NBR Transcripts -January 8, 2009
Thursday, January 08, 2009President-Elect Barack Obama's Urgent Call About The Economy
SUSIE GHARIB: A somber warning today about the U.S. economy from President-Elect Barack Obama. He said the current recession could last for years and the unemployment rate could soar to double digits if dramatic action isn't taken as soon as possible. Obama urged Congress to quickly pass his $800 billion economic stimulus plan, which includes tax cuts and massive government spending on public works. As Darren Gersh reports, it was Obama's most eloquent and urgent call to action.
PRESIDENT-ELECT BARACK OBAMA: For every day we wait or point fingers or drag our feet, more Americans will lose their jobs, more families will lose their savings, more dreams will be deferred and denied and our nation will sink deeper into a crisis that at some point, we may not be able to reverse.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president- elect aimed that dire warning directly at Congress. Though no one on Capitol Hill is talking about stopping Mr. Obama's recovery plan, some lawmakers have suggested approval could slip to mid-February or possibly later. Senate Republican leader Mitch McConnell is concerned about using a short-term stimulus to make long-run changes in government and he offered one suggestion for safeguarding taxpayer aid to states.
SEN. MITCH MCCONNELL, MINORITY LEADER: We're clearly not interested in seeing money spent on mob museums and waterslides. The question is how will the money be spent? I think the way to make sure it is spent judiciously is to make it a loan.
GERSH: Obama offered a few new details of his spending plans. He pledged to double alternative energy production in three years, while also investing in a so-called smart grid for a more efficient electrical system. The plan will also computerize the nation's medical records within five years. Obama also addressed those who are skeptical government spending will stop the recession.
OBAMA: Only government can break the cycles that are crippling our economy, where a lack of spending leads to lost jobs which leads to even less spending, where an inability to lend and borrow stops growth and leads to even less credit.
GERSH: So far, the Obama outreach campaign to the nation, Republicans and fiscally conservative Democrats is paying off. Tennessee's Jim Cooper agrees urgent action is needed.
REP. JIM COOPER, (D) TENNESSEE: So I think you're going to see a responsive Congress, not necessarily a Congress that's going to roll over and play dead, but a Congress that responds to presidential leadership and gives the president substantially what he wants.
GERSH: But not all of it. Members of Congress have already raised concerns about the effectiveness of some of the tax cuts the president- elect has floated. Obama has signaled he is open to new ideas, as long as it doesn't slow down the recovery package. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with Bill Gross , Chief Investment Officer of Pimco
SUSIE GHARIB: Well, Obama's massive stimulus plan could send billions of dollars to struggling American states and cities. That's why our guest tonight says this is the time for investors to buy municipal bonds. Joining us now, Bill Gross, chief investment officer of Pimco and manager of its total return fund, which is the world's largest bond fund. Hi, Bill and happy New Year to you.
WILLIAM GROSS, FOUNDER & CO-CHIEF INVESTMENT OFFICER, PIMCO: Thanks Susie, same to you.
GHARIB: So I see that you wrote in your January letter to investors that you like munies, tell us why.
GROSS: Well, I like them mainly from the standpoint of valuation. It's not that municipalities don't have their problems. And some of them obviously are of their own making but they depend upon income taxes, both corporate and personal. They depend on property taxes. They depend on sales taxes, all of which are going down. And so they are in a pickle. It seems to us that the Obama administration will ride to the rescue over the next month or two in terms of funding, much like they have done with the TARP and with General Motors and so that the creditworthiness of the municipals are not a problem and the valuations will stay (ph) positive.
GHARIB: Now as you mentioned, there are some states like your state of California that is struggling. Are there areas that investors should avoid and where should investors look for opportunities in terms it of munies?
GROSS: Well, I think they best stick to the larger municipalities, to the states, the large cities, not to discourage some individual project financing. But these days it pays to be a big borrower and a big borrower in need, to the extent that the state of California requires $20 or $30 billion or at least suggests that they do from Uncle Sam, then you want to partner up, so to speak with Uncle Sam in terms of joining hands by purchasing what they purchase or by lending money to an entity that they lend money to. And so I think stick to the big ones and you will be happy down the road.
GHARIB: Bill, you write in your January letter also that are you a fan of TIPS. Now everybody is talking about deflation. Are you worried about inflation?
GROSS: Well, I think down the road that that is the hoped for result of these particular maneuvers and policy decisions, that yes the Fed and yes the Treasury wants to replace the U.S. economy. There is a debate and as you mentioned in terms deflation, there is the possibility that those efforts won't be successful and that's the reason why TIPS, why inflation protected securities don't have as much luster as they used to. But to the extent that you are a believer in at least a partial success in terms of these programs and a return to normalcy in some part on the part of the U.S. economy in later years, then TIPS are excellent ways to participate. They not only provide a real return of two to 2 1/2 percent, but they give you that inflation kicker if, in fact, that is what we will have.
GHARIB: Give us also in this context that we are talking about which direction the economy is going what is your forecast for the U.S. economy for 2009, just your quick big picture.
GROSS: It's not good. 2009 will be a recession year. 2010 will be a slow growth, if at all year. And so Pimco is not on the positive side of the ledger in terms of suggesting that everything will turn up roses going forward. But we do suggest that the U.S. government will come to the rescue in terms of, you know, high quality securities markets, municipalities included and so that there are attractive bargains that you can partner up with the uncle so to speak.
GHARIB: Well, how worried are you about this unbridled government spending? Isn't that bad for the economy?
GROSS: Well, it is a negative there is no doubt. There is no doubt that free enterprise as opposed to government regulation and government control is the way we've done it and the way that it should be done. There's no doubt though that there is a huge hole now in terms of liquidity and in terms of capital. The private system has frozen and is just not willing to take risk. And so at the moment, you know, I see a rather Keynesian, a huge Keynesian type of substitution in the form of trillions of dollars as required going forward. Hopefully there is an exit to that type of maneuvering down the road. I think the government has provided for that. But for the next year or two, we are going to have to live with the government.
GHARIB: All right, we're going to check back with you and see how all these strategies are working out. Thank you for tonight. We really appreciate it.
GROSS: Thank you, Susie.
GHARIB: My guest tonight, Bill Gross of Pimco.
A Rash of Retail Stores Are Expected To Fold in 2009
SUSIE GHARIB: Wal-Mart disappointed investors with a smaller than expected sales gain in December. But that was much better than most of the nation's chain stores which posted sales declines. Many mall retailers are struggling to survive. And as Erika Miller explains, analysts expect thousands of stores will be shuttered this year.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chances are you'll see more signs like these in the coming year. Many retailers are struggling to turn a profit in the midst of a deepening recession and tight credit conditions. Retail expert Howard Davidowitz predicts 200,000 stores will close by year end -- the most in 35 years. He believes virtually every store at the mall is at risk.
HOWARD DAVIDOWITZ, CHAIRMAN, DAVIDOWITZ & ASSOCIATES: They're all in trouble. The mall stands for discretionary. Discretionary is under water. Living standards in America will never be the same and it's going to change the way America shops indefinitely.
MILLER: Big names like Circuit City, Linens 'N Things and KB Toys have already filed for bankruptcy. The question is who's next?
DAVIDOWITZ: There are a number of retailers at risk this second. Gottchalk's, the department store in Fresno, life is at risk. Bon-ton department stores -- life at risk, anchors of malls-- very scary.
MILLER: The common problem is falling sales and rising debt. That's the reason some analysts are also watching Williams Sonoma and Pier One. Citi's Kimberly Greenberger says Talbots is in the worst shape of the specialty apparel firms. Her company has done business with Talbots over the past year.
KIMBERLY GREENBERGER, RETAIL ANALYST, CITIGROUP: They are in the process of trying to sell off their J. Jill division. And if they are successful, there might be some proceeds there that could help patch them through, but they are certainly having a rough go of it.
MILLER: On the flip side, analysts see a few stores that will weather the storm just fine, perhaps picking up market share as other merchants close. They include discounters like Wal-Mart and Costco as well as the Dollar Store. But even outside that arena, analysts see other potential winners, the Gap and Urban Outfitters
GREENBERGER: They've got great balance sheets. They're very, very conservative with their capital spending and they manage inventory incredibly, incredibly well.
MILLER: Citi has done business with Gap and Urban Outfitters over the past year. The pain in retail is sure to spread to other industries. When a store goes out of business, it often leaves behind unpaid bills to shipping companies, mall owners and advertising agencies, not to mention suppliers. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Bill of Health"-Curing Questionable Billing
SUSIE GHARIB: There's this old saying, if you have to ask how much it costs, you can't afford it. But when it comes to medical procedures, hospitals are notorious for not being able to accurately answer questions about cost. As Jeff Yastine reports in tonight's "Bill of Health," that's beginning to change as more consumers foot the bill for their own medical care.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: What if you could buy a medical procedure in the same way that you buy a toaster at the store? After all, when you go to the store, you know exactly what the price of that toaster is going to be. It says so right on the side of the box. But that's not always the case when you go to a hospital. Let's pretend that this jar is your kidney. Well, if you have insurance, your kidney stone operation might cost $5,000. It's a volume discount negotiated by the insurance company. But if you're like many people these days, you don't have insurance. So is the price of your kidney stone operation $10,000 or is it $20,000? Often the hospital itself can't even tell you until after the procedure is done. That business model is changing. Some states like Minnesota, now require hospitals to post prices online. Patients can compare prices by hospital and procedure. Some commercial web sites, like vimo.com, also have data on hospitals. They show the list price and the discounted price negotiated by insurance companies. But experts like Paul Ginsburg of the Center for Studying Health System Change, a policy research group, say the information doesn't show the quality of medical care or the real costs to consumers.
PAUL GINSBURG, PRES., CENTER FOR STUDYING HEALTH SYSTEM CHANGE: They need prices which are the prices that they actually face. In health care, everyone pays a different price, like taking an airline flight. It all depends on what your insurer has negotiated or if you are unfortunately uninsured, sometimes you'll pay the highest prices.
YASTINE: Baptist Health South Florida established a corporate pricing office in 2001. Any customer can make one call and find out to the penny, what their total costs, or out of pocket costs, will be. Vice President Eric Shatanof says today's healthcare environment demands price transparency.
ERIC SHATANOF, CORPORATE VP, BAPTIST HEALTH SOUTH FLORIDA: There is a high number of uninsured in our county. Even with the existing insurance that people have, not necessarily the high deductible, there's an increasing share that the patients have to pay through their co-pays, co- insurance and deductibles. So we felt that it was important for them to know beforehand.
YASTINE: Shatanof says previously, customers had to call different hospital departments and the price quotes weren't always accurate. Experts say the ability to price health care in the same way that we price toasters, won't be truly successful until more hospitals make their own effort in providing accurate cost information to patients. Jeff Yastine, NIGHTLY BUSINESS REPORT, Bill of Health.
"Two Ways To Play"-Kevin Depew of Minyanville
SUSIE GHARIB: It's said that there are two sides to every story. So tonight, we get two views on the plunge in yields on U.S. Treasuries. In tonight's "Two Ways to Play," here's Minyanville's Kevin Depew and Kevin Depew of Minyanville.
KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: Yields on U.S. Treasuries have now fallen to levels once thought unimaginable. The 30-year Treasury bond is now yielding about 3 percent. Adjusted for inflation, that's practically nothing. So what's going on here? Are government bonds the next bubble? The answer quite possibly, is yes. At current yields, speculators in Treasuries are simply betting on the greater fool theory: that more people will continue to buy Treasuries because -- well, more people will buy treasuries. That leaves just one very small exit in the theater should somebody yell fire. While it is true that Treasuries, if held to maturity, remain practically risk-free, who wants to basically give the government the money for free? Well, for once I agree with myself at least the part about giving the government my money. But while a 3 percent yield sounds scary, this is a story of risk aversion. Both the labor market and wages are currently deflating at a rapid rate. What we are experiencing is a deflationary debt unwind where nominal interest rates are virtually meaningless. Eventually inflation may become a problem and interest rates may go up, but for now, there isn't a bubble in Treasuries. There's an anti-bubble in risk.
Paul Kangas' Stocks in the News
PAUL KANGAS: Rotten December sales results at the nation's retailers put Wall Street on the defensive this morning. The Dow fell just over 100 points a little after the opening thanks in part to a $4 loss in Wal-Mart stock, while the NASDAQ was down 13 points at the outset. We'll have more about the retail picture in just a moment. Meanwhile, a modest decline in weekly jobless benefit claims did help the market stabilize by early afternoon, but buyers turned very cautious ahead of tomorrow's employment report, so stocks turned choppy, but a late rally in the tech sector did result in a mixed closing. The Dow Jones Industrial Average ended down 27.24 points at 8742.46. The NASDAQ Composite actually gained 17.95 points, ending at 1617.01. Standard & Poor's 500 up just over 3 points at 909.73. Over in the bond market, the 10-year note rose 15/32 to 111 11/32, putting the yield at 2.45 percent.
Topping the big board active list on 21.8 million shares, Citigroup (C) edging a penny higher. You heard the news on it earlier.
Then Bank of America (BAC) a $0.17 drop.
Wal-Mart Stores (WMT) tumbling $4.16. That hurt the Dow Industrial Average by 33 points. As you heard, the company's December same store sales were down less, were up I should say less than 2 percent and the company is cutting its fourth quarter earnings estimate from a high of $1.07 down to $0.94 a share at best. The company sees January same store sales flat to up maybe just 2 percent. Nevertheless, Standard & Poor's repeated a "strong buy" on Wal-Mart stock.
General Electric (GE) a $0.03 gain.
$0.20 advance in SprintNextel (S).
Wells Fargo (WFC) down $0.15.
Followed by JPMorgan Chase (JPM) an $0.87 loss.
Compania Vale (RIO) $0.37 gain.
EMC Corp (EMC) up $0.71. The company plans to cut 2,400 jobs or 6 percent of its workforce. The company also sees fourth quarter earnings at $0.23 to $0.24 a share and that's right in line with Wall Street estimates.
Pfizer (PFE) tenth in volume was up $0.16.
Target (TGT) in that retailing group managed to gain $0.51 despite a 4.1 percent drop in its December same store sales, but the Street was expecting a much worse drop, around 9.1 percent.
Limited Brands (LTD) down $0.70. Its December same store sales fell 10 percent. The company sees lower than expected fourth quarter earnings in the range of $0.55 to $0.70 a share.
Gamestop (GME) up $2.97. The company said its 2008 holiday sales were up 22 percent from a year ago. As a result, it's boosting its fourth quarter same store sales guidance to 9 to 9 1/2 percent on the plus side.
AK Steel Holding (AKS) up $1.28. Keybanc brokerage upgraded it from "hold" to a "buy."
Then the big engineering construction firm, Shaw Group (SGR) up $5.16. Big first quarter earnings excluding items, $0.75, way up from $0.45 a year ago. MSC Industrial (MSM) down $2.09. First quarter earnings, $0.72, $0.02 better than last year, but the company sees second quarter falling to only $0.39 to $0.43 a share.
And Manitowoc Co (MTW) down $1.11. The company sees 2008 earnings at the low end of its earlier estimate of $3.15 to $3.25. Also it gave a rather guarded outlook.
Ion Geophysical (IO), used to be called Input/Output, down $1.34, big percentage drop. The company said its fourth quarter revenues will only be around $145 to $165 million. Wall Street was expecting $244 million.
And Coach (COH) a $0.66 drop, dropped $1 more than that after the close when the company said it's cutting its second quarter earnings estimate from $0.77 to $0.67 a share.
Apple (AAPL) topped the NASDAQ actives, up $1.69.
Followed by Microsoft (MSFT) $0.61 gain.
Google (GOOG) up $3.18.
Intuitive Surgical (ISRG) down $7.34. The company issued a fourth quarter sales warning. It makes those surgical robots.
Intel (INTC) an $0.11 gain there.
Research in Motion (RIMM) down $0.19.
Cisco Systems (CSCO) a $0.22 advance.
First Solar (FSLR) did well, up $6.86.
Oracle (ORCL) a $0.03 drop.
And then Dryships (DRYS), tenth in volume, up $2.17.
Sears Holdings (SHLD) up $9.43, even though its December same store sales fell 7.3 percent, but the company said it's going to have $1.3 billion in cash in its coffers at the end of the year as part of a very strong balance sheet.
And then Thinkorswim Group (SWIM) up $2.69. It's an online broker and TD Ameritrade Holdings is offering cash and stock worth about $88.70 a share on a take over.
Those are the stocks in the news tonight.
