NBR Transcripts-January 23, 2009
Friday, January 23, 2009GE Shares Take A Shocking Tumble
SUSIE GHARIB: Shares of General Electric tumbled nearly 11 percent today to their lowest level since 1996. The giant conglomerate reported a 44 percent drop in fourth quarter earnings. Excluding charges, GE earned $0.36 a share, a penny less than analysts had expected and well below the $0.68 it earned a year ago. Revenues also fell short, $46 billion, $4 billion less than Wall Street estimates. With such a diversity of businesses, GE is considered a bellwether of American business. Scott Gurvey takes a look at what GE's results tell us about the U.S. economy.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Electric has its corporate hands in almost every sector of the economy, which is why we pay special attention to its quarterly reports. As a comparison of 2007 to 2008 profits shows, GE's capital finance arm became a much smaller part of the company's business over the year. But Richard Tortoriello of Standard & Poor's notes that GE's energy business grew.
RICHARD TORTORIELLO, GE ANALYST, STANDARD & POOR'S: Shipments of gas turbines to generate electricity have been very strong. We see continuing demand, but primarily purchased by governments so there is less of an economic effect there and also oil and gas remained strong, oil and gas drilling in the services area.
GURVEY: The take-aways here are that companies which supply energy- producing technologies may make good investments in the year ahead also companies which service technologies by making parts or actually making infrastructure repairs. This is both because owners will try to stretch the life of their existing equipment and because of an expected increase in government-funded infrastructure repair projects. It is important to note that even though GE's profits for the quarter and the year were down sharply, the company still made money and says it will continue paying its dividend. In addition, GE expects its financial business to stabilize in 2009. And economist Steven Wieting of Citi says that confirms some signs the credit crunch is beginning to ease.
STEVEN WIETING, SR. ECONOMIST, CITIGROUP: Away from the stock market, from the equities markets, there has been meaningful improvement in credit. And I say that even looking at the setbacks that we've seen a bit in 2009. Inter bank rates have moved down very sharply in a sign that official supports to solvency for the banking system have convinced counterparties and even longer term corporate borrowing costs for, particularly for high grade borrowers, they've come down quite considerably.
GURVEY: Unfortunately, the GE report does little to remove the uncertainty which has many would-be market participants sitting on the sidelines. GE says it will not forecast its 2009 performance, only saying it will be a difficult year. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The New Economic Recovery Plan May Be Too Little Too Late
SUSIE GHARIB: Most analysts agree that difficult year will be much worse without the economic recovery package that's now making its way through Congress. But as more companies like GE express concerns about 2009, there are new questions about the best way to get the economy moving again. As Darren Gersh reports in our continuing look at reviving the economy, many are beginning to wonder whether the stimulus package should be growing.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In addition to his daily intelligence briefing, the president now gets a daily economic briefing. And it's a toss up as to which is scarier.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Frankly, the news has not been good. Each day brings I think greater focus on the problems we're having, not only in terms of jobs loss, but also in terms of some of the instabilities in the financial system.
GERSH: Many economists are seeing the same thing. They're watching Americans ramp up their savings and push down their spending at a record- setting pace. They're watching businesses cut output and slash payrolls. And increasingly these economists are coming to the same conclusion: the economy needs more, not less stimulus. Mark Zandi at Moody'seconomy.com figures the package should be as high as $1.2 trillion. Economists at Goldman Sachs agree, but tack on another $800 billion to help out between 2011 and 2013. Nobel laureate and columnist Paul Krugman has suggested Congress could double its $825 billion package. As House Speaker Nancy Pelosi left a bipartisan meeting with President Obama, I asked her if a bigger package was needed. She said the $825 billion plan was the bigger package.
REP. NANCY PELOSI, HOUSE SPEAKER: It's not just about how big the package is, it's about how fast jobs are created and how those initiatives that will be added in the spending will contribute to the long term stabilization of our economy.
GERSH: Republicans remain concerned the increased spending is going to fund Democratic pet projects and House Minority Leader John Boehner says, if anything, the package is now too big.
REP. JOHN BOEHNER, MINORITY LEADER: At the end of the day this is not our money to spend. We're borrowing this money from our kids and so we have to find a package that's the right size. You know, if we've got to come back and revisit this later this year or next year, we can deal with that at that time.
GERSH: Republicans want to see more tax cuts added to the program, though congressional tax writers say the earliest the Treasury could adjust tax withholding tables is June. And economists at Macroeconomic Advisers believe families would save roughly $0.40 out of every dollar they receive in tax cuts as consumers struggle with the deep recession. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with Warren Buffett, Chairman & CEO, Berkshire Hathaway
SUSIE GHARIB: So far this year the Dow is down about 10 percent and that's on top of the big drop in 2008. But none of that worries Warren Buffett. He's buying stocks for his personal portfolio and for his company, Berkshire Hathaway. In part two of my interview with the Berkshire chairman and CEO, I asked Buffett should investors be buying stocks.
WARREN BUFFETT, CHAIRMAN & CEO, BERKSHIRE HATHAWAY: If they're buying into a business they understand at a sensible price, they should be buying. That's true at any time. There are a lot more things selling at sensible prices now than there were two years ago. So clearly, it's a better time to be buying stocks than a couple of years ago. Is it better than tomorrow? I have no idea.
GHARIB: This financial crisis has been extraordinary in so many ways. How has it changed your approach to investing?
BUFFETT: Doesn't change my approach at all. Any stock I buy, I will be happy owning it if they close the stock market for five years tomorrow. I'm buying a business; I'm not buying a stock. I'm buying a little piece of a business, just like I'd buy a farm and that doesn't change. All the newspaper headlines and everything in the world don't change that. Doesn't mean you can't buy it cheaper tomorrow, may turn out that way, but the real question is, do I get my money's worth when I bought it.
GHARIB: One of your famous investing principles is be fearful when others are greedy and greedy when others are fearful. So is this the time to be greedy, right?
BUFFETT: My greed quotient has risen as stocks have gone down. There's no question about that. The cheaper something gets that you are going to buy, the happier you feel. You're going to buy groceries the rest of your life. Do you want grocery prices to go up or down? You want them to go down. And if they go down, you don't say, gee, I got those groceries sitting in my cabinet at home and I've lost money on those. You think, I'm buying my groceries cheaper. I'm going to keep buying groceries.
GHARIB: Where do you see the opportunities in the stock market right now.
BUFFETT: That one I wouldn't tell you about.
GHARIB: Let me throw out some sectors.
BUFFETT: I'm not going to recommend anything.
GHARIB: Investor confidence was so shattered last year, what do you think it's going to take to restore confidence?
BUFFETT: If people are dependent on the stock market going up to be confident, they're in the wrong business. They ought to be confident because they look at a business and they think I got my money's worth. So they ought to look to the business as to whether to be confident compared to the price they paid. And they ought to forget about what anybody is saying, including me on television or what they're reading in the paper. That's got nothing to do with whether they made a good decision or not. What has got to do with whether they made a good decision is the kind of business they bought and what they paid for it.
GHARIB: People are reeling from this whole Bernie Madoff scandal. What do you say to people who lost trust in the financial system?
BUFFETT: If they are really depending on somebody else and they don't know anything about the somebody else, they've a problem. They shouldn't do that. There are going to be crooks out there and this guy was a crook on a scale that we've never seen before. You ought to know who you're dealing with.
GHARIB: Is there any takeaway lessons from the Bernie Madoff story?
BUFFETT: Well, he was a special case. I wouldn't put my trust in a single individual like that. I would put my trust in a very good business. I would want a business that was so good that if a so-so guy was running it, it would still seem to do well and there are businesses, plenty of businesses like that.
GHARIB: What about Berkshire Hathaway stock? Were you surprised that it took such a hit last year given that Berkshire shareholders are such buy and hold investors?
BUFFETT: I've had three times in my lifetime since I took over Berkshire when Berkshire stock's gone down 50 percent. In 1974 it went from 90 to 40. Did I feel badly? No, I loved it. I got more stock. So I don't judge how Berkshire is doing by its market price. I judge it by how our businesses are doing.
GHARIB: Is there a price at which you would buy back shares of Berkshires, 85,000, 80,000?
BUFFETT: I wouldn't name a number. If I would name a number (INAUDIBLE)
GHARIB: Everyone wants to know your plans, what you're going to do with all the Berkshire Hathaway's cash, some $30 billion. Is this now the right time to do a big exit?
BUFFETT: Well, we've spent a lot of money in the last four months. We spent $5 billion on Goldman Sachs, $3 billion on GE, $6.6 on Wrigley. We've got $3 million committed on Dow. We spent a lot of money and we've got money left, but I love spending money. Cash makes me very unhappy. I like to always have enough and never weigh more than enough. But I always want to have enough.
GHARIB: As you know, it's the 30th anniversary on NIGHTLY BUSINESS REPORT. As you look back on the past three decades, what would you say is the most important lessons you have learned about investing?
BUFFETT: I learned my lessons before that. I read a book, what is it, almost 60 years ago roughly called "The Intelligent Investor" and I really learned all I needed to know about investing from that book and particularly chapters eight and 20. So I haven't changed anything since.
GHARIB: If we asked for your investment advice back in 1979 when NIGHTLY BUSINESS REPORT first got started, who it be any different than what you'd say today?
BUFFETT: Not at all. If you'd asked the same questions, you'd have gotten the same answers.
GHARIB: Mr. Buffett, thank you so much. Always a pleasure talking to you.
BUFFETT: Thank you, it's been a real pleasure.
"Market Monitor"-John Hughes, President of Quantum Capital Management
JEFF YASTINE: Our "Market Monitor" guest this week says, of the current market environment, quality franchises are on sale and we are buyers. He's John Hughes, president of Quantum Capital Management. John, welcome back to NIGHTLY BUSINESS REPORT. JOHN HUGHES, PRESIDENT, QUANTUM CAPITAL MANAGEMENT: Thank you Jeff. It's good to be with you.
YASTINE: What do you define as a quality franchise?
HUGHES: We look for companies -- let's face it, all companies, especially in this market are going to suffer the vicissitudes of the world . We look for companies with adaptive managements, with durable business models, with certain competitive advantages, with sensible balance sheets. And these companies will survive in this environment, and they will thrive as we emerge from this environment. Conversely, those companies that are debt laden and are marginal competitors will fall by the wayside. So we own the former; we've (INAUDIBLE) short the latter.
YASTINE: What's your sense briefly about the economy?
HUGHES: I think we're going through a needed adjustment. I think it's the point one-- the point that I have to make is that this is a needed adjustment in any working capitalist system. This is not an abrogation of (INAUDIBLE) economics. This is not a repudiation of capitalism. This is a needed adjustment. It's time to pay the piper. We're paying it. I think we're going to be paying it for quite a few years. I also think that there are companies that are cheap, that are going to generate cash flows and we're going to be much richer for owning them and buying them now.
YASTINE: Let's get to those in a moment. When you were last with the program with Paul last June, you gave us two picks. One was Cohen and Steers (CNS and the other one was Auto Desk (ADSK) and both down considerably.
HUGHES: We sold Cohen and Steers and Auto Desk we still own. In fact, we own a lot more of it. Auto Desk is a software and services provider that enjoys many of the attributes that I just talked about. They have a $900 billion in cash on the balance sheet. There's no debt. The company has a -- is the preeminent provider of computer design software. We think the intrinsic value is somewhere north of $40 a share. We're buyers at $16.
YASTINE: And that's why, for your new picks (INAUDIBLE) for us, it's your first pick, ADSK, Auto Desk.
HUGHES: It is indeed, yes.
YASTINE: Let's move on to the next one, then, which is Copart, (CPRT).
HUGHES: Perhaps the largest processor of total loss vehicles for the insurance industry in the U.S. and in the UK. Again, a Sherman tank of a business model, a debt-free balance sheet that we believe will generate $150 million in cash flow this year. They may miss earnings in the next quarter or two. We would use that weakness to buy -- to accumulate more shares.
YASTINE: Your next pick, it's not really a company. It's an exchange- traded fund, the GLD, gold exchange traded fund.
HUGHES: Yes. Yes. You know, we're not so bullish on the metal as we are bearish on the currency, which its value is measured.
YASTINE: The dollar.
HUGHES: Right. And the Federal Reserve has been expanding the balance sheet at unprecedented and unprecedented rates and we believe that as long as the Fed creates money at a faster rate than we can discover gold, we're going to be owners of gold.
YASTINE: So that's your hedge against currency debasement, for lack of a better word.
HUGHES: Yes.
YASTINE: Let's move onto your other pick. It's Microsoft (MSFT).
HUGHES: Microsoft earns $0.70. It traded at $58 a share for the past eight or nine years. It earns $2 a share and one of the greatest franchises in the world is trading at $17. We think the market has it all wrong and we're buying it.
YASTINE: It's amazing. It doesn't have a friend in the world these days it seems amongst the investment community.
HUGHES: It doesn't.
YASTINE: John, let's move on to your final pick here. It's the LQD, again, another exchange-traded fund. Tell us briefly what this one is.
HUGHES: It's a large investment against the unfriendly equity markets. We believe that high-quality investment grade corporate bonds are probably in the sweet spot of the credit spectrum. It earns about a 6 percent dividend per annum and there's no diversification and the typical individual can purchase one themselves.
YASTINE: Any disclosures on these?
HUGHES: We own them all. We own them all and we're happy to own them all.
YASTINE: Own your own cooking then. Our guest, John Hughes, president of Quantum Capital Management, thanks.
HUGHES: Glad to see you John.
Paul Kangas' Stocks in the News
JEFF YASTINE: The Dow spiraled almost 200 points lower, while the NASDAQ shed 28 points in the first moments of trading. But that attracted buyers to the financials and large technology stocks. Citigroup rose nicely; so did Intel. The NASDAQ reversed its losses by midday. And later, even the Dow turned positive for a few minutes, despite heavy selling in GE shares. But the day still ended mixed. The Dow fell 45.24 to close at 8077.56. For the week, the index fell in three out of the last four sessions for an overall loss of 203.66 points. That's about 2.5 percent. But the NASDAQ Composite rose 11.80 to settle at 1477.29. This week the index rose twice and fell twice, dropping, 52 and a fraction or 3.4 percent. And the S&P 500 climbing 4.45 points ending at 831.95 and for the week, down a little more than 18 points or 2 percent. Over in the bond market, the 10-year note falling 5/32 to 109 23/32 and the yield at 2.62 percent.
Citigroup (C) topping our list, rising $0.36.
And Bank of America (BAC) up $0.53. The financials all doing quite well today.
And there's General Electric (GE) losing $1.45. GE Capital a major eyesore and the quarterly results plunging 44 percent. A few analysts expected GE to announce a dividend cut, but Jeff Immelt vows to leave the current dividend and AAA bond rating intact.
Pfizer (PFE) rising $0.24. The drug maker's reportedly in talks to buy Wyeth for an estimated $60 billion. Lipitor, Pfizer's cholesterol drug will go off patent soon and the new drug pipeline is empty so Pfizer needs to find a partner.
JPMorgan Chase (JPM) gaining $1.18.
And then we have Wells Fargo (WFC) rising a fraction.
ExxonMobil (XOM) dropping $0.19.
Sprint Nextel (S) rising $0.08.
And Compania Vale (RIO) up $0.29.
And Wyeth (WYE), there's the reaction there from that talk of the potential merger with Pfizer, rising nearly $5.
On to Alcoa (AA) where they're keeping their $0.17 a share quarterly dividend intact and the stock rising $0.08.
Aflac (AFL) finding support, rising $1.59. After yesterday's 37 percent plunge, executives saying their company's financial position is strong and they're keeping their profit forecasts in place. Analysts are Raymond James and S&P issuing "strong buys" on that stock today.
Shares in Southwest Air (LUV) tumbled nearly $2. Calyon Securities says Southwest has little protection against a renewed surge in oil prices and told investors to sell the stock. Oil prices finished at $46.47 a barrel today.
Capital One Financial (COF) sliding $2.62. The stock fell to a 10-year low after posting a fourth quarter loss of $3.67 a share, (INAUDIBLE) loan losses as the recession intensifies.
A rarity here on another bank stock, Bancorpsouth (BXS) up $3.26. They posted a fourth quarter profit of $0.38 a share and that was $0.07 above analyst expectations.
Tempur-Pedic International (TPX) climbing $1.48. The mattress maker posting a small profit, one penny a share, despite a 35 percent drop in sales and the company's forecast tempering fears of a housing market- related nightmare. Investors can celebrate with a pillow fight.
And then Harley-Davidson (HOG) falling $0.90. The road rage from investors on the cycle maker's skidding fourth quarter profits and production cuts. Harley also cutting 1100 positions.
Onto the NASDAQ where Google (GOOG) surged over $18. The search engine handsomely beating Wall Street earnings targets with its results last night. Stiffel Nicholaus (ph) and Standard & Poor's issuing a green light to buy that one.
Apple (AAPL) unchanged.
Microsoft (MSFT) gaining a fraction.
Research in Motion (RIMM) tacking on $0.31.
Cisco Systems (CSCO) up more than half a dollar.
Qualcomm (QCOM) ended up $0.51. The big cap tech stocks all doing quitge nicely today.
Intel (INTC) up $0.30. Chairman Craig Barrett (ph) announced his retirement after 35 years.
Oracle (ORCL) up $0.13.
Amgen (AMGN) down a little over $2.
First solar (FLSR) up $0.21.
Geron (GERN) jumped nearly $2. FDA regulators giving the green light for doctors to begin fewer trials on an experimental stem cell treatment for spinal cord injuries.
And in the minus column, Microsemi (MSCC) tumbling $2.22, a disappointing sales forecast and Oppenheimer noting uncertainty regarding the CEO's academic credentials and that's another negative.
And those are our stocks in the news tonight.
