NBR Complete Transcripts: 09-26-2007
Wednesday, September 26, 2007GM & UAW Strike A Deal
SUZANNE PRATT: The General Motors strike is over. The United Auto Workers union and GM reached a tentative deal on a new contract today, putting an end to the two-day-old national strike. The agreement includes a groundbreaking health care trust for GM retirees and job security pledges for U.S. workers. GM shares surged nearly 10 percent on the news. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Picket signs came down early this morning, ending a two-day walkout. General Motors reportedly agreed to put $35 billion into a new employee heath benefit trust fund and to provide job guarantees for the UAW's 73,000 GM employees. The company will also make some one-time bonus payments. The union agreed to take responsibility for health care benefits for retirees and active workers and to a two-tier wage structure, allowing the company to buy out older, highly paid workers. UAW President Ron Gettlefinger says the strike was worth it.
RON GETTELFINGER, PRESIDENT, UNITED AUTO WORKERS: I think our retirees will be exceptionally pleased with this contract. And for our active membership, there'll be -- obviously, by them being in the plan, there will be some changes, but I think overall they will be very, very pleased with the outcome of these negotiations and the job security that's associated with it.
GURVEY: The transfer of health care liabilities to a voluntary employee beneficiary association or VEBA, should help GM bring costs in line with those of competitors like Toyota. Auto analyst Bradley Rubin of BNP Paribas says he thinks both sides are winners.
BRADLEY RUBIN, AUTOMOTIVE SPECIALIST, BNP PARIBAS: For GM, this is fantastic, because they're able to get $51 billion in health care liabilities for retirees off the balance sheet and that's going to save them, per annum, $3 to $3.5 billion, which is going to allow GM to be profitable. And it's also a win-win for the UAW retirees because they have a well-funded VEBA, which will be managed by some sort of outside management company that will take care of them and make sure that they have their health care taken care of.
GURVEY: Auto analyst Efraim Levy of Standard & Poor's says in spite of the agreement, S&P still has a "hold" on GM stock.
EFRAIM LEVY, SR. AUTOMOTIVE EQUITY ANALYST, STANDARD & POOR'S: It will be something that will have significant improvement in General Motors costs, to make them more cost competitive compared to the foreign competitors. But we still say that the product is an area they have to work on. It's improving, but they still have to stabilize their share losses.
GURVEY: The contract must still be approved by the rank and file, which is not a sure thing. If it is approved, similar agreements are expected at Ford and Chrysler. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Jim Gillespie CEO of Coldwell Banker on the Home Comparison Index
SUZANNE PRATT: Coldwell Banker today released the results of its annual home price comparison index, which showed a less than 1 percent drop from last year in the average sales price of a four-bedroom, two-and-a-half bath home in the more than 300 markets it surveyed. Joining me now with more about the survey and to talk about the state of the housing market is Jim Gillespie, CEO of Coldwell Banker. Jim, welcome to NIGHTLY BUSINESS REPORT.
JIM GILLESPIE, PRESIDENT & CEO, COLDWELL BANKER: Suzanne, thanks for inviting me on.
PRATT: You've been doing this survey for nearly two decades and this is the first year that there's been a drop in the average sales price. Does that suggest anything to you about the severity of the correction?
GILLESPIE: Well, we're in a very slight correction actually. I mean, I've been in the real estate business Suzanne for 32 years and this is the fourth or probably the fifth correction that I've seen and every single correction take place exactly like this is taking place and that is after a go-around of a strong real estate market for a period of time -- and this last one was 10 years -- then we see a number of homes sold fall off and sometimes dramatically and if that happens, then the inventory levels go up and it turns into a buyers' market. Then once the inventory levels go back to a balanced market -- and right now it's a 10 months and a balanced market is six months, then prices pick up again. So the fact that our survey showed prices off .4 of 1 percent actually mirrors what the National Association of Realtors and Fannie Mae are saying which are prices will be off maybe 1.7 percent to 2.1 percent this year which will be the first time since World War II.
PRATT: I noticed as you've been calling this a correction. You do not believe this is a housing recession, I take it. I mean is there something different about this correction than the previous ones that you've lived through?
GILLESPIE: Well, the difference is that we just finished a 10-year bull run like we've never seen in real estate and that 10-year bull run ended in August of 2005. And the thing that really should get headlines is the pundits when we were in this bull run and the market was appreciating high single digits and double digits each year, all the pundits said, oh, we've got a big real estate bubble and when that bubble bursts, prices are going to drop 20, 30, 40, 50 percent. That is not happening. For prices to only drop 2 percent after a 10-year bull run is actually absolutely amazing. And if you take out where all the speculators, the flippers that got involved in Florida and Las Vegas and Phoenix, you take those out of the equation and we've got appreciation. So most of the country is appreciating in real estate today.
PRATT: All right, let me just ask you, where do you think we are in this correction or recession? How much further do we have to go?
GILLESPIE: Well, I don't have a crystal ball. If I did, I'd be in Las Vegas. But my take on this is that the bull run that we enjoyed was 10 years. Typically in real estate, a good run will last four, five, sometimes six years. The correction is 12 to 18 months. Since this bull run was twice as long for 10 years, I would think that maybe 30 or 36 months it would be over which would put it sometime in early 2008 or mid- 2008 which is what most of the experts are saying.
PRATT: Ok, we have just a few seconds left. Let me ask you quickly about mortgages. What are your customers telling you? What are you seeing in terms of availability of mortgages? Is it harder now for people to get mortgages because of what's happened in the sub-prime market?
GILLESPIE: It's not harder for people to get mortgages. That's a misconception out there. If you've got a job and you've got good credit and can document your income, mortgage money is available. So don't let anybody tell you that it's not available. And what you need to do is go to a good full service mortgage company and a full service real estate salesperson to make sure that you're on track with a mortgage company that will do the right thing for you.
PRATT: Jim, thank you for joining us this evening.
GILLESPIE: Thanks Suzanne.
PRATT: My guest Jim Gillespie, CEO of Coldwell Banker.
Credit Rating Agencies Get Grilled on the Hill
SUZANNE PRATT: The nation's credit rating agencies were under the microscope on Capitol Hill today. Standard & Poor's, Moody's, and Fitch all come under fire for their role in the mortgage meltdown at a Senate Banking Committee hearing. Stephanie Dhue reports,
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Frustrated law makers want to know how the credit rating agencies missed the troubles in the sub-prime market. New Jersey Senator Robert Menendez scolded Standard & Poor's and Moody's for enabling the market for mortgage-backed securities with their triple "A" ratings.
SEN. ROBERT MENENDEZ (D) NEW JERSEY: It doesn't take a rocket scientist to figure out that, if I have no-document loans, if I have no down payments, if I have ARMs that clearly within the income scheme, are not going to allow me to be able to meet the future, that that security- backed instrument is weak in its potential.
DHUE: Rating agencies are paid by the issuer of the securities they rate. That conflict has led to accusations that credit rating agencies were too cozy with the investment banks that sold mortgage-backed securities. Moody's Michael Kanef says the firms have a strong incentive to get the ratings right.
MICHAEL KANEF, GROUP MANAGING DIRECTOR, MOODY'S FINANCIAL SERVICES: The purchasers of the securities are the ones that are requesting the rating. The investment bankers and the issuers that we deal with only work with Moody's and the other rating agencies that they choose to work with because of the pull from the investors. If investors lose faith in the rating agencies themselves, that demand goes away and the desire for the ratings goes away.
DHUE: Last year, Congress passed a law to give the Securities and Exchange Commission new powers to oversee the agencies. The SEC is now investigating the credit firms for conflicts of interest. While some law makers want more regulation of the agencies, others want to see how that new law works before making any changes. New Hampshire Republican John Sununu fears any new regulations now could further weaken the housing market.
SEN. JOHN SUNUNU (R) NEW HAMPSHIRE: In an environment where it's much more likely than not that we're moving from 10 months of inventory to 12 months of inventory to 14 months of inventory over the next six to nine months, I think we need to be very thoughtful and cautious in making any changes to the regulatory structure.
DHUE: Analysts don't expect new legislation this year. But scrutiny on the agencies will continue. House law makers will question the rating firms tomorrow. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique" -Kevin Depew, Executive Editor, minyanville.com
PAUL KANGAS: Tonight's "Street Critique" guest says not much has really changed since the Federal Reserve launched its dramatic rate cut last week. He's Kevin Depew, executive editor at the financial education web site, minyanville.com. Kevin, welcome back to NIGHTLY BUSINESS REPORT.
KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Thank you, Paul.
KANGAS: Last week's half point rate cut in short-term rates was lauded by Wall Street. But you say the move really didn't change the picture for the financial sector. Why's that?
DEPEW: I think all we have to do is look at the charts. If you're talking about the housing sector index or banks specifically, a lot of those stocks are back down to levels where they were prior to the rate cut or getting close to that. In the case of housing stocks, they're actually lower than where they were before the rate cut.
KANGAS: And the longer term bond rates, the yields are a little bit higher, right?
DEPEW: I think that's the -- that's the proof. The Fed cut the Federal funds rate and the discount rate by 50 basis points, but you still have government bonds, 10-year Treasury, 30-year Treasury yield. Those are actually higher than where they were before the Fed cut rates.
KANGAS: Last year, you thought the dollar would rise. Maybe that was one of the reasons, but where do you stand on the greenback now that it's hitting new lows?
DEPEW: Certainly, I was wrong about the dollar last year. I did expect it to rise throughout 2007. However, the reason I expected that, those issues are still in play. The consumer is cutting back. Target reported just on Monday evening that they're expecting September sales to be much worse than they had previously forecast. Consumer in cutback mode. We have credit issues that still have not been worked out. Those combine to make risk aversion and you have to pay down your debts with dollars. That kind of balance repair we're still going to see.
KANGAS: So you think the worst is over for the dollar?
DEPEW: I don't know. That's the tricky part about it. I think that certainly now it's oversold and it's due for a rally, but the Fed is continuing to cut rates. That's going to pressure it and that's why interest rates are higher for the governmental bonds.
KANGAS: Kevin with all these factors in mind, there are still some stocks where you're seeing opportunity. Give us your first pick.
DEPEW: Well, the first stock is called Dyncorp (DCP). We've talked a lot about the government expansion on the times I've been on the program. Dyncorp directly benefits from that. They provide security solutions to governments. In addition, they propose providing immigration support and private border protection. So it's a stock that definitely stands to benefit from government expansion.
KANGAS: We just have a minute left. How about another choice?
DEPEW: Trimble Navigation (TRMB). This is also - this is a company that provides optical solutions, navigational solutions for businesses, but also for farmers. We've seen corn and wheat prices very high. Farmers are doing very well. And I think that this is a stock that's going to provide a gadget play for farmers.
KANGAS: OK, 30 seconds. You're in the health care sector with your third choice, correct?
DEPEW: Absolutely, Hologic (HOLX) is a company that provides specialized imaging and diagnostic solutions for women's health care specifically. On minyanville, we've written quite a bit about specialization in health care and this is a stock that benefits from that.
KANGAS: Kevin, do you own any of these stocks or have other disclosures to make?
DEPEW: No, I don't, Paul.
KANGAS: I'm afraid our time is up, but thanks very much for being with us again.
DEPEW: My pleasure.
KANGAS: My guest, Kevin Depew, executive editor at minyanville.com.
"Money File"-Watch Out For "What If"
SUZANNE PRATT: In the "money file" tonight, the role of "what if" in your financial planning. Here's Chuck Jaffe, senior columnist at Marketwatch.
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: Every time the national headlines get excited about some huge lottery jackpot, people get interested and start to play "what if?" They're thinking about how a big chunk of money would change their lives and the things they would do if they were suddenly flush with cash and opportunity. It's fun and it can actually help people prioritize their financial goals.
But the far more frequent news headlines are the much less happy ones. They are the stories about tragedies or day-to-day loss, about everything from natural disasters to recessions and layoffs, the ones which make you say, there but for the grace of God go I. The next time you feel that way about a news story or a tale you hear from a friend or neighbor, go ahead and play "what if" as if divine intervention had not spared you from the bad situation. It's not just that you will be discussing what would happen in the event of a job loss, a health problem or something much worse. It's that you'll be evaluating your ability to withstand such a crisis financially and perhaps you'll find the potholes that could throw you off the road to your financial dreams.
Nobody wants to think of the negative stuff, but it's a lot more likely to happen than that big lottery win and it has the same power to forever change your life. So, have the hard discussions, the ones that aren't just wishful thinking. Being prepared for the bad stuff doesn't make it any more likely to happen. It just makes it less likely to be so bad if it does. I'm Chuck Jaffe.
Paul Kangas' Stocks in the News
PAUL KANGAS: The end of the GM strike far out shadowed that drop in durable goods orders on Wall Street this morning, as stocks moved steadily higher from the opening bell. At noon, the Dow was already sporting an 82 point gain and the NASDAQ was up 22 points. The market had a mid-afternoon mild fade and then it came on strong in the last hour, after speculation heated up that Bear Stearns was close to selling a minority stake to an outside investor and "The New York Times" reported Warren Buffett was looking at investing in the beleaguered investment bank. The Dow Jones Industrial Average surged to a closing gain of 99 1/2 points exactly at 13,878.15. The NASDAQ Composite rose 15.58 to 2,699.03, while the Standard & Poor's 500 was up 8.21 ending at 1,525.42. In the bond market, the 10-year note rose 2/32 to 101 even. That put the yield at 4.62 percent.
The most active New York exchange issue on nearly 25 million shares was Ford Motor Co (F) moving up $0.54. Standard & Poor's rating services put its long-term credit ratings on Ford and related entities on credit watch with positive implications.
Then General Motors (GM) of course with that nice gain of $3.22 on the end of the strike.
Tesoro (TSO) down $1.31. Credit Suisse brokerage downgraded it from "out perform" to just a "neutral" rating.
General Electric (GE) up $0.17.
Then came Pfizer (PFE) with a $0.34 advance.
Citigroup (C) up $0.24.
Newmont Mining (NEM), the big gold stock, down $2.79. The company says higher costs of its gold sales could top previous estimates of $375 to $400 an ounce. The company also said it may have trouble finding new reserves to make up for its older tapped out gold mines, not good news for that producer.
EMC Corp (EMC) down $0.25.
And then Merrill Lynch (MER) closed down only $0.37, but it traded as low as $69.91 in the morning after Goldman Sachs said Merrill is facing a $1.5 billion third quarter loss on its fixed income business. The analyst at Goldman cut third quarter earnings from $1.95 to only $0.15 a share. The Street was expecting at least $1.80.
Then Co Vale do Rio Doce (RIO) down or I should say up $0.94, tenth in big board volume.
Chevron (CVX) moved up $0.63. The company plans to buy back up to $15 billion in stock over the next three years.
Bear Stearns (BSC) itself up $8.76. There's speculation the company's close to selling a minority stake to another investment house or bank. Rumored suitors include Wachovia, HSBC or some big Chinese bank and the "New York Times" this afternoon reported Warren Buffett may want to take a 20 percent stake, just speculation.
Metlife (MET) moved up $1.13. The board has approved a $1 billion stock buyback there after an early $1 billion buyback plan is completed.
Emergent Biosolutions (EBS), one of the best percentage gainers, up $1.43. The company has signed a three-year, $448 million contract to sell its Biothrax anthrax vaccine to the Department of Health and Human Services, nice move there.
On the downside, Fremont General (FMT) tumbled nearly $1 and traded as low as $3.92 after the company said an investment group that agreed to buy $80 million of the company's stock or a 16 percent stake last spring is now backing out of the deal.
Timberland (TBL), the boot maker, down $1.63. Company sees third quarter sales falling significantly, is going to close most of its retail shops.
Under Armour (UA) down $3.95. The sportswear marketer is downgraded by UBS from "buy" to just a "neutral" rating.
Then the big steel maker, Worthington Industries (WOR) moving up $1.62 despite sharply lower first quarter earnings of $0.24 versus $0.48 a year ago, but that was $0.02 better than the Street consensus.
NASDAQ's most active, Apple (AAPL) down $0.41.
Research in Motion (RIMM) up $2.18. Citigroup started coverage of RMM (ph) with a "buy." Lehman boosted its 2000 (sic) earnings estimate from $2.76 to $3.04 a share.
Cisco Systems (CSCO) $0.55 gain there.
Google (GOOG) dropped $0.84.
And baidu.com (BIDU), profit taking, down $12 even.
Intel (INTC) a $0.02 gainer.
Microsoft (MSFT) $0.06 drop there.
Maxim Integrated (MXIM) up $0.32.
Qualcomm (QCOM) $0.69 gain.
And then Oracle (ORCL) was down $0.17.
And finally, shares in Resources Connection (RECN) tumbled $6.69 after reporting lower than expected first quarter earnings of $0.23 per share, a nickel below Wall Street estimates.
