NBR Transcripts-Friday, December 26, 2008
Friday, December 26, 2008Post Xmas Sales Don't Deliver
SUZANNE PRATT: On this day after Christmas, retailers pulled out all the stops, offering deep discounts to clear out holiday merchandise. Historically, the week between Christmas and New Year's accounts for about 15 percent of holiday sales. But this year, desperate retailers are doing all they can to ring up extra sales and save the season. And as Erika Miller reports, the bleak sales environment does not bode well for 2009.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you thought the discounts were deep before Christmas, you may be shocked by the markdowns now. Kmart, for example, is offering 50 to 70 percent off many items. Store manager Charlie Moore says that's what it takes to get shoppers to open their wallets.
CHARLIE MOORE, STORE MANAGER, KMART: Post Christmas, we've seen a lot of people look at electronics, people bringing in gift cards looking for video games, looking for some toys that are left, things maybe they missed prior to Christmas.
MILLER: Other chains like rival JC Penney, opened at 5:30 a.m. offering door buster specials and wake-up calls. Despite these efforts, retail analyst Joseph Feldman warns many stores will have trouble moving merchandise.
JOSEPH FELDMAN, RETAIL ANALYST, TELSEY ADVISORY GROUP: The retailers need to clear inventory. They need to get ready for the spring goods that are going to come in. And what's concerning here is gift cards sales were a little weaker, so you may see less redemptions in January and February, making it more difficult to clear that inventory.
MILLER: 2008 is shaping up to be the worst holiday season in decades due to the weak economy and stormy weather. According to preliminary data from Mastercard's spending pulse, retail sales fell between 5.5 and 8 percent for the holiday season. A better indicator will come January 8, when major chains report same store sales results. Amazon.com was one of the few companies reporting good news today. The online retailer said sales this holiday season were its best ever, although it did not provide additional details. Analysts are quick to point out that strong sales don't always translate into strong profits -- especially if margins are razor thin. This year, Circuit City, Steve & Barry's and a slew of other retail chains filed for bankruptcy protection. Analysts see more store closings ahead.
FELDMAN: We are expecting more after the holiday season, once the retailers kind of come out of this and see where their books are and what the liquidity situation is. We don't expect it to be very good and we expect to see some additional bankruptcy filings.
MILLER: Weak holiday sales don't just hurt the nation's merchants. Consumer spending drives two thirds of economic growth. So economists warn trouble in the sector will likely lead to cutbacks at other businesses early next year. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Are Sales Tax Holidays On The New Administration's Agenda
SUZANNE PRATT: President-Elect Barack Obama is far from Washington today, enjoying some rest and relaxation in Hawaii. But in the nation's capital, lobbying groups are hard at work trying to influence the next president's massive economic recovery plan. A national sales tax holiday is one suggestion retailers are currently floating. Darren Gersh did some comparison shopping on the idea.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, you can get 30, 60 percent, even 70 percent off now. But retailers argue a national sales tax holiday would help consumers find deals in March, July and October, times when the discounts are not so deep. The National Retail Federation's Scott Krugman says it could be an important part of the Obama economic recovery plan.
SCOTT KRUGMAN, VP, INDUSTRY PUBLIC RELATIONS, NATIONAL RETAIL FEDERATION: You got to have something in there to create jobs, but we understand that's long term. You need something in there short term while you're waiting for these jobs to come to fruition.
GERSH: The retail Federation says the sales tax holiday could last a total of 30 days and cover everything except firearms and tobacco. The Federal government would reimburse states for up to $20 billion in lost revenue. Krugman says the holiday would be more effective than simply handing out rebate checks.
KRUGMAN: This works more because it only rewards actual spending, where the rebate checks, people were able to save them. And that was good because it increases the savings rate, but it doesn't do a lot for the economy.
GERSH: Critics like economist Dan Mitchell dismiss the holiday as a gimmick that merely shifts money around, but does nothing to increase overall spending.
DANIEL MITCHELL, SENIOR FELLOW, CATO INSTITUTE: Let's say there is a sales tax holiday at some point next year. If I have a big ticket item, like I want to buy a computer for one of my kids for school, I'll make sure I buy it during the sales tax holiday.
GERSH: Retail analysts like Marshal Cohen at NPD Group don't go that far. Cohen thinks a tax holiday will help, but he says the bigger problem is that retailers got lazy in the good times when consumers would buy whatever was on the shelf. Taking off 6 to 8 percent in sales tax won't help as much, Cohen says, as retailers doing the hard work need to sell more compelling products.
MARSHAL COHEN, CHIEF INDUSTRY ANALYST, NPD GROUP: When I speak to consumers, a lot of them say yes I am concerned about the job market, but as long as I have my job and I know that I'm a little bit secure for a time period, you know I still want to spend for a holiday. But there's nothing out there that's exciting for me, so why not take a step back and say, hey, do I really need this? And if it really isn't a great product, what do I need to spend that kind of money for?
GERSH: There's another question members of Congress will be asking themselves about a national sales tax holiday: is there a better way to spend tax payer dollars? Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Green Options"-LFG
SUZANNE PRATT: Many businesses consider being environmentally friendly a smart marketing move. But with volatile energy prices, going green can also make good business sense. As Jeff Yastine reports in our ongoing series, "Green Options," that factor is driving an effort to tap into an unusual source of energy.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For travelers through south Florida's table flat geography, these grass-covered mountains of trash are pretty hard to miss. Every region around the country has at least one solid waste landfill and garbage trucks, sometimes by the hundreds each day, climb the slopes, dropping off tons of trash. These pyramids of refuse generate a lot of methane gas, a byproduct of the bacteria slowly breaking down the organic matter inside the landfill. The methane gas is usually vented or burned off at the landfill to avoid a dangerous buildup of flammable gas. But in recent years, more industrial companies are warming to the idea of using this so-called landfill gas as a method of powering their manufacturing operations. The Environmental Protection Agency says the number of users of so- called landfill gas or LFG has more than doubled since 1997. One of those new users is Anheuser-Busch. The brewer, owned by Europe's Inbev, uses landfill-produced methane gas to fuel its beer making operations in Houston and Fairfield, California. Methane is captured at the landfill through vent pipes like these, then cleaned and filtered before being pumped through miles of pipeline to the breweries. Anheuser-Busch says it wants to be more environmentally friendly. Doug Muhleman oversees the project and says the landfill gas is also bottom-line friendly.
DOUG MUHLEMAN, GROUP VP FOR BREWING & TECH., ANHEUSER-BUSCH: It does help. The volatility of fuel prices is very difficult for any company that uses energy. The brewing process is very energy intensive so it has a big effect on us. So anything that we can do to take the volatility out of our costs and hedge for the future, is going to be good for our business.
YASTINE: Making the switch does have its costs. In Anheuser-Busch's case, boilers and other industrial equipment had to be converted to burn methane. And the pipeline from the landfill to its Houston brewery was six miles in length. But energy consultant Mike Bedley says those costs aren't usually deal breakers.
MIKE BEDLEY, ANALYST, APEX POWER SERVICES: Capital costs may range from $5 to $15 million anywhere from $500,000 to $1 million per mile, but a landfill that has the equivalent of $6, $8, $10 million of available gas, it could obviously pay itself off in five to 10 years, which would be a good investment.
YASTINE: Landfill owners are also recognizing the untapped energy potential of their sites. Operators like Waste Management have begun selling landfill gas to heavy energy users, generating another stream of cash from those mountains of trash. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
"Market Monitor"-Thomas Herzfeld, President of Thomas J. Herzfeld Advisor
PAUL KANGAS: My guest market monitor this week is Thomas Herzfeld, president of Thomas J. Herzfeld Advisors, a firm specializing in closed ends funds. And Tom, welcome back to NIGHTLY BUSINESS REPORT.
THOMAS HERZFELD, PRESIDENT, THOMAS J. HERZFELD ADVISORS: Thank you Paul. Happy holidays.
KANGAS: And the same to you.
HERZFELD: Thank you.
KANGAS: As an expert in closed end funds, one of the top in the world, briefly explain to our viewers how these funds differ from other types.
HERZFELD: Closed end funds are almost the same as mutual funds, except they trade on the stock exchange like ordinary stocks. They can trade above or below their net asset value depending on supply and demand.
KANGAS: And they have a set number of shares outstanding?
HERZFELD: Yes.
KANGAS: Very good. Well we know how bad a year it's been for stocks in general, so can we assume closed end funds got caught in the carnage as well?
HERZFELD: Yes, they had an awful year, the worst I've seen in the 40- plus years I have been following them. Discounts (INAUDIBLE) values widened and their net asset values performed worse than the market because the funds are mostly leveraged.
KANGAS: Ah, that's one of the dangers of high leverage. A lot of these funds though are paying huge dividends, 20 percent and sometimes even more than that. So why have they fallen so sharply?
HERZFELD: Some of that yield was the result of leverage and the funds are de-leveraging. Another case is it was return of capital. The best way to buy a closed end fund is after they cut the dividend and there have been 60 dividend cuts in December.
KANGAS: And nasty ones, too. OK, so right now, you're looking at a market that's ready for buying. We'll get into that, but you think generally it's a good time?
HERZFELD: Closed end funds, the industry moves in five and 10-year cycles and we're at the beginning I think of a five or 10-year bull market in closed end funds.
KANGAS: On your last visit with us a year ago almost to the day, you recommended three closed end funds. Let's see how they've done, although we have a pretty good idea. But you trade these things in and out many times a year do you not?
HERZFELD: We're short-term traders.
KANGAS: Right. So the Clough Global Opportunities (GL) you gave to us in December, it was in a profitable position. Was it shortly after?
HERZFELD: I think last year's recommendations, if you sold them in January, which is usually our trades, buy in December, sell in January, you would have made money on last year.
KANGAS: You always tell me, if you're going to have me on the program, always do it in December. Why is that?
HERZFELD: At the end of the year, people take tax losses and since the share price is based on supply and demand, you have all the supply coming into the market, it widens their discounts. In January, the tax sellers are gone and the discounts snap back.
KANGAS: And that happened to the Dremen fund (DHG), which was another recommendation. It was up first and then down it went.
HERZFELD: The best year-end trade is buy in December, sell in January.
KANGAS: There was one other recommendation, also, last time, DWS (KMM) and that's down 31.7 percent, same story though.
HERZFELD: Yes. All of those are cheap by the way, but they're not this year's recommendation.
KANGAS: Well give us your general outlook for closed end fund performance in this New Year coming up.
HERZFELD: It's going to be a great year for closed end funds. They've been beaten down to the worst levels I've seen. The Herzfeld closed end average is at a 19 discount. That's the widest I can remember and I'm just looking forward to a very strong year.
KANGAS: Well, let's have some new recommendations Tom.
HERZFELD: One is an emerging market debt fund, Western Asset Emerging Market Debt Fund, ESD. It's a 13 percent yield and it's trading at a 17 percent discount to net asset value.
KANGAS: How well do you think that dividend is going to hold up?
HERZFELD: Should be good for at least three months. The next one I'm going to recommend just cut their dividend and I think that's going to be fine going forward.
KANGAS: Let's get to that next one that you would recommend buying now.
HERZFELD: You know we've been buying this one aggressively. Alpine Global Premiere Properties Fund (AWP). It's about an 11 percent yield after cutting the dividend and trading at a 30 percent discount to net asset value. The stock's trading at about 3 (ph). It came out last year at 20.
KANGAS: So what do they mainly invest in, these two?
HERZFELD: Well, of course, the first one, emerging market debts.
KANGAS: All over the world.
HERZFELD: Yeah. And alpine and property stocks globally. They're in Japan, in the U.S.
KANGAS: Well diversified. OK. Do you personally own any of these funds mentioned or have other disclosures to make about them?
HERZFELD: I own all the stocks I recommend when I come on this show and we own them for our accounts and we have been buying them aggressively recently.
KANGAS: So you're looking forward to a very strong January once the tax selling is out of the way.
HERZFELD: By the way, because I knew that you might be look at something longer than a January trade, both of these I think are going to be fine for the year.
KANGAS: OK, very good and very interesting. That's why you always like December here.
HERZFELD: Yeah.
KANGAS: All right. Tom, we're out of time, but I want to thank you for being with us once again.
HERZFELD: Thank you, Paul.
KANGAS: My guest Thomas Herzfeld, president of Herzfeld Advisors.
"Commentary"- A Message For Bully Bosses
SUZANNE PRATT: Tonight's commentator has some thoughts for bully bosses as we head into the New Year. Here's Bill Baker, author of "Leading with Kindness: How Good People Consistently Get Superior Results."
BILL BAKER, PROFESSOR, FORDHAM UNIVERSITY: As we studied the research we did for our book and public television documentary, "Leading with Kindness", we wondered if we had perhaps isolated one of the possible causes of the recent financial crisis. Sampling the database of the American Management Association we found that workers with bully bosses don't speak openly and candidly to their superiors, probably because they are afraid of them. Similarly, 64 percent of those who have these imperious bosses say their bosses didn't listen to what they say, as opposed to only 7 percent with kind bosses. Might this give you some idea as to how so-called smart leaders drove their Wall Street firms off the proverbial cliff and later testified before Congress that they didn't know it was happening? They were probably telling the truth. They had no communication with their line management and the workers who knew what was happening but were afraid to say. Or maybe they were told but just didn't listen. Kind bosses are not doormats, nice people who are walked over by their employees. Rather they conduct themselves like knowledgeable parents demonstrating qualities such as compassion, integrity and gratitude. There's some good news too. Seventy four percent of the people surveyed in our AMA database said their bosses were kind, a real surprise and very hopeful for America's productivity. I'm Bill Baker.
Paul Kangas' Stocks in the News
PAUL KANGAS: The Dow rose 55 points at the outset of trading while the NASDAQ gained just a fraction. The upturn had trouble gaining traction with post Christmas volume at a crawl, while the NASDAQ faltered. But blue chip buyers stayed on through the afternoon, helping the broader market end on a positive note. The Dow Industrial Average closed up 47.07 at 8515.55. In this abbreviated week, the index fell in two of the last four sessions for an overall loss of 63.56 points. The NASDAQ gained 5.34 to 1530.24 today and like the Dow, it rose twice and fell twice, losing 34.08 points on the week. Standard & Poor's 500 index rose 4.65, closing at 872.80 for the day and for the week, the index was down 15.08. Over in the bond market, the 10-year note rose 15/32 to 114 9/32, putting the yield at 2.14 percent.
The most active New York exchange issue on only 10 million shares was Citigroup (C) down a nickel. It shows you what a slow day it was.
Bank of America (BAC) off $0.17.
General Electric (GE) lost $0.14.
Ford Motor (F) bucking the trend, up $0.18.
And then General Motors (GM) gained $0.41. As you heard, the Federal Reserve board OK'd GMAC's financial services to become a bank holding company, which of course will expand its funding ability.
Moving along in the actives, ExxonMobil (XOM) up $1.41. Oil up over $2 a barrel today. We'll see some more oil stocks in a moment.
Pfizer (PFE) $0.09 gain there.
Wachovia (WB) lost a nickel.
Prologis (PLD) $0.31 advance.
And then Wal-Mart Stores (WMT) down $0.09 a share, tenth in volume.
Lockheed Martin (LMT) did well, up $1.89. The United Arab Emirates is the first Arab nation to buy the company's advanced Patriot antimissile systems. For Lockheed, it's a $3.3 billion deal.
The gold stocks were stars today as gold jumped $23.20 an ounce to $871.20 in the New York February contract and the sector was strong as you can see. Barrick Gold (ABX), Freeport-McMoran (FCX), Kinross Gold (KGC) and Newmont Mining (NMT) all doing well.
Jones Apparel (JNY) gained $1.73. The company successfully completed adjustments to its credit facility, resulting in greater flexibility.
And another firm that did well by that Commscope (CTV) up $1.29. It also amended terms of its credit agreements.
Smithfield Foods (SFD) a $0.91 gain. It traded as high as $13.41 during the day mainly on hopes that feed prices and especially corn and rising hog prices will boost earnings in the months ahead.
Here are some oil stocks responding to that $2.36 rise in the February contract in New York to $37.71. Noble Corp (NE), Schlumberger (SLB), Occidental Petro (OXY) and Transocean Ltd (RIG) all on the plus side nicely.
NASDAQ's most active was Apple (AAPL) $0.77 gain. On Sunday, Wal-Mart as you heard will start selling the iPhones 3G in Wal-Mart stores, about 2200 of them.
Google (GOOG) down $2.59.
Amazon.com (AMZN) a $0.34 gain. As you heard here, the company sold a record number of items so far this Christmas season and at one pace was going at 72 per minute or was it per second? I think it was per second.
Microsoft (MSFT) a $0.04 loss.
And then Cisco Systems (CSCO) an $0.08 drop there.
Intel (INTC) $0.05 loss.
Qualcomm (QCOM) moved up $0.27.
Oracle (ORCL) an $0.11 advance.
First Solar (FSLR) gained $1.28.
And then Research in Motion (RIMM) falling $0.17 a share.
Elsewhere, Integral Systems (ISYS) up $1.53, good percentage gain. Fourth quarter earnings came in at $0.28 a share, up from $0.23 last year and that was $0.08 better than the Street consensus.
And those are the stocks in the news tonight.
