NBR Transcripts-May 27, 2008
Tuesday, May 27, 2008Bargain Hunters Give New Home Sales A Much Needed Boost
SUSIE GHARIB: Some mixed news today about the U.S. housing market. The government said sales of new homes rebounded slightly last month, but a separate report indicated that home prices appear to be in a free-fall. The Standard & Poor's Case-Shiller home price index fell a record 14.4 percent in the first quarter, compared to year-ago levels. That's the biggest annual decline since the index began 10 years ago. Meanwhile, the Commerce Department reported sales of new homes rose 3.3 percent in April. That's the first sales increase in six months, following a revised drop of 11 percent in March. National Association of Home Builders' chief economist David Seiders says falling home prices are not enticing buyers.
DAVID SEIDERS, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS: The house price decline is really feeding the don't buy attitude rather than encouraging people to buy, because when prices are falling for some time, we know from history the general thing to do is expect them to fall further. So, until that psychology changes, it's going to be difficult to get those home sales turned around.
GHARIB: Las Vegas, Miami, and Phoenix have experienced the biggest home price declines. According to Case-Shiller, prices in all those cities are down around 25 percent.
Airline Stocks Rise as Crude Oil Prices Fall
PAUL KANGAS: Crude oil prices fell sharply today on the heels of a stronger U.S. dollar. Light sweet crude for July closed at $128.85 a barrel, down $3.34 in New York trading. Those lower oil prices gave airline stocks a much needed lift today. But, as Suzanne Pratt reports, experts say the U.S. airline industry still faces a cloudy future.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: For most major U.S. airlines, the skies are hardly friendly these days. Not only are surging fuel prices taking a massive bite out of bottom lines, but the weakening U.S. economy is creating new revenue worries. Airline experts forecast huge quarterly losses for major carriers this summer, typically the busiest and strongest period for airlines. Standard & Poor's analyst Jim Corridore says bankruptcies may be imminent.
JIM CORRIDORE, AIRLINE ANALYST, STANDARD & POOR'S: If oil stays at or near $130 and continues to rise, we will see more bankruptcies in the airline industry, I think. I think that airlines are now back in a battle of survival. It's who can last the longest until we see some kind of fundamental change in the industry.
PRATT: Industry woes are well reflected in the stocks of most U.S. airlines. Since the beginning of this year, the Amex airline index is off nearly 50 percent. The index tracks shares of many large and small U.S. carriers. Jet fuel represents 30 to 40 percent of an airline's cost structure, so none are immune to the impact of higher oil prices. But U.S. Airways is considered most at risk for bankruptcy, while some analysts believe Continental is in the best position to ride out current turbulence.
CORRIDORE: I just think that Continental has less debt relative to the rest of the industry. They do get more business travelers, which allows them to get a revenue premium versus their peers. And I think their management team has a pretty good strategy in terms of growing internationally, cutting domestically.
PRATT: For other carriers, a merger may be the only option to both avoid bankruptcy and reduce capacity in the market. Last month, Delta and Northwest announced plans to get hitched. United and U.S. Airways are considered another likely pairing. Still, Morningstar analyst Brian Nelson says investors should be wary of airline stocks.
BRIAN NELSON, SR. AIRLINE ANALYST, MORNINGSTAR: We think the airline industry is one of the worst industries out there under our coverage universe and we think long-term investors should steer clear of this industry, particularly as it stares down unprecedented crude oil price levels, as well as a potential severe downturn in travel demand.
PRATT: Because of the open skies treaty, U.S. airlines will also be coping with increased competition from European carriers. That's one more negative for an industry that may already be in a nosedive. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
SUSIE GHARIB: There was new evidence of that weakness late today. In light of high jet fuel prices, American Airlines announced the first round of reductions to its flight schedule. American plans to restructure its operations in San Juan, Puerto Rico beginning in September. It will also cut routes from Chicago to Buenos Aires and Honolulu. Parent company AMR says there will be group cuts in other markets as it slashes domestic capacity 11 to 12 percent by year's end.
One on One with Stephen Wood, Senior Portfolio Strategist at Russell Investments
SUSIE GHARIB: Despite a rocky month for the markets, our guest tonight expects stocks to move higher in the second half of this year. Joining us now to explain Stephen Wood, senior portfolio strategist at Russell Investments. Hi, Steve.
STEPHEN WOOD, SR. PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS: Good evening. How are you?
GHARIB: Good, thank you. So you have a pretty upbeat outlook. Give us your analysis on why.
WOOD: I look at it as being guardedly optimistic. There is always the balance of risks and opportunities in any market environment. And right now there's a lot more apparent risks. But I think what we're seeing in a U.S. economy that's been weakening for well over a year now, but it's also the pace of the slowdown, which I think caught a lot of people off guard. So I think, you know, it's still an academic debate whether or not the U.S. will fall into a recession and I think it's kind of split. But coming into the second half of 2008, growth will tend to up tick a bit. We're going to stabilize at an unimpressive rate, but I think right now the bigger risk to my mind is not so much are we in a recession, which is more an academic debate, but for the foreseeable future, it's going to be kind of sub-par growth. So as the U.S. economy does OK, how do investors view that market?
GHARIB: So in this sort of OK economic environment, what would drive stocks higher?
WOOD: I think we're seeing earnings, if you back up financials, which is a big backup, but the write-downs and the charges of financials have dragged down earnings. But earnings are doing reasonably well if you exclude those financial charge offs. Internationally and globally, I think Americans need to come to the recognition that while the United States is still the biggest market and the biggest economy in the world and it will be for some time, it's not the only investment opportunity. So at Russell we've been looking to globally diversify the earnings in our portfolio. So that I think is going to be in a lot of peoples' interests to diversify the earnings stream in their portfolio.
GHARIB: And when you say you're going to diversify and go international, what areas, what geographies are you looking at?
WOOD: I think right now Europe and the euro is obviously shown itself to be a competitive currency. I think they've got a lot of challenges, but they've overcome a lot of obstacles. So I think Europe looks good. I think also emerging markets. You know, everything in moderation, but emerging markets for a long-term investor, that's where we're going to see a lot of the new growth. The United States and Europe combine to about 60 percent of the world's GDP, but the 40 percent which is emerging markets like China, India, Brazil, eastern Europe which often gets neglected in a lot of conversations, that's where you're going to see a lot of the faster rates of growth. So that's where we're looking, as well.
GHARIB: Steve, can you give examples of stocks that are in your portfolios now that are rock solid as far as you're concerned?
WOOD: Rock solid, I don't know about that, but what we're looking at in terms of larger cap consistent growth companies that can do better in a challenging environment. On the technology front, there's names like Apple which is less exposed to the economy and more into product development. I think while we're dramatically under weight in financials at Russell, we have been and I think we'll continue that perspective, there are some names like Goldman Sachs which continues to be a long-term investment and not necessarily a trade. So I think that the global growth story is still intact. So if the structure remains (ph), are still going to take advantage of that. But this is going to be a stock picker's environment. And I think that there's going to be big differences between well-run companies that can execute in the challenging environment and just the rest of the bunch. So for most of investors they want to be cautious.
GHARIB: Steve, of the stocks that you named, Apple and Goldman Sachs, do you own these stocks or do you have any other disclosures you have to make?
WOOD: Again, they're owned in my personal holdings as well as the Russell fund, they are. But also, we've been talking a lot about oil and I think that investors would want to look at names, oil services, exploration, which are going to participate less in commodity volatility and more the next three to five-year capital budget and try to find more oil.
GHARIB: Unfortunately, we've run out of time. We're going to leave it there. Steve, thanks so much for coming on the program.
WOOD: Thank you.
GHARIB: My guest tonight, Stephen Wood, senior portfolio strategist at Russell Investment.
The Slow Economy Has Employers Putting The Brakes On Perks
PAUL KANGAS: The end of May is traditionally college graduation season, which means thousands of new graduates will be joining the work force or so they hope. The slowing economy has many graduates worried that they won't be able to find a job. As Dana Greenspon reports, there are still entry level jobs to be had, but the perks may not look the same as last year.
DANA GREENSPON, NIGHTLY BUSINESS REPORT CORRESPONDENT: American University graduate Emily Thomas hopes her degree in environmental studies will add some green to the world and to her wallet. But first, she needs to get a job and so far, finding one hasn't been easy.
EMILY THOMAS, AMERICAN UNIVERSITY GRADUATE: It's a lot tighter job market and so there's a lot more competition. I know people applying for the same jobs that I am, so it's a little tense.
GREENSPON: Thomas isn't alone in feeling tense about her job prospects. Sue Gordon is a career counselor at American. She says the slowing economy is the number one worry among this year's graduates.
SUE GORDON, CAREER ADVISOR, AMERICAN UNIVERSITY: I think there's a higher anxiety this year that I'm seeing. When a student sits across the desk from me is that they're just -- they're worried about the economy, whereas in the previous several years, that hasn't been a concern.
GREENSPON: Gordon says most industries are still hiring, even in the financial sector. But she has noticed a troubling pattern -- salary cuts, in areas ranging from the non-profit sector to finance.
GORDON: Our undergraduate business students are still getting offers, but this year, there aren't signing bonuses, whereas in the past, there have been. So that's another trend we're seeing. So there are still jobs, just maybe not quite as much money as the students might have hoped for or expected.
GREENSPON: Not all salaries are slumping. Salaries for some engineering jobs are up significantly over last year. But many jobs, including those for accountants, teachers and management trainees, have seen cuts in entry level pay. To new graduate Chris Chester, those numbers are more than just statistics. He is still looking for a job in public affairs and has been surprised by the advertised salaries.
CHRIS CHESTER, AMERICAN UNIVERSITY GRADUATE: I'm looking at jobs in New York and California and it doesn't really seem like they're offering the kind of salaries that you could live on in the city.
GREENSPON: Employers like Eric Burnquist say future economic uncertainty has put businesses like his in a tight position. Burnquist runs Georgetown Learning Centers and is still hiring college grads. But he says this year, he's holding salaries flat for entry level employees and he isn't hiring the extra employees he had hoped to.
ERIC BURNQUIST, CO-FOUNDER, GEORGETOWN LEARNING CENTERS: We're just trying to buy ourselves a little bit of time before we make those commitments and hopefully be in a better position when the economy picks up, we'll be prepared to bring on extra staff. And if the economy continues to turn down, then we'll be prepared to still making a viable business but not be overextended.
GREENSPON: Sue Gordon of American University says the good news is, graduates are still finding jobs.
GORDON: My impression is that, compared to previous downturns -- say 2001, the dot-com bust, etc., 2001, 2002 -- I think right now we're in a better place than we were then.
GREENSPON: Career counselors say a telltale sign of the health of the job market could come this fall when they see how many companies sign up to recruit next year's seniors. Dana Greenspon, NIGHTLY BUSINESS REPORT, Washington.
SUSIE GHARIB: Earlier today, NIGHTLY BUSINESS REPORT's Jeff Yastine spoke with Matt Ferguson, the CEO of careerbuilder. Jeff began by asking him what the job market is like for new grads.
MATT FERGUSON, CEO, CAREERBUILDER.COM: Well, I think job market in 2008 for new graduates from college is worse. I mean, it's slowed down a little bit. I think in our survey we saw 79 percent of employers were going to hire new college graduates last year and that's down to 60 percent. So it's a slower market, but it's not a terrible market. It's not as bad as it was in 2001. I think there will be plenty of opportunities for those that are willing to go after them.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is it basically just a sense that new grads need to perhaps lower their expectations a little at least compared to perhaps their friends who might have graduated a year or two years before?
FERGUSON: I think there's something to be said about expectations. I think you may have to take a job that's a little different than what you thought you were going to take a year ago. You may have to take it in a geography or city where you didn't expect to go initially. It may not be the perfect job. The important thing for any new college graduate is get a job that's a good job that gets you started on the pathway to that better job maybe two or three years out. And don't be so specific that maybe you end up wasting a lot of time looking for that first job.
YASTINE: With all that in mind, tell us what are the best degrees for these new graduates to have for the best hiring prospects at this moment?
FERGUSON: Yeah, we see some areas that are still very, very hot for new graduates. One would be information technology and engineering. There's a ton of need in the United States for good information technology and engineering professionals. Those salaries usually start above $40,000 a year, maybe above $50,000 depending on the company. That's a very good area. Health care overall, booming demand, 300,000 jobs created in the health care in the United States in 2007, in the early part of 2008. So there's a lot of demand for health care professionals and that's a good area to be in. Also I still think sales and marketing is a good area. Companies want to grow revenue. They're still focused on their customers. I think sales and marketing is a good area to start your career if you're thinking about doing anything in management and business later also.
YASTINE: I know I've seen in past years when I read these types of stories that often in the hottest places in the job market you see a lot of signing bonuses and all these other sorts of incentives that come along. Are you seeing much along those lines in these areas that you just mentioned?
FERGUSON: No, not too much with signing bonuses. I think those would be a little bit more prevalent in a market where it's really hot and growing quickly and you saw that a lot in finance. You see that some in law school graduates. But I see overall you're not going to see signing bonuses. I think if you're in information technology or health care, you're going to see pretty good increases in your starting salary over what people saw last year. If you're in another area, you may not so that big of an increase and you certainly may not see things like signing bonuses.
YASTINE: And just a final perspective from your part as far as how does this compare compared to previous economic slowdowns in about 15 seconds.
FERGUSON: Yeah, I think this slowdown is not as bad as what we saw in 2001. I think we had a real bubble in the labor market in 2001. I think you're seeing a slowdown in the labor market, but it's not nearly as severe as last time.
YASTINE: I appreciate your time on the program.
FERGUSON: Thank you.
YASTINE: My guest, Matt Ferguson, CEO of careerbuilder.com.
"Of Mutual Interest"-John Waggoner, Mutual Fund Columnist at "USA Today"
SUSIE GHARIB: In tonight's "Of Mutual Interest," the ups and downs of socially conscious mutual funds. Here's John Waggoner, mutual fund columnist at "U.S.A. Today."
JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: If you own a fund that screens its investments for their social merits as well as their investment merits, you may be feeling a warm glow of goodness. But you're probably not feeling a lot wealthier. If you're willing to take more risk, you might find some funds that make you feel good and rich. If not, you'll just have to be patient. A few funds try to avoid investing in companies that shareholders might find objectionable: polluters, for example, or producers of alcohol, tobacco or firearms. The funds' screening criteria depend on their target investor. The vice fund, for example, invests in everything that's bad for you. The MMA Praxis fund invests in companies in accordance with Mennonite principles. But many socially conscious funds have been laggards recently. The Vanguard FTSE social index fund for example, has lagged 91 percent of large company stock funds the past five years. The main reason -- stocks of energy and mining companies have been the big winners in the stock market and many of these funds have minimal investments in them. It's hard to find a big oil company that doesn't pollute. But you can find funds with significant stakes in alternative energy. Typically, however, these are funds that are invested in the stocks of smaller companies, which are inherently riskier than large company stocks. And while alternative energy stocks aren't the next new Internet companies, they often have little in the way of earnings, which analysts agree is generally a nice thing to have. Or you can have a bit of patience. Sooner or later, the market will turn its attention to something else and your socially responsible funds should fare well. And for many people, the thought of having your money do some good in this world is worth the wait. I'm John Waggoner.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened with moderate gains as buyers hunted for bargains after last week's sharp losses. A stronger dollar added to bullish confidence. After an hour of trading, the Dow was up 45 points and the NASDAQ had a 23 point gain. The market faded a bit over the midday hours, but came on strong with the tech stocks leading the way in early afternoon. That as investors reacted to the sharp decline in oil and other commodity futures. The Dow Industrial Average went on to close up 68.72 at 12,548.35. The NASDAQ Composite was up 36.57 ending at 2,481.24. Standard & Poor's 500 Index rose 9.42 to 1,385.35. Over in the bond market, the 10- year note fell 19/32 to 99 19/32, putting the yield at 3.92 percent.
Familiar name at the top of the active board, Citigroup (C) on 18.5 million shares topped it, up $0.54 today.
That was followed by General Electric (GE) with a $0.03 drop. GE wants to sell its appliance unit and it seems there are a lot of foreign buyers that might be interested.
Ford Motor (F) dropped $0.07 a share. The Citigroup made some rather bearish comments about the auto industry today. Pfizer (PFE) down $0.20.
And then came Wells Fargo (WFC) with a $0.12 drop there. Moving along in the active list, Fannie Mae (FNM) fell $1.06.0
Bank of America (BAC) up $0.24.
JPMmorgan Chase (JPM) gained $0.69. JPMorgan Chase and First Data Corp. have agreed to end their joint venture called Chase Payment Tech Solutions. They hope to do it by the end of this year.
General Motors (GM) down $0.18. Citigroup downgraded GM from "buy" to just a "hold."
And then ExxonMobil (XOM) on those lower oil prices today, losing $0.90.
UBS Ag (UBS), the big financial bank, down $1.56. "Wall Street Journal" reported the company warned it may have to record losses on non- U.S. real estate as it sells some $16 billion to shareholders in an attempt to repair the company's rather damaged balance sheet.
Hershey (HSY) big gainer, up $3.42. Takeover speculation with a possible joint venture maybe with Nestle, just speculation.
Valero Energy (VLO), the big refining company, down $1.14. The company had to shut down a key gasoline unit at its New Jersey refinery due to a leak. We didn't need that on this atmosphere.
Standard Pacific (SPR), the western home builder, up $1.07, big percentage move. A private equity firm called Matlin Patterson will invest $530 million in various company securities for some much-needed cash by Standard Pacific.
Polaris Industries (PI) which makes ATVs and snowmobiles, things like that, got an upgrade from FTN Midwest Securities, an upgrade from "sell" to "neutral."
And Baker Hughes (BHI), the big oil company, oil service company, up $2.01. Merrill Lynch upgraded it from "neutral" to "buy."
Merrill Lynch gave the same upgrade to Darden Restaurants (DRI), "neutral" to "buy."
On the downside we see Flotek Industries (FTK) losing $1.91. The company cut its 2008 earnings forecast, which was $1.50 to $1.60 a share down to $1.12 to $1.22 because of lower than expected first quarter performance.
Pediatrix Medical (PDX) dropping $5.15. The company sees lower than expected second quarter earnings of $0.77 to $0.80 and it will not meet its full year forecast because of lower than expected patient volume at its neonatal intensive care unit, but the company will buy back to up $100 million of its stock.
Apple (AAPL) topped NASDAQ's active, up $5.26. It's in a pact to sell its iPhone in Sweden, Norway, Denmark and Finland.
Research in Motion (RIMM) up $3.49.
Followed by Google (GOOG) with a nice gain of $16.28.
Then Microsoft (MSFT) $0.39 advance.
Intel (INTC) up $0.19 even though the "Financial Times" reported the EU competition authority plans to take action against the company's sales and distribution practices.
Baidu.com (BIDU) up $7.79.
Qualcomm (QCOM) $1.09 gainer.
Cisco Systems (CSCO) up $0.49.
First Solar (FSLR) dropped $13.32.
Then Amazon.com (AMZN) with a gain of $2.27.
Consolidated Communications (CNSL) up $1.16. Credit Suisse upgraded it from "neutral" to "outperform."
And those are the stocks in the news tonight.
