NBR Complete Transcripts: 04-09-2007
Monday, April 09, 2007The U.S. Makes Its Case Against China With The WTO
SUSIE GHARIB: There could be trade trouble brewing at Tiananmen Square tonight. The Bush administration is about to formally file a complaint against China with the World Trade Organization because the Asian nation refuses to crack down on piracy and counterfeiting there. And that's not all. The administration's also taking China to task on barriers to trade in books and music. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: From the latest DVD release to best-selling CDs, illegal copies sold in China are a $1 billion a year business. The U.S. trade representative Susan Schwab says part of the problem the U.S. wants the WTO to resolve is the low threshold China sets before it will enforce piracy laws.
SUSAN SCHWAB, UNITED STATES TRADE REPRESENTATIVE: If I took just one DVD off the pile back there, just one, leaving 499 still in place and there was a raid, most Chinese - the most Chinese authorities could do would be to seize the goods and impose an administrative fine. The proprietor could resume business within a short period of time without fear of criminal prosecution.
DHUE: The U.S. admits China has made some progress in the protection of intellectual property rights, but not enough to live up to world trade standards. The movie industry estimates piracy cost it $18 billion a year in lost revenue. Dan Glickman heads the Motion Picture Association. He says the WTO case should help China play by the rules.
DAN GLICKMAN, CHMN. & CEO, MOTION PICTURE ASSOCIATION OF AMERICA: There's really no way that a legitimate rules-based world trading system, you can have one major power kind of opting out of the system. So that's what we're saying here. They need to be a part of the system.
DHUE: Today's trade complaint does not include business software, another key intellectual property rights issue. The Chinese government last year agreed to require all hardware come pre-installed with legal software. China expert Bates Gill says resolving pirated CDs, books and movies will be more difficult.
BATES GILL, CHINA STUDIES, CENTER FOR STRATEGIC AND INT'L STUDIES: There they found a mechanism through agreeing with the Chinese government to impose a kind of regulatory requirement. It's a lot harder to do when you're talking about millions of people buying millions of CDs for entertainment purposes.
DHUE: Today's case increases trade tensions with China. The administration earlier this year brought a case against Chinese government subsidies and recently paved the way for U.S. companies to put tariffs on some Chinese paper imports. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The 1st Quarter May Bring Mixed Messages
PAUL KANGAS: Dow stock Alcoa is expected to report first quarter earnings tomorrow and that traditionally marks the start of earnings season. This earnings season, forecasts call for the end of a 14 quarter streak of double digit earnings growth. Scott Gurvey explains.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street has been preparing for a disappointing first quarter since the start of 2007. Analysts surveyed by Thomson Financial were looking for an 8.7 percent increase in year to year profits when the quarter began. That expectation is now for a 3.3 percent increase compared to a 10.6 percent gain in the fourth quarter of last year. Tough year to year comparisons account for much of the apparent slowdown. The energy sector is expected to be especially hard hit because of lower oil prices compared to this time last year. The consumer discretionary sector is expected to post an actual earnings decline compared to the first quarter of 2006. But Standard & Poor's, which uses its own methodology to forecast earnings, sees first quarter profits rising 5 percent compared to the nearly 9 percent gain in the fourth quarter of last year. S&P's chief investment strategist Sam Stovall, does not expect earnings season to trigger a major market downturn.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: It seems as if that Wall Street is very much aware that first quarter results are likely to be half of what we saw in the fourth quarter of 2006 and that we are definitely entering into a period of market deceleration. But since everybody knows that, I guess it's not going to be much of a surprise.
GURVEY: Still, analysts warn it could take only one unexpectedly bad report to spook the markets. Thomson Financial's VP of research, Robert Keiser, says companies have been working to prevent that by intentionally lowering their expectations.
ROBERT KEISER, VP OF RESEARCH, THOMSON FINANCIAL: Historically, the ratio of negative to positive preannouncements runs about two to one and it has been an elevated 3.2 for the first quarter of 2007. And what we are seeing is not so much the negative preannouncements are growing, but negative preannouncements are holding the same. But there's really a lack of positive preannouncements.
GURVEY: Many analysts believe the first quarter will be the low point of the year. But most expect to see earnings growth in at single digits throughout. Most expect to see returns to double digit growth in 2008. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
GHARIB: One other note regarding earnings. Next week we'll take a closer look at the whole topic of earnings, how the numbers are figured, and what investors should look for when looking at those numbers. We'll also profile the gold standard of companies when it comes to earnings reporting, Thomson Financial's First Call. The series is called "everything you ever wanted to know about earnings" and it starts next Tuesday night.
One on One with Thomas Wadewitz, Transportation Equities Analyst, J.P. Morgan
SUSIE GHARIB: Railroad stocks surged today on word that Warren Buffett's Berkshire Hathaway has taken nearly an 11 percent stake in Burlington Northern Santa Fe. Berkshire Hathaway has also acquired smaller stakes in two other rail companies. The names of those companies have not yet been released. Shares of Burlington Northern rose 6.5 percent today, while Union Pacific jumped almost 4 percent and CSX added more than 2 percent. Joining us now with more analysis, Thomas Wadewitz, transportation equities analyst with JPMorgan. Hi, Tom.
THOMAS WADEWITZ, TRANSPORTATION EQUITIES ANALYST, JPMORGAN: Good evening.
GHARIB: Let's begin talking about Burlington Northern. Is that a good stock to own?
WADEWITZ: Yeah, I'd give you some comments on the rail industry story. There's a very strong pricing story which has been in place for a couple of years. Our own view is that the industry's story on pricing will continue for a few more years. Burlington has some company specific factors which give them a little bit better growth outlook overtime. I think if you have a long-term perspective, Burlington Northern is probably a pretty good stock to own.
GHARIB: Why do you think Warren Buffett is interested in railroad stock?
WADEWITZ: Well, obviously that's the question of the day. If you look at the railroads, the stocks have been good performers the last couple of years so, you know, we're trying to figure out what does Warren Buffett know today that makes him a big investor when they've already had such good performance. I think it's probably a sense that this rail pricing story that I've talked about is not just a two- or three-year phenomenon, but that it really is a change in the industry dynamic that will last over the next couple of years. In terms of Burlington Northern specifically, they do have leverage to strong growth in coal volumes out of the Powder River Basin. They have a strong inter-modal franchise which is leveraged to growth in trade. And they also have good leverage to the ag economy. So those are all factors which Warren Buffett could potentially be looking at.
GHARIB: What about competition that Burlington Northern faces?
WADEWITZ: Well, the way the railroad industry has evolved, there are essentially two primary competitors and three different regions so Burlington Northern's primary competitor is Union Pacific. I think both of them have some capacity constraints at the present time so your competitive environment is pretty favorable at the present time.
GHARIB: As we mentioned a moment ago, Warren Buffett also invested in two other smaller stakes in two other rail companies. Any thoughts on who those companies are?
WADEWITZ: You know, it's tough to know what he's looking at. I would say that Union Pacific because of some of the similarities to Burlington Northern in particular, they also are a transporter of coal from that low cost x`called the Powder River Basin. They also serve the west coast ports. So I think Union Pacific is a likely choice. That's actually a stock that we actually favor as well. You've got four other U.S. and Canadian railroads to choose from. So I think it's, you know, it's tough to tell which would be the third choice for Warren Buffett among the major railroads.
GHARIB: You mentioned Union Pacific as one of the stocks you're recommending. Are there any other rail companies that you find attractive these days?
WADEWITZ: Well, we tend to set our ratings on really a six- to 12- month type of basis. So Union Pacific is the one where we have a lot of conviction both on a near-term basis and on a multiyear type of basis. That is really the name that we would focus on. I think we do have a little bit of concern for the group on a near-term basis that some of the softness in the goods-producing part of the economy is leading to an interesting earnings performance in the near term. That's why we're really focused on Union Pacific in particular. And when I talk about the positive trends, I really think they're more of a medium-term, long-term type of trend.
GHARIB: Tom, do you own Union Pacific stock or does JPMorgan do any business with it?
WADEWITZ: Yeah, I believe that JPMorgan does do business with Union Pacific. I do not personally own any Union Pacific stocks.
GHARIB: Real quick, we have a little time left. Given the run-up in these stocks today for individual investors, is it too late to buy into these stocks and conversely if you own these stocks, is it time to take profits?
WADEWITZ: Well, I think a lot of that depends on your time frame. I mean, if you're looking at, like I said, a kind of a six to 12-month horizon or if you're more near-term oriented than that, I think you've had a very good run in these stocks. It probably does make sense to take some off the table, take a bit of profit. If you're looking for stocks that you're going to put away and hold for five years, then I think you'd have a lot less sensitivity to some of these near-term situations. In that case you'd be more comfortable continuing to hold them.
GHARIB: All right. Thank you very much for coming on the program.
WADEWITZ: Thanks, Susie.
GHARIB: My guest tonight, Thomas Wadewitz, transportation equities analyst with JPMorgan.
"Kevin McCormally's Tax Tips"- "Demutualization"
SUSIE GHARIB: Just over a week to go now until your Federal income tax return is due back in the hands of the IRS. So every night this week, we'll bring you another last-minute tax tip that can help make filing easier. Tonight, a look at one specific issue that could make a big difference down the road and help you protect your right to a refund. Once again, here's our tax expert, Kevin McCormally, editorial director of "Kiplinger's Personal Finance."
KEVIN MCCORMALLY, EDITORIAL DIR., "KIPLINGER'S PERSONAL FINANCE": There's an interesting case making its way through the courts that could result in millions of dollars of refunds for taxpayers who in recent years sold stock they received when a life insurance company converted from a mutual company to a stock company. This transformation goes by the endearing term "demutualization." The IRS says that if you get stock in such a deal, your tax basis is a big, fat zero. So when you sell, every dime is taxed.
Some taxpayers say that's baloney. They say the basis of the stock is the value when they got it; others have other methods. But the key is this: if the stock has a basis, you owe less tax when you sell. Last year, the IRS asked a Federal court to reject that reasoning, but the court refused to throw out the case. That gives taxpayers hope. Now so far the court hasn't decided if they really have a basis and, if so, what it is. But as the legal wheels turn, an important deadline is coming up for anyone who sold life insurance stock in 2003. April 17 is the last day they can file an amended return to reclaim tax they overpaid by using the IRS zero basis method.
If you're in this boat, you need to file what's called a "protective refund claim" by April 17. Basically, it's an amended return asking for your money back, but telling the IRS to hold off until the court decides the case. The point is to prevent the statute of limitations from slamming the door closed on your chance for a refund. Ask your tax advisor for help or shoot me an e-mail from the NBR web site, and I'll reply with more information. I'm Kevin McCormally.
PAUL KANGAS: You can submit your tax questions to Kevin McCormally and learn more about the stories in tonight's broadcast on our web site. Go to NIGHTLY BUSINESS REPORT on pbs.org. Look for the tax tips logo on our home page. You can also e-mail us at nbr@pbs.org.
"Last Word"-Helvetica Turns 50
SUSIE GHARIB: And finally tonight, you've seen it, probably used it, but chances are you can't identify it. I'm talking about the Helvetica typeface, which turns 50 this year. In case you don't know the type, it's used in the logos of several companies, including 3M, American Airlines, BMW, Microsoft and Target. Helvetica -- or Swiss, as it is also known -- is widely considered the official type face of the 20th century. Its 50th anniversary is currently being celebrated with an exhibition at New York's Museum of Modern Art. Paul, in case you were wondering about the NBR logo, it does not use Helvetica typeface. It's Times Roman.
KANGAS: I don't like that particular type face at this time of the year because the IRS does use it. I get sick of looking at it.
GHARIB: You and millions of other Americans.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street began the week with modest gains thanks in part to last Friday's stronger than expected March employment report. The Dow rose 22 points at the outset of trading, while the NASDAQ gained three points. After a late morning bout of profit-taking, stocks rebounded as oil prices plunged and Dow Chemical stock rallied on takeover speculation.
At 1:00 p.m., the Dow Jones Industrial Average was up 28 points, but market bears sold into that strength and it resulted in a mixed close. The Dow Industrial Average ended up only 8.94 at 12,569.14. The NASDAQ Composite actually fell 2.16 ending at 2469.18. Standard & Poor's 500 Index rose .85 to 1444.61. Over in the bond market, the 10-year note rose 1/32 to 99 1/32, putting the yield at 4.75 percent.
Advanced Micro (AMD) . the active list trading 20 million, up $0.49. You just heard the story. Then Micron Tech (MU) off $0.33. Last Wednesday as we reported, the company had a second quarter loss of $0.07 a share versus earnings last year.
Kraft Foods (KFT) on its own now, down $0.27.
General Electric (GE) a $0.24 loss.
Time Warner (TWX) dropped $0.03 a share. That was fifth in volume.
Halliburton (HAL) losing $0.34.
Followed by ExxonMobil (XOM) on today's weak oil prices.
Pfizer (PFE) up $0.16.
Assurant (AIZ) down $1.25 even though after the close today, the stock was added to the Standard & Poor's 500 Index replacing Realogy.
And then tenth in volume was Dow Chemical (DOW) up $2.16, traded as high as $47.60. A British tabloid called "Sunday Express" reported that the company could get a $50 billion buyout bid over the next few days. That would work out to around $52 to $58 a share.
Mirant (MIR), the energy firm, up $3.44. It's going to consider the sale of the entire company after it sells its Philippine and Caribbean business and some U.S. plants. AG Edwards sees its possible suitors, Dynergy, NRG Group and Reliant Energy.
Alaska Air Group (ALK) losing $1.15. The company is predicting a first quarter loss and today Credit Suisse brokerage downgraded the stock from "out perform" to "neutral," cut its price target from $58 to $49 a share.
EDO Corp (EDO) up $1.21. The Friedman Billings brokerage upgraded it from "market perform" to "out perform," boosted its price target from $28 to $32 a share after the company received a defense contract for counter IED systems, IED standing for improvised explosive devices, those dreaded things we heard about it Iraq.
American Home Mortgage (AHM) down $3.92. The company now sees first quarter earnings at only $0.40 to $0.60 a share, well down from its previous guidance of $1.11 to $1.17 and it's due to conditions in the secondary mortgage market. The company is also cuttings its quarterly dividend from $1.12 a share down to only $0.70.
Intl Rectifier (IRF) losing $2.83. The company said certainly previously issued financial statements are not reliable because of material weaknesses in internal control at one of its foreign units. The Sandra Morris brokerage downgraded the stock from "buy" to "neutral."
Herbalife Ltd (HLF) losing $1.96. The Whitney number five limited partnership has terminated talks about taking over the company. It had offered $38 a share.
Then Peabody Energy (BTU) moving up $2.13. Friedman Billings Ramsey brokerage upgraded it from "market perform" to "out perform."
Intel (INTC) topped the NASDAQ's most active list with a gain of $0.52.
Dendreon (DNDN) shooting up $5.53. The company has a promising treatment for prostate cancer.
Google (GOOG) down $3.30. The company issued a formal apology to its Chinese rival, sohu.com for causing confusion regarding Google's new search tool.
Apple (AAPL) down $1.03, but after the close, it said it's now sold 100 million iPods in less than six years now.
Microsoft (MSFT) a $0.02 gainer. That was fifth in dollar volume.
Research in Motion (RIMM) up $0.49.
Cisco Systems (CSCO) $0.14 gain.
But Amgen (AMGN) down $1.14.
Qalcomm (QCOM) $0.62 loss there.
Tenth in volume EBay (EBAY) edging $0.03 higher per share.
Nuvelo (NUVO) moving up $1.96, almost a 53 percent gain. There's speculation Bayer Corporation of Germany will use this company's experimental blood clot dissolver in some new test trials.
And Daktronics (DAKT), this is the company that makes those big electronic scoreboards. After the close last Thursday, the company cut its fourth quarter guidance. As you can see it was a rather sharp cut.
Those are the stocks in the news tonight.
