NBR Complete Transcripts: 12-20-2006
Wednesday, December 20, 2006Oil Supplies Drop & Oil Prices Jump
SUSIE GHARIB: A sharp drop in U.S. oil inventories triggered a jump in oil prices today. Crude oil futures gained $0.26 a barrel to close at $63.72, although prices did trade above $64 for the first time since September. As Suzanne Pratt reports, the latest supply data raises new questions about the future of oil prices.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers can blame Mother Nature this time for higher oil prices. Dense fog has closed shipping lanes along the Gulf of Mexico, forcing refiners to draw on inventories. As a result, according to government data, stockpiles of oil fell 6.3 million barrels in the week ended Friday. Not only did that exceed analysts' expectations, but it follows another draw down the week before. Experts say price gains in the oil pits were mitigated, however, as traders factored in the first increase in distillate inventories in 11 weeks. Stockpiles of gasoline also rose. Oil trader Bill Wallace says prices ultimately held fairly steady because the news was somewhat expected.
WILLIAM WALLACE, OIL TRADER, MAN FINANCIAL: I think those shipping problems are going to clear up. And if you look at the way the board is trading now, it says the market is not worried about crude supplies. The stocks are still pretty ample.
PRATT: The foggy situation comes at a time when much of the U.S. is experiencing fairly mild winter weather. That has recently eased demand and
some experts say despite the latest inventory numbers, there is evidence that demand growth in the U.S. appears to be in the midst of a longer-term slow down. ISI oil analyst Mike Rothman say it's the demand side of the equation that the market should focus on.
MIKE ROTHMAN, HEAD OF INTEGRATED OIL RESEARCH, ISI: If you look at where demand should be especially versus last year, which had been impacted because of hurricanes Katrina and Rita, things look a lot softer than you would have expected. And this is actually a problem that we're starting to see with the global numbers.
PRATT: Still, experts believe demand will increase in the coming months, as they bet Mother Nature will ultimately blast the northeast with winter temperatures. That could lift crude prices in the New Year, but few expect oil to revisit old highs.
ROTHMAN: For the most part, I think the highs are in. You'd have to have some sort of significant geopolitical disturbance and supply loss I think to put in new highs for crude.
PRATT: Experts say today's inventory numbers serve as a reminder that the oil market is always vulnerable to supply shocks. And some believe the fog, which has yet to clear, will also be a factor in next week's data. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One with Patrick O'Shaunessy, Financial Service Analyst at Morningstar
SUSIE GHARIB: The big board took a giant step towards getting much bigger today and becoming the first transatlantic securities market. Shareholders of the New York Stock Exchange OK’d its purchase of Paris-based Euronext landslide, with 99.7 percent of shareholders who voted approving the deal. The purchase closes in the first quarter of next year. The combined companies will then be known as NYSE Euronext and it will be the largest exchange in the world. The deal is just the first in what is believed to be a flurry of cross border mergers of financial exchanges. The big board's cross town rival NASDAQ is already trying to buy the London Stock Exchange. Joining us now, Patrick O'Shaunessy, financial service analyst at Morningstar. Patrick, welcome to NIGHTLY BUSINESS REPORT.
PATRICK O'SHAUGHNESSY, FINANCIAL SERVICES ANALYST, MORNINGSTAR: Hi, thanks for having me.
GHARIB: Well let me begin by asking you, this landmark transaction certainly rearranges the market. Is that a good thing?
O'SHAUGHNESSY: I think it is a great thing. It's really opening up new trading opportunities for investors on both sides of the ocean. You might see longer trading hours, new trading products such as perhaps mixing equities with futures or things of that variety. And it really opens up a lot of new avenues for investors
GHARIB: Will the NYSE Euronext be helpful for investors?
O'SHAUGHNESSY: I certainly think it will be. Any time that you have new opportunities, investors are going to take advantage of those opportunities and they'll find a way to make a buck wherever a buck can be made
GHARIB: But will it reduce - will it mean better prices for investors?
O'SHAUGHNESSY: That remains to be seen. A lot of the consolidation that you're seeing going on right now is due to some of the competition that exchanges like the New York Stock Exchange and the NASDAQ are facing right now. You have smaller ECNs and some regional exchanges adding pressure, so the larger exchanges are trying to consolidate in order to lower costs and better be able to lower their fees. So I would say at the worst it should keep fees about where they are although I think the long- term trend investors are going to see is that fees will continue to decrease.
GHARIB: As you look ahead in terms of more consolidation between these cross-border exchanges, do you see that the next step of the New York Stock Exchange Euronext will be doing a merger in Asia?
O'SHAUGHNESSY: I think that's one of three opportunities that they'll have going forward. I see a potential merger in Asia because they've expressed interest in that. You can also potentially see them investing in a futures exchange in the U.S. and a third opportunity would be investing in a smaller regional exchange in Europe.
GHARIB: Let's talk a little bit about NASDAQ. It's been trying to do a merger with the London Stock Exchange and has been rebuffed by every attempt that it's made. Do you think though that ultimately in 2007 we are going to see a merger between these two exchanges?
O'SHAUGHNESSY: I think that the writing is on the wall for the LSE as a stand- alone exchange. NASDAQ has been really aggressive in accumulating shares and now owns about 30 percent of the LSE and you have a lot of hedge funds really adding their two cents into the fray and it really looks like at the end of the day the NASDAQ is going to end up with the London Stock Exchange. They might have to add a little bit more to their offer, but I think eventually it's going to get done.
GHARIB: Let's talk a little bit about the stocks. I know you like the stocks of both the NYSE and the NASDAQ. Let's talk about the NYSE first. What's so attractive about it?
O'SHAUGHNESSY: Sure. Well, we really like the growth opportunities that the Euronext merger presents. And then beyond that, we really like John Thane's aggressive stance at consolidating the industry and really being the driving force in changing it and not just belaboring the fact that fees are going down, but really taking the next step and looking to see what's beyond. So the New York Stock Exchange currently is trading around 100 and we have a $128 fair value estimate on it here at Morningstar.
GHARIB: How about the NASDAQ stock?
O'SHAUGHNESSY: The NASDAQ we also like. It's currently trading around 33, 34, I believe and we like it. We believe its fair value is around 53 or 54. We think that it has opportunity to take some market share in (INAUDIBLE) list of stocks and we think that it's also going to take an active role in the consolidation of the industry
GHARIB: All right, a lot of good information. Thank you so much Patrick.
O'SHAUGHNESSY: My pleasure.
GHARIB: We've been speaking with Patrick O O'Shaughnessy, financial services analyst at Morningstar.
The FCC Opens The Lines Of Communication Commerce
SUSIE GHARIB: The Federal Communications Commission voted today to make it easier for telecom providers like Verizon and AT&T to offer video services to consumers. With cable rates on the rise, the agency hopes new competition will bring down prices and provide better service. But as Stephanie Dhue reports, the move also takes local governments out of the loop, and they're not happy with the agency's decision.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: When a phone company wants to offer video service, it must get a franchise agreement from a local government. But sometimes that process can take years. FCC Commissioner Robert McDowell says the new rules will keep local governments from delaying the approval of cable competitors.
ROBERT MCDOW ELL, FCC COMMISSIONER: It guards against localities making unreasonable demands of new entrants, while still allowing those same localities to protect important local interests through meaningful negotiations with aspiring video service providers.
DHUE: The new rules require local cable franchising authorities to act on new applications from phone companies within 90 days. It bans local government from forcing competitors to build out new systems more quickly than the existing cable company and limits the amount of franchise fees and contributions localities can charge. But Democrats on the commission say preempting local governments is the wrong approach. Commissioner Jonathan Adelstein says the rules will hamstring local municipalities.
JONATHAN ADELSTEIN, FCC COMMISSIONER: It would less about fiber to the home and more about fiber to the McMansion, because these localities will be precluded from ensuring that there is an orderly build out according to what authority Congress delegated to them.
DHUE: Local governments are likely to challenge the new rules. Jeffery Arnold of the National Association of Counties says the Federal government overstepped its bounds.
JEFFREY ARNOLD, DEPUTY DIRECTOR, NATIONAL ASSOCIATION OF COUNTIES: Part of the problem with a national franchising scheme is that it sets essentially a single standard for what's right for every single community.
DHUE: Analyst Paul Gallant says phone companies like AT&T and Verizon are losing market share to cable competitors that offer voice, video and high speed Internet.
PAUL GALLANT, MEDIA ANALYST, STANFORD WASHINGTON RESEARCH: Right now, most of the phone companies cannot offer that triple-play package, so they really need to speed their video deployment, and that's what the FCC is trying to help them with today.
DHUE: The new rules are already generating static. Key incoming House Democrats blasted the commission for siding with phone companies over local governments. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-with Dick Green, President of Briefing.com
SUSIE GHARIB: Tonight's "street critique" guest agrees with the general consensus on Wall Street and sees a favorable outlook for 2007. He's Dick Green, president of the trading analysis web site, briefin.com. And Dick, welcome back to NIGHTLY BUSINESS REPORT.
DICK GREEN, PRESIDENT, BRIEFING.COM: Thank you, Paul.
KANGAS: So you think the markets will continue their march higher next year. What's your bullish reasoning?
GREEN: Well, the fundamentals are all pretty good right now. We have decent economic growth and we think it will pick up in the second half of next year. Earnings growth will be good and most significantly inflation is back under control. It's moderated over the past six months.
KANGAS: The last two times we talked you liked a handful of sectors, namely the financials industrials and select health care issues. What sectors do you see leading the way higher in 2007?
GREEN: Paul, we'll stay with those. We still like the financials. The selected medical companies are very good choices, but we also think that technology will pick up here in 2007 as well.
KANGAS: Now when you first joined us back in September, you gave our viewers four recommendations. Let's see how they've done since then. Home Depot up 5.3, Bank of America up 3.4, General Electric, 9.5 percent gain and Immucor up 33.4. What caused that?.
GREEN: Immucor is a very strong, well run company. They've got tremendous cash flow and rising margins and they've had good earnings reports and the outlook is fantastic.
KANGAS: Are you still going with all four? You are?
GREEN: Yes, we stand by all four and look for Home Depot and Bank of America to catch up some.
KANGAS: OK. How about some new recommendations?
GREEN: Well, on our list right now is Coach. They do a fantastic job staying ahead of the fashion curve and they're an extremely well managed company. We also like Cisco through 2007. They're still on the forefront of what's happening in technology.
KANGAS: This has had a good move recently.
GREEN: Yes. We still like the stock quite a bit though.
KANGAS: OK. Go ahead.
GREEN: Finally I'd like to mention Verizon which is a long-term fiber optic play. They have a good, strong dividend and if you think the economy is going to slow down a little bit in 2007 in the first part, they're a good defensive play.
KANGAS: OK. So you still like all four that you recommended the previous time when you were with us. Now these new three, any other sectors that you like? We have a little more time left.
GREEN: Well, 2006 saw a broad increase in sectors. What we have going on is a broad increase in the market. So we think good diversification in 2007 will work as well as it did in 2006.
KANGAS: Dick do you own any of the stocks that we mentioned or have other disclosure?
GREEN: I own six of the seven. I don't own Coach at this time.
KANGAS: OK. All right, well, listen, I want to thank you for being with us again and we'll see you again in the New Year.
GREEN: Thank you, Paul.
KANGAS: My guest Dick Green of briefing.com.
"Money File"-Beating The Bank
SUSIE GHARIB: In the money file tonight, fighting back against your bank. Here's Eric Schurenberg, managing editor of "Money" magazine.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: Some banks like to talk about the importance of their relationship with you. Did someone say abusive relationship? Increasingly, it seems, the bank treats every transaction you make as an excuse to sock you with sneaky or unreasonable fees. Let's start with the fees you pay to use another bank's ATM. They've gone up about 50 percent since 1998, and although the dollar amounts aren't huge, two bucks added to $100 withdrawal is 2 percent. That's a lot when the bank's paying less than 1 percent on your savings. So what do you do when you need cash and your bank's ATMs are nowhere near? Make a debit card purchase and ask for cash back. It generally costs nothing.
Then there's the foreign currency fee, the price you pay for making an ATM withdrawal abroad. You might pay three bucks, plus 3 percent each time. Now, you still want to use plastic abroad since that gets you the best currency conversion rate. To avoid the fee, you need to find the right foreign ATM. Citibank gives you a break at all its own ATMs abroad. Bank of America lets you off the hook at those affiliated banks.
Finally, the bad deposit fee. That's the $10 or so you pay if you deposit a bad check from someone else. Never mind that you're the victim more than the bank. If you're unsure of a check, try cashing it first at the bank that issued it. If the check has already bounced, try protesting the fee to your bank. If all that relationship talk means anything, the least the bank could do is waive the fee. I'm Eric Schurenberg.
"Last Word"-It's A Wonderful Movie
SUSIE GHARIB: And finally tonight, 60 years later, it's still a wonderful movie. Today is the 60th anniversary of the first showing of director Frank Capra's classic movie "It's a Wonderful Life." The film, starring James Stewart and Donna Reed, premiered at the old Globe theater in New York on this date in 1946 at a private screening for charity. It opened in general release the next day. Stewart's character, George Bailey, finds the meaning of life by learning what the world would have been like without him. The film has become a Christmas classic. But Paul, Capra didn't intend it that way. It was the first movie he made after serving in World War II and he just wanted it to celebrate the lives of ordinary Americans who try to do the right thing for their families and friends.
KANGAS: Mr. Capra certainly did the right thing for movie-goers.
GHARIB: I love that movie.
KANGAS: A great one.
Paul Kangas' Stocks In The News
PAUL KANGAS: Stocks overcame minor early weakness with the help of continuing merger activity and some good corporate earnings reports. At noon, the Dow hit a record intra-day high with a 24-point gain, while the NASDAQ Composite was up 10 points. But those rising oil prices dragged the market down this afternoon. So the Dow Industrial Average closed off 7.45 at 12,463.87. The NASDAQ Composite fell 1.94 to 2427.61. Standard & Poor's 500 Index lost 2.02 ending at 1423.53. In the bond market, the 10-year note fell 2/32 to par and 6/32, putting the yield at 4.60 percent.
Familiar name at the top of the active board and that's Ford Motor Co (F) rising $0.15 on nearly 31 million shares. Yesterday, as we reported, Morgan Stanley upgraded it from "equal weight" to "over weight" on the company's newly found ample liquidity. Then came Pfizer (PFE) with a penny gain.
General Electric (GE) a $0.14 rise there.
And then EMC Corp (EMC) a $0.16 gain.
Hewlett-Packard (HPQ) with that $0.91 gain closed at a new 52-week high, fifth in volume there.
AT&T (T) down $0.04.
ExxonMobil (XOM) despite the higher oil prices was down $0.91.
Time Warner (TWX) a $0.04 gainer.
Citigroup (C) was up $0.07. On Monday, Merrill Lynch upgraded it from "neutral" to "buy" as you might recall.
Texas Instruments (TXN), tenth in volume was up $0.23.
Carmax (KMX) had a good day, up $4.14. The used car company, sales company, third quarter earnings jumped to $0.42 versus only $0.22 a year ago. The Street estimate was for only $0.25, so much better than expected.
Systemax (SYX) up $2.36. Third quarter earnings tripled to $0.33 versus only $0.11 last year and sales were up 18 percent, very respectable there.
John H. Harland (JH), this is a check printing company, up $5.84. M&F Worldwide is going to acquire John Harland for $52.75 a share and the stock of M&F Worldwide gained $2.19 to $20.49 on that news.
Lindsay Corp (LNN), which makes irrigation equipment among other things up $1.82, nearly a quadrupling in first quarter earnings from last year, $0.15 versus only $0.04 then and revenues soared 30 percent.
Then Sally Beauty Holdings (SBH), this is a spin off from Alberto Culver. The beauty supply company expects the loss of its exclusive rights to distribute L'Oreal pro products will hurt their revenues by $110 million in the last nine months of its fiscal year 2007.
Greenbriar Co (GBX), which makes railroad cars, down $5.61. The company sees lower than expected first quarter operating earnings of only $0.10 to $0.13 a share.
And then Park Electrochem (PKE) dropping $3.94. Third quarter earnings down a bit from last year, $0.47 versus $0.48 then and that's despite a 19 percent rise in revenues.
Then we look at Volt Info Sciences (VOL) up $2.72. The company announced a three for two stock split.
Google (GOOG) topped the NASDAQ active list down $5.373.
And then a big gainer, Redback Networks (RBAK) up $4.49. The LM Ericsson company (ph), big Swedish firm, will acquire Redback for $25 a share in cash.
Apple Computer (AAPL) down $1.55.
Research in Motion (RIMM) popping up $2.51.
Microsoft (MSFT) gained $0.10. That was fifth in dollar volume.
Cisco Systems (CSCO) a $0.24 loss.
No change in Oracle (ORCL).
Intel (INTC) a $0.06 loss.
And then Yahoo! (YHOO) $0.82 in the red.
And EBay (EBAY), tenth in volume, down $0.47.
Digitas (DTAS) a direct mailing company, up $2.42. Publicis (ph), a French advertising firm going to acquire Digitas for $13.50 a share in cash.
And finally, Siga Technologies (SIGA) rose $2.23 after the FDA assigned orphan drug status to the company's small ox vaccine which gives it seven years of marketing exclusivity.
