NBR Transcripts-January 2, 2008
Wednesday, January 02, 2008Oil Prices Gush To $100 A Barrel
SUSIE GHARIB: The New Year begins with a new milestone for oil prices: $100 a barrel. After crossing that level, it finally settled at a record close of $99.62, up $3.64 or nearly 4 percent. Fueling today's spike, concern that new violence in Nigeria could further reduce oil output from that nation. Suzanne Pratt looks at whether $100 oil is here to stay and how it could affect the U.S. economy. SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It finally happened after months of worrying about the $100 milestone. The price of crude briefly hit it today at the New York Mercantile Exchange. According to the Merc, one single futures contract traded at midday at $100 a barrel. And oil trader Evey Stanziale believes oil prices will move higher in the coming weeks.
EVARISTO STANZIALE, OIL TRADER, SCS COMMODITIES: Don't be surprised to see a 105 print or a 110 print. And say, oh wow. I think the $100 price is just the tip of the barrel as far as where we're going to be headed.
PRATT: Speculators were big buyers today as violence in oil producing Nigeria, concerns about tight U.S. oil inventories and a weaker dollar contributed to bullish sentiment. Those factors plus other geopolitical tensions and increasing demand for oil helped push crude prices up nearly 60 percent last year. Gasoline and heating oil have also moved higher in recent months as both are derived from crude. But, experts say the U.S. economy has weathered the rising energy costs fairly well and Bear Stearns economist Conrad Dequadros thinks it will continue to do so in 2008.
CONRAD DEQUADROS, SR. ECONOMIST, BEAR STEARNS: Obviously, there are significant risks and energy prices are just another one of those risks. But, at this point we think that those risks from the housing market, from oil prices, from the turmoil in the financial markets all points to slow growth rather than recession.
PRATT: Still, higher energy costs are sparking new concerns about inflation. And some economists believe higher prices for finished goods will keep the Federal Reserve from cutting interest rates.
DEQUADROS: It's something that's likely to make rate cuts following the January meeting somewhat unlikely. Our feeling is that they will cut rates again in January, then they will hold the Fed funds rate steady at 4 percent through the middle of the year.
PRATT: Experts predict another volatile day of trading in the energy markets tomorrow. The government releases its weekly inventory data and another drop in U.S. stockpiles of crude oil is expected. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One with Simeon Hyman, Equity Strategist at Lehman Private Investment Management
SUSIE GHARIB: Our market guest tonight says the outlook for stocks in 2008 depends on whether or not the U.S. economy slips into a recession. Joining us now to explain, Simeon Hyman, equity strategist at Lehman Private Investment Management. Hi Simeon and happy New Year to you.
SIMEON HYMAN, EQUITY STRATEGIST, LEHMAN PRIVATE INVESTMENT MANAGEMENT: Happy New Year.
GHARIB: So, the economy is key. Talk us through your analysis here.
HYMAN: You know, a lot of the volatility we're seeing is driven by fundamentals. In other words, every day we're waking up and trying to guess whether we're actually going to be in a recession. You know, our view is that it's a binary outcome for stocks, but stocks are cheap enough that even if we do have a recession, you're looking at maybe a flat to down size of 10 percent market, not the kind of 30 percent plus correction that we saw in the beginning of this decade. But that is only about a one in three chance in our view. There's still about a two-thirds chance that we avoid recession and you don't need to avoid a recession by much to have quite robust equity returns in '08. Just 1 1/2 to 2 percent real GDP growth and flat to mildly positive earnings growth could yield some nice double-digit equity returns.
GHARIB: So you're saying that even in a very, very slow economy, the stock market could do pretty well.
HYMAN: No, I think that's right particularly as we do expect some help from the Federal Reserve. If the credit markets had not imploded in the second half of '07, we'd be looking at probably a good one more year of classic late economic expansion cycle bull equity markets. We're just now concerned that that might be truncated a little bit due to the housing and credit situation.
GHARIB: But given the way the market performed at the end of 2007 and the way it started off today, are we in a bear market or the beginning of one?
HYMAN: Again it really depends on whether we're in a recession or not. The unfortunate thing is we don't know if we're in a recession until we're actually through it. It will be reported on a lag basis, but I don't think we're in a bear market yet. There's enough positive signs in the economy and also you keep in mind that companies just didn't really spend money this past cycle like they have in past cycles. Cap ex as a percentage of sales never really recovered in this expansion and so we don't have the capacity overhang that we've had in previous business cycles so even if we have a recession, there's some reasonable odds that it would be a shallow one.
GHARIB: In this kind of environment, what kind of companies do well and what kinds of companies struggle?
HYMAN: I think the key here is to stick with some themes that -- some themes that did work very well in '07 particularly large cap stocks still are the way to go in our view over small cap stocks. They outperform small cap stocks by around 10 percent depending on what index you use. We think that valuation disparity is not gone yet so even if we do edge into a mild recession, large cap stocks will still likely outperform. The other story that worked very well in '07 was the growth story. We think it's time to move a little bit more neutral on that but still not time yet to dive into the deep value and high dividend-yielding plays that many are suggesting. We think more of a neutral stance on style (ph) is warranted.
GHARIB: So Simeon, what is your number one advice to investors starting into 2008?
HYMAN: Frankly the most important thing is to just stick with your program. This is not a time to dramatically sell out your equity positions. Be close to fully invested. If you can take advantage of some of the dislocations in the credit markets, that can be of use too, but really stick to your knitting and don't sell out of your equity positions. You really have to be close to your full long-term allocations in this environment and really tweak your risk exposures around the edges opportunistically in the credit and currency markets.
GHARIB: OK. Good information. Thank you so much for coming on the program.
HYMAN: Thank you.
GHARIB: My guest tonight Simeon Hyman, equity strategist at Lehman Private Investment Management.
"Economic Choices '08"-The Job Of Improving The Employment Picture
JEFF YASTINE: The first test of the 2008 presidential campaign is a day away. Tomorrow's Iowa caucus come as many forecasters say the economy and job growth are slowing down. So tonight our economic choices '08 coverage focuses on job creation. Darren Gersh looks at the strategies the candidates are backing to boost employment in their bids to win the biggest job of all. DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Democratic presidential candidates have seen the economic future and it is green. All of the major candidates have plans to turn renewable fuels into an engine of job growth. Barack Obama endorses that idea; so does Hillary Clinton.
SEN. HILLARY CLINTON, DEMOCRATIC PRESIDENTIAL CANDIDATE: If we get serious about solar and wind and geothermal and bio-fuels, we will be able to create what will be called green collar jobs.
GERSH: Major Democratic candidates also call for targeted incentives aimed at creating jobs. But John Edwards goes further, promising to fund one million stepping stone jobs for the poor. Economist Jared Bernstein says that will help build a bridge to permanent employment.
JARED BERNSTEIN, SR. ECONOMIST, ECONOMIC POLICY INSTITUTE: So Edwards actually has a very good idea, but it is a very small bore idea in a labor force of 140 million people, we're talking about maybe helping a million people.
GERSH: In many ways, the main focus of the Democratic presidential candidates is not job creation, but job improvement, things like boosting the minimum wage, expanding health care coverage and protecting American workers from abusive trade practices overseas. The Democratic candidates' positions are so similar, pollster Andy Kohut says voters don't see much difference on jobs. But he says they do give Democrats the edge over Republicans on handling a big economic worry.
ANDREW KOHUT, DIRECTOR, PEW RESEARCH CENTER FOR THE PEOPLE & THE PRESS: The issue is not finding a job, because we know that unemployment is not soaring. The issue is finding a good job. And when we ask people about their discontents and what they are satisfied about their jobs, it's lack of ability to move ahead, lack of ability to have a good job that is a major concern.
GERSH: To support job growth, the Republican presidential candidates focus on reducing corporate taxes, streamlining regulation and improving the economy. Former New York City Mayor Rudy Giuliani and Massachusetts Governor Mitt Romney are also perceived as candidates who've proven they can create jobs. Mitt Romney makes his successful career in business a major selling point.
MITT ROMNEY, REPUBLICAN PRESIDENTIAL CANDIDATE: And by the way, I think it makes sense to have somebody leading the country who actually knows about business and knows why jobs come and why they go and why businesses decide to leave our shores and go somewhere else.
GERSH: The leading Republican candidates also argue free trade creates jobs at home. Nada Eissa worked at the Treasury under President George W. Bush. While economists agree trade boosts employment, she says it's not politically popular.
NADA EISSA, ASSOCIATE PROFESSOR, GEORGETOWN PUBLIC POLICY INSTITUTE: The Republicans are talking about the right policy tools or instruments or approaches, but I think what's missing on that side is, at least on the free trade side, is how we're going to deal with the disruptions and the costs that are created by these policies.
GERSH: But none of the presidential candidates has proposed a real plan to address the long-run budget problems that will help determine whether the United States remains a good place to invest and create jobs. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Interview with Austan Goolsbee, Economic Policy Advisor for Barack Obama
GHARIB: As part of our economic choices '08 coverage, we're looking at the economic views of the major presidential candidates. We have invited the candidates themselves and their economic advisers to join us here. Earlier today I talked with the top economic policy advisor for Senator Barack Obama, Austan Goolsbee. I began by asking him what would Senator Obama do to create more jobs for Americans. AUSTAN GOOLSBEE, CHIEF ECONOMIC POLICY ADVISOR FOR BARACK OBAMA: Well, in the long run we know we've got to invest in the industries of the future, be they alternative energy, high technology and that kind of thing. And we need to invest in the skills of our work force, college affordability and things of that nature. In the short run, we've got to prevent the slowdown in the housing market from spreading to the rest of the economy and really having a negative impact on the job market.
GHARIB: Austan, as you probably heard today, oil prices hit $100 a barrel. If Senator Obama were elected president, what could he do in the short term, if anything, to bring those prices down?
GOOLSBEE: Well, look, the key that you hit there is most of what's driving the short term price problem is a lot of demand from China and India. One of the only things we can do in the immediate run is try to ratchet down the geopolitical uncertainty which has added according to most analysts about $25 to $30 a barrel. So saber rattling over war with Iran is probably the last thing you want to be doing about now and you want to be sorting out the war in Iraq. In the longer run, we need a comprehensive energy policy and that's what senator Obama has put forward.
GHARIB: A lot of economists and analysts have been talking to are predicting a recession for the U.S. economy. What kind of economy does Senator Obama believe that we're in and what could he do to turn it around?
GOOLSBEE: You know, Senator Obama when he goes around he says it's not the place of a presidential candidate to be spooking people or declaring that there's going to be a recession. But we've seen Chairman Bernanke and most Wall Street analysts saying we should expect at least a significant slowdown and that we need to be mindful of whether it would spread to the rest of the economy. He's called for two or three specific things, the most important of which is middle class and working class tax relief to try to prevent the slowdown in the housing market from dragging down consumer spending and really pulling the whole economy down with it. That's really the centerpiece of what we need. But he's also wanting to address the economic insecurities that people have directly with a comprehensive health care plan, with an energy policy and things like that.
GHARIB: You know, voters are trying to figure out the difference between the economic policies of Senator Obama and Senator Clinton and Senator Edwards. If you had to single out one point, what would it be that is the key difference between Senator Obama and the major Democratic presidential candidates? GOOLSBEE: Well, I'd say all the Democrats have the same spirit that we're trying to reestablish a balance in the economy and make sure everybody is in this together. I would say one distinctive feature of the Obama plan that is not embodied in the other candidates' plans is significant middle class, direct middle class and working class tax relief. And that would be rather distinctive because we need it. Americans have zero margin for error. Their incomes have been stagnant. The cost of energy, health care, college education have gone up, leaving them no margin for saving and no margin for error and that's what his tax cuts would address.
GHARIB: Austan, some people say that Senator Obama's economic policies are farther to the left than the other Democratic presidential candidates when it comes to whether you're talking about tax cuts or labor or health care or any of those issues. Is that a fair characterization?
GOOLSBEE: I don't especially think it's fair. I mean that's kind of the old left-right debate of the '90s if you want to think of it that way. I think if you look at the detailed policies that Senator Obama has laid out, you will find that they're innovative. They're different. They don't -- many of them do not fit on a regular left-right scale, so I don't think -- he's got a tremendous amount of support from independents and from Republicans, so I think it would be hard to characterize him as being majorly (sic) left wing.
GHARIB: Austan, thank you so much for coming on our program. We really appreciate it.
GOOLSBEE: Thank you. My pleasure.
"Money File"-Who Should Help The Struggling Homeowner?
SUSIE GHARIB: In tonight's "Money File," should the government help homeowners who are at risk of defaulting on their mortgages avoid foreclosure? Here with some answers is Eric Schurenberg, managing editor of "Money" magazine.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: Nothing gets financially responsible folks more exercised than the suggestion that homeowners at risk of foreclosure should get help from Uncle Sam. People shouldn't borrow more than they can afford, the thinking goes and those who do, should pay the consequences.
While that argument has justice on its side, I'd suggest that you might be better served by a more pragmatic approach. Yes, foreclosures punish bad decisions, which is a public service, but they also hurt the innocent. Foreclosed homes tend to go vacant. They add to the glut of homes for sales. Both depress home values for people whose only fault is to live nearby.
So why not let the market settle it? The fact is, the market hates foreclosures too. Normally, lenders try to keep delinquent borrowers in their homes if at all possible case by case. But these days, the sheer volume of defaulting borrowers makes case by case impossible. So look at a ballot as a way of letting the market do what it would do anyway if it could. The plan organized by secretary of Treasury Paulson for example, offers a standard way of deciding which borrowers could afford their homes if they got a break and which couldn't even with help.
Another plan championed by Senator Durbin of Illinois would modify bankruptcy laws to allow a judge to make the call. Other plans would create a new bureaucracy for that purpose and put the tax payer on the line for any mistakes. That I think is risky. Yes, borrowers should read the fine print. They should not believe brokers who promise them they can afford overpriced loans. But the question is, how much unneeded pain do you want to impose on yourself just to teach them a lesson? I'm Eric Schurenberg.
Paul Kangas' Stocks in the News
JEFF YASTINE: Oil prices only told part of the market's story; today's economic data told the rest. The Dow held its own in the first half hour of trading, but at 10:00 a.m. Eastern, the Institute for Supply Management's manufacturing survey showed a sharp decline and that raised fears again about an economic recession. The Dow dropped more than 200 points after that over the next three hours. An afternoon rally attempt failed and both indexes finished near their lows of the day. So the Dow falling 220.86 to close at 13,043.96 and then the NASDAQ dropped 42.65 to 2609.63. The S&P 500 ended down 21.2 to finish at 1447.16. In the bond market, the 10-year note gaining 1 2/32 to 102 25/32, dropping the yield down to 3.91 percent.
And SLM Corp (SLM), Sallie Mae, the student lender, leading our actives, 20 million shares falling $0.78, no specific news there. Citigroup (C) down $0.52. At least one analyst thinks Citi's new management will seek larger than expected write offs during the fourth quarter. Dick Buvay (ph) of Punk Siegel (ph) lowered his 2007 and 2008 earnings estimates for Citigroup.
Pfizer (PFE) gaining $0.18.
GE (GE) losing $0.31. The company's GE Capital unit and Blackstone, the private equity group, calling of their $2 billion deal to buy one of the largest mortgage originators PHH.
Bank of America (BAC) losing $0.70. The analyst at Sanford Bernstein sees a bigger write off there, $5.5 billion for the fourth quarter.
Then we have Ford Motor (F) topping our list here, down $0.13.
Advanced Micro Devices (AMD) losing $0.36 or almost 5 percent. Bank of America downgrading eight semiconductor stocks. AMD was one of them that really hurt the NASDAQ today.
EMC Corp (EMC) losing $0.51.
Qwest Comms Intl (Q) off $0.21.
JPMorgan Chase (JPM) down $1.10. Sanford Bernstein, again, an analyst there seeing $1 billion more in write downs at JPMorgan in the fourth quarter.
There were some gainers today, notably the gold stocks. Barrick Gold (ABX) rising $3.97 on today's record high gold price of $860 an ounce in New York trading and that helped all the other gold stocks.
Goldcorp Inc (GG), Gold Fields (GFI), Kinross Gold (KGC), Newmont Mining (NEM) all doing very well into the closing bell.
Boeing (BA) shares down $0.84.
And then we have AMR Corp (AMR), parent of American Airlines, falling $0.73. Goldman Sachs sees a larger than expected $0.71 a share loss at AMR in the fourth quarter.
Then Delta Air Lines (DAL) losing $1.10. Oil at nearly $100 a barrel, not helping any of the airline stocks get off the ground today.
BJ's Wholesale (BJ) down more than $4. JPMorgan downgrading the stock because of its high valuation.
Then LDK Solar (LDK) rising $2.36. The solar panel maker expecting up to $1 billion in sales for this year.
Verifone Holdings (PAY) shares fell $3.44. The company needs to restate earnings for most of 2007, but Verifone doesn't see those restatements coming out before March at the earliest.
Textron (TXT) shares down $4.49. Citigroup downgraded those based on a big 50 percent jump in the stock price last year.
On the NASDAQ, Apple (AAPL) topping the actives, falling more than $3.
Google (GOOG) off more than $6.
Research in Motion (RIMM) just up a fraction.
Microsoft (MSFT) losing $0.38.
Intel (INTC) getting caught up in that Bank of America downgrade of the chip makers, down $1.31.
Then we have Baidu.com (BIDU) off nearly $8.
Cisco Systems (CSCO) off $0.53.
Amazon.com (AMZN) bucking the trend, up $3.61. Citigroup says Amazon has one of the best fundamental outlooks among the Internet stocks.
Qualcomm (QCOM) losing nearly $1.
Oracle (ORCL) off about $0.09.
Then we have Akeena Solar (AKNS) adding nearly $3.50, a 43 percent jump after inking the deal with Suntech Power Holdings. It will allow wider distribution of its solar panel technology.
And finally, shares of Echostar Holding Corp (SATS), this is a new issue, rising $13 or 73 percent, first day of trading. It's a spin off of Echostar Communications and it contains their set top box business and certain satellite assets.
Those are our stocks in the news tonight.
