NBR Transcripts-April 1, 2009
Wednesday, April 01, 2009March Auto Sales Remain in a Slump
PAUL KANGAS: U.S. auto sales hit the skids again in March, more stark evidence of an industry in crisis. But, there were also a few glimmers of hope for the auto makers. The monthly numbers were better than expected and sales picked up in the last week as consumers took advantage of deals and incentives. March sales at General Motors were down 45 percent. But executives at the auto maker are now suggesting the industry has hit a bottom. Ford saw a 41 percent decline, saying it's too early to call a bottom. Chrysler sales were off 39 percent, but it was the first time since last fall Chrysler sold more than 100,000 vehicles in a month. Toyota was also down 39 percent. The auto maker now sees signs of optimism in the U.S. market. Those sales numbers underscore the increased pressure on General Motors and Chrysler to prove they deserve more Federal bail out money. As Darren Gersh reports, if GM goes into bankruptcy, experts say it will be a bumpy road.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: When experts hear talk of General Motors emerging quickly from a surgical bankruptcy, two things come to mind. Bankruptcy law Professor Adam Levitin thinks messy and slow.
ADAM LEVITIN, ASSOCIATE PROFESSOR, GEORGETOWN UNIVERSITY LAW CENTER: This is not outpatient surgery. That bankruptcy, even with a pre-packaged bankruptcy for a company the size of GM is going to involve - it's going to be inpatient. It's going to involve some stay in the hospital, some anesthesia. And there is going to be a recovery period from this.
GERSH: Levitin and other lawyers we spoke to guess the patient will spend up to a year in bankruptcy court. Consider the symptoms: $27 billion in bondholder claims to sort through, tens of billions in claims from suppliers and dealers. And GM owes $20 billion to the union health plan. And then there is the plan itself, which appears to be using bankruptcy to split GM into a good company that quickly emerges from bankruptcy and a bad company that doesn't. Leading bankruptcy lawyer Howard Seife says that strategy smells very much like a plan of reorganization, a contentious process.
HOWARD SEIFE, GLOBAL HEAD BANKRUPTCY GROUP, CHADBOURNE & PARKE: There are going to be creditors left behind dealing with the crumbs and the dregs and the hummers and they are not going to be very happy and that constituency could create quite a ruckus.
GERSH: That assumes GM comes into court with agreements to change its labor contracts. Seife says a dispute over that alone could set up a series of legal appeals.
SEIFE: And any time you are dealing with a courtroom situation and an independent bankruptcy judge, you kind of lose control a little bit. So there's no guarantee it's going to be quite as smooth as the folks in the government and General Motors might hoping it would be.
GERSH: Splitting General Motors in two may be a good idea, but it is also complicated, the corporate equivalent of surgery to separate conjoined twins.
LEVITIN: And complication of course adds risk and complication means that this will take more time.
GERSH: But GM would have something other bankrupt companies don't, the Federal government providing financing and standing behind its warranties. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Reviving the Economy: Real Estate"-Home Sales Seem To Be Building
SUZANNE PRATT, NIGHTLY BUSINESS REPORT ANCHOR: The housing industry is showing some positive signs. The National Association of Realtors says pending sales of previously owned homes jumped more than 2 percent in February. Those sales were mostly due to low mortgage rates and lower home prices. But they do hint at a possible pickup in activity in the all important spring selling season. Tonight, we begin our series "Reviving the Economy: Real Estate" and as Stephanie Dhue reports, after three years of declines in housing, it looks like things may be turning around.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: With distressed sales bringing prices not seen since 2003, buyers swooped in in February driving new and existing home sales up. Construction is also showing signs of life. Mark Zandi of Moody's economy.com says the market is beginning to thaw.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: I think the very worst is behind us, at least in terms of sales, I think we're finding a bottom in sales and in construction, I think we are pretty close to a bottom in housing construction. In terms of pricing we probably have a bit more to go, I think prices will fall through most of '09 bottom out at the end of the year.
DHUE: Policy prescriptions are beginning to help. Government efforts have sent mortgage rates on a 30-year fixed loan down to nearly 4.5 percent. Anticipation of the Obama administration's loan modification program slowed the pace of foreclosures. And the tax credit for first time homebuyers is expected to lure people off the fence. Builders report the first weekend of spring brought increased traffic into models. National Association of Home Builders chief economist David Crowe expects sales to pick up in the next few months.
DAVID CROWE, CHIEF ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS: We're basically waiting on the consumer to say, ah, the deal is good. Prices have come down, interest rates are low, I can get a first time home buyer tax credit if I qualify. There's a lot of options, a lot of available inventory, builders are dealing.
DHUE: The location, location, location mantra of real estate still holds. Areas of the country that have lost fewer jobs are expected to do better. Detroit is under pressure. Manhattan has seen prices drop 25 percent since Wall Street hit the skids. Florida, which enjoyed some of the largest gains in the boom, saw a 31 percent drop for the year. It's a similar story in California, with home prices down by half in several metro areas. Prices in the Washington, DC area fell 8 percent overall. Zandi expects the housing picture to brighten nationwide by the end of this year. But the biggest wildcard is jobs.
ZANDI: If we continue to lose jobs at this clip, we're losing 650,000 per month. If that doesn't slow, then the housing market isn't going to find a bottom any time soon.
PRATT: Stephanie joins me live to talk about the housing outlook. One of the things that strikes me when I listened to your story, Stephanie is the question of supply. Here in Manhattan, we are fortunate. We don't talk about things in terms of inventory by months or how much inventory is left. But the rest of the country is facing years of inventory. So how are we going to work through all the supply do you think?
DHUE: There's about a 10-month supply nationwide. It is going to vary by region. But the hope is that the low prices coupled with the low interest rates and some of these incentives for first-time home buyers are really going to help clear out that inventory by the end of the year, maybe (INAUDIBLE) into next.
PRATT: All right, now next week we're going to do the profile of the five cities that we looked at last year and you're going to look at Prince William County outside of DC. Things have changed significantly certainly in Manhattan and they've changed a lot around the country. What about in that that area that you're going to be profiling? How have things changed?
DHUE: Well, I was surprised to see how much further prices have fallen (INAUDIBLE). They've fallen 25 percent just in the last year and investors are starting to swoop in here and grab up the bargains. There's jobs here so people are able to rent out properties and there's a lot of interest. The properties are distressed, but they're starting to see some kind of life there.
PRATT: OK. Thanks. I think we have to leave it there. Thanks, Stephanie, for joining us.
DHUE: Thanks, Suzanne.
PRATT: Stephanie Dhue in Washington. Tomorrow, our series continues with a look a commercial real estate and the challenges it faces, including falling demand and a surprising bright spot for investment.
Pay Up If You Have To Light Up
SUZANNE PRATT: Speaking of taxes, a big Federal tax hike on tobacco products went into effect today. Uncle Sam will now collect more than a dollar on each pack of cigarettes. As a result, here in New York City which has the highest tobacco taxes in the nation, a carton of cigarettes now costs more than $100. Scott Gurvey looks at the impact on smokers and big tobacco.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here's a shocker. The huge increase in the Federal tax on cigarettes is not popular with smokers, even if they are resigned to it. All day, the guy behind the counter has been getting an earful.
AMBALAL PATEL, NEWSTAND OPERATOR: The new tax people cannot afford with the recession and they don't get a salary increase and everything is so expensive and people are working two jobs. They can't make the rent plus the telephone bill and the light bill, transportation, everything is too expensive.
GURVEY: Until now, most of the taxes on cigarettes and other tobacco products have been set at the state and local level. They vary widely and their impact has been piecemeal. Jack Russo of Edward Jones says this Federal action is different.
JACK RUSSO, TOBACCO ANALYST, EDWARD JONES: This Federal excise tax increase is going to affect the whole United States at one point in time. So certainly the impact is going to be a lot greater. The magnitude of any fall off in sales or consumption is going to be a lot greater with this excise tax going through.
GURVEY: About one in five Americans currently smoke. That number is dropping by about 3 percent a year. The new tax will be a deterrent, but how much is a matter of debate. Morningstar's Philip Gorham predicts the impact on smokers will be sharp, then wear off.
PHILIP GORHAM, TOBACCO ANALYST, MORNINGSTAR: We're expecting a decline of about 5 to 6 percent this year quickly reverting back to about three percent in the longer term.
GURVEY: The manufacturers actually pay the tax and have been raising wholesale prices in anticipation. This has already cut into volume but Russo says volume and revenue are not really the measures by which analysts judge the tobacco industry.
RUSSO: Really what's focused on here by Wall Street is the profitability of these companies. In a crazy way by the tobacco companies raising prices, they will continue to be pretty darn profitable companies. So it hasn't had as big of an impact on the stocks as one might think.
GURVEY: If you think switching to cigars will let you escape the tax increase, think again. The new tax applies to all tobacco products. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Wall Street's Recent Rally Will Be A Short Ride
PAUL KANGAS: Tonight's "Street Critique" guest says, this rally's been fun, but don't get complacent. He's Michael Farr, president of the money management firm Farr, Miller and Washington and author of "A Million Is Not Enough." Michael good to see you again. Welcome.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul. Nice to see you.
KANGAS: Early last month you said that we were overdue for a rally and the major averages are up about 14 percent since then, a great call, I compliment you. What's next?
FARR: Well, Paul, I'm happy about the call and that we're up 14 percent. I'm a little bit concerned. The market has been consolidating. I can't quite determine whether this particular rally has stalled or whether we're in a base-building mode. But as always I'm cautious.
KANGAS: So you think we could test the lows, recent lows again.
FARR: Well, I think ultimately we could test those lows. I don't think that's coming any time fast right now because there does seem to be some pretty good upward momentum. But I would still like to see some more follow-through to the up side.
KANGAS: What can we do to improve investor confidence?
FARR: You know, nothing improves investor confidence like making a little bit of money. So as we see these prices rise a little bit and you see your account portfolio values increase, it lets people know that there is still money to be made in the stock market. But I wouldn't sound the all clear quite yet.
KANGAS: OK. What are your thoughts on the GM and Chrysler bailouts? Are these two going to make it or are they going bankrupt?
FARR: I think that they should go bankrupt. I think actually they are bankrupt and they're getting enough government cash to keep them alive. I think they ought to go into bankruptcy and I think they ought to operate out of bankruptcy. The government in my opinion, is throwing good money after bad.
KANGAS: How about all those parts suppliers that are going to be hurt?
FARR: You know, a company can operate out of bankruptcy. We've seen airlines go into bankruptcy and come out. It's not that they're going to go out of business. It's not that everybody going to lose their job and those parts suppliers are going to continue to supply pretty much as many parts, I think, as they're supplying now.
KANGAS: In January, you gave us your 10 picks for the year 2009. Let's see how they've been doing. We see a lot of them with minus signs here. Stryker (SYK) particularly and Colgate-Palmolive (CL), the big ones on this board, any thoughts on these quickly?
FARR: I think that the Stryker news today was not as bad as expected. They have a putty, a glue, that didn't get FDA approval. Those numbers weren't in Stryker's numbers so it didn't disturb me much. I'm still holding on.
KANGAS: You're still with all of these? Let's have the second board of five. We see a couple of gainers. Cisco (CSCO) and Staples (SPLS). You're still with all of these? Is that true?
FARR: I am still with all of these and it's nice to see a couple of gainers. In this sort of a market, it's been a brutal market, so it made some money somewhere and the last name, Paul, JPMorgan (JPM) was my big dog last time I was here. It was down well past 20 percent. It's rallied back very nicely in the last 30 days. Volatility can sometimes be your friend.
KANGAS: You're doing a little bit better than the Standard & Poor's 500. I hope you can keep that up.
FARR: About 420 basis points better so far for the first quarter and we're crossing our fingers.
KANGAS: There you are. It's down 6 and the S&P down over 10. And you own all those stocks personally, do you?
FARR: I do. I own them all personally.
KANGAS: OK, thanks very much for being with us, Michael.
FARR: Thank you, Paul, for having me.
KANGAS: My guest, Michael Farr, of Farr Miller and Washington and author, "A Million Is Not Enough."
"Money File"-Keeping The Home Ownership Dream Alive
SUZANNE PRATT: In tonight's "Money File," how the real estate industry can make home ownership more affordable. Here's Eric Schurenberg. editorial director of B-Net moneywatch.
ERIC SCHURENBERG, EDITORIAL DIRECTOR, BNET MONEYWATCH:This recession started with a real estate bubble and it's a real estate rebound that will end it. Last week, a couple of early signs suggested a rebound is at least imaginable again. The key is affordability. Home prices nationally are at levels last seen in 2003. The 30-year mortgage at 4.8 percent, is the lowest it's been in 38 years. Those are two good reasons that three quarters of potential new home buyers in a recent survey said that now is a good time to buy a house. So far the Federal Reserve has been the major human actor in promoting affordability, by driving interest rates down. But the real estate industry can help at the margins. For starters, lenders should unfreeze credit. Now I'm certainly not talking about a return to junk mortgages. But how about something as simple as realistic appraisals? A lot of lenders use automated valuation models, which are essentially computer guesstimates. In a falling market, AVMs can undershoot and make less money available. It would be nice, too, to rein in closing costs, which can hike the amount of cash a buyer needs to make a purchase. Title insurance in particular, remains ridiculously over- priced. And the 6 percent real estate agents' commission seems to be upheld mainly by habit than economic reality. Now last week's numbers are at best faint sparks in what is still pretty wet tinder. It will take a broad economic rebound to fan those hopes into a real rally. In the meantime, though, the real estate industry can do its part not to stomp it out. I'm Eric Schurenberg.
"Last Word"-Yanking Madoff's Yacht
SUZANNE PRATT: Finally tonight, disgraced financier Bernie Madoff won't be sailing off into the sunset anytime soon. That's because the Feds seized his 56-foot luxury motor yacht called "The Bull" from a marina in south Florida today. The boat is worth just over $2 million. And, that wasn't it for Uncle Sam's asset seizing spree. U.S. marshals also took possession of Madoff's Palm Beach mansion valued at about $11 million. Madoff admitted to running a Ponzi scheme that took in billions and Paul, it looks like now the race is on to recoup cash for his investors.
KANGAS: That yacht is built by Rivovich , the top of the line in deep sea fishing, beautiful boat.
PRATT: I know you're in the market for one right.
KANGAS: Not at that price.
Paul Kangas' Stocks in the News
PAUL KANGAS: Those March auto sales numbers and concerns about jobs had the Dow sliding 110 points and the NASDAQ down 20 just after the opening bell. But better than expected news on pending home sales, which we'll detail next spurred a quick recovery. At midday the blue chips were up 102 points and the NASDAQ Composite 17 points higher. Fresh second quarter demand had stocks closing at highs for the day this afternoon. The Dow Industrial Average ended with a gain of 152.68 at 7761 even. The NASDAQ Composite was up 23.01, ending at 1551.60, while the Standard & Poor's 500 rose 13.21 points to close at 811.08. Over in the bond market, the 10-year note rose 18/32 to par and 27/32, putting the yield at 2.65 percent. Most active New York exchange issue on 68.4 million shares, Citigroup (C) moving up $0.15 in a fairly firm banking group.
Bank of America (BAC) up $0.23.
And then Denbury Resource (DNR), this company's involved in oil and gas properties and the stock was added to the Standard & Poor's madcap 400 index after the close, so you had index fund buying there.
General Electric (GE) edged $0.06 higher.
JPMorgan Chase (JPM) up $1.56. The company sold an independent research firm called Primary Insight it inherited in the takeover of Bear Stearns. No price was mentioned.
Wells Fargo (WFC) edged up $0.24.
And American Intl Group (AIG) $0.07 gain there.
Pfizer (PFE) moved up $0.37.
ExxonMobil (XOM) gaining $1.13.
And Ford Motor Co (F) an $0.11 gain there.
Mastercard (MA) down $7.40, traded as low as $157.19. The European Union's executive arm is dropping its case against Mastercard transaction fees in return for the company's pledge to cut them in half temporarily pending an appeal.
Dow Chemical (DOW) up $0.38. The company today completed its acquisition of Rohm & Haas.
And then VMware (VMW) up $2.50. Goldman Sachs added to the stock to its conviction "buy" list.
Ashland (ASH) rising $1.58. JPMorgan upgraded it from "neutral" to "over weight."
And then Metavante Technologies (MV), this company does financial account processing services and Fidelity National information services is acquiring it for 1.35 of its shares. That's worth about $22.79 after Fidelity National stock fell $1.32 on the news.
Stryker (SYK), which makes orthopedic products, down $0.96. An FDA advisory panel has voted against approving the company's OP-1 bone growth putty.
Then we see Sealy (ZZ), the mattress company, up $1.21. First quarter earnings came in at only $0.05, down from $0.17 a year ago, but the Street was looking for a loss of $0.03 and Raymond James financial brokerage upgraded it from "out perform" to a "strong buy."
Danaher (DHR) down $1.71. JPMorgan downgraded it from "over weight" to "neutral."
Volume leader on NASDAQ, Apple (AAPL) up $3.57.
Microsoft (MSFT) $0.94 gain.
Apollo Group (APOL) down $11.87. The company is forecasting lower profit margins in the second half, noted it's having a rise in student loans defaults. The Baird brokerage downgraded it from "buy" to "neutral" and a lot of the education stocks today weak on that news.
Celgene (CELG) off $5.93. Preliminary first quarter results, $0.43 in earnings, down a nickel from the Street estimate. The company sees full year at the low end of its $2.05 to $2.15 target.
Research in Motion (RIMM) earnings due out tomorrow, up $2.51 today.
Cisco Systems (CSCO) a $0.69 gain.
Google (GOOG) up $6.03.
Intel (INTC) no change there.
Qualcomm (QCOM) $0.77 gain.
And finally Oracle (ORCL) settled near the high of the day, rising $0.51 and it's up 34 percent from the March low.
