NBR Transcripts- August 20, 2008
Wednesday, August 20, 2008Fannie Mae & Freddie Mac Continue To Fall
SUSIE GHARIB: Shares of Fannie Mae and Freddie Mac plunged again today on continuing concerns the government will have to bail out the mortgage giants. Fannie and Freddie each fell about 25 percent to their lowest levels in nearly two decades. Investors sold shares on the belief that the two firms would not be able to raise enough money to remain viable and that the Treasury Department will be forced to re-capitalize them. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fannie Mae and Freddie Mac are publicly traded companies with a government mission to lower mortgage costs. But that public-private business model is now in doubt. Analyst Chuck Gabriel says investors are spooked that Fannie and Freddie will no longer remain private, shareholder-owned companies.
CHUCK GABRIEL, ANALYST, CAPITAL ALPHA PARTNERS: You're basically seeing equity investors abandon the stock because of spin that suggests that we are hell-bent towards a U.S. Treasury capital infusion into Fannie Mae and Freddie Mac that would wipe out common shareholders.
DHUE: Clearly, today's efforts to reassure investors failed. This morning, Fannie Mae CEO Daniel Mudd told NPR his company is better capitalized than it has ever been and Freddie Mac executives reportedly met with Treasury officials to discuss how to weather the storm. Last month, Congress gave the Treasury temporary authority to take an equity stake in the firms or loan them an unlimited amount of money. Investors want to know exactly what the Treasury will do next. In the meantime, there's little support for the stock.
GABRIEL: You're not a responsible fiduciary, if you're a money manager in America today, if you sit and ride these stocks down based on some emotional commitment or just negligence, if in fact you ignore signs that suggest this is a case.
DHUE: Analysts say investors now demand a higher return than Fannie and Freddie can make on their assets. One way the firms planned to raise capital was through preferred stock, but those shares now carry a 14 to 16 percent interest rate, the type of premium typically associated with junk bonds. Sean Egan of Egan Jones rating agency figures the Treasury would have to pump in at least $20 billion to calm investor fears.
SEAN EGAN, FOUNDING PRINCIPAL, EGAN-JONES: Right now, Fannie and Freddie have a market capitalization that's less than $6 billion, which is really just a sliver compared to the total assets and their total exposure.
DHUE: Some analysts say there's still a chance Fannie and Freddie could turn things around but the window of opportunity to do is rapidly closing. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Oil Prices Rise To The Upside
PAUL KANGAS: A volatile session in the oil markets today. September crude futures closed up $0.45 to $114.98 a barrel after trading at nearly $116 earlier. Underpinning oil prices today was word that Goldman Sachs repeated its year-end price target of $149 a barrel. As Suzanne Pratt reports, oil price predictions are all over the map.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: What is it that Goldman Sachs sees in world oil markets that many other experts currently don't see? Quite simply, a new high for crude prices this year. In a note to clients, Goldman's energy team reiterated that oil fundamentals suggest a return to rising oil prices. The Wall Street heavyweight is maintaining its year-end price target of $149 a barrel. Goldman's prediction is surprising when you consider oil prices have plunged more than 20 percent in the last month, partly on concerns about waning global demand and partly because of the stronger dollar. Oil expert John Kilduff says even though he expects Chinese oil demand to pick up after the Olympics, he does not see crude prices meeting Goldman's lofty prediction.
JOHN KILDUFF, SR. VP, ENERGY, MF GLOBAL: It's obviously very aggressive. In my view, it would take a real confluence of events, a slew of bad news for consumers for us to get back there. I don't see us getting back that high, although I don't see us going much lower from here either.
PRATT: But other experts strongly agree with Goldman's projection. Oil trader Ray Carbone thinks prices will move significantly higher.
RAYMOND CARBONE, OIL TRADER, PARAMOUNT OPTIONS: I think the market is very oversold. too many geopolitical risks out there for me to be selling oil in the $112 area. So, I think Goldman's track record is exemplary. I wouldn't want to bet against them.
PRATT: There are a few other concerns swirling around in the market that might lift prices in the coming months. First, geopolitical tensions between Georgia and Russia, the world's largest non-OPEC producer, could escalate further. If that happens, supply could be affected. Secondly, the changing calendar is likely to lead to increased demand.
CARBONE: Remember, we're going into the winter. We're going into heating oil season. It's not optional, like driving is. People will heat their homes and must heat their homes.
PRATT: While opinions differ as to where oil prices are headed, there is some agreement as to the role of the dollar in the world's energy market. Many experts predict the greenback will be less of a factor for energy prices in the coming months. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Working for Balance"-BlackBerry Backlash
SUSIE GHARIB: Handheld device maker Palm upped the ante today in the war over smart phones. The company took the wraps off its new Treo Pro, a sleeker, larger-screened model aimed at business users. The new Treo pro goes live this fall with functions like global positioning and a longer lasting battery intended to appeal to business users. What may not appeal is the price tag. At $549, it's higher than its high profile rival. Palm is scrambling to regain market share lost in recent years to competitors like Apple's iPhone and Research in Motion's Blackberry.
PAUL KANGAS: Speaking of blackberries and Treos, for millions of people, those devices are a godsend, letting them stay in touch with the office from almost any location worldwide. But for some people, the constant connection is taking a toll on their personal lives. As we continue our series "Working for Balance," Erika Miller looks at a growing wave of Blackberry backlash.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Go almost anywhere these days and you'll probably see someone using a Blackberry. There are currently over 16 million users worldwide, more than double the number of subscribers two years ago. These and other handheld devices have become indispensable work tools, giving users the flexibility to take the office with them wherever they go. But there's a downside to blurring the lines between work and personal time.
UNIDENTIFIED MALE: It can get in the way sometimes with personal time with family and significant ones. So, my wife tells me that, sometime when I'm having dinner, I need to put the thing down.
UNIDENTIFIED MALE: There's a little bit of expectation -- you know, "I sent you an email on a Saturday afternoon. How come you didn't respond?" you know, that sort of thing.
UNIDENTIFIED FEMALE: It's at my bedside, and I admit it, I'm addicted to the Blackberry.
MILLER: She's not the only one. That's why the devices have been nicknamed "crack-berries." Psychologist Patricia Farrell also warns Blackberries can increase stress and anxiety levels.
PATRICIA FARRELL, PSYCHOLOGIST: You are sitting enjoying some activity and suddenly, the alarm goes off. You are going to jump -- "I have to take that." But even if the alarm doesn't go off, what you are going to do is, you are going to be anticipating it.
MILLER: Accounting giant Pricewaterhousecoopers is one firm trying to discourage a 24/7 workplace. When workers log on to the company's computer network over the weekend, they see a pop up message asking them to consider sending emails the next business day. Carrie Quinn, a partner at the firm, says that simple reminder has had a big impact on her and others.
CARRIE QUINN, PARTNER, PRICEWATERHOUSECOOPERS: I've seen a significant decline in email in the off hours or the weekends. I think it is definitely something that is becoming common within the culture of the firm and that people are really taking it seriously, that we all need down time.
MILLER: Dennis Nally, chairman of the accounting firm, says the pop-up is part of a bigger business strategy to encourage work/life balance.
DENNIS NALLY, CHAIRMAN, PRICEWATERHOUSECOOPERS: We have now tracked this very clearly. It costs us about 150 percent of an individual's compensation to replace that individual if he or she leaves the organization. So the business imperative as to why you want to get this right -- the business case -- is very clear to us.
MILLER: There may also be legal reasons companies should limit after- hours Blackberry use. Attorney Glenn Smith believes certain workers, typically rank and file employees, may be entitled to overtime pay for responding to work emails after their shifts end.
GLENN SMITH, LABOR & EMPLOYMENT ATTORNEY, LITTLER MENDELSON: I think it's the next generation wage/hour lawsuit that you are going to be seeing. And it's not just limited to Blackberries. It's what are people doing remotely that might be after hours work? You know, how are they spending their time? Are they actually engaging in gainful employment after hours and not recording it or not being paid for it?
MILLER: Smith recommends employers do what his firm did and protect themselves by adopting an explicit Blackberry use policy outlining what is permitted and what is not. What is clear is that, for better or for worse, mobile technology is here to stay. NYU sociology professor Kathleen Gerson believes we're in the midst of a major social transformation. She points out that before the industrial revolution, home and work were very much intertwined, very similar to the way it is today.
KATHLEEN GERSON, SOCIOLOGY PROFESSOR, NEW YORK UNIVERSITY: What these new technologies are now doing is in a sense, taking us back to the future. We are now entering a whole new period, in which it's going to be more and more difficult to figure out when we are at home, when we are at the workplace, how we separate out the uses of our time.
MILLER: Some people think the U.S. needs a worker bill of rights guaranteeing some freedom from the office. Others would like to see something less formal, like an evolution of corporate etiquette that discourages the sending of work emails after hours. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Our series, "Working for Balance," continues tomorrow with a look at how some companies are finding that offering family-friendly policies makes good sense.
"Street Critique" - Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS: Tonight's "Street Critique" guest weighs in on commodity stocks. As we know, they've been beat up pretty badly lately, but is their bull run over? Joining me tonight with some answers is Hilary Kramer, chief market strategist at Greentech Research and author of "Ahead of the Curve." And Hilary, good to see you again. HILARY KRAMER, CHIEF MARKET STRATEGIST, GREENTECH RESEARCH: Thank you Paul for having me here tonight.
KANGAS: Oil has led a major pullback in raw materials oaf the last month and commodity-based stocks from oil to metals, all the way to food, have been hurt. So are we seeing a start of a commodities bear market or is this just a breather?
KRAMER: This is just a quick break in a very long decade to two- decade-long bull market run for commodities. There's a lot of demand out there worldwide. It's good news. It just means we're going to have to adjust.
KANGAS: What about individual stocks? Are you buying, selling or just sitting on the sidelines here?
KRAMER: Paul, I'm buying stocks and I'm buying the commodity-related stocks, especially in the precious metals and in the steel, iron ore, copper, aluminum.
KANGAS: Let's get specific. What's your first stock you want to talk about?
KRAMER: I have been buying a stock called Metallico. I talked about it before on the show. Metallico's symbol is MEA. The stock is $11.20. It's down from $18 at the very end of June. It just came down because the price of oil came down, but scrap metal pricing stays firm. And we're going to see Metallico go back up to where it should be. Fair value as an analyst I see it well above $20.
KANGAS: There's another metal play that you like also. In early May you gave it to us in the 30s. It was Sims Group. Are you still a buyer here?
KRAMER: I like Sims even better in the 20s. It's a shame it's in the 20s. It should be in the high 40s. I have also seen a lot of whispering about Sims, SMS, being a takeover, an acquisition target by some of the big steel companies. It's an Australian-based company but you can buy it here under the symbol SMS.
KANGAS: What about oil stocks? You liked PBR - Petrobras in mid-May. It was around $75 and how about now?
KRAMER: I still like Petrobras. And I own Petrobras, just like I own Metallico and Sims. Petrobras I own for the very, very long run. PBRA is the stock of my choice. It's just Petrobras "A" shares comes in a little bit cheaper when it comes to buying.
KANGAS: We have less than a minute Hilary. Your final commodity related stock is one that you're not bullish on even though it seems to be at a bargain price, the name and ticker?
KRAMER: Whole Foods and the ticker symbol is WFMI. Paul, as you know, inherently, I'm a bull. I believe in the equity markets. I love stocks. It's what I've done my entire career. When it comes to a stock like Whole Foods, I'm surprised to see that people are still buying, jumping in there. And they think that just because it's cheap, it's a buy. Sometimes cheaper stocks get even cheaper. Now they depend on commodity prices in terms of food. They have these -- margins are very thin, less than 1 percent. I think we're going to see Whole Foods continue to struggle.
KANGAS: Hilary do you own any of the stocks mentioned or have other disclosures to make?
KRAMER: I own Metallico, Sims and PBRA, the Petrobras "A" shares.
KANGAS: Excellent. Well, I want to thank you for being with us again.
KRAMER: Thank you so much, Paul. Thanks for having me on.
KANGAS: My guest, Hilary Kramer of Greentech Research.
"Money File"-The Auction Rate Security Mess
SUSIE GHARIB: In tonight's "Money File," what investors can learn from the auction-rate securities fallout. Here's Harriet Johnson Brackey, personal finance columnist at "The South Florida Sun Sentinel."
HARRIET JOHNSON BRACKEY, PERSONAL FINANCE REPORTER, SO. FLORIDA SUN SENTINEL: Are there any lessons for individual investors from the auction- rate securities mess? Sure. But depressingly, some of them are not new. Such as, don't always select a security by its yield. If it's higher than anything comparable, be wary. Some of these auction-rate securities paid many times more than an ordinary money market fund. Expect risk, especially if the person selling you the security says there is none. These securities were supposed to be liquid, so that you could cash out, but buyers stopped coming to the auctions last February. Investors were stuck. Demand that your regulators get involved if things go wrong. State and Federal securities administrators have been pushing for a solution, wielding the threat of investigations. Now, the big firms say they are willing to buy back more than $37 billion in auction-rate securities. The big stick worked. Don't expect the safe investments of the past to stay safe. Markets do change. And one new lesson comes from brokers who say they were surprised at the failure of this market. For years, they didn't know or their employers didn't reveal, how these auctions really worked. I don't know who is going to be at the bottom of all this, but the way for individuals to come out on top is to ask a million questions until you completely understand the investment. If you don't do your homework, don't expect to get a second chance to get it right. I'm Harriet Johnson Brackey.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street fell at the opening today on continuing worry about Freddie Mac and Fannie Mae and an early rise in oil prices. Those factors sent the Dow off 40 points and the NASDAQ down two points by 10:00 a.m. When oil prices slumped on a rise in crude inventories, the Dow jumped to a 90-point gain an hour later. But renewed weakness in the financials and a rebound in oil made buyers wary. So the Dow Industrial Average closed up 68.88 at 11,417.43. The NASDAQ Composite gained 4.72 to 2,389.08, while the Standard & Poor's 500 Index rose 7.85 ending at 1,274.54. In the bond market, the 10-year note rose 10/32 to 101 20/32, putting the yield at 3.80 percent.
Big board volume leader on 32.3 million shares, Invesco Ltd (IVZ) up $0.31. That stock was added to the Standard & Poor's 500 Index after the close today, replacing IAC Interactive.
Then Freddie Mac (FRE) and Fannie Mae (FNM) both 20 percent drops on each stock and they have a lot of debt maturing in the next few months.
Citigroup (C) was up $0.30 bucking the overall trend and a lot of the banking stocks.
Ford Motor Co (F) down $0.11 a share.
And then a few more stocks on the financial scene doing better today, Bank of America (BAC) up $1.21.
Wells Fargo & Co (WFC) gained $1.13.
Then General Electric (GE) with a $0.06 loss.
JPMorgan Chase (JPM) added $1.42.
And Washington Mutual (WM), tenth in volume, showed no change on the day.
Hewlett-Packard (HPQ) up $2.47. After the close yesterday as we reported, third quarter earnings, $0.86, up from last year's $0.71, a nickel better than the Street was expecting. Revenues were up 10 percent, nice performance in the stock today.
Freeport McMoran Copper & Gold (FCX) up $6.39. Morgan Stanley made positive comments and repeated an "over weight" rating. Morgan sees higher copper prices coming down the pike.
Verifone Holdings (PAY) up $4.67. The company sees third quarter earnings revenues - I should say revenue growth of 10 percent and earnings at $0.34 to $0.35 and sees fourth quarter earnings rising to $0.36 to $0.39.
Suntech Power (STP) up $4.62. Second quarter earnings jumped to $0.38 from $0.25 a year ago on a 51 percent jump in revenue. Standard & Poor's repeated a "buy" on the stock today.
ITT Education (ESI) up $3.93. Bank of America upgraded "neutral" to "buy" on the upbeat outlook for the company's student loan business.
Officemax (OMX) losing $1.80. Executive vice president's chief financial officer Don Civgin is going to step down at the end of this month and Goldman Sachs downgraded the stock from "buy" to "neutral."
BJ's Wholesale (BJ) down $2.97 despite higher second quarter earnings of $0.61 versus $0.55 a year ago, but the company's cautious about the fourth quarter, usually its best profit quarter of the year.
And then Analog Devices (ADI) fell $2.85. Third quarter earnings, $0.44 up from $0.38 last year but a penny below the Street estimate, no room for disappointment in this market.
Apple (AAPL) up $2.31, led the active list on NASDAQ.
Google (GOOG) down $5.50.
Research in Motion (RIMM) up $4.33. Tomorrow RIMM will launch its Blackberry Bold smart phone, a little optimism about that apparently.
Intel (INTC) a $0.20 loss. The company along with Yahoo! will create web channels to run alongside TV shows.
Microsoft (MSFT) a $0.03 drop there.
Qualcomm (QCOM) $0.16 gain.
Baidu.com (BIDU) up $12.38.
First Solar (FSLR) up $14.25.
Cisco Systems (CSCO) dropped a penny.
And then IAC Interactive (IACI) was down $0.07 coming out of the Standard & Poor's 500 Index today.
Novatel Wireless (NVTL) down $2.11. The company had just a break even second quarter versus earnings of $0.25 a year ago.
And finally, Aladdin shares, Knowledge Systems (ALDN) I should say jumped $1.33 after the private equity firm Vector Capital expressed an interest in acquiring the company.
