NBR Complete Transcript : 12-26-2006
Tuesday, December 26, 2006The Shopping Storm Strikes Again
SUSIE GHARIB; American shoppers were back in stores today, kicking off phase two of the holiday shopping season. Many retailers across the country lured in shoppers by opening their doors as early as 7:00 a.m. this morning and by offering deep discounts. They hope a surge in sales will boost post-holiday business. As Darren Gersh reports, so far, holiday retail sales are lagging last year's pace.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The holiday retail season is turning out to be less ho ho ho and more like ho hum. AG Edwards retail analyst Bob Buchanan figures same store sales will end up about two percent this season. He calls that disappointing.
ROBERT BUCHANAN, RETAIL ANALYST, A.G. EDWARDS: I think the bad news for the industry is that sales aren't happening. The good news is that inventories are well-controlled and therefore I think margins, generally speaking, are going to be decent for the fourth quarter as a whole.
GERSH: While Buchanan says retailers have improved their demand forecasting techniques, it's still hard to predict the weather, which has been so mild shelves are stuffed with winter weather clothing. The only really hot gifts this holiday season were these: gift card sales rocketed. The National Retail Federation's Scott Krugman says they're up more than 30 percent, to $25 billion this season.
SCOTT KRUGMAN VP COMMUNICATIONS, NATIONAL RETAIL FEDERATION: The stigma of gift cards being a lazy person's gift is just no longer the case. Apparently more and more consumers are buying them, which means more and more consumers need to redeem them.
GERSH: The surge in gift card sales has upped the percentage of overall holiday sales coming after Christmas from 10 to 15 percent. Shoppertrak co-founder Bill Martin says the gift card is extending the holiday shopping season from November through January which Martin says may actually help retailers.
BILL MARTIN, CO-FOUNDER, SHOPPERTRAK: They're better able to manage that in terms of having the right people at the right place at the right time. When it's a very narrow band, which could be 30 days leading up into Christmas, it's hard to have enough of the right people to provide a good shopping experience for their clients.
GERSH: Overall, the National Retail Federation is sticking with its forecast of a 5 percent rise in retail sales this year compared with a 6.1 percent gain last year. But that's an average number. Once again, luxury sales were in a class by itself, helped along by all those year-end Wall Street bonuses.
BUGHANAN: All things being equal, the high end is the place to be.
GERSH: Buchanan says one reason Middle America isn't shopping strong are those higher minimum credit card payments that took effect this year. Add that to the fall in home prices and it might explain why most consumers are shopping, but not splurging. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
GHARIB: Another post-holiday gift for consumers today: the price of crude oil fell sharply in New York trading. Light sweet crude for February delivery closed off $1.31 or to $61.10, down about 2 percent. The slide came as traders shrugged off threats by Iran to use oil as a weapon in its nuclear dispute with the west. Also helping prices head lower: relatively mild winter weather in the U.S. and forecasts for more of the same. And the Nymex saw unusually thin volume today as many traders are still away after the long holiday weekend.
One on One with Bernie Schaeffer, Chairman, Schaeffer Investment Research
SUSIE GHARIB: Our guest tonight is the most bullish market strategist for 2007, according to a recent survey of 80 Wall Street pros. He's predicting the Dow will close next year at 14,400. That would be a gain of 16 percent. He's also forecasting an all- time record for the S&P 500 at 1,580. Joining us now, Bernie Schaeffer, chairman of his own investment firm, Schaeffer's Investment Research. Hi, Bernie.
BERNIE SCHAEFFER, CHAIRMAN, SCHAEFFER'S INVESTMENT RESEARCH: Hi, Susie. Great to be here.
GHARIB: Nice to have you on the program. You know, it's interesting to see your turnaround in thinking. In the same survey last year at this time, you were one of the most bearish, predicting that the Dow would close 2000 at 10,000 and now you're the most optimistic about 2007. So why the switch?
SCHAEFFER: Well, I think the market really showed tremendous resiliency this year in the face of sort of the tail end of the Fed rate tightening, this boom in commodities that we had in the first half of the year where copper doubled in price just over the course of the second quarter. Continued double-digit earnings growth despite some of these head winds that the market was facing and I think we're in an environment right now where there's a tremendous amount of concern for 2007, whether it be soaring energy prices or a plummeting dollar or a severe recession in the economy. Yet basically we're in pretty good shape earnings growth wise, valuation wise. The market has put on a nice gain in the second half of the year. I think it's about expectations. I was concerned that expectations were too high going into 2006. And amazingly given how well we've performed particularly in the second half of the year, expectations as I see them right now in the options market, among short sellers, among analysts, among Wall Street strategists are actually more bearish now than they were at the end of 2005. That amazes me and that juxtaposition indicates to me there's sideline cash that can be committed to this market as the year -- as we move into the New Year.
GHARIB: As you know, for some time people have been very worried about the disappearance of the consumer. If that were to happen in 2007, that would certainly impact earnings and that would also impact stocks, wouldn't it?
SCHAEFFER: It would, but again, just thinking in terms of the backdrop, I mean, the old expression, it's already in there, basically this is a market that's positioned for surprises to the upside. There is a lot of concern about the consumer. There is a lot of concern about recession. This is why the forecast -- I'm amazed that my 15 percent forecast for the Dow, for example, was the most aggressive forecast in that survey. I mean, basically that's where the market averages are finishing in 2006. So it's not such a stretch to imagine that we're going to put in a year in 2007 like we did in 2006. Another factor which you don't really hear about is that third year of the presidential cycle, which we're going into in 2007. We haven't had a down year in a third year of the presidential cycle since 1960, and very often we get a gain from the lows like the low in 2006, second year of term, we get a 50 percent gain from second year of term to third year of term. If in fact, this would happen this year, that would make my forecast look very, very conservative.
GHARIB: That's very interesting. I also want to point out something else that I found was interesting in this survey because you said your top stock pick for 2007 is Lennar. That's the home builder. Given the sharp slowdown in housing and also the sharp fall in that stock, why are you so positive about Lennar?
SCHAEFFER: OK again, a difference between the industry, which is housing, and the stocks. Merrill Lynch did a great study a couple months ago which showed how the home building stocks will bottom well, well in advance of the bottom in the actual housing cycle. We've seen a 30 percent rally so far since the middle of the year in the typical housing stock. Lennar trades at an eight times, eight P/E relative to its forward earnings. There is a lot of recession, housing cycle bust mentality already built into those stocks. Wall Street analysts have very few buy recommendations on these stocks. The stocks are extremely heavily shorted. Again, similar to the market, a little bit more accentuated in the case of the housing sector, this is a sector that's positioned to react to surprises to the upside and negative news, the kind of news we've been seeing month after month, I don't think it's going to have a significant impact on these stocks. As a matter of fact, these stocks have been rallying in the face of negative news.
GHARIB: I got to jump in. We've run out of time. Real quickly for disclosure purposes, do you own Lennar stock?
SCHAEFFER: No I do not.
GHARIB: OK. Thanks so much, Bernie. We appreciate you coming on the program, hope you have a happy new year.
SCHAEFFER: A pleasure. Thank you, Susie.
GHARIB: We've been speaking with Bernie Schaeffer, chairman of Schaeffer's Investment Research.
Housing May Be The Foundation For The Economy's Future in 2007
JEFF YASTINE: So now that we've had one view of where the stock market is going in 2007, the next question is where the economy is going. Investment pro's have been looking into their crystal balls and predicting what will happen with the Federal Reserve, interest rates and other components of the economy. As Erika Miller reports, experts say there's one key factor that could cause trouble all around.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2007 is only a week away and economists are sharply divided on whether there will be growth or recession next year. The answer, they say, depends on what happens to the housing market. Pessimists worry the sector has fallen into a deep freeze, making consumers nervous about their finances. If the situation worsens, the bears fear consumers will slash spending, perhaps pushing the U.S. into recession. But optimists like economist Steven Gallagher of Societe Generale, don't think that will happen.
STEPHEN GALLAGHER, CHIEF ECONOMIST, SOCIETE GENERALE: We see the housing situation as one that's -- housing valuation -- as one that is supported by low mortgage rates, that is supported by strong income growth in the economy. So, on a national basis, we're not I would say, very worried about the housing market.
MILLER: He predicts economic growth will be at least 2.5 percent for the year, a moderate pace; 2.5 percent is also the median forecast of 21 economists polled recently by the securities industry and financial markets association. But a small group, including economist Bob Brusca of Fact and Opinion Economics, think growth could roar back in 2007 with surprising vigor.
ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS: I think in 2007, the economy is shifting gears and is going to be stronger. I think we're going to see growth move up above 3 percent into the 3 to 3.5 percent range.
MILLER: Experts are also split on the outlook for interest rates next year. Many economists, including Joe Lavorgna of Deutsche Bank, expect the Federal Reserve to cut rates.
JOSEPH LAVORGNA CHIEF US ECONOMIST, DEUTSCHE BANK: We believe the Fed's next move is a rate cut, likely to come at the end of the first quarter and we look for successive rate cuts after that so that in total, we think the funds rate will be cut 100 basis points in 2007.
MILLER: But others predict the economy will prove so resilient that central bankers will have to raise interest rates to keep inflation in check.
BRUSCA: I think that inflation is going to pick up again. I think that energy prices are going to see some renewed strength at that point. And I think the Fed is going to be hiking rates in 2007.
MILLER: Even if the U.S. economy doesn't meet the strict definition of recession, experts say consumers will likely feel the slowdown. Most economists expect the unemployment rate will rise next year, due to layoffs in construction, real estate and manufacturing. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Commentary"- Fun with Financial Funds
SUSIE GHARIB: And tonight's commentator has some thoughts on money, but not your money or my money or even his money. Here's Allan Sloan, Wall Street editor for "Newsweek."
ALLAN SLOAN, WALL STREET EDITOR, NEWSWEEK: We keep hearing that money is tight these days and that the Fed is likely to cut short-term rates next year. Well, let me tell you something. The people who talk about money being tight must live in a different world than mine. From where I sit, I see so much money sloshing around we're absolutely awash in liquidity.
I'm not talking about my own money, alas. I'm talking about the money pouring into hedge funds and private equity funds, which then have to lend it out or buy something with it in order to get a shot at earning big fees. Earlier this month, Ford Motor, which is burning money like SUVs guzzle gas, raised $5 billion by selling convertible securities, not to be confused with convertible cars. It started out trying to sell only three billion, but there was such demand that it sold five. Hedge funds piled into this stuff even though Ford is pledging most of its assets for huge secured loans. Those are up to $18.5 billion from the original $15 billion. The converts rank behind those loans, which makes it pretty risky. Hedge funds are making enormous loans. Others are buying junk bonds to finance leveraged buyouts being done by private equity funds. No matter what the statistics say, money sure doesn't seem tight. If anything, it's probably too loose, at least on Wall Street and especially when it comes to bonuses. I'm Allan Sloan.
"Last Word"-Vino Values
SUSIE GHARIB: And finally tonight, at year's end many investors take time to re-balance their portfolios. But experts say a growing number of investors are staying, shall we say, liquid? Collecting premium wines is now a growth industry with prices for Bordeaux and burgundies at some of their highest levels ever. For example, six magnums of premium French burgundy sold this year for more than $170,000. Just weeks later, a single bottle of 1955 chateau la tour went for almost $30,000. Of course, Jeff, for this type of investment, if you want to enjoy it, you have to destroy it, by drinking it.
YASTINE: That would be painful at $30,000.
Paul Kangas' Stocks In The News
YASTINE: That drop in oil prices, and the belief in the proverbial year-end rally helped boost stocks in a light post-holiday trading session. The Dow's gains were helped by an oversold rally in Wal-Mart stock and a boost in financial stocks like Citigroup and JPMorgan. By noontime the blue chips were up nearly 40 points. The NASDAQ joined in the recovery after falling in four of the last five trading sessions and the Dow picked up momentum as the session wound to a close. So the blue chip index ending up 64.41 points at 12, 407.63 and the NASDAQ rising 12.53 points to 2413.51 and the S&P 500 adding 6.14 points to close at 1416.9. Over in the bond market, the 10-year note gaining 5/32 to par and 5/32. The yield now at 4.6 percent.
And as you heard a moment ago, Ford Motor (F) topping our list here, gaining $0.07 on that news of published reports Ford talking to Toyota about some kind of partnerhip. Also the Thomas Weisel brokerage widened for its 2007 loss estimate from $0.60 a share to a loss of $1.25 a share.
ExxonMobil (XOM) gaining $0.64.
Eli Lilly (LLY) up $0.43, an appeals court upholding Lilly's patent on its top selling schizophrenia drug Zyprexa. That drug made up about a third of Lilly's total sales last year.
Pfizer (PFE) losing a fraction.
And Time Warner (TWX) gaining $0.14.
Then we have General Electric (GE) which also added $0.14.
EMC Corp (EMC) gaining a fraction.
Motorola (MOT) rising $0.22.
Wal-Mart Stores (WMT) adding $0.57, about 1 1/2 percent gain on that one.
And Chesapeake Energy (CHK) losing $0.47.
Alcoa (AA) rising $0.13. The aluminum refiner reaching a tentative deal with striking union workers at its Cleveland plant.
And then AMR Corp (AMR), the parent of American Airlines, rising $0.45. An Icelandic investment firm FL Group has taken an almost 6 percent stake in AMR Corp., the parent company.
Halliburton (HAL) a big military contractor, falling $0.29. Last week, the Defense Department said it would review all military service contracts worth more than $1 billion and beef up training for its contracting professionals.
Moving onto Fedex (FDX) shares which fell a nickel. European regulators looking into anti-competitive behavior in the air cargo industry, requesting information from Fedex.
And China Life Insurance (LFC) the big gainer of the day, rising nearly $10. The company plans a $3.5 billion initial public offering on China's stock market.
Anadarko Petroleum (APC) rising $0.56. Anadarko selling two gas fields in Louisiana to Exco Resources for $1.6 billion in cash. That sale part of Anadarko's move to cut debt after its acquisitions of Kerr-McGee and Western Gas Resources.
Applica Inc (APN) shares rising $0.60. For the second time this month, Necoo Industries raising its buyout price for Applica now to $7.50 a share you'll recall Applica agreed in October to a buyout price of $6 a share by Harbinger Capital.
And then NYSE Group (NYX) falling $2.71 perhaps on reports the Hong Kong stock exchange surpassed the New York exchange as the second most popular place for initial public offerings. According to the article in the "London Free Press," the London stock exchange remains number one for IPOs.
And then Build a Bear Workshop (BBW) up $1.58, benefiting from seasonal holiday sales.
Over at the NASDAQ, Apple Computer (AAPL) rising, excuse me, falling $0.69.
And then Microsoft (MSFT) gaining $0.35. Experts identifying numerous securities flaws in its new Windows Vista operating system, according to published reports.
Google (GOOG) gaining nearly $2.
Research in Motion (RIMM) falling more than $2. It's been down on profit taking since reporting third quarter results late last week.
Intel (INTC) rising $0.07.
Cisco Systems (CSCO) with a gain of $0.26.
Then we have Qualcomm (QCOM) falling $0.19. The company warning last week about first quarter results.
Applied Materials (AMAT) rising $0.48.
Oracle (ORCL) gaining a fraction.
EBay (EBAY) up a dime.
On our gainers, shares of Zi Corp (ZICA) rising by nearly 50 percent. The company striking a deal with T-Mobile to put its search engine feature on T-Mobile cell phones sold in the UK.
And among our losers, Telik Inc (TELK) shares losing more than two thirds of their total value. The company with its cancer drug Telcyte saying it did not demonstrate statistically significant improvement in the survival of cancer patients.
Finally, on the American Exchange, share of Midwest Air Group (MEH) rising $0.63. It's hired Goldman Sachs late Friday as a financial advisor. You'll recall Midwest rejected a takeover offer from Air Trans airway some weeks ago.
Those are our stocks in the news tonight.
