NBR Complete Transcripts-February 27, 2008
Wednesday, February 27, 2008Fed. Chairman Bernanke Says More Cuts Are Coming
SUSIE GHARIB: Ben Bernanke hinted today that more interest rate cuts are on the way. Testifying before Congress, the Federal Reserve chairman acknowledged that the economy is still struggling and suggested policymakers are on track to reduce rates again next month. Bernanke also raised concerns about inflation, but made it clear the Fed needs to boost economic growth for now. Washington bureau chief Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The labor market is soft. Credit markets are stressed. Consumer spending is slow. Some of the items on the gloomy list of economic challenges Federal Reserve Chairman Ben Bernanke cited in his congressional testimony today.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: The risks to this outlook remain to the downside. Those risks include the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.
GERSH: While weak growth is clearly the Fed's top concern, Bernanke is also confronting inflation fears sparked by $100-a-barrel oil. If consumers expect prices will keep rising Bernanke warned, that would undermine confidence in the Fed, making it harder to keep interest rates low. For now, Federal Reserve policy makers are expecting slower economic growth to ease inflation pressures. But Bernanke acknowledged last year's 4.3 percent jump in consumer prices was not good news.
BERNANKE: We're trying to estimate what's going to happen this year. A lot of it depends on what happens to the price of oil. If oil flattens out, we'll do better, but if it continues to rise at the rate of 2007, it will be hard to maintain low inflation.
GERSH: Continuing turmoil in credit markets is also complicating the Fed's efforts to help borrowers. Worried lenders are now demanding higher interest rates, a fear that can be measured in the difference between interest rates on super-safe Treasuries and mortgages. Wall Street calls that difference the spread and it has jumped from just under 1.5 percentage points last year to well over 2 this year. Bernanke said those wider spreads mean Federal Reserve rate cuts aren't helping many consumers.
BERNANKE: Our policy is essentially in some cases just offsetting the widening of the spreads, which are associated with various kinds of illiquidity or credit issues. So, in that particular area, it's been more difficult to lower long-term mortgage rates.
GERSH: Vincent Reinhardt is a former senior Fed economist. He says the Federal Reserve will have to lower its key short-term interest rate more aggressively than policy makers originally thought.
VINCENT REINHARDT, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: To the extent that spreads widen, that means that you have to lower your policy rate more to get the same outcome for private rates and we think it's private rates that matter for activity.
GERSH: Many economists and traders now expect the Federal Reserve to cut interest rates another half a percent point at its March 18th meeting. Ben Bernanke had a chance to change that thinking today, but he clearly chose to deliver a message that would not disappoint the markets. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
The Fannie Mae/Freddie Mack Portfolio Progress
SUSIE GHARIB: Welcome news for the housing industry today. The regulator that oversees mortgage makers Fannie Mae and Freddie Mac said it will remove portfolio growth caps for both companies on March 1st. Shares of several home builders surged on that news. As Scott Gurvey reports, the action sets the stage for Fannie and Freddie to increase their role in helping with the mortgage crisis.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Government- backed mortgage giants Fannie Mae and Freddie Mac buy mortgages and resell them, packaged as securities. That adds capital to the mortgage market. Both have been restricted from growing their portfolios due to lax accounting and governance issues in the past. Today's action lifts the growth cap. But their regulator James Lockhart says other restrictions, including a surplus capital requirement, will remain.
JAMES LOCKHART, DIRECTOR, OFFICE OF HOUSING ENTERPRISE OVERSIGHT: They have very large operational risk which they're in the process of fixing, but in the meantime, credit risk, interest rate risk and even other types of operational risk like the models that everybody's using today have grown dramatically. So we have to be very careful as we move, reduce the capital.
GURVEY: Lifting portfolio caps and pushing the companies to buy more mortgages increases their exposure to the housing crisis. Fannie Mae today reported a net loss of $3.5 billion for 2007. Still, analyst Eric Wasserstrom of UBS Securities, which does business with Fannie Mae, says Fannie's portfolio will now expand, even thought it increases their risk.
ERIC WASSERSTROM, CONSUMER FINANCE ANALYST, UBS SECURITIES: That pressure exists largely because that's why these institutions were created. So in a certain sense they don't have a lot of option about whether or not to participate. The question is really to what degree and at what levels of pricing. So what you're seeing from them in response is that they're tightening their underwriting standards.
GURVEY: The unanswered question is who will refinance loans that do not meet the tighter standards? House Financial Service Committee Chairman Barney Frank is proposing to use Federal funds to assist as many as one million homeowners, while Senate Banking Committee Chairman Christopher Dodd is revisiting a plan to re-create the depression-era home owners' loan corporation. Dodd got support for the idea from Princeton Professor Alan Blinder, a former Fed vice chairman, but Blinder admits there is opposition.
ALAN BLINDER, PROFESSOR, PRINCETON UNIVERSITY: Not everybody in America made a stupid decision about their mortgages. Many people were quite responsible, are not having trouble now servicing their mortgages and of course would not be helped by an institution like this and I understand that sentiment. The problem is that this issue has gotten so big that it's threatening the whole economy.
GURVEY: Fannie and Freddie also got a boost from Congress as part of the economic stimulus package. It increased the maximum size of the mortgages the agencies can buy from $417,000 to just over $729,000. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"A Guide to Giving"-Cyber Charities
SUSIE GHARIB: If there's any one development that's changing the world of philanthropy, it's the Internet. For many charities and non- profits, new sources of funding are now only a click away. Tonight, Jeff Yastine wraps up our series "A Guide to Giving" with a look at how going online is revolutionizing the world of charitable giving.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: South Florida's real estate market may be in crisis, but developer Frank McKinney is still thinking big. McKinney's palatial spec houses, like this $29 million project going up on a stretch of beach in south Florida, are aimed at the super-rich. But mansions are not all McKinney builds. He also builds homes for the poor in Haiti. His Caring House Project Foundation builds small sturdy houses and whole villages in Haiti's interior, using local labor and materials.
FRANK MCKINNEY, PHILANTHROPIST, CARING HOUSE PROJECT FOUNDATION: Like Robin Hood, I sell to the rich and I like to give to the poor. We've evolved now into no longer a charity, but we're in the self-sufficiency business, where we provide food, water and opportunity to the most desperately poor and homeless from the world primarily now focusing in Haiti.
YASTINE: McKinney says he started the effort in the late 1990s and raising funds for it was difficult until he put the foundation on the Internet. Now, with a few clicks, web visitors can check out the foundation, view a video or contribute as little as $20 or $20,000.
MCKINNEY: And now I'd bet we get 90 percent of our donations outside and 10 percent come internal from me. And if it wasn't for that Internet presence where you if you wanted to search, let's say you searched homelessness, you just click homelessness. We pay per placement on, say, Google ad words or search engine optimization or pay per click, if you will. We have a small $10 a day budget that we set aside for a daily Internet budget and I tell you what, it probably pays for itself three fold.
YASTINE: Because of the Internet, the world of philanthropy has undergone dramatic change. Smaller charities have proliferated because online, a small fundraising organization can have the same scale and impact as a larger, ore established one. The Internet also makes it easier to advertise your cause and also seek out potential donors. Stacy Palmer, editor of the "Chronicle of Philanthropy," says the benefits of the Internet, mainly appeal to small upstart charities, while big charities with a national presence are still a few steps behind.
STACY PALMER, EDITOR, CHRONICLE OF PHILANTHROPY: We're seeing it, but we're not seeing it happen in a big way at these large organizations. They're really experimenting with things. And for large organizations, it's giving up a whole lot of control and they're not used to the whole way that the Internet works in spreading things out. And that's a challenge for organizations that can be pretty bureaucratic and top down.
YASTINE: Non-profits are not only using the Internet to raise money but also to deliver services. At Hands-On-Miami, the Internet is used for training and administration. It's also a marketing and recruiting tool. Hands-On-Miami CEO Pat Morris says the Internet makes it easy to link up the group's thousands of volunteers with appropriate projects.
PAT MORRIS, PRESIDENT & CEO, HANDS ON MIAMI: Its online shopping. Someone only has so much time available, they want to look at an organization that is tech-savvy, that has what they want. When they come to the website of handsonmiami.org, you can find out very quickly that there's a lot of ways which you can become engaged in our community, as well as making a contribution.
YASTINE: Text messaging is the latest twist in online fundraising. This United Way Commercial ran during last month's Super Bowl, just another way that philanthropy is adopting new technology to increase donations. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
"Street Critique" -Patrick O'Hare, Chief Market Analyst at briefing.com
PAUL KANGAS: Tonight's "Street Critique" guest says the stock market is at a crossroads of sorts. He's Patrick O'Hare, chief market analyst at briefing.com and author of briefing's bargain hunting column. Pat, welcome back to NIGHTLY BUSINESS REPORT. PATRICK O'HARE, CHIEF MARKET ANALYST, BRIEFING.COM: Thank you, Paul.
KANGAS: Explain what you mean by the market being at a crossroads at this point.
O'HARE: Sure. We're in a little bit of a range-bound trade now. If you look within the market itself at the economic sectors, you see some divergence of opinion there. You have defense pouring into areas like consumer staples and health care outperforming the market but at the same time, you have areas like financial consumer discretionary and the transports which tend to do better in most growth-oriented environments outperforming the market. So it does suggest that we're at a bit of a crossroads here in the market trying to see which way things are going to break. We think they're going to break ultimately to the up side.
KANGAS: You're taking the bullish road.
O'HARE: We are on account of the Fed's efforts as well as the impending arrival of the fiscal stimulus.
KANGAS: So you made positive of Chairman Bernanke's testimony in Congress today?
O'HARE: Well, he pretty much stuck to the Fed script. He didn't say anything entirely new. He did acknowledge some inflation pressures but at the same time, he provided the market a pretty clear understanding that the Fed stays ready to cut interest rates yet again at the March 18 FOMC meeting.
KANGAS: You've brought our viewers a couple of stock selections. The first one you think is currently undervalued. What is that stock?
O'HARE: Right, General Electric. Stock symbol is GE. And while it's the bluest of the blue chips, we think it has a growth story that has gone under appreciated market. CEO Jeff Immelt has done a commendable job of reshaping the company so that it's positioned in higher growth areas within the infrastructure and financial and environmental technology areas as well as health care. Stock trades with the market multiple. The company has a triple-A credit rating, pays a very nice and secure dividend and we think it really is just undervalued here for the investment-minded individual.
KANGAS: And the chart that we had up on display there indicated maybe a bottom has been forming in this stock. Do you agree with that?
O'HARE: Well, we certainly hope so. But you can't time those things. We just think that it does offer some nice value here.
KANGAS: OK. How about another stock? I understand you feel this one is in recovery mode.
O'HARE: Right. It's retailer Kohl's. The stock symbol is KSS. The stock just got clobbered last year as the market was pricing in all the recession worries. It went from about $80 to just under $40 per share. It's had a nice recovery off that bottom here, but even at its current level, it trade at a price that you saw maybe at the end of around 2003, yet earnings per share are up about 80 percent over that period of time. Operating margins have expanded nicely. We do think that it offers some growth here at a reasonable price for the long-term investor. The caveat there, the company reports earnings after the close on Thursday. Because of that nice run (INAUDIBLE), we probably would wait to initiative a position until after that report.
KANGAS: OK. Pat, do you own either of those two stocks or have any other disclosure to make?
O'HARE: No, I do not, Paul.
KANGAS: OK. I want to thank you for being with us once again.
O'HARE: Thank you.
KANGAS: My guest, Patrick O'Hare, chief market analyst at briefing.com.
"Money File"-Old Computers... New Money
SUSIE GHARIB: In the "money file" tonight, making money with your old computer. Here's Terri Cullen, personal finance columnist at the "Wall Street Journal."
TERRI CULLEN, REPORTER, THE WALL STREET JOURNAL ONLINE: Consumers who need to upgrade their computers often face a confusing problem. What do I do with the old one? Tossing an old computer into the trash isn't a good idea, because they contain hazardous materials that can harm the environment. In fact, in some states, dumping a computer in the trash is a crime.
So what can you do with your old computer? Use it to help you make some money. Computers makers such as Sony, Gateway and Hewlett-Packard offer trade-in programs that take in any used computer. In exchange, the companies issue credits or cash back toward purchases of their own brands of computers. You can find out more on the manufacturer's web site by searching for the words "trade in." Computer retailers, such as Circuit City and Best Buy, also offer trade-in programs and in return consumers receive store gift cards.
How much is your old computer worth? A lot depends on the age and make of the model, but generally notebook computers are more valuable than desktops. Before you try to trade in or sell an old computer, make sure to transfer all personal data, photo and video files to your new computer. Then use disk-cleaning software to wipe out all your personal and financial information, so it can't be accessed by the new computer's owner. If your computer runs Microsoft Windows, you can find information on free disk- cleaning software on Microsoft's web site. If you own a Mac, a disk- cleaning program called disk utility comes already installed. By cleaning up your computer and trading it in, you can recycle it safely and make some money in the process. I'm Terri Cullen.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street was on the defensive early today amid profit taking after three straight sessions of gains. A new low of the dollar against the euro and gold at record highs added to the selling. An hour into trading the Dow posted a 41-point loss and the NASDAQ was down nine points. Then came word that portfolio caps would be lifted from Fannie Mae and Freddie Mac and that rallied the blue chips to a 65-point gain at noon. We'll have more on Fannie and Freddie in just a moment. But investors then turned their attention to the Fed chairman's gloomy tone and bad news, like a 13-year low in January new home sales. All this resulted in a mixed market close. The Dow Industrial Average (INAUDIBLE) a gain of only 9.36 at 12,694.28. The NASDAQ Composite rose 8.79 to 2353.78, but the Standard & Poor's 500 lost 1.27 at 1380.02. In the bond market, the 10-year note gained 1/32 to 97 3/32, putting the yield at 3.85 percent.
Once again, big board volume leader today on 26 million shares, Citigroup (C) moving up $0.77.
Fannie Mae (FNM) closed up only $0.30. First of all this morning, the company reported a worse than expected fourth quarter loss of $3.80 a share versus earnings last year. But then the government looked at its portfolio growth cap and the stock got as high as $31.58 during the day, then backed off considerably.
Then came JPMorgan Chase (JPM), $0.69 gain.
Freddie Mac (FRE) down $0.12 on the close, but on the news of the lifting the portfolio growth cap, it was as high as $29.40 and gave back all of that.
General Electric (GE) an $0.08 gainer. That was number five in big board volume.
Ford Motor Co (F) edged up $0.08.
Followed by AT&T (T). AT&T is backing its 2008 revenue outlook incidentally.
Then Bank of America (BAC) a $0.16 gain.
Wells Fargo & Co (WFC) up $0.34.
While SprintNextel (S) dropped $0.34.
IBM (IBM) up another $2.08 after gaining over $4 yesterday on the company's plan to buy back $15 billion of its own stock. But today the company's CFO said first quarter results look stronger in the U.S. than previously thought. That's what helped the stock on this follow through day.
Delta Air Lines (DAL) lost $0.91. The company's chief exec sent a memo to employees saying that in essence, no merger agreement with Northwest Air has been reached as yet.
Let's have a look at Northwest Airlines (NWA) and it too was down $0.91. Both stocks are almost identical in price and net change today they were.
Nortel Networks (NT) down $1.52. The company reported a fourth quarter loss of $1.70 a share versus only a $0.19 drop a year ago. Revenues fell 4 percent in the fourth quarter and the company plans on cutting its global workforce by 2100. RBC Capital brokerage downgraded the stock from "sector perform" to "under perform."
Carters (CRI) which retails baby's clothing and notice the interesting symbols. CRI, cry. Fourth quarter earnings, $0.48 up from $0.45 last year but that was $0.03 below the Street estimate and the company did note weakness in its wholesale operations. Standard & Poor's downgraded it from "buy" to just a "hold" rating.
URS (URS) an engineering firm, tumbling $8.88. Fourth quarter earnings were higher, $0.55 versus $0.51 last year, but the company said this year's results will be tempered by weakness in the infrastructure market.
Dycom Industries (DY) losing $2.27. It fell to a second quarter loss of $0.08 versus earnings of $0.14 last year and that's despite a 10 percent rise in revenues.
Finally a good gainer, Federal Signal (FSS) up $1.50. Fourth quarter earnings were lower, $0.17 versus last year's $0.27, but $0.03 better than expected and the company's evaluating options on its E1 fire rescue unit.
Dreamworks Animation (DWA) up $1.21. Fourth quarter earnings of $0.98 versus a loss of $0.20 last year. Revenues shot up 40 percent.
And then Zale Corp (ZLC), the jewelry chain, up $1.88. The company plans to close 105 stores and cut 225 jobs in a plan to save $65 million annually.
Apple (APPL) topped NASDAQ's most active list, up $3.81.
Followed by Google (GOOG) with a gain of $8.67.
Baidu.com (BIDU) up $21.05.
Research in Motion (RIMM) up $3.75.
Microsoft (MSFT) a $0.12 loss. The European Commission has fined the company a record $1.35 billion for failure to comply with an antitrust decision.
Let's move along here, Cisco Systems (CSCO) up $0.88.
Intel (INTC) an $0.08 rise.
Bea Systems (BEAS) rose $0.26.
Autodesk (ADSK) losing $6.11. After the close yesterday, fourth quarter earnings were higher, $0.52 versus $0.46 but the company cut its first quarter guidance from $0.52 down to $0.48 a share at best.
Then First Solar (FSLR), tenth in volume, lost $3.
And finally, First Independence Financial (FIFG) jumped $5.21 on news it is being acquired by MainSource Financial Group for cash and stock worth $18.34 per share.
