NBR Complete Transcripts-March 7, 2008
Friday, March 07, 2008Jobs, Payroll, & Stocks All Fall Down
SUSIE GHARIB: American businesses cut jobs in February at the fastest pace in five years. The Labor Department said today that payrolls unexpectedly fell by 63,000 jobs last month. That intensified concerns about recession and triggered more selling on Wall Street. As Suzanne Pratt reports, many economists are now expecting another big interest rate cut by the Federal Reserve.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: After today's employment data, many on Wall Street now see a U.S. recession as a foregone conclusion. Not only did the economy lose jobs for the second consecutive month in February, but January's decline was revised lower to 22,000 jobs. December's gain was cut in half to an anemic 41,000 jobs. Experts say the revisions highlight steady deterioration in the labor market and suggest the economy may already be in recession. Lehman Brothers previously thought the U.S. might skirt recession. Now its economist, Ethan Harris, says that's unlikely.
ETHAN HARRIS, CHIEF US ECONOMIST, LEHMAN BROTHERS: I think what the payroll number does is it just says the weakening has gotten a little bit faster and it really does look like we're going to be getting negative growth for a while here.
PRATT: Job losses were widespread throughout the economy in February, with hefty cuts coming in construction and manufacturing. However, there were modest gains in hospitality, health and education and government. Surprisingly, the nation's unemployment rate fell 0.1 of 1 percent to 4.8 percent, but experts say the drop reflects a shrinking labor force. Economist Kevin Logan says that's another sign of labor market weakness.
KEVIN LOGAN, SR. MARKET ECONOMIST, DRESDNER KLEINWORT: The overall labor force contracted by 450,000 people. A lot of people are perhaps convinced that there's no employment available in their local area and so are stepping back from the labor force. And maybe people are accelerating retirement. There may be a few things going on.
PRATT: The February employment report fueled speculation on Wall Street that the Federal Reserve would lower interest rates before its March 18th meeting, but most economists believe the next cut will come at that meeting.
HARRIS: I do think that this report seals the case for a 50 basis point cut, if not a 75 basis point cut, from the Fed. The Fed needs to keep moving here as we see new signs that the economy is sliding into recession.
PRATT: Lehman's Harris says he now expects the Federal Reserve to make additional cuts to interest rates later this year. He says policy makers will take the Federal funds rate as low as 1.5 percent from its current 3 percent level. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
CEO's Get Grilled On The Hill
PAUL KANGAS: Three CEOs at the center of the mortgage market meltdown defended their compensation packages before a congressional panel today. Countrywide CEO Angelo Mozilo and the former CEOs of Citigroup and Merrill Lynch all said they deserved to profit, even as their companies lost billions of dollars. But as Darren Gersh reports, some members of Congress were not convinced.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Former Merrill Lynch CEO Stanley O'Neal (ph) was forced out last fall after the company wrote down $7.9 billion in sub-prime losses. Representative Henry Waxman, a leading congressional critic of executive pay practices, wanted to know why the board of directors didn't dock O'Neal's pay after he presided over a record $2.4 billion quarterly loss.
REP. HENRY WAXMAN, CHAIRMAN, OVERSIGHT & GOV'T. REFORM CMTE:. What was the rationale for letting Mr. O'Neal retire with $131 million in unvested stock instead of terminating him and recouping this money for the shareholders?
GERSH: John Finnegan, chair of Merrill's compensation committee, said O'Neal had taken a hit, losing his job and his bonus, but the company still had to honor its contract.
JOHN D. FINNEGAN, CHAIR, MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE, MERRILL LYNCH: Mr. O'Neal has sufficient points in terms of age and years of service to leave the company and take those stock awards with him, unless we could terminate him for cause. The provisions related to cause covered misconduct; they did not cover unsatisfactory financial results.
GERSH: Waxman also took aim at a $2.5 billion stock buyback launched by Countrywide Financial, calling it a disaster for shareholders. He added it did not look good that CEO Angelo Mozilo began selling six million shares just after the company announced the program in 2006. Mozilo said he was diversifying his investments as he prepared to retire. As Countrywide's founder and a major shareholder, Mozilo argued as the company did well, he did well.
ANGELO MOZILO, FOUNDER AND CEO, COUNTRYWIDE FINANCIAL: The investors, who are mostly institutions, made the decision whether to buy or sell the stock based upon the information we provided. I never asked anybody to buy the stock, nor did I ask anybody to sell the stock.
GERSH: Earlier in the hearing, shareholder activist Nell Minow pointed out the real problem was not the size of these pay packages, but the returns investors got from them.
NELL MINOW, EDITOR, THE CORPORATE LIBRARY: What is the return on investment of the pay? The return on investment for these pay packages is less than a piggy bank.
GERSH: How much less? Over the last 12 months, the stocks of Citigroup, Merrill and Countrywide are down between 50 and 90 percent. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
The Dollar Threatens To Drag Down The Yen
SUSIE GHARIB: The dollar continued to fall today against the Japanese yen as turmoil continues in the global financial markets. Japan, the world's second largest economy, could be hit hard if the dollar's slide continues. From Tokyo, Lucy Craft reports.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: When the greenback goes south, it turns up the heat on Japan's economy. And when the dollar dives, as it has done this week, falling to levels against the yen not seen in years, the temperature gets intense for Japan, Inc., which had been thriving in a weak yen climate, says Satoru Ogasawara, an economist with Credit Suisse.
SATORU OGASAWARA, VP, ECONOMICS RESEARCH, CREDIT SUISSE SECURITIES JAPAN: Until now, the Japanese corporation has been benefited from the weaker yen and strong global economy and they (INAUDIBLE) has been increasing for several years.
CRAFT: Other Asian countries feel the pain when the greenback plunges, but currency volatility takes a far bigger toll on Japan than elsewhere in the region.
OGASAWARA: It could hurt the stock market. That could depress the business and consumer sentiment and that will affect consumer spending and business investment later on.
CRAFT: Despite a six-year growth streak, Morgan Stanley economist Robert Feldman says the world's second largest economy has developed a huge Achilles heel; it's over-reliant on exports to fuel growth.
ROBERT FELDMAN, SR. ECONOMIST, MORGAN STANLEY JAPAN: Now until 2006, there wasn't actually all that overwhelming dependence on exports. It was sort of very balanced, export domestic demand story, particularly domestic business investment. But that is now waning and only the exports are left. So that obviously would be another reason that people might be concerned, that a strong yen would weaken that one component of demand growth that remains strong.
CRAFT: And although Japanese companies have moved production offshore and taken other steps to neutralize exchange fluctuation, about half of their exports are still denominated in dollars. Ogasawara says that spells lower earnings when these revenues are exchanged back into yen.
OGASAWARA: Their earning forecast for next coming year will be very severe, so that's why companies are worried about.
CRAFT: Already, big exporters like Toyota and Yamaha, the motorcycle manufacturer, have warned the soaring yen has shaved their profit margins. Currency strategist Masafumi Yamamoto of the Royal Bank of Scotland, says companies will be reining in spending this year.
MASAFUMI YAMAMOTO, FX STRATEGY JAPAN, ROYAL BANK OF SCOTLAND: Volatility of the financial market will make the corporate behavior cautious and that will be a negative for the economy as a whole.
CRAFT: Most analysts discount the possibility of a return to the mid- 1990s, when the dollar sank to a record low of 79 yen. Still, many experts reckon that a weak dollar, around the 100-yen level, will linger this year.
YAMAMOTO: We think that the yen continue to be strong. That means I see room for further appreciation of the yen.
CRAFT: For the last four years, Japanese monetary officials have been sitting on the fence, refraining from market intervention. But analysts say another sudden and steep surge in the value of the yen over the dollar could force the Bank of Japan to step in. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Market Monitor"-Mark Skousen, Editor of "Forecasts and Strategies"
PAUL KANGAS: My guest market monitor this week is Mark Skousen, editor of the market letter entitled "Forecasts and Strategies" and I want to thank you very much for being with us and welcome, Mark. Good to have you.
MARK SKOUSEN, EDITOR, FORECASTS & STRATEGIES: Thanks, good to see you again, Paul.
KANGAS: Almost all of the recent reports on the U.S. economy show things are really slowing down. You have a Ph.D. in economics, so tell us, is the economy close to a recession or is it already in one?
SKOUSEN: We economists have predicted the last nine recessions out of five, so we don't have that great of a track record. But one of the things that I look at in particular is not what is going on right now, but the leading indicators. And the Conference Board has a list of 10 leading indicators and I watch those pretty carefully and it is a sad record right now. In fact, the last six months have been the worst in terms of leading indicators since 2001. That indicates that I think we are in a recession right now. I don't think it will last very long, but the stock market is a negative. The housing permits, which is another leading indicator is dropping, manufacturing of capital goods is down. But one of the positive indicators that has been ignored by the media is that the money supply is now growing very fast and real m.2 growth is now at a 13 percent rate. It is the highest rate. It is clear, in my mind that the Federal Reserve has panicked here, that Ben Bernanke is doing everything he can -
KANGAS: Right.
SKOUSEN: To try to right this ship. And there is no indication yet that he has been able to do it. But if there is any past indication, as my old buddy Milton Freeman used to say, if you look at the money supply, that has a lot to do with the business cycle. And I think that there is an indication that six months from now we could see a recovery in the economy.
KANGAS: All right --
SKOUSEN: And the U.S. economy.
KANGAS: You say we are in a recession, but are we in a bear market reflecting recession?
SKOUSEN: Oh, very much so. I think that the selling has been unrelenting. All the indications of the market down 15, 20 percent across the board and especially the global stocks. These are all indicators that we are definitely in a bear market.
KANGAS: What investment strategy are you recommending in this environment?
SKOUSEN: Well, I think you have to be very careful with the U.S. stock market. I think some incredible bargains are developing and I have a couple of recommendations for your readers.
KANGAS: Relax, we'll get those in just a moment. OK.
SKOUSEN: But my overall strategy is to stick with the gold and with the oils. Those have been working very well. They worked really well. I use protective stops. I think it is very important for your readers to maintain protective stops to keep you from losing. We've been hit by a lot of our stops in the markets, so we're in gold. We're still in the oils, but we're out of the real estate investment trusts. We're out of most of the growth stocks. It's been a very tough market.
KANGAS: We're down to a minute-and-a-half now. This is your first visit with us as a market monitor, so we can't review your past recommendations, but perhaps you can provide our viewers with some stocks you currently would buy.
SKOUSEN: I would be glad to do that. I have four recommendations for your listeners, for your viewers.
KANGAS: Quickly now.
SKOUSEN: The first one is Goldcorp. I'm still bullish on gold. The symbol is GG. It's one of the lowest cost producers, a major gold mining company. That has a very good record. My second recommendation is Aberdeen Asia Pacific Income Fund (FAX). This is a play on the Australia dollar, which has been strong against the U.S. dollar and it has a very nice yield of almost 7 percent.
KANGAS: Right. OK.
SKOUSEN: My third recommendation is kind of a turnaround story. It's called Gladstone Capital. It is run very conservatively. Symbol is GLAD and you will be glad you owned it a year from now.
KANGAS: Time for one more.
SKOUSEN: OK. One more, China Medical Technologies. CMED is a medical device company based in Beijing. It has been hit hard, I think way too much. I expect to see it recovering.
KANGAS: Mark, do you personally own any of the securities you've mentioned?
SKOUSEN: No, I don't, but I strongly recommend them.
KANGAS: All right, we appreciate your sharing your views with us and I wish you well.
SKOUSEN: Thank you very much.
KANGAS: My guest, Mark Skousen, editor of "Forecasts and Strategies" market letter.
Paul Kangas' Stocks in the News
PAUL KANGAS: No rebound rally on Wall Street this morning after yesterday's sell off thanks to that downbeat employment report. Investors viewed the data as further evidence a recession is in the offing or already here. After a choppy morning, the Dow posted an 86-point loss at noon while the NASDAQ was off only three points. Struggling against new lows in the dollar, new highs in oil and the usual caution ahead of the weekend, the market ended the day broadly lower. The Dow Industrial Average closed down 146.70 points at 11,893.69.
This week, it rose only once and lost 372.70 points overall. The NASDAQ Composite dipped 8.01 ending at 2,212.49 today. It rose twice and fell three times this week, had a net loss of 58.99 points. Standard & Poor's 500 Index ended down 10.97 at 1,293.37 today and it lost 37.26 points overall for the week. In the bond market, the 10-year note gained 14/32 to 99 22/32, putting the yield at 3.54 percent.
Familiar name at the top of the big board active list, Citigroup (C) on 28.9 million shares topped it, losing $0.26. After the close yesterday as we reported, the company's going to scale back its mortgage operations over the next year. Then Washington Mutual (WM) down $1.05. "Wall Street Journal" reported the company's looking for capital and late today, Fitch said it's cutting the ratings on Washington Mutual from A minus to triple B and Fitch went on to say it may cut ratings on Bank of America and Citigroup as well.
GE (GE) moved down $0.63.
But Ambac Financial (ABK) up $2.08 on news the company priced its $1.1 billion offering of 171 million shares of common stock at $6.75 a share.
JPMmorgan Chase (JPM) was up $0.19, see some fractional gains in these hard-hit banks.
Wells Fargo (WFC) $0.28.
Pfizer (PFE) $0.24 loss.
Bank of America (BAC) gained $0.22.
SprintNextel (S) was up $0.21.
And then Annaly Cap Mort (NLY) closed down $0.81, but it traded a lot lower than that during the day, $13.59 low. Citigroup cut its price target on Annaly from $21 a share down to $18 a share.
Alcoa (AA) a big Dow stock, down $1.77 after the Friedman, Billings, Ramsey brokerage downgraded it from "out perform" to just a "market perform" rating.
Natl Semiconductor (NSM) up $1.91, nice move there. After the close yesterday as we reported, National Semi had a third quarter earnings of $0.28, up from $0.22 a year, a nickel above the Wall Street estimate.
American Axle (AXL) gaining $2.13. Keybanc brokerage boosted earnings estimates and repeated an "aggressive buy" in the belief that 100 percent of the 3650 UAW workers on strike will take either a buyout or a buy down package resulting in a sharp cut in labor cuts for American Axle.
Rock-Tenn (RKT), a packaging firm, up $1.94. JPMorgan upgraded it from "neutral" to "over weight" today.
And then we see Rockwood Holdings (ROC), a chemical firm, up $1.85. Altana AG, German firm reportedly in talks to acquire the company. Standard & Poor's repeated a "buy" on the stock.
A major melt down in Reddy Ice Holdings (FRZ) tumbling $7.73. The company said Federal officials from the Justice Department executed a search warrant at the company's Dallas corporate office. The company is cooperating and it's going to conduct its own internal probe, but gave no specifics.
Elsewhere, PNM Resources (PNM) down $2.08. The New Mexico public regulation commission recommended a 4.4 percent rate increase but that's only one third of what the company requested. Lehman cut its price target on PNM from $16 to $14 a share, rates it an "equal weight."
Apple (AAPL) topped the NASDAQ actives, up $1.32.
Google (GOOG) $0.65 gain.
$0.12 rise in Research in Motion (RIMM).
Microsoft (MSFT) edged up $0.30.
Cisco Systems (CSCO) $0.17 gain there.
Baidu.com (BIDU) up $0.51.
Intel (INTC) edged up $0.20.
First Solar (FSLR) down $11.95.
Oracle (ORCL) a $0.23 loss.
And then Yahoo! (YHOO) a $0.33 gain.
Smith & Wesson Holdings (SWHC) edging up $0.67, almost a 16 percent gain. The company posted a third quarter loss of $0.04, but the Street was expecting a loss of $0.06.
And finally tonight, shares of communications equipment maker Ciena (CIEN) rising $2.86 on fiscal first quarter earnings of $0.47 a share, up from $0.22 a year ago and that was $0.08 above analyst estimates. The company predicts 2008 revenue growth of as much as 27 percent.
And those are our stocks in the news tonight.
