NBR Transcripts- November 7, 2008
Friday, November 07, 2008President-Elect Obama Takes Aim at the Economy
SUSIE GHARIB: President-Elect Barack Obama pledged today to act swiftly to solve the nation`s economic problems. Mr. Obama opened his first news conference since winning the presidential election by saying today`s grim employment report was sobering, calling for a second fiscal stimulus plan and extending unemployment benefits to help struggling Americans. Joining me now with more on Mr. Obama`s comments, Washington bureau chief, Darren Gersh. Hi Darren.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hey, Susie. Well, look, as you know, it`s a very delicate balancing act the president- elect is trying to pull off. While he pledged to act decisively, he`s also managing expectations for an economic miracle. The president-elect skipped over the first rule of holes, which is if you find yourself in one, stop digging. Today`s employment report makes it clear the economy hasn`t hit bottom. So Obama went right to what might be called the second rule of holes.
BARACK OBAMA, PRESIDENT-ELECT: I have said before and I will repeat again, it is not going to be quick and it`s not going to be easy for us to dig ourselves out of the hole that we are in, but America is a strong and resilient country and I know we will succeed.
GERSH: Many Wall Street pundits have speculated the new administration would take immediate action, beginning with naming an economic team a day or two after the election. But policy analyst Andy Laperriere says there`s a reason Obama stressed there is only one president at a time. He`s trying to adjust down some unrealistic expectations that the new government will start tomorrow.
ANDY LAPERRIERE, MANAGING DIRECTOR, ISI: There are real practical issues involved in a transition. I mean it takes a few weeks for the FBI to do the background check on a potential Treasury secretary. You just can`t come in and a few days after the election start naming your cabinet and changing policy. It just doesn`t work that way.
GERSH: The president-elect did lay down some markers. He pushed for an immediate economic stimulus package. If the lame duck Congress doesn`t pass one in coming weeks, Obama pledged to do so right after he`s sworn in. He also urged the Bush Treasury to work with the FDIC and other agencies to prevent foreclosures. And Obama pressed for immediate help for the auto industry.
OBAMA: I would like to see the administration do everything it can to accelerate the retooling assistance that Congress has already enacted. In addition, I`ve made it a high priority for my transition team to work on additional policy options to help the auto industry adjust.
GERSH: But the president-elect also talked about the need to make difficult choices. Lapperiere says that`s another part of the expectations offensive.
LAPERRIERE: And he`s also I think paving the way for later on, where he`s going to have to say we have some tough choices to make. Therefore I may not be able to do this or this is the reason we have to cut back this program or this is the reason we have to raise taxes or something along those lines.
GERSH: Now Susie on a little bit of a lighter note, Obama also worked on expectations for the family puppy. He said they might go to a shelter provided they can find a dog that won`t aggravate daughter Malia`s allergies.
GHARIB: I thought that was a really cute part of the press conference. Darren what was your take on the tone of the press conference and the way that Mr. Obama conducted himself.
GERSH: Well, look, he seemed very calm and very much in charge, especially considering how bad the economic news is. He also does very well in these kind of settings. People I know who have met with him say that he listens extremely well and people get a sense he can take in a lot of information at once.
GHARIB: We saw Mr. Obama flanked by top CEOs and heavy hitters from both the business and political arenas. Do you think that was symbolic or do you think that these people will really play a substantial role in shaping economic policy?
GERSH: Susie, I think it was a little bit of both. You know a lot of these people. They`ve been on our program. We`ve both interviewed them, Robert Rubin, Larry Summers. These are people who have been in the Clinton administration. They`re schooled in crises. Paul Volcker, 81-years old, was Fed chairman. He`s seen it all. That was part of the message, that these people have the experience to deal with the economic mess that we`re in.
GHARIB: And Obama seemed to say that he`s not going to be in any rush to make appointments for his economic team and he`s not going to be hasty in any way. What kind of manager, what kind of decision maker do you think he`ll be as president, based on what you saw today?
GERSH: That is a very interesting question because on the one hand, Obama has always come off as very calm, collected and deliberate. He likes to think about things, but there are some people who are concerned that he`s a little too deliberate, that he doesn`t make decisions, that he`s not decisive, that he isn`t willing to call it right away and you know, drive policy forward. We got a signal on that today when he picked Rahm Emanuel, the congressman and congressional leader to be his chief of staff. Rahm Emanuel`s MO is somebody who get things done with a sledge hammer if needed.
GHARIB: That`s a really good point. We`ll see how things unfold. Darren, thanks a lot for coming on the program tonight. Darren Gersh, Washington bureau chief.
The Nation's Unemployment Rate Soars To Historic Highs
JEFF YASTINE: President-Elect Obama`s comments came just hours after we learned that the nation`s unemployment is now at its highest level since 1994. According to the Labor Department, the jobless rate soared to 6.5 percent in October, up from 6.1 percent in September. And American business cut 240,000 jobs last month on top of a revised loss of 284,000 positions in September. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: There was little in the employment report for October to comfort those looking ahead. Conrad Dequadros of RDQ Economics says all signs point to a recession extending well into next year.
CONRAD DEQUADROS, ECONOMIST, RDQ ECONOMICS: Unfortunately, this recession looks like it is going to be deeper than the 2001 recession. I think the fourth quarter we could see GDP decline by as much as 3 percent. I think in the first quarter the decline will be fairly substantial as well.
GURVEY: The big jump in the unemployment rate puts that measure of pain at its highest level in 14 years. Dequadros expects it to get much worse.
DEQUADROS: Once the recession ends, the recovery is likely to be quite lackluster. So with the economy growing below its potential growth rate, the unemployment rate will continue to rise much like it did in 2002. We`re already at 6.5 percent. I think that we`ll likely be approaching 8 percent by the end of 2009.
GURVEY: There have yet to be any signs of an end to the downturn. Key indicators of demand and production are falling sharply. The employment report shows employers are now playing catch-up, shrinking payrolls to keep pace with their shrinking business. Economists point to the continuing credit crunch as the root problem. The Fed has lowered interest rates but banks are still not lending. So the Fed stepped into the breach, buying equity in financial institutions and buying commercial paper to put cash in the hands of businesses. Neal Soss of Credit Suisse says policy makers need to be even more creative.
NEAL SOSS, CHIEF ECONOMIST, CREDIT SUISSE: You can certainly imagine expanding that. If you take the view that this is an emergency of some sort, unusual and exigent circumstance to use the language of the statute, you can see the Fed doing a lot more of that. And if you make car loans people will buy cars. They may not buy as many as before but they will buy more than they did last month.
GURVEY: Some believe having the Fed loan directly to consumers is the answer. They note that Fed funds, officially pegged at 1 percent, are actually trading at a quarter of a percent and still the credit crunch continues. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
US Car Makers Turn To China & Capitol Hill For Help
SUSIE GHARIB: General Motors and Ford Motor today reported billions of dollars in quarterly losses and said more cost cuts are on the way. GM`s posted $4.2 billion in net third quarter losses. That worked out to $4.45 a share, much worse than the $3.70 that analysts had expected. The company burned through almost $7 billion of cash during the quarter and CEO Rick Wagoner said GM could run out of money in the first half of next year if it doesn`t get help from the Federal government. He`s cutting costs, including payroll by an additional $5 billion. Also, Wagoner said he`s broken off all acquisition talks with Chrysler.
Meanwhile, Ford lost $2.75 billion in the third quarter, a bigger than expected loss of $1.31 a share, excluding items. Ford used up almost $8 billion in cash during the quarter and says it`s planning 26 (sic) additional job cuts. The auto maker has reduced its workforce by more than 40 percent over the past three years. Morningstar auto analyst David Whiston said the outlook for both Ford and GM is grim.
DAVID WHISTON, AUTO ANALYST, MORNINGSTAR: Today`s numbers show that both companies are in really bad shape although I think GM is in much worse shape than Ford right now. Both are struggling, both are going to continue to struggle and with 2009 vehicle sales worldwide looking to be terrible for all auto makers, the weakest ones, which are the Detroit ones, are the most vulnerable.
GHARIB: That sales slump is one reason why American auto makers are turning to foreign markets to boost sales. GM opened its first assembly plant in Russia today and Ford is gaining traction in China. But as Shannon Van Sant reports from Beijing, China is dealing with its own economic challenges.
SHANNON VAN SANT, NIGHTLY BUSINESS REPORT CORRESPONDENT: High gas prices and tightening credit have been bad for auto sales in the U.S. and car companies are relying increasingly on China to boost revenues. China is the second largest auto market in the world and Ford Motor China`s President and CEO Robert Graziano says that market is growing.
ROBERT GRAZIANO, PRESIDENT & CEO, FORD MOTOR CHINA: Through the first nine months of the year, Ford in China has sold just short of 241,000 units and that`s up 7 percent from year ago levels.
VAN SANT: Sales growth have fallen to that 7 percent figure from 105 percent growth in 2006. Ford blames declining growth rates in China on the company`s sale of Land Rover, Jaguar and Aston Martin and on this year`s earthquake and snowstorms. Graziano says the Olympics and China`s falling stock market have also depressed domestic consumption.
GRAZIANO: There has been a bit of a slowdown here. Part of it, the external factors have had an impact. But also the local stock exchange has been depressed a bit and that is affecting consumer confidence. And so the growth rate, while it`s still growing, the market is still growing in China, it`s not growing at the same rate that it has over the last several years.
VAN SANT: Some experts say consumer consumption should be growing more quickly and say the government hasn`t done enough to balance China`s trade surplus. Last summer China halted revaluation of its currency and increased tax rebates for exporters in an effort to cushion the country`s economic slowdown. China`s economy expanded by just 9 percent in the third quarter, the slowest pace in five years. Declining exports could speed the country`s transition to a consumer-based economy, but Professor Michael Pettis of Peking University says that won`t happen fast enough to make up for lagging sales in the west.
MICHAEL PETTIS, PROFESSOR, PEKING UNIVERSITY: So China will make that transition, there`s no question. But it won`t make the transition in six months. It probably won`t even make the transition in five years. It`s a much longer process for that to happen.
VAN SANT: That means it will be a long time before Chinese consumers buy more from the rest of the world, too long to help car companies like Ford through the current economic crisis. Shannon van Sant, NIGHTLY BUSINESS REPORT, Beijing
"Market Monitor" -Robert Doll, Vice Chairman & Global Chief Investment Officer at Blackrock
SUSIE GHARIB: Our "Market Monitor" guest tonight says even though the nation has a new president, the stock market is facing the same old problems. Joining us now, Robert Doll, vice chairman and global chief investment officer at Blackrock. Hi, Bob.
ROBERT DOLL, VICE CHMN. & GLOBAL CHIEF INVESTMENT OFFICER, BLACKROCK: Good evening, Susie.
GHARIB: Bob, what did you get out of the speech and press conference of President-Elect Obama today? Did he say anything that will make you rethink your investing strategy?
DOLL: Not really, Susie. I think he said a lot of the things that we would have expected him to say. That is, we`ve got problems. I`ve got faith in the American system to get things fixed, but we`ve got a lot of work to get there. We need some stimulus. They are the things he talked about and we would have expected had we scripted him that that`s what he would have said so no big change.
GHARIB: It was a volatile week for stocks since the election. How do you think the market is going to perform during the first presidential term of Barack Obama?
DOLL: Well, I think it a lot depends on what happens in the early days. Can we dig ourselves out of the mess we`ve put ourselves in and that starts with a healing of the financial system so it operates normally. Good progress there. I don`t think the new administration has to do a whole lot there. The issue is going to be the recession -- how long, how deep and then past that, what about the deficit, what about tax policy? And the markets will be watching closely to see Barack Obama`s moves on those issues.
GHARIB: And still you`re saying that this is a good time for investors to put new money into the markets. Why are you saying that and what advice do you have for investors?
DOLL: I think, Susie, that I`d start by saying we still think you need to keep your seat belt on, but maybe it`s safe to take your shoulder harness off. What we mean by that is the biggest problem we had is the system just wasn`t operating normally. You reported in some of your shows about corporate treasures not able to roll their commercial paper as an example of that. I think we`re past the worst of that and that`s what causes us to say there`s a ray of hope here. The problem we still have is the recession. But from the peak last year to the trough on October 10th, the U.S. stock market fell almost 50 percent. That`s discounting a lot of bad news and a pretty deep recession. We think we`ll get a tough recession, but our view is with the yields having moved up on stocks, with a return on cash near zero, investors are very risk averse. That`s usually a good time to slowly but surely dollar cost average back into the market.
GHARIB: So let`s get some of your recommendations for tonight. You have Johnson & Johnson as your first pick. It was up nicely today, ticker symbol JNJ. Tell us why you like it.
DOLL: First of all, we like health care, Susie. We think it`s one of the defensive areas that should do reasonably well in a difficult economic environment. Why JNJ? Their product pipeline is better than most pharmaceutical companies. They have a breadth of products aligned and services. It`s not just a pharmaceutical company. It`s not just a health care services company. The company has also done a great job over the years getting a good return on capital, return on equity, we would argue one of the best managed large health care companies. We like its diversification. We like its valuation.
GHARIB: All right. Let`s talk about Hewlett-Packard (HPQ). Why do you like that?
DOLL: Technology is an interesting concept. We think a lot of technology companies learned lessons the hard way after the bursting of the tech bubble in 2000 and many, like Hewlett-Packard are running their businesses we would argue far more conservatively. You see that in their balance sheet and their income statement. This company, Hewlett-Packard, does a great job at growing its revenue in difficult times in a globally diversified book of business. It`s very attentive to their cost lines and we think doing a better job than most in this difficult environment and they`ve also shown that they can make acquisitions, Electronic Data Systems the most recent one. We think there will be good news coming there.
GHARIB: We have time for just one more, ExxonMobil, which by the way, on our chart here, it`s mistaken. It was up $4.39 today. XOM is the ticker symbol. Quickly, can you tell us why you like ExxonMobil?
DOLL: Sure, we think ExxonMobil has almost as much cash on its balance sheet as there is in Fort Knox. A very conservatively managed company, a powerful mix of businesses, well managed. And at these oil prices and at this stock price, we think Exxon`s a good place to be, good yield, good cash flow.
GHARIB: All right. And can you tell us for disclosure reasons, do you have any -- do you own any of these stocks?
DOLL: None personally but all in the accounts that we manage.
GHARIB: All right. Bob, thank you so much. Thanks for coming on the program. Have a good weekend. My "Market Monitor" guest Robert Doll, vice chairman and global chief investment officer at Blackrock.
Paul Kangas' Stocks in the News
JEFF YASTINE: The economic news was uniformly bad this morning, so of course, stocks moved higher. The Dow jumped to a 230 point gain early on and held that lead despite the dismal employment report and horrendous losses at GM and Ford. We`ll have more about those losses in a moment. Late in the session, the Obama press conference led to a round of selling, but the indexes proved resilient, closing near the highs of the day. The Dow climbing 248 points to 8943.81. The index rose twice and fell three times this week for an overall loss of 381.2 points. The NASDAQ Composite rising 38.7 to end at 1647.4. It rose in three out of the last five sessions for an overall loss of 73 1/2 points and the S&P 500 rising 26.11 to 930.99. But it fell 37.76 points on the week overall. In the bond market, the 10- year note dropping 26/32 to 101 22/32 and the yield at 3.79 percent.
Starting things off, Wells Fargo (WFC) gaining $0.73. The bank raised $11 billion to fund its buy of Wachovia. That amount was about half of what Wells Fargo originally hoped for. Analysts think they`ll need to come back to the supper table and serve up more stock for sale in the future.
General Electric (GE) rising $0.52.
Citigroup (C) up $0.30.
ExxonMobil (XOM) gaining $4.39.
And then we have Wachovia (WB) gaining $0.19.
Here`s a look at some other financials. Bank of America (BAC) gaining $0.37. The financials holding their own for the most part today.
Ford Motor Co (F) gaining a fraction. You heard about them earlier.
American Intl Group (AIG) rising $0.24. Pfizer (PFE) up $0.49.
General Motors (GM) dropping $0.42. And again, you heard the news. The stock halted mid-morning while GM announced those huge quarterly losses and again, looking forward to next June, when the company says it could come up quote, significantly short of capital.
Shares of Procter & Gamble (PG) perking up $1.14. The nation`s patent office upholding for a second time Procter & Gamble`s patent covering plastic Folgers coffee containers, a bit of a row going on there.
Autonation (AN) gaining much-needed mileage. CEO Mike Jackson with a show of confidence there. He`s cutting debt and meeting loan covenants along with a plan to make space (INAUDIBLE) vehicles which he has said in the last couple of days are selling a lot more than domestic vehicles for what few vehicles are moving off showrooms these days.
Fluor (FLR) over $7 surge there. Third quarter earnings more than doubled to $1.01 a share. That was a dime above analyst projections.
While we`re on the subject of oil, World Fuel Services (INT) rising more than $6 on strong profits from its marine and aviation operations. Profits nearly tripled from year ago levels.
And a buyout to tell you about, Landamerica Financial Group (LFG) soaring almost $4. Fidelity National Financial wants to swap $125 billion in stock. Fidelity shares jumped over $2 in reaction.
And then Genworth Financial (GNW) buckled over $2. The firm cut its dividend, reported a third quarter loss and said it would not offer any more financial forecast. It`s also looking to sell some assets to raise cash. And a look at some home builders under pressure in the wake of the National Association of Realtors reading for pending home sales. They dropped 4.6 percent. Lennar (LEN), KB Home (KBH), MDC Holdings (MDC), Toll Brothers (TOL) all with more than 4 percent losses on the day.
Turning to the NASDAQ, there`s Apple (AAPL) losing $0.86.
Google (GOOG) lost just a fraction there.
Microsoft (MSFT) though gaining $0.62.
Qualcomm (QCOM) up $2.61.
Research in Motion (RIMM) rising $0.69.
Cisco Systems (CSCO) advancing $0.64.
Intel (INTC) up $0.76.
First Solar (FSLR) up more than $6.
Oracle (ORCL) gaining some there.
And Baidu.com (BIDU) up more than $8.
Nvidia (NVDA) gaining $1.10. Quarterly results much better than analyst forecast there.
And then we have OSI Pharmaceuticals (OSIP), their lung cancer drug Tarceva showing progress in helping to slow down the progress of lung cancer in a test recently.
Priceline.com (PCLN) gaining $7.50. The company guided fourth quarter estimates lower. Third quarter results were better than expected. That`s the ninth quarter in a row that the company had exceeded analyst forecasts.
And finally, Delta Petroleum (DPTR) climbing, excuse me, tumbling $1.47. Tracinda Corp. is backing out of the deal to buy a larger stake in the company because Delta and their share price has plummeted so much since that original deal with announced. Tracinda is keeping its one third stake ownership in the company.
And those are our stocks in the news tonight.
