NBR Complete Transcripts
Tuesday, May 22, 2007China Trade Talks Come to Washington
SUSIE GHARIB: Chinese leaders are in Washington tonight for a new round of economic and trade talks. The so-called strategic economic dialogue will take place over the next two days, at a time of friction over the U.S.'s huge trade deficit with China and the slow pace of Chinese currency reform. But as Stephanie Dhue reports, analysts are doubtful that the high-level talks will produce long-term solutions.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meeting with China's Vice Premiere Wu Yi, Treasury Secretary Henry Paulson described the talks as a process to ease trade tensions. He called on the Chinese to make sure that process leads to action.
HENRY PAULSON, TREASURY SECRETARY: Our policy disagreements are not about the direction of change, but about the pace of change. Americans have many virtues. We are hard-working, innovative people, but we are also impatient.
DHUE: China is under increasing pressure to make policy changes. The Commerce Department is putting tariffs on Chinese government-subsidized paper imports. The U.S. trade representative is cracking down on the piracy of DVDs, and U.S. lawmakers have threatened legislation if China doesn't re-value its currency. But China's vice premiere, Wu Yi, made clear her country won't be backed into a corner.
TRANSLATION OF: VICE PREMIER WU YI, CHINA: Economic and trade issues can only be correctly approached and addressed according to economic law. Politicizing economic and trade issues is absolutely unacceptable, since it is of no help at all, but will make the situation even more complicated.
DHUE: Ahead of the talks, China announced it would widen the trading band for its currency, the yuan. It also moved to diversify out of U.S. Treasuries, with a $3 billion investment in the Blackstone Group. And it has agreed to purchase more than $4 billion worth of software, semiconductors, and telecommunications equipment from U.S. companies. But lawmakers are unimpressed. Representative Randy Forbes co-chairs the congressional China caucus.
REP. RANDY FORBES (R) VIRGINIA: My biggest fear is that we'll see legislation just out of frustration. But that could be knee-jerk legislation that comes out or it could be just a part, instead of the overall tapestry that we need to have an effective policy when it comes to dealing with China.
DHUE: The administration stresses that these talks aren't aimed at any specific trade deal. Instead, they are meant to broaden each sides' understanding of the issue. But clearly many members of Congress are eager for more. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The S&P 500's Record Run Fails To Reach The Finish Line
SUSIE GHARIB: The S&P 500 made another run at a record close, only to pull back in the afternoon. The big debate on Wall Street now is whether this market rally will encourage investors to take profits or attract new money. Erika Miller has more on the outlook for the S&P 500.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street watched and waited, eager to see if the S&P 500 would set a new record today. It didn't, but most analysts think it will soon. The index has been propelled by strong first quarter earnings, corporate mergers, and share buybacks. The last time the S&P was at these levels in March of 2000, it proceeded to lose nearly half of its value in the next three years. Many market technicians, including Ronald Daino, are not expecting a steep correction this time, given the broad-based nature of the rally.
RONALD DAINO, TECHNICAL ANALYST, LOUISE YAMADA TECHNICAL RESEARCH ADVISORS: The bigger picture -- based on weekly data and monthly data for the S&P -- remains quite strong and we think that, based on that data, that the S&P can not only make a new high, but can continue to extend its recent gains.
MILLER: Others are optimistic about the market based on fundamentals. They say corporate earnings are healthy and inflation fears are receding. Alan Skrainka of Edward Jones also points out that market valuations are attractive.
ALAN SKRAINKA, CHIEF INVESTMENT STRATEGIST, EDWARD JONES: Seven years ago, the market was hitting new highs. With hindsight, everybody knew that was a time to get out. But the P/E on the market was about 31; today, it's about 16. So, the market's at a high, but there's still good value in the market because earnings have been rising faster than stock prices.
MILLER: Skrainka also expects the Federal Reserve will eventually start cutting interest rates, which could encourage investors to buy stocks. That is not to say the market doesn't face risks, including inflation pressures.
SKRAINKA: If we start to see unit labor costs moving up in a sustained way -- because labor is 70 percent of the cost of doing business in a service economy -- then I think the Fed will have to put on the brakes. That will be my biggest concern.
MILLER: History is on the bull's side. According Standard & Poor's, since 1942, the S&P 500 has gained an average of 5 percent six months after setting a new record. Even more encouraging over the past 65 years has been the market's stamina. The S&P study showed that, on average, the market peaked more than three years after setting a new record high. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"India's Promise",Watery Wealth
SUSIE GHARIB: For centuries, Hindus of India have believed in the holy and healing powers of water. From bathing in the Ganges River to tossing sweets into the waters of the Yamuna, India's rivers are at the center of its holiest rituals. But now water has also become a part of a ritual of survival and the source of anxiety for millions. Tonight, as we continue our series "India's Promise", Darren Gersh looks at how water has everyone from villagers to businessmen wringing their hands.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Every day in this Delhi village begins with a trip to the local well. It is a time-consuming task.
TRANSLATION OF: UNIDENTIFIED FEMALE: I have to come here every day early in the morning and to fill my water, it takes me over an hour.
GERSH: It is also unsafe. The water is supposed to be used only for washing, but it isn't.
TRANSLATION OF: UNIDENTIFIED FEMALE: What can a poor person do? Where are we going to get special water from? Whatever we get we will drink.
GERSH: Not everyone is fortunate enough to have a well. In the slums, where almost half of Delhi's population lives, water may never flow at all. There's no plumbing in this slum. Water is tanked in sometimes. Rama Devi has lived here for 14 years. She uses this water to bathe and wash her dishes. The wastewater drains out here and ends up in open sewers. But Rama says water is hard to come by in the summer.
UNIDENTIFIED FEMALE: Four months problem. One day water come in, two days no come in.
GERSH: Around the corner from Rama's house, this man is trying to find out when the next shipment of water will arrive. But there's no answer. This tanker has been sitting here empty for more than a day. Last night's shipment never showed up and it doesn't look like one will show up this morning. In the summer, the people here say they can wait as long as a week for fresh water. And when it does finally show up, the fighting here can get so bad, that the police are often called in.
Bringing safe water to India is Duane Dunk's business. He works for Halosource, an American water purification company. Dunk says even in middle class neighborhoods like this one, water is piped in only two hours a day. That wouldn't be a problem, except the old water pipes were laid next to the sewage pipes, and the pipes leak.
DUANE DUNK, DIRECTOR OF DRINKING WATER, HALOSOURCE, INC.: And so here in this neighborhood, I have people tell me they have fecal matter-- sewage-- in their tap water.
GERSH: Backed by funding from Unilever and the Mars food company, Halosource has developed a patented technology to bond chlorine or bromine to plastic beads. The result is a cartridge that purifies water, killing bacteria and viruses. The technology is now being tested in a child's sports bottle. So this is a filter?
DUNK: Yes.
GERSH: And this kills the bugs.
DUNK: That's correct.
GERSH: So the idea is, if the kids get to school and the water is bad there...
DUNK: They can refill it then. They're not out of luck when they run out of water, they can still drink more.
GERSH: This product is good for a year and will retail for around $10. In a nation of one billion people, you can see why Halosource considers India the best market in the world for water.
DUNK: We got to find a better way than just relying on infrastructure and big government to solve our problems. What Halosource is about is empowering people to be able to take control of their water supply, look after their own family and do so affordably.
GERSH: Bad water also takes a toll on India's economy. PS Printing uses water at every step of its production process, from washing printing plates to thinning inks. The company uses water from its well and also trucks in water. But the quality of the water is poor and damages the equipment. Company manager Manjeet Bedi says better quality water from the city is in short supply.
COL. MANJEET BEDI (RET.) GENERAL MANAGER, PS PRESS SERVICES: They are just about meeting the drinking load of the city, so that takes a priority over the industry. Drinking water has to be given.
GERSH: The World Bank has warned India will face a severe water crisis in the next two decades that could derail its economy. After the Yamuna River leaves Delhi, it is so polluted, the water is considered untreatable. Montek Singh Ahluwalia is deputy chairman of the government's planning commission. He says water is an even more serious problem than India's infamous energy shortages.
MONTEK SINGH AHLUWALIA, DEPUTY CHAIRMAN, INDIA PLANNING COMMISSION: We've known about the energy crisis for a long time. People are rational about energy pricing. People recognize that energy is expensive. We import the energy from outside. We know what it costs abroad, so while there is some feeling that energy for certain targeted groups needs to be subsidized, in general, people recognize that you got to pay for energy. I don't think people feel that about water. There's a sort of presumption that water is a gift of God.
GERSH: And a gift from the state, which delivers water almost free of charge, leading to widespread waste. It's beginning to seep in for many Indians just how bad the water situation is.
AHLUAWALIA: People are much more aware now that there is a problem, but it's only seen as a problem. We haven't yet gotten around to working out what's a practical way of solving the problem, basically.
GERSH: If India does not act soon, a nation that worships its rivers may soon find it is dying of thirst. Darren Gersh, NIGHTLY BUSINESS REPORT, Delhi.
GHARIB: Tomorrow, as we continue our series "India's Promise", India has started one of the largest experiments ever in affirmative action and we'll tell you how it's going.
"Of Mutual Interest"- Jason Zweig, Investing Columnist, "Money Magazine"
PAUL KANGAS: In our "Of Mutual Interest" segment tonight, there's a lot of talk these days about global warming and the environment. So should you be investing in a green mutual fund? Joining me tonight, Jason Zweig, investing columnist for "Money" magazine. Jason, welcome back. Good to see you.
JASON ZWEIG, INVESTING COLUMNIST, MONEY MAGAZINE: Thanks, Paul.
KANGAS: Jason, what's your view of environmentally friendly funds?
ZWEIG: Well, Paul, the real question here I think on peoples' minds is whether global warming can heat up your portfolio. And I'm not so sure the answer is as simple as a lot of people would like us to believe. You know, if global warming is the problem that most scientists agree it is, what we're likely to see is a multi-trillion dollar industry that really kind of spreads its tentacles throughout the whole economy. And I'm dubious that a sector fund is going to be the right way to play that.
KANGAS: So they wouldn't necessarily pick the issues that are going to take the lion's share of the profits in such an endeavor?
ZWEIG: Exactly. I mean at this stage, there aren't that many companies, established companies that are already.
KANGAS: And why not? It's such a hot topic in the news. You'd think there'd be a lot more funds like this. Why not?
ZWEIG: Well, I think one of the reasons, Paul, is because there are a lot of established industrial giants that are already active in this area like General Electric, for example and any number of companies in Europe and Japan.
KANGAS: Well one fund that has been around for a while like this, as a matter of fact, it's been around since 1982 is called the new alternatives funds which invest in alternative energy sources, but it's relatively small with assets of only about $180 million. We have a chart that shows over the last 10 years of performance it's really been a roller coaster. What role could a fund like that play in an investors' portfolio?
ZWEIG: Well, Paul, the problem here is the same problem that you get into almost any time you invest in a sector fund which is that when the returns are good, they tend to be very good. And when they're poor, they tend to be quite poor. And the good periods are often dwarfed by the periods of poor performance. They come in streaks, and streaks tend to be short.
KANGAS: We just have a minute left but the fees for funds like these tend to be on the steep side and new alternative, for example, has a front end sales load and expenses of 1.25 percent annually. Don't those types of fees eat up the returns pretty quickly?
ZWEIG: They definitely do, Paul. My belief is that if you want to play globally warming planet and you want to play the green revolution, then probably the best way to do it is in your own life by sort of cleaning up your own act and investing in a diversified fund instead of a narrowly focused fund. I don't really think that you're going to be able to clean up on the environment by buying an environmentally friendly fund.
KANGAS: So if you had a green thumb yourself, you would give it a thumb's down apparently, with this type of fund?
ZWEIG: I would cultivate my own garden first.
KANGAS: OK.
ZWEIG: That's the right way to put it.
KANGAS: Once again Jason, I want to thank you for your insight and observation.
ZWEIG: Thanks, Paul, a pleasure.
KANGAS: My guest, Jason Zweig, investing columnist for "Money" magazine.
"Commentary"-Beg, Borrow & Invest
SUSIE GHARIB; In tonight's commentary, a few thoughts on playing with borrowed money. Here's Allan Sloan, Wall Street editor at "Newsweek."
ALLAN SLOAN, WALL STREET EDITOR, NEWSWEEK: There are those of us who borrow a lot of money and worry about paying it back. Then there's Wall Street, where you borrow money to make money. One of the reasons private equity and hedge funds can make huge profits for investors is using lots of borrowed money, make that lots of cheap borrowed money. Blackstone, the private equity firm trying to go public, even offers us an example. Buried deep in one of its filings, it shows how a 6 percent increase in the value of an acquired company can make 15 percent a year for its investors.
The secret, borrowing 70 percent of the purchase price. And you can do this at home, although I sure wouldn't. Say you had put $3,000 into an S&P 500 index fund for the year ended in April. It's boring, but you'd be up 15 percent which is pretty nice. Now let's say you'd gone the borrowed money route, borrowed $7,000 at 6 percent and put that in there too. Know how much you'd have made on your $3,000? Try 36 percent. But if the S&P had fallen 15 percent, you'd be out 64 percent. That downside risk as we call it is why you should leave the borrowed-money game to the pros. Watching big hitters win or lose big is a great spectator sport. But it's a whole other thing trying to play that game yourself. I'm Allan Sloan.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened narrowly higher and stayed that way throughout the morning. MGM Mirage shares led a rally in the gaming group after Kirk Kerkorian's Tracinda Corporation said it wants to buy some of MGM's assets. At 2:00 p.m., the Dow was up 35 points and the NASDAQ posted a 10 point gain. That blue chip push into record high territory attracted profit-taking and stocks pulled back to close on a mixed note. The Dow Industrial Average ended down 2.93 at 13,539.95. The NASDAQ managed to gain 9.23 points, ending at 2,588.02. Standard & Poor's 500 Index fell .98 to 1,524.12. Over in the bond market, the 10-year note fell 10/32 to 97 13/32, lifting the yield to 4.83 percent.
The most active New York exchange issue on 13.9 million shares was General Electric (GE) moving up $0.24. Followed by Pfizer (PFE) with a nickel loss.
Taiwan Semiconductor (TSN) up $0.15.
Time Warner (TWX) lost $0.15.
Dynegy (DYN) down $0.34 and very active after Chevron said it's selling its entire 96.9 million share holding of Dynegy in an underwritten public offering. Moving along on the active list, we see ExxonMobil (XOM) losing $0.82.
Ford Motor Co (F) dropped a dime a share.
Sprint Nextel (S) $0.06 gain.
And there the star of the day, the big winner so to speak, MGM Mirage (MGM) up $17.03 after trading as high as $82.25 today. Kirk Kerkorian and its Tracinda Corporation, which are MGM's controlling shareholders, want to buy MGM's Bellagio Hotel and Casino, as well as the $7 billion city center development which is now under construction. This interest in MGM's assets have many of the gaming stocks very strong today. Let's have a look at a sector, a few of them.
Boyd Gaming (BYD), Las Vegas Sands (LVS) and Wynn Resorts (WYNN) all doing well on the upside on that news.
Then Kraft Foods (KFT) down $0.15, tenth in big board volume.
Moving along we see Alcan Aluminum (AL), the $0.07 loser here but after the close, the company announced it rejected Alcoa's cash and stock takeover bid worth $74.57 a share as of today. In after hours trading, Alcan stock was around $83.25, moved up smartly. Alcoa gained $1.12 itself from its regular closing.
A big gainer today, Fremont General (FMT) up $2.89 on news it'll sell its commercial real estate lending business and outstanding loan portfolio to iStar Financial for $1.9 billion. IStar stock moved up $1.79. Also an investment company is going to take a minority stake in Fremont General.
Tsakos Energy Navigation (TNP), the Greek-based oil tanker company up $5.25. Higher earnings out today, first quarter, $2.28, up from $2.19 last year and revenues were up a very respectable 20 percent.
United Auto Group (UAG) gaining $1.46. Wachovia upgraded the stock from "market perform" to "out perform."
But Autozone (AZO) fell $1.88. Third quarter earnings were high, $2.17 and $0.02 above the Street estimate and well above $1.89 a year ago, but sales were up a lower than expected 4 percent.
Shaw Group (SGR) up $1.87. The engineering and construction firm got an upgrade from Merrill Lynch from "neutral" to a "buy" recommendation.
And then Lockheed Martin (LMT) down $4.57. Cowan Company brokerage downgraded it from "outperform" to "neutral."
Then we see American Eagle Outfitters (AEO) losing $1.27. First quarter earnings were a bit higher, $0.35 versus $0.28 but just in line and inventories were a bit high. The company sees second quarter earnings around $0.35 a share. That's $0.02 below the Street estimate.
Apple (AAPL) topped the active list on NASDAQ, up $1.56.
Research in Motion (RIMM) gaining $7.06.
Google (GOOG) up $5.26, some nice moves there.
Qualcomm (QCOM) $0.25 gain.
And then came Intel (INTC) with a $0.36 gain.
Microsoft (MSFT)
fell $0.36.
Amazon.com (AMZN) $0.58 rise.
And Cisco Systems (CSCO) dropped $0.03.
Broadcom (BRCM) $0.07 gainer.
And then finally Sandisk (SNDK) down $0.73.
Monro Muffler and Brake (MNRO) made some noise on the Street today, up $3.23. It set a three for two stock split. It's boosting the quarterly dividend to $0.09. That's a 29 percent increase. It also reported higher fourth quarter earnings of $0.28, $0.02 above the Street estimate.
And finally, United Natural Foods (UNFI) fell $3.24 after reporting third quarter earnings of $0.32 per share versus $0.29 per share year ago, but that was $0.03 below analysts estimates.
