NBR Transcripts- July 2, 2008
Wednesday, July 02, 2008Oil Reaches A New Record High
SUSIE GHARIB: Oil prices spiked to a record $143 a barrel today on fresh concerns about supply. In New York trading, August crude futures surged $2.60 to settle at $143.57 a barrel after topping $144 earlier in the day. The government reported U.S. crude stockpiles fell by two million barrels last week, putting inventories below 300 million barrels for the first time since January. As Suzanne Pratt reports, the drop in inventories comes at a bad time for drivers.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: For those Americans who hit the road this holiday weekend, filling up their gas tanks will not be pretty. According to AAA, the national average for unleaded gas is now $4.09 a gallon. That's nearly a 40 percent jump from a year ago. In some areas of the country, drivers are paying closer to $5 a gallon. Still, those sky-high prices are having some effect on driving habits. Government data out today shows U.S. gasoline demand over the last four weeks is down 1.7 percent from a year ago. But oil expert Jonathan Kleisner says the drop in U.S. consumption is not affecting energy prices because global demand remains so strong.
JONATHAN KLEISNER, OIL ANALYST, REX CAPITAL GROUP: From a global standpoint, you have the Beijing Olympics, you have a lot of rebuilding going on there. You have an explosion in places like Russia and Brazil that are still growing very, very rapidly. I think that just sops up whatever demand slackens in the United States.
PRATT: On the other side of the supply-demand equation, global oil supplies are expected to remain under pressure. On top of that, geopolitical concerns are heating up as the saber-rattling between Israel and Iran continues to escalate. Experts say a clash between the two nations would fuel a big spike in oil prices.
KLEISNER: An amount of risk premium is already built in for a conflict like that. But, depending on its length and severity, will be how big the spike would be, looking around $170 a barrel if a full-blown conflict develops.
PRATT: In the absence of major geopolitical tensions, experts predict crude oil prices will top $150 a barrel before Labor Day. As a result, oil trader Mark Solazzo sees little relief for Americans this summer from the pain at the pump.
MARK SOLAZZO, OIL TRADER, M. SOLAZZO TRADING: The market's had plenty of opportunities to sell off. And every time there's any type of a little sell-off, the market recovers and moves on to make a higher high, which is very bullish -- in a trading standpoint, is a very bullish move.
PRATT: Tomorrow, the European central bank is expected to hike interest rates. If that happens, experts say it would hurt the dollar, which in turn, is likely to mean another boost for oil prices. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York
"Economic Choices-2008"-Free Trade
PAUL KANGAS: The Treasury secretary has long supported a trade deal with Colombia. Today Senator John McCain was in that nation meeting with President Uribe and highlighting the benefits of the Colombia free-trade agreement. Trade is one of the sharpest differences between presidential contenders John McCain and Barack Obama. As our "Economic Choices" coverage continues, Stephanie Dhue looks at the rising role of trade as a campaign issue.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Presidential candidates usually go where the voters are in an election year -- U.S. voters that is. But John McCain is taking a different path, with trips to Canada, Colombia and Mexico promoting free trade. At a news conference in Cartagena today, McCain acknowledged the issue is politically unpopular now in the U.S.
SEN. JOHN MCCAIN, (R) PRESUMPTIVE PRESIDENTIAL NOMINEE: We who support free trade have to emphasize time after time that we are committed to providing education and retraining to displaced workers in newer and better and more innovative technologies.
DHUE: Senator McCain has supported every major piece of trade legislation since 2001. Senator Barack Obama voted against the Central American free trade agreement in 2005 and is against pending deals with South Korea and Colombia. Obama was highly critical of the North American free trade agreement during the primary campaign. Recently, Obama has made it clear he supports free trade, but not all trade agreements.
SEN. BARACK OBAMA (D) PRESUMPTIVE PRESIDENTIAL NOMINEE: I don't think an agreement that allows South Korea to import hundreds of thousands of cars into the U.S. but continues to restrict U.S. car exports into South Korea to a few thousand is a smart deal.
DHUE: Free trade is a key issue, especially in states like Ohio, Michigan and Pennsylvania, which have large labor union memberships. The nation's largest labor union, the AFL-CIO, supports Obama. Its international economist, Thea Lee, says the country needs a new direction on trade.
THEA LEE, CHIEF INTERNATIONAL ECONOMIST, AFL-CIO: We need to think about trade very differently. We need to think about what kind of policies it would take to incentivize American companies to create good jobs at home on American soil. We haven't done that in the past.
DHUE: Business groups support free trade because it generates exports that they say lead to higher-paying jobs in the U.S. and trade supporters says foot- dragging on these agreements could send business elsewhere. For example, Colombia recently inked an agreement with Canada. Colombia's trade minister, Luis Plata, says that deal gives his country more options.
LUIS PLATA, COLOMBIAN TRADE MINISTER: Canada is very strong in poultry, very strong in pork, very strong in wheat, barley, things that Colombia buys from the U.S., but now can buy from Canada with no tariffs.
DHUE: Free trade agreements have stalled in the Democratically controlled Congress and analysts say any movement on those deals may have to wait until after the next president is elected. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Marilyn Cohen, President of Envision Capital Management
PAUL KANGAS: With ratings downgrades and questions about capital continuing at municipal bond insurers like MBIA and Ambac, what's a muni bond investor to do? Tonight's "Street Critique" guest says most importantly -- do your homework. She's Marilyn Cohen, president of Envision Capital Management. Marilyn, welcome back the NIGHTLY BUSINESS REPORT.
MARILYN COHEN, PRESIDENT, ENVISION CAPITAL MANAGEMENT: Great being back.
KANGAS: Since your last visit with us in February, the picture for the bond insurers and for the municipal market overall has been deteriorating. Now you've written a new 10 commandments for muni bond investing. Let's start with the bond investors. What's the key there?
COHEN: The key is do not count on the bond insurers if you are a municipal bond investor. Only FSA, Berkshire Hathaway and Assured Guarantee seem to be the good quality issues out there. The rest, forget about it. Make sure your bond can stand on its own and that it has a good credit quality by itself without any of those insurers.
KANGAS: Marilyn, since the lion's share of muni bonds are owned by individual investors, how do they get the best price?
COHEN: That's a great question. First of all, there is a reporting system, Paul. It's called the trace system and that reporting system reports bonds that are trading in the secondary market. It reports their prices, the amount that is traded and the time in which it's traded. So if a broker is offering for you to buy a bond or you decide to sell a bond, you would go on to this absolutely free system, which is online. It's investinginbonds.com and see where that particular bond that you're trying to sell or buy just traded so you know whether or not you're getting the right price.
KANGAS: Investinginbonds.com, that's the address?
COHEN: That's it, www.investinginbonds.com, totally free. We professionals use it, too.
KANGAS: Now what about the impact of the economic downturn and the housing crisis on states, counties and cities which issue these bonds?
COHEN: Well, that's a big question with a very negative answer. That is everything is getting worse. As the housing crisis continues to be bad, as the state's revenues continue to deteriorate, because we are in an economic recession, we have to connect the dots and connecting the dots means that our states are going to have less money, bigger budget deficits, people have their homes that they see the values are going down are trying to get their property tax reduced. So it means that we're probably going to see downgrades in state and city and municipalities and we're going to see bigger budget deficits.
KANGAS: We have less than a minute, Marilyn, but with interest rates appearing poised to rise, why would you invest in any bond right now?
COHEN: Well, particularly municipal bonds have already anticipated higher interest rates because they've repriced a couple times this year and also no matter what your political persuasion is, Federal tax rates are going up, so we're going to all be in high marginal tax rates and that makes municipal bonds more valuable to individual investors, not less valuable.
KANGAS: Very interesting. We just hit the highlights tonight. Our viewers can find more of your muni bond ideas on our web site, NBR on pbs.org. And Marilyn, I thank you for being with us.
COHEN: It's my pleasure.
KANGAS: My guest, Marilyn Cohen of Envision Capital Management.
Politics, Protest, & Promotion May Be The Name of the Game At The 2008 Olympics
SUSIE GHARIB: The 2008 Beijing Olympics are just 36 days away. China watchers say some sponsors are concerned the games could be marred by protests, much like the Olympic torch relay was earlier this year. As Shannon van Sant explains, that could pose a challenge for corporate sponsors hoping to expand market share both inside and outside China.
SHANNON VAN SANT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lenovo engineers spent months designing the Olympic torch. They call it the "cloud of promise" and say the curly-cue strokes represent clouds often depicted in Chinese paintings. For Lenovo and other sponsors, the Olympic games promise a huge opportunity to build brand recognition. But so far, the 2008 games have also brought political protests and calls for boycotts of western and Chinese corporations. Alice Li, vice president of Olympic marketing, says Lenovo's Olympic sponsorship will pay off despite the controversy.
ALICE LI, VP OF OLYMPIC MARKETING, LENOVO: When we evaluate the return and the value of this sponsorship, we want to take -- we need to take a very long-term view and bigger picture.
VAN SANT: For Lenovo, that picture includes building brand recognition overseas. In 2005, Lenovo bought the PC division of IBM and last year transitioned its entire product line to the Lenovo brand name. Lenovo's marketing strategy includes providing 30,000 computers, servers and printers for the games and auctioning an Olympic torch PC on eBay. Like Lenovo, Olympic sponsors are using the games to build market share in China and the west. William Hess, a senior analyst with Global Insight, says these sponsors are walking a political tightrope.
WILLIAM HESS, SENIOR ANALYST, GLOBAL INSIGHT: There's much more of an attachment to this being China's time to come and be the host of this big party. So, in that sense, I think it's been trickier to try to balance the concern, to identify with the local audience, also to make sure that they're not sacrificing too much of their global image and their global marketing campaign just to try to play into this very complicated political environment surrounding the Olympics here in Beijing.
VAN SANT: While the Olympics may be a coming out party for China as a modern state, it's also a coming out for Chinese companies looking to boost brand awareness in western markets. Lenovo is the top computer maker in China but still lags behind Dell and Hewlett-Packard in the U.S. Lenovo's Alice Li says the Olympics sponsorship will help change that.
LI: In the past two years, our brand awareness and recognition in most important countries increased dramatically and this is part of the reason we activate the sponsorship.
VAN SANT: For sponsors like Lenovo, the summer games offer a unique opportunity to seize global market share so long as consumers associate their brand with the Olympics and not political controversy. Shannon van Sant, NIGHTLY BUSINESS REPORT, Beijing.
"Money File" -Stick With The Strategy
PAUL KANGAS: Tonight's "Money File" commentator says, don't abandon your investing strategy just because the markets are rocky. He's Eric Schurenberg, managing editor at "Money" magazine.
ERIC SCHURENBERG, MANAGING EDITOR, MONEY MAGAZINE: In this frustrating market, some of the classics of investing style are beginning to look unexpectedly dowdy. An S&P 500 Index fund would have returned just 4 percent a year over the past decade and foreign stocks, which used to be just accessories, have begun to look increasingly essential. Is it time to rethink the old standards? Well, let's look at S&P index funds. Yes, their performance has been lackluster for a while, but not because the index and concept is bad. It has more to with the blue chips the S&P represents, which have been unusually out of favor. Adding small cap stocks would have helped, but you can do that without giving up the low costs and tax efficiency of indexing. Many big fund companies have total market index funds, which include small and mid-sized stocks as well as blue chips. How about foreign stocks? As economies abroad boomed, some strategists began urging you to put half or more of your money overseas. But then, you may remember the '80s, when everyone was sure that Japanese stocks would take over. That fad ended badly, a lesson in not chasing foreign stocks just because they're. On the other hand, Japanese investors would have been wise to diversify beyond their borders. So the answer's somewhere in the middle -- up your foreign holdings to somewhere between 20 and 30 percent, but don't rush in; act deliberately. The bottom line: adjust, but don't totally shake up your portfolio to incorporate new ideas. On Wall Street, big new ideas tend to sound smartest just before events prove them really dumb. I'm Eric Schurenberg.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street struggled today under the weight of those higher oil price and Merrill Lynch's negative comments about General Motors. While stocks did move higher at the outset of trading, they quickly turned south as the dollar weakened. By mid-day, the Dow fell to a 64-point loss and the NASDAQ was off 31 points. Increasing pessimism and the realization of a bear market for the Dow Industrials caused a scarcity of buyers this afternoon, so the market slumped to the day's lowest level at the final bell. The Dow Industrial Average closed off 166.75 points at 11,215.51. The NASDAQ Composite fell 53.51 points to 2251.46, while the Standard & Poor's 500 Index lost 23.39 points, ending at 1261.52. Over in the bond market, the 10-year note rose 12/32 to 99 10/32, putting the yield at 3.96 percent.
Once again at the top of the active list, today on 23 million shares was Citigroup (C) losing $0.29.
Followed by Bank of America (BAC) down $1.27. RBC Capital cut Bank of America's 2008 and 2009 earnings estimates.
Lehman Brothers (LEH) up $1.40. It was up $1.15 yesterday when Morgan Stanley put an "over weight" rating on the stock with a target of $31 a share. Lehman today said it's going to pay employees more in stock if they decide to stay with the firm.
Ford Motor Co (F) down $0.35.
And then General Electric (GE) a $0.61 loss there.
JPMorgan Chase (JPM) edged up $0.58. A number of U.S. bank stocks were boosted by good news from Deutsche Bank which I'll get to shortly.
Co vale do Rio (RIO) down $2.17.
Wachovia (WB) off $0.75.
And then Pfizer (PFE) an $0.11 drop.
EMC Corp (EMC) was up $0.33 a share.
Chesapeake Energy (CHK) rising $2.04. The company and Plains Exploration are in a joint venture in the Haynesville shale operation. Plains will acquire a 20 percent interest in Chesapeake's lease hold for a price of $1.65 billion. Plains stock fell $3.89 a share.
Then Deutsche Bank AG (DB) up $2.04. The company expects a profit in the current quarter versus a loss a year ago and said it does not need any new capital.
Massey Energy (MEE), the coal miner, down $17.47. Reportedly the company may have to pay $125 million in damages if it looses a pollution suit that insurers would refuse to cover. That $125 million would be over half of Massey's 2008 estimated net income. That had a negative impact on some other coal stocks and so did a sharp drop in the price of coal today.
Arch Coal (ACI), Consol Energy (CNX) and Peabody Energy (BTU) all well on the downside today.
Avis Budget (CAR) down $1.60. The car rental stocks for the second day in a row having a hard time. Avis said it sees second quarter earnings below where they were last year.
And then Dollar Thrifty Automotive (DTG) and Hertz Global Holdings (HTZ) down in sympathy, significant losses to both of those percentage wise.
Family Dollar Stores (FDO) moving up $1.66 on higher third quarter earnings of $0.46 versus $0.40 last year. Sales were flat in the period, but the company sees fourth quarter same stores sales rising 4 to 6 percent.
On the downside, Technitrol (TNL) fell $1.94. The company sees second quarter operating profit of $12 million, way down from its previous guidance of a profit of $25 million.
Apple (AAPL) topped the NASDAQ actives, down $6.50.
Research in Motion (RIMM) losing just over $7.
Google (GOOG) a loss of $7.69.
Microsoft (MSFT) fell $0.99. "Wall Street Journal" reports Microsoft approached News Corps and Time Warner to join in a deal to acquire certain parts of Yahoo!. We'll see Yahoo! in just a moment.
Baidu.com (BIDU) down $5.65.
And there's Yahoo! (YHOO) with a gain of $0.68.
Cisco Systems (CSCO) down $0.31.
Qualcomm (QCOM) $0.77 loss.
Apollo Group (APOL), the adult education company, up $8.52. Third quarter earnings $0.91, up from $0.81 a year ago and $0.13 above the Street estimate. The company says its enrollments in the third quarter were up 11 percent. The company plans to buy back up to $500 million of its own stock.
Some other in the adult education group did well on that news, Devry (DV) rising $5.06.
And ITT Education (GGI) up $2.74.
Then First Solar (FSLR), tenth in volume on NASDAQ, down $22.84, little profit taking there.
Middlebrook Pharmaceuticals (MBRK) down $1.52 at $1.55, down $1.55 at $1.52. The story here, the company is getting a $1100 million capital infusion from Equity Group Investments and the CEO is stepping down on that news.
