NBR Transcripts-January 30, 2009
Friday, January 30, 2009The Nation Gets Its Econ Grade
SUSIE GHARIB: Americans already know the economy is in a deep recession and today the government put a new number on it. The nation's gross domestic product, the broadest measure of economic growth, shrank by 3.8 percent in the final months of 2008. That was the biggest decline in a quarter century. The only good news, the number wasn't as bad as economists had expected. Suzanne Pratt takes a closer look at the details behind that GDP report.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The collective sigh of relief was almost audible on Wall Street today. Many economists had expected a decline in fourth quarter GDP of as much as 6 percent. And while the recession is deepening, economist Jim O'Sullivan says it's important for Americans to maintain some perspective.
JAMES O'SULLIVAN, ECONOMIST, UBS: It's a reminder that this is not the great depression. This is a legitimate recession and it's clearly not over yet. We're going to get more weakness for sure in Q1. But, again this is not the great depression.
PRATT: This may not be as awful as the great depression, but U.S. consumers and businesses cut back on everything in the final three months of last year. And economists say an unwanted buildup in business inventories masked the fourth quarter's real weakness. When inventories are removed from the GDP calculation, the economy would've contracted at a rate of 5.1 percent. Economist Jan Hatzius says with more stuff on the shelves, less stuff will need to be produced in the coming months, which doesn't bode well for GDP.
JAN HATZIUS, CHIEF U.S. ECONOMIST, GOLDMAN SACHS: Another large decline is coming in the first quarter. That's pretty clear. Our estimate is minus 3 percent for the first quarter and the risk to that at this point is definitely on the downside.
PRATT: Nevertheless, many economists say GDP will have bottomed either in Q-4 of last year or will bottom in Q-1 of this year. The recession is expected to continue into the second quarter, but many economists are hopeful that GDP will turn positive in the second half of this year. That forecast is dependent on Washington supplying the economy with a hefty fiscal stimulus package.
HATZIUS: We would prefer if it was larger than it is. But, it is already pretty large. And in terms of the quarterly trajectory of GDP, it is going to give you a sizeable boost.
PRATT: One interesting tidbit in today's GDP report is just how frugal Americans have become. In the fourth quarter, the U.S. savings rate rose to nearly 3 percent. That's among the highest in nearly a decade. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York
The True Cost of the TARP
SUSIE GHARIB: The Obama administration is also considering how to overhaul the $700 billion Troubled Asset Relief Program or TARP to get credit flowing again. Treasury Secretary Timothy Geithner met today with Fed Chairman Ben Bernanke and bank regulators to discuss it. While the TARP's $700 billion price tag draws the headlines, Stephanie Dhue looks at what the real cost might be.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For its money, the government now owns stock in Citigroup, Wells Fargo, Bank of America, AIG and 215 other firms. Brookings fellow Doug Elliott, says since the government is now a stakeholder, the $700 billion price tag is misleading.
DOUGLAS ELLIOTT, SENIOR FELLOW, BROOKINGS: It's as if to say you were a bank and you lent a billion dollars and you just assumed, oh well, I gave away the money, so I'm going to get nothing back. It's the wrong way of looking at it.
DHUE: At the end of December, the government had doled out $247 billion of the TARP. The Congressional Budget Office figures those investments are now worth $183 billion, down $64 billion, a 26 percent loss, not a great investment, but not a wipeout either.
ELLIOTT: If you apply that to the whole $700 billion, the true cost isn't $700, it's $175 billion, which is still a big number, but it's very different.
DHUE: With the banks facing higher default rates on their mortgage, credit card and other loans, the money the government will spend to fix the problem is expected to grow. By some estimates, up to $4 trillion is needed to plug the hole in the banks' balance sheets. AEI's Alex Pollack spent 35 years in the banking business. He thinks those estimates may be wildly overblown.
ALEX POLLOCK, RESIDENT FELLOW, AMERICAN ENTERPRISE INSTITUTE: We know when we're rounding off to the nearest trillion dollars in losses we're probably into that panic psychology, but it's very hard to know.
DHUE: The true cost of the program won't be known until long after it's over and even then the benefits may not be appreciated.
POLLOCK: One of the most important payoffs is that something much worse didn't happen and you can't ever quite measure that or know it, but that's really what you're talking about.
DHUE: We'll keep reporting the $700 billion number, since we know the government will spend at least that and we don't know what the return on that investment will ultimately be. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Market Monitor"-Eugene Peroni of Advisors Asset Management
PAUL KANGAS: My guest "Market Monitor" this week is Eugene Peroni, senior vice president of equity research for based in Philadelphia. Welcome back to NIGHTLY BUSINESS REPORT Gene.
EUGENE PERONI, JR., SR. VP, EQUITY ANALYSIS, ADVISORS ASSET MGMT.: Nice to be here, Paul, thank you.
KANGAS: As a stock market strategist who specializes in technical analysis, give us your opinion of the market's current condition. Today it looked like it was intensive care.
PERONI: Well, certainly when we saw the raw numbers, January certainly being the worst month that we have seen -- worst January, that is in 30 years-- on the outside it looks like it would be negative, but the internals are starting to improve and I would argue they began to improve last October.
KANGAS: Yeah, but how about January as a bellwether month for the rest of the year. Does that carry any weight with you?
PERONI: Well, some but I think given the circumstances and the unprecedented action we've seen in the market, I wouldn't give that a lot of weight at this point.
KANGAS: OK. Now, on your last visit with us in mid-June with the Dow at the 12,000 level, you said you saw no technical signs of a major sell- off. We certainly got one, all the way down to 7400 in the Dow. How come your technical indicators didn't flash a warning?
PERONI: Well, things unfolded very rapidly, Paul. In fact, it's very interesting because as much as we've gone through a bear market, when we observe the best-performing stocks off the bottom from last year, October- November, many of those stocks and the groups they represent are the leadership that was in place before the downturn. So in some ways, the market has not had a basic change in leadership. I find that encouraging. That might have been one of the things that might have tripped us, that the leadership is still intact here.
KANGAS: Has the market finally put in a major bottom, and if so at what level on the Dow?
PERONI: Well, certainly it's too early to say a major bottom. But I think that we are establishing at least a trading bottom that could prove to be a major bottom. The lows that we saw last October and November were accompanied by very heavy selling. And I think that's the worst momentum we're going to see for some time. So since that point, we have been in a good recovery in terms of certain stocks and groups. So, yes, I do think that we have probably more upside than downside here over the next 12-18 months.
KANGAS: Well, what stock groups look good and which would you avoid at this level?
PERONI: Well, mostly we're looking at groups that we would buy at this stage. With a lot of speculation -- and I would argue a lot of risk out of the market at this stage -- we would be a little bit more on the aggressive side. So we would not really look so much at defensive growth stocks. We'd look instead at companies that have good earnings growth prospects going forward.
KANGAS: Last June, you gave our viewers four stocks that you would recommend buying. Let's see how they did since then. The first one was Core Labs (CLB). It's down 52 percent. But that's nothing unusual, just about everything is down. Itron (ITRI) down 32.2 percent. Are you still with those two and if so, would you buy more here?
PERONI: I like the technicals on both of those at this stage. I think that they will participate in a recovery.
KANGAS: And the other two that you recommended, Monsanto (MON) as blue chip as you could buy, down 45 3/4 percent. Still with it?
PERONI: Yes.
KANGAS: And Steel Dynamics (STLD), same story. That one is down almost 73 percent.
PERONI: Yes the materials and the steel stocks got very hard hit here but they are also showing signs of recovering.
KANGAS: Do you have any new recommendations, Gene?
PERONI: Yes, we have several. CR Bard (BCR), in the surgical supply area I believe looks --
KANGAS: We have a chart up and the symbol is BCR for trade trading on the big aboard, right?
PERONI: That's correct.
KANGAS: OK. Number two.
PERONI: Flowserve (FLS). This is a stock recommend a couple of appearances back -
KANGAS: And you did well.
PERONI: Yes, and I think that at these levels, it looks very attractive for the long term. They make pumps and valves for the petroleum industry, for the water infrastructure area as well. The symbol there is FLS.
KANGAS: FLS, very good, how about number three?
PERONI: It's a defense contractor, Lockheed-Martin (LMT). This is a blue chip that we think is going to do very well going forward. I think it's very well positioned based on the stimulus package and certainly the ongoing military conflicts.
KANGAS: OK, LMT on the big aboard, and we have time for one more, Gene.
PERONI: That would be SPX Corp (SPW). This company is the world's largest manufacturer of cooling towers. But they're very diversified. They make everything from tools to broadcasting equipment.
KANGAS: It's SPX, but the trading symbol is SPW. That's a little confusing, isn't it?
PERONI: It is, SPW is the symbol.
KANGAS: Do you personally own any of the stocks mentioned or have any other disclosures to make?
PERONI: I own a trust that do hold these companies.
KANGAS: So in essence you own them indirectly, all of them.
PERONI: Correct.
KANGAS: I want to thank you for being with us once again, Gene.
PERONI: My pleasure, thank you, Paul.
KANGAS: My guest Eugene Peroni of Advisers Asset Management.
Paul Kangas' Stocks in the News
PAUL KANGAS: That big drop in GDP sent buyers to the sidelines this morning and quashed Wall Street's hopes for a technical rebound from yesterday's steep sell-off. Two hours into trading, the Dow posted a 130 point loss with the NASDAQ down 25 points. News of more job cuts and some disappointing corporate results kept the market broadly lower this afternoon. Then selling linked to end of month portfolio adjusting added to the declines giving Wall Street its worst January in 30 years. The Dow Industrial Average closed off 148.15 at 8000.86. This week it fell twice and rose three times, had a net loss of 76.70 points. The NASDAQ Composite was down 31.42 at 1476.42 today. It also fell twice and rose three times this week, had a net drop of .87. Standard & Poor's 500 lost 19.26 to 825.88 today and for the week overall it was down 6.07 points. In the bond market, the 10-year note gained 7/32 to 107 23/32, putting the yield at 2.84 percent. The most active big board issue on 42.1 million shares, Bank of America (BAC) down $0.20.
Then Citigroup (C) with a $0.35 loss.
General Electric (GE) fell $0.59.
JPMorgan Chase (JPM) bucked the trend, up $0.08.
Wells Fargo (WFC) a $0.12 gain there, even though UBS cut Wells Fargo's price target from $32 to $19 a share.
Pfizer (PFE) down $0.54.
And then ExxonMobil (XOM), you heard about the earnings just a moment ago and Standard & Poor's upped its price target on ExxonMobil's stock by $2 to $93 a share.
Sprint Nextel (S) was down $0.14.
$0.09 gain in AT&T (T).
Then Co Vale Do Rio (RIO) was down $0.28 a share, tenth in volume.
Procter & Gamble (PG) down $3.72 despite reporting second quarter earnings nicely higher, $1.58 versus $0.98 last year, but $0.63 of that earnings statement was due to the gain on the sales of the company's Folgers coffee unit. Standard & Poor's meanwhile cut earnings estimates and still repeated a "strong buy," so quite a mixture of news there.
Genentech (DNA) down $2.85. Roche is going to start a cash tender offer for all the stock it doesn't already own, $86.50 per share. That's down from its first tender offer at $89 a share.
Allstate (ALL) down another $1.83 after plunging over $6 yesterday on lower fourth quarter earnings. Today, Moody's Investor Service cut its long-term debt rating from A2 to A3.
Affiliated Computer (ACS) up $1.13. Second quarter earnings, $0.85, down from $0.90 last year, but that was $0.06 better than the Street was expecting.
And Flowserve (FLS), which makes valves and pumps and things like that, up $3.04. The company now sees 2008 revenues somewhat above its previous guidance and so the earnings look (ph) better than the $7.50 that it previously guided also.
Triumph Group (TGI), which is in the aircraft parts business, up $3.77. Third quarter earnings came in at $1.33, well up from $1 last year on a 3.7 percent rise in sales and Standard & Poor's repeated a "buy" on Triumph stock.
Lindsay (LNN) plunging $5.83. The company warned its second quarter revenues from its irrigation products will fall about 30 to 40 percent from year ago levels.
Wilmington Trust (WL) down $2.50. Fourth quarter loss of $1.02 versus earnings of $0.65 last year. Standard & Poor's downgraded it from "hold" to a "sell."
Starwood Hotels (HOT) losing $1.28. Oppenheimer brokerage downgraded it from "outperform" to just "market perform."
And the staffing company Hewitt Associates (HEW) up $1.61. That stock will be added to the Standard & Poor's 400 midcap index next Friday, replacing Puget Energy, which is being bought out.
Most active NASDAQ issue, Amazon.com (AMZN) up $8.82. After the close yesterday, fourth quarter earnings as we reported, $0.52, $0.13 above the Street estimate. Today, Standard & Poor's boosted its price target from $59 to $68 a share.
Apple (AAPL) in there with a loss of $2.87.
Then came Google (GOOG) off $4.79.
Research in Motion (RIMM) gained $0.63.
And Cisco Systems (CSCO) $0.96 drop.
Microsoft (MSFT) was down $0.49.
Juniper networks (JNPR) off $2.81. Credit Suisse cut its price target on Juniper from $16 to $14 a share, just about made it there today.
Qualcomm (QCOM) $0.58 loss.
First Solar (FSLR) did well, up $5.91.
And then Intel (INTC) with a $0.47 loss, was tenth in volume.
Broadcom (BRCM) losing $1.58. The company reported a fourth quarter loss of $0.32 a share versus earnings of $0.16 a year ago.
And Sunpower (SPWRA) a nice gain of $4.88. Fourth quarter earnings in at $0.70, way up from $0.39 last year and revenues soared 79 percent
Those are the stocks in the news tonight.
