NBR Transcripts-April 22, 2008
Tuesday, April 22, 2008Oil Prices Flow Closer To A New Record High
SUSIE GHARIB: Oil prices are just a few cents away from hitting a new milestone: $120 a barrel. In New York trading today, May crude futures settled at $119.37 a barrel, up $1.89. So far this year, oil prices are up 24 percent. The price surge is being blamed on two factors: the continued drop in the dollar and worries about more supply disruptions in Nigeria, Africa's largest oil exporter.
Commodities Chaos Has Farmers Crying Foul
PAUL KANGAS: Oil isn't the only commodity seeing higher prices and a lot of volatility. In Washington, DC today, farmers asked regulators to trim the trading power of big investors pouring billions of dollars into the commodities markets. As Darren Gersh reports, the calls came at a special hearing on this year's record-setting market volatility.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: To many of the agricultural companies at today's Commodity Futures Trading Commission hearing, there is no question that investor speculation is to blame for ongoing distress in futures markets. As an example, cotton merchant Billy Dunavant says one day last month, cotton soared from just under $0.85 a pound to well over a dollar.
BILLY DUNAVANT, CHAIRMAN, DUNAVANT ENTERPRISES: That makes no sense. The market is broken. It is out of whack and somebody's got to step in and give some relief.
GERSH: But that relief does not seem likely to come quickly from the CFTC. Commission economist David Kass argued volatility was just as bad in the futures market for rice, where investors do not trade much, as it is in corn and other markets where investors have poured in billions of dollars.
DAVID KASS, SR. ECONOMIST, CFTC: So we find it hard to find a direct relationship between the amount of indexed trading by percent or otherwise versus some of the volatility and some of the prices rises we've seen of late. At least there is no simple analysis.
GERSH: The CFTC is now considering a plan to make it easier for investors to trade commodities. But representatives from agriculture industry groups like John Popp of the independent bakers urged the CFTC to reverse course and impose higher margin requirements and limit speculative trading.
JOHN POPP, CHAIRMAN, INDEPENDENT BAKERS ASSN: To increase those limits, I think, puts so much power and dominance in the hands of speculative traders.
GERSH: Investors have poured $175 billion into commodity funds in recent years. Money managers at today's hearing say they're simply trying to help protect their clients from inflation risk. Gresham Research's Douglas Hepworth argues surging demand in Asia, falling production in many parts of the world and the diversion of cropland to ethanol production are what's really driving volatile commodities markets.
DOUGLAS HEPWORTH, DIRECTOR OF RESEARCH, GRESHAM INVESTMENT MANAGEMENT: These are the sorts of things that drive up wheat prices. This is a physical market and if you think about it, the futures market is the thermometer. It's not the cause of the hot weather; it's just the thermometer.
GERSH: The Chicago Mercantile Exchange says it may have a way to ease the impact of market price swings. It asked regulators for permission to offer commodity swaps that should help farmers and others better manage their price risks. For their part, regulators say they would go slow on reform, fearing any sudden change might disrupt an already volatile market. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Stock Dividends Are Diminishing
PAUL KANGAS: Weakness in the housing sector is just one reason why corporate America is nervous about the economy. Companies are increasingly slashing their dividends to boost cash reserves. Erika Miller has more on what this means for individual investors.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: There's bad news for retirees and other investors who rely on stock dividends as a source of income. Corporate America has been drastically reducing, even eliminating, those payments. Sam Stovall of Standard & Poor's says there are plenty of reasons companies are nervous about their cash flow these days.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: The credit crunch, the housing crisis, the worry about the U.S. economy, worry about foreign economy, etcetera. And I think management is basically hoarding a lot of this cash to say let's hold on and wait for better times before we put this cash to work.
MILLER: In the first quarter of this year, 83 of the S&P 500 reduced or halted dividend payouts. That compares to 19 in the year ago period and 110 for all of 2007. Financial companies, including Wachovia and Washington Mutual, have been attracting attention for slashing dividends. But a greater percentage of cuts are coming from outside that sector. According to S&P, 6 percent of non-financial companies reduced their dividends in the first quarter. That compares to 3.5 percent for financials. Historically, investors have looked to utilities and telecom for reliable dividend income. But Brian Levitt at Oppenheimer funds sees better opportunities now.
BRIAN LEVITT, ECONOMIST, OPPENHEIMER FUNDS: Some of the best large cap growth U.S. stories are dividend payers and dividend growers. These are names like Anheuser Busch. These are names like Johnson & Johnson, a company like Microsoft.
MILLER: When a company lowers its dividend payment, it's not just bad for income-seeking investors. It often leads to a drop in the company's share price as well.
STOVALL: Not only would investors pull off from that share because they were looking for a higher yield, but also because in general, I think the projection of higher dividends was already built into those share prices, so you might end up taking a double hit.
MILLER: Given the worries about recession, experts predict corporate America will continue to cut dividends in the coming months, but they say companies feel more comfortable making the move when others are doing the same. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Interbrand CEO Andy Bateman Shares The Findings of His Company's Green Survey
PAUL KANGAS: As we mentioned, it's Earth Day and many consumers are using their green to go green. They're switching to eco-friendly versions of everyday items and that has companies vying for their dollars. But consumer perceptions about which companies are doing their part to be more environmentally conscious may surprise you. Brand management firm Interbrand recently conducted a survey asking consumers to name their top green company. Jeff Yastine talked with Interbrand CEO Andy Bateman today and began by asking him what company topped the list.
ANDY BATEMAN, CEO, INTERBRAND: Surprisingly enough the number one response was that nobody is being seen by customers, by consumers to be doing a fabulous effort.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: And then when we look at the other four of this top five, the others are Toyota, BP, the Body Shop and Honda. The Body Shop I guess I can understand. Where is it with Toyota, BP and Honda coming in on this?
BATEMAN: Well, I think the customers, you know through various information sources are finding out that Toyota, Honda and BP and companies like them are actually putting investment effort behind becoming more green. That mean not just marketing. It means their products and their services.
YASTINE: GE is another one that was in the top 10. Does it really matter whether there are real values behind all this? Does it matter as far as consumers perceiving a company as green? Does it flow to the bottom line?
BATEMAN: It absolutely does. I think the whole green agenda is such a massive issue for consumers. It's such a big effort that we need to take as a kind of a global community to solve it that customers are looking for the real responses. They're looking for the real actions the companies are taking and that does flow through to the bottom line. Why? Because we're buying increasingly green products and we'll pay more for them.
YASTINE: Now Wal-Mart of course has taken great pains in recent years to cut back on the amount of paper and cardboard that the stores generate. In some ways it seems like the green label just becomes convenient when in fact it's really just smart business sense for companies to look at ways to shrink costs.
BATEMAN: Yeah, but I think the reality is whatever it takes. If it's convenience on the part of a firm to reduce its carbon footprint, then customers are saying well, those are the right things to be doing. And if it reduces your costs and it makes good business sense, then it probably is a good thing to do.
YASTINE: Now Earth Day's something that's been celebrated in one way or another for the last 40 years or so. When did being green become something that corporate America needed to do? When did it become important?
BATEMAN: I think we've seen it, the green agenda rise over probably the last five years, but it's probably in the last two or three years that we've seen initiatives take hold by companies like GE, real action being taken and therefore a heightened sense of involvement by consumers.
YASTINE: Let me flip this around just a little bit. Is there a danger for a company to be thought of as being green in that they're sort of putting themselves up on a pedestal and then somebody finds out, you know, that they are leaking PCB's into a river some place, those sorts of things.
BATEMAN: Yes, very much so. I think the issue is customers are acting as activists in this whole green agenda. So you'd better be prepared, you'd better have a real commitment, not just a marketing effort against being green.
YASTINE: All right, Andy, I appreciate your time coming on the program.
BATEMAN: You're very welcome.
YASTINE: Our guest Andy Bateman, CEO of Interbrands.
"Of Mutual Interest"-Jason Zweig, Investing Columnist for "Money" Magazine and Author of "Your Money and Your Brain
PAUL KANGAS: In tonight's "Of Mutual Interest" segment, since it's Earth Day, we look at green funds. Joining us again, our mutual fund master Jason Zweig, investing columnist for "Money" magazine and author of "Your Money and Your Brain." Jason, welcome back to NBR.
JASON ZWEIG, AUTHOR, "YOUR MONEY AND YOUR BRAIN": Thanks, Paul, good to be with you.
KANGAS: Is it possible to buy into a fund that only invests in environmentally conscious companies?
ZWEIG: It is, Paul. There's an increasing number of exchange-traded funds or ETF's that invest almost exclusively in funds, in stocks that either clean up the environment or don't contribute to pollution and we'll talk about several.
KANGAS: All right. Well let's take a look at a few examples. First we have an ETF called WilderHill I believe it's pronounced, WilderHill clean energy. Tell us about that.
ZWEIG: Yes. That's -- the ticker symbol there is PBW and this is a fund that invests partly in companies that clean up the environment and then partly in companies that don't make it worse. So you get a mix of both. And it's been quite volatile. It was up, oh roughly 60 percent last year and down maybe 15 or 20 percent this year. So it's going to be a rough ride in funds like these.
KANGAS: What is the main influence to cause that volatility?
ZWEIG: Well, a lot of the alternative energy stocks, Paul, got very highly valued last year and went to extreme evaluations in the marketplace. And some of that air has come out in 2008.
KANGAS: There are other ETF's doing clean energy as well, correct.
ZWEIG: Yes. There's another called Power Shares Cleantech. The ticker symbol there is PZD and that one specializes primarily in companies that increase productivity either through cleaning up the environment or simplifying industrial processes. It too is pretty heavily concentrated in the major holdings in the funds so it's pretty volatile too.
KANGAS: There are two brand new exchange traded green funds, one less than a week old and one out just today. Tell us about those.
ZWEIG: Yes, we've got two solar funds, Paul.
KANGAS: There you go.
ZWEIG: I'm going to put my shades on. The first is called Claymore Global Solar and the ticker symbol is TAN and the second is market vector's solar energy fund that came out today for Earth Day. The ticker symbol KWT as in kilowatt, I guess. And what both of these funds do is specialize in stocks promoting or creating solar energy and making that technology.
KANGAS: You've made that very clear with those glasses on, thank you. Jason, would you invest in any of these funds?
ZWEIG: You know, Paul, I would be very hesitant for the simple reason that alternative energy stocks and solar stocks in particular were so hot last year, you know. The ticker symbol is TAN but you've got to be careful you don't get burned on these.
KANGAS: Oh boy.
ZWEIG: I'd wait until, I'd wait until people aren't quite so enthusiastic about them before I jumped in.
KANGAS: Jason, very interesting information. And thank you for giving your input today.
ZWEIG: Great, thank you, Paul. Glad to be with you.
KANGAS: My guest, Jason Zweig, investing columnist for "Money" magazine and author of "Your Money and Your Brain."
"Last Word"-Sunchips Go Green
SUSIE GHARIB: And finally tonight, Sunchips, Frito Lay's popular line of multi-grain snacks, is living up to its name. Starting today, the chips are now made using solar energy; 145,000 bags of Sunchips will be produced every day at its plant in Modesto, California. The facility uses solar mirrors that provide more than 75 percent of the energy needed to make Sunchips. The football field-size farm of mirrors was switched on today, for Earth Day. So Paul I guess you could say Sunchips are chipping away at greenhouse gas emissions.
KANGAS: And you could also say that there are good reflection on the product.
GHARIB: And you could also say they taste really good.
KANGAS: There's a ray of light there.
Paul Kangas' Stocks in the News
PAUL KANGAS: Sellers took the upper hand on Wall Street early today as that surge in oil and guarded outlooks on earnings from Texas Instruments and Dupont undermined stock prices. In a steady decline, the Dow fell to a 160 point loss by 1 p.m. with the NASDAQ Composite off 38 points. A huge loss by United Airlines sent its stock and the air sector tumbling. But the blue chips found some buying support late in the afternoon which helped narrow the market's closing losses. The Dow Industrial Average still ended down 104.79 points at 12,720.23. The NASDAQ lost 31.10 to 2376.94. Standard & Poor's 500 fell 12.23 points, ending at 1375.94. In the bond market, the 10-year note rose 8/32 to 98 12/32, putting the yield at 3.70 percent.
New York exchange volume leader on 28.6 million shares, CIT Group (CIT) losing $2, almost $2 a share, big percentage drop. The company's in the midst of an offering of $1 billion of common stock, namely 91 million shares priced at $11 and $500 million in preferred stock, namely 10 million shares priced at $50, a little earnings dilution there. National City (NCC) edging up $0.23 after dropping $2.30 yesterday on a big first quarter loss, but today Deutsche Bank upgraded it from "sell to a "buy."
Pfizer (PFE) in there with a $0.41 loss.
Then a hot new issue, Intrepid Potash (IPI), this is a fertilize (sic) producer and it went public today, 30 million shares offered at $32. It opened at $46.25, got as high as $51.19, backed off a little but still 57 1/2 percent gain on the first day of trading.
Citigroup (C) number five in volume was a $0.09 gainer.
And then moving along in the active list, Ford Motor Co (F) an $0.08 drop.
$0.13 loss in General Electric (GE).
SprintNextel (S) $0.35 gain.
Bank of America (BAC) a $0.61.
And Co vale do Rio (RIO) a $0.32 gain, tenth in volume.
AT&T (T) edged up $0.22. First quarter earnings were up 22 percent, $0.57 versus $0.45 a year ago.
Dupont (DD) didn't fare so well, down $2.09, although its first quarter earnings were up 26 percent, $1.31 versus $1.01 last year and $0.03 above the Street estimate, but the company had a cautious outlook and that's what hurt the stock apparently.
McDonald's (MCD) another Dow stock, down $0.32 despite higher first quarter earnings, $0.81 versus $0.62 last year, $0.11 above the Street estimate, but its U.S. same store sales were down (INAUDIBLE) in March. Investor didn't like that.
UnitedHealth Group (UNH) losing $3.66. Higher first quarter earnings, $0.78 versus $0.66 a year ago, but $0.02 below the Street estimate and the company cut its full year guidance by 10 percent. The whole health sector was down on that news.
We see Aetna (AET), Cigna (CI), Wellpoint (WLP) all substantial on the downside.
Medco Health Solutions (MHS) however, up $2.69. The company received an extension from United Health Group to provide pharmacy benefit services through the year 2012 and Citigroup upgraded Medco to a "buy" recommendation.
DST Systems (DST), this is a financial services company, plunging $10.33. First quarter earnings, $0.86, that was just a penny below last year's earnings, but $0.06 below the Street estimate and Merrill Lynch downgraded the stock from "buy" to just a "neutral" rating.
Apple (AAPL) topped the active list on NASDAQ, losing nearly $8. American Technology Research downgraded it from "buy" to "neutral" and second quarter earnings are due out tomorrow I believe.
Google (GOOG) up $17.21, doing well.
Research in Motion (RIMM) a $4.87 loss.
Microsoft (MSFT) down $0.17.
Baidu.com (BIDU) dropped $7.41.
First Solar (FSLR) up $6.18.
Intel (INTC) $0.47 drop.
Cisco Systems (CSCO) edged up $0.03.
And there you see Yahoo! (YHOO) closing down a penny. As you heard, earnings were $0.02 above Street estimate, but after hours trading I saw the stock dropped to $28.32.
Then tenth in NASDAQ volume, Qualcomm (QCOM) with a loss of $1.07.
UAL Corp (UAUA), the big casualty of the day, losing almost 37 percent of its value with that loss of $7.88. The company reported a first quarter loss humongous, $4.45 a share in the red. The Street was looking for a loss of only $3.41 and the company said its fuel expense rose $618 million in that period over a year ago. Let's see how some of the airlines fared on that news and no surprise to see them all down and down substantially percentage wise.
Dryships (DRYS) finally surged $8.38 on news the company has acquired a controlling stake in Norway-based Ocean Rig ASA for $300 million and will launch a tender offer for the rest of the company in the weeks ahead.
