NBR Transcripts- December 5, 2008
Friday, December 05, 2008Another Half Million Jobs Are History
SUSIE GHARIB: American businesses cut jobs at an alarming rate last month. The Labor Department reported today that U.S. payrolls plunged by 533,000 jobs in November, the biggest monthly decline since 1974. That pushed the unemployment rate to a 15-year high of 6.7 percent. On Wall Street, the news initially sent the Dow tumbling more than 250 points, but it later recovered to finish with a 259 point gain. Scott Gurvey has more on today's dismal jobs report and what it says about the overall U.S. economy.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A bad employment report had been expected, but nothing as bad as this. As a harbinger, it signals the worst recession of the post-World War II era. And economist Ethan Harris says trouble goes beyond the headline number.
ETHAN HARRIS, CO-CHIEF US ECONOMIST, BARCLAYS CAPITAL: There was a big drop in the number of people looking for work, which is you know, suggests that people thought it was just too hard to find a job. Had those workers not dropped out of this survey, instead of having a 6.7 percent unemployment rate it would have been closer to 7 percent.
GURVEY: Harris also notes cutbacks in hours, overtime and the use of temporary workers.
HARRIS: Employers are not only shedding workers, but they're also employing them shorter hours. A lot of workers are part time employed and they don't really want to be part-time employed. That hurts households just like joblessness. If your hours are getting cut and you have to work part time, it hurts your ability to spend.
GURVEY: And if people don't spend, the economy suffers more and the hole being dug gets deeper. Jan Hatzius of Goldman Sachs sees the recession continuing at least through the first half of next year.
JAN HATZIUS, CHIEF US ECONOMIST, GOLDMAN SACHS: What happens beyond that, I think is to a large extent going to depend on what the Federal government and the Fed do to get the economy going. I mean what we're hoping for is a very sizable fiscal stimulus program. We've been talking about the need for at least $300 to $500 billion per year of stimulus over the next couple of years.
GURVEY: Even then, economists expect the payroll declines to continue for many months. David Greenlaw of Morgan Stanley does not expect to see the employment picture improve until 2010.
DAVID GREENLAW, CHIEF US FIXED INCOME ECONOMIST, MORGAN STANLEY: I think the unemployment rate, which ticked up from 6.5 to 6.7 in today's report could get up as high as 9 percent by the end of 2009. I wouldn't be too surprised, however, if this was the single largest month of job loss that we're going to experience.
GURVEY: President-Elect Obama today repeated his call for a government spending program to save or create 2.5 million jobs. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Detroit's Big Three Appear To Be Preparing For The Worst
SUSIE GHARIB: On Capitol Hill, day two of testimony by the heads of Detroit's big three auto makers, as news out of the motor city continued to get worse. General Motors announced 2,000 layoffs at plants in Ohio, Michigan, and Ontario and Chrysler hired the bankruptcy advisory firm Jones Day. As Stephanie Dhue reports, law makers are still not convinced about giving government loans to the auto makers and just where that money would come from.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the auto CEO's continued to plead their case, the faltering economy drove the debate. Financial Services Chairman Barney Frank told the CEOs any loans would be for the greater good of the country.
REP. BARNEY FRANK, CHAIRMAN, HOUSE FINANCIAL SERVICES: For us to do nothing, to allow bankruptcies and failures in one, two or three of these companies in the midst of the worst credit crisis and the worst unemployment situation that we've had in 70 years would be a disaster.
DHUE: President Bush supports letting the auto industry tap into a $25 billion Department of Energy fund that already exists, but hasn't been doled out.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: It is important that Congress act next week on this plan. And it's important to make sure that taxpayers' money be paid back if any is given to the companies.
DHUE: But taking money from the energy program doesn't sit well with environmentalists. And some law makers, like New York's Carolyn Maloney, worry the money will be used to fight new fuel efficiency mandates.
REP. CAROLYN MALONEY, (D) NEW YORK: Why in the world should my constituents or taxpayers in New York state or any state provide $38 billion in loans for your companies if you will continue to attempt to undo laws that we have adopted in our states? Wouldn't that be the equivalent to giving your money to sue us?
DHUE: The congressional leadership wants any funding to come out of the $700 billion troubled asset relief fund or TARP. Michigan Republican Thaddeus McCotter suggests splitting the difference.
REP. THADDEUS MCCOTTER, (R) MICHIGAN: Half of the bridge loan come from the TARP funds for the prevention of foreclosures and that half of the funds come from the Department of Energy loans for the preservation of the research and development in green technologies, in which the auto industry already engages.
DHUE: With time running short, Pennsylvania Democrat Paul Kanjorski suggests passing a $4 billion bridge loan for General Motors and coming back with a more substantial restructuring plan later.
REP. PAUL KANJORSKI, (D) PENNSYLVANIA: I'm afraid a lot of people are over-estimating the willingness of a goodly number of members of Congress to play chicken.
DHUE: That game of chicken is likely to continue into next week. Key lawmakers will be working over the weekend to craft a package by Monday. Votes could take place Wednesday or Thursday. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
The People Behind The Economic Casualty Count
SUSIE GHARIB: Earlier in the program, we told you about those dramatic job loss numbers, but each of those numbers is a person, a family, a story. And when jobs disappear, the social costs are as high as the economic ones. In our continuing look at how the economic downturn is affecting Main Street America, Darren Gersh visited Martinsburg, West Virginia.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: EO Ramsay's dream home doesn't have granite countertops or a whirlpool tub, just three centuries of history.
EO RAMSAY, OWNER, EO'S PAINTING CO: This is a Federal style home.
GERSH: For seven years, Ramsay has been restoring this home, doing much of the work herself. But she may not get to finish the job. A few years ago, heart trouble forced her into debt. She refinanced with Countrywide, but missed some mortgage payments. EO is now suing over a disputed loan modification and for now, foreclosure is on hold. At the same time, her painting business is drying up.
RAMSAY: It makes it hard to sleep at night. You don't know necessarily where your next meal is going to come from.
GERSH: EO is now taking medication for high blood pressure and depression, side effects of the economic downturn. More such symptoms can be seen across this part of West Virginia. The city of Martinsburg once boomed along with the nearby Washington, DC housing market. Now this bathtub factory is laying off workers. One of them is Angel Bush.
ANGEL BUSH: It was 45 of us who came into work. We was working. An hour later, we was called one by one, told to go home. We was laid off.
GERSH: When we talk about economic downturns, we mention things like falling home prices, bankruptcies and job loss. In cities like Martinsburg, West Virginia, downturns can be measured another way: in rising crime and divorce rates and the personal toll of dreams deferred. Angel Bush knows the pain of the downturn firsthand. After months of unemployment and no job prospects, she simply can't afford to pay rent anymore.
BUSH: You start losing other things, too. You start losing your hopes. You start losing your dreams that you had, start losing your home, things that matter.
GERSH: And when homes are under stress, you can see it here, too. At Tuscarora Elementary School, counselor Michele Ransom says most families are still doing OK, but more and more are not.
MICHELE RANSOM, COUNSELOR, TUSCARORA ELEMENTARY: I had a little kindergartener come in the other day. He was so upset and when his teacher asked him, you know, he said because mommy's van got taken away. She doesn't have anything to drive.
GERSH: Several other people told us they knew people who lived in their car. After 20 years running her own business, EO worries she may end up there too and she fears what that would mean for her pets.
RAMSAY: I know that kind of sounds insane to some people, but to me it's a concern. I've had those cats since they were kittens and they get me through some hard times.
GERSH: While the economy has brought hard times to Martinsburg, it has also revealed new sources of strength. Pastor Ed Grove calls that a kind of gift. People are learning to find strength in each other.
ED GROVE, PASTOR, TRINITY UNITED METHODIST CHURCH: So I think community building is one of the things that I'd put my finger on. We watched that during the great depression. There was a sense of a kind of support that grew out of community. There was a sense of people kind of banding together. We watch that here.
GERSH: EO has come to value even more the friends who are helping her and she continues to fight hard to save her business and her home.
RAMSAY: I hope that through all this, I have learned a lot and with the wisdom that I've learned from this, I'll take it with me the rest of my life and won't make the same mistakes.
GERSH: For now though, EO says she's focused on weathering a storm that still appears to be gathering strength. Darren Gersh, NIGHTLY BUSINESS REPORT, Martinsburg, West Virginia.
"Market Monitor"-Derwood Chase, President of Chase Investment Counsel
PAUL KANGAS: My guest "Market Monitor" this week is Derwood Chase, president of Chase Investment Counsel based in Charlottesville, Virginia. Welcome back to NIGHTLY BUSINESS REPORT, Derwood.
DERWOOD CHASE, PRESIDENT, CHASE INVESTMENT COUNSEL: Glad to be here.
KANGAS: As a very conservative money manager, how you have fared in this grisly bear market?
CHASE: Well, Paul, you know, everybody is hurting. Our funds are down six or seven percentage points less than the relevant indexes, both our large cap and our mid-cap growth funds. So relatively, we've done well.
KANGAS: That's nothing to be ashamed of, if you better the popular averages. What strategies have you been using through all this volatility?
CHASE: Those are equity funds, so we have to stay fully invested. But we've been trying to stay with the high-quality, relatively stable companies and that's put us in good stead. We had to make a number of changes in order to do that because there hasn't been any consistent leadership.
KANGAS: As you know, we saw a very, very impressive upside reversal today from a 250 point Dow loss to over 250-point closing gain? Do you think that that marks the bottom of the market?
CHASE: This kind of a volatile market, I don't think it means too much. Naturally, we're glad to see an up day, but we haven't seen the characteristics of supply exhaustion on the selling side to target a bottom yet.
KANGAS: How about the outlook for oil? Crude closed today in New York at $40.81 a barrel. It's down about $100 from its high. What do you think?
CHASE: That's going to be favorable for consumers but it's tough on the energy companies. Some of the more marginal wells are going to have to be shut in. Most of the estimates we are seeing look for an average this coming year of $50 to $60 a barrel.
KANGAS: In your last visit with us, you had three recommendations for our viewers. Let's see how they've done since then. Burlington Northern (BNI), the big rail down 32 percent and EnCana (ECA), which is an energy- related issue down 57 percent. Are you still with those two or did you get stocked out? I know you used stop losses.
CHASE: We did sell part of the Burlington. We eliminated EnCana in August and July at 69.4 on average.
KANGAS: You had one other recommendation back on that last visit and that was Wal-Mart stores (WMT), which has held up beautifully. It's down less than a half percent and I think you probably still like that, do you?
CHASE: Yes, that's still our second-largest holding.
KANGAS: OK, very good. How about some new recommendations?
CHASE: Currently, we're continuing to stick with the high-quality, broadly diversified companies that don't require a lot of borrowing, Abbott Laboratories (ABT) is a well-balanced diversified--.
KANGAS: It's had a bumpy ride, according to the chart we have up there.
CHASE: Well, that's true, but it's a company that's able to increase their sales and earnings as they've been doing this year quite satisfactorily and their newest drug and their stent are both doing very well.
KANGAS: OK. How about a second choice?
CHASE: Procter & Gamble (PG). As you know, they've got several billion-dollar brands and great diversification.
KANGAS: PG on the big board, that's the symbol.
CHASE: PG, right.
KANGAS: OK. Go ahead. You had some more to say about it.
CHASE: I was just going to add that we think all three of our recommendations today, even in a really tough economy ought to be able to do double-digit earnings gains.
KANGAS: OK, what is your third choice?
CHASE: Wal-Mart, which is--.
KANGAS: You're staying with it.
CHASE: Yeah.
KANGAS: You would purchase more at this level? It hasn't fared badly at all, despite the grisliness of the bear market.
CHASE: Really, stocks in our view are at best holds. But if you're quite underinvested, I think as I mentioned last time, cash equivalent reserves are very important to cushion your portfolios. But if you are under invested, certainly Wal-Mart would be a candidate.
KANGAS: Derwood, do you personally own these securities you've mentioned or have other disclosures to make about them?
CHASE: I'm a large investor in our mutual funds, so I own them indirectly.
KANGAS: OK, very good. It's always a pleasure to see you Derwood, and I want to thank you for being with us once again.
CHASE: Thank you.
KANGAS: My guest, Derwood Chase of Chase Investment Counsel.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street started the day with a sharp sell-off on that massive jump in unemployment. Just ahead of noon, the Dow was off over 250 points, while the NASDAQ had fallen 32 points. The market stabilized and began improving by early afternoon as buyers took command on hopes for a huge stimulus program, triggering an economic recovery. That resulted in sharp closing gains. The Dow Industrial Average jumped 259.18 points to 8635.42. It rose three times, fell twice this week for a net loss of 193.62 points. The NASDAQ Composite gained 63.75 points exactly today at 1509.31. It also rose three times and fell twice this week, losing 26.26 points overall. The Standard & Poor's 500 Index closed up 30.85 at 876.07 today and for the week, it fell 20.17. Over in the bond market, the 10-year note lost 1 14/32 to 109 even and that put the yield at 2.71 percent.
Most active big board issue on 28 3/4 million shares was Bank of America (BAC) moving up $0.90. Its shareholders approved the acquisition of Merrill Lynch today.
General Electric (GE) a $0.30 gain.
Similar rise in Citigroup (C).
JPMorgan Chase (JPM) up $2.27.
ExxonMobil (XOM), fifth in volume was up $0.33 despite the drop in oil prices.
Pfizer (PFE) gained $0.28.
AT&T (T) losing $0.02.
Time Warner (TWX) a $0.03 gain.
Wells Fargo (WFC) did well, up $2.39.
Co Vale do Rio (RIO), the big Brazilian oil, down, up $0.17.
Boeing Co (BA) was a $0.34 gainer although the company said it may have to delay deliveries of the first 787 Dreamliners by at least six months because of the recent machinists' strike.
Cummins (CMI), the big diesel maker, up $0.68. The company is going to cut 500 jobs. That's 3.5 percent of its work force.
Sonoco Products Co (SON), which is in the packaging products business, down $1.53. The company cut its previous fourth quarter guidance of $0.60 to $0.64 a share in earnings down to $0.48 to $0.52 a share.
Oil producer Berry Petroleum (BRY) down $2.09, big percentage drop there. The Morgan Keegan brokerage downgraded it from "buy" to just a "market perform" rating.
Oil as you saw earlier hit a 47-month low and other oil stocks were sharply lower. Here are a few samples. Apache (APA), Hess (HES), Swift Energy Co and Whiting Petroleum (WLL) all down significantly.
And then the liquor distiller Brown Foreman (BF.B) doing well, up $4.22. Second quarter earnings rose to $0.94 from $0.83 a year ago. Sales were up 4.6 percent and the company plans to buy back up to $250 million of its own stock over the next 12 months.
Safeway (SWY), the big grocery chain, up $2.27. UBS financial upgraded it from "neutral" to a "buy."
And discounter Big Lots (BIG) was down $0.28, but traded as low as $13.64 today. It reported higher third quarter earnings of $0.15, up from $0.14 last year, but a penny below the Street estimate and total sales were flat. The company on top of that cut its full year expectations.
And then DineEquity (DIN) up $3.64. This used to be called Ihop and it's the restaurant chain. The news today, Southeastern Asset Management said it owns an 18.4 percent stake in DineEquity.
Apple (AAPL) topped the active list on NASDAQ, up $2.59.
Google (GOOG) did well, up $9.65.
Microsoft (MSFT) edging up $0.76.
$0.52 rise in Intel (INTC).
Cisco Systems (CSCO) $0.61 gain there.
Oracle (ORCL) was up $0.88.
Research in Motion (RIMM) rose $2.29.
Qualcomm (QCOM) $1.82 advance.
$0.94 rise in Amazon.com (AMZN).
But Baidu.com (BIDU) down $5.43.
Elsewhere, Gilead Sciences (GILD) up $1.84. Baird Research sees a rally coming in large cap biotech stocks. This might be the beginning.
And then Orexigen Therapeutics (OREX) down $1.89, a huge percentage drop, 35 percent. The news, the company halted mid-stage trials for two of its obesity drugs to conserve cash and on top of that, the company's CEO resigned for health reasons.
And those are the stocks in the news tonight.
