NBR Complete Transcripts: 09-28-2007
Friday, September 28, 2007Consumers Are Spending Despite Questions About Confidence
SUZANNE PRATT: A potpourri of economic data is raising new questions today about the Federal Reserve's next move on interest rates. Consumer spending rang up its largest monthly gain in four months, although a fresh reading on consumer sentiment shows confidence is waning. On top of that, a favorite Fed inflation barometer suggested price pressures may be easing. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: With consumer spending accounting for roughly two-thirds of the nation's output, a cutback in spending by consumers worried about declining home values and a weaker labor market could push the economy into a recession. Those concerns were reduced somewhat today, as the Commerce Department reported a 0.6 percent rise in spending in August, led by purchases of autos and furniture. It was the biggest jump in four months. But economist Kathleen Stephansen of Credit Suisse notes that the University of Michigan's final consumer confidence index for September, also released today, told a different story.
KATHLEEN STEPHANSEN, ECONOMIST, CREDIT SUISSE: I was somewhat surprised to see how robust the consumer was. Now if we were to look into what has happened in September, we know that consumer confidence and sentiment in particular was down. So if you were to extrapolate that, you would have to conclude that the trend in consumer spending is likely to soften.
GURVEY: Should the Federal Reserve want to lower interest rates further as a means of encouraging more consumer spending, it got some room to maneuver today with a report showing core consumer price inflation up just 0.1 percent in August. Prices over the last year are up 1.8 percent, the lowest rate of inflation since 2004, and within the Fed's 1 to 2 percent target range. The president of the Atlanta Fed, Dennis Lockhart, said today, quote: "We are very focused on inflation," indicating the Fed will change direction if warranted. Fed Vice Chairman Donald Kohn said today Fed officers, quote: "Have always focused sharply on the macro-economy," and not on investors' profits or losses. David Resler of Nomura Securities believes the macro-economy is at risk, and that further Fed action will be necessary.
DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES: It appears to be the case right now that the U.S. economy will not slide into recession. But we are experiencing what economists would describe as a growth recession. And that looks likely to continue through the rest of this year into early next year. That's one reason the Federal Reserve began easing monetary policy last week with a 50 basis point reduction in the Federal Funds rate. We expect the Fed to take further action to head off the risks of recession.
GURVEY: The next Fed meeting is a two-day affair, October 30th and 31st, just in time for trick or treat. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The GM/UAW Agreement Could Drive Healthcare Changes Everywhere
SUZANNE PRATT: The United Auto Workers says its new contract with General Motors guarantees many cars and trucks will be built in the U.S. The deal won tentative approval today from local union leaders. The contract also sets up what's known as a voluntary employee beneficiary association, or VEBA. GM will pump nearly $30 billion into the VEBA to fund retiree health care. As Darren Gersh reports, that could impact health care policy across the country.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: You could think of the GM/United Auto Worker's VEBA as a kind of huge IRA dedicated to pay for doctors and drugs. GM is expected to fund the VEBA pot with nearly $30 billion. In return, the financial risk for retiree health care will move off the company's balance sheet and onto the workers. Health policy analyst Joe Antos says that means the health care benefit for GM retirees is no longer open-ended.
JOSEPH ANTOS, HEALTH POLICY ANALYST, AEI: What it says is, employees and union, you have to decide what you really want and you have to go for it. And if you want to spend more money, that is up to you. That is a huge change.
GERSH: Because GM union retirees will be responsible for their own health care bills, Antos hopes that will make them more careful consumers. As more employers consider adopting VEBAs, that could help slow the national increase in health care costs. But the impact will be limited because VEBAs appeal most to companies with large numbers of unionized workers. Health policy expert Gail Wilensky serves as a trustee of the United Mine Workers VEBA-like plan. Wilensky says VEBAs are an important incremental change, because they give employers more flexibility.
GAIL WILENSKY, ECONOMIST, PROJECT HOPE: The options that have existed are stay where you are, or try to diminish benefits or walk away from benefits if you can't afford where you are now with regard to retirees. This is a way to maybe get better use out of the money you are setting aside.
GERSH: Now that the auto workers have put down their pickets and more companies like GM are trying to offload their health care liabilities, some worry there will be less pressure on Congress to reform health care. But labor lawyer Douglas Greenfield says if VEBAs catch on, workers will be even more sensitive to rising health care costs.
DOUGLAS GREENFIELD, LABOR LAWYER, BREDHOFF & KAISER: The more significant thing here is that they know that there is a limited pot of money that is available to pay for health care, and they are going to want to see the system in the aggregate, in the whole, get normalized in a sense, are more predictable so they can tell what the cost will be.
GERSH: The GM VEBA deal may also make it clear to policy-makers that more workers are being forced to choose between keeping their benefits and keeping their jobs. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Japan's Styrofoam Style
SUZANNE PRATT: Japan is one of the world's leaders in eco-technologies, like solar power, fuel cells and hybrid engines. Now, a small firm in western Japan is offering homeowners a very unique and eco-friendly dwelling. Lucy Craft explains.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Once upon a time, in the sleepy hinterland of western Japan, there lived a baker named Katsuyuki Kitagawa. For 40 years, his factories whipped up puffy Japanese cakes, called manju. The spongy manju confections gave Kitagawa sweet idea.
KATSUYUKI KITAGAWA, PRESIDENT, HOKKOH GROUP (through translator): Since I was a boy, I have always wanted to live in a house shaped like a cake.
CRAFT: Sound flakey? It did to every construction company he asked. Never mind, Kitagawa would build his dream house himself. Not from timber or steel, but from something he knew would be malleable enough to replicate a dome-shaped cake, the same packing material used to ship his cakes and cookies. Yes, Styrofoam.
KITAGAWA (through translator): Using Styrofoam made the houses cheap to build. And later, we were startled to find out the houses had a lot more going for them.
CRAFT: As in extreme fuel efficiency. Just like coffee cups or beverage coolers, the extraterrestrial-looking dwellings have a knack for hanging on to heat or chill.
KITAGAWA (through translator): If you turn on the air conditioner for just five minutes, the room will stay cold all day. Heating in winter is the same, provided you don't open the door too much.
CRAFT: Eight inches of Styrofoam with a thin coat of concrete, the dome houses have stood through earthquakes and typhoons without a scratch. The buildings are being marketed not just as ecological resort cottages and home extensions, but also as boutiques and warehouses for mushroom cultivation and other crops. The cupcake of the lineup, if you will, is made of just 10 parts. It can be assembled in days, into a dwelling the size of an American studio apartment. At Kitagawa's farm-style resort on the southern island of Kyushu, the dome houses have become a hit with tourists. But the quirky founder insists it is not because of the houses' energy-saving properties or bizarre looks.
KITAGAWA (through translator): Experts tell us dome houses are the ideal shape for human habitation because it is like sleeping in your mother's womb.
CRAFT: The company is perfecting the recipe for running these domed houses completely on geothermal, wind and solar power. If they are successful, carbon-free living will become a "piece of cake." Lucy Craft, NIGHTLY BUSINESS REPORT, Kumamoto, Japan.
"Market Monitor" - 3rd Quarter Review with Sam Stovall of Standard & Poor's
PAUL KANGAS: Wall Street closed out the third quarter of trading today. So, to review how the major stock averages fared and what stocks were the big winners and losers over the last three months, Sam Stovall joins us now. He is the chief investment strategist at Standard & Poor's. And welcome back to NIGHTLY BUSINESS REPORT, Sam.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Thanks, Paul. I'm happy to be here.
KANGAS: How would you best describe the stock market's behavior over these last three months?
STOVALL: Well, I was very impressed by the market's recuperative powers. With all of the headwinds that could have held it back, it actually went down but then surged quite nicely.
KANGAS: Let's look at how the major indices fared during the third quarter. And we see nothing but gains and some pretty good ones.
STOVALL: Absolutely. Well, certainly in this quarter typically the market really just treads water and is by far the worst-performing quarter of all four. But we saw a nice 3.6 percent gain in the Dow Jones Industrial Average, a good 1.5 percent gain for the S&P 500, and a more than 8 percent rise for the NASDAQ.
KANGAS: Let's move on now to the Dow's big winners. And let's have a look at the top performer, Procter & Gamble (PG), up 15 percent. And I might remind our viewers that on your last quarterly visit with us you said that the consumer staple stocks would fare very well in the third quarter. There you have it, P&G at the top, good call.
STOVALL: Well, thanks, Paul. The old saying, when the going gets toughs, the tough go eating, smoking and drinking.
STOVALL: Certainly Procter & Gamble did fairly well, primarily because investors were worried that we could be slipping into recession and responded by moving into the more defensive P&G shares.
KANGAS: Well, United Tech (UTX) and IBM (IBM) also did very nicely.
STOVALL: United Tech did well, probably because of the tailwinds from the weakening U.S. dollar and their overseas sales. And IBM did well because of their software division, which represents more than half of their revenues, also recent acquisitions have begun to pay dividends.
KANGAS: On the downside in the Dow, Home Depot (HD) has the worst showing among the 30 stocks, and down 17.6, followed by Wal-Mart (WMT), I guess we know the story there.
STOVALL: Exactly, continued fallout from the still-weakening housing market.
KANGAS: Right, and Citigroup (C) did not fare too well, down 9 percent.
STOVALL: No. They were squeezed by the credit crunch also. A lot of financial companies were hit in this third quarter.
KANGAS: All right. Let's have a look at the board of the Standard & Poor's 500 best winners. Juniper Networks (JNPR) right at the top.
STOVALL: Well, Juniper benefited from a demand for bandwidth around the world fueled by the explosion of video content and applications on the Internet.
KANGAS: And what brought Hilton Hotels (HLT) up nearly 39 percent?
STOVALL: Well, it certainly helps when you have a very good takeover offer by the Blackstone Group (BX).
KANGAS: OK. There you go. On the downside Standard & Poor's 500, Tenet Healthcare (THC) topped the list.
STOVALL: Well, the uncompensated care went from 11.4 percent of revenues to 12.7 percent, and as well there was increased liquidity concerns for the company.
KANGAS: And of course the subprime woes took their toll on Countrywide (CFC), down almost 48 percent.
STOVALL: Certainly did. And a lot of the concern as to how long this will continue.
KANGAS: All right. Let's turn over now to the NASDAQ 100 best gainers. Leading the way, Wynn Resorts (WYNN), up almost 76 percent, what goes on there?
STOVALL: Well, you and I both had the same pun of this being a "Wynn-er" situation. Share prices jumped on strong second-quarter earnings primarily because of the Wynn Macao facility, which opened in 2006, and expectations of additional Macao properties in 2008.
KANGAS: OK. And Intuitive Surgical (ISRG) did very nicely too.
STOVALL: That is right. Shares have risen on strong placements and higher selling prices for their da Vinci Surgical Systems.
KANGAS: The big loser on NASDAQ, 100, Akamai Technologies (AKAM), down about 41 percent.
STOVALL: Well, this company which improves the deployment of application across the Internet has been experiencing increased competition and mounting pricing pressures.
KANGAS: And Sepracor (SEPR), a big drop there.
STOVALL: That is right. Well, early in the quarter, the company's share price fell to a three-year low amid reimbursement woes for their asthma therapy inhaler and sluggish sales for their insomnia drug, Lunesta.
KANGAS: Sam, now that we have closed out the third quarter, do you see the high level of volatility continuing in the fourth quarter? We just have about 40 seconds.
STOVALL: I think volatility in the fourth quarter is likely to be still high. However, I think that the fourth quarter could end up being like its historic norm of being the best of all four quarters and a good chance of it closing on the highs for the year.
KANGAS: What stock sector do you think will take the lead in the fourth quarter?
STOVALL: I think we will see good momentum continuing for the energy shares as the worldwide economies remain fairly strong. And also I think technology is likely to do well, posting a more than two-to-one improvement in earnings versus the S&P both this year and next.
KANGAS: How about health care? You liked that for the third quarter, didn't do that well.
STOVALL: No, it didn't. I think we are still seeing concerns about weak pipelines in the pharmaceutical area, and also with political debates going on, both sides, both parties are looking to curtail Medicare and health care expenses.
KANGAS: Sam, I want to thank you very much for joining us once again.
STOVALL: You are welcome, Paul.
KANGAS: My guest, Sam Stovall of Standard & Poor's Corporation.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened with minor gains, as investors weighed today's mixed bag of economic reports. That strong consumer spending figure caused some doubt about the need for more near-term rate cuts, and that helped to push the Dow to a 22-point noontime loss with the NASDAQ off 7 points. Amid the cross currents of last minute, end-of-quarter portfolio shuffling, the market maintained a slightly negative bias for the rest of the session.
The Dow Jones Industrial Average closed down 17.31, at 13,895.63. This week it fell twice and rose three times for a net gain of 75.44 points. The NASDAQ Composite was down 8.09 to 2,701.50 today, and it, too, fell twice and rose three times this week, advancing 30.28 points overall. Standard & Poor's 500 fell 4.63, ending at 1,526.75 today, and it rose exactly 1 point for the week. Over in the bond market, the 10-year note fell 6/32 to 101 7/32, putting the yield at 4.59 percent.
KANGAS: Suzanne, shares of 3COM jumped $1.26 today to close at $4.94. Now, let's take a look at some other "Stocks in the News" tonight.
For the third straight day topping the active list was Ford Motor (F), down $0.14, traded 17.3 million shares.
Followed by Pfizer (PFE), a $0.32-loss there.
General Electric (GE) moved up a penny.
AT&T (T), a $0.52-drop.
And then Home Depot (HD) lost $0.32.
General Motors (GM) moving up $0.24 as the rank and file approved that new labor contract.
EMC (EMC), a $0.25-cent gain.
Duke Realty (DRE) down $0.59. But after the close today, that stock was added to the Standard & Poor's Midcap 400 Index. So it made the active list because of index fund buying.
Then the Brazilian conglomerate Companhia Vale do Rio Doce (RIO) down $0.05 a share.
NCR when issued (NCR_w) in there, 10th in volume, up $0.29.
Barrick Gold (ABX) up $1.10. Gold -- as of today, the spot gold was at $743.70. And in New York, the December contract, as you see, up $10.10 to $750. These are the highest gold has been in almost 30 years.
Let's have a look at some other stocks in the group:
Agnico Eagle (AEM) up $1.66.
A $0.90 gain in Goldcorp (GG).
And Randgold (GOLD) did well, up $1.58. Very strong group today.
Wesco International (WCC), this is the big electric supply firm, up $3.96 on news it plans to buy back up to $400 million of its own stock.
Accenture Limited (ACN), the consulting firm, up $2.23. The company reported fourth-quarter earnings of $0.50, down from $0.56 last year. But that was still $0.02 above the Street estimate. And the company is boosting its annual dividend 20 percent to $0.42 a share. And on top of that, Standard & Poor's repeated a strong buy on the stock today.
Harman International (HAR), the audio equipment-maker, up $3.47. Bear Stearns upgraded the stock from "peer perform" to "outperform."
And then another electrical manufacturer, Azz Incorporated (AZZ), up $1.48 on higher earnings second quarter, $0.66 versus $0.45 a year ago. Revenues jumped 30 percent and the company boosted its 2008 guidance.
Hartmarx Corp. (HMX) major loser percentage-wise, off a $1.48 today. Third-quarter earnings were up 11 percent from last year. But sales fell 1.8 percent and the company sees full-year 2007 earnings at only $0.22 to $0.27 versus its previous guidance of $0.50 to $0.56. The Street estimate is $0.52. So a major loss in that stock.
Par Pharmaceutical (PRX) down $3.12. The company warned several of its products will be hurt by competition in the second half of the year. It now sees 2007 adjusted earnings of $1.05 to $1.20 versus $1.56 Street estimate. But the company said it will buy back up to $75 million of its own stock.
New issue today, Duff & Phelps (DUF), a financial services company, 8.3 million shares offered at $16. Opened at $17. And the high of the day, $18.90. It retained most of the that gain to the close.
Apple (AAPL) topped the active list on NASDAQ, down $1.03. The company said if the iPhone is hacked, it will be disabled.
Research In Motion (RIMM) down $1.31.
Google (GOOG) fell $0.23.
Microsoft (MSFT), a $0.03-loss there.
Intel (INTC) managed to gain $0.10 a share.
Baidu.com (BIDU) down $2.32 on some profit-taking.
Cisco (CSCO), a dime loss.
Wynn Resorts (WYNN) off $9.42. Profit-taking after sharp recent gains. And Wynn also plans to offer 3.75 million of its common shares at $158 each. The proceeds will go toward new projects.
Comcast A (CMCSA), a $0.07-loss.
And First Solar (FSLR) up $7.71. The board of directors has approved expansion plans into Malaysia.
Silverstar Holdings (SSTR), look at that percentage gain, almost 105 percent. This is a company that publishes interactive video game software. Fourth-quarter turned around earnings of $0.25 a share versus a loss of $0.10 last year. And the company boosted its earnings guidance.
TravelZoo (TZOO) up $3.06. That is takeover speculation by priceline.com (PCLN).
And those are the "Stocks in the News" tonight.
