NBR Transcripts-November 3, 2008
Monday, November 03, 2008The Auto Industry Takes A Devastating Financial Hit
JEFF YASTINE: Another dismal sign of the impact of the financial crisis on American businesses. October car and truck sales skidded double digits across the board and General Motors says adjusted for population growth, it's the worst showing for the industry since World War II. GM sales fell 45 percent. To boost sales, it is launching its year end "red tag" sale early with deep discounts starting this week. Toyota was not immune. Sales fell 25 percent despite its fuel efficient line of small cars. Ford's sales were down 30 percent. It reports quarterly results on Friday. A net loss is expected. Chrysler is still struggling with sales off 35 percent. Merger talk continues to swirl around Chrysler and GM. The companies are said to be nearing a deal but they're looking for government financing. Global Insight's Rebecca Lindland says in light of today's numbers, a merger makes some sense but is not ideal.
REBECCA LINDLAND, AUTO ANALYST, GLOBAL INSIGHT: Chrysler and GM are both very sick companies. I've said it before and I still maintain to some extent that merging the two of them equals pneumonia. But that being said, because the companies are in such incredibly poor health right now, if something doesn't happen, if they don't look at potentially merging and getting tremendous cost cuts, we could see a triage situation next year.
GHARIB: Lindland predicts sales for the entire auto industry won't turn around until the fourth quarter of next year. Separately, U.S. auto suppliers today asked the Bush administration to create a new loan guarantee program to help their industry.
Wall Street Is Waiting & Watching The Presidential Race
JEFF YASTINE: Normally, those gloomy sales figures might have rattled Wall Street. Not today. The Dow closed down just five points. Investors were hesitant to make big bets ahead of tomorrow's presidential election. But as Erika Miller explains, some experts see reasons stocks could rally, regardless of who is elected.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The stock market has gotten clobbered the past few months. So, it's understandable investors would have little appetite for risk. But strategist Stephen Wood says it is during tough times like these that investors often find the best buying opportunities.
STEPHEN WOOD, SR. PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS: When you look at it, consumer confidence is low. Economic confidence is low. Business confidence is low. And that's something, historically speaking, of a buying indicator. It's when consumer, business and economic confidence are really high, that you should start to get nervous.
MILLER: Most investors are probably wishing they had listened to the Wall Street adage sell in May and walk away, six months ago. That advice refers to the tendency of stocks to turn in their weakest six-month performance in the May through October period. This year, for example, the index plunged 31 percent in that time frame, the worst May through October decline since 1928. Despite the turmoil in the financial markets and the economy, S&P analyst Sam Stovall is optimistic stocks will continue to follow historic precedent and perform well in the next six months.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: The market tends to start November on a down note, so you can only go up from here. Plus, in that six month period, you tend to have a lot of capital inflows from 401k additions, from IRA contributions, tax refunds, as well as bonuses that tend to get put to work.
MILLER: But there may also be fundamental reasons stocks could rally. The bulls are expecting the market will start to anticipate economic recovery as a result of the massive government bailout and lower interest rates. That said, many investment strategists recommend against buying stocks aggressively right now. Some want to see a typical market recovery pattern- as proof the worst is over.
STOVALL: Historically, over the past 50 years we have retraced one third of what we have lost in the entire bear market in only 40 days after establishing a new bear market low. We then tend to re-test by about 7 percent. And if that's successful, then we head higher.
MILLER: In other words, there's likely to be plenty of volatility on Wall Street. The best that shell-shocked investors can hope for is that more of it is to the upside. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
One on One with Phil Orlando, Chief Equity Market Strategist at Federated Global Investment Management
SUSIE GHARIB: Our market guest tonight is hopeful that stocks will rally after the election and into 2009. Joining us now Phil Orlando, chief equity market strategist at Federated Global Investment Management. Welcome back to NIGHTLY BUSINESS REPORT, Phil.
PHIL ORLANDO, CHIEF EQUITY MARKET STRATEGIST, FEDERATED INVESTORS: Pleasure to be back, Susie.
GHARIB: Very encouraging outlook that you have for the markets. Give us your analysis.
ORLANDO: Well, the market is obviously in one of the worst bear markets of the last century. But what we've been looking for is when does the market begin to move up on bad news? We believe this recession started a year ago so -- and we think it's going to continue into the middle of next year. But just over the last couple of weeks, the ISM manufacturing number today, worst number in 26 years, the consumer confidence number last week, the worst number in the history of the index. Bad employment numbers, bad GDP numbers, yet, the market has bottomed or stopped going down on October 10th, has actually enjoyed a pretty good rally here over the last couple of weeks. So our view is that the market is starting to price in the recession and starting to recognize that by the middle of next year, we're going to start to come out of this recession. That's exactly what happens historically. The market starts to come out of this recession somewhere in the middle to two-thirds through and I think that process is starting to occur.
GHARIB: Many economists are predicting a very nasty employment report on Friday. Could that undermine this process that you are talking about?
ORLANDO: We agree, we think the jobs report, employment's been down nine months in a row here. We've lost three quarters of a million jobs. We think the October report which will be released on Friday will be the worst one this year. Maybe we're going to lose another 200 to 250,000 jobs. The rate of unemployment may go up to about 6.5 percent. We don't think the rate of unemployment is going to stop going up until it gets into the seven or maybe even eight percent neighborhood at some point next year. But employment is a lagging indicator. And I think that what I have just told, I think the Street at this point has already understood what is going on in terms of employment. It's largely anticipated and discounted.
GHARIB: Let's talk a little bit about tomorrow's important presidential election. What do you think a McCain victory would mean for the stock and bond markets? And what would a Obama victory mean for the markets?
ORLANDO: Well, I think regardless of who wins, this election and the primary season, the general election season has been dragging on for about 21 months. And investors want to put this behind us. So I think that the resolution regardless of whether McCain wins or Obama wins, I think we're going to be met with a typical year-end election rally, sort of a sigh of relief rally, if you will. And I think we're likely to see better share price performance over the next two months coming on the heels of just dreadful performance over the last year and certainly over the last two months.
GHARIB: The big worry among many people, strategists, individual investors I talk to is that there is going to be some other kind of financial crisis surprise that's going to be around the corner. And also they are very worried about the unwinding of a lot of hedge funds. How are you factoring all of those into your market forecast?
ORLANDO: Well, our view is that what Secretary Paulson and Chairman Bernanke have done over the last couple of months has been very bold, very creative, very aggressive. And while they may not have gotten everything exactly right, I think what it does show us is that they're not afraid to act. And there's absolutely no way they're going to let a major financial institution fail. So I think that investors are starting to take confidence here that as a result of the actions out of the Fed and out of the Treasury, the Armageddon scenario frankly is off the table. We do not believe that we are going into a global financial services depression. What we are looking at is a recession.
GHARIB: All right. We just have a few seconds left. What are you telling your clients to do in this environment right now?
ORLANDO: Right now we are neutrally invested. We are sitting tight. But we are starting at the margin to start to put some money back into stocks, in the areas that we like. Technology, energy, financials, consumer staples and health care. And we think that looking out over the next six to 12 months, stocks are going to be materially higher than they are today.
GHARIB: All right, Phil, thank you so much for come on the program again. Nice to see you.
ORLANDO: My pleasure, thanks, Susie.
GHARIB: My guest tonight, Phil Orlando, chief equity market strategist at Federated Global Investment Management.
"Economic Choices-2008"-Paper Vs. Electronic
SUSIE GHARIB: At one time they were undisputed front runners, a sure bet for Election Day victory. We're not talking about candidates. We're talking about those electronic voting machines many of you will use tomorrow. But it maybe the last time you will use them. Darren Gersh continues our economic choices coverage with a look at how hopes for big dollars in the voting booth ended up losing the race.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Once considered faster, cheaper and more reliable than paper ballots, electronic voting machines are being replaced by, well, paper. Election expert Doug Chapin considers many of the industry's wounds self-inflicted.
DOUG CHAPIN, DIR, PEW CENTER ON THE STATES' ELECTIONLINE.ORG: The joke was almost that Diebold, which was one of the biggest vendors in the field, its voting machine arm made a small percentage of the profits and yet got the lion's share of the negative headlines.
GERSH: So what caused all of the negative headlines? Diebold alarmed Democrats in 2003 after its CEO sent out a letter inviting contributors to a fundraiser for George WZ. Bush. Kim Brace is an expert running elections. He says around the same time, researchers also started to question the security of the machines.
KIM BRACE, PRESIDENT, ELECTION DATA SERVICES: In 2003, a bunch of academics and activists did a big report that said that they were not reliable. They were subject to the potential of being hacked. But since that time, there has not been a single hacking of an election system in operation.
GERSH: But fears of electronic vote tampering had taken off, hitting the industry hard. After this election, Virginia plans to scrap machines like this. And Advanced Voting Solutions, the company that made them, has filed for bankruptcy. Election experts say an industry that once thought it would make huge profits improving the way America votes misjudged the market. To begin with, most counties only buy new machines once every 10 to 15 years. And the industry overestimated the resources of county governments and the demands from voters for a reliable paper audit trail. For example, Virginia is now requiring every new voting machine in the state to provide a paper audit trail. Rokey Suleman, general registrar of Fairfax County says the makers of high tech voting machines haven't been able to provide that feature in time.
ROKEY SULEMAN, GENERAL REGISTRAR, FAIRFAX COUNTY: The process to get a machine certified through the Federal government and then down through the state government is very long and burdensome. So there's not a lot of development time to get this equipment out. And then by the time it goes through the government channels, there's not enough market to sell the machines. So I think the companies gave up on electronic voting at the same time.
GERSH: Virginia isn't the only state going back to paper. After three decades of steady growth, 10 million fewer ballots will be cast using electronic voting equipment this election. And nationwide, six out of 10 counties will be using optical scan systems to count paper ballots tomorrow. Doug Chapin cautions counties are trading one imperfect system for another.
CHAPIN: Things can go wrong regardless of whether you're using a touch screen machine or a paper ballot or an optical scan ballot. There are just different things that can go wrong.
GERSH: If this were an election, it would be a landslide. An industry offering a high technology solution to one of democracy's oldest problems, counting votes, has been trounced by paper, a technology that is itself thousands of years old. Darren Gersh, NIGHTLY BUSINESS REPORT, Fairfax, Virginia.
"Commentary"-Recovery Signs
SUSIE GHARIB: Tonight's commentator says there are four signs to watch for when looking for an economic recovery. He's Bernard Baumohl, director of the Economic Outlook Group.
BERNARD BAUMOHL, DIRECTOR, ECONOMIC OUTLOOK GROUP: At this point there should be little doubt the U.S. is in recession with profits, jobs and spending all in serious decline. Now some forecasters say the downturn will last into 2010. Others foresee a depression ahead. Both these views are way too pessimistic. The U.S. and foreign policy makers have already showered the global economy with an unprecedented $3 trillion worth of liquidity and they are arm twisting their banks to lend again. The question now is what should we look for that tells us the U.S. economy is beginning to respond to all this stimulus? Here are four leading indicators that will do just that. First, keep an eye on housing. Both new and existing homes sales picked up recently and the inventory of unsold new homes has dwindled to the lowest level in four years. Next, watch the monthly jobs report at the end of this week and focus on temporary employment. A pick-up in temporary work is a good omen because it's a precursor to permanent hiring six months later. A third telling indicator comes from the Institute for Supply Management and looks at new orders received by manufacturers and service companies. A jump in orders will boost production and employment. One last indicator with a knack for predicting an economic recovery is the volume of paper and lumber transported by freight trains. Now these four indicators which can be tracked on the Internet were in free-fall for more than a year, but some have now begun to turn up, a sign that this economic slump could end by next summer. I'm Bernard Baumohl.
"Riding Out the Storm," -Doing It Yourself
SUSIE GHARIB: And finally tonight, we've gotten fantastic feedback from you on how you're "Riding Out the Storm." So tonight, we're sharing comments from another viewer. Marissa from Virginia is surviving the financial slowdown by avoiding unnecessary purchases and sticking to the basics. Marisa says she always pays in cash. She also bakes her own bread and rides her bicycle daily. She prefers it over public transportation. She doesn't eat in restaurants or go out to the movies. Instead she waits for them to come on TV. She doesn't buy books. She uses the library and she doesn't splurge on expensive clothing. She chooses to shop at thrift stores. Marisa says the best things in life come without labels, price tags or brand names. We asked Jason Zweig, personal finance columnist at the "Wall Street Journal" for his thoughts about this plan.
JASON ZWEIG, PERSONAL FINANCE COLUMNIST, WALL STREET JOURNAL: With luck what we might see coming out of the financial crisis is a return to thrift and savings. Those of us who are old enough to remember the 1970s can remember that then when oil prices doubled or tripled, people stopped driving. When interest rates rose, people stopped borrowing and Americans saved much more 30 years ago than they do today. Nowadays people save almost nothing and one result of the financial crisis may well be that people steer away from risk and decide one of the safest things they can do with their money is to save it and that would be a good thing for society and for individuals as well.
GHARIB: To share your thoughts and ideas, please visit the "Riding Out the Storm" section of our website.
Paul Kangas' Stocks in the News
JEFF YASTINE: Like much of the nation, investors were focused on tomorrow's presidential election, not today's market and that kept stocks in a narrow trading range all day. Investors also weighed a report showing manufacturing activity at its lowest level in 26 years. While the Dow opened up 85 points, it moved to near 50 point loss by mid-afternoon. But the final half hour of trading brought little action, so the Dow went on to close off 5.18 to 9319.83. the NASDAQ rising 5 points to end at 1726.33 and the S&P 500 falling 2.45 to 96.3 (sic). And in the bond market, the 10- year note rising 14/32 to 100 21/32 and the yield at 3.92 percent.
Citigroup (C) gaining $0.34. Credit card losses in the third quarter will mean an additional $1.4 billion loss and Citi sees that climbing further as unemployment rates rise.
American International Group (AIG) gaining $0.23. The "Wall Street Journal" today saying miscalculated risks and complex credit default swaps the reason behind the insurance giant's near collapse.
General Electric (GE) dropping $0.21.
Procter & Gamble (PG) losing $0.14.
JPMorgan Chase (JPM) finishing down $0.52.
We have ExxonMobil (XOM) which edged up $0.17. That despite oil prices which fell $3.90 to $63.91 a barrel today.
National City (NCC) losing $0.17.
Bank of America (BAC) dropping more than half a dollar.
Hartford Financial (HIG) up nearly $6. The insurance says its property and insurance units remain well capitalized, about $2 billion in capital, more than enough to maintain the double A credit rating.
Wachovia (WB) losing a fraction.
Then we have AT&T (T) which gained $1.04. The shares in telecom companies all following up on news the FTC is delaying a vote on a new fee structure for telecoms. It would determine the fees they pay to route calls through each other's phone networks.
And a look at some of the others in the group, Embarq (EQ), Frontier Comms (FTR), Qwest Comms (Q), Sprint Nextel (S), Verizon Comms (VZ), all doing nicely although off their highs of the day.
Boeing Co (BA) rising $0.58. Over the weekend, their machinists union signed off on a new four-year contract with health care and pension benefits.
Nucor (NUE) falling $2.68. Falling steel prices and lower growth rates in China may hurt steel demand. Credit Suisse cutting estimates.
Halliburton co (HAL) falling $1.43. Goldman Sachs sees drastic cutbacks in spending for oil exploration and production next year and cautioned against buying into oil service stocks like Halliburton.
Unibanco (UBB) soaring over $6. It's being taken over by a larger rival, Banco Itau. It's an all-stock deal, paring up the number two and number three financial players in Brazil.
Advanced Medical Optics (EYE) rising $1.26. The eye care maker reporting a turnaround in profit last week and Jefferies upgraded the stock today.
And Lydall (LDL) falling $1.29. This is a maker of thermal acoustic products and they say the downturn in the auto industry will hurt sales for them for the foreseeable future.
Now over to the NASDAQ, Apple (AAPL) slipped $0.63. A Friedman Billings Ramsey analyst says Apple is cutting production of its iPhones. IPhone production could drop more than 40 percent from third quarter levels in what they call the negative signal for global demand.
Google (GOOG) falling more than $12. The "Journal" says Yahoo! and Google are revising their advertising partnership deal in hopes of winning antitrust approval.
Microsoft (MSFT) picked up $0.29.
Research in Motion (RIMM) gaining more than $3.
Cisco Systems (CSCO) dropping more than half a dollar.
And we have First Solar (FSLR) rising more than $18. Intel (INTC) off a fraction.
Qualcomm (QCOM) down $1.06.
Amgen (AMGN) up $1.66.
Gilead Sciences (GILD) up $1.46.
Baidu.com (BIDU), a $200 million stock buyback program there.
Dryships (DRYS) gaining $2.69. Long-term charter contract helping to a 71 percent gain in quarterly profits.
Biogen Idec (BIIB) gaining more than $3. Analysts like the outlook for the company's multiple sclerosis drug Tasavery (ph).
And finally Atricure (ATRC) plunging $2.53. The Justice Department investigating this company from (INAUDIBLE) marketing and questions about Medicare billing codes. Atricure says it's cooperating with the investigation.
