NBR Transcripts-November 6, 2008
Thursday, November 06, 2008US Auto Makers Get Grilled on Capitol Hill
JEFF YASTINE: The losing streak continued on Wall Street today with the Dow plunging more than 900 points since Election Day. The blue chip average lost 443 points today, closing at 8695 and the NASDAQ fell 72 points. The Dow's biggest percentage loser: General Motors. Its shares tumbled 13.5 percent to $4.80. GM's CEO and top executives from Ford and Chrysler met with congressional leaders in Washington today seeking billions of dollars to rescue the nation's ailing auto industry. GM and Ford are expected to report huge quarterly losses tomorrow and as Darren Gersh reports, those losses are quickly mounting.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big three stands for GM, Ford and Chrysler. But the big three is also a good estimate of the cash the Detroit auto makers are burning through, $3 billion a month. The cash drain is now so severe, House Speaker Nancy Pelosi brought the industry together to hash through options.
REP. NANCY PELOSI, HOUSE SPEAKER: Recognizing the importance of a viable auto industry to our country, to our industrial base and to the national security of our country, we're pleased to join with the president of the United Auto Workers, Mr. Gettlefinger, the CEOs of the big three to see how we can work together.
GERSH: Congress has already given the industry $25 billion in loans to help it retool plants to build fuel efficient cars. But that money won't be available until next year. Auto makers want faster access to the cash. On top of that, car markers are asking for another $25 billion in loans, but with fewer strings attached. After talking with Pelosi, auto executives headed to meet with Senate leaders without talking to reporters. Dave McCurdy, head of the Alliance of Automobile Manufacturers says the industry needs Congress to provide a financial bridge over the current crisis.
DAVE MCCURDY, CEO, ALLIANCE OF AUTOMOBILE MANUFACTURERS: You've got a short term problem and a long-term problem. Short term it's a liquidity crisis. Long term it's an investment challenge in order to have the technology to meet the needs both in energy and climate.
GERSH: The United Auto Workers union is also pressing Congress to backstop auto company payments into a new fund that will take over responsibility for factory worker retiree benefits. Chrysler, Ford and GM must make a $15 billion payment to that fund in 2010, a sum the union believes is scaring off private lenders. Edmunds.com's CEO Jeremy Anwyl says the economic ripple effects of an auto maker failure would be severe.
JEREMY ANWYL, CEO, EDMUNDS.COM: I think the reality for the car companies in Detroit is in the absence of some sort of government support, that at this time next year we'll be looking at the bankruptcy of at least one or two. Obviously, GM and Chrysler are the ones that are talked about the most.
GERSH: To understand just how much trouble Detroit is in, consider this: once one of the largest companies in the world, General Motors market capitalization, the total value of all its outstanding shares, is now $2.8 billion. That's about the same as Burger King. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Reducing Interest Rates Goes Global
SUSIE GHARIB: One topic likely on the president-elect's agenda, the state of the credit markets. There was an encouraging development today, big rate cuts by central banks overseas to boost lending. The Bank of England slashed its key lending rate by 1.5 percent. The European central bank cut its benchmark rate by 0.5 percent. As Erika Miller reports, while credit conditions are slowly improving, it could still be a long time before things return to normal.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Whether credit conditions are getting better depends on who is doing the borrowing. For banks, things have improved dramatically. The three month London Interbank offer rate, LIBOR for short, now stands at 2.39 percent. That's the lowest level in four years. A month ago, the rate was more than double that. Credit expert Andy Brenner says it's significant development.
ANDREW BRENNER, CO-HEAD CREDIT PRODUCTS, MF GLOBAL: It's getting more normal. A lot of people around here think it will go down towards 2 percent. But the big gains have been made and a lot of it has to do with the fact the government has initiated programs to stabilize banking systems on all shapes, sets and forms.
MILLER: Interest rates have also fallen sharply in the commercial paper market, a crucial day-to-day funding source for many U.S. companies. Experts say the Federal Reserve's unprecedented offer to buy highly rated commercial paper is what's bringing rates down.
BRENNER: A lot of that commercial paper is being sold exclusively to the Fed under their three-month program. The commercial paper market without the Fed being involved would be significantly higher in rates than they are today.
MILLER: But credit doesn't seem to be getting easier for many consumers. In fact, for those relying on credit cards, it's probably getting worse. Issuers have generally been raising interest rates, cutting credit limits and tightening lending standards due to rising defaults. And as many would be homeowners know, it has also become much harder to qualify for a mortgage. Melissa Cohn, owner of Manhattan Mortgage, says lenders are becoming even more picky.
MELISSA COHN, OWNER & PRESIDENT, MANHATTAN MORTGAGE: Banks are demanding that you make a bigger down payment. They want to see that you've got more equity in the purchase. They want to see that you've got good credit. They want to see that you can verify your income and that shows stability of income.
MILLER: Experts predict mortgage lenders won't ease their standards until the real estate market improves. Lenders want to have confidence the collateral backing their loans is rising, not falling in value. Erika Miller, NIGHTLY BUSINESS REPORT, New York
One on One with Josh Feinman, Chief Economist at Deutsche Asset Management.
SUSIE GHARIB: U.S. consumers pulled back from shopping last month. October was the worst month for retail chain stores in more than 35 years as Americans faced falling home prices and rising unemployment. Apparel chains were hit hard with many posting double digit declines. Teen retailer Abercrombie and Fitch fell 20 percent, while Gap was down 16 percent and Limited Brands, 9 percent. Department stores weren't much better. Macy's fell 6 percent. JC Penney posted a 13 percent decrease and high-end retailer Saks was down 17 percent. Discounters were not immune from the pain. Sales at Target fell nearly 5 percent, while Costco slipped 1 percent. And as with past months, Wal-Mart bucked the trend with sales rising more than 2 percent. Joining us now with more analysis on those retail sales, Josh Feinman, chief economist at Deutsche Asset Management. Hi, Josh.
JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MANAGEMENT: Hi Susie.
GHARIB: Those numbers were pretty dreadful. How long do you see consumers cutting back on their spending?
FEINMAN: It's hard to sugar coat it. I think we're in a retrenchment phase. They were hit by the credit crunch you talked about earlier in the show, declining house prices, declining equity prices, a weaker labor market which we'll get more of tomorrow and a decline in confidence. I think consumers are going to remain in hunker down mode for a while here.
GHARIB: Tell us about the employment report tomorrow. All the estimates sound pretty bad. What are you expecting?
FEINMAN: Certainly in keeping with that, I mean all the indicators point to further deterioration of labor market conditions, so I'm looking for a sizable drop in payrolls, another rise in the unemployment rate. And I fear that we're going to be looking at this for a while, probably carrying over into 2009.
GHARIB: Where do you see the unemployment rate tomorrow?
FEINMAN: Probably moving up a couple tenths tomorrow. But I think the trend over the course of the next couple quarters is going to be materially higher, maybe up toward 7 percent or higher ultimately on the unemployment rate.
GHARIB: We're at 6.1 percent now, so you see it getting up to 7 percent. Josh, between the weak consumer spending and these big job losses, how long and how deep is this recession going to be?
FEINMAN: Well, the economy started to contract at the end of the third quarter. It looks like it's going to contract very sharply in the fourth quarter, probably the biggest quarterly decline we've seen in many years and then probably another decline in the first quarter of next year. So I think this is going to be a bigger and deeper recession than we've seen probably in 25 years, probably more like the ones we saw in the 70's and early 80's, rather than the last 25 years where we have only seen two very mild and very brief recessions.
GHARIB: We've seen oil prices, as a consequence gasoline prices drop at the pump. Is that helping at all to ease the pain or not at all?
FEINMAN: It is. I mean, I think that is helping prevent what would be a sharper retrenchment in consumer spending in the absence of that. So it is good. It's one of the few glimmers of hope that we have out there. But I don't think by itself it's enough to offset all the negatives, at least not in the short run.
GHARIB: You heard earlier we were reporting that Congress is thinking of passing another stimulus package. How soon do you think that's going to happen and will it really help the economy or is it just another band aid?
FEINMAN: Look, anything the government is doing here is really more on the ameliorative side. There's no magic wand that can be waved and make all these problems go away. But having said that, I think fiscal stimulus will be helpful. I think we'll get another package very soon or if not then shortly after the new president and Congress take office. I think it will be in the form of some increased spending, maybe some tax cuts and I think it will do some good and you couple that with the recent signs of a little bit of falling in the credit markets that we've seen, that you alluded to earlier in the show and I think a basis is being formed for some improvement in the economy, but I think it's going to take a while. I don't think we're going to see that materially until well into next year.
GHARIB: President-Elect Obama is holding his first press conference tomorrow. He's going to have his economic team is going to have a briefing tomorrow. Everyone is eager to know what is Obama's plan to fix the economy. Do you think we'll get any clues about it tomorrow?
FEINMAN: I think you'll start to get some clues. They're still taking shape and you'll get some clues about who is going to be the key economic leaders of the administration. People on the short list are people of very high credentials. The problem is that, the problem the economy faces is pretty severe. So it's going to take time to improve. But I think the fiscal stimulus that you're talking about, the monetary stimulus that we're talking about, that we're getting globally, we saw it again today in Europe, I think eventually will start to get some traction. But I wouldn't be looking for it to take hold probably before the second half of next year.
GHARIB: All right, Josh, thank you so much for your thoughts. We really appreciate your coming on the program.
FEINMAN: Thanks a lot, Susie.
GHARIB: My guest tonight, Josh Feinman, chief economist at Deutsche Asset Management.
"Commentary"-Prioritizing Money Matters
SUSIE GHARIB: Tonight's commentator asks our next president to be more fiscally prudent than his predecessor. He's Allan Sloan, senior editor-at- large at "Fortune."
ALLAN SLOAN, SR. EDITOR AT LARGE, FORTUNE: Now that the election is finally over, maybe our new president and Congress will actually pay some attention to our Federal budget problems. During the campaign, everyone talked about how many zillions they'd spend on new programs and boosting the economy. But right behind all that spending is an enormous problem. How are we going to pay for it? In its recent fiscal year, the Federal government reported a $455 billion deficit. But if you count the money borrowed from trust funds like Social Security, it was more than $700 billion. If you include what the Treasury borrowed to help out the Federal Reserve, it was more than a trillion dollars, a trillion dollars! Even by Washington standards, that's getting to be real money. And the current fiscal year is going to be even worse. The Bush administration managed to completely avoid fiscal reality. It cut taxes, spent heavily and borrowed heavily to make up the gap. It even borrowed the money to fight the wars in Iraq and Afghanistan, the first time we've ever cut taxes in the middle of a war. The new administration will have to be more prudent fiscally than the Bush administration. It would be hard to be less prudent. So let's hope the newbies get their fiscal act together soon. Otherwise, our foreign lenders are going to crack down on us and stick our children and grandchildren with the bill. I'm Allan Sloan.
The New Gold Rush
JEFF YASTINE: Finally tonight, the sour economy and tightening credit have a lot of people in a bind for cash. Many are turning to some of the only unmortgaged assets they have left to make ends meet: their jewelry. To meet that need, companies have a way to extract gold and silver from the nation's jewelry boxes and sock drawers. Consider these folks modern day miners of gold and silver. Instead of picks and shovels, they use the tools of the digital era and the material they mine isn't rock, but thousands of packages a week that arrive in the mail, containing gold earrings, silver bracelets, silver platters, even gold tooth fillings. You may have seen the ads for the company. Jeff Aronson and his partner built Cash4Gold into a brand name by turning stay- at-home moms and others into sellers of gold and silver jewelry when they need the cash.
JEFF ARONSON, CEO, CASH4GOLD: She sees the Cash4Gold ad, come on. It hits a chord. She says you know what times are a little tough right now. She has a jewelry box. She has complete anonymity. Nobody knows. She doesn't have to feel bad about the transaction.
YASTINE: Customers interested in selling request a prepaid, insured and bar-coded mail pouch. That code identifies the jewelry as it makes its way through the system. Aronson says the key was figuring out how to securely track all that inventory.
ARONSON: What we do is we do over 15,000 packages a week. Each of them could be a quarter of an ounce each. So we've got millions of pieces of jewelry in the plant. At any given moment, we know exactly where every piece is, where every customer's material is at.
YASTINE: Now when all that gold jewelry is assayed and processed, it's then melted down into this: a 900 ounce bar of gold. It has a purity of about 12 karats, so with gold at $732 an ounce today, that one bar is worth roughly $329,000 and it takes about 6000 pieces of jewelry, melted down, to form that one bar of gold. If you're one of those people thinking about selling old jewelry, the New York-based Jewelers Vigilance Committee has a handful of suggestions: choose a reputable firm, make sure you have some way of tracking the jewelry item when it's mailed and realize the gold or silver content of the jewelry may only be a fraction of the item's weight. Other companies are now trying to cash in on Cash4Gold's business model, including one with the sound-alike name of Money4Gold. President Daniel Brauser sees the consumer market as largely untapped.
DANIEL BRAUSER, PRESIDENT, MONEY4GOLD HOLDINGS: Jewelry has a very long lifespan, so people have been accumulating old jewelry items or other items that contain precious metals over the years. And this has been building up pretty tremendous stocks in their sock drawers and jewelry boxes et cetera.
YASTINE: Gold scrap recyclers expect Americans to continue mining those sock drawers and jewelry boxes as the nation's economic slowdown unfortunately runs its course.
Paul Kangas' Stocks in the News
JEFF YASTINE: A second day of steep selling on Wall Street as investors worried about tomorrow's October employment report and the big losses expected at GM and Ford. Shares of GM and Citigroup touched new multi-year lows today and weak chain store sales, which we'll detail in a moment added to the selling. So as you can see there, the Dow went on to end the day down 443 points or almost 5 percent. The NASDAQ tumbled almost 73 points to 1608.70. And the S&P 500 fell 47.89, ending at 904.88. In the bond market, the 10-year note gained 2/32 to 102 16/32 and the yield down to 3.69 percent.
Once again another frightening tailspin for the blue chips and there you see Citigroup (C) dropping $1.11.
General Electric (GE) losing $1.59.
Bank of America (BAC) off $2 - excuse me, $1.63.
Wachovia (WB) losing $0.60.
Wells Fargo (WFC) losing $2.91. Tonight they priced an $11 billion offering. They'll pay for the Wachovia buyout. They're selling 407 million shares priced at $27 each.
And then ExxonMobil (XOM) sliding $3.73. The December contract for oil sliding to $60 and change per barrel. That's a low not seen since January of last year.
Pfizer (PFE) losing $0.63.
National City (NCC) down a nickel.
JPMorgan Chase (JPM) off nearly $1.
AT&T (T) losing $1.16.
And there's Disney (DIS) down $1.42. After the bell, the entertainment giant out with fourth quarter profits, those earnings $0.42 a share and $0.06 below estimate and the stock was down about $1 after hours.
Hewlett-Packard (HPQ) down $2.61. Analysts see slower growth in sales of computers, especially after Cisco's warning last night about overseas markets.
And some of the other Dow big losers of the day, American Express (AXP), Boeing (BA), Chevron (CVX), IBM (IBM), United Tech (UTX), all big losers there.
And here's one you don't see very often, Toyota Motors (TM), those shares off more than 13 after reporting a 69 percent drop in second quarter profits. That's their largest quarterly drop ever and also they're being hurt by the rally in the yen in recent weeks.
Las Vegas Sands (LVS) nosediving nearly $4. The casino company said it may default on some debt. It faces the possibility of bankruptcy and the company's Venetian casinos in Las Vegas and Macao are seeing many fewer gamblers at the tables and at the same time, the company's trying to fund more projects in China and Singapore. Owners (INAUDIBLE) had once been the world's third richest man back when this was a $140 stock.
FTI Consulting (FCN) plunging almost $15. Management says the credit crisis has a lot of companies postponing projects with FTI. Earnings were $0.09 below estimates.
Goldman Sachs (GS) down more than $6. Morgan Stanley erased earlier profit projections, now a loss of at least $1.09 a share for Goldman.
And another stock getting whacked, Syniversus Holdings (SVR) off nearly $8 or 44 percent. Alcatel and Sprint Nextel are looking to develop more mobile phone applications in house rather than have Syniversus do it.
Now over to the NASDAQ where we see Apple (AAPL) with another loss. It was down more than $4.
Google (GOOG) losing $11.02.
Cisco Systems (CSCO) off $0.45 after warning about business slowing down overseas last night.
Microsoft (MSFT) losing $1.20.
Research in Motion (RIMM) off a little over $5.
Intel (INTC) dropping $1.19.
And then Qualcomm (QCOM) losing $2.12. They gave a cautious outlook late today.
First Solar (FSLR) tumbling almost $8.50, still reeling from yesterday's profit warning from rival Sun Power.
Oracle (ORCL) losing nearly $1.
Amgen (AMGN) down $2.86.
Amazon.com (AMZN) off $4.76. A Citigroup analyst downgrading the shares, noting the steep declines in consumer spending above other online consumer retailers.
And finally Activision Blizzard (ATVI) rising $1.03. Those shares rising after the video game firm maker reporting strong third quarter results and they still expect decent holiday sales and thanks to sales of its huge guitar hero video game. Revenues came in more than $80 million above estimates, some good news for a change.
Those are the stocks in the news tonight.
