NBR Transcripts- June 9, 2008
Monday, June 09, 2008Oil Prices Slide As The Dollar Picks Up Strength
SUSIE GHARIB: As temperatures on Wall Street heated up to record levels today, oil prices cooled off somewhat. In New York trading, July crude futures fell $4.19 to settle at $134.35 a barrel. That's after climbing $16 a barrel in the previous two sessions. Experts credited profit-taking and the stronger U.S. dollar for today's pullback. Suzanne Pratt takes a look at the relationship between oil prices and the dollar.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's no secret in world energy markets that there's currently an inverse relationship -- also known as a negative correlation -- between oil prices and the U.S. dollar. Recent trading clearly illustrates it. As the dollar rose today against the euro for the first time in three trading sessions, oil prices fell sharply; while on Friday, as the dollar fell sharply, oil prices surged nearly $11 a barrel. Persistent concerns about supply-demand fundamentals are at the heart of the rally in oil prices. But when the dollar is weak, commodities that are denominated in dollars become less expensive to buy for those using other currencies. Oil trader Ray Carbone says the relationship is most powerful when oil is in rally mode.
RAY CARBONE, OIL TRADER, PARAMOUNT OPTIONS: I think it's just a psychological reason that money flows into commodities a little bit faster when the dollar is weak than it flows out when the dollar is strong.
PRATT: Since January, the price of oil has surged nearly $40 a barrel or about 40 percent. In the same time frame, the dollar has fallen about 7 percent against the euro. Exactly which one is impacting the other is a matter of some debate, a chicken or egg conundrum. HSBC currency strategist Bob Lynch considers it only a perceived relationship.
ROBERT LYNCH, CURRENCY STRATEGIST, HSBC: I use the term perceived linkage specifically because while it's very easy and we read it quite frequently to see that weakness in the dollar is actually pushing oil prices higher, the statistical relationship is not at all that clear.
PRATT: Perceived or real, oil experts are still closely watching developments in currency markets for clues about oil prices. Today, the dollar rallied from a six-week low against the euro as Treasury Secretary Henry Paulson said he would never rule out currency intervention. And many currency experts predict the dollar will recover later this year.
LYNCH: The credit crisis will subside. The stresses in the financial system will begin to subside and even though we're just getting started in terms of the bad news in the real sector data, in the economic data, that too, should begin to bottom out as the year progresses. And then finally later this year, we should be looking at a stronger dollar, certainly stronger than it is today.
PRATT: Exactly what happens to the dollar in the near-term may largely depend on European interest rates. If the European central bank raises rates this summer, the dollar is widely expected to weaken further. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
The Air Force Works To Recruit Alternative Fuel Sources
PAUL KANGAS: Like commercial airlines, the U.S. Air Force is also facing soaring fuel costs. While efficiency efforts have helped cut consumption, the Air Force still spent nearly $6 billion on fuel last year, triple the amount spent just three years ago. As Stephanie Dhue reports, soaring fuel prices are driving the Air Force to look for alternatives.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Air Force is gearing up to make a market for synthetic fuel made from coal. It has already certified the B-52 bomber to fly with the new fuel and over the next three years, plans to have all 6,000 planes in the fleet fly with a 50/50 blend of synthetic and petroleum-based fuels. Bill Anderson heads the Air Force's fuel program. He says the idea is to develop a domestic industry to supply that fuel.
BILL ANDERSON, ASST. SECRETARY, U.S. AIR FORCE: Rather than the movie the "Field of Dreams," where you build it and they will come, here in essence, we are there, waiting for the industry to be built to service our demand.
DHUE: The Air Force uses about 2.6 billion gallons of jet fuel each year, nearly 10 percent of what's sold in the United States.
ANDERSON: A 10 percent share of the market is a pretty sizable portion and we believe that is enough to initiate a market at a minimum.
DHUE: The Air Force is also working with commercial airlines and engine makers to develop a coal-to-liquids market. Rising crude oil prices are making similar projects more attractive. Bob Kelly is with DKRW, a firm developing a coal-to-liquids manufacturing plant. He says there is a market for synthetic fuel for cars. One challenge is getting financing.
BOB KELLY, CHAIRMAN, DKRW ADVANCED FUELS: You're talking about spending $2 to $3 billion to put these facilities up, so the banks need to get used to financing those types of facilities and those sizes of facilities. It's going to be a new thing for them.
DHUE: Another challenge, environmental issues. Environmentalists call synthetic fuels a step backward. The Sierra Club's Alice McKeown says coal-to-liquid is a disaster.
ALICE MCKEOWN, COAL ANALYST, SIERRA CLUB: From the time the coal is ripped out of our mountains to the time it's burned at the tailpipe, the overall global warming emissions are double those of traditional petroleum- based fossil fuels. At a time when we need to be addressing global warming, that's taking us in the wrong direction.
DHUE: The Air Force says it's working to adopt a synthetic fuel that is greener than current jet fuel.
ANDERSON: We believe that by the time this industry is viable in this country and that will be, at the earliest 2012, that technologies are available even today that will allow us to reduce the environmental footprint of these synthetic fuels below currently available petroleum- based jet fuel.
DHUE: The Air Force sees the synthetic-coal-to liquid as its transition fuel until the next generation of bio-fuel is ready to go. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Langley Air Force Base, Virginia.
"Get Your Finances Ready for Retirement"-Relocating in Retirement
SUSIE GHARIB: One of the first decisions facing new retirees is often about where to live. A recent survey shows about half of all baby boomers expect to move to another state at retirement. While making a move is never an easy decision, for retirees, it can be complicated by fixed incomes and family dynamics. As we continue our series "Get Your Finances Ready for Retirement," Joe Collum looks at the pluses and minuses of relocating.
JOE COLLUM, NIGHTLY BUSINESS REPORT CORRESPONDENT: Dr. Robert Levin moved from Pennsylvania to Florida last year because he wanted to play golf year-round, but the retired dentist also discovered the move was a financial hole-in-one. In the sunshine state, Levin no longer has to pay several thousand dollars every winter for heating oil and because Florida has no state income tax, he will save another $1200 a year.
DR. ROBERT LEVIN, RETIREE: So financially, it's been a good move. Good move as far as that goes.
COLLUM: And downsizing to a smaller home also had its benefits. He and his wife Brenda sold their five-bedroom house outside Philadelphia for $750,000. They then bought a two-bedroom condominium in Boynton Beach for $310,000, which included a membership in a private country club.
LEVIN: So I had several hundred thousand dollars which I used to invest and I'm just investing it right now and I'm getting a nice percentage. So that's going to be a nice income coming in.
COLLUM: And in terms of their quality of life, Brenda Levin has no complaints.
BRENDA LEVIN, RETIREE: We love it here. We don't like it here; we love it.
COLLUM: Relocating from a cold climate to a tropical paradise may seem irresistible and may even appear to make good financial sense. But like many retirees, you could find that cutting personal and family ties to your home town is not easy. Stan and Sara Hinden planned to move from Maryland to Florida after he retired as a business columnist at the "Washington Post." But after reading letters from others who made the move and regretted it, they soon changed their plans.
SARA HINDEN, RETIREE: People would be saying things like, I don't see my children anymore. My parents don't have anything to do with their own grandchildren because of the distance.
COLLUM: And Sharon Cofar, who owns a company that helps senior citizens relocate, says she is seeing more and more retirees going back to their original hometowns.
SHARON COFAR, A MOVE MADE EASY: Reverse migration is very common now because their money is running out and their health is running out and they want to be in the final stages of life near their families.
COLLUM: So if you're thinking about relocating when you retire, it's important to weigh the financial pluses and minuses before you actually make the move. On the plus side, if you're in one of the 43 states or Washington, D.C. that currently tax personal income, moving to any of the seven states that have no personal income tax could save you money. Or, if you'd rather live elsewhere, you could move to one of the 28 states or the District of Columbia that exempt all or part of Social Security payments from their income taxes. Still, "U.S. News & World Report" retirement correspondent Kerry Hannon says it's important to keep the tax benefits in perspective. She says many people often ignore other tax bills in looking at states with low or no income taxes.
KERRY HANNON, RETIREMENT CORRESPONDENT, U.S. NEWS & WORLD REPORT: Sounds great. But if you look at the whole picture, your entire tax picture, those states often make up for not having income taxes by having higher property taxes or higher sales taxes.
COLLUM: Also on the minus side, the cost of medical care and other necessities can vary greatly around the country, so don't assume that their prices will be the same as you're used to paying. For example, in Florida, Robert Levin was surprised to find that the cost of auto insurance was substantially higher than he expected. The bottom line, don't just look at the financial sunny sides of the places you may live in retirement; consider their downsides, as well. Joe Collum, NIGHTLY BUSINESS REPORT, Boynton Beach, Florida.
GHARIB: The web is a big part of our efforts to help you get ready for retirement. On our web site, nightlybusinessreport@pbs.org, you'll find an extensive array of resources, information and tools you can use, including podcasts of our stories. So check out the "Get Your Finances Ready for Retirement" section of NIGHTLY BUSINESS REPORT at pbs.org.
"Commentary"-Repairing the Housing Crisis
SUSIE GHARIB: Tonight's commentator has a few thoughts on fixing the housing crisis. She's Alice Rivlin, senior fellow at Brookings and former vice chair of the Federal Reserve.
ALICE RIVLIN, SENIOR FELLOW, BROOKINGS: We hear a lot about moral hazard these days. That's jargon for policies that tempt people to take risks. Libertarians claim that requiring motorcycle helmets poses moral hazard because it invites reckless biking. Free market purists think the Federal Reserve's rescue of Bear Stearns invites reckless investment banking. Never mind that the shareholders of Bear feel like the biker whose helmet saved him from brain injury, but not from broken legs and a destroyed Harley. The same people are now saying that putting public money at risk to help families facing foreclosure will encourage the reckless at the expense of the prudent. But society shares the blame for not regulating the lax lending standards and high pressure tactics that led home-seekers to borrow so much. Moreover, foreclosures are a contagious disease, destroying property values even of prudent neighbors. If help is not forthcoming, the foreclosure disease will spread more rapidly and prolong the pain. All public policies involve trade-offs between conflicting values. Policy makers must weigh the benefits of helping distressed homeowners against the risk of encouraging future imprudence. This moral hazard problem is tougher than motorcycle helmets, but I believe that we should mitigate the contagion and buy time to fix the fundamentals that society got wrong. I'm Alice Rivlin.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's blue chips opened higher in a technical rebound from Friday's steep sell-off. Buyers were also encouraged by that drop in oil futures. An hour into trading, the Dow was up 111 points, but the NASDAQ was off seven points on weakness in Apple stock as investors showed caution over how its new iPhone would be received. The market remained mixed for the rest of the day as weak financials trimmed the blue chip's gains, while the tech sector partially recovered. So the Dow Industrial Average closed up 70.51 points at 12,280.32. The NASDAQ ended off just 15 points and 10 points actually to 2459.46. Standard & Poor's 500 gained 1.08 ending at 1361.76. Over in the bond market, the 10-year note fell 24/32 to 98 26/32, putting the yield at 4.02 percent.
Big board volume leader as you might expect, Lehman Brothers (LEH) trading 31.2 million shares, down $2.81 on the close. It traded as low as $28.01. As you heard, it's going to take a second quarter loss of $5.14 a share or thereabouts. Lehman analysts also cut ratings and price targets on a slew of large cap banks, many of which you'll see in the active list, including Citigroup (C) which lost $0.46.
Bank of America (BAC) down $0.89.
Pfizer (PFE) bucked the trend up $0.06.
JPMorgan Chase (JPM) one of the hardest hit of the big cap stocks in the banking area, down $2.58.
General Electric (GE) $0.04 gain there.
Wachovia (WS) another weak bank, down $1.24.
Washington Mutual (WM) fell $1.28. UBS financial sees the company taking $27 billion in losses through the year 2011.
Ford Motor Co (F) in there with a $0.32 gain.
Then Wells Fargo & Co (WFC) down $0.15 a share.
Alcoa (AA) did well, up $2.95. "Barron's" financial this week quotes a Citigroup mining analyst John Hill who sees the stock under valued and thinks $50 a share is a good price target for Alcoa, $60 on a takeover bid.
American Intl Group (AIG) down $0.44. Top management and the board are facing mounting dissent from some very large shareholders. Trouble ahead perhaps.
McDonald's (MCD) down $2.36. The company said its May global sales were up a handsome 7.7 percent. Lehman boosted earnings estimates, repeated an "over weight" rating on McDonalds and on a separate note, the food giant has also stopped putting tomatoes on sandwiches due to safety concerns stemming from an outbreak of salmonella.
Moving along in the big movers category, Honeywell Intl (HON) wasn't exactly a big mover, up $0.78, but it's going to sell its aerospace fastener business to BE Aerospace for $1, let's make it $1 billion and 50,000. BE stock was up $2.98.
Hilb Rogal Hobbs (HRH), this is an insurance holding company, big move, up $12.93. Another insurance company, Willis Group will acquire it for $46 a share, 50 percent cash, 50 percent stock. Willis stock itself was down $2.16.
Dreamworks Animation (DWA) gaining $1.63. The company's "Kung Fu Panda" animated movie brought in $60 million at the box office over the weekend. That's the company's best performance ever for a non-sequel. Jefferies brokerage upgraded the stock from $25 to $33 a share on a price target.
Mosaic Co (MOS), the fertilizer company, up $7.65. Fitch and Standard & Poor's rated both, upgraded the company's unsecured debt to "investment grade." Goldman Sachs added it to its conviction "buy" list.
Moving along we see Trina Solar Ltd (TSL) down $4.57. Friday the company did report higher earnings, first quarter, $0.51, up from $0.22 a year ago, but it warned that higher silicon costs could hurt profit margins, down went the stock today.
Apple (AAPL) topped the NASDAQ most active, losing $4.03. As you heard, it introduced that new 3g iPhone today.
Google (GOOG) down $9.13.
Research in Motion (RIMM) moving up $2.71.
$0.22 gain in Microsoft (MSFT).
Intel (INTC) fell $0.14.
Baidu.com (BIDU) down just over $13.
Cisco Systems (CSCO) fell $0.11.
And Qualcomm (QCOM) a $0.03 loss there.
Dell (DELL) moved up $0.41.
And First Solar (FSLR) down $6.93.
Amylin Pharmaceuticals (AMLN) down $3.09 on growing, the threat of growing competition for its diabetes drug called Byetta.
And then Rimage (RIMG), this is a company involved with DVD publishing systems. It cut its second quarter earnings guidance to $0.12 at best from a previous at best estimate of $0.27, quite a drop.
Those are the stocks in the news.
