NBR Transcripts- July 23, 2008
Wednesday, July 23, 2008The Housing Rescue Lifeline Moves Closer To Becoming Law
SUSIE GHARIB: A massive housing rescue and foreclosure prevention bill is closer to becoming law tonight. The House passed a bill late today with bipartisan support. The legislation creates a stronger regulator and a federal backstop for Fannie Mae and Freddie Mac. It expands the Federal Housing Administration to refinance troubled loans, and gives money for state and local governments to buy foreclosed properties. President Bush now says he will sign the measure when it crosses his desk. As Stephanie Dhue reports, the bill's rescue plan for Fannie Mae and Freddie Mac drove support.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fannie Mae and Freddie Mac have long enjoyed an implicit guarantee that the government would not let them fail. House Financial Services Chairman Barney Frank helped craft the bill passed today making that guarantee more explicit.
REP. BARNEY FRANK, (D) MASSACHUSETTS: This is a balanced bill that includes a significant increase in the reform of Fannie Mae and Freddie Mac. It does give to the administration the ability to make some loans to them, or maybe buy shares with an instruction that they protect the taxpayer.
DHUE: Under the bill, the Treasury would have the power to extend the firms an unlimited line of credit. The Treasury can also purchase Fannie and Freddie stock for the next 18 months. The bill also permanently increases the individual loan amount Fannie and Freddie can buy to $625,000. While acknowledging that Fannie and Freddie are too big to fail, some Republicans, like Jeb Hensarling, objected to the plan.
REP. JEB HENSARLING, (R) TEXAS: We should not pass any legislation that doesn't ensure the taxpayers are never here again.
DHUE: But others, like Congressman John Campbell, voted for it anyway.
REP. JOHN CAMPBELL, (R) CALIFORNIA: I'm going to support this bill today. And I'm going to support it because we are in a position where we cannot afford to not have Fannie Mae and Freddie Mac in the marketplace.
DHUE: The Congressional Budget Office estimates the plan could cost taxpayers $25 billion. The hope is that passing the bill will stabilize the firms at no cost to the taxpayer. But Johns Hopkins University fellow Tom Stanton says it's impossible to predict the cost.
TOM STANTON, JOHNS HOPKINS UNIVERSITY FELLOW: We really don't know, housing prices are continuing to drop, we have to see whether and to what extent Fannie or Freddie have huge holes in their balance sheet and that will help determine the extent to which they are going to need propping up.
DHUE: The Senate must still pass the bill. A few Republicans have threatened procedural moves that will likely delay a vote, but won't derail the bill. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The Pharmaceutical Sector's New High
PAUL KANGAS: On Wall Street today, investors cheered strong earnings from several drug giants. Pfizer, SmithKline Glaxo and Wyeth are the latest drug companies to beat estimates. But as Erika Miller explains, the long- term prognosis for the sector is uncertain.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Major pharmaceutical companies have been surprisingly resilient in the face of a many industry and economic challenges. Today, the world's two biggest drug makers, Pfizer and GlaxoSmithKline, both beat forecasts for second quarter earnings. So did Wyeth, maker of Advil and Centrum vitamins. Lehman Brothers analyst Tony Butler says those companies and others are benefiting from strong sales overseas. Lehman has done business with Pfizer over the past year and Butler owns the stock.
TONY BUTLER, PHARMACEUTICAL ANALYST, LEHMAN BROTHERS: You have seen tremendous growth ex-U.S. That's not only driven by foreign exchange. In the case of Pfizer today, it was actually driven by organic growth.
MILLER: According to Thomson-Reuters, half of the 14 pharmaceutical companies in the S&P 500 have now reported quarterly numbers. On average, earnings are running 11 percent ahead of last year's second quarter. That compares to a more than 16 percent decline in earnings for the S&P 500. Investors were pleased Pfizer reaffirmed its 2008 outlook and Wyeth boosted its full-year earnings forecast. But analysts caution many big drug companies face serious competitive threats, including patent expirations on their best selling drugs.
BUTLER: The real challenge has been the timing of developing that next generation product or series of products to help offset that patent expiry. And my sense is the timing has been longer. Now, perhaps that's due to the draconian nature of the FDA. The FDA's standards have clearly risen.
MILLER: S&P analyst Herman Saftlas says patent expiration is a particularly big issue for Pfizer, which makes cholesterol fighter Lipitor, the worlds best selling drug. He has the stock rated hold.
HERMAN SAFTLAS, PHARMACEUTICAL ANALYST, STANDARD & POOR'S: We realize the fact that close to one fourth of their sales and maybe more than one fourth of their earnings comes from Lipitor, which is going to lose patent protection in 2011. But we realize that they also undergoing a major cost- cutting program.
MILLER: Other companies are making strategic shifts. GlaxoSmithKline, for example, plans to boost profits by becoming a more globally diversified company with lower costs. It also hopes to improve research and development of new drugs. There's one other way companies are trying to boost profits: consolidation. Analysts predict big pharmaceutical companies will continue to acquire smaller players with promising drug pipelines. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Tracking The Trends In Troubled Economic Times
PAUL KANGAS: With the sagging economy, fuel is not the only thing Americans are cutting back on. It looks like filet mignon is out and Big Macs are in. As a sign of that, McDonald's posted better-than-expected second-quarter results today on strength in its Value Menu. The combination of high gas prices and slumping home prices economy is forcing consumers to trade down on everything from food to transportation. As Diane Eastabrook reports, the trend is making winners of companies capitalizing on value.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Subway stores the $5 foot-long sub sandwich is a marketing masterpiece.
UNIDENTIFIED MALE: You want everything, sir?
EASTABROOK: Since the fast-food chain rolled out the promotion earlier this year, franchisee Tim Ryan says customers have been streaming into his stores. He estimates sales at his 10 Subway shops in the Chicago area are up 25 percent this year over last.
TIM RYAN, SUBWAY FRANCHISEE: We are getting people trading down from your Panera Bread, your Corner Bakery. I don't think people are willing to spend $10, $14 for lunch anymore. And people are just looking for a deal.
EASTABROOK: At a time when home values are falling and fuel prices are rising, cost is key with many American consumers. At this Harley-Davidson store, where motorcycles sport price tags as high as $25,000, the Sportster line is turning out to be the top seller. Sportsters are priced below $10,000. At Honda, the automaker's most economically priced cars enjoyed their strongest sales month ever in June. Sales of the Fit, priced at around $15,000, doubled last month from the same time last year. While sales of the Civic-- priced at just under $20,000 were up 23 percent. Some retailers say bargains are bolstering their businesses.
STEPHEN REDENBOUGH, WINE CONSULTANT, BINNY'S BEVERAGE DEPOT: Stuff up here from Spain. One of your best places now for wine bargains.
EASTABROOK: Stephen Redenbough, wine consultant for Binny's Beverage Depot in Chicago, says even persnickety wine lovers are turning up their noses at expensive wine. He sees many customers passing up $40 California cabernets for $15 varietals from Spain, South Africa, or whatever is on special.
REDENBOUGH: We're still getting the people through here and lots and lots of shopping carts full of wine, but it's the wines that are on sale. Anytime you put a sale sign up, now the stuff just flies off the shelf.
EASTABROOK: Mesirow Financial chief economist Diane Swonk thinks this trading down phenomenon is good for the U.S. economy because it could help moderate inflation.
DIANE SWONG, MESIROW FINANCIAL, CHIEF ECONOMIST: It is changing the behaviors of retailers, of producers and of consumers. And the reaction function is the most important thing because it is the only thing that ultimately will get some of these prices that are way out of whack to come back down again.
EASTABROOK: Swonk thinks once incomes and credit markets stabilize, consumers will return to freer spending ways. But she admits that may be a while. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
"Street Critique"-Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS: Tonight's "Street Critique" guest has brought our viewers lots of stock picks, so tonight we thought we'd review her picks from the second quarter. She's Hilary Kramer, chief market strategist at Greentech Research and author of "Ahead of the Curve." And Hilary, good to see you.
HILARY KRAMER, CHIEF MARKET STRATEGIST, GREENTECH RESEARCH: Nice to see you, Paul.
KANGAS: It has been a rough time in the markets with the Dow down about 1,000 points from where it was on your April 16 visit. The theme from the visit that time was stocks that had been around for a century that still have upside potential. Now you liked Goldman Sachs and Allied Irish Banks. Goldman is up 11 percent. Allied down 34 percent. Do you still own them and like them?
KRAMER: I like both of these stocks. I own both of these companies and believe that there is significant upside. They were hurt with the rest of the financial institutions. You buy best of breed you end up with best of price down the road.
KANGAS: Now, you also liked Chicago Bridge and Iron and Veolia Environment at that time. Both are off 23 percent. Would you still be a buyer here or do you still own them?
KRAMER: Absolutely. Both Chicago Bridge and Veolia, they have been victims of the inflationary pressures globally. That's why the stocks have dropped because they have incurred more expenses than they expected, just like us as consumers are struggling under a very costly consumer environment.
KANGAS: On May 7, you liked the scrap metal and recycling stocks. Metalico is up about five percent. You thought it could go to $20 and Sims Group you saw heading to $40. It's off about eight percent. Are you still with these and do you own them?
KRAMER: Absolutely. I'm with both of them. Metalico did go up all the way to $18 by early July, and Sims Group also hit $41. It went above $40. They did trade back down. I own them, and I've been buying more as they came back down.
KANGAS: Now, you also liked Industrial Services of America. It had a nice gain, up almost 21 percent, and Schnitzer Steel, you saw it going to $110. It hit $114 on June 30 but it's off nine percent from that May recommendation. Did you take in money off the table there?
KRAMER: I took money off the table, but I still own them as core positions because that's the way I invest. It's not necessarily a buy and hold long- term market with certain kinds of companies that are commodity related, but both of these, especially IDSA, they have both done very well in the interim and then they came back down.
KANGAS: On May 21, it was overseas opportunities with the Brazilian miner Rio and Chicago Bridge and Iron again. Both have taken a hilt with the market downturn. And you also liked Petrobras and Aluminum Corp. of China and they're down as well. What are you doing with those?
KRAMER: These are all buys now. The ones that I own, again, are the Rio, Chicago Bridge, the PBR, the Petrobras, that I own personally. That is for the long term. I take a 20 to 30-year approach on that one because it's really tie to the price of oil, rather than the previous picks which are more trades because of their kind of quick pop and drop. I would stick with all of these. I think Rio, especially, is going to come back. And you know how I feel about Chicago Bridge and the infrastructure play.
KANGAS: OK. Now in June we talked alternative energy plays and you had a big winner with EnerNOC, up 69 percent since that recommendation. SunPower is up three percent. Are you still with these?
KRAMER: Yes. I am with all of them, EnerNOC I started to take money off the table today as a matter of fact and rotated it into Converge, COMV, its sister company. Its colleague in the space.
KANGAS: Now MEMC Electronics and the PowerShares WilderHill Clean Energy both took a hit. You did say at the time the solar plays are very volatile and not for everyone. Are you still a believer in them long term? We're down to only 40 seconds, incidentally.
KRAMER: OK. MEMC wafer, as a matter of fact, it's down 25 percent after- market right now. That's volatility. I do believe long term in wind and solar but really it is not for everyone. And this is just for money that you can afford to lose.
KANGAS: Of course, on your most recent visit with the market in a major selloff, you said cash is king. We've seen the markets come back a bit here. Do you think it's a bull trap?
KRAMER: No, this is just a trick. This is just a trick to get everyone back in the market so then you can lose more money. We have not hit the bottom yet. We may have another five to 10 trading days upwards, Paul, but look for a bottom in October and November.
KANGAS: I want to thank you for being with us once again.
KRAMER: Thank you, Paul. Thanks for having me.
KANGAS: My guest, Hilary Kramer of Greentech Research.
"Money File"-Investing in Turbulent Times
JEFF YASTINE: In "The Money File" tonight, investing in the midst of a perfect storm. Here's Jonathan Pond, author of "You Can Do It: The Boomer's Guide to Retirement."
JONATHAN POND, AUTHOR, "YOU CAN DO IT!": Concerns about the economy and the investment markets have caused a lot of investor angst, to put it mildly. Is this a perfect storm, a harbinger of a long period of awful investment performance? This isn't the first time that everything seems to be falling apart. But the plethora of concerns isn't going to afflict us forever. The credit and housing crises will end, corporate profits will rise, any inflation will moderate, unemployment will fall, and consumers will spend anew. Now the cost of oil is the one big uncertainty, but economies and consumers will eventually adjust. Perhaps persistent high oil costs will goad our elected officials to action on energy policy after decades of inaction. Now it's important to resist the hysteria that often influences the investment markets by maintaining a consistent approach to investing. Succumbing to prevailing market wisdom is why so many investors, and investment pros, fare so poorly with their investments. Avoiding the herd mentality can help you avoid ill-timed investments. It's possible to be both a consistent investor and a contrarian investor simply by periodically re-balancing your investment holdings to get back to your target diversification. Re-balancing now will probably mean you'll be adding some stocks-- not a lot-- to your portfolio when the pundits are saying sell. That's a good thing. I'm Jonathan Pond.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street started the day mixed with the Dow falling 25 points on some profit-taking but strength in the tech sector lifted the NASDAQ to a 30-point gain by late morning. That and another decline in oil prices had the Dow up 42 points by noontime. The market turned choppy and mixed after the Fed's "Beige Book" noted the economy is slowing, but continuing weakness in oil helped the bulls to carry the day. The Dow Industrial Average closed up 29.88 points at 11,632.38. The NASDAQ composite gained 21.92 to 2325.88. While the Standard & Poor's 500 Index rose 5.19 to 1282.19.
Over in the bond market the ten-year note lost 4/32 to 98 1/32, putting the yield at 4.12 percent.
Most active big board issue on 28 1/2 million shares, Citigroup (C) edging up $0.23.
Followed by Bank of America (BAC) with a gain of $1.09. Bank of America plans to buy back up to 75 million of its own shares. That will be about $3 3/4 billion worth.
Washington Mutual (WM) down $1.17.
And then Wachovia (WB), an $0.86 gain.
Wells Fargo (WFC) edged $0.02 higher.
Moving along on the active list, we see EMC (EMC) gaining $1.71, nice percentage move. Second quarter earnings out, $0.24 versus $0.20 a year ago. Revenues up 18 percent. The company says now it may spin off VMware. VMware (VMW) today closed at $37.00 but traded as low as $32.31. It ended the day off just $0.97.
General Electric (GE), $0.83 gain there. It's in an $8 billion venture with an Abu Dhabi investment group to provide commercial financing services in the Middle East.
Then we see JPMorgan (JPM) up $1.10.
Ford Motor (F) edging up $0.19.
And Fannie Mae (FNM), you heard the news there, down - I should say up $1.59, pretty good percentage move.
AT&T (T) gained $1.24. Second quarter adjusted earnings $0.76 up from $0.70 last year on a 4.4 percent rise in revenue and Standard & Poor's repeated a strong buy on AT&T.
Boeing (BA) down $2.54. Second quarter earnings lower, $1.16 versus $1.35. Last year the company blamed a drop in profitability.
PepsiCo (PEP) up $1.53. Second quarter earnings of $1.03, $0.01 above the street estimate. That's excluding one time items.
And then Whirlpool (WHR) had a nice move today, up $8.54, second quarter earnings $1.53, down from $2.00 a year ago but $0.16 above the street estimate. And the company reaffirmed its 2008 earnings guidance of $7.00 to $7.50 a share.
Norfolk Southern (NSC), the big rail, up $4.27. Second quarter earnings $1.18, up from $0.98 last year on a 16 percent rise in revenue. The company said it had very strong coal shipments.
And CNH Global (CNH), which distributes farm equipment, among other things, up $8.18. Second quarter earnings jumped to $1.48 from only $0.96 last year. Revenues were up 29 percent in that period.
CEC restaurants - this is the one that operates the Chuck E. Cheese restaurants, up $7.14, second quarter earnings soared to $0.48 from only $0.26 last year, $0.17 above the street estimate.
Gold was very weak today and so were the stocks. New York gold, the August contract, tumbled $25.70 an ounce to $922.80 an ounce and you can see from Agnico-Eagle (AEM) all the way down to the SPDR Gold Trust (GLD), major losses in these stocks.
Apple (AAPL) topped the active list on NASDAQ up $4.24.
Costco Wholesale (COST) down $8.57, the company sees fourth quarter earnings well below the street estimate of $1.00 a share and on top of that JPMorgan downgraded the stock from overweight to just neutral. That sector was very weak on that news.
BJ Wholesale (BJ), that was also downgraded by Jeffries brokerage from buy to just to hold and this even affected Wal-Mart (WMT) which lost nearly $1.00 a share.
Back to Google (GOOG), a $12.11 gain.
Research in Motion (RIMM) up $4.13.
Microsoft (MSFT), $0.63 advance there.
Qualcomm (QCOM), $0.72 gain.
Intel (INTC) was up $0.21.
Cisco (CSCO) rose $0.27.
But Yahoo! (YHOO) down $1.01.
And Intuitive Surgical (ISRG) jumping nearly $51.00 a share. Second quarter earnings $1.28, up from $0.79 a year ago. The street was only looking for $1.17.
And finally, after the close, amazon.com (AMZN) reported second quarter earnings of $0.37 per share, that was $0.11 above street estimates. In after hours the stock jumped to $76.38.
