NBR Complete Transcripts: 06-06-2007
Wednesday, June 06, 2007Inflation Worries Rise With Labor Costs
SUSIE GHARIB: Stocks on Wall Street fell sharply for a second straight day, this time on concerns about inflation. The Dow tumbled 129 points and the NASDAQ lost 24. Driving today's sell-off: a new government report showing a bigger-than-expected rise in unit labor costs. That raised concerns that the Federal Reserve might raise interest rates down the road just the European Central Bank did today. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Wall Street consensus had been that interest rates were likely to go down later in the year, due to a sluggish American economy. But economic forecasts have been pointing to a stronger second half. Today the Labor Department reported unit labor costs rose 1.8 percent in the first quarter, more than expected. Traders know the Fed keeps a close watch on wages and will raise interest rates if it thinks costs are rising too fast. Bond traders are now indicating rates will either hold steady or actually increase in the second half.
Inflation fears are not limited to the United States. Today the European Central Bank raised its key interest rate one quarter of a point, to 4 percent. The move is seen as anti- inflationary, due to stronger than desired growth within the E.U.
Manny Weintraub of Integre Advisors says in today's world, American investors must pay attention to what goes on overseas.
MANNY WEINTRAUB, MANAGING DIRECTOR, INTEGRE ADVISORS: Today's move makes all markets around the world less attractive to all investors because it is all part of a pattern of decreasing liquidity, rising interest rates, and a stock is worth the discounted present value of its future cash flows. And as rates go higher, then the discount rate goes higher and the present value is less.
GURVEY: Morgan Stanley's European equity research team issued a sell signal on European equities, citing models which suggest a market correction. But Reiner Triltsch, European strategist at U.S. Trust, sees a European market pullback as a buying opportunity.
REINER TRILTSCH, EUROPEAN STRATEGIST, U.S. TRUST: We here at U.S. Trust like Europe a lot, especially its Eurozone, simply because the earrings growth rates are higher for the companies, the stock markets are more attractively valued than the U.S., and the economies are growing at a superb pace right now.
GURVEY: Adding to the market jitters, Federal Reserve officials have been speaking out about inflation concerns in recent days. The Fed's next policy setting meeting is a two-day affair beginning June 27th. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Avandia Prescriptions Are Getting Anemic
SUSIE GHARIB: There is word tonight that new prescriptions for GlaxoSmithKline's diabetes, Avandia, are down 40 percent, falling sharply after a report May 21st that the drug may increase the risks of heart attack. Avandia came under scrutiny today at a U.S. House hearing on how the Food and Drug Administration evaluates drug safety. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The head of the Food and Drug Administration told Congress he wants to put a stronger, so-called "black box" warning on the anti-diabetes drugs Avandia and Actos, informing patients of an increased risk of congestive heart failure.
But Andrew Von Eschenbach also told Congress the evidence these drugs also increase the risk of heart attacks was, quote, "inconsistent," and the agency would look to a panel of outside experts for guidance.
ANDREW VON ESCHENBACH, FDA COMMISSIONER: We are assessing that as we speak, and we are taking that to an advisory committee at the end of July.
GERSH: It now appears the controversy over Avandia began the year it was approved by the FDA. In 1999, after researcher John Buse raised concerns Avandia might increase the risk of cardiovascular problems, he says an employee at SmithKline Beecham, now part of GlaxoSmithKline, called to say the findings had hurt the company's stock.
JOHN BUSE, PRESIDENT-ELECT, AMERICAN DIABETES ASSN.: He mentioned that there was a notion that the market capitalization of the company had decreased by approximately $4 billion, and that company -- there were people in the company that felt that I might be liable for that.
GERSH: GlaxoSmithKline executives say the company would never try to stifle medical debate, and the employee who spoke to Dr. Buse has left the company. Glaxo also complains its critics are politicizing the science on Avandia.
Moncef Slaoui, Glaxo's head of research and development, cites clinical studies of more than 4,400 patients that found Avandia did not increase the risk of heart attacks when compared to other anti-diabetes drugs.
MONCEF SLAOUI, CHMN., RESEARCH & DEVELOPMENT, GLAXOSMITHKLINE: The complete body of evidence available to date clearly supports our conviction that the cardiovascular safety of Avandia is comparable to that of the two most-widely used oral anti-diabetes medicines.
GERSH: The stakes in this medical debate are high. Millions of people take Avandia, earning Glaxo more than $3 billion last year. So far, Chris Viehbacher, president of U.S. pharmaceuticals for GlaxoSmithKline, says most doctors are staying with Avandia.
CHRIS VIEHBACHER, PRES., U.S. PHARMACEUTICALS, GLAXOSMITHKLINE: Physicians are able to understand the difference between a meta analysis and a clinical study. And physicians have had eight years of prescribing this and they have the confidence in the product.
GERSH: Henry Waxman, the chairman of the House Oversight Committee who called today's hearing, says the Avandia controversy is a classic example of why the FDA needs more authority. Waxman says the FDA should be able to force pharmaceutical companies to conduct safety studies after their drugs are on the market. He hopes Congress will give the agency that power later this year. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique" -Hilary Kramer, Personal Finance Editor at AOL
PAUL KANGAS: China's benchmark Shanghai Composite Index has been on a roller coaster ride, selling off sharply over the last week after rising almost 50 percent since the beginning of the year. My "Street Critique" guest tonight still sees plenty of value in Chinese stocks, but says you have to be selective. She's Hilary Kramer, market strategist and personal finance editor at AOL. Hilary, welcome back to NBR.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL: Thank you, Paul.
KANGAS: We kicked off the week with another big sell-off on the Shanghai Composite. It fell 8 percent. U.S. markets kind of shrugged off that decline, but does the volatility we are seeing in China scare you off?
KRAMER: No, there is so much potential there with a billion-plus people, all of whom have money now to spend.
KANGAS: OK. As an investor, what are you looking for in China? What kinds of businesses, those that focus on China's domestic market and its emerging consumer class, or firms that are strictly focused on exports?
KRAMER: It is the consumer class -- it is the growing consumer class that has money now. That is who is benefitting from all of the new companies that are growing.
KANGAS: OK. Now we spoke about opportunities in China on your February 28th visit. The Shanghai Composite had just marked its first big sell-off which caused a major drop in U.S. stocks. You had three stocks for our viewers at the time. Let's see how they have done since then.
First we see Focus Media (FMCN) up 9.6 percent, as was New Oriental Education and Technology (EDU). Are you still with those two gainers?
KRAMER: They are great companies, especially Focus Media, which makes the flat panel screens that are used to advertise everywhere from buses to elevators.
KANGAS: Then of course we see Homes, Inns and Hotels (HMIN) down over 26 percent. What went on there?
KRAMER: There was expectation that there would be additional IPOs and growth of these discount hotel chains all over China, and also they didn't grow as fast as was expected. They only have 80 hotels right now.
KANGAS: OK. You have some new picks. China TechFaith Wireless (CNTF) is first up. What does the firm do? Let's get a chart up there if we can have -- there it is. Go ahead.
KRAMER: OK. China TechFaith Wireless makes handsets. They are a designer of the handsets. So they supply them to the major mobile companies all over China. And the stock really sold off. And there is a nice opportunity right now.
KANGAS: OK. You think it is oversold, in other words?
KRAMER: Absolutely.
KANGAS: All Right. LDK Solar (LDK). That debuted on the New York Exchange last Friday at a price of 27, been struggling. Why do you like this one?
KRAMER: LDK was bought by the -- what we call the IPO flippers. There was a lot of stock, $400 million-plus, that was issued out there, a lot of buyers just flipped right out of it. But they are a big supplier to the major solar companies with solar wafers around the world.
KANGAS: OK. Then you like Harbin Electric (HRBN). And let's have a chart on that and give us the story on this one.
KRAMER: OK. Now Harbin Electric is a smaller cap stock. So it is a little less liquid, but it is a very, very well-situated company that does efficient motors for everything from microwave ovens to power tools to big industrial equipment in China. And there is legislation for more efficient motors. I like this for the very, very long term.
KANGAS: OK. An interesting selection, Hilary. Do you own any of the issues personally, or have any other disclosure to make?
KRAMER: Of all of these companies, LDK is the one that I do own.
KANGAS: OK. Fair enough. Hilary, great to see you again. We will see you again on June 20th.
KRAMER: Thank you, Paul. I look forward to it.
KANGAS: My guest, Hilary Kramer, personal finance editor at AOL.
"Money File"- In Search of Higher Yields
SUSIE GHARIB: In tonight's "Money File," where to find the best investment depends on what you are looking for. Here's Eric Schurenberg, managing editor of Money magazine.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: A good yield is hard to find these days. Money market accounts are averaging about 3.7 percent, and you hardly get any extra income for taking extra risk by investing in longer-term bonds, for example, or even junk bonds. So, what do you do?
Well, first, remember it is more important to pick an investment that suits your needs than to get one with a big number in front of the percent sign. Keep that in mind and you will do fine.
So what if what you need is an ultra-safe place to stash cash temporarily? Well, there is lots of choice. A number of banks, especially small regionals and online newcomers, are promoting high rates to get new customers.
Plug "highest-yielding money market accounts" into a search engine today, and you may find a dozen local and online banks offering 5.1 percent or better. Or visit Money magazine's Web site, money.com, for a list of the best money market accounts.
Now if you are talking about the longer term, say, the income portion of your retirement fund, it gets a bit more complicated. You have to take some risk to keep ahead of inflation, which means you need to keep most of your retirement money in stocks for growth.
For the income portion of that portfolio, which is what we are talking about today, you want a mix of stability, high-yield and growing income. So I would recommend a blend of bond index mutual funds, high-yield bond funds, and equity funds that invest in high-dividend stocks, all with low expenses, seasoned managers and consistent track records.
Many Web sites will let you screen for funds like that, or you can find a list of them on Money's Web site, money.com. Good hunting.
I'm Eric Schurenberg.
"Last Word"-Calling In Sick Syndrome
SUSIE GHARIB: And finally tonight, it is another sure sign of summer. As temperatures begin to rise, so do many unscheduled absences in the workplace. It is known as "seasonal absence syndrome," that is when employees call in sick without actually being sick. Thirty-nine percent of those surveyed by Kronos, the workforce management company, say they have called in sick during the summer simply to enjoy a day off.
Not surprisingly, the most popular days to call in are Mondays and Fridays. While it may sound harmless, it is actually a big deal for employers because working with fewer employees can cause problems with productivity and morale.
And, Paul, the most common reasons that employees give for calling in sick: the need for mental health days, great weather, and a heavy workload.
KANGAS: Well, using a sick day to combat a heavy workload isn't going to make it any lighter, that is for sure.
GHARIB: I just call it playing hooky.
KANGAS: Yes, that is right.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's bears had plenty to feed on this morning, including that dim housing industry outlook, and the latest on productivity and labor costs, all topped off by that rate hike by the European Central Bank. With few upticks, the Dow fell 122 points by noontime, and the NASDAQ Index was off 27 points.
Growing concerns over higher inflation and interest rates sent the Dow off as much as 150 points this afternoon before a late but very mild recovery. The Dow Jones Industrial Average closed off 129.79 points, at 13,465.67. The NASDAQ Composite fell 24.05 to 2,587.18. Standard & Poor's 500 Index down 13.57, ending at 1,517.38. In the bond market, the 10-year note rose 6/32, to 96 1/32, putting the yield at 4.97 percent.
For the second straight day, Pfizer (PFE) topped the Big Board's active list today, trading 20.8 million shares. The stock down $0.49.
Followed by GE (GE), $0.11 loss there.
IBM (IBM) in the weak blue chip sector down $3.43, the biggest dollar loser.
Let's have a look at some other big dollar losers in the Dow. American Express (AXP), Boeing (BA), and DuPont (DD) all down substantially.
Then we see Exxon Mobil (XOM) losing $0.64.
Wal-Mart Stores (WMT) in there with a $0.23 gain, bucking the trend. The company's Sam's Club division settled a dispute over allegations it was selling counterfeit Fendi bags. Sam's will pay the Italian fashion designer Fendi a confidential settlement. It did not mention the amount.
Micron Technology (MU) fell $0.21.
Then Kraft Foods (KFT) down a dime.
Time Warner (TWX) fell $0.33.
Sprint Nextel (S) losing $0.26.
And then EMC (EMC), a $0.07 loss.
Guess? Incorporated (GES) bucking the trend with $1.80 gain. The apparel retailer had first-quarter earnings up 72 percent over last year, $0.38 versus $0.23 then. And that was $0.10 better than the Street consensus. Revenues jumped up 42 percent. And on top of that, the company boosted its 2008 earnings outlook. Pretty good combination, nice gain on a day like this.
Russ Berrie Incorporated (RUS) up $1.05. The company retails stuffed animals and gift items. And said it has received an unsolicited $18 a share takeover offer. But says that undervalues the firm's worth.
Johnson Controls (JCI), a $4.31 rise. Yesterday, the company held an upbeat meeting with analysts and today Credit Suisse brokerage upgraded it from neutral to an outperform rating.
Borders Group (BGP) down nearly $1. Goldman Sachs downgraded it from neutral to sell on the belief that any merger for Borders Group is highly unlikely.
Tata Motors Limited (TTM), an $0.83 loss there. Standard & Poor's downgraded it from buy to hold, citing an unexpected 4 percent drop in vehicle sales.
Moody's (MCO) on the upside by $0.37. Morgan Stanley upgraded it from equal weight to overweight because of the company's positive growth outlook.
And another nice gain here by TAL International Group (TAL), up $1.89. The freight container leasing firm has retained Citigroup to explore strategic alternatives, including the possible sale of the company. The Jefferies brokerage has a price target on the stock of $35 a share.
Apple (AAPL) topped the NASDAQ most active list with a gain of $0.97.
Followed by Google (GOOG), coming down $0.59 from a record high close yesterday.
Intel (INTC), a $0.47 drop.
Microsoft (MSFT), a $0.29 loss there.
Amazon.com (AMZN) dropped $1.36.
Cisco (CSCO), a $0.60 drop.
Yahoo! (YHOO) fell $0.79.
And then E*TRADE Financial (ETFC), bucking the trend nicely, up $1.73. Some hedge funds are urging TD Ameritade (AMTD) to merge with one of its rivals, like E*TRADE or perhaps Charles Schwab (SCHW).
Research In Motion (RIMM) down $3.49.
And then Qualcomm (QCOM), a $0.26 loss there.
Panera Bread (PNRA) tumbling $8.04. Disappointing sales have prompted the company to cut second-quarter earnings outlook from as high $0.51 a share to as low as $0.38. The Street expecting $0.49 a share.
And finally Towerstream (TWER), which markets high-speed Internet access to businesses, fell $1.92, or nearly 33 percent, on news it plans to sell 10 million shares at $4 each to private investors.
