NBR Transcripts -November 20, 2008
Thursday, November 20, 2008The Auto Maker Bailout Battle Evolves Into A Tug Of War Of Sorts
SUSIE GHARIB: The selling accelerated on Wall Street today. The Dow plunged 444 points, closing at 7552 and it's down almost a thousand points this week. The NASDAQ lost 70 and the S&P tumbled 54 points to its lowest level since 1997. Fueling the sell off: anxiety over the plans to rescue the nation's auto makers. Law makers couldn't reach a bailout deal today, but will try again, returning to Capitol Hill December 8. We have two reports looking at the latest developments for the big three and the mess on Wall Street. We begin with Stephanie Dhue in Washington.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Senate Majority Leader Harry Reid says today the votes aren't there to pass the auto makers' request for $25 billion in aid. The CEOs didn't do themselves any favors this week flying corporate jets to DC to ask for the money.
SEN. HARRY REID, MAJORITY LEADER: I know it wasn't planned, but these guys flying in their big, corporate jets doesn't send a good message to people in Searchlight, Nevada or Las Vegas or Reno or any other place in this country.
DHUE: At least six senators from both sides of the aisle thought they had the votes for a compromise plan. It would take the $25 billion already set aside for new auto technology and devote it to general use. But Reid and House Speaker Nancy Pelosi say there will be no deal unless the auto makers give Congress a plan outlining how the money will keep the industry alive.
REP. NANCY PELOSI, HOUSE SPEAKER: Until we see the plan, until they show us the plan, we cannot show them the money.
DHUE: Barclay's analyst Chuck Marr expects Congress to ultimately come up with the money for the industry.
CHUCK MARR, SENIOR POLITICAL STRATEGIST, BARCLAYS CAPITAL MANAGEMENT: They could not just afford to just go home for the year and take the chance that something would happen while they're out of session.
DHUE: But any money is likely to come with more strings attached. Missouri Republican Kit Bond had one suggestion.
SEN. KIT BOND, (R) MISSOURI: There are a lot of steps that the auto industry is going to have to take. One would suggest selling corporate jets might be one.
DHUE: Law makers have given the auto industry until December 2 to submit their plans. After that, there will be more hearings. Maybe this time, the CEOs will ditch their jets and drive. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Scott Gurvey in New York, where throughout the day, stocks rose and fell with the news coming out of Washington. Traders finally gave the day's events a big vote of no confidence. Strategist Milton Ezrati of Lord Abbott says the possibility General Motors will collapse is now sinking in.
MILTON EZRATI, SENIOR ECONOMIC STRATEGIST, LORD ABBETT: I think the market has factored in the possibility of bankruptcy and I think what the market is more concerned here is that there is no resolution. And right now I think the market would be happy yes or no one way or the other. And the fact that this thing is still hanging fire is what is weighing on stock prices.
GURVEY: But GM was just one of the factors as Wall Street finished the day well below recent closing lows. Shares of Citigroup fell under fierce pressure and the firm asked the SEC to reinstate the short selling ban on financial stocks. Energy shares plummeted on expectations of deflation and short-term Treasury bond yields fell to near zero as investors sought safety. Strategist Tony Dwyer says investors should stay defensive.
ANTHONY DWYER, EQUITY STRATEGIST, FTN MIDWEST SECURITIES: Our view is that investors should just stand aside for the time being. We think it's far too late to sell because when credit spreads are this wide, it's hard to suggest it's going to get even worse than the current global economic shutdown. But we also think it's a little bit too early to buy. You need to see the credit markets improve before investors are going to be willing to buy stocks.
GURVEY: Standard & Poor's reports the yield on the S&P 500 is now well above the 10-year Treasury yield. That indicates the need for a premium payout to offset the perceived risk in stocks. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The Journalists Weigh In on the Auto Bailout & Sliding Stocks
SUSIE GHARIB: Back now to our top stories: the auto bailout and those new stock market lows. I talked about that today with three prominent financial journalists: Floyd Norris, chief financial correspondent of the "New York Times"; Chrystia Freeland, U.S. managing editor of the "Financial Times" and Allan Sloan, senior editor-at-large for "Fortune" magazine. I began by asking Allan what he thinks is weighing on the markets.
ALLAN SLOAN, SR. EDITOR AT LARGE, FORTUNE MAGAZINE: A four letter word starting with an F, but it's fear. People are just scared to death something is about to happen.
GHARIB: Floyd, I saw a headline today, it said 101 blue chip stocks selling under $10 a share so what does that tell us about investor appetites to buy stocks?
FLOYD NORRIS, CHIEF FINANCIAL CORRESPONDENT, THE NEW YORK TIMES: There is very little appetite anywhere in the world right now. The stock, the United States stock market is doing better than most this year. We're only down.
GHARIB: Down 40 percent on the Dow.
NORRIS: We're down 40 some percent and that is better than Europe is doing.
GHARIB?: Look at Russia, look at Shanghai.
NORRIS: I hope you feel better now. But what is going on this week is that we have seen another crumble in the financial stocks and that is scaring people. They wonder who knows what. I think the problem started or was worsened by Secretary Paulson saying that he wouldn't have put any more money in this year. I think he may have to change his mind and certainly say he's willing to put more money in this year. And he may have to put a lot of money in quickly.
GHARIB: Chrystia, everybody is holding their breath like is there going to be another shocker to this financial crisis, another company that is going to fail.
CHRYSTIA FREELAND, US MANAGING EDITOR, FINANCIAL TIMES: I think Floyd has made the essential point. The new thing that has happened over the past 10 days since Hank Paulson's speech is people suddenly started to think, oh no, the financial crisis part of this may not be over yet. And we've seen that reflected in real anxieties in the credit markets, which have started to freeze up. We have big spreads there again, in the banking stocks, really, really being hit. And I agree with Floyd. I think that we may have to see very significant government action.
GHARIB: Well, we certainly saw Citi stock fall yesterday and then again today. Floyd though, this Saudi prince is buying up shares of Citi. That has got to be a vote of confidence for the financials.
NORRIS: Unfortunately he bought stock at a lot higher prices than now. But there should be a vote of confidence at some point from somebody. And I think it may take Paulson doing some more money to make clear that they are unwilling to let this go any further. Right now there is a lot of concern that a major institution could be in trouble.
GHARIB: And Allan there is real anxieties about the auto industry. Are these big three going to get the bailout?
SLOAN: The short answer is I don't know because everyone wants them to be bailed out but nobody wants them to do it. And it's now a total political question and if anything, GM has said about its financial condition is accurate. They haven't got a whole lot of time before they file regardless of whether there has been a deal.
NORRIS: It is remarkable to see how haughty GM and the other auto makers remain. They fly their corporate jets in.
FREELAND: Wasn't that astonishing that someone didn't say to them this is one meeting that you shouldn't take a private jet to.
NORRIS: Well, it is. And it's also astonishing that after it was done, they didn't apologize. They still feel like they are the kind of people who can have the money when they want it which they've always have been. And they feel like it's not their fault. And to some extent, it isn't. I mean we are seeing Toyotas and Mercedes pile up in parking lots now in Long Beach because the imports aren't selling. But they're in bad shape in Detroit and they need a lot of changes. And that's probably going to mean paying for the retirees and the workers and the shareholders and bondholders and a few groups I haven't thought of.
GHARIB: I know you guys are not in the prediction business, but I would like to get your sense because you cover the markets of when you think this selling is going to end on Wall Street. What do you think, Chrystia?
FREELAND: The truth is Susie nobody knows and I think something which has been particularly terrifying about this crisis is there have been various moments when people have thought OK this particular phase is over. We are now going to move into a recession, in the real economy. We are moving into a more predictable phase so I think there is a lot of fear and a lot of uncertainty and they are feeding on each other.
GHARIB: Allan, when did it go from fear to confidence?
SLOAN: Well, considering that I have taken three nibbles with my own money into the market and have been kicked in the teeth every time, I am now willing to concede that I don't know. But I hope it's soon. Because it's the ugliest market I have ever seen.
GHARIB: Do you agree with that, Floyd?
NORRIS: It is certainly the ugliest market I've ever seen. I think we're seeing people reacting to the fact that their 401ks are down so much and many of them have their houses down so much.
GHARIB: Right.
NORRIS: It is a terrifying thing at the moment. People who have come in have been like Allan, thought they were kicked in the teeth. One little thing we've got going for us now is that it is tax selling season and maybe, you know, heaven knows if you had a capital gain somehow this year, you could certainly find a way to offset it.
GHARIB: All right, we'll leave it there. Floyd, Allan, Chrystia, thank you so much for your time.
NORRIS: Thank you.
SLOAN: Thank you, Susie.
GHARIB: And that wasn't all Sloan, Norris and Freeland had to say about the economy, the markets and the bailout. For more of their insights, join us Thanksgiving night for our special: "From Bubble to Trouble: The Financial Crisis of 2008."
The Mississippi"-The Threat
SUSIE GHARIB: Protecting the environment is a growing concern for American businesses. It's also a growing concern for one of America's natural wonders: the Mississippi River. Farm chemicals and waste water pollute the river and levees disrupt its natural flow. Nowhere is that more evident than at the river's mouth in Louisiana. As we wrap up our series "The Mississippi," Diane Eastabrook reports the mighty river is now threatening a valuable resource.
EASTABROOK: Family business brings Steve Voisin and his son Jared, into Moncleuse Bay in Louisiana's bayou.
STEVE VOISIN, V.P., MOTIVATIT SEAFOODS, LLC: This is our livelihood. We've been at it almost 35 years.
EASTABROOK On this day the Voisins are checking oyster beds for damage caused by recent hurricanes.
S. VOISIN: You got a couple dead and a couple alive, more alive on that one.
EASTABROOK: The Voisin family has been harvesting oysters in this Gulf of Mexico inlet since the revolutionary war. Increasingly these days their business, Motivatit Seafoods, seems to be at war with Mother Nature. Hurricanes are one problem, the Mississippi River is another. Oysters thrive in a delicate balance of salt water and fresh water. In the bayou, the Gulf of Mexico and Mississippi River provide that equilibrium. But Steve Voisin says frequent flooding from the Mississippi upsets the oysters' ecosystem.
S. VOISIN: It spreads across the state where the oysters are growing and like this past springtime with the tremendous floods we had, killed a tremendous amount of oysters along the coast.
EASTABROOK: River flooding exacerbates a natural condition called hypoxia. It happens when algae decomposes and robs water of oxygen which marine life need to survive. There is now an explosion of algae growth in the Gulf's coastal waters. Scientists, like Nancy Robalais say the cause is crop fertilizer and waste water that flow into the Mississippi River from as far north as Minnesota.
NANCY RABALAIS, EXECUTIVE DIRECTOR, LOUISIANA UNIVERSITIES MARINE CONSORTIUM: One of the things we are finding now and we can correlate it with the increase over the last couple of years is increased use of fertilizers in the watershed for the production of corn for ethanol. And we see much higher nitrate, nitrogen levels in the river now than we did historically.
EASTABROOK: The result is a hypoxic zone which now stretches 8,000 square miles from the mouth of the Mississippi River in Louisiana to Texas. At risk is Louisiana's $2.5 billion seafood industry. Producers fear hypoxia could kill the state's oysters and drive shrimp and crawfish farther into the Gulf.
MIKE VOISIN, V.P., MOTIVATIT SEAFOODS, LLC: These oysters were harvested about a week ago.
EASTABROOK: Mike Voisin works with his brother, Steve at Motitvatit Seafoods and is president of the National Fisheries Institute, a non-profit group that promotes the U.S. seafood industry. Voisin says it is hard to put a dollar amount on the potential damage from hypoxia, but he's been bending ears in Washington about solving the problem.
M. VOISIN: Are people listening? Yes. Maybe not necessarily for us, but for the cumulative affect of what, you know, food that's produced in south Louisiana and the potential challenge to that food source could protect this country in case of some sort of a cutoff of imported foods because we eat a tremendous amount of imported foods.
EASTABROOK: The U.S. Environmental Protection Agency is also listening. Bryon Griffith heads its Gulf of Mexico program. He wants better controls over the pollutants that now stream into the river. Griffith says changes made in the Mississippi's flow are contributing to the pollution problems in the Gulf.
BRYON GRIFFITH, DIRECTOR, GULF OF MEXICO PROGRAM: It's channelized and it's levied to be a hypodermic needle injection into the Gulf. That did not happen previously. It naturally overflowed its banks and basically nourished these wetlands.
EASTABROOK: After a morning of checking oyster beds, Steve and Jared Voisin head back to shore. And despite the challenges of oystering, Steve remains optimistic about the industry that has been his family's livelihood for eight generations.
S. VOISIN: Our lord, Mother Nature has a way of, you know, bringing us back always. And it would only end if we would decide to get out of the business.
EASTABROOK: Scientists say it took Mother Nature 10,000 years to create the Mississippi River and man only 100 years to alter it structurally and environmentally. But they think the businesses and communities who depend on the Mississippi River have a better understanding now of how important it is to protect it, so they can continue using it for centuries to come. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Houma, Louisiana.
"Kevin McCormally's Tax Tips"-Clearing Up The Chaos
SUSIE GHARIB: Thanksgiving is just a week away, but we're looking ahead to tax season. Here with part four of our year-end tips is Kevin McCormally, editorial director at "Kiplinger's Personal Finance." Tonight, Kevin finds a silver lining in the market meltdown.
KEVIN MCCORMALLY, EDITORIAL DIRECTOR, KIPLINGER'S PERSONAL FINANCE: A great thing about taxes -- or at least a great thing for those of us who try to explain taxes -- is how incredibly complicated things are. Take the idea that's being promoted as a savvy year-end move: converting a traditional IRA to a Roth. The thinking is that the market meltdown lets you do this on the cheap. You have to pay tax now on every dollar you convert to a Roth. But if your traditional IRA has been battered by the market, there's less money to convert and therefore it costs less to make the switch and if your money is safely in a Roth when the market recovers, all that growth will be tax-free rather than simply tax-deferred. Now I'm a big fan of Roth IRAs and I believe conversions make sense if your income is under $100,000 and you can afford to pay the tax with outside money, rather than dipping into the IRA to pay the piper. But I'm not sure about the year-end advice. After all, if you convert in December, you have to pay the tax bill next April. If you hold off until January, you put off the tax bill until April of 2010. Now there is a way to have your cake and eat it, too. You can convert to a Roth now and watch how your investments do in the next few months. If you have made a handsome profit, stick with the conversion, pay the tax and root for a recovery. But if the market value falls between now and tax-return time, you can unconvert, changing the account back to a traditional IRA. That would eliminate the tax bill. The one drawback is that you'd have to wait 31 days to reconvert the account to a Roth. Again, please remember: I don't make the rules; I just try to point out the opportunities they create. I'm Kevin McCormally.
KANGAS: You can submit your tax questions to Kevin McCormally and learn more about the stories in tonight's broadcast on our web site. Just go to NIGHTLY BUSINESS REPORT on pbs.org, and look for the "tax tips" logo on our home page. You can also e-mail us at nbr@pbs.org.
Paul Kangas' Stocks in the News
PAUL KANGAS: Flight to any kind of safety, as seen by sharply falling bond yields undermined stock prices today. The Dow fell 142 points at the outset of trading, with the NASDAQ off 25 points. Rumors of an agreement on the auto bailout had the Dow up 110 points at midday, but late-day sell programs sent the market tumbling again. The Dow closed off almost 445 points at 7552.29. Then the NASDAQ down 70.30 at 1316.12, while the Standard & Poor's 500 Index fell 54.14 at 752.44. In the bond market, the 10-year note surged 2 27/32 to 106 9/32, putting the yield all the way down to 3.02 percent, a 50-year low.
Most active New York exchange issue on 72 1/2 million shares was Citigroup (C) down $1.69, even though Saudi Prince (INAUDIBLE) is going to boost his stake from about 4 percent to 5 percent. But there are concerns remaining whether the company has enough capital to withstand billions more in loan losses. That stock down 26 1/2 percent just today.
General Electric (GE) a $1.61 loss there.
And then JPMorgan Chase (JPM) losing $5.09, traded as low as $22.32. The company's going to lay off 3,000 of its investment banking employees; that's 10 percent of the staff.
Bank of America (BAC) down $1.81.
And Wells Fargo (WFC) fell $1.87 despite the fact that the Sandler O'Neill brokerage upgraded it from "sell" to a "hold."
Then Exxon Mobil (XOM) tumbling $4.91 as oil fell below $50 a barrel. The major oils all down. Let's have a look at the majors, BP Plc (BP), Chevron (CVX), ConocoPhililips (COP), Hess (HES) and Marathon Oil (MRO) all significant losses there.
Back to the active list with Pfizer (PFE) down $1.11. The company has withdrawn its bid to make its impotence drug Viagra available without prescription in Europe.
General Motors (GM), the only gainer in the Dow 30 today, up $0.09, but earlier in the day was down to as low as $1.70.
Time Warner (TWX) fell $1.07.
And then tenth in volume, AT&T (T) $0.72 loss.
Wal-Mart Stores (WMT) was down $0.34. The company plans to buy wind power from Duke Energy to supply up to 15 percent of its electricity in about 360 of its stores in Texas.
Major loser, Suntech Power (STP) down $3.54. Third quarter earnings dropped to $0.35 from $0.36 last year, but that was $0.07 below the Street estimate. The company cut its revenue guidance. Standard & Poor's down graded it from "hold" to a "sell."
Ashland (ASH) losing $3.60. It'll cut its quarterly dividend from $0.275 down to only $0.075.
Then a good percentage gainer, Doral Financial (DRL) up nearly $1 and it traded as high as $7.25 this morning after the B. Riley research firm issued a "buy," an upgrade from a "neutral" rating on Dora.
Transdigm Group (TDG), $0.63 loss, although it traded as high as $27.44 in the morning after reporting $0.78 in fourth quarter earnings, well above last year's $0.57. The company's an aircraft engineering firm.
Verifone Holdings (PAY) tumbling $2.65. The company cut its fourth quarter guidance from $0.33 to $0.36 a share in earnings down to only $0.18 to $0.20. JPMorgan downgraded it from "over weight" to "neutral."
And Gamestop (GME) down $3.06. Third quarter earnings, $0.34, up from $0.33 last year, but $0.03 below the Wall Street estimate.
Apple (AAPL) topped the NASDAQ's active, down $5.80. Some analysts are saying that the stock is losing the iPhone premium.
Google (GOOG) down $20.62.
Microsoft (MSFT) $0.76 loss there.
Cisco Systems (CSCO) down $0.61.
And Intel (INTC) fell $0.26 a share.
Research in Motion (RIMM) down $3.81.
Oracle (ORCL) fell $0.60.
Qualcomm (QCOM) dropping $0.80.
Amgen (AMGN) down $3.51.
Baidu.com (BIDU) a loss of $1.39.
Dell (DELL) closed $0.50 higher than what you see here in after hours trading when the company reported third quarter earnings, $0.37, up from $0.34 last year and $0.06 better than the Wall Street estimate.
Those are the stocks in the news tonight.
