NBR Transcripts-December 28, 2007
Friday, December 28, 2007The Housing Market May Not Be Great in 2008
SUZANNE PRATT: More bad news on the housing front today. Fresh data from the Commerce Department show sales of new homes plunged 9 percent last month to their lowest level in more than 12 years. The larger-than-expected drop in sales is the latest sign of deepening trouble for the housing market, the bleakest sector of the economy this year. As Erika Miller reports, most experts see no sign of a turnaround anytime soon.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you think housing was weak this year, brace yourself for next year. Many industry experts think we're only half way through the housing downturn. They say the problem is a classic case of too much supply, too little demand. S&P economist Beth Ann Bovino says the solution is for home prices to come down another 5 percent or so.
BETH ANN BOVINO, SR. ECONOMIST, STANDARD & POOR'S: Within the housing sector, we will need to see housing prices fall. This will actually help go through in a sense that inventory of unsold homes. When the prices start to drop a little bit, then you're going to see buyers become more interested.
MILLER: Experts say some previously sizzling markets like Florida could suffer double digit drops next year. On the other hand, prices are expected to barely dip in the northeast where inventories are leaner. Economists expect foreclosures to increase as much as 33 percent nationwide, adding to the housing supply. Lenders have also tightened mortgage requirements in response to the sub-prime crisis. That means a smaller pool of qualified home buyers. The most optimistic projections call for housing to stabilize in the second half of the year. Economists say much depends on whether the U.S. economy slips into recession.
BOVINO: We're at the brink, I guess you could say, of much more severe issues happening. We do see -- we have a 40 percent likelihood that there could be a recession in 2008. That would certainly extend the housing crisis even further out into 2009.
MILLER: All of this is of course good news for home buyers. Brokers say prices on new homes are the lowest they've been in years. But the outlook is bleak for the millions of families hoping to sell their homes. Economist Lakshman Achuthan recommends taking a good look at your asking price.
LAKSHMAN ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH: People are living in fantasy land, actually, where they think that their home price is going to just remain flat or maybe even go up in the next 12 months. It's just not going to happen.
MILLER: Economists are waiting to see a reduction in inventories before calling a turnaround. They also want to see an improving job market, which would help stimulate housing demand. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
The Credit Crisis & Student Loans
SUZANNE PRATT: A busy week for SLM Corp., more commonly known as Sallie Mae. The student lender shored up its bottom line by selling $3 billion in stock and accelerated its push into private student loans that aren't backed by the government. The move highlights the spread of the credit crisis into the student loan market. Some families are now worrying about how they'll finance their children's education. As Dana Greenspon reports, students shouldn't have trouble getting loans, but they may have to pay more for them.
DANA GREENSPON, NIGHTLY BUSINESS REPORT CORRESPONDENT: American University's financial aid director Brian Lee Sang says his school hasn't felt the blow of the credit crunch yet. Most families took out loans before the crisis hit, borrowing enough to cover them through the spring semester. But he's starting to see trouble for some families who are looking to borrow more.
BRIAN LEE SANG, FINANCIAL AID DIRECTOR, AMERICAN UNIVERSITY: It's creating issues where families are coming to us asking us for institutional help, saying, hey can I get more money any way to try to help get us through the spring semester. But I think more colleges are going to see even more of this and feel the impact of this next year.
GREENSPON: Some student loan companies are already struggling. Earlier this month, First Marblehead, a major securitizer of student loans, cut its dividend in half and said it would not bundle together loans for the current quarter. Sallie Mae's shares have dropped almost 50 percent so far this month. Peter Warren represents non-profit and state lenders. He says getting lender financing for education loans can be difficult in the current credit environment.
PETER WARREN, VP OF GOVERNMENT RELATIONS, EDUCATION FINANCE COUNCIL: These are asset-backed securities. And people, buyers, are shying away from asset-backed securities, apparently of all types and they're not paying a lot of attention to the underlying credit part, there's a general sort of mistrust.
GREENSPON: Congress has also shaken up the student lending environment. A bill passed this fall cuts subsidies to student lenders. Combined with the credit crunch, Warren says lenders are being squeezed.
WARREN: On the one hand, their yield is being diminished significantly as a result of these reconciliation cuts and on the other hand, at the very same time their financing costs have spiked in a way that we haven't seen for a very long time.
GREENSPON: While many analysts say student loans will still be widely available and attainable, the price tag could noticeably rise. Private loan rates are tied to market rates whereas interest rates on Federal loans are capped. So while private lenders may raise interest rates to cover costs, Federal lenders may cut borrower incentives. But things may be looking up for the lenders. Just last week, Goldman Sachs announced it would invest $260 million in First Marblehead to help it weather the credit crunch. And late yesterday Sallie Mae announced it had raised $3 billion in capital. Analysts say those deals show confidence in the student lending industry moving into next year. Dana Greenspon, NIGHTLY BUSINESS REPORT, Washington.
Japan's Motorcycle Business May Be Losing Steam
SUZANNE PRATT: Back in the 1960s, Japanese motorcycles began to roll into the U.S. market. Their reputation for value and reliability nearly put American motorcycle makers out of business. But as Lucy Craft reports, the Japanese machines are now getting a run for their money, on their own turf.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: When it comes to two-wheeled transportation, no country has ruled the road like Japan. From humble mopeds to luxury cruisers, the market has virtually belonged to just four Japanese brands: giants Honda and Yamaha and smaller players Suzuki and Kawasaki. As recently as 2005, more than one out of every two bikes sold around the world was Japanese. But last year, Japan's iron grip on the motorcycle trade started to slip and experts like Shinsei Securities' analyst Yasuhiro Matsumoto say the era of Japanese bike-making supremacy is waning.
YASUHIRO MATSUMOTO, SR. ANALYST, SHINSEI SECURITIES: High-end products, still dominated by Japanese manufacturer. But I just say that, low-end product models, Japanese makers will lose their shares for this segment.
CRAFT: Publicly, industry spokesmen like Yamaha Motor Company's Minoru Takihata remain sanguine.
TRANSLATION OF: MINORU TAKIHATA, SUPERVISOR, PR GROUP, YAMAHA MOTOR CO.: The recent low-end demand has expanded the entire market. The Japanese have always catered to every price range, but can no longer do so. Our share is declining only because the total pie is bigger. I don't see any reason for pessimism.
CRAFT: India and China are now the world's leading customers for motorcycles. Instead of the heavy displacement, speed and sleek styling of plush models sold in the U.S., Europe and Japan, most Indian and Chinese riders seek no-frills transport, says a sales rep for Suzuki.
TRANSLATION OF: SUZUKI REPRESENTATIVE: This is our Chinese export model, GSX-125. It's very cheap and it's good for carrying family members or cargo. It's not a hobby bike, but strictly for commuting to school or work.
CRAFT: Yet despite strenuous efforts to woo riders in developing countries, Japanese and other motorcycle exporters have stalled in China. Isao Katayama, spokesman for Taiwanese maker Kymco, says counterfeiting is rampant.
TRANSLATION OF: ISAO KATAYAMA, MANAGER OF SALES & PLANNING, KYMCO JAPAN: Our bike will probably be counterfeited, with parts that don't fit right and an engine that is poorly machined and breaks down a lot.
CRAFT: To the frustration of the Japanese, China is home for over 100 local bike-makers. They have flooded the market with knockoffs selling for a fraction of the cheapest Japanese sticker price. Local bike producers have emerged not just in China, but in India as well. Yamaha spokesman Takihata insists time is on their side.
TAKIHATA: People are likely to trade up as their income increases, which would favor us in the future.
CRAFT: When it comes to motorcycles, made in China still means cheap and shoddy. The real question for Japanese motorcycle manufacturers is, how fast the Chinese and Indians can boost quality and become a real competitive threat. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Market Monitor"-Thomas Herzfeld, President of Thomas J. Herzfeld Advisors
PAUL KANGAS: My guest market monitor this week is Thomas Herzfeld, president of Thomas J. Herzfeld Advisors, a firm specializing in closed end funds. Welcome back to NIGHTLY BUSINESS REPORT Tom.
THOMAS J. HERZFELD, PRESIDENT, THOMAS HERZFELD ADVISORS: Thank you, Paul.
KANGAS: As one of the world's top experts in closed end funds, please explain to our viewers the differences between standard mutual funds, exchange-traded funds or ETFs as we call them, or closed end funds now.
HERZFELD: They're all investment companies. Mutual funds are bought through dealers. You pay the net asset value or the net asset value plus a sales charge. ETFs have fixed portfolios and they trade on the stock exchange, usually at net asset value. Closed end funds have continually managed portfolios and trade based on supply and demand in the marketplace.
KANGAS: Well, you're the expert. You're considered a world expert on them and how did the closed end funds perform in 2007 as we close the year?
HERZFELD: A mediocre year, struggling through most of it, primarily because last year, the year-end tax selling, there weren't a lot of bargains around. That's where most closed end fund investors make most of their money in the period now and to the beginning of the year. Also, the sub-prime problems hit the closed end funds, even funds that have nothing whatsoever to do with sub-prime.
KANGAS: A lot of stocks, generally were hurt just by the general dismal nature of the market.
HERZFELD: Exactly.
KANGAS: What is the outlook for closed end funds in 2008?
HERZFELD: This marks my 40th year in specializing. I think it's the best opportunity in at least a decade.
KANGAS: Why?
HERZFELD: The net asset values have not been all that weak, but the share prices came under tremendous pressure and discounts are as wide as I've seen them.
KANGAS: And that's what you love. Those discounts are where you jump in. They don't even have to get to a premium for you to have a profit.
HERZFELD: No. We like to buy a fund whose discount is likely it narrow at least five percentage points.
KANGAS: What's a good buy-in point, 15 percent discount?
HERZFELD: It should be wider than its own average and wider than its peers.
KANGAS: On your annual December visit with us last year, you gave our viewers four buy recommendations. Let's see how they did since then. Let's get the first two, Western Asset (ESD) down .2 percent. But I know there were some changes. These are just the buy and the sell prices during the year. You probably traded this one three or four times during the year at a profit.
HERZFELD: Well as I mentioned a moment ago, we buy these for year-end trades. We've been in and out of it several times. But the performance that you're showing doesn't actually -- is not representative of what actually occurred.
KANGAS: This doesn't include dividends, which in many cases are very handsome.
HERZFELD: The last one, Central Europe (CEE) just paid out a $10 a share distribution. So the actual performance on that was up about 30 percent this year. Without that dividend you're calculating .
KANGAS: And then you had two others (Alliance California Muni Income Fund (AKP), Castle Convertible Fund (CVF)) that you recommended and they look to be down, but here again, that does not include the dividend.
HERZFELD: You're not recalculating the distributions. The average return of the four picks for the year was about up 10 percent.
KANGAS: OK, not bad. That's not shabby at all for 2007. Do you have any new recommendations for our viewers?
HERZFELD: Well, three. They're all invested in both U.S. and foreign securities.
KANGAS: Clough Global Opportunities (GLO).
HERZFELD: That's the total return in both stocks and bonds in the U.S and overseas. It's trading at a 13 percent discount to net asset value near its widest level of the year.
KANGAS: And that's why you like it here.
HERZFELD: Yeah, and it is also a well managed fund we're buying for year-end
trades. That's one you can hold though.
KANGAS: OK. We have a minute left and time for maybe two more.
HERZFELD: Well, (DHG) (DWS Dreman Value Income Edge Fund). It's invested in a lot of out-of-favor areas at the moment. The discount has widened to about 16 percent.
KANGAS: That's good.
HERZFELD: It's paying out about 11 percent. GLO is paying out about nine.
KANGAS: That's not bad. How about one more?
HERZFELD: DWS Multi Market Income Trust (KMM). It's lower rated bonds including emerging market debt, Brazil, Argentina and Turkey, paying out about 9 percent and trading at a 13 percent discount to net asset value.
KANGAS: Right in that level that you think are bargains. Doesn't make any difference what the name is. You just like anything that's at a discount--
HERZFELD: I know you like to look at them over the longer term, so we picked some you could hold as well.
KANGAS: Tom, do you personally own any of these funds or do you have any other disclosures to make?
HERZFELD: Loaded with them.
KANGAS: You own all of them.
HERZFELD: Every one.
KANGAS: OK, very good. I want to thank you for being with us once again.
"Last Word"-Star Tricked
HERZFELD: Happy New Year Paul.
KANGAS: My guest, Thomas Herzfeld of Thomas J. Herzfeld Advisors.
Paul Kangas' Stocks in the News
SUZANNE PRATT: And finally tonight, a "Star Trek" fan wants Christie's auction house to beam up millions of dollars after buying what he claims is fake "Star Trek" merchandise. The Trekkie says he made a bad bet, spending $6,000 for a poker visor that was supposedly worn on the TV show "Star Trek: The Next Generation." But when he asked one of the show's stars to autograph it, he was told by the actor that it was not authentic. The fan is suing Christie's for millions of dollars in punitive damages and a refund for $24,000 that he spent on three items. Christie's stands behind the authenticity of the goods and says the case has no merit. Paul, if it goes to trial, the case may go "where no man has gone before."
KANGAS: That could create a whole new series of "Star Trek." Who knows.
PAUL KANGAS: Wall Street opened higher in a technical rebound from yesterday's sharp sell off. After the first half hour of trading the Dow was up 60 points and the NASDAQ gained 12. But the early upturn was soon quashed by that worse than expected 9 percent tumble in November new home sales. By 1:00 p.m. the Dow fell to a 61 point deficit and the NASDAQ posted a 15 point loss. Trading slowed to a crawl for the rest of the session and stocks ended on a mixed note. The Dow Industrial Average closed up 6.26 at 13,365.87. In this shortened trading week, the Dow fell once, rose three times, but still had a net loss of 84.78 points. The NASDAQ Composite lost 2.33 to end at 2674.46 today. This week, it gained twice, fell twice and lost 17.53 points overall. Standard & Poor's 500 was up 2.12 today, ending at 1478.49 and for the week overall, it lost 5.97 points. Over in the bond market, the 10-year note jumped 1 1/32 to 101 13/32, putting the yield down to 4.08 percent.
Big board volume leader on 42.7 million shares was Sallie Mae, SLM Corp (SLM) showing no change on the day. As you heard, it sold $3 billion in common stock and convertible securities and that was $500 million more than first announced.
Then Citigroup © down $0.27. "Wall Street Journal" reports Citigroup may sell a number of branches or even entire units like its 80 percent held student loan corporate.
Temple Inland (TIN) made it in the active list, down $0.46. The stock was moved from the Standard & Poor's 500 Index to the Standard & Poor's madcap 400 today, because the company is breaking up into three separate entities.
General Electric (GE) up $0.15.
Bank of America (BAC) down $0.36.
Moving along in the active list, Ford Motor Co (F) dropped $0.14.
Pfizer (PFE) $0.02 drop there.
And there you see AT&T (T) moving up $0.42.
Washington Mutual (WM) a $0.47 drop.
Then came ExxonMobil (XOM) with a gain of $1.33.
MBIA (MBI), the bond insurer, tumbling $3.53. As you heard, Warren Buffett's Berkshire Hathaway Corp is starting a bond insurance company who will likely be a tough competitor in the business. Ambac stock, which is another major bond insurer, fell $4.02 to close at $25.12 today.
Genesco (GCO), the shoe retailer, a $5.44 gain. The Tennessee chancery court has ordered Finish Line Corporation to complete its agreement to acquire Genesco for $54.50 a share. Finish Line stock dropped $0.75 to close at $2.30.
Another shoe retailer stock did well and that was DSW (DSW), up $1.86 on news the chairman of American Eagle Outfitters has acquired a 14.3 percent stake in DSW.
Checkpoint Systems (CKP) up $3.89. The company sees 2008 earnings at $1.65 to $1.75 and that's above the estimate of $162 on Wall Street. Also the company has a new CEO.
MGM Mirage (MGM) edging up $0.81. Dubai World has boosted its stake by 5 million shares to a total of 6 ½ percent now.
Centerline Holding Co (CHC) down $2.57, major casualty. The company cut its 2007 cash distribution estimate from $1.89 down to $1.70 to $1.75 a share.
Christopher & Banks (CBK), the women's apparel retailer, third quarter earnings in, $0.29 versus $0.24 on a 9 percent rise in same store sales, but the company sees fourth quarter earnings of only $0.02 to $0.05 on flat sales, hence the loss in the stock.
MSC Industrial (MSM) down $1.63. Bear Stearns downgraded it from "out perform" to "peer perform" on concern of a slowdown in the U.S. maintenance repair and overhaul business.
NASDAQ's most active, Apple (AAPL) up $1.26.
Baidu.com (BIDU) down $10.33.
Google (G00G) up $1.79. The company increased its lead in the Internet search market in November to 57.7 percent from 55 ½ percent in October and that came at the expense of Microsoft and Yahoo!
Research in Motion (RIMM) down $0.42.
Cisco Systems (CSCO) $0.23 drop there, fifth in NASDAQ volume.
Microsoft (MSFT) $0.15 gain.
Intel (INTC) $0.07 drop.
First Solar (FSLR) down $1.46.
And then Amazon.com (AMZN) $0.20 gain.
Dryships (DRYS) did well, rising $3.71.
Elsewhere, Pemco Aviation (PAGI), look at that percentage gain, almost 126 percent. The Government Accountability Office upheld the company's protest against Boeing, regarding a $1.2 billion contract for mid-air refueling.
