NBR Complete Transcripts: 01-05-2007
Friday, January 05, 2007Employment's Strength Is Wall Street's Weakness
SUZANNE PRATT: Good news for job seekers was bad news for Wall Street today. The Labor Department said American businesses added far more jobs than expected last month. But that raised concerns among investors that the Federal Reserve isn`t likely to cut interest rates anytime soon. The Dow fell 82 points while the NASDAQ lost 19. Scott Gurvey has more on today`s employment data.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a hot jobs report in more ways than one. The unusually warm weather in the northeast meant workers in several industries who are normally laid off at this time of the year stayed on the job. That helped produce an unexpectedly large 167,000 increase in non-farm payrolls in December, following a November increase to 154,000 which was bigger than previously estimated. The unemployment rate held steady at 4.5 percent. Jan Hatzius of Goldman Sachs says the warm weather was particularly good for the construction sector and temporary outdoor workers. Construction lost 3,000 jobs in December, but that`s far fewer than normal.
JAN HATZIUS, CHIEF US ECONOMIST, GOLDMAN SACHS: But even if you make some adjustment for that, I think the bottom line is that the labor market at this point is still doing more or less the same thing that it was doing six months ago, which is grow at a pace that`s at least in line with the underlying trend.
GURVEY: The services sectors were strong in December with professional and business services adding 50,000 jobs and health care providers putting on 31,000 new workers. Compared to the same month a year earlier, average hourly wages were up 4.2 percent in December. That`s above the inflation rate and means workers on average are seeing their first real wage increases in years. But that good news for workers also raises fears among inflation hawks who had been calling on the Federal Reserve to cut interest rates in response to signs the economy is slowing. Ethan Harris of Lehman Brothers thinks the increase in wages is something which should concern investors.
ETHAN HARRIS, CHIEF US ECONOMIST, LEHMAN BROTHERS: The Fed`s already a little bit worried about inflation. This report shows a continued tight labor market. Unemployment rate is a little lower than they`d like to see. And wage growth picking up. So while we don`t expect the Fed to hike rates in the next six months or so, the risks have increased with this report.
GURVEY: Most economists still believe that with GDP currently growing at two percent, the rate of job creation will slow down in the months ahead. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The House Approves Tax Hikes For Tax Cuts
SUZANNE PRATT: In one of the first major votes of the new session of Congress, the House today approved a rule requiring new tax cuts be paid with tax hikes or reduced spending. House Democrats say it`s a first step toward putting the people`s fiscal house in order. And as Stephanie Dhue reports, experts say that was the easy part.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the Federal debt nearing $9 trillion, House majority leader Steny Hoyer says the so-call "pay go" rule will help restore fiscal sanity.
REP. STENY HOYER, MAJORITY LEADER: Today is the dawn of new era in American governance. We now have the opportunity to change course and jumpstart a return to fiscal responsibility.
DHUE: Republicans disagree and most voted against it. The ranking Republican on the Budget committee Paul Ryan says "pay go" will raise taxes, but not cut spending.
REP. PAUL RYAN, (R) WISCONSIN: This is putting the American tax payer on a collision course with higher taxes. And why is it doing that? Because this system, this "pay go" system will make the pressure toward raising taxes to pay for new entitlement spending.
DHUE: While the "pay go" rules apply to expansion of entitlement programs and new tax cuts, they don`t apply to hundreds of billions of dollars Congress spends each year on everything from defense to education to national parks. Maya MacGuineas heads up a think tank which promotes a responsible budget. She says Congress still has to do heavy lifting to restore fiscal responsibility.
MAYA MACGUINEAS, EXEC. DIRECTOR, COMMITTEE FOR A RESPONSIBLE BUDGET: "Pay go" is a good thing that`s going to really put up the yellow light and say we don`t want to make things worse. Here`s something that could stop you, but it`s nothing that`s going to force or even really urge the reforms that need to happen, Congress is going to have to do that on their own.
DHUE: Ironically, the new rules will make it harder for Democrats to pass some of their own agenda items, like cutting student loan interest rates and fixing the alternative minimum tax. An AMT fix alone could cost $49 billion a year in lost tax revenues. Representative Stephanie Herseth, a member of a coalition of fiscal conservative Democrats, known as the blue dogs, says her group will enforce the new spending rules.
REP. STEPHANIE HERSETH (D) SOUTH DAKOTA: We will be looking at what we need to do, particularly for middle income America and knowing how important an AMT fix is, beyond just the one-year fixes we`ve been passing.
DHUE: Meanwhile in the Senate, leaders of the tax writing committee say they too will work on fixing the AMT in a fiscally responsible way. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
China Is Getting On Track With Public Transportation
SUZANNE PRATT: The number of people in China who own cars these days is growing rapidly. So it`s no surprise that traffic on the roads is growing rapidly as well, causing the government to focus on public transport. Urban light railways are now in vogue with 15 cities expected to have about a thousand miles of track in the next three years. As Nick Mackie reports from Chongqing, the challenge for local governments is to find a way to help pay for those railways.
NICK MACKIE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Ai Li`s morning crush, a downside to Chongqing`s booming economy. With 400,000 workers moving to this city annually, commuters like Ai Li find that public transport often strains to cope.
AI LI, CHONGQING COMMUTER: It`s not the best way to start the day, is it. MACKIE: And on many of the roads, it`s not as if there`s space for more services. (INAUDIBLE) is up an estimated 40 percent on 2005.
TRANSLATION OF: LI SHUQING, PROFESSOR, CHONGQING TRANSPORT UNIVERSITY: We calculate, that by 2015, the centre of Chongqing will have 3 million cars, the same as Beijing has now. That means a 10-fold increase on today`s number of 300,000.
MACKIE: Faced with potential gridlock and its impact on the GDP, Chongqing has embarked on a 10-year program to construct 215 miles of urban light railways that will carry almost 2 million people per day. Ai Li can now complete her journey to work by track, by catching one of the 21 trains that service first 18 kilometer line, $0.5 billion investment, she can shave 40 minutes off her morning commute.
LI: At least this part of the way, from my home to the office, has no traffic jam.
MACKIE: Eighty thousand commuters agree that the $0.30 ticket is worth it, even though this is double the bus fare. To keep the economies moving, nine Chinese cities have begun constructing urban rail networks. Over 250 miles of track are now operational, three quarters are subways. Over the next five years, 15 cities are expected to collectively have over a thousand miles of urban track. The total investment should exceed $30 billion and China`s city authorities are looking for a financial model that would shoulder some of the burden.
TRANSLATION OF: WU BO, MANAGING ENGINEER, CHONGQING MUNICIPALITY CONSTRUCTION COMMISSION: At present we haven`t found a satisfactory way. Normally we use "BT." Once the investor has built it, the government buys. This lowers the investor`s risk and it also mitigates the pressure on the government for a period.
MACKIE: The cities hope to follow the national rail network which is attracting foreign and private capital to build and operate new routes as well as provide equipment and technology. Since 2004, General Electric has inked over $750 million in supply deals with China`s ministry of railways. But investors are hesitant as the urban payoff period is long. Nonetheless, one shouldn`t underestimate the determination of this country`s authorities to lure investment with promises of a bounty tomorrow in return for supporting a much needed, developing industry, today. Nick Mackie, NIGHTLY BUSINESS REPORT, Chongqing.
"Market Monitor" -Michael O`Higgins, President of O`Higgins Asset Management
PAUL KANGAS: My guest "market monitor" this week is Michael O`Higgins, president of O`Higgins Asset Management, based in Miami Beach, Florida. Welcome back to "NIGHTLY BUSINESS REPORT" Michael.
MICHAEL O`HIGGINS, PRESIDENT, O`HIGGINS ASSET MANAGEMENT: Nice to be here.
KANGAS: After stampeding out of the starting gate with a huge rally on Wednesday, the first day of trading this year, the bulls of Wall Street seem to have vanished in the market, especially the commodity sector has tumbled. What is going on, Michael?
O`HIGGINS: I think it is a reaction to the Fed minutes that came out during the day and the market didn`t like the fact that the Fed seemed a bit cautious and less inclined to lower interest rates than people thought.
KANGAS: And do you think they`ll hold rates steady or perhaps even increase them? O`HIGGINS: Rates are high historically, on the short end. Long rates are about where they should be, so short rates should come down.
KANGAS: OK. Can we expect this kind of volatility as we`ve seen this week to become normal?
O`HIGGINS: Well, I wouldn`t be surprised to see volatility get -- it has been unusually low. So if it went up a bit, it would be actually more normal.
KANGAS: How do you see 2007 unfolding for investors in general?
O`HIGGINS: I think it will be OK. Probably something like last year, you know, in double digit, normal kind of long-term average.
KANGAS: Not a barn burner but --
O`HIGGINS: Stocks are not dirt cheap, but they`re not expensive either. And the economy is growing. So we should muddle through.
KANGAS: All right, now you haven`t been with us since July of 2005, which is all too long. But back then you gave our viewers eight buy recommendations. And let`s see how they`ve done since then. GE has moved up about 7 percent. But Merck a real winner, up 42.3, great call there. I congratulate you on that Merck call. Then Pfizer which just kind of sits there like cold porridge. We`ll get to that a think in a little while. AT&T has done very well. You actually got your AT&T by SBC Communications holding. And there was a share for share basis exchange.
O`HIGGINS: Right.
KANGAS: OK. That did really well. Then Verizon not bad, up 9.4, but that was offset by Turkish investment fund down 9.4. So that was a trade- off on those two.
O`HIGGINS: Broke even.
KANGAS: That`s right, not bad sometimes. And then the South Korea index fund, look at that, up 34 percent almost.
O`HIGGINS: Yeah.
KANGAS: Very nice and the Templeton Russia fund, look at that, 77 percent gain. What is behind that? O`HIGGINS: It`s an oil play. Oil has gone up dramatically. So oil -- Russia has a lot of oil.
KANGAS: And that is the reason why this Russian fund is down sharply.
O`HIGGINS: Exactly, got killed the last few days (INAUDIBLE) .
KANGAS: All right. Well, I know you have some new recommendations and I`m anxious to see what they are. Let`s start off.
O`HIGGINS: The dogs of the Dow we basically are repeating three of the ones from last time.
KANGAS: By the dogs of the Dow you mean...
O`HIGGINS: The cheapest, the Dow stocks with the highest dividend yield and I wrote the book on it and it is a very successful simple strategy that stood the test of time.
KANGAS: So the ones last year that didn`t do so well should do better in the current year.
O`HIGGINS: Right and some of them actually did fairly well. AT&T did very well, but Pfizer and AT&T.
KANGAS: Let`s have a look.
O`HIGGINS: Let`s have those charts.
KANGAS: GE first.
O`HIGGINS: GE.
KANGAS: That one is waking up you might say.
O`HIGGINS: It has been asleep ever since Jack Welch left it seems, since 2000 at $60. Now it is just starting to come to life.
KANGAS: You mentioned Pfizer. Let`s have a look at a chart there. It may have come alive a little bit.
O`HIGGINS: Great company, largest drug company in the world, great research effort. And it`s depressed in (AUDIO GAP) dividend.
KANGAS: And then we get to AT&T. And you still like it here. O`HIGGINS: AT&T is depressed compared to where it was.
KANGAS: That is some dog.
O`HIGGINS: It has had a good run but it`s still very undervalued.
KANGAS: OK. All right. Let`s move along. You have now the dogs of the globe or the world dogs.
O`HIGGINS: Yes. And these are the cheapest markets in the world.
KANGAS: The Netherlands.
O`HIGGINS: Three of them. One of the cheapest markets in the world is Netherlands, Europe in general is actually pretty cheap.
KANGAS: Look at that chart. It`s very strong.
O`HIGGINS: They had a good year last year although half of it was currency.
KANGAS: OK. Let`s look at some others around the globe. We see Taiwan index fund doing rather well.
O`HIGGINS: It looks well. But I mean in terms of the Asian markets, it`s been a real laggard.
KANGAS: And moving right along, we have another one that you like, South Korea, you recommended that before and you still like it.
O`HIGGINS: Again and it`s a laggard also.
KANGAS: We just have 30 seconds. There is one more I think you have.
O`HIGGINS: We had the precious metals fund, the pro funds precious metals.
KANGAS: Gold, silver, platinum.
O`HIGGINS: Gold, very cheap relative to paper. They`re doing well and I think they have a lot further to go.
KANGAS: Do you personally own any of these securities? O`HIGGINS: I own them all.
KANGAS: Every one of them. You like your own cooking don`t you?
O`HIGGINS: I do.
KANGAS: It`s been a pleasure having you again.
O`HIGGINS: Thank you Paul.
KANGAS: My guest, Michael O` Higgins, of O`Higgins Asset Management.
"Last Word"-Europe's Wheaties
SUZANNE PRATT: And finally tonight, a wheat field in Germany has a dubious distinction. It is now the center of Europe, quite literally. When Romania and Bulgaria joined the European Union on Monday, the EU`s geographic center moved east 510 miles. That put it just outside the town of Gelnhausen. To celebrate, city officials put up three new flagpoles. But since the absolute center is in the middle of a field, the poles were placed 30 yards off- center so the crops wouldn`t be trampled. The town has just 23,000 residents, all hoping for a flood of tourists. But there are other areas claiming to be the center spot, Paul, including a town in the Ukraine.
KANGAS: Well, denying the fact that the wheat field is the center, kind of going against the grain, isn`t it.
PRATT: What I want to know is what happens when Turkey wants to join the EU.
KANGAS: That`ll be interesting.
Paul Kangas' Stocks In The News
PAUL KANGAS: Also helping send the Dow into a downdraft, a downcast outlook for Motorola. Last night, the cell phone maker warned that sagging sales will cut into its 4th quarter profits. The company`s now expecting earnings of between $0.13 and $0.16 a share. Wall Street had been looking for around $0.39. Analysts say Motorola`s new phone models, like the "Q" Smartphone, and the "Krazer" are not selling well. That`s a tough challenge, since Motorola generates more of its revenue from handset sales than some of its competitors do.
Sales of stocks had Wall Street on the ropes this morning as that Motorola news reversed yesterday`s big tech rally and the strong employment report dashed investor hopes for a near-term cut in the rate -- in the interest rates. At noon, the Dow had tumbled 110 points. NASDAQ was off 33. The market cut its losses slightly this afternoon but was hampered by weak bond prices and pre-weekend caution, so it still ended broadly lower. Dow Industrial Average closed off 82.68 at 12,398.01 today. In this three- day week, it rose twice, fell once for an overall loss of 65.14. The NASDAQ Composite was off 19.18 to 2434.25 today. And like the Dow, this index was up on Wednesday and Thursday, down today, but it still gained 18.96 points overall. Standard & Poor`s 500 Index dropped 8.63, ending at 1409.71 today. In the bond market, the 10-year note fell 10/32 to 99 26/32, putting the yield at 4.65 percent.
Most active big board issue as you might expect, Motorola (MOT) trading almost 54 million shares, down $1.61. The low of the day was $18.03. As you heard, the company sees lower than expected fourth quarter sales and earnings and today, Bear Stearns brokerage downgraded it from "buy` to "hold" and there were also downgrades coming from Deutsche Bank and Piper Jaffray.
Nokia Corp (NOK) in a sympathetic move to Motorola, losing $1.08, traded as low as $19.69. Credit Suisse downgraded Nokia stock from "out perform" to just "neutral."
Ford Motor Co (F) in there with an $0.08 loss.
ExxonMobil (XOM) was up $0.52 despite a Lehman Brothers downgrade from "over weight" to "equal weight."
Pfizer (PFE) an $0.08 loss and that was fifth in big board volume.
AT&T (T) moving down $0.54.
$0.19 loss in General Electric Co (GE). Halliburton Co (HAL) off $0.23.
Time Warner (TWX) dropped $0.19.
Tenth in volume Home Depot (HD) losing $0.78.
General Motors (GM) moved up $0.60. The company is cutting more jobs in order to cut expenses and better compete with Toyota, which has been giving it some tough competition.
NYSE Group (NYX) up $7.29. The chief exec of Euronext expects the merger with the big board to close in the first quarter and that would be right on track.
Then we see Intercontinental Exchange (ICE) up $3.55. It expects to close its merger with the New York Board of Trade as early as next week. Meanwhile, Raymond James financial brokerage began covering the stock with an "out perform" rating.
Major loss in Lenox Group (LNX), that`s the tableware company, tumbling $2.44, almost 37 percent, traded as low as $4 a share today. The company sees a 2006 loss of $2.07 to as much as $2.17 a share and on top of that, the CEO of Lenox resigned today.
Herbalife ltd (HLF) down $9.56. The company cut its 2007 estimate of sales growth from growth of 10 to 15 percent down to 6 to 10 percent and it cited slower than expected growth in sales in Mexico.
Global Payments (GPN), there you see it, tumbling $7.96. Second quarter earnings were higher, $0.42, versus $0.37 last year, but it`s the first time in six quarters the company did not meet Wall Street earnings estimates. It also cut its 2007 revenue guidance. Standard & Poor`s downgraded it from a $50 down to $46 on a price target.
Humana (HUM) down $2.37. Lehman Brothers downgraded it from "equal weight" to "under weight."
And Pinnacle Entertainment (PNK) losing $3.35. The company will offer 10 million new shares, earnings dilution potential there.
Azz Inc (AZZ), electronics firm, was up $0.12 on the close. It traded as high as $55.53 and as low as $49.21 after reporting third quarter earnings $0.88 versus $0.30 a year ago, $0.04 above the Street estimate. Google (GOOG) topped the NASDAQ actives, up $3.93.
Followed by Apple Computer (AAPL) down $0.61.
Research in Motion (RIMM) up $2.73.
Yahoo! (YHOO) an $0.89 gain.
Cisco Systems (CSCO) edged a penny higher, fifth in dollar volume.
Intel (INTC) a $0.07 loss. Credit Suisse reinstated coverage on Intel with an "under perform" rating. Its previous rating was "neutral."
Microsoft (MSFT) $0.17 loss.
Dell (DELL) down $0.08. JPMorgan downgraded it from "neutral" to "under weight."
Amgen (AMGN) $0.17 gain.
A $0.46 loss in Qualcomm (QCOM).
Nvidia (NVDA) up - down $2.25. American Technical Research downgraded it from "buy" to "neutral" on a valuation basis.
And Broadcom (BRCM) off $1.07. Credit Suisse downgraded this stock from "out perform" to "under perform."
Those are the stocks in the news tonight.
