NBR Complete Transcript: 06-20-2007
Wednesday, June 20, 2007Oil Traders Get A Crude Surprise
SUSIE GHARIB: A sharp late day sell-off on Wall Street today, as bond yields rose and oil prices fell. The Dow tumbled 146 points. The NASDAQ lost 26. Oil stocks were big losers on a new government report showing a much bigger than expected rise in crude stockpiles. In New York trading, August light sweet crude futures slid $0.68 to $68.86. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Absent news of conflict in the Middle East or of refinery problems in the U.S., traders have only the weekly inventory numbers to go on. So crude oil futures sold off sharply right after the Energy Department reported an unexpectedly big increase in inventories in the latest week. Crude stocks rose 6.9 million barrels and are running well ahead of the year-ago level. Gasoline inventories rose 1.8 million barrels. That's considered bearish for prices. But prices rebounded later in the trading session. Energy trader Chris Matroni of Man Financial says he sees crude prices continuing to rise near term, although staying below the $78 a barrel record.
CHRISTOPHER MOTRONI, OIL TRADER, MAN FINANCIAL: We're still looking to the upside. If the contract value of August gets below $67.10, then you're going to see a little down period. But if you stay above $67.10, you're going to see it run to the upside -- I see it pushing $70.
GURVEY: Some of today's market volatility was a result of contract expiration factors. The July contract went out at the close. But also weighing on traders' minds was the discouraging news that domestic refinery utilization fell, indicating continuing maintenance problems. Refineries produced only 87.6 percent of their rated capacity for the week. That is about 6 percent below utilization at the same time last year and that is considered bullish for prices. Analyst Linda Rafield of Platt's says gasoline prices will rise if refineries cannot get on top of their production problems.
LINDA RAFIELD, SR. OIL ANALYST, PLATTS: You can have a lot of crude oil, but if you don't have refining capacity, there's not much you can do with it. A barrel of crude oil is fairly worthless unless you can refine it into a product. So we need to see these run rates at much higher levels, particularly since July 4th is the onset of peak demand season.
GURVEY: Analysts do not expect motorists to get any relief at the gas pump this summer, not with demand rising and refinery production continuing to fall. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
One on One with Jane Thompson, President, Wal-Mart Financial Services
SUSIE GHARIB: Wal-Mart is ramping up its financial services business and announced today it's rolling out a pre-paid Visa card. The retail giant will also expand its money centers to a thousand stores by the end of next year, aiming at customers who don't use banks. The moves come three months after Wal-Mart withdrew plans for a bank charter. Camden Fine of the Independent Community Bankers Association, says the company is still trying to get into full-scale banking.
CAMDEN FINE, CEO, INDEPENDENT COMMUNITY BANKERS OF AMERICA: They've tried four times to get a banking charter. They'll try again. They withdrew this time. Now they are trying to set the stage by making these big announcements on products that are already out there. But it keeps them in the game. It keeps them in front of the public with respect to getting into the financial services industry.
GHARIB: Joining us now to talk more about Wal-Mart's expanding financial plans, Jane Thompson. She's president of financial services with Wal-Mart. Ms. Thompson, thank you for coming on our program.
JANE THOMPSON, PRESIDENT, WAL-MART FINANCIAL SERVICES: Thanks, Susie.
GHARIB: Tell us first why you decided to join with us visa to offer this card to Wal-Mart shoppers?
THOMPSON: When we looked at the consumers that are in our store, our customers, they are, many of them are without a bank account, without any card like a Visa, so we know that there are over 70 million customers in America today, many of them in our store, who are outside the financial services system. So it's a big opportunity to help them get access, the convenience of this card and also a great value you'd expect from Wal-Mart
GHARIB: Now this card, because it is a Visa debit card can be used wherever Visa is accepted. Do you think that most of your customers are going to be using it to shop at Wal-Mart or for other purposes?
THOMPSON: We've been piloting this since the fall and more usage is outside of Wal-Mart than in and just to show you that they know how to use this card, they're using it to pay their utility bills. They're paying their phone bills. They are going to restaurants. They're using it for cable. And they're using it at ATMs and Wal-Mart too but much less Wal- Mart than a lot of the other things added up.
GHARIB: So will this be a contributor to profits at Wal-Mart ultimately down the road?
THOMPSON: We make money on this card. So does GE, our partner Green Dot, and Visa. It's in the other income line of Wal-Mart's P&L.
GHARIB: All right. I understand that Wal-Mart is testing other financial services, so what's the next big thing?
THOMPSON: Well, we're proud of our money centers that we opened. We're going to open 1,000. We're having a grand opening of the new prototype tomorrow in Atlanta. We have other things that we're talking about already. I mentioned today to people, savings, we're looking to see how we can add some savings capabilities to our money card and then more after that. We don't have anything else ready to announce, but there will be more.
GHARIB: But you're going to have these money centers and they have trained personnel. Do you think down the road that maybe Wal-Mart is going to help its customer plan for their retirement or overall financial planning? Do ever see getting into that area?
THOMPSON: Probably not full-fledged financial planning. These are customers that right now are living paycheck to paycheck. Having a card does change their life. They need to save. Some day they obviously would like to have a home, but we really are working on the front end of that to just help our customers get started.
GHARIB: I know that Wal-Mart had made an effort to have a chartered bank and then that didn't work out. But do you see somewhere in your future that there will be a Wal-Mart bank?
THOMPSON: It's not on our list of things to do. It's -- we can do this with partners. We're doing this with the GE money bank so we don't see it as through the lens of a bank. We see it through the eyes of our customers and we can do all this without a bank.
GHARIB: I know that before you came from Wal-Mart, you were at Sears and you were heading up their financial services. Financial services and retailing at Sears didn't quite work out. Why's it going to work at Wal- Mart?
THOMPSON: I was there after a lot of that. I actually just ran the Sears credit card. So what we're doing too is very targeted (ph) these customers. I should say that it already is working. We're doing two to 2 1/2 million transactions every week on these basic services at a great value.
GHARIB: All right, thank you for coming on our program, great information.
THOMPSON: Thanks Susie.
GHARIB: We've been speaking with Jane Thompson, president of financial services with Wal-Mart.
"State of Repair"-Leaky Pipes
SUSIE GHARIB: It's called the invisible infrastructure. These are the pipes buried underneath cities and towns that deliver clean water and carry away any waste water. But many of those pipe systems are leaking and old and need repair. As we continue our series, "State of Repair," Jeff Yastine looks at the plumbing challenge cities across the country are facing.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For decades, the Pittsburgh region's greatest economic asset was its steel mills. Now, its rivers have that role. The Allegheny and the Monongahela meet to form the Ohio and they're considered critical to the region's bid to attract more white collar employers and develop miles of riverfront housing on the surrounding bluffs. That makes cleaning up incidents like this...
UNIDENTIFIED MALE: This is municipal sewage, coming out from a diversion structure that right now is at capacity.
YASTINE: ...all the more important. But in a region where much of the sewer piping was built 50 to 100 years ago, that cleanup is no easy task. The Herculean job of tracking down where all those pipes go and fixing them, falls to engineers like Tim Prevost, manager of wet weather programs at the regional sewer authority, Alcosan.
TIM PREVOST, MGR. WET WEATHER PROGRAMS, ALCOSAN: Now, where all the steel mills used to be and they've been torn down, development has sprouted up -- community development, housing, research facilities - have been just growing on the riverfront and the riverfront is going to be Pittsburgh's revitalization.
YASTINE: But like everything else involved with infrastructure issues, to fix the problem requires money, lots of it -- up to $3 billion, by some estimates -- to replace or repair the Pittsburgh region's antiquated sewer piping system. And the question is, who will come up with that cash? Ken Kirk, executive director at the National Association of Clean Water Agencies, says it's a question that other cities around the country are asking, as they, too, try to rehabilitate aging sewer networks.
KEN KIRK, EXEC. DIRECTOR, NACWA: If you go to Cleveland, they're talking about $2 to $3 billion. If you go to Chicago, they've already invested about $5 billion over the past 15, 20 years and that's not going to be enough. So, I can go on and on and tell you about individual cases around the country. The costs are high and if you add them up, you end up with a half-trillion-dollar problem and no Federal money to help communities meet their obligations.
YASTINE: Federal grants for communities to improve their wastewater treatment infrastructure has dried to a trickle over recent decades. Yet communities are compelled by the Clean Water Act, signed into law in 1972, to treat and purify wastewater. Many cities have turned to using their bonding authority or hiking user fees to raise money for sewer system improvements. But industry advocates like Kirk say even that isn't enough.
KIRK: Today, the Federal government is basically telling folks that it's their responsibility and they want to get out of the wastewater business. They want to wash their hands of it. That can't happen unless we're willing to face the consequences of reduced levels of clean water. It's just simply not going to happen without the Federal government stepping up to the plate.
YASTINE: One proposal would create a national clean water trust fund. It would use Federal dollars to help cities pay for sewer improvements. But the bill has languished in Congress, leaving wastewater treatment agencies on the hook for financing repairs. In the Pittsburgh area, progress is slow on efforts to fix its aging network of sewer pipes. But water managers like Prevost say the benefits are starting to show.
PREVOST: In the past 10 years, we've been seeing an influx of species - fish, of insects, of birds-- that we haven't see in decades. They're slowly coming back here. And it's not all because they're stocking the rivers. It's because nature is now finding that this is a suitable place to live.
YASTINE: And it's hoped, a place that will attract more jobs and people back to the region. Jeff Yastine, NIGHTLY BUSINESS REPORT, Pittsburgh.
GHARIB: Tomorrow, our series, "State of Repair," continues with a look at dams. Thousands are at a high risk of failure, but who should pay to fix them?
"Street Critique"-Hilary Kramer, Personal Finance Editor at AOL
PAUL KANGAS: Tonight's "street critique" guest has some small cap stocks with potential upside in a scary market. 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. It's a pleasure to be here. KANGAS: The markets have been particularly volatile in recent weeks. What's the average investor to do? What do you see happening in stocks over the near-term?
KRAMER: I think we're going to see another market correction come through. Individual investors should be careful and careful to make sure they have plenty of cash on the side lines.
KANGAS: No summer rally?
KRAMER: Not in this particular case. Wall Street is spooked and the big, big money is running for cover.
KANGAS: Let's get right to your stock picks. You've brought our viewers some small cap issues with what you call up-side potential. Tell me about your first pick.
KRAMER: TRC Companies. The ticker symbol is TRR. This is an infrastructure play, engineering and construction company that is poised to win some of the $1.3 trillion of infrastructure mandates that are out there in the U.S. It's a great play because potentially if the Democrats are in the White House, we're going to see a lot more of these projects come down the pike and TRC is in a very sweet spot to win them.
KANGAS: Coincidentally the program has been running a special this week called "State of Repair" on just that subject. Give us another pick.
KRAMER: Darling. DAR is the ticker symbol for Darling. Darling is an Irving, Texas company founded in the 1860s. They get paid - they have the best business model - they get paid for picking up the French fry grease at diners all over the country, and then they get paid for turning it into bio-diesel and we may see a nice announcement of a joint venture with an oil company with Darling, and Darling is well positioned. Nothing better than getting paid on both sides of the deal.
KANGAS: You call it Darling. You must love this stock, is that right?
KRAMER: I love Darling. Darling's got it for bio-diesel.
KANGAS: There you go and you like Metalico? Why is that?
KRAMER: Metalico, MEA is the ticker symbol on Metalico. This is a scrap metal company. Again, I always look for companies with the right business model and in this particular case, they get paid for picking up or accepting scrap metal and then they get paid again for shipping it off to the emerging markets that are demanding metal and aluminum. It's a wonderful company.
KANGAS: Quickly, one more.
KRAMER: Kaydon, Kaydon, KDN is the ticker symbol on Kaydon. Kaydon is a ball bearing company that is number one in their respective markets including wind farms, some of the oil services. Kaydon could be taken out. They have lots of cash and amazing new management team. It'll take time but I love this boring company.
KANGAS: And MetreTek you like that.
KRAMER: Yes, MetreTek is a great way to play natural gas. It's a metering company. They service the natural gas companies.
KANGAS: Very good and MEK. That trades on the American does it?
KRAMER: I believe it does, MEK.
KANGAS: Hilary do you own any of these issues or have other disclosures to make?
KRAMER: Yes, in this particular case, I own the first four stocks.
KANGAS: Very good. I want to thank you for being with us and we're going to see you again next month on July 11th.
KRAMER: That's right Paul, thank you.
KANGAS: My guest Hilary Kramer, personal finance editor at AOL.
"Money File"-Cost of Convenience
SUSIE GHARIB: In the "money file" tonight, a look at the cost of convenience, where you save time but lose money. Here's Chuck Jaffe, senior columnist at Marketwatch.
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: The guy at the next pump told me the other day that he had driven miles out of his way to come get the cheapest gas around, so he could save $0.16 per gallon. When he left, pulling out in front of me, he went right to the neighboring bank. Now his gas savings amounted to about three bucks on his station wagon. But if he simply picked the closest bank machine in a rush to get cash, he gave it all back, probably paying $1.50 to the host bank and another $1.50 to his bank for using a foreign teller machine.
Consumers lose hundreds of billions of dollars to these charges, all in the name of convenience every year. And while everyone hate higher gas prices, they don't seem to care about paying bank fees. That's the only way to explain a recent study from creditcards.com, which noted that people love the convenience of plastic, but hate the aftermath. The survey showed clearly that few consumers understand how their own behavior can be damaging. Hardly anyone reads their cardholder agreements, so they don't know the terms under which they're working.
Moreover, 90 percent of survey respondents said their credit debt was less than the average household's debt of roughly $9,300. Obviously, it's impossible for virtually everyone to be above average, so a lot of people are just fooling themselves. We all need to stop that and to be honest about our fee behavior. If you like saving a buck, then learn the rules and do it at the bank and not just at the pump or in the store. I'm Chuck Jaffe.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks opened narrowly mixed, but firmed up on those weaker oil prices, strong earnings from Morgan Stanley and a solid gain in Home Depot stock. At 11:00 a.m., the Dow was up 27 points, NASDAQ up 6 points. But as the day wore on, rising bond yields undermined stocks. Then, worries heated up about the possible collapse of two Bear Stearns hedge funds connected to the sub-prime mortgage market. That brought sellers off the sidelines big time. The Dow Industrial Average tumbled 146 points exactly closing at 13,489.42. The NASDAQ Composite fell 26.80 points ending at 2,599.96. Standard & Poor's 500 Index lost 20.86 at 1,512.84. Over in the bond market, the 10-year note lost 12/32 to 95 3/32, lifting the yield to 5.14 percent.
For the second day in a row, General Electric (GE) led the active list today on 27 million shares and down $0.22. It was up to a five-year high yesterday, gained $1.50. Then came Home Depot (HD) with a gain of $1.76, traded as high as $41.19. Late yesterday as we reported the company's going to sell its contractor supplies unit for over $10 billion and use the proceeds to help fund a huge $22.5 billion stock buy back.
Pfizer (PFE) down $0.50.
Time Warner (TWX) rose $0.62.
Ford Motor (F) was up $0.21 per share.
Then EMC Corp (EMC) losing $0.41.
AT&T (T) dropped $0.71.
ExxonMobil (XOM) in the weak oil group on the tumbling oil prices, down $3.02.
Tyco Intl (TYC) $0.98 drop.
And then Motorola (MOT) losing $0.17 a share.
Morgan Stanley (MS) closed down $0.48, but this morning traded as high as $90.33 after reporting second quarter earnings of $2.45, well above last year's $1.74 and that was $0.44 better than the Street consensus.
Another big gain here in the financial area, Nuveen Investments (JNC) jumping nearly $9 a share on news private equity fund Madison Dearborn Partners will acquire it for over $6 billion. That works out to $65 a share in cash.
Dow Jones (DJ) up $1.90. After the close, the board of directors said it will take over negotiations with News Corp. regarding the $60 a share buyout bid for Dow Jones.
FedEx (FDX) up $1.73. Fourth quarter earnings rose to $1.96 from $1.82 last year. That does include a one-time $0.06 gain however.
Carmax (KMX) did well, up $2.42. Higher earnings first quarter, $0.30, up from $0.27 a year ago. Sales up 14 percent and those figures were in line with Street estimates.
Circuit City (CC) gained $0.03, even though it had reported a first quarter loss of $0.33, a penny worse than expected.
The industrial packaging company Clarcor (CLC) up $4.73. Second quarter earnings jumped to $0.41 from $0.31, $0.32 last year and that was $0.04 better than the Wall Street estimate.
Airgas (ARG) rising $2.26. The company boosted its first quarter earnings guidance to the range of $0.61 to $0.63. BB&T Capital brokerage upgraded the stock from "hold" to a "buy."
Major loss in Brush Engineered Materials (BW) tumbling over $10 a share after the company cut its second quarter estimate, said it would be below its prior estimate of $0.50 to $0.65 so that means it would be below $0.50. The Street was looking for at least $0.60 a share.
MGM Mirage (MGM) down $5.90. Kirk Kerkorian's Tracinda Corp. has dropped its bid for the company's Bellagio hotel and city center properties.
And then Darden Restaurants (DRI) losing $3.41. Fourth quarter operating earnings, $0.67, up from $0.62 last year, but that's $0.03 below the Street estimate and Standard & Poor's downgraded the stock from "hold" to a "sell."
NASDAQ's most active for the ninth time in the last 10 sessions, today down $2.11, Apple (AAPL).
Google (GOOG) off $4.34.
Cisco Systems (CSCO) dropped a dime.
Intel (INTC) a $0.16 loss.
Microsoft (MSFT) losing $0.45 a share.
Qualcomm (QCOM) $0.38 gain.
Yahoo! (YHOO) edgew up $0.03.
Research in Motion (RIMM) down $3.05.
Comcast Corp "A" (CMCSA) an $0.08 gain.
And then Amgen (AMGN) down $0.43 a share.
Fuel Tech NV (FTEK) up $5.28 on news it's exploring opportunities in China.
And finally, the shares of Coley Pharmaceutical (COLY) fell $5.03 or 59 percent to $3.46. Development partner Pfizer has pulled trials of Coley's experimental lung cancer drug, calling it ineffective. The Lazard brokerage downgraded Coley from "buy" to "hold."
