NBR Transcripts-May 14, 2008
Wednesday, May 14, 2008Food Prices Take A Bigger Bite Out of U.S. Budgets
SUSIE GHARIB: Food prices registered their biggest gains in nearly two decades last month, while overall consumer inflation was far more well-behaved. The government reported today that the consumer price index, which measures retail inflation, gained 0.2 of 1 percent in April, after a 0.3 of a percent gain in March. So-called core prices, which exclude food and energy costs, inched up only 0.1 of 1 percent in April. As Suzanne Pratt reports, economists believe inflation pressures are likely to continue.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: At D'Agostino's supermarket in New York City, higher food prices are a new reality. The grocery chain says escalating transportation costs are leading to price increases for many everyday items. On top of that, increasing global demand means higher produce prices, while sharply higher commodity costs have resulted in higher price tags for wheat-based products. D'Agostino President Nicholas D'Agostino says the store is passing some of those costs on to customers and some it's absorbing.
NICHOLAS D'AGOSTINO, PRES. & COO, D'AGOSTINO SUPERMARKETS: It's a combination, especially because we have competition. So, as much as we'd like to just always pass it along, it depends on what our competition does and it depends on how their model works. But, yes, it eventually is going to get passed to the consumer, that's where it going to end up.
PRATT: The government's April report on retail inflation shows food prices nationwide jumped 0.9 of 1 percent, the most since January 1990. Rising costs for fruit and pork were major contributors. But declining costs for furniture and hotel stays last month outweighed those higher food prices and led to only a small up-tick in the overall consumer price index. PNC economist Stuart Hoffman says headline inflation seems tame, partly because companies are holding down prices to attract business as the economy slows.
STUART HOFFMAN, CHIEF ECONOMIST, THE PNC FINANCIAL SERVICES GROUP: Other than airfares, there's been very little pass-through into overall inflation. I think some of that has to do with wages still are pretty much under control and workers are being more productive. So what you don't have is sort of that wage-price spiral that you worry most about.
PRATT: Still, inflation in the last 12 months is running at a rate of just under 4 percent, while the core rate is up 2.3 percent. Economist Kevin Logan says the Federal Reserve is not happy with those levels.
KEVIN LOGAN, SR. MARKET ECONOMIST, DRESDNER KLEINWORT: It's very unlikely, in my view, that the Federal Reserve will ease monetary policy any further this year. Of course, it's already very easy, with only a 2 percent Fed funds rate. But they will probably hold it there for the rest of this year and see how it plays out and whether inflation continues to accelerate or not.
PRATT: Food prices are expected to accelerate in the coming months. The government is forecasting nearly a 5 percent jump in prices this year. That's double the annual rate for food inflation in the past 15 years. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
GHARIB: The cost of food was very much on the minds of members of Congress today. Late this afternoon, the House of Representatives passed a massive farm bill with a large enough margin to overcome a promised presidential veto. The administration had argued that more aid was not needed when farm incomes are at record levels. But as Darren Gersh reports, members of Congress say farm communities still need a safety net.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sensitive to the perception that they are giving billions to farmers when crop prices are at record highs, members of Congress tried to put the massive farm bill in perspective. Virginia Representative Bob Goodlatte said most of the $307 billion bill goes to expand food stamps and funding for food banks and school lunch programs.
REP. BOB GOODLATTE (R) VIRGINIA: The truth is that only 17 percent of the farm bill spending is devoted to farm programs, while nearly 70 percent goes to the nutrition title alone. In fact, there is very little farm in a farm bill anymore.
GERSH: Still, the bill does extend $35 billion in farm subsidies, giving cash payments to farm families with incomes of up to $1.5 million. Critics like minority leader John Boehner said the current bill could have done more to cut taxpayer costs.
REP. JOHN BOEHNER, MINORITY LEADER: At a time when we've got the highest commodity prices that we've seen in a generation, you would think that we would take a slightly different approach to the farm bill.
GERSH: Congress did signal some changes in direction, responding to concerns ethanol production is driving up food and feed prices. The bill reduces the corn-based ethanol tax credit by $0.06 to $0.45 a gallon. The tax credit for so-called cellulosic ethanol, which is made from agricultural waste, is increased by $0.51 to $1.01 per gallon. The bill also takes aim at energy speculation, bringing trading that is now unregulated back under the eye of Federal watchdogs. As a lawyer at the Commodity Futures Trading Commission, Michael Greenberger helped police energy markets. He says members of Congress are responding to concerns from farmers and other industries that energy trading is out of control.
MICHAEL GREENBERGER, PROFESSOR, UNIVERSITY OF MARYLAND SCHOOL OF LAW: The whole impetus of the farm bill amendment affecting energy futures trading is premised on a thesis that we are paying much more for our energy products than supply and demand would dictate.
GERSH: The Bush administration disagrees. At a recent hearing on the matter, regulators said they had found little evidence that speculation in oil and other commodities like corn was overriding the laws of supply and demand. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Green Options: Fuel"-Ethanol from Sugar
JEFF YASTINE: The cost of producing corn-based ethanol was a big part of today's debate over the farm bill and those costs have some big U.S. companies exploring ways to produce ethanol from sources other than food. Dupont announced a venture with a Danish company today to do just that. In tonight's, "Green Options: Fuel," we look at another company looking at -- exploring ethanol from an unexpected source. YASTINE: Green reedy stalks of sugarcane dominate the horizon in this part of Florida, just south of Lake Okeechobee. 400,000 acres of cane are planted here. Every day, during the five-month harvest period, hundreds of trucks sidle up to this sugar mill and dump their loads of cane. But people here are talking about another use for cane, besides refining it into sugar. The crop could also be a new source of ethanol for the nation's biofuels industry. Brazil already distills about five billion gallons of ethanol from sugar a year. But Florida Crystals, owner of the Domino and Flo-Sun organic sugar brands, is researching whether it's commercially viable to create ethanol from the pulverized cane stalks called bagasse. It's the waste byproduct at the end of the milling process. Florida Crystals researcher Steven Clarke says it's quite different from Brazil's sugar-based ethanol or the corn-derived ethanol distilled in the Midwest.
STEVEN CLARKE, DIR. OF INDUSTRIAL R&D, FLORIDA CRYSTALS: Traditional ethanol uses a simple carbohydrate like starch as in the corn process. This is cellulosic, ligno-cellulosic material. It's much tougher. If ligno-cellulose wasn't tough, trees wouldn't stand up. Its nature's way of giving structure to plants.
YASTINE: There is plenty of bagasse around. Mountains of it accumulate here during the harvest season. Some is burned to generate electricity for the company's sugar mill. But Florida Crystals Vice President Gaston Cantens says ethanol could become a secondary profit center for the company.
GASTON CANTENS, VICE PRESIDENT, FLORIDA CRYSTALS: Our goal is to be able to continue producing a food product sugar, because we are a food company and to also be able to produce ethanol from the byproducts, the waste products, the agricultural waste that is left over after we produce sugar from our crop.
YASTINE: But producing ethanol from cellulose -- leftover plant material -- is much easier said than done. The key is breaking down the tough plant fibers. Compared to ethanol derived from corn, cellulosic ethanol is a much more complex, technically challenging process. It's easy to do in a lab, but much tougher to achieve in the real world. That's the job of Florida International University researcher George Phillipidis.
GEORGE PHILIPPIDIS, ASSOCIATE DIRECTOR, FIU-ARC: What we see here is fermentation process going on.
YASTINE: He and his staff are working up laboratory data on cellulosic ethanol production from bagasse. He says the beauty of the fuel is that food crops are not its only source material.
PHILIPPIDIS: It can be adapted to accommodate different types of biomass. We're doing bagasse here. Tith some modifications, the same technology could be applied to citrus peel, to wood waste, to corn waste materials, to any type of green plant material that we generate, to our own yard waste.
YASTINE: An Energy Information Administration report last year notes the costs of a large-scale cellulosic plant at $375 million, is roughly six times the costs of an equivalent-size corn-ethanol plant. Jennifer Bovair of the Center for Strategic and International Studies says cellulosic ethanol needs lower production costs to be viable.
JENNIFER BOVAIR, ENERGY ANALYST, CENTER FOR STRATEGIC & INT'L STUDIES: That's the big question with cellulosic ethanol is how do you get it at scale? How do you move from laboratory to mass production? And how do you overcome that hurdle of getting out of the lab to a scale that's actually commercially viable?
YASTINE: That question may start getting some answers early next year, when a planned small-scale cellulosic ethanol plant starts operations at Florida Crystals' sugar mill. Tomorrow, "Green Options: Fuel," looks at a bacteria that breaks down food waste and paper scraps into ethanol.
Street Critique -- Kevin Depew, Executive Editor of Minyanville.com
GHARIB: Tonight's "Street Critique" guest says there's some hysteria developing over inflation in food and energy. He's Kevin Depew, executive editor at the financial information website, minyanville.com. Hi, Kevin. Nice to see you again.
KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Hi, Susie. Good to see you.
GHARIB: You say that we have in an episode of hysteria over the symptoms of inflation. Tell us what you mean.
DEPEW: First of all, we have to go back a little bit and understand what exactly is inflation. Over the years because it's been convenient for politicians mainly to do so, inflation has come to be known rising prices at the supermarket or wherever or for apparel or whatever happens to be going up at a given time. Inflation very simply is an increase in the quantity of money in circulation. The Fed has been creating credit for almost 20 years now. So we're only now seeing some of the symptoms of that trickle through. But I think ultimately and ironically this is deflationary.
GHARIB: So, inflation is not a problem even though people are paying higher bills for gas and food, right?
DEPEW: No, it's a problem. But what's a problem are the symptoms of inflation. The problem of inflation, for inflation, goes back 25 years to the Greenspan era of credit creation, up through Bernanke's massive amount of credit creation. Now that credit is not making it past banks' balance sheets, so while the Fed is trying to give more drugs to the credit addicted addict, those drugs aren't making it to Main Street.
GHARIB: What do you think the Fed is going to do? Is it time to cut rates more or to raise them because of these inflation concerns?
DEPEW: That's a great question. It's a co-dependent relationship because Main Street ultimately, they're the ones who are going to decide if credit if we are unable to accept more credit or take on more credit. Banks as an intermediary have already decided they're trimming the amount of credit that they're extending. So I think that the Fed's hands are really tied. They don't have as much say in the matter as they'd like to believe.
GHARIB: All right, so despite this complicated scenario, you're still bullish on the stock market. Why is that? Oh, I'm sorry, we ran into some technical problems and we just lost our guest.
***Technical problems disrupted the "Street Critique" interview.
"Money File"-Money Management Summer School
SUSIE GHARIB: In the "money file" tonight, there's no time like the present to begin your child's financial education. Here's Terri Cullen, personal finance columnist at "the Wall Street Journal."
TERRI CULLEN, COLUMNIST, THE WALL STREET JOURNAL: With the school year starting to wind down, most kids are looking forward to summer recess. But just because school is out doesn't mean there aren't lessons to learn. The summer months can be an excellent time for parents to teach kids about managing money. If you don't already give your kids an allowance, consider starting now. The best way to introduce kids to the concept of receiving, saving, donating and spending money is by giving them a consistent income by way of an allowance.
The summer months bring lots of opportunities for parents to encourage children to use their allowances to save and spend wisely. Planning a summer vacation? Encourage your child to save their own vacation spending money by offering to match their savings dollar-for-dollar. Many parents will be surprised to find that when kids have to spend their savings, they often spend a lot less.
What about summer chores? Some parents balk at tying allowances to household chores, but I'm all for it. Being paid for chores by way of an allowance helps to make the concept of money tangible for kids in a world where money usually changes hands electronically. Summer is also a great time to encourage kids to be charitable. If your kids want to set up a lemonade stand, suggest they set aside a portion of the money to give away to a charity of their own choice. In addition to encouraging their inner entrepreneur, they'll discover the joy of helping others. That's just the kind of summer school lesson any kid can enjoy. I'm Terri Cullen.
"Last Word"-A Different Kind of Horsepower
SUSIE GHARIB: And finally tonight, while many drivers are Fed up and complaining about higher gas prices, one Kentucky man is saddling up in protest. Allan Peerce says the best way to combat high prices at the pump is to hang up the car keys. He's been riding his horse around town and carrying a sign that says in protest of diesel and gas prices. At night, he camps out in the courthouse square to protest diesel prices rising above $4.20 a gallon. And Jeff, apparently Peerce says that he's trying to come up with some new ways to demonstrate in case diesel prices in his area rise above $4.50 a gallon.
YASTINE: And if they keep heading higher, I suspect we may all have to switch to horses eventually. I don't know what other choices we have besides electric or the train. We'll leave that I guess for perhaps another story.
GHARIB: That's what they mean by strong horsepower, right?
YASTINE: Definitely.
Paul Kangas' Stocks in the News
JEFF YASTINE: Wall Street saw today's modest rise in consumer prices as not so bad after all. The Dow spiked to a 130-point gain in the first hour of the session, led by IBM and Honeywell. By mid-afternoon, gains in Oracle and the solar power stocks pushed the NASDAQ 33 points higher. But selling pressures kicked in and the tech index gave back nearly its entire advance, while the blue chips held on to decent gains. The Dow closed up 66.20 at 12,898.38. The NASDAQ rising 1.58 to 2,496.7 and the S&P 500 climbing 5.62 to 1,408.66. Bond traders weren't entirely convinced that inflation isn't a problem. The 10-year note falling 2/32 to 99 20/32, putting the yield at 3.92 percent.
And now let's take a look at our stocks in the news tonight.
Citigroup (C) topping our list, gaining $0.22.
EMC Corp (EMC) climbed $0.70.
Pfizer (PFE) rising $0.09.
Electronic Data (EDS) ended unchanged.
Hewlett-Packard (HPQ) rose $1.37.
Annaly Capital Mgmt (ALY) rose $0.40. Last night, the real estate investment trust priced a 60 million share offering at $16.50 a share.
Clear Channel (CCU) up $0.52. As we mentioned last night, the new revised and lower buyout price is $36 a share. Bain Capital, Thomas Lee Partners the buyers.
American International Group (AIG) climbed $0.22.
And General Electric (GE) rose $0.18. GE may sell its appliance division. After the close, the "Wall Street Journal" said the conglomerate hired Goldman Sachs to explore the sale of its appliance division, which was founded over 100 years ago.
Ford (F) dropping $0.09. The company issuing a recall for 650,000 pick up trucks to replace a defective hose connection.
Shares in Deere (DE) sliding nearly $9. Second quarter profits were a penny less than estimates. The farm equipment maker warned that soaring steel prices and higher freight costs will dent this year's earnings. Costs will run about $1/2 billion more than last year.
Macys (M) climbed $0.87. It traded over $26 early in the session. Investors piled in after the department store chain delivered stronger than expected profits of $0.02 a share. Analysts expected a loss and executives think the restructuring efforts will allow them to hit their earlier profit forecast despite the slow economy.
Shares in Sony (SNE) up nearly $4. Investors cheered the Japanese electronic maker's turnaround plan. Strong sales of Playstations and flat screen TVs offset drops in the values of its financial investments.
Nike (NKE) climbed $1.78. Nike's brand president says the footwear company wants to make an acquisition in Asia to help build its market position in China. JPMorgan's analyst today called China Nike's biggest growth opportunity.
And another sports apparel firm, Under Armour (UA) advanced $1.63. It will be added to the S&P madcap 400 index after the close of tomorrow's session.
Safeway (SWY) climbed $1.12. The super market boosted its dividend 20 percent and tossed in an extra $1 billion for stock buybacks.
Jack in the Box (JBX) knocked for a loss of nearly $3. The chain says fewer customers are coming to its restaurants because of the economy. Jack in the Box did post higher quarterly profits but same store sales expected to be flat this year at best.
On the NASDAQ, Apple (AAPL) shares fell $3.70, was as high as $192 before being caught in the late-day downdraft on the NASDAQ.
Research in Motion (RIMM) falling $2.28.
Google (GOOG) dropping $6.70. Late today, ComScore said Google has overtaken Yahoo! to become the most visited website in the U.S.
Microsoft (MSFT) rising $0.15.
First Solar (FSLR) up $3.96.
Yahoo! (YHOO) advanced $0.58. After the close, Reuters says Carl Icahn will move ahead with the Yahoo! proxy fight. Reuters sources say he's lined up at least 12 candidates for Yahoo!s board of directors intent on getting them back to the table with Microsoft and Yahoo! shares rose $0.50 in after hours trading.
Intel (INTC) up $0.08.
Cisco Systems (CSCO) dropping $0.14.
Baidu.com (BIDU) losing more than $7.
Applied Materials (AMAT) up $0.04.
Whole Foods (WFM) tumbling $4.68. The company with second quarter results falling 13 percent.
And finally Staples (SPLS) gained $1.03. Jaffray's upgraded the shares with the office supply retailer sweetening its offer for Corporate Express by about $4 billion. Jaffray's expects that to add to office - excuse me Staples future product.
And those are our stocks in the news.
