NBR Transcripts April 9, 2008
Wednesday, April 09, 2008Oil Prices Gush to a New Record High
SUSIE GHARIB: Oil prices surged to a new record today, topping $112 a barrel for the first time. By the close of trading in New York, May crude futures settled at $110.87 a barrel, up $2.37. In intra- day trading, crude futures traded as high as $112.16. The spike followed a government report showing oil and gasoline supplies were lower than expected last week. Oil analyst Eitan Bernstein of Friedman, Billings Ramsey says despite recent volatility, these record prices won't last.
EITAN BERNSTEIN, VP ENERGY RESEARCH, FRIEDMAN, BILLINGS, RAMSEY & CO.: What you've got crude oil prices rallying is fear of the unknown, supply concerns, China, OPEC demand growth. But we have some very real bearish headlines on U.S. economic growth, U.S. demand growth. And to the extent that that starts catching up with the fundamentals and ultimately with the traders, that could pull back on prices.
GHARIB: Bernstein predicts in the near term that oil prices will pull back to around $95 a barrel.
The Boeing 787 Dreamliner Nightmare
PAUL KANGAS: It was first expected to fly last August, now Boeing says the 787 Dreamliner won't get off the ground until the end of this year. Deliveries won't start until the second half of 2009. Still as Scott Gurvey explains, the delays are not unusual for a new aircraft design.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is the third time in the last six months that Boeing has revised the delivery schedule for its new 787 Dreamliner. Boeing now expects to deliver the first 787 in the third quarter of next year, instead of the first quarter. It also expects to ship 25 planes, down from the 109 previously planned. Boeing isn't alone in setbacks. Manufacturing problems also delayed delivery of the most recent Airbus model, the 380 and are common in the industry. Analyst Brian Nelson of Morningstar says this latest schedule may not be the last for the Dreamliner.
BRIAN NELSON, EQUITY ANALYST, MORNINGSTAR: At this point, because Boeing has yet to power on the aircraft which means it has yet to perform basic, integrated functional testing of the aircraft and because Boeing has yet to perform the flight tests necessary to gain certification, I think it is impossible to be completely certain that this delivery schedule is going to be the last, the one that Boeing delivers upon.
GURVEY: The holding pattern was caused primarily by problems with Boeing's worldwide supply chain. The company outsourced a record amount of the production and some of those suppliers haven't met deadlines. Boeing must also redesign part of the plane's mid section to make it stronger. But Boeing shares actually gained on today's news because the delays in the schedule were no worse than industry analysts had predicted. The company also maintained its profit guidance. As Standard & Poor's analyst Richard Tortoriello notes, the Dreamliner is just one part of Boeing's vast revenue stream.
RICHARD TORTORIELLO, EQUITY ANALYST, STANDARD AND POOR'S: Fifty percent of its business is military. And I see that kind of as a steady, slow growth, high cash flow business and that is going to continue. Boeing also has a big commercial aerospace business, including the Boeing 737, the 777 and other planes that are not at all related to the 787. And there's been big demand for those other planes as well.
GURVEY: Boeing will incur additional research and development costs on the Dreamliner because of the design changes and also customer penalty costs because of the missed delivery dates. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
One on One with NYSE Euronext CEO Duncan Neiderauer
SUSIE GHARIB: The New York Stock Exchange just marked the one year anniversary of its big merger with France's Euronext, creating the first transatlantic stock exchange. So how's the integration going so far? I asked CEO Duncan Neiderauer, who succeeded John Thain as the big board's boss four months ago.
DUNCAN NIEDERAUER, CEO, NYSE EURONEXT: We're about I'd say a little further along than we thought we would be in some areas and not as far along as we thought we'd be in other areas. We're learning as we go. I said when I took John's place, I thought that as we looked forward, I thought it was more important to focus on integration rather than maybe worrying about the next deal, because these are always more work than you think they are.
GHARIB: Duncan, how do you plan to deal with the intense competition, not only from the NASDAQ but so many start-up exchanges in the U.S. and Europe?
NIEDERAUER: We need to get closer to the customers, roll out the functionality they're looking for, try to remind ourselves that even though the liquidity is fragmented, we can still be a very, very meaningful player in some of the markets where before are we going to have market share that we had three or four years ago? No. But there is a lot of other new areas where we can get a lot better.
GHARIB: As you know, the momentum is towards electronic trading. I know this is a touchy subject here at the exchange, but don't you have to accelerate that move into electronic trading just to stay competitive?
NIEDERAUER: We have embraced technology here. I think people think because we still have a floor we're somehow resistant to the changes. We know that's where the market is going. We just don't think all electronic all the time is the right answer. And we think the markets over the past few months have proven that, that if you're all electronic all the time and there's no opportunity for price discovery, all that does is maximize volatility at the time when you least want that volatility.
GHARIB: Duncan, NYSE Euronext stock is down something like 30 percent since you took over as CEO four months ago. What is it going to take to get it to move higher?
NIEDERAUER: I think what we need to do is put up two or three quarters of good results while you're having all this volatility in financial services and you're seeing a lot of those stocks trade down quite a bit. If we put up two or three good quarters in a row to show that we're not attached to those securities, we shouldn't be correlated to those securities. That's step one. Step two is in addition to performing, reminding everybody that the business model really is quite different. It's a very different business model. We don't have the leverage that those companies have. It's a much cleaner balance sheet. We may not have the opportunity to make the kind of money they make in the good times, but we're a much safer bet in more volatile times, as well.
GHARIB: We have been seeing so much volatility, how is that impacting your earnings?
NIEDERAUER: Quite favorably because remember, volatility usually leads to higher volumes. Some would argue that's not sustainable because if there is a protracted bear market in the U.S., they look back at the other bear markets in history and say, look what happens to volume in a protracted bear market. It goes down precipitously. What's very different about today is the demographics of order flow have changed a lot. A lot of today's market participants were not around five, 10, 15 years ago when they're looking at the previous downturns. They are huge providers of volume on a daily basis, who I don't think really care whether it's a bull market or a bear market because they're short-term investors.
GHARIB: Looking at the regulatory reform plan proposed by Treasury Secretary Paulson, how would, if that reform were to go through, how would that impact the NYSE?
NIEDERAUER: Our view is almost any change that would happen there to make it more fluid would be good for us because we're the only exchange in this country with a 75-year-old rule book. It's harder for us to be nimble because we live under a set of guidelines that were outlined many, many years ago and each time we want to be flexible or change something, we've got to go back to the rule book and work closely with the SEC and try to figure out how to do that. That's hard to do. So I think any change for us would be viewed as a positive and our ability to compete would be enhanced.
GHARIB: I know you talked to a lot of CEOs and market leaders. Do you get the sense that the worst of this financial crisis is over?
NIEDERAUER: The general sense is one of cautious optimism. I think CEOs outside of the financial services industry still feel quite good. Whether that's unfounded optimism remains to be seen, but remember, what's really changed in this country in the last 10 or 20 years and I hear it every day from the CEOs who walk through the door here, is many of their businesses are much more global. Their customer bases are much more global. So they're not completely immunized against the U.S. recession, if we are in fact in one, but they're much less exposed to a U.S. recession than they would have been 10 or 20 years ago as their businesses have diversified.
GHARIB: Duncan, thank you for your time, so nice seeing you.
NIEDERAUER: Thank you very much.
The President & Congress Come Together To Fight Foreclosures
PAUL KANGAS: The White House and Congress are moving closer to working together to address the housing crisis. The Bush administration expanded what's called the FHA secure program today to help more borrowers refinance troubled mortgages. As Stephanie Dhue reports, it came as the House Financial Services Committee considered more sweeping legislation to expand the FHA role.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chairman Barney Frank calls today's expansion of the administration's FHA secure program a remarkable coincidence, coming on the day of a hearing on his plan to grow the housing agency.
REP. BARNEY FRANK, CHAIRMAN, HOUSE FINANCIAL SERVICES COMMITTEE: We have a substantial amount of agreement now and those who think that we should do nothing that could theoretically or even actually expose taxpayers to more risk, they will have to deal with me and the Bush administration together. And we will work this out.
DHUE: For homeowners upside down on their mortgages, both the administration and Frank's plan would require lenders to voluntarily write down a portion of the loan amount. The administration's plan is more modest. It uses an increase in FHA insurance premiums to pay for half a million refinancings. Frank's plan would have the FHA guarantee some two million refinancings with $20 billion of taxpayer money. But Frank's plan came under fire from many Republicans. Congressman Spencer Bachus says it will keep home prices from declining to a more affordable level.
REP. SPENCER BACHUS, (R) ALABAMA: This process of market correction, while undeniably painful is a necessary and unavoidable reality, government intervention to impede the return to the long term trend line no matter how well intentioned is likely to do more harm than good.
DHUE: But Frank's plan did get some support from regulators. Office of Thrift Supervision Director John Reich says the situation is serious enough to warrant creative solutions.
JOHN REICH, DIRECTOR, OFFICE OF THRIFT SUPERVISION: While we do not think that using FHA as a financing vehicle to prevent foreclosures will be the silver bullet to stop the housing slide, we do think that it's an important additional tool that lenders can use to stem the rise in foreclosures.
DHUE: It's unclear if even both plans would be enough to prevent a mass wave of foreclosures. Both require lenders to voluntarily take losses on troubled loans, something so far they've been reluctant to do. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Toan Tran, Equity Strategist at Morningstar
PAUL KANGAS: My "Street Critique" guest tonight specializes in growth and technology stocks and says when it comes to investing in this crazy environment, it's best to weigh things on a stock by stock basis. He's Toan Tran, equity strategist at Morningstar and author of Morningstar's growth investor newsletter. And Toan, welcome to NIGHTLY BUSINESS REPORT.
TOAN TRAN, EQUITY STRATEGIST, MORNINGSTAR: Thank you, Paul.
KANGAS: Tech stocks took a drubbing in the first quarter, as we know, with the NASDAQ Index down over 14 percent. And with that in mind, is it time to look at techs again or are you still kind of sitting on the sidelines here?
TRAN: Like you said, Paul, the NASDAQ had a tough time in the first quarter. But with bad news in the headlines, I think it's time for investors to start maybe taking a look at high-quality technology companies and start putting some on the radar screen.
KANGAS: Many of the big tech firms are really catering to the consumer and consumer spending is not looking very hot right now. So where do you see spending headed and improved (ph)?
TRAN: I think I'm not very optimistic about in the United States. The U.S. consumer is way over burdened with debt. But that won't always be the case. So if you're willing to take a long-term view of things, there are some good values today.
KANGAS: All right. Let's get specific. I understand you like Apple (AAPL), but not at the current price.
TRAN: Yeah. I think Apple is a great company run by a great management team. It got cheap about maybe a month or two ago. I think at $120 per share investors should start building positions. And Apple of course is exposed to the U.S. consumer so I think investors will get a shot at it.
KANGAS: OK. Your second choice is another big name tech stock. Let's have a look at that and we see none other than Intel (INTC).
TRAN: Yeah. Intel is definitely I think should be a core tech holding for any investor. If the shares were to get a little bit cheaper, I think investors again should start building position. Intel is diversifying away from its core PC business into chips for mobile devices and that could potentially be a very big business for them a few years down the road.
KANGAS: So you like INTC on the NASDAQ right.
TRAN: That's correct.
KANGAS: OK. Now your last choice is small cap play. Give me the name and symbol on that one.
TRAN: Sure. This is definitely a very small cap play. The company is called Isilon Systems and the ticker is ISLN. And what Isilon does is it provides storage hardware for things like digital video and digit music, all the things that everyone is producing more of every day. The company became public in late 2007 and it had just a horrid 2007 with a management change and an accounting restatement. But the company's put things behind it and has a great growth opportunity ahead of it. And the shares are exceptionally cheap right now.
KANGAS: OK, very interesting indeed, Isilon. I'll have to remember that one. Toan, do you own any of the stocks personally or have any other disclosure to make?
TRAN: Yes I own both Apple and Isilon personally.
KANGAS: Very good. I want to thank you very much for being with us and we appreciate your views.
TRAN: Thank you, Paul. KANGAS: My guest, Toan Tran, equity strategist at Morningstar.
"Kevin McCormallys"-Write-offs for Non-itemizers
PAUL KANGAS: Well, the tax season is in the home stretch. There are just six days left to get your Federal income tax return in the mail. So all this week we have helpful hints on getting the paperwork done. In tonight's tax tips, Kevin McCormally of "Kiplinger's Personal Finance" tackles write-offs for non-itemizers.
KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER'S PERSONAL FINANCE: Here's a tax riddle: who gets the better deal, taxpayers who claim the standard deduction or those who itemize? At first blush, itemizers appear to be in the cat bird seat. After all, they get to cut their tax bills by deducting their mortgage interest and state income and property taxes, medical expenses and charitable gifts, even interest on home equity loans used to pay for vacations and new cars.
But truth be told, it's the 90 million Americans who claim the standard deduction - that's about two-thirds of all taxpayers -- who get the better deal. Remember, you use the standard deduction only when it saves you more money than itemizing would. On 2007 returns, married couples can deduct $10.700, no matter how little they actually spent on deductible items. Singles get a $5,350 standard deduction, no questions asked, no paperwork involved. And remember, there's a long list of write- offs open even to those who claim the standard deduction. There's the $250 deduction for teachers and the $4,000 write off for college tuition. Non- itemizers can deduct job-related moving expenses, interest paid on student loans and alimony.
Self-employeds can deduct the cost of their health insurance. Contributions to traditional IRAs and HSAs can be written off of course, and members of the National Guard who travel more than 100 miles to overnight meetings can deduct their travel expenses. Last year, taxpayers claimed about $100 billion worth of these so-called adjustments to income and a big share of the tax savings went to folks who claimed the standard deduction. I'm Kevin McCormally.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened narrowly mixed but then headed broadly lower as investors viewed last night's earnings warning from UPS as a sign of things to come from corporate America's first quarter results. In a steady downturn, the Dow posted a 91-point loss by 1:00 p.m., with the NASDAQ Composite off 30 points. That surge in oil futures to new record highs kept the market on the defensive as the Dow fell as much as 100 points by by around 3:00 p.m. But some late buying trimmed the losses at the final bell. The Dow Industrial Average closed down 49.18 at 12,527.26. The NASDAQ lost 26.64 ending at 2322.12. Standard & Poor's 500 Index fell 11.05 to 1354.49. In the bond market, the 10-year note gained 22/32 to par and 5/32, putting the yield at 3.48 percent. Most active big board issue on 20.8 million shares, Citigroup (C) down $0.18. The company reportedly close to selling $12 billion in leveraged loans and bonds to a private equity group. Washington Mutual (WM) dropped $0.36.
Ford Motor (F) $0.19 loss.
General Electric (GE) $0.51 loss.
And then SprintNextel (S) down $0.11, not a gainer in that group.
Pfizer (PFE) was off $0.11. The company's inhalable insulin drug Exubera may be linked to causing lung cancer according to Pfizer. Its partner Nectar (ph) saw its stock plummet $1.80, down to $5.39 a share on that news.
Advanced Micro Devices (AMD) after a couple of days of losses, up $0.23.
Bank of America (BAC) a $0.45 drop.
Wells Fargo (WFC) off $0.48.
And then Lehman Brothers (LEH) down $3.13. We'll have more on that in just a moment.
Boeing (BA) itself up $3.58 despite the delay in the 787 Dreamliner as you heard, but the company did reaffirm its 2008 earnings guidance and that would help the stock.
Helping this stock, Spirit Aerosystems (SPR) up nearly $3 was Boeing. A revision in a supply pact with Boeing will result in additional cash advance payments to Spirit Aerosystems.
Proctor and Gamble (PG) a $0.44 loss, even though it's boosting its quarterly dividend 14 percent from $0.35 to $0.40 a share, but Goldman Sachs still downgraded the stock from "buy" to "neutral."
And Goldman Sachs also downgraded Kimberly Clark (KMB) but in this case from "neutral" to a "sell." The stock off $1.29.
Apache Corp (APA), obviously the oils were strong today on those record high prices, up $3.89 there. Also the company had positive test results in three drilling operations in British Columbia. UBS financial boosted Apache's price target from $138 to $146 a share.
Some of the other stocks in the oil patch did well today, Hess Corp (HES), Occidental (OXY) and Sunoco (SUN) all posting decent gains.
The airline stocks in the other hand, down on those record oil prices, Continental Airlines (CAL), Delta Airlines (DAL), UAL Corp (UAUA) and US Airways (LCC) all in the minus column.
Goldman Sachs (GS) itself off $4.76. The company disclosed it has received government requests for information regarding the auction rate security market which has been frozen for the most part and the complaint of many clients of a lot of brokerages. Let's have a look at some of those stocks. Once again we see Lehman (LEH) dropped $3.13 as you saw and Morgan Stanley (MS) down $1.25.
Speaking of Morgan Stanley MSCI Inc (MXB) down $2.81. Morgan Stanley owns 81 percent and this company plans to sell 28 million shares. First quarter earnings for MSCI only $0.18, down from $0.26 last year.
Graftech Intl (GTI) up $1.34. Oppenheimer upgraded it from "market perform" to "out perform."
And then Ternium SA (TX) down $4.01 on reports that Venezuela is going to nationalize Sidor, which is a steel company that Ternium has a big stake in.
NASDAQ's most active, Apple (AAPL) down $1.40.
Google (GOOG) losing $3.62. The company and Yahoo! are testing Google's (INAUDIBLE) tool which would give the two companies 90 percent of the search ad market. The combination could foil Microsoft's bid for Yahoo! Late today, Microsoft said any agreement between Google and Yahoo! would make the search market less competitive.
Research in Motion (RIMM) down $2.82.
Baidu.com (BIDU) dropped $7.14.
And then Dell (DELL) in there with a $0.31 loss.
Cisco Systems (CSCO) down $0.43 bucking the trend.
Intel Corp (INTC) a $0.34 gain. Microsoft (MSFT) itself up $0.14.
First Solar (FSLR) down $2.12.
And then Yahoo! (YHOO) with a $0.07 gain.
And finally shares in EP Medsystems (EPMD) rose $1.45 on news the company will be acquired by St. Jude Medical for cash and stock worth $3 a share.
