NBR Transcripts- January14, 2009
Wednesday, January 14, 2009Apple CEO Steve Jobs Steps Down...Temporarily
SUZANNE PRATT: Late today, Apple CEO Steve Jobs said he's taking a medical leave of absence because of health problems. The stock plunged as much as 9 percent in reaction. The bombshell comes a week after Jobs insisted his recent weight loss was tied to a easily treatable hormone imbalance. The charismatic CEO now says the problem has become more complex. Jobs has the board's full support and he hopes to be back by the end of June. Apple Chief Operating Officer Tim Cook will run day-to-day operations in his absence. Joining me now to talk more about that situation at Apple is Standard & Poor's analyst, Tom Smith. Tom, thanks for joining us.
TOM SMITH, EQUITY ANALYST, STANDARD & POOR'S: Hi, thanks for having me.
PRATT: So, Tom, tell me what is your reaction to this news from Apple?
SMITH: Well, it's a disappointment because Steve Jobs had been a strong charismatic leader for the company, a strong visionary and a pitchman and we'll miss him for that even if it's just for six months. Perhaps he will come back. Perhaps the whole story will unfold some other way, but I think that the company is well managed. We like it as a "strong buy." And it has a number of virtuous attributes as a tech company in this downturn.
PRATT: What can you tell us about Tim Cook? Is he an able manager? Is he going to be able to hit the ground running do you think?
SMITH: Yes, I think so. In fact he has been running many aspects of the company for some time. He's the COO. You hear him on the calls. He runs things. He brings a background as corporate supply chain manager with experience at Compaq and IBM before that, an MBA from Duke, industrial manager, industrial engineering degree from Auburn. He's a capable guy for keeping the company going. I think the question investors might have is can he lead the company in the visionary ways that Steve Jobs had in terms of new product design for having a flock of ardent followers that will hang on his every word as he describes where he wants to go with his next round of gadgets.
PRATT: What about the stock? As you just heard it's down sharply in after-hours trading. Is it going to take a big hit tomorrow morning?
SMITH: I would expect there would be some follow-through but you never quite know. After-hours trading is thin. It generally moves pretty sharply. It gives you an indication of direction but sometimes the force doesn't remain. I think we've had some chance now for several years to think about Steve Jobs' health and what the company might be like without him. Now that event is unfolding. I think some of that is in the price. I think investors have thought about it already. I think just on fundamentals, you still have a strong company in terms of debt. large cash on hand, organic growth and several strong product lines where they're gaining share in smart phones and PCs.
PRATT: So would you be a buyer of the stock tomorrow morning? You said you had a "buy" on the stock. Is this an opportunity to get in at a lower price?
SMITH: Yes, that's right. We like it even better at the lower price to get in.
PRATT: OK. And any disclosures that you need to make for us this evening?
SMITH: Well, I don't own any of the shares. I'm an S&P equity analyst and that's it.
PRATT: OK. Thanks, Tom. Thank you for joining us this evening.
SMITH: Thank you.
PRATT: My guest, Tom Smith, equity analyst at Standard & Poor's.
Malaise at the Mall
PAUL KANGAS: The latest economic data proves what retailers have been saying for months. The holiday season was truly disastrous. U.S. retail sales plunged 2.7 percent in December. Excluding autos, sales fell more than 3 percent, the most on record. Those falling sales are taking a toll on the nation's shopping centers. Erika Miller reports on the malaise at the mall.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Malls have been an American institution since the 1950s. But now malls are getting mauled by the economic downturn. According to some estimates, a quarter of the nation's 1,500 plus malls may be in trouble, including this one in Nanuet, New York. There's even a website, deadmalls.com, documenting their demise. Retail consultant Howard Davidowitz expects the trend to accelerate.
HOWARD DAVIDOWITZ, RETAIL CONSULTANT, DAVIDOWITZ & ASSOCIATES: We have a crisis in the shopping center sector and the commercial real estate sector. We've got 19.5 square feet of selling space for every man, woman and child in America and we're going to get down to 12. That's going to mean a massive change in retailing in the United States.
MILLER: But Mike Niemira at the International Council of Shopping Centers disputes any notion that malls are dying.
MICHAEL NIEMIRA, CHIEF ECONOMIST, INTL. COUNCIL OF SHOPPING CENTERS: Certainly there have been a lot of store closings and less store openings. But even if you look at that, that's about 3 to 4 percent of the total number of retail establishments in the United States. And will there be some shopping centers that will no longer exist? Yes, but probably that percentage will probably be less than the 2 to 3 percent.
MILLER: But the fact remains, not a single traditional, enclosed-style mall was built last year or the year before, and none are slated for this year. Back in the 1990's, new malls were going up at a rate of roughly 140 a year. Victor Calanog, who tracks retail real estate trends, sees a major transformation occurring.
VICTOR CALANOG, DIRECTOR OF RESEARCH, REIS: I think there will be a lot of pressure on malls as they currently stand. We are already seeing the rise of shall we say lifestyle centers which kind of combines residential and retail, just to kind of ensure that there's some demand there.
MILLER: Where there is demand is at big box retailers like Wal-Mart and Costco, who generally prefer to occupy their own free standing buildings. In addition, many mall operators took on heavy debt loads when times were good and are now having difficulty refinancing. General Growth Properties, the nation's second biggest mall operator, has already warned it may file for bankruptcy. But experts say many smaller mall operators are in worse shape than general growth.
CANALOG: We've actually found that they generally hold higher quality malls as properties. So, there is an opinion out there that they may survive even may survive this downfall as opposed to independent retail operators that have lower quality properties.
MILLER: As for the Nanuet mall, it lost an anchor store last year and analysts predict it will soon make the list at deadmalls.com., another victim of the changing retail landscape. Erika Miller, NIGHTLY BUSINESS REPORT, Nanuet, New York
SUZANNE PRATT: The Gottschalks department store chain today became another casualty of the recession. It filed for Chapter 11 bankruptcy protection. The company got a $125 million loan from GE Capital to keep it running through a reorganization. Gottschalks has 58 stores and 5,300 employees in six western states. The century-old chain is based in Fresno, California and more than half of its stores are located in the Golden State.
"A Time for Change: The Obama Agenda"-Economic Recovery Plan
SUZANNE PRATT: President-Elect Obama continued to press Congress to release the rest of the money in the Troubled Asset Relief Program or TARP. While that's up in the air, House Speaker Nancy Pelosi says there's progress towards finalizing a massive economic stimulus bill. She's expected to announce details tomorrow. In part two of our series, "A Time for Change: The Obama Agenda," Darren Gersh reports on a key goal of the new administration's recovery plan, restoring the nation's battered sense of confidence.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Listen to Barack Obama over the last couple months and it is clear what's on the president- elect's mind. Economist, Mark Zandi says Obama understands the economy needs a confidence boost as much or maybe more than it needs a new injection of cash.
MARK ZANDI, CHIEF ECONOMIST, MOODY'SECONOMY.COM: The collective psyche has been obliterated. Everyone is panicked. People are selling their stock portfolios, putting everything into cash. literally putting their money in the mattress. And if that psychology continues to be pervasive, then no matter what the Obama administration and Congress do, it's going to be difficult to get the economy moving again.
GERSH: One of the new administration's strategies for restoring confidence is to replace economic spin with a realistic assessment of the problem, something Obama tried to do in his most recent weekly address.
PRESIDENT-ELECT BARACK OBAMA: We start this New Year in the midst of an economic crisis unlike we have seen in our lifetime.
GERSH: Of course, talk is not enough. So Obama's economic advisers have focused on programs they believe could create three to four million jobs, not only because the economy needs them, but also because polls show focusing on job creation helps bolster consumer confidence in the economy. To restore the confidence of bankers and loan officers, the Obama administration is pushing hard for Congress to approve the second installment of the financial rescue money though that effort today ran into opposition from Republicans like Louisiana's David Vitter. He argues the program has been a failure.
SEN. DAVID VITTER, (R) LOUISIANA: TARP has really devolved into a slush fund for the administration.
GERSH: The president-elect hopes to change that view by promising more accountability and transparency in using financial rescue funds. George Mason University Professor Tyler Cowen, says the president elect is determined not to repeat mistakes that undermined confidence in the Bush administration's handling of the crisis.
TYLER COWEN, ECONOMICS PROF., GEORGE MASON UNIVERSITY: He has shown us a detailed plan. There has been a fair amount of transparency. Everyone has sounded reasonable and open. Compare that to Bush and Paulson where we are told the sky will fall unless you vote us $700 billion and then TARP passes and the sky is falling anyway.
GERSH: Yale's Robert Shiller has a new book out studying the role psychology plays in the economy. He's impressed with Obama's confidence building moves so far, but says they are not enough. Shiller says it's critical the new administration be more forward looking.
ROBERT SHILLER, AUTHOR, "ANIMAL SPIRITS": We should be really thinking about moving into the 21st century. And I think that's how we help produce confidence. If people see that we are moving forward, we're not just patching. The problem is the fixes to date look old fashioned. They look like patches.
GERSH: Obama will have many opportunities to rework the economy out of whole cloth. After the initial economic recovery efforts, the president- elect hopes to bolster confidence with an overhaul of financial regulation and plans to reform the nation's entitlement programs. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS: Tonight's "Street Critique" guest has brought with her a list of sectors and stocks she thinks are poised for recovery. She's Hilary Kramer, chief market strategist at Greentech Research and author of "Ahead of the Curve." And Hilary, good to see you again.
HILARY KRAMER, CHIEF MARKET STRATEGIST, GREENTECH RESEARCH: Paul, thank you for having me on tonight.
KANGAS: Before we get to your picks, what's your read on the market and this New Year so far?
KRAMER: Well, I'm sticking with my theme that I've had for the last eight months which is that it's very treacherous. There's another leg down to go. We're seeing that. This is a market that will just bring you to your knees. And it's very demeaning, very upsetting and people need to have discipline either to stay out and not jump in thinking they're getting a bargain or go with the course if you've gone this far.
KANGAS: OK, now, tell me the areas where you're seeing potential strength. Then we'll get to some individual picks.
KRAMER: OK. Well, it's more that I really believe that we're going to see oil continue to weaken, but over the long term, oil is not going to be in the $20 or $30 per barrel so therefore as oil continues to go down, I would buy an ETF, like O-I-L, which actually tracks oil but you want to pick your right spot. There are also very fine companies, well managed, cash-flow producing like ConocoPhillips (COP) right now in the high 40s. It could have another 5 to 10 points to drop. Once it does, I'll be a buyer of a COP and I'm going to sock it away for two years and keep it in my portfolio. You can do the same with some of the international oil companies, companies I've mentioned before, Petrobras. There's (INAUDIBLE) oil out of Norway.
KANGAS: For the moment, these are just on your shopping list, not actual purchases.
KRAMER: That's right. That's right. Cash is king. I've been on the side lines. I've been short a lot of companies and even still, I've felt the pain.
KANGAS: Now I understand there are a couple of areas you're avoiding like the plague. What are they and why?
KRAMER: I have been avoiding retail, especially high-end retail and most of the large retailers that are highly leveraged. That would be companies like Sears, Talbot, Ethan Allen. It's just better to stay away right now just like we saw Lehman Brothers which could never fail, fail or AIG. Some of these companies that seemed to have been around forever and are anchored at malls, they could go away. And it's the same for some of the REITs. The REITs are very, very seductive. It's REIT. The bring a lot of money in terms of the dividends, but they're cutting dividends and we're going to see a severe slowdown when it comes to office properties, multifamily and commercial real estate.
KANGAS: Hilary, do you own any of the stocks mentioned or have any other disclosures to make?
KRAMER: Not on these companies.
KANGAS: All right. Always great to see you and thanks for dropping by.
KRAMER: Thank you, Paul.
KANGAS: My guest Hilary Kramer, author of "Ahead of the Curve."
Paul Kangas' Stocks in the News
PAUL KANGAS: Those dire December retail sales made for a dismal day on Wall Street. By 11:00 this morning, the Dow was off 276 points and the NASDAQ Composite down 52 points. Stocks stayed sharply lower throughout the afternoon as investors fretted over upcoming quarterly results from Citicorp and JPMorgan among others. Those stocks went on to close near their worst levels of the day. The Dow Industrial Average dropped 248.42 points to 8200.14. The NASDAQ Composite off 56.82 at 1489.64, while the Standard & Poor's 500 Index lost 29.17 points ending at 842.62. In the bond market, the 10-year note gained 27/32 to 113 19/32, putting the yield at 2.21 percent.
Big board volume leader on 85.8 million shares on the New York exchange and 511 million in composite trading, Citigroup (C) down $1.37. That's a 23 percent drop. Fourth quarter results are due out Friday. The Street estimate is for a loss of about $1.14 and of course as we know, Citigroup combining its Smith Barney brokerage with Morgan Stanley, making it the nation's largest.
And that will take that distinction away from Bank of America (BAC) and its Merrill Lynch operation. Bank of America dropping $0.45 today and after the close, Bank America is reportedly asking the government for more TARP money.
General Electric (GE) off $0.83.
Wells Fargo (WFC) dropped $1.31 in the weak banking group.
Pfizer (PFE) $0.35 loss there.
JPMorgan Chase (JPM) lost $0.44.
ExxonMobil (XOM) dropping $2.82 on lower oil prices.
Co. Vale do Rio (RIO) off exactly $1.
AT&T (T) fell $0.58.
And SprintNextel (S) down $0.21, tenth in volume.
HSBC Holding ADR (HBC), the big international bank, down $3.66. Morgan Stanley repeated an "under weight" rating and thinks the company may need to raise as much as $30 billion, also recommends the company cut its dividend in half.
Siemens (SI), the big German firm, down $7.94. The story here, Merrill Lynch downgraded it from "buy" to just a "neutral" rating.
And then Rio Tinto Plc (RTP), the big mining company, off $8.93. It's going to stop producing diamonds at its Argyle mine in western Australia for the next three months due to poor global market conditions.
Bunge Ltd (BG) down $6.59. The company cut its 2008 earnings forecast down to $7.70 a share due to soft demand for soybean meal and oil and its rival, Archer Daniels Midland saw its stock drop $3.63 in sympathy.
Under Armour (UA), which makes athletic apparel, down $2.92, traded as low as $18.50. The company cut its 2008 revenue estimate from a high of $765 million all the way down to $726 million at best. It sees 2008 earnings around $0.77 a share.
FNB Corp (FNB) down, let's make it $2.65. The company sees a fourth quarter loss of $0.19 to $0.23 a share due to additional loan loss provisions.
LaBranche & Co (LAB) up $0.75, one of the best percentage gainers today. Goldman Sachs upgraded it from "sell" to a "buy."
Apple (AAPL) topped the active list, down $2.38. As we've heard the situation about Steve Jobs' health issues and of course, we wish him the very best.
Google (GOOG) down $13.35.
Microsoft (MSFT) $0.73 drop.
Research in Motion (RIMM) fell $1.17.
And Intel (INTC) losing $0.59.
Cisco Systems (CSCO) off $0.71.
Oracle (ORCL) dropped $0.78.
First Solar (FSLR) losing $7.72.
Qualcomm (QCOM) $1.38 loss there.
And Amazon.com (AMZN) down $2.96.
Sterling Financial (STSA) off $3.05. Yesterday the company warned it would post a fourth quarter loss, so it's suspending its $0.10 per share quarterly dividend.
And finally, shares in eBay (EBAY) down $1.21 after analysts at Thomas Weisel and Collins Stewart issued cautious reports about the online auctioneer's loss of market share and challenging turnaround.
