NBR Complete Transcripts-December 31, 2007
Monday, December 31, 2007The Last Trading Day of 2007 Proves to be a Real Downer
SUSIE GHARIB: No champagne rally on Wall Street on this last trading day of 2007. The Dow lost 101 points but rose 7% for the year. The NASDAQ fell 22 points but jumped 9 ½ percent in 2007. Now investors are wondering what lies ahead in 2008. Well they’ll get some clues this week. After the holiday tomorrow, there will be a whole new batch of economic reports. But as Erika Miller explains experts say there won’t be much to celebrate.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the nation gets ready to ring in 08 many Americans are anxious about the outlook for the economy. Wall Street will be paying close attention to a slew of fresh data later in the week, for any sign recession odds are rising. The biggest report is Friday’s employment data for December. Economists are forecasting gains of just 50,000 jobs. After a 94,000 jump the prior month. The unemployment rate is expected to increase slightly to 4.8%. But economist Michele Gambera, warns temporary hires in the retail and hospitalities industries may distort the December data.
MICHELE GAMBERA, CHIEF ECONOMIST, IBBOTSON ASSOCIATES: It is difficult by household survey or by establishment survey to know which employment gains have been seasonal and which employment gains actually took place and will stick.
MILLER: Ahead of that report there will be other key signals about the health of the economy. On Wednesday the Institute for Supply Management will release its manufacturing index. Citi Economist Steven Weiting, isn’t expecting much of a change despite strong foreign demand for U.S. products.
STEVEN WEITING, SR. ECONOMIST, CITI: We think manufacturing is near the break even point of 50 reading, based on the surveys that we’ve seen on the regional level. Manufacturing is growing but is not particularly robust. Consumer demand is moderating.
MILLER: Also out on Wednesday, construction spending. It is expected to post a decline due to a sharp drop in residential projects. On Wednesday at 2:00 the Fed will release minutes from its December 11th meeting which could provide a clue about the outlook for interest rates. On Thursday, auto sales. They are expected to show a decline potentially raising concern about the strength of consumer spending. Economists will also be watching the weekly jobless claims that day for any hints about Friday’s employment report.
WEITING: The weekly initial unemployment claims data are complete census of every individual in the country. We’ve now seen some meaningful rise... we’re very deep into this housing downturn. And that’s weekly data but its high quality data.
MILLER: There will also be weekly energy inventory data from the energy department on Thursday. If there is a big drop in supplies, traders predict crude could make another run at the $100 a barrel mark. Investors are hoping for a prosperous new year. But if predictions about this week’s data are any indication, the economy may not get off on strong footing in 2008. ERIKA MILLER, NIGHTLY BUSINESS REPORT, New York.
Go Take The Megabus
SUSIE GHARIB: These days, many Americans are choosing not to fly and are leaving the driving to bus companies. New figures show that in the last two years, there’s been a 13% increase in bus service. That’s the first increase in decades. High fuel prices and new innovative bus companies are part of the reason. Diane Eastabrook introduces us to Mega-bus Company offering cheap, chic travel.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: A street corner in the heart of Chicago’s loop. At 8:30 on a recent cold winter morning about 50 travelers loaded their own luggage into this bus’ storage compartment, then hopped aboard the double decker vehicle. Welcome to Megabus,a company that sells bus fares as low as a dollar, but only on-line. The earlier you buy your ticket, the cheaper the fare. Don’t expect to be picked up in a warm terminal Megabus picks up passengers on designated street corners in places like Chicago, Cleveland, and Minneapolis. If the no-frills concept sounds oddly familar, it is. Dale Moser, Chief Operating Officer for Coach USA, the parent of Megabus says think Southwest Airlines on the highway.
DALE MOSER, CHIEF OPERATING OFFICER, COACH USA: We really just took the discount theory of yeild managed pricing and implemented it into a city to city express bus service.
EASTABROOK: With gas prices soaring and congestion mounting at airports, bus travel is making a comeback in the U.S. A recent study by DePaul University’s Chaddick Institute of Metropolitan Development found American cities lost about 60% of their scheduled intercity bus service between 1980 and 2005. But the study found bus servce began rebounding early last year when Megabus started operating. Institute director Joseph Schwieterman thinks more competitors are inevitable.
JOSEPH SCHWIETERMAN, DIRECTOR, CHADDICK INSTITUTE: We’re seeing a lot of entrepreneurship around the country. We have Apex bus out East. We have a new operator out west. All of these companies are poised to expand and its only a matter of time before they come head to head against Megabus and we start to see a little bit of fare wars and so forth.
BUS DRIVER; All I ask is that you sit back, releax, and enjoy the ride.
EASTABROOK: Megabus began in Chicago, offering service to more than a dozen Midwest cities. It recently launched a similar service in Los Angeles. Megabus says it can offer cheap fares because its overhead is low. Selling tickets on the internet eliminates the need for sales and customer service representatives. Parent Coach USA operates commuter services, so it can house and repair Megabus vehicles at Coach USA bus barns. The company says it has cut its fuel costs by hedging. Moser thinks even if fuel prices soar higher, Megabus can still make money.
MOSER: I would say that if fuel goes to $4 a gallon on gasoline, that is going to benefit our service because more people are going to leave their car at home and look for alternatives. EASTABROOK: Moser says Megabus has a high passenger return rate and many customers say they have recommended the service to others. He thinks that kind of customer satisfaction will help Megabus expand its no-frills business to even more U.S. cities. DIANE EASTABROOK, NIGHTLY BUSINESS REPORT, Chicago
4th Quarter Winners & Losers With Sam Stovall, Chief Investment Strategist at Standard & Poor’s Equity Research Services
JEFF YASTINE: As we said, today was the last trading day of the fourth quarter and the year. Joining us now to wrap up the quarter’s winners and losers on Wall Street is Sam Stovall, Chief Investment Strategist at Standard & Poor’s Equity Research Services. Sam, welcome back to "NIGHTLY BUSINESS REPORT."
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR’S: Thanks, Jeff, Happy to be here.
YASTINE: Let’s get right down to it with the major averages. It didn’t feel too good as we moved through the fourth quarter. Just how bad was the damage to the major senior averages here?
STOVALL: Well, there was certainly enough damage that it didn’t really set history but it has been a long time since we have seen the S&P 500 down in both December and November. You have to go back to 1974 to experience that once again.
YASTINE: And the Dow with a 4.5% loss for the quarter. Let’s look at the winners for the Dow. Which one’s were the standouts here for this particular quarter?
STOVALL: Well the stand outs, Microsoft for the quarter, primarily because it had reported better than expected September quarter results reflecting strong PC demand globally.
YASTINE: And then you had Merck?
STOVALL: Yup. Merck recently affirmed its double-digit earnings growth through 2010 and outlined a 49 product pipeline.
YASTINE: Now we see Wal-Mart, there I thought the consumer was dead, why is Wal-Mart up?
STOVALL: Well, it seems as if this discount retailer likely benefitted from the aggressive holiday pricing to help drive store traffic growth
YASTINE: All right, let’s flip it around. Look at the losers as well for the quarter. And of those, no surprise there, Citigroup... Citigroup to the downside, down 37%.
STOVALL: This financial behemoth not only had problems with its ever mounting write-downs but also the possibility of a dividend cut.
YASTINE: Then you had General Motors.
STOVALL: Well, I think investors were selling on the news of the UAW agreement, plus there is continued concerns about consumer spending going into ‘08. . YASTINE: And then Home Depot, I guess no surprise with the weakness in the home builders.
STOVALL: That’s right. Think about it, that back in late 2005, the stock was trading above $40 per share.
YASTINE: Again, look at the S&P 500, winners for this quarter and we had Consul Energy (CNX) up 53%. Not too bad.
STOVALL: No, not at all. This is a coal company and it seems that accelerating global energy demand trends have continued to benefit coal producers.
YASTINE: And what is the story with Hess?
STOVALL: These shares benefitted from analysts target price increases in December.
YASTINE We move to the S&P 500 losers. We see E*Trade Financial which topped those particular lists. I guess the story similar to what we see for all the financials these days.
STOVALL: That’s right.: Well the write-downs in its $12 billion dollar home-equity loan portfolio and the loss of customer assets certainly made it a lot less attractive as a potential takeover candidate.
YASTINE: And then MBIA.
STOVALL: Well here investors may have sold their shares after the company disclosed that its $31 billion dollar insured portfolio of collateralized debt obligations contained 8 billion of CDO’S whose collateral primarily contained other CDO’s.
YASTINE: And it can’t help that Warren Buffet it sounds like he and Berkshire may get into a similar business here to the NASDAQ 100 will winners, millicom posting a 41% gain for the quarter.
STOVALL: I think this is an emerging growth story, mainly because this Luxembourg-based global telecom provider focus on countries with low cell phone penetration and little basic telephone infrastructure.
YASTINE: And then the other one, intuitive surgical. I know they do robotic surgical devices. It has been a very hot story stock for quite a while now.
STOVALL: It has also, did very, very well for the full year. The shares have risen on strong placements and higher selling prices for the DaVinci Surgical Systems.
YASTINE: And then we will look at our last two NASDAQ losers. Leap Wireless (Leap) down 42%
STOVALL: Well, here is the situation where the shares had been trading at a premium in anticipation of strong customer growth. And a possibility of being acquired, neither of which materialized.
YASTINE: What is the story on the last one, NII holidings?
STOVALL: Well, a former Nextel Latin American arm experienced increased petition.
YASTINE: What are your thoughts as we head into 2008? Do you think it will be better than 2007?
STOVALL: I think there is the good possibility, probably a weak first half and a strengthening second half. You don’t want to fight the fed at least for too long.
YASTINE: We’ll keep it in mind as we move into the new year. Sam, thanks for your time, thanks for coming on to the program.
STOVALL: You’re Welcome. And happy new year to you as well.
YASTINE: Our guest, my guest, Sam Stovall of Standard & Poor’s Equity Research.
"Commentary"-Housing Market Repairs
SUSIE GHARIB: Tonight’s commentator has some advice for fixing problems in the housing market. Here’s Glenn Hubbard, Dean of the Columbia Graduate School of Business and Former Chairman of the White House Council of Economic Advisers.
GLENN HUBBARD DEAN OF THE COLUMBIA GRADUATE SCHOOL OF BUSINESS AND FORMER CHAIRMAN OF THE WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: Federal Reserve and Treasury officials have been studying ways to avoid a repeat of today’s sub-prime mortgage woes.
That’s great, but today’s housing troubles have led to a credit crisis with serious implications for the economy. The Bush administration’s recent housing plan is a good beginning, but it is only that. Going Further, the F.H.A. should be given more leeway to make larger loans to homeowners who live in their own home and who can either make a larger down payment or document their income.
The policy goal should be to see that capable homeowners are not forced into foreclosure because they cannot refinance a sub-prime adjustable rate mortgage, one that was never intended to be longer-term financing. Expanding the F.H.A’s role also allows these new loans to have better credit analysis to make sure that borrowers can make their payments.
And investors in the existing mortgates will get cash from the refinancing for loans that were made to good borrowers. Truly bad loans will be allowed to default, some investors in existing mortgages will lose money, but policy should focus on credit availability to homeowners, not on shielding investors from the consequences of bad decisions.
The F.H.A. route requires work. We should push banks to get back into the mortgage origination business with their large branch networks. Higher origination fees can accelerate the process. While there will be pain for many investors, we can halt the spread of the housing crisis. The time to act is now. I’m Glenn Hubbard.
Paul Kangas' Stocks in the News
JEFF YASTINE: The Dow dropped about 120 points in the first two hours of trading. Buyers were positioning themselves for 2008. Some buyers with “dogs of the Dow” stocks like Citigroup and Home Depot saw some buying. That wasn’t enough to outweigh profit taking on many of the index’s best performers this year like McDonalds. Afternoon bells helped take the indexes off their lows. But they renamed stocks and fell sharply through the rest of the session. So the Dow dropping at 101. 05 to close at 13264.82. And the NASDAQ fell at 22.18 to close at 2652.28, and the S&P 500 losing 10.13 to end at 1468.36. And on the bond market the 10 year note gaining 12/32nd’s to 101 and 25/32 and putting the yield at 4.03%.
Citigroup tops our list tonight gaining 15 cents with 19.7 million shares changing hands, and those shares set a new intra day low for the year before rebounding along with the rest of the financial sector.
Pfizer (PFE) dropped $ .17
GE (GE) losing $.27
And there’ s Bank of America (BAC) up $.16
Washington Mutual (WM) another financial gaining a little over half a dollar.
Synovus (SNV) also up for the day gaining $.30
And SLM (SLM) Sallie Mae up nearly half a dollar.
Ford (F) up $.03. The company denying market rumors it plans to transfer its 49% stake in Ford Malaysia to another partner Sime Darby.
AT&T (T) down nearly $.90.
And Home Depot (HD) gaining $.26, a dog of a Dow buy as I mentioned earlier today.
Big movers here IBM (IBM) falling $1.99. Published reports say big blue is in talks to buy an Israeli storage technology firm for $300M to $350M but that’s not helping the stock today.
Legg Mason (LM) rising $1.92. The company moved Friday to cut its SIB exposure to 3.2% liquidity and today Bank of America cut its price target on the shares by about $10.00 and kept a buy rating on the stock.
Merrill Lynch (MER) rising $.71. Merrill leading Wall Street for underwriting fees in 2007. Also they closed a $1.25 billion sale of its insurance unit to Aegon today although that is a discount on the original deal.
Temple-Inland (TIN) rising over $3.00 or 18%. The firm completing its spinoff to share holders Guaranty Financial and Forestar Real Estate Group.
M/I Homes (MHO) this is a builder of single family homes adding about 4% today. The company selling today about 1/5 of its properties for $82M in an attempt to reduce debt. Most of that land was in Florida.
Centerline Holdings Co. (CHC) closing of just $.08 but had been sharply lower earlier. On Friday slashing its annual dividend from $1.68 a share to just $.60 a share also cutting its outlook for the fourth quarter.
On the NASDAQ mostly red here today. Apple (AAPL) dropping $1.75.
Research in Motion (RIMM) also down more than $3.50
Cisco (CSCO) off nearly $.50
Google ( GOOG) dropping more than $11.00
Baidu,com (BIDU) losing more than $9.00. Its Chief Financial Officer Sean Wang died in an accident while on vacation in China but J.P. Morgan says the CFO’s suddenly death won’t likely have an impact on the business of China’s top search engine.
Microsoft (MSFT) was down for the day.
So was Intel (INTC) off $.10.
First Solar (FSLR) a gainer of $1.10.
Amazon.com (AMZN) off $1.81.
Oracle (ORCL) losing $.39.
LJ International (JADE) shares rising 225. The jewel maker says its earnings per share in the first half of fiscal 2007 nearly doubled and had a 34% jump in revenues.
Delta Petroleum (DPTR) rising 334. Kirk Kerkorian’s investment firm Tracinda Corp is taking a 35% stake there. Delta says they’ll use that money $684M to accelerate development of drilling activities in core areas.
And finally Transmeridian Exploration (TMY) rising $.59. The oil exploration firm being taken private by chairman LORI OLIVER and he’s offering to buy all of the company’s outstanding stock at $3.00 a share. Oliver’s buyout vehicle is called Transmeridian International.
And those are the stocks tonight.
