NBR Complete Transcripts: 11-15-2007
Thursday, November 15, 2007The Return of the Wall Street Roller Coaster
SUSIE GHARIB: Another tough day on Wall Street as all the major stock averages fell sharply. The Dow dropped 121 points, its sixth loss in the past seven sessions and the NASDAQ fell 26 points. The sell off escalated in the afternoon, reflecting a recent pattern of late day volatility. Suzanne Pratt takes a look at whether that trend will continue and what other factors will drive trading in the weeks ahead.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: For weeks, credit problems, the housing downturn, surging energy prices and a sliding dollar, has weighed on investor sentiment. In spite of all the negative news, the U.S. stock market has still been surprisingly resilient, but it has also been extremely volatile. The Dow was up about 5 percent to 2007 though it is 7 percent below the record high of more than 14,000 that it reached on October 9th. Most market pros, including Chief Investment Officer Georges Yared predict the big price swings will continue well into next year.
GEORGES YARED, CHIEF INVESTMENT OFFICER, YARED INVESTMENT RESEARCH: I think there`s going to be a lot of what we saw in 2007, were volatility and volatility. I mean we`re going to have those up weeks and then those disastrous down weeks. Certainly, the retail sector I don`t think is off to a great start in the fourth quarter.
PRATT: As for what will dictate trading in the coming months, some experts say it`s earnings or more specifically, the lack of earnings. Gail Dudack believes financial firms are about halfway finished issuing write downs related to sub-prime mortgage debt. But that`s still a large overhang.
GAIL DUDACK, CHIEF INVESTMENT STRATEGIST, DUDACK RESEARCH GROUP: The stock market can handle almost any bad news. What it can`t handle is unknowns and the number of unknowns with the sub-prime (INAUDIBLE) write offs, it`s diminishing, but it`s still big.
PRATT: Many experts believe 2008 will be an up year for stocks, with the major averages gaining about 10 percent. Some expect to see a rebound effect from financial shares, once all the bad news is out. Others points out that U.S. stocks almost always do well in presidential election years, although they worry that the leadership change will spell trouble for stocks next year.
DUDACK: I think the only real risk to 2008 will be politics, something no one`s talking about right now, but there are many policies that could actually change with the new administration which the market may like or not like.
PRATT: The bull market recently celebrated its fifth birthday. Most experts believe its run is not yet over, but they also point out it is an aging bull. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
President Bush Files A New Flight Plan For The Airlines To Follow
SUSIE GHARIB: President Bush wants to make the skies a little friendlier. This year, the airlines have landed their worst on-time performance since 1995. As the holiday season approaches, the president outlined today a series of steps to improve the odds that air travelers will make it to their destinations on time. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president calls the airlines chronic flight delays an epidemic. And with 27 million travelers set to fly over the Thanksgiving holiday, the president promised help.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: These failures carry some real costs for the country, not just in the inconvenience they cause, but in the business they obstruct and family gatherings they cause people to miss.
DHUE: The president outlined a series of immediate steps to reduce delays, including creating Thanksgiving express lanes by opening up unused military airspace to commercial traffic. He`ll also impose a holiday moratorium on non-essential FAA maintenance projects and proposes doubling the compensation travelers can receive if bumped from a flight to a minimum of $800 instead of the current $400. At a House Transportation hearing, executives from Jetblue and Delta told lawmakers they are taking their own steps to be prepared this holiday season. Jetblue CEO Dave Barger acknowledged past problems, but says passengers shouldn`t fear flying this holiday season.
DAVE BARGER, CEO, JETBLUE: There`s almost scare stories that are out there regarding how bad it`s going to be and that`s not the case. We just went through a July-August time frame that was actually the load factors were probably as high, over an extended period of time.
DHUE: Longer term, the administration and lawmakers are considering an overhaul of the air traffic control system. But observers say that next generation system is 15 years away. In the meantime, Delta CEO Richard Anderson says the U.S. must continue to upgrade air traffic technology and air field capacity.
RICHARD ANDERSON, CEO, DELTA: We need to take all the steps in the short term to meet demand and we`ve got to make the investment as a country and the commitment as a country to implement the next gen system in order to meet the billion passengers that are going to be flying the airways over the course of the next five to 10 years.
DHUE: The administration is considering charging airlines higher usage fees during peak travel times to reduce delays. But the airlines say the government should focus on increasing capacity, not raising prices. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"The Business of College Football" Part 4 -The Cost Penalty
SUSIE GHARIB: College football has never been more popular, but does the pursuit of aglory on the field have a bigger cost for universities off the field? Jeff Yastine reports, as we wrap up our series, "The Business of College Football."
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: College football -it`s supposed to be about what happens on the field. But these days, it`s also about what happens in the halls of Congress where the topic of coaches` salaries -- like the reported $4 million a year Nick Saban (ph) will make at the University of Alabama -- is coming under scrutiny. Lawmakers like Cliff Stearns of Florida say you won`t see legislation, but congressional hearings on the subject are a possibility.
REP. CLIFF STEARNS (R) FLORIDA: Here we are in 2007, we`re paying coaches $2.5 million plus endorsements plus TV programs and things like that. What`s it going to be in 10 years? And the money that is so prodigious -- what effect is that going to have on the motivation of the university? Is it a spiraling competitive race, almost like an arms race with these universities?
YASTINE: But others, like sports business analyst Rick Horrow, say the idea of paying a coach $1 million or $2 million for a football program that might earn the school $20 or $30 million in profits makes financial sense.
RICK HORROW, CEO, HORROW SPORTS VENTURES: You`ve got to spend money to make money. So, if you`re the Alabama athletic department, you`re going to pay him $2 million bucks, because he`s going to revolutionize that athletic department and you`re going to get alumni donations more so than ever before and he`s going to worth it over that contract cycle.
YASTINE: Myles Brand, president of the National Collegiate Athletics Association, says it`s only a relative handful of coaches in the top-tier football schools who make those kinds of dollars. Different universities, Brand says, have different priorities.
MYLES BRAND, PRESIDENT, NCAA: Is the value of this individual sufficient to warrant this compensation package? And are they producing the kind of value for the institution in terms of visibility, marketing and I would say most importantly in terms of the education of the young men and women under these coaches` charges? Then they have to make their own decision and defend it.
YASTINE: The issue of coaches` salaries raises a broader question about the nature of college football. How much is too much to pay for a winning program? And has an arms race mentality taken hold, where winning and the money is generates trumps everything else that college football is supposed to be about? Critics like William Kirwan, a former university president, chancellor and now head of the Knight commission on intercollegiate athletics, say you can measure that in how alumni and other donors focus their contributions.
WILLIAM KIRWAN, CO-CHAIR, KNIGHT COMM./INTERCOLLEGIATE ATHLETICS: The private giving at our universities across the country today, about 25 percent of the money comes into intercollegiate athletics. A decade ago, it was about 10 or 11 percent. So it is this aspect that is so troubling to me and I`ve come to be quite alarmed by what I call a distortion in values.
YASTINE: Myles Brand of the NCAA disputes that. In this era, he says, universities and their football programs fill multiple roles.
BRAND: Some so-called reformists would like to see inter-collegiate athletics removed from the campus entirely -- either professionalize it or treat it as if - treat these large institutions as if they`re small league liberal arts colleges. They`re not. They have many missions, including missions of providing types of education that go beyond the classroom. They have missions about producing commercial activity in their communities.
YASTINE: It`s supposed to be an amateur`s game and at most smaller schools around the country, it still feels that way. But add in the big stadiums, multimillion dollar television contracts and corporate sky boxes, and it takes on all the trappings and money of a professional contest. And that is the paradox of college football, maintaining an uneasy coexistence among educating athletes, enriching universities and entertaining fans. Jeff Yastine, NIGHTLY BUSINESS REPORT, Lubbock, Texas.
"Kevin McCormally's Tax Tips"-The Kiddie Tax Crackdown
SUSIE GHARIB: With the end of the year looming, it`s time to get your 2007 tax planning in order and our tax guru Kevin McCormally is here to help. He`s editorial director at Kiplinger`s Personal Finance. In tonight`s tax tips, some last-chance moves to dance around the kiddie tax crackdown.
KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER`S PERSONAL FINANCE: 2008 was supposed to be a great year for family tax planning. That`s when the capital gains rate for folks in the 10 percent and 15 percent tax brackets falls to a glorious zero percent. Many families have been arranging things so stock or other appreciated assets owned by low-tax- bracket youngsters or transferred to them as gifts from their parents could be sold in 2008 for tax-free profits.
The one fly in the ointment was the kiddie tax, the rules that tax a child`s investment income at the parents` rate. At first, the kiddie tax disappeared when a child reached age 14. Then a couple years ago, Congress extended the bite through age 17. Still, there was a chance for families to save money by having kiddies 18 and older sell for tax-free gains -- to pay college bills, perhaps. But Congress stepped in earlier this year to put the kibosh on that. Starting next year, the kiddie tax will apply to 18-year-olds, too and even to most full-time students under age 24.
That pretty much slams the door on this lucrative loophole, but not quite. You still have time to save some money. If you transfer stock or other appreciated assets to an 18- to 23-year-old and have him or her sell it before the end of this year, the capital gain will likely be taxed at just 5 percent. Not quite as sweet as zero, but still better than the parents` 15 percent capital gains rate. This could pay off for both parents and grandparents who are planning to help with college bills or other big expenses. Your broker can help you with the details of transferring ownership of the stock or other asset. I`m Kevin McCormally.
"Tech Talk"-Chip Convenience
SUSIE GHARIB: A new way to search the Internet when you want to get personal and a new name for a popular valley. Those stories and more in Scott Gurvey`s "Tech Talk."
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It may be time to rename Silicon Valley. Intel`s newest processors, announced this week, replace silicon dioxide, the material of choice for 40 years, with hafnium, an element farther up the periodic table. The change makes for smaller and faster circuits which use less power and generate less heat. The new processors also add instructions to improve high definition image display. Intel`s Sean Maloney says the new technology will be rolled out quickly.
SEAN MALONEY, EXECUTIVE VP, INTEL: We`re certainly talking about the hundreds of millions of units. And over the next two to three years, you will see hundreds of millions of people coming onto the Internet for the first time. And you`re also going to see people replacing their notebooks or their desktops with these chips because they`re so much better. So, it`s a big piece of Intel`s business going forward in the next two to three years.
GURVEY: Microsoft raised eyebrows recently with its $240 million investment in facebook, the popular web site where people share pictures and build relationships. Microsoft has its own social networking project called Windows live spaces, but facebook has 49 million users. More than half live outside the U.S. and Microsoft will control the banner ads those users see. President Kevin Johnson calls it is a natural fit.
KEVIN JOHNSON, PRES., PLATFORM AND SERVICES DIV., MICROSOFT: People can upload their photos to Windows live spaces and actually click to post them and share them with their facebook friends. So we have very tight integration and a great partnership with the people at facebook.
GURVEY: A new poll from the Associated Press and AOL says teenagers use instant messaging to handle tough conversations. Twenty two percent use IMs to ask someone out on a date, 15 percent use them to break up. When you try to compete with Google you better haven edge. Spock.com thinks it does. Spock focuses on people and uses a variety of techniques to scan the Internet looking for information about people and their relationships. Cofounder Jaideep Singh says that makes it a more efficient tool for personal networking.
JAIDEEP SINGH, CO-FOUNDER & CEO, SPOCK: Google does a great job at looking at the public web, so that`s not what the problem is. The problem is really, I`ve got massive information, how do I organize this to make it easy and simple for people to understand? So, the place where we distinguish ourselves is we take a document -- we say, "OK, Scott Gurvey, is this the same person as that one? So this image or this document or this relationship is associated with this person.
GURVEY: The creators of spock.com expect it to eventually make money through targeted advertising. It is currently open for testing. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened lower in an extension of yesterday`s late sell off. The Dow fell 20 points at the outset of trading, while the NASDAQ lost 9 points. The market turned narrowly mixed for the rest of the morning, reflecting the mixed reports on mild inflation, but a big 20,000 rise in weekly jobless benefit claims. JC Penney`s lower earnings undermined the retail sector and the financials joined the late sell off after Wells Fargo said the housing market is the worst since the depression. The Dow Jones Industrial Average slumped to a closing loss of 120.96 points, putting it at 13,110.05. The NASDAQ fell 25.81 points, ending at 2618.51. Standard & Poor`s 500 Index lost 19.43 at 1451.15. Over in the bond market, the 10-year note climbed 28/32 to par and 27/32, putting the yield down to 4.15 percent.
For the 11th consecutive trading session, Citigroup (C) topped the active list today on 22 million shares, down $1.46 in that weak financial group.
And then came General Electric (GE) with a $0.70 loss.
Followed by Pfizer (PFE) down $0.32.
EMC Corp (EMC) fell $0.25.
And there you see Ford Motor Co (F) down $0.20. In addition to the news you just heard, Ford`s going to sell its auto interiors plant to Johnson Controls.
Moving along in the active list, Energysolutions (ES), a new issue came public today. It`s into nuclear services, 30 million shares offered to the public at $23. That`s where they opened. They got as high as $23.60 and slumped back to the debut price, not much of a hot new issue there.
Wells Fargo & Co (WFC) down $1.28 in the weak financials.
Bank of America (BAC) same story, off $1.65.
Merrill Lynch (MER) down $0.68.
And JPMorgan Chase (JPM) was tenth in big board volume, losing $1.62.
Another new issue today, MSCI Inc (MXB), that stands for Morgan Stanley Capital International. This is a spin off from Morgan Stanley. It`s involved in indexing and investment analytics. Fourteen million shares offered at $18, opened at $23, the high of the day $28.45, backed off a little, but a very strong debut.
American Intl Group (AIG) a Dow stock, down $2.48. The company is boosting its stock buyback plan by $8 billion, but today Citigroup downgraded its price target from $77 to $69.50 a share.
Johnson & Johnson (JNJ) down one penny. It plans a major reorganization, including the creation of a new office of strategy and growth, which might diversify beyond its main businesses now.
JC Penney & Co (JCP) down $2.40, leading the retail sector lower, on lower third quarter earnings of $1.17 versus $1.26 last year. Same store sales fell 3 1/2 percent and the company cut its fourth quarter earnings guidance from $2.41 down to $1.80 at best.
Ralcorp Holdings (RAH) up $5.77. It`s going to acquire Kraft Foods post cereal operations for $2.6 billion in stock. Ralcorp also said fiscal 2008 earnings will be 5 percent above this year`s fiscal earnings.
LDK Solar Co (LDK) up $5.20. The company sees fourth quarter earnings as high as $0.41 a share, Wall Street estimate only $0.37.
Sotheby`s Holdings (BID), the big auction house, up $3.46. The company reportedly auctioned a white flawless diamond for $16.2 million above the high end estimate of $12 to $16 million and did well on some paintings as well from Koons and Bacon.
And Carmax (KMX) up $1.62. The news there, reports that Warren Buffett`s Berkshire Hathaway Corp. owns 14 million shares or 6 percent of the stock.
Novastar Financial (NFI) tumbling $2.52. The company had a third quarter loss of $598 million. That translates to $64.05 a share. The company plans no dividend in the foreseeable future, which seems logical and also says there`s a strong likelihood it`ll be delisted from the New York exchange.
If you thought that loss (ph) was bad, look at this one. Global Cash Access Holdings (GCA) down $5.49. The company provides cash advances to gamblers and it delayed its fourth quarter results pending an outcome of an internal probe of a confidential acquisition by one of its employees.
Apple (AAPL) topped the NASDAQ active down $1.81.
Research in Motion (RIMM) hit by profit taking, down nearly $7.
Google (GOOG) down $12.03.
Baidu.com (BIDU) down $16.30.
Microsoft (MSFT) a loss of only $0.17.
Then Cisco Systems (CSCO) down $0.41.
Intel (INTC) dropped $0.32.
By finally some gainers, Oracle (ORCL) up $0.24.
Qualcomm (QCOM) $0.77 rise.
And Applied Materials (AMAT) was up $0.06. After the close yesterday, AMAT reported fourth quarter earnings, $0.30, same as the year before.
Finally, Petsmart (PETM) up $1.69. Third quarter earnings were flat, $0.23, same as last year, but that was a penny better than Wall Street expected. The stock did well.
And those are the stocks in the news tonight.
