NBR Complete Transcripts: 10-17-2007
Wednesday, October 17, 2007Housing Starts Slump Lower
SUSIE GHARIB: Disappointing economic news today about inflation and the slumping U.S. housing market. The government said consumer prices rose .3 of a percent last month, as food and energy prices heated up. Excluding those volatile costs, prices rose .2 of a percent. Now in a separate report, housing starts tumbled in September to their lowest level since 1993. As Erika Miller reports, analysts say the worst is probably not over yet for housing.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: New home construction got hammered last month and that's raising fears of a further slowdown in the economy. Housing starts plunged 10 percent in just one month to the weakest level in 14 years. Permits, which are a sign of builder confidence, slumped 7 percent to their lowest reading in 12 years. Lehman Brothers economist Ethan Harris says the declines are a result of tougher mortgage requirements.
ETHAN HARRIS, CHIEF US ECONOMIST, LEHMAN BROTHERS: Over the course of the summer, we had a further tightening of credit in the housing market and builders are finding lots of cancellations of homes. So, with all those cancellations of purchases, they've decided, you know what? We've really got to cut back significantly on the production of new homes.
MILLER: Goldman Sachs economist Jan Hatzius was particularly troubled by one component within the report.
JAN HATZIUS, CHIEF US ECONOMIST, GOLDMAN SACHS: Multifamily starts fell sharply. I think what that's saying -- and it's in line with a couple of other reports that we've been getting recently -- is that the commercial real estate area is starting to weaken.
MILLER: Most economists believe the housing downturn will slash economic growth by at least a percentage point in the current quarter. That's about a third of the nation's average growth rate.
HARRIS: I think there are two ways that the weakness in housing affects the rest of the economy. The first is cuts in employment, which will feed into broader spending activity. And the other is the negative effect on consumer confidence and consumer spending.
MILLER: Wall Street expects the deteriorating housing market will be a major concern of Federal Reserve policy makers at their next meeting October 30 and 31.
HATZIUS: It's not at all a straightforward case. It certainly could go either way. But we think it's more likely than not that they will, in the end, decide to cut.
MILLER: Economists are hesitant to predict when the housing market will bottom. They say one promising sign would be a stabilization in the number of unsold homes, something that is not expected soon. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with Bruno Stanziale of Bank of America
SUSIE GHARIB: More analysis now on those high oil prices. Oil touched $89 a barrel in New York trading today, then retreated to settle at $87.40. Joining us, Bruno Stanziale, principal in commodities sales at Bank of America. Hi, Bruno.
BRUNO STANZIALE, PRINCIPAL IN COMMODITIES SALES, BANK OF AMERICA: Hi.
GHARIB: Well, how long before we're talking about $100 oil?
STANZIALE: That's the million dollar question. Look, if the momentum keeps going the way it is, we could see it before the end of the year. Um, look, I think the answer to that question is to what extent do you believe this move higher in crude oil is manifested in fundamental reasons and how much of it is really manifested in concern over geo-political events? I don't think.
GHARIB: Which is it? Which is it? Is it geo-political or is it real supply/demand?
STANZIALE: I think that the overall trend is higher based on fundamental reasons. I do not think we're trading $87 right now because of fundamental reasons. I think we have a good amount of fault in the market around peoples' concerns about the Middle East, Turkey and even to a greater extent the Iranian confrontation. If those situations escalate in tandem with fundamentals tightening as they normally do going into Q4, we have heating demand, etc., then we could probably see $100. I don't doubt that. But, again, I think it's the combination of the two.
GHARIB: How about the other way around, Bruno? Let's just say that the tensions between Turkey and Iraq stabilize. Then what do you see the price of oil? Is it going to go below $80?
STANZIALE: I don't think so. I think it'll have a hard time going below $80. It may flirt with $80 for a little bit, but I think that there's probably about $3 or $4 of sort of Turkish, um, you know, tones to it. I dot think there's as much in it, into the price, and you know, revolving around the Turkey situation. I think that in tandem with the Iranian situation is why we're at $87 in lieu of $75. So I think tomorrow if we get a headline out that says, look that situation has been resolved, you'll see an intermediate correction down to $80 or $82, but I think that's about it.
GHARIB: OK, now, gasoline prices haven't been moving much. They're still below $3 a gallon nationwide average. Do you expect gas prices to go up as crude prices rise? I mean, why are gasoline prices staying as low as they are?
STANZIALE: Well, they have not had as good a run as crude oil, relatively speaking. It's actually a good point. I mean, this has been a crude-driven rally. We're out of peak season demand for gasoline. Quite frankly, we should probably be trading a lot lower. The reason why we're trading where we are is, A, crude oil is non -- you know, unstoppable at this point and in addition to that, we have very low gasoline stocks, historically low gasoline stocks, so people are already starting to worry about next summer's demand. I think that we will be able to produce enough gasoline. I think we'll be able to see enough imports as we saw in today's numbers, to put pressure on the front of gasoline prices. I expect gasoline prices to dip further from here.
GHARIB: All right, real quickly, is there a level at where oil goes that it could hurt the economy? I know you're not an economist, but what do you think, real quickly.
STANZIALE: I think it's a function of how quickly we get there. If we go to $100 within a month and we stay there, I think that hurts the consumer.
GHARIB: All right. Thanks a lot, Bruno.
STANZIALE: Thank you.
GHARIB: My guest tonight, Bruno Stanziale, principal in commodity sales at Bank of America.
President Bush Demands Congress Get Back To Budget Business
PAUL KANGAS: President Bush went on the offensive today with Congress poised tomorrow to try to override his veto of a health insurance program for children. Mr. Bush said Democrats haven't finished key spending legislation and he urged them to get to work. The president is threatening to veto many of those bills because they spend more than he wants. Darren Gersh looks at the details behind this budget battle.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Spending on education and health care accounts for half of the difference between the president and congressional Democrats -- about $11 billion of the $22 billion that separates the two sides. Budget analyst Brian Riedl says the increased spending Congress wants should be put into perspective.
BRIAN RIEDL, SR. BUDGET ANALYST, HERITAGE FOUNDATION: Keep in mind that the president has already been very generous in health and education programs. Health programs have grown 46 percent under President Bush and education has grown 129 percent under President Bush.
GERSH: The biggest differences are over domestic programs. Democrats want to add $1.7 billion for state and local education, $1.6 billion for local law enforcement, $1.3 billion for community development block grants and $880 million in home heating oil assistance. Democrats also cut where the president wants to spend more, eliminating $1.2 billion for the millennium challenge corporation, which encourages reform in developing countries. Democrats also shifted more than $600 million from a reading program created by the president to other education programs. Brian Riedl says initiatives that trouble Democratic supporters are also under fire.
RIEDL: They are also cutting a program that is designed to police labor unions and make sure that they are holding up to their end of the laws.
GERSH: Amtrak also gets a $600 million boost under Democrats. The president calls all this spending excessive and is threatening to veto it. But the Center on Budget and Policy Priorities' James Horney says, when adjusted for inflation and population growth, Democrats are more restrained than their Republican colleagues.
JAMES HORNEY, BUDGET ANALYST, CENTER ON BUDGET & POLICY PRIORITIES: The funding they are providing is less on average, than was provided in those same bills in fiscal years 2002 through 2006 and all of those bills were signed by the president.
GERSH: However the veto budget battle ends up, Congress and the president will almost surely agree to a hefty increase in Federal spending next year when they pass a supplemental spending bill for Iraq. Those bills are considered emergencies, but often include billions for domestic programs. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"- Hilary Kramer, Personal Finance Editor at AOL
SUSIE GHARIB: Tonight's "Street Critique" guest has brought our viewers several stock picks in recent weeks, all designed to play on the momentum associated with last month's cut in interest rates. So we thought we'd take a look at how her picks are doing. She's Hilary Kramer, personal finance editor at AOL and the author of the book entitled, "Ahead of the Curve." And Hilary, welcome back to NBR.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL: Thank you, Paul.
KANGAS: In the last couple of months, you've said that you were cautious on the market, but that viewers should not fight the Fed and the market momentum associated with the September rate cut. Let's look at how those picks have played out. On August 22, you had some stocks that you said had been beaten down unfairly and were poised for the upside and they started out with Metallico (MEA) which is up 63.8 percent, then Comverge (COMV) up nearly 47 percent, Tetra Tech (TTEK) with a gain of about 8 percent and ASE Test Limited (ASTSF) adding 26 1/4 percent, all strong gains. Are you staying with these stocks are taking some profits?
KRAMER: It's time to take profit. Take some money off the table on all on these (INAUDIBLE). I love Metallico, MEA. I still own and hold some Metallico. Look at how fast it's gone up, 64 percent. Take some money and put it aside.
KANGAS: OK and now to those stocks that we've had on the board, only Metallico is the one you own now?
KRAMER: Yes.
KANGAS: Now, getting back to September 5, you liked Casella Waste (CWST) and it's up 30 percent and FPL (FPL) boosted minor gains in comparison also and then Veolia Environmental (VE) was up almost 18 percent. Are you taking profits here or sticking with these?
KRAMER: All four of the stocks, especially Casella, Veolia, stick with them. There's a lot more upside to go. Casella I see it going to 20 and Waste Management (WMI), FPL, those are nice safety stocks (INAUDIBLE) conservative and want some upside but I own all four of those stocks.
KANGAS: Ok. Then the day after the Fed cut rates by a half percentage point, you gave us some bigger cap stocks poised to rise on that Fed move. Baidu.com (BIDU) up 14.6 percent, your only loser, China Medical Technologies (CMED), down a whole 7/10 of 1 percent. First Solar (FSLR) did considerably better, up nearly 39 percent and then Google (GOOG), you think Google can still push higher? It's up almost 16 percent from when you recommended it.
KRAMER: OK, Paul, Google going to 700, there's still strength behind Google. There's buyers. There's real volume there, but all of these stocks are momentum plays. Everyone should be careful and keep in mind that China especially, Baidu, although I loved it, those that got in made some money, be careful, pull your money off the table and wait for a nice rainy day when these stocks go on sale and can go back into the market.
KANGAS: Good advice. Hilary, what are you seeing in the current market? What lies ahead now?
KRAMER: Well, we have strength in technology, but the stock market itself has gone up too fast, too high and everyone should be careful and mindful of the fact that there are some dangers ahead, namely that oil is looking like it's heading to $100 a barrel and it hasn't yet reflected in the gas pump. Once it does, it's going to be a shock to our system and to the consumer and then, of course, you have real estate groups. You have the financial money centers, regional banks, the mortgage plays. They're weak and there could be some contagion to the stock market. So although we have a strong economy, strong market, you got to be careful. And, again, save your money for a day when these stocks go on sale and you can pick them up cheap.
KANGAS: Fair enough. Hilary, we know what you own over the stocks mentioned tonight. But are you short any of those stocks?
KRAMER: I'm not short any of these positions.
KANGAS: Want to thank you for being with us, once again.
KRAMER: Thank you, Paul. KANGAS: My guest, Hilary Kramer, author of "Ahead of the Curve."
"Money File"-Save Social Security For Old Age
SUSIE GHARIB: In the "Money File" tonight, why collecting Social Security early is often a mistake. Here's Jonathan Pond, author of "You Can Do It: The Boomer's Guide to Retirement."
JONATHAN POND, THE BOOMER'S GUIDE TO A GREAT RETIREMENT": When should you begin collecting Social Security? The prevailing wisdom seems to be: take the money as early as possible and most people are heeding that advice. The Social Security Administration reports that almost 75 percent collect early. But for most people, it's a mistake to collect Social Security benefits before full retirement age, which may be as high as age 67, depending on your birth year. Collecting early makes sense for some people, including those who simply need the money to pay their bills, those in poor health and, of course, those delusional souls who are convinced that Social Security benefits are going to be terminated so they'd better get in under the wire.
Otherwise, though, it pays to wait and enjoy higher lifetime benefit checks, particularly if you're still working or may return to the workforce, because if you collect before full retirement age and earn more than a pittance of money, you'll sacrifice some or perhaps all of your benefits. Also, if you're married and one spouse has a higher earnings history, experts urge the higher earning spouse to delay benefits. Then, if the higher earning spouse predeceases, the surviving spouse will be entitled to a bigger benefit check. So before you decide when to collect Social Security, do some homework. You'll probably find that collecting benefits later, rather than sooner, is the better choice. I'm Jonathan Pond.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened higher, led by the tech sector on the better-than-expected earnings posted after the bell yesterday by Intel and Yahoo! An hour into trading, the Dow was up 47 points and the NASDAQ rose 33. The rally stalled as oil prices surged to $89 per barrel after the Turkish parliament voted in favor of ordering an attack on Kurdish rebels in northern Iraq. Weakness in IBM and United Tech stocks further undermined the Dow as it slid to a 133-point loss at 2 p.m. But then strength in the tech stocks led a late comeback. The Dow Jones Industrial Average cut its closing loss to just 20.40 points at 13,892.54. The tech- laden NASDAQ gained 28.76 points, ending at 2,792.67. Standard & Poor's 500 up 2.71 at 1,541.24. The bond market, 10-year note climbed 25/32 to 101 17/32, lowering the yield to 4.56 percent.
For the third day running, volume leader on the big board today on 30.4 million shares was Citigroup (C) down $0.13. The company denied a rumor making the rounds that Chief Executive Charles Prince will soon step down, denied that. General Electric (GE) $0.23 gain.
Ford Motor Co (F) dropped $0.09.
Then came JPMorgan Chase (JPM) up $1.26 on higher third quarter operating earnings of $0.97 versus $0.92 last year and that was $0.07 above the Street consensus.
Wells Fargo & Co (WFC) lost $0.28 a share.
Then Pfizer (PFE) down $0.08.
Wal-Mart Stores (WMT) up $0.13.
Co vale do Rio (RIO) $0.43 gain there.
Bank of America (BAC) a $0.17 drop.
ExxonMobil (XOM) a $0.06 gainer.
United Tech (UTX) hurt the Dow with that loss of $2.85. Third quarter earnings were up 20 percent at $1.21 versus $0.99 last year, $0.05 above the Street estimate, but the company's outlook was disappointing and that brought on some selling.
IBM (IBM) down $3.82. After the close yesterday as we reported, third quarter earnings came in at $1.68, a penny above the Street estimate, but Standard & Poor's today noted that both software and hardware sales for big blue were below expectations.
Look at these Chinese stocks and these are the five biggest percentage gainers of all the New York Stock Exchange stocks today. They dominated the list of percentage gainers. There is speculation mainland Chinese investors may soon be able to trade these stocks on the Hong Kong as well as the Taiwan exchanges, big gains all the way along. Sinopec (SHI)
China Petroleum (SNP)
Petrochina ADR (PTR
Yanzhou ADR (VZC)
Guangshen Railway (GSH)
CSX (CSX), the big rail, up $2.51. Third quarter earnings, $0.91, up from $0.71 last year and 3 percent rise in revenue. Standard & Poor's upgraded CSX from "hold" to "buy."
MGIC Investment (MTG), the mortgage lender, third quarter loss of $4.60 versus earnings last year. Of course, the tough mortgage lender market hurting stocks like MGIC as well as Thornburg Mortgage (TMA) down $1.36 there. Thornburg's third quarter loss, $8.83, versus $0.64 in earnings last year. The company will not declare a third quarter dividend.
Champion Enterprises (CHB), which makes prefab houses, up $1.22. Third quarter earnings higher, $0.17 versus $0.12 a year ago, $0.03 better than expected on Wall Street.
Piper Jaffray Co (PJC), the retail broker down $2.73. Third quarter earnings fell to $0.28 from $0.50 a year ago. Revenue dropped 20 percent.
Amphenol (APH), which makes electrical components, $3.01 gain. Third quarter earnings jumped to $0.50 from $0.39 last year. Sales up 15 percent. Standard & Poor's repeated a "buy" on that stock.
And Manpower (MAN), the temporary work company, up $4.66. Third quarter earnings jumped to $1.57 from $1.16 last year. Revenues were up 15 percent.
Apple (AAPL) topped NASDAQ's most active list, up $3.17 at an all-time closing high.
Then Intel (INTC) $1.21 gain. After the close yesterday as we reported, Intel's third quarter earnings came in at $0.31, a penny above the Street estimate.
Google (GOOG) doing well, up $17.48.
Microsoft (MSFT) $0.76 gain.
Baidu.com (BIDU), another strong Chinese-related stock, up $8.72.
Research in Motion (RIMM) gained $1.14.
Yahoo! (YHOO)
up $2.13. After the close yesterday as we reported, third quarter earnings came in at $0.11, $0.03 above the Street estimate.
Then Cisco Systems (CSCO) $0.17 rise.
Ebay (EBAY) closed up $2 a share. After the close today, it reported a third quarter loss of $0.69 versus earnings of $0.20 last year, but there's little change in the stock in after hours trading.
Tenth in volume was Oracle (ORCL) losing $0.26 a share.
And finally, we have a new issue. Trans-1 (TSON) surging $9. There were 5.5 million shares offered at $15. This company makes products to relieve back pain. The stock opened at $25.01, traded as high as $26.
