NBR Complete Transcripts-February 6, 2008
Wednesday, February 06, 2008Oil Prices Suddenly Slide
JEFF YASTINE: A big drop in oil prices today, on a bigger than expected increase in oil supplies. In New York trading, crude futures for March fell $1.27 to $87.14. Driving the sell-off, new data from the U.S. government showing oil and gas inventories rose sharply over the past week. Erika Miller takes a closer look at what that means for the energy prices this spring.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stock investors aren't the only ones worried about a recession. The energy markets are falling on the same concern. Trader Anthony Grisanti says the big fear is a slowing U.S. economy will reduce demand for energy.
ANTHONY GRISANTI, OIL TRADER, GRZ ENERGY: The market seems to be following the economy right now, where as the stock market comes off, as economic indicators are weaker, crude oil starts coming off. So, the mindset on the floor is to kind of sell the rallies at this point.
MILLER: Fears of falling energy demand were reinforced today by inventory data from the Energy Department. Crude supplies climbed by seven million barrels last week, roughly triple the increase expected. Gasoline and distillate stockpiles also rose. Analyst Antoine Half predicts energy supplies will continue to climb this year, pushing prices lower.
ANTOINE HALFF, HEAD OF ENERGY RESEARCH, NEWEDGE: There is more supply coming in from Saudi Arabia. There's more projects due to come on stream within OPEC and from non-OPEC suppliers as well and that should ease things.
MILLER: There could be significant easing at the gasoline pump as well. Triple-A says recession fears could drive gasoline prices down $0.50 a gallon by the spring. But there are still some wildcards that could push energy prices back to record levels, including a flare up in political tensions between the U.S. and Iran.
HALFF: Those concerns have kind of eased and faded away. They could come back and should they come back, then the price would probably respond quite strongly.
MILLER: Another unknown is whether OPEC will change its quota levels at the March 5th meeting. Some member nations are pushing for a cut in production. But others want to increase output to capitalize on high oil prices while they last. Energy prices are expected to continue to take their cue from economic data in coming weeks. Traders say they're not just worried about a slowdown in the U.S., but world economies as well. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with GE CEO Jeffrey Immelt
SUSIE GHARIB: Many executives find it hard to be upbeat these days with all the concerns about the wobbly U.S. economy. But the chairman and CEO of General Electric Jeffrey Immelt is pretty cheery. He expects GE revenues to grow as much as 15 percent this year and earnings to increase by 10 percent. A short while ago I sat down with Immelt and he told me why he won't change his forecast even if the U.S. economy slips into recession.
JEFFREY IMMELT, CEO, GENERAL ELECTRIC: The company today is much more globally diverse and the businesses we're in have more tailwind, you know the, the big infrastructure businesses, health care, even commercial finance, are more insulated against just the U.S. consumer. What I would say, Susie, for your viewers, is it's as confusing at times as I can remember in my 25 years with the company. Clearly there are places that are really slow. But even when I look at some of the leading indicators I look at that, you know, that maybe forecast a recession -- like even NBC -- they're still pretty robust.
GHARIB: But, Jeff, how bad do things have to get in the U.S. economy before it even starts impacting your big global projects?
IMMELT: I think you've got to see something really catastrophic because I wouldn't say that the economies have decoupled. And while people talk about the U.S., you know, it's just not as highly leveraged as it's been in the past. So I just think things have to get much worse than we see today for the rest of the world to really fall into a broad slowdown.
GHARIB: We're seeing a lot of economic reports that are showing strains on the consumer. What are your internal data points telling you about where the consumer is?
IMMELT: You definitely are seeing delinquencies. You definitely seeing a consumer that is more tapped out than they were clearly a year ago, but basically, unemployment is still relatively low. A lot of the export industries are still doing well. So there are certain signs that are not terrible about the U.S. consumer. But, really, we're-- we're going into a period where with housing prices being down and things like that, there is going to be stress on the U.S. consumer. You just need to plan for it.
GHARIB: GE had a tough experience with this whole sub-prime mortgage market. What are the lessons you learned from that?
IMMELT: Financial services are easy to grow. It's also easy to lose money and it's all about risk management. Risk management inside the company is always valued-- is always valuable. There are always the people that ought to be in the front seat of the business. We do that universally well. I think in this area we didn't do as well as we needed to.
GHARIB: You said that you want to sell GE's consumer finance unit. How difficult is it going to be to find a buyer?
IMMELT: My view is that it's never easy to sell a business when the markets are as choppy as they are right now. But it is also a time when most companies look to be consolidators. So I think there's going to be a lot of business development activity, M&A activity around financial services in the next six, 12, 18 months. We're going to be a buyer in some areas. We're going to be a seller in some areas. It is never going to be easy, but there's going to be buyers out there for us, and at the same time we can redeploy the capital into good returning areas really at the same time.
GHARIB: Why where do you want to invest the money?
IMMELT: I love to continue to grow outside the United States. I love continue to invest in our health care and infrastructure businesses and I would say in commercial finance -- our basic lending and leasing businesses which are really where GE Capital grew up from. There's just great values out there.
GHARIB: Is this a good time to be making acquisitions, 2008?
IMMELT: In the last three or four years, tons of easy money. Being a triple A rated, globally positioned company like GE, you get undervalued to a certain extent. At a time like this, triple A really pays off, our strong cash flow and risk management, things like that really pay off. So I don't root for a recession. I don't root for tough times. But I think choppy times are times when companies with scale like GE tend to do a little bit better.
GHARIB: Wall Street would like to see you sell your NBC TV units. You keep saying no. So NBC prime-time is in last place. The writers' strike, I'm sure, has not helped. What is it going to take to turn things around at NBC?
IMMELT: I like the elements of the business today. I think the industry is profitable. It's more global than it has been before. In 2008 we've got the Olympics and the elections, both of which are good for NBC Universal. So I think we're in a good cycle right now. It's a good fit inside the company and I'm convinced that the company is in better shape with NBC than without NBC particularly in the cycle we're in today.
GHARIB: How much will broadcasting the Olympics in Beijing this summer boost profits at NBC?
IMMELT: I would say that the summer Olympics will make at NBC $50, $100 million, something like that, just on the network and in the system profit, it's probably two or three times that. So it's a great - it's a great global franchise for GE and for NBC.
GHARIB: Looking a little bit at China, there's a point at which the easy-- making easy money is over and the competitors really start to come in. Are you seeing that pressure yet?
IMMELT: I kind of agree with your thesis, basically which says the early - the last four or five years I think were all easy revenue growth in China. There's going to be a lot of growth out there, but it's only going to be for people that are willing to do the hard work of localizing, of being more indigenous in the economy there. And that's what GE's always done.
GHARIB: Jeff, from everything you're saying you sound so upbeat in saying that all of GE's businesses keep getting better. But the markets aren't responding to that. Why is it?
IMMELT: You know, I think big companies have been unloved the last four or five years. It's not just GE. You're going to get, you know, peaks and valleys with the stock. But the underlying strength in the company is very strong. We're back down to trading at a P/E ratio that's closer to our historic P/E ratio. I think there's only upside for investors in terms of where we sit today, particularly who the company is the cycle we're in, this is a good time for GE.
GHARIB: Jeff, thank you so much, as always, such a great pleasure to see you.
IMMELT: Thanks, Susie. Good seeing you, thanks.
"Street Critique"-Hilary Kramer, Market Strategist & Author of "Ahead of the Curve."
JEFF YASTINE: With stock prices beaten down in recent weeks, tonight's "Street Critique" guest thinks that it's still too soon to bottom fish in certain sectors. She's Hilary Kramer, market strategist and author of "Ahead of the Curve." And Hilary welcome back to NIGHTLY BUSINESS REPORT.
HILARY KRAMER, AUTHOR, "AHEAD OF THE CURVE": Jeff, thank you for having me here.
YASTINE: Before we start talking about sectors to avoid, what would you say about this market? We have given back about half of the gains of the past two weeks just in the past couple of days.
KRAMER: This is a very treacherous market, Jeff. We are going to see a lot more pain because it's doing a lot of head fakes. It has these fake rallies up and then it comes down hard. On a technical level, it looks like we're going to go lower and you got to respect the market action out there.
YASTINE: All right, with that in mind, what sort of sectors are areas that might be tempting to try to pick bottoms in but that you would say avoid it for now.
KRAMER: OK, the home builders, OK, the home builders, yes. They've caught a bid the last few days, but remember, there will be home builders that will go out of business. The revenues line keeps going down. There's a problem obviously, in terms of financing. So companies like Standard Pacific, SPF, you're going to see company goes under. So be very careful on the home builders. Don't think you're getting a bargain. Don't try to catch a falling knife. The same with the financials. Citigroup is a phenomenal company. Just because it looks like it's heading back up and it's going to go to 60, right now it's in the 29 range. It could see 22 again very easily and as an individual investor, you've got to remember that you're a few steps behind everyone else. This is a trader's market. Those are the only ones that are making money in this market.
YASTINE: Hilary, isn't it possible though that with a great deal of short activity on these sorts of sectors that the financials, the home builders could still see more gains, just on a short squeeze?
KRAMER: They could but the problem is that there are major, fundamental problems, which is that even though rates have been lowered, there's a liquidity crisis out there and it still has to make its way through the system. So one's better off standing by the sidelines waiting. I always say, cash is king.
YASTINE: Is there a third sector here we can talk about?
KRAMER: Yes, retailers. Again, I'm seeing a lot of interest in the long-size (ph) retailers. Now on the short, Sears (SHLD) -- they hang their hat on being a big real estate play, but as we know the value of real estate has gone down. Also, these mass luxury retailers, like Coach, Tiffany's who have enjoyed phenomenal runs the past few years. It's over for them right now because unemployment has risen and it's a consumer-led recession that we're in. The consumer doesn't have the money that we used to have. And, therefore, we're going to see companies like that suffer as well as some of the commercial REITS because many of these stores aren't going to be able to afford the prices that the commercial real estate properties are commanding.
YASTINE: Hilary do you have any of these stocks you've mentioned in your portfolio?
KRAMER: Just Sears as a short, SHLD.
YASTINE: All right, Hilary, thanks for your time. I appreciate you coming on to the program.
KRAMER: Jeff, thank you for having me.
YASTINE: My guest, market strategist Hilary Kramer.
"The Future of Television"-Broadcaster Strategy
SUSIE GHARIB: There appears to be progress in the ongoing writer' strike in Hollywood. The writers guild will meet with its members on Saturday to discuss where negotiations stand. The writers, the studios and networks want to end the strike before the academy awards on February 24. The dispute centers on how writers will be paid for their work now and in the future. As Scott Gurvey reports in tonight's installment of his series "The Future of Television," it's a battle to remain relevant in the face of the ongoing television revolution.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is this the future of television? Apple's iTunes store rocked the music industry when it began selling songs directly to consumers. Now it is doing the same for television. But broadcasters have learned from the music industry's experience. They are not bucking the trend toward alternate distribution methods. But they are insisting on active participation and greater control. NBC Universal pulled its shows from iTunes in a pricing and marketing dispute. It now offers some programs itself for free download, with commercials. It will offer others, for sale on Hulu, a site it is developing in partnership with News Corp. Alan Wurtzel, NBC's president for research and media development, notes the network also makes programming available on demand through cable systems and has developed special programming for distribution through the Internet and on mobile devices.
ALAN WURTZEL, PRES., RESEARCH/MEDIA DEVELOPMENT, NBC UNIVERSAL: I don't think the average consumer will consume video in the next five years in any one way. I think they'll consume it in many, many different ways. It's just going to be how that all gets proportioned. Some people will still spend more time and energy going to the advertiser supported video. Others will spend more time going online. Others will spend more time downloading and paying for it.
GURVEY: Other broadcasters as well as cable channels which produce original programming, are experimenting with alternate distribution channels for their content. This has increased tensions between the content providers and distributors. And the content providers and the creators, the writers, actors directors and other creative talent who want a piece of the revenue no matter what distribution channels are used. Al Lieberman, director of the entertainment, media and technology program at NYU, says broadcast executives he talks to are embattled.
AL LIEBERMAN, PROFESSOR, NYU STERN SCHOOL OF BUSINESS: No one is going to give up their grounds. No one is going to walk away from these highly successful albeit declining shares in network television.
GURVEY: Which is not to say network television is about to be replaced by Internet downloads. Analysts say broadcasters will now sell TV-plus-web distribution as a package to advertisers. Consultant and author Shelly Palmer says traditional television has a built-in advantage it can continue to exploit.
SHELLY PALMER, AUTHOR, "TELEVISION DISRUPTED": You know what's not democratized? Promotion. Remember a full 25 percent of the ads you see on TV are for TV itself. As a matter of fact, the largest advertiser on television is television. Without the promotional engine, you just made a video for you and your close circle of friends.
GURVEY: And media analyst Scott Kessler of Standard & Poor's says the current shift to wide screen, high definition digital television also works to the advantage of the traditional broadcast companies.
SCOTT KESSLER, INTERNET MEDIA ANALYST, STANDARD & POOR'S: Internet content is a very compelling concept in terms of trying to marry that content with related advertising. The problem is, as companies try to provide more and more sophisticated video content on the Internet, people are kind of somewhat resistant to that. It's one thing to watch a three minute clip or a five minute clip on a 17-inch screen. It's another thing to ask folks to watch you know a 30 or 60 minute television show on that small screen.
GURVEY: Whatever screen size you prefer, your options will continue to expand. We'll take a look at some of those options and at the impact the television revolution is already having on the political process tomorrow. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Paul Kangas' Stocks in the News
JEFF YASTINE: And all that talk of slowing growth led Wall Street into negative territory late in the day. That as recession worries trumped the Dow's 125 point bounce early in the session. Stocks had moved higher as investors reacted to Disney's strong earning out last night. The buying faded in early afternoon trading as the market digested those Plosser comments and the selling continued into the close. So the Dow ended down 65.03 at 12,200.10 and the NASDAQ fell 30.82 to end at 2278.75, putting it firmly in bear territory, down 20 percent from its October highs. And the S&P 500 finished down 10.19 at 1326.45. In the bond market, the 10-year note falling 8/32 to 105 11/32 and the yield at 3.6 percent.
And starting things off, Citigroup (C) heading up our actives, falling $0.13.
General Electric (GE) dropping a penny there.
Ford Motor Co (F) losing $0.12.
Bank of America (BAC) down $0.04.
And Pfizer (PFE) off a nickel.
Here's ExxonMobil (XOM) losing $0.67 with today's bit of a sell off in the oil markets.
Then Time Warner (TWX) gaining $0.31. Fourth quarter net income fell more than 40 percent but investors like CEO Jeff Bewkes plan to cut costs, split of America Online's Internet access business and also cut Time Warner's stake in Time Warner cable.
Disney (DIS) gaining $1.43. Analysts applauding the media giant's first quarter performance. The weakness in the U.S. dollar giving foreign tourists an excuse to book more vacations at Disney's U.S. theme park.
Hewlett-Packard (HPQ) off $0.82.
JPMorgan Chase (JPM) down $0.17.
And then CME Group (CME) stung for a loss of over $103. The Justice Department raised antitrust issues over the exchange group's trade clearing activities and that also could put the proposed acquisition of Nymex under greater scrutiny since that deal would also combine trade clearinghouses of the nation's two largest remaining futures markets.
And there's the action in Nymex Holdings (NMX) dropping nearly $19.
And then Neustar (NSR) shares falling over $7. The firm reported healthy fourth quarter results, but warned it would miss analyst 2008 earnings forecasts by about 10 percent.
Here's another one down on weak 2008 outlooks, National Financial Partners (NFP) nosediving over $9. Analysts at Bank of America slicing earnings growth projections in 2008.
Macy's (M) down $1.16. The retail group said it will cut 2,500 jobs and restructure some operations after last month's 7 percent drop in same store sales.
And then Polo Ralph Lauren (RL) going the other way, gaining over $5 on a surprise earnings beat. Third quarter profits reached $1.03 a share. That was $0.31 above analyst estimates.
Then Tyco Electronics (TEL) rising more than $2. First quarter earnings more than tripled to $1.90 a share, helped by sizable tax gains and also the company's underwater fiber optic cables carrying a lot of data and generating a lot of cash for the company which was spin off from Tyco International a while ago.
And finally, MBIA (MBI) down $0.62, but rose more than $1 after hours. The bond insurer will raise more cash and try to hold onto that triple A credit rating by selling $750 million in convertible preferred stock. It will also restate a smaller fourth quarter loss.
Onto the NASDAQ where Apple (AAPL) fell more than $7 in today's sell off.
Microsoft (MSFT) dropping $0.55.
Google (GOOG) off more than $5.
Cisco Systems (CSCO) dipped $0.18. Second quarter profits rose more than 7 percent and matched analyst estimates, but the company sees weakness in orders that could continue for several months and noted caution among its U.S. and European customers. The stock fell to $21 and change in after hours activities.
And finally, Baidu.com (BIDU) dropping more than $23. Google is setting up its own download operation for free and unlicensed, excuse me, licensed music titles in China and that's the last thing that Baidu needs for its business in China there.
Research in Motion (RIMM) ending off more than $4.
Yahoo! (YHOO) falling $0.41.
Intel (INTC) off $0.20.
First Solar (FSLR) down more than $6.
Oracle (ORCL) going the other way, gaining $0.42.
JDS Uniphase (JDSU) surging more than $2. Profits came in above estimates. Excluding special items, they earned $0.22 a share. Remember when this was a $1,000 stock back in March of 2000.
And finally, Riverbed Technology (RVBD) losing $2 1/2. Excluding special items, Riverbed earned $0.20 a share. That was a penny above estimates. But a Needham analyst downgraded the stock and down it went.
