NBR Complete Transcripts: 11-09-2007
Friday, November 09, 2007Wachovia Adds To Wall Street's Weak Week
SUSIE GHARIB: Stocks on Wall Street tumbled again today on more troubling credit woes - on more troubling credit news from one of the nation's largest banks. This time it was Wachovia. The Dow Industrials dropped 223 points, the NASDAQ fell 68, after the Charlotte-based bank said it expects to take a $1.1 billion pre-tax write-off in the fourth quarter on losses related to its sub-prime debt holdings. Also today, evidence that the sub-prime turmoil is spreading to the credit card industry. Capital One Financial said its loan charge-offs and delinquencies posted a significant increase in October. But things are much more upbeat in the commodities markets. Prices in nearly every raw material group from precious metals to agricultural products to energy are soaring. As Erika Miller explains, analysts expect this bullish trend to continue.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Commodities have been one of the few safe havens from financial market turmoil this year. Precious metals, oil, base metals and agricultural products have all rallied sharply. To give you an idea, gold is at its highest level since 1980. Oil, tin and wheat are also near or at record highs. Many commodity investors are seeking shelter from weakness in the U.S. dollar, because unlike paper securities, raw materials have intrinsic value. As S&P metals analyst Leo Larkin points out, that's especially true of gold.
LEO LARKIN, METALS ANALYST, STANDARD & POOR'S: Gold is still regarded as money. Gold is still kept as part of central bank reserves. It's an alternate currency. And since the United States dollar is de-facto the currency of the world, to the extent that it declines, gold becomes more attractive.
MILLER: HSBC commodities analyst James Steel says strong demand from emerging markets like China is also pushing up prices.
JAMES STEEL, CHIEF COMMODITIES ANALYST, HSBC: You have a growth differentiation between the United States and the emerging world. And if you think the emerging world is going to continue to grow, then you can assume commodities will be well-bid.
MILLER: The bull market for many commodities started in the spring of 2001. The rally picked up steam this summer as investors correctly anticipated that the Federal Reserve would start cutting interest rates. Lower rates and a weak dollar are two factors that typically push up inflation and commodities are traditionally considered hedges against it. Some analysts say it's not too late to get in.
STEEL: I think it's important to understand that we're already at very, very high prices historically. And commodities could actually come down. They could correct substantially and we could still be in a bull market.
MILLER: Analysts see two risks that could cause the commodities rally to fizzle. One would be a global economic slowdown. The other would be a sign the Federal Reserve could start raising interest rates. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
The Tax Relief Plan Doesn't Add Up For Everyone.
PAUL KANGAS: House lawmakers today passed the temporary tax relief act of 2007. It's a bill that would keep millions of middle-income Americans out of the grasp of the alternative minimum tax, while sharply raising taxes on private equity and hedge fund managers. But as Stephanie Dhue reports, the tax relief plan faces big hurdles. STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The bill generated heated debate along party lines. House Speaker Nancy Pelosi hailed the measure as a return to fiscal responsibility.
REP. NANCY PELOSI, HOUSE SPEAKER: Today, we see a change. Tax cuts to the wealthy under the Bush administration and a Republican Congress paid for by the middle class. Today we reverse that. Tax cuts for the middle class paid for by the wealthiest people in our country.
DHUE: House Republican leader John Boehner calls it nothing more than a tax increase.
REP. JOHN BOEHNER, MINORITY LEADER: It's a temporary tax patch to prevent a tax increase from going into effect for one year, paid for by a permanent tax increase.
DHUE: The bill would make sure no additional taxpayers are hit with the alternative minimum tax for 2007. It would also raise nearly $50 billion by changing the tax treatment for hedge fund and private equity money managers. Instead of paying the capital gains of 15 percent, they would pay the ordinary income tax rate of 35 percent. Despite the vote today and widespread agreement to patch the AMT, it is unlikely this bill will become law. The president has threatened a veto and the Senate has no plans to take it up. This House battle is just a warm-up for the tax debate that will take place on the 2008 campaign trail. Today, economic advisors of the major presidential candidates debated tax policy before a group of business economists. Senator John McCain's advisor, Douglas Holtz Eakin, says tax policy begins with spending.
DOUGLAS HOLTZ EAKIN, MCCAIN ADVISOR: Because once you spend the money, you're going to have to pay for it one way or another. So the key for the next president is to be able to control government spending, to have it directed toward genuine national priorities.
DHUE: Senator Hillary Clinton's advisor, Gene Sperling, says her tax plan would keep taxes steady for most Americans.
GENE SPERLING, CLINTON ADVISOR: All she is doing is limiting the tax cut, limiting the degree of the tax cut for families making over $250,000. That simply returns things back to the 1990s.
DHUE: Political advisors agree it will take leadership and bipartisanship to pass any major tax reform. Without it, the debate is as predictable as death and, well, you know. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Patent Provisions ThreatenTo Send Inventors Back To The Drawing Board
SUSIE GHARIB: There's legislation in the works on Capitol Hill to modernize the U.S. patent system. Congress hasn't updated it in more than 50 years. The House passed its version of the bill in September and the Senate is expected to vote on the measure by the end of the year. But as Dana Greenspon reports, independent inventors worry the new law could work against them.
DANA GREENSPON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Frampton Ellis has his hand in what a lot of people put on their feet. More than a decade ago, he set out to invent a curved shoe sole that minimizes ankle sprains.
FRAMPTON ELLIS, INDEPENDENT INVENTOR: This is the first professionally made prototype.
GREENSPON: One eureka moment and many hours of tinkering later, he scored a patent and licensed his invention to Adidas, giving him a foothold in the shoe industry. So everything here, everything we're looking at in this case uses the technology that you patented?
ELLIS: Yeah, I think so. And they made many more shoes than this, actually.
GREENSPON: But he says the current patent reform bills moving through Congress would create hurdles for inventors like him.
ELLIS: If the patent system was changed as it's currently proposed, it would basically terminate the careers of most independent inventors. It would force them out on a cost basis.
GREENSPON: In particular, freelance inventors worry about a provision that would make it easier for other companies to challenge a patent's validity repeatedly over the course of the patent's life. That would delay an inventor's ability to recoup costs and it could create an additional financial burden. Another provision would strictly limit the amount of money an inventor could be awarded in a patent infringement case. Companies like Microsoft and HP support the legislation. HP's Michael Holston says the changes aren't meant to push out the little guy, but rather to dry up the flood of litigation companies like his have faced for years.
MICHAEL HOLSTON, EVP, GENERAL COUNSEL, HP: In the last 14 years the number of patent lawsuits that are filed in the United States has tripled. And we and most large companies are under attack and expending tremendous amounts of money defending these cases.
GREENSPON: HP spends about $50 million a year defending patent suits. Many are brought by so-called patent trolls, people who buy up patents from bankrupt businesses, then bring infringement cases against big companies. But patent attorney Robert Sterne says the legislation may push the system too far in the other direction. He says those infringement issues have already been dealt with elsewhere.
ROBERT STERNE, PARTNER, STERNE, KESSLER, GOLDSTEIN & FOX: My concern is that with all the changes at the supreme court and at the patent office that the patent system could be severely damaged in terms of its effectiveness for the little person, the innovator.
GREENSPON: Even independent inventors like Ellis admit the patent system is flawed and needs tweaking. But he says the current legislation could prevent the next Google or Apple from getting on its feet. Dana Greenspon, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-Mark Leibovit of vrtrader.com.
PAUL KANGAS: My guest market monitor this week is Mark Leibovit, chief market strategist for vrtrader.com and welcome back to NIGHTLY BUSINESS REPORT, Mark.
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Glad to be here, Paul.
KANGAS: To say it was a rough and tumble week on Wall Street would be an understatement. Now a growing number of analysts are saying the sell- off is a precursor to a major bear market. Do you see it that way?
LEIBOVIT: No, Paul, I do not. The models that we created for the market this year has been pretty accurate. We'll see that in a few moments. But basically the pullback we're seeing here is expected, a little choppiness here in November. A lot of this news related worried about the financial sector. There has been some negative volume as I call negative volume reversals the last couple of days. But it looks to me like this is a retest process of the October lows, maybe going double bottoming back there. But I think overall, the indicators that we're using are cyclical indicators as well, saying this market's going higher and we should see a strong year-end rally and I think a move into a new high next year.
KANGAS: Let's have a look at your forecast model for this year. And as we see, it's followed the actual Dow Industrial Average quite closely. That's a pretty good model and it does show a big rally at the end of the year.
LEIBOVIT: It's unbelievable. It scares me sometimes, look for a March low, look for a top in the summer, look for a sharp pullback, right into August 15th, a bounce into early October and now a little bit of a pullback here into November and then strong year-end. Another thing just to point out, years that end in eight, next year 2008, tend to be strong years in the market. It's also the last year of a presidential cycle which also tends to be positive. So I think the odds are pointing that yes, we're having a correction now. It's looking nasty but we're going higher.
KANGAS: Do you think that the dollar has bottomed and oil is near a topping out? That combination, would that help?
LEIBOVIT: No, I don't think the dollar has bottomed. In fact a down dollar is bullish. The stock market loves a down dollar. Earnings of a good part of the Dow industrial companies comes from offshore business, which is one of the reasons the Dow has done as well as it has. So down dollar is good. It's also good for precious metals which I'm still overall positive on though I can see a little bit of a retracement here after the big push higher. But basically, Paul, the U.S. economy is strong. Yes, the financial sector is weak. Interest rates are coming down here though, they are going up worldwide. As we just mentioned, the dollar is weak which is good for the stock market, a lot of positives out there.
KANGAS: All right, now, on your last visit with us in late May, you gave our viewers six "buy" recommendations. Let's see how they fared since then. Morgan Stanley China Share Fund (CAF) up 42.3 percent. That's a marvelous gain there. Are you still with that fund?
LEIBOVIT: I would take profits here. That's been a huge gain so I would (INAUDIBLE).
KANGAS: OK, how about Yum Brands (YUM)? They've had a two for one split since you recommended it, up 12.3 percent. Still with it?
LEIBOVIT: I still like the stock, yes, but as a trader, after a huge gain like that, these are all profit points that I think you might want to look to lighten up a little bit, certainly after a big run like that.
KANGAS: OK, let's have a look at two of your other picks from last time, China Petrochemical Fund (GNP) up 33.3 percent, very good, and Power Shares Water Source (PHO) up 4.8 percent. Are you still holding those?
LEIBOVIT: I like the Power Shares. That's the water play. That's a good long-term hold. The others I would take profits.
KANGAS: OK, you got two more that you recommended back then, not a loser yet. The Diamonds (DIA) of all the things to be down 3.5 percent. But I think we'll get to that in a moment, but I think you still like them. But Apple (AAPL) has been a wonderful stock and we only have a minute left. Do you have some new recommendations?
LEIBOVIT: Well, as far as the Dow Diamonds, I predicted a 14,100 on my last visit and we got there. But I still like the Diamonds. I'm re- recommending them at this time. (INAUDIBLE) for a move to 15,800 in the Dow which is my next big target, sometime I would say in the first half of next year, maybe sooner. The next one will be the Spiders (SPY), which represent the S&P 500. My target there is 1675 in the S&P, which is about 166 in the Spider itself. I will also buy the quadruple Qs, which is a play on NASDAQ. NASDAQ still going higher. I could see 60 on the Qs. And finally, a uranium play. As you know, I have been a big lover of uranium. And FRG I think is a good token play for a portfolio. The stock's around $12. I can see it around $17.
KANGAS: Mark, do you personally own any of the securities mentioned or have other disclosers to make?
LEIBOVIT: No, I trade and recommend these in the newsletter. I'm pretty much involved with them all the time, yes.
KANGAS: All right. Time has run out unfortunately. Thanks for being with us once again. My guest, Mark Leibovit of vrtrader.com.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened with steep losses triggered by those mortgage woes at Wachovia and the posting of a big third quarter loss by Fannie Mae. A surprisingly sharp drop in the University of Michigan's consumer sentiment index added to the selling. At 11:00 a.m. the Dow was off 180 points and the NASDAQ down 57. The market remained sharply lower as oil futures edged higher and the tech sector was undermined by a disappointing outlook from Qualcomm. The Dow Industrial Average closed off 223.55 points at 13,042.74. This week it rose just once and lost 552.36 points overall. The NASDAQ Composite tumbled 68.06 points to 2627.94 today. It also rose only once this week and fell 182.44 points overall. The Standard & Poor's 500 Index fell 21.07 points ending at 1453.70 today and it lost 55.95 points for the week. Over in the bond market, the 10- year note rose 20/32 to par and 11/32, putting the yield at 4.21 percent.
For the seventh consecutive trading session, Citigroup (C) topped the active list with a gain of $0.20, the first gain that it's had in those seven sessions, traded almost 50 million shares today.
Then EMC Corp (EMC) down $0.76.
General Electric (GE) $0.64 loss.
Pfizer (PFE) dropped $0.28.
Bank of America (BAC) actually up a bit today, $0.48.
And Wells Fargo & Co (WFC) managed an $0.18 gain.
JPMorgan Chase (JPM) down $0.30.
Then a new issue, China Nepstar (NPO), this is the largest drug store chain in China, 20.6 million American depository shares offered at $16.20. That's where it opened, the high of the day $20.11, backed off a little from the high, but still a successful debut.
Ford Motor Co (F) down $0.28.
And then American Intl Group (AIG) with a gain of $1.06.
General Motors (GM) topped the Dow percentage losers that trade on the big board this week with that loss of 15.4 percent.
Followed by IBM (IBM), Citigroup (C), Home Depot (HD) and Hewlett- Packard (HPQ). Those are the biggest percentage losers that trade on the big board.
Fannie Mae (FNM) down $0.80 on the close, but it traded as low as $44.54 this morning after reporting a third quarter loss of $1.56 a share, bigger than last year's $0.79 per share loss. Standard & Poor's downgraded the stock from "buy" to "hold" today.
Interestingly, some of the bond insurers showing Ambac Financial (ABK), Assured Guaranty (AGO) and MBIA (MBI) all posting decent gains. Assured Guaranty was as high as $21.13 before it backed off a little.
Dolby Labs (DLB), this is the audio equipment firm up $3.82 on sharply higher fourth quarter earnings, $0.39, up from $0.22 a year ago. Revenues jumped 26 percent.
Estee Lauder Cos (EL) up $3.17. The company's boosting its annual dividend from $0.50 to $0.55. It's adding 20 million shares to its stock buyback plan and CEO William Lauder said he plans to step down in two years. Today, Bear Stearns brokerage upgraded the stock from "peer perform" to "out perform."
Arbor Realty (ABR) up $1.07. Big third quarter earnings $1.02, up from $0.63 a year ago. Revenues shot up 69 percent. Standard & Poor's repeated a "buy" recommendation.
MetroPCS Communications (PCS) tumbling $4.70. That's in sympathy with Leap Wireless International's subscriber forecast. We'll get to that. PCS earnings are due next Wednesday and incidentally, that company did call off its merger with Leap Wireless. We'll get to that also.
World Fuel Services (INT) down $7.65. Third quarter earnings fell to $0.51 from $0.59 a year ago, $0.09 below the Street estimate, said higher costs offset a 30 percent jump in revenues.
Apple (AAPL) topped the NASDAQ's most active, down $10.10. The profit taking hitting some of these high flying tech, high tech stocks.
Google (GOOG) down almost $30.
Research in Motion (RIMM) $11.26 loss there.
Microsoft (MSFT) fell $1.01.
Cisco Systems (CSCO) down $1.05. Then we get some more losses in the high tech sector, Baidu.com (BIDU) off nearly $15.
Qualcomm (QCOM) down $1.66. Fourth quarter earnings out today, $0.67 versus $0.36 a year ago, but Qualcomm said fiscal 2008 results will be 7 percent below Wall Street projections.
Intel (INTC) $0.78 drop there.
Oracle (ORCL) fell $0.99.
And First Solar (FSLR), which was up about $27 yesterday, backing off $17.58.
Priceline.com (PCLN), look at that gain, $19.41. Third quarter earnings jumped to $2.27 from $1.05 a year ago, almost $1 more than the Wall Street estimate.
Leap Wireless Intl (LEAP) down $21.38 after the company warned its subscriber growth rate is slowing and it's going to have to restate some financials as far back as the year 2004 because of accounting errors.
And those are the stocks in the news tonight.
