NBR Transcripts-January 5, 2009
Monday, January 05, 2009President-Elect Obama Works On A Plan To Cure The Economy
SUSIE GHARIB: President-Elect Barack Obama said today that the U.S. economy is quote, very sick and getting worse. He was on Capitol Hill meeting with lawmakers and pitching his ambitious plan to revive the economy, which reportedly includes $300 billion in tax cuts. That could save as much as a thousand dollars for some families and includes tax incentives for businesses to buy equipment and hire new workers. Obama also pledged to be accountable to American taxpayers, saying they have a right to know where their money is being spent. Washington Bureau chief Darren Gersh has more.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president- elect is a man in a hurry. At meetings on Capitol Hill and also with his economic team, Mr. Obama said he expects to sign a massive recovery package into law just a few weeks after taking office.
PRESIDENT-ELECT BARACK OBAMA: It is clear that we have to act and we have to act now to address this crisis and break the momentum of the recession or the next few years could be dramatically worse.
GERSH: According to a new analysis by Moody's economy.com, without a stimulus package, the economy could shrink almost 4 percent this year. A recovery plan of the size Obama is considering is expected to cut that decline in half. The impact would be more dramatic next year. Without a plan, the economy falls 1.7 percent. With a recovery package, the economy is projected to grow 2 percent. Numbers like those have convinced the U.S. Chamber of Commerce's Bruce Josten that passing the Obama plan is critical.
BRUCE JOSTEN, EXECUTIVE VICE PRESIDENT, US CHAMBER OF COMMERCE: We'll be supportive of a measure that's going to stimulate consumption, can stimulate business investment and stimulate job creation as well as job retention. That's what we need.
GERSH: Of course, all the added spending is expected to push the Federal deficit to somewhere around $1 trillion. Faced with that number, Mr. Obama promised what he called very serious and concrete plans to bring down the deficit as the economy recovers.
OBAMA: If we are going to grow this economy over the long term, if we are going to create a better future for our children and our grandchildren, then we can't be fiscally irresponsible about how we do it.
GERSH: While it's impossible to guarantee how Congress will act in the future, budget hawks like former Congressman Bill Frenzel say it is still important that the current recovery plan include a pledge to rein in future spending.
BILL FRENZEL, GUEST SCHOLAR, ECONOMIC STUDIES, BROOKINGS: Otherwise, the consumers, producers, investors, the market makers are going to say, hey wait a minute. We're not going to be fooled by some short-term spending program if the whole country is going over the edge in 10 or 20 years.
GERSH: But there's no question the economy needs help this year and the $300 billion tax cut Obama is considering could begin to have a big impact on consumer spending and business investment as soon as this spring. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Bernie Madoff Heads To Court While The SEC Gets Grilled on the Hill
SUSIE GHARIB: Bernard Madoff was back in a New York courtroom today as prosecutors asked to revoke his bail, claiming the disgraced financier is a flight risk. The judge is expected to rule on that request later this week. Meanwhile in Washington, a congressional committee asked questions today about why government regulators failed to catch Madoff's alleged $50 billion Ponzi scheme. Stephane Dhue is standing by with more on this story. Stephanie?
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, lawmakers want to know how the Securities and Exchange Commission missed that many warnings that Madoff's investments were too good to be true. There were the consistent 8 to 12 percent profits, warnings from outsiders and the use of an obscure auditor. All should have been red flags. Yet the SEC examined Madoff's books eight times in 16 years and didn't uncover the fraud. Lawmakers like Georgia Democrat David Scott want to know why.
REP. DAVID SCOTT, (D) GEORGIA: Why did investigators never use subpoena powers to obtain truthful information? Instead, they only relied upon information voluntarily produced by Mr. Madoff. That's sort of like asking a thief if he's stealing. Well, the thief is going to tell you no, I'm not stealing.
DHUE: SEC's Inspector General David Kotz promises to get to the bottom of what went wrong. Specifically, he's looking at how the agency handled complaints against Madoff, allegations of conflicts of interest, including relationships between Madoff and SEC officials and an analysis of its inspections of the firm. While the investigation is just two weeks old, Kotz promises the issues will be dealt with quickly.
DAVID KOTZ, INSPECTOR GENERAL, U.S. SECURITIES & EXCHANGE COMMISSION: We're looking to try to issue reports on a rolling basis, so that if we can identify a particular, discrete issue, we can have a report on that issue without waiting for something that is, you know, 500 pages that comes years from now.
DHUE: While many Democrats on the panel are calling for increased regulations and resources, Republicans like Ron Paul say that would be a mistake.
REP. RON PAUL, (R) TEXAS: This circumstance, I think, really makes my point that the approach is completely wrong, that the regulatory agencies pre-empting people from doing bad things just doesn't work. There are millions and millions and millions of transactions. You can't -- you can't do it. All they do is give a false sense of security.
DHUE: There's a big question whether investors will be able to recoup much money. Sip-ic (ph) is supposed to provide up to half a million dollars in insurance per investor, but the agency has less than $4 billion on hand. A lot will depend on how much can be recovered from Madoff. So far, less than a billion dollars has been found in his firm. Susie?
GHARIB: It doesn't sound like Madoff's victims are going to get much money Stephanie. What else can they do? What are the other options?
DHUE: The first option is really to file a claim with the trustee because we don't know how much money was there. They might get some funds from the Sip-ic, although lawyers say it is notoriously difficult to get money from them and they may want to consult a lawyer. There are a number of class actions cases being filed.
GHARIB: Another question though a lot of investors are asking, I'm sure you've heard this, is that what can be done to prevent a massive fraud like this. And you said in your report that lawmakers are saying it is not because there weren't enough regulations. It's just enforcing them. So what do you do in the future?
DHUE: Well, clearly some people need to go to jail although that never seems to be all that much of a deterrent and certainly doesn't get money back for investors. There is a real concern that the SEC staff is underpaid and doesn't have the incentive to go after someone like Madoff. A natural career path is from the agency to Wall Street. So that is something that is likely to be addressed.
GHARIB: I have been hearing a lot that the Obama administration is going to make massive changes with the SEC. Is that what you are hearing? Should we expect that?
DHUE: Well, some people are calling for the SEC to be abolished all together and Obama sent a signal that the SEC and the CFTC which regulates commodities, that those two could be merged when he picked Mary Schapiro for the SEC post and he picked Gary Gensler for the CFTC post and he announced them on the very same day.
GHARIB: We'll see what happens. Thanks Stephanie for updating us. Appreciate it.
DHUE: Thank you.
GHARIB: Stephanie Dhue reporting from our Washington bureau.
American Auto Dealers Continue To Get Dealt Setbacks
SUSIE GHARIB: December capped a dismal year for the nation's auto makers with even fewer cars and trucks leaving dealer showrooms. Sales at General Motors and Ford each tumbled about 32 percent last month, while Chrysler's plunged 53 percent. Japanese rivals Toyota and Honda also felt the sting of the recession. Their U.S. sales fell 37 percent and 35 percent respectively. Now almost half of those sales came in the final week of December as buyers locked in year-end bargains and took advantage of new incentives. As Diane Eastabrook reports, GM and its customers benefited the most.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Luis Perez is hoping to start the New Year with a new Pontiac Vibe.
LUIS PEREZ, CAR SHOPPER: It's lower than the normal price and it's a good car as far as I know, so I'm thinking of getting it.
EASTABROOK: In the past week, lower price tags on GM vehicles like the Vibe have brought more consumers like Perez to dealer lots. But helping GM even more has been the return of cut-rate financing as well as an easing of credit standards by its financing unit GMAC. After receiving $5 billion in aid from the Federal government, last week GMAC said it would again make loans to consumers with lower credit scores. Ken Taheny, general sales manager for a Pontiac GMC dealership, thinks the new programs could help thaw the frozen vehicle market.
KEN TAHENY, GENERAL SALES MGR., NAPLETON PONTIAC/GMC: We're looking for the people that may have thought about purchasing a car in the near future or maybe are considering purchasing a new car in the next year.
EASTABROOK: Industry watchers estimate General Motors may have lost as many as 30,000 sales a month after GMAC tightened credit requirements last October. Global Insight auto analyst George Magliano thinks temporarily loosening credit could give vehicle sales a boost, but it won't turn them around.
GEORGE MAGLIANO, AUTO ANALYST, GLOBAL INSIGHT: It will put some more as I say, some more volume into the numbers, but it's never going to buck the trend that we're seeing in the market place now. Sales are going to stay low throughout the industry because it's being wracked by a recession, the worst recession we've probably seen in our post-war history.
EASTABROOK: Fabian Guercio agrees. The general sales manager of a Chevrolet dealership doesn't think consumers will start buying again until they've regained confidence about their jobs and the economy.
FABIAN GUERCIO, GENERAL SALES MANAGER, HOSKINS CHEVROLET: As a consumer you're going to be scared. Who wants to go out and spend $40,000 if you're not sure what tomorrow's going to bring?
EASTABROOK: GM's low rate financing program ends today. But GMAC's lower credit requirements will continue indefinitely. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Elk Grove Village, Illinois.
"Get Your Finances Ready for Retirement"-A Look at Immediate Fixed Annuities
SUSIE GHARIB: Investors are looking for alternatives to stocks, especially these days after the markets performed miserably in 2008. One option many retirees are considering is an annuity. So for the next two Mondays, we'll road-test various types of annuities. Joe Collum kicks things off in tonight's "Get Your Finances Ready for Retirement" with a look at immediate fixed annuities.
JOE COLLUM, NIGHTLY BUSINESS REPORT CORRESPONDENT: Abe Novogrodsky is 96 years old and going strong still working six days a week coordinating services at a Miami synagogue and he expects to maintain his daily routine for as long as possible.
ABE NOVOGRODSKY, BETH DAVID CONGREGATION: I'm in pretty good health. I take care of myself. I exercise. I read. I'm active.
COLLUM: Because he still holds a job, Novogrodsky says he doesn't have to worry about his finances. But as Americans live increasingly longer lives, one of their big concerns is that they'll outlive their retirement savings. One possible solution is to buy an annuity. In essence, when you buy an annuity, you turn over a lump sum of money to an insurance company. You then get a series of checks over a certain amount of time or for as long as you live -- providing you with a guaranteed stream of income. In fact, author Kerry Pechter says buying an annuity is the equivalent of creating your own private pension plan.
KERRY PECHTER, AUTHOR, "ANNUITIES FOR DUMMIES": Most people do not have defined benefit pensions and they have to create their own form of a lifetime guaranteed income and one way to do that, the primary way to do that, is simply to buy annuity.
COLLUM: There are various types of annuities, but Hugh McHaffie of John Hancocks wealth division, which sells annuities, says the simplest and most common is the immediate fixed annuity.
HUGH McHAFFIE, JOHN HANCOCKS: If you provided a million dollars to us, we will guarantee you a string of income of $50,000 no matter how long you live. And that guarantee's backed by the full faith and credit of the insurance company.
COLLUM: Maria and Leonel (ph) Rojas of Cooper City, Florida, were looking for lifetime financial security when they each bought immediate annuities last year.
MARIA ROYAS, RETIREE: I will still get the same income for whatever many years I live, 20, 30, 50. I'm planning to live long.
COLLUM: They bought their immediate annuities on the advice of certified financial planner Richard Akirmaian. He says Mrs. Rojas's plan will pay her at a rate of about 8 percent per year for 15 years or life, whichever lasts longer. If she dies after, say, five years, her annuity will pay her beneficiaries for the remaining 10 years. But many immediate annuities simply stop paying when the holder dies leaving nothing for survivors. An immediate annuity does not go up and down with the stock market and Professor Meir Statman says while that can provide peace-of- mind, some people have a hard time giving up potential gains.
MEIR STATMAN: When you have a million dollars worth of stocks in your portfolio and you convert it on one day into an annuity, the next thing that happens for sure is that the stock market zooms just to spite you and you feel horrible.
COLLUM: And there can be other downsides because the payments on fixed immediate annuities never change. Over 20 or 30 years, inflation will eat away at their purchasing power. If inflation protection is offered, it will cost extra. Also, immediate annuities often carry high surrender fees and that can be a problem if the holder needs to cash in early in order to meet a medical expense or other emergency. For that reason, if you don't need the money unless you live past a certain age, a better option may be a deferred immediate annuity or longevity insurance. These offer the same types of lifetime income as a regular immediate annuity, but don't begin paying out until some time in the future. Before buying any annuities, it's important to shop around for the best fees, payout rates and guarantees. And it's also important to consider the financial stability of the companies making those guarantees by checking their ratings. Joe Collum, NIGHTLY BUSINESS REPORT, Miami.
GHARIB: Next Monday, we'll look at the pros and cons of variable annuities as we continue to "Get Your Finances Ready for Retirement."
"Commentary"-Ways The Next Administration Can Cure Healthcare
SUSIE GHARIB: Tonight's commentator wants President-Elect Obama to tackle health care costs head on. She's Alice Rivlin, senior fellow at Brookings and former vice chair of the Federal Reserve.
ALICE RIVLIN, SENIOR FELLOW, BROOKINGS: In his campaign, candidate Obama promised to fix the two biggest problems of American health care: making our wasteful, expensive system more efficient and covering the uninsured. But the new president now finds himself facing the worst recession in decades and some are advising him to put health care on hold until the economy recovers. Nonsense, this is exactly the right moment for comprehensive health reform. The ranks of the uninsured are swelling. Fear of losing health coverage is making consumers anxious and afraid to spend. Part of restoring confidence is assuring workers that they will not lose their health insurance even if they lose their jobs. Moreover, slowing the growth of health spending requires substantial investment in the skills, knowledge and infrastructure needed to make care more efficient, including information technology and analysis of which drugs and treatments are worth the cost and which are not. Well planned investment in a more effective health system is at least as important to economic recovery as investment in transportation and communications. The great depression made Social Security possible by dramatizing the plight of the elderly. This recession dramatizes the challenges to our health system. There will never be a better moment to launch comprehensive health care reform. I'm Alice Rivlin.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened lower on profit taking after last week's solid gains. The Dow fell over 100 points early on with the NASDAQ down 25 points. Stocks trimmed their losses over the mid-session, but rally attempts were undermined by analyst downgrades on AT&T, Verizon and JPMorgan. Also a plunge in December auto sales and a further jump in oil prices kept the market under pressure through the afternoon. So the Dow Industrial Average closed off 81.80 points at 8952.89. The NASDAQ Composite down 4.18 at 1628.03 while the Standard & Poor's 500 Index fell 4.35 ending at 927.45. Over in the bond market, the 10-year note fell 1 5/32 to 111 even, lifting the yield to 2.49 percent.
Most active New York exchange issue on 25.8 million shares, Citigroup (C) losing $0.06. Deutsche Bank cut earnings estimates on Citigroup and on 15 other major U.S. commercial banks and one of the others was Bank of America (BAC) which lost $0.35. Then General Electric (GE) down $0.44.
Iron Mountain (IRM), a digital company, up a penny. It's very active today because this stock is replacing U.S.T., the old U.S. Tobacco Corp. in the Standard & Poor's 500 Index. U.S.T. of course being taken over by Altria.
ExxonMobil (XOM) down a penny even though oil prices were up today.
And then Compania Vale (RIO) up $0.91.
Sprint Nextel (S) rose $0.17.
Ford Motor Co (F) despite the lower auto sales up $0.12.
JPMorgan Chase (JPM) down $2.10. Deutsche Bank cut its 2009 earnings estimates by $0.65 down to $2.05 a share, also cut its price target on JPM from $37 to $34 a share and the Fox Pitt (ph) brokerage sees a fourth quarter loss coming up for JPMorgan.
Pfizer (PFE), tenth in big board volume was down $0.11.
Verizon Communications (VZ) losing $2.16. Bernstein Research downgraded it from "market perform" to "out perform," also downgraded AT&T from "out perform" to "market perform" and AT&T dropped $0.99 today.
Navistar International (NAV) the star indeed today, up $5.67. The company's projected 2009 earnings are below the Street estimate, but the company says its military business is growing and also it's very positive on some new opportunities.
Walgreen Co (WAG) up $1.29. Its December sales were up a better than expected 10.8 percent from a year ago, nice move in the stock.
Barnes & Noble (BKS), the book seller, a $2.06 gain. Investor Ron Burkle has accumulated an 8.3 percent stake in the belief that the stock is under valued.
Best Buy Co (BBY) in the meantime, up $0.98 and Goldman Sachs upgraded it from "neutral" to "buy."
McAfee (MFE) losing $1.04. Credit Suisse downgraded it from "out perform" to "neutral" in the belief that earnings gains over the near term will be quite limited for McAfee.
Aercap Holdings Nv (AER), look at that move, up nearly 48 percent and it traded as high as $5.18. The aircraft leasing and maintenance company signed a $1.4 billion credit facility with a group led by Calyon.
And then we see Las Vegas Sands (LVS) up $1.39 on hopes the Chinese (INAUDIBLE) for Macao will be loosened. Of course, this company has a major casino there.
Apple (AAPL) topped the active list up $3.83. You heard the news on Steve Jobs.
Google (GOOG) up $6.73.
Microsoft (MSFT) a $0.19 advance.
First Solar (FSLR) up $6.30.
Research in Motion (RIMM) gained $1.38.
Intel (INTC) a $0.29 loss.
While Cisco Systems (CSCO) moved up $0.15.
Amgen (AMGN) a $0.66 gain.
Qualcomm (QCOM) lost $0.60.
And then Comcast (CMCSA), tenth in NASDAQ volume, down $0.90.
Elsewhere, Conmed (CNMD), this is a company that sells and markets hospital equipment and it's plunging nearly $7 a share after the company issued a warning that fourth quarter sales will be hurt by foreign exchange fluctuation, probably because of the stronger dollar.
And those are the stocks in the news tonight.
