NBR Transcripts-April 18, 2008
Friday, April 18, 2008Citigroup & Caterpillar Calm The Volatile Markets
SUSIE GHARIB: More big losses today from Citigroup. The banking giant is writing off another $14 billion related to bad mortgages and leveraged loans. Citi also plans to cut 9,000 jobs. The news came as Citi reported a first quarter loss of $1.02 a share. That was $0.07 worse than analysts had expected. But despite the massive red ink, Citi shares rallied 4.5 percent and lifted the overall market. The Dow jumped 228 points and the NASDAQ rose 61. Scott Gurvey has more on why Citi's bad news was good news to Wall Street.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Analysts called the Citigroup results a mixed bag. For the second quarter running, the company posted a huge loss and took big write-downs. But Citi's stock rallied despite the news. Michael Levine of Oppenheimer says traders were relieved because the write-downs were much lower than expected, even though earnings per share were lower.
MICHAEL LEVINE, PORTFOLIO MANAGER, OPPENHEIMER FUNDS: I don't think anyone was looking at this quarter as far as earnings per share, the earnings power of the company. I don't think anyone is really looking at the next quarter or two. I think the big question is what can Citigroup earn in 2009? They're selling some assets. They're shrinking the balance sheet, I think the key thing is what is the earnings power of the company.
GURVEY: Citi also kept its dividend intact when many were expecting a cut. The big write-offs were for CDOs, auction rate securities and other large risk pools. Getting those off the books helps analysts forecast what's ahead for Citi's finances. But Jason Polun of T. Rowe Price says that does not mean Citi is out of the woods.
JASON POLUN, PORTFOLIO MANAGER, T. ROWE PRICE: We're actually getting more visibility into some of these legacy risk assets where they're taking these big charges. So incrementally after this quarter, we feel better about that. But in terms of the macro economic outlook, there's actually somewhat less visibility in terms of just old fashioned credit risk.
GURVEY: Those are the risks all financial institutions face during a slowdown. It is difficult to forecast the impact as credit starved consumers cut back on spending in light of falling home values and increased costs for necessities like food and energy. Analysts expect further write-downs for credit card and home equity debt for Citi and other financial institutions. But in terms of the stock, some observers think Citi and other financials may be close to a bottom. Michael Levine of Oppenheimer says Citi might be a buy for an investor with a long-term outlook.
LEVINE: I think if you look out 12 to 24 months, Citi still has a great global franchise and I think, you actually saw it today, the net interest margin has begun to expand with the interest rate cuts that we've seen so I think if you have a long enough outlook, you can certainly begin to buy today.
GURVEY: Citigroup holds its annual investors' day on May 9. It is the first since CEO Vikram Pandit took command. He is expected to outline his long run vision for the company at that meeting. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
KANGAS: A very different quarter for Caterpillar, first quarter profits rose 13 percent on a huge jump in overseas sales. The world's largest maker of construction and mining equipment reported a quarterly profit of $922 million. That's $1.45 a share, up from $1.23 in the year ago period. Total sales increased 18 percent to nearly $12 billion. Its overseas business grew by 30 percent while Cat's North American sales grew by just 4 percent.
Economic Choices 2008 - Housing and Pennsylvania
PAUL KANGAS: In Washington, the rule is all politics is local. In real estate, the rule is location, location, location. Which got us wondering: what's the political reaction to a nationwide housing bailout in a location where the housing market never boomed? As Darren Gersh reports, that's an economic choice facing voters in Pittsburgh as they head to the polls Tuesday for Pennsylvania's presidential primary.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Compared to the wreckage that is the housing market in much of the country, the Pittsburgh area looks pretty good. For many, many years, housing here has been slow, but steady. This market was just never exciting enough to interest sub- prime lenders. And builder Dion McMullen says the Pittsburgh area operates in a conservative business climate.
DION MCMULLEN, PRESIDENT, LONDONBURY HOMES: We don't have a whole lot of 100 percent financing around here. We don't have a whole lot of inflation to our real estate, so therefore we don't have a lot of deflation when the economy is down.
GERSH: Out of the nation's 100 largest cities, Pittsburgh ranks 86th in the number of foreclosures. There was never a housing boom here, so there's never been a housing bust. All of which makes the idea of bailing out homeowners in other parts of the country a tough sell. When contractor Ed O'Donnell hears about election year plans to prop up housing, he thinks of better ways of spending his money.
ED O'DONNELL, PARTNER, O'DONNELL/DEAN EXTERIORS: I'd like to see our taxes going for something a little bit more forward, you know, maybe health care or something like that.
GERSH: There may be homeowners who deserve help, but first O'Donnell says he would like to see lenders step up to their responsibility.
O'DONNELL: Extend their loan maybe. I'm not against that. But as far as more handouts, I mean how many different ways can we keep handing money out?
GERSH: It's hard to find anyone here who was making money flipping homes. And the people we talked to in Pittsburgh just have a hard time understanding why the country as a whole needs to help the states where foreclosures hit hardest.
DION: Is this a national problem? Or is this a five to eight-state problem where the booms and the heavy inflation took place?
GERSH: It's a good question, which McMullen answers this way. He thinks stress in other markets has led some appraisers here to tighten up on valuations, which means some kind of bailout probably makes sense.
DION: It's upsetting in a way, but I can understand how nationally we do have to treat this because anything that affects the national economy will affect everybody locally at a certain level.
GERSH: Christopher Briem studies the Pittsburgh regional economy. He says the area is now less insulated, its fate increasingly tied to national trends which is why what happens to homes in San Bernadino and Miami matters here.
CHRISTOPHER BRIEM, REGIONAL ECONOMIST, UNIVERSITY OF PITTSBURGH: I believe people have heard the cry for help and are willing to support something. I don't think we've seen the cost side of it yet. Right now you are arguing over how much benefit to provide. We don't see costs until later on.
GERSH: Along with a better idea of the costs, McMullen would like something else, a real examination of the factors that led some lenders to pump up the housing bubble.
DION: Somebody's got to explain the reasoning behind why that happened and something's got to be done so it doesn't happen again in the next good market.
GERSH: That's a major concern for voters in a stable market like Pittsburgh, which isn't expecting to take part in the next housing bubble or bust. Darren Gersh, NIGHTLY BUSINESS REPORT, Pittsburgh.
"Market Monitor"-Mark Leibovit, Chief Market Strategist for Vrtrader.com
PAUL KANGAS: My guest market monitor this week is Mark Leibovit, chief market strategist for vrtrader.com. Welcome back to NBR, Mark.
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Glad to be here as always, Paul.
KANGAS: One of Wall Street's old axiom is that a market that ignores bad news is one destined to go higher. We had a lot of bad news today and yet the Dow rose 228 points. What is going on here? Are we going higher still?
LEIBOVIT: I think we are, Paul. In fact our forecast model pinpointed mid-April as a low point here and it looks like we're going to carry on here for a few weeks. The big resistant to the S&P is that 1388 to 1396 range, Dow Industrials around 13,000, 13,100. If we can go to those levels, I think we can off and run a little bit more here in the weeks ahead. I want to take it a week at a time. I don't want to start predicting a new bull market but our model says up here for next several weeks. So I'm giving it the benefit of the doubt.
KANGAS: On your last visit with us in early November, you gave our viewers four recommendations and let's see how they fared since then. Let's have the first two up on the boards, the Diamonds (DIA) of course down a little bit, 1.9 percent and then the Spiders (SPY) down 4.6. Are you still with those or have you been in and out several times?
LEIBOVIT: I have been out and been back in. After we recommended them on November 9th, Dow rallied another 7, 800 points into the December 11. So we did catch that move. But obviously the market deteriorated and we did get out of them. But now we are back in because we think we're getting a little bit of a rally here.
KANGAS: So you like those two.
LEIBOVIT: Still traders' market. We are long here.
KANGAS: OK. You had two other recommendations then. Let's have a look at those. The PowerShares (QQQQ) down 6.6 percent and the real casualty, Fronteer Development Group (FRG), a uranium stock down almost 62 percent.
LEIBOVIT: A real embarrassment with uraniums. We caught a big move in those in the last couple years and they topped out on us late last year. But I added, re-added FRG to our list this week to take advantage of this 4, $5 price. I still think uranium is going to be a big play and I want to be in there.
KANGAS: OK. Now you've provided us with a chart showing your annual forecast for the dollar, this year. Let's have a look. Looks like it's got a little bit more to go on the upside and then a very weak closing months of the year, right.
LEIBOVIT: The dollar is an important ingredient for us because it is tied so much to the commodities and into gold and silver. If you look at the charts there a big spike there, late summer. I think that is what you got to look for in terms of the impact on gold.
KANGAS: OK, let's have a look at the gold forecast chart. And there we see -- it coming on strong toward the end of the year.
LEIBOVIT: But it is also has a little weak point there, late summer, tied to that theoretical rally in the dollar. I'm not convinced right here, a lot of Wall Street is convinced that this is the moment the dollar is going to take off. I don't think - I think it is coming in a couple of months so I still think you could be short the dollar and long the metals here. But the key number of the dollar index is that 37 level (INAUDIBLE) takes that out.
KANGAS: How about some new recommendations for our viewers?
LEIBOVIT: OK. We got three related to the precious metals. First one would be my old favorite GLD which the surrogate for gold. I have targets in gold up to $1100, $1200 an ounce and ultimately as I said in previous broadcasts $3,000 an ounce. So I want to be in there.
KANGAS: OK. That is one way to track it and literally. All right, let's have a number two recommendation.
LEIBOVIT: OK, my next two are silver related. Silver a big catch-up, silver should be $45 an ounce as far as I'm concerned. Now it's trading.
KANGAS: This is a composite quote, composite quote here, $176.71. And that was down $3.39.
LEIBOVIT: And that relates to silver around $17.60. Anyway silver is headed way up. I'm projecting SLV into the mid 20s now and ultimately into the mid 40s, so you want to be long SLV.
KANGAS: That trades on the American Exchange.
LEIBOVIT: Right and GLB trades on New York, correct.
KANGAS: We have time for one more.
LEIBOVIT: One more, PAAS, that's a silver play, Pan American silver. Silver is going to go as I think you want to own this, is a blue chip in silver. I am projecting at least the low 50s, probably a $60, $70 stock, particularly as silver gets going.
KANGAS: You say silver at $50 an ounce?
LEIBOVIT: Absolutely, maybe a hundred. But let's take 50 for now.
KANGAS: OK. Do you personally own any of the securities mentioned or have other disclosures to make?
LEIBOVIT: Yes, I trade all these back and forth all the time. Silver, gold, Pan America, I'm in and out all the time for vrtrader.com.
KANGAS: Very good. I'm afraid we have to leave it there Mark, but thanks for being with us once again. It is always a pleasure.
LEIBOVIT: Thanks again, Paul.
KANGAS: My guest Mark Leibovit of vrtrader.com.
"Last Word"-Senior Spelling Bee
SUSIE GHARIB: And finally tonight, spelling bees aren't just for elementary school students. AARP, the magazine, is sponsoring a spelling bee for competitors ages 50 and up. About 250 spellers are expected to compete at the June 14 event in Cheyenne, Wyoming. The contest begins with a written competition which should narrow the field to the top 15. They'll go on to compete in the oral spelling rounds. And Paul, the winner will receive $1,000 in prizes and a trip to New York City to appear on television.
KANGAS: I guess you could call that winner spellbound and TGIF, incidentally. That is what I'm spelling today.
GHARIB: That a good thing to spell on a Friday.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened sharply higher as investors put those record oil prices on the back burner and cheered Citigroup's smaller than expected write-downs. Caterpillar's strong earnings also bolstered bullish conviction about corporate earnings still to come. By mid-day the Dow had surged 265 points and the NASDAQ was up 68. Giving the rally staying power right onto the final bell were plunging gold futures and a firm U.S. dollar. The Dow Industrial Average closed up 228.87 points at 12,849.36. This week, it fell only once and had a net advance of 523.94 points. The NASDAQ Composite gained 61.14 to 2402.97 today. It fell twice and rose three times this week, had a net gain of 112.73 points. Standard & Poor's 500 Index gained 24.77, ending at 1390.33 today and it rose 57 1/2 points exactly for the week overall. In the bond market, the 10-year note rose 3/32 to 98 8/32, putting the yield at 3.71 percent.
Big board volume leader on 33.4 million shares was Citigroup (C) up $1.08. You heard, they had a big loss in the first quarter, but was kind of a relief rally that sent that stock higher. General Electric (GE) $0.67 gain.
Then came Pfizer (PFE) with a $0.07 advance.
Ford Motor Co (F) rising $0.19.
Bank of America (BAC) up $1.09. Its first quarter earnings are due out next Monday.
JPMorgan Chase (JPM) rose $0.64.
Wells Fargo (WFC) $0.69 advance.
Visa (V) up $1.96. That stock went public at $44 not too long ago, way up. Washington Mutual (WM) $0.23 gain.
And then tenth in volume was Wachovia (WS) with an advance of $1.39 a share.
AT&T (T) down $0.06 on news the company plans to cut its workforce by 1 1/2 percent. That's 4600 jobs and they'll mostly be at the management level.
Honeywell Intl (HON), which is a Dow stock, up $3.59. First quarter earnings, $0.85, $0.03 above the Street estimate, well above $0.66 last year. Revenues up 11 percent and the company boosted its 2008 earnings guidance to - from $3.70 to about $3.80 a share or maybe a little better than that.
Cummins (CM) up $5.89. Standard & Poor's reports that by those strong earnings from Caterpillar and Honeywell, it should bode well for the results from Cummins as well.
Schlumberger Ltd (SLB), the oil service field company, up $6.55. First quarter earnings came in at $1.09, up from $0.96 last year, revenues up 15 percent. Standard & Poor's repeated a "buy" recommendation on the stock.
Amdocs Ltd (DOX) up $4.11. Second quarter earnings rose to $0.52 from $0.46 a year ago and the company sees third quarter arose $0.60, nicely higher. Citigroup repeated a "buy" on that stock.
Manpower (MAN) had a good day, up $6.89. First quarter earnings $0.94, $0.12 above the Street consensus and up from $0.69 last year, revenues up 19 percent.
Mf Global Ltd (MF) up $2.87, big percentage gain. The company sees a fourth quarter loss of $65 million, but also is forecasting record fourth quarter volume. That's what got the stock up apparently.
Amcol Intl (ACO), which is involved in mineral products, down $3.17. First quarter earnings fell to $0.28, from $0.35 a year ago. The company blamed higher energy and research and development costs.
The golds were weak today, Barrick Gold (ABX) off $1.40. New York June gold contracts closed down $27.70 an ounce at $915.20 an ounce, big drop.
Mohawk Industries (MHK), the carpet maker, up $4.18. First quarter earnings $0.95, down from $1.32 last year, but a nickel above the Street estimate.
Topping the active list on NASDAQ, Google (GOOG) almost a 90-point gain, traded as high as $547.70 today on those good earnings out after the close last night.
Apple (AAPL) up $6.55. First quarter results from Apple due out next Wednesday.
Research in Motion (RIMM) up $4.59.
baidu.com (BIDU) up $31.25 following Google.
Microsoft (MSFT) $0.78 gain there.
Intel (INTC) $0.44 advance.
Intuitive Surgical (ISRG) plunging $60 a share. First quarter earnings $1.12 or $0.14 better than the Street expected, but the company's revenue growth target is still shy of Wall Street estimates.
Cisco Systems (CSCO) $0.62 gain.
amazon.com (AMZN) up $6.06.
Then Qualcomm (QCOM) $0.48 advance there.
PMC Sierra (PMCS) up $1.14. First quarter earnings, $0.11, up from $0.09 last year, $0.06 above the Street estimate.
And then we see GFI Group (GFIG), which trades derivatives, down $3.72. A dozen of its employees are leaving to go to a competitor.
Those are the stocks in the news tonight.
