NBR Transcripts-March 4, 2009
Wednesday, March 04, 2009Dennis Lockhart, of the Federal Reserve Bank of Atlanta Remains Concerned About Job Losses
SUSIE GHARIB: A top official of the Federal Reserve tells NIGHTLY BUSINESS REPORT he's worried about the nation's job losses. But Dennis Lockhart, president of the Federal Reserve Bank of Atlanta told me in a exclusive interview a short while ago he believes the central bank and the Treasury are taking the necessary steps to revive the U.S. economy. Lockhart's views are significant because he's a voting member of the Fed's policy setting committee, which meets in two weeks to determine the Fed's next course of action. My first question to Lockhart, what will pull the U.S. economy out of the recession?
DENNIS LOCKHART, PRESIDENT, FEDERAL RESERVE BANK OF ATLANTA: Well, I think we're going to look for a turn of confidence that is built on what I might call a moment which becomes the half full moment. It used to be the half empty moment. Some of the signs that might improve the overall atmosphere in the economy would be rising home sales for example, the success of the, the Treasury programs that are being put in place now and the stabilization of the banking system, the improvement in consumption or consumer activity. These are the kinds of things that I think will show up in the data but also should show up in the atmosphere in the economy.
GHARIB: We didn't get much good data today, Mr. Lockhart, about the job market, some news of big job losses in February. What are you expecting from the employment report that comes out on Friday?
LOCKHART: I'm not expecting a good report. I'm concerned that this too will show some job destruction, substantial job destruction and that the unemployment rate will rise.
GHARIB: As far as the economic stimulus plan goes, will it really create new jobs or is it just limiting the number of job losses?
LOCKHART: I certainly think aspects of it have the potential to creating new jobs. Really as a Treasury program. I really think and as administration program it's probably best for me not to opine in detail. But clearly the, the tax elements of the program, the tax relief will create some consumption activity in the relatively near term. The infrastructure projects and shovel ready projects will create employment once mobilization has taken place in those projects actually are under way. So I think there is a reasonable hope that we'll see some job creation in certain categories. The down streaming of funds to states and municipalities I think should preserve jobs in the public sector at the state/municipal level.
GHARIB: As you know, consumers are very worried about losing their jobs and so they're saving more. They're spending less. How do we get a recovery without the consumer?
LOCKHART: Certainly the consumer is essential in the short-term. There's no question that we're going to need to see consumer spending to get the economy moving because the consumer represents such a large proportion of our economy. So at least in the short-term, we're going to need to see the kind of confidence that will bring the consumer back to the stores and consuming again.
GHARIB: What do you expect from TALF, the Term Asset-Backed Securities Lending Facility? By giving money and loans to consumers and small businesses, how much will this help the economy?
LOCKHART: What it's designed to do is to unlock the securitization markets, which are a substantial portion of our financial system and if successful, the TALF should begin to promote the flow of credit to individuals, small businesses and under study is also the commercial real estate mortgage-backed securities market. So that would help the commercial real estate market as well.
GHARIB: As you know the Obama administration rolled out today's loan modification program to help struggling home owners. Will this stabilize home prices in your view?
LOCKHART: I think if successful, it will help to stabilize home prices. Many of the modifications or a good portion of the modifications to date actually have not been payment reducing modifications. And a key element of this program to mitigate foreclosures is actual reduction in payments. The target is to try to bring payments for at least one class of borrowers down to 31 percent of their income. That should help deal with the foreclosure problem and if the foreclosure problem can be, can be contained, it will help house prices.
GHARIB: Now these problem loans are a big issue for banks. From what I hear Treasury is working on a plan of public/private partnerships to buy problem loans from banks. In your view is this the right solution to make banks healthy and would you support it?
LOCKHART: I definitely supported the good bank/bad bank method of trying to separate problem assets from the bank, cleanse its balance sheet and put it in a position to start lending again, to move ahead, has been successful in another situations both at the national level and in the case of individual banks, I think it's a good approach, probably an essential approach to get the banks stabilized and to put them in a position to do their job of lending and moving money around the economy.
GHARIB: Mr. Lockhart, no matter who you talk to these days, people have doubts about whether all these bailouts and stimulus plans will really fix the economy. Are we on the right track or should we be trying a different approach?
LOCKHART: I'm very supportive. I think the Federal Reserve and the Treasury as well are responding aggressively to the problems and the package as a whole which of course includes the financial stabilization plan that Secretary Geithner has put forward, as well as the continuing activities of the Federal Reserve, represents a forceful response to the problems. I think there's a good chance that we'll be quite successful.
GHARIB: Mr. Lockhart, thank you so much for your time. We appreciate your coming on the program.
LOCKHART: Thank you Susie.
President Obama Opens The Door To Helping Homeowners
SUSIE GHARIB: Let the workouts begin. That's the message from the Obama administration today as it explained the nuts and bolts of its $75 billion plan to stop foreclosures and help struggling homeowners. As Stephanie Dhue reports, lenders will have to rewrite mortgages to fit the new rules.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The sweeping loan modification program is meant to reduce foreclosures, helping stabilize the housing market and the broader economy. Housing and Urban Development Secretary Shaun Donovan says the key is to get borrowers into a sustainable mortgage.
SHAUN DONOVAN, HUD SECRETARY: What we are trying to do is establish standards in the industry to get an agreement across servicers, lenders, families that here's what a reasonable payment standard is in the longer run, 31 percent of your income.
DHUE: To be eligible, the mortgage had to made on or before January 1, 2009. Borrowers must live in the home and have a mortgage amount less than $730,000. Borrowers must prove they can't pay and have no cash or other liquid assets, excluding retirement accounts. Servicers will be working directly with families and the government will oversee the process.
DONOVAN: We are going to be auditing and looking very carefully at what the servicers are doing. They are going to be required to report extensively on the modifications that they are doing.
DHUE: Housing activist Bruce Marks is concerned the loan modifications may not be sustainable, since the interest rates readjust after five years. Adjustable mortgages are what got many homeowners into trouble in the first place.
BRUCE MARKS, FOUNDER & CEO, NEIGHBORHOOD ASSISTANCE CORP. OF AMERICA: These are not going to reset to the same rates that they reset to before, but they are still going to cause -- result in hundreds of dollars more every month. Where are homeowners going to find that?
DHUE: Investors will also feel the squeeze. Standard & Poor's Michael Thompson says modifications that lower interest rates and increase the life of the loan hit investors in mortgage-backed securities.
MICHAEL THOMPSON, CREDIT RISK GROUP, STANDARD & POOR'S: The fixed income retiree who's living down in Boca Raton, who basically realizes that now their income stream is going to be less and unfortunately, they are going to be wedded to that income stream longer.
DHUE: Lenders and servicers can begin accepting applications for loans modifications today. Treasury officials urged borrowers to be patient as they expect a flood of calls from struggling homeowners. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Street Critique"-Michael Farr of Farr, Miller and Washington
PAUL KANGAS: Tonight's "Street Critique" guest says there's a worthwhile rally on the horizon, but it won't necessarily signal a bottom. He's Michael Farr, president of the money management firm Farr, Miller and Washington and author of "A Million Is Not Enough." And Michael good to see you again. Welcome.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul. Nice to be here.
KANGAS: With the overwhelming market pessimism extent right now, do you think that this is part and parcel of finding a bottom to this market?
FARR: It feels that way, Paul. The Dow Jones Industrial Average is trading 32-33 percent below its 200-day moving average. Historically, that's very low and it's significant. We've been trading down now consistently. We saw a good bounce today. I'm hoping that that will follow through and lead into something of a rally here. We're overdue for one.
KANGAS: But how long a rally?
FARR: Good question. In 2002-2003, we saw three separate bottoms: July 22; we saw another in October and finally in March, we found a final bottom. And that October low was lower than the other two brackets. So this one right now is lower than the November low. Perhaps we will rally from here and lead to another low in June and maybe we'll start to see things build, but for right now, I'd like to see us come out of this.
KANGAS: What do you think the chances are for the stimulus recovery plan to work and be successful?
FARR: Paul, I would like to know what it is. They're so short on details. I keep hearing from the government with great enthusiasm. We plan to have a plan and that's not good enough for Wall Street. Wall Street hates to be surprised and we want details. We need a foundation and the government is not offering us one.
KANGAS: In January you gave our viewers 10 stock picks for 2009. Let's see how they've been doing since the first of the year, Stryker (SYK), CVS Caremark (CVS), Colgate (CL), Microsoft (MSFT) and Johnson & Johnson (JNJ), all great blue chip names, every one of them down. You're still with them?
FARR: Every one of them down. I'm still with every one of those. Of those five, CVS did the best.
KANGAS: That's right. Let's have the other five, Cisco (CSCO), Medtronics (MDT), Staples (SPLS), Danaher (DNR) and the bad one was JPMorgan Chase (JPM). And then let's top it off by how all of your 10 picks compared with the Standard & Poor's 500 year to date. You have done a lot better than the S&P 500 which is down just over 21 percent. You're off less than 16. That's not bad.
FARR: It's not bad but it's hard to say that you're not bad. I mean that list is 540 basis points ahead of the S&P 500, but if you've invested in it, you're still down 15 percent. It's not great comfort. And of course on that list of financial that's gotten hardest hit, we're hanging with all of those stocks still (INAUDIBLE) portfolios.
KANGAS: You own all of them.
FARR: I do. I'm with them there with my own money.
KANGAS: OK. Fair enough. Let's hope they have a better few months ahead and if that rally comes along like you're talking, I'm sure they will.
FARR: Let's hope they don't get worse, Paul.
KANGAS: That's for sure. All right, I appreciate very much your coming with us again, Mike.
FARR: It's my pleasure, Paul. It's an honor to be here.
KANGAS: My guest, Michael Farr of Farr Miller and Washington, author of "A Million Is Not Enough."
"Money File"-Employer Retirement Worries
SUSIE GHARIB: Tonight's "Money File" has a few thoughts on the tough choices facing employers. Eric Schurenberg, editorial director of Bnet Moneywatch, continues our series "Reviving the Economy: What Should Business Do?"
ERIC SCHURENBERG, EDITORIAL DIRECTOR, BNET MONEYWATCH: The United States has a retirement problem. This is not news. We have known for years that there are simply too many citizens who've saved too little and who will live too long. But there is a fix and a fairly elegant one. To retire well, Americans need to retire later. The average worker checks out now between 62 and 63, but delaying beyond that even a little can make a huge difference in financial security. If a middle income couple retires at 70 instead of 62, for example, they reduce the nest egg they need to live comfortably from more than half a million dollars to just 118 grand. The only problem is knowing that it makes sense for Americans to work longer doesn't mean they'll be able to. On average, older workers are less productive and businesses, logically enough, have reservations about hiring them and few reservations about laying them off. But American business could help by not setting older workers up to fail. Lots of employers have doubts that older workers can learn new technology. That's not true. They may need a different kind of training, but they can learn. Employers could also do everyone a favor by putting more effort into helping employees save smarter in their 401(k)s. By the way, suspending the employer match in tough times, as FedEx and Motorola among others recently did, is not the right message. Yes, we still need to push back the expected age of retirement. But it we get employees to save smarter, we won't have to push it back so far. I'm Eric Schurenberg.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street finally moved into higher ground this morning as buyers hunted for bargains brought on by this bear market. The upturn was also helped by reports the Chinese government is mulling another stimulus program to boost its economy. By noon, the Dow was up 160 points with a 37 point gain in the NASDAQ. The Dow surged to a 240-point gain early in the final hour of trading, but gave some of it back before the closing bell. The Dow Industrial Average ended the day up 149.82 points at 6875.84. The NASDAQ Composite rose 32.73 to 1353.74. Standard & Poor's 500 gained 16.54 ending at 712.87. In the bond market, the 10-year note fell 24/32 to 98 2/32, putting the yield at 2.98 percent.
Most active New York exchange issue on 113 million shares, Citigroup (C) losing $0.09 a share.
Then General Electric (GE) with a $0.32 loss, traded as low as $5.87 today. The cost of insuring GE Capital's debt has hit a record high, but the company said it has no plans to raise more equity capital. That prompted some short covering and so did work that management has been buying stock. However, Pimco is predicting GE is on the verge of losing its coveted triple A rating.
Bank of America (BAC) lost a nickel.
And then Wells Fargo (WFC) down $1.01. Standard & Poor's noted that Wells is the only large bank to maintain its dividend so far, but sees a cut coming in the next few months.
JPMorgan Chase (JPM) down $1.71.
Pfizer (PFE) moved up $0.63.
Co Vale do Rio (RIO) up $1.51.
Sprint Nextel (S) edged up $0.04.
ExxonMobil (XOM) a gain of $1.32.
And Petrobras (PBR), tenth in volume, was up $2.09.
Caterpillar (CAT) gained $2.97 on reports the Chinese government will soon announce an economic stimulus package and that would include infrastructure spending and that's where Cat would benefit.
And then we see Freeport McMoran Copper & Gold (FCX) up $3.80. That's a positive reaction to China's stimulus plans as well.
Loser, US Bancorp (USB) down $1.57. The company's cutting its quarterly dividend 88 percent. It'll go from $0.425 to only a nickel a share. That will lower the yield to a mere 1 1/2 percent. Standard & Poor's has repeated a "sell" on the stock.
BJ's Wholesale Club (BJ) up $1.98, higher earnings fourth quarter, $0.89, up from last year's $0.80, $0.03 above the Street estimate. Standard & Poor's repeated a "buy" on the stock.
Another retailer, Big Lots (BIG) up $2.61. Fourth quarter earnings of $1, up from $0.97 last year and $0.07 above the Street estimate. Standard & Poor's upgraded the stock from "hold" to "buy."
Greatbatch (GB) up $2.57. The company makes medical devices and reported sharply higher fourth quarter earnings of $0.50 versus only $0.20 a year ago and sales were up 74 percent.
Rehabcare (RHB) gained $2.60. Fourth quarter excluding items, $0.41, $0.15 better than the Street expected. Revenues up 13 percent.
And Life Sciences Research (LSR) up $1.25. The chairman is offering to buy the company for $7.50 a share. He already owns 17 percent.
Celanese (CE) gained $1.70, upgrades from Goldman Sachs from "neutral" to "buy."
And then Alberto Culver (ACV) gained $1.31. The Caris brokerage upgraded it from "above average" to a "buy."
NASDAQ's most active Google (GOOG) losing $6.56.
But Apple (AAPL) up $2.80. The company's iPod and iPhone users can now read books on their devices using amazon.com's new Kindle electronic reader.
Microsoft (MSFT) $0.24 gain.
Intel (INTC) $0.48 rise there.
Oracle (ORCL) lost a nickel. That was fifth in volume.
Cisco Systems (CSCO) up $0.86.
Qualcomm (QCOM) $1.29 advance.
Research in Motion (RIMM) gained $2.54.
Amazon.com (AMZN) itself up $3.11 on that Apple device news.
And Apollo Group (APOL) losing $5.60.
And finally, shares in Dryships (DRYS) jumped $1.11. Oppenheimer sees dry bulk carriers benefiting from China's stimulus plan due to increased demand for iron ore imports.
