into what he thought was a business setting up Internet kiosk machines. He was promised the machines could generate a $100,000 a year in revenue. But he soon realized he'd been taken.
DALE STANGE, INVESTED IN FRAUDULENT BUSINESS: The things that they had promised weren't happening because they were to take care of all the advertising on the machine and that never came about.
DHUE: Stange is far from alone. More than 700 people fell for that Internet kiosk scam and lost more than $18 million. The company that ran it, Pantheon Holdings, is now out of business, its employees in jail. One of them, Blake Ladenheim, was sentenced to five years in prison after being taped in this exchange with a cooperating witness.
VOICE OF BLAKE LADENHEIM, PANTHEON HOLDINGS: We know what we're doing, we're big boys. We know we're taking peoples' life's savings and turning it into our weekly income. That's what we're doing.
DHUE: Under operation project false hopes, law enforcement officials have gone after bogus businesses that bilked investors out of more than $100 million. The government says it will try to recover for the victims, but most will end up with nothing.
PETER KEISLER, ASSISTANT ATTORNEY GENERAL, JUSTICE DEPARTMENT: The reality is that money invested in these schemes is generally money lost forever and so while we can take aggressive action to shut these down for the future and protect people in the future, it's much harder to do something for people who've been victimized in the past.
DHUE: To keep from being victimized, officials warn consumers to beware of ads for opportunities that promise an ideal work situation: the ability to set your own hours, be your own boss or work from home. Also beware of claims of certain amounts of money and the promise of little or no risk.
DEBORAH PLATT MAJORAS, CHAIRMAN, FEDERAL TRADE COMMISSION: If a business opportunity promises no risk, little effort and big profit, it almost certainly is a scam.
DHUE: Experts also warn that checking out businesses ahead of time, say with the Better Business Bureau, isn't foolproof. In many cases, bogus businesses take the money and run before consumers have a chance to complain. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Commentary"-Countdown to Election Day
SUSIE GHARIB: Tonight's commentator says don't be distracted by Christmas. The real big event is still to come. Here's Daniel Henninger, deputy editor of the editorial page of "The Wall Street Journal."
DANIEL HENNINGER, DEPUTY EDITOR, WALL STREET JOURNAL EDITORIAL PAGE: There may be only 12 shopping days until Christmas, but if you want real pressure, there are only about 680 days until the next presidential election. Get cracking! And many are -- McCain, Brownback, Giuliani, Clinton, Biden, Vilsack. The list of early presidential shoppers seems endless. The final purchase, though, gets made by voters in 2008.
We, of course just had an election, and the exit polls were revealing. Thirty six percent said they voted against Bush, but 40 percent said he wasn't a factor. The most important issue -- at 41 percent -- was corruption, not Iraq. Married voters still tended to vote Republican but by a narrow margin, 50 to 48 percent. And self-identified independents were 26 percent of the electorate this time. This was not a highly ideological election. Voters seemed to trend toward the political center. This might suggest that presidential victory in 2008 lies at the center.
But how does a candidate get there? The center is not a party. Most party voters still lie pretty far on the left or the right. Historically, it's been hard to secure a nomination through presidential primaries if a candidate ignores the left or right. More than ever, 2008 looks like an election for political contortionists, stretching from the center out to the extremes and some of them are surely going to snap. Stay tuned, the run to 2008 is going to be very interesting. I'm Dan Henninger.
"Tech Talk"-It's A Small World
SUSIE GHARIB: If you're making a holiday gift list and checking it twice, we have an idea for you: think small! That's because, tonight, our holiday "gifts and gadgets" series is looking at good things that definitely come in small packages. So here's Scott Gurvey, with a look at what's hot in the world of tiny tech.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: They may be stocking stuffer-sized, but some of the hottest products this year put plenty of power in your pocket. This Sony reader is technology's latest attempt at replacing paper. It is the size of a paperback but can hold the content of several hundred books which you buy and download. Microsoft's Zune media player made a big splash this year with its unique ability to share music with other Zunes. Sales have slowed somewhat as early adopters try to get friends to buy Zunes so they'll have someone to share with. That because most of their friends are still buying Apple's iPod. The tiny nano model now comes in a color to match every mood and outfit. Apple hopes you'll buy more than one.
Worrying that the market for iPods is reaching saturation has led many companies to produce accessories for the popular product, ranging from carrying cases to high quality speaker systems to battery extenders. Actually, if iPods have any real competition this year, it is coming from cell phones, which are fast becoming the Swiss army knives of the digital age. Here are some of the best-selling models carrying the Cingular, Sprint, T-Mobile and Verizon brands. All contain media players for both music and videos. All have Internet connections. All have GPS receivers for navigation and location functions. All run Windows mobile software to connect to email servers. Four of the five contain keyboards for writing - - tiny fingers are advised. And all contain digital cameras. You really don't need any other gadget. But you might consider insurance in case you lose it.
If your all-in-one device has Bluetooth, a short range wireless technology, the Paris-based Parrot company has two neat accessories. This in-car unit sits on your dash and provides for hands-free calling as well as easy reading of screen images. And this digital picture frame displays your digital photos and through the Bluetooth connection, you send the pictures you took on your camera phone to the frame for display. With any of these, you almost don't need a desktop computer. But if you still have one, have we got games and other nifty software for you. That will be tomorrow's report. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Paul Kangas' Stocks In The News
PAUL KANGAS: Stocks sold off this morning ahead of that Fed rate decision. Disappointing earnings from best buy and downgrades on Alcoa and Nucor offset solid earnings from Goldman Sachs. So at midday then, the Dow was off 70 points, NASDAQ down 22. Stocks improved this afternoon thanks to the Fed, an upturn in bonds and a drop in oil prices. But the Dow Industrial Average still closed down 12.90 points at 12,315.58. The NASDAQ Composite was off 11.26 at 2,431.60. Standard & Poor's 500 down 1.48 ending at 1,411.56. Over in the bond market, the 10-year note gained 8/32 to 101 2/32, putting the yield at 4.49 percent. For the fifth consecutive trading session, Ford Motor Co (F) topped the active list today on 29.4 million shares. Then came General Electric (GE) with a $0.42 gain. GE is boosting its quarterly dividend from $0.25 to $0.28 a share and also forecast 2007 earnings will be $2.17 to $2.23. That's still below the Street estimate of $2.24. Texas Instruments (TXN) up $0.47. After the close yesterday as we reported, company cut its fourth quarter earnings estimate down to $0.37 to $0.40. The Street estimate has been $0.42, but today JPMorgan upgraded Texas stock from "neutral" to "over weight" and it wound up with a gain.
Pfizer (PFE) lost a penny.
Best Buy Co (BBY) down $2.62, major casualty, traded as low as $50.31. Third quarter earnings were $0.04 below the Street estimate. They came in at $0.31 a share versus $0.28 a year ago and the rival, Circuit City stock incidentally in sympathy fell $1.36 to $23.58.
Citigroup (C) was down $0.63. Late yesterday the company named its investment banking chief as the new chief operating officer, but investors may have expected a bigger management shake up or maybe a major restructuring. The stock acted like it was a bit disappointed there.
Time Warner (TWX) a $0.03 loss.
Corning (GLW), $0.57 drop.
AT&T (T) moved up $0.46.
And Motorola (MOT), tenth in volume, down $0.42.
Hewlett-Packard (HPQ) closed down $0.18, although the CEO told analysts this morning fiscal 2008 revenues should top $100 billion for the first time ever.
Then came Alcoa (AA) hurting the Dow a bit with that $0.44. RBC Capital downgraded it from "sector perform" to "under perform" on valuation.
And then came Goldman Sachs (GS) down $2.52 despite reporting a 93 percent increase in fourth quarter earnings over last year, $6.59, up from $3.35 and that was $0.55 above the Street estimate. Of course, the stock had quite a run.
Nucor (NUE), the steel company, down $4.75. The company sees fourth quarter earnings around $1.05 to $1.15. The Street estimate is way up there at $1.44. Big steel, U.S. Steel (X) was down $3.96 in sympathy.
And then Spartech (SEH) which is involved in thermo-plastics had higher fourth quarter earnings, $0.27 versus $0.16 a year ago, but the Keybanc brokerage downgraded the stock from "buy" to "hold" on a valuation basis.
Celestica (CLS) down $1.14. The company cut its fourth quarter earnings guidance from $0.15 to $0.23 to just break even or maybe $0.06 a share in earnings at best.
And Cooper Cos (COO) which makes medical products and also contact lens, got a downgrade from Bear Stearns from "peer perform" to "under perform."
NASDAQ's most active, Apple Computer (AAPL) down $2.61.
Followed by Google (GOOG) off $2.15.
Microsoft (MSFT) fell $0.11.
Cisco Systems (CSCO) a $0.03 drop.
Intel (INTC) rose $0.03. That was fifth in volume.
Research in Motion (RIMM) down $2.55.
Yahoo! (YHOO) a $0.26 gain.
Oracle (ORCL) down $0.08.
And then On Semiconductor (ONNN) a $0.32 gain there.
And tenth in volume was Qualcomm (QCOM) with a $0.06 closing loss.
Mamma.com (MAMA) did very well today, up just 80 1/2 percent with that gain of $1.91. The company has launched a new video search engine on its website and a very positive reaction to that, wouldn't you say?
Epix Pharmaceuticals (EPIX) was up $1.67 or 30 1/4 percent on news the company's in a pact with Glaxo Smithkline to develop a variety of drugs including one for treating Alzheimer's disease.
And those are the stocks in the news tonight.
