NBR Transcripts-August 18, 2008
Monday, August 18, 2008Frets About Fannie Mae & Freddie Mac Spark A Stock Sell-Off
JEFF YASTINE: A big sell-off on Wall Street on new concerns about mortgage giants Fannie Mae and Freddie Mac. The Dow lost 180 points, the NASDAQ fell 35. Shares of Fannie and Freddie both tumbled more than 20 percent, even after U.S. Treasury Department officials said again today they have no plans to bailout the two struggling companies. That development came after an article in "Barron's" suggesting a growing likelihood the Treasury would recapitalize the firms, essentially nationalizing them. Also today, Merrill Lynch said Freddie Mac may have to raise $5.5 billion this quarter rather than waiting until next year. Standard & Poor's market strategist Alec Young says the uncertainty surrounding Fannie and Freddie is fueling market jitters.
ALEC YOUNG, EQUITY STRATEGIST, STANDARD & POOR'S: Even the semblance of the Treasury Department sort of distancing themselves from Fannie and Freddie is enough to get equity investors very nervous and we think that's really what's driving the broad sell-off today.
YASTINE: Those concerns about the housing market have kept sentiment at a record low among U.S. home builders. The National Association of Homebuilders' sentiment index posted an August reading of 16, the second straight month at that level. Readings under 50 are considered poor. Falling home sales and rising foreclosures are keeping more homes on the market, reducing the need for new ones. Still, the NAHB is optimistic the Federal housing legislation passed in late July will help buyers get back into the market.
Chicago Condo Sales Cool Out
PAUL KANGAS: It's a buyers market for condominiums in Chicago. Between now and next year, close to 10,000 new units will be available in the downtown area alone. But as Diane Eastabrook reports, sales are slowing and that has developers pulling the plug on future projects.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Walton on the park is now little more than a dusty hole in the ground, but in a couple of years it will be a 400-unit luxury condominium development towering over downtown Chicago. Developer Ronald Shipka of the Enterprise Companies says many potential buyers have been parading through the development's models since they opened last year, but to date only about half of the condos have been sold.
RONALD SHIPKA, PRINCIPAL, THE ENTERPRISE COMPANIES: People are reluctant to make a commitment for a project that is going to be delivered out in late 2009 or 2010. They've lost confidence in our economy, possibly our leadership and they are looking to be safe and safe is no commitment.
EASTABROOK: Chicago didn't see the real estate boom that Las Vegas, south Florida and California saw in recent years, but it was a hot spot for condo sales until a year ago. Now that the market has cooled, there is a glut of new and soon-to-be completed condos for sale. Appraisal Research Counselors, which tracks Chicago's downtown residential real estate market, says 11 percent of the 4,800 units delivered last year remain unsold, 25 percent of the 4,900 units ready for delivery this year are unsold and 40 percent of the 4,600 units available next year are up for grabs. Vice President Gail Lissner says as a result, some developers are adopting sales strategies that are now common in other markets.
GAIL LISSNER, V.P., APPRAISAL RESEARCH COUNSELORS: It used to be that the list price was the price and now there is a lot more room for negotiations.
EASTABROOK: Lenders are also adopting new tactics. Many are requiring higher pre-sales and more capital from developers before backing any new projects. Lawrence Johnson, executive vice president of New Century Bank says lenders are also looking more carefully at the developers.
LAWRENCE JOHNSON, EXECUTIVE V.P., NEW CENTURY BANK: I think it's only going to be the highest quality, best experienced developers that have very strong financial conditions beyond the equity in which they are putting in the project that will be able to find lenders willing to consider new financings for them.
EASTABROOK: Slow sales of this loft project in Chicago's loop have left developer Alan Lev more cautious about the condo market. Belgravia Group's 565 Quincy condominiums are only half sold after a year-and-a-half of marketing, so Lev is postponing future projects.
ALAN LEV, PRESIDENT & COO, BELGRAVIA GROUP, LTD.: We have a couple of projects that we have under contract. We're not obligated to close and we won't close and go forward with them until we see things turning around some.
EASTABROOK: Real estate experts think it could take a few years for Chicago to work through the overhang of new condo units, which could explain why developers have put at least 10 proposed projects on hold. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
Digital... The New Reality TV
JEFF YASTINE: Ready or not, digital-only television will soon be a reality. The Federally mandated switch is just half a year away and electronics stores say as that day grows closer, more consumers come in trying to determine what, if anything, they need to get their digital TVs or their TVs digital ready. Scott Gurvey looks at how the transition is progressing.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: At midnight, February 17, 2009 -- just six months from now -- most TV stations will turn off their analog transmitters and be strictly digital. There will be no TV on the channels we have grown to know and love over the years. But don't panic -- odds are your picture will not turn to snow. That's the message industry leaders like Matthew Braatz, senior VP for technology at NBC, have been trying to deliver.
MATTHEW BRAATZ, SR. VP TECHNOLOGY & OPERATIONS, NBC LOCAL MEDIA: The biggest challenge we've had in the whole process hasn't really been technical on our side or building up of facilities, it's really been about educating the viewers. There's a lot of confusion about what the digital transition really means to the average viewer at home. The reality is, for the bulk of our audience, those who watch via cable or watch via satellite, there most likely is going to be no effect.
GURVEY: You won't notice a thing if your TV is connected through a wire, like cable customers of Comcast, Time Warner, Cablevision or Verizon's Fios service or if it gets its signal directly from a satellite, usually through a rooftop antenna, like DirecTV and Echostar. But if you have an analog TV connected to a standard rooftop antenna or rabbit ears, you will need a converter box to receive the digital signal. People are flocking to electronic stores to buy converter boxes, which cost between $40 and $80. You won't need a new TV, so don't let them sell you one unless you're in the mood. PC Richards manager Dan Joy says some customers are interested in trading up.
DAN JOY, MANAGER, P.C. RICHARD: We are making some sales when they come in looking for the converter box and we explain the prices have come down so much on the TVs that they can upgrade now and it's not as cost prohibitive as it might have been a couple of years back.
GURVEY: The Nielsen company estimates 13 million households have only over-the-air, analog television receivers and must take action by the February deadline to continue getting TV. But Neilson doesn't know how many households have over the air, analog TVs in secondary locations like a kitchen or garage. S&P's media analyst Tuna Amobi, says there is little chance the switchover date will be delayed as the analog channels have already be sold for new uses.
TUNA AMOBI, MEDIA ANALYST, STANDARD & POOR'S: That spectrum has already been auctioned off this past January in the 700 megahertz auction by the FCC that kind of raised about $20 billion for the government. And, of course, some of that spectrum has been earmarked for, you know, what they call essential services -- public safety, you know, communications, et cetera.
GURVEY: The government is offering two $40 rebate coupons per household to help consumers buy their converter boxes. TV watcher Brandy Wood has an indoor antenna and she just bought a converter box for her set.
BRANDY WOOD, CONVERTER BOX BUYER: I've been using the rabbit ears for years. I really don't care for much of the cable programming and PBS is my favorite channel. That's for free, so I'm looking forward to having very clear PBS.
GURVEY: Now that's the kind of viewer we love. To get your own converter box rebate coupon and they look like this, go to the web site at www.dtv2009.gov or give them a call at 1-888- 388-2009. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
PAUL KANGAS: Meanwhile, the Federal Communications Commission is stepping up its efforts to ensure Americans are ready for that digital transition. In an update today on the progress of the DTV initiative, Chairman Kevin Martin said all five FCC commissioners will travel to the 80 most at risk markets before February 17. The agency is also coordinating with broadcasters to test the shut-off of analog signals. Stephanie Dhue sat down with Martin this afternoon and began by asking how his agency is getting the message out about the DTV switch.
KEVIN MARTIN, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION: Well, the first having to make sure they're aware of the upcoming transition and then we have to make sure that they understand what steps they need to take. But we've been working with a lot of the grassroots organizations to try to identify what are the ways that we can make sure that those hard-to-reach communities are aware of the upcoming transition. And so whether it's a combination of both, making sure we're putting out messages in mainstream media through public service announcements, television and radio. We're also as I said, working with grassroots organizations and groups like in Wilmington, for example, doing an early test, we've been working with Meals on Wheels, the groups that bring meals to the elderly population. We have been working with local churches and other local community organizations.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wilmington, North Carolina will be the first test shutoff market on September 8th. How will you measure success there?
MARTIN: I think that the most important thing we can do is try to make sure we can learn from it. So the success will be what we learn from it in order to better prepare us for the transition in February. But I do think that we have done a very good job of trying to increase awareness down there. There was actually some people had written recently into the Wilmington paper saying, enough, already. They have already heard about the - enough about the transition that's going to occur down there.
DHUE: Will there be other test shutoff markets and how do you anticipate that playing out?
MARTIN: We asked for several different markets that are technically able to go through the transition early that already had their broadcasters up and broadcasting in digital that were prepared to undergo an early transition. But we have no other takers yet. But what we are going to do and what part of the announcement was today was that the commissioners are going to these 80 markets that we've identified that have a high number of over the air viewers, people that still rely on rabbit ears or rooftop antennas. Then what we are going to do is actually coordinate with the local broadcasters and do so-called soft tests, where they'll actually announce that at a certain point in the day or evening they're going to go in and take their regular commercial programming off and put a special message on to identify other analog signals, so if you are getting that signal still, that means you still need to take steps to make sure that you are prepared.
DHUE: There are a number of agenda items at the FCC from universal service reform, to new spectrum fees. What can you realistically get done in the next four or five months?
MARTIN: I think that the commission has still been very active over the last, over the last few months and we'll continue to end up being very active. I think that we'll still continue to end up tapping a lot of different issues that I think are important from a consumer perspective. Just last month, the commission actually at our open meeting in the July meet took steps to make sure that consumers can't have their access to Internet content or applications blocked by Internet service providers. And I think that we'll continue to be on the forefront of that. But I think in the next few months, we're still going to take off some other issues as it relates to wireless both in terms of potential fees that wireless companies are charging for early termination and also in terms of making sure that we try to find a way to utilize some of the wireless spectrum so the public safety can solve some of their inoperability challenges and I think we'll also do some universal service reform in the next few months.
DHUE: You have taken on cell phone companies, cable companies. Some have described it as a populist agenda and that perhaps you're using that as a springboard to run for office. Is that something you would be interested in?
MARTIN: I am actually just focused on trying to make sure that we can do everything we can at the commission to actually help consumers. I think that our charge and our mandate is to act in the public interest. And almost all the time, the public interest is what's in the best interest of consumers. And then generally, I think that the market place serves consumers well and we should be providing less regulation and allowing consumers to benefit from innovation and competition that occurs between industries. But I think it is important to still make sure that those industries are behaving in such a way that they're not taking advantage of consumers. Whether or not it comes down to blocking their access to content or charging them too much if they want to be able to take advantage of competition and switch to their competitors.
DHUE: So, there is a presidential election coming up. It is pretty unusual for an FCC chairman to stay on. What is next for you?
MARTIN: I'm not sure what's next. As you said, we have taken on - I've already take on a lot of the companies. I'm just trying to survive the current job.
DHUE: We have been speaking with FCC Chairman Kevin Martin. Thank you for joining us.
MARTIN: Thank you.
"Commentary"-No More Housing Bubbles
JEFF YASTINE Tonight's commentator has some thoughts on preventing the next housing bubble. She's Alice Rivlin, senior fellow at Brookings and former vice chair at the Federal Reserve.
ALICE RIVLIN, SENIOR FELLOW, BROOKINGS: As we repair the damage from the bursting housing bubble, we need to focus on how to prevent the next one. Part of the answer should be converting the mortgage interest deduction to a credit. The tax provision that allows homeowners to deduct mortgage interest from their taxable income is the nation's biggest housing subsidy, a bizarre subsidy whose benefits go differentially to the well- healed. The higher your income, the higher your tax bracket and the more valuable the mortgage deduction is to you. Do higher income people merit extra help paying for housing? I don't think so. Along with low interest rates and lax regulation, the mortgage interest deduction fueled the housing bubble, especially the boom in expensive houses, which now glut the market. But don't we want to favor home ownership? Certainly, but we have over-invested in housing, especially high-end housing, compared with more productive assets. We should take this opportunity to scale back the mortgage interest deduction and convert it to a credit so that taxpayers at all income levels get the same tax benefit per dollar of mortgage interest paid. That's simple fairness. Moreover, it might encourage more productive investment and mitigate the next housing frenzy. I'm Alice Rivlin.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened on the downside as the controversy over the outlook for Fannie Mae and Freddie Mac gave investors what they dislike the most: uncertainty. A weaker dollar also helped send the Dow off - go off 112 points by noon, with the NASDAQ losing 19 points. With the financial sector acting as the major drag, the Dow fell as much as 220 points this afternoon. But then some late bargain buying trimmed the loss by the final bell. The Dow Industrial Average closed down 180.51 at 11,479.39. The NASDAQ Composite fell 35.54 ending at 2,416.98, while the Standard & Poor's 500 Index lost 19.60 to 1,278.60. Over in the bond market, the 10-year note gained 8/32 to 101 16/32, putting the yield at 3.82 percent.
Big board volume leader on 15 million shares, Citigroup (C) moving down $0.93 in the weak financial group.
Then Freddie Mac (FRE) tumbling $1.46 or 25 percent of its value gone with this controversy over the outlook.
Bank of America (BAC) down $1.40.
And then Pfizer (PFE) fell $0.33.
General Electric (GE), fifth in volume was a $0.45 loser.
Fannie Mae (FNM), the cousin of Freddie Mac, down $1.76, over a 20 percent drop there too.
Ford Motor (F) lost $0.22.
Kraft Foods (KFT) $0.29 loss.
Wells Fargo (WFC) fell $0.96.
But Unionbancal (UB) up $7.69. The company has accepted a sweetened $73.50 cash buyout bid from Mitsubishi U.S.J. limited. It'll buy the 35 percent it doesn't already own and that's up from its original offer of $63 a share.
Hewlett-Packard (HPQ) up or down $0.99 a share. Third quarter earnings due out tomorrow. Wall Street's estimate right around $0.83 a share.
And then we see Home Depot (HD) losing $0.57. Second quarter earnings as I mentioned due out tomorrow. The Street estimate is $0.61 a share and incidentally, Lowes edged up $0.04 on its better than expected earnings, even though they were lower.
The housing stocks particularly weak today. There are so many existing homes on the market, not good for new home builders. As we see Centex (CTX), KB Home (KBH), Lennar (LEN), MDC Holdings (MDC) and Ryland Group (RYL) all on the downside today.
Another very weak group, the resort and casino stocks, there's going to be an expected drop in Labor Day holiday travel according to some analysts and that had these stocks under pressure. Boyd Gaming (BYD), Las Vegas Sands (LVS), MGM Mirage (MGM) and then of course Wynn Resorts (WYNN) down $5.57.
First Marblehead (FMD) up $2.14, a 71 percent gain, not bad. Goldman Sachs Capital Partners has completed its $132 million cash equity investment in First Marblehead.
Moving along, we see Hershey Co (HSY) down $3.91. Friday, as we reported, the company said it's raising prices and it said its 2008 earnings will be at the lower end of its previous estimate of $1.85 to $1.90 per share.
Robert Half (RHI), the staffing company, down $1.75. Lehman downgraded it from "equal weight" to "under weight."
And Lennox International (LII), the air conditioning company, down $2.72. Keybanc brokerage downgraded it from "buy" to just a "hold" rating.
Apple (AAPL) topped the NASDAQ active list, losing $0.35.
Then Google (GOOG) down $11.85.
Research in Motion (RIMM) fell $1.79.
Intel (INTC) $0.25 loss there.
And Microsoft (MSFT) fell $0.12 a share.
Cisco Systems (CSCO) $0.42 drop.
Amylin Pharm (AMLN) down $4.45. The FDA is seeking stronger warnings about the risk of pancreatitis in patients taking the company's diabetes drug called Byetta.
Qualcomm (QCOM) $1.03 loss there.
Amgen (AMGN) fell $0.56.
And Baidu.com (BIDU) down $13.76.
Elsewhere we see Focus Media Holdings (FMCN) up $2.30. This is a Chinese digital ad company. Second quarter earnings rose to $0.44 from $0.38 a year ago, $0.04 better than the Street consensus and the company's upbeat on the outlook, nice gain in the stock.
And those are the stocks in the news tonight.
