NBR Transcripts- August 29, 2008
Friday, August 29, 2008Slow Consumer Spending Threatens to Stunt Economic Growth
SUSIE GHARIB: Discouraging news on the economy dampened investor spirits on Wall Street today just ahead of the Labor Day holiday. The Dow tumbled 177 points. The NASDAQ fell 44. Investors sold stocks after the Commerce Department reported that personal income tumbled 0.7 of a percent in July and consumer spending rose just 0.2 of a percent. The report also showed that prices spiked to a 17-year high. As Scott Gurvey reports, a slowdown by the American consumer could spell a slowdown for the U.S. economy.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today's reports tell a story quite different from the tale of unexpectedly strong second quarter growth reported earlier this week. Economists say the government's is responsible for the mixed signals. Carl Riccadonna of Deutsche Bank says the government checks produced a false sense of well-being.
CARL RICCADONNA, SR. ECONOMIST, DEUTSCHE BANK: These fiscal stimulus checks that were distributed earlier in the year appear to be sent and spent. And now we're reaching a period where consumers are facing a hangover.
GURVEY: Riccadonna says consumers are now waking up to the reality of their economic situation and that spells trouble for the second half.
RICCADONNA: What we have now is a labor market that is really grinding lower. Household income is struggling and if we adjust household income creation for inflation, it's actually in negative territory. So we're getting into this period in the third and fourth quarter of this year in which consumer spending will actually contract.
GURVEY: A contraction in consumer spending would be a rare event for the American economy. Consumers are responsible for more than 70 percent of GDP. Economist David Resler of Nomura Securities says the second quarter may well be the high water mark for the year.
DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES: With the weakness that we're starting to see in overseas economies, that's going to take away some of our vibrancy from our export markets. The housing sector is still in decline and now consumer spending looks like it's in decline. So I think it all adds up to a very, very weak second half, perhaps a negative growth second half.
GURVEY: Along with the slowdown in spending and decline in income, consumer sentiment was surprisingly reported up in August. Resler says that's because of the recent decrease in the price of gasoline. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Hurricane Gustav Is Threatening More Than Just The Gulf Coast
PAUL KANGAS: President Bush declared a state of emergency in Louisiana today, ahead of hurricane Gustav's likely arrival on the Gulf coast early Tuesday. Many oil companies are evacuating employees off rigs and platforms and cities along the Gulf are ready to evacuate residents. As Jeff Yastine reports, Gustav is also causing jitters hundreds of miles from the coastline.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The storm is what Gulf coast residents are most worried about, the driving winds and rain that pounded Jamaica as Gustav passed over the island. The storm is expected to enter the Gulf of Mexico this weekend and the projected path would take it right through the heart of the Gulf's offshore oil production area. That led to a volatile day in the New York oil pits with prices rising more than $3 a barrel in early trading. They finished the session down $0.13 at $115.46 a barrel. Nymex trader Ray Carbone says oil traders are now weighing Gustav's potential impact against the bigger picture for oil.
RAYMOND CARBONE, OIL & GAS TRADER, PARAMOUNT OPTIONS: Demand was in its ascendancy in 2005. Right now it's been slackening and I think people are putting some faith in that slackening demand to moderate the price rise if something happens. I think it's a mistake but I think that's the mentality going into this.
YASTINE: In Louisiana, residents watched Gustav with caution as they marked today's third anniversary of hurricane Katrina. New Orleans Mayor Ray Nagin said evacuations would begin when the storm is within 60 hours of the city. In Mississippi, FEMA Administrator David Paulison tried to reassure residents his agency won't make the mistakes it made in 2005.
DAVID PAULISON, FEMA ADMINISTRATOR: What we're seeing is a totally different type of response than what we had in Katrina. We have shifted the culture, if you will, of the emergency management system, from a reactive to a proactive system.
YASTINE: Mississippi's booming casino business is also poised to take a hit from Gustav. Most casinos now operate onshore gaming rooms after Katrina's storm surge sank or beached the original floating casino barges. But high gas prices, a weak U.S. economy and competition from other gaming venues are already hurting Mississippi's casino business. Now economists say Gustav, expected to be a category three storm by the time it makes landfall next week, could dim the big picture for the region's economy, after three years of post-Katrina rebuilding. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
Republican National Convention Preview
SUSIE GHARIB: Senator John McCain picked Alaska Governor Sarah Palin as his vice presidential running mate today, just days ahead of the Republican convention. She is a 44-year-old mother of five and has been governor of Alaska for 18 months. She will join fellow Republicans on Monday in St. Paul, Minnesota where McCain will be nominated as the party's presidential candidate. Our Washington bureau chief Darren Gersh has been covering the election for us and joins us now with a preview. Hey Darren. That was a big surprise today.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: A little bit, huh, a small one.
GHARIB: By choosing Governor Palin, what do you think Senator McCain, what message is he trying to signal to voters?
GERSH: Oh, the maverick is back. That's the message the campaign wants to send out, Susie. And then he wants to run as a maverick. He wants to take on, you know, big interests, special interests, maybe big business and to show that, he reached way outside of Washington. Any further and he'd have been in Siberia. You know, Palin has an interesting reputation as a reformer, somebody who bucked her own party, who is in favor of small government. And conservatives really like her reputation because she opposed that bridge to nowhere that they're so upset about.
GHARIB: Right, right. Well, Darren, as you know, everybody in this election is talking about the economy. Did she bring any economic text to the McCain ticket?
GERSH: I talked to Doug Holestig (ph), McCain's economic advisor. He said, look, she has strong credentials as a fiscal conservative, but we just don't know. We don't know a lot about her. She has been very focused on Alaska issues, which is one reason that voters there really like her. When I talked to Doug he said that she does have international experience because the oil industry is international, especially because there are a lot of pipelines and she's worked on a pipeline through Canada. But, you know, when I read the newspaper, it doesn't seem to me that our big issues around the world are in Canada.
GHARIB: You're right about that. Palin is pro-drilling in Alaska and some people might translate that to mean she's also pro big oil. Is that the case?
GERSH: Some people, meaning the Obama campaign? I mean, they're already pushing that out. And, yes, she is in favor of drilling. She been a strong proponent of drilling in Anwar and the Obama campaign are really going to harp on that quite a bit. It's interesting, because the McCain campaign, one reason they are interested in her is because she has shown that she's willing to take on big oil. In fact, she essentially raised taxes on oil companies by quite a bit, raising billions of dollars. It's an interesting story and our colleagues at "Now" on PBS took a look at it and listen to what Governor Palin had to say.
GOV. SARAH PALIN, (R) PRESUMPTIVE VICE PRESIDENTIAL NOMINEE: Oil companies don't own the resources. They have leases and the right to develop our resources for us and we share a value, partners there, because they do the producing for us. But we own the resources.
GERSH: I think she's -- you know, she's -- she's shown herself to be somewhat independent. The Obama campaign will attack there. But just one other thing I think is interesting to note that Alaskans are pretty concerned about climate change and this is a governor who worked on climate change issues which is another thing that might concern some businesses.
GHARIB: As you know, now it's McCain's turn. He's going to be in the spotlight in St. Paul next week. What do you think is going to be his key economic message that he will be sending out to voters?
GERSH: I think it's very clear that he's going to say, look, we understand that people are hurting. In particular, we understand that working class people are hurting. You're going to hear a lot about Governor Palin as a hockey mom, a mother of five who understands those kinds of things and that the maverick is back.
GHARIB: All right, thanks a lot Darren. Have a great weekend. I appreciate the update.
GERSH: Thanks, Susie.
GHARIB: We've been speaking with Darren Gersh, NBR's Washington bureau chief.
"Working for Balance"-Japan's Workaholism Crisis
SUSIE GHARIB: Work-life balance is a hot topic in the American workplace these days, but it's a relatively new concept in other countries, especially Japan. The rise of the career woman and the desire of younger Japanese to have personal time run counter to a traditional mindset that values long hours at the office. Tonight in a preview of our Labor Day holiday program, "Working for Balance," Lucy Craft reports on how some Japanese firms are embracing work life balance.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fighting workaholism has become a national imperative, in part, because scenes like this are becoming all too rare. Overwork is causing under-population, says consultant Joanna Park.
JOANNA PARK, WORK-LIFE CONSULTANT, APPASSIONATA: Many husband don't get home until let's say 10:00 or 11:00 p.m. or many times after midnight. So the wife has to do everything. If she is working, she has to work. She has to do the housework and taking care of the kids all by herself and we see, a lot of women see the reality and realize that if I get married and have kids, I have to do that and they just don't want to do it.
CRAFT: And for the world's fastest aging society, the baby deficit spells fiscal disaster.
PARK: With that birthrate, Japan cannot maintain the social benefits and pension plans as the government promised.
CRAFT: A handful of Japanese companies are trying to get their workers to stop and smell the flowers. Fast retailing, which runs the Uniqlo apparel chain, began experimenting with work-life balance programs three years ago, says Saeko Kaneko, who's in charge of employee relations.
TRANSLATION OF: SAEKO KANEKO, EMPLOYEE RELATIONS TEAM, FAST RETAILING: Giving our employees more time off means they can spend more time with family and on self-improvement. That makes them healthier and more creative, which in turn makes them more efficient and improves the quality of their work.
CRAFT: Worried about its global image and anxious to attract and keep talented employees, the company stopped requiring store managers to work 10-hour days. Now, women run about a fifth of their stores, in a country where management roles usually go to men. To slash overtime, meetings have been sped up by requiring workers to stand, instead of sit. And for most employees, desks are history. Instead, workers are assigned just a cell phone and portable computer. Doing without permanent desks, the thinking goes, cuts clutter, literally and figuratively. Finally, at headquarters, it's lights out at 7:00. Unless permission is granted in advance, even laggards are kicked out by dinnertime.
KANEKO: We don't have proof that cutting overtime helps the bottom line. But the fact is our revenues are growing and overtime has been drastically reduced. So our campaign has yielded results.
CRAFT: Fast Retailing's progressive workplace is still unusual for Japan. But with workaholism taking a severe toll on Japanese society, experts say other Japanese corporations have little choice but to follow suit. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
KANGAS: Monday, we'll have more on the role of the workplace in peoples' lives with our special holiday edition "Working for Balance."
"Market Monitor"-Chris Orndorff, Head of Equity Strategy for Payden & Rygel
PAUL KANGAS: My guest "Market Monitor" this week is Chris Orndorff, head of equity strategy for money management firm Payden & Rygel, based in Los Angeles. Welcome back to NIGHTLY BUSINESS REPORT Chris. Good to see you.
CHRIS ORNDORFF, HEAD OF EQUITY STRATEGY, PAYDEN & RYGEL: Thanks, Paul, great to see you.
KANGAS: It seems that the Wall Street analytical corps generally thinks we are in a bear market. How do you see it?
ORNDORFF: I would agree. I think it's a very difficult environment. I-- I think, however, you're likely to see bear market rallies, just like you did in 2001 and 2002 of 20 percent or more, probably last about two month or so, for those rallies. That's the time when you want it take your profits, reduce the portfolio beta (ph) and be a little more defensive.
KANGAS: You have to be pretty nimble for that though, don't you?
ORNDORFF: You do, but it is but it's good to take advantage of those low capital gains breaks while they exist.
KANGAS: How do you see the downside risk percent-wise in the market?
ORNDORFF: I think you can fall another 15 percent from these levels, I'm sorry to say. But I think that's the way it looks, in terms of earnings projections.
KANGAS: But play those rebound rallies on the way down, you say.
ORNDORFF: That's exactly right.
KANGAS: Now on your last visit with us in late January, you believed oil was going to drop to the mid-$50 per barrel range. You were a little off there. What are your thoughts on oil now?
ORNDORFF: I'm going to stay with the same theme, but I think $95 will be the new target price and thankfully I don't have to make a living predicting oil.
KANGAS: Fair enough. You did hit the interest rate outlook right on the head by predicting a Fed fund rate would fall to a flat 2 percent right where it is now. Where do you go from here?
ORNDORFF: I think it's going to be about the same. Mr. Bernanke is very concerned about inflation. That's going to remain one of the key concerns. The economy is very weak so there's not a whole lot he can do.
KANGAS: All right, now in January you gave our viewers four "buy" recommendations. Let's see how they've fared since then. Chattem Corp. (CHTT) up 7.6 percent, health products is their business, right?
ORNDORFF: That's exactly right. Still a great company, I'd hold it.
KANGAS: Hold it, but not buy new stock here?
ORNDORFF: I'd buy more too.
KANGAS: OK, Coca-Cola (KO) is down almost 11 percent since then, but it traded as high as $65 between January and now. You took some profits, did you?
ORNDORFF: Well, no. I would still hold on. I think this business will do very well in the slowing economy and we'd buy more.
KANGAS: OK, we have the third and fourth choices. You did very well on Potash (POT), that's a fertilizer company, up 31 percent nearly and it traded as high as $240. You must have taken some money off the table there.
ORNDORFF: Oh, sure.
KANGAS: OK. And then the big clinker, MGM Mirage (MGM), down 50 percent. What's going on there?
ORNDORFF: Well, we took a gamble on that one and Vegas traffic has really dried up. So that was a bad roll of the dice.
KANGAS: OK, fair enough on that. How about new recommendations, Chris?
ORNDORFF: Sure. In these three companies I'm going to talk about are similar to three of the ones from the last show. Again, this is not a market to really be a hero. It's a market to focus on companies with good fundamentals. The first one would be CR Bard, which is ticker symbol BCR. It's a disposable medical products company, 100 years old, a leader in vascular, urology and oncology procedures.
KANGAS: The stock has held up rather well this year through the ups and downs, hasn't it?
ORNDORFF: Yeah, it's a very stable, solid company.
KANGAS: OK, selection number two.
ORNDORFF: The next one is SPX Corp, the ticker SPW. This is really a leader in the global infrastructure space, not so much roads and bridges but really electrical infrastructure, water infrastructure and recycling infrastructure. And really a super company with a great management team.
KANGAS: OK, one more.
ORNDORFF: And then the third would be a company called Ansys, which is ticker ANSS. If you're an engineer or designer you know this company very well. They're one of the leading software providers for those industries and in electrical and aerospace, they really help businesses maintain and grow profit margins.
KANGAS: Interesting. Do you personally own any of the securities mentioned or have other disclosures to make?
ORNDORFF: We do. We own all these in our U.S. growth leaders fund as well as I own them personally.
KANGAS: OK, thanks for sharing your views with us once again. Good to see you.
ORNDORFF: Thanks, Paul, always a pleasure.
KANGAS: My guest, Chris Orndorff of Payden & Rygel.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened on a downbeat note as investors generally viewed today's economic reports as pessimistic. The tech sector was weak after Dell's earnings shortfall late yesterday. So in a steady sell-off, the Dow fell 165 points by mid-session while the NASDAQ Composite lost 49 points. Stocks remained broadly lower this afternoon amid nervousness over hurricane Gustav's path and caution ahead of the long Labor Day weekend. The Dow Industrial Average closed off 171.22 points at 11,543.96. This week it fell twice and rose three times, had a net loss of 84.10 points. The NASDAQ Composite was down 14.12 to 2367.52 today. This week, it rose twice, fell three times and dropped 47.19 points overall. Standard & Poor's 500 lost 17.85 to 1282.83 today and for the week, it was down 9.37 points. In the bond market, the 10-year note fell 11/32 in the day's shortened session to 101 13/32, putting the yield at 3.83 percent.
New York exchange volume leader on 18.1 million shares, Merrill Lynch (MER) moving up $0.83.
Followed by Citigroup (C) down $0.09.
Then General Electric (GE) with a $0.73 loss.
Freddie Mac (FRE) a little profit taking after recent gains, down $0.77.
Wamu (WM) was up $0.18.
AT&T (T) $0.24 loss.
Ford Motor Co (F) edged $0.03 higher.
Pfizer (PFE) a $0.16 drop.
Bank of America (BAC) lost $0.29.
And Fannie Mae (FNM), after six consecutive closing gains, down $1.11 on some profit taking.
Moving along, we see International Paper (IP) down $1.25. Deutsche Bank downgraded it from "buy" to a "hold" today.
And MGM Mirage (MGM) was a good mover on the upside, gaining $1.71. The company has secured $2.3 billion of the remaining $3 billion in funding needed for its huge city center project on the Las Vegas strip, good news there on the financing.
Another gambling company, Las Vegas Sands (LVS) up $1.56. The chairman today dismissed concerns over the prospect of a slowing economy in Macau, which has been prompted by China's recent measures to restrict its citizens from visiting Macau.
Freeport-McMoran Copper & Gold (FCX) down $1.31. Deutsche Bank cut its price target from $135 to $125 a share.
And then Constellation Energy (CEG) losing $1.78. Jefferies brokerage downgraded it from "hold" to "under perform" and Lehman cut its price target from $108 down to $76 a share.
Esterline Technologies (ESL), the aerospace company, up $3.10. Third quarter earnings $0.68, up from $0.61 a year on a 17 percent rise in revenue.
Then we see Excel Maritime (EXM) up $1.64. Maxim group upgraded it from "hold" to a "buy" rating.
Genesco (GCO), the shoe company, up $1.09, traded as high as $37.55 today after reporting second quarter earnings, excluding one-time items, $0.18, way up from the Wall Street estimate of only $0.04 a share.
Eagle Materials (EXP) gained $1.51. Longbow research upgraded it from "neutral" to a "buy."
And then on the downside, Santander Bancorp (SBP) losing $1.21. The company is stopping payment of a $0.10 quarterly cash dividend. That's due to poor economic conditions in Puerto Rico. Also the company's president resigned.
NASDAQ's most active, Apple (AAPL) down $4.21.
Dell (DELL) losing $3.48 after the shortfall in earnings out after the close yesterday. Today Bank America cut its price target from $29 to $27 a share and cut its 2009 earnings estimate of $1.58 down to $1.53. On top of that, Standard & Poor's downgraded the stock from "buy" to "hold," bad day for Dell.
$5.05 drop in Research in Motion (RIMM).
Google (GOOG) losing $10.49.
Microsoft (MSFT) $0.65 loss there.
Intel (INTC) $0.72 loss.
Oracle (ORCL) down $0.71.
And Qualcomm (QCOM) fell $1.32.
Cisco Systems (CSCO) off $0.61.
And Marvel Technology Group Ltd (MRVL) $0.65 loss.
Petsmart (PETM) up $2.58. Second quarter earnings were lower, $0.30, versus $0.35 last year, but that was $0.02 above the Wall Street estimate, though the stock reacted positively.
Those are the stocks in the news tonight.
