NBR Complete Transcripts: 09-12-2007
Wednesday, September 12, 2007Oil Prices Get Pumped Up To A New High
SUZANNE PRATT: A milestone for oil today as prices topped $80 a barrel for the first time ever. At the New York Mercantile Exchange, October crude futures surged $1.68 to settle at $79.91 a barrel. That's after briefly trading above $80 late in the session. Traders cheered $80 oil, bidding up prices in reaction to the Energy Department's latest report on oil supplies. Inventories tumbled by more than seven million barrels over the past week and are now at their lowest level in eight months. Oil trader Ray Carbone of Paramount Options says that reduced supply and continued strong demand means higher prices ahead.
RAYMOND CARBONE, OIL TRADER, PARAMOUNT OPTIONS: I think you're going to have to have some news to get to $100 a barrel in a short period of time. But over a long period of time, if the demand picture stays intact, and that's the key, I think we are eventually going to get to $100. It's just a question of when, in my mind.
PRATT: Also pressuring oil prices today -- tropical storm Humberto. Rough seas from the storm forced the closure of the Houston ship channel and raised concerns about energy production in the Gulf of Mexico.
Is Now The Time To Revise Your Portfolio?
PAUL KANGAS: The Federal Reserve is widely expected to cut its benchmark Federal funds rate next Tuesday. Many Fed watchers are expecting that this will be the first in a series of rate reductions. So, is now a good time to make changes to your portfolio? Erika Miller asked the pros.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Interest-rate easing is almost always pleasing for the stock market. Studies show the market tends to surge after the Federal Reserve starts lowering interest rates. According to Standard & Poor's, since 1945, the S&P 500 has risen an average of 19 percent in the 12 months following the first rate cut. That's twice as much as the index's average calendar year gain. Standard & Poor's chief investment strategist Sam Stovall says the out-performance makes sense.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: When you have lower interest rates, what that implies is that six to 12 months down the road, we're likely to see a pick-up in economic activity, as well as an improvement in overall earnings growth prospects.
MILLER: Digging deeper, S&P found small caps outperformed large and growth stocks beat value in a falling interest rate environment.
STOVALL: Investors, since they like to anticipate events, they are anticipating that a series of rate decreases will actually start to spark economic growth and earnings increases and therefore benefit more from the growth side of the equation than the more conservative value side.
MILLER: There was also a big disparity among industry groups, with economically sensitive sectors performing best. Technology gained a whopping 21 percent on average, six months after the first rate cut. Consumer discretionary firms and industrials were also up sharply. On the flip side, defensive sectors like energy, utilities and telecom posted the smallest gains. But there's no guarantee the stock market will follow historical patterns this time. Morningstar equities analyst Josh Peters says the market will face big challenges, including the risk of economic recession.
JOSH PETERS, EQUITIES ANALYST, MORNINGSTAR: Once the initial response -- most likely favorable -- to a Federal Reserve rate cut is into stock prices, people might step back and start to worry more about declining corporate profit growth, or even the possibility that corporate profits are going to decline and I think that that will absorb the bulk of the market's attention.
MILLER: A cut in interest rates may also help boost the appeal of foreign stocks. That's because falling rates put pressure on the dollar, and that helps makes securities outside the U.S. more attractive. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Michael Moran of Daiwa Securities Offers His Outlook For Oil
SUZANNE PRATT: Joining me now to talk about the potential effects of those higher oil prices is Michael Moran, chief economist at Daiwa Securities. Michael, welcome to NIGHTLY BUSINESS REPORT.
MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES: Thank you, Suzanne, good to be here.
PRATT: It's not just oil, but food-related commodity prices are moving higher too. Do you think that is going to alter the Fed's decision at all next week?
MORAN: I think it will have some influence on the Fed's decision, but the Fed is still going to cut interest rates. Right now we have I think a favorable inflation outlook. The two most important influences on inflation are the public's expectations of inflation and the level of resource utilization or the strength of the economy and right now neither one of those are threatening. Expectations of inflation are low and the economy is starting to slow down. That will create some slack in the economy and it's going to help keep inflation in check. I think what's going on with oil and some other commodity prices will probably lead the Fed just to cut 25 basis points or a quarter percentage point rather than half a percentage point but the Fed I think is going to go ahead and reduce interest rates.
PRATT: So you don't think the Fed is worried that those higher oil prices and commodity prices are being passed or at least going to be passed through to the consumer any time in the near future?
MORAN: You know, I don't think they would be deeply worried about that. Because right now corporations have wide profit margins. They could absorb that cost increase if they have to and they probably will do that in a sluggish or slow economic environment. I don't think they'd want to risk losing market share or cutting their business. I think they will eat the increase in energy costs.
PRATT: So right now you would say that the Fed is more concerned about the risk of recession than it is about inflation.
MORAN: They told us that in mid August. They put out a new statement for the public and they said exactly that, that they're now very much concerned about downside risk to the economy. They're still looking at inflation keeping their eye on it, but the growth rate is the primary concern right now.
PRATT: What about the credit crunch? How worried do you think the Fed is right now about the credit crunch?
MORAN: I think that's a major issue and I think that's an important reason why the Fed is going to go ahead and cut interest rates when they meet next week. It has the potential to slow the economy down noticeably and I think they would like to get a little bit of a leg up or a head start on any constraining influence the credit crunch is going to have.
PRATT: Let's talk about the dollar. The dollar was also making headlines today. IT set a new record low against the euro. Isn't a soft dollar a good thing potentially for the U.S. economy?
MORAN: It is I think a good thing when you're in a slow economic environment, because it's going to slow down the growth rate of imports. Our domestic producers are getting more business than they would have otherwise. They'll be taking market share away from foreign producers and it's going to help our exports. So from a growth perspective, a softer dollar is a good thing. The negative side of it is that it does have some price consequences, but I don't think that's a deep negative now, because of what we just said with the slower economic environment inflation is not a threat. So I think the softer dollar is going to help maintain growth in the economy. I think we're going to avoid a recession and part of the reason why is because the dollar has been soft and our trade sector has been starting to do better. That's going to give us some cushion and help the economy keep going.
PRATT: I want to get one more question about the housing market. You at least a month ago I remember said that if you didn't think or you at least thought that we were seeing the worst of the downturn in housing, you are not so sure about that any more. You think that there could be more serious problems ahead for the housing market.
MORAN: I think we're going to take another leg down in the housing market. I was too optimistic a couple of months ago. A couple of things have happened. Number one because of the credit crunch, I think there's tighter lending standards in place now than there was previously. In addition, there's been a great deal of talk in the media about possibly falling home prices and I think that is going to make many buyers reluctant to make a commitment. They're probably going to the pull to the sidelines for a time. So I think we're going to unfortunately see another leg down in home sales and in home construction as well.
PRATT: Let's leave it there. Thank you for joining us tonight, Mike.
MORAN: My pleasure.
PRATT: My guest, Michael Moran of Daiwa Securities.
Congress is Trying to Get The Lead Out of Toys
PAUL KANGAS: Congress today followed up on the summer's massive toy recalls. The Senate Appropriations subcommittee held hearings into toy safety, with a focus on problems with Chinese imports. As Stephanie Dhue reports, the nation's largest toy maker, Mattel, was in the hot seat.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In his first appearance before Congress since recalling 21 million toys, Mattel CEO Robert Eckert apologized for letting lead-laced toys into the U.S.
ROBERT ECKERT, CEO, MATTEL: On behalf of Mattel, I want to again apologize sincerely to each and every parent. I can't change the past, but I am changing how we do things.
DHUE: Eckert blamed a contractor for putting lead paint onto toys and told skeptical lawmakers the company sets standards for the factories that make their toys.
ECKERT: We make sure we enforce our own standards. That, to me, is what's important here. As an example...
SEN. SAM BROWNBACK (R) KANSAS: But that didn't work.
ECKERT: If you're speaking specifically to lead paint testing, we didn't test sufficiently to catch that product.
DHUE: Lawmakers called for tougher penalties for selling dangerous goods and beefing up the Consumer Product Safety Commission. Some have proposed legislation that would give the commission the power to formally ban lead in all children's products; give the agency more money for port inspections; and to better equip and staff the agency's toy testing lab. CPSC Chairman Nancy Nord told the committee the agency's toy testing lab -- shown here in a recent photo -- is part of a 1950s style testing facility.
NANCY NORD, ACTING CHAIRMAN, CONSUMER PRODUCT SAFETY COMMISSION: It is an incredibly inefficient facility. We've got a number of different buildings -- some of them, I hate to admit, do not even meet code. The CPSC's laboratory must be modernized and we've been talking to the Congress for a number of years about that.
DHUE: Subcommittee Chairman Dick Durbin says its not just resources that the CPSC needs.
SEN. RICHARD DURBIN, CHMN, APPROPRIATIONS SUBCOMMITTEE: There has to be an aggressive attitude at the agency about protecting families and consumers.
DHUE: The toy industry has promised to do its own safety checks. Retailers are also pushing for changes. The CEO of Toys "R" Us today called on lawmakers to set tougher standards for toy testing. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Patrick O'Hare, Editor-in-chief at Briefing.com
PAUL KANGAS: Tonight's "Street Critique" guest says, when it comes to shopping, everyone likes to get a discount. So he's brought our viewers some retail stocks that he says are on sale. He's Patrick O'Hare, editor-in-chief at the financial education web site briefing.com. Pat, welcome back to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, EDITOR-IN-CHIEF, BRIEFING.COM: Hi, Paul, thank you.
KANGAS: You write the bargain hunting column at briefing.com where you use a contrarian approach to finding bargains. Why is that?
O'HARE: It boils down to some sage advice by a fellow by the name of Warren Buffett who is good investor in his own right who tells us you're supposed to sell when others are greedy and buy when others are fearful and when others are fearful, you often have stocks that are marked well off their respective highs and support a more attractive long-term risk reward profile.
KANGAS: Fair enough. Why are you seeing value in some of the big retailers? I thought the consumer discretionary sector was on the outs.
O'HARE: You're right about that. These sectors are as on the outs as that one is, but that fits right in with the contrarian approach. We think given the degree to which a number of these retailers have sold off here, that they created some nice openings here for investors to really start accumulating some minor positions in these beaten down names.
KANGAS: Let's get right to your selections. Tell me about your first choice, keen retailer American Eagle Outfitters.
O'HARE: The symbol is AEO. American Eagle Outfitters has done really well. You don't see it reflected in the stock price though because it's been a victim of its own success. There's worries about difficult comparisons there and the market starting to discount that into the stock price. But recently the chairman bought almost 850,000 --
KANGAS: That's a chunk of stock, yes.
O'HARE: Price is right around $24 per share. There's been others insiders buying around that level, too and we think that is really a strong confirmation in the long term outlook for this stock.
KANGAS: The chart shows that certainly has come down. How about another selection?
O'HARE: Sure, Sketchers, the symbol is SKX. It's really a wholesaler of shoes but it fits into this segment because it does have a retail operation that accounts for about 20 percent of sales. The stock got clobbered after a second quarter disappointment from the company, but I point out to your viewers that that disappointment wasn't due to a weakness in demand. Demand is actually quite strong for Sketchers. It was driven more by the increased investments the company is making in its infrastructure to support the growing demand for its products. Wand wile that disappointment chased out some short term money, we think it's created a nice opening here for long-term investors.
KANGAS: And finally you like Home Depot (HD), the stock has been beaten up over the last few months, is that why you like it? I guess so.
O'HARE: We do. The company has absorbed its share of bad news here. Everyone is well aware that the housing market is not in good shape right now. It's going to take some patience with this name, but it's a company that is in very good financial shape. It's recently bought back 14 percent of its outstanding shares. It's got plenty of cash to buy back more stock and it's going to end up supporting a very nice dividend here for the patient-minded investor over the near term.
KANGAS: Very good. Pat, do you own any of these stocks or have any other disclosure to make about them?
O'HARE: No, I do not, Paul.
KANGAS: I want to thank you for being with us again. Some interesting viewpoints, we appreciate it.
O'HARE: Thank you.
KANGAS: My guest, Patrick O'Hare of brief.com.
"Money File"-Snap Financial Decisions
SUZANNE PRATT: In the "money file" tonight, why some financial decisions are a snap. Eric Schurenberg, managing editor at "Money" magazine explains.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: Yes, money can be complicated, but some money decisions are so clear that making the right call ought to be a reflex. For example, when a retailer offers you a 10 percent discount if you'll just sign up for the store's credit card, say no. Rates on store cards are typically above 20 percent, which can wipe out your discount pretty fast. Plus the very act of applying for a store card will hurt your credit score.
When you open a mutual fund account and are asked if you want to reinvest dividends, check yes. It adds up. If you'd put ten grand into an S&P 500 index fund 10 years ago and reinvested dividends, you'd have over $22,000 now. If you didn't reinvest, just $19,000.
When the salesperson at an electronics store pushes an extended warranty, don't buy it. It'll cost you $30 to 200 bucks. But if you've bought a lemon, it will become clear in the first months, when it's still covered by the manufacturer's warranty.
At the gas station, fill it with regular. It's about 7 percent cheaper than premium and no matter what the manufacturer says, your car doesn't need the pricier brew.
When the checkout clerk says, credit or debit, say credit, but hand over your debit card. By paying with your debit card, you avoid running up your credit balance. But by saying credit, you send your debit card to be processed over the credit card network, where you get more liability protection and face less chance of paying a fee. None of this will make you rich. It's just nice to know that at least in a few money situations, you can make snap decisions and be right every time. I'm Eric Schurenberg.
"Last Word"-Wikipedia's Multi Million Milestone
SUZANNE PRATT: And finally tonight, a notable achievement for Wikipedia. The online encyclopedia that allows the public to edit content topped more than two million articles this week. Number two million was about a popular Spanish television show. Wikipedia is the sixth most visited web site, trailing only Google, Microsoft, Yahoo! Time Warner and eBay. Since its start in 2001, more than 100,000 users have edited articles. A computer science professor in California has developed software that flags questionable entries on Wikipedia, Paul and the software turns the text orange if there's a reason to doubt its validity.
KANGAS: I ask you Suzanne, is there no end to innovation?
PRATT: And why orange?
Paul Kangas' Stocks in the News
PAUL KANGAS: It was a mixed opening on Wall Street, as the blue chips fell some 20 points at the outset on profit taking from yesterday's surge, while the tech-laden NASDAQ Index rose about 10 points. The firm tech sector helped the Dow rebound with a 30-point gain at noontime, but that $80 per barrel oil and a record low for the dollar against the euro blunted the rally attempt and in very choppy afternoon trading, the market ended narrowly mixed. The Dow Industrial Average closed down 16.74 at 13,291.65. The NASDAQ fell 5.40 points ending at 2,592.07. But the Standard & Poor's 500 Index managed to gain a small fraction, .07 putting it at 1,471.56. Over in the bond market, the 10-year note fell 11/32 to 102 21/32, putting the yield at 4.42 percent.
New York exchange volume leader on nearly 16 million shares, General Electric (GE) moving up $0.40. Followed by Pfizer (PFE) which held steady.
Countrywide Financial (CFC) down $0.26. The company in the midst of a refinancing plan.
Then Citigroup (C) was down $0.25.
Ford Motor Co (F) an $0.08 loss there.
Time Warner (TWX) moved up $0.26.
ExxonMobil (XOM) as oil hit $80 a barrel, up $0.71.
EMC Corp (EMC) an $0.08 drop.
Home Depot (HD) up $0.22. We'll have more on that later.
Then Texas Instruments (TXN) down $0.60. After the close yesterday, Texas Instruments gave a rather tepid third quarter earnings forecast.
McDonald's (MCD) closed down $0.56, but just after the close, the company said it's boosting its annual dividend from $1 to $1.50, a 50 percent increase and in after hours trading, the stock was up a little over $1 from the price you see there.
Alcoa (AA) down $0.55. The company did sell its 7 percent stake in the Aluminum Corp of China for about $2 billion and that sent Aluminum Corp of China (ACH) stock down sharply today. It traded as low as $57.60, closed a little higher than the bottom of the day.
Las Vegas Sands (LVS), the big resort and casino, up $7.94. The Nevada Gaming Commission said gamblers lost $1.1 billion to Las Vegas casinos just in the month of July and that's up 10 percent from their losses a year ago.
And speaking of gambling, the slot machine maker, International Game Tech (IGT) gained $1.28. Wachovia gave an upgrade to the stock from "market perform" to "out perform."
Good percentage move by AmeriCredit (ACF) up $1.69 after Stiffel Nicholas brokerage repeated a "buy" recommendation.
Then General Cable (BGC) rising $3.82 on news it'll acquire the global wire cable business from Freeport McMoran Cooper & Gold for $735 million in cash plus stock. General Cable said that acquisition, once it's completed, will add $0.20 to $0.30 a share in earnings in the first year.
Skechers USA (SKX), the footwear maker, up $1.67. The company got an upgrade from "hold" to "buy" from BB&T Capital brokerage which has a $30 a share price target for the stock.
And Quicksilver Resources (KWK) up $2.71. The oil and gas producer is going to sell its properties in Michigan, Indiana and Kentucky for $750 million in cash.
And then we have a drop of $1.32 in Diana Shipping (DSX) on news it began its 10 million share public offering for its common stock, a little dilution there.
Apple (AAPL) topped the active list, up $1.36. UBS boosted its price target from $175 to $182 a share in anticipation of more new products from Apple over the next six months.
Google (GOOG) $1.32 gain.
Amgen (AMGN) up $1.76. Standard & Poor's repeated a "buy." UBS upgraded it from "sell" to "neutral" and boosted its price target from $50 to $61 a share.
Intel (INTC) a $0.20 loss.
Research in Motion (RIMM) was up $2.43.
Microsoft (MSFT) held steady today.
Cisco Systems (CSCO) $0.38 drop.
Sun Micro (SUNW) fell a nickel.
Baidu.com (BIDU) gaining $3.08.
And Amazon.com (AMZN) was up $1.02.
And finally Life Partners Holdings (LPH) tumbled $7.90 a share on a disappointing forecast. The company sees second quarter earnings at $0.46 per share, $0.11 below one analyst estimate.
