NBR Transcripts July 18, 2008
Friday, July 18, 2008The Citigroup Billion Dollar Loss Barometer
SUSIE GHARIB: Citigroup reported a $2.5 billion quarterly loss today but investors were relieved it wasn't worse. The nation's largest bank wrote down another $7 billion in bad assets, an improvement over the $12 billion figure in the previous quarter. Citi lost $0.54 a share in the second quarter, much smaller than the $0.66 loss analysts were expecting. Revenues fell 29 percent to $18.7 billion. Citi's chief financial officer said today he thinks it will be another 2 to 4 quarters before the firm's mortgage and credit card losses peak. Nevertheless, Citi's shares rose more than 7.5 percent. Well Citi's results powered up other financial stocks which rallied for the third straight day. So does that mean the worst of the credit crisis is over? As Washington bureau chief, Darren Gersh, reports, there's still much debate on that subject.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In stock market land, Citigroup shares rallied on hopes banks have finally turned the corner on the credit crunch. But in credit land, the folks who deal in debt and bonds are far from convinced. CDR chief credit strategist, Tim Backshall, says banks are still carrying around a basket of assets they aren't sure how to value.
TIM BACKSHALL, CHIEF CREDIT STRATEGIST, CDR: And of course, a lot of what goes in there are the mortgage backed securities and the asset backed securities that have been such a pain over the last few months. And with Citi and with a number of others that's been the big fear. And I think the credit market could see through some of that.
GERSH: We are now approaching the one year anniversary of the credit crunch that began after the collapse of two Bear Stearns (BSC) hedge funds last July. This chart shows the counter party risk index, it's a good measure of how far we have come. It shows the cost of insuring against a default by some of the largest banks in the world, almost like financial life insurance. According to the index, the cost to insure a $10 million bond from a big bank has tripled over the past 12 months, and hasn't Been this high since Bear Stearns collapsed in March. Tim Backshall says the bottom line is this: the credit crunch has cost $400 billion so far and He sees another $800 billion to $900 billion in write-downs to go.
BACKSHALL: A lot of people are looking for the light at the end of this tunnel, unfortunately, the further we go, the more we realize it may actually be a cave.
GERSH: Former senior Federal Reserve policy maker Vince Reinhart says the credit crunch will end when banks have raised the money they need to make up for their huge losses, But how fast that happens depends on the strength of the economy and the weakness in the Housing market.
VINCENT REINHART, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: If house prices are seen as continuing to fall, and no sense of where the bottom is, somebody's willingness to put funds into a firm that is sensitive to house prices is pretty limited.
GERSH: If you want to know how scared many investors still Are, consider this. The price of insurance against the possibility the U.S. Treasury will default on the nation's debt doubled over the Last week. The risk of a credit default by the United States is still very low, but it's now higher than for Germany and France. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
How Much Longer Can The Stock Rebound Really Last?
SUSIE GHARIB: Stock values on Wall Street rebounded sharply this week with the Dow soaring more than 500 points in just the Past three sessions. Investors are wondering if this momentum will continue next Week, another big week for corporate earnings New York bureau chief Scott Gurvey has a preview of what to expect.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Those Wall Street experts who actually came to work on a hot, sticky Friday in New York closed out a week of high volatility with a prediction of more of the same next week. Some detect a definite shift in the tone of the market. Equity strategist Alec Young of Standard & Poor's says we may have hit an inflection point this week. He says investors should be keeping an eye on economic data.
ALEC YOUNG, EQUITY STRATEGIST, STANDARD & POOR'S: So we're going to want to see crude oil, which has pulled back From about $147 to about $128. We're going to want see that continue to fall. Maybe some better than expected economic data. And of course continued better than expected earnings from Corporate America. We think if we see those things we definitely ought to be able to build on the recent rally.
GURVEY: But there is by no means a consensus of opinion. Strategist Michael Ryan of UBS Wealth Management says he is disturbed by the cuts in forward looking guidance accompanying many earnings reports. He says investors must be careful in the stocks they pick and notes that sector leadership is changing.
MICHAEL RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: Health care, consumer discretionary. Those types of sectors are leading and the areas that are laggards right now are sectors like energy and materials that had been the out-performers in the first half of the year.
GURVEY: Many analysts had expected the tech sector to lead a recovery and were disappointed this week when Microsoft (MSFT) and Google (GOOG) both lowered their Guidance. But IBM (IBM) exceed expectations and raised its guidance for the rest of the year. And Intel (INTC) noted strong worldwide demand in posting record second quarter earnings and raising its guidance. Technology analyst Rick Hanna of Morningstar says the difference among the tech companies is in the customers they serve.
RICK HANNA, EQUITY ANALYST, MORNINGSTAR: Microsoft's enterprise spending is still fairly solid. And, you know, Google is more in the consumer space. So I think that you've got that dynamic going on. Enterprise spending versus consumer spending. Those segments that are more consumer sensitive may be first To feel the pains of a slowdown, although those companies that Have international operations Have continued to show very solid growth.
GURVEY: Apple (AAPL) is set to report earnings Monday. That will give investors another view of the tech sector and how the consumer is doing. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Japan's Foray Into The Contemporary Art World
SUSIE GHARIB: Auction house Christie's International said today it logged $3.5 billion in art sales during the first six months of the year, that's up 10 percent from last year's pace. Strong sales in Asia added to those results: business there is up 63 percent according to Christie's. For years, Japan, one of the world's richest countries has been conspicuously absent from the art market. But as Lucy Craft reports, there are signs the deep freeze in Japanese contemporary art may now be thawing.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Compared to the stratospheric runup in art bids elsewhere, running into the tens of millions of dollars, the hammer prices are still earthbound at art auctions in Japan. Yet experts say that the infrastructure is slowly settling into place for a robust local market. As recently as about 20 years ago, art auctions didn't even exist here. Art was a closed universe, where prices were set by a limited Number of sellers offering works to a handful of buyers. So while Japan is renowned for the quality of its works, it's equally infamous for undervaluing them. A giant in the global economy, Japan is a midget when it comes to art prices. Contemporary art prices in Japan pales in comparison to those of New York and London and even compared to Hong Kong. Art dealers say that's about to change. Gallery owner Julia Barnes say the tsunami of interest in art that has hyper-inflated prices elsewhere in Asia, can only perk up the numbers here, too, as international buyers, suffering sticker in China and South Korea head to Japan for bargains.
JULIA BARNES, OWNER, NAKAOCHIAI GALLERY: Ten years ago, the Chinese contemporary art scene was virtually unknown, and now it's just skyrocketing. And people will start looking for cheaper works, and it just So happens that here in Japan we Have quality works for a tenth Of the price.
YOICHIRO KURATA, PRESIDENT, SHINWA ART AUCTION: This is some kind of symbol in Japan.
CRAFT: Yoichiro Kurata, who runs auction house Shinwa Art auction, is a former fund manager. He is also convinced Japan will go the way of its neighbors.
KURATA: If you look at the Korean Market three years ago, it's just like the Japanese market now. But once it happens, the boom starts, the market is just boosted really quickly, and in three years, market size becomes five times.
CRAFT: One sign of the blossoming of the contemporary art market: even the youngest and most obscure talent can secure precious exhibit space, Customers and publicity at a small but growing number of art fairs. This freeform festival, called Design Festa, was founded 14 years ago by a fashion stylist Named Kunie Usuki.
TRANSLATION OF: KUNIE USUKI, FOUNDER, DESIGN FESTA: Yes, things have changed a lot in Japan. Fourteen years ago, art was seen as a pursuit only for an elite. But we allow anyone to exhibit here, so the art scene is really bustling. Nowadays, even a teenager can become famous.
CRAFT: Art lovers also take heart in the growing number of art galleries catering to contemporary artists. Tokyo has around 50, a fraction of the number in Beijing, but still dozens more than existed as recently as a few years ago. This art space, a former Printing plant located in Tokyo's swank Kagurazaka district, was opened by one of Japan's leading contemporary art Collectors, Ryutaro Takahashi.
TRANSLATION OF: RYUTARO TAKAHASHI, COLLECTOR: In a word, the contemporary art scene is poised for takeoff. Lots of young artists are emerging. Even middle-aged artists, who couldn't find exhibit space in the past, now are fetching decent prices for their work from local buyers as well as collectors from abroad. So however you slice it, the market is starting to flourish.
CRAFT: Takahashi and other experts say Japan has no shortage of art talent. What's missing is the marketing muscle to develop a deep bench of Japanese Andy Warhols and sell them to an international art audience. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Market Monitor"- Robert Morrow, Editor of the Institutional Advisory Service
PAUL KANGAS: My guest market monitor this week is Robert Morrow, editor of the Institutional Advisory Service and publisher of the monthly market letter, "The High Tech Growth Forecaster." Bob welcome back to NIGHTLY BUSINESS REPORT.
ROBERT MORROW, EDITOR, INSTITUTIONAL ADVISORY SERVICE: Thank you very much, Paul.
KANGAS: Let's cut to the chase. Has the stock market finally put in a really good longer-term bottom?
MORROW: I think we're at the beginning of a bull market.
KANGAS: What convinces you?
MORROW: The main element is that my forecast in 2007 was for a 19 percent correction just short of a bear market. We had 18.7 earlier in the year. Then it went down 22 percent. I think that's it.
KANGAS: That's it. Is this the time to start bottom fishing in the beaten down financial stocks?
MORROW: I think so.
KANGAS: You would move in there. We'll see if you have any choices later. What market sectors would you avoid here Bob?
MORROW: I think the ones I would avoid would be consumer discretionary. I think I would avoid perhaps utilities. That would be the principle one.
KANGAS: OK. You're expecting interest rates to go higher?
MORROW: Exactly.
KANGAS: OK and consumer staples or discretionary, why don't you like that?
MORROW: They depend on spending. I think that's at a low ebb right now. Eventually these sectors will rotate and that will come back into favor I'm sure.
KANGAS: On your last visit with us over two years ago, far too long, you did give our viewers four recommendations to buy. Let's see how they've done since then. Look at, that Energy Select (XLE) up 55.3 percent. Utilities (XLU), which you don't like right now, but they've done well, up 19.4 percent. You had two other recommendations, I think you had the Gold Trust (GLD), look at that, up nearly double there. And Consumer Staples (XLP), which you don't like now, but you did then, and they've done well. I think all of this says one thing, the beauty of long-term Investing is excellent.
MORROW: I think some.
KANGAS: How about some new recommendations for our viewers, Bob?
MORROW: The first recommendation I have is for the Financial Sector, the (XLF). I think it's time to buy it. It may be bottom fishing, but I think it's at the bottom.
KANGAS: So these are going to come back?
MORROW: I think so.
KANGAS: This is a diversified way to hold them in.
MORROW: You're holding 40 stocks. You're not dependent on any way.
KANGAS: OK. Number two chase?
MORROW: The Technology Sector, (XLK). There you get a broad exposure to many technology stocks.
KANGAS: And you know about technology. You are an electrical engineer and have about 38 patents I understand.
MORROW: That's correct.
KANGAS: How about a third choice?
MORROW: Broadcom, (BRCM).
KANGAS: Individual common stock.
MORROW: Right, BRCM would be Broadcom. They're in semiconductors, and this will march ahead with any response in the technology sector.
KANGAS: Now let's get to Intel. They had good earnings out recently.
MORROW: Yes, they did. I liked them even before that came out. INTC, I think they'll participate in the technology rally. KANGAS: Any more about Intel? I know a lot of people follow it? MORROW: They're so diversified in so many areas of technology, you can hardly look at anything, computers, they're very predominant.
KANGAS: OK. Let's have another choice.
MORROW: The National Semiconductor would be my next choice, (NSM).
KANGAS: OK. Why do you like that particular issue?
MORROW: Again, I think Semiconductors are going to be one of the principle participants in this technology rally.
KANGAS: OK. You really are hot on high-tech.
MORROW: Yes, I am.
KANGAS: How about one more?
MORROW: One more would be one I personally own, SSO, which is the Ultra S&P 500 ProShare, not for the feint of heart. It moves twice as fast as the S&P 500 on the up side and down side. But it would be a way the participate in a bull market.
KANGAS: In a broad bull market.
MORROW: Broad bull market.
KANGAS: It's way down. It's depressed. That's probably what you like about it at this stage.
MORROW: I do like that.
KANGAS: Do you personally own any of the securities mentioned or have any disclosure to make?
MORROW: Just the SSO.
KANGAS: That's the only one you personally have?
MORROW: Absolutely.
KANGAS: Thank you for being with us once again, great to see you.
MORROW: Thanks, Paul.
KANGAS: My guest, Robert Morrow of the high tech growth Forecaster.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened lower on some profit taking after two days of big gains and a rebound in oil prices. The Dow fell 50 points at the outset and the NASDAQ tumbled 36 points on steep losses in Google and Microsoft after yesterday's disappointing results on Outlooks. Citigroup's smaller than expected loss took the sting out of the early selloff though, helping the Dow rebound with a 55 point mid-day gain. The selloff in the tech stocks kept the blue chips hobbled for the rest of the day, but they did post closing gains.
The Dow Industrial Average ended up 49.91 points at 11496.57. This week it feel twice, rose three times, had a net gain of 396.03 points.
The NASDAQ lost 29.52, ending at 2282.78 today. For the week, it also feel twice and rose three times and gained 43.70 points overall.
Standards and Poor's 500 rose a fraction today, .36, ending at 1260.68. For the week it gained 21.19.
In the bond market, the 10-year note fell 24/32 to 98 9/32, putting the yield up to 4.09 percent
Most active New York Exchange issue Citigroup (C) moving up $1.38, traded as high as $20.47 on that smaller than expected loss in the second quarter at $0.54. The Street was expecting a loss of $0.66 a share.
Bank of America (BAC) up nearly $1.00. It's second quarter results are due out next Monday.
General Electric (GE) showed no changed.
Washington Mutual (WM) edging up $0.93.
And then Wachovia (WB) with a $0.47 loss.
Moving along, on the active Pfizer (PFE) was down $0.07.
Wells Fargo (WFC) edged $0.03 higher.
Fannie Mae (FNM), you heard the news there, up $2.47.
JPMorgan Chase (JPM) down $0.78.
And then Freddie Mac (FRE) with a gain of $0.85 a share.
IBM (IBM) had a good day, up $3.37 after the close yesterday. As we reported, second quarter earnings for Big Blue, $1.98. That was $0.16 above the Wall Street estimate. Nice move in the stock today.
Schlumberger Ltd (SLB) up $3.77. Second quarter earnings out today, $1.16 up from last year's $1.02. Revenue is up 20 percent. Standard and Poor's repeated a buy recommendation.
Verasun Energy (VSE) up $1.07, good percentage move. UBS Financial upgraded it from neutral to buy and made positive comments on the ethanol group of stocks in general.
Amcol Intl (ACO), used to be called American Colloid, up $4.72. Company makes clay products and second quarter earnings $0.58 up from last year's $0.49. Sales were up a hefty 28 percent.
Valmont Industries (VMI) up $15.23. Company makes irrigation systems, among other things. Second quarter earnings $1.41, well above last year's $1.03. Sees 2008 revenue growth in the mid-20's range.
Watts Water Technologies (WTS) is up $2.48. Company sees second quarter operating earnings around $0.53. Wall Street estimates make $0.41.
And then came Mattel (MAT), up $2.38. Second quarter earnings out only $0.03 versus $0.06 a year ago. But yesterday, as we reported, a federal jury ruled that Mattel not MGA Entertainment is the rightful owner of a valuable Bratz doll line.
Istar Financial (SFI) losing $2.87 a share. The company sees second quarter adjusted loss of about $1.50 a share. Wall Street was expecting earnings of $0.75.
Great Atlantic & Pacific Tea Co (GAP), the grocery chain, down $6.15. The company reported a first quarter loss of $0.48 a share today, that was $0.07 worse than Wall Street was expecting.
Manpower (MAN) tumbling $8.58. Second quarter earnings $1.34, up from $1.20 last year, but the company sees third quarter earnings of $1.49 at best. The Street was expecting $1.58.
NASDAQ's most active, Google (GOOG), losing $52.12 after the close yesterday. Those disappointing results and outlook brought in sellers today.
Apple (AAPL) up $6.66, third quarter results due out Monday.
Microsoft (MSFT) off $1.66, this earning a little disappointing as was the outlook.
Research in Motion (RIMM) moved up $2.07.
Gilead Sciences (GILD) losing $5.87. After the close yesterday it reported second quarter earnings of $0.47. That was $0.01 above last year, but $0.01 below the Wall Street estimate today. The Jeffries brokerage downgraded it from buy to hold.
Teva Pharma (TEVA) off $1.82. You heard they are buying Barr Pharmaceutical.
Intel (INTC) a $0.10 gain.
Cisco Systems (CSCO) $0.14 gain.
Qualcom (QCOM) $0.37 drop.
Baidu.com (BIDU) fell $11.36.
Overstock.com (OSTK) tumbling $11.39. The company reported a second quarter loss of $0.28 a share. That was in line with Street estimates, but the Stifel Nicolaus brokerage downgraded it from hold to a sell.
And those are the stocks in the News tonight.
