NBR Transcripts-November 21, 2007
Wednesday, November 21, 2007Oil Prices Rally and Retreat To And From $100
SUSIE GHARIB: Not much to be thankful for on Wall Street today, as stocks fell sharply ahead of the Thanksgiving Day holiday. The Dow tumbled 211 points and the NASDAQ lost 34. The S&P lost nearly 23 points and is now negative for the year. Pessimism dominated trading as investors worry the U.S. economy could fall into a recession. Also on the worry list: high oil prices. Crude prices topped $99 in overnight electronic trading before sliding back. And as Erika Miller explains, some experts see oil prices gushing much higher.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: $100-a-barrel oil will have to wait, at least for today. Crude came within $0.71 of the psychologically important benchmark in electronic trading before pulling back. Trader Christopher Motroni says it was a particularly frenzied session.
CHRISTOPHER MOTRONI, INDEPENDENT OIL TRADER: When you're up in areas that you've never really been before, what's the first thing you want to do as a trader or a speculator or a hedge fund manager? You want to own it. You want to have them.
MILLER: Crude oil for January delivery closed down $0.74 at $97.29 a barrel at the New York Mercantile Exchange. Today, the government reported that crude stockpiles fell by over a million barrels last week. Most analysts were expecting a gain, but analyst Antoine Halff says traders were more interested in the crude supplies in one Oklahoma town.
ANTOINE HALFF, HEAD OF ENERGY RESEARCH, FIMAT: Stocks at the Cushing, Oklahoma, delivery point for the Nymex contract rebounded quite significantly. So, it looks like, even though there was a draw across the U.S., in Cushing, which is a very critical part of the system, stocks are rebounding and things are getting a little bit more normal.
MILLER: Most experts say it is inevitable crude prices will break the triple-digit barrier.
MOTRONI: I see us continuously moving further north in the price. I mean, $115 is not as crazy as people say it is. I think it's going to happen. And then if you see $115, what's the difference between $115 and $125?
MILLER: A big reason is the sliding dollar, which is now at fresh lows against the euro. That trend helps push up energy prices by encouraging foreign buyers to stock up on energy supplies. Strong demand from China and elsewhere is also expected to support the market. Oil futures are already hovering at record highs, even when adjusted for inflation. Prices have surged almost 30 percent in just three months. But some experts think crude prices could come down next year, averaging in the high $70s, low $80s a barrel.
HALFF: There's more supply coming in from OPEC. There's more production capacity being put online in Saudi Arabia and demand in the second quarter starts easing.
MILLER: But for now, drivers heading out this Thanksgiving holiday will pay an average of $3.09 a gallon. That may sound like a lot, but it's just $0.14 below the all-time high. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
James Lockhart, Dir. Office of Federal Housing Enterprise Oversight
SUSIE GHARIB: There's talk swirling in Washington of a possible bailout of mortgage lenders Freddie Mac and Fannie Mae. Yesterday, Freddie reported a $2 billion quarterly loss, due to the housing downturn. But as Stephanie Dhue reports, the man who oversees both companies says a bailout isn't in the cards.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fannie Mae and Freddie Mac were chartered by the government to keep money flowing to mortgage lenders through the ups and down of the housing market, so rumors of a Federal bailout aren't surprising. But James Lockhart, the director of the Office of Housing Enterprise Oversight, known as OFEHO, says a bailout is not going to happen.
JAMES LOCKHART, DIR. OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT: There's no need for a government bailout. These companies are actually borrowing very cheaply at the moment and that's an exaggeration. The two companies have a lot of flexibility. They are out there raising capital. They certainly could lower their portfolios somewhat. For every dollar they sell in their portfolio, they can do $5 in mortgage-backed securities. So they have a lot of capability to do more in this marketplace.
DHUE: What the firms do want is relief from the restrictions regulators put on them in the wake of accounting scandals. Specifically, they want OFEHO to lift the limits on the amount of loans they can hold in their portfolios and to reduce the amount of capital the companies must keep in reserves to cover future losses. Lockhart says that won't happen, either.
LOCKHART: They were put in place for a very sound reason. The operational risk problems at these companies, the inability to put out accounts, risk management, internal controls. Yes, they are making progress, but they are not there and in fact in this market, there's a lot more operational risk, as we've seen. The models that have priced this have been misapplied, if you will, at rating agencies and other places, so there's a lot of operational risk and certainly there's growing credit risk.
DHUE: Lockhart says the companies can increase their lending by $30 or $40 billion before they reach portfolio limits. And he's encouraged them to raise capital in the markets to increase their lending capacity. Still, there are worries Fannie and Freddie could pull back their mortgage buying, hurting mortgage companies like Countrywide.
LOCKHART: Certainly, our role is not only safety and soundness, but also the worry about the mortgage market and particularly the secondary mortgage market where these two are the dominant players. And certainly we would be concerned about that. We see no sign that Fannie and Freddie cannot continue to buy mortgages from Countrywide and securitize them.
DHUE: Treasury Secretary Paulson and Fed Chairman Ben Bernanke have advocated a larger role for Fannie Mae and Freddie Mac, especially in the jumbo market. Is that a sound approach?
LOCKHART: I've said, on a temporary basis, that would make some sense. But at this point, I would have to say that, given their capital position, it would be better to stay in the conforming loan market and not go to the jumbo. They really don't have a lot of expertise in the jumbo market.
DHUE: You've advocated for legislation to create a tough regulator for Fannie Mae and Freddie Mac. What difference would that have made in this situation?
LOCKHART: Well, I think a stronger regulator might have had a better capital regime for these two companies, might have had a regulation out there that would have kept some cushion for these kinds of situations and certainly they would potentially have done different things in the portfolio cap area. There's also a whole series of other regulations that's part of the law that would strengthen the power of the regulator. I think if I had those powers now, I could be looking a little more comfortably at potentially changing their capital levels.
DHUE: Can you allow Fannie Mae and Freddie Mac to take on more risk in the broader interest of the housing market?
LOCKHART: What we have allowed and will continue to allow, is them to grow with their capital. Over this year, they have actually grown in market share from about 40 percent last year to over 60 percent in the third quarter and now 70 percent in October. They are doing securitizations of almost $100 billion a month, so that they are growing and what we want to insure is that they have that capital to continue to grow.
DHUE: James Lockhart OFEHO director, thanks for joining us.
LOCKHART: Thank you very much.
"Street Critique"-Hilary Kramer, Market Strategist & Author of Ahead of the Curve."
PAUL KANGAS: My "street critique" guest tonight says when it comes to this volatile and nasty down market, something's got to give, sooner rather than later. She's Hilary Kramer, market strategist and author of Ahead of the Curve." Hilary, welcome back to NIGHTLY BUSINESS REPORT. Great to see you.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL: Thank you, Paul.
KANGAS: Just about everyone I talk to is disgusted with this market. It has really been ugly. What are you seeing here?
KRAMER: Oh, this market is tricky. It's nasty and it's pretty evil. There's no one on Wall Street who is in the equity markets who is sleeping these days. I mean certainly It has been that case in the fixed income market but it has really, really taken down. The smartest money has been fooled.
KANGAS: OK. So what do we do in this scenario? Is it time to buy yet or just wait for it to bottom out and pay a little more?
KRAMER: See, I believe that we're bottoming out right now. We're right there. And this is the turning point. It's the turning point when everyone says it's absolutely the ugliest. It can't come back. There are all these economic pressures -- the markets, the dollar, the price of oil. But then we will see it turn around because the U.S. economy is resilient, is strong and is one of the best in the world.
KANGAS: So you see a year-end rally on its way, correct?
KRAMER: Absolutely. And the other reason, really, Paul, is that the Fed isn't going to let us have a bad Christmas. The Federal Reserve will make sure that we're all at least somewhat happier, that we end on a good note and that would mean a rate cut.
KANGAS: All right. Hilary, you brought some stock picks along for our viewers, and your first one is from the financials, which are highly depressed. Do you think that sector is ready for the bottom fishing now?
KRAMER: OK, let me tell what you it's about. To me it's Goldman Sachs, GS. That's the stock that's going to race up ahead if the rates are cut by the Fed. Plus Goldman Sachs has the best (INAUDIBLE) right. They got the best traders, the best analysts, the best bankers on Wall Street. So Goldman Sachs at $209, it's good for at least 20 points if there's a rate cut or the market turns around because everyone is going to race into Goldman.
KANGAS: Another selection.
KRAMER: Apple Computer, Apple. Apple is absolutely positioned beautifully because it's going to be the present of choice for Christmas this year, the iPods, the iPhones. We are going to see Apple come back and go up to $200 range.
KANGAS: Good old AAPL. That's the symbol and it's at the top of the active list quite regularly. Also, I understand you've got one that is linked to a cut in interest rates. Tell us about that.
KRAMER: That's right, Jacobs Engineering, JEC. Again, I got for best of breed. Of all the infrastructure companies, these are the companies, engineering, construction, they're out there building the bridges, building schools with government contracts and Jacobs Engineering has the best backlog. They have the most amazing management team and JEC is positioned to really rise. They're all depressed right now because when rate cuts come in, that means that you can have these contracts come through.
KANGAS: Quickly now, one last pick, small cap.
KRAMER: Yeah this is a small cap. VYYO (VYYO), under $5 is absolutely a buy. These small caps have been cut in half. This is a company that helps cable companies and telecom companies improve and expand broadband and again, it's just been thrown in the garbage and companies like VYYO are positioned to enter 2008 to just come racing back ahead, especially the ones that have good technology.
KANGAS: Hilary, do you own or are you in short position in any of the stocks?
KRAMER: I am long on Goldman Sachs and Jacobs Engineers, JEC.
KANGAS: Hilary, great to see you again. We'll see you once more, December 12. Happy Thanksgiving.
KRAMER: To you too and thank you, Paul.
KANGAS: My guest, Hilary Kramer, author of "Ahead of the Curve."
"Copy Protection" Part 3 - Trademark It
SUSIE GHARIB: 2007 has been a record year for trademarks. There are more than 323,000 applications so far this year and that's the highest number ever. Trademark protections encourage companies to invest in branding their products while helping consumers know they are buying the real deal, not an imitation. As we continue our series "Copy Protection," Diane Eastabrook shows how an established trademark can be very valuable.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: From Charlie the tuna to Ronald McDonald, trademarks help connect consumers to specific products and services. Trademarks are more than catchy words, pictures or symbols. They are important because they represent a company's brand. Consumers often rely on a trademark to make sure they are getting that particular products and the quality they expect. Roberta Kwall is a professor of intellectual property law at Chicago's dePaul University. She says any business operating in today's competitive marketplace should have a registered trademark.
ROBERTA KWALL, LAW PROFESSOR, DEPAUL UNIVERSITY: Why? Because they want to be able to monopolize that particular information-rich signal for that genre of product.
EASTABROOK: Obtaining a trademark usually starts with a visit to an attorney who will conduct a trademark search. Ladas and Parry trademark attorney Marc Trachtenberg says a computer search often takes only a few hours. That involves combing state and Federal registries to see if anyone else has registered that particular word, picture or symbol. If nobody has, then the company can apply for that trademark with the U.S. Patent and Trademark Office. If firms want trademark protection in other countries, they must register there as well. But Trachtenberg says, sometimes that is a problem.
MARC TRACHTENBERG, ATTORNEY, LADAS & PARRY LLP: Information travels so quickly around the world that it's very easy for someone in another country to get online and do a simple search of the Internet and see what brands are popular in the U.S. or other countries and to either preemptively register that trademark in that country or simply start making counterfeit goods.
EDWARD SMITH, MANAGER, GLOBAL BRAND INTEGRATION, CATERPILLAR: The whole decal, if you will, the coloration is literally an identity for Cat machines.
EASTABROOK: Edward Smith, Caterpillar's manager of global brand integration, says trademark protection is a top priority at the Peoria, Illinois, based firm. The company not only trademarks its Cat logo, but also the yellow color that all of its earth-moving vehicles are painted. Caterpillar has sold tractors and trucks in nearly every corner of the world for decades. Recently, it added shoes, clothing and toys bearing the Cat logo to its lineup. Smith says the Cat trademark represents durability and Caterpillar will challenge anyone who uses it illegally.
SMITH: You make a promise and if someone else emulates that promise and passes their product off as ours, then it breaks that promise and we will protect that to the Nth degree.
EASTABROOK: Experts say the Internet is a growing source of trademark misuse. Typo-squatting is one example. It happens when someone registers a variation or a misspelling of a brand name as a domain name. Then, consumers who accidentally enter the wrong name might be directed to a competitor's site or face a barrage of advertisements. Alan Drewsen, executive director of the International Trademark Association, says preventing this type of deception is difficult.
ALAN DREWSEN, EXEC. DIR., INTERNATIONAL TRADEMARK ASSN: Generally, the brand owners have to be very alert policing the net all the time and trying to identify and then get back these domain names that the typo-squatters or cyber- squatters have no right to in the first place.
EASTABROOK: A successful trademark can become one of a company's most valuable properties and since a trademark can have a huge influence on a consumer's buying decisions, experts say trademark protection is still as important today as it was a century ago. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
KANGAS: Tomorrow, our "Copy Protection" coverage continues with an NBR special edition as the markets are closed for Thanksgiving Day.
"Money File"-Cashing in on Credit Unions
SUSIE GHARIB: In the "Money File" tonight, the benefits of joining a credit union. Here's Eric Schurenberg, managing editor at "Money" magazine.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: If you belonged to a credit union in the past, it was probably because a volunteer at work or church let you know about the deal you could get on a car loan. Well, these non-profit financial cooperatives still offer car loans, but today, they're locked in competition with commercial banks for all your banking business and that's good for you. Here are three reasons a credit union is worth a look.
First, it's likely to offer a better savings yield. The average for six month CDs, for example, is 3.45 percent at banks nationwide. But "Money" found comparable credit union CDs at over 5.4 percent. Second, credit card deals could well be better. The average bank card today charges an interest rate of 13.7 percent. At credit unions, it's 12.2. Penalties for late payments tend to be lower, as well. Now there's one drawback. Rewards programs are typically better at banks. Third, the old standard -- credit union auto loans tend be one or two percentage points cheaper than at similar-sized banks.
Now, to join a credit union, you have to be affiliated with a group that has one, but that affiliation can be pretty loose. If someone in your family belongs to a credit union, you may qualify to join, too. Your trade group, alma mater or church may give you an in. You can also go online and do a search for find a credit union. One caveat -- most credit unions still can't match big banks in the breadth of financial products or services. So you may want to combine your membership with a checking account at a regular bank, could be the best of both worlds. I'm Eric Schurenberg.
"Last Word"-The Turkey Day Financial Feast
SUSIE GHARIB: And finally tonight, it costs more to fly and drive this holiday, so it shouldn't be a huge surprise that the price of your Thanksgiving dinner has also gone up this year. The average cost of a typical American Thanksgiving meal is $42.26 for a family of 10, an 11 percent increase from last year, according to the American Farm Bureau. That's for a dinner of turkey, stuffing, cranberries and pumpkin pie with all the trimmings. Turkey prices have increased about $0.12 per pound. For many people, Thanksgiving is about spending time with family and getting together with loved ones. And you really can't put a price on that, right, Paul?
KANGAS: Invaluable, Susie. You couldn't have put it better.
GHARIB: I hope you have a happy Thanksgiving, Paul.
KANGAS: And the same to you.
Paul Kangas' Stocks in the News
PAUL KANGAS: A gloomy Wall Street headed broadly lower this morning, as oil surged toward the $100 mark and Treasury Secretary Paulson warned potential home defaults next year could significantly outnumber this year's. By 11:00 a.m., the Dow was off 159 points, NASDAQ down 48 points. As oil pulled back a bit during mid-day, stocks trimmed losses but couldn't stage a rally amid growing fears of recession. Stocks went on to close at the day's lowest levels. The Dow Industrial Average fell a hefty 211.10 ending at 12,799.04. The NASDAQ Composite down 34.66 ending at 2,562.15. Standard & Poor's 500 Index lost 22.93 points to 1,416.77. Over in the bond market, the 10-year note gained 21/32 to 101 29/32, putting the yield down to 4.02 percent.
Back on the top of the active list again, Citigroup (C) today on 29.1 million shares, edging down $0.67.
GE (GE) lost $0.87.
Ford Motor (F) $0.29 drop.
Countrywide Financial (CFC) off $0.86, even though it said yesterday it has ample liquidity to remain a going concern.
Wells Fargo (WFC) down $0.50 in this blizzard of minus signs.
Then we see Pfizer (PFE) losing $0.37.
And finally a couple of gainers and strangely enough, Fannie Mae (FNM) up $0.98.
General Motors (GM) was up a dime. The company's 49 percent owned GMAT unit is going to sell off troubled parts of its residential capital mortgage unit, but GM intends to keep that company in business.
Freddie Mac (FRE) down $0.74.
American Int'l Group (AIG) down $3.11. That's a 12-month low and there is some concern that the company may have some big sub-prime write offs like so many other companies of its ilk.
Deere & Co (DE), the star of the day, up $7.06, traded as high as $154.72. Fourth quarter earnings out today up 52 percent over last year to $1.88 versus $1.20 last year, a 20 percent rise in worldwide revenue and it sees first quarter revenues rising 25 percent.
Abercrombie & Fitch (ANF), the retailer, up $1.98, traded as high as $75.99. Third quarter earnings came in at $1.29, well above $1.11 last year, but that was $0.04 below the Street estimate.
Then we see the Gap Inc (GPS) down $1.24. Third quarter earnings up 26 to $0.30 versus $0.23 a year ago. That was only a penny above the Street estimate.
The Limited Brands (LTD) $0.42 gain there. Second quarter earnings half of what they did last year, $0.03 versus $0.06, but that was $0.02 above the Street estimate and the board of directors has approved an additional 250 million share or I should say $250 million stock buy back.
Circuit City (CC) down $0.32. JPMorgan downgraded it from "over weight" to "neutral."
And then another retailer, this is Buckle Inc (BKE) off $4. Third quarter earnings $0.72, up from $0.59 last year but $0.02 below the Street consensus. No room for disappointment in this market.
Ikon Office Solutions (IKN), this is a company that is in the document management systems business, is going to buy back up to $500 million of its own stock, nice move in it.
Par Pharmaceutical (PRX) gained $1.54. The company now sees full year earnings at $1.35 to $1.50 versus its previous estimate of only $0.95 to $1.10 a share.
And then Trina Solar Ltd (TSL) tumbling $11.51. Third quarter earnings $0.28 per American depository share and that was $0.07 below the Street estimate.
And in sympathy, LDK Solar (LDK) down $3.42.
Apple (AAPL) topped the NASDAQ active list, down only $0.39.
And Google (GOOG) bucked the overall trend with nearly a $12 gain.
Research in Motion (RIMM) up $1.02.
Microsoft (MSFT) down $0.35.
Baidu.com (BIDU) fell $5.58.
Intel (INTC) $0.89 loss there.
Cisco Systems (CSCO) down $0.79.
First Solar (FSLR) up $5.17.
Qualcomm (QCOM) $0.88 loss.
And then came Yahoo! (YHOO) down $1.01.
Jamba (JMBA) losing almost 30 percent of its value, down $1.32. Third quarter turnaround, earnings of $0.40 versus a loss of $0.92 last year, but the company cut its 2008 new store growth forecast. It'll have only 55 to 65 new stores.
And finally, shares of Northern Technologies (NTI) rising $2.50 or 33 percent. The environmental products company posted fiscal 2007 earnings of $0.87 a share versus only $0.47 in 2006.
