NBR Transcripts-December 24, 2008
Wednesday, December 24, 2008It's The Eve of Disappointment For Retailers
SUZANNE PRATT: On this Christmas Eve, many Americans spent the day scrambling to finish their holiday shopping. But that flurry of last minute gift buying isn't likely to help the nation's retailers avoid one of the worst holiday seasons in decades. The International Council of Shopping Centers now sees holiday sales down as much as 2 percent on average. That would be the weakest performance since at least 1969, when the trade group started keeping tabs. Even discounts of 50 and 75 percent off weren't enough to ignite sales, as consumers cut back on spending due to the recession and rising unemployment.
The Speed of Spending Dilemma
PAUL KANGAS: That pullback in spending was evident in the latest data out today from the Commerce Department. Personal spending fell in November for the sixth straight month, down 0.6 of a percent following a revised 1 percent drop in October. The decline came despite a continuing drop in energy prices, which fell sharply again today. In New York, February crude futures tumbled $3.63 or almost 10 percent to $35.35 a barrel. Spurring the slide, new government numbers showing a bigger than expected increase in oil supplies last week.
SUZANNE PRATT: Those declining oil prices are good news for consumers and could help relieve pressure on their budgets. More help could soon be on the way as President-Elect Barack Obama prepares a massive economic recovery plan. But as Darren Gersh reports, the incoming administration could run into an unusual problem: not being able to spend money fast enough.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you take out all the money the Federal government spends on the military, Social Security and medical care, you're left with what budget wonks call discretionary spending. That includes everything from test tubes in Federal research labs to plumbing for the space station. Last year, discretionary spending topped $500 billion. Now, Mike Ettlinger at the Center for American Progress says you have some idea of how hard it will be for President-Elect Obama to spend $800 billion or more to boost the economy.
MICHAEL ETTLINGER: So that kind of gives you a sense of the scale of things. So when you are talking about getting $500, $600, $700, $800 billion out the door, it's hard to do that responsibly.
GERSH: Being responsible often means being slow, and political economist Tom Gallagher says the Obama team may not have that option.
TOM GALLAGHER: For it to work, it has to be big enough and it has to be quick. And I'm not sure that political Washington is fully aware of just how badly the economy is collapsing right now. It's not just enough to have a big 2009 stimulus. There has to be money put into the economy early.
GERSH: The fastest ways to get money out the door are also some of the least glamorous. Give money to laid off workers who are likely to spend it right away. Those now-famous shovel-ready infrastructure projects qualify, but the projects that could begin by spring make up a fairly short list. Also, the Obama plan may help states pay their Medicaid bills. Washington analyst Stuart Sweet believes much of the early money in the recovery plan will be used to prevent state and local governments from slashing spending and canceling projects. Most will do that to meet requirements they balance their budgets.
STUART SWEET: It may not be that there's a surge of highway construction employment to the level that people imagine. It will go up, but without this, it would probably go down.
GERSH: Cutting taxes may get money to consumers as soon as March and the Obama team has signaled it will speed up the president-elect's plan to expand tax credits for working families. But even that might not help the economy much.
ETTLINGER: If it just ends up going into savings, it doesn't really give a kick to the economy that we need.
GERSH: When you look closely at the Obama recovery plan, two things become clear. First, the spending is so big that it will have to be spread out over two years or more. And second, the economy will probably be weak enough to need help for that long. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
The Unpredictable Currency Climate
PAUL KANGAS: While currency traders sold dollars today to clear their books ahead of the holiday break, there has been little rhyme or reason for currency trading in recent days. As Scott Gurvey reports, the greenback's wide price swings this year have been producing Excedrin moments for investors.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The relative value of the dollar is not something we think about a lot, unless we travel outside the country. That's because most of us are paid for our work in dollars and then we buy stuff with those same dollars. We only think about currency conversions when we find the price of that widescreen TV has gone up and we are told the weak dollar is to blame. In October, the dollar seemed to make a bottom against other currencies -- like the euro shown here -- as the worldwide economic crisis deepened, but it has lost momentum as the year draws to a close. Steven Englander of Barclays Capital sees another change in sentiment.
STEVEN ENGLANDER: There has been massive safe haven demand for U.S. Treasuries. It's been the safest of all assets globally. But if you can think of a world where we're not quite as risk averse as we are now and when people begin to worry about supply and demand of different types of assets and the yields that they're giving, the huge issuance of essentially zero yielding Treasuries isn't a formula for a very strong dollar.
GURVEY: But Marc Chandler of Brown Brothers Harriman argues it would be a mistake to bet against the American economy and the dollar at this time.
MARC CHANDLER: Many people have been concerned about the U.S. has been in the decline, people said. I think that out of this crisis the U.S. will emerge strong than before. Look at what's happened to the main U.S. adversaries. Russia, Iran, Venezuela -- they've all been hit by this collapse in oil prices from $140 a barrel to like $35 a barrel. They're ability to project their power has been terribly frustrated.
GURVEY: Ironically, Englander says as long as interest rates remain lower in the U.S. than elsewhere, the dollar may be slow to gain from a stronger economy.
ENGLANDER: Europeans aren't going to be issuing as much and they're not expected to cut rates as much and they're kind of saying, the U.S. may be doing the heavy lifting in terms of pumping up global asset markets and eventually global demand. Europe is kind of a little bit more reticent on the rate cut side and their fiscal plans aren't as ambitious and that's actually a formula for a stronger euro, not a weaker one.
GURVEY: Confused? Well, most analysts tell me the world remains scared and therefore still risk averse and therefore still demanding safe haven dollars. So the price of that TV set should not be going up any time soon. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The Recession Proof Video Game Industry
SUZANNE PRATT: With shell-shocked consumers holding tight to their cash, many retailers are likely to ring up only bleak holiday sales this year. But as Lucy Craft reports from Tokyo, there's one gift-related industry expecting 20 percent annual sales growth.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Financial disasters or no, it's still fun and games as usual for the $35 billion video games industry. 2008 is expected to be another banner year for the business, as it rolls out long-awaited sequels to blockbusters like Final Fantasy and Monster Hunter. While other Japanese companies like cars or electronics are sweating over a slowing world economy, here in the video game industry, they're unfazed. In fact they say, the video game business is immune to recession. The industry isn't merely shrugging off the global slowdown. Chris Kramer, spokesman for Japanese software maker Capcom, says a sour economy is actually good for business.
CHRIS KRAMER: What we were finding was that people are being more cautious and more careful with their entertainment dollars. Instead of going out for a single evening of entertainment, what they'll do is they'll, they actually are going out. I'll take my $50 and I'll buy a game, because I know I'm going to get 40 hours, 100 hours of entertainment out of this game. People were actually buying more games, because they were looking at it as a better investment for their entertainment money.
CRAFT: Okasan Securities analyst Masashi Morita says software makers are just starting to cash in big on a huge installed user base. Tens of millions of game consoles have been sold.
MASASHI MORITA: Game software is relatively cheap. So I think it's hard for them to be hurt by the economic downturn. The only losers would be with those with less interesting titles. Right after 9/11, Christmas sales were virtually unaffected. So that's why I think we won't get hurt this year, either. I think this will be the industry's best year ever.
CRAFT: There is one fly in the rock 'em, sock 'em ointment -- the game business is quite a different beast from what it was back in 2001. Instead of catering exclusively to so-called hardcore gamers -- young males with an insatiable appetite for new titles -- nearly half of the market is in what's known as casual games, like this software for people who are trying to quit smoking or release their inner rock star. Klee Kuo is a spokesman for software company Square Enix (ph).
KLEE KUO: They're not necessarily people that would grind 50-60 hours in one game. They just want to carry something on the go where they can play five minutes on the train, on the bus, things like that.
CRAFT: In other words, casual games are aimed at just about everyone. Some analysts, like KBC Securities' Hiroshi Kamide, warn that by courting casual gamers, the industry has exposed itself to recession.
HIROSHI KAMIDE: It is a massive market. Unfortunately though, you can't really convert these casual gamers to core gamers.
CRAFT: But with so many new offerings in the pipeline, the industry argues even a monster of a recession can't stand in its way. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Street Critique" -Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS: While 2008 has been an ugly year in the markets, tonight's "Street Critique" guest sees a recovery taking hold in mid- 2009. She is Hilary Kramer, author of "Ahead of the Curve" and chief market strategist at Greentech Research. Hilary great to see you again.
HILARY KRAMER, AUTHOR, "AHEAD OF THE CURVE": Nice to see you, Paul.
KANGAS: Before we get to your predictions for next year, what happened to this year's Santa Claus rally?
KRAMER: (INAUDIBLE) because Bernard Madoff, which is the $50 billion Ponzi scheme rip-off has really rippled through the entire market from Asia, Europe, to the U.S. and so a Santa Claus market has -- it's actually evaporated because there are more net sellers and no one out there is buying.
KANGAS: So very subdued?
KRAMER: Very, very much so, and most hedge funds, 95 percent are in cash right now.
KANGAS: Let's get to your thoughts on the coming year. First the markets. Where are we going?
KRAMER: I believe in the first six months, everyone should be very careful, all investors. We could see the Dow dip to 7500. S&P could have another 25 percent downside, but then I see a remarkable recovery. The market will come back up. It's a leading indicator when rates go low. You're going to see a lot of investors who forget how bad things were come back into the market and try to recoup some of those losses. We could end up higher on the year for '09. But don't just rush in or if you have some concern in the market, sell, hold out, wait for the real bottom to come.
KANGAS: Well, 2008, as we know, was the year of the bailout. Are we going to see some more of that?
KRAMER: Absolutely. And it will be in the auto industry but we're going to see some new surprises, for example, retail, hospitality, leisure. The commercial real estate developers have asked for a $200 billion bailout. So there's going to be bailouts across the board.
KANGAS: What about the U.S. dollar?
KRAMER: Oh, the U.S. dollar, this is a major problem that I see that's brewing because ultimately it will create inflation. But right now, we are printing so many dollars. Did you know that some were outsourced to Switzerland to print? That's how come the U.S. government can't print it fast enough. Dollars are sticking together when you get them from the bank. But what's happening is, it's too much money being printed and then we have the recovery. It's just an economic equation. We will have significant inflation (INAUDIBLE) inflation.
KANGAS: That would be good for gold, wouldn't it?
KRAMER: Absolutely. And that's why I see a recovery with gold. Because what happens, is with the dollar down, you're going to have other investors around the world -- in China, in Europe -- starting to look for other currencies or other forms of investment and that may lead them to gold and gold investments if they don't want their money in the U.S. dollar.
KANGAS: Do you have a target price for gold?
KRAMER: I do, absolutely. I think that gold could reach $1400 during 2009.
KANGAS: We have less than a minute left. We've got to get your predictions on oil.
KRAMER: I do see that oil will rise. It will come back up. There's no question because we will start to have some recovery take place,and you know, we've had a surplus in the pipeline. But I don't see it going back to $100 a barrel of oil, $60 to $70 but this is my big prediction which is that we are going to see a major depression take place in the Middle East because the Middle Eastern countries, Dubai, Bahrain, what they've done is they have spent so much money based on future cash flow expectations of $150 a barrel oil. So, Paul, expect some real problems out of the Middle East, and we're going to see some attention paid there.
KANGAS: Back here at home, what happens to the employment picture?
KRAMER: I believe that unemployment -- the unemployment the government puts out will rise to 10 percent. But real unemployment, true unemployment of those who aren't working who want to could reach 20 percent. I'm seeing it pervasively across the board in all industries, in all demographics, especially the auto industry, if they have the bankruptcy that I expect that it will have.
KANGAS: Hilary, I want to thank you for sharing your predictions with our viewers and a happy holiday.
KRAMER: Paul, thank you very much and I hope for the best for 2009.
KANGAS: I'm with you. My guest, Hilary Kramer, author of "Ahead of the Curve."
"Money File"-The Hunt For A Money Manager
SUZANNE PRATT: In the "Money File" tonight, finding a trustworthy money manager. Here's Jason Zweig, personal finance columnist at the "Wall Street Journal."
JASON ZWEIG, "WALL STREET JOURNAL": With legendary trader Bernard Madoff accused of making off with up to $50 billion of his clients' money, how can you protect yourself from getting victimized by an unscrupulous investment manager? First, never invest based on word of mouth alone. No matter how much you trust the person who recommends a money manager, you still have to do your homework. Start by requesting the investment advisors form ADV. Read it carefully, looking for legal or regulatory problems and possible conflicts of interest, like a firm that trades for its account as well as on behalf of clients like you. Ask to see at least 10 years worth of investment performance and make sure those returns are real, not just a hypothetical look at how well the firm might have done if it had invested a certain way. Then check whether the returns have been adjusted for the fees you would have paid and ask how much would have been left after taxes. Be sure the returns have been audited by an accounting firm you have heard of. The assets should also be held for safekeeping, or custody, by a major bank. Finally, there is something fishy about returns that are either very high -- say, 3 to 5 percent better than the stock market -- or very smooth, with almost no losses along the way. If you hire a magician instead of a money manager, you're the one who may end up getting sawed in half. As the old saying goes, first investigate, then invest. I'm Jason Zweig.
"Last Word" IMG Delivers The American Dream
SUZANNE PRATT: And finally tonight, Christmas will come in January for 500 American homeowners. That's when online bank ING Direct will pick up their mortgage payments. The bank held an essay contest and 5,500 customers entered. The winners were those with the most compelling stories of financial hardship. The tab for the mortgage payments comes to more than $860,000 or about $1,700 per household. And, Paul, the gift is being funded in an unusual way. ING employees gave up their annual holiday party to help offset the cost of the contest.
KANGAS: Now that is in the true spirit of giving right there. PRATT: It certainly is.
Paul Kangas' Stocks in the News
PAUL KANGAS: On Wall Street, stocks moved higher despite more signs of recession like that drop in personal spending we just mentioned, plus a decline in durable goods orders and another jump in jobless benefit claims. Mid-way through the morning the Dow posted a 38 point gain, with the NASDAQ Composite up two points. Year end portfolio dressing kept the market modestly higher right into the early closing bell at 1:00 p.m. The Dow Jones Industrial Average ended with a gain of 48.99 at 8468.48. The NASDAQ Composite was up 3.36 at 1524.90, while the Standard & Poor's 500 Index closed up 4.99 at 868.15. In the bond market, the 10-year note lost 3/32 to 113 28/32, putting the yield up to 2.18 percent. PRATT: A day of trading trouble at the Chicago Mercantile Exchange. For three and a half hours this morning, a technical problem shut down part of the exchange's Globex electronic trading platform. The outage halted electronic trading in dairy, housing and lumber futures, along with some derivatives. Open outcry transactions still took place as usual. The specific cause of the glitch is still unknown.
New York exchange volume leader on only 8.1 million shares, very slow day, Bank of America (BAC) up $0.78 and that's despite speculation the company may have to cut its dividend again.
Then Citigroup (C) up $0.26.
General Electric (GE) lost a penny.
Ford Motor (F) down $0.08.
And Micron Technology (MU) up $0.23, even though its first quarter loss was $0.91, well up from the $0.34 loss of a year ago and revenues dipped 8.7 percent.
Prologis (PLO) up $3.18. Yesterday it was up nearly $1 on the company's plan to sell its operations in China for $1.3 billion and it'll use those proceeds to pay off debt. Today, Deutsche Bank brokerage upgraded it from "hold" to "buy" and Wachovia upgraded it from "under perform" to "out perform."
Pfizer (PFE) with a $0.02 loss.
And then came ExxonMobil (XOM) up $0.68.
Qwest Communications (Q) an $0.08 rise.
And CIT Group (CIT) was down $0.45, tenth in volume.
Nike (NKE) gained $1.17. The DA Davidson brokerage began covering the stock with a "buy" in the belief the company will continue to gain market share in the sportswear industry.
Navistar International (NAV) down $1.05. The company's going to restate results by $50 to $70 million higher for the nine months ending July 31, 2008, but the stock still on the downside.
Orbital Sciences Corp. (ORB) down $0.28. The company has been selected by NASA for a $1.9 billion contract to provide cargo transportation services to and from the international space station.
China Eastern Airlines (CEA) did well, rising $2.04. The bank of communications (ph) gave the company a $1.5 billion line of credit.
A lot of changes in the Standard & Poor's indices at the end of the month and one of them, Owens-Illinois (O) which gained $2.13 today. That stock to be added to the Standard & Poor's 500 after the close December 31st, replacing Wachovia, which of course is being acquired by Wells Fargo.
Another change here, Actuant Corp (ATU) up $0.79. Its stock will be added to the Standard & Poor's small cap 600 index after the close on December 31st.
Elsewhere, Sherwin-Williams (SHW) up $1.32. CEO told the "Wall Street Journal" the company's well positioned to ride out the recession and may well boost its dividend next year.
Apple (APPL) topped the NASDAQ active list, down $1.34.
Google (GOOG) up $4.93.
Microsoft (MSFT) lost $0.11.
Research in Motion (RIMM) down $0.79. The company is suing Motorola alleging it improperly blocked RIMM from hiring current and laid off Motorola employees. Motorola stock fell $0.09 a share.
Then Cisco Systems (CSCO), fifth in volume, was up $0.11 a share.
Qualcomm (QCOM) $0.02 loss.
Intel (INTC) $0.16 gain.
First Solar (FSLR) down $3.64.
Gilead Sciences (GILD) up $0.46.
And Oracle (ORCL) with a $0.02 gain.
FedEx (FDX) up $0.34. Late today, FedEx said because of the severe winter weather across much of the U.S., all 665 of its domestic sorting stations will be open Christmas morning allowing customers to pick up their packages.
