NBR Complete Transcripts-February 1, 2008
Friday, February 01, 2008Employment Numbers Suggest Recession is Real
SUSIE GHARIB: Two big surprises on Wall Street today: a big pullback in hiring by American businesses and a big takeover offer for Yahoo! by Microsoft. First, the employment story. The Labor Department said today that U.S. payrolls fell by 17,000 jobs in January, the first decline in more than four years. Economists had expected payrolls to increase by as much as 100,000 jobs. But the unemployment rate dipped to 4.9 percent, down from 5 percent in December. As Suzanne Pratt reports, many experts say today's report is strong evidence that the U.S. economy is headed into recession.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The latest employment data shows the U.S. unexpectedly lost jobs last month -- the first time that has happened since 2003. Experts say not only does it suggest the Federal Reserve may cut interest rates again soon, but BNP Paribas economist Brian Fabbri sees it as evidence the recession has already arrived.
BRIAN FABBRI, CHIEF US ECONOMIST, BNP PARIBAS: January was another weak month, confirming what most of us, including myself believe, that the economy is truly in recession.
PRATT: Deutsche Asset Management economist Josh Feinman isn't quite as pessimistic about the data.
JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MANAGEMENT: I don't think it's completely clear evidence that the economy is in recession or is headed to recession. But it certainly reinforces the risks that the economy is not far from recession and could slip into one.
PRATT: There is, however, no disputing the fact that job losses were widespread in January, with manufacturers, the government and construction firms all eliminating positions. More optimistic economists were quick to point out that the nation's unemployment rate dropped, something that usually does not happen in a recession. But others think it was simply a normal bounce back from December's three-tenths of a percent increase in the jobless rate.
FABBRI: It's not like this is a rebound and we should be much happier about it. It's very consistent. And, in fact, we can literally say now the unemployment rate is a half percentage point higher than it was this spring and it's certainly on the way higher.
PRATT: In the last two weeks, the Federal Reserve has aggressively cut rates in an effort to mitigate the threat of recession. Experts say the January employment report validates what policy makers have done and suggests they will cut rates again at the March 18 meeting.
FEINMAN: I think it also reinforces the likelihood that their bent is going to remain towards, leaning toward easing.
PRATT: While the outlook for recession is still debatable, experts say there's no denying that employers have grown cautious about hiring. That's because businesses are coping with a crumbling housing market and an ailing economy. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Microsoft's Mega Bid For Yahoo!
SUSIE GHARIB: More now on our other top story, Microsoft's $45 billion bid for Yahoo! The software giant is offering $31 a share. That's a 62 percent premium over Yahoo!'s closing price on Thursday. Yahoo! says its board of directors will study the bid. But lawmakers in Congress are already weighing in. They'll hold a hearing on the mega-deal next week. As Scott Gurvey reports, so far, analysts are positive on a Microsoft/Yahoo! tie-up.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Microsoft bid for Yahoo! was a surprise, both because of its size and because it is an uncharacteristically unfriendly act. Microsoft quietly pitched Yahoo! on the idea of an acquisition one year ago, only to be rebuffed. Now, Microsoft CEO Steve Ballmer has gone public with his bid. And in a conference call with analysts and the media today, he made it clear he will pursue a vote of Yahoo! shareholders.
VOICE OF STEVE BALLMER, CEO, MICROSOFT: If you look at Microsoft and Yahoo!, our companies really do share a vision for the potential of online services and advertising, specifically. When you combine the strengths of our two companies, the result will be an incredibly efficient and competitive offering for consumers, for advertisers and for publishers.
GURVEY: Consumers, advertisers and publishers -- all three are needed to be a success in Internet advertising. Bobby Tulsiani of Jupiter Research notes that advertising is not all there is to the Internet, but it is where you find the greatest growth potential.
BOBBY TULSIANI, INTERNET ANALYST, JUPITER RESEARCH: There's also businesses like web e-mail, portals, being a sports destination, being a news destination. And Yahoo! and MSN already do very well in that. So, when you combine them, they're going to do even greater in those areas. But search is the area where they've been lagging and that's the area Wall Street and everybody looks to for where you make your money.
GURVEY: And that is where Google has been cleaning up. If anything, this deal is a last shot at competing with the search giant. At the end of last year, Google had 75 percent of the search-ad business. Yahoo! had 19 percent and Microsoft 6 percent. Analyst Imran Khan at JPMorgan Chase, which has an investment banking relationship with Yahoo! and owns more than 1 percent of Microsoft's stock, says this is a case where size really matters.
IMRAN KHAN, SR. INTERNET, MEDIA & ENTERTAINMENT EQUITY ANALYST, JP MORGAN: When you increase your market share, your monetization of search goes up. One of the reasons Google improved its monetization significantly is because of market share gains. So, I think the search monetization will help them. Secondly, if you look at Yahoo!, it is very strong in the United States, but they're not very strong outside the U.S., whereas Microsoft has a very stronger position in the European market. So it will help to expand their business in international market.
GURVEY: Both European and American regulators will have to sign off on a Microsoft-Yahoo! merger. First, of course, Yahoo! shareholders will have to approve the deal. Steve Ballmer is predicting success and a closing in the second half of this year. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Economic Choices-2008"-Illegal Immigration
SUSIE GHARIB: This week we have focused on California, the richest prize in next week's Super Tuesday primary. Democrats and Republicans there will play a pivotal role in this year's presidential election. So as we continue our "Economic Choices" series, Darren Gersh looks at illegal immigration, an issue that's very familiar to California voters.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Not far from a border checkpoint in Temecula, California, anti-illegal immigration activists are organizing their own checkpoint in cyber-space. Two and a half years ago, Jason Mrochek started off with a web site that takes in tips on employers hiring illegal immigrants. Now, Mrochek has launched sendthetaxman.com.
JASON MROCHEK, CO-FOUNDER, FEDERAL IMMIGRATION REFORM AND ENFORCEMENT: On sendthetaxman.com, anybody can go on there, report a company for fraudulently either hiring somebody, not using the right documents, not paying their taxes. They can also do it for an individual illegal alien who maybe is using fraudulent documents to get employment.
GERSH: California activists like Mrochek helped launch the anti- illegal immigration movement, which put the issue at the top of the agenda in the early presidential primaries. But now that the campaign has come to California, the candidates are finding voters here have a more nuanced view of the problem. Nativo Lopez is president of the Mexican American Political Association. He says the debate is different in California, because the state has been fighting over illegal immigration for so long.
NATIVO LOPEZ, PRESIDENT, MEXICAN AMERICAN POLITICAL ASSOCIATION: California electorate has not become, not developed a tin ear to the drumbeat on undocumented immigration. But they are certainly more experienced on how to receive the message -- whether it is a sincere message, whether it's a virulent, extremist message -- and so therefore, much more politically experienced.
GERSH: There is one obvious difference about the immigration debate in California. Latinos are a rising source of economic and political power here; Democrats are hoping to court them. Republicans are hoping not to alienate them. Polls show California Latinos -- a quarter of the state's electorate -- are clearly not happy with what they have heard from either party so far. David Magana's views are typical.
DAVID MAGANA, LATINO VOTER: People like to bad mouth immigrants, you know or Latinos, Asians or even Africans, you know. I think that maybe we need to stop and look at ourselves. We're all immigrants, if you look at it.
GERSH: Polls show a majority of Latinos now worry a friend or family member could be deported. And the Pew Hispanic Center's Jeffrey Passel says many Latinos believe discrimination is rising.
JEFFREY PASSEL, SR. RESEARCH ASSOC., PEW HISPANIC CENTER: They feel that the immigration issue has not been handled well, though and that the failure to deal with immigration has made life more difficult for Hispanics.
GERSH: Activists like Mrochek are working hard to keep the heat on illegal immigrants and he wants to make sure recession fears don't push the issue off the front page in California.
MROCHEK: If we do a good job of tying a lot of the problems in the economy to illegal immigration, I think it has a chance. And I challenge people all the time name an issue that doesn't revolve in some part around illegal immigration.
GERSH: That argument worries Nativo Lopez. He says history has shown anti-immigrant sentiment rises when the economy falls.
LOPEZ: Not as much in California, but throughout the country, there is no doubt about it that immigrants will be the Willy Horton, the swift boat target in the elections of 2008, as we've seen ugliness creep up in this national discourse in other campaigns.
GERSH: California is a state that prides itself on being out in front. Next Tuesday, voters in the most populous state in the nation will have their chance to lead the way on immigration and the other economic choices of 2008. Darren Gersh, NIGHTLY BUSINESS REPORT, Los Angeles.
PAUL KANGAS: My guest market monitor this week is Michael Metz, chief investment strategist at Oppenheimer & Co. Welcome back to NIGHTLY BUSINESS REPORT, Mike, great to see you.
MICHAEL METZ, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER & CO.: Thank you, Paul.
KANGAS: With no end in sight of the wild price swings in stock markets all around the world, really, how does the average investor operate in this volatile environment?
METZ: The first thing he does is turn off the financial television during the day. The second thing is to have a plan and stick to it regardless of random trading noise.
KANGAS: Are you still bullish on the stock market?
METZ: I'll tell you Paul, I'm very nervous about the economy. I think we're going into a deep and long-lasting recession but stocks, compared with real estate or bonds, are relatively cheap. So it's really the only asset class that has any great charm, in my opinion.
KANGAS: And that's what you said last July when you were with us.
METZ: I still believe that.
KANGAS: You were a little off the mark in July because you predicted interest rates were likely to hold steady or even move higher but here we are considerably lower. Explain what your thinking was then and also now.
METZ: Well, real interest rates after inflation are virtually zero now. I think there's been a stampede of people away from the municipals, corporates, into the Treasuries which has pushed long-term rates down. I think they're going to go up from it. I would not buy long treasuries. I would look at munis, possibly, corporate bonds, short-duration, not long- term instruments.
KANGAS: You like municipals maybe because of all the bond insurance problem.
METZ: Exactly. I think a lot of people are afraid of them because the insurance may diminish or maybe you know, be canceled. But that's really not the basis for buying municipals. I think they're a very attractive sector.
KANGAS: OK. Now you correctly predicted in July that the housing problems would get much worse and they certainly did. But are we near a turning point now?
METZ: I do not think so and I think the next shoe to drop will be commercial real estate. That will deflate next in my opinion.
KANGAS: You were also right in forecasting that oil prices would remain high. Any change in your outlook now, Mike?
METZ: I don't think oil prices will go down. I think the Saudis and Russians control a quarter of oil's output. They're not going to let prices drop.
KANGAS: OK. So we'll stay up here in the $$80-$90 range.
METZ: Let's say between 70 and 100 at least.
KANGAS: OK. During the July visit you gave our viewers three buy recommendations. Let's see how they've done since that time. We have Anadarko Petroleum (APC) up 14.5 percent. It's been a long-time favorite of your. Are you still with it?
METZ: Yes, I am, I still like it.
KANGAS: OK. And General Electric (GE) down 8.5 percent although it did get as high as $42 in October. Are you still with it?
METZ: I'm uneasy about it, Paul. I think their exposure to financial services is too great.
KANGAS: Your third recommendation was the I shares (EWJ) of the Japan market, down 13 percent. That particular security can't seem to get out of its own way.
METZ: It been a real disappointment but now Japan is the cheapest developed market in the world.
KANGAS: So do you have any new recommendations?
METZ: I would still buy Anadarko.
KANGAS: OK. Let's get a chart on that. And it's had quite a move up, but just recently it's got hit a little bit, so it's right around the 60 mark.
METZ: And then I would buy Chesapeake (CHK), which is domestic gas producer. I think also very attractive.
KANGAS: OK. That's $37.71 range as of today.
METZ: I would say, Paul, the big integrated oil companies are going to force - will be forced to buy these independent exploration companies.
KANGAS: CHK is the trading symbol on Chesapeake, correct? Any third possibility that you like here?
METZ: I'd still buy Japan. It's a disappointment, but I think it's still very, very attractive value situation.
KANGAS: And then a little over $15 was the one-year high, now around $12.81 and you still like it.
METZ: Yes, I do.
KANGAS: Mike do you personally own any of the securities you've mentioned or have any other disclosure?
METZ: I own all three.
KANGAS: You do own all three?
METZ: Yes.
KANGAS: OK, well that's a vote of confidence in your recommendation.
METZ: Could be wrong.
KANGAS: Well, everybody has that possibility, but you're pretty sharp. I'll say that. Our time has run out but I think to thank you for being with us once again, Mike.
METZ: Thank you for having me, Paul.
KANGAS: My guest Michael Metz of Oppenheimer & Co.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened with solid gains as investors figured the weak jobs report suggested more rate cuts are in the cards, while the Microsoft bid for Yahoo! revived hopes for a lot more merger activity. An hour into trading, the Dow posted a 93-point gain with the NASDAQ up 12 points. Stocks pulled back during mid-session amid a pickup in recession concerns. But hopes that the troubled bond insurers would be rescued prompted some good buying, which gave the major indices decent closing gains. The Dow Industrial Average came in with an advance of 92.83 points at 12,743.19. It fell only one time this week, rising 536.02 points overall. The NASDAQ Composite closed up 23 1/2 points exactly at 2,413.36. That was today. It also fell only once this week and rose 87.16 points overall. Standard & Poor's 500 was up 16.87 to 1,395.42 today and it rose 64.81 points for the week. Over in the bond market, the 10-year note was unchanged at 105 11/32, with a yield at 3.60 percent.
Once again topping the active list today on 35 3/4 million shares, Citigroup (C) moving up $1.47 in quite a firm financial sector.
Bank of America (BAC) up $0.68.
Then came Motorola (MOT) up $1.16. After the close yesterday as we reported, the company said it may separate its mobile devices operation from its other businesses. Today millionaire investor Carl Icahn said he's very pleased with that move and Citigroup upgraded Motorola stock from "hold" to a "buy."
General Electric (GE) $0.75 gain there.
JPMorgan Chase (JPM) a $0.70 advance.
Pfizer (PFE) $0.20 gain there.
Washington Mutual (WM) up $1.90.
Ford Motor Co (F) gained $0.21.
EMC Corp (EMC) up $0.26.
And Time Warner (TWX) rounding out the 10 most active with a $0.33 gain.
JC Penney Co (JCP) up $1.09. The "Wall Street Journal" reported that billionaire investor Carl Icahn has taken a considerable stake, no percentage mentioned yet.
ExxonMobil (XOM) down $0.45 despite reporting the largest fourth quarter earnings in history. That turned out to be $2.13 a share, up from $1.76 last year and $0.15 above the Street estimate.
Chevron (CVX) had a good quarter too, the stock down $2.01 selling on the good news I guess. Fourth quarter earnings up 29 percent to $2.32 versus $1.74 last year and that was $0.02 above the consensus.
Another energy producing company, Arch Coal (ACI) up $5.33. Fourth quarter earnings, $0.56, up a penny from last year, but $0.09 above the Street estimate and the company sees 2008 earnings between $2 and $2.50 a share.
WH Energy Services (WHG), oil field services firm, up $7.71. Fourth quarter earnings $1.18, up from $1.05 last year.
Then Flowserve (FLS) up $14.28. The company sees better than expected 2007 revenues of $3 3/4 billion and better operating margins. Bear Stearns upgraded the stock from "peer perform" to "out perform."
CSK Auto Corp (CAO) up $3.01, one of the best percentage gainers. The story here, O'Reilly Automotive is offering $8 a share on a takeover.
CA Inc (CA) up $4.28. Third quarter earnings more than tripled, $0.31 versus a dime last year. RBC Capital upgraded the stock from "sector perform" to "out perform."
And then Millipore (MIL) falling $5.53. Higher earnings fourth quarter, $0.98 versus $0.86, but the company noted that its file process business is slowing down. Standard & Poor's downgraded the stock from "buy" to "hold."
Oshkosh Truck (OSK) down $3.12. Fourth - first quarter earnings, $0.50, down from $0.55 a year ago as higher costs offset a 49 percent jump in sales.
Callaway Golf (ELY) down $0.73, traded as low as $15.70 today after reporting a fourth quarter loss of $0.25, $0.06 worse than the Street was expecting.
And UST Inc (UST), this is a smokeless tobacco company. There's speculation Altria is considering a takeover bid. Neither company had any comment.
Topping the active list on NASDAQ not surprisingly, Yahoo! (YHOO) up $9.20 on Microsoft $31 a share buyout bid.
And Google (GOOG) which plans or which faces maybe increased competition on the web, down $48.40.
Microsoft (MSFT) itself off $2.15.
Apple (AAPL) a $1.61 loss there.
Baidu.com (BIDU) fell $10.36 a share.
Research in Motion (RIMM) down $1.64.
Cisco Systems (CSCO) bucked the trend up $0.44.
Intel (INTC) $0.67 advance.
Intuitive Surgical (ISRG), look at that gain, $51.61. The company more than doubled fourth quarter earnings to $1.24 and that was $0.20 above the Street estimate and revenues were up 68 percent.
Amazon.com (AMZN) down $3.07.
Elsewhere, Altera (ALTH) up $2.53 despite lower fourth quarter earnings of $0.20 versus $0.27 a year ago, but that was $0.03 above the Wall Street consensus.
And those are the stocks in the news tonight.
