NBR Complete Transcripts: 04-27-2007
Friday, April 27, 2007The Dow Reaches Another Record
SUSIE GHARIB: Wall Street ended the week in record fashion. The Dow stands at an all-time high of 13,120, after rising 15 points today -- its 19th gain in the past 21 sessions. Even disappointing news on the economy wasn't enough to derail the positive market momentum. The government said today that the U.S. economy slowed even more than economists were expecting in the first quarter of this year, to its slowest pace since 2003. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The economy was hit with a double whammy in the first quarter. The weak housing market combined with higher energy prices to produce the slowest rate of growth in the last four years. The Commerce Department reported the gross domestic product gained only 1.3 percent. That was lower than expected and compares to a rate of 2.5 percent for the fourth quarter of last year. The quarter also saw an increase in the trade deficit. That meant once again, that consumer spending made the difference and kept the expansion breathing. But that demand put pressure on prices and brought troubling news on inflation. The report showed the GDP price index, its inflation indicator, gained 4 percent, the most in 16 years. The data led John Ryding, chief U.S. economist at Bear Stearns, to raise the possibility of stagflation, although he says we are not at that point yet.
JOHN RYDING, CHIEF US ECONOMIST, BEAR STEARNS: I think what there is danger of is growth remaining slower than we'd like to see and inflation being higher. What I do expect, as the housing market begins to stabilize later in the year and as we get a rebound from the inventory correction we've gone through, that we will see stronger growth numbers in the second half of 2007, in the ballpark of 2.5 to 3 percent.
GURVEY: The report puts additional pressure on the Federal Reserve, which is caught between those pushing for lower interest rates to stimulate growth and others calling for higher rates to prevent inflation. Steve Wieting, senior economist at Citi, says, for now, the Fed will hold rates steady.
STEVEN WIETING, SR. ECONOMIST, CITI: If we're going to get a bounce- back in productivity and we start generating slack in labor markets and see reduced inflation, we could be moving in the direction of a bit of accommodation from the Fed. But its not something that just on the headline from today's GDP report, that I would cause any major revisions to the view.
GURVEY: The next Fed meeting to review monetary policy will be on May 9 and the policymakers will also have the critical employment report for April to review at that time. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
World Bank President Paul Wolfowitz Falls Victim to the Watchdogs
PAUL KANGAS: World Bank President Paul Wolfowitz is fighting to keep his job. He is set to address the bank board on Monday about his handling of a promotion and pay package for his girlfriend. Sources tell NIGHTLY BUSINESS REPORT the bank's ad hoc committee has already written its opinion that he should leave the bank. World Bank staff, the European parliament and others have called for his resignation. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of Paul Wolfowitz's top priorities at the World Bank is to root out corruption in aid dollars for poor nations. But his involvement in the promotion and pay raise of his long-time girlfriend Shaha Riza has called into question his leadership at the international aid agency. Bea Edwards of the watchdog group, the Government Accountability Project, says the controversy has already compromised the bank's mission.
BEA EDWARDS, INTERNATIONAL DIR., GOVERNMENT ACCOUNTABILITY PROJECT: We saw it during the spring meetings, where there was a very complicated agenda regarding changes and adaptations of international financial architecture and questions how to address questions of corruption and governance in borrowing countries. None of those issues could really be addressed. The bank is paralyzed.
DHUE: Wolfowitz has apologized for mistakes and promised to change his management style, but insists he will stay at the bank. His defenders say the controversy was manufactured by critics of Wolfowitz's role in launching the Iraq war while at the Defense Department and his anti- corruption campaign at the World Bank. Former Federal prosecutor Ruth Wedgwood says Wolfowitz is getting a bum rap, since the ethics committee first dismissed a complaint about Riza's pay in 2006.
RUTH WEDGWOOD, FORMER FEDERAL PROSECUTOR: If there's controversy over your anti-corruption policy, if there's controversy on who you hired for your front office, if people don't like personalities. All those figure in. But still I think the standard has to be consistent for whether people you like and people you don't like.
DHUE: Nancy Birdsall heads the Center for Global Development, an influential advisory group on world poverty. She called on Wolfowitz to resign over a week ago. She says, fair or not, Wolfowitz has lost the credibility he needs to be an effective leader.
NANCY BIRDSALL, PRESIDENT, CENTER FOR GLOBAL DEVELOPMENT: The bank is weakened right now to deal effectively with the issues around governance, transparency, clarity, on these complex problems of what governance is about, what the rules of the game are, what is permissible on the part of any leader of any government or any major global institution.
DHUE: Traditionally, the World Bank president is nominated by the U.S. president and voted on by European members of the bank. EU leaders are scheduled to meet with President Bush on Monday. So far, the president hasn't shown anything but full support for Wolfowitz. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
China's Gold Rush
SUSIE GHARIB: China has become the world's fourth largest gold miner, behind South Africa, the U.S. and Australia. It produced 240 tons of gold last year, with much of that coming from small mining companies. But with China looking to ramp up prospecting and to upgrade mining technology, big foreign firms are gaining a foothold in the Chinese market. Nick Mackie reports from China's western Qinghai province.
NICK MACKIE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Eldorado Gold's (INAUDIBLE) Over 24 hours, the dump trucks cart over 1600 loads from the pit. The Canadian management knows that around 80 are economical to process, which means that today's gold price of over $650 an ounce, every bucket load of quality ore generates $1200 in revenues. Eldorado Gold is North America's first gold producer to buy in China. With a $72 million investment in plant, processing and mining equipment, plus infrastructure, the company has established a presence on Qinghai plateau with a view to expanding operations in China over the next five years.
On this site in remotest Qinghai, a 12-hour drive from (INAUDIBLE) the provincial capital, the exploration licenses cover an area of 130 square miles. Eldorado owns 90 percent of a joint venture with two local companies. Mining rights authorized to date grant access to over 30 ton of gold, which will take 12 years to ship. Norm Pitcher is Eldorado Gold's chief operation officer.
NORMAN PITCHER, CHIEF OPERATING OFFICER, ELDORADO GOLD: This was a fairly reasonably high investment here and not that the Chinese couldn't do it, but you're sort of putting that money in first. And what they would like to do is sort of start small and build their way up.
MACKIE: While China has gradually opened up the once-closed gold production sector to foreigners in recent years, the government is now raising the (INAUDIBLE) threshold to cut out the small players and focus instead on companies that will help intensify prospecting, plus invest heavily in processing technology and environmental monitoring. But as Norm Pitcher explains, so far only a few big players have committed to the (INAUDIBLE)
PITCHER: People (INAUDIBLE) because of the restriction on investment previously. Now obviously that's starting to loosen up and I think within the next five years, I'd be surprised if you didn't see more majors coming in here. It's just really a matter of they've been testing the waters and they're not quite sure how hot or cold the waters are basically.
MACKIE: With the market growing, one difficult test now is to find experienced staff. Thirty-four year old Zhao Hongxu, an ore mill foreman, is not the only one here who was lured from a competitor over a thousand miles away. Working an eight-hour shift, two weeks on, two weeks off, Mr. Zhao earns $1200 per month, which is equivalent to four years income in rural Qinghai.
TRANSLATION OF: ZHAO HONGXU, PRODUCTION FOREMAN, QDML: We feel that working here is quite nice. Our working hours are not excessive. We have enough time off and if we go home, the company will pay the air fare.
MACKIE: Over the next three years, China intends to produce over a thousand ton of gold and verify up to 5,000 ton in reserves. As more gold mines are licensed and if gold prices remain high, expect to see a bidding war not just for the rights to mine, but also for the men and women on the front line. Nick Mackie, NIGHTLY BUSINESS REPORT, Qinghai, China.
KANGAS: Monday China's economy grew 11 percent in the first quarter. We'll look at the implications of that blistering pace.
"Market Monitor"-John Hughes, President, Quantum Capital Management
PAUL KANGAS: My guest "Market Monitor" this week is John Hughes, president of Quantum Capital Management, based in Northfield, New Jersey. John, welcome back to NIGHTLY BUSINESS REPORT.
JOHN J. HUGHES, PRESIDENT, QUANTUM CAPITAL MANAGEMENT: Hi Paul. It's always good to be with you.
KANGAS: Your main concern in recent visits with us has been the threat of inflation. And yet it seems to be quite well contained. Or is there some really bad news lurking out there like higher interest rates or something of that nature?
HUGHES: Well, core inflation appears to be contained. The headline number which -- which includes energy and food still seems to be a little bit on the high side. And most of us do eat.
KANGAS: But the core rate isn't.
HUGHES: Well, the core rate isn't. But I think -- I think -- irrespective, it's a basket of assets. Inflation, we subscribe to the Austrian school of economics definition of inflation which is purely and simply an excess creation of money and credit. And this excess creation of money and credit will avail itself in imbalances. And there are no greater imbalances than -- that -- there is no greater imbalance that we can identify other than the debt to GDP ratio. And we think that these imbalances will have to clear at some point. And when they do clear without going through all the machinations, I think the result will be a Federal Reserve with a choice, a choice between a raising interest rates and a debt-laden economy or trying to manage an orderly decline of the dollar.
KANGAS: So it is still a threat, in other words.
HUGHES: Well, we think -- we think that an orderly decline of the dollar will probably be the medicine of choice.
KANGAS: OK. Now has this recent spike up to record highs in the blue chips on Wall Street been overdone and if so, do you see a major correction or even a bear market in the offing?
HUGHES: Well, we don't enjoy that level of clairvoyance. We tend to look bottom up at individual ideas and we still are finding ideas here and there. And we are actually quite excited.
KANGAS: You don't care what the Dow does right at this stage.
HUGHES: I wouldn't say that we never care. But we are finding ideas right now. We're quite excited about our portfolio which is possibly a dangerous thing to say.
KANGAS: You are a stock picker. That's what you are. You have liked gold for some time John, any change in that?
HUGHES: No, we think every portfolio should have a position in gold. It is a hedge against an orderly decline of the dollar and an insurance policy against the decline that may be a little bit other than orderly.
KANGAS: On your last visit in September, you had a couple of recommendations for our viewers. Let's see how they have done since then. Dell, everybody hated Dell at the time as I recall. And it's moved up 16.5 percent. Not a bad call.
HUGHES: Like I said, that's when we just start getting interested. However they, there were some accounting irregularities. They had not issued their third quarter financials --
KANGAS: Are you in or out of it now?
HUGHES: We have got out of it in November. It was the halfway point between our point of value and our buy points.
KANGAS: And to be the very safe side, you like the two-year Treasury note, yield about 4.5 percent. You were in there for six months so you did all right.
HUGHES: Well, we think we --
KANGAS: You slept in the evenings.
HUGHES: It has -- it is a -- we like to say that Mr. Market is a manic-depressive. And what is expensive today may not be expensive tomorrow. It's not a bad idea to have some dry powder.
KANGAS: We just have a minute left John. Do you have any new recommendations?
HUGHES: 3M, it's our largest position. We started building positions about six months ago. It is a global technology company.
KANGAS: Coming alive it looks like.
HUGHES: It's largely been overlooked but they have a CEO in George Buckley who subscribes to EVA or economic value added. They deploy capital in an efficient manner. They have generated returns on equity of 25 to 30 percent over the last 10 years.
KANGAS: Our time is fleeting. We have time for one more choice.
HUGHES: We like Legg Mason. We happen to think Legg Mason is a quality asset management firm. They are being treated like a brokerage firm. However, they've divested themselves of their brokerage business. And they have some wonderful franchises. Legg Mason Value Trust, Batterymarch and others.
KANGAS: John, do you own these securities personally or have any other disclosure to make?
HUGHES: No other disclosures. And yes, we own everything that we recommend on the show.
KANGAS: Our time has run out, unfortunately. But thanks for being with us again.
HUGHES: Thank you very much, Paul.
KANGAS: My guest John Hughes of Quantum Capital Management.
SUSIE GHARIB: In the money file tonight, how higher interest rates could benefit your cash savings. Here's Terri Cullen, personal finance columnist at "The Wall Street Journal" online.
"Money File"-Cashing In On Rising Interest Rates
TERRI CULLEN, PERSONAL FINANCE COLUMNIST, WALL STREET JOURNAL ONLINE: At their last meeting, Federal Reserve officials signaled they may need to boost short-term interest rates in order to contain inflation. What's driving inflation? Higher energy costs, for the most part. The Fed has held short-term rates steady at 5.25 percent for nearly a year. By boosting rates, the Fed keeps a lid on economic growth that drives inflation. While higher interest rates may mean higher finance charges on credit cards, car loans and adjustable-rate mortgages, it also means higher yields for cash savings.
Competition among banks and brokers for cash deposits is fierce, and many online and traditional banks now offer savings accounts with yields of more than 5 percent. If the Fed raises rates, those yields will go even higher. Until the Fed makes its move, put off locking in cash in a CD and consider investing in a high-yielding savings account or money-market account. Both are FDIC-insured up to $100,000. And unlike CDs, you can move your savings to a higher-yielding account if rates move higher. You can compare rates on savings accounts and money market accounts online and ask your bank for a better deal if you see higher rates advertised elsewhere.
Before you choose an account, ask about fees. When rates were low, banks slashed fees on savings accounts to attract investors. But as rates ticked higher, fees went back up too. In addition to account maintenance fees, you may be charged if the balance falls below the required minimum. Find out if the account requires a minimum balance to qualify for advertised rates. Many banks require a minimum deposit of $1,000 to get their best deals. Also make sure the rate offered isn't just a trial offer that will go away after you've opened the account. I'm Terri Cullen.
PAUL KANGAS: That tepid GDP growth rate had Wall Street's blue chip Dow off about 10 points in the early going today, while the NASDAQ rose five points as Microsoft's strong results helped the tech sector. The market remained mixed until noon, when a solid gain in General Electric stock led the blue chips higher, enabling them to move into record ground for the third consecutive trading session. The Dow Jones Industrial Average closed up 15.44 at a record 13,120.94. This week it rose in four of the five days for a gain of 158.96 points. The NASDAQ Composite was up 2.75 points to 2,557.21 today. It also advanced in four of this week's five sessions, rising 30.82 points overall. The Standard & Poor's 500 Index lost .18 ending at 1,494.07 today. Over in the bond market, the 10-year note rose 1/32 to 99 14/32, putting the yield at 4.70 percent.
Paul Kangas' Stocks in the News
Big board volume leader by far on a hefty 39.4 million shares, General Electric (GE) moving up a full $1, traded as high as $37.22. A Citigroup analyst says the company is too complex and should spin off several of its divisions like NBC, GE Money and its real estate assets.
Motorola (MOT) a $0.33 loss there.
Ford Motor Co (F) a $0.15 drop.
Pfizer (PFE) was down $0.11.
And then AT&T (T), there you see it, off $0.32 a share.
LSI Corp (LSI) fell $0.15.
Time Warner (TWX) a $0.37 loss.
Omnicare (OCR) was hit hard, off $6.42. The company's first quarter earnings dropped to $0.47 from $0.70 a year ago, $0.18 below the Street estimate. That's excluding one-time items.
ExxonMobil (XOM) down $0.19.
And MEMC Electronic (WFB) losing $9.61. First quarter earnings were higher, $0.58, versus $0.30, but Standard & Poor's repeated a "strong sell" on the stock on disappointment over the company's forward guidance.
Cummins (CM) the maker of diesel engines, up $10.15. First quarter earnings $1.42, up from $1.35 last year, $0.56 better than the Street expected.
Chevron (CVX) dropped a dime, even though first quarter earnings excluding one-time items were $1.86 and that was $0.19 above the Street estimate.
Waste Management (WMI) moved up $2.78. First quarter earnings $0.42, up from $0.34, $0.06 above the Street estimate.
And then Curtiss-Wright (CW) did well, up $3.24. First quarter earnings jumped to $0.44, from $0.28 last year, $0.09 better than the Street consensus.
And Devry (DV) up $4.71. Third quarter earnings jumped 46 percent to $0.32 a share and that was $0.03 above the Street consensus there.
Commscope (CTV) up $3.40, a lot of good gainers here. First quarter earnings were good, $0.63, up from only $0.19 last year, $0.11 above the Street estimate.
On the downside, Lydall (LDL) off $2.47. First quarter earnings $0.11, down from $0.12 and $0.04 below the consensus.
Building Materials Holdings (BLG) off $1.47, feeling the housing slump no doubt. First quarter loss of $0.17, versus earnings of $0.95 a share last year.
Microsoft (MSFT) topped the active list, up $1.02 on those great earnings out after the close yesterday.
Amazon.com (AMZN) down $0.18.
Apple (AAPL) gained $1.08.
Baidu.com (BIDU) up $15.20. First quarter earnings came in at $0.37, $0.04 above the Street estimate. Citigroup upped it from a "sell" to a "buy."
And Google (GOOG) down $2.17 there.
Cisco Systems (CSCO) $0.48 rise.
Intel (INTC) down $0.22.
Amgen (AMGN) a $0.72 gain.
Broadcom (BRCM) lost $1.46. First quarter earnings, $0.29 versus $0.36 last year. Standard & Poor's cut estimates.
And Sandisk (SNDK) was off $1.19.
Varian Semiconductor (VSEA) up nearly 13 points. Second quarter earnings $0.69, way up from $0.26 last year.
But on the downside we have the airlines. JPMorgan downgraded just all the major carriers. UAL Corp (UAUA) down almost $3.
And look at the rest of them, all hurt badly by that downgrade from JPMorgan. Alaska Air Group (ALK)
AMR Corp (AMR)
Continental Air (CAL)
Jetblue Airways (JBLU
US Airways Group (LCC)
Those are the stocks in the news tonight.
