NBR Transcripts April 3, 2008
Thursday, April 03, 2008What Led to the Grizzly Demise of Bear Stearns
SUSIE GHARIB: The saga of Bear Stearns was spelled out in detail on Capitol Hill today and if the financial fallout hadn't been so serious, it would have sounded like a soap opera. Rumors flying, markets possibly manipulated and a rapid fall from grace. But as the CEO's of Bear and JPMorgan told lawmakers, it was real and it was grim. Now there are two big questions. Why did the Fed engineer the bailout? And was it the right thing to do. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: What happened at Bear Stearns is best explained as a modern-day run on the bank. A crisis of confidence in its finances left the investment bank short of cash. CEO Alan Schwartz blames unfounded rumors and speculation of a liquidity crisis for the bank's near-failure.
ALAN SCHWARTZ, PRESIDENT & CEO, BEAR STEARNS: I did worry that there was an environment that could happen that if we didn't have, if the market couldn't see that we had some place to go and borrow against that collateral, then the fears could start. I just never frankly understood or dreamed that it could happen as rapidly as it did.
DHUE: Rapidly, as in overnight March 13. The Securities and Exchange Commission says Bear Stearns met its regulatory standards for capital and liquidity until it lost $10 billion that one day. SEC Chairman Christopher Cox says given the unusual circumstances, his agency is investigating.
CHRISTOPHER COX, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION: The SEC very aggressively pursues insider trading, market manipulation and the kinds of illegal naked short selling that have been very publicly alleged in this case.
DHUE: Bear CEO Schwartz says his firm may have stayed independent if the Fed stepped in sooner to lend money, as it does with traditional banks through its discount window. But New York Fed President Timothy Geithner says that may not have been the case.
TIMOTHY GEITHNER, PRESIDENT, FEDERAL RESERVE BANK OF NEW YORK: We only allow sound institutions to borrow against collateral in that context and I can only speak personally for this, but I would have been very uncomfortable lending to Bear, given what we knew at that time.
DHUE: Fed Chairman Ben Bernanke took issue with calling the deal a bail out, noting that Bear Stearns didn't fair well.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: The shareholders took very severe losses. The company lost its independence. Many employees obviously are concerned about their jobs. I don't think it's a situation that any firm would willingly choose to endure. What we had in mind here was the protection of the financial system and the protection of the American economy.
DHUE: JPMorgan CEO Jamie Dimon dismissed criticism that his firm dumped its risk on the American taxpayer.
JAMES DIMON, CHAIRMAN AND CEO, JPMORGAN CHASE: The notion that Bear Stearns riskiest assets have been placed in the $30 billion Fed facility is simply not true and if there is ever a loss in the assets placed to the Fed, the first $1 billion of that loss will be born by JPMorgan alone.
DHUE: The Fed says the Bear Stearns assets it now owns are all investment grade, which may be little comfort at a time when investment grade securities can become junk overnight. Still, the Fed expects over time taxpayers will be paid back in full with interest. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Recession Resistant Jobs
PAUL KANGAS: A new sign today that the job market is also feeling the pinch from a slowing economy. The Labor Department says the number of first-time claims for unemployment benefits unexpectedly shot up last week. Initial jobless claims climbed 38,000 to 407,000. We'll get a better picture of the job landscape tomorrow, when March's employment report is released. While many economists believe the United States is at the beginning stages of recession, there are some jobs that should remain recession-resistant. Erika Miller has details.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Doctors are in demand during boom times and in busts. So, it's not surprising that healthcare is considered one of the most recession resistant industries. According to the Bureau of Labor Statistics, more than half of the 30 fastest growing jobs are in medical fields. At Montefiore Hospital in New York City, the head of operations Elaine Brennan says there is strong demand in many areas.
ELAINE BRENNAN, SVP OPERATIONS, MONTEFIORE HOSPITAL: Nursing is a big one, professional nursing. Technical people to do CAT scans with the latest technology, to do MRIs, to do ultrasounds. Ultrasound training is a four-year college program, so the pipeline is small.
MILLER: As kids know, school doesn't stop when the economy goes south, so careers in education tend to be stable. Experts say demand for teachers is currently strongest in places experiencing population explosions, like the sun belt. Crime doesn't stop during recessions, so demand for security guards and police officers also holds up. Robert Burns, head of operations at security services firm Wackenhut, expects business to stay strong.
ROBERT BURNS, SR. VP OF OPERATIONS, WACKENHUT: We don't expect the current economic uncertainties to have an effect on our business at G4/Wackenhut (ph). In fact, we forecast that organic growth rates for the remainder of the 2008 should be in line and strong as compared to 2007.
MILLER: Most job hunters will probably want to avoid troubled industries where layoffs are rampant. Anything related to housing, real estate and construction is expected to remain in the doldrums. Ditto for financial firms. Experts also say be careful about jobs in manufacturing, a sector that has long been contracting. Jo Bennett is a partner at executive search firm Battalia Winston. She says think carefully before taking a position in a company that is dependent on consumer discretionary spending.
JO BENNETT, PARTNER, BATTALIA WINSTON: You'd certainly want to worry about retailers. You might want to worry about some of the big box stores that sell to homeowners for repairing their homes and fixing them up because they may get hurt.
MILLER: No matter what field you're in, experts say there are a few strategies to help you protect your job. One is to find ways for your firm to cut costs and boost revenues. They also suggest you do everything you can to make yourself visible and indispensable. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with Lakshman Achuthan, Managing Director of the Economic Cycle Research Institute
SUSIE GHARIB: Our guest tonight believes that the U.S. economy is on track for a recession. He's Lakshman Achuthan, managing director of the Economic Cycle Research Institute. Hi Lakshman.
LAKSHMAN ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH INSTITUTE: Hi. Good evening.
GHARIB: So do you think that today's report on that big jump in jobless claims confirms a recession forecast?
ACHUTHAN: Well, it certainly is part of the story. At the center, at the epicenter of a recession, the hallmark of a recession is this months on end of mounting job losses and we've had a couple of months of negatives jobs growth. I expect we are going to get a string of negative jobs growth reports in front of us. The key thing that shifted because we all know that recession has been going on in the construction and in the financial services sectors. It's the non-financial services sectors. That is where five out of eight Americans work. That cycle has taken a sharp turn for the worst, very recently. And that's what drove us to the first recession call we've made since early 2001.
GHARIB: So are you expecting negative jobs growth for tomorrow's March employment report?
ACHUTHAN: Yeah, I think these reports, tomorrow's reports and for months afterwards are going to be negative. They are going to be consistent with recession. You know, any one month's number has a margin of error of plus or minus at least 100,000. So let's not ascribe a false sense of precision to some of these economic data.
GHARIB: So you are calling for a recession. How long will that recession last? Will it be quick, can we get it over with or is it going to be long and painful?
ACHUTHAN: Hard to say. The last two recessions are eight months long. And herein lies the rub. I mean when you are trying to have policies to deal with recessions and to counter them and to get a recovery going, you can't have a policy debate that lasts for six months because that's practically the whole length of recent recessions. Right now we don't have any sign of an upturn. And all that says is that you know, through the third quarter or so there is no recovery. We're still going to be sliding down. There may be a recovery at the end of the year but there is no objective evidence other than Fed stimulus to suggest that.
GHARIB: So how are we going to know when the recovery begins and the recession is over?
ACHUTHAN: Well, you are going to see first off leading indicators. So we see Fed stimuluses going out there. But you need to see corporate profits begin to bottom, corporate profits growth has to bottom and begin to firm. The housing sector has to bottom, also confidence, psychology, what's going on with consumer and investor confidence. And we don't see any of those three areas other than monetary and fiscal stimulus moving things to the upside yet.
GHARIB: All right, so Fed Chairman Ben Bernanke said yesterday that he sees the possibility of recession. Should we conclude then that Fed policymakers are going to cut interest rates again at their meeting at the end of April.
ACHUTHAN: That as far as Fed chairman goes to saying there is a recession going on. And they are absolutely focused on mitigating that recession. However, I, you know, I wish they would listen to their grandmothers who said a stitch in time saves nine. If we had moved quicker, I don't think we would be having such drastic policy responses right here.
GHARIB: So do you think, where do you think rates are going to go, how low are they going to go? Are they going to get down to 1 percent, 0 percent and will that jump-start the economy?
ACHUTHAN: Well, first off they are going to go lower. We're around two now. We were at 1 percent, not that long ago in '02 and '03, we were there and it certainly jump-started the economy and got housing booming and the economy going pretty strong. So I suspect it will work again. I mean liquidity does push the economy up. We just have to watch out for where it pops up in the next bubble it creates.
GHARIB: All right Lakshman, thank you so much for coming on the program, we appreciate it.
ACHUTHAN: Thank you, Susie.
GHARIB: My guest tonight, Lakshman Achuthan, managing director of the Economic Cycle Research Institute.
Harvesting The Gold From Investors In Their Golden Years
SUSIE GHARIB: Conventional wisdom used to be that when you retired, you switched your investment priority to capital preservation. But now many retirees are still accumulating wealth and for many that includes active stock trading. As Jeff Yastine reports, Wall Street is finding new ways to market products to seniors encouraging them to give trading a try.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet Larry Klima.
LARRY KLIMA, STOCK TRADER: It is more of a job I think.
YASTINE: And his wife Doreen.
DOREEN KLIMA, TRADER: It is not my vocation, it's my hobby.
YASTINE: They sit in opposite rooms of their condo, doing the same thing, buying and selling positions in stock portfolios and often hedging those buys with options strategies as well. They are in many ways, a stock brokerage's example of an ideal set of customers. They're retired, have sizable assets and the time to devote to trading. Larry has been trading for years, but he says these days, with fixed-income securities yielding such low returns, he and Doreen feel compelled to trade and try to compound their wealth in the stock and options markets.
L. KLIMA: We were talking about a yield on a two-year Treasury in the 2 percent range or a 10-year Treasury at 3 1/2, 3.60, whatever. And we want to preserve our portfolio and live on it and we contribute to 529 trusts for our grandchildren. But we want to get a return on our money.
YASTINE: That is creating opportunities for Wall Street brokerages, marketing their trading software and services to the nation's burgeoning community of retirees and seniors. At events like this in Boca Raton, you're likely to find seasoned traders like the Klimas and others who are learning for the first time. Joseph Vietri, vice president of investor business development at Charles Schwab, says seniors are a key demographic for the brokerage house.
JOSEPH VIETRI, VP, ACTIVE TRADING & INVESTING SVCS, SCHWAB INVESTOR SRVCS:. These people have a lot of time on their hands. We're dealing with a client set who is -- a lot of these folks were successful business people, entrepreneurs. And they've migrated out of the business world and they want to stay sharp. They want to utilize that time. So we see more people, instead of taking vacations and being leisurely, just focusing on their investment portfolios and taking a more active approach.
YASTINE: But there is a downside. Don Blandin of Investors Protection Trust says time is working against retirees, should they trade and lose a substantial sum of money.
DON BLANDIN, PRESIDENT & CEO, INVESTOR PROTECTION TRUST: The mistakes that they may have made in learning about investing early on, they can no longer make those kinds of mistakes because they don't have the time to recoup. So they're going to have to be much more cautious with their trading and the idea of a whole bunch of baby boomers becoming day traders as a game, makes me worry and I think puts a lot of people at risk.
D. KLIMA: We're not real big risk takers.
YASTINE: There's another growing demographic among traders: older women, like Doreen Klima.
D. KLIMA: I think the woman coming up has been in the workplace, had had our own money, have made a lot of her own decisions. And of course she's better with the computer. I think she'll be out there wanting to enhance her position and not depend on her mate for her retirement.
YASTINE: While they're not depending on the market to fund their retirement, the Klimas hope new trading strategies help them grow their nest egg, while Wall Street hopes new generations of retirees do the same. Jeff Yastine, NIGHTLY BUSINESS REPORT, Boca Raton.
"Last Word"-You Can't Skirt The Kilt
SUSIE GHARIB: And finally, in case you don't have it marked on your calendar, today is "wear a kilt to work" day! The folks who make Glen-Livit (ph) single malt Scotch whisky say kilts are the ultimate sign of masculinity. That's because they were designed for men to wear into battle. So Glen-Livet says don't think of kilts as "skirts for men". Instead, think of them as a gallant tradition for facing the battle of the office workweek. Wearing a kilt today will also help people worldwide, because Glen-Livit is donating cash to a disaster relief charity to mark the day. Paul, it's also part of "tartan week," recognizing the contribution of Scottish Americans have made to the United States.
KANGAS: Susie, if I wore those things on the golf course, I'd get kilt by my playing partners.
GHARIB: You mean you're not wearing one underneath that anchor set?
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened lower on news of higher weekly jobless benefit claims which we'll detail next. An hour into trading, the Dow posted a 52 point loss and the NASDAQ was off 16 points. Stocks began struggling back after the March service sector index from ISM showed a smaller than expected decline while oil futures edged lower. The market managed to end the day on a positive note. The Dow Industrial Average closed up 20.20 at 12,626.03. The NASDAQ Composite gained 1.90 to 2363.30. Standard & Poor's 500 Index rose 1.78, ending at 1369.31. In the bond market, the 10-year note rose 5/32 to 99 9/32, putting the yield at 3.59 percent.
Big board volume leader once again, Citigroup (C) today on nearly 19 million shares, edging up $0.34. Micron Tech (MU) a $0.40 gain. After the close yesterday, as we reported, Micron had second quarter loss of $1.01 a share, versus a loss of only $0.07 the year before, but today Goldman Sachs upgraded the stock from "sell" to "neutral."
Ford Motor Co (F) a $0.33 advance.
Altria (MO) lost $0.07.
Schering-Plough (SGP) moving up $1.52. The company announced a program to increase productivity and save up to $1.5 billion annually starting in the year 2012. The company also plans to cut 5500 jobs. That's 10 percent of its workforce.
Pfizer (PFE) a $0.17 loss.
KKR Financial (KFR) in the active list with a $0.03 loss. The company priced a 30 million share public offering of its stock at $11.85 a share.
General Electric (GE) down $0.18.
But Visa (V) very active and up $3.18. No specific news I saw, but if you remember, Visa went public back on March 19th at a price of $44, so it's done very well.
Motorola (MOT), tenth in volume was up $0.16. The company will cut 2600 jobs and take $104 million charge as a result.
Alcoa (AA) a big gainer in the Dow today, up $2.11. There's optimism about its first quarter earnings which are due out next Monday. The Street's consensus is about $0.48 a share.
Then we see USEC (USU) up $1.14, good percentage move. The uranium enrichment firm's stock is up in sympathy with strong results reported by its European rival Urenco. U.S. government also reported lower uranium stockpiles and that would be good for future business of the company.
MF Global Ltd (MF) up $1.45. The company's policy is not to comment on its stock activity, but there has been quite a bit of takeover speculation going around.
Patriot Coal (PCX) up $7.85. Positive reaction to the company's acquisition of Magnum Coal Company for $709 million in stock. That works out to about 11.9 million shares.
Then we see LDK Solar Co (LDK) up $1.53. The company signed a 10-year contract to supply solar wafers to a unit of Mosar Buyer (ph) India Limited.
On the downside, we see HNI (HNI) falling $2.94. The company sees first quarter revenue and operating profit in its office furniture unit down significantly from its previous forecast.
Then MEMC Electronic (WFR) down $2.63. The company cut its first quarter revenue forecast from $560 million down to $500 million and due to downtime at its Pasadena, Texas facility.
NASDAQ's most active, Research in Motion (RIMM) up $6.79. After the close yesterday, as we reported, fourth quarter earnings more than doubled, $0.72 versus $0.33 a year ago and today, JPMorgan boosted earnings estimates and repeated an "overweight" rating.
Apple (AAPL) up $4.12. As we touched on, its iTune online music store has overtaken Wal-Mart in retail sales.
Google (GOOG) down $10.58.
baidu.com (BIDU) up $5.16.
Cisco Systems (CSCO) a $0.73 loss.
First Solar (FSLR) up $2.05.
Garmin Ltd (GRMN) down $3.60. The company's chief financial officer warned its first quarter revenues could drop 40 to 50 percent from the fourth quarter level.
Microsoft (MSFT) down $0.16.
Intel (INTC) an $0.08 gain.
Followed by Oracle (ORCL), tenth in volume, with a $0.19 advance.
Amazon (AMZN) fell $2.43. Piper Jaffray brokerage cut earnings estimates, citing the sluggish 2008 consumer spending.
And then we see Dell (DELL) a $0.17 gain. The company will cut 8800 jobs and it'll buy back up to $1 billion of its own stock.
And those are the stocks in the news tonight.
