NBR Complete Transcripts: 07-17-2007
Tuesday, July 17, 2007Dow Reaches & Retreats From 14,000
SUSIE GHARIB: A milestone on Wall Street today as the Dow crossed the 14,000 level for the first time ever. A batch of solid earnings and an upgrade of American Express helped push the blue chip average as high as 14,021 before it pared those gains in late trading. The Dow ended up 20 points at a new closing high of 13,971. With the Dow now up 12 percent for the year, Suzanne Pratt takes a look a where stocks are likely to head from here.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Dow visiting 14,000 came so quickly that investors are already wondering about the next round number for the blue chip index. Whether it's more likely to be 15,000 or a correction to 13,000 should be up for some debate on Wall Street. But most stock market strategists are by the nature of their business optimistic. And, the current environment is no different. AG Edwards' Al Goldman believes the Dow will see 15,000 before 13,000. Although he says the path could be circuitous.
AL GOLDMAN, CHIEF MARKET STRATEGIST, A.G. EDWARDS: But after you get up to and surpass a big round popular number, you tend to go into a little pause to refresh. So I wouldn't be surprised to see the market do a little siesta for a couple or three days or something like that. But, the trend is up and I assume that the next important stopping point will be 15,000.
PRATT: Bank of America's Joe Quinlan is also in the bullish camp, predicting the Dow will tack on an additional 3 to 5 percent by year end and hit 15,000 in 2008.
JOSEPH QUINLAN, MARKET STRATEGIST, BANK OF AMERICA: I would put the odds at 15,000 on the assumption that U.S. economy continues to expand, the Fed is on hold, interest rates stay in that range bound, say 5.25. We don't think they are going to go much higher than that. I am concerned about oil prices though.
PRATT: Many believe U.S. corporate earnings will continue to fuel stocks higher this year. According to First Call, analysts expect to see profit growth of nearly 6 percent for the S&P 500 in the third quarter and more than double that in the fourth quarter. But there are concerns about the longer-term outlook for stocks. Some market pros are worried not so much about sub-prime mortgage issues or oil prices as they are about U.S. politics in 2008.
QUILAN: I think the big issue is U.S. protectionism. And, as we go even closer into the 2008 election, I think investors are going to take some profits and step to the sidelines to see what actually happens in the election, who emerges and on what policy planks.
PRATT: That may be the case for U.S. stocks next year. Historically, however, presidential election years are usually good years for the stock market. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York
Food Safety Fears Are Eating At Lawmakers
PAUL KANGAS: Food safety was in the spotlight on Capitol Hill again today. Lawmakers took on the Food and Drug Administration's plans to close more than half of its food safety inspection labs. As Darren Gersh reports, some in Congress are worried the agency's reorganization could put American consumers in danger.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Congressional investigators told lawmakers less than 1 percent of the 25,000 food shipments entering the country every day from around the world are tested by the FDA. Investigator David Nelson adds some products, like the tainted wheat gluten in pet food from China, may never be tested.
DAVID NELSON, SENIOR INVESTIGATOR, COMMITTEE ON ENERGY AND COMMERCE: The wheat gluten sort of drew a road map for anybody that wanted to attack our food supply maliciously. You don't go to milk and water and the things that are fairly obvious targets. You find stuff that is not being reviewed at all.
GERSH: Investigators say importers have learned how to avoid inspections by sending shipments to ports where the FDA doesn't have an office. For shipments that are questioned, current regulations let importers pick a private lab to test their products. Investigator Kevin Barstow recalled a conversation with the head of one of those labs.
KEVIN BARSTOW, INVESTIGATIVE COUNSEL, COMMITTEE ON ENERGY AND COMMERCE: He says that his lab is good, but that he can point out numerous private labs that will guarantee you good test results.
GERSH: Given such concerns, lawmakers were alarmed by an FDA reorganization that will close seven of its 13 food safety labs across the country. FDA scientist Belinda Collins says the agency is about to lose a wealth of experienced workers.
BELINDA COLLINS, DIRECTOR, FDA DENVER DISTRICT: I am confident that without the Denver laboratory, the food we eat as well as the human and animal drugs we use would be much less safe.
GERSH: FDA Commissioner Andrew Von Eschenbach says he wants to shut down out-of-date labs and put more inspectors into the field armed with advanced technologies, like the detector he brought to today's hearing.
ANDREW VON ESCHENBACH, FDA COMMISSIONER: And by simply by pointing this instrument at this bottle, it can register whether there are any heavy metals like arsenic, possible strontium and do that rapidly and efficiently in the field.
GERSH: Next month, congressional investigators will head to India and China to explore food safety concerns. In the meantime, Congress is considering beefing up FDA authority, giving the agency the ability to order mandatory food recalls. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Driving a Deal" -Part 1: The Bargaining Table
SUSIE GHARIB: What could be the most crucial labor negotiations in the U.S. auto industry's history start later this week. The United Auto Workers current contracts with General Motors, Ford and Chrysler expire this summer. The new contracts come at a time when the U.S. manufacturers are shedding jobs and losing market share to foreign competitors. Over the next three nights, Diane Eastabrook explores what is at stake in this year's negotiations. Part one of her series "Driving a Deal" looks at what is likely to be on the bargaining table.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Much has changed in the four years since General Motors, Ford and Chrysler sat down to negotiate their current contracts with the United Auto Workers Union. More than 70,000 U.S. auto workers have accepted buyouts and left their jobs. Thousands more have been laid off due to plant closings. Profits have tanked at all three companies along with their U.S. market shares. And one auto maker, Chrysler, will soon be a privately held firm. James Schrager, management professor at the University of Chicago's graduate school of business, likens this year's labor talks to a life and death struggle.
JAMES SCHRAGER, MANAGEMENT PROF., U. OF CHICAGO: It reminds me of two guys holding guns to each other's heads, saying I won't shoot if you don't shoot. Everyone has a lot to lose because of the success of non union foreign makes in the United States. That is what has changed the balance.
EASTABROOK: Analysts agree three issues will dominate the talks: First, the jobs bank. A plan that pays laid-off hourly employees until they get called back to work or find jobs elsewhere; second, work rules that apply to job flexibility; and third, healthcare benefits. Experts say that issue will be the most contentious. The auto makers say they must dramatically reduce health care costs which currently add up to $2,000 to the cost of each vehicle. The target of those reductions will probably be the industry's roughly 700,000 retirees. Industry watchers think the auto makers may try to move retiree health care benefits into a voluntary employee beneficiary association or VEBA. Under a VEBA, the employer contributes money to a fund that is then managed by the union. Andrew Kramer, a partner in the law firm Jones Day was the architect for a VEBA at Goodyear. Kramer thinks a similar plan could work for the auto companies.
ANDREW KRAMER, PARTNER, JONES DAY: There is clearly an option that would be available potentially to have the three companies have a VEBA. It seems to me that you could have a general overall agreement, but you would have individual VEBAs at each company.
EASTABROOK: But labor experts say the UAW will aggressively guard health care benefits. University of Illinois labor professor Robert Bruno describes healthcare as a defining issue for the union.
ROBERT BRUNO, LABOR PROFESSOR, U. OF ILLINOIS: It defines them in the important way of making themselves attractive to nonunion autoworkers. So, if this is a union that wants to remain relevant, it wants to grow in the auto industry, being able to offer a comprehensive substantive health care package is a very, very strong selling point.
EASTABROOK: But Morningstar auto analyst John Novak argues the union may be more willing to bargain than in previous years.
JOHN NOVAK, AUTO ANALYST: The leadership of the UAW clearly recognizes what's at stake here. The number of job losses through the buyouts, through the parts supplier bankruptcies have been massive. They recognize the threat - the UAW recognizes the threat to the auto makers.
EASTABROOK: Industry watchers say whatever deal is worked out between the U.S. auto industry and the United Auto Workers union, the impact is likely to reverberate through the auto parts industry and the Midwest rust belt as well. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"Of Mutual Interest" With Financial Planner Scott Kahan of Financial Asset Management Corp.
SUSIE GHARIB: Most people consider themselves buy and hold investors. But financial planners say some people hold on way too long. Experts say there are red flags that should make you rethink your holdings. Erica Miller has more in our continuing series "Of Mutual Interest."
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: They say breaking up is hard to do. What's true in romance can also apply to mutual fund investing. Financial planner Scott Kahan says many people miss important warning signs to dump their shares.
SCOTT KAHAN, FINANCIAL PLANNER, FINANCIAL ASSET MANAGEMENT CORP.: The first main reason to sell a mutual fund would be under performance of the fund. Looking at how the fund has done against its peers, indexes for comparison and has it underperformed. That would be a red flag to think about selling the fund or look more deeply into it.
MILLER: On the other hand, unusually strong performance can also be a reason to part ways. Lipper mutual fund analyst Jeff Tjornehoj says when that happens, it's sometimes a sign the fund has changed its style.
JEFF TJORNEHOJ, MUTUAL FUND ANALYST, LIPPER: You may have a value fund that seems to be far outperforming its peer group. And it turns out that it's owning a lot of growth stocks in it. For the watchful investor, that would be an occasion to at least raise a red flag to ask yourself, is this still the same investment that I bought it for?
MILLER: You may also want to consider selling holdings if there is a change in your personal situation. For example, as you near retirement, experts typically advise switching into more conservative investments.
TJORNEHOJ: As that deadline approaches, you need to scale back on the risk. And that generally means taking more in bonds and less in equities. So just keep in mind that those bond fund allocations are there to tide you over as you get closer to your goal.
MILLER: Advisors say another reason to rethink a holding is a change in fund managers to someone without a proven track record. A big jump in the size of a fund can also be cause for concern, especially if the fund is heavily weighted in small caps.
KAHAN: As the fund gets too large, what's going to happen is they are going to start to shift money into maybe midcap stocks. And that small cap fund now has what they call style drift. And all of a sudden it has shifted and it's drifted away from what you think it is.
MILLER: There's one common mistake that many investors make, selling impulsively. Financial planners say it's important to make sure that you unload your shares for well thought out reasons, not emotion. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Last Word"-Shopper's Paradise
SUSIE GHARIB: And finally tonight a shopaholic's paradise. Dodge hotels now offer tailor made getaways for those who really like to shop until they drop. The vacation packages are in San Francisco, Boston and New York City. The bay area getaway provides four nights in a hotel in the Union Square area, a limo and breakfast. The price tag: $3,750. You'll get the same deal in Boston only your hotel is on fashion forward Newberry Street. And Paul, in addition to all that, shoppers here in the big apple shoppers will get five hours of personal shopping services and two massages at the Pierre Motel on Fifth Avenue. That cost $4500.
KANGAS: Let's make that five massages and two hours of shopping.
GHARIB: Especially a foot massage.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's blue chips got an early boost not only from those solid earnings, but also from the drop in wholesale prices. June producer prices fell 0.2 percent after posting a 0.9 percent rise the previous month. By 11 a.m., the Dow was tickling the 14,000 level with nearly a 50 point gain and the NASDAQ was up 13 points. After a mid-day fade which cut the Dow's gain to only 20 points at 1 p.m., it snapped right back with a 65 point gain at 14,015 level just before 3:00 p.m. But then aggressive selling in the final hour cut the gains considerably. The Dow Industrial Average came in with a gain of 20.57 at a record nevertheless of 13,971.55. The NASDAQ Composite was up 15 00 or let's make it 14.96 at 2712.29. Standard & Poor's 500 was down .15, ending at 1549.37. In the bond market, the 10-year note fell 2/32 to 95 24/32, putting the yield at 5.05 percent.
Once again, General Electric (GE) topped the active list today on 25 1/2 million shares, the stock moving up $0.59 to a new five-year high.
Then came a big gainer, Lyondell Chemical (LYO) up $6.93. Basel Corporation is going to acquire it for $48 a share. Basel you'll recall, lost out on its bid to acquire Huntsman Chemical to Apollo Management last week.
Pfizer (PFE) $0.12 loss there.
Ford Motor Co (F) dropped $0.13.
Time Warner (TWX) bucked the trend and was up $0.19 a share.
ExxonMobil (XOM) fell $0.61.
Johnson & Johnson (JNJ) off $1.06. As you heard, second quarter earnings higher, $1.05 versus $0.95 and $0.05 above the Street estimate. But the stock down because the company did cut its 2007 sales forecast.
Citigroup (C) was up $0.27.
Bank of America (BAC) an $0.18 rise there.
And then LSI Corporation (LSI) up $0.49 a share.
Bear Stearns (BSC) closed down just $0.40, but it fell almost 4 percent to the $135 a share level after hours. Dow Jones newswire says the brokerage firm is telling investors that its two troubled hedge funds that bet heavily on the sub-prime mortgage market are now almost worthless. A formal statement is expected later tonight.
Then we have a look at American Express (AXP) which did well, up $2.86. Goldman Sachs upgraded it from "neutral" to "buy" and boosted its price target for AXP from $66 to $77 a share.
Pogo Producing (PPP) up $7.02. Plains Petroleum will acquire the firm for about 0.7 of one of its shares and $24.88 a share cash for each share of Pogo. That's a value today of about $57.50 and that's right where the stock closed.
Modine Manufacturing (MOD), which is involved in thermal management products, not only boosted its earnings outlook, but it came in with first quarter earnings, $0.39, down from $0.51 last year, but that was $0.25 better than Wall Street was expecting.
Rohm & Haas (ROH), chemical company, up $5.54. Rohm & Haas plans to buy back $2 billion of its own stock. Citigroup upgraded the stock from "hold to a "buy" today.
And then the shoe company Skechers USA (SKX) up $2.20. The Wedbush Morgan brokerage upgraded it from "buy" to a "strong buy."
State Street (STT) up $1.48. Second quarter earnings jumped 61 percent over last year, $1.07 versus $0.68. Revenues were up 16 percent and those earnings were $0.06 ahead of the Wall Street estimate.
On the downside, Nautilus Group (NLS) off $2.04. Second quarter results excluding one time items a loss of $0.30 versus earnings of a nickel last year. The Street was looking for $0.04 in earnings this year. Sales actually dropped 15 percent.
Another major loser, Assurant (AIZ) tumbling $5.85. The company's president and some top executives received notices that the SEC is considering enforcement action against them related to a probe into the insurance products that the company sells.
NASDAQ's most active once again Apple (AAPL) moving up $0.81.
Intel (INTC) $0.38 gain, but as you heard after the close, $0.22 in earnings second quarter, up from $0.15, but lower than expected profit margins sent the stock off a little over $1 in after hours trading.
Google (GOOG) up $2.01.
Microsoft (MSFT) $0.75 gain there.
Research in Motion (RIMM) up $3.53.
Applied Materials (AMAT) was up $1.18. That's in sympathy with Novelus and we'll get to that in just a moment.
Yahoo! (YHOO) $0.83 gain. After the close, Yahoo! reported second quarter earnings $0.11. That was versus $0.11 last year and in line with expectations, but after hours, the stock did drop $0.93 to $26.60 a share.
KLA-Tencor (KLAC) up $5.08. Optimism of improving chip equipment orders for the second half.
Cisco Systems (CSCO) down $0.16.
And Sandisk (SNDK) was up $2.52.
There's Novelus Systems (NVLS) up $3.34. The chip maker in with second quarter earnings $0.45 up from $0.42 a year ago, $0.02 better than the Street expected.
And then if you want to see a big gainer, Q.E.P. Co (QEPC) gaining 62.8 percent. It's a specialty tool maker and it had big first quarter earnings of $0.23 versus only $0.08 last year.
Those are the stocks in the news tonight.
