Transcripts

NBR Transcripts August 14, 2008

Thursday, August 14, 2008

Retail Inflation Is Rising

SUSIE GHARIB: The Federal Government confirmed today what most Americans already know: inflation is brutally high, in fact the highest in 17 years. The Labor Department reported that over the past year, consumer prices rose 5.6 percent, the biggest one-year increase since 1991. The consumer price index was up 0.8 of a percent in July, twice as much as economists expected. But as Darren Gersh reports, there is reason to believe the worst price hikes may be over.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: That smell in the air, it's a whiff of stagflation says University of Maryland economist Jeffrey Werling.

JEFFREY WERLING, EXECUTIVE DIRECTOR, INFORUM: And as we know, over the last few months at the gas pump and at the grocery store, prices have risen quite a bit. At the same time we know that the other side of the coin is that consumer spending is slowing. We're in a housing recession and even export growth which has been pacing the economy recently, may start to moderate given weakness abroad.

GERSH: But let's not get too alarmed, yet. Inflation did hit a 17-year high in July, though the core rate, which excludes volatile food and energy rose a fairly modest 0.3 of a percent. Analysts were expecting an increase of 0.2 percent. The good news is the July consumer price report is already old news. To begin with, the first number at the gas pump is now a "3." A gallon of regular is down about $0.15 so far in August to a national average of around $3.80. Some commodity prices have also followed oil lower. Soybeans for example are down 7 percent this month, Economist Desmond Lachman says prices may have peaked last month.

DESMOND LACHMAN, RESIDENT FELLOW, AMERICAN ENTERPRISE INSTITUTE: When we get into the August, September, October numbers, what we would expect is we would expect to see a very big moderation in the headline inflation rate, because oil prices are lower, food prices are lower.

GERSH: The dollar has also rallied, bringing down import prices. And from Great Britain to Germany and Japan, a roll call of big economies are now slowing down, bad news for global growth, but good news for prices.

LACHMAN: When you sum it all up, you've got a global slowdown of a large proportion and that is almost certain to keep commodity prices in check.

GERSH: Even so, today's inflation report underscores why so many analysts are using the old "knife's edge" metaphor when they talk about the Federal Reserve. As in: Fed policy remains balanced on the knife's edge, inflation on the one side, a weak economy on the other. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.

Banks Are Lining Up To Cut Auction-Rate Securities Deals

PAUL KANGAS: More relief could be on the way for investors in auction-rate securities. This evening, Associated Press is reporting that Wachovia is close to a settlement with New York State Attorney General Andrew Cuomo over the sale of those securities. The investments were touted as safe as cash, but they weren't. This morning, Cuomo announced a settlement with JPMorgan Chase and Morgan on the issue. Those two banks will return over $7 billion to investors nationwide. The firms will also pay a combined $60 million in civil penalties. Erika Miller has details.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: New York Attorney General Andrew Cuomo says today's settlements are a victory for investors tricked into buying auction-rate securities. But he says the impact is much larger.

ANDREW CUOMO, NEW YORK ATTORNEY GENERAL: I also believe these resolutions help the entire marketplace. Why? Because the bottom line for the marketplace is investor confidence. People have to believe in the market. They have to believe in the system that administers the securities.

MILLER: However, critics say today's deals fall short. For example, they apply only to retail customers, charities and small and mid-sized businesses. So it is unclear how much, if anything, larger firms and institutional investors stand to recover.

CUOMO: The banks will be using their best efforts to buy out the institutional investors. We will continue to monitor those efforts and if we believe those best efforts are not achieving the fair and just goal, then we can take action.

MILLER: Securities attorney Jake Zamansky is also disappointed the deals do not address consequential damages.

JACOB ZAMANSKY, SECURITIES ATTORNEY, ZAMANSKY & ASSOCIATES: A number of people have come to me. They were going to buy a home. All their money was tied up in auction-rate securities. They had to lose that transaction. There are businesses that have suffered. They couldn't make payroll. They couldn't get involved in transactions.

MILLER: Today's announcement brings the total value of auction-rate securities settlements to $30 billion. A week ago, Cuomo inked agreements with Citigroup and UBS. And Merrill Lynch has announced a voluntary buy back plan of its own. However, none of the banks have admitted wrongdoing and nobody has been charged with a crime.

ZAMANSKY: There also needs to be individuals brought to justice. There were a lot of people at these banks who lied to investors, who corrupted research, Merrill Lynch as an example and they need to be held accountable.

MILLER: New York Attorney General Cuomo says his investigation is continuing. Although he would not provide specifics, he did say his office is in discussions will all the leading securities firms simultaneously. Erika Miller, NIGHTLY BUSINESS REPORT, New York.

India's Aviation Wings Are In Danger of Getting Clipped

SUSIE GHARIB: India's airlines are flying into what some industry analysts are calling the perfect storm: high fuel costs and falling demand as the global stream of easy financing dries up. India's carriers stand to lose about $2.5 billion this year, nearly double their losses last year. And as Raymond Thibodeaux reports from New Delhi, the turmoil could put the brakes on one of the world's fastest-growing aviation markets just as it was taking off.

RAYMOND THIBODEAUX, NIGHTLY BUSINESS REPORT CORRESPONDENT: Unlike most Americans, the vast majority of Indians travel long distances by rail. But with India's rise to prosperity, more and more Indians are taking to the air, about 33 million passengers a year. That's only about 3 percent of India's 1.1 billion people, so there's clearly room for growth. Still, India's air industry appears to be losing altitude. Kapil Kaul is the chief analyst for the Center for Asia Pacific Aviation. He says the rise in fuel costs have deepened a problem that has been dogging India's air industry: too many airlines in cutthroat competition for too few passengers.

KAPIL KAUL, SR. ANALYST, CENTER FOR ASIA PACIFIC AVIATION: The airline industry in India is currently in a state of crisis. Mergers are necessary. It's a global reality. In India it's more of a reality because the kind of competition we saw in the last four or five months and the kind of levels of pricing we saw was not business at all.

THIBODEAUX: The mergers started a year ago as government-owned carriers Air India and Indian Airlines tied the knot. Kingfisher Airlines, owned by flamboyant Indian billionaire liquor baron Vijay Mallya, recently merged with Air Deccan. And Jet Airways bought Air Sahara. In these harsh times, most Indian airlines are forced to do more than merge, says Saroj Datta, executive director of Jet Airways. Raising fares is one of the tough choices faced by India's air carriers, whose customers have been lured by super low fares.

SAROJ K. DATTA, EXECUTIVE DIRECTOR, JET AIRWAYS: The domestic aviation market has an enormous amount of excess capacity, we believe by about plus 30 percent. And similarly fares that have been so far charged have also been below cost by and large, to promote traffic. So both of them have to be tackled and are being progressively tackled by the Indian carriers.

THIBODEAUX: Indian airlines that have resisted mergers have taken on more foreign investors. American billionaire investor Wilbur Ross just spent $80 million for a 10 percent stake in Spicejet, one of many low-cost carriers in India. The higher fares, fewer flights and reduced services won't make travel any easier for passengers. And it is not likely to be any easier for plane makers Airbus and Boeing. Already, market analysts predict nearly a third of Boeing's orders worldwide could be postponed or outright cancelled as some airlines merge to cut costs and others go belly up. Dinesh Keskar is Boeing's vice president of sales for south Asia, is focused on the long-term health of India's airlines.

DINESH A. KESKAR, VP SALES, BOEING SOUTH ASIA: On a long-term basis, we feel pretty bullish on India. GDP will continue to grow and these airplanes will be effectively used to really increase the tourism, increase the commerce into the country and it will be really good for both Boeing and India.

THIBODEAUX: so far, India accounts for close to 10 percent of Boeing's $270 billion worth of new planes yet to be delivered. Indians are used to being pampered by their airlines with fresh welcome towels and gourmet meals, frills that are soon becoming a thing of the past. The big fear for India's air industry is that as ticket prices climb, tourists and business travels will start to think twice about booking their next flight to the beach or the boardroom. Raymond Thibodeaux, NIGHTLY BUSINESS REPORT, New Delhi.

"Bill of Health"-Dealing With Hospital Debts

SUSIE GHARIB: It's a problem that has been growing for years at hospitals: rising levels of bad debt. That's the industry's term for medical services provided, but not paid for. With many people lacking insurance, or carrying high- deductible health plans, more hospitals are dealing with the situation. As Jeff Yastine reports in tonight's "Bill of Health" that is forcing hospitals to make some big changes.

JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: To get a sense of how much bad debt hospitals write off each year, look at south Florida's University of Miami health system. Last year, the public health hospital wrote off $167 million. That's not charity cases. It's patients who could have paid, but didn't. The system's Associate Vice President Michele Chulick says bad-debt is a growing problem for all hospitals.

MICHELE CHULICK, ASSOCIATE VP, UNIVERSITY OF MIAMI HEALTH SYSTEM: Hospitals have to deal with that. It's obviously a situation where you're providing care. Not getting paid, and its afcting the viability of the facilities on the bottom line. And without the bottom line we can't reinvest those funds, to improve facilities, improve care, improve clinical studies.

YASTINE: Nationally, healthcare institutions wrote off more than $31 billion as uncollectible "bad debt" in 2006, the most recent data available. Rick gundling of the healthcare financial management association says a number of factors are at play.

RICK GUNDLING, VICE PRESIDENT, HEALTHCARE FINANCIAL MANAGEMENT ASSOCIATION: As copays and deductibles increase, and the amount of out- of- pocket expenses, the growing number of uninsured, hospitals are having to collect more and more directly from patients and they're experiencing more and more charity care and bad debt.

YASTINE: That's forcing more hospitals to change how they do business. Many are now talking to patients about the bill before allowing a procedure. Some facilities are also using software programs like Transunion's revenue manager. The company's healthcare solutions Executive Vice President Rod Bazzani says the system draws on public and credit databases to assess a patient's ability to pay.

ROD BAZZANI, EXEC. VP, TRANSUNION HEALTHCARE SOLUTIONS: Historically hospitals invested heavily in the clinical side, in new equipment, and new procedures to deliver better care and generate revenue for the hospitals. But today they recognize the need to invest in decisioning platforms such as our revenue manager, in order to address these serious issues.

YASTINE: The system also instantly determines whether a patient is eligible for state Medicaid dollars or other healthcare financial programs, a process that can take hours to figure by hand. Still, a lot of hospital bad debt is unavoidable. Under Federal law, emergency room patients can not be turned away. But hospitals say chipping away at bad debt helps their financial situation, and ultimately, improves the quality of the medical care offered. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.

"Commentary"-What's Behind Value-led Companies' Prosperity

SUSIE GHARIB: Tonight's commentator explains why value-led companies do well. He's Bill Baker, professor at Fordham University and author of "Leading with Kindness: How Good People Consistently Get Good Results."

BILL BAKER, PROFESSOR AT FORDHAM UNIVERSITY: A major U.S. automaker was recently stunned by its loss of $8.7 billion in the last quarter-the worst in its 105-year history. But should they have been? For the last decade or more the American car makers have been focusing on building and selling ever-larger SUVs and trucks, while arguing against fuel- efficiency standards. They must have known these were dangerous to drive and bad for the environment. Now they're in trouble. Recently, I've been studying companies that put values before profits. To many in the business world, this may seem Pollyannaish, but for these companies, at least, this strategy seems to be working. For instance, Google, an amazing success story, has as its guiding principle: do no evil. While quick to admit they're not perfect, most of the time they seem to get it right. Or how about Eileen Fisher, the women's clothing manufacturer? It stands at the forefront of treating its workers well while designing clothing that is easy on the environment. Chief Financial Officer Ken Pollak says that at the end of the day, you have to look at the results. And Eileen Fisher has experienced 12 percent compounded growth over its 25- year history with spurts of 30 percent. Even in these difficult financial times many of these values-led companies are doing well. Could it be that a focus on values could be even more effective when times get tough? I think so. I'm Bill Baker.

Paul Kangas' Stocks in the News

PAUL KANGAS: Wall Street's blue chips had a negative reaction to the consumer inflation report at the opening today, but managed solid gains by the end of trading. The Dow fell 30 points at the outset. But better than expected earnings from Wal-Mart and a drop in oil prices helped stocks reverse course. At noon the Dow was up 120 points and the NASDAQ up 24. A firm dollar on positive comments from Goldman Sachs helped stocks hold their gains throughout most of the afternoon. But then some late selling blunted the rally a bit. The Dow Jones Industrial Average still closed up 82.97 at 11,615.93. The NASDAQ Composite was up 25.05 at 2453.67, while the Standard & Poor's 500 Index gained 7.10 or 1.0 I should say at 1292.93. Over in the bond market, the 10-year note gained 11/32 to par and 27/32, lowering the yield to 3.90 percent.

Big board volume leader on a fairly firm banking group, Bank of America (BAC) up $1.32 on 10.4 million shares.

Followed by Citigroup (C) $0.27 gain there.

Kraft Foods (KFT) down $0.17.

Wells Fargo (WFC) an $0.88 advance.

JPMorgan (JPM) a $0.90 gain there.

General Electric (GE) gained $0.21.

Pfizer (PFE) moving up $0.14.

Wachovia (WB) a $1 gainer even.

Ford Motor Co (F) up $0.22. Today, Ford began producing its new compact called the Fiesta.

And then tenth in volume, Co Vale do Rio (RIO), the big Brazilian mining company, up $0.01.

Wal-Mart (WMT) ended with a gain of $0.22 after trading as high as $58.90 this morning. Second quarter operating earnings came in at $0.86, up from $0.75 a year ago, $0.02 above the Street consensus. Sales in the U.S., excluding fuel, 4.5 percent to the plus, 5 percent including fuel. And the company is a little cautious about the third quarter. Standard & Poor's however did repeat a "buy" recommendation on Wal-Mart.

Lehman (LEH) up $0.63. After the close, George Soros announced that he's boosted his stake in Lehman from

General Dynamics (GD)

McDermott International (MDR)

Shaw Group (SGR)

Flowers Foods (FLO)

CVR Energy (CVI)

PMI Group (PMI)

Estee Lauder (EL)

JM Smucker (SJM)

Invesco (IVZ)

Apple (AAPL)

Research in Motion (RIMM)