NBR Complete Transcripts: 03-09-2007
Friday, March 09, 2007The Employment Picture Gives Wall Street A Much Needed Boost
SUSIE GHARIB: The Dow Jones Industrial Average finally posted a gain for the week, its first in three weeks, despite a mixed report today on the jobs market. Hiring by American businesses in February was the slowest in two years, but at the same time the unemployment rate dropped to 4.5 percent. As Scott Gurvey reports, the details of the employment data suggest the economy is holding up fairly well.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street welcomed today's numbers mainly because it had feared worse. Employers added 97,000 jobs in February. Revisions for the previous two months added 55,000 jobs to earlier estimates. Construction lost 62,000 jobs, mostly because of bad weather. Factory jobs fell by 14,000. That makes eight straight monthly declines for that sector. Brian Fabbri, chief economist of BNP Paribas, says the future for manufacturing is bleak.
BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: The hours worked actually declined for the second month in a row. It's not very common for month to month, back to back changes or reductions in hours worked and that usually is a sign that manufacturing is really starting to fall off.
GURVEY: A separate household survey showed the unemployment rate falling to 4.5 percent. The numbers eased concerns the current slowdown in the economy is getting worse. But while job growth for February was weak, there were signs the labor market is tight. Average hourly earnings increased a larger than expected $0.06. That could be inflationary and bond prices fell on the news, traders fearing the Fed's next move will be a rate hike. Drew Matus, senior market economist at Lehman Brothers does see inflation ahead.
DREW MATUS, SENIOR MARKET ECONOMIST, LEHMAN BROTHERS: One of the areas of weakness in the economy has been capital equipment spending. And what that means is that firms haven't really set up for trying to offset rising labor costs. And that means that unit labor costs will rise and when unit labor costs rise, over time we would expect an increase in inflation.
GURVEY: The next Fed meeting is March 20 and 21 and in an exclusive interview last night on NIGHTLY BUSINESS REPORT, William Poole, president of the Federal Reserve bank of St. Louis and an member of the open market committee, said the challenge will be to balance the risk of inflation against the likelihood of recession.
WILLIAM POOLE, PRESIDENT, FEDERAL RESERVE BANK OF ST. LOUIS: I think those risks are pretty evenly balanced. It is certainly the case, though that the inflation risk is the more serious one from my perspective and would require quicker action to deal with.
GURVEY: Still, for now, the bond market is expecting the Fed to leave interest rates unchanged when it meets in two weeks. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Congress Works To Outlaw The Pre-Text Pretense
JEFF YASTINE: Congress hit the re-dial button today on efforts to end the practice known as pre-texting. That's when someone lies to get your phone records. Lawmakers tried to end the practice in the last Congress, but couldn't overcome concerns from intelligence agencies and phone companies. Now the House Energy and Commerce Committee is trying again to pass tighter controls on phone records. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pre-texting has touched a nerve on Capitol Hill and lawmakers are determined to make it illegal to lie to get someone else's phone records. Congressman Edward Markey says those records are too personal to go unprotected.
REP. EDWARD MARKEY (D) MASSACHUSETTS: This information can be embarrassing, awkward and uncomfortable for a consumer. It can be dangerous when it's in the hands of stalkers, thieves, abusers and others who intend to do harm.
GERSH: As Congress moves to make pre-texting illegal, telecom companies complain the proposed new law would shut down their marketing operations. The new legislation would still let wireless and telephone companies use call records to sell new services to their existing customers. But, they would have to get customers to agree in advance before sharing calling records with third party and other so-called outward marketing partners. Walter McCormick, CEO of the U.S. Telecom Association says that opt-in provision would put an unfair burden on his industry.
WALTER MCCORMICK, CEO, UNITED STATES TELECOM ASSOCIATION: That information for being able to market outward has never been used for pre- texting. There is not any case whatsoever where there has ever been an inappropriate use of that information that has violated the privacy of an individual for outward marketing purposes.
GERSH: Privacy activist Marc Rotenberg says protecting consumers is more important than helping marketers.
MARC ROTENBERG, PRESIDENT, ELECTRONIC PRIVACY INFORMATION CENTER: I think the specific concern here, which the bill appropriately addresses, is that the companies take advantage of access to this detailed information and use that as part of their marketing determination and that's where I think we need a stronger safeguard.
GERSH: Both Democrats and Republicans agree it's now time to close the Internet cyber-bizarre where it is possible to buy records on who someone calls, when they call and for how long they talk. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
The Ranking Ranqueen is Tops in Trends
SUSIE GHARIB: Japan is known as the land of the rising sun. For businesses, it's also the land of the rising trend. Japanese merchandisers are at the cutting edge of trendiness. And as Lucy Craft reports from Tokyo, one chain of stores has become the last word on what's hot and what's not.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Since time immemorial, it's been a given in the consumer products business. There are winners and there are losers. But at this store, only mega-hits make the shelf. The Ranking Ranqueen chain culls sales data from conventional stores, and assigns rank to the top 10 or three in each of several hundred categories. Shoehorned into Japan's busiest train stations, Ranking offers a snapshot of Japan's greatest product hits, says Kazuyuki Tada, spokesman for Tokyu corporation.
TRANSLATION OF: KAZUYUKI TODA, CHIEF PRODUCER, TOKYO CORPORATION: In just five minutes, you know what's in style.
CRAFT: The tiny floor space is misleading. A bewildering array of narrowly focused categories is on offer. The top five varieties of, not just chocolate, but strawberry-flavored chocolate, the best-selling four kinds of lip gloss or MP3 players or bath powder.
TODA: Our rankings don't come from companies. They are more like hearing advice, word-of-mouth. This has greater impact with consumers nowadays.
CRAFT: A few categories like the top 10 CDs or books would be familiar to shoppers in America. But the merchandise generally reflects the overriding preoccupations of Japan's young females, dieting, beauty, snacking, and a fastidious approach to personal grooming. The current reigning champ at Ranking, earwax removal picks. Mariko Fujiwara is a consumer analyst.
MARIKO FUJIWARA, RESEARCH DIR., HAKUHODO INSTITUTE OF LIFE AND LIVING: It is a store and it's a store where they are happy to sell. But it's a store that has to make news every week. And that's the reason the assortment or the scope of products that they gather there.
CRAFT: Consumer expert Roy Larke says a shop which sells only top ranked items is a natural for Japan.
ROY LARKE, EDITOR, JAPAN CONSUMING: Yes, Japanese consumers are very fussy, very quality-conscious, but they're also very susceptible to being manipulated if you like, by fairly clever, very narrowly focused marketing campaigns and marketing campaigns that change brands and change products very quickly on a very life style, cycle and emphasize, this is the product everybody else is using, so you should use it as well.
CRAFT: Confounding skeptics, the parent company says the chain is profitable, attracting nearly 9,000 customers per store on weekends. Larke says the concept is tailor-made for Japan's hierarchical society.
LARKE: Here, because it's so important to be part of the group, to be seen as within the group and to be knowledgeable of what is going on in society, it's much more relevant to go to the same places, to buy the same products.
CRAFT: So far, the one-stop hit shopping idea has done so well in Japan, the chain's owners plan to roughly double the number of outlets here, and possibly even expand overseas. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Market Monitor"-Vince Farrell, managing director of Scotsman Capital Management
SUSIE GHARIB: Our "market monitor" guest tonight says the market correction isn't over yet, but he's still upbeat about investing in stocks. Joining us now, Vince Farrell, managing director of Scotsman Capital Management. Hi, Vince, nice to have you back.
VINCENT FARRELL, MANAGING DIRECTOR, SCOTSMAN CAPITAL MANAGEMENT: Thanks, Susie.
GHARIB: What is your sense of how much more selling until this correction is over with?
FARRELL: The corrections, Susie, never end in a couple of days. It takes a couple of weeks to a couple of months. It's nice to see a bottom has been put in place. The Dow went from 12,800 to 12,000 and it is not unusual for half of that decline to be retraced, but I think at a minimum, you're going to have to go back and test that low. So I do expect that to happen in the next couple of weeks and if we don't do it now, we'll do it later. Lows are always tested. I would rather get it out of the way now than have to wonder when it's going to happen in the next couple of months.
GHARIB: Vince, these last couple of weeks have been so painful for investors and yet you're still pretty upbeat about the market outlook. Why the optimism?
FARRELL: Painful -- the market now is only off about 4 or 5 percent from its high. So keep in mind how painful it is. But I'm optimistic because the economy looks pretty good. It is a slower growth trajectory but it's still pretty good. I heard the Lehman economist earlier in the show worried about unit labor costs and that is the fly in the ointment and that is an inflationary worry, but it is not at hand yet and I'm not sure that it will be. So right now inflation is contained, and even though interest rates have up ticked, interest rates are still worldwide very, very low. So the economy's pretty good. Interest rates are contained and corporate profits, while slower than they have been, are still very strong.
GHARIB: Let's go over your list of stock recommendations that you have for us tonight. At the top of your list you have AIG, the insurance company. Why do you like it?
FARRELL: AIG had an analyst meeting last week in which they reported a very good quarter. And keep in mind, half their business is life insurance. We think of it as property casualty, but it is life insurance as well. They announced an $8 billion share repurchase and said under normal circumstances they would increase the dividend 20 percent a year. That is an extraordinary statement by management that it is very optimistic about the outlook for the next couple of years.
GHARIB: Bank of America is another one of your stock picks. What is the attraction?
FARRELL: They had an analyst meeting within the past week and the chairman said they'll be able to grow earnings organically, meaning from the businesses they have, no acquisitions, 10 percent a year and the stock trades at only 10 times earnings. The market is at 15 times earnings and the dividend yield on Bank America is almost 4.5 percent and the yield on the 10-year Treasury is just above 4.5, so you get a Treasury bond yield and the opportunity for growth at the same time.
GHARIB: Tell us about Transocean, the oil driller.
FARRELL: Transocean is a more volatile stock, but they dominate the deep water drilling. They have ships that can drill in 12,000 feet of water and drill 25,000 feet down. Their free cash flow in the next three years is going to be about $7.5 billion because they're starting astronomical contracts. Keep in mind that total market cap for this company now, the number of shares out times the price is the market cap. The total market cap is about $21 billion and they're going to generate one-third of that in free cash flow in the next three years.
GHARIB: And you have General Electric also on your list, which has been doing rather well recently.
FARRELL: I've liked General Electric for a while. It has been a little bit of a disappointment, but the market is at 15 times. General Electric is about 15 times this year's earnings. But General Electric is going to grow much faster than the average stock and it also has a 2.5 percent dividend yield which is much above the average dividend yield in the market today. And I think they're going to raise that dividend at double-digit percentage growth for the next few years. So I think that's a very good opportunity.
GHARIB: We have 30 seconds. I want to wrap up with your last one, ExxonMobil, which also had an analyst meeting this week that was very upbeat.
FARRELL: They have $33 billion in cash on the balance sheet, will generate $25 billion in free cash flow this year. They're buying stock back at the rate of $7 billion a quarter and trading far below the normal multiple that it achieves. It usually trades about a market multiple and it is only 11 times earnings.
GHARIB: And in terms of disclosure, do you own any of these stocks?
FARRELL: I own them all, Susie, myself and clients.
GHARIB: Thank you so much for coming and our program, a lot of interesting information.
FARRELL: Nice to be with you.
GHARIB: We've been speaking with Vince Farrell, managing director of Scotsman Capital Management.
Paul Kangas' Stocks in the News
JEFF YASTINE: For all the hoopla about the February employment report, today it wound up being a quiet trading session Friday on Wall Street. A quick relief rally at the start, the Dow rising 60 points. That led to a round of selling as many traders cleared their books for the weekend. By early afternoon, the Dow was off 30, the NASDAQ down 10. But as oil prices slid to just below $60 a barrel, buyers cut those losses in the final hour. So the Dow closed up 15.62 points at 12,276.32. And this week the index rose in three out of five sessions for a gain of 162.22 points or 1.3 percent. The NASDAQ Composite slipping just a fraction to 2387.55 and that index rose twice and fell three times for an overall gain of 19.55 points. And then the S&P 500 rising nearly a point to 1402.85. As Scott Gurvey mentioned, the bond market weakened on those gains and average hourly earnings in the employment report, the 10-year note falling 19/32 to 100 9/32, putting the yield at 4.59 percent.
And now let's take a look at our stocks in the news tonight.
And starting things off, General Electric (GE) losing $0.13. The Dow component seeking more partnerships in China to expand credit card operations there.
And there's CVS Corp (CVS) gaining $0.19. A Delaware court ruling clearing the way for a vote by Caremark shareholders next week to consider the rival bid from CVS and Express Scripts. Some analysts think Express has overextended and would have difficulty raising its bid for Caremark.
And then there's New Century Financial (NEW) lost $0.66 at new lows and you heard the news from Susie just a moment ago.
Ford Motor Co (F) was unchanged, but reports out of London suggest a British bio-firm (ph) and a second company are the top contenders to buy the Aston Martin unit from Ford.
ExxonMobil (XOM) losing $0.73. Oil prices dipping about $1.50 a barrel today.
Motorola (MOT) down $0.16.
And then Pfizer (PFE) was unchanged.
EMC Corp (EMC) off $0.07.
SprintNextel (S) losing $0.07 as well. Analysts at Lehman Brothers warning the marketing costs are continuing to eat into profits at the company.
And Taiwan Semiconductor (TSM) down a fraction. (INAUDIBLE) will sell its final 16 percent ownership stake in that chip maker.
National Semiconductor (NSM) climbing $1.14. The chip maker says its inventory problems are resolved and it's getting new orders from cell phone makers. Analysts applauding that news and perhaps upside earnings surprises in future quarters.
Then Big Lots (BIG) vaulting $4 and change. Close to an eight-year high on healthy fourth quarter profits about double year ago levels. Management said the first quarter looks good and they announced a $600 million stock buyback program.
Luxury home builder Hovnanian Enterprises (HOV) climbing over $1. The first quarter loss, $0.91 a share compared to $1.25 profit in the year ago period. The drought of new buyers forcing Hovnanian to boost incentives and they're not forecasting a definite bottom in the housing market.
Vonage Holdings (VG) tumbling 14 percent, reaction to yesterday's loss of a patent infringement case brought by Verizon. However, Vonage says it is not going out of a business. It's had no loss of service to customers. It is appealing the case, but it can pay the $58 million damage award without too much of a problem if they have to.
Quiksilver (ZQK) sliding $1.25. Warmer temperatures late last year and January this year causing a meltdown in first quarter profits.
Then let's move onto the NASDAQ where Google (GOOG) fell $1.76.
And there's the damage to Yahoo! (YHOO), losing $1.59. An article in the "Wall Street Journal" suggesting now it could lose its partnership with AT&T which helps to sign up new DSL subscribers. However, late today, the two companies issued a release saying they are working together to adapt to changing market conditions and changing strategies.
Microsoft (MSFT) losing a fraction.
Amgen (AMGN) down for the day.
And so did Apple (AAPL).
Research in Motion (RIMM) falling over $2.
Intel (INTC) slipped a fraction.
Cisco Systems (CSCO) also down $0.07.
Qualcomm (QCOM) losing $0.09.
Dell (DELL) gaining $0.17.
And here's a new IPO Xinhua Finance Media (XFML) falling $1.65. It's a financial news and data service.
Then PeopleSupport (PSPT) tumbling nearly $9, saw results first quarter, results to be about $0.03 to $0.05 below estimates.
And Jones Soda Co (JSDA) climbing as well. They signed a big deal to put their product in Wal-Mart, Safeway, Kroger's and other national retailers.
Those are our stocks in the news tonight.
