NBR Transcripts-November 19, 2008
Wednesday, November 19, 2008Doubts About Auto Bailout Spark Drastic Stock Sell-Off
SUSIE GHARIB: A nasty sell off on Wall Street today as investors worried how a collapse of the nation's auto industry could damage the U.S. economy. The Dow plunged 427 points, closing below the 8,000 level for the first time in 5 1/2 years. The NASDAQ lost 96 points or 6 1/2 percent. The shares of American auto makers were among the big losers. General Motors tumbled almost 10 percent and Ford dropped 25 percent. Meanwhile, the CEOs of Detroit's big three auto makers were back on Capitol Hill today pleading for an emergency loan of $25 billion. But as Darren Gersh reports, once again the executives got a cool reception from law makers.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: With hopes for fast congressional action fading, auto executives continued to argue bankruptcy is not an option. Chrysler CEO Bob Nardelli said his company considered, but rejected the idea.
ROBERT NARDELLI, CEO, CHRYSLER LLC: We have looked at all aspects of whether it's pre-packaged, whether it's pre-negotiated, whether its bankruptcy and every aspect of that sir I can tell you is certainly more negative and more costly.
GERSH: But if auto executives want taxpayer dollars to keep the lights on, members of Congress want to know that the big three are really changing their ways. Congressman Brad Sherman was not happy to learn all the auto executives flew to Washington on private jets.
REP. BRAD SHERMAN, (D) CALIFORNIA: I'm going to ask you to raise your hand if you're planning to sell your jet, in place now and fly back commercial. Let the record show no hands went up.
GERSH: When asked, GM CEO Rick Wagoner did say his company was cutting back on advertising. There would be no glitzy $3 million Super Bowl ads from GM this season.
RICK WAGONER, CEO, GENERAL MOTORS: We're actually shifting a huge amount of our ad budget that remains to digital marketing, which is less expensive and more efficient. And I think it's fair to say, every part of our business is cutting back expenses dramatically.
GERSH: If they do get a government bridge loan, the big three have already divided it. GM would get $10 billion to $12 billion, Ford $7 billion to $8 billion and Chrysler $7 billion. But a better bet than handing over cash says economist Mark Zandi, would be a well-planned restructuring through a bankruptcy financed by government guarantees. If that happened, Zandi says consumers would still have a reason to keep buying from a bankrupt auto maker.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: Unless consumers believe these are viable companies and are going to be around for years to come, it doesn't matter whether you give them a loan or an equity infusion or send them into bankruptcy. It's not going to matter.
GERSH: GM and the United Auto Workers told Congress their labor costs will soon be as competitive as any auto maker in the United States, but that's not quote the case. By 2010, GM will be paying wages and benefits of $53 an hour. Toyota pays $48. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Prices Are Falling & So Is Consumer Confidence
SUSIE GHARIB: The weak economy is already impacting consumer prices. The government said today that its consumer price index plunged 1 percent last month, the most on record. The so-called core rate, which excludes food and energy prices, also fell unexpectedly for the first time in 26 years. As Erika Miller explains, while lower prices are welcome news for consumers, they could spell trouble for the economy.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For holiday shoppers, it's hard to see any downside to deep discounts. After all, it means great deals on clothing, toys, even groceries. Prices have also been dropping on airfares, automobiles and hotel rates, a boon for anyone thinking about traveling. And filling up your gas tank is also a lot less costly, leaving more money for other things. According to AAA, regular unleaded is now approaching $2 a gallon nationwide, down from nearly $3 a month ago. You might think all these falling prices would be great for the economy, enticing consumers and businesses to go out and spend. But economist Anna Piretti, does not think that will happen.
ANNA PIRETTI, SR. ECONOMIST, BNP PARIBAS: Because the unemployment rate is rising, we do not think that consumers are going to allocate the extra money they have from lower gasoline prices to actual expenditures. Consumers are likely going to allocate that to savings or to paying down their debt.
MILLER: Even worse, economists say it's no longer out of the question that there could be deflation down the road. That's a prolonged slide in prices, which has dire economic consequences.
PIRETTI: If consumers are expecting prices to be lower tomorrow than they are today, they are likely going to postpone any consumption. So, instead of purchasing a car today, they're going to wait for next month, because prices are going to be lower.
MILLER: Deflation conjures up images of the soup lines of the great depression and the so-called lost decade of Japan between 1995 and 2005. Although most economists do see a fairly painful recession ahead, Anthony Chan and others do not see anything close to those historic calamities.
ANTHONY CHAN, CHIEF ECONOMIST, JPMORGAN PRIVATE WEALTH MANAGEMENT: The level of stimulus today is quite impressive, whether it's from the monetary side or whether it's from the fiscal side. And when you put those amounts of stimulus together, I think it really does reduce the probability quite significantly that we're not going to approach those dire straits anytime soon.
MILLER: The danger of deflation is also the difficulty of a cure. Today, the Federal Reserve hinted it may lower short-term interest rates again in an effort to stimulate spending. But, many worry that won't help much, given the cautious mindset of consumers. Erika Miller, NIGHTLY BUSINESS REPORT, New York
"The Mississippi River"-The Shipping Route
SUSIE GHARIB: From its headwaters in northern Minnesota to its mouth in New Orleans, the Mississippi River remains the nation's pre-eminent inland waterway. This year about 300 million tons of grain, chemicals, coal and a variety of other commodities will travel up and down the river. In part two of our series "the Mississippi," Diane Eastabrook tells how the river has remained a popular shipping route despite challenges from other modes of transportation and Mother Nature.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's mid morning in Buffalo, Iowa and the crew of the tow boat Phyllis is headed south on the Mississippi River. Captain Ross Marcks is in the pilot house.
ROSS MARCKS, TOW BOAT CAPTAIN: We're coming from St. Paul and eventually the barges will end up in the Gulf.
EASTABROOK: It's harvest time and the Phyllis is towing 15 barges loaded with 22,000 tons of grain for export. But her cargo can vary from one trip to the next.
MARCKS: We haul quite a bit of scrap iron. We have a lot of fertilizer that comes north and believe it or not, we've got a lot of cement that gets loaded and dumped north.
EASTABROOK: Barges and the Mississippi River are woven into the fabric of American commerce. Farmers began moving grain on the river with log rafts 200 years ago. Steamboats replaced rafts and barges replaced steamboats. Mark Knoy grew up on the river. His father was a tow boat captain and he is president of AEP River Operations, one of the largest barge companies on the Mississippi. Knoy thinks barge traffic on the river is a good barometer of the global economy.
MARK KNOY, PRESIDENT, AEP RIVER OPERATIONS: We have to have a strong domestic economy and we have to have demand worldwide for our grain and for our manufactured products. So, we need a robust economy both domestically and internationally.
EASTABROOK: Barges are among the cheapest modes of transportation. A single barge can travel twice as far on a gallon of fuel as a train and five times as far as a semi truck. But despite that cost advantage, shipping volumes on the Mississippi River has been relatively flat for the past 20 years. Speed is part of the reason. Barges are slow. And on the upper Mississippi they must navigate through an old lock system that can add hours to a trip. Transportation expert Donald Sweeney says changes in export patterns and competition from other kinds of carriers have also derailed the barge industry.
DONALD SWEENEY, ASSOC. DIR., CENTER FOR TRANSPORTATION STUDIES: There is direct rail shipment to the west coast and then putting the agricultural products on a freighter and then hauling it to the far east that way, which is cost competitive with using this river system.
EASTABROOK: Then, there is the river itself. The Mississippi River is notoriously unreliable. In the winter, ice on the upper part of the river can close the river to barge traffic for months at a time. Then during the spring and summer, water levels can fluctuate so dramatically that shipping can come to a virtual standstill. Earlier this autumn, a freak flood halted shipping on parts of the upper Mississippi for several days. That put the brakes on activity at the tri city regional port district in Granite City, Illinois. Are you concerned that this stuff is sitting here today waiting to get out?
SHARON OWEN, GENERAL MANAGER, UNITED STATES STEEL CORPORATION: No, this is in the hot band form.
EASTABROOK: Sharon Owen runs U.S. Steel's Granite City works, which ships rolled steel out of the port. She admits snafus like this are an inconvenience for customers. But Owen says the Mississippi is a plus since her plant is just a few miles away from it.
OWEN: We usually choose our transportation by which is the safest, the most economical and then also with the logistics of our customer. And, for many of our customers barge transportation is what they prefer.
EASTABROOK: The Mississippi continues to attract many new businesses like Abengoa Bioenergy. The company is building an 88 million gallon ethanol plant at the port. Abengoa has about a dozen other plants in the Midwest, but project development manager Carl Lafoy, says being on the Mississippi is vital to the company's growth.
CARL LAFOY, PROJECT DEVELOPMENT MGR., ABENGOA BIOENERGY: It definitely opens up a couple of additional key markets for us especially down in the Gulf coast that we would otherwise have a very hard time competing with rail down there.
EASTABROOK: In his three decades on the Mississippi, Ross Marcks has watched the barge business ebb and flow like the river itself. He's optimistic he'll have a place in the pilot house for several more years.
MARCKS: I don't look for it to slow down enough that it's going to affect me. Heck, I've been out here for 30 years. If they don't want to hire a pilot with 30 years of experience, I might as well go home.
EASTABROOK: Diane Eastabrook, NIGHTLY BUSINESS REPORT, Buffalo, Iowa. Tomorrow, I'll tell you why the Mississippi River is threatening one of the nation's most valuable industries.
"Street Critique"-Patrick O'Hare, Chief Market Analyst at Briefing.com
JEFF YASTINE: With stocks at bargain levels, it's tempting to step in, but tonight's "Street Critique" guest warns you've got to do your homework. He's Patrick O'Hare, chief market analyst at briefing.com. Pat, welcome back to NIGHTLY BUSINESS REPORT.
PATRICK O'HARE, CHIEF MARKET ANALYST, BRIEFING.COM: Hi, Jeff, great to be back on the program.
YASTINE: First, give us your thoughts on the market especially with today's finale, the Dow below 8,000.
O'HARE: It's obviously not a good-looking market and it's really at a point where it's gut-check time. The leadership is just not there by any means across any sector. With the violation of that October low, it's likely to see a potential for some more meaningful selling pressure over the very near term here. So might not be pretty over the near term but again we're focused on long-term investing so, you know, so we're going to come to you tonight with some ideas as to how to stay grounded in that perspective.
YASTINE: You write briefing.com's bargain hunting column and you've prepared something of a six-pack of investor advice here for us. Give us the first one.
O'HARE: The first one is do something. Now this runs counter to the approach of doing nothing which hindsight has shown has certainly been a winning strategy the last three months. However Warren Buffett admonished his investors that cash is a terrible long-term asset that is certain to depreciate in value. So doing something now like buying a stock in a company that you've long admired but always thought was too expensive will at least provide you some psychological relief in the midst of counter- trend rallies that will occur here and will be material in nature.
YASTINE: Even though it's very hard for anybody to step in after the kind of headlines we're getting. Give us a second tip here.
O'HARE: Sure. We suggest wading in. Don't dive in. What we mean by that is that, you know, have to take an all-in approach when you do something in terms of buying a stock. If you just scale in to a position, what that does is it at least gets you some skin in the game so to speak, but it will reduce your anxiety in the event you see losses over the near term.
YASTINE: Now the third one on my notes here is buy what you understand. That sounds simple enough.
O'HARE: Right. There's cheaply priced stock across all sectors. This is a time to buy stock in companies whose businesses you understand versus of taking a flyer in the stock of companies you think might rally more in the event the market turns higher. But remember, you trade stocks and you invest in companies.
YASTINE: We're running out of a little bit of time here. But your next ones are seek compensation and apply your own discount. What do those mean?
O'HARE: Seek compensation is just looking for dividend payers. You'll get compensated to wait even if capital appreciation remains elusive over the near term. Applying your own discount, look for a stock whose consensus earnings estimate has been cut 10 percent and then reduce that by 20 percent. That will at least give you some confidence in the idea that you're buying the stock at a reasonable price if that reduction shows that the P/E multiple is still at a discount to the historical average of that stock.
YASTINE: We said there were six. What's the last one?
O'HARE: Right. The final one is you can diversify multiple stock holdings in a single holding by buying an exchange traded fund. If your financial resources or our risk tolerance is limited, the exchange traded fund gives you exposure to an asset class or a specific sector. And it also reduces the uncertainty of knowing whether you've actually picked the right stock within a specific sector.
YASTINE: Good tips as we go through these difficult times. Patrick, thanks for your time on the program.
O'HARE: Thank you, Jeff.
YASTINE: Our guest Patrick O'Hare, chief market analyst at briefing.com.
"Kevin McCormally's Tax Tips"-Cutting Your Losses
SUSIE GHARIB: With the end of the year approaching, we're thinking ahead to tax season. Here with part three of our year-end tips is Kevin McCormally, editorial director at "Kiplinger's Personal Finance." Tonight, Kevin looks at making the most of your market losses.
KEVIN MCCORMALLY, EDITORIAL DIRECTOR, KIPLINGER'S PERSONAL FINANCE: So far this year, the stock market has shed over $8 trillion in value. Imagine if all those losses showed up on tax returns next April. We'd save hundreds of billions of dollars in tax. But that's not going to happen. For one thing, a lot of those losses are inside IRAs and 401(k)'s, so they're not deductible at all. And even in taxable accounts, plummeting prices don't automatically translate to tax deductions. That only happens when you sell. And sometimes, dumping a beaten and bloodied stock produces a taxable profit. How's that? Remember, your profit or loss isn't the difference between peak value and what you sell for. It's the difference between the price you paid and what you sell for. Let's say you bought shares for $10 many years ago and they had soared to $50 a share when the market peaked last October. If you sell tomorrow for $15 a share, you feel that you've suffered a 70 percent loss. But in the eyes of the IRS, you have a 50 percent gain. That's why it's so important to carefully review the tax basis of shares in your portfolio when planning year-end sales. If you want to realize a loss for tax purposes to offset gains and up to $3,000 of other kinds of income, be sure to tell your broker or mutual fund which shares to sell to produce the result you're after. If you don't give specific orders, it's assumed you're selling the shares you have held the longest and if those shares have the lowest tax basis, the sale will produce a smaller loss or maybe even a taxable profit. You'll need written confirmation that you ordered the sale of specific shares. Something like, sell the shares from the lot purchased November 16, 2006. So be sure to ask for a letter or an e-mail confirming your instructions. I'm Kevin McCormally.
Paul Kangas' Stocks in the News
JEFF YASTINE: Investors also had a cautious mindset, giving the auto and financial stocks another drubbing in today's trading session. The Dow was dragged lower right from the start. Citigroup shares led the way down with a record one-day drop of nearly 23 percent, while GM shares fell almost 10 percent as those bailout hearings dragged on. The selling intensified after the release of the Fed minutes noting further contraction in the economy. In all, the Dow skidded 5 percent or 427.47 points to 7997.28. That its lowest close in over five years. The NASDAQ fell 96.85 to 1386.42. And the S&P 500 tumbling 52.54 to end at 806.58. In the bond market, Treasuries soared on flight to quality buying, the 10-year note rising 1 18/32 to 103 14/32, pushing the yield way down to 3.34 percent.
Citigroup (C) starting our list here, down $1.96 or about 22 percent. That's the largest one-day drop in Citigroup shares ever. The spread of credit default swaps for Citi widened considerably today. Citi said it will buy in the last of its toxic debt assets, about $17 billion held in structured investment vehicles. Those are 13-year lows for Citi shares.
General Electric (GE) dropped $1.61.
Bank of America (BAC) part of this weak financial group today, down more than $2.
JPMorgan Chase (JPM) dropping $3.67.
Target (TGT) shares plunged more than $3. One investment group, Pershing Square Capital wants Target to convert its land assets into a real estate investment trust. That could raise cash and allow Target to pay down some of its debt, but analysts are lukewarm to that idea.
ExxonMobil (XOM) off nearly $3. Crude prices dropped $0.77 to below $54 a barrel today.
Wells Fargo (WFC) dropping $2.80.
Wachovia (WB) dropping $0.69.
Johnson & Johnson (JNJ) losing $2.77. The American Hospital Association says more people are putting off costly medical procedures because of the economy, so now even defensive hospital medical device stocks are starting to get caught up in this market plunge.
Pfizer (PFE) dropped $0.73.
And there is Alcoa (AA) dropping $1.32. JPMorgan sees Alcoa posting a loss.
Turning to some other Dow stocks getting hammered today, Caterpillar (CAT), Dupont Co (DD), General Motors (GM) losing $0.30. The bail out hearings dragging on and GM shares plumbing (ph) new multi-decade lows.
IBM (IBM), United Tech (UTX) all doing quite poorly.
Here's Lincoln National (LNC), its lowest level there in over 20 years on the shares. Analysts at UBS putting investors on guard to the insurer's exposure to troubled variable annuities.
And there are more (INAUDIBLE) on the road in today's sell off, Ace Ltd (ACE), Hartford Financial (HIG), Principal Financial (PFG) all hitting multi-year lows.
LDK Solar Co (LDK) slid $1.92, excuse me, as the global credit crisis takes the shine off of solar wafer makers. Strong third quarter earnings, those weighed in at $0.05 above analyst estimates.
And La-Z-Boy (LZB) tumbled $1.79, its second quarter loss swelled to $1.04 a share. That's five times as high, excuse me, of a year ago levels.
And then Genesco (GCO) socked for more than $6. The shoe maker warning that November same store sales will fall at about 9 percent due to weakness at its Johnson and Murphy unit.
And with a cough and the NASDAQ there, Apple (AAPL) dropping $3.62.
Google (GOOG) shedding more than $17.
Microsoft (MSFT) dropping $1.33. Steve Ballmer says they're not interested in buying Yahoo! as the company, although they might consider a buy of Yahoo! search.
Research in Motion (RIMM) down $1.92.
Cisco Systems (CSCO) losing $1.37.
And we have Oracle (ORCL) dropping $1.02.
Baidu.com (BIDU) losing $17.
Intel (INTC) losing $0.62.
First Solar (FSLR) losing more than $9.
And Qualcomm (QCOM) down $1.80.
Then we have Dryships (DRYS), excuse me, losing $2.67. No specific news, but Greek ship owners told Reuters their industry is in panic mode right now. Ships are being leased for $150,000 a day early this year can now be rented for $7,000 a day.
And finally, Century Aluminum (CENX) shares tumbled $2.62. JPMorgan cut its rating on the stock after lowering its forecast for aluminum prices by more than 10 percent.
