NBR Complete Transcripts- March 4, 2008
Tuesday, March 04, 2008Citigroup's Capital Concerns Continue
SUSIE GHARIB: A roller coaster day on Wall Street, thanks to an earnings downgrade of Citigroup. The Dow tumbled as much as 226 points, but by the close was down just 45 points. Despite today's comeback, the blue chip average is still off by about 14 percent from its all-time high set back in October and the overall tone in the markets remains decisively negative. Suzanne Pratt takes a look at the reason for that pessimism.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In recent days, it seems a pervasive gloom has grabbed onto Wall Street and won't let go. From the sputtering economy to anemic corporate profits, investors have lots to worry about. Today, it was Citigroup. Its stock fell to its lowest level in nearly a decade on concerns the company may need more outside capital to weather losses from the sub-prime mortgage market. Merrill Lynch cut its earnings forecasts for Citi today, predicting a first quarter loss. Lehman Brothers strategist Simeon Hyman says financials need capitulation before stocks can change course.
SIMEON HYMAN, EQUITY STRATEGIST, LEHMAN BROTHERS: When there's a light at the end of the tunnel of all the financial write-downs, when there's a light at the end of the tunnel of the excess supply in the housing market, that's when the markets will begin to recover.
PRATT: S&P 500 firms are now expected to post a 3 percent decline in first quarter earnings; at the start of the year, analysts were looking for nearly a 6 percent increase. Financials again are likely to weigh down the index, with a 33 percent decline in earnings growth expected. That compares to an 11 percent loss predicted on January 1. Thomson Financial's Mike Thompson believes forecasts will get worse before they get better.
MICHAEL THOMPSON, DIR. OF RESEARCH, THOMSON FINANCIAL: I think the Wall Street community is telling us that by the fact that their pencils are sharpened and it looks like they're heading for more downward revisions. So, the likelihood is that you're going to see more downward pressure.
PRATT: Most experts believe pessimism will continue to weigh on stocks in the months ahead. But once the economy recovers, experts say investors should climb on for a nice ride.
HYMAN: Equities are cheap and we think they are cheap enough that you need to be fully invested, because a likely recession will be relatively shallow and recoveries in the equity markets post a recession are about 30 percent over a 12-month period.
PRATT: First quarter earnings will flood the market beginning in mid- April. If forecasts are correct, it could be the third straight quarter of negative profit growth, something that hasn't happened since 2001. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Fed Chairman Bernanke Forecasts More Foreclosures
SUSIE GHARIB: Also weighing on the markets today, a warning from the chairman of the Federal Reserve that he expects more home foreclosures. Ben Bernanke told a community bankers' conference that the turmoil in the housing market calls for a vigorous response. Meanwhile, lawmakers on Capitol Hill questioned why so many bad loans were made in the first place. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: On Capitol Hill today, lawmakers demanded to know how regulators missed the signs that banks were making bad loans. Fed Vice Chairman Donald Kohn admits the central bank could have done better.
DONALD KOHN, VICE CHAIRMAN, FEDERAL RESERVE BOARD: We tried to warn people in speeches and in conversations that we thought risk wasn't -- that they were taking risks and not being appropriately rewarded for them or controlling them. We tried to work with the banks, but I think it's quite possible that we could have been more forceful.
DHUE: Fed Chairman Ben Bernanke took a more forceful approach in a speech today to community bankers. He called on lenders to do more to prevent foreclosures, including cutting a homeowners' mortgage amount with the bank taking the loss.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.
DHUE: So far, lenders have been reluctant to do that. Senate Finance Committee Chairman Chris Dodd applauds the Fed's new approach.
SEN. CHRIS DODD, CHAIRMAN, SENATE BANKING COMMITTEE: When the chairman of the Federal Reserve gives a speech and talks about being more aggressive in terms of how we deal with this, I welcome those comments. It's something I've been talking about for a year and I think it's also an acknowledgment that this Hope Now Alliance, while maybe doing some good, is not going to be adequate.
DHUE: The Bush administration is also considering more ideas to keep people with no equity in their homes from just walking away from them. FDIC Chairman Sheila Bair says the focus now is getting lenders to voluntarily work out troubled loans.
SHEILA BAIR, CHAIRMAN, FDIC: I think we need to be looking at market- based solutions at this point and keeping the pressure on for servicers to use systematic approaches, not loan by loan approaches to dealing with this and using the full panoply of tools available. Whether it's enough, I don't know.
DHUE: Whether it's enough will depend largely on home prices. If they continue to fall, there is sure to be increased pressure on the government to do more. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Economic Choices 2008"-Where The Men Are
SUSIE GHARIB: Voters headed to the polls in four states today, with the biggest primary prizes coming in Texas and Ohio. Last night, we explored the views of working class women in the Ohio presidential primary. Tonight, the men get their turn. The conventional wisdom is the votes of white working class men are up for grabs. As we continue our series, "Economic Choices '08", Darren Gersh looks at how Barack Obama, Hillary Clinton and John McCain are playing to this key group of voters in one small metal shop outside of Cleveland.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Most of the time, the talk here at Inovent Engineering is all about the Cleveland Browns or the Indians or the Cavaliers. But if you ask Trevor Bascombe about the election, he talks about a kind of national political gut check.
TREVOR BASCOMBE, MACHINIST, INOVENT ENGINEERING: You know when they say, well, black man running for president, I was like, well, I don't know if the country is going to accept that or not. Me, personally, I don't mind either way. I just think I want somebody that's going to take care of America right now.
GERSH: If you ask Ron Geewax, he's for John McCain all the way. He prefers the Vietnam War hero who has been tested to Barack Obama who, he says, hasn't been. Even so, Geewax believes this election will change the stereotype that men prefer to vote for men like them.
RON GEEWAX, MACHINIST, INOVENT ENGINEERING: This campaign, I think, has opened a lot of people's eyes that you don't just vote that way. I think they're going to be surprised that a lot of white men are going to vote for either Hillary or Obama and I'm saying this -- I probably would have, if John McCain wasn't the representative of the Republican Party.
GERSH: Inovent Engineering is a good example of the kind of small, specialized shops that are increasingly common here in northeast Ohio and across the rest of American manufacturing. The men who work here altogether, have spent over 90 years making and designing machine tools. They value experience and they're looking for it in a presidential candidate. Trevor Bascombe liked and supported Bill Clinton and he voted for Hillary Clinton today. Barack Obama he says, is just too green.
BASCOMBE: He's like a rookie quarterback, you know. The guy could be great, but how do you know until he's actually in the game and playing?
GERSH: Inovent's owner Brian Fenn will tell you his wife likes Obama but, even though he's a Republican, he's keeping his options open for November.
BRIAN FENN, PRESIDENT, INOVENT ENGINEERING: As we get closer to the election, we can find out, see who cracks, who does it a little bit better under more of the pressure.
GERSH: Both Ron Geewax and Trevor Bascombe have suffered through layoffs and it colors their views. At the Center for Working Class Studies, John Russo says working men are being asked to do something very difficult in this election -- suspend their disbelief.
JOHN RUSSO, CO-DIRECTOR, CTR FOR WORKING CLASS STUDIES, YOUNGSTOWN STATE UNIV.: They don't believe in politicians. They don't believe in government. They don't believe in corporations. They don't believe in unions. They don't believe in religious organizations.
GERSH: These men don't put much stock in politics, because, whatever the economists might say, they say they've seen trade deals in action -- jobs that were once done in Ohio are now gone.
BASCOMBE: Now, I think they are going to Mexico and they are getting right on a boat and they're going right to China, so I think that has a big part in peoples' minds. They want to get things back to being American.
GERSH: Bascombe told us something we've heard from many other men on the campaign trail. His teenage daughter likes Obama, but winning the more- experienced father's vote, that's a harder sell. Darren Gersh, NIGHTLY BUSINESS REPORT, Solon, Ohio.
McDonald's President Don Thompson, Explains How He Plans To Beef Up Sales
SUSIE GHARIB: McDonald's is thinking more about coffee and less about beef these days. The fast food giant is focusing on beverages as it beefs up its specialty coffee business. The man leading this effort is Don Thompson. He's president of McDonald's U.S.A. Reporter Shon Gables of the "Black Enterprise Business Report" shows us the view from the top of the golden arches.
SHON GABLES, NIGHTLY BUSINESS REPORT CORRESPONDENT: If 17 years ago you asked this man...
DON THOMPSON, PRESIDENT, MCDONALD'S USA: Hi, I'm Don Thompson.
GABLES: ...where he'd be today, working at the world's largest fast food chain, it's probably the last place that would have come to mind.
THOMPSON: My first thought honestly was, no, I didn't get this engineering degree to go through all of that at Purdue to now go and flip hamburgers.
GABLES: As fate and years of hard work would have it, the former electrical engineer now president of McDonalds U.S.A., can't think of any place he'd rather be.
THOMPSON: As God would have it, I always say, I'm here at McDonalds, been here for 17 years. It's the best career decision I ever made. If anything doesn't go quite right, let us know because we'll fix it.
GABLES: But don't let his big smile fool you. As part of the executive management team, Thompson's directly responsible for all McDonald's restaurants in the U.S.
THOMPSON: The biggest part is that we serve customers one at a time.
GABLES: He loves what he does and it shows.
THOMPSON: At McDonald's, we want to make sure were contemporary and relevant. We're not just your great-grandmother's McDonald's.
GABLES: It's all part of his turnaround plan to fix flagging sales and build company morale after the consecutive deaths of two CEOs.
THOMPSON: It wasn't about how many restaurants can you build? It was what do you do with the 14,000 you already have? How can you ensure that you have better service, better food quality?
GABLES: Once he figured that out, Thompson did what many corporate execs wouldn't, he rolled up his sleeves and went to work, literally.
THOMPSON: You name it, I did it. I cleaned toilets, I mopped floors, I cooked hamburgers.
GABLES: But most importantly, Don listened. Customers wanted a more appealing breakfast menu, specialty coffees and health conscious menu options such as the Asian salad and snack wrap. And that's exactly what he gave them.
THOMPSON: We've grown our chicken business from $2 billion just four years ago to over $5 billion and we continue to grow it.
GABLES: Don's ingenuity has led to over 26 million customers now visiting a McDonald's restaurant in the U.S. every single day. And that number is expected to grow as new McCafes pop up, adding gourmet coffee, plasma TVs and wi-fi connections.
THOMPSON: I look at my role as one that has to make sure that the environment is right for us to succeed, the strategies are right to provide the right leadership and the vision to the overall organization, so our franchisees and corporate employees and our suppliers know where we're trying to take the business.
GABLES: So, what's next? Perhaps CEO of worldwide operations?
THOMPSON: I'm in a great position. I'm blessed to be here and not that I'm content with the fact that this is all I've ever wanted in life, but I am content that as long as I execute here and do a great job, I can sleep well each and every night. And that's what's most important to Don Thompson.
GHARIB: Another thing important to Thompson -- aggressively expanding McDonald's entire beverage business. Once sales for specialty coffees, smoothies and bottled drinks are ramped up, the fast food firm hopes to add another billion dollars to the bottom line.
"Of Mutual Interest,"- John Waggoner, Mutual Fund Columnist at "U.S.A Today"
SUSIE GHARIB: In tonight's "Of Mutual Interest," the benefits of municipal bond funds. Here's John Waggoner, mutual fund columnist at "U.S.A Today."
JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: Benjamin Graham, one of the great investors of our time, once compared the financial markets to a manic-depressive storekeeper. Sometimes, he'd demand $100 for an apple; other times, he'd give you a bushel for a buck. Today, Mr. Market isn't giving you much in the way of income from your mutual fund, with one big exception. He's giving you a great deal on tax-free municipal bond funds.
Muni bonds are long-term IOUs issued by states, towns and municipal entities, such as airports. Traditionally, munis yield less than comparable bonds issued by the U.S. Treasury. Why? Because you pay Federal income taxes on income from Treasury securities, but you don't pay Federal taxes on munis. Normally, munis pay about 15 percent less than Treasuries. Not now, a 10-year Treasury note yields 3.4 percent; a 10-year, high- quality muni yields 3.66 percent. So, if you buy muni bond funds now, you'll not only get a higher yield than you would from a government securities fund, you'll get much higher yields after taxes.
Nothing is free, of course. You're getting higher muni yields because investors are worried that muni defaults will rise in a recession and that's true. In addition, the companies that insure munis against defaults are themselves looking troubled. But muni defaults are very rare and if you invest in a diversified muni fund, you'd be pretty well protected. It's in your best interest to look for a fund that invests in high-quality bonds, as well as one that keeps its fees to a minimum. After all, the more your fund takes, the less you have. And right now, because Mr. Market is feeling generous, you want to take as much muni bond interest as you can. I'm John Waggoner.
Paul Kangas' Stocks in the News
PAUL KANGAS: The continuing flow of bad news from the banking sector and last night's warning from Intel about lower memory chip prices had Wall Street moving lower from the opening. At noon, the Dow posted a 180-point loss. The NASDAQ was off 30 points. Some pessimistic comments about the economic outlook from several Fed officials sent the Dow down over 220 points in early afternoon. But then a sharp drop in oil futures ahead of tomorrow's OPEC meeting and bullish comments from Cisco Systems CEO triggered a late rally. The Dow Industrial Average went on to close down only 45.10 points at 12,213.80. The NASDAQ Composite actually gained 1.68 to close at 2,260.28. Standard & Poor's 500 fell 4.59 to 1,326.75. Over in the bond market, the 10-year note fell 19/32 to 98 31/32, putting the yield at 3.62 percent.
Big board volume leader, no surprise, 50.4 million shares traded, Citigroup (C) down $0.99 on the close, traded as low as $21.23. As you heard, more capital might be needed according to the CEO of Dubai International Capital, who incidentally doesn't own any stock. Also Merrill Lynch cut first quarter earnings on Citi from plus $0.55 to a loss of $1.66. JPMorgan Chase (JPM) in there with a $0.63 loss.
General Electric (GE) up $0.12.
Bank of America (BAC) down $0.40. Merrill Lynch repeated a "neutral" rating on that one.
Motorola (MOT) was up $0.12 a share.
And then Wachovia (WB) losing $0.93. Merrill Lynch cut earnings estimates there and repeated a "sell" recommendation, also said Wachovia may cut its dividend in the second half of the year.
SprintNextel (S) down a dime.
A penny loss in Pfizer (PFE). The "Wall Street Journal" reports the U.S. Supreme Court will allow a product liability lawsuit to proceed against Pfizer regarding its diabetes drug Resilin (ph).
Then we see Washington Mutual (WM)
down $0.26.
And tenth in volume was Ford Motor Co (F) dropping a nickel a share.
American Intl Group (AIG) down $0.86. Moody's maintained its negative outlook on that company.
Boeing Co (BA) down $1.05, continuing disappointment that Northrop Grumman and not the company, got the $35 billion U.S. Air Force aerial tanker contract and apparently the company has submitted a request to the Pentagon asking why it wasn't selected for that huge contract.
Best Buy Co (BBY) down just $0.68. Bank America downgraded it from "buy" to a "neutral."
Barr Pharmaceuticals (BRL) up $3.80. The company's Barr Labs unit won a patent dispute which found Bayor birth control pill invalid. The patent was invalid and that clears the way for Barr to market a generic version of that.
Trina Solar (TSL) up $1.75, big earnings jump, fourth quarter, $0.62 up from $0.28 a year ago, $0.13 above the Wall Street estimate.
And then Jackson Hewitt Tax Service (JTX) off $6.61, third quarter earnings dropped to $0.61 from $0.83 last year. The Street was looking for $0.99. Revenues actually dropped 15 percent.
Barnes & Noble (BKS), the book seller, down $1.38. The company sees fiscal 2009 earnings at $1.70 to $1.90. The Street estimate is way up there at $2.12 a share.
NCI Building Systems (NCS) tumbling $5.70. First quarter earnings down to $0.39 from $0.49 a year ago and the company cut its 2008 earnings estimate from $0.90 to $1.05, all the way down to $0.64 to $0.79.
NASDAQ's most active, Apple (AAPL) up $2.89. As you heard, the annual meeting produced no stock buyback or dividend, but plenty of optimism and of course, the company has cash, around $18 billion.
Google (GOOG) down $12.42.
Research in Motion (RIMM) up $4.51.
Intel (INTC) a $0.01 loss. Company as you heard cut its margin estimates from 56 percent to about 54 percent due to those weak memory chip prices.
And Microsoft (MSFT) was up $0.60.
Cisco Systems (CSCO) an $0.11 drop.
Followed by Baidu.com (BIDU) up $5.63.
Oracle (ORCL) lost $0.51.
Applied Materials (AMAT) up $1.44. The company got a $2 billion order for its products from a private firm that it wouldn't name, at least up to this point.
Amazon.com (AMZN) was up $2.91.
Tessera Technologies (TSRA) tumbling nearly $9 a share. The U.S. patent and trade office has rejected the company's patent claims on its semiconductor technology.
And those are the stocks in the news tonight.
