NBR Transcripts-December 5, 2007
Wednesday, December 05, 2007Oil Prices Fall Despite A Drop in Inventories
SUSIE GHARIB: Oil prices dropped below $88 a barrel today, despite new concerns about supplies. In New York trading, January crude futures fell $0.83 to $87.49, well below its recent high of $99. The slide came despite a decision by OPEC ministers in Abu Dhabi to hold oil production steady. Also today, the U.S. government reported a big decline in weekly oil supplies. Erika Miller takes a look at why oil prices are suddenly in retreat.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It seems counterintuitive -- oil prices retreated in the face of bullish news. New government data show crude levels plunged by eight million barrels last week, far more than the 700,000 expected. But analyst Linda Rafield says traders were more interested in the gains in gasoline supplies.
LINDA RAFIELD, SR. OIL ANALYST, PLATTS: You had a four million barrel build in gasoline and gasoline is where the balances have been the tightest. We were at a severe deficit against a year ago and five-year averages at the start of the fourth quarter and those have loosened up substantially.
MILLER: In addition, traders were pleased to see crude supplies rose in Cushing, Oklahoma, the key Nymex delivery terminal. Trader Anthony Grisanti also blames the price decline on the calendar.
ANTHONY GRISANTI, OIL TRADER, GRZ ENERGY: The reason is, I think is because the market right now is in a trend where it's taking profits at this point. It has run up all year. We're towards the end of the quarter, towards the end of the year. And I think a lot of people want to take profits before the year end.
MILLER: OPEC's surprising decision to stand pat on output had only a brief impact on prices. Many investors had been expecting the cartel to boost production by at least 500,000 barrels per day. But some traders predict Saudi Arabia will quietly boost supplies on its own. Some experts say falling prices on a day with bullish oil news suggests the market has peaked for the year. Crude futures are already down 10 percent from the record of $98.18 two weeks ago and some analysts do not expect prices to breach the $100 a barrel mark any time soon.
RAFIELD: I don't think we'll see it by the end of this year. I think probably through the end of this year, you're stuck between $87 and $92.50 a barrel. The market is likely to consolidate.
MILLER: OPEC has scheduled an extra meeting for February 1. If oil prices remain high and the U.S. economy weakens, analysts predict the cartel will open up the spigot. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with John Coffee, Law Professor, Columbia University
SUSIE GHARIB: Several powerful Wall Street firms have received subpoenas from the New York State attorney general's office over their role in packaging and selling debt tied to high-risk mortgages. Merrill Lynch, Bear Stearns and Deutsche Bank have been targeted, according to "The Wall Street Journal" today. The subpoenas are reportedly part of an overall investigation into the sub-prime mortgage mess. Specifically at issue, how well investment banks reviewed the quality of the loans they bought and packaged. The attorney general's office did not comment on the report. Joining us now for more analysis of this development, John Coffee, securities law professor at Columbia University law school. Hi Jack.
JOHN COFFEE, LAW PROFESSOR, COLUMBIA UNIVERSITY: Good evening.
GHARIB: Let's first talk a little bit about how well New York State Attorney General Andrew Cuomo go about this investigation and fact-finding mission. What's the process?
COFFEE: Well, he sent out subpoenas and you want to see what you get. I suspect one thing he'll look at are the e-mails. E-mails are really the greatest advance in law enforcement since the two-way radio, because all kinds of casual off-the-cuff statements may be made in e-mails. I think he'll have two focal points. Was there real due diligence being performed by the underwriters? Was there really high standards to the underwriting process or was this just in effect farming this out to third parties for a token look? That's question one. Was there any kind of real due diligence?
Question two is what is the relationship between the underwriters and the debt rating agencies? Structured finance and securitizations cannot be sold without an investment-grade rating and was there pressure placed on the debt-rating agencies? Were inducements offered to them? In that respect, this investigation could be quite reminiscent of the 2002 investigation that Eliot Spitzer undertook of the security analysts. They played the same role in the equity market the debt rating agencies play in the debt market. We found there that there were a lot of inflated recommendations because of pressure placed on them.
GHARIB: Well, it's all about relations (ph) and that investigation you're talking about is between the analysts and the investment bank. In this case, what is your thought about the credit rating agencies? Right now they have not been subpoenaed. But do you think that S&P and Moody's, for example, at some point will be investigated and look into how they analyze these security packages?
COFFEE: You should understand that the SEC is also looking at the relationship between underwriters and debt-rating agencies. I'm assuming nothing. You have to have evidence. You have to find the smoking gun. But if you were to find e-mails in which pressure was being brought to bear in which the agency was saying, we can't give this an investment-grade rating and they were gradually pushed to just move it over the end zone into the world of investment grade, that's the kind of process that I think the attorney general would have to act if he found that evidence.
GHARIB: How do you think that this is going to play out a year from now? Will there be enforcement action, penalties, fines? What do you think?
COFFEE: Well of course, you can't assume guilt. You have to find evidence. But if you were to find that pressure was being brought on the debt-rating agencies, then I think we're in exactly the same posture that Eliot Spitzer found himself in 2002 with respect to security analysts. And there, he wanted institutional reform. He wanted to reduce the conflicts of interest. There are all kinds of proposals that are out there. The strongest critics do not want the underwriters or the issuer paying the debt rating agency, saying that's a conflict of interest. I think that's a rather radical reform. But there are all kinds of other proposals to try to reduce conflicts of interest and if you find evidence that there was pressure and there were inducements offered, then I think we're going to see a demand for structural reform.
GHARIB: Real quickly, right now, Merrill Lynch, Bear Sterns and Deutsche Bank have been targeted. Do you think this is going to grow beyond those three banks?
COFFEE: Again, I think it depends on the evidence you find. Eliot Spitzer in effect ran into a treasure trove of evidence and smoking guns. You find that and this will balloon very rapidly.
GHARIB: We'll have to leave it there. Thank you so much Jack.
COFFEE: OK.
GHARIB: My guest tonight, John Coffee, securities law professor at Columbia University law school.
The House's Energy Bill Picks Up Steam
SUSIE GHARIB: The House of Representatives is moving toward passing a massive energy bill tonight. It aims to boost fuel economy standards for cars and trucks and promote increased use of renewable energy. The bill would also repeat tax breaks to big oil companies. As Stephanie Dhue reports, the landmark legislation faces an uncertain fate in the Senate.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The on-again, off- gain energy bill is at a crossroads. There is widespread agreement in both the House and Senate on raising fuel economy for new cars and trucks. But there is just as much disagreement over proposals to boost the use of renewable energy by electric utilities and cut $21 billion in tax breaks to oil companies. Robbie Diamond heads a group of CEOs and military leaders who support increasing energy efficiency. He says without more compromise, there is a risk nothing gets done.
ROBBIE DIAMOND, PRESIDENT, SECURING AMERICA'S ENERGY FUTURE: It is important that they basically take away some of the ornaments that they have adorned on this tree in order to get this bill to the president to be signed.
DHUE: Higher gas prices and the political drive to get something done is pushing the bill forward. Kate Johnson of Environment America is pressing lawmakers to keep the renewable electricity standard as part of the energy package.
KATE JOHNSON, CLEAN ENERGY ADVOCATE, ENVIRONMENT AMERICA: We want to make sure that the American people are not only getting cars that go farther on a gallon of gas, but that we're also moving away from oil and fossil fuels to more renewable energy.
DHUE: A proposal that requires refiners to use more ethanol and other renewable fuels as gasoline additives enjoys widespread support from farm state lawmakers. But opponents say it will lead to higher fuel and food prices. Charles Drevna heads the refiners' lobby. He says they aren't equipped to process large quantities of renewable additives.
CHARLES DREVNA, EXEC VP, NATIONAL PETROCHEMICAL & REFINERS ASSN.: It's going to cost the consumer just for us to be able to blend these massive quantities. It's going to cost them initially because of the infrastructure requirements.
DHUE: The climate change conference in Bali has some lawmakers eager to reach an agreement on an energy bill that can reduce greenhouse gases. But in an odd twist, with several senators traveling to that conference, scheduling a vote is difficult. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Kevin Depew, Executive Editor at minyanville.com
JEFF YASTINE: Tonight's "Street Critique" guest says, even with today's market pop, sentiment on Wall Street is pretty negative and overdone right now. He's Kevin Depew, executive editor at the financial education web site minyanville.com. Kevin, welcome back to NIGHTLY BUSINESS REPORT.
KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Thanks so much, Jeff.
YASTINE: So we have negative sentiment, all the stuff about the credit markets and also worries about the holiday sales season. We've already finished up five, six weeks worth of selling between October and November. So you think there is a year-end rally still ahead.
DEPEW: Absolutely. It doesn't matter where you look, whether you're talking about the newspapers or television, whatever is coming into your home right now is telling you that Wall Street is a mess. You have sub- prime credit problems, foreclosures. It's just-- it's just a nightmare if you pick up a newspaper or watch the news. But ironically, that's the time we want to start becoming bullish and the indicators I look at are telling me now is the time to begin buying certain stocks.
YASTINE: All right, with that in mind, what certain stocks would you be looking at here?
DEPEW: Well, the first one that I picked for the program is Aetna, AET. And again, all these stocks that we're going to talk about are ones that are positive technically. So Aetna, a diversified managed health care company has great fundamentals. The technicals have shaped up nicely and I think that this stock is one you can own into the year end.
YASTINE: What's your next one?
DEPEW: Next we're going to talk about Monsanto (MON). This is a company that really is focused on helping farmers increase their productivity. We've been focused on oil and people have talked about even water shortages across the globe, but agriculture is certainly an area that, if you want to own a stock that benefits from a demand for agriculture, it's going to be Monsanto.
YASTINE: We've seen a couple of big mergers already, one this week that was announced between two very large farm retailers. So then what's the third one here?
DEPEW: The first one is Union Pacific (UNP) and this is a stock that -- the company goes back to 1860s and it's an old-fashioned railroad play. There's a shortage of rail freight containers in the United States and this is a company that investors like it. All these are best-of-breed stocks that are best in their sectors.
YASTINE: Kevin, just to get the disclosure aspect out of way, do you own of any these? Do you have any positions here?
DEPEW: No, not on these Jeff.
YASTINE: All right and just to put this briefly in perspective, are you saying this is a resumption of the bull market or just a tradable rally that goes on for weeks or a couple of months.
DEPEW: No I think this is a tradable rally and it's very narrow, confined to large-cap stocks. These are stocks that are going to benefit from that migration into large caps.
YASTINE: You think that it does have some legs here? We can look at in January and we won't be back down near the old lows on the S&P again.
DEPEW: Well, January, I don't know. But next week, people are going to start talking about a Santa Claus rally. The indices are going to continue to move forward because these are large-cap stocks that move those indices.
YASTINE: All right, Kevin, thank you very much.
DEPEW: My pleasure.
YASTINE: Our guest, Kevin Depew, executive editor at minyanville.com.
"Money File"-529 101
SUSIE GHARIB: In tonight's "Money File," a tutorial on 529 college saving plans. Here's Harriet Johnson Brackey, personal finance columnist at the "South Florida Sun Sentinel."
HARRIET JOHNSON BRACKEY, PERSONAL FINANCE REPORTER, SO. FLORIDA SUN SENTINEL: A recent survey by the College Savings Foundation showed that most parents don't know about or understand 529 college savings plans. These accounts, which are named after a section of the tax code, are really a great way to save money for education. So why don't more people use them? Maybe, if you don't have a financial advisor, you haven't come across all the details. Here's how a 529 college saving plan would work.
You put money into the plan's mutual funds and let it grow until it's time to pay for college. It's almost that easy. You take the money out tax-free, so long as you use it for education. Anyone can put the money in -- parents, grandparents, even your friends and neighbors. Many states give you a state income tax deduction for your contribution. Money inside the 529 plan does not count heavily against a student who's trying to qualify for financial aid.
And if the student doesn't go to college, you pick a new beneficiary, a cousin perhaps. Grandparents could send $12,000 to each grandchild's plan without gift tax consequences or even load up on five years' worth of gifts at one time. Speaking of that, doing this is way easier than figuring out what toy the kids want for the holidays. Money in a 529 college savings plan surely would be a gift that lasts. I'm Harriet Johnson Brackey.
Paul Kangas' Stocks in the News
JEFF YASTINE: New economic data helped drive the stock markets higher today, right from the start. By the midpoint of the session, the Dow was up almost 200 points. Buyers welcomed a Commerce Department report showing unexpected gains in factory orders and adding to the enthusiasm, a private report by ADP predicting a 189,000 job jump in November's employment numbers. So, the Dow closed up 196.23 at 13,444.96. And the NASDAQ jumping 46.53 to 2,666.36 and the S&P 500 adding 22.22 to 1,485 and a fraction and in the bond market, the 10-year note falling 16/32 to 102 11/32 and the yield at 3.96 percent.
Citigroup (C) topping our list again, gaining $1.14, but an analyst at CIBC World Markets cut earnings targets three years out on Citi in the belief that mortgage losses of up to $6.5 billion next year because of its huge exposure to high-risk mortgages.
Pfizer (PFE) gaining $0.51. The Dow component in a pact with Avalor (ph) to develop compounds for new pain relievers. That should add to Pfizer's portfolio of pain treatments.
General Electric (GE) gaining $0.46.
Advanced Micro (AMD) losing $0.34. There's a bug in AMD's new Barcelona chips, but a spokesman at the company says there's a software patch to fix the problem. Order (ph) shipments not affected we're told.
Ford Motor Co (F) gaining just a penny.
And then Bank of America (BAC) gaining $1.16.
EMC Corp (EMC) up a quarter.
JPMorgan Chase (JPM) advancing $0.75.
Time Warner (TWX) losing a fraction.
Countrywide Financial (CFC) up $0.42.
American Intl Group (AIG) jumping $2.50. CEO Martin Sullivan says the firm is well-diversified to offset exposure to the troubled housing market.
And then Genentech (DNA) sank $6.65 after being halted this afternoon. An FDA panel says there's insufficient data on using the company's colon cancer drug Avastin as a new treatment for breast cancer.
MBIA (MBI) collapsing more than $5. Moody's says it may cut MBIA's AAA rating because of the bond insurer's deteriorating cash position.
First Marblehead (FMD) sliding over $5 on a downgrade from Sandler O'Neal (ph). The analyst concerned the company may be - the bank may be forced to suspend its dividend because of troubles in executing securitizations.
Bristol Myers Squibb (BMY) rising $0.20. The drug maker targeting $1.5 billion in cost savings from a restructuring which announced a 10 percent cut in the work force, widespread plant closings and shedding certain assets.
Electronic Data Systems (EDS) rising $1.49. They'll plan a $1 billion stock buyback and the chairman, Mike Jordan, will step down. It'll be taken over by the CEO Ron Rittenmeyer (ph).
Shares of Guess (GES) going up $2.30 in reaction to a 33 percent jump in third quarter profits. Results were $0.04 above estimates.
And then Blyth (BTH), this is a candle making firm, up more than $4, an impressive turnaround there as third quarter profits came in $0.17 a share, versus a loss in the year ago period.
On the NASDAQ, Apple (AAPL) rising $5.69.
More profit taking in Research in Motion (RIMM), down a little over half a dollar.
Google (GOOG) gaining more than $14.
Microsoft (MSFT) gaining $1.38.
Comcast "A" (CMCSA) down over $2.50. The cable provider seeing lower subscriber growth about a half a million fewer new subscribers than previous forecast.
Intel (INTC) up nearly $1.
Cisco Systems (CSCO) up more than half a dollar.
Baidu.com (BIDU) up another $4.45.
Oracle (ORCL) up $1.19.
First Solar (FSLR) rebounding more than $11 after yesterday's $14 loss.
And then Nvidia (NVDA) up $1.66. The company leaked the specs on its new graphics card which aren't supposed to be released until December 11th.
And finally, InterDigital (IDCC) surging $3.13. The company says it won a $134 million arbitration award against Samsung on a patent infringement case.
