NBR Transcripts-March 11 2009
Wednesday, March 11, 2009President Obama Calls on the World to Win The Economic War
SUSIE GHARIB: President Obama said today fighting the recession requires global action. He's asking countries with the world's largest economies to support a big stimulus program and to commit almost half a trillion dollars to an emergency fund for the global financial system. The money would be managed by the International Monetary Fund, with as much as $90 billion coming from the United States. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meeting with his Treasury secretary today, the president said it was not enough to support our own economy. We need to help the global economy as well.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We can do a really good job here at home with a whole host of policies, but if you continue to see deterioration in the world economy, that's going to set us back.
GERSH: The president said strong exports had, until very recently, helped support the U.S. economy. Now even China is having trouble exporting, with shipments down 26 percent last month, which is why, at a meeting this weekend, the U.S. will press finance ministers from the world's largest economies to launch stimulus packages amounting to 2 percent of their GDP. Treasury Secretary Timothy Geithner is calling for immediate action.
TIMOTHY GEITHNER, TREASURY SECRETARY: We need to bring the world together to put in place a very substantial, sustained program of support for recovery and growth. And we want to bring together a new consensus globally on how to strengthen this global financial system so a crisis like this never happens again.
GERSH: Tops on Geithner's agenda, a call for other big countries to join the U.S. in giving the International Monetary Fund an additional $450 billion in emergency lending power. Brookings Institution economist Eswar Prasad says a beefed up IMF would help very poor countries now facing default. But he says larger countries like India simply need the world's biggest customer, the United States, to recover as quickly as possible.
ESWAR PRASAD, SR. FELLOW, BROOKINGS: Ultimately, what is good for the emerging markets and other developing countries is if the U.S., the European Union, Japan and the other big industrial countries, if their financial systems are stable and if their economies are growing at a stable rate. That is the best way, in fact that you can help these emerging markets.
GERSH: The other way to help, says economist Morris Goldstein, is to make sure countries don't play protectionist games with their stimulus plans.
MORRIS GOLDSTEIN, SR. FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: Everybody thinks they are going to get a bigger share by saying, well, when we have our stimulus package, we'll only buy local goods. Or they tell their banks, we're in a credit crunch, so you should give first priority to domestic customers.
GERSH: Raising funds for the IMF will not be an easy sell on Capitol Hill, but the Obama administration believes a deepening global recession will focus attention both here and abroad. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
Dividend Cutting Strategies Make A Comeback
SUSIE GHARIB: The nation's biggest banks and several blue chip companies have started a new, but unpopular trend: cutting their dividends. Since September, some of the largest U.S. firms have slashed their dividends by more than $60 billion. Now historically, dividend paying stocks have been a safe haven for investors during bear markets. But as Suzanne Pratt reports, many people are now re-evaluating that investment strategy.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Electric is doing it. JPMorgan Chase is doing it and so too is Dow Chemical. Some of the biggest names in corporate America have recently slashed or even eliminated their dividends. Standard & Poor's analyst Howard Silverblatt says the cuts are unprecedented.
HOWARD SILVERBLATT, SR. INDEX ANALYST, STANDARD & POOR'S: We've never seen anything like this. Dividends are now an endangered species. There are a lot of companies still paying, but it's very hard to find the secure ones.
PRATT: So far this year, 41 S&P 500 companies have already trimmed their dividends by over $40 billion. That amount already exceeds last year's activity. For investors, many of whom are retirees, smaller dividend checks couldn't come at a worse time. But, with big business trying to take cover from the recession, the reason for the cuts is straight forward. Companies are looking to preserve money for now and perhaps the future.
SILVERBLATT: It's the year of the cash flow. Companies are very concerned about how much cash they have on hand and that they don't go and borrow. So, they're looking to cut and dividends now are OK to cut; it's acceptable. Your stock may actually go up.
PRATT: The recent cuts have caused many people to question dividend investing. Some experts say in the current environment, the highest yielding stocks are a potential minefield as those dividends are at risk. Still, UBS market strategist Mike Ryan says buying stocks today for yield is a great idea as long as investors do their homework and search out healthy companies in a range of industries.
MIKE RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: What we want to emphasize now is an environment where you have more volatility, where the market is certainly less secure in terms of its capital gain opportunities. Those companies that have the ability to not only sustain but grow dividends are actually where you want to be focusing right now.
PRATT: Experts predict companies will continue to slash dividends in the coming months. And even when the economy ultimately rebounds, they expect the firms will take their time in restoring quarterly payments. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Reviving the Economy: What Should Business Do?" -Restaurant Recession
SUSIE GHARIB: Hard times are on the menu at many of the nation's restaurants and a growing number are hungry for customers. As we continue our series "Reviving the Economy: What Should Business Do?" Erika Miller reports, the recession has many restaurants cooking up new ways to beef up business.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Le Cirque restaurant in Manhattan is legendary for many things including its elegant dining room, haute cuisine and famous patrons. Now there's another reason to eat here: value. For the rest of the year, Le Cirque is offering three- course fixed price lunches and dinners at $24 and $35 respectively that's filling up the tables, although owner Sirio Maccioni concedes it's not much of a money maker. So are you noticing a change in your customers' behavior? Are they spending less? Are they ordering less?
SIRIO MACCIONI, OWNER, LE CIRQUE: They spend less.
MILLER: How much less?
MACCIONI: I would say 20 percent
MILLER: The recession may be the biggest challenge facing restaurants, but it's far from the only one. The cost of many ingredients has been rising as well as the minimum wage in many states. Those factors, too, can take a big bite out of profits. But Le Cirque has opted not to cut staff or lower food quality. Instead, it's finding ways to cut costs that customers won't notice.
MACCIONI: You cannot make a big change. You can make a lot of change.
MILLER: Little changes?
MACCIONI: Little changes. You can be careful of the payroll. You have to be more careful of the waste because in a restaurant there is a lot of waste, eh?
MILLER: Mauro Maccioni is Sirio's son and a co-owner of the restaurant. He wants Le Cirque to stand out from the other fancy restaurants.
MAURO MACCIONI, CO-OWNER, LE CIRQUE: We're fortunate, we have a long- standing reputation. We have a very strong customer base and we feel like that's going to be what's going to help get us through this whole mess.
MILLER: The restaurant business has always been ultra competitive, even before the recession. According to some estimates, at least 60 percent of new restaurants fail or change ownership during the first five years. Common mistakes include bad location, lack of experience and paying too much for rent. The National Restaurant Association's Chairman Michael Kaufman also says restaurants should learn a lesson from the retail industry about the danger of over discounting.
MICHAEL KAUFMAN, CHMN., NATIONAL RESTAURANT ASSOCIATION: Once a customer associates a deal with a restaurant, it's kind of what you're seeing on the retail side, the expectation develops to say, well, you know in the retail side, 80 percent off is now kind of the entry point for what is a sale.
MILLER: This year, restaurant industry revenues are expected to grow a modest 1 percent nationwide for full service restaurants. That would be the slowest growth since record keeping began in 1970. And that doesn't necessarily mean any increase in profits because most restaurants have knife thin margins. Trouble in the industry also spills over to the rest of the economy. That's because restaurants generate about 4 percent of the nation's gross domestic product and employ 9 percent of the workforce. For its part, Le Cirque says it's making money these days, but just barely. Like many restaurants, it's waiting for the tables to turn when business is once again sizzling, not fizzling. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"- Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS: While tonight's "Street Critique" guest enjoyed yesterday's big rally, she says hold on tight, we haven't hit bottom yet. She's Hilary Kramer, chief market strategist at Greentech Research and author of "Ahead of the Curve." And welcome back to NBR, Hilary. Good to see you.
HILARY KRAMER, CHIEF MARKET STRATEGIST, GREENTECH RESEARCH: Paul, thank you for having me.
KANGAS: You were not impressed by yesterday's big rally. Is that partly because of today's feeble follow-through or other reasons?
KRAMER: There was a lot of short covering going on which were those betting against the market which quickly had to reverse their position. And also we were tremendously oversold and today's rally or moderate rally, as we could say, was actually negative at one point. It was just that comments from a chief executive turned it around last minute.
KANGAS: What makes you so bearish intermediate term?
KRAMER: Because we have too much excess in the market still. We need to work through so much in terms of inventory that's out there -- homes, products, materials. And we have unemployment that continues to be a major problem. The more people who are unemployed and wealth has been destroyed the less people are going to purchase, the less companies are going to grow.
KANGAS: Do all of these negative factors have to come together and improve at the same time or what would convince you a recovery and a market bottom has arrived?
KRAMER: Of course we all know the stock market will recover long, long before the actual economy does and it gets better for all of us as individuals. But what we want to see is follow-through on this rally. And I hate to say it, but sustainability is proven by a self-fulfilling prophecy of continued rallying.
KANGAS: There are some blue chips that are just at unbelievably low prices historically. Are you doing any bargain hunting at all?
KRAMER: I'm buying, but I'm a trader. So what I'm doing, Paul, is I'm jumping in there in companies that are really premium brands that are going to be there for a long term and I'm taking a few cents or a quarter from them and turning around and selling them and that's something that people like to day trade, week trade. There's opportunities. Otherwise you have to be careful.
KANGAS: What are a couple of those things you're trading?
KRAMER: I'm buying companies like Starbucks, Harley Davidson. I even bought Citigroup at about $1.30. In that case the worst that can happen is it goes to 0 and I lose $1.30. So there are those opportunities but I'm not going to hang on for the long run because we are going to see another leg down.
KANGAS: So you do own those issues you've mentioned but you're not recommending them for others. Why is that?
KRAMER: Because this is a market where it's really a trader's market. It's a treacherous market. Every investor out there has to be so careful and understand that there's very fast money and that there's still large net sellers that are going to be selling like institutions and pension funds because they have to fund operations and that will bring the stock market down again at some point.
KANGAS: You've been saying for nine months cash is king and you haven't changed, correct.
KRAMER: Paul, that's absolutely right. Nine months ago last spring I started talking about how important it was to be in cash, to be on the side lines, what was going to happen and I still hold that that's the case even if we see 20 percent upside from here (INAUDIBLE) bottom.
KANGAS: Hilary, I'm afraid we're run out of time but thanks for being with us again.
KRAMER: Thank you, Paul.
KANGAS: My guest, Hilary Kramer of Greentech Research.
"Money File"- Mutual Fund Financial Aid
SUSIE GHARIB: Tonight's money file guest says mutual fund firms could do more to help battered investors. He's Jason Zweig, personal finance columnist at the "Wall Street Journal."
JASON ZWEIG, PERSONAL FINANCE COLUMNIST, WALL STREET JOURNAL: Now is the time for all good funds to come to the aid of investors. Here are some ways that mutual fund companies can help their investors survive this bear market. First of all, they should cut their fees. Investors didn't mind paying over 1 percent in annual expenses when their funds were gaining more than 10 percent a year. But those fat fees add insult to injury during a bear market. Many investors feel they could lose their own money for free and don't see why they should have to pay well over 1 percent a year to have someone else lose it for them. That could lead many investors to stuff all their money under a mattress, which won't help the economy one bit. So the fund companies should give anyone who has stayed invested in a fund for at least five years an immediate fee discount. Second, mutual funds should stop renting stocks and start owning them. The average fund holds its typical stock for only about 11 months. With stocks now at their cheapest prices in decades, the holding period should be measured in years, not months. Finally, funds need to be less taxing. Nothing will turn off a fund investor quite like losing money and having to pay capital gains taxes to boot. If the managers kept more of their own money in the funds and felt the pain of a high tax bill themselves, I think we'd see funds get a lot more tax-efficient in a hurry. If mutual funds became more truly mutual, everyone would be better off. I'm Jason Zweig.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street awaken to carryover buying from yesterday's big rally. Thirty minutes into today's session, the Dow posted a 79 point advance while the NASDAQ was up 23 points. The upturn faded in the absence of any major bullish developments so by 1:0 p.m. the blue chips were down 28 points. Several comeback attempts fell short this afternoon, but the market did manage to eke out a positive close. The Dow Jones Industrial Average ended with a gain of 3.91 at 6930.40. The NASDAQ Composite up 13.36 ending at 1371.64, while the Standard & Poor's 500 Index edged up 1.76 to 721.36. Over in the bond market, the 10-year note gained 27/32 to 98 21/32, putting the yield at 2.91 percent. Once again most active big board issue on 212.3 million shares today was Citigroup (C) edging up another $0.09.
Then Bank of America (BAC) with a $0.14 gain.
General Electric (GE) lost $0.38.
JPMorgan Chase (JPM) up $0.90.
And then Wells Fargo (WFC) with a $0.07 advance.
Pfizer (PFE) down $0.30.
Co Vale do Rio (RIO) was up $0.08.
Morgan Stanley (MS) rose $1.67. Goldman Sachs upgraded it from "neutral" to "buy" in the belief Morgan Stanley could repay its TARP fund loan next year.
Same story with US Bancorp (USB), Goldman Sachs upgraded it from "sell" to "neutral."
And then Schering-Plough (SGP), which is being taken over by Merck, a $0.24 loss.
American Express (AXP) was down $0.24, traded as low as $11.l9 today. Goldman Sachs downgraded it from "neutral" to a "sell."
Goldman Sachs (GS) itself did well, up $7.11. The company's improved outlook for the banking sector appears to be helping its own stock and incidentally, Goldman's first quarter results are due out next Monday.
Hewlett-Packard (HPQ) up $1.57. UBS Financial upgraded it from "neutral" to a "buy."
And staffing firm Korn/Ferry Intl (KFY) down $1.24 on lower third quarter earnings, much lower, $0.08 versus $0.37 last year and revenues tumbled 32 percent.
Vail Resorts (MTN) a $2.05 gain there. Second quarter earnings, $1.65, well above $1.31 last year. The company will cut wages of its staff anywhere from 2 1/2 to 10 percent.
Big Lots (BIG) up $1.23. JPMorgan upgraded to "neutral" to "over weight" on the positive outlook for the company's same store sales.
Buckle (BKE), the apparel retailer, a $0.46 gain on the close. It was as high as $25.50 today after reporting fourth quarter earnings of $0.74, up from last year's $0.63. Same store sales up a hefty 21 percent. Standard & Poor's repeated a "buy" on Buckle.
Collective Brands (PSS) down $1.98. The footwear retailer had a fourth quarter loss of $0.55. That was partly due to the cost of acquiring Stride Rite.
And then the brewing company, Boston Beer (SAM) down $3.82. Fourth quarter earnings $0.25, well below $0.46 last year. That was despite a 12 percent rise in revenues.
And Lumber Liquidators (LL) up $1.12. The company doubled its fourth quarter earnings from last year, $0.24 versus $0.12 and a 10 percent rise in sales.
Apple (AAPL) topped the active list on NASDAQ, up $4.05. The company unveiled a new iPod shuffle which is smaller in size with a bigger memory and it talks.
Google (GOOG) up $9.74.
Microsoft (MSFT) $0.63 advance.
Intel (INTC) up $0.04.
Amazon.com (AMZN) gained $2.83, nice move there.
Research in Motion (RIMM) up $1.38.
Qualcomm (QCOM) lost a penny.
Cisco Systems (CSCO) $0.39 advance.
First Solar (FSLR) down $0.76.
And then Oracle (ORCL) was up $0.25.
And finally, priceline.com (PCLN) slid $5.34 after rival Expedia began offering travelers their last night free on stays of three to five nights at 700 participating hotels.
