NBR Complete Transcripts: 10-31-2007
Wednesday, October 31, 2007The Federal Reserve Slashes Interest Rates
SUSIE GHARIB: A Halloween treat from the Federal Reserve today as it cut interest rates. On Wall Street, stocks rallied after the Fed lowered the Federal funds target rate by a quarter of a percentage point. That key rate, which affects mortgages and consumer loans, is now 4.5 percent. The discount rate was also cut by a quarter to 5 percent. As Scott Gurvey reports, the big question now is, what's the Fed's next move?
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Fed today delivered exactly what Wall Street had ordered. It was the second rate cut in as many meetings and economist Steve Gallagher of Societe Generale says it had been widely anticipated.
STEPHEN GALLAGHER, CHIEF ECONOMIST, SOCIETE GENERALE: Given how fragile the financial markets are, the Fed was in a position where they couldn't disappoint those expectations. They really were sort of forced to follow through and give us another quarter of a point rate cut.
GURVEY: Wall Street has demanded lower rates to ease pressure on financial institutions struggling to cope with the failure of sub-prime mortgage obligations. In fact, initial market reaction was negative, mainly because many were hoping the rate cut would be larger. Traders were also worried about the Fed's statement, which warned quote, recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. The committee judges that after this action, the upside risks to inflation roughly balance the downside risks to growth.
Today's vote to cut rates was 9-1, Kansas City Fed President Thomas Hoenig dissenting. He would have left rates unchanged. Some economists agree, concerned that helping the financial sector may hurt the overall economy if lower rates cause the economy to overheat. Strong growth was reported today in spite of the housing downturn. GDP for the third quarter rose a better than expected 3.9 percent, showing no evidence of a consumer pull-back. And a private payroll report from ADP showed a much stronger labor market than expected. Stuart Hoffman of PNC Financial says he's not betting on another cut.
STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES GROUP: The statement is still concerned about inflation and, with one dissent from one of the presidents, I think says to the market, we're not leaning towards cutting the rate again as of now unless the data gets a lot weaker between now and year end.
GURVEY: Today's Fed action was seen by some as too little to forestall a housing-induced recession and by others as an ill-conceived bailout of Wall Street at Main Street's expense. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Analysis of the Fed's Rate Cut with David Jones of DMJ Advisors & Mike Holland of Holland and Company
SUSIE GHARIB: More analysis now on that Fed decision to cut interest rates today. Joining us is David Jones, a veteran Fed watcher and chairman of DMJ Advisors and . Good evening, gentlemen.
MIKE HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Good evening, Susie.
DAVID JONES, PRESIDENT, DMJ ADVISORS: Good evening.
GHARIB: David, let me begin with you. Was the Fed decision to cut rates by a quarter point the right thing to do?
JONES: It was the right thing to do, Susie. Remember back in September, we had a half a point cut. We had another quarter point cut, both aimed at cushioning the economy from that credit crunch which had increased the cost of credit to most everyone. So the Fed is doing exactly the right thing. I think they may pause for a while here, but those two rate moves were exactly what the doctor ordered.
GHARIB: Mike, do you agree with that?
HOLLAND: Yes, Susie, I'm actually going to surprise you. For someone who has not been uncritical of the Fed, I think as David said, they got it exactly right, not only their actions, but also the commentary that came with it which was that they remain wary of inflation while watching that the economy doesn't weaken too much and they are prepared to act in either instance. And I think that's exactly why we had such a strong ending to the market today as Paul Kangas just said.
GHARIB: So, David, is economy out of the woods because of the Fed actions over the last couple of months and is the financial system back to normal?
JONES: The financial system is not back to normal. It's doing a little better than it was in the midst of that credit crisis, but it's not completely out of the woods. I think what the Fed has done though, has given us an insurance policy against a recession. I do see slower growth in the fourth quarter of this year, maybe even slower growth than that in the first quarter of next, but we had a great third quarter number as was just talked about earlier in the show. So I think in general this economy is going to avoid a recession and we're going to give credit to the Fed for that.
GHARIB: Mike, you mentioned about Wall Street and the market. Yes, stocks did rally, but they initially sold off and there appeared like there was some disappointment with what the Fed's action was. What is the thinking on Wall Street right now?
HOLLAND: I think there was a small cadre of people who wanted an even larger decrease, a 50-basis-point decrease, one half of 1 percent. But that didn't make any sense. I think as much attributed to the decline was people who had been anticipating this, buy on the rumors, sell on the news, is the old Wall Street cliche. But I think one of the things that happened today with the commentary was that the Fed kept the door open to a further cut and I think a the lot of people would expect if not in December then the first part of next year, which gave again, some positive momentum to the stock market.
GHARIB: Let's talk a little bit about the future, David, by reading the statements on the Fed and its concerns about inflation. A lot of Fed watchers are saying that they don't expect the Federal Reserve to cut interest rates any more for a while. What is your thinking?
JONES: I think that's exactly right. I do not expect another cut at the December 11 policy meeting. That's the last one this year. I think the Fed will wait it out, see how the economy looks, see how much the markets are recovering from that credit seizure that they had. I do think, however, that the Fed will have to give us perhaps one more quarter-point cut. Maybe it will come at the first meeting next year, the January 29-30 meeting. Again, the Fed is playing this exactly right. The balance between downside risk to the economy, upside risk to inflation are about equal and that's exactly the way the Fed should look at it.
GHARIB: Mike, you said that Wall Street wanted to have a bigger cut. Yes, Wall Street loved a rate cut, but easy money is what got us into this mess. I mean, how can easy money be the cure?
JONES: Well, I don't think the majority of people on Wall Street were looking for something larger. As I said a small cadre of people probably were disappointed there wasn't a half a basis point, a half a percentage point. I think, however, Susie, that overheating or -- if it had been more or less than the 25 basis points, the majority of people who trade on Wall Street would have been surprised and disappointed. There would have been - - I think people have been concerned if there had been more, a lot of people and certainly if there had been no action, if they had done nothing, stood pat, there would be a huge decline there. So I think they did -- to use David's word, they did it exactly right. I think, however, there's more to go. I think David underestimates what people might be thinking the Fed is going to be doing. More than one quarter of 1 percentage point right now.
GHARIB: We're going to have to leave it there, gentlemen. Thank you so much for coming on the program. I appreciate it.
HOLLAND: Thank you, Susie.
GHARIB: My guests tonight, David Jones, chairman of DMJ Advisors and Mike Holland of Holland and Company.
"Energy Options: Nuclear " - Nuclear Power and Waste (Part 3)
SUSIE GHARIB: Some of the nation's biggest utilities are gearing up for what could be a nuclear renaissance, but many companies say the U.S. won't be able to meet its growing energy needs without new reactors. But in part three of our series, "Energy Options: Nuclear," Diane Eastabrook reports that renaissance may not become reality if the problem of nuclear waste isn't solved.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: For more than four decades, nuclear power plants have produced electricity for U.S. homes and businesses. They have also produced something else during that time: 50,000 metric tons of radioactive nuclear waste. The utility companies store the waste at their plants either in spent fuel pools or in dry casks. But Exelon Corporation CEO John Rowe says they can't keep doing that. He says the utilities need a safe place to store hazardous waste over the long term.
JOHN ROWE, CHAIRMAN & CEO, EXELON CORP.: I think the waste disposal issue is the single biggest hang-up to a nuclear renaissance.
EASTABROOK: A Federal repository is one possible answer to the U.S. nuclear waste issue. The Department of Energy has identified a site in Nevada's Yucca Mountains for a repository and plans to file a license for it next summer. But U.S. Energy Secretary Samuel Bodman says it could be another decade or more before the site begins accepting waste.
SAMUEL BODMAN, SECRETARY, U.S. DEPARTMENT OF ENERGY: I think the odds are that it will probably be somewhat longer than that just because there is no doubt that we will have litigation. We will have other challenges as we go along.
EASTABROOK: One challenge could come from Nevada's U.S. Senator Harry Reid.
SEN. HARRY REID D-NEVADA: You can't haul the most poisonous substance known to man across this country. We're not going to wake up one morning and suddenly this stuff is in Yucca Mountain.
EASTABROOK: Recycling nuclear waste is another possible answer. Only a fraction of the uranium in a fuel rod is consumed when it's used to create power in a nuclear reactor. Argonne National Laboratory near Chicago is developing technology to recycle unused uranium. Using a containment area called a hot cell, researchers are trying to recapture used uranium and other elements created during nuclear fission. Those materials could be recycled into fuel for reactors. While other countries already recycle nuclear fuel, they do it in a way that separates plutonium from other elements. The U.S. fears that presents a security risk because plutonium in the wrong hands could be turned into a nuclear weapon. Argonne says its technology would minimize that risk by marrying plutonium with another element. Deputy associate laboratory director Mark Peters says so far Argonne's technology has worked, but on a very small scale.
MARK PETERS, DEPUTY ASSOC. LAB DIR., ARGONNE NATIONAL LABORATORY: We are a decade to a couple of decades away from being able to take the lab- scale demonstrations that we've done and scaling them up to be able to build a commercial plant.
EASTABROOK: But some scientists aren't convinced Argonne's technology is safe. Kennette Benedict, executive director of the public interest group Bulletin of the Atomic Scientists, thinks plutonium with another element could be as deadly as plutonium by itself.
KENNETTE BENEDICT, EXECUTIVE DIR., BULLETIN OF THE ATOMIC SCIENTISTS: The other question is, what other kinds of explosive devices might you be able to make with plutonium that even has these other materials? And some people suggest that some of them are very dangerous, indeed.
EASTABROOK: Still, Exelon's Rowe thinks nuclear power could be the best way to meet the nation's growing energy needs, but he says his company won't build more reactors until the waste issue is resolved.
ROWE: We are going to need not only a repository like Yucca Mountain. We are going to need some sort of reprocessing-based nuclear industry so that we cut the volumes of nuclear waste by a factor of 10 or something like that.
EASTABROOK: Many experts think the U.S. will open a nuclear waste repository over the next 20 years, but they aren't sure that it will come quickly enough or be large enough to handle the spent fuel from any new reactors. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
GHARIB: Tomorrow, as we wrap up our series "Energy Options: Nuclear," we take on an issue threatening to short circuit a nuclear energy revival: an aging workforce.
"Street Critique" -Hilary Kramer, Market Strategist & Personal Finance Editor at AOL
PAUL KANGAS: With oil prices over $94 a barrel, tonight's "Street Critique" guest says now is the time to start looking at alternative energy stocks. She's Hilary Kramer, market strategist and personal finance editor at AOL. And welcome back to NBR, Hilary.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL: Thank you, Paul.
KANGAS: Before we get to alternate energy, what did you make of today's rate cut?
KRAMER: The rate cut today, that was just noise for all of us. The market caught a bid and has this bull ending because it was the last day of the month and so (INAUDIBLE) a good month and as well for mutual funds, there was the end of their year, so everyone wanted to see Google go above $700 a share.
KANGAS: That it did. We spent the last two weeks looking at energy options like coal and nuclear power. As a market strategist, you specialized in another energy option, alternative and renewable energy. Why is that?
KRAMER: Because alternative energy has become mainstream. It has become accepted worldwide, globally. There's legislation that's helping it become another option to traditional fossil fuel.
KANGAS: Let's get right to your stock picks. Power Secure International, what do they do and why would you be a buyer here?
KRAMER: The ticker symbol is POWR. For everyone who is a value shopper, this is a value stock. What Power Secure does is they help with the delivery of electricity, so it's done less expensively, more efficiently, and therefore, it's alternative energy because it makes traditional energy cheaper, more efficient and therefore, we use less traditional fuel.
KANGAS: Understood. How about another selection?
KRAMER: OK, LSB Industries (LXU). LXU is a $26 stock, $27 at the end of the day today. I see LXU easily going to $40 because they make the geothermal pump. And geothermal is going to see a lot of capital infusion. It's a very important method of alternative energy and so we always want to buy the equipment that helps with the alternative energy and that's LXU.
KANGAS: And your next pick, Applied Materials (AMAT) on the NASDAQ market. How is AMAT an alternative energy play? I always thought it was a semiconductor play.
KRAMER: Applied Materials is now totally a solar play. And Applied Materials, AMAT at $19 it's a bargain. It's an absolutely cheap stock, easily should be $25 to $30. What Applied Materials does -- and they receive $600 million for doing it this past year -- is they make the equipment that the solar companies need to cut their silicon which becomes the thin film solar panels. So AMAT is critical in the chain and they've just beaten every number, even their own internal estimates. So AMAT us really one of the cheapest stocks out there today.
KANGAS: And finally, we just have about 45 seconds left, your last stock is a Swiss issue, Meyer Burger (MBTN.SW) technology. Why do you like it and is it easy for an American investor to buy it?
KRAMER: Today it's a lot easier to buy a stock internationally because most of the brokers allow for that and it's easy enough to pay the foreign issue (ph). The reason I like Meyer Burger which actually manufactures the saws and the cutting material, the precision cutting for the silicon, it's a very, very important company and I see upside there at least 50 percent. It could be going for $500 U.S. Goldman Sachs sees 82 percent upside, so for me, Meyer Burger is my top choice.
KANGAS: Hilary, do you own any of the stocks mentioned or are you short any of them?
KRAMER: Not short. I'm long all of these and these are all stocks that I'm putting my own money into.
KANGAS: OK, it's great to see you again, Hilary.
KRAMER: Thank you, Paul.
KANGAS: My guest, Hilary Kramer, author of "Ahead of the Curve" and personal finance editor at AOL.
"Last Word"-The Halloween Pay Off
SUSIE GHARIB: And finally tonight, it's Halloween and the retail industry is enjoying the treats as consumers dish out big bucks for tricks. According to the National Retail Federation, the average household spends $20 on Halloween candy. That's on top of the $1 billion that Americans spend on decorations. When you factor in pumpkins, costumes and other fright night accessories, it adds up to $5 billion. The most popular costumes for children will be devils and pumpkins. Paul, what's the best costume you've seen today?
KANGAS: I could tell you the scariest is when I looked at myself in the mirror first thing this morning.
GHARIB: I bet you were talking bulls and bears.
KANGAS: No.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street moved steadily higher this morning as optimism that there would be a Fed rate cut overshadowed that surge in oil futures. At midday, the Dow posted a 75 point gain and the NASDAQ was up 24 points. When the rate cut came at 2:15, investors quickly wiped out the Dow's 90-point gain on the Fed's renewed concern about inflation. In the final hour, however, aggressive buyers returned and the market ended on a very positive note. The Dow Industrial Average closed up 137.54 points at 13,930.01. The NASDAQ Composite was up 42.41 ending at 2859.12. Standard & Poor's 500 rose 18.36 to 1549.38. Over in the bond market, the 10-year note fell 24/32 to 102 4/32, putting the yield at 4.48 percent.
Most active New York exchange issue on 23.6 million shares was Citigroup (C) down $0.21. Morgan Stanley downgraded it from "over weight" to "under weight."
Qwest Communications (Q) rebounded $0.12 from $1.12 lost yesterday when its third quarter earnings of $0.14 came in a penny below the Street estimate. And today, JPMorgan downgraded Qwest from "over weight" to "neutral."
General Electric (GE) in there with a $0.68 gain.
ExxonMobil (XOM), whose earnings are due out tomorrow, up $0.85.
Bank of America (BAC) a $0.29 gain there.
Pfizer (PFE) was up $0.16.
Ford Motor Co (F) edged $0.07 higher.
Newmont Mining (NEM), the big gold stock, up $4.42 to a 52-week high. Third quarter earnings doubled for Newmont, $0.88 versus $0.44 a year ago. Revenues jumped 49 percent.
AT&T (T) rose $0.38.
And then EMC Corp (EMC) with a $0.27 gain, was tenth in volume.
Mastercard (MA) moving up $32.40, traded as high as $194.78 after reporting third quarter earnings of $2.31, way up from $1.42 a year ago. Revenues jumped 20 percent. The company's going to buy back up to $750 million of its own stock.
McKesson (MCK), the pharmaceutical products distributor, up $7.55. Second quarter operating earnings rose to $0.82 from $0.66 a year ago. Revenues up 9.2 percent. Citigroup upgraded it from "hold" to a "buy" recommendation.
Chicago Bridge & Iron (CBI) up $5.46. Third quarter earnings, $0.61, almost double last year's $0.33. Revenues jumped 36 percent. Standard & Poor's repeated a "buy" on that stock.
Fair Isaac (FIC), the data management services firm, fourth quarter earnings nicely higher, $0.52 versus $0.35 a year ago. Citigroup upgraded it from "hold" to a "buy."
And then Chemed (CHE) plunging $7.55. This company owns Roto Rooter among other things. Third quarter earnings excluding one time items, $0.69 and that was $0.09 below the Wall Street estimate.
Omnicare (OCR) fell $5.61. Third quarter earnings $0.35, down from $0.43 a year ago. Revenues fell 3.6 percent. Standard & Poor's repeated a "sell" recommendation.
Monaco Coach (MNC), the RV maker, down $3.29. Its third quarter had earnings of $0.12 versus a loss of $0.24 last year, but the company said fourth quarter earnings will only be $0.02 to $0.04. The Street estimate was for $0.10 in earnings.
Microsoft (MSFT) topped the active list on NASDAQ, moving up $1.24. That's a new yearly high.
Apple (AAPL) up $2.95.
Google (GOOG), first time ever, above $700 by that gain of $12.23.
And then Garmin Ltd (GRMN) plunging $13.08. The company made a $3.3 billion buyout bid for Dutch digital map maker Tele Atlas and that bid tops Tom Tom's buyout bid by about 15 percent.
Baidu.com (BIDU) moving up $11.49.
Research in Motion (RIMM) up $3.31.
Cisco Systems (CSCO) $0.45 gain.
Intel (INTC) rose $0.63.
Dell (DELL) was up $0.80. Late yesterday, Dell restated four years of financial statements so that makes the company up to date with the SEC.
And Dryships (DRYS) rebounding $9.86 after a sharp loss yesterday.
And finally tonight, a new issue, Chinese insurance firm, CNinsure ADR (CISG) soaring $9.29. The company offering 11.8 million American depository shares at $16. The stock opened at $26, and hit a high of $28.74.
