NBR Transcripts-January 25, 2008
Friday, January 25, 2008Wall Street's Roller Coaster Ride Ends The Week Down
SUSIE GHARIB: More losses on Wall Street today, as the Dow tumbled 171 points and the NASDAQ lost 36. Today's sell-off capped off a tumultuous week: an emergency rate cut by the Federal Reserve; massive price swings in U.S. financial markets; and a White House rescue plan to stimulate the economy. Looking ahead, next week could also be volatile. Here's Suzanne Pratt with a preview of what to expect.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: As weeks go on Wall Street, this four-day one seemed exceedingly long. Next week, however, may be no better for investors. Not only does the Federal Reserve meet to discuss monetary policy on Tuesday and Wednesday, but Friday the government will release the highly anticipated monthly employment report. Experts believe those events, in addition to other economic data, will help determine the course of trading for next week and beyond. U.S. financial markets widely expect the Fed to cut rates further at next week's gathering. UBS strategist David Bianco says if policymakers instead hold rates steady, watch out.
DAVID BIANCO, CHIEF US STRATEGIST, UBS INVESTMENT RESEARCH: Yes, we do believe the equity market expects the Fed to cut and equity investors will be disappointed if the Fed doesn't. The economy is slowing and we believe that inflation risks should not be the predominant concern.
PRATT: But, Euro capital markets' Peter Schiff says it makes no difference what the Fed does next week, as U.S. stocks are already in a bear market.
PETER SCHIFF, PRESIDENT, EURO PACIFIC CAPITAL: I think the market is going down regardless, whether it goes down right away or not especially again if you measure it in other currencies or against gold, the market is going to decline.
PRATT: Schiff says that's because the U.S. economy is already in a recession. He expects Friday's data on the state of the labor market to support his pessimistic view. Wall Street economists are forecasting that a paltry 63,000 jobs were added to payrolls this month. The unemployment rate is expected to hold steady at 5 percent. But, other market pros are far more positive on stocks when looking deeper into the future. They point to attractive valuations and earnings forecasts from corporate America that are still fairly resilient.
BIANCO: I expect the S&P 500 to appreciate about 20 percent from these levels by 2008 year end. I would not rule out further turbulence, but I do think we've seen some of the worse in these markets at the start of this year.
PRATT: Going into next week, experts say investors' nerves are rattled. Even if fundamentals perk up a bit in the coming days, it will be tough to change investor sentiment. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
The Hill Gets To Work On The Uphill Battle To Pass The Fiscal Stimulus Plan
SUSIE GHARIB: On Capitol Hill today Senate lawmakers got down to work putting their imprint on the White House fiscal stimulus plan. But President Bush urged Congress to quickly pass the package of tax rebates and tax breaks and to refrain from adding additional spending items. As Stephanie Dhue reports, the $150 billion plan heads to the House floor next week.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Bush called on lawmakers today to quickly pass the stimulus bill hammered out yesterday.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I understand the desire to add provisions from both the right and the left. I strongly believe it would be a mistake to delay or derail this bill.
DHUE: Treasury Secretary Henry Paulson made the rounds in the Senate to keep the plan from getting bogged down. The stimulus is designed to boost consumer spending to make up for some of the drag in housing. But Senator Chris Dodd says the package needs to do more to address that fundamental problem.
SEN. CHRISTOPHER DODD, CHAIRMAN, SENATE BANKING COMMITTEE: The face as I've said before of the economic crisis is the housing crisis. In the face of the housing crisis is the foreclosure crisis in my view and so the short term package clearly needs to provide some relief for people out there who are facing very, very serious economic problems.
DHUE: To address the mortgage crisis, the proposed stimulus plan raises the limit on FHA loans. It also temporarily boosts the cap on mortgages Fannie Mae and Freddie Mac can buy from $417,000 to nearly $730,000 in high cost markets. While the idea is to quickly unlock the market for what are now jumbo loans, mortgage expert Howard Glaser says that could be delayed.
HOWARD GLASER, MORTGAGE INDUSTRY CONSULTANT, THE GLASER GROUP: The housing components could take time to implement or they could be done very quickly and much of that depends on the details of how the proposal is ultimately written into legislation, who is going to implement it and how the bureaucracy does that.
DHUE: Steve O'Connor of the Mortgage Bankers Association is concerned it could take too long to figure out the loan limits for different real estate markets.
STEVE O'CONNOR, MBA SR. VICE PRESIDENT OF GOVERNMENT AFFAIRS: How that's actually going to work, is it by metropolitan statistical area? Is it state level? Is it nationwide? The broader the area affected, from our point of view, the better in terms of impact for consumers and in terms of ease of operation, so we can get it into effect sooner rather than later.
DHUE: Political support of the stimulus package and any changes to it, will be tested next week, when members of Congress have a chance to put their votes behind their rhetoric. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Michael Roberts, Founder of The Roberts Company Details His Path To Success
PAUL KANGAS: From humble roots in St. Louis, Michael Roberts has amassed a diverse multi-million dollar empire. It encompasses real estate, media, aviation, construction and hotel management. Along with his brother Steven (ph), the Roberts Hotel Group recently won the Ernst & Young "Emerging Entrepreneur of the Year Award." "Black Enterprise" business report's Shawn Gables (ph) looks at how Roberts built his company from the ground up.
SHAWN GABLES: It's one thing to dream of success, it's another to achieve it.
MICHAEL V. ROBERTS SR., THE ROBERTS COMPANIES: I'm a cold blooded capitalist
GABLES: And get it on your terms.
ROBERTS: I'm going to tell you what, well, an entrepreneur is interested in developing a degree of wealth for their family. A capitalist builds for generations.
GABLES: Hardly the mindset expected in underprivileged urban youth.
ROBERTS: We were raised in a wonderful household. We weren't rich. We weren't poor, we just never had any money.
GABLES: But with supportive, hardworking parents, Mike and his brother Steve learned a valuable lesson, early on.
ROBERTS: There's no do it yourself kit to success in business.
GABLES: And paid their own way through Pepperdine and Washington law schools, later becoming entrepreneurs.
ROBERTS: Even during that time when we living, when my friends moved to the suburbs from law school, I moved two blocks from the projects. I lived there for 10 years. All four of children were born there. Their idea of a swimming pool was a fire hydrant, no kidding this is true and our objectives, my objective was to first get what I would recall street respect and be able to work within the inner cities.
GABLES: Where hidden fortunes, like abandoned buildings and acres of land were in abundance. So with a blood tight partnership and a small loan from mom and dad, he began developing where few have been willing, right in the hood. Strategically when you look at the inner city, you look at the urban area you see dollar signs.
ROBERTS: Absolutely, there's gold in them there streets, not in them there hills, but in them there streets. And guess what it's a wonderful secret and African-Americans, those of us who get it, we get it. And those who don't figure it out yet who happen not to be African-American, I don't want them to know.
GABLES: Lack of competition ultimately helped Roberts purchase, at discount, the three city blocks he owns in downtown St. Louis, including the Orpheum theatre and soon to be built, green friendly, Roberts Tower. All of which aren't hard to spot. His brand or in this case, his name, is everywhere.
ROBERTS: Everything is Roberts. Orpheum is Roberts. I had a guy say to me well Mike, what is that, some sort of ego problem? And I said what is yours, an envy problem? You didn't say that to Mr. Rockefeller or Mr. Mellon. You didn't say that to Mr. Walt Disney. You didn't say that to Mr. Hilton or Mr. Marriott. You don't need to say that to me, because what may seem like ego to you today, 40 years from now will be a legacy and African Americans need a legacy.
GABLES: And for those who might be uncomfortable with Roberts confidence, he claims he can back it up.
ROBERTS: I have 72 companies, over 800 employees, 11 hotels, shopping centers, four TV stations and a radio station.
GABLES: You're very diversified in your assets. What's the value?
ROBERTS: That's a moving target what is the value. I don't really know exactly but we believe that it's a range between $750 million and $1 billion. It's just hard to value it.
GABLES: If I had a billion dollars, I'd think I'd know.
ROBERTS: I don't think so.
GABLES: Wealth, Roberts' boast was earned without ever having to uproot from home.
ROBERTS: It was a time when I was first raising money for my wireless phone company where I'd go to New York and tell them I needed $100 million and the bankers would laugh so hard, I'd have to get up from my chair to get them from falling on the floor and put them back in their chair. They didn't understand that; they didn't get it; that's all changed. Now they fly to St. Louis to meet us.
KANGAS: Roberts attributes his success to not just thinking outside the box. He eliminates the boundaries and the concept of a box all together. He also believes that failure is not an option.
"Market Monitor"- Chris Orndorff, Head of Equity Strategy for Payden & Rygel
PAUL KANGAS: My guest "Market Monitor" this week is Chris Orndorff, head of equity strategy for money management firm Payden & Rygel which is based in Los Angeles and welcome back to NBR, Chris. Good to see you.
CHRIS ORNDORFF, HEAD OF EQUITY STRATEGY, PAYDEN & RYGEL: Thanks, Paul, great to be here.
KANGAS: I will cut right to the chase. Now despite the sell-off on Wall Street today, do you think Wall Street did hit a bottom this week?
ORNDORFF: I think we are very close to the bottom. The market pessimism is a little bit overdone. Certainly we are in a market downturn, an economic downturn, but if you look at the jobless claims, what they've been prior to past recessions, they're much better so I think this downturn is going to be a bit more shallow than the stock and bond markets are currently pricing in.
KANGAS: So you are telling us that the U.S. economy can support a stock market at roughly this level?
ORNDORFF: I think so. I think earnings growth is going to be a little bit more resilient, not in financials or in some of the other sectors, but more the defensive sectors. I think it will be enough to buoy the market.
KANGAS: On your visit with us in June, you were expecting the Fed to hold interest rates steady. You were a little off the mark there but who could foresee how bad this housing thing was going to get. What do you think the Fed is going to do now?
ORNDORFF: Well, I think we really have somewhat a banking crisis. And one of the ways you get yourselves out of a banking crisis is to steepen the yield curve, that is to make the difference between short-term interest rates where banks borrow and long-term interest rates where banks lend wide. And that is what the Fed is going to do. They are going to be accommodative. I think bringing the Fed funds rate down to maybe 2 percent this year.
KANGAS: That's quit a jump even from here. Not a jump but a dive.
ORNDORFF: Right.
KANGAS: Now you were expecting oil to come down into the mid $40 per barrel range which proved a little bit too optimistic. Do you stay with that forecast? Is it going to get down there?
ORNDORFF: Well, I will raise it up to $50, in the 50s but I think the direction as the economy slows, demand is going to come off and I think oil will recede into that level.
KANGAS: OK. On that last visit in June you had three stock buy recommendations for our viewers. Let's see how they did. Cognizant (CTSH) at $37 now down to $26. But it got as high as $45. You took it all off the table, didn't you?
ORNDORFF: I wish. It is still a great company though and a great IT services provider.
KANGAS: OK, so you are staying with that one.
ORNDORFF: Yes.
KANGAS: Las Vegas Sands (LVS) is up but it was a lot higher. It got to $148.
ORNDORFF: It a great company. We took some money off the table there and super growth in Macao and Singapore.
KANGAS: Any stock that is up from where it was in June now is a good stock.
ORNDORFF: That exactly right.
KANGAS: A good call. We had a third recommendation from you back in June and that was Ford Motor which just can't seem to get started so to speak.
ORNDORFF: I went out on a limb there and unfortunately hasn't worked out. I think the next two years are probably going to be tough for the company.
KANGAS: OK. How about some new stock recommendations.
ORNDORFF: Sure. The first is Chattem (CHTT) which is a leading over- the-counter health care manufacturer. They make products like Gold Bond lotion, Selsun Blue shampoo and Dexatrim (ph). Earnings growth a little bit more modest at 9 percent, but extremely stable. In a jittery stock market Paul, stable earnings.
KANGAS: And the stock is well down from its high, recent high.
ORNDORFF: I think it a good opportunity.
KANGAS: How about a number two selection.
ORNDORFF: Well, continuing with the stability of earnings theme Coca- Cola (KO), which of course everyone knows, 75 percent of their profits actually come from outside of the U.S. Those economies are doing better than the U.S. so that's going to help.
KANGAS: The weak dollar also helps their overseas sales.
ORNDORFF: Certainly. And Coke has made great sides in the noncarbonated beverage market which is the fastest growing part of that category.
KANGAS: OK. Number three selection.
ORNDORFF: The third one is Potash Corp. (POT) of Saskatchewan which is a fertilizer company. And you know one of the most significant developments of the last decade is the rising wealth of developing or emerging market economies as they grow and get more wealthy. They also eat more. That requires more fertilizer.
KANGAS: Along with your theme of steady earnings.
ORNDORFF: That exactly right.
KANGAS: We have time for one more. We are closing in.
ORNDORFF: Sure and staying with one of the other themes that I have had, the gaming industry, I still think has got fantastic growth. MGM (MGM) is --
KANGAS: That is despite that fire they had at the casino in Vegas today.
ORNDORFF: That is exactly right. The other properties there are the Mandalay Bay and the Bellagio. They have done some really smart joint venture deals with Abu Dhabi and Dubai and China and I think it's a great opportunity at this point.
KANGAS: As long as they don't get a fire in one of their casinos in Macao.
ORNDORFF: That's exactly right.
KANGAS: Chris, do you personally own any of the stocks we've mentioned here or have other disclosures to make.
ORNDORFF: We sure do, plus we own them in our U.S. growth, Payden U.S. growth leaders fund.
KANGAS: Very good indeed, interesting and we will watch those selections.
ORNDORFF: Thanks.
KANGAS: Thanks for being with us and we will look forward to your next visit.
ORNDORFF: My pleasure Paul.
KANGAS: My guest, Chris Orndorff of Payden & Rygel.
"Last Word"-PDA Problems
SUSIE GHARIB: And finally tonight, as Blackberries and other smart phones get smaller and more functional, a number of IT departments say the handheld devices are becoming a big headache. The Computing Technology Industry Association says IT departments are spending much more time and money supporting PDA's than any other office technology. In fact, they've reported investing 30 times more energy and money to support smart phones than laptops and that's because PDA's pose higher security risks and they are more difficult to connect to network printers. Paul, I know you're not a gadget kind of guy, but I got to tell you, I've become so attached to my Blackberry, I can't imagine working without it.
KANGAS: I still can't program my VCR correctly.
GHARIB: We'll get you some help.
KANGAS: I need it.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened with moderate gains nurtured by solid results from Caterpillar and Honeywell and those upbeat earnings from Microsoft we told you about last night. The Dow rose 75 points at the outset of trading with the NASDAQ up 24 points. The rally lost its luster and turned into a rather steep sell off this afternoon on reports some major European banks were having problems. All this after Societe Generale's trading fraud bombshell yesterday. A jump in oil futures also sent the market skidding. The Dow Industrial Average closed off 171.44 points at 12,207.17. In this four-day week, it fell twice, rose twice, had a net gain of 107.87 points. The NASDAQ Composite fell 34.72 to 2326.20 today and it also rose twice and fell twice this week and it lost 13.82 points overall. Standard & Poor's 500 dropped 21.46, ending at 3030.61 today. It gained 5.42 points for the week. Over in the bond market, the 10- year note jumped 1 11/32 to 105 23/32, putting the yield at 3.55 percent.
Once again the big board volume leader today on 32.8 million shares, Citigroup (C) down $0.69. The financial sector was weak today on those possible problems with European banks. Then Bank of America (BAC) down $0.42.
Pfizer (PFE) fell $0.44.
Motorola (MOT) kicking back $0.60 after a big loss yesterday.
General Electric (GE) was down $0.65.
Merck & Co (MRK) lost $1.77. The FDA is reviewing the company's Vitorin cholesterol drug because of its failure to work better than generic drugs.
Ford Motor Co (F) slipped in there with a $0.32 gain.
And then Schering-Plough (SGP) down $1.15. Schering is Merck's partner in developing Vitorin which as you just heard, is under FDA review.
Wells Fargo & Co (WFC) $0.50 loss there.
And then EMC Corp (EMC) with a gain of $0.17 a share. Once again we apologize for not being able to present you with charts this evening because of technical difficulties.
Caterpillar (CAT) however was up $0.68. Fourth quarter earnings $1.50, up from $1.32 last year, in line with estimates. The company reaffirmed its 2008 earnings guidance, says it can earn as much as $6.18 a share. That would be up 15 percent from this year.
Honeywell Intl (HON) up $2.05. Earnings, $0.91 for the fourth quarter, versus $0.72 last year. The company sees $0.80 to $0.83 in the first quarter and that would top Street estimates.
Then Home Depot (HD) down $1.03. The company has scrapped a plan to buy the Utah bank called Interbanks USA.
Harley-Davidson (HOG) down $2.16. Fourth quarter earnings dropped to $0.78 from $0.97 a year ago. Revenues fell 7 3/4 percent. Standard & Poor's repeated a "sell" on HOG, hog as you see the trading symbol.
Eastman Chemical (EMN) had a good day, up $4.56. Fourth quarter earnings, $1.21 up from $1.12 last year. That was $0.10 better than the Street consensus and the company says its earnings will double by the year 2012.
Perkinelmer (PKI) up $3.98. They health services firm came in with second quarter earnings of $0.45, $0.02 above the consensus and up from $0.34 last year. Revenues up a respectable 20 percent over that period.
Tempur-pdic intl (TPX), the mattress company, down $5.94. Fourth quarter earnings, $0.52, a penny below the Street estimate and revenue came in on a shortfall. The Stiefel Nicholas brokerage cut its price target from $42 down to $34 a share.
City National (CVN) down $7.25. Fourth quarter earnings, $0.96, down from last year's $1.19. Bear Stearns downgraded the stock from "out perform" to "peer perform."
And then Gold Fields Ltd (GFI) off $1.55. The company has suspended all South African gold mining operations due to a power shortage in South Africa.
A new issue today RiskMetrics Group (RMG) and this market pretty risky coming public, but this one did one. It's a risk management advisor, 14 million shares offered at $17.50, opened at $21, the high of the day $24.45, closed very near the high of the day.
Apple (AAPL) topped the active list down $5.59 on NASDAQ.
Microsoft (MSFT) $0.31 loss.
Baidu.com (BIDU) fell $7.73.
Google (GOOG) off $8.09.
Research in Motion (RIMM) fell $3.95.
Then Intel (INTC) $0.69 drop there.
Cisco Systems (CSCO) fell $0.91.
First Solar (FSLR) $0.18 drop.
And a gainer, Amgen (AMGN) up $3.02. Fourth quarter earnings for Amgen $1, up from last year's $0.90 a share.
Then finally, Qualcomm (QCOM) down $0.41 a share. That was tenth in NASDAQ volume.
Sunopta (STKL) losing $3.51. The Canadian organic food company cut its 2007 earnings guidance from $0.40 a share at best to only about $0.12.
And those are the stocks in the news tonight.
