NBR Transcripts-May 5, 2008
Monday, May 05, 2008Summer Driving Season Drives Oil Prices Above $120
SUZANNE PRATT: Another record day for oil prices, as crude futures traded above $120 a barrel for the first time. Prices spiked on new anxieties about oil supplies with the summer driving season only weeks away. In New York trading, light sweet crude for June delivery fell back just a bit before the close to settle at $119.97 a barrel, up $3.65. Behind the move, new supply threats overseas in Nigeria and Iran, as well as the dollar weakening further against the euro. Lehman Brothers oil economist Ed Morse says it's part of a volatile cycle of uncertainty where prices can swing in either direction.
ED MORSE, OIL ECONOMIST, LEHMAN BROTHERS: I wouldn't be surprised if we see prices fall back to 80 at some point in time. And I wouldn't be surprised if we see a spike in the summer or late summer to $140, depending on things that we can't foresee like the hurricane season or a disruption of magnitude in southern Iraq or in Iran.
PRATT: Gasoline prices are also at record highs. The government said today the national average for regular self-service gas is $3.61 a gallon. That's up $0.56 from year-ago levels.
Microsoft Bails on the $42B Yahoo! Bid
JEFF YASTINE: The collapse of merger talks between Microsoft and Yahoo! has investors wondering what's next for those companies. Late today, Yahoo! CEO Jerry Yang told Reuters to listen if Microsoft has anything new to say. On Saturday, Microsoft dropped its bid for Yahoo! because Yahoo! wanted more than the $47 billion on the table. As Erika Miller reports, now the pressure is on the Yahoo! board.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The breakdown of talks with Yahoo! brings Microsoft back to square one. The software giant has been trying for years to win a bigger slice of online advertising dollars. But UBS analyst Heather Bellini says the company probably cannot achieve that goal by going it alone.
HEATHER BELLINI, SOFTWARE ANALYST, UBS: We definitely think they need to get more aggressive in expanding partnerships. They need more they essentially need more advertisers. They need to increase their search share. They need to increase the relevancy of their searches and they need to do that by getting more scale.
MILLER: UBS has done business with Microsoft over the past year and Bellini owns shares of the company. Many analysts believe Microsoft could make a play for another Internet search company, like AOL, a unit of Time Warner. S&P's Scott Kessler also thinks myspace, the social networking site owned by Newscorp, could be a potential target.
SCOTT KESSLER, INTERNET ANALYST, STANDARD & POOR'S: Right now it's interesting because both AOL and myspace are both working very closely with Google. And so Microsoft not only wants traffic, but wants to take share. You kind of have a double whammy if you were able to do something with one or two of those types of properties.
MILLER: Analysts say a big risk for Microsoft is that Yahoo! could sign a search advertising agreement with Google, something it recently tested. However, experts caution such a partnership would face serious regulatory hurdles. Many analysts think Yahoo! made a big mistake rejecting Microsoft's sweetened offer. Some think the company should start buying back shares to boost its stock price.
KESSLER: My suggestion to Yahoo! executives and Yahoo!'s board is to basically walk the walk. You've talked the talk about $37 a share being a minimum value for Yahoo! stock. So, now go ahead, take that cash balance that you have and commit it to buying new shares.
MILLER: Right now, most analysts don't think Microsoft will raise its bid for Yahoo! But they say it's possible Yahoo! shareholders could pressure that company's board to revisit Microsoft's offer. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with Warren Buffett, Chairman, Berkshire Hathaway
SUZANNE PRATT: Thousands of Berkshire Hathaway shareholders made their way to Omaha this weekend to hear from Chairman Warren Buffett. The billionaire investor weighed in on everything from the U.S. economy to his plans for a successor. NIGHTLY BUSINESS REPORT's Susie Gharib was in Nebraska for the Berkshire annual meeting and to witness Warren's world first hand.
SUSIE GHARIB: It was the usual party atmosphere at the Berkshire Hathaway annual shareholders' meeting, the spectacle long known as "Woodstock for capitalists." Warren Buffett inspected a huge portrait of himself, then signed the masterpiece. He posed with a giant gecko. He strolled with soap opera star Susan Lucci. And fellow billionaire Bill Gates, a Berkshire director, added star power to the festivities. But the real reason that people came in record numbers was to hear the Oracle of Omaha's predictions about the markets, the credit crisis and the economy. Buffett says that the party is over for the U.S. economy and it's already in a recession.
WARREN BUFFETT, CHAIRMAN & CEO, BERKSHIRE HATHAWAY: I don't spend a lot of time thinking about the economy. Nevertheless, what I see would indicate to me that this is not a short-run phenomenon.
GHARIB: And he has a similar outlook for housing.
BUFFETT: It still has a ways to go. I mean, there's a huge inventory of houses around and they went up too far. In many areas they went up to crazy levels. The money isn't going to be enough, able to -- available to finance crazy prices anymore.
GHARIB: During the six-hour Q&A session with shareholders, Buffett fielded questions on a variety of topics. He said the Federal Reserve did the right thing to bail out Bear Stearns. He expects the U.S. dollar will weaken further over the next 10 years. And he says he has no idea where the stock market goes from here. He also explained why he teamed up with candy maker Mars to buy Wrigley, the famous chewing gum company.
BUFFETT: Wrigley's and spearmint have been around for half the life of the country, half the life of the country. Those are products that have enduring value in good times and bad. People like them. They travel around the world. So, it's a great business.
GHARIB: That Wrigley deal shows that Warren Buffett is hungry for acquisitions. He'll be going to Europe in two weeks to scout out possible deals. He'll meet with the heads of big family owned businesses and he'll have plenty of money for shopping -- more than $30 billion in cash.
BUFFETT: I'm looking for a business I can understand. It has to be something that I can get my mind around. It has to have durable competitive advantage. It can't be a hula hoop company or something like that. It has to have a management that I trust and admire. And then it has to be at a sensible price and preferably it has to be big. And every now and then we get a chance to do that.
GHARIB: How big is big?
BUFFETT: Well, the bigger the better. But certainly we'd like it to be a couple of billion. You know, if it's $20 billion I'm going to like it even better.
GHARIB: Big Berkshire shareholders like Mario Gabelli are waiting eagerly for Buffett's next investment move.
MARIO GABELLI, CHIEF INVESTMENT OFFICER, GABELLI ASSET MANAGEMENT: Well, we're always interested just because he's the master at three- dimensional chess.
GHARIB: And Morningstar analyst Justin Fuller says one of the things that makes Buffett so successful is patience.
JUSTIN FULLER, EQUITY ANALYST, MORNINGSTAR: He wants to wait for that opportunity to act decisively and fast and get a business that you couldn't recreate even if you wanted to.
GHARIB: But with Buffett's 80th birthday just two years away, the even bigger question is who will fill his shoes. Although Buffett has no immediate plans to retire, he detailed succession plans in his recent letter to shareholders in the Berkshire annual report. He said he has three outstanding internal candidates to replace him as CEO and on the investment side, he has identified four candidates. He says they are young to middle aged and well-to-do to rich.
BUFFETT: They all want to come to work for Berkshire, but they're willing to wait until I'm not here and they're very happy in their present jobs. They're all wealthy, so there's no sense having them here now while I'm doing the job. But the board knows exactly who they are and when the time comes they'll get a phone call.
GHARIB: For Berkshire shareholders, it's been a bumpy year so far. Berkshire "A" shares are down more than 9 percent. But that doesn't worry money manager Peter Kenner whose family has owned Berkshire stock for 40 years.
PETER KENNER, CEO, TIVOLI PARTNERS: I personally think that the stock will be $200,000 a share by the end of 2010. So the appreciation is basically you're talking about better than 50 percent in a few years. That seems pretty good to me.
GHARIB: Buffett cautioned shareholders that Berkshire's stock performance is likely to be more modest in the future compared with stellar gains in the past. But for now, investors here are still very confident in the moneymaking skills of the Oracle of Omaha. Susie Gharib, NIGHTLY BUSINESS REPORT, Omaha, Nebraska.
PRATT: You can see all of Susie Gharib's interview with Warren Buffett on our web site. Go to NIGHTLY BUSINESS REPORT on pbs.org and click on learn more.
"A Tale of Five Cities"-Washington, DC
SUZANNE PRATT: From east to west and north to south, there's no question the U.S. housing market is a mess. This week we'll bring you some of the nation's most compelling real estate stories, with a special series we call "A Tale of Five Cities." We begin tonight in the Washington, DC metro area, where the housing market varies greatly by county. As Stephanie Dhue reports, the key is location, location, location.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Real estate agents Vickie and Charlie Carroll have been selling houses in northern Virginia for nearly 20 years. In the last year, their business has focused on this:
VICKIE CARROLL, AVERY HESS REALTORS: They left the washer and dryer. That's nice.
DHUE: ...evaluating and preparing foreclosed properties for sale. Vicky Carroll says the large number of bank-owned properties has taken the move-up buyer out of the market.
CARROLL: Because most of the houses in the basic, the lower price ranges, are going to market as foreclosures, the seller of that property which is now a bank is not a buyer in a market that is slightly higher.
DHUE: While sales throughout the DC metro area are down, location plays a key role in prices. In the areas furthest out, like Prince William County, prices are almost 27 percent lower than a year ago. In Loudoun, prices are about 20 percent lower. But the picture changes the closer you get to DC. In Fairfax County, prices fell about 12 percent. Inside the beltway, prices are mixed, with Arlington up 0.6 percent and prices up 8 percent in northwest DC. John McClain of the Center for Regional Analysis at George Mason University says the region overall was due for a price correction.
JOHN MCCLAIN, CENTER FOR REGIONAL ANALYSIS, GEORGE MASON UNIV.: Growth in prices had way outstripped the growth in incomes, so the affordability of homes began to fall a lot, in terms of how many houses with a certain income could you afford and so that eventually had to take its toll. There had to be a price adjustment.
DHUE: While prices in DC's most sought after neighborhoods are stable or rising, what's depressing prices in the outer suburbs are a combination of higher gas prices and distressed properties. Sellers are having to compete with reduced prices on foreclosures.
CARROLL: A seller who has a heavy mortgage is going to have a tough time competing with a bank who wants to reduce their inventory in a fairly short order. So this will be aggressively priced, but the banks do want fair market value.
DHUE: First-time homebuyers Randy and Lisa Anders took advantage of falling prices here in Prince William County, which is about 40 miles from DC. The couple was able to negotiate a lower price from a seller who was relocating.
LISA ANDERS, HOME BUYER: We looked at a lot of foreclosures. The foreclosures were - they were a really good value, but a lot of work to put into them and so we had to look at quite a few houses until we found this one.
RANDY ANDERS, HOME BUYER: I think we got a pretty good deal at the time. If it goes down, it goes down, you can never tell. It may shoot way up and then we'll be counting our lucky stars we did what we did.
DHUE: Economists predict it will be a year before the DC metro area returns to a normal housing market. For further out and harder-hit counties like here in Prince William, it's likely to take an additional six months for the market to stabilize. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Gainesville, Virginia.
"Commentary"-Optimism In An Ailing Economy
SUZANNE PRATT: Tonight's commentator says it's not all negative for the U.S. economy. Here's Bernard Baumohl, director of the Economic Outlook Group.
BERNARD BAUMOHL, DIRECTOR, ECONOMIC OUTLOOK GROUP: We have been besieged lately with reports of how awful this economy is. Talk of recession is everywhere. Some people predict we're even headed for a double-dip recession. Then there are endless references comparing today's economy with the great depression. And if that is not enough to scare you, one economist went so far as to warn that the global economy may slip into a death spiral.
Does the dismal science have to be so dismal? Of course not. Here is some good news about the economy that misses the front page. First, any contemporary comparisons with the great depression is just nonsense. This economy is so unlike the 1930s, the two don't even rhyme. The unemployment rate rose back then to 25 percent, yet few experts see it surpassing 6 percent in the current downturn.
Looking for a glimmer of hope in housing? Consider this: the number of unsold new homes is now the lowest in three years. Moreover, a popular measure that combines mortgage rates, home prices and household income shows home affordability is the highest in more than five years. And check this out. Businesses outside of real estate and finance have stashed away half $1 trillion in cash and kept their inventories lean, which means by and large corporate America is in a better shape now than they were the last two recessions. Now, I don't know if any of this makes you feel a whole lot a better. But it is spring and I thought you just might want a reprieve from all this dreary economic news of late. I am Bernard Baumohl.
"Last Word"-Chrysler's Answer to the Gas Crisis
JEFF YASTINE: And some breaking news tonight. Chrysler just announced a new incentive aimed at trying to relieve pain at the pump and boost sales. New customers can lock in gasoline prices of $2.99 a gallon for three years or 36,000 miles. The auto maker will give new customers a gas card that's linked to their credit card and when they pay for gas, they'll only be charged $2.99 regardless of the actual price at the pump. The program begins Wednesday and runs through June 2. And Suzanne, the new gas plan covers nearly all Chrysler models from compact cars to SUVs. Who would have thought $3 gas would be a marketing plan.
PRATT: Wow, pretty impressive.
Paul Kangas' Stocks in the News
JEFF YASTINE: Higher oil prices and the disappointment over the Microsoft/Yahoo! deal made for a disappointing day for investors. The Dow dropped about 110 points in the first 90 minutes of the session. Transportation stocks, truckers, airlines, pummeled as oil crossed the $120 a barrel mark. The NASDAQ touched its lows during the afternoon session, down 18, as selling in Microsoft and Yahoo! shares outweighed gains in Apple and Google. The Dow finishing the session off 88.66 at 12,969.54 and the NASDAQ sliding 12.87 to 2464.12. The S&P 500 dropping 6.4 to 1407.49. And the bond market, the 10-year note falling 4/32 to 96 31/32 and the yield at 3.87 percent.
But first SprintNextel (S) gaining $0.83. Deutsche Telecom may (INAUDIBLE) in SprintNextel, the nation's third largest wireless carrier and the "Wall Street Journal" said executives at Sprint may spin off the Nextel division because they're unhappy with the performance of that unit since the deal was completed nearly three years ago. Citigroup (C) dropping $0.64, part of a somewhat weaker financial group today.
Countrywide Financial (CFC), there's the news there, losing $0.62 and Bank of America confirming that it does intend to go through with that takeover with NIGHTLY BUSINESS REPORT.
Pfizer (PFE) dropping $0.09.
Ford Motor Co (F) eking out a gain of $0.06.
General Electric (GE) dropping $0.16.
Bank of America (BAC), there's the reaction there, sliding $0.82.
Time Warner (TWX) advanced $0.38.
Advanced Micro (AMD) up $0.37.
AT&T (T) dropping $0.28.
Merck (MRK) slipping $0.39, but after the close, the Dow component announced plans to cut up to 1200 jobs. That stock has fallen from $60 in recent months. The drug maker under pressure to cut costs and conserve cash after failing to win approvals for some key cholesterol drugs.
Continental Resources (CLR) rising more than $7. Soaring oil prices giving first quarter profits a nice boost. Earnings jumping 60 percent and revenues nearly doubling.
And then coal (ph) producer Alpha Natural Resources (ANR) hot today, rising nearly $6. First quarter profits tripling to over $25 million from a year ago. Coal exports for steel production and power generation helping to boost coal production or coal prices to record contract levels. That news helping all the coal stocks today.
Arch Coal (ACI), Consol Energy (CNX), Massey Energy (MEE), Peabody Energy (BTU), Walter Industries (WLT) all doing very nicely.
Then Marvel Entertainment (MVL) rising almost $3. Stronger than expected first quarter results today and in addition, "Iron Man," the latest movie based on a Marvel comic book series, raked in over $100 million at the box office in its opening weekend.
Aircastle Ltd (AYR) taking flight, gaining more than $2. The aircraft leasing company with a new credit line of nearly $800 million.
And then Tidewater (TDW) tumbling more than $6. Fourth quarter earnings there were $0.10 below Wall Street expectations and Standard & Poor's downgrading the provider of marine transportation services.
On the NASDAQ as you heard, late today Jerry Yang telling Reuters Yahoo! is ready to listen if Microsoft has anything new to say but the damage to Yahoo! (YHOO) stock considerable, down more than $4 in regular trading.
Apple (AAPL) though gaining $3.79. American Technology Resources raised its price target on that stock to $210 a share.
Google (GOOG) gaining more than $13. Some analysts see that company as the main beneficiary of the fallout between Microsoft and Yahoo! and the uncertainty of where companies may want to place their search ad buys.
Microsoft (MSFT) dropping $0.16.
Research in Motion (RIMM) gaining more than $1. The stock back to its old all-time highs that were set in November of last year.
Baidu.com (BIDU) jumping over $12.
Cisco Systems (CSCO) though losing $0.47.
First Solar (FSLR) dropping more than $7.
Intel (INTC) losing $0.19.
Oracle (ORCL) gaining just a fraction.
American Capital Strategies Ltd (ACAS) sliding $2.24. Some analysts worry about the impact of large investment loss write offs with new mark to market (ph) accounting rules coming up soon.
And then finally, Zoltek Companies (ZOLT) falling more than $2.37. The company dismissed its CFO after finding some accounting issues in payments to a subsidiary. Zoltek's chairman and CEO will assume the CFO title until a new executive can be hired.
Those are the stocks in the news tonight.
