NBR Transcripts-May 12, 2008
Monday, May 12, 2008Credit Crunch May Be Easing But The Recession Is Only Beginning
SUSIE GHARIB: The head of JPMorgan Chase says the credit crunch is almost over, but Chief Executive Jamie Dimon said a U.S. recession is just starting. Dimon believes there's a one in three chance the recession will be as bad as the economic downturn of the early 1980s. He made the comments at a UBS investor conference in New York City today. He also said his firm's takeover of Bear Stearns is quote, proceeding well and will eventually add as much as a billion dollars a year to JPMorgan's earnings. But Dimon warned integrating Bear's asset management and brokerage businesses will reduce earnings through next year.
2nd Quarter Low Profits But High Expectations
SUSIE GHARIB: And speaking of earnings, corporate America is wrapping up its latest quarterly earnings season. Although the results were dismal, analysts are optimistic about the outlook from here. Erika Miller explains why.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Wall Street, it is good riddance to first quarter earnings season. Ninety percent of the S&P 500 have reported and the results are not pretty. Profits are running 17 percent below last year, far worse than the 4 percent decline analysts were expecting at the start of the quarter. Earnings expert Mike Thompson says financials were the major drag.
MICHAEL THOMPSON, DIRECTOR OF RESEARCH, THOMSON REUTERS: You have the financials again, continuing to have a real negative impact, down almost 80 percent for the quarter. Expectations were it wasn't going to be that bad. The only good news is it was better than last quarter, the fourth quarter, where it was down over 125 percent.
MILLER: But there are a few positives buried in the data. Excluding the financial sector, profits are up more than 7 percent. On top of that, 62 percent of S&P 500 companies are beating estimates, which is in line with the historic average. The big question is the outlook for earnings in coming quarters and on that front, corporate America doesn't appear to have much visibility.
THOMPSON: I think the corporations are really having challenges, because we seem to be at this inflection point whereas either the economy and their businesses are going to kind of fall off even further or we're bottoming out and perhaps we've seen the worst.
MILLER: For now, Wall Street analysts are predicting earnings will drop 6 percent in the second quarter, gain 14 percent in the third and rise 62 percent in the fourth. Stephen Wood, portfolio strategist at Russell Investments, thinks that second half outlook is optimistic, but he still thinks now is a good time to buy U.S. stocks.
STEPHEN WOOD, SR. PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS: I think we're probably looking at an end of third quarter, beginning of fourth quarter phenomenon, before you see the economic and the earnings news improve dramatically which means the stock market moving now is a reasonable expectation, you know, nine months ahead of time.
MILLER: With earnings season basically over, investors are turning their attention back to economic data. The big fear is that consumer spending could slow sharply, hurting the U.S. economy and corporate profits. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with Alan Skrainka, Chief Market Strategist at Edward Jones
SUSIE GHARIB: Our guest tonight says the U.S. stock market is already in a recovery phase. Joining us now to explain, Alan Skrainka, chief market strategist at Edward Jones. Hi Alan, nice to see you again.
ALAN SKRAINKA, CHIEF MARKET STRATEGIST, EDWARD JONES: Hi, Susie.
GHARIB: Let's start by getting a better analysis from you and explanation. What do you mean by recovery phase in the stock market?
SKRAINKA: Well, you know, Susie, the market leads the economy. It's not the other way around. So while we're looking at bad news in the economy today, I believe the market is starting to anticipate better news in the economy down the road. Six to nine months it's likely that the recession is going to be behind us. It's likely the credit crisis is going to be behind us. And the market is up a thousand points off the bottom. That tells us that the market sees better news ahead.
GHARIB: You heard at the start of the program Jamie Dimon of JPMorgan Chase predicting a tough recession going forward. Let's say that that prediction, that forecast is correct. How would you revise your forecast for the markets?
SKRAINKA: Well, we wouldn't revise it. You know, if you look at the last 11 recessions, on average they last about 10 months. So let's say this one started in January; that would mean it is over in October. And typically the market bottoms out about five and a half months into that recession. So that would be mean the month of May which is of course this month. See the market does reflect a lot of the bad news with financials down 38 percent, consumer stocks down 26 percent and now it's starting to rally anticipation of the fact that the economy is likely to look better next year.
GHARIB: What about earnings? Let's talk about that. Again, a lot of companies in corporate America have been warning that the upcoming quarters are going to be rough quarters. We heard FedEx recently saying that its fourth quarter is going to be a tough quarter. That is a proxy for the economy. What is your reaction to that? I mean won't those earnings weigh down on stocks?
SKRAINKA: Well, of course the first quarter was tough for financial companies. It was better for other companies. It is going to be a little bit of a rough second quarter. But the second quarter is almost over. I think the market is starting to look forward to maybe the fourth quarter of this year and the first quarter of next year and sees a pretty good earnings recovery. Keep in mind the rest of the economy has performed remarkably well in spite of these dual hits from real estate and higher oil prices.
GHARIB: And yet we are still seeing a lot of volatility in the markets. We're seeing a lot of cash on the sidelines. What do you think it's going to take for investors to feel comfortable about putting new money into the markets?
SKRAINKA: Well, ultimately it will be better economic news but the fact that there is so much cash on the sidelines is bullish. This is the second large -- the highest peak in terms of the money market assets as a ratio of stock market value telling us that there is a lot of fear in the market. It is also only the third time in the last 20 years when Americans have been net sellers of U.S. stock mutual funds. The previous two times were great buying opportunities for long-term investors.
GHARIB: All right, so let's say that there is an investor who wants to put new money into the markets. What would you recommend? Where are the areas that will grow on the long-term basis?
SKRAINKA: Well, instead of trying to guess this sector versus that sector, the key is really to build good balance in the portfolio. Stick with quality stocks, bonds and mutual funds so that if the recession is worse than one might expect, your portfolio will hold up relatively well. Go easy on the international side because a lot of the performance has been due to weakness in the dollar. So have a healthy equity position, good diversification, good quality and then be patient because we'll get through this problem. We always do.
GHARIB: So do you want to name two, three stocks that are on the top of your buying list right now that you are telling your clients to add to their portfolio?
SKRAINKA: Well, of course most folks should stick with professionally managed money. But if you're going to build your own stock portfolio, consider dividend paying stocks that have good, healthy businesses overseas. Companies like 3M, Procter & Gamble, Cisco, I would also suggest an American Express looks attractive with all the worries about consumer spending.
GHARIB: All right, do you own any of these stocks or do you have any other disclosures to tell us about?
SKRAINKA: No, not at all.
GHARIB: All right, Alan thank you so much for coming on our program.
SKRAINKA: Thanks, Susie.
GHARIB: My guest tonight, Alan Skrainka, chief market strategist at Edward Jones.
"Get Your Finances Ready for Retirement"-Your Retirement Lifestyle
SUSIE GHARIB: Millions of baby boomers are getting ready for retirement. They'll have a lot of decisions to make, a lot of choices and a lot of options. So we have a lot of answers. Tonight NIGHTLY BUSINESS REPORT begins a year-long effort called "Get Your Finances Ready for Retirement." We've partnered with U.S. News & World Report on a series of stories and special programs aimed at getting you ready for retirement. Tonight we start with a look at what type of retirement you want to have and its impact on your finances.
CONNIE HICKS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For millions of Americans, this is the dream of an ideal retirement: stress-free living in a community that offers lots of sunshine and plenty of leisure activities. Hello, I'm Connie Hicks.
JOE COLLUM, NIGHTLY BUSINESS REPORT CORRESPONDENT: And I'm Joe Collum. Now golfing all day would be fine with me, but it may not be your idea of how you'd like to spend your retirement.
HICKS: And when it comes to thinking about your retirement finances, determining your retirement style is a good place to begin. Because no two people retire in the same way, financial planning for retirement is far from a one-size-fits-all matter.
COLLUM: For example, take Joal Fischer and Deborah Langsam of Charlotte, North Carolina. Leaving careers as a physician and a university instructor, the couple retired while still in their 50's. They're staying put in the same large house where they spent the last decade of their working lives. Now they spend most of their time making gourmet chocolates and volunteering and they say their retirement is based on the idea of living simply.
DEBORAH LANGSAM, RETIREE: In terms of our lifestyle, we'd rather spend a lot less and go on vacation.
JOAL FISCHER, RETIREE: Debbie's a very very good cook and so when we want a very good meal, we stay home.
HICKS: On the other hand, Joseph and Sandra Cummings would rather spend less of their retirement in their kitchen and more time walking to nearby restaurants. So they sold their single-family home in Coral Gables, Florida and moved to a smaller condominium in the downtown part of that city.
JOSEPH CUMMINGS, RETIREE: If you travel and we travel, you just close the door. Walk away.
SANDRA CUMMINGS, RETIREE: It's just easier here because when you live in a condominium, you pay one check each month for your maintenance and then everything is done.
COLLUM: So how important is lifestyle in making a financial plan for a person's retirement? Certified financial planner Meg Green says its role can't be minimized.
MEG GREEN, CEO, MEG GREEN & ASSOCIATES: Lifestyle is everything. It's what they do, what they need to spend, how are they going to keep the party going, if you will.
COLLUM: So if you're within a few years of retirement, it's time to start thinking about the type of retirement lifestyle you want. Then you need to figure out its price tag. As "U.S. News & World Report" retirement correspondent Kerry Hannon notes, living your retirement dream often can turn out to be more costly than you think.
KERRY HANNON, RETIREMENT CORRESPONDENT, U.S. NEWS & WORLD REPORT: Experts will tell you, also is that retirement is not necessarily a cheaper lifestyle. You may travel more. Your hobbies may be expensive. You may choose to retire on that golf course in Florida and the fees are quite high.
HICKS: And being able to meet expected retirement expenses is only part of the equation. Hannon and Green note that one of the challenges of planning for retirement is that there are so many unknowns.
HANNON: You know, for example, if you're saving for a college education for your child roughly what that's going to cost you. You have no way of knowing how long your money is going to last in retirement and you want to be very careful that you don't spend it too quickly.
GREEN: In my planning, I'm always saying, what is your plan B? You never can go into retirement without a plan B, because very often what you think you're getting is not at all what you end up with.
HICKS: Still, Green says it can be helpful to put together a description of how you envision your retirement lifestyle. She says that alone should make financial planning for the transition much easier.
GREEN: It's a totally different story for every person. Everybody has a different set of dreams -- a different set of things that they bring to the table. And you have to kind of take what they have and what their dreams are and put them together and I have never found two exactly alike ever.
HICKS: So, once you've got a better idea of what your retirement lifestyle will be, your next step should be to figure out how much money you'll need to pay for it.
COLLUM: That's a crucial number for anyone who's getting ready to retire and we'll tell you how to come up with it in our segment next Monday. Joe Collum.
HICKS: And Connie Hicks, NIGHTLY BUSINESS REPORT, Aventura, Florida.
GHARIB: The web is a big part of our efforts to help you get ready for retirement. On our web site NIGHTLY BUSINESS REPORT at pbs.org, you'll find an extensive array of resources, information and tools you can use. The site will be updated frequently with new multi-media materials, including podcasts of our stories and specials, as well as extended interviews. You'll even have a chance to add your own retirement stories to our blog. So check out the "Get Your Finances Ready for Retirement" section of NIGHTLY BUSINESS REPORT at pbs.org.
"Commentary"-Corn Ethanol May Not Be A Healthy Choice
SUSIE GHARIB: Tonight's commentator says corn ethanol subsidies have got to go. She's Nada Eissa, associate professor of public policy and economics at Georgetown University. NADA EISSA, ASSOC. PROF. PUBLIC POLICY & ECONOMICS, GEORGETOWN UNIV.: The biggest economic story of 2008 is just beginning to play out and it has nothing to do with housing. Worldwide, food prices are increasing at rates never seen before, fueling civil unrest and fears of deepening poverty. At home, food costs are rising faster than at any time since the 1980s. What is causing this explosion in the cost of bread, milk and other staples? That part is simple. We want more than farmers can produce, so growth in demand is outstripping growth in the supply of food. Bad weather and high transportation costs play a role, but there are other reasons.
First, the good news: economic growth in countries like India and China has enabled their citizens to consume more and better diets. The other reason is not so good: our unconditional love of corn ethanol. Subsidies for domestic production and taxes on imports are pushing farmers to divert land that would otherwise be used for growing food, forcing us all to pay higher prices. Worse, Washington artificially creates a market for ethanol by requiring refineries to buy it. This is government intervention run amok.
Wait, you say, corn ethanol is good for the environment, so government needs to support its development. Sorry, that claim fails to hold water. Because it takes so much fossil energy to produce corn ethanol, it does very little to reduce our overall use of these fuels and its greenhouse gas emissions are no better than gasoline's. Let's give consumers a break and get rid of corn ethanol subsidies and tariffs. We won't hurt the environment and we'll feed more people here and abroad. I'm Nada Eissa.
Paul Kangas' Stocks in the News
JEFF YASTINE: Stock buyers put their worries about corporate earnings and the economy on hold today, sending stocks higher right from the open. The Dow notched a 100-point gain before noon with Wal-Mart shares leading the way ahead of tomorrow's earnings report. Fellow blue chips 3M, Alcoa, Caterpillar also found steady buying. Adding to the buying, the first pullback in oil prices in seven sessions. The NASDAQ also rallied strongly with Research in Motion and Apple leading that advance. The Dow closed up 130.43 to end at 1,2876.31 and the NASDAQ gained 42.97 to end at 2488.49. The S&P 500 climbing 15.30 to finish at 1403.58 and in the bond market, the 10-year note falling 6/32 to 100 20/32 and the yield at 3.8 percent.
American Intl Group (AIG) leading the list, down nearly $2. Some think a breakup of the company might be the only way for it to survive after reports of a $8 billion first quarter loss. On top of that, former CEO Hank Greenberg says the company is hiding or alleging that the company is hiding $4 billion in losses in its portfolio of credit (INAUDIBLE) Citigroup (C) edged up a fraction.
Clear Channel (CCU) rising nearly $3. Investors betting that that deal to take the company private will finally go through. Thomas Lee Partners and Bain Capital are in settlement talks with their banks, which wanted to pull their financing on that buyout. The "Wall Street Journal" says the buyout will happen at $36 a share. That's about $3 less than the original proposal. Settlement talks though are still underway.
SprintNextel (S) down $0.14. Losses in its most recent quarter rose to $0.18 a share and the company lost more than a million subscribers. There's still the chance they could dump Nextel and put that company, that part of the company up for sale. It was acquired less than three years ago.
Pfizer (PFE) picked up $0.12.
And then we have Hewlett-Packard (HPQ) ballooning to about 11 million shares trading before being halted at $46.74. That was just ahead of the close today. After the close, the computer giant confirming it's in talks to acquire Electronic Data Systems. Analysts say that deal could be worth up to $13 billion.
And then there's Electronic Data Systems (EDS) shares, surging on the news, rising over $5 before being halted at $24.13.
General Electric (GE) tacked on $0.13 today.
And then Bank of America (BAC) gaining $0.79. Some think the deal to buy Countrywide will never be completed leaving B of A with better things - with management to concentrate on.
EMC Corp (EMC) gaining $0.13.
Fannie Mae (FNM) up $0.44.
And the Dow's star gainer of the day, Alcoa (AA) rising more than $2.50. Analysts at Citigroup predicting a shortage of aluminum over the next year and half and urging clients to move into shares of Alcoa.
Then AnnTaylor Stores (ANN) surging nearly $4. The retailer raised its earnings outlook and said it is doing well in selling out its overstocked inventories.
Fluor (FLR) advanced $2.39 on the day, but bolted more than $10 after hours on a stronger than expected 63 percent jump in first quarter profits and an upbeat outlook, not bad for that one.
Collective Brands (PSS) gained $1.74. This is the parent of Payless shoe stores. They believe they can top earnings targets, even though they're still fighting a patent infringement lawsuit over or with Adidas over how many stripes can be stitched down the sides of its sneakers.
Cablevision Systems (CVC) falling $0.45. They inked a pack to acquire Tribune's Newsday newspaper for $650 million.
And Evercore Partners (EVR) falling $1.53. Lower first quarter profit, also a lower estimate and revenues lower as well.
On the NASDAQ, Apple (AAPL) advanced almost $5. HBO striking a deal to make its content available on iTunes, but apparently at a price that's more favorable to Time Warner than other media groups have gotten from Apple.
And there's Research in Motion (RIMM) jumping more than $9. As Susie mentioned, the Blackberry maker unveiling its new iPhone competitor called the Bold.
Google (GOOG) surging more than $11.
Microsoft (MSFT) advanced $0.60.
Baidu.com (BIDU) part of that strong Chinese Internet portal group today, advancing more than $20.50.
Yahoo! (YHOO) falling $0.67.
Cisco Systems (CSCO) gaining $0.35.
Intel (INTC) up $0.27.
First Solar (FSLR) up $0.34.
And Amazon.com (AMZN) advancing a little more than $2.
Then we have Radyne (RADN) jumping $3.36. Comtech Telecommunications is buying Radyne in a cash offer at $11.50 a share. Comtech shares gained $1.19.
And then finally Gencor Industries (GENC) tumbled more than $12, quite a loss of more than 38 percent and posted sharply lower second quarter profits. On top of that, a board member and a major shareholder resigned, putting the company out of compliance with the rules for listing the stock on the NASDAQ market.
And those are our stocks in the news tonight.
