NBR Transcripts- October 27, 2008
Monday, October 27, 2008Recession Fears Go Global & The Markets Head South
SUSIE GHARIB: The major stock averages tumbled once again today and are now at their lowest level since spring of 2003. The Dow lost 203 points; the NASDAQ fell 46 points and the S&P dropped 27. Fueling the sell-off, more concerns about the prospect of a global recession. Where stocks head this week could depend on a possible interest rate cut by the Federal Reserve and a new batch of reports on the economy. New York bureau chief Scott Gurvey has a preview of what to expect.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This week is unusually rich with economic data, durable goods on Wednesday, the first look at GDP for the third quarter on Thursday along with the weekly unemployment numbers. Friday we get personal income and spending, the employment cost index and consumer sentiment. Economist Robert Brusca says the most current information is most valuable in predicting future trends.
ROBERT BRUSCA, CHIEF ECONOMIST, FACT & OPINION ECONOMICS: Durable goods orders report is a fairly important report this week. I think the continuing weekly report on jobless claims tells us what's going on in the job market. I think that's an important report to see how badly the job market is getting hit on a continuing basis.
GURVEY: This week also marks a significant turning point in the string of third quarter earnings reports which have discouraged investors. Marc Pado of Cantor Fitzgerald says the pessimistic forecasts issued in those reports has helped drive the market down.
MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD: We're getting through this downgrading of expectations and as you get that booked into the market, then it should help put in a floor. So this week is the consolidation week after last week's unfortunate beating that we were getting for a lot of different reasons but earnings being one of them.
GURVEY: But the big gorilla in the room this week is the Federal Reserve's open market committee, which begins a two-day meeting tomorrow. Traders had assumed a quarter point cut in the Fed funds rate, with a fifty-fifty chance of a half point cut. Most analysts believe the markets would be disappointed if the Fed doesn't move. But Brusca says a rate cut would be a bad idea.
BRUSCA: People have been bailing out of stocks and into fixed income products. So people are going to bail out of the stock market. They're going to put money in the banks and now their deposits are going to earn less interest. Unless banks will lend and unless they will pass those lower rates on to the public, cutting interest rates hurts the economy.
GRUVEY: There are also those who fear lower rates will drive money from Treasuries to risky investments, igniting still another financial bubble. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The Treasury Department Begins Stretching Out The $125B TARP
PAUL KANGAS: It could be the shot in the arm that big U.S. banks have been waiting for. The Treasury Department announced today that it will begin sending $125 billion to the first nine banks that signed up for its recent rescue plan. And as Washington bureau chief Darren Gersh reports, the so-called TARP may soon expand to cover other sectors.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Auto makers may be next in line for Federal help. After all, White House spokeswoman Dana Perino says GM, Ford and Chrysler are also vital to the economy.
DANA PERINO, WHITE HOUSE SPOKESWOMAN: Auto makers do have financing arms. Many of them do. And it's possible that some of those financing arms could be a part of the rescue package, the TARP, as they call it, at the Treasury Department. So that's why Treasury has been in contact with them.
GERSH: While it appears automobile financing arms would not qualify for a direct government cash infusion, they might be eligible for a Treasury program that purchases toxic financial assets. Congress also recently approved $25 billion in loans for car makers, money that might be used to help arrange a merger between GM and Chrysler. If this sounds like the Federal government is picking winners and losers, analyst Jaret Seiberg says that's because it is.
JARET SEIBERG, FINANCIAL SERVICES POLICY ANALYST, STANFORD GROUP: Look at the alternative. The government doesn't stabilize the banking system. The government doesn't stabilize the commercial paper market. The government doesn't help the auto makers. We end up with massive unemployment. We end up with people losing their homes and we end up without a functioning banking system. That's not attractive.
GERSH: Many financial institutions are applying for Federal funding, because they don't want customers wondering why their bank is not on the Treasury list. Maryland's EagleBank has earned a sound rating of four stars from bankrate.com. Earnings were up 17 percent last quarter. But EagleBank Chairman Ron Paul still considers the Treasury offer too good and too important to pass up.
RON PAUL, CHAIRMAN AND CEO, EAGLEBANK: We believe that only healthy banks are going to qualify for this and not only will it be the good housekeeping seal of approval as far as EagleBank is concerned, but it also will shore up the balance sheet significantly, which is from a public's perspective very important for us.
GERSH: Life insurance companies such as Metlife, which have a Federally regulated holding company, may also soon join the Treasury list. Scott Talbott lobbies for banks, auto lenders and insurance companies. He argues insurance companies deserve help, because they are a major factor in financing projects like apartments and office buildings.
SCOTT TALBOTT, SR. VP GOVERNMENT AFFAIRS, THE FINANCIAL SERVICES ROUNDTABLE: One of my member companies said last month they lent $32 billion. This month they're lending zero because the liquidity has dried up. So that is the exact target of an institution that we want this money to go to.
GERSH: The nation's nine biggest banks will be getting $125 billion from the Treasury in a few days. And today, 11 regional banks announced they'd soon be getting $22 billion from the Treasury. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Get Your Finances Ready for Retirement"-Surviving The Loss of a Spouse
SUSIE GHARIB: After a long career, retirement should be a chance for you and your spouse to relax and enjoy the fruits of your labor. But sometimes things don't work out that way and a husband or wife will be left alone. Of course the death of a spouse is emotionally devastating, but that's not the only toll it can take. In tonight's segment of "Get Your Finances Ready for Retirement," Connie Hicks looks at ways to ease the financial fallout of losing a loved one.
CONNIE HICKS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For almost three decades, Bill Richards was a pilot for Eastern Airlines. And after his retirement, he and his wife lived comfortably. But following a two-year illness, he passed away. His wife Kitty was stunned when the airline pension they had shared suddenly dropped by two-thirds.
KITTY RICHARDS, WIDOW: And as long as he was living, we've got a good pension. But the minute your husband passes away, you don't get that. It goes down.
HICKS: Kitty's situation isn't unusual. Because women tend to live longer than their husbands, this means they're likely to be spending years on their own. And often they find out, too late, that they face a financial shortfall. Most of us don't like talking about what's going to happen to us financially when a spouse dies, but makes a lot of good sense to plan for it in advance, insuring that the survivor is well taken care of. Michael and Ann Madaio, married for 61 years, have discussed many times what will happen financially after one of them dies. Michael is older than Ann and has a pension. Ann has the medical benefits that cover both of them.
ANN MADAIO, RETIREE: If I should die first, then he loses every thing as far as medical, dental and drug he'd have to go on his own.
HICKS: And Michael if you die first, Ann is, she gets what. What will she get then?
MICHAEL MADAIO, RETIREE: She gets my pension, part of his pension and part of my Social Security.
HICKS: Their planning impressed Linda Norman, the certified financial planner they hired.
LINDA NORMAN, CFP/RAYMOND JAMES FINANCIAL SERVICES: They've planned very well for two people living with two incomes, but the piece that's missing is what happens when the one dies and is there an income loss and most often, very often, there is.
HICKS: And CFP Philip Lubinski notes there's often another hit for the survivor: at the same time his or her income goes down, income taxes could rise.
PHILIP LUBINSKI, CFP/FIRST FINANCIAL STRATEGIES: Either the pension will go down, Social Security benefits will go down, but in many cases because that surviving spouse is now a single tax filer, his or her income tax bracket will go up.
HICKS: Lubinski says it often helps to change the mix of the survivor's investments, to reduce interest and other income that is taxed at the top rate. But experts advise couples to plan for the inevitable by taking these steps. Begin by taking a financial inventory of what assets each partner has. If there is a pension involved, find out if the survivor is entitled to the spouse's pension. See if the survivor will qualify for added Social Security benefits. Provide for future health expenses and consider ways to provide added income for the surviving spouse. Kitty Richard's financial planner, David Weiss, put some of her assets in a variable annuity.
DAVID WEISS, CFP/RUGGIE WEALTH MANAGEMENT: We wanted something that would provide that steady income to her but also to provide her some protection on the downside.
HICKS: For their part, the Madaois are in good shape.
M. MADAIO: Because I'm older than she is and I thought it would be my intention to leave her well off in case anything happened to me.
A. MADAIO: Well off? I don't know about how well off.
HICKS: It's important to remember although one person can live more cheaply than two, the savings aren't as great as you might think. The Society of Actuaries reports a single person still needs 80 percent of the income that a couple requires. Connie Hicks, NIGHTLY BUSINESS REPORT, Lady Lake, Florida.
"Commentary"-The Next President's Economic & Energy Choices
SUSIE GHARIB: With the presidential election just eight days away, we continue our special series of election commentaries, looking at the candidates' economic choices. Tonight, John Rowe, the chairman and CEO of Exelon has some thoughts on energy policies.
JOHN ROWE, CHAIRMAN & CEO, EXELON: Our next president will inherit a fragile economy, a war abroad and a warming climate. Responding to these challenges requires an effective energy policy. Unfortunately, our nation has not had one in 30 years, except to enjoy low-cost fossil fuels like coal and natural gas. Our need for energy must be met with the least reliance on unfriendly nations, the least impact on our climate and the least burden on the American economy. Five elements are key to an effective national energy policy. First, we must pass economy-wide climate legislation. Second, we must pursue greater energy efficiency. Third, we must provide support for renewables, ever mindful of their cost. Fourth, we must proceed with clean coal and next generation nuclear. Finally, we must use competitive markets to ensure innovation and investment. Exelon is not waiting for Washington to act. We have a plan to reduce or offset more than 15 million tons of greenhouse gas emissions by 2020. This is more than our current annual carbon footprint. We encourage other companies to set similar goals. I'm John Rowe.
"Voices from Main Street"-The Loss of Little Luxuries
SUSIE GHARIB: And finally, just about every city and town in the U.S. has been touched in some way by the financial crisis. Lost jobs, lost homes, lost dreams. So we're visiting some of those cities and towns in a continuing series we're calling "Voices from Main Street". We want to see what's on the minds of small business owners and residents. As Dana Bate reports from suburban Washington, for now, the top worries are jobs and spending.
DANA BATE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's lunch time at Pal Jack's pizza on Main Street in Laurel Maryland. But these days the lunch rush is more like a lunch trickle. Raj Malhotra has owned Pal Jack's for 14 years. He says business is down 40 percent from two years ago with a 10 percent decline in the last two months alone.
RAJ MALHOTRA OWNER, PAL JACK'S PIZZA: I'm pretty sure a lot of people are buying potato chips and a drink during lunch time than buying a meal.
BATE: Malhotra is doing everything he can to stay on top in a slowing economy. He's laid off employees and he's put the brakes on attempts to expand the menu.
MALHOTRA: I was planning on getting, applying for a liquor license for this place. I had to put that on hold because that's going to require a little bit more investment that's necessary.
BATE: Even with those changes, he's still under water financially. Loyal customers like Deborah Campbell say eating out has become a luxury.
DEBORAH CAMPBELL, PAL JACK'S CUSTOMER: Oh yummy, that looks good!
BATE: She used to drive to Pal Jack's with her family twice a week. Now, she can only afford to come once or not at all. And that's not the only place where she's making cuts.
CAMPBELL: Cutting back on gas, cutting back on how we eat out, on how I shop especially and cutting on little like extracurricular things we like to do. We can't do that anymore.
BATE: Malhotra says when he's losing regulars, it's a sign the economy is in serious trouble. Another big indicator? He's had a surge in job applications, even though he isn't hiring.
MALHOTRA: I'm getting people that are accountants that want an extra job, chefs that work in hotels and stuff want to come in and have a little extra job.
BATE: Customers say it all boils down to one word: uncertainty. Ariane Wallace is having a baby girl in two weeks. She doesn't know what to expect for her and her daughter and that makes her nervous.
ARIANE WALLACE, PAL JACK'S CUSTOMER: It does actually a lot just because I don't know what it's going to be like for her coming up, so hopefully it won't be too bad, so I'm just trying to make sure that I'm in a place that I can make sure she has everything that she needs.
BATE: For his part, Malhotra is trying to remain an optimist.
MALHOTRA: History tells us that we're in a slump, we are going to get out. The timing we're not sure of, but we will get out of it and now we just have to survive until that time comes.
BATE: With a full-fledged recession all but certain, there are talks in Washington of a second stimulus package to give Main Street businesses like Pal Jack's a boost. But for that to work, small business owners say consumers need to get a substantial slice of the stimulus pie. Dana Bate, NIGHTLY BUSINESS REPORT, Laurel, Maryland.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street took its opening cue from overseas markets, most of which tumbled again. The Dow plunged 170 points at the outset of trading, but that rise in new home sales cushioned the sell off and got buyers out of hiding as the Dow rebounded with a 173 point gain at 1:00 p.m. while the NASDAQ was up about 16 points. Then traders sold into that strength, turning stocks choppy at first and then broadly lower by the final bell. The Dow Industrial Average closed off 203.18 at 8175.77. The NASDAQ Composite lost 46.13 ending at 1505.90 while the Standard & Poor's 500 Index fell 27.85 points to 848.92. In the bond market, the 10-year note fell 4/32 to 102 16/32, putting the yield at 3.69 percent.
Big board volume leader on 25 million shares, National City (NCC), 25 million share traded down a nickel. As we reported PNC Financial will buy it for stock today worth about $2.30 a share.
General Electric (GE) down a dime.
$0.41 loss in Citigroup (C).
JPMorgan chase (JPM) fell $1.43.
And then Wachovia (WB) with a $0.06 loss on the day.
ExxonMobil (XOM) down $2.95.
Pfizer (PFE) dropped $0.18.
Bank of America (BAC) losing $0.54.
Wells Fargo & Co (WFC) an $0.08 drop.
But look at this, Verizon Communications (VZ) up $2.53. Third quarter earnings out, $0.66, up from $0.63 a year ago, a penny above the Street consensus. The company's upbeat was rather - or the outlook was upbeat and Standard & Poor's repeated a "buy" on Verizon stock.
Centurytel (CTL) losing $3.88. The company is going to acquire Embarq, its larger rival and it'll be for a stock deal, $1.37 shares of Citadel (sic) for each Embarq share. It's worth about 35 and today Embarq closed up $0.64 at $30.38 after reporting much lower than expected earnings.
Morgan Stanley (MS) off $2.79. The company said it had $46 billion in money market fund redemptions last month.
Humana (HUM) down $5.47. Third quarter earnings dropped to $1.09 from $1.78 last year despite a 13 percent rise in revenues and the company cut its fourth quarter earnings guidance from $1.17 down to $1.07 a share.
Lorillard (LO) down or up $2.30 - I'm so used to saying down - here's one up. Third quarter earnings $1.35, a $0.03 better than expected. Sales were up 7.8 percent and here's the company that spun off Lorillard a while back, Loews (L) off $5.66. Third quarter loss of $0.33, up - that versus $0.58 last year. Revenues fell 16 percent. Standard & Poor's downgraded Loews from "buy" to "hold."
And here's another Loews-related company, CNA Financial (CNA). Loews is the largest shareholder. CNA reported sharply lower third quarter earnings, $0.31 versus $0.78 a year ago and the company is suspending any payment of a stock dividend. Those earnings $0.17 below the Street estimate.
Finally, DineEquity (DIN) up $2.91. The company did have a third quarter loss of $0.98, bigger than last year's $0.69 loss, but it sold 29 Applebees restaurants for more than expected and agreed to sell 66 more. It'll use the proceeds to pay down debt and investors like that idea.
Apple (AAPL) topped the NASDAQ's active, down $4.29.
Microsoft (MSFT) $0.78 loss.
Google (GOOG) $9.80 drop there.
Research in Motion (RIMM) fell $2.30.
Intel (INTC) $0.03 drop, fifth in volume on NASDAQ.
Cisco Systems (CSCO) down $0.22.
Oracle (ORCL) $0.43 loss.
Qualcomm (QCOM) down $1.01.
Amgen (AMGN) fell $2.43.
And finally a gainer, Amazon.com (AMZN) moving up $0.62.
Elsewhere Savient Pharmaceuticals (SVNT) tumbling $8.51, almost 74 percent of its value gone. The company said its gout drug appears to be effective but can cause some serious side effects.
Those are the stocks in the news tonight.
