NBR Transcripts-October 24, 2008
Friday, October 24, 2008Recession Worries Spark Another Sell-Off
SUSIE GHARIB: Another massive global sell off today on renewed concerns about a worldwide recession. Stocks in Asia and Europe plummeted, but the losses on Wall Street were less severe. The Dow fell 312 points to its lowest closing level since April 2003. But as Suzanne Pratt reports, some experts who were looking for a bottom were disappointed that the selling in U.S. stocks wasn't worse.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street pros came to work today expecting a bloodbath for stocks. What they got instead was another nasty sell session. It was one of the many bad days that have come in the last several weeks, as investors process the full effects of a long and deep recession. A major sell off was expected here in the U.S., because investors dumped stocks in many overseas markets earlier in the day. On top of that, before U.S. markets opened, stock index futures were trading down their daily limit, suggesting a rout. NYSE floor trader Teddy Weisberg, says the lack of a catalyst was the reason the stock market did not live up to the dire predictions.
THEODORE WEISBERG, PRESIDENT, SEAPORT SECURITIES: The fact is, other than the normal corporate earnings stuff, there was really nothing out there that would suggest or that would support a major sell off.
PRATT: And though many market pros were encouraged that stocks didn't fall 1,000 points today, others are still clamoring for a day of capitulation. Wachovia Securities Scott Wren says the market desperately needs that before it can move sustainably higher.
SCOTT WREN, SR. EQUITY STRATEGIST, WACHOVIA SECURITIES: I would typically be a believer that hey, we need a big sell off. We need a big rally late in the day. We finish positive or flat on large volume and certainly we haven't seen anything like that really.
PRATT: The spillover of the financial crisis into real economies around the world has meant one of the worst periods ever for stocks. Since the beginning of this year, the Dow has lost an incredible 41 percent of its value, while the S&P 500 and NASDAQ are down by similar amounts. As stocks tumble, demand for safer assets surges. Today was no different. Investors fleeing equities gobbled up Treasuries, sending prices higher and yields lower. Ajay Rajadhyaksha of Barclay's Capital predicts the flight to quality trade will continue.
AJAY RAJADHYAKSHA, HEAD, US FIXED INCOME STRATEGY, BARCLAYS CAPITAL: It's no longer about return on principal, it's all about return of principal. What you care about is getting your money back. Right now, Treasuries are the best place to park your money and that's the attitude many people are going with. You know that you can't lose money on Treasuries.
PRATT: Experts do not expect stock investors to get much of a breather next week. It's a heavy period for corporate earnings and the Fed is meeting on interest rates. On top of that, we'll get our first look at third quarter GDP for a sense of just how bad the economy is doing. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One with Stuart Schweitzer, Global Market Strategist at JPMorgan Private Bank
SUSIE GHARIB: A short while ago, I talked to Stuart Schweitzer, global market strategist at JPMorgan Private Bank and asked him when will the markets stabilize?
STUART SCHWEITZER, GLOBAL MARKETS STRATEGIST, J.P. MORGAN PRIVATE BANK: Susie, I think the markets are in a very tough bottoming process. People lack confidence. There is blood on the streets. The likelihood of a sustainable upturn is sometime off and so the markets are in a very, very challenging bottoming process, probably with multiple bottoms until we finally form a base and can move higher.
GHARIB: But, still, what does it take to get to a bottom? Wall Street historians say usually bear markets from peak to trough, it's a 30 percent decline. Now major market averages are down 40 percent. So how much more selling?
SCHWEITZER: Susie, I think we are at a level that -- based on past history, it would suggest that the market ought to begin to recover here. The problem, however, is that the credit markets are still not healthy. They're still not functioning the way they need to. And without viable credit markets, it's very difficult for people to be confident in the outlook for the economy. So although I think prices are reasonable here, we are going to be testing that assumption as we go forward.
GHARIB: And what other assumptions are being tested? Clearly we got a lot of bad news this week, a grim forecast from corporate America, announcements of job cuts, slowing economies from China to Europe. Are the markets responding to that? Is it emotional selling or something else?
SCHWEITZER: Well, I think you make a very good point, that in addition to the problems in the credit markets, there are significant problems in the global economy, not just here in America, but globally. And one of the big problems for me over the past one year is that people have been far too optimistic about the outlook for the economy and now they're coming face-to-face with the reality of a much harsher economic outlook and everybody I know is downgrading their forecast of GDP around the world.
GHARIB: So what do you think is going to happen next week in the markets? We have a Fed meeting. We have GDP numbers coming out, a lot of economic reports.
SCHWEITZER: Well, I think that there is a basis for hope each step along the way on the part of government to take action, I think, offers hope to investors. It has only been two weeks since the latest programs began to be put into place, and I think we will see these programs increasingly take - become real. For example, on Monday the Fed's commercial paper funding facility will start up. In the middle of the week, we have the Fed policy setting meeting. And I think we will see people gain a little bit of confidence as these actions take effect and begin to be reflected in peoples' expectations for the future. But there is one other thing that we're all waiting for as well and that is the election. I personally think that the election - because let's face it, no matter what the polls look like, no one really knows what the outcome of the election is going to be and what actions the president-elect is going to take in terms of appointing a new team. And I think we need to get that clarity as well. That is coming very soon.
GHARIB: So what should investors do at this point, buy, sell, or hold?
SCHWEITZER: I think whether to buy, sell or hold depends on where they are. If someone has too much risk to be able to withstand this, what's that saying if you can't stand the heat, get out of the kitchen or something like that. If they've got too much risk in their portfolios, then selling may make sense. But personally, I think that prices are at levels that make selling, not for me, at least, that attractive a proposition. No one really knows where the bottom will be, but I think the values are reasonable here and I don't believe in Armageddon.
GHARIB: All right, Stu, we'll leave it there. Thank you so much for your thoughts. We always appreciate when you come on the program.
SCHWEITZER: It's always a pleasure, Susie.
Stock Holders Wonder...Should I Stay or Should I Go?
PAUL KANGAS: Amid the bailout plan and a dismal October on Wall Street, many people are now rethinking their investment plans and trying not to hit the panic button. Some small investors are second guessing whether they should stay in stocks or move to something safer. Darren Gersh posed some of those questions to experts.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet Renee Cobbs, single mom, executive assistant, investor.
RENEE COBBS, INVESTOR: My 401(k), it's very depressing. It's scary for me. How am I going to make that up? How am I going to recover from that?
GERSH: What do you say to that, Ric Edelman, financial planner and best selling author?
RIC EDELMAN, CEO, EDELMAN FINANCIAL SERVICES: Instead of being upset and worried about the value of her investments, she should be very excited, because in her 401(k) she is contributing with every paycheck additional money into the plan, which means she's buying every week with her pay check. She's not selling, she's buying. Now do you want to buy when prices are at their all time high or do you want to buy when they're at a historic low?
GERSH: By now, you are probably saying, yeah, right. Look at the headlines, look at the market. Buy and hold is sounding a lot like hold and lose. So Ric Edelman, what about that?
EDELMAN: You're right that buy and hold is not a good opportunity because all you can do is watch it go down and down and down as you hold and hold and hold. What you should be doing is buy and rebalance. When you buy and rebalance you hold that diversified portfolio and you take advantage of opportunities, when one asset has fallen below another to buy more of the one that's low, sell some of the one that's high to bring them back into line.
GERSH: But isn't there a safe investment out there somewhere? Anywhere? What about it finance Professor James Angel?
JAMES ANGEL, FINANCE PROFESSOR, GEORGETOWN UNIVERSITY: For very short term investments an FDIC insured bank account or a Treasury bill is safe, because you know exactly how many dollars you're going to get. But in the long run, those are not very safe because of inflation.
GERSH: And now, a final piece of advice. Deep breath in. Hold it. Exhale. Feel better? All right, neither do I, but probably the most important piece of financial advice is this: calm down. Do not make decisions when you're feeling panicked. So relax this weekend. The stock market will still be there on Monday. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"- Dr. Hans Black, Chairman of Interinvest
PAUL KANGAS: My guest market monitor this week is Dr. Hans Black, chairman of Interinvest, a global money management firm with offices in Switzerland, Canada, Bermuda and Boston. Hans, welcome back to NIGHTLY BUSINESS REPORT.
DR. HANS BLACK, CHAIRMAN, INTERINVEST: Thank you. Thanks for having me.
KANGAS: You travel the globe visiting clients. What countries, in your opinion, are experiencing the worst financial crises?
BLACK: As you know, Paul, it is all over the world. It's global. It's certainly all over Europe and in a huge way in the last, two, three weeks, enormous bailouts on a per capita basis, much larger than what we've had in the United States. Eastern Europe I think is a big worry, Hungry, Poland, some of the former CIS countries, the former Soviet Union, Ukraine, I think, is an issue and finally, I'll mention Korea, which we're very concerned about. Korea is one of the top 10 economies in the world and there seem to be some big issues there with the currency and the banking system.
KANGAS: How does the United States rate, Hans?
BLACK: We think the U.S. is actually ahead of the curve. For all of the criticism that we hear, I think we've done the right things here in the banking system over the last two, three weeks, got off to a slow start, but I think we're getting it right.
KANGAS: Is all the volatility we've been seeing on Wall Street a market bottom? Or what do you look for to signal that to you?
BLACK: It may be. We're seeing a lot of values. We think this market in many sectors is really cheap, in healthcare and certain technology companies, a few energy companies even. We think we're going see an enormous rally at some point between now and the springtime.
KANGAS: A lot of money sitting on the sidelines, wouldn't you agree?
BLACK: That's correct.
KANGAS: Why hasn't gold, a so-called save haven, been rising in this debacle we've been having?
BLACK: Well, I think gold has been like anything else. It's been a source of cash. Stocks have been absolutely destroyed all over the world. I mean this is the worst year for equities since 1931 and so gold has just been a source of cash for people that have had to raise money, particularly for some of the derivative payouts to do with credit default swaps.
KANGAS: Do you still like it for the long-term?
BLACK: Absolutely.
KANGAS: OK. What are you telling your clients to do in this unnerving environment?
BLACK: As you know, we were lucky enough to have said to get out of banks quite a few years ago -- perhaps too early, but we like healthcare. It has been the core of our portfolios. It has done well for us. We continue to like it. It is amazing to see stocks actually go up this year in that sector. And we like certain technology companies. But we're concentrating our portfolios right now in the United States and to some degree now, in the UK.
KANGAS: On your last visit in late April, you had four buy recommendations for our viewers. Let's see how they've done since then and I guess we know, everything is down, Schering Plough (SGP) and SIRF Technology Holdings (SIRF). Are you still with those two?
BLACK: Yes. We still like them and Schering is a great company. It's run by we think one of the best CEOs in the drug industry and we would absolutely stay with it.
KANGAS: And then we had two others, Novell (NOVL), which is down 36 percent, Affymetrix (AFFX). Do you still like those two stocks?
BLACK: Yes, very much so. Novell has a lot of cash on their balance sheet. It's a great company.
KANGAS: OK. How about some new recommendations, Hans?
BLACK: Well, I'll tell you, we're buying Microsoft (MSFT), which we think at these prices is very cheap. It is down 50 percent from where it was about a year ago. A lot of cash, good products and P/E ratios now which nobody would have believed 10 years ago.
KANGAS: MSFT.
BLACK: That's right. Bristol-Myers (BMY) we think is very, very cheap, a well-run company again in the drug area, which we like. And finally, I mentioned energy. We like El Paso (EP), which is a stock that we had about five years ago. It did very well for us and it has come way, way down.
KANGAS: Boy, has it ever, unbelievable, EP on the big board. It trades there on the New York exchange, does it not?
BLACK: That is correct.
KANGAS: All right, Hans, do you personally own any of the securities mentioned or have any other disclosures to make?
BLACK: No. I own them. I like them all.
KANGAS: You own them all. OK. We'll see at your next visit. I think we'll have a closer look and maybe a better result. Thanks for being with us once again.
BLACK: Thanks for having me.
KANGAS: My guest, Dr. Hans Black, chairman of Intervinvest.
"Money File"-What Would Warren Do?
GHARIB: And finally tonight, in the "Money File," what would Warren do and why maybe you shouldn't. Chuck Jaffe, senior columnist at "Marketwatch" explains.
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: No single phrase in the English language can instill investor confidence in a stock or the entire market like this one: Warren Buffett is buying. The fact that the nation's greatest living investor is actively buying, clearly has been seen as a ray of hope for investors and many have said they want to take up his lead and encouragement. America's basic understanding of Buffett is that he's a main street investor, with a preferred holding period of forever and the patience to wait for the business cycle and the market cycles to come around. There's just one hitch: Buffett gets better investment terms than you do. You could go out and buy General Electric or Goldman Sachs like Buffett did, but you're not getting special preferred shares or extra warrants thrown in, effectively letting you buy in at a big discount. Study Buffett's history and you will find for example, that he turned bullish anticipating a bottom in 1974, at a time when the market decline had one more downward leg to go. Look at the market and the economy now, and it looks like Buffett may be doing it again, getting in early. Those sweetheart deals certainly help him to afford it and so do his billions of dollars. You may want to invest like Warren Buffett, but don't confuse your resources for his. With that in mind, even if you think the market may be bottoming out, you need to plan as if the worst-case scenario could continue, particularly for any money you might actually need to access say in the next five years. I'm Chuck Jaffe.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened sharply lower with the Dow plunging 500 points at the outset of trading while the NASDAQ fell 60 points. While some traders feared the sell off would go into free fall, others were hoping that would mark a clear cut bottom, but neither happened as stocks made a partial comeback but still ended sharply lower. The Dow Industrial Average closed off 312.30 at 8378.95 today. This week it rose twice, fell three times for an overall loss of 473.27 points. The NASDAQ Composite dropped 51.88 to 1552.03 today. For the week it rose only once and had a net loss of 159.26 points. Standard & Poor's 500 down 31.34 to 876.77 today and for the week, it tumbled 63.78 points. Over in the bond market, early gains from flight to safety buying dried up late in the day. The 10-year note fell 2/32 to 102 16/32 putting the yield at 3.69 percent.
Big board volume leader on 48.4 million shares, National City (NCC) $0.68 drop. As you heard, PNC Financial will acquire it for stock worth about $2.30 a share. That's .0392 PNC shares for each of NCC. PNC stock was up $2 at $58.88.
General Electric (GE) $0.97 loss.
Same story with Citigroup (C).
AT&T (T) fell $0.58.
And Bank of America (BAC) losing $1.93.
Moving along in the active list, Pfizer (PFE) $0.53 drop.
ExxonMobil (XOM) down $1.35. December oil in New York dropped $3.69 to $64.15 a barrel despite OPEC's decision to cut production by 1.5 million (INAUDIBLE). Exxon traded as low as $64.30.
Let's have a look at some of the major oils and see how they reacted. We see BP PLC ADR (BP), Chevron (CVX), Conocophillips (COP), Hess (HES) and Marathon Oil (MRO) all on the downside despite that drop in production by OPEC.
JPMorgan Chase (JPM) $2.42 loss.
Ford Motor Co (F) managed to gain $0.01.
And then Wells Fargo (WFC) a $0.42 drop.
American International Group (AIG) was down $0.40. The "Washington Post" reports the company has already consumed $75 billion of the Federal $85 billion reserve loan that it received.
Sony (SNE) down $1.64. The Tokyo market overnight of course tumbled 10 percent and the company itself cut full year profit forecasts in half and the dollar strength is hurting Sony.
ITT Corp (ITT) $3.90 loss there. Third quarter earnings higher though, $1.11 versus $0.92, but the company cut its 2008 guidance from a high of $4.17 to $4.03 at best.
Timken Co (TKR) down $5.61. Third quarter earnings jumped to $1.35 from $0.43 last year, but the company sees fourth quarter at only $0.16 to $0.26 a share.
Devry (DV) a $3.50 gain. Higher earnings, $0.48 in the first quarter, versus $0.37 last year. Revenues up 21 percent.
And then Western Digital (WDC) did well, up $1.65. First quarter earnings tripled, $0.93 versus $0.31 a year ago, a 19 percent rise in revenues. Needham Securities brokerage upgraded it from "buy" to "strong buy."
Hartford Financial (HIG) up $3.39. As you heard, "Wall Street Journal" reports the Treasury Department is considering taking equity stakes in insurance companies and let's have a look at some of the other majors.
Lincoln National (LNC) up only $0.43 on the close, but it traded as high as $22.63.
Metlife (MET) up $1.96.
And Prudential Financial (PRU) was up just over $2, not bad.
NASDAQ's most active, Apple (AAPL) $1.85 loss there.
Microsoft (MSFT) $0.36 drop on the rather disappointing outlook last night.
Google (GOOG) down $13.03.
$1.24 loss in Research in Motion (RIMM).
Cisco Systems (CSCO) down $0.93.
Intel (INTC) $0.23 drop.
Amazon (AMZN) fell $1.36.
Qualcomm (QCOM) down $0.28.
And finally a gainer, Amgen (AMGN) up $1.62 on good earnings (INAUDIBLE)
And Oracle (ORCL) $0.75 loss.
Fifth Third Bancorp (FITB) down $3.25, almost 29 percent of its value lost today after Goldman Sachs downgraded it from "neutral" to "sell" and Fitch downgraded the company's long-term issue default rating.
And those are the stocks in the news tonight.
