NBR Complete Transcripts: 01-17-2007
Wednesday, January 17, 2007Ipod Sales Help Apple Take A Bite Out of The Competition
SUSIE GHARIB: Super-sweet earnings from Apple late today: quarterly earnings skyrocketed 75 percent on booming sales of its popular iPods. Apple earned $1.14 a share in its fiscal first quarter, blowing away Wall Street estimates of $0.78. Apple shipped 21 million iPods in the quarter, 50 percent more than the same period last year and much more than analyst projections. Sales of Macintosh computers jumped 28 percent. Revenues surged 23 percent to a record $7.1 billion. Looking ahead, Apple expects to earn $0.54 to $0.56 a share in its fiscal second quarter on revenues of as much as $4.9 billion.
CEO Steve Jobs said 2007 is going to be a quote very strong new product year with the launch of the Apple TV and the recently unveiled iPhone. Separately, Apple said today it's voluntarily providing Federal officials with the finding of its internal stock option backdating investigation.
The PPI Feeds on the Latest Inflation Numbers
SUSIE GHARIB: On Wall Street today, investors reacted to a surprisingly strong report on inflation. The latest producer price index rose sharply for the second month in a row. Erika Miller takes a closer look at whether inflationary pressures are heating up.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many economists were stunned by the sharp increase in wholesale inflation. Producer prices shot up .9 of a percent, almost double expectations. That comes on top of a 2 percent increase in November. The so-called core rate rose a more moderate .2 of a percent. That was also more than anticipated. Because it factors out volatile food and energy costs, the core rate is considered a more reliable inflation gauge.
Much of the increase in the overall inflation rate came from a 2.5 percent gain in energy costs. But some economists think that increase was exaggerated by the government's seasonal adjustment process, which anticipates lower fuel costs this time of year. The government's survey also took place early in the month, before the big drop in energy prices. The cost of food also surged during December, rising almost 2 percent. Economist Cary Leahey of Decision Economics says that's a more troubling development.
CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: Grain prices are certainly up and I think there will be some real food price inflation, meaning food prices rise faster than the overall rate of inflation. But I'd be surprised if that was more than a six-month worry.
MILLER: For the first time in several months, vehicle prices had little impact on the PPI. Light truck prices rose .7 of a percent, while cars fell .2 of a percent. Most economists don't think today's report will sway Federal Reserve policymakers one way or the other when they meet in two weeks. The central bank is widely expected to leave short-term interest rates unchanged at that meeting. But some economists, including Conrad deQuadros of Bear Stearns, think the central bank will opt to raise rates later this year.
CONRAD DEQUADROS, SR. ECONOMIST, BEAR STEARNS: Our feeling is that by perhaps the early summer, the Federal Reserve might nudge rates higher by another 25 basis points. Then potentially later on towards the end of the summer, early fall, we might see another 25 basis point rate hike.
MILLER: When it comes to inflation, policymakers are more concerned about what happens to prices at the retail level. Economists say the Fed will pay close attention to the government's consumer price index due out tomorrow. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Tis The Hour for the House To Study Student Loans
SUSIE GHARIB: The House of Representatives is heading towards the finish line of its first 100 hours. Today, the House passed a key item on its agenda: a bill that would cut interest rates on student loans in half. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The typical college student graduates with $17,500 in student loan debt. Nkiru Nnawulezi is helping pay for her college tuition with student loans. She likes the idea of a lower interest rate.
NKIRU NNAWULEZI, COLLEGE STUDENT: Anything to make things easier on the students and help out education, I think is important.
DHUE: That's just the kind of reaction Democratic supporters are counting on. Congressman Tim Bishop says the proposal will make college affordable to more Americans.
REP. TIMOTHY BISHOP (D) NEW YORK: High indebtedness scares people off. High monthly obligations once they graduate scares people off and what this legislation does is it targets it.
DHUE: The legislation would phase in interest rate cuts on subsidized Federal loans for undergraduate students from the current 6.8 percent to 3.4 percent over five years. To comply with budget rules, the rate cut reverts to 6.8 percent in 2012. To offset the nearly $6 billion cost to the government, the proposal increases fees charged to lenders. The financial aid director at American University, Brian Lee Sang, says while students will benefit, the impact is limited.
BRIAN LEE SANG, FINANCIAL AID DIRECTOR, AMERICAN UNIVERSITY: It is a good thing that students are getting this sort of interest-rate cut, but in terms of paying for school right now, the maximum loan amounts are exactly the same, the aid that's available is exactly the same.
DHUE: Critics say the proposal won't help the neediest students. Republican Congressman Buck McKeon says a better approach would be to increase Pell grants.
REP. BUCK MCKEON (R) CA: Why don't we put those resources to those students that are trying to get into college rather than give a bonus to those who have graduated and are now going to repaying a loan?
DHUE: But some doubt increasing Federal aid will lower college costs. Over the past six years, Federal spending on student aid has increased by 57 percent. Brian Riedl is with the Heritage think tank.
BRIAN RIEDL, HERITAGE FOUNDATION: Historically, student aid increases have led colleges to increase tuition, because once students have more funds, they'll capture it in higher tuition.
DHUE: The bill now moves to the Senate, where it faces an uncertain future. Senator Ted Kennedy wants to expand the bill, but it's unclear if there are the votes to support that kind of measure. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Barry Ritholtz, Chief Market Strategist, Ritholtz Research and Analytics
PAUL KANGAS: My street critique guest tonight says the slump in housing could have a big impact on other markets. He's Barry Ritholtz, the chief market strategist at Ritholtz Research and Analytics. Barry, welcome to NIGHTLY BUSINESS REPORT.
BARRY RITHOLTZ, CHIEF MARKET STRATEGIST, RITHOLTZ RESEARCH & ANALYTICS: Thanks for having me Paul.
KANGAS: In recent weeks, we've had a number of analysts saying that the housing slump has pretty well bottomed out and things are picking up and we have a chart which indicates that things do appear to be getting better after a terrible time in recent months. Do you put any credibility in that argument looking at the up tick in this chart at the right side of it?
RITHOLTZ: No, I don't. I think calls for the bottom in housing is a little premature. There's still a tremendous amount of inventory out there. While rates are not terrible, they're much higher than they were when housing was doing well. The chart you showed is the home builders' sentiment index. While it's off the bottom, it's still so far away from where it is when housing is robust. It doesn't appear there's a bottom there yet.
KANGAS: What markets will feel the sting of a continuing housing bust and why?
RITHOLTZ: Well, if you look at the sectors that did very well when housing was ascending, things like electronic retailers and mortgage underwriters, auto sectors, durable goods and sub prime mortgage lenders, they did terrific from 2002 to 2005. Now that housing is cooling and probably is going to cool another eight to 12 months at the very least, these sectors are going to feel some pain and that includes everybody from Best Buy to Circuit City to GM and Ford.
KANGAS: So stay away from those sectors and those big kind of stocks right there.
RITHOLTZ: They're in a void absolutely.
KANGAS: All right. Well, what sectors do you favor right now given the current environment?
RITHOLTZ: We saw people continue to take money out of their homes through mortgage withdrawals and that helped a lot of mortgage brokers and a lot of mortgage underwriters. But it didn't really help the credit card companies. If you take a look at American Express or Mastercard we've seen revolving credit debt go up. That's good for their bottom line and I think that's going to continue to help them. We also like any stock, any of the big cap stocks that are going to be benefit from the weak dollar and are going to be able to sell their goods overseas. That includes companies like GE and Honeywell and Disney.
KANGAS: Very interesting. Let's have a few more of those that will benefit.
RITHOLTZ: Well, you know, if you look at the things that did so well for the past couple of years, a lot of it had to do with cheap money. It had to do with inexpensive rates and as that unwinds, you have to really avoid that. So on the avoid side, take a look at Whirlpool or something that we don't think is ready to buy. On the buy side, other things besides GE and Honeywell, you could look at United Technology. They're doing very well because of the weak dollar. Boeing and Dow Jones is another one that looks like it's about to succeed.
KANGAS: Barry, do you own any of the stocks you've mentioned there or have other disclosure to make?
RITHOLTZ: We own some of them. We have positions in our clients'accounts and in our funds.
Paul Kangas' Stocks In The News
SUSIE GHARIB: Today's larger-than-expected jump in wholesale prices did not sit well on Wall Street. The Dow fell 22 points after the first hour of trading, while the NASDAQ lost nine points, being undermined by a drop in Intel stock on its disappointing results after the bell yesterday. The blue chips did rebounded though, lifting the Dow into record high ground with a 22-point gain at mid-day, but then higher oil prices and lower tech stocks quashed the rally. So the Dow Industrial Average closed down 5.44 at 12,577.15. The NASDAQ tumbled 18.36 points to 2,479.42. Standard & Poor's 500 Index lost 1.28 ending at 1,430.62. Over in the bond market, the 10- year note fell 8/32 to 98 24/32, putting the yield at 4.79 percent.
Most active New York exchange issue, trading 22.8 million shares, Motorola (MOT) edging up $0.32 a share. Motorola's quarterly results are due out this Friday.
Then came Ford Motor Co (F) with a gain of a dime.
ExxonMobil (XOM) reacting to that rebound in oil prices, up $0.83.
Pfizer (PFE) $0.12 gain there.
And Corning (GLW), fifth in volume, was down $0.60 a share.
Health Mgmt (HMA) moved up $0.54. The company is planning a $3 1/4 billion REIT capitalization and that will include a one-time dividend to $10 a share cash.
Sprint Nextel (S) $0.15 loss.
General Electric (GE) down $0.13.
But AMR (AMR) down $1.45 despite reporting sharply higher earnings versus a loss last year, but I think the rise in oil got to the stock which has been very strong recently and vulnerable to profit taking.
Then ConocoPhillips (COP), fifth in volume, $0.74 gain there.
Procter & Gamble (PG) moved up $0.36 a share. Goldman Sachs upgraded it from "hold" to "buy" and boosted its price target on PG from $68 to $71 a share. Caremark Rx (CMX) up $2.15. CVS Corp. has sweetened its buyout bid of $53.67 per share in stock by adding a one-time $2 a share cash dividend to the bid. Now there's speculation that Express Scripts may sweeten its $57.24 cash and stock bid, could be a real battle for that company.
Parker-Hannifin (PH) up $2.96. Second quarter earnings $1.64, way up from $1.07 last year. Sales were up 16 percent and the company boosted its 2007 earnings estimate.
Quanex (NX) up $2.77. The company is predicting first quarter earnings will be $0.45 to $0.50, well above the $0.42 Wall Street consensus.
Lennar (LEN) the home builder, $2.23 gain, despite a fourth quarter loss of $1.24 versus earnings of $3.54 last year, but the loss was expected and the company says 2007 earnings overall will meet or exceed the earnings of 2006, quite a surprise.
Amphenol (APH) up $0.92. Big earnings there, fourth quarter, $0.85 up from $0.61 last year and the company plans to split its stock two for one.
Cablevision Systems (CVC) $0.76 gain. The company rejected the Dolan family's final $30 a share buyout bid.
However, accepting a buyout bid was Mills Corp (MLS), the REIT, up $4.69, agreed to be acquired by Brookfield Asset Management for $21 a share cash.
NASDAQ's most active, Apple (AAPL) down $2.15 despite those big earnings but the cautious outlook the company gave hurt the stock and it dropped another $1 in after hours trading.
Intel (INTC) off $1.26.
Google (GOOG) fell (ph) $7
And then Cisco Systems (CSCO) down $1.06, a lot of weakness in the tech stocks.
Research in Motion (RIMM) managed to buck that trend with a $0.41 gain.
Microsoft (MSFT) down $0.06.
While Symantec (SYMC) gained that much.
Dell (DELL) $0.67 loss.
Qualcomm (QCOM) $0.28 drop.
And then Rackable Systems (RACK) plunging $12.44. The company makes computer servers and storage systems and after the close yesterday, it's cut its fourth quarter guidance to $0.17 to $0.18 a share, well below the $0.27 Wall Street consensus estimate.
And finally, shares in Star Scientific (STSI) jumped $1.01 ahead an expected ruling on its patent suit against RJ Reynolds tobacco.
