NBR Transcripts-November 24, 2008
Monday, November 24, 2008Wall Street Rises on News of the Obama Economic Team & Citi
SUSIE GHARIB: Two big stories today, one big market move. First, Citi is getting more help from the government, in the form of a $20 billion bailout. Second, President-Elect Obama formally announced his economic team. Investors applauded the combination and sent the Dow up another 400 points. Obama's team will include Timothy Geithner as Treasury secretary and Larry Summers as the senior White House economic advisor. Without attaching a dollar figure, Obama also promised a large economic stimulus package saying he doesn't have a minute to waste. Washington bureau chief Darren Gersh has details.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president-elect would not play the numbers game, but it is clear he is thinking about a very large stimulus package for delivery in January.
PRESIDENT-ELECT BARACK OBAMA: We have to make sure that the stimulus is significant enough that it really gives a jolt to the economy, that is it putting people back to work, that it is making investments, that it is restoring some confidence in the business community.
GERSH: Worried that the economy is freezing up, business groups welcomed any hope of a thaw. At the Business Roundtable, John Castellani wants to see the new administration work fast to get consumers spending again.
JOHN CASTELLANI, PRESIDENT, BUSINESS ROUNDTABLE: What we are recommending is find a way to get as much cash in consumers' hands as quickly as possible. When you change the withholding tables that takes time to go through the economy. We've suggested something as radical as a holiday on withholding taxes for both consumers and employers.
GERSH: As expected, the president-elect tapped Tim Geithner to be Treasury secretary. Geithner has been a key player in the Federal Reserve's current financial rescue plans. Larry Summers will be director of the National Economic Council. He's a former Treasury secretary for Bill Clinton. Christina Romer is Obama's pick to head the Council of Economic Advisors. Romer is a scholar of the depression era. This is the team Obama says will sift through ideas to get the economy moving. While business groups praised the caliber of Obama's team, economist Dean Baker worries there are too many familiar faces.
DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC & POLICY RESEARCH: The problems that we have today, a lot of them originate in policies from the Clinton era, so, in particular the decision to deregulate the financial sector and people like Larry Summers were right in the middle of that.
GERSH: Obama also signaled a new flexibility on the timing of tax hikes on upper income Americans, saying his economic team would advise him whether that should happen next year or in 2010.
OBAMA: It is important if we are going to help pay for some of these expenditures that are absolutely necessary to get our economy back on track, that those who are in a position to pay a little bit more, do so.
GERSH: While he said he still wants to help the auto industry, Obama also argued Congress did the right thing in telling company executives to come up with a workable plan if they want taxpayer money.
OBAMA: I was surprised that they did not have a better thought out proposal when they arrived in Congress.
GERSH: President-Elect Obama warned the economic jolt he has in mind will be costly. We'll hear from him again tomorrow, as he outlines plans to make more room in the budget for some of his spending priorities. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Citigroup Gets Its Own Big Bailout
PAUL KANGAS: Shares of Citigroup skyrocketed today on news the struggling bank is getting more money from the Federal government. The package contains a $20 billion loan and pledge to buy billions of dollars in toxic assets. Citi's rescue is the latest government effort to contain the financial meltdown. Erika Miller looks at whether it will work.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: There's no doubt most investors are relieved by the Citigroup rescue plan. Many, including Mike Levine of Oppenheimer Funds believe it is a major turning point for the company and its stock.
MICHAEL LEVINE, PORTFOLIO MANAGER, OPPENHEIMER FUNDS: I clearly think they are a survivor. I think there's extra capital and the government guarantee puts that to bed. And, I think, when we get to the, when we get to the other side of this cycle, credit cycle, I think Citi will certainly have pretty dramatic upside from $6 a share.
MILLER: However, some analysts are questioning whether this latest lifeline will be enough. S&P analyst Stuart Plesser says it's possible Citi will need another government handout.
STUART PLESSER, BANKING ANALYST, STANDARD & POOR'S: The concern is -- and my concern as well - is that Citi has written a lot of bad loans and has a lot of bad assets. And the $300 billion could spread from there if credit deteriorates further and the government needs to come back in with another loan at a later date.
MILLER: There are also concerns about who will be leading the company. For now, CEO Vikram Pandit and the Citi board will remain in place. But analysts say it's possible Citigroup shareholders will demand a shake-up given the sharp decline in the company's stock price and the virtual elimination of the dividend. Investors are also angry that Citi's plan to buy Wachovia fell apart, because it would have bolstered Citi's deposit base. In Washington, President Bush warned there could be more bailouts ahead.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: And if need be we're going to make these kind of decisions to safeguard our financial system in the future.
MILLER: But most analysts don't see any other big banks in immediate need of funds.
PLESSER: These other financial companies are not in that kind of level of stock sell off that Citi shares were at. So unless they're desperate or at the last gasp where Citi was at this stage, I don't see them coming immediately saying we need some money as well.
MILLER: But that could change if the economy deteriorates. Experts worry about deeper asset write downs which could mean deeper trouble for bank balance sheets. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
The Art of the Car Deal In Challenging Financial Times
PAUL KANGAS: For many U.S. car dealerships, problems in the auto industry could mean the end of the road. So, dealers are getting creative and offering unusual incentives to drive sales. Take for example, the buy one, get one free offer now up for grabs at one south Florida Dodge showroom. As Jeff Yastine explains, that's not the only strategy dealers are trying these days.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: We've all seen plenty of dealer promotions. But this one is a topper: Two, two, two for the price of one. That's what it's come to for dealers like this one, a Dodge showroom in Davie, Florida. Sales manager Ali Ahmed says it's aimed specifically at his inventory of pickup trucks and here's how it works: Buy a full size $40,000 vehicle and get a cheaper, basic pickup as well. The idea is to get disinterested tire-kickers to become interested buyers.
ALI AHMED, SALES MGR., UNIVERSITY DODGE: It's tough. It's very tough. What you have to do is you have to get creative. You have to get creative with ideas, kind of like this one. You just have to be on your feet. You got to be a good operator. You got to know what you're doing.
YASTINE: Indeed, because some dealers have gone bankrupt after extending too many car loans to too many bad-credit customers. Nationwide, the National Automobile Dealers Association expects 700 dealers to close their doors by year-end. That's one of the largest one-year declines on record in the ranks of new car dealers, which have been steadily eroding for years. Most dealers say the credit situation at least has improved. In September, almost no one could get financing for a car. Now, if you have good credit, you can get a car loan. The only problem, no one's interested in buying a new car when so many people are worried about keeping their jobs. High-end dealers are adjusting to the new reality as well. Lexus sales are off 40 percent from year-ago levels. But Jim Dunn, general manager of one of the largest Lexus dealerships in the nation, is taking the slowdown in stride.
JIM DUNN, VP/GENERAL MGR., JM LEXUS/MARGATE, FL: I'm not surprised by it at all. I think we've come to expect it. But this happens occasionally in our business. There have been peaks and valleys and it's going to come back up again. Everybody here is optimistic. I think the morale here is very strong.
YASTINE: Still, the dealership has pared back staff through attrition to improve efficiency. It's also keeping customer service a top priority. And that's a key theme among dealers, make sure existing customers stay happy because no when knows when new customers will feel comfortable enough to start buying again. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
"Get Your Finances Ready for Retirement"-Expect the Unexpected
SUSIE GHARIB: It's tough to plan for retirement or plan while in retirement when things are volatile in the stock markets and the economy. But it's tougher when you hit bumps in the road, expenses that are totally unexpected. Having a plan B can help you get through those times. As we continue to help you, "Get Your Finances Ready for Retirement," Connie Hicks reports that for retirees, the unexpected can take many different forms.
CONNIE HICKS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Frank and Hazel Peters, the unexpected turned out to be their water system. Living in rural, northern Florida, the Peters must use ground water in their home. That was never a problem, until their water purification system failed.
HAZEL PETERS, RETIREE: Here we have a beautiful house, we had a home that we've always wanted that we have never had before and then you have this water system that we had to constantly boil our water.
FRANK PETERS, RETIREE: Now we go to the back of the house where the pump pumps the water to the softener.
HICKS: Even after replacing the water system twice, problems continued. And with no way to pay, the Peters ended up thousands of dollars in debt.
F. PETERS: Spending money like crazy, more than I need, money I didn't have to spend.
HICKS: For another Floridian, Ruth Scher, the unexpected was maintenance costs on her Delray Beach condo, up almost 700 percent since she moved in 30 years ago. Then two years ago, another unexpected event. She took a fall, breaking her clavicle. Worried she might fall again, Scher wants an alert system that could summon help. But it costs $300 to set up and then there are the monthly fees.
RUTH SCHER, RETIREE: One type of choice is $50 a month and another one is $60. The $60 gives you a better way for the people will get to you, it's like a telephone.
HICKS: Scher and the Peters had something in common. They were financially stretched and didn't have the funds to cover emergencies. But if possible, many financial planners suggest having between three months to a year's worth of living expenses in reserve for just that purpose. Former educators David and Cindy Farah are savers by nature and had set aside emergency funds. That helped when their condo assessed each owner $5,000 to reinforce the units' balconies.
DAVID FARAH, RETIREE: Fortunately we had the money in the bank. And we heard that that some of the people had to take loans out in order to pay the $5,000, so we're just very fortunate that we plan ahead.
HICKS: Common, unexpected expenses in retirement can include: illness, a parent who needs to move in or an adult child who decides to return home and substantial home repairs. Financial planner Ellen Siegel says if you sense a big expense is on the way, try to start saving up for it.
ELLEN SIEGEL, CFP, ELLEN R. SIEGEL & ASSOCIATES: Absolutely, you should do it. And a good way to do it so you see that pot growing, that pot of money growing, would be to allocate a little bit of every piece of income that comes in to your contingency fund, your emergency fund.
HICKS: Financial analyst Jeffrey Helms has written a book on expenses in retirement. He says using your long-term investment should be a last resort.
JEFF HELMS, CFA, FIRST COAST FINANCIAL ADVISORS: If you have an unanticipated expense and you have to tap into your long-term retirement savings, look at the consequences of that when they're low. The consequences of them are that you may very well run out of them.
HICKS: Because you may need to get to emergency funds quickly, Helms suggests putting them in money market accounts, bank certificates of deposit or high-yield savings accounts. Ruth Scher hopes to sell her condo and move north where she has relatives. The Peters had to get an attorney to get them out of their financial predicament. As for the Farahs, they're in the enviable position of using their reserve funds for pleasant unexpected expenses, like helping their son buy a house. Connie Hicks, NIGHTLY BUSINESS REPORT.
"Commentary"-Giving The Auto Industry A Jump
SUSIE GHARIB: In tonight's commentary, how to jump start the auto industry. Here's Mark Zandi, chief economist at Moody's economy.com.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: The auto industry needs help and the government should provide it, but it must be the right kind of help. Without government aid, the big three will almost surely end up in bankruptcy, the kind of bankruptcy where they won't come out. It would be an effective liquidation and their operations shutdown. This would be disastrous for the sliding economy. The big three employ some 250,000 Americans, but 2.5 million jobs would be immediately at risk. Hundreds of thousands would lose their jobs when the economy is set to lose several million. What to do, pre-packaged bankruptcy with the government guaranteeing the financing for the big three in bankruptcy. The guarantee would ensure an orderly restructuring of the firms and not their liquidation. The bankruptcy court would force the changes needed to make the big three viable companies again. It is reasonable to worry that if the big three go bankrupt, people won't buy their cars. Who wants a car from a company if they aren't around to service it? Unfortunately, there is no better way to ensure that the big three will be around than if they are significantly overhauled in bankruptcy. Bankruptcy for the big three would also signal to any other industry contemplating asking taxpayers for help. They're much less likely to if it means bankruptcy for them. I'm all for an aggressive government response to this crisis. The economy needs a big fiscal stimulus plan and a comprehensive foreclosure plan, but the government's resources are not unlimited. This is Mark Zandi.
Paul Kangas' Stocks in the News
PAUL KANGAS: Impressed by how sharply European markets rallied on the Citigroup news, Wall Street joined the bullish stampede as the Dow vaulted 333 points by noontime today with the NASDAQ jumping 65 points. After a brief and mild pullback, the market came on strong again in a vote of confidence in the new Obama economic team. At one stage the Dow was up 550 points, but it then retreated moderately late in the day. But the Dow Industrial Average still closed up 396.97 points at 8443.39. The NASDAQ was up 87.67 closing at 1472.02, while the Standard & Poor's 500 Index rallied 51.78 points to close at 851.81. In the bond market, the 10-year note fell 24/32 to 103 18/32, putting the yield at 3.33 percent.
Not surprisingly, by far the volume leader on 88 million shares, Citigroup (C) up $2.18. You heard the news and the stock closed almost 58 percent today.
General Electric (GE) doing well, up $1.23.
And then JPMorgan Chase (JPM) in the strong financial sector, up $4.86.
Bank of America (BAC) rose $3.12.
Wells Fargo (WFC) participating with a gain of $4.26.
ExxonMobil (XOM) up nearly $3 as oil jumped about $4.50 a barrel in New York today.
Pfizer (PFE) a $0.37 gain.
AT&T (T) rose $1.75. The company signed a new three-year contract to provide integrated network solutions for Indianapolis Power & Light.
Time Warner (TWX) in there with a $0.40 loss.
And then the big Brazilian petroleum firm, Petro Brasil (PBR) up $1.91 on the higher oil prices in New York.
US Bancorp (USB) up $2.57. The company is acquiring the banking operations of Downey Savings and Loan and PFF Bank and Trust, positive reaction to that news.
A major loser, Landamerica Financial (LFG) losing 80 percent, 88 percent of its value on news that Fidelity National Financial has terminated its merger proposal, which was originally $125 million in stock or a little over $8 a share for Landamerica shareholders. FNM was up $0.96.
Target (GT) up $2.36. After evaluating various real estate structure ideas proposed by Pershing Square, the company decided not to pursue them, positive reaction on that news.
Campbell Soup (CPB) fell $2.75. First quarter earnings excluding one-time items, $0.77, up from $0.69 last year, a penny above the Street estimate, but profit margins during the period fell by 2 percent. That didn't sit well with investors at all.
Cigna (CI), big insurance company, up $1.60. Citigroup upgraded it from "sell" to "hold" on a valuation basis.
And then Genentech (DNA) up $3.92. The company said its phase three study of its product Avastin in combination with some other drugs improved the survival time of breast cancer patients.
Xerox (XRX) was up $0.94, almost 18 percent rise there. The company sees fiscal 2009 earnings between $1 and $1.25 a share and it said it has no need to access capital markets in the foreseeable future.
On the down side, Cooper Industrial (CBE) dropping $1.75. The company sees fourth quarter earnings below its previous guidance of $0.83 to $0.92 a share.
And Valspar (VAL), the paint and coatings company up $2.23, higher fourth quarter earnings, $0.42, up from $0.38 last year. Sales were up a respectable 8.3 percent.
And then Alpharma (ALO) jumping $2.69. King Pharmaceuticals will acquire the company for $37 a share in cash.
Volume leader on NASDAQ as it usually is, Apple (AAPL) up $10.37, nice rally there.
But Google (GOOG) didn't participate, down nearly $5.
Microsoft (MSFT) $1.01 gain.
Research in Motion (RIMM) up $0.46.
Similar advance in Intel (INTC), fifth in NASDAQ volume.
Cisco (CSCO) up $1.23.
Oracle (ORCL) gained $0.26.
Qualcomm (QCOM) rising $2.65. The Stiefel Nicolaus brokerage upgraded Qualcomm from "hold" to a "buy."
Amgen (AMGN) rising $1.09.
And then tenth in volume, First Solar (FSLR) up $19.81, doing very well.
As did Omrix Biopharmaceuticals (OMRI) jumping $3.63 on news that Johnson & Johnson will acquire the company for $25 per share in cash.
And those are the stocks in the news tonight.
