NBR Complete Transcripts-February 4, 2008
Monday, February 04, 2008President Bush's $3.1 Trillion Spending Plan
SUSIE GHARIB: President Bush unveiled his 2009 budget today, the first spending plan ever to crack $3 trillion. It would also boost the Federal budget deficit to a near-record $407 billion next year. Included in the plan, increases in spending for the military and cuts in domestic programs. And for those keeping track, the president's budget proposal in his first term in 2002 was just over $2 trillion. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The usual political rituals were observed for President Bush's last budget. There was the delivery photo op on Capitol Hill, followed by Democrats like North Dakota's Kent Conrad warning the president's spending plan would add hundreds of billions of dollars to the nation's debt next year.
SEN. KENT CONRAD (D) NORTH DAKOTA/CHAIRMAN, BUDGET COMMITTEE: If we do not deal with this burgeoning debt, the United States will be dramatically diminished. Our strength in the world will be reduced and our economy will be threatened.
GERSH: Next, the cabinet room photo op, the president praising the first budget delivered primarily over the Internet.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: It is not only an innovative budget, in that it is coming to Congress over the Internet. It is a budget that balanced -- gets to balance at 2012 and saves taxpayers money.
GERSH: The number crunchers doubt this budget will hit black. They point out the administration once again includes only a portion of the real cost for the wars in Iraq and Afghanistan. The budget allots $70 billion in 2009, far less than the $195 billion requested for those conflicts in 2008. And the president's budget extends relief from the alternative minimum tax for one year, even though Congress is sure to continue it. The White House is also proposing $603 billion in savings from Medicare and Medicaid -- cuts Congress has rejected before. None of this is news to budget watchdogs like Maya Macguineas, although she does consider this budget a useful guide for voters weighing election year promises.
MAYA MACGUINEAS, PRES., COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET: In many ways, this budget paints a picture which shows the next president is going to be kind of stalled in how they get started. One might hope that the first thing that they would do is address the deficit, both short- and long-term challenges.
GERSH: One other budget ritual is the staggering statistic. This budget is $3.1 trillion -- enough money to give every one of the world's 6.8 billion people $441. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Google Works To Derail The Microsoft/Yahoo! Deal
SUSIE GHARIB: Google wants to derail Microsoft's $45 billion bid for Yahoo! The search giant is reportedly talking to Yahoo! about how it can help thwart Microsoft's unsolicited bid through a possible business tie-up and as Stephanie Dhue reports, Google is also complaining that a Microsoft- Yahoo! combination would be anti-competitive.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Google is playing the role of regulatory underdog. In a blog post, Google says Microsoft and Yahoo! could unfairly limit consumers' ability to freely access competing e-mail, instant messaging and web-based services. The complaint may also be payback for Microsoft's objection to Google's merger with Doubleclick. Analyst Blair Levin says with 75 percent of the market for paid search, Google risks protesting too much.
BLAIR LEVIN, ANALYST, STIFEL NICHOLAS: They are clearly dominant in the Internet search advertising space and what this deal creates is arguably a stronger competitor. And the more they object, the more it makes it look like what they're really objecting to is having a stronger competitor.
DHUE: Industry watchers think Google may also try to deter a deal by offering Yahoo! guaranteed revenue in return for handling its search function. But Stanford Group analyst Paul Gallant says Google will have to tread carefully if it tries to steer Yahoo! away from Microsoft.
PAUL GALLANT, ANALYST, STANFORD WASHINGTON RESEARCH: The antitrust laws basically say any contract or combination in restraint of trade is illegal, so if Google were to make some kind of deal with Yahoo! directly or if Google were to make a deal with somebody else that kept Yahoo! out of Microsoft's arms, regulators would be very interested to see whether that deal involving Google was designed to prevent more competition to Google.
DHUE: But Microsoft's biggest problem may be its own history. It is a convicted monopolist both in the U.S. and in Europe. Levin says a Microsoft Yahoo! deal will face its biggest hurdle with European regulators.
LEVIN: They've been having a long-running battle with the European Union over various elements of how they bring on new products to their operating system. So here they are talking about essentially bringing on a whole new product stream, Yahoo! services and the European Union is going to be very sophisticated about potential dangers for competition.
DHUE: U.S. lawmakers are also considering the potential dangers to competition. On Friday, the House Judiciary Committee will scrutinize Microsoft's bid for Yahoo! Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The Unseen Casualties of the Credit Crisis
PAUL KANGAS: Investors are well aware of the impact the credit crisis has on financial companies, but the banks are not the only ones being hurt by bad sub-prime bets. As Erika Miller reports, the damage has trickled over into some unexpected places.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Until recently, it seemed the damage from the credit crisis was largely confined to homebuilders and financial firms. Not anymore. Drug companies, airlines and manufacturers are also taking a hit. Money manager Joe McAlinden explains that many of these companies ran into trouble by trying to get higher returns on their cash reserves.
JOSEPH MCALINDEN, GLOBAL CHIEF INVESTMENT OFFICER, CATALPA CAPITAL: Some companies have reached a little bit to get slightly higher yields and have bought into some of these arcane financial instruments that, it turns out, had small pieces of sub-prime loans in them which became very hard to sell and had to be marked down.
MILLER: Among the growing list of victims are drug giant Bristol-Myers Squibb, U.S. Airways, 3M and network equipment maker Ciena. Even Potash Corporation, the world's largest fertilizer maker, took a write down on securities tied to sub-prime loans. Unfortunately for investors, it's almost impossible to find out if a company is putting its money in risky securities.
MACALINDEN: You just don't know where the financial assets are all invested. You could try reading the footnotes of the financial statements, but you really are not going to learn all that much.
MILLER: And just because a company has exposure to sub-prime debt does not necessarily mean it will lose money. Take Microsoft, which analysts estimate holds over $3 billion in mortgage-backed securities. That company maintains it has lost virtually nothing because it avoided lower quality investments. Still, NYU Professor Larry White believes the contagion is spreading.
LAWRENCE WHITE, FINANCE PROFESSOR, NYU STERN SCHOOL OF BUSINESS: We're going to be working through this for at least another six to nine months, maybe longer. And at least partly this is because at the base is a bunch of sub-prime mortgage loans, some of which have already gone south, some of which haven't yet, but we're not quite sure.
MILLER: Here's one reassuring sign for investors, corporations appear to be investing more conservatively. According to the Investment Company Institute, assets in institutional money market accounts have surged by about 20 percent since mid-September. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Grain Prices Show Growth Thanks To The Weak Dollar
SUSIE GHARIB: It has been a volatile few weeks for both equity and the commodity markets. Grain, energy and industrial metals prices have swung wildly, falling on recession fears and spiking higher on a weaker dollar. But as Diane Eastabrook reports, the gyrations could pave the way for big gains in commodities prices.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Last week, jitters in the equity markets rattled the commodity markets in Chicago. But today, grain prices rebounded thanks to a weaker dollar. Veteran trader Vic Lespinasse of Illinois Grain says the prospect for even higher prices looks promising.
VIC LESPINASSE, TRADER, ILLINOIS GRAIN: Demand is still good. Weekly export sales continue at a very rapid pace. That is good for commodity demand. That shows still we're seeing strong overseas demand.
EASTABROOK: Commodities include everything from crude oil to precious metals to livestock. They have been a safe haven for investors over the past year. In the last 12 months, the Dow Jones AIG commodity index was up, while the Standard & Poor's 500 Index was down. While prices for some commodities have been buffeted about in recent weeks over recession fears, experts think their outlook remains favorable. Recent cuts in interest rates are one reason. Experts say lower interest rates make dollar-denominated commodities less expensive for other countries to buy and lower interest rates make it cheaper for U.S. firms to build inventories of commodities. Futures brokerage Peregrine Financial Group noticed interest in commodities building over the past year. Chairman and CEO Russell Wasendorf thinks many investors are looking for diversity and portfolio protection in uncertain economic times.
RUSSELL WASENDORF, CHMN. & CEO, PEREGRINE FINANCIAL GROUP: This is more the profits, some of the profits that were made in the equity market. A small percentage of their total investment is being moved over into the fiscal (ph) markets.
EASTABROOK: Many investment advisers are encouraging clients to diversify with commodities, but with caution. Brett Rentmeester, a director for Altair Advisers, thinks the asset class should make up no more than 5 percent of an overall portfolio and he says commodities should be viewed as a long-term investment.
BRETT RENTMEESTER, DIRECTOR, ALTAIR ADVISERS LLC: I think you can get too hung up or investors can get too focused on the short-term. They should really be asking is this a place I want to be the next five years. If the answer is yes, I think you look through the near-term noise.
EASTABROOK: Traders say in the short run, commodity prices will remain volatile, but they think in the long run, tight supplies and high demand for many commodities will put a floor under prices. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"The Future of Television" - The Digital Revolution
SUSIE GHARIB: Super Bowl 42 made television history last night with nearly 98 million viewers. It was the second most watched program ever on TV. Television is woven into the fabric of American life -- in our homes, schools, restaurants, even on airplanes. But while television has evolved over the years, it's about to take a giant leap forward, as TV stations in the U.S. move from analog to digital. Tonight, New York bureau chief Scott Gurvey begins a four-part series, "The Future of Television," looking at the technology of tomorrow, today and yesterday.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Once upon a time, there were in the United States three commercial television networks, plus PBS. We watched what the networks wanted us to watch, when they wanted us to watch it. Today, television -- video entertainment may be a more descriptive term -- is everywhere. It's on our computers; it's on our phones. We carry it with us; we buy it in a store. The broadcast networks must compete for eyeballs and they're losing. TV viewership peaked in 1983, when 105 million people watched the final episode of the CBS comedy "MASH."
According to the Nielsen Company, average broadcast prime time viewership has fallen from 45 percent of households in 1985 to 28 percent in 2007. Next year, broadcasters face another challenge. On February 17, 2009, virtually all TV stations across the nation are scheduled to turn off their analog transmitters. That will leave broadcast television a digital affair. Viewers with sets that receive only analog over-the-air signals must buy a converter box. The boxes are expected to cost about $60 and arrive in stores in March. The government is offering two $40 rebate coupons per household. You can also hook up an analog TV to a wired or satellite provider or buy a new digital TV.
SHELLY PALMER, AUTHOR, "TELEVISION DISRUPTED": The transition from analog to digital is going to devastate in a way that I don't think many people appreciate.
GURVEY: Shelly Palmer has written a book titled "Television Disrupted." He worries the switchover will mean fewer viewers for over- the-air broadcasters.
PALMER: All of those sets cease to work. So operators will have the ability to give you basic cable in analog. They want you to switch to digital. But if you don't want to, you may only be getting broadcast television, not any of the basic-tier cable. No one knows how that's going to play out.
GURVEY: Nielsen says 13.5 million households currently have nothing but broadcast over-the-air television. That's 12 percent of all households and does not include homes with over-the-air analog sets in secondary locations. That's a lot of homes where there will be less viewing of traditional TV. But the broadcaster's loss is a gain for consumers, who now have greater choice and control and it's a gain for scores of businesses which supply services and content for the new technologies. Mike Vitelli, senior VP for consumer electronics giant Best Buy, says the digital conversion means increased sales of new TV sets. Best Buy also plans to be a big supplier of converter boxes.
MICHAEL VITELLI, SR. VP & GENERAL MGR., BEST BUY: we want to make sure that everyone of those households that have an over-the-air antenna, that they're getting analog signals over the air, that they get a converter box and make sure that their set is going to be ready to receive the new digital signals.
GURVEY: Broadcasters lost the ability to dictate the consumer's viewing schedule years ago when the first home video recorder hit the market. Today, the Slingbox can record your home television and play it back to you anywhere you have a computer and an Internet connection. Jason Hirschhorn is president of Sling Media's Entertainment Group.
JASON HIRSCHHORN, PRESIDENT, SLING MEDIA ENTERTAINMENT GROUP: What that means is that you know prime time or day parts or all those things we use to talk about in terms of ratings, those are at any time, anyplace, anywhere. And it's a pretty exciting time. It's really about access on your terms.
GURVEY: The new technologies have also been a boon for non-traditional distributors of television. Shawn Strickland of Verizon manages his company's push into fiber optic video services.
SHAWN STRICKLAND, VP VIDEO SOLUTIONS, VERIZON: The actual primary intent of the FIOs (ph) network was to serve up a better broadband experience. But we quickly realized that there was an opportunity to be in the TV business once we'd built the network. And that the world was shifting, consumers were sifting toward wanting bundles. And so that really was the impetuous that drove us into the television business.
GURVEY: So for every company that might want to get out of the television business, there appear to be many more that want to get in. The new technologies have destroyed the wall that used to separate the content producers from content consumers. We'll take a look at the new opportunities that has created tomorrow. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Commentary"-What The 4th Quarter Says About The Economy
SUSIE GHARIB: The fourth quarter's productivity number is due out later this week. Tonight's commentator says it could give us a better view of the economy's health. He's Michael Mandel, chief economist at "BusinessWeek."
MICHAEL MANDEL, CHIEF ECONOMIST, BUSINESSWEEK: The list of economic problems seems never-ending: weak job growth, falling home prices, slowing consumer spending. But there's one problem which gets far too little attention. Productivity growth, long a source of strength, is slowing. If this trend continues, it could spell even more bad news for the U.S. economy.
Let's look at the numbers. The five-year productivity growth rate stands at 2.2 percent as of the third quarter of 2007. That's down from 2.8 percent just a year ago. And it could go lower. A key piece of data comes out on Wednesday, when the Bureau of Labor Statistics reports on productivity growth for the fourth quarter. That number will be either very low or negative --suggesting that the long-term trend is slower than we thought.
What does this mean? First, as productivity growth sinks, growth slows and it becomes harder for consumers and businesses to pay back their loans. Not a good thing in this environment. Second, a bad productivity number puts Ben Bernanke in a squeeze. He might like to cut interest rates more, but slowing productivity growth raises the odds of inflation. The result: a return, perhaps, to the stagflation of the 1970s.
I'm not saying that this is definitely going to happen. Productivity has proven to be marvelously unpredictable in the past. But whether you are an investor, a worker, or a voter -- or all three -- it is productivity that will determine whether this current slowdown turns into something worse. I'm Mike Mandel.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened broadly lower as investors took profits from last week's big gains. More selling was linked to brokerage downgrades on a number of big banks. By mid-session, the Dow was off 81 points, NASDAQ down 21. The market continued its downward course after brokerage downgrades on the major credit card issuers. The sell off was made worse by a rise in oil futures and stocks ended near the day's lowest levels. The Dow Jones Industrial Average closed off 108.03 points at 12,635.16. The NASDAQ Composite fell 30 1/2 points to 2382.85, while the Standard & Poor's 500 Index lost 14.60 ending at 1380.82. In the bond market, the 10-year note lost 14/32 to 104 30/32, putting the yield at 3.65 percent.
Big board volume leader on 22 1/4 million shares, Citigroup (C) down $0.47.
Followed by General Electric (GE) with a $0.79 loss.
Wells Fargo & Co (WFC) down $2.26. The Stifel Nicholas brokerage downgraded it from "hold" to "sell" and Merrill Lynch also put out a "sell" recommendation on Wells Fargo.
The whole financial group weak, Washington Mutual (WM) included, down $2.66.
Bank of America (BAC) lost $1 per share.
And Ford Motor Co (F) a $0.17 drop.
JPMorgan Chase (JPM) losing $2.03.
Time Warner (TWX) a $0.23 drop.
Wachovia (WB) down $3.23. Merrill Lynch downgraded it from "hold" to an outright "sell."
And then Motorola (MOT) tenth in volume was down $0.47, not too many gainers there.
American Express (AXP) off $1.94. UBS Financial downgraded it to a "sell."
As it did with Capital One Financial (COF) and Discover Financial (DFS). UBS apparently thinks that the consumer is pretty well tapped out and we'll see a recession not too far down the line. Anyway, significant gains in those credit card issuing companies.
Archer-Daniels (ADM) off $1.30. Second quarter earnings $0.73, up from $0.67 last year and that's a penny below the Street estimate.
Clorox Co (CLX) down $2.36. Second quarter earnings down 4.2 percent to $92 million from $96 million a year ago, but earnings per share were up to $0.65 from $0.62 last year because fewer shares are outstanding now. But the company did cut its 2008 outlook.
Humana (HUM) down $2.86. Fourth quarter earnings jumped 57 percent to $1.43 from only $0.92 a year ago, but the stock still down in this market today.
Greenbrier Co (GBX) up almost $4. The railroad equipment manufacturer and an SEC filing from Carl Icahn discovered he owns 1 1/2 million shares or 9 1/2 percent of the stock and he may seek a merger with American Rail Car where Icahn is the chairman of the board. American Rail Car stock was up $2.95 to $20.62.
$ Thrifty Auto (DTS) tumbling $9.62. The rental car company cut its 2007 guidance which was $1.80 a share all the way down to $0.90 to $0.95 and other rental car shares were weak as well.
Wendy's Intl (WEN) losing $1.25. Fourth quarter earnings excluding items, $0.21. That's $0.02 below the Street estimate.
WM Wrigley Jr. (WWY) down $0.87, even though fourth quarter earnings were up 20 percent over last year, $0.56 versus $0.46 then and $0.03 above the Street estimate and the board has now approved a new 800 million share stock buyback.
Volume leader on NASDAQ, Google (GOOG) plunging $20.47 after a $48 plunge last Friday on possible competition from the Yahoo! Microsoft merger if there is one. This is the first time Google's been below $500 a share since August incidentally.
Apple (AAPL) down $2.10.
Yahoo! (YHOO) itself up another $0.95, gained over $9 Friday on the bid for Microsoft.
Microsoft (MSFT) down $0.26.
Cisco Systems (CSCO) off $1.12.
Baidu.com (BIDU) up $2.69.
$0.57 loss in Intel (INTC).
Research in Motion (RIMM) $0.93 gain.
First Solar (FSLR) up nearly $7.
Amazon.com (AMZN) down $0.68.
Elsewhere, Sigmatel (SGTL) up $1.15. The company will be acquired by Freescale Semiconductor for $3 a share.
But Coldwater Creek (CWTR) plunging $1.27. The company's in the casual apparel retail business and the Thomas Weisel brokerage downgraded it from "market weight" to "under weight."
And those are the stocks in the news tonight.
