NBR Complete Transcripts: 12-13-2006
Wednesday, December 13, 2006Retailers Are Finally Ringing In Holiday Revenue
SUSIE GHARIB: Jingling cash registers are raising hopes for a jolly holiday shopping season. The government reported today that retail sales surged in November, the first increase since July. The number was significantly stronger than Wall Street expected and the data eased worries about the slowing economy. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Shoppers were out in full force last month taking advantage of early holiday discounts. Retail sales soared 1 percent in November, more than expected. That comes after .01 of a percent drop in October. Excluding autos and gasoline, sales were up 0.9 of a percent. That's considered a more reliable measure of core household spending and it's the largest gain since January.
KATHLEEN STEPHANSEN, ECONOMIST, CREDIT SUISSE: It's a very telling message. For anyone who was concerned about the consumer -- the demise of the consumer -- it's not happening. In fact the consumer is saving the day.
MILLER: Eleven out of 13 retail categories posted increases with the biggest gains at electronics and appliance stores. Retail analysts were not surprised.
STEPHANIE HOFF: That category has been strong the last several years and it's really being driven by the product cycle, meaning that digital televisions are coming down so dramatically in price that it's spurring more and more consumers to buy them.
MILLER: Experts credit the gains in retail sales to a strong job market and a drop in gasoline prices from earlier this year. Some economists say today's report makes them even more optimistic the economy will withstand the downturn in housing.
STEPHANSEN: I think the important conclusion that we can draw from this is that the correction or slump that we see in the housing sector is not permeating the other parts of the economy, that the consumer sector remains healthy.
MILLER: Although the November data is encouraging, the majority of holiday spending occurs in December. So, experts say this month will be far more important for gauging consumer spending.
HOFF: I do think consumers have been trained to wait for bargains because every year we see these companies cut prices more dramatically as we get to the tail end of the season.
MILLER: And it may be well into the New Year until we have a good sense of holiday spending. Gift cards now account for almost 20 percent of holiday purchases and those sales don't count until the cards are actually used. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
United Tries To Land A Merger Deal With Continental
PAUL KANGAS: A flurry of activity in airline stocks today as talk heats up once again on possible consolidation in the industry. Today it's published reports that United Airlines and Continental are talking and news that Midwest Airlines has rejected a buyout offer from Air Tran. Last month, U.S. Airways started talking with Delta about a buyout offer. But as Washington bureau chief Darren Gersh reports, industry observers say talking is the easy part.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The flurry of airline merger talks is beginning to look as complicated as those route maps in the back of an in-flight magazine. Now it's United and Continental that are reportedly talking, even though a pre-existing deal lets Northwest block most bids for Continental. And analysts say Continental is happy flying solo.
PHILIP BAGGALEY: Continental feels they can compete now on their current basis. That might change though if several of the other big carriers get together. They may feel it necessary at that point to enter into a merger, even if that wasn't their first choice.
GERSH: United and Continental's routes would pair up neatly. It's the balance sheets that are messy. Borrowing to finance a merger would boost the two carriers' debt-to-revenue ratio well above their current levels which now top 100 percent. By comparison, Southwest's debt- to-revenue ratio is just 43 percent. And the price of doing any airline deal may soon be going up. Midwest Airlines announced it is rejecting an $11.25 a share buyout offer from Airtrans. Analyst Ray Neidel says this may not be the right time to do any deal.
RAY NEIDEL: All the airline managers right now are looking at a strong economy, strong demand, a good 2007 and that they want to be there with the recovery of the industry and they think that their enterprises would have more value once they prove that they could earn good profitability next year.
GERSH: But talking about a merger now does send a message to airline workers eager for their share of next year's profits.
CLIFFORD WINSTON: Airlines might be signaling to labor forces that we're interested in keeping our labor costs low and if you're going to make it difficult for us in future negotiations we will seek a merger and try to strike a deal with the other labor force so to speak and we'll get rid of some of you.
GERSH: And that may explain why the International Association of Machinists says it is fully prepared to defend the wages of its members, no matter what airline they work for. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with Liz Ann Sonders of Charles Schwab
SUSIE GHARIB: Our guest tonight says the stock market will do well in 2007. She'll also give us her views on that, plus what to expect from the Federal Reserve and the dollar. Joining us now, Liz Ann Sonders, chief investment strategist at Charles Schwab and Company. Hi, Liz Ann.
LIZ ANN SONDERS, CHARLES SCHWAB: Hi, Susie.
GHARIB: Before we get your forecast for 2007, tell us a little bit about your thoughts on the market's post Fed meeting, pretty choppy sluggish day today.
SONDERS: You know, I don't know that the market had much of a reaction specifically to the Fed meeting. I think it's one of those meetings that was very widely expected, both in terms of no change to interest rates and although I think there was a lot of attention given to the addition of the word "substantial," Ben Bernanke's modus operandi is to be somewhat blunt and honest. And clearly the housing downturn has been substantial in nature. So I don't think the addition of that word is that big a deal. I think we're coming into year end. We've seen a huge rally, a lot of liquidity has already come into the market. We may just be kind of in this choppy pattern as we consolidate some of these gains.
GHARIB: So tell us about your outlook for 2007. Are we going to see a dramatic move up?
SONDERS: You know, it's obviously hard to forecast that. I think that, you know, the move we have seen since the summer may be a big chunk of the rally that we're likely to see. We've seen a tremendous amount of liquidity sit behind this rally. It's been private equity liquidity. It's been hedge fund liquidity. It's been foreign central bank and foreign private investor liquidity. I guess the good news is what we haven't yet seen is a lot of U.S.-based individual investors that have yet to come into the market. So that could continue to be some fuel for the market. A lot of corporate cash but on the other side of things we have come very far in a very quick period of time. So I think maybe a period of consolidation is certainly not out of the question.
GHARIB: So how are you factoring in issues like fluctuating oil prices, weak housing, the weak dollar? How does that all of that figure into your forecast for the New Year?
SONDERS: Well, you know, all of those obviously will come into play. I think the weak dollar is probably one of the ones to pay most close attention to as it relates to the state of the economy. I think the one potential risk for 2007 is if you get a combination of a continued weak dollar that maybe goes beyond orderly in nature. If we really started to see some problems with the dollar at the same time the U.S. economy was slowing, then I think it puts the Federal Reserve, the U.S. Federal Reserve in a tough position because it may... They may be in a position to have to cut rates, but they have to be careful about not cutting them too aggressively in the face of a falling dollar. Now I think the risk of those two things happening simultaneously may be very low, but that would be one thing I would be looking for. And then of course short term we have oil prices. Part of the lift for the market for the economy for consumer spending, retail sales which I talked about was the reprieve we got in oil prices. I think we'll all - market watchers, consumers be watching to make sure the trend doesn't reverse itself going into the beginning of the year.
GHARIB: At Charles Schwab, you advise many of your clients who are individual investors. What is your advice for individual investors for what they should do, what should be their strategy for 2007?
SONDERS: At Schwab, one of the things that I think we do that's unique is we do take a very individual approach to our investors because all individual investors are very vast in terms of the differences between their tolerance for risk which is the most important thing to assess. So we have very conservative investors. We have very aggressive investors. But if you just cut it right down the middle for the purposes of this discussion for a moderate investor, in other words not terribly conservative not terribly aggressive, our recommendation is to have about 60 percent in stocks, 45 of which would be domestic, U.S. stocks; 15 would be international stocks, 35 percent in bonds and the remaining 5 percent in cash.
GHARIB: OK, lots to think about. Thank you so much, Liz Ann. I hope you have a nice holiday.
SONDERS: My pleasure. You too.
GHARIB: We've been speaking with Liz Ann Sonders, chief investment strategist at Charles Schwab and Company.
PAUL KANGAS: AOL's personal finance editor Hilary Kramer has been a regular street critique guest with us since September. So tonight we're going to look at how some of her stock recommendations have done. And Hilary, welcome back to NBR.
"Street Critique"-With Hilary Kramer of AOL
HILARY KRAMER, AOL: Thank you, Paul.
KANGAS: On your first visit in September 6, we talked about the home builders and the potential impact of a cooling in the housing sector. You gave us some names to own for the long term and said you still saw some downside, but these stocks broke out in late October. What happened to the cooling in the housing market? Do you see a change in sentiment there?
KRAMER: Well, in the new construction with mortgage rates at a seven- year low and also built in to these prices is a recovery in 2008, not 2007.
KANGAS: Right, well, Hovnanian was at the top of that board and that was your favorite stock, so you did very well. Do you still recommend them?
KRAMER: I love Hovnanian. It's right in the right socioeconomic areas and a great builder.
KANGAS: Also in the home- related sector you liked Lowe's over Home Depot and both are up. Home Depot doing a little better. How do you explain that?
KRAMER: There were some rumors around Home Depot Paul, especially with some possible takeouts there. So that's what gave Home Depot a bigger boost.
KANGAS: You're still with them both.
KRAMER: Yes, especially Lowe's.
KANGAS: Now back on October 4, you tackled the energy sector with issues you thought still had room to run and all are nicely higher. Are you sticking with them? Look at these gains, CNOOC and Petro, Lone Star, El Paso, Portland, all good gains.
KRAMER: There is still opportunity in the energy sector. We haven't seen the end of the run of oil prices. We could see $70 a barrel, but there's also more consolidation coming along. But I like Portland General the best. That's more of a utility play that's been low profile. It was a spin out of Enron.
KANGAS: OK, now, on your next visit, we looked at high-end retail names. And the first several Saks, Tiffany and Ralph Lauren you said to avoid. You were right on Saks which is down a bit, but Tiffany and Lauren are both up and Lauren moving to record highs recently on some brokerage upgrades. What do you say now, still avoid?
KRAMER: Still avoid those stocks and really it's just Christmas holiday expectations, big shopping. And after the New Year I think we're going to see them come down.
KANGAS: It won't be a holiday for the stocks. OK. Then you had the big winner and that was Four Seasons, a takeover play, up over 28 percent. That was a great call.
KRAMER: Thank you. I see that there's going to be more takeovers. There's a lot of money out there, private equity money and they're looking for acquisitions just like Four Seasons.
KANGAS: Now your only clinker in your first three visits was Ruth Chris, the steak house chain. It's down slightly since October. Do you still like it?
KRAMER: I just like Ruth's Chris. I see opportunity there for a takeover, for consolidation. It's just simply that money has moved to other fine dining stocks. That's the only reason it's down.
KANGAS: OK. Very, very interesting, Hilary. Incidentally do you own any of these stocks or have any other disclosures to make?
KRAMER: None of these stocks but I love the steak at Ruth's Chris.
KANGAS: OK. We'll watch it closely. You have a very fine record and we appreciate your being with us again.
KRAMER: Thank you, Paul.
KANGAS: We'll see you in a couple of weeks for your best bets for 2007. My guest Hilary Kramer, personal finance editor at aol.com.
"Money File"-Prioritizing Money
SUSIE GHARIB: In the "money file" tonight, one view of why money shouldn't be the most important thing in your life. Here's Chuck Jaffe, senior columnist for "Marketwatch."
CHUCK JAFFE, MARKETWATCH: Back in the 1980s, when my wife Susan and I were just starting out, she would have me pull off to the side of the road when we traveled across the south, so that we could gather big, perfect, beautiful pine cones. She'd use them for decorating and she hated leaving them behind years later when we moved. Last week, while I was shopping, I saw similar, classically gorgeous southern pine cones on sale for $3.50 a piece.
I could blame Martha Stewart and her classic centerpiece designs for pine-cone inflation. Over-commercialization springs to mind too. But my real concern is that people are so anxious to buy memories at this time of year that they forget to enjoy the actual experiences of the season. I'm sure someone can appreciate a pine cone after paying $3.50 for it, but they missed the effort of getting it, the majesty of the woods or the joy of two people filling their hearts while they're together filling straw baskets.
This is the season when we remember that the best things in life are free and that some things are worth more than money. So enjoy the first snowfall of winter, the flash of colors from a late afternoon sunset, the smell of homemade baked goods and more. Take your children and grandchildren out to enjoy the vast night sky on a cloudless night. And when those awestruck youngsters ask, leave them with the holiday message that those wonderful things aren't selling anything. They're not sponsored by anyone and that they will always come at the same price to all. I'm Chuck Jaffe.
"Tech Talk"-Picking The Right Program
SUSIE GHARIB: Chances are, someone on your holiday gift list has or wants a personal computer. So that's the focus of our final "gifts and gadgets" segment tonight. Here's Scott Gurvey with some ideas on what to buy and what not to buy.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you're in the market for a personal computer this year, I have a suggestion. Don't do it. Wait one month, collect some interest. Then buy a PC with Windows Vista already installed. Many stores are selling computers today with the promise of free Vista upgrades. But I'd rather they do it, not me, which doesn't mean you can't have fun buying computer add-ons.
Electronic Arts has updated its usual array of first class sports games. And Microsoft has a new version of flight simulator, the all time best selling computer game. To make for an even more realistic flying experience add the yoke, throttle and pedals from CH Products and try their new multi-function panel which you can program to simulate any of the plane's instruments. If you are interested in making music, there is nothing better than Sonar from Cakewalk. The new version six is both easier to use and includes more in the way of instruments and synthesizers. There is also the new Sonar power studio which takes all the complexity out of figuring out how to attach your keyboards, microphones, speakers and other music making tools to your computer
STEVE THOMAS: Cakewalk is going into its 20th year of being in the business and you know we've worked real hard to be the leading developer of powerful and easy to use music creation products.
GURVEY: Making your own DVDs and CDs has gotten easier. Check out this light scribe drive from HP that also burns labels on the top of special discs. Ulead's (ph) DVD movie factory five- plus reduces the time required to make a DVD when it runs on a computer with one of the new multi-processor chips, while Adobe Premier Elements for video, bundled with Adobe Photoshop Elements for photos, gives you most of the functions of Adobe's professional software at a fraction of the cost. And still one of my favorites, Dragon Naturally speaking version nine, is better than ever at taking your dictation. In this version, no voice training is necessary.
ROBERT WEIDERMAN: You can actually begin using the product right out of the box. Compose emails, surf the web, do everything on your PC completely by voice.
GURVEY: I plan on using Dragon to dictate my holiday gift list in case anyone is interested. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Paul Kangas' Stocks In The News
PAUL KANGAS: Wall Street got an early boost from those better than expected retail sales and the prospect of more airline industry consolidation. The Dow jumped 40 points at the outset of trading and the NASDAQ Composite rose seven points. But the early upturn ran into resistance as oil futures rebounded, so by mid-afternoon the Dow and the NASDAQ posted single digit losses. Buyers did return in the final hour though and the market ended slightly higher. The Dow Industrial Average closed up 1.92 at 12,317.50. NASDAQ Composite up .81 at 2432.41. Standard & Poor's 500 Index gained 1.66 ending at 1413.22. In the bond market, the 10-year note fell 23/32 to par 9/32, lifting the yield to 4.59 percent. For the sixth trading session in a row, Ford Motor (F) topped the active list today on 55.8 million shares. The company did announce some management changes, but nothing major.
Pfizer (PFE) down $0.22, second in volume.
Then came a new issue DCT Industrial (DCT). This is an industrial properties real estate investment trust, 16.3 million shares offered at $12.25, opened at $12.76, high of the day $12.90, backed off a little. The trading symbol is DCT as you might expect.
GE (GE) $0.14 loss. Yesterday the company boosted its quarterly dividend from $0.25 to $0.28 but forecast 2007 earnings of $2.23 at best and that was a penny below the Street estimate.
ExxonMobil (XOM) up $1.11. Morgan Stanley boosted its price target from $75 to $86 a share.
US Bancorp (USB) up $1.20. The company's boosting its quarterly dividend from $0.33 to $0.40 a share.
Then Home Depot (HD) up $0.41. The company is buying Chinese retailer called Homeway (ph) but it did not disclose any terms.
Time Warner (TWX) up $0.07.
Then Texas Instruments (TXN) down $0.34.
Tenth in volume, Advanced Micro Devices (AMD) with a $0.30 loss.
Then came the airlines, Continental (CAL) up $1.88. "The Wall Street Journal" reported it is in merger talks with UAL as we heard earlier.
And let's see what UAL (UAUA) did and that was up $2.01.
Some of the other majors, Alaska (ALK), American (AMR) and Southwest Air (LUV) all on the plus side today in that very active group.
Buckle (BKE), the apparel retailer, announced a $3 per share special cash dividend for shareholders. It also declared a three for two stock split, nice combination there.
And then Cooper Companies (COO) down $4.86 after dropping over $3 yesterday on a Bear Stearns downgrade. Today the Baird brokerage downgraded it from "out perform" to "neutral" even though it reported higher fourth quarter earnings of $0.13 versus $0.19 a year ago, but it did lower its fiscal year 2007 revenue guidance and that's what hurt the stock.
Another new issue, Atlas Energy Resources (ATR), a natural gas developer, 6.3 million shares offered at $21, opened at $21.86, the high $22.85, not a bad debut.
Apple Computer (AAPL) topped the active list on NASDAQ up $2.91. An analyst at the Piper Jaffray brokerage said the company should sell as many as 16 million iPod digital music players in the December quarter. That's well above the Wall Street estimate of 15 million.
Google (GOOG) second in volume, down $2.79.
Microsoft (MSFT) a $0.12 gain.
Cisco Systems (CSCO) a $0.17 rise there.
And Research in Motion (RIMM) had a good day, up $2.84, fifth in dollar volume.
Intel (INTC) a $0.03 loss.
Followed by eBay (EBAY) which was up $0.85.
Qualcomm (QCOM) dropped $0.44.
Oracle (ORCL) a $0.03 gain.
And then tenth in volume was Yahoo! (YHOO), losing $0.15 a share.
IPG Photonics (IPGP), this is a laser manufacturer, nine million share initial public offering at $16.50, opened at $25, the high of the day $26.06.
And then over on the American Exchange, more merger activity, Air Trans, whose stock rose $0.50 to $12.85 offered $11.25 per share cash to acquire Midwest Express Holdings (MEH) which was up $2.02, but that offer was as you heard, rejected.
