NBR Transcripts April 4, 2008
Friday, April 04, 2008Employment Numbers Generate More Recession Fears
SUSIE GHARIB: Grim news today for job seekers. The U.S. economy lost 80,000 jobs in March, the biggest monthly decline in five years. That big head count reduction helped push the unemployment rate to 5.1 percent, a 2.5 year high. As Scott Gurvey reports, many economists say today's employment data is further evidence that the U.S. economy is in recession.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Three straight months of declines in the number of Americans reported working leaves the debate over whether the economy is merely sluggish or actually in a formal recession one of semantics. There was also an increase in the number of people not looking for work because they are discouraged over their job prospects. Senior U.S. economist Jim O'Sullivan of UBS says the report reflects a psychology which feeds on itself.
JAMES O'SULLIVAN, SR. U.S. ECONOMIST, UBS: Once recessions start, they tend to feed on themselves, where weaker employment leads to weaker consumer spending leads to weaker employment, et cetera. And it's really hard to stop that process on a dime. And by later in the year, with all the stimulus in the pipeline and more to come, I think it will turn around. But for the next three or four months, we're more then likely going to see if anything, weaker numbers.
GURVEY: The report shows weakness in virtually every sector. Declines continued in manufacturing, in construction and related industries. There were gains for health care workers and food services workers. There was little change in employment in financial services, indicating that layoffs in those areas have yet to be felt. There is now evidence that investors are adopting recession strategies. Fixed income yields are falling in expectation the Fed will continue to lower interest rates, while the gap between inflation-protected securities and regular treasuries is shrinking, indicating worries about inflation are diminishing. A just-released "New York Times"/CBS News poll says two in three Americans believe the economy is in recession today. Chief economist David Resler of Nomura Securities won't call it a recession, but he says it will last well into next year.
DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES: I think that it's going to be a prolonged period of relatively sluggish growth, where the economy fails to live up to its potential. That's likely to last through all of this year and into the first part of next year. But by the end of 2009, we should have enough correction underway in the housing sector that we'll see the economy improving.
GURVEY: The equity markets held up well in spite of today's report, but many believe another blow to investor confidence will coming after next week, when corporations begin to issue their guidance for the rest of the year. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
What's In The Foreclosure Prevention Bill
SUSIE GHARIB: Next week, the U.S. Senate is expected to approve what it calls a foreclosure prevention bill. Lawmakers debated the measure today and then expanded it, adding more tax breaks for corporations. But as Stephanie Dhue reports, some lawmakers want the bill to go back to basics, to focus on helping struggling homeowners avoid foreclosure.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home builders are facing huge losses with the real estate bust. The Senate proposal would let builders and other businesses count their current tax losses against their previous tax gains for an extra two years, a benefit worth an estimated $7 billion. Jerry Howard represents home builders' interests in Washington. He says the tax break will help stabilize the housing market.
JERRY HOWARD, CEO, NATIONAL ASSN. OF HOME BUILDERS: For the bigger builders, when they are capital strapped, like many of them are, what they have to sell assets and when home builders talk about selling assets -- the big builders -- they are talking about selling land. If the big builders have to dump land to recapitalize their business operations, they'll dump the land at whatever price they can get for it, further destabilizing house prices.
DHUE: The Senate plan would also give a $7,000 tax credit to people who buy a foreclosed home. It would raise the limit on government backed FHA loans to $550,000 and it would give states the authority to issue $10 billion in revenue bonds to help borrowers refinance their mortgages. John Taylor of the National Community Reinvestment Coalition says that help may be too late.
JOHN TAYLOR, CEO, NAT'L. COMMUNITY REINVESTMENT COALITION: Every month, we're having roughly 250,000 foreclosure filings every month, so it's entirely possible that several months will go by before the 50 states and the apparatus that they are now putting together is in place to have any impact.
DHUE: Economist Dean Baker says overall, the bill does little to either prevent foreclosures or boost demand for housing.
DEAN BAKER, CO-DIR, CTR. FOR ECONOMIC & POLICY RESEARCH: It's sort of like if you had a patient -- you had someone, an accident victim who's bleeding to death and you go, I'm going to call for pizza. It's very hard to see how this addresses the problem.
DHUE: Still, Senator Chris Dodd defends the package he helped craft as an important first step.
SEN. CHRISTOPHER DODD (D) CONNECTICUT: Anyone who thinks that this bill is the end-all is making a huge mistake. This bill is a step in right direction; it's a positive one and a good one, but there are key missing ingredients.
DHUE: Dodd would add those ingredients to a separate bill that would give the FHA the authority to buy troubled mortgages. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
China's Economic Growth May Take Root In Latin Nations
PAUL KANGAS: It looks like there could be a big deal in the works when it comes to trade and Latin America. NIGHTLY BUSINESS REPORT has learned the government of China is in talks with the Inter-American Development Bank for a seat at the bank's table. The move would spotlight China's growing presence in Central and South America and bolster the bank's influence there, as well. Jeff Yastine reports.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is just one more marker showing how much influence China is gaining these days when it comes to Latin American trade and economic growth. China would be the 48th member or shareholder in the Inter-American Development Bank, which also includes the 26 so-called borrowing countries of Latin America, Central America and the Caribbean. Jorge Arrizurieta is a former U.S. representative to the IDB.
JORGE ARRIZURIETA, FORMER US REP., INTER-AMERICAN DEVELOPMENT BANK: The inclusion of China which is about to happen at the Inter-American Development Bank, as a shareholder the U.S. government has actually formally approved it. It was intended to be announced at this meeting. Regrettably, the negotiations broke down on the price of a share of stock, if you will the investment, but soon to be announced, is a good thing.
YASTINE: A good thing because it brings China into more contact with fair trade and environmental rules in developing Latin America's commodity markets and a good thing for Latin America itself, where China's growth in commodity imports has acted as a counterweight to a slowing U.S. economy. All that has contributed to a sense of satisfaction in the air as government delegations from South and Central America gather in Miami for the IDB's annual meeting. With a few exceptions, national economies are humming and lenders like the IDB and its president, Luis Alberto Moreno, are looking to boost the dollars sent to the region.
LUIS ALBERTO MORENO, PRES., INTER-AMERICAN DEVELOPMENT BANK: We have today a Latin America that is far more sophisticated, a Latin America that is growing, that is increasingly more assured of itself and because of not only the impacts on the economy but I think, at the end of the day, because democracy begins to deepen in our countries.
YASTINE: The numbers tell the story. Gross domestic product or GDP rose 5.2 percent in Brazil last year; in Peru, 9 percent; Argentina, 8.7 percent. Colombia's economy grew 6.8 percent as the nation began to emerge from decades of civil and military strife.
CAROLINA RENTERIA, COLOMBIA NAT'L DIRECTOR OF PLANNING: We are recuperating the confidence in Colombia. There are democratic security policies that have returned to Colombia (INAUDIBLE) the territories and that was a big effort in terms of macro-economic policy has allowed us to get these rates of growth which are with no precedent in Colombia.
YASTINE: Challenges remain, especially in making sure the region's poor benefit from economic growth. That's something U.S. Treasury Secretary Henry Paulson will address when he speaks to the bank group Monday. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
"Market Monitor"-Michael Hasenstab, Portfolio Mgr. Templeton Global Fund
PAUL KANGAS: My guest "Market Monitor" this week is Michael Hasenstab, the portfolio manager for the Templeton Global Fund. Welcome to your first visit with us on NIGHTLY BUSINESS REPORT Michael.
MICHAEL HASENSTAB, SR. VP, PORTFOLIO MGR., TEMPLETON GLOBAL BOND FUND: Thank you, a pleasure to be here.
KANGAS: Your Templeton Global Bond fund (TPINX) did very well in 2007 with a total return of nearly 11 percent. Tell us what strategy you employed to produce such good results.
HASENSTAB: You know, the key tenet of our strategy is really to take a broad global diversified approach so we had exposures in investments in over 20 different countries, investments in different currencies, interest rates, sovereign credit markets and that diversification really helped us weather a pretty volatile period in 2007. We also kept the average credit quality fairly high, a double A-minus and took advantage of some of the opportunities with regard to Asian currencies and some of the European currencies versus the dollar.
KANGAS: Interesting. How did the fund perform in this year's rough- and-tumble first quarter?
HASENSTAB: It's been a tough environment but the fund is up a little over 6 1/2 percent through the first quarter of 2008. So again, that same strategy of diversification and looking at some of these opportunities in Asia and Europe has paid off.
KANGAS: Very good. Now over the last several years, the fund has had very little exposure to the U.S. dollar. Are you anticipating any change in that strategy?
HASENSTAB: You know, one of the advantages of the global bond fund is we can look for not just currency opportunities versus the dollar, but we can look for currency opportunities versus the euro or versus the yen, so there's a lot of flexibility. I think going forward increasingly the focus will be on Asia and in some of the peripheral European markets, as opposed to the past couple years where the euro took the lion's share of the opportunities.
KANGAS: What country's bonds do you like because of their currencies right now?
HASENSTAB: In terms of the currency side, some of our favorites are in Scandinavia, Norway, Sweden. Also we like the dynamic economies of central Europe, such as Poland. We also like some of the safe haven currencies, the Swiss franc and the Japanese yen. Both the Swiss franc and the Japanese yen have performed very well year to date in this period of market volatility. In terms of bond markets though, we're positioning for what we expect to be as a recoupling of global growth. In the last quarter or last six months, the focus has really been on the U.S. slowdown. Ultimately we think that slowdown will spread to other parts of the world and so we're looking for markets which have not yet priced in that slowdown, but we believe is forthcoming.
KANGAS: What kinds of bonds do you favor with regard to credit quality and issuers, that is to say, do you buy only government bonds or corporates as well?
HASENSTAB: The strategy in this fund is to really focus on government bonds, so we're looking at local and externally issued government bonds and that's been our focus. The average credit quality is fairly high, double A-minus of the total portfolio, so generally a higher quality government bond.
KANGAS: That is quality. How many different bonds does the fund own right now?
HASENSTAB: In terms of our current - our country exposure, it's over 20 different countries, over 10 different currencies. The number of positions in the portfolio is over 100 so it's a pretty well diversified portfolio. It's split between Asia, the Americas and Europe.
KANGAS: And the fund's current allocation between bonds and cash is what?
HASENSTAB: The fund is pretty well fully invested. So close to about 95 percent of the fund is in bonds. And those, of course, will be a range of maturities. In some countries, we want to protect against inflation risks, so we're very short-duration assets.
KANGAS: Understood.
HASENSTAB: In some countries, we want to take longer-duration exposure, such as a place like Mexico and so it will really vary across countries.
KANGAS: Our time is very short, the fund's Internet ticker symbol is TPINX, correct?
HASENSTAB: That's correct.
KANGAS: There we see a chart which is showing ascending value. Is there a minimum investment to buy the fund?
HASENSTAB: I think it's $1,000 minimum investment.
KANGAS: Michael, our time has run out, but I want to thank you very much for sharing your thoughts with us.
HASENSTAB: It was my pleasure. Thank you.
KANGAS: My guest, Michael Hasenstab of the Templeton Global Bond Fund.
"Last Word"-A Huge Slice of the Dot Com Pie
SUSIE GHARIB: And finally tonight, it appears there's still money to be made with dot-coms. A Maryland man has sold the web domain name pizza.com for more than $2.5 million. Chris Clark bought it back in 1994 for a mere $20 when he wanted to do business with a pizzeria. Fourteen years later, there was some interest in buying the name, so Clark auctioned it off last week. The first bid was for just $100, and then they just went way up after that. The winning bidder has not been identified. And Paul, to celebrate not surprisingly, the Clark family had a big pizza party.
KANGAS: Well, the big question was can you top this? And if so, with how many toppings?
GHARIB: That's a good question.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's knee-jerk reaction to that weak jobs report was a moderate sell-off. The Dow lost 90 points at the outset of trading, but the NASDAQ Composite fell only five points and soon turned into higher ground. That rather resilient performance brought buyers out from the sidelines and fueled a modest rally, which lifted the Dow to a 60-point gain and the NASDAQ to a 30-point rise in mid-afternoon. But then some normal pre-weekend cautionary selling resulted in a mixed close. The Dow Industrial Average ended with a loss of 16.61 points at 12,609.42. This week, it fell twice, rose three times, had a net gain of 393.02 points. The NASDAQ Composite was up 7.68 to close at 2,370.98 today. This week, it fell only once and advanced 109.80 points overall. The Standard & Poor's 500 Index closed with a gain of 1.09 at 1,370.40 today and it was up 55.18 points for the week overall. Over in the bond market, the 10-year note gained 1 1/32 to par and 8/32, putting the yield at 3.47 percent. Citigroup (C) once again topped the active list on the big board, trading 16 million shares today. The stock down $0.28. The company's agreed to pay $33 million to about 2500 current and former female brokers at its Smith Barney unit in order to settle a class action gender discrimination lawsuit. Ford Motor Co (F) in there with a $0.03 gain.
Washington Mutual (WM) down $1.32.
Schering-Plough (SGP) up $0.74.
Bank of America (BAC) down $0.96. Both Bear Stearns and JPMorgan cut 2008 earnings estimates on Bank America in anticipation of further write downs.
General Electric (GE) fell $0.28.
Followed by Altria Group (MO) with a $0.30 loss.
Co vale do Rio (RIO) was up $0.72.
Pfizer (PFE) a penny gainer.
And JPMorgan Chase (JPM) down $0.71, tenth in volume.
Massey Energy (MEE) up $7.27. The company said its first quarter coal revenues are projected to bring $55 to $56 a ton. That's about $10 per ton above its operating cost to extract the coal.
That had a very good impact on other coal stocks like Arch Coal (ACI), Alpha Natural Resources (ANA), Consol Energy (CNX) and Peabody Energy (BTU), all doing well on the upside.
ITT Education (ESI) gained $7.80. Members of Congress introduced legislation today that would allow the Department of Education to buy student loans from lenders in need of new capital.
And this news had a great impact on other education stocks like Apollo Group (APOL), Career Education (CECO), Corinthian College (COCO) and Devry (DV), which was up $3 there, very strong group.
Mosaic Company (MOS) up $10.55. Third quarter earnings jumped to $1.17 from only a dime last year. Revenues shot up 68 percent and the company's upbeat on the fertilizer sales outlook.
That had a very positive impact on the fertilizer stocks like Agrium (AGU), CF Industries (CF) doing very well and Potash (POT) of Saskatchewan up $3.22.
Allegheny Technology (ATI), the specialty metals company, up $8.95 a share. There's takeover speculation and U.S. Steel has been mentioned as the possible suitor.
LDK Solar Co (LDK) gained $4.78. It signed a six-year wafer supply pact with a Greek firm and a four-year pact with Arise Corp. of Canada. Just yesterday it signed a 10-year pact with a firm in India, so they're doing land office business.
AZZ Inc (AZZ) tumbling $6.62. Fourth quarter earnings were a bit higher, $0.60 versus $0.58 last year, but revenues were below Street estimates and the company's backlog for business has dropped.
Landry's Restaurants (LNY) up $2.61, even though the chairman cut its buyout bid to take the firm private. He cut its bid from $23.50 down to $21 a share.
NASDAQ's most active, Apple (AAPL) up $1.47.
First Solar (FSLR) up $26.40. Speculation that tax subsidies for renewable energy may be extended, had the whole group strong.
Research in Motion (RIMM) down $2.59.
Google (GOOG) up nearly $16 a share.
Baidu.com (BIDU) a $7.25 gain.
Microsoft (MSFT) edged up $0.16. After the close, the company said it's evaluating its takeover bid for Yahoo! and may lower it from $31 a share.
Yahoo! (YHOO) in after hours trading dropped $1.10 to $27.26 on that news.
Cisco Systems (CSCO) $0.16 gain there.
Oracle (ORCL) a $0.33 loss.
Intel (INTC) dropped $0.06.
Nvidia (NVDA) off $1.20 per share.
Riverbed Technology (RVBD) fell $1.77. The company lowered its first quarter outlook after failing to close on four or five business deals it was working on.
And those are the stocks in the news tonight.
