NBR Transcripts- November 21, 2008
Friday, November 21, 2008President-Elect Obama Expected To Go With Federal Reserve Bank of New York President Timothy Geithner
SUSIE GHARIB: It appears President-Elect Barack Obama has chosen a Treasury secretary. Reports late this afternoon say he's Timothy Geithner, a top leader at the Federal Reserve and president of the Federal Reserve Bank of New York. Wall Street applauded the nomination. The Dow skyrocketed nearly 500 points. Joining us now with more, Washington bureau chief Darren Gersh. Hi Darren.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hey, Susie. When I talk to people about Geithner they use terms like all-star and they say people should sleep more soundly with him at Treasury. He earned that reputation as a key architect of the Federal Reserve's financial rescue plan and its point person to Wall Street. It's important to point out that this is also not Geithner's first crisis. He rose up through the Treasury in the Clinton years and his job was to handle tough negotiations during the Asian financial crisis. So in this sense, former Federal Reserve Governor Larry Meyers tells me there is no learning curve for Geithner. Now last March, Geithner was the one who helped engineer the bail out of Bear Stearns and he's ben an active player in decisions involving Lehman Brothers and AIG, so his nomination would put someone who has helped manage this crisis at the center of the Obama economic team. Perhaps most importantly, Geithner is considered pragmatic and willing to consider new ideas. I talked to Jared Bernstein, an economist who has worked with the Obama team and he adds that Geithner is close, but not too close to Wall Street.
JARED BERNSTEIN, SR. ECONOMIST, ECONOMIC POLICY INSTITUTE: He's been an international player. He's a person who's been on Wall Street with great knowledge of Wall Street banking, but not of Wall Street, never a Wall Street banker himself. In fact, his career has been exclusively in the public sector, the Federal Reserve, the Treasury, by the way, many appointments at Treasury before. So this is a guy who knows how things work public and private sector.
GERSH: Now, this is very interesting. There are also reports that Larry Summers, the former Treasury secretary under Clinton could be named an economic adviser to Obama and that would put him in position to be a possible successor to Federal Reserve Chairman Ben Bernanke when his term is up. So that's significant, because Geithner worked under Summers at the Clinton Treasury. Now we could know all this as soon as Monday. That's when it's expected that Obama will make an official announcement of his economic team, Susie. And Susie, I understand you know Geithner pretty well. What do you think?
GHARIB: You're right. I know Tim through our association of the Economic Club of New York. We're both trustees. My sense of him is he is very smart. He's also thoughtful. He's a good listener and he's humble. He's got this kind of honest humility about himself. He doesn't think--
GERSH: Very diplomatic.
GHARIB: .. he has all the answers. He is very diplomatic. But Darren, I'm wondering from the sources that you have been talking to, are there any criticisms about Geithner as Treasury secretary?
GERSH: I would say there are sort of two possible knocks, kind of criticisms, if you will. One is that he has been involved in this crisis from the get-go. So there could be questions about how much he has ownership over it. I think the second one is a little more subtle. He's known as a very brilliant team player, quite frankly, but he hasn't necessarily made his reputation as the idea man, the person who leads the ideas forward. That was Larry Summers and if Larry Summers is at the White House, you could have a question of whether there's kind of a shadow Treasury secretary out there.
GHARIB: That's very interesting. Now, what comparisons have you heard of what Geithner would be like as Treasury secretary compared to Hank Paulson?
GERSH: Much more pragmatic, none of the ideological baggage, more activist, more willing to use the government funds to fix markets.
GHARIB: All right. I guess we'll find out on Monday what happens. Thanks a lot, Darren.
GERSH: Thanks Susie.
GHARIB: Darren Gersh, Washington bureau chief.
Wall Street Rallies But Hasn't Recovered
PAUL KANGAS: As we reported, that Geithner news sparked a huge late day rally on stocks. But, one day they say does not make a recovery. As Suzanne Pratt explains, there are many factors still weighing on Wall Street.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: There's no question the stock market is suffering from a massive crisis of confidence and this week the sense of desperation on Wall Street reached a fever pitch. Confidence is a somewhat elusive quality. But, it's almost mandatory for the functioning of capital markets which are the underpinning of the U.S. economy. Today, many experts said naming Tim Geithner as the next Treasury secretary will help fill the confidence vacuum as it lifts some of the uncertainty overhanging stocks. But, they also say it will take much more to fully restore confidence on Wall Street.
ARTHUR CASHIN, DIR. NYSE FLOOR OPERATIONS, UBS: First of all from the stand point of the stock market, we need a couple of quiet days without a final hour massacre that we've been getting ever since November the 14th.
DAVID KATZ, CHIEF INVESTMENT OFFICER, MATRIX ASSET ADVISORS: We think very simply you need the credit markets to start doing better. We need the debt markets to start functioning better and we need to have a few week period where you don't have a run on a bank.
JOSEPH MCALINDEN, CHIEF INVESTMENT OFFICER, CATALPA CAPITAL: I think a lot of what we need is already in place. And, what I think you need to do is to get through what is very often a bad season when you've gone through a bear market, which is the fourth quarter.
PRATT: Let's say we get any or all of the things on those wish lists. How will investors know that the stock market has reached a bottom?
MCALINDEN: We won't know when the market has actually made a bottom to the day or even to the week. What I can tell you is that in the majority of bear markets in the past, the fourth quarter has been a period where bottoms have been put in.
KATZ: We will know we've reached a bottom about six to eight weeks afterwards when the market is about 35 percent higher. You definitely will not know that you've reached the bottom when you're reaching the bottom and that's the most important point for investors to remember.
PRATT: Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
The Citigroup Sell Off
SUSIE GHARIB: More worries today about the future of Citigroup. The big bank's shares hit a 16- year low as the board met to weigh options for its future. Erika Miller looks at what's at stake for the firm that was once the jewel in the crown of investment banking.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is a Citi under siege. But Wall Street is betting if Tim Geithner is the next Treasury secretary, the bank will survive. Citi shares recovered some ground this afternoon on reports of Geithner's nomination, although the stock still ended down sharply. Analysts say the immediate concern is a mass exodus of the bank's trading partners and customers. Standard & Poor's analyst Stuart Plesser says the turmoil stems from the Treasury's decision not to buy troubled mortgage assets as part of its rescue plan.
STUART PLESSER, BANKING ANALYST, STANDARD & POOR'S: The fact that the government changed its plan on the TARP program to now not buy distressed assets really hurt Citi in a large degree because the market for these securities has closed up and prices have probably come down even further, making it difficult for Citi to shed these assets.
MILLER: Given the current crisis of confidence at Citi, it seems remarkable that less than two months ago, the firm was viewed a possible savior for troubled Wachovia. Now the question is whether Citi will have to find a buyer for itself. All along, Citi has insisted it does not want to sell off pieces and that it has a solid business model and ample capital. Still the burning question remains: is bankruptcy a possibility? The government let Lehman Brothers fail. Would it be willing to let Citi collapse as well?
PLESSER: I don't think the government would like to see a bankruptcy of this magnitude in the financial space, particularly after what they are trying to do with all their TARP money. It would likely, if it comes to that, the government will need to move in and see what it can do to either broker a deal with someone else or put up money of their own or backstop some of the downside that the companies see in Citi.
MILLER: For his part, Ladenburg Thalmann analyst Dick Bove sees no reason Citi should fold. In a report today, he said quote, it would take a depression every bit as large and as long as the 1930s debacle to shake this company's viability. Unless the Treasury rescue plan changes again, analysts say the major problem in the sector remains: too many toxic mortgage assets and no one who will buy them. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
How FIT Keeps Its Portfolio Fit
SUSIE GHARIB: Turmoil in the stock markets around the world has sent many investors to the sidelines. But one investment club near Chicago is taking advantage of the market downturn and is buying stocks. As Diane Eastabrook reports this men's only club has used friendship and fortitude to endure market moves for two decades.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This monthly meeting of friends investing together known as FIT, begins with a reading of the treasurer's report. It reminds members how unkind the stock market has been recently. Just how does this investment club laugh off its losses? First, with camaraderie. Many in the group have known each other since they attended Chicago's Lane Tech High School 35 years ago. Second, with perspective. Five months after these value investors started FIT in May of 1987, the stock market crashed. Since then, they've watched the U.S. stock market seesaw through war, a terrorist attack and the dot-com bubble. To FIT, these were all great learning experiences.
JIM SCHIPP, FIT MEMBER: Today we can look at stocks that are down and hopefully buy them at the lower prices to give our portfolio a boost.
EASTABROOK: That became the mantra of this meeting. In August, FIT's portfolio reached a record high of $268,000. It has lost about 20 percent of its value since then. Still, the members have been adding money to the investment pool each month and are confident their holdings will rebound. What did you call the last couple of months? Would you call this a bump in the road or something more serious?
RAY GIESE, FIT MEMBER: Over a period of 20 years it's a bump in the road.
HUGH CALLALY, FIT PRESIDENT: It just amazes me how the market does these big swings, but if you go back and read the history it's slow and steady.
DAVE LEIDER, FIT MEMBER: As long as you're investing in good solid companies with good earnings, I don't see how you can lose.
EASTABROOK: Diane Eastabrook, NIGHTLY BUSINESS REPORT, Des Plaines, Illinois.
"Market Monitor"-Mark Leibovit, Chief Market Strategist For vrtrader.com
PAUL KANGAS: My guest "Market Monitor" this week is Mark Leibovit, chief market strategist for vrtrader.com. Welcome back to NBR, Mark, good to have you.
MARK LEIBOVIT, CHIEF MARKET STRATEGIST, VRTRADER.COM: Thanks, Paul.
KANGAS: Given the stock market's massive recent declines, do your technical indicators show signs that prices are close to bottoming out?
LEIBOVIT: Not at all. We're still in a bear market. I don't think until home prices turn up and until financial stocks show some life can we really call for a meaningful bottom. In fact, (INAUDIBLE) reversal analysis, we have a protection out of 6500 and we could get lower ones. My thought is, my thought, that said, Paul, is that when President Obama comes in, there's usually this 100-day honeymoon period and markets tend to do a little bit better, so come next year we might see a nice technical rally, but it could come from lower levels.
KANGAS: Let's look at your Dow forecast for the year 2008. We have it up. The chart is there. You made, the forecast earlier in the year in January and there it was. Pretty accurate in calling this recent decline, but it's not as severe as it turned out to be, right?
LEIBOVIT: It was a little early, calling for (INAUDIBLE) but basically the pattern was bear and now it's showing the possibility of some type of recovery, but I'm waiting for the other technicals to confirm before we start becoming bulls.
KANGAS: What investment strategy are you using in this highly volatile market environment?
LEIBOVIT: Basically, we're trading the market. You know, the volatility we've had, Paul, 1,000-point swings every day or two. I don't know how you can call yourself an investor if investors are uncertain. They should stay in cash and wait until the trend decidedly turns up. But as a bear, I would short the rallies or buy inverse ETFs.
KANGAS: OK, now you've been a very strong proponent of owning gold investments and although the precious yellow shot up sharply today, why hasn't it done better as a safe haven for investors?
LEIBOVIT: I think there's been some artificial moves here, de- leveraging by hedge funds, margin calls. There's a big discrepancy between the physical market and the paper market. It's almost impossible to buy coins and bars. There's hoarding going on out there. Basically, I think the function of the dollar has been strong. Interestingly today, the dollar broke out to new highs and gold was really strong. I think that's very positive, plus we got above the 775 resistance level which says we might be headed to 6 to 800, 850.
KANGAS: Let's look at your gold forecast for 2008 made back in January and there's that summer dip, which we had and now it's starting to rally again.
LEIBOVIT: You know we can come in on a Tuesday morning, Paul and it could be some coming Tuesday, and gold could be up $500 an ounce. I think we can break through 8, 850, we're headed to 1200 and ultimately to my big targets. So if it doesn't happen now, I would say accumulate the gold because this is your ultimate hedge. Gold will not go to zero. We've seen Fannie Mae go to zero and we can name a bunch of other stocks but gold will not go to zero. That's your ultimate hedge.
KANGAS: You're sticking by your forecast for over 3,000 long term.
LEIBOVIT: Yes, I think there's going to be some pegging of gold currencies like we saw in the Breton Woods (ph) agreement back in the '40s. It's coming. I can't obviously pinpoint the time.
KANGAS: All right. Your target price for silver was $50 per ounce. Are you still that?
LEIBOVIT: I think so, but given time, you'll see that take off as well. There's also talk that there's not enough physical silver for delivery at the Comax (ph). If that is really true, we could really take off.
KANGAS: We're down to one minute. Let's look at your April visit recommendations and how they've done since that time, Spider Gold, the gold trust (GLD) down about 13 percent, 46 percent drop in Silver trust (SLV). Are you still with them?
LEIBOVIT: Yes, I think this is, again, a function of the artificial de-leveraging in the market and this is temporary.
KANGAS: And Pan Am silver stock (PAAS) down 68 percent. Do you still like it?
LEIBOVIT: I got to buy it down here. You can't be selling it down here. I like the physical metal better. But let's go for the shares as well.
KANGAS: 30 seconds, a new recommendation or two.
LEIBOVIT: One I'm going to add is CEF, which is the Canadian central fund, central fund of Canada, that is. This has no third-party risk or counter-party risk like ETFs, like the GLD and the SOV. I would buy CEF as a combined silver and gold.
KANGAS: Do you personally own any of these securities mentioned or have other disclosures?
LEIBOVIT: Yes, I do own these securities.
KANGAS: Our time is up but I want to thank you for sharing your views with us once again.
LEIBOVIT: Thank you, Paul.
KANGAS: My guest Mark Leibovit of vrtrader.com.
Kevin McCormally's Tax Tips-Kid Size IRA's
SUSIE GHARIB: And this weekend is a great time to start planning your tax strategy for April. Wrapping up our series on year-end tax tips is Kevin McCormally, editorial director at Kiplinger's personal finance. Tonight, Kevin looks at the benefits of flexible spending accounts and IRA's for kids.
KEVIN MCCORMALLY, EDITORIAL DIRECTOR, KIPLINGER'S PERSONAL FINANCE: Let me close this series with two of my favorite year-end tax moves. If your employer offers a flexible spending account to pay medical bills, it's probably time to decide how much to set aside for 2009. Please, be aggressive, for your pocketbook's sake. Money you divert to a flex plan avoids Federal and state income taxes and Social Security and Medicare taxes, too. That can save you 35 percent or more compared with paying your medical bills with after-tax money. Sure, everyone knows about the notorious use it or lose it rule: the fact that if you don't spend flex money by a set deadline, you lose it. But the tax benefit of these plans is so powerful that you can forfeit a big chunk of the set-aside and still come out ahead. You don't want to forfeit a dime, of course, but don't shoot yourself in the foot by contributing too little. Finally, a tip for parents and grandparents. If you can afford it, consider helping your children or grandchildren fund an IRA. We know how difficult it is for young adults to set aside money for retirement. But the long-term power of compounding inside a tax shelter is just too awesome to ignore. Now, you know, a person has to have income from a job or self employment to have an IRA, but the amount that goes into the account can be a gift. Imagine that you give a struggling 20-something $2,500 for an IRA. Over the next 40 years, that could grow to over $50,000, if the investments earn 8 percent a year. And, if the market returns its historic long-term average of 10 percent, the account would hold over $110,000, all from your $2,500 seed. Better yet: if you choose a Roth IRA, it would be all be tax- free. What a gift that would be. I'm Kevin McCormally.
Paul Kangas' Stocks in the News
PAUL KANGAS: After two straight days of steep losses, Wall Street staged an opening snap-back rally which lifted the Dow 160 points at the outset of trading with the NASDAQ up 28 points. Then from a mid-afternoon fade and a 68 point loss in the Dow, the market took off on that news about Timothy Geithner. At the close, the Dow Industrial Average was sporting a gain of 494.13 points at 8,046.42. This week, it rose twice, fell three times, had a net loss of 450.89 points. The NASDAQ jumped 68.23 today to 1384.35. It also rose twice and fell three times this week, dropping 132 1/2 points overall. The Standard & Poor's 500 Index rose 47.59 points to 800.03 today and for the week, it fell 73.26 points. Over in the bond market, the 10- year note jumped 1 27/32 to 104 19/32, putting the yield at 3.21 percent.
The most active big board issue on 105 million shares was Citigroup (C) losing $0.94. You heard the story. The low today on the stock was $3.05.
Bank of America (BAC) a $0.22 gain.
JPMorgan Chase (JPM) $0.66 loss. Yesterday, the company said it's laying off 3,000 employees in its investment banking unit.
General Electric (GE) had a good day, up $1.19.
Wells Fargo (WFC) falling $0.77, fifth in volume.
Pfizer (PFE) moved up $1.22.
ExxonMobil (XOM) rebounding $7.30 after losing about $5 yesterday, but oil was up a little over $1 a barrel today.
AT&T (T) $0.68 gain.
Time Warner (TWX) moved up $1.05.
And then Motorola (MOT) with a $0.13 advance.
Hewlett Packard (HPQ) gained $2.81 after Goldman Sachs added it to its "buy" list.
And then General Motors (GM) edging up $0.18. The company will idle five North American plants to cut production. Also it's going to return two of its leased corporate jets. It'll still have three under leases. Then also late news today, Ford is exploring getting rid of some of its corporate jets.
Anglogold Ashanti (AU) glittered today, up $5.90. The company secured a $1 billion bridge loan buying it time to refinance so it won't be forced in a fire sale of its gold assets. New York December gold $791.80, up $43.10.
And look at some of the gold stocks that did rather well. Agnico Eagle (AEM), Barrick Gold (ABX), Kinross Gold (KGC), Goldcorp Gold (GG) and Newmont Mining (NEW) all major gainers as the precious yellow did well.
Nike (NKE) up $4.27. The company is boosting its quarterly dividend from $0.23 to $0.25 a share, kind of a note of confidence there.
Foot Locker (FL) down $2.14. Third quarter earnings, $0.18, down from $0.21 last year and $0.07 below the Street estimate. Same store sales fell 1.7 percent.
JM Smucker (SJM) having a good day, up $5.80. Second quarter earnings rose nicely to $1.02 from $0.91 last year, 19 percent increase in sales and Standard & Poor's repeated a "strong buy."
Alpha Natural Resources (ANR) rising $2.85. BMO Capital brokerage upgraded it from "market perform" to "outperform."
But Celanese (CE) moving down $0.86 and it traded as low as $5.71 after the company cut its 2008 outlook and Standard & Poor's downgraded it from a "hold" to a "sell."
Gap (GPS) up $2.59. Higher third quarter earnings, $0.35 from $0.30 last year, a penny above the Street estimate. Citigroup upgraded it from "hold" to a "buy."
NASDAQ's most active, Apple (AAPL) up $2.09.
Followed by Microsoft (MSFT) gaining $2.15.
Google (GOOG) in there with a $2.87 gain.
Cisco (CSCO) a $0.70 rise.
And Research in Motion (RIMM) rising $3.28. The company launched its new Blackberry touch screen phone called the Storm (ph) today and demand appears to be very strong.
Intel (INTC) $0.88 gain.
Oracle (ORCL) up $0.98.
Qualcomm (QCOM) $0.96 advance.
And then Amgen (AMGN) rising $4.77.
Gilead sciences (GILD), tenth in volume, was down $0.07.
And those are the stocks in the news tonight.
