NBR Complete Transcripts: 05-30-2007
Wednesday, May 30, 2007Wall Street's Record Run
SUZANNE PRATT: A record day on Wall Street. The S&P 500 Index closed at an all-time high for the first time in seven years, up 12 points to 1530. The Dow also finished at a new high, surging 111 points to 12,633. Today's gains came after investors ignored a steep overnight sell off in Shanghai, focusing instead on the release of the minutes from the Federal Reserve's May 9th policy meeting. The minutes showed the Fed is optimistic about the outlook for the economy, despite the lingering housing slump and inflation. Economists say that means the central bank isn't likely to lower interest rates anytime soon. Doug Sandler, chief equity strategist at Wachovia Securities says the Fed minutes had a mixed message for Wall Street.
DOUG SANDLER, CHIEF EQUITY STRATEGIST, WACHOVIA SECURITIES: There's something for the bulls in the Fed statement. There's something for the bears. I think we're in a market that's trending up, so the bulls are going to tend to win this tug of war. Ultimately, I think it is very, it's a good thing that the pullback that we had last week was short and shallow and the bad news that came up this morning on China was quickly shrugged off.
PRATT: By the way, the last time the Dow and S&P 500 hit record highs on the same day was back on December 31 of 1999.
President Bush Makes His Pick For The Head of the World Bank
PAUL KANGAS: President Bush opened a new chapter for the World Bank today. Mr. Bush named former Deputy Secretary of State Robert Zoellick to replace Paul Wolfowitz as World Bank president. Wolfowitz stepped down amid a firestorm of criticism over how he handled a promotion for his girlfriend. As Stephanie Dhue reports, experts say that gives Zoellick a challenging start in his new job.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Bush's choice to head the World Bank, Robert Zoellick, has a tough task ahead. Under Paul Wolfowitz, the bank staff staged an open revolt, Europeans called for his resignation and the bank's ability to fight global poverty was questioned. Zoellick acknowledges the problems.
ROBERT ZOELLICK, NOMINEE, WORLD BANK PRESIDENT: The World Bank has passed through a difficult time for all involved. There are frustrations, anxieties and tensions about the past that could inhibit the future. This is understandable, but not without remedy. We need to put yesterday's discord behind us and to focus on the future together. I believe that the World Bank's best days are still to come.
DHUE: Zoellick served in the Bush administration as deputy secretary of state and U.S. trade representative. He's now a vice chairman at Goldman Sachs. He has a reputation as a demanding boss, but also for building consensus. Charlene Barshefsky was the U.S. trade rep in the Clinton administration. She says Zoellick needs to demonstrate his independence to effectively lead the bank.
CHARLENE BARSHEFSKY, SENIOR INTERNATIONAL PARTNER, WILMER, HALE: His first task will be to gain confidence and to set a baseline of action and activity within the bank that is consistent with a non- ideological pursuit of the bank's historic objectives.
DHUE: One of the key objectives for the World Bank now is to raise $20 billion to replenish its lending program for the poorest nations. Harvard economics Professor Kenneth Rogoff says Zoellick's biggest challenge will be persuading countries to donate money.
KENNETH ROGOFF, ECONOMICS PROFESSOR, HARVARD UNIVERSITY: There's so much hostility to the bank in the wake of the Wolfowitz debacle that it's going to be harder and he's very good at that. I think he's a good negotiator. He's the right person for that, but it is not going to be easy.
DHUE: Zoellick's nomination must still be approved by the World Bank's board. Wolfowitz's resignation is effective at the end of June. The board says it will make its decision before then. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The Gap's Debt Grows
SUZANNE PRATT: Another company recently under scrutiny from the investment community is Gap. The retailer has been struggling to get its house in order after a three-year slump in sales. But as Erika Miller reports, most analysts aren't predicting a quick turnaround.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: A visit to Gap's 34th Street store in New York City illustrates the company's main challenge. How can it get customers to shop here, rather than at H&M across the street or more youthful American Eagle Outfitters around the corner? JPMorgan retail analyst Brian Tunick, whose firm does investment banking for Gap, says the company needs to pinpoint its core customer.
BRIAN TUNICK, RETAIL ANALYST, JP MORGAN: I think them trying to sort of appeal to a 25 to let's say, 40-year-old customer -- more with a basic focus -- is an opportunity for them. And refining that focus is something that hasn't been there for years.
MILLER: In an effort to revive its brand, Gap recently hired high end designer Patrick Robinson, who previously designed clothing for Target. But fashion is just one of many problems plaguing Gap. The company, which operates more than 3,000 stores, has been trying to streamline operations. It also needs to find a new chief executive officer. Robert Fisher, who has been serving as interim CEO since the resignation of Paul Pressler in January, has said he does not want the job. Some analysts predict new leadership might consider selling the company, or its old Navy or Banana Republic divisions. Rival Limited Brands recently announced it would sell a majority stake in its express chain and it is exploring options for its Limited stores. In Gap's case, sales have been in a slump since 2004 and so has its stock price. Over the past three years, the shares have fallen more than 25 percent. Since January, they're down about 6 percent. But Wall Street analysts disagree about where the stock is headed. Currently, six analysts advise investors to buy, three say sell, and most are neutral. Citi's Kimberly Greenberger is in the majority camp
KIMBERLY GREENBERGER, RETAIL ANALYST, CITI: I'm not sure that we'll see significant improvement for Gap. Given the size of Gap, they own roughly 7 or 8 percent share of the U.S. apparel market. That's a very, very large share to own. We're likely to see sort of moderate growth from them. But hopefully we'll see it by the second half of the year, when some of the strategic initiatives kick in.
MILLER: Citi has done investment banking and other business with Gap over the past year and it owns more than 1 percent of Gap shares. In addition to its internal issues, Gap must grapple with a slowing economy. Experts say a soft housing market and high gasoline prices will make many consumers think twice about discretionary clothing purchases. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Patrick O'Hare, Editor-in-Chief, Briefing.com
PAUL KANGAS: My "street critique" guest tonight writes the bargain hunting column on the financial education website briefing.com and he's seeing new life in a big distributor of maintenance and janitorial products. He's Patrick O'Hare and Pat, welcome back to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, EDITOR-IN-CHIEF, BRIEFING.COM: Thank you, Paul. It's a pleasure to be back.
KANGAS: The last time we spoke, you were seeing value in a stock called Bed, Bath & Beyond. That was May 9th. The stock was around 41, still at the same level. Anything changed there? You still like it?
O'HARE: We still like it. I believe it's reasonably priced for the long-term investor in here.
KANGAS: OK, very good. What stock is in your bargain hunting radar now? What does it do? How big is it? Give us a little description.
O'HARE: We're looking at Interline Brands right now. The symbol is IBI and what they do, they're a specialty distributor and direct marketer of maintenance repair and operations products. They sell primarily 10 distinct brands into three different end segments: the facilities maintenance business, the professional contractor business and the specialty distributor business.
KANGAS: I see the stock is near the lower end of its recent range rather than the higher end so you think it's a good time to buy.
O'HARE: Year, we think there's a little bit of contrarian flavor here in Interline given its indirect link to the housing market. Professional contractors and specialty distributors count for about 40 percent of their sales and the professional contractors, primary markets happen to be the remodeling and repair aspect within the housing industry. There's been some softness there and the company has warned about continued softness through 2007.
KANGAS: The price to earnings growth ratio or PEG ratio is a key benchmark you look for. Why is that?
O'HARE: I like it as an initial screening metric really. It's not an all-encompassing metric, but what it does, it gives us a sense of whether a stock is trading at a discount to its projected earning growth rate. And when we see PEG ratios at one or below, we tend to take a closer look at them. And in the case of Interline Brands, it has a PEG ratio just under one and we like its position in the industry as well as the contrarian aspect here and so we think there's some nice risk-reward here for the patient-minded investor.
KANGAS: Briefly, what are the risks for Interline?
O'HARE: More meaningful economic slowdown is a clear risk, as well as some weakness, continued weakness in the dollar as they source a large proportion of their supplies out of Asia. But all in all, the company has acknowledged those risks and we think it is still reasonably priced here for the investment-minded individual.
KANGAS: Interline has grown through a series of takeovers but is the company itself now a takeover target?
O'HARE: Within this MRO industry, you can kind of look at it almost as the financial services industry, in that these leaders within the space are all looking to become one-stop shops for their customers and Interline itself certainly is not exempt from a potential takeover bid, but it's likely to be an aggregator and it shows a very good approach to being able to integrate acquisitions and been successful in doing that.
KANGAS: Pat do you own the shares of Interline Brands or do you have any other disclosures to make?
O'HARE: No, I do not Paul.
KANGAS: All right, listen, I want to thank you for being with us. We'll keep a close eye on the progress of Interline. Thanks again.
O'HARE: Thank you, Paul.
KANGAS: My guest Patrick O'Hare, editor and chief at briefing.com
"Money File"-Secret 401k Savings
SUZANNE PRATT: In tonight's money file, changes to your company's 401 (k) plan could help you save money for retirement, whether you want to or not. Here's Gail Marks Jarvis, personal finance columnist at the "Chicago Tribune."
GAIL MARKS JARVIS, PERSONAL FINANCE COLUMNIST, CHICAGO TRIBUNE: Brace yourself for a surprising paycheck, one that might look like it shrunk. If you get one, it could mean you work for an employer that's taking on a new role, the role of investing baby-sitter for the company 401(k) plan. In other words, too many workers have failed miserably saving and investing, so employers are stepping in, yanking money from employee paychecks and investing it for them without asking for permission first.
That's a tremendous change in the 401(k) system. It's aimed at heading off a retirement crisis. Even on the verge of retirement, half of Americans have saved no more than $88,000, or only $650 a month to live on. So instead of waiting for employees to sign up for 401(k)s, employers are doing it for them. Instead of waiting for employees to pick the right mutual funds, employers are taking a stab at it. Instead of waiting for employees to scrounge up larger savings, employers are re-routing parts of raises from the paycheck to the 401(k).
Not all employers are doing this, but the trend is growing. Congress gave the green light last year. If you don't like it, you can tell your employer to stop and they will. But the bet is that you won't bother. That's part of the problem with the old 401(k) system, people didn't bother. I'm Gail Marks Jarvis.
Japan's Invisible Ultra-Affluent
SUZANNE PRATT: And finally tonight, just under a fifth of the world's richest people are clustered in Japan, which is second only to the U.S. in its share of millionaires and billionaires. But until recently, the ultra- affluent were an overlooked segment of the Japanese retail. Lucy Craft reports.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Business in Japan has been, well, taking off for Georgia-based Gulf Stream, maker of that ultimate status symbol, the private jet. Salesmen at Marubeni Corporation, the agent for Gulf Stream's international charter air service, were literally shown the door when they tried to call on prospective clients just five years ago. But now, the firm has to turn customers away, says Marubeni's Shingo Ueda.
TRANSLATION OF: SHINGO UEDA, GM, COMMERCIAL AIRCRAFT GROUP, MARUBENI AEROSPACE CORPORATION: In the past, business jets were considered just a frill. But these last few years, the mindset has changed dramatically. More and more, Japanese companies see it as a business tool, not a luxury.
CRAFT: Japan's traditionally egalitarian society, where the most affluent used to spurn gaudy displays of privilege, is splintering into haves and have-nots these days. The upper crust is growing and it even has a new name: fuyuso (ph), the free-spending super-rich. Publisher Hirofumi Usui, whose magazine rhapsodizes the finer points of Swiss boarding schools, yachts and villas on Diamondhead, says about one in every hundred Japanese qualifies as a fuyu-so, and they have become discriminating consumers.
TRANSLATION OF: HIROFUMI USUI, PRESIDENT, E-MARKETING INC.: It used to be that you got the same standardized treatment at the hospital, the bank, or wherever, even if you could afford better service. Japanese thought this was normal. But then they noticed that this wasn't the case overseas and they have started to wake up.
CRAFT: Japan's super rich are suddenly a high-profile presence in the U.S. and other foreign art markets, says Tokyo gallery owner Kara Besher, whose business includes brokering American pop art to Japanese dot-com millionaires, entrepreneurs and other wealthy professionals.
KARA BESHER, ART DEALER, MARU GALLERY: Previously, conspicuous consumption was seen to be something somehow immodest. I think it's always been that way in Japan. I heard that even in the Edo period, the rich merchants would wear gold embroidery on the inside of their kimonos. But nowadays, the wealthy are much more, they're much less inhibited about that sort of thing.
CRAFT: High-end hotels in Tokyo are at or near full occupancy, despite an expansion of capacity and prices that start at $600 a night. Most patrons of the new Ritz-Carlton are neither Hollywood celebs, nor visiting pashas, but revelers from the Tokyo metropolitan area who can't seem to get enough when it comes to baroque excess. Ricco Deblank is the hotel's general manager.
RICCO DEBLANK, GM, THE RITZ-CARLTON TOKYO: The $1,000 omelet that we serve in the restaurant, does it sell? It sells every week and the customer loves it. It comes with champagne, caviar, lobster and truffles and it is a unique item on the menu.
CRAFT: Marketers reckon that here in Japan, as in the U.S., the consuming passions of the affluent will trigger a new breed of materialism among Japan's middle class, spurring the masses to seek their own token of the good life. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened lower, partly due to that overnight sell off in the Shanghai market. The Dow fell just 40 points however and the NASDAQ lost just nine in the early going. That resistance to selling bolstered bullish conviction so by midday the Dow snapped back with a 35-point gain and the NASDAQ was up 4. After a brief dip, stocks rallied sharply on that release of minutes from the May Federal Reserve meeting. The Dow Industrial Average jumped 111.74 points to a new record high of 13,633.08. The NASDAQ Composite rose 20.53, ending at 2592.59, while the Standard & Poor's 500 finally closed at a record high up 12.12 at 1530.23. Over in the bond market, the 10-year note climbed 4/32 to 97 3/32, putting the yield at 4.87 percent.
Big board volume leader on 16.5 million shares, Pfizer (PFE) losing $0.15.
Followed by EMC Corp (EMC) with a $0.52 gain.
MEMC Electronic (WFR) up $1.01.
First Data Corp (FDC) edged up $0.13. This company's in the process of being acquired by Kohlberg, Kravitz Roberts for $34 a share.
ExxonMobil (XOM) was up $1.38, nice move there.
General Electric (GE) $0.33 gain.
Time Warner (TWX) edged up $0.11.
AT&T (T) $0.49 advance.
Sprint Nextel (S) rose $0.70.
And Kraft Foods (KFT) was up $0.18.
Dow Jones & Co. (DJ) gained $1.02. The "Financial Times" of London reports T. Rowe Price, the largest shareholder outside of the Bancroft family with 15 percent of the stock finds News Corp $60 a share buyout bid fairly attractive.
Pennsylvania Real Estate (PEI) up $3.19 on takeover speculation there. Yesterday the REITs were very strong after Archstone Smith accepted a $60.75 buyout bid from Tishman Speyer. And today that whole group very strong again today. Look at that, five of them, all nice gainers, especially after Deutsche Bank upgraded these particular five from "neutral" to "buy," good gains.
Phillips-Van Heusen (PVH) had a good day, up $4.27. First quarter earnings moved up $0.92 from $0.74 a year ago, $0.06 better than expected. Revenues up 17 percent. The company boosted its 2007 earnings guidance and Bank America repeated a "buy" and boosted its target price to $68 a share, a lot of good news there.
Marathon Oil (MRO) up $3.21. This company plans to boost its stock buyback program by $500 million.
And speaking of that, E.on ag ADS (EON), this is a big German utility. It's going to buy back $9.4 billion of its stock by the end of 2008. It also planned a 20 percent annual dividend boost until the year 2010.
Western Refining (WNR) moving up $2.97 on news that the court has denied the Federal Trade Commission's attempt to block the company's acquisition of Giant Industries. Giant stock edged up just $0.15 on the news.
Nisource Inc Holding (N) down $1.87. The company ended talks to sell its Indiana electricity assets.
And Donaldson Co (DCI), which makes filtration systems, had higher third quarter earnings of $0.49, up from $0.43 a year ago, but it cut the high end full year earnings target and that hurt the stock.
NASDAQ's most active, Apple (AAPL) up $4.42. As you heard, it launched its iTunes plus product and in addition, WR Hambrecht brokerage boosted its target by $10 to $125 for the stock. Morgan Stanley's target now is $150 a share.
Google (GOOG) up $11.49.
Microsoft (MSFT) $0.32 gain, there you see it.
Cisco Systems (CSCO) moved up $0.49.
Qualcomm (QCOM) down $1.32.
Intel (INTC) lost $0.22.
CDW (CDWC) up $2.06. The company will be acquired by Madison Dearborn partners for $87.75 a share.
Biogen Idec (BIID) moving up $2.92. The company began a Dutch tender offer for 57 million shares of its own stock. That's 16 percent of the outstanding and the price will be between $47 and $53 a share.
Research in Motion (RIMM) down $0.67.
Amazon.com (AMZN) edged $0.23 higher.
And finally, Novacea (NOVC) soared nearly $7 on news Schering Plough has agreed to pay up to $440 million for the rights to develop Novacea's experimental prostate cancer treatment.
