NBR Transcripts-November 14, 2008
Friday, November 14, 2008The Economic Crisis Brings World Leaders To Washington
PAUL KANGAS: World leaders are in Washington tonight to talk about ways to solve the global financial crisis. The weekend summit hosted by President Bush will include the heads of the G20, the 20 biggest industrial nations. It's being hailed as the most significant gathering since World War II. Washington bureau chief Darren Gersh has a preview of this historic event.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: As exciting as it is to see world leaders arrive at the White House with pomp and military ceremony, the work of rewriting global financial regulations is always boring, hard and long, especially when, as economist Ralph Bryant points out, the world leaders assessing the crisis are not all in agreement.
RALPH BRYANT, SENIOR FELLOW, BROOKINGS: Everybody I think to some degree recognizes that we had inadequate regulation and supervision of financial institutions in almost all countries and we need to do better about that. But just exactly what to do, there's no consensus about that at all yet.
GERSH: Which helps explain why President Bush was toning down expectations in his weekly radio address.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: During this summit, I will work with other leaders to establish principles for reform, such as making markets more transparent and ensuring that markets, firms and financial products are properly regulated.
GERSH: That is less than some European leaders want. But given the president's lame duck status, principles may be the best the leaders of the G-20 nations can do this weekend. Though economist Simon Johnson says some world leaders may try to do more.
SIMON JOHNSON, SR. FELLOW, PETERSON INSTITUTE ON INTERNATIONAL ECONOMICS: This leaves a bit of a vacuum. Who's going to fill the vacuum? Well, the Chinese may have some ideas. Certainly their big fiscal stimulus is pointing in that direction. The French certainly have ideas. The British also have ideas.
GERSH: The British are pressing for an international college of supervisors that would oversee the world's largest banks. The White House says it has supported that idea in the past, but the college could be redundant, since other international institutions already play a similar role. Whatever the leaders endorse, the ultimate goal of this summit Johnson says is to be seen as doing something that boosts confidence.
JOHNSON: You don't really want to disappoint everyone on all dimensions. It's good if you can say, yes we met and we delivered something. What's the something? We don't quite know yet. It makes this summit rather interesting.
GERSH: Another possibility, countries could use the summit as a platform to announce fiscal stimulus plans. If enough act, it could give consumers and markets a small injection of confidence. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with Robert Hormats, Vice Chairman of Goldman Sachs International
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Joining us now for more analysis of the G20 meeting, Robert Hormats, vice chairman of Goldman Sachs international. Hi, Bob.
ROBERT HORMATS, VICE CHAIRMAN, GOLDMAN SACHS INTERNATIONAL: Good to be with you. Thanks for having me.
GHARIB: It seems that these world leaders are coming to the summit with lots of different expectations and different agendas and President- Elect Barack Obama is not even going to be there. So what can actually get done this week?
HORMATS: We can't expect miracles. The G-7 summits, which I was a (INAUDIBLE) before, took three sets of preparatory meetings over a period of six months to prepare and they were only seven countries, mostly like- minded. Now we have 20 countries. They're not at all like-minded at most things. They've only had a month to prepare and a lame-duck president. But they can do certain things. One, it would be good if a few of them announced that they were going to add to the stimulus commitments that they've already made and the United States is certainly developing plans like that. China has already announced some. Others might. We're not going to get any specifics on regulatory changes. I think they all know that regulations have not been adequate to deal with these types of issues, but the devil's in the details there. There may be some very broad statements. But the key will be in the follow- up. The third thing is the follow-up itself. This meeting will not achieve miracles, but if it sets in place a number of working groups on regulation, on perhaps how to improve the trading system, how to improve the IMF, how to improve the World Bank, that could be very useful and give a good launching pad for the next administration. And, fourth, helping the poor countries that are not represented there, but are being hurt badly by this crisis.
GHARIB: As you know, Bob, there has been a lot of chatter about some kind of big, single, global regulator to oversee this financial crisis. Do you see this meeting as maybe laying the foundation or the ground work for something like that?
HORMATS: There will be big differences over that issue. President Bush has indicated that he was reluctant to go along with one new, global regulator. Canada has more or less said that it did not think that was a good idea. The Chinese and many emerging economies are going to be very reluctant to do this. But I think there can be better regulatory coordination. And they might use something like the financial stability form which enables central banks and other officials to work together to improve regulations, not one regulator, but working together in a mutually acceptable way and consistent way to improve domestic regulations and make sure that things don't fall between the cracks internationally. Strengthening that group could be done and would be very useful.
GHARIB: So what do investors need to hear on Monday from this summit that they feel more positive about the markets?
HORMATS: The first thing they want to hear is that they're working together. One of the big problems in the 1930s that made the depression a lot worse than it otherwise would have been, is that there was competitive exchange rate devaluation, protectionism and cacophony among these countries. We also had that problem in the 1980s when there were big disputes for instance between the United States and Germany. They want to see these countries working together and just like the Hippocratic oath "do no harm." Work together and show that they can cooperate and second, launch a number of working groups that are going to pull officials together over the next several months to address these problems. And, third, have another summit down the road so that they just don't talk and have working groups, but the heads of state pay attention to this. And, fourth, that they go home saying we're recommitted to doing what it takes to stimulate our economies because this is going to be a much worse situation unless there is adequate government response here.
GHARIB: A lot that they have to do and we have run out of time. But thank you very much, Bob for coming on the program.
HORMATS: Thanks for inviting me.
GHARIB: My guest tonight, Robert Hormats, vice chairman of Goldman Sachs International.
Black Friday Is Already Looking Bleak
SUSIE GHARIB: The nation's retailers posted their biggest sales decline on record in October. The Commerce Department reported today retail sales fell 2.8 percent last month, led by a huge drop in auto sales. That doesn't bode well for the holiday shopping season, which kicks off in two weeks. So we sent Suzanne Pratt shopping at Wal-Mart for a preview of what shoppers can expect.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: I wanted to get an early start on my holiday shopping and who better to join me than a true shopping pro, retail analyst, Joe Feldman.
JOSEPH FELDMAN, RETAIL ANALYST, TELSEY ADVISORY GROUP: I think it's going to be a Wal-Mart holiday season where they do very well this year. They offer everything that you would need. They've got great selection of toys, like tons of toys for $10.
PRATT: Let's check out some of those $10 toys because I was looking on the website this morning and a lot of them are sold out already. Along the way we got sidetracked, first by "Kung Fu Panda". And, then it was the flash of flat screen TVs that interrupted our toy hunt: a 32-inch for $500.
FELDMAN: Electronics are going to do very well this holiday season, but it's really the sub-$300 electronics, things like the iPod, things like other MP3 players. It'll be video games. It'll be Blue Ray DVD players. People like the gadgets.
PRATT: Speaking of gadgets, "Guitar Hero" tops the list in my household.
FELDMAN: Video games are going to be a terrific seller this holiday season. It's interesting. It's the one area of electronics that's probably going to do the best.
PRATT: One of the things that has gotten me concerned and caused me to come out early shopping is about inventory and supply of these games. Do you think that if I see it today, I should buy it today?
FELDMAN: I think on the hot popular games or items, yes.
PRATT: But wait, it turns out I need a guitar to go with the Guitar Hero video game. So, it's a much better deal to buy the guitar and the game itself together, because that's $100 and that's $50 and then the guitar is by itself, what $90. It's finally time to hit the toy department. I'm on the lookout for Bakugone (ph), one of Wal-Mart's $10 deals.
FELDMAN: What's interesting is they're not here because they probably sold them out.
PRATT: That's too bad. All right. So the only thing I have to do is find something for my three-year old and then I'm in better shape. Is this likely to show up in Costco? Feldman says no, so I take it and we head to the checkout counter. Do you think that there's still the possibility that this holiday season we could see sales down 10 percent? We're starting at zero. The news gets worse every day. It does not get better.
FELDMAN: I think 10 is a little dramatic. I don't think it'll be that low, but it could be negative low single digits, negative 2, negative 3 percent. It's going to be a challenge. I mean unemployment continues to tick up and that's really what's driving consumer spending.
PRATT: I'm not done with my shopping, but I got a good start. Thanks for your help. Thank you. What's your return policy?
The FDIC's Home Sweet Home Plan
PAUL KANGAS: There's another plan on the table tonight to keep financially strapped Americans in their homes. This new proposal is from the Federal Deposit Insurance Corporation, the FDIC. Tuesday, the Treasury and Federal housing officials unveiled their plan to modify troubled mortgages. But as Stephanie Dhue explains, the FDIC is trying a different tactic, dangling money in front of lenders and hoping they'll bite.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite the many hopeful sounding offers of help for homeowners to avoid foreclosure, the reality is only about 4 percent of troubled loans are modified each month. Congressman Dennis Kucinich says that's unacceptable.
REP. DENNIS KUCINICH, (D) OHIO: Resolution of the mortgage crisis demands stronger action by the Federal government than private industry so far has been willing to undertake.
DHUE: The FDIC loan modification proposal would reduce monthly payments for struggling borrowers. The government would also pay loan servicers $1,000 for each loan modified and share up to half of the losses if the loan still defaults. And the plan comes with an estimated $24.4 billion price tag. John Courson of the Mortgage Bankers Association says the FDIC plan makes it easier for loans that were bundled and sold to Wall Street to be worked out.
JOHN COURSON, COO, MORTGAGE BANKERS ASSOCIATION: There are some that have a flat restriction. There are some that have a restriction as to how many loans can be modified and that's been one of the frustrations of I think borrowers, I think regulators and I know services of not being able to modify loans that are inside those securities.
DHUE: Just two days ago, Treasury Secretary Henry Paulson dismissed the idea of spending money on loan modifications. But the White House today said it's reviewing the FDIC proposal. Analyst Jaret Seiberg says in the meantime, lenders may be holding out.
JARET SEIBERG, FINANCIAL SERVICES POLICY ANALYST, STANFORD GROUP: The problem with having multiple plans out there is that nobody wants to take advantage of one proposal when they believe a better proposal is coming down the pike.
DHUE: Analysts say this may be the last best offer the industry gets. Some congressional Democrats want to put a moratorium on foreclosures and let bankruptcy judges modify loans, ideas the industry opposes. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-Stan Weinstein, Editor & Publisher of "Global Trend Alert"
PAUL KANGAS: My guest "Market Monitor" this week is Stan Weinstein, editor and publisher of "Global Trend Alert," a financial advisory service for institutional investors. And Stan welcome back to NIGHTLY BUSINESS REPORT.
STAN WEINSTEIN, EDITOR & PUBLISHER, "GLOBAL TREND ALERT": Always my pleasure to be back, Paul.
KANGAS: When you were last with us in September of 2007, too long ago, the Dow was at 13, 400. You said the bull market was no longer healthy and warned if it broke below 12,800 on the Dow, bear would emerge and that was a great call. Congratulations.
WEINSTEIN: Thank you very much.
KANGAS: Now the question is: can you tell us if the market is in the bottoming process and ready for buying?
WEINSTEIN: Process is the right word. It takes time. So I think the process has started, but long-term, we're still bearish. I don't think that the bear has breathed its last. Short-term is a different thing. Short-term I think you may have hit a low this past Thursday and I'll give you two numbers to watch, but this is trading. If the Dow can close above 9800, I think for the first time in a heck of a long time, we'll get a good short- term rally. If it doesn't happen, conversely instead you close around 7800, another down leg.
KANGAS: What moving average is the most important one to follow under these conditions?
WEINSTEIN: There are two that I especially focus on. For long-term investing, I think the 200-day moving average is key. But for trading, I think the 50-day moving average is important. So I wouldn't use one. I'd combine the two together.
KANGAS: What stock groups do you think will lead the market higher when that time comes?
WEINSTEIN: We should only get there. I think that two groups - they're not bullish yet, but two groups which I think have seen their bear market lows, irrespective if the Dow goes there, are the airlines and the banks which you know I was bearish on before. Some select regional banks and some airlines and some select healthcare stocks look like they're starting to base, but they're not yet officially bullish. They're basing.
KANGAS: Back in September of last year, you didn't like the retailers, either and look what's happened then. There must be a time to buy.
WEINSTEIN: Well again, very, very split groups. Some retailers selectively are bullish, but there's a lot of retailers - when the charts are doing their thing, you've got to look chart by chart.
KANGAS: What else would you stay away from in the way of stock groups?
WEINSTEIN: There is no longer such a matter of groups because the groups (INAUDIBLE) like the oils, the fertilizers, they've destroyed them. But there are a lot of individual stocks that aren't too late to sell and here's where the charts do their think. If you have a stock that's close to its 200-day moving average starting to break down, I think that's still saleable, but (INAUDIBLE).
KANGAS: As you know, the G-20 leaders are meeting in Washington this weekend. What would you like to come out of that summit on the financial crisis?
WEINSTEIN: First of all, I'm a cynic, so I don't expect too much. But secondly, I'm a technician so I care less about what they say and it's how the market reacts to the news more than the news itself that will impress me.
KANGAS: Are there any foreign markets you do like?
WEINSTEIN: This is what's really scary. There are no foreign markets -- I go through all the charts that are bullish and they (INAUDIBLE) . We're in a worldwide bear market and those are the most dangerous, reminds me very much of what we went through in 1973 and '74, which was a devastating bear market.
KANGAS: What about gold and gold stocks?
WEINSTEIN: Both of them have been bullish. But the gold stocks topped out last March. Gold bullion topped out this past July and turned bearish in August. There is really not a lot of places to hide. They're both in bear markets now, too.
KANGAS: Can you hide in bonds?
WEINSTEIN: Bonds are at least neutral which I think will win here and neutral, just stick with high-quality government bonds and I say, short- term maturities, five years or less.
KANGAS: Very interesting. Stan, we have about 30 seconds left. Any final thoughts for our viewers?
WEINSTEIN: I would say that they should learn from this terrible bear market that we're going through, that a simple buy and hold strategy is very dangerous to your investing health. I think you've got to keep looking at charts and when they turn negative, you can't fall in love with the stock. There is a time to buy and a time to sell. If they say sell, you got to sell.
KANGAS: So it is good for the brokers, too?
WEINSTEIN: And it's good for you, too.
KANGAS: Very good. Stan, it is great to see you and get your insight. Thanks very much.
WEINSTEIN: It's always my pleasure, also, Paul.
KANGAS: My guest, Stan Weinstein of "Global Trend Alert."
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street started the day with a broad sell-off as recession fears heated up on news of poor retail sales, which we'll detail shortly. In a straight line decline, the Dow tumbled 319 points by noon with the NASDAQ down 68 points. Then a spirited reflex rally lifted the Dow to a 75 point gain at 3 p.m., but those gains vanished in the last hour as buyers backed away ahead of the weekend and the G20 summit. The Dow Jones Industrial Average closed off 337.94 points at 8497.31. The index fell in four of the last five sessions, dropping 446 1/2 points on the week. The NASDAQ Composite lost 79.85 to 1516.85 today. The NASDAQ also had just one session on the upside this week and it had an overall loss of 130.55 points. Standard & Poor's 500 Index fell exactly 38.00 points to 873.29 today, but it was down 57.70 points for the week overall. Over in the bond market, the 10-year note gained 29/32 to par and 2/32, putting the yield at 3.74 percent.
Most active New York exchange issue on 26 million shares, Citigroup (C) edging up $0.07. The "Wall Street Journal" today reported the company's going to have another round of huge layoffs and it'll raise interest rates on millions of its current credit card customers. It plans to hold a town hall meeting Monday morning with employees to talk about the company's prospects and also, there has been some insider buying in Citigroup stock.
General Electric (GE) $0.84 loss there.
Bank of America (BAC) dropped $0.68.
Procter & Gamble (PG) down $1.94, a weak retailing sector.
JPMorgan Chase (JPM) off $2.72.
Wells Fargo (WFC) fell $0.36.
ExxonMobil (XOM) dropping $1.73.
Sprint Nextel (S) bucked the trend with a $0.06 gain.
Then Pfizer (PFE) down $0.45.
And tenth in volume, AT&T (T) losing $1.02 per share.
Nokia (NOK) down $1.56. The company cut its estimates for mobile device sales volumes for not only this year, but next year as well.
Then Morgan Stanley (MS) down $1.18. A analyst at Fox Pitt (ph) cut its previous fourth quarter earnings estimate for Morgan Stanley from $0.85 in the black to minus $0.06 a share. The stock was as low as $11.51 this morning.
Boeing (BA) down $2.12. The company has delayed delivery of its first 747-8 freighter from late 2009 to the third quarter of 2010 due to supply chain problems and of course that machinists strike also is delaying the passenger model delivery of that plane.
Abercrombie & Fitch (ANF) down $4.65. Third quarter earnings fell to $0.72 from $1.29 last year. Same store sales down 14 percent. The company said fourth quarter same store sales will likely be down 26 percent.
JCPenney Co (JCP) another weak retailer, off $2.01. Third quarter earnings, $0.55 down from $1.17 last year. Same store sales down 10 percent. The company sees fourth quarter same store sales also losing 10 percent.
Emerson Electric (EMR) off $2.51.
JPMorgan downgraded it from "neutral" to "under perform."
And then a gainer believe it or not, Dean Foods (DF) up $0.54 and it traded as high as $15.63 this morning after the Stiefel Nicholas brokerage upgraded it from "hold" to "buy."
And then Hewitt Associates (HEW), the human resources company, fourth quarter earnings, $0.50, up from $0.47 last year. Revenues up 8 percent and it's going to buy back up to $300 million of its own stock. It was as high as $27.81 this morning.
Apple (AAPL) was the most active NASDAQ issue as usual, down $6.20.
Google (GOOG) off $2.06.
Microsoft (MSFT) fell $1.19.
Cisco Systems (CSCO) $0.64 drop there.
And Research in Motion (RIMM) down $3.80 after Standard & Poor's said it believes Research in Motion's growth prospects have narrowed.
Moving along in the actives, Intel (INTC) down $1.11.
Oracle (ORCL) fell $0.82.
Qualcomm (QCOM) down $1.88.
Amgen (AMGN) fell $1.37.
And Gilead Sciences (GILD) down $0.38.
Medcath (MDTH), which operates hospitals, plunging $6.92. Fourth quarter earnings came in at only $0.02 a share, down from $0.11 last year. Wall Street was expecting earnings of $0.27 a share.
Those are the stocks in the news tonight.
