NBR Transcripts-January 9, 2009
Friday, January 09, 2009The Unemployment Rate Climbs Higher
SUSIE GHARIB: The number of Americans out of work is now at its highest level in 16 years. The Labor Department said today the nation's unemployment rate jumped to 7.2 percent last month, up from 6.8 percent in November. And American businesses cut payrolls by more than half a million workers in December, bringing the total number of jobs lost in 2008 to 2.6 million, the largest annual decline since 1945. As Scott Gurvey reports, the employment outlook for 2009 can be summed up in one word.
BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: Dreadful. There's not much more I can add to that. It's just, we're in one of the most severe collapses in economic activity that we've experienced in the last 50 years.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: That's Brian Fabbri, chief economist of BNP Paribas and you know the subject. It appears many of America's factories virtually stopped production in the fourth quarter and laid off workers. Construction also ground to a standstill. And the service sector shed jobs at a record pace. Economist David Greenlaw of Morgan Stanley says the increasing speed of the job cuts indicates the recession will last well into next year.
DAVID GREENLAW, CHIEF U.S. FIXED INCOME ECONOMIST, MORGAN STANLEY: We lost almost two million jobs in the last four months of the year alone. So we're going to see, I think, the pace of job loss very close to that over say first half of 2009. So you're looking at job loss in 2009 that could approach four million or so for the year.
GURVEY: As recent reports on retail activity show, we are afraid of losing our jobs and are saving rather than spending and many economists believe even government moves to spur spending will take a while to kick in.
GREENLAW: With the stimulus in the pipeline, with the stimulus that's likely to be enacted over the course of coming months, I think we will see the markets and the economy begin to stabilize, but it's not going to happen right away. We're going to see these types of employment reports I think for the next several months.
GURVEY: And that's one of the more optimistic opinions. Some expect the unemployment rate to reach levels not seen since 1982.
FABBRI: I think the unemployment rate probably goes up beyond 9 percent during the course of this year, stays there in 2010. I think we'll probably lose another two-and-a-half to three million jobs over the course of 2009 and this includes an estimate of a very significant fiscal stimulus package being passed by the Congress early in 2009.
GURVEY: President-Elect Obama has already called for a plan to create as many as three million jobs this year. That would only replace the jobs lost last year. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Japan's Banks Are Taking Hard Hits From The Global Economy
SUSIE GHARIB: Japan escaped most of the sub-prime mortgage meltdown and its big banks are in better shape than financial institutions in the U.S. and Western Europe. But as Lucy Craft reports from Tokyo, the international economic slowdown has been disastrous for the country's traditional local banks.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The streets of Tokyo's financial district are a virtual embassy row of Japan's provincial banks with geographic names like Hokuriku, Iwate and Tohoku signifying the areas they serve, community banks are the backbone of small-town Japan. Japan's regional lenders are old-style relationship banks, closely intertwined with the main street companies they finance. But main streets under water these days and so are their bankers, says Fitch ratings analyst Reiko Toritani.
TRANSLATION OF: REIKO TORITANI, SR. DIRECTOR, FINANCIAL INSTNS., FITCH RATINGS: Their loan growth is flat. Bigger and more competitive banks are invading their turf. The total loan pie is shrinking. So their profits are tanking and that's why regional banks are suffering now.
CRAFT: Unlike Japan's handful of highly diversified and mammoth financial institutions, known as mega-banks, most local lenders are joined at the hip to depressed rural communities, explains Fujitsu research economist Martin Schulz.
MARTIN SCHULZ, SR. ECONOMIST, FUJITSU RESEARCH INSTITUTE: Japanese regions and countryside has never really restructured as a major city like Tokyo has or Osaka is currently doing, so it is basically the real economy which is hitting them. The government supports these banks. But they also support them by encourage them, giving more credit to the existing customers who do not have good prospects.
CRAFT: Until a few years ago, Japan's hinterland economies could count on a steady stream of pork barrel spending. But with public works down sharply, provincial towns, their populations aging and shrinking, are stagnant. Mortgage loans, meanwhile, which typically comprise a quarter of community-bank business, are also on the decline. Credit Suisse economist Hiromichi Shirakawa says Japan's historic five years of growth largely passed the regions by.
HIROMICHI SHIRAKAWA, CHIEF ECONOMIST, CREDIT SUISSE JAPAN: Fiscal policy tightening or reduction of public spending has hard hit regional economies such as Hokkaido or Shikoku or Kyushu area, which have been generally speaking, more dependent on government spending.
CRAFT: With mega-banks pecking away at their turf and their capital bases dangerously depleted, a third of all listed regional banks reported net losses in the first half of this fiscal year. Still, analysts argue that bank failures are unlikely.
TORITANI: The default of a local bank would be unthinkable. Regional banks have huge market shares in their districts and the economic impact of a failure would be enormous, so none of them can be allowed to go under.
CRAFT: Japan's last recession, starting back in the 1990s, triggered a drastic consolidation among Japan's big city banks. Analysts say the same thing could happen this time with this recession, among Japan's regional banks. They're forecasting a wave of mergers, among the more than 100 local lenders. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
"Market Monitor"-Randall Eley, President of the Edgar Lomax Company
PAUL KANGAS: My guest "Market Monitor" this week is Randall Eley, president of the Edgar Lomax Company, an investment advisory firm based in Springfield, Virginia. Welcome back to NIGHTLY BUSINESS REPORT Randall.
RANDALL ELEY, PRESIDENT, THE EDGAR LOMAX COMPANY: Thank you, Paul. Good to see you.
KANGAS: I'd like your reaction to today's big rise in December unemployment.
ELEY: I think it's one indicator. Certainly the one that most people care most about that we're in a serious recession that has not run its course.
KANGAS: You've expressed concern in the past over the mounting debt levels facing both consumers and the Federal government. What is your take on the Obama stimuls plan which will likely add hundreds of billions of dollars to the Federal deficit?
ELEY: I think it's a continuation clearly in a somewhat different direction, but a continuation of what we've already been seeing. We have a situation whatever the administration in office, there's a lot of pressure and a lot of suggestions from economists in general and other political factors to do something to help the economy. But the fact is we're hoping to ease the stresses and strains, nothing is going to be able to stop the recession from working out this debt situation.
KANGAS: Where in your opinion does the housing industry stand currently?
ELEY: I think the safest thing to say is that we're closer to the bottom than we were a year ago or certainly the last time I appeared with you in August, but I don't know exactly where it ends, whether we have another year or two to go. But the real estate market, like the stock market is actually a less risky place in which to buy a home to live in. Investigating is a serious enterprise and I think this whole market, set of market declines we've been seeing is reminding people that you shouldn't try to make money trying to flip homes or play the stock market.
KANGAS: Right. Well, the stock market's recent behavior, has it convinced you that we've seen a major bottom?
ELEY: I'm not convinced that we've seen a major bottom. We may have seen a short-term bottom and I hope the short-term bottom will turn out to be extended, really over the next couple of years or so. But I do feel, I feel much more comfortable investing in S&P 500 stocks today than I have in some time.
KANGAS: Briefly, where do you think oil prices are headed?
ELEY: I think we're closer to a bottom in oil. Now we may see it go a bit lower. After all, five years ago, oil I think was about $20 to $25 a barrel less than today but sooner or later, inflation is going to return and I think oil will be one of the factors we see rising the greatest.
KANGAS: Now last August you gave our viewers four stock "buy" recommends. Let's see how they've done since then. We see Chevron (CVX) down 13.6 percent and today they did give an earnings warning. Are you still with it?
ELEY: Oh, yes. That's very normal to give an earnings warning.
KANGAS: OK and Dupont (DD) down 44.4 percent. Who would have guessed that, quality company.
ELEY: That's right.
KANGAS: OK. Let's have a look at the other two. It's been a rugged market as we say. Blue chips like Caterpillar (CAT) down 38, over 38 percent. Home Depot (HD) down 13.3. Still with those?
ELEY: That's right. As sharp as those stocks are down, Paul, an equal weighted portfolio in those stocks was down 3 percent less than the S&P 500.
KANGAS: OK, now incidentally, some of our viewers would like your thoughts on Dow Chemical (DOW). That's a stock you've recommended in the past, but it's certainly struggling now. What to do?
ELEY: That's right and I still like it on any earnings basis but I think balance sheet is key here and until we know exactly what's going to be worked out as Dow is finishing its acquisition of Rohm & Haas and until we know what's going to happen to substitute that Kuwaiti deal, I'm a believer it's better to keep your powder dry and wait.
KANGAS: OK. How about some new recommendations Randall?
ELEY: Yes. I'm going to give you four again. I'd like to start with Alcoa (AA). Here's a company in the cyclical industry that obviously earnings can decline greatly as management (INAUDIBLE) have told us. But we can buy that stock today at a 5 P/E ratio over the last year, a dividend yield of over 6 percent and a price to book of 60 percent by the way.
KANGAS: Less than 50 seconds left, let's move it along.
ELEY: All right. I like to keep Chevron (CVX) where we have a P/E ratio of 6 and a dividend yield of over 3.5 and I like to also keep Dupont (DD). Here's the case that, if at first you don't succeed, try, try again. Dividend yield 6.5 percent by the way.
KANGAS: You can wait when you're getting a return like that. You can be patient.
ELEY: That's right.
KANGAS: OK. One more.
ELEY: And finally ExxonMobil (XOM). This is a stable company, P/E ratio of nine, dividend yield of over 2.1 percent but this is a well-run company.
KANGAS: Do you personally own any of the stocks mentioned or have other disclosures?
ELEY: Own all of them.
KANGAS: Very good. We've run out of time, but thanks for being with us once again.
ELEY: And thank you very much too.
KANGAS: My guest, Randall Eley, president of the Edgar Lomax Company.
Paul Kangas' Stocks in the News
PAUL KANGAS: That surge in the December unemployment to 7.2 percent triggered an opening sell-off on Wall Street. An hour into trading, the Dow was off 140 points, the NASDAQ down 41 points. A late morning rally failed to gain traction as investors focused on Best Buy's gloomy outlook. Between the economic environment and pre-weekend selling, the market stayed in moderately lower (INAUDIBLE) right through to the closing bell. So the Dow Industrial Average ended down 143.28 points at 8599.18. This week, it rose only one time for an overall loss of 435.51 points. That's 4.8 percent. The NASDAQ Composite fell 45.42 points today to 1571.59, marking its third loss of the week, which brought the Index down 60.62 points over 3.7 percent overall. The Standard & Poor's 500 fell 19.38 to 890.35 today. This week, it dropped 41.45 points or nearly 4 1/2 percent. In the bond market, the 10-year note rose 15/32 to 111 27/32, putting the yield at 2.39 percent.
Big board volume leader on 26 1/2 million shares, Citigroup (C) losing $0.41. As you heard, Robert Rubin stepping down from the board. Also the company expects to take a $1.4 billion fourth quarter charge because of its exposure to the bankrupt Lyondell Baizal (ph) Corporation. Sandler O'Neill and Fox Pitt brokerages both boosted Citigroup's fourth quarter loss estimate.
Bank of America (BAC) a $0.55 drop.
Sprint Nextel (S) managed a penny gain.
General Electric (GE) $0.14 loss there.
And then AT&T (T) down a half a dollar.
Wells Fargo (WFC) fell $0.58.
$0.06 drop in Ford Motor Co (F).
JPMorgan Chase (JPM) off $1.25.
Pfizer (PFE) fell $0.21.
Co Vale do Rio (RIO) down $0.18 a share.
Lennar (LEN) a major casualty, down $2.27 and it traded as low as $8.23 on an allegation that the company improperly boosted cash on its balance sheet. The accuser is Barry Binkow (ph), who was hired by a disgruntled litigant. The company dismissed the allegations as false.
CVS Caremark (CVS), the big pharmacy chain, down $3.65. The company sees 2009 earnings at $2.53 to $2.61. That's below the Wachovia estimate of $2.74 and also hurting is pressure to cut costs from pharmacy benefit clients.
Best Buy Co (BBY) down $1.57. December same store sales plunged 6.8 percent. The company cut its fiscal 2009 earnings guidance from a high of $2.90 down to $2.70 a share at best and that is based on a 2 to 3 percent decline in same store sales in that period.
AZZ (AZZ), which makes electrical parts, up $2.95, big third quarter earnings, $0.88, up from $0.66 last year. Revenues jumped 26 percent. The company boosted its 2009 earnings guidance, nice day for AZZ.
Synnex (SNX), an information technology firm, up $1.41. Higher earnings, fourth quarter, $0.80, up from $0.61 last year and $0.09 above the Street estimate. Revenues rose 6 1/2 percent.
Vail Resorts (MTN) down $1.63. The company says total skier visits to the winter season to date for its five resorts down 5.8 percent from a year ago.
And Greenbrier Co (GBX) which makes rail cars and parts for rails, off $1.22. The company had a first quarter loss of $0.20 a share, versus earnings of $0.16 a year ago. Revenues fell 10 percent and Greenbrier is cutting its quarterly dividend in half from $0.08 down to $0.04 a share.
Phillips-Van Heusen (PVH) down $1.44. Wedbush Morgan brokerage downgraded it from "buy" to just a "hold" recommendation.
And Harley-Davidson (HOG) off $1.58. The president of Harley-Davidson financial, Sy Nakve (ph) is resigning and the CFO of Harley will temporarily take over that position.
NASDAQ's most active, Apple (AAPL) down $2.12.
Apollo Group (APOL) an $8.05 gain. The company's enrollments are very strong its University of Phoenix unit. First quarter earnings for Apollo, $1.12, way up from $0.39 last year.
Google (GOOG) down $10.12.
Research in Motion (RIMM) gained $0.96.
Cisco Systems (CSCO) $0.84 loss there.
Microsoft (MSFT) down $0.60.
First Solar (FSLR) rose $7.18.
Intel (INTC) a $0.40 loss.
Qualcomm (QCOM) down $0.28.
And Oracle (ORCL) down $0.26.
Palm (PALM) up $1.51, big percentage move. Now the company's new touch screen phone is getting a very warm reception. It might give Apple quite a bit of competition. That might have been one of the reason why Apple stock fell over $2.
And finally, Rambus (RMBS) down $7.26. A judge has ruled the company can't pursue patent claims against Micron Technology because it destroyed documents critical to the case.
And those are the stocks in the news tonight.
