NBR Transcripts -November 26, 2008
Wednesday, November 26, 2008Wall Street Rallies Despite a Lack of Consumer Confidence
SUZANNE PRATT: Investors gobbled up stocks for the fourth straight day as the major averages posted big gains ahead of the Thanksgiving holiday. The Dow surged 247 points and the NASDAQ jumped 67 or more than 4.5 percent. The rally came despite a slew of weak economic reports out today. Orders for durable goods tumbled more than 6 percent last month and new home sales fell sharply. Meanwhile, personal income rose slightly in October, but as Scott Gurvey reports, consumer spending and sentiment plummeted
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pre-holiday shoppers today had to cope with another set of dreadful economic reports, consumer spending marking the biggest decline since the 9/11 attacks, consumer sentiment down to a 28-year low. Business spending on durable goods down twice as much as economists had expected. Economist Kathleen Stephansen says these are reports only a Grinch would enjoy.
KATHLEEN STEPHANSEN, ECONOMIST, CREDIT SUISSE: This theme that the economy hit a brick wall in October seems to be continuing into November and I think that's the reason why you've seen such an aggressive response from policy makers.
GURVEY: The problem with policy responses is that most will require months to take effect. Economist Julia Coronado expects the downturn to continue well into next year.
JULIA CORONADO, SR. ECONOMIST, BARCLAYS CAPITAL: Right now you've got a lot of consumers putting off purchases of say cars or other big ticket items, because they can't get credit, number one and number two, they might not even want to do that kind of spending right now given the uncertainty.
GURVEY: One rare encouraging sign is being seen in the mortgage market where Coronado notes recent Federal Reserve actions have rapidly lowered interest rates.
CORONADO: The Federal Reserve at least has moved into a very aggressive phase. They understand this is a psychology game and so they're just -- they're pulling out all stops and unleashing as much as they can into the markets to really change that psychology and send the message that they're going to do whatever it takes to get these markets moving again. And I think they had a big impact on markets this week and we are likely to see more of that from them.
GURVEY: There have been some critics complaining that there will be a price to pay for all the stimulus in place or yet to come. But Stephansen says these fears are premature.
STEPHANSEN: A lot of people are alluding to, isn't this inflationary? It would be highly inflationary if economic growth is converging back to potential and absorbing all the excess capacity that has emerged. But at the moment that's not on the radar screen. We still are in the phase where the patient is still very, very sick.
GURVEY: Most economists predict another shock to the national psyche next week when the employment report for November is expected to show the largest decline in many years. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
President-Elect Obama Invokes Paul Volcker To Save The Economy
SUZANNE PRATT: President-Elect Obama has selected one of the most experienced men in the financial world to keep his economic policies on track. Former Federal Reserve Chairman Paul Volcker will head a new panel of outside experts charged with critiquing the president's economic plans. Volcker will get help from Austan Goolsbee, the University of Chicago economist who was an early Obama adviser. Darren Gersh looks at the Obama team's new addition.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Paul Volcker made his name in the 1980s as the Federal Reserve chairman who loved cigars and did not suffer fools lightly, which is part of the reason President-Elect Barack Obama said he was calling on the 81-year old economist to head up a new president's economic recovery advisory board. Modeled after a board that oversees intelligence policy, Volcker's panel will offer what Obama called candid and unsparing criticism of his administration's economic plans.
PRESIDENT-ELECT BARACK OBAMA: The reality is that sometimes policy making in Washington can become a little bit too ingrown, a little bit too insular. The walls of the echo chamber can sometimes keep out fresh voices and new ways of thinking. You start engaging in group think.
GERSH: Economist William Niskanen worked with Volcker in the mid-'80s and says Obama should expect any group think will be challenged in blunt terms. Niskanen says that separates Volcker from some of the other men who've run the Fed.
WILLIAM NISKANEN, CHAIRMAN, CATO INSTITUTE: Alan Greenspan has a record of mumbling in public when he doesn't want to talk. I've never heard in any circumstance Paul Volcker to mumble.
GERSH: Volcker is widely credited with taming inflation in the late '70s and early '80s, even at the cost of sending the economy into a deep recession. That policy hurt Volcker's relationship with President Jimmy Carter. Economist Jared Bernstein advised Obama during the campaign. He says Volcker's credentials as an inflation hawk will be an asset to Obama.
JARED BERNSTEIN, SR. ECONOMIST, ECONOMIC POLICY INSTITUTE: Paul Volcker is this big, hunking guy and when inflation sees Paul Volcker, it runs the other way. He beat it up pretty good back there a couple of decades ago and that was not a message lost on Obama.
GERSH: Niskanen says Volcker's advice will be most needed if and when it comes time to take out the hundreds of billions of dollars the Federal government has pumped into the banking system.
NISKANEN: We face either the prospect of high inflation or for a period of time, very high interest rates to keep all of those reserves from showing up in inflation. And he'll be good advice on that matter.
GERSH: Obama's views on his administration have been shaped by the team of rivals approach Abraham Lincoln took in setting up his cabinet. With Paul Volcker now on the team, Obama has guaranteed he'll be refereeing many economic debates over the next few years. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS: Tonight's "Street Critique" guest says in one way, individual investors have a leg up on institutional investors in a market like this. She's Hilary Kramer, chief market strategist at Greentech Research and author of "Ahead of the Curve". And Hilary, welcome back to NBR.
HILARY KRAMER, CHIEF MARKET STRATEGIST, GREENTECH RESEARCH: Thank you, Paul. Thank you for having me tonight.
KANGAS: Before we get to your assertion, we now have four consecutive trading sessions on the up side which added a total of 1174 points or 15 percent to the Dow. Is this rally sustainable?
KRAMER: Paul, I wish it were sustainable. I wish the Dow and the S&P would go all the way back where they were beginning of the year, but it's not possible, because what's happened is, our Federal government has thrown $1 trillion at banks so banks can still exist, but it hasn't trickled down to the consumer. We as consumers still have a lot less money, concerns about unemployment, decreases in our home value prices and that is what translates into lower stock prices ultimately.
KANGAS: Too many uncertainties, as simple as that I guess and the market doesn't like that. Which sectors are you watch that might change your mind?
KRAMER: I'm looking at are some of the retail sectors, consumer discretionary and I'm concerned about those. I think after the holidays, we may actually see a few bankruptcies in some specific names. Companies are going to do the best they can to make it through, but slash prices too much and just don't have enough revenue.
KANGAS: Now let's get back to your thoughts on individual investors. Do you think they can beat the Wall Street pros when it comes to stock picking in this market. Why is that?
KRAMER: Absolutely. Well first of all, the institutional investor has just been spun around and doesn't even know which direction to go in. The market starts going up and they start all going back up again and it's all about technicals and over sold and everything anyone's ever known has just been thrown out. So when it comes to an individual investor, the individual investor has such a leg up because an individual investor they can take a look at the stores, take a look at restaurants, leisure, casinos, gaming, hotels and make a decision. Are there people buying? Are there people in the parking lot? What's really going out there? Wall Street doesn't know any more. Wall Street, all the rules have changed.
KANGAS: OK. Fair enough. You mean analysts don't do things like that. They just stay in their offices and look at charts?
KRAMER: Well, they've been doing that for the last few months because everything is chaotic. There's also been a tremendous number of layoffs and those that used to manage portfolios aren't doing so any more and so there's been a disconnect with reality. They used to call it channel checking, checking the stores, but a lot of analysts these days are staring at the screen in wonderment.
KANGAS: So you're saying there's no substitute for doing your homework when it comes to bottom fishing in this market, get out there.
KRAMER: That's absolutely right.
KANGAS: Get out there and kick the tires, right?
KRAMER: Right. And what you see where you see a lot of people, it was very obvious, McDonalds was doing a great, great business in this market and look how it's reflected into the stock price in a good positive way.
KANGAS: Very interesting observation Hilary and I want to thank you for sharing your insights with us once again.
KRAMER: Thank you, Paul, thank you for having me.
KANGAS: My guest, Hilary Kramer, author of "Ahead of the Curve."
Donations Are Down Entering The Season Of Giving
SUZANNE PRATT: With the holiday season kicking off tomorrow, charitable giving comes into focus for many people. But as Jeff Yastine reports, in this year of economic turmoil with bailouts and bankruptcies, charities are worried the public won't be in a giving mood.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: At holiday food giveaways like this one, you see the economy's story etched on their faces. Some people have lost jobs. Others, like Maddie Lane, find a Social Security check only stretches so far and she's not waiting until Thanksgiving to eat her free turkey.
MADDIE LANE, FORT LAUDERDALE, FL: When you get your Social Security check and you don't have any food, you got to use some of that to get a little something to eat. And then you can't pay your bills. A Social Security check is not that much.
YASTINE: Have you gone without eating?
LANE: Yes, I have a lot of times.
YASTINE: But charities that typically offer help are being squeezed as never before.
BRUCE HARRIS, DIR. OF DEVELOPMENT, THE PANTRY OF BROWARD CO.: This is where we have the boxes lined up for Thanksgiving food. The corn, the beans, the onion rings, the pumpkin pie, et cetera, et cetera.
YASTINE: Bruce Harris sees it at the Pantry of Broward, a south Florida food bank. Food donations are coming in, but not as much as he expects during the holidays.
HARRIS: This will give you an idea here. We were hoping at this time of year, to be up at 16,000 pounds.
YASTINE: This is how much you've raised so far in terms of tonnage of food?
HARRIS: In general giving this year is way down from previous years. Part of it I think is the psyche that in general the public is in. This roller coaster ride where our nest eggs have been turned into fried eggs. We don't know what's coming and so people are pulling back.
YASTINE: Most charities take in about a quarter of their annual donations during the holidays. So shortfalls impact any organization's yearly goals. One recent study found that during recessions, giving fell about 1 percent when adjusted for inflation. And if there were eight months or more of recession in a calendar year, then giving fell about 2.7 percent. Nadia Scales-Blue doesn't need a study to see that giving is slowing. She sings a little and rings her bell a lot next.
NADIA SCALES-BLUE, BELL RINGER, THE SALVATION ARMY: I'm addicted to my bell. You can tell that it's hard on them to donate and they'll stand next to the bucket for a while sometimes and count out their pennies and their change.
YASTINE: It's not just that donations are down. Many charities like the Salvation Army also have endowments which help to support their operations. And those endowments are usually heavily exposed to the stock market. Area Salvation Army commanders like Tom Louden say that translates to losses of 20 to 30 percent.
TOM LOUDEN, AREA COMMANDER, THE SALVATION ARMY: The endowments have really served to bridge the gap in past times when needs have increased and the stock market has been strong, we could depend on that type of income. But now that income has basically disappeared for us for the foreseeable future.
YASTINE: Which makes the job of charities that much tougher. More people looking for help and less money around to provide it. Jeff Yastine, NIGHTLY BUSINESS REPORT, Fort Lauderdale.
"Money File"-The Price of Thanksgiving
SUZANNE PRATT: In the "Money File" tonight, giving thanks. Here's Chuck Jaffe, senior columnist at "Marketwatch."
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: With the economy in turmoil and the stock market in crisis, many Americans are having a hard time being thankful for anything this Thanksgiving. They're dreading holiday shopping on a tight budget and feeling pinched and nervous every time they open their wallet or turn on their television. Well, my parents always taught me to be thankful for small things, so here's a little something to cheer you up: the average cost of a classic Thanksgiving dinner for 10, including turkey, stuffing, cranberries, pumpkin pie and all the trimmings is just $4.46 per person according to the American Farm Bureau Federation, which has done a national survey of Thanksgiving costs since 1986. While the $44.61 you'll spend on the big dinner is up slightly more than 5 percent from last year due to cost increases in every item except for milk, it still represents what may be the best deal of the holidays, assuming you have good relations with the friends and family that fill up the table. It's your low-cost reminder that time well spent with those we love, is more valuable than money well spent. And so, while our money may be shrinking in the stock market for the time being, good times remain as priceless as ever. Besides, at $4.46 per person, Thanksgiving dinner remains cheaper than the bargain-menu meals at most fast-food restaurants. So if you're still searching for something to feel good about, maybe it should be that for all the fuss and preparation, Thanksgiving, on average, remains the ultimate value meal. I'm Chuck Jaffe
PRATT: Paul, you know what I'm thankful for? I'm thankful that the market is closed tomorrow.
KANGAS: Well, after a rally like today, I don't know why. It was a good one.
PRATT: Maybe I'm crazy. That's true. That's true.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street started the day on the downside, but it didn't end that way. The Dow fell 130 points at the outset as recession fears were revived by that tumble in new home sales and the sharp drop in October durable good orders. Growing bailout hopes rallied the auto stocks though and the tech sector joined in to lead a steady rise in the market as stocks went on to post their fourth straight winning session. The Dow Jones Industrial Average closed up 247.14 at 8726.61. It's now up 15.5 percent in just the last four trading sessions. The NASDAQ Composite jumped 67.37 points today to 1532.10, while the Standard & Poor's 500 was up 30.29 ending at 887.68. In the bond market, the 10-year note gained 1 3/32 to 106 17/32, putting the yield all the way down to 2.99 percent.
Big board volume leader on 42 1/4 million shares, Citigroup (C) moving up $0.97, good percentage there. Mexican business tycoon Carlos Slim has acquired 26 million shares of Citigroup. That's about $150 million worth.
Then Bank of America (BAC) with a $0.63 gain. The Federal Reserve has approved the company's acquisition of Merrill Lynch.
Ford (F) moving up $0.49. That's a 29 percent rise. Deutsche Bank analysts say the chances for an auto industry bailout are improving.
General Electric (GE) rose $0.42.
ExxonMobil (XOM) up $2.78.
General Motors (GM) gained $1.25 in that strong auto group and Deutsche Bank's comments and also, Bloomberg late today reported GM is studying whether to unload its Pontiac, Saab and Saturn brands.
JPMorgan Chase (JPM) $0.85 gain there. The company priced $6 million of notes backed by the FDIC.
Pfizer (PFE) up $0.13.
Wells Fargo (WFC) gained $1.70.
And AT&T (T) up $1.10 a share.
Johnson & Johnson (JNJ) moved down $0.43, traded as low as $56.42 this morning after the FDA failed to approve the company's new drug application for its treatment for skin infections. The FDA wants more information. That's a kind of a setback.
Fidelity National Financial (FNF) up $2.19, 22 1/2 percent gain. It signed a deal to acquire Land America Financial's two main title insurance companies and other assets for $298 million. Meanwhile, Land America declared Chapter 11 bankruptcy.
Deere (DE) closed up $2.66, but this morning it was as low as $28.87 after fourth quarter earnings came in at $0.81 versus $0.94 last year and that's despite a 21 percent rise in revenues and Wachovia on top of that downgraded it from "out perform" to "market perform."
And other farm equipment company, Agco (AG) off $0.42, traded as low as $20.42. Wachovia downgraded it from "out perform" to "market perform" on the bearish outlook for farm equipment.
The old Bell Canada, BCE (BCE) down $10.65. The deal to take the company private is now in doubt because of market conditions.
CKE Restaurants (CKR) did well, up $1.27. Sun Trust Robinson Humphrey brokerage upgraded it from "neutral" to a "buy" recommendation.
And Thomas & Betts (TNB) losing $1. The company now sees fourth quarter earnings flat with last year's $0.84 due to the downturn in a commercial construction business.
Then Mettler-Toledo (MTD) up $7.58. It'll be added to the Standard & Poor's madcap 400 index after the close next Monday.
And then we see the refining company Holly (HOC) up $2.40. Its stock will be added to the Standard & Poor's small cap 600 index after the close next Monday.
Apple (AAPL) topped the NASDAQ actives up $4.20.
Google (GOOG) up just over $10.
Microsoft (MSFT) a $0.50 gain. A close observer of the company said recent rumors that it's going to launch a smart phone have no basis in fact.
Research in Motion (RIMM) up $3.20.
Intel (INTC) an $0.84 gain there.
Cisco (CSCO) $0.97 advance.
$0.16 rise in Oracle (ORCL).
Baidu.com (BIDU) up $18.72.
First Solar (FSLR) up $10.58.
And Amazon (AMZN) was up $1.77.
And finally, Seachange International (SEAC) rising $1.60 after reporting third quarter earnings today of $0.11 versus $0.11 a year ago, $0.05 above Street estimates. Revenues rose 5.7 percent.
