NBR Transcripts- February 6, 2009
Friday, February 06, 2009The Senate Steps Up Efforts To Pass A Stimulus Plan
SUSIE GHARIB: There is growing pressure on Capitol Hill tonight for the U.S. Senate to pass President Obama's economic stimulus plan. Lawmakers have been huddled together all day, wrangling over the price and terms of the plan which are different than the version passed by the House. It looks like there could be a compromise on the plan to have a $780 billion price tag sharply lower than what the Senate had been considering. And Senate Majority Leader Harry Reid is scrambling to bring the stimulus plan to a vote by the full Senate as soon as this evening. Why the renewed urgency? Alarming news today about the job market. American businesses cut nearly 600,000 jobs in January, the biggest monthly decline in 35 years. The job losses spanned all industries and pushed the unemployment rate to 7.6 percent, a level not seen since 1992. Economists expect more Americans will lose their jobs in the months ahead and warn the Obama stimulus plan may not be the cure-all for the labor market. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The latest employment snapshot shows the terrible toll the recession is having on workers and businesses. A staggering 3.5 million jobs have vanished in just over a year, with roughly half the losses occurring in the last three months alone. President Obama says that's 3.5 million Americans who need help.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: These numbers demand action. It is inexcusable and irresponsible for any of us to get bogged down in distraction, delay or politics as usual while millions of Americans are being put out of work.
MILLER: The president says his economic recovery plan would create up to four million jobs over the next two years. But even if a plan is passed swiftly, economist Kevin Logan thinks there will still be a loss of at least 2.5 million jobs this year.
KEVIN LOGAN, SR. MARKET ECONOMIST, DRESDNER KLEINWORT: The economy is in a very strong downward spiral right now. And blunting that effect -- holding the economy up in place -- is perhaps the most we can expect from a fiscal program. But if we don't have it, then we can anticipate even worse effects on the economy as the year goes on.
MILLER: Without a plan, economists forecast a loss of six million jobs or more and an unemployment rate above 11 percent. Economist Ethan Harris warns it will be a very long time before we're back to full employment, where almost everyone who wants a job has one.
ETHAN HARRIS, CO-CHIEF US ECONOMIST, BARCLAYS CAPITAL: We've got a long workout process ahead here for the economy. Stopping the recession is just the beginning. Then the Fed and the government have to get growth going and get the unemployment rate back down again. That's a multi-year process. I don't see a full recovery in the labor market for at least the next two or three years.
MILLER: The one thing analysts cannot easily predict is the psychological impact of a stimulus program. They say that if a plan is passed, consumer confidence could start to improve immediately and Americans could be back in spending mode by the end of the year. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
President Obama Builds An E- for Economy Team
PAUL KANGAS: President Obama has made it clear that solving the banking crisis is critical to economic recovery. On Monday, Treasury Secretary Timothy Geitner will outline the administration's financial rescue plan. Things that might be included: a new strategy for the TARP plan; a bank to buy bad assets; and keeping tight tabs on how tax dollars are spent. As Washington bureau chief Darren Gersh reports, any plan has to pass a few critical tests.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The first test of the financial rescue plan Treasury Secretary Timothy Geitner unveils on Monday is whether it is simple enough to work. Economist Vince Reinhart says a plan that is too complicated could undermine confidence.
VINCENT REINHART, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: If it is simple enough to be explained well, it's working on a few core principles that people can understand and that people can use to help predict what the government does going forward.
GERSH: Another key test for the Obama administration is transparency and accountability for government money. A plan that passes that test would help investors judge whether to put new money into banks, but even more importantly, it would address political outrage over bank bailouts.
CHRISTINA ROMER, CHAIR, COUNCIL OF ECONOMIC ADVISERS: One thing we will absolutely correct is that lack of transparency.
GERSH: Christina Romer chairs President Obama's Council of Economic Advisers.
ROMER: I think one of the reasons that the American people are so unhappy with how the money has been spent before is they don't have a sense of what it's doing. They have a fear that it's being misused.
GERSH: Those fears grew this week after new reports showed the government overpaid when it injected money into banks last fall. Whether the Obama administration buys assets outright or agrees to insure their value, it will be setting prices and how it does that is critical. Economist Peter Cramton fears taxpayers will pay more if the government tries to negotiate deals bank by bank.
PETER CRAMTON, ECONOMICS PROF., UNIVERSITY OF MARYLAND: The banks know more. They essentially hold the cards and the bankers as we know, investment bankers, one thing they are good at is negotiating. They're extremely good negotiators. That's how they got to where they are.
GERSH: One thing is certain. A financial rescue plan will not be perfect. The current crisis is so deep and broad, analysts say policy makers are forced to choose between options that run from expensive and difficult to extremely expensive and difficult. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with John Simons of "Black Enterprise" Magazine
SUSIE GHARIB: As we reported earlier, more than three million Americans lost their jobs in the past year. What does all this mean for workers who still have a job? Tonight, as we continue our month-long look at "Reviving the Economy, Jobs," our guest has some advice and warnings. Joining us now John Simons, senior personal finance editor at "Black Enterprise" magazine. Hi John.
JOHN SIMONS, SR. PERSONAL FINANCE EDITOR, BLACK ENTERPRISE MAGAZINE: Hello.
GHARIB: We know it's terrible to be out of work. But for people who still have jobs in this economic environment, it's also pretty tough, working more, getting paid less. Isn't that the case?
SIMONS: That's right. The vast majority of us will, when all this has passed, the vast majority of us will have kept our jobs, will have stayed in our current positions. So, basically what we have to do is sort of remember that and try not to sort of focus on the bad news, kind of plow ahead and do our jobs and there are a number of things that workers can do at work to try to make themselves recession proof. The first thing -- GHARIB: What kinds of things?
SIMONS: The first thing is to not assume that it can't happen to you. You should, you should sort of work out in your mind and perhaps even on paper an escape plan. Polish up your resume. Try to figure out what you would do if it happened to you. If you were to get a tap on the shoulder and get laid off. Some of the other things --
GHARIB: Go ahead.
SIMONS: One of the other things that you can do is, is sort of start networking among your friends and colleagues and even among people at competing companies. Don't treat them as the enemy. They could be the source of a job connection down the road.
GHARIB: You told us some of the things to do when you already have a job. What are some of the things that you shouldn't do, that you should watch out for when you're holding down a job in this kind of climate where everyone around you is losing their job?
SIMONS: Well, you shouldn't stick your head in the sand. That's probably the first piece of advice. Try to find out what is going on, what is coming down the pike in your company. Try to understand how your company views you and the value - try to be realistic about the value that the company places in you. And like I said sort of work out an escape plan, never assume that it can't happen to you because as we've seen, the job cuts lately have been very broad, very deep in many sectors and in many layers of corporations. Sort of --
GHARIB: You're absolutely right about that. Let me just jump in because we have a little time left.
SIMONS: OK.
GHARIB: All week long we have had guests come on the program to give their tips and strategies of what to do if they're out of work. What is your best piece of advice for somebody who has lost their job and how should they get started? What is the most important thing they should do?
SIMONS: I'm a big proponent these days of these social networking websites, facebook, linkedin. No matter how old you are, please don't think that you're too old to engage in social networking. You can put on, you can get onto facebook, keep it professional. Put your resume up there. Contact former workers and friends and very informally let them know that you're looking if you are out of work. I actually got my current job as a result of putting out on facebook the idea that hey, I'm looking. Does anyone know what is going on? It's a lot better than making the uncomfortable phone call to your former boss or people that you worked with in the past and saying hey, do you know of anything that's going on out there?
GHARIB: You speak from experience and I'm glad it worked out for you. Thank you so much, John for coming on our program.
SIMONS: Thank you very much.
GHARIB: My guest tonight, John Simons, senior personal finance editor at "Black Enterprise" magazine.
"Market Monitor"-Frank Cochrane, President of Investment Timing Consultants
PAUL KANGAS: My guest "Market Monitor" this week is Frank Cochrane, president of Investment Timing Consultants, a financial advisory firm based in Bloomfield Hills, Michigan and Frank, welcome back to NIGHTLY BUSINESS REPORT.
FRANK COCHRANE, PRESIDENT, INVESTMENT TIMING CONSULTANTS: Great to be here, Paul. Thank you very much.
KANGAS: Despite today's dismal news of big job losses in January, stocks staged a solid upturn? How do you explain that?
COCHRANE: Well, I think what the market's looking at today and probably into very early next week is the mark to market and the accounting with respect to the financials and people hope a lot will happen. Also, TARP two. (INAUDIBLE) what has happened since TARP one though is the financials are down about 50 percent. So I think this is going to be a buy the mystery and sell the news when it comes out next week. I think this will be a short-lived rally.
KANGAS: OK. Give us your scenario for what lies ahead this year for Wall Street.
COCHRANE: Well Paul, I think there's three scenarios that are going to unfold, all of which are not optimistic for the market. The first one is, I think the market will sort of scrape along the bottom here, so an L- shaped pattern where we go say between 8 and 9000 on the Dow, 8, 900 on the S&P and we do that through most of the year and that's probably my most optimistic projection. I don't see any major break out with respect to the averages. So the NASDAQ today has done well. But I think that will all be for naught some time t in the not too distant future.
My second scenario is this, is that we have, see another 25 percent pull back in the market taking the Dow Industrials down to a 6000 area and the S&P down to say, 6.25-650. At current earnings levels, that would be about a 10 multiple which is obviously well below the historic norm but that's something that happened in '82 and back in the '50s, so that's very possible. Worst case scenario is this, is that if you look at a long-term chart, a very long-term chart and if you think for example the banking situation that has happened was brought on by what happened in the 90s and that a sort of free wheeling business, then the market at that point in time went into a parabolic from about 4000 on the Dow up to the levels that were reached back in 2007. So my worst case scenario is we could see the Dow over the course of the next six to 12 months and this is an outside shot, going down to the 4000 level. And correspondently you could see the S&Ps go down to say the 4.25-4.50 area and the NASDAQ Composite would go down to about the 700 level. That's an outside shot. But this year, I'm not really optimistic and I don't think these programs are going to help. Anyways that's where I stand right now.
KANGAS: In late August on that last visit, you did say Wall Street was in a protracted bear market and it'll last until late this year or early 2010. I didn't know you were going to be that bearish. But the Dow has fallen 3500 points since when you were last with us. So does this make you at all bullish on gold or silver?
COCHRANE: Put it this way, I think there's too much people right now that are bullish on gold. I could see it certainly moving to $1000 an ounce. But I think longer term, if you're looking out maybe later on this year, it might be a buy then. I don't think there is a real reason in my opinion at this point in time to be (INAUDIBLE) the gold.
KANGAS: In late August you gave our viewers three recommendations. Let's see what they have done since then. You first of all gave us the FXE scenario there. It's down but you shorted that, did you not?
COCHRANE: Yes I said to short the euro. That was around 1.48 now around 1.28-1.29. That's a position. I think the euro could go lower longer term, but if that happens, I would start covering that.
KANGAS: And then UYG, the ProShares Ultra Financials, you've taken a hit on, a bad one.
COCHRANE: Yes. That was not a good recommendation. Although I did say at the time at 20, it could trade up to 25 or 27 which it did do, but certainly that's not one of my proudest moments.
KANGAS: Being a Detroit area resident you said I would be loyal to General Motors (GM). That didn't work out. Our time is short so how about a couple of recommendations?
COCHRANE: OK, the first thing I would do is -- I was in a mutual fund right now I would seriously consider on this recent rally here going into a money market fund, raise cash for this year. Worst thing that happens is you lose opportunity. Second recommendation is to buy the SDS, which is the Ultra S&P 500 ProShares as I think the market's going to decline. That should increase in value. It's an inverse ETF.
KANGAS: Right and one more.
COCHRANE: And finally, the last one is the TWM, inverse two times on the Russell 2000. That would increase in value as the market drops too. These are trading vehicles remember.
KANGAS: Right, two bearish investments though.
COCHRANE: Yes, sir.
KANGAS: Do you personally own or have any other discloses to make about these securities that's mentioned here?
COCHRANE: Paul, from time to time we trade in and out of these and so from that standpoint, yes.
KANGAS: Frank, thanks for sharing your views with us once again. My guest Frank Cochrane, president of Investment Timing Consultants.
Paul Kangas' Stocks in the News
PAUL KANGAS: Despite that worse than expected jobs report, Wall Street opened sharply higher, apparently because investors figured the bad numbers would speed up passage of an improved stimulus plan. The Dow rose steadily to a 178-point gain by noontime with the NASDAQ up 32 points. The surge carried the Dow up as much as 235 points this afternoon, but then it pulled back a bit on normal pre-weekend caution. The Dow Industrial Average finally closed up 217.52 at 8280.59. This week it fell twice and rose three times and had a net advance of 279.73 points. The NASDAQ Composite gained 45.47 points to 1591.71 today. This week it fell only once and rose 115.29 points overall. The Standard & Poor's 500 gained 22.75 points to 868.60 today and for the week, it was up 42.72 points. In the bond market, the 10- year note fell 24/32 to 106 11/32, lifting the yield to exactly 3.00 percent.
Meanwhile, things were bullish on Wall Street, as we'll see as we look at our stocks in the news tonight. Big board volume leader fourth day in a row, today on 107 million shares, Bank of America (BAC) a big percentage move up, $1.29 gain. The chief executive officer says the company has no need for additional capital. It will not be nationalized and he set a three-year time limit to pay off its $45 billion TARP loan.
Citigroup (C) moved up $0.38, good percentage move there.
General Electric (GE) $0.25 advance. Hard to believe GE's down 70 percent in the past year and today JPMorgan cut its price target to only $9 a share.
JPMorgan Chase (JPM) moving up $3.09.
And then Wells Fargo (WFC) with a good gain of $2.87 in that strong banking group.
Co Vale do Rio (RIO) up $1.37.
Pfizer (PFE) a $0.34 gain.
ExxonMobil (XOM) rose $0.96.
Petrobras (PBR) up $1.70.
And Regions Financial (RF), another strong bank stock, up $1.37.
IBM (IBM) up $3.73. It was one of the leaders of a strong tech group this week and today, IBM and Google - I should say last night IBM and Google announced a joint venture and I'll get to that with some details in a moment.
Hartford Financial (HIG) down $2.41. Fourth quarter loss out today, $0.72 a share in the red versus earnings of $2.66 a year ago and the company will cut its quarterly dividend from $0.32 all the way down to a nickel.
Aon Corp (AOC), this is an insurance company that had better earnings, fourth quarter, $0.81, up from $0.68 last year. Stock up nicely.
Weyerhaeuser Co (WY), the big lumber producer, $0.67 gain, even though it had a fourth quarter loss of $0.99. Street estimate was for a loss of only $0.57 and the company sees no near-term improvement in its business because of the housing slump.
Roper Industries (ROP) up $4.21. The industrial products manufacturer had fourth quarter earnings $0.78, a penny higher than last year on a 3 percent rise in revenues.
Pitney Bowes (PBI), this company manufactures mail processing equipment and fourth quarter earnings $0.77. That's up from $0.72 a year ago.
Skechers USA (SKX), the footwear company, down $2.67, almost a 26 1/2 percent drop. The company sees a fourth quarter loss of $0.45 to $0.50 a share, says that inventory build up has been a problem.
Mettler-Toledo (MTD), which makes scales, down $6.48. Fourth quarter earnings were weighing on the stock, $1.84, a nickel below the Street estimate.
Google (GOOG) topped the active list on NASDAQ, up $17.56. Google and IBM are teaming up to provide digitized health records.
Apple (AAPL) up $3.26.
Microsoft (MSFT) $0.62 advance.
Research in Motion (RIMM) was up $2.37.
Cisco Systems (CSCO) $0.69 gain there.
Qualcomm (QCOM) up $1.28.
Intel (INTC) a $0.48 advance.
Amazon.com (AMZN) had a good week, winding it up strongly, $3.37 gain.
And Gilead Sciences (GILD) up $0.22.
Oracle (ORCL) a $0.35 advance.
Those are the stocks in the news tonight.
