NBR Complete Transcripts-January 23, 2008
Wednesday, January 23, 2008Wall Street's Sudden 600 Point Surge
SUSIE GHARIB: A dramatic U-turn on Wall Street today. The Dow traded in a 600-point range, down as much as 300 points, then closing up almost 300. The NASDAQ also erased its losses, gaining 24. But despite today's big rally, investors are still anxious and confused about the outlook for stocks and the U.S. economy. High on the worry list, whether the economy is sliding into recession, and if so, how long and how bad will it be? Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A recession in the U.S. this year may not be a foregone conclusion on Wall Street, but to many pundits it certainly seems likely. That said, in recent days the debate has shifted away from recession or not, to what exactly the 2008 recession will look like. Will it be as economic forecaster Nouriel Roubini (ph) predicts, severe, lasting at least a year? Or will it be what the Goldman Sachs economics team has been calling "recession light, a contraction that lasts six to nine months, but is mild by historical standards? Economist Robert Brusca thinks the U.S. might miss the definition of a recession, which is two quarters of negative growth. But he says, if America does visit the "R" word, it will not be a long stay.
ROBERT BRUSCA, CHIEF ECONOMIST, FACT AND OPINION ECONOMICS: I think that with the fiscal packages that we have now being talked about and with the monetary policy easing that we have under our belt and which we think are in prospect, I think it's going to be relatively short and shallow recession.
PRATT: Those in the gloomier camp say a severe recession will be accompanied by many lost jobs. Past severe recessions saw the unemployment rate rise above 8 percent. Decision Economics' Cary Leahey hopes this recession will be mild, but believes conditions are such that it could be a doozey.
CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: The household sector is heavily indebted. We all know that many people are facing higher mortgage and energy bills and that may mean a very significant cutback in spending going forward.
PRATT: One other component of the recession debate raging on Wall Street is whether a U.S. contraction will result in a global one. Some believe new engines of economic growth, such as India and China, will help prevent a global downturn. Others say many developed economies still run in sync with the U.S., so a severe recession here would most likely mean the same overseas.
BRUSCA: If you look at statistics from Europe and the United States, you find that their business cycles continue to be very closely tied to the U.S., and there's no evidence that there has been de-coupling. There's only been an idea.
PRATT: For many Americans, it won't matter whether the recession is short or long, mild or severe. Experts say that's because after a six-year expansion, a sharp slowdown in growth will feel downright awful to consumers. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Phil Dow of RBC Dain Rauscher & James Awad of WP Stewart Asset Management Offer Their Outlooks For Stocks
SUSIE GHARIB: More analysis now on the outlook for stocks and what investors should be doing with their money. Joining us now Phil Dow, director of equity strategy at RBC Dain Rauscher and Jim Awad, chairman of WP Stewart Asset Management. Gentlemen, welcome to NIGHTLY BUSINESS REPORT.
PHIL DOW, DIRECTOR OF EQUITY STRATEGY, RBC DAIN RAUSCHER: Thank you.
JAMES AWAD, CHAIRMAN, W.P. STEWART ASSET MANAGEMENT: Thank you.
GHARIB: Phil, let me begin with you, looking at today's huge turn around, what encouraged you and what worried you?
DOW: It was exciting to see a lift in the stocks today. But really what worries me Susie is that you look at the most shorted stocks, those that were kind of the most hated, institutions betting that they'd go down. Those were the ones that were up the most today. So I think part of this rally was people beginning to close out short positions. My guess is there is more to come. But it makes me a little suspicious of the character of this rally, Susie.
GHARIB: Jim, how about you? What was your reaction?
AWAD: My reaction was this is about as volatile a market as I have seen in 40 years. It speaks to the amount of hot, fast money that's in the market. I think it was nothing more than a short covering rally. You will probably have three or four more of these before we get to the final bottom. And I think we're probably close in terms of prices but not yet in time. I think it's too early to have a sustainable rally.
GHARIB: Phil, I notice a lot of uncertainty out there. What do you need to see? What is the key thing whether we're talking about the markets or the economy to make you feel that the worst is over?
DOW: I'm not sure we're going to get any sign like that in the near term. But for sure we need to have better perspective on earnings and what earnings growth is going to be in '08. We will have a bit of that mosaic as this quarter closes and we get guidance from companies. But my guess is that that's going to be one of the critical linchpins to evaluation. Additionally I would like to see some serious investment buying rather than these crazy trading days like we have been seeing Susie.
GHARIB: Jim, this is a very confusing and nerve racking time for investors. Should they be putting more of their money into bonds and cash and less into stock holdings or sell some of their stock holdings?
AWAD: Definitely not in bonds. Bonds are not attractively priced relative to long term, which should be long-term inflation and relative to where yields have been over long periods of time. I can definitely see putting some into cash because we have to wait and see what the depth of the slowdown is, what the implications are for corporate profits and what we're going to have more in terms of break downs. So I can see having reserves, but definitely cash, not bonds. Bonds are over priced.
GHARIB: But we're hearing a lot of people Jim, saying that, oh, this is a great buying opportunity, some many bargain prices. Is it time to put new money into the market or should people wait?
AWAD: In terms of equities, if you're truly long term and remember the old theory of dollar cost averaging. I really think if you dollar cost average between now and April, 12-24 months from now I think you're going to look good. The problem is you could have more turbulence and maybe some weakness between now and April until we get through first quarter earning reports and get second quarter guidance and that will late March, early April. So if you're willing to be early, the answer is yes, but I want to emphasize, stick with quality. It's much too early to buy broken balance sheets.
GHARIB: Phil, a lot of people on Wall Street are saying that they're expecting that the Fed is going to do another big rate cut at its meeting next week. If that happens will that turn investors' confident to buy stocks or are they going to be fearful that boy, things must be really bad in the economy.
DOW: I think the Street is really expecting 50 basis points next Wednesday. If they don't get that, I'm afraid the market will go down. So I think the Fed is on a track of trying to build, renew credibility with the Street again and I think this is just one step next week. I don't think next week's actions can restore confidence.
GHARIB: Both of you, I know, have been through these market down cycles before. But we are hearing that this is a global economic event, that this is a global market sell off. Phil, how do you think this is all going to play out?
DOW: My guess is that the down side we're seeing now. But the benefit of it is a more stable demand picture from global markets and possibly people finally recognizing the U.S. hasn't lost its fastball. We got some great companies, great innovators with great operating margins and real ability to grow profits. So I think the outcome will be good, but we've got to get through some turbulence in the near term.
GHARIB: Jim, what is it going to take to turn investor psychology around from fear to confidence?
AWAD: I think confidence that the financial sector is not going to unwind here. That's the Achilles heel of the economy and the markets here, that financial institutions have more problems, more write downs, more balance sheet problems which will starve the economy of the fuel of money. And again it's going to take a little bit more time to develop confidence in that. If that turns out fine, then I agree with Phil that U.S. corporations are in great shape and U.S. stocks are among the cheapest in the world.
GHARIB: All right. That's a good way to end it. Jim, Phil, thank you so much for coming on the program and explaining all of this. My guests tonight, Phil Dow, director of equity strategy at RBC Dain Rauscher and Jim Awad, chairman of WP Stewart Asset Management.
The Nation's Mayors Weigh In On The Nation's Economic Issues
PAUL KANGAS: A new poll done for the U.S. Conference of Mayors shows the economy is the number one concern of most Americans these days. The group is meeting in Washington for its semi-annual conference. As Stephanie Dhue reports, in the face of slowing economies and lower tax revenues, the mayors are calling on the Federal government for help.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the Conference of Mayors meeting in Washington, DC, the economy tops the agenda, with cities large and small feeling the squeeze of slower economic growth. In separate meetings with President Bush and lawmakers, the mayors are supporting a stimulus plan. Trenton Mayor Douglas Palmer says it should include help for their cities.
MAYOR DOUGLAS PALMER, TRENTON, NEW JERSEY: We want to make sure that the stimulus package or whatever's happening, that it not get bogged down. People in our cities need help right now.
DHUE: Hurst, Texas Mayor Richard Ward says he's worried about the slowdown in consumer spending, since half of his city's budget comes from sales tax revenue. But he's doubtful the stimulus plan will be effective.
MAYOR RICHARD WARD, HURST, TEXAS: Maybe the $800 they're talking about giving each person may help a little bit. It may help us a little bit because we do depend on retail so much. But places that don't depend on retail, there's not much you can buy for $800.
DHUE: Many mayors are trying to help their constituents cope with soaring foreclosures. The Mortgage Bankers Association set up this studio at the conference so mayors could tape public service announcements on the issue. Jerry Abramson is the mayor of Louisville, Kentucky, which has seen a 400 percent increase in foreclosures in its suburbs. He supports greater use of community development block grants to boost the economy and keep people in their homes.
MAYOR JERRY ABRAMSON, LOUISVILLE, KY: What about looking at this foreclosure crisis, putting it together with the opportunity for a stimulus; that is, get money into the economy and spent and see if there's a way to wed the two and ultimately resolve both.
DHUE: Several lawmakers are working on that. Banking Committee Chairman Chris Dodd today proposed spending $10 to $20 billion to create a new Federal corporation to buy troubled mortgages and refinance them with fixed loans. New York Senator Charles Schumer also wants to address housing in the stimulus bill.
SEN. CHARLES SCHUMER, (D) NEW YORK: Because housing is the bull's- eye. It's right at the center of the problems here. It's at the center of the lack of consumer spending and it's at the center of the credit freeze. And if we were to deal with the upcoming foreclosures in a real and rational way, it would help calm the markets down.
DHUE: Tomorrow, the mayors will put forward more of their ideas for how government and the industry can effectively responding to the mortgage crisis. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Hilary Kramer, Market Strategist & Author of "Ahead of the Curve"
PAUL KANGAS: We have seen a massive tech wreck over the last couple of weeks. Tonight's "Street Critique" guest says the selling has been particularly brutal for technology firms, with the NASDAQ down 12.7 percent since the start of the year. She's Hilary Kramer, market strategist and author of "Ahead of the Curve" and Hilary, welcome to NBR.
HILARY KRAMER, AUTHOR, "AHEAD OF THE CURVE": Thank you, Paul.
KANGAS: The late afternoon turn around today the $64 million question is have we seen a bottom?
KRAMER: Yes, Paul. I believe we have seen the bottom and we are going to now see a bull come back into Wall Street. We have formed a bottom and the reason we know that is that we finally had real buyers come in today. But we know it even more so because of what I saw this morning and yesterday, which is real fear. Fear took over and it over powered greed. Greed for so long was fueling the market, including as it was going down people buying into it.
KANGAS: Huh-uh.
KRAMER: But once that pessimism, a rational pessimism took over and the last of us capitulated because that's what Wall Street waits for. They wait for the very very last person who's holding onto their stock to give up and to sell and that's when the Street turns around and surprises you.
KANGAS: OK so a bottom we have seen. We might test it a couple of times, wouldn't you agree?
KRAMER: Absolutely. We may be testing and we'll be testing certain sectors.
KANGAS: Will the current state of the economy support stock prices at this level?
KRAMER: I believe that it will, because what's happened is that the stock market has been going down, assuming that there will be a recession, there will be maybe inflation that matches that. But we have already been in that situation. So, well the stock market is run by earnings, so that's what determines stock prices.
KANGAS: OK.
KRAMER: So we should see second or third quarter earnings come back up and that will even help stocks go higher.
KANGAS: Where do you see value among the tech group?
KRAMER: That's a great question, Paul. What I have been looking at are the solar technology companies. In particular there's a company called Sunpower. The ticker symbol is SPWR and it is off 50 percent from its high which was only a few weeks ago. Now Sunpower is reporting before the bell tomorrow and we could see Sunpower have some great guidance. If they say that there's a lot of demand out there for their solar modules and if that's the case, the whole solar sector may rise.
KANGAS: What else shines in your mind?
KRAMER: OK another solar stock, a different one called First Solar (FSLR) and it's a different technology, thin film technology, very efficient form of solar. And First Solar is also off 45 percent since December. It's unbelievable what has happened to these stocks because of momentum buyers became momentum sellers and shorters. So if Sunpower goes up, we will see First Solar go up.
KANGAS: Very briefly one more. We have less than a minute.
KRAMER: I would like to talk about Apple (AAPL). This is very important, because as we know, Apple was $202 just recently and it closed today at $139 and it tested $126. I may go back into Apple. But what happened there is Steve Jobs is very conservative in giving guidance. But the key is, they are going to make inroads into the PCs because they can convert iPod users into desk top users and lap top users.
KANGAS: OK. Hilary, do you own any of the stocks mentioned?
KRAMER: Yes, I own First Solar and Sunpower. I do intend to buy tomorrow morning if the earnings come out strong.
KANGAS: Thanks for being with us once again. We'll see you soon.
KRAMER: Thank you, Paul.
KANGAS: My guest Hilary Kramer, author of "Ahead of the Curve."
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's bears continued to maul the bulls early today, as overseas markets remained in turmoil gripped by fears of a global recession. The Dow tumbled over 255 points at the outset of trading, while the NASDAQ fell 55 points. Then a Bear Stearns upgrade of the big banks helped stocks stage a midday rally, which failed due to lack of volume. But the market came roaring back on big volume on word help could be on the way for the battered bond insurers. The Dow Industrial Average closed up an impressive 298.98 points at 12,270.17. The NASDAQ ended up 24.14 at 2316.41. Standard & Poor's 500 Index jumped 28.10 ending at 1338.60. Over in the bond market, the 10-year note gave up most of yesterday's gain, falling 1 20/32 to 105 9/32, putting the yield at 3.61 percent.
Familiar big board volume leader on 60 million shares today, Citigroup (C) moving up $1.90. The bank stocks benefited from Bear Stearns which upgraded large cap banks from "market under weight" to "over weight." Motorola (MOT) needed some help today though, down $2.27. Fourth quarter earnings, $0.04, down from $0.25 last year. Sales down 18 percent. The company sees a first quarter loss of $0.05 to $0.07 a share versus a Street estimate for $0.09 in earnings. Meanwhile, Carl Icahn, the activist shareholder, is calling for the breakup of Motorola.
Bank of America (BAC) another strong bank, up $3.28. ' Pfizer (PFE) a $0.65 gain. Fourth quarter earnings excluding items, $0.52 up from $0.43 and a nickel above consensus.
Then came General Electric (GE), fifth in volume with a $0.55 gain.
JPMorgan Chase (JPM) strong bank sector, up $4.81.
Same with Wells Fargo & Co (WFC) with a gain of $2.57.
EMC Corp (EMC) was down $0.33.
Wachovia (WB), another strong bank, up $3.58.
And then came Time Warner (TWX), topping out the active list with a $0.06 gain.
Elsewhere, United Technologies (UTX), a Dow stock, up $3.77. Fourth quarter earnings up 23 percent to $1.08 versus $0.87 last year and $0.02 above the Street estimate.
Freeport McMoran C&G (FCX) down $4.37. It traded as low as $69.10. Fourth quarter operating earnings, $1.07, down from $1.99 and that's despite a sharp rise in revenues. It cuts its 2008 copper sales and gold sales forecast on top of that.
Then CNH Global NV (CNH) down $7.38, 39, let's make it. The farm equipment manufacturer had higher fourth quarter earnings of $0.50 versus $0.39, but that was $0.10 below the Street consensus. We apologize once again for not having our usual charts because of a computer glitch, but we'll get the news to you the old fashioned way.
MGIC Investment (MIG) moving up $0.85. At one stage today, that stock was at $10.40. The company sees a fourth quarter loss of over $1 billion on insurance pay offs amid rising loan delinquencies.
SLM Corporation (SLM), the Sallie Mae, down $0.28, but that stock at one stage today was as low as $16.20 after reporting a fourth quarter loss of nearly $4 versus $0.02 in earnings and on top of that, the SEC is probing insider trading action by the company's new CEO and one of the directors just after the company's takeover by JC Flowers fell through.
Buckeye Technology (BKI) up $3.10, nice move there. The company sees second quarter earnings of about $0.35, up from $0.10 a year ago and a nickel above the Wall Street estimate.
Norfolk Southern (NSC), the big rail, up $4.38. Fourth quarter earnings of $1.02, up from $0.95 last year, $0.12 above the Street consensus.
And then Marine Products (MPX) up $1.62. The maker of fiberglass boats had sharply higher fourth quarter earnings of $0.11 versus $0.04 last year, $0.02 above the Street estimate and the company's going to buy back up to 3 million of its own shares.
Apple (AAPL) topped the active list, getting hit today, down $16.57. The company's outlook not too impressive, according to many analysts.
Then came Google (GOOG) with a $35.73 loss.
Followed by Microsoft (MSFT) earnings due out tomorrow, $0.06 loss there.
Research in Motion (RIMM) down $2.08.
Baidu.com (BIDU) off $3.07.
Intel (INTC) managed to buck the trend in the high tech sector, up $1.35.
And then Cisco Systems (CSCO) $0.61 gain there.
First Solar (FSLR) up $18.05.
Amazon.com (AMZN) down $4.51.
And then came Qualcomm (QCOM), $0.29 loss. After the close, Qualcomm's first quarter earnings $0.46 up from $0.38 a year ago on a 21 percent rise in revenues. The stock jumped $3 from this level in after hours trading.
Ebay (EBAY) up $1.81. After the close, the company came out with earnings fourth quarter, excluding items, $0.45, $0.04 above the Street estimate, but the company had a cautious outlook and CEO Meg Whitman is stepping down in late March.
Human Genome (HGSI) down $4.40. The company's independent board raised safety concerns about Human Genome's hepatitis C treatment, which is in late stage trials.
