NBR Complete Transcripts: 08-31-2007
Friday, August 31, 2007Bernanke & Bush Give Wall Street A Boost
SUSIE GHARIB: A stock market rally on Wall Street today courtesy of President Bush and Ben Bernanke. The Dow jumped 119 points and the NASDAQ rose 31. Speaking at a gathering of central bankers and top economists in Jackson Hole, Wyoming, Federal Reserve Chairman Bernanke pledged to act as needed to keep financial markets stable. Many investors interpreted the remarks as a sure sign that the Fed will cut interest rates at its September policy meeting. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was an unusually detailed speech for a chairman of the Federal Reserve. Ben Bernanke spelling out clearly the challenges the central bank faces due to the mortgage melt-down and disruption of the credit markets. Bernanke said, quote, developments in financial markets can have broad economic effects and he promised the Fed, will act as needed to limit the adverse effects on the broader economy, end quote. But while traders assumed his statement virtually guarantees a cut in the Fed funds rate by the next open market committee meeting on September 18, the chairman specifically warned it is not the responsibility of the Federal Reserve to protect lenders and investors from the consequences of their financial decisions. Economist Drew Matus of Lehman Brothers says that means the Fed will focus on the economy in making its decision.
DREW MATUS, SR. MARKET ECONOMIST, LEHMAN BROTHERS: The beauty of the speech is that there are no implications for Fed monetary policy. Bernanke kept all the Fed's options open. So essentially he warned against moral hazard (ph). He then talked about the concerns that the Fed had about the real economy and the prospects for financial market turbulence feeding into the real economy. And by combining those two he essentially said don't look for anything before the next meeting and at the next meeting we'll have to see what's happening then.
GURVEY: The Commerce Department today reported that what is known to be the Fed's favorite inflation indicator showed core prices up 1.9 percent for the year ending in July. That is within the Fed's inflation goals and should make it easier to cut rates. Some believe the Fed's reluctance to cut is in part due to the fear of seeming to bow to Wall Street pressure. But economist Bob Brusca of Fact and Opinion Economics says in this case, the interests of Wall Street and Main Street may be the same.
ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS: There are a lot of people who feel that the markets are in some sense bullying the Fed. They are trying to get the Fed to do their will. On the other hand, I think you get to a point where you have to get beyond that and you realize that maybe they were bullying me, but maybe it's also the right thing to do.
GURVEY: While the Fed chairman says economic reports, being backward looking are less valuable in times like these, the Fed will have several to consider between now and its meeting on September 18th, including employment, industrial production and retail sales. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
President Bush Weighs In On The Mortgage Mess
PAUL KANGAS: Shortly after Bernanke's speech, President Bush proposed a series of initiatives to help homeowners who are at risk of defaulting on their mortgages. In a speech from the White House rose garden, the president said his plan is not a bail out, but a helping hand so people can keep their homes. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In his first major policy response to the looming foreclosure crisis, the president stressed he is trying to help those who deserve it, not those who caused the problem.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The government has got a role to play, but it is limited. A Federal bailout of lenders would only encourage a recurrence of the problem. It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford.
GERSH: The president called on mortgage lenders to show flexibility in working with responsible borrowers and he offered targeted help to homeowners. The administration will soon offer Federal Housing Administration insured loans to borrowers who were making their payments, but fell behind when their mortgages reset to a higher interest rate. The borrowers must have at least 3 percent equity in their house and be able to repay the new mortgage. Mr. Bush also backed legislation already moving through Congress that would lower FHA down payment requirements and increase the FHA borrowing limit to $417,000. Eighty thousand homeowners should be helped by the changes, but Democratic Senator Charles Schumer says more needs to be done, including better consumer education and reforms in the way mortgages are serviced.
SEN. CHARLES SCHUMER (D) NEW YORK: I think the number one problem we face is, when a homeowner is facing foreclosure and the mortgage broker is gone and the mortgage lender is gone and the loan is chopped up into 50 different pieces in the securities market, who is going to help the homeowner with refinancing?
GERSH: The president cautioned the foreclosure crisis would take time to play out. But for now, mortgage consultant Howard Glaser says the administration chose not to address the growing problems outside the sub- prime market.
HOWARD GLASER, PRINCIPAL, GLASER GROUP: By coming out with this plan today, the president puts a marker down. It's insurance against the market turning down further and inoculates him against the criticism that he didn't do anything when it became obvious to the vast majority of observers there were serious problems in the marketplace.
GERSH: The president did back temporary tax relief for homeowners who receive some loan forgiveness from their mortgage lender. Under current law, the amount forgiven is considered taxable income by the IRS. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-James Grant, Editor of "Grant's Interest Rate Observer"
PAUL KANGAS: My guest "market monitor" this week is James Grant, editor of the popular publication, "Grant's Interest Rate Observer." Welcome back to NIGHTLY BUSINESS REPORT, Jim.
JAMES GRANT, EDITOR, "GRANT'S INTEREST RATE OBSERVER": Thank you, Paul.
KANGAS: What kind of marks do you give Federal Reserve chief Bernanke on his speak today?
GRANT: I give him an "A." I thought he was terrific. He said that the Federal government would think long and hard before resuming its sadly accustomed role as first responder to the scene of a financial accident. That is, the Fed was not reflexively going to cut its funds rate just because somebody on Wall Street demanded it. As you know, in the old days, under Chairman Greenspan, the Fed was all too typically prone to cut its rate because of some financial crack-up. And knowledge that it would do that of course egged on people to take greater and greater risks with more and more debt. So I think Mr. Bernanke did a great service to the Fed and mostly to the country.
KANGAS: On a scale of one to 10 with 10 the best, what is your grade on his overall performance so far, other than the speech?
GRANT: He is OK.
KANGAS: You know this wouldn't last.
GRANT: He is in the price fixing business and he has not objected to that, as I hoped a keen intellectual would object to it. What he is doing is fixing an interest rate as if the Federal government had special knowledge to invent (ph) most effectively. The world over, markets are active and the discovery of prices and of course the sun never sets on open outcry markets. And yet the Fed persists in this business of setting its funds rate as if it knew. Well it doesn't know. I fully expect that the funds rate is going to be coming down because I think these debt troubles are much worse than the Fed is acknowledging.
KANGAS: It'll be cut, the Fed funds will be cut on the September 18th meeting?
GRANT: I believe it will. I believe it is going the way after (ph) that for what it's worth.
KANGAS: Really, several cuts before the year is over is what you're saying?
GRANT: I think so, yes.
KANGAS: Is that because the economy is in that bad a shape?
GRANT: I think the economy is weakening -- the growth in the economy is weakening. I think these debt troubles are not really a disturbance of Wall Street. They have to do with lending and borrowing in all departments, the credit (ph) markets and indeed, all over the world. This country's economy moves on debt just as the proverbial army does on its stomach.
KANGAS: Right.
GRANT: And it needs a lot of cheap debt to keep growing in its accustomed rate and its accustomed way and it is not going to get that debt at that price.
KANGAS: What investment strategy do you favor in the current volatile investment environment?
GRANT: Buying dollar bills at $0.50.
KANGAS: It would be nice.
GRANT: That works in most environments. Seriously, that is the very heart and soul of the so-called value approach, (INAUDIBLE) is to look for securities that trade at less than they're readily ascertainable net asset value and the search is more difficult the stronger the stock market, but there's always something to do.
KANGAS: During your last visit with us in late July of 2006, far too long ago, but you did have three buy recommendations. Let's see how they've done since then. We've seen the very conservative, the ishares, the Treasury ETF (SHY) actually up 1.7 percent. All the time you were collecting about 4.7 percent interest, then Sadia (SDA), the Brazilian chicken producer, up 70.6 percent. That is fantastic and then another chicken producer, Gold Kist (GKIS) was taken over by Pilgrim's Pride with a 51 percent gain. Those are not chicken gains, I'll tell you. They laid the golden egg. Those were wonderful.
GRANT: I thank my colleague, Ian McCulley (ph) at Grants, who was responsible for the two chicken longs. There were three chicken longs (INAUDIBLE).
KANGAS: Right. We just have a minute left, Jim, but do have any new recommendations?
GRANT: I do. I would like to suggest people take a look at three open-end mutual funds. These are not traded on the New York Stock Exchange, rather are accessible through a broker like Schwab. The first is a Wintergreen fund (Forum Wintergreen, (WGRNX) which is a global value fund run by a very fine value investor.
KANGAS: It's had a good run up.
GRANT: Yeah, it has, but I think that it will keep doing well. By the way, as full disclosure, I own a bit of that and a bit of the two others to come. The second name Paul is the Tocqueville Gold Fund (TGLDX) and this is an investment in the near certainty that money trading will continue fast and furious the world over. And the third is another esteemed value investor named Martin Whitman (ph) and Marty has a fund called Third Avenue value fund (TAVFX) which he has been running for years and years. And he, too, buys dollar bills for $0.50.
KANGAS: We can see all those symbols up in the right-hand corner (TAVFX) in this case in this one and you can just go to your broker with those symbols and find out what the fund is doing. Do you personally own any of these securities, Jim?
GRANT: Yes, I do, all of them.
KANGAS: All right, wonderful. It's always a pleasure to have you with us.
GRANT: Thank you, Paul, nice to be here.
KANGAS: My guest, Jim Grant of Grant's Interest Rate Observer."
"Money File"-Wealth Within The "Weekly World News"
SUSIE GHARIB: In the money file tonight, finding sound financial advice in unexpected places. Here's Chuck Jaffe, senior columnist at Marketwatch.
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: The "Weekly World News" published its last issue this month, ending 28 years of chronicling the exploits of Bigfoot, alien babies or dead celebrities. For years I read the supermarket tabloid mostly for its incredible personal finance stories, like the one explaining how to tell your financial future in a pizza or the one about the guy who found a bottomless wallet than never ran out of cash or the poor, confused soul who stored his money in a Swiss cheese, rather than a Swiss bank.
That being the case, there's tremendous irony that after all of the make-believe, wild-eyed, demented stuff that "Weekly World News" ever published, its final story may have been its best, most accurate and most truthful. The very last article in the last ever issue was a column suggesting that Americans need to get back to basics, cutting out the small excesses that ultimately bury people under a mountain of debt. Americans would benefit from cutting back on household overhead by starting new personal routines, like reading books instead of renting DVDs or walking around town rather than hitting the gym. Rather than being out of this world, the point was down to earth: instead of craving the next big thing, be satisfied with the last thing that's good enough. It will make a huge difference in your finances without dramatically curtailing your lifestyle. Learn to prioritize, reads the very last paragraph in "Weekly World News" history, and teach your family the same. Not only will you save a bundle, you'll find riches you never expected. I'm Chuck Jaffe.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's bulls came charging out of the starting gate today in full expectation that Fed chief Bernanke's speech would be sympathetic toward lower interest rates. The Dow jumped 140 points at the outset of trading and the NASDAQ rose 30 points. After a little pullback, the Dow jumped to a 175 point gain at 1 p.m. as investors examined Bernanke's remarks and those comments by President Bush. But the closing gains were trimmed a bit by caution ahead of the long upcoming weekend. The Dow Jones Industrial Average still closed up 119.01 points at 13,357.74. This week, it rose twice, fell three times and dropped 21.13 points overall. The NASDAQ Composite rose 31.06 to 2596.36 today. It fell twice and rose three times this week, gaining 19.67 points overall. The Standard & Poor's 500 Index rose 16.35 to 1473.99 today, but it fell 5.38 points for the week. Over in the bond market, the 10-year note fell 5/32 to 101 24/32, putting the yield at 4.53 percent.
Big board volume leader on 24 1/2 million shares, (HD) moving up $1.27. Last night, the company closed on the sale of its wholesale supply business for a price of $8.5 billion. The company's also planning on buying back up to 250 million of its own shares in a Dutch tender offer, which will be priced between $37 and $42 a share. General Electric (GE) gained $0.47.
And then Pfizer (PFE) $0.29 gain.
Ford Motor Co (F) moved up $0.14.
Citigroup (C) $0.65 gain there.
Time Warner (TWX) up $0.37.
Wal-Mart Stores (WMT) $0.31 gain.
Bank of America (BAC) edged up $0.47.
ExxonMobil (XOM) up $0.33.
And completing this 10 most active list, nothing but gainers, is AT&T (T) up $0.11.
Burlington Northern (BNI) up $2.94. Warren Buffett's investment company, Berkshire Hathaway, acquired another 845,000 shares during the month of August, increasing its stake to 15 percent. Mr. Buffett thinks that railroads are healthier today than they have been in past years. Let's have a look at some other rails.
CSX (CSX) doing well, up $1.
Norfolk Southern (NSC) gained $0.72. Berkshire Hathaway owns 6.4 million shares incidentally of Norfolk Southern and owns 10.5 million shares of Union Pacific, (UNP), he does like those rails.
ITT (ITT) up $3.40. The company was awarded a $207 million, three-year contract by the FAA for the first part of a $1.8 billion upgrade of the U.S. air traffic control system.
Esterline Technologies (ESL) edged up $0.64 on the close, but traded as high as $52.20 today. Third quarter earnings out, excluding one-time items, $0.61 share, $0.06 above the Street estimate. And Credit Suisse brokerage upped its price target on Esterline from $54 to $59 a share.
Christopher & Banks (CBK) down $1.49. The company's CEO, Matthew Dillon resigned from the women's apparel retailer today.
On the upside, Jones Lang Lasalle (JLL) moving up $7.38. The real estate services company's stock will be added to the Standard & Poor's madcap 400 index after the close of trading next Friday.
And OM Group (OMG) up $4.81. It's up on expectations for a turn up in cobalt prices. The company's in the cobalt refining business.
Apple (AAPL) topped the NASDAQ's most active list, up $2.23. It's expected next Wednesday to introduce the new iPod. As we touched on earlier, Apple and NBC Universal had a falling out. We'll have details on that shortly.
Intel (INTC) a $0.47 gain.
Google (GOOG) up $3.85.
Cisco Systems (CSCO) $0.49 advance.
Microsoft (MSFT) moved up $0.28 a share.
Dell (DELL) down $0.21, even though it had better than expected earnings out after the close yesterday as we reported.
Research in Motion (RIMM) up $2.54. Rumors persist that Microsoft is eyeing the company as a takeover, but no comment from either company.
Nvidia (NVDA) up $2.48.
And Baidu.com (BIDU) up $2.54.
Amazon.com (AMZN) was a gainer of $1.23.
Accredited Home Lenders (LEND) up $2.74. As you heard, Lone Star fund still interested in acquiring the company, but for a much lower $8.50 a share.
Open Text Co (OTEX), a software company, up $4.75. Fourth quarter earnings out, $0.52, way up from $0.31 last year and $0.12 above the Wall Street estimate.
On the downside, Cost Plus (CPWM) down $1 or 20 percent. The home furnishings company CFO resigned and the company did report a second quarter loss of $0.81 a share, bigger than last year's loss of $0.64 per share.
And those are the stocks in the news tonight.
