NBR Transcripts-February 4, 2009
Wednesday, February 04, 2009President Obama Calls For Salary Caps
SUSIE GHARIB: Top executives of companies getting Federal bailout money are about to get a big pay cut. President Obama today capped their annual compensation at $500,000. The move comes at a time when millions of Americans have lost their jobs and many others are struggling to make ends meet. The president is determined to be sure taxpayers aren't subsidizing lavish pay packages which he described as quote the height of irresponsibility. The new restriction does not require congressional approval. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Next week, the president promises to deliver a big program to rescue the nation's financial system. But first he addressed the public perception that bankers used much of the money they've already gotten from taxpayers to pay $18 billion in bonuses last year.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn't just bad taste, it's a bad strategy and I will not tolerate it as president.
GERSH: Obama says he will cap senior executive pay for companies that get exceptional taxpayer support at $500,000. That includes Citi, AIG and Bank of America for now. Executives would still be able to receive pay in the form of restricted stock, but they wouldn't be able to sell it until the government gets its money back. Treasury Secretary Timothy Geithner will also be working up a long-term overhaul of executive pay.
TIMOTHY GEITHNER, TREASURY SECRETARY: There is a deep sense across the country that those who were not responsible for this crisis are bearing a greater burden than those who were.
GERSH: The new pay rules are another sign Washington is demanding far more from banks that need government help. Corporate jets are out and more lending is in. Mortgage expert Guy Cecala says the Treasury ought to go even further and push banks to offer lower mortgage rates.
GUY CECALA, CEO & PUBLISHER, INSIDE MORTGAGE FINANCE: The government stepped in to subsidize the mortgage market. We have 90 percent of mortgage lending tied to government programs now. The government is not doing that for their health. They are doing it to help consumers, not lenders.
GERSH: Thirty year mortgage rates now average around 5.3 percent. Based on the usual financial benchmarks, Cecala says mortgages should be about 4.5 percent. Bankers argue they've held lending steady which they say is quite an achievement in a declining economy. Mortgage rates have also come down dramatically in recent months. The Financial Services Roundtable's Steve Bartlett says it would be a mistake to think the Treasury can simply dictate interest rates.
STEVE BARTLETT, PRES. & CEO, FINANCIAL SERVICES ROUNDTABLE: You cannot set the price of a product by a phone call saying, well I think that you should charge this for your product. It's really based on supply and demand.
GERSH: Members of Congress will have a chance to make their demands known to banks next week when the CEOs of the nation's largest financial institutions are called to testify about what they've done with the taxpayer money they've received. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Reviving the Economy: Jobs"-What's In A Number?
SUSIE GHARIB: Almost all the nation's major cities lost jobs last year. The Labor Department said today jobless rates climbed in 98 percent of the largest metropolitan areas in 2008. Hardest hit, Indiana's Elkhart-Goshen region, where the unemployment rate now stands at 15 percent. Hundreds of workers there have lost jobs at RV makers Monaco Coach, Keystone RV and Pilgrim International. Meanwhile in Dalton, Georgia, the jobless rate is 11 percent as floor-covering firms have laid off workers because of the downturn in housing. Meanwhile the employment situation nationwide isn't much better. A new report by ADP Employer Services shows that American businesses cut more than half a million jobs last month. The only good news, that was less than the 659,000 jobs lost in December. Those private figures are a prelude to the government's employment report that comes out on Friday. As we continue our series, "Reviving the Economy: Jobs," Suzanne Pratt looks behind the numbers, explaining why they don't tell the whole story about the state of the job market.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The nation's unemployment rate is expected to rise to 7.5 percent when the government releases its monthly report on Friday. But, what if I told you there's another picture of the labor market that shows the situation is actually far more dismal, with the jobless rate really closer to 14 percent. Before you freak out, please understand the Labor Department isn't scamming us. It's just that the official unemployment figure, known as U-3, does not include people who are so discouraged they've stopped looking for a job. It also does not include those who could only find part-time work. The government tracks those people on a monthly basis. And it puts them into a more comprehensive but less talked about unemployment rate known as U-6. Economist Laksman Achuthan says the headline number could be considered misleading.
LAKSHMAN ACHUTHAN, MANAGING DIR., ECONOMIC CYCLE RESEARCH INSTITUTE: Some people will say, whoa, you're totally sugar coating it. It's much worse than that if you include people who are working less than they want to work or if you include people who have given up looking for work.
PRATT: In the last decade, the total all inclusive number of unemployed Americans, including discouraged workers and underemployed, has gone from 8 percent to nearly 14 percent. That's the highest since the government began tracking U-6 in the 1990s. The surge in U-6 may also explain why the U.S. job market currently feels much worse than an unemployment rate of 7 percent might suggest. But economist David Resler says the widely watched unemployment rate isn't flawed. It just isn't the whole story.
DAVID RESLER, CHIEF U.S. ECONOMIST, NOMURA SECURITIES: The unemployment rate doesn't tell you everything you need to know about the labor market. There are other measures of unemployment and under employment that do tell you a lot more and perhaps we should look at those and pay more attention to them.
PRATT: NYU economics Professor Larry White says the widely watched jobless rate is the best measure of what's happening in the economy, if one needs historical context.
LAWRENCE WHITE, ECONOMICS PROFESSOR, NYU STERN SCHOOL OF BUSINESS: It's a good, reasonable benchmark especially when you use it as compared with other similarly reported data from a few months ago, a few years ago, even a few decades ago.
PRATT: U-3 or U-6 it really doesn't matter. Most economists agree it's not the unemployment rate that's critical when evaluating the labor market. It's the direction the rate is moving in. And without a doubt, the jobless rate is moving higher at disturbing pace. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
GHARIB: Tomorrow, hundreds of thousands of part time workers aren't covered by unemployment insurance but some say they should be. That as we continue our series, "Reviving the Economy: Jobs."
"Street Critique"-Michael Farr, President of Farr, Miller and Washington
PAUL KANGAS: My "Street Critique" guest tonight is Michael Farr, president of the money management firm Farr, Miller and Washington and author of "A Million Is Not Enough." And Michael welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul. Nice to be with you.
KANGAS: We had a nice rally going on the opening this morning. And then all of a sudden it just evaporated. What do you think was the cause of that?
FARR: It was great until about noon, Paul. Then we had comments from speaker of the House Pelosi who suggested there might not be another bank bailout fund from the government. That made people nervous. And about the same time, President Obama came on and said that he was going to limit -- the government was going to limit executive compensation for people who took TARP money to a half a million dollars. That made people at Bank of America nervous. Or certainly shareholders nervous about the Merrill Lynch brokers who -- many of whom make a lot more than that might be more inclined to leave. So all of a sudden optimism is kind of fragile in this market right now.
KANGAS: Well, it has been paying more attention to better than expected earnings in the last four or five sessions. That's an encouraging sign, wouldn't you say?
FARR: I would. I'm glad that, you know, expectations seem to be reasonably low. I was glad to see Cisco after the bell tonight with better than expected numbers. I hope that that keeps up. But we're hearing consistent strains from these CEOs about difficult economic times and we're not seeing, you know, a great deal of optimism with the number of lay offs.
KANGAS: What about this bad bank plan? Is it as bad as it sounds?
FARR: When you first hear about it, you think we couldn't possibly need another bad bank.
KANGAS: That's for sure.
FARR: But the idea of creating some sort of government facility to take these bad assets off of the bank, I think is probably a pretty good plan because it creates some transparency and clarity on these bank balance sheets. I don't think the government ultimately is going that way. I think secretary of the Treasury Geithner now is favoring more of something that is going to look a little bit more like insurance.
KANGAS: What's your outlook for corporate earnings here, let's say over the next month or so?
FARR: Corporate earnings I think are probably still going to be pretty muted. I think it's a very difficult operating environment and I go back to those employment cuts. When you hear about these job lay-offs you're hearing corporate management give you their forecast. They're not optimistic about future business demands or trends improving. So they're going to cut their work forces now in anticipation of a continued slowdown.
KANGAS: On your last visit with us in early January, you came out with your 10 stocks for 2009. I understand they're faring better than the Standard & Poor's 500. We'll due an update the next visit, but how are they doing generally?
FARR: Generally they're doing OK. They're down something over 4 percent. The market is down around 8 percent so they're doing better. Down is never really fun but if we can beat the S&P we'll be very happy with that. We'll cross our fingers. It's a long-term list.
KANGAS: In a market like this it's all relative, right?
FARR: It better be because the absolute is really tough.
KANGAS: We got about 15 or 20 seconds for some final thoughts for our viewers. Michael, go ahead.
FARR: You know, Paul, I think it's really important right now if you're going to invest to do your homework, to take a look at companies that have strong balance sheets, that are earning money and experienced management. Do your homework now. You can make money in this sort of an environment.
KANGAS: Very good, very encouraging indeed, Michael. Good to have you with us.
FARR: Thank you, Paul. Great being here.
KANGAS: My guest, Michael Farr, author of "A Million Is Not Enough."
"Money File" -Older Workers & Layoffs
SUSIE GHARIB: As we continue our month-long focus on jobs, tonight's "Money File" has some tips for older workers facing layoffs. Here's Eric Schurenberg, editorial director of Bnet Moneywatch.
ERIC SCHURENBERG, EDITORIAL DIRECTOR, BNET MONEYWATCH: Worried about your job? If you're over 50, that isn't just paranoia. These days, employers don't see you for the font of wisdom you are. They see you instead as technologically backward, a health cost overrun waiting to happen and a way to reach their budget goal in one easy stroke. In short, this is no economy for old men or women. The odds of being laid off are about 40 percent higher than for comparable 40-year-olds. Get laid off and you can expect to spend almost twice as long out of the work force and to have to take a larger pay cut when you do get re-hired. The best way to avoid the nightmare is to make sure your boss knows you are as committed to work as your younger colleagues. Volunteer for projects, learn new things, arrive early, stay late. Make it so clear you're a gamer, that age bias can't enter your boss' little mind. But if the worst happens anyway? Acknowledge the hand you've been dealt. The odds are your human capital is worth less on the open market than inside the old firm, where you were getting a premium for understanding the culture. So be realistic. Then build yourself a support team. You can do this the expensive way, by hiring a career coach, who may charge up to 10 grand to pilot your job search. But outfits like the Five O' Clock Club provide perfectly useful coaching for a fraction of the cost. Finally, be open. Yes it's a cliche, but this can be your chance to do what you've always wanted. Think about it. You want a competitive edge? Go into the interview with your decades of experience and the conviction that this is the job that's secretly been yours your whole life. You'll be unbeatable. I'm Eric Schurenberg.
Paul Kangas' Stocks in the News
PAUL KANGAS: Stocks started the day in rally mode, but some disappointing earnings turned things around. An hour into trading the Dow was up nearly 70 points while the NASDAQ rose 30 points. Then worries about yesterday's disappointing results from Disney and today's earnings shortfall from Kraft blunted the upturn by mid-session. And then haggling over the Obama economic stimulus plan appeared to trigger investor uncertainty and an afternoon sell-off. So the Dow Industrial Average ended with a loss of 121.70 points at 7956.66. The NASDAQ Composite down 1.25 points at 1515.05. Standard & Poor's 500 fell 6.28 to 832.23. In the bond market, the 10- year note fell 14/32 to 106 28/32, putting the yield at 2.94 percent.
Just like yesterday, Bank of America (BAC) topped the active list today on a very heavy 109 million shares. The stock down $0.60 or 11 percent. Banks generally weak again on uncertainty on how the Obama administration plans to stabilize the bank sector.
Citigroup (C) bucked the trend, up $0.03.
But General Electric (GE) down $0.11.
Co Vale do Rio (RIO) a $0.77 gain.
And Pfizer (PFE) $0.31 loss there.
JPMorgan Chase (JPM) a penny loser.
And then Wells Fargo (WFC) down $0.74.
Motorola (MOT) down $0.29. Yesterday it reported a big fourth quarter loss and suspended its quarterly dividend of $0.05 a share.
Disney (DIS) losing $1.62. After the close yesterday as we reported, Disney had $0.41 in first quarter earnings, $0.10 below the Street estimate. Revenues fell 8 percent.
Then Dow Chemical (DOW), tenth in volume, was down $0.58.
Philip Morris (PM) the spin-off from the major company, down $1.54. Fourth quarter earnings came in at $0.71 versus $0.74 last year, but that was $0.09 above the Street estimate. However, the company sees 2009 earnings at $3 a share at best and the Wall Street estimate is for $3.32.
Kraft Foods (KFT) down $2.63. Fourth quarter earnings fell to only $0.11 from $0.38 last year. Restructuring costs were part of the problem and those earnings were a penny below Street estimates. Standard & Poor's repeated a "strong buy" on Kraft however.
Archer-Daniels (ADM) down $2.11. After the close yesterday, second quarter earnings out, $0.91 versus $0.73 a year ago, but today, JPMorgan brokerage downgraded it from "over weight" to just a "neutral" rating.
Freeport-McMoran Copper & Gold (FCX) up $2.11. New York gold up $9.70 an ounce, just over $900 now. UBS financial issued a "buy" on Freeport and boosted its price target from $30 to $32 a share.
Textron (TXT) all the way down to $6.28 now with that loss of nearly $1.70. The company says it has drawn the balance of its $3 billion committed bank credit line. Standard & Poor's downgraded the stock from "hold" to a "sell."
Thomas & Betts (TNB), which makes electrical components, up $3.28. Fourth quarter earnings, $0.45, way down from $0.89 last year, but the company sees 2009 earnings at a better than expected $3 a share, maybe as high as $3.50 a share.
Massey Energy (MEE) down $1.90, $0.63 in fourth quarter earnings, way above $0.06 last year. Revenues up 29 percent, but the company said it sees significantly lower demand and prices for coal this year.
Universal Technology Institute (UTI) plunging $5.83. First quarter earnings fell to only $0.09 from $0.24 last year on flat revenues. Those earnings of $0.09, $0.11 below the Street estimate.
And finally Diebold (DBD), the ATM manufacturer down $1.93 in part of sharply lower fourth quarter earnings only $0.40. That's down from $0.67 a year ago.
NASDAQ's most active, Apple (AAPL) up $0.57.
And then Google (GOOG) up $2.55. Google wants Time Warner to buy back Google's 5 percent stake in AOL.
Microsoft (MSFT) $0.13 gain although founder Bill Gates is predicting more economic weakness for the next three to four years.
Cisco Systems (CSCO) closed up $0.22. After the close, Cisco out with second quarter earnings of $0.32, $0.02 above the Street estimate, but it gave a third quarter estimate for a 15 to 20 percent drop in revenues. After hours trading, the stock was down about $0.60.
Research in Motion (RIMM) $0.44 gain.
Intel (INTC) $0.29 advance.
Costco Wholesale (COST) down $3.14. The company sees second quarter earnings substantially below the $0.70 per share that Wall Street has estimated.
And then Amazon.com (AMZN) down $2.53.
Qualcomm (QCOM) off $0.39.
But First Solar (FSLR) up $4.45.
And finally, shares of Illumina (ILMN) surged $5.92 on solid fourth quarter earnings of $0.30 per share up from $0.19 a year ago. It also gave an upbeat forecast.
