NBR Transcripts-December 19, 2008
Friday, December 19, 2008President Bush Offers Automakers A $17.5B Bailout
SUSIE GHARIB: The White House gives an early Christmas present to Detroit's auto makers: a $17 billion loan. General Motors and Chrysler will get emergency loans from the government's Troubled Asset Relief Plan or TARP. That's the program set up to bail out the financial services industry. Ford Motor said it can continue operating without government help. Chrysler's majority owner, Cerberus Capital, also agreed to put $2 billion into the auto maker. The rescue package comes with strings attached and designates an administrator to make sure the auto makers hit the government target. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Bush says government financing wasn't his preferred option, but it was the best one.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: There's too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies. My economic advisors believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry.
DHUE: The loans, $13.4 billion for GM and $4 billion for Chrysler come with conditions. The companies must prove their assets will be worth more in the future than they are now. If they can't do that by March 31st, the loans will be called. Some analysts say that's an impossible target to meet, but GM CEO Rick Wagoner says it can be done with the plan his company already outlined to Congress.
RICK WAGONER, CEO, GENERAL MOTORS: I think what we need to do is show that we can get that stuff done on the required timeframe and then on the basis of that, we will develop future projections for the company. And I'm highly confident we'll be able to meet that test.
DHUE: That test will come after Barack Obama becomes president. The way the loans are structured gives Obama leeway to determine if the companies are meeting their goals. Today he said the auto makers have a clear challenge.
PRESIDENT-ELECT BARACK OBAMA: The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely necessary to save this critical industry and the millions of American jobs that depend on it.
DHUE: Roughly one quarter of today's headline $17 billion number is contingent on drawing down the second half of the TARP funds. ISI political economist Tom Gallagher says that means the ultimate decision about whether the auto makers are viable will be made by Congress.
TOM GALLAGHER, POLITICAL ECONOMIST, INTERNATIONAL STRATEGY & INVESTMENT: So it's maybe more of a political viability test than an economic viability test that's ultimately going to determine what Washington does.
DHUE: What Washington does will depend on how well GM and Chrysler negotiate with their unions, bondholders and dealers to reduce the auto makers' debt and whether they can make the case that their companies will be around for the long haul. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
One on One with Herbert Yardley, Owner of Massey Yardley Chrysler
SUSIE GHARIB: So what does the bailout mean for car dealers? Joining us now is the owner of a Chrysler dealership for the past 50 years, Herbert Yardley of Massey Yardley Chrysler. It's near Fort Lauderdale, Florida. Hi Herb, so nice to see you on NIGHTLY BUSINESS REPORT.
HERB YARDLEY, OWNER, MASSEY YARDLEY CHRYSLER JEEP: Hello, Susie.
GHARIB: Well, tell me, does this bailout help you sell cars?
YARDLEY: Yes ma'am, it definitely does. It establishes the viability of the company. That's one of the key ingredients to our attracting customers.
GHARIB: So do you expect consumers now to come in and hand over some money to buy a new car?
YARDLEY: We want consumers to come in. We need credit for consumers right now. The credit is the piece that's still missing. It's very difficult for a customer to secure a loan and they're currently paying very high rates.
GHARIB: But my sense of American consumers right now is they're so worried about holding on to their job and holding on to their cash, that even if banks were ready to lend out loans at good rates or whatever, you still wouldn't have people coming in to buy cars. So what has to be done to get car sales going again?
YARDLEY: Well, Susie, you're right about consumer confidence. However, we have very, very good products and people have a constant need for automotive transportation. If the credit markets are in place and our companies are viable, which the government has just assisted with, we believe we can do things to stimulate the automobile business.
GHARIB: We hear about these on again-off again merger talks between General Motors and Chrysler. Would you be in favor of a merger of these two big car companies? Would your dealership benefit from a merge?
YARDLEY: I don't know that I can really answer that. What I can tell you is that the dealership benefits from very good products. Today with Chrysler, we have good products. Cerberus has put a great management team in place at Chrysler and I think we're doing very well. Give us a little consumer credit. Let the banks ease up some credit and I think we'll do very well.
GHARIB: Let me ask you this way and you've been in this auto business a really long time and this is a particularly tough time. A year from now, what will we be saying about the Detroit big three? Will there be big three? Will there be big two? Will there be one big one or none?
YARDLEY: Susie, I'm not smart enough to answer that but I know that it will not be none. And I do know that the American people compete much better than they're given credit for and I think the viability of the American companies can be shown rather quickly.
GHARIB: You know Herb, there are a lot of American consumers who feel that Detroit doesn't really make good cars. Is there anything that Americans auto makers can do to change that perception or is it too late?
YARDLEY: No, I don't think it's too late, but perception is a very difficult thing. We've had years of bad publicity. I think if you look at most of the ratings today, you'll find that domestic automobiles from all three manufacturers rank very high in consumer reliability. In our case, I know that our warranty costs have gone down dramatically which is the key indicator of how reliable the products are. I think we can close our eyes today, sell cars to our mothers and give them a very reliable product. GHARIB: You were around and involved during the Chrysler's first bailout back in the 1980s. How would you say this situation this time is different?
YARDLEY: The biggest difference right now is we had credit back then. Credit was not an issue. Today, we have a difficult time arranging credit for even people with the very highest credit ratings and most of the banks and finance companies we deal with about eight of them -- are putting standards very high. Secondly, our rates to the consumer are high. The American public has heard about how low interest rates have gone, but it hasn't reflected itself in the consumer market. The consumer is still asked to pay high interest rates. So what we need right now, in addition to the aid we got today is aid for the credit markets so that we can have credit and give them very low prices to our customers.
GHARIB: What's your prediction for 2009? How are car sales going to go?
YARDLEY: That's-- that's too difficult Susie, but I would tell you this, I don't think it's going to get any worse.
GHARIB: All right, well, we'll leave it there. I hope -- I hope you get some good news in the New Year. Herb, thanks so much for coming on the program tonight.
YARDLEY: Thank you, ma'am, enjoyed it.
GHARIB: My guest tonight, Herbert Yardley, owner of the Massey Yardley Chrysler dealership.
Retailers vs. The Recession
SUSIE GHARIB: With just five shopping days to go before Christmas, stakes are high for the nation's retailers this holiday season. So far, cash registers have not been ringing up many sales as consumers grapple with the worst recession in decades. And as Suzanne Pratt reports, experts say even massive promotions still won't have retailers seeing green.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: 'Twas the weekend before Christmas and all through the store, few shoppers were spending and desperate retailers wanted more. Sales and promotions were offered with care in hopes that consumers would soon be out there. Economist Mike Niemira says this Saturday, now known as super Saturday, will be busy, at least in terms of store traffic.
MICHAEL NIEMIRA, CHIEF ECONOMIST, INTERNATIONAL COUNCIL OF SHOPPING CENTERS: Despite some of the stories about weather around the country, I think the day will still -- Saturday will be the largest, the biggest shopping day of the year.
PRATT: That's because holiday shoppers are typically huge procrastinators. And according to the National Retail Federation, it's true this year, too. Twenty percent of Americans have not yet begun to shop. Men and adult consumers under the age of 35 are the biggest procrastinators, by group. But S&P retail analyst Marie Driscoll says even last minute shopping will not save this abysmal holiday season.
MARIE DRISCOLL, RETAIL ANALYST, STANDARD & POOR'S: We're looking for a decline of about 5 percent and the reason for that is there's fewer Christmas days, the amount of promotional shopping and a spooked consumer, a consumer who really is not out there.
PRATT: The desperation of many retailers is evident in the abundance of sales, not to mention the steep discounts. On New York's toney Fifth and Madison Avenues, many stores are empty. In past years, 65 percent off before Christmas was unheard of. In the 2008 economy, it's a common occurrence.
DRISCOLL: The retailer is virtually buying these sales. They are giving them away. They're hardly making money on any of these sales. When you see Saks having 60 to 80 percent off, they are just trying to move goods. And it's hard to grow your top line when you're discounting 60 to 80 percent.
PRATT: Retail experts say the next chapter of this unhappy tale is likely to be the going out of business sales. After the holidays, when retailers run out of cash, thousands of shops are expected to close their doors for good. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Market Monitor" -Ernie Ankrim, Chief Investment Strategist for Russell Investments
PAUL KANGAS: My guest "Market Monitor" this week is Ernie Ankrim, the chief investment strategist for Russell Investments based in Tacoma, Washington. Ernie, welcome back to NIGHTLY BUSINESS REPORT.
ERNIE ANKRIM, CHIEF INVESTMENT STRATEGIST, RUSSELL INVESTMENTS: Thank you Paul. It's my pleasure.
KANGAS: Wall Street's early rally today triggered by the auto bailout fizzled rather badly. Give us your thoughts on the market's reaction?
ANKRIM: Well, I was pleasantly surprised by its early reaction. Actually, I thought this was nothing more than buying the incoming president some time. I don't really believe that our sitting president was doing anything more than buying us a little time and I thought that was good. It's not a break (ph). It's not the final outcome here, but it does prevent what would have been, I think, a really bad start to President Obama's term.
KANGAS: Well, the loss of a million jobs would be serious to any economy, wouldn't it, if this had gone under?
ANKRIM: Absolutely. And, honestly it may be that we see a substantial reduction in the size of those companies before we're done. But I think that the sitting president allowed the president-elect to actually start on his own clock rather than be inheriting a really serious difficulty.
KANGAS: Right. Now on your last visit with us in late June, oil was nearing $150 per barrel and you said if it keeps rising, we're going to see a really bad recession. Well oil is now around $34 a barrel and we're in an ugly recession. What gives here? Are we going to see some improvement because of the drop of oil?
ANKRIM: I would have had loved to have seen some economic improvement if in fact the oil price had been speculatively high and then came off those highs. I think what we're seeing right now is weakness in oil driven mostly by very weak economic experiences around the globe and that's reducing demand. And that's the bad news of this. This is a case where we're get some relief as consumers, but that oil price is low for good reason and it's a scary reason.
KANGAS: Is this bear market getting a little bit long in the tooth? Can we expect it to -- to go away any time soon?
ANKRIM: I hope so. I believe we're close, Paul. This has actually been an amazing run. We had a sell-off from a peak in October and then we had the Lehman failure in September, which I think really brought a new leg down to this market. But I believe the market has discounted about as much bad news as we're going to see in the next 12 months. I think the economy over the next couple of months is actually going to be very bad and people might even interpret this as, well, the stimulus isn't working, liquidity isn't driving the economy. I think actually given enough time, we'll see this responding midyear next year but I think the markets will move before that.
KANGAS: I'm glad to hear that. On your last visit with us you gave our viewers three stocks to buy. Let's see how they've done since then. The first one was Devon Energy (DVN) and strangely enough, you said I hope it goes down because that means oil will go down. You got your wish.
ANKRIM: Sort of. It's a bad outcome. But you couldn't not be in energy some place. I was happy to see that that was my loser.
KANGAS: I understand your logic there. McDonald's (MCD) actually has a gain of 6.8 percent. Are you staying with that one?
ANKRIM: Our managers still have that as well as Devon, but McDonald's has been astonishing considering the market since that time is off about 35 percent.
KANGAS: And you had one other choice back then and that was Hewlett- Packard (HPQ), the bluest of blue chips and yet it's down 20 percent. Are you staying with it?
ANKRIM: We haven't over weighted Hewlett-Packard and actually, 20 percent looks good in a market that's down 30.
KANGAS: I agree. How about some new recommendations earnings?
ANKRIM: Paul, I've got a pharmaceutical, Wyeth (WYE). Like most pharmaceuticals it faces challenges where drugs go off and face generic competition, but they've got a really good pipeline and currently its P/E is about 50 percent lower than normally is and it's got a fairly good dividend at about 3 percent.
KANGAS: WYE on the big board, correct?
ANKRIM: That's right.
KANGAS: OK. How about a second choice?
ANKRIM: Wells Fargo (WFC). Our managers like financials and they understand that there's risk in some of these companies, but this one's going to be around for a while. Again it's got a fairly aggressive dividend yield of 4.5 and really doesn't have nearly the problems a number of financial institutions are facing.
KANGAS: And that's WFC on the big board. One more Ernie.
ANKRIM: That's right. The last one is Qualcomm (QCOM). It's again been taken down by the market. They're a leader in 3G cell phone technology. They design the chips that run almost all the cell phones out there. I think this is one that has been beaten up remarkably. It's got a 2 percent dividend yield itself and its P/E is about half what it has normally been historically.
KANGAS: QCOM on the NASDAQ. Ernie, do you personally own any of the stocks mentioned here or have other disclosures to make?
ANKRIM: They're all in mutual funds run by Russell that are in my retirement account but I don't own individual stocks Paul.
KANGAS: So you own them indirectly?
ANKRIM: That's correct.
KANGAS: Ernie, I want to thank you for being with us once again.
ANKRIM: My great pleasure Paul, thanks.
KANGAS: My guest, Ernie Ankrim of Russell Investments.
"Last Word"-The Madoff Scandal Goes Literary
SUSIE GHARIB: And finally tonight, it was just eight days ago that financier Bernie Madoff's alleged Ponzi scheme came to light. Here's an interesting story. Two major publishers have now announced plans for books about Madoff. Harper Collins and Random House say the books are already in the works, both for publication in 2010. One of those authors has reportedly gotten a $250,000 advance for his work. That's a lot less than the billions that Madoff is believed to have scammed from his clients and friends. And Paul, how much longer do think before we hear about a movie about the Madoff scandal?
KANGAS: Well there's already one entitled "To Catch a Thief" and Wall Street style we'd have to say "To Catch An Alleged Thief." All right.
GHARIB: The movie will be out soon, probably more than one, right?
KANGAS: Probably.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street revved up at the open on that auto bailout news, but the blue chips eventually stalled out. The Dow jumped 156 points in the first hour of trading with the NASDAQ up 38 points. The rally started to lose its luster as some investors doubted that the rescue plan would work. By noon the Dow was up only six points and then stocks turned mixed this afternoon with the blue chips posting losses from selling linked to today's quadruple expiration of stock futures and options. The Dow Industrial Average closed off 25.88 at 8579.11. This week, it rose only one time for a net loss overall of 50.57 points. The NASDAQ Composite gained 11.95 points to 1564.32 today. It rose twice and fell three times this week and added 23.60 points overall. Standard & Poor's 500 rose 2.60 to 887.88 today and for the week, it was up 8.15 points. Over in the bond market, the 10-year note fell 21/32 to 114 13/32, putting the yield at 2.13 percent.
New York exchange volume leader on 53.3 million shares, General Electric (GE) moving up $0.54. Standard & Poor's yesterday said the company could lose its AAA credit rating. The company stressed that it is safe.
Citigroup (C) down $0.41.
Ford Motor Co (F) moved up $0.11.
And then Wells Fargo (WFC) $0.29 drop.
ExxonMobil (XOM) was off $1.98.
Incidentally, GM stock was up $0.83 to $4.9 today, a 23 percent gain.
Bank of America (BAC) down $0.16.
Pfizer (PFE) an $0.18 loss.
JPMorgan Chase (JPM) up $0.11.
AT&T (T) a $0.40 advance there.
And Time Warner (TWX), tenth in volume, was down $0.16.
Accenture Ltd (ACN), the big consulting firm, up $1.80 on higher first quarter earnings of $0.74 versus $0.60 last year. Revenues up 6 percent. Standard & Poor's and Deutsche Bank brokerages both repeated "buys," even though the company cut its 2009 earnings outlook.
Fluor (FLR), the big engineering construction firm, down $2.79. Citigroup downgraded it from "hold" to "sell" because of the poor credit market conditions which is delaying construction projects.
Another big firm, Weyerhaeuser Co (WY) off $3.54. The company said the housing slump will result in significantly lower fourth quarter earnings. It's going to cut its dividend by 58 percent. It'll go from $0.60 to $0.25 quarterly, but the company will buy back up to $250 million of its own stock.
Gardner Denver (GDI), which makes compressors and things like that, down $1.44. The company sees 2008 earnings, $3 to $3.04, well down from the previous forecast from the company of $3.29 to $3.35. It's going to cut its global workforce also by 9 percent.
Intrepid Potash (IPI), the fertilizer firm, off $1.44. The company sees fourth quarter sales less than half of third quarter levels due to low potash demand.
And then Southwestern Energy (SWN) up $2.81. Surprisingly, this company is ramping up its oil production at oil shale operations.
Then Darden Restaurants (DRI) had a great day, up $4.57. Second quarter earnings jumped to $0.42 from $0.30 a year ago. Sales up 9.6 percent. Standard & Poor's however downgraded the stock from "buy" to "hold" on a valuation basis.
Circor International (CIR) which is into fluid control products, things like that, is going to have its stock added to the Standard & Poor's small cap 600 on a date to be announced.
And then another restaurant chain doing well today, Brinker International (EAT) up $2.58. The company closed the sale of an 80 percent stake in Romano's Macaroni Grill.
NASDAQ's most active, Apple (AAPL) up $0.57.
Research in Motion (RIMM) up $4.39. After the close yesterday, better than expected third quarter earnings out.
Microsoft (MSFT) an $0.18 loss.
Google (GOOG) down $0.11.
And Oracle (ORCL) up $1.17. After the close yesterday, it also had better than expected second quarter earnings out. Today, Standard & Poor's repeated a "buy." Cisco Systems (CSCO) $0.02 loss.
Intel (INTC) $0.18 gain.
First Solar (FSLR) up $2.80.
Qualcomm (QCOM) gained $0.91.
And Gilead Sciences (GILD) rose $0.87 a share.
Elsewhere, Provident Bankshares (PBKS) jumping almost 61 percent with that gain of $3.53. M&T Bancorp will acquire the company for stock worth about $9.50 a share. M&T Bancorp stock was down $3.76 at $55.96.
Those are the stocks in the news tonight.
