NBR Transcripts: 12-07-2007
Friday, December 07, 2007The Latest Labor Numbers May Strongly Influence Interest Rates
SUSIE GHARIB: The U.S. labor market is on a bit stronger footing than anticipated. The Labor Department said today payrolls increased by 94,000 new jobs in November, many in the service sector. The unemployment rate remained unchanged at 4.7 percent. The job market continues to be a bright spot despite significant slowing in other parts of the economy. And as Suzanne Pratt reports, today's data is likely to play a big role in the Federal Reserve policy meeting week.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The surprising strength of the U.S. labor market eases pressure on the Federal Reserve to cut interest rates when it meets on Tuesday. Before today's highly anticipated release of the November employment report, some experts were looking for policymakers to slash the Federal funds rate by a half a percentage point. Bear Stearns economist Conrad Dequadros says moderate Fed action is now the more likely outcome.
CONRAD DEQUADROS, SR. ECONOMIST, BEAR STEARNS: I think that this tilts the decision quite significantly in the direction of a 25 basis point rate cut. This is not a report that I think suggests that the Fed needs to be aggressive.
PRATT: Nevertheless, some economists believe aggressive action is not entirely out of the question. That's because while the job market looks OK, stresses in the financial system remain.
DEQUADROS: We still have evidence of significant funding pressures which the Fed might decide is prudent to address with more accommodative monetary policy.
PRATT: Many economists believe the health of the nation's job market will continue to function as a shock absorber for the nation's economy, allowing it to withstand the housing collapse and the credit crunch. Employers have created 1.3 million jobs this year, which works out to an average of 118,000 a month. Last year, however, the economy averaged 185,000 new jobs each month. Even though job creation is clearly slowing down, experts say it's good enough to quash some of the recent pessimism about the U.S. economy. Lehman Brothers economist Ethan Harris says talk of a recession should dissipate, at least for now.
ETHAN HARRIS, CHIEF US ECONOMIST, LEHMAN BROTHERS: The jobs report is one of the most important indicators for gauging the current state of the economy. This is a healthy job report. This doesn't mean we couldn't slide into recession sometime next year, but certainly we're not close to recession today.
PRATT: Between now and Tuesday's Fed meeting, no significant economic data will be released. As a result, experts say it's unlikely that market expectations for a quarter point rate cut will change. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
The Alternative Minimum Tax Fix Proves To Be Pricey
SUSIE GHARIB: After months of political posturing, it looks like Democrats and Republicans on Capitol Hill are ready to cut deals in time to get home for the holidays. The first signal was an overwhelming vote in the Senate last night in favor of a fix for the alternative minimum tax. But as Darren Gersh reports, it came at a high cost for Democrats.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The temporary fix on the alternative minimum tax will cost $50 billion. Now that Democrats in the Senate have dropped plans to pay for that tax cut by raising other taxes or cutting spending, House Majority Leader Steny Hoyer signaled his members may have no choice but to go along with the Senate.
REP. STENY HOYER, MAJORITY LEADER: So we'll have to see how we can resolve that and make sure something passes that can pass the Senate.
GERSH: Executives of private equity firms are a big winner here, avoiding a large tax increase. Tax expert Leonard Berman says Democrats are sending a bad signal on the budget by abandoning their core principle of fiscal discipline.
LEONARD BURMAN, CO-DIRECTOR, TAX POLICY CENTER: I'm reminded of what Will Rogers said, that when you find yourself in a hole, the first thing to do was to stop digging. And every time we enact another tax cut or enact more spending programs, we have to figure out how to pay for it, we are digging the hole deeper.
GERSH: The next big deal could be cut next week on energy. There the question is whether Democrats will scrap a provision requiring power companies to use more renewable fuels. That would be a big win for coal companies. The other issue, says Lehman Brothers political analyst Chuck Marr, is whether to scale back tax hikes for oil companies, a sensitive topic for oil state Republicans.
CHUCK MARR, POLITICAL STRATEGIST, LEHMAN BROTHERS: And the question is, can they modify that tax package enough and still pay for it, but maybe not go after the oil companies as much to get enough Republican support to pass it?
GERSH: Congress has waited so long to finish its work that next year's agenda is already on the table. Today, top Democrats like Barney Frank of Massachusetts suggested they'll be looking for ways to inject new spending into the economy.
REP. BARNEY FRANK, (D) MASSACHUSETTS: The time has come to think about stimulating this economy, to prevent either a recession or a slowdown in economic growth that will certainly feel like a recession to a lot of people.
GERSH: Next year's agenda is likely to be shaped by forces outside the beltway. At the top of that list, the economy and the presidential election. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"- John Hughes, President of Quantum Capital Management
JEFF YASTINE: Our "Market Monitor" guest tonight says this is potentially one of the best times to be an investor since 2002, if you're looking for good companies trading at good values. He's John Hughes, president of Quantum Capital Management. John, welcome back to NIGHTLY BUSINESS REPORT.
JOHN J. HUGHES, PRESIDENT, QUANTUM CAPITAL MANAGEMENT: Hi, Jeff, it's good to be here.
YASTINE: So let's ask that first question, is this a good time yet to be a value investor in this current market?
HUGHES: You selected the most optimistic line off of a nine-page essay. We like to end on an optimistic note, but yes, be protected your capital we think with the increased volatility, if you looked at the price value equation that you could certainly find values in this volatile market.
YASTINE: Define for us what you think is happening in this economy. We have this thing going on with the credit market. The banking sector, the Feds cutting rates and yet the stock market itself only down four or five percent from the all-time highs.
HUGHES: We have long argued that this rising debt to GDP ratio portends inflation. It's a structural problem that has been -- it has been developing for 20 years. We currently generate $6 worth of debt for $1 of GDP growth. That's unsustainable in our view. This imbalance has to clear at some point. And algebraically the only way it can clear is if there is a debt contraction or a rise in output. The Federal government seems to be predisposed to supporting debt levels currently. We haven't made the types of investments in productive assets to generate above trend GDP growth. So we believe that our above trend GDP growth which is what we think are going to have in the next 10 years, will be inflation driven. It is highly inflationary and it's also one of the reasons why we own gold.
YASTINE: So inflation continues to be the theme here. Tell us first, you were last on the program back in April of this year. You talked with Paul at that time and you gave us two picks. One of them was 3M (MMM) and we'll bring that chart up on the screen, 3M and then Legg Mason (LM). 3M would that be still one that you would own?
HUGHES: We are buying it. In fact I think we bought it today, literally. We like 3M. They've been in business since 1902. They have compounded capital at a high rate. They have doubled their retained earnings in the last three years. The stock price hasn't moved that much. They have recently been downgraded because of some pricing pressures in the optical business. We think they have been innovating for a long time. We think they will innovate their way through this.
YASTINE: And briefly, we have Legg Mason up there. It's down about 23 percent from when you were on the program.
HUGHES: Legg Mason we rode it up. We rode it back down. Typically we would be buying at this point but we own two financial stocks, neither of them banks. When the sub-prime meltdown started we felt that we couldn't adequately quantify -- we couldn't quantify the risks so we had to step aside. But notwithstanding the sub-prime risk, we may buy it in the future.
YASTINE: All right. Let's move on to your new picks. What would you be recommending an investor to be buying in this current marketplace?
HUGHES: Well, we think Copart (CPRT), Copart is one of our largest holdings. We have recommended it a number of times on the program.
YASTINE: That symbol is CPRT.
HUGHES: CPRT. They are a technology company that masquerades as an auto salvage dealer but what they do best, they actually have a business model that is unique in that as their service becomes more ubiquitous, all of the stakeholders in the value chain enjoy more value. They have been compounding capital for more than 15 years at a high teens clip. We see no reason why they can't do it in the future.
YASTINE: What would be your second one?
HUGHES: My second pick would be Epicor (EPIC). It's a mid market software service provider. They fly under the radar of Oracle and SAP.
YASTINE: Stock symbol EPIC.
HUGHES: EPIC. They have a cash earnings yield of around 7 percent. We think in a normalized market, they can grow earnings at about a 6 to 10 percent clip. If they do some things right, it could be a 20 percent grower over the next few years.
YASTINE: And your last one is gold, the GLD ETF.
HUGHES: The StreetTRACKS gold shares for the reasons that we talked about earlier in the interview. I think everyone should own gold in their portfolio. It's a great hedge against a decline in the dollar that is less than orderly.
YASTINE: And do you have any disclosures for us on these particular stocks?
HUGHES: We own everything that we recommend on the show. And 100 percent of our assets are invested in the Quantum funds.
YASTINE: John, thank you very much for coming back on the program.
HUGHES: Well, thank you Jeff.
YASTINE: Our guest, John Hughes, president of Quantum Capital Management.
"Last Word"-Magna Carta For Sale
SUSIE GHARIB: And finally tonight, here's your chance to own one of the rarest documents in the world. But you're going to have to shell out big bucks to do it. An original version of the Magna Carta is going on auction block at Sotheby's on December 18. The Magna Carta is a cornerstone of democracy and human rights, dating back to the year 1297 and the reign of England's King Edward I. The document is up for sale is one of 17 known surviving copies that were signed by the king himself. And Jeff, it could sell for as much as $30 million and that would be a record.
YASTINE: Well, $30 million for a 700-year-old document, but certainly a cornerstone as the report pointed out of English civilization, certainly. I'm sorry Susie.
GHARIB: There are 16 other copies too.
YASTINE: For investors, that poor consumer sentiment appeared to offset the improved jobs picture today. The Dow rose about 30 points into the midpoint of the session. Sellers trimmed back on financial stocks on concern the Fed may not cut as aggressively next week as some expected. The NASDAQ was likewise limited to a narrow 10-point range through the day. And with the Fed meeting looming on Tuesday, few traders took new positions. So the Dow closing up 5.69 points to 13,625.58. And this week, the index rose in three out of five sessions for an overall gain of 253.86 points. The NASDAQ falling 2.87 to 2706.16 today and this week, it fell in three out of five sessions for a gain of 45.2 points. And the S&P 500 dropping 2.68 to 1504.66 and it had a weekly advance of about 23 1/2 points. In the bond market, the 10-year note falling 24/32 to 101 4/32 and the yield up to 4.11 percent.
Paul Kangas' Stocks in the News
JEFF YASTINE: For investors, that poor consumer sentiment appeared to offset the improved jobs picture today. The Dow rose about 30 points into the midpoint of the session. Sellers trimmed back on financial stocks on concern the Fed may not cut as aggressively next week as some expected. The NASDAQ was likewise limited to a narrow 10-point range through the day. And with the Fed meeting looming on Tuesday, few traders took new positions. So the Dow closing up 5.69 points to 13,625.58. And this week, the index rose in three out of five sessions for an overall gain of 253.86 points. The NASDAQ falling 2.87 to 2706.16 today and this week, it fell in three out of five sessions for a gain of 45.2 points. And the S&P 500 dropping 2.68 to 1504.66 and it had a weekly advance of about 23 1/2 points. In the bond market, the 10-year note falling 24/32 to 101 4/32 and the yield up to 4.11 percent. And Citigroup (C) topping our list on a quiet day on Wall Street. Late today the Dow Jones newswires reporting that Citi's board will meet on Monday and may name Vicrum Pandit (ph), the head of investment banking there as Citi's new CEO.
General Electric (GE) down a fraction.
Pfizer (PFE) up $0.23.
Ford Motor Co (F) holding steady, but after the close, the auto maker said it will issue $62 million new shares which will be used to pay down Ford's debt load.
Countrywide Financial (CFC) dropping $0.56.
And then Bank of America (BAC) losing $0.59.
Advanced Micro (AMD) off a fraction.
AT&T (T) dropping $0.35.
Wells Fargo (WFC) off $0.88.
ExxonMobil (XOM)
up $0.06.
American Express (AXP) taking it on the chin with this Dow component falling $2.57 on a pair of downgrades from Steifel Nicholas and Merrill Lynch. The analysts expect belt tightening by consumers to eventually cut profits for credit card issuers.
And then here's another one Capital One Financial (COF) losing almost $3. Morgan Stanley predicting more write offs to cover problem loans as the fallout in consumer finance gets worse.
Then shares in Cascade Corp (CAE) nose diving over $11. (INAUDIBLE) sell order (INAUDIBLE) here following the fork lift maker's shortfall in profits, only about to get earnings of $1 in the latest quarter and that was $0.08 below analyst estimates.
And a sharp pull back in oil futures today clearing the way for a take off in airline stocks. AMR (AMR) rising $0.72 with oil dropping back nearly $2 a barrel.
A few others here, Continental Air (CAL), Delta Air (DAL), United Airlines, all doing quite well today.
And investors also applauding UAL Corp (UAUA) special payout of $2.15 a share.
Some other issues heading south, Amrep (AXR) sliding more than $3. Yet another real estate developer hurt by plummeting land sales. Second quarter profits sank to $0.55 a share from $2.42 a share in the year ago period.
And then First Marblehead (FMD) cutting losses to - after hitting yesterday (ph) low of $15.69, rising deformities (ph) forcing the lender to cut its dividend and cancel a securitization of student loans for the quarter.
Statoil Hydro (STO) caving almost $4. The Norwegian oil concern blaming repairs at its North Sea installations for lower oil output and they'll cut full year and 2008 production in that period.
Now moving onto the NASDAQ, Apple (AAPL) jumping more than $4.
But Google (GOOG) losing $0.39.
Research in Motion (RIMM) dropping $0.23.
Cisco Systems (CSCO) off $0.34.
First Solar (FSLR) rebounding more than $17.
Intel (INTC) dropping a quarter.
Then baidu.com (BIDU) finally a losing day on this one, losing $2.88.
Microsoft (MSFT) dropping a fraction.
Amgen (AMGN) off $3.
And then Comcast "A" (CMCSA) slipping a fraction.
Gemstar-TV Guide Intl (GMST) falling $1.03, while its suitor Macrovision fell more than $5. Macrovision buying Gemstar-TV Guide for $2.8 million from News Corp which owns 41 percent of the company. And Gemstar shareholders will get $6.35 a share. Investors are not happy about the chintzy premium being paid for that. That's why the stock went down.
Smith & Wesson Holding (SWHC) falling nearly $3. The gun maker's shares hitting a one-year low after the company lowered its profit outlook for the second time in two months.
And finally Imax (IMAX) jumping $2.68. The company signing a deal with AMC Entertainment, the theater chain, to put 100 of its giant screen Imax theaters in AMC properties and that will double the number of Imax screens available for those types of films in the U.S.
Those are our stocks in the news tonight.
