NBR Transcripts -October 31, 2008
Friday, October 31, 2008October Comes To A Scary But Positive End
SUSIE GHARIB: Wall Street put the wraps on a scary October, with a Halloween treat for investors. The Dow rose 144 points today but was off 14 percent in October, its biggest monthly decline in 10 years. The NASDAQ added 22 points today but lost 17 percent this month. The S&P also tumbled 17 percent in October. But the most dramatic declines came in the oil markets, as crude prices posted their biggest monthly drop since the New York Mercantile Exchange began tracking prices 25 years ago. In New York trading today December crude futures rose $1.85 to $67.81 a barrel. But since October 1, oil prices have fallen 33 percent and they are down 54 percent from July's record high of $147 a barrel. That has meant cheaper prices at the gas pump for consumers. Triple-A says the national average for regular unleaded dropped to $2.50 a gallon this week, down 39 percent from the mid-July record of $4.11. But cheaper gasoline didn't lift consumer spirits as they grappled with the fallout from the financial crisis. Consumer sentiment hit a record low this month, according to the latest survey by Reuters and the University of Michigan. The sentiment index for October plunged to 57.6, down sharply from September's reading of 70.3. Consumer sentiment is seen as a spending predictor. And Standard & Poor's chief economist David Wyss says this month's big drop doesn't bode well for retailers.
DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S: Unless things turn around, this is going to be an awfully bleak holiday for the retailers. I don't still think people are in the mood to spend, especially on big ticket luxury items. They'll still buy the small stuff. Kids will still get toys under the tree but don't expect those big screen TV sets to be there.
GHARIB: Wyss doesn't see relief for consumers any time soon. He expects economic growth to decline 2 percent each for the next two quarters with a bottom hopefully coming in late spring.
Bailout Fever Spreads To The Bond Market
PAUL KANGAS: Next week will be a big week for the bond market. The Treasury is set to announce its cash needs for the next quarter and bond traders are expecting a record number of new issues. That's raising concerns companies will have a harder time selling commercial paper in a crowded marketplace. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Considering what it's spending, it should be no surprise the government needs money. The last time Treasury announced borrowing plans was before it took over mortgage giants Fannie Mae and Freddie Mac, before Congress authorized $700 billion to buy bad assets and inject capital into the nation's biggest banks and before it put more than $100 billion in insurance giant AIG. Some of that money showed up in the last fiscal year just ended, which saw the Treasury issue $724 billion in notes and bonds. Now Brian Edmonds, head of trading for primary dealer Cantor Fitzgerald, says in the current fiscal year the government may need to borrow nearly $2 trillion.
BRIAN EDMONDS, SR. MANAGING DIR., CANTOR FITZGERALD: It's a significant boost given deficit expectations and the expectations of the financing that the Fed has done. The Treasury and the Fed has basically become a financial intermediary and has replaced a lot of the financial institutions in the marketplace.
GURVEY: Because the Fed has in many instances replaced rather than added to overall borrowing, many Fed watchers say bond market fears of higher interest rates are overdone. Alex Li of Credit Suisse points to this month's market action.
ALEX LI, DIRECTOR INTEREST RATES PRODUCTS, CREDIT SUISSE: Treasury issued over $500 billion of special financing bills to give to the Fed as a liquidity measure. Although the supply was so big, you know, bill rates have stayed extremely low. It's just a reflection of demand for safe haven assets in the current market turmoil.
GURVEY: While higher rates may not be needed to create demand for the flood of Treasuries to come, one change Brian Edmonds sees coming is a broader variety of maturities for Treasury securities.
EDMONDS: We are expecting at this announcement this week we will hear of a new issuance of three-year notes. We expect 10-year notes and 30-year bonds to be also announced. We believe that ultimately the Fed and the Treasury will come with seven-year securities as well, but the current mix of securities will most likely remain and the Fed will simply increase the size of existing issuance.
GURVEY: Treasury issues its estimates of borrowing needs for the next two quarters on Monday and the formal refunding statement for next quarter on Wednesday. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Economic Choices 2008 - The Presidential Hopefuls' Plans for the Treasury Rescue Plan
SUSIE GHARIB: Federal Reserve Chairman Ben Bernanke wants to overhaul Fannie Mae and Freddie Mac. Addressing a mortgage symposium today, he laid out options for the firms, currently under the management of Uncle Sam. Bernanke says the lenders are now the only ones providing liquidity to the mortgage market. But he says they need to be re-designed.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: We must strive to design a housing financing system that ensures the successful funding and securitization of mortgages during times of financial stress, but that does not create institutions that pose systemic risks to our financial markets and the economy.
GHARIB: Specifically, Bernanke says Fannie and Freddie could eventually be privatized or become quasi-public corporations. But for now, he says they're in a kind of time out, while under government conservatorship.
KANGAS: While Fannie and Freddie take their time out, the Treasury and the FDIC are considering ways to help struggling homeowners. Addressing foreclosures is also a top priority for the presidential candidates and one they may use the Federal bailout money to help address. As Darren Gersh reports, there are many economic choices to be made about the Treasury's rescue program, choices that will be clarified on Election Day.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: With Congress complaining about taxpayer funds going to finance bank mergers, dividends and investment banker bonuses, smaller banks are increasingly nervous. At the American Bankers Association, Diane Casey-Landry says her members are worried regulators are pushing them to take a deal they'll later regret.
DIANE CASEY-LANDRY, CHIEF OPERATING OFFICER, AMERICAN BANKERS ASSOCIATION: Our concern and our members are very concerned that people are going to come in and layer on additional regulatory burdens, additional requirements, restrictions that were not disclosed in the first place. That's extraordinarily problematic.
GERSH: Much of the confusion has to do with the Treasury's so-called TARP plan rules for smaller, privately held banks, which the Treasury says it's clarifying. But the overall status of the entire program may be clarified a great deal by Tuesday's election. The Treasury has already set aside office space for the new administration's transition team. And Micah Green, a former top lobbyist for the bond market industry, says the next president will want to make his mark on this massive program.
MICAH GREEN, PARTNER, PATTON BOGGS: You'll see much more focus on mortgage foreclosure issues. You might see an accelerated review of what additional companies and assets should be included. You'll see more accountability. But I'm not sure you'll see major seismic shifts into the decisions that have already been made.
GERSH: Topping the list of accountability items is executive compensation for big Wall Street banks. McCain economic adviser Douglas Holtz-Eakin tells NIGHTLY BUSINESS REPORT the senator sees no reason for taxpayer money to in any way support the payment of bonuses to executives in these firms. Barack Obama has also attacked bonuses and his campaign continues to worry. The Treasury plan appears to extend a broader set of guarantees to banks without requiring any additional regulation, which represents more of the same failed philosophy that got us into this mess. But it's not clear how much the next president can do about it. Analyst Jaret Seiberg says the Treasury has already agreed to $163 billion in bank capital injections and once the Treasury writes a contract, it won't be easy to change the terms.
JARET SEIBERG, FINANCIAL SERVICES POLICY ANALYST, STANFORD GROUP: So I think there's actually much less ability to change how the TARP is being used than most people believe.
GERSH: There are certainly many industries hoping that will change on Tuesday. Detroit auto makers, student lenders and bond insurers are all making their case to seek shelter under the tarp. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-Alfred Goldman, Chief Market Strategist at Wachovia Securities
PAUL KANGAS: This October will go down as one of the worst months ever on Wall Street. So for tonight's market monitor, we turn to a market veteran for some perspective. He's Alfred Goldman, chief market strategist at Wachovia Securities. When we spoke a little while ago, I began by asking him what happened and why.
ALFRED GOLDMAN, CHIEF MARKET STRATEGIST, WACHOVIA SECURITIES: It was a dramatic sell-off. The S&P was down about 24 percent. I think it was a couple of things, Paul. Number one, the economic news really reached a crescendo on the down side. Number two, people became aware of the total freeze-up in the credit market and the dramatic steps that the government took -- had to take, I think. And then of course there was some discounting about an unknown and that's the November 4 election and the market hates unknowns. So you bring all that together and confidence got to be very, very low, the greatest level of fear I've seen in my whole career. And that led us into the last three to four months of the down side.
KANGAS: What is your outlook for the rest of the year in the markets? What about interest rates and corporate earnings, things like that?
GOLDMAN: Interest rates I think are going to stay about here. Corporate earnings I think are going to be pretty dismal. The S&P 500 made about $86.20 from operations last year. This year I frankly would be happy if they're around $74, $75 a share for the S&P 500. It's going to be a nasty third and fourth quarter.
KANGAS: The presidential election, how will it impact the markets, depending on who gets in?
GOLDMAN: Well, I think the big sell-off that we've had particularly in October, the S&P down 18 percent in October alone, has created a very oversold market because of the uncertainty. So hopefully come Wednesday we know who the new president is going to be and with that uncertainty out of the way I think the market's going to rally for a couple of weeks, moderately but rally. And then when the president-elect starts saying what they're really planning on doing in 2009, rather than what we've been hearing for the last year, then the market will either like or not like what they hear.
KANGAS: Where does the stock market stand now?
GOLDMAN: I think the market stands in probably the best values I've ever seen in 48 1/2 years, even better than they were in the big sell-off in October of 1987. And not only on a price earnings multiple basis, because the E part is going to come down, but also relative to other assets. In '87 you could buy municipal bonds yielding in the area of 10 to 11 percent for example and it is very tough competition today. Muni are probably half that. So I think they're a very valuable asset here.
KANGAS: What does an investor do in this kind of an environment?
GOLDMAN: Well, I think you'll look past the end of your nose, you look at the long-term history of this country and how we've handled crises since 1776 and you do some selected partial buying, but you do keep some cash reserves, because it's going to be a bumpy road. And I'd like to have oh say, 15, 20 percent cash on the sidelines to take advantage of when we do get some big hiccups on the down side.
KANGAS: On your last visit in early May, you gave our viewers three buy recommendations. Let's see how they've done since then. Blue chip names like Deere (DE) and Illinois Tool (ITW) were just massive losses, but I guess that was just part of the beast, right?
GOLDMAN: Well, they were all good quality companies, still are good quality companies, but the market collapsed and it took no prisoners, including my three recommendations which in hindsight the timing was obviously poor.
KANGAS: Would you buy Deere here?
GOLDMAN: I would buy Deere. I would buy Illinois Tool Works and Oneok (OKE) here. I would average down if I bought it higher, I would be a buyer here because the fundamentals are still solid and fortunately all three stocks have been acting better the last couple of weeks. They act like they're working on bottoms.
KANGAS: So those are your new three recommendations, the previous three that you liked, you still like them?
GOLDMAN: Yes, I do. And this is a time to stick with quality and I think all three represent fundamental quality and good value.
KANGAS: Do you permanently own any of these stocks or have other disclosures to make, Al?
GOLDMAN: No, I do not.
KANGAS: Al, I want to thank you for being with us once again.
GOLDMAN: My pleasure, good to be with you, particularly under this type of market. KANGAS: My guest, Al Goldman of Wachovia Securities.
"Hot Dog-Prenuers"
SUSIE GHARIB: Finally tonight, with layoffs growing, lots of people dream of starting their own business. While some are grand ideas, others are small and quickly up and running like selling hot dogs from one of those street- corner vending carts. Don't scoff. As Jeff Yastine reports, the slowing economy is leading to a boom of sorts in the hot dog vending trade.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sara Ortiz is a restaurateur, with a staff of one -- herself. And the menu, today and everyday is hot dogs, hot dogs, hot dogs. And just like real-estate, it's all about location, location, location. Hers is near the beach on Miami's Key Biscayne.
SARA ORTIZ, HOT DOG VENDOR: And the beach is good, because when they come from the water, they are hungry.
YASTINE: Weekends she may sell 500 hot dogs, which when you add it all up. means her gig is yielding some pretty good relish. You see them everywhere on street corners in New York. But who knew running a hot-dog stand could be so profitable?
LOUIE DIRAIMONDO, OWNER, ALL-AMERICAN HOT DOG CARTS: Back in here we have different carts that have add- ons. We have a cart with a grill, a popcorn machine, a sandwich press.
YASTINE: Louie Diraimondo, the self-proclaimed hot dog king may be just the person to ask.
DIRAIMONDO: This is the Chicago hot dogger, which has two burners and three pans. This is the New York City street cart, the most popular hot dog cart that we sell. It has two extra pans. It's wider on top. The breadbox is bigger. Then we have the all American hot dogger which is the flagship cart.
YASTINE: His company, All American Hot Dog Carts, has seen demand jump by 20 percent over the past year, the best growth in the company's 26 years. Diraimundo says it's related to the poor U.S. economy.
DIRAIMONDO: With the downturn of the economy, be your own boss, a lot of people out of work. It's quick easy startup. It could be a temporary fix on economics in someone's household. It could be long term.
YASTINE: But the business is not as easy as it looks. Many cities regulate where hot dog carts can be set up. Cities also enforce health department food handling regulations. Diraimondo says carts certified for health standards are a growing part of his U.S. business. But the hot dog cart making business is an international one. All American has sold its carts pretty much all over the globe, from Russia to Africa to Europe. There's a dealership in Japan and there's even talks in the works right now to expand into China and even Dubai. Diraimondo says many of those sales are helped by the weakness of the dollar over the past few years. Still, it amounts to a lot of business for a manufacturer like all-American, which builds its units from the wheels up in this Miami factory. The firms makes up to 100 a month at price tags from $1,600 to $4,400. As for the cart-owners, Diraimondo says some, with the right locations, at a major city street corner, can make $10,000 or more a month. Sara Ortiz in Key Biscayne, says her business doesn't do those kinds of numbers. But she says it's doing well enough that she's thinking of buying a second cart and like any growing small business, expand into a new location. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
GHARIB: So Paul, forget about bulls and bears, let's think hot dogs.
KANGAS: I'm getting hungry.
GHARIB: Yeah, they do look good.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks on Wall Street opened the day mixed but didn't end that way. The Dow was up 43 points at the outset of trading while the NASDAQ fell 10 points. Then stocks churned about in a narrow range for the next few hours, but by the afternoon buyers were encouraged by the absence of profit taking. The Dow was up 230 points at 3:00 p.m. But then some pre- weekend caution pared those gains a bit. The Dow Industrial Average closed up 144.32 points at 9325.01. This week it fell twice and rose three times and had a net gain of 946.06 points. The NASDAQ Composite rose 22.43 to 1720.95 today. This week, it fell only once and advanced 168.92 points overall. Standard & Poor's 500 Index added 14.66 to 968.75 today and for the week, it was up 91.98 points overall. Over in the bond market, the 10- year note lost 1/32 to par and 8/32, putting the yield at 3.97 percent.
Most active big board issue on 48 1/4 million shares, National City (NCC) up $0.30. It's being taken over for stock by PNC Financial whose stock went up $2.26, hence the gain in National City.
Bank of America (BAC) $1.39 advance.
JPMorgan Chase (JPM) rose $3.63. The company is making changes to about $110 billion in mortgages to help borrowers avoid foreclosure.
Wachovia (WB) was up $0.50.
And then General Electric (GE) with a $0.16 gain.
Citigroup (C) down, up $0.54.
AT&T (T) was down $0.33.
And then ExxonMobil (XOM) a $0.93 loss. It traded as high as $77.35 today. Of course yesterday as we reported, the company had a record third quarter earnings of $14.8 billion, the most in any quarter for any corporation.
Pfizer (PFE) down $0.15.
And then Wells Fargo (WFC), tenth in volume, moved up $2.21.
Moving along, we saw a decent gain in Procter & Gamble (PG) of $1.46. As we reported Wednesday, the company had higher first quarter earnings of $1.03 versus $0.92 and the company is in the process of merging its Folgers coffee business with Smuckers.
And speaking of Smuckers, JM Smucker (SJM) that stock was up $1.08 today. The stock will be added to the Standard & Poor's 500 Index replacing Terex Corporation.
Cigna (CI), the big insurance firm, up $0.72, traded as high as $18.08 earlier today after the company reaffirmed its strong capital position and said it had no need to issue equity.
Sonic Automotive (SAH), big percentage move, up over 40 percent after JPMorgan upgraded it from "under weight" to a "neutral" recommendation.
Las Vegas Sands (LVS) up $3.81. The Singapore tourist board is working closely with a company to ensure a successful completion of its casino resort in Singapore.
Carnival Corp (CCL), the big cruise line, up - down $3.31. The company is suspending its cash dividend of $1.60 a year for the year of 2009 in an effort to preserve cash and not have to tap the capital market.
Cummins (CMI), the diesel engine maker, down $5.83. Third quarter earnings came in at $1.17, $0.02 below the Street estimate, but up $0.92 from last year. The company did cut its revenue growth forecast. That hurt the stock.
Commscope (CTV) losing $5.48. Third quarter earnings, $1.05 up from $0.81 but the Baird brokerage downgraded it to "neutral" because of the company's rather guarded outlook.
And Best Buy Co (BBY) up $2.20. JPMorgan upgraded it from "under weight" to "neutral" because of an improved risk reward ratio according to JPMorgan Chase.
Apple (AAPL) topped the NASDAQ actives, down $3.45.
Google (GOOG) a $0.33 drop.
Microsoft (MSFT) off $0.30.
But Research in Motion (RIMM) moving up $3.04.
Intel (INTC) a $0.14 drop there.
Cisco Systems (CSCO) a $0.02 loss.
Qualcomm (QCOM) off $1.46.
Oracle (ORCL) was off $0.03.
First Solar (FSLR), which had big earnings out yesterday, down $0.37.
And Amgen (AMGN) $0.64 loss there.
Electronic Arts (ERTS) down $4.95. The video game publisher had a second quarter loss of $0.06 a share versus earnings of $0.27 a year ago and it is cutting 6 percent of its workforce.
And then Wynn Resorts (WYNN) up $13.90. After the close yesterday, third quarter earnings excluding items came in at $0.62, down from $0.67 last year, but $0.03 above the Wall Street estimate and a nice gain in the stock as a result.
And those are the stocks in the news tonight.
