NBR Transcripts September 5, 2008
Friday, September 05, 2008Fannie & Freddie May Be On The Verge Of Getting The Financial Aid They Need
SUSIE GHARIB: Uncle Sam may finally be coming to the rescue of struggling mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). According to The Wall Street Journal, the Treasury Department could announce a plan to shore up the financials of Fannie and Freddie as early as this weekend. A Treasury spokesperson told NIGHTLY BUSINESS REPORT the department is "making progress." Reportedly, Treasury would provide sizable funds to both firms, which are saddled with billions of dollars of debt and have a need for fresh capital. Also, Fannie and Freddie are expected to announce major changes to senior management. Congress recently authorized Treasury Secretary Paulson to pump money into Fannie and Freddie in an emergency. Well, in after-hours trading, shares of Fannie plunged almost 30 percent, while Freddie dropped 22 percent.
The Jobless Rate Reaches a Five Year High
PAUL KANGAS: Also from Washington today, a surprising hike in the nation's unemployment rate. It jumped to 6.1 percent in August. The Labor Department says the jobless rate is now at its highest level since September of 2003, as employers slashed 84,000 jobs last month. The report raised new concerns about the health of the U.S. economy, and revived debate over whether the Federal Reserve will cut interest rates again to boost growth. Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A U.S. recession looks far more likely today after the dismal news on the labor front. Not only is the unemployment rate at its highest point in five years, but it's more than 1 percent above its April level of 5 percent. In addition, employers have cut payrolls for eight straight months, and job cuts in June and July turned out to be much deeper than originally reported. All total this year, the U.S. economy has lost 605,000 jobs. Economist John Ryding says, if it walks like a duck and talks like a duck...
JOHN RYDING, CHIEF ECONOMIST, RDQ ECONOMICS: It clearly signals the economy is in recession. And for those who thought otherwise, the rise in the unemployment rate to 6.1 percent was a wakeup call.
PRATT: While factory payrolls suffered the greatest losses, job cuts came in many areas of the economy last month. Wachovia Bank (WB), Ford Motor (F), and UAL (UAUA) were among companies announcing workforce reductions. The weakening labor market raises new questions on Wall Street about the Federal Reserve and interest rates. The central bank is expected to leave rates unchanged when it next meets on September 16th and probably through the end of this year. But some economists are now qualifying their forecasts.
RYDING: I thought monetary policy was on hold at 2 percent; I think that will continue to be the case. But if we're wrong in that assessment and the Fed moves rates this year, I think it's now more likely the Fed would cut rates again than increase rates.
PRATT: JPMorgan economist Bruce Kasman today altered his forecast. He now expects the Fed to keep rates unchanged through the first half of next year. Previously, he was looking for a rate hike at the end of the first quarter.
BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN: The Fed is watching the unemployment go up. It's seeing energy prices go down. Its concerns about inflation are really moving quite far from the center right now, and it allows the Fed to keep policy rates where they are for an extended period.
PRATT: Most economists say labor conditions are likely to get much worse before they get better. Many expect monthly job losses to continue well into next year, and the nation's unemployment rate to climb as high 6.5 percent. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
As Unemployment Surges So Do Fears About The Housing Crisis
SUSIE GHARIB: With today's news of 84,000 jobs cut from U.S. payrolls, economists are worried more American homeowners could soon end up in foreclosure. The Mortgage Bankers Association said today that late payments on home loans are already growing, and not just among sub-prime borrowers. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: What was once considered a sub-prime problem is now clearly a prime one. First, adjustable rate mortgages, made to people with poor or sub-prime credit, went bad. Now, delinquencies and foreclosures are hitting borrowers with solid or prime credit, but who took out adjustable rate mortgages with payments that shot higher. Mortgage Bankers Association chief economist Jay Brinkmann says it's those loans that are behind the current rise in foreclosures.
JAY BRINKMANN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION: For the first time we have seen that the increase in foreclosures is more heavily weighted toward the prime adjustable rate market, rather than the sub- prime, that the prime ARMs actually were equal to sub-prime fixed rate and sub-prime ARM rate loans combined.
DHUE: Foreclosures are expected to continue to mount as the economy slows and unemployment rises. While states like Michigan, Ohio, and Indiana have already been socked by manufacturing job losses, foreclosures in places like Virginia, Maryland, and New Jersey are driven by problem loans.
BRINKMANN: It has really been a problem of a combination of overbuilding, new subdivisions at risk, the types of loans that people were put into, overreaching with credit.
DHUE: One out of 10 borrowers with a prime adjustable rate loan is now either late with their payment or in foreclosure. Economist Dean Baker expects that number to rise as more homeowners see their monthly payments increase and their home values decrease.
DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC & POLICY RESEARCH: People are in a situation where many of them are going to give up in the sense that they realize, you know, they owe $400,000 on a home that's worth $350,000 or $300,000, or in some cases even less. So there's just less incentive for people to try to fight it.
DHUE: And fighting to hold onto their homes may be impossible for the growing number of Americans who are losing their jobs. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Tech Talk"-Chrome vs. Internet Explorer
SUSIE GHARIB: It was the talk of the tech world this week, search giant Google rolled out Chrome, its own Internet browser. The move put the pedal to the metal in the browser wars, with Microsoft, Firefox, Apple (AAPL), and now Google, all jockeying for position. Millions of copies of Chrome have been downloaded already, with one of them onto the computer of our own tech guru, Scott Gurvey. In tonight's special "Tech Talk," Scott kicks the tires of chrome. SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: So, does Chrome live up to its hype? I've been testing it for a few days and my answer is no. Maybe someday, but not now. Generally, you don't review a beta, which means rough draft version of a computer program, but Google's big splash invites comparisons with its competitors. Microsoft's Internet Explorer had 72 percent of the browser market in August, followed by Mozilla's Firefox and Apple's Safari. Chrome does have a sleek and uncluttered design. It uses a tab structure which we first saw in Mozilla's Firefox browser, and is now also in Microsoft's Internet Explorer. Browser designers are usually quick to steal a good idea. I really like its opening screen, visually showing you're the most recently visited sites. Its tabs are neat, acting like independent browsers. Google claims its program design makes it faster and more crash resistant. I did find it faster than Explorer, but about the same as Firefox. There were also some sites Chrome could not display and I could not get Chrome to import my Explorer favorites. It doesn't have any way to manage bookmarks either. Chrome has a neat feature that predicts the Web address as you enter it. But I have privacy concerns about how that works. Google did not return phone calls I made to ask questions. Keeping your Web surfing history private is a big issue for the Web users these days. Microsoft's privacy feature, "InPrivate browsing," is turned on by default, but Google's comparable feature, "Incognito," is not. Your surfing history is of great value to Web advertisers, and Web advertising is Google's bread and butter. PC Magazine's Lance Ulanoff says it makes sense for Google to be a player in the browser market.
LANCE ULANOFF, EDITOR-IN-CHIEF, PC MAGAZINE: It's their way of making sure that Google is front and center 24-7 with the world of online users, critical for Google because its business is all about delivering targeted information to individuals.
GURVEY: Bottom line, Chrome is not ready for prime time, but it is sure to improve and competition is good for the computer industry. On Monday, we plan a special "Tech Talk" on this weekend's release of the computer game "Spore" from Electronic Arts. The legendary Will Wright, creator of "The Sims" and "Sim City," will be here to discuss his latest creation. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Market Monitor"-Mark Skousen, Editor of the Market Letter "Forecasts and Strategies"
PAUL KANGAS: My guest "Market Monitor" this week is Mark Skousen, editor of the market letter "Forecasts and Strategies." And welcome back to NIGHTLY BUSINESS REPORT, Mark.
MARK SKOUSEN, EDITOR, "FORECASTS AND STRATEGIES": Glad to be back.
KANGAS: When you were last with us in March, you were a little negative. You said not only was the economy in recession, but that we were also in a bear stock market, which proved to be true. But you did say in six months both the economy and the market should perk up. Today's jump in unemployment to a five-year high suggests that time frame might have been a little too optimistic. What do you think now?
SKOUSEN: Yes, I think so. Paul, I think that we're still in rough times. If you look at the misery index, which is the combination of CPI inflation, and the unemployment rate, we're now over 11. It's much higher than what it has been in the last year. I would say double from last year. So we're in an inflationary recession. There's no evidence yet that we have reached bottom. There is a lot of uncertainty in the marketplace. So I think caution is still the way to go right now.
KANGAS: Will this housing slump ever end?
SKOUSEN: Well, I hope so. It has been cyclical for as long as I've lived and as long as you've lived. And these cycles last 10 to 15 years. And what happens is it collapses and then it's a gradual recovery. So I see a recovery coming forward in 2009. But it's going to be a very gradual one. And it's one that's going to be difficult to pinpoint exactly when.
KANGAS: Mark, what do you see happening with interest rates?
SKOUSEN: Well, I think that interest rates are likely to stay even, maybe rise a little bit. The Fed is in control here. If we have another major increase in unemployment and recessionary fears, than you could see the Fed cutting rates again. I don't think it's a good idea. I think it would hurt the dollar. And so I would like to see interest rates actually go back up to a more natural rate.
KANGAS: What will get the stock market back on a bullish track?
SKOUSEN: Well, I think once the election is over, that uncertainty will pass. We'll know where we stand. I think if McCain wins, the stock market will rally very strongly, because he's in favor of tax cuts and maintaining tax cuts for investors. If Obama wins, I think the market will still rally because we've eliminated some of the uncertainty. We know where he stands. He knows he is going to raise rates on investors and on wealthy people. It's not good for the economy, but at least we know where that -- where we are there. And so I'm predicting that after the election we'll see a bump in the market. We'll see, I think, a good January effect, a good Santa Claus rally, I hope.
KANGAS: OK. Now in March, you gave our viewers four buy recommendations. Let's see how they've done since then. Goldcorp (GG) down, it was much higher at one stage, around 53. You did sell it there, of course.
SKOUSEN: That's right. We had a stop order in place. We sold about the same price, I recommended it at 42.
KANGAS: OK. And Aberdeen (FAX), you're getting 7.5 percent while you lost 11.6 in this last six months.
SKOUSEN: FAX has done well, I mean, it's a play on the dollar. The dollar strengthened recently.
KANGAS: OK. And you had two others, and I believe that they were -- you had a 2 percent rise in Gladstone (GLAD) and China Medical (CMED) up 26.4. Do you still like those?
SKOUSEN: Yes. Yes, I like all of the recommendations. We're stopped out of Goldcorp, although gold does look like a recovery, maybe is oversold at this point.
KANGAS: Would you buy any of these four stocks at this price level?
SKOUSEN: I think all of them look like really good buys at this time, absolutely.
KANGAS: OK. We've got to hurry. We just have one minute. How about some new suggestions?
SKOUSEN: All right. I've got three new recommendations, Volcano Corp. (VOLC), which is medical device company similar to China Medical, symbol V- O-L-C. And it has been growing, you know, sales at 40 percent a year. I think that looks good. I like Quest Capital (QCC), which looks like a penny stock, symbol Q-C-C, invests in mortgages and real estate loans in Canada, not the United States.
KANGAS: OK.
SKOUSEN: So I think that looks good, 10 percent yield. And finally a big giant company, a Home Depot (HD), H-D is the symbol. They have 2,000 stores. They're actually expanding to 55 more stores right now. I think it looks very good, selling at only 14 times earnings. The CEO just recently reported that he thinks the housing market looks like it's bottoming. So that chart looks pretty good for a recovery.
KANGAS: Good. Do you personally own any of these securities mentioned or have, rather, disclosures to make?
SKOUSEN: Well, that is true. Quest Capital is the one that I own. I think that is the deeply undervalued play, yielding 10 percent. Q-C-C is the symbol. I own that one.
KANGAS: All right. We've run out of time but thanks for being with us again.
SKOUSEN: My pleasure.
KANGAS: My guest, Mark Skousen of "Forecasts and Strategies."
Paul Kangas' Stocks in the News
PAUL KANGAS: That jump in August unemployment kept stocks on Wall Street on the defensive this morning, even after yesterday's steep sell-off. By 11:00 a.m., the Dow was off 130 points and the NASDAQ down 36 points. During mid-session, the financial sector staged a rally, and the hard-hit material and commodity stocks joined the upturn this afternoon. Bargain hunters persisted and lifted the major indices, with the exception of the tech sector, to closing gains. The Dow Jones Industrial Average ended up 32.73 at 11,220.96. In this four-day trading week, it rose twice and fell twice, had a net loss of exactly 323 points. The NASDAQ Composite closed down 3.16 at 2,255.88 today. For the week, it fell all four days, dropping 111.64 points overall. Standard & Poor's 500 gained 5.48 to close at 1,242.31 today, and it lost 40.52 points for the week. Over in the bond market, the 10-year note fell 22/32 to 102 14/32, putting the yield at 3.70 percent.
Big board volume leader, Ford Motor (F), on 17.7 million shares, moving up $0.02.
Followed by Citigroup (C), up $0.77.
Bank of America (BAC) did well on that rally in the financial sector, up $1.63.
Pfizer (PFE) dropped $0.16.
And GE (GE) was up $0.18. And after the close, the company said federal regulators are considering filing a civil complaint against the company in the wake of a three-year probe into GE's use of hedge accounting for derivatives.
Wells Fargo (WFC), another strong bank stock, up $1.53.
JPMorgan Chase (JPM) gaining $1.69.
Companhia Vale (RIO) down a nickel a share.
Washington Mutual (WM), a $0.23 gain.
And then Wachovia (WB), another strong banking stock, up $1.22.
Nokia (NOK) fell $1.69. The story here, the company says its mobile device market share is going to be lower than it expected this year.
And UST (UST), this is the smokeless tobacco company, up $13.55. Altria (MO), reports The New York Times, is in advanced talks to acquire UST for over $10 billion, as the word goes. No specific terms though. Altria's stock was up $0.29 at $20.95.
Merrill Lynch (MER) up $0.52, even though Goldman Sachs issued a sell recommendation on the stock.
Freeport-McMoRan Copper & Gold (FCX) down $1.02. Copper hit a seven-month low on the New York market, the December contracts down $0.1675 to $3.10 a pound.
The apparel company Quiksilver (ZQK) up $1.07. Third-quarter earnings, $0.25, down from $0.28 a year ago, but that was $0.04 better than the Street consensus.
Then Graftech International (GTI) up $2.34. Jefferies brokerage upgraded it from hold to a buy.
A major loser was Pike Electric (PEC), losing almost $3 a share. Flat fourth-quarter earnings of $0.17, same as last year on a 4.5 percent drop in revenues. And the company was very cautious on its outlook.
ABM Industries (ABM) losing $4.81. Third-quarter earnings, $0.32 up from $0.24 a year ago, but $0.07 below the Street estimate. And the company sees 2008 at $1.05 a share, the Street estimate a $1.25.
Cascade (CAE), this is a company that makes freight handling equipment, down $5.63. Second-quarter earnings fell to $0.94 from $1.21 last year. The company says North American sales this year will be down 10 to 15 percent from a year ago.
Genco Shipping (GNK) down $3.07. Lazard brokerage downgraded it from buy to hold. And Safeway (SWY) lost $1.05. Morgan Stanley downgraded it from equal weight to underweight.
And then Cooper Companies (COO) down $2.16, $0.67 in third-quarter earnings, down from $0.71 last year.
Moving along to the NASDAQ, Apple (AAPL) topped the active list, losing $1.04.
Research In Motion (RIMM) off $0.54.
Microsoft (MSFT) fell $0.70.
Google (GOOG) dropping $6.01.
Intel (INTC) bucked the trend with a $0.09 gain.
Qualcomm (QCOM), $0.87 loss there.
And First Solar (FSLR) off $1.12.
Cisco Systems (CSCO) dropped just $0.02.
SanDisk (SNDK) was up $4.18. The company said it had talks with various parties, including Samsung, about business combinations. Standard & Poor's upgraded it from sell to hold.
And then 10th in volume was Oracle (ORCL), moving up $0.14.
Martek Biosciences (MATK) up $2.77. Third-quarter earnings came in at $0.28 versus $0.19 a year ago, $0.04 better than the Street consensus. And the company gave an upbeat outlook.
Those are the "Stocks in the News" tonight.
