NBR Transcripts-March 19, 2008
Wednesday, March 19, 2008Investors Abandon Gold, Grain & Oil
SUSIE GHARIB: A big sell-off today in stocks and commodities. The Dow plunged almost 300 points and precious metals and oil fell sharply on inflation concerns. In New York trading, gold futures suffered their biggest one-day decline in 28 years, tumbling $59 an ounce or nearly 6 percent, to $945.30. And silver futures dropped more than 7.5 percent. Meanwhile, April crude futures fell nearly $5 a barrel or 4.5 percent to $104.48. Oil expert John Kingston at Platts says the government's latest oil inventory data indicates that the slowing economy is finally taking its toll on crude demand.
JOHN KINGSTON, DIRECTOR OF OIL, PLATTS: You've got to figure with a weaker economy and higher prices, demand was going to slide. And yet the strength of the dollar and the fact that oil is a dollar denominated hard currency, hard asset, resulted in the price rising anyway. Well, today all the numbers sort of came together and pointed to significantly lower demand. And that is really what took over and that is what drove this market down today.
GHARIB: Also behind today's commodity sell-off, a rebound in the U.S. dollar as traders speculated that inflation concerns could limit future interest rate cuts by the Federal Reserve.
OFHEO Gives Fannie Mae & Freddie Mac a Much Needed Boost
PAUL KANGAS: Strong gains today for shares of Fannie Mae and Freddie Mac on news their capital requirements were eased. Their regulator, the Office of Housing Enterprise Oversight, known as OFHEO, said they're cutting the amount of surplus capital the mortgage giants must hold from 30 percent to 20 percent. As Stephanie Dhue reports, the move is aimed at boosting the housing market.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fannie Mae and Freddie Mac will now have more money to lend since they will hold less capital in reserve. The move could add up to $200 billion immediately into the market for mortgage-backed securities. OFHEO Director James Lockhart says while the move increases risk, it is the right thing to do.
JAMES LOCKHART, DIR., OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT: They have risk out there. There's credit risk. There's market risk, but on the other hand, they have good controls in place and I think this money will be used very prudently.
DHUE: Fannie Mae and Freddie Mac say they will use the money to restore confidence in the mortgage market. That should translate into lower mortgage rates, which have stayed high despite interest rate cuts by the Federal Reserve. The firms will also have greater capacity to buy jumbo loans in high cost markets. In addition, Freddie Mac CEO Richard Syron says new capital will help fund programs to help keep struggling borrowers in their homes.
RICHARD SYRON, CEO, FREDDIE MAC: We're working on a pilot, kind of converting people who can't keep their houses -- rent-to-own sort of program. That will take some capital.
DHUE: Fannie Mae CEO Daniel Mudd cautions this is not a magic bullet, but rather a move that builds on initiatives to increase market liquidity and prevent foreclosures.
DANIEL MUDD, PRES. & CEO, FANNIE MAE: The main point, the main emphasis right now is to continue the momentum. This is not, this is not the last solution that needs to be undertaken. There's more that can be done, more that needs to be done and I think everybody is pulling on the same rope at this point.
DHUE: For years, the Bush administration wanted to put tighter controls on Fannie Mae and Freddie Mac, for fear their collapse could damage the economy. Today, Treasury Secretary Paulson supported expanding their roles, saying, additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market. Stanford Washington Research analyst Jaret Seiberg says today's move may change the perception on Wall Street that the administration hasn't taken the credit crisis seriously enough.
JARET SEIBERG, POLICY ANALYST, STANFORD WASHINGTON RESEARCH: I think we saw with the collapse of Bear Stearns, the administration suddenly do a 180 and become much more active and there is now a growing view that the administration understands the scope of the crisis.
DHUE: The administration says it will continue to push for legislation to strengthen the regulator for Fannie Mae and Freddie Mac. Lawmakers have promised to work on the issue, but analysts are skeptical it will get done this year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
How Best To Invest During Troubled Times
SUSIE GHARIB: A big question for investors these day, how can they best protect their investments and savings. Some may be tempted to bail out of stocks and others are wondering if they should just stash their cash under the mattress. But as Erika Miller reports, many of Wall Street's top strategists see some good investment opportunities now.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: There are plenty of reasons for investors to feel panicky these days. After all, the stock market is on shaky footing. The housing market continues to weaken and the economy is teetering on the brink of recession, perhaps in one already. The natural inclination of many investors may be to sell now, ask questions later. But financial planner Lew Altfest says most people should resist the temptation.
LEWIS ALTFEST, FINANCIAL PLANNER, L.J. ALTFEST & CO.: Essentially they should breathe in and breathe out and do nothing without a reason for doing it. And it isn't a good reason to say the market is down and can go down further.
MILLER: It may also be comforting to know that many investment strategists remain bullish on the stock market long term. They point out that the Fed is doing all it can to restore stability and confidence to financial markets. Investment strategist Jim Awad says now is a smart time for patient investors to buy large, well-run companies trading at deep discounts.
JAMES AWAD, CHAIRMAN, W.P. STEWART ASSET MANAGEMENT: If you are willing to look out over a year or two or three, as you should as an investor, if you dollar-cost average over the next couple of months into high-quality equities, you'll end up doing well.
MILLER: It may be tempting to move money into government bonds, which are backed by the Federal government and one of the safest investments. But Awad says that's probably a mistake, since many are yielding less than the rate of inflation.
AWAD: You are not getting the yields that you deserve long term. When the panic subsides, interest rates will get back to more normal levels and you'll be able to get better interest rates than you can today.
MILLER: Financial planners also say one of the most important things to do is take a close look at the holdings in your 401(k) or company retirement plan.
ALTFEST: If you have a good deal of your wealth in your company's stock, you ought to be cutting back on it now. I don't care at what price the stock is selling. You should be diversified.
MILLER: Experts say there is one situation where it is appropriate to sell now, if you are so anxious it's affecting your health. Then experts say, it's better to take the financial loss and sleep better at night. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Home Furnishings May Take The Place of Home Selling
PAUL KANGAS: Weakness in the U.S. economy and the housing market could also cripple home remodeling. Fitch Ratings today estimated spending on home renovations and repairs will drop 6.5 percent this year. But that's not discouraging house wares manufacturers. Even if remodeling plans are on hold, the industry thinks consumers will still spend on home accessories. Diane Eastabrook reports from the international home and house wares show in Chicago.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hand Presso could become the must-have item for coffee connoisseurs. The hand-held espresso maker was a big hit this week at the international home house wares show in Chicago. At a time when the global economy is spooking man and beast, manufacturers and retailers hope innovation and style will entice consumers to buy new gadgets for their homes.
UNIDENTIFIED FEMALE: This is Bissell's steam mop, 100 percent environmentally friendly in that it uses water instead of chemicals.
EASTABROOK: Bissell is tapping into the environmental consciousness of consumers with so-called green cleaning appliances. The little green portable carpet cleaner is made from recycled plastic. And the steam mop cleans floors with hot water, not chemicals. Bissell Chairman and CEO Mark Bissell says the company reintroduced the mop as a green product, after it failed to sell well as a conventional one.
MARK BISSELL, CHAIRMAN & CEO, BISSELL, INC.: We kind of took some cues from our research where we saw environmental concerns being a bigger story and so how could we position this product or reposition it yet that had many of the hallmarks or attributes of what an environmental consumer is looking for.
EASTABROOK: While exhibitors here are concerned about the sluggish U.S. housing market, recession and higher commodity prices are bigger concerns. Many of the companies at this show think the biggest economic challenge they face this year is the cost of energy. Many manufacturers say high energy prices are driving up their production costs and eating into consumer budgets. Lifetime Brands owns the Kitchenaid, Cuisinart and Pfaltzcraft brands. Chairman and CEO Jeffrey Siegel says higher energy and metals prices have forced his company to hike prices on everything from vegetable peelers to food processors. He says a price hike of a few cents doesn't usually discourage consumers from buying -- but a hike of several dollars can.
JEFFREY SIEGEL, CHAIRMAN & CEO, LIFETIME BRANDS, INC.: So, we've been very careful in trying to reengineer products, trying to lower the cost through different manufacturing methods, more automation -- a lot more automation than we have ever used before.
EASTABROOK: Some experts are optimistic about the house wares industry. Greg Sleter, senior managing editor of the trade magazine "Home World," says tough times often inspire creativity.
GREG SLETER, SR. MANAGING EDITOR, HOME WORLD: Product development sometimes in an economy like this gets better because they are more focused on value, more focused on features just to grab the consumer attention at retail.
EASTABROOK: The International House Wares Association sees house ware sales increasing 3 to 5 percent this year. It says that could provide a breath of fresh air in an otherwise stagnant economy. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"Street Critique" Hilary Kramer, Market Strategist and Author of "Ahead of the Curve."
PAUL KANGAS: With the financial markets as volatile and crazy as they've been, tonight's "Street Critique" guest says why not buy stocks that pay you to own them? She's Hilary Kramer, market strategist and author "Ahead of the Curve." Hilary, welcome back to NBR.
HILARY KRAMER, AUTHOR, "AHEAD OF THE CURVE": Thank you, Paul.
KANGAS: Since the last time we spoke, the Fed has cut rates sharply, Bear Stearns imploded and stocks knocked their best one-day run up in over five years just yesterday. What do you make of all of this?
KRAMER: Well, you want to always respect the market action. And the stock market is telling us that it may very well have bottomed out. And it is starting to already price in a recovery to the economy, the forward indicator in 2009 and 2010. So it doesn't mean we are not to the going to have a recession or a consumer-led recession, but the stock market is showing us that there is some improvement there.
KANGAS: So how does the individual investor cope with this manic market?
KRAMER: You want to be very careful on the stocks that you buy. As a trader, we respect the market action. So again, we had a sign yesterday, a sign of light. So we may have bottomed out. And you also just want to buy what you know and what you like and have immense conviction on the names that you buy.
KANGAS: I understand you like dividend-yielding stocks. Tell us about that.
KRAMER: Yes, I do. It is a great opportunity right now. One company is PNM Resources. The ticker symbol is PNM. This is a 9.25 percent annual dividend yield. PNM is the electric utility of New Mexico. They even supply electricity to Texas, but the regulator in New Mexico decided not to approve a full rate increase that PNM had requested. The stock is 10. It's been as high as $34 in the past 52 weeks. And believe me, Paul, they are going to be using electricity and they have heat waves in New Mexico.
KANGAS: OK. Tell us about a second choice.
KRAMER: JPMorgan, JPM, the ticker symbol, 3.8 percent dividend yield. The stock is at $43. If you think about it, this is a company that the Fed chose to work with for the bailout of Bear Stearns. Jamie Dimon is a brilliant CEO. And you have to always look at what the market is telling you. JPMorgan is the most solvent and the most, it has all the leadership right now.
KANGAS: All right, how about another selection.
KRAMER: Suburban Propane (SPH). This is one of my favorite companies whenever anybody asks me for a safe play, a company to buy and put away, I always say SPH.
KANGAS: Look at that yield.
KRAMER: This is the one, 8.5 percent dividend yield. It is a company that has been around a long time. Everybody loves the management. They're as good as gold. The company came off again even today, down at 36. It's been as high as close to 50 and you are talking about a company that has a business that is a captive business. They deliver the propane. You put in your tank. You are going to need propane delivered. Off course, the other businesses as well.
KANGAS: And we have time for a final stock briefly.
KRAMER: OK, Targa Resources. Now the ticker symbol on this is NGLS. Targa Resources has a dividend yield of 7.5 percent and is a natural gas gatherer and deliver down in Texas. Now Goldman Sachs has picked this as their top choice of all the energy companies globally. So that is how I noticed it.
KANGAS: Hilary, do you own any of the stocks mentioned or have any other disclosure to make?
KRAMER: I do not own any of these stocks, but they are bargains and I intend to be buying soon.
KANGAS: Thanks for joining us and we'll see you soon again.
KRAMER: Thank you, Paul.
KANGAS: My guest Hilary Kramer, author of "Ahead of the Curve."
"Money File"-Financial Plan 911
SUSIE GHARIB: In the money file tonight, now is the time to get your financial emergency plan in order. Here's Terri Cullen, personal finance columnist at the "Wall Street Journal."
TERRI CULLEN, COLUMNIST, THE WALL STREET JOURNAL: Turmoil on Wall Street and fears about layoffs are keeping more Americans awake at night. Rather than fearing the worst, plan for it by shoring up your financial safety nets. If you don't have an emergency savings account, now is the time to get one started. Link your checking account to a high-yielding savings account and then set it to automatically transfer a set amount to your savings account with each paycheck.
How much should you save? Start with a goal of a minimum of three months of income. Sure, it sounds like a lot of money, but once you start saving you'll be surprised how quickly it adds up. After that comes the hard part: resist the urge to spend it. Also consider opening a home equity line of credit, if you don't already have one. Opening a credit line now makes sense even if you don't need to borrow money. The stalling economy means more layoffs to come and getting credit when you're out of work can be difficult or even impossible. Though if you have very little equity in your home or you have bad credit score, you'll have a tough time getting credit even if you do have a job.
With a home-equity line of credit, you can borrow any amount up to a specified limit, just like a credit card. You can borrow as little or as much as you need. Generally you're not penalized if you never borrow against the line, and you only pay interest on any amount that you do borrow. More good news: many credit unions charge no fees to open or maintain credit lines. The combined safety net of a home equity line of credit and a sizable emergency savings account can help you and your family weather a financial crisis in the future and help you sleep easier tonight. I'm Terri Cullen.
Paul Kangas' Stocks in the News
PAUL KANGAS: Those better than expected results from Morgan Stanley and word that Fannie Mae and Freddie Mac would be allowed to buy more home loans, helped Wall Street to some early gains. The Dow was up 44 points and the NASDAQ up 2 in the first hour of trading. But investors weren't impressed with that rally and stocks soon turned lower. Fear that the slowing economy would cut demand for commodities triggered heavy selling in that oil and gold sectors which led the market to a broadly lower close. The Dow Industrial Average ended down 293 points exactly at 12,099.66. The NASDAQ Composite plunged 58.30 ending at 2209.96. Standard & Poor's 500 Index fell 32.32 at 1298.42. Over in the bond market, the 10-year note gained 1 14/32 to 101 14/32, putting the yield at 3.33 percent.
By far the most active big board issue on 88.8 million shares was the new issue, Visa (V) up $12.50 on the close. The IPO was priced at $44 late yesterday and it opened at $59.50. The high of the day, $60.60, backed off a little, but still a very strong debut. Citigroup (C) was down $0.30.
General Electric (GE) lost $0.55.
Ford Motor (F) a $0.16 gainer.
JPMorgan Chase (JPM) on those better than expected earnings, down $0.24, not bad.
Bank of America (BAC) off $0.37.
Pfizer (PFE) fell $0.39.
There you see Fannie Mae (FNM) up $2.49. As we heard, Fed regulators have eased capital requirements allowing Fannie Mae and Freddie Mac to pump up some $200 billion into the mortgage market to help struggling homeowners.
Then came Merrill Lynch (MER) down $5.18. The brokerage has filed suit against XL (ph) Capital insurance to honor binding contracts covering $3 billion in credit default (INAUDIBLE) insuring collateralized debt obligations, those CDOs we hear about.
Wachovia (WS), tenth in big board volume, was up $0.30 a share.
Merck (MRK) down $0.20. It traded as high as $44 this morning after the FDA granted priority review of the company's cervical cancer vaccine called Gardasil and that's for expanded use. It's already on the market.
Nokia (NOK) had a bad day, down $3.41. The stock weak on fears of a cell phone industry slowdown and increased competition, especially from Apple.
Then we see Monsanto (MON) plunging $13.21. France's top legal authority upheld a ban on the company's genetically modified corn seed.
Then Lindsay Corp (LNN) had a great day, up $13.73. Second quarter earnings, $0.79, way above the $0.47 Street estimate and up from $0.21 last year. Revenues shot up 70 percent and the company sees U.S. demand for its irrigation products remaining very strong.
MF Global Ltd. (MF) up $1.19. The company said repeated rumors it's having liquidity problems are completely without merit.
Darden Restaurants (DR) up $1.97. Third quarter earnings, $0.80, up from $0.79 last year, revenues up 25 percent. Standard & Poor's repeated a "buy" recommendation.
Centene Corp. (CNC) down $3.97. The managed care company says it has to make up $0.03 to $0.04 per share to meet the low end of its previous guidance which was $0.59 a share.
And then Amerigroup (AGP) down $5.27. The company cut its 2008 earnings guidance from a high of $2.73, all the way down to $2.61 at best.
And then AAR Corp. (AIR), an aviation products company, traded as high as $27.35 today after reporting third quarter earnings of $0.47, up from $0.36 last year and revenues jumped 39 percent.
Topping the active list on NASDAQ, Apple (AAPL) down $3.15.
Followed by Google (GOOG) down $7.16.
Microsoft (MSFT) dropped $0.80.
Then Research in Motion (RIMM) off $3.88.
Cisco Systems (CSCO) down $1.11 a share.
Intel (INTC) $0.66 drop.
Baidu.com (BIDU) fell $26.32.
Qualcomm inc. (QCOM) $2.28 loss there.
But Adobe Systems (ADBE) bucking the trend, up $2.87. First quarter earnings came in at $0.48, way above $0.30 a year ago, $0.03 better than the Street consensus. The company sees 2008 revenues rising 13 percent.
Oracle (ORCL), tenth in NASDAQ volume, was down $0.46.
Capital Corp. of the West (CCOW) plunging $6.90. The company has delayed filing its 2007 annual report and predicted a fourth quarter loss of $15 million on higher loan loss provisions.
And finally, shares in La Barge (LB) jumped $2.45 on an upbeat forecast. The company sees third quarter earnings at $0.23 to $0.24 per share up from second quarter earnings of $0.21.
