NBR Transcripts August 27, 2008
Wednesday, August 27, 2008Durable Goods Prove Reliable To The Ailing Economy
SUSIE GHARIB: A glimmer of hope for the economy tonight. It looks like business spending may be starting to pick up. The Commerce Department said today that demand for long- lasting goods, like airplanes and washing machines, unexpectedly rose last month, thanks in large part to record exports. Orders for durable goods jumped 1.3 percent, matching June's revised pace. Economists had expected a decline of 0.4 of a percent. As Erika Miller reports, today's data is an encouraging sign for U.S. economic growth.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers are reining in spending, due to tighter credit conditions and high energy costs. But today's durable goods report suggests that businesses are ramping up spending, despite similar challenges. Core investment spending by private sector firms rose by 2.6 percent in July, the biggest increase since April. Barclays Capital economist Dean Maki says that strong showing lowers the odds the U.S. economy will slip into recession.
DEAN MAKI, CHIEF U.S. ECONOMIST, BARCLAYS CAPITAL: The fact that business investment spending and core capital goods orders and shipments are picking up in the third quarter is a very strong signal that overall growth is going to continue in the third quarter, continue to rise at a moderate pace.
MILLER: Some companies may be taking advantage of equipment tax write- offs that expire at the end of the year. Economist Anna Piretti of BNP Paribas believes many firms are also banking on another fiscal stimulus package.
ANNA PIRETTI, SR. ECONOMIST, BNP PARIBAS: If we do receive that, clearly, it's going to boost demand even further. And so, it does make sense for businesses to plan ahead and start investing today, so they can reap the benefits of increased consumption that might stem from a second stimulus package in early '09.
MILLER: Orders were also boosted by strong demand overseas. Some worry that source of support could fade if the dollar continues to appreciate or global economies slow. However, economists see other offsetting factors.
MAKI: We do think business investment spending will continue to grow at a moderate pace in the second half of the year. Business profitability outside of the financial sector, where write-offs are occurring, is holding up reasonably well and that does suggest that business investment spending will also continue to grow.
MILLER: If he's right, that could also be good news for workers. Although there's usually a lag time, business investment spending is historically one of the best leading indicators of hiring in the private sector. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Gustav is Giving the Gulf Coast and Oil Prices Cause for Concern
PAUL KANGAS: The price of oil spiked almost $2 in New York trading today, settling at $118.15 a barrel. That as tropical storm Gustav headed toward the oil-rich Gulf of Mexico. It's currently on track to reach the mouth of the Mississippi River by Monday, as a hurricane. As Jeff Yastine reports, preparations are underway in New Orleans and the rest of the Gulf region.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The latest forecasts call for Gustav to make a slow northern turn through the remainder of the week, churning towards Louisiana and Mississippi, nearing their coasts by Monday. Royal Dutch Shell and other oil firms have already begun evacuating non-essential workers from their platforms in the Gulf. Energy trader Anthony Grisanti says oil prices could skyrocket if Gustav targets the Gulf's production facilities.
ANTHONY GRISANTI, OIL TRADER, GRZ ENERGY: If we're talking a direct hit, category three into the oil production facilities, which are right outside of Louisiana, you're talking probably $140, $150 a barrel. If there's any sustained damage and we won't know that until after it's through that area, then you're talking $160 a barrel, $170 a barrel.
YASTINE: The irony of Gustav is that the forecast track shows it threatening New Orleans just as the city marks the anniversary of hurricane Katrina. That storm and its resulting floods devastated the city three years ago this Friday. Louisiana Governor Bobby Jindal told reporters he's watching the storm and could declare a state of emergency as early as tomorrow. Louisiana has already readied 700 buses for evacuations and this weekend could activate a contra-flow highway system, where all lanes lead motorists away from potential storm impact areas.
GOV. BOBBY JINDAL, (R) LOUISIANA: I want to emphasize to our families out there, the state is doing everything we can to be prepared. They need to be prepared, as well.
YASTINE: For New Orleans, the key is the region's network of levees, which failed during Katrina and flooded the city. The Army Corps of Engineers says it has set up triple-redundant controls on pumps and water- control systems. Colonel Jeff Bedey says it's part of a multi-year effort to build up the height and stability of the levees.
COL. JEFF BEDEY, HURRICANE PROTECTION OFFICE, USACE: I'm not prepared today to say what level of storm we can protect against. I can tell you the system is stronger today than it was pre-Katrina.
YASTINE: Insurers say they, too, are prepared for any financial impact, should Gustav turn into a major hurricane. Jean Salvatore is a senior vice president for public affairs with the Insurance Information Institute.
JEAN SALVATORE, SR. VP PUBLIC AFFAIRS, INSURANCE INFORMATION INST.: A lot of planning goes into the logistics of getting claims adjusters and others into disaster areas and this planning is really all year round in anticipation of hurricane season. But you just never know when a disaster's going to strike, so they're always thinking about this.
YASTINE: That planning could be put to the test in the coming days as Gulf residents and businesses wait on Gustav. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
"Street Critique"- Michael Farr, President and Chief Investment Officer of Farr, Miller and Washington
SUSIE GHARIB: Tonight's "Street Critique" guest says U.S. stocks are a lot more attractive than the economy suggests. He's Michael Farr, president and chief investment officer of Farr, Miller and Washington. Michael, welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul, very much. KANGAS: This is your first time as a "Street Critique" guest, so tell our viewers a little bit about your investing philosophy. FARR: It's a very nervous, humbling experience, too, I want you to know. Farr, Miller and Washington is a core conservative manager. We tend to buy large cap stocks with solid balance sheets, experienced management and above average earnings growth. KANGAS: Fair enough. Why do you think stocks are presently weaker than you think they should be? FARR: Well, you know, it really is a sector by sector sort of a decision. But we were trading at the peak somewhere around 26 times earnings. We're now 13 times earnings. Warren Buffett said last week that if you're going to buy a farm and you know that they're going to be two years of drought and eight good years, buy the farm during the two years of drought. So, what I would say is, you know, things are down at this point, they may go a little bit lower. The worst of the drought may not be over. But this is an opportunity for those with a good bit of intestinal fortitude to make some pretty good purchases I think that will leave them in very good stead over the long term.
KANGAS: The economy is coming out of a deep recession, do you feel, is the dollar going to continue strong? Let's start with that.
FARR: I'm not sure if we are coming out of the recession or still going in to the recession. Certainly the economy is slowing and doesn't look very good. The good news here is that Europe is following us down, as is Asia, beginning to follow us down and I think other developed markets will. I think they will continue to be a flight to quality into the dollar. It really has gone well down into the depths. I think it's coming back. It's certainly getting stronger. I think it's going to be good for oil and other areas of our markets.
KANGAS: OK, now with these factors in mind, what sectors and types of stocks are you favoring here?
FARR: I'm still playing defense with good quality names. I like healthcare, but I tend to favor more of the equipment-type of stocks rather than those that are subject to greater regulatory approval, names like Striker (ph), Zimmer, Medtronic, Paterson Dental (ph). I also like the consumer staples side, not the discretionary, but the Staples like Colgate Palmolive, Procter & Gamble, Sysco Foods. I think these are good solid companies that'll see you through this.
KANGAS: That's a good summary and some very defensive stocks. Do you personally own any of these stocks or have other disclosures about them to make?
FARR: I own all of those stocks personally. And we own them in accounts that we're managing and we think that they're attractive for the accounts that we're managing. We don't make general recommendations to the public.
KANGAS: OK, any last minute thoughts for our viewers? We have a few seconds.
FARR: I think that it's a good time to be opportunistic and make sure that you don't get swayed by all of those emotional fears and hopes. See the terrain as it is and know that Warren Buffett has been through markets like this before as have many other successful investors. You'll make it through this one, too. But you have to stay the course and understand that you're going to be here for the long term.
KANGAS: Encouraging words indeed. Michael, thanks so much for sharing your insights with us.
FARR: Thank you, Paul, very much for having me; it's an honor.
KANGAS: My guest Michael Farr, president and chief investment officer at Farr, Miller and Washington.
"Money File"-Inflation's Indelible Impression on the Economy
SUSIE GHARIB: In the "Money File" tonight, it looks like inflation is here to stay. So says Chuck Jaffe, senior columnist at Martketwatch.
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: Like it or not, it's time to admit that the economy's problems have hit you at home. There's the unavoidable specter of inflation and higher gas prices, the subtle changes made by credit card issuers to tighten credit, raise rates and fees and there's the declining value of your home. It's not just the proverbial other guy who's been affected. A recent survey from zillow.com showed that nearly two-thirds of U.S. homeowners believe their home's value has increased or remained stable over the last 12 months. That's nice thinking, Pollyanna, but Zillow's market research shows that more than three quarters of U.S. homes actually lost value in the last year. Countless other studies have shown that until people feel the pinch in their own wallet, they won't admit how serious economic problems are. Gas prices got high enough to change habits and home heating costs may do it again this winter, but only to a point. People look for temporary transitions, rather than more permanent, life-altering, money-saving changes. Wishful thinking is not a bad thing, but it won't make ends meet or protect you from job loss, down years in the stock market, higher prices or the day-to-day headline risks out there. While the economy and the stock market will improve, it's well past the time when the average consumer should examine how the economy is changing their lives and how best to react. If you think your household has been mostly immune from the nation's economic problems and don't react now, you're likely to pay for that hubris in the future. I'm Chuck Jaffe.
Harley Davidson's Hog Wild Anniversary Celebration
SUSIE GHARIB: And finally tonight, Harley Davidson is gearing up for its 105th anniversary this weekend. The company's four-day celebration kicked off today. Motorcycle riders from all over the country are making their way to Milwaukee, where a million Harley fans are expected to gather. While sales in the U.S. have slowed in the sluggish economy, overseas, it's a completely different story. Lucy Craft shows us how Harley hogs are all the rage in Japan.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The tens of thousands of visitors to this annual extravaganza staged outside Tokyo might think they had stumbled upon a county fair. There were country line- dancing lessons, free rides for the kiddies, a manicure tent and a contest for the best-dressed dog. But the sponsor of this homey family fest is an American manufacturer more often associated with rugged individualism than the home-alone set -- Harley-Davidson.
Harley-Davidson is on a roll in Japan. The century-old iconic motorcycle maker has torn up the textbook for marketing and struck pay dirt. Japan's motorcycle makers control the world market for bikes. Yet they've been forced to sit by helplessly as Harley has zoomed away with a controlling share of their home market in the heavy-displacement class, the most lucrative corner of the business says Rod Copes, an executive with Harley Davidson.
ROD COPES, VP, ASIA PACIFIC, HARLEY-DAVIDSON MOTOR CO.: The Japan market, for Harley-Davidson, is very important. Outside of the United States, they're one of our top countries as far as overall sales and they have done a very nice job of kind of localizing the Harley-Davidson culture within Japan.
CRAFT: It's not that Honda and Yamaha can't build monster 750 cc cruisers just as good-- they do; it's that Harley has coasted ahead on a brand image that has more to do with Marlon Brando and an Asian longing for American-style independence. Here's one fan.
TRANSLATION OF: UNIDENTIFIED MALE: Ever since I was a kid, Harley has always been the king of bikes.
CRAFT: Japanese marketing manager Katsuya Masuda says Harley is associated with pure Americana.
TRANSLATION OF: KATSUYA MASUDA, DEPT. MGR, SALES PROMOTION, HARLEY- DAVIDSON JAPAN K.K.: For all Japanese regardless of age or gender, Harley stands for freedom and adventure, all wrapped up in one motorcycle.
CRAFT: Harley will do just about anything to get a potential customer onto one of its hogs, including helpful hints on how to cope with that bane of every biker chick, helmet hair.
MASUDA: Women told us their hair got mussed when they ride and they wanted advice about how to fix it, so we hired a beautician to do demos.
CRAFT: So America's outlaw bike of yesteryear has become today's wheels of choice for Japans dentists and secretaries. Harley-Davidson's family-friendly strategy has allowed it to grow sales here in Japan every year for the last 10. It expects to keep growing again this year. Overseas sales are increasingly crucial for the Milwaukee-based Harley-Davidson, who's looking to make up for the slack in its home market and focusing on countries like China, South Korea and Taiwan. Lucy Craft, NIGHTLY BUSINESS REPORT, Gotemba, Japan.
Paul Kangas' Stocks in the News
PAUL KANGAS: The early surge in oil prices unsettled Wall Street, sending stocks slightly lower at the open. The Dow fell about 30 points and the NASDAQ was down two points. Stocks then staged a solid rally as investors digested that stronger-than-expected rise in durable goods orders and some decent buying in the badly bruised financial sector was another plus. By 1:00 p.m., the Dow was sporting a 129-point gain, with the NASDAQ up 31 points. Persistent strength in oil caused a partial market pullback this afternoon. The Dow Industrial Average went on to close up 89.64 points at 11,502.51. The NASDAQ Composite was up 20.49 at 2,382.46 while the Standard & Poor`s 500 Index rose 10.15 ending at 1,281.66 make that. In the bond market, the 10-year note gained 3/32 to 101 31/32, putting the yield at 3.76 percent.
Now let's see what was fueling Wall Street as we take a look at some other stocks in the news tonight.
New York exchange volume leader on 21.1 million shares, Ford Motor Co (F) losing $0.09.
Then Freddie Mac (FRE) with a $0.78 gain and you heard the story there. Fannie Mae also we'll get to.
Pfizer (PFE) a $0.20 loss.
Citigroup (C) $0.28 gain.
General Electric (GE) in there with a $0.05 loss.
Wamu (WM) was a $0.06 loser.
And then Fannie Mae (FNM) up $0.86. That incidentally is the fifth consecutive closing gain on Fannie Mae, a little spark coming into some of these financial issues.
American Intl Group (AIG) was up $0.36.
Bank of America (BAC) $0.63 advance.
And then tenth in volume, AT&T (T) moving up $0.58.
Boeing Co (BA) was up $1.06. Jefferies brokerage says the company will avoid a machinists strike and issued a buy recommendation and of course July durable goods orders were led by demand for civilian aircraft which is good for Boeing.
Lehman Brothers (LEH) up $0.75. The company has three potential bidders for its asset management unit if it wants to sell it. That's not clear. Meanwhile, Morgan Stanley today predicted Lehman will report third quarter writedowns of up to $3.5 billion.
Ikon Office Solutions (IKN) up $1.46. The document management company will be acquired by Ricoh of Japan for $17.25 a share in cash. Meanwhile, rival Cannon (ph) Incorporated will be a big-time loser because it supplies Ikon with its products which Ricoh now will replace with its products and Cannon stock was down $1.72 incidentally.
MBIA (MBI) up $1.06. After the close, the bond insurer agreed to take over $184 billion in municipal bonds backed by FGIC Corp. MBIA will receive $741 million in premiums and in after hours, the stock was above $13 a share, quite a move.
Cnooc Ltd ADR (CEO), the big Chinese oil company had first half oil and gas sales up 64 percent over a year ago and its profits were up 89 percent from a year ago.
Talbots (TLB) up $2.82. Second quarter loss of $0.34, bigger than the $0.18 lost last year, but the company sees 2009 earnings of $0.15 to $0.25 and its previous estimate was for a loss of $0.17, so looks like it's going to have a good second half.
Borders Group (BGP), the book seller, up $1.03. The company narrowed its second quarter loss to $0.19 a share from minus $0.31 a year ago.
Stoneridge (SRI), an auto parts company, down $1.27. Baird and Company brokerage downgraded the auto sector from "over weight" to "market weight" and downgraded Stoneridge in particular from "neutral" to "under perform."
Apple (AAPL) topped the active list on NASDAQ, up $1.03.
Google (GOOG) losing $5.58.
First Solar (FSLR) up $4.24.
Research in Motion (RIMM) $1.04 gainer.
Microsoft (MSFT) up $0.29.
Intel (INTC) $0.26 gain there.
Moving along, Amylin Pharmaceuticals (AMIN) down $6.76. The company and its partner Eli Lily reported four more patients taking their diabetes drug Vietta (ph) have died. There were previously two deaths from that particular drug. Lily stock was off only $0.15.
Cisco Systems (CSCO) $0.26 gain there.
Qualcomm (QCOM) $0.74 advance.
Dell (DELL) was up $0.46. Credit Suisse repeated an "outperform" rating on Dell with a $30 a share price target.
And finally, shares in SI International (SINT) jumped $8.16 on news the networking solutions provider will be acquired by Serco Group for $32 per share cash.
