NBR Transcripts- November 28, 2008
Friday, November 28, 2008Black Friday May Not Mean Much Green For Retailers
JEFF YASTINE: Today is black Friday, the shopping day that is as much an American ritual as Thanksgiving. With the economy in a tailspin, many retailers opened their doors in the wee hours of the morning in an effort to entice shoppers. But as Erika Miller explains, retailers are bracing for a dismal holiday season.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For retailers, there's more fear than cheer as the holiday shopping season kicks off. Macy's in Herald Square opened at 5:00 a.m.-- an hour earlier than past years -- enticing customers with deep discounts and coupons galore. Although pleased by today's turnout, Macy's CEO Terry Lundgren is under no illusion of how difficult it is to turn shoppers into spenders.
TERRY LUNDGREN, CHAIRMAN & CEO, MACY'S: This year is different. There's no question about it. This year is different because you have so many factors impacting the customer. Obviously, we knew early about the housing challenges that people were having, credit challenges that people were having. But you know, jobs is a really big issue now.
MILLER: The holidays wouldn't be the same without toys and that category is historically one of the most recession resistant in retail. But in a sign of the times, Toys-R-Us was offering far more door buster specials than last year. CEO Gerry Storch says that's just the beginning.
GERALD STORCH, CHAIRMAN & CEO, TOYS "R" US: We have planned a very aggressive schedule from now through Christmas. We have more promotions than ever, more events than ever. We have tremendous values throughout the store.
MILLER: Although crowds were out in full force at Macy's and other stores today, the predictions for the holiday season overall are downright bleak. The National Retail Federation is projecting a 2.2 percent gain in holiday sales this year. The International Council of Shopping Centers is betting the increase will be half that. Discounters are likely to be one of the few bright spots, according to retail analyst Adrianne Shapira.
ADRIANNE SHAPIRA, RETAIL ANALYST, GOLDMAN SACHS: I think the discounters are well positioned to win not only because of their defensive mix, their value orientation, but they are very relevant in consumer electronics -- a category that tends to have newness, innovation and excitement for the holiday season.
MILLER: A lot is riding on the results. Experts say holiday sales can account for as much as 40 percent of a merchant's annual revenues and up to 80 percent of profits. Despite all the hoopla around black Friday, it's not the top shopping day of the year. That's an honor that belongs to the Saturday before Christmas. But for Macy's and others, today is an important barometer of the consumer mindset.
LUNDGREN: We understand that consumers have got a limited budget that they are going to be working off of. And so our strategy is all about getting a bigger piece of that budget that's spent at Macy's. And so that's what we're focused on.
MILLER: If retailers don't have enough to worry about, the calendar is also working against them. Black Friday falls on the latest date possible. That means five fewer days between Thanksgiving and Christmas compared to last year. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
MF Global Energy Analyst John Kilduff Shares His OPEC Expectations
JEFF YASTINE: After much volatility, oil prices ended the week flat at $54.43 a barrel ahead of a weekend meeting of the Organization of Petroleum Exporting Countries, known as OPEC. Arriving in Cairo, cartel oil ministers said they will likely defer a decision on more production cuts until their December meeting. I recently spoke with energy analyst John Kilduff and began by asking him what he expects from OPEC this weekend.
JOHN KILDUFF, SR. VP, ENERGY, MF GLOBAL: I think there will be a great deal of discussion and the conclusion about the necessity for a further production cut at some point in December, but I don't expect a concrete announcement of a production cut this weekend.
YASTINE: And why not? Why not go ahead and get this production cut on the table so that the markets can begin pricing that in?
KILDUFF: They're going to float the trial balloon for sure. I think, though, they're in the process still of implementing their first round of cuts and I think Saudi Arabia, in particular, is still very concerned about the fragility of the global economy. I mean, when they see their last and best customer in terms of China now even having to engage in fiscal stimulus, they know it's a huge problem. So they don't necessarily want to get a big bump-up in prices here, although they also certainly don't want to see a cascade or crash. So they're going to work with-- seek to work with non-OPEC producers -- Russia, Norway, Mexico, in particular -- to get a uniform production output scheme going as we go into 2009. I think that's going to be the end game and the game plan for this weekend's meeting.
YASTINE: John, I find that fascinating -- a global coordinated production cut between both OPEC and non-OPEC members. How many times, if at all, has this happened in the past that OPEC has felt that need to get that extra constriction on the supply to bring in Russia and the other non- OPEC members?
KILDUFF: It happened as recently as 2001 and Mexico did join in, in previous production schemes as well. What's different, of course, this time is how systemic the financial crisis is and the recognition by western countries -- Mexico, in particular -- about how stimulus -- how much of a stimulus this represents, these lower energy prices. The numbers that consumers are saving at the pump are about two-thirds of what's been put out there by the Federal government in terms of stimulus. So they're going to have a tough time. It's just that I think Russia will be inclined to go along with OPEC because of their dwindling petrodollar reserve and how much this represents to them and their future. But I'm not sure about cooperation from Norway, given the state of affairs that they find themselves in with the rest of Europe. So it will be a fascinating process to watch to a degree.
YASTINE: John, what's your forecast for prices? We see oil kind of fluttering around $50 a barrel. What are we looking at for gasoline and for heating oil as we head into the coldest part of the season?
KILDUFF: Well, I would expect that crude oil prices will continue to take some blows here as we get bad economic data points going forward, and test down into the mid- to low 40s, at least a couple of more times here, over the next month or so at least. But I do think 50 is sort of shaping up to be something of a bottom because of the production cuts, of the additional production cuts that are likely to emerge. And similarly, just to the extent we get some kind of up tick or even there's an increase in confidence in the overall markets.
YASTINE: And gasoline, heating oil?
KILDUFF: Gasoline is still going to cascade lower, could get down to as low as $1.75 on a national average. Home heating oil customers should be seeing sub-$2 heating oil as well this winter.
YASTINE: And in 30 seconds or so that we have left, how long do you expect those prices to remain at those levels before we get some traction in the economy and those prices would expect to go back up to some other level?
KILDUFF: I think energy prices are going to be among the first things to go back up. And I think you'll start to see signs of higher prices as early as mid- to late spring or certainly into next summer.
YASTINE: And it sounds like we'll all certainly miss those lower prices, if and when the economy grabs some traction here.
KILDUFF: We will. The bad news will be there will be higher prices at the pump. The good news is it will be because the global economy has at least started to rebound.
YASTINE: John, thanks for your time on the program.
KILDUFF: Thank you.
YASTINE: Our guest, John Kilduff, energy analyst at MF Global.
Giving Kids The Gift of Economic Reality
JEFF YASTINE: For most children, the holidays mean one thing: presents. But at a time when the economy has taken a turn for the worse, many families are having to cut expenses, including how much they spend on gifts for their kids. As Dana Bate reports, there are ways to manage children's expectations though and keep a holiday budget in check.
DANA BATE, NIGHTLY BUSINESS REPORT CORRESPONDENT: 'Tis the season to be thrifty. That seems to be the jingle this black Friday. But singing that tune to your kids isn't so easy.
NYTHA DAVIS, MOTHER: I explained it to them that this year, look, you may not get everything you put on your list, I'm going to try to get one or two, but everything may not happen.
BATE: Janet Bodnar is the author of "Raising Money Smart Kids." She says it's a good idea to be up-front with your kids as we head into the holidays.
JANET BODNAR, DEPUTY EDITOR, KIPLINGER'S PERSONAL FINANCE: If you say to your kids, look, you know, we really need help this year. We're really in a situation that we have never been in before, certainly the kids have never been in this situation. We need your help. This is a family thing. The kids are going to rise to the occasion.
BATE: Well, one can hope.
UNIDENTIFIED MALE: It doesn't matter what you tell them, it's Christmas.
UNIDENTIFIED MALE: They want what they want. So you need to buy them what they want.
BATE: At the very least, financial planner Pam Shortal says it's a good opportunity to teach kids about budgeting.
PAMELA SHORTAL, MANAGING DIRECTOR, HARRIS SBSB: This is a good time to get back to the basics and for the family as well as teaching the children that it's important to spend less than you make.
BATE: So how do you scale back without feeling like a scrooge? Janet Bodnar has some ideas: have your children write up a list, but tell them to limit it to the number of gifts you are able to buy. Be up-front about gifts that are off limits. Use this as a teaching opportunity. Give them a budget and ask them what they'd buy with that money. Bodnar also suggests the gift of time, a dinner with mom or an outing with dad or getting one big gift for the whole family, like a TV or a vacation. OK, but will those ideas really fly with today's kids? Some parents say yes, but others weren't so sure. If you told her her Christmas gift this year was time with mom, what would she say?
UNIDENTIFIED FEMALE: I don't know.
BATE: Bodnar says don't let your kids push you into overspending.
BODNAR: You are still the parent; you still set the rules. If you want to change the rules, change the rules. Have confidence in yourself. You're the boss here. So don't let the kids. They might push back, you push them back, too and say this is what we're going to do. Things are different this year.
BATE: This economic downturn won't last forever and the current spirit of thriftiness probably won't either. But holiday traditions are yours to make and if you start new ones this year that help you stay within your budget, those family traditions can last a lifetime. Dana Bate, NIGHTLY BUSINESS REPORT, Alexandria, Virginia.
"Market Monitor"-Bernie Schaeffer, Chairman of Schaeffer's Investment Research
PAUL KANGAS: My guest "Market Monitor" this week is Bernie Schaeffer, the chairman of Schaeffer's Investment Research and the publisher of the "Option Advisor Market Letter" based in Cincinnati, Ohio. Bernie, welcome back to NBR.
BERNIE SCHAEFFER, CHAIRMAN, SCHAEFFER'S INVESMENT RESEARCH: Pleasure to be here, Paul, as always.
KANGAS: Has the stock market's recent upturn, along with that nice rally today, has it convinced you that it has made a major bottom or would you call this a bear market rally?
SCHAEFFER: This is the third of rallies in the order of 20 percent that we've had since October. So it's not unusual from that standpoint. I think there are some favorable developments, particularly on the side of the Fed's action to be purchasing these mortgage securities, the Citigroup bailout. I think those factors could contribute to a continuation of what I would still label as a bear market rally. The interesting thing about this bear market is it's gone so far and so low, below what I call the line of demarcation between the bull and the bear, which on the S&P is about 11,020, the 160-month long-term moving average, you can actually rally by more than 20 percent from current levels and still be in bear market territory.
KANGAS: What kind of stocks would you buy to participate in a bear market rally now?
SCHAEFFER: Right now, I would look to the home builders and the financials. Those are the stocks that were hardest hit. I think they're going to rebound the furthest on the way up.
KANGAS: What would convince you to turn completely bullish?
SCHAEFFER: Completely bullish. We would have to get back over the line, so to speak, above that 11,020 or so level on the S&P. And I'd like to see some more -- even though people say there's fear out there -- currently, Wall Street analysts have 45 percent buy recommendations on the S&P stocks and only 10 percent sells. You go back to the early '80s, it was 25 percent buys, 25 percent sells. It doesn't have to get that extreme, but I think there's still a lot of people, a lot of prominent people looking for a bottom to be in place. We're down 50 percent. That's as far as bear markets go. That's not as far as certain bear markets can go.
KANGAS: I understand you're disappointed that corporate stock buybacks haven't been very impressive. I've seen a lot of them, but not impressing you.
SCHAEFFER: They're down about 90 percent year or year in November. Of course, the reason for it being cash is tight, companies are conserving their cash. They're not borrowing money to buy back their shares. And that's been a very supportive factor in past declines.
KANGAS: Right, now on your last visit with us in late-May with the Dow in the 12,600 range, you saw signs like high levels of short interest rate, investor pessimism and negative magazine cover stories, all of these things supposed to be signs of bullishness, but it didn't turn out that way at all, did it?
SCHAEFFER: It wasn't a good period for contrarianism. But I would say the most important factor there was the big short interest was really a sign of the hedge fund bubble in disguise.
KANGAS: Ah.
SCHAEFFER: Because basically hedge funds had big short positions but they had much bigger positions on the long side. So they liquidated their shorts, but provided some support, but the long liquidation to de- leveraging is what did the market in.
KANGAS: Now during that visit, you had three option recommendations, two calls and one put. Let's see what happened. AK Steel (AKS) really took a tumble but it only cost you 15 percent to buy the put premium. So you only lost 15 percent on that one, not 89.
SCHAEFFER: Correct. That's the saving grace on option buying as long as you got some winners to offset your losers.
KANGAS: Burlington wasn't, but I think that was only about an 8 percent premium, so that's as much as you could take. All right and let's have one more. This was a put option that you bought on Microsoft (MSFT) and made money.
SCHAEFFER: Right.
KANGAS: OK. How about new recommendations?
SCHAEFFER: OK. On the call side, I'm looking at the S&P-- the spider S&P home builder ETF, (XHB). I'm looking for the home builders to lead the way as this bear market rally might unfold. I'm looking at seven-month option on that instrument with a 23 percent premium, good premium, big move potential. I don't own XHP.
KANGAS: OK, quickly now.
SCHAEFFER: OK, Wells Fargo (WFC), financials looking to lead the way again. Wells Fargo, I'm looking at a five-month call option with a 19 percent premium. I own Wells Fargo.
KANGAS: OK and one more.
SCHAEFFER: On the put side I'm doubling down on Microsoft. This is stock that's heavily owned by hedge funds, vulnerable to liquidation. I'm looking at a five-month put on Microsoft with a 15.
KANGAS: Do you own one?
SCHAEFFER: I don't have a position in Microsoft.
KANGAS: OK. The only position you have then is in Wells Fargo.
SCHAEFFER: Correct.
KANGAS: On a call option. Very good. I appreciate your being with us once again, Bernie.
SCHAEFFER: Pleasure, Paul.
KANGAS: My guest, Bernie Schaeffer of the "Option Advisor Market Letter."
"Last Word"-The Santa Shortage
JEFF YASTINE: And finally tonight, Germany is facing a dilemma this holiday season. It's running out of qualified Santa Clauses. A leading job agency there says an acute shortage of Santas to entertain children at shopping centers and Christmas parties. So it's looking for cheerful, chubby men, preferably with fluffy white beards and no criminal record to work for one month. Recruitment sessions are being held in cities across the country and of course, the pay is not how would you say reindeer feed, 75 euros, 60 euros an hour-- that's about $75 U.S.
KANGAS: Ho-ho-ho.
YASTINE: How would I look with a white beard?
KANGAS: You'd have to age a bit.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street started the shortened trading day with mild profit taking after four straight sessions of gains. An hour into the session, the Dow was off 12 points, NASDAQ down 16. Impressed by the market's resilience to profit taking, buyers took command by noontime and they continued to bolster stocks right on to the end of month portfolio window dressing and went right on into the close at 1:00 p.m. The Dow Industrial Average posted a gain of 102.43 points at 8829.04. It rose in all of this week's four trading sessions for a net gain of 782.62 points or 9.7 percent. The NASDAQ Composite was up 3.47 to 1535.57 today. It rose three times this week, fell just once, had an overall advance of 151.22 points or 10.9 percent. Standard & Poor's 500 Index up 8.56 to 896.24 today and for the week, it gained 96.21 points or 12 percent. In the bond market, the 10- year note gained 1 20/32 to 107 3/32, putting the yield all the way down to 2.93 percent.
Citigroup (C), big board volume leader, 27.7 million shares, traded up $1.24. On Wednesday as we reported, the stock gained nearly a point on news that the Mexican business tycoon Carlos Slim bought 26 million shares or about $150 million in stock.
General Electric (GE) up $0.98.
Ford Motor (F) rising $0.54 on hopes that there will be a bailout soon, perhaps next week.
Bank of America (BAC) up $0.82.
And Pfizer (PFE) $0.36 advance there.
Wells Fargo (WFC) gained $0.24.
JPMorgan Chase (JPM) rising $1.04.
AIG (AIG) edged up $0.06.
ExxonMobil (XOM) down $0.74.
And General Motors (GM) gained $0.43. The company's trying to sell $257 million of its European assets.
Procter & Gamble (PG) moved up $1.19 on news it took a 1 percent stake in British retailer Ocado (ph), first time they're in retailing over there.
Goldman Sachs (GS) up $2.49. The company is going to sell a euro benchmark debt issue that will be guaranteed by the FDIC.
Let's have a sampling of retail stocks on this black Friday and we can see quite a mixture. Family Dollar (FDO) down $1.11.
$0.14 gain in JC Penney (JCP).
$0.39 gain in Macy's (M).
But losses of over $1 in Target (TGT) and Tiffany (TIF)
Callon Petroleum (CPE) lost over 66 percent of its value today. The company suspended all operations at its Entrata (ph) oil field in deep water Gulf of Mexico because of the high cost and because of the recent sharp drop in oil prices.
Chesapeake Energy (CHK) gaining $3.06. The company filed with the SEC to issue up to 50 million of its shares it would use for acquisition purposes.
Frontline (FRO), this is the Norwegian shipping company, is going to cut its quarterly dividend to $0.50 a share from $1.50 in last year's third quarter.
And then Panosonic (PC) down $2.71. The company cut its 2009 earnings and sales forecasts and Nomura security brokerage downgraded the stock from "buy" to "neutral."
Finally, New D&B Corp (DNB) moving up $3.48. That stock will be added to the Standard & Poor's 500 Index after the close next Monday, replacing Liz Claiborne stock.
NASDAQ's most active Apple (AAPL) down $2.33.
Google (GOOG) managed to gain $0.87.
Microsoft (MSFT) $0.27 loss there.
Intel (INTC) $0.17 drop.
Research in Motion (RIMM) fell $2.23.
Cisco Systems (CSCO) up $0.15.
Oracle (ORCL) a nickel loser.
Baidu.com (BIDU) was down $6.87. The company plans to overhaul the way it ranks advertisers after it was accused of allowing unlicensed medical product suppliers to actually buy higher rankings.
Qualcomm (QCOM) $0.12 gain.
And then First Solar (FSLR) down $2.33.
Yahoo! (YHOO) $0.93 gain there on news that Carl Icahn bought another seven million shares and that boosts his stake to 5.5 percent.
Finally we see Thoratec (THOR), a maker of medical devices, up $1.79. That stock is going to be added to the Standard & Poor's madcap 400 after the close next Monday.
And those are the stocks in the news tonight.
