NBR Transcripts-January 4, 2008
Friday, January 04, 2008Unemployment Highs & Job Creation Lows
SUSIE GHARIB: A big jump in the nation's unemployment rate led to a big drop on Wall Street today. The Dow tumbled 256 points and the NASDAQ plunged 98. The unemployment rate rose from 4.7 to 5 percent in December, its highest level in two years. U.S. payrolls grew by just 18,000 jobs, the slowest pace since 2003. Meanwhile, President Bush and his White House economic team are considering a possible stimulus package. We have two reports this evening looking at the outlook for the job market and how Washington lawmakers are responding. We begin with Suzanne Pratt in New York.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The labor market was supposed to be the one area of the economy that was holding up. The theory: job and wage growth would help Americans weather stresses in the housing sector and keep them spending money. Economists say the December employment report muddies that wishful thinking and raises new concerns about a recession. The nation's unemployment rate has surged 0.6 of 1 percent in the last year. And Bear Stearns economist John Ryding finds that cumulative gain the most alarming part of today's data.
JOHN RYDING, CHIEF U.S. ECONOMIST, BEAR STEARNS: Since 1950, every time the unemployment rate has risen as much as it has risen over the last 12 months, the economy has been already in recession at that point. So it's a troubling signal.
PRATT: Manufacturing industries, construction firms and retailers slashed jobs last month. But for the second straight month, the service sector experienced big job gains, particularly professional and technical services. Tig Gilliam, CEO of Adecco North America, a leading staffing and job placement firm, says the data is consistent with what he's been seeing.
TIG GILLIAM, CEO, ADECCO NORTH AMERICA: If you are looking for a job and you are in construction, you've got 9.5 percent unemployment. If you're in manufacturing in Detroit you've got 7.2 percent unemployment. If you're in IT in Washington DC, you have less than 2 percent unemployment and you're going to have probably a pretty good experience in the job market today.
PRATT: The December employment report underscores the growing dilemma for the Federal Reserve. Should Fed policymakers be fighting inflation or recession? JPMorgan economist Bruce Kasman says right now the recession risk is most important and that's why he feels the Fed will aggressively cut rates at the end of the month.
BRUCE KASMAN, CHIEF ECONOMIST, JP MORGAN: We think they are going to be easing 50 basis points at the January FOMC meeting. But they are also going to do so with the idea that if the economy does perform OK during the first half of the year, begins to improve, that they can take that back relatively quickly.
PRATT: Experts say it's still unclear whether the U.S. economy is headed for recession. But, most agree today's bleak employment report certainly raises the probability of one in 2008. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Stephanie Dhue in Washington. With economists now talking about a recession, the policy talk is now focusing on an economic stimulus package. After meeting with his working group on financial markets, headed by Treasury Secretary Paulson and including Fed Chairman Ben Bernanke, President Bush declared the economy fundamentally strong, despite anemic job growth.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: This economy of ours is on a solid foundation, but we can't take economic growth for granted. And there are signs that will cause us to be ever more diligent and to make sure that good policies come out of Washington.
DHUE: He suggested Congress make his tax cuts permanent.
BUSH: If the foundation is strong, yet indicators are mixed, the worst thing the Congress could do is raise taxes on the American people and on American businesses.
DHUE: Chamber of Commerce economist Martin Regalia agrees with that tax policy and says a stimulus plan should be broad based.
MARTIN REGALIA, CHIEF ECONOMIST, U.S. CHAMBER OF COMMERCE: The type of fiscal policy we're looking to are policies that that would look to broadly affect the economy, rather than increase government spending in particular sectors.
DHUE: But many Democrats are pushing for a more targeted approach. David Madland of the Center for American Progress thinks cutting the earned income tax credit for low wage workers and boosting spending on renewable energy are the ways to go.
DAVID MADLAND, DIR., WORK/LIFE PROGRAM, CENTER FOR AMERICAN PROGRESS: We think one of the good things that a stimulus package could do would be to look at ways to create new green jobs, part of addressing climate change.
DHUE: Analysts say any fiscal stimulus package will need bi-partisan support to pass. In an election year, that may be a tall order. And some doubt it will actually boost the economy, since by the time any new spending or tax cuts make their way through the political process, the economy will have moved on. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
White House Chief Economic Adviser Ed Lazear Offers Insight on the President's Economic Meeting
JEFF YASTINE: More now on the president's big economic meeting. Washington bureau chief Darren Gersh sat down this afternoon with White House chief economic adviser Ed Lazear. Darren began by asking Lazear why the administration says the economic fundamentals are strong, when economists say today's employment data shows we may already be in a recession.
EDWARD LAZEAR, CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: What the president means by a strong fundamental economy is that the structure of the economy is strong. So what he's talking about is that we have flexible labor markets, that we have open capital markets, that we have the ability to adjust to shocks in ways that other economies don't. And that's what he's talking about when he's saying we have a strong, robust economy. So if you look at the history of the economy over the past few years, we've had some pretty severe shocks and yet we've weathered those shocks with a minimum amount of damage. That said, that doesn't mean that there aren't periods during which the economy is growing at a slower rate than other periods and this happens to be one, at least in terms of last month's jobs numbers. We're at the mature part of an expansion. When you're at the mature part of an expansion, it's more difficult for the economy to create jobs and that's basically what we're seeing right now. We had predicted this. We forecast it. That doesn't mean we like it.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: But you don't think the economy is contracting right now because these numbers could be consistent with that.
LAZEAR: Well, we don't think it's contracting. We do think that it's growing at a less-rapid rate than it was in the past. Remember, third quarter was a fabulous quarter. It turned out the third quarter was almost 5 percent growth. No one expected that. Even the day before the numbers came out, we were expecting the rates to be about 2 percent less than that. So that was a terrific quarter. It will be hard to match that quarter. But even over the fourth quarter, if you look at the numbers, you know, it started out people were saying, gee, this could be a negative quarter. Now the forecasts are somewhere in the 1.5 percent range. We'll see what it turns out to be. But I think that most people expect that we will see a positive quarter, but growth that wasn't as pronounced or as good as you saw in either the third or second quarter.
GERSH: The president has said that he's out there listening to people, that he's considering economic remedies, but how do you define the problem? Are we in a credit squeeze or is there a problem with consumption?
LAZEAR: I think the way we tend to think about the problem is that you don't want to focus on any one particular sector or any one particular problem. What we believe is the best way to do anything, if one were to do anything. As the president said, you know, we're keeping all options on the table, but if we were to go in one direction or another, we would tend to favor more neutral approaches. Neutral means that it helps business, it helps consumption, but it does so in a neutral way. You don't want to favor one industry. You don't want to favor one sector. Things need to work themselves out in a market-sensitive way and if you were to move into one particular area, you run the danger of getting that particular industry stimulated to too great an extent. Then it comes back to haunt you later. That's what we're seeing in housing right now.
GERSH: In the past when the administration has talked about doing something, it's always made the argument that a temporary tax cut did not change behavior, that you needed a permanent tax cut in order to change behavior and to get an economic response. Is that the administration's thinking if you do anything?
LAZEAR: I don't think that's quite the statement that the administration made, although I must confess I wasn't around in those days, so some of that language might have gotten out, but if you look, for example, at bonus depreciation that took place in 2004, I believe it was, that was a temporary program. It was consistent with higher levels of investment as the kind of thing that would be good tax policy if made permanent, but it wasn't permanent at the time. So my interpretation of your statement would be that we tend to favor tax policies that are good long-run tax policies, but that doesn't necessarily mean that they would be permanent. This one example that I cited was not permanent.
GERSH: Ed Lazear, thank you for your time.
LAZEAR: Thank you.
"Market Monitor"-Richard Steinberg, president of Steinberg Global Asset Management
SUSIE GHARIB: My "Market Monitor" guest tonight says 2008 is a time for quote guarded optimism. Joining us now, Richard Steinberg, president of Steinberg Global Asset Management. Hi, Rich and happy New Year.
RICHARD STEINBERG, STEINBERG GLOBAL ASSET MGMT: Happy New Year, Susie. Good to see you.
GHARIB: As you know, on Wall Street, they say the first week of how the market does of the year determines how the rest of the year does. The major averages were down between 4 and 6 percent in these last couple of days. So what does that mean for the rest of 2008? What's your outlook?
STEINBERG: I don't think that we can have that yet. I think what we've done is we've squeezed some of the risk takers out of the market. Analysts' estimates are a little bit too high. They need to come down. But now I think the market is already ahead of that. The big issue is the Fed has to get their act together. They need to be more responsive. They aren't. Even with $95 or $96 in S&P earnings at a 16 or 17 month, we could have 8 percent up side, but it's going to be rocky. It's going to be fits and starts to these market and investors are going to have to live with the volatility.
GHARIB: Let's talk about what investors can do. It's been a while since you've been on our program, September of 2006. At that time you had four recommendations for our viewers. All of them have done really well so congratulations on that. But let's review them quickly. StreetTRACKS Gold (GLD), that's the gold ETF, it's had a nice profit, up 48 percent. And eBay (EBAY) up 14 percent in that time period. So is this a time to buy more or sell these?
STEINBERG: We took some money off the table in gold, but our value manager still loves it. Commodities are going to be rocky, though, so you have to pick your points. Long-term (INAUDIBLE) gold still there, eBay great franchise. Whitman is doing a great job there and I think that that's still a great long-term buy and we own them both still.
GHARIB: Your other two recommendations, Ingersoll-Rand (IR) up 11 percent, International Asset Holding Corp. (IAAC), that commodity brokerage firm gaining 20 percent since September of 2006. Have you taken profits here or are you still, do you still like them?
STEINBERG: Ingersoll-Rand, we still continue to own. We hit a home run with International Assets. It was down the day that we were here. We sold some up in the $40s, bought it back and I think it's a long-term commodity play. They're the brokers for commodities, but it's not for the feint of heart.
GHARIB: OK. Let's look ahead to 2008. Top on your list of recommendations, Bucyrus International (BUCY) traded on the NASDAQ, why do you like it?
STEINBERG: The theme is coal. They make heavy equipment for the mining industry. They made a great purchase of a deep digger in Germany, DBT. The stock is really cheap, huge backlog, great long-term story for coal.
GHARIB: All right, Sterlite, (STL). What's the attraction here? This is an Indian mining company. Why do you like it?
STEINBERG: It's an ADR, huge mining company. Stock's really cheap. It's six times next year's earnings. Southeast Asia, China, coal is going to be a big story. Mining continues to be a big story. The stock is very, very cheap.
GHARIB: I was surprised to see your next recommendation, Western Union (WU). We don't hear too much about that company anymore. WU is the ticker symbol. Why are you recommending this one?
STEINBERG: It's unloved, unwanted. Everybody hates it. Huge cash flow story, even with single-digit revenue growth, they'll have double- digit gains. You have to just be patient. It's the U.S.-Mexican corridor which is still an important trade.
GHARIB: And finally, you like the ETF for preferred shares, this is the I shares of the S&P U.S. preferred stock index. The ticker symbol PFF on the American Stock Exchange. Tell us about this one.
STEINBERG: The 10-year notes at 3.8 roughly. This area has gotten crushed because of the credit crunch. There's a lot of banks and preferreds in this and there is a lot of tax loss selling at the end of the year. The stock has come down from $50 to $42. Investors can get paid to wait and have a diversified portfolio of preferreds.
GHARIB: Rich, do you own any of these stocks or any other disclosures you want to tell our viewers.
STEINBERG: We own all of them within the firm. I own none of them personally.
GHARIB: Real quickly, General Electric (GE), years past when I've talked to you, was one of your top holdings, still is. What's your view on General Electric.
STEINBERG: So goes the global economy, so goes GE. You and I, we're talking about Immelt recently. He's got a great handle on the business. They continue to invest in growth storage, especially overseas, but we're going to get some real interesting information from them in their next earnings because we'll see whether or not the global growth story, which we believe is still in place, is in place with GE and that's what we have to watch.
GHARIB: All right. Thank you so much, Rich, again happy New Year.
STEINBERG: Good to see you.
GHARIB: Thanks for coming on the program. My "Market Monitor" guest tonight, Richard Steinberg, president of Steinberg Global Asset Management.
"Last Word"-Taser Parties
JEFF YASTINE: Finally tonight, it looks like your usual home shopping party. Women gathered in a room, eating snacks, drinking cocktails and perusing products at their leisure. But they aren't trolling for Tupperware. These women are buying Taser stun guns. Taser says the home-spun tactics are working and its new C-2 personal protectors are selling well, even with a $350 price tag. The C-2 was launched in August and looks more like an electric razor than a weapon and it even comes in a variety of colors, including pink Susie. But there's one big difference between a Taser and a Tupperware party. If you buy Tupperware, you don't have to go through a criminal background check first.
GHARIB: Shocking.
Paul Kangas' Stocks in the News
JEFF YASTINE: President Bush's comments did little to stem today's market slide. The Dow dropped more than 200 points in the first hour of trading. There were few places for investors to hide. Energy and precious metals stocks, which had been strong in recent days and months, came in for selling too. Technology favorites like Apple, which fell more than 7 percent, also saw lots of sellers. So the Dow ended the day down 256.54 points at 12,800.18. And the blue chips this week closed higher just once in this shortened trading week and posted an overall loss of 565.69 or 4.2 percent. The NASDAQ ended the day down 98.03 to 2504.65 and the tech index losing ground in all four trading sessions this week for a net loss of 169.81 or 6.3 percent. And the Standard & Poor's 500 falling 35.53 to end at 1411.63 and for the week overall, the S&P losing 66.86 or about 4 1/2 percent. And the rally in bonds continued as investors look for safe haven from stocks. The 10-year note gaining 5/32 with the price of 103 2/32 and pushing the yield down to 3.87 percent.
Citigroup (C) topping our list losing $0.69 on volume of 23.9 million shares. Late yesterday, Credit Suisse said it sees a wider fourth quarter loss at Citi of $1.35 a share. That's nearly half of the amount that was expected previously, more than half of what was expected previously.
Ford Motor (F) off $0.32.
GE (GE) losing $0.76. Its (INAUDIBLE) and inspection technologies unit is buying Germany's Rayonik (ph), maker of flow meters used in the oil and gas business. No price tag on that deal.
Pfizer (PFE) dropping $0.35.
Motorola (MOT) losing nearly $1. The CIBC brokerage says its channel check (ph) showed weakness in cell phone sales in the second half of December and also late today, Motorola saying it's cutting 1,600 jobs and will take a charge of $90 million to cover those costs.
Wells Fargo (WFC) off more than $1.
And Bank of America (BAC), part of that weak financial sector, down $0.45.
Also under pressure, Adv Micro Devices (AMD) falling $0.52 after its rival Intel was downgraded by JPMorgan.
EMC Corp (EMC) losing $0.84.
And then Countrywide Financial (CFC) down $0.35.
Bear Stearns (BSC) down almost $5. A report saying that Bear Stearns will meet with a U.S. attorney in New York later this month to talk about two of its hedge funds that failed last month on bad bets in the sub-prime mortgage debt arena.
And Regions Financial (RF) falling nearly $2.50. The bank will set aside $360 million for loan losses in the fourth quarter, those related to the housing slump.
Wendys Intl (WEN) down $1.52. Fourth quarter same store sales falling nearly 1 percent after growing more than 3 percent in the year ago period.
Azz Inc (AZZ), one of the big gainers, rising nearly 13 percent. The maker of electrical products reported third quarter profits which were 50 percent above year ago levels.
Greatbatch (GB) also a gainer, up $1.88. The maker of defibrillator batteries receiving an upgrade from Bank of America.
And SLM Corp (SLM) Sallie Mae down nearly $2.50. The lender will not be originating as many student loans after new Federal legislation which cut subsidies to commercial lenders.
Global Payments (GPN) losing over $7. The processor of credit card payments warning third quarter earnings will fall below analyst estimates.
And Talbots (
TLB) shares dropping $1.22. The specialty retailer closing its Talbots kids and Talbots men's shops and also warned about weaker fourth quarter sales.
On our retailers today, not a pretty group here, Macy's (M), JC Penney (JCP), Nordstrom (JWN), Wal-Mart (WMT) and Target (TGT) all posting gains into the closing bell.
On the NASDAQ, Apple (AAPL) topping our actives there, dropping $14.88.
And then Intel (INTC) losing $2. JPMorgan downgrading those shares citing worries about a pullback in spending on PCs.
Google (GOOG) down more than $28.
Research in Motion (RIMM) down nearly $9.50.
Microsoft (MSFT) dropping $0.99.
Baidu.com (BIDU) losing over $14.
And First Solar (FSLR) down $20.29.
Cisco Systems (CSCO) losing $0.63.
Dell (DELL) down on that downgrade of Intel, dropping $1.62.
And Qualcomm (QCOM) losing $0.87.
There was a gainer, NASDAQ star of the day, North Pointe Holdings (NPTE), it'll be bought by QBE Holdings for $16 a share in cash.
Cleveland Biolabs (CBLI) dropping $4.69 or more than 50 percent. Its treatment for radiation syndrome was not selected by the Department of Defense for a contract with them.
And finally, Arctic Cat Inc (ACAT) shares getting frozen, losing $2.98. The maker of snow mobiles and all-terrain vehicles warning of a wider than expected fourth quarter loss.
Those are our stocks in the news tonight.
