NBR Complete Transcripts: 11-12-2007
Monday, November 12, 2007Could The Weak U.S. Economy Threaten Global Growth?
SUSIE GHARIB: The selling continued on Wall Street today, pushing the Dow below the 13,000 level for the first time since mid-August. Investor pessimism dominated trading on fresh concerns about the ripple effect of the credit crisis, high oil prices and the weak dollar. On top of that, worries are escalating about the slowing U.S. economy. As Suzanne Pratt reports, analysts fear that a weak U.S. economy could threaten global growth.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It should come as no surprise that the U.S. economy is in the midst of a sharp slowdown. The housing recession, coupled with fallout from the credit crunch, have caused many prognosticators to slash growth forecasts for the current quarter, as well as 2008. And now it appears that America's problems could cause global economic growth to slow next year, too. Bear Stearns chief economist David Malpass explains that when the U.S. economy hits a speed bump, the rest of the world is in for a rough ride.
DAVID MALPASS, CHIEF ECONOMIST, BEAR STEARNS: The U.S. is still the dominant, huge economy in the world, much bigger than China or India and as big as all of Europe combined. And so as we slow down, that does have impact on other countries, in terms of their exports and in terms of the new investment that people want to make in those countries as well.
PRATT: The International Monetary Fund's world economic outlook, which was released in October, predicts world growth will slow to 4.8 percent in 2008, from an estimated 5.2 percent this year and 5.4 percent in 2006. But some experts believe the slowdown in global growth could deepen next year, as it looks like financial market strains might continue for many months. Economists predict Europe and the UK will feel the effects first, while Asia may take a little longer.
MALPASS: The mechanism is that U.S. orders, which have already gone out for let's say the Christmas season, will either get canceled or they'll back up in inventories in the U.S. and then Asia will begin to feel it both from the export side and from the new investment side.
PRATT: Other experts are less concerned about what America's economic problems are doing to economies worldwide. They say the major emerging markets of China and India have become engines of world growth. Even with the sub-prime fallout, the IMF still puts 2008 growth for China at 10 percent and India's at more than 8 percent, whereas growth for Europe, Japan and the U.S. is projected at about 2 percent. And economist Cary Leahey says if the global economy stalls, the U.S. could find itself in recession.
CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: If you say to yourself we have high oil prices. We have a housing recession and we have credit markets in disarray and you then add a fourth that global growth falters, then you really have a problem.
PRATT: On the other hand, the global economy is far more resilient today than it was in the past. If the U.S. economy falls into recession next year, experts say it could be a major setback for global growth, but it will not result in a global collapse. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Rising Gas & Air Fare Prices Aren't Putting The Brakes On Holiday Travel
SUSIE GHARIB: Airlines expect traffic will be up 4 percent this Thanksgiving season, the busiest travel time of the year. So far high oil prices have not reduced consumer demand to get home for mom's stuffing. But as Darren Gersh reports, travelers should be prepared for stuffed airports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you are traveling this Thanksgiving, the airlines have some advice for you: expect delays. OK, so that's not exactly a surprise, given record poor on-time performance this year. For those keeping track, one out of every four flights arrived late in September. Even so, Jim May, the aviation industry's top lobbyist, says be prepared when you arrive at the airport.
JAMES MAY, CEO, AIR TRANSPORT ASSOCIATION: If you always expect the worst, then when you don't have the worst, your frame of mind will be much more positive.
GERSH: May says big carriers are adding extra reservation agents and baggage handlers to cope with the 27 million passengers who will fly over Thanksgiving. To beat the crush, airlines are asking travelers to come to the airport early -- at least two hours for a domestic flight. And if they haven't already booked a ticket, passengers should build in extra time for connections. Why? Because airlines normally running at 80 to 85 percent of capacity expect to fill 90 percent or more of their seats in the coming week. So if air traffic snarls, airline analyst Phil Baggaley says carriers may have to choose between long waits on the tarmac and bringing planes back to the gate with little hope of rebooking passengers.
PHIL BAGGALEY, AIRLINE ANALYST, STANDARD & POOR'S: So they don't have any easy answers there. What they're hoping for is that they will be able to still maintain the flexibility to try to make the decision themselves, rather than having regulations put in place which would make the decision for them.
GERSH: Airlines blame weather and crowded air space around New York for causing most delays. But aviation analyst Richard Aboulafia says airlines are now running tighter schedules and that could result in a PR nightmare this Thanksgiving.
RICHARD ABOULAFIA, AVIATION ANALYST, TEAL GROUP: Ultimately, these guys are coming back to profitability by getting capacity out of the system -- seats, planes. So if something goes wrong, there is a cascade effect. Lots of people have to wait days for flights.
GERSH: With oil prices rising, capacity could get even tighter. The Air Transport Association says high jet fuel bills could lead airlines to retire inefficient planes and reduce the frequency of flights to some cities. That could make next Thanksgiving even more crowded. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"The Business of College Football" Part 1 - Big Time Ball
SUSIE GHARIB: The regular college football season is in its final weeks, as teams jockey for rankings and a spot in the bowl championship series. It's important to the players and to the schools because of the $6 billion generated by college football. In the first of our special four- part series, "The Business of College Football," Jeff Yastine looks at the game and the finances behind it.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: A Saturday afternoon of west Texas football, the Red Raiders of Texas Tech University versus their visiting cross-state rivals, the Aggies of Texas A&M. But as important as the game is to the more than 50,000 fans in attendance here, it's perhaps even more important to Texas Tech administrators and alumni. They've raised millions of dollars in the past decade to expand and upgrade the football stadium and to sign head coach Mike Leach, now in his eighth season. What they received in return is a series of winning seasons and post-season bowl games and a Texas-sized helping of publicity and TV exposure.
JON WHITMORE, PRESIDENT, TEXAS TECH UNIVERSITY: It gets people to know
that you exist as an institution.
YASTINE: That, the school's president, Dr. Jon Whitmore says, is the real dividend.
WHITMORE: It gets them to see that we're high quality and competitive in athletics. And hopefully, we have ads on when these major events are broadcast and they tell the academic side of the story.
YASTINE: This is an era when colleges and universities have to compete harder to attract attention, to attract students and funding. And college football, like it or not, is figuring into an ever more prominent role in helping schools like Texas Tech achieve those goals. University Chancellor Kent Hance says the benefit to the school can be measured in dollars and cents. Specifically, he notes Texas Tech's move to the high visibility big 12 conference a decade ago.
KENT HANCE, CHANCELLOR, TEXAS TECH UNIVERSITY SYSTEM: At the time that we started in the big 12, our endowment was less than $50 million. Now it's over $700 million. So it definitely helps you in fundraising. The athletic program is your front door and that's what people see.
YASTINE: But endowments are just the beginning. The revenues generated by the nation's large college football powerhouses, from television, from ticket sales and logo licensing, equal that of a mid-sized corporation. Sports business analyst Rick Horrow says the football programs are run in similar corporate fashion.
RICK HORROW, CEO, HORROW SPORTS VENTURES: It's probably one of the biggest businesses you would ever find. A coach is a COO of a major multinational corporation. The athletic director is the CEO of that corporation. You have teams right now -- Ohio State, according to the latest revenue numbers -- and they have to disclose them, by the way, because they are Department of Education numbers; this isn't just made up - - their revenue from last year was $105 million.
YASTINE: Of that $105 million, $28 million was profit for Ohio State. That same year, the 2005 season, the University of Florida earned $32 million on football; U.S.C., $10 million. But other schools playing in the top tier of competition, division one, ended up in the red. Ball State and San Diego State each lost nearly $2 million or more on football. As for Texas Tech, the school earned a $200,000 profit. Those funds are typically used to support the rest of a university's athletic department budget. According to the National Collegiate Athletic Association, most departments operate at a yearly multimillion-dollar deficit. But the profits and costs of football, inside the academic, non-profit world of a university, can be a lightning rod for controversy. William Kirwan is chancellor at the university system of Maryland, a former president of Ohio State and co- chair of the Knight commission on intercollegiate athletics.
WILLIAM KIRWAN, CO-CHAIR, KNIGHT COMMISSION ON INTERCOLLEGIATE ATHLETICS: There's increasing concern about the cost of big-time revenue sport programs such as football, the increasing professionalism that is coming into these programs and quite frankly, the distortion in values that can result from this obsessive attention to big-time college athletics.
YASTINE: Texas Tech's head coach Mike Leach sees it differently.
MIKE LEACH, HEAD FOOTBALL COACH, TEXAS TECH UNIVERSITY: Did the English department at Texas Tech make money last year? Did some of the non- revenue producing sports make money last year? Well, they may not have, but that doesn't mean that there's not a tremendous value to them because universities are to provide opportunities. But when you have something like football that does make money, you need to do what you can to cultivate that potential, because that's best for everybody.
YASTINE: Alumni contributions also play a big role in the business of college football. Cecil Preas and Mickey Long are Texas Tech alumni who lease this skybox and see that contribution as helping the team and the school.
CECIL PREAS, ALUMNUS, TEXAS TECH UNIVERSITY: It's a group effort, as far as the team itself and then that permeates into the broader university and to have a great university or a great football, it takes teamwork. It takes lots of diligence. It also takes lots of money.
STEVE URYASZ, SR. ASSOC. ATHLETIC DIR., TEXAS TECH UNIVERSITY: It's an arms race. When you take a look at all the different construction that's gone on, we've done a little over $200 million in athletic facilities in the last 10 years at Texas Tech University.
YASTINE: Professional fundraisers like Steve Uryasz says many schools are servicing the debt on multimillion-dollar stadiums, training facilities and other assets and that's why alternative revenue sources are critical.
URYASZ: So in order for us to continue to grow, we have to continue to go out and find the types of individuals and businesses that can help us compete.
YASTINE: For schools like Texas Tech, aiming to become a bigger institution with a national profile, that competition will continue on the field and off. Jeff Yastine, NIGHTLY BUSINESS REPORT, Lubbock, Texas.
"Kevin McCormally's Tax Tips"-Flex Plans
SUSIE GHARIB: As we head toward the end of the year, now is the time to get your 2007 tax preparation started. Here to help this week is our tax guru, Kevin McCormally. He's editorial director at Kiplinger's personal finance. Kevin kicks off our year-end tax tips by looking at how making the most of your flex plan is like money in the bank.
KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER'S PERSONAL FINANCE: Most stories this time of year about flexible spending accounts -- those wonderful workplace fringe benefits that let you pay medical and child-care bills with pre-tax dollars -- focus on the notorious use it or lose it rule. You know, if you fail to spend the money in your account, you forfeit the cash. It's all about getting money out of a flex plan and that is important if you face a December 31 deadline. Fortunately though, an increasing number of firms let employees spend 2007 money as late as March 15, 2008. Be sure you know how your plan works, so you don't accidentally lose money.
What I want to talk about, though, is something much more valuable: putting money into flex accounts. It's sad to say that fewer than one in four employees who have this opportunity takes advantage of it. But this is the time of year firms have open season, that brief window when you choose benefits for next year. If you're about to set the set-aside amount for your flex plan for 2008, be aggressive. Believe it or not, the tax breaks are so powerful, you can afford to forfeit a lot of cash. Here's why.
Money you steer into a flex account avoids Federal income tax. It dodges state income tax and it dances around the Social Security and Medicare tax, too. So it's easy to save 35 percent or more. That means $1,000 into the account to pay bills you have to pay anyway really costs just $650 or les in reduced take-home pay. Or look at it another way: for every $1,000 you set aside, you could afford to forfeit $350 and still come out ahead. Now, you don't want to forfeit a dime, so be careful when estimating your out-of-pocket expenses for child and medical bills. But don't be paralyzed by the use it or lose it rule. I'm Kevin McCormally.
"Last Word"-The Really Big Cheese
SUSIE GHARIB: And finally tonight, a famous fromage is up for sale. A 44- pound wedge of cheddar cheese is being auctioned online, with the proceeds going to charity. For the last 11 months, the cheese has been the star of a web site called "cheddar vision." The site has gotten more than a million and a half hits and as people log on to watch the cheese age, very, very slowly. Bids will be accepted until November 19 and the cheese will be ready to eat by Christmas. And Paul, those bids have already surpassed a thousand dollars. The proceeds go to BBC Children in Need. It's a charity that helps disadvantaged children in the UK.
KANGAS: Well, Susie, no matter how you slice it, it sounds like a great idea to me.
GHARIB: Forty-four pounds of cheese, huh?
KANGAS: I love cheddar.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's blue chips opened with a modest technical rebound from last week's steep sell off. The Dow rose 43 points at the outset of trading, but the tech-heavy NASDAQ fell 8 points. Sharp sell offs in oil and gold futures along with strength in the dollar all helped lift the Dow to a 108 point mid-session gain, but the NASDAQ was up only 8 points and that lackluster NASDAQ market acted as a drag on the blue chips this afternoon resulting in a broadly lower close. The Dow Industrial Average ended down 55.19 points at 12,987.55. The NASDAQ Composite down 43.81 ending at 2584.13, while the Standard & Poor's 500 Index fell 14.52 to end at 1439.18. The bond market was closed today in observance of the Veterans Day holiday.
For the eighth consecutive session, Citigroup (C) topped the active list today on 33 3/4 million shares, traded as high as $35.06, ended up with just a $0.47 gain. But a "Barron's" financial magazine article says the stock may fall a bit more, but in a few years could top $60 a share. Its biggest shareholder, Prince (INAUDIBLE) says Citigroup will survive.
EMC Corp (EMC) taking a hit, down $1.08. Word has it that Oracle is getting into the same business as EMC's 86 percent-owned VM Ware, could be some tough competition there.
Ford Motor Co (F) down $0.33.
General Electric (GE) $0.18 drop.
Pfizer (PFE) bucked the trend, up $0.19 a share.
Then we move along to Wells Fargo & Co (WFC) $0.69 gain there.
Wal-Mart Stores (WMT) was up $0.42. This week's "Barron's" financial suggests it might be the time to do some bottom fishing in the major retail stocks, just like Wal-Mart.
Co vale do Rio (RIO), the Brazilian mining company, down $2.85 in that weak group.
No change in Bank of America (BAC).
And ExxonMobil (XOM) down $2.31 on the tumble in oil prices.
IBM (IBM) closed up $0.80, traded as high as $104.19 on news the company will acquire business software company Cognos for $58 a share. We'll see Cognos in a moment.
Honeywell Intl (HON) down $0.63, even though it signed a billion dollar deal with Airtrans to supply avionics for that airline's new aircraft and new maintenance on its entire fleet through the year 2030, big contract there.
The gold stocks notably weak, New York December contract gold closed at $807.70 an ounce. That's down $27 an ounce. Agnico Eagle (AEM), and Anglogold Ashanti (AU), Barrick Gold (ABX), Freeport-McM C&G (FCX) and Newport Mining -- Newmont Mining (NEM) all major casualties.
And the steels were very weak today on fears of higher iron ore prices if Rio Tinto and BHP Billiton (ph) manage to pull off a merger, major losses in the steels today.
AK Steel (AKS)
Allegheny Tech (ATI)
Nucor (NUE)
US Steel (X)
Blackstone Group (BX) down $2.02. Third quarter loss of $0.44, not as bad as the $0.65 loss last year, but the company said lack of liquidity in the financial markets is slowing new and large corporate private equity transactions and of course, that's their business.
Mattel (MAT), the toy company, up $0.84, traded as high as $21.14 after JPMorgan upgraded it from "neutral" to "over weight."
And the mattress company, Tempur-Pedic Intl (TPX) up $0.82. Citigroup upgraded it from "hold" to a "buy."
And the construction company, McDermott Intl (MDR) plunging $6.01. Citigroup downgraded this one from "buy" to just a "hold" recommendation.
Then we see Apple (AAPL) topping the active list. Some of these high flyers got hit today, down $11.61 on Apple.
Google (GOOG) down nearly $32.
Research in Motion (RIMM) off $10.60.
Microsoft (MSFT) fractional loss (ph).
Baidu.com (BIDU) was off $41.45. That took a pretty good hit. Of course, these stocks have had a big run up.
Cisco Systems (CSCO) edging up $0.53.
$0.14 rise in Intel (INTC).
First Solar (FSLR), another weak group, down $29.15. There's concern in the solar sector that the latest U.S. energy bill may not extend solar tax credits, so look at those stocks take a tumble, here we go from Ascent Solar Tech (ASTI), all the way down to Daystar Tech (DCTI), Sunpower (SPWR), Suntech Power (STP) Trina Solar (TBL), major losses percentage wise particularly.
And then the rest of the list here, Qualcomm (QCOM) was down $0.81.
And there we see Cognos (COGN) up $4.17. The business software firm as I mentioned going to be acquired by IBM for $58 a share in cash.
And over on the American exchange, Cagle's Inc (CGLA), the poultry producer, up $1.25 on news the Cagle family, which owns 64 percent, is offering $9 a share for the remaining stock it doesn't own.
And those are the stocks in the news tonight.
