NBR Transcripts-February 5, 2008
Tuesday, February 05, 2008The Dow Takes A Drastic Triple Digit Dive
JEFF YASTINE: Millions of Americans in 24 states voted in presidential primaries today, but on Wall Street, investors voted to sell. The Dow plummeted 370 points, its biggest one-day decline so far this year and the NASDAQ fell 73 points. The sell-off came on new economic data suggesting that the nation's service sector is contracting. The Institute for Supply Management said its index of non- manufacturing activity tumbled to a weak 41.9 reading. As Erika Miller reports, today's data is more evidence that the U.S. economy could be headed into recession.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It could have been a cheerful day on Wall Street, with the New York Giants ringing the opening bell. But the mood was fearful as recession worries sacked the stock market. Market strategist Tony Dwyer says he's not surprised by the magnitude of today's decline.
ANTHONY DWYER, EQUITY STRATEGIST, FTN MIDWEST SECURITIES: The markets are soft today on further evidence that you have economic weakness and that earnings are at risk. And when that's in the overall environment of a bear market which we've kind of been in, that creates even more weakness.
MILLER: The downturn was sparked by the Institute for Supply Management's non-manufacturing index, which plunged in January to its lowest level since the aftermath of September 11. Today's data is especially troubling for Wall Street, because it focuses exclusively on the services sector, the vast majority of the economy. BNP Paribas' Richard Iley says it's solid evidence the U.S. economy has reached its tipping point.
RICHARD ILEY, SR. ECONOMIST, BNP PARIBAS: I think the unequivocal message is one of economic weakness. And I think perhaps even more worryingly, that it suggests that we're getting to the point of the downturn where the economy is really lurching lower at an accelerating rate. In the jargon, us economists would say this is the point at which things get nonlinear.
MILLER: Comments from Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, also added to worries about the economy. In prepared remarks, he predicted U.S. growth would be sluggish in the first half of the year. But he also raised the possibility of contraction, saying quote, I can also see the possibility of a mild recession, similar to the last two we have experienced. In other words, shallow with a short recovery. Economist Drew Matus is also betting the economy will skirt recession. He points to several factors that could help keep U.S. growth above the red line.
DREW MATUS, SENIOR MARKET ECONOMIST, LEHMAN BROTHERS: There's a lot of good things going on. A, the Fed is being incredibly aggressive; B, Congress is passing a stimulus package; and C, we can't count out the U.S. consumer completely. The labor market is not great, but there's still a large number of people, very low unemployment rate. So, the U.S. consumer should do reasonably well through the remainder of the year.
MILLER: But there's one thing nearly everyone on Wall Street can agree on -- odds are increasing for an aggressive rate cut by the Federal Reserve at the next policy meeting March 18, perhaps even before.
ILEY: I think their preference is to go in a smaller quarter percentage point increment. But if we get more numbers similarly weak to the survey today, they may well be pressured into going for a bigger 50 basis point, I think a half a percentage point cut.
MILLER: If the U.S. economy does enter recession, many experts think it will be worse than the last one in 2001. That's because, this time, they are worried about a sharp drop in consumer spending. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Treasury Secretary Henry Paulson Heads To The Hill To Sell The Stimulus Package
SUSIE GHARIB: Treasury Secretary Henry Paulson said today he's keeping a close watch on the financial markets. The turmoil in the markets will be at the top of the agenda at this weekend's meeting of finance ministers from the leading industrial nations. But on Capitol Hill today, Paulson's focus was on the U.S. economy as he testified before Congress on the Bush budget and the stimulus package. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Senators from both parties peppered Treasury Secretary Henry Paulson with questions on the tough job market. Maine Republican Olympia Snowe wanted to know why the administration opposed extending unemployment benefits for 1.3 million Americans who have been out of work for more than six months.
SEN. OLYMPIA SNOWE, (R) MAINE: We just had a big headline last week saying sawmills are closing and people saying we're going to have to move further south in the state perhaps to find a job, you know with a living wage of some type. I mean, it's dramatic, because we've lost a lot of the manufacturing jobs in Maine and I think it's a microcosm of America.
GERSH: The stimulus bill now before the Senate would extend unemployment benefits by 13 weeks in states where the jobless rate is over 6.5 percent -- the cost, $14 billion. Paulson says that's not needed, yet.
HENRY PAULSON, TREASURY SECRETARY: With unemployment at 4.9 percent, to extend benefits, it would be unprecedented and it would send a message to the world which I think is the wrong message. It's never been extended when unemployment is below 5.7 percent.
GERSH: Michigan Democrat Debbie Stabenow argues extending unemployment benefits would be the best way to stimulate the economy, supporting spending by strapped families, many of them living in Michigan, where the unemployment rate is close to 8 percent.
SEN. DEBBIE STABENOW (D) MICHIGAN: This whole notion that somehow extending unemployment compensation, which is 40 percent of a worker's average wage, is going to stop somebody from trying to get a job, is just a myth.
GERSH: In past recessions, Congress has extended unemployment benefits after the jobless rate rose about two percentage points; so far, it's up half a percentage point. Even so, Goldman Sachs political analyst Alec Phillips expects jobless benefits will soon be increased.
ALEC PHILLIPS, WASHINGTON ANALYST, GOLDMAN SACHS: They are either going to extend it as part of the stimulus bill or they are going to extend benefits as part of some later package, either this fall or potentially even next year, once unemployment hits as high as maybe 6 percent under our forecast.
GERSH: The showdown on extending unemployment benefits could come as soon as tomorrow, when John McCain, Hillary Clinton and Barack Obama return to the Senate following today's super Tuesday voting. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with Kim Wallace, Chief Political Strategist at Lehman Brothers
SUSIE GHARIB: Today is the biggest primary day in U.S. history and it could be a defining one for the 2008 presidential race. Joining us now for analysis of what to expect, Kim Wallace, chief political strategist at Lehman Brothers. Hi, Kim.
KIM WALLACE, CHIEF POLITICAL STRATEGIST, LEHMAN BROTHERS: Hi, Susie.
GHARIB: So by tomorrow morning will we have a clear cut nominee for the Democrats and the Republicans?
WALLACE: I doubt it. I think by noon you'll know who won most of the delegates in the counting for today, but my sense is that the contest is going to go on through at least the first quarter, especially on the Democratic side, possibly on the Republican side.
GHARIB: Kim, as the nation's economic situation worsens, does that play in favor of any particular candidate?
WALLACE: Not really because all the candidates will soon be addressing the economy. On the Republican side, they've been slow to separate themselves from the Bush economic policies of the past six years, but my expectation is that will change quickly. On the Democratic side they've been talking about economic stimulus programs, but nothing like the magnitude that's being discussed in Washington now.
GHARIB: But in terms of any specific plans, we're seeing polls every day coming out saying that Americans are so concerned about the economy. Will we start getting some specifics from the candidates on their economic plans?
WALLACE: I doubt it. The piece you had in front of this interview shows why. Whether you're talking about the state of Maine or the state of Michigan, the jobs that are being lost or devalued are very difficult for Washington to address from the policy standpoint of fiscal tools.
GHARIB: Go ahead. Elaborate a little bit more on that.
WALLACE: It's just very difficult to confront what's going on in the global marketplace from Washington, DC through fiscal policy and hope to reverse the effects of the global marketplace in a short period of time.
GHARIB: So you don't see the candidates even addressing any issues like what to do about housing?
WALLACE: Well, they've started talking about housing, but not in a significant way. The administration has taken the lead there and thus far the administration has signaled that it's going to approach the housing situation by continuing to encourage the Fed to cut the Federal funds rate, to reform the FHA, the Federal Housing Authority and to also increase the loan limits at Fannie, Freddie and the FHA, so that people hopefully can refinance their loans at a better rate.
GHARIB: Usually there is a candidate that Wall Street and corporate America really favors. Is there someone this time that is a clear-cut person that Wall Street would like to see get elected?
WALLACE: I don't think there's any one clear-cut. They all appeal to the market in different ways. In terms of just pure market and economics, probably former Governor Romney would be the favorite of most of the Republicans in the market, but as I said before,, all of the candidates have a piece of Wall Street to which they appeal.
GHARIB: Well, just a little bit more about Mitt Romney. What it is about him that the business world finds attractive?
WALLACE: Two aspects of his life. I think one, his experience in the capital markets as a bank consultant, and then two, his chief executive experience in the state of Massachusetts and then his ability to manage the winter Olympics out of Salt Lake City.
GHARIB: What are you telling your clients and investors of how to handicap this election?
WALLACE: Don't bet early. One of the beautiful aspects of the 2008 electoral process is that it's wide open. We don't have an incumbent from the White House, that is a sitting president or vice president running on the ticket for the first time since 1952 on either side. That means that the candidates have had to go through a grueling process of introducing themselves, discussing some of the ideas that they'd like to implement when they get to the White House and exposing themselves to the process that we've seen unfold since Iowa. It's been very exacting.
GHARIB: All right. Thank you so much, Kim. We really appreciate you coming on the program.
WALLACE: Thank you, Susie.
GHARIB: My guest tonight, Kim Wallace, chief political strategist at Lehman Brothers.
"The Future of Television" - Producer-Consumers
SUSIE GHARIB: Apple unveiled new versions of its iPhone and iPod touch devices today with double the memory of before. It's the trend in new devices -- getting smaller but doing more. You can watch videos, listen to music, send email, surf the net and download photos. As Scott Gurvey continues his series, "The Future of Television," he looks at how new technologies are leveling the playing field when it comes to producing video content.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is this the future of television? Will Coughlan and Rob Millis are the creators and anchors of politicallunch.com. Their report covering the latest in political news is posted on the Internet at the lunch hour.
ROBERT MILLIS, CO-CREATOR, POLITICALLUNCH.COM : We like to offer five minutes where people who are interested in politics, but maybe not obsessed the way that we are, can get caught up with the election news and go on with their day. They can have a sandwich during lunch, watch us and move on.
GURVEY: A viewer who catches up at politicallunch or any of the web- casting sites may be less inclined to tune into the news and entertainment on broadcast TV. The availability of low-cost equipment for shooting and editing has made the television production process accessible. Anyone with a $50 web cam can make television and you don't need your own web-casting Internet site. Distributing television is now as simple as burning a DVD or posting the video to a free web-sharing site. Youtube is the best known. Founded three years ago, youtube had 61 million videos online at the beginning of this year. Youtube's Jordan Hoffner says there is a good reason for the site's popularity.
JORDAN HOFFNER, HEAD OF PREMIUM CONTENT PARTNERSHIPS, YOUTUBE: The one thing that youtube does, it creates a democratic platform, so there is no barrier to entry if you are a producer of television. You don't have to wait for somebody to green light your project. You can just put it up and go directly to the audience and see if there is an audience for you.
GURVEY: In truth, there isn't an audience for a lot of the television you find posted on the Internet. Just like broadcast TV, Will Coughlan of politicallunch.com says viewers are looking for interesting content and good production values on the web.
WILL COGHLAN, CO-CREATOR, POLITICALLUNCH.COM : The Internet is a meritocracy. Now if you don't deliver something that the audience appreciates, then no one watches.
GURVEY: For some, there's a simple gratification if your video is popular. But for the stand-up comics, garage bands and comedy troupes now playing on the web, the goal is still to be discovered on the net and then sign a deal with a traditional media company. Search giant Google bought youtube in 2006 for stock worth $1.65 billion. The company expects to sell advertising on the same web pages which display the videos. Most web- casters would like to sell ads. But attracting the big budget advertisers who now buy time on broadcast television is something media analyst Scott Kessler of Standard & Poor's says will be difficult.
SCOTT KESSLER, INTERNET MEDIA ANALYST, STANDARD & POOR'S: Right now, a lot of the content that youtube has is user-generated content. And frankly, a lot of "Fortune" 500 type companies are not necessarily so comfortable with providing advertising and marketing messages that are going to be embedded or alongside what I would characterize as lower quality or including content that is more questionable type content.
GURVEY: Those issues have not stopped some of the tech sector's biggest players from trying their hand at television. Microsoft makes both hardware and software for Internet video. VP Enrique Rodriguez runs Microsoft's TV division.
ENRIQUE RODRIGUEZ, VP, MICROSOFT TV DIVISION: I think everybody is feeling pressure to understand their role in the future of television. I think Microsoft, like many other companies, is trying to understand what value we can bring to the consumer, what value we can bring to the industry that will, in fact, give us the right if you will to earn a portion of that value chain.
GURVEY: Of course, the over-the-air broadcasters are fighting desperately to retain as much of that value chain as they can. We'll take a look at some of their efforts tomorrow. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Last Word"-Mardi Gras
SUSIE GHARIB: And finally tonight, while it's super Tuesday for many voters, in New Orleans, it's fat Tuesday, also known as Mardi Gras. That means it's party time, complete with colorful costumes and cocktails. The tourism industry there has reason to celebrate -- more than 90 percent of the area's 32,000 hotels are filled for Mardi Gras. New Orleans Mayor Ray Nagin says the crowd could be bigger than last year's. And Jeff, you were in New Orleans recently. Do things look like they're getting better?
YASTINE: They are getting better. But it's slow and it's the other 51 weeks after Mardi Gras that the city needs to bring back up to snuff.
GHARIB: Hopefully they will.
YASTINE: I'm sure they will.
Paul Kangas' Stocks in the News
JEFF YASTINE: Stocks sold off from the opening bell on Wall Street today as recession worries heated up. The Dow dropped more than 200 points at the open, as investors digested that ISM number. Merrill Lynch says the data increases the odds for another intra-meeting rate cut by the Fed and that kept stocks under pressure for the rest of the day and the major averages settled at their lows of the day. So the Dow sank 370 points and a fraction to finish at 12,265.13. The NASDAQ tumbled 73.28 to end at 2,309.57 and the S&P 500 Index dropped 44.18 to 1,336.64. The bond price sparking higher on flight to safety buying and the 10-year note climbing 18/32 to 105 17/32 and the yield at 3.58 percent.
Starting things off, Citigroup (C) dropping $2.17. The firm leading the rest of the banks and brokers lower after today's drop in the ISM service sector index. Even the idea of another intra-meeting rate cut put forth by Merrill Lynch today not helping to stem the declines in the group. General Electric (GE) falling $1.16.
Bank of America (BAC) off $1.66.
Pfizer (PFE) losing $0.67.
JPMorgan Chase (JPM) down more than $2.
Ford Motor Co (F) dropping a fraction.
And then Wells Fargo & Co (WFC), again part of the weak financial sector today, losing $0.92.
ExxonMobil (XOM) down more than $3.
Micron Tech (MU) gaining just a fraction.
And Motorola (MOT) off $0.71.
Taking a peek at some other blue chips caught in today's sell-off, American Express (AXP) falling $1.96, bringing its two-day loss to nearly $4. Yesterday, UBS issued a "sell" on the credit card issuers' group.
And American Intl Group (AIG) dropping $2.50.
Caterpillar (CAT) losing more than $3.43.
And IBM (IBM) sliding nearly $3.
Verizon Comm (VZ) off $1.78.
And then we have Whirlpool (WHP) which went the other way today, gaining more than $8, $8.41 to be specific. The appliance maker delivering a healthy 72 percent jump in fourth quarter profits, thanks in large part to strong sales in its Maytag division. Earnings were $0.23 above analyst targets.
Then we have Las Vegas Sands (LVS) jumping $7.45. Morgan Stanley upgraded the stock after it reported a big 65 percent jump in revenues.
And then Corporate Express (CXP) vaulting more than $2. Some think it could be taken over by the Staples retail chain, although Corporate Express denied any takeover rumors.
On the downside, NYSE Euronext (NYX) sliding $11.70. The exchange group says it sees a slight shortfall in fourth quarter earnings and the cost-saving synergies after buying Euronext last year will not be fully seen for another two years.
Then we have National Semiconductor (NSM) off $1.43. The chip maker lowering its sales outlook because of declining shipments to cell phone makers in China.
Then Barnes & Noble (BKS) losing $3.55. JPMorgan says the weaker economy and more retail competition will make it harder for the book seller to hit its sales targets this year.
Over to the NASDAQ, where we had Google (GOOG) climbing $11.37, one of the few gainers in that index today and you could really say the enemy of my enemy is my friend here as Google shares were buoyed by reports that Yahoo! may be interested in some kind of partnership deal with Google, perhaps swapping its advertising assets for Google's cash and avoiding Microsoft's hostile acquisition offer.
Apple (AAPL) down more than $2.
There's Microsoft (MSFT) dropping $1.12.
Baidu.com (BIDU) losing nearly $19. The company the subject of a copyright infringement lawsuit from music giants Universal, Warner and Sony BMG.
Then Cisco Systems (CSCO) dropping $0.56.
Research in Motion (RIMM) ending off $4.87.
Yahoo! (YHOO) dropping $0.35.
Intel (INTC) off nearly $1.
Oracle (ORCL) off by nearly the same amount.
And First Solar (FSLR) off about $15.
Then finally, Sirf Technology (SIRF) skidding nearly $9. It missed analyst estimates with its fourth quarter results of $0.28 a share and the company's first quarter forecast was also less than analyst expected.
And then VCA Antech (WOOF), the chain of veterinary clinics, seeing 2008 results and fourth quarter revenues below analyst targets. They blame shortfalls on uncertainty in the economy and slower revenue growth.
Those are our stocks in the news tonight.
