NBR Transcripts -December 3, 2008
Wednesday, December 03, 2008UAW Sacrifices Support For Laid Off Workers To Aid Ailing Auto Executives
SUSIE GHARIB: The nation's struggling auto makers today won big concessions from the United Auto Workers. The development comes as the CEOs of General Motors, Ford and Chrysler prepare to testify before Congress tomorrow. They are seeking $34 billion in government loans. Those executives will be joined by UAW President Ron Gettelfinger, who said today his union is willing to renegotiate some terms of their labor contracts. As Stephanie Dhue reports, that commitment could help convince lawmakers to approve a bailout for Detroit's big three.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The UAW called it an unprecedented move, agreeing to delay payments into a health care trust for retirees and suspend the jobs bank, which pays workers after they've been laid off. UAW President Ron Gettelfinger says the jobs bank has become a distraction.
RON GETTELFINGER, PRESIDENT, UNITED AUTO WORKERS: It's a lightening rod. It's a sound bite, but it takes away the focus of what the real issue here. And the real issue is, the backbone of America.
DHUE: The union is also gearing up an ad campaign stressing its industry is as important to the economy as Wall Street. Whatever moves the union makes will be key for GM, Ford and Chrysler. The three firms submitted their restructuring plans to Congress yesterday and will answer questions from Senate lawmakers tomorrow. New Jersey Democrat Robert Menendez wants to know how the plans will work.
SEN. ROBERT MENENDEZ, (D) NEW JERSEY: You have to show me why this plan creates the viability for your company in the longer term and therefore the ability to repay the taxpayers. Secondly, you've got to give me benchmarks as to how we can ascertain that you are moving towards implementation of that plan in a way that creates viability.
DHUE: But critics say giving the auto industry government loans is the wrong approach. Cato's Dan Ikenson says the companies need to cut labor costs and a bankruptcy judge is better positioned than Congress to repair the auto industry.
DAN IKENSON, ASSOCIATE DIRECTOR, CATO INSTITUTE: The bankruptcy judge will tell them, we need to start over with these union contracts. Labor is supposed to be a variable cost. In this increasingly globalized economy in which U.S. manufacturers compete, you can't - when demand contracts, you need to be able to cut back your costs as well or else you can't survive.
DHUE: President-elect Barack Obama says it looks like the auto makers now have a serious set of plans and he thinks the focus should be on those plans, rather than where the money comes from.
PRESIDENT-ELECT BARACK OBAMA: At this point, I'm more interested in seeing whether or not there is a sound plan there and then I'll be in discussions and listening about where the best sources of money are.
DHUE: Senator Mendez says if the auto makers do get government loans, he wants to see protections against using that money for a merger with a foreign firm. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
KANGAS: Just moments ago, Senator Majority Leader Harry Reid told the Associated Press the Democrats plan to tap the $700 billion Wall Street rescue fund to save the U.S. auto makers does not have the votes to pass. Tomorrow we'll have complete coverage of the auto bailout hearings.
Oil Prices Remain Unpredictable
SUSIE GHARIB: Oil prices fell to their lowest level in almost four years today on concerns about a severe global economic slowdown. In New York trading, January crude futures slipped $0.17 to settle at $46.79 a barrel. That's in spite of a report showing an unexpected decline in U.S. oil supplies last week. As Erika Miller reports, experts are sharply divided on where prices head from here.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oh, how mighty oil has fallen. A barrel of crude is now less than $47 at the New York Mercantile Exchange. That's roughly $100 cheaper than at its peak in July. Analyst Fadel Gheit says oil could head even lower.
FADEL GHEIT, SR. OIL ANALYST, OPPENHEIMER & CO.: There is definitely tremendous pressure on oil prices. If we don't have very cold winter, if we don't have supply disruption, meaningful one for longer period of time, I would not rule out below $40 oil.
MILLER: Gheit says supply demand fundamentals support prices at or near current levels. But he says where oil trades will depend on two things: First, whether the global recession is longer and deeper than expected and second, whether U.S. law makers crack down on oil speculation. Gheit is not worried OPEC will slash output in an effort to preserve profits.
GHEIT: OPEC cannot really take a risk of jacking up crude oil prices artificially, because that will derail global economic recovery. That's the last thing that OPEC would want.
MILLER: OPEC's president said today there's no floor under prices, reinforcing Gheit's view. But others like Jonathan Kleisner, at Rex Capital believe supply/demand fundamentals point to a sharply higher price for oil.
JONATHAN KLEISNER, PRINCIPAL, REX CAPITAL GROUP: We think it will be above $70 in the first quarter of next year. And we look at the end of the third quarter to be back above $100.
MILLER: Kleisner thinks OPEC and other oil producers will cut production as they've done twice this year. In addition, he predicts more investors will come back into the oil markets once volatility settles down. Part of oil's appeal, he says, is as a hedge against inflation which could result from the massive government bailouts worldwide. Most importantly, Kleisner believes consumer energy demand is poised for recovery.
KLEISNER: The real spark will be the emerging market growth levels. But, in point of fact, demand is already on the increase domestically in the United States, month over month and remember, cheap oil prices mean cheap gas prices. Cheap gas prices does stimulate demand.
MILLER: For now, that cheap gas is a small comfort to consumers during these tough economic times. The national average for regular unleaded is now $1.80 a gallon, less than half what it was in July. Erika Miller, NIGHTLY BUSINESS REPORT, New York
"Street Critique" -Michael Farr, President, Farr, Miller, & Washington
PAUL KANGAS: Tonight's "Street Critique" guest says in times like these, investors need to be patient, because it's too late to panic. He's Michael Farr, president of the money management firm Farr, Miller and Washington and author of "A Million Is Not Enough." Michael, welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul, for having me very much.
KANGAS: When you were last with us in November, you said that the market would retest its lows and it certainly has and then some. So have we put in a final bottom here or not?
FARR: I don't know, Paul. I think we're certainly in the process of establishing that bottom. We've seen a top-to-bottom drop of some 52 percent, 53 percent, something like that. It would make sense that we would go down below 8,000 and test some of those lower levels and hope this time that they hold.
KANGAS: Would you imagine if they do, we'd get a very, very strong comeback rally?
FARR: I would expect more violent rallies in this ongoing bear market. You see these violent bear market rallies and they really are enticing. You want to buy them. So, yes, a rally but not the final rally. I think we could be in this trading range as the economy works itself out for some time.
KANGAS: OK. Now earlier this week we learned that the United States officially entered a recession a year ago. You've done some historical work on recessions. What does history tell us about the current situation?
FARR: I think this is kind of good news, Paul. The average recession in the last century, I mean, starting around 1900 lasted around 14 months. The economic data is not average this time. The economic data are not average this time, I'm sorry. My English teacher would come after me on that. And therefore I don't think that this recession will be average. I think it will be a little bit worse. But even if it's 20 months or a little longer, we're 12 months into it and 12 months of that suffering is behind us.
KANGAS: What are you telling your clients about the recession and their portfolios?
FARR: Well, again it is too late to panic. If you're going to panic, be the first one to panic and we're well beyond that. Now we're down some 6,000 points from the highs. I think it's a time to really find some courage and go in and evaluate your portfolio. Take a hard look at that, bright lights issued by some of those really bad numbers and say, all right. Has this stock declined because of a fundamental decline from which it may not recover? And if so, cull those positions. Take a look at your stronger positions. And then make a plan for your cash. Figure out how you want to fill out your portfolio. Invest those other proceeds in a very disciplined, patient way.
KANGAS: We just have about a half minute left. What groups do you think will lead us out of this bear market?
FARR: Right now, I'm over weighted in consumer staples and health care is my two defensive names. I'm over weighted also in industrials and in technology stocks. And within technology and all of these companies you've got to look for solid balance sheets that don't need the capital markets for cash, lots of cash, strong management and opportunity on the up side. I particularly like some of the software companies. Money will continue to be spent there as a lot of those companies evolve out.
KANGAS: But no specific recommendations at the time, just the shopping list?
FARR: Those are my shopping areas and I'm looking and studying closely.
KANGAS: Good. Michael, thanks for being with us again.
FARR: Thank you, Paul.
KANGAS: My guest Michael Farr of Farr, Miller and Washington and author of "A Million Is Not Enough."
"Money File"-Don't Hibernate From The Bear Market
SUSIE GHARIB: In the "Money File" tonight, lessons we can all learn from the current bear market. Here's Eric Schurenberg, editorial director at BNET Moneywatch.
ERIC SCHURENBERG, EDITORIAL DIRECTOR, BNET MONEYWATCH: We're probably not through this bear market yet, but you don't have to wait for it to end to learn from it. So here are two lessons: one that would be good to take away from this sorry mess and one that would be the wrong one to learn. The right one first: we all understood the intellectual concept that stocks return more than bonds or cash in the long run because they are riskier. Higher return is your reward for taking higher risk. Problem is, we interpreted this to mean that you can't lose with stocks if only you hold on for the long run. So if you're patient, there's no risk. Well, depends on your definition of long run, I guess. If you've held for 10 years, you'd have made nothing in U.S. stocks, nothing. The lesson: you do get paid as an investor for taking risk, but the risks are real. The wrong lesson: you should have seen this one coming. If only you had, you tell yourself, you could have taken your money out just in time and you'd be fine now. This is a trap. Every single equity mutual fund lost money this year. That ought to suggest that virtually no professional investor saw the crash coming, either. You can't manage your money hoping to be the one in a million investors who can see around corners. You can, however, manage it while showing a healthy respect for the risk in the markets, especially when that risk seems slightest. That's when you have to be the most careful. In fact, both these lessons right and wrong, point to one new approach to investing in an uncertain world. The way to win isn't to get the highest returns. It's to get to your goal while taking the minimum risk needed to get there. I'm Eric Schurenberg.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks headed lower at the opening today, but didn't end that way. The Dow fell 175 points at the outset of trading and the NASDAQ lost 31 points amid forecasts for sharp drops in November employment and a report of a weak November service sector. The dip attracted buyers though and by noon, the blue chips were up 121 points. That bearish beige book report sent the Dow off 100 points in mid-afternoon. But once again buyers moved in, sending the market to a higher close. The Dow Jones Industrial Average ended up 172.60 points at 8591.69. The NASDAQ Composite was up 42.58 ending at 1492.38. Standard & Poor's 500 Index gained 21.93 to 870.74. In the bond market, the 10-year note gained 14/32 to 109 18/32, putting the yield all the way down to 2.65 percent. Topping the active list once again today on 27.8 million shares, Citigroup (C) edging up $0.60, but that's an 8.3 percent advance. General Electric (GE) up $0.52.
Bank of America (BAC) gained exactly $1.
American International Group (AIG) edging up $0.14.
And Ford Motor Co. (F) on hopes that there will be an auto bailout, up $0.15.
Wells Fargo & Co. (WFC) gained $2.21.
$0.60 advance in Pfizer (PFE).
ExxonMobil (XOM) rising $1.32.
JPMorgan Chase (JPM) $1.72 advance there.
And AT&T (T) was up $1.04, tenth in big board volume.
Freeport-McMoran Copper & Gold (FCX) down $3.77. The company's cutting its copper production by 200 million pounds next year because of a sharp drop in copper prices and demand for it. It'll also suspend its $2 a share annual dividend and today Standard & Poor's downgraded the stock from "buy" to "sell."
Schlumberger Ltd (SLB), the big oil service company, down $1.39, traded as low as $38.64 today after the company said its 2008 earnings will be below Wall Street expectations due to the global economic slowdown. This affected other oil service stocks.
Let's have a look at some of the other biggies. Baker Hughes (BHI), Smith International (SII) and Transocean (RIG) all on the negative side today after the Schlumberger news.
Constellation Energy (CEG) up $2.55. Electricity of France Corporation proposed to acquire a 50 percent stake in the company's nuclear generation business for $4.5 billion and then there are other (INAUDIBLE)
Rio Tinto Plc (RTP), the big mining company, down $10.79, traded as low as $64.43 today. Standard & Poor's downgraded it a "strong buy" to a "buy" on the company's lower earnings outlook. Last week, that's a week ago yesterday, that stock was down $40 a share after DHP Billiton backed out of its all stock buyout offer for Rio Tinto.
Alpha Natural Resources (ANR) losing $1.81. The company cut its 2008 earnings guidance and Standard & Poor's cut its price target for the next 12 months from $25 to $19 a share.
Then Nexen (NXY) losing $1.49. The Canadian oil and gas producer down on news that the big French petroleum company Total has decided against bidding for Nexen.
And Polypore International (PPO) rose $1.42, over a 33 percent gain there. The company's Celgard unit got a $2.3 million contract to develop technology for lithium ion batteries for hybrid vehicles.
Apple (AAPL) topped the active list on NASDAQ, up $3.43.
Research in Motion (RIMM) gaining $1.64.
Google (GOOG) up $4.32.
Microsoft (MSFT) a $0.72 advance.
And Oracle (ORCL) was up $0.34.
Cisco Systems (CSCO) up $0.69. As we touched on earlier, CEO John Chambers says no job layoffs are planned, despite the economic downturn.
Intel (INTC) $0.38 gain there.
First Solar (FSLR) up $17.60.
Qualcomm (QCOM) fell $0.24.
And Amazon.com (AMZN) rising $4.02. On cyber Monday, according to ComScore, online retail spending was up 15 percent over a year ago.
And finally, we see shares of Onco-Genex Pharmaceuticals (OGXI) surging $1.70, huge percentage gain. Mid-stage trials of its prostate cancer treatment in combination with certain chemotherapy drugs was shown to improve survival rates by up to a year compared to patients treated with just those chemotherapy drugs.
