NBR Transcripts- July 3, 2008
Thursday, July 03, 2008The Payrolls Continue To Take Deep Cuts
SUSIE GHARIB: Bad news today for job seekers as American businesses cut jobs from their payrolls for the sixth straight month. The Labor Department reported that U.S. payrolls fell by 62,000 in June. Today's report is more evidence that consumers and the economy are being pressured by the combination of declining employment, rising energy prices and falling home values. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: There is no question the U.S. economy is in a funk. While the loss of 62,000 jobs in June was far short of the numbers usually seen in a recession, it was the sixth month in a row payrolls have been cut. Job losses for the year now total 438,000. Wall Street was particularly interested in the unemployment rate, which had jumped a whopping 0.5 percent in May. Some of that increase was attributed to seasonal adjustment factors. But the rate held steady at 5.5 percent in June. Economist Anthony Chan of JPMorgan says that is a distressing sign.
ANTHONY CHAN, CHIEF ECONOMIST, JPMORGAN PRIVATE CLIENT SERVICES: I think the fact that the unemployment rate held steady does suggest to me that there is a lot more weakness in the labor market than the non-farm payroll numbers would suggest. And, in fact, you've got some confirmation of that in the weekly initial unemployment claims. Those numbers are continuing to shoot higher, suggesting that in future months, we're going to see even greater weakness in these labor numbers.
GURVEY: Those weekly unemployment claims numbers rose above 400,000 last week. Economists consider that a key level. The four week average is now at levels not seen since hurricane Katrina struck in 2005. About the only parts of the economy posting job gains in June were related to health care, business technical -- that would be companies trying to increase productivity -- and surprisingly, leisure and hospitality. Economists say that's probably people spending their stimulus checks. But Barclays Capital's Dean Maki says it's also because the economy, while unquestionably sluggish, is still growing.
DEAN MAKI, CHIEF US ECONOMIST, BARCLAYS CAPITAL: We grew at a 1 percent pace in the first quarter. We think we're going to see a similar kind of pace in the second quarter when the data come out later in the month. So the economy is growing. It's not contracting in the way that it does during recessions. So what we are seeing are very moderate job losses, not the kind of sharp job losses that we see during a recession.
GURVEY: Today's report also shows average weekly earnings rising at an annual rate of 2.8 percent. Good news if you are an inflation hawk, bad news if you are an average worker facing rising prices for food and energy. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Four Day Work Weeks
SUSIE GHARIB: Oil hit another record today, closing at $145.29 a barrel in New York. The run-up in oil prices is worsening the outlook for the airline industry. This morning, veteran airline analyst Ray Neidl of Calyon Securities revised downward his forecast for the industry. He now expects the airlines will lose $800 million in the second quarter and $6.5 billion for the year, largely because of soaring jet fuel costs. But Neidl says capacity cuts will help keep the carriers flying.
RAY NEIDL, AIRLINE ANALYST, CALYON SECURITIES: As a result with the drastic capacity cuts the airlines are taking, I think the 10 major publicly traded airlines that we follow can make it through this year if oil prices do not go significantly higher than they are right now.
GHARIB: Neidl says smaller, privately held carriers are at the greatest risk of going out of business in the near term. Separately, Moody's Investor Services said today the outlook for the U.S. airline sector is negative because of high fuel costs and weakening consumer demand.
KANGAS: Airlines aren't the only ones hurting from higher energy prices. The nation's cities and counties are also in a bind. Faced with higher energy bills and leaner sales and property revenues, many are looking for ways to trim costs. One way is by having employees work longer hours and fewer days. Jeff Yastine has more on four-day work weeks.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: South Florida's Coconut Creek has 50,000 residents and a city hall staff of about 200 people. But its workers like Pamela Stanton, the city's landscape architect, keep to a different schedule than many Americans, working Monday through Thursday.
PAMELA STANTON, LANDSCAPE ARCHITECT, CITY OF COCONUT CREEK, FL: We still work a 40 hour week. So it's just adapting from eight-hour days to 10-hour days. And I work nine-hour days, then I do some telecommuting at home on the weekends. So it's really not that much of an adjustment. I used to, in the private sector, I would work a 10-hour day anyway.
YASTINE: No one knows how many cities and counties are using four-day weeks, but it's a trend that's catching on. For tax-funded agencies, a four- day week offers a chance to cut power consumption by keeping the lights and computer systems off for an additional day. It also gives employees a break on their weekly gasoline bills, according to Jacqueline Byers of the National Association of Counties.
JACQUELINE BYERS, DIR. OF RESEARCH, NAT'L ASS'N OF COUNTIES: It kind of helps the employees make their ends meet and that cutting back on the commuting costs. The average commute for county employees around the country is somewhere around 16 miles a day. So you do the math. If you cut 20 percent of your transportation costs for your employees, that's like giving them a little bonus.
YASTINE: Still, four-day work weeks are not a miracle cure for Coconut Creek's rising energy bill. The humid Florida summers mean buildings stay air-conditioned all the time or risk mold damage. Of course, emergency services like police and fire remain seven-day-a-week operations. But what began as an experiment here three years ago is now permanent. City manager David Rivera says opening city hall earlier and closing the doors later gives residents and businesses more time to pay utility bills or pull building permits.
DAVID RIVERA, CITY MANAGER, CITY OF COCONUT CREEK: After about a year, we did some survey work, found out we had like an 86 to 88 percent approval rating from the community on this change in hours and our employees are loving it. We've got a 96 percent approval on a study we've done on the employee base. So there's lots of positive signs.
YASTINE: Now four-day weeks don't always work. The state government of Ohio recently went back to a five-day week after complaints about a lack of service on Fridays. But experts predict that more public agencies and even some private employers will experiment with four-day weeks as long as energy prices continue to rise. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
"Green Options"- Commercial Buliding Clean Up
SUSIE GHARIB: When people talk about cutting greenhouse gas emissions, many think of driving a hybrid car. But powering the nation's commercial buildings creates more emissions than all the cars on the road. As we continue our ongoing series "Green Options," Dana Greenspon reports on what cities and counties are doing to make commercial buildings more environmentally friendly.
DANA GREENSPON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A traditional office building of this size would be an energy guzzler, but not this one. Thanks to features like insulated windows, improved ventilation and recycled carpet, this building in Montgomery County, Maryland is environmentally friendly. And it's 30 percent more energy efficient than your standard office space. It's the latest project from Maryland firm The Tower Companies, which began a push toward green building 12 years ago. Partner Jeffrey Abramson says structures like this show what is possible.
JEFFREY ABRAMSON, PARTNER, THE TOWER COMPANIES: We built the buildings because we wanted to demonstrate to the real estate industry that this is the way buildings should be built and this should be the norm.
GREENSPON: Environmental consultant Steve Keppler helps companies like Tower meet their energy efficiency goals.
STEVE KEPPLER, CONSULTANT, SD KEPPLER & ASSOCIATES: I think what they're seeing and enjoying right now and the rest of the marketplace is that there are people that are going to lease the space and use the buildings that are looking and asking, "is this a green building?" So now there's market pull.
GREENSPON: There's also market push. Montgomery County recently passed a law that will require private commercial buildings of 10,000 square feet or more to reach a minimal level of greenness. Montgomery County isn't alone. Dozens of cities and counties across the country are promoting green commercial building. But not all cities and counties agree on how to do that. Raquel Montenegro represents builders in Maryland.
RAQUEL MONTENEGRO, ASSOCIATE DIR., MNCBIA: Not every building is a class "A" building in a class "A" location.
GREENSPON: She says mandates favor top-of-the-line buildings.
MONTENEGRO: That's not every company that exists. There needs to be options in the marketplace that allow for non-class "A" locations. When you have a mandate, that doesn't allow you to do that.
GREENSPON: That's why Montenegro prefers incentive programs like those in Miami and Arlington, Virginia. There, local governments offer fast- track permitting and extra building height to buildings that go green. But Montgomery County Councilman George Leventhal says a carrot and stick approach won't work for his county. The council has pledged to cut the county's greenhouse gas emissions 80 percent by 2050.
GEORGE LEVENTHAL, COUNCILMAN, MONTGOMERY COUNTY, MD: So we felt that in order to get the results we wanted, if we let people off the hook and said, well, this can be voluntary, there would be a lot of cases in which we just wouldn't achieve the environmental standards.
GREENSPON: Tower Company's Jeffrey Abramson says the cost to builders is minimal.
ABRAMSON: Unless they're building very small buildings, the cost to making a green building adds about 1.5 to 2.5 percent. So it costs so little. All us developers are always trying to think of new things to add to our building to make it distinctive.
GREENSPON: That may be, but less than 10 percent of the U.S. commercial construction market is registered or certified by the U.S. Green Building Council. Most experts admit it will take five to seven years for eco-friendly building to become standard practice. Abramson says when it does, it will mean big things for the industry.
ABRAMSON: It's going to create a new industrial revolution because everything we always created and used uses twice as much or three times or four times as much energy as it needs to. So we have to remake everything.
GREENSPON: And making buildings green could eventually mean lots of green for the building industry. Dana Greenspon, NIGHTLY BUSINESS REPORT, Rockville, Maryland.
"Market Monitor"-James Grant, Editor of "Grant's Interest Rate Observer."
PAUL KANGAS: My guest "Market Monitor" this week is James Grant, editor of the popular publication "Grant's Interest Rate Observer." Jim, welcome back to NIGHTLY BUSINESS REPORT.
JAMES GRANT, EDITOR, "GRANT'S INTEREST RATE OBSERVER": Thank you, Paul, nice to be here.
KANGAS: During your last visit with us in August, you were decidedly and correctly bearish on the stock market because you saw the economy weakening considerably on a lack of consumer savings. How is the consumer doing now?
GRANT: The consumer is hard-pressed, Paul. He and she have been about the worst short sale in the history of finance. American consumers have spent through thick and through thin, especially it seems thin. These days they are very over extended and I expect them to do much less spending and much more savings.
KANGAS: Well, how bad do you see the economy getting in light of that?
GRANT: For what it is worth, bad. But my deepening conviction with years is that the macroeconomic future is forever impenetrable and one ought to focus on valuations in the here and now. So that is my story.
KANGAS: And you think stocks are getting into that level that they are buys?
GRANT: No. I think the stock -- well, I think the stock market, you know, broadly and generally is still not cheap. The S&P 500 according to Bloomberg is trading, if you please, at 21 times still in this mess of ours. But you know, as the man said it is a market of stocks. And one ought to be on the lookout always for compelling values.
KANGAS: OK. Now aside from the troubled financial sector, skyrocketing oil prices have plagued the economy and Wall Street. Some quick thoughts on oil now.
GRANT: Yes, I can do this very quickly. O-i-l, I can spell it and that's my -- that is my only opinion on the subject. I simply don't know, Paul.
KANGAS: It is a tough one to gauge, isn't it?
GRANT: It is. And everybody else in America has got an opinion. I mean to be the lone exception. I'm agnostic.
KANGAS: OK. During your last visit in August, you gave our viewers buy recommendations on three open-end mutual funds. Let's see how they have done since then. The first one Wintergreen Fund (WGRNX) down just 8 percent, not bad in this market. And Tocqueville Gold Fund (TGLDX) up 4/10 of a percent, not too bad a performance in light of what has happened in the rest of the market.
GRANT: Of course with Tocqueville, you have to add in the distributions and the income and that puts it up 26.4 percent from a year ago.
KANGAS: OK. I'm glad you mentioned that. There was a third recommendation that we'll see and that was (TAVFX), down 22 percent. You still with that?
GRANT: Enjoy the -- yes, I'm still with that. Yes.
KANGAS: How about some new recommendations for us?
GRANT: Good, excellent. I have come prepared. The first is a Fidelity National Finance, FNF, which is America's second largest title insurer. It is in the mortgage business; therefore it is in a world of hurt. But it is priced for that fact. It trades at less than book value and it yields 9.1 percent. It thinks it sees light at the end of the tunnel and actually hired 50 people in the first quarter, first time in a long time it has done that. So if, as and when, surely when Americans get back in the business of buying and selling homes, FNF is likely to prosper.
KANGAS: Do you have a rough time frame when you think things will start to pick up considerably, especially for FNF. No.
GRANT: No, I do not. But what you want, I think, is to look at stocks that are well financed and that can -- they have staying power. You can never know.
KANGAS: All right. How about some other recommendations?
GRANT: Sure. Stick with Tocqueville Gold Funds it is a play on the non-beautification of our celebrity central bank, as it seems to me, central banking as a short sale. And I would add as a third --
KANGAS: Wait a minute now. Let's get that symbol that you can get the price from your broker. That doesn't trade on the big board by TGLDX is the symbol that will get you the closing price each day, right.
GRANT: Right.
KANGAS: And the third one.
GRANT: And finally is Evergreen, I would stick with that, very good value investor runs it and he is going to do well over time.
KANGAS: Wintergreen you meant, not Evergreen.
GRANT: I'm sorry, Wintergreen.
KANGAS: WGRNX, open-end fund, right.
GRANT: Correct.
KANGAS: Do you personally own any of the securities you mentioned, Jim?
GRANT: I have a personal interest in each and every one.
KANGAS: All right. I want to thank you for sharing your insights with us once again.
GRANT: Thank you, Paul. Nice to be here.
KANGAS: My guest, Jim Grant, editor of "Grant's Interest Rate Observer."
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened on a mixed note as investors analyzed the jobs report and the European rate boost. Blue chip buyers were happy though that the employment numbers weren't worse and they helped send the Dow to a 117-point gain by 11:30 this morning. The NASDAQ was up nine. Oversold conditions had the bulls taking the upper hand in the latter part of today's shortened trading session, so the rally's momentum did fade a little bit however. The Dow Industrial Average managed to hold on to a decent gain nevertheless, rising 73.03 at 11,288.54. In this four trading session week, it rose three times but still fell 57.97 points overall. The NASDAQ closed off 6.08 today at 2245.38 and for the week, it rose once, fell three times, had a net loss of 70.25 points. Standard & Poor's 500 gained 1.38 ending at 1262.90 today and for the week, it lost 15.48 points overall. Over in the bond market the 10-year note lost 8/32 to 99 and 3/32, putting the yield at 4.54 percent.
Big board volume leader as it so often is, Citigroup (C) today on 16 1/2 million shares, down $0.02.
Then Bank of America (BAC) losing $0.14.
General Electric (GE) bucked the overall trend there, up $0.40.
Wachovia (WB) lost a half dollar.
JPMorgan Chase (JPM) up $0.71.
Ford Motor Co (F) was a $0.06 gainer.
Lehman Brothers (LEH) up another $0.49 after two previously good days.
Motorola (MOT) a $0.09 drop.
Taiwan Semiconductor (TSM) down $0.35.
And then came Pfizer (PFE) with a $0.13 closing gain.
Aetna (AET) down $2.65. Goldman Sachs downgraded it from "neutral" to "sell" and it affected the whole health-related sector.
Let's have a look at some of the other issues in that sector. Cigna (CI) down $1.31.
Health Net (HNT) off $3.09, got the same downgrade from Goldman Sachs, "neutral" to "sell."
Then Humana (HUM) off $1.43.
United Health (UNM) off $2.16. Yesterday the company cut its 2008 and 9 earnings guidance. Today UBS downgraded United Health from "buy" to "neutral."
And then came Wellpoint (WLP) with a loss of $2.17.
Here's one health managed care company that did well today, Amerigroup (AGP) rising $1.22. The company renewed its contract with the state of Tennessee for another year and got a rate increase in the deal.
Freddie Mac (FRE) down $1.42. Standard & Poor's downgraded it from "hold" to "sell" on concerns about its capital situation.
Arch Coal (ACI) moved up $1.49. Citigroup said the coal group has been - its sell-off has been overdone in recent times and it upgraded Arch Coal from "hold" to a "buy." That helped the group generally.
AK Steel Holdings (AKS) down $3.86. Standard & Poor's downgraded it from "hold" to an outright "sell."
Moving along we see Church and Dwight (CHD) down $3.07. BMO Capital Markets downgraded the stock from "market perform" to "under perform" because of rising material costs hurting the company's gross profit margin growth.
MetroPCS (PCS) down $2.07. The company sees second quarter net subscriber additions up 184,000. Standard & Poor's however said that's below its forecast for an increase of 300,000.
Las Vegas Sands (LVS) down $2.97 a share. The company is seeking to raise $7 billion in loans for its Venetian resort and casino in Macau.
NASDAQ's most active, Apple (AAPL) up $1.94.
Followed by Research in Motion (RIMM) down $1.16.
Google (GOOG) rose nearly $10 a share today.
Microsoft (MSFT) a $0.10 share raise.
Nvidia (NVDA) tumbling $5.54. The company warned second quarter results could be hurt by a big charge for a technical glitch and also due to softer demand for its chips.
Moving along in the active list on NASDAQ, Intel (INTC) was down $0.27.
First Solar (FSLR) moved up $5.81.
Cisco Systems (CSCO) $0.28 gain there.
baidu.com (BIDU) up $3.96.
And Amgen (AMGN) gained $2. The company's once a day pill to treat thyroid cancer is showing promise.
Elsewhere, Penn National Gaming (PENN) moved up $1.06 even though Fortress Investment has terminated its $6.1 billion takeover bid.
And on the downside, big downside move, Acme Packet (APKT) off $3.16. The company gave a very disappointed second quarter earnings outlook.
And finally, TranS1 (TSON) down $4.01. The company cut its second quarter revenue forecast considerably. And those are our stocks in the news tonight.
