NBR Transcripts-May 2, 2008
Friday, May 02, 2008The Latest Labor Report Works Up New Optimism
SUZANNE PRATT: The U.S. labor market weakened further in April, but the latest report shows it was not as weak as many on Wall Street feared. Non-farm payrolls declined by 20,000 jobs during the month, the fourth straight monthly drop. In another surprising development, the nation's unemployment rate fell to 5 percent, from 5.1 percent. As Erika Miller reports, some economists are not quite sure what to make of the April data.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The economy lost jobs last month, but Wall Street took comfort in the fact that the damage wasn't worse. Many economists had predicted four times the number of payroll losses in April. JPMorgan's Bruce Kasman was also encouraged by where the cuts occurred.
BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN: We were surprised to some degree by the report. It showed a less significant cutback in hiring, particularly as it showed the hiring continuing to be cut in a very concentrated way in housing and consumer-related industries, showed less spillover to other industries than we had been expecting.
MILLER: There was also an unexpected drop in the unemployment rate, something economist Kathleen Stephansen finds puzzling.
KATHLEEN STEPHANSEN, ECONOMIST, CREDIT SUISSE: I'm not entirely sure why that happened, whether it is statistical noise. I know that even the Labor Department says that there is always quite a bit of error. So it could very well be that this will be going back up the following month.
MILLER: Others think the drop in the unemployment rate could be the result of more people working part time because they couldn't find full- time positions. Inflation hawks were pleased to see that average hourly earnings rose by just a penny, the smallest gain in roughly two years. But economists say stalling wage growth is actually the most troubling aspect of today's report.
STEPHANSEN: What I'm worried about is that going forward, the consumer is not as healthy as he or she had been in terms of spending power over the past few years and that will be seen in terms of consumption growth.
MILLER: Adding to those worries about a big slowdown in consumer spending are expectations that the labor market will weaken in the months ahead.
KASMAN: We are looking for job cuts on the order of 50,000 to 100,000 per month, basically between now and the end of the year. So, we continue to see job cuts being a significant part of the economic landscape.
MILLER: Today's data complicates the debate over whether the nation is at the brink of recession or already in one. But economists say today's report is raising hopes that things might not get much worse. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
The Federal Reserve Teams Up With Europe's Central Bankers
PAUL KANGAS: The Federal Reserve today joined forces with central bankers in Europe in another assault on the credit crunch. The Fed nearly doubled the number of dollars it makes available to banks in Europe, a move designed to ease stress in a key credit market. As Darren Gersh reports, the Fed also upped the cash it's making available to U.S. banks by $50 billion. DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: With another massive injection of cash for banks to lend to each other, analysts say the Federal Reserve is buying more time. Time, Global Insight's Brian Bethune says, that banks can use to repair their balance sheets.
BRIAN BETHUNE, CHIEF U.S. FINANCIAL ECONOMIST, GLOBAL INSIGHT: We're muddling through this sub-prime write-off problem. In some sense you can say it's not elegant, it doesn't look particularly clean, but we are muddling through and getting the job done. GERSH: By adding another $24 billion in funds available to European banks, the Fed is targeting a specific problem in lending between big banks. Interest rates on the LIBOR, short for London inter-bank offered rate, remain stubbornly high. Economist Josh Bivens says that is bad sign, because LIBOR sets the interest rate banks charge each other.
JOSH BIVENS, ECONOMIST, ECONOMIC POLICY INSTITUTE: It's essentially a measure of how much Citibank trusts Wells Fargo trusts Sun Trust. So as it starts to spread away from other very safe interest rates, it's a very good indicator that people are getting worried about the credit worthiness of banks.
GERSH: And with some reason. Global Insight estimates sub-prime and other write-offs are running around $200 billion with another $100 to $200 billion more to come in the next six to 12 months.
BETHUNE: It certainly looks like from our perspective that more write- downs are going to have to be taken and that uncertainty about who, what, when and where these write downs will take place creates this pressure in the markets and that hasn't gone away.
GERSH: By offering more cash directly to banks, analysts say the Fed may trim back the LIBOR interest rate. That's important for consumers because Bivens says, LIBOR is often used as a benchmark to help set rates for auto loans, credit cards and adjustable mortgages.
BIVENS: It's not like anyone's credit card payment is going to be reduced by 50 percent because of what they did. The question is what happens if they did not do this? And in that case you could have credit markets completely drying up. The rates consumers pay could skyrocket. I mean, essentially the Fed has taken out an insurance policy.
GERSH: The Fed also announced it will begin accepting as collateral securities that are backed by student loans. That could bring more cash into a market where money has been hard to find and for students who need a loan, that could pay next fall's tuition. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
China's Gaming Industry Has Evolved Into A High Roller
SUZANNE PRATT: The U.S. gaming industry is slowing down as it deals with the sagging economy. But casinos in China are on a winning streak, attracting 27 million visitors last year alone. China's Macau has become the world's number one gaming destination. As Nick Mackie reports, the really big winners are casino developers like the Sands Macau. NICK MACKIE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Eight hundred gambling tables, 6,000 slot machines, half a million square feet of gaming. This is the world's biggest casino, the Las Vegas Sands Venetian Macau, which opened on August 28, 2007 and has now welcomed over 10 million visitors. The Venetian complex, with 3,000 hotel rooms and an indoor St. Marks Square, complete with gondolas also boasts a million square feet of meeting and exhibition space, a capacity for 50,000 people and 5,000 booths. A condition for developing is that casino operators must invest in convention space, despite the fact that these may not realize profits. SHELDON ADELSON, CHAIRMAN & CEO, LAS VEGAS SANDS CORPORATION: The benefit of a convention center is to bring economic development to the community so people come in and they spend a lot of money to be there, so it brings in new incremental money to the city. However, something has to subsidize the losses of the convention center and that is the casino.
MACKIE: Gaming today also accounts for 70 percent of the government's total tax revenues, but Macau's strategy is to attract more conventioneers who tend to stay longer than Chinese day trippers and so boost more sectors of the economy. Opening in phases over the next seven years facing the Venetian is the Cotai (ph) strip, which will double Macau's number of hotel rooms, currently 16,000, add a further million square feet of casinos plus more huge halls for conventions. Macau may lack the maturity of more established destinations, but it's clearly on a roll, undergoing a major transformation from a once sleepy gaming backwater to a high end integrated resort, with top brand shopping, conference and trade fair facilities and class act entertainment. Gambling of course, is the big draw. And Macau is banking on the throw of the dice to boost its share of the high rolling business traveler market. Unlike Las Vegas however, Macau has seasoned competition for the business buck just a one hour ferry ride away. Hong Kong is an international trade hub with a truly international airport. And though some corporate events will inevitably try Macau, the former British colony could profit as it's so close to the gaming tables.
MIKE ROWSE, DIRECTOR GENERAL, INVEST HONG KONG: To some extent Macau adds to the attraction of Hong Kong. The people are going to be putting events, they're going to be putting exhibitions and conventions in Hong Kong in part because Macau is so close. So, they'll still come here to do business. Macau is not really a business city.
MACKIE: Well, not if you exclude gambling. The business of gambling is why companies like Sands, Wynn and MGM Mirage are here and anticipating expansion elsewhere in the east. Singapore will have its own $3 billion Sands development in 2009. While Japan and Thailand are expected to overhaul their gambling laws to allow foreign operators and the big U.S. names are waiting to pounce. Nick Mackie, NIGHTLY BUSINESS REPORT, Macau.
"Market Monitor"-Julius Maldutis, President & Chief Airline Analyst for Aviation Dynamics
PAUL KANGAS: My guest "Market Monitor" this week is Julius Maldutis, president and chief airline analyst for Aviation Dynamics. Welcome back to NIGHTLY BUSINESS REPORT Julius.
JULIUS MALDUTIS, PRES. & CHIEF AIRLINE ANALYST, AVIATION DYNAMICS: Thank you, Paul.
KANGAS: On your last visit with us in early July of 2007, you were very bullish on the airline stocks, because you saw a big consolidation movement underway. But the stocks, as you well know, have been absolutely pummeled. Explain what's been going on.
MALDUTIS: Very simply, what happened was that airline fuel prices, which were about $74 a barrel went up to $120 a barrel. I had hoped that history would repeat itself what happened in the closing months of 2006 when oil prices dropped by 50 percent and stocks went up by 46 percent.
KANGAS: Uh-huh.
MALDUTIS: Unfortunately, history did not repeat itself.
KANGAS: Well, what do you believe is likely to happen for oil prices for the rest of this year?
MALDUTIS: Well, I think there are chances that if the U.S. dollar increases in value, you will see oil prices come down. We saw that sensitivity this week.
KANGAS: What level do prices have to fall in order for the airline group to really come alive on the upside?
MALDUTIS: Well, I think they got to get back down to about $80 or $70 a barrel. Otherwise, we're going to see lots of more bankruptcies. We already have eight airlines that went bankrupt in the first four months of this year.
KANGAS: Oh my goodness. That's right. Which of the airlines are most likely -- in your opinion -- to successfully merge?
MALDUTIS: I think that the Delta/Northwest merger is going to sail through, because it makes a great deal of sense. The, merger between United and U.S. Air will still remain to be seen.
KANGAS: How long will this take?
MALDUTIS: Well, I think by the end of this year, the Delta/Northwest merger will be approved.
KANGAS: OK.
MALDUTIS: But we'll have to wait and see about the United one.
KANGAS: On your last visit in July, you liked the number of airline stocks. Let's see how badly they've been beaten up and it's pretty bad. US Airways (LCC), UAL (UAUA) down huge percentages. Then there were five in total other than Frontier which went into bankruptcy. Northwest (NWA) and Delta (DAL) also huge losses. I hope you protected yourself with some stop-loss orders on some of these issues.
MALDUTIS: Well I took a few hits on that.
KANGAS: Jetblue (JBLU) down -- hard to believe -- almost 60 percent. Would you buy any of these depressed airline stocks right now, Julius?
MALDUTIS: I still think that the Delta/Northwest merger will work. I would buy those two. And also Jetblue has a very unique relationship with Lufthansa. So those would be the only three that I would own. But it all again depends on what happens to oil prices.
KANGAS: That's right. It's completely dependent upon that. What percentage now do oil prices account for the airline's expenses?
MALDUTIS: Anywhere from about 60 percent more than labor to about 44 percent, so oil prices, fuel prices are more than labor costs.
KANGAS: Did you ever think that you'd see fuel costs exceeding labor costs by this much?
MALDUTIS: No. I don't think I did and I think very few airline executives thought the same.
KANGAS: Ok. Now, let's have a look at the stocks that you still like. We want to see the chart and the trading symbols. Delta, you like DAL, on the big board. It's only around $8.50 a share. You like it here.
MALDUTIS: Yes, I do as well as Northwest, because I think that merger will be successful.
KANGAS: Ok. Let's have a look at Northwest chart. There it is at $9.83 and Jetblue you like. Let's have a quick look at that chart. OK. They've all been really hard hit. So you like them here? You personally own any of the stocks you've mentioned or have other disclosures to make, Julius?
MALDUTIS: I own those three, Delta, Northwest and Jetblue.
KANGAS: OK, I wish you better luck in these next periods before you come back. Maybe that group will come along.
MALDUTIS: It all depends on oil.
KANGAS: I got you. Julius, thanks for sharing your views with us.
MALDUTIS: Thank you.
"Last Word"-"Tea and Sub-prime Sympathy"
KANGAS: My guest Julius Maldutis, president of Aviation Dynamics.
SUZANNE PRATT: And finally tonight, it's dubbed "Tea and Sub-prime Sympathy." Tea with Alan Greenspan and his wife TV correspondent Andrea Mitchell is being auctioned for charity online. Right now, the going price is $13,500. The proceeds benefit the Robert F. Kennedy memorial, a human rights group. Last year, "Tea with the Greenspans" sold for $45.000. If it isn't your cup of tea, you can buy a walk-on role in Johnny Depp's next movie. The current bid is $32,000. Or if you're into sports like you Paul, you can purchase a tennis lesson from Andre Agassi, super Bowl tickets or a trip to the Indianapolis 500.
KANGAS: Being a lefty at golf, how about a lesson from Phil Mickelson?
PRATT: I knew you're going to be looking for one in golf. I knew it.
KANGAS: Absolutely.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened higher on that smaller than expected job loss as well as on the Fed's credit moves. After an hour of trading, the Dow was up 81 points while the NASDAQ gained only four points. That laggard tech sector acted as a drag on the blue chips over the mid-session hours, as did a rebound in oil futures. At 2:30 the Dow posted a 15 point loss and the NASDAQ off 18, but then some late buying led to a mixed close. The Dow Industrial Average ended with a gain of 48.20 at 13,058.20. This week, it fell three times, rose twice, had a net gain of 166.34 points. The NASDAQ Composite lost 3.72, ending at 2476.99 today. It fell twice and rose three times for the week, advancing 54.06 points overall. Standard & Poor's 500 Index gained 4.56 to 1413.90 today and it rose 16.06 points for the week. Over in the bond market, the 10-year note fell 23/32 to 97 3/32, putting the yield at 3.86 percent.
Big board volume leader trading 17 million shares, Ford Motor Co (F) losing $0.21.
Followed by Citigroup (C) up $0.40. Then came Pfizer (PFE) with a $0.17 gain. The company's in a tentative settlement with some of the plaintiff groups who allege Pfizer's painkiller Celebrex and Bextra (ph) caused heart attacks and strokes. The company is willing to pay $500 million overall to resolve the litigation.
National City (NCC) up $0.17. The company issued 126.2 million common shares today, priced at $5 each. Bank of America (BAC) edged up $0.40 a share.
General Electric (GE) $0.22 gain.
SprintNextel (S) dropped $0.13.
JPMorgan Chase (JPM) a $0.59 loss.
Wachovia (WS) edged $0.04 higher.
Countrywide Financial (CFC) down $0.07. Standard & Poor's today cut the company's credit ratings to junk. Chevron (CVX) moved up $0.38. First quarter earnings, 9.6 percent, higher than last year at $2.48. That's $0.07 above the Street estimate and of course, yesterday as we reported, Chevron boosted its quarterly dividend 12 percent to $0.65 a share now.
Marathon Oil (MRO) up $2.89. JPMorgan upgraded it from "neutral" to "over weight."
And then Triumph Group (TGI), which is in the aircraft components business, fourth quarter earnings $1.26, $0.22 higher than the Street was expecting and well above $0.93 a year ago and the company says it has a very strong backlog.
Calgon Carbon (CCC) up $1.42. First quarter earnings, $0.21 and that does include an $0.11 per one-time gain and that's up from a nickel a year ago. Revenues were up 8.8 percent in the period.
And then Barnes Group (B) which makes aerospace parts, first quarter earnings nicely higher, $0.60 versus $0.50 last year and it is bullish on the outlook.
Dolby Labs (DLB), the audio products maker, up $4.46. Second quarter earnings moved up to $0.49 from $0.34 a year ago, a 34 percent rise in sales. Those earnings $0.07 better than the Street expected.
Chiquita Brands (CQB), the banana company, up $1.61. First quarter earnings of $0.72 versus a loss of $0.08 last year.
And then a recent new issue in December, Netsuite (N) today down $3.50. The company had a first quarter loss of $0.03, nowhere near as bad as the $1.24 loss a year ago, but a penny worse than expected and down went the stock.
Federal Signal (FSS) off $1.28. First quarter earnings fell to $0.09 from $0.15 a year ago. Standard & Poor's downgraded it from "hold" to "sell."
And then Armstrong World Industries (AW) down $2.43. First quarter earnings dropped to $0.33 from $0.55 a year ago. Revenues fell 4 percent.
Apple (AAPL) topped NASDAQ's most active list, gaining $0.94.
But Google (GOOG) down $11.79 after a big gain yesterday.
Research in Motion (RIMM) up nearly $4.
And then Yahoo! (YHOO) $1.86 gainer there and you heard the story going on between Microsoft and Yahoo!
$0.16 loss in Microsoft (MSFT).
Cisco Systems (CSCO) an $0.08 gainer there.
Baidu.com (BIDU) lost $8.50 a share.
Intel (INTC) $0.29 gain.
First Solar (FSLR) up $12.89.
And Sun Micro (SUNW) down $3.69. The company out with third quarter results, a loss of $0.04 versus earnings of $0.07 last year. That does include acquisition costs, but the company's going to cut 2500 jobs.
Elsewhere, INVESTools (SWIM) plunged $3.62. First quarter earnings of $0.17 versus a loss of $0.36 last year, but that was still $0.04 below the Street consensus and also the company is the subject of an SEC investigation regarding its presentations at recent seminars.
Those are the stocks in the news tonight.
