NBR Complete Transcripts: 09-19-2007
Wednesday, September 19, 2007The Interest Rate Reduction Seems To Work Against Inflation
SUZANNE PRATT: American consumers got a bit of a break last month as consumer prices fell unexpectedly and housing starts hit their slowest pace in 12 years. The reports were seen as justification for the Federal Reserve's rate cuts yesterday and its apparent policy shift away from inflation as its primary concern. But as Erika Miller reports, some economists fear rising energy costs will ultimately push inflation higher.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today's tame inflation reading and weak housing data were welcomed by economists because the numbers support the Fed's view that slowing growth is a bigger threat to the economy than inflation. Consumer prices fell 0.1 of a percent last month, the first decline in 10 months. But much of the drop came from sharply lower gasoline prices. Excluding volatile food and energy costs, the core rate rose a modest 0.2 of a percent for the second month in a row. Economist Lakshman Achuthan of Economic Cycle Research says the data is not a fluke.
LAKSHMAN ACHUTHAN, ECONOMIST, ECONOMIC CYCLE RESEARCH: It's part of a trend towards more benign inflationary readings, which is a stroke of luck for the Fed in that it gives them more leeway to act if need be.
MILLER: The latest report on the housing industry underscored the meltdown in that sector and offered support for the Fed's aggressive rate reduction. Housing starts fell 2.6 percent in August to their lowest level in over a decade. Building permits, an indicator of future construction, dropped nearly 6 percent. Now, investors wonder whether more Fed rate cuts will follow this year. Some economists worry that inflation could start to flare up, reducing those odds. Gold, which traditionally does well in an inflationary environment, is at its highest level in more than 25 years. And crude oil futures surged to a new record of $81.93 a barrel at the New York Mercantile Exchange today. Oil futures trader Joe Terranova predicts extreme price swings in coming months.
JOSEPH TERRANOVA, TRADER, MBF CLEARING CORP.: I think crude oil has a floor of $68 to $72. I don't think you're going to see prices go below $68 to $72. And we are susceptible for times for the price to spike up to $85 to $90.
"Street Critique"-Hilary Kramer, Personal Finance Editor at AOL
MILLER: Already, economists are predicting elevated inflation readings for September due to higher gasoline costs, but they say the more closely watched core rate to continue to show a downward trend. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Federal Regulators Are Relaxing The Restrictions on Fannie Mae & Freddie Mac
PAUL KANGAS: Speaking of caps, Federal regulators are easing some financial restrictions on mortgage giants Fannie Mae and Freddie Mac. The Office of Federal Housing Enterprise Oversight now says it will allow the two companies to increase the size of their mortgage portfolios. But as Darren Gersh reports, critics in Congress called the action a small move in the face of a large need.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The move to ease investment restrictions on Fannie Mae and Freddie Mac marks a small retreat by regulators. The Bush administration had clamped down on the mortgage giants after a financial reporting scandal broke in 2004. Now, analyst Alec Phillips says the higher portfolio limits give the companies more breathing room.
ALEC PHILLIPS, WASHINGTON ANALYST, GOLDMAN SACHS: Just in the near term, it does allow them to expand their portfolios at least a little bit, which is an area of profitability for them. But second, it probably does also suggest that there is more to come.
GERSH: Regulators say Fannie Mae's investment cap will increase 2 percent next year to $735 billion. Freddie Mac's limit will also increase and together, the two companies are expected to inject an additional $20 billion a year into the mortgage market. Mortgage Bankers Association chief economist Doug Duncan says that's likely to result in a marginal benefit to credit-worthy borrowers.
DOUG DUNCAN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION: If you're a middle class borrower of prime quality -- you always pay your loans on time and you have a good credit record -- you may see some decline in the interest rate that you would see in the marketplace because they have a little more liquidity.
GERSH: Fannie Mae and Freddie Mac buy mortgages from lenders and then sell them off to other investors. Fannie Mae says a larger increase in its portfolio would allow the company to do more to address turmoil in mortgage markets. Some Democrats agree. They also want to give Fannie Mae the authority to buy loans of $600,000 or more, potentially easing tight credit in the jumbo loan market. But economist Dean Baker says the problem is many borrowers now owe more than their homes are worth.
DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC AND POLICY RESEARCH: No private lender is going to refinance that mortgage. Now, if we bring in Fannie and Freddie, well, what are they going to do? If they are following good lending standards, they also would refuse to refinance that mortgage.
An Examination of Quick Care Clinics
GERSH: The timing of today's announcement is no coincidence. Tomorrow, Congress will grill Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke about their plans to cope with the wave of foreclosures washing over America. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
SUZANNE PRATT: Health care is already a central issue in next year's presidential campaign, but a new trend in the industry is now giving some consumers easier access to medical professionals. Convenient care or retail clinics are popping up at major chain stores like Walgreens, CVS and Wal-Mart. As Diane Eastabrook reports, even more of these quick care clinics are on the way.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At this Meijer's store in Aurora, Illinois, customers have something new to check out while they shop. This is one of two Medical Marts to open recently in Chicago-area Meijers stores. Medical Marts operates seven similar clinics in Utah and plans to open 11 more around the country by the end of the year. Each clinic offers walk-in medical care and access to a doctor seven days a week. Chief medical officer Kenneth Richmond says the concept is a new twist on the traditional family practice.
DR. KENNETH RICHMOND, CHIEF MEDICAL OFFICER, MEDICAL MARTS: What we were concerned about was taking what people refer to as their own physician and just taking them from where they traditionally are found, whether that be in a doctor's building or a medical arts building next to the hospital and putting it right in the community where they live.
EASTABROOK: Placing medical clinics in retail outlets gives patients easy access to medical care, but it also gives health care providers easy access to patients. Medical Marts estimates about 6,000 customers pass before this office every day. Medical Marts is the latest entrant to one of the fastest growing segments of health care: convenient care clinics. There are more than 400 clinics nationwide in retailers like Wal-Mart, CVS and Walgreens. Two thousands more are expected to open within a couple of years. Take Care Health Systems operates 60 clinics in Walgreens stores in five states. It plans to open 150 more. The company uses nurse practitioners to treat minor ailments like strep throat, pink eye and poison ivy. Take care Chairman Hal Rosenbluth says his clinics are not meant to replace the family physician.
HAL ROSENBLUTH, CHAIRMAN, TAKE CARE HEALTH SYSTEMS: About 40 percent of the patients who come to Take Care do not have a physician, so we provide them with a number of physicians that they can go to to create that medical home.
EASTABROOK: A visit to a retail clinic is about half the cost of a visit to a traditional doctor's office. Most accept insurance or cash. Aon consulting Senior Vice President David Fortosis says that makes convenient care attractive to the nation's 45 million uninsured.
DAVID FORTOSIS, SENIOR V.P., AON CONSULTING, INC.: You suspect a lot of those people who couldn't afford to walk into a physician office or to an emergency room are going to find this as a wonderful substitute to get basic care.
EASTABROOK: Still, some physicians are skeptical about the concept. Dr. Shastri Swaminathan, president-elect of the Illinois State Medical Society, wants the state to require physician oversight at all quick care clinics.
DR. SHASTRI SWAMINATHAN, PRESIDENT-ELECT, ILLINOIS STATE MEDICAL SOCIETY: These are going to happen. They are happening and our concern is that they should happen at the highest standards of health care.
"Street Critique"-Hilary Kramer, Personal Finance Editor at AOL
EASTABROOK: Convenient care clinics say they aren't a quick fix to the nation's health care crisis, but one step in getting consumers the care they may need. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Aurora, Illinois.
PAUL KANGAS: Tonight's "Street Critique" guest says don't fight the Fed. Instead, make money on the upswing. She's Hilary Kramer, personal finance editor at AOL and author of new book entitled "Ahead of the Curve" and Hilary, welcome back to NBR.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL: Thank you Paul.
KANGAS: What did you make of yesterday's Fed action and more importantly, does it change your investment strategy?
KRAMER: It sure does. A Fed rate cut, that is fuel for the stock market to go up long term, but we still have excesses in the market but we have a stock market that is moving. It's moving into these high growth stocks and you want to respect that action.
KANGAS: So in a recent visit you said cash was king and that's all changed now.
KRAMER: Yes, it's changed and it's changed for the short term. That's really that you have to watch the movement of the market. Don't fight the Fed, don't fight the tape, again, respect the market. And right now the market is going to go up and money's moving in. Now it's not moving into the money centers and financials which it usually does Paul. It's moving into high growth stocks.
KANGAS: So you favor buying into the strength on this Fed upswing, but can't that be a little tricky for smaller investors? How do they know when to get out?
KRAMER: It's very -- it's very dangerous and it's really something that you just want to dabble in or you have to understand you're taking a risk with these stocks because they're not stocks that are holding your portfolio for the long term. There are stocks that you have to be careful, to set a price target and get out and not be greedy.
KANGAS: You brought some examples of stocks you think will participate in this upswing. Let's go to your first pick.
KRAMER: OK, Baidu, BIDU, this is a $275 stock. It's a Chinese company, the Internet search engine company of China, 177 percent profit and earnings have grown and I'm telling you this is a company that is going to go to 300. There's all sorts of institutions going in there.
KANGAS: And it is a big cap growth issue.
KRAMER: That's absolutely right. They all are.
KANGAS: Now your next stock is also a play on China.
KRAMER: China Medical, you can't go wrong with this one because it's two growth areas. You have the growth area of biotech combined with China, a company that is branching out, growing with earnings and China Medical (CMED). We're going to see that one continue to go up at $41. I have a target of $50 there.
KANGAS: OK, another choice is First Solar, right?
KRAMER: Yes, First Solar, (FSLR). I own First Solar, I've bought into First Solar at $100. This is a stock, Paul, where four firms on Wall Street in the last week have come out with price targets, Goldman Sachs, $125, Bank of America, $140. And you got real money, it's real volume, not just short covering that's going into First Solar.
KANGAS: We just have a minute left. Everyone knows your final pick let's have a look at it on the chart, Google (GOOG).
KRAMER: Google. OK, Google at $545. This is stock that stalled out a little bit with earnings in the last earnings report. But now again, big institutional money, Wall Street's behind it. Everyone is looking to put money to work and to see their stocks up on September 30th so Google is finally going to go up there and hit $600.
KANGAS: All momentum plays, correct?
KRAMER: All of them. You want to make sure you get out.
KANGAS: OK, Hilary, do you own any of the stocks you've mentioned or other disclosures to make?
KRAMER: Yes. First Solar and Google.
KANGAS: Great see you again and congratulations on your new book.
KRAMER: Thank you Paul.
"Money File" -Rollover Revenue
KANGAS: My guest, Hilary Kramer, personal finance editor of AOL and author of "Ahead of the Curve."
SUZANNE PRATT: In tonight's "money file," keys to an easy rollover. Here's Harriet Johnson Brackey, personal finance columnist at the "South Florida Sun Sentinel."
HARRIET JOHNSON BRACKEY, PERSONAL FINANCE REPORTER, SO. FLORIDA SUN SENTINEL: You can't do anything about a turbulent stock market, but you can make sure each move you make is smart. One move that more people will have to get right is rolling over retirement savings into an IRA. As the baby boomers near retirement, almost $490 billion will be rolled over this year from 401(k)s and the like into IRAs.
Rollovers can be tricky, though, and you don't want to accidentally trigger a big tax bill, so here a few things you should understand. First, the time frame. If your retirement plan cuts you a check, you have 60 days to do the rollover. Put this off until day 62 and here comes the tax bill. Also, keep an eye out for what should not be rolled over. If you have a bundle of company stock, you may lose the chance to use a lower capital gains tax rate if you roll that over. And know that your employer will withhold 20 percent for taxes in many cases.
"Last Word"-The Great Cash Escape
If you don't replace that amount from your own pocket, there will be income taxes to pay because the 20 percent is considered a distribution even though you didn't get any of it. Bottom line, this is one you need to research very well or let a professional handle it. Then, you can get on to the fun part, picking your new investments. I'm Harriet Johnson Brackey.
SUZANNE PRATT: And finally tonight, a familiar story. You withdraw cash from an ATM but days later, the money is gone and you're not really sure where it went. A new survey by Visa U.S.A. says it's a common problem. Nearly half of the respondents cannot account for about a third of their cash in a typical week. Twenty percent confessed to misplacing more than $25 per week. Sixty two percent say small cash purchases make it difficult to track spending. So where does the money go? Paul, the common answers were groceries, a night on the town and family outings.
KANGAS: Solution to the problem, get receipts for everything and carry a second wallet to put them in.
PRATT: You know where my money goes. It's all at the bottom of my pocketbook.
"Last Word"-The Great Cash Escape
KANGAS: There you go. Get a second pocketbook.
PAUL KANGAS: Stocks headed higher right from the opening bell this morning, extending yesterday's big rally as investors became convinced the Fed's rate cuts would avoid a recession. That benign consumer price number eased inflation concerns, so just before noon, the Dow posted a 110-point gain and the NASDAQ Composite was up 28 points. The market lost some of its luster this afternoon on that record high in oil futures and caution ahead of an earnings report from Goldman Sachs tomorrow. The Dow Jones Industrial Average did close up 76.17 though at 13,815.56. The NASDAQ was up 14.82, ending at 2666.48. Standard & Poor's 500 Index rose 9.25 points exactly at 1529.03. Over in the bond market, the 10-year note fell 19/32 to 101 20/32, putting the yield up to 4.54 percent.
New York exchange volume leader trading 19 million shares, Pfizer (PFE) moving up $0.34.
Followed by General Electric (GE) with a $0.09 gain.
Then Citigroup (C) down $0.17.
Followed by Ford Motor Co (F) $0.02 drop there.
AT&T (T) moved up $0.75 on the big board.
EMC Corp (EMC) losing $0.17.
Countrywide Financial (CFC) up $0.69. After the close yesterday, the company's CEO said its deposits have recovered recently and Countrywide is now out of the sub-prime mortgage business.
Then the big South American mining and metals conglomerate Co Vale do Rio (RIO) that was up $0.21.
Followed by Time Warner (TWX) with a $0.16 loss.
And tenth in volume was ExxonMobil (XOM) edging up $0.36 on those record high oil futures.
Dupont (DD), a Dow stock, up $0.58. The company said it's spending a half a billion to boost its production of Kevlar. That's a bullet proof material. The company says demand for that will be increasing because of the need for more safety and security on a global basis.
RH Donnelley (RHD), the Yellow Pages publisher's stock down $2.83 after the firm said 2007 advertising sales growth will be flat to up only 1 percent. Goldman Sachs downgraded the stock from "buy" to "neutral."
Speaking of Goldman Sachs Group (GS), the stock up $4.93 on optimism that tomorrow's third quarter results will be better than expected. We'll see in the morning.
General Mills (GS) edged up $0.18. First quarter earnings rose 8.2 percent over last year to $0.81 a share. That was about a penny above the Street estimate.
Kellwood Co (KWD) up $3.97. This is a consumer soft goods marketer and it received an unsolicited $21 a share buyout bid from Sun Capital Securities Group. The company said it'll study the offer.
Robbins & Myers (RBN) up $7.76. This is a manufacturer of industrial machinery and the Robert Baird brokerage upgraded the stock from "neutral" to "out perform."
The mortgage insurance stocks were quite strong today after Lehman Brothers said the worst of the credit correction is beyond us. MGIC Investment (MTS), as did PMI Group (PMI), Radian Group (RDN) and a particularly good gain in Triad Guaranty (TBIC), up $4.11 a share.
Brady Corp (BRC) up $1.07. It's going to buy back up to $1 billion of its own shares.
Another buy back here, Choice Hotels Intl (CHH) up $2.51, says it's going to add a three million share buyback to its already one million share buyback plan.
Carmax Inc (KMX) losing $3.77. Second quarter earnings came in higher, $0.29, up from $0.25 last year, but the company cut its fiscal 2008 guidance from a high of $1.14 a share to $0.98 a share at best.
Then AAR Corp (AIR), which is in the aerospace business, down $3.24. The company's first quarter earnings higher, $0.36 versus $0.30 last year, but that was $0.03 below the Street estimate.
Once again, Apple (AAPL) topped the NASDAQ active actives, losing $0.15.
Baidu.com (BIDU) up $7.16. Monday, RBC Capital boosted its price target from $302 to $333 a share.
Google (GOOG) up $11.58.
Microsoft (MSFT) $0.26 loss.
And Intel (INTC) $0.27 gain.
Cisco Systems (CSCO) a nickel gain.
Comcast "A" (CMCSA) lost $0.68.
Research in Motion (RIMM) up $1.45.
Oracle (ORCL) gained $0.11.
And then came Dell (DELL) a $0.64 advance there.
Accredited Home Lenders (LEND) up $1.78. The company's agreed to be acquired by private equity group Lone Star for $11.75 a share, well down from Lone Star's earlier bid of $15.10 a share.
And finally, Silicom Ltd (SILC) fell $3.49 as the WR Hambrecht brokerage downgraded the stock from "buy" to "hold."
