NBR Transcripts April 2, 2008
Wednesday, April 02, 2008Fed. Chairman Ben Bernanke Sees Recession & Recovery
SUSIE GHARIB: Ben Bernanke said today that a U.S. recession is possible. The chairman of the Federal Reserve acknowledged that scenario for the first time as he addressed a congressional committee on Capitol Hill. Bernanke told lawmakers that the economy has worsened since January, adding it continues to grow, but only slightly. As Washington bureau chief Darren Gersh reports, while Bernanke seemed more pessimistic about the short-term outlook for the economy, he remains upbeat about the long-term prospects.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was the closest some economists say they have ever heard a Fed chairman get to actually declaring the "R" word. Ben Bernanke told the Joint Economic Committee that a recession is possible, later adding...
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: It's possible -- not certain, but possible that the first half of this year will be slightly contractionary. That doesn't necessarily mean there's a recession, because it will depend on the circumstances.
GERSH: True, but six months of economic contraction is the short-hand definition of a recession. Economist William Spriggs says, while Bernanke is careful with his words, the Fed chairman still understands the risks.
WILLIAM SPRIGGS, PROFESSOR OF ECONOMICS, HOWARD UNIVERSITY: The extraordinary steps he has taken show, whether he says the "R" word or not, that he is fearful of the economy sliding. He understands the fragility of where we are, not just in terms of the financial markets, but how that feeds into what we call the real economy.
GERSH: In his testimony today, Bernanke was noticeably more concerned big banks are cutting back on lending as they shore up their tattered balance sheets.
BERNANKE: Our financial institutions are hunkered down. They're not making loans at the normal rate and that's having real effects on small business, on mortgages, on all aspects of our economy.
GERSH: There were many pointed, but polite, questions about the Fed's rescue of Bear Stearns. New York Senator Charles Schumer asked whether help given to Wall Street should now be extended to struggling homeowners on Main Street.
SEN. CHARLES SCHUMER, (D) NEW YORK: Isn't it just as appropriate to do it in the housing market? Because that also presents, as a whole, presents systemic risk issues. That's the dichotomy many of us are troubled about.
GERSH: No question Bernanke said the housing market is the crux of the economic outlook, but he left it to Congress to weigh the pros and cons of any aid package for homeowners. As for the dichotomy, the chairman took issue with those who say the Fed cut a sweet deal for Wall Street.
BERNANKE: We did not bail out Bear Stearns. Bear Stearns shareholders took a very significant loss -- an 85-year-old company lost its independence and became acquired by another firm. Many Bear Stearns employees, as you know, are concerned about their jobs. I don't think any company is interested in repeating the experience of Bear Stearns.
GERSH: On the whole, as Fed watcher Vince Reinhart put it, Bernanke sounded like a man who can see the bottom. The Fed chairman argued much of the needed economic correction has already taken place. While the risk is to the downside, Bernanke expects growth to pick up in just a few more months. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Despite The Market Retreat Experts Remain Optimistic
SUSIE GHARIB: Despite today's market retreat, the recent anxiety on Wall Street seems to be diminishing. Many experts believe that the worst of the financial crisis is over, but the fallout will impact first quarter earnings. Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: While there was no follow-through today from yesterday's huge rally, many Wall Street pros are still encouraged about the outlook for stocks. Since St. Patrick's Day on March 17, the Dow has surged nearly a thousand points or about 8 percent. Veteran strategist Gail Dudack thinks the worst may be over for stocks, but believes the market will remain in a trading range for months.
GAIL DUDACK, MANAGING DIRECTOR, DUDACK RESEARCH GROUP: I'm looking for kind of a staircase kind of recovery for the stock market. There's a lot of - there's been a lot of beaten up stocks and there's a lot of issues yet to be resolved. Again, what is the real earnings growth rate for any sector?
PRATT: It's widely expected that some of those first quarter earnings will be disappointing. Industry analysts now forecast first quarter profits at S&P 500 firms to decline nearly 11 percent from a year ago. That's much worse than what they predicted January 1 and it's likely to be the third straight quarter of negative earnings growth for the S&P 500. But some experts are encouraged that profit woes have not spread much beyond financial and consumer discretionary companies, particularly home builders. Thomson Financial's Bob Kaiser points out that in the last recession, earnings troubles were more widespread.
ROBERT KAISER, VP OF RESEARCH, THOMSON FINANCIAL: Earnings weakness was much more broad-based throughout the 10 sectors of S&P than we are seeing today. So historically, in times of recession, you see weakness across at least half of the sectors in the S&P, as opposed to the two sectors where we're seeing it currently.
PRATT: And while modestly negative earnings growth is expected for the second quarter, forecasts for the third and fourth quarter of 2008 look a lot better. Experts say that's not only because head winds from financials may calm down, but because of easier comparisons. Brown Brothers Harriman strategist Brian Rauscher does not think the market has yet priced in an earnings recovery in the second half of this year.
BRIAN RAUSCHER, PORTFOLIO STRATEGIST, BROWN BROTHERS HARRIMAN: For earnings generally speaking, I think the market is too pessimistic, so any earnings upside would, I think, be market positive.
PRATT: Dow component Alcoa kicks off earnings season Monday with the release of its first quarter results. Other big name U.S. companies will release their numbers beginning the week of April 14. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
The Evolution of TDK
SUSIE GHARIB: The Japanese company TDK became a household name in America when video cassette recorders invaded living rooms in the 1970s. By the early 1980s, video and audio cassettes were half of the company's sales. But as Lucy Craft reports in this corporate profile, when that market fell apart, TDK made the move to electronic components.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: TDK is a world leader in components so small, most users will never see them. But without these products, modern life would be unimaginable, like ferrite and rare earth magnets, essential in car motors of all kinds. TDK spokesman Akira Fukuno says there are up to 600 magnets in a car today.
AKIRA FUKUNO, GEN. MANAGER, P.R., TDK CORPORATION: Power windows and the power seat and also, window washer, has some motors.
CRAFT: And some magnets.
FUKUNO: Yes, of course.
CRAFT: The company dominates the market for the tiny magnetic heads used in computer hard disk drives to record and read data. And it also leads the pack in capacitors and inductors, two more critical parts that make electronic appliances run. Take this cell phone -- to power its video and music player and a growing number of other functions, it requires nearly 300 chip capacitors. An automobile needs over three times that many. The tiniest capacitors, which store energy, are no larger than grains of salt. And when it comes to components, nano-sized products make for mega-sized margins. TDK Chairman and CEO Hajime Sawabe says component demand has nowhere to go but up.
TRANSLATION OF: HAJIME SAWABE, CHAIRMAN & CEO, TDK CORPORATION: There are a huge amount of products that are becoming increasingly electronic, especially cameras, office equipment and cars. Also, flat panel TVs are getting bigger; in the span of three years, TVs will use three times as many capacitors, for example. As products become more functional and versatile, they require a greater number of components, so we are unquestionably in a very advantageous position.
CRAFT: Japan's big electronics companies are in a funk nowadays, but here's the irony -- the companies that make the parts to go into those flat panel TVs, cell phones and laptops are on a roll, helping profit margins of 10 percent or more. That's more than three times what the likes of Sony and Matsushita are earning nowadays. One reason is that, while big electronics companies now are paying the price for over-diversification, companies like TDK have thrived by resisting the temptation to spread themselves too thin, says Jean-Philippe Biragnet, a technology expert with Bain and Company.
JEAN-PHILIPPE BIRAGNET, PARTNER/TECHONOLGY INDUSTRY EXPERT, BAIN & CO.: They are ruthlessly focused on their core business and they are just trying to be best and better constantly and trying to reinforce their core business. They are not looking for growth in 10 different categories; they are saying, OK, we have a key core business; we're (INAUDIBLE) who are strong in that technology. Let's be excellent at that and let's reinforce constantly our core.
CRAFT: At TDK's technical center outside Tokyo, engineers plumb the depths of ceramics just a few microns thick. Their mission is to figure out how to keep packing more performance into tiny components, doubling capacity every two years. The complexity of creating and manufacturing super-thin materials, says CEO Hajime Sawabe, puts the business out of reach for all but a few deep- pocketed rivals.
SAWABE: Developing materials is very time consuming and it's very hit-and-miss, so that makes it tough. But it offers the chance to come up with some proprietary black box technology. So compared to regular products, it's very hard for China, Taiwan and South Korea to catch up in this area.
CRAFT: So, while TDK is riding high on an unprecedented expansion almost three years old, the components king is counting on continued robust growth for at least the medium term. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Street Critique" -Hilary Kramer, Author of "Ahead of the Curve."
PAUL KANGAS: Our "Street Critique" guest has brought our viewers many stock picks in recent weeks. So, tonight, we thought we'd see how her recommendations from the first quarter have been doing. 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": Thank you, Paul.
KANGAS: The first quarter was a rough one for the markets as we know. The Dow dropped almost 8 percent, NASDAQ down over 14, Standard & Poor's 500 lost almost 10 percent. It was a rough time for stock pickers. But let's get right to the review. In early January, you were looking at stocks that could move higher on a potential Fed rate cut at its late January meeting. Let's see how those stocks have done. We'll see you like Goldman (GS) which is down a bit, been a lot higher in the meantime. Apple (APPL) down 17.8 percent. Jacobs Engineering (JEC) you still like those?
KRAMER: I love these companies especially Goldman Sachs which is best of breed could go back up easily over 200. Apple, the same. It has a lot of momentum behind it. Everyone thinks they're going to make a lot of headway in the PC market. And Jacobs Engineering is a phenomenal opportunity could easily to go $100. Everyone sold off engineering and construction companies thinking we're in a recession. But we're not in a global recession.
KANGAS: You also like Kaydon (KDN), Google (GOOG) and Applied Materials (AMAT) and Applied Materials did very well in this time frame. Let's have look at those three charts and look at that, up 23.7 percent on Applied, very good. You still like these?
KRAMER: Yes, Kaydon especially. This is a ball bearing company that has all the market share for ball bearings for the wind industry. Google, I'm not as ambitious on but certainly Google has 100 points to come back here. It doesn't have that same momentum and love behind it like Apple does. Applied Materials is a phenomenal way to play the solar industry. They make the ingredients that go into the solar panels and Applied Materials could easily go to $25 from here.
KANGAS: All right. When we spoke on January 23rd, you thought a bottom was forming in the market and you liked some upbeat plays in the tech market particularly the volatile solar stocks like Sun Power (SPWR) and First Solar (FSLR). I want to note the first time you recommended First Solar on September 19th of 2007 that stock was trading at $100 a share and you repeated your recommendation on Apple at that time, are you still with these?
KRAMER: Yes. Sun Power and First Solar are your best ways to play pure play solar, especially First Solar which is thin film. Sun Power has more upside to it. At $80, it could go easily go up to 120. Remember, that has been cut in half.
KANGAS: First Solar now over $240 a share.
KRAMER: That's right.
KANGAS: Early in February, you said while a bottom was forming, it was a little bit too early to start bottom fishing the home builders, financials and retailers you didn't give any new picks, but how are you feeling about those sectors now?
KRAMER: Well, Paul, the financials have certainly bottomed out. Anybody who wants to venture back in, go ahead. You know my choice which is Goldman Sachs, go for the cash machine. But you want to stay away from retailers, stay away from home builders. Remember, we're in a consumer and real estate-led domestic recession.
KANGAS: In February 20th with oil over $100 a barrel, you like some energy plays, namely Petrobras (PBR), the big Brazilian oil firm. You liked Orion Energy (OESX) and you repeated your recommendation on First Solar. Do you still like these?
KRAMER: Yes. Petrobras is a company that I own in my personal portfolio. I'm stocking away, because I want it because I want the Brazilian exposure, emerging markets, a great way to play big oil. And on First Solar of course, you know how I feel about that going to $300 at $250 today and Orion, oh yes that's my small cap absolute favorite. I see it double here. It just went down to (INAUDIBLE) new IPO and they make efficient light.
KANGAS: We have less than a minute left. March 19th, you suggested some dividend paying stocks with upside potential and they have done really well. Let's have look at PNM Resources (PNM) up 39 percent. Still like it?
KRAMER: PNM is phenomenal but you've made over 40 percent, over 40 percent in two weeks, sell it. Don't be greedy.
KANGAS: All right. Do you own any of the stocks we've mentioned or have other disclosure to make?
KRAMER: Yes, I own all of these stocks except for Jacobs Engineering (JEC), (PNM), JPM and Suburban Propane (SPH).
KANGAS: You took some profits I know.
KRAMER: I did. And very briefly do you think we turned the corner here, yes or no?
KRAMER: Yes especially for the next few weeks. But expect a big bomb to drop something else will happen besides the Bear Stearns. Be careful and again, take that money off the table.
KANGAS: Thanks for being with us again. My guest, Hilary Kramer, author of "Ahead of the Curve."
"Money File"-Simplify...Simplify...Simplify
SUSIE GHARIB: In the "Money File" tonight, a few thoughts on simplifying your financial life. Here's Jonathan Pond, author of "You Can Do It! The Boomer's Guide to a Great Retirement."
JONATHAN POND, AUTHOR, "YOU CAN DO IT!: Simplifying your financial life will save time and reduce aggravation, allowing you more time to enjoy the good life. Here are some ways to manage your financial affairs more efficiently. First, set your records straight. A good record-keeping system has three main components, including a safe deposit box to store important personal documents; an active file that keeps track of personal papers and important information necessary to help in preparing your current year's tax returns; and finally an inactive file primarily for the purpose of proving past tax returns and substantiating home improvements and investment transactions. Once you set up these files, get rid of any papers that you won't need.
My second suggestion is to consolidate your accounts, including credit card accounts, bank accounts and investment accounts. Chances are you have a lot more accounts than you actually need. Another way to simplify your financial life is to automate your investing; the more you put your investing on automatic, through regular transfers from your paycheck or checking account into a retirement or investment account, the more time you save and the more money you're likely to accumulate. And I've saved the best tip for last and that is to bank online. Online banking offers many advantages, including access in a single site to all of your accounts at a particular institution. Also, filling out checks by hand will be a quaint relic of the past. I'm Jonathan Pond.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened with modest losses on profit-taking after yesterday's super-sized rally. The Dow fell about 30 points at the outset of trading and the NASDAQ Composite lost nine points. Stocks took Fed chief Bernanke's recession comment in stride and the market staged a mid- day rally, which lifted the Dow to a 40-point gain. But that advance turned into a 75-point loss by 3:00 p.m., thanks to a spike in oil fortune - futures I should say. And then a late upturn trimmed the losses just a bit. So the Dow Industrial Average closed off 45.44 at 12,608.92, oh that's 48 points yes I've got the wrong - there we go. Let's get to the NASDAQ down 1.35 at 2,361.40. Standard & Poor's 500 lost 2.65 to 1,367.53. In the bond market, the 10-year note fell 11/32 to 99 6/32, putting the yield at 3.60 percent.
Once again at the top of the leader board, Citigroup (C) today on 36.6 million shares, the stock up $0.18. It's on a roll. It was up $2.42 yesterday and traded as high as $25.05 today.
Then came Ford Motor (F) up $0.16.
General Electric (GE) dropped $0.41.
Schering-Plough (SGP) lost $0.89. Fitch rating service put the company on negative watch.
Bank of America (BAC) a $0.56 loss there.
Altria Group (MO) $0.07 drop.
Pfizer (PFE) moved up $0.13. We'll have more on that later.
Micron Tech (MU) gained $0.39. After the close, Micron reported a second quarter loss of $1.01 a share, much bigger than last year's $0.07 per share loss, but that does include a $470 million write down for restructuring. In after hours trading, Micron stock edged another $0.13 higher.
JPMorgan Chase (JPM) fell $0.38.
And then SprintNextel (S) an $0.08 loss, tenth in big board volume.
Monsanto (MON) down $1.13. Second quarter earnings were higher, $2.02 per share. Last week, the company forecasting just $1.75. The company said strong corn and herbicide sales are helping its earnings along.
Best Buy (BBY) $0.47 gain there. The company in with fourth quarter earnings of $1.71, up from $1.55 last year. That was $0.06 above the Wall Street earnings estimate.
Dillard (DDS), the department store chain, up $2.67. The company has reached agreement with Barrington Capital Group and Clinton Group as others (ph) and this will avoid a proxy contest at the 2008 annual shareholders' meeting.
Trina Solar (TSL) up $5 even. The company has signed a long-term poly silicon supply pact with a unit of GCL Silicon Technology.
CIT Group (CIT) $1.18 gain there. There's speculation the company will make progress in selling assets in order to boost its liquidity.
Unifirst Corp (UNF) up $1.29. Second quarter earnings jumped to $0.79 from only $0.36 last year and revenues were up a respectable 22 percent.
The Talbots (TLB), the department store chain, up $1.88. The Friedman Billings brokerage upgraded its price target from $9 to $12 a share. It's already past that with today's gain. Apparently FBR liked the outline that the company had for its turnaround.
Verifone Holdings (PAY) down $3.19. Fourth quarter gross profit margins were hurt by charges for excess and obsolete inventory. The company will restate first, second and third quarter results for fiscal '07 and those changes due to accounting errors. The CFO incidentally resigned.
Apple (AAPL) topped the active list down $2.04 on NASDAQ.
Research in Motion (RIMM) off $1.69. After the close, Research came in with fourth quarter earnings of $0.72, up from $0.33 last year and it's upbeat on the first quarter. In after hours trading, RIMM stock was up another $5 or so.
Baidu.com (BIDU) $8.23 gain. The company has hired away Apple's chief operating officer in China.
Google (GOOG) a one penny loss.
Microsoft (MSFT) down $0.34.
Cisco Systems (CSCO) dropped $0.02.
First Solar (FSLR) up $12.02.
Intel (INTC) $0.12 loss.
Qualcomm (QCOM) down $0.27.
Yahoo! (YHOO), tenth in volume, lost $0.68 a share.
Crocs (CROX), the footwear company, down $1.78. JPMorgan made some negative comments about the outlook for its U.S. sales for the first quarter.
And finally, Medarex (MEDX) slid $1.69 after partner Pfizer ended late stage trials for a melanoma treatment.
