NBR Complete Transcripts: 03-30-2007
Friday, March 30, 2007The U.S. Trade Policy With China Changes
SUSIE GHARIB: A major trade policy shift today between the U.S. and China. The Bush administration announced new duties on imports from China to compensate for subsidies enjoyed by Chinese exporters. This is the first time in 23 years the U.S. has slapped import duties on a country that does not have a mature free market economy. The first target of the new law will be paper imports from China, but American steel companies and textile producers, who also face competition from the Asian nation, could soon ask for trade protection as well. Washington bureau chief Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The import duties would apply to the glossy paper used to print catalogues and magazines. Those paper imports from China tripled last year, and the Commerce Department says they were heavily subsidized. Commerce secretary Carlos Gutierrez says new tariffs will insure trade with China is fair trade.
CARLOS GUTIERREZ, COMMERCE SECRETARY: This is a step in that direction and this is a tool that we can use and that we are very willing to use when we have the opportunity.
GERSH: After a four month investigation, the Commerce Department concluded the Chinese government provided paper makers with subsidies ranging from discounted loans, to loan forgiveness, tax incentives and export subsidies. The Commerce Department slapped tariffs of 10.9 percent and 20.3 percent on the two largest Chinese paper producers. Importers will now have to deposit those tariffs with customs officials, but the duties aren't likely to become final until October. Manufacturers in the U.S. have been pushing for years for the Commerce Department to bring a case like this and the National Association of Manufacturers Frank Vargo says it's an important precedent.
FRANK VARGO, VP INTERNATIONAL, NATIONAL ASSOCIATION OF MANUFACTURERS: China has so many subsidies. It is so common to hear our members say the Chinese product is being delivered in the United States for less than the cost of the raw materials in China. So that means there are subsidies and up to now there's been no way to deal with them. So people are going to look at the outcome of this case. Maybe they're going to wait and see what the courts do, and if it makes it all the way through, I think we'll see more cases.
GERSH: Trade lawyer Daniel Porter represents the Chinese government and calls today's decision illegal and unfair. The Commerce Department is still pursuing an anti-dumping case against the Chinese paper makers using special trade rules for non-market economies. Porter says today's case used a different section of the law, which means the U.S. is trying to punish the Chinese twice.
DANIEL PORTER, TRADE LAWYER, VINSON & ELKINS: Those special rules take into account that the Chinese exporters may be subsidized by the Chinese government. If you then apply countervailing duties to account for the subsidies that they've received, you're double counting the tariffs. You're double counting the duties.
GERSH: Republican and Democratic members of Congress have introduced legislation that to push the Bush administration to bring more anti-subsidy cases against China, but the Commerce secretary says today's action shows he already has the power he needs to level the playing field. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
The Trade Change Increases Inflation Concerns
SUSIE GHARIB: That trade news worried investors today as well as several economic reports that left the markets concerned about inflation and a slowdown in the economy. Scott Gurvey explains.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Spending was up and so was inflation. That's the bottom line of the statistics released today and they make it less likely the Federal Reserve will be cutting interest rates in the near term. In February both personal spending and personal income increased at a seasonally adjusted rate of 0.6 of 1 percent. That's double what most economists were expecting. The report indicates that income gains are allowing consumers to meet higher energy prices without reducing consumption. That will tend to keep prices high. There was in fact an unexpected jump in the personal consumption core deflator, one of the Federal Reserves favorite inflation indicators. But economist James Glassman of JPMorgan Chase says the markets are not so worried about inflation.
JAMES GLASSMAN, SR. US ECONOMIST, JP MORGAN CHASE: When you look at market expectations for inflation, they haven't changed much. Despite these last couple months that have shown higher prices of consumer goods, inflation expectations are pretty stable. People are looking beyond all this. And that's why I think many people in the market sense that the bigger danger to the economy is really more the problems in the mortgage sector and the building sector and the slowdown in the economy.
GURVEY: Those fears may also be weighing on consumers. Pessimism is on the rise in spite of rising income. The Reuters/University of Michigan final index of consumer sentiment dropped to 88.4 in March from 91.3 in February. Economist Joseph Lavorgna of Deutsche Bank says that's the lowest reading in six months.
JOSEPH LAVORGNA, CHIEF US ECONOMIST, DEUTSCHE BANK: I think it reflects some of the difficulties in the sub-prime market. I think it reflects the fact that stock market volatility has picked up. And I think importantly it reflects higher gasoline prices. Gasoline since the beginning of the year is up $0.40, about $2.65 a gallon. For every one penny rise in gasoline, if that's sustained, its like a $1 billion tax hike for households.
GURVEY: So far there has been no evidence of a slowdown in employment, a certain sign of a weak economy. The employment report for March is due out one week from today and market watchers will be anxiously awaiting that number. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Farmers Hope Their Financial Crops Come In Via Corn
SUSIE GHARIB: U.S. grain markets went on a wild ride today on news American farmers plan to grow the biggest corn crop since World War II. Analysts say farmers are hoping to cash in on robust demand for corn from ethanol producers. As Diane Eastabrook reports, traders say today's news sets the stage for what could be a very volatile summer for the commodity markets.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today's opening bell at the Chicago Board of Trade sent the grain pits into a frenzy. A government report predicted U.S. farmers will plant a lot more corn than expected this year. That sent futures prices for the crop skidding down to daily trading limits. Veteran trader Steven Bruce thinks the report cooled an overheated corn market that the ethanol industry has been fueling since last fall.
STEVEN BRUCE, INDEPENDENT TRADER: We have a lot of speculative longs in this market, a lot of new money that is basically technical traders that when line "A" crossed line "B" back in last September, they started to buy and they've been buying since.
EASTABROOK: The U.S. Department of Agriculture report says farmers intend to plant about 90 million acres of corn this spring. That's 12 million acres more than last year. But the extra corn will come at the expense of fewer soybeans. James Bower, president of Bower Trading Incorporated, says the market's response to today's report could prompt farmers to rethink their plans.
JAMES C. BOWER, PRESIDENT, BOWER TRADING: The function of the market now is clearly to try to get some more soybean makers into production, not only here in the United States this year, but we're going to have to see Brazil and Argentina kind of make up for some of the lost acreage that we're going to have here in their crop next year.
EASTABROOK: The ethanol industry is behind the corn planting boom. Industry consumption is expected to double from about 2 billion bushels this year to 4 billion bushels in 2009. Analysts like Jerry Gidel from North American Risk Management services thinks if today's about-face in corn prices continues, it could encourage even more ethanol production down the road.
JERRY GIDEL, ASSOCIATE, NORTH AMERICA RISK MANAGEMENT SERVICES, INC.: I wouldn't sense that they are going to have the kind of increase we had in the last year to 18 months, but I think there still could be another 1.5 to 2 million gallons of capacity being announced within the next 12 to 18 months.
EASTABROOK: Traders say the next 45 days will be crucial to the grain market. Corn needs to be planted by mid May. Soybeans need to be in the ground by early June. Traders say if those crops miss their planting deadlines, the markets could become even more volatile. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"Market Monitor"-Sam Stovall, Chief Investment Strategist at Standard & Poor's
PAUL KANGAS: Here we are at the end of the first quarter of 2007 and with us to review how the major stock averages did and to sort out the quarter's big winners and losers is Sam Stovall, chief investment strategist at Standard & Poor's. Sam, welcome back to NIGHTLY BUSINESS REPORT.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Happy to be here, Paul.
KANGAS: Now as we view the performance of the Dow, the Standard & Poor's 500 Index and the NASDAQ, give us your description of the markets and what they've done over these last three months. Not a whole lot, looks like.
STOVALL: No, it really, certainly seems as if they've treaded water. The first month was a fairly good one posting an average increase of 1.4 percent which is equal to the average since 1945. We were doing pretty well in February, but then we got tripped up by China. This was after the Dow had hit a new high and the S&P had reached 1460. We tumbled sharply posting our first 2 plus percent one day decline in almost four years. And now in March with questions about whether the Fed will be raising or lowering rates, investors are out there scratching their heads.
KANGAS: Right. Well, the correction though is actually healthy for the market, would you agree?
STOVALL: Absolutely. We have not had a 10 percent correction in four years. And actually typically we have more than one in every bull market.
KANGAS: OK. Now let's take a look at the best performers in the Dow 30. And what do we see, Alcoa at the top.
STOVALL: Well, this company certainly benefited from higher than expected metals prices this quarter, as well as an ongoing takeover speculation.
KANGAS: And AT&T has done well.
STOVALL: Well, this old - SBC telecommunications has experienced a continuation of last year's strong wireless performance and the integration of prior acquisitions.
KANGAS: And Caterpillar was no slouch, that's for sure.
STOVALL: No, it wasn't. Last quarter, however, it was. It had disappointed investors with poor guidance. But I think this quarter we snapback from being oversold and also there a still a good outlook for construction activities internationally.
KANGAS: Now let's have a look at the worst three in the Dow over that quarter, Johnson & Johnson, that's kind of a surprise.
STOVALL: Well, it was hit pretty hard because the company's device diagnostics head had resigned. Also it was on the wrong side of a study that questioned the effectiveness of coronary stents.
KANGAS: And of course Home Depot has had its problems.
STOVALL: Yes. It was nailed by the trimming of earnings forecast due to a continued slump in housing.
KANGAS: OK and Citigroup, that's a surprise too.
STOVALL: Well, concern I think surrounding the financial conglomerate's exposure to the sub-prime mortgage market.
KANGAS: Good point. Let's have a look at the best performers in the Standard & Poor's 500 index topped off by Radio Stack.
STOVALL: This a consumer electronics retailer and it is benefiting from the strong trends in this category. Also benefiting from cost efforts by closing under performing stores.
KANGAS: And Goodyear tire has rolled right along too.
STOVALL: Well, certainly it hasn't blown out yet. Increased investor confidence in this tire manufacturer's turn around.
KANGAS: OK and the Standard & Poor's 500, two worst performers lead by Advanced Micro Devices.
STOVALL: Well, it's said that it might miss its first quarter revenue guidance, also influenced by the complicated integration of a recent acquisition.
KANGAS: And Consolation Brand on the downside.
STOVALL: Well, here is a company that recently acquired Svedka, a Swedish vodka brand and Vincor at very high prices so investors are questioning the benefits of these.
KANGAS: Moving over to the NASDAQ 100 index, we see at the top of the best performers Milicom.
STOVALL: This is a global telecom company that has benefited from very strong revenue growth as well as investor interest in emerging market wireless operators.
KANGAS: And Intuitive Surgical did well.
STOVALL: Yes, it did. Fundamental news, the company reported sales that had surged 66 percent on strong sales of its da Vinci surgical systems.
KANGAS: And the NASDAQ 100's dogs so to speak, Virtex Pharmaceutical.
STOVALL: Here there was concern over phase 3 clinical trial of its hepatitis C drug.
KANGAS: And Cepracor.
STOVALL: And Cepracor. Investors woke up to the weakening trend in prescription sleep medications.
KANGAS: OK, very interesting, indeed, Sam. Now we just have a little less then a minute. But I wanted to ask you how you see the second quarter shaping up on Wall Street.
STOVALL: Well, on average the second quarter is the second best of all for gaining about 2.8 percent since 1990. None of the 10 sectors in the S&P 500 posted average declines. I think however it could be a bit challenging. We're forecasting a 5 percent increase in first quarter earnings which is half of what we saw in the fourth quarter of '06.
KANGAS: What sectors are your favorite for that period of time?
STOVALL: Well, I think that we could see some good growth in the health care category, also likely to see continuation of good earnings in the material sector.
KANGAS: OK, very interesting indeed, Sam. It's great to see you again and thanks for being with us.
STOVALL: Thank you, Paul.
KANGAS: My guest, Sam Stovall, chief investment strategist at Standard & Poor's.
"Last Word"-Remembering Rosie The Riveter
SUSIE GHARIB: And finally tonight, in case you wondered, there really is a Rosie behind Rosie the riveter. The woman in the bandana and overalls became an iconic figure during World War II when she went to work building airplanes. The real Rosie was Rose Leigh Monroe, a widowed mother of two. She took part in a promotional film about the war effort and her image and the slogan "we can do it" put her center stage. After the war, Monroe became a pilot, drove a taxi, even started her own construction company. She died in 1997. Now, Paul, a highway in her native state of Kentucky is being named after her.
KANGAS: A truly riveting story.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened to the upside on relatively strong readings on personal income and spending which suggested the economy is holding its own. The Dow rose 41 points at the outset of trading while the NASDAQ gained 9 points. The market turned abruptly lower in late morning on that news that the Commerce Department will start imposing tariffs on some Chinese goods. With the help of end of quarter institutional buying however, stocks bounced back this afternoon and ended on a mixed note. The Dow Industrial Average closed up 5.60 at 12,354.35. This week, it rose twice, fell three times, had a net loss of 126.66 points. The NASDAQ Composite up 3.76, closing at 2421.64 today. It fell twice and rose three times this week losing 27.29 points overall. The Standard & Poor's 500 Index fell 1.67 to 1420.86 today. Over in the bond market, the 10-year note fell 2/32 to 99 26/32, putting the yield at 4.65 percent.
LSI Logic (LSI) topped the active list gaining $0.41. The company expects to close on its acquisition of Aguirre (ph) on Monday and since it's a stock deal, that's why LSI was at the top of the active list, trading 33.1 million shares.
Then came Kraft Foods (KFT) with a gain of $0.14. Today, the Altria Corporation completed the spin off of its Kraft shares and incidentally, Kraft stock will be added to the Standard & Poor's 500 Index, replacing Sabre (ph) Holdings.
General Electric (GE) a $0.19 loss.
Motorola (MOT) dropped $0.04.
AT&T (T) moved up $0.26 a share, fifth in volume.
Time Warner (TWX) down $0.13.
Pfizer (PFE) fell $0.15.
Ford Motor Co (F) $0.06 drop there.
EMC Corp (EMC) managed to gain $0.19.
Tenth in volume, ExxonMobil (XOM) losing $0.79 a share.
Checkpoint Systems (CKP), one of the stars of the day, up $3.74. Fourth quarter earnings, including one-time items, $0.51, versus $0.28 a year ago. That's $0.13 better than the Street expected and revenues were up a respectable 12 percent.
Devry (DV) up $2.57 or Devry as it's pronounced. Bank of America upgraded it from "neutral" to "buy" and boosted its price target from $29 to $37 a share in the belief the company's positive enrollment trend will continue.
Geo Group (GEO) up $1.22. The prison management company was upgraded by Lehman from "equal weight" to "over weight" because of the company's recent reduction in its debt levels according to Lehman.
And then Global Payments (GPN) dropping $5.11, even though third quarter earnings rose to $0.42 from $0.36 a year ago, but the revenues of $260 million in the third quarter fell about $3 million short of expectations and on top of that, Standard & Poor's cut its 12-month price target on the stock from $50 down to $41 a share.
WP Stewart & Co (WPL), this is a Bermuda-based asset management firm, down $0.93. The company said first quarter earnings will be cut by $0.11 a share due to terminations and also the company did cut its quarterly dividend from $0.23 to $0.15 a share.
Vodafone Group Plc (VOD) down $1.03. The mobile phone giant warned that its United Kingdom profits may be pressured by lower margins.
JC Penney Co (JCP) moving up $0.89. The board of directors approved the $400 million stock buyback and the company's boosting its quarterly dividend by 11 percent to $0.20 a share.
Then Grupo Aeroportuario (ASR), this is a Mexican airport managing company and its chairman has offered to buy about 43 percent of its stock at about $50 per American depository share, nice move in the stock today.
Apple (AAPL) topped the active list, down $0.84.
Google (GOOG) a loss of $2.76.
Microsoft (MSFT) moved up $0.12.
Then the big gainer of the day, Dendreon (DNDN) up $7.71, traded as high as $18.05. An FDA advisory committee said evidence showed the company's Porvenge (ph) for prostate cancer treatment appears to be safe and effective.
Intel (INTC) $0.04 gain, fifth in volume.
Cisco Systems (CSCO) a dime gain.
Dell (DELL) down $0.18 after the close yesterday as we reported, the company said it has some major accounting problems.
Qualcomm (QCOM) $0.41 gain.
A nickel gain in Amgen (AMGN).
And Broadcom (BRCM) was up $1.02, tenth in dollar volume on NASDAQ.
New issue today, Capital Product Partners Lp (CPLP), this is an oil tanker charter company, 11 3/4 million shares offered to the public at $21.50 a share, opened at $26, high of the day, $26.95. It closed near the high, pretty good debut in the stock.
And then over on the American Exchange, Adams Resources & Energy (AE), crude oil and nat gas marketer, had sharply lower fourth quarter earnings, $0.47, down from $1.80 last year. Revenues in the period fell 18 percent.
Those are the stocks in the news tonight.
