NBR Complete Transcripts: 12-22-2006
Friday, December 22, 2006Will Procrastinators Pay Off For Retailers
SUSIE GHARIB: The holiday shopping frenzy is on. Tomorrow is expected to be the busiest day of the season for retailers. After a disappointing start to the month, retailers hope procrastinators will save the season. As Erika Miller reports, the nation's retailers are pulling out all the stops to make sure this Christmas season is a very green one.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is make or break time for the nation's retailers and many are going all out to lure shoppers this weekend. Many stores are ratcheting up the discounts, opening early and closing late. A few are even open around the clock through Christmas Eve. Retail analyst Harry Ikenson of Soleil Securities says it will be a nail-biting finish.
HARRY IKENSON, RETAIL ANALYST, SOLEIL SECURITIES: Christmas falls on a Monday. When you have Christmas fall on a Monday, it's like a procrastinator's dream. They have like, I have a whole, full weekend and that's what they're doing. They're waiting.
MILLER: Most industry experts are cautiously optimistic. The National Retail Federation predicts sales during November and December will rise 5 percent. That would be slower than last year's 6.1 percent increase. But already there are clear winners and losers when it comes to sales figures. Retail analyst Jharonne Martis of Thomson Financial says electronics stores are expected to be top on Santa's list. JHARONNE MARTIS, SR. RESEARCH ANALYST, THOMSON FINANCIAL: We're seeing that electronics continue to be the big winners. TVs, plasma TVs, MP3, digital cameras and, of course, the video consoles like Nintendo wii and Sony Playstation that were sold out right away.
MILLER: Luxury stores like Nordstrom are also expected to do very well because they cater to wealthier customers who are typically less affected by gasoline prices. Online retailers are expected to have their best year yet. Research firm Comscore estimates online holiday spending will rise 25 percent over last year. On the flip side, analysts predict industry giant Wal-Mart will be the big loser.
MARTIS: We believe that the problem with Wal-Mart are more company- specific. It's not really a macroeconomic problem. And maybe it's time for Wal-Mart to start restructuring their business strategies.
MILLER: Gap is also expected to fare poorly, mainly because of fashion misses at its namesake stores. Analysts say it may be well into the New Year before they can get an accurate read of holiday spending. Gift cards now account for roughly 20 percent of holiday purchases and those sales don't count until the cards are actually used. Holiday spending doesn't end at Christmas. Last year, the week after Christmas accounted for more than 15 percent of holiday sales as consumers used gift cards and took advantage of even deeper discounts. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
The New Congress Will Tackle The Old Taxes
PAUL KANGAS: When the 110th Congress convenes January 4, one of the key topics of discussion will be taxes, specifically the alternative minimum tax. Many Democrats and some Republicans, want to reform or repeal the AMT, but as Washington bureau chief Darren Gersh explains, doing that will be difficult, hampered by the twists and turns of a very complicated tax.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: AMT twist number one: when it comes to the alternative minimum tax, Democrats are complaining loudest because the AMT hits voters in high-tax blue states hardest. But tax analyst Leonard Burman figures scrapping the AMT would mostly benefit those making between $200,000 and $500,000 a year -- in other words, the top 5 percent or so of taxpayers.
LEONARD BURMAN, DIRECTOR, TAX POLICY CENTER: Well, I guess it shows that Democrats don't hate rich people.
GERSH: The AMT was also created to make sure people making a million dollars or more pay income taxes. But because of the way the AMT is structured, people making less than that might pay a higher tax rate.
BURMAN: It's not a flat tax; it's a camel-shaped tax and it goes 26 percent, 32.5, 35 percent and then back down to 28 percent. And those people in that hump part in the middle are subject to the 35 percent rate. They're all on the AMT.
GERSH: A second AMT twist, says analyst Alan Viard, is that it takes away about a third of the regular income tax cuts the president has signed into law.
ALAN VIARD, ECONOMIST, AMERICAN ENTERPRISE INSTITUTE: Unless it eventually is corrected, it does take away part of his legacy, yes.
GERSH: Given all this, you would think AMT repeal would be a slam dunk for Democrats and Republicans. The political twist is this: in theory, 30 million middle class taxpayers could end up paying the AMT in a few years. But right now, only four million taxpayers pay it.
VIARD: The AMT doesn't look like a relevant issue yet. It's somebody else's tax. And so, if I were to come to them as a member of Congress or as the president and say I got rid of the AMT. You're not going to have to pay it, people would say, well, gosh, I never have paid it.
GERSH: And repealing it would require raising other taxes, which is what activist Robert McIntyre wants to do. He suggests Democrats raise the top rate on capital gains and dividends under the AMT.
ROBERT MCINTYRE, DIRECTOR, CITIZENS FOR TAX JUSTICE: And the upshot would be that the AMT would go from being paid 20 percent of it by the best off 1 percent, to two-thirds of it being paid by the top 1 percent, which is what it was supposed to be all along.
GERSH: The final AMT twist is the cost. Repealing it would cut Uncle Sam's tax take over the next decade by more than $1 trillion. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
China Is Toying IWith Taking More of the Toy Market
SUSIE GHARIB: From tickle me Elmo to Barbie and the Bratz, there's no question that toys are big business, especially this time of year. While millions of them will be bought here, chances are they weren't made here. China is the toy-making capital of the globe. And as Rob McBride reports from Hong Kong, there's a growing trend towards designing them there, as well.
ROB MCBRIDE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the central business district of Hong Kong, decked out for the holiday season, youngsters line up for their turn with Santa. But whatever toy the local children might wish for, the chances are it has been designed by somebody thousands of miles away, and will almost certainly have been made just up the road in mainland China. As undisputed king of toys, this part of the world accounts for 85 percent of all the world's toy production, and yet most of them are designed in North America or Europe. Probably the best known of Hong Kong's toy makers, Playmates -- they are the people who brought you the Ninja turtles -- began life producing toys for other people. It is called OEM or original equipment manufacturing.
SIDNEY TO, EXECUTIVE DIRECTOR, ORIGINAL EQUIPMENT MANUFACTURING: We started as an OEM business (INAUDIBLE) and we soon realized that if we continue doing OEM, then your destiny is in other peoples' hands. You're not creating things. You're not doing your own products.
McBRIDE: Playmates long ago made the shift to developing its own brands, but it is still something of an exception. At thousands of smaller companies like this one, filling toy orders for overseas clients is the main business. Specifically, water pistols are what have sustained this family-run firm for 40 years. But now, brother and sister team Wendy and Kevin Mak are making a radical departure into a line of collectible dolls.
WENDY MAK, MAKSCO TOY: We want to focus on something more like the collectibles and to have limited edition, higher-end, not the low-cost kind of water pistols.
McBRIDE: The dolls are based on the street life and characters of their industrial neighborhood.
KEVIN MAK, MAKSCO TOY: This is our brand called 2-dah-6 (ph), which means small potato. It also represents the unsung hero in Hong Kong.
McBRIDE: Hong Kong's streets a rich source of inspiration, Hong Kong itself though relatively poor when it comes to providing creative talent. In toy making, this is a city that traditionally hasn't had to think for itself. But while Hong Kong has gradually been making a name for itself in fashion as well as film, so toy designers are starting to follow. Original brands may still be scarce here, but at least Hong Kong companies are contributing to the design process.
TO: Take the example of a U.S. toy company. Ten years ago, most of the creative work would be done in the U.S. Now today, you may see a big portion of the creative activities are being done in Hong Kong, Hong Kong or (ph) China.
McBRIDE: These local toy design students are presenting their end-of- term projects for grading. This is one of only two colleges in Hong Kong offering toy design courses.
GREGORY CHEUNG, HK INSTITUTE OF VOCATIONAL EDUCATION: We are seeing more toy companies are investing in ODM, original design manufacturing. They design their own thing, put other people's label on it, so they're on a transition to original brand manufacturing.
McBRIDE: If Hong Kong is to emerge as a center for toy innovation and design, it is generally acknowledged it will need to produce more designers. And what makes a good designer for the industry? Well, someone like a da Vinci.
CHEUNG: We would like the student that can cross the boundaries between design, arts and being able to innovate and use technology for his product. It's kind of like trying to train a da Vinci.
TO: In order for the next generation to be more creative, the education system should allow that, should rather than like the system that I grew up with. I think the new thinking is giving that creativity a chance to germinate in the next generation.
McBRIDE: A slow process, but with each year, the Christmas list of toys that are designed here as well as made here is gradually growing. Rob McBride, NIGHTLY BUSINESS REPORT, Hong Kong.
"Market Monitor"-Thomas Herzfeld, President of Thomas J. Herzfeld Advisors
PAUL KANGAS: My guest market monitor this week is Thomas Herzfeld, the president of Thomas J. Herzfeld Advisors, a firm specializing in closed end funds and welcome back to NIGHTLY BUSINESS REPORT, Tom.
THOMAS J. HERZFELD, PRESIDENT, THOMAS HERZFELD ADVISORS: Thank you, Paul. Happy holidays.
KANGAS: And same to you. For our viewers who may not know, tell us the difference between closed end funds and exchange traded funds.
HERZFELD: Starting off with a tough question.
KANGAS: There you go.
HERZFELD: Exchange traded funds have fixed portfolios that generally trade around net asset value. Closed end funds have continually managed portfolios and can trade at premiums or discounts to the net asset value.
KANGAS: You are widely considered one of the top experts if not the expert on closed end funds worldwide. Tell us why you specialize in them and what strategies you use to make money by investing in them.
HERZFELD: Closed end funds usually trade at discounts and the idea of buying assets at a discount I always found compelling.
KANGAS: And you can short these as well as go long on the closed ends, right?
HERZFELD: Yes. If you can borrow the stock, it isn't always easy.
KANGAS: So but you trade them frequently in and out, up and down.
HERZFELD: Our strategy going back almost 40 years, is continuous trading. Buy at wide discounts and sell at narrow discounts, sell short at premiums.
KANGAS: What's the outlook for the kind of closed end funds you would like in this coming year?
HERZFELD: We're trying to stay away from where the traffic is congested. We're buying smaller funds now with low yields, and --
KANGAS: Small cap stocks?
HERZFELD: No, smaller capitalized closed end funds.
KANGAS: OK
HERZFELD: The large capitalized closed end funds are a little pricey at the moment.
KANGAS: So you're going for the bargains as usual. Those discounts attract you, don't they?
HERZFELD: Also the muni funds are under tax selling pressure right now and they look cheap.
KANGAS: OK, on your last visit with us just about a year ago, you recommended five closed end funds. Let's see how they've done since then. Nuveen Preferred fund up 19.3 percent. That's a great call and LMP - I guess that's Legg Mason, up 11.7 percent. Those were two of the five. Let's have a look at some more of those funds. Pioneer did well, up 15.4 percent. Eaton Vance, short duration income fund, 9.2 percent gain. And there was one other that you recommended, every one in the plus column. Western Asset high income, up 16 percent, great calls and all profitable. Any further comments? Are you still with these?
HERZFELD: Bear in mind, all of these paid out about 6 or 7 percent in analyzed yield, in addition to the gains.
KANGAS: So that would be what, 8 or 9 percent more than what we showed you in the way of gains?
HERZFELD: Exactly.
KANGAS: That's excellent. But you're in and out, up and down during the year, even in those funds that we showed, correct?
HERZFELD: All the time, yes.
KANGAS: How about some new recommendations?
HERZFELD: Well, we're sticking, as you said with funds a bit out of favor. Western Asset emerging market funds, symbol ESD, trading at a 15 percent discount to net asset value with a 6.8 percent yield.
KANGAS: OK, that's attractive. All right, let's have a second choice.
HERZFELD: Central Europe and Russia fund at a 7 percent discount to net asset value, much cheaper than the Templeton Russia fund which we also like, but that's trading at a premium to net asset value.
KANGAS: OK, go after those discounted funds. All right. Let's try number three.
HERZFELD: Alliance California Income Fund. They cut their dividend about a month ago. It went from a 15 percent premium to a 4 percent discount to net asset value where it's trading now. It's about a 5 percent tax-free yield.
KANGAS: OK, fair enough. We have time for another choice.
HERZFELD: Castle Convertible funds, relatively, one of the smaller convertible bond funds, one of the early ones, trading at a 13 discount. I think the management will do something about the discount and I just want to mention one thing. It will be ex-dividend on Tuesday, $1.78 so you have to adjust the price lower by $1.78.
KANGAS: How big does the discount have to be percentage wise to really attract you?
HERZFELD: Under normal conditions, 5 percentage points wider than average. Some of these mid (ph) that I recommended tonight meet that (INAUDIBLE).
KANGAS: Tom, do you personally own any of the funds discussed here?
HERZFELD: I own all of them. My clients own all of them and we own Western Asset in our fund as well.
KANGAS: OK, so you're well diversified in close end funds which are diversified themselves.
HERZFELD: Yes.
KANGAS: Very good. I want to thank you very much for being with us once again, Tom.
HERZFELD: Thank you very much Paul.
KANGAS: My guest, Thomas J. Herzfeld.
"Last Word"-Post Holiday Meal Workout
GHARIB: And finally tonight, while we would never try to dissuade you from savoring your Christmas dinner, we will at least provide a public service by letting you know what you're in for. That one gingerbread cookie will take 18 minutes of swimming to burn off, the fruitcake, 84 minutes of walking. Before you snarf that martini and a handful of Chex mix, plan to spend 47 minutes on your bicycle. Paul, dieticians say this time of year, food is like money. And once you know a food's value in calories, you can decide whether it's splurge worthy.
KANGAS: Warning: never snarf a martini. It's a sipping drink.
GHARIB: So is it splurge worthy?
KANGAS: Oh, yeah.
Paul Kangas' Stocks in the News
KANGAS: Stocks headed broadly lower this morning under pressure from tax loss selling and year-end portfolio reshuffling. So by noon, the Dow had posted a 77 point loss and the NASDAQ Composite was off 13. As trading slowed to a crawl ahead of the long holiday weekend, the market remained mired in lower ground and it closed there. The Dow Industrial Average lost 78.03 points at 12,343.22 today. This week, it rose only once, falling 102.30 points overall. The NASDAQ Composite closed down 14.67 at 2,401.18 today. And it fell every day this week for an overall loss of 56.02 points. The Standard & Poor's 500 Index dropped 7.54 ending at 1,410.76 today. In the bond market, the 10-year note fell 20/32 to par even and that put the yield at 4.63 percent.
Once again topping the active list Ford Motor Co (F) today on 22.3 million shares, the stock edging $0.11 higher.
Then Micron Tech (MU) up $0.45. Micron in with strong first quarter earnings, nearly triple last, $0.25, versus $0.09 then and sales were up a respectable 14 percent. Standard & Poor's repeated a "buy" on the stock today.
Red Hat (RHT) big winner, up $4.50 today. Third quarter earnings came out at $0.14, $0.02 above the Street estimate and well above last year's $0.11 and revenues soared 45 percent. The First Albany brokerage upgraded the stock from "neutral" to "buy."
Time Warner (TWX) a $0.12 gainer.
General Electric (GE) $0.20 loss. That was fifth in volume.
Then we see Pfizer (PFE) dropping a dime.
EMC Corp (EMC) $0.14 loss.
ExxonMobil (XOM) down $0.46, although a U.S. appeals court has cut the punitive damage against the company in the Exxon Valdez oil spill case, those damages cut in half to $2.5 billion now.
AT&T (T) lost $0.19.
And Motorola (MOT) $0.06 loss, tenth in volume.
Walgreen Co (WAG) up $0.72. First quarter earnings came in strongly, $0.43, up from $0.34 a year ago, $0.02 above the Street estimate. Sales were up 17 percent.
Then we see the car auctioneer Adesa (KAR) rising $2.38. Kelso and several other private equity groups have combined to acquire the company for $27.85 a share in cash.
Bentley Pharmaceuticals (BNT) up $1.11. The company's U.S. marketing partner Perrigo got FDA approval to market a generic form of Zocor in the U.S.
Nelnet (NNI) down $2.39. The story here, Canadian government has awarded a student loan contract to a competitor of Nelnet's.
And then we see Intercontinental Hotels (IHG) up $2.74. That's on speculation of a takeover. Possible suitors mentioned, Starwood Hotels and a Dubai-based consortium.
Research in Motion (RIMM) topped the NASDAQ active list, down $3.70, traded as high as $1.04, $140 today. Preliminary earnings came out after the close yesterday, $0.95, $0.02 above the Street estimate. Stock still down today.
Google (GOOG) dropped $0.62.
Apple Computer (AAPL) $0.70 loss.
Microsoft (MSFT) fell $0.34.
Qualcomm (QCOM) down $0.73. Yesterday the company cut its earnings outlook. Today, JPMorgan downgraded Qualcomm from "neutral" to "under weight." That was fifth in dollar volume.
Cisco Systems (CSCO) $0.36 loss.
Intel (INTC) $0.29 drop there.
Ebay (EBAY) fell $0.66.
But Liberty Media (LCAPA) jumping $4.23. The company will swap its $11 billion worth of Newscorp shares for Newscorp's stake in DirecTV. That will give Liberty control of DirecTV.
Yahoo! (YHOO) was up $0.07 and tenth in NASDAQ volume.
Pinnacle Airline (PNCL) did well, up $6.05 there. I'm not quite sure but yes, there's a 56 percent rise. The story here is a positive reaction to the company's new pact with Northwest Air.
Those are the stocks in the news tonight.
