NBR Transcripts-March 6, 2009
Friday, March 06, 2009Unemployment Reaches a 25 Year High
SUSIE GHARIB: New painful statistics today about the job market, 12.5 million Americans are out of work and the nation's unemployment rate is now at 8.1 percent. That's the highest level in a quarter century. American businesses cut 651,000 jobs in February, the fourth straight month of massive layoffs. And as Scott Gurvey reports, don't look for the situation to get better any time soon.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Whether you're out of work and looking or just afraid you might be, there was simply no good news in today's report on employment. Even Keith Hall, the man who manages the numbers for the Bureau of Labor Statistics, was unable to find a glimmer of light.
KEITH HALL, COMMISSIONER, BUREAU OF LABOR STATISTICS: It's easy to sort of think of these numbers as being relatively stable. But you remember it's a stable loss. You're losing over 600,000 jobs a month is very significant. Just to put it in perspective, we've only had maybe 10 months where we've lost 500,000 jobs or more in the history of our series since 1940. This is four of the 10.
GURVEY: While the recession has been in force for more than a year, the data indicates it has many more months to go. Brian Fabbri of BNP Paribas believes the unemployment rate will reach double digits.
BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: It's likely to go well over 10 percent. I've got a 10.7 percent forecast right now. The timing is always later than the cycle. In other words, the unemployment rate keeps rising even when we see the first signs of growth in some of the other sectors. So I think that happens basically in the first half of 2010.
GURVEY: The number of jobs lost since the recession began 14 months ago is 4.4 million. And with the value of homes continuing to fall and the value of stocks and other investments doing the same, analysts expect consumer spending to continue to be sluggish in the months ahead. And this is new territory for an entire generation of job seekers. Josh Feinman of Deutsche Asset Management says we forget how bad it has been before and could be again.
JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MGMT: We kind of got used to the more moderate, short-lived recessions of the early 1990s and the early 2000s. And we maybe kind of forgot a little bit about the more severe recessions of the mid-'70s and the early '80s. While I think the current episode is going to be much more like those downturns and possibly even worse.
GURVEY Productivity, interestingly, has been rising. That's usually, a good thing. But in this case, it's because the people who are working have to make up for the people who have been laid off. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
One on One with Gamestop COO J. Paul Raines
SUSIE GHARIB: GameStop is at the top of its game, but now the retailer is getting some stiff competition. Amazon.com is offering customers store credit when they trade in used video games. That's a key segment of GameStop's business. That could break GameStop's winning streak. Its sales and profits are surging, while other retailers have been beaten down by the recession. As we continue our series, "Reviving the Economy: What Should Business Do," I'm joined by Gamestop's chief operating officer J. Paul Raines. Mr. Raines welcome to NIGHTLY BUSINESS REPORT.
J. PAUL RAINES, CHIEF OPERATING OFFICER, GAMESTOP: Thank you, it's great to be here with you.
GHARIB: All right buying and selling used video games is a big part of your business, but what is your strategy now that Amazon is jumping into the game?
RAINES: It's interesting. We certainly follow all of our competitors closely. But we spend a great deal of time on this used business and understand it very deeply. Seventy to 80 percent of the trade credits we provide customers go right back into a new title that the customer purchases. So we see our used business really as the trade currency for selling new titles. So the immediacy of having availability of a new title is very important to customers. So we tested a trade model of this type that our competitors are testing now and we found that customers really, our customers didn't want to wait to get credit and they wanted to have that immediate trade currency to put back into a new game title. So for us it's really more about the immediacy of that consumer and really staying focused on providing trade currency for new game sales. So our strategy is to continue to focus on our approach.
GHARIB: Speaking of the consumer, we see that the consumers have become really stingy about spending money these days. But it somehow seems like they have money to buy video games. Is your business recession proof?
RAINES: Well Susie, we certainly our business us recession resistant. If you start with the fact that video games are a great value, you know, a video game provides 80 hours of game play and on a per dollar basis, it provides far more family entertainment than perhaps a night at the movies or going out to eat. So we think it's a great value. Our associates in our stores provide great service because we are video game specialists. So we're able to counsel customers on what kind of games they're interested in. Of course the buy/sell/trade model provides a great currency for customers who are looking to trade games to buy new titles.
GHARIB: In a few days, you're going to be reporting your year end results and from what I hear, sales are expected to be up something like 22 percent. Profits are going to be up by 33 percent. Those are amazing numbers in this environment. Do you have any tips or any advice for other retailers or other businesses on how to make money in a tough economy?
RAINES: Susie, it's certainly a tough economy out there for everyone and retailers are no exception. We believe that it's important to focus on the consumer and understand what the consumer is looking for. In our business, we want to provide the broadest assortment possible for the customers. We want to provide great service for them and offer options of price points of all kinds. And we have been fortunate that, because we are a dedicated specialist in the category, we've enjoyed the expansion of video gaming. We've seen that over half of new buyers playing video games today and buying games today are over 35 and 40 percent are female. So the video game category is really expanding and the entertainment dollars coming into it are growing. We think it's important to understand those consumers and stay focused on their needs.
GHARIB: We just have about 30 seconds left and I want to ask you. I understand that you're going to be opening 400 stores worldwide. That sounds pretty bold in this economy. Can you tell us quickly what your thinking is on that?
RAINES: We plan to open about 200 stores in the United States and 200 internationally. As you may know, we operate in 17 countries. We just completed a major acquisition in France. So we continue to see vitality in the United States and overseas for the category. So where it makes sense and where the returns are there, we continue to plan to invest and open stores.
GHARIB: All right. Good luck to you and thank you so much for coming on our program.
RAINES: Thank you, Susie.
GHARIB: My guest tonight J. Paul Raines of GameStop.
Used Car Sales Are Revved Up
SUSIE GHARIB: With the problems facing the nation's auto makers these days, there is one bright spot -- demand for used cars is picking up. More than two million used cars were sold at dealerships over the past few months. Now that's about 25 percent higher than in normal economic times. As Diane Eastabrook reports, the demand for used cars could spur new car sales down the road.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tom and Julie Godar are on a quest for a car. The Godars want to replace their 10- year-old minivan with a sedan. In the past, the couple only bought new, but this time, they're thinking used.
JULIE GODAR, CAR SHOPPER: We have always bought new and driven it until it was almost dead.
TOM GODAR, CAR SHOPPER: But now it's looking at - I mean any new car any more, you're talking, by the time taxes is $20,000 I think on the low end and $30,000 is more the average. It's a lot of money.
EASTABROOK: Dealers say, while new vehicle sales have all but stalled, used vehicle sales remain robust. Over the past several months, edmunds.com found sales of pre-owned vehicles at franchise dealers outpaced those of new. With credit tight and the economy tanking, pre-owned cars and trucks are a less expensive option and many late models still carry factory warranties. Analysts say traditionally, new car buyers and used car buyers tend to be two separate and distinct markets who rarely deviate from their buying habits. But in recent months, the distinction between those two groups have started to blur. Carmax General Manager Rebecca Sckrabulis is seeing a lot of traditional new vehicles buyers crossing over to used luxury products like this BMW.
REBECCA SCKRABULIS, GENERAL MGR., CARMAX: You can see it's got the heated seats. It's got the memory seats, power locks. We offer it at the no-haggle price is at $23,999.
EASTABROOK: If you were to buy this new, how much would you pay for it?
SCKRABULIS: Somewhere, probably, I'm thinking almost double.
EASTABROOK: Chevrolet dealer Bill Kay says, since he is selling fewer new cars, he's getting fewer trade-ins so he's buying more used vehicles at auction and that is getting expensive.
BILL KAY, CHEVROLET DEALER: The auction prices are escalating, so it's harder and harder to buy the right types of cars that people are looking for.
EASTABROOK: Morningstar analyst David Whiston says if demand and prices for used vehicles keep rising, new vehicles sales could ultimately benefit.
DAVID WHISTON, AUTO ANALYST, MORNINGSTAR: Eventually, that gap between used and new is just going to get smaller and smaller and eventually, consumers will say, you know what, it's cheaper for me to just go ahead and buy the new car and not worry about the maintenance issues with the used car.
EASTABROOK: That is something the Godars are realizing.
J. GODAR: The prices still seem high.
T. GODAR: It seems really high.
J. GODAR: It seems high compared to a new car.
EASTABROOK: Diane Eastabrook, NIGHTLY BUSINESS REPORT, Lisle, Illinois.
"Market Monitor"-Mark Skousen, Editor, "Forecasts and Strategies"
PAUL KANGAS: My guest "Market Monitor" this week is Mark Skousen, editor of the market letter entitled "Forecasts and Strategies" and welcome back to NIGHTLY BUSINESS REPORT. Mark, good to see you.
MARK SKOUSEN, EDITOR, "FORECASTS AND STRATEGIES": Good to see you, Paul.
KANGAS: This malaise that has been going on on Wall Street for some time now, is it largely due to just the recession and the outlook for the economy or are there other factors involved in your opinion?
SKOUSEN: I couldn't believe that we had not just one president that has caused havoc on Wall Street but now two presidents. So I think the previous president is responsible in large major for the recession that we are now suffering from. So I give it about a 50 percent decline since Obama has become president. It's half due to Bush and the recession that he caused and now the second half is probably due to Obama and all the shenanigans that he's playing on now.
KANGAS: OK. How do you view them?
SKOUSEN: Well, pretty negatively. I mean, all these bail outs. The market seems to drop every time that happens and the president has come out with a very ambitious programs and it's too expensive. His energy independence, the new health care program, green technology and then on top of that, he wants to raise taxes on investors. It's the largest tax increase in history. So all of this is very bad news for Wall Street and I think they're punishing him for this very bad policy.
KANGAS: Now drawing on your Ph.D. and economics Mark, the February jobs report was terrible. We're at 8.1 percent unemployed. Now will it get worse or do you think we're close to the bottom?
SKOUSEN: I think the good news is that we are close to the bottom in the stock market. Whether we're close to the bottom in the economy is another question. Remember the last big recession we had in 1982, unemployment went to almost 11 percent. So I think there is more room for unemployment and layoffs and, but the economy and the stock market are two different things as Milton Friedman often said.
KANGAS: Have we been seeing a water torture capitulation steady down every day or are we going to have a real bad one one day?
SKOUSEN: That's a good question. We haven't had a 1987 style crash where the market dropped 20 percent in one day. But it does seem like we're in a clear bear market. It has broken all the technicals.
KANGAS: Huh-uh.
SKOUSEN: And so I think we're closer to the bottom, but we could have a wash out. I mean that's very possible as people just get fed up with the whole thing.
KANGAS: OK, now back on September 5th your last visit, you gave our viewers three stock recommendations. Let's see how they did since then. We see Volcano (VOLC) down 25 percent and Quest Capital (QCC) I believe you're out of that now. But that.
SKOUSEN: Yeah, we got stocked out of Quest. That's right and I still like Volcano
GHARIB: We apologize that we had to abruptly end that interview with Mark Skousen, but you can see the complete interview with him on our website. Once again, we apologize for those technical difficulties.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street's initial reaction to the employment report was positive because, while it was bad, it wasn't worse than economists expected. So the Dow rose about 100 points at the outset, with the NASDAQ up 10 points. The early gains turned into losses after the president of the New York Fed said that the economy still has considerable downside momentum. At 3:00 p.m., the Dow was off 107 points, but then a late surge of buying turned it positive by the final bell. So the Dow Industrial Average closed up 32.50 points exactly at 6,626.94. This week it fell three times, rose twice and dropped 435.99 points overall. The NASDAQ lost 5.74, ending at 1,293.85 today. It rose only once this week and fell 83.99 points overall. Standard & Poor's 500 gained .83 to close at 683.38 today. For the week, it lost 51.71 points. Over in the bond market, the 10-year note lost 18/32 to 98 29/32, putting the yield at 2.88 percent.
Most active New York exchange issue on 95 million shares, Citigroup (C) edging up $0.01.
Then General Electric (GE) with a $0.40 gain.
Bank of America (BAC) dropped $0.03. There's a story here. The New York attorney general is urging a court to reject Bank of America's request to keep Merrill Lynch's 2008 bonus information confidential. The AG is investigating the almost $4 billion in bonus payments made just before the Bank of America merged with Merrill Lynch.
Moving along, we see JPMorgan Chase (JPM) dropping $0.67.
And then Wells Fargo (WFC) $0.49 gain, although it's slashing its quarterly dividend from $0.34 down to a nickel, but that will save $5 billion a year. The stock was all over the place today, up to $9.49 high today and low was $8.02.
Pfizer (PFE) $0.06 gain.
Co Vale do Rio (RIO) was down $0.31.
And then Dow Chemical (DOW) with a $0.64 gain. The company and Rohm & Haas and back at the bargaining table to try settling litigation related to their proposed merger that went sour and on that news, Rohm & Haas today jumped $9.79 to $63.80. The original bid was $78 a share for Rohm & Haas.
Time Warner (TWX) a $0.41 gain there.
US Bancorp (USB), tenth in volume was a $0.19 loser.
Genentech (DNA) jumping $9.22. Roche of Switzerland, which owns 56 percent, has sweetened its buyout bid from $86.50 to $93 a share for the 44 percent it doesn't already own. Genentech management told shareholders to take no action right now while it reviews that offer.
H&R Block (HRB) moving up $1.36. Third quarter earnings, $0.20, way up from $0.02 last year. Revenues jumped 11 percent.
Ann Taylor Stores (ANN) down $2.13, big loss in the fourth quarter, $1.03 a share versus earnings of $0.19 last year and same store sales tumbled 24 percent and on top of that, the company sees a challenging first quarter.
Macy's (M) edged up $0.36 a share. It traded as high as $7.45. Goldman Sachs this morning upgraded it from "neutral" to "buy."
And Snap-On (SNA) an $0.86 gain. Janney Montgomery Scott brokerage upgraded it from "neutral" to "buy."
Cubic (CUB), the electronics firm, up $1.82. JPMorgan upgraded a "neutral" to "over weight" in the belief the company's long-term prospects are good.
Steinway Musical Instrument (LVB) on a strong key today. Fourth quarter, $0.40, down from $0.90 last year, but that was $0.15 better than Wall Street was expecting, a nice move in the stock.
Borgwarner (BWA) down $0.75. It's suspending its quarterly dividend of $0.12 a share until as the company said, economic conditions improve.
And then Emergent Biosolutions (EBS) up $2.43. After the close yesterday, fourth quarter earnings came in at $0.05. The Street was estimating a loss of $0.02 and today the Caris (ph) brokerage issued a "buy" recommendation.
Apple (AAPL) topped the active list on NASDAQ, down $3.54, traded as low as $82.33 after JPMorgan cut 2009 earnings estimate from $4.82 to $4.73 because it appears (ph) said JPMorgan the iPhone sales are tapering off.
Google (GOOG) up $2.93.
Cisco Systems (CSCO) a $0.37 drop.
Microsoft (MSFT) edged a penny higher.
And Qualcomm (QCOM) lost $1 exactly.
Intel (INTC) $0.10 gain.
Amazon.com (AMZN) a little profit taking, down $3.08.
Research in Motion (RIMM) $1.64 loss.
Oracle (ORCL) edged down $0.06.
And then came Amgen (AMGN) with a $0.82 loss.
Fuel Systems Solutions (FSYS) plunging $6.15. The alternative fuel products company reported a sharp drop in fourth quarter earnings to $0.04 and that was down from $0.31 a year ago. Sales were hurt by the strength in the dollar according to the company.
And those are the stocks in the news tonight.
