NBR Complete Transcripts: 10-30-2007
Tuesday, October 30, 2007The Fed Watch is On
PAUL KANGAS: The Federal Reserve kicked off its two-day policy setting meeting in Washington today. The central bank is widely expected to trim rates a quarter of a percentage point tomorrow for its second rate cut this year. Erika Miller has details on whether the Fed will give investors the rate cut they're counting on.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Financial
markets are counting on a rate cut by the Federal Reserve tomorrow afternoon. If that does not happen, economist Drew Matus warns there will likely be a big sell-off in stocks.
DREW MATUS, SR. MARKET ECONOMIST, LEHMAN BROTHERS: The market is pricing in 25 basis points. So, if the Fed doesn't give it to them, they're going to have to worry a little more about growth and that's probably bad for stocks.
MILLER: A quarter-point cut would bring the Federal funds rate to 4.5 percent. It would follow a surprising half-point drop in September. Economist Mike Feroli says a move tomorrow is needed to guard against recession.
MICHAEL FEROLI, ECONOMIST, JP MORGAN: Even though the Fed and most analysts I think, have been expecting housing to be very weak, it has probably been even weaker than they or certainly we have expected. So, I think that could contribute to some fears about downside risks here.
MILLER: In addition, economists worry the could deepen, making it harder for consumers and businesses to borrow money. Most Fed watchers believe a more aggressive half-point cut is unlikely because it risks suggesting the economy is in serious trouble. Some economists do not expect the Fed to make any move at all, arguing the economy is on solid footing outside of housing. Also up for debate are the changes the Fed will make to the statement accompanying the decision. The Fed is widely expected to give itself maximum flexibility for future moves. Many economists also think policy makers will make a special point to emphasize their focus on the economy.
MATUS: I would look for them to try and move away from any statements related to the current health of financial markets and to talk much more about what we're seeing in terms of the growth outlook going forward.
MILLER: It's not the Fed's mandate to mind the markets, but plenty of economists think the Fed will cut rates tomorrow partly to avoid a nasty reaction on Wall Street. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Capitol Hill Tries To Get The CPSC To Get The Lead Out
PAUL KANGAS: After this summer's huge recalls of toys contaminated with lead paint, there's a move on Capitol Hill to beef up the Consumer Product Safety Commission. The Senate Commerce Committee today approved a bill overhauling the agency, but the White House said it's against the measure and that caused Democrats on Capitol Hill to lash out, calling for the CPSC head to step down, but the agency's chairman told Stephanie Dhue she's not going anywhere.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lawmakers want to double the budget for the agency that protects consumers from dangerous products. Congress is also considering giving the Consumer Product Safety Commission authority to slap fines up to $100 million on companies with major safety violations. But the agency's own acting chairman, Nancy Nord, has come out against the proposal. That has House Speaker Nancy Pelosi calling for Nord's resignation.
REP. NANCY PELOSI, HOUSE SPEAKER: I think that any commission chair who does not, in the face of the facts that are so clear, says we don't need any more authority or any more resources to do our job does not understand the gravity of the situation and does not understand the concerns that America's parents have for the safety of their children.
DHUE: Nord says she won't quit.
NANCY NORD, ACTING CHMN., CONSUMER PRODUCT SAFETY COMMISSION: I have no intention of resigning.
DHUE: Nord says the bill is ill considered and would mean more lawyers instead of safety inspectors.
NORD: If you increase penalties to such an extent that it becomes cheaper if you will for people to fight us in court rather than settle, negotiate and get the recall done and get on with business of protecting consumers, that to me does not bode well for this agency and it does not bode well for product safety overall.
DHUE: Jonathan Gold of the National Retail Federation echo Nord's concerns the bill would lead to increased lawsuits.
JONATHAN GOLD, NATIONAL RETAIL FEDERATION: We want to make sure we're not just legislating by sound bite. What sounds great might not actually work in the real world.
DHUE: Consumer groups disagree. Consumer activist Sally Greenberg says the bill is a shot in the arm for an agency that has been badly under funded.
SALLY GREENBERG, EXEC. DIR., NATIONAL CONSUMERS LEAGUE: We would recommend that the powers that be over at the CPSC look at this as a brand new opportunity to reinvigorate the work they do, to increase the number of staff they have.
DHUE: While lawmakers on Capitol Hill may pass a bill by the end of the year, states like California aren't waiting for Congress to act. Some states are already moving forward with tougher safety standards of their own. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
One on One with Sirius CEO Mel Karmazin
SUSIE GHARIB: Sirius Satellite radio narrowed its losses in the third quarter as revenue jumped 45 percent. The New York-based company lost $0.08 a share in line with estimates, but surprised analysts by adding more than half a million new subscribers. The company, which expects 2007 revenue to reach $1 billion, is still awaiting government approval for its planned merger with rival XM. Earlier today, I met with Sirius CEO Mel Karmazin and began by asking him when the company will turn profitable.
MEL KARMAZIN, CEO, SIRIUS SATELLITE RADIO: What you're seeing now is a narrowing of the loss. We're generating a whole lot more revenue. We're growing our revenues a lot faster than we're growing our expenses. When that path crosses, we have not disclosed, but a really good sign of how good the business model is is that this coming fourth quarter, the quarter that we're in, we will be free cash flow positive, so we will be free cash flow positive. Then we will become EBITDA positive. Then we will become earnings positive.
GHARIB: Mr. Karmazin, I see that Sirius added a lot of new customers, more than half a million in the quarter. Where is that growth coming from?
KARMAZIN: The two ways we get our subscribers are in the OEM, in the car companies, so you buy a new Ford, Chrysler, Mercedes, BMW car with a satellite radio and that channel is growing rapidly or you go into a retail store and you buy the radio in the after market and that is also growing for us. And we expect in the fourth quarter of this year that the retail numbers will increase because it's a holiday season and people tend to give, you know, satellite radio and other consumer electronics as a Christmas and holiday gift.
GHARIB: It's been more than eight months since you announced that merger with XM. When do you expect to hear from regulators on whether this deal is a go or not?
KARMAZIN: I'm waiting for the phone to ring as we speak. We filed all of the work that we had to file at the FCC. We provided the Justice Department with over six million pages of documents. We and XM each provided them with about six million pages. They have all of the information and it's ripe for them to make a decision and we're optimistic that they'll a make a decision before the end of the year.
GHARIB: Do you have any indication from government regulators of where they're leaning on this merger?
KARMAZIN: I keep reading body language. I keep reading public statements. I know that there are, you know, some FCC commissioners who tend to be against any form of consolidation. We think that our merger is different than typical consolidation where you're having two very successful companies and you're trying to limit the voices. What we're trying to do is to make ourselves a better competitor for terrestrial radio so I'm optimistic that even the FCC commissioners who tend to not be in favor of consolidation could see their way clear to vote in favor of our merger.
GHARIB: How are you managing Sirius for the future when you don't know whether you're going to be merging with your biggest rival or you're going to be competing with it?
KARMAZIN: The way we run the company is as if the merger is not going to happen. The fact that we have been executing so well in spite of all of the distractions that are going on with the merger and a lot of people focused and putting time in on the merger, we're delivering, you know, a really bang-up, you know, quarter as we did in the third quarter announcing 525,000 as you pointed out, better than expectations.
GHARIB: Let's say the merger doesn't go through. Do you think that satellite radio is a business where only one company can really survive?
KARMAZIN: We have not made that argument. We have not said that this category is a failing category. We believe that we have a business model that will make us profitable. We believe that we will become a very profitable company one day. And I say that with the merger and without. I feel more assured of what I just said if, in fact, the merger is approved.
GHARIB: Sirius stock has been rallying for the past few weeks even though it's off from its highs. What's behind the move?
KARMAZIN: I believe that a good amount of the interest in our stock is related to the merger. There is a belief that the efficiencies of the merger are so substantial that if the merger were allowed to happen that these companies would be worth far greater than they're worth today. So I think that there has more to do with the merger than it does about the fundamentals because the fundamentals have been strong for the last couple years.
GHARIB: Mr. Karmazin, thank you so much for your time.
KARMAZIN: Thank you very much. Good to be here.
"Energy Options: Nuclear" - The New Nuclear (Part 2)
SUSIE GHARIB: The Tennessee Valley Authority today filed with the Nuclear Regulatory Commission to build two reactors at an existing facility in northern Alabama. As many as 30 other reactors could be built over the next decade, sending electricity over the nation's power grid. The potential for our nuclear renaissance in the U.S. is why the nuclear energy industry is swinging into action. As we continue our series, "Energy Options: Nuclear," Diane Eastabrook looks at how U.S. companies are designing state-of-the-art reactors and increasing nuclear fuel production.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The 100 nuclear power plants that overlook America's shorelines and tower over its countryside are in a way, relics of the past. The newest reactors are already 20 years old. Most, like Exelon Corporation's Clinton power station in central Illinois, have been constantly upgraded over the years. Still, site Vice President Bryan Hanson admits the plants show their age.
BRYAN HANSON, V.P. CLINTON NUCLEAR POWER STATION: You can see the technology around us was designed and built in the 1970s, so it's like having the old Sony walkman compared to the iPod phones that they have.
EASTABROOK: In Wilmington, North Carolina, engineers and designers at General Electric Nuclear are crouched over computers and blueprints finalizing plans for the company's newest reactor. GE says its latest advanced boiling water reactor will be ready for sale when utilities start building new ones. The company recently partnered with Japan's Hitachi to roll out the latest versions. While GE hasn't sold a new reactor in the U.S. in two decades, it has sold more updated models in recent years to utilities throughout Europe and Asia. GE Nuclear President and CEO Andrew White says those reactor designs paved the way for the newest ones.
ANDREW WHITE, PRES. & CEO, GE NUCLEAR: Well, that has enabled us to keep our edge in the units in the technology, in the supply chain. All of the supply chain has been set up to U.S. standards, so they're ready to go for any U.S. build that we're looking forward to today.
EASTABROOK: GE and competitor Westinghouse are both designing new reactors they say will be smaller, safer and less expensive than previous models. Among other things, the new systems take advantage of gravity as a passive safety feature to cool reactor cores with water in the event of an accident. Currently, pumps and other equipment operated by workers do that job. The new reactors also use standardized designs which could help reduce construction costs up to 20 percent. Nustart, a consortium of utilities, gave GE and Westinghouse ideas on the new reactor designs. Nustart President Marilyn Kray says even basic design changes could make new reactors easier for utilities to operate.
MARILYN KRAY, PRESIDENT, NUSTART: Sometimes they are as simple as, boy, it would be nice when we design this if all of the valves could be at a level where we didn't have to erect scaffolding. That would save us time in an outage.
EASTABROOK: Experts say a fleet of new reactors, along with potential capacity increases at existing plants, will also increase demand for nuclear fuel. This is GE's fuel fabrication plant. It sits just adjacent to its nuclear reactor design facility. Here, the company brings in enriched uranium and makes fuel rods which power nuclear reactors. GE workers compress the uranium into pellets, bake them and then put the pellets into fuel rods. About 90 rods form a bundle and an average nuclear plant uses about 600 fuel bundles for power. GE now has the capacity to make about 20 bundles a day, but the company says it might need to increase capacity down the road to meet demand. So far, neither GE nor Westinghouse have received orders for new reactors, but Nuclear Regulatory Commission Chairman Dale Klein thinks it will only be a matter of time before they do.
DALE KLEIN, CHAIRMAN, NUCLEAR REGULATORY COMMISSIONER: Well, I can tell you, from the workload that we see at the NRC, the renaissance is among us.
EASTABROOK: Industry watchers believe if there is a nuclear renaissance, American companies will be prepared with both the technology and the fuel to sustain it. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Wilmington, North Carolina.
KANGAS: Tomorrow, solving the nation's nuclear waste problem, as our series, "Energy Options: Nuclear," continues.
"Of Mutual Interest,"-John Waggoner, Mutual Fund Columnist at "U.S.A. Today."
SUSIE GHARIB: In tonight's "Of Mutual Interest," commentator John Waggoner wants to make sure there are no nightmares lurking in your portfolio. He's mutual fund columnist at "U.S.A. Today."
JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: You may think that your mutual fund is a little angel, but are you sure your fund doesn't have a hidden dark side? Today, were going to talk about three ways to make sure you don't have a devil of a fund. First, check out your fund's turnover ratio. That figure may be buried deep inside your prospectus. Turnover measures how often a fund trades its stocks. A fund that has a 100 percent turnover, about average, trades away its entire portfolio in a year. All that trading will rack up costs over time, weakening your fund's returns.
Now, look at your fund's expense ratio. All funds charge expenses, but the more you give to your fund, the less you have for yourself. You shouldn't have to pay more than 1.2 percent for a large company U.S. stock fund or more than 1 percent for a bond fund. Some funds charge as much as 2 percent a year and those funds will just bury your returns alive. A fund with high turnover and high expenses is just bad to the bone.
Finally, some funds dole out taxable dividends and gains like they were candy this time of year, but those distributions aren't a gift; you'll owe taxes on them. If the fund has turned in red-hot performance, you can probably expect a big distribution. That's the nature of the tax law. But funds that routinely pay out big tax distributions aren't keeping shareholders' best interests in mind. Look for a fund that manages its portfolio to keep taxes low or invest in a fund through a tax-deferred retirement account. Most funds are on the side of good, not evil, but heavy trading, high expenses and big distributions can turn the best fund into a nightmare. I'm John Waggoner.
Paul Kangas' Stocks in the News
PAUL KANGAS: The trend on Wall Street was down this morning as buyers backed away on caution ahead of the Fed`s rate decision tomorrow. Lower earnings from U.S. Steel and Procter & Gamble`s rather disappointing outlook were also market negatives. The Dow posted a 55-point midday loss, with the NASDAQ off only four points. Stocks trimmed their losses a bit in the afternoon as oil futures fell sharply, but the rally attempt failed on increasing jitters over Wednesday`s Fed outcome. The Dow Industrial Average closed off 77.79 points at 13,792.47. The NASDAQ Composite lost just a fraction, .73 at 2816.71, while the Standard & Poor`s 500 Index fell 9.96 ending at 1531.02. Over in the bond market, the 10-year note ended unchanged at 102 28/32, leaving the yield at 4.38 percent. Most active New York exchange stock, 27.3 million shares trading was Qwest Comm Intl (Q) down $1.12, big percentage loss. The company came in with third quarter earnings excluding a big tax benefit, $0.14 a share and that was a penny below the Street estimate. The company also disappointed investors by putting off a decision on paying a dividend. (C) fell $0.58.
Pfizer (PFE) a $0.06 loss.
EMC Corp (EMC) down $0.25.
Procter & Gamble (PG) was down $2.88. First quarter earnings were higher, $0.92 versus $0.79 a year ago, sales up 8 percent. But the stock down on commodity price pressures and the slowing economy, not a very happy outlook.
General Electric (GE) down $0.08.
Followed by ExxonMobil (XOM) with a loss of $2.47. Earnings due out Thursday I believe.
Ford Motor Co (F) edged up $0.03.
Co Vale do Rio (RIO), the Brazilian mining firm, down $0.70.
And then came Micron Tech (MU) with a $0.36 gain.
United States Steel (X) plunged $7.88. Third quarter earnings also plunged, $2.27 versus $3.42 a year ago. That's despite a 6 percent rise in sales and the company predicting a lower fourth quarter.
Another metals company, Commercial Metals Co (CMC) down $4.25. Fourth quarter earnings fell to $0.86 from $1.04 last year. These two earnings reports had the whole metals sector under pressure.
Let's have a look at some of the biggies. AK Steel Holding (AKS), Allegheny Tech (ATI), Cleveland Cliffs (CLF) and Nucor (NUE) all substantial losses on the day.
Wellcare Health Plans (WCG), speaking of substantial losses, another loss of $6.58. As we know, Federal and state agents are probing the company's Medicaid activity. Three lawsuits have been filed so far and it's hard to believe, but that stock a week ago today closed at $122.27, over $100 loss in one week.
Agco (AG), the farm equipment maker, up $4.81. Third quarter earnings excluding one-time items, $0.77 and that was $0.47 better than the Street was estimating. And the company boosted its full year earnings guidance to boot.
Corn Products Intl (CPO) down $6.24. Third quarter earnings were higher, $0.66 versus $0.49 last year, but that was a penny below the Street estimate and the company cited the higher cost of corn.
Goodyear Tire (GT) up $2.05. Third quarter earnings of $0.67 versus a loss of $0.47 last year. Revenues rose 3 percent over last year.
Bradley Pharmaceuticals (BDY) doing well, up $3.66. Nycomed U.S. will acquire this company for $20 a share in cash.
And the postal machine company Pitney Bowes (PB) plunging $7.06. Third quarter earnings fell to $0.58 from $0.64 a year ago and that was below even the company's guidance of $0.68 to $0.72 a share.
NASDAQ's most active, Apple (AAPL) up $1.91. The company had said since last Friday, it's already sold two million copies of its new operating system called Leopard.
Google (GOOG) up $15.54. "Wall Street Journal" reported Verizon is in talks with the company to be the first carrier to use Google software on its phones.
Microsoft (MSFT) a $1 gain.
Baidu.com (BIDU) up $5.50.
Research in Motion (RIMM) $0.86 drop.
Yahoo! (YHOO) down $0.96.
Cisco Systems (CSCO) a $0.20 gainer there.
Dryships (DRYS) down $22.97 on talks that bulk shipping rates might be lowered.
Intel (INTC) a penny gain.
And then Dell (DELL) up $0.33, tenth in volume.
Genoptix (GNDX), this is a new issue today, offers lab services to health clinics for diagnosing things like cancer. Five million shares offered at $17, opened at $25, the high of the day, $27.30, backed off a little, bit a strong debut for that company.
Then Smith & Wesson Holding (SWHC), this is the firearms firm, cut its 2008 earnings outlook to $0.53 a share in earnings. That's $0.10 below its previous guidance.
And those are the stocks in the news tonight.
